Thinking Outside the Box

On the face of it, the Storex story is a familiar one. Long-standing local manufacturer pares down its operations, farms out some of its activities to Asia, and homes in on its core strengths.
The same fate is being meted out to companies large and small up and down New Zealand as the world pivots its economic face to Asia and firms in countries like New Zealand rethink their business.
But the Storex tale and hundreds like it is not just about the rising might of China. It’s a more subtly nuanced example of business reinvention. (See separate story “Rewired for the future” for more on Storex Industries’ transformation.) It’s about how faster economic cycles are driving the wheels of commerce more rapidly than ever before. And it’s about how our nation’s companies, of all sizes, are taking radical, revolutionary steps to reinvent themselves to stay in business.
In the world of big business they call it the search for ‘strategic resilience’: that magical inbuilt quality that enables companies to roll with the fiscal punches, surfing each new economic wave as it crashes onto our shores.
High exchange rate? Not the end of the world. Competitors beating at your door? Not a threat. New technology about to launch? Your business is already ahead of the curve.
Sounds too good to be true? Well, it isn’t easy. Business reinvention is not for the faint-hearted. It’s not about tinkering, tweaking or tidying up a few loose ends. It’s about digging deep to find “undervalued, unrecognized and underutilized assets” that can serve as new platforms for sustainable growth. That’s the word from Bain & Company’s head of global strategy practice Chris Zook, whose latest book Unstoppable outlines how to go from “unsustainable” to “unstoppable”.
Zook predicts that over the next decade, nearly three out of four companies will have to redefine their core business. They must develop the knack of morphing into a new skin: “even as they continue delivering the goods and services that keep them in business today”.
For owner-operators in the SME space, such changes can be particularly heart-wrenching. You know your staff personally. You know how changes may affect their careers, families, their very livelihoods. You may have set up the business yourself: nurtured it from infancy, protected it through its first unsteady steps, watched with pride as it grew. OK, so business is a bit slow right now. It’ll pick up.
Wake up and smell the future. As financial commentator Rod Oram says, business is about creating value, not slashing costs. It’s about making your own future, not defending your past.
Companies like Storex get it. So does web design and e-business consultancy Zeald.com (See separate story “Inside out”). They’re in good company. Even international heavyweights such as McDonald’s have woken up to the notion that burgers and fries alone cannot sustain them. Healthy doses of salads, fruit and yoghurt are more likely to ensure them a slice of the fast food pie in the future. For McDonald’s that’s radical stuff.
So too was the decision back in 1997 for Taranaki-based Fitzroy Engineering – which started off in the offshore gas production platform business – to branch off into superyachts. It was radical, too, for AFFCO, New Zealand’s bellwether meat processing company, to reinvent itself a number of times during the latter years of its 100-year plus history.
Allan Barber, a business adviser with Barber Strategic, has watched AFFCO rework itself during the ’90s and then again in the early 2000s. “It has”, he says, “taken a completely different look at its cost structures, plant modernisation plans, and the way it does business from a marketing, production and processing point of view.” AFFCO may still be in the same business that it was in 15, 20 or even 30 years ago but, under the skin, it’s now a wildly different beast.
Right across the globe, the pace of change has quickened. Here in New Zealand, Hayes Knight business improvement director Aaron Wallace rattles off examples of small businesses under pressure. “Toy shops and family hardware stores are starting to struggle as bigger players come into the market,” he says. Video shops could be heading for extinction, he says. “If you pick up a business broker magazine there’s always a video shop for sale. There’s huge competition from Sky TV and the Internet. Or people can go to The Warehouse and buy a DVD and own it for ever for the same price as hiring it for the night.”
Or how about chartered accountants themselves, who – seeing their bean counter activities replicated by technology such as MYOB accounting software – have remodelled themselves as business advisers and consultants? Ditto the traditional media business which, once the main controller of news, now fronts up to daily alternatives from blogs (there are an estimated 1.5 million blog posts every day), chat rooms, peer-to-peer networks and personal broadcasts.
In general, Wallace reckons about 20 percent of the local marketplace is in need of radical transformation.

