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Online Business Growth

Online Business Growth – The Easy or The Right Way?

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Online business growth – the easy way or the right way?

Onine business growth is a topic concerning most retailers. How can retailers grow their business in these times? The key message is at the very end.

Consider this scenario.

You are the owner of a mid-sized retail business. You presently sell your product to your customers in physical stores. A typical sale goes like this: Customers show up at your store. They specify their needs, you give options. You counsel, they choose. You pack, they pay, and you complete the transaction.  

Thus far, you have been successful in your current brick-and-mortar model. Your business has a loyal customer base. The net profit margin is in the range of 15%-20%. And, the cash flow is good too.

So, you decide to take your business to the next level.

How would you do it?

The answer is ‘you go omnichannel’.

The internet penetration of above 90% in most developed countries makes it a no-brainer. Among the developing countries, the internet has grown by over 5000% since year 2000 to around 59%. Moreover, customers now prefer to buy in an omnichannel environment.

In omnichannel retail, the focus is on providing seamless shopping experience to the customer across multiple channels. Omnichannel strategy helps you integrate physical store, online store, mobile app, and social media.

In-short, your business growth strategy now revolves around selling online.

To sell online, there are two main options:

  1. Create your ‘own online channel’
  2. Sell through existing ‘online marketplaces’

This decision determines the future course of your business.

Let us dissect each option.

Option-1: Create your own online channel

Creating your own online channel includes two things: first, setting up an e-store – an e-commerce website – to display products and receive customer orders. Second, you need to have an efficient and trustworthy logistics system to fulfil the customer orders. The entire order-to-fulfilment process must run smoothly to give customers a seamless shopping experience.

Having your own online channel has several benefits.

Top three benefits are:

  • You can create bespoke personalised experience for your customers. It allows you to ensure stronger connection and engagement with them.
  • You have total control over your business throughout the customer buying process. So, you decide how customers interact with your brand while being on your website. Also, you can create relevant content around your offerings to engage with target customers.
  • Most importantly, you gain direct access to your customers and their data. You can leverage advanced analytical techniques to analyse this data. This analysis can give you crucial insights about the type of visitors, their visiting trends, and their buying patterns. These insights help you decode the online customer behaviour. Using that, you can make appropriate changes to the way you sell online. This data-driven online selling strategy promises to help you grow your online sales.

What do top-brands do?

While it is not a surprise that top brands like Apple, Starbucks, Disney, and Under Armour have their own online channels, most mid-size businesses have also launched their own online stores. It helps them create unique customer experience. The successful ones have implemented advanced analytics to reveal insights about their customer buying behaviour.

Online Business Growth
How top brands ensure unique and enjoyable customer experience through their e-stores

However, a common perception among small retailers is that there are a few disadvantages with this option, viz. higher upfront investment, additional analysis and marketing costs, and higher lead-time for online business growth. Perhaps, that is why, almost one-third of small businesses in the US do not have a website of their own.

That brings us to the second option.

Option-2: Sell through existing ‘online marketplaces’

Online marketplaces allow you to sell products without you having to set up your own online store. The marketplaces host many sellers on their website. Marketplaces are popular among buyers because they allow to buy different products across categories without having to leave the site.

The marketplace owns everything on their website. They take care of the marketing too. In return, you pay them product listing fees and a commission on every product sold.

There are many online marketplaces around. A few are global, some are regional, and many of them are national. The popular ones are Amazon, eBay, Flipkart, AliExpress, Rakuten, Etsy, and Target, amongst many others.

Many retailers tend to choose this second option over the first. It seems easier to them. Ostensibly, they see the following ‘advantages’ in this option – no upfront set-up cost, reduced marketing costs, and no waiting for online business growth.

Except, these advantages hide the real disadvantages.

Let us explain by listing out six key disadvantages of ‘selling through marketplaces’ option:

No Upfront cost = Lose control over sales

You don’t incur upfront cost if you don’t invest in your own e-commerce set-up. Instead, you use the marketplace’s infrastructure to sell. You use their e-commerce applications, their algorithms, and their processes. You depend on them for the sales.

Sure, the sales can increase, but you may not know why. [GE executives recall how Mr. Jack Welch would get angry when the sales went high and they couldn’t explain why.]

