Choosing a growth strategy

A growth strategy is a strategy by which an organisation aims to develop and expand its business and improve its profitability. Traditional growth strategies include market penetration, product development, market development and diversification.

Most companies have to grow in order to stay in business; and for this they need a strategy. Even those that do not plan to grow significantly in size still need to make carefully thought-through strategic choices. Change is inevitable and companies have to adapt, whether they wish to stay local or conquer the globe.

A company has big decisions to make as it grows. It needs to create space at the board level to have genuinely strategic discussions. Questions that need to be considered include:

As well as addressing the scale and geography of growth, companies have to make big decisions on the way in which they grow. For example, will it be by building a large central organisation or through strategic partnerships or franchising?

The extent to which a company specialises in its core competence or diversifies is another big decision. Both involve significant risks, but there is considerable research and literature to guide managers.

Companies can be understood as going through stages or cycles of growth and different markets and sectors have their own cycles. There is much more dynamism, instability and change in younger areas like social media than in an established, mature market like automobiles. In the field of social media, a startup can grow to become one of the largest companies in the world in just three or four years; whereas in a business such as aerospace, which involves large capital investments and lengthy product development times, this would not be possible. No sector is static, however; some markets can be relatively stable for decades and then be transformed within a few years through a disruptive technology.

Business schools and consultancies have developed many different models that have helped businesses understand what stage they are at in these cycles. These models can be followed too slavishly. It would be a mistake to assume that your business will follow a textbook model predictably – internal and external events will complicate the picture. A further important complication is that different parts of a business may be at different stages of a certain cycle.

However, it is probably more risky to ignore such cycles or phases of development completely. Many businesses struggle because they fail to adapt their style or depth of management through the growth phases, or as the business becomes larger. For example, entrepreneurs are often not the best people to manage routine business processes, such as finance or procurement, as the company grows. Successful business pioneers such as Richard Branson and Stelios Haji-Ioannou hire teams of professional managers and delegate day-to-day operations to them.

Any start-up that grows and begins to hire more people reaches a stage where no single individual can know every employee and personally manage the business. The firm needs to hire professional specialists and managers, not only for product development, customer service and marketing, but also in the essential support services such as finance and personnel. A company can go out of business if its tax returns are frequently late or employment law is not adhered to, even if the business and services are otherwise excellent. If a business becomes very large, specialist departments become entire divisions. These developments need to be carefully planned. There are choices to be made regarding the levels of integration and centralisation within large international companies, and the extent to which they are committed to working with external partners.

Growth is not necessarily about scale – it might be a matter of a greater emphasis on quality or profit margins, or a commitment to avoid acquisitions or high levels of debt. But these are also strategic decisions that require serious thought and discussion.

This checklist is divided into two sections:

Action checklist: understanding the major growth strategy options

1 Be clear about the type of growth you want

This may not simply be a matter of scale. Growth is not necessarily about becoming large or international, but a company does have to adapt and be dynamic in order to thrive. Growth in at least some dimensions will be necessary. A company may choose to stay local, like an independent store, or be global but niche, like an elite sports-car manufacturer, but this still involves a strategic choice. To be effective, such a strategy typically involves growth in some dimensions other than size – for example, quality, profit margins and prestige. If ambitious growth is planned, major decisions on which geographical regions and product ranges to focus on have to be made.

2 Focus versus diversification

Companies typically have a core specialism at which they truly excel. The discipline of core competence has been much discussed and researched. It suits many companies to concentrate on their main areas of expertise and work with suppliers and partners, rather than attempt to be expert in a wider range, but this approach can include some diversification into closely related areas. Working with specialist partners means that the company can remain more focused and not too bureaucratic or large; however, managing such external relationships still requires considerable attention and expertise in strategic relationship management. And bear in mind that new competitors and disruptive technologies can wreck an established business model in an area of core expertise, so some degree of diversification or adaptation may be unavoidable.

3 Centralisation versus decentralisation

If a company aims to become very large internationally, it has to make a decision about whether it will operate as a single entity or as a network of semi-independent entities. For example, will you seek economies of scale by introducing shared service centres for geographic regions, or will each business have its own back office? Would centralising a function have implications for the company’s brand promise? For example, Pret A Manger, a sandwich chain, has sandwiches prepared locally, because the promise of fresh preparation is more important than economies of scale that might be achieved by centralisation. A related option is franchising, in which the owner of a brand hires individual local companies to operate as franchisees, running businesses following the brand owner’s established operational approach.

4 Take technological developments into account

All companies need to be aware of technological developments in fields such as social media and ‘big data’, which may affect their business as they grow, whether or not the service they offer is technology-related. Business strategy and IT strategy cannot be considered in isolation; they must be looked at together to produce an integrated strategy for the business. Technological considerations are also important in the resourcing of the growth strategy.

5 Understand the cycles of development

Companies use several models to help understand the phases of organisational development. Some have been criticised for being too simple or formulaic, but the hazards are often in the implementation, rather than the design. Any model straightforward enough to be presented on a chart will be a simplification. As long as this is recognised, the model may still be useful. The point is to use it to generate deep discussions within the organisation that will give managers a clearer understanding of the phase that a company is entering and the strategic choices it faces.

Action checklist: selecting a growth strategy

1 Remember that change is inevitable and adaptation is always necessary

While growth in terms of scale is not inevitable, change is. The emergence of an unexpected competitor or a new disruptive technology may affect the core business. A business typically needs to be responsive to actual or potential threats and to constantly reinvent itself.

