Marketing - Crises and Problems - Essay Example

Marketing Many directors and managers find their time completely occupied by fire-fighting', dealing with the crises and problems that are occurringtoday, rather than considering what is necessary to ensure the survival and eventual success of the business. Their skill and effort is absorbed in evaluating and taking tactical operational decisions whilst the business as a whole may be failing. Successful businesses have rejected this type of management approach and instead developed people and an organizational culture that addresses the issues vital to success. Environmental Mapping Environmental mapping technique is intended to capture the key characteristics of the environment in which the business operates. These factors, which may be supportive or constraining to the future development of the organization, provide the backcloth' against which the future strategies and plans must be formulated (Bennet, 1996). The model analyses the environment into four areas of focus. It should be used flexibly to reflect the nature of the relevant country/market environment. This means that for a large corporate, with a significant spread of operations, it is appropriate to separately map the different environments in which the various parts of the organization operate (Howe, 1986). The facts are normally identified by the senior management of the business from their personal knowledge and experience. Naturally this assumes that they have sufficient background in the environment to generate accurate data. If this experience does not exist external information sources would need to be used to supplement the existing knowledge of the business (Aaltonen and Ikavalko 2002). Even where knowledge is strong' it is prudent to validate key facts/assumptions and to compare alternative views of the future. The analysis should be used to identify: The general pressures and constraints which surround the industry in which the business operates The principle expectations of each environmental group The issues that are dominant and are likely to exert the most pressure or influence on the future direction and prospects of the corporate. This is often achieved by using H/M/L (High/Medium/Low) categorization of each factor. Five Forces Model Industry mapping is a model that enables the competitive environment in which the organization operates to be analyzed. It was developed by Michael Porter and is often referred to as the Porter 5 Forces' model. It helps to identify the strength of the competitive forces that impact on the industry (Kotler and Armstrong 2005). Environmental Mapping' examined more generally the wider commercial context affecting all industries, this approach is focused on the specific industry in which the organization operates. Competition among existing firms - this is the natural competitive rivalry which exists between the various businesses operating within the industry marketplace (Bennet, 1996). Threat of new entrants - this is the potential likelihood of, and ease of, entry for new firms into the market. An example would be the entry of Japanese contractors into the UK construction market. Threat of substitute products or services - this is where a product or service, perhaps produced through a different technology, enters the market. An example would be the entry of compact discs into the audiotape/record market - providing the same product, music', through a different technology. Bargaining power of suppliers - this examines the relationship between businesses in the industry and the suppliers to those businesses. Where suppliers have a unique or restricted availability product they can exert a strong influence over prices and conditions of supply, therefore potentially putting pressures on the businesses purchasing their product/services. Bargaining power of buyers - this examines the relationship between businesses in the industry and the customers of those businesses. The purpose is to identify the relative strength of the business in the customer relationship (Bowman 1998; Porter, 1980, Appendix 1). The objective is to consider the industry marketplace and to identify the ability of each force' to de-stabilize the existing situation. The power of the influence on the business of each force can then be ranked (often using a H' high/M' medium/L' low categorization). This enables appropriate actions to be considered to take advantage of, or defend, the situation to be reflected in the strategy and plans of the organization (Kotler and Armstrong 2005). The following paragraphs summaries some of the key factors related to each of the five forces. The structure of the industry will significantly effect the profit potential of the business operating in that industry. The strategy and actions of a business operating in the industry may improve or destroy the industry structure. Each business (and the relevant decision takers) must recognize and evaluate the impact, short term and long term, of actions taken on the overall industry structure and attractiveness (Bennet, 1996; Porter, 2004) SWOT Analysis SWOT is a widely used thinking framework for identifying Strengths, Weaknesses, Opportunities and Threats. It enables key factors to be visibly recorded as a high level summary of a business (or personal) situation. It is a summary that is