Sony exemplifies how a company must continually refocus its resources in order to optimize its future potential. An earlier article: Know When to Hold ‘em and When to Fold ‘em – Knowing when to get out of a core business is key to being successful in the future discussed how Sony was exiting and de-emphasizing some of its core business to focus on areas with higher potential. As the strategy is evolving, we see that Sony is continuing to re-focus its resources to regain growth and profitability by broadening its gaming division to focus on entertainment. It will be adding complementary services and changing its focus on Sony-only hardware to becoming hardware indifferent.
How to expand the successful Game Business Unit?
What is a complementary service to the gaming division? If one thinks broadly about home entertainment, one not only thinks of games, but also TV, in particular, internet TV. Sony has already successfully partnered with Viacom to distribute 20 Viacom channels, including Nickelodeon and MTV over the internet for TV viewing. Presumably using a “gaming” channel, Sony would stream games over the TV.
In addition to streaming TV, Sony intends to stream its games to smart phones and tablets. By taking this step, Sony is emulating IBM when it moved from being a computer hardware provider to an information systems provider. When IBM made its move, it had to become indifferent to the hardware that their customers were using. This was a difficult step for IBM to take. It will be a difficult step for Sony, also. Its PlayStation 4 is the industry leader and may become the standard game console similar to the way VHS beat out Betamax technology. By learning from the Betamax experience, the PlayStation 4 has made it easy for companies to design games for this console. Still, to take the next step, Sony must become indifferent to the hardware if it wants to dominate the game streaming business.
It is difficult for a company to re-invent itself. Sony has already taken many steps to re-focus its resources, but many more will be needed for a successful turn-around story.
Is your company struggling to develop a clear focus on what will enhance its future potential? Are you bogged down trying to revive legacy businesses that have slim margins when the market is valuing more recent products and service offerings? There are several strategies that are effective in addressing legacy businesses:
Maintain: Continue to maintain your market share while investing in new areas of the business. This strategy is used when the legacy business is still healthy.
Contract: Get out of the products/services/customers that are no longer profitable, but continue in the areas that have a good return. This will shrink your core, but keep the areas that are profitable while you build in the new, more attractive business segments.
Milk/Harvest: Gently coax resources out of the business; no new investment and use the cash generated to invest in the new areas.
A thorough strategic review of your business using a structured process will enable your senior management team to select the right strategy to optimize your company’s future potential.
If you would like to learn more about how a structured process would work for your firm please contact me: Denise Harrison; 910-763-5194 or harrison@cssp.com.
This article was previously published in Compass Points in July 2008
Simplified Strategic Planning was originally designed to be a process used at the business unit level. While it is an excellent approach for optimizing the long-term success of a business, I’m often asked how to adapt the process for use at the corporate level in a business with multiple units.
There are two common models of corporate structure that should approach planning differently. The first is the holding company model — where the corporate level provides some services, but the divisions act largely as independent strategic business units. This type of company should start with strategic planning at the division level and devote time to digesting plans — and giving feedback — at the corporate level. The second type is the integrated company, where divisions cannot always choose strategic direction separately. In such companies, we would suggest starting with strategic planning at the corporate level, and only resorting to a separate strategic plan for a division when it becomes clear that the division’s strategic choices are indeed independent of the corporate strategy.
The integrated company can be much more of a challenge when structuring your strategic planning. Clearly, the framework of the process — addressing the questions “Where are we?”, “Where do we want to go?” and “How will we get there?” — adapts well to the corporate level. The market segmentation framework may, in some cases, work as well. In most cases where simple market segmentation fails to adequately provide a framework for analysis and strategies, you should consider the business units themselves as the starting point for segmentation. But sometimes market segmentation — which is part of the fundamental framework of the strategies exercise — may not easily translate from the business unit level of the organization to the corporate level.
One place where market segmentation and business unit segmentation may fall short is where the business units are not organized in a way that corresponds with varying needs and preferences in the marketplace. For example, geographic business units may make sense operationally, but customers for each business unit may have very similar needs and preferences. In such a case, segmenting by the geographic business unit will not yield usefully differentiated strategies by segment, and focus on a specific segment may not lead to improved results.
One way around this issue — where you have geographic business units but a product or market-segmented strategy — is to do a mini-strategic planning session for each of the geographic business units. It is sometimes possible to save a lot of time in that process by using the strategic planning done for your domestic business unit as a starting point for the others, but be careful that you don’t force the domestic view of customer needs and preferences onto the other business units. You’ll need great sensitivity to the cultural differences of the markets to make this work, however, and you may want to involve a strategic planning professional to figure out how to get the pieces to work together.
It’s also important to be wary of having specialty strategies in one geography and commodity strategies in others — a very common occurrence. When you see this, it may be a symptom of a bigger issue, such as lack of a global branch or loose management of the sales culture. Regardless of the cause, you will find that a lack of specialty/commodity consistency may cause many strategic choices that work in one geography to be counterproductive in others.
