Quo Vadis? - How to handle change in your business.

You have heard all the routine comments about change - the only constant thing in life is change, life is not about what happens but rather how you react to what happens etc. We only have to look at the changes in our country to realise that to expect the unexpected should be the way we should face the future, both in our personal as well as our business lives.

So, how do we plan for what is, uncomfortably, an uncertain future?

As we cannot directly influence things on a macro level lets rather focus our attention on issues that are within our direct control i.e. our businesses. The good news is that in any state of flux there are always more opportunities than in stable situations, while the challenge always is that change is implicit in identifying and exploiting these opportunities. The problem is that while none of us will disagree that change is constant, we all prefer to hang onto those things that we are familiar and comfortable with. This reluctance to embrace change is a massive inhibitor to business success in what is now an environment that is clearly changing on virtually a daily basis.

We were involved in a project that neatly positions the critical issue that is acceptance and management of change, so sit back and enjoy the read whilst hopefully getting benefit out of it. It is a story that we all enjoy, a real-life rag to riches business saga that provides us with inspiration that is so badly needed right now.

The current CEO of what is now a large diversified group of companies started his working career by selling goods on the street as he couldn’t find a formal job. The marketing and selling skills he learnt in those early days were to stand him in good stead in the future, as he found a sales position in a large manufactured components company. He spent many years with the company during which he gained extensive knowledge of the industry as well as the products, price points and quality standards required.

The advent of the newly democratic South Africa provided him with the opportunity that he had been looking for. Although he didn’t have any tertiary education his highly developed intuitive skills, together with his entrepreneurial instincts, led him to identify a major opportunity to supply manufactured components to a major industry user of such components. After finding that the user sourced one of its high-volume components from a local subsidiary of an offshore company he ensured that his company obtained the highest level of BEE rating i.e. substantially higher than the current supplier.

In addition, he found that the current supplier enjoyed sole supplier status that the user was keen to change. The next step was to find a supplier with the requisite technology to meet the specifications and quality standards required. This he found offshore and he formalised a wonderful win-win partnership; he had the BEE compliance that the offshore supplier could never obtain as well as the relationship with the user whilst they had the manufacturing expertise and technology to meet volumes, quality and specifications. It was a marriage made in heaven!

The next decade or so saw the partnership produce huge volumes of product to the user at very profitable margins. The interesting point is the management style that he utilised in the initial growth phase of the business. He was a proverbial one-man band in that he tried to control everything, which was sufficient when the company was starting out. However, as the business grew in both size and complexity it obviously became impossible to physically control everything.

Given his lack of technical and financial skill he intuitively fell back on what had worked for him when he first started out. He tracked cash flow passionately (to put it mildly!) which worked for him. He probably didn’t realise that its lack of liquidity and not lack of profitability that results in business failure in the start-up and growth stages of a company, but his instinct pointed him in the right direction.

The company was fortunate in that with his experience in the industry, plus the financial and accounting expertise of his offshore partners, his margins and price points were positioned to satisfy the user and provide a healthy profit. The other major positive factor was that his business model was very simple; the business had one customer (the user), the production process was so fundamental that it utilised semi-skilled labour, and, importantly, the management control and information systems were implemented and run by a financial manager put in place by the offshore partner.

The business grew rapidly and generated very healthy profits as well as lots of surplus cash. The entrepreneurial side of the CEO now came to the fore in that he saw business opportunities in other fields totally unrelated to his core business. His lack of technical business skill led him to divert cash from his core business to other ventures in which he had no experience or expertise, rather than address the glaring fault in his core business which was clearly its reliance on the user being its only customer. The obvious strategy would have been to diversify the core business to remove the major threat of relying on just the one customer.

However, the lack of technical business acumen and the belief that, due to many years of successful trading, things would just continue their merry way led the CEO to acquire substantial diversified business interests in both his personal and family capacities. His success led to an attitude that his method of running what had become a complex and large multi-business operation was fine. Therefore, why on earth should he change the way he had run things for so long? Even though he realised that change is a constant he was unable to overcome that inherent human resistance to change that is in all of us. He even said that he had been running his business the same way for many years so he didn’t see any reason to move from what had brought him success.

As he had been building his business (actually diverse businesses!) his belief that if he controlled all aspects of it pertaining to cash flow he would continue to be successful. Due to this strongly held view he viewed critical aspects of management such as strategy and finance merely as additional and non-essential costs that negatively impacted on profits. He therefore ran the finance and administration function without the necessary staffing and skills, which led to insufficient financial controls, systems and information. A further but very important issue is that he has a strong personality which makes it difficult for him to accept any advice that happens to be contrary to his views.

Sadly, the inevitable happened in that the reliance on one customer nearly crippled his core business when the user decided to go with a competitor for the greater part of a year. The lack of strategic planning meant that there was no back-up plan and the production facility had to be closed for a period which proved costly. Due to a lack of proper structure in the group of companies whereby cash from the core business was used for non-core business acquisitions rather than retained in the core business there was a requirement for additional funding which could have resulted in a house of cards type of collapse of the entire group and everything the CEO had worked so long and hard for.

The diversification issue in the core business has been addressed to a certain extent by supplying another product to the user, but the issue of only having one customer in the critical core business remains a concern. The lack of a professional group structure with the requisite skills in place will certainly continue to constrain the group from realising its potential. The threat of another disaster will always be there should the critical changes required not be implemented.

At the heart of this situation is resistance to change that is something that we all must contend with. It is essential that we realise that we live in an ever-changing world that requires that we continually reassess what we are doing both in our lives personally and in our business. What worked yesterday won't necessarily work today and, given the uncertain environment that we operate in, we simply always must have a Plan B.

In terms of our real-life story above we find so much to admire in the CEO and in what he has created from nothing. The reality is that unless he accepts the critical need for change in his business he might easily end up how he started all those years ago.

If you see something of yourself in the CEO in the tale above then get an independent, objective view from professionals who won't be afraid to tell you the truth. As always be aware of the yes men out there who are only interested in their fees!

Feel free to contact us for a professional and ethical view which might just be what you don’t want to hear (but seriously need to know!)

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