Business Strategy Manifesto


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We have recently brought together several years of research into what makes a superior strategy. The result is a manifesto on Breakthrough Strategy: How Companies Create and Exploit A Unique Strategic Position.

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Business Strategy Manifesto

  1. 1. Business Strategy MANIFESTOHow A Company Can Stake Out A Unique And Sustainable Strategic Position And Discover More Profitable Business by Andrew Pearson
  2. 2. 2  |  P a g e         Business Strategy MANIFESTO       How A Company Can Stake Out A Unique And Sustainable Strategic Position And Discover More Profitable Business       ©  Copyright  2013  Andrew  M.  Pearson               ALL  RIGHTS  RESERVED.  No  part  of  this  report  may  be  reproduced  or  transmitted  in  any  form   whatsoever,  electronic,  or  mechanical,  including  photocopying,  recording,  or  by  any  informational  storage  or   retrieval  system  without  express  written,  dated  and  signed  permission  from  the  author.             DISCLAIMER  AND/OR  LEGAL  NOTICES:         The  information  presented  herein  represents  the  view  of  the  author  as  of  the  date  of  publication.  Because  of   the  rate  with  which  conditions  change,  the  author  reserves  the  right  to  alter  and  update  his  opinion  based  on   the  new  conditions.  The  report  is  for  informational  purposes  only.  Whilst  every  attempt  has  been  made  to   verify  the  information  provided  in  this  report,    neither  the  author,  nor  his  affiliates/partners,  assume  any   responsibility  for  errors,  inaccuracies  or  omissions.      
  3. 3. 3  |  P a g e     Contents                                                                                                                                                                                                                                                                                                                                                                                                               PAGE   Forward   4   Preface   6   Introduction   8   Part  I   Strategy  Formulation  Today   Actually  happens;   Do  companies  Really  Innovate?;  New  Positions  Must  be  Sought  Continually;  A   Dynamic  View  On  Strategy   11   Part  II   What  Strategic  Planners  Need  To  Know   What    Strategic  Planners  Need  To  Know;  To  Invent  New  Business    -­‐  or  Not;  What   is  A  Unique  And  Sustainable  Strategic  Position;  Defining  a  Unique  Strategic   Position   18   Part  III   The  Quest  For  A  Unique  Strategic  Position   Crafting  A  Unique  And  Sustainable  Strategic  Position;  Redefine  The  Business  The   Company  Is  In;  Redefine  Who  Really  Is  The  Customer;  Redefine  The  Offer  To  The   Customer;  Redefine  The  Way  To  Play  The  Game;  Strategic  Assets  and  Capabilities   Are  Crucial;  The  Value  of  ICT;  The  Right  Organisational  Environment   24   PART  IV   How  A  Company  Can  Sustain  A  Unique  Strategic   Position   Managing  Two  Positions  Simultaneously;  Sustaining  Competitiveness;  How   Competitive  Advantage  Is  Established  And  Maintained,  How  Should  A  company   Respond  to  A  Fresh    Strategic  Innovation;  Choosing  Between  The  Options   37   PART  V   Creativity  In  Strategy  Formulation   The  Dynamic  Imperative;  Strategy  Is  About  Breaking  Free!;  The  Focus  Of   Creativity;  Ask  The  Right  Questions;  Involve  All  Managers  In  Strategy  Creation;  Is   Questioning  Sufficient?;  Identify  And  Quantify  All  Significant  Strategic  Risks;   Choosing  Between  Options;  So,  Where  Are  We  Now...?   46   PART  VI   The  Case  For  Implementation   The  Case  For  Implementation;  Entrepreneurship  In  The  Top  Team;  Maintain   Momentum;  So,  There  You  Have  It...   58   PART  VII   Questions  And  Assignments   65   About  The  Author   71      
  4. 4. 4  |  P a g e     Forward   I  am  privileged  to  write  a  few  words  in  support  of  my  dear  friend,  Andrew  Pearson.    I  know   Andrew  as  a  tutor  and  now  as  a  business  associate.  Andrew  is  one  of  those  rare  personalities  able   to  capture  your  interest  from  the  second  he  walks  through  the  door.    His  greatest  strength  lies  in   his  capacity  to  bring  the  numerous  strands  of  strategic  management  thought  together.  He  never   teaches  'just'  marketing,  'just'  strategy  or  'just'  operations  management  -­‐  because  he  knows  that   these  are  pure  academic  distinctions  which  have  no  place  in  real  businesses.       The  breadth  of  his  knowledge  and  the  clarity  of  his  focus  is  quite  enlightening  and  these  are  the   key  elements  that  make  up  the  experience  of  being  a  student  of  his.    He  once  said  something  that   summarises  his  practical  approach  to  strategy  that  really  impressed  me,  it  was  this;  "Successful   business  strategies  result  not  from  rigorous  analysis  but  from  a  particular  state  of  mind."  This  is  of   course  a  subject  sorely  lacking  in  traditional  management  training.  Maybe  it  is  the  difference   between  good  managers  (rigorous  analysts)  and  exceptional  ones  (having  an  appropriate  state  of   mind).     Andrew  has  provided  precious  help  to  all  his  students  including  me,  in  a  very  friendly   atmosphere.  I  should  confess  that  his  professional  manner  has  made  him  the  most  popular  tutor   among  his  students  and  this  proves  his  excellent  leadership  skills.  I  have  enjoyed  the  opportunity   to  be  his  student  and  would  recommend  Andrew  to  anyone  who  is  interested  in  working  with   someone  who  is  fun  and  has  business  experience  in  his  background.  He  is  able  to  give  students  of   business  confidence,  by  giving  them  a  sense  of  clarity  and  purpose.  His  lessons  are  sprinkled  with   anecdotes.         Andrew  has  that  rare  ability  to  listen  and  not  criticise,  yet  add  value  to  student  comments  and   questions,  which  he  always  encouraged  us  to  volunteer.    It  is  not  possible  to  talk  about  him  in  just   a  few  paragraphs  but  I  hope  these  few  paragraphs  will  help  you  to  know  the  best  tutor  that  I  ever   had  the  benefit  of  working  with.  I  commend  the  Business  Strategy  Manifesto  