If you are considering using Simplified Strategic Planning at the corporate level in your company, don’t let the complexities stop you — the process may help to simplify and streamline your whole organization. Be sure to let us know if you are facing issues adapting this process at the corporate level — we’ve seen many companies succeed with this approach, and we’d be happy to share our insights about what would work best for your company.
Many readers are confronted with 800 pound gorillas in their market place – how should they compete? Should they follow the leader or devise a strategy that capitalizes on their unique capabilities?
Choose the Road Less Traveled
Many readers fondly remember Piedmont Airlines. When airline deregulation looked Piedmont in the face Piedmont knew that in this new competitive environment they would face challenges from larger, better financed airlines. How could they compete?
Larger airlines chose to compete in the busiest airports. This head to head competition led to inevitable price wars. Piedmont, on the other hand, continued to build its network in the southeast servicing many airports that other airlines would not even consider. This strategy paid off as the company was voted ”Best Airline”, clearly differentiating the airline as the high quality service provider in the industry. Next, US Airways purchased them, and you know the rest of the story!
Market trends are some of the key factors to look at when developing a strategic plan. But in addition to looking at the market attractiveness a company must also look inside and assess its own strengths and weaknesses. Compete on strengths and avoid areas of weakness. All of the airlines developed their respective strategies by evaluating the markets, looking at demographics and transportation trends. Piedmont chose to avoid competing with better-financed airlines in popular hubs. Instead it looked to service the area where it was already well established and an area that was less attractive to its larger competitors.
During the 90’s many companies saw the Internet expansion as a key trend to enhance growth. Pundits argued that the new economy was immune to business cycles – the new management mantra was ”get big fast – or go home”. Webvan embodied that mantra – to what end? ”Webvan Group, Inc. said it shut down its online grocery-delivery service and will file for Chapter 11, marking one of the most spectacular and expensive failures of the Internet era…. Webvan poured …$830 million… into high technology warehouse facilities and a 26-city expansion plan that most observers have since said was too ambitious.”(Wall Street Journal, July 10, 2001)
This is only one example of how companies assumed the Internet was the ”land of opportunity” pouring millions of dollars into plans that were ill-conceived and based on invalid business models.
Intelligent Information Systems, Durham, NC
During this dot.com boom Intelligent Information Systems (IIS), a software-consulting firm, was evaluating different potential growth strategies. IIS was clearly differentiated by its high quality standards and its commitment to total customer satisfaction. To many, ”quality” and ”total customer satisfaction” are just buzz words, but to the team at IIS these phrases are driving principles. While many technology firms in the Research Triangle Park were taking advantage of the lucrative public offerings, the senior management team at IIS knew that a public offering would cause the team to lose its focus on customer satisfaction and zero defects. After a public offering, associates would be imagining what they could do with their newfound wealth, watching the stock price daily, hourly, assessing minute to minute his or her net worth. This myopic self-interest would cause the company to lose its competitive advantage. A difficult decision to make during a critical time frame, but 20/20 hindsight shows that the IIS team chose the optimal course and direction for their firm by focusing on the key areas that set the company apart from the competition.
When developing your company’s strategy look for ways your company can capitalize on its unique mix of assets and capabilities. Do not follow the leader; choose the road that works best for your company – often the road less traveled.
Balancing internal and external forces that fight one another and create tension is at the very heart of strategic management. One of the most familiar and least pleasurable duties of a CEO is the role of “herding cats” in an effort to bring common direction to a management team whose jobs by nature tug in different directions and compete for common, limited resources. Nowhere is this conflict more pronounced than where short-term organizational health, aka “Execution” or operational effectiveness, inevitably meets up with long-term organizational rejuvenation, aka “Innovation”.
Most companies seek to gain competitive advantage by differentiating their products and services and/or their business model. This occurs through product and process technology innovation (R&D) and value innovation (e.g., finding a “Blue Ocean”¹). If your company is attempting to be highly innovative, you feel the dynamic tension and recognize that your organization is clearly composed of contradictory parts, much like the Duckbilled Platypus.
Here is its description: “The platypus has a flat, rubbery bill, no teeth and webbed feet–like a duck. Yet it has a furry body and beaver-like tail, and nurses its young like a mammal. It walks with a lizard gait and lays leathery eggs like a reptile. And the male can use venomous hind-leg spurs to strike like a snake.”
Here is a creature that breaks all of the rules of birds, mammals or reptiles. Yet, it functions just fine for what it is intended to be and do. So, how would you characterize your company? Is it like a platypus or does it operate more like a pure bird, mammal or reptile?
Many companies define themselves as purely “bird, mammal or reptile” and win in the short term by tuning themselves to run like a top. They measure everything, benchmark their operation against world-class organizations and have an exceptional “Execution Machine”. Only startup companies define their mission to be strictly Innovation. Most companies, on the other hand, are some combination of Execution Machines and Innovators and have to deal with the “messiness” of two fundamentally incompatible worlds. Typically, the Execution Machine has the upper hand and the company’s Goals (e.g., urgent short-term financial results), means of conveying personal Status and rewards, Structure of power, systems and communication flow, and view and handling of Failure are designed primarily for Execution and not Innovation. This appears to have occurred even within 3M, historically the ultimate example in innovation, through its forced institution of Six Sigma as the centerpiece of corporate culture.
