Ten Critical Realities In The New Era

The entire world is undergoing a major change. Technology and the terms of business have produced a transformation of the corporate world. When we add to this the new realities in Turkey, the result is a reworking of the competitive environment. Capital conducted a survey of management gurus, marketing personnel, management experts, executives and businessmen and determined the 10 most important subjects that are making their mark on the era in which we are living. They say that those who do business and develop strategies according to these realities can secure a competitive edge.

It is not just in Turkey, there is change all over the world. New management trends, developing technology and economic realities have resulted in a complete rewriting of the rules of the game in the world of business. The economic developments in Turkey in 2004 in particular have created changes in the relative importance of the subjects on the agenda. This situation has been underpinned by the fall in inflation and the creation of an environment of perceptible stability. This new environment has now developed to the point where what was right yesterday has become a mistake today.

At Capital we consulted with experts and studied the 10 critical subjects making their mark on the new era.

1. Price Gaining Importance

The decline in inflation has increased the importance of operational profitability. The fall in interest income in particular and the end of the era of making money from money has refocused companies’ attention towards factors which ensure productivity.

Peppers & Rogers Group Partner Orkun Oğuz says that these factors are headed by price. He believes that competition and real profitability have only just begun to become important. Oğuz attributes this to the fall in inflation: “Previously companies could adjust prices every month by 5-10 percent. Now this is no longer possible,” he said.

2. Important Changes In Payment Terms

In the past, the term was one of the most important elements of any payment. The cost of money changed by the week or even the day. Today companies are faced with a different situation.

In the past the cost of money used to be 10 percent per month whereas today 10 percent is almost the annual cost. RMS Danışmanlık General Manager Murat Şahin says that in the new era differences in payment terms will become less important. He believes that, as a result, there will no longer be any such concept as term bargaining on the markets. Şahin attributes this situation to the fall in inflation. “Today the costs associated with imported input goods have fallen. In the past companies would change prices once every two months. Now they can change prices twice a year,” he said.

3. Salaries Now Form Of Management

For years, wages management was dictated by the market in Turkey. Companies concentrated on economic realities outside their control rather than internal costs. Companies used to set salaries according to their rivals. They developed applications which focused on the market rather than their own organizations. PWC HR Department Manage Murat Demiroğlu says that salaries are now defined as a cost item. He believes that in the new era companies are looking for an answer to the question of “if I can’t increase my sales, how can I increase my profits”. Demiroğlu states that one of the answers to this question is redefining salaries as a question of management.

4. Market Share Is Alone Not Enough

For years many companies in every sector focused on market share. But now the aim in virtually every sector is stable, profitable growth. Fed Training Board Chair Arman Kırım says that in the current competitive environment companies will be unable to grow merely by focusing on market share. He adds: “Every company which tries to do this will see that, whether they like or not, the result will be a fall in profitability.” He believes that it is also meaningless to battle to grab market share and that it is not easy to win this battle.

Arman Kırım states that profit margins have now begun to fall. He says that, for this reason, it is meaningless to cut a larger portion from profitability in the name of increasing market share.

5. The Target Group Comes Down To Individuals

Marketing studies all over the world have for years discussed the concept of the ‘target group’. In fact, this concept has increased in importance since the end of the era in which companies everything they produced. In Turkey for many years hitting upon the right combination of distribution, advertising and price was enough to sell everything companies produced. But today the rules of the game have changed. Consumers have become more demanding. Producers have begun to develop products designed for the expectations of different consumers.

FZS Advertising Agency Chair Zehra Üsdiken says that today, particularly in the high consumption, durable consumption and service sectors, there has been a broadening of product segmentation. She notes that in Turkey there have still been no broad definitions of target groups.

6. The Right Customer, Not Every Customer

At one time customer relations management was a method that was directed at every customer. But experience showed that making everybody a customer of the company was not a profitable approach in terms of the profitability of the firm. What was important was getting the customer at the right cost. As a result, companies investing in trying to gain new customers.

Assistant Professor Dr. Esra Gençtürk, who is a member of the teaching staff at Koç University Department of Marketing Sciences, argues that activities to gain new customers are very important for sales and marketing teams. She says that previously holding on to existing customers was more critical than acquiring new ones. Gençtürk maintains that this accounts for the low rate of market penetration in Turkey and says that gaining the right customers has now become more important.

