Industrial Research and Strategy

U.S. Industrial Manufacturing finishes strong in 2011 and outlook for 2012 is good

2012-01-03T13:32:00.000-05:00

From the Wall Street Journal:

The U.S. manufacturing sector continued to expand in December, according to data released Tuesday by the Institute for Supply Management.

Separately, spending on construction projects in the U.S. climbed during November more than expected as builders try to make progress amid a sluggish economy.

The ISM's manufacturing purchasing managers index rose to 53.9 last month from 52.7 in November. A reading above 50 indicates expanding activity.

Economists surveyed by Dow Jones Newswires had expected the December PMI to increase to 53.5.

"Manufacturing is finishing out the year on a positive note," the ISM report said, "with an optimistic view toward 2012."

Merry Christmas and Happy New Year

2012-01-03T13:28:00.001-05:00

May 2012 be a profitable growth year for you.

The Yin and Yang of Strategy

2011-11-15T19:15:00.000-05:00

As strategist, we can't help but emphasize the formulation and development process. In doing so, we rely on historical evaluation and forward-looking market analysis. Strategic principles and planning are the building blocks of strategy by the professional practitioner. But, we too often give only footnote credence to the importance of experience and how it feeds into a dynamic strategy. Years of working with and studying aggressive Asian companies, as well more recent adventures with domestic U.S. clients competing in dynamic and tumultuous markets, has given me new-found appreciation for the importance of experience - and yes even market trial and error- into solid strategy development. If planning and formulation are the Yin; experience and learning by doing are the Yang of strategy. We will be delving more into how corporations can incorporate this balance into strategy formulation.

Full Speed Ahead...or not

2011-11-04T13:38:00.000-04:00

It is been my painful experience that the Korean corporate vehicle for strategic decision-making has 2-gears: Full Throttle Forward and High Speed Reverse. Steering wheels are optional.

To Wall Street Urchins

2011-10-28T09:20:00.000-04:00

We are hiring. Burn off your tattoos, cut off your piercings, get a haircut and send a resume.

One Reason Strategy is Important

2011-06-10T07:00:00.001-04:00

To make good decisions -did you know most corporations divest more new acquisitions than they keep? That's expensive bad decision-making with a long-term drag on corporate growth and profitability. Knowing what business you are in - your strategic center of gravity - allows you to not only abbreviate your decision-making; but to improve it.

Let the good times slow

2011-05-06T06:12:00.005-04:00

from Industrial Info...

The United States Industrial Manufacturing Industry entered 2011 on a high note. Spending was improving after two years of light investment caused by the economic downturn. The outlook for the industry was looking better month after month. However, as 2011 has progressed, various external issues have complicated spending in the industry, and overall spending has been gradually slowing down. Heading into the third quarter of the year, spending is continuing to slow, and while total spending for the year is better than a year ago, some of the momentum has been lost.

www.geostrategypartners.com

Are you creative? Business needs you; but doesn't want you

2011-02-16T19:03:00.001-05:00

In a recent survey of 1,500 CEOs by IBM's Institute for Business Value, creativity was named the single most important attribute for success in leading a large corporation in the future.
However, in a recent paper,
"Recognizing Creative Leadership: Can Creative Idea Expression Negatively Relate to Perceptions of Leadership Potential?
Those individuals who expressed more creative ideas were viewed as having less, not more, leadership potential.

Sounds like a left-brain; right-brain thing to me.

A Tale of Two Economies

2011-02-08T08:32:00.001-05:00

It is the best of times and it is .... at least better than it's been....

Interesting article published by Euromonitor indicates a slight tempering in 2011 of the strong recovery we've been experiencing in recent months. However, global GDP is still expected to grow by 4.4% in 2011. More significantly, global growth will be running on two tracks and in two gears. Developed countries growing slowly or contracting and developing countries growing robustly; presents some interesting challenges for developing a global strategy.

Diverging prospects and challenges characterise the outlook

By Media Eghbal, Countries & Consumers Editor at Euromonitor International

World economic growth is set to slow in 2011 as the rebound from the global financial crisis moderates and many governments withdraw unprecedented stimulus measures, but the recovery has been better than expected. Global real GDP growth will be 4.4% in 2011 after 5.0% growth in 2010. Economic growth will slow for both developed and developing economies but the latter will continue to post much higher rates overall in 2011 at 6.5% compared to 2.5% for advanced economies.

The world economy faces challenges in 2011. The biggest challenge will be for advanced economies to implement austerity measures without damaging economic growth. Many eurozone members in particular have undertaken fiscal tightening in order to avoid further sovereign risk, but austerity will weigh on consumer and business confidence. High unemployment remains another problem for developed economies while world commodity prices will face upward pressures.

Even the better performing emerging markets face the challenges of reduced export demand from advanced economies, the risk of overheating, and the need to rebalance economic growth. Diverging global prospects in 2011 will be reflected in consumer spending potential. Euromonitor International forecasts that real per capita consumer spending in China, for example, will grow by 9.1% in 2011 compared to a contraction of 4.5% in Greece. Inflation is also squeezing disposable incomes in some countries including China, India, Brazil and the UK.

How to Value a Private Company - Merger and Acquisition Series

2011-01-30T08:48:00.002-05:00

How to Value a Private Company

Merger & Acquisition Series

Valuing a private company is an important and often elusiveprocess. Because there is no exchange todetermine market value, each transaction must be evaluated on its ownmerit. Ultimately, the value is what aseller is willing to accept and a buyer is willing to pay. No matter which side of the transaction youare own, however, it helps to take a methodically approach. At Geo Strategy Partners we use the followingfive methods:

1. Discounted Cash Flow Method (DCF) or the PresentValue of Future Earnings.

2. Market Value or the price paid for transactionsinvolving similar companies.

3. Book Value or the Net of Assets and Liabilities(typically plant and equipment items are adjusted from depreciated toreplacement value).

4. Strategic Value or the specific value to abuyers’ overall business. This method requires a bit of research and analysisand must be custom developed for each potential buyer and seller in a potentialtransaction.

5. Competitive Process. This method applies to thesell side and usually requires an M&A intermediary (investment banker,broker, or business consultant) to create a competitive bidding process among anumber of suitors.

In this posting, I will address the most common - and probablythe most reliable – Discounted Cash Flow.

· DCF (Discounted Cash Flow)= the present value offuture earnings.

o Ibelieve this is the most accurate; but how good it is depends on the accuracyof the assumptions underlying the forecast

o Themost important assumptions support the projection of an income statement;typically for five years into the future.

o Revenue,COGS (Cost of Goods Sold), G&A (General & Administrative or Overhead),and EBITDA (Earnings Before Interests, Taxes, Depreciation, and Amortization)must all be projected. Other methods arebased on free cash flow which is a little more complicated since you must takeinto consideration taxes and similar cash expenses.

o Projectingthe trend line of historic income statements is the place to start if you havea three to five year history of relatively stable performance. The assumption is simply that business willcontinue to grow in the future at the same CAGR as the past.

o Thenext component to factor in is the firm (booked) backlog of business. Revenue under contract obviouslysubstantiates a projected trend line and, if robust, can justify increasing thesteepness of the top line revenue curve.

o Thesales pipeline should be considered next. This is best projected utilizing a weighted average of outstandingproposals, business development underway, prospects, and leads. Each component should be weighted based onthe likelihood of it being becoming real business. For example outstanding proposals might havea 50% likelihood of becoming booked business and would be weighted as such;business development activities underway should represent a fairly large amountof potential revenue but perhaps experience shows that about 25% will becomereal business. In this case the totalpotential business you are actively pursuing would be given a weight of 25% ofthe total value. Prospects and leadsmight be weighted as low as 5 or 10%.

o Asalways, the more the assumptions underlying these projections are documentedand supported, the more reliable they are assumed to be.

o Newbusiness opportunities can also be included. These could represent new markets to be pursued or new products plannedfor introduction. If there is workunderway to realize these opportunities or solid research to support how theymight come about, it is perfectly legitimate to factor them in under a weightedformula.

o COGSand other expenses must be factored based on what will be required to realizethe projected revenue. If additionalcapital expenditures are required, this factor will have to be accounted for inthe overall evaluation but should not be included in the forecast itself exceptas a footnote.

o Next,you need to adjust this pro forma income statement for factors that will changeafter a transaction. This is known asrecasting earnings.

o Forexample, if the owner of a company is the CEO and will not stay on after theacquisition, his salary, benefits, and related costs can be added back in. An accounting system or even an entireaccounting department can sometimes be eliminated because it becomesredundant. These costs can also be addedback. On the other side of the ledger, thereare sometimes new expenses that must be incurred as a result of a merger oracquisition, and these should be subtracted from the forecast.

o Onceyou have a well-documented and recast proforma income statement, you have the basis for a DCF analysis.

o EBITDAor net profit before interest, taxes, depreciation, or amortization then becomesthe basis for the DCF analysis.

o Thefive year earnings should be discounted back to their present value using thebasic formula for present value which is as follows (Excel has a function thatwill do this for you):

o Inthis formula, CF is EBITDA, the numeral is the year (i.e. year one projection;year two projection, etc.); R represents the discount rate.

o Determiningthe discount rate, is a critical, and often disputed, key variable in a DCFvaluation. It represents the time valueof money and is usually derived by first determining a risk free rate of returnthat could easily be earned on a cash investment. A common place to start iswith a LIBOR rate or a 5 or 10 year U.S. Treasury Bond. The expected return on any instrument that isconsidered virtually risk free, can be utilized but should be referenced in theanalysis. Next, we must adjust forinflation. A reliable economic forecastshould be referenced in determining a projected average annual inflation ratefor the period of the forecast.

o Next,we get to the most subjective component of the discount rate – the “RiskPremium.” Because investing in a privatecompany is inherently more risky that the “risk free” investment alternatives,we must factor in a premium to discount the value of future earnings to thepresent day. Philosophically, it issimilar to the weighted average that we apply to backlogs and salespipeline. But it is actually more of afactor that considers the likelihood that the company will not be able toachieve the expected performance or meet the numbers projected in the pro forma. One risk factor is changing economic andmarket conditions. Others relate to thecompany itself and how stable it is perceived to be. It is the most subjective component of thediscount rate and subject to dispute between buyer and seller.

o Anexample of how a discount rate might be derived is as follows:

*companystability, exchange rate risk, industry and market risk, economic uncertainty,risk that intellectual property can become obsolete, stability of companiescustomers, threat of competition, etc.

o Oncethis formula is computed we have the Present Value of Future Earnings or avalue for the company. But we are notdone.

o Assumingour projection is for a five year period, what about year six and beyond? We also need to consider the value of theearnings that continue to accrue to the buyer beyond the forecast period. We account for this by determining a“Residual Value.”

o Aresidual value or “salvage value” represents the what the company is projectedto be worth in year six, considering all the earnings that are expected in yearsix and every year after that for perpetuity. Obviously, the further out the earnings are received, the less theirpresent value until at some point they become negligible. There is actually a mathematical formula forthis, but we must also consider that no business can be expected to continueforever in its present configuration. So, how to we determine the value of the company in year six?

o Herewe have some risk of circular logic and sometimes the perception that we arecounting the value of a company twice; however, we need to account for thevalue of earnings beyond the projected period. There are two simple ways to do this: Projected Book Value (explained in a later blog) or projected marketvalue (also explained in a later blog). A short cut to market value is often a multiple of forecast earnings inthe last year of the projection. A conservativemultiple that is often used is 5 times EBITDA. Since we are talking about earnings that might occur 5 years in thefuture, we should be conservative. So ifour forecast projects EBITDA in year Five to be $1,000,000, the Residual Valuein year six is $5,000,000 or 5 x EBITDA. This calculation is sometimes referred to as a “Hypothetical Sale.”

o Butthis Hypothetical Sale value in year six must also be brought back to presentvalue using the same discount rate.

o Nowwe add the present value of earnings for the forecast period plus the presentvalue of residual value and we have a value for the company using theDiscounted Cash Flow method.

o Butwe may still need to adjust for other factors such as excess inventory, orfixed assets that might have a useful life beyond the forecast period. However, by including a residual value in ourcalculations, we have usually accounted for these factors since we areprojecting numbers so far into the future, it is unlikely that the effect ofsuch items will still be relevant.

