Managing Change

It’s not just what you do but when you do it.

If your business doesn’t change, as the world changes around you, it is very unlikely that you will be as successful in the future as you are today. You might think that is a very obvious statement, but many businesses don’t change, they leave it far too late, or they make poor choices and change in the wrong way. Why? Well, often because they just don’t know what to do, or they don’t have the confidence, or a leader with big enough balls, to do it. It can be very difficult to make the sort of changes required and the longer you leave it the harder it gets. Many businesses fail because the task just becomes too big. Also, the bigger the firm the more external stakeholders, like unions and politicians, like to get involved and that is why I find it interesting to compare how Philips, the Dutch electronics company, and Peugeot, the French car company, are doing as they both try to adapt to a changed world.

Both Philips and Peugeot are laying-off large numbers of staff in the face of changed market conditions. Phillips is a year or so into a programme of cost-cutting and refocusing on more profitable business, particularly in the healthcare equipment division; although it is the world leader in lighting, margins have declined significantly in the face of Asian competition. Philips, Europe’s largest electronics company, has just announced another 2200 job cuts, following on from 4500 already announced.  With ebitda margins of just €450M, on revenues of €5.9Bn, you might conclude though that they still have some way to go.

Philips’ CEO seems to have done a pretty good job in his first year and to have both a game plan, to cut costs and refocus on higher margin business over time, and to be getting on with it; but he doesn’t seem to have quite the resistance to change that Peugeot is having to deal with. As if the Eurozone crisis wasn’t enough of a problem to contend with Peugeot management also have the fact that, unlike Philips, the Peugeot family still control 38% of the voting shares, although they only own just under 25% of the business. The family have been criticised of late for taking dividends rather than reinvesting cash in the business. As well as that, Peugeot is a French company and you just don’t sack people in France, it’s just not constitutional; France also has a newish President who has committed himself to protect French jobs.

It is unclear to me to what extent both of these pressure groups, the family and the government, have stopped Peugeot developing a more global strategy earlier, along with the rest of the industry, although belatedly it has now done a deal with General Motors to share some costs. Renault did this rather successfully with Nissan some 13 years ago now. Being CEO of any French company is a rather more political job than in some other countries it seems, but politics always plays a part when your business has a material effect on the economy. Peugeot’s family influence is also a very convenient excuse for meddling politicians and the family seem to be getting the blame for its ”strategic failings”, in not becoming more of a global player earlier, as well.

From a purely business perspective, both companies should have acted a long time ago and they are rather late into the change game, but in their case they can be forgiven for having little choice. Even Philips has political pressures that are probably partly responsible for the delay. Whilst a canny and insightful entrepreneur, in control of her own destiny, may have acted years ago, it probably has to become pretty bloody obvious that change is needed before politicians concede large job loses in any country, so, to that extent, I am sure both firms experienced similar public resistance at first.

Not only do you need to get the business decision right, you need to be able to manage all sorts of stakeholder groups to make profound change in any business, no matter what size it is. Political issues aside, family firms, of any size, can have nightmarish internal issues that get in the way of sensible business decisions, and necessary change, as the world changes around them. It’s one thing to know what to do, quite another to be able to do it quickly enough.

It’s often not just what you do, but when you do it, that separates the survivors from the firms that fail in a changing world.

Mark

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