Unit 4: Commercial Awareness

Introduction

Before we explore this section any further, it is worth asking yourself the following questions to assess
how much commercial awareness and business acumen you possess:

Now answer following questions on Assessing Commercial Awareness:

1. What have you done recently to develop your commercial awareness?

2. Which business or financial newspapers do you read? What was today’s main headline in
them?
3. What is a Stock Exchange? Is the index of share prices in your country up or down? What
does that mean for the economy?
4. Are oil/gold prices rising or falling at the moment and what does that mean for businesses?
5. How do economic events such as a rise in interest rates or a shortage in skilled labour affect
businesses?
6. What are the biggest issues facing the business world today? Why?
7. Are you able to explain what price elasticity of demand is? Why is it important in business?
8. If you had £1 million to invest, what would you do with the money?
9. Are there any individuals in the business world that you particularly admire or any that you
completely distrust?
10. Who are the main stakeholders in the organisation in which you work and which of these do
you think is most important to keep satisfied?

Introduction

Feedback

Hopefully these questions have given you some food for thought. Spend some time reflecting on your
answers and those given by whom you asked.

Were you able to answer them fully?

If yes – well done!

You are on the road to becoming a professional with a high level of commercial knowledge. This unit
will guide you be able to provide you with more skills and tools to hone your already flourishing
knowledge and further enhance it.

If not – do not worry!

This unit will provide you with some tools and ideas on how you can become more commercially
aware and how to establish yourself as a forward-looking professional in the ever change business
world.

How to Enhance Your Commercial Awareness

There are many resources available to help you with improving your commercial awareness. You will
need to invest time and effort into improving knowledge but you will become a better professional by
doing so. Select each item to reveal more information.

1. Review company websites

For any organisation that you are interested in (it could be your current employer or one that you wish
to be employed by), check their company website for background information.

Look at sections for clients and potential clients. This will give you valuable insight into what the aims
of the company are as well as how they have been performing.

2. Review competitor websites

Find out who the organisation's competitors are and try to find out the size of the workforce, the
turnover and profits of those companies, their share price and key activities which interest you.

3. Read the business and professional press

The business pages of the major serious newspapers will cover lots of background on different
industries and businesses.

During your reading, look out for stories and current issues that will affect the organisation you are
interested in, or its clients, directly or indirectly.

The Financial Times and websites such as Bloomberg, will contain the latest financial news, including
stocks and share prices.

4. Watch TV and listen to the radio

There are many programmes on TV which cover business issues within a ‘reality’ setting. In the UK,
there are programmes such as The Apprentice and Dragon’s Den.

These programmes not only cover real issues facing entrepreneurs and business people, but also
cover personal and team development issues.

As with TV, the radio is a great source of business information, giving daily business and economic
updates that are broken down in a simple to understand way.

5. Relate your own experiences to business

You may have previously worked in summer jobs or internships purely to earn money, but this can
also be used to gain an insight into business.

Think of your experiences and answer the following: What are the good and bad points about your
employer? Who is its target market? Who are its main competitors? How would you improve the
company's image or profitability?

6. Review the internet

You can set up a Google alert for the organisation you are interested in. Yahoo also has a good
finance section with share price information.

7. Watch YouTube videos

There is a wide variety of commercial awareness videos on specific organisations and industries.
Most are short bite-size videos so can be viewed easily in your spare-time without eating into work or
social activities.

8. Get smart with your smartphone

Visit Google News daily, particularly the business section. You can set up a bespoke Google news
homepage on your laptop, tablet or smartphone so that you can prioritise the news you receive.

9. Use social media

The Financial Times, The Telegraph and The Times have their own Facebook pages that you can like
and keep up to date with on your news feed, so it’s easy to take five or ten minutes out of your social
media scroll to read an article that will help your commercial awareness.

These news outlets can also be followed on Twitter.

10. Make sure that you also have a LinkedIn profile

This professional social media platform will enable you to connect to organisations and professionals
to keep you updated on industry activity.

Strengths

Strengths are the qualities that enable us to accomplish the organisation’s mission. These are the
basis on which continued success can be made and continued/sustained.

They can be either tangible or intangible. These are what you are well versed in or what you have
expertise in, the traits and qualities your employees possess (individually and as a team) and the
distinct features that give your organisation its consistency.
Weaknesses

Weaknesses prevent us from accomplishing our mission and achieving our full potential. They
negatively impact the influences on organisational success and growth.

Weaknesses in an organisation may be depreciating machinery, insufficient research and

development facilities, narrow product range, poor decision-making, etc. They should be minimised
and eliminated.

Opportunities

The environment within which our organisation operates presents opportunities. These arise when an
organisation can take benefit of conditions in its environment to plan and execute strategies that
enable it to become more profitable. Organisations can gain competitive advantage by making use of
opportunities.