simple but powerful. The technique is commonly used by consultants to document the key factors arising from the review of a particular project or business. The use of SWOT enables an assessment to be made of the overall internal state of a business and the direction in which it is heading, through looking at its Strengths and Weaknesses. It also enables a judgment to be made about aspects of the external business environment, which can affect the performance of the business, through looking at the Opportunities and Threats it faces in the wider world. The SWOT summary may be used to consolidate key issues identified through other forms of analysis. environmental mapping, industry mapping, etc.) However, the following are illustrative of the types of questions that should additionally be covered. This technique helps to simplify strategic choices to enable clear executive decisions to be evaluated and taken. It contrasts existing and potential future characteristics of the organization and encourages evaluation of the consequences of alternative actions. The approach is usually linked to the other strategic analysis tools. The From To factors may well emerge from the previously mentioned Environmental Analysis, Industry Analysis and SWOT, and are a summary of certain of the key challenges facing the organization (Bennet, 1996, Appendix 2). Root- Cause Analysis This is a simple problem diagnosis technique, which provides a visual map of the factors that contribute to a particular organizational issue. The purpose of this analysis is to establish the root cause(s) of the problem. The technique is sometimes called fishbone analysis. The following is an illustration of how the approach can be used to identify a series of underlying factors, which contribute to a problem. Initially the problem is clearly stated on the right hand side - this is the effect. The primary areas that contribute to the problem are then identified. In this example these are: Marketing - the advertising and promotion of the product/service, Qualifying - the selection of potential telephone contacts, Systems - the approach to rewarding performance, Staff - the quality, availability and capability of the telesales team (Campbell et al 2003). The individual causes are identified by those who have direct experience of the problem. This normally takes place in a brainstorming type session to build up a detailed picture of the circumstances. The causes can be prioritized according to their seriousness. Those that are complex and/or serious may then be individually analysed further using the same technique (Appendix 3). Strategic Business Units Analysis Organizations are often complex and it is necessary to break down the overall corporate into Strategic Business Units (SBUs) for plans to be clearly focused and effective. Unless these SBUs are identified any planning will be generic and bland - therefore unlikely to produce the desired positive results. The approach uses a Customer - Offering Matrix'. Each cell within the matrix is an actual or potential relationship between a customer group and an offering category (Campbell et al 2003). Where the relationship is significant (or of significant potential) this is a SBU which needs to be individually considered for planning purposes. Strategic planning must focus individually on each SBU to define clearly targeted goals and actions. The approach to the development (or disposal) of each SBU is likely to be different, reflecting the specific nature of the customer relationship, the competitive environment and the key factors for successful development (Campbell et al 2003). This will identify the various bases on which new business is won from competitors (i.e. how differentiation is achieved) and the primary factors which are important to maintaining existing customer loyalty/satisfaction. Using these facts it is now possible to take each significant SBU (cell in the matrix) and to define those things which the business needs to do well - these are referred to as Critical Success Factors (CSFs) (Hill and Jones 1998). The CSFs are a vital input to strategic planning and objective setting. They help to clarify what competencies the organisation requires and implications for the type of structure that is appropriate (Dobson and Starkey 1993). If we take an example of a Strategic Business Unit which may be defined as a bank offering lending products to small business customers. The major competitors would be other lending banks and the competitive rivalry would be intense. This highlights the profitability of the customer group across the range of offerings (as well as offering category profitability across the customer groups served). In certain organizations this will reveal a mix of attractive and unattractive relationships with a specific customer group. This may well be sensible where there is a deliberate trade-off to provide a comprehensive package to the customer. In practice it is not uncommon for certain SBUs to reveal a negative performance without any such justifying logic! Equally often a company does not have the data to identify the financial performance of specific SBUs. This reveals a deficiency in the management information available for decision taking (Campbell et al 2003, Appendix 3). Competitor Profiling This analysis provides for a direct ranking of the