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ALFRED GRIFFIOEN


The Strategy Accelerator
Business models for sustainable competitive advantage
Introduction: why are some companies
making a big profit and others not?

Why are Wall mart and Google performing, and General Motors and City group suddenly
not any more? What makes it that one shop in a street is „hot‟, and the other is not?

A lot has to do with the people that thrive the company, and their talents. Of course,
working hard is also important, but it is no guarantee for success. Decisive is what you
offer, to whom your are offering it and how you do it. That‟s your business model.

Research has shown that your resources and                             Competition         Power of
                                                                        intensity          suppliers
your strategy are the most important influencers
on your success in the market. Respectively 28%                               15%                 32%

and 41% of the variance in success is caused by                  41%
                                                                       Success in
                                                                                     31%
                                                                                           Financial
                                                     Strategy
variances in recourses and strategy. The                               the market           results

intensity of the competition is not that                   70%                28%
important. Only powerful suppliers can bargain
out their share of your financial results.           Resources



The concept of the Strategy accelerator combines aspects from „outside-in‟ theories that
primarily focus on market opportunities and „inside-out‟ theories like the Resource
Based View that take the capabilities of the company as a starting point. No model can
give a complete answer on how to manage your company. But the value of this concept
is that, on the basis of a simple assessment of the firm‟s position, it gives clear
directions on how to further develop the company towards profitability.
                                                                                                        2
Only by developing new business models
you can make more profit than the
average in your branch

How to achieve growth and to make a profit? Mainly by being different than others. By
coming up with new business models: completely new products, added services,
different ways to pay, surprising experiences. In that way you can create a sort of
monopoly, in which you determine the price at which your profit is maximised.


      price        monopoly                price      in competition


                       demand curve                      demand curve

              profit                  price of the
                                      competitor     profit

              costs                                  costs

                              numbers                          numbers
                              sold                             sold
As soon as your business model is copied and more competitors arise, you can‟t
determine the price yourself any more. You can only sell when you‟re asking the same
or a lower price than your competitors. Your profits will decline.



                                                                                        3
You can do this by finding new chances in
the value network: chances that you can
utilise with your organisation

Your company does not stand alone but is part of the value network: a network that has
branches and funnels, that extends itself even to the consumer and that does not only
contain money and goods, but also information. Where is your expertise? Can you skip
steps, make combinations with other suppliers or incorporate their offerings? What
means or competences do you have that are valuable, scarce, difficult to imitate for
others and easily applicable for you?




                              Supplier                                  Consumer

     Supplier                                    Customer
                                                                        Consumer


     Supplier              Company               Customer               Consumer


     Supplier                                    Customer               Consumer



                                                                                         4
What classical strategies are there to help
  us? Porter, Treacy & Wiersema and the
  BGC portfolio matrix are used most
  Michael Porter (1980)                        Michael Treacy and Fred             If you have more products, the
  suggests either to choose for                Wiersema (1995) see three           Boston Consulting Group portfolio
  (product) differentiation or for             directions for standing out from    matrix gives guidance how to
  cost leadership. To strive for               your competitors: product           direct the cash flows in your
  both, a differentiated product               leadership, which is constantly     company: depending on market
  and the lowest price, will get               improving and reinventing your      growth and market share, one
  you „stuck in the middle‟. The               product range, customer             should invest or divest in certain
  only possibility for this                    intimacy, providing the best-to-    activities. Cash cows are used to
  combination is in a well                     fit solution for well defined and   finance the growth of the Star
  defined niche market, the                    well known customer groups          products. Divest the Dogs, and
  focus strategy.                              and operational excellence,         keep a close watch on Question
                                               providing a solution with the       marks. The basic presumption of
                                               most efficient process and in       the model is that with high market
                                               general lowest costs for the        share you can get scale
                                               customer                            advantages.

                                                                                        Market
                                                                Product                 growth
           Lowest costs      Differentiation                   Leadership
 Broad focus
                                                                                                             Question
                                Product                                                  High       Star
                  Cost                                                                                        mark
                                differen-
               leadership
                                 tiation
                                                                                       Cashflow
                                                                       Minimum
                                                                         level
                ‘Stuck in the middle’
                                                                                          Low     Cash cow     Dog



                     Focus strategy              Operational                Customer                                    Market
Narrow focus                                                                                        High       Low
                                                 Excellence                 Intimacy                                    share    5
Internet has made it easier to copy good
ideas and to make price comparisons

If one development has been dominant in the last decade in the way consumers and
companies do business, it is the ever growing availability of information, facilitated by
the internet. Consumers, purchasing companies and governmental institutions have
increasingly better knowledge of the market and can compare products from several
companies. With a few mouse clicks and phone calls they can fulfill their needs with
suppliers from all over the world. Internet search and even online auctions replaces
more and more the relationship based purchasing process.

