3 ways to understand your Business Environment

A few years ago, a major American automaker invested a couple of billion dollars in a brand new green facility – LEED certified and the works!

Surely, it would have been a very strategic decision at the time. It made sense to lead from the front. But as it turned out, it was a very dear mistake, when they realized that they had to make their cars green, and not their factories, though they too are an important part. That manufacturer, even knowing the business environment,  misread it and thus the strategic direction they took put them on a different track.

Sometimes, even when companies have their processes and products right, they just don’t understand the existing business environment they are operating in, thus missing out on a large opportunity.

Marcal, a US based, 60 year old paper products company that had been making recycled paper since its inception and for many years from 100% recycled stock and fiber without cutting any virgin trees, recently emerged from bankruptcy – why – they were not aware of the existing business environment and the value they had in their hands.

It was only in 2009, Marcal Manufacturing, LLC, introduced the Marcal Small Steps line of 100% recycled bath tissue, towels, napkins and facial tissue for both home and for commercial use – without the typical “green premium” cost.

So, let’s see what kind of framework can assist the management in understanding the business environment – complex answers often lie in their simplicity of approach. Here are 3 steps that can help:

  1. Understand where your company is:  Really understand. Taking complete stock of a company’s current situation – as regard to product innovation, customer buying patterns, PR branding, what are you selling and what you can sell.
  2. Compare the company with the leader in the business: A critical comparison with the market leader will bring out the areas where most attention needs to be paid, because most often, the leading business has read the business environment right.
  3.  Engage with stakeholders: Constant dialogue with all stakeholders will lead to understanding the company’s niche and positioning in the competitive market.

The strategic direction a company takes will ultimately depend on gauging the business environment correctly. Many companies today don’t even have the right assessment and analysis tools to see the latent opportunities behind their operations.

Companies don’t want to find themselves going down the track of “Strategic drift” – misalignment of strategy with surrounding eco-system change, what the authors of the book “Exploring Strategy” argue. This happens when the “successful” business becomes averse to redoing its winning formula – primarily due to when the expectations of the business are shareholder driven rather than stakeholder driven. It becomes rigid, misreads the environment leading to sudden decrease in performance – as was the case of our automaker.

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