The good news is that most of the economic indicators are now gradually beginning to point in the right direction. Historians may well point back to Mario Draghi’s famous statement last year that “we will do whatever it takes to save the Euro”, as the real turning point. That was when people stopped speculating about the break-up of the eurozone and, although the Southern European states in particular are still in a very fragile condition with unacceptably high levels of unemployment, a break-up of the Euro no longer appears to be on the cards.
The big conundrum for economists is the so called “productivity gap”. More people are returning to the workplace, particularly in the private sector, but this is not reflected by an increase in GDP output.
Does this mean that businesses are “hoarding” labour with too many non-productive employees or are businesses everywhere simply being asked to do more for less?
Everyone in business is being faced with more competitive pricing pressures driven partly by the internet which makes it much easier for consumers to check and ensure that they are getting the best price for anything and everything, partly by businesses with excess capacity engaging in ‘suicide pricing’ simply to obtain incremental turnover and partly by innovative new businesses which have been able to grasp the opportunity forced upon them by market pressures to develop new business models which enable them to deliver more for less.
Everybody is having to re-shape their business to enable them to do just that. However, the real question confronting everyone running a business is how do they turn these pricing pressures into an advantage?
The real question is not how to do more for less but how to generate more from less. The product and/or service offering must be made more attractive to a wider range of customers enabling businesses to increase their volumes, achieve efficiencies of scale and achieve overall growth in sales with improved margins.
In the world of professional services, transparency and certainty of pricing is a huge issue. Those who are able to re-engineer their businesses to deliver fixed products or services for fixed prices will find themselves increasingly attractive to consumers. As the legal industry is increasingly forced to compete with retail giants like Co-operative Legal Services, it will increasingly find that it has to deliver its products and services in the same way that they do in order to stay ahead.
At the same time, consumers will always be prepared to pay a bit more for a premium brand which offers a higher level of service and more added value than that which may be obtained from a volume provider.
The horsemeat scandal shows the dangers of consumers demanding too much for less. Eventually the supply chain breaks down under pricing pressure with the result that consumers find that they are not getting what they bargain for.
While Tesco now appears to be no longer the darling of the supermarket chains, it went from strength to strength under the leadership of Sir Terry Leahy. One of his great innovations was the clubcard which gave 20% of Tesco’s’ net profit back to its consumers. This might have seemed like a suicidal strategy but it enabled Tesco to connect much more effectively with its customers, to find out about their likes and dislikes, to ensure that they were made aware of offers which might be of interest to them and that the right products were on the right shelves in the right stores.
The businesses which succeed tomorrow are the ones which have the courage to innovate today. A few examples from the recent past illustrate the point:-
•B&Q was at the forefront of retail warehousing 30 years ago. They started up and prospered during a recessionary period when people wanted to do up their own houses and disrupted the traditional DIY model.
- Kwik-Fit disrupted the way in which we buy tyres and exhausts.
- Direct Line disrupted the way in which we buy motor insurance.
- Moneysupermarket disrupted the way in which we buy all financial services products.
- Amazon disrupted the way in which we buy books.
These are but a few random examples but there are countless others which we now take for granted in our everyday lives. There are numerous people in business who are just waiting for the nightmare to end and for the good old days to come back again. The reality is that the good times are here. There are countless opportunities to evolve new business models and these are the ones which will create the great companies of tomorrow.
Those who can work out how to make more from less and not just how to do more for less will be the real winners.
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