How we use frameworks to improve client businesses.
Frameworks are used by business consultants to simplify the analysis process when examining industries, markets, and client companies. The frameworks are frequently broken into 4 different categories: Industry and Market Analysis, Company Analysis, Product Strategy and Process Improvement. They are logical in nature and help to uncover patterns that may not be apparent without taking a structured and proven framework approach. In many ways, the frameworks are the consultants stock and trade.
The larger consulting firms have developed their own frameworks whereas smaller consulting businesses often use ones, which their consultants may have learned in college or during internships with larger consulting firms. New frameworks are evolving over time as markets and technology change but their core purpose and application remains the same.
Frameworks use tried and trusted mechanisms that have proved to offer consistent analysis and benchmarks, which offer a reliable basis for consultants to understand the businesses and markets they are examining and to consequently make recommendations that will generally deliver greater understanding as well as desired outcomes for clients. In simple terms, they provide a structured approach to analyzing and solving common business problems.
Some of the more common frameworks and their application are described below:
|Industry and Market Analysis|
|Porter’s Five Forces||Porter’s model is used to analyze an industry or market as well as the underlying competitor dynamics present. It looks to where the market power is held by considering the threat of new entrants, supplier power, buyer power, the threat of substitutes, and the intensity of rivalry present.|
|Blue Ocean Strategy||Blue Ocean Strategy challenges everything a business owner considers he knows about strategic success and provides a systematic approach to making competition irrelevant. Developed by W. Chan Kim and Renée Mauborgne, BOS is based on a decade-long study of more than 150 strategic moves spanning more than 30 industries and a period in excess of 100 years. It offers systematic tools and frameworks to break away from the competition and create a blue ocean of uncontested market space, while maximizing opportunity and minimizing risk.|
|PESTEL||This framework is simply an acronym for 6 different drivers that impact every business in the external environment. Each driver starts with a letter within PESTEL. They are as follows:
P – Political Drivers
E – Economic Drivers
S – Socio-Cultural Drivers
T – Technological Drivers
E – Environmental Drivers
L – Legal Drivers
|Benchmarking||The purpose of benchmarking is primarily to understand what best business practices are being used by competitors and non-competitors and the performance levels that these practices generate. There are 3 main types of benchmarking:
1. Competitor to Competitor Positive Benchmarking
2. Competitor to non-Competitor Positive Benchmarking
3. Competitor Negative Benchmarking
|SWOT||This is a simple model often taught as part of a primary business course. It is applied to a business and the market it operates in to help to identify a business’s internal strengths and weaknesses as well as the opportunities and threats that a market presents to all participants.|
|Value Chain||A value chain is a set of activities that a business performs in order to deliver a valuable product or service to the market. The model helps to analyze specific activities that help to create value and competitive advantage. The model works by breaking an organization’s activities down into individual components, which help to identify cost drivers and sources of differentiation, which in turn can be tweaked to improve performance and value for the business and its customers.|
|Value Disciplines||Value Disciplines segment customers according to the full range of benefits that are most valuable to the business. The model, which was developed by Treacy and Wiersema, identifies three generic value disciplines: operational excellence; customer intimacy; and product leadership and it is quite different from the traditional market segmentation strategies that we commonly use. The focus is on providing customers with reliable products or services at competitive prices and delivered with minimal difficulty, segmenting and targeting markets precisely and then tailoring offerings to exactly match the demands of those niches, and offering customers leading-edge products and services that make rivals’ offerings obsolete.|
|GE-McKinsey Nine Box Matrix||This model is concerned with analyzing and optimizing a multi-business corporation so that investment may be prioritized amongst the business units that offer the best level of return on investment. Future performance is projected based on industry attractiveness and a business unit’s competitive strength within its industry. The nine-box matrix offers high, medium and low on each of the two axes. High industry attractiveness coupled with high competitive strength is the preferred segment for all business units.|
|McKinsey Business System – similar to Porter’s Value Chain||This model looks to the creation of an integrated business strategy with steps that help to build sustainable competitive advantage in a business. It is in effect a chain of activities, which takes each step involved in creating and delivering a company’s product into account. Each step in the chain is evaluated for its performance, contribution and alignment to the overall value proposition of the business|
|McKinsey 7-S||This model is used for evaluating organizational effectiveness and looks at the critical role of coordination amongst the 7 key functions in a business: Style, Skills, Systems, Structure, Staff, Strategy and Shared Values.|