Time for a makeover?
So what are the telltale signs that a company is in serious need of a makeover? That bit, at least, is easy. Oram has just released a book Reinventing Paradise: How New Zealand is starting to earn a bigger, sustainable living in the world economy. In it, he cites Gary Hamel, an internationally renowned business strategist. Hamel argues that the most obvious signs of companies that are locked into optimising their current business model are “dwindling profits, increasing competition, and failure to capture any new value they create because they are forced to give away the gains through lower prices”.
Mark di Somma, who calls himself a brand thinker at The Audacity Group, advises keeping an eye on the minutiae of business. It’s time for a rethink, he says, “when sales drop, staff leave, or cashflow falls…. when your price gets questioned by customers, the number of people coming into your store changes, you don’t get the kind of response to promotions that you used to get, or the phone doesn’t ring as much as it used to.”
Only those areas of the economy where demand outstrips supply – such as trades – are future-proofed. For now.
There is no universal panacea. Each company must forge its own path, picking through its options on what to change and what to retain.
There are some pointers through the transformation. To di Somma’s way of thinking, a company’s brand acts as a “central reporting point – enabling companies to stay true to themselves even as they iterate to stay competitive”. Branding is the “identity backbone” of business. “It’s the thing you keep coming back to when you ask ‘what are we in the business of doing and what is a new take on that?” as opposed to ‘what can we become next?’”
Ultimately, your current and future customers will shine the light on your future. Try to see your company through the eyes of a customer, di Somma advises.
“Mystery shopping your own store is a good way of finding out if your company is worth doing business with. Or try mystery shopping your competitors. That’s a real quick way of working out whether there are things that annoy costumers that you could do differently.”
Even McDonald’s claims to have listened to its customers throughout its radical transformation. Although, truth to tell, it also got an almighty shove in the right direction from the likes of Greenpeace, books such as Eric Schlosser’s Fast Food Nation and movies like Morgan Spurlock’s Super Size Me.
Allan Barber strongly advises company leaders to take time out and away from daily operations in order to gain perspective on the broader aspects of their business.
Hayes Knight runs what it calls an “action plan” process for businesses wanting to stop the clock and re-examine their strategic path. The $8500 soul-search usually runs over six weeks, includes a full-day offsite meeting with two senior partners and culminates in a 100 to 150-point plan for moving forward.
“We had a business in the building industry with a turnover of about $500,000,” says Aaron Wallace. “They were struggling to take it to the next level. We had a look at them and quickly identified the key thing that drove that particular industry and within two to three years the turnover was $3 million. We then had to redo the exercise because now they had gone from having two employees to 15. Now we’re looking at refocusing the business and removing reliance on the owners. It’s around a $7 million turnover now.”
Di Somma recommends asking the following questions.
• Where you want to be as a company and by when?
• How does your current position and reputation compare with that?
• Which customers are most likely to help you get there and are therefore most valuable?
• Which parts of your offering are likely to be most prominent when you get there (and are therefore most precious)?
• What road will you need to take to achieve your goal? What capitalisation, resources, reputation, pricing and competitive edge will you need to have to make it to the end of that journey?
• What are (or could be) your greatest obstacles – both financially and perceptually (internally and externally)? How will you overcome them?

Finally, once the planning is all done and dusted, spare a thought for what’s likely to happen next.
“When you are working out where you are now and where you want to be, you need to plot the curve line between those two places,” says di Somma. “I ask people, ‘will that curve line have a gush or a hush?’ If it’s a gush, demand could go through the roof and you could fail because you can’t meet it. It’s about capacity. If it’s a hush issue, people don’t know what to do and they go quiet on you while they work it out. So have you got the cashflow and the capitalisation to get you through those quiet times until people are ready to take up on where the business is going?”
It takes, says di Somma, a lot of guts and a huge amount of self belief and confidence to take your business away from what everyone else is doing. “You need to know your customers extremely well. You’ve got to be very confident about your own ability. And if you’re running a small business you have very little wiggle room if you get it wrong. All of those things tend to make us conservative at a time when consumers’ boredom thresholds are so much lower than they were.”
Companies that get this one right, however, could flourish like never before.

Resources:
www.unstoppablegrowth.com
Reinventing Paradise: How New Zealand is starting to earn a bigger, sustainable living in the world economy by Rod Oram is published by Penguin Books. $35.99