Wednesday, November 23, 2016

How to Improve Financial Performance Through Market Segmentation

Companies decide whether or not they want to focus on market segmentation  or try and create a broad based marketing approach that nets as many customers as possible. Organizational performance is often dependent on the strategic approach the company takes. Effectiveness and productivity concerns revolve around 1.) links between segmentation, performance and measurement and 2.) productivity gains from full segmentation implementation (Dibb & Simkin, 2009).

It can be hard to determine whether higher performance can be realized simply by focusing on a specific market segments. The right kind of metric measurements will need to be developed that ensure improvements are fully realized. This requires a level of research and analysis to pull off well and understand where one should focus their efforts.

Let us assume for a minute that 60% of a businesses customers make purchases for $15 but 40% make purchases around the $45 dollar mark. Further analysis shows that the lucrative $45 purchase price customers have some similarities in characteristics that can be defined into a lucrative segment. Pushing to gain high value customers has an influence on investment returns.

Not only will the marketing approach need to change, but the very way the business conducts its daily operations will also need to change to improve performance. Just about everything the company promotes and offers should adjust towards serving its most lucrative customer base. As the company becomes skilled in meeting new objectives they should be able to reap more of the financial rewards.

Segmentation should be considered carefully as changing customer base can cause issues with brand image. Sometimes the market is too small and at other times the company has a value proposition such as cost effective manufacturing but can switch its operations to follow broad trends. Each company is unique and carries their own strengths, weaknesses, opportunities and threats.

How to Improve Your Market Segmentation:

-As yourself essential questions of what your product/service actually offers as a value proposition.
-Research the customer demographics that are most likely to purchase that product/service on a regular basis.
-Determine the most likely channels that will reach those customers
-Align your business operations to better serve the need of those customers and raise your business's value..

Dibb, S. & Simkin, L. (2009). Editorial: bridging the segmentation theory/practice divide. Journal of Marketing Management, 25 (3/4).

Saturday, October 22, 2016

CEO Traits that Influence Short and Long-Term Success

Successful CEO's have common traits that help them improve their organizations in ways that lead to increases in shareholder value. CEOs maintain stable personality traits that influence how they see the world and overcome challenges. Strategic actions are based in CEO personality and impacts the financial performance of the firm through their strategic decision making and pointed actions. Knowing which traits to look for when selecting CEO's can have an impact on the long-term performance of the firm.

It wasn't long ago that gruff, emotionally unattached and perceptually powerful CEOs were desirable. They demanded short-term results which could be seen immediately in their primary benchmark of stock price which leads to increasing compensation. Lifespan of these executives at any particular organization was between two and four years leaving the long-term consequences for the next leader to untangle.

Research supports the idea that the CEO's personality influences a firm's financial performance and its longevity. A study conducted at Stanford University discovered that CEO's personality impacted culture that in turn influenced performance (O'Reilly, et. al., 2014).  CEO focus and approach to the workplace created lasting contributions (or detractors) to the way in which other people think creating tangible outcomes.

The central personality of the CEO impacts how they see, interpret, and apply information. Those who sense situations seek to analyze and defend positions while those who are more intuitive attempt to analyze and prospect new opportunities (Gallen, 2010). As an organizational leader, their decisions will weigh heavily on how they use their past knowledge to solve current problems.

CEO's that lean toward defend strategies will naturally seek to consolidate holdings and streamline operations toward market penetration and often width. They may invest heavily in existing marketing to increase cash flow and layoff employees to influence financial metrics that have an impact on short-term stock prices.

Entrepreneurial CEO's may use defend strategies to get over an immediate crisis but ultimately seek to expand their holdings. This could mean developing new products, expanding services, retraining employees, and reinvestment that influences long-term income and stock performance. As long-term decisions are made to support business fundamentals the more capacity the business builds.

 Where one consolidates the other seeks to expand as a long term-strategy. Because personality has such a big influence on business outcomes it is beneficial to consider the following traits:

Short and Long-Term Planner: CEO's should be able to think short and long-term. They should be concerned about how today's decisions will impact the organization 5 or so years down the road. If they cannot create a logical chain on how immediate decisions create new opportunities for future decisions, then they should seek alternative solutions.

Empathetic Communicators: Before one can truly lead a company they should have people skills that include the ability to formulate strong communication patterns among employees. Their discussions should be inclusive and push to inspire and support their organizations in a way that creates better performance outcomes. They should be able to use empathy so they can understand others and create win-win situations that enhance human capital.

Analytic Entrepreneurs:  CEO's should be willing to take calculated risks and have intuitive prospecting mindset that consistently seeks out new opportunities. These opportunities might be new product lines or enhancing existing lines. Any reasonable opportunity should be investigated, analyzed and when beneficial, implemented. They should be "ideas" people that leave the longer health of their companies in a stronger position.

