Archive for September 21st, 2008

Situation Analysis – Environmental Scanning & the Organization-Looking Inside the Strategic Window

Posted by 21 September, 2008 Comments Off on Situation Analysis – Environmental Scanning & the Organization-Looking Inside the Strategic Window

In the next step of strategic planning-the situation analysis-planners traditionally analyze information about the firm’s environment, especially its customers and com­petitors. This environmental scanning involves looking at the present state of the en­vironment and forecasting trends in its various aspects. Planners also look inward and analyze their organization’s strengths and weaknesses. They assess not only tangible, observable resources, but also intangible resources, such as the skills of personnel and the company’s image. The focus then shifts to matching the opportunities that exist in the environment with the firm’s particular strengths. The outcome of this analysis is an understanding of how to take advantage of the opportunities by using the dis­tinctive competencies of the organization. It may also require some revision of previ­ously set goals. This crucial step in the strategic market planning process may utilize analytical tools such as the Boston Consulting Group’s growth-share matrix, which will be discussed shortly. It also draws on an organization’s ongoing efforts to monitor its business environment.

Environmental Scanning

A navigator would not plot a course without first establishing the ship’s position and examining a chart with care. Nor should a manager develop strategy without examin­ing the environment. As a practical matter, it is essential to simultaneously monitor the business environment and develop and refine strategy on an ongoing basis.
But what do we mean by the business environment? In the world of strategic planning, this term encompasses any and all important events-and even undercurrents that might lead to future events-in a wide range of areas. Classically, an environmen­tal scan looks for both opportunities and threats, and does so in the following areas:
The social/cultural environment, including the beliefs, values, and norms of be­havior that are learned and shared by people in the business’s environment.

The competitive environment, including changes and objectives at established competitors, plus any and all new competitive threats from entrepreneurs, for­eign companies expanding into the market, and so forth.

The technological environment, including any and all new technologies that might impact the products and/or processes of the industry or related industries.

The economic environment, including any trends that might affect the company directly, plus all that affect consumers and their spending patters.

The political/legal environment, including any legislation that might alter the rules of the game in the firm’s industry and markets. (Anyone in health care right now is used to worrying about this factor!)

The natural environment, including the natural resources the business and its customers depend on, any surprises the weather may dish up, and issues con­cerning the firm’s environmental impact and how to minimize it.
As the breadth of this list makes clear, any full-blown situational analysis must cover a broad range of issues. It is a demanding research project. And yet, even when done carefully and thoroughly, such scanning may fail to reveal the most important threats and opportunities in today’s highly turbulent business environments. The most exciting and important new directions are often difficult to tease out of the mass of data and piles of reports. Managers and marketers must learn to listen for weak signals as well as strong ones. And, increasingly, the eyes, ears, and instincts of the entire organization are required to find and amplify these weak signals in time for appropriate action. That is why Henry Mintzberg refers to modern strategies as “emergent.” They may spring up, like weeds, from unexpected sources anywhere in the organization, or even beyond its doors in the network of suppliers and distribu­tors surrounding it. Scanning can no longer be left to a centralized planning staff-it is so important that everyone needs to be involved.


The Organization-Looking Inside the Strategic Window

Once the external environment has been analyzed, planners traditionally examine the firm’s resources, both tangible and, often more important, intangible. Planners should thoroughly review the tangibles-the firm’s financial resources, production and distri­bution systems, and the like. They also should analyze intangible resources, such as the company’s image and culture, the creative and administrative talent of its personnel, employee attitudes toward the company, and the company’s vulnerability to competi­tion. These intangibles, though difficult to assess, can make the difference between success and failure.
Does Starbucks have the core competencies and financial deep pockets needed to go head to head with leading consumer brand marketers in a battle for grocery store market share? We don’t know for sure, but if we had to make the decision, we would start with a brutally honest examination of the organization itself.