Through this availability of information it is also easier for small innovative companies to
offer their services and to compete with large players. This leads to faster product
rationalisation. With easier distribution of technology the number of competitors for a
certain product increased and prices decline.

                                               Price (€)
A good example can be found in two
comparable products, the video recorder           1500     Video recorders
and the dvd-player. The video recorder was                                              dvd players

developed in a time that information              1000
exchange was slow, and it took competitors
a long time to develop a comparable
                                                    500
product. With the dvd-player this was
already different.
                                                      0
                                                                                                      6
Capital flows are going outside the
company: not the board of directors, but
the shareholders decide where to invest

In the twentieth century the main objective of practically every company was growth.
Growth provided economies of scale, made a lucrative position as market leader
possible and above all: growth and the connected investments were a logical way to
reinvest profits.

When also the financial sector globalised, it became easier to reinvest profits from one
company into another if that had a better performance or lower risk profile. In recent
years under influence of large private investors transparency has increased, moving the
investment decision from a company level to an activity level. The added value of a
holding company or corporate head office is discussed more frequently.

Together with the internet this makes the resources available in a company less
relevant. Knowledge can be more easily obtained, relevant components and partners
can be found all over the world. With a good idea financial resources can be more easily
obtained. Active investors can choose in which company to invest and which capabilities
to combine. This makes not large corporations, but specialised organisations with high
added value activities leading in the new economy.




                                                                                           7
Internet and the globalisation of financial
markets have changed business: classical
strategies do not apply any more

  The three strategies of      The three directions of          What happened in the
   Michael Porter (1980)      Treacy & Wiersema (1995)             internet age?               Current validity




                                                                                                  
                                   Customer intimacy:          There are many suppliers      Customer relevance:
      Focus strategy:
                               having a complete offering        with a broad offering.     being seen as relevant
    targeting on a niche
                              for specific customer groups      Customers can choose       by your customer group




                                                                                                  
                                   Product leadership:         The enormous diversity of
   Product differentiation:                                                                (Continuously) having
                              continuously introducing new     products makes it hard to
   having a better product                                                                    unique products
                                       products                       stand out




                                                                                                  
                                Operational excellence:        Cost advantage is easily
      Cost leadership:
                              having the lowest total costs,   copied or leveled down.     No sustainable strategy
   having the lowest costs
                              including costs of your client    Scale can be bought




Cost based strategies and scale advantages can easily be copied in a transparent world
where always is cash for a good business idea. Operational excellence is only a
constraint, but not a differentiator any more.


Sustainable competitive advantage can only be
achieved by having a unique product or by really
being relevant for your customer
                                                                                                                     8
Depending on your sustainable competitive
advantage you can choose your strategy

                                                                           High customer relevance
As indicated before there are two generic                                  and no unique product:          High customer relevance
forms of differentiation that bring sustainable                            Combine several                 and a unique product:
                                                                           matching products               Consolidate your
competitive advantage in the current
                                                                           under your brand and            position by constant
transparent world: (continuously) having a                                 become even more                renewal and by keeping
unique product and having customer                                         relevant for your               close watch on your
relevance. The two forms have different                        High        customers                       competitors
dimensions and can be set out in a matrix,
the Strategy accelerator. With this model you
can decide on your optimal strategy,
depending on your competitive advantage:
ally, combine, excel or consolidate.

Just as with a car you don‟t start a company      Low
in the fourth gear: you have to carefully build
on your sources of profitability. The strategy    Low customer relevance
                                                  and no unique product:
accelerator forces a clear choice for one of
                                                  Ally with others as the
the two directions to differentiate yourself:
                                                  quickest way to build up
either with a unique product or through           the right competences or
market relevance. Both options don‟t exclude      product portfolio
                                                                                                            Low customer relevance
each other, but with limited means you can                                                                  and a unique product:
only focus on one.                                                         No                              Excel in what you do to
                                                                                                           make sure that you can
                                                                                                     Yes   continue to develop
                                                                                                           unique products and
                                                                                                                                   9
                                                                                                           services
Ally to expand your market relevance or
 to develop new products faster

 The majority of the companies starts in the first gear: they have low customer relevance
 and no unique product. Their profitability is often limited and is mainly determined by
 the balance between supply and demand in the market. Instead of investing yourself,
 hiring these competences or taking over a company with these competences you can
 better start an alliance. In this way you gain extra market relevance or develop a new
 product with a limited investment and less risks.

