Are You Asking These 8 Key Strategic Questions?

 

Don't shoot yourself in the foot by not asking these 8 strategic planning questionsOne of the worst things that you can do is to engage in the planning process and base strategies on a flawed set of assumptions.

8 Key Strategic Questions is a tool for strategic and business planning reviews designed to get you thinking differently. Some of the questions may not be applicable in all circumstances e.g. process groups probably do have competitors, although they do have customers, changing market dynamics, etc.

1. What is the market? (Past, Now, Forecast)

  • 8 key questionsHow do you define your market worldwide? Is it defined by technology? End-use application (products offered)? Customer type or characteristic (market need)? Method(s) of distribution?
  • How big is the worldwide market in which we compete? How has it grown? How is it expected to grow? What drives the growth? Which geographical area is growing fastest?
  • Which segments do we currently serve and why? Geographic? End-use? Price-point? Product performance? How have the segments (served and unserved) been growing? How are they expected to grow?
  • What trends are affecting this market today? How are these trends impacting the overall market and the segments we serve?
  • In what cycle of development is your market? (Start-up, early growth, maturity, decline).
  • What are the key characteristics of your market?  Concentration? Fragmentation? Oligopoly? Hostility?

2. What is the competition? (Now, Past, Forecast)

  • 8 key strategic questions to askWho are our major competitors? What is their share of market? Do they play in all segments? Where are they strongest? How has their market share changed over the past five years  By segment?
  • Do our competitors manufacture similar materials to our own? Did they develop their own technology? What are their facility plans? What are their technology plans? Are they a leader or a follower?
  • What are the competitors’ manufacturing economics? Are their plants small or large? Flexible/inflexible? Are they positioned to capitalize on trends in the industry? To drive trends in the industry to their advantage?  What is their pattern on bringing on new capacity?
  • Is this market subject to competing materials? What materials compete? What materials are expected to compete in the next five years?  Do these materials have large competitors or are they fragmented?  What are the technology and economics of the competing materials?  What are the performance attributes of the materials?  Is their penetration of the market drive by specific applications?  Is their penetration of the market driven by specific applications? Economics of the end-user?
  • How does the competition market its product? How do they price? Are they a price leader or follower? Are they engaged in market development? Which segments? Have we noticed trends in their level of marketplace activity?
  • Is any of the competition adding capacity? If so, where? Does this pose a threat? How? What are their economics for new capacity (both incremental capacity in existing facilities and greenfield)?
  • What key competitor actions have been unanticipated in the past?
  • How global are our competitors? What competitive advantages or disadvantages does their global network give them? If they are regional or national, do they have the capability of becoming global?

3. What are your competitive advantages?

  • 8 Key Planning QuestionsAre we the cost leader (including production, opex and capital utilization) in our major market segments? Are we cost leader at each level of the cost chain? Manufacturing? Distribution? Marketing and Selling? Are our customers’ costs lowest when they do business with us? Are their profits highest when they do business with us?
  • Are we the technology leader in our major market segments In our rate of development of new products or penetration of new markets? In our rate of commercialization?
  • What are our competitors’ costs? How does their technology compare with ours? What about their total delivered costs? What are the customers’ economics when they do business with our competitor?
  • Have we effectively differentiated ourselves in our market segments? Have we done this through brand? Service? Product design/features/technology? How does our differentiation translate into improved profitability?
  • What barriers exist to allow us to sustain our cost or differentiation advantage? Do we have proprietary technology? Economics of scale? Unique distribution? Government regulation?
  • What switching costs exist for our customers? How might our competitors try to lower these switching costs? How can we lower the switching cost of our competitors’ customers?
  • What strategic shifts have taken place in your industry over the last five years? Have they eroded or strengthened our competitive advantage?
  • What changes do we expect over the next five years? How will they potentially impact our competitive advantages?

4. What is your mission, objectives and goals?

Goals, Objectives (market share, revenue growth, profit growth, cash flow, geographic, technology position)

Mission Framework for 8 Strategic Questions You Should Be AskingGoals and objectives are definitive and results oriented, derived on strategic assessment and reflects what you must do to achieve your Vision. Accomplishment of the goal should be measurable.