  5. 5. 5  |  P a g e     courses  on  How  to  Create  and  Exploit  a  Unique  Business  Strategy  and  Business  Model  Generation   to  you  as  practical  tours  de  force.     Rees  Ellingham   Oxford,     December  2011                                                  
  6. 6. 6  |  P a g e     Preface   Peter  Drucker  tells  us  that  there  are  three  kinds  of  opportunities:  additive,  complementary  and   breakthrough.     1. An  additive  opportunity  more  fully  exploits  already  existing  resources.  It  does  not  change   the  nature  of  a  business.  Such  an  opportunity  would  take  the  form  of  an  extension  of  an   existing  product  line  into  a  new  and  growing  market.  The  pharmaceutical  distributor  who   extends  his  marketing  from  distribution  management  to  logistics  and  information   management  for  hospital  pharmacies  avails  himself  of  an  additive  opportunity  -­‐  even   though  his  products  and  his  selling  methods  may  need  considerable  change.       2. The  complementary  opportunity  is  something  new  which,  when  pooled  with  the  present   business,  results  in  a  new  total  larger  than  the  sum  of  its  parts.  The  opportunity  of   pharmaceutical  distributor  establishing  a  drug  administration  business  in  patient  care,   through  acquisition  of  a  company  that  made  machines  that  automated  much  of  the  drug   administration  process,  is  a  complementary  opportunity.  The  breakthrough  opportunity   changes  the  fundamental  economic  characteristics  and  capacity  of  the  business.       3. A  breakthrough  opportunity  requires  great  effort.  It  requires  the  employment  of  first-­‐ class  resources,  research  and  development  and  especially  human  resources.  And  the  risk   is  always  great.       The  story  of  IKEA  -­‐   -­‐  is  a  breakthrough   offer  in  home  furnishings.  It  was  first  offered  to  a  good  many  larger  retailers,  all  of  whom  turned   it  down  as  too  contentious  and  risky  to  develop.  Yet  it  persisted  and  through  considerable     opposition  it  developed  a  business  model  that  worked.  And  then  the  rewards  were  extraordinary   and  came  quickly.  
  7. 7. 7  |  P a g e     No  company  that  wants  to  have  a  future  can  afford  to  spurn  the  breakthrough  opportunity.  This   classically  is  the  opportunity  to  make  the  future  happen.  But  the  effort  needed  is  so  great  that   the  breakthrough,  if  it  is  successfully  realized,  should  always  be  capable  of  creating  a  new  market   rather  than  an  additional  product.       This  manifesto  is  all  about  breakthrough  opportunity.                                            
  8. 8. 8  |  P a g e     Introduction   This  short  book  brings  lasting  benefits  to  all  managers  and  business  owners  who  are  responsible   for  the  strategic  development  of  their  companies.     Based  on  our  successful  coaching  programme;  Invent  New  Unique  Business  Strategies;  Andrew   Business  Strategy  Manifesto,  gives  managers  and  business  owners    the  tools  to  create   sustainable  differentiation  for  any  business.       The  book  presents  a  refreshingly  simple  yet  practical  way  to  use  strategy  in  practice,  it  combines   and  provides  a  road  map  for  competition.  It  shows  managers  how  they  can  zero  in  on  the  major   choices  that  lie  at  the  heart  of  all  innovative  strategies.  By  reading  Business  Strategy  Manifesto   you  will  find  out  how  established  companies  can  discover  viable  new  business  and  thus  stake  out   a  unique  strategic  position.     Business  Strategy  Manifesto  is  based  on  several  years  of  research  and  involvement  in  strategy   development.  It  is  grounded  in  efforts  to  understand  just  how  successful  strategic  innovators   have  been  able  to  create  sustainable  value  for  their  customers,  move  ahead  of  their  competitors   and  achieve  outstanding  success!       Look  further  and  you   principles.  In  other  words  the  principles  that  drove  Marks  and  Spencer  to  success  over  the  last   100  years  or  so  are  the  same  ones  that  have  thrust  Zara  to  success  in  the  early  21st  century.     If  you  understand  these  principles  then  any  manager  or  business  owner  can  design  a  successful   strategy     to  invent  sustainable  new  business...  and  how  to  do  it  in  practice.          
  9. 9. 9  |  P a g e     The  Structure  of  the  Book   The  rationale  behind  this  book  is  that  superior  strategy  is  all  about  identifying  and  exploiting  a   unique  strategic  position  in  a  company's  business  while  at  the  same  time  finding  new  strategic   positions  on  a  rolling  basis.  From  a  managerial  perspective,  this  raises  a  number  of  sensitive   questions,  including:     1. What  precisely  is  a  strategic  position  and  how  can  a  company  create  a  unique  one  in  its   business?   2. How  can  an  established  company  discover  a  new  strategic  position,  especially  at  a  time   when  its  existing  operations  are  quite  profitable?   3. How  can  an  established  company  shift  its  attention  away  from  improving  its  existing   position  to  discovering  a  new  one?   4. How  can  a  company  know  if  a  newly  discovered  position  will  turn  out  to  be  a  profitable   one?   5. Even  if  a  company  discovers  a  new  strategic  position,  can  it  manage  two  positions  (the   old  and  the  new)  at  the  same  time?  Is  this  even  possible,  or  should  the  company  focus  on   one  of  the  two?   6. How  can  a  company  respond       My  intention  is  to  deal  with  these  questions  in  the  following  manner.  Following  a  series  of   introductory  sections  the  core  text  is  broken  down  into  several  parts  as  follows:     Part  I  explores  the  issue  of  contemporary  strategic  planning.       Part  II   ,  and     Part  III  explains  how  a  company  can  discover  new  unique  position  in  its  industry.      Part  IV  explains  how  established  companies  can  serve  the  old  as  well  as  the  new  simultaneously   and  the  means  to  respond  to  competitors  own  strategic  innovations?    
