Archive for the ‘Implementation’ Category

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Strategy is nothing without execution.

Friday, August 31st, 2012

When Mark Hurd was Chief Executive at Hewlett-Packard, an information technology giant, he successfully contributed to the success of the legendary firm. He cut costs, focused the company’s strategy on a few core areas and created new product divisions. During an interview with The Economist publication he was quoted as: “Vision without execution is nothing. Whenever anyone asks me about vision, I get very nervous. You’ve got to be able to tie it back to strategy; you’ve got to tie accountability to things”.

This statement is a good summary of Thinking Dimensions point of view about strategy formulation and implementation.

Strategy formulation and  implementation are an integrated process, or a series of steps activated  by  the CEO  involving all employees at all the levels in the organization.

Adopting a robust and unique process for strategy  formulation and implementation is a key capability that many successful companies invest in; it can make the difference between poor performance(s) and profitable sustainable growth. There are several causes that can prevent an organization from successfully implementing strategy including:

1. No balance between formulation and execution
Some leaders press for better execution when they actually need a better strategy or they change  the strategy when they actually should focus the organization on execution. This is why from our perspective  strategy formulation and implementation are steps within the same process.

2. Strategic goals not visible or not linked to metrics.
It is critical that strategic objectives are relevant, powerful, and simple to understand: they must  have metrics, targets and data sources (see example in the table below); this means that the results for each metric need to be regularly updated, verified versus the definition targets and communicated within the organization.

 

Objective  

Metric

Target

Data source

Increase share of proprietary products % Revenues in proprietary products vs total sales ≥ 45% Report 7121 from ERP system FI reporting module excluding FOREX impacts

 

In addition the strategic goals need to be simple and easy to communicate. To verify this requirement you can use the “elevator test”; if you can explain the strategic goal clearly and precisely to any employee in the organization in a course of a 30 seconds elevator ride, you “passed the test”.

3. Poor focus
Ask your colleagues or to the  members of your team to list the 2 or 3 main strategic goals he / she thinks the company is focusing on- you may be surprised how many different results and statements you will receive.

Focus is one of the most important aspects of successful strategy execution and we think that strategic plans should be linked to a maximum of 3 focus goals.  Goals have to be clear to everyone in the organization. Only in this way each employee, at all levels within the organization understands the purpose of the strategy and the role he/she plays in its’ implementation.

4. Limited or no accountability

A robust strategy implementation process involves (directly or indirectly) all the employees within the company. This means that everyone knows what their role is in helping the company to achieve the strategic goals and is held accountable for results. In practical terms everyone should be able to  easily convert the strategic focus goals into personal objectives and create a personal implementation plan linked to company strategy.

In our experience, when this doesn’t happen, too many decisions tend to pass to the more senior managers and ultimately the CEO, resulting in poor performance and lower motivation levels of the people who need to perform.

5. Poor operational execution

The best strategy possible is not valuable at all if the decisions are not transformed into actionable initiatives that are speedily implemented. In a world that is changing more and more rapidly, the ability to implement changes quickly is a  very important capability.

 

6. Poor managerial capabilities

The companies that are best in class in executing their strategy have a strong and defined strategic leadership team. With this term I refer to a group of managers with the following characteristics:

  • Ability  to make decisions both individually and as a member of the  team
  • Adoption of common strategic decision making processes
  • Each manager is to able to actively participate in establishing/enhancing the future Strategic Profile of the organization
  • company core values are known and followed by all to guide decision making

 

If you as a CEO or manager are asking yourself “Is our organization really effective in transforming strategic decision  in positive financial and economic results for our company?” you can use the 6 above criteria to provide a first answer.

This blog was authored by Diego Miglioranzi, Partner, Thinking Dimensions

Feel free to contact the author directly  for questions about this subject.

