The Boardroom Dilemma
We are in the midst of an enduring global economic downturn and its effects are being felt in boardrooms at companies around the world.
The problem is that our free market economy rewards only growth, flat revenues which might be regarded by pragmatists as excellent in the economic context we find ourselves in are often perceived as the precursor to decline.
So company boards are faced with the challenge of growing in a stagnant market purely to generate shareholder value.
When faced with this challenge the classical Ansoff Matrix is a good vehicle to explore all of the possibilities.
Let us go through the four quadrants:
A) Market Penetration
This is attempting to get more market share from existing products/services and customers, this is typically the domain of the hard salesman, take what you have and sell it to more people by demonstrating better benefits or value than the competition. In the current economic environment this is a tough sell, the only way to increase penetration is to show a cost advantage, if you are fortunate your customer base may be sophisticated enough to recognise BENEFIT is value in the value for money stakes.
B) Market Development
This is taking your existing products/services into new markets, this is a tough call since the new markets will have existing players and unless you really bring some value add you will be just a me too player, its very hard to get market share from such a position unless you can show a valid, unique benefit.
C) Service/Product Development
This is coming up with something new for your existing customers/market. Again this is a really tough call and requires innovative thinking, investment dollars/pounds/euros, i.e. R&D investment with a high risk on return.
D) Diversification/New Game
This is the radical, new markets, new customers, new products or services. Now this looks like a scary place, its very different which is why I have termed it ‘New Game”. What is the best way to do this? In a lot of boardrooms the word that comes to mind is “acquisition”. Lets go out and buy some market share by procuring a business thats already in it. What typically happens is the board end up bidding and paying a market price for the new company and the purchase is justified somehow on the basis of making synergy savings to close the business case.
How much synergy?!
Now think about this carefully….how much synergy was there between your company and the company you just bought, not much I hope otherwise why did you buy it? The problem is those same shareholders that think growth is good in a stagnant market expect this additional business to come with an investment that gets offset by synergy savings. I have seen ridiculous synergy saving predictions which of course are never realised because nobody was prepared to shout “but the Emperor has no clothes”. Typically synergy savings are no more than 20% of the acquisition price, if any more could be realised you could have done the work yourself!
The alternative to acquisition?
Is there an alternative to acquisition? Yes for the confident there is. The alternative is partnering, strategic alliance, call it what you will but my belief is that this can be done in the current market with great ease. Why? Because the same question is being asked in all boardrooms. If you can find the right partner, if they bring value to you and you in turn bring value to them through both capability and market position then it is indeed a match made in heaven.
Of course partners come in different sizes, some may be SMEs and some may be global players, but what really matters is the value of the co-branding and its perceived position in the marketplace by customers and competitors alike.
Partnering & Co-Branding for “New Games”
More on this in the next post: “Partnering & Co-Branding”