Strategic repositioning and shaping profit growth options

This tool generates a coherent set of profit-growth options. The following evaluation step can then compare the resulting investment alternatives and select the combination that contributes most to the firm’s objectives.

When to use it

Use it whenever strategic direction must be translated into specific choices about where and how profit will grow.

Origins

The tool synthesises established strategy practices rather than presenting a separately attributed theory. It combines portfolio positioning, capability-gap analysis, the marketing mix, cost economics and option thinking. Its distinctive sequence moves from diagnosis to segment-level and business-wide actions, then packages those actions into mutually exclusive alternatives that management can evaluate.

What it is

A generic strategy sets direction but does not specify every action required to close the strategic gap.

The attractiveness/advantage matrix (GE/McKinsey) identifies product/market segments in which the firm should invest, hold, exit or possibly enter. Identifying the capability gap shows what must improve for the business to reach its intended competitive position.

This tool connects those conclusions. For investment segments, determine how to close the capability gap. For hold and exit segments, identify proportionate value actions. For potential entries, define how existing strengths will transfer. Finally, consider changes that affect the whole business.

Separate actions capable of improving profit within the next 12 months from longer-term investments that strengthen position and create sustained growth.

How to use it

Work through one product/market segment at a time, beginning with the areas marked for investment. Continue through hold, exit and entry candidates, then examine the whole business.

Segments for investment

Start with the segment making the largest contribution to overhead and restate its capability gap.

A speed-to-market gap may require simpler processes and expert support. A reliability gap may require production or testing equipment. A customer-service gap may require recruitment, training and a managed cultural change. These improvements often take time.

Also seek credible quick wins. Early results can validate the strategy work, build confidence and strengthen team morale. Review the marketing mix—product, promotion, place and price—using The 4Ps marketing mix (McCarthy) and the purple cow (Godin).

A price reduction may appear to sacrifice profit, but the complete effect can differ:

• Volumes may rise, depending on The price elasticity of demand (Marshall), sustaining or increasing revenue.
• Greater market share can improve visibility and stimulate further volume.
• Scale economies may lower unit cost and restore or improve margin, including purchased-material cost where higher volume strengthens buying power.