PRODUCT LIFECYCLES AND PRODUCT PORTFOLIOS

Products have lifecycles (they either eventually fade away, are overtaken by newer products or have to be reinvented). This process can take many years (the ocean liner) or may be extremely fast (this year’s fashion) – see Figure 21.

New products tend to eat cash in their development and marketing stages as they try to increase their market share. It is only when they become established that they generate surplus cash.

The Boston Consulting Group matrix (Figure 22) is used when analysing a portfolio of products or businesses (where new products start out as ‘question marks’).

MEETING CUSTOMER EXPECTATIONS (THE CRITICAL SUCCESS FACTORS)

Take a step back for a moment and ask yourself or, even better, ask your customers, what is important to them in making their decisions about whom to buy from:

• What are the things all potential suppliers must do to be considered? (Order qualifiers – which airlines will fly me from Heathrow to New York?)
• What are the things that decide which of the potential suppliers is actually chosen? (Order winners – which airline will offer the best seats, food and frequent flier programme?)

Rank the importance of these factors on a scale of 0 to 10 (as in the example in Figure 23), together with how you think (or, better, your customers tell you) your own performance and that of your competitors rate.

Take another step back and ask yourself why these factors are important to your customers. What needs are customers satisfying in buying from you? Why do they want to buy your product at all? This is important as customers purchase to achieve benefits (i.e. the ability to have a hole when they need one) rather than features (this drill is made of high-speed steel). So you will need to focus your marketing on addressing how customers’ needs are met by your service (which are often emotional), not on its features (which are often technical). You then need to graph your performance (see Figure 24).

If you are competing against competitor A for an order, you can immediately see, for example, that you should be stressing your better price performance (where A is a long way below the customer’s ideal requirement).

In the longer term, however, you can also see that you are significantly over-delivering in the area of range of products carried (which customers do not value highly) and underdelivering in the area of quality (which they do). This suggests the range of products produced should be reduced to focus on higher quality products.

COMPETITIVE ADVANTAGE

Long-term success relies on establishing and maintaining a ‘competitive advantage’ over your present and future competitors. It’s not rocket science but I use a simple formula that summarises the key points that you need to manage. Competitive advantage (A) can be summarised as:

This means having a successful recipe for doing things better (B), cheaper (C) or differently (D) from your competitors in a customers want and know about (WK), which competitors cannot copy (X – for Xerox), and which overall makes money now (£N). You then need to keep it successful (so it remains based on what customers want and is not copied).

You can work at creating and maintaining competitive advantage by focusing on developing your business’s strengths in a variety of areas. The key areas to develop which are most difficult for a competitor to copy are as follows:

• Reputation – for many products (e.g. from brain surgery to motor oil) it is often very difficult to inspect the quality of the goods prior to purchase, so many customers will rely on brand names and reputation as a ‘safe choice’, even if this means paying a premium.
• Strategic assets – where investing in gaining dominance in a narrow niche (e.g. left-handed widgets) or in capital equipment, economies of scale, sewing up the key suppliers or distribution networks, know-how and improved skills from learning curve effects or in creating an industry standard (e.g. Microsoft Windows) can give you a significant advantage over competitors.
• The ability both successfully and commercially to innovate and develop new and better ways of doing things or products and services can give you an advantage over your competitors (but you also need to manage the risks associated with innovation).
• Internal organisation and infrastructure (such as efficient stock and wastage control or internal communication) will make you more efficient than your competitors.
• External networks can also help, such as joint ventures and strategic alliances or membership of a purchasing ring.

UNIQUE SELLING PROPOSITIONS

To stand out from your competitors, you are going to need to communicate what is different about your business’s products and services from those of your competitors. This is known as your ‘unique selling proposition’ (USP).

You should already have a good idea of what your USP is, so try the following experiment:

• 1.List all the words you could use to describe what is really different in the eyes of your customers about your business and that distinguish it from your competition.
• 2.Now cross out all those which your competitors would use. If you and your competitors would both use these words, customers are not getting a message you are different. (And if you are not different, why buy from you?)
• 3.What words do you have left?
• 4.What do these words tell you about how you should structure your advertising and promotion, and what do they imply about your potential market? For example, if the only word left on your list is ‘local’, then the potential market for your current operation is restricted to the local area unless you can:
• 5.Now, put together a short sentence (preferably three to five words) that summarises not just who you are but that also explains to your customers why they should buy from you. For the company, we have been looking at here, it is ‘The lowest cost widget’. As a company rescue expert, for my business it is I save businesses’. From now on, make this sentence your motto: the rationale for everything you do, your mission in life. Yes, this sentence is a real mission statement. Your mission is to bring that promise to your customers.