 When starting an alliance      Contractual Basis              Balance between partners
 three aspects are important:
 the 3 B‟s of partnerships      What legal form will be        Do both partners have
                                most appropriate?              equal influence?
 Business model
                                In which way are               How to ensure that the
 In what way will more          agreements described?          employees support the
 profits be made jointly than                                  alliance as well?
 by the partners separately?    What happens in case of a
                                conflict or when the           How to resolve conflicts of
 How will the profits be        alliance terminates in         interests?
 divided?                       another way?


The business model, the contractual basis and the
balance between partners are three important aspects                                         10
Example: Mechatronics Partners
Six small technological companies
working together in client projects

In 2006 a number of Dutch companies active in the field of electronics, optical
equipment, injection molding and metal working found each other and started to
cooperate under the name Mechatronics Partners. All are relatively small in size and
turnover, but together they have around 600 employees, of which 100 engineers in the
field of designing, engineering and constructing of electronic equipment like dvd-
players, control cabinets and industrial machines.

The basis rules for the cooperation were put on only three sheets of paper:
  • Every company does acquisition from its own network. Joint sales and marketing
    activities are paid together
  • Every month representatives from the companies sit together to discuss the market
    opportunities and to decide in which combination a bid will be made. Each
    participating company will calculate its cost price, the margin is decided jointly.
    External quotations are used to monitor the competitiveness of the prices.
  • In case of a successful bid, one of the companies will provide a project leader, who
    coordinates the joint efforts and is contact person for the customer

The expected extra turnover as a result of this team approach for 2009 is between 2 and
3 million euro, which is on a total of around 100 million joint turnover relatively small,
but most of it is yearly returning revenue. Apart from that the sharing of contacts and
market information has helped the individual companies to expand their own activities.


                                                                                             11
Combine products and services to create
customer relevance: the overlap between
the customer needs and your brand promise

Customers pay attention to your product when your message is relevant to them at that
moment. That will happen if their actual need is answered by the promise that your
brand makes, and how this is fulfilled in products, services, distribution or your
marketing communications. Customer relevance always starts with a clear brand
promise.

Every person has a number of generic needs: security, friendship, relaxation, efficiency
and success. Depending on the context or situation you are in, these generic needs are
translated to actual needs. When you want to have dinner with your friends you will
probably choose another restaurant than with your parents.

    Portfolio                                                                 Generic
  management                                                                   needs
                                                        Actual
                         Fulfillment of    Customer
                                                       customer
                      your brand promise   relevance     needs
  Distribution and                                                           Context /
  communications                                                             Situation


Customer relevance is created by combining the right products and services. Your brand
stands for the overall promise: the cheapest, the coolest or the most reliable products.
By combining more „matching‟ products and services in your offering, your turnover and
profit grow.

                                                                                           12
Example: variety store Hema has strict
portfolio management to make their
clients’ selection process a bit easier

The variety store Hema provides a large number of basic products from clothing,
household products, food and personal care items up to simple insurances. Working from
the motto: “An easier and nicer life must be accessible for everyone”, Hema has based
its proposition on the following customer insight:

 In this complex world it is
  important for me to shift              That gives a lot of pressure
          for myself

                                                               Therefore I like it when
                      I constantly have to make
                                                              small choices in my life are
                          important decisions
                                                                made easier and clear


This insight perfectly places the generic need for independency in the context of
shopping for basic products. Hema has responded to that with a portfolio management
in which there are at maximum three variants per product: good, better and best. For
most products there is only one choice: a reliable alternative, only with the Hema brand,
that is not expensive, but also not the cheapest you can get on the market.

The concept is supported with a bright, consistent furnishing of the stores and people
oriented advertising and an extensive distribution network, e.g. on railway stations.

                                                                                             13
Only if you excel in a certain specialism
you can continuously develop clearly
unique products

Within a business model a unique product always has a clear, not easy to imitate,
advantage compared to competing products. It is not about having a coffee machine in a
different colour, a camera with a few more mega pixels or a family car with a bit
different design. Being different is not good enough, it‟s about being extraordinary.

Developing a unique product or service requires continuous investments in building the
right competences, in idea selection, development and the right way of market
introduction. Research learns us that four aspects are essential to continuously come up
with new products or services:

 • A strong management focus on
   innovation. When the director or CEO is                  Openness of the
                                                            business model
   not convinced, nothing will happen;
 • Openness of the business model: talk with
   clients, make contact with universities,      Focus                             Managed
                                                                                                    New product
   find partners;                                  on                         development process
                                                                                                     or service
                                               innovation
 • Skills and creativity: train people and
   cherish their ideas;
 • A managed development process:                            Skills and
                                                             creativity
   regularly review the status of your
   innovations and don‟t be afraid to stop
   with inferior ideas.
                                                                                                            14
Example: 3M focuses on being a
technology leader and selects it
employees on being innovative

3M is a worldwide company with around 76.000 employees in more than 60 countries.
For most consumers only known from the post-it memo‟s, 3M has a wide product range
with highly technological products. And even the post-it memo is not that simple: “It‟s
not just a paper with poor glue. If you take it off, the glue has to stick on the memo, and
not on the object you placed the memo on.”