  10. 10. 10  |  P a g e     Part  V  provides  a  broad  view  of  the  ways  in  which  a  company  can  discover  new  positions.     Part  VI  examines  issues  concerning  implementation,  and  lastly     Part  VII   learning  and  learning  requirements.   Finally  a  number  of  case  examples  provide  supportive  insights  to  the  issues  and  material  offered   here.   Like  a  latter-­‐day  Franci changing  seascapes  in  search  of  new  and  unexploited  strategic  domains  and  chart  your  way  to  lay                              
  11. 11. 11  |  P a g e     PART  I   Strategy  Formulation  Today   We  start  with  one  of  the  great  statements  to  be  found  anywhere  in  the  whole  realm  of  business   literature.  Success  is  in  the  strategy!    This  is,  of  course,  a  proclamation  that  has  engaged  the   attention  of  business  people  ever  since  it  was  first  spoken,  and  many  great  books  have  been   written  in  an  attempt  to  expound  it.       In  spite  of  all  that  has  been  written  about  business  strategy  and  not  wishing  to  add  anything   further  to  the  subject  in  an  exhaustive  sense,  my  plan  is  to  contend  with  something  of  the   advantages  that  are  to  be  gained  by  strategists  taking  a  dynamic  view  of  strategy;  a  view  that   puts  innovation  and  creativity  back  at  the  heart  of  strategy.       should  approach  them  with  the  purpose  of  discovering  what  underlies  their  emphasis.  I  would   suggest  that  if  they  were  appreciated  and  understood  many  more  businesses  would  come  up   with  ideas  that  would  differentiate  them  from  their  competitors  and  enable  them  to  stake  out  a   unique  strategic  position!       Now  I  think  that  anyone  who  looks  at  the  present  state  of  strategy  formulation  in  the  light  of  that   background  will  be  driven  to  the  conclusion  that  the  outstanding  characteristic  of  strategy  making   is  its  superficiality.     Many  business  leaders  responsible  for  the  strategic  direction  of  their  companies  actively  seek  the   latest  idea  to  do  what  they  want  to  do  better  than  they  do  now!  Let  me  put  it  like  this.  All  that   way  for      
  12. 12. 12  |  P a g e     Surely,  if  a  management  team  is  ambitious  enough  to  want  to  offer  its  customers  real  value  why   would  it  spend  time  trying  to  tweak  things  when  it  could  be  looking  for  a  breakthrough?       Then  there  are  the  various  and  assorted  thoughts  of  many  managers  on  the  subject  of  strategy.   -­‐to-­‐ help  y and  now  you  have  a  picture  of  apathy   and  indifference  illustrating  ignorance  about  strategy  and  its  would-­‐be  potential  that  persists  in   many  companies  today.     The  opinions  and  viewpoints  that  we  have  just  seen  spring  from  the  minds  of  those  least  able  to   innovate  the  breakthroughs  that  would  otherwise  separate  them  out  as  winning  strategists  from   the  imitators  and  the  also-­‐rans.       It  seems  to  me  that  what  really  characterizes  strategy  formulation  and  management  today  is,   alas,  its  superficiality.  A  judgment  based  on  contemporary  observation  in  the  light  of  what  such   strategic  innovators  as  Body  Shop,  Swatch,  Kimberly  Clark  (Kleenex),  Lego,  Starbucks,  Direct  Line   and  countless  others  have  all  achieved.     What  Actually  Happens   a  subject  that  has  perplexed  academics  and  practitioners  since  the  word  strategy  was  first   plans?  Well  it  seems  to  me  that  most  people  formulate  strategies  in  the  way  I  am  about  to   describe.    They  start  by  identifying  areas  of  strategy  where  there  are  identifiable  markets  and   where  profit,  management  and  resources  are  largely  independent  of  other  sectors.     Then  they  draw  up  strategic  plans  based  on  a  comprehensive  analysis  of  market  attractiveness,   competition,  showing  long-­‐term  goals,  key  strategies,  operations  and  fund  requirements.  
  13. 13. 13  |  P a g e     And  finally  they  review  these  plans  with  a  seven  to   ten  year  planning  horizon;  assess  total  risk,   profitability,  cash  flow  and  resource  requirements;   and  allocate  priorities  against  specific  targets  and   funds?     Like  most  people  involved  in  strategy,  I  too  once   depended  on  such  methods.  And  like  countless   others  I  was  taught  to  strategize  and  to  construct   strategic  decisions  with  a  systematic  approach;  a   discipline  still  taught  to  innumerable  MBA  students   -­‐day.       Yet  it  is  not  easy  to  reconcile  such  approaches  with   the  ingenuity,  inventiveness  and  originality   underpinning  the  innovations  brought  to  us  by  such   pacesetters  as  Amazon,  Apple,    Honda,  IKEA,  Nokia,   Tesco,  Virgin,  William  Cook,  Xojet,  Zara  and  many,   many  others.     If  the  issue  is  the  future,  then  the  future  is  not   contained  in  models  and  frameworks.  Nor  is  it  dictated  by  theories  such  as  PEST,  and  extended  to   STEEPLE  and  STEEPLED  rules  for  macro-­‐environmental  analysis  and  environmental  scanning.  Such   frameworks,  I  suggest,  are  derived  from  observations  made  by  academics  and  consultants  at   some  stage  following  the  success  of  the  very  innovators  of  which  we  write  and  then  written  up  to   represent  best  practice  in  crafting  business  strategy.   Do  Companies  Really  Innovate?   It  is  incredible  to  think  of  Marks  and  Spencer,  a  company  that  has  enjoyed  a  long  history  of   growth  and  profitability,  slipping  into  decline  when  a  change  in  fortune  takes  place.  But  this  is   what  happened  to  Marks  and  Spencer  in  the  late  1990s.   Honda  is  often  credited  with   identifying  and  targeting  an  untapped   market  for  small  50cc  bikes  in  the   United  States.    Honda's  planned   strategy  for  the  US  had  been  to   compete  with  larger  bikes  of  250ccs   and  over.  But  disaster  struck  when   Honda  had  to  recall  the  larger   the  wear  and  tear  imposed  on  them   by  US  motorcyclists.     Despite  these  setbacks  something   extraordinary  happened!  Sports   shops  and  ordinary  bicycle  shops  and   department  stores  expressed  interest   its  wish  to  enter  the  US  with  its  larger   models,  Honda  had  no  alternative  but   to  sell  the  small  50cc  bikes  just  to   raise  money.  They  proved  very   popular  with  people  who  would   never  have  bought  motorbikes   before.       careful  planning  or  the  result  of  trial   and  error?  Surely  it  was  the   consequence  of  all  three  elements   working  together.    