relative performance of the organization versus that of its competitors. It should be used to take a broad view of the relative competence of the firm and the analysis must deliberately be driven from a customer perspective. It is therefore important to take into account both facts and perceptions. Customers' buying decisions are based on their perception of the relative advantages (price/cost, performance, quality etc) of the firms offerings' versus that of either direct competitors or substitute products/services. These perceptions may or may not correlate with the facts. Successful businesses are those that effectively manage customer perceptions to ensure that their products/services are the preferred choice. The matrix enables a map to be developed of relative performance against each Critical Success Factor (CSF) (Drejer, 2002). The first step is to identify the CSFs - What do we need to do well to win business'. These must particularly be addressed from a customer perspective. To clearly identify the CSFs it is vital that a clear definition of the market segment and customer group has been identified using the SBU analysis concept introduced in the previous section. Within any sizeable business there will be many different market segments and customer groups that are served. If too broad a definition is used the CSFs will be bland and generic, and therefore unhelpful in gaining clarity of relative performance against competitors (Faulkner, 1997). The analysis relies on a sound understanding of customer perspectives and competitor performance (Hill and Jones 1998). It will therefore draw on factual data available (from customer satisfaction surveys, market research etc) as well as the experience of managers and staff within the organization. It also requires a clear understanding of competitor performance. The objective of the profiling map' drawn is to identify gaps in relative performance. This visual form of analysis clearly highlights priority areas of attention to sustain and improve the performance of the business unit in the market segment (Drejer, 2002, Appendix 4). GE Matrix The purpose of the matrix is to provide a clear focus for the development priorities of the organization. It is also sometimes referred to as the GE Grid, which was derived, when it was initially used by General Electric as a strategic analysis framework. It encourages executives to make objective decisions about each strategic business unit within the corporate portfolio, taking into account the strength of the business position and the attractiveness of the market segment in which it operates. The Directional Policy Matrix is an important tool for business portfolio analysis and seeks to clearly reflect the position and attractiveness of each Strategic Business Unit (SBU) (Faulkner, 1997). In practice the strategy for an individual SBU, within the overall corporate, must take into account its strategic importance to the overall group, synergy with other areas of activity, the ability to offer a full range of products/services to a customer etc. However, unless these wider considerations are an overriding constraint to decision taking the following table illustrates likely responses to each position: When applying the Directional Policy Matrix it is important to accurately define the relevant criteria for the market segment to evaluate in a logical, structured way the current competitive position. It is essential to test and challenge assumptions about relative competitive position (Hay and Williamson 1991). Often managers' perceptions are quite different to the reality and at variance with the actual views of customers (and potential customers if an improved competitive position is to be pursued) (Faulkner, 1997). An offering category may have a different positioning depending on the customer group being considered. For example, in the case of a pharmaceuticals manufacturer, a certain product range may be competitively weak when considered in relation to state healthcare as a customer group, but competitively strong in the private healthcare market where differing purchase criteria may be used. Equally the private healthcare sector may itself provide significantly more market attractiveness in terms of growth and profitability (Faulkner, 1997). Cost Profiling The business planning and budget setting processes used in many businesses tend to produce incremental changes in performance, often particularly achieved by small adjustments to the level of costs incurred - improving financial efficiency. This Cost Profiling analytical technique seeks to identify potential opportunities for more radical changes to the business cost base. It focuses on improving financial effectiveness by examining the relationship between costs incurred and benefits to the business. There are two key preparatory stages in the cost profiling process. The on-going activities' of the organisation are identified; for example customer enquiry handling, preparation of weekly management reports, production engineering etc (Howe, 1986). These activities may involve many departments/business units across the organization, thereby incurring cost in each location. Using the budgets/management accounts data for each cost centre' (i.e. an organization unit where costs are incurred) an analysis is prepared to identify the costs associated