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Posted in Implementation, Strategy |

Competitive Decision-Making

Thursday, August 23rd, 2012

No I am not talking about a race to make decisions, I am talking about making the best decisions to be competitive. In the current global economic climate, CEOs seek ways to maximize their company’s business performance, hence competitiveness. And that involves a myriad of strategic and tactical decisions made on an annual, quarterly and daily basis. I challenge any CEO to ask their executive team to define business competitiveness. Likely the responses will vary, and that is the crux of the problem – an impediment to effective decision-making that drives results is misunderstanding what makes a business competitive.

Business competitiveness are the internal advantages a company possesses, relative to their competitors, to sell, promote and deliver the products they offer to the markets they serve. Advantages can be either people or processes, but they must be perceived as valuable and unique compared to the competition and viewed as high quality and cost effective by customers. In the parlance of “Strategic Thinking” they are referred to as competitive advantages.

Competitive advantages manifest themselves in all companies through their business value chain — those administrative and operational processes, in which people work to sell, promote and deliver product to market. So decisions targeted to build advantages within the value-chain (as measured by business growth and profitability) are the driving force of competitiveness.

(Porter's value chain concept model)

Start by knowing the key products and markets – What are the key products offered and markets served? Sounds obvious, but many companies have many products that are not profitable, demand too many resources to service (money, time, and people), and add substantial costs without a positive financial or customer relationship return. Companies that say no to products and markets not driving profitability and growth are better positioned to target performance decisions on people and process issues that improve their competitive advantage.

Evaluate the value chain to determine strengths and weaknesses – With clarity on what to produce and what customers to focus on, companies can now assess the effectiveness of each element of the value chain. Activities that do not add value or are not regulatory/customer requirements should be stopped or changed. Use performance data, and walk through the value chain processes to assess:

1) Efficiency (cost) to perform the activities as currently outlined

2) Cycle-time (how long does it take) to perform the activities

3) Quality of activities and outputs as perceived by the customers and competitors

4) Timeliness (on-time delivery) as valued by the customers

This provides a clear performance picture on the activities to sell, promote and deliver products by exposing the “type, location and magnitude” of the value chain strengths and weaknesses. Now consider the value chain assessment from a competitor and customer perspective and ask, does the company excel over its' competition to cost effectively produce quality products on time to customers?

The answer to this question promotes decisions on what capabilities to build, sustain or enhance to drive internal advantages that translates to profitability and growth. Remember competitiveness is a function of the internal advantages a company has relative to competitors and as perceived by customers. Such advantages reside in the value chain activities.

(Now) Use decision analysis to design a competitive value chain – For this writing, I will talk about the two primary categories of “value” criteria, not how to conduct an actual design using decision analysis.

Decision criteria for designing competitive advantages into the value chains fall into two categories – competitor and customer. What can companies do that differentiates them from their competitor and does that differentiation translate to customer value? These two differentiations must work in tandem. There is no sense on having differentiated product or service in which customers don't see the value. Or conversely, customers see a great product or service, but there are several competitors that do the same basic thing – that is not an advantage.

Criteria that differentiate products or services from the competition:

1) Unique – is this product/service unique relative to competitor offerings?

2) Valuable – is there a need, market for the product or service?

3) Costly to Imitate – could your competition easily replicate the product or service?

4) Non-Substitutable – can the offering be replaced by some other competitor's product/service?

Criteria that differentiate products or services through the eyes of a customer:

1) Innovative – product/services viewed as a “better way” from other like products?

2) Quality – is the product/service more reliable compared to like competitor offerings?

3) Customer Responsiveness – is serviceability of the product rated high by customers?

4) Cost (efficiency to produce) – are customers willing to pay for the product/service?

Leaders need to evaluate value chain performance alternatives that improve competitiveness through the filter of competitor and customer differentiated criteria. Effectively done, the company is now making competitive decisions based on performance data.

Recap – Competitive Decision Making:
1) Know what creates business competitiveness – relative to the competition and customers
2) Focus on Key Products and Markets
3) Assess the effectiveness of your Value Chain to deliver key products to market
4) Use Value Chain effectiveness data to drive decisions that create competitive advantages

 

This blog post was authored by Keith Pelkey, Partner, Thinking Dimensions.