  • Should we grow, maintain or harvest this product segment? / CUSTOMER segment? / geographic segment
  • If we are going to grow this segment, what is your growth goal – market share, revenue, EBITDA, cash flow?
  • Do you need a partner or strategic alliance to reach your goals?
  • What sustainable competitive advantage is your growth plan built upon?
  • If the goal is to maintain your product segment, how will you make sure that you are following a maintenance and not harvest strategy?
  • Why is strategy maintain as opposed to grow?
  • Which criteria should be used to measure maintenance?
  • Do we need to continue to own this segment? Should we joint venture it?  With whom? Should we sell it? Potential interested parties?
  • If your recommendation is harvest, should it be a slow harvest or a divestiture?
  • Does your business strengthen any of your sustainable competitive advantages? If so, how?

5. What are the key strategic programs recommended to achieve your mission and goals?

bang-head-against-brick-wallStrategies reflect most efficient and effective road to achieving goals. They should show best practices and innovative thinking.

  • What are the key strategic issues in your segment?
  • What strategies will be implemented worldwide?
  • What strategies will be implemented in specific countries or regions? End-use customers?
  • How will technology flow between countries?
  • Do we want to have one face or multiple faces to the customers in different geographies/based on product mix, quality, technology level?
  • What growth opportunities exist worldwide and in each region and how will these be achieved?
  • What trade-off decisions between opportunities in this segment have you made?
  • Are there support products we must develop to implement a strategy?
  • Where are your centers of manufacturing, technological excellence (development) for this segment? Does one region have the lead in development? If so, how will the needs of the other regions be supported?
  • How will you encourage the development of different products based on the different needs and cultures of each region?
  • What support do you need from the staff groups to implement your plan? (Finance, Human Resources, Sales, Marketing, Sourcing, R&D, Ops, Engineering, Legal, others)
  • Does their need to be a high level of integration between the plan for your segment and another segment?

6. What are the resources required for the recommended strategies?

  • Are You Pricing For Volume or Profit?What capital needs to be invested in each year?
  • What R&D programs need to be started or completed?
  • What training programs, new skills, etc. Are required from our employees?
  • What support is needed from outside consultants?
  • What resources are required from each functional area?
  • What are the returns from these investments?

7. What are the risks in your plan?

  • 8 Key Planning Questions to ConsiderHow much of your sales/earnings growth is tied to increases in prices?Volume?
  • What is the impact on your financial results if price and costs are 1% higher or lower than you anticipate? 5%?
  • How much of your plan is dependent on the economic environment?
  • What change in customer need puts your plan at risk (or other customer actions)?
  • What is the supplier fitness-for-use criteria to which you are most sensitive?
  • Which competitor is best positioned to block your strategy?
  • Which competitor has a competitive advantage which would make him better at implementing your strategy?
  • How will we know if your strategy is not working? What is the lead time for major capital and strategic decisions?
  • What technological breakthrough is your strategy dependent on?
  • What technological breakthrough puts your strategy at risk?
  • What critical employee skills is your plan dependent on? What training/hiring plans do you have in place to meet these needs?

8. What is your track record/credibility?

  • 8 questions for strategic planningIf your business does not have a solid track record of performance, what critical success factors will lead to a different performance in the future?
  • How do you want your strategy evaluated? Measured?
  • Which elements of your strategy should be included in incentive compensation? Over that time period?

If you really want to succeed in your planning process, ask yourself this one simple question

If you were to join your competitor’s business tomorrow, what would you do to attack the business you worked on yesterday? What are the three most dangerous things competitors can do to you (can be from a product perspective, customer perspective, market access perspective, technology? What can you do to protect/immunize itself, offensively succeed?

Good Selling!

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Planning Success: 5 Critical Steps To Creating A Marketing Plan

Effective Market Plan OutlineIs your sales team expert at getting around, through or under the walls customers put up? Marketing can help identify and guide the sales team to the best walls to attack. Plus help supply the tools to be even more effective in winning the customer’s attention and, ultimately, their business.