7000 researchers are working on new knowledge and solutions for the 45 technology
platforms that 3M has created. People are stimulated to come up with new solutions, for
3M products but also for their everyday work. This is stimulated by top management
with awards and by actively sharing success stories.

All employees are hired and evaluated on basis of six types of behaviour, like inside-out
thinking, openness for innovation and taking brave decisions. Most products are
developed together with a number of leading customers, to make sure that they really
fulfil a need.

Since around 10 years 3M has a structured product introduction program. There is a clear
development process with „gates‟, moments when is decided whether 3M will proceed
with a new product. In this way R&D is kept efficient.


                                                                                              15
Consolidate by continuously working on
your market relevance and on new
unique products

You have high relevance for your customer and unique products or services. What to do
to maintain this strong status? The strategy for companies in this gear is both to
combine and excel. Keep a close watch on your competitors, when necessary
incorporate them or chase them away.

Apple is certainly an example. With first the Mac, later the iPod and now the iPhone
Apple has a keen sense of what customers want and the ability to translate the newest
and patented technology into unique products. Although one can argue that there are
multiple MP3-players on the market, only Apple has its patented click wheel and its
intuitive customer interface. On being a relevant supplier for your customers, Apple
combines its own products with a range of software products and music and video from
various artists and amateurs in The Apple Store.


And keep a close watch on your competitors
Don‟t take your position for granted. Competitors are constantly trying to copy your
products, services and brand characteristics. Keep a close watch on them, and where
necessary defy or incorporate them. Also alliances can be a powerful tool to strengthen
your market position or to create even newer products or services.


                                                                                          16
Example: Singapore Airlines leads with
innovation on board and with a strong
brand promise: “A great way to fly”

Singapore Airlines has a consecutive record of being the first: in the 1980‟s it had the
first A300 Superbus, the B747-300 Big Top, the B757 and the A310-200. It was also the
first airline in the world to operate an commercial flight across the Pacific Ocean.

In the 1990s, Singapore Airlines revolutionized inflight communications and
entertainment through the KrisFone - the first global sky telephone service – and a full
interactive inflight entertainment system – even in the economy class. In 2007 it was
the first airline that had an A380 operational, offering something that no other airline
did: privacy, with the personal suites in the „beyond first class‟.

This product leadership was combined with the establishment of a strong brand. The
brand promise „A great way to fly‟ has been filled in with impeccable service, extensive
and user-friendly internet ordering and check-in, meals developed by internationally
known chefs and –despite all that – fairly competitive pricing.

Singapore Airlines became a full member of the global Star Alliance in 2000 and with it
came „seamless‟ worldwide air travel. With the extensive network of partner airlines,
connecting flights, frequent flyer points, and baggage clearance this has helped them to
consolidate their position


                                                                                           17
The core of your business model is
the added value for your customer

Once you have determined your competitive strategy, you can work it out into a
business model description. Such a description helps to communicate your plan with
your stakeholders, such as banks, partners and employees.

There are many ways to describe your                           Key
                                                            capabilities
                                                                                           Customer
                                                                                         relationships

business model. Slywotzki has made a
                                                   Key                        Value                      Customer
structure and 22 archetypes, Kaplan and          partners                  proposition                   segments

Norton have created their Strategy                             Key
                                                                                          Channels
maps. On of the most complete                               resources


structures is of Alexander Osterwalder,                         Cost                       Revenue
                                                             structure                     streams
consisting of nine aspects.
Banks and (potential) shareholders will always look at the validity and potential of your
business model. This can be easily tested with just three questions:
  • Does your value proposition take away pain or discomfort for your customer? Is
    there really a need for it?
  • Is your business model scalable, or does it only build on very specific resources, like
    a location of the personal skills of the entrepreneur?
  • Is there a lock-in, or can customers easily go to competitor? If you‟re using Microsoft
    Windows, it‟s a big step to go to Linux. It‟s a smaller step to choose another brand
    of toothpaste.

