Stage 3

Analysis

Overview and benefits of this stage

At the heart of category management is the pursuit of an overarching strategy to manage corporate expenditure. The strategy needs to be both dynamic and flexible in order to adapt to changes in the competitive environment, hence the need for an iterative approach. Often the base facts and data within a category do not change much over the short term, but external markets can change rapidly, and so the overarching strategy for the category needs to change accordingly.

This stage of category management can be one of the most rewarding and challenging sets of activities within the full end-to-end process. To be certain of adding value, an accurate fact base and solid foundation of research are essential. This will lead to the creation of a category strategy that delivers breakthrough value. Taking a shortcut at this stage will only lead to short-sighted strategies based on limited understanding.

The ultimate goal of this stage of the category management process is therefore to understand in detail how the external market operates and, consequently, how cost and value are generated. The stage comprises a series of analytical tools and techniques designed to give insight into how the external market works so that a strategy is able to be created.

Some category management processes combine this stage with either the one preceding it (Research) or the one immediately afterwards (Strategy). How the process is partitioned up is very much secondary to the importance of ensuring that analysis is undertaken. We believe analysis constitutes a separate stage of category management in its own right because of the need for gateway approval during the process. This is particularly the case for larger, higher-value and more complex categories where senior management support and approval should be given to ensure that sufficient analysis has been undertaken to support the following strategy-creation activities.

Some organisations outsource their analysis activities to third-party consultants. While this is appealing – and often consultants are more capable of creating an insightful analysis than existing in-house resources – there are risks attached to this. In effect, you are placing the seeds of your category strategy into the hands of a third party. It may be expeditious from a resourcing point of view, but there is the potential to lose knowledge and understanding about the category. It does little to engage and educate stakeholders in the dynamics of the market.

Extra explanation and theory

In this section of the handbook we offer six of the most commonly used analytical tools in category management. You would typically find each of these in any professional category management process; in fact, some practitioners believe these models constitute the heart of category management.

As we have already mentioned, the purpose of this stage is to analyse both the internal and external environments of the category and to ‘converge’ this analysis into a single view of the current situation and circumstances. Many theorists refer to this as the ‘strategic position’. In effect we are taking three perspectives of the category (the internal analysis, the analysis of our competitors and the analysis of our supply markets) to form a triage of assessment (see Figure 3.1).

Figure 3.1 Category analysis triage

As with all tools and theoretical constructs, there are advantages and disadvantages with each academic model. Professor Andrew Cox is one of the fiercest advocates of contingent circumstances playing a governing role regarding the appropriateness of any business tool or technique. His argument is essentially one of context, which is why the preceding stage, Research, is so fundamentally important.

The six models that we present in this stage can each provide a somewhat simplistic perspective on the category (although there is nothing simple about supply and value-chain analysis, nor competition analysis for that matter, provided they are conducted with rigour). However, when taken together, the combined effect is far more illuminating.

The best example of this is the comparison of the analyses that come from Kraljic portfolio analysis (Activity 19) and supplier preferencing (Activity 20). On their own they present a somewhat biased view (either the buyer’s or the supplier’s perspective). However, when taken together and cross-referenced, the full dynamic of the analysis of the category can be seen, as illustrated in Figure 3.2.

Figure 3.2

Figure 3.2 Comparative portfolio analysis

This comparative analysis is explored further in Stage 4 (Strategy) – for example in Activities 21 and 22 – when specific strategies start to be identified and assessed.

Thus, there is a smooth transition of category strategy development that started in Stage 2 (Research), passing steadily through Stage 3 (Analysis) until the full set of strategic options are identified and evaluated in Stage 4 (Strategy).

As with each of these stages, it is essential that the same category management team stays with the journey of development and that detailed data records are developed and stored. While the first iteration of research, analysis and strategy may be fairly time-consuming, there is a distinct advantage in reviewing the previous work of category teams when going through the second, third or fourth iteration of category management.

