Whether you can see it or not, there’s a cheaper, faster and more innovative company around the corner – and it’s sharpening its knives ready to eat your profits for breakfast. The question is, how much attention can your long-term strategy afford to give it?
Perhaps the most brutal example of today’s disruptive business environment is Uber and its impact on UK taxi firms. Thirty thousand new Londoners download Uber’s app each week. As a result, the $60 billion company has saturated the market with drivers, pushing prices down and expectations up.
Catherine Faiers, Chief Operating Officer of rival car and courier service company, Addison Lee, said: “When I joined three years ago there were 54,000 private drivers in London, now there are over 116,000. When you double the supply like that in any market, all players need to respond.”
As a bitter accompaniment, Uber has also dished up new service offerings in the form of taxi pooling, driverless cars and delivery services – each one an industry game changer.
Speaking at Criticaleye’s recent two-day Private Equity Retreat 2017, Catherine said: “The key challenge was not figuring out how to respond. It was the time it takes to execute and to do it consistently against our brand values.”
She recognises that while the business must react, it must not become hypnotised by real time market changes. “If we sat and analysed the competition every day we wouldn’t make any decisions or get anything done,” she said.
Catherine, who joined Addison Lee nine months after the family-owned business was acquired by the US private equity house, Carlyle Group, explained: “The CEO was the founder’s son and he had 37 direct reports. The organisation was incredibly flat, which meant decision-making was extremely quick and the business behaved like a 40-year-old start up.”
The challenge for Addison Lee has been to stay nimble and alert to opportunities, while in the context of clearly established KPIs. “Hitting your short-term results gives you the authority to talk about the long-term ones,” she said.
The long and short of it
Finding the right balance between the long and short-term vision is particularly crucial for private equity-backed businesses, such as Addison Lee.
As James Boot, Criticaleye’s Senior Relationship Manager for private equity, explained: “PE-backed executives are challenged with building value at all levels. The house will insist on constant performance as they must gain a high multiple on exit, and they need to build a growth story that the future owners can confidently invest in. Indeed, these should be seen as inter-dependent – one should not cannibalise the other.”
Bernie Waldron is a Board Mentor for Criticaleye and Chairman of numerous private equity-backed companies, including Nexus Vehicle Rental. Like Addison Lee, it’s being disrupted by the prospect of driverless cars and new forms of car ownership.
“These trends give Nexus some great opportunities for growth, but the challenge for our board is to get the balance right between executing today's model and preparing for the future. All this has to happen in an environment where it's very tricky to separate the hype from the reality,” Bernie said.
According to him, it’s sensible to get to a 50/50 balance of board time on the short versus longer term strategic items, yet he’s aware that overly reactive management teams can skew the balance.
“If someone’s hitting their quarterly figures there’s an assumption that they’re a good guy, even if they are not building the business for the future. I recall once changing an executive who continuously hit their short-term numbers and some of my colleagues were incredulous, but I felt he had to be replaced with someone who could better balance the short-term and long-term,” Bernie divulged.
“Management teams get a lot of bright, shiny opportunities waved in front of them, and if you're not careful as a board you can find yourself retrofitting your strategy to target, rather than the other way round.”
Dancing on the line
Roger Taylor, Executive Chairman of iRiS Software Systems and former CEO of Quadriga Worldwide, a technology and service provider to hotels, learnt this the hard way. Before successfully exiting the business in a cash deal to a US strategic buyer, Roger bit off more than he could chew in a bid to challenge rivals and boost revenue.
“I took on a simultaneous restructure and acquisition, buying two businesses within a few months of each other. One of them failed because we didn’t have the bandwidth to dedicate enough time to it,” he shared.
He went on to advise others that while it can be tempting to invest in many of the exciting things on offer, new technologies can become obsolete before they can pay into the long-term success of the business.
“When I started at Quadriga wifi had just hit hotels. It was a big thing at the time, but that was only a profitable proposition for five years. In a technology-driven environment, you should expect market disruption and you need to work out what you can hold on to in a changing market as you move toward the long-term goal,” Roger explained.
Whether it's technology, new business models or consumer expectations, the speed and severity of today’s business disruption leaves many executives doubting – or worst of all, ignoring – their long-term vision. But knee jerk reactions won’t deliver results for long.
“Executives and boards must dance a fine line between being responsive and strategic, because therein lies success,” said James.
These thoughts were shared during Criticaleye's recent Private Equity Retreat 2017.
By Mary-Anne Baldwin, Editor, Corporate
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