Posts Tagged ‘strategy’

“Beating the Commodity Trap” – how, maybe, to beat back the zombies

Monday, March 1st, 2010

livingdeadCommoditization is a word that sends chills up the spines of CEOs worldwide. A commodity is a completely replaceable, fungible item, purchased from any of many suppliers, with prices depressed to not much above the variable cost of production. Yuck!

The strategies that companies have used to battle commoditization, like product differentiation and bundling, are themselves being commoditized. Private-label copycats and new competition from emerging markets are increasing the forces of commoditization. With all this comes the need to look at the problem anew.

beating the commodity trapRichard A. d’Aveni of Darmouth’s Tuck School of Business has produced a slim volume entitled, “Beating the Commodity Trap: How to Maximize Your Competitive Position and Increase Your Pricing Power,” that performs just such a task. The best part of the book is the framework it lays out for thinking about commoditization; the three “traps”:

Deterioration – in which competitors duplicate some or all of your value proposition at a lower price

Proliferation – in which various firms serve business niches that eat away at your market

Escalation – in which competitors increase value and reduce cost at the same time

d’Aveni goes on to describe various strategies to use if you find yourself in one of these traps. Probably the most successful example cited is Microsoft’s response to a proliferation trap, in which smaller competitors created add-ons to Windows to provide capabilities like media management, virus protection and (the most famous case) web browsing. Microsoft used its monopoly power to duplicate these features and include them in Windows for free, both making Windows more valuable and eliminating the market potential for these competitors (”overwhelming” the trap, in d’Aveni’s parlance).

Of course, despite d’Aveni’s rigorous analytical approach and his numerous examples of successful counter-commoditizing, reading about the many ways commoditizers attack industry leaders in “Beating the Commodity Trap” may leave you with the feeling you have when you watch “Night of the Living Dead.” Even when you think the zombies are defeated, more always emerge from the shadows.

Why “Undercover Boss” is dramatic, and why that’s a bad thing for business

Thursday, February 25th, 2010

7-11 undercover bossI finally got a chance to check out “Undercover Boss” this week, after being curious about it since first hearing about it at the Super Bowl. It follows many reality show conventions, including dramatic music, montages and strategic repetition (I heard, “Those items are supposed to be going to charity!” at least three times).

Why, though, is “Undercover Boss” dramatic? In short, it’s based on an assumption that big-company CEOs are completely disconnected from the front lines of their businesses. Only by the CEOs being out of touch can these shows create the surprise and drama they depend on. Seeing Joe DePinto, CEO of 7-11, struggling to make coffee is funny, but it’s also telling. Selling coffee is how 7-11 makes money. According to DePinto, the store he works in serves 2500 cups per day. DePinto spends his days attending meetings and reading reports, not making coffee, and it shows.

I saw a terribly sad example of the “undercover boss” last week while watching “The Hurt Locker.” One of the soldiers meets with a psychologist colonel who is counseling him for his stress-related illness, caused by his daily encounters with IEDs and their carnage. The soldier teases the colonel that he doesn’t know what it’s like out on the streets. The colonel replies that he’s been out on the front lines earlier in his career. One morning, surprisingly, the colonel shows up and offers to accompany the group on their daily missions. The tragic ending of this amazing scene really struck me and pointed up in an extreme way the costs of the out-of-touch boss. How can one lead when he has no idea what it’s like where the rubber meets the road?

Related posts:
Business Book Hall of Fame: War & Peace
Time to start listening to front-line employees
A method for gathering and using insight from front-line staff

Two blogs you should read about the future of business

Tuesday, February 23rd, 2010

Two bloggers on Harvard Business Review’s website (http://hbr.org) in very different voices are helping to define the next era of business, post-crash. Umair Haque provokes and hyperbolizes, while Roger Martin writes sober, crafted prose, yet both say much of the same thing: business as usual – shareholder value maximization, “greed is good,” arbitrage- and exploitation-based commerce – needs to go. In its place will be socially-aware businesses that profit by garnering their workers’ best efforts and delivering distinctive, thick value to customers.

