New Leader Focus Area — Customer and Profit Pools

Per earlier posts (here and here), I’ve been thinking about what goes into taking over a new organization.  In my last post on this topic, I may have given the impression that costs and prices should be one’s main focus. 

To that end, this area is one that I’ve neglected — the HBR New Leader article wisely emphasizes looking at customers up front.  In a past role, I spent too much time working cost, price, and process issues.  When I finally got to the customers I realized that I had left considerable revenues and profits on the table.  

  • Which are the biggest, fastest-growing, and most profitable customer segments?  This should tell you whether you’re in the right segments.
  • How well do you meet customer needs relative to competitors and substitutes?
  • What proportion of customers are you retaining?
  • How does your Net Promoter Score track against competitors?  There are a number of doubts about this specific methodology, but a systematic look at loyalty scores — and the reasons behind loyalty or switching behaviors — is essential.
  • How much of the profit pool do you have today?  How is the pool likely to change in the future?  Again, the authors are from Bain and are referencing a Bain-aligned approach.  On the same topic, I recommend this book on Strategic Cost Management by a business school professor of mine.  Shank and Govindarajan introduce some great tools for looking at the value chain.
  • What are the opportunities and threats?  Opportunities and threats to WHAT?  Use the preceding questions to focus the SWOT analysis.
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