Defining Ways to Measure and Manage Risk

In managing a business, the CEO and other C-level executives develop plans and programs that will generate profitable growth. In developing these growth plans, there are always elements of risk that may create problems for the company and may prevent them from achieving its goals. These companies have to deal with risks and impact on several levels and via several classes of risk. Each class of risk has different significance. 

For example, companies may face risks in the following areas:

• ·        Business risk
• ·        Technology risk
• ·        Competitive risk
• ·        Regulatory risk
• ·        Environmental risk
• ·        Political risk
• ·        Financial risk.             

In some cases, there are norms for measuring risk. Norms, however, aren’t necessarily appropriate or available for all settings or purposes. Over time, I will cover each of these risk areas and provide prescriptions and tools for handling them in various blogs and whitepapers. In this blog, I want to cover one area of risk which is in the area of financial risk.

One of the most common risk measures in the financial services space is volatility of returns, usually quantified as the standard deviation of returns over a specific time period. Short term risk and long term financial risk are both measured by volatility. We can look at this in terms of two specific time frames: daily volatility and long term volatility. The return volatility, σ, for 100 days works out to be 10 times the volatility for one day. More concisely:

            σ₁₀₀ = (√100) _* σ₁ = 10 _* σ₁

We need to be careful here, as there is an implicit assumption that those daily return values follow a normal distribution. (You recall that bell-shaped curve that describes a normal distribution from statistics class, right?) This often isn’t too unreasonable as an assumption in “normal times” for many financial returns. But it may well be reasonably heroic in unusual times like those of today. Let me share an example from one company with which I worked.

For a number of years, I worked as head of risk management and chief compliance officer for a globally regulated firm that managed currency risk (a component of financial risk) for institutional investors from all over the world. This company used “risk of loss” as the metric of financial risk. The natural follow-on questions are how does one define risk of loss and how does one measure it accurately?

The definition of risk of loss is exactly what the words say: by being exposed to the risk, one will lose in the event the outcome is adverse. Conversely, one will gain when the outcome is favorable.

In order to measure risk of loss, one has to be able to measure and quantify two components:
            (i) exposure to the risk, and,

            (ii) the probability of occurrence of adverse moves.

In the context of currencies, exposure is simply the difference between the value of the underlying assets in local currency terms (e.g., the Yen value of a portfolio of Japanese stocks) and the magnitude of any hedge currently in place.

More concretely, suppose a manager has an international portfolio of stocks for a US pension fund. The value today of the Japanese investments is, say, JPY 10 billion, or about USD 90 million if the exchange rate yen is roughly JPY 111 = USD 1.

An equity portfolio manager typically does not forecast changes in exchange rates but rather attempts to outperform the Japanese equity market by selecting stocks expected to outperform the market. In order to protect the USD value of the portfolio, that equity manager might elect to hedge most of the currency exposure. By so doing, the risk level and impact of currency risk can be reduced. For example, the equity manager can sell forward say, JPY 9 billion to reduce the currency exposure by 90%. This means that if JPY increases relative to USD, the portfolio will only gain translation value on 10% of the portfolio as the manager, by dint of the passive hedging tactic, locked in the lower value with the hedge, i.e. the hedge will incur a loss. Conversely, if JPY falls relative to USD, the portfolio will only lose on the 10% exposed to currency movements.

The risk and impact may be charted as follows. This figure shows the initial risk-impact (H,H) and how, through the hedging tactic, “sell currency forward” the risk and impact both are reduced to a more tolerable and acceptable level, (M,M) as indicated by the direction of the arrow.

Now for the second part: How can one accurately assess the probability of an adverse outcome? To do this the firm had a model for the daily returns of currencies. The model did not, however, assume that currency returns follow normal distributions. Rather the model assumed a more flexible distributional form which allowed for skew in the distribution of currency returns. By doing this, the model could accurately assess the likelihood of adverse exchange rate movements. Given this assessment, which was updated daily, exposures to each of the currencies in an international portfolio could be adjusted to keep the probability of loss in an acceptable range. This allowed for the exposures to be adjusted in order to take advantage of favorable changes in exchange rates and reduce exposures when adverse movements occurred.

