KVI Series – Finding Value in Distractions
Distractions and intrusions abound in our daily lives. Always present, and increasing in volume, this noise fights for our attention, relentlessly finding new ways to get it. A quick look at the unread messages in your inbox and you’ll see this phenomenon hard at work. However, not all this noise is bad. And, not all of it deserves to be ignored. Within the clamor may be information critical to what you are trying to accomplish today, this month, or in the coming years. And like a silenced siren lost among horns, we need to know how to filter through the noise in order to hear the information we need and put it to work in favorable ways.
We call this information the 6th KVI. It is the data influencing our businesses that exists outside of the business; and we have little, if any, control over it. Some of this intelligence is in plain sight and some is hidden among the distractions. How you receive, interpret, and use the knowledge is a key indicator of business value. So, what exactly are these influences? Simply put, they are the industry trends, market innovations and productivity improvements happening throughout the global market place; as well as the local, regional, and national government changes to ordinances and laws, including changes to tax codes. And, just as important, they are the economic and geo-political winds that carry uncertainty and change.
The scope of this key value indicator is substantial and deserves critical analysis. The necessary mechanisms put in place will collect, monitor, research, and analyze this information. Then, quantify and apply when appropriate. Some companies have positions and departments that manage this process and are often overseen by a Chief Innovation Officer or Chief of Strategy. Other businesses are utilizing AI in savvy ways to quickly sort through and come up with adoption processes. As the cost of this technology decreases expect its deployment to increase.
There are other places, functioning outside of your business, where you can seek assistance with this KVI. Industry associations are great places to find relevant market data and government information. They will often have implementation case studies, and the individuals with the knowledge to assist. Advisors are also a wonderful tool to utilize in filtering through the noise. With knowledge of the industries they serve, advisors can give unbiased, thoughtful opinions. Their experience and guidance can help track this data to the benefit of your enterprise.
So, let’s take a high-level look at the some of the current economic and geo-political influences affecting our businesses:
Trade
At the top of this list is the uncertainty surrounding current U.S. trade policy. There are deals and potential deals, tariffs—implemented and threated, and talk of a trade war truce as well as an escalation. It’s enough to keep heads spinning. What does this trade policy mean to our businesses? One obvious result of tariff use is price increases. Currently, industries feeling the initial impacts of 2018 tariff implementation are manufacturers of industrial parts and machinery, telecom equipment vendors and distributors, chemical manufacturers, and auto-makers. As of now, price increases are spotty and inconsistent. Where they show up truly depends on the companies that make up those supply chains and their ability to absorb the price change or need to pass it along. Aside from price increases, another substantial effect of tariffs is the loss of customer markets. When a whole country suddenly shuts its doors to your products, getting those doors open again becomes an incredibly daunting and expensive task, if even possible.
Like markets, businesses hate uncertainty. When it comes to the effects of a trade war, where companies have little if any influence, there needs to be strategic planning and as much preparation as possible. Shrewd retailers ordered early for this year’s holiday season and ordered in larger volumes. Soybean farmers are taking part in co-ops and associations that are looking for and reaching out to new markets. Companies with manufacturing centers in China are exploring markets outside of the US for increasing revenues. Other businesses are contacting the US Trade Representative or Commerce department seeking exemptions; however, these government offices are currently overrun in applications. And where no other options exist, price increases are being implemented. There are ways to survive a trade war and doing so can drive value. The savvy business must not shrink away in fear but rather, do the research necessary to continue your growth plan.
Labor
Employment costs are rising. The factors pressuring these costs upwards in 2018 will continue into 2019. Healthcare cost and wage increases will be the major drivers of this category. In addition, labor shortages continue to show up across industries. While the Summer 2018 labor participation rate indicated room for growth, significant tightening has occurred, and the latest indication in JOLT reports shows employees are feeling confident enough in the economy to look for higher paying employment.
Investor Activity
Uncertainty is influencing global exchanges as well. Wall street is experiencing something akin to 2013’s taper tantrum, believing that the Fed’s normalization of rates will stall the US economy. The Fed continues to reassure the investment community that rises in interest rates will be reasonable to keep inflation in check while working to maintain full employment. Outside of Wall Street, the current U.S. economy remains strong. But all expansions eventually run out of steam, and this has been one of the longest expansionary periods on the books. Early signals point to a potential economic weakening sometime beyond the next 12 to 18 months. Investors are preparing now, working to secure cash and lines of credit for any future tightening. M&A activity remains strong, and we believe, given the above factors, there will be an increase in transactions in a number of industries during the months ahead.
Be Aware
The 6th KVI can be the most challenging to address when developing company strategy and working to improve value. There is little to no control over these factors and they can change in an instant. The goal is to be aware of the critical influences on your business and industry and utilize timing to optimize your strategic path forward. As the famous saying goes, we cannot control the wind, but we can adjust the sails. Take the time to gain the knowledge and flexibility needed to adjust your course when necessary.