This blog gives a practical outline of a market-driven strategy and the practical implications together with typical challenges and pitfalls of this exercise.
The standard case is, the BU is requested to write its strategy. This means, the frame is terms of length and structure is set. The PM formulates the strategy for her/his Product(s) as a contribution, which is then summed up together with the other parts by a team to the BU strategy.
Independently from this, the PM has his strategy already in her/his mind. At least, the basics are already available in chart form. Why this? Because the PM is the one responsible and accountable for the business success. How is she/he supposed to do it, without a strategy? Additionally, one can expect certain situations coming, where it’s very suitable to have arguments “ready to use”: the BU management asking questions about the PMs business, an investment (or divestment) is for justification.
The validity period is in standard cases between 5 and 10 years. The market growth and the business plan have therefore to be issued for the same time period.
It’s a market strategy, therefore it starts with the market analysis. Consequently, the structure is (in rough percentage of the total paper) the following:
- Market analysis 50%
- BU current business and position 10%
- BU strategy 40%
The wording, the charts and tables are there to lead the reader as through an exposition: a “red thin line” conducing from one room to the next one, securing all the time the orientation. Following a stringent logic, the reader will have at the end a comprehensive understanding of the market and the BU business. The paper will show as many details as necessary just for this scope, not more.
As one premises, the PM keeps in mind if the BU has defined “no goes”. For example, if the BU is active at the market level B2B, proposing a positioning at the end user requests extraordinary strong arguments beyond profit.
The PM has already the strategy in mind. So, he might write it “reverse”, e.g. starting from the end. This hasn’t to be understood as: facts and arguments are “shaped” for the scope. But it renders a first help for the above mentioned “red thin line”.
Executive Summary
The Executive Summary is the most challenging part of the strategy. It’s one (max two) page(s) long, only wording, necessary charts are attached. It has roughly the same structure as the strategy itself:
- Strategic Relevant Market (40%)
- BU current business and position (10%)
- Strategy (30%)
- Strategic alternatives (10%)
- Risks (10%)
Executives have very limited time. Therefore the wording has to be extremely precise and to render a high content level. Each sentence works like a fistful dollars.
Strategic Relevant Market
This analysis is the foundation of the strategy.
For detailled information see the separate blog about Defining the Stratgeic Relevant Market SRM
- Definition and Growth:
- Structure
This section depicts the relevant market levels, submitting with one view the key participants and their role in the market. In the following a simple example:
The BU actual market positioning has to be described. One important point to analyze is, if this structure will remain unchanged for the time period considered by this strategy. If not, the changes, especially “game changes” and their impact have to be clearly explained.
The sections key success factors, trends & drivers and innovation potentials are to be analyzed, referring to the market structure, always keeping the focus about how they impact the market level on which the BU is positioned.
- Key Success Factors
Which are the core success factors at each market level?
This has to be analyzed for the BU customers too, in order to get a feeling about their future. Also here, the question “are changes to be expected?” has to be answered. The Key Success Factors have an important relevance for the BU competencies: is there a fit actually and in the future? If not, which consequences and decisions have to be taken: build up, buy it, step out?
- Trends & Drivers
They have to be described for the total SRM. The trends & drivers analysis has two aspects.
One is related to the market internal forces. Which trends will impact the market and eventually the Key Success Factors: changes in raw materials, new techniques, cost pressure, consolidations, etc.? The second is related to the market external forces. For example: new environmental regulations.
The drivers are for understanding “how the market works”: who are the drivers holding the market keys in their hands? Are they at the market level served by the BU, or at a different one? This renders relevant indications for the BU accessible action range: how far will it be possible to take influence?
The Trends & Drivers have an immediate effect on the BU strategic measures.
Example:
The BU supplies chemistry to B2B customers, serving the big chain distribution. Consequently, the BU customers are with respect to pricing “at the hook” of the distribution. This makes clear that the BU pricing strategy will have limited action range. And leads one step further to conclusions about the BU cost structure. Especially if the BU faces strong competition.
