The ‘Golden Thread’ – Knowledge Combined with Strategic Action: The Importance of Long-term Capital Investments
The recent economic downturn has demonstrated just how unpredictable markets can be, and as a result, many companies have been forced to fine-tune or adjust their once cast-in-stone strategies.
Companies have had to revisit old ideas, and change the way they have done things in the past. They have been forced to sit up and realise that, unless they keep their fingers firmly on the pulse of the environment in which they operate, and become finely attuned to market changes, their businesses will slowly erode and become less sustainable in the long term.
That is why, when considering long-term capital investments, it has become crucial for a company to learn to read the markets, understand the environment and be able to manage the ups and downs. Although we all desire balance, good leadership is about equilibrium and learning to manage the push and pull of the markets. The key to good operational strategy is to identify the risk areas.
The ‘golden thread’ of Strategy
Long-term capital investment is connected closely with strategy; and strategy is a golden thread which runs through an organisation.
Just as strategy forms the basis of a company’s future intent, so too, do long-term investment choices. Long-term investment has a significant impact on a company in several important ways: it impacts a company’s long-term performance, its future viability and sustainability, and its service levels – and therefore its reputation.
Because the key to Air Products’ Packaged Gas business is to supply cylinder gas timeously and reliably to our customers, it is important never to lose sight of the importance of the service element of the business and the effect that sound investment decisions have on our ability to deliver. We, at Air Products, have come to realise that we are not as much a gas company, as we are a supply chain company, and, as such, have built a solid industry reputation for security of supply.
To maintain this reputation it is not only crucial to our ongoing success in a changing, and increasingly competitive market, but also to that of our customers, and their manufacturing processes.
Gas Is Vital
Gas is everywhere. It is an age-old and ubiquitous commodity which touches every conceivable industry. Yet, despite this indisputable fact, most of the time gas is perceived as being a relatively inconsequential part of an industrial or manufacturing project – a major element which goes unnoticed.
One sometimes needs to be reminded, however, that gas is vital to many industrial processes, in both manufacturing and mining. So much so, that certain activities, such as modern day welding, simply cannot take place without it, and if gas supply falters, a costly project could grind to a halt.
This is why, at Packaged Gas, we have to constantly examine and re-examine our investment in cylinder capacity, and to analyse our supply percentages. If our supply-demand ratio goes ‘out of kilter’, not only would Air Products suffer by incurring unforeseen costs, but we would be losing sight of our ability to deliver customer service. All of these factors would have a negative impact on our customers’ productivity, with a knock-on effect on their capacity to deliver to their own customers. In short, getting the supply ratios right, ensures that the business remains viable in the long-term.
When considering long-term investments, it is vital, therefore, to consider both one’s reputational risk, and how best to not only sustain, but improve service levels. Long-term capital investment must go hand-in-hand with customer service improvement.
In Packaged Gas, there are many ways we tackle customer service improvement. These include improved delivery and logistics methods and processes – such as handheld devices for instant invoicing, and telemetry. Telemetry monitors the gas levels at a customer’s facility automatically, so that gas is ordered on behalf of the customer before he even realises his supply is running low. Predicting demand accurately in this way, elevates gas to the status of a utility, like electricity or water, in the eyes of the customer.
In a dynamic and volatile economic environment, it has become increasingly important for a business to hone its strategy to one that is proactive, not reactive. And for an organisational strategy that is proactive, leadership needs to be flexible, agile and quickly respond to change.
Like a ‘speed boat’
Packaged Gas has the ability to quickly respond to an environment in flux. We use the analogy of a speed boat: agile and able to turn around quickly according to market demand, as opposed to a large oil tanker which is less manoeuvrable.
In order to be flexible and proactive in strategic management, it is vitally important to develop an understanding and intrinsic knowledge of the key market drives as well as its current and future needs.
To do this requires two things: doing one’s homework, and developing a reliable ‘gut feel’. In fact, growing a dependable ‘gut feel’ or instinct for the best way to react to market fluctuations, comes from doing one’s homework. It comes from gaining information, but more importantly it is the strategic application of that information. It is the combination of market intelligence and knowledge that is the key to successful strategic decisions and the correct investment choices.
Getting the right match – on the same page
Not only is a careful assessment of the environment a key component of long-term capital investment considerations, but so too is having the right people in place. By this, I mean not only the choice of partners in a long-term investment, but also suppliers and staff. Here it is important to understand and communicate your principles and values, as a company. There needs to be both an ethical and a cultural match with your management team, your business partners, your suppliers, your customers and, importantly, your staff. To ensure that everyone is ‘on the same page’, there needs to be a marriage of minds, and an alignment in strategic thinking.
Conversely, without such alignment, the result can be staff attrition; and bad investment decisions can result in a negative perception of the organisation on the part of staff members and partners. However, a sound investment strategy connects all stakeholders on a positive growth trajectory.
In order for long-term capital investments to positively impact a company’s long-term performance, viability, and reliability, the approach also needs to be both innovative and bold. This is assuming that you have done your homework, your business is finely attuned to changing market conditions, and you have developed that all-important ‘gut feel’.
‘Thinking big’ and executing fearlessly
When it comes to capital investment, it is easy to get paralysed by over-cautious thinking, to let your thoughts limit your company’s growth. Here, the confidence to ‘think big’ comes into play. And once again, this comes with careful assessment of the environment, past experience, and a business acumen that is developed over time.
It is important, therefore, to innovate as part of your strategy, and then to execute fearlessly. Yet the ability to focus, think big and to boldly seize opportunities only comes with keeping one’s finger on the pulse of the market, both locally and globally – checking for, and reacting to, key indicators and measurements.
Long-term capital investments that are tied in closely to that ‘golden thread’ – a flexible and knowledge-based strategy – will have a long-lasting and positive impact on your company’s performance, customer service, and reputation.
Published on November 23, 2011 in Air Products News |