In today’s dynamic environment, there are many variables that contribute to the success or otherwise of a company. Nonetheless, there are commonalities which can be drawn across successful businesses. Before delving into management theories and financial determinants, I would like to define viability as a company’s longevity, its perseverance through economic fluctuations and political shifts, and affluence as its ability to grow and prosper despite external restructuring whether in the markets, the industry or the regulatory framework.
Personally, I am of the opinion that the viability of a company depends equally on both financial and non-financial aspects. Extensive management research has afforded us a plethora of approaches and ideas to improve business competitiveness and to survive in today’s fast-paced corporate marketplace. Having examined both empirical findings and unsubstantiated management fads, I have filtered it down to strategy as a prime determinant of a company’s viability, regardless of the criticisms tossed at it.
The cynical fails to observe the elements attached to strategy for it to function appropriately and hence yield results, such as implementation and the quality of the product. Strategy intrinsically does not make or break a corporation; however the absence of one impedes its growth, despite its product or service. A phenomenon that exemplifies my assertion is the corporate collapses in Southeast Asia during the 1997 economic crisis. Although the detriment is attributed to many other influences, my claim is that if those companies were focused on their strategy, the damage would have been severely less.
The companies that could not withstand the economic pressure were predominantly local conglomerates, who had their share in as many industries as possible, lacking a sense of direction. After the crisis, management guru Michael Porter reprimanded these conglomerates, rebuking their lack of cohesiveness in terms of product choice, plan of action, targets and values. All of which having a strategy constitutes. Having stated that, specialization inevitably surfaces as a by-product of strategy setting. In the event of increasing lobalization, companies need to deliberate on its position not only in domestic markets, but also on an international front. They may no longer be allowed government protection as multinationals now fight for bigger market share. Therefore, companies have run out of time to test its capacity in varying sectors and should specialize in its core efficiency. Summarizing the non-financial part of my perspective, to be viable a company needs to have strategy, specialization, and focus supported by a strong underlying product.
On the financial outlook, I believe that a company’s viability revolves around its cash flow. Put blatantly, a company’s failure is synonymous with poor management of cash flow. The demise of a supposedly profitable telecommunications organization, Australia’s One. Tel, is an unfortunate example. The company was declared insolvent in spite of earning its status as Australia’s fourth largest telecommunications giant. Irrespective of a vibrant balance sheet and profit or loss statements, without positive or circulating cash flows, a company cannot operate.
I am not disesteeming the balance sheet and profit or loss statement. On the contrary, a strong balance sheet affects the availability and cost of loans, and the profit or loss figures largely affect share prices. I am merely stressing the importance of managing cash flow as it is a more accurate and tangible indicator of a business’s well-being. There are many other underlying determinants of a company’s viability, but in my view the aforementioned are of utmost importance.