Other writings related to Process Performance authored by Keith Pelkey - Partner, Thinking Dimensions Global

  • Are Your Business Processes Creating Value? www.blog.thinkingdimensionsglobal.com
  • Simplify the Path to Process Performance Management “ “
  • Managing Competitiveness Through Product Development “ “
  • Stop Reacting to Results and Learn to Manage Performance
  • Seize Control of Your Business Performance www.thinkingdimensionsglobal.com
  • “Mining” for EBITDA: Delivering Substantial Results in 30 Days “ “

 

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Posted in Implementation, Strategy |

Stop Reacting to Results and Learn to Manage Performance

Wednesday, July 25th, 2012

 

As CEO’s seek to understand the performance of their business, they construct elaborate Key Performance Indicators (KPIs), Strategic Performance Indicators (SPIs), or some other “acronym of measures” all designed to tell them how the company has performed. While such measures are important, they reflect the “past tense” of business performance and, in essence, they are lagging indicators. CEOs and consultants advising them are doing a disservice to the organization if they do not demand of the Value-Chain process managers to establish “leading” measures that warn of pending performance.

 

Why is this important?

1) Ability to manage verses react too business performance issues

2) Speed of corrective action to resolve value-chain performance issues that impact profitability (P&L) and growth.

 

Manage verse React – Value-Chain KPIs fall into four basic categories of measures:

1. Quality of Product or Service

2. Timeliness of Delivery

3. Cycle-Time of Production

4. Efficiency (or cost) to Produce, Market and Deliver products.

The KPI may be called different names, but the business interest for their positive performance remains the same – delivering a quality product or service on time at the target cost. It is the value-chain processes and their respective KPIs that provide the appropriate Quality, Timeliness, Cycle-Time and Efficiency performance data (the balanced scorecard) for executive decision-making. But, these measures only tell the story of results passed.

 

The sub-element measures of the value-chain processes that cascade up to define a KPI are often insufficient or poorly constructed to help executives or value-chain process owners understand what is causing specific performance of a key KPI. When a KPI reflects negative performance and the CEO asks, “what is the issue causing this performance”, the responsible party usually notes they will have to investigate further to get an answer. Effectively placed measures within sub-value chain processes would negate this problem and afford the responsible executive an answer readily at hand.

 

How? Design and install “in-process” measures at key risk areas of sub-value chain processes. Process owners or managers should start by asking, “what KPI or SPI is my sub-value chain process primarily contributing? For example, if the Out Bound Logistics value-chain element (see diagram above starting from the Michael Porter Value Chain framework) is a key source for the Timeliness of Delivery KPI, then assess where in the flow of the various Out Bound Logistics sub-processes is on-time delivery most at risk? Now design and place the appropriate “in-process” measures that provide data, and act as a trigger, of potential on-time delivery issues.

Measures placed at key risk areas of the process provide managers meaningful, and early, insight to the respective KPI or SPI. They are managing the performance of the process, and not simply reacting to lagging indicators. Sub-value chain early-warning measures should be reviewed frequently to see trends that demand corrective action. This data provides more detail of where in the overall value-chain issues have emerged.

Speed of Corrective Actions – In-process measures are predictors of end-of-process performance. If an in-process metric is showing a negative trend (i.e., key paperwork is delayed in the logistic process, or the quality of the paperwork is lacking), it is likely to impact the planned on-time performance. When process managers have the ability to see, early, where in the process issues arise, they also know where to pinpoint their corrective action focus faster. In reality, if they manage processes via in-process metrics, they can anticipate problems (and CEO questions) and be prepared with a more proactive answer to resolution. Mean-time-to-resolution is critical to profitability.

The Key Learning Point – Simply relying on end-of process business measures puts decision-makers in a reactionary position as they lack the data to expeditiously resolve performance issues.

CEOs and business executives should look at their company’s key sub-value chain process flows (assuming the flows exist) and see what and where measures exist. Likely the measures are on the outputs of the process and not areas within the process where true risk of performance resides.

