With the International Monetary Fund (IMF) recently cutting its growth outlook for South Africa from 3% in October 2012 to 2,8% in January 2013, local businesses are set for a financially challenging year ahead.
As a result, it is crucial that company decision-makers review their current business models in order to ensure that they survive, as well as position themselves optimally for the eventual recovery.
This is according to Graeme Prevôst, director at management consultancy PSP Icon, who says South African businesses are currently operating in a horizontal economic period, which is showing no signs of an uptick occurring anytime soon.
“Therefore, it is crucial that companies review and revise their current business models under these challenging conditions in order to be well positioned for the eventual upturn.”
Prevôst says an economic cycle can be divided into three broad phases – the downturn, recession and upturn.
“Each of these phases requires a change in approach in order to ensure a business is optimally positioned.”
During the downturn the focus is typically placed on survival, due to the uncertainty of when the bottom will be reached as well as the steepness of the downturn, which can catch businesses off guard, says Prevôst.
“The key business skill during this phase is one of rapid execution of key downturn strategies such as cost reductions, productivity improvements (yield management), disposing of non-core assets, tighter working capital management, financial restructuring and revenue protection tactics.”
He says throughout this period it is imperative that the organisations’ Management Information System (MIS) is accurate and timely, in order to make decisions and track their impact effectively.
“One can only cut so much ‘fat’ and then it’s down to the muscle and bone which forms the core of the business model. It is difficult to get this phase right as the business is often faced with demanding shareholders while the business is shrinking, which can force business leaders to be more optimistic when a pessimistic view would possibly generate a more realistic approach to ensuring long-term survival.”
The biggest challenge facing businesses during the recessionary phase is the uncertainty of its duration, says Prevôst.
“Reviving the business model during this time becomes essential because although things are ‘quieter’, the competition heats up dramatically. Operating the same way is simply not an option. As the world is continually changing so too must businesses evolve and adapt by reviewing the business model in the context of a flat, yet dynamic environment.”
He says the key business skill during the recessionary period is business remodelling with the fundamental strategy of getting closer to the customer and listening to what they want.
“Technology and e-commerce offer alternative distribution channels which makes it increasingly challenging for businesses to hold onto previously loyal customers.
“Now is a great time to implement comprehensive Voice of Customer platforms and capabilities to monitor customer experience to increase responsiveness, seek out new opportunities and try alternative distribution channels.
“This data can be used to refine the profile of the company’s ideal customer and find out what they really want in order to clarify the company’s value proposition in light of an increasingly competitive landscape. The idea is to get really close to the customer in order to become their preferred choice by being easy to use, timeous and consistent.”
Prevôst explains that another revival strategy involves acquiring other businesses with a new customer base and different products, so that one can mine the customer base, cross-sell and up-sell off a scalable infrastructure.
“Organisations can also look to invest in new initiatives and possibly resource a new business development or innovation centre.”
It is also a good time to review talent management policies as the quality of the organisation’s skills will differentiate it during the recession and position the company for the future, says Prevôst.
“Skills are scarce and while a company has them it should increase skill levels for the new economy (automation and technology enabled) as manual labour is being designed out of the system wherever possible due to escalating expenses, unreliability and a drain on management’s time. Now is the time to recruit younger generational skills to refresh the thinking and position experienced skills as coaches.”
He adds that businesses should review outsourced and in-sourced services to find out how to leverage current skills with a view to discover the most cost effective way in which to bring in new expertise to ultimately build layers of competency.
All these strategies and tactics will stand a business in good stead for the eventual upturn, says Prevôst.
When the upturn finally arrives, it is never well signposted and it often takes a while before the realisation and subsequent euphoria kicks in, says Prevôst.
“The goal is for the company to exit the recession and enter the upturn at a higher earnings trajectory than its competitors, due to its revived business model and customer centric strategies. Ultimately the organisation implements these strategies to build momentum and dominance, whilst the slower competitors come to terms with resourcing for the upturn.”
2013 brings with it a new budget cycle, providing businesses the opportunity to review their business model and revise current budgets with the aim to get closer to their customers, be more innovative and revive their talent management, says Prevôst.