Categories : Marketing Tags : ,

 

Market Share As a Strategic Goal

Posted by 21 September, 2008 Comments Off on Market Share As a Strategic Goal

Agreat many marketing missions and objectives rest on the assumption that a domi­nant share of your market is a sure-fire recipe for success. Think again about the Starbucks mission-“to dominate every place coffee is sold.” This is in fact a market share objective, and it makes sense only if there is some payoff for holding a dominant share of markets.
Because of the importance of assumptions about market share, a group of pro­fessors with the Strategic Planning Institute (SPI) has assembled a highly detailed database of information on the performance of thousands of individual businesses and business units over four years or more. It tracks the standard financial measures, plus many of the marketing and strategy variables thought to drive financial perfor­mance. In this Profit Impact of Marketing Strategy (PIMS) database, two striking trends appear. First, on average, market share and return on investment (ROI) vary together. A smaller share is typically associated with lower ROI, and vice versa. In fact, the relationship is virtually a straight line, varying from an average ROI of 11 percent for businesses with market shares of 10 percent or less, up to an ROI of 40 percent for businesses with shares of 50 percent or more. Professors Buzzell and Gale write that:

The primary reason for the market share-profitability linkage, apart from the connec­tion with relative quality, is that larger share businesses henefit from scale economies. They simply have lower per-unit costs than their smaller competitors. These cost ad­vantages are typically much smaller than those once claimed hy overenthusiastic pro­ponents of “experience curve pricing strategies,” but they are nevertheless substantial and are directly reflected in higher profit margins.
Second, as their brief aside about quality hinted, the data also show a clear relation­ship between quality relative to competitors, as perceived by customers, and both market share and ROI. The data support the arguments of quality advocates that there does not need to be a trade-off between quality and cost. Higher quality seems to be associated with higher share and lower costs (thus higher margins and ROI) in actual operating data from thousands of companies.
So what happened to Xerox? If firms gain 3.5 points of ROI for every 10 points of market share on average, as the PIMS database indicates, Xerox’s 86 percent share in 1974 should have given it a greater than 25 percent lead in ROI over its closest com­petitors. How could anyone possibly afford to challenge Xerox? This is exactly what its management assumed, and what many leaders in other industries assumed as well. (The U.S. auto industry is a classic example.) But this assumption ignores the impact of quality. Higher profits do not guarantee dominance-it depends on how you spend them! Xerox did not use its cost advantage to maintain its leadership in quality and product superiority, and customers do not share planners’ regard for market position.
Market share represents customers’ past purchases, not their future purchases- something planners tend to overlook-and if a better product comes along, future pur­chases will not remain consistent with past purchases. Market share is a good objective for management, but it is not an impenetrable shield against competitors, as Xerox learned.

Categories : Marketing Tags :

 

Strategy as a Focus Rather Than a Plan

Posted by 21 September, 2008 Comments Off on Strategy as a Focus Rather Than a Plan

One reason strategic planning will never die is that without a strategy of some sort, there can be no clear focus. Many organizations are resuscitating strategic planning, in spite of their inability to see very far into their futures. But the role of strategic planning is fundamentally different. Let’s look at this interesting transition.
In most industries today, events are so fast-paced and unpredictable that no­body can write a plan or create a forecast worth the paper its printed on. H. Igor Ansoff has documented this change in an extensive series of studies. Ansoff’s formal title is Distinguished Professor of Strategic Management at the United States Univer­sity in San Diego-but many people in the marketing field refer to him as “the father of strategic planning” because of his important work in the development of this field. In recent years, his work has provided perhaps the strongest documentation that many of the conventional planning methods are antiquated. Most striking is his mea­surement of what he terms the turbulence level of a business’s external environment. Here is Ansoff’s turbulence scale:

Turbulence Level Name Description
1 Repetitive No change
2 Expanding Slow incremental change
3 Changing Fast incremental change
4 Discontinuous Discontinuous, predictable change
5 Surprising Discontinuous, unpredictable change