                                                                                                                    18
The Strategy accelerator completed

To summarise, think of these three points:                                     move this way with
                                                                              development alliances

1.   Determine which kind of sustainable
     competitive advantage you currently have.
     Do you have unique products or services or
     are you really relevant to your customers?     High
     How easy can this be copied?
2.   Build on your existing competitive




                                                    Customer relevance
     advantages by excelling in what you do or
     by combining more products and services
     under your brand. If you have no real                                                                  move this
     competitive advantages, focus then on only                                                             way with
     one of these directions.                                                                               marketing
3.   Uses alliances and partnerships to                                                                     alliances
     strengthen your strategy and to profit from
     resources that you don‟t have yourself. Look
     for complementing companies and use their
     skills or market.
                                                    Low

Just go and gear up!                                                     No   Unique product?         Yes
                                                                                                                        19
Alfred Griffioen, specialist in the effect
                              of alliances on your business model

                              Alfred Griffioen (1972) has a background as strategic marketing manager and business
                              development manager. After a period as manager at a strategy consultancy he is now
                              partner of Alliance experts, advising on strategic partnerships and matching companies
                              that are looking for an alliance partner.

                              He is the author of the book “Het Senseo-effect”, which is a practical guide to alliances.
                              In 2009 he wrote “De Strategieversnelling”, which links the formation of alliances to
                              competitive strategy. In 2011 a new book about business models for alliances will be
     Alliance experts         published.

Specialists in partnerships   More of his presentations in English are available on Slideshare.

                              Alfred Griffioen is available for lectures and workshops. He can be contacted on
                              +31 6 24 77 68 65 or through alfred.griffioen@allianceexperts.com.




                                                                                                                           20

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The Strategy accelerator - Business models with sustainable competitive advantage