In a way, you lose control over your sales process and data to the marketplace.

Why is it a big problem?

Because, if the sales go down, you would be clueless about it. And so, would not know how to fix the problem.

Let us see an example of what it means by not having control.

When you are selling on marketplaces, you cannot control what products are being sold beside yours. Worse, what if the other product looks identical to yours but is from your competitor. Worse still, what if the other product being sold has the same brand-name as yours, but in altogether different category.

It DOES happen!

Here is a real example* of a brand selling at one of the top marketplaces:

The organic soft-cotton baby onesie, is selling alongside

woman’s cocktail dress of the ‘same’ brand-name (but from a competitor); selling alongside

motor flush oil of the ‘same brand-name; selling alongside

a music label of the ‘sam-e brand-name

– all of them in the same window.

And you cannot do anything about it.

Reduced analysis and marketing costs = Risking business survival

Generally, marketplaces own the data on your product sales. The minute a retailer signs up to a seller’s account on a marketplace, they give permission to the marketplace to use their sales data however they choose. Most marketplaces don’t share that data back with the sellers.

So, in reality, when you choose to sell through a marketplace, you don’t just pay listing fees and a commission per transaction. You also pay with your sales data, and future sales.

[I would re-read that last sentence to let it sink in.]

Marketplaces can use your sales data to gather your customer intelligence. They can leverage it to offer your customers better deals through their in-house labels.

Sellers have shared stories about how this has impacted their business.

In short, you risk losing your loyal customers to your competitors if you do not leverage your sales data yourself.

No waiting for sales-success = Less opportunity to build your brand

Online marketplaces try to make the seller onboarding process easy to bring more offline sellers on their e-commerce platform. They try to make it smooth and quick. You can start selling in a few days [and you may stop selling in fewer days if you violate their policies].

Not just that, you may also start realising sales quickly on marketplaces. However, the presence of many other products makes it difficult for consumer to register your brand among so many others in their minds.

You are successful quickly = Threat of getting undercut on prices

If you start doing really well, someone will notice and one of the two things may happen – they may offer to buy you out or they may undercut you on price and terms, eventually killing you.

Online Business Growth

Remember Zappos? Zappos was extremely customer-centric, very successful. It was the first company that sold shoes online, at scale. They put a lot of importance on understanding shoes, their culture and customer centricity.

When Amazon wasn’t going anywhere with its own online shoe store, Endless.com, they made their first attempt to acquire Zappos in 2005. Zappos declined. What happened later is not up in public domain. However, Amazon eventually acquired Zappos in July-2009.

Hyper-competitiveness – Forced to sell on price, not differentiation

Conservative estimates put the number of active sellers on Amazon at 2.3 million as of 2019. Chances are, many of them are selling the same products as you do. This makes it difficult for you to compete, if you do not have aggressive [read: less] pricing, that helps the algorithm pick your product ahead of the competitors’.

Diapers.com may be the case in point. They built a $100 million business selling diapers online. They offered free delivery of diapers and other products to parents. But they couldn’t sustain the competitive pressures and ceased to exist in 2017.

Restrictive TnC on how you can communicate with customers = Limits brand building

There may be marketplace limitations on how your business can brand and communicate itself on the marketplace. Moreover, any slightest hint of violating the strict policies will earn you the dreaded ‘seller suspension’ message.

Does that mean marketplaces are bad?

NO! Not at all.

In fact, they have disrupted some aspects of retail for the better.

For example, online shoppers love Amazon. Amazon is allowing them to have wider selection, shop-anytime-anywhere convenience, and enjoyable shopping experience, all at a cheaper price. They have developed a world-class e-commerce platform over the years.

Marketplaces can be good for small retailers, that do not have resources to have their own e-store. Also, marketplaces may be useful for those businesses not aiming to create an enduring brand.

But they may not be for everyone.

You need to figure out whether marketplaces are right for you.

Then, what is the way forward to online business growth?

Companies are waking up to the risk of increasing their dependency on marketplaces. More and more mid- and large-sized companies are embracing “direct-to-consumer” sales model.

Almost all large businesses and brands have their own e-commerce stores. Some of them were tempted initially but then recovered themselves from increasing their dependency on the marketplaces.