  14. 14. 14  |  P a g e     What  happened  was  that  Marks  and  Spencer  failed  to  see  changes  taking  place  in  its  core  market.   A  focus  on  past  performance,  entrenched  thinking  and  confidence  in  its  market  position  and   reputation  were  the  causes  of  decline.    New  competitors  some  including  Next,  Gap  and  Zara   with  fresh  solutions  of  value  and  experience  yet  further!     Needless  to  say  some  pretty  vigorous  thinking,  a   painful  turnaround  strategy  and  erudite   repositioning  saved  the  business.       But  the  middle  of  a  crisis  is  hardly  the  best  time  to   implement  strategies  for  market  led  change  and  new   growth!  In  such  circumstances  there  is  often  little   time  as  well  as  shrinking  and  inadequate  resources   and  capabilities  to  engage  to  turn  a  company  round,   re-­‐establish  customer  confidence  and  put  it  back   onto  a  trajectory  of  sustainable  development  and   long-­‐term  growth.  But  as  we  know  this  is  what   Marks  and  Spencer  achieved.       action  before  a  crisis  strikes.  You  have  probably   heard  this  a  million  times  before.  Few  managers   few  actually  abide  by  it.     Most  business  owners  and  managers  start  thinking   about  change  when  profits  are  already  in  decline    and,  worse  still,  they  only  start  doing  anything   about  it  when  there  is  pressure  to  do  so  and  when  things  get  really  bad!!!  It  is  surely  much  more   prudent  to  plan  for  new  growth  whilst  in  growth,  before  maturity  hits  to  avoid  managing  for   After  losing  market  share  to  a  low   cost  and  me-­‐too  cruise  companies,  a   British  operator,  tried  a  variety  of   strategies,  including  a  new  and   bigger  fleet  with  which  to  offer  a   range  of  services  to  meet  the   demands  of  price  conscious  and   discerning  customers,  without  any   significant  increase  in  market  share.       The  company  then  decided  to  tackle   the  question   who  was  its   customer?   before?  Apparently  not!  And  what   did  they  find?    It  found  that  its   customers  were  primarily  interested   in  making  their  experience  in  the   Greek  islands  as  exciting  as  possible!   This  led  the  company  to  upgrade   their  whole  offer.  It  sold  the  bigger   boats  it  had  purchased,  replaced   them  with  smaller,  more  modern   vessels  and  ramped  up  the  service   provision!     The  strategy  was  dramatically   successful.    The  company   completely  rejuvenated  the   business  and  enabled  it  to  recapture   the  high  ground!      
  15. 15. 15  |  P a g e     growth  following  decline  and  turnaround!     New  Positions  Should  be  Sought  Continually   We  have  so  far  observed  the  need  for  a  company  to  seek  fresh  direction  and  leadership  to  ensure   competitive  advantage  and  avoid  stagnation  and  decline.      Now,  I  want  to  illustrate  the  point   further,  so  that  we  understand  the  importance  of  continuously  seeking  fresh  direction  and   leadership.  The  graphic  below  illustrates  the  strategic  positions  occupied  by  a  major  auto  parts   business  in  2004.     The  matrix  confirms  the  presence  of  three  possibly  four  businesses  generating  healthy  cash  flows   s  precious  profits   and  reserves.     So  what  is  the  position  of  this  company?  Well   s  resting  on  its  laurels!   There  is  really  very  little  indication  of  any   meaningful  attempt  to  generate  ideas  to   develop  new  business.  Nor  does  it  appear  that   effort  on  the  part  of  the  business  to  proffer   new  products  and  services.     In  summary  then,  here  is  a  business  that  is  fixed   intents  and  purposes  is  languishing  in       internally  cohesive  yet  losing  touch  with  its  environment  where  new  demands  and  fresh   competition  render  its  products  less  attractive  than  they  were  in  the  past.        
  16. 16. 16  |  P a g e     A  Dynamic  View  On  Strategy   What  then  is  necessary  for  sustainable  success?  Here  is   the  answer.  Dynamic  leadership  and  direction,  and,   above,  all  new  ideas,  that  might  already  be  available   inside  the  business  but  not  yet  captured.    In  short,   nothing  less  than,  brand  new  domains  in  which  to   operate  and  sustain  business  growth!     In  every  industry  there  are  several  viable  positions  that   a  company  can  occupy.  The  essence  of  strategy   therefore  is  to  choose  the  one  position  that  your   company  will  claim  as  its  own.  A  strategic  position  is   products  to  of in  to  sell  the  selected  product  to  the  selected       My  point  is  this.  Strategy  is  about  making  tough  choices  in  these  three  areas.  Yet  strategy  is  often   hammered  out  at  annual  planning  meetings  via  the  use  of  numerous  planning  tools  taught  to  us   at  business  schools,  when  what  is  required  is  a  dynamic  approach  to  strategy  formulation.  What,   you  may  indeed  ask,  is  a  dynamic  approach?  Well  it  is  this.  A  dynamic  approach  to  strategy  is  one   that  questions  the  established  rules  of  the  game  and  that  puts  innovation  and  creativity  back  into   the  heart  of  strategy.       A  company  will  succeed  if  it  develops  a  strategy  that  allows  it  to  create  and  colonise  a  unique   position  in  its  industry.  Unfortunately,  most  established  companies  are  not  good  at  seeking,  let   alone  uncovering,  such  new  positions.  Even  though  their  success  today  can  be  traced  back  to  an   earlier  decision  to  create  a  unique  strategic  position  for  themselves,  they  now  expend  little  effort   on  finding  new  ones.  Instead  they  spend  their  time  trying  to  improve  the  position  they  already   Ever  since  it  unveiled  the  Macintosh   computer  in  1984,  Apple  has   become  the  standard-­‐bearer  in  how   to  market  consumer  products  in  an   array  of  valuable  fields.  Moreover   Apple  has  transformed  itself  into  a   commanding  force  in  the  new  digital   universe  by  combining  innovation   and  desig got-­‐to-­‐have     For  example  in  introducing  the  iPod   in  late  2001,  Apple  changed  the  way   we  listen  to  music.  Six  years  later   Apple  launched  the  iPhone  which   combined  phone,  iPod  and  internet   device  in  one.  The  latest  iPhone   offers  desktop-­‐class  email,  an   impressive  maps  application,  and   Safari;  probably  the  most  advanced   mobile  web  browser  available  to-­‐ day.    
