INTRODUCTION
The main added value that you have as an executive is to achieve that your company maintains profitable growth over time.
This is not something trivial or a gift of a few.
Achieving that objective is to become involved in a discipline where the company is being redesigned systematically to achieve growth by design and to be profitable.
In this e-book, we will teach you the guidelines of how achieve it.
THE CHALLENGE
The main objective of any executive is to achieve his or her company’s profitable growth and to place it in the upper-right hand quadrant of the attached matrix.
With this responsibility and a high commitment to generating profitable growth, executives take actions to launch new products or to win new client segments, or both, by using similar or dissimilar ways. However, in most cases they do not achieve the desired purpose: generating value through profitable growth and positioning your company in the right upper-hand quadrant.
An investigation conducted by Sintec on the companies with the most profitable growth in Latin America shows that less than 30% of companies achieve profitable growth over time.*
In this e-book, you will learn how your company can be part of the 30% of companies that achieve profitable growth through the design and execution of Client Strategies and Operations.
THE PROBLEM
The first question that we must answer is: Why does a company fail to achieve profitable growth? There are three fundamental causes: Lack of Management, Absence of Strategies and Insufficient Key Skills. Let’s look at each one of them.
Lack of Management
Management refers to the basic administrative cycle of Planning, Doing/Deciding, Checking and Acting. Even with all the basic elements, it may be, in many company situations, that this does not happen.
Factors such as service, inventories, costs, accounts receivable, sales, among others, are important business variables that if not controlled, generate problems such as service, uncontrolled costs, unexpected increases in working capital, obsolescence of inventories, etc. All these have an effect on the profitability of the company, both in terms of earnings and the use of current and fixed assets.
The executive task in this sense is to create the management mechanisms throughout the company, both in the operating and in the tactical parts. This is a fundamental task that is not conspicuous but does require perseverance and details. That is why many executives fail to perform it and leave gaps in the company’s management that result in profitability problems.
Absence of Strategies
Any executive has in mind to grow his company and for the most part takes the actions necessary to achieve it by incorporating new, clients, new products and even by acquiring other companies. In many of these cases the logic is, if we increase sales, whether by new clients or new products, we will achieve economies of scale or enter in new markets that will enable us to increase profitability. This is not necessarily true and lacks much to be considered a strategy. They are attempts with actions but are not a strategy.
There are two reasons why new clients or new products cannot generate profitable growth:
First, the client or the product are not profitable. In other words, however much this is desired, the clients and products added do not generate greater profit value.
The second reason is that growth can distract the company. Looking to grow, the company may lose focus on its main segments and products with the result of opening opportunities for competitors that will have a negative effect on the sources of profitability.
Whatever the two cases, seeking indiscriminate growth of clients and products, or offering everything to everyone, the curve in Figure 1, whether in terms of clients or products, it is common to find it among companies.
The most serious case is when companies fall into this curve not due to strategy, but due to an accumulation of decisions guided by intention rather than based on a strategy. That is the fundamental problem.
Insufficient Key Skills
The third cause of why a company fails to achieve profitable growth is the lack of key skills. By this, we refer to the company’s ability to be better than its competitors in critical business processes: developing products, marketing, distributing, supplying, manufacturing, among other factors, considering that the source of the companies’ competitiveness lies exactly in these processes.
The insufficient development of those skills produces two effects: The first is that the company does not have the sufficient “punch” to compete against its competitors and therefore, it would be very difficult to implement a strategy.
The second effect is that growth generates greater complexity. This translates into increased costs that can grow disproportionately if the company does not have the skills to manage a more complex Value Chain and that faces greater uncertainty even though its clients and products are profitable.
KEY FACTORS
Any company has greater possibilities of achieving profitable growth if its strategies meet the following attributes:
Focus: Concentrating efforts and resources on market segments that offer the greatest opportunities of growth and profitability, with specific value proposals, instead of “shotgun” proposals.
Alignment: Synchronizing efforts, intentions and commercial resources with those of operations, avoiding that each areas works alone with a lack of coordination that wastes resources and destroys value.
Skills: Through the development of processes, organization and technology that allow the organization to be effective in their execution, whether in operations, the management and/or in planning.
Let’s see how Client Strategy and Operations helps to develop these three attributes.
CLIENT STRATEGIES AND OPERATIONS
PROFITABLE GROWTH
The essence of a strategy is to understand critical aspects in the challenges, risks and restrictions that face the company to grow and be profitable and to design the means to focus on and coordinate actions necessary to face them effectively.
To achieve profitable growth, it is imperative to design and implement a Client Strategy and Operations that define:
•The segmentation of clients and the definition of strategic intentions per segment
•Enable processes with the Organization and Information Technology
CLIENT SEGMENTATION
Understanding the market is something commonly discussed in companies. However, few take it really seriously and are good at doing so.
This consists of understanding client segments, their needs, their evolution in the future, their intimacies between needs and how they are met with products and services, the profitability by segment, their latent, unsatisfied and unexpressed needs.
Segmentation is being able to respond to questions such: which segments to participate in, why participate in them, what is required to be successful and in which not to participate. And doing it not only once, but continuously, and clearly establishing our intentions per segment: growing, generating profit, leaving or simply “taking a walk in the park”.
In the end, segmentation is identifying where the market value is and what we need to generate that value.
VALUE PROPOSAL
A Value Proposal is the positioning of the company through the combination of products (portfolio), commercial conditions and service experience to be offered by segment. In this process, companies face an important challenge, whose solution is not clear and with important consequences if not resolved correctly.
In most industries, having a single Value Proposal for all market segments of market is a mistake: segmented offers must be used.
