What are Barriers to Exit for Businesses?

Barriers to Exit are hindrances or barriers that stop a company from exiting a market in which it is considering a closure from where it wishes to separate.

The main barriers to exit include specific assets that are quite difficult to relocate or sell, and huge exit costs like closure costs and asset write-offs, and inter-related businesses. It makes it quite difficult to sell a part of it. One more common barrier to exit is the customer goodwill loss.

A company might choose to exit a market as it could be impossible to capture market share or get in a profit line or could be various other reason.

The business might be dynamic, or a market may change in a way that a company may see a spinoff at the affected operations and divisions. However, regulations, situations, or other obstacles may prevent such moves.

Consider, for example, a retailer who may wish to eliminate a failing store in a specific geographic market, when there no further growth. The retailer might also wish to leave a specific location to another location that provides high foot traffic or has access to customers with better financial condition.

Before making such move, the retailer might be locked into a lease with certain terms that make it excessive to shut down or leave into their current locations.

A company could receive many benefits like tax breaks and grants from local government that has encouraged it to set up its shop at a specific location. These kinds of incentives would have come with huge consequences in case the company attempts to update its operations before satisfying the obligations and terms that are set in the deal.

When a company sees a high barrier to exit, it might force itself to continue competing in the market by which means it can intensify the competition.

One example with high barriers to exit is specialized manufacturing as it requires a large up-front investment in equipment that could do only one task at a time.

In case a specialized manufacturer wants a switch in the business, they could be constraint with the money that has already been invested in the equipment cost. Unless those costs are recovered, there is a possibility that the company might not have any resources to take care of the new line of business.

Certain companies in heavy industries can face any extensive cleanup costs when they consider closing a production unit. The expense involved to remove that material might compensate for the benefit to relocating the operation.

In short, barriers to exit usually occur in a high niche or specialized industries.

Types of Barriers to Exit

Barriers to Exit

Exit Barriers depends on the industry type and the reason for their exit. There are two main types of exit: Financial and Managerial.

1) Financial Exit Barriers

Consider the situation when the company has invested a lot of money in fixed assets, where it cannot be sold or transferred. In this case, the company will tend to struggle to get around this issue before they could pull out form the market.

On the other hand, the company also faces penalties from their contractors and suppliers as they end the agreement early.  Even though it might not be expensive to the company, together it could be a hefty bill that might prevent the company from breaking agreements at the time of the withdrawal process. and we also  learn

Benchmarking is becoming a common practice among businesses and organisations. Unfortunately, many organisations pay as much as possible for benchmark services, get the numbers, yet they fail to incorporate the numbers into their management approaches. If you are acouple of organisations that don’t exploit a benchmark benefit or not utilising your benchmarks, then you are problem wondering its significance as a management tool.

Is benchmarking a must? Why do organisations benchmark? What do you stand to benefit from this service as an organisation? How does it apply to your organisation? These are some of the questions you are a problem asking right now. Well, as the saying goes, “If it’s not being measured, it’s not being managed.”

2) Managerial Exit Barriers

When there is a winding down process, certainly the company must begin to lay off the employees. The package offered might be a great value in case the industry is specialized. However, it is a number game where individually the cost might not be great, but it can prohibit when the amount is tallied to a large amount.

How to Determine Exit Barriers?

There is a necessity to assess the exit barriers to exit after the assess of entry barriers. This is done by assuming that the business will have the chance at the time of starting first and is looking at the overall picture of the industry that the business will be competing against.

Even though it seems negative to look at it before the business has begun, it can be good to get an advanced warning of what is ahead in case you ever wanted to migrate to a new market and shift the direction of the business down the line.

Common Barriers to Exit

  • Specialized assets – assets with values linked to a specific business or location
  • Fixed costs of exit like labor agreements
  • Strategic interrelationships – relationships of mutual dependence between a specific business and other parts of a company’s operation like shared facilities and financial markets access
  • Emotional barriers like career concerns, the loyalty of employees, etc
  • Government and social restrictions

Conclusion

Exit Barriers are very important aspects of the marketability to respond and to adapt to any circumstances. The flexibility is important for the effective performance of a market, especially where there is a substantial change.

