In the ever-changing world of business, both small and big companies consistently strive to innovate to increase sales and maximize profits, albeit with stiff competition and risks that threaten their very existence. In every jurisdiction, companies face a myriad of hurdles emerging from political to economic, social, technological, environmental, and legal spaces.
Worldwide, many companies have been forced to scale down operations, shut down, or be acquired due to their inability to navigate the business environment in their respective sectors. The Kodak story is one of the most famous business examples of this.
Kodak, a firm that, since its founding in 1888, had dominated the film and camera market, faced near collapse with the introduction of digital photography. The firm’s reluctance to join the digital photography revolution despite the obvious consequences led Kodak to bankruptcy, and even after its revival, it is now playing catchup to rivals who were quick to adapt to the new technological changes.
This illustrates why both business owners and captains of industry must stay ahead of the game. New technologies such as Artificial Intelligence, Machine Learning, robotics, and the Internet of Things (IoT) continue to advance and improve business operations.
Companies must leverage technological strategies to remain afloat. As a business owner, you also need to consider the political, economic, social, environmental and legal environment (PESTEL) and develop a strategy to address challenges in each environment to safeguard your business’s future.
Here are three areas to prioritise to successfully navigate a difficult business environment:
Government policies
Governments play a big part in creating a conducive business environment as they draw up policies and generally determine how the running of a country. In countries where elections are conducted in cycles, there is always an anticipation of new policies with each introduction of new administrations.
The introduction of new policies, including those regarding taxation, labour, and the environment force businesses to change their strategies. As such, keeping abreast of policies or anticipating them is a key management strategy for business owners. It ensures your business’s survival if those policies come into effect.
For instance, in Africa, many governments are considering adopting a carbon tax. This will mean additional expenses, especially for companies that are large greenhouse gas emitters. Navigating such a changes in a business environment means small and medium enterprises (SMEs) will have to adopt green solutions that will significantly cut their emissions, such as deploying electric mobility in their logistics. In jurisdictions where carbon emissions are capped, firms can reduce their carbon emissions, sell their carbon credits, and earn extra revenues besides raising their profile to access green finance.
The African Development Bank in its African Economic Outlook 2024 report indicates that private sector offers significant opportunities to fill the resource gap. They advise that measures to incentivize private finance for climate and green growth in Africa are critical for structural transformation in Africa.
Managing cash flow and production costs
We all know cash is king, and keeping it flowing is the lifeline of the company. It ensures your suppliers and utility bills are paid. However, managing cash flow remains a big challenge for many SMEs.
Enterprises need to automate their payment and accounting processes to remain afloat. This ensures minimal human interaction with physical cash, whose handling is costly to the business. It also prevents revenue leaks and makes tax calculations easier.
This also ensures that business owners are able to clearly predict their future expenditures and that quick interventions are made in the event of unexpected shocks.
Automating production processes can also help companies maintain operational efficiency and boost profitability when it comes to managing production costs.
By adopting technologies such as AI, robotics and Machine Learning, companies can navigate a difficult business environment by effectively managing their production costs through data analysis.
Are customers able to afford your product?
When offering services or products for sale, affordability always comes into question. It is the first question customers often ask before purchasing. Ensuring your products are priced fairly is key. Thus, having the correct markup is critical. It ensures you can generate enough revenue to cover your operational expenses and remain with enough to be profitable.
Nonetheless, as you seek to ensure affordability, you must be aware that any attempt to control prices in any way often leads to antitrust lawsuits. In some cases, these lawsuits can lead to bankruptcy due to huge penalties imposed by regulators. That is not what you want.
To avoid such scenarios, you must ensure you have conducted enough market research to know the demographics you are targeting, their age group, income levels and what the competition is offering.
Additionally, you can often conduct promotions, give discounts to new and loyal customers, and increase advertising to ensure customers are aware of your product and why they should spend money on it.