The fallout from Brexit and the Covid-19 pandemic, including rising costs and supply shortages, is continuing to affect organisations across all areas of the business landscape. As a result, decision-makers must find ways to live with disruption for the foreseeable future by rapidly adapting their business models, while keeping costs under control.
A constant challenge for business leaders
In recent years, managing uncertainty has become a constant challenge for business leaders. Before the pandemic, trends such as digital transformation, fast-changing consumer behaviour and the race to net zero were already high on the boardroom agenda, requiring organisations to adapt their operations to remain competitive.
However, the unprecedented events of the last two years have accelerated these trends. In addition to pandemic-related pressures, such as the need to comply with social distancing rules, skills shortages and supply chain shocks, Covid-19 has had a significant impact on consumer behaviour and levels of demand across many industry sectors. While demand for some products and services has soared, for others, it has sunk to previously unseen lows. While demand for products in the UK has increased 5% from pre-pandemic levels, demand for services has reduced 5%. These are significant overall shifts and the movements are much bigger for individual companies, products and services.
Brexit has also presented businesses with a unique set of challenges, including higher procurement costs, longer lead times and the need to deal with more red tape when trading overseas. At the same time, rising inflation and significant spikes in commodity and energy prices threaten to erode margins unless decision-makers can take fast action to manage their cost base and sales prices.
Additionally, many industries are undergoing seismic changes. Established industry players in fast-moving markets, such as the automotive sector, are increasingly coming under pressure from both traditional and new, well-funded, competitors in the fight for a share of the electric vehicle market. They must compete by rapidly adapting their business, their technology and their engineering. For example, within the electric vehicles market, the decisions on using new technology such as in-wheel motors and the advantages they bring vs more off the shelf technologies will impact vehicle performance and competitive position.
While most organisations now have access to more real-time data from customers and suppliers than ever before, many are still not harnessing it effectively to inform their strategic decision making and add long-term value to their operations. To achieve a competitive advantage and improve their agility, they must take advantage of tools that enable intelligent decision-making, spanning areas such as demand planning and inventory management.
The pace of change won’t slow down
The turmoil of the last two years has driven an extraordinary amount of change and disruption but there are no reasons to believe that this pace of change will slow down. Technology alone will continue to accelerate the disruption of business models, even without decarbonisation or geopolitical disruption. Consequently, leaders will need to continue to work with their teams to be ready for continued disruption and to adapt faster than competitors, to take advantage of the ever-changing landscape.
As part of efforts to respond to industry disruption, it’s also important for business leaders to keep profitability firmly in mind. However, when looking for cost reduction opportunities, it can often be challenging for decision-makers to know which areas to focus on first, and which costs are associated with long-term business value.
Rather than implementing a ‘salami slice’ approach to cost reduction, distinguishing between ‘good costs’ and ‘bad costs’ can help organisations to build a more profitable business. ‘Good costs’ support high-margin products and services that are in a growth phase or growth markets. They are also highly variable, so can be increased or decreased as business requirements alter. On the other hand, ‘bad costs’ are supporting low-margin business areas and are fixed costs that are inflexible. They may be focused on areas of the business that are in decline or nearing the end of their life cycle.
Disruption is the new reality for today’s business decision-makers and this shows no sign of going away. However, they should embrace disruption as a platform for positive change by adapting their operations now, at the same time as strengthening their cost base. This will give them a better chance of weathering the industry storms that lie ahead, and boosting their competitiveness as they do so.
About the author: Roy Williams is CEO at management consultancy Vendigital.