With the changing business world it is a good idea to think about habitual business practices to ensure that we are not doing things that made sense for the past and which do not make sense now.
Insanity: doing the same thing over and over again and expecting different results.
— attributed to Albert Einstein
We all want to improve business results, driving KPIs higher and higher. Is this really a sustainable approach? How can we increase productivity and innovation by re-using the same practices we’ve always used?
Changing social and technology landscape
The changing social and technology landscape means that some traditional ways of approaching business might no longer be fit for purpose. Many of business practices are inherited from a world where communication was not instantaneous and where information asymmetries abounded. Now there is vast computing power in the hands of ordinary people and they are rapidly overcoming the information asymmetries that gave businesses an advantage over customers.
Social and cultural expectations are also shifting what is seen as good corporate behaviour. For example the use of so-called ‘booth babes‘ at a conference to promote a product is now seen by many as a reason to avoid a brand.
Changing Competition Pressures
If we look at the competitive pressures on business today things have changed from the way they were at the end of the twentieth century. In the 20th century industrial age the competitive landscape could be modelled using Porter’s five forces as a framework:
- Threat of new competition – this threat still remains, yet it can come from unexpected and non-traditional sources. Environmental scanning to see what are the emerging trends becomes a critical response.
- Threat of substitute products or services – this threat is even more important, with technology trends moving so quickly it is easy for a good or service to become obsolete.Again, environmental scanning is a critical response to this threat.
- Bargaining power of customers (buyers) – this is major emerging threat to traditional business models, consumers are increasingly well-armed with information about products and competitors. It is important to realise this new reality. Consumers will punish businesses that they see as lying to them. Truth is a crazy idea that might just work. Also being clear about your place in the value chain, be clear on your competitive grounds. If you are not competing on price then be clear on your competitive advantage to the consumer. Apple is the poster child for this, they do not compete on price, rather they compete on design and experience.
- Bargaining power of suppliers – this threat depends upon one’s situation, if a market-making behemoth then this trend is working in your favour (for example Coles and Woolworths supermarkets in Australia). It might be even more of a threat if you are one of the suppliers in question. A sensible response is to be clear as to the grounds you compete upon.
- Intensity of competitive rivalry – this threat continues to remain strong, traditional rivals are still in markets competing hard and there are new entrants and new products or services competing for the same consumers.
Shift in scarcity – what about abundance?
Until now scarcity has driven markets, but we are moving into an age of abundance and the old rules no longer hold. Greg Satell summed it up well in his post on the new economy:The New, New Economy of Accelerating Returns:
“…in a world of abundance, what will we pay for?”
The response to this question is being played out in the retail sector right now and they provide an ideal example of the issues. Traditional stores are seeing their market share being eroded by online competitors. Business leaders, like Gerry Harvey, are calling upon the government to reintroduce protectionism to save the retail industry from competition. Yet shoppers continue to vote with their spending power and shop online.
Previously individual shoppers had limited access to information about the comparative pricing and range available elsewhere. Now shoppers have the world at their fingertips and can easily find out the best deal available to them – be it based on range or price or other considerations. These trends are impacting upon traditional retailers worldwide, even retail icons, like JC Penney and Sears, are being questioned as to their chances of survival.
At the same time, Australian retailers have not invested in new technologies over the past decade and they are currently reducing their workforces. It has become almost impossible to find a sales assistant in many stores. The response of many retailers has been to compete on price, to reduce prices by means of sales to attract customers back into their stores. But all this is doing is training the shoppers to expect discounted prices, and customers hold of on purchases unless they receive a discount. Further, in the supermarket sector, this downward price pressure is destroying the businesses of suppliers such as farmers.
Against this backdrop of retail turmoil we see a retailer like Apple – with few products in the market and yet they are able to command premium prices for them. It is worthwhile researching organisations like Apple and Amazon to see how they are thriving in this age when so many businesses are in turmoil.