However, the two extremes are equally harmful: a single offer, which is implicit to certain segments but inadequate for others vs. a single offer for each client, but which is completely inoperable due to its complexity and cost.
In segmented markets, very little differentiation in the offer has very little value, whereas a very high level of differentiation adds very little value.
In other words, very little complexity (variety) leads to not exploiting market opportunities, whereas greater complexity (variety) of what is necessary causes its own problems and lead to greater costs than the benefits sought – value is lost due to unnecessary complexity.
So the question is: How many segments and value offers should there be? The reality is that it would be very difficult to find an exact answer. And if we found it, it would be temporary because of the inherent dynamism of the market.
What should exist are strong processes and the analysis of the sources of complexity. In this case market segments and Value Proposals, as well as the answers that the company must give and the validation of the results produced by that complexity.
COMMERCIAL STRATEGY AND EXECUTION
This element consists of the design and implementation of the platforms necessary to capture the demand in order to deliver the products and the services offered. There are three key elements in a commercial platform:
• Commercial Development: refers to specifying products, prices, promotions and services to each segment, sub-segment, up to client level.
• Market Routes Model: consists of diverse personal and remote sales systems (Internet, cell phone and fixed phone) through which the company attends to its clients.
• Commercial Management and Implementation: refers to the activities necessary to perform commercial transactions with clients.
These elements are interdependent and therefore must be coordinated among each other in order to be effective.
These elements must also function in a market segments environment with segmented proposals; therefore, they must have their own segmentation.
OPERATIONS STRATEGY AND IMPLEMENTATION
The purpose of the entire chain of operating activities of a company is to offer quality products on time and at a competitive cost. This capacity is related to the Strategy, Planning and Implementation. The Operations Strategy covers aspects that must be clear:
•What capacities are required in the entire supply to be able to offer the value proposal effectively?
•Which resources in the chain must be optimized and which must have surplus capacity? Where are the plants and distribution centers located?
•Which resources must be own and which can be contracted out to third parties?
•Which strategies to have for the production of new products?
•What type of relationships must there be with suppliers? Which are strategic and require a certain type of relationship and which are merely transactional?
Planning refers to the processes to integrate demand and supply in the medium term, from 3 to 12 months.
These processes are fundamental because they are the basis for the management of the company in the medium term. Synchronizing the efforts for new launches and promotions, ensuring the supply of products, anticipating problems that may arise in the supply and the decisions that must be taken, disclosing the capacities available in the chain and if they can be sold beforehand.
These processes enable the company to align its commercial activity and supply activity to planning level, as well as to identify potential problems and take preventive action before they occur.
Implementation includes the processes that integrate the activities throughout the chain to capture and deliver an order, whether for products or services, or both, from distribution, production, storage and purchasing. These they are activities that must be synchronized through processes.
ORGANIZATION AND TECHNOLOGY
ORGANIZATION AND INFORMATION TECHNOLOGY
In his book Strategy and Structure: Chapters or the History of the Industrial Enterprise, Alfred P. Chandler immortalized in the world of business the phrase “structure follows strategy”. Chandler’s conclusion brilliantly summarizes that the company’s organizational structure is a facilitator of its Strategy.
However, in light of the evolution of companies, we would fall rather short by saying that it is only the structure that follows the Strategy.
First, because it is not only the structure, but what we can understand by Organization, which consists of :
(i) structure, precisely the functional and hierarchical division of labor.
(ii) people’s skills, in their abilities and knowledge.
(iii) the management that covers decision-making based on performance indicators.
(iv) leadership and culture that cover the values, but above all the behavior of leaders and people.
FACILITATORS
And second, besides Organization, Information Technology has become a Strategy facilitator in companies.
This has happened because to the extent that companies face greater complexity, this translates into more data that must be processed to convert it into information.
Moreover, information technology does not generate value by itself, but to the extent that it enables practices and decisions related to the management and the interaction between the company’s personnel and even commercial partners.
EXECUTIVE ROLE
The executive role has traditionally been seen as that of decision maker. This is partly true. But as far as we have seen, it is far removed from its value being only to make decisions.
A fundamental aspect is to generate an understanding of the challenges, risks and restrictions faced by the company, and to which a strategy must effectively respond.
Another fundamental role of any executive is to act as we would call a ‘Business Models Architect’, this being understood as the segmentation and selection of segments in which to compete, the definition of strategic intentions per segment, the design of value offers and the development of skills.
This demands conceptualization skills and the assembly of pieces of a puzzle over time.
CONCLUSIONS
All executives, without exception, seek profitable growth for their companies. For this purpose, they launch new product initiatives and enter new client segments that do not always produce the desired result and on some occasions finish with results completely opposite to those planned.
The causes of this are three-fold: having simple intentions but not a strong Strategy that integrates all the actions that if required to be successful, lack of management that stops us wasting both resources and expenses on assets. These initiatives launched can be good but the organization lacks the skills necessary to handle a greater complexity resulting from growth.
The key lies in designing and implementing strategies that focus efforts and resources on market segments where the greatest opportunities for growth and profitability lie, align the efforts, intentions and commercial resources with those of operations and develop skills through processes, organization and technology.
About Sintec
Sintec is the leading consulting firm focused on generating profitable growth and developing competitive advantages through the design and execution of holistic and innovative Customer and Operations Strategies. Sintec provides a thorough and unique methodology for the development of organizational competencies, based on three key elements: Organization, Processes and IT. Furthermore, Sintec has successfully carried out more than 300 projects on Commercial Strategies, Operations and IT issues with more than 100 companies in 14 countries throughout Latin America. Our track record of more than 25 years makes Sintec the most experienced consulting firm in this area of expertise in the region.
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