2 Analyse internal and external dynamics

An honest inquiry into a company’s profile and context is a good first step. A standard SWOT analysis of strengths, weaknesses, opportunities and threats is often helpful. Some management teams go beyond a simple list under each heading and consider how well, for example, a strength matches an opportunity, mapping these out on a grid. A similar tool, more focused on external matters, is PEST or PESTLE analysis, which focuses on the political, economic, social, technological, legal and environmental factors affecting an organisation.

3 Create regular, deep discussions about growth strategy

The board and the senior management team need to set aside time for deep discussions about the major strategic decisions on growth and have these at regular intervals. There needs to be honest feedback on the extent to which strategy is being implemented, and, if there are failures and setbacks, discussion of how initiatives can be renewed or alternative strategies adopted. Continual monitoring is needed.

4 Nurture the established business as well as the innovations

An inappropriate use of the popular Boston matrix (see Growth models below) is to invest too much in ‘stars’ – potential future profit centres – and neglect established ‘cash cows’ or profit centres. Some brands, especially in fashion and food and drink, have long life spans that are measured in centuries, with an appeal to tradition. An example is Jack Daniel’s, a premium whisky company, which has boasted in advertisements that it is not planning any improvements. Such brands may nonetheless require marketing investment. Although the product does not change, there may be a need for innovation and the use of new technology in promotions and customer relationships.

5 Allocate adequate resources for the growth strategy

Resourcing a growth strategy adequately is essential. Going global is not just a question of scaling up. Different countries vary enormously in cultural attitudes, ways of working, education levels, tax and employment law, and so on. Consumer tastes can vary considerably and so can the role of trade unions. Some countries may have skills shortages in disciplines that are needed for your growth strategy. The IT architecture also has to be planned at a strategic level and must be adequate to support a growing business.

6 Pay attention to communication, engagement and teamwork

Successful growth strategies depend at least as much on the how as on the what. Communication, engagement and sense of direction are as important as skill levels and getting the big decisions right. Managers should communicate clearly and frequently to ensure that everyone involved is aware of the strategic objectives and their role in making them happen, and is actively engaged with the process. Employee opinion surveys are useful in picking up indicators of both achievement and problems in this area. In the case of an acquisition, cultural fit is at least as important as strategic fit, and can be particularly challenging when entering a new geographical region.

7 Maintain culture and values as you grow

Many successful companies have clearly defined founding principles – relating, for example to honest conduct, customer service or teamwork. As an organisation grows, these must continue to be at the heart of the way it does business. Make sure that values are clearly articulated and written down, and that induction and training programmes are in place to instil them across the organisation. With a growing start-up, it is especially important to introduce these initiatives as the company becomes too large for the founder to know every employee.

8 Plan for continuity and succession

One challenge for ambitious, growth-oriented businesses is the recruitment and development of professional managers, including the CEO. Firms that intend to stay small or medium-sized, including many family firms or partnerships, have challenging decisions to make on succession: what happens when the founding partners, or siblings, die or retire? Such firms need to make long-term plans, and prepare for contingencies.

Growth models

Boston matrix. A simple 2 × 2 matrix that categorises products or businesses as ‘stars’ (high potential), ‘cash cows’ (mature profitable businesses), ‘dogs’ (small market share in mature market) and ‘question marks’ (uncertainty with regard to viability).

Ansoff matrix. Used to help understand the difference between new products with an existing market, such as brand extensions; new markets with an existing product, such as new geographies; and genuine diversification – a new product and new market.

Greiner’s five stages. First developed in the early 1970s by Larry Greiner, and revised in the late 1990s, this model describes the phases of company growth and development and identifies the managerial challenge at each stage. The five stages are creativity; direction; delegation; coordination; collaboration. Greiner later suggested a sixth stage, relating to extra-organisational relationships.

Churchill’s five phases. First produced in 1983 by Neil Churchill of INSEAD. The five phases are existence; survival; success; take-off; resource-maturity.

Adizes model. A living organism metaphor, developed by Ichak Adizes. This describes the company as going through birth, adolescence, maturity, prime, and so on.

The DIAMOND model. Developed by BDO Stoy Hayward, this stands for dreaming up the idea; initiating the business plan; attacking problems of growth; maturing; overhauling the business; networking; diversifying.

Three Horizons. Developed by McKinsey consultants, the horizons are the business core; a newer line of business activity; experimentation.

As a manager you should avoid:

 

Mergers and acquisitions

The distinction between the terms ‘merger’ and ‘acquisition’ is becoming increasingly blurred in common usage. In many situations they are treated as one and the same, but there are important differences.

An acquisition is where one business acquires another by gaining ownership of its net assets or liabilities. This may be welcomed by the acquired company or it may be heavily contested, resulting in acrimonious and public disputes.

A merger is often an agreed union of one or more organisations. A merger can be the result of a friendly takeover that results in the combining of companies on an equal footing. After a merger, the legal existence of the acquired organisation is terminated. The degree of friendliness in such unions can, however, vary considerably.

In reality, there is no standard template of a merger, as each union is different, depending on what is expected from the merger, and on the negotiations, strategy, stock and assets, human resources and shareholders of the players.

However, three broad types of merger are recognised:

A merger is different from a consolidation, a joint venture, or a partnership.

Mergers and acquisitions (M&A) are an integral part of the business landscape and a valuable tool for business growth. They form part of the strategy of many businesses across a number of sectors – in the online sector, for example, being acquired soon after creation is almost a benchmark of success.

