The Foundation of Business Sustainability

In the woodworking and furniture industry, why can companies like IKEA continue to perform well even after being in business for over 60 years, while others have failed and faltered?

To answer such a question, I draw on over 30 years of study and research, especially on the companies I have visited in Taiwan, the U.S., Canada, Korea, Japan, Singapore, Indonesia, Thailand, Malaysia, China, Vietnam and Russia, to find the link in their prosperity and sustainability of their operations. My research approach is rather extreme. After 10 years of being an academic, I chose to become an entrepreneur myself in order to identify the gap between theory and practice.

From years of hands-on experimentation I have concluded that there are four elements required in sustaining a business’s prosperity, namely having the right motivation, executing the fundamentals well, seeing the big picture and having an innovative business model that warrants long-term growth.

When we first start a business, survival is the name of the game. A startup must grab any business opportunity that comes its way. In other words, the company must be short-term goal oriented. The meaning of “having the right motivation” is how soon the company can grow out of short-term thinking. The reality is that most business owners never end up changing their way of thinking. That is why the majority of startups don’t last more than 6 to 10 years.

The logic behind business owners having to think long term is very straightforward. I often hear my fellow businesses owners complain about their employees not being motivated. However, they are seldom inquisitive about why motivated people would want to work for them when their businesses have nothing to offer the employees for their personal long-term growth.

If business owners care to look at things from the employees’ angle, they would naturally be on the right track for long-term thinking. In other words, instead of just chasing immediate profits, business owners also would have to address the issues of business fundamentals. Business fundamentals are the management disciplines required to shape a good company, such as having a clear company goal, a productive company culture, good control over cost and quality, and most importantly, the willingness to invest in the education and training of employees.

Exercising these disciplines is not at all easy, but they are essential to a business’s sustainability. Case in point, a company without a clear long-term goal is equivalent to not providing a direction for employees to better themselves or providing employees hope for their futures.

However, even companies who think long term and practice good management disciplines may still be adversely affected by the effects of globalization such as imports competition. In other words, if businesses can’t see the big picture in global competition, market changes, raw material trends, economic cycles, etc., they will still have sustainability issues.

The signals of changes in the environment are usually pretty clear, but the effects are gradual. We business people, however, tend to be overly optimistic and resistant to making any major changes. Therefore, there won’t be any miraculous change for the better; failure is usually just a matter of time.

Ashley Furniture is a good example of effectively seeing the big picture. They started their import program over 30 years ago. But instead of closing down their domestic productions like some other large companies, Ashley imports only to compliment their domestic manufacturing thus maintaining their flexibility. Once they began retailing their own products, Ashley became the number one furniture company in the U.S. while doing around $3 billion annually.

From my 20 years of hands-on research on business models and sustainability, I believe that in our industry only IKEA has a “Blue Ocean Strategy,” which means “Creating an Uncontested Market Space and Making the Competition Irrelevant. IKEA has created a unique retail business model that enables them to keep innovating their products, services, manufacturing and store design. That in turn renders them capable of generating $30 billion in revenues annually with only about 300 stores. And they still have plenty of room to grow in the global market.

A worthwhile question to ask is that if a company happens to come up with an unprecedented business model to compete in the market, will that ensure their sustainability? The answer is definitely no, unless they can anchor securely the other three foundation elements: motivation, fundamentals and big picture. The fate of iFurniture is a clear illustration of my point.

So I have made my observations about what has been happening in our woodworking industry for the past 30 years and have talked the talk. What then can I suggest companies to enhance their sustainability and walk the walk? Although there are clear paths and methodologies for any situation regardless of the size of the business, there are no short cuts. One place to start is to step outside your box and find opportunity to interact with academics. At least they can help you with seeing better the big picture.

As a non-consultant businessman, I believe that I have done sufficiently enough to share my general perspectives. If any reader wishes to discuss specifics, I am willing to try it openly in this blogosphere.

* The above blog I wrote also to post on the Woodworking Network