Rather than passively hedge a portfolio’s foreign currency exposure for some period of time, exposures could be actively managed. This was all made possible by choosing a more appropriate risk measure – here, risk of loss – and then actively managing the foreign currency exposures as described above. Overall the result of the hedging program tended to add value relative to a passive hedging program.

This is but one type of risk management as this blog focused on a financial, i.e. currency, risk. It shows that one must think carefully, and even creatively, about the risk metrics that one uses in a particular setting. While a risk metric may be definable and calculable, it may serve no useful purpose and potentially blind those using it to very real risks or even opportunities to add value. 

C-Level Partners helps companies grow their revenues and improve margins while managing risks and impacts. We believe these components must be designed as complements as part of a total growth system. If you would like to discuss your company’s specific business issues feel free to contact me on bnewton@clevelpartners.net. And if you like this blog and find it useful, please like it and share it with others.

Managing Brand Relevance in an Interactive Digital World

It was fun watching the SuperBowl the other week and watching the many ads which have become almost as interesting as the game itself.  So I was thinking about the ads, the brands and how it has changed over time.

Historical Perspective

To grasp the evolution and purpose of today's style of branding, you need to get a glimpse of how it came about. Often, what comes to mind when someone says 'branding' is the old cowboy way of marking cattle with a hot iron to let everyone know which steers belonged to whom. In fact, the word brand actually comes from the Norse word brandr, meaning 'to burn.' The concept of branding goes back much further than that, even if branding wasn't known by that particular word. Before spoken and written language were commonplace, people used images to correlate with specific thoughts or actions.

Later on, as the world became more civilized, merchants from Egypt, India, China, Rome, and Greece used pictures and symbols in place of words on their signs so that those who could not read (most people then) would know what was being sold in a shop or market. Technological innovations like the Gutenberg printing press, in 1448, allowed books and other printed materials to be read by a mass audience. In 1625 in England, the first ad appeared in a newspaper – a first modern mass media. By the 1700s, trademarks and stamps were becoming standard practice.

According to Robin Landa , a branding and creative strategist,  "trademark(s) became crucial to governments, producers, and consumers. Governments saw the need to institute patent, trademark, and copyright laws as incentives to encourage development and progress in science, technology, and the arts."

Yet, branding (as we know it) didn't come into its own until the late 1700's and early 1800's when the economic boom meant people had more discretionary income to spend on wants and whims, instead of just basic survival needs. With the increasing level of income, more products and services were being offered, and the market was soon flooded with so many choices and competitors that businesses and entertainers were forced to find new ways to differentiate themselves and stand out. Instead of using images and names to identify what was inside or where it came from, merchants began using brands to create stories, elicit desire, and create a sense of exclusivity and expertise. Beyond the snake oil salesmen of that time, many of today’s common brands came into being.   Think of clothes (Levi’s), tobacco (Marlboro), soft drinks (Coca Cola), tires (Michelin), and beer (Budweiser) leading the charge in the early days of branding.  Here is an example of a Levi Strauss Ad from 1873.  At that time, the promise of the Levi’s brand to the miners to whom they sold was that the pants would never rip apart.  The brand started its evolution from just visual imagery to a deeper promise to the buyer.  And over time, the brand imagery evolved as well.

Source: http://lsco.s3.amazonaws.com/wp-content/uploads/2013/12/history-of-denim2.jpg

To see what this looks like in a broader context, take a look at this great Brand Evolution Timeline :

Source: http://www.wikid.eu/index.php/Brand

The Promise of Today

Branding continues to evolve.  Just 30 years ago, Apple was a computer company with a promise of a new easier to use personal computer.  Today, Apple’s logo and image is cleaner, more industrial, and the promise is one of simplicity, user friendly, sleek, and empowerment.    From its world changing iconic ad at the 1984 SuperBowl, Apple promised us, the common man, a new emotional experience of using their computer vs the performance characteristics of a computer which appealed to corporate America.    Those promises continue today even as Apple has become more common in the business world.   

