What are the weaknesses in today’s business models?

Thursday, March 11, 2010 | Posted by: Grant Thornton
Categories: New Business Models | Tags: strategy, Wendy Hart, economist, Google, Stephen Weatherseed, Microsoft, EIU, Dominic Preston, Will Oxley, New Business Model

Read here what our Grant Thornton experts think about the weaknesses of business models used by UK businesses today. 
   
Let us know what you think

Stephen Weatherseed, Grant Thornton:
The weaknesses are generally a lack of ambition and vision. But who can blame the managers who are focused on survival, rather than building a long-term sustainable business? How can a long-term perspective be taken, with the short-term pressures to deliver results to the market and to keep the bank managers happy? Traditional, owner-managed businesses may not suffer so much from these pressures, but against a background of continuing change in technology and competition, the models need to be sketching out visions that will motivate and retain good staff, as well as delivering results that will support the financing required. And if the providers of finance are not willing to be risk takers themselves, this will impact the entrepreneurial spirit of the business owners and managers too.

So where are the long-term providers of risk finance, especially for the smaller businesses?

Wendy Hart, Grant Thornton:
Many businesses operate on the basis of structures and working practices which have in essence been unchanged for years, if not decades. The UK has suffered declining productivity over many years and today’s business models in many cases could be streamlined by the introduction of greater automation, more efficient management structures and greater flexibility of offering. In this environment the tendency can be for businesses to chase turnover in order to cover their overheads, and in many cases the business model being utilised would not be the starting point if the same offering was to be developed anew today. The challenge therefore is for management to take a step back from their businesses and to objectively review the way in which the business is structured/going to market at a time when most are focused on getting through the downturn. Great courage is required to take a fresh look at how a product or service is delivered to the market and to cut out practices which have taken years to evolve.

Now is a good time for businesses to consider that old adage “turnover is vanity, profit is sanity and cash flow is reality” and consider ways in which they might evolve their business model to deliver more profit, even if that means sacrificing some turnover.

Will Oxley, Grant Thornton:
We live in a business world which is becoming smaller. This is largely due to the amount of readily available information on businesses and markets, the growing number of global superbrands such as Microsoft and Google, as well as the way in which customers wish to execute business, eg through global partnerships and electronic transactions. Many businesses are being forced down a route which requires them to have the right accreditations, size and global coverage before they can enter certain markets. Consequently, many businesses grow in an uncontrollable manner or oversize themselves when starting up, subsequently failing or struggling due to an over-invested fixed cost base.

Businesses need to recognise their own unique selling point, build a credible and sustainable base and then seek transformational growth opportunities.

Dominic Preston, Grant Thornton:
A real challenge exists in striking the right balance between sufficient differentiation of product and/or services, without falling into the trap of finding oneself in too niche or narrow a market. Lack of differentiation is placing smaller players at the mercy of national and multinational competitors who will be leveraging their own balance sheets and reserves to ‘buy in’ work, sometimes at less than cost, in order to preserve turnover and avoid losing talent and manpower in anticipation of an upturn. Conversely, larger businesses are finding their ability to refocus ailing service offerings hindered by a lack of speed and dynamism which their smaller competitors can deploy to more immediate effect.

Damned if you do and damned if you don’t!

If you would like to know how Grant Thornton can help contact us at (JavaScript must be enabled to view this email address)

Find out more about what smart companies are doing here