  17. 17. 17  |  P a g e     have.     The  basic  premise  of  this  book  is  that  superior  strategy  is  about  finding  and  exploiting  a  unique   strategic  position  while  at  the  same  time  searching  for  new  unique  strategic  positions.     this  question.                                      
  18. 18. 18  |  P a g e     PART  II   What  Strategic  Planners  Need  To  Know     Many  people  have  great  products  or  services.  But  most  find  that  they  are  unable  to  convince   their  prospects  and  customers  to  buy  them.  This  costs  them  tens  or  even  hundreds  of  thousands   of  pounds  in  wasted  effort,  time  and  resources,  not  to  mention  lost  business.       Getting  your  strategy  right  is  critical  to  success,  but  many  who  manage,  or  who  are  responsible   for  the  strategic  direction  of  their  businesses  have  never  been  shown  the  best  way  to  do  it.  And,   when  they  are,  they  are  taken  through  a  proliferation  of  analytical  tools  and  frameworks  to  help       Strategy  formulation  should  be  creative;  its  focus  tilted  towards  discovery  and  renewal.  It  should   tackle  questions  such  as  how  to  produce  superior  customer  value  for  a  specific  group  of   customers  and  how  to  put  the  business  two  steps  ahead  of  its  competitors  with  unique  and   efficient  operational  activities.       Ultimately,  the  chief  means  of  ensuring  survival  and  prosperity  is  to  craft  superior  value-­‐driven   strategies.  In  the  end,  superior  strategy  is  all  about  finding  and  exploiting  a  unique  strategic   positions  on  a  systematic  and  rolling  basis.     The  Strategy  Manifesto  distils  the  important  elements  of  strategy  making  into  an  easy-­‐to-­‐follow   system  for  crafting  today s  -­‐     To  Invent  New  Business  -­‐  Or  Not   The  dilemma  facing  an  established  company  with  a  perfectly  successful  business  model  is  how  it   can  attempt  to  evolve  -­‐  or  even  abandon  its  existing  business  -­‐  in  favour  of  something  new  or  to   grow  the  new  model  alongside  its  existing  business  model.    
  19. 19. 19  |  P a g e     The  challenge  incidentally  is  quite  different  to  serving  different  segments  with  different  brands  as   Unilever  or  Proctor  and  Gambol  or  Volkswagen  or  BMW  do.  VW  sells  the  Audi  brand  to  one   segment,  the  Golf  to  another  and  the  SEAT  to  another,  but  the  company  still  operates  the  same   business  model.  The  issue  with  business  model  innovations  is  not  how  to  operate  different   brands  for  different  customers  but  how  two  different  (sometimes  conflicting)  business  models   can  operate  in  the  same  business.     The  decision  should  be  based  on  a  cost   benefit  analysis  together  with  an   appreciation  of  the  strategic  health  of  a   business.  This  would  include  factors  of   growth  opportunities  such  as  diversifying   into  adjacent  markets  or  taking  its  existing   business  model  internationally.  It  would  also   include  some  of  the  disagreeable   characteristics  that  new  business  models   present.     Thus  a  company  that  already  operates  a  certain  business  model  might  ask  of  itself  the  following   questions:     1. What  is  a  unique  strategic  position?   2. How  can  we  identify  and  develop  a  unique  strategic  position    or  business  model  -­‐  in  our   business?   3. How  can  we  convince  the  company  and  secure  commitment  to  such  a  programme?   4. How  can  we  implement  a  new  business  model  in  an  efficient  way?   5. How  can  we  operate  with  two  business  models  in  the  same  market  simultaneously?   6. How  should  we     7. When  should  we  pursue  new  business  development  in  a  positive  way?       recently  concluded  what  is  undoubtedly  one   of  the  biggest  acquisitions  of  recent  times  by   purchasing  Land  Rover  and  Jaguar  from  Ford   in  a  £3bn  deal!  The  acquisition  takes  Tata  and   its  offer  of  the  Nano,  a  cheap  saloon  car,  to   the  middle  class  Indian  family  market  into  the   prestigious  and  affluent  international  markets   occupied  by  Land  Rover  and  Jaguar!     Tata  has  admitted  that  it  wishes  to  compete   with  the  likes  of  BMW,  Mercedes  and  Audi   and  establish  a  global  footprint  with  global   brands  with  a  readymade  product  pipeline  and   technology.    
  20. 20. 20  |  P a g e     Let  us  go  to  the  first  of  these  questions.   What  Is  A  Unique  And  Sustainable  Strategic  Position?   To  qualify  as  a  unique  strategic  position  a  company  must  offer  a  business  model  that:     1. Is  new  to  the  company  and  to  the  market  it  serves  and  that  the  innovation  will  change   the  existing  market.   2. Offers  value  rather  than  being  a  creative  idea.  Amazon,  Apple,  Dell  and  Swatch  are   examples  of  companies  that  introduced   new  business  models  in  their  respective   markets  that  attracted  new  customers   and  got  existing  customers  to  buy  more.     3. Embraces  a  different  combination  of   tailored  activities  (value  chain  as  well  as   culture,  structures,  and  incentives)  from   the  ones  that  established  companies   already  have  in  place.   4. Enlarges  the  market.  Business  model   innovators  do  not  discover  products,   they  re-­‐define  what  the  product  or   service  is,  what  the  customer  gets  from   it  and  how  it  is  made  available.   5. Causes  disruption  to  established   companies  in  the  selected  market     This  means  that  a  unique  strategic  position  is   more  than  the  discovery  of  a  radical  new   strategy  by  a  company.  It  also  indicates  that   strategic  innovators  like  Amazon,  Dell,  IKEA  and  Swatch  do  not  invent  new  products  or  services;   they  redefine  the  value  of  an  existing  product  for  the  customer  and  brings  it  to  them  in  an   efficient  way.  For  example  Amazon  did  not  invent  book  selling;  it  redefined  the  service  and  the   The  decision  to  set  up  a  trans-­‐Atlantic   airline  in  1984  took  Sir  Richard  Branson  a   few  weeks  to  make,  although  it  took  him   several  years  to  establish.  Branson   analyzed  why  small  airlines  such  as   -­‐frills  Skytrain  failed.  He   noted  that  when  the  major  airlines   compete,  as  it  had  no  other  competitive   advantage.     What  Branson  saw  was  an  opportunity  to   offer  value  and  superior  service  at   competitive  prices,  and  concentrate  on  a   limited  number  of  the  most  lucrative  long-­‐ haul  routes  -­‐  starting  with  the  USA.  When   Virgin  broke  into  the  trans-­‐Atlantic  market   with  its  innovative  new  service,  it  took  the   existing  carriers  by  surprise  -­‐  this  was   competition  from  an  unexpected  source.     Since  then,  Virgin  Airways  has  developed   routes  to  various  destinations  around  the   world.  By  2006,  Virgin  Airways  carried   almost  5  million  passengers  -­‐  which  placed   it  a  clear  second  among  UK  airlines  in  the   long  haul  airline  business.    
