Business Survival Series: Is the problem an inside problem or an outside problem?
Running a business can be tough and no matter how prepared you are, there will always be hurdles along the path. As such, recognising the type of problem that you’re dealing with is vital in determining what strategy should be implemented to respond to a financial crisis. A helpful starting point is to consider whether the problem is an inside problem or an outside problem.
Let us show you how to determine whether the problems afflicting your business are inside or outside problems and how to address each type.
Determining whether the problem is an inside problem or an outside problem
One technique to identify whether a problem is an inside problem or an outside problem is to conduct a SWOT (strengths, weaknesses, opportunities and threats) analysis of your business. A SWOT analysis assesses both internal and external factors affecting your business. It is designed to provide an accurate, factually based and data driven analysis of your company’s strengths and weaknesses, with a particular focus on the company’s position within its respective industry. Undertaking such an analysis will help you not only evaluate your company’s competitive position within the market but will also clarify the nature of the problems your business is facing.
- Process that could be improved
- Areas generating customer and employee dissatisfaction
- Technological changes
- New markets
- New methods
- Technological changes
- Changing customer needs
- New competition
Issues identified during a SWOT analysis should be divided into internal and external issues. Domenic Aversa in Corporate Undertaker provides a helpful guide to distinguish between internal and external problems:
‘If a problem is with too much overhead, margins that are too low, or poor quality, these are examples of internal problems. If you’re struggling with sales because customers are using different products or a service, this is an example of an outside problem.’
Essentially, you should think of issues occurring directly within your company that are within your control as inside problems (ie. internal processes adopted by management). Issues occurring outside of your company that are not directly within your control are outside problems (ie. market or consumer forces).
It’s important to determine between the two types because each will require a specific response. Inside problems can typically be fixed quickly and relatively inexpensively because you are in control. In contrast, outside problems tend to pose a bigger challenge and thus will require more time and money to address.
When we were working on a turnaround for a transport client we identified a problem with pricing. Our client told us:
Client: We haven’t been able to put up our prices in 15 years.
Us: Is that because of competition?
Client: Yes, transport is a cutthroat industry.
Us: Have you changed your service offering much in the last 15 years?
Client: No, not much.
A SWOT analysis will help the client understand whether their pricing pressure is caused by the market or a failure to innovate or adopt a focused strategy.
Addressing inside problems
The first step in tackling any internal problem is to obtain up to date, relevant and accurate financial information. With this valuable information in front of you, it is time to make some tough decisions. As director of your business, you will likely be able to directly control the process, product or service that is causing the problem. The real question is how can you change that process, product or service to solve the problem at hand and in doing so achieve better outcomes for your business.
Time and resources for any business are finite and therefore, prioritising the highest value changes is necessary (read our Pareto Principle article – 80% of outputs are linked to 20% of inputs). You may be required to make some tough decisions at this stage of the problem-solving process. Be guided by the strategic information at hand and always ensure that you’re considering a range of perspectives when formulating problem solving methods. Remember that even if your problems aren’t solved immediately this is not the end. Be open to trying different approaches until you find a solution that fits your business and delivers lasting results.
The answer for our transport client may be to terminate unprofitable contracts and to focus on the 20% of customers that deliver 80% of profits. This isn’t as easy as it seems because of issues like scale, ambitions, prestige, debts, cash flow and implications for employee utilisation.
Addressing outside problems
Outside problems pose a difficult challenge since by definition they occur outside of your company and are not directly within your control. But this does not mean they cannot be addressed.
Whilst factors such as the economy, politics, competitors, customers or even the weather are all uncontrollable factors that can influence your business, you can maintain stability and profitability if you employ the right strategies. It is key to understand that change is inevitable in the commercial world. External problems can often be prepared for or quickly adapted to when businesses put time and effort into increasing their flexibility. Of course, dealing with unexpected changes is never going to be easy, but flexibility is often the difference between companies that are brought down by outside problems and those that are resilient enough to fight through.
The most effective means by which businesses can increase their flexibility and adaptability within novel market situations is to conduct an in-depth analysis of their environment. The process of gathering, analysing and interpreting information through a framework such as SWOT will provide invaluable information about the environment in which you conduct your business. You can utilise that information to help embrace change and new opportunities and address threats before they overwhelm your business. Strategically aligning your plans to meeting the changing demands of the market inevitably lends itself to ensuring your business is resilient in the face of uncontrollable variables.
Although our transport client faced a highly competitive market, they identified cold storage as a service line in which they had a competitive advantage. A firm strategy was adopted and the client found that its sideline service areas were loss leaders.
The key takeaway
You have to understand a problem before you have any chance of solving it. We recommend that you conduct a thorough analysis of your business using the SWOT framework. Characterise any problems uncovered as either internal or external and then implement solutions accordingly.