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August 4, 2022 2023-02-10 14:01

The Pyramid of Organisational Development

Developing an organisation is no easy task. Well, more accurately, developing a successful organisation is no easy task. If you are going to take your business toward the kind of success that you envisioned when you first began operations, it is necessary to construct your company in a way that facilitates growth and development.
Many companies start out with a poor structure that is unable to take them where they want to go – and they never manage to develop that structure into something that will work for a growing business. With the help of the Pyramid of Organisational Development, you just may be able to avoid that fate.
There are six factors included within this pyramid model, each building on the one below. Before we get into those six factors, we should touch briefly on the ‘foundation’ which has been identified for the pyramid, which is the mission and core strategy of the company.
Without starting from a point of a specific mission and set of goals, it will be difficult to make decisions that further the organisation from moving forward. Once a solid foundation is in place, the company can then begin to work on creating a stable and long-lasting pyramid. The content below will take a quick look at each of the six factors that are going to come together to form this important pyramid model.

Market

Before an organisation can really set about doing business, it has to identify the existence of a market which it can serve. In business, everything starts with a market. There has to be a market of willing buyers that exist in a large enough quantity to sustain the underlying business. You can make a great product, or offer a great service, but it isn’t going to matter if the market is insufficient. Before getting too far into its operation, all businesses need to do careful market research or they will only be wasting time and money.

Products and Services

With that market located and defined, it will then be time to design and create the products and/or services which are going to be sold to the market in question. It is important that the process works in this order, and not the other way around. If the products and services are developed fully before the market is identified, those products may not match what the market is demanding. While there will certainly be some ideas for products or services that exist right from the start, it is important to wait to develop those ideas until market research is complete.
Often, an organisation will develop by first offering just one or two products to a market to test the waters. If success is experienced, that product or service line may begin to quickly expand, now that the market has proven it is receptive to what is being offered. Of course, success with one or two products doesn’t guarantee success with future ventures, so it is important that the organisation continues to monitor the market and offer only goods that are likely to be well-received. Gains achieved in an early period of success can quickly be lost if future ventures are not as lucrative.

Resources Management

As an organisation grows, it is going to develop a collection of resources that it has at its disposal. One of the keys to continuing to succeed is using these resources in a way that maximizes their benefit in both the short and long term. These resources can come in a variety of different forms, including financial, physical, and human. A good management team will understand how to best put all of these resources to use in order to maximize the success of the organisation.

Operational Systems

Systems are important for any business, but they become especially important as an organisation grows. In a small organisation the same group of people may handle many of the basic systems and functions. However, as a company grows, that simply won’t be possible anymore. There needs to be a defined set of processes in place in order to allow a company to function properly on a day to day basis.
These operational systems show up throughout the company, from accounting and shipping to marketing, hiring, and much more. When systems are well-defined and monitored, they can keep the business running smoothly from day to day without interruption.

Management Systems

Every organisation needs a strong management team. Management is something that grows along with an organisation, as bigger companies have more decisions that need to be made than do smaller businesses. It is imperative that an organisation has a management team in place who is capable of making smart decisions in a number of areas.
Specifically, the four crucial areas of management systems are planning, structure, management development, and performance management. If any of these four areas are left behind, there could be trouble waiting down the road.

Corporate Culture

At the top of the pyramid is corporate culture, which is what the company is ‘all about’. What does the company believe in, what does it stand for, and what is it trying to achieve? Obviously, all businesses want to make money, so this point is about more than that. The actions of the people who work within the company are going to be influenced by the overall corporate culture as a whole, so this point is crucial and it should be defined early on in the lifecycle of an organisation. No company can afford to skip over any of the levels of this pyramid while building their operations. It is important to pay close attention to each level to ensure that the organisation has all of the systems and functions it needs to continue operating smoothly day after day, year after year. It is not easy to build a quality organization from the ground up, but the rewards can be immense when one is successful in doing so.

The Pyramid Key Points

  • The Pyramid of Organizational Development consists of six factors that research has shown to be the key drivers of financial performance and long-term organizational success.
  • Market: There has to be a market of willing buyers that not only exists, but exists in a large enough quantity to sustain the underlying business.
  • Products and Services: These are appropriate to the organization’s chosen market.
  • Resource Management: This includes the acquisition and development of people, equipment, facilities, and financial resources required for current and future operations.
  • Operational Systems: These are necessary for the organization to function on a day-to-day basis.
  • Management Systems: These include strategic planning, organizational structure, leadership development, and performance management systems.
  • Corporate Culture: The organization’s values, beliefs, and norms that influence the behavior of people in the company.
  • The Pyramid of Organizational Development can be used to identify an organization’s strengths and opportunities to improve.

The Pyramid Key Points

  • The Pyramid of Organizational Development consists of six factors that research has shown to be the key drivers of financial performance and long-term organizational success.
  • Market: There has to be a market of willing buyers that not only exists, but exists in a large enough quantity to sustain the underlying business.
  • Products and Services: These are appropriate to the organization’s chosen market.
  • Resource Management: This includes the acquisition and development of people, equipment, facilities, and financial resources required for current and future operations.
  • Operational Systems: These are necessary for the organization to function on a day-to-day basis.
  • Management Systems: These include strategic planning, organizational structure, leadership development, and performance management systems.
  • Corporate Culture: The organization’s values, beliefs, and norms that influence the behavior of people in the company.
  • The Pyramid of Organizational Development can be used to identify an organization’s strengths and opportunities to improve.

PESTEL and Porter 5 Forces Analysis

Any organizational strategy that you develop needs to include gaining a thorough understanding of the external environment that the organization is operating in. The two most widely used tools that can help you to do this are the PESTLE Analysis and Porter's Five Forces Analysis.
The PESTLE Analysis enables you to create a list of the potential issues within your macro-environment that have or could have implications for your organization.
Whilst understanding the macro-environment is essential for developing your strategy it only gives you half of the picture. You also need to have a thorough understanding of your competitors and the impact they can have on your organization. To gain this knowledge you need to conduct Porter's Five Forces Analysis.
In 1979 Michael E. Porter of Harvard Business School identified five key forces that determined the fundamental attractiveness of a market or a market sector in the long term. This became known as Porter's Five Forces Analysis and it provides a model that enables organizations to analyze their industry in a way that takes your competitors' activities into account. This is a vital part of creating a strategy, and it is important that managers understand how it works and how to contribute to it.
One of the most crucial aspects of using this technique is your organization's ability to define its market properly. Defining your market too narrowly, known as 'marketing myopia,' can make it impossible to work out who your competitors are in terms of market need and opportunities.
An example frequently quoted by marketing professionals is that of Coca-Cola: Coca-Cola defined its market and therefore its competitors as being in the 'soft drinks' market. This definition was too narrow and was not based on the needs of their customers; more realistically the market should have been described as 'social and snack-time' drinks.
If Coca-Cola had defined it as such then the company would have been better prepared for the impact coffee bars (Starbuck's, Costa Coffee, etc.) and the fresh fruit juice bars (Juice Stop, Juice Fix, Froot Smoothies, etc.) would have on its business.
Porter's analysis technique has become popular with business and strategy analysts and is often regarded as a credible and more practical alternative to the widely used SWOT Analysis. This is because it looks at the forces your competitors can exert on your market and how this could affect your organization and its long-term success.
In today's highly competitive markets any successful organization will have a reasonable level of intelligence on its known competitors. But as recent events have shown, the greatest harm to your organization is unlikely to come from this quarter. Your greatest threats are more likely to come from new and emerging competitors or new technologies. For example, New Entrant - Consultancy services supplier Tata was a new entrant from India and has been able to make serious inroads into the market. Existing suppliers such as EDS and Accenture have struggled to retain their market share since Tata's arrival.
Porter's model considers five forces that determine the 'attractiveness' of your market by analyzing the competitive intensity. What he meant by a particular market being 'attractive' was its overall industry profitability, which was assessed by looking at potential opportunities and risks.
The five key factors the model uses to identify and evaluate potential opportunities and risks are:
  • Competitive Rivalry
  • Threat of New Entrants
  • Threat of Substitutes
  • Bargaining Power of Suppliers
  • Bargaining Power of Customers
The first three are considered to be 'horizontal' competition (shown as dark blue in the diagram) because each force is operating in the same way within the market. The remaining two forces are classified as 'vertical' competition (light blue) because they operate within the supply chain.
It is important to remember when using Porter's Five Forces as part of your strategic analysis that the method was designed for use at the line-of-business level. 'Line-of-business' is defined as applying to a set of one or more highly related products that service a particular customer transaction or business need.
If your organization has a diverse portfolio of products and services, then it must create a separate model for each of these areas. Understanding the dynamics of Porter's model is vital to successfully making informed decisions as part of your strategy process and you need to remember that it is not appropriate to use at the overall business level.
If an electrical retailer, for instance, had a large portfolio of products, they would need to develop separate Five Forces models for each range. For example:
  • White goods (fridges, freezers, dishwashers, etc.)
  • Small kitchen appliances
  • Mobile phones
  • Computers, laptops, and printers
  • Camera equipment
  • Television and home cinema
Each product range is quite separate from the others and the five factors affecting each one are quite specific. It is only by performing a separate analysis for each range that you will gain the level of understanding you need to be successful in each line of business.
Organizations use this Five Forces Analysis to help them make a qualitative evaluation of their strategic position at the start of the development or review process. This technique is suited to helping you identify potential opportunities, especially if you are considering entering a new market, or you are seeking effective ways to differentiate yourself from the competition.

Porter 5 Forces Analysis Key Points

  • Porter's Five Forces model is regarded as a credible and practical alternative to the widely used SWOT Analysis.
  • The five key factors the model uses to identify and evaluate potential opportunities and risks are: competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of customers.
  • The model was designed for use at the line-of-business level.
  • It is often used at the start of the development or review process.

Competitive Rivalry

One of the keys to success for organizations is their ability to understand their competitors' actions and marketing strategies. The degree to which rivalry exists among competitors varies between industries and the market sectors within them.
Regardless of the number of key competitors your organization faces it is vital for its longevity that you understand the differences between your rivals. This knowledge is essential when developing your strategy, and it cannot be achieved by simply using two indices, e.g. size of organization and market share, or sales revenue and market value.
There are two indices that are commonly used when judging your competitive edge and those of your rivals:
  • CRx - Concentration Ratio
  • HHI - Herfindahl-Hirschman Index

The Concentration Ratio (CRx)

This ratio measures the total output produced in an industry by a given number of corporations. It will be expressed by using its initials followed by a number. For example, CR4 gives the market share of the four largest companies CR5 gives the market share of the five largest companies, and so on. Concentration ratios are usually used to show the extent of market control of the largest firms in the industry.
Concentration ratios range from 0 to 100 percent. The levels reach from No, Low, or Medium, to High and 'Total' concentration.
If for example CR4=0%, the four largest firms in the industry would not have any significant market share. If CR4=100% then the four largest firms would account for the total market share.
The following diagram illustrates the CR5 Concentration Ratio of four UK industry sectors that are close to monopolies.
The diagram shows that for both the sugar and tobacco sectors the top 5 companies account for 99% of the market share. The top 5 suppliers of oils and fats account for 88% of the market share, while the top 5 suppliers of gas account for 82%.
In those sectors where the Concentration Ratio is low there are many rivals and no one organization has a substantial market share. Competition in such markets is high. Those sectors within the UK that have the lowest CR5 ratios are shown below.
In all of these sectors the five largest producers account for only 4-5% of the total market share.
The Herfindahl-Hirschman Index (HHI)
This is also referred to as the Herfindahl Index, and it is more complex than the CRx. It is only important that you understand that it measures the size of organizations in relation to the industry and indicates the amount of competition amongst these organizations. The HHI also gives a greater weighting to larger organizations.
This index ranges from a value of zero, which indicates a very large number of small organizations, to one, which represents a monopoly. Therefore the closer the HHI Index is to zero the greater the level of competition within the sector. There are published figures available for these indices that can offer you an insight into the degree of competition in your sector. You can look these up using the SIC (Standard Industrial Classifications) that match or are a best fit for your operations.
Factors Affecting Competitive Rivalry. There are several things that increase the intensity of rivalry that you are likely to experience:
  • A larger number of firms
  • Slow market growth
  • High fixed costs
  • High storage costs
  • Low switching costs
  • Low levels of product differentiation
  • High exit barriers
The larger the number of organizations involved in a market the greater the level of rivalry. This is because the organizations have more competition when trying to win customers and buying resources so rivalry can be quite aggressive. This becomes more intense the more equal each company's market shares is as they all strive to become the market leader.
The same aggressive rivalry can be seen where the market is growing slowly. Organizations will be experiencing declining sales, both in terms of revenue and volume, and will strongly defend their existing market share, while attempting to gain a greater share.
In markets where fixed costs make up the majority of the total costs, organizations need to produce at full capacity to ensure they achieve the lowest unit costs through economies of scale. These high volumes mean that the organization has to adopt a hard line when fighting for market share against its rivals.
Where organizations have a product that is highly perishable or has high storage costs they are always seeking to be the first to market so that they can achieve the best prices. This creates an environment of intense competition to win customers.
In circumstances where it is relatively easy for a customer to switch between products and suppliers rivalry will also be high. A good example of this can be seen in wholesale fresh vegetable, meat, and fish markets. This situation also illustrates another influence on the intensity of rivalry: where there is little differentiation between your product and that of your competitors. The effect of this can, however, be reduced by developing and maintaining a strong brand identity for your product.
There are circumstances where the costs of abandoning the investment in the specialist assets required to manufacture your product are too great. When faced with high exit barriers most organizations continue to operate despite the product often being unprofitable.
The competitive forces are not static; they alter in response to changes within their environment and the impact of technological advances. Many industries have seen changes in the dominance of the market leaders as new entrants and technology alter the dynamics of a market. For example:
The introduction of Smartphones by Apple and Samsung seriously reduced the market share of previous market leaders like Nokia.
These factors often lead to price wars and hard-hitting advertising campaigns, as well as the launching of additional product ranges in an attempt to retain market position.
There are several strategies organizations adopt when protecting their market share in situations of intense competition:
  • Altering pricing policies
  • Improving product differentiation
  • Seeking ways to use channel distribution more creatively
  • Exploiting relationships with suppliers
  • Improving service levels
Historically, one of the most popular strategies for gaining market share was to cut prices. This approach carries serious risks as it is easy for competitors to do the same and this has the effect of resetting your customers' expectations in terms of price. By reducing your revenue you also limit your ability to invest in research and promotion, which may further weaken your position if your have a brand name to protect.
Organizations generally prefer to grow or maintain their market share by improving the unique features their products offer in comparison with those of rivals. However, this is not a strategy available to straightforward, uncomplicated products.
Another important strategy, which is more suitable to some products than others, is to make use of a new distribution channel. For example: In 1995 Dell computers used the Internet to allow customers to specify their requirements and have a PC built to their own specifications. Selling direct to customers in this way made it impossible for traditional electrical retailers to compete on range or price.
In other instances a large retailer or manufacturer can use their market position to gain preferential prices from their suppliers. This allows them to be more profitable or sell at a lower price without reducing their profit margins. Alternatively, they could use their influence to encourage the supplier to produce a branded or special edition product exclusively for them, which can also give them an advantage over their rivals.
For many organizations, improving the level of service they provide offers a significant opportunity to gain or retain market share. For example: Next-day delivery has made Internet suppliers, such as Amazon, competitive with high street retailers. You can order when the stores are closed and get your book or DVD the next day. The benefit is that you've made your purchase from your home or office without the inconvenience of having to visit the store when it's open.
In some cases, altering your service levels can provide you with an element of differentiation that is difficult for your rivals to replicate.

Competitive Rivalry Key Points

  • Competitive Rivalry can be measured using the Concentration Ratio and the Herfindahl-Hirschman Index.
  • The intensity of competitor rivalry increases with: o A larger number of firms o Slow market growth o High fixed costs o High storage costs o Low switching costs o Low levels of product differentiation o High exit barriers
  • Common strategies for protecting market share include: o Altering pricing policies o Improving product differentiation o Seeking ways to use channel distribution more creatively o Exploiting relationships with suppliers o Improving service levels

The threat of New Entrants

The number of potential new entrants into a market varies considerably and is a key factor you need to quantify. Sectors that require high levels of investment and expertise are much harder for new organizations to break into and challenge the existing providers, which protects the profit levels of the existing players.
If your market is one that has a common technology base, little brand awareness or loyalty, and is one in which the distribution channels are accessible to all sizes of organization, then you will usually find it is easy for new rivals to enter your market.
On the other hand, if your market requires the acquisition of patents or proprietary know-how, many potential new entrants will be deterred because of the large up-front investment required. It is also more difficult for new rivals to enter a market if brand loyalty is high, as your customers are far less likely to switch to another brand.
New rivals may also be prevented from entering your market sector if the distribution channels are restricted.
There are several barriers that can prevent additional rivals entering the market. If you are an existing supplier then you have the opportunity to create or capitalize on this competitive advantage.
These barriers to entry can come from a variety of sources:
  • Created by governments
  • Patents and proprietary knowledge
  • Asset specificity
  • Internal economies of scale
  • Barriers to exit
Sometimes governments create or permit what are seen as 'natural' monopolies, such as utility organizations. In this instance it is seen as more beneficial to the consumer to have one provider that is regulated by an industry body than it is to have several providers competing.
A significant entry barrier for many modern markets is one of proprietary knowledge or patents, which provide their organizations with a significant competitive advantage for a period of time. This time enables them to recover their investment and become profitable.
In a similar way, those industries that require an organization to invest in highly specialized equipment and technology or plants create a barrier to potential entrants because of the monies involved. This is compounded by the fact that the equipment or technology cannot be easily used for other products or services. This is known as 'asset specificity.' Existing organizations in this situation will aggressively defend their market share and investment from potential rivals.
Many markets are only attractive to organizations if they can attain levels of production and costs that give them internal economies of scale. This is called the Minimum Efficient Scale (MES) and is a commonly known figure for many industries. The higher the MES figure the greater the deterrent it is to entering a market.
Finally, where an organization is unable to leave a market, it has to compete. This is known as a barrier to exit, and it operates in a similar way to barriers to entry. Profitability can be high in a situation where organizations have both high entry and exit barriers as long as all providers operate efficiently.
Difficulties in exiting a market are most likely to occur where there are inter-related businesses within it, in situations that require an organization to acquire specialist assets, or where there are high exit costs, for example decommissioning units or equipment. If your organization's assets can easily be disposed of, there are few costs involved if you want to withdraw, and the operating unit is independent of your main organization then you are operating in a market that is easy to exit.

The threat of New Entrant's Key Points

  • The number of potential new entrants into a market will be low if there are barriers to entry created by: o Governments o Patents and proprietary knowledge o Asset specificity o Internal economies of scale

Threat of Substitutes

Substitutes can be defined as those products or services that meet a particular consumer need but are available in another market. A substitute product is a product from another industry that offers benefits to the consumer similar to those of the product produced by the firms within the industry.
The threat of substitution affects the competitive environment for the organizations in that industry and influences their ability to achieve profitability because consumers can choose to purchase the substitute instead of the industry's product.
This can be a significant issue as it constrains the ability of suppliers to raise prices, even though this may be in all of their interests. For example, the price of newspapers is constrained by the existence of online news and TV news channels. The availability of these (more or less) free services has meant that the newspaper industry has been unable to increase its prices in line with rising costs even though almost all newspaper publishers would like to do so.
As part of your analysis using Porters Five Forces model, you need to look outside of your own industry and think about those substitutes that pose a threat to your market. If for example, you are a traditional book publisher selling novels through bookstores, you would need to consider other ways in which the consumer's need (to enjoy a novel) could be met.
These might include: Purchasing books in a supermarket Purchasing books from an online supplier Purchasing eBooks directly from the author Purchasing an audio recording or video
This example reminds users of Porter's framework that defining your market is important, as it assumes that high street booksellers and online retailers are not in the same 'industry' despite both having books as one of their products. The more substitutes that are on offer in your market the more sensitive or 'elastic' consumers will be to changes in your product's price because of the number of alternatives.
The threat of substitutes is high when:
Consumer switching costs are low Substitute product is cheaper than industry product Substitute product quality is equal or superior to industry product quality Substitute performance is equal or superior to industry product performance The threat of substitutes is low when: Consumer switching costs are high Substitute product is more expensive than industry product Substitute product quality is inferior to industry product quality Substitute performance is inferior to industry product performance No substitute product is available

The threat of Substitutes Key Points

  • 'Threat of substitutes' means the availability of a product that the consumer can purchase instead of the industry's product.
  • The availability of close substitute products can make an industry more competitive and decrease profit potential for the firms in the industry.
  • It shapes the competitive structure of an industry and influences an organization's ability to achieve profitability.

