When conditions change, it is worth asking how your business strategy could be simplified. In business, complexity usually means more uncertainty and risk. The more complex the strategy, the harder it is to predict how unexpected factors will affect future business. A complex strategy also tends to make the company slower to react when a change is needed.
Here are five things to consider that can help simplify a business strategy.
1. Reduce the number of product variants. Developing and maintaining products takes a lot of resources. More products can mean more market tests, functional tests and certifications. A large number of variants makes every launch slower, and it becomes harder to consolidate resources or functions if the company needs to. Service companies and companies that only resell other companies’ products can also benefit from a narrower offer, since it simplifies communication, lowers the skills required and reduces the need for inventory.
2. Focus on your key markets. If you know how profitable each geographic market really is, you can simplify both distribution and communication considerably. When comparing markets, it often helps to group markets with similar characteristics. That gives you a number of scenarios for which markets the company could focus on. When you evaluate a market for this purpose, look at the market as a whole, its future potential, its strategic value and the competition.
3. Prioritize your business areas. Different business areas usually differ in profitability, lead times, contract length, decision processes and support needs. Having more than one leg to stand on is good. At the same time, different business areas usually place different demands on both products and market focus. Clarity, focus and momentum are some of the most important qualities of an organization, and focusing on too many business areas at once can dilute all three, often more than you think. It also tends to require a more complex organization.
4. Consider the level of innovation. Innovation usually comes through the product or through the business model. For product innovation, people often say that a good product always sells. That is often true, but not always. What matters is that the product’s benefits can be communicated clearly to the target group. For new products it is important to set the level of innovation at the right level. That saves product development resources and lets you keep developing the product based on real customer feedback, which over time helps you defend your market share against competitors. For business model innovation, anything that makes things simpler, for either the customers or the company, can make a big difference to how well prepared the company is for future changes.
5. Know your customers. There is a saying that 20 percent of a company’s customers account for 80 percent of its profitability. If you do the math, with both revenue and costs, it is often closer to the truth than you might expect. The point is that you should know your customers, and which of them account for most of the profitability. That lets you build a base of loyal customers that holds up better when conditions change, and you can adjust the business model to suit those customers better. Some companies have customers that are unprofitable, and then it is worth asking how that can be turned around, for example through changes in price, product offer or business model.
Looking for strategic advice? Read more here >>