Recap – Stop Reacting to Results and Learn to Manage Performance:
1) Analyze Sub-Value Chain process flows (or define them if they do not exist).
2) Ask what sub-processes have the most impact on the performance of KPIs/SPIs?
3) Ask where in the sub-process is the desired KPI/SPI performance most at risk?
4) Install appropriate “in-process” metrics at high-risk areas of key sub-processes.
5) Start managing performance

This blog was authored by Keith Pelkey.

Other writings related to Process Performance authored by Keith Pelkey - Partner, Thinking Dimensions Global

· Are Your Business Processes Creating Value? www.blog.thinkingdimensionsglobal.com

· Simplify the Path to Process Performance Management “ “

· Managing Competitiveness Through Product Development “ “

· Seize Control of Your Business Performance www.thinkingdimensionsglobal.com

· “Mining” for EBITDA: Delivering Substantial Results in 30 Days “ “

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Posted in Implementation, Operations |

Strategic and Operational Decisions on Entering a “fast growing market”

Wednesday, July 18th, 2012

While the growth rates in developed economies are still projected to be sluggish in the next few years, emerging markets are booming and can provide lucrative opportunities for many companies.

For example, certain automotive companies are focusing primarily on Brazil, Russia, India and China (BRIC) as they see these nations as the most important sources of future business growth. China is frequently considered one of the most interesting countries at the moment, given that the China is already one of the largest vehicle markets in the world and is progressively trending upwards even now.

What are companies looking for in new markets?

Market opportunities, natural resources, talents or tax and investment advantages are all reasons for companies to enter new markets and each of these requires different approaches and different capabilities and competencies. A strategic reason to enter a new market is certainly sales and production capabilities of the firm that can be leveraged in that specific market. One big mistake companies sometimes make is in attempting to enter a new market with their current products and services portfolio convinced they can easily apply the same winning business model used in countries already served. Often this “opportunistic” approach leads to a failure in the new market entry initiative putting and risks placing the parent company in a difficult position to explain to shareholders.

What should we consider when entering a new market?

Average disposable income in emerging and early stage markets is usually lower than in developed countries, however, the number of people that are moving towards a higher budget are rapidly increasing. Even if it is true that a lot of people are out of the target reach in emerging markets, it is also true that an enormous number of people will be requesting standard lifestyle products.

 

Product offering, approach and business models need to be adjusted to target the right offering for the new “local” consumer.   An interesting example is the new Disney park in Shanghai, PRC, which will open in 2015 and with a total investment of USD 3.84 billion- Disney has spent several years studying closely the needs and desires of their target customers and adapted the world renowned Disney brand and formula to best attempt to fit the exacting requirements of the market (see article here).  Entering a new market means knowing which products, what price, and what distribution channel(s) need to be used. Partnering with local companies (e.g. distributors) can be a good way to enter a new market, develop knowledge, and share new market entry risk.

 

A company we assisted in entering a new market recently set the first step in place developing a collaboration with a local distributor. In a few months (less than one year) the company was able to identify which formula of competitive advantage was mostly valuable in that market, which sales distribution channels were more appropriate and have a clear understanding on both the local buying criteria and the (different) process. As a second step, the company moved to a proprietary distribution channel having all the necessary capabilities and competencies available and confidence from the board that the ROI would meet targets.

 

Emerging and early stage markets are indeed enticing- completing thorough research systematically and setting place the right capability investments together with the best emphasis products and channels will increase the risk of success- something all shareholders want to hear and can trust in.

Luca Girotto This post was authored by Luca Girotto, Consultant, Thinking Dimensions.

Luca is currently based in the Italy offices of Thinking Dimensions and has worked on series of projects related to APEC, North Africa, and Latin America.

