What has not changed?
Creative destruction creates new opportunities
The prevailing mindset right now is that a consulting firm should publish articles on how drastically the pandemic has changed the business environment, how nothing will never be the same again, and how that particular firm is best at helping companies “navigate the Covid-19 storm”. The state of affairs awaiting after the crisis is described by the visionary sounding phrase New Normal, which in the end contains no meaningful information.
It is true that in many industries, changes in the structure of supply and demand will be significant and bankruptcies will face companies that are least prepared for shocks or have already fallen behind the pace of development in their industries. Many healthy companies will also be hurt in industries where demand may disappear altogether, at least for some time.
Differentitate to succeed!
The Covid 19 crisis will cause disruption, concern and sad destinies in the short term, but in the long term it will not change the need for companies to constantly renew and differentiate themselves in order to stay relevant and viable. This basic law was not changed by the euro crisis in 2010, the financial crisis in 2008, the bursting of the IT bubble or the recession of the 1990s, nor by, for example, World War II or the Spanish flu. After the dust of the current crisis has settled, there is probably very little new in the New Normal in this respect and lot of normal already familiar to the builders of successful companies.
Differentiation in a way that is relevant to customers can in principle take place in two ways. The first is that the company is constantly developing new added value, that is, bringing new things to the market or doing old things better than before. Another way is to strive for the most cost-effective operation and the cheapest price. The first requires a company to have leading vision and expertise in at least some fields of its industry. The second requires world-class discipline in process management, as well as volume and economies of scale. They both demand that you know your customers and what is important to them. A sweet spot is if you can combine both differentiated added value and low prices, as for example Ikea has done. If a company fails in both, it slowly withers in the ‘Vanishing Middle Market’, the graveyard for companies that are neither the best nor the cheapest in anything for anyone. This phenomenon has been documented by McKinsey Quarterly in the 2005 article based on several years of international tracking research.
To-do-list: Keep on doing these things
Instead of telling in this article what needs to be done differently now, we would like to highlight a few things that are worth pursuing just as before. There is every reason to believe that companies that consistently invest in the following in all circumstances will be best equipped to survive this and future crises.
- Knowing your customers. Customers decide which products and services have demand. They don’t buy anything just because the company came up with it for internal reasons. Being constantly on the pulse of what your customers need and appreciate will help direct your own capabilities and resources in the right direction. In customer understanding it is good to consider not only declared but also unconscious needs, and not only rational but also emotional motives even in B2B business, and not only individual customers but also how they make decisions as a team.
- Knowing your competition. In addition to learning what inspires customers to buy, it’s good to know if someone else is already offering the same, and how your own products and services stand out from the crowd. Differentiating added value leading to growth does not come from offering the same to customers as others but later than them. When researching the competitors, it is good to note that in most industries customers have global range of options and digital service channels are changing also B2B purchasing.
- Clarity of strategy. If one believes McKinsey Quarterly’s description of the compulsion to differentiate either by added value or by the lowest price, the conclusion is clear: a company must make a definite choice as to whether it seeks to be the best or cheapest in a particular offering for a particular audience. Otherwise, expect a vanishing middle market.
- Continuous development according to the chosen strategy. Once the choice to compete either by developing new added value or striving for the lowest price has been made, every decision to use a company’s resources must be made accordingly. What do people spend their time on? Where the budget is allocated? What are the headlines on the Management Agenda? What is being done to become even better, or even cheaper? What not to do? Execution is crucial. A strategy without implementation is an intention.
- Commercial concepting. Even a good product doesn’t sell itself. A solution with a technical and operational advantage also needs a commercial concept that makes it easy for the customer to buy and profitable for the company to sell. The key issues are the features of the finished application and their possible versioning for different user groups, the earnings model, sales channels and partners, and the solution’s argumentation and communication to reach customers’ attention and interest.