Gartner, the IT consulting major, said at a recent conference that a digital disruption to business is occurring approximately every three years. Current discussions at the World Economic Forum on the 4th Industrial Revolution also speak on similar lines. However, this article is not about digitisation, per se. Rather, it is on how I believe these factors may change the way we look at, and measure, our businesses, whether as an owner or as an employee.
1. Profitability maintenance vs. Profitability growth
Businesses may eventually measure profitability maintenance, rather than profitability growth. Frequent disruptions to business models means that the average life of a product in the market is shorter. The time a product has to hit the market, grab the buyer’s attention, notch market share, and make enough sales over-time to increase its profitability from it, is reducing. As such, many products may not even reach break-even before technology evolutions necessitate moving on to the next big idea, throwing the earlier product’s feasibility studies out of the window. In short, few will make profits from their investments and many will simply lose capital.
Rather than waiting to see if they grow their profits or not, businesses may think of it as an achievement if they can just maintain their profitability, rather than see it decline in comparison to their competitors. Thus, at the rate events are moving in today’s business world, the yardstick to measure profitability may soon shift.
Recent news tells us the economic inequality in the world is only set to intensify. Few will become wealthier, while many may move lower in prosperity. The access to capital and technology to pursue high-end innovations is available with very few. Those who do not have access to technology may buy it or develop it, but that comes at a high cost and at a lag which may anyway nullify the benefit. Building a competitive edge for those who are short of capital is a thing of the past. At such times when the scope to garner profitability is getting skewed towards those companies who have capital, corporate taxes may move towards those who make moolah through easy access to capital, as only they can create wealth.
On the other side, taxing innovations is also not correct, as it creates a disincentive to innovate. Hence, one may look at a version of an inheritance tax, like that in Britain. This taxes those who gained wealth by inheritance, and not by their own effort. This does not disincentivise the urge to innovate, but rather takes the sheen off the proverbial silver spoon. Inheritance tax does not exist in most countries, but it may replace any shortfall in income tax or corporate tax in quantum, due to the sheer volume of wealth that the few rich, and especially their future generations, may enjoy.
Innovative, non-monetary incentive structures
Today, there is nothing called employee loyalty. Employees know very well that they have leverage if they have specialised skills that can help companies innovate and gain competitive edge. However, the lifetime of a relevant skill and the time to monetise one’s existing skills are getting shorter — just like the life-time of a new product/technology. Attrition for specialised talent will be high as long as the skill is relevant, supply is less, and there is demand for that skill from someone willing to pay more. Companies obsessed with maintaining their profits at the cost of wage growth will bear a fiercer brunt of this attrition, since skilled employees view company-owners as making money on the back of their skills while they are left twiddling their thumbs.
Whether companies are paying too much for talent vis-a-vis the returns generated by them or time-frame till when their skills are relevant is another challenge to measure. Creating a win-win incentive structure is the only way, but its life can also be limited since other companies may be willing to bear a loss in the short term to ensure a talented employee comes on board. Balancing fixed and variable components remains a struggle.
Ownership stakes may work, as long as there is a passion to participate in the company’s growth. Incentives that include training costs to learn new skills may actually have a real relevance for employees, as it prolongs the relevance of their skills. It is surprising to see that very few companies sponsor training and development programmes for their employees, despite it being a non-monetary incentive that people value the most today. Another non-monetary incentive is flexibility in working-hours. A strict 9am-6pm attendance may be difficult for those in tricky family set-ups, but who may still be able to devote the adequate hours to get the job done if they have the flexibility to manage their time. Of course, it works better in singular rather than team-based tasks, but a categorisation of work-needs for employee groups may be needed now more than ever.
4. Battle for market share rather than market size
Zero customer loyalty in a discount-marketing world means a battle for market-share, not market-size. As customers in a highly competitive and disruptive business world, it is gratifying to see all the discounts being offered to grab one’s attention. The way wage growth and corporate profitability are headed in a high-tax and high-inflation environment, many consumers may eventually not even have the disposable income to pay these discounted prices, but that is a different story.
Coming back to the topic, discount-marketing means customer loyalty is zero and he will switch to the next lowest-priced product once his current brand cannot afford discounts any more. What it means is that most businesses are ending up playing mainly for market share, till the time the competitor has no more capital left to afford the accumulated losses in their balance sheet. While they may claim they are deepening the market-size in untapped segments, the attention to measure market share is becoming all the more crucial, given the short-lives of each product and the desire to derive profits from further discounted prices.
Ignoring market share may throw the company out of the market altogether, despite its efforts to deepen the market itself. In layman terms, a company selling at a price lower than cost is incurring a loss, and regular capital infusion would keep that company solvent. When this tap dries, its future is doomed. All companies in discount-marketing are vying for this consolidation in their industries, wherein those who run out of capital will shut shop or will sell-off to a peer. Companies with deeper pockets can engage in predatory pricing. Once the shake-up of consolidation occurs, the few who survive the storm will claim the prices they want, thus making up for previous losses.
In conclusion, these are observations on the ways that may change how we look at our work and our businesses in coming times. While data may not be available to back these observations, data in future may point this way.
Image Courtesy: Hiroshi Watanabe via Getty Images
Originally published here – http://www.huffingtonpost.in/sourajit-aiyer/4-ways-that-are-radically_b_9058092.html
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