Nike – just doing it without a marketplace!

Nike is one such example. Recently, Nike confirmed to CNBC that it will stop selling merchandise directly to Amazon, as part of its push to sell more directly to consumers.

To quote CNBC, “Prior to 2017, Nike had resisted such a deal with Amazon, focusing its attention on its own online marketplace and stores. The fear for many brands has always been that, by partnering with Amazon, a company loses control over how its brand is represented on the site.”

This Veracle makes a point that mid-sized businesses should strive to have their own e-commerce set-up. They should attempt to leverage their sales data using analytics. This could be the right way for their online business growth.

What do you think? Have you seen a mid-sized business struggle with this dilemma?

Related Posts:

<– Know customer shopping behaviour KPIs in e-retail?

e-Retail Innovations – How e-Retail is Changing? –>

*name withheld on request.

Cover Photo courtesy: Pradnya Design Consultants

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Are you survival-oriented or a growth-oriented executive?

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Are you a survival-oriented or a growth-oriented executive?

Top executives at any organisation are responsible for growth of the business. Their professional careers grow (only) if their business grows.

The responsibility lies squarely on the chief executive officer. They are in charge to set the strategic direction and align everyone to it to achieve their goals.

However, the chief executive officer role is a complex one to shoulder.

Over the years, the top executive failure rate has varied from 30% to as high as 60% leading to CEO turnover. Significant proportion of this attrition is involuntary. According to The Conference Board, a staggering 30.5 percent CEOs were sacked by their boards in 2019. PwC’s Strategy and CEO Success study puts the lost market value due to this forced attrition at an estimated $112 billion annually.

One reason for this high CEO turnover is failure to deliver desired results in line with stated strategic goals.

These CEOs often have best ivy-league-education and rich execution experience. They have consistently delivered high performance in their previous roles. Yet, they fail in meeting the objectives as CEO.

While there are various reasons behind it, there is one that is less obvious.

The reason has come to the fore more prominently in the current China-virus pandemic.

It is CEOs’ inherent attitude to managing business strategy.

CEOs fall in two categories based on their mindset towards business strategy.

  1. Survival-oriented CEOs
  2. Growth-oriented CEOs

Survival-oriented CEOs are cost-focused. They believe in maintaining profitability by driving the expenses down. They do not think of investing in growth stimulating actions.

During times of crisis, survival-oriented CEOs follow survive-today-grow-tomorrow principle. They shift focus to short-term. As part of that, they cut costs and downsize operations. These actions help them show good short-term results. But long-term growth prospects of the organisation fall in jeopardy.

Their focus, tactical rather than strategic, can be hope strategy at best.

Being a survival-oriented CEO is justified in some exceptionally challenging situations. This is especially true if the actions are temporary taken just to tide over the crisis.

But this is where it gets counter-intuitive.

A CEO is successful when they achieve long-term results despite the challenges, whatsoever.

On the contrary, Growth-oriented CEOs are revenue-focused. They stay committed to achieving their long-term goals despite the challenges.

The growth-oriented CEOs usually follow a very deliberate strategy to grow. They employ innovation and data-driven strategy for future growth. Most importantly, they commit resources to achieve the business goals while adapting to any changes the challenges may present.

Even during crisis, the growth-oriented CEOs do not lose sight of the strategic goals. They fervently keep long-term outlook. The short-term results may suffer in their tenure, but they are more likely to show good results in the longer term.

Such CEOs spend their time and efforts towards planning and pursuing a working business strategy.

Mr. Bezos is one such CEO. Data science and innovation are hallmarks of his growth strategy. In his words:

We can’t be in Survival mode. We have to be in Growth mode.

You can find out your attitude as a chief executive. Take the CEO Genome quiz.

So, have you noticed a survival-oriented or a growth-oriented behaviour recently? What actions did they take that made you think so?

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<– Why do Businesses hire Management Consultants?

How E-Retail KPIs different from traditional Retail KPIs? –>

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Cover photo credit: Dietmar Becker on unsplash

What Does Digital Maturity Really Mean

What Does Digital Maturity Really Mean?

