BASIC STRATEGY GUIDE: STEP 10

Activity One (Steps 1-12):
Segment customers, both by size and by need, to identify targets for the Company.

Step 10: Compare the Company to the industry on the components of volatility

• Audio Tip #42: Introduction to Step 10 of the Basic Strategy Guide

What:

Compare the Company’s performance on each of the four types of volatility to that of the industry to identify the most important causes of the Company’s net volatility results.

Volatility has four component parts. Positive volatility occurs when the Company gains new volume from Get In and Increase Use events with customers. Negative volatility occurs when the Company loses sales volume to another competitor through Get Out or Decrease Use events.

• Audio Tip #45: The Components of Positive Volatility

• Audio Tip #46: The Components of Negative Volatility

• Audio Tip #47: Net Volatility

Why:

This analysis enables the Company to be more exacting in choosing its target segments and in designing the product and service improvement program necessary to serve those segments well. By analyzing the Company’s performance against the industry on each of the four components of net volatility, the Company further defines its areas of strength and weakness.

What to Watch For:

• The company’s Net Volatility, as well as its components of volatility, may vary greatly from those of the industry.

• A strong industry leader may increase its market share because it has less Negative Volatility than the average in the industry. Its Positive Volatility may not exceed that of the industry. This is particularly true in Hostile markets.

• In a Deteriorating market, when customers defect from the companies ranked first or second in market share, they will usually do so by Decreasing Use rather than by Getting Out.

  • Audio Tip #43: Characteristic Volatility of a Strong Standard Leader

• In a Developing market, the leading companies will beat the industry average, especially in the “Get In” form of Positive Volatility.

  • Audio Tip #44: Volatility in Developing and Hostile Markets

Action:

Develop a good understanding for the reasons the Company out performs or under performs the industry on each component of volatility. Pay particular attention to the Company’s net volatility in its tentative target segments, where these target segments are defined by positions on the Size/Role Matrix.

• Self Test #10: Comparison of Company to Industry in Components of Volatility

• Worksheet #10: Comparison of Company to Industry in Components of Volatility

More Information on Company Share Change and Volatility on the Advanced Site >>

For helpful context on this step:

Videos:

• Video #67: Overview of Segments Part 2: What to Expect

• Video #68: Overview of Segments Part 3: What to Do

• Video #36: Probable Priorities for Innovation in Hostile Markets

• Video #37: Performance Innovation Tradeoffs in Hostility

• Video #38: More On Performance Versus Price in Hostility

• Video #55: The Value of Customer Sensitive Cost Reduction

Perspectives:

• “Building on Customer Volatility”

• “Finding the Open Door”

• “Overcapacity: Threat or Opportunity?”

Symptoms and Implications:

• Customers are adding suppliers because incumbent suppliers failed them

• Share is tougher to shift

• Customers are making significant changes in their supplier arrangements

• Most share shifting in the industry seems to be coming from volume gained within existing customer relationships rather than from new customers

Guide Index

NEXT: Basic Strategy Guide Step 11