A successful strategy will result in increased turnovers with the target groups and sometimes beyond. Of course, the Business Intelligence company hopes to achieve an increase in earnings, as well. This depends on the costs incurred by the company. The ideal strategy always shows an increase in sales and profits. Unfortunately, that dream is shattered; all good things come to an end.
The strategy life cycle
The premise of the strategy life cycle is that the turnover stops growing for various reasons (saturation, competition). At a certain point – no one knows when in advance – the turnover first stalls and then starts decreasing. A successful Busines Intelligence company would not keep profits at the same old level. The time for new product offerings, a new strategy and a new cycle comes.
Strategy Life Cycle
The life cycle of a strategy consists of four stages: birth → growth → maturity → decline. Some strategists add an extra phase between maturity and decline: the revival for example of Cognos Analytics. We have a term for that in our own language, too. It means rising, maturing and then fading, once again. In the strategy’s birth stage, the entrepreneur must determine the strategic position he thinks he can claim versus other suppliers. Quite often, that is the choice of a niche market, a market with a limited number of BI suppliers.
Anticipating future possibilities
Many strategists consider the strategic positioning as a crucial choice: what is our value proposition for whom? Or: what kind of products and services does the organization provide to which type of customers? It is a matter of anticipating the possibilities of the future market. It is important that this positioning is also suited to the organization’s capabilities. There are major risks here, especially in the beginning; major investments are required, certain people must be hired. Those risks must be assessed and weighed.
Features of the organization
Once the strategy catches on, the growth will follow. It gets clearer, what needs the organization can provide for. As a result, the market segmentation can be tightened and products can be differentiated to serve specific customers. This also involves more control of certain risks. The growth has consequences; the organizational structure has to be scaled up and adjusted. The growth strengthens and can often lead to euphoria: the winner takes it all! We have developed a number of programs in order to help your organization in providing for the appropriate need. We mostly focus on the practice of strategy formation.
But growth can never be infinite. When the Business Intelligence strategy comes to the stage of maturity, the organization experiences this increasingly. Decisions are now taken more procedurally, and professional managers would assist or replace the entrepreneur. They pay more attention to costs and tend to follow competitors. The management burden increases, while the growth pace slows down.
Picking up the rise
The management obviously has not thrown in the towel, but they develop initiatives to address the rise again after flattening. There are always different possibilities, for example:
- Maintaining growth by selling products in new markets.
- Motivating target group(s) and retain them with product innovations or complementary products.
- Improving process quality by using state-of-the-art technology.
- Greater efficiency and cost reduction by process innovations.
Steady profit growth
The steady years of profit growth for familiar do-it-yourself (DIY) chains such as Praxis, Gamma and Karwei until 2009 was not a lucky shot. The success is easy to explain; the disposable income of consumers increased and many people moved. As a consequence, much has been done by new homeowners. The economic crisis of 2008 has put the profits of hardware markets under considerable pressure. The managers of hardware stores naturally wanted the rising trend to be kept there. Some stores expanded their product range with items from other industries, such as bicycles and household appliances.
Other stores have started focusing on certain market segments, such as home products. They chose to explicitly deal with profiling; one hardware store would focus on advice and another on inspiration. All this has had some effect, but the matter was whether the existing hardware stores could maintain their strategic position. While the sales area has experienced significant increase, in 2014, sales volumes dropped by more than 30% compared to 2008.
Competition from outside
New competitors would show up on the scene, often from an outside industry. Such Internet shops such as Bol.com and Coolblue noticed a ‘gap in the market’ and decided to focus on do-it-yourselfers, too. In 2015, some big foreign hardware providers, such as Bauhaus and Hornbach, came to our country with solid expansion plans. With their megastores, competitive price and service level, the strategic position of the major players is put under considerable pressure.
Lessons of life cycles
Kim Warren combines three fundamental questions on the strategy life cycle:
- Why? Or, why are we precisely at this stage of the life cycle? The management must know where they are and must be able to explain why this happened. Only then the management can give a good answer to the following two questions.
- Where? Where do we end up if the strategy remains unchanged? At the end of the life cycle, a company will experience an accelerated decline leading to its elimination.
- How? How can we perform better and, if the strategy on life cycle is well developed, how to escape an imminent decline? In the latter case, the strategy should be revised drastically. The difference between “where now” and “how better” indicates that there is a strong strategy gap.
The life cycle teaches us some important lessons:
The strategic positioning may last for years. The leadership deliberately chooses to move into a particular market with certain products and services. The management almost never decides to switch to a different positioning afterwards. The positioning is there to last. The quality of this decision is therefore of paramount importance; find the best position! Management should focus on stretching the maturity stage. The organization performance is continuously evolved under the influence of the logic of life. The value point of the management’s attention is initially focused on achieving growth as much as possible. But then the time for maturity’s critical stage is ripe; the cost increases and competitors with attractive innovations emerge.
Certain small changes, such as product variants, flexibility to respond to market developments and by streamlining processes that phase can be stretched (stretching). Thus, the decline is delayed, and, subsequently, the time for the management to be forced out of the existing positioning is postponed, as well. Forcing out may sound a little bit too strong. In practice, you may be forced to continue stretching. It may happen that the value proposition is no longer applicable to the original target group, but may be still appealing to a new target group. Of course, the original target group can also take to a new value proposition. In any case, the lines binding with the past are not that easy to cut.