To counter this normal bias toward Execution and avoid treating Innovation as a stepchild, Thomas Kuczmarski² has developed an entire Innovation process, of which the following Creed is a key element:
The Innovation Creed for Top Managers–A 15-Point Innovation Checklist
I believe innovative new products and services are integral to my company’s future success.
I believe I control the future success of innovation for my company.
I believe new-to-the-world products can be our most valued currency.
I believe that internal innovation will yield greater returns than equally risky acquisitions.
I believe long-term investments in innovation will yield profitable returns if managed correctly.
I believe innovation will pay for itself and generate high returns if a balanced new products portfolio is maintained.
I believe that the quantity of new products is as important as their quality.
I believe new solutions to existing problems will provide big-hit new product opportunities.
I believe that I am one of the biggest assets or most impenetrable barriers that can make or break innovation.
I believe that an effective innovation mindset can motivate my employees to perform better and be more productive.
I believe that the death or success of innovation lies directly in my hands.
I believe that measuring return on innovation is as important as measuring return on equity.
I believe that failure is an intrinsic component of innovation, and I accept that.
I believe that maintaining a positive, proactive, and buoyant attitude about innovation is critical for morale.
I believe innovation should be one of my top five priorities and remain on my to-do list.
Check out your beliefs relative to this list. If you can’t say, “yes”, to at least 10 of the beliefs, you are likely a barrier to achieving high levels of innovation. Ideally, the entire top management team will subscribe and live out this creed in a unified manner. But, of course, it is the consistent, sustained, proactive commitment by the CEO that is absolutely crucial for the success of Innovation in all companies.
Short and long-term success of your company is all about balance and trade-offs. Dynamically balancing the tension between Execution and Innovation through wise creation and management of goals, personal status, power structure and handling of failure lead to successful strategy.
References 1. W. Chan Kim and Renee Mauborgne, Blue Ocean Strategy, (Boston: Harvard Business School Press, 2005) 2. Thomas D. Kuczmarski, Innovation: Leadership Strategies for the Competitive Edge, (Lincolnwood, IL: NTC Business Books/American Marketing Association, 1995)
GE is spinning off its Major Appliance division, highlighting the importance of making choices in strategic planning. In this case, Jeff Immelt, GE’s CEO, is making the choice to focus on the higher margin energy, power, aviation, and health care businesses. This decision exemplifies the purpose of strategic planning:
Identify sound and appropriate course and direction that will truly optimize your company’s future potential
Sharply focus resources in support of that course and direction.
Some comments on GE: Everyone remembers Jack Welch’s focus on being number one or two in an industry or get out. However, this is just a simplistic version of what the analysis looked like. To simply try to be number 1 or 2 in an industry could lead to poor financial performance, as we saw when GM tried to hold on to its number one position by buying market share, which, instead of generating success, led to poor financial performance and bankruptcy.
Choosing Where to Play
In choosing where to play, there are a number of aspects to consider:
Assess where you have a competitive advantage – what do you have that has high value to your customers and differentiates you from the competition?
What are the growth opportunities for the business? In general, growing markets provide more opportunities to profit than markets that are shrinking. This is, of course, dependent on the uniqueness of your position.
What is the profitability of the industry? What is your ability to charge a premium for your products and/or services? Are you charging for the value that you are providing to your customers or are you pricing on a cost plus model?
What other choices do you have? Do you have a greater differential advantage in other areas? Is there more profit in other segments?
Let’s look at another GE example – this time, GE Plastics. With its plastics business, GE chose to maintain its market leadership in the engineering plastics niche of the plastics market. This is important – GE did not try to become the market leader in plastics; instead, GE selected a specific segment of the industry where it had differentiated products. Additionally, GE believed that the industry had significant growth potential and due to the uniqueness of its products, GE predicted that it could sustain a competitive advantage.
However, over time its competitive advantage eroded and engineering plastics became a niche where there was less differentiation and lower margins. At that point, GE chose to sell its business to SABIC even though it was still a market leader. GE focused instead on other businesses where its differentiation, profitability and growth were more attractive than in engineered plastics. Note: GE did not wait until its business was in trouble; it made the decision based on optimizing its future success by allocating its resources in areas where it has a higher return.
We see this scenario playing out again with its Major Appliance division. The appliance division is not in trouble, but GE decided that there were other businesses that would achieve higher returns, and thus chose to focus on these businesses. It did not wait until the business was in trouble or losing money, instead it made the decision to re-allocate its resources. By selling a healthy business it was able to achieve a high price and use the proceeds in areas where there was more potential. Being a market leader is not the only criteria for staying in a business; critically, you must also assess whether or not this business provides the highest and best use for your scarce resources.