The Discounted Cash Flow method is considered reliablebecause the true value of a business is the profits it can make for theshareholders. The formula itself issolid math. The devil, however, lies inthe details of the assumptions.

Mark Towery

Managing Director

Geo Strategy Partners

The Leading Business to Business and Industrial Market Research and Strategy Firm.

Industrial Maintenance Activity Picking UP

2011-01-20T20:19:00.001-05:00

According to a recent report by Industrial Info, US manufacturers are returning to pre-recession levels of maintenance and repair activities. This is good news for many industrial suppliers.

http://www.industrialinfo.com/showAbstract.jsp?newsitemID=172248

www.geostrategypartners.com

Is Your Market Insights Partner Geared for B2B/Industrial?

2011-01-18T08:14:00.004-05:00

We had a rare weather event in Atlanta last week. Six inches of snow followed by freezing rainthat left another inch veneer of ice. Schools were closed all week. Peoplewere stranded in cars on the interstate; sliding into light poles… and eachother. I simply got in my Land Rover,put in 4WD Hi Lock and drove to work and all over town. I was able to do this because my vehicle isdesigned and geared for all terrain navigation.

My wife drives a sleek, black sedan. Its rear wheel drive handles great on drypavement, and you only have to think about accelerating and before you know ita friendly officer has his boot on your bumper and is writing down your licenseplate. My wife’s car couldn’t get out ofour icy driveway for three days. It’s designed and geared for a smooth ride andrapid acceleration. I’ll never win adrag race with my Land Rover, but it’s great for pulling a boat or getting youto a duck blind.

What does this little analogy have to do with MarketResearch and Strategy? We’ve recentlybeen interviewing to add depth to our market research staff. The market research professionals we have interviewedhave been very qualified, but their experience is mostly limited to consumermarkets. They are used to runningmultiple surveys on thousands of respondents and crunching the data withroutine analytical techniques. When wedemonstrate the depth and breadth of research and analysis we perform onb2b/industrial markets, and the time we take to understand technical applicationsof industrial products and services, they are overwhelmed.

The reality is that over 90% of market research firms doover 90% of their work in consumer markets. That’s what they are geared for. Frankly, they would run circles around us conducting cola taste testsor determining what kind of toothpaste dispenser consumers might prefer. We have the capabilities to do most consumer research,but we are not geared for it and would likely not be very efficient oreconomical at doing it. At the sametime, most of these firms do not have consultants on staff with industrialmanufacturing backgrounds or strategy formulation experience. They simply run in a different gear.

B2B/Industrial market analysis is different in many ways fromconsumer and I have talked about some of these distinctions previously in thisblog. But one important characteristicis the need to have experienced personnel that know how to access difficult toreach decision makers like a material engineer with influence over choosing aspecific type of composite material buried deep inside a Fortune 500manufacturer; or to determine the myriad of decision-makers over effluent watertreatment; or to be able to determine the best market positioning for aparticular type of pressure vessel manufacturer. B2B/Industrial consultants need to be able tocombine research, analysis, and strategy formulation. They don’t often know much about toothpaste,but they know the difference between a butterfly valve and a gate valve. They can run multi-variant analysis as well as a consumer research professional, but they also know how to convert insights into strategy.

My wife used to think my Land Rover was ugly. She often complained when she had to step uptwo feet into the cab while wearing a dress. But she didn’t complain last week when I drove her to work. Industrial firms know that matching the rightmaterial, product, equipment or solution to the right application is the key tosales and marketing success. Whenchoosing a market research and strategy partner, the same philosophy shouldapply. You wouldn’t use a bushing when aspherical roller bearing is called for. Don’t select a consumer firm to analyze industrial markets unless youare concerned about how white your teeth are.

Mark Towery

Managing Director

Geo Strategy Partners

The Leading B2B/Industrial Market Research and Strategy Firm

Everything you already knew about strategy but were afraid to implement

2011-01-11T13:59:00.007-05:00

Simplifying Strategy.

The airport bookstore is filled with books telling you howto achieve success in business. The oneconclusion they all seem to support is that writing a book on business successis one way to do it. It seems if youfind a different way to look at some aspect of strategy, give it a clever name,and have a well-designed book cover, you will have an instant following. Everyone, it seems, is looking for the nextbig thing to achieve a competitive advantage. The reality is, in my opinion, it is a lot easier to write about strategy than to formulate and implement it.

Sometimes I think some of the travelers pulling out their credit cards in the airport bookstore would be better off giving theirmoney to a television preacher with big hair. Or that Guthy Renker ape of a guy with big teeth. Not that most of these books don’t impart apiece of wisdom or offer an effective tool or two. But for my money, no one has published a meaningful contribution to strategic thinkingsince Michael Porter. The reality is that there is no magic elixir. Strategy doesn’t have to be complicated, butformulating and sticking to a strategy can be hard work.

In simple terms, strategy should be about focusing allresources and aligning all activities to achieve a competitive advantage. Unfortunately, firms typically make thefollowing mistakes:

· They confuse operational efficiency andperformance improvement with strategy;
· They confuse data analysis and planning withstrategy formulation;
· They emulate their competitors instead of tryingto outwit them in the marketplace (i.e. benchmarking);
· They follow initial success with exuberant expansion– usually including acquisitions – and in doing so, sometimes diffuse and weaken the core strategy;
· They mistake capabilities for core competencies;
· They either leave strategic planning in theboard room or they ignore it and focus on implementation; few companies canmarry strategy formulation and competitive experience correctly.

So what’s the magic elixir?

Strategy formulation is a unique undertaking for every companyand every situation. But in the end, it should meet the following tests:

· It should result in a way of going to market thatis distinctly different from competitors;
· It should be centered around a core valueproposition that permeates every product and service offering;
· All resources and activities of the organizationshould be employed with the purpose of reinforcing the strategy and thereby enhancing thecompetitive advantage;
· It should be grounded in market and competitiveanalysis that ensures a sustainable demand for the core offering;
· It shouldbe reflected in a business model that links the value created by the corestrategy to the value captured in the market place;
· It should bea flexible, living instrument, refined continuouslybased market experience; but have a constant core that serves as the centerof gravity;
· It should set the boundaries for what you do andDON”T DO and be followed with discipline.

Hey that’s seven. Maybe there’s a book title in there somewhere. How about “the seventhings you already knew about strategy but didn’t have the conviction tofollow?”

Mark Towery
Managing Director
Geo Strategy Partners
The Leading Business-to-Business/Industrial Market Research and Strategy Firm

Future Power

2011-01-06T08:05:00.000-05:00

It is often said that the stone age didn't end because we ran out of stones.

Take a look at these near term energy solutions.

http://content.kiplinger.com/tools/slideshows/slideshow_pop.html?nm=innovations

Mark Towery
Geo Strategy Partners
The leading industrial market research and strategy firm

Merry Christmas and Happy New Year

2010-12-17T07:43:00.001-05:00

May 2011 bring you growth and profitability.

Unfocused Focus Groups

2010-11-15T08:12:00.003-05:00

Focus groups are expensive, time consuming, and often raise more questions than answers. However, that's a big part of their purpose - not to answer questions but rather to raise and explore dimensions of the issues that need to be further measured. So, in spite of the cost and time involved, they are sometimes necessary.

Still, they represent an inexact science at best. Add that to the fact that the moderator and client are almost always focused on learning one particular thing, and the risk increases for biasing the discussion and channeling it into groupthink. Maybe more significant is the fact that a singular focus on the research objectives means all the other insights the group has to share are left behind. That's necessary when you need to explore a certain issue, but what about the rest of it? Are you leaving great customer insights on the table? Probably.

Since talking to your customers face to face can almost never be a bad thing, why not schedule some "unfocused focus groups" a couple of times a year. With no specific research objective in mind, allow your moderator to let the conversation among customers develop and determine what's important to them; what's top of mind; and what they like and don't like about your products and services. The interesting thing about focus groups is you never know what's going to come out of your customers' mouths.

Mark Towery
Managing Director
Geo Strategy Partners
http://www.geostrategypartners.com/
The leading b2b/industrial market research and strategy firm.

Business Intelligence - the link between Strategy & Execution?

2010-10-13T09:52:00.007-04:00

Chickens and Eggs and Strategy and Business Intelligence and Kimchi....

As a strategy consultant, I naturally believe in the power of strategy. Strategy is a great lever that can be wielded to achieve points of differentiation and competitive advantage. I would even go so far as to say the absence of strategy will lead eventually to competition based on price alone which is a losing proposition in the long-term.

However, having worked in Asia for the past 25 years and observed the rise of first Japanese, then Korean, and now Chinese companies, it is initially difficult to reconcile theories of strategy with success of these firms. At first it was easy to diminish the strategic success of Japanese and Korean firms. They were successful in their early days because, frankly, they cheated; their governments closed their domestic markets to foreign competition and fostered a hot-house environment where public and private capital fueled fierce domestic competition that when matured produced very competitive exports that exploited weaknesses in U.S. and European competitors strategies or cost positions.

While this rationale still partially works for China, it no longer explains success for Korean and Japanese global players. The Japanese, I would maintain, are pretty good at strategic planning with the emphasis on planning. They are notorious for studying markets and competition at length before formulating and executing a strategy. They sometimes seem to plan forever, but once they begin to execute, they quickly open the throttle wide. Because of the carefulness of their planning, they can execute with full force. Because many of their strategies were based on emulating and then improving on foreign competitors offerings, their lack of nimbleness has thwarted their success in the past two decades in the face of aggressive global competition.

Korean firms, however, seem to have no strategic planning function whatsoever. Unlike their Japanese competitors to the east who aim, aim, aim, and then fire; Korean’s have a tendency to jump straight into a new business, make a ton of mistakes, but work very hard to make course corrections constantly. Almost like a mouse in a maze, they charge hard into the wall, bloody their nose and make a 90 degree turn. When they hit the next wall, they change course again. Doesn’t seem like an endorsement for strategic planning; yet we have truly global players like LG, Samsung, and Hyundai leading markets with great products.

They are able to make these constant course corrections because of their remarkable work ethic and corporate culture of centralized hands-on management. I can remember working in Korea in the early eighties when the Japanese themselves were shaking their heads at how hard the Koreans were working. As one Korean manager explained it to me, "we work harder than the Japanese because the Japanese never had to compete with Japan."

But hard work and even productivity is not strategy. So, in the absence of planning, how have these truly global competitors emerged? To answer this question we must break strategic planning down into its two elements: strategy and planning. I would suggest that the successful Korean firms have developed very effective strategies, but that they did it without the benefit of much planning. It is not enough to say they emulated and improved on more successful competitors (which they did) because that strategy alone would not sustain success. Because the essence of strategy is to do things differently than your competitors, this approach is ultimately flawed by design.

As they have evolved from export-driven companies to global competitors, they have had to develop effective competitive strategies. However, having recently worked with Korean manufacturers, I can attest that they continue to invest heavily into new markets and products of which they have limited experience, without the benefit of much planning or research (and often counter to the findings of research), yet somehow, they often emerge successful. Again, they are not achieving success without the benefit of strategy; what they are doing, in fact, is achieving strategy without the benefit of planning.

Through a loyal corporate culture that centralizes decision-making and the benefit of an extreme work-ethic, they are able to make constant course corrections until they arrive at a successful strategy. As an attorney that works with mostly Korean clients put it recently, “Koreans are not good and planning for opportunities or preventing problems; but they are very good at picking up the pieces and moving on.” For a country that has been invaded by the Mongolians, North Koreans, Chinese, Japanese, Russians, and visited by the American Armed forces, "picking up the pieces and moving on" seems a reasonable strategy.

The secret to strategic success without the benefit of strategic planning is not really mysterious; it is simply developing strategy from experience rather than sterile planning. We all know the phrase “paralyzed by analysis.” That is one affliction that does not plague Korean companies. We are also all well-experienced with long-dry strategic planning processes that result in a 3-ring binder that collects dust on the shelf while business goes on as before. This is planning without execution versus execution without planning. If i had to choose, I'd most certainly take the latter because there is always the possibility that strategy will emerge from experience.