Samples:

Haque:

Hypercompetition — and hypercollaboration — is accelerating. The people formerly known as consumers are now your peers. Regulators have a keener eye and a longer arm. Stakeholders went from being hippie pacifists to shark-toothed activists. In this world, mere innovation and “strategy”are commodities. Globally, naked consumption must transition into durable investment. Meaning is the new cornerstone of advantage: Does what you produce actually make anyone meaningfully better off?

Martin:

as corporations have ballooned in size, the [CEO's] community has become far more impersonal and distant. Customers and employees have become more dispersed and distant and the home city has become less central — even expendable, as Boeing’s abandonment of Seattle demonstrated. And perhaps most important, a company’s owners have become a group of distant professionals who trade their holdings at the click of a button. Many large shareholdings, in fact, aren’t even managed by people.

Are they seers, or delusionists? I hope it’s the former. But you should read them both and decide for yourself.

Related posts:
Prior mention of Umair Haque
Posts mentioning Roger Martin

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.

Documenting and testing assumptions early is essential to good new-venture planning

Tuesday, October 27th, 2009

One of the most useful lessons in Rita Gunther McGrath’s and Ian MacMillan’s “Discovery-Driven Growth” is a basic one: when you’re planning a new business venture, your initial plans are laden with assumptions, and treating these assumptions as facts will get you in trouble. Yet it’s done all the time.

This lesson was reinforced in the nice interview with Rita that appeared in yesterday’s Wall Street Journal Business Insight section (”Learning from Corporate Flops“). The headline is a bit misleading – she talks less about learning from your flops than about carefully documenting your assumptions, testing them as early and cheaply as possible, and revising them when you learn they don’t hold up.

Having a detailed list of assumptions allows many people to weigh in on a new business idea – even if you can’t speak authoritatively on the whole concept, you may have very good insight on one particular assumption. And assumptions are expected to be wrong much of the time, so questioning one or showing evidence why it’s not valid is easy for the new product team to accept.

On the other hand, probing and questioning a business plan in which the key assumptions are buried and not distinguishable from known facts tends to invite emotional arguments which rarely improve the quality of the plan.

Related post:
On “Discovery-Driven Growth

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

Wireless companies are no longer in the network business

Friday, August 7th, 2009

When I first went out on my own, my father-in-law, an attorney who had his own practice for many years, told me: “If you think you’re in the consulting business, you’re wrong. You’re in the sales business.” What that meant to me was, there are lots of consultants. If I can’t articulate and communicate the value I bring, clients will hire someone else–no matter how accomplished my consulting work is.

It’s 2009, and a similar fate has finally overtaken wireless companies. You see, they believe they are in the network business. You see it in their advertising (”More bars in more places,” “The Now Network,” “The nation’s most reliable network“). You hear it when they talk, and you see it when they present at conferences. The network rules.

Except this: there are lots of networks (five or more in many areas). Wireless companies are able to drop calls no matter how many bars they have in how many places. People don’t make decisions anymore based on network–they make it based on handset, or price plan, or maybe what ad they saw most recently.

So the mindset needs to change. Wireless companies are now in the customer service business. How can you provide an attractive product, with good reliability, at a reasonable price point… and make customers feel wanted, valued, and treated fairly?

In other words, AT&T needs to be more like Ritz-Carlton and less like… Southwestern Bell, one of its progenitors.

The changes needed to do this are immense. They are no less than devaluing where the company came from (networks, cell sites, etc.) and empowering fringe groups, such as customer service. It means re-evaluating the entire product portfolio and purging it of things that have become shackles to their customers–contracts, bucket plans, hidden profit centers.

It means radically simplifying your business, removing programs, processes and systems that don’t add value anymore.

