ARE YOU SITTING COMFORTABLY? Well watch out!

During the last couple of months, three major retail businesses that are household names in Britain have collapsed into receivership. In each case, the companies have struggled with massive overheads, falling sales and cash-flow problems that ended in receivership and closure. All these companies were well established, so what went wrong?

When businesses fail, it is mainly through failures of management. When high street names like Comet, Jessop’s, HMV and Blockbuster go into receivership and liquidation, the underlying reasons are often that the management failed to recognise, evaluate and compete with the changing economic, trading and competitive conditions. While sometimes these conditions are beyond management’s control, in many cases it is a lack of appreciation of the situations and ability to deal with them, which result in subsequent business failures.

All the companies mentioned that have failed were involved in retail entertainment and equipment, namely music, photography and electronic equipment. In reality, the “writing has been on the wall” for some time for these businesses so it is not really surprising that they have been forced into closure, but could the situation have been avoided and the businesses continued as profitable enterprises? Other companies recognised changing market conditions, evaluated the problem and reacted accordingly. Thus Virgin, which started as a record retailing company, sold their UK megastores and concentrated on their media and aviation business. Are there lessons that can be learned from these failures?

Marketing, as defined by the Chartered Institute of Marketing, is “the management process that identifies anticipates and satisfies customer requirements profitably.” The most important element of this statement is that it is “a management process” which is there to produce profitable income by identifying anticipating and satisfying customer requirements. It is the failure of this management process which is the underlying cause of many business failures.

The objective of the commercial manager is to produce profitable income for the long term future of the business. Managers that concentrate on those activities which do not in themselves make money, such as twitter and customer management systems, may be distracted from those fundamental market developments that are vital for business survival. In every business, complacency is the biggest enemy of commercial management.

SWOT analysis, (Strengths, Weakness, Opportunity, Threats) is a well recognised tool of commercial management. Although SWOT analysis can often be confined to the internal organisation of a business, it is in indentifying the external threats and opportunities for business that constantly arise that it is most valuable. By undertaking SWOT analysis on a regular or continual basis, a commercial manager is better placed to evaluate both the current, as well as the potential future business situation. Ideally, SWOT analysis should come from independent outside sources, to reduce the opportunity of internal company bias. There are many commercially available reports by independent market research companies on the state and trends of most markets around the world, which reduces the need to commission expensive specific research.

Many B2B (business to business) markets change slowly, but retail markets, especially FMCG (fast moving consumer goods), can change rapidly, so how should a business react?
Change for the sake of it is often costly and not beneficial. Radical change should generally be envisaged only in extreme circumstances, as it can be confusing, disruptive, and demoralising. However, evolutionary change to meet changing circumstance is essential for survival and prosperity. Thus commercial management needs to be flexible in both thought and organisation in the development and execution of its business plans.

Business Planning should always contain a detailed contingency plan to meet opportunities and threats identified and evaluated from a SWOT analysis. Fundamental to all business planning is a thorough appreciation of the economic and market situation, identifying the threats and opportunities that might exist. It is important to identify:
* How is the market changing?
* What are the trends?
* How might these trends and changes affect continuing business?
* Would those effects be positive or negative for the future of the business?
* What are the key factors that support the income plan?
* How vulnerable are they of trends and changes in the market place?
* What happens if the key factors fail to happen?
* Is there a contingency plan to be enacted if the key factors fail?
* Does the contingency plan cover all likely eventualities including an action plan should identified threats become realities?
* How much do you know about your clients? Are they financially stable.Is their market good? How do you know?
* What is the worst case scenario?

Businesses operate today in global markets which are continually changing because of technology, economics, and fashion, if businesses are to continue to survive and produce profits they must be aware of these changes and be prepared to adapt and change even radically if necessary.

Complacency in business, especially in consumer markets is potentially a recipe for disaster.
Good planning does not eliminate risk, neither can it cover every eventuality, but it should cover the most obvious ones as well as some of the improbable ones.

However, commercial managers need to remember that if you are too comfortable, you might be in for a nasty surprise.

© N.C.Watkis, Contract Marketing Service 24 Jan 13
Contract Marketing Service, (Business Development Specialists)