Bargaining Power of Suppliers

Any organization needs raw materials and this creates buyer-seller relationships between the market and the suppliers. The distribution of power within such relationships varies, but if it lies with the supplier then they can use this influence to dictate prices and availability. You need to assess the balance of power within your own market as part of using Porter's model.
Suppliers may work together to increase bargaining power, although this is usually against the law in developed countries where legal redress is available if such actions are discovered.
There are several characteristics that indicate the extent of a supplier's power and one is that they are able to increase their prices without this having a detrimental effect on the volume of sales. Another is the ability to create informal or even formal agreements that control pricing and supply. Most developed countries have extensive anti-trust laws and regulations in place to deter and penalize suppliers caught in this type of activity, but recent anti-trust court cases involving software, finance, healthcare, utility, and oil companies suggest that supplier collusion is still widespread.
Rather than raise prices, suppliers in a strong bargaining position can choose to reduce the quantity of the product available, something that is most effective if there are few substitutes buyers can switch to. Suppliers are also in a strong position if the product or service they supply is an essential component of the end product.
Other ways in which suppliers can dominate include imposing costs or penalties on their customers if they decide to change to another supplier. In addition, a supplier may decide that their best strategy for growth and profitability is to purchase or create agreements with other organizations further down the supply chain in order to increase control of distribution channels.
Well-known examples of strong suppliers are:
• DeBeers - dominates the diamond market. • Microsoft - practically dominates the market for personal computer operating systems. • Intel & AMD - dominate the market for processor chips. • Cargill & Monsanto - dominate the agricultural seed production market.
Whilst some industries do have dominant suppliers this is not the case for all. In industries where the product is standardized you are likely to find a large number of competitive suppliers. The food processing industry is a good example of this because agricultural produce can be bought from a variety of suppliers, both large and small. This is the same for any market involving commodity products.
A high concentration of purchasers is an indication that suppliers in that market have a weaker bargaining position. This is one of the characteristics of the music industry, where there are a limited number of powerful record companies (buyers) and an almost unlimited number of hopeful musicians (suppliers). The mismatch between these groups means that supply far outstrips demand, and consequently most musicians are prepared to work for a pittance, or for free, in the hope getting their product into the market.
Suppliers are also in a weak position if a purchaser could relatively easily adopt a policy of backward integration. This factor, combined with global access to numerous suppliers, is a key characteristic of the automotive components market, where there is only a handful of customers. To be excluded from supplying a particular car manufacturer could be disastrous for the supplier who often has to work on very low profit margins.

Bargaining Power of Suppliers Key Points

  • Supplier bargaining power is high where: o There are few suppliers and many buyers o The cost of switching from one supplier's product to another supplier's product is high o Suppliers can begin to produce the buyer's product themselves o The buyer is not price sensitive and is uneducated regarding the product o The supplier's product is highly differentiated o The buyer does not represent a large portion of the supplier's sales o Substitute products are unavailable in the marketplace
  • If the opposite is true for any of these factors, supplier power is low.

Bargaining Power of Customers

Your organization should also assess the extent to which its customers or buyers have bargaining power. In a situation where customers have a strong position they can bring considerable pressure to the market and demand improved quality and/or lower prices.
There are several key factors that increase the bargaining power of customers:
  • Customers are more concentrated than sellers
  • Switching costs for customers are low
  • Customer is well educated regarding the product
  • Customer is price sensitive
  • A large portion of a seller's sales is made up of customer purchases
  • The customer's own product or service is affected
  • There is little differentiation between products
  • The threat of backward integration is high.
The extent to which customers can influence the market depends on their level of concentration or how well organized they are. Many small farmers produce fruit and vegetables, which they are contracted to sell to their customers, the supermarkets. The smallholder has to meet the strict quality control imposed on them by the supermarkets or risk losing the contract. This enables the supermarkets, as the customers, to exert pressure on these small suppliers.
The degree to which customers are able to manipulate market forces is swayed by the how significant their purchases are in terms of the supplier's revenue.
Customers also have significant bargaining power in markets where it is easy for them to transfer between different products without suffering any transfer costs. A good example of this is the washing powder market, which without brand loyalty has no financial impact if you swap between products. This power decreases if the customer has to spend more time or effort in switching between products or services.
In situations where the customer's purchase represents a substantial proportion of their total costs they will be more price sensitive and the buying process will be more protracted. This results in the bargaining power being greater for the customer, and the seller will have to be more persuasive during the sales process.
Also, the more knowledge the customer has about the product the greater their bargaining power will be, as they will be aware of the product's benefits and features. They may also be aware of how your product compares to that of your competitors, and in many instances may be familiar with your costing structure and prepared to use this intelligence to bargain.
This occurred in the automotive industry in the 1980s when manufacturers seconded their own staff to component makers on the understanding that the component makers would become the manufacturers' 'preferred' supplier. This gave the manufacturers extensive inside knowledge about the costing structure of the components, which eventually enabled them to dictate prices and margins to the producers.
In markets where the products have little to differentiate them, brand loyalty is low or non-existent, and the product is available from multiple suppliers, customers are usually motivated to purchase based on price rather than any concept of loyalty. This gives the customers greater bargaining powers than suppliers, who may only win new customers temporarily because their offer is better at that particular point in time.
Another example of this shift in bargaining power is that of the component-type market. Your product in this case may have a well-known brand but as this product is only one of many items in the end product that has no perceived benefit over any other component then customers will buy on price. A commonly cited example is that of Duracell batteries. Although their batteries last longer, manufacturers who supply batteries in their products don't use them because this aspect does not affect the sale of their product.
Customers may also decide to set up their own production of your product as part of a strategy of integrating backwards down the supply chain. This threat of satisfying their need for your product internally keeps prices competitive.

Bargaining Power of Customers Key Points

  • There are several key factors that increase the bargaining power of customers: o Customers are more concentrated than sellers o Switching costs for customers are low o Customer is well educated regarding the product o Customer is price sensitive o A large portion of a seller's sales is made up of customer purchases o The customer's own product or service is affected o There is little differentiation between products o The threat of backward integration is high.

Advantages and Disadvantages of Porter's Five Forces Analysis.

Whilst the Porter's Five Forces model has its benefits there are certain considerations you should bear in mind when using it. Many of these come from the fact that it was developed in an environment that was quite different to the one organizations find themselves operating in today.
These considerations are:
  • Pace of change is now more rapid.
  • Market structures were seen as relatively static.
  • The model provides you with only a snapshot of your environment.
  • It can be difficult to define the industry
  • The model does not consider non-market forces
  • The model is most applicable for analysis of simple market structures
  • The model is based on the idea of competition.
Today's market is considerably altered from that of the late 1970s, especially in terms of the rate of change industries experience and the stability of market structures. Changes in technology occur regularly and their impact is virtually instant and can cause significant disruption to a market.
Very few market structures have remained static, and new entrants, the availability of venture capital, barriers to entry, and supply chain relationships can change to such a degree that an organization's business model needs to change radically to retain its market position. Technological changes have also significantly reduced the length of time a product has between its conception and its market maturity.
Without regular updates, any knowledge gained from using Porter's model will quickly be out of date as it was only designed to provide a snapshot of any particular market. The model is not able to provide you with meaningful information about how best to take preventive actions. It does, however, offer suggestions as to where the challenges and threats to your organization are most likely to occur through its examination of substitutes.
Sometimes the dynamics of industries and corporations can make it difficult to define the market or industry. For example,
Is Walmart in the general retailing market, or should they consider each major product line separately, and if so to what degree? Should they class all electrical goods together, split them into white goods and electronic goods, or split them at some lower level (audio, video, computers, small kitchen appliances, white goods, etc.)?
The wide variety of product lines that many modern organizations carry create their own difficulties when defining markets and this may need to be done at a product level to be meaningful.
Porter's model also has difficulty in integrating the complexities of today's markets with the frequent inter-relations and product groups of organizations. If your organization defines its market segment too narrowly to fit into the model there is a risk that key elements may be overlooked, for example legislation and the interactions between sellers and buyers.
Organizations have to respond to more than just market forces. They need to be aware of, understand the implications of, and respond to government legislation, corporate ethics, and their social responsibilities. The internal culture and ethos of an organization will also carry significance when forming a strategy. Porter's model is also unable to incorporate the implications of strategic alliances or the sharing of skills and resources as a more effective way to respond to opportunities.
Despite these factors, Porters Five Forces model has a role to play in helping management to evaluate and assess their current market environment. It provides an excellent foundation for the further research and intelligence gathering needed to formulate an organization's future strategy.

Advantages and Disadvantages Key Points

  • Porters Five Forces model was developed in an environment that was quite different to the one organizations find themselves operating in today.
  • The followings considerations should be kept in mind when using the model: • Pace of change is now more rapid. • Market structures were seen as relatively static. • The model provides you with only a snapshot of your environment. • It can be difficult to define the industry • The model does not consider non-market forces • It is most applicable for analysis of simple market structures • The model is based on the idea of competition.

PESTEL Analysis

All organizations need to identify external factors within their environment that could have an impact on their operations. Many of these will be things that the organization has no control over, but the implications of which need to be understood. A popular tool for identifying these external factors is the PESTLE Analysis, which can be used to help you consider Political, Economic, Social, Technological, Legal, and Environmental issues.
This process of identification should involve a variety of different disciplines across your organization so that a full picture of these external factors can be built up. These factors can then be fully researched and analyzed.
As organizations become more globalized, expanding their existing borders, the PESTLE technique ensures that they thoroughly question each of these factors and consider their impact.
The PESTLE Analysis provides you with a framework that enables you to investigate your external environment by asking questions for each factor and discussing the likely implications. These are the types of questions you would ask:
  • What are the key political factors?
  • What are the important economic factors?
  • What cultural aspects are most important?
  • What technological innovations are likely to occur?
  • What current and impending legislation may affect the industry?
  • What are the environmental considerations?
How you categorize each issue raised is not important when using the PESTLE technique because the aim of this tool is simply to identify as many factors as possible. For example, whether you classify an impending government regulation as a Political or Legal issue is not important. The only thing that matters is that it is identified as potentially having an impact on your organization.
The PESTLE tool is a powerful technique for analyzing your environment but it should represent just one component of a comprehensive strategic analysis process. The PESTLE factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and threats in a SWOT Analysis. If the PESTLE analysis identifies factors that require internal changes to your organization, then these will need to be investigated further using tools like the Boston Matrix.
As a manager, you are most likely to be involved in these sorts of discussions when your organization is: 1. Planning to launch a new product or service 2. Exploring a new route to market 3. Selling into a new country or region
It is also a useful technique to know if you are part of a strategic project team. In all of these instances, there is a need to assess the potential impact of external factors on your organization, from both an operational and a market perspective. The ranking of each of these factors within the six categories may vary because different organizations have different priorities. For example, organizations that sell to consumers tend to be more affected by social factors, whereas a global defense contractor would tend to be more affected by political factors.
Additionally, factors that are more likely to change in the future or are more relevant to a given company will carry greater importance. A company that has borrowed heavily, for instance, would need to focus more on the economic factors.
There are several common variations of the PESTLE Analysis, with some using more factors and some using fewer than the six considered by PESTLE.
The most common variations are shown in the diagram above. The important thing to note is that these are all just variations of the one analysis tool; the underlying method is the same in all cases.
  • ETPS - Economic, Technical, Political, and Social
  • STEP - Strategic Trend Evaluation Process
  • STEPE - Social, Technological, Economic, Political, and Ecological
  • PEST - Political, Economic, Social, and Technological
  • STEEPLE - Social, Technological, Economic, Ethical, Political, Legal, and Environmental
  • PESTLIED - Political, Economic, Social, Technological, Legal, International, Environmental, and Demographic
  • STEEPLED - Social, Technological, Economic, Environmental, Political, Legal, Educational, and Demographic

PESTEL Key Points

  • A PESTLE Analysis can be used to consider political, economic, social, technological, legal, and environmental issues that may affect your organization.
  • It is often used when launching a new product or service, exploring a new route to market, or selling into a new country or region.
  • There are many different versions of this analysis tool, although the underlying method is the same in all cases.

Political

It is always advisable to keep abreast of potential policy changes in any government because even where the political situation is relatively stable there may be changes in policy at the highest level and these can have serious implications.
This may result in changes in government priorities, which in turn can result in new initiatives being introduced as well as changes to trade regulations or taxation. These can include changes in:
  • Employment laws
  • Consumer protection laws
  • Environmental regulations
  • Taxation regulations
  • Trade restrictions or reforms
  • Health and safety requirements.
The creation of global bodies such as the European Union has led to legislation being introduced into member countries that may have an impact on your organization's operations. For example, the free movement of goods and services throughout the EU allows organizations to operate in 27 different countries with relatively few restrictions.
If your organization is assessing the possibility of operating in the Middle East or in some parts of Asia then the political dimension can be the most serious consideration of all. The organization's entry into the new territory may not be straightforward, either because of that country's official policy or because the political realities of operating there are onerous.
For example, it may appear as if foreign investment is welcomed but the burden of bureaucracy is too weighty to make it profitable. The level of corruption may not palatable for practical or ethical reasons. Other broader political issues you should consider are the political stability of neighboring countries, the level of freedom of the press, and the country's overall 'attitude' to foreign investment.

Political Key Points

  • Political factors include government attitudes to employment, consumer protection, the environment, taxation, trade restrictions, and societal reforms, as well as the burden of bureaucracy and the level of corruption.

Economical

These issues include: assessing potential changes to an economy's inflation rate, taxes, interest rates, exchange rates, trading regulations, and excise duties.
In terms of your operational efficiency you would also need to consider such factors as unemployment, skills levels, availability of expertise, wage patterns, working practices, and labor cost trends. When trying to determine the economic viability of a market you would also look at such issues as the current cost of living for your target market as well as the availability of credit or finance.
Organizations seek to create strategies that can be modified to fit changes in the economic situation and in particular the financial aspects of the macro-economic situation. This would include such things as the impact of globalization, taxation issues, and potential implications of profitability, as well as any trade tariffs or embargoes.
An economy with rising inflation would have an adverse effect on your pricing and the purchasing power of your customers. The rate of growth or the market's confidence in the economy could also be significant factors for your organization.
Official economic indicators, most of which are available online, such as GDP (Gross Domestic Product), GNP (Gross National Product), and consumer-based indices often highlight areas where more detailed information is required. In your PESTLE Analysis such indicators would only be highlighted so that further investigation could take place before a conclusion could be drawn.

Economical Key Points

  • Economic factors include assessing potential changes to an economy's inflation rate, taxes, interest rates, exchange rates, trading regulations, and excise duties.
  • Official economic indicators often highlight areas where more detailed information is required.

Social

Social factors that need to be considered are those that have an impact on your market. These include:
  • Age distribution
  • Population growth rate
  • Employment levels
  • Income statistics
  • Education and career trends
  • Religious beliefs
  • Cultural and social conventions.
You should also consider attitudes towards things like health, career, and environmental issues. Social factors and cross-cultural communication play a critical role in international and global markets, and your success will depend on the depth of your research in this area. Getting this wrong is costly and may not come to light until the considerable investment has been made by your organization. It can become an issue in managing the local labor force as well as promotional issues.

Social Key Points

  • Social factors include age distribution, population growth rate, employment levels, income statistics, education and career trends, and religious beliefs, as well as cultural and social conventions.

Technological

This element has become a key factor for organizations in assessing and listing issues that could have a potential impact on its operations and that could be critical to its long-term future. The pace of change in technology is becoming more rapid, and often changes that impact your market come from unexpected sources.
For example, could the film industry ten years ago have predicted that people would stream their new releases rather than go to the cinema or buy a DVD?
It is by using such techniques as PESTLE that organizations will be able to brainstorm even the most bizarre suggestions, because what today seems impossible may become commonplace in just a few years.
Technological factors can be broadly divided into two areas: manufacture and infrastructure. By exploiting opportunities to update or alter their production an organization can gain market share, thereby attaining a strong competitive advantage. Such activities include:
  • Automation
  • Improved quality of parts and end product
  • Incentives
  • Significant cost savings
  • Use of outsourcing to control costs and offer greater flexibility
Technological advances have also allowed organizations much greater freedom of choice when deciding how best to manage their operations. For example, knowledge-based systems have enabled management to make better and more informed decisions in real-time.
The rapid growth in networking capabilities, both in terms of being more reliable and having extensive coverage internationally, has allowed organizations to streamline their workflow and eliminate operational bottlenecks.
Organizations that fail to keep up with technological advances leave opportunities for a smaller producer or new entrant to enter their market and erode their leadership status.
This is what happened to mobile phone producers Research in Motion (RIM, the makers of the BlackBerry) and Nokia, who were slow to embrace smartphone technologies. The result was that they both lost significant market share to Apple and Samsung.
This example clearly illustrates how consumers' preferences and usage change following a technological advance and how this feeds through to market share. Many organizations want to protect their advantage as long as possible, so the use of patents and licensing has become a key strategy for many in protecting their intellectual property.
The impact of technology on the individual has led to legislation being introduced which aims to protect your privacy and ensure organizations have to gain your permission before emailing or contacting you. Organizations need to give careful thought to the type and nature of potential legislation that governments could introduce to curb what is often seen as the invasive side of the rapid growth of technology.

Technological Key Points

  • The pace of change in technology is becoming more rapid, and often changes that impact your market come from unexpected sources.
  • Technological factors can be broadly divided into two areas: manufacturing and infrastructure.
  • Organizations that fail to keep up with technological advances leave opportunities for a smaller producer or new entrant to enter their market.

Legal

The list of legal factors that should be considered includes current and impending legislation that may affect the industry in areas such as employment, competition, and health and safety. Anticipated changes in legislation in the main trading partner countries should also be investigated.
Recent years have seen a significant rise in the number of regulatory bodies that have been set up to monitor organizations' observance of legislation relating to all areas of operations, including consumer protection, employee welfare, waste disposal, and how their earnings and investments will be taxed. There are also the trading restrictions, quotas, and excise duties to consider.
All these factors affect the way in which an organization functions and have cost implications that need to be taken into account when formulating business strategy. For example,
Insurance and banking organizations have to demonstrate their legal compliance to the regulatory body, which has implications for how they operate.
The level of market share is often restricted (e.g. under the Antitrust laws of America) to prevent organizations having an unhealthy control of a market or obtaining it through acquisition.
Your PESTLE Analysis should consider the impact of your own national laws as well as those originating in other countries that could have implications for you, for example global accounting regulations, safety compliance, etc. This analysis needs to include those laws affecting working relationships with other organizations that form part of your overall operations. Examples of this type of legislation include:
The 2002 US federal law, Sarbanes-Oxley Act. This set out new or enhanced public accounting standards for all American public company boards. This law came about after several major corporate accounting scandals, such as Enron, Peregrine Systems, and WorldCom.
The Waste Electrical and Electronic Equipment Directive (WEEE Directive) is a European Union directive, which, together with the RoHS Directive, set legally binding collection, recycling, and recovery targets for all types of electrical goods sold in the EU.
Many regulations are applied at a regional as well as a national level and create another layer of complexity that you must consider when developing your strategy. It is these types of influences that can have a significant impact on the ease of operations and require detailed investigations before any decision is made.

Legal Key Points

  • Legal factors include current and impending legislation that may affect the industry in areas such as employment, competition, and health and safety.
  • Your PESTLE Analysis should consider the impact of your own national laws as well as those originating in other countries that could affect you.

Environmental

The issues surrounding environmental protection have become increasingly important in recent years as the implications of under-regulated economic activity are seen today. This has become more significant with globalization as the impact of an organization's actions may be felt outside of its native country and may incur unquantifiable financial penalties.
Other environmental factors are those that relate to the weather, climate, and geographical location. For example,
  • Natural disasters or weather cycles such as monsoons may create too high a risk for operating in particular regions.
  • The physical condition, extent, and maturity of a country's infrastructure may impose uneconomic costs on an organization. Weather conditions could also cause logistical problems at certain times of the year.
  • Potential financial penalties resulting from causing contamination of soil or water may be unquantifiable.
  • Before operating in a country with high temperatures and humidity you would want to determine the availability, financial viability, and reliability of air conditioning.
As with the other PESTLE factors you would look at how the potential changes to weather patterns and climate cycles could have implications for your organization's operations. These ecological and environmental aspects can have consequences that are felt both on an economic and a social level.
An increasingly important consideration facing organizations is one of packaging and waste disposal and its environmental consequences. Throughout Europe all electrical equipment retailers are required by law to pay a government levy based on their sales volume. The funds generated in this way go towards minimizing the cost and environmental impact of obsolete products.

Environmental Key Points

  • Environmental factors include infrastructure, cyclical weather, disposal of materials, energy availability and cost, and the ecological consequences of production processes.

SWOT Analysis

The SWOT analysis is a business analysis technique that your organization can perform for each of its products, services, and markets when deciding on the best way to achieve future growth. The process involves identifying the strengths and weaknesses of the organization, and opportunities and threats present in the market that it operates in. The first letter of each of these four factors creates the acronym SWOT.
As a manager, your role in any strategic planning is likely to involve providing operational data to help assess the internal capabilities, and (depending on your job function) you may also be asked to provide market intelligence.
The completion of a SWOT analysis should help you to decide which market segments offer you the best opportunities for success and profitable growth over the life cycle of your product or service.
The SWOT analysis is a popular and versatile tool, but it involves a lot of subjective decision making at each stage. It should always be used as a guide rather than as a prescription and it is an iterative process. There is no such thing as a definitive SWOT for any particular organization because the strengths, weaknesses, opportunities, and threats depend to a large extent on the business objective under consideration.
After completing a SWOT analysis, your organization will then use an analysis tool such as the Ansoff Matrix to define the best growth strategy to achieve the chosen objective.
Today's organizations find themselves operating in an environment that is changing faster than ever before. The process of analyzing the implications of these changes and modifying the way that the organization reacts to them is known as a business strategy.
'Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies' Johnson et al. (2009).
While your role as a manager is unlikely to require you to make decisions at the strategic level, you may be asked to contribute your expertise to meetings where strategic concerns are being discussed. You may also be asked to comment on pilot schemes, presentations, reports, or statistics that will affect future strategy.
Whether you work in a large multinational corporation or a small organization, a good understanding of the appropriate business analysis techniques and terminology will help you to contribute to the strategic decision-making processes.
Typical scenarios where you could be asked to provide information and data for your organization's strategic decision making include:
  • Analyzing the organization's external environment.
  • Assessing the organization's internal capabilities and how well it can respond to external forces.
  • Assisting with the definition of the organization's strategy.
  • Aiding in the implementation of the organization's strategy.
The diagram above shows where five widely used business analysis tools fit into the strategic planning process.
This knowledge will enable you to take an active and productive role when asked to participate in the strategic decision-making process.