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When I went to medical school, the term 'digital' applied only to rectal exams.” - Dr. Eric Topol

Well, things have certainly changed since! The previous article – an infographic – discussed about the urgent need for businesses to achieve digital maturity in order to survive and thrive. But exactly what does digital maturity really mean for a small and medium business organization that thus far has focused primarily on serving local customers?

You might be thinking whether this question – what does digital maturity really mean – is really relevant in today’s digital age. Our implicit hypothesis is that most businesses, especially those in the developed countries, are already digital by now, and so they must know what digital maturity really means.

Well, evidence shows that the above assumption is far from true.

Consider these stats from the UK Business Digital Index 2015 report which states that almost a quarter of UK businesses still lack basic digital skills:

  • Almost 35% of around 5.2 million organisations in the UK have a very low level of digital understanding and capability – they do not make use of the internet for their business and do not have any web or social media presence
  • Barely 53% of the businesses have their own website
  • Only 46% organizations have a medium level of digital maturity – i.e. they use basic e-commerce tools, perform some banking transactions online, and have basic social media presence.

Therefore our question is extremely relevant even today!

So what does digital maturity really mean?

To understand this, let us quickly recapitulate why businesses want (or need) to go online in the first place.

Businesses go online for a variety of reasons (read: benefits) such as expanding markets to grow business, deepening engagement with target customers, broadening product and service offerings, leveraging multi-channel capabilities, and in general staying competitive amidst the changing global business landscape.

All these reasons can be summed-up in one simple line: Business organizations, like yours, are going digital because your customers are increasingly seeing, hearing, feeling, searching, interacting, sharing, and buying stuff online.

The above sentence encapsulates the entire online activity happening today in the business world. [tweet this]

In short, your market has gone online and it would serve you better if you do, too.

So what takes you there?

Here are the 5-stages on your journey to achieving digital maturity for your business:

  1. Digital Apathy
  2. Digital Literacy
  3. Digital Transactions
  4. Digital Engagement
  5. Digital Maturity

Let us look at each one a bit more closely with an illustrative pictorial example for each:

  1. Digital Apathy:

This is the initial (or default) stage of any organization typically born before internet. This company mostly sells their products mainly to customers in its neighbourhood through its physical stores. There is a passive resistance (or indifference at best) in accepting digital strategy due to inertia mixed with scepticism towards going digital. There is absolutely no online or any beyond-the-shop interaction with the customers. The business owner is unmindful about going out of business in this increasingly digital world, and apparently suffers from ‘it won’t happen to me’ syndrome.

What Does Digital Maturity Really Mean?

  1. Digital Literacy:

There is (almost) a reluctant acceptance to the changing business scenario. The business has a (mostly passive) website that displays the products and services on offer but hardly anything beyond that. On the positive side, customers now have a gateway to your offerings and can find information about your products and services. There is a new one-way channel to update customers about new product and service offerings – a good beginning to say the least.

What Does Digital Maturity Really Mean?

  1. Digital Transactions:

The business finally wakes up to enormous possibilities the e-commerce world offers and introduces online transactions to sell its products online. There is a conscious effort to implement basic customer analytics to understand buying customer profile to grow revenues. The business also tends to apply e-commerce intelligence to provide leads reports to sales teams to grow further. There is an emphasis on generating and distributing user-oriented content in order to draw target customers to purchase online. Businesses may introduce their own inventory management and service fulfilment back offices to excel in their customer service to build customer loyalty. The business starts learning about rule based prioritization as they explore the benefits of implementing analytics for revenue and profitability growth.

What Does Digital Maturity Really Mean?

  1. Digital Engagement:

When a business establishes itself on the various social media platforms, there is a step change in the way it perceives customer interaction, customer engagement, and marketing. Old channels and methods of one-way communication are renounced in favour of digital channels which enable listening to customers’ feedback first-hand and responding in their preferred channel to facilitate effective customer engagement. One important aspect of increasing engagement is to create product touch-points across all channels vis. physical, desktop, mobile, kiosks, catalogue, direct mail, and social media. The order in these cross-channel chaos is set by the use of marketing analytics which helps to mine hidden consumer insights, understand customer purchasing journeys, optimize advertising spend, and engage with prospective customers at early st(age) to nurture them into loyal followers.

What Does Digital Maturity Really Mean?