A long-lead in to a simple concept. Strategy is not created on white boards and flip charts. Without the benefit of experience the best strategic theories and constructs and plans are impotent. However, experience without planning is a tough route to strategy. The Korean corporate culture is uniquely suited to make constant course corrections, but this model is inefficient even for Korean firms. They make it work by over working. The art of strategy is to put the three elements of strategy together in balance: strategy formulation, strategy execution, and experience in the market:

Combining experience and planning has often been a challenge in large companies where strategy is created in the C-Suite and Board Rooms and the disparate operations of business units and departments were not always connected into the process. We are entering the age, however, of the intelligent enterprise. Companies have invested in enterprise-wide data platforms for the past two decades and now they have began to be populated with data rich enough to support decision-making and to monitor performance. These business intelligence systems will provide the same real-time reaction of the Korean corporate culture without the bloody noses; and allow it to be combined with the methodical and empirical data-driven planning of the Japanese without the paralysis; and then be executed and monitored by a more decentralized and innovative decision-making organization that is more the domain of the western model sans the bureaucracy and chaos that often gets in the way.

Business intelligence systems show a lot of potential to fulfill this promise, if designed and utilized correctly; however. A big if, of course. The art will be in effectively marrying data and strategy in a manner that enables companies to formulate more effective strategies that are dynamic, iterative, integrated across the enterprise and monitored and refined in real-time. But business intelligence systems and applications will need to evolve to provide the tools adequate to the task. Once that happens, dynamic and integrated strategy can be come a reality.

Mark Towery
Managing Director
Geo Strategy Partners
The leading Industrial/B2B Market Research & Strategy Firm

Creative Destruction - Reinvigorate your business model before you have to

2010-09-23T08:03:00.001-04:00

Race to the top or Race to the bottom – how your business model strategy determines success

Part 1 – Creative Destruction or just destruction?

This morning I read that Blockbuster filed chapter 11. I wondered what took them so long. Two years ago my office contacted them offering to help them realign their business model pro bono. All we wanted was the ability to publish the case study. They declined.

My first thought as I read the headline on my IPAD while shaving was that the inevitable had finally happened. However, the tragic truth is that it was not inevitable; just another company trapped in an existing business model and afraid to engage in creative destruction. Fear of innovation maybe be a greater hazard than innovation itself.

What do I mean by “trapped” in its current business model? Your business model can trap you with golden handcuffs in the sense that when you are making good money with the current structure; you don’t want to risk change. Change can destroy your cash cow, cost money, and the new model may not work; scary business.

No wonder innovation often comes from outside insurgents. Netflix didn’t have any great new technology when they first came on the scene; they used the antiquated distribution system of the post office to leverage their business model. The traditional movie theaters didn’t go out of business when VCRs were invented; they just enhanced the experience of movie-going. Business models don’t have to involve the latest technology or great investment but they do require a realistic assessment of the current and future environment and the courage to change before you are forced to.

We’ve all known for years that it was just a matter of time before you could get movies on your computer, IPAD, phone, Kindle, cable TV or probably soon, wristwatch. So what was Blockbuster waiting on? Another way your business model traps you is by virtue of the assets or competencies you have invested in. If you have invested in retail outlets for movie distribution, what is core to your business? Is it the retail outlets themselves? is it relationships with content providers? is it entertainment? It always comes back to knowing what your core strategy is so you can take the leap of faith and engage in creative destruction to reinvigorate your business model. If Blockbuster was in the movie business they should be at the forefront of converging technologies. But interestingly, it wasn’t actually new technology that threw the first body punches; it was the leveraging of the post office (Netflix) and a vending machine model (Big Red Box).

In business you are either growing or dying. Part of the art of management is recognizing decay and decline before it shows up on the income statement and balance sheet. Creative destruction is an important part of business strategy. Next blog will discuss innovative leading and innovative following.

http://www.geostratgypartners.com/

the leading b2b/industrial marktegy firmet research and strategy firm

Driving Profitable Growth

2010-08-24T19:07:00.000-04:00

Due to some travel conflicts,we will be rescheduling the first webinar session on driving profitable growth.
Stand by for new times.

www.geostrategypartners.com

business to business industrial market research and strategy

Slow Recover or Double Dip? Either way it's gong to get interesting

2010-08-12T09:38:00.008-04:00

Most of our clients in the industrial manufacturing space had record sales in the first quarter of 2010. Much of this was attributed to pent up demand from projects that had been put on hold for a year. The second quarter was favorable for most as well but as summer heated up, growth cooled down a bit. Still most remain cautiously optimistic and the following report I stole from Senior Consultant Nancy Musselwhite's blog seems to bear that out:

According to the NAM/Industry Week Manufacturing Index - 2nd Quarter 2010, published by the National Association of Manufacturers and Industry Week, 74% of manufacturers were optimistic about future prospects in 2Q 2010: a sharp contrast from the 28% who said that in Q1 2009.
Business Outlook (% of firms with a positive business outlook)

2008.1    64%

2008.2    52%

2008.3    41%

2008.4    33%

2009.1    28%

2009.2    42%

2009.3    55%

2009.4    60%

2010.1    70%

2010.2    74%

For a fifth consecutive quarter, the share of respondents with a positive business outlook increased, however the pace of improvement slowed compared to the previous four quarters. Does that mean that the manufacturing recovery will decelerate? Not if Washington reads the signals and holds on regulatory changes that stifle growth. Not if exchange rates hold and US manufacturers continue to find customers in the global marketplace.

Where do we go from here? Companies profits are up but most remain afraid to invest due to the political and regulatory uncertainty coupled with the patchwork of vulnerable economies around the world. They are sitting on cash and hopefully, most are getting their strategic priorities in line. When political leadership finally emerges and economies appear to stabilize, we may see some interesting merger and acquisition activity.

Mark Towery

Managing Director

Geo Strategy Partners

http://www.geostrategypartners.com/

The leading business to business market research and strategy firm.

b2b market research versus consumer packaged goods analysis

2010-08-04T09:59:00.006-04:00

So, what's unique about business-to-business research? a few things actually:

in b2b research, you have a much much smaller sample of respondents from which to gain insights. That means every interview is a high value target and you must make them count;
as busy professionals working within large organizations, b2b respondents can be hard to identify and even harder to access;
decisions in the corporate world are generally made within a formal decision-making system, rather than by just one person;
as a result of the complexity in decision-making, analysis also becomes complex;
theoretically, decisions are made rationally and emotions do not come into play - perceptions do; however, even incorrect ones;
products and their applications are more complex;
respondents are generally very well informed about the subject matter. Interviewers must be equally as informed;
the value of the purchase and the importance of the purchase is usually many times greater;
focus is on the utility and value of the product;
decision cycles can be very long;
it is much more important to get the analysis right. mistakes are costly and difficult to correct.

http://www.geostrategypartners.com/

the leading b2b/industrial market research firm

Strategy versus Execution - the perpetual debate

2010-07-27T09:07:00.009-04:00

I monitored a Linkedin discussion about the purpose of strategy for two months and was dismayed at the lack of clear understanding of strategy by the practitioners themselves. Finally, after reading a posting that suggested strategy is not about differentiation because one successful strategy is to copy incumbents, I could remain a passive reader no longer. My reply posting follows. Comments welcome.

Strategy may not technically be to differentiate, but the essence of strategy is absolutely to do things differently than your competitors in order to achieve a competitive advantage. A strategy to benchmark competitors and copy them is incomplete unless it also attacks the weak points of their strategy and exploits them. Asian competitors have been doing this for three decades. They don't just build me-too products, they usually build them cheaper and then make improvements on the original design., Microsoft has built an entire business model around its ability to commercialize products that are often not particularly better than competitive offerings by exploiting the advantage of its channel marketing power to commercialize products more successfully than rivals who sometimes have superior products. These strategies may not be particularly sexy, but they work and they involve more than benchmarking competitors and immolating them. They involve doing something slightly different to exploit weaknesses in the competitors' business model.

Simply copying competitors and doing nothing different is not strategy; it is head to head competition where the more powerful competitor and/or one who executes better or has lower cost inputs wins. Strategy enables you to overcome superior power and even superior execution, but it is not the same thing as power or execution. Likewise, effective execution and operational efficiency are about performance, and while they may support a strategy - and even provide a temporary advantage in the absence of strategy until competitors improve their performance - they are not in and of themselves strategy.

If you copy an innovator and are able to come to market cheaper because you didn't have to invest in the development of a product or business model, that could be considered a strategy because it is a choice about how to go to market - to more efficiently bring to market something that has already been commercialized by someone else. The counter strategy is to continuously innovate or to build in barriers to entry. If all you are doing is competing head-to-head, however, you are not leveraging strategy.

Business strategy is about bending the demand curve to your favor. The product may be identical but if the business model is different, you have employed strategy. If you are unable to do this, you are competing on performance alone without the advantage of strategy. If all competitors execute to their optimum level without employing strategy, you have a pure commodity market where supply equals demand and price is purely elastic. In this scenario, the provider with the lowest cost inputs will win, but with a free flow of capital and labor and open markets, even this advantage will eventually erode.

...some strategies are better than others and some competitors execute better than others, and this reality can make it difficulty to discern strategy from execution but it does not change the underlying principle that they are two different things.

Mark Towery
Managing Director
Geo Strategy Partners

The leading business-to-business / industrial market research and strategy firm

http://www.geostrategypartners.com/

Geo Strategy Partners Newsletter Second Quarter 2010

2010-07-14T08:39:00.002-04:00

See our latest newsletter below:

http://www.geostrategypartners.com/Newsletter/July2010.html

www.geostrategypartners.com

the Leading B2B/Industrial Market Research and Strategy Firm

Muscle and Bone

2010-07-09T10:52:00.004-04:00

Acquiring strategic talent and strong companies in tough economic times

The economic crash diet of the past 18 months has had at least one positive result: companies are lean. The fat is gone, and what’s left is all muscle and bone. As a result, profits are up and cash reserves are building as companies are beginning to experience a return in demand in existing markets.

The discipline of austerity has also prevented companies from entering non-strategic markets, focusing on the wrong things, or building unnecessary bureaucracy. Easy growth can enable bad strategic decisions. Ironically, contracting markets brutally punish bad decisions. What survives is likely to be strategically sound.

Now is the time to be thinking about adding capabilities to support new growth. However, it needs to be strategic growth. More muscle, not more fat. The two obvious areas in which to acquire growth capabilities are executive talent and strategic acquisitions.

Acquiring talent: there are a lot of talented people on the street right now. An obvious argument is that now is the time to gather some of that talent at below market rates and before competitors snatch them up during a recovery. I would like to offer a different view. While arguably, many good people have been laid off for reasons having nothing to do with their particular talent, what is beyond argument is those that have held onto their positions are the most valuable. They are the people that have kept the ship afloat during turbulent economic times. They are also the ones that have been burning the midnight oil and covering the responsibilities of laid off employees. Frankly, they are the best of the best.

Here is the key. Many of them are also burned out. Overworked and underpaid for the past 18 months, they may be open for a refreshing change of scenery. While some good talent may be on the street; some better talent may be working for your competitors and ready for a new opportunity. As the saying goes, if you don’t always hire people smarter than you, the average quality of executives goes down with every new hire. Hire the best. Acquire muscle.

The same is true of strategic acquisitions. While acquisitions of weak or poorly managed companies are sometimes justified as a way to reduce costs or consolidate an industry, the ones that create the most value are those that accelerate revenue growth. In many cases, these may be companies that are performing well.

Further, given that many companies have cut costs to the bone, finding a poor performing company and acquiring it well under market value and then re-engineering it to profitability may be possible in this environment but it is highly unlikely. It is my suggestion that now is the time to look for high performing companies that can help accelerate revenue growth. Target companies should be those that open up new market channels or provide great products for your existing markets, or have technologies that your firm can help to commercialize. Don’t look for soft targets; purchase solid bone structure that can support your strategic growth as markets recover.

Muscle and bone. Time to bulk up.

