One window into the nature of the current recession and the uncertainty that it’s causing is through the fancy curtains at the Four Seasons Hotels and Resorts. The revenue per available room (the hospitality industry’s key financial measure) is down 25% year-to-date and for the first time in its history, the hotel management company has cut headquarters staff by 10%. In this recession, Four Seasons’ customers are hurting – wealthy individuals, the business service companies that cater to Fortune 1000 companies and the vibrant venture capital/IPO markets – significantly reducing stays at Four Seasons. Hotel property owners who contract with Four Seasons (which interestingly does not own any of its hotels, it only manages them) to hire and train their staff and manage their hotel properties are pressing Four Seasons to cut back on expenses and lower room rates to attract more guests….
Does Business Model Strategy Matter in an Age of Uncertainty?
Economics lacks meteorology’s scientific basis, although many economists make their money forecasting where the business cycle is headed (albeit with less success than weather channels). This economist has little faith in economic predictions today as they are based primarily on past trends and relationships, captured through rigorous econometric models. The depth of this recession, its causes and its global impact in a world far more interconnected than any of us understood suggest that the present will be a distinct break from the past. Time to throw out the models, as the author of Black Swan advises. ____________________ If uncertainty reigns, what are we to do as leaders and recommend as their advisors? This is the subject of a blog-conversation I will be sharing with two other blog authors whose insights I admire. Hopefully others will discover and join our conversation. Bill Welter is…
The Root Cause of Our Economic Mess Is Commoditization
If your business can’t offer its target market(s) differentiated benefits that matter, recognize that your business is stuck in a quicksand called commoditization. Endless cost cutting to survive the recession-magnified price discounting will only push you deeper into the muck, making it even harder to escape competing on price. You only have three smart options: Redefine your business model strategy to become the lowest cost competitor. You’ll earn profits despite market commoditization Redefine your business model strategy to escape commoditization and compete beyond price Exit the business Over the last ten years our economy’s productivity increased dramatically through industry consolidation, value chain and process redesign, outsourcing and IT investments. These changes lowered inflation, but also created pervasive commoditization. Big banks engaged in these activities and ended up as lumbering copycats of each other, earning their returns by taking enormous risks rather than having…
IBM’s Smart Is a Smart Value Promise
Image via Wikipedia IT technology companies filled business page news the last few months with press releases leading us to rethink what business these companies are really in. Cisco is moving into HP’s market space. Dell with acquisition funds in hand is soon to follow. Intel whose margins are terribly low for a company so dominant in fast chips is trying to move into low power applications like cell phones where growth prospects look brighter. And IBM whose hoped for acquisition of Sun fell through when Oracle made a surprising and winning bid for Sun must find a new way into Sun’s market space. Business model strategy predicts moves such as these. As technologies mature and become commodity-like (which is possible no matter how sophisticated a technology is), industry boundaries between technologies collapse. Companies stuck in commodity-like competition redefine the definition of the…