M&A may be undertaken for various reasons:

It should be noted that the M&A process can take a long time to complete, may need the input of many outside specialists and advisers, and may require the lengthy commitment of a high-level internal team. Even with this input, many mergers or acquisitions are not completed or fail to deliver the expected returns.

Managers should understand that the M&A process needs to be focused and strategically driven. There is a need to look for untapped value, but also to give consideration to strategic and cultural fit. There is also a greater recognition of the need to engage with all stakeholders in the process, including the employees, customers and shareholders of all the businesses involved.

M&A framework

It is widely contended that each merger or acquisition is different, but broadly all deals follow a similar pattern or set of steps:

Elements of this framework will be addressed in this checklist.

Action checklist

1 Be aware of where you are and where you want to go

Every organisation should know what it is aiming to achieve, why and how it should do it, and where it is going in the future. Strategic planning addresses a number of basic questions:

You should consider undertaking a SWOT analysis as a way of evaluating your strengths and weaknesses. This allows you to assess internal capabilities and resources that are under organisational control and external factors that are not under organisational control. This knowledge will help you develop your growth strategy and see where the opportunities lie.

2 Review your growth strategy

There are three main routes to growth for businesses: organic growth; joint ventures or partnerships; and mergers and acquisitions. All businesses should be exploring organic growth options as a cost-efficient way of expanding, but many will be looking at all three options. Before initiating a merger or acquisition you should consider whether your organisation has:

Why you are seeking to expand and in what way? Do you want to:

3 Decide whether an acquisition will help you achieve your strategic objectives

Once you have established your strategic objectives you need to consider where M&A fits into this process. Like all other strategic decisions M&A should aim to deliver added value. The adoption of such an approach to growth should be justified on the grounds of cost and relative benefit, and should not be decided on the personal preference of members of the senior management team. There are various tools and models to help you determine the effectiveness of your approach, including the Boston matrix, Ansoff’s product-market matrix and Porter’s five forces.

Is a merger the best way to deliver your aims? Can you deliver these through organic growth of your existing business? Is working in partnership with another organisation a more cost effective approach for your business?

An acquisition may not be the best or easiest approach and you need to be aware of all your options.

4 Appoint a senior project team

Senior managers play a key role in achieving M&A success. A large organisational merger will become the main focus of activity for the board both before and after the closure of the deal. In a merger of a smaller business a project team may be established.

Evaluate the skill set of the team and bring in appropriate external advisers as required. Identify the key roles and allocate responsibilities. Make sure the main areas are covered: intelligence gathering, managing finance, communicating and public relations, negotiating, engaging with stakeholders and integration planning

5 Identify possible targets

Your strategic review should provide the basic data to start the search for targets. Using this information you should be able to create a profile of a target company. Your profile should list all the desired features and possibly give some weighting to each. The list of features will vary depending upon your strategic objectives, but may include:

If you are looking to remain within the same sector, you should already have a strong working knowledge of who else is operating in the industry and what their strengths and weaknesses are. Knowledge of a company or some of its people is the most common way of finding a potential target. More often than not, the main source of target businesses is current competitors, suppliers or distributors. However, be prepared to take a wider view. Reflect upon your strategic objectives and think about whether a business outside your sector may be better placed to meet your needs.

6 Undertake valuations

Determining the value of a target business is a critical element of the merger process. Get the valuation wrong and you either end up paying too much for the business or find that you are unable to realise the expected value from the merger.

A business will have different values to different buyers depending on what they intend to use it for and the return they will obtain from it. This valuation may be different from the value placed on a business when winding up, for example. Buyers and sellers use the economic value of a business to determine the price at which they are prepared to buy or sell it. Business valuations are also used for estate, taxation and a number of other legal purposes. So before a valuation can be undertaken it is necessary to understand the reasons for the valuation – scrap value is generally worth less than going concern value.

If known, a value may take account of the price a willing buyer and a willing seller agree to. This is called the fair market value (FMV). However, the market conditions during this exchange might not have been perfect. Because markets are rarely perfect, a business valuation will usually start with a contextual evaluation of the economic and industry conditions surrounding the business. For example, is it a buoyant market or is it a market in recession? For a more accurate valuation, a business’s financial performance and strength should be compared with that of others in the industry. Competitor valuations should also be considered.

Approaches to an initial business valuation include:

The method used will depend upon the use the buyer has for the business, and each of these approaches will relate to a particular reason for selling or buying. It is common for a business to be valued on several bases and the differences between the resulting valuations explained.

7 Engage with the target’s management teams

In an agreed merger it is advisable for the two sets of managements to get to know each other and to agree common objectives. A good approach is to get both management teams to spend some time together. This enables each team to learn about the other and to understand each other’s position. Good sense and mutual respect will allow fruitful discussions about the way forward. This is not the place for large egos. Entrenched positions established at the start of the process get in the way of stakeholder interests.

Differences will emerge at some point. These may be:

It is important that the management teams come together to work through these issues. The merged organisations will thrive only if there is agreement on strategic direction and how the organisations will develop together. It is possible that the culture of one organisation will dominate, but more commonly the culture of the new organisation is different from that of both the component organisations.

8 Structure the deal and complete due diligence

Due diligence is the term used to cover a variety of activities when researching another business. It should be viewed as an aid to understanding the business being bought, its business model, its market and its prospects.