Mark Towery

Managing Director

Geo Strategy Partners

http://www.geostrategypartners.com/

The leading business-to-business / industrial market research and strategy firm

http://www.geostrategypartners.com/

Happy Fourth of July

2010-07-02T09:00:00.003-04:00

Time has only proven one thing, and that is that you can't ruin this country even with politics.
Will Rogers

Smart Strategy needed in Tough Times

2010-06-29T14:12:00.002-04:00

The future ain't what it used to be.
--Yogi Berra

Today, the stock market dipped below 10,000 again on news of China's adjusted growth figures, fear uncertainty and doubt in Europe, and faltering consumer confidence in the U.S. When you speak of a double dip in July, it is supposed to mean two coats of chocolate syrup on a vanilla soft serve cone. Unfortunately, it may currently mean the economists have seen their shadow and we are in for six more months or more of bad economic weather.

It is my opinion as a strategist, this is the time to get it right in terms of products and markets, business models and organizational structures. It has to be assumed that operational efficiency has been achieved over the past 18 months. This is evidenced by the up tick in corporate profitability in stagnant markets. But inefficiencies brought on by an unfocused market positioning or a fuzzy strategy are just as burdensome as operational inefficiencies when markets are not growing. I encourage executives to critically analyze markets in the near term, not just in terms of growth opportunities, but with a view toward getting out of the ones you cannot dominate and jettisoning under-performing products. When it comes to building brands and conquering markets, less can be much more as the right focus leads to profitable market penetration.

The pressure of challenging markets can suffocate a weak strategy or it can provide the crucible for getting strategy right. It is my belief that easy growth and profitable business models can actually cause companies to avoid making tough but correct strategic decisions. In the current economic environment, you have little choice but to get it right. Take the time to research your markets and critically examine your go-to-market strategies and business model. It's time to be very smart about how you go to market. Otherwise, the next few months may be painful. To politely paraphrase John Wayne. "Business is tough; but it's tougher if you are not smart."

Mark Towery
Managing Director
Geo Strategy Partners
http://www.geostrategypartners.com/
The leading B2B/Industrial Market Research and Strategy Firm.

Driving Profitable Growth

2010-06-22T13:13:00.002-04:00

We are developing a webinar series entitled "Driving Profitable Growth." Stand by for details and dates. We will focus on how to identify opportunities, how to determine the opportunities that are best fit for the enterprise, and how to formulate a "go-to-market" strategy. A partner firm will also address how to operationalize and implement a go-to-market strategy.

Geo Strategy Partners
Where you are...where you need to be... how you get there

the Leading B2B/Industrial Market Research and Strategy firm

Biggest Merger and Acquisition Disasters

2010-06-09T18:30:00.005-04:00

This is worth reading when you are in the intense and heady negotiation phase and just before you sign and LOI.

Biggest Merger and Acquisition Disasters

Should you pay for Synergy? in a merger or acquisition

2010-06-09T08:29:00.012-04:00

It seems the best words in our business vocabulary get ruined through overuse and mismanagement much the same way a pristine tropical paradise turns into to a ghetto of ugly strip shopping centers and boxy condos over time. One such word is “synergy.” A really great word, frankly, that conveys the simple but powerful idea that the combination of two or more entities can be greater than the sum of their parts. It is in fact the Raison d'être of acquisitions. However, not only has the word synergy been misused and misaligned, the miscalculation of synergy is probably the single reason the majority of acquisitions never meet expectations.

But how do we realize synergy in a corporate environment? Typically, it is one of the following ways:

· Market Synergy: Company B can sell more of Company A’s products and services through its channels, and vice versa. This can be a result of geographic coverage, industry span, or customer penetration;

· Product Synergy: The products and services (or technologies) of the two companies are complementary and complete each other making either more valuable or easier to sell;

· Management or organizational Synergies: Management, organizational structure, and culture can cut both ways. Ideally, the combination of talent and structure will create additional value; very often it is the source of post-acquisition friction and negative synergy;

· Economies of Scale Synergies: the simple idea that activities and functions – particularly general and administrative – can be shared and redundancies eliminated.

As you can see by the definitions, synergy only occurs after a merger acquisition transaction is complete. Therefore, it does not exist prior to the deal. Therefore, one can argue that the business being acquired does not yet include these intrinsic properties of synergy and the seller should not be compensative for value that will only be created when the buyer integrates the company into their organization.

But, then we have the troubling issue of free will and at least perhaps for a few more years, a free market. The value of a company is set ultimately set through negotiation between buyer and seller and beauty is of course, in the eye of the beholder. So, for a buyer, when is it appropriate to consider synergy as justification for paying a premium over what net book value plus discounted cash flow would justify?

The conservative buyer will take the position, "why pay a premium at all?" There are two basic reasons to consider a premium; 1) to convince a seller to sell; 2) to convince a seller to sell to you and not someone else.
You can only justify a premium if the the value to you as purchaser is greater than the company as it exists today. The seller certainly has no right to capitalize on the extra value that will accrue to you, but they do have the right to hold out for a premium if they think they can get it.

Because no two companies are the same, and private companies' stock is not traded publically, the basic value of a company comes down to the following fundamentals:

· Future Earnings Value: book value (or net assets) plus the net present value of future earnings. This is the only accurate way to value a business as it exists independently. The key to an accurate valuation; however, are the underlying assumptions which support the future earnings proforma.

· Market value: Just like in real estate, this is what comparable companies are being sold for. That’s why you often hear investment brokers talk about multiples of EBITDA, but multiples are only a proxy for discounted cash flow. The problem with purchasing a private company is there is no real market and comparable acquisitions ultimately come down to what a competitor is willing to pay for the same company. If the seller has another suitor, it is likely you will have to pay a premium if you want to “out-bid” the other suitor.

· Seller’s value: at the end of the day, you can only buy a private company if a private seller is willing to sell it for your offer price. Emotions and irrationality come into play here; particularly for a smaller firms where owners often have an inflated view of the value of their company. The bottom line is you sometimes may have to pay a premium to overcome this irrational valuation if the acquisition is valuable enough to your company.

So, should you pay for synergy? Theoretically, no, since it does not exist until after the deal has been consummated. However, if you feel you have to pay a premium over what book value plus discounted future earnings can justify in order to overcome market value pressure or seller reluctance, synergy is the only way that premium can be paid for over time. In this regard, it is important to be very analytical in determining what real synergy (not vague hopeful synergy) can be realized and then be willing – reluctantly and cautiously – to spend some small portion of it in order to realize its greater overall benefit. However, if you spend too much of the yet unrealized potential value at transaction, you may in effect remove the entire profit motive that made the acquisition attractive in the first place.

Putting too much value on synergy is why most acquisitions fail to meet expectations. While considering synergy to justify a reasonable premium is a very rational and economically sound approach, it is a slippery slope and the one area where buyers often substitute hope for strategy; ego for analysis; and emotion for planning. Synergy doesn’t exist until you create it; spend its future potential stingily.

Mark Towery

Managing Director

Geo Strategy Partners

http://www.geostrategypartners.com/

The leading b2b/industrial market research and strategy firm

Industrial and B2B Market Research: it’s the “How”

2010-06-08T09:54:00.004-04:00

In B2B industrial market research it is not who you know; it is not what you know; it’s how you find it out.

In business-to-business markets, the universe of customers and competitors is finite and fairly well defined. In industrial markets, the universe is typically even smaller and more defined, to the point where in some sectors, it is possible to know all current customers and competitors. Because of this, companies often assume they know their customers and competitors well and do not require additional market insights or competitive intelligence. Our experience in Voice of the Customer research has shown that this is rarely this case; and often clients themselves are surprised at what they can learn from existing customers though the right research approach and data analytics.

When B2B and industrial firms do hire a research consultancy it is often to help them enter a new market. Again, they often fall victim to a false assumptions about the nature of business to business research They seek and often select firms that have specific experience in that particular industry sector. While familiarity with an industry can be helpful, the selection of a research firm should be made on its ability to identify and access respondents and for its methodologies for analyzing data and producing market insights. Clients often ask us if we have contacts in a market sector they want to investigate. Often we do- sometimes we even have an extensive database. What we have found, however, is having pre-existing contacts is of little value when we actually get into the thick of a project.

The nature of B2B and industrial research is that you are often looking for a specific decision maker buried within a company: the person responsible for purchasing mold block material; outsourcing online learning; specifying polymer modified asphalt; choosing solar encapsulant; or purchasing control valves and actuators. It is unlikely that such a custom list exists particularly when you add various screening criteria to the equation. Even when we do have extensive contacts in an industry sector, we find our existing contacts typically do not match our target group of respondents.

Certainly, pre-existing contacts can sometimes help you identify the real respondents, but other methods such as old fashioned secondary research that includes diving into databases, mining published information, and tapping into social media are more effective. For very specific industrial applications, we often develop our lists as we conduct our research, working our way through gatekeepers to respondents and then seeking referrals and other insights. For custom research, we have never found this method to fail, although it can be time consuming and tedious.

One can spend 30 years in an industry and have over 300 current contacts and still not have the right 100 needed to carry out a targeted study. When selecting a market research firm, I encourage clients to ask about the methodologies a firm will use to research and identify respondents as opposed to how many individuals they already know.

Industry knowledge can be helpful to analysis but it can also affect objectivity. Industry knowledge that is dated can also make you blind to new market trends, emerging technologies, and converging competition. It is much better to focus on a market research firms’ methodologies and approaches to analyzing data and producing market insights than to concentrate on their specific industry background. Market research and analysis is a science and the emphasis should be on ensuring an objective approach for gathering information and a sound methodology for analyzing it. Otherwise, you end up with an ill-conceived opinion or worse, faulty analyses and flawed conclusions. It’s not who you know; it’s not even what you know; it’s how you find out what you need to know that counts in market research.

Mark Towery
Managing Director
http://www.geostrategypartners.com/
the leading b2b/industrial market research and strategy firm

Understanding the three levels of Business Strategy

2010-06-06T18:17:00.014-04:00

I believe it is always important to address the fundamentals of any discipline. We often get trapped by the short-hand of our own jargon and forget the underlying principles behind the concepts. This is certainly true of strategy. In my research for a new book on adaptive strategy, I've been amazed at some of the blurry thinking about strategy. For this reason I would like to address in this posting, the simple but important distinctions between the three levels of strategy. Because this is my blog, I will use my own definitions of the levels of strategy:

Level 1 – Go-to-Market Strategy which focuses on products and markets

Level 2 – Competitive Strategy or Business Unit Strategy which is about creating and sustaining a competitive advantage

Level 3 – Corporate Strategy or Portfolio Management which is about creating additional value through the intelligent combination of businesses.

My assertion is that Level 1 or go-to-market strategy is the level of strategy best understood by practicing executives. It is where the rubber meets the road and where most marketing and strategy energy is spent. The biggest strategic mistakes in go-to-market strategies are related to faulty research or focusing on markets as they exist today rather than where they are headed. But the real effectiveness are go-to-market strategies are driven by the power and discipline of the competitive strategy.

Competitive Strategy or business unit strategy is the essence of competition and the ultimate source of sustainable success. It drives the need for go-to-market strategies. Companies get off track with competitive strategy when they confuse it with operational efficiency or benchmark to their competitors to the point they lose their unique advantage. Competitive Strategy is about doing things differently than your competition and making disciplined trade-off decisions about what you choose to do and not do. It is about aligning all activities to ensure they support and reinforce the competitive advantage. And it is about sustaining a core positioning while innovating your business model to keep up with product and market cycles.

Corporate strategy, in my view, is the least understood, most difficult to get right, and the most misapplied of the three. It should be about combining businesses to strengthen the competitive strategy of all of them. It is often about growth for the sake of growth or a misguided substitution of performance improvement for strategy.

I will start in the middle, because competitive strategy or business unit strategy is really where companies create and drive a competitive advantage. In formulating a competitive strategy, you must analyze the industry structure and the nature of competition along with your core competencies and key assets to determine how best to position your company in a unique and advantageous position on the competitive landscape. You must then create a business model that allows you to create and capture value differently than all competitors within the field of competition. Next, you must align all internal activities and processes so that they support the strategy and reinforce each other. Finally, you invest in the additional core competencies and assets that you need to fully leverage and sustain this competitive advantage. Every decision you make must be in concordance with the strategy and strengthen the competitive advantage.

