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Growing Your Business in Tough Markets

  Article published in DM Direct Newsletter
October 3, 2003 Issue
 
  By Pradeep Anand

These are tough times for all businesses. Almost every firm is focused on reducing costs to combat declining markets. But while everyone else is in a defensive mode focused on internal issues, bigger opportunities lie in attacking markets.

Foremost, you need to recognize that there is no such thing as a mature market, only markets with suppliers who provide similar products and services. Over time, competitors have arrived at solutions that are almost identical, pushing pricing to the forefront of buyer decisions. Additionally, firms have become comfortable in their habits, standing still while customers' needs have evolved and changed, creating an ever-growing gap between customers' needs and suppliers' solutions.

However, some firms have accomplished aggressive revenue and margin growth by taking advantage of this evolution in market needs and complacent competitors. The secret is to recognize where revenues and margins are migrating and, like Wayne Gretzky, position the firm "where the puck is going to be," rather than where it has been.

Seven Steps

Here is a seven-step program that has been successfully used to create aggressive growth:

  1. Start with the Right Team. The secret to growth is effective implementation and execution. The secret is to pick a "steering team" that consists of customer-facing people from your firm. Populate your steering team from a diagonal cross-section of your firm, not just senior management. You will be surprised by the market knowledge that resides within the rank and file of your organization.

    This steering team is not only a reservoir of market knowledge but also your champions of change. They know what the firm needs to accomplish. They intimately understand market dynamics and assumptions, and can make minute course changes to meet your objectives.

  2. Revisit Your Customers and Markets. At the outset, revisit your underlying assumptions about customers. Ask seemingly generic questions to gain insights about the current nature of your customers. Who are your customers, both existing customers and prospects? What do you sell to them? What do they buy from you and your competition? How do they buy? Why do they buy? Where do they buy? When do they buy?

    Answers to each question typically reveal a first level of understanding of the current nature of customers, especially about where revenues and margins are migrating. However, delving deeper into the responses usually reveals nuggets that are critical for insights into customer segments, market drivers, needs, trends, patterns and discontinuities - or "where the puck is going to be."

  3. Determine Competitors' Apparent Strategies. The first issue is defining competitors in the market space. Your radar screen should be large enough to encompass direct and indirect customers. For example, in the late eighties and early nineties, very few firms in the energy and petroleum (E&P;) business saw 3-D seismic interpretation's ability to increase success rates as a threat to drilling budgets.

    The who, what, how, why, where and when of your competitors' sales and their revenues, margins and growth rates reveal many aspects of their strategies. However, that is not enough. A competitor's organization, customer intimacy, culture, assets and skills in innovation, manufacturing, technology, finance (access to capital), information technology, management, marketing and customer base (to name a few) are also important in determining their apparent strategic direction and their business design.

  4. Forecast the Business Climate. Forecasting the weather is a tough science and predicting the business climate is even harder because the focus is on elements that are beyond the control of customers, competition and your firm. Economic, environmental, regulatory, cultural, technological, demographic, political and other factors have far-reaching consequences for the market place. Therefore, monitoring, detecting and understanding these issues are critical to identifying relevant trends and discontinuities that, in turn, could create opportunities or threats to your firm.

  5. Objective Self-Analysis. While competitive analysis is somewhat objective, done from a distance with limited information, self- analysis of your firm tends to be subjective. We tend to be ultra-critical of our own firm. The challenge is to create an objective framework for self- evaluation. Typically, the criteria developed to critically dissect the competition easily transfers to objective self-analysis.

  6. Insightful Synthesis is More Important than Detailed Analysis. Synthesis of market informationinto major issues, trends, discontinuities, opportunities and threats yields a market landscape for a firm to achieve its overarching corporate objectives. Your firm's strategic focus varies depending on the nature of the business unit. Your unit can be a strategic business unit (SBU) or a strategic product unit (SPU), the unit that encounters direct product competition in the market.

    The SBU has several SPUs in its repertoire, each connected to the other by functional synergy of some nature. The strategic focus of your unit is built on the foundation of market-driven opportunities and threats, tempered by your corporate objectives (and not the other way around). Your unit's strategic direction is then defined by the interaction of the attractiveness of specific markets and segments, and the relative competitive strength of your firm in those markets. These then get translated into specific business objectives for your unit, translating into objectives for specific departments in the customer value delivery chain.

  7. Execution and Implementation. The most challenging phase for an organization is the implementation phase. The process now becomes internally focused, controlled by your organization. The inertia of previous strategic directions and practices is significant - the more significant the departure from the existing strategic path, the greater the power of "Not Invented Here" and "This is not the way we do things around here" syndromes.

    The biggest hindrance to accelerated growth is the inability of organizations to quickly drop old habits and assume new ones. Also, it takes time to add new capabilities and practices to existing organizations. Therefore, to accelerate revenue and margin growth:
    • Create a growth-oriented team, seeded with steering team members.
    • Articulate vision and direction quickly.
    • Get started.
    • Get better.
    • Create a competitive edge.

An Example

Challenge: A petrochemical equipment manufacturer considered itself to be a small player in a mature market. Growth was dependent on the rising tide of market activity. The firm believed that business in the United States was in decline, and that the next growth area would be an international market, where a significant number of new petrochemical plants were being planned.

The first six steps of the seven-step program provided many insights:

  1. More than 75 percent of the available industry "margin" was within the United States, with original equipment manufacturers (OEMs) controlling this available margin in the replacement market.
  2. Further investigation revealed that the incumbents took the replacement business for granted.
  3. Customers, on the other hand, were willing to consider "timely alternatives" to OEMs.
  4. The incumbents could not react quickly and effectively except with pricing but would not compromise their entire installed base with a price war against a small player.

Solution: This petrochemical equipment manufacturer developed a new initiative on the "replacement" business, developing processes and infrastructure to assure timely delivery. The demand- creation program focused on ongoing petrochemical plant operations in the United States, with a powerful guarantee - on time, or it's free!

Value of the solution: The firm's revenues grew more than 250 percent in a few years, and margins about 400 percent during the same period with minimum costs and investments.

This is but one of many examples where firms have taken advantage of competition's bad habits and internal focus to increase revenues and margins.

In summary, in your current situation, complacency is not an option. Revisit your customers and markets to find your path to profitability.

...............................................................................

For more information on related topics visit the following related portals...
Strategic Intelligence.

Pradeep Anand is the president of Seeta Resources (www.seeta.com), a Sugar Land, Texas-based consulting firm. He can be reached at (281) 265-9301 and at pradeep@seeta.com.

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