Situation: A company’s primary objectives are to hone their business model and establish their first satellite office as a model for future expansion. An opportunity has arisen from a trusted source that could rapidly expand both business and opening of satellite offices by providing service to a single national client. How do you evaluate the tradeoffs between these options?
Advice from the CEOs:
- What is the impact of this new option on client diversity? One of Porter’s fundamentals of strategy is to not have too much of your business dependent on any one customer.
- What is the impact of this opportunity on your personnel, time and resources?
- Are there areas in which this opportunity will save time and resources, for example by consolidating some back-office functions like billing and accounting?
- If this opportunity will take an inordinate amount of time and focus, consider starting a new entity to take advantage of this opportunity.
- Use a decision-making grid to evaluate the new opportunity versus your present strategy:
- Identify the most important factors of both your current strategy and the new opportunity.
- Weight the importance of each factor as a percent of with the total adding up to 100%.
- Rank each opportunity against each factor.
- Multiply the factor ranking times the weight for each ranking.
- Sum the weighted rankings.
- See whether the summed rankings support of contradict your gut feeling, and further analyze depending on the result.
- Once you have identified the risks in this proposition, determine contract provisions that will reduce risks to acceptable levels. If the potential client is unwilling to yield enough of these points in the contracting stage to acceptably mitigate your risks, then walk away from the deal.
- Don’t risk your entire company for one opportunity. Financial rewards are only a scorecard.
Key Words: Expansion, Options, Satellite, Office, Time, Focus, Resources, Trade-offs, Client, Diversity, Consolidation, Function, Corporate Structure, Factor, Weight, Rank, Contract, Mitigate, RiskTweet