Threats

Threats arise when conditions in the external environment jeopardise the reliability and profitability of
the organisation’s business. They compound the vulnerability when they relate to the weaknesses.

Threats are potentially uncontrollable. When a threat comes, the stability and survival of an
organisation can be at stake. Examples of threats are - unrest among employees; ever changing
technology; increasing competition leading to excess capacity, price wars and reducing industry
profits etc.

How to Enhance Your Commercial Awareness

Using SWOT analysis as a business tool

For a recap of what each quadrant means from the perspective of business click on each of the
headings below:

Strengths

Strengths are the beneficial aspects of the organisation or the capabilities of an organisation, which
includes human competencies, process capabilities, financial resources, products and services,
customer goodwill and brand loyalty.

Examples of organisational strengths are huge financial resources, broad product line, no debt,
committed employees etc.

Weaknesses

Weaknesses in an organisation may be depreciating machinery, insufficient research and

development facilities, narrow product range, poor decision-making etc. Weaknesses are controllable.
They must be minimised and eliminated. For instance - to overcome obsolete machinery, new
machinery can be purchased.

Other examples of organisational weaknesses are: huge debts, high employee turnover, complex
decision making process, narrow product range, large wastage of raw materials etc.

Opportunities
The environment within which our organisation operates presents opportunities. These arise when an
organisation can take benefit of conditions in its environment to plan and execute strategies that
enable it to become more profitable. Organisations can gain competitive advantage by making use of
opportunities.

Organisations should be careful and recognise the opportunities and grasp them whenever they arise.
Selecting the targets which will best serve the clients, while getting desired results, is a difficult task.

Opportunities may arise from market, competition, industry/government and technology. Increasing
demand for telecommunications accompanied by deregulation is a great opportunity for new firms to
enter the industry sector and compete with existing firms for revenue.

Threats

Threats arise when conditions in the external environment jeopardise the reliability and profitability of
the organisation’s business. They compound the vulnerability when they relate to the weaknesses.
Threats are uncontrollable.

When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest
among employees; ever changing technology; increasing competition leading to excess capacity,
price wars and reducing industry profits; etc.

How to Enhance Your Commercial Awareness

Practical Activity

The next exercise will involve you analysing an organisation’s strengths, weaknesses, opportunities
and threats. (This organisation can be one you have researched, using some of the sources given
earlier, one you already know well, or the one which employs you.)

Scenario
Please note that the following activity will be saved in the 'my Portfolio' section of 'My progress'.

Imagine you are applying for a trainee manager role at your chosen organisation. You have been
asked to prepare a 10-minute presentation on your knowledge of the company’s current situation to
the interview panel.

Prepare a slide (with brief notes) for each of the following SWOT analysis headings, relating to the
organisation you have selected:

 What are its main strengths?

 What are its main weaknesses?
 What opportunities are out there for the organisation to exploit?
 What threats exist in the environment which may impact on the organisation?

How to Enhance Your Commercial Awareness

Practical Activity: Feedback

A good presentation will include:

 An understanding of the business.

  A familiarity with the end product.

 A grasp of the activities of the organisations.

 An understanding of the marketplace.

 A grasp of the key competitors and stakeholders and how they differ.

An excellent presentation will also include:

 An understanding of how the major competitors are performing at present.

 Whether competitors have won/lost major contracts.

 An intelligent vision of the future, which includes global news and its effects.

 An idea of the impact of today’s business and economic world.

 An understanding of the past and how to predict future trends.

 An awareness of any cyclical patterns and the effect on the organisation.

Did your presentation include these key factors?

PESTEL Analysis

The PESTEL analysis examines each of the factors to assess their impact or potential impact on an
organisation.

In this way, they can prepare strategically for any changes that need to be made in the organisation or
simply to have the awareness of the external market to give them a competitive edge over other firms
in the industry.

Examples of each PESTEL analysis factor are:

Political
What is happening politically with regards to tax policies, employment laws or trade restrictions such
as import tariffs.

Economic
What is happening within the economy i.e. economic growth/ decline, minimum wage, unemployment
(local and national), credit availability, cost of living, etc.?

Sociological
What is occurring socially i.e. cultural norms and expectations, health consciousness, population
growth rate, career attitudes?

Technological
New technologies are continually being developed, some of them disruptive. There are also changes
to barriers to entry in given markets
Environmental
What is happening with respect to ecological and environmental aspects?

Legal
Changes to legislation. This may impact employment, access to materials, resources, imports/
exports, taxation etc.

PESTEL Analysis

Advantages/Disadvantages

The advantages of using the PESTEL tool are:

 The tool is simple and easy to understand and use.

 The tool helps understand the business environment better.

 The tool encourages the development of strategic thinking.

 The tool helps reduce the effect of future business threats.

 The tool enables projects to spot new opportunities and exploit them effectively.
The disadvantages of using the PESTEL tool are:

 The tool allows users to over-simplify the data that is used. It is easily possible to miss
important data.