SWOT Analysis Key Points

  • SWOT Analysis provides information that helps in synchronizing an organization's resources and capabilities with the external environment in which the organization operates.
  • The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
  • Strengths and weaknesses are considered to be internal factors over which you have some measure of control.
  • Opportunities and threats are considered to be external factors over which you have no control.
  • SWOTs depend on the business objective under consideration.
  • There is NO definitive SWOT analysis for any organization.
  • SWOT is often the first step in a more complex and in-depth analysis.
  • You may be asked to contribute your expertise to meetings where strategic concerns are being discussed.
  • Typical scenarios where you could be asked to provide information for strategic decision making include: analyzing the organization's external environment, assessing internal capabilities, assisting strategy definitions, and aiding in the implementation.

Strengths, Weaknesses, Opportunities, and Threats,

Before looking at how the SWOT analysis can be applied to your organization, it is important to be clear about what exactly we mean by the terms Strengths, Weaknesses, Opportunities, and Threats.
Strengths - Internal factors that are favorable for achieving your organization's objective. Weaknesses - Internal factors that are unfavorable for achieving your organization's objective. Opportunities - External factors that are favorable for achieving your organization's objective. Threats - External factors that are unfavorable for achieving your organization's objective.
These definitions are open to interpretation and a weakness of the SWOT technique is that it can be highly subjective. For example, if your organization was dependent on one single large distributor then this could be seen as a strength, as you would be able to get your products into the market quickly and efficiently. However, it could also be seen as a weakness because you are totally dependent on them to do so.
Some factors will always be easy to categorize. For example, it is difficult to imagine huge financial resources, a broad product line, no debt, and committed employees being anything other than strengths, whatever the objective of the organization may be.
However, some factors can be either strengths or weaknesses depending upon the business objective. For example, a large number of distributors could be a strength if your objective is to place your products in as many outlets as possible. But if could be a weakness if your objective was to control your retail prices and prevent discounting.
The strength of the SWOT analysis comes from the fact that it can be applied to many different organizational scenarios, but its weakness is that it requires clear thinking and good judgment to obtain any real value from using it. You will often see SWOT analysis for an organization in which no specific business objective has been stated (see the example SWOT for Audi). These top-level SWOTs can have value in guiding strategy at the very highest level, but when a potential strategy has been identified and is being considered as a business objective then additional SWOTs will be required at this lower level.
Remember, when you are using the SWOT analysis technique, the processes of clearly identifying the business objective and categorizing the SWOT factors are equally important because they are interdependent.
This interdependence means that the SWOT analysis is often an iterative process in which the findings cause the objective to be reset and another analysis made. The output of any particular analysis is not necessarily definitive.
The analysis is normally performed at a meeting involving representatives from the necessary stakeholders groups that have specialist knowledge and supporting data. Each of these individuals brings their own particular perspectives and expertise to the discussion.
The end result of such a meeting or series of meetings is a completed SWOT report. The success of this type of meeting relies on a strong and effective Chair who is familiar with the SWOT process and can successfully manage discussions, drawing out key points to gain consensus.
The Chair needs to take an active role in encouraging attendees to contribute to such discussions and brainstorm through the SWOTs in order to identify as many factors as possible. This is important when opportunities and threats are being considered, as these are often things that people within the organization have certain preconceptions about, or may be actively hostile to admitting the existence of.
For example, The rapid uptake by music lovers of the MP3 format seemed to take many established record companies by surprise. Whilst the record companies must have been aware of the existence of this new format, it is not difficult to imagine a scenario where people in strategy meetings would be reluctant to point out just how much of a threat (or opportunity) this new way of consuming music could be.
As the implications would have threatened the established organizational structure, as well as rendering obsolete a business model that had remained unchanged for over 50 years, it must have been a difficult subject to discuss objectively!
The difficulty of admitting the existence of internal weaknesses in the organization is even more problematic and in some organizations it is impossible to talk about weaknesses objectively because senior management are in a state of denial about them. This can completely emasculate the SWOT analysis process, a problem that is discussed later.
It is extremely important that those involved in such strategy meetings are encouraged by the Chair to think of and generate ideas for deliberation, no matter how far-fetched they may appear. By suspending criticism and judgment till the final stages of the process, participants will feel free to generate unusual ideas that could prove to be valuable.
One of the most effective ways to achieve this is to focus on internal factors to begin with and then on external factors later. Once all of these have been cataloged, then discussions on each point's relevance and likelihood can take place.

Strengths, Weakness, Opportunity and Threats Key Points

  • Strengths are internal factors that are favorable for achieving your organization's objective.
  • Weaknesses are internal factors that are unfavorable for achieving your organization's objective.
  • Opportunities are external factors that are favorable for achieving your organization's objective.
  • Threats are external factors that are unfavorable for achieving your organization's objective.
  • Some factors can be either strengths or weaknesses depending on the business objective.
  • SWOTs can be used to guide strategy at the very highest level but they can also be tied to a specific business objective.

Internal Factors (Strengths and Weaknesses)

The internal analysis of your organization should include its culture, expertise, resources, and unique qualities within the market place. The extent to which your organization could adapt to changing circumstances is also a factor that needs to be considered.
Within the broad area of 'culture' you should consider the different aspects of your organization's ethos, beliefs, public image, and structure. Regarding expertise, how easy is this to retain or increase? How many of your people play a key role or have vital skills, and how does this compare to your competitors? To what extent does this 'expertise' help to maintain your organization's market share and brand positioning?
Resources include: financial position, buildings, plant, machinery, and other physical infrastructure. Unique Qualities are those 'things' that are exclusive to your organization, such as special contracts, customers, patents, and trade secrets. Within this area you should also consider your research and development (R&D) capabilities.
You can then use the SWOT analysis as an interpretative filter to reduce the information to a manageable quantity of key issues that are relevant to your organization or to the business objective, depending on the level of the SWOT. At this stage you do not need to elaborate on each topic; you just need to decide if it is a strength or weakness.
Strengths
A 'strength' is something that has a positive implication. It adds value, or offers your organization a competitive advantage. Strengths include tangible assets such as available capital, equipment, credit, established and loyal customers, existing channels of distribution, copyrighted materials, patents, information and processing systems, and other valuable resources.
You may want to look at and evaluate your strengths by function, for example marketing, finance, production, and support. Looking at things in this way can make it easier to identify the positive attributes within each function.
Certain teams may have specialist or unique knowledge, education, credentials, contacts, reputations, or backgrounds that provide a competitive advantage or add value to your product or service.
The sort of questions you can ask to ascertain your strengths are:
  • What do we do well?
  • What qualities or aspects persuaded our customers to choose our product or service?
  • What resources do we have at our disposal?
  • What do others see as our strengths?
  • What areas are we seen as being expert in?
  • What advantages do we have over our competition?
However you judge the responses to these questions it must be from the perspective of your operating environment and not from an internal aspect. For example, if 'guaranteed next day delivery' is the norm within your industry then this cannot really be considered a strength because your customers would expect it. On the other hand, if 'guaranteed next day delivery' is not normal in your industry then it could legitimately be classified as a strength.
Weaknesses
These are the characteristics of your product or service that are detrimental to growth. Weaknesses are those things that detract from the value of your offering or place you at a disadvantage when compared with your competitors.
An obvious weakness would be an unsuitable location for your organization. For example, You are located in the north of the country but 85% of your customers are in the south. This means that not only are your distribution costs significantly higher than some of your competitors but you are unable to offer guaranteed next day delivery in line with your competition.
Factors that are identified as weaknesses can often be remedied with suitable investment or restructuring. In the example above, it might be possible to relocate the business or set up a distribution center in the south of the country, but both of these things would require changes to the way the business currently operates.
The type of questions you would be asking and discussing to identify your weaknesses are:
  • What can be improved or altered?
  • What do we do badly?
  • How do we compare with others?
  • How does our performance compare with our competitors?
  • What have our customers told us?
  • How did we respond to this feedback?
  • What should we avoid?
  • How do third parties judge our performance or service?
  • Have we self-imposed any constraints?
The more accurately you identify your weaknesses, the more valuable the SWOT analysis will be. However, because weaknesses are by definition internal there can be a lot of resistance to admitting to them. In fact, highlighting weaknesses can be synonymous with drawing attention to areas of the organization which have been badly managed or where poor decisions have been made. This can make it very difficult to talk about weaknesses objectively if you want to keep your job.
Do not lose sight of the fact that the existing senior management will be responsible for the current state of the organization. This is often an obstacle to a full and frank admission of organizational weaknesses.
Assuming that you do feel able to discuss your organization's weaknesses honestly, then it is important that you do so because the more realistic your assessment is at this stage the more value the SWOT analysis will have.
Many organizations use a simple matrix to compare the importance and significance of each of its strengths and weaknesses, referred to as a Performance-Importance Matrix. The level of importance is often simply shown as high, medium, or low, with the degree of significance rated as key, significant, minor, or neutral.
Those items you identify as being both important to your success and show a low performance for the organization are the factors your strategy should be addressing.

Internal Factors Key Points

  • The internal analysis of your organization should include its culture, expertise, resources, and unique qualities within the marketplace.
  • Strengths are things that add value or offer your organization a competitive advantage.
  • Weaknesses are those things that detract from the value of your offering or place you at a disadvantage when compared with your competitors.
  • Weaknesses can be difficult to discuss honestly and objectively because doing so can imply criticism of the way that the organization has been managed.

Matching and Converting

There are two simple methods, referred to as 'matching' and 'converting,' that organizations can utilize when applying the results of the SWOT analysis to strategy decisions.
Matching uses competitive advantage to pair strengths with opportunities. For example,
In the 1980s UK clothing retailer Marks and Spencer had a strong presence in the high street and a customer base that bought on the basis of quality rather than price. M&S were able to leverage these strengths to exploit the opportunity to sell high-quality food and beverages to its customers. The company began by selling pre-prepared sandwiches and snacks that were made from higher-quality ingredients than its competitors were using. This focus on quality was unique at the time and enabled M&S to corner the market until its competitors began to copy the formula. Thirty years later M&S is still a major player in the UK quality food and beverage market and these items account for a substantial portion of its total profits.
Converting means converting weaknesses or threats to strengths or opportunities. For example,
Many island-based Scottish whisky distilleries are unable to expand their production facilities because of environmental or logistical issues. This weakness can be converted into a strength by stressing the artisan nature of the product and making the limited production synonymous with exclusivity. This means that they can maintain high retail prices and reasonable profits even when losing market share to industrial scale producers.
Whilst these techniques can be useful, they do need to be put into perspective. In the first example, it would have been far from obvious that selling quality sandwiches represented an opportunity for a clothing retailer with no experience in that sector. In addition, there was no shortage of established competitors, albeit not selling the type of sandwiches that M&S chose to offer its customers
The point is that even if a SWOT analysis is used to highlight opportunities that 'match' the organization's strengths, the best option may be far from obvious. Whoever suggested that M&S begin retailing food probably had quite a struggle to get the idea taken seriously because even though this undoubtedly represented an opportunity, there would have been many other more obvious opportunities available. In the second example, converting can amount to little more than making a virtue out of a necessity. The small whisky distilleries simply cannot increase production to any significant degree and their marketing strategy is arguably an inevitable result of this, rather than one option chosen from several other possibilities.
Matching and converting are useful ways of looking at the output from the SWOT analysis but both require a lot of debate and analysis rather than instant answers.

Strengths Key Points

  • Matching uses the competitive advantage to pair strengths with opportunities.
  • Converting means converting weaknesses or threats to strengths or opportunities.

Advantages and Disadvantages

The popularity of SWOT analysis is down to its simplicity and flexibility. It is easy for everyone to understand and its implementation does not require any technical knowledge or specialist training.
The SWOT methodology can condense a large number of situational factors into a manageable number but it does encourage a tendency to oversimplify the situation and it can be unduly influenced by vested interests within the organization. This is particularly apparent when conducting a high-level organizational SWOT. For example,
It is a subjective decision as to whether or not a particular organizational culture should be classified as a strength or a weakness. Those responsible for the prevailing culture will see it as a strength no matter what, whereas those who have less invested may be more objective and see it as a weakness in certain circumstances.
A technological change may be considered a threat or an opportunity depending on perspective. Those who owe their jobs and status to an existing technology are likely to view any change as a threat to their position and therefore to be avoided. Others who have no vested interest may consider it is as an opportunity.
Those responsible for developing strategy need to be aware of these issues of oversimplification and vested interests, and try to take them into account. This is always going to be difficult, however, if senior management has a reputation for being unwilling to consider options that may threaten the current business model.
Another problem with SWOT is that there are no obvious limits as to what is and is not relevant. The Chair managing the SWOT discussions needs to keep everyone involved focused on what is important in achieving the objectives, rather than just creating lists of issues and classifying them arbitrarily without any external reference.
It is also necessary to add an element of priority to the list of factors in each of the four categories. Otherwise, you may decide that opportunities and threats balance each other out, when in fact the threats pose a greater risk to your organization than the weaker opportunities it could take advantage of.
Anyone using the SWOT technique must also be mindful that its simplicity does not provide a mechanism for solving any disagreements that arise from the discussion. Because this technique is often used in a brainstorming or blue-sky thinking environment there is usually little opportunity to verify statements with hard data or assess the practicalities of implementation. Although this business analysis technique has its limitations it does play a valuable role in enabling unusual and non-conformist issues to be raised and discussed. It also has a role to play in developing a strategy objective when it is used as part of the process, but its limitations must be acknowledged.
A SWOT analysis is useful for any kind of strategic planning. It's a relatively quick way to look at organizational strengths, weaknesses, opportunities, and threats. The overall purpose of a SWOT analysis is to examine the internal and external factors that help or hinder you in achieving each of your objectives. It can be used as a brainstorming tool or to help focus your attention on key areas.
You can use your SWOT analysis as a means of gathering information from a range of perspectives or you may be able to use your results to strategic advantage by either matching your strengths to opportunities or converting threats or weaknesses into strengths or opportunities.
SWOT analysis can play a valuable role in enabling unusual and non-conformist issues to be raised and discussed. It also has a role to play in developing a strategy objective when it is used as part of the process, but its limitations must be acknowledged.
The most obvious limitations are: the risks of oversimplification; the fact that vested interests can prevent weaknesses and threats from being acknowledged; and the danger of information overload as there are no obvious limits as to what is and is not relevant

Advantages and Disadvantages Key Points

  • SWOT can condense a lot of situational factors into a manageable number.
  • SWOT can encourage oversimplification, particularly at the highest level.
  • There are no obvious limits as to what is and is not relevant.
  • Some areas may be difficult to discuss objectively because of vested interests.

SWOT Analysis Example.

This example uses the international car manufacturer Audi to illustrate how the SWOT analysis can be applied at the organizational level. It is a well-known and popular example that is frequently used to illustrate SWOT in action.
Under each of the SWOT categories there is a list of key facts, as you would expect in such a report. This is followed by a fuller explanation as to why each fact has been categorized in this way giving you an insight into the type of discussions that would normally take place as part of this process.
Background to Audi
Audi is one of the major car manufacturers in the premium and supercar segments. The company has a strong brand image, giving it a competitive advantage that enables it to record high sales growth in both its domestic and international markets.
Strengths
  • Backed by Volkswagen, the second largest automotive corporation in the world.
  • Presence through its parent company in over 153 countries.
  • Parent is financially secure - recorded revenues of €126,875 million ($168,325.1 million) in 2010.
  • Audi's backing by Volkswagen gives it significant competitive advantage.
  • Audi's track record shows high domestic and international sales growth.
  • It has high return on equity (ROE) and return on assets (ROA) compared to its competitors.
Explanation
As a subsidiary of Volkswagen Audi has the financial backing and expertise of this corporation's substantial development in vehicles, engines, parts, production, distribution, and sales at its disposal.
Volkswagen's expertise covers a wide range of vehicle types - passenger cars, commercial vehicles, trucks, and buses. Volkswagen's financial track record is secure, ranking 13th in the Fortune Global 500 list of companies.
Matching and converting are useful ways of looking at the output from the SWOT analysis but both require a lot of debate and analysis rather than instant answers.
Audi's return on equity (ROE) was 23.1% in 2010. This compares to significantly lower ROE for two of its main competitors in the same period: 13.9% ROE for BMW and 12.4% ROE for Daimler.
High ROE shows Audi are efficiently using their shareholders' investments and rewarding them with higher returns than their competitors. Audi's return on assets (ROA) was 8.4% in 2010, substantially more than BMW's ROA at 2.9% and Daimler's ROA at 3.3% for the same year. Its high ROA indicates that Audi is efficiently deploying its assets and allocating its resources in comparison to its competitors.
Weaknesses
  • Significant product recalls over recent years shows poor control over parts and/or product quality.
  • High recall levels in recent years have reduced consumer confidence in Audi's brand which could result in lower sales.
  • Its market share in terms of revenue means its lacks the scale to compete with large players such as Ford, BMW, and Daimler.
Explanation
There were 34,000 recalls of problem Audi A4 and Audi A6 vehicles in August 2011 due to defective engine fuel pump. There were 5,992 units of Audi A6 (2001-04), RS6 (2003) & S6 (2002-03) recalled in May 2011 due to a fuel system flaw. There were 10,200 Audi TTs (2010) recalled in April 2011 due to problems with the fuel tank ventilation system's spring. In 2010 Ford recorded revenues of $128,954 million, BMW recorded revenues of €60,477 million ($80,283 million), and Daimler recorded revenues of €97,761 million ($129,777 million). This compares to Audi's recorded revenues of €35,441 million ($47,047 million), which is roughly 36% of Ford's, 57% of BMW's and 35% of Daimler's.
Opportunities
  • Audi has placed considerable focus on developing hybrid electric vehicles (HEVs) for which demand worldwide is expected to grow.
  • Rising energy costs and increased emissions regulations are likely to increase demand for HEVs.
  • Global environmental issues and legislation to control global warming plus the need to conserve worldwide resources are key motivators for consumers in finding HEVs more acceptable.
Explanation
By 2015, the largest market for HEVs and plug-in hybrid electric vehicles is expected to be the US, with China second. Sales are forecast to be in the region of 640,000 in the US and 560,000 in China for these two vehicles types combined. Audi is one of the major manufacturers of electric vehicles having launched several hybrid models in 2010 (e-tron Spyder, e-tron Silvretta, and A1 e-tron). Its research and development is also looking into plug-in and full hybrid vehicles as well as other electric concepts for plug-in hybrids, ranging from the fuel cell to the battery-only electric vehicle.
Threats
  • The global automotive industry is highly competitive and Audi is not one of the larger corporations.
  • Recessions in Europe, the US, and other parts of the world have resulted in sharp falls in demand.
  • Car manufacturers face relatively high fixed labor costs.
  • Manufacturers' ability to close facilities and reduce fixed costs is significantly limited.
  • Sales offerings of subsidized financing or leasing programs, or price reductions impacts Audi's ability to maintain its profitability per vehicle and its market share.
  • The introduction of environmental engine emissions and fuel (bio and fossil fuels) requirements significantly increase R&D costs and margins.
Explanation
Some of Audi's key competitors are BMW, General Motors, Honda, Hyundai, Nissan, Peugeot Citroen, Porsche, Renault, and Toyota. EU regulations introduced a wide range of stricter requirements, primarily impacting diesel technology, e.g. after-treatment system for nitrogen oxide. 70% of Audi's revenue is from the US and Europe.
Diesel technology needs to alter significantly to cater for biofuels. EU Regulation requires average carbon dioxide (CO2) emissions to be reduced to 130 grams per kilometer (g/km) for all new vehicles by 2015. Any manufacturer not meeting these targets faces penalties.
The US requires uniform consumption and CO2 regulation for all 2012-16. The Japanese government has statutory regulations for 2010-15 to reduce consumption. The IMF expects the output of the European and US regions to remain well below potential. Tentative signs or recovery at the end of 2010 were not realized as certain setbacks and new risks came to light.
The US GDP growth rate was 1.6% in 2011 and 1.1% in 2012. The European Commission expects EU recovery to remain sluggish, especially in view of relatively high consumer-price inflation.

