Market Growth Projects
Market growth projects are those that are generally focused on creating new markets or finding new uses for current products. The iPhone, for example, provided a whole new market for computers and the Internet by providing smart phones. Market growth projects may look at existing technologies and use them differently or combine them to create products to create new markets.
Housing Example—Consider a project that focuses on housing for the very poor and creating a business model that would be sustainable and built on capitalistic principles. The idea stems from the belief that housing is a fundamental economic endeavor and can be the impetus for real economic growth. That is, housing drives other industries that provide materials and support services. Housing and the associated industries create jobs that create demand for goods and this creates more jobs. Additionally housing provides the chance at home ownership which leads to stable communities.
The approach of choosing the least profitable customers in the housing industry is based on Clayton Christensen’s theories of disruptive innovation and the notion that market leaders are displaced by market entrants that enter the market and profitably serve that market’s least profitable customers. These market entrants then begin to serve a broader cross-section of the market leader’s customers and at times displace the market leader. A project based on serving the least profitable customers in the housing market provides the opportunity to apply Christensen’s theories in a way that is “market creating” by creating a whole new set of homeowners that can create economic impact that can create more new markets.
If a sustainable housing industry could be developed in third-world countries, real economic growth could take place and a lot of misery could be ended. If this could be tested, there might be a model developed that could be replicated in countries around the world. A good place to start the process would be to focus on the colonias that are situated along the United States—Mexico border. These settlements consist of poor, mostly Hispanic, families and result from the sale of nearly worthless land to individuals on a contract for deed basis. These individuals then build structures on the land as their homes. They usually do not have water, sewer, power or decent roads. The housing structures that exist are, in most cases, dilapidated.
The income for individuals in these settlements is far below the poverty level and may be in the $8,000 to $10,000 range per year and they would be able to afford less than $200 per month for housing. It is likely possible to develop a sustainable business model to serve this market.
This would require the ability to develop a program in which a house, land and infrastructure could be provided and financed over 30 years for $25,000 or less. Monthly payments, at 6 percent interest, would be less than $200 per month. Risk of default would be minimal since most of the people have been living in the colonias for years and making payments faithfully on their contracts for deeds. Because of the feeling of community, the residents would more likely be receptive to staying in the current location but willing to upgrade the property.
To develop a project that would provide land and structures for less than $25,000 would require significant innovations. But as was the case with the iPhone, most of the technologies already exist and just need to be properly packaged.
Elements of this program would include:
- Finance—Develop a model that would provide financing for homes to be purchased by individuals living in colonias who are purchasing a lot using a “Contract for Deed” and then building a structure on the land. These individuals and families make less than the poverty level and may average $8,000 to $10,000 per year. The financial model would have to consider how to purchase the contract for deed from the developer/owner and restructure an instrument that would finance land and housing that would be within the purchasers wherewithal to pay (estimate of $150 to $250 per month). If land is owned by the resident, a model would need to be developed that would allow refinancing that would include housing. Costs of the homes would have to include infrastructure costs. Traditional mortgage structures might have to be replaced with a new model.
- Pricing—At today’s mortgage rates the amount that could be financed on a 30-year mortgage and afforded by very low income families would be around $20,000 to $25,000. Monthly mortgage payments would be around $120 per month at current interest rates. Slightly higher interest rates could be justified due to a higher level of risk.
- Housing—Housing would have to be high durability and very low cost. Houses would probably need to be built for $5,000 or less. Massachusetts Institute of Technology and others have developed several such models. LED lighting and methods of natural heating and cooling might be employed.
- Infrastructure—Many colonias have no fresh water, sewer, electricity, and very poor roads. Technology would have to be incorporated that would provide colonias with water using efficient water collection and filtration systems (slow sand for groups of homes). Sewage systems would need to be developed to serve homes or groups of homes efficiently at a very low cost that are extremely durable (these are available on the open market). Solar and wind energy could be used to generate basic energy needs if other forms of energy are not available. Roads and drainage would need to be low cost and very durable.
- Business Model—Create an environment that is self-sustaining and promotes growth for supporting local economies as well as fueling next generation innovations. Some of the needed construction and infrastructure work could be provided by the residents of the colonias.
To initiate such a project would be fairly simple and not very risky. It might be as simple as contacting residents of a colonia and refinancing their current home in a way that would allow a new structure to be built. An organization could use construction, engineering, architecture, and technology companies or schools to develop a plan to provide housing developments to replace substandard housing in the colonias with quality basic housing.
