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Tuesday, March 18, 2014

Prioritization matrix for competitive advantage

Professional Services Organizations comprise a diverse set of firms – information technology, management consulting, audit & advisory, architecture, engineering, recruiting, marketing, advertising, public relations, legal, research & development, training etc.

Here’s a matrix for analyzing various initiatives/ business segments. It’s in the form of a quadrant (four boxes) taking as its axes – ‘cash flow’ against ‘differentiation’. It is useful for selecting initiatives to actively focus and allocate your resources in order to maximize profits and get highest value returns. It may also help you analyze your revenue stream and redefine offerings in the market.

Some of the business initiatives/ units for a typical Professional Services Organization are: Staffing services, advisory services, managed services, project-based consulting, strategic planning, process re-engineering, change management, integration services etc.

Quadrant 1: Low Cash-flow & Low Differentiation

These are commoditized areas where your market presence is weak due to lack of differentiation. These initiatives generate barely enough profit to maintain the sustainability of the unit. Furthermore, they depress the company’s profitability over a period of time.

Recommended Actions:
  • Dilute your focus
  • Avoid any capital investments
Quadrant 2: High Cash-flow & Low Differentiation

These units generate quick & surplus cash in comparison to the amount needed to maintain them. If competition is high and there are few opportunities for differentiation; then it may be less attractive for further investment. These units are regarded as dull and boring in a mature market.

Recommended Actions:
  • Harvest the cash-flow & maximize profits
  • Invest resources only if it gets immediate ROI
  • Increase market share by volume discounting
 Quadrant 3: Low Cash-flow & High Differentiation

These units are niche and/or fragmented segments with a potential to grow. They could generate higher revenue and improve the company’s competitive advantage. You need to work incrementally to gain market share. If you do not succeed then the unit might consume a lot of cash and hinder your profitability; and drain your resources.

Recommended Actions:
  • Expend efforts wisely and in a discretionary manner
  • Use innovation to differentiate from competition
Quadrant 4: High Cash-flow & High Differentiation

These are areas where you are well-established and you have a good reputation with clients. It’s a growing market with many opportunities and scope for building your own market share.

Recommended Actions:
  • Focus actively on this business
  • Grow market share by engaging your best resources
  • Make continued investments

1 comment:

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