Boston Matrix

A key role of management within the strategic planning process is to provide market intelligence. This information and data will play a significant role in analyzing the internal capabilities of the organization, an essential part of strategy development and implementation.
Whatever your management role, you may sometimes be asked for market intelligence that can be used in the strategy planning process. The types of data that are fed into a marketing information system (MIS) cover all areas of the organization - production, operations, sales and marketing, etc.
The more accurate and up-to-date an MIS is, the greater your competitive edge will be. An MIS also helps your organization to identify and respond to the opportunities and threats that have been identified in a SWOT analysis.
The organization's response can only be effective if it has a clear understanding of its own internal capabilities. One of the most popular tools used by organizations to analyze these is the Boston Matrix.
Bruce Henderson developed this business analysis technique in 1970 for use within the Boston Consulting Group. It was designed for use by its consultants to help corporations with analyzing their business units or product lines.
This technique has become known by several different names including: B-Box, BCG Analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group Analysis and the Portfolio Diagram. It is important to be aware of these names because you may hear the technique referred to by any one of them.
The Boston Matrix is used to help the organization decide how to allocate resources to each product or service it sells depending on how that product or service is positioned in the market. It is often used by people responsible for brand marketing, product management, strategic management, and portfolio analysis.
Over the last forty years its use has gone in and out of fashion and it has been removed from certain contemporary marketing textbooks. Nonetheless, it can be helpful in considering product positioning as long as its findings are not used in isolation and its limitations are acknowledged.
The Boston Matrix helps to facilitate discussions on the value of the contribution made by, and investment required for, specific products and services. Its findings enable decisions to be made as to which ones should be maintained, which should be withdrawn, and which should be developed further.
The matrix consists of two axes: one showing market growth and the other showing market share. The resulting four quadrants form the categories by which an organization can classify its business units or products. The analysts then plot a scatter graph within the matrix that ranks either business units or products and services on the basis of their relative market shares and growth rates.
This provides an initial and high-level way to screen your organization's opportunities. It provides a mechanism that enables you to think about how best to allocate resources and investment funding in order to maximize future profit and growth for your portfolio of products and services.
This matrix considers the two strategic parameters of market share and market growth when it allocates a priority to a product in terms of organizational focus and activity. In order to appreciate how this prioritization is assessed you need to understand how market share and market growth are interrelated.
Market Share
Market share is the percentage of either revenue or volume of sales that your organization has of the total market. In other words, the higher your market share, the bigger the proportion of the market you control and influence. The matrix also assumes that earnings rise as your market share does. This is not always the case and is one of the limitations of this analysis.
The Boston Matrix also makes a big assumption in its interpretation of market share and how it relates to profitability. It assumes that a high market share means that this organization is highly profitable for this product or service. It attributes this to the organization being well established and knowledgeable about the market, and having attained the advantages of the economies of scale.
This may have been a safe assumption nearly fifty years ago, but it is not necessarily the case today. There are many reasons why a product may be a market leader but not necessarily the most profitable. For example, it may be fulfilling the role of a loss leader in terms of the initial purchase, but then profits are made through the associated products. For example, The leading manufacturer of desktop printers may have the largest market share but they may be prepared to make a loss on each printer sold because they make their profit from the sale of the proprietary printer cartridges that are sold subsequently.
The usual way that market share is expressed is as a ratio relative to your largest competitor, because this illustrates the extent to which you dominate the market. So if you have a 20% market share, and your nearest competitor has a 10% share the ratio is 2:1. Whether a relative share is high or low depends on the industry. For example, in the Fast Moving Consumer Goods (FMCG) market the brand leader is often very stable and profitable. In fact, market share in FMCG tends to follow the '123 rule.' This means that the brand leader's share is double that of the nearest competitor and triple that of the next nearest.
Market Growth
Market growth is the percentage growth compared to the previous year. It is used as a measure of how attractive a market is to existing providers and potential new entrants. High market growth creates an environment in which it is relatively easy for organizations to grow their profits, even if their market share remains the same. In contrast, if your product is in a low growth market you will face intense competitive activity and your organization will need to employ significant effort just to retain its market share, even if it is an established provider. Often such market retention is only achieved by aggressive discounting, which makes such a low-growth market less profitable and unattractive.
The Boston Matrix uses cash flow as its means of categorizing an organization's product or service portfolio. It uses market share to illustrate how well a product or service can generate cash and it uses market growth to indicate how much future cash is required.

Boston Matrix. Key Points

  • The Boston Matrix is used to allocate resources depending on how a product or service is positioned in the market.
  • It can be used to analyze business units, product lines, and services.
  • The matrix consists of two axes: one showing market growth and the other showing market share.
  • Market share is the percentage of either revenue or volume of sales that your organization has of the total market.
  • Market growth is the percentage growth compared to the previous year.

Classifying Products and Business Units

The Boston Matrix consists of two axes (market growth and market share) that are split between high and low. The resulting four quadrants form the categories by which an organization can classify its business units or products.
The four categories are given the following names: Stars - tend to be relatively new, have a high market share, and be more or less self-financing. Question Marks - require substantial amounts of cash to try to attain or regain dominance in its growth market. Cash Cows - are a market leader in a stable market that has little potential growth. They generate significantly more cash than is needed to sustain the product. Dogs - are products that represent a cash drain and are near the end of their product life cycle.
Most organizations expect their products to begin life as a Question Mark, later becoming a Star and then a Cash Cow as the market matures. Finally, the product becomes a Dog as the market declines.
There is no inevitability about this and some products are Stars from the moment of launch, whereas others become Dogs almost immediately.
For example, the increasing pace of technological change means that many products never have the time to achieve Cash Cow status before obsolescence turns them into a Dog.

Classifying Products and Business Units Key Points

  • Stars tend to be relatively new, have a high market share, and be more or less self-financing.
  • Question Marks require substantial amounts of cash to try to attain or regain dominance in its growth market.
  • Cash Cows are a market leader in a stable market that has little potential growth. They generate significantly more cash than is needed to sustain the product.
  • Dogs are products that represent a cash drain and are near the end of their product life cycle.

Stars

Stars are the business units or products that have the best market shares and generate the most cash are considered stars. However, because of their high growth rate, stars also consume large amounts cash. This generally results in the same amount of money coming in that is going out. Stars can eventually become cash cows if they sustain their success until a time that the market growth rate declines.
There are 2 kinds of Stars: (1) Young Stars which are requiring big capital and investing, because they are still evolving and (2) Mature Stars which are self-financing ability.
An organization will usually consider it worthwhile to invest in retaining and growing a star's strong market share because the revenue it brings in equals or exceeds the investment required.
In an immature market, the rapidly increasing number of new customers results in fast growth and high potential profits, both of which attract new competitors into the market. Organizations operating in immature markets should remember that high revenues might come with high product development and marketing costs.
As a fast growing market reaches maturity, those products with the biggest market share become Cash Cows, whereas those that have not been able to build market share will move into the Dogs category

Stars Key Points

  • It is usually worthwhile to invest in a Star because the revenue it brings in equals or exceeds the investment required.

Question Marks

This category of the Boston Matrix has several common names. It is usually known as 'Question Mark' but can sometimes be referred to as a 'Wildcat' or 'Problem Child.'
A Question Mark has a low market share in a fast-growing market. Whilst this type of product is likely to generate some revenue it may not be enough to sustain rapid growth and it may become a net consumer of cash as it struggles to retain its market share.
Identifying those Question Marks that have the potential to gain sufficient market share to become a Star and eventually a Cash Cow is critically important to the future of any organization.
Question Marks require careful analysis to determine whether or not they are worth the investment required to grow their market share. This may be especially important if the emerging market could replace your established market in the near future.
It is essential to define how much investment the organization is prepared to allocate to a Question Mark product in order to gain market share. This type of decision requires more sophisticated analysis than the Boston Matrix can offer and an organization may need to invest heavily to transform a Question Mark product.
Investment could involve a relaunch of the product, creating a new image that fits the consumer profile better, or some redesigning of the product or service in response to changing market conditions. Two well-cited marketing examples of this are:
Levi jeans in the 1980s were out of fashion, but the market for teenage clothes was growing fast. So, Levis relaunched their jeans with 501s, which were advertised with a new stylish image positioning them as a teenage fashion item.
The result within a few months was to increase sales by a factor of 10, turning the product into a star. The soundtrack of the TV advertisements used famous pop songs, and the ads became so popular they are still talked about 25 years later.
HMV, whose primary market was music, found that their CD sales were falling, whilst the music market was growing. Their response was to diversify and extend their product range into other areas of the 'home entertainment' sector such as computer and console games, DVDs, and online downloads. This turned out to be too little, too late and HMV were taken into administration in 2013.
The very nature of a Question Mark product or service means that it will be a cash consumer until it can gain sufficient market share to become a Star or Cash Cow. If it is unable to do either, it will be withdrawn from the market or become a Dog as market growth declines.
Organizations need to continually examine the value they achieve in terms of market share or revenue against continued investment in a Question Mark. Not all new products will succeed even if they do gain a reasonable market share, because the revenue generated may not meet the expectations set by the organization.

Question marks Key Points

  • Identifying those Question Marks that could become Stars and Cash Cows is critically important to the future of any organization.
  • Organizations need to continually examine the value they achieve in terms of market share or revenue against continued investment in a Question Mark.

Cash Cows

Successful products or services in mature markets are referred to as Cash Cows. Some well-known examples are: • Ford Transit Vans and Pickup Trucks • Kellogg's Corn Flakes • Coca-Cola
These products and services consistently generate substantial revenues that can be used to invest in markets that offer higher growth rates. Products that are described as Cash Cows will typically be market leaders and be able to provide a return on assets (ROA) that exceeds the market growth rate.
This market leadership enables a Cash Cow to earn profits that easily exceed any funding or investment required to produce or sustain them. This factor combined with few growth opportunities in this type of market allow organizations to divert or 'milk' the majority of the revenue generated to invest in faster-growing markets.
In fact, one problem with the classification of products as Cash Cows is that it can encourage people to think in terms of 'milking' the Cash Cow, something that may turn out to be short-sighted.
The Boston Matrix assumes that by the time a product dominates a mature market it will have recouped its initial investment several times over and that its marketing expenditure will be relatively low. This implies that diverting funds to other growth areas will not have adverse implications for the Cash Cow. Such an assumption is rarely true as there is nearly always an ongoing need to invest in maintaining and enhancing the Cash Cow's brand value and associated customer loyalty.
Having said that, new entrants into the mature market are rare because the slow growth rate offers a poor return on any investment a new competitor would be required to make in order to cover its entry and marketing costs.
These marketing costs can be considerable, as the new entrant needs to achieve sufficient brand and image awareness if they are to take a significant share of the market away from the existing suppliers.
The speed of technological change is continually shortening the time markets can be seen as 'emerging' and/or 'mature.' This impacts the ability of a product to pay off its investment costs and become a Cash Cow.
This issue is one that must be discussed when deciding how to position your product or service within the Boston Matrix. Organizations need to be mindful when using the process that the length of time a product has to recoup any investment is shortening as technological advances are occurring at an ever-faster rate.

Cash Cows Key Points

  • Successful products or services in mature markets are referred to as Cash Cows.
  • Cash Cows have high sales revenue, profitability, and market share.
  • They have low marketing costs and require minimal investment.

Using the Boston Matrix at Brand Level

As part of the management team, you may be involved in strategy discussions where you are asked to contribute and comment on the categorization of your products or services in terms of the Boston Matrix.
Understanding the terminology is essential but you also need to be aware of the shortcomings of this technique.
The Boston Matrix is most often used to make the following decisions about products, services, or business units.
1. How best to manage individual products within a complete range taking into account the market conditions. 2. How to use successful and profitable products to fund the development of future products.
By using the matrix to bring perspective to decisions about which products or business units to invest in, organizations can optimize the distribution of funds across business units or product ranges. It will also highlight those areas they need to divest themselves of to meet profitability and growth targets.
The Boston Matrix has generated a lot of controversy since its introduction in 1970. It was originally intended to help organizations allocate resources between their different categories of business. However, financial capital is more freely available now than it was in the 1970s and the allocation of scarce capital is now less of an issue than it was then.
The important thing is that the model was originally developed to allocate capital across operating companies or divisions; it was never designed to be used at the brand level. This use (or abuse, as some would say) of the Boston Matrix can create self-fulfilling prophesies because some people see it as implied in the model that a Cash Cow will eventually become a Dog, and that that this is in some way inevitable or even desirable. In fact, a brand that was once a Cash Cow can be reinvigorated by an inspired marketing effort or product redesign.
A good example of this would be the acquisition and relaunch of the Mini brand by BMW, or the relaunch of Heinz Tomato Ketchup in its revolutionary upside-down bottle. Some critics of the Boston Matrix say that it implicitly denies that brands can be transformed, when in fact that is very often the best strategy. This undervaluing of a brand makes no sense because brands often represent assets of real value to an organization.
Despite the controversy surrounding it, the Boston Matrix can be a valuable tool provided that you are aware of its shortcomings.

Brand Level Key Points

  • The Boston Matrix can help to optimize the distribution of funds across business units or product ranges.
  • It is often used at the brand level, although it was never designed to be.
  • It is a model that can lead to poor decision-making by those who misuse it.
  • It can be a valuable tool provided that you are aware of its shortcomings.

A Balanced Portfolio

A balanced portfolio within an organization allows it to position itself so that it is ideally situated to take advantage of its current and future market growth opportunities.
For example, Cash Cow products provide investment funds that can be used to convert today's Question Marks into tomorrow's Stars.
Once a balanced portfolio has been defined, your organization can choose to apply the most appropriate of the following four strategies:
Hold - you choose to continue doing the same things to maintain the status quo. Build - you select to make further investments, either to maintain the market share of a Star, or make a Question Mark into a Star.
Harvest - you decide to utilize your cash flow from a Star or Cash Cow to reduce the burden of investment and maximize profits.
Divest - sell off or withdraw Dogs so that human resources and financial capital can be invested in your Star and Question Mark products and business units.
The Boston Matrix can also be used to understand how well your current portfolio matches your organizational objectives. This can help to identify areas that you need address in order to achieve a balanced portfolio. It also offers an alternative perspective to that of looking solely at the life cycles (product portfolio analysis) of each product.
A balanced portfolio is not achieved by having a product in each quadrant of the matrix, but this is often what happens in reality because not all of your products or business units will be successful and not all of your markets will be growing at the same rate. For example, Dial-up internet was at one time a Cash Cow for many companies, but as technology has advanced it has quickly become a Dog.
Some companies have retained this product to ensure a full range of products for its customers. They feel the benefits of retaining it as part of their product range outweigh those of removing it from their portfolio.
Others have sold this product off to specialist companies or just stopped supporting it, preferring to use these funds to develop other services.
One common misconception about the Boston Matrix as it relates to a balanced portfolio is that it endorses the idea of diverting funds from a Cash Cow to either a Star or a Question Mark. Whilst it might make sense to do this under certain circumstances, it is not something that is implied by the model.
Another misconception is that a balanced portfolio means having equal numbers of products or services in each quadrant. Again, this is not something that is implied by the model. If your product range does not have a Dog it would not make sense to create one just so that you can have a product in each quadrant.
Your organization can also use the Boston Matrix to indicate its products' strengths and weaknesses in terms of its cash flow management. This is gauged by the amount of cash each product generates (relative market share) compared to the quantity it uses (market growth rate).
By using relative market share, rather than profits, the Boston Matrix ensures that it considers more than just cash flow. The relative market share illustrates the positioning of your product or service compared to your main competitors. It can also help you to decide on future positioning and which marketing activities are likely to be the most effective.

Balanced Portfolio Key Points

  • A balanced product portfolio has Cash Cows that can provide the investment funds to develop Question Marks and Stars.
  • Once a balanced portfolio has been defined, there are four strategies that can be followed: Hold, Build, Harvest, or Divest.
  • A balanced portfolio does NOT mean having equal numbers of products or services in each quadrant.

Advantages and Disadvantages.

Any organization using the Boston Matrix to help define its strategy, rather than just provide an indication of future potential, must properly represent the cash flow of each business unit or product being assessed. There has been a tendency for users to oversimplify the analysis and to focus on categorizing products or business units as Cash Cows, Stars, Question Marks, or Dogs, rather than considering cash flow.
This trivial approach has led to the matrix being seen as impractical for organizations that want to develop their business, resulting in its decline in popularity. In 1992 a study by Slater and Zwirlein actually showed that of the 129 firms they reviewed those who had used the Boston Matrix as part of their portfolio planning presented lower shareholder returns to their investors.
The danger of focussing on market growth and market share is that it can encourage you to disregard other key factors that define your competitive position. In addition, you need to take into account interdependencies between your products and be aware of the merits of differentiation as a way to gain a competitive edge.
The Boston Matrix assumes that the higher your market share the more profitable your product or business unit will be. It also rejects the possibility that a niche product with a low market share can be profitable, whilst in reality many Dogs offer higher profit margins than many Cash Cows.
Another key factor the matrix is unable to take into account is the characteristics of the particular industry sector you operate in. For instance, ranking products or business units often has a subjective aspect and an element of guesswork with regard to future growth. Some industry sectors may be more optimistic, insistent, and persuasive than others about the rates of market growth and their own market share. The senior management of many 'dot.com' companies in the early 2000s demonstrated this clearly.
There are other analysis tools that can help you assess your environment such as PESTLE Analysis and Porter's Five Forces.

Boston Matrix Advantages and Disadvantages Key Points

  • The purpose of the Boston Matrix is NOT just to categorize products or business units.
  • Focussing on market growth and market share can encourage you to disregard other key factors that define your competitive position.

Module 1 - Business Planning

Most organizations only realise 6% of their strategy's potential value due to issues in development or execution. In this module, we review the crucial aspects of target setting and performance tracking.
The purpose of this module is to help the client understand how their business functions (Business Model Canvas) in their specific operating environment (PESTLE, SWOT, Five Forces).
It encourages the owner to think about the longer-term strategic direction (Growth Planning, Business Planning, Growth Rate Calculator) and set goals, targets, and measures to check progress and stay on track (Balanced Scorecard).
Other concepts and tools that could be useful include OKR (Objectives and Key results), discussing Vision, Mission, Purpose, or similar long-term topics.
Some consultants find it useful to split business planning into the two activities of

Strategic thinking: what is our vision, purpose, and values; where do we want to go with the business in the medium and long term; what are our priorities and challenges that we need to overcome; where and how do we generate growth, etc.

Execution planning: what projects, tasks, and initiatives do we need to execute in the next 3 to 12 months to move us closer to our goals; how will we measure success on these initiatives; who will be accountable for delivering them; what conversations will we have every month to ensure that we remain on track.

TIP Your client has probably engaged you because they do not have clear goals, or are not effective at executing their plans. It might be useful to gently test their current planning capability, and then circle back to Business Planning later in the engagement when they are more familiar with the processes that they need to master and the gaps to close between current and desired future stateBusiness planning is also an activity that should be conducted at least once per quarter and reviewed monthly for progress, so including this as part of your monthly conversation will help your client develop the habit of switching context between operational and strategic more often than once a year.

A different way to think about Budgets

Many clients resist the idea of setting and tracking Budgets and view Budgets as boring or restricting or unnecessary. You should address these historical and inaccurate perceptions early in the planning process.
A suggestion could be to tell your client to forget about Budgets and start talking about Targets and Resources. To the untrained eye, these look exactly like Budgets as they use the same format as the income statement: monthly and annual revenues, cost of sales, gross margin, overheads, net profit, etc.
The three key differences between Budgets Targets and Resources are this:

Targets show how much your client plans to grow their revenues. You could even split these into the Ansoff categories of revenue growth from market penetration, revenue from new products, new customers, new geographies, etc. These are effectively your sales team’s targets (retention, growth, new business)

Resources reflect the monetary value of the resources required to deliver those targets. Material costs, staff, equipment, facilities, energy, communications, marketing, and all the other Cost-of-Sales and Overhead line items reflect the allocation of money towards resources that are planned to be utilised or consumed in creating the Value Proposition and delivering it to the customer.

While budgets appear to be cast in stone, Targets and Resources are flexible and under the control of the client. If they are not achieving their targets, they need to review the impact and allocation of resources or change their targets to what can be realistically achieved with the available resources. If they are exceeding their targets, they have additional cash which can be applied to more resources required to deliver value to the customer or invest the extra resources into even more growth.

The Business Model Canvas illustrates this concept very effectively with the way that the Costs and Revenue boxes are linked to the left and right-hand sides of the canvas respectively.
Your client will not achieve significant changes in meeting their targets (revenue growth) without changes in the allocation of resources (overhead and other costs). Part of your job as a consultant is to help them understand this and teach them to estimate and manage their Targets and Resources more accurately and realistically.

MOST Analysis – Mission, Objectives, Strategy, Tactics

All businesses operate under some kind of general business plan, which is intended to outline the overall goal of the business. Obviously, making money is the standard goal for a for-profit business, but the business plan needs to get into the specifics of how you are going to make that happen. Often, the biggest difference between a company that is successful and one that falls short is the quality of the business plan they start out with right from the beginning.
However, once the business is up and running, it is easy to lose track of that plan or purpose for the business. There is so much to do on a daily basis that it is easy to forget about the plan and get lost in the details of the daily routine. This is a dangerous mistake for any business or organization to make. When the daily activities that take up most of your time are no longer aligned with the vision that you have for the future of the business, you are going to have a hard time reaching your goals. Staying on track requires a close connection between long-term goals and short-term activities.
This is where the MOST Analysis tool comes in handy. The idea behind MOST is that it will help you to organize your activities in support of each other so they are all heading in the same direction. Without this kind of cohesion between your activities, the future can suddenly look bleak.
MOST Analysis is made up of four elements –
  • M – Mission
  • O – Objectives
  • S – Strategy
  • T – Tactics
The tool is meant to work from the top down, with each successful point becoming a little more specific as it goes. Let’s take a quick look at each of the four elements of the MOST Analysis tool to better understand how they can drive your organization forward.
Mission Basically, this is the main purpose of the business plan that we discussed above. It should be the top-level, overall reason for being in business in terms of what you want to accomplish. The more specific that you can be when defining your mission, the more success you will have later on trying to define the remaining points within the tool. For example, imagine that you own a dry cleaning business. You could state that your mission is to be the best possible dry cleaning business that you can be and impress each customer that comes through the door. That might sound good, but what does it mean? Those kinds of goals won’t really give you any direction to go on. Instead, something like being the top dry cleaning business within your city is far more attainable and tangible. If you are bringing in the most business and getting the best reviews in your city for dry cleaning companies, you will know you have reached your goal. Then, you can frame the rest of your thinking around trying to make this happen.
Objectives Your objectives are one step down from your mission. Think of these are a collection of individual goals that will add up to reaching your overall mission. Just like with the mission, objectives should be specific enough to guide your decision making and planning for the future. With your mission in place, it should be relatively easy to develop a list of a few objectives.
To continue the previous example, you need to highlight objectives that will outline how you can become the best dry cleaner in the city. Some possibilities might be to grow sales by 5% each month, attract ‘x’ number of customers to switch from your competition, or receive a certain number of reviews online. Your objectives should be measurable so you can evaluate the methods you used to try and reach them and determine whether you have succeeded or not.
Strategy These are the things you are going to do in order to reach your objectives. What actions should be taken in order to accomplish your objectives, and in turn, your mission? Keeping up with the example we have been using, the following are a few sample business strategies that could be used:
• Run a promotion to entice new customers to switch from your competition, such as offering to beat any rate by 10% • Invest in new advertising channels such as paid online advertisements or local radio • Offer benefits to customers who take the time to leave a review about your business
The strategies that will work for your business are going to vary wildly depending on your market and target demographic. However, the idea is the same for any organization – build a list of strategies that further your pursuit of the objectives you have already highlighted. This is not a time to be vague. Your strategies should be specific and actionable.
Tactics The final point in the MOST tool are the tactics that you will use to enact your strategies. Your tactics should be the specific details that will guide your daily activities. So, if you are going to run radio ads as mentioned in the previous example, some tactics would include writing a script, hiring a voice over artist, contacting radio stations, etc. Using your tactics to dictate your daily activities is the best way to make sure what you are doing today will guide you in the right direction toward your overall mission. There is a cohesion between each step along the MOST Analysis that is important and should be considered carefully. One step builds on the next, and that consistency is what makes this a valuable tool. Many organizations get lost somewhere between the mission and the tactics, so do a careful review of your processes to make sure that you don’t fall into that trap. As long as you are able to outline a logical progression for your business from one step to the next, the end result should keep you pointing in the right direction.