  1. Digital Maturity

The focus at this stage is on innovating the existing business model and on integrating the overall strategy. Personalization is the key here! Customers have 24x7x365 access to the products and services across different digital channels but still have an Omni-channel experience. For example, a customer becomes aware of your product in one channel, say Pinterest, actively searches for it online on his office desktop, physically touches and considers buying it in-store, ends-up purchasing the stuff on their mobile, and shares his new purchase with Facebook friends. Matured businesses (like P&G and Amazon) have institutionalized integrated use of analytics services to study individual consumer behaviour through comprehensive understanding of customer interests, affinities, and actions. They are drawing intelligence trends to predict customers’ future wants and needs before customers themselves realize it. Considering the enormity of data getting generated every day, matured businesses are implementing advanced algorithms to auto-analyse data at its source for more real-time application.

What Does Digital Maturity Really Mean?

Achieving digital maturity is not the end; rather a beginning of the implementation of a truly personalized digital strategy for each consumer. Businesses embracing digital strategy will eventually lead the way.

We are in the throes of a transition where every publication has to think of their digital strategy” - Bill Gates

Cover photo credit: yourgenome.org

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<– Why your Business should go Digital

Most Popular Perspectives from 2015 –>

If you liked this article then you may also like to read The Digital Transformation Imperative: Why Businesses Must Have Online Presence – AN INFOGRAPHIC.

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achieve strategic transformation for enduring growth

How do you achieve strategic transformation for enduring growth of your company? – Part-II

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Thanks for your overwhelming response to the ‘achieve strategic transformation for enduring growth – part-I‘ of this two-part series. In the part-I of this article, we agreed with Mark that strategic transformation is indeed the key to enduring growth. However, we differed on the way to achieve transformation.

So how do you achieve strategic transformation for enduring growth of your business?

In part-I, we asserted that the secret to achieving strategic transformation is to be fiercely customer-centric.

In this part, let us discuss how you can transform your business and grow it further keeping customer-centricity at the core of your business strategy.

When you become passionately customer-centric, you make your customers’ delight the overarching goal of your organization. ‘Customer delight’ becomes the Shinbashira – the central pillar – on which your organization stands. You listen to your customers and place your customers (and consumers) at the centre of everything you offer. You direct your resources toward satisfying (and exceeding) the needs and wants of your consumers. As their needs change, the solution you offer changes, and the business strategy behind delivering those solutions changes too. You become so agile in responding to your customer’s changing tastes that you barely notice the incremental changes taking place in your organization. This continuous change becomes second nature to your organization.

And when you look back over a period of time, you realize that you have moved so significantly from your original business situation that there is hardly anything common between the old face and the new face of your organization. It is like the organization undergoing morphing.

This is when you have achieved transformation, without consciously embarking on doing that.

You don’t TAKE disruptive actions for strategic transformation; you take well-conceived actions with specific goals that BRING ABOUT ‘disruptive transformation’. There is a difference!

But this is a very simplified view of an organization going through transformation.

What actually happens (or has to happen) on ground is far more complex and far too deliberate.

Let us see how.

Our analysis of the top-100 brands revealed that when organizations commit themselves to becoming customer-centric, they tend to take these five steps so as to focus on creating maximum value for their customers:

  • They meticulously track usage of their products and services to figure out their customer’s usage patterns. This may involve analysing usage data from customers and in some cases their customer’s customers, who are using products that incorporate your product.
  • They strive to understand their customers thoroughly to comprehend the real reasons behind their customers’ purchases and apply that knowhow to identify real profitable customers. They perform detailed analysis of the customers’ data to generate deep insights into their purchasing behaviour and to spot any changes in them.
  • They incorporate their customers’ feedback into R&D to continually improve their products and services in line with the changing consumer expectations. Once in a while, this may result in conceptualizing an innovative product not yet in the market.
  • They put in place mechanisms to refine their operational strategies and organizational processes to address the changing priorities.
  • Most importantly, they use the feedback to calibrate their future roadmap and formulate the long-term growth strategy for their business.

These actions, when deployed effectively, enable these companies to embrace one or more of the three growth strategies: Market Expansion, Product/Industry Expansion, and Operational Improvement.

Let us briefly look at each of them.

