Posts Tagged ‘profitability’
Friday, July 20th, 2012
“LeisureEurope” is a major boat manufacturer that had been developed a leadership position in Europe for different types of recreational boats. In a period when the overall size of the boat market in Europe was quickly shrinking the company believed the best way to position itself was to enter the USA market.
Unfortunately the resources and the investments “LeisureEurope” made for several years to enter the USA market were not providing the results the CEO was looking for. Why did this happen?
The CEO asked Thinking Dimensions to indentify the main causes for the poor results and to support the company in implementation of a plan to properly enter the market.
The poor results were due to the following causes:
- LeisureEurope started launching products for the USA market without having a clear understanding of the customer needs and of the competition offerings
- The USA market was different from European markets:
- The size and the complexity of the USA market was much higher
- For the type of products offered by “LeisureEurope”, the concept of “leisure boat” as intended by the final user was very different
- Certain types of recreational boats that practically didn’t exist in Europe, represented an important quota of the total market in the USA
- The criteria adopted by the customers (i.e. the retailers) to select their suppliers of boats were different from the one adopted by the European dealers
In the first 2 months after the first meeting with the CE0, Thinking Dimensions helped “LeisureEurope” answer the following questions:
- Which are the main competitors in the USA market?
- Which distinctive capabilities or product characteristics could “LeisureEurope” offer relatively to the competition?
- Which customer segment were actually willing to pay a premium price for these distinctive capabilities or products?
The results of the first phase of the project were very surprising for the CEO: it showed “LeisureEurope” was competitive in a specific market segment that has not been even considered for the USA.
In the second phase of the project Thinking Dimensions worked with “LeisureEurope” to implement the market entry plan focusing specifically on the market segment that had been identified.
5 months after the first meeting with the CEO the company was already generating a volume of sales (and margins) far above the expectations of the CEO and the management team
This blog post was authored by Diego Miglioranzi, Partner, Thinking Dimensions
Feel free to contact the author directly for questions about this subject.
Tags: answers, company, criteria, customers, Decisions, enter, growth, linkedin, market, miglioranzi, new market entry, profitability, Strategy
Posted in New Market Entry, Strategy |
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.
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.
Tags: assumptions, company, competitive advantage, criteria, customers, Decisions, enter, girotto, Implementation, linkedin, new market entry, profitability, Strategic Partnerships, Strategy
Posted in Implementation, New Market Entry, Operations, Strategy |
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
Tags: assumptions, company, competitive advantage, criteria, customers, Decisions, enter, linkedin, market, new market entry, priorities, profitability, scott newton, strategic assumptions, Strategy
Posted in Implementation, New Market Entry, Operations, Strategy |
Monday, July 9th, 2012
New Market entry is a strategic choice that must be deliberately made. It is the most natural path for growth because it intuitively asks ‘if we are having success with our products where else can we sell them? This is the normal path for every startup or legacy strategy – find a need – serve it and build capabilities to support it. As companies grow over time there reaches a point for many where they have had success but run into growth barriers including:
- High Market Share – they have a sufficient share and are succeeding in home markets – but its getting tougher to sustain growth e.g. think of Coca Cola and Pepsi in North America – with a population growth that is relatively flat – there is only so much room for more people to drink more colas. The chart below indicates the flatness of the market in North America – where new growth through existing products is like squeezing blood from a stone.
- Mature Markets- the market is maturing i.e. reshaping market needs requiring a change in product or face obsolesce. Chart 1: Comparative Regional & U.S. Workforce Growth 2000 to 2020 clearly shows that the type of needs in the US are much different than Asia – as the workforce or consumer is in a different stage of the lifecycle.
- Emerging Markets – global markets become more attractive because opportunity is driven through size, proximity, scale or changing trade barriers and dynamics. If you are a company serving North America or Western Europe this chart clearly underscores what you already know – to sustain growth you must be prepared to look outside your traditional region.
To overcome these barriers and find growth for your company this deliberate choice is to enter new markets or another way to say it is to move to a “Products Offered” growth strategy. In a recent client example our client wanted to find new growth and formalize their path for growth in Latin America – looking to bring their proven product and service platforms to both Columbia and Peru.
With this deliberate choice for growth based on sound analytics and matched to their strategic assumptions they now are preparing the required capabilities for this choice. This is where many companies “fall down” on their growth adventures – they believe they can take exactly the same products and processes and replicate them in new markets. The reality is –although the fundamental needs may be basically the same –the new market development requires clear investments in skills, people, capabilities and processes to accomplish strategic goals and targets.
The following four capabilities are essential for success when seeking to enter new segments (emerging markets).
1. Product development capability for the modification of current products – whether “language” instructions, imperial to metric size changes, certifications by country and region, or even simply what colors and names “work” for the market.
2. Market research capability for identifying segments with the same needs the company’s current products satisfy. – this business intelligence must be gathered and factored into the decision making process – it cannot be only a gut feel that says “ I believe there is a market there”.
3. Marketing capability for entering new markets with the company’s products. How the product is promoted to one country does not translate to another necessarily.
4. Sales capability for convincing new markets to accept their products. This many times requires new hires in the locations and a patience for realizing profits in the bank – as the norms for selling and getting paid ( or even getting your money out of the country are different).
