Portfolio Analysis – Evaluating your Products & Services

How do you currently evaluate your products and services? When your thinking strategically, it’s important to evaluate the potential of your existing range, especially when it comes to capital investment, research & development funding and advertising campaigns. Is one of your products a “cash cow”? Or do you have a “dog”? This post explores the method of evaluating your products and services.

As with all things, our products and services have a life. This life moves through various stages, much like the business life-cycle. Understanding where your various products and services are in their life-cycle is very important when it comes to strategising in your business. Let’s look at an example. Where would you imagine the carbon/carbonless invoice book is in its life-cycle? The answer? Very close to the end! So, if you’re a manufacturer of carbon/carbonless invoice books you had better be looking for something else to manufacture. Now, I’m not saying that these books don’t sell because they do. What I’m saying is that the market for these products is in decline and will be completely dead some years down the track (for obvious reasons). Market growth (or otherwise) is axis 1.

The second axis is the relative market share you have for each product. Do you dominate the market with this product or are you a minor player? Is the market saturated with many small players or do some larger businesses dominate? This requires some careful research so make sure you get it right.

Now that we know where are market is going, and we know how much of the market we have for each product, plot the products position on 2 axes, market growth low to high on the Y axis and market share high to low on the X axis. If your product sits in the top right quadrant, call this a question mark. The top left quadrant is a star, the bottom right quadrant is a dog and the bottom left a cash cow.

So what do these names mean? Look at the cash cow. The market is in decline but you dominate it. This means that you can most likely charge a premium for the product, making as much money out of it as you can until it dies. You hold a strong brand position and the equipment to produce it probably owes you nothing in terms of depreciation. A cash cow!

A star is what we all want to have in our portfolio. A market that is growing steadily and lots of market share to get hold of. This presents an opportunity to your sales and marketing teams to come up with the right formula to take advantage of the potential in this product.

As you would expect, the dog is a dog! The market is in decline and you don’t have much market share. Don’t waste your time going any further.

So what about the question mark. It’s exactly that. Question whether you think you can increase the market share of this product. If the market is dominated by strong brands you may never achieve any real traction with your product. Examine this one closely, it’s not one you want to get wrong.

The objective of this exercise is to assess the potential of each of your products and make sure you don’t just rely on the cash cows that will provide short-term results and long-term cash issues. Forget the dogs and re-think the question marks. Try to develop the stars that will take your business forward.

Sustainable Operations Management are strategy experts. We can work with you to develop your competitive strategy and earn above average returns. http://www.somconsulting.com.au

Competitive Strategy – Earning Above Average Returns

Think about the concept of above average returns for a few minutes. In business, are you happy with average returns – hopefully not! Well, without a valid competitive strategy, that’s about all you can hope for. And, you may not even do that well.

In order to earn above average returns, your business must have a competitive advantage over your rivals. This competitive advantage can be in the form of your ability to produce goods or services at a lower cost than your competitors. It may be that you can produce quality above that of your competitors and charge a premium for that. Or, you may be able to source products from around the globe cheaper and sell them for a good profit, above that of locally made goods.

Achieving a competitive advantage isn’t as easy as just doing it, you must have, or develop the competencies that support and facilitate your advantage. To develop these competencies, you must tap into the intellectual property that exists in your business, invest in R&D or training of your staff. Achieving a competitive advantage is all about identifying and leveraging the unique skills and/or knowledge in your business. If you don’t currently have this, work on developing it.

So, having a competitive advantage translates into above average returns? Not yet. In order to achieve those elusive returns, you must develop a competitive strategy. This means developing a strategy for how you are going to compete in the market place. The 2 most common strategies for competing in markets are cost-leadership and differentiation. Cost-leadership means that you are the cheapest option every time (which can also mean under-cutting a competitor). Bunnings Warehouses operate on this competitive strategy with their “Lowest prices every day, or we’ll beat it by 10%” statements.

Differentiation means that your product or service is different from others on offer which allows you to charge a premium price. Apple Inc use this strategy with their relentless pursuit of new technologies such as the Ipad etc.

We can’t just decide that we’re going to use a cost-leadership strategy and charge ahead though. First, we must conduct a competitor analysis to find out who else might be using the same strategy. A competitor analysis benchmarks you and the other major players in the market on factors such as price, service and quality. To make a cost-leadership strategy work you would offer products of average quality for less than the average price. If you are the only one doing that, and you can actually produce at a lower cost, then you may have a competitive advantage and earn those above average returns.

A word of caution here. If you employ a cost-leadership strategy, charging a lower price then you had better be able to produce at a lower cost, otherwise it’s a recipe for disaster. Virgin Blue have used this strategy successfully for years, operating at a lower cost than their competitors through turning their planes around quicker, having cabin crew clean the aircraft etc. They have an advantage because they genuinely operate on a lower cost base than Qantas for example.

Lastly, I have seen many businesses that state “we won’t be the cheapest option”, but when it comes time to justify the higher price, they find that the customer doesn’t really value what they have to offer above the average offering and negotiate the price down. Just as important as ensuring you have a lower cost to produce when using a cost-leadership strategy, it is important to confirm that the customer values what you’re offering in exchange for the premium price. Think of this in terms of a BMW motor car. Premium price for a premium product.

That’s a lot of information to consider. It is complex and can be tricky to work through on your own. We suggest getting help to develop your competitive strategy and source of competitive advantage. We use tools such as a competitor matrix, portfolio analysis tool and a strategic planning framework. If you would like more information or some of these tools, contact us at enquiries@somconsulting.com.au

Retention of People a Key Concern for SME’s

A recent survey of thousands of Australian SME’s revealed that the second biggest concern (behind funding issues) is the retention of skilled labour. 86% of business owners surveyed expressed concern about their ability to retain skilled labour and talent within their business in the immediate future. Reasons for this concern are cited as low unemployment driving high wages growth, difficulties managing generation Y employees and issues with career progression.

The answer to this problem is a relatively simple one, although implementing the solution is not so simple. Basically, the most effective method of retaining great employees is to satisfy both company and employee objectives simultaneously. This is where good HR practices come into effect.

Let’s face it, it’s not unreasonable to accept that an employee will look for employment elsewhere if their expectations are not being met. This is a key reason for people seeking alternate employment. Typical reasons for dissatisfaction are;

• Lack of recognition for the work they have performed
• Poor management skills of their immediate manager
• Lack of personal and career development
• Boredom associated with mundane or routine tasks, etc.

So, how do we address these issues AND satisfy company objectives at the same time? The short answer is a People Management System. This is a system that helps you to recruit, select, induct, manage, develop and retain your best employees. The classic People Management System comprises of the following components;

1. Position Description
2. Person Specification
3. Employment Contract
4. Induction Program
5. Training Matrix
6. Competency Assessment
7. Probationary Review
8. Half Yearly Review
9. Annual Review
10. Key Performance Indicators
11. Personal Goals Review
12. Personal Development Program
13. Career Development Program

Now, all that might look like a lot of cumbersome work but really it’s not. Once you have the structure in place it is used for all employees and is modified for each individual person. Many of the reviews are quick “catch ups”, which only take a short amount of time. Tools such as position descriptions, person specifications, employment contracts, training matrix’s are all generic and specific details are updated for each employee.

What you will find when using this system is that you engage your employees about all sorts of issues and they will respond with both increased performance AND loyalty to you and your organisation. It’s a simple matter of managing your employees better.

SOM Consulting can help you implement a world-class People Management System for a one-off low-cost. Call us today to discuss your needs on (08) 8285 3413