Once the competitive strategy is set, you have a disciplined process to determine which markets fit with the organizations strategy and what product offerings and positions can be chosen. You are then ready to develop go-to-market strategies. This is the most basic of all strategies, and describes how organizations choose which markets to enter, which products to develop, and how to position products in the market to achieve the greatest competitive advantage.

There are two parts to a go-to-market strategy: 1) determining which products and which markets to enter; and 2) determining how to position and market products within a given market. If your competitive strategy is not firmly in place, there is always the temptation to enter markets where you cannot compete successfully over time or make acquisitions or investments that do not reinforce the strategy. This can be a waste of resources and also weaken the core strategy. Once you have selected the products and markets to focus on, market research is the key tool to support go-to-market strategy formulation. You need insights from customers, intelligence on competitors, and you need to understand distribution channels and market trends to determine how to position and price products, what kind of strategic messaging will be most effective, and through what channels to most effectively market your products. Go-to-market strategies should always be a slave to competitive strategy; you must have the discipline to avoid the most enticing opportunities that dangle their low-hanging fruit if they do not help you reinforce your competitive strategy.

Corporate Strategy is more sophisticated and elusive. It is often viewed as portfolio management or a way to diversify risk. Shareholders have the ability to manage their own investment portfolios; however, so this should not be the primary mission of corporate strategy. Corporate strategy should be about combining businesses in a way that adds value to each. It can be about diversification against market cycles but only if the business units in total can share competencies or resources or achieve greater performance as a result of being part of one organization. In short, the whole must be greater than the sum of the parts. To this end, there must be an inner strategic mission (Core Purpose) of the corporation that articulates the special formula by which this synergy can be achieved. The sobering fact is that companies typically divest the majority of acquisitions or investments they make in new businesses because they ignore this simple concept. Michael Porter's research into competitive strategy revealed that companies ultimately divested over half of the acquisitions they made in new industries.

A successful corporate strategy starts with a core purpose that defines the organization.

Jim Collins (Built to Last and Good to Great) outlines five characteristics that must exist in a corporate core purpose:

·         One, it absolutely has to be inspiring to those inside the company.
·         Two, it has to be something that could be as valid 100 years from now as it is today.
·         Three, it should help you think expansively about what you could do but aren't doing.
·         Four, it should help you decide what not to do.
·         Last, your expression of what you stand for has to be truly authentic to your company. Companies that fail on this count are often the ones that really don't stand for anything and never will.

Ultimately, however, when new businesses are added to a corporate portfolio they must be able to share resources, skills, or activities in a way that creates a stronger competitive position for all. Otherwise, there is no reason to combine them in a single organization. Like go-to-market strategy, corporate strategy should also be enslaved to the business unit competitive strategy. This is a simple concept but one that is ignored at great cost. Corporate executives should declare a kind of Hippocratic oath to first do no harm to any business unit or shareholders’ wealth when seeking growth opportunities.

Mark Towery is Managing Director of Geo Strategy Partners

a leading b2b/Industrial market research and strategy firm

http://www.geostrategypartners.com/

Competitive Darwinism versus Intelligent Strategic Design

2010-05-25T13:40:00.003-04:00

The religion of strategy has been under attack lately by the non-believers who blaspheme that markets and competition are changing too fast to be reigned in by the strategic planning process. "You need to be nimble and flexible," they say. "You have to adapt or die," they preach.. I agree, but how do you know what to adapt to or morph into?

I've said before that good strategy abbreviates decision-making and actually helps an organization become more nimble as a result. A good strategy has an enduring core that keeps you centered and market oriented while you adapt your business model, move in and out of markets, and adjust your go-to-market approach. It should work the way a gyroscope keeps a spaceship in proper orientation and trajectory even as course corrections are made and destinations altered.

But we shouldn't write off the value of experience in strategy formulation as well as in the adaptive process. It would be great if we could capture all the elements of markets and competition and design the perfect strategy. The reality is that we cannot predict with sufficient accuracy the evolution of markets, the results of our actions, or the reaction of competitors. We not only have to learn from experience and adapt we also have to include this experience in the strategy formulation process. At the same time, our strategy should guide how we adapt.

It is and should be a never ending a tug of war between design and experience. An organizational structure that supports the ability to make quick and sound tactical decisions is essential. Without it, brilliant strategies become so rigid they are obsolete before they can be implemented. At the same time, the master strategy must be operationalized throughout the organization so that tactical decisions are made that support and reinforce the strategy. Otherwise, the enterprise becomes rudderless and ultimately finds itself in waters where it cannot be competitive.

The yin and yang of strategic design verses adaptive experience is the ultimate in the art of management and leadership. Yet there is very little published research on the subject. You can't have a dynamic strategy without it; however. I would like to hear comments from those who have grappled with this issue.

Mark Towery
Geo Strategy Partners
Industrial Research and Strategy
http://www.geostrategypartners.com/

Can you innovate your business model?

2010-05-21T09:01:00.003-04:00

Too often we think about innovation in terms of the commercialization of new technologies. But we also understand that technology and product innovation are two different things, and some of the best product innovations simply incorporate state of the art technologies in a new way to create additional value. We understand that but even then, we have a hard time looking beyond our current products and current markets to envision compelling next generation product innovations. It requires creative thinking and processes to achieve important breakthroughs in product innovation.

But if product innovation is difficult to achieve, business model innovation is almost ignored. Strong incumbent firms are focused on defending their market position which is why true industry disruption often comes from outside the existing cadre of industry players. "Built to last" is another way of saying "built to fail" when market dynamics are altered. It's insurgents and interlopers that most often change the dynamics of competition. That's why entrepreneurs who are not encumbered with the structure of a set business model or the seduction of current customers are in the best position to create new markets and new products.

But if market leaders could incorporate creative destruction into their structure, they could re-invigorate their business models and cause disruption rather than fall victim to it. Why did for-profit online universities take off over the past decade while traditional universities struggled with enrollment caps and budget issues? Because their business model wasn't aligned with the opportunity. Why did Sun Microsystems decide to give their Java software away? Because they were focused on their core business of high end work stations? In other words, their business model got in the way.

Apple's success over the past decade has not just been one of great product innovation but also an innovation in business models. The iPod was a legendary product innovation but iTunes was a business model innovation that crossed into the media and music distribution fueled and extended the iPod's product life cycle. The iPhone's success was enhanced by the business model innovation of the Apple Store and Apps. Google is currently posed to threaten Microsoft's office products because it can afford to offer many of them for free or almost free while Microsoft is handcuffed by the extraordinary profits in now enjoys from Microsoft Office. Like the frog in the warming pan off water, how do you know when's its time to disrupt your own success before somebody else does it for you?

Is your business model (i.e. how you create, capture, price, position, and deliver value and to whom) the key to your current success or a barrier to future success or both? Easy question to ask. Perhaps not so difficult to answer. But knowing what to do about it and having the courage to initiate creative destruction of your own business model is another thing entirely.

Mark Towery is Managing Director of Geo Strategy Partners
The leading b2b/industrial market research and strategy firm
http://www.geostrategypartners.com/

Getting B2B / industrial sales and marketing right

2010-05-12T12:41:00.003-04:00

An interesting McKinsey study just came out that indicates that while B2B customers say price is most important, their behavior suggests that product and service attributes along with the quality of the sales experience is most important.

This underscores the importance of measuring value drivers when conducting industrial and B2B market research. If you can determine motivating and crucial value drivers, you have the opportunity to incorporate them into products, services, and sales approaches and not only differentiate your company but create a brand preference.

The two most destructive salesman behaviors? Lack of product knowledge and calling on customers too frequently. Those should be easy enough to fix.

Suggestion: find out your customers' hot buttons (value drivers) through market research; train your sales people; and make less frequent, more meaningful sales calls.

Mark Towery is Managing Director of Geo Strategy Partners
The leading B2B/Industrial Market Research and Strategy Firm

http://www.geostrategypartners.com/

The 5 Strategic Imperatives you should be focused on now

2010-04-30T09:33:00.003-04:00

The economy appears to be in recovery in spite of record deficit spending and potentially adverse tax legislation. It is likely, however, that this recovery will be slow and steady. Understandably, companies will be cautious about investing in growth. But as markets begin to recover, growth must be a focus. Given the remaining uncertainty in the economy and the likelihood that market recovery will be slow and spotty, this is the time to be very strategic in your approach to growth. There are five key areas that companies should be paying attention to:

Drive straight ahead. This is the time to regain market share in your key markets with your strongest product and service offerings. It is the time to sell more of your current products to existing customers.

Start by cleaning up your customer databases and renewing contacts and intimacy with key accounts.We are often astounded at how little clients sometimes know about their existing customers.
Review and restate your value proposition.
If you haven't already, this is the time to focus on operational efficiency in your key offerings.
If you haven't already, get rid of products that are dogs and get out of markets that are not performing.
Consider voice of the customer research in your current markets to make sure you are meeting the needs of existing customer and are reaching new customers in current markets with a compelling value proposition through appropriate strategic messaging.

Be Strategic in your quest for growth: The approach to growth should always be strategic; however, when markets are expanding it is easy to be seduced into growing into areas that do not leverage your core competencies or reinforce your strategy. Now is not the time to invest in growth for the sake of growth alone.

Re-examine core competencies
Re-invigorate your strategy
Create a market attractiveness model through which new opportunities can be filtered based on a combination of market attractiveness and fit with your strategy and core competencies and capabilities.
Resist the temptation to grow into areas that are attractive in the short-term but are not strategic in the long-term.

Gather Market Intelligence: The nature of competition and structure of markets have been altered over the past 18 months. Now more than ever is the time to research markets and conduct competitive intelligence:

Survey your current customers and gather competitive intelligence on your existing competitors.
Use this intelligence to re-examine your value-proposition and determine where you need to re-invest in core competencies, develop strategic messaging that is aligned with value-drivers and unmet needs, and to support the refinement of your strategy.
Based on the market attractiveness model, research new market opportunities focusing on sizing not just the addressable market but the viable market - one that can be accessed without significant capital investment or acquisitions of new capabilities - as well as the winnable market based on an analysis of strengths and weaknesses vis a vis the competitive forces.
Research for unmet needs to support new product development.
Be very disciplined in only pursuing the most compelling and strategic market opportunities.

Acquire Talent: Some really good people are sitting on the beach and looking for opportunities. But they will not be available for ever. Once you have renewed your strategic positioning and now where your growth opportunities lie, aggressively seek the best talent to help you purse these opportunities.
Make Strategic Acquisitions: It almost goes without saying that this is a good time for strategic acquisitions. Companies are selling at lower multiples than most times in the recent past.

Look for opportunities not just with distressed companies, but really good brands and companies that have been managed badly.
Look for companies with key competencies, products or market positions that support your strategy whether or not they are distressed.
Look internationally, for growth that leverages your competencies and capabilities and is true to your strategy.
Focus on markets, products, and people; not the deal itself, but the ongoing opportunities beyond the transaction.

In other words, now is the time to focus on the fundamentals. When growth is easy, companies often strategy stray from their strategy. Use the circumstances of slower growth and a challenging environment to force discipline into your growth planning process. Finally, the past 18 months have paralyzed a lot of businesses, now is the time to act. To quote an unknown source, "all growth comes from activity."

Mark Towery is Managing Director of Geo Strategy Partners
Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.
http://www.geostrategypartners.co/m

Industrial research and strategy quote for the day

2010-04-22T10:43:00.001-04:00

A clever person solves a problem. A wise person avoids it.
Albert Einstein

The Three Elements of Performance

2010-04-18T12:04:00.006-04:00

One of the barriers to effectively developing strategy is confusing what strategy is with what it isn’t. Sometimes it is helpful to simply the elements of competition down to their basic fundamentals to enhance our understanding. Quite simply, there are three distinct components to competing successfully:

• Strategy: a unique way of creating value that involves choosing where and how to compete
• Execution: doing things right, accomplishing them efficiently ,and in alignment with the strategy
• Power: leveraging key assets and resources to accelerate the implementation of a strategy and to prevent the competition from defeating your strategy.