As I noted at the start – the majority of global trends and opportunities that support the drive to enter emerging markets are sound – but your strategic decision making process must be deliberate and based on data as you invest in your future. There may be gold in the hills next door to you ….but you must be prepared for the climb.
This blog was authored by Tim Lewko, Partner, Thinking Dimensions
Tags: alternatives, answers, company, criteria, customers, Decisions, enter, lewko, linkedin, new market entry, organization, priorities, profitability, Strategy
Posted in New Market Entry, Strategy |
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
Tags: company, competitive advantage, customers, execute, growth, john case, linkedin, priorities, profitability, Strategy
Posted in Implementation, Strategy |
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%.
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.
Tags: competitive advantage, customers, Decisions, girotto, growth, linkedin, Pricing, Pricing B2B, priorities, profitability, results, Strategy
Posted in Implementation, Strategy |
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
Tags: alternatives, company, competitive advantage, criteria, customers, Decisions, execute, growth, linkedin, market, pelkey, priorities, profitability
Posted in Implementation, New Market Entry, Operations |
Friday, June 22nd, 2012
Once your company view of competitive advantage is aligned with the way your clients view you, there is a new opportunity to understand whether this competitive advantage is applied , supported, and reflected coherently throughout the company and outside the company.
Process will help you managing and improving you competitive advantage. How? By giving you holistic coherence throughout your company.
The first thing you need to do is to ask five questions:
- Are the products/services emphasized in the company strategy coherent with the verified competitive advantage?
- Are investment decisions made from the same view?
- Is working time allocated accordingly?
- Are the products in pipeline/in development in alignment with the strategy?
- Is our company communicating our competitive advantage in a way that the message is received correctly by the customers?
If, among the answers, there is at least one no, your company needs to act in order to address these issues.
Process helps in addressing and solving those issues in a systematic way.
When the various stakeholders making decisions in the company are in alignment about competitive advantage, performance improves- including profitability. The objective of looking for alignment is to avoid internal and external customers “dissonance in perception” and to improve your company profitability by focusing on the right products, services, and messages.
You want to focus on selling products where your competitive advantage is present and receive the benefits deriving from your superior offerings. In a product portfolio, however, it is often the case that only a few products or services deliver true competitive advantage: this will drive R&D investments, possibly including protection of intellectual property and underlying (eventual) patent investments. Do we want to invest money in R&D and patents for products that are not representing our competitive advantage? No.
Products that don’t represent our competitive advantage are often products that clients are not really interested in and/or products not truly differentiated from those of competitors. Why would we want to invest money on those type of products?
Products that do not provide advantages to our clients are also products that cannot be sold for a premium price and that have often very low margins.
Company’s resources are limited; as such, you need ot test whether a competitive advantage exists within your entire product portfolio(s). This is also neccessary when we consider new products to be developed and/or protected.
The final step in the process is to increase your competitive advantage and to ensure that customers are aware of what your competitive advantage is. Often it is just not visible as management would think.
This blog was authored by Laura Rainati, Thinking Dimensions
Tags: alternatives, competitive advantage, criteria, customers, Decisions, financial impact, Implementation, linkedin, market, organization, Pricing B2B, priorities, profitability, rainati, Strategy
Posted in Pricing, Strategy |
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.
- What impact do Substitutes have on Price? Cost? Profit?
- What impact does Threat of New Entrants have on Price? Cost? Profit?
- What impact does Buying Power have on Price? Cost? Profit?
- What impact does Competitive Rivalry have on Price? Cost? Profit?
- 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
Tags: answers, company, competitive advantage, customers, Decisions, execute, financial impact, growth, lewko, linkedin, new market entry, priorities, profitability, Strategy
Posted in Implementation, Strategy |
Friday, June 15th, 2012
In the past few years, cost cutting has been at the forefront of many company’s priorities. Whether in the form of cutting employees, outsourcing, reducing marketing expenses or a myriad of other options, reducing costs has been the de facto strategy for a lot of companies. Those same companies now are faced with the reality that cost-cutting your way to success is a very slippery path, most times leading to a dead-end. As a result, many of those same companies are now seeking ways to generate real top-line growth, now that they have created a streamlined cost structure.
The first question they need to honestly answer is….”what is our competitive advantage?”
What is it about our company that we do better than any one of our competitors?
Or put in another way, why do our customers choose us over our competitors?
More often than not, the answer is “I don’t know”. That may sound like an exaggeration, but its not. The fact is, during all that cost cutting activity, the investments into what made your company unique, your competitive advantage, may have gone away.
In order to grow, you need to either
1.recreate what you had as that competitive advantage, or,
2.decide what your new competitive advantage will and make the investments necessary to bring it to reality. This is often referred to as “pick it and be it.”
Understanding your true competitive advantage, and crystalizing it with everyone in your company, leads to a key criteria for decision making on a daily basis.
Does a planned investment reinforce your competitive advantage?
Does a new product help reinforce your competitive advantage?
Does a new hire help reinforce your competitive advantage?
If you fall into the group that really doesn’t have an answer, don’t panic. Its not to late….yet.
When it comes to competitive advantage, “pick it…be it…and grow.”
This post was authored by John Case, Partner, Thinking Dimensions
Tags: company, competitive advantage, cost, cost cutting, criteria, customers, Decisions, growth, john case, linkedin, market, profitability, Strategy
Posted in Implementation, Strategy |
