BUSINESS CHALLENGES

In order to meet stakeholder expectations of achieving value growth objectives, management has to identify opportunities of leveraging experience, knowhow, technology and brands beyond existing geo-graphical boundaries; and generate and sustain competitive advantage.

Firms face formidable challenges in the present-day business environment. They have to cope with a very volatile political, economical,socio-political and technological environment. Markets are undergoing continuous change and are shaped by fast-evolving trends. The competitive arena has become very tough and new entrants are continuously adding to the desperate corporate need to maintain and find new customers in saturated markets. The demands placed on management in this intensely competitive environment are ever increasing and to find a suitable strategic response is complicated.

The firm’s struggle for survival, its quest for growth and prosperity are characterized by the involvement and interaction of a multitude of variables from the internal and external environment. Together with the numerous possible combinations of strategic activities to achieve competitive advantage, the modern executive faces a daunting task in correctly interpreting the environmental influences, identifying viable opportunities and putting the right array of resources in place. Technological advances in transport, communication, data processing and digitization all contribute to diverging opinions about the right course of action to take. Business concepts and management principles are continuously revisited and revised to test their applicability in the modern-day economic and political environment.

Companies have to stay flexible and create new competencies to be able to cope with a rapidly evolving competitive environment. In a more transparent world, technology is faster becoming available to all and the leveling effect of the Internet presents a formidable challenge to find ways of differentiating the company from its competitors. This in turn poses the question of where in the value chain competitive advantage could be created. Any possible advantage may be short-lived and difficult to sustain. On the other hand, new markets are opening up, new technologies are born, new needs are identified and new opportunities are arising. Companies are adapting to cope with new kinds of threats and exploit new kinds of opportunities. Organizational structures are becoming less rigid and interaction between companies is taking a new dimension. Traditional management and strategic concepts and tools have to be tested again against the light of recent and current trends and events. Foremost, the major considerations should revolve around the aspects of corporate structure and inter-firm interaction.

The conventional approach for a company to gain in size in order to benefit from scale currently does not stand up very well. In future, some form of partnering may increasingly be the answer to the challenges of being flexible and responsive to the environment and in order to manage resources efficiently. Corporate management cannot be comfortable any more with a strategy that consists only of a best practice approach to achieve value-creating revenue growth. The companies with superior top-line growth are mostly found in sectors that benefit from favorable environmental trends. Management should be equally vigilant about growing revenue as about increasing the bottom line. The prime consideration of strategy is how to provide and deliver superior customer value profitably in order to create and increase shareholder wealth. This means ambitious revenue, income and market capitalization growth targets must be met. Strong revenue growth is difficult to sustain even under favorable business conditions. Only about 10% of public companies generate double-digit revenue growth over ten years. Many companies only achieve high levels of growth through unsustainable, isolated occurrences and moves. Slow market capitalization growth makes a company vulnerable and denies it the ability to exploit opportunities.

Corporate management is challenged more than ever before by the pressure from its stakeholders to grow the business. This is translated primarily into attractive earnings growth to provide for the ongoing future business specifically in terms of access to finance, but also into expanding the scale of operations, that generate employment, business opportunities, and tax and social contributions. In recent years, companies have created exceptionally fast external revenue growth through mergers and acquisitions, compared to more modest internal growth rates. Serious challenges to grow earnings and shareholder value in the same proportion have often prevented some of these companies to satisfy the expectations of investors. Today there is an increasing return to strategies that favor organic (internal) growth rather than external growth.