The board might use the M/E Ratio™ as a tool to provide specific guidance for investment priorities, investment timing, and financial visibility. Market research enables future-oriented intelligence.
Rethink upstream investment priorities Rethink the upstream investment priorities. Effect a fundamental shift to a marketing focus, away from a technology focus. Perform marketing early on, up-front. Assume, for the moment, that the technology will work, and focus on the marketing. The marketing is the big risk. Assume that the technology is not a risk. Having good technology that works is necessary for success. However, having good technology is not sufficient. Every one of the failures in this study had good technology. M/E Ratio™ as a test Use the M/E Ratio™ as a test of whether to invest in or approve a new product development. If the business plan demonstrates that the cumulative M/E Ratio™ is already more than 1, proceed to consider the other issues that you normally would. If the M/E Ratio™ is less than 1, then put money in earmarked for market research. Encourage hiring or retaining market research people. When you do decide to invest, incorporate the M/E Ratio™ into the terms as a financial monitor. Maintain the M/E Ratio™ above 1. Use the M/E Ratio™ as a tool to revive the "living dead" organizations. Account for marketing (market research) distinctly from promotion and selling. Shift funding to real marketing Make a major shift in funding to real marketing, to market research. For example, Becton Dickinson’s BDMS made a major shift in funding to market research, raising their M/E Ratio™ from 0.01 to 4. With marketing guidance, their sales per salesperson doubled, thus their sales expenses were cut in half. Even though BDMS increased market research by a factor of 400, their overall expenses declined (the sum of marketing, promoting, and selling). In just 24 months, BDMS tripled market share, returned to profitability, and went from number seven to number two in a mature, flat market. Restructure Restructure and reorganize to be marketing directed, from the top down. Change people. Becton Dickinson brought in a new management team for BDMS. The new division president had a marketing background. They recruited staff who possessed distinct market research skills, tools, and experience, and who proceeded to rigorously apply formal marketing and market research methods. Trying to return to a growth pattern, Keithley raised their M/E Ratio™ more than one order of magnitude in 1993, approaching 1 on some new projects. They changed from a product focus to a marketing focus, and reorganized into new business development teams that conducted simultaneous market research and engineering. Sales turned upward in 1995. Account separately for marketing Abandon the present "marketing department" cost structure, which often lumps marketing, promoting, and selling together into one department. Each separate function is valuable. However, you cannot tell how much is devoted to each. Selling and promotion are normally large items. As a consequence, marketing can lose visibility. Account separately for each of marketing, promoting, and selling. Include the marketing function done by people without marketing titles, such as company management. Abandon marketing as a cost center. Consider promoting and selling as a cost center for existing products. Dynamics Think in terms of dynamics. Imagine your business as a series of intrepreneurial startups, where the new product needs market research, yet there will be no sales until after the product is ready. Abandon the operating ratio philosophy. Finance the marketing Finance the marketing, not just the engineering. Finance the market research at the same level, or higher, than the engineering. Finance the marketing early on in the investment cycle. Insist upon (demand) customer and market data from up-front market research to justify the financing of investments in engineering. Justify market research as an investment in new products, just as engineering is considered an investment in new products.
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