Presentation delivered by Richard Farr and Brian Wood to the Actuaril Profession Life Convention, 27th November 2009

1. WHY YOUR STRATEGY STINKS Richard Farr Brian Wood Telos Solutions Life Convention, Edinburgh: November 2009

2. Introductions Brian Wood Actuary CEO, Telos Solutions Former CEO of 2 lifecos ‘Blue Ocean Strategy’ licensed practitioner Co-author of “Beat the Pensions Crisis” Richard Farr Marketing specialist Business Development Director, Telos Former director of AIFA and Association of Mortgage Intermediaries Extensive experience in building societies and mortgages sector 2 Why your Strategy Stinks Farr & Wood

3. What is Strategy? 3 Why your Strategy Stinks Farr & Wood

4. Examples of great strategy (not FS) 4 Why your Strategy Stinks Farr & Wood

5. Four attributes of great strategy: 1. Future orientation 2. Customer intimacy 4. Delivery 3. Differentiation 5 Why your Strategy Stinks Farr & Wood

7. Need for common objectives

8. Origins in military strategy (zero-sum assumption)

9. Later theories focussed on numbers

10. Competitor review

11. Current industry conditions

12. Current customers

13. More time spent analysing than observing and thinking6 Why your Strategy Stinks Farr & Wood

14. Classic strategy theory (Porter et al) Analyse the market boundaries, plotting value against cost Choose the optimum position along the high value/ high cost to low value/ low cost spectrum There are no other choices Assumes the market is inherently static – innovation changes it slowly 7 Why your Strategy Stinks Farr & Wood

16. Customer wants “more for less”, “more for less”, “more for less”

17. A slow death spiral8 Why your Strategy Stinks Farr & Wood

18. “McKinsey takes an overall, independent, and fact-based view of a client’s performance. We rely on facts because they provide clarity and align people.” “When a BCG consultant walks through your door, he or she will be thinking about two things: the competition you face and new ways for you to win.” “Bain work with top management to beat their competitors and generate substantial, lasting financial impact ... we dig deep into the numbers, as the basis for creating solutions.” “Booz Allen are experts in understanding industry structure and dynamics and in boiling it down to the insights that are most relevant to our clients’ situations.” Major strategy firms ... 9 Why your Strategy Stinks Farr & Wood

19. So: this is why your strategy probably stinks 1. Future orientation 2. Customer intimacy 3. Differ-entiation 4. Delivery 10 Why your Strategy Stinks Farr & Wood

21. Violence

22. Complex graphics

23. Tricky controlsNintendo 12 Why your Strategy Stinks Farr & Wood

24. Unexplored customers: Older females. Observation: They like games! 13 Why your Strategy Stinks Farr & Wood

25. Nintendo Wii: strong differentiation 14 Why your Strategy Stinks Farr & Wood

27. Simulations

28. Sociable

29. Intuitive controls15 Why your Strategy Stinks Farr & Wood

30. Impact on Nintendo Low-cost graphics Low-cost controls Low-cost game development Production cost of Playstation: $800 Production cost of Wii: $150 Wii sales overtook Xbox and Playstation combined in 2008 Nintendo now worth more than Sony 16 Why your Strategy Stinks Farr & Wood

31. Competitor World View Our World View The area to expand Source of poor strategy FALSE 17 Why your Strategy Stinks Farr & Wood

32. Nintendo used ‘Blue Ocean’ tools RED OCEAN Existing markets Fierce competition Cost-plus pricing High legacy costs Thin margins BLUE OCEAN Uncontested market space Competition is irrelevant Market pricing Low costs High margins 18 Why your Strategy Stinks Farr & Wood

33. Video games: “As-Is” strategy canvas 19 Why your Strategy Stinks Farr & Wood

34. Current customers:where do we add cost/pain but no value? 20 Why your Strategy Stinks Farr & Wood

35. You have many more non-customers than customers Current customers are already served by you - and your competitors Everyone is a customer somewhere – so you can observe what they need/ like If the further reaches are too scary, dip your toe in by observing the “Soon-to-be” Now Soon-to-be Refusing Unexplored Observing non-customers 21 Why your Strategy Stinks Farr & Wood

36. Observe non-customer needs: Six paths 6 Industries that offer an alternative Other strategic groups Chain of buyers Complementary products & services Functional and emotional appeal Time 22 Why your Strategy Stinks Farr & Wood

37. Construct a new Canvas based on value Raise What factors should be raised well beyond industry standard? Create What factors that the industry has never offered should be created? Eliminate What factors that the industry has taken for granted should be eliminated? Reduce What factors should be reduced well beyond industry standard? 23 Why your Strategy Stinks Farr & Wood

38. Nintendo Wii: strong differentiation 24 Why your Strategy Stinks Farr & Wood

40. Left Disney as he could not convince them as to the power of CGA

41. Joined Lucas Films Computer Graphics Group

42. Co Founded Pixar with Steve Jobs

43. Sold Pixar to Disney in 2006 for $7.4bn

44. Head of Pixar and Disney Movie Studios25 Why your Strategy Stinks Farr & Wood

45. John's view on strategy 26 Why your Strategy Stinks Farr & Wood

46. Four attributes of great strategy: 1. Future orientation 2. Customer intimacy 4. Delivery 3. Differentiation 27 Why your Strategy Stinks Farr & Wood

47. Strategy and Deliveryare completely different disciplines Strategy is about creating a coherent direction that customers can relate to. Operations is about the nitty-gritty of internal process, expertise, people, costs. Success requires both – no point having a strategy that you can’t implement. 28 Why your Strategy Stinks Farr & Wood

48. The delivery gap Strategy thinking is: outside-in risk-taking conceptual Operations thinking is: inside-out risk-avoiding tangible So a natural gap tends to exist in most organisations 29 Why your Strategy Stinks Farr & Wood

49. Closing the gap Convert the strategy into operational terms tangibles: what will it look/feel/sound like? Explicitly manage the continuous flow between strategy and operations always messy Start with a ‘top-slice’ exercise to evaluate: costs timescales risks 30 Why your Strategy Stinks Farr & Wood

50. 31 Why your Strategy Stinks Farr & Wood

51. The full strategy development process Integrate with delivery Construct new strategy canvas Engage with non-customers Existing customer pain-points “As-is” Strategy Canvas 32 Why your Strategy Stinks Farr & Wood

52. The acid tests Are you offering something different and special to potential customers? vs Will people pay a fair “market price” for what you offer? Can your costs be low enough so that you generate a profit? Can you deliver it? 33 Why your Strategy Stinks Farr & Wood

53. References and links 34 Why your Strategy Stinks Farr & Wood