  • 1. ALFRED GRIFFIOEN The Strategy Accelerator Business models for sustainable competitive advantage
  • 2. Introduction: why are some companies making a big profit and others not? Why are Wall mart and Google performing, and General Motors and City group suddenly not any more? What makes it that one shop in a street is „hot‟, and the other is not? A lot has to do with the people that thrive the company, and their talents. Of course, working hard is also important, but it is no guarantee for success. Decisive is what you offer, to whom your are offering it and how you do it. That‟s your business model. Research has shown that your resources and Competition Power of intensity suppliers your strategy are the most important influencers on your success in the market. Respectively 28% 15% 32% and 41% of the variance in success is caused by 41% Success in 31% Financial Strategy variances in recourses and strategy. The the market results intensity of the competition is not that 70% 28% important. Only powerful suppliers can bargain out their share of your financial results. Resources The concept of the Strategy accelerator combines aspects from „outside-in‟ theories that primarily focus on market opportunities and „inside-out‟ theories like the Resource Based View that take the capabilities of the company as a starting point. No model can give a complete answer on how to manage your company. But the value of this concept is that, on the basis of a simple assessment of the firm‟s position, it gives clear directions on how to further develop the company towards profitability. 2
  • 3. Only by developing new business models you can make more profit than the average in your branch How to achieve growth and to make a profit? Mainly by being different than others. By coming up with new business models: completely new products, added services, different ways to pay, surprising experiences. In that way you can create a sort of monopoly, in which you determine the price at which your profit is maximised. price monopoly price in competition demand curve demand curve profit price of the competitor profit costs costs numbers numbers sold sold As soon as your business model is copied and more competitors arise, you can‟t determine the price yourself any more. You can only sell when you‟re asking the same or a lower price than your competitors. Your profits will decline. 3
  • 4. You can do this by finding new chances in the value network: chances that you can utilise with your organisation Your company does not stand alone but is part of the value network: a network that has branches and funnels, that extends itself even to the consumer and that does not only contain money and goods, but also information. Where is your expertise? Can you skip steps, make combinations with other suppliers or incorporate their offerings? What means or competences do you have that are valuable, scarce, difficult to imitate for others and easily applicable for you? Supplier Consumer Supplier Customer Consumer Supplier Company Customer Consumer Supplier Customer Consumer 4
  • 5. What classical strategies are there to help us? Porter, Treacy & Wiersema and the BGC portfolio matrix are used most Michael Porter (1980) Michael Treacy and Fred If you have more products, the suggests either to choose for Wiersema (1995) see three Boston Consulting Group portfolio (product) differentiation or for directions for standing out from matrix gives guidance how to cost leadership. To strive for your competitors: product direct the cash flows in your both, a differentiated product leadership, which is constantly company: depending on market and the lowest price, will get improving and reinventing your growth and market share, one you „stuck in the middle‟. The product range, customer should invest or divest in certain only possibility for this intimacy, providing the best-to- activities. Cash cows are used to combination is in a well fit solution for well defined and finance the growth of the Star defined niche market, the well known customer groups products. Divest the Dogs, and focus strategy. and operational excellence, keep a close watch on Question providing a solution with the marks. The basic presumption of most efficient process and in the model is that with high market general lowest costs for the share you can get scale customer advantages. Market Product growth Lowest costs Differentiation Leadership Broad focus Question Product High Star Cost mark differen- leadership tiation Cashflow Minimum level ‘Stuck in the middle’ Low Cash cow Dog Focus strategy Operational Customer Market Narrow focus High Low Excellence Intimacy share 5
  • 6. Internet has made it easier to copy good ideas and to make price comparisons If one development has been dominant in the last decade in the way consumers and companies do business, it is the ever growing availability of information, facilitated by the internet. Consumers, purchasing companies and governmental institutions have increasingly better knowledge of the market and can compare products from several companies. With a few mouse clicks and phone calls they can fulfill their needs with suppliers from all over the world. Internet search and even online auctions replaces more and more the relationship based purchasing process. Through this availability of information it is also easier for small innovative companies to offer their services and to compete with large players. This leads to faster product rationalisation. With easier distribution of technology the number of competitors for a certain product increased and prices decline. Price (€) A good example can be found in two comparable products, the video recorder 1500 Video recorders and the dvd-player. The video recorder was dvd players developed in a time that information 1000 exchange was slow, and it took competitors a long time to develop a comparable 500 product. With the dvd-player this was already different. 0 6
  • 7. Capital flows are going outside the company: not the board of directors, but the shareholders decide where to invest In the twentieth century the main objective of practically every company was growth. Growth provided economies of scale, made a lucrative position as market leader possible and above all: growth and the connected investments were a logical way to reinvest profits. When also the financial sector globalised, it became easier to reinvest profits from one company into another if that had a better performance or lower risk profile. In recent years under influence of large private investors transparency has increased, moving the investment decision from a company level to an activity level. The added value of a holding company or corporate head office is discussed more frequently. Together with the internet this makes the resources available in a company less relevant. Knowledge can be more easily obtained, relevant components and partners can be found all over the world. With a good idea financial resources can be more easily obtained. Active investors can choose in which company to invest and which capabilities to combine. This makes not large corporations, but specialised organisations with high added value activities leading in the new economy. 7
