By Rangsan Thammaneewong & Luciano Pezzotta
There are two kinds of key decisions that all people make in their personal lives or in professional settings. They involve either resource allocation or finding direction or often a combination of the two. On a personal level, this could be where to live, work, and who to marry. Travel distance between home and work deals with our most precious resource, time. How much income to spend on property is a resource allocation issue. Decisions in choosing a career may involve not only our compensation but also factors like skills that are acquire that should benefit us in the future. In the corporate world budgets allocations to business units, product lines, projects and product features to attract customers deal with resource allocation and impact product strategy. These decisions shape the future of our businesses and influence the direction and the corporation’s future. Decisions in corporate finance, involve resource allocation; strategy shape companies’ future directions. To be successful in the long run, it is important that resources are allocated to the “right” direction or to the direction we are heading. Undeniably, decisions on these two issues today determine the future of businesses and our lives for years to come.
How Do You Determine the “Right Direction”?
A viable business must have these priorities:
1. An Inspiring Direction. The Vision and Mission of the founder of the business is a goal to achieve as an organization. This vision and mission can be something that the founder is eager to do even for free before it becomes a business. For an individual trained in pharmacy, this could be helping relieve people of pain, or finding a cure for a disease. With an inspiring vision and mission,. or finding a cure for disease. With an inspiring vision and mission, the company becomes stronger in what it does because of the passion it instills in all of its human resources, from the top management down to the lowest level employee. When all are passionate about achieving, it is not uncommon that employees in the organization can't wait to arrive at work. . Think of Apple, whose mission is to make technology products accessible, pleasant and appealing to the masses, and whose popular CEO, Steve Jobs, has a salary of US$1.
2. A Strong Core Competency. A company needs to understand the core competency or dominant corporate DNA that it possesses. A successful company allocates its own resources and expands by capitalizing on its own core strength. Although there may be countless successful new entrants in any industry, it is necessary to acquire skills particular to an industry to execute well. This does not pertain to managing accounts receivable or on time deliver but something that a company does particularly well that even competitors salute. Examples are : a leading- edge technology an insight into the customer group, , a grip over a distribution channel w or geographical market that is penetrated. Apple’s DNA is, to create user friendly interfaces and products with an appealing look. This DNA extends from the McIntosh computer to its latest success, the iPad. Another example is Honda. Common characteristics of all Honda products are its engines in motorcycles, cars, scooters, and airplanes. Honda’s DNA is the capacity of making great engines. So Honda expands into any market that call for good and reliable engines.
3. A Viable Economic Engine. Next, a company needs a strong economic engine to survive and prosper. This depends on the continued acceptance of its products and services in the marketplace. To accomplish the mission in the long run, we have to keep the economic engine rolling. We need to protect our existing “cash cows” without forgetting to breed new ones. There may be a product line that is a cash cow today but in the future will be copied and offered by competitors at a fraction of what it is sold for today or replaced by products offering the same function but in different forms. Polaroid, the famous instant camera manufacturer is a good example. Until the early 1990's Polaroid banked on its core DNA “Instant Film and Camera Technology” That was overtaken by new players not originally from the same industry such as Sony, We need to make sure that our economic engine takes us into the future.
In order to do so, we need to:
- Look at the experience of acquiring your products/services : One can be the best in class outperforming all our competitors with superior value by offering the best features in our products. If we fail to understand the negative in the whole buying and using experience of our products, not only do we find it hard to expand but we are inviting new entrants to steal our customers with offerings that really meet their expectations. Think of the crisis that hit the US in late 2008 and the effect on the automobile industry where all major companies were forecasting sales drops of around 40% in 2009. Car dealers started to provide incentives to customers such as discounts, financial support and accessories, e.g., GPS, leather interiors and so on. It was not long before the fight got messier with everyone offering bigger discounts, better financial terms and more options, eroding margins further. Despite these efforts, customer responses were still disappointing. Hyundai, however, took a different approach disregarding what their competitors were doing. They looked at the experience cycle of customers in buying cars and learned one key hindrance to customers buying cars. They realized the majority still wanted to buy new cars but feared being delinquent on their payments from the shaky economy that could affect their employment. With this insight, Hyundai gave up all traditional sale promotions and instead bet on a single thing: the possibility to give back the car at no cost in case the purchaser got fired. At the end of 2009 while all competitors registered a 40% drop fulfilling their prophecies, Hyundai suffered just a mere 3% sales drop with only few cars returned for job loss. One of the most successful approaches to identify how to keep customers to our product is to explore their experience with our product and identify what are the causes that deter our customers from supporting our products or services by improving their buying experience eliminating their pain points in the whole process: before and during purchasing, during the utilization until the disposal. Doing this we might even gain new customers who have been rejecting our products for the same pain points.
- Look beyond your own market boundaries: In our business, we tend to take for granted our products or services, customers, and competitors, industry as the territory of our business. If we break these mental constraints which shape the traditional boundaries of what we do, we can achieve exceptional opportunities for growth and profitability creating what Professor’s Kim and Mauborgne, authors of the global bestseller Blue Ocean Strategy called “ Blue Oceans”, new markets which differ from all existing businesses in the industry and have a great potential for high profitable growth. An excellent example is the circus industry, where we traditionally animals, clowns and the acrobatic acts are key components of this type of performance. With the upkeep of animals and the troupes, constant relocation and small attendance by limited pools of children, it is difficult to imagine much money can be generated to feed the troupe, let alone leaving surplus cash for the owner to travel to space like Guy Laliberte, the owner of Cirque De Soleil has done. Guy reinvented the circus by creating a new type of performance that combines music, arts, and themes, with a more sophisticated atmosphere and dropped the use of animals. Shows are at several locations at one time with attendance by high income adults making it a phenomenal success.
- Look beyond serving just your current customers : With businesses, customer are often taken for granted in terms of age group, occupation types, and geographical locations. Companies then strive to be the best player in that segment. Often, customers are given more benefits for lower prices and end up with eroding margins. When Video games came on to the market they attracted younger children and teenagers. Older people were not players because they no longer possessed fast hand-eye coordination and many have arthritis making the use of controllers difficult. Nintendo executives realized that these people enjoyed the game and introduced the Nintendo Wii than can be operate by with simple body movements and gestures making it easier for senior citizens to play.
Going the the right direction is about making better resource allocation decisions, fine tuning your strategy in line with the corporate mission and developing, core competencies (DNA) to achieve high and sustainable profitable growth. By reassessing your market boundaries, your potential customers, and creating exceptional values in your products and services ethically, one need not be troubled by highly growth.
As appeared in Asean Affairs Magazine
( March - April 2011 |vol.5 No.2 |)