“Growth is never by mere chance; it is the result of forces working together.” James Cash Penney, the founder of JC Penney, said this insightful bit long ago – but it’s still true today. Everyone knows that growth is essential for any business to be successful, but what many forget is the forces that must work together to achieve that success.
For instance, when you’re analyzing growth it’s all about joining together forces like return on investment, as well as the magnitude and timing of those investments. The risk, or return profile, of shareholders and investors determines the growth goal (how much to risk with this product) and strategy boundaries. This is the framework for your launching product.
But things get tricky when your business has multiple products you’re trying to promote and you actually have to make logical, thorough decisions on what products get what level of funding and investment.
Deciding when to invest is tough
Before any company gets big, it’s small. Small companies, generally, only have one product and when you only have one product, you’re “all in”. Time passes and your small company grows to be a major corporation with many products. So how do you decide now what products to go “all in” with?
Problems arise because it is hard to agree on priorities and which products are worth investment. There are limited budgets, time frames, and escalating arguments because everyone wants to be a priority.
Many times, the loudest individual, the biggest product or most persistent voice gets the final say; although, that decision may not be the best choice. Or, to avoid conflict and resentment, executives decide to have “equal investment” for all products. But that is also a sub-optimal solution.
Equal investment is not the right decision because:
- Product maturity varies
- Product size and growth are widely different
- Products have different strategic importance
- Competitive intensity varies
Both the options above just lead to chaos. A lack of a defined framework for this process ensures chaos and discord.
So if equal investment is not the right choice and neither is just giving the funding to the loudest screamer, then what is?
Have real debates to make real decisions
To paraphrase Peter Drucker and Michael Porter, “Strategy” is about answering two questions: “What business are you in?” and “What business should you be in?” The point here is that you need to create a space where executives make direct decisions regarding these choices. Having real and thoughtful debates is the only way you’ll get there and avoid getting stuck in the perfunctory set of “yes” meetings.
Obviously creating this type of environment is easier said than done. We’ve discussed this in our blog series on strategic planning, but what we’ve found most necessary for creating these types of debates and discussions is to adopt a structured three-step process.
- Get to a 2x2 and keep it simple. The beauty of a 2x2 framework is that it’s hard to get confused. You won’t get weighed down with too many factors. Find the two most relevant and quantifiable factors that work for everyone and are aligned with your business. Don’t fight over the framework, fight for the outcome. A client at Spur once actually demanded after a particularly long meeting that we, “get it down to a 2x2.” Point taken. Keep it simple.
- Define parameters as quantitative elements, not qualitative. Your meetings aren’t a philosophy debate. Pick tangible, measurable factors to put into your 2x2. This allows for better discussion and debate – you can’t argue over solid data and hard facts.
- Set investments and accountability to target or desired results. Is your business targeting market share? Competitive intensity? Whatever it is you’re targeting, you can make it a measurement on your 2x2. There are many models that work, but the crucial element is finding a model that tailors to your company’s strategic goals and focuses:
- The Boston Consulting Group growth-share matrix: This is the oldest and most well-known product prioritization framework. This works well when market growth and market share are well known.
- GE-McKinsey nine-box matrix: This time-tested model segments products by two factors – industry attractiveness and competitive strength. It allows decentralized organizations a way to allocate investments across business models.
- Geoffrey Moore’s four zones matrix: This matrix focuses exclusively on your experience independent of how you sit competitively. It works well to invest in incubation products, scale the investment as those products become dominant and de-invest as the products mature. Also, it allows for a clear line of sight for revenue targets and investments.
There are many factors you can measure your 2x2 on. There’s competitive intensity, trigger products, product life cycle, revenue or profit impact or plateau effects just to name a few. The important thing is to set these measurements to your desired results. It keeps everyone accountable to the goal your business is working towards.
At the end of the day, it’s important to get it all into simple analytics that supports discussion and debate. Use a simple 2x2 measurement model. Make it enduring. You want it to be able to cascade through your organization. This cascade ensures that people understand what you’re doing and where you’re placing your bets.