Business

Tuesday June 16, 2009

Tips for reshaping your business

Comment - By Azwan Baharuddin


Robust, strategic and effective implementation processes will be crucial

THESE are sobering times. The impact of the global market changes has been significant: many businesses have been damaged and some business models have been radically changed. To some, a new world order is emerging and management must take action to change their operations and assets to reflect the new world and prospects.

Many long-term business trends do not change even as the economic conditions do. Nevertheless, business models have been undergoing a deep-seated restructuring as long-term trends challenge those models that have been the norm for many years.

The array and degree of macro-economic influences that are forcing the business leadership to review the methods of organisations are largely driven by four factors:

·Companies are facing challenges to their organisational model due to (de)regulation, diversification and globalisation.

Though this has been the state of play for some time now, it is even more so today – not just as a result of the opportunities that are presented to them today but also from an immediate need to survive;

·The flexibility of current business models needs to be augmented to allow the companies to adapt to the changing market dynamics across both geographic and product divisions;

·Niche specialists are increasingly prevalent today in specific business divisions such as logistics, human resources, information technology (IT) and back-office functions. These specialist players compete with vertically integrated businesses across all operating divisions, bringing their viability into question; and

·Technology. Just like the banking industry, which is beginning to see the cost-benefit of promoting the use of automated teller machines (ATMs), cash deposit machines and Internet banking, other industries have also experienced the impact of technology on how they run their business.

Innovations in IT are facilitating the emergence of new players, new organisational models and increased competition.

Business remodelling requires meticulous planning – even at the best of times. Structural change is difficult to implement and requires hard decisions. Discipline is required to ensure that businesses execute detailed and carefully managed due diligence and analysis.

This is no different in any environment except now, a higher level is demanded and greater acceleration is needed. In less favourable conditions, a robust and flexible model is critical to achieving the same results.

In response to the current economic conditions, there seems to be a temptation to put aside long-term strategic plans and implement quick-fix solutions to deal with burning issues.

While this is understandable, businesses that will emerge strongest from the current crisis will be the ones that reshape themselves intelligently.

These businesses will benefit from increased flexibility which is key in these uncertain times and whose benefits extend beyond the present.

Flexibility allows businesses to make the necessary adjustments to stay ahead of the competition and respond to the long-term underlying changes in the operating environment.

Business reshaping options

For the most part, global business leaders today are using current conditions to accelerate reshaping programmes. Business restructuring is playing an increasing role with the focus on divesting non-core or non-performing assets.

Almost equally important are the active exploration of strategic acquisitions in core businesses and the establishment of strategic alliances.

Some companies are considering setting up centres of excellence across geographies and business units to develop new areas of core competencies.

Recent announcements on the potential Chinese acquisition of American companies demonstrate how some companies are seizing the opportunity to reshape their businesses, to acquire firms that would provide a firm platform to infiltrate new markets.

What is clear is that businesses are cognizant of the fact that change is inevitable and the faster they adapt, the better the chance of success. However, in these uncertain times, expansionist type of strategies, which include penetration of new geographic markets and new product line development, may take a backseat – for now. Instead, companies will concentrate on maximising the potential from existing markets that they are familiar with, a “known quantity”.

Therefore, it would seem probable that any new acquisitions in the market would be guided by the purpose of achieving economies of scale rather than diversification.

Off-shoring to lower-cost locations and an increase in the use of outsourcing and shared service centres to further reduce costs are also part of the reshaping landscape.

There is a broad range of functions that companies see as opportunities to either outsource or consolidate into shared service centres.

While outsourcing is largely seen as appropriate for IT, telecommunications and logistics, shared services are seen as more suitable for human resources and finance functions.

Although such measures offer potentially increased flexibility besides lower costs, the downside to this is that such arrangements could mean a company would be locked into the relationship for several years.

Understandably, given the current economic climate where survival tops the agenda, companies need to also see some discernible short-term impact of their decisions, although business reshaping can and must deliver quick-fix solutions. Robust, strategic and effective implementation processes will be crucial as companies adopt sustainable business models that do not increase their risk level or impair their performance as they adapt to a new environment.

·The writer is a partner with Ernst & Young Advisory Services Sdn Bhd. The views expressed above are the personal views of the writer and do not necessarily represent the views of Ernst & Young.

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