Coping With External Elements of Decline

By using tools like promotion, persuasion, buyer education, accelerated product development, process improvements or elimination, growth plans, market development, and adjusted sales practices, business owners can adapt to changes in their external operating environment. Paying attention to the following warning areas is important in coping with external elements of decline:

  1. Economic growth, which gives management an indication of the economic climate and influences expansion plans.
  2. Credit availability and money market activity, which indicates trends in commercial and investment banking affecting financial needs. Changes will affect the cost of funds.
  3. Commodity market movements, which reveal trends in raw material inputs.
  4. Capital market activity, which gives a clear signal of investors’ attitudes toward your industry. 
  5. Business population characteristics, which can advise executive teams on the number of businesses entering and exiting the industry (niche). This signal can be used as an indicator of the expansion and contraction of the market and competitive size of the industry.
  6. Price level changes, which indicate the rate of inflation. This rate influences the consumption and therefore has an impact on the company growth rate.
  7. Changes in the competitive structure of the marketplace, which affect products, pricing, and marketing and sales.
  8. Changing technology, which allows rapid breakthroughs and changes in products, processes, and marketing and sales.
  9. Cultural/social changes, which can alter buyer preferences or the conditions under which a product can be sold.
  10. Legal/political changes, which can adversely affect the marketplace or have an impact on the execution, marketing, or sales of a product/service.

Coping With External Elements

Some  businesses prosper during crises. They plan for changes and create resources that enable them to continue to function. For example, some businesses use substitute products in their processes, and their adaptability allows them to survive. In short, many strong teams do find it possible to both address and influence the external elements.

There is no denying, however, that external elements can have a profound effect on companies. Teams are forced into unique experiences when confronting situations they don’t understand. External elements are usually not a part of most businesses’s planning processes. While many will fail, some are saved–those that are adaptable and able to return to their core products and once again become profitable.

Businesses with less than 50 employees are actually the heart of the economy. Unfortunately, they are also the companies most frequently in need of a turnaround, having the same internal and external problems but lacking the business and human resources of many larger companies.  Consequently, these smaller businesses do fail, just as larger ones do, but without the press coverage.

To effectively cope with the external elements requires that the executive team plan for the unexpected and implement the plan when it occurs. Since management knows it can expect changes in economic conditions that will affect the capital and money markets, it must plan for those changes. The areas that management can control must be prepared for the possibility of external environment changes. Strategic planning that is not flexible is, therefore, useless. For example:

  • Most companies should prepare for increased competition, local, regional, and around the world.
  • Legal and political changes are always on the horizon and should be duly noted; it is not a question of whether they will affect the business, but when.
  • Being aware of cultural and social changes affecting purchasing patterns is predictive of consumer spending and its impact on the entire local business economy.
  • Changes in technology are continual and must be utilized where appropriate.

The main issue to be addressed is whether the business is making the change or being subjected to it. In either event, the management team must adapt to the new environment or be prepared to suffer the consequences.

 

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