Benchmarking, therefore, is a way for organisations to evaluate its performance, productivity and quality concerning other organisations of its calibre. If effected carefully, benchmarks can help move an organisation towards an ideally more efficient and productive state. This practice helps in encouraging cultural change in an organisation, creating staffing guidelines, productivity reporting, performance improvement, cost management, etc.

Benchmarking

Organizational change does not come about easily; this means that you will experience obstacles and challenges when you try to initiate a change in your organisation’s culture.  Sadly, the current economic times are harsh which forces most businesses to change a few of their cultural aspects to be able to survive. Benchmarks from a trustworthy source give the instructional resources for executive change agents by presenting new management ideas and strategies to professionally and prepare managers attempting to meet the present operating necessities.

Ideally, you must understand that this is just a management tool. It shouldn’t, therefore, be used to determine an organisations staffing standards solely. Instead, it should be utilised as a guide to provide you with a sensible scope of staffing practices, given your organisation’s capacities and workloads. Effectivebenchmarks should mull over the distinctive departmental features between you and other similar organisations.

Although not many benchmark companies provide this service, any quality benchmark service should provide access to a reliable productivity system. If you are opting to benchmark, check to see if your service provider offers this element. Ifit doesn’t, and then you may want to switch to a provider that provides the service.

To manage effectively, it is critical to have an efficiency detailing framework set up that measures key fundamentals and that creates reports with enough recurrence to take into consideration key management acclimations to enhance your profitability as an organisation.

You need to know that benchmarks without accurate data are pointless. You have to be keen in ensuring that the data you use to manage your firm is correct and accurate. A reliable benchmark service ought to break down your organisation’s information completely before playing out the real benchmarking process. Prevalent benchmark services help settle imperfections in management information.

For your organisation to benefit from these services, it is imperative that you move past the numbers onto variance resolution. A complete benchmarking service outfits your management team with the resources to distinguish and organise difference determination for the execution constraining elements that drive up operational expenses and effect quality. Benchmarks can and ought to be utilised as a vehicle for managing these costs and performance improvement

Table of Contents

Importance of Benchmarking

Benchmarking - 3

1) Performance enhancement :

This would be a common goal for every company following benchmarking. The improved efficiency in the process leads to better results and helps the organizations to achieve outstanding results. Improved performance also yields excellent productivity and morale boost for the employees as well. A satisfied employee is more productive than an unsatisfied one.

Earlier, employee appraisal used to be a major issue and HR managers were often accused of partiality and favoritism. But today, many companies have adopted the Key Performance Indicator (KPI) process for employee appraisal. The process is just and fair and the employee and manager sit together and agree on common objectives to be achieved at the end of the year and the set objectives are measured against the achievement.

This results in transparency between the organization and the employee and they are motivated to work and in turn, improve efficiency. The adoption of this process by many companies would be for improved productivity and process enhancement.

2) Internal co-operation :

Several multinationals have different divisions working simultaneously. Even in smaller organizations, there may be a particular manager or a team which is performing better than others. Companies have done internal comparison and changes in accordance with the better process to improve the performance of others.

This result in increased internal co-operation and employee bonding. It also promotes team building and internal fair competition turns out to be in favor of the organization. In case of the smaller organizations, benchmarking helps other teams or employees to follow the examples of the better one to improve themselves and their processes.

3) Bridging the Gap :

Benchmarking helps to identify the gaps in the process that is currently followed. Thus organizations have a clearer picture in terms of shortcomings as well as the current rate of industry standards. This helps them to make necessary changes and adjustment in their current process and act accordingly in order to be back in the race and gain the edge over the competition.

For ex, a company which is growing at 5% year on year, is satisfied with the overall profits. But after benchmarking finds out that the average industry growth rate is 8.5% while the market leader is growing at 17%. It then has to make necessary changes and bridge the gap. Although 5% is a fair figure but post benchmarking, the figure does not even match the industry average.

