Strategy Dynamics Briefing 15: Insights from asking simple resource-flow questions

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After all the years I have been using strategy dynamics, I still find myself shocked at the power of this most basic of questions.

Time after time, executives get completely new insights from asking about just three numbers…

  • How much have we got?
  • How quickly are we winning more?
  • How quickly are we losing?

… whether it’s customers, staff, or some other critical resource.

Take the case of a branded pain-relief product in the mature US market. Despite some growth in people using this brand, market share was declining because their average purchase rate was falling. Close examination of consumer behavior discovered that, far from the stability that the low market growth rate implied, buyers of pain-relief products were actually churning quite quickly, with nearly 13% switching their preferred product each year. The consumer churn for this specific brand was comparable to these rates for the market as a whole.

Consequently, although net change in consumer numbers and sales was very small, the scope for improving the situation was considerable. Rather than trying still harder to capture sales from the market leader, attention was shifted to retaining specific consumer groups who were leaving most rapidly. The falling average purchase rate per consumer was explained by the fact that consumers being won were lower volume buyers than those being lost.

Diagram: customers for pain relief

Now I have used this example with students and executives for a few years, and start by explaining that the product is in slow decline and asking what information might be needed to solve the problem. I can fill whole boards with answers to this question – people would like to know, for example, how much marketing money is being spent, competitive price levels, sales force numbers, product availability in stores, and so on and so on. All reasonable enough questions of course, but unless you ask these questions, none of the other answers will be much use.

But that’s obvious!” everyone says – yes, it is, but if you don’t ask them, you won’t know what the numbers are telling you, and you will never know what to do.

People issues are another common area where these simple questions are powerful, but don’t get asked. One of the largest US banks had an objective to increase the representation of people from minority groups amongst its senior executives. It made a public commitment to increase the fraction from 6% to 20% over 5 years. The bank had about 1000 senior staff in total, so 60 were from the identified minority groups. To aid in this goal, they had a program to identify and support junior staff with the potential for senior positions.

So what flow rates are involved here? Turnover of senior, minority staff already in place was running at about 25%, so they needed to promote 15 new people each year just to stand still. Getting to 200 in 5 years means they would have to promote 43 each year (140/5 + 15), and even that requires a steady fall in the fraction who leave each year from 25% to 7.5%. There was simply no way to boost the flow of senior-potential staff to those kinds of rates within the time-scale needed to hit the target. So here we have a perfectly laudable objective that simply can’t be met.

Until next time…

 

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Big shifts can sometimes be made to happen

Here’s an example in the public sector.

In August 1996, Bill Clinton signed a law requiring states to encourage welfare recipients into work—a policy that came to be known as workfare. This policy included limiting families to just five years of federal money, together with incentives for states to shrink their welfare caseloads. This step change in policy triggered some significant changes in states’ approaches to welfare, including the requirement for applicants to try job searches, assistance in finding child care, and subsidized travel to work.

Strategic Management Dynamics book coverWhile the policy remains controversial and problems of poverty remain, the next decade saw welfare caseloads fall by 60 % from 5 million to 2 million families. An important objective for many states was to achieve long-term, quality employment for claimants, with the intent of helping people into careers, not just low-grade temporary jobs. New York State, for example, was able to see employment among single mothers increase from 40 % to over 60 % in just five years.

The great work that helped on this was done by Professors George Richardson, David Anderson, Aldo Zagonel-Santos and others at SUNY-Albany.

This briefing summarises discussion from chapter 3 of Strategic Management Dynamics,
pages 131-134

Read more about the book on our website

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