January 27, 2021

Diversifying through business transformation


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The outbreak of the Covid-19 pandemic has meant that we are currently facing an unprecedented demand crisis. Health measures and social distancing have produced changes in consumer behaviors both in the way of shopping, as in the way of traveling, working, moving or even entertaining.

Once the first impacts have been suffered, having learned and being in the process of adapting our structures to this new reality, the near future leads us towards a different model of economy, which has been called “low contact.” Model where the rapid evolution of information technologies and the transfer of capturing the value generated by them to consumers will be decisive.

We all expect a favorable evolution of the pandemic thanks, among others, to the vaccination process. There is still uncertainty about the period of its eradication, although we want it to occur sooner rather than later, and not only because of the favorable impact on the economy but, above all, because of the impact on the health and physical and psychological well-being of people. .

As the pandemic disappears and, consequently, demand is reactivated, radical changes in consumption habits motivated by fear of contagion may, paradoxically, make us face a supply crisis as we are not prepared to satisfy the new requirements of customers.

In this context, understand the new needs of consumers, using approaches where we put the user in the center it will be critical. But not only is it enough to understand these needs, it is obvious to say that the key is in how we are going to satisfy them and the implications of changing the way we traditionally did things.

All change implies transformation and in our specific case are the operating models of the companies, leveraging on the new digital technologies as a consequence of the irruption of the low-contact economy. All this to gain agility by eliminating complexity in order to increase the efficiency of our organization and focusing on the transfer of value to users, through specific solutions for specific challenges and effectively.

In this transformation process to meet the new demands of our customers through digitization, it may be natural to introduce ourselves to new products and services and, therefore, go into diversification.

Corporate diversification has conventionally been a tool used to achieve growth rates by entering new markets, launching new products or opening new countries or sectors. Most of the time inorganic. Traditional growth strategies based on diversification must be rethought in the current context. The high uncertainty makes the creation of value through corporate purchases generate added complexity, in addition to the financial restrictions for the acquisition of attractive companies.

Companies with traditional business models with a low level of digitization, affected in their relationship with customers by health measures or social distancing, must preserve their efforts to guarantee the continuity of their business by transforming their operations, sacrificing growth via diversification for survival through transformation. In this sense, the most agile companies with a higher level of digitization will be able to scale their businesses more quickly.

Therefore, our recipe for implementing growth strategies in the medium term would go through address first a transformation of the operating model, aimed at satisfying the new market and consumer requirements, and once we get to know our users we can already think about diversification. Of course, always leveraging the assets that we have created and the knowledge that we have accumulated to do so in an organic or inorganic way, but in a controlled way and with less uncertainty. In all cases with a common denominator: preserving the purpose of the company and its essence and values ​​for which it is recognized. Let’s set the course and do it.

Ignacio Rel is Managing Partner of EY Consulting in Spain

Ignacio RelIgnacio Rel

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