4) Reduce costs:

While Benchmarking is primarily used to improve and enhance the process, another major part would be to reduce the costs of production or marketing or other associated costs which would further improve the profitability of the company. This may include making minor adjustments in the processor changing the process altogether.

The company may follow from a leader and make the necessary changes in order to reduce the costs like the purchase of raw materials in bulk or outsourcing inventories or outsourcing the entire production plant. For ex: Apple manufactures iPhones in China to keep the manufacturing costs low while Google manufactures the phones in Korea. This keeps the labor cost low and increases the profit margins.

5) Improved Product/Services :

Benchmarking allows the organizations to improve processes which ultimately results in better product or services and increased sales. In case of a service industry, this is quite visible all over the world in case of McDonald’s which has maintained a standard layout and menu all over the world, so anyone walking in any restaurant of McDonald’s would feel familiar and be comfortable and less confused while ordering food.

A similar business model is followed by other fast food giants like Burger King and KFC. While they have tweaked the menus according to the country they serve in (For ex: No Beef products in India or No Pork in the middle east) they have the same standard layout of the menu (Burger, Fries and drink)

6) Continuous Learning/improvement/development:

The crucial role of benchmarking for any and every organization would be continuous learning which results in continuous improvement. The process brings new ideas and makes adjustments or removes the age-old ideas and processes deeply rooted in the companies. This gives the employee a global exposure to the processes as well as makes them ready for challenges even after leaving the organization. It also facilitates the sharing of experiences amongst employees and in the organizations thus again resulting from increased productivity.

At the point when utilised legitimately, great benchmarks are a capable and compelling management tool. Benchmarking should be an attentive procedure, one that prompts a more profitable and successful organization. On the off chance that you have benchmarks (or are thinking about them), it is essential to assess your benchmark service on account of these key focuses. Precisely consider your benchmarking choices because not all providers offer similar sorts and levels of services.

Comparative analysis and its application in business

When making a choice, one of the simplest method that any individual can use is to make comparison between at least two items, known as comparative analysis. Depending on the feature that is the most important to you – price, quality, durability , you will compare two products and using your knowledge in order to decide upon which product to buy. Comparative analyses is extended also to business industries, where appraisers conduct more complex analysis, depending on the items that are to be compared. 

Briefly, by comparing two or more things you have a scope of discovering something unknown about either one of the products which are compared.

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The best example of Comparative analyses are popular websites like Pcmag as well as Ecommerce websites which lets users compare one product to another. In fact, we were speaking of one on one comparison. Many websites nowadays allow users to compare as many as 5 products at a time. 

If you look closely, jobs like financial planning and insurance planning as well as tax planning opened up because of comparative analysis. You need to compare one insurance plan with another to decide which insurance plan to buy, As you don’t have the time to do it, you generally outsource this work to someone else (An insurance agent) who then suggests you the right insurance plan as per his comparative analysis.

An even simple example would include when you receive an offer letter for a new job. Now, you compare the benefits of the new job vs the job you have in hand. And then you decide whether you want to stay back with the existing company, or you want to move on to the new company. Any such one on one comparison can be said to be comparative analyses.

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However, in business, comparative analyses has a wide application and does not involve only products, but also complete sets of data. This data is generally analyzed to provide any scope of improvement in the existing processes.

At first sight, comparative analysis seem like an easy research to conduct. However, as is the problem with comparative studies, it raises many questions and it can give problems depending on the method used.

When it comes to conducting this type of analysis, businesses distinguish between comparing quantitative data vs qualitative data. Conducting secondary research by using quantitative data for comparison is quite widespread among businesses as obtaining the information needed is cost efficient. It also gives the advantage that large amounts of data can be compared. 

When comparing qualitative data, analysts tend to use relatively small and simple data sets. Although there is no requirement to have a specific number of cases in order to obtain statistical meaning, it is ideally to have enough cases in order to potentially exhibit all the possible configurations.

Comparative analyses is not only used in marketing or business, it is quite commonly used in financial accounting, legal aspects as well as decision making. The above given examples were simple but in effect, any two or three things which have some underlying common features, can be compared and analyzed.

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