Will your business win or lose in the future? Ensuring your business will win in a tough and competitive environment starts with facing the brutal facts of what the real state of your business is. To ascertain this, an assessment of your business should be done, at least annually, as part of your strategy formulation process. The assessment should cover how well the operations of the business are running, how your business is fairing against its competitors, the overall health of the industry your business operates in and the likely impact of the macro-environment on your business.
Failure to perform such an assessment often means a business fails to confront and address the following issues:
- Poor operational performance
- Weaknesses in a company’s business model or competitive position
- The impact of changes in the macro-environment, or industry competitiveness
Chris Zook, in his Harvard Business review article, Finding Your Next Core Business’, demonstrates that companies who don’t fully understand the state of their core business often enter new markets, or diversify their current offering without fully capitalising on their current market position. As a result, these companies damage their existing business or fail to change when situationally required. This in turn results in a decline in their business’s fortune.
Chris Zook gives guidance on what you should consider when you evaluate the strategic position of your business.
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What is the state of your core customer?
You need to be getting both qualitative and quantitative feedback from your customers to not only evaluate how they perceive your performance but also to better understand their needs. In addition, management should be evaluating customer acquisition costs, customer retention, and profitability to obtain a clear picture of the current state of your company’s customers.
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What is the state of your competitive position?
Here, you should be evaluating how your company is fairing compared to your competitors. You need to evaluate how well differentiated your business is in the market, and whether this differentiation is giving you a competitive advantage, or not.
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What is the state of your industry profit pools?
The profitability of your business is significantly impacted by the overall profitability of the industry you operate in. Changes in the industry landscape such as the arrival of a new entrant or availability of a new substitute can massively change an industry’s profitability and the companies that operate within it. Consider what impact digital photography (a substitute for photographic film) had on Kodak.
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What is the impact of the macro-environment?
Changes in the Political, Economic, Social, Technological, Environmental, and Legal landscapes will impact your business. Do you on an annual basis assess these trends and adjust your strategy accordingly?
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What is the state of your core capabilities?
This is an internal assessment of whether you have sufficient resources and skills to be successful. If there are gaps, it allows you to identify ways in which to find the necessary resources. An assessment of core capabilities should also assess the effectiveness of operational activities in your business and identify required areas for improvement.
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What is the state of your team culture?
You should be evaluating your team culture objectively by getting feedback from employees and looking at productivity measures to ensure that you have an engaged, productive team, that you can retain.
If you methodically work through each of the above areas on an annual basis, you will have a very clear picture of the strengths and weaknesses of your business, the opportunities that are available, and what threats need to be mitigated. The above assessment can easily be recorded in a SWOT analysis.
From here, you will need to prioritise what areas of your business need focus, or where you will need to make a course correction. You can then capture these changes in your ‘Where to Play and How to Win’ strategies, by determining which customers to serve, which products and services to offer, which geographic areas are most attractive to operate in, how best to distribute your product or service, and how best to differentiate yourself in these markets to be successful.
