Business at the precipice

Many organisations and their leaders are unaware that they are either close to or at a precipice.

At this position they have several options: continue walking until they fall over the edge, lower themselves down the mountain and cease the journey, or turn themselves and the organisation around, and continue the climb up the hill of performance.

One of the biggest mistakes some of us make is not facing, as Jim Collins said in his book, Good to Great, the "brutal facts".

It is hard to guide a business if you do not know where you are on the map and, hence, leading blindly. It is hard to continue your journey on a hiking trail if you do not see the rocks that are in front of you that may cause you to stumble.

The precipice experience occurs frequently in the life of a business, and the reasons for not facing the brutal facts and knowing your firm's position are several. Some of these reasons include the leader's reluctance to face the music, blocked vision, insensitivity to the external, being lulled into complacency due to past or recent success, and being fooled by the assumption that the trail travelled thus far, will remain forever the same.

LEADER RELUCTANCE, BLOCKED VISION

Many executives are passionate and emotionally connected to their company's mission, future and successes.This is typical of company owner/founders and this attachment to the business has served them well and helped them to propel the organisation during the inevitable bumps and challenges of the road.

Paradoxically, these same attributes can also work against the driven CEO as he/she feels uncomfortable to see the full picture, and is resistant to change.

However, whatever the causes, there are those who cannot face the position their business is in. In these cases, these persons need help. Someone or some situation will need to be present to uncover the position and open the eyes of the leaders.

Typically, having a good board can help especially if it holds independent directors who are continually probing management on performance. An outside consultant and/or an interim executive can also provide the corrective eye-opening treatment.

However, it is often the case that such a situation, usually a crisis, brings about the widest eye-opening.

Many businesses manage the performance of the company with a distorted vision. Using information that is easily assembled, such as the bank book and or cash position does not give a 360-degree view.

A better assessment is provided, where the performance is monitored by looking at not only cash but also other numbers and indicators such as existing liabilities, assets, profitability, customer opinions and experiences, sales trends and market share - measurements which require more capacity to assemble.

As an example, a firm may have cash but face large debts or liabilities that are due shortly which could exceed the cash or near cash resources of the organisation, creating an imminent crisis.

In this case, only tracking cash would mislead the manager on his true financial position and put the business at risk.

Further, unblocking the vision requires going beyond examining what is generic to what is critical to the company's performance. For example, international retailer chains measure same-store sales and the growth or decline of these indicators so as to give a critical measurement of the company's performance. Likewise, a service company may measure revenue per professional staff. It is not unusual for executives to create a set of numbers, called a 'dashboard', which is used to track performance.

INSENSITIVE TO THE EXTERNAL

Security personnel are taught about situational awareness in training. This refers to soldiers being able to quickly assess the situation and environment so as to understand the surrounding hazards and opportunities.

Similarly, a business leader must understand his company's position and ought to be aware of his externals.

To keep in touch with the evolving nature of your industry, markets, economy, regulations and laws is equally important as being connected to what is happening inside your office walls.

A plant cannot derive nutrients for growth from its own cell. It must have light and water. An organisation cannot sustain itself by transacting only with itself, thus it only makes abundant sense that business persons truly understand what is happening outside their gates and use that understanding to better their business.

In the United States, a famous brick and mortar store, Borders, recently filed for bankruptcy. I have always enjoyed walking through the stacks of books on display, and drinking coffee in their stores.

However, there has been a severe disruption taking place in the book industry. The advent of eBooks changing the reading habits of readers, plus the new consciousness of 'green', has fuelled the consumers desire to switch to newer formats of reading.

The question is: Could Borders have survived if they had better adapted their model to the changed external environment?

The external stumbling block has become and will become increasingly important as the world rapidly changes due to technology, communication and accessible information, and as knowledge changes the way people consume and transact business. Firms that do not keep up with the external environment run the risk of defaulting on their growth and future.

Many businesses in Jamaica have been lucky thus far, as they have operated in a slower growth and less competitive environment which has created insulation from rapid change. But the local environment is changing, being driven by increasing formalisation of the economy, more connectivity and the influences of the outside world.

There are several ways to close this information gap, but the first step is simply to make the decision to increase situational awareness - remember that the purpose of this is not to be swamped with too much data, as what you want to achieve is the gathering of usable information. The level of sophistication is dependent on your resources.

Surprisingly, many young and senior managers fail to realise that their counterparts in other firms are willing to talk and interact in a professional manner without disclosing their 'trade secrets'. Join trade associations and make the time to attend functions. Read and stay in touch with the news in your industry and the local and global economy.

An overlooked tactic and one of the most doable is to tap your front-line staff. Spend time talking to them, gather their experiences, feedback from consumers and customers so as to ferret out opportunities and risks for your business. Read annual reports of companies in similar industries to your organisation and do not restrict the review to local companies but also explore international ones.

Finally, be creative; in this Google world, information is available, go get it, so you can understand your position.

Anthony V. Chang is a Kingston businessman and former president of Jamaica Chamber of Commerce. Email changtransform@gmail.com.