Boosting Profitability: Not another listicle

Boosting Profitability: Not another listicle

It’s funny to think that for all the machinations, complexities, stresses, and strategies of business, regardless of the model or sector, all have the same goal in mind; boosting profitability. Of course, there are other aims as well; demonstrating a strong corporate social responsibility, leading innovation, creating employment, but these subsidiary ambitions are all dependent on a business enjoying financial success; on being profitable.

Achieving profitability is not easy. Indeed, merely breaking even requires a herculean effort. An effort which proves too much for around half of all UK businesses within their first five years. As technological advancements evolve at a rate of science-fiction proportions, the key to profitability lies in adapting to these changes. It also lies in rethinking how we approach and manage contracts.

In this piece, we’re going to look at some higher order strategies for enhancing profit-building potential.

Be prepared for disruption

Technology is, by its nature, disruptive. Ask anyone who ever had shares in Blockbuster, or Nokia. The faster technology evolves, the more disruptive it becomes, and right now technology is evolving at break-neck speed. Illustrating the effects of this pace of change, Gartner, an American research and advisory firm providing IT related insight for business leaders, recently made some startling predictions as to the impact of AI on industry. Within just the next three years, they predict AI platforms services will cannibalise revenues for 30% of market leading companies, and that start-ups will overtake the industry dynasties of Google, IBM, and Microsoft in driving the AI economy with disruptive business solutions.

Change is coming. To survive and prosper, companies will need to adapt to new environments. Here, procurement is fundamental. Suppliers hold the key to a company’s success, which means Supplier Relationship Management (SRM) has a renewed relevance. Business leaders must learn to categorise suppliers and develop partnerships with those suppliers that are strategically important, and gain access to innovation and secure competitive advantage.

Rethinking contracts

As the specialisations of suppliers become more niche, companies must increase their supplier portfolios to access the best products. The greater the number of suppliers, the more complex, yet imperative it becomes to manage contracts. Businesses need to be thinking about:

Commercial Models and Risk – As SaaS models expand to cover intelligent solutions, new methods of contracting will need to be devised. Intelligent SaaS models will inevitably increase reliance on suppliers, and the greater the reliance, the greater the risk.

Traditional components of agreements; resilience, reliability, performance, and data access will grow in importance, as will the need for mechanisms for adjusting scope and duration of contractual obligations.

Innovation – The spike in innovation of technologies and services is a global trend. Companies need to intensify and widen their scrutiny of what suppliers can offer, and where the best suppliers can be found.

Total Cost of Ownership (TCO) can be difficult to determine at the best of times, but in an ever more competitive world, knowing and acting on the numbers is a make or break endeavour. Investment in solutions can deliver major benefits to an enterprise by reducing labour cost, and leveraging data. Continuous improvement and innovation will therefore become major drivers for delivery of savings and suppliers’ capability. Effective execution will need to be considered throughout the sourcing process.

Niche Players – As predicted by Gartner, increasingly new players are likely to emerge in the market with disruptive offerings. Reacting to this will require a different approach to contracting, SRM, and risk to ensure access to next-generation solutions, whilst at the same time recognising and providing for the vulnerability of start-ups.

Cloud – As migrations go, there is none more prolific than the migration from heritage technologies to Cloud services. Already, businesses are making huge savings storing their data in designated centres, adopting VoIP telephony, and enjoying any number of next-generation, regularly updated softwares. The relationship between Cloud and AI is becoming more symbiotic, and the benefits to industry are profound. Chat-bots, for example, are growing in capability and an increasing amount of businesses are experimenting with chat-bots for e-commerce, customer service, and content delivery. They’re proving highly reliable, and they don’t require wages.

Darwin’s theory of profitability

Charles Darwin famously outlined his theory of evolution by illustrating how the long-term survival of an organism depended on its ability to adapt to changing environments. Darwin’s theory makes for a compelling metaphor for the survival of the contemporary business.

The world is changing. Technology, communications, consumer demands are all changing. Businesses must learn to embrace this change, and adapt their business models and approaches accordingly.