How to Successfully Manage a Digital Business in an Economic DownturnBy: Mike Myatt
The two main topics of conversation at most of the trade shows, conferences and meetings I have attended over the last few quarters have been centered around the fallout in the technology sector (more specifically the Internet/.com micro-vertical), the economic downturn, and their corresponding effect on business.
It is not uncommon to hear savvy business veterans utter statements such as:
"With all the "dot-gones" and recent Internet failures of late, I'm concerned about the stability of the Internet and want to wait and see how everything shakes out over the next few months before I make any decisions", or "I'm cutting back on technology expenditures until I see how bad the economy is really going to get".
The reality is that we are in a global economic downturn. Furthermore, it has been proven that it is much more difficult than anyone originally thought to truly be successful on the Internet. The carnage created by ill-conceived business models, flawed business logic, and slowing of capital funding has "C Suite" executives searching for answers. In order to understand how to successfully move forward in today's environment, it is necessary to take a step back and understand how we arrived at today's state of affairs.
While it is true that the recent press surrounding the dot-com segment has been rather ominous, it is also true that the press surrounding the usage, adoptability, and overall viability of the Internet as a business platform and environment has never been more positive. In fact, there has never been a business platform that has seen the amount of success that the Internet has had. In my opinion, the race has just begun, with many of the rewards still to be achieved.
The recent consolidations are reflective of macro economic fundamentals that occur during early maturation cycles of new industry sectors, and are clearly not unique to the Internet. This weeding out process occurs in every sector as it matures and is good for the industry, as the sector is now stronger and more credible as a result of the thinning in ranks. Furthermore, macro driven consolidations of this type all follow a similar model, which consists of a market that in its infancy had substantial buy-in from the media, a strong capital flow and over exuberant investors. This scenario usually causes flawed financial modeling, and as Wall Street becomes savvier about what drives the new market, and waning investor sentiment becomes pessimistic based upon poor financial performance, the inevitable consolidation occurs.
The difference between most macro driven consolidations and the Internet downturn is one of scale. Never before have the public at large, the media, and the financial sector all put so many eggs in such an immature basket. The flow of funds into the technology laden NASDAQ saw unprofitable companies with no track record soar to blue sky market capitalizations that were greater than the established giant icons of the NYSE. This sector rotation into technology was of such gigantic proportion that when the wheels started coming off, the stability of the global economy was brought into question. The flight to safety out of technology investments, a trickle down of poor earnings reports across sector lines, reduction in consumer confidence ratings, higher unemployment rates and heavy Fed intervention have caused our current economic status quo, and have caused many executives to have a blurred vision of the future.
Now for the good news: more tangible, enduring wealth and market dominant positions are created in declining markets than in advancing markets. Significant rewards exist for those smart enough to move forward and strategically leverage technology to exploit business opportunities while their competition pulls back and braces for tough times.
The key to successfully managing a business through an economic downturn in today's digital world is to learn from the mistakes of recent failures of companies based upon the "New Economy" rules, and in turn learn from the successes of companies that have gained ground during prior economic downturns. Put simply, the winners in today's business environment will combine old economy financial models, new economy success metrics, and aggressive implementations of e-business initiatives to gain leverage, velocity and economies of scale.
The following business principles which have been taken from the best practices of both new and old economy companies will help your business thrive in a digital economy regardless of the state of the economy:
Engineer Operations for Profitability
So-called "dot-com visionaries" have learned the hard way what good business people have always known: At the end of the day, profitability is the ultimate benchmarking tool for success metrics. If you are not seeing sustained, quarter over quarter sequential growth in profitability, your business is not performing at an acceptable level. The old management axiom, "If you can't measure it, you can't manage it", has never been more important than in today's rapidly paced business environment. If the right business intelligence, knowledge management and analytics toolsets are in place you can pivot your business to both react to, as well as proactively anticipate changes in customer satisfaction, market conditions, and demand or supply side pull.
Using Web-based technology to broaden markets, shorten selling cycles, enhance distribution and fulfillment capabilities, speed-up product development cycles, reduce cost of sales, improve efficiencies of supply chain management, improve communications with employees, customers, vendors, suppliers and partners, and to create a myriad of other tactical advantages can have a tremendous positive impact on profitability. Do not fear technology implementations; strategically embrace them for the benefit of your employees, customers, and shareholders.
Leverage Human Capital:
A business is only as good as its people. Recruit the best talent available. Best in class human capital will give your business an intellectual competitive edge, and create a stimulating environment. Perhaps the most underestimated value of hiring right is that talent attracts other talent. People not only want to be considered the best, they want to associate with the best.
Old economy companies understood the value of retaining talent for the long haul, but new economy companies understand how to create environments that engender the desire among employees to stay for the long haul. Use technology to create workforce leverage through collaboration, and knowledge management. Make the workplace a desirable place to be. Provide continuing education, career migration paths, creative and rewarding compensation plans that encourage peak performance, and lastly motivate your workforce with outstanding, communicative, example based leadership.
Execution is the Key:
Do not get caught up in trends and fads. Every sound business initiative begins with a solid plan. However, most anyone can coble together a high level strategic plan, but few can author a strategy that can be successfully implemented. In order for a strategic plan to be of any value it has to incorporate the following 10 elements:
Outsource, Outsource, Outsource:
It has been proven time and again that the most chaotic and cost prohibitive implementations are conducted with organic efforts. The failure rate of internally implemented initiatives as measured against initial expectations show failure rates in excess of 75%. There is significant leverage in outsourcing implementations to competent subject matter experts (SME's). Outsourcing frees your internal resources to focus on highest and best use activities that allow for continuity of mission critical agendas. Outsourcing to SME's will offer the following benefits:
If your management team can streamline operations, facilitate solid strategic planning, conduct flawless tactical execution of business initiatives, and recruit, motivate and retain best in class human capital, your business will gain ground while your competition is "down-sizing" or "right-sizing".
The question is not what economic environment we are entering into, or whether e-business works, or is e-business here to stay, but rather how can a business leverage a scalable e-business strategy that will service their needs both now and into the future. It is impossible to guarantee success, but the one guarantee I can make is, that if your organization does not embrace the business principles shared in this article you will not maximize the potential of your enterprise or be appropriately rewarded for your efforts.
© 2001 WorldClass Strategy, LLC.
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