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Step1: Defining Business Model Type Organizations tend to define WHO they are and WHAT they do based on the task at hand. For example, if you knit sweaters for the homeless, one might consider themselves clothiers and their goal is to clothe those in need. Another way to evaluate our example is based on disciplines and methods that constitute a business model. To continue with our example, if one were to make the highest quality sweater, then they would be considered “best product” and the organizational attributes would be structured around that process (The Discipline of Market Leaders, Michael Treacy & Fred Wiersema). If you highly customize your sweaters, you would be considered “customer intimate” and if your organization was highly efficient at that process, you would be deemed “operationally excellent.” According to Treacy & Wiersema, all organizations operate in all three arenas simultaneously, but the entity is organized around one dominate process. By stepping back and considering these two strategic issues, mainly WHAT you do and HOW you do it, you can quickly identify your business model type. This determination, in my opinion, is critical when undertaking a value-gap analysis. Step 2: Value-Gap Analysis The framework of a value-gap analysis is comprised of two constituencies: identification of gaps in consumer value that are not being fulfilled and re-defining the competitive rules. Let’s look at an organization that most are familiar with – the airline industry. Back in the 1980’s, Southwest Airlines found a gap (low-cost, no frills travel) in the airline industry and built a business model around that unfulfilled need. Management understood that competing head-to-head (using their rules) of the other giant airlines meant certain disaster. Southwest Airlines, in effect, changed the rules and was rewarded with market dominance and monetary prosperity during tumultuous times. Southwest built a low-cost business model by employing point-to-point service; one aircraft type (Boeing 737) which reduced maintenance costs and cross-functionally trained all their employees to engage in multiple activities. A value gap analysis consists of plotting your direct competitors on at least seven key attributes they consistently deliver. Next, by observing behavior or through surveys, have your target audience rate each attribute in terms of importance. The variance between competitive offerings and customer behavior will readily emerge. By reducing, eliminating, or increasing those attributes, a new position will be created that more accurately suits the behavior of your targeted audience. This exercise not only identifies opportunities, but reduces or eliminates activities that consumers do not value and in turn, reduces associated costs. If we apply this theory to the Southwest example (see graph), one can quickly assimilate attributes of importance to the discount traveler and by filling those needs, how a successful business might be developed. As the graph indicates, customers felt that food and comfort, which airlines were offering, possessed little value when compared to on-time flights and a fun experience. As a result, Southwest eliminated meals, minimized seating, but focused on frequency of on-time flights and created a “fun” experience from check-in to the destination arrival. To summarize, Dr. Richard Schoenberg suggests mapping the behavior of your target audience and find “gaps” that are being ignored or underdeveloped. Next, adjust your business model to eliminate, reduce, or increase value in areas that are meaningful to the user. Finally, change the rules of the game and make them hard to follow. Step 3: Sustaining verses Disruptive Business Another approach to assessing the marketplace for your organization considers circumstances over generally accepted quantitative tools/methods for creating growth. Let’s start with how the organization categorizes its business. According to Christensen, people “hire” products to do specific “jobs” in everyday matters (The Innovator’s Solution, Christensen). Most professional organizations utilize market research personnel or firms to quantitatively analyze the “numbers” and derive correlations between attributes and customers. Christensen suggests that “the functional, emotional, and social dimensions of the jobs that customers need to get done constitute the circumstances in which they buy.” The critical point here is segmenting your business around circumstances verses customers determines your success. Returning to the Southwest example, the circumstances of discount and business flyers warranted a demand for inexpensive, high frequency, and fun travel. The Southwest business model embodied functional (frequency/inexpensive), emotional (fun/relaxing), and social (light-hearted service, whimsical) with every experience. In short, Southwest segmented their business along the circumstances of travel and not the customer and has built a 20 year history of success. Christensen asserts three approaches to creating growth; sustaining, low-end disruptions, and new market disruptions. What is the importance of these concepts to nonprofits or any other organization? The unequivocal answer is all organizations need to grow! By now, you have discerned WHO and WHAT your organization does and if the dominate process entails best offering, customer intimacy, or organizational competence. Next, you have undertaken a value-gap analysis and determined gaps and shifting the rules of competition. Also, you’ve considered the circumstances to WHY people buy and how they hire products/services to achieve them. The next step involves how you are going to create growth. A sustaining approach seeks to continuously improve the offering and initiate cost containment. A second approach is deemed a low-end disruption (ex. Southwest A/L) that delivers “good-enough” performance at affordable prices. The final, or new market disruption, competes against non-competition. (The depth and complexity of this topic could not be contained in this article and the author recommends reading Christensen’s book.) The importance of which growth strategy you select solidifies the direction and actions you’ll take. If your organization continuously improves its methods to deliver a service while clamping down on costs, the path taken equates to a sustaining strategy which increasingly adds more performance to capture growth. If the increasing capability exceeds what customer’s desire (over-shoot needs), the possibility exists for a segment of donors to seek other venues. An example might be a grass-roots organization that, over time, has taken on too many causes in an effort to grow. In this case, donors might feel the message has been diluted and will find another cause to support which is more centered. Step 4: Deliberate verses Emergent Strategies A final theory posed by Christensen culminates WHAT you do and HOW you do it in relation to the marketplace and your organization on the whole. He suggests that two simultaneous processes operate in every organization that defines strategy. A “deliberate” strategy is derived by analysis, is measurable, and is implemented by senior management. An “emergent strategy” is derived from unanticipated opportunities and is a process of daily decisions of the organization. Let’s go back to our sweater business example. You make two sweaters – one out of cotton and the other wool. Your strategic direction is to donate the more durable sweaters next year, but the organization receives requests for the cheaper cotton sweaters. Thus, the organization allocates resources to invest in cotton material and the net result is the organization’s actual strategy. Here lies the critical point – do you adapt emergent opportunities/problems or force a deliberate strategy on your organization? Summary The intent of this meta-analysis was to introduce several market analysis theories and then generate reflection on the part of nonprofit management. Nonprofits stretch their resources to accomplish the task at hand without having to consider “competitive forces” which are lurking around the corner. Since time, money, and energy are limited commodities, the ability to think strategically about your organization’s direction is more critical than ever. Undertaking a marketplace analysis achieves two strategic objectives: it identifies WHAT you do and HOW you do it with respect to the current circumstances of your donor base. A value-gap analysis quickly discerns those attributes which are important and those to increase, reduce, or completely eliminate. Defining if you are attempting to sustain your current activities or create new value will determine a future direction. Finally, will you follow the emergent opportunities or drive deliberate strategies to initiate growth. These questions will not only define your organization’s future, but re-organize how you serve your existing constituents. Bill Nissim consults with nonprofit organizations on brand management issues. His website contains reference materials, links, and helpful articles on the many facets of branding at http://www.ibranz.com. | ||||||||||
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Concept Marketing Group, Inc.