Branding has gone even beyond just an image or way of standing out. It's so much more now. We've become so interconnected, mobile, and social, so outspoken and sensitive to hype, that we demand more from our companies and public figures. We demand transparency, engagement, and authenticity. We demand expertise and authority. We demand stellar service, outstanding performance, and a deeper connection and rapport with those we choose to buy from. Most of all, we demand outrageously unique experiences, the kind that leave us breathless from wonder and excitement—something we can write home about, brag to our family and friends and use as part of our own identities.

That's what real branding is about – creating unique experiences that anchor positive and powerful emotions in the minds and hearts of your market and link them to using your products or services, or even just being around you. But before you can start creating your brand or rethinking your existing brand’s promise, you need to identify and demonstrate your expertise, give customers a reason to trust you, listen to what they have to say, and then connect the dots. 

What You Can Do Now

As you think about your brand, I believe that a periodic brand audit makes sense.   Here’s a short 14 point checklist of areas you need to investigate to ensure your brand is relevant in today’s market.

1. Understand the rational and emotional reasons why your customers buy your product or service and why they buy from you.

2. Determine who precisely is your customer- what is the visual image and persona of that buyer(s)

3. Do competitive analysis to ensure you understand your brand’s strengths, weaknesses, threats and opportunities so you can position your brand correctly

4. Reinforce the promise of the brand at each touchpoint- online, offline, in retail stores, on the phone with customer service.

5. Study your value proposition to ensure your brand is differentiated vs. other direct and near-competitors.

6. Determine if your associations and partnerships are still relevant in today’s world.

7. Determine if your partners and channels are supporting the brand, its position, and the messaging as you intended.

8. Define what is important to your customer and how well you perform on those attributes

9. Does your visual identity need rejuvenation? Ensure your visual identity - logos, typefaces, imagery, and collateral are consistent and current.

10. Review your website, upgrade and update it to enable interactive communication and adaptable to mobile devices.

11. Determine if your customers are loyal; understand how and why they may be abandoning your brand. 

12. Review your brand metrics to determine brand success and return on marketing investment (ROMI).

13. Evaluate your brand names and the naming architecture to make sure it makes sense to your target markets and reflects your promise.

14. Is your branding truly communicating the core brand essence? Does your brand have the right attributes, personality, identity, vision, and mission to be successful in the future?

No doubt marketing technology, mobile pay, smartphones, and changing demographics will continue to morph and shape brands for the foreseeable future. In the future, I believe brands will continue to evolve in the areas of engagement and experience. I expect to see new technologies like virtual reality, gaming, and video everywhere exert tail winds that will require marketers to innovate and evolve their brands in new ways over the next 5 to 10 years; the pace of technology and customer engagement is moving quickly. For additional insights into the history of branding, I suggest you read this article by Robin Landa. You can get it here.  To learn more about branding and see over 3000 curated pins please check out my Pinterest board located here.

In the meantime, let me know your favorite brand and why.  Let’s continue the dialog.  And if you need help with developing your brand or making it more relevant in this new interactive digital world, feel free to call me at 949-445-1080 x-501 or email me at vferraro@clevelpartners.net.  My partners and I will be glad to help you.

Putting a "Tiger in Your Tank" - A Few Things We Can Learn From a Blues Master

The arts provide us an escape from the labor of the mind and hands to the passions of the heart and soul. Sure, we have to make a living and most of us find jobs that we like. Nevertheless, work is work and no matter how sophisticated, there is always some level of monotony and mind numbing behavior involved. Fortunately, there are great artists that lift our spirits and inspire our souls through their music, writing, painting, sculpting, and other mediums.

Growing up in Chicago, I was introduced to the Blues in my 20’s visiting Blues Clubs on   the near north side. The music didn’t heat up until about midnight and it was light outside by the time you left to go home. There was something about the woeful lyrics, crying guitar and weeping harmonica that simply made you feel like dancing in the aisles. Unfortunately, most of the great blues musicians have passed on and the art form itself may be in danger.