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Posted in Implementation, New Market Entry, Operations, Strategy |

Entering emerging and early stage markets- why strategic assumptions matter

Monday, July 16th, 2012

As “traditional” economies for many companies are stalling for growth a common theme for many organizations is to look towards emerging and early stage markets. The allure of emerging and early stage markets are the potential for “double and triple” digit growth with seemingly strong demand for years to come. Further enticement comes frequently from executives who visit the target countries and witness strong business to business and end consumer demand at price levels which at first glance can seem more lucrative than home based markets. The last step which leads many organizations to choose to emphasize emerging/early stage markets for entry are frequently statistics about GDP growth and disposable income trends (increasing)- which are indeed very interesting.

A number of our clients have achieved considerable success in both emerging and early stage markets- and while implementation challenges and resources demands are not easy to resolve- the proper initial screening at the strategic level can mitigate some risks and allow the company to focus on a few target areas where they have a higher probability to achieve bold growth.

One of the first steps in creating a portfolio strategy for entering emerging and early stage markets is to create strategic assumptions (if you have not already done so a good step in understanding what we mean by this is to read the blog post by my colleague Tim Lewko here).

The error we see many organizations make is to assume that general level growth (i.e. GDP, disposable income) will naturally translate into demand for the products and services they would like to sell in that particular market. Assumptions about demand are not frequently made visible and even more rarely are they validated with real current data. The error is even further compounded by not making clear the implications of the assumptions- and testing them in the target market.

The risk of error can be reduced by 3 steps:

1) Distilling down to the few critical strategic assumptions which really matter for your business. The growth of GDP is not good enough. The number of housing starts are not good enough. Disposable income is not an acceptable indicator. Push yourself and your team to really find the assumption and the data to validate or invalidate the assumption which will lead you to a reasonable implication that you can use to make decisions.

2) Validate and re-validate the data. Buying reports are not the only answer- and certainly cannot be relied on. Put people on the ground in the market, and have them use a structured process together with local support to gather, sort, organize, analyze, and verify information you and your executive team will use to take the most effective actions. Do not rely only on a local distributor or agency- even if you are considering an exclusive with them in the market- you need hard, objective, third party data.

3) Review on a regular basis and be ruthlessly honest in your reviews. Emerging and early stage markets are experiencing a rate of change at a far higher velocity than what we are used to in business. Be prepared to change and adjust your course based on the new information that becomes available. Do not allow this information to hide from the leadership team, or permit your leadership team to deny intellectually what is going on in the market.

 

Entering emerging and early stage markets are both exciting and challenging- there can also be a premimum valuation attached to your company or comapnies if you are good at it. The use of structured processes and systematic tools together with both your current team and local expertise will help you in outperforming your competitors and the market.

 

 

This blog post was authored by Scott Newton, Partner, Thinking Dimensions

 

 

 

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Posted in Implementation, New Market Entry, Operations, Strategy |

What is New Market Entry and how do companies win?

Tuesday, July 3rd, 2012

Welcome to our latest blog theme for July, and thank you from all the Partners and Employees at Thinking Dimensions- especially to all of you who have taken the time to write in and comment on what information you are looking for and what has been particularly helpful.

In July, our focus theme is

New Markets: How to Drive Global Growth and Predictability of Earnings Despite Periods of Economic Instability

This topic is on the top of mind for many of our clients as they work to ensure shareholder performance even if they are operating in markets which are turbulent and difficult to predict.

Today we will look at “What is New Market Entry and how do companies win?”.

New Market entry frequently involves taking a company’s current products and/or services and offering them in a new market- whether that be a channel, geographic area, or new market segment.

Why enter New Markets?  Companies typically enter new markets for one of four reasons:

1) A customer or customers are asking for support in a new market (very common theme within B2B suppliers)

2)Growth in current markets has reached saturation level and/or margins are declining

3)A large scale opportunity has been identified relative to the strategic direction for growth

4)Competitors are entering a market and presence is required for global presence/positioning (the least valid reason of the 4)

While entering new markets is both exciting and taxing for the organization, there are a brief series of criteria which should be met for a company to proceed:

  • How well is the planned new market to enter aligned with our company strategy?
  • How will the competitive advantage we enjoy in our current markets transfer to the new market?  Impact?
  • Which resources (and capabilities) are required for successful entry into the new market? Are they available?
  • What are time, cost, and performance characteristics of the new market entry project?
  • What barriers to entry and risks need to be addressed prior to entering the new market?
  • What is the ROI (or similar measures in each company)?  How predictable is it?

