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*** ASW - Postwhore Contest #3!! ***
- Thread starter Jon
- Start date
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Opportunities: What external opportunities are likely to surface over the
next one to three years? An opportunity is brought about by a qualitative or
quantitative change in the market, typically by a change in demand or supply
conditions. Change can be very general, e.g. growing public awareness and
concern for the environment, or quite specific, e.g. growth in demand for
ecologically sound detergents. Do not make the mistake of claiming a strategy
as an opportunity, e.g. launching a new product is not an opportunity itself, but
rather a strategic response to an opportunity.
• Threats: What threats are likely to surface over the next one to three years? Like
opportunities, a threat is brought about by a significant change in the market,
typically by factors potentially reducing demand, such as new competition, a
rise in interest rates or new legislation.
Use the checklist in Box 2.12 to discover opportunities and threats. One technique that you could try is brainstorming, which requires you first
to list all conceivable ideas without being judgemental, allowing the inclusion of
even those ideas thought by some to be ‘off the wall’. Then you should evaluate
each idea in turn, prioritizing them by probability, profitability, growth potential,
closeness to your existing products and markets and other factors that you consider
are relevant to your business plans and that have an impact on risk. Ultimately, the
viability of each idea will depend on the probability of each opportunity and threat
materializing in the time span required to introduce a new strategy.
next one to three years? An opportunity is brought about by a qualitative or
quantitative change in the market, typically by a change in demand or supply
conditions. Change can be very general, e.g. growing public awareness and
concern for the environment, or quite specific, e.g. growth in demand for
ecologically sound detergents. Do not make the mistake of claiming a strategy
as an opportunity, e.g. launching a new product is not an opportunity itself, but
rather a strategic response to an opportunity.
• Threats: What threats are likely to surface over the next one to three years? Like
opportunities, a threat is brought about by a significant change in the market,
typically by factors potentially reducing demand, such as new competition, a
rise in interest rates or new legislation.
Use the checklist in Box 2.12 to discover opportunities and threats. One technique that you could try is brainstorming, which requires you first
to list all conceivable ideas without being judgemental, allowing the inclusion of
even those ideas thought by some to be ‘off the wall’. Then you should evaluate
each idea in turn, prioritizing them by probability, profitability, growth potential,
closeness to your existing products and markets and other factors that you consider
are relevant to your business plans and that have an impact on risk. Ultimately, the
viability of each idea will depend on the probability of each opportunity and threat
materializing in the time span required to introduce a new strategy.
Setting strategy
You should now have at your fingertips all the relevant information to allow you to
explore future business strategy and make your strategic decisions with confidence.
In summary, these are:
1 Comprehensive market segmentation.
2 Detailed data on where you make profits and losses (which customers, markets,
products/services, marketing channels, etc.).
3 An up-to-date analysis of distinctive and core competences.
4 An up-to-date analysis of competitive strengths and weaknesses.
5 An up-to-date analysis of opportunities and threats.
Setting strategic direction is best approached in two phases, each calling for a
different way of thinking and working.
You should now have at your fingertips all the relevant information to allow you to
explore future business strategy and make your strategic decisions with confidence.
In summary, these are:
1 Comprehensive market segmentation.
2 Detailed data on where you make profits and losses (which customers, markets,
products/services, marketing channels, etc.).
3 An up-to-date analysis of distinctive and core competences.
4 An up-to-date analysis of competitive strengths and weaknesses.
5 An up-to-date analysis of opportunities and threats.
Setting strategic direction is best approached in two phases, each calling for a
different way of thinking and working.
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Phase 1: Setting out the options
A brainstorming and exploratory style is appropriate here, encouraging lateral
thinking and deliberately aiming to move away from tunnel vision. It is worthwhile
allowing people to entertain ‘odd’ ideas alongside more obviously sensible ones;
even if the odd ideas turn out to be unworkable, they can spark off a fresh
perspective on more realistic options.
