Building The Outer Structure

Simmons Performance Solutions

How to shape your company's view of the world, and the world's view of your company.

Building The Outer Structure.

B u i l d i n g T h e O u t e r S t r u c t u r e

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Table of Contents

1. Executive Summary……………………………………………......………………………..pg. 3

2. Designing The Outer Structure……………………...………………………………...pg. 4

3. Industry Analysis...................................................................................................pg.5

4. Market Analysis......................................................................................................pg.6

5. Marketing Alignment…………….........………………………………………………….pg. 7

6. Aligning Mission, Marketing, and Strategy....................................................pg.9

7. Going Forward………………………………………………………........………………….pg.10


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Author

Rufus Simmons Founder and Principal

Simmons Performance Solutions

Copyright ©2012. Simmons Performance Solutions, All Rights Reserved


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Executive Summary

A company must build both its industry and market presence, and this can only be achieved with a realistic view of the world, and by crafting a well honed image of the company for the world to view. This document defines and develops a framework for building that part of a company which creates this view- The Outer Structure. The landscape of every industry is littered with companies who brought great ideas or products to market and yet did not succeed. We have all shopped for a products and had to ask ourselves," Why is that no one knows about this product when it's better than the market leader?" The answer does not always lie in effective advertising. Typical these companies have focused on a product or idea without identifying a long term strategic plan which creates a sustainable company with an industry and market identity. Building the Outer Structure will enable a company to do just this. Three segments comprise the Outer Structure- Mission Statement, Strategy, and Marketing. When aligned correctly they will enable a company to build its presence, and a clear understanding of how each segments works is vital to a company not becoming one of the many failed examples out there. The mission statement will tell the world how marketing delivers upon a defined strategy to provide value. But the mission statement will become a simple slogan if it is not backed up by true strategic value which is why the strategic plan is the center piece of the outer structure. Strategic planning and its frameworks are the center piece of the Outer Structure because every company must identify a profitable customer base, how it will target this base, and what value it will provide them. To build effective strategy and a presence a company must understand how the industry and market evolve and use this understanding to create a view of itself where it can be seen as capable of defining and pushing industry standards. A strategic plan which does this is carried out by a marketing plan which takes into account market dynamics. Knowing how a company can use placement, pricing, and the dissemination of knowledge to position itself is a crucial element in the outer structure building process. There are three frameworks presented within this document that will enable a company to build its Outer Structure: The Strategic Design Template, The Market Dynamics Model, and The Mission, Strategy, and Marketing Alignment Model. All of these frameworks are important in their own right, but collectively they will enable a company to shape its view of the world, and more importantly, the world's view of the company.


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Designing The Outer Structure Developing an outer structure is a methodical process that is dependent upon a clear view of the space a company wishes to occupy. The view must be based upon solid industry and market analysis which can provide shape to a strategic plan that shapes a company. In turn the chosen strategy will align marketing activities around an indented value proposition, which the mission statement will articulate to the world. A company's mission statement, strategy, and marketing are outward facing and create the public identity which builds a brand, that is why SPS refers to them as the Outer Structure. Strategy Design Creating viable strategic opportunities relies upon indentifying areas where products and services will gain acceptance. The Strategic Design Template identifies areas where industry and the markets they serve converge to create the seams of opportunity.

Industry versus Market Distinguishing industry from market may seem like minutia, but isn’t. The two have starkly different meanings economically. A market is comprised of buyers and sellers, and in most cases intermediaries and market makers. An industry is comprised of the supply side of a market, the sellers. Most importantly each is based upon a distinct set of elements that together create unique dynamics for individual markets and industries. More importantly, the dynamics of industry and market converge to create seams of opportunity. (Figure 3 illustrates how industry and market collide to create areas of opportunity).

Figure 1


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Industry Analysis Every industry is shaped by a set of five dynamics, each is important in its own right, but a clear understanding of how they operate as a unit to create fluidness is vital to the strategic planning process.

Products - What products and services are being offered and who is offering them? These solutions must be identified and mapped so that a company can compare its proposed product solution to the alternatives, and what the market desires. This analysis must look beyond the core points of differentiation and identify factors such as warranties and services which increase a attractiveness.

Inputs/ Technology - Access to goods, services, technology and supplies chains will define weather a product can be produced or not. Input analysis is of vital importance to all companies, but more so to those that are in the idea or development stage and solely focused on product development. Beyond product advancement, available inputs and technology will dictate production capacity and will determine if large identified markets can be targeted and served.

