As Global Resources Become More Scarce, Build Flexibility Into Your Middle Market Business
When it comes to global resources, such as energy, raw materials, and transportation and communications infrastructure, the world is changing faster today than ever before. What does this mean for your middle market business? You already know: the ever-accelerating pace of global change means your company needs to get better (and faster) at managing this change. It doesn't matter what buzzwords you use to describe what's needed — adaptability, agility, resilience, flexibility; it's all the same idea.
Since change, risk, and opportunity are so closely connected, the wise middle market executive should approach these emerging changes and growing risks as an opportunity to build a long-term competitive advantage over the competition.
Before we get into what you should be doing in order to enable your middle market company to become more adaptive, let's look more specifically at these global trends and what impact they're having on your business.
Energy. It's the biggest cost for many companies and often the biggest source of risk. Volatility in the supply and cost of energy can disrupt your operations, as well as those of your suppliers and your entire supply chain. As emerging market nations, including China and Brazil, grow their economies, the demand for energy and global resources continues to soar. Your middle market company is now part of a fast-changing, global energy market, and as demand continues to outpace supply, you can expect energy costs to continue putting upward pressure on your operating costs and downward pressure on your margins.
Raw materials. They are also subject to increasing global demand. As business consulting firm KPMG says in a brilliant recent report: "Companies in all sectors need to prepare themselves for a world where raw materials may be in short supply and subject to price volatility." Being able to adapt your offerings should be a core aspect of your strategy, even as the prices of raw materials and commodities rise.
Digital connectivity. Connectivity is increasingly enabling you to understand and communicate with your customers all over the world in real time through a growing number of channels. As the trend of connectivity expands into the future, you'll need to keep up with customer demands and the moves of competitors. By staying up-to-date with connectivity trends, you might find new opportunities to add value and create a competitive advantage.
Supply-chain innovation. Companies can always continue to find ways to increase efficiency and reduce costs along supply chains. If you consider the real competitive advantages of global leaders in retail (giants such as Walmart and Amazon.com), you need look no further than the world-leading capabilities that these companies have created in their supply chains. Of course, robotics and communications technology have always been able to help with logistics, but making that tech a core function of business has been the real key to success for Walmart and Amazon. As middle market companies become more global in reach, increasing levels of efficiency in global logistics will be a huge facilitator of growth. There's both risk and opportunity here.
The aforementioned KPMG report makes the case beautifully for why you need to develop the capacity to adapt: "The resources on which businesses rely will become more difficult to access and more costly. There will be increasing strain on infrastructure and natural systems as patterns of economic growth and wealth change." Ready or not, these global changes are coming fast.
Now that we've examined a few of these dynamic global changes, let's look at how you should be managing them. Basically, this four-part process requires that you have existing structures in place that enable you to be more adaptive as these changes occur.
- Build risk awareness. Make the identification of risk a central part of your whole planning process, and make it inclusive. Invite the participation of all your stakeholders (employees, suppliers, customers, regulators). Make a list of risks and share it.
- Evaluate risks and vulnerabilities. Start to connect specific risks to the direct impacts they might have. If your access to an important resource is disrupted, what would happen? At the very least, your operations would be interrupted, and customer issues might develop. Consider the size of your exposure and the direct (and indirect) impacts that arise from when things go wrong, and start connecting the dots.
- Manage risks. The best time to make plans for an emergency is long before the emergency happens. By being proactive, you can not only reduce your vulnerability (by partnering with a second supplier of that important resource, for example), but you can also develop contingency plans and have them on the shelf for when a worst-case scenario occurs. Being agile means being prepared to respond to challenges beforehand, giving you the best chance to mitigate potential losses.
- Review risk-management activities, and share lessons learned. Communication and coordination help when adding adaptive capability to your company. If you can share best practices and get everyone on the same page concerning possible risks, then you are way ahead of the game. You'll have also created a competitive advantage, while your competitors, faced with similar crises, flounder around looking for a plan of attack (something that you've already developed).
Managing change means understanding the possibilities and being proactive by developing good structures and planning that supports adaptation. Forewarned is forearmed, as the old saying goes.
How do you decide which employees will take the lead in developing contingency planning? Let us know what you think by commenting below.
Boston-based Chuck Leddy is an NCMM contributor and a freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education. Circle him on Google+.