- Innovation Potentials
Innovations Potentials are opportunities, submitting the knowledge about the market future development. They have to be put into relationship with the BU Core Competencies. Those which fit, are to be explained, others are just to be shortly mentioned if at all. This section is directly linked to “Innovation Projects”. - Competitive Landscape
The BU and its competitors with their production sites and capacities are to be shown, the best with a list for having an immediate picture. At this point the reader has already a good understanding, about which are the important factors for acting successfully in the market. Therefore the most important competitors should be additionally analyzed in this direction.
Examples:
The market is highly price driven:
Productions sites, capacities and their cost structure are to be listed
The market shows important innovation potentials:
The innovation abilities are to be described
- Market Attractiveness
This section is for submitting the feeling, in how far this market is attractive for the BU. It’s a first hint for the later “Proposed Strategy”.
- Conclusions
It can be understood as an Executive Summary for the market. Few sentences with very high content density: the searcher has got it. They have to be full in line with the previous sections, not one word can lead to any question. Keep in mind that they will check it. The less committed reader may skip the other sections and just read “Conclusions”. This section has to render a strong indication about the strategy.
Example
The chemical manufacturers at the BU market level supply the Product with tech service to a consolidated number of mostly regional producers of … for the …… industry. This market is worldwide in 2018 …Mio € (…t) worth. Main regions are Europe (..%), Asia (..%) and North America (..%). It will grow up to …Mio € (…t) in 2028 with an average of .% p.a. keeping the regional shares unchanged. Exploiting their strong position, the…. industry strives for lower prices. Innovation potentials are available for new products with lower weight by ..%, for replacing the actual ones. This business will be worth …Mio € (…t) in 2028 worldwide. The BU competitors are a limited number of global, backwards integrated producers. Consequently, key success factors are a competitive cost structure, global presence and innovation ability.
Business Unit – Current position
This chapter describes the current position of the business in the market including quantiative and qualitative measurements. It helps to better understand the performance in the past and and the fit in the future.
- Business Development
- KPIs
- Actual Structure
The BU business development and their KPIs (sales turn over, contribution margin, gross margin) of the last 5 years (10 if suitable) should be listed. Few charts are shown, further ones with more details are for the attachment. The business development should be shortly analyzed with few sentences: which are the main reasons for it?
The actual Structure, e.g. the way the BU performs this business, including the man power involved, has to be explained:
– Global, regional set-up and presence
– Production sites
– Dedicated production capacities, or sharing with other products;
How is it organized within the BU
- Core Competences
- Fit with Key Success Factors in SRM
- Fit of Core Competences with Innovation Potential
The Core Competences and their fit with the market in terms of Key Success Factors / Innovation Potentials can be analyzed in respect to the BU itself and the total company. It has strategic relevance, how far the Core Competences show a fit and if they are with the BU or somewhere else in the company.
Example
The Core Competences show a high fit, they are with the company, but won’t fit with the BU in future?
The business should be at disposition for being handed over to another BU.
- Position in the SRM
- Competitive Position
- Market Portfolio Attractiveness (BU vs Market Attractiveness)
This is a clear assessment of the BU actual and future position in the market. - Innovation Projects
The more the market shows Innovation Potentials, the higher is the importance of this sections and vice versa. The link between the market and the BU (or the company) Core Competences with respect to R&D leads to strategic conclusions.
Example
The market shows innovation potentials, they fit with the BU core competences and related projects are in place:
The strategic conclusion is to allocated appropriate resources, the new business contribution has to be taken into account
- Customer Interaction Model
The possible customer interaction models are mostly a given within the BU. This section describes the one in place for this business. Deviations from the given models have to be explained and justified. - Interfaces with Other BUs
Interfaces with other BUs have to be taken into account in respect with
– Customers
– Production capacities
– Core Competencies
Do the BU and other BUs have common customers, asking for a comprehensive approach? May one business effect the other?
