The & tree Pay - Per - Click (PPC) Viable Vision implementations October 31, 2009 Goldratt Consulting
Pay Per Click (PPC) S&T 1 1 Viable Vision 2:1 2:2 2:1 2:2 Eliminating the Risk for the Client Comp. Edge Eliminating the Risk for the Company Build Capitalize Sustain 3:1 Market Segmentation 3:1 3:2 Offers Design 3:3 PPC Selling 3:4 Sales Funnel Manage. 3:5 High DDP 3:2 3:3 3:4 3:6 3:5 3:7 3:8 3:6 Sales Control 3:7 Investment Control 3:8 Supplier Partnership
1 Viable Vision (The Company is solidly on POOGI) Viable Vision is realized in 4 years or less. For the company to realize the VV its T must grow (and continue to grow) much faster than OE. Exhausting the company's resources and/or taking too high risks severely endangers the chance of reaching the VV. Sufficient Build a decisive competitive edge and the capabilities to capitalize on it, on big enough markets, without exhausting the company's resources and without taking real risks. The way to have a decisive competitive edge is to satisfy a client s significant need to an extent that no significant competitor can. [For different situations different templates satisfy this condition. The tree below is valid for situations where the Pay Per Click template conditions apply to (almost) the entire market of the company.]
2:1 Eliminating the Risk for the Client Sufficient When a good investment is regarded as too risky, eliminating the risk is a clients' significant need. The Company gains a decisive competitive edge in large markets by providing its equipment in a way that does not involve (almost) any risk for the client. When the uncertainty of expected usage is high and the level of usage needed to justify the investment is deeply within the uncertainty range, the investment is usually regarded as too risky. When the income is oscillating and the average free income is close to what is needed as monthly payment to return the borrowed investment, the investment is usually regarded as too risky. The Company builds the ability to: Identify the prospects that regard investing in its equipment as too risky, and Effectively offer them their equipment for attractive per-usage payment (pay-per-click or PPC). When all major obstacles blocking a desired deal are effectively removed, the deal is likely to happen.
2:2 Eliminating the Risk for the Company Sufficient Long term profitability is not the only consideration. Additional investments and additional risks may bring a company to its knees in the short and medium term. The additional investments needed for the PPC business are well within the capabilities of the Company and the associated risks are small and manageable. The investment for the client is the selling price of the machine. The investment for the Company is the incremental expenses/investment required to produce and place the additional units. The highest risk in a new sales offer is the possibility of cannibalizing the existing sales. The Company builds the capabilities and policies to: Reduce the investments needed for PPC deals to a level that they do not put significant burden on the Company Ensure that regular sales will not be impacted. A new initiative brings two sources of risks: the risks inherent to the new initiative and the impact of the new initiative on the existing business (usually the latter is the bigger and more overlooked.
3:1 Market Segmentation The Company is blind to the segments of the market which are good candidates for PPC offer. (Because: Segments of the market that decline buying a product are of no interest to a company that tries to sell that product.) The Company knows, in detail, the segments of the market which are good candidates for PPC offer. The smaller competitors of the companies that currently do buy the equipment are natural candidates for PPC offer. Smaller competitor is defined as a competitor that is in the same business as the current clients but supplies/uses the outcome of the equipment in smaller quantities if at all. The Company devotes enough brain power and resources to unearth the required information on the segments of the market that are natural candidates for the PPC offer.
3:2 Offers Design It is easy to make a painful mistake when constructing an offer which is alien to the type of offers the Company is used to giving. The Company PPC offer is well constructed. People who are used to straight sales can easily distort an offer which is based on a stream of continuous income. People who are used to the impact of straight sales on their company s financials can easily distort an offer which is providing an income unconnected to the transfer of assets. People who were driven to sell a product can easily distort an offer which is geared (among other things) to block the possibility of purchase. The company uses all available expertise to construct a well thought out PPC offer and documents the logic that leads to each detail of the offer.
3:3 Selling PPC Conventional sales methods are not effective enough to capitalize on a competitive edge that stems from anything other than the product itself. The sales force is professional in selling the PPC business deal. It is possible to switch most sales people from the conventional mode of selling products to the very different mode of selling business deals. Proper time and training is invested to re-train the sales force.
3:4 Sales Funnel Management A well presented business deal results in very high hit ratio (>80%) and most sales organizations don t know how to deal effectively with a high number of good prospects. The Company is capable of bringing in a rapidly growing number of new clients. The know how of how to generate leads and how to monitor and control a sales funnel exists (it was fully developed in industries where there are no repetitive sales). The Company implements the mechanism to generate leads, monitor and effectively control their sales funnel (new clients).
3:5 High DDP When on-time deliveries are not high (<90%) additional production is likely to postpone deliveries of sold equipment and therefore severely deteriorate the Company s cash. The production equipment that is used for PPC deals does not cause any disruption to the production of equipment that is sold. S-DBR and CCPM improve lead-times and due-date performance for all products. S-DBR and/or CCPM (depending on the Company s environment) is/are fully implemented. Only when due-dates are brought to high enough levels is the green light given to the sales force.
3:6 Sales Regulation The profits and cash flow of the short and medium term are severely jeopardized when steady-stream income cannibalizes straight-sales income. The PPC sales do not (unintentionally) cannibalize regular sales. When there is natural market segmentation which is enforced by segmentation in the sales force, the risk of impacting the regular sales is small. For PPC the incentive scheme of the sales force is set in a way that guarantees that the PPC offer will be given only in cases where a straight sale is very unlikely to occur.
3:7 Investment Control Any investment reduces cash in the short term. The investment in PPC does not endanger the Company s cash. S-DBR and CCPM expose excess capacity (~50% for T and A type configurations and multi-project environments) and enable using that excess capacity without deteriorating due-dates or lead times. When the additional production is done solely by excess capacity the additional investment is just the TVC. The investment in PPC deals is relatively low (just the TVC) and the number of PPC deals is restricted and monitored to ensure that the overall investment will always be in-line with available finance.
3:8 Supplier Partnership When TVC is relatively high (>60%) the investment in PPC deals is higher and the risk of pull-back is higher. There are satisfactory win-win arrangements with main suppliers. When TVC is higher than 60% usually there are two or three components that comprise most of the cost. A guaranteed return of 25% per year is regarded as an excellent return. The Company reaches agreements with its suppliers to get the main components at maximum 25% return per year (much less than the average return of a PPC deal) with the option of purchasing at any time.