Having a marketing plan forces you to take the time to understand and identify those customers and tools that will have the greatest return – as well as understand the resources necessary for success.

Effective marketing plans are very detailed. They force you to stop and take a snapshot of the marketplace, your customers, competitors and products. With that starting point, they help you define your goals and the path to achieving them.

This guide is an outline to help you put together a comprehensive, strategic and effective blueprint for your business.

Planning for success: your guide to preparing an annual Marketing Plan

There are many steps and details involved in fleshing out a comprehensive and compelling marketing plan, so here are some general guidelines to think about as you get started.

The first step to Marketing Plan success is fully understanding the Situation Analysis

The path to an effective Marketing Plan starts with knowingwhere you are goingThis is an analysis of where we are (ourselves, our competition, our market, our distribution) and how we got there. It should be factual and objective. If possible, your data should reach back at least three to five years. The further back in time your data goes, the more meaningful will be your trend lines. Select what is most meaningful, focusing on those areas where your patterns differ from your competition.

  • The size, scope and share of the market
    • Sales history of yourself and competitors, and share of the market, in dollars and units
    • Market potential and major trends in supply and demand of this and related products
  • Sales, costs and profits of your product
    • Sales history, by sizes or models, by sales regions
    • Cost history, including cost of goods delivered, selling, advertising, administrative, and all other expenses
    • Profit history (not profit on sales and on investment), including competitors if known
  • The distribution channels
    • Identification of principal channels, with sales history through each type including competition if known
    • Buying habits and attitudes of principal channels, your product vs. competitors
    • Your selling policies and practices, in comparison with competitors
    • Trade advertising, literature, samples and displays
  • The consumer or end user
    • Identification of person making the buying decision
    • Consumer attitudes of your product vs. competitors, on quality and price
    • Consumer purchase habits including factors as time of purchase
    • Consumer use habits
    • Your marketing, packaging, promotional and advertising history
    • Website, social media, PR and other educational influences
  • The product
    • Story of your product – quality development, design, sizes or models, delivery and service
    • Comparison with competition and evidence of performance
    • Product research and product improvements planned

The next step to building an effective Marketing Plan is identification of problems and opportunities

  • What are the major problems that are restricting your profit or impeding your growth?
  • What opportunities do you have?
    • Overcoming the above problems?
    • Modifying products, streamlining the product line, or adding new products?
    • Increasing your market penetration or developing new markets?
    • Improving the efficiency of your operations?

Now it’s time to think through where you want to go by creating objectives for your Marketing Plan

  • Creating an Effective Market Plan OutlineYour assumptions for future conditions
    • Level of economic activity
    • Favorable/unfavorable legislation
    • Level of industry activity (market forecast)
    • Activities of competitors: product innovation, marketing strategy, pricing, etc.
    • Changes in customer needs for your products
    • Changes in distribution
    • Changes beyond your control in your own cost of product and sales
  • Your primary objectives
    • Sales and share of market objective
    • Profit objective
    • Turnover objective
    • ROI objective
  • Overall strategy for achievement of primary objectives
    • Sample statement strategy: Shift sales emphasis from product line A to product line B. Emphasize penetration of key market areas X, Y and Z. Reduce capital employed by bringing accounts receivable back to standard P.
  • Functional (departmental)objectives
    • Sales objectives by product and by market
    • Distribution objectives
    • Advertising and promotional objectives
    • Customer service objectives
    • Pricing objectives
    • Product modification objectives
    • New product objectives
    • Product deletion objectives
    • Expense control objectives
    • Manufacturing objectives (plant additions, capacity utilization, unit costs, etc.)
    • Personnel training objectives

Understanding how you are going to get there is the role of action programs in your Marketing Plan

Put Your Marketing Plan Into ActionHere you will detail the specific action steps, priorities and schedules relating to each of the functional objectives. If, for example, one of your objectives for sales was to “increase sales of product X,” now is the time to pinpoint specifics from what will be done, by who, to increase sales with specific customers.

If one of your objectives was to “introduce a new product by X date,” now specify development cost and deadlines, production planning, schedule, market introduction plans, advertising and promotional support, sales and service training needed, etc.