A developer could then use the plan to redevelop colonias. The developer would orchestrate the purchase/refinancing of homes, the development of infrastructure and building of homes.
Developments would not require government subsidies. As with most disruptive innovations, the disruptor would provide a “good enough” product and over time the processes and technologies would improve and provide for further market-creating innovations. The result would be a sustainable, profitable enterprise that would provide significant economic opportunities. For example, the first desktop computer was nothing more than a word processor with limited capabilities. With each new generation more capabilities were added. As a result of more elegant software and more efficient chips, over time, desk tops replaced mid-range computers (Digital Equipment Corporation was a leading mid-range computer supplier) and now handle low-end main frame tasks.
This housing model has the ability to provide housing for the very poor, create new economies and provide for market-creating advances in architecture, technology, engineering, manufacturing and infrastructure.
To start this project will require a good deal of research and time spent on creating investment and finance models that would sustain the program. A new housing model has the promise of transforming the world economy by giving the poorest segments of the population an opportunity to become an important part of their local economy. This is the nature of creating new markets.
Note: An MBA Consulting Team at The University of Houston C.T. Bauer College of Business has initiated the initial phases of research on a colonia in Southeast Texas.
As mentioned earlier, market growth projects focus on creating new markets and strategies that prevent competitors from responding. In the case of the colonias, current home builders would have to dramatically alter their business models to compete for a market with lower profits than their current model provides.
Additional examples of market growth projects include: iPhone, Nintendo WI, and Cirque Du Soleil. The iPhone introduced handheld computers and made them available to all who used a phone. Nintendo WI brought a completely new segment of exercise games to computer users and to individuals who loved to play sports. Cirque Du Soleil provided circus entertainment without headline performers or circus like venues and widened the audience to include all who enjoy performing arts.
Market Sustaining Project
Market sustaining projects are the primary focus of most businesses. These projects are aimed at gaining a larger share of the current market and introducing new models of the current product. Unlike market growth projects, market sustaining is focused on perpetuating the current model of a business. The automotive industry, for example, is focused on individuals that use automobiles for transportation. To gain market share, auto manufacturers introduce new models with more advanced features.
This market can be disrupted by newcomers that provide a “good enough” product to enter the market at the lower price ranges. Honda did this in the 1970s and was followed by Toyota and others. While there were new, successful entrants, a new transportation model was not created. Market growth was more a function of overall economic growth and increasing standards of living rather than seeking to serve a group of nonusers. The following is an example of a market sustaining project.
San Francisco Chronicle Example—San Francisco is one of the most competitive media markets in the United States. When the new Executive Vice President and General Manager of the San Francisco Chronicle was named, Hearst had just purchased the Chronicle and sold their newspaper (the San Francisco Examiner). The General Manager’s job was to try to rebuild the ad revenues and put the organization on a solid market footing.
The city of San Francisco is located at the end of a peninsula and is restricted topographically from expanding. Thus the population is limited and population growth was concentrated in outlying communities. Some of the communities grew rapidly and over the years had developed quality media outlets. For newspapers, the competition included the San Jose Mercury News, Oakland Tribune, and Contra Costa Times. All were quality newspapers, respected and read by the residents of their communities.
Over the years, other media outlets had gained strength and provided good coverage of news and the ability to distribute advertising messages.
As the population grew in surrounding communities so did the retail outlets; many were branches of retailers that started in San Francisco. Others were new retailers serving only the outlying communities.
The retailers in these outlying communities found it necessary to move part and sometimes the majority of their ad budgets to media serving the outlying communities that included the San Jose Mercury News, the Oakland Tribune, the Contra Costa Times, and Marin Independent Journal.
The strategy at the Chronicle was to introduce new products and improve coverage of outlying communities. The San Francisco Chronicle had a strong franchise and a positive reputation and the Chronicle’s strategic efforts were rewarded to a great degree. It was however, important to understand that retailers were not likely to abandon the media that helped them grow their business and served the communities they served. By the same token the general manager could not expect that the residents of those communities would reduce the use of local media in favor of the Chronicle.
This strategy sought to move existing advertisers away from the competition in an effort to sustain and grow its market share.
The Chronicle management team began considering other options that included partnerships with other media. As they studied the options, they decided, for the most part, partnerships that actually moved business to the Chronicle would be short-lived because the partnership would cause some deterioration of the partner’s market share.
The general manager visited with the folks at competing Internet sites, the area newspapers, cable operators, television and radio stations to develop partnerships. The Chronicle team was able to put together a few programs that produced a modicum of success but did not change market share.
