It was the first presentation the CEO was making to the recently constituted board of directors on the company’s performance till date and the business outlook for the next 12 months. It was well laid out with a series of numbers detailing revenues, margins, headcount, growth rates and so on. The CEO was well acquainted with the numbers and was aware of the operational details. But there was one troubling issue.
There was no data on customers, competition and market dynamics. None of the analysis focused on the revenues, margins and opportunities in different market segments or with different customers. Information was lacking on how the headcount of the company was distributed across customers and geographies. Were customers satisfied or not?
Which customers were showing the most promise from a growth standpoint, which ones were giving the company higher margins and which ones were a drag on the company? How many new customers were being added every month and how many customers were not renewing their contracts? What were the reasons for not renewing their contracts? Was the business going to competition? Was there the possibility of new players entering the market with a different business model and a different range of products and services? What if any were the threats and opportunities to the company – regulatory, financial, competitive, supply side etc? Were customers demanding newer services and products that could not be serviced? If so, what were the trends in customer requirements of product features and services? Was the business heavily dependent on a few large customers and therefore risky or was the business spread out over a large base of customers? Were existing customers being mined for more business from different departments or was just one customer department giving business?
How was the company perceived by customers – commodity player, high quality vendor or a partner? Was the company being beaten down on prices or were customers comfortable with the prices? How was the company placed vis-à-vis competition in terms of pricing, range of services, perception by customer? How often did the CEO meet top customers? How many customer outreach programmes did the company run? What was the nature of the relationship enjoyed by the sales team with customers? Just order takers or partners with whom the customer shared their medium and long term plans and requirements? Given changing market and customer requirements, what are the implications for the company in terms of its people and business model?
All too often, companies spend their time not just looking inside themselves but in a manner of speaking, actually living inside themselves as hermits. They don’t engage with the market and customers. They are unaware of the goings-on in the world around them – new technology, new competitors, changing customer needs. Focused maniacally on operations and delivery, these companies lose out on the opportunities and the threats from outside the company. They become reactive, focused on servicing only the stated needs from a manager or two at the customer end.
The company grows by riding an existing wave of industry demand along with everyone else. It drives margins by being operationally efficient. However, there’s little or no strategic value the customer sees in working with the company. No name recognition, no top management visibility and no long term business. The customer too then views these companies as commodity providers of little or now value and develops a purely transactional relationship with them.
In the event of a slowdown, the first to lose business is the “commodity value, transactional relationship” company. This kind of a company is also the first to be hit by changing customer situations, new technology, new regulation, new competition, new business models.
Meet customers, competitors, industry experts, advisors regularly to learn about and understand what’s happening in the industry. Read about the industry and learn what others around the world in similar businesses are doing from the standpoint of people, business models, technology, pricing, suppliers. Build relationships based on long term value and value-systems, not on short term transactions. There are a vast many examples of companies from every business segment that made the mistake of not looking outside themselves often enough and deeply enough.
Most of those companies don’t exist today.
What do you think?
Guest article by Sanjay. Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at firstname.lastname@example.org. The views expressed here are his own.
The article first appeared in FE and is reproduced here with author’s permission.