Due diligence should aim to:

The list of topics which could be covered by due diligence is extensive. Consider the following broad areas as a starter:

If you work for a larger organisation, you may find that you have the appropriate skills internally to complete due diligence. Smaller organisations will need to bring in expertise to complete the process. Investment in this area is cheap in comparison to litigation or the failure of the merger, which could have a serious long-term impact on both organisations.

9 Engage with stakeholders and plan for integration

Uncertainty among staff can have a huge negative impact on both organisations. Equally, the success of any merger will depend on the staff you bring with you into the new organisation. People often associate a merger with job losses and redundancy and so become resistant to any proposals for change. A managed approach to news releases, presenting common ground and agreed timescales, helps alleviate possible anxiety among stakeholders. Engage with people across both organisations. Be prepared to walk the shop floor. Treat people fairly, while recognising that there will be winners and losers.

You need to be prepared to move quickly once a deal has been struck. Develop plans for:

10 Avoid common reasons for deal failure

There has been a great deal of research and comment on why so many mergers and acquisitions fail, and the reasons for failure are wide and varied. Here are just a few of the potential pitfalls:

A merger needs to be recognised as a significant change project, and as a manager you will need a significant amount of energy and resolution to see it through to a successful conclusion.

As a manager you should avoid:

 

Strategic partnering

A strategic partnership or alliance is an agreement between two or more organisations to cooperate in a specific business activity to take joint advantage of market opportunities or to respond to customers more effectively than any of the partners could achieve individually. This involves the sharing of knowledge and expertise between partners as well as the reduction of risk and costs in areas such as relationships with suppliers and the development of new products and technologies. Such agreements may be for defined periods of time, and may be non-exclusive.

Partnering means:

The development of new technologies, the globalisation of markets and the intensity of competition mean that the survival of single businesses is constantly under threat. There is a view that networks of autonomous companies are the way of the future. The development of the internet and associated technologies has facilitated closer collaboration across international borders, and the introduction of business-to-business IT platforms has enabled the sharing of commercially sensitive information between partners and even competitors. Partnering, as a collective term for various forms of inter-firm cooperation, including strategic alliances and collaborative projects, is an increasingly important theme and has become a way of life for many businesses.

Reasons for partnering include:

Obstacles to successful partnering include:

This checklist outlines the three planning phases of partnering: taking the strategic decision; structuring the strategic partnership; selecting the appropriate partner. The principles described apply equally to commercial partnerships, collaborative arrangements in the public sector and public/private-sector partnerships.

Action checklist: taking the strategic decision

1 Think carefully about partnering needs

Few organisations have all the resources or skills to tackle new market opportunities or other initiatives independently and maintain the economies of scale of low cost and high volume for mass distribution. Going it alone can mean high investment, a slower response to changing circumstances and the development of infrastructure that may require dismantling, possibly shortly afterwards. Conversely, partnering may mean sacrificing something unique and hitherto wholly owned. Organisations should also try to understand what they are good at and where they could benefit from external input. For example:

2 Take account of the changing marketplace

Take a good look at your organisation in relation to its sector and market position. Gain an understanding of who is emerging as a market leader and why; which market trends are beginning to dominate; and which way things are likely to develop in the future. The organisation’s stakeholders – customers, employees, shareholders and suppliers – provide an invaluable resource that can be tapped into during the data-gathering exercise.

Carry out a SWOT analysis and look at how you got where you are. Do you need to invest in your technological base, in your processing capacity, or in new markets? Does market stability – or volatility – make that investment affordable or desirable? Consider what other organisations are doing to compete on innovation, service and value for the customer. Consider verifying industry profitability by carrying out an analysis based on Porter’s five forces.

3 Determine where you want to be in the future

This may well mean rethinking the business you are in or adjusting your business focus to concentrate on your core strengths. If you want to express a clear vision for the future, it is important not to be locked into the thinking of the past. The vision should be shared by everyone in the organisation as the agreed driving force that energises the business.

4 Look closely at your organisation’s processes

When considering a strategic partner, you must be fully aware of what it is really like within your own organisation. Try to get a knowledgeable perspective on:

Identify the key processes at which you are, or need to be, best. Identify the skills that you need to develop and improve. Gaining excellence in a core competence is something that requires years of consistent endeavour and application. This requires updating and renewing, but provides probably the greatest bargaining power in negotiating a strategic partnering agreement.

Action checklist: structuring the strategic partnership

1 Decide on the field of cooperation

There are three types of strategic partnership:

In each case, complementary core competencies, strategic business fit and ability to trust the other party are the principal issues that should be considered in the decision-making process.

2 Decide on the level of cooperation

Consider:

3 Decide on the level of involvement

To restrict the agreement to two partners may or may not be satisfactory. You can create a memorandum of understanding that paves the way for future opportunities for collaboration. Strategically, innovation, production or delivery may benefit from establishing relationships with more than one partner, each bringing their own expertise and expanding the richness and potential of the collaboration. In this case the partnership will evolve from a two-way partnership to a dynamic network of contributors. The addition of each new partner, however, increases the risks of something going wrong.

4 Decide on measurement and control issues

All strategic partnerships need some form of control. Make sure you have the governance structure to manage this process. You must determine:

It would be ideal for partners to have similar measurement systems, but this is unlikely to be the case. Contributions to, and outcomes from, the partnership may be difficult to apportion precisely when marketing, quality targets and learning objectives are key contributors to financial goals.

