The Share FactorFor example, the Share factor has the biggest impact on upside. It is a major factor in almost half the projects, and a driver (major or minor) in about 65% of them. For this chemical company, share represents competitiveness: in other words, how much new product features or attributes tip the scales and create purchasing behavior. Their engineers are excellent at understanding customer needs and proposing new features and performance attributes to make customers better off. But they are systematically less clear on whether these improvements will significantly shift purchase behavior. To drive upside, don’t take your customer’s word for what is desirable, focus on what can change their behavior.
The Size FactorThe next largest factor is Size, a major factor on about a third of the projects. This represents how many people (customers) care about the offering. The chemical company is customer-focused, frequently engaging them and getting suggestions. Many projects are direct responses to customer requests and requirements. This admirable culture hides a hidden assumption, that a customer is representative of a market. Thus the market questions aren’t well explored, and consequently size becomes a major uncertainty. To drive upside, build for a market, not a customer. Do you see the simple pattern yet? If you see these as issues around understanding the market, you’d be right. But there is more.
The Margin Factor
The next factor is Margin, a major driver in 15% of the projects, but interestingly a very common minor driver, bringing its total driver level to 42%, a tie with size. For this company, the margin factor represents the ability to extract value through the value chain. In other words, can they Value Price or must they use Cost Plus type of pricing through their value chain?
For example, they might make a performance fiber, which is spun into thread, which is woven into cloth, which is made into a garment. The value of the performance fiber is realized by the user of the garment, not the direct customer of the chemical company. But at each stage in the value chain, there is a player who wants to claim a big share of this new value. In the competition for economic power along the value chain, does our chemical company get pushed down to a modest cost plus claim (low margin)? Or can they establish their value enough to get a big share of the value ultimately created (high margin)?
Thus margin represents critical thinking about the business issues and strategy through the supply chain. The chemical company’s strong engineers were accustomed to creating product attributes so powerful that they could historically extract lots of value. But times were changing and this was less often true. The engineers focused on making great products and tended to justify their efforts based on a simple cost-plus business case. But this left their ability to extract the value they created up to chance. To drive upside, it is not enough to make a great product: you have to maneuver so you can claim its value.
The Penetration Factor
The Comfort Zone Principle
How to Drive Effective ActionTo drive effective action, I’ve discovered that project leaders and teams have to realize it for themselves. A good strategic portfolio process can help people down this path with tools like the tornado diagram. When teams see in their own terms and with their own data what actually drives the upside of theirprojects, they get interested. When executives encourage teams to explore the upside and ask what it might take, teams get inspired.
And that is fundamentally the biggest driver of upside: