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David Shelton: Are you a specialist or generalist?

Deciding whether to specialise or generalise requires analysis of your firm’s capabilities and the attractiveness of each market

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As the market becomes more competitive, many firms are reviewing their client service proposition. This tends to be a blend of high-level statements of “what we do and how we do it” combined with detailed service schedules.

This is important but should form only part of the analysis about where to operate in the market and whether or not to be specialist or generalist. It takes us into analysis of product, service or client markets from the perspective of market attractiveness and business capability.

In terms of the restricted or independent decision this is particularly important because you do not want to withdraw from markets that are attractive any more than you would wish to remain in markets where you were not fully competent. To take action you need a structured approach to evaluate your position and identify what steps to take if you wish to make a change.

The Market Attractiveness Matrix is a useful framework based on two dimensions: your view of the relative attractiveness of individual product markets, specific services or client groups and your assessment of business capability. The aim is to be as objective as possible.

The assessment of market attractiveness is based on several considerations: profitability, market size (volume and value), rate of growth, pressure of competition and style of regulation.

You should combine your view on these to rate the attractiveness of the market as high, medium or low. Assessment of business capability follows a similar approach based on market knowledge, understanding of legal and regulatory rules and complexities, technical and advice skills and administrative capability.

All advice firms subconsciously consider this when they decide whether to enter markets. This method simply requires a more explicit approach. The first chart (below) is based on client groups and provides an example of what this could look like but note this will be very different for different businesses.

It is obvious different firms will have differing views on the attractiveness of markets and very different business capabilities. So this example is not typical or best practice, it merely shows how the model works. The selection of products, client segments or services depends on the business but you should include all your current markets and any you would realistically consider within the next two to three years. When positioning individual components you should ask the question: “Where does this stand relative to the others?” That should help you place individual components in the right box.

When you have the relative positions you can take a view about how to react. Which markets do you sustain, which do you grow and which do you leave? The second chart summarises the generic strategies for each section of the matrix.

It is normal that products, clients or services on the top row (high market) should be built to move to the top right. “Building” means researching, training and developing a detailed understanding of the market. Components on the bottom row are typically declining but you should consider the rate of decline and how important these are to your business. In general you would not invest further in them and you might exit or outsource those in the bottom left. The middle row requires judgement which depends on the timescale and the current importance of the product or market to your business.

When reviewing restricted status, this model helps consider the relative importance of products, particularly higher risk. This gives a framework for debate as you may have access to clients for whom these products are important which could contribute to a high market rating. For business strength consider compliance, technical understanding and appropriate client types.

David Shelton is the author of The Business of Advice book and website www.businessofadvice.co.uk

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