Welcome! Customer Collaboration
Oct 292009

Business analysis is all about better understanding yourself, your customers, your competition and your environment in order to make better business decisions and develop strategies that create value by improving your competitive position. Many companies place too little emphasis on business analysis. Maybe they believe they know all there is to know about their customers because they’ve been in business for a long time and get together for golf at least once a year.

But the golf course and negotiating table are not the best places to get insight into your customers’ economics, which is what you really need to understand. If you ask customers what’s important to them on the golf course, they will probably answer that they want it all – lower prices, better quality, better service and better credit terms; or maybe they’ll joke that they’re happy as long as you pick up the tab for dinner. At the negotiating table you might get the mistaken impression that only price is important to your customers.

The trick is to understand how your product or service really impacts your customers’ economics, creates value for them, and makes their own products more valuable to their customers. The best source of information about what’s important to your customers may well be your own employees. For example, employees who are involved in technical or supply chain collaboration with your customers usually don’t get involved in price negotiations, and probably have a pretty good insight into things other that price that are important to your customers. Sometimes, particularly in the case of consumer products, where you don’t have direct contact with end users, outside customer surveys and market research might be your best sources of information. Annual reports, financial statements, technical journals, industry consultants and former employees of your customers are also potential sources of information about your customers’ economics. The bottom line is that by understanding your customers’ economics, you can focus on activities that create value for them, and avoid activities they don’t really need or value. It doesn’t make sense to develop expertise in distribution if your customers prefer to handle their own shipping.

Understanding your competitors is just as important as understanding your customers. The table below demonstrates an approach to ranking the relative competitive strengths of your competitors based on the needs of your customers. In the “Strength of Offer” section, choose the factors that are important to your customers, and reflect how your customers might rank their suppliers in each category on a scale of one to five. The “Strength of Company” section considers factors important to each company’s staying power, financial strength and cost position. If raw material supply is an issue, or access to low cost energy is important in your industry, you should also include these factors. To come up with a total score for each competitor, it’s useful to weight the factors for their relative importance. Quality and price are likely to be more important to your customers than technical service or credit terms.

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In true consultant’s fashion, it’s possible to chart your competitive position on a matrix (every consultant needs a matrix!).

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This chart provides a good visual overview of the market and your relative competitive position. However, the value of this analysis is not in the visual impact. The value is in what you learn about yourself, your customers and the competition as you go through the analysis and debate that’s necessary to complete the exercise. Involving as many people as you can in your organization who have direct contact with customers at any level is very useful in getting as complete a picture as possible of your competitive position. This knowledge is essential to help you develop strategies that move your bubble to the upper right corner and create a sustainable competitive advantage.

To find out how we can help visit our website www.octopusinternational.com, or give us a call at 832 748 1900.

2 Responses to “Business Analysis – Understanding your environment”

  1. Steve Crick says:

    Let me pre-empt my comment by saying that, Business Intelligence (as I call it) is often too little understood both in large enterprises as well as SME’s whom I serve. As a result an under-funded set of tools is missed as an essential building block towards developing Business Strategy.
    The value of the tools you suggest as customer analytics are excellent, particularly if a company is playing catch-up from a considerably weaker position than their key number one and two players. Its usefulness assumes that you capture the key criteria which can drive competitive advantage. In a closer fight between number one and two players it must depend on uncovering more relevant insights to establish better criteria.

  2. Nick says:

    Thanks for your comment Steve. I agree that business analysis and business intelligence are often neglected. I use these tools to get businesses thinking about their customers, defining who they really are, how they use their products, and what’s really important to them. Using what they know about their customers I ask them to rate how they perform relative to the competition. The result of the analysis, aside from a pretty chart, should be a much better understanding of their competitive position – strengths, weaknesses and opportunities for improvement, that form the basis for strategy development. Of course they shouldn’t stop there. Business Intelligence goes much deeper into understanding what the competition is up to, what their future plans might be, what new competitive products might be on the horizon etc. I find that too many businesses develop strategies for the future without a firm understanding (or even a common consensus in the management team) of their current competitive position.

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