Practical hints and tips

  1. 1 Analysis tools may be used to generate a ‘view’ of the market, including its evolution, current position and likely future changes. Use primary and secondary sources of data to collate your market intelligence. Analyse, filter and verify the information as part of the process.
  2. 2 Use the tools and templates provided in this handbook. This will give you consistency with other category management initiatives and also provide a ‘best-practice’ foundation to your project.
  3. 3 Seek the assistance of relevant stakeholders to interpret and incorporate the intelligence into the category strategy. Identify whether the market profile is neutral, positive or negative for you.
  4. 4 Regularly review and update your analysis tools to ensure the intelligence remains current.
  5. 5 A failure to maintain up-to-date and ongoing intelligence on dynamic supply markets will prevent you from making informed category decisions.
  6. 6 A lack of environmental scanning prevents the ability to adapt category strategies in response to changing supply-market conditions.
  7. 7 Be sure to include stakeholders who will perform the tasks of collating and analysing relevant market data, particularly technical or other subject-matter experts. This will allow them to be involved in your category management initiative and to leverage their experience and specialist knowledge.
  8. 8 There are many techniques for finding out information. Consider using ‘request for information’ enquiries or even a collaborative workshop with one or more key suppliers. Tear-down analysis or reverse-engineering activities may also help.
  9. 9 Store the outputs in your shared project folder and keep them secure.

Summary of activities

There are six key activities outlined within this stage of the category management process:

  1. 1 SWOT – This is a simple analytical tool to establish the internal strengths and weaknesses of the organisational expenditure, together with the external opportunities and threats within the category.
  2. 2 Macroenvironmental analysis (STEEPLE) – This is a macroenvironmental scanning framework to analyse the external influences on the category markets.
  3. 3 Competition analysis – This is a review of the competitive forces that exist both within the market and throughout the supply chain, which give an insight into the profit potential that may exist within any given category market.
  4. 4 Supply and value-chain analysis – This is the process of identifying, mapping and analysing the costs and value that reside within the category’s primary supply chain so that (later) value-extracting strategies can be developed.
  5. 5 Kraljic portfolio analysis – This is a variation on the original portfolio approach towards supply management developed by Dr Peter Kraljic. This fundamental analysis reviews the category from the buyer’s perspective.
  6. 6 Supplier preferencing – This is the counteracting analysis to Kraljic’s review, which takes on board an estimation of the suppliers’ perspectives of the buyer within any category.

What the gateway needs to consider

Similar to the preceding stage (Research), the temptation for category managers to take a shortcut and bypass a methodical and structured approach to market analysis is extremely high. If this happens, there is a risk that any subsequent category strategy is based on unfounded assumptions, which could in turn jeopardise the value of the outputs from the category management initiative. In effect, managers are simply making snap judgements about the category based on their limited understanding of how it works.

This can be difficult to argue with an experienced team, particularly if the people involved have worked in a market for more than five years or so. However, the discipline of working through the analysis with all stakeholders is essential. This needs to be an inclusive exercise, where even the dumbest questions (what if, how about, how does that work? etc.) are encouraged and actively explored.

We recommend that a specific approval point (gateway) is considered at the end of Stage 3 (Analysis), where the emphasis must be on whether the category analysis undertaken is sufficiently robust to commence the development of a category strategy. The inclusion of a ‘go/no-go’ decision helps to control the category team and ensure that sufficient focus is given to robust analysis without jumping ahead to premature conclusions.

The following checklist gives some more practical guidance on what the category manager should be preparing for the Stage 3 gateway.

Figure

Gateway approval checklist

Stage 3: Analysis

1 Has the supply market been reviewed using appropriate market analysis tools? Figure
2 Have the relative structures of power and dependency within the supply market been analysed? Figure
3 Have the external macro- and microenvironments been analysed using appropriate environmental analysis tools? Figure
4 Have all social responsibility, ethical and environmental factors been analysed for the category? Figure
5 Have all relevant stakeholders given input into the category analysis? Figure
6 Is there an appetite and mandate for change internally? Figure
7 Have the risk register and project plan been reviewed and updated? Figure
8 Has the situational analysis (STP) been updated? Figure

Signed: ____________________________

Category Manager

________________________________________

Sponsor

© 2018, Andrea Cordell and Ian Thompson, The Category Management Handbook, Routledge.