Right at the heart of category management is the category itself. Although this appears self evident, there is often a good deal of confusion about how a category is structured, and how to address it. The consequences of getting this wrong are challenging, but the frequency at which this causes an issue suggests it needs attention.
How to define the category
One of our most often observed issues in defining a category is that it follows the form of an internal organisational structure. As an example, a client may be looking for a supply of key components, which are used in two entirely different organisational areas. Frequently, the ‘category definition’ is based on where the components are used, not what they do or the marketplace they are bought from. This immediately leads to the potential for multiple market solutions to be used, in part defeating the original purpose of the category management approach.
The challenge here is that the client may well struggle with this change in perspective, as it is a huge alteration to think of categories from the perspective of the marketplace, even when the impact of that is dramatic. As a consequence, we need to find ways to explore the concept of the categories and their definitions in a way that allows the realisation of the change in perspective to become evident. This is no small task, and often requires a considerable amount of time to get the understanding of both the concept, and the implications, to bed down.
The difficulty in this approach is when the split in a category has become firmly embedded in the organisation, where whole scale change and rationalisation is truly difficult. In these instances, the clarity which category management brings to strategy development will tease out the most appropriate approach and how change, risk management and value delivery can march in lock step.
Working for the benefit of the organisation
Equally, to address categories where we need to bring disparate parts of the business together, we need to have excellent stakeholder management and communications, together with a view that we all need to work for the benefit of the organisation. Great category strategies will allow the identification of the broad value available in a category. Where there is a split approach in different parts of the organisation, maximising value can come from optimising the split, and making sure the full value of the split is being leveraged. Many categories get stuck on the concept of rationalisation, because it brings many side benefits in supplier management, stock management, warranty management and more. However, maintaining and reinforcing split approaches can be a powerful way to drive in value without the pain of rationalisation.
So, we not only need to make sure that the category makes sense and isn’t driven by organisation structure, we also need to make sure that we have a clear view of the different value streams across a split.
With that clearly in mind, we can start to look more broadly at the category itself.
To find out more, and to discover techniques to actualise this approach, contact me on +44 7771 911783.
Insight Guide: Benchmarking your category management performance