Why Business Dynamics Insights Matter for Business Strategy

The business sector is at the crossroads of major changes happening globally. Technological advancement, generational shifts, and the growing momentum for fairer trade between countries, all have a bearing on how businesses operate now and in the future.

Large businesses can no longer take their clout for granted as they face a growing threat from the increasingly-empowered small businesses which are able to run more quickly with their innovative ideas. The talent pool is narrowing as new alternatives to permanent full-time employment become more available, compelling businesses to change the traditional rules and regulations at work. While introducing rules to ensure fairer trade between countries will help to create a level playing field, this arrangement will not be without challenges such as rising costs for businesses.

The insights into these changing business dynamics help managers make the best choices when faced with such operational questions. By monitoring key indicators and trends, businesses can get a clear idea of what to expect on the ground, what the best alternatives are and what strategies could effectively overcome such challenges. The insights can also provide information about government policies which address gaps that hamper investments and potential economic growth, such as low literacy rates, inadequate physical infrastructure and cumbersome government regulations.

Small Business Growth Implications for Leaders

Competitive barriers for small businesses are slowly disappearing thanks to technology. E-commerce and online marketing mean small businesses can profile their brands in the virtual world without having to pay for expensive display rooms, sales assistants and high advertising costs. Through cloud computing, start-ups and SMEs can access servers and data storage space at affordable monthly rates. Through smartphones, not only can small business entrepreneurs make easy marketing footage but can also use audio and video chat for free anywhere at any time, eliminating the need for physical space and/or travel. Other internet-based free and automated administrative services such as Brightbook and Invoicely have greatly added to the efficiency of small businesses, freeing up entrepreneurs’ time to focus on other areas. Advancement and the falling price of 3D printers make it possible to manufacture on a small-scale, overcoming the challenges of “diseconomies of scale”. Finally, fintech, which means technology surrounding financing and includes crowdsourcing and peer2peer lending, is making it easier for small businesses to access finance. As a result, the threat from small businesses is rising as they can potentially disrupt a category overnight if the ideas are ground-breaking, or at the very least eat into the market shares of large brands.

Source: Euromonitor International from World Bank (Note: New Business Registered shows the sum total of all new businesses registered in USA, Italy, Australia, France, Germany, Japan, Spain, United Kingdom and South Korea)

Effects of Changing Work Patterns

Technological advancement and generational shifts are changing the traditional work pattern. Reliance on big data is growing rapidly as technology increases the access to and volume of big data used for targeted and informed decision-making. Robotics and Automation are making some skills redundant, while Artificial Intelligence is bringing some previously complex functions such as statistical analysis requiring coding within the orbit of many. Consequently, the need for soft skills such as strong analytical skills to make sense of big data, taking ownership of one’s work, creativity, leadership, empathy and problem solving are taking precedence over hard skills. Employers feel that there is a lack of the required skills as educational institutions are failing to evolve with the needs of the job market. Moreover, the talent pool is further constrained by the Internet of Things which allows people to sign up for brief ‘on-demand’ assignments with a better work/life balance, something the younger generation prefer much more than the previous ones. This is compelling businesses to alter their HR policies and introduce work/life balance allowing greater flexibility when it comes to working from home. The management approach is also changing to give employees greater autonomy over how they manage their workload. There is also a new focus on making office layouts trendy, colourful and fun to attract the young pool of workers.

Source: Euromonitor International Top 10 Global Consumer Trends for 2018

Trade Policy Pressure on China

Trade war appears to be intensifying, but what is worth noting is that this has brought to the fore weaknesses in how international trade is administered, hampering smooth trade amongst nations. The spotlight on China for its allegedly unfair trade practices is growing as some leading economies, including the USA, UK, France and Japan, argue that the WTO is not holding China accountable for artificially maneuvering its currency rate to create an unfair advantage over its foreign rivals. If the Chinese government does succumb to international pressure, the rate for the Yuan will rise with both positive and negative implications for large businesses. On one hand, this would make non-Chinese brands cheaper – for example, American brands would find it much easier to compete with Chinese brands in non-Chinese markets. On the other hand, for companies that rely on China for its supply chain, including some of the tech giants such as Apple Inc., costs of production would soar making such brands less competitive. Within China, however, there is likely to be a more positive impact given that it has one of the most controlled economies, ranking below its peers in the Index of the Economic Freedom. A freer business environment within the country would give the foreign companies more freedom to operate and make decisions conducive to their growth.

Source: Euromonitor International from the Heritage Foundation (Note: Countries are scored between 1-100 in the Index)

For more, download the full strategy briefing ‘Why Business Dynamics Insights Matter for Business Strategy’.