1. MARKET EXPANSION – Business growth by entering into new market(s):

When you are customer-centric, you strive to know the face of your most profitable customers and the benefits for which they are buying from you. Your growth objective is to identify more of such customers globally who may benefit from your offering. This insight assists you to explore new customer bases in newer markets. The way this objective is achieved varies from company to company. Some companies merge with or acquire other businesses having presence in the target market, and leverage that presence to market their products. Others may form joint-ventures on the agreement to share technology and markets. Yet others may plan to grow organically by entering a new market on their own.

Coca-Cola, MTV, Starbucks, Nestlé, Heineken, and scores of other companies have successfully located their target customer segments across the world. They achieved international expansion over an extended period of time transforming their businesses from being local entities to becoming global market-leaders.

2. PRODUCT OR INDUSTRY EXPANSION – Business growth by introducing better products and services:

As your customers’ preferences change, the products or services they employ to do their job (need to) change too. When you are constantly tracking this change, you get innovative ideas for improving your existing product lines and introducing new ones. A good grasp on customers’ needs in new areas can propel you to launch new product categories that didn’t exist previously.

Procter & Gamble has developed this expertise in consumer research through ethnographic methods; they claim to co-create new products or new line of existing products by closely observing how their consumers use the existing products.

Amazon is an excellent example of growth through product or category expansion. Pursuing the vision of becoming ‘earth’s most customer-centric company’, Amazon is single-mindedly striving to make customer’s (online) shopping experience easy, comfortable, and pleasant. In fact, they are in the process of disrupting the entire book publishing industry by planning to publish and sell every future book online. The established book-publishers lost touch with the changing consumer need of ‘reading books anytime-anywhere without having to spend time buying it physically’, and now their survival itself is threatened by the digital publishing industry; whereas the likes of Amazon, with relentless focus on the consumers, are thriving.

3. OPERATIONAL IMPROVEMENT – Growth by developing unique competitive advantage:

This strategy involves creating differentiation in your business model and/or operations. Companies are leveraging their organizational data by applying the latest analytics techniques to mine insights. These insights are utilized to devise new distribution channels, optimize logistics and supply chain management, improve operations by deploying superior technology, and streamline existing processes. Relentlessly pursuing these strategies eventually renders them distinctive advantage over their competition, and helps them grow in the marketplace.

FedEx addressed the customer need of next-day courier deliveries and launched ‘FedEx Express’.

eBay provided easy B2C and C2C sales services to consumers via its (online) eCommerce platform.

Michael Dell grew his company by sensing an opportunity among PC-savvy consumers who enjoyed the convenience of customizing their PC and buying it online to be delivered in days. Thus Dell has developed an innovative business model of ordering PC online which enabled them to lower their PC prices to impossibly low levels.

These strategies have the potential to propel your organization into a bigger growth curve.

And the key to doing this is to understand your customers as thoroughly as you can!

In this world of disruptive innovations, business owners and CEOs must focus all their efforts in deeply understanding their customers. When you become ardently customer-centric, you set yourself up for strategic transformation that is key to enduring growth of your business.

Related Posts:

<– Strategic Transformation Part-1

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How do you achieve strategic transformation for enduring growth of your company? – Part-I

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In the April edition of Stanford Business Insights, Mark Leslie states that successful enterprises have a ‘Cycle of Life’ which lives through five phases: Product or Service Development during Start-up, Market Entry, Growth, Maturity, and Decline. He says that during the decline phase, revenue slows down and flattens out, margins stabilize at lower levels, operational expenses rise to unsustainable heights, and company spirals into negative growth marked by layoffs, high burn rates, and eventual bankruptcy or liquidation. Mark says that the key to enduring growth, to manage this eventuality, is strategic transformation.

We agree!

When companies are growing for decades, deliberately or not, they tend to undergo some form of transformation, irrespective of how they are growing.

Mark further adds that there’s a moment along the corporate Arc of Life between growth and maturity – a point he calls ‘the sweet spot for optionality’ – when companies should take initiative to steer into uncharted waters (a new line of products, a new business category, a new industry?). In other words, opportunity-driven leaders should attempt to transform the business rather than risk growth by continuing along the well-marked path through operational excellence.

On these two points, we do not agree!