MOST Key Points

  • MOST Analysis is a simple framework tool for analysing or planning the detail of what an organisation does
  • It helps you frame questions, starting from the high-level mission of the organisation and digging right down to the detail of individual tactics.
  • MOST stands for: Mission, Objectives, Strategy and Tactics.
  • The mission of an organisation should be the answer to the question ‘What do you do?’
  • Objectives start with the translation of the mission into overall intent that drives the strategy process.
  • The strategy includes the high-level decisions that shape what is done and how.
  • Tactical planning takes strategic decisions and figures out how to implement them in practice.

Balanced Business Scorecard

The Balanced Business Scorecard, or the Balanced Scorecard, is a management tool used by many organizations in order to align their activities with their goals. There are a number of tool and models that seek to achieve the same result, but the Balanced Scorecard is one of the most popular and most successful in use. By using this tool, you can gain a top-level view of everything that is going on within an organization so decisions can be made in terms of improving weaknesses and tightening up performance.
This scorecard diagram is divided up into four sections, each of which requires its own time and attention to understand and utilize. The four sections are Financial, Customer, Internal Processes, and Learning and Growth. Obviously, those areas cover a range of different departments and employees within any business, so you can quickly see how this scorecard is able to relate to any organization and help it be better aligned for the long run. Let’s take a moment to look a little closer at each of these four sections of the scorecard.
Financial What kind of financial situation is the organization in currently? What opportunities exist for better use for the financial resources available? What risks are present in terms of finances? These are just some of the questions that can be asked in order to fill in this portion of the scorecard. Obviously, the financial condition of an organization is one of the most-important elements to review at any time. Without a solid financial base, the long-term goals of the company – whatever they may be – are unlikely to be reached. Once the financial situation has been reviewed and considering, decisions can be made to make sure that financial management is in line with the overall target of the organization. Ideally, the choices that are made with finances are going to work directly toward helping the company as a whole hit its goals. If that isn’t happening, the scorecard should be able to highlight the problem areas so improvements can be made.
Customer Business is all about customers. If you don’t have customers, you don’t have a business – plain and simple. This section of the scorecard encourages you to take a look at the business from the perspective of the customer and analyze what could be done better, and what is working well. Are your customers impressed with your products and your services? Is there any part of your business where a customer would be better off choosing one of your competitors? There are a number of statistics and metrics that can be used to evaluate the relationship that you have with your customers. Things like the percentage of sales which are made up of new products, and how many customers make up the majority of your sales, are good ways to analyze the state of the business and make any adjustments that might be necessary going forward. Without a healthy and growing customer base to serve, all of your other efforts can go wasted in time. The business that learns to value their customer relationships is usually the one who will succeed in the long run.
Internal Processes The actual day to day operations of your business, or your department within a business, need to be as effective and efficient as possible to compete. You can’t afford to be wasting resources along the way and still expect to win out over your competition. If you aren’t doing it as well as it can be done, someone else surely will.
There are a number of ways in which you can use your internal processes to gain an advantage over your competition. Those include – Producing for less. If you can make the same product as your competition, but make it for less, you have an obvious advantage. This will allow you to sell your product for less, meaning it is easier to win the market share from your competitor, and still make the same profit margin. Controlling, and reducing, unit cost over time is a valuable skill. Producing faster. Whether you want to make sure your product is the first to the market, or just be able to fill orders as quickly as they come in, the speed of your production is another important facet of operations as a whole. Through using this scorecard to study your processes, you may discover that time is being wasted at one point or another along the way.
Setting the market. Within your industry, if you are able to bring a new product to the market that offers a better solution to the problems of your customers, you are sure to grow your business. Setting the market is always difficult, but it is something that every organization strives to achieve. It is easy to let your internal processes just continue to run as they have because you are so busy managing them from day to day. Stepping back, however, and reviewing what you do is vital to the growth of the company.
Learning and Growth Speaking of growth, this last section of the scorecard relates to just that – finding new ways to improve, expand, and add value for customers. Also included in learning and growth is the development of the employees within your organization. When you give them power and opportunity beyond just their normal daily routine, you open up possibilities that may not have existed before. A culture of growth within an organization is one that helps people with ideas express them to those who can put them into action.
Using the Balanced Business Scorecard is a decision that countless organizations have used over the years to review how they are functioning, and where they could improve. Taking time to analyze each of the four sections of the scorecard honestly and objectively could reveal things about your business that you did not know were true. Every organization has goals, but it is working toward those goals on a daily basis that gets tricky – using the Balanced Business Scorecard can help you work through the details and stay on track.

Balanced Scorecard Key Points

  • The Balanced Scorecard (BSC) is a semi-standard structured report that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.
  • It focuses on the strategic agenda of the organization, the selection of a small number of data items to monitor and a mix of financial and non-financial data items.
  • Using the Balanced Business Scorecard is a decision that countless organizations have used over the years to review how they are functioning, and where they could improve.

Module 2 – Product/Service Innovation

To ensure continued relevance and increased sales an innovation process needs to be developed and implemented. To ensure growth and sales increase both markets and competitor trends should be monitored. Based on market demand and not lack of sales a formal innovation process should be adopted.
The purpose of this module is to help your client assess their readiness to do innovation (Innovation Tool Review, Product Development Maturity Scorecard).
It also teaches them how to do structured innovation and product development (product development process diagram) and how to measure and guide their teams in delivering profitable innovation (Product Roadmap, Product Profitability).
TIP Research and Development is expensive and should be carefully considered in the context of the company’s target market and competitive environment. If it is a core strategic differentiator or requirement you can place a much more intensive focus on the effectiveness of the innovation process.In many cases being second-to-market through copying other innovators or localising international ideas/business models might well be sufficient for your client to develop a competitive advantage.
The Ansoff matrix is a useful tool in this module to structure the conversation with your client towards OKRs or projects that will leverage the existing company strengths and reputation into new products and services.

The Ansoff Matrix

The Ansoff Matrix, or Ansoff Box, is a business analysis technique that provides a framework enabling growth opportunities to be identified. It can help you consider the implications of growing the business through existing or new products and in existing or new markets. Each of these growth options draws on both internal and external influences, investigations, and analysis that are then worked into alternative strategies.
The SWOT analysis serves to identify the strengths and weaknesses of your organization, as well as the external threats to it and the opportunities available to it. Once these have been identified you can use the Ansoff Matrix to investigate the implications of your organization's current strategy and those of any changes that are suggested by the SWOT analysis.
The usefulness of both the SWOT analysis and Ansoff Matrix depends on the quality and accuracy of the market intelligence they are based on. This information is best supplied by working managers who can provide accurate and up-to-date information on everything from customer feedback to competitor activities.
The need for this information means that you may find yourself in strategy meetings; a familiarity with the underlying business analysis techniques and jargon can help you to make a valuable contribution by bringing your own area of expertise into the discussion.
The Ansoff Matrix, created by the American planning expert Igor Ansoff, is a strategic planning tool that links an organization's marketing strategy with its general strategic direction. It presents four alternative growth strategies in the form of a 2x2 table or matrix.
One dimension of the matrix considers 'products' (existing and new) and the other dimension considers 'markets' (existing and new).
The resulting matrix offers a structured way to assess potential strategies for growth. As part of this framework you will have to consider possible technological advances that could affect your current and future products, as well as potentially new markets for both sets of products during their life cycle.
The sequence of these strategies is:
1. Market Penetration - You focus on selling your existing products or services to your existing markets to achieve growth in market share. 2. Market Development - You focus on developing new markets or market segments for your existing products or services. 3. Product Development - You focus on developing new products or services for your existing markets. 4. Diversification - You focus on the development of new products to sell into new markets. The matrix does not present you with a final decision as to whether or not to develop new products or enter new markets, but it does provide you with an outline of alternative methods by which you can achieve your mission or growth targets.
It is particularly useful in showing how you can develop a strategy for altering your market position as well as increasing or improving your product range. The four different options are not mutually exclusive and in certain circumstances your organization might want to combine different elements.
The output from an Ansoff Matrix is a series of suggested growth strategies that serve to set the direction for the business and provide marketing strategies to achieve them. Each of these options carries a certain amount of risk and involves differing levels of investment.
To be able to take an active part in discussions regarding any one of these four strategies requires you to have a general idea of the implications each strategy could have on your organization.
When using the Ansoff matrix within your organization, the biggest downside is the potential for investing large amounts of time and capital in efforts that may not be successful. Some of the options, especially product development and diversification, can be very costly and require a high degree of confidence to undertake. When done right, these moves can take a business to a whole new level. The possibility of failure always exists when expanding, however, and those failures can be catastrophic if not mitigated properly.
The strength of the Ansoff matrix is opening up the eyes of managers to new possibilities for marketing efforts that can increase the growth potential of the company. It is easy to get stuck in the traditional ways of thinking about marketing and forget to think about expanding the horizons of the business. Considering the Ansoff matrix sectors will encourage all managers to keep an open mind when plotting upcoming marketing efforts.
Good managers will use the Ansoff matrix as a way to think about all marketing angles going forward. There is no one right way to use the matrix - rather, it is a good way to start a marketing discussion and begin the process of developing ideas. Include this matrix in your next marketing staff meeting and look forward to finding new ways of growing the business that you may have never thought possible.

Ansoff Matrix Key Points

  • The Ansoff Matrix is a strategic planning tool that links an organization's marketing strategy with its general strategic direction.
  • Prior to using the Ansoff Matrix your organization should conduct a SWOT analysis.
  • One dimension of the matrix considers 'products' (existing and new) and the other dimension considers 'markets' (existing and new).
  • This suggests four possible strategies: Market Penetration, Market Development, Product Development, and Diversification.

Market Penetration Strategy

Market penetration is one of the four alternative growth strategies in the Ansoff Matrix. A market penetration strategy involves focusing on selling your existing products or services into your existing markets to gain a higher market share. This is the first strategy most organizations will consider because it carries the lowest amount of risk.
This strategy involves selling more to current customers and to new customers who can be thought of as being in the same marketplace. For example, if your current customer base consists of men aged between 16 and 25 then this strategy would involve attempting to sell more of your existing products or services to this same group.
One key constraint is that you cannot allow anything in your drive to grow market share to compromise your existing success. You need to be aware of what has made the product a success so far and ensure that nothing you do will undermine it.
You should give this strategy careful consideration if you are not in a position to invest heavily or are not comfortable with taking risks, as the amount of risk associated with this strategy is relatively low.
There are four approaches you can adopt when implementing this strategy:
Maintain or increase the market share of current products
You can achieve this by adopting a strategy that is made up of a combination of competitive pricing strategies, advertising, and sales promotion. This would involve focusing on the areas of sales and marketing responsible for managing the pricing and promotion of the product.
Secure dominance of growth markets
Another approach you could take is identify a new demographic for your product, for example another age group. An excellent example of such a strategy would be for you to identify a change in the age distribution of your product users and to then aggressively market your product to this age group.
This was exactly what happened in the cell phone market when it was realized that teenagers were emerging as a key demographic. Previously it had been users in their 20s who were seen as the biggest group of first-time users. Substantial growth in market share and dominance in this sector was achieved by ensuring cell phone companies' promotions met the needs of this younger group.
Your role in the discussion senior executives will have in defining their strategy is that of providing the market intelligence or customer feedback that helps to inform the executive team of the current dynamics of the market. The data you provide will help the team decide whether a growth market is an extension of the current market or is truly a 'new' market. This decision is likely to be based on how your organization is going to approach this growth market.
If the team's chosen approach defines the growth market as a 'new' one then a market penetration strategy will be replaced with one of market development, which is covered in the next section.
Restructure a mature market by driving out competitors
Many organizations find themselves in a mature or saturated market and to achieve further market share requires a different approach. This strategy requires an aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for smaller competitors.
With a mature market there are no more demographic sectors to exploit and the only way to attain market share is to take it from competitors. Examples of this strategy can be seen in the newspaper, telecoms, and cable TV industries, where the larger players now dominate. Another good example is the rapid growth of the supermarket chains, which have taken market share from small high street grocers who are unable to compete on price and product range. More recently there has been the introduction of loyalty campaigns, where the supermarkets compete for market share through customer loyalty programs.
Increase usage by existing customers
Another approach to market penetration is to persuade your existing customers to use your product or service more frequently. There are several tactics you could use to do this, including loyalty schemes, adding value to the current product, or making alterations to the product that encourage greater use.
The tactics of this approach all aim to 'tie in' your customers to your product or service by making it more difficult for them to move to another supplier. The ability of your organization to achieve higher usage by customers can be greatly enhanced by rapidly changing technologies that encourage users to upgrade or that offer more reasons to use the product or service. A good example of this would be cell phones: models are now upgraded every six to 12 months with the addition of new features and capabilities.
A successful market penetration strategy relies on detailed knowledge of the market and competitor activities. It relies on you having successful products in a market that you already know well.
The key role you are likely to be asked to perform is capturing the intelligence that is required to make informed decisions. Understanding why this information is being asked for should help you to capture and pass on the most relevant and significant information.

Market Penetration Key Points

  • Market penetration involves focusing on selling your existing products or services into your existing markets to gain a higher market share.
  • This can be achieved in four ways: maintaining or increasing the market share of current products; securing the dominance of growth markets; restructuring a mature market by driving out competitors, or increasing usage by existing customers.

Market Development Strategy

Market development is one of the four alternative growth strategies in the Ansoff Matrix. A market development strategy involves selling your existing products into new markets. There are a variety of ways that this strategy can be achieved.
New geographical markets
This could involve expanding outside of your region or selling to a new country or a new continent. The element of risk in adopting this strategy will depend on whether or not you can use your established sales channels in the new market.
New product dimensions or packaging
Your organization may simply want to repackage your product so that it can open up a whole new market. For example, a company that sold industrial cleaning products in 20-liter containers could break into the domestic market by repackaging in smaller quantities and developing a suitable brand image.
If you are responsible for packaging or production of the product you will be required to look at the new costs involved with these changes and new markets requirements and alter the marketing messages so that they are appropriate to that country's culture.
New distribution channels
Many companies have transformed themselves from high street retailers into Internet retailers. As a manager you could be expected to outline the internal and financial implications of such a change. Senior management would be looking for you to provide the details of how to make this approach a success.
This could include the training needs of employees so that they have the skills to fulfill Internet orders, whether they are taking incoming calls or processing online orders. You would need to demonstrate an understanding of the operational changes your organization would face, such as a centralized warehouse rather than local depots.
One example of this type of market development is the sale of high-end sports equipment, which is now almost exclusively sold online rather than through sports equipment retailers. Another example is the sale of DVDs in retail outlets like supermarkets and gas stations rather than specialist entertainment stores selling predominantly music and video products.
Different pricing policies to create a new market segment
The important aspect of this approach is whether or not current users can easily alter their purchases to take advantage of the new market pricing. A good example of how to protect your existing market whilst developing a new one is Adobe Photoshop. It protected its price difference of hundreds of dollars of its original professional product by offering a reduced 'home' version that had a restricted set of functions.
Whilst there are similarities between the first two strategies, market development involves a greater degree of uncertainty, risk, and financial commitment.
One of the biggest dangers of this strategy is the risk of alienating your current customers. For example, the tools made by US company Snap-on are widely regarded as the best in the world and are used by almost all professional automotive racing teams.
Snap-on tools are only available through a tightly controlled network of franchisees and the company has resisted the temptation to develop any markets outside of professional mechanics. This strategy has allowed Snap-on to maintain its position as the number one supplier in this highly competitive market.
One way around this problem is to sell a cheaper product under a different sub-brand. This is something that has been done successfully by the US musical instrument company Fender, which created the 'Squier' sub-brand in order to market budget instruments without alienating its core market of musicians who want to own a recognizably high-end instrument.

Market development Key Points

  • A market development strategy involves selling your existing products into new markets.
  • There are four strategies that can achieve this: new geographical markets; new product dimensions or packaging; new distribution channels; or the creation of a new market segment by means of different pricing
  • One of the biggest dangers of this strategy is the risk of alienating your current customers.

Product Development Strategy

Product development is one of the four alternative growth strategies in the Ansoff Matrix. This growth strategy requires changes in business operations, including a research and development (R&D) function that is needed to introduce new products to your existing customer base.
As part of a successful product development strategy your role will require you to have a greater appreciation of a new emphasis placed on marketing. This would result in you supplying data for and assessing the implications of change in the following key areas:
Research and development
You may find yourself having to investigate and assess the use of new technologies, processes, and materials that would be needed to pursue this strategy. In the cell phone market, for example, phone models are being replaced every six months or so. Your organization may find that the lifespan of its products are longer, but few can ignore the necessity of continuous R&D.
Assessing customer needs
This is something that can be done by the marketing department in the form of customer questionnaires and user groups. However, customer needs can also be become apparent to people who are in customer-facing roles, as they often are the first to hear about problems or concerns with the product or service.
If you are managing a team in a customer-facing role you will have the opportunity to gather data that may initially appear negative but which can offer your organization the opportunity to meet customers' needs more fully. Understanding what a customer's real needs are and how these can be interpreted in product development is essential to success when using this strategy.
For example, complaints about oil spilling over the customer's car engine when having to replace lost oil led to the addition of an integral funnel being added to engine oil packaging.
Brand extension
This is a common method of launching a new product by using an existing brand name on a new product in a different category. A company using brand extension hopes to leverage its existing customer base and brand loyalty. However, this is a high-risk strategy as success is impossible to predict and if a brand extension is unsuccessful, it can harm the parent brand. Common sense would suggest that for brand extension to be successful there should be some logical association between the original product and the new one, but there have been many exceptions to this.
It is extremely difficult to predict what will work and what will not, and even with the benefit of hindsight it is sometimes hard to see why some attempts at brand extension succeed whilst others fail.
For example: A well-known success is the launch of a clothing range by Caterpillar, a company that makes earth-moving equipment. This brand extension is totally unrelated to its main business. A well-known failure is that of the car manufacturer Volvo, whose launch of its 850 GLT sports sedan was a high-profile failure. This seemed on the surface to be a logical brand extension, but it did not work for Volvo because the public could not be persuaded to buy a sports car from a manufacturer whose principal brand value is safety.
Whatever course of action is decided upon it must not create confusion amongst your customers. It must also avoid having a detrimental effect on your current market share.
There are three broad approaches to new product development: 1. The new product is closely associated with current products. 2. The new product matches current customers' purchasing habits. 3. The new product reinvents or refreshes the existing product.
Within the fast moving consumer goods (FMCGs) market the majority of product development follows the first approach of creating new products that are easily and closely associated with the existing product. These new products usually have strong brand awareness within the market and use this as their main vehicle to gain visibility in this highly competitive market.
For example: Mars is well known for its famous Mars snack bar. Its brand extension remained in the snack arena and started with different sizes, such as bite size and king size. Then it created a branded ice cream before moving into beverages.
Kit Kat's product development has been similar to that of Mars, but it has tried offering customers different flavors as part of this strategy. This has met with varying degrees of success. The United Kingdom has shown little preference for the new flavors, whereas in Japan flavors such as Wasabi, pumpkin, and toasted soy flour have become very popular.
Kit Kat's variable success with creating new flavors for their chocolate bars reflects how different cultural tastes can influence success or failure when using this strategy. If your organization operates internationally then part of your research and development should take account of cultural differences.
The second brand extension approach requires your organization to have a thorough knowledge of the purchasing habits of your existing customers. Using this expertise you would then develop your products in such a way that they match these habits.
You may even exploit your organization's or your brand's image and reputation to achieve this by promoting and mirroring your existing brand image and its purchasing habits onto your new product.
For example: Marks & Spencer used their image of quality to expand their product range into food, encouraging their existing customers to buy from them rather than a supermarket. They have also extended their brand into financial services.
Virgin exploited their image of quality and offering something more exciting to persuade teenagers and young adults who bought music from them to buy soft drinks (Virgin cola), travel with them, and later to use their banking services and other financial products. The third approach to brand extension is to continuously offer a refreshed or revamped product. This new product must convert your competitor's customers rather than simply cannibalizing your own sales. You want to avoid diverting your existing sales to the new product as this will simply maintain revenues rather than increase your market share.
Razors, washing detergent, and cars are all examples of products that are continually 'refreshed' in this way, especially to stay distinct from the competition and gain market share.
For example: The washing detergents market has seen extensive product development. Companies started offering just one type of washing powder; this then progressed to one for whites and another for colors, then to liquid versions, and now to tabs or pouches.
The consumer will buy a variety of these products to satisfy the different washing requirements of their clothes. This contrasts with previous generations who just used one powder to wash everything!
Each of these product development approaches involves investment and an element of risk. One key aspect of this strategy is that you as a manager are likely to have to develop new skills and specializations within your team or department to meet these new requirements.
These new skills, especially in the initial stages, could be met by using outside skills and resources to control the cost and risk of such a venture. Many organizations outsource this aspect of product development and simply add their name to the packaging.
Product development, especially brand extension, is a popular strategy because it is more easily accomplished within the organization than creating totally new products.

