A WORLD WE NEVER KNEW

How To Stay Relevant To Your Market In A Changed Environment

 

Change, always inevitable, has suddenly become more acute. Not only for the accounting and legal professions, but – remembering that the professions are a microcosm of U.S. business generally -- for the whole country and the whole world as well.

 

            And yet, as anybody who’s been in business more than twenty minutes knows, things have indeed changed. No matter what business you’re in, no matter how large or small you are, your business has changed. Your customers have changed and are changing, your sources have changed, your economic environment continues to change. Globalization is a reality for even the smallest company. And nothing in recent years has focused so sharply on changes in our business lives so profoundly as have the events since September 11, 2001.

 

            Add to this the profound effect of Andersen/Enron type scandals, which has not only substantially undercut investor faith in business, but has led to a dangerous and overwhelming rash of regulation. Burden and turmoil follow like the plague.

 

            Significantly, while at this time we are in an economic downturn, we are not in a traditional wartime economy. We are not fighting other countries (although that may change), nor fighting the kind of war that demands fast and rapid outputs of munitions and the machinery of war, nor do we have massive conscription. The economy, then, is shaped as much by the failure of technology industry and chicanery in the board room as by the war on terrorism. It is a configuration new to this country.

 

            James C. Emerson, publisher of Emerson’s Professional Services Review and the very prescient Emerson’s Opinions on Professional Services, is one of the most knowledgeable and astute observers of the professions. In a discussion of the future environment for professional firms, he notes, “The question is not whether America and the world have the will and economic capacity to respond to the events of 9/11/01. I think there is absolutely no question we can and will deal with the emotional, physical, and economic issues.”

 

What, exactly, is substantially different, by either evolution or revolution? How does the changing environment affect every business in America, and probably the world? What can be done to survive and thrive in this new dynamic world?

 

            Consider this...

¨         The capital structure landscape has substantially changed. After almost a decade of phenomenal growth, easy money, and often mindless investment in will o’ the wisp companies, the money machine has come to an abrupt halt. Optimism has been replaced by deep uncertainty as a business and investment religion.

¨         Where in the recent past we had been an economy that focused on getting capital, we now enter an era that focuses on preserving and using capital more effectively. As in any economy that substantially slows after massive growth, caution is the watchword. It requires new skills in financial management.

¨         Technology has substantially changed the way in which we deal with capital and the financial markets, with customers, with suppliers, and with ourselves. Neural networks and other forms of artificial intelligence process and integrate information instantly, making more information more useful than ever before by reducing the variables in assessing risk. The emergence of technology has added a new dimension to information processing. The day of the technophobe is over. New applications software, as well as new hardware, make the computer the tool that is at the heart of every business, in large measure because of its ability to integrate so many business and information functions in ways that were never before possible. Everything happens faster, which means information is gathered faster, acted on faster, and used more efficiently. This includes information about capital, about markets, about distribution -- about every aspect of commerce. New technologies, such as the intranet and the extranet (in which a firm's intranet is tied advantageously to its customers’ intranets), are increasingly necessary to serve customers competitively. Annual reports now come on CDs, investors learn about companies -- including up-to-the-minute financial information -- on the internet, press releases are transmitted by e-mail. The speed at which business now functions leaves the technophobe in the dust, and any manager who can't cope with the new technology is quickly made obsolete by the competitors.

¨      New forms of business are emerging. Strategic alliances between supplier and customer are now a common form of business relationship. New management skills are necessary to deal with the new alliances and other emerging forms and techniques of business. Among clients, the word competition takes on new meaning as these alliances begin to develop between competitors, seeking advantages from new levels of cooperation in a competitive arena.

¨      Despite the difficulty that segments of the world’s population have in facing the fact, the full fledged globalization of business is finally a reality. With the introduction of the Euro, and the consolidation of the European Economic Community, international competition with American companies – especially smaller ones -- will be even more intense. Markets for even small companies are increasingly international. The company we once called multinational is now truly global. At the same time, all world markets are refocusing, which at least demands new management skills in all companies that want to stay competitive. As third world and iron curtain countries emerge, so too do new markets. And where new markets emerge, so too does new competition arise. Where once internationalization was the province of only the very largest companies, today smaller and smaller companies are affected.

¨      Despite the dislocations in the job market currently caused by the economic downturn, smarter, more competitive people are entering the work force. Whether the business schools are turning out better and more skilled managers, or the competition in the work force is forcing people to learn better skills, or the increase in population is increasing the number of smart people, there seem to be more smart people in business than ever before. This accounts for substantial innovation in the way business is done.

