How to make powerful business decisions with better information on market profitability

Would you coach a football team by requiring all players to put a patch over one eye?  

A player needs to make quick, right decisions.

If your players all have one eye covered on the football field are they getting all the information they need to make a decision about their next move?  Where's the ball, where's the defence, where's their support. 

Why don't businesses keep information on their markets in their accounts?

Businesses talk about their markets and marketing but rarely keep the information they need to make decisions about them. 

Typically companies keep information on their sales and profitability by product lines but only rarely do they keep financial information on markets and the outcome of their marketing in those markets.

Keeping information on product lines is simple and, depending on the business, will match suppliers information.  Businesses know the 80/20 rule applies to their products and because they have the information recorded in their financial management system, can usually tell which products are the best sellers, and which make the most profits.

This is not an argument against keeping product sales and profitability information.  Why would you want to blindfold both eyes?

Breaking up sales up into customer groups or market segments is usually more difficult, which is probably why most businesses don't do it.  Businesses typically can identify the market groupings but not how much they sell into each group.

Wouldn't you think that market information would be important information for a company to have? 

Marketing talks about knowing your market segments, their size and growth, and being able to identify each segments defining characteristics and why they buy.  Why wouldn't you have information on how much of what products you sell into these segments

Do you need to know whether there are markets you need to grow, or markets to sustain?  Are your sales growing in a declining market, or declining in a growing market?  Should you even be in some markets?

Knowing your profitability in each market is even more important. 

Would it be useful to get the same breakdown showing Gross Profits instead of sales?  There is no point in having market share at the expense of profitability.  Having such information would make even clearer the decisions which have to be made in each market.

After all what should make a market important is how much profit you are, or could make, in it, and not how big it is or how rapidly it may be growing.

There have been techniques around for some time analysing such situations. 

A couple of the better known analytical tools are the Boston Consulting Group's Growth-Share Matrix and that from McKinsey.

The BCG Growth Share Matrix positions products against their relative market share, and market growth rate.  It defined the quadrants in simple terms which have now become part of the business lexicon: cash cows, stars, question marks and dogs.

This is a useful tool but there are a number of problems with it.  For example, markets may be attractive without growing rapidly, and market share is not necessarily linked to profitability.  Just as importantly, if you don't record your sales by markets, how do you know what is your market share?

The GE McKinsey Matrix is a more sophisticated tool but follows the same principals.  It substitutes market attractiveness for market growth, and competitive strength for market share.  Analysis of each of these factors requires a lot more information, information that most businesses do not have.  They usually end up making very subjective judgements.

Where possible you want to be making objective judgements, not subjective judgements.  And that means having some facts and data about which you can make decisions.

So remove the patch from your player's eyes. 

Give them information about your businesses performance in both product and market segments terms.  And watch the scoreboard grow.