Most of this programming should be delegated and worked out “from the bottom up” rather than from the top down.

Don’t skip the control and review procedures step in creating your Marketing Plan

How do you determine your pricing?  It’s probably a rigorous process, but is it science or art?Decide how you will monitor the execution of your plan once it is set in motion.

  • What kinds of “feedback” information should be rendered periodically to each responsible person so that actual progress can be evaluated against the plan expectations?
  • How frequently should each element of control be reviewed?
  • How should the carious elements of control information be “packaged” so that they:
    • Can readily understand them
    • See important pieces of information simultaneously and in their relationship to each other, so as to determine what corrective action should be taken?
  • Set a date for a full scale review of progress vs. plan

While creating a marketing plan is never a simple task, the process will force you and your team to evaluate the opportunities – and challenges – that your business faces. And because the marketplace is never static, this should be a living document, periodically being reviewed and updated. It never should become a binder sitting on the shelf.

Good Selling!

 

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Are You Investing in the Right Customers?

re You Investing With the Right Customers?You’re funding the activities that support your biggest customers. But do you have a plan that allocates those funds based on other metrics besides just sales volume to determine budgets? Do you have a process other than your instincts or past budgets?

In other words, are you underfunding accounts that – with resources – might be able to grow and contribute to your sales and profitability?

Here’s a customer ranking tool that will provide you with facts to make tough calls and hard choices around who to fund for growth – and who it’s time to cut back with.

Using a 9 Box Approach for Evaluating Customers

sales-forecast-meeting1What’s necessary is a tool that puts all of your customers on a level playing field. To do that, we modified the 9 box grid approach commonly used in strategic planning.

The 9 box approach usually speaks in terms of invest, selectively invest and divest. These aren’t business units being evaluated, they’re customers. Every customer is important and needs to feel special. What we want to do is evaluate our investment in that customer – especially where it comes to driving profitability.

To avoid internal misunderstandings, you may find it useful to rename the customer groups as Tier I, Tier II and Tier III. It defuses the sales team’s concerns around they accounts.

The downside to this approach is that customers are always ranked against each other, so there will always be a top, middle and bottom tier.

Building the Customer Ranking Tool

How to Factually Evaluate Customer Ranking & InvestmentTo effectively place each customer in the appropriate 9 box grid, we needed to find a way to factually plot the performance of each customer.  The best way to do that we felt was to use concrete financial measures over a multi-year period.

First, take a 4 year snapshot of each customer’s:

  • Average Net Rev
  • Average Gross Margin Revenue
  • Average Gross Margin %
  • CAGR
  • % of Net Sales based on your current full year forecast

Now rank each customer by each separate measure.  These ranking are going to be added together in different ways to build the tool.

On the LEFT axis we evaluated:

   Ranking of Average Net Revenue

+ Ranking of Average GM$

+ Ranking of Average GM%

= Sum of rankings

On the BOTTOM axis we evaluated:

   Ranking of CAGR

+ Ranking of % of Net Revenue

= Sum of rankings

Each customer was ranked highest to lowest. Meaning your top customer has the largest rank. Said another way, if you rank 20 customers against a measure, your best customer is a 20 and your worst performing customer is assigned a 1.

Now calculate and plot where each customer lands on the grid. Each axis is ranked low to high.

What Does This Customer Ranking System Mean?

What Does This Customer Ranking System Mean?Some customers will get more investment and resources than they have historically. Others will not.

There will ALWAYS be customers in the TOP, MIDDLE and BOTTOM 1/3 (because they are ranked against each other). Never forget this critical fact.

This will provide you with a tracking tool to use for customer movement over time. For example, after your annual planning and budgeting process is complete, you can evaluate the plan and budgets to show customer movement.

What Does This Customer Ranking Tool NOT Mean?

What Does This Customer Ranking Tool NOT Mean?That you are going to walk away from lower tier customers or that that you are not going to support your customers because they are in a lower tier.

It’s also important to look at different channels or segments by customer and not simply your largest customers overall.

This tool is to help you discover insights about your customer base that sheer revenue can’t. It will ultimately lead to better budgeting decisions that will build your sales and profitability.

Good Selling!