  21. 21. 21  |  P a g e     provision  of  the  service  and  ultimately  the  value  this  gave  the  customer.  The  innovation   amounted  to  a  new  business  model.       This  point  is  underlined  in  Figure  1  below  which  compares  the  value  propositions  and   performance  attributes  emphasised  by  established  companies  and  by  innovators  in  a  number  of   industries.   Defining  A  Unique  And  Sustainable  Strategic  Position   The  essence  of  strategy,  therefore,  is  to  choose  the  one  position  that  a  company  will  claim  as  its   own.  For  any  business  seeking  to  develop  a  unique  business  strategy  a  prerequisite  is  proactive   and  continuous  challenging  and  questioning  of  the  way  that  a  company  currently  operates.  Such   Figure  1.  Strategic  Innovations   Innovator   Industry   New  Position     General  retailing     Online  distribution     Dell  Computers:  1983   Computer  industry   Selling  direct  to  customers   First  Direct:         Banking  industry     Direct  banking         Direct  Line  Insurance       General  insurance   industry   Direct  insurance       Virgin  Direct:  June  1996   Life  insurance  and   pensions  industry   Direct  life  insurance  and   personal  pensions   Ryan  air:  1991   (routes  between  U.K.  and   Ireland  only)  easyJet:  November   1995   European    Airline   industry     Low-­‐cost,  no-­‐frills,  point  to-­‐   point  airline  service     Food  Ferry  Co.,  Teleshop:  Early   1990s  (London  area)   Tesco  Direct:  1998  (now  part  of,  2000)   Retail  supermarket   industry     Home-­‐delivery  grocery  service   Online  home-­‐delivery   grocery  service                                
  22. 22. 22  |  P a g e     searches  should  focus  on  two  key  areas:       1. The  definition  of  what  business  the  company  feels  it  is  operating  in.   2. The  firm's  current  Who-­‐What-­‐How  position,  that  is,    Who  its  customers  really  are,  What  it   offers  them  and  How  it  plays  the  game.     Ultimately,  strategy  is  all  about  making  choices,  and  a  company  will  be  successful  if  it  chooses  a   distinctive  strategic  position    that  is  a  position  that  is  different  from  its  competitors.  The  most   common  source  of  strategic  failure  is  the  failure  to  make  clear  and  explicit  choices  in  each  of  the   two  dimensions  mentioned  above.     The  value  of  making  the  right  strategic  choices  in  these  areas  is  illustrated  in  the  example  of   Virgin  Atlantic  shown  in  Figure  2  below.     Virgin  built  its  success  on  finding  and  exploiting  a  unique  strategic  position  in  its  industry.  It  did   not  try  to  replicate  the  strategic  positions  of  its  competitors.  Virgin  and  other  companies  like  it   created  unique  positions  for  themselves  that  allowed  them  to  compete  with  different  business   models.  Thus  there  is  no  question  that  success  stems  from  the  management  of  a  unique  strategic   position     It  should  be  obvious  by  now  that  no  strategic  position  remains  unique  or  attractive  forever.  New   strategic  positions  emerge  all,  the  time.  Over  time,  the  players  with  the  new  positions  will  rise  to   Figure  2:  Virgin     The  Customer   Individuals  and  families  for  long-­‐haul  leisure  and  business  flights.     The  Offer   Premium  economy,  superior  value  at  affordable  prices.     The  Game  Plan   A  small  fleet  of  wide-­‐bodied,  fuel  efficient  passenger  carriers,  including   Boeing  747s,  787s  and  Airbuses.   A  small  number  of  long-­‐haul,  lucrative  routes  around  the  world.     American  Airlines).    
  23. 23. 23  |  P a g e     challenge  the  status  quo    in  other  words  the  companies  that  have  grown  too  comfortable  in   what  once  were  their  unique  positions.    A  company  must  therefore  never  settle  for  what  it  has.   While  fighting  it  out  in  its  current  position  seeking  additive  and  complementary  product    service   opportunities,  it  must  continually  search  for  breakthroughs  in  new  positions.     the  who-­‐what-­‐how  choices  that  lie  at  the  heart  of   innovative  strategies  and  are  the  chief  sources  for  the  ideas  that  differentiate  a  business  from  its   competitors    and  thus  the  means  to  stake  out  a  unique  strategic  position.                               PART  III  
  24. 24. 24  |  P a g e     Crafting  A  Unique  And  Sustainable  Strategic  Position     To  be  successful,  a  company  must  create  and  exploit  a  unique  strategic  position.  This  essentially   means  that  it  should  challenge  and  question  the  way  it  currently  operates.  The  company  must   focus  on  four  fertile  areas  for  producing  business  models  that  offer  a  unique  strategic  position.  It   must  by  necessity:     1. Define  the  business  it  believes  it  is  in   2. Decide  who  its  targeted  customers  will  be   3. Decide  what  products  or  services  it  will  offer  them,  and     4. How  it  will  achieve  this  in  an  efficient  and  distinctive    way     There  are  additional  tactics  that  can  used  to  enhance  corporate  creativity  and  some  of  these  are   described  in  PART  V     Redefine  The  Business  A  Company  Is  In   The  behaviour  of  every  business  is  conditioned  by  its  individual  perceptions  (or  beliefs)  of  the   world.  This  means  that  there  is  probably  no  more  prevailing  belief  a  company  has  than  its   perception  of  its  definition  of    its   business  purpose,  in  other  words  its   strategy  or  business  model.       Clearly  this  implies  that  a  company   seeking  a  different,  or  new,  business   strategy  should  begin  to  question  the   existing  definition  of  its  business!  Thus  in   most  case,  the  source  of  a  unique   business  strategy  is  to  be  found  in   Back  in  the  1800s,  if  you  had  asked  The  Surrey   Iron  Railway  Company,  the  world's  first  public   railway  company,  what  business  they  were  in,   they  would  have  told  you  the  "railway  business".   So  when  the  railways  spread  across  the  South   East  of  England  and  the  rest  of  the  UK,  The   Surrey  Iron  Railway  Company  fought  hard  to   remain  competitive,  but  lost.       Had  it  seen  itself  in  the  transportation  of  people   and  goods  business,  and  not  in  competition  with   other  railway  companies,  it  might  have  become   a  major  force  in  road  and  sea  transport,  air   travel,  hotels  and  holidays.    