It is important to make sure that you set out all the options. Don’t forget that
your options always include (from most pessimistic to most optimistic):
1 Cut back or eliminate parts of your business mix that do not match the core
business that you want to develop, or that lose money (analysed earlier when
you looked at the profitability of each segment). Remember, small can be
beautiful and more profitable too!
2 Do absolutely nothing, except react to any problem or opportunity that might
surface. However, this is probably the reactive type of management that you
have eschewed.
3 Consolidate your present position and do not seek major new development.
Essentially do more or less the same as before, except generate new business
and clean up operating efficiency and effectiveness to eliminate key weaknesses,
thus raising profitability by a few per centage points.
4 Within the confines of your financial resources (though including short-term borrowing),
set out a strategy for modest growth that seeks to develop incrementally
new products or new markets.
5 Go for rapid growth by setting a new strategy that embraces major changes in
products and/or markets, as well as radical organizational change. This option
might require new finance from external sources, including an injection of new
equity capital.
From a practical point of view, it is unlikely that you will be considering all these
options at once. In addition to your own risk profile (the amount of risk you are
willing to bear), your recent business performance (profitability), the nature of
your distinctiveness (uniqueness) and the results of your SWOT analysis (optimistic
or pessimistic) should tell you how upbeat you can afford to be.
To focus on the specific opportunities and threats identified in your SWOT
analysis, you should investigate each product and market option, basing your
analysis on:
• The experience of your key people and external advisers.
• Results of customer feedback and market research.
• Forecasts of profit and cash including breakevens, based on key assumptions.
• A strong dose of common sense!
The product/market matrix4 (Figure 2.3) is a useful tool for testing whether you
have considered all possible strategic options.
The practical value of this matrix lies in working out the potential profitability
and level of risk associated with each quadrant and systematically evaluating each
option before reaching a decision.
A brainstorming and exploratory style is appropriate here, encouraging lateral
thinking and deliberately aiming to move away from tunnel vision. It is worthwhile
allowing people to entertain ‘odd’ ideas alongside more obviously sensible ones;
even if the odd ideas turn out to be unworkable, they can spark off a fresh
perspective on more realistic options.
It is important to make sure that you set out all the options. Don’t forget that
your options always include (from most pessimistic to most optimistic):
1 Cut back or eliminate parts of your business mix that do not match the core
business that you want to develop, or that lose money (analysed earlier when
you looked at the profitability of each segment). Remember, small can be
beautiful and more profitable too!
2 Do absolutely nothing, except react to any problem or opportunity that might
surface. However, this is probably the reactive type of management that you
have eschewed.
3 Consolidate your present position and do not seek major new development.
Essentially do more or less the same as before, except generate new business
and clean up operating efficiency and effectiveness to eliminate key weaknesses,
thus raising profitability by a few per centage points.
4 Within the confines of your financial resources (though including short-term borrowing),
set out a strategy for modest growth that seeks to develop incrementally
new products or new markets.
5 Go for rapid growth by setting a new strategy that embraces major changes in
products and/or markets, as well as radical organizational change. This option
might require new finance from external sources, including an injection of new
equity capital.
From a practical point of view, it is unlikely that you will be considering all these
options at once. In addition to your own risk profile (the amount of risk you are
willing to bear), your recent business performance (profitability), the nature of
your distinctiveness (uniqueness) and the results of your SWOT analysis (optimistic
or pessimistic) should tell you how upbeat you can afford to be.
To focus on the specific opportunities and threats identified in your SWOT
analysis, you should investigate each product and market option, basing your
analysis on:
• The experience of your key people and external advisers.
• Results of customer feedback and market research.
• Forecasts of profit and cash including breakevens, based on key assumptions.
• A strong dose of common sense!
The product/market matrix4 (Figure 2.3) is a useful tool for testing whether you
have considered all possible strategic options.
The practical value of this matrix lies in working out the potential profitability
and level of risk associated with each quadrant and systematically evaluating each
option before reaching a decision.