Product Development Key Points

  • A product development strategy involves developing new products or services for your existing markets.
  • This strategy requires continuous research & development as well as the ongoing assessment of customer needs.
  • There are three broad approaches: the new product is closely associated with current products; it matches current customers' purchasing habits; or it reinvents or refreshes the existing product.
  • Many organizations outsource product development by simply buying in an existing product from another manufacturer and putting their own name on the packaging.

Diversification Strategy.

Diversification is one of the four alternative growth strategies in the Ansoff Matrix. A diversification strategy achieves growth by developing new products for completely new markets. As such, it is inherently more risky than product development because by definition the organization has little or no experience of the new market. In addition, the new skills needed both in terms of marketing and operations often require substantial investment. This is usually achieved by acquiring an organization already operating in the new market.
For an organization to adopt such a strategy it must have a clear idea of what it expects to gain in terms of its growth. It also needs to make an honest assessment of the risks involved. Diversification often fails because organizations that attempt it are doing so because they have uncompetitive products in shrinking markets and a diversification strategy represents a desperate attempt to reinvent themselves. However, for those organizations that find the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.
This strategy is unlikely to come as a surprise to you, as it will have been intimated in many executive discussions and communications as a way the organization can achieve its ambitious or aggressive growth targets. By regularly reading press articles on your organization and its annual report you will be able to ascertain if this type of strategy is one under consideration. If you are aware of the accumulation of investment funds or substantial pressures from your competitors on your market share or product range, then these are the type of pre-conditions that forewarn of a diversification strategy.
If you are involved in defining or implementing a diversification strategy you will be aware of the discomfort or risk that occurs when working outside your existing knowledge base. Not all such strategies are successful, and even those that are in the short term may falter in the long run if they are unable to match the R&D of their competitors.
These two examples illustrate the risks involved: In the UK, Virgin's move into trains has not been as successful as was initially hoped, even though they had some experience in the transport market. This poor performance might have had an impact on the overall strength of the brand due to the criticisms of the rail service. But Richard Branson's image has done much to minimize the impact and enhance the corporation's ability to truly segment its services.
Nokia were extremely successful when they diversified into cell phone manufacturing from their original focus as a producer of paper products. They became the European market leader, but they have recently suffered a setback with the introduction of Smartphones. It will take them time to respond to this setback and restore their market position.
Diversification can occur at two levels: either at the business unit level or at an organizational level. When it happens at the business unit level, you will most likely see your organization expanding into a new segment of its current market. At the organizational level, you will most likely find you are involved in integrating a new organization into your existing one.
As with each of the other growth strategies there are three broad approaches to how your organization implements a policy of diversification: • Full Diversification • Backward Diversification • Forward Diversification
Some organizations refer to these types of diversification as different 'integration' approaches because this is actually what happens. The new product or service and its market must be 'integrated' into the organizational structure to be successful.
Full Diversification - this approach is the most risky as you are offering a totally new product or service to an unknown market. It will also take considerable time to accomplish. An example of this strategy would be: A fresh trout distributor decides to diversify into selling insurance.
Backward diversification - this is where your organization decides to diversify by offering a product or service that relates to the preceding stage of your current product or service. For example:
The distributor decides to invest in a Scottish trout farm, thereby encroaching on the role of his or her supplier.
Forward diversification - this is the situation where your organization diversifies into the products or services that relate to a later stage that follows your current offering. For example: The distributor negotiates contracts directly with the supermarkets and other end users by selling online, negating the need to work with wholesalers.
In each of these examples the distributor would need to learn new skills and methods of operation. In the examples of forward and backward diversification those skills are not so alien to the distributor because the product is essentially the same. But the expertise in running a trout farm, in negotiating contracts, and setting up a reliable online shop to the public will require new skills to be successful.
In this example, the option of full diversification is obviously very risky indeed. The distributor is not involved in the insurance business and few of the skills that exist within his or her existing business will be transferable to the new one. This type of radical diversification can work if the company is cash rich and feels as though they would benefit from investing in a completely different type of business, perhaps one that they believe has a better long-term future than their current enterprise

Diversification Strategy Key Points

  • A diversification strategy achieves growth by developing new products for completely new markets.
  • Diversification can occur at two levels: either at the business unit level or at an organizational level.
  • • The three approaches to diversification or integration are: full diversification, backward diversification, and forward diversification

Module 3 – Market Definition

Market development and penetration should form the core focus of all your client’s growth activities. Growth should be actively targeted over and above the function of maintaining the current performance. Growth activities should be linked to market opportunities and not resource availability.
THIS MODULE IS CRITICALLY IMPORTANT
… it helps your client to truly understand where their opportunities lie (Market Research, Market Segmentation) and how the customers make purchase decisions (customer profiling).

Net Promoter Score

As a business, you are always trying to impress your customers – that much is obvious. If you can leave a good impression in the mind of your customers, those customers are more likely to provide value to your business at a later date. They may decide to make more purchases, they may buy more expensive items, or they may positively refer your business to others. No matter what action they take, it is always a good thing when a customer sees your business in a positive light.
On the other end of the spectrum, it is bad news when a customer has a negative impression of something about your business. Maybe they are unhappy with a recent purchase, or they had a negative interaction with customer service. Whatever the case, their negative feelings are likely to be passed on to others – especially in the high-tech world of social media in which we live. Making a good impression on your customers is essential if you are going to survive and thrive well into the future.
It is this concept that lays the foundation from a metric known as Net Promoter Score. This is a relatively new metric that has quickly been adopted across the business world, with many of the world’s biggest companies integrating this method into their relationship evaluation process. If you would like to gain a better understanding of how your customers feel about your business and your brand, using NPS is a great way to go.
Surprisingly Simple
One of the reasons that this metric has become so popular so quickly is the fact that it is incredibly simple. In fact, the entire metric is based around one basic question. The question goes roughly as follows –
• How likely is it that you would recommend our product to a friend? When this question is posed, it is usually associated with a scale of one to ten. Respondents are simply asked to select a number on the scale, and they are finished.
There is usually an optional field where those responding can add their own comments, but that is not a necessary part of the process. As long as a respondent is willing to pick a number from between one and ten, they will be included in the survey. As you would expect, a score of one indicates that they are highly dissatisfied with the product, while a ten is a score that represents complete satisfaction. Of course, it doesn’t have to be a ‘product’ that is being evaluated when this survey question is used. It could be a service, or it could even be an overall impression of the brand or company. In fact, you have probably already seen this question somewhere around the web after you purchased an item or signed up for a service. The Net Promoter Score metric is useful in just about any application, so there is a good chance you will be able to put it into action within your organization.
Scoring the Results
After you have collected a fair amount of data, you will want to start analyzing that data for anything that you can use to judge your reputation in the eyes of your customers. Despite the fact that this survey is presented as a scale from one to ten, all responses are going to be placed into one of three categories.
Those categories are as follows –
• Anyone who responds with a score of nine or ten is placed in the ‘promoter’ category • Anyone who responds with a score of seven or eight is placed into the ‘passive’ category • Anyone who responds with a score of six or lower is placed into the ‘detractor’ category
So, once a set of responses has been collected, you will be able to sort out the data into these three buckets. You will have a certain amount of people who are promoters of your product or service, some who are passive, and others who are detractors. But how do you sort this out into a score that you can use to measure your customer satisfaction moving forward? The scale is based on percentages, with 100 being the best possible score and –100 being the worst possible score.
To make this concept clearer, let’s look at an example. Imagine that you have posted this survey question on your website where customers will find it after they complete a purchase. After leaving the question on the site for a week, you now have 500 total responses to sort through. Those responses are sorted out into the three categories and the totals look like this –
• 300 of your respondents are placed into the category of a promoter • 100 of your respondents are passives • 100 of your respondents are detractors
It only takes a bit of basic math to figure out your net promoter score from these results. 300 promoters out of 500 total respondents is 60%. 100 detractors out of the 500 responses is 20%. By subtracting 20 from 60, you are left with a total Net Promoter Score of 40. As anything in the positive range is considered to be acceptable, most business would be pretty happy with an NPS of 40.
The Comments
In addition to the score itself, there is also plenty to be learned from the comments that customers leave when asked for their feedback after rating the company from one to ten. Both positive and negative comments should be carefully reviewed and considered, however it is often the negative comments that will be of the greatest value to the business. Usually the comments that are left as part of this survey will be reviewed by someone at the management level who can then use that information to make changes as necessary.
Net Promoter Score has quickly become a popular metric to measure customer satisfaction because it is both informative and easy to use. If you put this simple survey into action for your business, you are sure to gain valuable insights into the opinions and preferences of your customer base. A good NPS can indicate that you are already on the right track, while a poor NPS (and the comments that come with it) can help you find ways improve over time. Any company that is serious about building long lasting customer relationships should give strong consideration to the use of Net Promoter Score.

NPS Key Points

  • Net Promoter Score is a relatively new metric that has quickly been adopted across the business world.
  • Many of the world’s biggest companies integrate this method into their relationship evaluation process.
  • The entire metric is based around the question ‘How likely is it that you would recommend our product to a friend?’
  • Respondents are asked to select a number on a scale of 1 to 10, and make an optional comment.
  • Anyone who responds with a score of nine or ten is placed in the ‘promoter’ category.
  • Anyone who responds with a score of seven or eight is placed into the ‘passive’ category.
  • Anyone who responds with a score of six or lower is placed into the ‘detractor’ category.
  • Simple math enables a Net Promoter Score to be calculated with 100 being the best possible score and –100 being the worst possible score.
  • Net Promoter Score has quickly become a popular metric to measure customer satisfaction because it is both informative and easy to use.

Module 4 – Finding and Growing Customers

In order for your client’s business to succeed they have to ensure they are adding a consistent number of new customers, while at the same time ensuring existing customers are retained (Customer Satisfaction Survey, Customer Lifetime Value Calculator).
Your client needs to develop a monthly sales plan targeting the required revenue targets, including items such as the number (or value) of new customers with relevant product or service revenues linked to the overall strategy they are aiming for. After setting these targets they need to manage and measure the pipeline effectiveness (CRM Maturity Assessment).
TIP: This module is tightly integrated with your work on sales efficiency (Pipeline Conversion) as well as your marketing strategy (Lead Generation). All three of these components have to work to firstly grow your client’s revenue, but secondly diversify their customer portfolio to reduce revenue continuity risk.If more than 20% of your client’s revenue comes from one key client, they should not only be focusing intense effort on retaining that customer business but also as much if not more effort on finding other customers.
The Ansoff matrix is also a useful tool in this module to structure the conversation with your client towards OKRs or projects that will leverage the existing company strengths and reputation into market penetration as well as find new customers and markets.

The 4 Ps Marketing Model

What is the 4 P’s Marketing Model? • You have to think logically and clearly about what you are offering to your customers before you can market your goods successfully. • The 4 Ps stand for: Product, Place, Price, and Promotion. • Your marketing needs to cover the name of the product, the brand that is selling it, the basic features it offers, and more. • Consumers have choices in just about every market today, so you need to be very clear as to why your product is superior. • Place refers to where the product is sold. • The easiest way to find your price point is by looking at similar products that are already for sale. • Promotion refers to how you are going to market your product and is influenced by the first three Ps. • The 4 Ps model can help you to put your products and/or services in front of the right people, at the right price, at the right time.
Marketing is at the heart of any business. Without marketing, it won’t matter how great your products or services happen to be – you aren’t going to make any sales. The marketing department is one of the key departments within any organization, as its success is going to go a long way toward determining the success or failure of the organization as a whole.
The 4 Ps of Marketing is a simple tool that will help you gain a better understanding of the marketing process from start to finish. You have to think logically and clearly about what you are offering to your customers before you can market your goods successfully – and the 4 Ps will help bring the clarity that you need. The 4 Ps are as follows:
• Product • Place • Price • Promotion
It’s just that simple. If you can think about how each of those four points relates to what you are doing from a marketing perspective, you will be on the right track toward a successful marketing campaign. Of course, you probably have some questions about what each of those four points really means in the marketing context, so we have created a closer look below.
Product
You are going to start, of course, with the product itself. Or, if you are offering a service, you would think about your service in this place instead. As you build a marketing campaign, you want to make sure that you aren’t leaving out any relevant details regarding your product that could be important to a potential customer.
To start with, your marketing needs to cover the basics such as the name of the product, the brand that is selling it, the basic features it offers, and more.
Once you have the basics covered, you can drill down into greater detail by thinking about how this product is different from the rest of the products currently on the market. This is the heart of your marketing communication, and it is what is going to sway customers over to your product. Consumers have choices in just about every market today, so you need to be very clear as to why your product is superior. Does it offer features that are not available otherwise? Is it made from better materials than the products produced by your competition? Give your target audience a tangible reason to buy your product and they often will oblige.
Place
Getting outside of your own company, you now need to think about where you are going to find the buyers that you would like to target for your product. Where are other, similar products sold? Are you going to be attempting to distribute your product via only online channels, or would you like to find space in physical stores are well? Should you build a sales team which can take on the challenge of closing deals for your product, or is it going to be enough to setup a website and run some ads?
It is obviously important to find the right places to sell your products, however this task has been made significantly easier through the development of the web. Today, it is not hard to find the exact market that you are looking for, because nearly every kind of buyer is represented somewhere online. As long as you are willing to do the research, you should be able to find a clear path online that leads directly to your ideal market.
Price
Before you can take any product or service to market, you need to be sure that it has a clearly defined, appropriate price. Depending on the market you are entering, this could be an easy task, or it could be quite complicated.
The easiest way to find your price point is by looking at other products that are already for sale. How are they priced? You don’t have to match this price exactly, but it certainly is a good place to start.
For instance, if a product from another company that is in your market is being sold for $10, and you are using superior materials, you may choose to come in around $15. Or, if you are trying to be the low-cost option in the market, your ideal price may be $8-$9. If the product you are taking to market does not have a well-established price, you are going to need to set the price based on your production costs. As long as you get somewhere close to the true market value of the item, you can adjust as necessary going forward until you find the perfect price point.
Promotion
Finally, we get down to the topic of actually promoting your product. You might be tempted to think that this should be the first step when talking about marketing, but you actually need to work through the other topics above before you form a promotional plan.
At this point, you will start to think about what kind of media you can use to connect with the audience. Are you going to run television or radio adverts for your product? What about using online pay-per-click adverts, or social media marketing?
In addition to deciding how you are going to market your product, you also want to think about when. If your product is seasonal in some way, it obviously makes sense to spend most of your marketing budget during the high season for sales. Or, if you are running TV adverts, you will want to be sure to buy those during a time of day when your target market is likely to be watching.
Marketing does not have to be complicated to be effective, but you do have to carefully think through your strategy before you put it into action. Every organization is working from a limited ad budget, so wasting money on ineffective adverts should be avoided if at all possible. Through the use of the 4 Ps Marketing Model, you should be able to come up with a plan that is going to put your products and/or services in front of the right people, at the right price, at just the right time.

4Ps Key Points

  • You have to think logically and clearly about what you are offering to your customers before you can market your goods successfully.
  • The 4 Ps stand for: Product, Place, Price, and Promotion.
  • Your marketing needs to cover the name of the product, the brand that is selling it, the basic features it offers, and more.
  • Consumers have choices in just about every market today, so you need to be very clear as to why your product is superior.
  • Place refers to where the product is sold.
  • The easiest way to find your price point is by looking at similar products that are already for sale.
  • Promotion refers to how you are going to market your product and is influenced by the first three Ps.
  • The 4 Ps model can help you to put your products and/or services in front of the right people, at the right price, at the right time.

The 4 Cs Marketing Model

What is the 4 C’s Marketing Model?
  • The 4 Cs marketing model helps you to see things from the perspective of your customers.
  • In this model, the 4 Cs stand for: Customer, Cost, Convenience, and Communication.
  • Take as much time as possible to accurately identify your ideal customer and then build your marketing plans around the task of finding that customer.
  • How much is your ideal customer going to be willing to pay for your products?
  • Marketing means communicating effectively with your target audience and delivering a message that they will act on.
  • Convenience not only speaks to the physical locations where your product can be found, but also to the way in which that product can be purchased on your website.
As the owner or manager of a business, it is easy to think of things only from your perspective. However, that would be a mistake, as you really should be viewing things from the perspective of your customers. It is those customers’ needs that you are trying to meet, so it only makes sense to see the world through their eyes. When you do just that, it will immediately become easier to deliver exactly what those customers want, when they want it, for a price they are willing to pay.
This model is similar to the 4 Ps Model, except this version turns things and looks at them more so from the perspective of the customer. In this model, the 4 Cs stand for:
  • Customer
  • Cost
  • Convenience
  • Communication
Each of those four topics is going to play a role in your overall product or service marketing strategy. As you already know, your marketing strategy is going to have a great deal to do with the success or failure of your business in the long run. So, let’s take a moment to work through each of the 4 Cs so you can be sure you have a clear understanding of what this model means for your marketing plans.
Customer
Identifying your target market is one of your key tasks in the marketing process. After all, you can’t possibly expect to make sales to your target market if you can’t find those people in the first place. Take as much time as possible to accurately identify your ideal customer and then build your marketing plans around the task of finding that customer.
As you are thinking about this ideal customer, you need to think clearly about what he or she wants or needs from your product. Why are they looking for this product in the first place? What is it that they hope to achieve through the use of your product or service? If you fail to meet the needs of this ideal customer, that individual is simply going to move on to another option. It may take some time to develop an accurate profile of your target market, but that time will be well spent once you are able to move forward with your marketing efforts.
Cost
In many marketing models, you would label this section ‘price’, as you would be thinking of it from the company’s point of view. However, in this case, it is called ‘cost’, as you should be thinking about the cost of the product from the perspective of the customer. How much is your ideal customer going to be willing to pay for your products? What do they have to pay to purchase the products of your competition? Picking the wrong price can ruin an otherwise successful project, so make sure you are thinking this point through completely before you take your new item to market.
Of course, you can’t just think about this topic from the perspective of your customer alone, as that line of thinking would have you pricing the product at the bottom of the market. In addition, you need to think about your own costs to confirm that you will still be able to turn a profit at a given price. Remember, there are plenty of successful products that are not sold at the lowest price point in the market, so you don’t have to compete only on low cost. If you are able to convince your customers that your product is worth the premium price, for instance, you may be able to dominate the market even at a higher cost.
Communication
Rarely are sales going to be made simply by blasting your target audience with a string of different marketing communications. Most potential customers will find this approach to be annoying, and it certainly won’t build up any respect or trust in your brand within the mind of the consumer. Therefore, it is important to communicate effectively with your target audience, delivering a message that they will remember.
At the end of the day, the customers that you are targeted only want to know one thing – what they will get out of purchasing your product. If they aren’t going to gain from buying your product, they will purchase a product from someone else. So, as you formulate your communication strategy, make sure that the benefits to the consumer are spelled out as clearly as possible throughout your message.
Convenience
Not only do you want to deliver a product that has great features and is sold at a great price, but you also want to make sure the product is convenient to acquire. If there are hurdles along the way when trying to make a purchase, it is likely that at least a certain percentage of your potential customers will give up and go somewhere else. If you do things like making your product available in a variety of different locations, you will be going a long way toward making your product convenient for the buyer.
Convenience not only speaks to the physical locations where your product can be found, but also to the way in which that product can be purchased on your website. Is your site easy to use, and can the prospective buyer contact you easily if they have a question? Many businesses do far more sales online than they do in the ‘real world’, so make sure your website is living up to the expectations that your customers will have.
The 4 Cs Marketing Model does a great job of helping you to see the task of marketing from the perspective of your customers. By thinking about your products and services in this way, you will be more likely to deliver a marketing message that is going to hit home with your audience.

Key Points

  • The 4 Cs marketing model helps you to see things from the perspective of your customers.
  • In this model, the 4 Cs stand for: Customer, Cost, Convenience, and Communication.
  • Take as much time as possible to accurately identify your ideal customer and then build your marketing plans around the task of finding that customer.
  • How much is your ideal customer going to be willing to pay for your products?
  • Marketing means communicating effectively with your target audience and delivering a message that they will act on.
  • Convenience not only speaks to the physical locations where your product can be found, but also to the way in which that product can be purchased on your website.