Then there is Joe Bonamassa. Joe is 38 years old and his mission in life is “to keep the Blues alive.” Bonamassa is a guitar prodigy having backed up B.B. King when he was 12 years old. Joe Bonamassa is not a household name and never will be, as the Blues has never had universal appeal. For example, of all my friends and relatives I can only think of a few who truly like the Blues (liking the The Rolling Stones and Led Zeppelin does not count.)

We typical don’t think of artists as leaders. However, I will point out that Joe Bonamassa’s leadership skills have been as important as his guitar talent in giving him his strong international following. In Joe’s case, I believe the following four leadership traits are what have drawn millions of people to be evangelists for his music.

 Maximizing his unique talents

Joe Bonamassa was born to play guitar. Not only did Bonamassa back up B.B. King when he was 12, he regularly plays with rock blues greats such as Eric Clapton. Bonamassa owns hundreds of guitars and uses different ones for each song he plays on stage. He is a perfectionist seeking the right sound at the right time as he blends his guitar playing into the work of about a dozen other musicians on stage.

Joe sings and writes his own songs but there is never a question that his guitar is the star of the show. The Orange County Register wrote, “Joe is unquestionably among our greatest living guitarists, destined to be counted among the greatest of all-time.”

 Focus, focus, focus

With such skill, Joe could have chosen many musical paths. He chose to play the blues. Focusing on something you love may not make you the most money but it does enable you to become truly outstanding in your niche.  Joe’s passion for the blues goes beyond entertaining blues lovers. He founded the international foundation “Keeping the Blues Alive.” His foundation provides music scholarships to talented musicians.

Of course, Joe’s focus is combined with hard work. He plays over 200 live shows a year and averages recording more than one album each year. He also does projects with other entertainers related to his focus on blues and guitar. Joe has a fanatical dedication to his work and his audiences show their appreciation through dedication to him.

Building the Brand

If you saw Joe Bonamassa on the street you would likely look past him. He doesn’t have the natural charisma and flash of most great entertainers. He is common looking and modest. For example, he does not have the toothpick legs that look great in leather pants as we see in most rock stars. However, Joe took what he has and created a chic image. His look of wearing a suit without a tie and sunglasses has become a trademark for him. He has also effectively used social media to build and enhance his distinctive persona.

Surrounding himself with other talented artists and sharing the spotlight

Although Joe’s guitar solos are the star of the show, the show is always bigger than Joe is. He spares no expense in hiring great musicians to back him up. For example, he always has a wind section that thrusts the music to a fuller level of energy and rhythm. His keyboardist garners many ovations for his solos throughout any performance. Joe provides all of his musicians the opportunity to show off their skills and he makes a point of introducing each of them to the audience genuinely thanking them publicly for their help.

Lessons learned

Joe Bonamassa is not only a great guitar player but also a great leader and we can learn from his success. Maximizing your unique talent, focusing on your passion, building your brand, and surrounding yourself with a talented supporting team are keys to success in business as well.

Joe said once that the greatest advice he ever received from B.B. King was not about guitar playing but about business. B.B. said, “It’s about music but it’s also about business. Joe, you need to always reinvest back into what you do, back into your fan base. Fans can detect if you’re not doing that, if you’re not doing things to improve the show.”

In Joe Bonamassa’s case the show is continuously improved through his unending quest to perfect the sound of his guitar, focusing on the blues, providing his fans a consistently exciting product through strong brand management, and surrounding himself with the best musicians in the world that share his passions.

B.B.’s advice relates to any business. Just replace “music” and “show” with “product or service” and “fan base” with “customer” and you’d think it was a Peter Drucker quote. At C-Level Partners, we believe nearly every human being has achieved some level of success in a unique way. We can learn a great deal from a significant number of people if we listen and watch carefully enough!   If you have some thoughts on this topic, feel free to comment and pass along this blog to others. Also, please feel free to contact me at ddrent@clevelpartners.net or call me (714-290-3892) to discuss how to apply these leadership skills to your business.

