Understanding the strategic impact transcript

You could argue that strategy in good times is easy. If strategy is about preparing for the future, then the more unstable the market environment, the more challenging strategic planning becomes. And given that many industries turn down more rapidly than they trend up, the pace of change becomes more rapid, the planning horizon becomes shorter, and therefore the need for agility increases.

Some of our clients are dealing with that lack of certainty by scenario planning, so that they are prepared for a range of potential outcomes. Others are already seeing a downturn, and are having to react immediately.

So there are three key areas of change; firstly customer purchasing behaviour, secondly competitor strategies, and lastly what that actually means for your key success factors. So taking the first point, your customers purchasing behaviour is likely to change. For example, will they look to trade down to a cheaper product or service, or will they buy the same thing, but just less often? And which characteristics of your offering will they still value, and which characteristics may they deem to be unnecessary or a luxury? That is clearly relevant in the consumer environment – just think about travel, or restaurants or car dealers – but this is equally important in the business-to-business environment across the full range of manufacturing and services sectors.

In order to do that analysis properly, you may well need to segment your customer base into different groups; either by size, or by type or by their requirements in order to get meaningful results.

And remember, relying on what happened in the early 90s recession, or even the early 2000s downturn, may give a misleading indication about what will happen this time; consumer behaviour has certainly moved on since then, but also the structure of many industries has changed significantly as well.

And then considering your competitors, the games that they might be playing could change too. In our experience, market shares tend to swing much more rapidly in periods of contracting demand, and prices can be much more volatile too. I have been working with a business in the manufacturing sector that has seen its prices fall by 20% in a matter of months. Driven by increasing competition as well as contracting demand. And although price is very easy to give away and very difficult to get back, don’t assume that your competitors will behave in a way that seems rational to you. Will they be coming after your business, and if so what will they be saying to your customers?

So do these changes in the external market environment change what you need to be good at? You may find that the key success factors that have stood you in good stead over the last few years might not necessarily be the ones to focus on now.

So for example, you may need to shift emphasis away from doing what you can to service the demand you have, towards more actively seeking to generate it or even to defend it. So do you know where your battle lines are? Do you understand who your best customers are? And your worst? And do you understand how much it might cost you to generate new business, rather than servicing your existing customers and keeping them happy? And you may find that actually improved customer relationship management and much more focused marketing will be critical to achieving this aim. And with materials prices and even availability directly impacting margins in many sectors, Now is also the time to take a hard look at your procurement. And this doesn’t just mean beating up your suppliers, it is also about asking a more strategic view of your entire supply chain so that you understand who is making money and why? That will help you target the big opportunities as well as just the quick ones.

So those are some of the areas of change that our clients are seeing and some of the scenarios that they are considering. The best businesses make the tough decisions early. In fact we find that structural change in an industry can be accelerated by a downturn, as the leading businesses implement changes that made sense all along, but that they’d never got round to.

And in fact, a downturn can be the making of the best businesses as the changes you implement now can stand you in very good stead for the longer term.