 The tool needs to be updated regularly to be effective.

 The tool is most effective when users come from different perspectives and departments.

 The tool requires users to have access to data sources which could be time consuming and
expensive.

 Much of the data used by the tool is on an assumption basis.

 The business environment is changing drastically. Thus, it is becoming increasingly difficult to

anticipate developments with any certainty.

Considering what you now know of PESTEL analysis, look at the information below and using the
drop down menus provided - match the correct heading to the appropriate category.

Political Factors

Apple is one of a number of American technology companies that has accumulated a large amount of
cash. It had $34.7 billion in the bank on June 30, 2015. This is generating calls for higher corporate
taxation in the United States, where income inequality has become a major political issue.

Apple is heavily dependent on lower cost manufacturing in China. Social and political unrest in China
could disrupt manufacturing or increase manufacturing costs in that country. There have been also
been calls to restrict Chinese imports in the United States in an effort to boost American
manufacturing.
The cost of finding alternatives to Chinese manufacturing could be high for Apple. This could lead to
increased prices for Apple products.

Apple’s dependence on Chinese manufacturing and markets makes it vulnerable to political unrest in
that country.

Apple could become the target of growing nationalism and anti-Americanism in China, which could
reduce its market share.

Apple’s close association with China could become a political issue in countries like the United States
and Japan if China were to be perceived as a threat.

Apple’s dominant position in fields like music could lead political pressure to break the company up or
limit its market share.

Economic Factors

Increased labour costs in China could take away the cost advantage of some Apple products.

Stagnating middle-class incomes in some developed countries, including the United States, could
shrink the potential market for higher-end consumer goods such as those marketed by Apple.

A strong US dollar could increase exchange rates, making it more expensive for Apple to do business
in key markets like Europe and China.

Social Factors

The biggest growth in consumer spending in coming decades will be in areas of the world such as
Africa where people are unfamiliar with Apple products.

Consumers in those markets and younger people in Apple’s established markets, such as the United
States, lack the strong emotional attachment to Apple products that drive sales.

There is a backlash against expensive and stylish products among some customers in the United
States and Europe.

Ethical concerns about Apple’s manufacturing in China could limit its products’ appeal among socially-
conscious consumers.

Apple’s close association with China could offend some potential customers in other regions, such as
North America and Europe, particularly if tensions with China rise.

Apple’s music marketing strategy has created resentment and led to public criticism from major
recording stars that could tarnish the brand’s image.

Technological Factors

Competitors such as Google and Samsung have demonstrated a strong ability to duplicate Apple’s
products and services. It took less than a year for Google to roll out a payment app; Android Pay, with
the same capabilities as Apple Pay. This means that many of Apple’s signature services and products
are no longer unique.

The number of new consumer products Apple can bring out is limited. Many of its new offerings, such
as Apple TV, will have a limited market.
Growing use of smartphones and tablets will lower demand for Apple’s popular personal computers.

Apple’s proprietary operating system can limit the variety of applications available to smartphone
users.

The growing capabilities of cyber criminals make Apple’s systems less secure and take away one of
its strongest competitive advantages: its reputation for high levels of security and safety.

Environmental Factors

The biggest environmental issue facing Apple is the disposal of used or non-working electronic
devices. The expense of disposing of devices, particularly those containing lithium batteries, could be
high. Apple could be forced to assume that expense because of concerns about such devices in
landfills.

Pollution and other environmental side effects from manufacturing facilities in China are a growing
concern. This could lead to increased regulation and higher manufacturing costs at some point in the
future.

China’s efforts to cut greenhouse gases and limit fossil fuel use could increase electricity rates and
manufacturing costs for Apple in that country.

Climate change created by global warming could disrupt transoceanic shipping and Apple’s supply
chain.

Concern about energy use and other side effects from data centres could lead to increased regulation
and costs.

Apple is highly vulnerable to increases in electricity costs because of its dependence on data centres
and other Internet infrastructure.

Legal Factors

Apple has recently entered the highly regulated financial services sector via Apple Pay. This could
increase the level of regulation and government oversight it faces.

By offering financial services, Apple could face increased levels of litigation.

News reports indicate that Apple is planning to enter another highly regulated sector: automobile
manufacturing. Entering the auto business could increase regulatory, insurance and litigation costs at
Apple.

Apple depends on a variety of products covered by intellectual property laws, such as software and
music, for much of its income. This leaves the company highly vulnerable to both piracy and litigation.

PESTEL Analysis

Apple: Summary

Apple should be able to thrive in spite of these challenges because it has demonstrated an impressive
ability to adapt to a changing environment. In particular, Apple’s research and design capabilities give
it an advantage that should propel its revenue growth for decades to come.

Practical activity
Select another company that personally inspires or interests you; perhaps your current employer and
now perform a PESTEL analysis for that company. (You can choose the company you made a
presentation about earlier if you wish).

