Last week i described four top priority "mind your data" topics. cost information by product, the revenue creation process, competitive analysis, and results of investments. These areas can be attacked with minimal investment, and usually give giant returns in terms of knowledge, operating efficiencies, and information for key decisions. Competitive analysis is frequently ignored, yet can provide immensely useful calibration information. I've seen so many managers say: "their accounting is different", "their detail is obscured", "comparisons are meaningless because.........". In some cases these comments are valid but not relevent: if you work on it, keep a competitive data bible, continue to upgrade it as you get further insights and bits and pieces of information, you'll become much smarter and make much better decisions. My management career was launched exclusively on the back of a competitive analysis regarding my first general management assignment, the Bolen snowmobile subsidiary of FMC Corporation. Let me tell you how career-changing this competitive analysis was:
A. It was my first general management assignment; be the general manager of the FMC's Bolens snowmobile business, which manufactured and sold 3000 snowmobiles in the prior year, generating $6M in revenues and a reasonable operating profit. The FMC board felt this was a great growth opportunity; the snowmobile market was booming, growing well over 50% per year.
B. After six months of arduous work, i presented to the board a plan that (a) would radically change this snowmobile line's image--via design, acquisition and performance--to fit the marketplace and put us in the top tier, (b) generated extraordinary excitement and interest in the existing and prospective dealers resulting in a "signed into" three year sales plan for 6000, 9000, and 12000 units, and (c) via acquisition and vertical integration reduced the unit manufacturing cost by 43% exclusive of further improvements from overhead absorption based on the enhanced volumes. The plan was solid and was created in immaculate detail; FMC's board scrubbed the inputs and totally bought in, giving full approval for the substantial cash outlays for the acquisition, the manufacturing investment, and the working capital investment.
C. Regardless of my comfort level with the plan, i had nagging competitive concerns. We launched an analysis of our two major competitors' current operating costs (from public information), and projected where their unit costs would be (using log based unit volume cost theory) over this same period. I then made the assumption that at sometime during this planning horizon the market would crash (it couldn't keep up this extraordinary growth) and that in those years these two top competitors would cut their prices to have only a 15% margin. We laid those selling prices against our cost projections and deduced that we would be under water: our costs would be higher than selling prices and we would have tons of unsold inventory.
D. I returned to the board and presented my second set of findings, recommending we sell the business and the business plan now while the market was still hot. We got quite a premium for the business plan and made a deal. I didn't predict the downturn or the timing of it, but only what would happen when/if. Two years later the market did crash and every competitor, even including one of the top two, was in bankruptcy. Our company would have experienced a $20M bloodbath.
FMC's board and executive remembered my first and then second presentations, and my star shined brightly; all due to a strong dedication to data driven competitive analyses, and also a willingness to take the personal risk of obliterating my job.
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