Businesses are made and remade with time; as the world changes, so does consumer choice and thus the demand and supply chain sees a change.
There was a time when the analog landline phone was in such demand that, more often than not, your service provider would ask you to purchase a set from the open market as they had run out of stock. But with the advent of technology the trend has shifted to smart phones, and there are hardly any takers for the analog phone. With time the trend and demand-and-supply patterns have seen a paradigm shift and so to remain in the running the phone makers also have to shift their focus and move on or step out of the race. This is where the role of strategy makes the difference in the health of the business.
A successful business runs on a well-coordinated cluster of strategies. One among them is prioritizing the focus of the business which holds the base of a business function. Focus on customer demand and the right market trend is what a business needs to do first and foremost in order to grow thus striking the perfect harmony between the interests of customers and employees with those of stockholders. Let’s take a look at what went wrong with a few honchos this quarter.
Wrong moves
International Business Machines (IBM, Financial), McDonald’s (MCD, Financial) and Coca-Cola (KO, Financial) –Â all the three names have proved to be the giants in their respective sectors for years and have ruled their markets, but of late their dismal performances have raised a lot of questions on the viability of these business leaders.
For years these giants ruled the market and became American business icons; their strategy brains were focused on the customer –Â addressing emerging customer trends with the right value propositions.
But recently all three business powerhouses lost the focus of prioritizing their business function and that’s where their results had to take the hit though their business prowess is still unquestionable their strategy took a slip.
IBM’s misses
Looking into the misses team IBM has been too busy trying out financial tools of incrementing earnings and satisfying shareholders with buyback programs rather than focusing on the core domain of its business of gaining customer confidence with innovative products that can beat the ever-growing competition.
Since 2000, IBM has spent $138 billion on its shares and dividend payments, compared to only $59 billion on its own business through capital expenditures and $32 billion on acquisitions. The figures show how IBM’s strategy swayed into alternate routes to add value to their book of business from their actual line of business as a tech solution producer.
McDonald’s – On the wrong foot
McDonald’s, the company that revolutionized eating out and drive-through across the globe, also has its own set of slips and misses causing its results to nosedive. In 2006, McDonald’s signed out of Chipotle Mexican Grill (CMG, Financial) just to make some quick profits which fizzed out within a short span of time.
Though the Chipotle liaison should have featured on the top of their priority list in order to make long-term and sustainable profit margins, eight years have passed and the trend of consumer choice has changed. McDonald’s still offers a range of burgers and fries when the world has moved on to healthier burritos and Panera’s (PNRA) soups, salads and sandwiches, a segment where Chipotle holds the forte currently. Had McDonald's not parted with Chipotle, the changing customer tastes would have easily added up to its business numbers.
The company has broadened its menu to include fruits, salads and egg white breakfast items, but it has a long way to go before making a healthier menu the company's focus and competing effectively against Chipotle and Panera Bread.
Coca-Cola – Fizzing out
When the whole world is going through a paradigm shift of food habits and moving into health drinks, Coca-Cola is still busy bottling the old soft carbonated drinks. Even though, the company has been adding water and juices in keeping with the new consumer trend toward healthy drinks, its main focus is still on soft drinks to an extent that the sales of soft carbonated drinks continue to account for close to two-thirds of its sales.
The soft drinks giant has been way behind in the energy drinks segment, the new preference of the youth population for casual drinks. More than carbonated drinks, today’s health-conscious youth reach out for health drinks which is dominated by Red Bull and Coca-Cola is nowhere near in the race in this segment.
With the business think tanks eyeing the wrong priorities, sales have slumped and the interests of customers, employees and stockholders has fallen in disarray which is reflecting on their book of business.
Outsiders outlook
The best people to steer a company ahead are perhaps the business leaders of the company who know and understand the company best, but then the glaring question that pops up is why do they fail to get corporate priorities right?
Economists have a good answer to this question: The "innovator’s dilemma," as explained by M.C. Christensen: “Successful companies want their resources to be focused on activities that address customers’ needs, that promise higher profits, that are technologically feasible, and that help them play in substantial markets, yet, to expect the process that accomplishes these things also to be something like nurturing disruptive technologies – to focus resources on proposals that customers reject, that offer lower profit, that underperform existing technologies and can only be sold in insignificant markets – is akin to flapping one’s arms with wings strapped to them in an attempt to fly.”
In a nutshell all these companies still hold a strong position in the market and are in no way out of business; it is just that their strategies are out of line with the current demand trends of the market, which has resulted in a synchronization issue between the shareholders, the workforce and the consumers. We still recommend the shares of these companies as a strong hold since in the long run they can yield good numbers considering their strong legacy and solid fundamentals; only the strategy part is the missing link between them and the top spot in their segment. The best thing to do now would be to capitalize the current dip by buying in more position and keep a close watch on the change in their strategy to match the market trends. Once they are back on track with a more customer- and market-oriented strategy, it will be time for those who take their positions at the current levels to celebrate.
