Editor's note: G.E. Cressman is program manager, Corporate Plans, E.I. duPont de Nemours.

Global excellence. Competitive advantage. Proactive leadership. We've all heard the popular challenges, and we'd all like to achieve them. But how?

The need for strategic management has never been greater. And the need to gain a view of both the market and competitive arenas has never been more crucial to strategic management.

This article will develop the connection between strategic management and market research. The purpose of this development is to encourage better understanding of both managerial and researcher responsibilities for improved strategic management.

Strategic management

Strategic management is the process of making present-day decisions to achieve optimal future competitive position. This implies:

  • making decisions in an arena of uncertainty,
  • assuming risk, because decisions have been made under uncertainty, and their outcome is unknown,
  • investing resources against opportunities in the expectation of future payoffs.

Making choices

The process of developing strategic management is at its heart the process of making choices. Some issues can be chosen within the scope of the business, while many more are excluded. The management team can make choices in five arenas:

  • Markets-which markets, or collection of ultimate consumers, the business chooses to address. These ultimate consumers have identifiable wants and needs, and spend money to satisfy these needs and wants.
  • Industries-which industries, or value adding chains, the business wishes to participate in. Each industry creates a specific solution to ultimate consumer needs and wants. In making these choices, the business management team is addressing the question: "Where shall we compete?" This is an issue of attractiveness of opportunity.
  • Customers-which specific customers the business chooses to target.
  • Offerings-what offerings the business chooses to take to the target customers.
  • Investment-how will the business deploy resources to create offerings for target customers.

In making these choices, the business team is addressing the question: "How shall we position the business to compete for the attractive opportunities?"

As the business team implements its choices, a series of consequences occur. These consequences are:

  • Competitors occur as a result of the market, industry, and customer choice.
  • Revenue is the result of the customer and offering choices.
  • Cost is the result of the investment choice.

With revenue and cost set, profit results. Figure 1 models the strategy result interaction.


Figure 1


Strategic management involves a proactive search for the best mix of these five components. The major stumbling block, though, is that we can never know with certainty whether we've reached the best mix. The market and industry choice is inherently risky because we are never certain we understand market and industry attractiveness. The target customers and offering choices are risky because our offering is frequently our "best guess" of what will satisfy customer needs. Because our offering is a best guess, our investment-or resource deployment-may not be the best "value creating" plan.

Operating the business

With the choices model in mind, the management team should ask: "What must we know to run our business?" And then, knowing what we must know, "What will we do?" Asking these two questions should result in the management team making a series of strategic decisions. To make these decisions, a blend of data, information and knowledge is required, as shown in Figure 2.


Figure 2


Figure 3 highlights the elements of this strategic managing process. The elements are interactive and must be thought of as a system rather than as distinct elements.


Figure 3


The market research effort is critical to driving the strategic managing process. Figure 4 shows the process steps and the broad input components for the research effort.

Understanding the environment-defining the arena

The objective of this element of the strategic managing process is to address the question: "Where are the most attractive places to invest our resources?"


Figure 4


This is the raw data for answering the "where to compete" question. For the management team, this is the most crucial period in reaching beyond its current understanding of marketplace "reality." Market research carries the crucial task of challenging conventional wisdom, and compelling the search for revised wisdom.

Some of the typical tasks for the research effort in this mode are:

  • defining the determinants and patterns of demand
  • identifying available substitutes which are acceptable to ultimate consumers
  • developing a picture of potential industries and their structure
  • evaluating value alignment within industries
  • enumerating each industry's effectiveness and efficiency in meeting ultimate consumer needs
  • testing various customer groups' sensitivity to various elements of the marketing mix
  • defining what competitor strategic groups exist and how they behave.

Determining what it takes to win- testing causality

The objective of this element is to address the question: "For our chosen markets and industries, what is required to participate?"

This step is aimed at identifying industry critical success factors (CSFs). Here the context of CSFs is the industry wide issues that are so crucial that if the industry ignores them, it fails. For an individual firm to carve out a position in the industry, it must be seen as being a significant contributor to the industry's CSFs.

At this stage, market research is typically used to test causality of the CSFs.

An industry perspective is crucial at this stage, and research's broader view can be used to proactively encourage that industry view.

Defining the desired position- projecting and testing

The objective of this element is to address the question: "Given our chosen markets and industries, what is our best position?" Essentially, this step answers the question of how to compete.

In this stage, research can be used to test and project results of various positioning strategies. Test marketing is a typical example of activities appropriate to this stage. As test marketing costs increase, modeling of business performance becomes an attractive alternative. Research can contribute to the modeling process by providing input on customer and competitor behavior, industry actions, environmental factors, etc.

Research can also provide assistance in this step by projecting the payoff for various activities. This requires defining the resource investment-return model and levels of uncertainty around the return.

For all of these activities, the role of the market research effort is to provide a strong sense of marketplace reality. While this role should not be confrontational, it should be consultative.

Implementing-monitoring

The objectives of this element address the following:

  • Are we accomplishing what we set out to do?
  • Where we are not, is the problem the strategy or the implementation?
  • How will we reposition ourselves?

In this element, market research plays a critical part in performance evaluation. Typical roles research plays are:

  • Measuring customer satisfaction with the offerings of the business-a key indication of the business' future success.
  • Monitoring competitor activity- typically a key indication of the quality of the business' earnings.
  • Measuring value shifts in the market and industry-an indication of timing for repositioning the business.

Conclusion

Market research is not an optional luxury for business management. Instead, the active involvement of market research throughout the strategic managing process is crucial to business success. For business managers, this means:

  • Early and continuing involvement of research professionals in developing an understanding of what decisions must be made and the knowledge required to make those decisions.
  • A will to act on the research results, especially when the results challenge accumulated wisdom in the business team. For research professionals, this implies:
  • A continuing pressure to sell, sell, sell the value (not just the results) of market research.
  • Presentation of research-based knowledge that is actionable by business managers.