Being successful in business means determining a strategy and following that strategy to execute flawless operations. There are infinite choices of strategies from which a firm might select – some focus on cost leadership while others will try to drive growth through customer relationships and product differentiations. The lens through which a company views its strategies is called business orientation.
We can consider four basic perspectives toward strategy. These business orientations are:
- Marketing, and
A firm with a production orientation will be highly focuses on manufacturing and operations. Profits grow through control of costs. An organization with a production orientation competes on price; thus, the focus on manufacturing efficiency.
In some cases, a production orientation may result in a firm that creates technologically superior products. However, the need for this product is divorced from the market needs. So, the firm is capable of producing premium goods, but consumers are not willing to purchase it for current uses.
New product development (NPD) within a product orientation thus has two targets. Where the company strives for a cost leadership position, NPD is largely focused on improving manufacturing processes to reduce costs. Incremental improvements are incorporated to keep pace with competitors while the firm seeks lower cost raw materials. A more efficient assembly line and distribution channels benefit the production orientation. NPD is driven by efficiency goals.
In the second case, NPD is driven by technical prowess. Many products can be manufactured that are technologically superior to existing or competitive offerings. However, if the market lacks demand, profitability will suffer. Researchers and developers often pursue a scatter-gun effect of new ideas. These concepts are not tied to a stepwise development program nor to customer needs. Price points of these technical marvels are high, accompanied by high manufacturing costs, leading to low margins. NPD is exciting for the scientists leading the design efforts, but customers are left without realistic solutions to their existing problems.
Firms with a product orientation are also technically savvy. These organizations recognize that competition is fierce and copycat products are insufficient to bring long-term value to the firm. In fact, such copycat products dilute the market, eroding market share since the products become competitive on a price basis alone. A product orientation focuses on the features and functionalities of the product. Firms with a product orientation value the relationships with customers in order to continuously learn their needs. “New and improved” are the buzzwords of an organization with a product orientation.
When a company has a strategic goal aligned with a product orientation, the new product development programs will be guided by customer needs. In many cases, customers are intimately involved in the design and development of products through co-creation, for example. Investment in NPD is important to the company so that it can achieve its corporate goals. The firm will have established teams, procedures, and processes that are highly integrated with marketing feedback so that new products meet the needs of the market.
Because these firms are technically sophisticated, they are also able to innovate around new technologies to deliver brand new products to the marketplace. In some cases, the firm may need to educate consumers on the value of the new product or its features. Yet the development efforts have focused on customer needs, especially if they were unarticulated by consumers. These organizations tend to balance technical and market risk, using new technologies to address known customer needs and creating market demand for needs that are unmet with current competitive solutions. A primary goal is to delight the customer with a unique approach to delivering goods and services.
Apple, for example, is famous for packaging electronics in ways that meet consumer demand with user-friendly interfaces. Many of the company’s products address unmet and unarticulated customer needs. In the historic case of the iPod, MP3 players had existed for some time with high sound quality and simple interfaces – both desirable features. Apple added technology to hold a higher volume of music tracks on one drive (the equivalent of dozens of CDs). While there was a loss in fidelity, the product delivered utility for a previously unmet customer need – music lovers could easily carry around and listen their entire collection.
Companies like Coca-Cola and Pepsi have a marketing orientation. While some recent reports indicate a small decline in sales of soda, millions of people around the world consume Coke and Pepsi products on a daily basis. And these consumers have preference between the two leading brands.
So, the question is how to increase sales of a product with ingrained preferences? Certainly, one answer is to increase sales to existing customers. Marketing provides the means by which to gently remind customers that they love your product and should buy more.
For example, the Christmas season often brings touching advertisements for Coca-Cola. A little boy pulls a wagon filled with bottles of soda around his town. He secretly delivers a Coke to busy and harried individuals who preparing for the holidays. A busy gift wrapper puffing at hair falling in her face and staring at an infinite line of anxious customers finds a bottle of Coke at her right hand. She is calmed and soothed by the cold soda. The advertisement ends with the boy leaving his last bottle of Coke with a letter entitled “Dear Santa”.
This is a terrific marketing campaign. It doesn’t necessarily change my preference for Coke over Pepsi, but it does enhance the company’s image and reinforces the brand. Marketing that is memorable aids in building a firm’s reputation so that when a customer is faced with a competitive choice, s/he will have a positive view of the organization. A marketing orientation focuses on consumer needs and strives to build a long-term relationship with each customer.
A sales orientation forces a company to act in short-term transactional relationships. The organization is primarily concerned with making sales and selling products, goods, and services. Thereby, the company may ignore customer needs as we have seen above.
While it is true that increasing sales generally increases revenues and profits, a hyper-focus on sales results in a lack of attention to the customer and market needs. Sales can instead grow by identifying new users for a product, by increasing the number of items purchased by existing customer, or by increasing the number of items sold vs. the competition (e.g. a gain in market share).
In the latter case, firms sometimes offer steep discounts, just to “get the sale.” Situations like these lead to declining profits over time. Discounts can be effectively used, however, to gain new customers or to introduce a new product to the market. A continual emphasis on pricing over quality or differentiated features leads to commoditization of the product line and downward pressure on profit margins.
A firm’s business orientation is an important outcome of its strategic approach to competition and the market. Four typical business orientations include:
- Production orientation,
- Product orientation,
- Marketing orientation, and
- Sales orientation.
None of these will lead to the best re4sults for all companies in every industry. Instead, an organization should align its strategic objectives with the approach to customers and the market. In a production orientation, the firm is focused on maintaining quality and low-cost operations. With a product orientation, the organization focuses on technological advances to improve the performance of the goods it manufactures and sells. A disadvantage of these business frameworks is often a lack of fit with customer needs.
The marketing orientation addresses customer needs the best and focuses on building relationships with consumers over the long-term. In contrast, the sales orientation may neglect customer relationships in exchange for transactional increments to drive revenue growth.
Of course, no single business orientation addresses all situations. Firms should combine elements of each business orientation to best align with their unique strategic, industry, and market approaches. You can learn more about business strategy in an upcoming workshop on innovation. Note that we are continuing to transition our training business to www.simple-pdh.com while maintaining the consulting business here at www.globalnpsolutions.com. For example, you may enjoy learning about disruptive innovation which can threaten any strategy (and earn 1 hour of professional development credit to maintain your NPDP or PMP® certification). If you have any questions, please feel free to contact us at 281-280-8717 or email@example.com.
© 2018 Global NP Solutions, LLC
Your Training Partner for NPDP Certification, Project Management, and Engineering Leadership