  • 8. Internet and the globalisation of financial markets have changed business: classical strategies do not apply any more The three strategies of The three directions of What happened in the Michael Porter (1980) Treacy & Wiersema (1995) internet age? Current validity  Customer intimacy: There are many suppliers Customer relevance: Focus strategy: having a complete offering with a broad offering. being seen as relevant targeting on a niche for specific customer groups Customers can choose by your customer group  Product leadership: The enormous diversity of Product differentiation: (Continuously) having continuously introducing new products makes it hard to having a better product unique products products stand out  Operational excellence: Cost advantage is easily Cost leadership: having the lowest total costs, copied or leveled down. No sustainable strategy having the lowest costs including costs of your client Scale can be bought Cost based strategies and scale advantages can easily be copied in a transparent world where always is cash for a good business idea. Operational excellence is only a constraint, but not a differentiator any more. Sustainable competitive advantage can only be achieved by having a unique product or by really being relevant for your customer 8
  • 9. Depending on your sustainable competitive advantage you can choose your strategy High customer relevance As indicated before there are two generic and no unique product: High customer relevance forms of differentiation that bring sustainable Combine several and a unique product: matching products Consolidate your competitive advantage in the current under your brand and position by constant transparent world: (continuously) having a become even more renewal and by keeping unique product and having customer relevant for your close watch on your relevance. The two forms have different High customers competitors dimensions and can be set out in a matrix, the Strategy accelerator. With this model you can decide on your optimal strategy, depending on your competitive advantage: ally, combine, excel or consolidate. Just as with a car you don‟t start a company Low in the fourth gear: you have to carefully build on your sources of profitability. The strategy Low customer relevance and no unique product: accelerator forces a clear choice for one of Ally with others as the the two directions to differentiate yourself: quickest way to build up either with a unique product or through the right competences or market relevance. Both options don‟t exclude product portfolio Low customer relevance each other, but with limited means you can and a unique product: only focus on one. No Excel in what you do to make sure that you can Yes continue to develop unique products and 9 services
  • 10. Ally to expand your market relevance or to develop new products faster The majority of the companies starts in the first gear: they have low customer relevance and no unique product. Their profitability is often limited and is mainly determined by the balance between supply and demand in the market. Instead of investing yourself, hiring these competences or taking over a company with these competences you can better start an alliance. In this way you gain extra market relevance or develop a new product with a limited investment and less risks. When starting an alliance Contractual Basis Balance between partners three aspects are important: the 3 B‟s of partnerships What legal form will be Do both partners have most appropriate? equal influence? Business model In which way are How to ensure that the In what way will more agreements described? employees support the profits be made jointly than alliance as well? by the partners separately? What happens in case of a conflict or when the How to resolve conflicts of How will the profits be alliance terminates in interests? divided? another way? The business model, the contractual basis and the balance between partners are three important aspects 10
  • 11. Example: Mechatronics Partners Six small technological companies working together in client projects In 2006 a number of Dutch companies active in the field of electronics, optical equipment, injection molding and metal working found each other and started to cooperate under the name Mechatronics Partners. All are relatively small in size and turnover, but together they have around 600 employees, of which 100 engineers in the field of designing, engineering and constructing of electronic equipment like dvd- players, control cabinets and industrial machines. The basis rules for the cooperation were put on only three sheets of paper: • Every company does acquisition from its own network. Joint sales and marketing activities are paid together • Every month representatives from the companies sit together to discuss the market opportunities and to decide in which combination a bid will be made. Each participating company will calculate its cost price, the margin is decided jointly. External quotations are used to monitor the competitiveness of the prices. • In case of a successful bid, one of the companies will provide a project leader, who coordinates the joint efforts and is contact person for the customer The expected extra turnover as a result of this team approach for 2009 is between 2 and 3 million euro, which is on a total of around 100 million joint turnover relatively small, but most of it is yearly returning revenue. Apart from that the sharing of contacts and market information has helped the individual companies to expand their own activities. 11
  • 12. Combine products and services to create customer relevance: the overlap between the customer needs and your brand promise Customers pay attention to your product when your message is relevant to them at that moment. That will happen if their actual need is answered by the promise that your brand makes, and how this is fulfilled in products, services, distribution or your marketing communications. Customer relevance always starts with a clear brand promise. Every person has a number of generic needs: security, friendship, relaxation, efficiency and success. Depending on the context or situation you are in, these generic needs are translated to actual needs. When you want to have dinner with your friends you will probably choose another restaurant than with your parents. Portfolio Generic management needs Actual Fulfillment of Customer customer your brand promise relevance needs Distribution and Context / communications Situation Customer relevance is created by combining the right products and services. Your brand stands for the overall promise: the cheapest, the coolest or the most reliable products. By combining more „matching‟ products and services in your offering, your turnover and profit grow. 12
  • 13. Example: variety store Hema has strict portfolio management to make their clients’ selection process a bit easier The variety store Hema provides a large number of basic products from clothing, household products, food and personal care items up to simple insurances. Working from the motto: “An easier and nicer life must be accessible for everyone”, Hema has based its proposition on the following customer insight: In this complex world it is important for me to shift That gives a lot of pressure for myself Therefore I like it when I constantly have to make small choices in my life are important decisions made easier and clear This insight perfectly places the generic need for independency in the context of shopping for basic products. Hema has responded to that with a portfolio management in which there are at maximum three variants per product: good, better and best. For most products there is only one choice: a reliable alternative, only with the Hema brand, that is not expensive, but also not the cheapest you can get on the market. The concept is supported with a bright, consistent furnishing of the stores and people oriented advertising and an extensive distribution network, e.g. on railway stations. 13
  • 14. Only if you excel in a certain specialism you can continuously develop clearly unique products Within a business model a unique product always has a clear, not easy to imitate, advantage compared to competing products. It is not about having a coffee machine in a different colour, a camera with a few more mega pixels or a family car with a bit different design. Being different is not good enough, it‟s about being extraordinary. Developing a unique product or service requires continuous investments in building the right competences, in idea selection, development and the right way of market introduction. Research learns us that four aspects are essential to continuously come up with new products or services: • A strong management focus on innovation. When the director or CEO is Openness of the business model not convinced, nothing will happen; • Openness of the business model: talk with clients, make contact with universities, Focus Managed New product find partners; on development process or service innovation • Skills and creativity: train people and cherish their ideas; • A managed development process: Skills and creativity regularly review the status of your innovations and don‟t be afraid to stop with inferior ideas. 14
  • 15. Example: 3M focuses on being a technology leader and selects it employees on being innovative 3M is a worldwide company with around 76.000 employees in more than 60 countries. For most consumers only known from the post-it memo‟s, 3M has a wide product range with highly technological products. And even the post-it memo is not that simple: “It‟s not just a paper with poor glue. If you take it off, the glue has to stick on the memo, and not on the object you placed the memo on.” 7000 researchers are working on new knowledge and solutions for the 45 technology platforms that 3M has created. People are stimulated to come up with new solutions, for 3M products but also for their everyday work. This is stimulated by top management with awards and by actively sharing success stories. All employees are hired and evaluated on basis of six types of behaviour, like inside-out thinking, openness for innovation and taking brave decisions. Most products are developed together with a number of leading customers, to make sure that they really fulfil a need. Since around 10 years 3M has a structured product introduction program. There is a clear development process with „gates‟, moments when is decided whether 3M will proceed with a new product. In this way R&D is kept efficient. 15
  • 16. Consolidate by continuously working on your market relevance and on new unique products You have high relevance for your customer and unique products or services. What to do to maintain this strong status? The strategy for companies in this gear is both to combine and excel. Keep a close watch on your competitors, when necessary incorporate them or chase them away. Apple is certainly an example. With first the Mac, later the iPod and now the iPhone Apple has a keen sense of what customers want and the ability to translate the newest and patented technology into unique products. Although one can argue that there are multiple MP3-players on the market, only Apple has its patented click wheel and its intuitive customer interface. On being a relevant supplier for your customers, Apple combines its own products with a range of software products and music and video from various artists and amateurs in The Apple Store. And keep a close watch on your competitors Don‟t take your position for granted. Competitors are constantly trying to copy your products, services and brand characteristics. Keep a close watch on them, and where necessary defy or incorporate them. Also alliances can be a powerful tool to strengthen your market position or to create even newer products or services. 16
  • 17. Example: Singapore Airlines leads with innovation on board and with a strong brand promise: “A great way to fly” Singapore Airlines has a consecutive record of being the first: in the 1980‟s it had the first A300 Superbus, the B747-300 Big Top, the B757 and the A310-200. It was also the first airline in the world to operate an commercial flight across the Pacific Ocean. In the 1990s, Singapore Airlines revolutionized inflight communications and entertainment through the KrisFone - the first global sky telephone service – and a full interactive inflight entertainment system – even in the economy class. In 2007 it was the first airline that had an A380 operational, offering something that no other airline did: privacy, with the personal suites in the „beyond first class‟. This product leadership was combined with the establishment of a strong brand. The brand promise „A great way to fly‟ has been filled in with impeccable service, extensive and user-friendly internet ordering and check-in, meals developed by internationally known chefs and –despite all that – fairly competitive pricing. Singapore Airlines became a full member of the global Star Alliance in 2000 and with it came „seamless‟ worldwide air travel. With the extensive network of partner airlines, connecting flights, frequent flyer points, and baggage clearance this has helped them to consolidate their position 17
  • 18. The core of your business model is the added value for your customer Once you have determined your competitive strategy, you can work it out into a business model description. Such a description helps to communicate your plan with your stakeholders, such as banks, partners and employees. There are many ways to describe your Key capabilities Customer relationships business model. Slywotzki has made a Key Value Customer structure and 22 archetypes, Kaplan and partners proposition segments Norton have created their Strategy Key Channels maps. On of the most complete resources structures is of Alexander Osterwalder, Cost Revenue structure streams consisting of nine aspects. Banks and (potential) shareholders will always look at the validity and potential of your business model. This can be easily tested with just three questions: • Does your value proposition take away pain or discomfort for your customer? Is there really a need for it? • Is your business model scalable, or does it only build on very specific resources, like a location of the personal skills of the entrepreneur? • Is there a lock-in, or can customers easily go to competitor? If you‟re using Microsoft Windows, it‟s a big step to go to Linux. It‟s a smaller step to choose another brand of toothpaste. 18
  • 19. The Strategy accelerator completed To summarise, think of these three points: move this way with development alliances 1. Determine which kind of sustainable competitive advantage you currently have. Do you have unique products or services or are you really relevant to your customers? High How easy can this be copied? 2. Build on your existing competitive Customer relevance advantages by excelling in what you do or by combining more products and services under your brand. If you have no real move this competitive advantages, focus then on only way with one of these directions. marketing 3. Uses alliances and partnerships to alliances strengthen your strategy and to profit from resources that you don‟t have yourself. Look for complementing companies and use their skills or market. Low Just go and gear up! No Unique product? Yes 19
  • 20. Alfred Griffioen, specialist in the effect of alliances on your business model Alfred Griffioen (1972) has a background as strategic marketing manager and business development manager. After a period as manager at a strategy consultancy he is now partner of Alliance experts, advising on strategic partnerships and matching companies that are looking for an alliance partner. He is the author of the book “Het Senseo-effect”, which is a practical guide to alliances. In 2009 he wrote “De Strategieversnelling”, which links the formation of alliances to competitive strategy. In 2011 a new book about business models for alliances will be Alliance experts published. Specialists in partnerships More of his presentations in English are available on Slideshare. Alfred Griffioen is available for lectures and workshops. He can be contacted on +31 6 24 77 68 65 or through alfred.griffioen@allianceexperts.com. 20