Okay, summer is officially over the planning season for 2019 begins!
There are several critical steps in planning for 2019. One of the steps that is too often missed or ignored is to update the Situation Analysis. Unless you do the right kind of job on that first step it’s going to be GIGO Time – Garbage In, Garbage Out.
The reason why doing this analysis is so important is that the market environment has a direct, short-term impact on the market structure. The market structure then has a direct influence on how your run your business, which in turn affects your market performance.
We like to use a variation of Porter’s Five Forces to guide this part of the process. If you’re not familiar, this quick Wikipedia article does a good job of explaining. Basically you want to research and analyze how things have changed in five areas:
- Threat of new entrants
- Threat of substitutes
- Bargaining power of customers
- Bargaining power of suppliers
- Industry rivalry among existing competitors
In addition to the analysis of those five areas, we like to add a few more:
6. Change in the regulatory environment
7. What end-customers are facing, how their world has changed
8. How your company itself has changed
For example, one of our clients imports a high end juicing appliance from China. Luckily, Pure Juicers has been unaffected by the recent tariffs that have been layered on. Good thing too, because the current margin structure of that business would be severely affected by a dramatic increase in the cost of goods. So many others businesses, however, are faced with that very challenge. Assessing regulatory risk is always a good idea for any business these days.
If you are a B2B business, don’t forget to analyze what’s happening with your customer’s customers. It’s not enough to see the world just though your primary customer’s eyes. Get up close and personal with the issues faced by the end customers as well.
And lastly, your company is evolving and it pays to be objective about what those changes mean for your ability to execute well. Some fast growing companies can get hamstrung because resources are constantly stretched. Firms that are working their way out of a downturn are often challenged with the same problem.
Spend the time now, before serious planning gets underway, to carefully evaluate your current situation on all sides. It’s time really well spent.