Lessons Learned:
Being big or the market leader in a segment is not necessarily a reason to remain in a particular industry segment – it is only one aspect to consider
Selecting a niche where you can be a market leader by having a differential advantage that has high value to the customers and is sustainable, is also important
Understanding your choices and focusing on the few, rather than trying to spread resources around, allows you to gain traction faster
Fundamentally it is all about choices. Teams that are able to gather good information about their markets, truly understand market niches and make choices concerning the highest and best use of their resources will achieve higher margins and optimize their future potential than those who stay in businesses where differentiation is eroding.
If you have questions about how to better focus your resources and make right choices during your strategic planning process please email me at: harrison@cssp.com .
How many people does it take to develop a good, actionable strategy for your company? The most straightforward answer is: it depends. It depends on how big and how complex your organization is. It depends on how entrenched people are in silos. It depends on how good your internal communications are. It depends on the trust levels within the organization.
We use a device to point out the interdependence of the three main functions within a company that we call the Tension Triangle. Realistically, there are many different levels of tension in most companies, but in general there are three major areas which should be a significant part of strategic planning. The three are comprised of the sales and marketing team, the finance and administration group and the production and internal operating team. The sales/marketing group is pretty obvious in its make-up. The second, finance and administration includes finance and accounting, HR and IT. The third group, which we label “operations”, is comprised of much of the rest of the company. It can include, but may not be limited to, manufacturing, engineering, purchasing, shipping and receiving, etc.
The size of the planning team needs to be large enough to have a variety of inputs and viewpoints, and small enough to be responsive and involved within the team. We suggest a team of 6-9 people, with an outside limit of 12 when absolutely necessary.
In no specific order, as all three are key to successful strategic planning, we look at the financial administrative sector of the company. There are natural tensions between finance/admin and operations and between finance/admin and sales/marketing. Operations wants lots of inventory to cover what sales might sell. Finance/admin wants low levels of inventory to keep the investment low, and wants operations to work on materials which have arrived just in time, so the company is working on other people’s money. Operations want capital investments to keep manufacturing equipment close to the state of the art, and finance would prefer to minimize capital investment in order to minimize depreciation expense. These are typical of the kinds of tensions that naturally occur in companies.
Between finance/admin and sales there are similar tensions. Sales wants low prices, easy credit terms, longer payment times and higher commissions on their sales. Finance/admin want higher prices, tighter credit terms, quicker payment and lower commissions.
As far as operations and sales tensions, these are predictable, too. Sales want all kinds of options, to meet anything a customer might want to order. Operations want close to zero options, so the product will be easier to manufacture. Sales wants almost immediate delivery promises, while operations want enough time to do everything correctly and to check it twice.
The reason we have gone into this discussion so far is to point out that without having all three major components of the company represented, any strategic plan developed would be missing key inputs. By having a balanced team, the different needs and wants of the various elements of the organization are represented and the plan that they develop will be much better balanced and actionable. A side benefit here is that by all the groups being a part of the planning, they will have heard the input and ideas of the other parts of the company. This means that not only will internal communications be enhanced, but the challenges that each area within the company will be more readily apparent to the other parts of the company.
In conclusion, your strategic planning team should include key people from the three areas of Sales, Operations and Finance, plus the executive team. Try to keep the number of people on the team reasonable, so that the team will be able to get its work done in an appropriate amount of time. We suggest, depending on the size and complexity of the company, that you strive to have somewhere in the range of five to twelve people on the team, with the sweet spot ranging from six to nine. This should assure that multiple points of view are heard and considered, so the team will reach appropriate strategies which are actionable and appropriate for the resources of the company. If you are having difficulty in reaching a strategic plan which is appropriate for your resources, please contact us at baldwin@cssp.com for guidance and leadership in your strategic planning.
For other ways to enhance your strategic planning process please watch our video: Why Isn’t My Strategic Planning Working? This video will give you tips for enhancing the strategic thinking during your next strategic plan update.
M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com
First published in Course and Direction in March 2008
Strategic Planning Expert
1. As CEO, are you tired of acting as a referee caused by turf battles between businesses or functional areas? Developing a strategic plan allows team members to develop a shared base of knowledge which allows the team to come to consensus on key company priorities and allocates resources based on these priorities. After a strategic planning process often CEOs can put away their striped jerseys and quiet their whistles.
2. Do you find your team does not get key projects accomplished throughout the year? Do you constantly give your team new assignments? Strategic planning forces a team to select 8-10 key objectives to accomplish during the next 12-18 months. Once selected new opportunities or projects must be brought to the team for evaluation. If the project needs to move forward, then one of the other objectives must come off the list. If the list needs to stay the same, this project can be evaluated during the next cycle of strategic planning. Adding projects without evaluating what is already on the plate causes the team to suffer under the weight of too many initiatives.
3. Your team is not executing your vision. A strategic planning process allows all team members to analyze market trends and competitor movement along with your company’s strengths and weaknesses. In this way the team develops a shared vision of the future and develops plans in order to achieve that vision. The strategic planning process develops buy-in from the total team.
4. Your management team needs professional development in order for the company to move to the next level. Strategic planning allows team members to see the big picture and enables them to lead given company priorities rather than specific functional requirements. It is a great way to develop your team member management capability.