In the following slide carry out a PESTEL analysis activity on the company of your choice, considering
points below, in the free text box provided. Please try to keep points about each PESTEL factor brief
and to the point.

Political
What is happening politically with regards to tax policies, employment laws or trade restrictions such
as tariffs?

Economic
What is happening within the economy i.e. economic growth/ decline, minimum wage, unemployment
(local and national), credit availability, cost of living etc.

Sociological
What is occurring socially i.e. cultural norms and expectations, health consciousness, population
growth rate, career attitudes?

Technological
New technologies are continually being developed. There are also changes to barriers to entry in
given markets?

Environmental
What is happening with respect to ecological and environmental aspects?

Legal
Changes to legislation. This may impact employment, access to materials, resources, imports/
exports, taxation etc.

Business Acumen

Top ten tips for developing business acumen

Are You Born with It? The short answer is, “no.” While some especially successful individuals seem to
have an almost supernatural ability to make sound business decisions almost intuitively, the chances
are good that they have spent plenty of time developing their capacity to do so.

So, how does one develop better business acumen?

1. Know your industry

No matter what business you’re in, you should strive to gain as much knowledge of every aspect of
your industry as possible. Read widely about your competitors’ successes and failures, industry
trends, and new developments in related technology.

You should also stay up to date on news in related industries. What factors are affecting your
suppliers and clients? Have the prices of their raw materials gone up? Have new advances
streamlined their manufacturing processes?

Keeping up on these types of things can help you stay ahead of the curve, giving you the ability to
anticipate changes that can affect your industry, and therefore, your business.

2. Know your company

If you want to be able to make credible decisions that will be good for the whole company, spend
some time getting to know other aspects of the business.

If you work in accounts, take the time to learn about marketing or R&D, or ask for research reports
developed by the various departments in the organisation. An assistant controller could read reports
about competitors’ activities generated by the marketing division.

This knowledge will help in decision making when asked to contribute to discussions about which
products or marketing strategies should be funded.Demonstrating such examples of commercial
acumen will get you noticed among your senior colleagues and help you in your career.

The more you know about your company and what makes it successful and what opportunities and
threats exist in the business environment, the greater an understanding you’ll have of what is really
working, and what could be improved.

3. Know your clients

Who are your company’s biggest clients? What do you know about them as people? What do you
know about their businesses, their competitors, and the trends and the factors that might be affecting
them?

If you can’t answer these questions, you should start getting to know your clients better. After all, the
more you know about them, the more useful you’ll be to them. The more useful you are, the more
credibility you will have with them and the more they will trust you, possibly leading to increasing your
business with them and leading to the possibility of them referring other clients to you and your
company

4. Become a knowledge sponge

Developing your business acumen isn’t all about business. Learn as much as you can about
everything you can. Read widely. Read periodicals: not only related to your industry, but also about
the business climate generally.

Make time to research any relevant material related to your field of work and to your company and
business sector.

5. Find mentors

Find mentors either in work or outside of work. You will have family members, community members,
neighbours, friends, and acquaintances; many of which may have subject matter expertise in some
area of business. These people will willingly share their knowledge and their understanding of their
business with you.

Take notes on their experiences, their ideas, and their advice. Ask them to help you understand their
knowledge might be applied in your industry and how you might address it when discussing your
company, your product, or your service.

6. Write down what you have learned

One effective way to learn is to write down or summarise the highlights of what you have learned
when you undertake any development or training activity. Try and reflect on what you have learned
and in particular the aspects of this which are the real ‘takeaways’ which are relevant to your everyday
work and which can make a difference to you and your organisation going forward.

Make notes on the important ideas, where you learned it, when you learned it, and how it might be
useful to you and your clients.
The act of writing both helps you to remember what you have learned and it deepens your
understanding.

7. Improve your communication skills

General business acumen involves the ability to effectively communicate with all functional areas in
the organisation.

Even if a marketing manager has never studied finance, the manager may know how to speak the
language of finance well enough to convey the logic behind any budgetary requests, so that finance
people can understand them and hopefully approve them.

In unit 6 we will cover communications in greater depth.

8. Look ahead

Individuals with acumen are always looking ahead or having a future outlook, trying to gain insight into
what opportunities will be coming and what competitive threats are likely to emerge.

Acumen means having the ability to devise strategies to remain one step ahead of competitors, a
quality sometimes called vision.

9. Think wide - become a ‘generalist’

Managers who demonstrate strong general acumen have the opportunity to rise up through the ranks,
sometimes all the way to CEO. Sound judgment is particularly critical for a CEO because their
decisions affect everyone else in the organisation.

Someone who is seen as a “generalist” is often asked to take on high visibility roles such as leading a
task force composed of managers from various departments that will deliver a report to the CEO or
the Board of Directors.

