INOVASTRA SDN BHD

Business Sustainability - Surviving the Perfect Storm

By Nik Mohd Hasyudeen Yusoff
People are saying that we are now experiencing the "perfect storm" the confluence of events which created havoc in the global economy and affected everybody around the world. Never in the history of the world we have high fuel prices, weak American economy, the burst of the sub-prime bubble, high commodity and food prices and disasters such as those experiencing in Myanmar and China, all at the same time.

Whether we like or not, our businesses would be affected in one way or another. The control over the prices of fuel in Malaysia has been re-structured as the subsidy is no longer sustainable and huge subsidy diverts funds from other productive spending of the government such as infrastructure for the future. The fact that the government has lifted the ceiling price for steel and similar step would be make for cement suggests that the Malaysian economy would be moving towards more market oriented economy with less government intervention.

So, what options do you have as leaders of your business setups?

First is to look at the effect of the market dynamics to the demand for your products or services. Does the increase in the general price level reduce the capacity of your customers to procure what you are selling? Does is change their behaviour and start to go for goods or services that are more value for money compared to yours? Is the demand going to be higher because the shift in buying trend is to your favour? Understanding the effect of the perfect storm to the demand level in your industry would allow you to appreciate the risks and opportunities that come along with the storm.

Second is about to understand the effect of the changing demand to the competitive elements in your industry. Does is make competition more intense as demand is shifting to cheaper goods which has lower profit margin? How would you, as a business, differentiate yourself further from the "me too" businesses? Can you retain margin and volume by being more focus towards a certain segment of the market? Should you sell more abroad? By understanding the affect of the storm to the competitive elements within your industry and on your major competitors would indicate to you the options that you could consider.

The third step is to consider your firm's ability to seize the opportunities or managing the risks identified. Do have the people, technology, marketing capabilities or even adequate funding? Your key business processes would also need to be reviewed to support any changes in direction and value proposition that you may decide to pursue. Historically, the failure to support changes in business direction with changes in how things are done and how people think and behave, resulted in failure to achieve the desired intention.

Different business entities would experience different implications from the perfect storm. The longer the global economy remains stormy, the higher the uncertainty level and more challenging the business environment would be. This requires leaders of business to be on their toes in ensuring the sustainability of their businesses could be maintained.

As for the immediate need to manage the effect of higher price of fuel, you could consider the following options:

First is to look at the impact on your cash flow. You have to understand the expenditures that would be affected by the new fuel prices such as transportation and material cost. Next is to look for the effect on the collection pattern from your customers. Is there any customer which may be adversely affected. Transportation companies could be among the likely candidates for this category. Having understood the possible implications, you could more or less figure out how far you operating cash flow would be reduced.

Second, is to consider options in ensuring the higher expenditure could be mitigated. Before cutting any expenditure, make sure you are be able to differentiate between critical expenditure and discretionary expenditure. A critical expenditure is the one which is necessary to maintain your core offerings while a discretionary expenditure is those that you could do without while still maintaining your product quality and service level. Getting your team to travel economy class instead of business class would not affect your service to your customers. Off course this may reduce the morale of your team members! You list down the discretionary expenditures of your business and perhaps, by going through with your team members, you would be able to identify those that could be reduced or deferred.

The third step is to look for opportunities which come along with the price increase. Could you, for example, offer products which help others to reduce their business cost. Offering teleconference facilities for companies which have high number of face to face meetings could be a growth area. This would help to reduce traveling cost while at the same time enables people to have more time to do other productive things rather than traveling. Similarly, helping companies to communicate to their customers or team members using electronic means instead of paper based communication would also reduce cost while at the same time increasing the effectiveness of the process.

In short, we have to accept the reality of the regime where cost to run business will increase. Doing the same thing over and over again will not lead us towards different results. We have to do things differently and quickly as well.

develop by kinetix technologies