Peter Welch from Data Provider Equifax Says It’s All About Having a Data Strategy
If you’re reading this article, you’re probably already quite serious about running your business. What I hope to be able to do is provide some insight that will help you improve – at least in some small part – your business strategy to achieve success.
But first, it might be helpful if you ask yourself a fundamental question which is: why are you in business? I’m pretty sure I can guess many answers: to make a profit; become a national brand; serve my customers and staff; make a difference. But these goals alone don’t quite provide the clarity that truly guides a business to achieve its potential.
Start With the End in Mind
In order to gain absolute clarity about where to steer the direction of a business, it’s worth applying a simple root cause technique to extract the pure essence of why the enterprise exists. This involves using five ‘whys’, with each answer prompting the next question.
Question 1: Why are you in business?
Answer: To make a profit
Question 2: Why do you need to make a profit?
Answer: To build up value in the business
Question 3: Why do you need to build up value?
Answer: To sell it as a going concern
Question 4: Why do you want to sell the business?
Answer: To retire early
Question 5: Why do you want to retire early?
Answer: I saw my parents work hard all their lives and retire late when they were too old to enjoy the fruits of their labours
For many, if not the majority, of business owners, the real reason to be in business is to build up value in the firm, so as to enable either an exit at a fixed point in the future or an income from the business while not directly employed within it. The strategy for a business must, therefore, facilitate the full or partial sale of a going concern which is not reliant on the current owner/s remaining in place.
Developing a Strategy
A good starting point when building a strategy is to look at the work of Michael Porter, the ‘godfather’ of competition and corporate strategy. Porter says that a business needs to formulate its strategy around one of the following:
· Price – Customers will be attracted to your services and will remain loyal because they perceive they are getting better value for money than they can reasonably find elsewhere. In retail the obvious examples are Aldi, Asda and Lidl.
· Focus – The business sets itself out to be the market leader in a narrow area of advice/service/customer group. A firm that specialises in advising clients in the legal profession would be a good example of a focussed strategy.
· Differentiation – The proposition stands out clearly from its competitors.
Porter argues that a firm should stick to one of these three strategies – otherwise it can become ‘stuck in the middle’ and lose competitive advantage to other organisations that are competing on price, focus or differentiation.
Most small to medium sized enterprises (SMEs) in the financial advice market will need to focus on differentiation. This is because they’re unlikely to have the scale or resources to invest sufficiently to compete on price or to focus on a narrow segment of the market.
If you’ve got a clearly defined business goal, you will know whether to adopt a price, focussed or differentiated strategy in order to achieve it. The question then, is how do you formulate a strategy and, secondly, how do you measure how well you’re delivering against it?
I believe the answer can be found in data.
Know Your Market
First, an audit of your current market position is essential. There is a remarkable amount of data available to help with this if you know where to look and it doesn’t need to be a time consuming or expensive exercise.
Using current resources available to an Intermediary firm, it’s possible to understand the following with some quick desktop research:
- Who is your competition (now and in the future)?
- What’s your market share (locally or, if relevant nationally)?
- How are you differentiated? (Or, how can you be further differentiated)?
- How does your pricing structure (fees) compare to your competitors?
- What (if any) are the common themes in terms of the make-up of your customers?
- Understanding your own customers;
- Knowing who’s profitable;
- Knowing what they look like – and where can you get more that look the same?
Remember, here, the world is changing, and referrals will not last forever, as a client bank ages and de-cumulates its wealth.
Much of the comparative data to answer the above is available on the free-to-use website www.mytouchstone.co.uk. And by answering these questions, you’ll be assembling what you need to put together a simple SWOT (strengths, weaknesses, opportunities, threats) analysis – which, again, will inform you while shaping your strategy.
Having mined the data identified above, you’ll then have a better sense of where your business sits relative to the various opportunities and threats. You will clearly know where you need to get to.
It will then be your job as a business leader to develop the relevant strategy to best achieve your goals, navigating within the landscape you’ve mapped out.
It is, however, one thing developing a strategy for a business and an altogether different challenge executing it. By focussing on the real drivers behind a firm’s strategy, a number of areas for change in direction and the operation of the business may be identified.
One simple means of aiding execution is the use of a balanced scorecard. This is simply a list of activities that are crucial to the delivery of your strategy with simple SMART (specific, measurable, achievable, realistic and time-bound) targets against them.
Measures that typically appear on a balanced scorecard are:
- Customer – Marketing, client acquisition, market share what measures tell you what clients really think of the service they receive?
- Process/operations – In terms of running the business what key service measures (including compliance) should be reviewed?
- Financial – revenue measures that track performance against long term strategic goals
- Research and development – including learning and growth what progress has been made to service/proposition development?
Prepared for Success
So, to summarise, in order to get your firm on the right course for long term success get to the heart of what success looks like for you. Do your research; use available data. Develop a strategy that takes into account the market and competition as well as your capabilities. And focus on measuring performance against strategic goals step by step.