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COPYRIGHT 2006 SourceMedia, Inc.
Times are tough for middle market businesses (MMBs)--defined here as firms with revenues of $50 million to $1 billion. A perennial economic powerhouse, they inject as much as $3 trillion in revenues annually into the US economy, and employ 20 million workers[1]. But a host of forces are increasingly arrayed against them, hindering performance and their potential for strategic adaptation. Some are obvious macroeconomic and industry-specific environmental threats, but others are unique to middle-market firms, who find themselves struck in the middle: too big to be nimble and impulsive; too small to deploy sophisticated strategic management tools, or have the luxury of defying industry and market pressures.
A practical strategy development program can help MMBs understand their competitive position, chart a short and mid-term path, set priorities for allocating resources, and resolve critical implementation issues--but few invest in the process with any consistency, or efficacy. This article proposes a straightforward approach to strategy that has worked particularly well for MMBs, converting an uneven or nonexistent process into a powerful and galvanizing management weapon that can help propel them forward to growth and profitability.
Stuck in the middle
The average middle market firm today struggles for survival within a turbulent environment, characterized by a series of antagonistic, macro and MMB-specific dynamics.
Mature industry malaise
Most US industries are mature, and so most MMBs find themselves in an environment characterized by slower growth, increasing competition, more powerful customers, accelerating disintermediation, and other structural turbulence (like outsourcing). Global competition in most sectors--especially in traditional, lower-tech categories--has further turned up the heat on most MMBs. The margin for error has diminished dramatically, and in the rapid consolidation these conditions induce, many MMBs will not survive.
Rising customer expectations
At the same time, many customers have savored the fruits of increased competition, demanding ever more quality for the same price. This trend shows no signs of slowing down: most MMBs have every reason to expect that tomorrow their customers will demand even more quality for the same price, as the update of the classic value line in Figure 1 illustrates.
[FIGURE 1 OMITTED]
A recent survey of MMB leaders confirms the dramatic rise in customer expectations (see Figure 2), particularly in areas like product quality, turnaround time, customized (extra) services, and the catch-all, services that "go beyond the standard relationship" (Grant Thornton, 2004)[2].
[FIGURE 2 OMITTED]
Poor execution of strategic and performance improvement initiatives
In the midst of all these pressures, one might hope that managers developed better reflexes or processes to confront and surmount today's increasing business challenges. Unfortunately, another cross-industry survey finds that only 43 percent of executives rate their companies as having been "successful" or "very successful" at executing strategic initiatives over the past three years. Worse yet, just one in three executives (34 percent) rate their performance management systems and processes to be effective (Economist Intelligence Unit, 2004)[3].
These trends are walloping virtually all companies, regardless of size, but MMBs have it worse. They face a particularly daunting set of additional challenges that are unique to their size and class--most reflecting the onset of maturity and critical mass.
Entrenched/misaligned systems
The good news: you have survived to become a firm of $50 million +, with over 100 employees, a relatively stable infrastructure, and a consistent stream of revenue from established customers. The bad news: most of your operating and information systems are now entrenched, cobbled together, and unlikely to be fine-tuned to reflect the requirements of today's--or tomorrow's--competitive landscape. An industrial equipment leasing firm, for example, grew rapidly over a five-year period through acquisition to hold approximately 25 percent national market share. The firm succeeded in harmonizing invoicing procedures and contracts, and superimposed a new national brand on each regional facility. However, the financial reporting systems remained isolated by facility: each branch ran its own basic monthly reports, then forwarded them to the head office for "processing and review". Headquarters gathered aggregate financial performance for consolidated reporting purposes, but in a holdover from the pre-acquisition era, did not make available the key metrics that could influence more immediate decision making, such as branch profitability, branch cash flow, or branch return on investment (ROI). As a result, benchmarking between branches was non-existent, and best practices were shared only informally, offering regional managers little context for resource allocation decisions. Isolation bred inefficiency, and many opportunities for integrated strategic activity (in pricing, for example) remained untapped.
Clash of micro-cultures
MMBs are big enough to foster a multiplicity of micro-cultures: islands, silos, and fiefdoms characterized by different styles, rules, and vocabularies....
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