  1. We do not concur that continuing along the path of operational excellence does not fetch growth.
  2. We are not of the opinion that the way to strategic transformation is to just change your path to uncharted waters.

Let us explain why:

Regarding the first point, let us hypothesize for a moment that operational excellence does not fetch long term growth. Then how do we explain the growths of the likes of GM and Wal-Mart in the past? After-all Alfred P. Sloan, Jr. and Sam Walton are known to have led their companies on the back of operational improvements.

Moreover, prominent brands like Toyota, McDonald’s, Zara, and Subway have grown primarily through laser-sharp focus on operational efficiencies. Toyota has continually enhanced its assembly-line operations leveraging its legendary Toyota Production System. McDonald’s has continued serving its fast foods with the promise of ‘fast and convenient’ service. Zara has reduced its shopfloor-to-store cycle time of its fashion garments to just five weeks compared to industry average of six months.

We thought that studying the growth strategies of the top-100 brands, which have been growing for decades, would point to the key behind enduring growth of businesses. It will help us prove or disprove the hypothesis.

A quick analysis, as shown in EXHIBIT-A, revealed that more than two-third of the top-100 brands achieved enduring growth through strategic transformation. Interestingly, almost one-third of the top-brands have attained steady growth primarily through operational improvements.

Strategic Transformation vs Operational Excellence

EXHIBIT-B illustrates that there is no obvious correlation between a company’s lifespan and the revenues it earns, with respect to their growth strategies. However, it also establishes that transformation-driven companies seem to out-live and out-earn the operationally-driven companies, especially over the longer term.

Strategic Transformation - Revenue Lifespan Chart

So the above two analyses disprove the hypothesis that companies cannot grow with operational excellence; and it also buttresses the theory that strategic transformation is the key to enduring growth.

The second point in a way suggests that business leaders see the sweet spot of optionality as an opportunity to hurtle their company to the next level by changing their course into uncharted waters. But it sounds a bit ambiguous and fuzzy in terms of identifying the sweet spot of optionality almost to the point of being too simplistic.

This is because when you DO transformations for the SAKE of transformation, then you achieve just that – a transformation, without any real benefits from it.

You cannot just APPLY transformation in business as easily as you apply a Fourier or a Laplace transform in engineering mathematics. (Bad analogy I know, but you get the point).

Strategic transformation is a result, and not a set of random actions.

Transformation is an effect, and not a goal.

Transformation HAPPENS over time when you take well-conceived actions, persistently, with single-minded focus on a specific goal.

In our analysis, surprisingly (or unsurprisingly) there was one common theme (or goal) observed across all these 100 leading brands. That theme is Customer-Centricity. Amazon wants to be Earth’s most customer-centric company. Apple demonstrates its customer-centricity in the intuitive products it designs. Gillette develops a different type of razor for each customer segment that has a different shaving habit. Oracle invests strategically into technology that customers are likely to embrace in the future, as it did with its E-Business Suite. There are as many examples of customer centricity as the market-leaders around.

In sum, the point is this: The secret to achieving strategic transformation for enduring growth of your company is to be fiercely customer-centric. When you are passionately customer-focussed in your business, the customer will show you the way to achieving strategic transformation.

In part-II, we will discuss how exactly do you transform your business with customer-centricity as your main strategy.

(Cover photo credit: theatlantic)

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<– GYJD: Belief Reinforced

Strategic Transformation Part-2 –>

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Funding and ROI Challenges: How Universities Can Respond

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T  raditionally, universities in the U.S. have earned their revenues through state (government) funding, tuition and fees, research and development grants, returns from endowments, and philanthropic donations.

Funding and ROI Challenges

The prolonged cash-crunch due to the long-winded recession of 2008 forced the policymakers to make some nearsighted (and some say misguided) policy changes like cut in public spending on higher education. The policy changes caused steady decline in state funding to universities and many universities found themselves grappling with financial sustenance. The slump in economy also caused research grants and philanthropic donations to shrink. In the face of volatile and unreliable nature of returns from endowments, universities were compelled to shift the burden of additional costs to students in the form of increased tuition and fees.

