Configure Your Business to Ride Changes

In a previous post we identified twelve specific global trends reshaping the landscape of business across the world.  Now let’s consider how these changes may affect your business.

Actions count. Redesign your business now.

The real issue is not about external changes over which you have little control but rather the internal changes you will make in your business now to prosper from external changes. Consider five specific component of your business:

• Customers
• Products and services
• Employees
• Processes
• Suppliers

Each component provides a distinct opportunity for restructuring and realignment with the changes which will buffet your business now and on into 2009.

Restructure your customers.
You have a loyal customer base, which has served you well for many years. But you know that each customer has a different value profile. Use this opportunity to upgrade your customer base. Be ruthless in your expectations of customers.

• Fire your lowest 10% profit customers. The marginal costs to serve them may already exceed any profits they generate. Raise prices to cover the marginal costs to serve these customers, and simultaneously invite these customers to shift a web-based, self-service model. Let the low-value customers walk away.
• Shift your mid-range customers to self-service. Move these customers to a web-based, self-service model. Charge for any special services not available from the website. Charge for human interactions, especially for services that are already available on a self-service basis.
• Expand services to your top 20% profit customers. Increase your direct interactions with these customers. Learn more about their needs. These customers will lead you to new services and increased value.

Redefine your products and services.
Move the entire order/fulfillment cycle to a web-based, self-service model. Expand high-value services and eliminate low-value products. Be ruthless in your expectations of your own products and services.

Specifically, consider these adjustments to your products and prices.

• Information is often more valuable than physical product. Increase the information content of your products. Include more services and analysis with your products.
• Negotiate long-term contracts with built-in price adjustments.
• Offer additional value or services in return for price increases.
• Offer fixed services in exchange for fixed prices.
• Use your high-value customers to identify and develop new services.
• Use your mid-range customers to understand and implement self-service fulfillment models.
• Use your lowest 10% customers to find new products for price-sensitive users.

Redesign your internal business operations. Move your entire business online.
Your internal business already operates online, but a few hold-out processes may still operate manually. Be ruthless in finding these laggard processes and drive them online.

• Increase automation across every aspect of the operation. Automate every manual operation. Us the automation tools already built-in to your computerized business systems.
• Eliminate paper. Pieces of paper are visible red flags for manual processes and extra expenses. Production and storage of paper is a significant cost, not even counting the cost of manually finding and retrieving information on paper. Use automation to eliminate paper and reduce manual processes.
• Eliminate exceptions. Each exception requires significant time from an employee. It’s no surprise that exceptions create considerable paper. Eliminate or automate exceptions to reduce costs.
• Charge the user for every exception. Whenever a customer or supplier creates an exception, charge for the extra service. If an employee creates an exception, charge that department. Better yet, assign the employee to eliminate the exception.
• Drive reports online. Investigate every report your business produces. Is it necessary? Is it generated automatically? Is it delivered by email? Does it go to a customer? Why not?

Redeploy your employees. Move them closer to your customers.
Employees want more flexibility, particularly to reduce their commuting expenses. As a business manager, you need more accountability, productivity, and creativity from your employers. Consider that your back office functions are truly “overhead.” This is an opportunity to redeploy your employees into higher-value activities. How can you move every employee closer to your customers?

• Invest in your employees. Implement online training and require it.
• More process automation will free up employees. Resist the temptation to reduce headcount! Your employees are a substantial asset, not a liability. Nurture them, and with them refocus on your customers.
• Use online systems to increase employee flexibility and accountability.
• Give every employee specific customer-related responsibilities.
• Include operations employees in customer service teams.
• Give every employee revenue and profit goals.

Redirect your suppliers.
As inflationary pressures increase your suppliers will begin to pass their own increased costs to you.  Consider these possibilities with suppliers:

• Give suppliers more responsibility to manage costs for you. Demand better information on consumption. Give each supplier responsibility to reduce consumption within your organization.
• Give suppliers responsibility to improve value. How can each supplier increase the value of their products to you and your customers?
• Give suppliers the responsibility to manage the supply within your facilities. Let them own any inventory until your organization uses it. If possible, give them the responsibility for managing your inventory of their products.
• Reduce the number of suppliers.
• Negotiate multi-year high-volume contracts in return for cost management.

The external changes we discussed initially provide an outstanding opportunity for you to restructure your business from top to bottom, from supplier to customer, to produce outstanding results in 2009.

Tsunami of Changes for 2009

The first few years of this new century were only the warm-up! Business change continues to accelerate. If you are not actively planning for major changes, then you may already be falling behind the curve! Consider these changes already affecting the global business landscape:

1.     Inflation is accelerating. China and India continue to drive raw materials prices. The Fed’s weak dollar policy has contributed up to 7% of the increase in the price of oil, an expense component of every consumer good in the economy. The Consumer Price Index (CPI) increased by 1.1% in June. This is the largest monthly increase since June, 1982 (Wall Street Journal). Annual inflation will almost certainly exceed 10% in 2009, and may go higher in 2010.

2.     The price of gasoline is already affecting the layout of the workplace. Who can afford to commute, much less fly? With airlines reducing service across the board, how will you deal with remote workers and even more remote customers?

3.     GM Introduces New Line of Layoffs for 2008 – 30,000 this year, with more coming next year. The US manufacturing sector will continue to lose headcount in recession and to become more capital intensive as conditions improve. How will you improve your production operations?

4.     Coming soon, the new US Workforce: Older, perhaps sicker, slower and more costly. Wishing they were retired. But these workers have substantial knowledge about your business processes and customers. How will you recapture this knowledge and transfer it? How will you find, attract, and train new workers?

5.     Healthcare, the line item that ate Detroit. Is your business next on the menu?

6.     The new world – online communities. What is a wiki? What is UGC? How will these new online trends affect your business? What opportunities do online communities present for your business?

7.     Climate change – it’s real, but what does it mean for your business? Green is good. But, can you paste it on? Don’t be distracted by long-term global change. Identify immediate, local changes that may be opportunities for your business.

• Water will move. Drought, fire, floods will follow.
• Coastal and flood insurance will skyrocket even as coastlines move and shrink.
• More erratic weather will increase production risks, disruptions, and costs.
• Food production areas will shift. Disruptions in food supplies will accelerate.

8.     Remember the mortgage crisis? It will continue to affect the global financial industry, with many unanticipated consequences. The credit crisis will consume weaker companies throughout the next year. If the US government must absorb Fannie Mae and Freddie Mac, then get ready for much higher interest rates and increased taxation. Brace for tighter credit and further pressure on the US housing markets. Look for this crisis to exceed $2 trillion, or 15% of the entire US GDP. How strong is your balance sheet?

9.     The world is not flat. The economy is shifting, sliding far eastward toward Asia, which has 60% of the world’s population and a $10 trillion GDP. But Asia is a pretty big place. What do you know about your specific opportunities in specific countries, with specific partners? How can you find out?

10.  The world is not flat on the other side, either. Cash is sliding near eastward to Oil. Is your new banker (or owner) Middle Eastern?

11.  Business opportunities are global, but every business environment is local. We are entering an era when governments must compete for business. How mobile is your business? Can you move portions of your business to regions with lower taxation, better labor, and more flexibility?

12.  US Presidential Election – Lawmakers will create confusion and uncertainty. OK, there is nothing new here.  Regardless of any candidate’s agenda, the problems are already in place and constricting a President’s range of action. The system requires Congress and the President to dally and kowtow to lobbyists, creating even more damaging incentives such as the mandates and subsidies for ethanol. Whatever your politics, get on good terms with your elected officials.