Building The Outer Structure

Simmons Performance Solutions

Building The Outer Structure.

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

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

Author

Rufus Simmons
Founder and Principal
Simmons Performance Solutions

Copyright ©2012. Simmons Performance Solutions, All Rights Reserved


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.


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.

Figure 1

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).


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.


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.


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.


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.


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.


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 "Dell's mission is to be the most successful computer Just in time customized
Computer 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-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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