5. Your company is stagnant and you need to find new avenues for growth. Strategic planning addresses opportunities for growth by looking at new markets, new products and services for existing markets and new ways to leverage existing strategic competencies. As a team you develop a large number of possible opportunities and cull the list down to the few that have high return and, ideally, lower risk, in order to get back on the desired growth path.
6. Your team is repeatedly stymied by unexpected events. During the strategic planning process you evaluate risk in two areas: first, Threats–outside forces that may significantly impact your business, but you have little or no control over; and second, How can we shoot ourselves in the foot? This exercise has the team look at ways it might be (unknowingly) sabotaging itself. The two exercises allow the team to understand key risk areas and develop plans to mitigate the risk.
7. Your team is striving for perfection and not focusing on the key areas of the business. During the strategic planning process you constantly rank strengths and weaknesses so that you focus on making the strengths that have made you successful better and only focus on improving or eliminating the weaknesses that are critical to your future success.
8. Competitors are outwitting you in the marketplace. Key to strategic planning is understanding your competitors: where they are today and what they are planning to do in the future. This information allows the team to make informed decisions as to where your company has a competitive advantage in the marketplace.
9. Your team does not see a significant shift in technology or a supplier goes out of business. Strategic planning provides the discipline for your team to look at all external forces–markets, competition, technology, suppliers, economic and regulatory–which allows issues to be brought up and analyzed in each area lowering the possibility of a surprise.
10. You miss a significant industry shift and you are now competing against different competitors for different customers. The purpose of the 10 year Industry Scenario and Winner’s Profile is to force the team to develop possible industry shifts so that your company does not get caught flat footed.
Do you have other reasons why a CEO should consider strategic planning? If so, please reply to this blow below.
For ways to enhance your strategic planning process, please watch our video: Why Isn’t My Strategic Planning Working? This video will give you tips for enhancing the strategic thinking during your next strategic plan update.
Denise Harrison is a Senior Consultant for the Center for Simplified Strategic Planning, Inc. She can be reached at harrison@cssp.com.
This article was previously published in Compass Points in November 2007
Strategic Planning Expert
Most companies advertise their loyalty to their customers, but how many really are as loyal as they profess to be? What specific actions have they committed to which will build true customer loyalty? How is customer loyalty really measured?
Where does building customer loyalty start? Upon reflection, it should become obvious that to have loyal customers, one needs to have a loyal staff. What actions has your company taken to establish a positive, reinforcing, committed attitude within your staff? What are the components of building staff loyalty?
Staff loyalty should start with having an atmosphere within the company that encourages loyalty, low turn-over and continuing education or mentoring of many key employees. Starbucks works very hard at building employee loyalty so that their employees will make their customers feel special and appreciated. This involves training and setting an atmosphere in which the employees feel valued, and feel encouraged to pass on their positive attitudes towards the customers.
How often does your company listen to your customers? Do you regularly ask your customers how well you are meeting their needs and preferences? Does your company ask your customers — certainly your best customers at a minimum — what else you could do to provide even better service and satisfaction? Are there unmet preferences that should be addressed, in order to build an even deeper relationship between companies and their customers? Are their complaints well received, and, more importantly, acted upon in a timely manner? Make it easy for customers to complain, but only if you really intend to do something about the complaints. Response time guidelines should be established in order to keep the problems at a low level of intensity, because we all have had problems escalate when it takes too long for a response to be made.
Another part of listening to your customers is how well you act to improve your ability to meet and/or exceed your customers’ rising expectations. Are you really responsive? If you are, you likely are perceived as providing good service to your customers. If not, why not, and what needs to be done to change this approach to building customer satisfaction? Are your first contact employees — those who your customers first encounter when contacting your company — well-trained in understanding customer needs and preferences, and in responding to these needs and preferences in a consistent and responsible manner, within the confines of what is possible for the company to actually do for the customers? Are they well-equipped to respond both verbally and in writing? Is their grammar good enough to represent the company positively, and do they have the resources within the company they can contact in order to resolve whatever the customers requests, in a timely and appropriate manner?
Finally, how do you truly measure customer loyalty? It is very easy to measure loyalty by accepting what each customer says. The true measure is found by examining what each customer actually does. A customer’s buying behavior, not their expressed attitude, is the real measure of their loyalty. By examining what each customer actually does, you can tell which are truly loyal, and, using this approach as a guide, you can determine which customers really value your company and the relationships you are building.
If you think you may have some of the challenges outlined above, one good approach is to improve your strategic planning efforts. You can start this by attending one of our highly acclaimed seminars Simplified Strategic Planning, or by contacting us at: to discuss your situation.
M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached by email at: .
In their well-researched book, entitled The Price Advantage the authors (Baker, Marn, and Zawada) use the following statistics to highlight the importance of pricing:
Operating Profit Improvement
Per 1% Improvement in:
A 1% increase in price achieves an 11% improvement in operating profit. This statistic should make us take some time to think about our pricing policies. Yes, it is difficult to raise price, but are there some segments of your business where a price increase is warranted? Are their some customers who value certain features of your product/service more than others? Are there ways to capitalize on the differences? Usually a price increase is not as simple as a 1% increase across the board, but thinking through who your customers are and what benefits they accrue by using your products helps determine if there are certain niches of your business where you can increase your margins.