1 Market penetration strategy – risk scale = 1
Selling your existing products/services to more customers in existing markets.
This caters for cutting back, doing nothing or making modest changes with
minor expansion through gaining new customers. If you know your markets well,
winning a few new customers will not be costly, nor will your product range
need costly development. This is the most compelling strategic option for all
businesses, unless there are strong reasons for pursuing other options as identified
in the SWOT analysis, e.g. serious weaknesses in the organization that will affect
competitiveness, major new opportunities emerging in new markets, or major
threats to your hitherto comfortable relationships with existing customers.
Selling your existing products/services to more customers in existing markets.
This caters for cutting back, doing nothing or making modest changes with
minor expansion through gaining new customers. If you know your markets well,
winning a few new customers will not be costly, nor will your product range
need costly development. This is the most compelling strategic option for all
businesses, unless there are strong reasons for pursuing other options as identified
in the SWOT analysis, e.g. serious weaknesses in the organization that will affect
competitiveness, major new opportunities emerging in new markets, or major
threats to your hitherto comfortable relationships with existing customers.
2 Product development strategy – risk scale = 2
Selling existing and new products/services to existing markets. This caters for
growth through incremental development of new products/services. You should
know the emerging needs of your existing customers well (you should be close
enough to them to discover their unmet or unexpressed needs), so the cost
of developing new products should be quantifiable, depending on your type of
business. Your analysis should turn to how to manage new product development
risk, e.g. sourcing new products from existing suppliers, piloting new products with cooperative customers, securing orders or commitments from customers in
advance of large-scale expenditure on new product development, or partnering
with suppliers to reduce financial exposure.
Considering the unfavourable odds on new product failure (some studies have
put the failure rate of new products at over 90 per cent), the further you veer
towards total innovation, the more risky your venture becomes. So you should
be very clear about the reasons for pursuing this option and the key sensitivities.
Check your SWOT analysis carefully and review the evidence in support of this
option, commissioning new customer and market research where existing data
seems inadequate. Identify organizational strengths that can reduce the risks, e.g.
a successful history of new product introduction, as well as weaknesses that can
exacerbate it, e.g. lack of project management skills. In particular, confirm growth
assumptions and review possible threats to your existing products/services from
competitors or customers.
Selling existing and new products/services to existing markets. This caters for
growth through incremental development of new products/services. You should
know the emerging needs of your existing customers well (you should be close
enough to them to discover their unmet or unexpressed needs), so the cost
of developing new products should be quantifiable, depending on your type of
business. Your analysis should turn to how to manage new product development
risk, e.g. sourcing new products from existing suppliers, piloting new products with cooperative customers, securing orders or commitments from customers in
advance of large-scale expenditure on new product development, or partnering
with suppliers to reduce financial exposure.
Considering the unfavourable odds on new product failure (some studies have
put the failure rate of new products at over 90 per cent), the further you veer
towards total innovation, the more risky your venture becomes. So you should
be very clear about the reasons for pursuing this option and the key sensitivities.
Check your SWOT analysis carefully and review the evidence in support of this
option, commissioning new customer and market research where existing data
seems inadequate. Identify organizational strengths that can reduce the risks, e.g.
a successful history of new product introduction, as well as weaknesses that can
exacerbate it, e.g. lack of project management skills. In particular, confirm growth
assumptions and review possible threats to your existing products/services from
competitors or customers.
3 Market development strategy – risk scale = 4
Selling existing products and services to existing and new markets. This caters
for growth in new markets while simultaneously keeping existing customers
satisfied – a very difficult task. To make this option a reality, you should know
your existing markets well and your marketing function should be a major strength
(check your SWOT analysis), so developing newmarkets, although costly, should be
quantifiable. The risk is therefore controllable. Newmarkets can include contiguous
geographical markets, e.g. moving into the French or other global markets, or new
industry sectors, e.g. selling to food wholesalers as well as to caterers.
