netkingcol

thinking outside the tank

How’s your strategy? Does your business have VIM?

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The Value Influence Model (VIM) is a tool to help your business understand its current strategic position. If you want to survive and grow you have to know what kind of shape you’re in, what’s going on around you, and know whether you have the right resources – skills, machines, information – for future operations.

There’s a whole raft (no, a Titanic) of strategic analysis tools out there, so one should hesitate before burdening the hard-pressed manager with another. The Value Influence Model is slightly different in that it encourages, even requires, you to perform those other analyses and then offers a different, more powerful way to view the results.

What are the different kinds of strategic analysis?

There are 4 methods I’d like to mention before showing the Value Influence Model in action:

  1. SWOT analysis
  2. STEP analysis
  3. Porter’s five forces model
  4. Boston matrix

In the sections that follow, the hyperlink on each heading opens a new window showing reference material for that analytical technique, so I will only provide an overview in the body of this post. The more of these analyses you can perform, the more powerful your Value Influence Model will be.

SWOT Analysis

The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

Strengths and weaknesses could relate to the particular skills your business has, or its financial position, or aspects of its culture, or the relative power of the brands you control. These will vary widely from industry to industry and from business to business. You will know best, or will find out through analysis, which strengths and weaknesses your business has.

Identification of Opportunities will help you see new directions for your business, perhaps through product or market development, or diversification,  or the use of a new technology to become more efficient.

Threats are those things that could prevent you from operating most effectively. Maybe a new competitor is building market-share, or an online store threatens your high-street operation. Again, you need to think about your own industry and look at your own business to identify these.

The classic way to present a SWOT analysis is in list form with a heading for each topic.

STEP Analysis

The STEP analysis identifies the, mostly external, influences on your business. It looks at trends, such as whether unemployment is rising or corporate finance is becoming more expensive, but it also considers the effect of sudden shocks like, say, cutting VAT by 2.5% for a year, or a change of government. The analysis looks at different kinds of influence, and these are grouped under the headings: Social, Technological, Economic, and Political. With those headings you can probably start your STEP analysis right now.

The classic way to present a STEP analysis, once more, is a list of headings with the detail below each heading.

Porter’s Five Forces Model

Michael Porter identifies five forces acting on a business in its competitive environment:

  1. The bargaining power of suppliers.
  2. The bargaining power of customers.
  3. The threat of new entrants to the market.
  4. The threat of substitute products.
  5. Competitive rivalry within the industry.

After developing your model under these headings, you will know more about the industry you are in and your position in it.

Boston matrix

The Boston Matrix is an analytical tool which is most useful in businesses that have a portfolio of products which are targeted at a range of markets. The analysis consists of determining the market share of each product and assessing the growth rate of its market. This leads to a classification of the products as:

  • Cash Cow – a product with a high share of a slowly growing market.
  • Dog – a product with a low share of a slowly growing market.
  • Problem Child – a product with a low share of a rapidly growing market.
  • Star – a product with a high share of a rapidly growing market.

This analysis leads to consideration of how to handle each product – should it be phased out, taken to a different market, or promoted with all the resources available.

The Value Influence Model

Having completed your analyses, there is just one more step before you can build your Value Influence Model. You need to look at your business and prepare a Value Chain model. The Value Chain, also invented by Michael Porter, is that sequence of activities through which each product passes, gaining in value as it passes from one to the next. The normal representation of the model is a diagram, as shown in the reference above.

Now, the Value Influence Model is a synthesis of all of the foregoing information. Separate all of the data you have collected into lists of influences that are either positive or negative. A positive influence either supports your business now, or is part of a trend that will support it in the near future. Conversely, a negative influence is preventing your business from achieving its goals, or will do in the future. 

It is likely that strengths and opportunities will be positive and that weaknesses and threats will be negative. The influences of Porter’s five forces will, likewise, be distinguishable as being positive or negative for your business. If you supply a supermarket your customers have the power to set prices – a negative influence. If you are a supermarket then your suppliers have little bargaining power – a positive influence for you.

At the same time, make a note of which part of your value chain is affected by each influence. For example, fuel costs will influence your logistics, new technology might influence product development or your core operations, a recession will certainly influence your marketing.

The Value Influence Model is no more than a value chain showing all of the influences on your business, with the key feature that each influence is shown impinging on the relevant part of the value chain. For the first time you can see the results of all of your strategic analysis in one diagram.

The Example Value Influence Model shows a not-too-detailed, hypothetical, analysis of a large bakery business in the autumn of 2008, a time when gas, oil, and commodity prices were rising steadily.

The core operation for a bakery is simple: you take ingredients and make dough; you heat an oven and bake the dough; you pack the products and distribute them. Among the positive influences for such a business are that, even in a recession, people buy food, and existing strong brands have the capability of extension. Among the negative influences are that inbound and outbound logistics and the baking activity are highly energy intensive, which is a problem when these costs are rising.

On the Value Influence Model you can see your business and understand what’s affecting it right now, and what will influence it if the current trends continue – and that’s the starting point for deciding what you do next.

Copyright © C.Hazlehurst 2009

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Written by netkingcol

January 17, 2009 at 7:59 pm

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