It means getting real, and putting corporate commitment behind “our customers are our most important asset.” Because don’t say it if you really believe your most important asset is your IMS infrastructure.

Does any company have the courage to do this? One would wager that Sprint has little to lose. Mr. Dan Hesse, why don’t you have a go at it?

To motivate front-line employees: don’t just thank them, use their insights

Wednesday, August 5th, 2009

Sylvia Ann Hewlett blogged at Harvard Business Review that leaders need to inspire lower-level employees. She writes:

…No one succeeds alone, which is why all leaders must find a way to pollinate the workforce with their values, ideas and enthusiasm. This is what keeps businesses humming, especially during a downturn.

Some leaders inspire the masses via the grand motivational speech. Others via one-on-one conversations. At Time Warner, CEO Jeffrey L. Bewkes held a series of skip-level lunches with ten to twelve high performers that typically had little or no access to him. He spent two unscripted hours talking about his vision and answering their questions. Employees who attended Bewkes’ lunches reported feeling more “confident in the company” and developed a new affinity for their chief.

Whatever vehicle leaders choose to use to reach out and inspire employees at local levels, their talk must have teeth. Don’t spout hyperbole — “Great job” or “we can do it!” Instead, serve up concrete, achievable goals. Listen to people’s problems and offer real solutions. Mentor by sharing your own lessons learned, celebrate teams’ efforts and reward tangible achievements. Even a simple “thanks” goes a long way when delivered from on high.

Each week at furniture designer Knoll, president and COO Lynn Utter emails four senior managers and asks them for the name of one person on their team who has been exemplary. Utter then calls each person to thank and congratulate him or her for a specific accomplishment. Utter is as time-constrained as the rest of us but says that if she cannot make four phone calls a week to acknowledge people’s good work, then she is not doing her job

Hewlett is right–inspiring the troops is an important leadership task, especially in tough times. But my reaction on reading this prescription was, “Ugh, more top-down thinking.” In other words, everything’s up to the leader–that “affinity for the chief” and thanking employees makes a company better.

How about this idea instead? Let’s forget about CEO Bewkes for a moment, and focus on making the work more fun and rewarding for the 87,000 people who work for Time Warner.

Gary Hamel discussed this idea in his recent book “The Future of Management.” In it he pointed out how Toyota is able to leverage the creative thinking of all its 300,000 employees through means like the Toyota Production System. This benefits the company by ensuring a constant stream of innovation, and the employees by making the workplace a more rewarding place to spend time.

I am focused on one particular group of employees–those who interact directly with customers. This includes customer-service reps, retail clerks, bank tellers and account support staff. It is a group with tremendous insight, and a group that’s held in low esteem in companies I’m familiar with. To borrow a phrase from my friend Matthew Achak, “Nobody listens to the reps.”

They sometimes are not even allowed internet access.

This is just wrong. These groups occupy a unique position in the company. They hear the unvarnished truth from customers. Their stories, rather than being ignored, should be nurtured and collected. Everyone else in the company should read them and absorb the lessons (especially the leadership). They should be primary inputs to strategy, marketing and product development. The best stories and best storytellers should be acknowledged and promoted.

Companies should focus on something like this, instead of sending their CEOs around on motivational tours or making four calls per week to exemplary employees.

Increasing employees’ sense of meaning and personal value in their work. Now that’s leadership.

Related posts:
Time to start listening to customer-facing employees
On “The Future of Management”

Why didn’t GM use “Harry Potter Marketing”?

Thursday, June 4th, 2009

I was driving to the local baseball field this week (very slowly–there’s a townwide sidewalk construction project underway and every street is a work zone). Coming the other way was a big Cadillac driven by someone in the Cadillac market sweet spot–a 75-year-old guy.

Which got me wondering about Cadillac and GM’s restructuring and the flashy, angular Caddies they’ve been selling for the past 10 years. The guy I saw was driving an older Seville, long and smoother, a real Caddy.

A few years ago Harvard Business Review’s annual “breakthrough ideas” section included a piece called “Brand Magic: Harry Potter Marketing” by Frédéric Dalsace, Coralie Damay, and David Dubois. The essay argued that marketers, rather than continually trying to reinvent brands to make them relevant to a younger demographic, should allow the brand to follow its audience, aging as they do–the same way Harry Potter ages, from book to book, as his readers age.

To me, it seems a lot easier to manage Cadillac to its demographic and then create some other brand to pick up younger drivers. Easier said than done, I know. But the continual, tortured reimagining of Cadillac is symbolic, I think, of GM’s Sisyphean effort over the past 30 years to show that Alfred P. Sloan’s strategy of “a car for every purse and purpose” had legs. [I mean, did the rap-star-accessory 2001 Escalade really point the way to the future of the brand?]

Trying to reposition a brand involves cutting out some (most?) of what makes it appealing to its current audience. That’s expensive. It also involves a leap of faith–that the name and brand equity can be made meaningful to a new audience.

By pouring billions of investment in new product and advertising to change Cadillac, GM could have nurtured Saturn from a brand that 20-somethings valued (its early 90’s positioning–I know because I drove one!) to one that appeals to forty-somethings: the “aspirational” buyers that Cadillac drew during the ’60’s and ’70’s. It probably wouldn’t have changed much with GM as a whole, but it’s almost certain that they wouldn’t be ditching Saturn and keeping Cadillac if they had done that.

Seems to me that Toyota, with Scion, has the chance to do “Harry Potter Marketing” right. It will be interesting to see if, in 20 years, Scion is still selling weird young-people cars, or ones that their current owners–who’ll be older and wealthier–really want to drive.

(Photo: left, the 2001 Cadillac Seville; right, the 2002 Cadillac Escalade EXT)

A better way to innovate: ditch the focus groups and go beta

Wednesday, June 3rd, 2009

According to the Cynefin framework for assessing systems and situations, “probe-sense-respond” is the appropriate way to work within a system operating in the complex domain–where cause and effect are observable only in retrospect. Or where, as a comedian might say, “So many things play a role…. It feels almost impossible to come up with a fixed formula because there are so many moving parts.”

There’s no doubt that developing and marketing innovative products and services operates in the complex domain. There are so many factors–technology, customers, macroeconomics, competitors, etc. Why, then, is the approach for complicated or “knowable” systems–”sense-analyze-respond”–still so often used to develop products?

Exhibit A is the focus group. I’ve participated in half a dozen or more of these exercises in my life, and I can assure you they don’t help product managers develop better products. “CYA” is probably the best outcome from a focus group. And CYA doesn’t do anything to create a successful product.

Is there a better way? Sure. Many companies, especially in the IT space, are using “private betas” or limited launches of new products (in Cynefin terms, “probes”) to get customer feedback (”sense”), and frequently adjust the product on an ongoing basis (”respond”) with the information they get.

This approach is well explained in a new post from Booz & Co’s “Strategy + Innovation” blog (”The Promise of In-market Innovation“) by by Alexander Kandybin, Surbhee Grover, and Nami Soejima. Along with astutely discrediting the research and focus group approach, the authors cover four key areas that are affected by an in-market innovation strategy (Feasibility, Product Development and Design, Commercialization and Branding). They also rightly point out that companies adopting this approach need a very different corporate culture:

To effectively execute the in-market innovation strategy, companies must steer the corporate culture toward a “big tent” product development philosophy. Incentives need to be structured to encourage constant idea generation, and to a large degree embrace (or at least not punish) failure.

I have a disagreement with one sentence the authors write: “With this approach, companies debut a substantial number of new products with limited up-front testing or filtering, and the marketplace itself doubles as the focus group.”

No. The marketplace is not a focus group. It is, in fact, the market. And that’s what makes all the difference.