In a hypercompetitive marketplace, a company can’t count on stealing market share from its bigger rivals by swooping in and undercutting their prices. And improving quality alone isn’t enough of a sustainable (or affordable) advantage to lure customers away. So how can a David wage a respectable war with Goliaths?
According to a study conducted by CFO Research in collaboration with American Express, smaller companies compete best with larger opponents by using their market-bred smarts. The modern marketplace, where the identities and aims of competitors and the tastes of customers change faster than the weather, requires ambitious businesses to continually reinvent themselves, following their target customers and adjusting to their changing needs and perceptions. To help them succeed, smaller firms require an arsenal that, as one manufacturing CFO listed, includes “service excellence, reputation, customer delivery, safety [and] customer relationship management.”
The study, “A Valuable Turn for Finance,” is based on a survey of 275 senior finance executives at U.S. companies with annual revenue of between $4 million and $2 billion. Nearly 60 percent reported that their strongest competitor is a bigger company (see Figure 1, left). The study reveals how such companies focus relentlessly on value in dimensions beyond their competitive strategies — in their disciplined approach to how they manage their finances, and the choices they make about where they decide to spend and invest. (To download the full report, go to cfo.com/research).
Despite spongy demand and firm constraints on capital, such companies recognize the need to manage every aspect of the business with the overarching goal of maintaining — or even enhancing — their organizational flexibility, so they can exploit opportunities as fast as possible.
Like Water over Rock
In almost every aspect of management, these companies know they need room to move. When it comes to improving cash and working capital management, finance leaders at smaller companies reported that their big-company customers aren’t interested in resetting payment terms or lowering their price to help their smaller counterparts. “We deal with many large companies that don’t really care much about small companies,” said the EVP of finance at a media/entertainment company.
But, survey respondents insisted, that doesn’t discourage them from continuing to push on collections, payables and inventory management. Slow but steady pressure pays off. “You must be like water running over a rock,” intoned the CFO of a wholesale/retail trade company. “Stay constant and vigilant, and eventually you’ll erode some resistance.”
Asked to rank the three facets of working capital in order of their priority for the coming year, nearly 40% of respondents selected receivables performance on top, while 34% chose inventory management (see Figure 2). The survey also found that companies were moving toward making greater use of credit- or purchasing-card float as a tool for buoying their cash positions.