Cost Structure- Is the market profitable? What are the needed investments for product and service offerings? These investments include product procurement, labor cost, logistics, and production and any additional cost associated with each. The industry benchmark is vital, and to compete a company must match or improve upon the industry standard.

Trends/Velocity- Indentifying how products are introduced and target the identified market segment is important. Trends and velocity tell how quickly product standards; this maybe due to increased technology or knowledge. Or in the case of fashion and consumer technology trends refer to how how quickly they go out of style. This is critical to niche companies who may be looking to target a customer segment based upon a high technology value proposition, but rapid industry velocity may signal high barriers to entry due to short product life cycles, increased R&D cost, and an increasing cost structure. Partnerships - Partnerships play an intrical part in industry dynamics; they can indicate which customers and market segment a company is targeting, and can signal an impending increase in industry velocity due to a company acquiring needed experience and knowledge.

As previously stated these elements act collectively to create fluidness, and although they can be weighted an effective analysis must take into account their collective state . An industry that appears to be moving along smoothly maybe exhibiting signs of a coming disruptor when the relationship between the five analysis segments are taken into account.


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Market Analysis Market analysis should go beyond merely looking at the size of a customer base, it should also look at those elements which create the market landscape. To do so it must include an analysis of the customer base, trends, cycles, channels, and alternatives.

Customers- There needs to be clearly defined customer base. Who is it that has a point of pain? What is the size of this customer base and is it growing? Can it be broken down into subgroups where a differentiated product or service can thrive? A company must not limit its growth by merely focusing on a product's intended customer base, it should identify markets with similarities where the product can gain acceptance. Demand/Trends- The size of the current customer base is not enough to justify market entry. Is there a seasonality to sales which can be leveled off? Is there a growth rate associated with the target customer group, and is it associated with a growing demographic.. i.e.. age? These questions are the basis of trend analysis and must delve deep into both qualitative and quantitative measures. Cycles- Sales cycles, product development cycles, and customer cycles must all be taken into account. Each has implications on revenue generation, as well as operating expenses and net income. Strategic initiatives depend upon knowledge of external cycles as well. For example, the stage of competitors' product life cycles will effect potential profit margins since products in their later stages yield greater margins due to having already recouped development cost. This scenario makes it difficult to compete against the like product because the company with the later staged product is better equipped to fight a price war. Increased product iterations also indicate that a competitor has found a way to decrease product development cycles and now has the ability to offer greater product proliferation. Channels- Every company must address how their product reaches potential customers. Is there a sales channel in place, or must a company build one? Also, the channels and the distributors that create them will determine whether a product can be profitable at a given price point. With little brand equity a company will have less negotiating power so the channel structure will have a greater effect on profit margins. Is there a new model to be created? Apple iTunes is an example of how a company successfully created its own distribution channel.

Alternatives- Competition does not only come from within an industry. There are alternatives from other industries which must be taken into account. These substitute products diminish the bargaining and pricing power of a company and its industry companions.


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The sum of the market analysis will determine the attractiveness of a market and should dictate how a company proceeds with its market entry, product placement, pricing, and branding activities. But the development of a strategic plan must take into account the totality of the market and industry analysis together. Making Strategy Work The first example we will use to demonstrate this strategic decision making tool is a company operating in an industry where the product cost structure is low due to an abundance of input materials and few industry competitors. Within this industry the product development trends move slowly so there are few product innovations. At the same time the industry serves a market with a large and increasing customer base. Initially this may seem like an opportunity with high profit margins, but market analysis identifies few channels with customer access. This creates a bottleneck and increases the bargaining power of the buyer, distribution channels, which will diminish profit margins. With a high probability of reduced profit margins this would not be an attractive market for a premium goods supplier; however, a low cost provider strategy would flourish because a company can exist with razor thin margins due to the low input cost and the potential for gaining a high market share. With this strategy a company would realize high profits based on selling large volumes at reduced prices and margins. Conversely a market leadership strategy can be gained by a company whose product is based on new technology that has the potential disrupt the competitive landscape within the following scenario. A rapidly evolving industry due to the fast pace of technology advancements, highly manageable cost structure, growing market demand, and many alternatives products. In this scenario a company can adapt a market leadership/ premium supplier strategy where it can target earlier adopters who are willing to pay a premium for innovative products whose price reflects the benefit. This strategy will enable the company to realize greater profit margins while signaling it is the industry and market standard.

MARKETING ALIGNMENT With a chosen strategy in place a company must develop a marketing plan that delivers upon the strategic thought process. Figure 4 illustrates how companies use market positioning to attach themselves to a market, and ultimately effect market dynamics. At the center of the market, and setting the tone for dynamics, are the customers whose demands, purchasing habits, and ability to acquire knowledge effect the ways in which companies position their products or services. Companies must also take into account how the dynamic process moves from the demand to a need to acquire knowledge before the purchase is made.


