Monday, May 29, 2017
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No Free Lunch

Lasting company

Stories of retailers in the United States filing for bankruptcy have been in the news fairly often in recent years. Erstwhile big names like Macy’s and Marks & Spencer are finding themselves having difficulties abroad, particularly in more advanced economies. The story here in the Philippines for these companies, and for the malling and retail business in general, is still quite different, but the lessons learned from the experience of these companies elsewhere are well worth noting.

It’s a fact that the average life span of big businesses has been falling. This was the finding of a 2012 study on Standard & Poor’s top 500 companies by Innosight, a consulting firm on business strategy and innovation: From 61 years in 1958, the average life span of S&P 500 companies fell to 25 years in 1980, and further down to 18 years in 2012. The S&P 500 lists large companies that span the range of US industries. The observed trend may be short-term or just part of the evolution of business models, but company closures have been real and have real impact.

A major factor in reduced company longevity is technological disruption, which has become the norm. While businesses once had to face technological turnovers every so many years, companies now face the threat of disruption nearly every day. In a 2016 survey by Dell Technologies, 78 percent of companies saw digital startups as a threat; in the Asia-Pacific region, the number is slightly higher at 83 percent. A firm never knows when the next big innovation will turn its world upside down. The disruption need not even be something inherent to the industry. Social media has disrupted the way companies create and protect their brand and reputation. United Airlines took a major hit from the bad publicity it got for bumping off a single passenger. Uber is also in hot water for indiscretion by its drivers. While issues like these would have been silenced with payoffs and swept under the rug 10 years ago, not anymore. Social media has made a great difference.

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We can learn from long-surviving companies that remain thriving in today’s business environment. A notable example is Procter & Gamble, which fosters a culture of innovation that tries to develop products that will change the lives of its customers. It had done that with Pampers, with Colgate-Palmolive, and with Tide, among others. P&G’s strategy is illustrated by its success story with Gillette razors in India. It developed a razor that could be easily cleaned without running water, and cheap enough for most Indian men to afford. The product embodied an understanding of the needs of its target market. Being a much older company with a significant innovation budget, P&G could well handle the cost of the innovation cycle. Google has a similar innovation-driven culture. Its story is more about how it encourages its people to innovate. Hiring people who already buy into the company’s mission and vision, allowing them freedom to work in ways that they are most productive, and eliminating bureaucracy and empowering staff are only some of the ways Google creates a corporate brand that looks like it will be around for the long haul.

Innovation does not even need to be a new product. BDO Unibank changed banking in the Philippines by offering longer hours and weekend banking. Mang Inasal came up with Unli Rice. In this economy, it’s wise to make sure the company stays relevant, as exemplified by CDR King, which began with now nearly-extinct CDs, but is still very much around, selling almost everything from glitters to electronic bikes. It has kept abreast of the needs of its customers.

Businesses now need to be more conscious of their market because in the sea of the internet, the creative kick-starter solution or cheaper Lazada or Alibaba alternative to customer needs is just a google away. The days of sweeping the needs of customers under the rug for profit are numbered. Not only are there alternatives all over just waiting to fill the gaps, unaddressed customer needs also come under close scrutiny. Perhaps the key to a lasting company is an old lesson relearned: Customer is King.
cielito.habito@gmail.com

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TAGS: Innosight, Macy, Malling, Marks & Spencer, retail business, Standard & Poor
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