Archive for the ‘strategy’ Category

P&G’s strategic review of brands isn’t really strategic

Thursday, October 29th, 2009

The Wall Street Journal today reported that Procter & Gamble’s new CEO, Robert McDonald, had put a number of brands on notice that they had to improve results or risk being sold off.

Many of the brands reviewed, such as Duracell, IAMS and Braun electric appliances, “have long been considered extraneous to P&G’s focus on beauty, health and nonfood household staples,” according to the Journal.

If that’s the case, why is McDonald threatening to sell the brands if they don’t improve results? Why isn’t he just going ahead and selling the brands?

“This business segment is extraneous to our focus, but if it is profitable enough we will keep it,” is not a strategy. It is an anti-strategy. And I would doubt, given the many strategic threats that McDonald is facing, coaxing incremental improvements out of Duracell or IAMS is a place he should be spending any of his management time.

Strategy as an appreciation of serendipity

Monday, October 12th, 2009

Today is Columbus Day in the US (my 6-year-old son was singing to himself at breakfast, “In fourteen hundred and ninety two, Columbus sailed the ocean blue”), and it’s a good time to think about strategies and objectives. Management consultants will tell you that developing a clear set of objectives and committing to a well-considered strategy to achieve them is essential to success in the business world.

Columbus had a clear objective – open a new trade route to India. At that objective he failed miserably, bumping into a land mass more than 10,000 miles short of his target. Yet, his mistake ended up being far more important in world history than reaching his initial goal would have been.

Like the earth in Columbus’ time, the future of any business is unknown and unpredictable. Therefore, while objectives and strategies are important, so is an appreciation for serendipity. Good things you didn’t anticipate emerge while you’re in execution mode. And being able to recognize these, and adjust your strategy (even possibly your objectives) as a result, is more valuable than being able to stick to a course of action.

Related posts:
Time for a new strategic-planning process
Describe your strategy in a simple picture

A Strategic Suggestion for Sprint Nextel

Friday, February 20th, 2009

What do you do if you’re #3 in a market and falling? Jack Welch of GE would have said, “Get out.” Sprint Nextel’s management doesn’t have that option at the moment, but their outlook appears dismal. According to an article by the New York Times’ Jenna Wortham, they lost 1.3MM subscribers while their larger competitors, AT&T and Verizon, gained a total of 3.5MM subscribers.

Not a winning trend.

Sprint is sorely in need of a strategic reboot, and I have a suggestion. Rosabeth Moss Kanter wrote the other day (”The Power of Old Ideas“) about an asset companies almost never use–the ideas and strategies they shelved in the past.

In Sprint’s case, that asset is wholesale. During the MVNO era earlier this decade, Sprint was (and still is) the largest supplier of wholesale wireless service. The others aren’t even close.

Wholesale employs outside partners–resellers–to brand, sell and support wireless service powered by the wholesaler’s network. In the 1980’s, long-distance wholesale from AT&T, Sprint and MCI launched dozens of vibrant telecommunications companies and greatly reduced per-minute charges for users.

But wireless wholesale never gained critical mass due to carrier neglect and strategic conflict–the direct channel was fearful that resellers would poach its own customers (see last week’s post on cannibalization). The cannibalization excuse always seemed weak to me–any wireless operator with less than 50% market share–i.e., all of them–will lose fewer customers to resellers than its competition.

Investment analysts complained that a wholesale customer had a lower ARPU than a direct customer. Which is true, but wholesale customers also have radically lower CPGA as well. Meaning the lifetime value equation for a wholesale customer isn’t bad (and may in fact be better than retail given the lower costs). Remind me to do those numbers some time.

All of the above, added to Sprint’s current growth (decline) trajectory, to me suggests that a full embrace of wholesale is a highly-differentiated strategy which would be impossible for competitors to match. And if I were the third-place operator, it’s one I would consider seriously.

Related post:
Netflix demolishes own business model

HBR adds to business failure learning library with "7 Ways to Fail Big"

Thursday, September 4th, 2008

This article in the September 2008 issue of the Harvard Business Review, by Chunka Mui and Paul Carroll, discusses seven corporate worst practices and relates business stories that demonstrate them. The practices are:

1. The Synergy Mirage – companies justify acquisitions by touting synergies that just aren’t there, or aren’t there in enough volume to make the price worthwhile. (Quaker buys Snapple, Unum and Provident merge.)

2. Faulty Financial Engineering – companies borrowing from the future to make today’s revenue look better. Enron, anyone? How about Green Tree Financial?

3. Stubbornly Staying The Course – Kodak, slow to react to digitization of photography, and Pillowtex, which failed to see the trend in outsourcing textile manufacture.

