Kim Warren on Strategy
Strategy insights and living business models
Strategy Dynamics Briefing 19: Resources drive each others growth, or limit it
The flows in and out of a resource (the rates at which it grows or declines) depend on existing resources – more sales people should lead to customers being won more quickly, for example.There are two special cases of this dependency that are both very common and important…
What are they?
They are:
The role of potential resources
These customers must come from somewhere, and that ‘somewhere’ is the population of people who might be able to use the airline’s services, because it offers flights from near where they live to destinations they might want to travel to. This second figure shows both the word-of-mouth from current customers driving the new customer win-rate, and the constraint that arises from the limited potential population – the lower this potential pool, the more slowly the airline will be able to win more.
This combination of self-reinforcing growth of a customer base and the constraining effect of a limited potential market is a very common structure that gives rise to characteristic behavior – S-shaped growth. The next briefing will look at that structure in more detail.
Opportunity share
The important role of the potential customer base leads to an important shift of focus that many firms should consider. Market share has long been a popular indicator for management to worry about, and in mature markets where no further potential exists or could be created, that may be fine. But in most other cases, management should really be considering the share of the potential market they have taken, and how much more might be possible – in other words, what opportunity share they have.
TIPS
Starbucks, on the other hand, showed how easily damaged such self-reinforcing growth can be, amongst both customers and employees, when it struggled to respond to the 2008 recession. Faced with sharply lower profitability, it responded by cutting back sharply on the staff development that had been so fundamental to its success over many years.
This briefing summarises discussion from chapter 4 of Strategic Management Dynamics, pages 179-180
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- The current level of a resource can affect its own rate of growth or decline
- There is often some potential pool of resource from which the active resource is captured


- Identify how much customer growth is coming from word-of-mouth recommendations, and how much could come from that source if you put effort into driving it.
- Consider whether current demand from existing customers might be creating pressures that cause some to be lost, such as shortage of supply or service capacity. If so, are sales and marketing efforts to win more customers pointless, until such time as you have removed the constraint?
- Estimate the scale of opportunity for all or part of your business – the size of the potential customer population that might exist. Is that potential mostly used up, and limiting your ability to grow, in which case can you extend what you offer to other potential segments? Or is it still large and mostly unexploited?
