30 Jul 2014

It is a time for restructuring; aim for innovation rather than slashing the businesses’ tyres

Business confidence in Australia and the economic climate through the world remains uncertain, and this is having an impact on local businesses.

For instance, car manufacturers are pulling out of Australia, and this is going to have a significant impact on car component manufacturers. They’ll need to adapt and take on a more global approach to business, or die. The businesses that rely on these manufacturers, in turn, will need to diversify their own businesses in order to account for the expected consolidation in the space.

Retail is another example. Australia’s largest employment sector and often used as a gauge of the health of the local economy, Retail has had a tough couple of months following the Federal Government Budget. Australian Bureau of Statistics (ABS) figures show national retail revenues fell 0.5 per cent in May (seasonally adjusted). This comes after a 0.1 per cent fall in April, and represents the single largest drop in retail spending in over a year.

With these kinds of drops in consumer confidence, every business that has dealings with retailers, as well as the retailers themselves, are going to encounter sharp business challenges.

For many businesses in many sectors of Australia, the answer to these challenges is going to be to undertake a restructuring project. Unfortunately, many businesses don’t do restructuring well at all, and many misunderstand this to mean “cut staff and services.” But a restructuring that is undertaken for the sole purpose of cost cutting is one that will put the organisation at a disadvantage when the market inevitably begins to rebound.

The successful examples of restructuring are those that remove costs out of the business, yes, but they also are designed to help a business focus on its core competencies and build competitive advantages into the organisation. After all, restructures are a cost, so if they’re not going to build value in the future, than they’re a poor investment.

And so organisations that are considering undertaking a restructure should not be thinking about it solely in terms of making redundancies and folding up existing business units. Rather, the company should be looking at it as an opportunity to make strategic investments and IT should be high on the priority list here.

The good news is that Australia ranks highly in regards to being ready to participate in the boom in international trade as more new trading partnerships open up through free trade agreements (http://www.businessspectator.com.au/news/2014/7/15/technology/australia-ranked-no-1-g20-e-trade-readiness-index).

But on the other hand there are indications that many Australian businesses are lagging in terms of making use of technology for competitive advantage. For instance, many Australian SMEs – the organisation most in need of finding efficiencies – are not using cloud at all. ACMA data shows that less than 50 per cent of small businesses are using Cloud services, and only 51 per cent of medium-sized businesses are accessing Cloud.

And as we report in another story this month, there are some cloud services, such as those around telephony, which have truly low penetration rates in businesses of all sizes.

In practice, using the costs inherent in a company restructure to instead invest in proven cost-saving technologies and innovation will better prepare organisations for the period of growth that inevitably comes after a market downturn.