Action checklist: selecting the appropriate partner

1 Identify intra- or extra-industry players for basic fit

This is largely a question of information-gathering and analysis. Having decided on a horizontal, vertical or diagonal approach, search out the leading or emerging players that can add their strength to yours in a win-win situation. Bear in mind such questions as:

Public/private-sector partnerships can sometimes involve multibillion-dollar projects. The selection of partners is critical to avoid budget and time overruns and maximise success.

2 Establish a partnering champion

The partnering champion should be a senior manager who commands respect at all levels, has keen powers of analysis and gets things done. The champion will be responsible for laying the framework for the partnership agreement, spreading the ‘ownership’ of the partnership and making it work in the start-up phase.

3 Examine strategic fit

Broad business focus is much more important than short-term goals, so make sure that the partnership fits with overall planning and will not cause a detour or even a U-turn. A harmonious business focus will lay the foundation for common belief systems, business plans, partnership structures and time scales.

4 Beware of hidden dangers

Cultural incompatibility may lurk beneath the surface of many potentially successful partnerships. Management style, organisational ‘feel’ and the way things really get done in an organisation are not easy to quantify and even more difficult to assimilate. It is inadvisable and, in any case, well-nigh impossible to impose cultural norms from the outside. The potential problem analysis (PPA) method, part of Charles Kepner and Benjamin Tregoe’s approach to problem solving, can be used to identify areas of risk and identify measures to mitigate them.

As a manager you should avoid:

And remember to:

 

Developing new products

In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. It embraces the conception, generation, analysis, development, testing, marketing and commercialisation of new products. This NPD life cycle is also known as a phased or sequential implementation model.

Alternative models of NPD fall into two broad categories:

In the rapidly changing environments characterising most industries today, proficiency in the process of product innovation is necessary for organisational survival. Given that environmental change requires organisational adaptation, new product innovation models can be expected to appear in response to new competitive landscapes.

New products and services are the lifeblood of all businesses. Investing in their development is not an optional extra – it is crucial to business growth and profitability. However, embarking on the development process is risky. Careful planning and organisation are required.

This checklist looks at product innovation models. It sets down the phased steps of the sequential implementation model and juxtaposes this traditional cycle with accelerating time-to-market models or integrated implementation models. In practice some of these stages may overlap, but the presence of a staged process will help keep timing and costs under control.

Action checklist

1 Phased or sequential implementation models

Traditional models of NPD are classified under the heading of stage-gate models. The NPD process is divided into a number of stages, which are themselves composed of a group of predetermined, related and often parallel activities. At each stage, the details of how to perform each task as well as various best practices are specified. To pass on to the next stage, a potential new product has to pass a decision ‘gate’. Each gate forms a set of criteria by which the project is judged. The stage-gates will eliminate all but those projects most likely to succeed. The gates common to phased implementation models usually follow this sequence.

2 Idea generation

Ideas can come from many sources, in many ways and involve different types of people. Sources of ideas may include:

Consider all sources to start with. Research has shown that from a possible seven new ideas aimed at the generation of new products, six will fail during the screening, analysis, R&D and testing phases.

3 Idea screening

Screening involves pitching new ideas against organisational objectives to test whether they are compatible with, support or enhance/fit into your business’s strategic plans. Ideas judged unsuitable can be eliminated at this stage. Criteria to use might include:

Ideas screened out at this stage should not be discarded, however. Market or technology changes may turn them into potential successes in the future or you may be able to license the idea outside the organisation.

Ideas that are clearly innovative and could have significant market potential should be protected by filing a patent application. This may require further work, including the development of prototypes and pilot schemes, but the establishment of ownership is becoming increasingly important in a business environment where knowledge and information are key sources of competitive advantage.

4 Analyse the market

This stage turns an idea into a recognisable product concept and identifies its attributes and market position/potential. It involves testing the concept against possible target markets and customer needs to see whether the idea in development could be improved on. This analysis should indicate possible sales and production costs, thereby giving a better idea of the risks involved and the product’s potential. Customers may also suggest uses for the product that had not been anticipated. It is important that results should be viewed objectively – do not ignore results that seem to contradict your original impressions.

Make sure products and services are matched to market needs. New products and services have to offer benefits that meet your customers’ needs. You need to discover what these are. Market research, using techniques such as surveys and focus groups, will help you do this.

Consider consumer and market trends. For example:

Remember that although the end user of your product or service might be your most important customer, you may have to take the needs of other parties into account.

5 Analyse potential competitors

Once an idea has passed the initial market analysis, the next stage is to identify any potential rivals for the market niche you are targeting, so a competitor analysis will be needed. You must not only meet customer needs but also do so in a way that is better than the alternatives offered by the competition.

Your new product or service needs a unique selling proposition – a feature or characteristic that makes it stand out in the marketplace. Before entering the market you need to determine:

Competitor analysis may also lead to the identification of possible collaborators who may help to accelerate product development or distribution, or improve market impact or penetration. Sources of information include:

6 Embark on the research and development phase

Once a project has cleared the first four stages, the ideas behind it need to be turned into a product that the identified market has helped to define. Design is crucial as it can make or break the product.

A first prototype, pilot service or laboratory samples may be used for testing initial customer reaction, leading to possible changes or improvements.

7 Start production

A pilot is often carried out to test the feasibility of the manufacturing process before scaling up to full production. Ensure the quality of your product. Test every feature separately and then the product as a whole to make sure it conforms to the specifications and performs as it should – for example, a machine is reliable, food products are not harmful, services are deliverable on the scale required. You may choose to use an independent facility for testing, such as a commercial laboratory or research foundation.

