Getting Out of the Planning Rut

By mapping the proper relation between both your market and business strategies, you can put the key elements in place for your company’s success despite turbulent markets.

By William F. Ott, Jr., MBA, and Rita E. Numerof, PhD

The pharmaceutical industry is undergoing a dramatic change that will have a tremendous impact on both agencies and clients. Even the most successful companies often find their annual planning efforts devolving into a rut. Instead of rethinking their business models and go-to-market strategies in response to a dynamic market, they often end up simply projecting current business into the future as a basis for establishing next year’s budget. In turbulent markets, such “business as usual” plans and strategies mask a growing risk to the future prospects of companies that see themselves as leaders who need only continue what’s worked in the past in order to succeed.

Part of the problem in this lack of robust planning and strategy lies with a common misuse and misunderstanding of the seemingly straightforward concepts of “business strategy,” “market strategy,” and “product strategy.” This misunderstanding also relates to the relationship and alignment of these three types of strategies. In Part 1 of this two-part article, we will redefine business strategy and market strategy and how they relate. Next month, in Part 2, our focus will be on the proper relation of product strategy and market strategy.

Two Documents Serving Two Masters?
Too often, companies look at their marketing plan and their strategic plan as two separate documents serving two different masters. The strategic plan is regarded as the executive team’s plan, setting the financial objectives they hope to achieve and prioritizing how resources will be expended accordingly. The marketing plan, in contrast, belongs to the marketing function. This plan details what the marketing function will be doing to tactically implement aspects of the strategic plan—but such plans are not strategic marketing plans.

The most successful companies see the strategic marketing plan as a critical element of the strategic plan. They recognize that a strategic plan starts with market strategy, which defines:

• The customers the organization will serve
• The product or service value the organization will provide
• The differentiation that explains why the customer will choose your organization over your competitors

It stands to reason that any strategic plan should start with why the organization exists. Who we will serve and how we will serve them should be the basis for all work activity and investment—anything not aligned with the “why” of an organization is wasted resource. When markets are in a state of flux, new and different types of competitors are emerging. Market leaders that want to remain leaders need to respond to these new challenges. In such turbulent markets, it is particularly important to start the strategic plan by rethinking assumptions about your customers, your products, and your role in the market.

Understanding who your organization will not serve is equally important. With the constant pressure to generate revenue, it is too easy for companies to allow a one-off sales opportunity or an R&D compound breakthrough unrelated to the company’s focus to divert the company from its market strategy. When this happens, the usual result is that too much is attempted, nothing is done well, and the company fails to achieve its differentiated market strategy.

A very important reason for starting the strategic plan with market strategy is having a clear basis for saying no to the myriad of conflicting internal demands for resources. You have to keep your organization’s eye on the ball.

Lack of Precision: The Common Flaw in Market Strategy
Even if the strategic plan starts with market strategy, the strategy is not precise enough to serve the competitive needs of the organization. Market strategy is the basis for a company to systematically understand the macro and micro segments of needs in the broader market—choosing where you can win in the market and why.

Most markets are created with a breakthrough new product. In the early stages of the market, a single blockbuster product has wide appeal, generates great margins, and appeals to large swaths of the customer population. Competitive pressure in a maturing market changes the rules. More choices are presented to customers as niches are carved out. Correspondingly, your market strategy has to become more precise and sophisticated. This will also challenge the traditional research you typically gather prior to strategic planning. Market strategy with precise customer and need segmentation will require more than market demographic data. Market strategy that doesn’t precisely define the market niches you will own and the differentiated value propositions you will provide to own them is a shaky foundation on which to build your strategic plan.

Operationalizing Your Customer Mission
Once your market strategy has defined your intended customers and the value that will attract them, the strategic plan also has to spell out how the company will operationalize this customer mission. The remainder of the strategic plan must address:

• The core competencies needed to deliver the customer promise
• The facilities, business processes, and human resources needed to deliver the customer promise
• The financial resource deployment necessary to deliver the organization’s value proposition and make a fair profit

This is where business strategy comes into play in the strategic plan.

