Wednesday, December 18, 2013

VISION 2014+: Profit Growth Paths Exist, If You Stay Flexible

Growth supporting management tools like costs´ optimization and effectiveness of processes are in the Czech Republic already fully exploited. Is it still sustainable to continue in cost cutting after five years of streamlining thanks to the economical crisis?, asks Jana Budikova, strategic management consultant and owner of JBC Consulting. She sees the competitive advantage for companies in the area of quality of products and services, as well as in their constant improvement and innovation.

Do you see new trends or issues Companies seek a consulting advice for?

The business environment is changing. My recommendation for small and mid-sized companies, not just for next year, but also for the years to come, is to focus on searching new growth areas – via innovation of products, services, the way of delivering customer experience and last but not least in innovation of intercompany processes and business models of running a Company. I would definitely devote full attention to exploiting new opportunities resulting from presence in the digital world. I do not mean only quality and responsiveness of web pages; I see opportunities in communication with customers via social media and in mobile space. I would focus on integration of on-line and off-line worlds, to maximize synergies from both channels. I would also smartly segment the customer base into groups, so that I could offer individual approach to the most loyal customers who generate the highest turnover for my company. I would do everything for understanding the needs of my customers, so that my offer is as closest as possible towards their imaginations. Exceptional customer service can on top of that represent in the Czech environment competitive advantage for many companies.

To assure efficient company operations, I would not be afraid to use the services of trusted cloud computing IT companies. Cloud setting combined with big data management helps to structure the data and share it more effectively, the territorial distances are diminished, and actualization and safety of IT systems is in the hands of professionals, who make the IT operations simpler and less costly. On top of that, thanks to pre-defined data structure, leaders can better measure the business and thus to better manage it. Overall I would try to outsource specific areas of expertise, in which I cannot fully utilize the personnel on an annual basis – these areas could range from setting a strategy of a company toward accounting agenda outsourcing. This would enable me to free up resources for innovations.

I wouldn´t be afraid also to use the investment support from so called „seed fund“, i.e. the Czech development fund, that should hopefully finally start its operations in 2014.  I would not create my business model based on this state & EU financed capital (up to 50% resp. 70%), I would like to use the extra investments for acceleration of innovation speed, increasing the probability of innovation success with the No. of launched innovative ideas.

You advise to exploit internet more seriously. Why?

Growth opportunities exist in the retail world, but not only there. The percentage of people, who at present buy goods or services via internet, grows each year (editors note: according to the company Shoptet, at least once a year 79% of Czech internet users buy goods or services via internet;  at least once a month 43%).  Internet shopping still accounts only for 5-6% of total retail turnover in the Czech Republic and this channel grows continuously, despite the negative trend of total retail segment caused by the economical crisis.

The world of internet offers a lot of new opportunities in the area of on-line marketing and tailor made presentation of a company; new chances exist also in the area of development of internet applications used in many branches – from data search and sorting, towards publishing, reservation activities, e-learning, toward tools for better administration, accounting management or legal financial claims management.  Small or middle sized companies can effectively use these applications or they can get themselves into the business of applications development with the prospect to operate them worldwide.

You mentioned that it is necessary to be close to the customers. What specific actions should companies take to fulfill that mission?

There are several areas, where I would suggest focusing.  In the process of new products or services development, we can use Crowdsourcing for generation of new ideas and for testing of their attractiveness – e.g. internet open group development of a new drink, its flavor, packaging or even a brand name. For implementation of new ideas we can use a method of Crowdfunding – obtaining micro investments from general public with the motivation, that contributors will receive a new product sooner than others and that they will obtain several other advantages, once the new product or service is launched.

Once the product is widely available on the market, then it is important to offer each customer – either from on-line or from off-line world - personal care, so that he/she gets the feel of uniqueness and returns back for the next shopping. However spam e-mails do not serve well for that purpose. It is more effective to create such an internal data system (of course after receiving permission from a customer enabling to use the data), that will process the profile of a customer. If managers know, which customers buy, how often, in what value, they can prepare tailor made offers, present a very suitable gift, or they can organize a relevant sales supporting event. There are also plenty of opportunities in the Czech Republic, how to improve the atmosphere during the business meetings or in shops. When the Companies learn how to satisfy the real needs of their customers and when they learn to do it most effectively, they can charge higher prices to customers also during the time of an economical downturn. Examples exist. Apple under the leadership of Steve Jobs was one of those clever ones.

However persistency is a key. Since Tim Cook stepped in, Apple abandoned its leadership principles and it started to launch not functional innovations (e.g. Apple Maps), no wonder that customers lost trust. Entrepreneurs should be brave enough to stop product launches, if these cannot meet the highest standards. Quality will remain to be the main competitive advantage.

