Businesses face the challenge of perpetually improving profits to satiate shareholders` need for high performance, increased share prices and dividends. However, lurking beyond the immediate need to drive shareholder appeal is the more grave concern of ensuring businesses` longevity in aggressively evolving markets. This is particularly relevant if we look at the lifespan of the Top 500 companies as rated by Fortune Magazine. Currently, less than half of the companies that were listed 50 years ago survive.
"Research indicates that the companies that survived responded to market changes and adapted their business models to meet new demands and trends," says David McWilliam, managing director of Cognos SA, a business intelligence (BI) and corporate performance management (CPM) company.
"A shift in management thinking is required if companies are to respond to internal and external influences with agility, transforming the business according to the demands of the environment or of market changes."
The chemical giant Du Pont is a prime example, McWilliam notes. The company started out in 1802 as a gunpowder manufacturer and evolved over the next 100 years to become a broad science-based chemical company. Nylon and Teflon are just two products that resulted from this diversification, ultimately saving the company from extinction.
Explains McWilliam: "Flexibility provides companies with an opportunity to respond agilely, taking advantage of changing market conditions and turning them into lucrative opportunities rather than debilitating setbacks.
"Many managers make the mistake of focusing on what is going wrong and not enough emphasis is made on planning for the future. Future planning with the ability to incorporate different scenarios is the key factor to the success and longevity of a business. This becomes a compelling reason for businesses to look toward CPM.
"Without visibility into internal key performance indicators, it is difficult to establish problematic areas or identify trends that affect the overall performance of a business. This, in turn, hinders the company in its reaction to external influences. BI coupled with scorecarding provides businesses with a distinct advantage, delivering timely warnings when the company does not perform according to the plan and strategy."
A suitable business plan is the foundation from which organisations propel themselves forward, while the ability to execute the plan and measure the performance of this execution is instrumental in establishing a current `view` of the business -- a tenet of CPM. To be effective, the budget must also reflect the strategy and tactics of the overall business plan. Planning and budgeting in real-time with dynamic plans allow businesses to refine the plan and budget when required. Continuous refinement of the plan and budget is essential. Where the management cycle is also shortened, business agility is enabled, providing a marked advantage in that it allows the business to respond quickly to a market shift or change.
Internal analysis further allows a company to establish how it is positioned to meet external challenges. For example, how will the company react to rand/dollar fluctuations? What needs to be modified or acted upon to minimise the effect of change? These questions highlight the importance of being able to recalibrate plans and execute `what if` scenarios.
McWilliam concludes: "The ability to adapt and change ensures an organisation`s longevity. CPM and BI assist executives to continuously monitor performance and identify trends, not only ensuring timeous adjustment of strategies and goals, but also allowing the company to maintain and improve its competitive edge, building shareholder value."
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