An entrepreneur starting a company needs to have the ability to manage all the functional areas of a
business, because initially the entrepreneur will be on their own without other managers to support
them.

Entrepreneurs who are generalists with strong business acumen have an advantage over those with
experience confined to a narrow business specialty.

10. Listen

Learning how to be a better listener can make this process easier. Take the time to cultivate
relationships with individuals in other departments and learn more about their challenges and
concerns and show empathy which is the ability to ‘put yourself in their shoes’ and understand their
concerns and how they may be best addressed.

Introduction

Business leaders often stress the importance of planning skills

Planning skills are any skills that allow you to look ahead and accomplish goals or avoid emotional,
financial, physical or social hardship. These skills let you make and implement decisions.

Planning helps an organisation chart a course for the achievement of its goals. The process begins
with reviewing the current operations of the organisation and identifying what needs to be improved
operationally in the upcoming year.

From there, planning involves envisioning the results the organisation wants to achieve, and
determining the steps necessary to arrive at the intended destination--success, whether that is
measured in financial terms, or goals that include being the highest-rated organisation in customer
satisfaction.

Importance of planning ahead for business

Planning is the first and most important function of management. It is needed at every level of
management. In the absence of planning all the business activities of the organisation will become
meaningless. The importance of planning has increased all the more in view of the increasing size of
organisations and their complexities.

Planning has again gained importance because of an uncertain and constantly changing business
environment. In the absence of planning, it may not be impossible, but certainly difficult to prepare for
the uncertain events of the future.

The following facts show the advantages of planning and its importance for a business organisation. 

Planning provides direction

Under the process of planning, the objectives of the organisation are defined in simple and clear
words.

The obvious outcome of this is that all the employees get a direction to follow and all their efforts are
focused towards a particular end. In this way, planning has an important role in the attainment of the
objectives of the organisation.

For example, suppose a company fixes a sales target under the process of planning. Now all the
departments, e.g., purchase, personnel, finance, etc., will or should decide their objectives in view of
the sales target set.

In this way, the attention of all the managers will get focused on the attainment of their objectives.
This will make the achievement of the sales target a real possibility. Thus, in the absence of
objectives an organisation loses direction and control.

Planning reduces risks of uncertainty

Planning is always done for the future and the future is uncertain. With the help of planning, possible
changes in the future are anticipated and various activities are planned in the best possible way. In
this way, the risk of future uncertainties can be minimised.

For example, in order to fix a sales target, a survey can be undertaken to find out the number of new
companies likely to enter the market. By keeping these facts in mind and planning the future activities;
possible difficulties can be avoided.

Planning reduces duplicated and wasteful activities

Under planning, future activities are planned in order to achieve objectives. Consequently, the
problems of when, where, what and why are almost decided. In such a situation, coordination is
established among different activities and departments, which can prevent the duplication of effort or
engaging in wasteful activities.

Consequently, wastages decrease, efficiency increases and costs are minimised. For example, if it is
decided that a particular amount of money will be required in a particular month, the finance manager
or treasurer will arrange for it to be available in time.

In the absence of this information, the amount of money can be more or less than the requirement in
that particular month. Both these situations are undesirable. In one case there will be a lack of funds
to engage in potentially value adding activities and in the second case if funds exceed the immediate
requirements, the surplus amount will remain unused and cause a loss of interest.

Planning promotes innovative ideas

It is clear that planning selects the best alternative out of the many available. All these alternatives do
not come to the manager automatically, but they have to be decided. While planning, many options
and ideas emerge and they are carefully compared to determine the best options to implement.

In this way, planning encourages managers to think ahead and consider alternatives. It leads to
innovative and creative ideas. For example, if a company wants to expand its business the effective
manager will ask themselves the following questions:

 Should some other varieties of the existing products be manufactured?

 Should we streamline some of our processes to reduce our cost base?
 Which is the best delivery model to support our main business activities?
 Should the business operate at different points within its value chain such as moving out of
manufacturing into wholesaling or retail?
 Should some branch or division of the organisation be opened somewhere else for the
existing or old product?
 Should some completely new product be launched?
In this way, many new ideas will emerge one after the other. By doing so, the manager will become
familiar with them. A manager will always be thinking about doing something new and creative. Thus,
a company that plans effectively, gives itself a better chance of success in meeting its objectives.

Planning facilitates decision making

Decision-making means the process of taking decisions. In arriving at a good decision, a variety of
alternatives are identified and the best alternative is chosen. The planning process sets the target for
decision-making. It also lays down the criteria for evaluating courses of action. In this way, planning
facilitates decision-making.

Planning establishes standards for controlling

By determining the objectives of the organisation through planning all the people working in the
organisation and all the departments are informed about ‘what’, ‘when’ and ‘how’ to do things.

Standards are laid down about their work, time and costs, etc. which are more commonly known as
budgets. Under controlling, budgets are compared with the standards and variances are measured
against these standards and the reasons for these identified and investigated.