Considering the unfavourable odds on new market failure, the further you
steer away from your existing markets, the more risky your venture becomes. You
should be crystal clear about the reasons for pursuing this option. Check your SWOT
analysis carefully and produce reliable evidence to support your case, conducting
new customer and market research where existing data seem inadequate. Be
prepared to commit resources to test marketing in new areas. You should have
identified major marketing and selling strengths in your organization (you could
hardly venture into the unknown without the comfort of strong marketing and sales
functions) and significant new opportunities in new markets, rather than merely
dire threats in existing markets.
Selling existing products and services to existing and new markets. This caters
for growth in new markets while simultaneously keeping existing customers
satisfied – a very difficult task. To make this option a reality, you should know
your existing markets well and your marketing function should be a major strength
(check your SWOT analysis), so developing newmarkets, although costly, should be
quantifiable. The risk is therefore controllable. Newmarkets can include contiguous
geographical markets, e.g. moving into the French or other global markets, or new
industry sectors, e.g. selling to food wholesalers as well as to caterers.
Considering the unfavourable odds on new market failure, the further you
steer away from your existing markets, the more risky your venture becomes. You
should be crystal clear about the reasons for pursuing this option. Check your SWOT
analysis carefully and produce reliable evidence to support your case, conducting
new customer and market research where existing data seem inadequate. Be
prepared to commit resources to test marketing in new areas. You should have
identified major marketing and selling strengths in your organization (you could
hardly venture into the unknown without the comfort of strong marketing and sales
functions) and significant new opportunities in new markets, rather than merely
dire threats in existing markets.
4 Diversification strategy – risk scale = 16
Selling existing and new products and services to existing and new markets. This
represents a leap into the unknown on product and market fronts, holding out the
prospect of large profits, which necessarily must accompany high risk. To make
diversification work, you should be confident not only about your marketing and
selling skills (a smoothly functioning department headed up by a senior marketing
person with proven skills in delivering sales in new markets), but also about
your operational capability. You should have full confidence in your new product development and supply chain management functions, which should togetherwork
harmoniously with marketing and sales. You should have a clear idea of product
development costs and alternative scenarios, if delays or problems were to occur.
Your SWOT analysis should have identified many more strengths than weaknesses
in all major functional areas, and you should have analysed comprehensively the
opportunities and threats inherent in the new markets, conducting customer and
market research in detail.
However, you can be left with having to launch potentially costly expeditionary
marketing into new areas where customer behaviour is difficult to fathom. To
control the risks, you must secure orders or commitments to buy from prospective
customers. Otherwise, stay well clear of diversification!
In practice, your options are never as extensive as the product/market matrix
suggests, because the risks of moving into new areas are too great for most small
and medium-sized businesses, given their limited resources of finance and people.
The missing component in failed growth businesses is almost always management.
The existing owners and managers somehow fail to assess the management needs
of the changing business, often extrapolating from existing needs. It takes a
fully delegated management structure to make a rapidly growing business work
successfully, and building such a structure is a long-term affair.
Selling existing and new products and services to existing and new markets. This
represents a leap into the unknown on product and market fronts, holding out the
prospect of large profits, which necessarily must accompany high risk. To make
diversification work, you should be confident not only about your marketing and
selling skills (a smoothly functioning department headed up by a senior marketing
person with proven skills in delivering sales in new markets), but also about
your operational capability. You should have full confidence in your new product development and supply chain management functions, which should togetherwork
harmoniously with marketing and sales. You should have a clear idea of product
development costs and alternative scenarios, if delays or problems were to occur.
Your SWOT analysis should have identified many more strengths than weaknesses
in all major functional areas, and you should have analysed comprehensively the
opportunities and threats inherent in the new markets, conducting customer and
market research in detail.
