Do you really understand your company’s distinctive advantages?

Understanding, developing and exploiting your company’s strengths and competitive advantages is at the heart of any strategy for business growth. Many business leaders, however, do not fully understand how and why their company wins.

During off-site sessions executive teams may brainstorm a list of strengths and competitive advantages. Often these lists are based on “top of the head” thoughts and “gut feel”. The teams have few robust facts to support their beliefs and risk building their business strategy on incorrect assumptions.

For example, a UK supermarket chain I worked with needlessly invested in a multi-million pound bonus package. Management held a belief that the quality and enthusiasm of their store teams gave the company a competitive advantage versus other grocers. To underpin this belief the company created a bonus for store managers based on the satisfaction of their store teams.

The problem was that there was no discernible link between staff satisfaction and customer satisfaction for this retailer! Customers were obsessed with speed, convenience and price. Until these areas had been improved, managers were wasting time, money and effort on an irrelevant initiative.

So how do you get beyond the obvious lists of assumed strengths to a deeper understand of what really makes your company succeed? I propose that 5 simple questions can provide you with meaningful insights that will help guide your company’s future strategic direction.

Question #1: Which of our products/services are outperforming the market and generating superior returns?

Understanding which product/service categories outperform the market is your first clue as to what makes your company successful. Where are you experiencing high sales and profit growth? Where do you have high market shares, and where are these growing? Where do you have high margins and where are these greater than the market?

Importantly, the areas where you are winning may not necessarily be where your sales are highest! You need to look for unusual and unexpected areas of success, and these may be in some of your smaller business areas.

Question #2: What are the characteristics of these products/services?

The second question enables you to identify common characteristics of your leading product and service categories. Are they new product ranges or old? Do they require high levels of pre/after sales service, or are they self-select? Are they exclusive or freely competed? Are you able to offer a premium price, or have you discounted to the market?

Question #3: Which customers are buying these products/services?

In most cases you will not be winning with all customers, but with certain customer groups. Understanding which customers are driving your growth and profit is critical to understanding what makes you successful. What are the demographic (who are they?) and psychographic (what makes them tick?) characteristics of your buyers?

Question #4: What do we know about the specific reasons these customers buy these products/services from us???

Ideally you will have some reliable customer research, otherwise you need to get as close to the customer as possible. Talking to your sales teams will give you a good indication of the reasons if you probe appropriately.

Importantly, it’s not always about price. A recent Harvard Business Review article summarised how a new management team at Fiberite, a mid-sized US composite materials manufacturer, questioned the sales teams to really understand how the business won customers. At first they were told it was about price, but further questioning revealed that delivery lead times and technical support were the real order-winning factors.

Question #5: What are the skills and capabilities that have enabled us to deliver these results???

Once you understand why customers buy from you, it is a short step to identifying your key skills and capabilities. For Fiberite, management quickly realised that technical knowledge, customer support and workflow management were the key capabilities that customers truly valued.

Collating the answers to these 5 questions will give you a useful tool for understanding what makes your company successful. Investing where you are strong and have potential – and, conversely, taking cost and investment out of where you are disadvantaged – is the key to corporate success.

In the Fiberite example, management invested in bringing down delivery times and restoring the company’s superior technical support. The company subsequently grew its value threefold in little over two years!

At your next management away day, have your homework prepared. By asking your management teams these 5 questions you will have built up a fact base that reveals your real strengths and distinctive advantages. By following the trail from these insights you can then begin to create a platform for profitable growth.

  1. Create a compelling long-term vision. A clear goal that engages you, your management team and the rest of the organisation, can provide the inspiration for near-term activity. All short term actions become steps on the journey to the vision. In the 1980’s, for example, Jack Welch set clear, stretching goals for General Electric. He required all GE business units to “become number one or two in every market we serve and revolutionise this company to have the strengths of a big company combined with the leanness and agility of a small company.”
  2. Establish medium-term themes. Sometimes an end goal is not enough. It is too distant to influence daily decisions. Creating medium-term strategic themes provides a link between your 10-20 year aspirations and next quarter’s results. For example, as part of their turnaround in the early 1990’s, the Asda executive established its “formula for growth”. The formula was based on six themes that provided the focus for all major investments, and led to the company’s successful turnaround and ultimate purchase by Wal-Mart:
    • Truly different (larger!) stores;
    • Offering 5-10% better value;
    • Stunning fresh food from craftsmen;
    • 25% unmatchable mix (own label focus);
    • A serious clothing offer (the birth of George!); and
    • Sold and served with personality.
  3. Introduce non-financial measures. Financial measures can only measure past performance, but non-financial KPI’s can act as an indicator of future health and performance. For example, market share and customer satisfaction measures can give a sense of the company’s momentum and possible future performance. At Reckitt Benckiser innovation is management’s key focus for growth, and so executives pay a lot of attention to the percentage of sales from new products.
  4. Focus on the journey as well as the destination. Many companies develop in-depth future strategic positions. It is less common for the equivalent effort to be put into finding the best route to delivering strategy. It is vital to spend the time developing a suitable path that delivers short-term performance as part of a longer-term growth campaign. At Alcan, for example, executives demand that managers develop at least three alternative strategies when asking for corporate resources.
  5. Keep something up your sleeve. In his book, Good to Great, Jim Collins describes how Abbot Industries, a US healthcare diagnostics company, found ways to free money for growth initiatives. Whilst the Executive Team set external expectations of future profit growth at, say, 10%, it would then set internal targets that were much higher, say 20%. They then kept a list of entrepreneurial growth projects, called Blue Plans. After the half-year the Executive Team would select a profit figure that was higher than external expectations but less than its actual performance. The difference would be used to fund the Blue Plans, allowing Abbott to deliver short-term results as well as systematically investing for longer-term growth.

The bottom line

Delivering short-term results is difficult for many companies, never mind spending time and effort to build longer-term growth. Yet successful companies find ways to focus on both dimensions. These practical, proven steps are ways in which they establish this dual focus. Make it a (short-term!) priority to take one or two of these ideas and incorporate them into your management activities.

 

To find out more contact Stuart by clicking here or call +44-(0)1636-526111.