Customer segmentation is an important part of a strategic planning process, whether this is the first time through strategic planning or a revision of your current plan. We often find that companies lock in a segmentation causing them to miss emerging segments within their core market. As an industry matures, customers become more fragmented and your company’s ability to anticipate and understand these changes will enable you to better refine the products and services that you provide and help you better understand the value from the customer’s point of view. A better understanding of the value a customer receives will help you price your products and service accordingly. Remembering the power that a 1% increase has on operating profit should help your team to focus on the market niches that truly value your product and price the product accordingly.
During your next strategic planning update, look at your segmentation – discuss different approaches to your current segmentation – are there any premium niches that require special services or product features? How can you meet these requirements? What can you do to better understand your customers’ business models so that you can truly understand how you can help them gain market share or lower cost? A better understanding of your customers’ business allows you to meet their requirements with the right product at the right price.
For other ways to enhance your strategic planning process please watch our video: Why Isn’t My Strategic Planning Working? This video will give you tips for enhancing the strategic thinking during your next strategic plan update.
Please contact me if you have additional questions: harrison@cssp.com.
Denise Harrison is a consultant for the Center for Simplified Strategic Planning, Inc. She can be reached at harrison@cssp.com.
During the course of strategic planning your company will look at threats — outside forces that can severely impact your company’s success. Often the analysis of threats includes looking at how you mitigate them by:
Preventing the threat from happening
Reducing exposure to the threat
Assuring early detection
Developing contingency plans
Hedging against the threat
In addition, you should ask the question: How can we turn this threat into an opportunity? Companies who successfully looked at threats as opportunities have significantly changed their competitive position. For example, in the early days of mutual funds most brokerage firms viewed the entrance of mutual funds as a threat. In contrast, Charles Schwab, only a regional broker at that time, looked at the entrance of mutual funds as an opportunity and partnered with many mutual fund families. This allowed his customers to buy mutual funds through Charles Schwab instead of having multiple accounts for brokerage and mutual funds. Other brokerage firms, who saw the mutual funds as a threat, chose not to work with them and instead developed their own mutual fund families. The Schwab strategy helped make the company the financial powerhouse that it is today.
BoatU.S. Turning a competitive threat into an opportunity
In 2002 BoatU.S.’ senior management team received a phone call from West Marine, a boating supply retailer, with an offer to buy BoatU.S.’ retail business. This call was one the BoatU.S. team had received in the past but should they respond with the usual ”no” or look at this seriously?
BoatU.S. is the premier membership organization for recreational boaters – for you non-boaters – this is the AAA for boaters. As a member of BoatU.S. you have the following services available to you:
Boat Insurance
Towing Services
Boat Loans
Charter/Travel
Trailering Club
Boat Lettering
Classifieds
Safety Courses
Consumer Protection Bureau
BoatU.S. Magazine
Representation on Capitol Hill
Marine Surveyor & Admiralty Referral Services
Boat Buying/Selling Services
Free Safety Course
Affinity Credit Card
Auto Insurance
Rental Car Discounts, etc.
The original vision for BoatU.S. encompassed providing federal level representation, and discount products and services to the boating community. The early operation included a mail order business for the distribution of products. It expanded from mail order into retail at the request of its customers. The transition was a gradual one, first customers requested the ability to pick up products ordered by mail at BoatU.S. headquarters and as this became more popular it expanded into a warehouse, then the warehouse started displaying items for impulse purchases and finally the decision was made to develop retail locations. Over the years BoatU.S. struggled with the retail organization, but by 2003 the senior management team knew they had a top-notch team running the retail organization. Now, there were 62 stores that generated significant gross revenue and significant new membership, but produced less than significant dollars to the bottom line. In order to raise profitability BoatU.S. would either have to raise prices or gain leverage with suppliers through increased volume. In order to increase volume new locations would need to be built and each new retail location took significant capital investment. The return on this investment generated by additional retail locations was significantly less than the return in other segments of BoatU.S.’ business. The senior management team needed to evaluate whether this investment was the best use of resources — would it really optimize the association’s future potential?
West Marine, a boating supply retailer, had taken a different approach to expansion. In 1993, the company went public to generate capital to fund its expansion. With these funds West Marine embarked on an expansion campaign building its first stores on the East Coast. In 1996 West Marine merged with one of its East Coast competitors, E&B Marine, and became the dominant player in the boating supply industry — more than 3 times the number of retail locations of its nearest competitor. Expansion continued and by 2003 West Marine had over 360 stores and the volume that gave it purchasing power with its suppliers.
BoatU.S. faced an important strategic milestone: where should it invest its resources to optimize the organization’s future potential?
