What should business leaders focus on to survive?

Thursday, March 11, 2010 | Posted by: Grant Thornton
Categories: New Business Models | Tags: financial, business models, Wendy Hart, New Business Models, Lead Advisory Services

Business models - the challenges facing UK businesses today

Some of our experts give us their view ...

Wendy Hart, Grant Thornton:
More than ever business leaders need to focus on the reasons why their customers choose them compared to their competitors, and to ensure that they maintain the differentiators that they have developed. At the same time they need to recognise the strategic direction of their competitors and to ensure that they retain a competitive edge if the market paradigm is changing.

If, as may be the case, that requires an evolution of business model or a change in terms of trade in order to continue to be competitive, they should make sure that they have fully understood the financial implications of this.

A move from a project-based business model to a managed service, for example, is likely to result in a significant shift in the cash flows of the business. Business leaders need to combine flexibility of strategic thinking with a pragmatic respect for the realities of trading cash flows in order to survive and thrive.

Dominic Preston, Grant Thornton:
Having addressed cost base and perhaps taken advantage of the opportunity to form strategic alliances, business leaders are focusing heavily on their talent pool and assessing how well-equipped the current complement of people are to trade out of recession. KPIs are being torn-up and completely re-written, even to the extent that certain businesses are demanding income generation capability from departments which were historically focused solely on cost control. Key people are being attracted, retained and motivated by a share in future enterprise value, with the smartest businesses using all-time low business valuations to bring in heavy hitters with the lure of some future equity value.

Even very traditional family-owned businesses are taking the opportunity to address generational succession and defuse any demographic time-bombs in their midst, with the outgoing generation using a combination of non-family professional management and their own KPIs based on knowledge transfer, hand-over of key customer and supplier relationships to next-generation family members.

In some instances where an insurmountable generational skills vacuum has developed, this necessary introspection and evaluation has, after a heavy degree of soul-searching, forced some hard decisions whereby the family business looks set to be sold to either professional management or third parties, leaving the family to pass on wealth as opposed to the business.

The most innovative businesses are also finding strategic new ways to do business with counterparties in order to survive, whether that means aligning sales and purchasing terms and cycles between themselves so as not to leave one party or the other overly exposed, right through to joint venture arrangements where one party is providing a development site, and the other the labour and materials to complete it, with both parties taking their upside in the capital profits on exit.

Will Oxley, Grant Thornton:
The long-term focus should be on value creation; this could be delivered by operational, commercial or strategic thought, or indeed a combination of the three.

- Creating more collaborative ownership structures with joint ventures, mergers and strategic alliances such that economies of scale can be achieved and competitive pressures partially reduced
-  Address capital structures and investment, by disposing of non-core assets, investing in high-return markets, re-equitising the balance sheets and shortening the working capital cycle
- Put the customer at the centre of everything, redefining business processes (efficiency and effectiveness), increase service and product quality and increase the size of key accounts

Hand in hand with the long-term vision goes the necessity to retain customers and people as well as collect cash; this will at least ensure the best chance of business survival in distressed markets, but the two must be implemented together in order to achieve sustainable profits and value creation.

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