02 Jun 2023
In our previous assumptions blogs, we defined assumption management and covered the 10 keys to effective assumption management. In this two-part series, we look at the frameworks available to help guide managers where to look for key assumptions and then to come to a consensus on a succinct list that really matters to their business. While there is no single framework or structure for documenting assumptions and using them to drive business plans, this blog outlines a potential set of assumption frameworks for the entire business.
Product Portfolio Assumptions
Product portfolio frameworks help companies systematically evaluate their product offerings and make informed decisions about which products to invest in, which products to divest, and which to maintain. These frameworks are only directional at best and hence have inherent uncertainties. They therefore require the underlying assumptions to be routinely refined to reassess where to allocate resources to continue to fuel growth.
The Boston Consulting Group’s (BCG) Growth-Share Matrix is an often-used framework. It is based on relative market share and growth rate of each product or group. The framework groups products into four categories: Stars, Cash Cows, Dogs, and Question Marks. It can be applied to industries, categories, brands, channels, and even SKUs, depending on the nature of the business. By trending these areas across time, companies can set specific strategies, e.g., maintain and continue to grow the Stars, invest in growing share for the Question Marks, defend and maintain cost advantage of the Cash Cows, and divest or discontinue the “Dogs”.
A more internally-focused model also worth considering alongside the BCG Matrix, is the Growth-Contribution Margin matrix, that plots categories, brands, and sometimes SKUs on a matrix of growth versus contribution margin.
Marketing & Sales Assumptions
These frameworks cover the external market environment, the internal environment, the key drivers of sales growth, and competitors. One of the most widely used market frameworks is the Porter’s Five Forces model, which was developed in the 1980s, and is still highly relevant and useful today. This framework assesses the competitive intensity and attractiveness of an industry by analyzing five key factors:
1. The threat of new entrants.
2. The bargaining power of suppliers.
3. The bargaining power of buyers.
4. The threat of substitute products or services.
5. The intensity of competitive rivalry.
By assessing each of these factors, a business can determine what is known versus what is assumed about the market environment.
Used in conjunction with, or instead of, Porter’s Five Forces model, are three other ‘environment’ frameworks. PEST or PESTLE analysis which assess the political, economic, social, technological, legal, and environmental factors that may impact a business or industry, and STEEP analysis which assesses the social, technological, economic, environmental, and political factors that may impact a business or industry. PEST is the most practical for its simplicity and universality.
SWOT (strengths, weaknesses, opportunities, and threats) analysis is another simple and universal framework to bring together inside and outside views.
Supply Chain and Operations Assumptions
One of the key assumptions underlying supply chain management is cost effective customer delivery performance. This assumption is based on the evidence that customer satisfaction is essential for the long-term success of any business, and if companies deliver on time, in full, to specification, what they promise, it will contribute significantly to satisfied customers.
As a result, organizations need to be responsive to changing customer demands to remain competitive in the marketplace. One common framework is the SCOR (Supply Chain Operations Reference) model, which provides a standardized approach to supply chain management and metrics. The SCOR model is based on five key processes: Plan, Source, Make, Deliver, and Return.
Another important framework in supply chain management is the ‘Lean’ approach. Lean principles emphasize continuous improvement, process waste reduction, and the elimination of non-value-adding activities. These improvement initiatives however, have an element of uncertainty and require a set of assumptions around what they may deliver. For example, what assumptions would be applied when an OEE (overall equipment effectiveness) programme is deployed?
In part two we look at more frameworks to help with Procurement Assumptions, Organizational Readiness Assumptions and Financial Assumptions.
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