Pricing Models

What are Pricing Models?
  • Pricing your products or services accurately is one of the greatest challenges you are going to face as a business owner or manager.
  • Cost based pricing is a pricing method in which a fixed sum or a percentage of the total cost is added (as income or profit) to the cost of the product to arrive at its selling price.
  • A product’s market price lies at the point of intersection between the available supply of the good or service and market demand for it.
  • Portfolio pricing involves an attempt to maximise the revenue from each customer by making it attractive to buy a full range of products or services.
  • Freemium is a pricing strategy by which a product or service is provided free of charge, but money is charged for proprietary features, functionality, or virtual goods.
Pricing is not an exact science and initial pricing decisions may need to be changed Pricing your products or services accurately is one of the greatest challenges you are going to face as a business owner or manager. The importance of pricing is obvious, as it has a direct correlation to the amount of money you bring into your company. If you price your products and services too high, you are going to risk driving customers into the arms of your competitors. On the other hand, prices that are too low will leave you with small margins, even if you are able to make plenty of sales. In the end, only companies who are able to find the ‘sweet spot’ for pricing will be able to thrive well into the future.
For that reason, it is a good idea to use advanced pricing models to settle on a price point that makes sense for your market and your products. It doesn’t really matter what you would like to sell your products for – it only matters what customers are willing to pay.
Finding that number is a complicated task in many cases, which is why we have compiled the list of pricing models below. Review these options and use the ones that are going to help you find the perfect number to attach to everything you sell.
Cost-based Pricing
This is perhaps the most-common way to price the products that you take to market. With this model, you are going to use the cost of production as the basis for the final price that consumers see when they make a purchase. The multiple that you use to price your goods is going to depend on the industry in which you are working. Some industries see multiples around 2-3 times the cost of production, while other industries are around 5 times or higher.
For example, imagine you are in an industry which tends to sell products for around 3 times the cost of production. If you have determined that your average cost on one unit is $10, you will naturally look to sell the item for around $30 (if using a cost-based model). Multiplying your cost by three is a great way to get in the right ‘neighborhood’ for your pricing, but you can then tweak the final number until you hit a spot that you feel is a winner. For instance, if you see that many of your competitors already sell for $30, you may decide to move down to $27 or $28 just to have a slight edge on price. Or, if you think your product is of a superior quality to the competition, you could set your price at $35.
Market Pricing
As the name would indicate, this pricing model is all about the market conditions that you find around you. Fortunately, in the internet age, it is relatively easy to determine market pricing for just about any product or service. A quick internet search should lead you to the prices of your competitors, and you can then react appropriately. Trying to sell a product that falls well outside the market norms for pricing is always going to be an uphill battle, so the market pricing model is a smart one to use.
It is worth noting that using a market pricing model doesn’t mean you always have to be the lowest priced product available. In fact, you might intentionally decide that you want to be the most expensive version of a specific type of good. The price that you choose relative to the rest of the market should match up with the marketing strategy you are using to reach your customers. If you are marketing your product as high-quality, it would make sense to have a higher price. On the other hand, if you talk about great value and affordability in your adverts, you better come in on the low end of the spectrum.
Portfolio Pricing
This is a great model to use if you are offering a service – or, more specifically, a selection of services. In the portfolio pricing model you are going to set up a pricing structure that makes sense throughout your product or service line. For instance, if you run an accounting agency, you may offer basic tax preparation services for a certain rate. Then from there, your more advanced accounting services move up the pricing scale. It makes sense to price out all of your services in this way so that each of your customers feels they are getting a good deal.
Providing more service for less money would never make sense to your audience, so keep the portfolio pricing model in mind when structuring your overall price strategy.
Freemium Pricing
The last model on our list is one that will only work for a specific segment of the market. In freemium pricing, you give away your base service or product for free, in the hopes that satisfied customers will decide to pay for more advanced features.
This is a pricing model that is commonly used in the software world. A basic version of a piece of software may be made available to everyone for no charge, while an advanced version can be purchased for a flat rate (or a monthly subscription). Obviously you can’t use this model if you are in the business of selling sandwiches or something similar, but the freemium plan can work perfectly for some industries.
There will always be a feeling of nervousness when you take a new product, with a new price, out to market. Even with the use of great pricing models you can never be quite sure how consumers are going to react. To give yourself the best possible chance at success with your pricing decisions, be sure to consider the use of some of the models listed above. Also, remember one key thing with regard to pricing – your prices can always be changed. If your first decision was not spot on, feel free to adjust as you go until you settle on a price that strikes a balance between affordability and profit margin. As you gain experience with setting prices, and as you learn more and more about your market, you should become highly accurate with most of your pricing choices.

Pricing Key Points

  • Pricing your products or services accurately is one of the greatest challenges you are going to face as a business owner or manager.
  • Cost based pricing is a pricing method in which a fixed sum or a percentage of the total cost is added (as income or profit) to the cost of the product to arrive at its selling price.
  • A product’s market price lies at the point of intersection between the available supply of the good or service and market demand for it.
  • Portfolio pricing involves an attempt to maximise the revenue from each customer by making it attractive to buy a full range of products or services.
  • Freemium is a pricing strategy by which a product or service is provided free of charge, but money is charged for proprietary features, functionality, or virtual goods.
  • Pricing is not an exact science and initial pricing decisions may need to be changed in the light of experience.

Module 5 – Capability to Deliver

For your client’s business to grow it must be able to consistently deliver high-quality products or services. In order to do this, the right capabilities and competencies need to be in place.
In this module, you will guide your client through a core competencies assessment to identify their strengths and opportunities for recruitment and development.
TIP: If your client is a small business owner or a solopreneur, this assessment could feel stilted and mechanical. In that case, it is often more constructive to use the questions in the assessment as the basis for a development program for the owner.
ANOTHER TIP: If your client has identified the need to recruit additional staff, this schedule in combination with the activities block in the Business Model canvas could be useful to guide the owner in recruiting for the required skills by answering the questions:

what activities does this person need to do

what capabilities and skills does the person need to succeed at these activities

how will we measure the successful outcome of these activities (metrics)

Simplistically stated high performance employees are those that have the right skills, the right tools and processes, and the right attitude to their job. Having the right skills, tools and processes is 100% the responsibility of the business owner, as they are the ones who decide what activities should be performed by the employee, and they will recruit, train, and equip them accordingly.Attitude is a bit more nuanced, and goes into the area of motivation and leadership, but it is fair to say that this is 50/50 between the business owner and the employee. The business owner and leaders define the inclusive environment with the desired behaviors (values and culture) for the team, and the employee should bring their professionalism, passion, and commitment to the work. Recruiting for fit-in values, behavior, and attitude is also the responsibility of the owner, so the bulk of accountability for capability sits with the owner

Leadership and Team Development

A great deal of research has been published on leadership and team development. Even though most of this research is purely academic and has been performed in a research environment rather than in the workplace, some of it does contain value for a working manager.
In particular, there have been two studies that you should be familiar with: Bruce Tuckman’s ‘Stages for a Group’ and Richard Hackman’s ‘Five Factor Model.’
Bruce Tuckman’s ‘Stages for a Group’ Theory was first proposed by Bruce Tuckman in 1965, who maintained that these phases are all necessary and inevitable in order for the team to grow, to face up to challenges, to tackle problems, to find solutions, to plan work, and to deliver results.
Richard Hackman’s ‘Five Factor Model’ is a research-based model for designing and managing work groups. His research looked at why some groups were successful and what it was that made them so.
Team Development
How one defines a team varies according to the context one is referring to, but it is useful to look at three widely accepted definitions:
  • ‘[A team is a] group in which members work together intensively to achieve a common group goal.’ (Lewis-McClear & Taylor, 1998)
  • ‘A team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they are mutually accountable.’ (Katzenbach & Smith, 1993)
  • ‘[A team is made up of people] working together in a committed way to achieve a common goal or mission. The work is interdependent and team members share responsibility and hold themselves accountable for attaining the results.’ (MIT Information Services and Technology, 2007)
The common thread in each of these definitions is that teams consist of a group of people who share a common understanding of their goal and work together to accomplish it
Leadership Styles
The best leadership style for any particular team will be influenced by its purpose and composition. This section provides a practical guide to understanding leadership and team development in order to help you with practical day-to-day team building. The most important aspect of being a leader is deciding how much freedom to give your team. Too much, and they may not achieve their targets. Too little, and you will restrict their personal development and job satisfaction. The practical leadership styles for team development are: Transactional Leadership, Transformational Leadership, and Situational Leadership.
Transactional Leadership Style – The power of transactional leaders comes from their formal authority and level of responsibility within the organization. Such leaders are primarily concerned with establishing the criteria for rewarding team members for good performance.
Transformational Leadership Style – These leaders offer a role model that inspires, interests, and challenges their followers to take greater ownership for their work. A transformational leader understands the strengths and weaknesses of each follower and assigns tasks that enhance each individual’s performance.
Situational Leadership Style – The Situational Leadership® model states that there is no single style of leadership that is effective in all circumstances and that you should alter your leadership style to suit the ability and motivation of the team to do the task. It is not always obvious which particular leadership style is the most appropriate and the best approach is to consider each case on its merits with a clear appreciation of the risks involved of giving too much autonomy.

Developing Your Own Leadership Style

Developing Your Own Leadership Style You need to be aware of your own innate leadership qualities and understand which of the four leadership styles you prefer. Armed with this knowledge you can then add this to the skills and abilities you possess to perform your role. Do you know where on the leadership continuum you spend most of your time? Once you have identified the style of leadership you use most of the time you can make sure that your communications match these needs.
The level of authority and direction required from yourself for the numerous tasks you must accomplish each day varies considerably. At one end of the spectrum you need to tell your team what to do and at the other end you can delegate the complete task. The Leadership Continuum described by Tannenbaum and offers a continuum of potential ways a manager can behave along which many leadership styles are placed. This offers you great flexibility in selecting the style of leaderships that best suits the different circumstances you encounter every day at work.
Your Personality
It is no surprise that your style of leadership is influenced by your own values, experience and knowledge. Some people are happy to instruct others what to do, some prefer to persuade or facilitate activities and others are able to truly delegate. Add your work environment to these influences and you natural style of leadership may be incongruous or ineffectual. There are four styles along the continuum – Tells, Sells, Consults & Delegates.
To be a good manager you need to make an honest assessment of your personality. One of the most effective ways to do this is to assess your level of emotional intelligence using our free checklists.
The more you understand your own and others emotions in any situation the better you are able to manage yourself and the relationships you encounter in your daily activities. The greater your degree of emotional intelligence the more adaptive your leadership style becomes.
Your Team’s composition
Leadership relies on two-way communication and good leaders know themselves and the other party of the communication well. This knowledge enables them to anticipate reactions to issues and to adapt how they communicate the message to ensure that your objective is achieved.
Knowing the level of skills and knowledge of the individuals in your team, along with their personal attitudes towards their role and the organization is an essential aspect of leadership.
The continuum offers you a range of actions and styles that in partnership with your knowledge of your team allows you to select the style that gives you the correct degree of authority that correlates to the amount of freedom available to your members in arriving at decisions.
Your Environment
Whilst you have a degree of control over the first two influences on your leadership style, this is not the case for the third element, your environment. There are three elements that influence your environment.
The first is the organization itself. Each industry or market has its own characteristics that help to form its values and beliefs. Successful leaders adapt their natural style so that it emulates that of the organization.
The second element is the nature of the problem you face, and finally what sort of timescales do you have in which to resolve this problem. According to the continuum theory, as leaders learn to recognize and portray the most appropriate behavior for the situation they become more successful.
As a manager you are expected to actively develop your leadership skills and to know how to adapt them to best accomplish the task at hand. Experience and awareness of the three influences on your leadership style will enable you give the right level of freedom to your team having taken into account the risks involved.

Leadership Key Points

  • Tuckman’s four-stage model states that the ideal group decision-making process should occur in four stages:forming, storming, norming, and performing.
  • You can use this four-stage model to assist you in clearly identifying the group dynamics of your team.
  • Focus your time on managing the aspects of team building you can affect and work within the constraints you have to accept.
  • Ensure your team knows how success is going to be measured
  • Your team members will reflect your own behaviors.
  • Demonstrate that you value all contributions made by team members.
  • Ensure that you recognize and reward group success as well as that of the individual member.

Bridging the Gap

Between Employee Satisfaction and Employee Engagement
In most companies around the country, there is a time where the organization will take the time to gather employee feedback. While employees are expected to fit within certain roles and responsibilities, often brought up during performance reviews, most companies acknowledge that the organization itself needs a review of their own. Employee feedback is extremely important. Every company wants their employees to have a high feeling of job satisfaction. Increased job satisfaction typically leads to increased job performance.
Most companies are looking to rank a level of employee satisfaction, or how happy that individual is with their job, their supervisors, their coworkers and the organization as a whole. Measuring this type of “happiness” is important, and organizations should know how satisfied, or unsatisfied that their employees are. While this is important, it isn’t the only type of employee feedback that needs to be measured, calculated and valued.
Employee engagement is just as important as employee satisfaction, yet it is something that typically isn’t measured or valued as much as employee satisfaction. Employee engagement is the commitment that the individual has to the organization, their contribution towards the betterment of that organization.
Managers who want to get the most out of their employees need to be able to measure both employee satisfaction and employee engagement and figure out ways to bridge the gap between these two metrics. Typically, the more satisfied an employee is, the more engaged they will be and the more they will ultimately contribute to the organization. However, most companies only look at how happy an employee is with their job.
The good news is there are several ways for managers to get a better feel for employee engagement and to understand the impact that an engaged, active employee can have on the company that they work for.
Understanding the Difference Between Employee Engagement and Employee Satisfaction
One of the biggest misconceptions that many managers have is that employee engagement and satisfaction are actually the same thing. While there is a correlation between these two concepts, a satisfied employee is not the same thing as an engaged one.
An individual could be very happy at work and even feel satisfied with their job, but it doesn’t mean that they are working hard or that they are acting as productive members of that organization. An employee can like their co-workers, have great benefits and have a lot of fun with the social part of their job and therefore say they are very “satisfied” with their job. However, this same person could slack off, use most of their time to do other things, and basically live for the free Friday parties at the office. This is a satisfied employee, yes, but not an engaged one.
This scenario also illuminates an important lesson that many managers ultimately have to learn when it comes to managing their employees and reacting to their feelings on employee satisfaction. Simply doing whatever it takes to make employees happy won’t automatically improve their engagement or make them work harder. Showering an employee with pay raises and in-office perks may only boost their satisfaction not their engagement. These two things are very different and very unique feelings and reactions, understanding their differences first can help any manager ultimately take the steps needed to find the right connection between how an employee feels in their job and how those feelings translate to their performance.
The Emotional Component
One of the primary differences between employee engagement and employee satisfaction that every manager needs to be aware of, is that there is an emotional component to employee engagement that makes it so important and such a driving force in performance. Simply put, engaged employees truly care about their work and their company, they are not simply motivated by a paycheck or by their own needs or wants. An engaged employee will actually work on behalf of the organization, they will work extra when needed without being asked and perform their best even when a superior isn’t watching. These are the types of employees that will actually act in the best interest of the company and help the organization thrive, even if it requires more work or more effort on their part. Managers need to understand this correlation and make sure they are focusing on building their company internally before they can expect to see changes externally. Former CEO of Campbell’s Soup, Doug Conant one put this concept into words when he said “To win in the marketplace, you must first win in the workplace.” Managers who are able to create a real sense of employee engagement in the workplace will not only see the development of a most positive work environment, but they will start to see the benefits of their efforts in the company’s performance as a whole.
Developing a Sense of Purpose
Measuring employee engagement is a vital part of developing a successful organizational culture. However, when employees don’t depict a high level of engagement, it is important that leaders are able to step in and start helping their team members develop a higher sense of purpose with their jobs. Typically, companies with the most employee engagement do a few important things in order to foster this sense of dedication from their team members. This includes:
  • Offering extensive training and development.
  • Providing detailed performance feedback to all levels of employees.
  • Recognizing employees and helping them feel a sense of accomplishment with their work.
  • Developing employee skills and talents beyond their standard responsibilities.
  • Placing emphasis on quality with both products and services.
  • Establishing strong values within the company and encouraging employees to align with those values.
  • Providing employees with stability.
  • Monitoring customer satisfaction and being transparent with employees about that satisfaction.
  • Having all levels of management promotes engagement among employees.
These are just a few of the many things that organizations can do to start fostering a higher sense of employee engagement within their organization. Creating this sense of engagement will not happen overnight. It will take time. However, with an ongoing, dedicated effort to help employees feel more emotionally connected to their jobs, most managers will start to see the fruits of their labor and a more engaged and successful team behind their company.

Employee engagement Key Points

  • Employee engagement is the commitment that the individual has to the organization.
  • It is just as important as employee satisfaction, yet it is something that typically isn’t measured or valued as much.
  • Engaged employees truly care about their work and their company, they are not simply motivated by a paycheck or by their own needs or wants.
  • Measuring employee engagement is a vital part of developing a successful organizational culture.
  • Engagement can be improved by offering extensive training and development beyond the employee’s standard responsibilities.
  • It can also be achieved by establishing strong values within the company and encouraging employees to align with them.

Module 6 – Business Finance

If cash flow is the blood of your client’s business, financial management is the heartbeat. Many smaller businesses fail dismally in this area, and it is a critical barrier to scaling up. The key question here is: How well is your client managing cash flow, margins, and profitability?
Our recommendation is that you link this module to an accounting professional for the more technical components (Income Statement, Cash Flow Forecast, Balance Sheet) if you are not familiar with the financial concepts, or go on a training course yourself — typically courses such as Financial Management for non-financial managers would give you sufficient background to be able to assist your client with identifying gaps in this module.
As a business improvement consultant, some of the core outputs you should drive your client towards are:

a break-even analysis if your client does not know if they are profitable, or how much revenue they need to generate to break even

the use of a formal accounting package to manage the business finances (remind your client that in order to get a loan, investment or good selling price for their business everyone is going to ask for 3 years of audited financial statements)

basic familiarity with income and expense statements

budgeting aka goal setting (see the comments about Targets and Resources under business planning)

the finance drumbeat — what are the activities, meetings, reports, conversations and decisions that I need to do every day, every week, every month, every quarter, every year.

Managing cash, invoicing, collecting credit, paying suppliers, budgeting, reviewing actual vs planned expenditures, building reserves, making investment decisions and a myriad of other activities related to managing the blood and heartbeat of the business needs to become a habit that done in a regular, measured and controlled manner for your client to scale up.

Sales Forecasting

You need to create a sales forecasting tool to analyze your company’s sales opportunities. We created the Sales Forecasting Tool to help you prioritize and manage sales opportunities. This tool enables you to chart total vs expected revenue, opportunities at certain stages, probabilities, deal size and top objections.
The template works by providing you with a space to fill out the details of a prospect, including the customer name, region, what product or program they are looking to purchase, the expected close date, the stage in the sale´s cycle, and the probability of success.
The resource will then display the deal size and a calculation for expected revenue. This final option will help you determine where the objections in the market are, and the template then generates charts that can be used to share the analysis. A more advanced section of the tool is a weighting tab where you can prioritize opportunities in terms of strategic fit, economic impact and feasibility. This option generates a table and bubble matrix to display your best opportunities.

Key Benefits

1. can be used to prioritize and manage sales opportunities 2. displays the deal size and a calculation for the expected revenue 3. simple and easy to use 4. comprehensive excel template 5. can be easily customized

Sales Skills Assessment

You need to evaluate the skills of the members of your sales team. We created the Sales Skills Assessment tool to assist you in evaluating the current skills of your sales team. This assessment will allow you evaluate each of your sales reps based on the key needs for your sales department.
In the Sales Skills Assessment tab, you will be able to rank each of your sales reps from 1-5 based on the criterion of most importance to your organization. You will also have the ability to compare the skills of each rep with the scores of the Average Performer and Top Performer.

Key Benefits

1. evaluates individual performance 2. provides information for coaching sessions 3. identifiies strengths to encourage individuals 4. identifies possible areas for improvement

Sales Productivity

You need to track performance for an inside sales rep or team. It is required that you find a way to measure the productivity of sales representatives, and it is important that you collect and analyze data in order to identify areas that need to be addressed.
We created a Sales Productivity Metrics worksheet to capture daily sales productivity metrics for sales reps. These metrics include dials, demos, and more. With this resource, we allow you to transfer these results into our Sales Productivity Metrics (monthly) tool to aggregate metrics for your entire team.
Our tool will enable you to collect daily information on your sales representative and their performances. This worksheet will allow you to analyze longer-term trends and to gather valuable data points for your sales department. The Sales Productivity Metrics template can significantly increase the productivity of your sales representatives, and it can also provide insights into your sales team and areas that need to be addressed.

Key Benefits

1. increases productivity of sales reps 2. defines sales reporting metrics 3. sets expectations for daily performance 4. provides insight into skills gaps

Module 7 – Marketing lead generation

In today’s saturated markets helping to differentiate your client’s offering from their competitors are a must if they are to succeed. Competing is not about lowering prices but more about researching and understanding their competitor's strategy and positioning their business for success.
Simplistically put the purpose of marketing is to build awareness of your client’s solutions in their target markets, and then generate enough trust that customers wish to know more (these are your leads). The quality of your leads is highly dependent on really clear outputs from the market segmentation and customer profiling work in other modules (also see Business Model Canvas and Value Proposition mapping) as these will guide you on WHERE your resources should be focused to reach your target market with the messages they will respond to.
The module contains a number of tools to assist with lead scoring and prioritisation and calculating the effectiveness of your marketing funnel. These should be linked to the sales CRM process so that your client has clear end-to-end metrics on how well their revenue generation activities are working together.
TIP: A very useful tool in this conversation is Customer Value Proposition mapping to really help your client understand what problems they are solving and for which customers. Combining this with customer profiling (customer avatars) will inform your client which channels to use to reach those customers. Understanding the pains and gains and decision-making processes of the customers will help direct your client’s marketing efforts toward generating high-quality leads.

Lead Generation Prioritization

You need to evaluate your lead generation initiatives. We created the Lead Generation Prioritization Tool to help you evaluate your lead generation initiatives based on their strategic fit, economic impact, and feasibility.
This tool will allow you to rank each project based on the given criteria. Once you have ranked each project, you can view the bubble matrix chart and communicate the findings of your analysis to your executive team. Our Lead Generation Prioritization tool will allow you to identify the lead generation initiatives that will bring the most value to your organization.

Key Benefits

1. organizes your lead generation efforts 2. easy to use Excel format 3. conduct a quick audit 4. save time on formatting 5. generate reports

Marketing Funnel Calculator

You need to optimize your marketing funnel so that you can effectively demonstrate your department´s responsibilities and revenue contribution. We created the Marketing Funnel Calculator to give you a great, visual representation of your marketing metrics data. You will need be familiar with you marketing department's annual revenue target, the average sale of your products/services, the percentage of revenue marketing is responsible for, and a few other key marketing and sales metrics.
This tool works by enabling you to first identify your annual revenue target and average selling price. In addition to this, you will be asked to add the revenue that marketing is responsible for, opportunity to close, sales qualified leads, leads accepted, marketing qualified leads and the response rate to the marketing campaigns.
Once you've input your data, your marketing funnel will provide you with key data points, such as deals that must be sourced by marketing and revenue impact, that will help you optimize your company's marketing and sales initiatives.

