In developing a strategic agenda, the main focus will be on five categories: a market strategy, regulatory strategy, and key stakeholder strategy (outside-in approach); and a product strategy and a resource strategy (inside-out approach). For each of these strategies, specific strategic thrusts need to be identified that if successfully executed, will lead to achieving your vision and mission. In this STILE Point, we will discuss the development of a market strategy. In future STILE Points we will discuss the remaining four strategies.
The success of your market strategy is directly dependent on the quality of your competitive intelligence. In steps 1 through 6 of the strategic planning process, data was gathered on self-assessment, competitor analysis, client feedback, technology trends, market analysis and stakeholder requirements. The data in and of itself is relatively useless unless it is used to develop competitive intelligence. Gathering data is only the first step in the process and represents the raw material from which to develop information. Information is the grouping of data to form comparisons that reveal a larger picture and provides more meaning. Competitive intelligence is the ultimate goal of the planning process that reveals critical information that provides insights for competitive advantage and forms the basis of strategic decisions and actions.
For a simple example, the annual revenues of a competitor represent a data point. Revenue growth rate over the past three years represents information. Non organic revenue growth rate caused by several mergers and acquisitions represents competitive intelligence that may indicate a vulnerability that could be exploited. The goal in developing a market strategy is to turn data into information and ultimately competitive intelligence that opens up patterns or trends on which to make decisions on a course of action.
A winning market strategy is one that allows you to successfully compete in a favorable, highly attractive market segment with a subset of clients who highly value your products/services. In identifying a highly attractive market segment, there are many factors to consider including the size and growth rate of the sector; profitability of its client base; its diversity and sustainability; sensitivity to price and service; the number and strength of competitors; barriers to entry; maturity and complexity of the segment; and economies of scale. In the case of the biotechnology industry, a market segment could be a particular disease state being targeted for cure.
A second consideration is your ability to successfully compete within that market segment. Factors to consider include the technical capabilities of your staff; regulatory knowledge; patent protection; alignment of your Internal Research and Development (IR&D); applicable facilities and equipment; subcontractor and supplier access; reputation and track record within the market segment; and potential financial returns on investments. The figure below represents a matrix tool from which to make decisions (for more detail, see the Competitive Forces Model by Porter and the Business Portfolio Analysis by BCG, McKinsey and GE). As stated previously, the key to making decisions about which market segment to compete in should be based on the competitive intelligence you have gathered during the planning process.
As a senior manager in contract R&D and consulting organizations, I have had the good fortune to have worked in several different market segments including the US Federal government, several state governments, the pharmaceutical and biotech industry, the oil and gas industry and the chemical and agrochemical industry. Each of these markets represented unique challenges in developing a winning strategy and the market segmentation matrix is a good place to start.
Market Segmentation Matrix
Once a market segment has been chosen, the next step is to choose the most attractive clients within that market segment. Client selection is one of the more important decisions that gets made during the strategic planning process and is often determined by the feedback from current and potential client accounts. Account management is a discipline that focuses on the selection of high value “key” accounts within a market sector where you can successfully compete. Key accounts are usually chosen based on their potential for growth and profitability of your current and future products/services.
One of the most common strategic thrusts identified in a market strategy is to build relationships with each key account so that you can transition from being just a vendor to a preferred provider and ultimately into a strategic partner. In selecting a key account, it is important to determine first what their relationship is with one or more of your competitors. When this relationship is strong, this may not be a good key account choice regardless of its attractiveness. Conducting R&D is an inherently risky business where clients invest in your ideas without guaranteed results. It is best to identify not only the account’s attractiveness but also the value you may bring to the relationship above and beyond your competitors. At the very least, you want to be a preferred provider so that when a need arises, you are one of a very few organizations that are invited to present a proposal.
Your ultimate goal is to become a strategic R&D partner. This is easier said than done and requires a strategic commitment of time and resources. It usually requires a combination of a successful track record on previous projects; a dedicated relationship manager that maintains contact in between active projects; and the ability to provide sound advice on the client’s marketplace and the R&D support needed. In my experience, most R&D organizations do not view key account management as strategic and give it just lip service. However, it is one of the most important strategic decisions you can make. Using an example of the Pareto principle, 80% of most client revenue will come from 20% of the client base. By focusing your marketing investments (and in some cases your IR&D investments) on key clients, you will most likely increase your return on investment dramatically.
As an example, I once had the opportunity to bid on an R&D development project for a key client, knowing that there would be a large follow on project for implementation. By using our own IR&D funds to help subsidize and successfully executing the development project, we were able to procure the much larger follow-on project. By strategically identifying your key clients and emphasizing their importance to your organization, you can focus more attention not only of your R&D staff but also of your entire organizations’ including the responsiveness of key managers and administrative staff.
Once the decisions are made on the target market segments and key accounts, a market strategy can then be developed that allocates critical resources and management attention to those accounts. Generic examples of strategic thrusts within a market strategy could be the following:
- Evaluate the potential of entering market segment X by opening a local office
- Triple the revenues on Key Account Y by developing new products/services that help them increase market share.
- Obtain a seat at the annual R&D strategy meeting of Client Z
Each of these thrusts will require action to be taken and accountability to be measured. Translating strategic thrusts into executable projects will be the subject of a future STILE Point on performance management. In the next STILE Point, we will discuss the development of a product strategy.