4. Pseudo-Adjacencies – the authors point to Oglebay, a company that thought it could deploy its expertise in shipping limestone to actually quarrying it. Result? Chapter 11.

5. Bets on the Wrong Technology – for example, FedEx ZapMail.

6. Rushing to Consolidate – too often mergers focus on the top-line increases but neglect “increased complexities [that] may lead to diseconomies of scale.”

7. Roll-ups of Almost Any Kind – As with Loewen Group, a funeral-home aggregator, roll-ups can’t withstand downturns and usually provide a short-term revenue bump at the expense of the long term (see #2).

Leaders, you have been warned. Avoid these at all costs!

Related Posts:
NASA learns to avoid its worst practices in safety
Worst practice learning means our favorite business bestsellers are all wrong

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"Innovator’s Guide to Growth": readable, productive prescriptions for disruptive innovation

Wednesday, July 30th, 2008

I didn’t really understand Clayton Christensen’s “The Innovator’s Dilemma” when I read it many years ago. Perhaps like a lot of people employed by large companies, I suffered “innovator’s myopia.” But after experiencing disruptive products like Skype, Linux and salesforce.com it started to make more sense to me.

Christensen and his followers are still preaching the disruptive innovation gospel, and now, with “The Innovator’s Guide to Growth” I am finally getting the picture.

It’s the size and shape of a textbook, and works as one. Written by Mark Johnson, Scott Anthony and Joseph Sinfield, along with Motorola’s Elizabeth Altman, “The Innovator’s Guide” provides a rigorous introduction and a process for nurturing disruptive innovation. It guides a company through identifying opportunities, developing ideas, devising strategies, and deploying them.

There are no magic bullets presented–the core strategy, to find innovations that fundamentally reshape markets, is still difficult for market leaders to follow. Leaders’ instincts are to protect market share and “feature up” their products, precisely the wrong approaches to disrupt a market.

One tenet of disruptive innovation is to target “overshot” customers. These customers have grown disenchanted with the continual upgrades of a product and won’t pay more for new features. It occured to me that users of Microsoft Windows Vista–a huge product that just isn’t exciting anyone (and annoying many)–are just such overshot customers.

The chapter entitled “Mastering Emergent Strategies” was worth the price of the book alone. Referencing the work of Rita Gunther McGrath and alluding to managerial complexity as elaborated by Boone and Snowden in a recent HBR article, it lays out the case for an iterative approach to planning as opposed to an all-out march to a clearly-defined objective.

The authors define three critical steps for iterative planning: (1) identifying areas of uncertainty, (2) performing “smart experiments” and (3) adjusting and reflecting.

The rest of the book is similarly insightful. If you’re an innovator, or need to be one, this book should stay on your bookshelf as a valuable reference for many years.

Related posts:
Use your strategy to drive your acquisitions and vice versa
Rita Gunther McGrath

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Good news: The WSJ is back to being a great business paper (for now)

Wednesday, June 18th, 2008

I wasn’t alone in complaining about the Wall Street Journal’s decline in the quality and quantity of its business news articles. Thankfully, as Slate’s Jack Shafer points out, the Journal has improved markedly in this area recently.

I’d point to this article on Dell’s embrace of web2.0, this one on new business gurus (but no women) and this on municipal broadband as recent standouts. Each of which has reconfirmed why I like the paper. I’ve also noticed that the wonderfully silly page-1 articles (I still remember the 30-year-old one on Meat Loaf) have returned.

Related post:
Wall Street Journal is discarding its identity as a business newspaper

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Must we give away digital creative works?

Wednesday, June 11th, 2008

I’ve been thinking about this a lot recently, spurred on by the recent Fran Ten podcast, this David Pogue post, and most recently a thoughtful post by Scott Goodson based on this column by economist Paul Krugman.

The upshot of Krugman’s argument, referencing Esther Dyson’s prediction from the early ’90’s, is that digital creative works will become free, and creative artists will have to make their money from “ancillary” projects, such as touring, personal appearances, licensing, etc.

If this turns out to be true (and the music industry is approaching this state right now), then it has a lot of negative ramifications for the future of creativity.

First off is the fairness question. Here is a simplified digital media value chain:

  • Digital distributors (i.e., ISPs like Comcast) make money through subscriptions
  • Directories and aggregators (like Google) make money through advertising
  • Creators make… nothing?

While the structure of technology allows this to happen, it’s hard to look at this picture and see it as fair. I agree that DRM sucks, but is the solution “pay what you want“–a virtual tip jar?

Furthermore, if creating a work of art cannot in itself make money, it will then be difficult to invest much in that creation. While that may allow bloggers to continue (though I wouldn’t turn down a few bucks for my work if that were possible), it doesn’t bode well for musicians or moviemakers, and, soon, book authors.

