Adapt to Changes in Business Parameters in facing competition and Emerging Scenario of Rising Cost

The real-world business strategies probably involve a combination of both approaches with different degrees of the mix for different companies

It’s not necessarily the biggest or the strongest who wins in competition – it’s mostly those who adopt. Adapt to new services. Adapt to rising cost structure. Adapt to the market shift.

Proponents of deliberate strategy take the view that strategy formation is a process based on acting intentionally. It is important to plan and think before acting

A recession is a business cycle contraction which results in a general slowdown in economic activity. Macroeconomic indicators such as GDP, investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. In such a situation, individual business units are somewhat helpless because the affected parameters are mostly external and beyond their immediate control. Yet the fittest survive, i.e., those who adapt best to the circumstances

Generally, a business unit must plan for meeting competition and therefore, in broad terms a business strategy should, ab initio, aim to define:

• The external, environmental factors affecting the businesses’ ability to compete.
• The position the business is trying to get to in the long-term.
• The markets a business should compete in and the activities involved in such markets.
• The values and expectations of those who have power in and around the business.
• The resources required in order to be able to compete.
• The means by which the business can perform better than the competitors in those markets.

Proponents of deliberate strategy take the view that strategy formation is a process based on acting intentionally. It is important to plan and think before acting. Proponents of emergent strategy hold that strategy originates from the interaction of the organization with its environment and that it is an ongoing process of constant learning, experimentation, adaptation and risk-taking. These two views represent two ends of a continuum. Real-world strategies probably lie somewhere along this continuum, contingent on a range of factors such as environment, culture, location etc.

There are two mainstream schools of strategy which have different foci:

• The positioning school views the firm as concerned with achieving ‘strategic fit’ with its environment; that is with evaluating the competitive forces operating within the environment to assess where and how best to compete. Hence this approach to business strategy implies a primary focus on looking outside the business at the external political, social, economic and technological environment and identifying) trends and changes in that environment. The task is then to shape and adapt the organization to respond to market opportunities arising from the changing environment.
• The Resource-Based View believes that a firm’s competitive advantage lies mainly in the bundle of resources at its disposal and how it can stretch these to achieve competitive advantage. This approach derives from the work of C.K. Prahalad who believed firms should seek not simply to position themselves well within their existing markets but to capitalize on their advantages to better adapt to changes.

Indian firms are upbeat on local and global opportunities, with 96 per cent having positive outlook on the international trading environment, HSBC said in its ‘Navigator’ survey

Again, it seems that real-world business strategies probably involve a combination of both approaches with different degrees of the mix for different companies. Both perspectives are important in explaining business behaviour, including adaptation under recessionary conditions.

During the period of rising costs, some businesses experience difficulties in managing their cash flow and working capital and this is sometimes exacerbated because of the difficulties in obtaining support from banks to deal with cash shortfalls. As a consequence, many businesses have made efforts to improve their arrangements for the management of cash and working capital which has somewhat deteriorated over a period of years. Effective cash and working capital management is a priority. Even in good times so that a contingency reserve can be built for possible utilization in crisis situations.

One example of this situation is Jet Airways. Its operation is impacted by rising fuel costs and it badly needs an infusion of long-term working capital. Fierce competition has set in the aviation industry in India for which the higher cost cannot be passed on to consumers.

Indian firms are upbeat on local and global opportunities, with 96 per cent having a positive outlook on the international trading environment, HSBC said in its ‘Navigator’ survey. The three key drivers of growth of trade for Indian firms, according to the survey, are greater use of technology (41 per cent), increasing demand for their products (34 per cent) and growth of e-commerce (33 per cent). There are, however, much concern about protectionist tendencies in the international market.

Corporate results in the 2^nd quarter of fiscal 2018-19 show that margins are shrinking on the back of higher input costs, partly due to a weaker rupee and higher crude oil prices. It is therefore surprising that the survey did not highlight the depreciating rupee and continuously increasing fuel cost revealing a negative outlook

Note:
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.