For example, a production worker is expected to complete 10 units of work in a day (it is a matter of
planning), but actually only completes 8 units. There is then a negative labour usage variance of 2
units. For this, the worker may be held responsible if the reason for under productivity is within his or
her control. (Measurement of actual work, knowledge of variances and holding the labourer
responsible falls under controlling.) Thus, in the absence of planning; control is not possible and
becomes irrelevant – the two go together.

Big Business Failures

No business fails intentionally and there are numerous reasons why they do fail
Failure is a topic most of us would rather avoid. But ignoring obvious (and subtle) warning signs of
business trouble is a sure-fire way to end up on the wrong side of business survival statistics.

What’s the survival rate of new businesses? Statistically, roughly 66% of new businesses survive two
years or more, 50% survive at least four years, and just 40% survive six years or more. This is
according to the study “Redefining Small Business Success” by the U.S. Small Business
Administration.

The failure of big companies to adapt to changing circumstances is one of the fundamental puzzles in
the world of business. Occasionally, a genuinely “disruptive” technology, such as digital imaging,
comes along and wipes out an entire industry.

But usually the sources of failure are more predictable and avoidable — a failure to implement
technologies that have already been developed, an arrogant disregard for changing customer
demands, or a complacent attitude towards new competitors.

Big Business Failures

Did you think of:

 Woolworths

 Betamax Videos

 Swiss Air

 Polaroid

 Atkins Nutritionals

 Commodore Video

 DeLorean Motor Company

 Pan Am Airlines

 Laker Airlines

 Virgin Cola

Future Proofing an Organisation

How to future proof yourself and your organisation

Expand your capabilities

Whether an individual or organisation, you relentlessly seek ways to expand your capabilities and
comfort zones. The more you do so, the more you’ll learn, grow, and extend the range of experiences,
insights, and resources you and your enterprise will have to call upon, whatever scenario you face.

The bigger your professional toolbox, the better, as learning to mix, match, and recombine these tools
and talents as highly dynamic scenarios dictate (i.e. improvise), the more flexible you’ll be. In an ever-
changing business world, unless you’ve got a crystal ball that works, ensuring flexibility is about as
close to future-proofing as you can get.

Create the right environment

Create a business environment of trust and cooperation where colleagues feel comfortable - not only
bringing emerging issues or opportunities of interest to management’s attention, but also
recommending innovative ideas for addressing them. (Listening to customers is the single best source
of innovative new ideas providing opportunities for translating these ideas into actions which can
become good sources of competitive advantage.)

The more that a culture is developed where innovative thinking is encouraged and ideas shared
throughout your enterprise, and acted upon, the more readily and rapidly you can align resources
toward common goals and, the more agile, adaptable, and innovative you and your enterprise will
become.

Reinvent

You should try to routinely reinvent yourself or your products and services, and create more room to
manoeuvre.

Ask yourself:

 Can your solutions be easily repositioned or repurposed to serve additional audiences or

market needs?
 Are the insights and skills you bring to your employer applicable in only one department, or
could you easily extend them to other areas of opportunity? (Say, by bringing your eye for
user-friendly packaging design from the marketing team to engineering or product planning
departments.)

Don’t be afraid to rethink your value proposition, and how to strengthen or extend it.

Remember: In the eyes of customers, value and relevance are always moving targets.

Gather information

When making decisions, gather as much business intelligence as possible, then make a decision –
then adjust your decisions to be more informed as more detailed feedback is gained.

Think about how technology may impact your business

There is an approach to future proofing called ‘moonshot’ thinking. When businesses engage in
‘moonshot’ thinking, they get their smartest employees together regularly to discuss which changes in
technology and customer activity might have a considerable impact on their business in the medium
to long term. The managers then put systems and processes in place to deal with those changes as
and when they happen.
Think global

It’s fair to say that the Internet has changed the way most of us do business. When you look at things
like social media, you might be tempted to think that the future of the Internet will be local, small and
immediate.

But in fact, the Internet opens up more markets to your business than anything else can. Even if you
are a small advertising agency, you have access to the world’s three billion Internet users when you
post something on your webpage. You probably won’t have something to offer each of them, but you
will have something to offer people in places you didn’t expect.

Listen to your customers

Innovation is as simple as listening to your customers – what they want from you and how they want
it. So how do you do that? Buy your product or use your service as a customer would. Call in to the
customer service team, and see how you are treated.

By simply approaching the company as a customer would; you can discover your business’ strengths
and, crucially, its weaknesses. Then you can modify the business or your product before your
customers even realise they aren’t perfectly satisfied.

One great example of how to anticipate your customers’ needs is the iPod navigation wheel. When
Apple realised people would want to scroll through hundreds or even thousands of files to access the
music they wanted quickly, they realised the classic navigation system was too slow.

