Business schools generally consider large companies for their case studies in order to try and identify successful best practice. Looking at the companies that inhabit the FTSE 100 list, there is a general assumption that by copying the practices of these firms, smaller firms can replicate their success. In reality, small businesses can learn very little by copying the ways of large firms, because while the principles may be transferable, the practices generally are not, as the circumstances under which large and small firms operate are different.
In any business large or small, the commercial manager has the task of producing and maximising profitable income for the long term future of the organisation.
While their initial priority will the maximising of current profitable income, their major concern will be the source and production of future revenue. In consumer markets in particular, changes in fashion, technology and economics occur more quickly than ever. Product life cycles in many cases become shorter, so that the opportunity to produce profit is reduced while the costs of development, bids and proposals increase.
In a volatile commercial market, smaller companies can have an advantage over their bigger rivals by being or becoming more agile and adaptable. It is easier for small businesses to innovate and adapt quickly to changing markets and circumstances than it is for larger organisations. However to become more agile and adaptable in a volatile business world requires an element of analysis and foresight by the commercial manager.
In the absence of a crystal ball, commercial managers must rely on information obtained from market knowledge and internal data, on which to base their interpretation, judgements and decisions. Over the past decade or so, especially in consumer related markets, there has been an increasing use of information derived from social media and Customer Relationship Management (CRM) programs. In the Business to Business area, while there has been an increase in information derived from CRM, there is still a greater reliance on that originating from direct customer contact. The reason for this difference is that companies such as Amazon which deal directly with consumers, may well have many thousands of customers, while an engineering company in the business to business sector, might have a customer base of hundreds.
In order to secure business income for the future, the commercial manager has to have a detailed understanding of the vagaries of the market and the changing needs of the customer base. Changes in the customer base may be indicative of the level of demand for the type of product in general or the acceptability of the company’s product in particular. A falling customer base may indicate a reducing market, but a reduced customer base may result in an over reliance on specific customers.
What is generally known as the 80/20 rule, reveals that in any customer base, approximately 80 % of the profitable income comes from about 20% of the customer base. The convention is that businesses should then concentrate on the 20% that produce the revenue, rather than the remainder where profitability tends to be lower. However, it may be that the 20% are at maximum capacity for sales, and so more effort and resources concentrated on them would produce disproportionately little result. Alternatively, the other 80% might produce more with more attention, but equally, might be an indication of declining demand and different requirements.
For future planning, commercial managers need to be aware of their current position in the product life cycle especially for technical products, where development can be expensive but the life cycle short. Similarly, understanding the position regarding growing, maturing or declining markets is essential for planning investment requirement and income potential.
While on-line surveys may provide some insight into customer intensions, they may often be biased to those with strong views or complaints, as most customers will not spend the time to fill in on line questionnaires or paper based forms. However, there is still no real substitute for the personal connection to customers as provided by professional salespeople which can provide valuable insight into the customers’ requirements both present and future.
In order to understand the present situation and plan for the future, commercial managers need to:
- Encourage staff to continually seek ways to improve their service and efficiency
- Engage directly with customers to understand their current and future needs
- Be aware of the opportunities and threats in customers markets as well their own
- Consider alternative products and services their strengths a weaknesses and how to exploit them.
- Encourage staff to look for alternative ways to work and organise to maximise efficiency and flexibility.
In the current business situation, demand and markets are in frequent and rapid change.
If firms are to survive they need to be able to detect change and be adaptable to meet such change. Commercial managers are expected to produce income for long term, and thus must constantly be looking for the threats and opportunities that will affect it. To achieve this they need to look for and identify the indicators of change, to consider their implications and act accordingly.