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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Is Your Sales Team Asking The Right Pricing Questions?

Is Your Sales Team Asking The Right Pricing QuestionsMake no mistake; no customer buys anything just because they like you.

Truth is, you either bring a great deal of value to your customers or they take their business elsewhere.  Your products and capabilities must provide customers an opportunity to achieve greater returns on their business.

The nature of price competition

Competition In BusinessIn sports competition, the more intense the process, the better the game.

The key to success is to put you heart in the game and play it as hard as you can. In sports, the ultimate goal is to WIN.

In price competition, the more intense the process, the worse the game.

The key to success is to weigh thoughtfully the cost of each confrontation against the likely reward. In business, the ultimate goal is to PROFIT.

When pricing, don’t get constrained by tactical thinking

When pricing, don’t get constrained by tactical thinkingTo achieve the greatest profitability, a sales person’s job is to ask strategic pricing questions.

Do Not Ask:

“What price do we need to cover our costs and achieve our profit objectives?”

Ask:

“What changes in our prices or product mix would increase the contribution available to cover our costs and increase our profits?”

Do Not Ask:

“What prices are the buyers willing-to-pay?”

“What level of price will enable us to achieve our market share objectives?”

Ask:

“What level of market share can we most profitably achieve?”

“Which portions of the market can we profitably fight for (with what weapons?) and which should we yield to the competition?”

“How can we minimize the adverse effects of price competition in pursuit of sustainable profits?”

Managing price competition without undermining profitability

Don't THink Tactically About PricingThere are only two ways to prevent price competition from undermining profitability:

  • Develop competitive advantages
  • Manage the competitive process

The ultimate goal in managing price competition is to create stable competitive environment in which you can earn the best possible sustainable return on investment.

Recognized market leaders are likely to initiate price increases but often do not initiate price cuts.  Often, the price leader role is filled by a firm that has technical leadership and low unit manufacturing cost.

The market leader often has the largest and strongest distribution system. Market leaders generally also have technical leadership. Customers are anxious to maintain relations with suppliers who are in the forefront of technology.

As a sale person, your goal must be to implement a pricing plan that provides leadership to the industry and communicates your desire to stabilize the markets and capture your value. It should incentivize your customers to trade up and earn you a reasonable return.

That’s a win-win for everyone.

How do you communicate your value and pricing with your sales team and customers? Let us know.

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!