  25. 25. 25  |  P a g e          What  tends  to  surface  are  resolutions  to  such  issues  as;  who  the  business  visualises  as  its   customers  and  its  competitors,  what  it   regards  as  its  competitive  advantage,    what  it   believes  its  key  success  factors  are,  what  its   offer  to  its  customers  should  be  and  how  it   should  compete    -­‐  its  strategy.  Here  are  some   examples.     Starbucks  does  not  believe  that  it  is  in  the   coffee  business,  but  rather  in  creating  a   consumption  experience  of  which  coffee  is  a   part.  Maybe  not  doing  things  better  but  just   doing  them  differently.      the  business  of  selling  handbags.  We  are  in  the  business  of  selling       new  or  even  better  definition  will  be  discovered,  but  even  if  there  is  an  outside  chance  of   discovering  something  new  it  should  be  asked.       serves  two  purposes.  First  it  allows  them  to  identify  the  deterioration  of  that  position  in  sufficient   time  early  on.  Second,  and  more  importantly,  it  gives  them  the  opportunity  to  proactively  explore   the  emerging  terrain,  situating  their  company  to  be  first  to  discover  the  new  and  attractive   strategic  positions  waiting  to  be  exploited.       ICI  asked  the  question  in  the  1990s  when   considering  its  dependence  on  bulk  chemical   and  petroleum  production.  Then  in  1997  ICI   embarked  on  a  strategy  to  move  up  the  value   chain  into  specialty  paints  where  higher   growth  and  higher  margins  could  be  attained         In  a  period  of  dramatic  change  ICI  disposed   of  many  of  its  industrial  chemicals  and   petroleum  businesses  and  acquired  a   number  of  well-­‐known  brands  including   Dulux,  Cuprinol,  Glidden,  Polycell  and   s  leading  paint   manufacturer  within  a  period  of  ten  years.      
  26. 26. 26  |  P a g e     Now  let  us  proceed  to  the  second  element  of  creating  a  unique  strategic  position,  that  of   customers,  what  should  the  company  offer  them  and  how  should  it  do  this  effectively  for   sustainable  advantage?   Redefine  Who  Really  Is  The  Customer   This  second  area  of  aspect  of  building  a  new  unique  strategic  position  begins  with  redefining  the   are  not  for  a  company.  This  depends  not  only  on  the  essential  characteristics  of  a  customer  group   -­‐  such  as  its  willingness  and  ability  to  pay  on  time  or  its  profitability  -­‐  but  primarily  on  whether  a   company  is  able  to  serve  that  customer  better  or  more  efficiently  than  its  competitors  as  a  result   of  its  unique  bundle  of  assets  and  capabilities.     The  purpose  of  thinking  strategically  about  this  issue  is  to  either  identify  new  customers  or  to  re-­‐ segment  the  existing  customer  base  in  a  more  creative  way  and  so  create  brand-­‐new  customer   segments.  Many  people  appear  to  believe  that  identifying  new  customer-­‐needs  is  key,  but  whilst   new  needs  is  an  important  source  of  new  customer  segments  it  is  not  the  only  way  to  define     and  redefine  the  customer.    New  customer  segments  can  be  discovered  in  a  variety  of  ways,  as   shown  in  Figure  3.     Figure  3:  How  to  Discover  new  Customer  Segments   1. Search  for  customer  segments  that  competitors  are  either  ignoring  or  undeserving;    (Ryanair   and  easyJet)     2. Identify  changing  customer  needs  or  priorities  and  develop  product  offerings  to  meet  these   new  needs.  (Starbucks)   3. Re-­‐segment  the  market  creatively  and  merge  smaller  customer  niches,  examples  include   (Direct  Line,    IKEA)   4. Create  a  new  customer  need    and  build  a  customer  segment  around  it  (Swatch  and  Body  Shop)   5. Remove  functionality  from  over  engineered.  products  and  attract  customers  to  a  simpler   version  (Canon,  Honda)   6. Segment  the  market  by  customer  needs  (Avis,  Rent-­‐A-­‐Car)   7. Target  a  different  customer  from  those  that  established  competitors  concentrate  on  (SKY,   Bloomberg)   8. Exploit  technology  to  offer  anew  value  propositions  to  customers  (Amazon,  CEMEX,  eBay,  ING)    
  27. 27. 27  |  P a g e     The  graphic    shows  how  companies  that  first  identify  a  customer  segment,  that  has  not  been   properly  served  by  existing  competitors,    then  designed  their  products  and  delivery  systems  to  fit   the  requirements  of  their  chosen  customer  segments.  What  they  ended  up  with  was  a  strategic   position  fundamentally  different  from  the  ones  adopted  by  their  mainstream  competitors,   thereby  breaking  the  rules  in  their  respective  markets,  not  because  they  set  about  doing  so  but   because  what  they  did  (and  still  do)  is  exactly  what  their  customers  want.     However,  just  choosing  a  customer  segment  that's  different  will  not  necessarily  lead  a  company   to  an  innovative  breakthrough.  For  this  to  take  place,  a  company  must  offer  something,  such  as   new  and  superior  benefits  that   increase  demand  and  help  grow  the   total  market.    Moreover  an  important   issue  is  to  pick  the  right  segment   where  needs  will  grow  in  the  future.       There  is  no  ready  formula  to  help   select  the  right  niche.  This  requires  a   deep  appreciation  of  customer  needs   and  priorities  and  how  these  are   changing  in  the  future.  It  also  requires   the  entrepreneurial  courage  to  actually   take  the  risk  to  pursue  what  might   appear  to  be  a  promising  customer   segment  but  which  may  very  well  turn   out  to  be  a  grave  mistake.   Redefine  What  Is  Offered  To  The  Customer   products  or  services  should  we  be  selling  to  our  customers  and  what  should  be  our  value       In  selling  to  the  home  PC  market,  Dell  did  not  want   to  sell  to  first  time  buyers  because  these  require  a   lot  of  costly  first  time  support  and  service.  Instead  it   targeted  experienced  users  who  require  limited    and   support  team.     So  in  positioning  itself,  Dell  set  about  pricing  its  low   end  machines  more  expensively  than  its   competitors  and  pricing  its  high-­‐end  machines  less   expensively  than  its  competitors.     The  effect  was,  as  intended,  first  time  users   preferring  cheaper,  lower  end  models  went  to   competitors  and  experienced  buyers  wanting  more   machines!    