If I can make money in personal appearances but not by writing, I will have to limit my writing time in order to, you know, pay the mortgage.

If a band can make money touring but not through selling CDs, they will be unlikely to spend much time in the recording studio, or to spend money on studio effects or gear. Perhaps they will instead simply tape their concerts and compile albums from the live sessions.

If a moviemaker cannot make money from her films because they are freely available on the web, she will have difficulty using any approach other than Dogme 95 in order to reduce costs. And do we want to see Dogme 95-style movies all the time?

The irony is that time put into making money takes away from time to create. Therefore, the output from our best artists is less. Is that progress?

Perhaps this is offset somewhat by the “long tail” of creators enabled by new technology. But I would trade 1000 bad “Nude” remixes for one new album by an artist I really like.

(Photo: pro-copying logo from piratbyran.org)

Related Posts:
Shop Talk Podcast #9 – Fran Ten of West Indian Girl on today’s music business
How will musicians get paid in the 21st century?

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An important definition of sensemaking

Saturday, June 7th, 2008

In trying to talk to companies about using narrative techniques and other ways to mine the non-quantitative data they have but never make use of, especially for strategy and innovation, this post from Dave Snowden will be a significant asset.

Sensemaking is the alchemical step where the mess is sorted through and the themes, threads and weak signals are detected and clarified. From there, people can make decisions and act.

In other words, it’s the most important step.

Related post:
HBR article demonstrates that leaders need to manage complexity

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Confused by "open wireless"? Read this

Tuesday, May 20th, 2008

When it comes to making sense of the fragmented, messy world that is the US wireless marketplace, Hamilton Sekino of Diamond Consulting (someone I’ve worked with for years) is as good as it gets.

He and co-author David Gates have just written a white paper entitled “Wireless Open Models” (link – free with registration) that helps sort out just what “open” means in all the different contexts of the wireless world (networks, services, platforms, devices) and how names like Verizon, Android, iPhone, Nokia, Kindle, and others are involved. Like all Hamilton’s work, “Wireless Open Models” is rigorous, well-written, and comes with a strong viewpoint.

It’s a useful resource to have handy the next time you read about “open wireless.” Which could be as early as today.

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Champy’s "Outsmart"–less than meets the eye

Thursday, May 15th, 2008

We talked some about business gurus last week, and while the name Jim Champy wasn’t on the WSJ list, he would have been in the past. So when I was sent his new book, “Outsmart,” I put down the other books I was reading to take this one up.

The good news was, at 165 pages with ample white space, it didn’t take long to read. The bad news was that it fell far below my expectations. “Outsmart” is the business-literature equivalent of those new paper-like mint strips you lay on your tongue. The ideas dissolve in an instant.

Why? The book lacks the rigor of other recent books in the strategy literature, “The Opposable Mind” and “Big Think Strategy.” It fails to paint the far-reaching vision of “The Future of Management.” It is a collection of inspiring stories, and that has value. After reading it, however, I had difficulty taking away any lesson other than to be an extraordinary success, you had to be an extraordinary person with a strong vision and have excellent timing–not a very useful blueprint for most leaders.

At the end of each chapter is a summary of learnings. In “Compete By Doing Everything Yourself,” Champy offers this lesson:

Control what matters. Doing everything yourself speaks to a very human impulse. When Cappello [the CEO of S.A. Robotics, the company that competed by doing everything itself] talked to me about his need to control his company’s processes, I immediately understood that he was really talking about his distaste for losing control, especially for the kind of product he makes.

If you manufacture a complex, customized product, the need for control is clear. If you are providing a more commoditized product or service, however, outsourcing part of your work might be a legitimate option or, in some cases, a competitive necessity.

In other words, you can succeed by doing everything yourself, or by having others do work for you. It depends.

And in another chapter he writes, “I’m a strong believer that a company must be a low-cost producer to compete.” Really? Is S.A. Robotics, which builds everything internally, a low-cost provider?

To me, these are indications of a book without a center. Compared to “The Opposable Mind” or “Big Think Strategy,” “Outsmart” is lightweight. There’s no science behind the theories other than a Darwinian metaphor in Chapter 1. The explanations are anecdotal (most times, a single anecdote). And no unifying theme.

“The Opposable Mind” described founders or CEOs who could reconcile contradictory ideas and thereby create new markets. Each example (and there were many) reinforced that idea. So did the cognitive research cited. “Big Think Strategy” supplemented its case studies with a strategic method.

By contrast, “Outsmart” is a brief, easy to read, set of success stories, that together don’t add up to an important book, sad to say.

Related Posts:
“Big Think Strategy” is a fun, inspiring read
The first great business book of 2008 (”The Opposable Mind”)
On Gary Hamel’s “The Future of Management”

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