Shoe Sole Strategy: Flexible Absorption for SURVIVAL

It is very choppy. Some days looks like it was the end of the world. The volatile world is testing people and businesses. Doing business feels like competing against a never ending enemy. To survive, should company rely on flexibility and exploit market changes? For instance, shifting resources from struggling divisions to more promising ones can spur revenues. Or should you rely on absorption to withstand punches? For example, keeping a lot of cash on hand might enable your firm to weather unexpected threats.

In fact if we study the surviving companies we realized that, they have deployed both capabilities in various combinations. Through flexible absorption, the company consistently identifies and seizes opportunities while also retaining the structure the company needs to thrive.

Achieving Flexibility

A company needs to introduce new offerings and enhancing quality better than rivals. Relocating resources (cash, talent, focus) from a less promising business unit to more attractive ones will depend purely on the willingness to make diversified portfolio of independent business units. As the company is focusing on game changing opportunities, they need to be patient for a right opportunity. Once they identify the opportunity they need to quickly scale up new business or enter new markets.

Achieving Absorption

The capability is critical to survive the price war in this industry. The easiest way is to down size your employee strength and insulate your company from short term and mid-term market shifts.

Achieving Flexible Absorption

A firm can built absorption without affecting the flexibility by reducing fixed costs. This enables the firm to whether diverse threats without impeding its ability to seize a game changing opportunity. Break your large company into smaller business units (profit/loss units). Each unit can quickly probe different markets and fill the gap. But to preserve overall absorptive capacity the company should promote cooperation between the units.

Example
Toyota, maintains absorption by employing a large workforce, but unlike U.S. automakers, enhances flexibility with a combination of work rules, variable job assignments, and employee involvement.

GM… Believer in dealing with reality?????

GM’s restructuring plan,

- Cut 21,000 jobs

- Close 13 U.S. plants

- Slash 2,600 dealers

- Eliminate $44 billion of debt

- Phase out the Pontiac brand

- Unload Hummer, Saturn and Opel

- Prayer to get much-needed concessions from the UAW.

Well it’s about time!!!!!

All the above leaves the Detroit car-maker with four brands: Buick, Cadillac, Chevrolet, and GMC. The new GM is far leaner, meaner, and de-leveraged company with at least a chance of someday being profitable. But the Business & Markets are left with a bunch of unanswered questions.

Why didn’t GM’s management come up with a serious restructuring plan like this a long, long time ago?

What kind of world was the previous management dealing with?

Why does GM even need four brands? When we know that multiple brands are expensive, confusing, and defocusing. And most carmakers have just one. A few, like Toyota, Nissan, Honda, and Ford have two - a primary and a luxury brand.

All GM needs, Chevrolet and Cadillac and a management who believes in REALITY…..