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Connecting Capabilities with Strategic Growth

By: Shawn Casemore

Shawn Casemore, president, Casemore & Co. Inc., helps organizations realize operational excellence through a focus on improvements in the areas of business strategy, process design and execution, supply-chain management and cultural evolution; 519/470-7697; www.casemoreandco.com.

Thursday, January 1, 2015
 

Strategic GrowthIf you build it, they will come. That used to be the mantra of any business flush with cash—not necessarily a position held by many in the metalforming industry in today’s feast or famine economy.

Many of my colleagues, and even some of my clients, struggle with where to invest to ensure significant business growth. The decision comes down to three focus areas: Equipment, technology and skill.

Our post-boom economy has brought about changes that would make even the most confident investor nervous. This is where reality sets in, because as they say—if you aren’t growing…

The decision of where to invest should be a strategic one driven by the growth objectives of the business, not based on which salesperson contacts you most frequently or seems the friendliest.

Based on the fundamental areas of growth for businesses in the metalforming industry (and remaining sensitive to today’s boom or bust economy), to ensure sustained business growth we need to apply an approach that will aid us in making timely and effective strategic decisions.

Strategic-Investment Decision Model

I use this model with my clients to help assess opportunities that exist for investments in growth, while still retaining a comprehensive understanding of those areas most critical to supporting investment. Here’s how the model works.

For an investment in equipment, technology or skill to be worthwhile, it must:

Opportunity• Provide significant value to existing or new customers;

• Meet an existing or potential market need; and

• Hold significant margin potential.

Meeting any two or fewer of these areas will result in the investment being set aside for consideration at a later date, or cancelled completely.

I find that although these three areas are fundamental to investment decisions, the approach taken to assessing how well an opportunity stands up in each area is less than strategic.

Here’s an example. Consider for a moment the variations of a poor investment:

• Customer value and market need, but no margin potential = no return on investment.

• Market need and margin potential, without value to the customer = a short-term investment.

• Margin potential and customer value without market need = a sunk investment.

Of course, I am simplifying the population of this model for the purposes of this article. When assessing each of these components, consider existing customer compilation as well as customer opportunities that exist on the horizon. Let’s look at how to arrive at a reasonable outcome for each component.

Customer Value

If value is in the eye of the customer, then understanding customer needs is the only way to deliver value. Investing in the business requires that we always consider what our customers value to ensure a significant and sustained return on the investment.

Consider a client of mine who invested heavily in new waterjet-cutting technology, only to have its largest customer pull its business just six months later. The investment decision was based solely on improving the performance of its business with this customer, any value of which was not communicated or shared with the customer. By returning to the model above, we identified how the technology could be repositioned to increase value to existing and new customers, resulting in new business opportunities.

Market Need

As noted above, shops investing in technology, equipment or skills to help better manage operations today are already behind. When considering market need relative to investment, it’s imperative that metalformers paint a picture of the future—specifically, what lies on the horizon for your customers. If you supply the automotive market, for example, customer needs continue to shift to lighter materials. Investment in anything other than these areas may result in a sunken investment as the market for heavier steels declines.

I call this assessment of market needs a scan of the horizon, as it challenges us to consider what lies ahead in existing and new markets. Contrary to common thought, ensuring a robust vision of market needs requires insights from across the business.

This is not a sales exercise so much as it is a robust vision of opportunities, to clarify those opportunities and delineate advantageous areas for market growth.

Margin Potential

I find that all-too-often consideration of margin potential gets lost in a growth-investment strategy. Structurally, it is only after you have considered customer value and market need that you can be fully prepared to assess margin potential. I prefer to err on the side of caution in most instances by finalizing a margin opportunity of no greater than 75 percent of the predicted margin. By doing so, I can create a margin of error to account for unexpected costs and obstacles that most likely will impact margin expansion.

There is little doubt that the market has changed, and for now it would appear that skittish customers will continue to place greater demand on receiving shorter lead times, reduced prices and increased value. Despite this, however, we cannot stop investing in growth because being unprepared is the fastest way to miss opportunity.

By applying the model above we can invest in growth in strategically, and increase existing and new business opportunities, maximize the return on investment and improve our customers satisfaction. Sounds like a winning proposition. MF

 

Related Enterprise Zones: Management


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