Some options:
Continue to invest in the retail operation
Partner with West Marine
Continue to invest in the retail operation
Require significant capital
Require time to gain market share to develop purchasing leverage similar to West Marine’s current capability (continue to compete with the market’s 800-pound gorilla)
Divert investment from other, more profitable segments of the BoatU.S. business
Partner with West Marine
Grow from 62 to over 400 retail locations
Provide increased accessibility to retail establishments for BoatU.S. members
Increase membership sign-ups (increasing the revenue of more profitable segments of BoatU.S. business)
Require a significant change in both companies’ mindset to go from competitors to partners
BoatU.S. realized that its limited access to capital would make the first option untenable, so partnering with West Marine was the best for both BoatU.S. and its membership. A difficult decision — yes, but the hard part was still to come. How did BoatU.S. and West Marine develop a partnership after so many years of competition? The important keys to success were:
Making this partnership a priority in both companies
Communication
Trust
After some initial difficulty, the senior management teams from both companies held a joint meeting. As a result of the meeting, both teams realized they had shared values including a passion for excellence and a commitment to the boating community. With this recognition both teams moved to solidify the partnership to bring benefits to both organizations. Now, almost three years into the partnership what are some of the benefits?
BoatU.S. members receive unique equipment value at West Marine/BoatU.S. retail establishments
BoatU.S. — grew from 62 to 400 retail establishments to sign-up BoatU.S. members
West Marine — BoatU.S. members spend more and shop more frequently than other customers
Most management teams look at competitors as threats. When BoatU.S. took a step a back and looked at West Marine as an opportunity, both companies and their respective customers won.
Disney Takes Pirates by Surprise
One would think that Disney and pirates would go hand-in-hand. We first met Captain Hook in Peter Pan and now we have Blackbeard in Pirates of the Caribbean. So why is Disney having a problem with pirates? Yes, you guessed it, the 21st century version of piracy, the pirates that enable counterfeiting of Disney products sold in China, are the culprits and no, this will not be a future feature film.
But can Disney make a game of capturing pirates? Yes, leave it up to Disney to make this a game that is fun and beneficial for both the consumer and Disney. The ”Disney Magical Promotion” developed for the Chinese market includes:
Disney products that have a red hologram sticker attached to certify authenticity.
A contest to enter by attaching these red hologram stickers to a form with some personal information. This form is then mailed to Disney for inclusion in a drawing for a variety of prizes including: TVs, trips, DVDs, etc.
A campaign to publicize the contest using Disney’s ”Dragon Club”, a TV show which encourages children to find the hologram stickers. (I’ll bet the Chinese parents love this tactic.)
Increased benefits for consumers who enter the contest and spend more than 88 Yuan (88 is a lucky number for the Chinese); these high-end consumers will receive additional coupons for Disney products.
The results:
Consumers look for legitimate Disney products so they are eligible for the contest.
Consumers report stores carrying counterfeit items. (This benefit was unexpected.)
The forms enable Disney to develop a data base of consumers with an interest in Disney products.
By encouraging Chinese consumers to buy legitimate Disney products, the company turned this counterfeit threat into an opportunity to build a data base of loyal Disney consumers. This data base will enhance Disney’s ability to penetrate the Chinese market and build its brand identity. Could this be better than Blackbeard’s treasure? Yes, unlocking the enormous market potential in China will help ensure Disney’s growth in years to come.
Coke is Bottled Up or Things Go Better with Coke
Roberto Goizueta looked at the century old company he inherited from his predecessor and knew that the tried-and-true formulas of the past would not work in the future. The independent bottlers had been instrumental in gaining significant market share in the early days of the company. Now, however, the bottlers were in mature markets and were not investing to make their operations profitable. Additionally, Coke could not present a unified price to the consolidating grocery chains as the bottlers each represented different territories and had little incentive to agree on a national price for large customers. Goizueta could see that Coke was losing market share to its arch rival Pepsi due to its inability to manage its distribution channel. He had to turn this threat into an opportunity or Coke shareholders would suffer.
Goizueta knew that with the current arrangement with the bottlers, where Coca-Cola simply provided the syrup at a price to the bottlers, he had no leverage. He needed to change the relationship — but how? Great news from R&D — a new additive (high fructose corn syrup) served as a low-cost substitute for sugar. Goizueta knew he could use the 20% cost advantage as a way to change the current agreements with the bottlers. This increased Coke’s profit, but not its leverage with the bottlers. Next, Goizueta began buying part of a small bottler, and investing in the plant, increasing efficiency. He then acquired other bottlers, increasing their efficiency, but also increasing Coke’s control of the bottler marketing and pricing practices. Now the company was able to offer national pricing to large customers, particularly the grocery chains. The bottlers won as they became more efficient with the plant modernization and better able to compete in the increasingly cut-throat soft drink environment. Still this strategy came with a price; the balance sheet of the company was heavy with the bottler assets. In order to improve the financial ratios, specifically, asset intensity, Goizueta then spun 51% of the bottlers off to individual shareholders as Coca-Cola Enterprises and kept 49% for Coca-Cola, allowing for control, but taking the assets off the balance sheet. This sale raised over a billion dollars, further enabling Goizueta to buy more of the bottlers.