Spinning a wheel made scrolling through the files much more intuitive, simple and speedy. As a result,
the iPod reinvented MP3 players and even helped save Apple.

Give customers a good experience

If you can name a market, you are probably naming a saturated market. What does that mean for
future proofing? It means you can’t count on your excellent product or service alone to retain
customers. You have to give them an unparalleled experience.

What does this look like in real life? Hilton Hotels decided it meant they needed to add value to their
HHonors app. In the app, customers can book a hotel room and preview the room from their phone,
which is a pretty standard offering.

Then, they added an extra: customers can walk past the check-in desk and use their phone’s NFC to
unlock their room when they arrive. This means customers can go through one less step when they
travel, a more than welcome change when they show up at the hotel worn out from travelling.

Consider partnerships to help future proof your business

When you think about the challenges and opportunities facing your company, they can seem
daunting, especially if they require a lot of financial investment on your part. In fact, if you’re really
committed to staying lean and flexible, you probably won’t have a lot of room in your budget to go
around developing entirely new parts of your business from the ground up.

This is a problem for more businesses than ever before, but in a way, it provides its own solution:
strategic partnerships. Your business provides the part of the equation that it has already developed,
and your partner provides the other part, so you can both innovate without extensive (and expensive)
investments.

Think about when Amazon announced it wanted to move into online grocery shopping. It launched
Amazon Pantry, but it didn’t have the ability to sell fresh food. At the same time, Morrisons wanted to
move into online grocery shopping as well, but they didn’t have the warehouses and delivery
capabilities.

So Amazon, with its national infrastructure and warehouses, partnered with Morrisons, with its fresh
food supply chains. As a result, both companies entered the online grocery market, without the time
and money it would take to establish an online grocery store from scratch.

Future Proofing an Organisation

How effective are your strategies?

Michael Porter wrote that company strategy essentially takes three generic forms:

 Cost leadership.

 Differentiation.

 Focus.
These are known as Porter's three generic strategies and can be applied to any size or form of
business. Porter claimed that a company must only choose one of the three or risk that the business
would waste precious resources.

Michael Porter's generic strategies are ways of gaining competitive advantage – in other words,
developing the 'edge' that gets you the sale and takes it away from your competitors. He then
subdivided the Focus strategy into two parts: 'Cost Focus' and 'Differentiation Focus.'

Future Proofing an Organisation

The Cost Leadership Strategy

There are two main ways of achieving success within a Cost Leadership strategy:

 Increasing profits by reducing costs, while charging industry-average prices.

 Increasing market share through charging lower prices, while still making a reasonable profit
on each sale because costs have been reduced.

You therefore need to be confident that the number one position can be achieved before choosing the
Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:

 Access to the capital needed to invest in technology that will bring costs down.

 Very efficient logistics.

 A low-cost base (labour, materials, facilities), and a way of sustainably cutting costs below
those of other competitors.

The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are
not unique to you, and that other competitors copy your cost reduction strategies. This is why it's
important to continuously find ways of reducing each and every cost.

The Differentiation Strategy

Differentiation involves making the company’s products or services different from and more attractive
than its competitors. This could typically involve different features, functionality, durability, support, or
a brand image that customers value.
To make a success of a Differentiation strategy, organisations need:

 Excellent research, development and innovation.

 The ability to deliver high-quality products or services.

 Effective sales and marketing, so that the market understands the benefits offered by the
differentiated offerings.

Large organisations pursuing a differentiation strategy need to stay agile with their new product
development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus
Differentiation strategies in different market segments.

The Focus Strategy

Companies that use Focus strategies concentrate on particular niche markets and, by understanding
the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or
well-specified products for the market.

They tend to build strong brand loyalty amongst their customers because they serve customers in
their market uniquely well. This makes their particular market less attractive to competitors.

If a Focus strategy were selected, an organisation would also need to decide whether to pursue Cost
Leadership or Differentiation, as Focus is not normally enough on its own.
The key to making a success of a generic Focus strategy is to ensure that something extra is added
as a result of serving only that market niche.

Choosing the Right Generic Strategy

Your choice of which generic strategy to pursue underpins every other strategic decision that is made.

Porter specifically warns against trying to "hedge your bets" by following more than one strategy. One
of the most important reasons why this is wise advice is that the things you need to do to make each
type of strategy work appeal to different types of people.

Cost Leadership requires a very detailed internal focus on processes. Differentiation, on the other
hand, demands an outward-facing, highly creative approach.

So, when you come to choose which of the three generic strategies is for you, it's vital that you take
your organisation's competencies and strengths into account.

Suitability, acceptability and feasibility (SAF) model

Suitability
Suitability deals with the overall rationale of the strategy. The key point to consider is whether the
strategy would address the key strategic issues underlined by the organisation's strategic position.

Acceptability
Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders,
employees and customers) with the expected performance outcomes, which can be return, risk and
stakeholder reactions.

