For anyone who has ever worked for a large multinational corporation, the following scenario will be all too familiar. A project requiring substantial investment is presented for review. The project team turns up with a 100-page presentation plus supporting spreadsheet models to justify their proposal. The presentation includes sections covering Sales, Marketing, Operations, Finance, and so on. During the review process as each department strives to justify its own positions, it can be easy to lose track of the overall goal. Although there is invariably an executive summary, it rarely does more than summarize key points from the presentation. How do you decide whether or not to move ahead? In reviewing such projects, I’ve learned to ask two simple but nonetheless critical questions.
Question 1: Am I going to be happy with the outcome?
Step away from the project itself and think about it as a journey you’re about to embark on. Ask yourself if you will be happy when you reach the proposed destination. For example, if you live in London and someone suggests heading off for a long weekend in Southern France, you may indeed find this destination appealing. On the other hand if the proposed trip involves a weekend to a seaside resort in Northern Scotland in the depths of winter, this may very well be a trip you have no desire to take.
Apply the same logic to the business proposal at hand and ask yourself “What’s the intended destination, and do I want to go there?”
Examples of good justifications:
- The project allows the company to enter an attractive new market and establish a clear first mover advantage ahead of the competition.
- The project facilitates the diversification of the product portfolio into a fast-growing segment not currently covered, and it should deliver a market leadership position.
- The project facilitates the rapid growth of an existing business with attractive margins that would otherwise go to the competition due to existing capacity constraints.
Examples of poor justifications:
- The project’s goal is to enter a category that is already highly competitive and has unattractive margins.
- The project involves entering a new category or business simply because it’s the latest trend, even though the company has no expertise or competitive advantage in this area.
- The project is essentially a political exercise to demonstrate regional expansion, and the company is already struggling to effectively manage its existing operations across the region.
Question 2: What do I need to believe in order to get there?
When you are sure that you will be happy at the end of your proposed journey, the next question to ask is what you need to believe in order to reach the destination.
Returning to the example of the proposed weekend trip, let’s say you’ve decided that Southern France is a good destination and now you must figure out how to get there. If someone has arranged attractive fares on a direct flight, then this may clinch the deal. If, however, the proposed journey involves being waitlisted on flights during a busy bank-holiday weekend, then you may decide not to go so as to avoid the risk of spending the entire weekend sitting at the airport.
Again applying this simple analogy to the business proposal, the goal is to identify the key assumptions that must hold true in order to deliver the expected outcome. Even though no two projects are alike and invariably projects of this nature are highly complex, most projects hinge on two or three key assumptions. Your goal is to identify these assumptions and decide whether they are reasonable.
Examples of believable assumptions:
- Birth rates in the Western world will continue to decline, leading to an aging population.
- Consumers will continue to migrate to product offerings that are perceived to be healthier and more natural.
- Mobile devices will become increasingly essential as a means of accessing the Internet
Examples of dubious assumptions:
- The project assumes entry into a highly competitive market, and the existing well-funded competitors are not expected to defend their position aggressively.
- The project calls for aggressive pricing during the early years to drive sales, followed by premium pricing in later years with no negative impact on sales.
- The presence of an international brand will deter local competitors from entering the market with cheaper product offerings.
To sum up, evaluating a proposed project can be straightforward if you think of it as a journey and ask yourself two simple questions:
- Am I going to be happy when I reach the final destination?
- What do I need to believe in order to get there?
Your answers to these questions will tell you whether to accept the proposal, modify it, or abandon it altogether
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