8 Test the market and finalise the concept

Test marketing of the product in small-scale tests with consumers can provide information about the potential success of the product and marketing programme, thereby limiting the risk involved. Agree on a marketing strategy so that all the elements in the marketing mix can be tested. This stage can identify improvements to be made in advertising, promotion, distribution and pricing, or it may result in a decision to halt the project. Test marketing can be an expensive exercise so use it wisely. Not all products are test marketed, especially where they involve little risk.

There are three basic test market strategies:

There are various methods for analysis, such as panel data projection models and continuous flow models. It is important to select the most appropriate model for the specific test market analysis and budget.

9 Launch the product

The test-marketing phase will have helped refine the marketing campaign involving the 4 Ps – product and price definition, place (target market) and promotion. The marketing policy should specify the long-term objectives and provide a broad outline of how these are to be achieved. The timing of the launch must be planned carefully and the business environment monitored so that the launch plan can be revised to take account of any changes.

10 Distribute the product

The product must be available where and when customers may want it, but the extent of availability must be balanced against the cost. There are a number of approaches (channels to market) that a company can take, such as distribution direct to the customer or via intermediaries such as agents, wholesalers and retailers.

Distribution channel design will depend on:

Identifying the appropriate channels to market, and understanding their cost and availability and how to work them, are crucial to a successful product launch. The importance of this is often underestimated.

11 Reinvent the product

Demanding customers and increasing competition cause product obsolescence, so what was once an original premium-priced innovation can rapidly become an off-the-shelf commodity. The cycle therefore begins again with product generation.

Various models follow this phased or sequential implementation pattern, the most established of which include the Booz, Allen and Hamilton model and Kotler’s model.

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Figure 6: NPD process model

Whether the activities in the NPD process (see Figure 6) need to be followed in a step-by-step sequence is open to question. In the development of some high-tech products it may be beneficial to undertake the tasks in parallel – for example steps 6 and 7 – to reduce risk on the one hand and time to market on the other. The creative nature of NPD may also undermine the validity of the sequential approach.

Stages 5–8 may overlap, but critically it is these stages that may have slowed down the NPD life cycle and led to the emergence of other, faster models described below.

12 Measure and monitor the success of NPD initiatives

As with any process, it is important to continually monitor the performance of NPD procedures and systems. This provides evidence on how well the system is functioning and enables you to consider if and where improvements can be made.

Time to market is a measure that can be broken down into the various gated stages. It can also be helpful to keep track of the number of ideas entering and exiting each stage; remember, however, that not all ideas will be carried through to completion. A more strategic measure is the percentage of revenue earned from new products developed over, say, the past two years, compared with total revenue. For high-performing, innovative companies this can be as much as 100%.

It is also interesting to track expenditure on NPD compared with total expenditure. Bear in mind that costs will grow as a project progresses through the various stages and that the potential for flexibility in concept or design is highest in the early stages of the process.

Other NPD models

Accelerating time to market

In commerce, time to market (TTM) is the length of time it takes from a product being conceived to its being available for sale. TTM is important in industries where products quickly become outmoded. A common assumption is that TTM matters most for first-of-a kind products, but actually the leader often has the luxury of time, while the clock is clearly running for the followers.

TTM generation dates back to the mid-1980s; its primary focus is developing individual products faster. These models provide an overall timescale for NPD that incorporates both development time and time to launch. There are eight ‘time’ elements so that opportunities for maximum efficiency and improvement can be identified. These comprise the time needed to:

Many people assume that TTM is improved (shortened) by skipping steps of the development process, thus compromising quality. Those who use highly structured development processes, such as stage-gate or Six Sigma, view NPD as a sequence of steps to be followed. Skipping a step, because of time pressure, for example, not only undercuts quality but also can lengthen development time if steps need to be completed or repeated later. According to this view, TTM is improved by following all the prescribed steps.

Product and cycle-time excellence

The product and cycle-time excellence model (PACE) incorporates elements of all three categories: sequential, time to market and integration.

This version of a stage-gate model was developed by Theodore Pittiglio, Robert Rabin, Robert Todd and Michael McGrath in 1992. Elements include the phase review process; core teams; structured development; process, product strategy; technology management; design techniques and development tools; cross-project management. The first three elements represent the tools that are required for each product development project; the last four are process support elements. The advantages of PACE include:

Integrated implementation

Integrated models are often based on traditional phased development models but have been modified to suit individual organisations and to speed up the development process. Practices that slow down product development, such as mandatory phase reviews, are often abandoned.

Integrative models reinforce the shift from structure to processes. Many modern organisations do not operate on a process basis; rather, they are functional and hierarchical and suffer from isolated departments, poor coordination and limited lateral communication. The shift is also from functions to knowledge. Instead of thinking in terms of distinct departments that come together to take an idea from inception to launch, the rationale of integrative models is to think in terms of the pool of knowledge required to deliver a product.

Design for manufacturability and assembly

Design for manufacturability and assembly (DFMA) is a cross-functional team approach to NPD. Representatives from each function involved in the product development and launch process are included in a development team from the product’s inception.

The product development process is divided into six stages with overlap and parallel processing built into the model:

The contribution of manufacturing and assembly personnel from the beginning of the project allows the early identification of time, labour and materials saving measures and avoids delays caused by inadequate process design. DFMA also provides a number of design guidelines that can simplify product manufacture and decrease the time and costs involved.

