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Every corporation, division, and business unit faces a fundamental challenge: finding the right balance between investing for the future and delivering financial results today. Because investors value predictability while the real world of business is filled with surprises, executives are under tremendous pressure to make credible projections about future earnings and then manage the variables under their control to ensure that they keep their commitments. As a result, they are often reluctant to make changes to current businesses that might disrupt cash flow, even when they recognize the changes are necessary. They know that they can’t risk disappointing shareholders without exposing themselves to significant professional risk.
In reality, the greater risk for most executives is that their attention to quarterly results will jeopardize longer term success. That risk has increased dramatically in today’s intensely competitive global business environment, which tends to compress the lifecycles for companies’ business models. In order to generate the savings to invest in new business models, they must find ways to run current businesses in significantly leaner ways. This is hard to do when times are flush -- because there is little appetite to "mess with success". It becomes even harder to do when established businesses begin to lose their edge -- at that point, they are already struggling to deliver performance and there appears to be little margin for error. But companies that wait to move until their core businesses are in survival mode end up putting the entire business at risk. The keys to timely business model reassessment are to (1) realistically assess the lifecycle trajectories of the business, (2) accelerate the shift of resources before the need becomes obvious, (3) identify the savings opportunities from a strategic perspective, based on their expected impact on the future direction of the company, and (4) take a highly disciplined approach to investment in the new models.
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