|BCG Growth-Share Matrix||This model is used for evaluating products or product categories and helps to identify at which the stage in the product life cycle they exist. There are four quadrants to this model: Question Marks, wherein a product may look promising but its future is undetermined; a Rising Star, where the product is at or above breakeven point; a Cash Cow, where the product is at the peak of its earning capacity; and a Dog, wherein the product is dying and its earnings are dropping.|
|Core Competencies||A core competency is something that enables a business to deliver unique value to its customers and helps to create sustainable competitive advantage. This model provides steps to be taken to identify and isolate activities that are core to the business success, and which can be leveraged across the entire organization.|
|Ansoff Matrix||This model was designed by Russian American Igor Ansoff to allow users to develop strategies for future growth using four distinct growth alternatives: Market Penetration, Market Development, Product Development and Diversification|
|Four Links Model||This model looks at the opportunity for a business to collaborate with four distinct groups of participants in a market and to leverage external resources for the benefit of the business. These are Formal Links, Informal Links, Complimenters and Government. It often involves cooperation as opposed to competition for the benefit of participants in the market.|
|Financial Analysis||There are many options for carrying out a financial analysis on a business and key measures usually revolve around profitability, liquidity, stability and future earnings potential. Most consulting firms use a financial analysis numbers spreading model to extract core trends over time, including financial ratios, to benchmark performance against accepted industry norms.|
|3 C’s –||This model concerns itself with what it considers to be the 3 main pillars of a business and the industry in which it operates. These are Company, Competition, and Customers. The first C provides a basis for understanding the operations of the business; the second C looks at evolving competitive dynamics and the impact that competitors have on any given business. The third C helps to examine customers of a business and to determine the drivers that motivate their buying habits or decisions.|
|4 P’s – Marketing Mix||This model looks at the 4 main components of marketing that a business may choose in placing its products in the market. They are Product, Price, Promotion and Place. Product looks at the value proposition. Price is concerned with the optimum pricing strategy that maximizes penetration and profit. Place concerns itself with the distribution strategy and Promotion is about developing market reach and convincing prospects to buy.|
|Product Lifecycle||The product life cycle model suggests that there are four distinct stages a product goes through on its journey through the market. The four stages are introduction, growth, maturity, and decline. Different marketing strategies and tactics are required at each of the different stages.|
|Roger’s Five Factors (also known as Consumer Adoption Curve)||Rogers model is predicated on the idea that there are several stages to the diffusion of innovation in marketplaces and the process proceeds through several categories of adopters: innovators, early adopters, early majority, late majority and laggards. Knowing the stage of adoption will dictate the marketing strategies best employed by businesses.|
|Balanced Scorecard||This is a framework for tracking elements of business strategy implemented in a business and for identifying opportunities to improve or implement positive changes. It identifies how a business is performing by setting comprehensive objectives and performance measures and then measuring actual against projected outcomes. Rather than have a narrow focus on financial performance, it also measures customer value, internal business processes, innovation, and employee performance.|
|Lean Six Sigma||Lean Six Sigma is a methodology that relies on a collaborative team effort to improve performance by systematically removing waste; combining lean manufacturing/lean enterprise and Six Sigma to eliminate the eight kinds of waste: Transportation, Inventory, Motion, Waiting, Over-Production, Over-Processing, Defects, and Skills. The goal is to fix each process so that it will be 99.9997% defect free or produce only 3.4 defects per million or less.|
|DMAIC||This framework, often used as part of Six Sigma, involves five phases: Define, Measure, Analyze, Improve, and Control. Each phase contains a set of tools and techniques that guide a problem solver through an improvement process from start to finish. It is a data-driven improvement cycle used for improving, optimizing and stabilizing business processes and designs. DMAIC typically defines a business process and how applicable it is.|
|DMADV||This is a Six Sigma set of processes that looks at the customer service aspects of a business. The steps are defined as Define, Measure, Analyze, Design, and Verify. It uses statistical tools and facts to find solutions to common quality-related problems and to ensure a business achieves its financial goals. DMADV measures customer specifications and needs.|
|Kaizen||Kaizen is the Japanese word for improvement. Its core purpose is to continuously improve all functions, processes, and activities and it embraces all employees in a business. There are two Kaizen approaches: flow and process. Continuous improvement programs employ both approaches and the model is analogous with total quality management or TQM|
|Gemba Walks||Gemba Walks describe the action of going to see actual processes, understanding the work, asking questions, and learning. It is similar to management by walking around – MBWA. The model is used for observing deficiencies, seeking ways to improve processes continuously, and executing lean principles that benefit the business|
No doubt most consultants will be able to add to this list with their own personal favorites. Additional details about the frameworks, and how they should be applied, are readily available on the web.