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Resting on your laurels is the right road to ruin
In the study on preserving viability of companies, experts note that "what previously helped organizations to succeed will not help preserve and multiply this success in the future." In a situation of heightened political, social and technological uncertainty, the levers for creating value for companies will radically change, experts say. The older and larger the company, the higher the probability that routine management will take the business over.
The experts define viability of a company as ability to simultaneously grow and rethink their own business, even when the current positions seem reliable, and the performance indicators are high enough. This is the only possible way to maintain leadership in today's environment.
Here are the main factors of maintaining viability according to BCG:
• ability to constantly find and develop new opportunities for growth;
• ability to rethink oneself and own business;
• understand what resources and skills are needed at the moment and be able to increase them.
Growth is an indispensable condition for sustainable creation of the company's value and assets. In the short term, the value can be created by optimizing costs or assets, or by skillfully managing investors' expectations. However, the only lever for long-term value creation is revenue growth.
The report gives an example of companies like Kodak, who at some point lost their ability to grow, constantly adapting to changing market conditions. Such companies are deemed to inevitably, and often unexpectedly, collapse.
The rot starts at its top
In this regard, the researchers believe that the company's management must take decisive steps to ensure factors contributing to the preservation of viability.
First, managers should soberly and impartially assess current level of viability of the company by the following questions:
• is there any potential for growth and development of planned new projects in the current situation, taking into account competitors;
• the extent to which the current strategy meets objectives of long-term development; what the company is doing at the moment to develop its technological capabilities;
• are you ready to take risks, making a bet on new talents.
The next step for management is to strengthen existing or search for new sources of growth. For this, it is necessary to create a conditional portfolio of opportunities for growth. At the same time, such a portfolio must have a balanced set of assets and projects, separated by time and degree of risks.
To create such a diversified portfolio, the management of companies needs to develop a willingness to perceive possible failures and create within the company motivation for development of new ideas.
As an example, BCG takes the largest Japanese recruitment corporation Recruit Holdings, which is among the most successful in the country. The company's revenue growth over the past five years in Japan, where GDP growth over the same period fluctuated around zero, averaged 20%. The firm has the New Ring program, where any employee can put forward his proposal for development of the company within the framework of its business. For the year, the employees presented about 1 thousand business plans, and the most successful ones were awarded.
The main rule is no rules
Another step is the willingness to depart from the strategy, which has already become a classic for this mature company. At the same time, it is necessary to develop a system for assessing new business plans, their risks and development in an ever-changing market environment.
At the same time, experts say that one should never forget about investments in technology. And this is true not only to companies operating in high-tech or related markets.
Another successful example is MasterCard, which timely invested in new technologies. This helped the company painlessly survive the fairly rapid transition of the global financial market from cash payments to non-cash and mobile payments.
A company’s management should be prepared to use various approached to development. Experts compare this with ambidexterity, the state of being equally adapted in the use of both the left and the right hand. It is noted that in business, ambidexterity is very important for mature companies, who thus can quickly take advantage of new opportunities that have appeared on the market and make painless changes to the structure of the company.
An example is the Chinese manufacturer of household appliances Haier, which nearly went bankrupt in the 1980s, but is now one of the world's market leaders. The company reformed internal management structure to horizontal one, creating more than 2 thousand self-governing units and divisions. This helped each of these self-governing units to act as an autonomous company, promptly solving issues and finding a strategy that fit the appropriate niche of the market.
source: bcg.com