Part 26
In a busines
s renewal operation, understanding what the customer value-chain model is important. Starbucks is a perfect example. Its journey began with a single store in the USA in the year 1971 to become one of the most recognized brands globally.
Understanding your customers’ value chain allows you to see what you can provide in addition to what you already supply to them. This also gives you the opportunity to consider the move to higher-margin products and services. Mobile phone manufacturers got it. Not only do we get a telephone, but they also ‘give’ us a camera, MP3 player, stopwatch, calendar, compass and other goodies – all-in-one package.
Part of grabbing a larger share of your customers’ wallets will come from understanding their future wants and needs, not just from assuming those will be the same as their current needs. This requires a solid understanding of your customers’ aspirations and the changing social atmosphere. In marketing, we call this technique-value migration. Value migrates from outmoded business models to business designs that are better able to satisfy
customers’ priorities.
Value migration may explain the increase or decrease in your margins as your customers’ priorities evolve and are met by other offerings. Years ago we saw the migration of margins from PC manufacturers to software companies. Exiting businesses and moving into specialty businesses is fine advice, but the question is, ‘Which specialty businesses!’
To answer that question, you have to consider a few things.
Review your customer ranks – Not all customers are good customers. Consultants complain of clients who waste time talking about minor issues unrelated to their main problem needing solution. Retailers have customers who return almost everything they buy. Given that you have limited time and resources; you must deploy them for the benefit of those customers for whom they will do the best. The challenge here is to segregate customers by profitability and minimize those with a negative overall contribution.
Redefine geography – Sometimes you may find the best option is to move to a different part of the city and sometimes you have to move to another country. Your customers migrate; you might have to as well. Watch geographic and demographic shifts of your customer base, your supplier base and
your workforce.
Explore adjacent profit pools – Your customers spend their money across a series of ‘pools’ that you should consider tapping. For example, a customer who buys a car also spends money on financing the deal, buying insurance, maintaining the car and tricking it out with modifications. Car dealers try to participate in all of these pools to gather more of their customers’ money. The dealer will do your maintenance business, whether you bought the car from them or not.
Core competency
Everything discussed above is fine as long as you have the core competency, meaning the combination of technologies and skills that you used to provide customer benefits better than anyone else.
Here are some thoughts to consider.
Conduct a competency review – Are your current core competencies enough for the future of your business? Do you need to acquire additional competencies? Take, for example, the iPod’s massive success. Here is a ‘computer’ company that acquired or developed the competencies to negotiate with music companies, design and engineer consumer electronic devices and write new device-interface software to make it simple to download music via the Internet.
Consider partnering – Previously, business analysts believed that you should own the competencies that make your company unique and that you should outsource other work to those who do it better than you. The problem is that outsourcing became seen as a means of cost-containment, not as a path to competitive advantage. Great partners may not be the lowest-cost partners - they might bring other strengths you need. Review your suppliers and see which of them should be considered partners because of the competencies they bring.
Move on
Sometimes you’ve taken a business as far as it can go. Now may be the time to think about a move that brings you to new places. Even if your existing business is mature and on the verge of decline, you have time to use it as a platform for future growth. Here are some ideas to consider when you
move on.
Find your exit – It’s one thing to declare victory; it’s another matter to actually find a buyer for the ‘old’ business. Test the market and look at the possibilities that will allow you to sell your business! Can you find an underwriter for an initial public offering (IPO) and become a shareholder rather than the owner! How will you profitably exit the business so that you can move on to your next endeavor?
Study adjacencies – If you consider your existing business as the core of future possibilities, you can examine those channels, geographies, products or even different businesses that are close to your existing business. However, you will need to look a bit further afield than you have done in the past since the adjacencies you have already examined have not been sufficient to renew the business.
Use your talent – Your existing business may have hit a dead-end for reasons outside of your control. However, you have the talent and the experience to start over. Steve Jobs was relieved of his position by Apple in 1985. He then went on to found NeXT Computer and in 1986 he purchased Pixar for US $ 10 million. When he sold Pixar to Disney for US $ 7.4 billion in 2006, he became Disney’s largest shareholder with 7 percent of its outstanding shares. Yet, he still found time to rejoin Apple as its CEO in the
late 1990s.
Hold an after-action review – Your existing strategy may be working well or may have failed. Consider the four questions at the heart of a military after-action review and apply it to your business: (I) What did you want to achieve! (2) What did you achieve? (3) Why were your desired outcomes and your actual outcomes different? (4) What did you learn! Can you work out a goal analysis – Make sure you separate the means from the ends you are trying to achieve. Your goals should be specific, measurable, achievable, relevant and time-based - take the time to develop and document
appropriate goals. Once you have done so, you can build your plan for achieving
these goals.
Develop a vision – What will long-term success look like? Can you see it in your mind’s eye and, more importantly, can you explain it to others! If you can’t, how will you get others to follow your lead! Spend the time and energy to do this well - it’s worth it.
Cash out
Many companies have business units or product lines that have seen better days and have little chance of revival. Emotionally, we often want to save them because of their past glory. But you have to ask yourself if that is the best use of your resources and talent. More often than not, the answer is an emphatic ‘No’.
How do you identify cash out?
Do a life-cycle analysis – Ask yourself where each of your units stands on the lifecycle curve. Maybe you are sitting on the ‘start sliding’ point. Maybe, you have to sell everything and invest the proceeds in another operation.
Create a business portfolio analysis – Look at your portfolio of businesses and assess market growth and market conditions. What should you prune from your portfolio and where should you invest the proceeds! As you consider your situation and the strategies that might best apply to you, make a list of the projects you need to undertake to make your strategy a reality for your organisation. Start with the sample projects we have given you and add others as you see fit.
Secure
Once you have identified the projects you need, you must fund them. This is what happens in the secure step. Developing a renewal strategy is hard work but often fun, since you can play ‘what if’ to your heart’s content. However, the cold light of day comes as you start to consider the allocation of hard and soft assets needed to make the strategy a reality.
(Lionel Wijesiri is a retired corporate director counting three decades of senior management experience. He is now an independent consultant and a freelance journalist. He may be contacted on
lionwije@live.com)