In the previous blog, I discussed the difference between strategy and operational efficiency. While operational efficiency and strategy are two different things, both are important. Execution is a broader view of operational efficiency to include effectively implementing a strategy. To paraphrase the master strategist Sun Tzu, Strategy without execution is the slowest route to victory. However, in The Balanced Scorecard, Robert Kaplan and David Norton assert that less than 10% of well-formulated strategies are successfully implemented. If this is true, many organizations can unleash a lot of potential by more effectively executing a compelling strategy.

Power, is something not often discussed when thinking about business competition, but it is very important. It is part of the reason why large and successful companies are able to stay that way for a time in spite of flawed strategies and poor execution. Power includes all the assets and resources and organization can marshal to add force to the execution of its strategy. Power may include financial capital, brand equity, market position, economies of scale and production capabilities. Power is seductive, however, and can hide a lot of strategic flaws that only become apparent when market growth slows or competition intensifies.

Unlike the other two elements, strategy involves choices and trade-offs. When you choose a course, it should take into consideration the environmental conditions as well as the competencies and capabilities of the organization. Once set, all aspects of execution should follow in perfect alignment with the strategy.

Envision a competitive rowing team. Strategy is the coxswain sitting in the stern of the boat with his hand on the tiller steering the boat. Like the CEO of a corporation, he has two main duties: steering the boat (strategy) and motivating and directing the rest of the team to row in unison (execution). Most of the energy of the organization is expending in execution. For this reason, it is easy to focus only on execution and lose sight of the importance of strategy. If the rowers get out of synch their energy is obviously applied inefficiently; however, if they get off course, they will lose to competitors with a truer line. Finally, the conditioning of the team and the design of the boats dynamics represent power.

Strategy without execution is an impotent and academic exercise.Execution without power is weak. Power without an intelligent strategy or efficient execution results in wasted resources and a loss of competitiveness over time. Power and Execution without strategy may defeat weaker and less efficient opponents but not equal ones with a superior strategy. The more intense the competition, the more important all three elements are applied in complete syncopation.

The danger comes when one of the three elements is relied upon too heavily or mistaken for another. Superior execution is vital but it is not a replacement for strategy and to paraphrase Sun Tzu again, can be the noise before defeat. Over emphasis on power can cause an organization to enter markets because it can, rather than because it should and when it contradicts strategy can lead to a loss of competitiveness over time. Strategy is vital, but in the words of Thomas Edison, “vision without execution is a hallucination.”

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.
http://www.geostrategypartners.co/m

Quote of the Day

2010-04-15T08:15:00.002-04:00

"The truth of the matter is that you always know the right thing to do. The hard part is doing it."

- General H. Norman Schwarzkopf

Operational Efficiency versus Strategy

2010-04-08T10:03:00.015-04:00

The last two decades have witnessed an intensive focus on operational efficiency in U.S. manufacturers’ C-Suites. Six Sigma and Lean Manufacturing consulting has become a full-fledged industry. The U.S. actually leads the world in productivity. Yet, manufacturing continues to move offshore, and many companies struggle to maintain market share. What is going on?

Each company faces different challenges and faces them differently so it is impossible to draw general conclusions. However, it is clear that a number of U.S. companies have rejected strategy in favor of operational efficiency. Operational efficiency is important, but it is not a strategy and will not by itself create a sustainable competitive advantage.

The idea that operational efficiency is not a strategy is often challenged by those that offer up the strategic positioning of “low cost provider” as an example of operational efficiency as a strategy. In fact, they are two different things. Every company should strive for operational efficiency that is optimized to suit its chosen strategy. However, not every company that is operationally efficient can compete as a low-cost provider.

Definitions are always a good place to start because MBA speak is often parroted without thought to its real meaning. In simple terms, strategy is about trade-offs; choosing a unique way to deliver value and designing all aspects of your operation to efficiently deliver on that unique value proposition. Operational efficiency does not involve trade-offs; it is in fact something that every organization can and should do within the framework of their chosen strategy.

What happens in the market place, however, can confuse the definitions. In the 1980’s when the six sigma/lean revolution began, it was because foreign competitors exploited U.S. manufacturers’ lack of operational efficiency with a low cost market position. U.S. manufacturing closed this gap over the next ten years, and became more competitive and even led the world in productivity. However, these gains did not result in a commensurate gain in market share. The reasons are many but include differing labor costs and practices, the loss of first mover advantage, and most significantly, the lack of strategy.

A model of the efficiency frontier can help illustrate this point.

Companies operating both at position 1 and 2 are operating on the operational efficiency frontier although company 1’s price is much higher than company two.

Position 3, represents operational inefficiency and is a weakened position. In such a position your price is higher than your low-cost competitors, and your value is perceived as less than higher priced rivals. In other words, whether your market positioning strategy involves a low cost or a premium value position, you should still be operating on the operationally efficient frontier to be competitive.

While optimal operational efficiency can help you win in the short-term against less efficient rivals, it is not sustainable because the gap always can and will be closed in a free market. The problem with operational efficiency is a strategy is that you can never move past the curve.

So, while every company should strive for operational efficiency, not every company should choose a low-cost provider positioning as a strategy. And operational efficiency should never be substituted for strategy. Even a low-cost market positioning requires more than operational efficiency t be successful. It needs to leverage a system of activities and tactics to be able to deliver a specific value proposition at a cost lower than competitor.

Strategy is about bending the curve to your advantage in your chosen field of competition. Walmart competes as a low cost provider largely through its supply-chain driven strategy that leverages economies of scale and scope. Sam Walton always said he was a logistician not a retailer. Apple competes not as a low cost provider but as an innovator. While they are positioned much higher up the O/E curve than Walmart, they should still be on the curve to maximize profits and maintain competitiveness. As an exceptional innovator, they can actually shift the O/E curve to the right and be competitive for a period of time even if they are not operating at maximum efficiency, but their profits will lessen and the period of time they can maintain market dominance will be shortened by the degree to which they are inefficient.

If you assume that the iPad and the Netbook are both being produced and marketed on the O/E curve, then competition because a matter of strategy. Winning and losing becomes about customers’ perceptions of the comparative value verses cost for features and performance. And that – your perceived value position in the marketplace - is the essence of marketing and strategy.

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.

An Industrial Market Research and Strategy publication

http://www.geostrategypartners.com/

Quote of the Day

2010-03-27T21:31:00.003-04:00

"If all you're trying to do is essentially the same thing as your rivals, then it's unlikely that you'll be very successful."
--Michael Porter

Merger and Acquisition Series:

2010-03-22T09:35:00.017-04:00

How to Value a Company - Strategically

In discussing mergers and acquisitions, it is first important to make the point than an acquisition is a tactic not a strategy. An acquisition may be the ideal tactic to help achieve a strategic goal, but the strategy must drive the acquisition; not the other way around. This is a simple but fundamental point that often gets lost in the fever and fervor of an M&A transaction.

Assuming that an acquisition is a desired tactic to achieve a strategic objective, a critical element of the process is to assign a value to the target company. Like any other asset, the value of a company is ultimately what the buyer is willing to pay and the seller is willing to accept. However, when we are considering the purchase of a private company, there are few market transactions to determine where supply and demand meet. In this case value must be inferred from analysis.

This is where company valuation gets murky. Investment bankers, business brokers, consultants, intermediaries, CFO’s, and attorneys have all complicated this process by promoting the use of ratios, formulas, and multiples: ( "5 times EBITDA,” for example.) The fact of the matter is, all valuation formula’s or multiples are nothing but short-hand for a real valuation which should be predominately driven by the expected future earnings the company.

The following diagram illustrates the elements that should comprise a sound valuation of a company:

There are three basic methods for valuing a business: the asset method; the market method; and the income method. I suggest that you need all three with emphasis on the income method. Their definitions are helpful to understanding how they help determine value.

The Asset Method: The asset method focuses on determining the net value of a company’s assets. It is by far the most straight forward of methods and is so objective and transparent, even an accountant can embrace it. In short hand, it is the book value of a company: total assets minus total liabilities. While there can be many complicating aspects to determining book value such as depreciation, inventory method, accounting method, tax implications, etc.; book value can almost be lifted off the balance sheet of a company’s financials and should be considered the starting point for valuing a business.

The Market Method: The market method explains what happens with publically traded companies every day. In a competitive and rational market, buyers compete with buyers and sellers compete with sellers until a market price is established that is acceptable to both sides of a transaction. Because private companies are seldom sold, this method is much less reliable for valuation. However, just as a real estate appraiser looks at comparable sales in a neighborhood to establish the value of a house, it is important to look at comparable sales or industry trends in determining the value of a private company. The market method should be viewed as an input used to adjust the company-specific analysis for market and industry trends. For example, when acquisition activity in an industry has heated up, all valuations will need to be inflated somewhat. When the industry is in a slump, they can likewise be discounted.

The Income Method: The income method is by far the best method for valuing a business; however it is also the most difficult and subjective. The formula itself is simple and objective: it is the net present value of future earnings. Net present value is a mathematical equation that applies a discount value to recognize the value of money over time. The discount value is typically arrived at by adding the cost of capital (usually the rate at which money can be borrowed in a safe and secure manner such as LIBOR) plus some form of opportunity cost (this can be derived at by using buyers expected internal rate of return for example) plus a risk factor (premium points for the inherent risk in investing in the company).

Example: Let’s say the company is expected to make a profit or EBITDA (earnings before interest, taxes, depreciation, or amortization) of $500,000 for the next five years. Setting aside earnings beyond five years or salvage value for a moment, that means the company will earn $2.5mm in profit over the next five years. But the time value of money theory says those future earnings are worth something less than $2.5mm today since they will be earned in the future. If we believe we can invest our money elsewhere and be safely guaranteed about an 8% return on capital and then add 2% for the additional risk investing in this company, we can establish a discount rate of 10%. Then we apply a formula: NPV = Rt/(1+i)t where Rt = the net cash flow at time, i = the discount rate; t = the time of the cash flow (5 years). In this case NPV of $500,000 over 5 years would = $1,895,393.38 in today’s money.

What makes this method difficult and even subjective is the underlying assumption is the ability to know what the future earnings will be. This requires a complete and thorough understanding and analysis of the business. One simple approach can be to look at earnings over the previous 3-5 years and project them forward. However, we all know the past does not necessarily predict the future. We also need to understand what the market opportunity and competitive environment will look like in the future. A company’s business and marketing plan must be reviewed including their sales forecast and backlog. This analysis can require extensive research and “marketing due diligence.” There are also internal adjustments that may need to be made to historical earnings. For example, if the owner of the selling company will not be continuing on past the transaction, his or her salary should be added back to increase historical earnings so that they can be “recast” to better represent the new level earnings that would accrue to the buyer.

Pulling it all together:

A sound valuation should take into consideration all three methods. The Asset-based approach is the best place to start. Let’s assume in the above example that the book value of the company was $1.0 million. If we next employ the Income-based method and add the net present value of future earnings, we would have a valuation of $2,895,393. Now we can employ the Market-based approach and actually use some of the formulas or multiples that have been established in the industry as benchmarks to adjust for the state of the market.

Let’s say that in the past year, 20 similar companies have been sold at multiples of 7 times earnings. We can see that $2,985,393 divided by our EBITDA of $500,000 yields a multiple of only 5.79, so we may want to think about paying a premium over our analysis to keep up with the prices being set in the market. Using the multiple alone would suggest a price of $3.5mm, but we have to look deeper into the specifics of our company and the market environment before we can decide how strongly to weight the market-based valuation. Likewise if the average multiple was only 5, we may consider our valuation to be fair or even a little high based on market considerations.