Multi-function project management

The multi-function project management model was developed to enable shorter time-to-market and market-driven research and development. It identifies four project phases to be conducted in parallel, with considerable overlap between phases three and four:

Five competence areas required in the development of new products are also identified:

The five competence areas are represented in a multifunctional team from the beginning of the project and work is undertaken in each competence area simultaneously. Decision points are inserted at certain phases in the development process to check whether the project should be continued and whether it should progress to the next step.

Framework for innovation and flexibility in high-technology firms

Five basic tier groups are involved in this model:

These five tiers are involved in four cooperative triads, each of which represents a different phase in the evolution of the product, and during which three of the five are directly involved with each other:

As a manager you should avoid:

 

Deciding whether to outsource

Outsourcing is generally understood to mean the retention of responsibility for services by an organisation that has devolved the day-to-day delivery of those services to an external organisation, usually under a contract with agreed performance standards, costs and conditions.

In this checklist the organisation considering outsourcing some or part of its functions will be called the organisation, and the external organisation that is taking them on will be called the agency.

Outsourcing has evolved into a strategic option for businesses of all sizes. Often seen as a threat by employees and an opportunity by organisations, outsourcing has become standard practice in many businesses. Its focus has moved from the shifting of processes to locally based third-party agencies towards more global offshoring and outsourcing of entire functional areas, such as human resources.

On the surface, the benefits of outsourcing seem both straightforward and considerable. As well as cost savings, there are many other elements that lead managers to consider outsourcing, such as the need for flexibility both to deal with rises and falls in product demand and to improve ways of delivering products or services. Experience shows, however, that outsourcing has pitfalls, dangers and costs, and needs to be carefully managed to retain a strong degree of control over outsourced services.

This checklist is intended to assist those making decisions on whether, what and how to outsource. It encompasses stages in the outsourcing process leading up to drawing up and testing a contract. The key areas to address are highlighted, but further legal advice should be sought for all contractual and employment law issues.

Action checklist

1 Establish the outsourcing project team

Treat the outsourcing proposal as a project. Apply the principles of project management, especially in selecting a project leader and team and setting up terms of reference, method of working and an action plan.

2 Analyse your current position

Ideally, you should have carried out a radical review of your organisation’s processes. You do not want to outsource an activity that might be better integrated with another you regard as ‘core’. You must have a clear vision of where the business is heading and have assessed:

3 Pay attention to people

As soon as it becomes known that outsourcing is under consideration, people will suffer from anxiety and uncertainty. At best their working life will transfer from one employer to another; at worst their job could be lost. Keep people at the forefront of your thinking.

4 Benchmark

Someone, somewhere is probably doing the same thing in a better way, or in the same way at lower cost. Identify appropriate organisations to benchmark against and establish which activities they are outsourcing.

5 Come to a decision

Decide which are your core areas. The principal questions are:

Then decide whether outsourcing should become a policy for organisation-wide application to non-core areas, should be used as the need arises, or should not be used at all.

6 Decide what to outsource

Logically, what you could outsource follows on from the decision process. If you focus on the core competencies of your organisation and on your uniqueness, targets for outsourcing become those areas that make up the support, administration, routine and internal servicing of the organisation.

Areas that have traditionally been candidates for outsourcing include legal services, transport, catering, printing, advertising, accounting and, especially, internal auditing and security. More recently these have been joined by data processing, IT, information processing, public relations, buildings management and training.

Staff are often transferred along with their function to the agency providing the outsourcing services. Obviously, this is an area that requires great consideration and sensitivity. It may also involve legal considerations. For example, in the UK, the Transfer of Undertaking (Protection of Employment) Regulations (TUPE) protect the terms and conditions of employees when business is transferred from one organisation to another.

7 Tender the package

The tender is both an objective document detailing the services, activities and targets required and a selling document that serves to attract potential suppliers. Outsourcing should not be seen as just a matter of getting rid of problem areas, as outsourcing these is unlikely to resolve them.

Once an attractive package has been defined, send an outline specification and request for information to those agencies likely to be interested. The outline specification should contain the broad intention of the outsourcing proposal and timescales the organisation has in mind. The request for information is a questionnaire-type eligibility test to establish the level of an agency’s competence and interest. The next stage is sending an invitation to tender – a precise document spelling out what agencies should bid for.

8 Choose a partner

The tender process should be used for the evaluation of facts, but choosing an outsourcing partner is much more than choosing a new supplier, because the process involves a customised service, agreement on service levels and a contract. At this stage an organisation will be looking for an agency with which it can share objectives and values, have regular senior management meetings and disclose otherwise confidential information. Harmony of management styles is central to success. The organisation will also look for:

9 Meet the staff

If staff are to be transferred to the agency, it is essential that they are given the opportunity to meet their prospective new employer before any contracts are signed. Allowing concerns to be aired and questions to be asked may help to reduce feelings of being dumped or cast aside. However, glaring conflicts in style and personality may emerge which can have an important impact at the contractual stage. Many other issues involving terms and conditions of employment will need addressing, including those of appropriate compensation if agency employment is not available or required.

10 Draw up the contract

If the project team is to draw up the contract, it will need to have a strong legal input, relating to any legislation such as the UK TUPE Regulations 1981 as amended in 2006. As a guide, the contract should cover:

Legal advice should be sought for all contractual and employment law issues.

11 Test the contract

Make sure that the contract will stand up to the rigours and complexities of the operation in action. A period of testing and trial is ideal for making adjustments before the contract becomes final and to examine the possibility and consequences of the partnership breaking down.