“It is imperative that businesses do not adopt a ‘tunnel vision’ approach by simply focussing on surviving by cost cutting during tough economic times, but relook at the entire businesses model to ensure sustainability and a competitive advantage in the future.”
This is according to Graeme Prevôst, director at management consultancy PSP Icon, who says South African businesses are currently operating in a horizontal economic period, which is showing no signs of an uptick occurring anytime soon.
“Therefore, it is crucial that companies review and revise their current business models under these challenging conditions in order to be well positioned for the eventual upturn.”
Prevôst says an economic cycle can be divided into three broad phases – the downturn, recession and upturn.
“Each of these phases requires a change in approach in order to ensure a business is optimally positioned.”
During the downturn the focus is typically placed on survival, due to the uncertainty of when the bottom will be reached as well as the steepness of the downturn, which can catch businesses off guard, says Prevôst.
“The key business skill during this phase is one of rapid execution of key downturn strategies such as cost reductions, productivity improvements (yield management), disposing of non-core assets, tighter working capital management, financial restructuring and revenue protection tactics.”
He says throughout this period it is imperative that the organisations’ Management Information System (MIS) is accurate and timely, in order to make decisions and track their impact effectively.
“One can only cut so much ‘fat’ and then it’s down to the muscle and bone which forms the core of the business model. It is difficult to get this phase right as the business is often faced with demanding shareholders while the business is shrinking, which can force business leaders to be more optimistic when a pessimistic view would possibly generate a more realistic approach to ensuring long-term survival.”
The biggest challenge facing businesses during the recessionary phase is the uncertainty of its duration, says Prevôst.
“Reviving the business model during this time becomes essential because although things are ‘quieter’, the competition heats up dramatically. Operating the same way is simply not an option. As the world is continually changing so too must businesses evolve and adapt by reviewing the business model in the context of a flat, yet dynamic environment.”
He says the key business skill during the recessionary period is business remodelling with the fundamental strategy of getting closer to the customer and listening to what they want.
“Technology and e-commerce offer alternative distribution channels which makes it increasingly challenging for businesses to hold onto previously loyal customers.
“Now is a great time to implement comprehensive Voice of Customer platforms and capabilities to monitor customer experience to increase responsiveness, seek out new opportunities and try alternative distribution channels.
“This data can be used to refine the profile of the company’s ideal customer and find out what they really want in order to clarify the company’s value proposition in light of an increasingly competitive landscape. The idea is to get really close to the customer in order to become their preferred choice by being easy to use, timeous and consistent.”
Prevôst explains that another revival strategy involves acquiring other businesses with a new customer base and different products, so that one can mine the customer base, cross-sell and up-sell off a scalable infrastructure.
“Organisations can also look to invest in new initiatives and possibly resource a new business development or innovation centre.”
It is also a good time to review talent management policies as the quality of the organisation’s skills will differentiate it during the recession and position the company for the future, says Prevôst.
“Skills are scarce and while a company has them it should increase skill levels for the new economy (automation and technology enabled) as manual labour is being designed out of the system wherever possible due to escalating expenses, unreliability and a drain on management’s time. Now is the time to recruit younger generational skills to refresh the thinking and position experienced skills as coaches.”
He adds that businesses should review outsourced and in-sourced services to find out how to leverage current skills with a view to discover the most cost effective way in which to bring in new expertise to ultimately build layers of competency.
All these strategies and tactics will stand a business in good stead for the eventual upturn, says Prevôst.
When the upturn finally arrives, it is never well signposted and it often takes a while before the realisation and subsequent euphoria kicks in, says Prevôst.
“The goal is for the company to exit the recession and enter the upturn at a higher earnings trajectory than its competitors, due to its revived business model and customer centric strategies. Ultimately the organisation implements these strategies to build momentum and dominance, whilst the slower competitors come to terms with resourcing for the upturn.”
2013 brings with it a new budget cycle, providing businesses the opportunity to review their business model and revise current budgets with the aim to get closer to their customers, be more innovative and revive their talent management, says Prevôst.
“It is imperative that businesses do not adopt a ‘tunnel vision’ approach by simply focussing on surviving by cost cutting during tough economic times, but relook at the entire businesses model to ensure sustainability and a competitive advantage in the future.”