In these difficult economic times, nearly every adhesive and coating company has struggled to some degree. Over the past 18-24 months, a lot of effort has gone into reducing costs and “right sizing” to reflect the significant decrease in demand for these formulated products, and recent positive profit reports indicate that such efforts have been successful. At the same time, however, companies have to acknowledge that they cannot save their way to prosperity. There comes a point where the top line must grow. The big question is: How do companies continue to grow in what still is a challenging economy?
Self-EvaluationBefore any effort should be put into developing a growth strategy, a company needs to take stock of who they are, what they do, what their capabilities are, where they do business, etc. This full self-evaluation is crucial. For example, is your company considered to be a technology leader or follower? Is the company bound by geographic constraints? Are there capacity limitations or permitting issues? Is technical service a key element of the value proposition? Is there a disciplined approach to product pricing? Many aspects of a company’s business model need to be fully understood and assessed before a successful strategic growth plan can be developed.
As with all such endeavors, a good strategic plan must have a defined goal. While the means to that goal need to be flexible to adapt to a dynamic marketplace, companies should have a discernible understanding of the overall objectives. That understanding will, in turn, drive the underlying strategic and tactical plans. Is the top-line goal solely for the sake of revenue growth, or is it to gain market share in a specific market segment? Is it to enhance profitability through a favorable change in product mix or to penetrate new geographic markets? A defined goal is likely some combination of these objectives. As a result, the final strategic and associated tactical plans need to factor in these corporate objectives in order to succeed.
Organic GrowthGrowth strategies typically involve combinations of organic and inorganic elements. Organic growth often involves ramping up sales efforts to sell current products (or slight variations thereof) to customers in new markets. But has enough effort been put forth to fully understand the personality of this new market? Blindly jumping into a new market pool without sufficient study means taking the chance that the pool may be too shallow to be worth the effort-or too deep, and therefore perilous.
Studying the market is more than just determining how big the market is, how much it is growing and/or who the competition is. For a true understanding to be reached, ask how competitive the market is. How does that level of competition impact product pricing and profitability? Is it a dynamic market? That is, is the product lifecycle relatively short and require continued development? Do customers need or expect a level of technical service that exceeds current capabilities? Is a distribution channel required in order to be effective? Can this new market be handled with the current sales team, or is it different enough to require a separate and distinctly different team?
Another organic route to top-line growth is the development of new products for current or future markets. This approach first requires a thorough understanding of the unmet needs of the ultimate end users. Without that, a full determination of the underlying value proposition cannot be made, and tremendous amounts of technical effort could be wasted developing a product that no one wants, needs or is willing to buy.
A somewhat worst-case scenario is the successful development of a new product that is desired by the market but is priced well below its true value. The customer is certainly happy, but a significant profit opportunity may be lost. The opposite happens if a high level of service is offered in a market that does not value it. The customers will appreciate it but will not be willing to pay for it. Here, profitability takes a hit until suitable adjustments are made.
As long as a company fully identifies and understands the personality of the new market(s) that it is pursuing, the chances of huge, costly missteps can be reduced. A well-thought-out strategic plan can greatly shorten the time to successful market entry by laying out a clear path forward, providing solid rationale for actions to be taken, and pre-addressing potential issues so that flexibility can be built into the plan that enable the company to react to problems that will likely arise.
Inorganic GrowthWhat are the inorganic elements of a strategic plan? Here, the first thing that too often gets asked is, “Who can we buy?” While acquiring another company is definitely a big part of an inorganic strategy, it often becomes the “end-game” instead of a means toward achieving the strategic objectives. Frequently, companies dive into acquisition searches without performing the gap analysis between their current capabilities, what the designated market requires and what their goals and objectives are. As a result, companies sometimes acquire an entity that has a notable position in the target market but is unfortunately not able to capitalize on that because of their inability to successfully capture the “magic.”
Often, something is lost in this clash of cultures. Is the acquiree a leader, whereas the acquirer is a follower? Does the acquiree provide a level of individualized service that the acquirer is not structured to continue offering? Will the acquiree be left to run separately or be fully integrated into the acquirer’s organization-with the latter causing a potential loss of what makes the acquiree special?
By performing a full assessment of a company’s capabilities and then outlining the direction needed to achieve new top-line growth, companies can identify acquisition targets that not only fill the identified gaps but are also synergistic with the current corporate culture. This greatly increases the chance that the acquisition will have the intended positive short- and long-term impact.
Although companies tend to immediately rush into acquisitions when constructing the inorganic portion of a strategy, buying another company is not always feasible or financially practical. A viable alternative might be a joint venture in which investments are often less onerous; this would combine the best elements of two parties into one effective market entity.
Additional alternative approaches include technology licensing and private labeling, which can be fruitful options because they can somewhat quickly fill a product gap (if that is what is lacking). Licensing and private labeling can make for strange “bedfellows,” but these approaches are far more prevalent than many people realize. Because such agreements can be made specific in terms of what geographies or markets do or don’t apply, they can be structured to be agreeable and beneficial to all parties.
Finalizing the StrategyLet’s summarize the steps thus far: a complete internal assessment, thorough research of the target market(s) deemed to be most attractive for top-line growth, and analysis of the gap between what the company has and what it needs to be successful. The final executable strategy, though, is rarely a “one-size-fits-all” proposition. Instead, it is typically a mix of both organic and inorganic elements. One market may involve having product development take a technology license from another party and then generate new offerings that the existing sales force can sell to targeted customers. On the other hand, circumstances may dictate that a whole new approach be undertaken requiring that a company obtain the requisite technical capabilities, sales/service infrastructure, geographic placement, etc.
The bottom line is that only after a complete understanding of who a company is, what they are, and where they want to go can they develop a clear strategic plan of how to get to the desired top-line growth.
For more information, phone (513) 469-7555 or visit www.chemquest.com.
Editor's note: An expanded version of this column is available at www.adhesivesmag.com.