THE VALUE CHAIN

Once you have your ‘motto’ (or mission), you need to make your business and all your employees live it in every aspect of your operations to make it real. In other words, to ensure that you deliver exactly what the customer wants, you must ensure that all aspects of your business are consistently focused on your mission, which is to supply what the customers want (see Figure 26).

FAMILY BUSINESSES

Family businesses are an extremely important and sizable part of the UK economy, being some 65–75% of all firms and producing 50% of GDP as well as 50% of all jobs.

Family businesses have some specific strengths in terms of commitment, members’ long schooling in the business’s culture and operations, and sometimes a willingness to take the long view in terms of investment and development. They do however face specific issues that can have a major impact on the prospects of a recovery.

In any business of any size there will tend to be two main groups of stakeholders, those who work in the business, the employees, and those who own the business, the shareholders. This gives rise to three distinct interest groups as in the middle there are the owner managers, who both own shares in the business and work within it.

Each group will tend to have very different concerns in respect of the business:

• employees are likely to be focused on security of employment;
• external shareholders (those who don’t work in the business) are likely to concentrate on the value of their shares;
• owner managers working within the business may be interested in both aspects.

It is becoming increasingly recognised that family-owned companies are more complex units than the structure shown above. In a family company there are three distinct groups of stakeholders, the owners, the workers and the family; which gives rise to seven sub groups of interests and a range of additional issues.

Prioritisation

The balance in priorities between whose interests the business is managed will have a large impact on how the business operates and interacts with the stakeholders.

In the simple case where the family and the owners are one and the same, all family-owned businesses sit somewhere on a continuum as to in whose interests the businesses is managed:

In some family-owned businesses family interests clearly take priority over those of the business so that, for example, family members are employed irrespective of their skills or competence which produces an obvious problem for the business. Other issues that this leads to include:

• Fairness of treatment – if family members are employed in the business and other staff are not treated fairly (e.g. family members can get away with murder when it comes to timekeeping), this will tend to have an adverse effect on staff morale.
• Diversion of resources – where a family business is regarded as being ‘owned by and for the family’ (or an individual entrepreneur), there can be a risk that company funds are used, and seen by staff to be used, to meet personal expenditure (e.g. telephone bills, parking tickets, subscriptions, provision of a home PC, runabout for the spouse etc), to the detriment of the business as a whole.
• Dissatisfied family members – where the policy of employing people in jobs to which they are unsuited and for which they know they are unqualified can lead to low self-respect.

At the other end of the scale, some family businesses are run strictly in the interests of the business with very little room left for family sentiment. While this would appear to be better for the business, such an approach can lead to family resentment (e.g. where the parents’ or spouse’s focus on the business’s needs are seen to be put in front of the needs of their partner or children). In the long run this may in turn lead to a lack of identification with and emotional commitment to the business, undermining some of the apparent key strengths of family businesses.

Where ‘owners’ rather than the family take priority over the business, the business will tend to suffer from excessive levels of drawings without sufficient reinvestment, while the owners will not allow the directors to take steps to alter this position.

In a family business make sure that the three groups’ interests are kept in an appropriate balance with none being sacrificed for the sake of the other.

Emotional balance

Families are complex emotional networks. The family will have a significant emotional as well as financial investment in the business by way of a shared dream, pride in their legacy, a feeling of responsibility to hand the business on, through to an awareness of their social standing and status flowing from the business.

These emotional linkages can clearly affect business decisions. Some will, for example, invest in or carry on parts of the business on the basis of tradition (‘grandfather started the business making widgets so we cannot stop now’) rather than commercial logic.

Therefore when a family business gets into difficulties there are likely to be significant personal and emotional issues and conflicts created or magnified, leading to feelings of guilt, blame and anger as well as the breakdown of key relationships, all of which will tend to exacerbate the business problems. The power of these emotional issues can sometimes mean that the participants regard these as more important than the business difficulties. To turn the business around, you will therefore have to ensure that these emotional family and relationship issues are addressed, as well as the strategic and financial issues facing the business.

Generational change

When family businesses stay in the family they will obviously over time all pass from one generation to another.