By the Way, if you are curious to hear Joe’s sound click the video below.

https://www.youtube.com/watch?v=ggLgFDzqwCA

Growth Vectors and Strategies: You Can’t Shrink Yourself into Greatness!

In this blog I will present a couple of useful tools to help companies define different growth paths- growth vectors and strategies.  It’s a little lengthy, but I trust it will provide value and will be thought provoking.

Do you know of company CEOs that say, "We don’t want to grow; we are comfortable where we are?”  There may be a few small businesses that are under the leadership of a founder or family member that take that approach and maybe that company serves a very small niche market that generates a nice income.  Typically, growth and how to grow are foremost on the minds of a company’s leadership.  Why? 

Why companies want to grow

Regardless of the ownership structure of a company, the pressure to grow is apparent because CEOs want to increase their company’s value. Whether through share appreciation for a public company or the increase in a private company’s multiple because it makes the company a more attractive acquisition candidate, value cannot increase without growth.

Growth must include both the top and bottom line.  Companies that grow top line revenue are normally accorded a higher multiple (e.g., price to earnings ratio) so upon merger or sale, the company will be at a higher value (market cap) than a comparable company with less growth.  But growing revenue alone is not necessarily sustainable.  Companies have to couple that revenue growth with reasonable margins i.e. EBITA, and margin growth.     

Some executives are less concerned with top line growth and focus on managing operational expenses, especially in times of economic downturn. I am sure we can think of executives such as Al Dunlap who was recognized as a cost cutter.  Yet, there are only so many expenses that can be cut.  Eventually, as we say, you cannot shrink yourself to greatness.

Growth is second nature to many executives.  Top line revenue growth can be developed in several ways using different strategies.   Executives have to guide their company to grow intelligently given their company’s competencies, the competition they face, the customers they have, and the culture they have created in their companies.

Growth is also important for other less tangible reasons. With growth, a company will be able to retain its employees, as opportunities for personal growth are tied to overall corporate growth. Top employees will leave a stagnant company for a company that is expanding and promises them the opportunity to grow with them.  Just look at the tech companies in Silicon Valley as poster children for this.

Growth is typically driven by innovation in products, services, processes, and technology.  A company that is stagnant will likely lose its ability to remain innovative and thus take on a much greater risk of becoming obsolete.  Once you lose the momentum of growing, it is hard to restart those efforts.

Most of our clients are interested in growing.  One company wanted to grow their business because they had a limited number of very large customers.  Losing a major customer would be a very high risk to the company, not only their value but their ability to pay for their infrastructure and salaries.  Unfortunately they lost a major customer representing approximately 30% of their business. It took several years to recover from that debacle.

Another client had a more unique problem.  They were a B2B chemical company and bought a relatively strong brand from another company.   However, they started to lose market share to competitive products and technology was such that existing customers were willing to invest in the technology on their own and become their own supplier.   The question we faced was whether their brand could survive and if it did, would they be able to grow their brand.   Fortunately, we were able to map out a product strategy and plan to enable them to stem the exodus and expand their market.

A third client wanted to grow as they positioned themselves for sale.  Yet they set self-imposed constraints on their growth because they did not want to build certain types of products because of their internal competencies and what they perceived to be competitive threats.  This company was bought in short time frame at a bargain price given the patent portfolio they created.

The Product-Market Matrix

Growth is fundamental to creating value for owners, employees, and customers. In all three cases above, there were obstacles- real or perceived- to their growth.   Their goal in all cases was to grow their business.    So the question they faced was:  How does one grow intelligently? 

Let’s take a look at a couple of tools that can be used to break down a difficult problem into smaller bite-sized chunks.  A very powerful strategic planning tool is called the Ansoff Matrix developed and reported initially by Igor Ansoff in a Harvard Business Review article in 1957.  The product market matrix described below is a classic method for analyzing the opportunities and risks facing a company seeking profitable growth.