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Figure 2

Each company can effect market dynamics through its collective marketing effort which must include: Product- The products that will capture the identified customer base. Features- Desired product features that targeted customers wants, each must be prioritized and segmented to keep a product focused on the identified customer segment. Placement- Where a product is sold, its packaging, and in some cases what it is bundled with creates positioning. Pricing- Goes beyond revenue generating, it works in conjunction with product, features, and placement to complete the strategy by creating a product identity. For example a premium product comes at a premium price, and is sold through premium outlets. Messaging- What you say to the market about your company and its products or services and where you say it. Message must convey a products benefits and present a call to action in those places where potential customers frequent, for example BMW places ads in magazines, websites, and places where people with six plus figure salaries frequent.


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A tight and consistent alignment of marketing efforts is vital to a company's market perception. An example is- If Rolex had premium features, messaging, and price but was being sold at Wal-Mart customers would ask themselves," What is wrong with Rolex?" More importantly sales would slow dramatically because most people seeking to purchase an ultra premium watch don't look for them at Wal-Mart. So marketing alignment is crucial to proper revenue generation.

Aligning Mission, Strategy, and Marketing When aligned correctly the elements of outer structure create synergy and send a clear message to the marketplace as to who the company is, and what value it provides.

Mission Statement Strategy Marketing Mission Statement - Why is it that you exist? A statement of purpose that clearly identifies the value of your strategy and the products and services that they define. A mission statement is dependent upon a clear strategy and a value proposition honed through marketing efforts.

Strategy- Alignment of the mission with strategy must be seamless, and provide the answers to these questions:

o Which- markets twill we operate in? o Who- are the customers that we target in those chosen markets? o How- do we capture those targeted customers? o What- are the products, services, and features that complete our promise?

Once these questions are answered in a clear and concise manner you have the foundation for a value proposition and supporting strategic plan that will set parameters for how a company can target customers and fill their collective need. Marketing- Uses strategy's parameters to identify products and features that capture the identified customers. Marketing will also give a voice to the strategy through advertising and market presentation choices to builds a company's brand; the challenge in doing so is creating a focus on the company where it's name becomes market place currency. What is meant by this is, "Do customers put a premium on the product because it is made by a particular company?" Creating The Synergy- We can now look at companies who have successfully created a well honed Outer Structure.


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Company Missions Statement Strategy

Wal-Mart " People , Saving Money, Living a Better life." Low cost provider

BMW "One Premium Success From Three Premium Visions" Premium driving experience

Home Depot "Values for a Customer -centric Culture Everything under one roof

Dell Computer

"Dell's mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of......"

Just in time customized computers made for individuals.

Each of these successful corporations have built a brand identity by developing a clearly distinguishable strategy, and mission statement which articulates the value proposition of its strategy. Wal-Mart's mission statement," People, Saving Money, Living a Better Life," is a clear extension of the low cost provider strategy, which is delivered through various operational tactics that keep Wal-Mart's operating cost low so that it can pass along savings to its customers. With the BMW example we can take it a step further and identify product futures developed through marketing efforts which support," One Premium Success From Three Premium Visions," as well as the premium driving experience strategy. The finished products offer the ultimate in suspension, performance engines, leads the vast majority of automobile manufactures in handling, and developed a well crafted interior with cutting edge technology such as the iDrive. Each of these well thought out product features support a premium strategy that enable BMW to compete with Mercedes Benz, Jaguar, and other luxury automobile manufactures.

GOING FORWARD

Developing the outer structure of a company begins with a clear view of the fluidness of the industry and market, and more importantly their convergence. Since all industries and markets shift over time the view must go beyond a simple static model. These shifts can be caused by changes in customer desires, new technologies, delivery methods, or simply the collective efforts of companies to create new market dynamics. But having identified a means to generate industry and market change is not enough, a company must build a solid outer structure which will position the company to fulfill on its promise. Companies will create brand equity and leverage by building a solid outer structure. Developing a positive company identity goes beyond what you say about your company. The seamless fit of a mission statement that is backed up by the over arching company strategy and then product marketing strategies which become the action to strategy's thoughts enable companies to build equity. Work on this process should never end, for it is only through a constant retooling and measuring of the effects of this process that a company can keep honing its view of the world , and more importantly the worlds view of the company.

Building The Outer Structure

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Transcript of Building The Outer Structure