with each activity. Through this process the entire costs of the business are analyzed by activity (Porter, 1998). The focus here is to identify the value to the business' of the activity. The first step is to identify a set of criteria against which benefit can be judged. These criteria are the organization's Critical Success Factors (CSFs) which derive from the strategic, market and organizational analysis discussed. Critical Success Factors are those things that the organization needs to do well if it is to be successful. This ranking is normally undertaken by groups of senior executives and managers working in teams to agree the scores. The output from each group is then correlated to identify an overall response. The two sets of rankings described in the previous paragraphs - Activity/Cost and Activity/Benefit - are then brought together in a Cost/Benefit matrix. An illustrative example of this matrix is shown on the following page. he objective of the Cost Profiling technique is to identify the Cost/Benefit attributes of each activity within the organization (Howe, 1986). The Cost/Benefit map' highlights this relationship and draws particular attention to those activities which fall away from what is perhaps the expected' relationship indicated by the diagonal line. Where an activity is low cost/high benefit' it is appropriate to evaluate the additional benefit that would occur if spending was increased. When an activity is high cost/low benefit' it is appropriate to evaluate the opportunities and effect of reduced spending. The potential disadvantage is that it can be time consuming to prepare the data with the required level of accuracy. However, as part of a strategic review it is an important technique for examining the cost effectiveness of spending within the organization. The advantages of the approach include: The identification of current effective spending and ineffective spending by requiring a complete review of resourcing and cost levels Recognition of the specific relationship between activity and cost That it is challenging and establishes financial and operational goals for performance improvement. Conclusion Organizations can no longer afford to be static. The changing demands of the business environment and competitor pressure dictate at the very least regular adoption and in many cases fundamental shifts. Products have a lifecycle involving revisions, re-positioning and replacement - organizations have similar lifecycle changes but these are often far more difficult to achieve. The key issue for leaders is recognizing the need for fundamental change whilst the organization is on the ascent rather than the descent - and then taking action! When the organization is on the descent it is often too busy fighting the slide' and too short of resources, particularly cash, to implement the leap to the next curve. Death may come quickly or slowly - failure to take action until too late' is the most common factor evidenced by research into business failure. A major evolutionary leap requires a tangible, visible strategy supported by clear corporate goals and a common sense of purpose. Success depends on harnessing each aspect of the organization - the culture, the people and the systems - and focusing attention in the same direction. Too often the emotional desire to pursue an attractive' strategy outweighs logic. This is not to say that vision, entrepreneurial drive and risk taking are wrong. These vital factors are necessary qualities in any successful organisation but they need to be supported by rational analysis. This requires evaluation of the vision, quantification of the risks and the identification of actions which can be taken to reduce the seriousness/impact of these risks. Bibliography Aaltonen, P. and Ikavalko, H., 2002. Implementing strategies successfully. Integrated Manufacturing Systems, 13 (6), 415-418. Bennet, R., 1996. International Business. London: Pitman. Bowman, C., 1998. Strategy in practice. Hertfordshire: Prentice Hall Europe. Campbell, D., Stonehouse, G. and Houston, B., 2002. Business strategy: an introduction. 2nd ed. Oxford: Butterworth Heinemann. Dobson, P. and Starkey, K., 1993. The strategic management. Oxford: Blackwell. Drejer, A. (2002). Strategic Management and Core Competencies: Theory and Application. Quorum Books. Faulkner, D., 1997. Competitive and corporate strategy. London: Irwin. Faulkner, D. and Bowman, C., 2001. The essence of competitive strategy. On demand edition. London: Prentice Hall. Hay, M. and Williamson, P., 1991. The strategy handbook. Oxford: Blackwell. Hill, W.L. and Jones, G.R., 1998. Strategic management: an integrated approach. Boston: Houghton Mifflin. Howe, S., 1986. Corporate strategy. Hampshire: Macmillan. Kotler, Ph., Armstrong, G. 2005, Principles of Marketing. Prentice Hall; 11th edition. Porter, M.E., 1980. Competitive strategy: techniques for analyzing industries and competitors. London: Free Press. Porter, M. E., 2004. Competitive strategy: techniques for analyzing industries and competitors. London: Free Press. Porter, M.E., 1998. Competitive strategy: with a new introduction: techniques for analyzing industries and competitors. New York: Free Press. Appendix 1. Environmental mapping 2. Industry mapping 3. Root Cause Analysis 4. Strategic Business Unit Analysis 5. Competitor Profiling Read More