However, you can be left with having to launch potentially costly expeditionary
marketing into new areas where customer behaviour is difficult to fathom. To
control the risks, you must secure orders or commitments to buy from prospective
customers. Otherwise, stay well clear of diversification!
In practice, your options are never as extensive as the product/market matrix
suggests, because the risks of moving into new areas are too great for most small
and medium-sized businesses, given their limited resources of finance and people.
The missing component in failed growth businesses is almost always management.
The existing owners and managers somehow fail to assess the management needs
of the changing business, often extrapolating from existing needs. It takes a
fully delegated management structure to make a rapidly growing business work
successfully, and building such a structure is a long-term affair.
Phase 2: Evaluating the options
The evaluation process is simply to take each of the options (quadrants) and
systematically enquire how effective a strategy it represents for moving towards
your business objectives. In evaluating the options, the first question to ask is: How
far can we get as we are?
Having completed your SWOT analysis, the answer will be partly dependent
on your evaluation of the relative weightings you have given to your competitive
strengths and weaknesses, and in particular to your analysis of the following factors:
1 The distinctiveness of your business in the minds of your customers (which
must be founded on hard evidence, not the product of your beliefs alone).
2 Yourkeystrengthsvis-`a-vis your weaknesses (the former should outweigh the
latter comfortably and your plans to eliminate or ameliorate the latter should be
actionable without exceptional cost or organizational energy).
3 Countervailing forces in the market (which should not pose an insurmountable
threat).
4 The probability of opportunities and threats affecting your business within
the timescale of your business plan (this might require further research or
investigation).
Unless there are many factors in this analysis forcing you to change the way you
do business, you should be in a strong position to maintain your present strategy,
while making the usual marginal improvements to take action on the key points
in your SWOT analysis; in other words, to improve profitability by making the
business more efficient and effective. The main benefit of this penetration strategy
is that you can focus resources on the things you do best, allowing more time to look after existing customers, while continuing to build the business by organizing
to win new customers in existing market segments. While this should necessitate a
modest amount of reorganization, it does not constitute a change in strategy and is
therefore the least risky option.
On the other hand, your analysis might force you to consider cutting out parts of
your business. Changesmight encompass small-scale cutbacks to sales territories, or
swingeing changes to product lines and market segments, with internal resources
being retrenched at the same time. If your management information system is
sufficiently detailed (otherwise you will have to resort to ad hoc costing and
profitability calculations), you must cut out those parts of the business that lose
money and focus resources on those that generate profits. The net effect is an
increase in overall profitability, although a decrease in terms of sales value. This
could be a prelude to a later ‘go for growth’ strategy.
If your SWOT analysis points to one of the three ‘growth’ strategies as a serious
option, it should be evaluated more thoroughly. A methodical approach is called
for, testing each option against the same set of criteria, as follows.
The evaluation process is simply to take each of the options (quadrants) and
systematically enquire how effective a strategy it represents for moving towards
your business objectives. In evaluating the options, the first question to ask is: How
far can we get as we are?
Having completed your SWOT analysis, the answer will be partly dependent
on your evaluation of the relative weightings you have given to your competitive
strengths and weaknesses, and in particular to your analysis of the following factors:
1 The distinctiveness of your business in the minds of your customers (which
must be founded on hard evidence, not the product of your beliefs alone).
2 Yourkeystrengthsvis-`a-vis your weaknesses (the former should outweigh the
latter comfortably and your plans to eliminate or ameliorate the latter should be
actionable without exceptional cost or organizational energy).
3 Countervailing forces in the market (which should not pose an insurmountable
threat).
4 The probability of opportunities and threats affecting your business within
the timescale of your business plan (this might require further research or
investigation).
Unless there are many factors in this analysis forcing you to change the way you
do business, you should be in a strong position to maintain your present strategy,
while making the usual marginal improvements to take action on the key points
in your SWOT analysis; in other words, to improve profitability by making the
business more efficient and effective. The main benefit of this penetration strategy
is that you can focus resources on the things you do best, allowing more time to look after existing customers, while continuing to build the business by organizing
to win new customers in existing market segments. While this should necessitate a
modest amount of reorganization, it does not constitute a change in strategy and is
therefore the least risky option.