Further, he has demonstrated in a range of studies that “a company’s profitability is optimized when a company’s strategy and management capability both match the tur­bulence in the company’s environment.”iS This means, for example, that if your orga­nization used to face a turbulence level of 3 but now faces a level 4.5 environment-a transition typical of most industries over the last two decades-then the old strategies and management approaches will lead to failure today just as surely as they led to suc­cess yesterday. In the high-turbulence environments most businesses now face, Ansoff finds that entrepreneurial and creative strategies work, while reactive and anticipa­tory strategies do not. Yet conventional planning cycles, in which data is gathered, numbers crunched, forecasts generated, and long-term strategies formulated, are gen­erally reactive or at best anticipatory. Not entrepreneurial, and rarely creative.
Which is why, as we observed earlier, formal planning processes were downsized almost out of existence in many companies. And why Tom Peters, that most popular of management gurus, wrote that “madness is afoot” and advised managers that, in order to thrive on the chaos around them, they should abandon their long-range strategic plan in exchange for “a strategic mind-set” so as to be able to foster “internal stability in order to encourage the pursuit of constant change.”i9 In other words, strategic plan­ning as usual is dead.
But strategic planning is experiencing something of a rebirth in the late 1990s. (As Mark Twain once said, “The reports of my death are greatly exaggerated.”) Per­haps the most striking symbol of this rebirth is the rising stature of strategic planning in what was supposed to be its replacement-total quality management. And this is seen nowhere more clearly than in the annual judging criteria for the Malcolm Baldrige National Quality Award. These criteria are modified every year in an effort to provide a better standard for the management processes of U.S. firms, and lately strategic planning has emerged as a key component of the criteria. According to Vicki Spagnol, a member of the award’s board of examiners, “In recent years, Category 2, Strategic Planning, has undergone significant evolution, which has expanded its scope and made it more central to the overall criteria.” She summarizes the change as follows, “The scope of planning was broadened from planning for quality and op­erational improvements to developing an overall business strategy. Greater emphasis was also placed on translating strategy into action-oriented ‘key business drivers,’ which could be used to deploy strategy throughout the organization.” Why bring strategic planning out of moth balls, especially when many people argue it is what led to the need for new approaches like total quality management and reengineering in the first place? Because, in Spagnol’s words, “The faster the rate of change, the more important it is to understand the dynamics of the marketplace and to have a strategy that will enable an organization to outperform its competition over the long haul.” Fast change makes a good strategy more essential than ever. But-and here is the paradox-fast change (and the high turbulence with which it is typically associ­ated) makes coming up with a good long-term strategy almost impossible. Whatever knowledge base the strategy rests on will be antiquated by new events before the im­plementation is half-way complete. How do you resolve this paradox-this great need for good strategy in conditions which make it terribly hard to design good strategy?
The most successful answer-and the key to strategic planning’s rebirth- seems to be to use strategy as a source of focus and direction, not as a blueprint. Lis­ten to Steve Roemereman, vice president and strategy manager of Texas Instruments’ Defense Systems & Electronics business (which won the Baldridge Award in 1992):

Most of those companies that had a great decade did it not by planning out forty great quarters. They had a strategic plan, and then they executed forty great quarters more or less along the lines of the plan. Their people knew where the company was going, and the shared knowledge made it easier to get good quarterly performance.
In other words, the strategic plan gave everyone a common focus, a vision of where the company wanted to go. And then everyone did whatever seemed necessary to get there. The role of this plan, then, is to provide focus rather than direction, to give a common purpose rather than to give specific instructions. The entrepreneur­ial, creative elements aren’t in the plan. They have to be provided by the people who implement it. Nobody can forecast those. But without some agreement on where the entrepreneurship and creativity is supposed to take you, everyone would pull in dif­ferent directions.
In order for strategic plans to perform this focusing role effectively, everyone must have what is coming to he called a line of sight, which is a clear view of the con­nections between their own work and the big picture of the organization’s strategy. Without it, they cannot improvise without losing the tune. The American Society for Training and Development reported that the goal alignment provided by such lines of sight “has a significant impact on employee performance” because it “enables em­ployees to see how their work helps the company succeed.”22 Thus strategy still has a vital role-perhaps an even more vital role-because in turbulent markets it may be the only constant, the only clear beacon to aim for, amid the chaos.

Categories : Marketing Tags : ,

 

Do You Know Your Way?

Posted by 21 September, 2008 Comments Off on Do You Know Your Way?