The programs that changed market share recognized the competition and targeted the audience that the Chronicle intended to serve. These included a marriage mail concept Hearst had introduced in Houston, a new wine section (they, after all, were in wine country), revamping the entertainment section for the Sunday Chronicle and introducing new Internet revenue programs.
While these approaches and strategies grew revenue and market share, they did not create new markets. They were focused on garnering a larger share of an existing market. The one aspect of the media business that could have been considered a market growth strategy was the Internet–providing a news source to non-newspaper readers.
Process Improvement Projects
Process improvement projects are focused on increasing a systems output while minimizing associated inputs. These projects can affect any organizational system including cash flow, accounting, human resources, production, distribution, information technology, and product design. For organizations that are focused on creating greater value by reducing costs, process improvement is a major focus. Following is an example of a process improvement project developed for the Corpus Christi Caller–Times newspaper.
Corpus Christi Caller—Times Information Flow Example—Understanding the flow of information in an organization can help design an efficient and effective organizational structure.
The General Manager of the Corpus Christi, Texas Caller-Times, asked a consultant to review the organization to see if there might be a way of improving the organization’s efficiency and effectiveness. Over the years, the organization had added new functions and, rather than having them absorbed by the existing departmental functions, they reported directly to the general manager. The resulting structure required the general manager to focus most of his management time on internal management questions. This reduced his ability to focus on changing market needs and developing new market strategies. For the analysis, the consultant looked at the types of information that were needed by management and what departments provided the information. The information management needed was separated into three broad categories:
- Information required for long-term success
- Information on customer satisfaction
- Information on profitability
The information was analyzed based on which organizational function provided the information and whether the information was sent to management or other departments. It was then determined which types of information could be combined by putting the reporting entities in the same functional areas and perhaps combining reporting mechanisms.
After a review, the consultant was able to create an administrative management department with a manager who reported directly to the general manager. In addition, he was able to take several functions and merge them with existing departments. To merge departments, he analyzed the type of information handled by each function and combined groups that created or handled similar information. This analysis uncovered areas of duplication of effort that were eliminated.
The result of the organizational analysis was the reduction of those reporting directly to the general manager from 10 to 5 managers. There was also a significant improvement in the quality of the information being generated and a reduction in the quantity of unnecessary reporting.
Analysis/Discovery Projects
Some challenges can’t be solved with information currently available. In these cases a separate consulting project may be developed to provide data that can uncover trends or systemic challenges that can lead to innovative solutions. An MBA team in the Business Consulting Lab at the C.T Bauer College of Business was asked by the management of the Houston Bush Intercontinental Airport to analyze passenger data to solve a staffing challenge. Here is a synopsis of the project.
George Bush Intercontinental Airport Project Example—George Bush International Airport (IAH) is the largest airport in the greater Houston metroplex. IAH was opened in June of 1969, and its airport code IAH is derived from the name, Intercontinental Airport of Houston. In 2015, over 43 million passengers traveled through the airport making it the 11th busiest. There are five passenger terminals spread out over 11,000 acres. Part of the reason for the complexity of this project is that the airport is so spread out and resources committed to a specific terminal cannot easily be relocated.
IAH offers services to 160 destinations within the United States and internationally. Furthermore, the airport travels to more cities in Mexico than any other airport in the United States. IAH is the second largest hub for United Airlines and also hosts American, Delta, and Lufthansa. Houston’s airport had 3.4 million monthly passengers in 2016 and totaled over 41 million for the year. Seventy-four percent of the passengers are traveling to domestic locations and the remainder are going abroad. According to JCDecaux, 58 percent of travelers at IAH are male. The age of travelers departing IAH is evenly distributed with the plurality (21 percent) being between the ages of 35 and 44.
Introduction to the Problem
The Houston Airport System (HAS) is limited in resources. In fact, a Lean Six Sigma study concluded that 720 employees would be needed in order to run the airport efficiently without process variation. At present, the airport is running its operations with 585 employees or 18.75 percent fewer employees than recommended by the management study. Currently, management is using historical knowledge and feel of the operations to make staffing decisions.
The challenge was to create a model that would efficiently allocate staff through the various terminals (A, B, C, D, E) based on passenger traffic.
The objective of the project was to provide recommendations that would improve efficiencies in the staff utilization at HAS and to create a model that could be used to forecast staffing requirement based on the total number of and location of arriving and departing passengers. The number of seats occupied on inbound and outbound flights was used as the driver of the staffing analysis.