Key Benefits

1. considers key metrics in the marketing & sales cycles 2. encourages growth through marketing channels 3. provides an example of marketing benefits in the sales cycles 4. offers a great, visual presentation of data points

Module 8 – Sales Plan Delivery

If Marketing is about building awareness and trust and results in leads, Sales is about converting as many as possible leads into orders. In order to effectively deliver and manage sales your client has to measure sales performance on a weekly and monthly basis.
For sales to deliver on targets there has to be a business-specific sales process and sales funnel (Sales Forecasting Tool). There are spreadsheets, sales pipeline software tools, mailing list managers, and CRM systems that will manage the entire sales process from lead to order, and even manage after-sales inquiries, service calls, and so forth. If your client deals with a large number of inquiries on a daily basis, this type of tool or system would probably be one of the early IT systems that they should invest in after an accounting system.
The module also has a sales skills assessment tool to evaluate your sales team.
TIP: Sales, and especially pricing, is usually one of the last functions that small business owners delegate as they scale up, given how critical it is for the revenue of the business. However, as the majority of business owners start out by doing something technical (accountant, baker, plumber) it is highly likely that they do not have professional-level selling skills.Using the sales skills assessment with the owner in a conversational fashion can be a useful intervention both in helping them identify and develop their own skills gaps and in understanding how to recruit skilled sales staff based on ability, rather than first impressions and charisma.We know, after all, that conversational interviews are one of the worst possible ways to recruit good staff, and that good salesperson are exceptionally talented at looking good in first impression conversations.

Reading a balance sheet

You will increasingly need to be able to communicate in the language of finance as you progress upwards through the levels of management. This section will give you the knowledge to interpret any organization's balance sheet and draw conclusions about its financial performance and profitability.
A balance sheet, also known as a 'statement of financial position,' shows a company's assets and liabilities, and the owners' equity. Together with the income statement and cash flow statement, it makes up the cornerstone of any company's financial reports.
As a manager, it is important that you understand how a balance sheet is structured and how to analyze it so that you can take an active role in strategic and business development decision making. These decisions determine which assets are required and how they will be used within the organization to attain its mission or goal.
The main concept of a balance sheet is that total assets must equal the liabilities plus the equity of the company at a specified time. When you describe assets in this way it shows you how they were financed. This is either by borrowing money (liability) or by using the owner's money (equity).
Most organizations need both staff and resources in order to deliver their goods or services. Even a self-employed designer working from a home office will need a computer and some office furniture. A large manufacturing corporation may have millions of dollars worth of buildings, as well as office and manufacturing equipment. These are referred to as assets and they are an important part of any business.
Whether you are looking at your own organization, a competitor, or a prospective partner organization you need to understand how financially sound they are. The balance sheet will tell you if they are profitable, and furthermore what tools are available to make those profits again in the future. A balance sheet is a three-part financial statement that summarizes an organization's
1st. Assets (presented in order of liquidity), 2nd. Liabilities and 3rd. Equity at a specific point in time.
Unlike the other basic financial statements (income statement and cash flow statement), the balance sheet applies to a single point in time rather than a period of time. This is usually the date that corresponds to the end of an organization's financial year, and consequently the balance sheet is often described as representing a 'snapshot' of a company's financial condition.
An organization's balance sheet can take one of two forms:
  • Report form - uses a vertical format to show assets followed by liabilities and then equity.
  • Account form - lists assets on the left-hand side and equity plus liabilities on the right-hand side.
For large corporations the balance sheet is an essential element of their annual report and the figures are usually shown alongside those for the previous year.
As stated earlier, the assets are usually listed first (in order of liquidity) followed by the liabilities. The difference between the assets and the liabilities is known as equity and this equity must equal assets minus liabilities.
Balance sheets are usually presented with assets in one section and liabilities and equity in the other section with the two sections 'balancing.'
Each of these accounting terms has a very specific meaning when being used in financial statements and it is essential that you have a clear appreciation of each one.

Balance Sheet Key Points

  • The ability to understand a balance sheet is a key management skill that you will use more and more as your career progresses and you need to make decisions based on financial information.
  • The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any organization's financial statements.
  • The main concept of a balance sheet is that total assets must equal the liabilities plus the equity of the company at a specified time.
  • A balance sheet shows what tools are available to an organization to remain profitable.
  • It is the only financial statement that relates to specific point in time and not a period of time.
  • It can be presented either in Report or Account format.

Assets – Balance Sheet definition

Larger organizations have more complex operations than Larry's Lawn Cutting and this translates into a more complex balance sheet. The next example uses Fred's Factory, a medium-sized company that manufactures automotive parts. This company provides a more representative balance sheet with the level of complexity you will find yourself using when you look at competitors or potential partner organizations.
You should work through each section an item at a time until you are confident that you understand how it has been derived and what it means.
The first part of a balance sheet details the assets owned by the organization and includes a total asset value. The second part details its liabilities along with their total value. Normally, both parts of the balance sheet appear together, but for ease of explanation and comprehension we will describe each part separately.
The table below shows how Fred's Factory's assets would be shown on the balance sheet.
Within this section you will find the total figures under the following headings. The first three headings comprise Fred's total current assets:
  • Current Assets
  • Inventory/Stock
  • Prepaid Expenses
  • Property and Equipment (Fixed Assets)
  • Other Assets
Current Assets
Under this heading is a list of all assets that can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include:
  • Cash and cash equivalents
  • Short-term investments
  • Accounts receivable
  • Bad debt provision
These are the assets that produce most of the liquidity in an organization and are the main source of working capital.
Cash and Cash Equivalents
Cash is the most liquid asset of all and is the first item included on the balance sheet. It refers to currency or currency equivalents that Fred's Factory can access immediately or within a few days. It also includes their petty cash fund and all of the money available in their current accounts plus any cash reserves. The latter may be kept in the form of savings accounts, bank certificates, money market accounts, or other short-term investments.
Accounts Receivable
This consists of the short-term obligations owed to Fred's Factory by its clients or through its trade accounts - for example when they sell their products or services on credit. These obligations are held in the current assets account until the customers pay them off.
Bad Debt Provision
This is simply an estimated amount that Fred's Factory allocates for the possibility that some sales will not be paid for and will have to be written off. From past experience Fred's will know what percentage of its sales fall into this category and use this figure to guide the amount allocated as bad debt provision. Any organization that sells on a credit basis will sooner or later experience bad debt and this reserve is used to absorb the cost of bad debts as they occur.
Inventory/Stock
This section covers production materials or products purchased or manufactured and then held by Fred's Factory for sale. As a manufacturer they will divide this section into: Raw Materials - these are the materials and components required by Fred's to make its products.
Work in Process (WIP) - includes those raw materials and components that are being used in the production of Fred's finished goods as well as those products as yet unfinished. The balance sheet will include raw materials costs as well as the labor and related costs applied to those materials during the manufacturing process.
Finished Goods - are all those products ready to be sold and the figure on the balance sheet includes all labor costs and related overheads such as factory rent supervision and product inspection.
In the case of retailers, distributors, and trading companies who purchase fully manufactured products that they simply resell, the balance sheet will usually show only a single line for this item.
Prepaid Expenses
These are expenses that have been paid in advance and therefore will not have to be paid again. For example, When the accounting periods are monthly, an eleven-twelfths portion of an annually paid insurance cost is added to prepaid expenses, which are decreased by one twelfth of the cost in each subsequent period when the same fraction is recognized as an expense, rather than all in the month in which such cost is billed.
The not-yet-recognized portion of such costs remains as prepayments (assets) to prevent such cost from turning into a fictitious loss in the monthly period it is billed, and into a fictitious profit in any other monthly period.
Other examples of prepaid expenses Fred's might have are property taxes or income tax installments. The reasoning behind this is that if an annual insurance policy were canceled halfway through its year, half of the premium already paid would be refunded. This would represent an account receivable from the insurance company and therefore represent an asset.
There are instances where some invoices contain a small prepayment aspect that is so small that separating the prepaid and current aspects are not worthwhile or are too complex. For example, some phone or utility bills have a standing charge that covers a future period. Such items will usually appear in the accounts payable figure on the balance sheet.
Property and Equipment
These are also known as a non-current assets, fixed assets, or as property, plant, and equipment (PP&E). Every organization requires physical assets that it uses to conduct its business. For Fred's this includes such items as its buildings, manufacturing equipment, vehicles, and office equipment.
'Property and Equipment' also includes intangible assets, such as goodwill, patents, or copyright, which is why many organizations refer to this section as non-current assets. These assets may not be physical in nature, but they are 'life-blood' (e.g. a brand name) and without them the organization would fail. The value of your organization's non-current assets should not be underestimated.
Your organization will calculate and deduct depreciation from most of these assets, which represents the economic cost of the asset over its useful life. These assets are used for extended periods of time (usually years) and are thus not current assets as they are not held for resale to customers. As such, they cannot be considered sources of liquidity or cash flow.
Accumulated Depreciation
The value of a fixed asset will usually decline over time and for accounting purposes an organization needs to depreciate its assets in a controlled and uniform manner. This figure is then subtracted from the total value of all its non-current assets. Many items have a standard way in which depreciation is applied to them and you need to understand the rules that your organization adheres to. For example, An item of manufacturing equipment cost $50,000 and has an expected life span of 10 years. To recognize and allocate this cost over its life span an organization will write-down its cost at rate of $5,000 per year.
The total amount written off in this way since the fixed asset was purchased is shown under accumulated depreciation on the balance sheet. The total of this accumulated depreciation for all an organization's fixed assets is shown immediately after the original cost so that the net value of fixed assets can be shown.
It is important to appreciate that both 'Property and Equipment' and 'Depreciation' are always stated in cost figures regardless of their current market value. There are several reasons for this even if in some cases the market value is less than the purchase cost when the accumulated depreciation is subtracted:
  • It would take too much time and money to obtain an appraisal for every asset the business owns.
  • The frequency required makes the task completely impractical, as well as virtually impossible to verify.
  • The cost minus accumulated depreciation figure is difficult to manipulate as well as providing a uniform standard.
  • Meaningful comparisons can be made between companies.
Other Assets
These are items in Fred's Factory that are neither current nor fixed. They could include: • An investment held for an extended period of time. • A deposit paid to the landlord from whom the company leases its offices. The reason why a deposit paid to a landlord is not classified as an expense is that it could be applied against the final rent invoice or returned to the tenant when the property is vacated. It must therefore be classified as an asset.

Assets Key Points

  • Current assets include cash and cash equivalents, short-term investments, accounts receivable, and bad debt provision.
  • Inventory includes raw materials, work in process, and finished goods.
  • Prepaid expenses are those things that have been paid in advance like insurance premiums, property taxes, and income tax installments.
  • Property and equipment includes such items as buildings, manufacturing equipment, vehicles, and office equipment.
  • Accumulated depreciation allows an organization to depreciate its assets in a controlled and uniform way.

Balance sheet – Liabilities

On the other side of the balance sheet are the liabilities. These are a company's legal debts or obligations that arise during the course of business operations. Liabilities include loans, accounts payable, mortgages, deferred revenues, and accrued expenses.
Within this section of the balance sheet you will find the total figures under the following headings. • Current liabilities • Long-term liabilities • Equity Like assets, they can be both current and long term. Long-term liabilities are debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet.
The table below shows how the liabilities section of Fred's Factory's balance sheet would look.
Current Liabilities Current liabilities are those that will become due, or must be paid, within one year. They usually include payables such as wages, accounts, taxes, and accounts payable, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, and short-term obligations (e.g. from purchase of equipment). In this example these items are listed under the following headings: • Accounts Payable • Accrued Payroll • Income Taxes Payable • Other Accrued Liabilities • Notes Payable and Other Bank Debt • Current Portion of Long-term Debt
Accounts Payable
This includes all of Fred's bills as yet unpaid from suppliers and service providers. It is usually the first item listed under current liabilities. The amounts in this category should be listed in accordance with the trade terms on the supplier invoices, for example 30 days, 60 days, etc.
Accrued Payroll
This represents the amount earned by Fred's employees, but which has not yet been paid to them. This is because employees are paid in arrears for time they have already worked. Every organization has some amount of money owed to its employees but not yet paid.
Other Accrued Liabilities
These include expenses that Fred's Factory has incurred for which they have not yet received an invoice. Their finance officer needs to estimate the liability rather than wait for an invoice with an exact figure.
Notes Payable and Other Bank Debt
Within this section, Fred's Factory includes such items as bank loans that represent borrowed money. These loans and its associated repayments typically have special terms and need to be recognized in their own right. These are not simply trade accounts Fred's Factory has with its suppliers as these items are always shown separately.
Current Portion of Long-term Debt
This is the portion of the debt Fred's has that must be repaid within the next 12 months. This is likely to be something such as the latest interest payment on a 10-year loan.
Long-term Liabilities
Under this section heading of the balance sheet Fred's Factory list any long-term liabilities they have. These would be any debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet.
They usually include issued long-term bonds, notes payable, long-term leases, pension obligations, and long-term product warranties. Liabilities of uncertain value or timing are called provisions.
Long-term debt
Fred's Factory has financing needs that extend for many years and has opted to borrow money with very long payment terms. This enables them to put the money to use in order to earn enough to repay the loan. In such cases the entire amount of the loan is reported as long-term debt and the portion of this loan that is due to be paid within the next 12 months is shown in the current liabilities. In this example Fred's have a long-term debt of $180,000.

Liabilities Key Points

  • Liabilities are a company's legal debts or obligations that arise during the course of business operations and include loans, accounts payable, mortgages, deferred revenues, and accrued expenses.
  • Current liabilities are those that will become due, or must be paid, within one year.
  • Long-term liabilities are debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet.

Profit and Loss Statement

The basic principles of accounting are best understood by considering some simple businesses and how they might document their financial activities. This Accounting Terminology Checklist outlines the terminology, concepts and conventions that are accepted within the accounting profession.
An Income Statement
This is a financial statement that measures an organization's financial performance over a specific accounting period by giving a summary of how it incurs its revenues and expenses. It also shows the net profit or loss incurred over that period and is often referred to as a 'Profit and Loss' or 'Revenue and Expenses' statement.
An income statement consists of two sections: operating and non-operating activities. • The operating section details the revenue and expenses directly associated with business operations, for example the purchase of raw materials. • The non-operating section details revenue and expenses that result from activities outside of normal business operations, for example the sale of an office or land.
Statements,' which you can download from this website. For the moment we will use a 'simple' income statement to illustrate the financial principles you need to be familiar with, since this type of income statement does not distinguish between 'operating' and 'non-operating' revenues and expenses.
A Sample Simple Income Statement
This sample simple income statement covers a twelve-month period for 'Suzy's Signs,' a one-person business that designs signage. It details the amount of revenue and expense that comes in and goes out of the organization without distinguishing between operating and non-operating items.
The income statement uses three terms that can be defined as: • Revenue - incoming assets in return for sold goods or services. • Expenses - outgoing assets or liabilities incurred. • Net Income - the difference between Revenue and Expenses. This shows whether you are generating a profit or you are operating at a loss.
In our example, Suzy runs her own design agency called Suzy's Signs. She works from her home office and offers a design service for customers who need a sign for their business premises. The design is done according to a brief supplied by the customer.
Once the design has been approved, Suzy obtains quotes for its manufacture from three suppliers. She then sends the design and the quotes to the customer including her invoice for the total number of hours spent on this design, based on an hourly rate of $45. The following table gives you an example of what a simple income statement would look like for Suzy Sign's.
The net profit or loss is the difference between the income received and all of the costs paid out. In this case Suzy has made a profit for the year of $7,215.
She may need this information to give to the tax authorities or she could use it to compare this year's performance to last year's, or even to her expectations at the beginning of the year. As simple as this document is, there are some practical issues that it raises. For example: Suzy sends out an invoice in December, but it has not been paid by 31 December. What does she do?
Should the invoice amount appear on the statement or not, and does it matter? The answer to this question depends on the type of accounting that Suzy is using. There are two types, known as 'cash accounting' and 'accrual accounting.'
The practical implications of each type for your organization are explained in the next sections using our example of Suzy's Signs.
Cash Accounting
This is an accounting method where receipts are recorded on the date they are received, and the expenses on the date that they are actually paid. As a small business, Suzy has the option of 'cash accounting,' which means that she only needs to record transactions at the point of payment. In other words when the money leaves or is paid into her bank account.
So referring back to Suzy's query: If her December invoice is not paid until the following January, then she does not need to enter it on the income statement for this period. Similarly, if she received a bill in December (for example a phone bill) but she does not pay it until January, then that amount will not appear either.
Accounting rules stipulate that, with few exceptions, businesses should not use this method but should prepare their accounts on the 'accrual' basis. However, it is acceptable for very small companies to use the cash accounting method. In Suzy's case, cash accounting confers two advantages. 1. It reflects exactly what she has in her bank account. 2. It helps her cash flow. Whilst the first point is obvious, the second point needs some explanation. In November and December Suzy raised invoices for $2,500 worth of work, which she is awaiting payment for.
Under the cash accounting rules, she does not have to declare this income during the period and she will not have to pay any tax due on it until the end of the next accounting period (the period when the money will actually be paid into her account).
This is counterbalanced by the fact that she cannot include any expenses. For example, her December telephone bill cannot be included until she has actually paid it, irrespective of the date on the invoice.
Suzy's business has relatively low expenses and because her clients can be slow to pay, cash accounting is probably the best option for her to use. By using cash accounting, she will only be paying tax on money she has actually received. It is also straightforward: if she uses a tax adviser, she could simply give him her checkbook and bank statements and he could calculate her tax liability from those two things alone.

Cash Flow Analysis

Cash flow is simply the flow of cash through the organization over time. In the case of businesses that are run for profit, cash is paid out in return for the labor and materials that are used to provide goods and services that can be sold. The revenues received provide cash that can then be used to finance further production and sales as well as increasing the organization's economic value.
Cash flows are also essential for nonprofit organizations such as charities, schools, and hospitals that need to meet the various ongoing expenses associated with providing their services. As a manager, you need to understand how cash flows are generated and what factors impact those flows. This knowledge is an integral part of making financial decisions that increase a firm's economic value or the capabilities of a nonprofit organization.
The management of cash flow is one part of a larger management responsibility known as the management of working capital, which refers to the operating liquidity available to an organization.
An organization can have assets and profitability, but find itself short of liquidity if its assets cannot readily be converted into cash.
Working capital is required to ensure that the organization is able to continue its operations and that it has sufficient funds to satisfy operational expenses and any maturing short-term debt. The management of working capital involves managing the four following aspects of an organization's operations: • Inventories (stock, work-in-progress and finished goods) • Accounts receivable (debts that are owed to the organization) • Accounts payable (money the organization owes to its suppliers) • Cash
Effective management of working capital will increase the profitability of the organization. It also enables managers to concentrate on their jobs without worrying too much about the potential for insolvency.
It can also reduce the amount of capital needed to run the enterprise, so even if you work in the nonprofit sector it is still an important consideration.

Cash Flow Key Points

  • Cash flow is simply the flow of cash through the organization over time.
  • Working capital is required to ensure that the organization is able to continue its day-to-day operations.
  • The management of working capital involves actively controlling inventories, accounts receivable, accounts payable, and cash.
  • The effective management of working capital can increase profitability in the private sector and reduce the amount of capital required by nonprofit organizations.

Module 9 – Managing Optimal Teams

The most important aspect of helping your client execute their strategy is ensuring all their resources in the business are aligned to achieving its goals. If the people in their business are not 100% aligned with the business vision they will not be able to deliver effectively.
This module does not deal with the critically important components of culture, motivation, leadership, inclusion, values, and all the other tools available to leaders to encourage optimal performance.
We have also referred to recruitment and skills development in a number of other modules, and managing the optimal team is based on having the right skills, tools, and attitude in the employees — the responsibility for putting this in place lies mostly with the business owner!
However, once the team has been assembled, trained, and equipped, the management of the performance of the team comes into play. You will use this module to give your client a starting point to assess their own management and leadership maturity, determine development plans for various staff members, develop performance management frameworks, defining roles and responsibilities (org chart).
TIP: Solopreneurs, freelancers, and small or micro-businesses with less than 5 people will often not see value in talking about this. However, it is important to remind them that they need longer-term strategic plans for resource development and that they should still measure and manage how the team interacts and performs! The Management Leadership Maturity Assessment is a useful tool to complete with any business owner, even if it is brought down to a less rigorous conversational level, as this will identify areas for capability development that will prevent the business from scaling up at some future date if it lacks these capabilities.

Capability Analysis

You need to audit your organization to identify areas for improvement and make solid recommendations based on your assessment. A Microsoft Excel self-assessment tool to rate your compliance with best practices across the following core competencies: Strategic Planning, CRM, Demand Generation, Performance Measurement, Market Research, Sales, Organizational Development, Human Resources, Systems & Technology, and Product Development.

Key Benefits

1. quickly identify strengths & weaknesses 2. provides intelligent recommendations 3. tracks measurable improvements 4. save 10 hours on formatting 5. automatically generates graph

Module 10 - Governance

SMEs are the drivers of a growing and inclusive economy and of societal transformation In order to service, SMEs need to be innovative and entrepreneurial, and open to technological change and productivity growth
https://www.youtube.com/watch?v=qMwqatENSy0
They are therefore an integral part of the renewal process that defines a market economy SMEs play a particularly important role as job creators, thus providing a way for people to enter the formal economy and join the mainstream of society.

Corporate Governance

Benefits

1. Added credibility and enhanced reputation 2. Access to capital and loans on better terms 3. The ability to attract talent for employment 4. Improved access to customers and market participants 5. Better positioning to capture business opportunities 6. Better fraud prevention due to improved controls 7. Business continuity arrangements that permit the SME to operate under conditions of volatility, and to withstand and recover from acute shocks 8. Leadership continuity through succession planning 9. Better management of the risk of conflict in family businesses.
Ethical and Effective leadership outcome Ethical Culture Good performance Effective control Legitimacy