Last week we said that virtually all entrepreneurs will face the daunting task of managing the recovery of a declining business. Every business during the course of its existence will experience a near death experience.
We also saw that there are many factors responsible for this near death experience; those that are self-inflicted, like incompetent management or poor financial control, are generally termed internal forces.
While those that are not self-inflicted, like government intervention, economic recessions, presence of low-cost competitors or natural disasters, are termed external forces.
Today, we will review the same issue in depth going into the metrics.
The continuous survival and success of a business greatly depends on managing these forces internally and externally. Neglecting them can spell doom for any business regardless of size!
Renewal is seldom easy and carries more risk of outright failure in the near-term than riding the business through maturity and into decline. But it also offers the possibility of meaningful reward. Businesses that successfully renew enjoy the levels of growth and margins that restore them to a valued position in a company’s overall portfolio.
Virtually all organisations have metrics for determining the health of their day-to-day business. But how do you determine if it is time to renew the business? With our framework and your judgement you will be able to choose which businesses should be renewed and which should continue under their current direction.
Leo Hopf and William Welter have developed a list of leading indicators to help you understand when you are nearing the time to renew your business
They have grouped these indicators into seven categories.
(I). Top management, (2) System of measurement, (3) Customer base, (4) Industry status and competition, (5) Team players, (6) Leadership motivation and (7) Pure gut feeling
First, if your top management is not happy with the current status of the company but is not willing to take action and necessary changes, any renewal effort will be doomed to failure before it has even begun.
Second, the system of measurement adapted by the company has to be closely studied. You must examine your business objectively. Is revenue growth slowing and are you under margin pressure? These are signs a business is losing its way in the marketplace. This could also be a sign of growing stale or more importantly, a sign that your business is becoming irrelevant.
Have you noticed any takeovers or amalgamations in your industry? Have there been any recent breakthrough products or services? Are you picking up ground on the competition, staying even or losing out? These questions need to be answered in detail.
Third, take a close look at your customer base. Do you see interest drifting away from your products or services? Are your good customers going elsewhere and do you find it harder to acquire new customers? Remember, your customers’ choices and demands are not static but change over time.
Are they transforming faster than you are able to adapt?
Are your best customers moving away faster than you are attracting new customers?
Next, take a broader look at your industry and competition. Most organisations have a pretty good feel for their traditional competitors. But what about new companies that are not your direct competitors but vie with you very differently? Are there any visible changes in your industry in structure or approach? Are they reeling under the impact of any shock?
Now look closer to home and consider your team. Are the number and quality of ideas coming from them slowing down? Has the level of enthusiasm of your best performers changed? Are people leaving in search of better opportunities elsewhere?
The sixth category is leadership quality. How is the relationship between the leaders and the workforce in your company? Do they have confidence in the ability of the leaders to turn things around? And in the recent past, have their confidence grown or not? How do your leaders take risks in decision-making? They need to take certain calculated risks to renew their businesses.
In many businesses we see smart decisions blocked by the weight of traditions and history. A product maybe one of the market leaders for over two decades but it does not mean that it should be retained beyond its useful life so as not to offend its creator. Or a business location may have an emotional significance even though the demographics of the neighbourhood have changed. And often leaders regard short-term results as more important than long-term business health.
Now let us move into our renewal checklist. You can apply it to your company, division, business unit or product line. It is more advisable if your entire leadership team take the assessment independently and compare notes, scores and observations.
Consider the following list and rate your business on each of the items. We consider the first item a leader item and therefore, weigh it more heavily than the rest. Score it zero points for ‘not applicable to us’, five points for ‘more-or-less like us’ and 10 points ‘exactly like us’.
The rest of the items should be scored as follows: one point for ‘not applicable to us’, two points for ‘not applicable to us’ and three points for ‘exactly like us’.
1. Organisational readiness
(a). Senior leadership is dissatisfied with the status quo and is ready to try something else.
2. System of measurement
(a) Revenue growth is slowing.
(b) Margin pressure is unrelenting.
(c) Same store sales are declining.
(d) We’ve had few breakthrough offerings recently.
(e) Our industry is consolidating.
(a) Customer interest is drifting away from our offerings.
(b) Our biggest/best customers are shopping around.
(c) We are winning new customers more slowly.
(d) Customer demographics are changing faster than we are.
(e) Our customers are facing structural changes and pressures.
4. Industry and competition
(a) Our industry is shrinking.
(b) Our industry is described in the media as old, tired or slow.
(c) Organisations that compete differently are winning business from us.
5. Team members
(a) We are getting fewer and fewer ideas from our employees.
(b) We are losing the enthusiasm of our best performers.
(c) We have slowed hiring and our workforce is aging.
(d) We find it harder to recruit top talent.
(e) Our people are leaving in search of better opportunities elsewhere.
6. Leadership motivation
(a) People are losing confidence that our leaders can turn things around.
(b) Smart decisions are routinely blocked by the weight of history.
(c) Existing leaders won’t take the necessary risks to renew the business.
(d) Previous attempts at fixing the business have failed.
(e) Delivering short-term results overrides creating long-term business health.
7. Gut feeling
(a) Our past feels more attractive than our future.
(b) The business drains our energy rather than energizes us.
(c) We commiserate with others about our business rather than brag about it.
(d) It rakes regular cheerleading to keep people excited about the business.
(e) We have lost interest in running the business.
Add up your points, remembering that item one is weighted heavier than the others.
Less than 50 points: Your business should focus on continuous improvement along your current path.
Fifty to 75 points: You should consider your business for the renewal watch list.
Seventy-five or more points: Your business urgently needs renewal and needs it now.
(Lionel Wijesiri is a retired corporate director counting three decades of senior management experience. He is now an independent consultant and a freelance journalist. He may be contacted on [email protected])