The Eye of the Beholder:

Like any buy-sell transaction, the ultimate value of the company to the buyer is what it is worth to the buyer. In a business merger or acquisition, it is important not only to determine the financial value of a company, but to determine how that value would translate itself to your business if integrated optimally. This requires conducting a thorough analysis of fit, market position, competition, and yes, even that elusive mantra of the investment banker, synergy. Setting aside cultural fit (which can be extremely important) this next step in valuation analysis must take into consideration the net financial and strategic value of the combined entities. From a largely financial point of view, the model above suggests that you start with the financial or market value, add perceived synergies and subtract perceived redundancies. In my next blog, I will address the second pyramid in terms of determining the value of a business to the buyer.

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.
http://www.geostrategypartners.com/

Quote of the Day

2010-03-21T10:12:00.004-04:00

"The secret of life is to find something you really enjoy doing, then find someone else to pay you for doing it."

--Sir Edward St. George, legendary developer and Chairman of the Port Authority, Freeport, Grand Bahama Island

Quote from the Masters

2010-03-03T19:32:00.001-05:00

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

---Sun Tzu

To Boldly Go

2010-02-28T17:55:00.010-05:00

Who was more strategic, Neil Armstrong or Captain Kirk? If you are talking about designing and executing a clear linear strategic plan in the old school fashion, Armstrong and NASA had it down pat. But Captain Kirk (aka Bill Shatner; aka T.J. Hooker; aka Denny Crane; aka, Mr. Negotiator) always knew how to reinvent a strategy for the Starship Enterprise while staying true to the core mission: "to boldy go." NASA and the Starship Enterprise present an interesting contrast in strategies that is particularly relevant as competition moves closer to warp speed.

We can all envision those men with crew cuts and pocket protectors in their short sleeve white shirts chain smoking in mission control. They used slides rules and a 64K computer to plot and plan a specific linear trajectory to the moon and back. When Neil Armstrong and Buzz Aldrin took that first small step, NASA reached the apex of its glory. A difficult and complicated strategic plan had been executed.

The mission of the Star Ship Enterprise, on the other hand, was “to boldly go where no man has gone before.” That split infinitive phrase was embedded in our generation’s culture, but it also suggested a lot about where strategic planning should evolve. Unlike the moon shot, the Star Ship Enterprise did not have a destination; it only had a mission. The moon shot was called a mission but it was really a noble goal: “to land a man on the moon and return him safely to earth.” All of the systems and activities of NASA were designed to work backward from that that goal. The moon shot was a perfect application for conventional strategic planning.

But in the years that followed, NASA lost its way. It couldn’t create a compelling reason for funding and had to invent adhoc programs like Skylab and then the ambitious but troubled shuttle program. It stumbled from one poorly conceived strategic plan to the next. NASA desperately needed a strategy, not a strategic plan; a strategy that Captain Kirk himself could have embraced. But NASA was focused on the goal of one small step, while missing the overarching strategy which should have been “one giant leap.” The strategic purpose of NASA is space exploration and that strategic purpose will never be exhausted.

Let’s beam back to Captain Kirk for a moment. Captain Kirk’s mission was not to land on a specific planet; he actually had NASA’s broader mission of space exploration. “to explore strange new worlds, to seek out new life forms and new civilizations, to boldly go where no man has gone before.” There is no destination in that mission. How do you create a strategic plan for that? If you think about it for a minute, businesses do not really have a destination. They want to increase profits for the shareholders perpetually if possible. It stands to reason, therefore, that they should have a constant, enduring and renewable mission. A strategic purpose that transcends businesses and defines the essence of the organization's existence as products and markets and businesses and competitors come and go.

Apollo 11 represented the best of a generation. Infinite optimism combined with linear planning to reach a clear destination. Star Trek imagined a more complicated non-linear universe. A multi-dimensional reality where you needed Mr. Spock’s Vulcan logic as much as you needed his human heart.

The starship enterprise had a strategic purpose. Its mission was constantly renewable, and all of its assets and systems were designed to support that mission. Likewise, the corporate enterprise should be designed to have no specific destination but a clear strategic purpose so that its mission is renewable and enduring.

But what is a strategic purpose. We can simplify and say that all businesses have as their strategic purpose to maximize profits. This would be a true statement; however, one that is totally unhelpful and unrelated to the idea of strategy. The idea of strategy in business competition is to do something different and better than anyone else. The combination of what you do and how you do it defines the business you are in and the source of your competitive advantage. Every decision the organization makes should be consistent with the definition of its business. Every system, activity, and process should be designed to reinforce the source of competitive advantage.

Every investment in assets, people, knowledge, and competencies should be an investment in that business and should serve to strengthen the competitive advantage.
When you have determined the strategic purpose, you can define the strategic core: what business you are in and the competitive advantage you can leverage. From the strategic core, you can build a business model wherein every activity and system reinforces the strategic advantage. The result is something greater than synergy; it creates a centripetal force that multiplies the strategic advantage exponentially.

What you also have is a strategic framework for executive decision-making. Abbreviated decision-making is one of the key advantages of having a strategy. If every decision had to go to the C-suite and be thoroughly contemplated, the organization would soon be paralyzed by analysis. But when the strategic core is defined, it is easy to put decisions through a two question qualification: is it consistent with our definition of the business we are in; and does it strengthen our competitive advantage?

But we cannot look only inward. Like Captain Kirk, we must explore new worlds and seek out market opportunities. How do we achieve strategic market positioning and navigate constantly changing markets on an ever evolving competitive landscape? You need a strategy that is constant in core purpose but at the same time, flexible and adaptive. It lets you know what core competencies to invest in that can be leveraged across markets. You need a strategy that is dynamic.

Now back to the bridge. There is no denying that what made the Star Ship Enterprise's mission possible were great advances in technology. Kirk had an intelligent dashboard at his fingertips from which he could control all aspects of the ship. Today, technology is also enabling businesses to manage from real-time data. The organization is evolving into the intelligent enterprise where the CEO, COO, and CFO can sit at the bridge like Kirk, Scotty, and Spoc and manage from a dashboard of real time information. Information technology is enabling dynamic strategy.

Information is power, however, uncontrolled power is chaos at best dangerous at worst. Without a strategy, IT-enabled business intelligence in the hands of ambitious executives is, to quote P.J. O’Rouke, "like giving whiskey and car keys to teenage boys." As investments in ERP and CRM are beginning to produce usable business intelligence, a clear strategy becomes paramount for discipline in decision-making. When you correctly combine strategy, technology, and intelligence, however you can achieve dynamic strategy and boldly go where no organization has gone before.

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.
www.geostrategypartners.com

Strategy is about what you DON'T do

2010-02-20T07:40:00.016-05:00

"In every block of marble I see a statue as plain as though it stood before me, shaped and perfect in attitude and action. I have only to hew away the rough walls that imprison the lovely apparition to reveal it to the other eyes as mine see it."

—Michelangelo

Last week I quoted Michael Porter week saying, "The essence of strategy is choosing what not to do." Michelangelo said it with more flair, but the fact that a sculpture is created by what is removed and discarded is a powerful metaphor for strategy. If you've been reading this blog, you know i'm a sucker for a good metaphor and have no qualms about mixing them up.

Knowing what not to do is a fundamental function of strategy. I am personally guilty of the "jack of all trades and master of none" syndrome and have about as much focus in my life as a Swiss Army Knife. But strategic choices are not just about arbitrary focus. It is possible to link some seemingly disparate activities into a coherent strategy. Underneath it all, however, should be a unifying strategy.

I have said before that one of the chief advantages of a strategy is that it enables abbreviated decision-making. You don't have to be Cecil B. DeMille to look at your world through a view finder and decide what goes into your movie and what doesn't. But the essence of your strategy and the DNA of your organization (i.e. Competitive Advantage and Core Competencies) have to drive your choices the same way the theme and plot drives a movie or story.

I still don't understand the appeal or value proposition of Tweeter and why anyone cares about the unfiltered and unedited mundane activities of someone's daily life. I would much rather read a journal or biography that someone has labored over trying to decide what to keep in and what to leave out. A story that has a structure and a central point is a compelling read. A good strategy is no more complicated than that, but it has to be an effective and competitive strategy.

Why is this aspect of strategy important? Because when times are good and markets are growing it is easy to move into new markets or invest in additional areas of competence. When the environment becomes more competitive, those activities that do not reinforce a sustainable competitive advantage will quickly become liabilities. Acquisitions that should not have been made will prove costly to undo. Products that should not have been launched become costly to discontinue or maintain. An overall loss of focus will affect your brand positioning and ultimately be detrimental even in the areas where you had a clear competitive advantage.

Strategy is about trade offs. You need to make clear choices ESPECIALLY when multiple routes to success are availed to you. You have to first decide what business you are in and the source of your competitive advantage. Choices then need to be made with a view toward how they serve to reinforce that competitive advantage or leverage it in yet unexploited adjacent opportunities. A clear strategy is more than focus, it is the architecture of success.

Even a Renaissance man knows the power of strategic trade-offs.

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.

Does an Entrepreneur need a Strategy?

2010-02-19T07:19:00.008-05:00

An Entrepreneur absolutely needs a strategy, but doesn't necessarily have to deal with all the complexities of a corporate strategy. By definition, an entrepreneur determines an unmet need, and then develops a unique way to satisfy that need.He doesn't have to communicate and orchestrate this strategy across managers and business units.

An entrepreneur is a singer/songwriter. An organization is an orchestSave as Draftra. In many ways it is easier to be an entrepreneur because you only need the basic six string version of a strategy. Then you read your audience and make adjustments in real time.

An entrepreneur is a surfer; a CEO is a captain of a ship. Like a surfer, a good entrepreneur is in tune with his environment and knows how to time the waves and become one with them until they are spent. Then he waits to synch up with the next wave.

When you trade your surfboard for a boat, you have to navigate more than a single wave. That is where the concept of a sustainable strategy comes into play. How do you take advantage of the tides of business opportunity without finding yourself completely off course when the party is over? You need a strategy for aligning yourself with an enduring market opportunity. As a sailboat tacks to take advantage of a prevailing wind, its ultimate course is plotted more strategically. Lighthouses and landmarks point out the strategic destination.

Inherent in this comparison is why entrepreneurs often do not make good managers and good managers do not make good entrepreneurs. The skill-set and mindset is different. It's is why MBA schools do not teach you to be an entrepreneur.

Intrapreneurship, entrepreneurial behavior within the confines of a larger organization, follows the same path in that unmet needs are identified and creative solutions are proposed. However, the work of an intrapreneur is more difficult and complex because of the inertia of corporate bureaucracy. He/she has the advantage of resources, however. The book "Blue Ocean Strategy," by Kim and Mauborgne is a blue print for organizational level intrapreneurship

It's hard to teach elephants to dance, but next to impossible to herd cats. The ecosystem of business strategy has a place for both. And to all you budding entrepreneurs out there, remember "that opportunity of a lifetime comes around about once every six months." Even if you wipe out, there will always be another wave.

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.
www.geostrategypartners.com

Consulting the Masters again

2010-02-17T18:10:00.002-05:00

Perception is strong and sight weak. In strategy it is important to see distant things as if they were close and to take a distanced view of close things
--Miyamoto Musashi 1584-1645

The New Power of Buyers

2010-02-17T08:13:00.004-05:00

One of Porter's 5 Strategic Forces is the Power of Buyers. A recent study by Geo Strategy Partners across 7 Verticals indicates that Customer Satisfaction is considered one of the top quality issues. What hasn't been studied is the degree that Internet 2.0 has given customers more leverage. For a humorous example of that leverage being exploited to its fullest, take a look at "United Breaks Guitars" http://www.youtube.com/watch?v=5YGc4zOqozo

Quote of the Day

2010-02-16T07:49:00.004-05:00

A good strategy should be like a gyroscope. Externally dynamic but stable at the core; adaptable to a changing environment but consistently reinforcing its source of competitive advantage; enabling untethered navigation across the competitive landscape while maintaining a perfect alignment between sustainable core competencies and enduring market demand.

--Mark Towery

Is there really Wealth at the Bottom of the Pyramid?

