Catching the light at the end of the tunnel

Over the course of a 40-year career in both international corporate management and professional consulting services, David McClelland, founding director of CSA, draws on his experience of the highs and lows of the UK economy and its impact on business management and investment:

Distressed trading can traumatise some owners and managers. It is said often that as many companies get into business difficulties rising from the ashes of a downturn as going into one. After several years of turmoil in markets brought about by Brexit, Covid and bounce-back inflation together with a cost-of-living crisis and now higher taxation, the first question to check is whether the business still has an adequate senior management team in place with the necessary motivation, commitment and strategic thinking to take it forward? Are the business and personal objectives of the collective team aligned, or are they sufficiently divergent to constrain performance through loss of operational focus and direction? Business is about people and strategy and the ability of one to deliver the other – would the management team benefit from diligent, independent strategic support?

Can the old business plan be truly resurrected? Even a positive upturn cannot revive a tired formula. Is the synergy and fit between business units and product lines as it was in the ‘good times’, or have they become diluted? A business planning review would confirm how well company strengths remain aligned with levels of market attractiveness and whether the company is a true market contender in line with possibly more demanding customer purchasing criteria and rising levels of market competition.

Markets will revive at different rates in different sectors. What phase of the industry cycle is the business trading in? Would formal analysis of the addressable market quantify a pipeline of most immediate customer prospects and provide the necessary clarity about the order of returning demand? Market and customer referencing could accelerate this understanding.

Markets under pressure may undergo structural change. How is the industry supply chain holding up to the effects of rationalisation or consolidation amongst sector participants? Are the competitive dynamics of the industry changing through customer/supplier concentration and its impact on relative buyer/supplier power and pricing? Are legacy product-to-market channels still fit for purpose, or have they become confused and rendered inefficient, with implications on cost competitiveness that could penalise trading in a new economic dawn.

What of the upturn? What will be the likely impact of returning business volumes if post-downturn pricing remains an issue? Will competitors aim for a ‘land grab’, trampling margins underfoot? Are prior barriers to market entry as relevant or robust as management thought? What could cause these barriers to be breached?

In flat and distressed markets, one may seek a light at the end of the tunnel. However, the bigger question is whether the business is correctly positioned in the right market verticals to begin with. Market structures change, often at rates not fully appreciated by business managers who have become ‘internalised’. After all, managers and owners who have ‘gone through the hoops’, taking costs out of the business to remain competitive or survive, may have lost some of their front-end sharpness and awareness about the true nature of the conditions in which they seek to trade. It may pay to take stock, redefine a revised strategy against fresh objectives, and align tactics with goals better suited to trade in the new economic environment. This is crucial to resist the temptation of lurching towards the first sign of returning market volume as an indicator of an economic spring that may or may not be wholly sustainable.

CONCLUSION

A successful business will occupy an identifiable trading segment or market niche, building its commercial proposition around a differentiated core competence. Such businesses are usually protected by defendable barriers to entry, generating recurring revenues through repeat customer loyalties while keeping out the competition. These are common goals, but it is the manner and process by which they are attained that highlight one company and its management team from another, separating success from comparative failure. Especially in the short and medium terms, when the UK business environment will remain generally constrained of anything resembling meaningful macroeconomic pull.

CSA’s strategy and due diligence advisory services sit alongside and complement the day-to-day activities of company management. We provide independent and objective evaluations of strategic direction and customer value creation, providing a road map for business performance improvement.

For information about how we can help you to assess business and market attractiveness please call: 0208 947 5108.