The Expert's Advice

CASE STUDY:All the company has is products and markets in two forms: either existing or potentially new. So there are only four basic ways to grow, writes ALAN CHRISTIE

THIS CASE lends itself more to strategic analysis and choices. We need to assess the core/key competences and the relevance of these in an evolving/changing market.

Success to date has been based on: capitalising on being first mover in a (formerly) expanding, cash rich market; product superiority through R&D; visionary and entrepreneurial leadership; and capacity to focus on a profitable regional niche.

While these competences were instrumental in developing the business, further development appears arrested. Although previously highly profitable, no provision was made for reserves. There was also a failure to develop the product as a global solution, hence now no current customer lock-in.

There is still a niche in the financial market, but now no market in the niche. The vision and drive still appears to come top-down from the founders. There is no evidence that the intellect of the staff has been mobilised beyond the technical.

There is enough here to suggest a radical response involving restructuring is needed. This is where synthesis is needed to overcome the problem and to get the funding to grow a dynamic and responsive organisation.

All the company has is products and markets in two forms: either existing or potentially new. So there are only four basic ways to grow.

- Market penetration: Selling more of the existing product to existing customers

- Market development: Selling existing product to new customers

- Product development: Selling new product to existing customers

- Diversification: Selling new product to new markets

These are listed in order of relative cash outflow before income is generated, and hence in order of risk. The strategy this firm was about to embark upon by developing a reconfigured product for insurance or logistics counts as related diversification - relatively the highest risk, as both variables are unknown.

The way the case is framed, it offers the solution to get an outside investor to inject cash (on a one-off basis, usually) but relinquish more control or to make widespread staff cuts and relinquish skills and morale and slow the progress to market. Both are likely to amount to failure by instalments. A more plausible solution, based on evidence available and implied, is likely to include a synthesis of the growth strategies above.

In terms of market penetration, the company's core business - of providing back office support to the derivatives market - has shifted away. But the competences that secured the position are still in place. In terms of strategic direction, market penetration is likely to be throwing good money after bad.

The market is in freefall. But there is still likely to be a healthy margin to be harvested if costs can be controlled and further investment here curtailed significantly.

For market development, bringing the same product to new markets in the US and Asia has the difficulty that there are likely to be competing alternatives established in this shrinking market. The product development option has already been pursued with investment and the firm is looking to provide a reconfigured product to insurance and logistics - cash is needed.

Cash is available through cost-cutting of staff and an injection from an existing investor. Both answers have a downside in loss of key skills, impact on morale and loss of control.

The final major option is diversification, bringing new products to new markets. The entrepreneurial competences are still in place to do this. The downside is the time to market of new initiatives and the potentially low market value of the business as a going concern, as a sale is needed to fund this option.

• Alan Christie teaches strategy development and strategic thinking at the University of Ulster where he is course director for the MSc in Executive Leadership