Be wary of your company’s strategic decay

How confident are you that your company’s strategy is up to the task of delivering superior earnings over the next several years?

Does your company have a clear innovation strategy for introducing new products and services enough to ensure that revenue streams continue to flow and deliver consistent growth in corporate earnings and shareholder value?

During high tide, a rising sea will automatically lift all boats — including some that may not be seaworthy.

In the corporate world, an economic boom will spur corporate earnings and companies are able to deliver respectable shareholder returns despite the absence of any real business innovation.

A boom in tea and horticulture exports or tourism earnings may trigger off a country’s economic boom.

At micro level, a massive corporate restructuring such as that carried out by East African Breweries in the 1990s, which involved the closure of two production sites in Mombasa and Kisumu and the outsourcing of the entire transport fleet, can boost a company’s earnings considerably.

A massive inflow of funds from the Diaspora as foreign direct investment and an influx of investors eager to bet big on a resurgent economy such as those of Angola and Sudan, are factors that can influence the rate of a country’s economic growth, and send corporate earnings and equity prices soaring.

However, remember that trees do not grow as high as the sky.

Efficiency programmes eventually reach the point of diminishing returns.

Creative accounting such as that applied by Madoff, Enron and Worldcom cannot forever disguise a decaying business model or strategy.

If you watch the activities at the stock exchange keenly, you will find corporations that listed shares using prospectuses that promised heaven.

A few years down the line, those companies start to issue profit warnings.

A closer look at these companies reveals that some are local monopolies but they have not been effective in dealing decisively with competition.

Given the above scenerio, any company that hopes to outperform the average market earnings will have to make innovation an all-the-time, everywhere corporate competence.

Strategic menopause