Business strategy 101: Right place, right time

Storm cloudsEverything in life is contingent upon its position in the world. The personal, political, scientific and natural worlds all depend on their location and the other elements operating around them.

The same could be said about the corporate world, which is dependent upon the external environment within which it operates. This includes everything from local environmental issues to national business regulations and global technological advances.  Each of these can change in a relatively short period of time and businesses need to be able to respond to external fluctuations in order to survive.

Businesses that have developed the ability to remain flexible are said to possess Dynamic Capabilities (Teece and Pisano 1994), meaning they can move seamlessly from one position to another rather than get caught in a vulnerable position that cannot be easily adjusted.

The ability to move quickly is of course particularly beneficial when both factors change at the same time, ie the positioning and circumstances of the business, and the environment within which it operates.

To use a current example, before the collapse of the financial system in 2007/8, too much cash was advanced at artificially low rates – not adjusted for risk – to too many businesses of all sizes.  This freely available finance led to many businesses changing their strategy and expanding either too quickly, or into areas they were not entirely comfortable with.  When the environment changed again – back to a more normal and even decreased level of available business funding – many of these businesses weren’t flexible enough to react. This has contributed to the proliferation of so called zombie companies, which we have argued previously are holding back growth.  The ramifications of this will be felt for many years, possibly decades, to come.

So what’s the best way to ensure your business stays nimble and retains the ability to react quickly?  Below are three areas that any business owner/manager needs to continually review.

Business strategy flexibility

It is important to keep assessing the immediate external environment to ensure that your offering is relevant to what is happening in the wider world.  There is an often-used example of the great IBM being late to the Personal Computer market, insisting that the future would stay with mainframe, business driven hardware.  This lack of flexibility and inability to accurately predict the future nearly destroyed the business and they have been playing catch up ever since.

For more ideas about ways to review the external environment, see our free eGuide, “Company Turnaround and Refinance”.

Resources flexibility

Once you have ensured your business strategy is appropriate for what is going on in the wider world, it is obviously important to have the right resources and capabilities in place. Further flexibility can then be embedded in your business by positioning these resources in such a way that you can make changes when required. For example:

  • Employees that have more than one skill set
  • Outsourced functions such as Finance, Marketing, Manufacturing and even Sales
  • Assets on short term rental rather than purchased outright or on long term inflexible leases
  • Property held on licences rather than long term leases

Again, our free eGuide has a lot more examples and information on Resources and Capabilities analyses.

Finance flexibility

In the good times, many businesses committed to long finance agreements on the basis that you couldn’t get too much of a good thing.  Now, in the post-crisis period, with growth hard to come by and costs under continual review, many businesses find themselves stuck with onerous finance facilities contributing to on-going cash flow problems.  This is particularly the case with invoice finance facilities, where traditional facilities demand that the whole ledger is financed and that the agreement itself can be for periods of 12-24 months.

Thankfully this is now changing, with more and more facilities being made available on a selective basis with no long term tie-in over and above the invoice(s) being funded.  This new kind of alternative financing products can improve your business’s agility.

The level of flexibility that any one business goes to has, of course, to be balanced against the potential problems of having an entirely virtual company, where all resources and capabilities are outsourced.  This extreme position can lead to a lack of control over staff, quality, marketing and ultimately the integrity of your brand.

However, a lack of flexibility can mean an inability to survive in an ever-changing world. So striking the right balance between the two is crucial.

What are some other ways businesses can keep flexible? We welcome your comments below.


Image by: eric_malette