Even amidst the epidemic, and the consequent lockdown leading to an economic slowdown, some companies have increased their sales growth rate and profit margins. Second, this epidemic has caused changes in lifestyle, ways of working, some of them, temporary and many lasting ones.
How can the companies reassess their growth opportunities, reconfigure their business models to realise the opportunities and reallocate capital effectively?
Reassess growth opportunities
The pandemic has forced people to adopt new routines/ habits to cope up with the changed situation. Companies must develop a systematic understanding of changed habits. This will require a new process for detecting and assessing shifts before they become obvious to all. The first step is to map potential ramifications to identify specific products. Unless we sensitize ourselves to new habits and their effects we will fil to spot the new opportunities.
The next step is to categorise demand shifts based on short term vs long term and existing or new trends. This will help highlight which trends to follow and which ones to pursue aggressively. Companies cannot pursue all opportunities and should not try to.
The analysis should go well beyond the simple categorisation. You need to challenge your ideas about what is happening in current business by taking a fresh, careful look at data. Seek out anomalies and surprises.
Dive deep into data
Anomalies usually emerge from data that is granular and high frequency. Careful analysis would indicate whether the changes in behaviour is permanent or transitory, brought about by the situation imposed on us.
Take multiple perspectives
Examine, analyse trends to identify potential blindspots and alternative perspectives. What is doing well? What are the market segments competitors are focussed on? What products are they launching?
A similar analysis should be extended to customers. Who are exhibiting new behaviours? Who is staying normal? What are they paying attention to? Who is exhibiting new behaviours?
This can be applied across the markets you cater to. What patterns are emerging in different markets? What are the products doing well in which markets? Which markets are showing an uptick in consumption?
Look within the organisation. Which innovations are taking root in leading firms? What new needs are employees responding to? What opportunities do they represent that could potentially be developed and rolled out?
This analysis would help shape the business model to capture them.
Reconfigure your business model
The business model should be shaped by demand and supply shifts relevant to the industry. To figure out what business model the new normal requires, you need to ask the basic question about how you create and deliver value, who you partner with and who are your customers.
Also, examine the following emerging trends
- Can you take your products online?
- Which are the markets or digital platforms to work with?
- Can you expand your customer niche?
For the majority of customers responding to demand shifts would necessitate moving onto digital platforms to some extent. Employees across the company have got used to working from home with the help of video conferences. This is likely to persist into the future. this requires accelerated investment into upgrading their digital capabilities. IT investments should focus on specific digital model innovations to address new opportunities instead of an increase in digital technologies in general.
Reallocate capital
It may be difficult to reallocate capital when cash flows have dried up but, this is the best time to take a few calculated risks. Successful companies not only invest more in new opportunities but also focus on fewer opportunities, in segments with higher growth and returns. They recognise that the crisis offers an opportunity to carve out a new competitive position.
But most companies continue with spreading their investments across the business and when necessary makes across the board cuts. To avoid this trap, evaluate capital investment projects across two dimensions - the estimated future value in future and the money required to keep them alive today. This will help reallocate capital investment.
Companies need to be prepared to take risks. Heightened uncertainty means that organisations cannot predict which business will be successful in future and so they need to take an experimental approach and take steps to diversify their portfolios reallocating funding as needed. The rapid pace of change means they should frequently update your portfolios and making sure they fit the companies long term priorities.
It is in times of crisis that new approaches are necessary. As the companies move towards a new normal, they should not be constrained by traditional methods. Instead, they should revamp their business models, invest capital dynamically to thrive in the post-crisis world.
Adapt Your Business to the New Reality
by Michael G.Jacobides and Martin Reeves
HBR 2020/09-10
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