A cab driver is banging on an Uber driver’s window, trying to open the driver’s door to confront him and instead is dragged 50 feet down Bay Street in downtown Toronto. You have likely seen the video of this scene already. This emotion-filled encounter is a microcosm of a secular trend that is leaving an entire industry behind as it tries to hold on to a business model that is dwindling because the industry as a whole didn’t identify a threat emerging from a seemingly unrelated technological innovation coming out of far-off Silicon Valley.
With a renewed understanding of your organization’s Why and your long term vision, you now need to understand where you are with respect to the present-day real world. This requires an assessment of your business, the competitive marketplace and the environment in which you are operating. This post will describe how to complete this analysis and is the third post in an 11-part series describing the trajectorE Navigation System (tENS), a 10-step process for defining and executing strategic growth and improvement projects. If you missed the easier parts of this series, you can find them here.
There are many models available to perform this analysis and they each provide incrementally more value depending on your organization’s circumstances. Rather than splitting hairs over which is better for a given situation, this post will focus the objective of ensuring that you have the full context of your business environment when making strategic decisions. For illustrative purposes we will use the classic SWOT analysis model. It is important to note that no one can predict the future or, one could argue, even fully process the complexity associated with all the environmental and competitive issues to prescribe with certainty what strategic direction an organization should take. The purpose of this process is to identify and process the information available in a way that increases the probability of the business establishing a sustainable competitive advantage.
This analysis can be performed by an individual or a group. In addition to the internal perspective it is also valuable to engage trusted external stakeholders, such as external directors, in the process to get un- (or less-) biased input. If this is performed as a group session, it is important that the tone is set that it is to be a “safe room” and that all discussions are to be in the context of the best interest of the business, rather than any discussions of internal areas for improvement being perceived as an “attack” on any individual or team. Participants need to ensure they come adequately prepared, having caught up on their market and macro environment scanning. As each perspective is analyzed below, it is important to follow the fundamentals of any idea-generating or brainstorming exercise:
- first collect all ideas and write them down without any judgement or assessment;
- perform a high level vetting of the ideas to generate a working list; and then
- complete the detailed assessment to determine their relative priority.
Self-awareness can be challenging to achieve, both personally and as an organization, however it is critical to success. In the context of entrepreneurship, Gary Vaynerchuk preaches this as the single most important determinant of success. In the context of a larger business, it is just as important to understand what your core competencies are since if you claim to be good at everything, then you likely excel at nothing. An assessment is required of your organization’s strengths and weaknesses across all areas of the business, including operations, marketing and financial resources. When performing this assessment, you need to ask yourself important questions like “What’s Our Unfair Advantage?”, which should help you point out your strengths, and “What is holding us back from success?”, which should help you identify your weaknesses. Again, it is important to ensure this is done in a safe environment with a focus on the best interests of the business and not attacks on any specific individuals or teams. In addition to your assessment, you also need to ask “What do our customers and competitors think we’re good/bad at?” since perception can be as important as reality.
As a business leader, you will know who your competitors are and intuitively you may know how you stack up against them, however there are other elements to the competitive marketplace that need to be taken into consideration. These elements are sometimes referred to as the “5 Forces” and though I hate to use to textbook terminology, this model has merit in this exercise. These are summarized below in a way that aligns with this analysis:
- Existing Competition: do you have a good understanding of who your competitors are and how your product or service offerings stack up against theirs?
- Potential New Entrants: this can be difficult to assess since it is based somewhat on hypotheticals, however it is important to ask whether there are any significant barriers to entry into your market.
- Substitutes: this points back to the situation that resulted in the cab driver being dragged by an Uber driver. Substitutes can be very difficult to identify and protect yourself from, however if you maintain the focus on your Mission, the high-level problem that you are trying to solve as an organization, then you will improve the likelihood of identifying alternative ways of solving that same problem that could become substitutes for your existing products or services.
- Customers: how is the balance of supply and demand in your market and how does this impact your business? Anyone paying any attention at all to economic conditions over the last 30 months has seen this play out on oil producers. Oversupply conditions resulting from technological innovations like fracking led to an increase the bargaining power of buyers of oil products, which had a significant impact on prices. Oil producers who saw this coming and could shift their production to lower-cost assets were able to minimize the impact of lower prices.
- Suppliers: the reverse of point 4 above, the balance of supply and demand in your suppliers’ market will have an impact on your costs. For many organizations, their single biggest cost is labour and so local labour market conditions have a significant impact on your costs. If the labour market is heating up, then a business may strategically decide to improve its employee benefit packages in order to avoid more costly turnover.
When assessing the broader environment for potential opportunities or threats, it is most useful to look for changes and trends that will generate opportunities or threats as opposed to those elements that are remaining status quo. Local and national government policy or legislative changes can have implications for many businesses. Take the recent US election win by Donald Trump as an example. His stance on global warming poses a significant threat to the prospects of solar energy companies since it now becomes more probable that the US tax credit for clean energy projects will be reduced or eliminated. You can see this manifest itself in the performance of solar stocks over the past month, which are down by about 10%. Other companies are more sensitive to secular changes in the social and cultural landscape. An example of these trends, coupled with technology changes, is the significant change in the marketing landscape over the last 36 months. Social media is quickly replacing more traditional print and television advertising as the preferred marketing medium for many companies. Those marketing agencies that have embraced this trend have flourished and those reliant on more traditional media are now forced to play catch-up.
Once you have assessed the organization’s capabilities, the competitive marketplace and environmental factors to determine and rank your strengths & weaknesses as well opportunities & threats, you need to process this information in a way that allows you to make choices. Analyzing the strategic options that fall out of this analysis and deciding what to do and what not to do will be covered in detail in the next post in this series. It is worth reiterating that the future cannot be predicted with any degree of accuracy and this analysis will be obsolete the moment it is complete since the environment is constantly changing. In addition, the complexity associated with the macro and competitive climates can be tremendous and it is difficult to identify and analyze all the required information. Why then, do we even perform this analysis at all? The alternative is relying purely on intuition, or worse: making decisions with blinders on. The result we are trying to achieve isn't perfection or analyzing for the sake of analysis, but rather to maximize the probability of achieving sustainable competitive advantage.
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