CAN WE CONTINUE WITH OUR BUSINESS MODEL AS WE USED TO?

The turmoil in supply chains, energy and raw materials markets must be reacted to now

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by Christian Bachmann, Managing Partner, CreValon AG, Basel

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Let's revisit what's really at the core of our value proposition.

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With what will our company generate the most profitable cash flows in 2-3 years ahead?

Which customer needs will we have to address in a new way?

What do we have to do today to be able to keep our customers promises?

Despite collapsing equilibria and operating modes that were thought to be stable?

With all this, can our sustainability and environmental agenda still be adhered to?

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CEO of an industrial company, intro to the board meeting "Securing the Future", March 2022.

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STICKY questions are currently occupying the management floors of many companies. Nobody expected Corona. Nor the collapse of entire supply chains and partnerships. In addition, and still difficult to assess, the effects of the current war in Europe. Beyond all the unspeakable suffering and horror, further turning points and domino effects flood the markets and competitive scenarios.

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Let’s take the supply chain. In the last decade, many companies have optimized their value creation internationally. Taking part in functioning networks, cost was optimized, and new markets were entered. Since 2020, some of these strategies have gone into abrupt slanting. What was already known, now lands with slight time delay as a ticket in the management floors. The cost of our offshore imports of components and products is only partially covered by its often-tempting price. Carbon footprint, low on-site grip, exposure to the risks along these transport routes. All this links up to material imbalances. What is certain, however, is that there is a need for action. Previous plans and assumptions must be seriously reviewed now. Also, investment decisions. Or the previously assumed trends and risk scenarios.

 

Company managements are particularly challenged these days to answer important fundamentals. Highly profiled strategic questions are currently being discussed in the management level of our customers, e.g., the following.

?    Where in the current business model is our ability to deliver exposed to a high level of risk?

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?    How will we price security of supply into our products and services in the future?

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?    Which part of our company's performance is dependent on fluctuating prices or the actual availability of raw materials, energy or other scarce goods or know-how?
 

?    What of this do we cover internally, what via suppliers and partners?
 

?    Who are our supplier partners who are critical to our success? What do we expect from them to better master all these challenges in the future? How do we react in the possible scenarios of dependency or arbitrariness?

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?    How do we get more own grip and enforcement on it?
 

?    Which of our productive resources are usefully instrumental, but are not perceived as valuable by the customer? How can we sharpen our focus on valuable quality?
 

?    What can be done to significantly reduce the waste we produce, emissions and defective performance? As well as the «non-turners» or remanences?
 

?    How can our internal specialist departments – sales, quality management, engineering, etc. – now actively and significantly improve this? Also, very actively, at the interface to suppliers and partners?

 

?    Are there sensible alternatives to all of this? Also unconventional, ground-breaking paradigm shifts - in the way we run our business?

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This review should aim to critically examine our business model with a 360° approach. To play through variants: from adapting our own added value to entering new networks and partnerships. Right through to portfolio adjustments and to possible company acquisitions. Of course, with a view to the financial impact and the required competence profiles: What can we afford financially? Do we also have the necessary know-how, the right values, the right attitude?

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Such a review also includes the future viability of the current management team. Its management culture and value orientation. Certainly, the air can grow thinner with such a sustainability check of the business model. Yet, it's better to be thin now, before real trouble is brewing with the company owners. As soon as they should conclude that the management has not subjected this to a timely and systematic stress test and failed to position itself accordingly for the future. In view of these markedly volatile framework conditions. Openness to change applies to everyone. Shielding "Old Boy Networks" or putting up smokescreens are much less advisable than anyway, for management, in this situation. A broad hint to all those who tempt to rely on the fact that "it will set itself right again" this time. 

What now? The old truism applies. If the conditions in some areas get radically worse, then we must get radically better in other areas to maintain our previous level. Not everything will go as planned. It is therefore an imperative of this time to become radically much better. Deliberately unbiased. After all, what is often underestimated: the customers are also familiar with this situation from their own current experience. Your practical alternatives and paradigm shifts will be met with favour and dialogue.
 

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