The focus principle (or should we call it the “focus-focus-focus principle”?) is close cousin to the “don’t-get-lost” principle of marketing strategy. Sure, you should always try to give customers what they want and need-but within your abilities. If you allow the search for hot new marketing ideas to take you too far from your core com­petencies, you can lose your focus and wander in the strategic desert. Getting lost is a sure-fire way to lose your focus.
Despite the wisdom of customer-oriented market definitions, it can be very dangerous to move into unfamiliar territory, as Anheuser-Busch discovered along with Levi Strauss in the 1980s. Anheuser-Busch’s management felt that its single-minded emphasis on the domestic beer business did not give it any way to use the ex­cess cash it generated. As a result, the company redefined itself as a global food and beverage business and introduced the premium-priced Eagle brand of pretzels, corn curls, tortilla chips, and nuts. It also increased emphasis on its Dewey Stevens, a diet wine cooler; low-alcohol LA; and soda and bottled waters. The company’s focus was on making better use of the firm’s distinctive competency in beer distribution and developing new products for its existing markets.
By 1988, the company was retrenching heavily, having put up for sale its three bottled water products and its California winery. “The beer guys weren’t wine or water guys,” said a former company executive. The company “didn’t know how to sell the stuff properly.” And in the wine cooler market, where all products are already perceived as “light,” Anheuser-Busch could not establish a foothold. Perhaps the greatest trouble spot, however, rested with the company’s Eagle brand of snacks. On top of tremendous capital expense for the start-up, Eagle managed to lose several million dollars each year following its inception.
A more recent example is provided by Starbucks Coffee Company, which made fast work of the coffee market by creating the largest chain of cafes in the United States during the 1990s. As this book heads for the printer, Starbucks is going in a new direction-the supermarket shelves. Procter & Gamble (P&G) Company’s Folgers brand is the leader in supermarket sales of coffee beans, followed by Kraft Foods’ Maxwell House. But not for long in the view of Starbucks’ president Howard Schultz. He too sees the marketing implications of his mission, which says Starbucks has to be the dominant force in the coffee business.
Is Starbucks making a classic marketing blunder? Will it lose its way in the bat­tle for supermarket shelves-as many contenders have over the years? Is this new bat­tleground too different from the old one, a dangerous loss of focus? Or is Schultz right that the company can beat out P&G and Kraft at their own game because of the growing value of the Starbucks’ brand name? Only time will tell-but we are willing to guess. We bet you won’t find Starbucks dominating shelf space or register receipts at the average grocery store in the year 2000. And we suspect the expansion of its chain of cafes may slow as management diverts attention to the grocery store battle instead. But we have to hedge this bet with the comment that some of the greatest strategic breakthroughs sounded far more hair-brained than this strategy does at in­ception-you can never be sure. Starbucks just might pull off a coup in the coffee aisle. But we will be surprised if they do!
The many cases in which marketers got burned by overextending lead us to sound a cautionary note-it can be hubris to pursue unfamiliar products and markets, even if the customer demand is clearly there. There appear to be practical constraints on how far a field a company should go in pursuit of the marketing concept. However, to be fair, a single-minded focus on a firm’s familiar products and technology also can land it in big trouble. Remember Levitt’s marketing myopia described in lesson 1:When cars and trucks came along, railroad companies ignored them-and entered a long, slow decline. Why? Because they saw themselves as specializing in laying track rather than in transporting people and freight.
Maybe it would be as bad a mistake for Starbucks to see itself in the coffee store business instead of the coffee business. Are they really in the restaurant business? (Hmm. Got to think about that one.) There is often a fine line between the sort of marketing myopia that doomed the railroads and the overconfidence of an Anheuser­Busch (or Starbucks). The success of Levi’s Dockers illustrates the importance of ex­pansion that makes sense to the customers. Another product line for established customers is a safer bet than something totally new to the company, and smart strate­gists pursue the safe bets whenever there are any to be found.

Categories : Marketing Tags : ,

 

Three Secrets of Strategic Success: Focus. Focus, and Focus

Posted by 21 September, 2008 Comments Off on Three Secrets of Strategic Success: Focus. Focus, and Focus

The Levi Strauss story teaches another important strategic lesson-the importance of focus. And focus. And focus! It is hard enough in a competitive market to do even one thing really well, well enough that you attract and retain customers better than com­petitors. When companies have a clear focus, they are trying to do one thing well, which at least gives them a fighting chance. As soon as their mission begins to sprout “ands,” they are at risk of doing nothing well. That is certainly a point Andrew Grove, president and CEO of Intel Corporation, takes to heart. He argues that it takes every erg of energy in your organization to do a good job pursuing one strategic aim, espe­cially in the face of aggressive and competent competition. Without exquisite focus,

the resources and energy of the organization will be spread a mile wide-and an inch deep. If you’re wrong, you will fail. But most companies don’t fail because they are wrong; most fail because they don’t commit themselves. They fritter away their mo­mentum and their valuable resources while attempting to make a decision. The great danger is standing still.

Categories : Marketing Tags : ,