The Ansoff Product Market Matrix

There are four broad categories for growth based on a combination of expanding products and/or markets.  Each category presents different risks, opportunities, and returns for the company.   For example, developing new products or markets assumes a higher risk than increasing market share in your existing markets.  Diversification, where a company not only develops new products but targets new markets is the most risky.  However, different strategies may be necessitated based on the business life cycle of the company, its products, and the competitive landscape.

A CEO needs to consider its strategy for growth and the risk he and his/her board want to take.   Let’s briefly look at each of the four quadrants.

Market Penetration

This strategy suggests there is room to further penetrate the current market with current products.   The product life cycle may be relatively young and both revenue and margin growth are possible.  Maybe there are new ways customers want to buy, or perhaps changes in customer buying habits increase their willingness to buy your company’s products. If the price of the company’s product is inelastic, a price increase can generate additional revenue and margin.   One small insurance company we know used this precise tactic. 

Another way to increase market penetration is by increasing awareness of your company’s products to other similarly situated customers in the markets you serve who may not know about your company and your products.  A third way to increase penetration is by expanding channels of distributions and partnership relationships.  A partner who is selling into the same market can sell your product as a tie-in sale.   One wireless company for whom I worked increased its channels of distribution and added more market development funds to several channels.  Sales increased by more than 25%.   Uber is increasing penetration in their current markets by adding new drivers.

Market Development

Companies can grow by selling its existing products into new markets.  Market development opportunities may be implemented in several different ways: by advertising different features, modifying the core product slightly by feature, repackaging the product to be more suitable to the new market, focusing on new uses, developing new applications, and expanding geographically. 

For example, it is not uncommon for veterinary medical devices to be slightly modified for the human market.  Panasonic Toughbook which is a PC slightly modified for rough terrain.  GE modified its standard bulb with a tougher covering for harsh outdoor environments. Black and Decker modified its tools slightly and rebranded them as Dewalt for the professional. Meguiars Mirror Glaze for the professional detailer market was repackaged as Meguiars Wax for the consumer market.  Arm and Hammer baking soda was repackaged as a refrigerator deodorant by changing the packaging.   Uber started in San Francisco and expanded to other US cities and then internationally.  Microsoft offered its Office product to Students and Teachers by reducing the price, changing the licensing options, and eliminating Outlook from the Student and Teacher version.  

Other means for market development may include partnerships and building a stronger eco-system.

Product Development

This growth vector relies on creating new products and selling them in its current markets.  This strategy offers a company the ability to expand its “market share of wallet” in existing markets.  Product development has its own unique risks and constraints and will be discussed below.   However, product development and innovation have the potential to yield solid financial results if performed correctly.  

Look at Apple and how they were able to expand from the PC, to the series of I-devices like the iPod, iPhone, iTouch, iPad, and then add larger sizes (line extensions) for the iPhone and iPad.  Boeing was able to take the 747 platform and develop a tanker for use in military applications.  Honda and other car companies have developed new models to appeal to specific sub-segments of the markets they served.  McDonalds developed the McCafe and Burrito to complement their existing products in their breakfast menu.  

Diversification

A company can grow by developing new product in new markets through diversification.  It offers the company a new opportunity to grow with high margins.  However, it is the most difficult because the company may need new competencies in development, new partners, new channels, new sales and marketing skills, and new processes and infrastructure.  Some companies have chosen to reduce risk by partnering with another company which brings complementary skills. 

Some companies have been successful in making that transition.  Here are some examples.   Coca-Cola diversified into Vitamin Water (related diversification) as well as branded merchandise and clothing.   The NFL has moved from the teams as the products to licensing deals for clothing with the team’s logos and other merchandise.   Eddie Bauer diversified from rugged outdoor clothing to car interiors for Ford.   Google, which was founded on search algorithms and advertising keywords, is developing self-driving cars.    