2010-02-15T13:32:00.003-05:00

One interesting aspect of Corporate Social Responsibility is “bottom of the pyramid” strategies as outlined in C.K. Prahalad’s book, “The Fortune at the Bottom of the Pyramid, Eradicating Poverty Through Profits.” The premise of Prahalad’s book is that there is money to be made selling products/services to the one billion people making less than $2/day.
The definition of a sustainable bottom of the pyramid (BOP) strategy hinges on two critical factors: high value to the community, and high value to the company. Without both factors in place, the strategy is likely to fail. In recent studies done on bottom of the pyramid strategies of select multinationals, we found most companies have not been successful in creating a profitable business model at the bottom of the pyramid For many, what they call a BOP strategy is actually corporate philanthropy or corporate social responsibility. One notable example was the development of a value segment for GE Healthcare in India.

See Senior Consultant, Nancy Musselwhite's article on BOP

http://geostrategypartners.com/GE%20Heathcare%20BOP%20Article.pdf

www.geostrategypartners.com

What is the difference between Confucianism and Taoism?

2010-02-15T08:48:00.005-05:00

...in case you ever need to know...

...to develop strategy we sometimes have to consult the old masters....

Roughly, it's like the difference between an "authoritative" government and a "laissez-faire" one. Lao Tzu is held to be Confucius' real adversary. But it is more accurate to say that the essential difference is the difference between Lao Tzu's direct way to the Tao and Confucius' detour by way of the human order:
Confucius represents the classical, Lao Tzu the romantic,
Confucius stresses social responsibility, Lao Tzu praises spontaneity and naturalness,
Confucius' focus is on the human, Lao Tzu's on what transcends the human,
Confucius roams within society, Lao Tzu wanders beyond. Both are necessary for strategy.

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.
www.geostrategypartners.com

Is Corporate Social Responsibility ready for prime time?

2010-02-15T08:34:00.003-05:00

Major companies are embracing corporate social responsibility. The new standard, ISO 26000 is under review but the standard will have no governing body and so will have no compliance or certification requirements. Environmental sustainability imperatives carry weight in terms of corporate positioning and PR, but this is mostly green wash. Real environmental initiatives frequently fall into the camp of compliance issues rather than strategic imperatives. What are the real challenges with corporate social responsibility? Our research indicates corporate social responsibility efforts fall across multiple silos in an organization: public relations, citizenship, compliance, procurement, quality, human resources, marketing, etc. As such, it is hard to formulate a consistent strategy without a Chief SRO; and frankly, we do not believe the C-suite really needs to be expanded in corporate America. In our interviews with executives across verticals, we have found that outside of energy utilities, CSR is simply not on the list of strategic imperatives. CSR may be coming, but it's not here yet.

Is Strategy Dead?

2010-02-15T08:30:00.004-05:00

A January 25th Wall Street Journal article entitled “Are Strategic Plans Losing Favor” http://online.wsj.com/article/SB10001424052748703822404575019283591121478.html implies that strategic planning is giving way to real-time, adaptive strategies. Strategy is not dead, but strategic planning (read long-term planning) has been dead for two decades. Strategy itself is more important than ever. One of the benefits of good strategy is that it abbreviates decision-making, allowing real-time decision-making and flexibility. One of the challenges in understanding strategy is agreeing on a definition. I addressed this issue in an article entitled "defining strategy" in a blog last week.

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets.
www.geostrategypartners.com

Is Solar Heating Up?

2010-02-14T10:26:00.002-05:00

We just completed a proprietary study of the photovoltaic solar market in North America. Most published forecasts indicate the U.S. solar market will grow rapidly, leapfrog Germany and Spain and ultimately rival China for installed base. As a result, many foreign solar module manufacturers are eyeing the U.S. market. We would caution they not be blinded by the light. While the U.S. solar market is likely to grow dramatically, it is starting at a very low base. Until power grid parity is achieved in the next 3-7 years, growth in the industry will primarily be driven by incentives and subsidies. Even as manufacturers race to become more efficient, the major bottleneck seems to be at the distribution end-user part of the supply chain. We believe it is inevitable that solar will play a niche role in the overall energy landscape, but caution too much exposure to the solar market could result in sunburn.

Quote of the Day

2010-02-13T02:24:00.003-05:00

However beautiful the strategy, you should occasionally look at the results.
-- Sir Winston Churchill

Quote of the Day

2010-02-10T10:14:00.002-05:00

From the guru himself...

The essence of strategy is choosing what not to do.

Michael Porter

Defining Strategy

2010-02-08T11:07:00.005-05:00

Defining Strategy

More relevant today than ever before

It seems conventional wisdom is just now catching up with the idea that strategy should be dynamic - maybe that's because they've been defining it wrong all along.

It is ironic that a word with as many meanings as the word strategy is still often misused and maligned. It is even more ironic that while strategy is the key driver of business success, it is often the weakest part of business planning and execution. While academics love to look in the rear-view mirror at companies that dominate their markets like Walmart, create new markets like Apple, or find a profitable niche in a difficult industry like Southwest Airlines; most can only reverse engineer success rather than offer a formula for ensuring it. Real strategy simply gets lost among clever book titles, esoteric theories, meaningless MBA-speak, and the pressures of daily management.

The latest conventional wisdom seems to have it that strategy is now irrelevant because of factors like the globalization of capital, labor and markets; hyper competition; and accelerated technological developments. Add a world-wide recession into the mix and executives argue that there is no time for planning, meaning no time for strategy. In fact, a January 2010 article in the Wall Street Journal was entitled “Strategic Plans Lose Favor” in the current economic environment. The argument is simply that executives have to act in real time, all the time. Strategic planning, pundits conclude, is dead. They are right but they are also wrong.

Strategic planning is dead and has been for 25 years, but its taxidermic form was so well preserved it has survived beyond its usefulness. To put it simply, strategic planning is a linear process that made sense when North American companies were dominant, markets were stable and growing, and technological evolution was incremental. What was then termed strategic planning was really long-term planning. Five year goals were pretty straight forward and usually equated to market share and financial targets. The objectives defined the path to get there, and the value of the process was that all parts of the organization were working in a synchronized manner to achieve common goals. When executives argue that strategic planning is dead, they are right in the sense that a 5 year linear plan makes no sense in today’s environment.

Strategy, however, is more important than ever. To illustrate this point, it is necessary to state a few of the many definitions of strategy. One very simple but useful definition of strategy is that it enables abbreviated decision-making. One of the reasons having a strategy is important to business is that it allows decisions to be made quickly and by middle managers during the course of day-to-day activities. Ironically, this makes it easier to make quick decisions in real time every day.

If every significant decision had to go to the C-suite for an answer, very little would get done and the organization could not react quickly enough to the market. By defining a company’s strategy, leadership makes some fundamental choices about what business the enterprise is in (another important dimension of strategy), and in so doing defines trade-offs (a key aspect of strategy). Another important part of strategy is about knowing which opportunities to say no to; and by defining this ahead of time, executives in the trenches can make real-time decisions quickly and the organization actually becomes more nimble.

So, if markets and technology are changing rapidly and competition is intense, how can you develop a strategy that can be viable for more than one fiscal quarter? The first thing you do is change your vocabulary from strategic planning to strategic positioning, a key element of strategy.

Strategic positioning is about defining where and how you will compete. While it can be focused on specific markets and products which can change over time, corporate level strategic positioning should be enduring; it should define, in a fundamental manner, the business the company is in – not just in terms of products, services, and markets which can change, but in terms of core competencies that are levers of competitive advantage. Strategic positioning should define the unique way your company delivers products and services better than the competition.

Through this simple exercise we helped a Caribbean Island understand that their strategic positioning on the tourism landscape was not to be like every other Caribbean Island promoting sun, sand, and sea but rather to play up what was unique about the island; rich attributes they had previously considered as weaknesses.

Defining what business you are in also means defining the customer your serve, not just by markets and sectors, but by the need and demand you fulfill and by the value proposition you offer. The ultimate in strategic positioning is finding a true alignment between sustainable core competencies and enduring market demand. It can be argued that no matter how you define it, no market demand lasts forever and no competency can be sustained without a corresponding demand. However, the goal of defining competencies and markets in a way that makes it theoretically possible for them to endure is as important to the process of strategy formulation as the concept of infinity is important to mathematics.

The very vocabulary you use to define both can mean the difference in a strategy that can become obsolete with a sudden change in the environment and one that can endure. The vocabulary also supports the trade-off decisions that illuminate the growth paths to take. Are you in the buggy whip business or are you in the leather business or are you in the propulsion business or are you in the transportation business or are you in the horse and carriage accessories business? There are many ways to define the business of today, but the choice of business definition can define the business of tomorrow.

By helping a commercial construction firm define its core competencies, we helped them resist the temptation to venture into industrial markets that happened every time there was a business boom.

The next critical definition of strategy relates to the strategic business model. In simple terms, a company’s business model defines how it makes money. But a business model has two main parts: the way a company creates value, and the way a company captures that value. A recording artist may create value by writing and recording songs, but capture it (i.e. generate revenue) through concerts, album sales, t-shirt sales, etc. The real key to a strategic business model is making sure the structure, systems, and activities all reinforce each other to add to the source of competitive advantage. This is often referred to as fit, and is more powerful than synergy.

An examination of a chemical manufacturing client’s “DNA” revealed that their competencies lay in two distinct areas: new product development built around an entrepreneurial approach to niche opportunities, and an operational excellence model of delivering certain commodity chemicals to market. The two didn’t “fit” together. We recommended dividing the organization into two companies in order to unleash the potential of both which was done with great success.

Let’s illustrate strategic positioning and strategic business model through a common consumer sector with which we are all familiar. If Publix supermarket’s strategic positioning is customer service, every activity must be structured to reinforce this, from keeping cashier lines short to friendly staff, to easy ingress and egress, to a wide variety of products. If Kroger’s strategic positioning is everyday low prices on a wide variety of items, there will be trade-offs on customer service, but the important factor is that every logistical detail of bringing products to the shelf must reinforce the wide-variety/low-price model. But it also ties to marketing such as loyalty programs and advertising campaigns. They must all be consistent and congruent. Whole Foods on the other hand, has a completely different business model built around fresh, organic and exotic foods. While the mainstream groceries may adapt to changing consumer preferences for organic foods, if they forget that their source of competitive advantage is customer service or price, they will dilute their business model and lose their competitive position rapidly.

What about no-strategy? It could be argued that some offshore competitors do not have a strategy. Chinese companies in particular often emulate industry leaders and compete largely on cost and operational efficiency. This is not a strategy per se but rather an exploitation of a temporary inefficiency in the market. To create sustainable competitive advantage, these companies will need to develop strategies. Korean companies are notorious for investing heavily into proven markets with little strategic foresight or even planning. They seem to have a unique model of reacting quickly to changing environments and making quick course corrections as they learn from their mistakes. By working very hard under centralized management, they have learned to develop strategy from experience.

However, as many of the traditional chaebols become global leaders, their approach to strategy has become more sophisticated. We have recently worked with Korean and even Chinese companies looking for professional marketing and strategy assistance that seems to validate this trend. It would be a mistake to underestimate their ability to develop more sophisticated strategies as their market position becomes stronger.

Ultimately, management that is only about execution and reaction to a changing environment is akin to Darwinism in the animal kingdom. The enlightened homosapien seeks to dominate his environment and alter his destiny. An enlightened executive should do the same.

Finally, a note about execution. Strategy is much about the synchronization of the organization. The basic accomplishment of having everyone singing from one sheet of music creates value and efficiency. An economic development board benefited greatly from a two week strategic positioning review because for the first time, everyone in the economic development business was promoting the same thing. Research has also shown that excellent execution of an average strategy trumps average execution of a good strategy every time. The key to sustainable competitive advantage, however, is doing both well. Strategy should be more than a common sheet of music; it should be a classical score played flawlessly by a talented symphony under the guide of an accomplished maestro.

As the conductor leads the orchestra, empowering employees doesn’t mean an absence of leadership; but the essence o f leadership. Reacting nimbly in real time is not the death of strategy, but the ideal application of it. In times of uncertainty - more than ever - strategy not only matters; it is essential. But it’s all in how you define it.

Mark Towery

Geo Strategy Partners

www.geostrategypartners.com

Mark Towery is Managing Director of Geo Strategy Partners

Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets
www.geostrategypartners.com