Business Strategy: The Company’s Operational Glue
Business strategy defines how you will bring your market strategy to life. It aligns your internal operations with your external market strategy. This starts with alignment of mission, core values, image, and corporate identity with market strategy. For example, if your market strategy message is based on a reputation for quality and rigor of scientific testing and data behind your products as a differentiator, your business strategy has to credibly bring this to life. Such a message requires infrastructure and organizational capabilities in quality management, research, testing, and training. If your market strategy message is based on service as a differentiator, trained service resources need to be readily accessible to customers and prepared to bring a genuine service orientation to their work.

Alignment of business strategy with market strategy is much easier said than done. Often the relationship of the two types of strategy gets switched in terms of which one is subordinate to the other in the strategic plan. Business strategy should temper market strategy—there is no point in promising your target market that which you cannot deliver. However, business strategy, approached in a silo, should not be allowed to restrict market strategy. Most strategic planning teams struggle with this, as the team represents the various functions of the business and each function has its agenda and argues in planning for its own strategy.

For example, operations leaders typically want to drive efficiency. “Efficiency” is a business strategy that makes sense for all companies at all times. But it isn’t the basis for a customer choosing a company (unless it is translated to lowest price). One of the easiest ways of driving efficiency is to standardize product offerings. But if your market strategy—your differentiated basis for attracting your target customers—is based on a wide range of product options customized to compete for narrowly defined market segments, then your internal operations strategy is not aligned with your market strategy. In effect, you’ve lost sight of your overall organizational purpose. You have to be efficient in the context of the customers you have chosen to serve.

Another common example of business strategy misalignment often exists in organizations that offer high- and low-service value propositions. Typically, such companies have historically provided a high level of service, which is built into a high price. In its market strategy, a company may define a low-service segment it wants to target with a correspondingly lower price. Yet providing great service is embedded in its culture. Without rigor of process and a different process of service—important aspects of a new business strategy—employees will instinctively provide service the company isn’t getting paid for, even if they know they’re working in a low-service business model. In effect, the right business strategy for operationalizing a low-service business model hasn’t been well designed in support of the market strategy.

Business strategy alignment is also a common problem in acquisitions. A typical scenario illustrates this:

• The company defines the need for new products to support its market strategy.
• The company defines the route of acquisitions as a more feasible business strategy to add the necessary products in a timely manner.
• The company appropriately identifies and is able to acquire the right product technologies to achieve its market strategy.
• The company introduces its new products and fails to achieve the financial objectives it set.

What went wrong? Business strategy needs to incorporate everything the company needs to do internally to operationalize its market strategy. Product acquisition is just one business strategy. In many cases, acquisitions require different infrastructure from what currently exists, such as: different sales models, roles, and competencies; different payer relationships; different distribution channels; different training and education needs; different inventory levels. Often the cost of an acquisition is the tip of the iceberg—underlying that cost is a multiplier of costs to build the infrastructure necessary to achieve the intended market strategy. Good business strategy anticipates the broader infrastructure requirements that underlie acquisitions and ensures this financial consideration is incorporated in decision making.

Summary
To summarize: In dynamic markets, strategic plans have to start with market strategy, as a company rethinks which customers it is competing for and how it will differentiate itself to win those customers. Once market strategy is clear, business strategy must be developed to address everything the company must do to operationalize its market strategy. Operational excellence in a silo is not a goal, it is a means of achieving the business goal of earning and serving customers. Business strategy must make sense in the context of market strategy.

Next Month: Part 2—Aligning Product and Market Strategies
Just as business strategy must align with and support market strategy, so must product strategy. This is an inversion of thinking for many companies, who still define themselves by the products they are known for today.

Why is this inversion important? Most companies get their start with a breakthrough new product. They bring something new to the market which is their basis for “crashing the party,” so to speak. As we described earlier, the problem is that the market matures and competition increases. If the company continues defining itself and its strategy as selling the flagship products, it is being unresponsive to a declining market for its products.

If, as we suggest, the strategic plan starts with market strategy, product strategy needs to be consistent with this definition of target customer and needs. The market strategy defines what new products must be added, through development or acquisition. And the market strategy allows the organization to determine which of its legacy products are obsolete and should no longer receive scarce resources. Just like business strategy, the realities of product strategy should temper market strategy but shouldn’t dictate market strategy. When product strategy is “king,” in reality there is no market strategy and marketing just becomes tactics to support product sales strategy.
Next month in Part 2 of this article, we will further define the relation and alignment of product strategy with market and business strategy.