keymodels
Strategic repositioning and shaping profit growth options
How should strategic repositioning and shaping profit growth options be measured and interpreted?
Contents
A segment-by-segment method for converting strategic direction and capability gaps into a manageable set of short- and long-term profit-growth choices.
This tool generates a coherent set of profit-growth options. The following evaluation step can then compare the resulting investment alternatives and select the combination that contributes most to the firm’s objectives.
When to use it
- Use it whenever strategic direction must be translated into specific choices about where and how profit will grow.
Origins
The tool synthesises established strategy practices rather than presenting a separately attributed theory. It combines portfolio positioning, capability-gap analysis, the marketing mix, cost economics and option thinking. Its distinctive sequence moves from diagnosis to segment-level and business-wide actions, then packages those actions into mutually exclusive alternatives that management can evaluate.
What it is
A generic strategy sets direction but does not specify every action required to close the strategic gap.
The attractiveness/advantage matrix (GE/McKinsey) identifies product/market segments in which the firm should invest, hold, exit or possibly enter. Identifying the capability gap shows what must improve for the business to reach its intended competitive position.
This tool connects those conclusions. For investment segments, determine how to close the capability gap. For hold and exit segments, identify proportionate value actions. For potential entries, define how existing strengths will transfer. Finally, consider changes that affect the whole business.
Separate actions capable of improving profit within the next 12 months from longer-term investments that strengthen position and create sustained growth.
How to use it
Work through one product/market segment at a time, beginning with the areas marked for investment. Continue through hold, exit and entry candidates, then examine the whole business.
Segments for investment
Start with the segment making the largest contribution to overhead and restate its capability gap.
A speed-to-market gap may require simpler processes and expert support. A reliability gap may require production or testing equipment. A customer-service gap may require recruitment, training and a managed cultural change. These improvements often take time.
Also seek credible quick wins. Early results can validate the strategy work, build confidence and strengthen team morale. Review the marketing mix—product, promotion, place and price—using The 4Ps marketing mix (McCarthy) and the purple cow (Godin).
A price reduction may appear to sacrifice profit, but the complete effect can differ:
Volumes may rise, depending on The price elasticity of demand (Marshall), sustaining or increasing revenue.
Greater market share can improve visibility and stimulate further volume.
Scale economies may lower unit cost and restore or improve margin, including purchased-material cost where higher volume strengthens buying power.
Segments for holding
Holding does not mean inactivity. Protect the position and, where feasible, strengthen it. Long-term options include:
- Reduce variable cost. Continuing improvement in purchasing and operating efficiency protects the segment from future undercutting.
Recompete. Change the basis of competition and effectively create a new segment. Pets at Home, for example, competed with traditional pet shops, supermarkets and DIY chains by becoming a destination with a broad offer and live displays. The iPhone similarly redefined expectations beyond the conventional mobile phone.
Form an alliance. A business with a favourable position in a moderately attractive segment may combine with a competitor to create a stronger joint position; see Creating value from mergers, acquisitions and alliances.
Short-term choices include cost reduction and careful price changes. A higher price can signal a premium position, although demand elasticity must be understood. Imported lager brands in the UK have often used premium positioning even when they are mainstream beers in Belgium, Germany, France, Italy, Mexico, Singapore, China or Jamaica. A lower price may increase volume and share but can provoke retaliation.
Strategic repositioning and profit growth options
| Strategic repositioning by segment | Profit growth options to bridge strategic gap | Profit growth options to bridge strategic gap |
|---|---|---|
| Strategic repositioning by segment | Short-term Marketing Lower pricing to gain share? | Long-term Bridge capability gap, invest in: Fixed and curret assets Business processes Staff and training |
| Invest | Short-term Marketing Lower pricing to gain share? | Long-term Bridge capability gap, invest in: Fixed and curret assets Business processes Staff and training |
| Hold | Reduce variable cost Tweak pricing? | Reduce variable cost Recompete? Alliance? |
| Exit | · Improve fnancials? | · Withdraw (sell?) |
| New | · Prepare project plan | · Leverage strengths |
| Whole business | Benchmark overhead Marketing | Reduce overhead BPR, outsourcing, etc. Resource-based investment |
Segments for exit
A business-unit disposal can create value when a buyer exists, especially if the seller prepares the operation and improves its financial presentation. A product/market segment inside a continuing business may have no standalone sale value. Even then, physical assets or intangibles such as limited use of a brand may attract buyers. Identify what can be transferred and plan an orderly withdrawal.
Segments for entry
Favour new segments that leverage existing strengths and show genuine synergy. A candidate may involve:
A related new product sold to the current customer group.
The existing product sold to a related customer group.
Both a new product and a new customer group. This is the highest-risk combination and needs much stronger substantiation; see The product/market matrix (Ansoff).
Success factors in cost or differentiation that match the firm’s relative strengths.
Evidence that direct competitors are prospering in the segment.
Evidence that comparable businesses succeed in other countries and that the conditions can transfer.
Immediate profit is unlikely. The short-term task is to create a robust entry plan and improve the probability of long-term return.
All segments
Now identify options that apply across the enterprise:
Benchmark overhead in the short term and reduce it sustainably over time.
Improve core processes, potentially through Business process redesign (Hammer and Champy).
Consider Outsourcing or offshoring suitable activities such as IT, technical support or customer service.
Invest in core competences across research and development, operations or sales.
Use marketing and the business name across segments where the brand legitimately transfers.
Strategic alternatives
The complete exercise may produce a long list. Group the options into two or three internally coherent alternatives, each representing a distinct route across the strategic gap. One may concentrate investment in a priority segment; another may spread it across several segments and enterprise processes.
Make the alternatives mutually exclusive enough to enable a real choice. Evaluating two or three strategic packages is more manageable and strategically meaningful than scoring 20 disconnected actions.
Top practical tip
Work one segment at a time in the order invest, hold, exit and enter, then add enterprise-wide options and group them into coherent strategic alternatives.
Top pitfall
Do not let the exercise become an unprioritised wish list. Every option should close a defined gap, fit the chosen direction and belong to an alternative the firm could actually fund.
Further reading
- Porter, M.E. (nineteen ninety-six). “What Is Strategy?” Harvard Business Review.
- McGrath, R.G. (twenty ten). “Business Models: A Discovery Driven Approach.” Long Range Planning.