In working with clients entering new markets we have seen some excellent success stories including:

  1. A global automotive supplier who were able to significantly increase both their revenues and net income by opening a large-scale manufacturing, engineering, and service presence in SE Asia (previously just offering manufacturing)
  2. A European manufacturer who entered into the North American markets and was able to command both price and margin premiums for high quality niche products
  3. A North American B2B supplier who through acquisitions were able to provide superior offerings in the EMEA region

 

While there are many examples, they all share a few characteristics in common including:

A) A clearly articulated strategy which identified the areas of growth, included competitive intelligence, and a few select priorities

B) Realistic understanding of their competitive advantages and the relative value in the new markets

c) Support for investment including the board, President, and CEO/COO to ensure the opportunity was maximized

d)A development of the required capabilities and resources to create sustainable success

New Market Entry is not easy- there are many examples of not only success however also failure- if your leadership teams start by answering the questions raised in this short blog today in an objective format- this will be the first step to performing as well outside your “home” market segments as you do within.

 This blog post was authored by Scott B. Newton, Partner, Thinking Dimensions

 

 

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Posted in Implementation, M&A, New Market Entry, Strategy |

The Economic Value of a Happy Workforce (Hint: 15.5%)

Friday, June 29th, 2012

In past postings, I’ve touted the value of “teamwork” in achieving company goals. That belief was based in part on my own experience as a CEO, recognizing that goals aren’t achieved through the dedication of productive silos! The way companies achieve growth goals is having cooperation and support across functional areas.

That reality has been integrated into Thinking Dimensions’ strategy implementation process and its critical component of holding employees accountable for living the basic beliefs that define for every company what “teamwork” looks like. A recent study has moved this fact from the “intuitive” to the “measurable”.

WorkplaceDynamics, a U.S. based research company, has tracked worker attitudes at over 7,000 companies in the last five years, 550 of which are public companies. Those public companies that scored in the top 10% in employee satisfaction have outperformed the S&P 500 index by 15.5%.

Stock Price and Worker Sentiment

The study found ” a strong correlation between stock price and worker sentiment on questions dealing with the company’s direction, execution and engagement of the employees behind the firm’s goals.”

All too often, particularly in larger companies, there is a disconnect between the top levels of the company and the people who are actually “doing the work.” Company leadership needs to monitor the temperature of the workforce. Feedback cannot be from “the top down”. The real value in feedback is “from the bottom up.”

4 Universal Components

Over the past years, as part of the Thinking Dimension’s strategy implementation process, we have asked CEOs and employees what the fundamental components of a successful company are. Their answers typically boil down to 4 distinct components:

1. Common goals

2. Everyone knows their piece of the goals

3. There is communication from the top down and the bottom up

4. Everybody works as a team

The first two points are easily understood and universally accepted as companies begin the implementation process. They are the big, tangible and fit into the business mode. The 3rd and 4th items are sometimes seen as “soft”. The reality is that having a workforce that works in concert and is getting and receiving feedback can create a competitive advantage.

But getting there isn’t just a matter of having a positive attitude or a memo to the troops. Creating the workforce that is aligned and committed to the company goals and each other, requires a structured, step-by-step process. A process that guarantees the goals and the teamwork aspect needed to achieve them get transferred from the CEO to the front-line management team and beyond.

Sustainable Advantage

As the study concludes, ” “having a healthy organization, in which workers feel engaged, valued and aligned with company goals, may be one of the last sustainable competitive advantages. If you’ve got a team that is enthused and rowing in unison, your reaction to shocks and setbacks will be more robust than somebody with a less healthy workplace.”

Smart leaders recognize that communicating with your employees and holding them accountable for mutually supporting one another is a smart investment…with a 15% return!

