Building The Outer Structure

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Presents frameworks and methodology for building those segments of a company which are vital to long term sustainability. The systematic process of identifying business strategy, marketing, and a mission statements which articulates the developed value proposition. This framework enables companies to build a brand that helps target the identified market.

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Building The Outer Structure

  1. 1. Simmons Performance SolutionsBuilding The Outer Structure.How to shape your companys view of the world, and the worlds view of your company.
  2. 2. 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 Building The Outer Structure Page 1
  3. 3. Author Rufus Simmons Founder and Principal Simmons Performance SolutionsCopyright ©2012. Simmons Performance Solutions, All Rights Reserved Building The Outer Structure Page 2
  4. 4. Executive SummaryA company must build both its industry and market presence, and this can only be achievedwith a realistic view of the world, and by crafting a well honed image of the company for theworld to view. This document defines and develops a framework for building that part of acompany which creates this view- The Outer Structure.The landscape of every industry is littered with companies who brought great ideas or productsto market and yet did not succeed. We have all shopped for a products and had to askourselves," Why is that no one knows about this product when its better than the marketleader?" The answer does not always lie in effective advertising. Typical these companies havefocused on a product or idea without identifying a long term strategic plan which creates asustainable company with an industry and market identity. Building the Outer Structure willenable 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 clearunderstanding of how each segments works is vital to a company not becoming one of themany failed examples out there. The mission statement will tell the world how marketingdelivers upon a defined strategy to provide value. But the mission statement will become asimple slogan if it is not backed up by true strategic value which is why the strategic plan is thecenter piece of the outer structure.Strategic planning and its frameworks are the center piece of the Outer Structure becauseevery company must identify a profitable customer base, how it will target this base, and whatvalue it will provide them. To build effective strategy and a presence a company mustunderstand how the industry and market evolve and use this understanding to create a view ofitself where it can be seen as capable of defining and pushing industry standards. A strategicplan which does this is carried out by a marketing plan which takes into account marketdynamics. Knowing how a company can use placement, pricing, and the dissemination ofknowledge 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 tobuild its Outer Structure: The Strategic Design Template, The Market Dynamics Model, and TheMission, Strategy, and Marketing Alignment Model. All of these frameworks are important intheir own right, but collectively they will enable a company to shape its view of the world, andmore importantly, the worlds view of the company. Building The Outer Structure Page 3
  5. 5. Designing The Outer StructureDeveloping an outer structure is a methodical process that is dependent upon a clear view ofthe space a company wishes to occupy. The view must be based upon solid industry and marketanalysis which can provide shape to a strategic plan that shapes a company. In turn the chosenstrategy will align marketing activities around an indented value proposition, which the missionstatement will articulate to the world. A companys mission statement, strategy, and marketingare outward facing and create the public identity which builds a brand, that is why SPS refers tothem as the Outer Structure.Strategy DesignCreating viable strategic opportunities relies upon indentifying areas where products andservices will gain acceptance. The Strategic Design Template identifies areas where industryand the markets they serve converge to create the seams of opportunity. Figure 1Industry versus MarketDistinguishing industry from market may seem like minutia, but isn’t. The two have starklydifferent meanings economically. A market is comprised of buyers and sellers, and in mostcases intermediaries and market makers. An industry is comprised of the supply side of amarket, the sellers. Most importantly each is based upon a distinct set of elements thattogether create unique dynamics for individual markets and industries. More importantly, thedynamics of industry and market converge to create seams of opportunity. (Figure 3 illustrateshow industry and market collide to create areas of opportunity). Building The Outer Structure Page 4
  6. 6. Industry AnalysisEvery industry is shaped by a set of five dynamics, each is important in its own right, but a clearunderstanding of how they operate as a unit to create fluidness is vital to the strategic planningprocess. 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 canbe weighted an effective analysis must take into account their collective state . An industry thatappears to be moving along smoothly maybe exhibiting signs of a coming disruptor when therelationship between the five analysis segments are taken into account. Building The Outer Structure Page 5
  7. 7. Market AnalysisMarket analysis should go beyond merely looking at the size of a customer base, it should alsolook at those elements which create the market landscape. To do so it must include an analysisof 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 products 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. Building The Outer Structure Page 6
  8. 8. The sum of the market analysis will determine the attractiveness of a market and should dictatehow a company proceeds with its market entry, product placement, pricing, and brandingactivities. But the development of a strategic plan must take into account the totality of themarket and industry analysis together.Making Strategy WorkThe first example we will use to demonstrate this strategic decision making tool is a companyoperating in an industry where the product cost structure is low due to an abundance of inputmaterials and few industry competitors. Within this industry the product development trendsmove slowly so there are few product innovations. At the same time the industry serves amarket with a large and increasing customer base. Initially this may seem like an opportunitywith high profit margins, but market analysis identifies few channels with customer access. Thiscreates 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 wouldnot be an attractive market for a premium goods supplier; however, a low cost providerstrategy would flourish because a company can exist with razor thin margins due to the lowinput cost and the potential for gaining a high market share. With this strategy a companywould 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 basedon new technology that has the potential disrupt the competitive landscape within thefollowing scenario. A rapidly evolving industry due to the fast pace of technologyadvancements, highly manageable cost structure, growing market demand, and manyalternatives products. In this scenario a company can adapt a market leadership/ premiumsupplier strategy where it can target earlier adopters who are willing to pay a premium forinnovative products whose price reflects the benefit. This strategy will enable the company torealize greater profit margins while signaling it is the industry and market standard.MARKETING ALIGNMENTWith a chosen strategy in place a company must develop a marketing plan that delivers uponthe strategic thought process. Figure 4 illustrates how companies use market positioning toattach themselves to a market, and ultimately effect market dynamics. At the center of themarket, and setting the tone for dynamics, are the customers whose demands, purchasinghabits, and ability to acquire knowledge effect the ways in which companies position theirproducts or services. Companies must also take into account how the dynamic process movesfrom the demand to a need to acquire knowledge before the purchase is made. Building The Outer Structure Page 7
  9. 9. Figure 2Each company can effect market dynamics through its collective marketing effort which mustinclude: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. Building The Outer Structure Page 8
  10. 10. A tight and consistent alignment of marketing efforts is vital to a companys 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 saleswould slow dramatically because most people seeking to purchase an ultra premium watchdont look for them at Wal-Mart. So marketing alignment is crucial to proper revenuegeneration.Aligning Mission, Strategy, and MarketingWhen aligned correctly the elements of outer structure create synergy and send a clearmessage 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 thevalue of your strategy and the products and services that they define. A mission statement isdependent 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 tothese 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 fora value proposition and supporting strategic plan that will set parameters for how a companycan target customers and fill their collective need.Marketing- Uses strategys parameters to identify products and features that capture theidentified customers. Marketing will also give a voice to the strategy through advertising andmarket presentation choices to builds a companys brand; the challenge in doing so is creating afocus on the company where its name becomes market place currency. What is meant by thisis, "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 wellhoned Outer Structure. Building The Outer Structure Page 9
  11. 11. Company Missions Statement StrategyWal-Mart " People , Saving Money, Living a Better life." Low cost providerBMW "One Premium Success From Three Premium Visions" Premium driving experienceHome Depot "Values for a Customer -centric Culture Everything under one roofDell "Dells mission is to be the most successful computer Just in time customizedComputer company in the world at delivering the best customer computers made for experience in markets we serve. In doing so, Dell will individuals. meet customer expectations of......" 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-Marts 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-Marts 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 strategys 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 Page 10

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