7. Holding Goods As Stock Is Risky

In Turkey companies being able to earn money from stock is one of the habits that resulted from high inflation. In the new era this rule has changed. Now the cost of holding goods in stock has increased in every sector.

Ertan Ayhan, one of the managing partners at Ernst & Young, says that in a high inflationary environment companies prefer to turn to physical assets such as stocks rather than hold monetary assets. He says that the recent fall in inflation has meant that companies have begun to become aware of the cost of carrying stock.

8. Considerable Interest In Using Outside Resources

Turkey is undergoing an important evolution in terms of the utilization of outside resources. In the 1980s foreign capital companies began this trend by sourcing services such as cleaning, tea and coffee services, office staff and drivers from third party firms. But these processes did not bring the company a major return. In the years that followed methods which used outside resources for more critical business applications began to gain in importance. In the 1990s specialized private security firms began to provide outside sourcing services in the true sense of the word.

Ekol Lojistik General Manager Mehmet Nalbantoğlu says that in the last ten years the use of outside resources for things such as financial operations, data processing solutions and logistics has come onto the agenda. He says that in the past logistics was dominated by a subcontracting mindset. He adds that today companies instead need to begin to work with more strategic service providers in this area.

9. The Reasons For Cost Cuts Have Changed

In the past it was only in times of crisis that cost cutting methods were introduced. In such situations, a company’s first reaction was to lay off staff. But today it can be seen that this method is not producing the desired results. Indeed, this type of cost cutting method is having a particularly negative impact on personnel. It prevents a company from having an effective labor force. In addition, the management realities of the new economic environment have forced companies to turn to cutting costs.

Kavrakoğlu Consultant President İbrahim Kavrakoğlu says that in recent years in particular the increase in profit competition between companies has changed the reasons for cutting costs. For this reason he says that companies need structural changes rather than instant, radical reactions. He believes that the way to reduce costs is to maintain business at the same capacity but do so with less labor, capital and investment.

10. Productivity To The Fore

Productivity has always been one of the most important issues in the world of business. Companies have always worked to try to increase productivity. But today productivity and increasing quality have come to a critical juncture. It is thought that the increase in competition has meant that companies which ignore these concept don’t have much chance in the future.

Ar-Ge Consultant President Yılmaz Argüden says that under current conditions production alone is no longer enough. He says that in the past it ensured income for companies. But he believes that, with time, the importance of quality and productivity is increasing. Argüden adds that companies which want to enter foreign markets in particular need to reach a certain standard.

Peppers & Rogers Group/ Orkun Oğuz

Critical Future Issues

SPREAD OF ME-TOO PRODUCTS Not enough work has been done in Turkey on product development. In fact, the studies were not focused on the customer. In general we can see that there are too many me-too products. The leader in the sector launches a product and its rivals then all follow the trend. But his type of approach may not satisfy every customer segment. In addition, it also stifles creativity. In any case, customers are now more demanding. In the future companies will conduct studies on this demand and develop new products.

A PRODUCT FOR EACH SEGMENT Similar products appear in every sector all over the world. But there are not that many niche products. For example, there is a segment of what we can describe as high income young professionals. They work in large domestic or multinational companies. They have good salaries and prefer to spend their money on living well rather than investments. For example, there are not enough products for this segment. There are different segments like this in Turkey. Companies will begin to become aware of these groups and target them.

NUMBER OF DISTRIBUTORS WILL FALL Distributor management is something else in Turkey. There is a very important distributor structure in Turkey. But when we look at developed countries we see that distributor systems are not very widespread. Turkey will have to undergo this change. This situation will force a consolidation of distributors in specific areas. In addition, they will work very closely with the companies. For this reason, distributor incentive programs will become more important.

MULTI-BRAND UTILIZATION I think that, in addition, there will be an increase in many sectors in distributors selling different brands. For example, there is a block exception in automotives. For this reason the distributors’ profit margins will automatically fall. Because the profits that the distributors receive from one brand have fallen, they will begin intensive negotiations to sell different brands. The companies will identify critical distributors and allocate them a higher profit margin. They will try to hold onto them.

Şeyma Öncel
soncel@capital.com.tr