This post was authored by John Case, Partner, Thinking Dimensions Global

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Posted in Implementation, Strategy |

The P&L impact of understanding your competitive advantage

Friday, June 29th, 2012

To gain a competitive advantage normally costs a lot in terms of effort, resources and investments: therefore it is important to value your competitive advantage and understand what actions can be taken to protect or extend it. Often, companies do not know which are (if any) their competitive advantages and have even less knowledge on the effects of this competitive advantage on their P&L.

How do you measure the impact of your competitive advantage?

A Competitive Advantage is a specific (distinctive) company capability or competency that provides a superior return relative to your competition and can be validated through the eyes of your customer.  A distinctive capability is a competitive advantage only if it implies positive bottom line results (superior profitability) and higher top line performances (greater sales).

Measuring the impact of your competitive advantage means understanding to which extent your sales (and profit margins) are due to unique capabilities you are delivering to your customers. Customers are always the ultimate indicator of the value of your competitive advantage:  when a customer is willing to pay a premium price he or she has identified a unique capability you offer.

A premium price measurement alone compared to the competitors, however,  is not sufficient data for an evaluation. Once you have validated your competitive advantage, and the value per single opportunity (premium price), you need to estimate the potential market in terms of number of clients that have the same needs and therefore are willing to pay for your unique solution.

What is the impact of properly managing your competitive advantage?

An international B2B company we are working with for several years has a strong sustainable competitive advantage which management is aware of particularly from a technical perspective. Previously, it was clear where the performance of this company’s proprietary solutions offered improved performance relative to competitors. What was not clear to the management (and to the sales force) was that target customers were willing to pay a large premium for this improved performance.

The approach of the company was to begin to attack different industries with the same proposition. In this way the sales force was able to sell some products at a premium price but often they were beat by the competition. This was a case where the customer was not the right target (not high emphasis areas of the strategy), and therefore not willing to pay for a specific and unique performance they did not require. This sales inefficiency was damaging the financial performance of the company: they were certainly not getting any benefit even though they had a  “well known” competitive advantage.

Working with the management and finding the correct target for their products- considering who was willing to pay for their competitive advantage- the sales force became  focused on the “new” emphasis target customers:  Top line results increased by a 30% CAGR (calculated over a 3 year timeframe) and EBITDA increased from 5% to 23%.

 

Luca Girotto This post was authored by Luca Girotto, Consultant, Thinking Dimensions. 

Luca is currently based in the Thinking Dimensions NE Italy office and works with our B2B customers around the globe.

 

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Posted in Implementation, Strategy |

Managing Competitiveness Through Product Development

Saturday, June 23rd, 2012

While product development is not the only contributing factor influencing a company’s competitive position, the growth and profitability driven by products (or services) speaks volumes of an organization’s prowess to meet customer “needs or wants”. A well crafted Product Development (PD) process provides insight on how companies view and understand their internal and external competitive environment to ensure the right prioritized product mix is in place to remain competitive. The prioritization of products to be developed helps shape the future competitiveness of a company.

Prioritizing product development starts with the formation of comprehensive sets criteria including:

Strategic Alignment – Will this product enhance, support our strategic objectives? This is predicated on the company having a clear understanding of the markets they serve relative to the products they offer. Within the defined strategic timeframe of a company, not all markets are equal in business focus, resources allocation or the proposed introduction of new, improved or modified products. Strategic plans are about growing the company and profits sustainably. Proposed products are given higher emphasis “weight” if they align strategically to important markets areas.

Key Capabilities – What is the technical complexity required to develop this product? This is a critical question relative to the competitiveness of an organization. It is really inquiring about the people and process skills necessary to develop and produce this product: do they exist in the company or need to be developed/acquired? This creates a decision opportunity for management on how they will address and prepare for their future technical competitiveness.

Core Competencies – Does this product fit our core business competencies? Through the prism of customers, suppliers, or competitors, most leading organizations excel at some aspect of their business – innovative product engineering, low cost production, or product/customer service. It is what they do well, and it provides a competitive advantage. Management must determine if the product or service fits within their core competencies relative to the market, product realties, or seek ways to enhance their core competencies to be competitive.

