Using Simulations To Squeeze More Profit Growth From Existing Resources in 2023
Every year the senior leadership teams at thousands of businesses across the world set a growth strategy for the coming year. These strategic planning processes take many forms – top down financial goals, bottom up opportunity analysis, and external assessments of markets, competitors and customers.
At its core – growth strategy is fundamentally the strategic allocation of business resources with the goal of maximizing profitable growth.
A business can optimize and allocate their commercial resources and assets in a wide variety of ways. Strategic planners can modulate a wide variety of interdependent variables that go into defining and executing a growth strategy. We call these the six pillars of growth strategy. They include:
- Market analysis: The internal and external market analysis to define your sustainable competitive advantage
- Objectives – our vision and objectives for maximizing revenue, shares and profits with existing resources
- Strategy – a go-to-market strategy that aligns the product portfolio with your brand positioning and target markets
- Tactics – defining the price, product packaging promotion and distribution tactics to drive revenues and win
- Execution – aligning your vision with the skills, incentives, resources, systems and roles needed to execute the plan
- Measure – measure key activities and outcomes that provide feedback to adjust and optimize your efforts
CAM TIPPING EXPLAINS THE SIX PILLARS OF STRATEGY THAT PROVIDES THE UNDERPINNINGS OF THE SIMULATION-BASED SALES STRATEGY PROGRAM AND THE SABRE SIMILATION TOOL THAT ACCELERATES STRATEGY DEVELOPMENT, CONSENSUS BUILDING AND LEARNING WITH RAPID AND ITERATIVE FEEDBACK LOOPS
Given all these variables, the permutations of possible strategic planning outcomes is infinite. And while refining and optimizing the different possible allocations of effort and focus may seem like fine tuning, its not. Academic research and practical experience have shown us that adjusting and tuning the very same resources and investments in different configurations can lead to dramatically different financial outcomes. For example, by turning the dials on these six dimensions in different ways, your business can either generate double the revenue growth or double the profit growth with the same resources. Alternatively, it is possible to fine your resources can be allocated to maximize share growth, penetration of a new market, or the customer experience. For example, a Pharmaceutical company was able to drive $25 million in marginal sales contribution – an 8% increase – by changing the size, deployment, and product emphasis of their sales force, according to research conducted by Professor Leonard Lodish of Wharton
The point is there are literally thousands of allocation and prioritization scenarios. And it makes financial sense to find the best one to match your financial and strategic goals.
Consider these facts from the book Revenue Operations: a New Way to Align Sales and Marketing, Monetize Data, and Ignite growth:
- B2B organizations can achieve a 10-15% cost reduction by matching territory size with revenue and profit growth opportunities;
- A properly designed and optimized commercial architecture – that tunes sales force size, roles, emphasis, coverage and incentives – can contribute five to ten points of profit contribution to the bottom line in the short term, or if reinvested, can improve long term growth prospects much more in the long term;
- Optimizing territory design alone can increase sales by 2 to 7%, without any change in total resources or sales strategy.
The fundamental problem is that most executive teams consider and test relatively few scenarios in their plans. So how can they know the absolute best way to apply their precious commercial resources to maximize profitable growth and by extension firm value? The answer is they cannot.
It’s not because they are lazy. It’s because traditional approaches to planning used by most companies don’t lend themselves to testing a large number of different approaches to growth. Traditional strategic planning processes are slow, labor intensive and time consuming. There are several reasons for this. Given the limitations of cross functional communication – and the size of conference rooms – most plans fail to reflect the many points of view and real market experiences of your revenue team because they are largely shut out of the process. Over reliance on historical data is a factor. Using spreadsheets for planning is another problem – because they can’t effectively collect, synthesize and manage all the nuanced variables that go into a plan. Lack of feedback is another issue, because it’s hard to test market bets that will take years to come to fruition is another impediment. Elissa Fink, the Former CMO of Tableau captured the situation perfectly when she said – “there is no A/B testing for corporate growth strategy.”
The answer to the problem lies in using simulations. We use simulators to train pilots, design cities, and fine tune complex building management systems. But we fail to use them to “game” different scenarios for maximizing profitable growth, firm value and financial performance.
The leading Business Schools have found a way to use the same simulations to train the next generation of business leaders how to effectively grow a business. Over fifty MBA programs are using simulation tool called SABRE (The Strategic Allocation of Business Resources) to have teams of students compete to find the best way to grow revenues, share and profits. Teams are all constrained by the same resources. But they have the freedom to choose how to deploy them to win market share, defeat competitors, and generate the most profits and growth with the least cost and investment. It’s the game of business. And there are many ways to win it.
Professors at the world’s leading business schools have figured out something that many businesses have not – marketing and business strategy must be practiced to be mastered. Learning business and marketing strategy in a classroom only is as crazy as learning football, basketball, or hockey in a classroom only. Why? Sports are skills. So is business strategy. Like any skill, business strategy needs to be both learned and practiced.
CAM TIPPING AND PROFESSOR DAVID REIBSTEIN OF WHARTON DISCUSS HOW MANAGEMENT TEAMS ARE USING SABRE BUSINESS SIMULATION TOOLS TO COLLABORATIVELY AND OPTIMALLY ALLOCATE STRATEGIC GROWTH ASSETS AND RESOURCES TO MAXIMIZE PROFITABLE GROWTH
But “practicing” business is next to impossible without a simulation. The alternative is putting an executive team in charge and letting them “practice” on your business with real money and consequences – and waiting three years to tell you whether they got it right or wrong. The risks are too great. The feedback cycle is too long. And you can only pick one team not many. Alternatively in sports everyone gets to play, there are few costs aside from bruised egos, elbows and knees, and the feedback cycle is almost immediate. If the puck or ball went in the net, you know the score.
Now take that same analogy to business and launch a new product or develop a new campaign – you won’t know if the strategy was successful for months if not years. How do you learn if the feedback cycle is so long? It’s almost impossible. That’s why the SABRE business simulation is such a powerful to. It’s job is to compress time so we can get meaningful feedback quickly so we can come back after lunch and ask “WHY”. The tool can accommodate many competitors, and each team can be composed of a different mix of players – not just the CFO, CMO and Strategic Planning group.
The SABRE simulation creates a realistic marketplace – a field to compete on if will but rather than two teams fighting it out. Up to six teams compete in SABRE. On this battlefield rather than guns and bombs, your weapons are innovation, product strategy, marketing, and segmentation, customer targeting and treatment models. And rather than scoring points we’ll measure your results in both market share and overall profit. Finally, the timeframes, cost and risk are very low compared to real world strategies.
The SABRE simulation allows you to modulate the many interdependent variables in the six pillars of growth – market analysis, financial objectives, go-to-market strategy and tactics, and the alignment of execution resources – to create an optimal growth plan.
Business teams are starting to figure out these simulation tools may be a better way to set their annual growth plans. For example, we have hosted dozens of leadership teams use SABRE simulations to quickly test many competitive growth strategies and build a consensus on the best allocation of strategic resources for the coming sales period. The Professors at Wharton are bringing their simulations to the business community in executive education courses.
You can learn more about using these tools by reading our new book, Revenue Operations: A New Way To Align Sales And Marketing, Monetize Data, And Ignite Growth. Our team can provide you background, instructions and SABRE simulation-based planning tools to help you lead a simulation-based planning process with your leadership and operations team.