On the other hand, your analysis might force you to consider cutting out parts of
your business. Changesmight encompass small-scale cutbacks to sales territories, or
swingeing changes to product lines and market segments, with internal resources
being retrenched at the same time. If your management information system is
sufficiently detailed (otherwise you will have to resort to ad hoc costing and
profitability calculations), you must cut out those parts of the business that lose
money and focus resources on those that generate profits. The net effect is an
increase in overall profitability, although a decrease in terms of sales value. This
could be a prelude to a later ‘go for growth’ strategy.
If your SWOT analysis points to one of the three ‘growth’ strategies as a serious
option, it should be evaluated more thoroughly. A methodical approach is called
for, testing each option against the same set of criteria, as follows.
1 Is there a market for it now?
• What are the characteristics of the market, including the need?
• How closely matched are you to these needs?
• How large is the market in terms of units, value and growth?
• What market share can you expect and over what time period?
• What are the key features of customer buying behaviour (preferences for
products and services, price sensitivity, seasonality, frequency and volume of
purchase, substitute products/services, channels used)?
• How strong is the competition?
• What are the characteristics of the market, including the need?
• How closely matched are you to these needs?
• How large is the market in terms of units, value and growth?
• What market share can you expect and over what time period?
• What are the key features of customer buying behaviour (preferences for
products and services, price sensitivity, seasonality, frequency and volume of
purchase, substitute products/services, channels used)?
• How strong is the competition?
2 What are the required features of the product/service?
• Design and packaging features.
• Size and weight.
• Pricing points.
• Development and testing issues.
• Piloting or test marketing.
• Costings.
• Design and packaging features.
• Size and weight.
• Pricing points.
• Development and testing issues.
• Piloting or test marketing.
• Costings.
3 Market and customer research
• If any of the above areas are weak, what research is needed and how soon can
you secure objective data to fill the gaps in your knowledge?
• If any of the above areas are weak, what research is needed and how soon can
you secure objective data to fill the gaps in your knowledge?
4 How much will it cost to reach the market and make
target sales?
• Produce a draft marketing plan and budget.
• What are the breakeven sales figures on key sensitivities (‘what ifs’), e.g. higher
overheads, lower gross margins?
target sales?
• Produce a draft marketing plan and budget.
• What are the breakeven sales figures on key sensitivities (‘what ifs’), e.g. higher
overheads, lower gross margins?
5 What resources will be required?
• Competences – does your team have enough knowledge and understanding of
new markets, new products/services and competition?
• Does your team have the skills to reach and sell to new markets or to develop
and launch new products/services?
• Do you have appropriate technologies to support development?
• Contact networks – do you have access to market and industry networks?
• Do you have the necessary organizational structure and administrative systems
to support proposed new developments?
• To produce to the necessary standards, do you have the right technical,
production and purchasing expertise?
• What equipment, space and technology are required?
• Competences – does your team have enough knowledge and understanding of
new markets, new products/services and competition?
• Does your team have the skills to reach and sell to new markets or to develop
and launch new products/services?
• Do you have appropriate technologies to support development?
• Contact networks – do you have access to market and industry networks?
• Do you have the necessary organizational structure and administrative systems
to support proposed new developments?
• To produce to the necessary standards, do you have the right technical,
production and purchasing expertise?
• What equipment, space and technology are required?
6 What would it cost you to provide the resources you lack?
Do not overlook hidden costs. If the answer to ‘do you have the resources?’ is ‘yes’,
who will be taking time and attention away from other parts of the business to
bring the new activity on stream?
Do not overlook hidden costs. If the answer to ‘do you have the resources?’ is ‘yes’,
who will be taking time and attention away from other parts of the business to
bring the new activity on stream?
- Status