Customer Relations – Does this product improve, maintain, or degrade relations with our customers? This is a complex question that can best be answered relative to the particulars of the product being offered and who constitutes your customer base – general public, suppliers, government, etc. New products must be assessed through the eyes of the customer and on the existing strength of the relationship. For example, when Coca Cola introduced “New Coke” several years ago, they misunderstood the customer acceptance of the legendary Coke product being changed. When complaints poured in, the strength of the customer relationship afforded Coca Cola to quickly withdraw the product and avoid any negative competitive long-term impact to their business.

Costs – What is the investment and the ROI if this product is developed? This is the basic cost/benefit analysis expected of any new product. Again it is a direct link to the company’s strategic objectives relative to profitability and growth. In a world of competing resources, companies must prioritize the right products to develop in order to maximize their financial goals and avoid excessive operational costs that reduce their competitive standing.

Risks – What are the issues and concerns associated with developing (or not developing) this product? Aside from the normal legal, regulatory concerns that any new product may have, it is also the “lost opportunity” in sales or market entry that can directly impact a company’s competitiveness if the product is not developed. All risks need to be assessed with preventive and contingent actions be planned and applied to mitigate potential problems.

Recap – Competitiveness enables high emphasis products and services to be produced for high emphasis markets strategically targeted to be better served. Product development projects need to be weighted, ranked, and prioritized relative to each other per the following criteria:
1) Strategic Alignment – does this product support our business goals?
2) Key Capabilities – do we have the people and process skills to perform?
3) Core Competencies – can we exercise our competitive advantage?
4) Customer Relations – are we “positively” addressing a customer need/want?
5) Costs – does this product financially benefit the company in a timely manner?
6) Risks – what are the potential problems and what can we do to mitigate them?

The author of this blog post is Keith Pelkey, Partner, Thinking Dimensions Global

 

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Posted in Implementation, New Market Entry, Operations |

Align your Executive Team to How the Five Forces Impact Competitive Advantage (i.e. Profitability)

Friday, June 15th, 2012

A firm’s competitive advantage is the unique and valuable combination of capabilities a company exploits to deliver higher profits relative to the competition. A company’s competitive advantage can only be confirmed if the customers truly deem it unique and valuable – and pay the premium. The definition is very intuitive to most executives – as they understand that price-cost=profit and they are either getting more, less, or a parity part of this equation. However the danger we observe on many occasions is that the dialogue on competitive advantage becomes too internally focused without testing the external factors that effect the three components of this Price-Cost=Profit relationship.

 

To enhance your management teams lateral thinking and cultivate strategic alignment we suggest you integrate the P-C=P discussion with the well known – but either, over, under or misused Michael Porter’s Five Force Framework (http://en.wikipedia.org/wiki/Porter_five_forces_analysis) in a two step process.

One, ask and capture the answers they have to the following questions.

  1. What impact do Substitutes have on Price? Cost? Profit?
  2. What impact does Threat of New Entrants have on Price? Cost? Profit?
  3. What impact does Buying Power have on Price? Cost? Profit?
  4. What impact does Competitive Rivalry have on Price? Cost? Profit?
  5. What impact does Supplier Power have on Price? Cost? Profit?

 

Two – then show them how the five forces relate to the P-C=P cause effect relationship see below) and have them evaluate your own firm’s situation with the new insights they have uncovered armed with this new visual on how it all fits together. They quickly see the critical factors they can and cannot influence and importantly the impact to the business.

Three key benefits emerge from this management dialogue

1. It forces your management team to think externally about key dimensions that impact industry profitability and helps to guard against insular thinking.

2. It provokes them to focus on the causes of competitive advantage and discern if you really have one rather than the effects ( profitability) which is an outcome.

3. It simplifies, connects and makes actionable important strategy thinking tools that once seemed academic

This blog post was authored by Tim Lewko, Partner, Thinking Dimensions

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Posted in Implementation, Strategy |

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