Does the BU share production capacities for this business with other BUs (see 3.3 Actual Structure)? If yes, which would be the impact of the business development, especially quantity wise? Could additional quantities be produced within available capacities? Which would be the financial impact of phasing out the business?
Does the BU have synergistic Core Competences with other BUs, or even contradictions? For example: one has the R&D competence, the other one an established market access. Is the BU positioned at the market level B2B and another BU serves end user, e.g. is a competitor of the BU customers?
- SWOT Analysis
The SWOT analysis should not be overloaded with too many ball points.
It’s a help for summarizing up what has been stated until now. Most common failures are not to follow the logic of the SWOT and to define the SWOT independently from the analysis before but rather wirting down constantly repeated believes of the organization. It must be possible to trace back every statement in the SWOT to the analysis. - Conclusions
As written about Conclusions for the market.
Example
The BU has a worldwide, in the last 5 years growing business (+.% p.a. average) worth ..Mio sales (..t) and ..Mio € gross margin in 2018, mainly in Europe (..% market share) and North America (..% market share) basing on regional productions capacities (….t p.a. in Europe, …t p.a. in NA). Due to the strong regional competition and the limited market access the positions in Asia is weak (.. % market share). Basing on the backward integration, the high production know how, the extensive production capacities in Europe / North America and the Product expertise the BU features the premises for profitably develop its position in the established regions and expand in Asia.
Putting together the two Conclusions (market, BU), for the attentive reader the strategy to follow should be clear now.
Strategy
- Current Strategy
Picking up the main points from the last strategy paper, this section summarizes the actual strategy. - Actual Position vs Current Strategy
It’s a comparison between where the business is currently, versus the business plan, the implementation of key measures and the robustness of underlying assumptions shown in the last strategy paper. Deviations have to be shown and explained. - Strategic Options
Strategic options do not fall out of the sky. Theay are a result of experience from observation, of knowledge about strategic patterns used across the own industry or even other industries and of creativity by using creativity tools to spark ideas for new business models.
The basis is: continue in the same direction as described in the last strategy, adjust it or change it. Adjustments could be: improve the market position, consolidation, expand capacities. Substantial changes could be: acquisition, joint venture, hand over to another BU, phase out, divest.
- Proposed Strategy
Experience shows that the most strategies papers at this point don’t bring any substantial surprise. The Proposed Strategy is the logic consequence derived from the market analysis and the actual BU position / business development. This is the way to do it on the more secured way. A very ambitious PM may propose a keen strategy. Can be done, but then very deeply justified with strong arguments.
One main question has to be kept in mind: in case the current strategy isn’t successful, why will it be this one?
- Strategic Measures
The Strategic Measure are the actions for implementing the Proposed Strategy. It is advantageous to show the measure followed by the scope.
Example
– Expand capacities to follow market growth
– Consolidate the product range for complexity reduction
– Build up distribution for higher market penetration
- Business Plan
The Business Plan is the Proposed Strategy in numbers for the same period: sales (value, quantities), contribution margin, gross margin, other KPIs. The main charts are shown in the paper, such with more details are in the attachment.
When working with percentage growth over a long time period, avoid astronomic numbers. Needless to say, sales quantities should be in line with production capacities.
Experienced PM issue a business plan avoiding particularities like “hockey sticks” and keep business potentials on the back burner…
- Investments
Necessary investments in production, R&D and personnel have to be shown and justified. - Acquisitions, Joint Ventures
Possible Acquisitions and Joint Ventures have to mentioned. They don’t need to be explained in depth, otherwise the paper will explode in length.
Separate documents will be issued.
Acquisitions and Joint Ventures are not only for achieving the goals set by the Business Plan. They could be also strategic market measures. - Risk assessment
The Risk Assessment takes into account factors as:
– Currency changes
– Shortage for raw materials /precursors
– Significant economy downturns