As a manager you should avoid:

And remember:

 

Using consultants

The following definition is taken from the management consultancy competence framework developed by the Institute of Business Consulting, now the Institute of Consulting:

Management consulting involves individuals, whether self-employed or employed, using their knowledge and experience, and their analytical and problem-solving skills, to add value into a wide variety of organisations within a framework of appropriate and relevant professional standards, disciplines and ethics.

This checklist is intended for prospective users of consultants and suggests some of the questions they should ask themselves before commissioning an assignment, as well as advice on getting the most from a consultancy relationship. Buying in and using management consultancy can be a valuable investment providing you:

There are many advantages in using consultants, including their expertise. As they are immersed in their specialism, they are well-placed to advise on the state of the art in your industry. It may be impractical for an organisation to tap such expertise in any other way. Other advantages are:

Action checklist

1 Clarify the need to buy in external expertise

Do you really need a management consultant? Check that the knowledge and expertise required is not already available within the organisation. Consider also that if ongoing expertise is needed, it may be more cost-effective to employ someone with the necessary experience. If you are looking at a short-term project or you need the objective perspective of an outsider, a consultancy assignment may offer the best way forward.

2 Involve the senior management from the beginning

Gain the approval of senior managers for the decision to use consultants and keep them informed during the selection process. This will help ensure that your choice of consultant will be accepted at the top level.

3 Understand organisational procurement policy and practice in respect of hiring consultants

Large organisations often require procurement departments to manage the hiring process. In the UK, public-sector organisations may have rigorous controls in place, require contracts to be put out to tender, or need to follow the guidance of the Office of Government Commerce. Bear in mind, however, that buying commodities (such as stationery and computers) is very different from buying services and intellectual property. Be aware of the risks of bureaucratising and depersonalising the selection process. Question assumptions made by procurers and procedures that concentrate on lowest price and that automatically employ formal invitations to tender, even when the value of the contract is small.

4 Ensure impartiality

Make sure that that any person with an interest declares this and is not part of the appointing committee or group.

5 Prepare a shortlist of possible consultants

There are various directories and registers available for identifying consultants. Some consultancies offer a wide range of services; others specialise in particular industries, in certain areas of business activity or in organisations. Recommendation is also commonly used. Ask those you work with to suggest people they trust. Make sure you request references from previous clients to establish a consultant’s track record and follow them up.

6 Ask for written proposals from consultants on your shortlist

This will enable you to establish the extent to which the consultant can help you, the likely benefits and the duration of the assignment. It should also give you an insight into the consultant’s approach to the problem.

7 Generate a genuine dialogue

Aim for a dialogue in a partnership sense rather than having a sharp division of labour. Rather than present consultants with a tightly defined problem, it may be helpful to engage them at the problem definition stage. They may have useful insights and strategic abilities to offer.

8 Understand the commercial imperative in consultants’ minds

To win a contract, a consultant may appear to agree with your diagnosis, but may not actually do so. Once engaged, a consultant may hope to redefine the assignment – either to fit their analysis of the issue or to enable them to do what they are best at doing. Be aware, too, that once the assignment starts the work may be left to junior consultancy staff or personnel may change during the project. You may wish to stipulate that you should approve any changes of personnel. Most consultants have a follow-on contract in mind and this can colour their advice – they may tell you what you want to hear and not what you need to hear.

9 Study the consultancy proposals submitted

These should include:

10 Finalise the agreement

Check the terms and conditions of the agreement carefully to make sure that they are clear and unambiguous and that you are happy with the provisions, especially if you do not have a standard contract for consultancy assignments. You may wish to refer to the standard terms and conditions for consultancy contracts available from the Institute of Consulting.

11 Take care if you need to employ more than one consultant

Sometimes a job will require more than one consultant, for example if specialist knowledge that the main (or ‘lead’) consultant cannot supply is needed. Make sure that any such relationship is clearly defined, and in particular that it is clear who is employing, managing, instructing and evaluating the secondary consultant. The lead consultancy may not have the skills to evaluate or monitor the specialist, in which case it may fall to you as the client, but this does not mean that you must assume all responsibility for the subcontractor. You may need to accept an additional overhead to make sure that specialist elements of the project are properly completed; build this into your evaluation system for the overall project. Make sure that the contract sets out clearly where these responsibilities lie. This will probably be a statement that the lead contractor is liable for any problems with subcontractors and their work.

12 Explain to all concerned why a consultant is being employed

Brief staff on why a consultant has been appointed; when the consultant will arrive; and the cooperation that is expected. Consider appointing someone as the main contact with the consultant, for example to help them with unfamiliar routines, geography and so on.

13 Ask for regular reports and meetings on the progress of the assignment

It is important to monitor progress and measure it against agreed objectives and programmes of work. You may wish to ask for regular reports or exception reports, and to schedule meetings regularly at key points during the consultation period: start-up, midway and project end, for example. If any problems arise, a face-to-face meeting can help to resolve them quickly and amicably.

14 Have a debriefing session before the end of the assignment

Make sure that the consultant summarises the findings and conclusions of the project either in a report or in a presentation. Make sure that there are no misunderstandings or errors and that you have received what you asked for.

15 Assess the consultant’s effectiveness

When implementing change, either during or after consultancy, check that recommendations and outcomes are properly applied and that they are not being undermined by a return to ‘business as usual’. Discuss any particular difficulties that arise during implementation with those concerned. Regularly examine the results being achieved and consider follow-up visits from the consultant at appropriate intervals after completion of the project.

As a manager you should avoid: