Creating growth opportunities through smarter supply chain strategies
Jonathan Cooper-Bagnall and Guy Strafford
Apr 23, 2015 10:50:00 AM
It’s election time. All over the place, actually. General election fever/exhaustion (delete as applicable) is dominating headlines in the UK. And with Hilary Clinton, Marco Rubio and Rand Paul (among others) declaring their 2016 presidential ambitions in the US; and Le Pen family squabbles in the run-up to France’s regional polls, democracy is headline news all over the world.
(For the record, Turkey, Denmark, Spain and the UK are having general elections this year; there will be presidential votes in Croatia, Greece, Italy and Poland… and that’s just Europe.)
All this campaigning has two interesting effects on business leaders. First, we all start to wonder what effect a new government will have. And second, as we weigh up our verdict on the current crew, it makes us start to think about just how well (or how badly) the economy is going.
In the UK, at least, the first question is incredibly tricky. It seems almost certain we’ll have some kind of minority government. But the make-up of any coalition throws in some real wild-card factors for the next five years. And one of the biggest issues will be the extent to which the state loosens its grip on austerity; or decides to focus on deficit reduction, possibly at the cost of jobs and growth.
Business managers actually have the same kind of dilemma. On the one hand, many economic indicators are on the rise. In the US and UK, particularly, GDP growth looks to have turned a corner. And even if the eurozone isn’t quite so robust (which presents its own risks to those anglo-saxon economies), we’ve seen some interesting shifts in productivity, for example, that hint at a stable base for investment.
On the other hand? Well, there are still plenty of risks in the system – and it’s not entirely clear how well various economies (especially the ones heavily dependent on financial services) have righted the wrongs that caused the catastrophe in 2008. Markets look bubble-ish, geopolitical uncertainty abounds and even the climate looks set to shape corporate fortunes.
Throw in ongoing and rapid technological change (which has reduced the average age of S&P 500 companies from 67 years in the 1920s to just 15 now) and exposure to a great variety of global risks (principally through the supply chain, but for many larger companies, via revenue uncertainties) and it’s no surprise that operational and strategic issues weigh heavily even as management expresses confidence in the economy.
Worse still, thanks to the ultra-competitive business environment and desperation for returns in the capital markets, there’s intense pressure on management not just to manage downside risk, but to “seek alpha” and deliver bigger returns at the same time. Hence pressure to deliver via both strategic, organic growth; and aggressive M&A. Just look at Shell’s bid for BG Group or FedEx’s move on TNT.
But wait: bigger returns and managing downside risk? That means something has to change elsewhere.
The obvious place for that change is how we do business. Simply throwing money at an M&A deal might do wonders for return on equity, and could even deliver economies of scale within existing business practices. But as most good M&A advisers will tell you, chasing cost synergies or financial engineering without looking at the strategic angle is a short-term game.
At Proxima, we know all about that. We’ve been banging the drum for a different approach to procurement for years. In our view, it’s not about how much you save - it’s about how hard your spend works and what opportunities that smarter supply chain creates. (Corollary: cherish the additional risk management it offers, too.)
Better yet, applying a different perspective to your own spending, procurement and operational execution acts as leverage in those M&A deals. We don’t think buying businesses is a bad idea - but buying businesses knowing that you’ve understood exactly how to pivot their operational approaches to deliver returns and options you’ve already demonstrated in your own business? That’s much smarter.
And, critically, even if you’re not using a better approach to procurement to make acquisitions work harder, a more strategic view on the way your business spends, on average, 70% of its revenues looks like a good way to find avenues for organic growth.
Whatever the outcome of any of the elections this year, and however the economy moves, companies looking for new angles on growth will be the ones to succeed.
Download our corporate virtualization research to learn more about creating growth opportunities through smarter supply chain management.
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