Universities in the U.K. too are facing similar funding challenges. According to the data published by Higher Education Statistics Agency (HESA) and the Universities UK (UUK), the public spending in U.K. on higher education reduced by 6.9% post the recession. Over the last few years there has been a reduction in the proportion of income from funding body grants to total income. The funding from Higher Education Funding Council for England (HEFCE) is expected to reduce further. The recession has also contributed to a large decrease in the ratio of research income from research grants and contracts. Nevertheless, the past three years have seen relative stability in terms of the total amount of money flowing to institutions. HESA data also points to 38.6 per cent decrease in endowment and investment income over 2009-10 and it decreased by 25 per cent across the U.K. over the period 2000-01 to 2009-10. Gradually, the universities in U.K. too increased tuition and other fees to cover for the costs. One major difference between universities in U.S. and U.K. is that, the private expenditure on higher education is much greater than public expenditure in the U.S. universities.

Overall, the balance between the funding grants, and tuition and fees is moving towards fees, a trend seen in the U.S. universities too. Gradually, the rise in tuition and other fees are becoming unsustainable, especially for postgraduate students, already under huge debt from undergraduate studies. Exhibit 1 shows the comparative trend between changes in college tuition and fees vis-à-vis the changes in the cost of all consumer items in the U.S.. Starting at the same level in 1978, the tuition and fees cost seems to have increased five-fold as compared to consumer prices over the last few decades.

Funding and ROI Challenges: Exhibit-1 college tuition and fees cost trends

Moreover, the rates at which people’s incomes have gone up have not been able to catch up with this high rate of increase in college fees. The rate of change of college tuition has overshadowed the inflation rate consistently since 1981 as shown in exhibit 2. Considering that students join higher education primarily for higher pay packages, this unsustainable rise in the cost of college fees in the face of high unemployment is impacting universities’ enrolments adversely.

Funding and ROI Challenges: Exhibit 2 - college tuition vs inflation graph

From the perspective of the universities, the costs are steadily increasing. The costs such as faculty salaries, college infrastructure budgets, administrative expenses, IT infrastructure costs, and marketing overheads form the fixed costs that are incurred irrespective of any student taking admission. If the number of students enrolled goes down, the average cost per student goes up. This situation makes it unsustainable to run the famed institutions delivering the same level of quality. This results in pressure to achieve surplus funds, after accounting for staff, administration, and operating expenses. While the universities in the U.K. have managed to achieve a surplus in the last couple of years, it is not before raising the income from other services rendered such as, residences and catering operations, grants from local authorities, income from health and hospital authorities, and income from intellectual property rights.

So how can universities respond?

Universities can take a series of steps that will help them stand-up to these multi-dimensional challenges to save costs and increase incomes.

Firstly, in order to save costs, university leaders need to improve productivity on teaching related activities. This can be done by rationalizing the programs and courses offered, integrating departments to normalize instructional costs, streamlining operational processes to leverage synergies, and outsourcing non-instructional activities to specialized vendors. Many universities accept that the programs and courses offered by them have experienced proliferation over the period of time. Thus, merging similar programs will not only make them more effective but also save costs for the colleges. On the same lines, integrating departments and streamlining operational processes that are similar in nature will help making the operations leaner, faster, and cost effective. Most importantly, institutions must focus on providing value in the area of their competitive advantages. This entails outsourcing non-core activities to reduce non-instructional expenditure. Analytics can come very handy in helping to understand the potential levers to realize savings from taking up these activities.

Secondly, ensuring enrolments of the ‘right’ students will pave ways for improving incomes. In addition to bringing tuition and fees, the right students can help make the universities look good through their research and development activities, which in turn will help the institutions to attract funding from existing and other green-field sources. One big aspect of improving income is to retain existing students from dropping out. High drop-out rates has become an area of serious concern for many universities. Reasonably so, every dropped-out student creates a hole in tuition fees that invariably remains unfilled. Moreover a high drop-out rate impacts twice, in lost revenues and sunk costs. Therefore, student retention should be looked-at through the same lens as businesses look at customer churn, and earnest measures should be implemented to control the high drop-out rates.

To summarize, universities need to take unconventional actions to effectively overcome the funding challenges and strive to be lean in order to embrace the opportunities of the future.

Related Posts:

<– MOOC and the education system continuum

Changing Student Demographics –>

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