Tom is a senior VP responsible for revenues of more than $100 million per annum in a public company. His division makes centrifugal pumps that are sold into a range of industries. He's held the VP position for three years now. His standing within the peer group of other senior VPs is in the middle ground. His division has maintained profitability over the last three years which includes a difficult time during the pandemic. However, sales are flat if not declining slightly. It is a mixed picture. Most of his division's pumps are sold into the chemical industry where there has been a steady decline over the years. Around 15% of his pumps are used in water treatment and here there has been a growth in sales. The rest of the pumps go to a range of different industries from oil refineries, paper mills and power plants and here too there have been mixed fortunes with some growth in the oil sector and some decline among industries and power generation.
Tom knows that he must take action. He has been saved by the profitability of his division but with sales on the decline, something must be done. He is familiar with the concept of frameworks and uses them to solve his problem.
The starting point was to obtain a greater understanding of the problem. There were many questions to be answered. Why were some products declining while others were growing? Was it a trend in the markets that was driving sales or was it a reaction to competition from alternative products?
Tom began his investigation by looking at the pumps sold into the chemical industry. His sales team reported that their pumps are equal in price, performance and reliability to those of the competition. Where they were failing was on service. When a pump failed at a customer's chemical plant it created huge problems. It closed down all or part of the customer's plant creating great disruption and huge costs.
In the water treatment sector it was determined that Tom's rugged pumps were highly efficient and reliable for pushing water at high flow rates through filters and other components in the system. If ever a problem occurred with the pump and this appeared to be fairly infrequent, new pumps or parts could be dropped in quickly by local distributors.
Tom's analysis also covered his performance in the oil industry, paper mills and power plants, determining customers’ requirements and the way in which his products and service met their needs. He looked at future trends in those industries to see which are subject to growth or decline.
In this initial analysis Tom used two important frameworks – a SWOT (looking at strengths, weaknesses, opportunities and threats) and a PEST analysis (looking at the political, economic, social and technical changes taking place in the industries).
This analysis placed Tom in a good position to segment his customers and focus on their needs and his ability to serve them. Since the bulk of his sales and therefore his profits came from the chemical industry, urgent action was required here. He used the importance/performance matrix which clearly showed the need to solve the problem of the rapid delivery of spares and parts to plants where pumps needed attention. Using the distributor network for the pumps supplied to water treatment plants and expanding it into a wider geographical area, Tom moved the emphasis from selling products to selling service.
He also realised that his communications with customers were sporadic and lacking in focus. At the time of writing he has slowed the decline in sales, maintained profitability, and is busy using the bullseye framework to build a strong brand position that will defend his strategy of premium pricing and premium service.
Tom’s tale is not unique. Managers in almost every company will from time to time face similar problems. The solution must always be:
1. Analyse: find out what is going on. Use a framework that will help you do this. In Tom’s case it was a SWOT and a PEST.
2. Develop a strategy: the strategy developed from the analysis. Looking at the value attached to his offer it became very obvious that service was deficient in his major market of the chemical industry.
3. Implement the strategy: Tom has already improved service levels to the chemical industry. His augmented offer of improved service is working. He is also using the bullseye framework to build loyalty and defend his premium prices.