Another way companies can diversify is by taking an internal competency and commercializing it.  Amazon leveraged its internal computing and server management skills and built Amazon Web Services which is one of the dominant providers in its market.  Motorola was attempting to be diversified yet became overwhelmed and had to retrench and spin off some of its business.  So it is fraught with a high degree of difficulty.

The product development spectrum

Since product development is a major component of growth in the Ansoff matrix, I want to briefly cover the product development spectrum.  Depending on the type of product development undertaken, the risks can be relatively small or very large.  Companies need to develop a product development strategy reflecting their growth plans and include how to manage the risk of development. 

Several questions must be asked.  Does the company have the right resources and competencies?  What is the amount of time the company is willing to invest in developing new products?   Can the company protect its product through new Intellectual Property or by otherwise developing a “moat” surrounding the product?  Or is there some other strategic control point that can be developed by the company that enables a new product to be successful.  How much risk is the company willing to take in developing a new product?

From lowest risk to highest risk, the spectrum of new products is as follows:

Type of Product	Risk Level	Organization Effort
Pricing/packaging change:	Low	Very low
Minor line extension (different shape or size of product e.g. WD 40 in larger spray can)	Low	Low to Mid
Major line extension (adding significant features to the product to make it different e.g. Panasonic Toughbook or GE Tuff Bulb. Hyundai marketing the Equus as a high end competitor to Mercedes and BMW.)	Low- Mid	Mid
New to Company (adapting a product in the market or copying a competitive product, e.g. Kroger developing Cola K to mimic Coke.)	Mid- High	Mid-High
New to the World (a new technology, new IP, new process like the iWatch or iPhone when it first was commercialized.)	High- Very High	Very High

The rewards for different product development activities will vary with the ones toward the bottom of the table normally providing greater returns and a potential position of dominance in the market.  But clearly there is a higher risk to the company, especially in the area of product development costs and R&D.

Managing the growth path

This blog shares a few ways to grow a company’s business.  There is, of course, organic growth using one’s own resources as well as growing via partnerships, alliances, joint ventures or other business combinations.    The right answer depends on the analysis of both internal and external factors and the risk – technological, regulatory, business, or financial- that the company wants to endure.

Depending on the size and complexity of the company it may be pursuing several of these strategies at the same time. As part of the planning process it is helpful to plot each growth strategy against the Product Market Matrix and assess the level of risk being undertaken. We worked with a company that, upon mapping its growth strategies, realized it was taking on too much risk and slowed down its efforts to enter a new market with a new product.

As companies seek growth, they need to keep in mind the following key issues.   First, what are their new routes to revenue?  Where do they want to play on the product-market matrix and do they have the right skills, competencies, resources, and culture to be successful?  Second, as companies grow their business through these new routes to revenues, who are their ideal targets?  How will they identify them?  How will they market and sell to them?  Third, what are the financial and market metrics the companies will use to gauge success?  Will those metrics be incorporated into operations reviews and a balanced scorecard?  Fourth, how will the company determine the best growth path?  Is there consensus on how to score opportunities?  (In a future blog I will present a method called the Analytical Hierarchical Process to score disparate opportunities.)  Finally, how will the company manage risk and impact?   Brian Newton has written a couple of blogs on this topic and can provide some thoughts and tools to use.

Regardless of which direction a company takes to increase their growth vectors, metrics for success and a continual review of progress need to be implemented.  This should be accomplished through operations and strategic reviews, and incorporated into a dashboard for review and action. We suggest that companies implement a test of their strategies and tactics in order to gain feedback from customers and suppliers prior to releasing a final product.   The readers of this blog may be able to suggest other ways to manage the risk of growth (or the risk of non-growth if companies perceive they just want to manage cost efficiencies.) 

We, at C-Level Partners, would like to continue this dialog and welcome any thoughts you might have.  Feel free to contact David Friedman at dfriedman@clevelpartners.net or via phone at 949 439-4503 for a confidential discussion on how to develop new vectors for growth.  After all, you can’t grow without a plan and you can't shrink your company into greatness.