Feasibility
Feasibility is concerned with the resources required to implement the strategy are available, can be
developed or obtained. Resources include funding, people, time and information. Factors that should
be considered can be summarised under the M-word model.

SWOT analysis

SWOT action plan

You need a system where the SWOT analysis will drive action. That system is the SWOT action plan.

 Strengths need to be maintained, built upon or leveraged.

 Weaknesses need to be remedied, changed or stopped.

 Opportunities need to be prioritized, captured, built on and optimised.

 Threats need to be countered or minimised and managed.

There are a number of ways you can fill the gaps:
  Can develop the skills ourselves.

 Use others within the business (collaborating, colleagues or internal consultants).

 Buy in expertise.

Deciding when to seek the help of experts

Deciding on the best option will depend on many factors. In order to help make the right decision,
management need to ask the following questions:

 Professional fees are expensive. Why pay consultants for a scoping study when the
knowledge resides in your organisation?

 Do we have the right calibre of people?

 Are we willing to invest in training them?

 Is the solution time sensitive?

 How can we ensure that consultants won’t be unduly influenced by the political agenda of the
person commissioning them?

 Do we have the knowledge, skills and resources to solve this problem internally?

 Can we free people from their current roles to take on project responsibility?

 Have we placed sufficient emphasis on knowledge transfer and change management?

Professional self-awareness

Factors to consider about you and your role as a professional at work

When you think about yourself as a professional you need to have an awareness of the role you have
been recruited to and how to advance your career. Professional self awareness allows you to do this.

Unit Action Plan

Following on from the information covered in this section and using the information attained during the
SWOT analysis of yourself, write an ACTION PLAN to decide what course of action should be taken
to:

 Capitalise on your strengths

 Minimise your weaknesses

 Make most of your opportunities

 Avoid threats in your role

The importance of data analysis

Consider the ways you use your skills and knowledge to analyse information:

 How does your organisation use data analysis?

 What tools does your organisation use to manipulate data?

 Why is data analysis important?

The importance of data analysis

Data, information and knowledge

Raw data describes the facts and figures that a company processes every day. In a retail
environment, each sale will be recorded. However, a company will learn little looking at each sale in
isolation.

Data becomes information after it has been processed to add context, relevance and purpose.
Analysis of daily sales will reveal trends and patterns, such as peak shopping days or biggest-selling
items.

Knowledge is a set of beliefs based on the relationship between pieces of information. A retailer may
know to order additional cakes on a Tuesday because these are his biggest selling item every
Wednesday.

Importance of data

The ability to analyse and act on data is increasingly important to businesses. The pace of change
requires companies to be able to react quickly to changing demands from customers and
environmental conditions.

Although prompt action may be required, decisions are increasingly complex as companies compete
in a global marketplace. Managers may need to understand high volumes of data before they can
make the necessary decisions.

Business intelligence

BI tools provide decision-makers with the information that they need to make insightful decisions.
Company data is often stored in multiple, unrelated software applications and databases.

BI tools gather and process data from multiple sources. They produce reports on the information to
increase the knowledge of decision-makers. Effective BI helps companies identify growth
opportunities, understand customer preferences and increase competitiveness.

BI is most effective when it is presented in user-friendly formats, such as scorecards and dashboards.
Business impact

Researchers from the University of Texas found that companies can generate big financial returns by
making small improvements in data quality, usability, intelligence, remote accessibility and sales
mobility.

The 2010 study found that the average company could increase the annual sales per employee by
14.4 per cent if it increased the usability of its data by 10 per cent.

Your role in data analysis

As a finance professional, you have been already learnt skills and knowledge to assist your business
in analysing their data and interpreting it. These are vital skills in the swift ever changing business
environment we operate in.

n order to deeply analyse and evaluate complex and unstructured data to make suitable inferences
and recommend appropriate solutions, a financial professional needs to understand how to use:

Spreadsheet analysis

 Formulae for manipulating data

 Functions (financial, mathematical, statistical, conditional)
 Optimisation tools (solver, goal seek and scenario planning)

Ratio analysis

 Longitudinal
 Cross-sectional

Ratio analysis

In order to understand ratio analysis, we must look at:

Activity or efficiency ratios

These measure how efficiently a company's day to day operations are managing inventory, selling
and producing products, or using assets to generate revenue.

Liquidity ratios
These measure the flexibility of a company to pay their short term obligations.

Solvency ratios
These measure the flexibility of a company to pay long term obligations and their level of debt.

Profitability ratios
These measure the ability of a company to generate profits and revenue.

Valuation ratios
These are used to value a company's equity, and are often used by analysts to determine if a
company is a buy, sell or hold.

Your role in data analysis

Spreadsheet analysis
There are numerous functions that you can use when using spreadsheets to analyse data – from
using formula to statistical functions to conditional formatting.