The modern business environment is constantly changing, driven by five major business threats. In this article I look at several different ways of responding to business threats and changes in the environment. How you respond to business threats is very context dependent – both with respect to your company and the threats that you face.
This is the most popular approach when managers respond to business threats. Doing nothing as a response to business threats is popular because of the risk and uncertainty businesses face. For example. You know that there are new entrants. What is uncertain is how effective they will be. Will they change the market or will it swallow them up? Deciding to use limited resources now to respond to the threat may be premature and have a significant impact in terms of lost opportunity.
The problem that you face with this approach is that you are like a frog in gradually warming water. If the temperature is slowly rising there is no point where it is obvious that an alarm should be triggered and action should be taken. No response to a business threat is often a bad response.
In fact what tends to happen is that only in the later stages of a business threat emerging do many businesses realise how severe it is going to be. Back in the day when I was a railway engineer there were two incredibly useful rules.
First was that the earlier you plan and prepare for something the less effort you have to put in later on. A design change made on day 1 is almost costless. The same design change made 3 years later when construction has started can be a $100 million problem
Second was the idea of passive provision. This is the idea that we know that something will happen sometime in the future. So we’ll adjust our design now to make it easier to deliver then. So for example if we think that in 15 years train lengths will increase by 50m we’ll design the signalling around the increase platform length. Then the platform can be extended with no impact on the rest of the railway system.
Even if we do nothing we should be looking ahead and seeing how we can design out the future impact of threats on our business. We also have to hope that our long range planning and the threat are working on the same timescale.
Doing It Better
When a threat to a business model appears on our horizon one of the most effective tool sets that managers have is ‘doing it better’. A common response to a business threat is to treat the symptoms and not the cause. Most managers and leaders are appointed on the basis of their skill at execution. They are good at optimising and managing a stable system.
Given a decrease in sales the first set of options on the table are to start looking at the sales process and how to increase the sales. As more understanding is gained about why sales have fallen marketing and operations are pulled in to help reduce costs or present the value offering better.
In good times this is a humming process. Every year operational managers are expected to improve productivity – deliver more output for reduced input.
That only works when the game remains the same. In terms of operational strategy managers are focusing on how to make incremental change rather than step changes. The approach is to do more better.
As Henry Ford pointed out – customers really wanted better horses. Responding to the automobile threat by building horses that could canter for longer and needed less grain and grooming to stay in tip top condition would not have had a significant impact on the Model T sales. Many livery stables in London and New York may have tried that approach
Doing It Differently
The third approach to responding to business threats is to start doing things differently. Many companies see the writing on the wall and believe that their core business is going to be destroyed. Or they believe that they will be able to take advantage of one of the many threats and create far more value by pivoting.
The larger the company the harder this is to do. The biggest reason is that by changing the business model there is a huge risk of losing sales from the existing business model before the sales from the new business model arrive. if they ever do.
Nokia was one company that took this approach. it realised that it’s traditional wood and rubber products were commodities and that the threat of electronics was a huge opportunity. As it exploited this opportunity it became one of the largest technology companies in the world. Then it died because it was’t aware of the smartphone threat and could not respond fast enough to it, as this article about RIM suggests
Another example is that of Kodak which correctly anticipated the move to digital and the decline in its core photographic film business. Being a chemical company at heart the transition to a digital company was hard (I still have a kodak digital camera gathering dust in a forgotten drawer) and it failed to change it’s business model to replace it’s dwindling revenues and eventually entered bankruptcy
How Do You Respond To Business Threats
How are you responding to threats to your business? Which approach is best? Why do you use the approaches that you do?
You may be interested in this survey about which business threats managers are most worried by