Business strategy 101: What if things don’t change?

Guest blogger:

John Thompson, Open University Business School MBA Alumnus, Founder and Managing Director at Trans Capital Associates.

We are constantly being promised by politicians that ‘things’ will get better. Growth in the economy is just around the corner with all the goodies that this entails − stronger businesses, lower unemployment, better jobs, higher wages, better healthcare, improved care for the elderly, better education etc. etc.

I would just make the point that any small business owner who went along to the bank manager wanting to borrow lots of money based on a business strategy with the above forecasts would be quickly shown the door!

We all want to think that everything will soon be back to ‘normal’, because we had almost come to believe it was what we are entitled to.

But why?

If you look at it in the cold light of day, building this never-ending story of growth based on a culture of increased debt was surely doomed to some level of failure with winners and losers.

My belief is that this is going to be it for a good few years and that we should organise our businesses accordingly.

Previous recoveries

In previous dips in the economy, before the level of advanced globalisation and sophisticated communication we have today, governments have been able to use monetary policy to miraculously rescue the situation. By this I mean:

1. firstly to devalue sterling, to make our highly regarded products and services suddenly very competitively priced all around the world, and then

2. to ramp up interest rates, to inflate away some debt and clear out many of the highly indebted businesses (so called Zombies) and individuals who have to call it a day and make space for the new wave.

Four reasons why this is not going to happen this time

1. Globalisation – this is not just a local problem, it is pretty much a world recession, with the US, Europe and even China all learning to live with lower levels of growth. Everyone has tried to devalue and it is therefore difficult for us to find new export markets.
2. Turnaround lessons from the past – we can deal with massive financial shocks in a more coordinated and effective way. Interest rates are being kept at record lows, new currency has been printed around the world (QE) and fiscal policy has been suitably benign to avoid global Armageddon. Just this week, the US have neatly avoided the so called fiscal cliff and, in the blink of an eye, Spanish 10 year bonds are down to 5.6%, their lowest level for months, and the FTSE 100 is above 6000 for the first time since the summer of 2011.
3. Bank policy – the banks have undergone a seismic shift. From being the darlings of the stock market in 2005, they are now held out as pariahs, and are charged with being pretty much solely responsible for the financial crisis (unfairly in my view). Their balance sheets are under pressure and they would now prefer to manage a situation rather than crystallise another loss.
4. People power – we have experienced significant scandals from virtually all areas of influence: MP’s expenses, media manipulation, phone hacking, police relationships with the media…even charity chuggers!

The power bestowed upon the people by Social Media and other advanced forms of communication has enabled us to bring all these people to book and led to a significant swing in the balance of power.

I can see ‘the people’ only gaining more power; and one of the unintended outcomes will be that politicians and other policy makers will be less and less able to put in place sustainable policies that make a meaningful difference. I predict that we will continue to see more coalition governments over the next 20 to 30 years – or at least until we see some massive, as yet unpredicted, societal changes, there is a new system of electing our politicians, or, we see a significant lurch to the left or (more likely) the right.

Therefore, it may well be that we just have to get used to the current economic conditions we are working in and, like all good business people and entrepreneurs, evolve, develop and create offerings that work in this environment.

One of the big changes we are going to see as a result of all this is the advance of the trusted supplier. Businesses that up until now have been a best-kept secret, like the plumber who will come out at the drop of a hat and won’t charge you a fortune − even if you haven’t got a clue what he has done for you. This is a metaphor for all our businesses. What I have taken from this is:

1. offer what is needed in the market place
2. be an expert and do a great job
3. add significant value to the business I am working with
4. charge a reasonable fee which is invariably agreed after the value has been proven.

Do the unthinkable

So, have faith in your basic proposition but don’t be afraid to radically change the business model you are currently operating. This is particularly the case if your model is based on daring growth figures, access to equity funding or government interventions that mean everyone needs to buy from you!

Jack Welch, the ex-Chairman and CEO of GE, who would say to all his senior reports who ran the various businesses within the GE empire when it came to planning for the coming year: ‘destroy your business’.

By this he meant: don’t get sucked in to the same old same old. Bring new and innovative thinking to the fore; explore new ways to create sustainable and profitable business models within the current environment.

And that is exactly what I am saying. The environment we have right now is probably not going to change much over the next few years, so let’s all just accept it for what it is, and get on with it. Paradoxically, the potential stability of continued lower growth should make it easier for us all to develop our business models accordingly.

I would finally make the point that I acknowledge this may not be easy for all businesses, particularly for organisations that prospered in the early/mid noughties and were encouraged (seems a long time ago) to take on very high levels of debt.  I would strongly argue that if you have a sound underlying proposition, and good people, there is invariably something that can be done to preserve and develop your value, whatever the current situation.

If you would like to comment on or talk about any of these thoughts and ideas, I would love to hear from you.

Happy 2013!

(This article was originally published on Trans Capital Blog on 4 January 2013.)

To read other articles on business strategy, visit Trans Capital Blog.