Motivated Builders: The deep internal need to build bigger things should be present. This drive is apparent in the way in which the person seeks out new challenges that test themselves to create something lasting. They should be driven to achieve and develop bigger and more powerful companies. Their goal should be to leave a legacy.

Creative Problem Solvers: Business is a sequence of problems that must continually be bested and overcome. As the company overcomes these problems they naturally will become stronger. Innovative companies that solve problems in creative ways make market breakthroughs that lead to competitive advantages. Ensuring that your CEO has the very same skills needed to bring the company to new heights is important.

Life-Long Learner: CEOs that seek to learn and develop their whole life are worth much more than those who are narrow-minded and fail to update their knowledge. The life-long learner is capable of weighing and balancing new information to keep their practices relevant and make sound decisions as situations emerge. They are at their best so they can run the organization at its best.

Gallen, T. (2010). Personality and Strategy. Acta Wasaensia No. 221. University Wasaensis.

O' Reilly, C. et. al. (2014). The Promise and Problems of Organizational Culture CEO Personality, Culture, and Firm Performance. Group Organization Management, 39 (6). 595-625. Retrieved http://gom.sagepub.com/content/39/6/595.abstract


Monday, September 5, 2016

Economic Behavior Behind The Numbers

All economics are behavioral at their root. Most people think of economics as the science of serious number crunching. It is true that numbers are the general way in which we report items. How much money was spent, labor hours, GDP, GNP, etc....but the numbers are only a tool of measurement. Whether we are discussing Rational Choice Theory, Bounded Rationality, Prospect Theory, Duel-Systems theory or just about any other theory we are basically talking about behavior.

Analyzing the numbers can give you trends about behaviors but are not part of the subset of data you need to understand how people think and why they make the decisions they do. Fields like neuro-economics helps us understand how on a subconscious level we make decisions that impact purchasing behaviors that lead to large scale economic outcomes.

It is important to remember that all large scale data is a collection of individual behaviors. These behaviors are based on how we feel about items, our needs and how we view the world around us. For example, if we believe we are getting a new job then we might spend more money than if we thought we were not getting a new job.

It is assumed we are all rational in our thoughts despite this not always being the case. We sometimes base our decisions on feelings and emotions. Mom's apple pie memories might push us to purchase apples, apple soap, or apple candles because it makes us "feel" good. The same an be said for our self-image and how it could also impact our the types of purchases we make to maintain that image.

It is assumed that all people are trying to enhance their position in life and hope to find prospects for doing this. They will move through different decision making models as they determine the best choices for themselves. They might think intuitively and then move to more objective cognition. The end result is choices lead to micro economic activities and then to macro economics that have national significance.


Sunday, August 28, 2016

Are Artistic Executives Better at Strategic Planning?

Artistic creativity brings rewards beyond the realm of aesthetic engagement and into strategic planning. Strategy requires more than using well worn ideas to solve complex problems. The business world is changing and organizations need to tap new creative sources of knowledge. The artistic executive is an asset to the intellectual capital of an organizations if their full talents are explored and applied to market challenges.

As the business world continues to integrate markets it is necessary to "think out of the box" in order to solve increasingly complex problems. The talent pool is short on truly creative thinkers that can use their divergent thinking skills to master the market.

The artistic creation process encourages better strategic planning through thinking about problems from multiple points of reference. Many people are convergent in their thinking and focus on a narrow set of answers while divergent thinkers who are creative, and often highly intelligent, people can scan for novel solutions.

Ponder the value divergent thinkers offer modern businesses. To excel in fluid and complex markets requires constant change that keeps the company innovative in the face of ambiguous options. divergent thinkers ensure the company searches for new and novel strategic solutions that help maintain market position.

Art fosters divergent thought processes by teaching executives how to forget the rules and focus on new ways of seeing problems. There is typically something more in depth to any problem. Solutions are found through changing perspective through new ways of perceiving. Artistic creation is a free flowing thought process limited not by the possibilities available but the cognitive abilities of the artist.

As one hones their skills in creative thinking they can learn to apply that thinking to the workplace. Robert Steinberg's theory on divergent thinking believes that this way of thinking is made up of synthetic intelligence, analytic intelligence and practical intelligence rolled into one way of solving problems. Executives that have this skill can select, define, analyze, and find practical solutions to problems.

Selecting executives with creative potential can help ensure new ideas are forthcoming. Companies should look for divergent thinking matched with openness to experience to help predict management creativity(Scratchley & Hakstian, 2001). They are the ones that don't give the standard answers to seemingly routine questions.

Encouraging executives to get their creative juices flowing opens up a larger realm of potential organizational solutions to pressing problems. Applying divergent thinking skills inherent in the creative process to the boardroom encourages effective strategic planning. Artistic executives are capable of looking at problems from different angles to find market leading solutions.

Scratchley, L & Hakstian, R. (2001). The measurement and prediction of managerial creativity. Creativity Research Journal, 13 (3/4).