Of the various business
models I use at strategy sessions, the “Opportunity Grid” is the most
popular with my clients. The model is actually a modification of George
Steiner’s “Product-Market Planning Model.” Steiner, professor at UCLA,
developed his model specifically for products. But it occurred to
me that those of us in service industries could easily adapt the model.
Thus, while Steiner’s model labels the horizontal axis “Products,” mine
labels it “Products or Services.”
Here’s how the model works… We divide the horizontal axis, “Products /
Services,” into three categories - current, related, and unrelated. So the
three resultant columns represent current products or services,
related products or services, and unrelated products or
services.
The vertical axis represents the markets for the company’s products or
services. Similarly, we also divide the market into the same three
categories - current, related and unrelated. Thus the three resultant rows
represent current markets, related markets and unrelated
markets.
Right now - today - every organization sells its current products or
services to its current markets (or, in a narrower sense, to its current
customers). This means that, in the present, every organization operates
in the model’s upper left box. Only in the future can an organization
venture out into the world of new product or service, or new markets.
Thus, only in the future can a company depart from the model’s upper, left
box.
As strategy is about choice, every company’s management team gets to
decide whether to venture out along the path of product or service
development (moving to the right in the model) or market development
(moving down in the model). Their choice would logically be based upon
their preparedness for developing new products or services as compared to
their preparedness for developing new markets. Their decision would thus
be based on their company’s internal strengths.
Were the management team to decide on product / service development,
they’d next have to choose just how far to the right they’d move - either
into the box representing related products or services, or into the box
representing unrelated products or services. What delineates related
products or services from new products and services? Great question! In
fact, it is the exploration of that very question which results in the
management team’s deeper understanding of their organization and of its
fundamental strengths and weaknesses.
Here’s an Example
As an example, a client of ours develops and markets software for the
hospitality industry. When you walk into a hotel and step up to the front
desk, the desk clerk hammers on a computer keyboard and stares into the
computer screen searching for a record of your reservation. The software
which the desk clerk thus uses is appropriately called, “front office
software.”
OK, let’s consider what might be a related product for this particular
software developer. How about back office software? That’s the software
used by hotels to manage, not the guest’s check in / check out, but rather
the “business end” of the hotel’s operation - staffing, accounts payable,
cash flow, inventory levels, etc. The software developer’s planning team
might well decide that any software related to the hospitality industry
were a related product. Thus, everything else in the world - including
software for any other application, were an unrelated product. Why such a
narrow definition? Because the company’s managers have extensive
experience in the hospitality industry. Any other application would thus
be “foreign,” or outside of the firm’s core competency.
On the other hand, that same management team might instead decide that
their firm possesses a critical skill in software development. Further,
they might decide that development of software for any application
would constitute a related product.
Which decision is correct? The answer to that question requires a deep
exploration of the company’s core competencies. Thus the management team’s
deep understanding of their business. And this in-depth exploration - and
the management team’s arrival at such in-depth understanding - is exactly
what should happen at any strategy session. And there lies the value of
the Opportunity Grid in stimulating deep thought, deep discussion and deep
understanding.
Another Example
Let’s consider another example - one of our clients, an insurance
company, specializes in providing coverage for automobile rental agencies.
The planning team might question whether providing insurance for
automobile sales agencies were a related product. After all, it’s
one more market in the automobile industry. But upon further discussion,
the planning team might conclude that a “related” market would instead be
a rental operation. The team might decide that the important factor in the
related / unrelated decision is the rental aspect of the business rather
than the automobile aspect of the business. Thus, rental of boats,
airplanes and water skis would be related, while sales of automobiles
would be unrelated.
Here’s How We Use the Opportunity Grid
During strategy sessions, we ask our clients to map their available
opportunities on the Opportunity Grid. Some opportunities call for product
or service development, but not market development. Clients would map such
opportunities in either the related product / service or the unrelated
product / service box along the top row on the model. Other opportunities
call for market development, but not product or service development.
Clients would map such opportunities in either the related market box or
the unrelated market box along the left hand column on the model.
And then there are those opportunities which call for product / service
development and also market development. Clients would map these
opportunities diagonally down and to the right of the current / current
box. These opportunities require that the company utilize its know-how and
expend resources in both product / service development and also in market
development.
The pursuit of such opportunities is more complex, thus more risky. Not
that the company shouldn’t ever pursue such opportunities. At times, such
might be the very best strategy. It’s simply that the management team
should be aware of the added complexity, thus the added risk inherent in
such strategies.
At times, though certainly not always, it’s possible for a company to
move in one direction at a time, thus accomplish a diagonal movement in
two steps. Thus, the firm can avoid the risk of simultaneous development
in both product / service and also in marketing. As an example, let’s
return to the company selling insurance to auto rental agencies. Let’s
suppose that some of those auto rental agencies might also offer leases
(as well as rentals) of automobiles. The insurance company might then
develop a new policy specifically for automobile leases and offer that
policy to its current rental / lease customers. The insurance company has
thus moved to the right on the Opportunity Grid - selling a new product
(probably a related product) to its current market. In fact, to a segment
of its current customers.
After proving its new product in auto leasing, the insurance company
might later - say in a year or two - offer the lease policy to boat
leasing customers, or airplane leasing customers, or computer leasing
customers. In each case, the insurance company would have moved vertically
down into new markets (either related or unrelated).
There’s No Singular
“Right Answer”
There isn't any one "right way" for a company to grow. No singular
answer that says "develop products and services but not markets." No
singular rule that states "don't dare move into unrelated markets." It
depends on the firm's position in the marketplace. Its internal strengths
and weaknesses. And its external opportunities and threats. Here, like
everyplace else, there's no substitute for knowledge, experience, and
managerial judgment.
Perhaps you and your management team have a half dozen opportunities
worthy of consideration. If so, map them on the Opportunity Grid. Talk
about each during your next strategy session. You’ll be pleased at the
depth of your team’s discussion. And the resulting deeper understanding
of your enterprise.
Article adapted from Bill
Birnbaum's new book, Strategic Thinking: A Four Piece Puzzle
|