Important lessons learned from Coca-Cola:
What may have been instrumental to success in the past may not be the key to future success. In fact, changing market conditions old practices may be a hindrance. Don’t get stuck with ”This is the way we have always done it! Thinking.”
Look for ways to make the solutions win-win propositions. The bottlers received investment for modern facilities and Coke was better able to control the marketing of its product.
When you evaluate your threats, be sure to look for ways to turn your threats into opportunities rather than simply analyzing ways to mitigate the risk. Remember a glass half empty is also half full. And even an entirely empty glass has the capacity for a full glass of something better!
What is focus? Why is focusing on your business so important it should be a key element of your strategic planning? Why is it a key to your ongoing success? What happens when you lose focus?
To illustrate what focus is, let’s use the example of a camera. In order to take a good picture with your camera, digital or film, your subject needs to be in focus. By focus, we mean that the subject needs to be in sharp definition, clearly visible, and properly illuminated. In business and many other activities, the same care to bring things into sharp definition needs to be incorporated into our daily lives and, especially, into our strategic planning for the future course and direction of your organization.
By having good focus, you should be concentrating on the key elements required for your success as an organization. You should bring all the elements of the organization into the process of developing appropriate strategies to maximize the performance and longevity of those core parts of your business first, as this will most often determine whether your organization will succeed or fail.
Why the core parts of your business? The core business segments are the foundation upon which your organization depends in order to be successful going forward. This definitely does not limit your company to doing only those core segments which are at the center of your ongoing operations, but it does mean that you should be heavily focused on making the core segments as profitable and sustainable as possible, so you will have a secure, healthy base on which to build.
What can happen when your company loses focus? There are multiple possible paths which may be followed when you lose focus. One is that your organization starts putting time, people and money into projects which do not rely on, nor build on, your key strengths. By diversifying in an unplanned way, your loss of focus may mean that your core business could be neglected, thus harming the key segments which are the center of your ongoing business. This can lead to a downward spiral, losing market share, earning lower profits and eroding your customer base in the key center parts of your business. Another path can occur when you stray from your core businesses without a good strategy to diversify. This can lead to investing time, people and money into markets in which you have no significant competitive advantage, and at the same time, taking resources from key elements of your successful business segments, thus sapping their ability to make sufficient profits to sustain the whole organization. This, too, can lead to a downward spiral in the ability of your business to be profitable, to grow and to survive.
If you think you may have some of the challenges outlined above, one good approach is to improve your strategic planning efforts. You can start this by attending one of our highly acclaimed seminars Simplified Strategic Planning, or by contacting us at: to discuss your situation.
M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached by email at: .
“Time is money”. We’ve all heard that, right? But does your company operate that way? Many times, I’ve seen companies succeed wildly simply because they do things faster than their competitors – usually, a LOT faster. This works simply because all of us, as consumers, would prefer to have whatever we want whenever we want it. In many cases, we are prepared to pay a huge premium to someone who can save us just a little time – sometimes even paying this premium for a product or service of inferior quality.
How can you use this? First, you need to understand the time performance standards of your industry. Do 90% of your competitors turn around a customer order in a week? A day? An hour? Obviously, this can vary a lot, depending on the business you are in. But, whatever that standard is, you need to ask the question, “Are there many customers who would find it valuable to be served in half the time?”. Usually – but not always – the answer is yes. In many cases, customers will be willing to pay a premium of 10-20% to get the same product or service in half the time.
It can pay to understand exactly WHY customers will pay a premium to avoid waiting. Is the premium simply to avoid wasting their time? Do they get a lot of rush orders from their customers? Is there a high cost of inventory? Or does a quick turnaround help your customers assure that their products are the most current and salable in a market driven by rapidly changing fashions? Any of these can lead a customer to put a high value on rapid delivery — but some might lead you to creative solutions that will help you create value for your customers. For example, market research at Disney World indicated that most customers hated waiting in the long lines that form for their most desirable attractions. So, Disney developed the “Fast Pass” system, which allows customers to arrive at their choice of attractions at a pre-determined time, with a minimal wait. In reality, the customer still waits a long time to ride on that attraction — often an hour or more — but, because the “Fast Pass” allows him or her to go do something else while waiting, it actually reduces the time spent waiting in line — which was the customers’ main complaint.
Knowing that your customers will pay a premium for faster service is only half the battle. Naturally, you actually have to deliver on this – and make sure the customer knows you deliver. A simple time-flowchart can help you to identify where your customers’ time is spent in your operation, and give you some ideas about how to cut that time down. Here are the top five time wasting places I’ve found in various industries over the years:
Credit approval
Waiting for engineering or some other operational bottleneck
Communicating the order slowly
Packaging for delivery
Waiting to be delivered
Granted, these are more applicable to products than services, but service examples tend to be very industry-centric (i.e. an airline wastes time in different places from a restaurant). Anyway, try doing a little flowchart of your own operation and see if you can’t find some treasure for your customers – chances are, they will be glad to pay you for it!
