by: Idris Mootee
Can we see the future of capitalism? Does it have one? We have pushed capitalism to the extreme and exposed the worst side of it. Yes, capitalism has two sides. The good side is the part that appeals to our self-interest. It gives entrepreneurs a free hand to pursue their ideas in the marketplace, and create wealth, jobs and economic progress in the process. The bad side of capitalism is that it’s not good for sustainability.
The very idea of a company totally beholden to its shareholders, and management rip off its workers and the environment as much as it can need to come to an end. The rising public demand for accountability (including social) from corporate and government leaders is pushing for new behaviors and changing the future of management.
At the G20 meeting in London, leaders of the world’s largest economies are acting fast and have reached an agreement to tackle the global financial crisis with measures worth $1.1 trillion. This will be used to help countries with troubled economies, the resources available to the International Monetary Fund (IMF) will be tripled to $750bn. The G20 meeting is really G2, there are only 2 key players, China and US. Though the summit is bringing together leaders from all five continents, the focus seem to be dwindling down onto the Big Two i.e. US and China given the size of their economies and how the two are intertwine, there are wide spread speculations that the talks will focus on bilateral concerns between the two. Funny the two economies are so tightly linked with China becoming US government’s largest creditor and second largest trading partner after Canada.
As a business leader, what should you do? You cannot be distracted with all those macro stuff and sit in front of CNBC and get depressed as you have a business to run. Here are 5 things business leaders need to do This is the time for true test of leadership.
Understanding The Full Extend Of The Impact. Companies must first understand the strategic impact of a recession. It is often time for musical chairs as market leaders lose their dominance and aggressive strategic innovators move to the forefront. Many companies start to either panic and lose their focus or go straight into hibernation mode, but these are defensive strategies. Take a quick scan of what’s going on in your industry including government, demand and degree of concentration. Develop scenarios to evaluate different macroeconomic outcomes and strategic implications. Determine the weakness in your key competitors in order to take advantage of them.
Reprioritize and Recalibrate. Reprioritize your current projects and make sure they are fully aligned to your chosen scenario. De-leveraging your balance sheet and recalibrate baseline profitability as well as shareholder returns. You almost have to reset all your business planning.
Accelerating Change Even before the current financial crisis, the rules of the game were changing faster than ever before. Business environments are changing at an exponential rate so it is no surprise that many market assumptions are rapidly becoming irrelevant. If you business involve technology as a core, you need to rethink your direction and finder a shorter path to postitive cash flow.
Follow The Shifting Of Consumer Behavior. Economic downturns always change consumer behavior in differing ways. This downturn is different as it has huge implications on every aspect of business. Consumers will be poorer or feel poorer. They will be more frugal and cautious in their expenditures. Reassuring the consumer and holding their hand in a "we’re going to get through this together" manner is a vital ingredient of successful marketing during a recession. Companies and brands targeting the middle segment of the market will face the most difficulty. Throw away your market research, send your team out to each spend a few days with your customers. If they are busy, hire our anthropologists to do the job for you. You will be amazed how much insight you can get in a few days.
Rethinking Your Business Models. Normally companies don’t need to think about their business models unless you are a start-up. But this crisis force everyone to rethink this. This is my favorite part as I think many companies have taken their business model for granted and didn’t realize that there are other strategic options. Companies engaging with the capital markets will encounter funders who have no tolerance of risk and reduced ability to hedge it. Hardest hit will be business models premised on high leverage or high levels of capex. Businesses with long production cycles or very long-term investment requirements will find it hard to sustain. Need to think how to make your business model asset-light. Business Model Transformation is hard, I’ve worked with tens of large companies helping them to make the change. It is a tough task. Just about everyone has lived through a failed effort to transform, this climate forces many to do it. A business model transformation can set an organization up for decades of success, this is a critical junction. Are you ready?