Are you sure, when today price still plays the most important role?

I have recently met Mrs. Klimova, owner of Aspius, who imports raw meat and offers it to Czech consumers under the brand My Meat “Moje Maso”. She capitalizes on the fact that her competitors try to cut costs at the expense of its quality.  But she set out her business in the direction of quality, and she strictly follows her route. She has put her own picture on each packaging in order to guarantee the product quality, and by that she inspires confidence.  People still understand the difference in quality. And when they want to make a treat for themselves, they will not save on meat.

You have mentioned outsourcing; do you think that companies rather prefer to have every function in house? I though these days are over.

Thanks to the on-going economical downturn, companies reduced the investments into personnel; they have cut positions and combined functions in a way that employees do not have time to properly execute the tasks. These functions are in the same time not outsourced externally. Therefore it is important to assess, what a company can manage itself and for which tasks it is better to hire temporarily external experts. Sometimes it is more advantageous to hire expensive top class expert, who solves the problem quickly and efficiently, but he/she will not hit the P&L long-term. Hiring experts becomes one-off investment, without on-going high fixed costs. The crisis changed the angle of view; and return back is not possible anymore. The rules, that were in place five years ago, are today obsolete. Leaders have to lead in a new way; they have to put flexibility in focus.

These are in principle the key thoughts that I try to pass on, when I come to a company to restart it, to define new strategies for growth and to launch effective processes. It is awesome if you manage to achieve good results today, but it is even more important to look forward, what comes tomorrow or how the world will look like in two, three years. The pressure to reduce costs will remain; the growth has to come with increasing the focus on customers, offering them high quality goods and services and their constant innovation. Only then you can be sure that the gap on the market will be filled by you, not by your competitor.

The way out of crisis will not be easy; maybe the return to growth was even postponed, when the Czech National Bank (CNB) changed the rules on the market thanks to its unexpected currency interventions.  I remain positive, though. We have a lot of capable and successful entrepreneurs in the Czech Republic, who will be able to have their breakthrough despite the obstacles they face. They will become an inspiration for others.

You have mentioned CNB’s intervention. Do you think that it will cause serious problems to entrepreneurs?

Frankly say, I consider this intervention a punch to face to all entrepreneurs, because it was not processed in a standard way, like in Western countries, where interventions are discussed with a government, a president or a Senate.  Normally financial analysts give warning and prepare the expectations of the business community (this time all the analysts predicted an opposite trend i.e. strengthening of the Czech currency).  
Czech economy was considered stable, thus fixing exchange rate was not a standard tool and contracts did not have clauses including covering the exchange rates risks. We are heavily based on imports; with the intervention a lot of entrepreneurs lost money overnight. It would be idealistic to think that entrepreneurs, who already for long time suffer due to the decline of consumer demand and of their margins, have reserves for such unexpected events. They will have to focus now on covering the losses, instead of aiming their efforts and investments into innovations. The trust issue in further steps of CNB remains a problem for future, that will lead only to conservative investment approach.

Argument about deflation has not persuaded you?

I have watched Mr. Singer, the Governor of CNB, on TV and he did not convince me. He totally abandoned the importance of stability of entrepreneurial environment as well as of trust in the system.  I am also not optimistic about his argument about creation of new jobs. International corporations will put focus on cost saving, because they set the targets in Euro already for some time (and they pay rent for shops and offices in Euro). All base costs (including petrol) will increase for everybody, companies will not have the chance to realize full scale price increases, because consumers’ demand is on its low already for long time and companies will not be able to increase salaries. Companies are already over cost optimized.  Rather than currency intervention our economy needs stability of the system and growth stimulating offers, otherwise it will not get out of the crisis.

You have rich experiences from Germany, is there a recipe for our problems?

I moved to Germany in 2004, to become an Executive Director. During that time Germany had recorded GDP decline and overall the business environment was frozen. Only after Angela Merkel assumed the office of Chancellor of Germany in 2005, and only after she introduced several measures for stimulation of economy and business, the German economy returned to growth and today Germany is economically at the top of Europe. The government introduced several incentives not just for small and medium entrepreneurs. In the same time Angela Merkel managed to drastically reduce the unemployment rate and to keep the low level of inflation. We have something to learn from, I guess. 

This interview was led by Petr Svihel, Chief Editor. It was published in the magazine Trade & Finance (Obchod a Finance) by Mlada Fronta/E15 in December 2013 - you can download the original Czech version / in two parts / here:
- part I.
- part II.

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