The typical pattern of ownership over the generations may be:

• Controlling founder – the business is established by an entrepreneur (alone or with their spouse) based on their vision and drive to make it succeed. Given their natural authority in the business they will often manage it in an authoritarian and directive way (a single decision maker, who is clearly in charge and who tells not sells his decisions).
• Sibling partnership – children coming into the business will often have grown up seeing it run in a very directive way by a single dominant voice. Since this has been successful enough to provide a business to hand over, they may see this as the natural way to run the business. However where multiple siblings are brought in they will need to adopt a more consultative approach between themselves as to how it is to be run if they are to avoid conflict.
• Cousins’ cooperative – as the business moves down into the third generation, it will be run by cousins who will have grown up in different households, probably seeing a wider range of business and work/life cultures. The ‘family’ at this stage is likely to have a much more diverse range of views. As a result the approach to running the business will need to be much more democratic and consensual (even if the democratic consensus then becomes, ‘let Joe get on with running it’).
• Family consortium – as the firm passes down the generations it faces a problem of dilution of ownership. The shareholdings can become subdivided into smaller and smaller lots, which can lead to potential difficulties in obtaining clear decisions when needed in a crisis. This can be particularly accentuated when the family shareholdings are divided between those who are involved and a wide range of others who are not involved in the management of the business.

Use of outside resources

Where the business is run in such a way as to restrict the opportunities for non-family members to become senior managers or directors, this can only be a huge constraint on the pool of talent available to the business. It can often be difficult to attract high quality external management into a family business as such people will be conscious that the centre of power lies within the family structures (i.e. decisions are taken around the Sunday dinner table rather than through formal business structures). These effects will similarly make it difficult to attract or accept ‘outsiders’ as equity investors.

By contrast, the disadvantage that a long schooling in the business can bring is a lack of adequate external experience amongst family members. If they are not exposed to other ways of operating they may be missing out on best practice ideas and/or be unable to see a need to challenge the business’s strategy when this is required.

Clarity of ownership and influence

Family members who are neither shareholders nor employees have on the face of it no financial interest in the business. Does this mean they are without influence? Unfortunately not, in that family considerations in respect of the family name or pride in what the family has achieved through the business may mean that those family members who formally control the business come under significant peer pressure not to undertake transactions or changes that may undermine this ‘family heritage’.

In addition, even if family members do not have a shareholding they may still have a financial interest, either direct such as an ownership of the property, or indirect in that they are supported by the funds generated from the business. This can give them a very strong moral position when putting pressure on the actual shareholders in considering any changes.

In any business there is a need to clearly know who is in charge and who is making decisions. This requirement only increases in a crisis.

Example

Company Y had been established for 30 years and the father had retired a year ago leaving three next-generation siblings in charge.

Having retired he now came into the business at 8am rather than 7am and left at 6pm rather than 8pm.

He didn’t draw a salary and he had never set up a pension. Instead he owned the site from which the business traded and the business paid him rent.

The father however was becoming increasingly concerned, first by the strengthening local competition to the business and secondly by the lack of any action by his children to have the business address this.

On investigation it turned out that first, due to his continuing presence and strength of personality, all the staff and the next generation regarded him as still being ‘in charge’. Secondly, none of the next generation had actually wanted to go into the business but had succumbed to family pressure. And thirdly none of the children wanted to make any changes in the business as they were afraid that if anything they did damaged the business, they would be held responsible by the family for jeopardising the father’s ‘pension’ arrangements.

Business’s name __________ Your business’s motto or mission __________
Business goal What are we/am 1 going to do?	Measure What will the measure of success be?	Timescale How long will it take?	Responsibility Who is going to do it?	Action What are they going to do to achieve the goal?	Resources What will they need?	Constraints What may cause them problems?	Solutions How can they get over the difficulty?	Importance Rank on scale of 0 to 10	Ease Rank on scale 0 to 10

SETTING BUSINESS GOALS AND DECIDING ON AN ACTION PLAN

If you have not already done so, work your way through each of the exercises in this chapter to obtain results for your own business. On the basis of these results, go on to set out your proposed business goals and action plan.

Now check your plan:

• Is it realistic, based on the resources you have available (both cash and people)?
• Are the key staff (and external stakeholders) sufficiently motivated to stay with you to see it through?
• Does your plan balance your short-term needs to generate cash with your long-term business development aims?
• Does it take into account any resistance to change? How are you going to deal with this?

Next, draw up a project timetable. Set out visually what needs to happen so you can monitor progress (see Figure 30).

Note: Action 3 follows on from completing action 2.