Strategy Fundamentals – Where’s The Money?
Whitecap’s Luke Freeman highlights a critical question that can help inform the development of an organisation’s commercial strategy.
The commercial environment can sometimes seem bewilderingly complex. There are so many dimensions, variables, timeframes and indicators to consider.
There’s also a wealth of data out there being offered up for our consumption – some of it free to access financially, some of it needing to be paid for, all of it requiring an investment of time to search for, gather and interpret.
So if you’re a business taking the time to consider your direction of travel – which markets or sectors you want to tweak your proposition, expand your presence or enter for the first time – how do you keep the right level of focus and assess which bits of information are helpful to you and which are distractions?
There’s always a degree of healthy tension between making a problem sufficiently simple so that it becomes understandable and therefore solvable and sharable, while avoiding over-simplifying to such a degree that your conclusions are meaningless.
Many of the assignments we undertake at Whitecap involve some assessment of market opportunity, and usually involve some degree of comparison between different markets’ relative attractiveness to our client’s business.
So in the fact-finding, market analysis and insight generating part of strategy development, how do you frame the question that drives your data search, and helps you figure out, when you’re sifting through the outputs, “So what? – Is this actually useful and what is it telling me?”. Is there a question that gives you a powerful level of simplicity, but which is flexible enough to be helpful in a range of circumstances.
I like “Where’s The Money?”.
To answer “Where’s The Money?” properly, ideally you would have a good view of the current value chain in your potential markets, the size and characteristics of different customer segments, the value propositions and pricing of providers into those segments, geographical concentrations and any peculiarities in channel usage. The beauty of “Where’s The Money” as an anchor question while you’re building this picture is that it leads you from data to insight, makes you question that usefulness of your research findings as you go, and helps you build a sensible set of strategic options.
Of course, “Where’s The Money?” is an oversimplification.
You might not be a for profit business, in which you might be asking “Where’s the Value” – however you measure value.
You’re probably looking to build a market position which will endure for at least a few years, maybe longer, in which case you’re really asking “Where will the money be?”
You’re interested in how you can enhance the performance of your business specifically, so you particularly want to know “Where’s the money, that we can earn?”
A lot of the best known and most widely used strategy tools and models fit into this part of the process:
The ‘O’ of your SWOT analysis should be a market-facing view of where the money is, the ‘S’ and ‘W’ helps you answer the “that we can earn” bit of the question.
Your PESTLE analysis helps cast your assessment of current state into the future.
And using Porter’s five forces can help you understand why different markets have different profitability characteristics and how those might change over time.
So the question is really – “where will the customers be, who will have a need, that we can meet, in a way that stacks up against the competition, that those customers will be prepared to pay for at a profitable price (if we are a profit making business)?… “
… You can see why I prefer “Where’s The Money?”…