This quantitative forecasting approach took the guesswork out of the airport operations and increased efficiency by properly allocating personnel based on customer traffic. In turn, HAS customers were more satisfied due to cleaner bathrooms, better customer service and less travel-related stress.
This project resulted in the development of a model that is currently being used by management at Bush airport to optimize staffing efficiency.
Staff Development Projects
There are times that a company finds that they need to develop their staff and they do not have the in-house expertise to create a development program. Many consulting companies provide staff development as a primary offering to their clients.
HP Inc. Staff Development Project Example—Executives from HP Inc. wanted to build an Educational Enrichment Program (EEP) for their employees to help facilitate organizational learning, primarily centered around competitive strategy and the management of change, since the company is attempting to “reinvent” itself.
HP Inc. reached out to Bauer College Decision and Information Sciences Department to build a custom curriculum for the program with eight learning modules focused on change management.
- Module #1: HP Strategy and the Change Imperative
- Module #2: Management of Change
- Module #3: Leading Change
- Module #4: Managing Transitions
- Module #5: Project Change Management
- Module #6: The Psychology of Change
- Module #7: Organizational Change and Mindset
- Module #8 Creating a Learning Organization
HP realized that additional training was not the answer. Training is skill-based and task-oriented, and is insufficient to create the depth of knowledge necessary for creative problem solving. Educational knowledge, on the other hand, can facilitate higher-order thinking that can create a depth of understanding sufficient to bring about a transformation in both mindset and culture.
Facilitative Projects
Many consultants may facilitate the execution of a strategy or the installation of equipment and systems. This provides the company with the highest level of expertise at some of the most critical stages of a complex project. Consultants work alongside a client’s employees to initiate activities and train those employees to maintain the continuous execution and support of those activities.
American Property Data Information Flow Example–Employing methods and technology that govern the interaction of people and information in the most productive fashion can be critical to succeeding as a business.
The CEO of American Property Data contacted a consultant to help him and his executives start a new type of commercial real estate brokerage service. The commercial real estate service was intriguing. The idea was to collect real estate information on properties available throughout the United States and create a database that could be used by real estate brokers and investors.
The consultant wrote the programming for the system using an off-the-shelf database program. This allowed properties to be entered into a database and then be queried on characteristics in which various buyers would be interested.
Once the consultant was certain the software would perform as required, he set out to create an organization that would collect property data and market the product.
The first step would be to attract major commercial real estate brokers in key markets around the country to participate by entering their property listings in the system. Simultaneously, the organization would sell the listing service to key real estate buyers such as pension funds and real estate investment trusts.
Within a few weeks, the concept was sold to several brokers and real estate investment groups. The commercial brokers were given an exclusive territory to represent American Property Data (APD) and paid a fee for that privilege. These brokers were able to attract listings more effectively because they could quickly market properties to buyers nationwide.
Investors simply subscribed to the service and received data on new properties as they were entered into the system. When they found properties matching their investment parameters, they would request a full information packet. Once requested, a full information packet with color photos would be sent via express mail.
Clearly, to be successful, APD had to collect data from the commercial brokers and make the data available to buyers quickly. The amount of data flowing to and from buyers made it necessary to employ computer—generated data exchange.
To solve the potential problems of format and computer compatibility, the consultant worked with APD to provide computers with the software downloaded to both brokers and investors as part of the system. Brokers would download new properties daily. Each day, all buyer’s and broker’s computers would be refreshed with updated data.
Sales to investors required the ability to sell the value of a national database of commercial property. For this, the consultant established a telephone sales department comprised of individuals with commercial sales agent experience.
Sales to commercial real estate brokers would require the ability to demonstrate the value of being an exclusive representative for APD and the value of entering the broker’s listings into a national database. To convince commercial brokers to participate would require sales people who fully understood the system and real estate brokerage. Because APD wanted to attract the top broker in a market, the APD salesperson needed to be experienced and an executive of the company. The consultant was able to recruit an individual who had been a senior broker for a national commercial real estate firm to handle broker sales.
APD grew in two years to 60 broker offices nationwide with a property inventory of over $2 billion. This was accomplished with a staff of about 12 people in the Houston office.
Conclusion
Consulting projects are requested to address different challenges. A consultant understanding the variety of demands will be better prepared to offer a project that will yield positive results for the client.
As with the genesis of projects, if attention is paid to market disruptions, technological advances and challenges facing organizations, consultants can uncover opportunities to offer their expertise.