¨      These smart people, plus technological advances, have been producing new industrial, professional, and commercial concepts and new levels of productivity. Despite a bump in the economic road, which should ultimately be smoothed out, the influx of young people, raised in a computer environment, is invigorating management as never before. More and more, management skills seem to reside in younger people who grew up with the new technology, and with concepts that make traditional corporate cultures at least irrelevant, and probably obsolete. This may be the first generation in which younger people know more about new business and technical skills than do older, more experienced people. Add to this the influx of management theories from abroad, and we have emerging new concepts in management, and new corporate cultures, that are substantially different from their predecessors. When machines can do better what used to be done by hand, then presumably the mind of the worker is lent to other devises to serve business.

¨      One result of this new intellectual elite in business is new relationships between the employee and employer. Traditional cultures of loyalty between employer and employee have long been eroding because they are counter-productive to both groups. Today's worker, particularly the knowledge worker, functions on virtually a contractual basis with his or her employer. The contract functions only as long as the agreement is mutually beneficial.

¨      Outsourcing, once simply a hedge against rising costs, is increasingly viewed as a business and management philosophy. As this kind of business emerges, it will affect everything from motivation to tax structures.

¨      The home office and the off-site worker, once an anomaly, are now increasingly common. This is increasingly altering the business landscape.

¨      Regulatory shifts now tend to be strongly anti-regulatory, particularly under the Bush administration, except in those areas of corporate governance undermined by fraud and scandal. Aside from the regulatory measures precipitated by the war on terrorism, the regulatory burden seems to be causing a reaction that will have an impact for at least a generation.

¨      And so, the new shape of the world's economic environment begins to reshape decades-old business practices. Managers, then, must change to function successfully and competitively in this changing world. The successful manager of the future must understand that . . .

·        New skills for professionals are no longer an option, in a broader range of business disciplines, including management, manufacturing, communication, distribution. A better understanding of the distinctive practices of unique industries will be required, including some that didn't exist a decade or so ago.

·        A better technical understanding is basic. Not just mere computer literacy, but an understanding of the new tools of information technology, and how they may be used effectively. These new tools, from the computer to the communications devices, change the nature of the way we do business. Tomorrow's manager may not have to know how to wire an extranet, but had better understand how to use one more effectively than the competition does.

·        The availability of data, with today’s technology, is overwhelming. The problem is learning to use it most effectively. Raw, uninterpreted data is useless, no matter how much of it is available. Using data effectively is a competitive imperative. Learning to communicate knowledge is crucial.

·        Marketing, for many years relegated to secondary status by many professionals, now moves from a focus on the tools of marketing (seminars, press releases, brochures, etc.) to the strategies of marketing, and to a greater focus on defining both the shape and the needs of markets. For the professional firm, marketing is no longer ancillary to firm management – its an integral part of management. The cliché market driven now becomes more than a cliché -- it's a mandate. If the new company is to be more responsive to its market, and the market is to know about the company's capabilities, then professionalism in marketing becomes crucial to the growing and competitive firm.

What, then, can today’s manager do to succeed as tomorrow’s manager?

¨        Look up from your ledgers and law books and talk to your existing clients. What are they telling you about their business? What will they need in the future that you can supply them with? What do they know about all the products or services you have to offer (and, by the way, what do they think of those products or services)? Are you offering all the services they need?

¨        Calculate the mix of your customers in emerging and declining industries. A preponderance of companies in declining industries, no matter how profitable at the moment, foretells a dangerous road for your future. Develop ways to seek customers in emerging industries, and move into the future with them

¨         Talk to your managers and staff. Ask them what they see in the field. What are their observations of the changing patterns of business, particularly as they relate to what you do? What products in your industry do they see as needs – or opportunities – for the future?

¨        Read the papers. The trade and business journals. The material frequently put out by the local chamber of commerce. Evolution may not always go at a rapid pace, but to the person who follows it, evolution can be easily discerned. Keep aware.

¨        Watch your competitors. What are they doing? What products or services are they offering your clients? What are they doing that's different that you should know about, understand, and consider?

¨         If you can, hire a professional research firm, and get a professional view of change, and how it affects you. It will be money well spent.

Jim Emerson, in a late edition of Emerson’s Opinions on Professional Services, suggests that professional firms take the additional steps of building and preserving cash; retaining and hiring the very best people; expanding the business by improving service to existing clients and taking advantage of new opportunities for new clients; improving efficiency and quality; and improving security. (The Emerson Company and its publications have been discontinued)

 

            A learning mode – new levels of knowledge and understanding and new skills -- these are tomorrow's tools for survival in a new world in which the ways of competition and function are sophisticated and subtle, for even the smallest firm.

 

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