  28. 28. 28  |  P a g e     Strategic  innovators  tend  to  offer  the  same  product  or  service  as  their  competitors  but  emphasize   different  product  or  service  attributes  from  those  emphasized  by  established  competitors.  In   essence  they  offer  the  same  product  or  service  but  sell  it  on  the  basis  of  a  different  value   proposition.    Thus,  strategic  innovators  such  as  those  listed  in  Figure  4  took  their  respective   markets  by  storm  by  drawing  attention  to  fresh  propositions  of  value.       A  point  to  note  from  each  of  these  examples  is  that  each  value  proposition  is  characterised  by   three  important  criteria.  Firstly   secondly  a  sizeable  segment  should  be  interested  in  the  new  proposition  and  lastly  competitors   should  find  it  difficult  to  imitate,  or  substitute  it.     There  are  a  number  of  ways  companies  can  discover  new  value  propositions.  The  first  is  to  ask   customers.  The  key  is  to  find  out  how  to  satisfy  these  needs  and  this  requires  a  creative  leap  on   the  part  of  the  company;  something  which  is  extremely  difficult  to  do.  But  it  can  be  done.  For   example  by  listening  to  their  customers  Sony  came  up  with  the  Walkman,  Yamaha  the  electric   piano  and  Apple  the  iPod.       This  line  of  questioning  though  points  to  another  source  of  new  products:  building  on  a   ies  should  be  ongoing  to  generate   knowledge  and  facilitate  new  competitive  advantage.  This  is  readily  apparent  in  companies  such   Figure  4:  Value  Propositions  and  Key  Performance  Attributes  Emphasized  by  Strategic   Innovators.   Xerox,  speed  of  copying   v   Cannon,  good  enough  in  speed  of  copying  and   superior  price  and  quality.   Seiko,  accuracy,  functionality  and  price   v   Swatch,  good  enough  in  price  and  superior  in   style.   Gillette,  closeness  of  shave   v   Bic,  good  enough  in  closeness  of  shave  and   superior  in  price  and  convenience.   British  Airways:  number  of   destinations,  frequency  of  travel,   service   v   easyJet,  good  enough  in  service,  destinations   and  superior  in  price.   Traditional  banks:  personal  service,   branch  network  and  product   availability   v   ING  Direct,  good  enough  in  service  and   superior  in  price  and  convenience.   Traditional  universities,  research-­‐ based,  quality  education  and  career   placement   v   Open  University,  good  enough  in  quality  of   education  and  superior  in  flexibility  and  price.    
  29. 29. 29  |  P a g e     as  Apple,  Canon,  Walmart  and  Tesco  who  have  successfully  diversified.  By  competing  in  different   markets,  diversified  companies  gain  access  to  fresh  assets  and  capabilities  to  create  new  and   better  products,  to  improve  operations  and  create  new  capabilities  faster  or  at  lower  costs  than   competitors.       The  important  thing  is  to  understand  that  the  bottleneck  in  seeking  new  product  ideas  is  not  the   availability  of  tactics  such  as  those  outlined  above  but  the  mind-­‐sets  that  constrain  the  thinking  of   managers.  The  company  must  be  constantly  on  the  alert,  searching  customers.  And  such  a  search     Redefine  The  Way  To  Play  The  Game?     differences  between  the  company  and  others  that  can  be  created  and  exploited  in  ways  that   would  represent  superior  value  are  important  drivers  of  business  model  innovation.  But  is  this   enough?       Actually  the  question  raises  another  important  question  and  that  is  this.    Can  these  differences  be   defended  and  sustained  in  the  face  of  competition?  Superficial  differentiation  of  products  or   services  that  is  effectively  identical  is  not  sustainable.  Direct  Line  introduced  telephone-­‐based   insurance  sales  and  changed  the  way  insurance  was  sold  in  the  UK.  But  virtually  every  insurance   company  can  imitate  telephone  selling    and  this  is  what  they  did.     So  what  can  be  done  to  find  and  establish  real  and  sustainable  differences  which  matter  to   customers?  The  first  and  most  obvious  way  that  a  company  can  build  a  sustainable  business   model  is  to  select  and  perform  activities  differently,  or  to  perform  activities  that  are  different,  to   those  of  competitors.       Approaching  sustainable  competitive  differentiation  in  this  way  is  also  dependent  on  two  further   s  strategic  positioning  with  their   current  operations.  Second,  the  activities  needed  to  support  the  position  should  actually  fit  to    This  means  that  for  a  strategy  to  
  30. 30. 30  |  P a g e     be  superior,  it  needs  to  reflect  what  the  business  does  best    not  what  its  competitors  can  do  just   t.  In  other   words,  the  activity  system  itself!     This  is  not  easy  because  it  is  much  harder  for  a  rival  to  replicate  an  array  of  interlocking  and   reinforcing  systems  than  it  is  to  copy  a  product  and  match  a  process  technology.  For  example,   -­‐ -­‐ -­‐cost  service  for  business  travellers,   tourists  and  students  in  Europe,  rests  on  an  interlocking  system  of  the  activities  it  performs  to   support  its  low-­‐cost  convenience  positioning.  These  include  fast  gate  turnarounds,  frequent   departures  with  few  aircraft,  automated  ticketing,  self  seat  selection,  meals  at  cost  price,  and  low   maintenance  and  fuel  costs.       In  contrast,  a  full-­‐service  airline   performs  activities  to  support  a   high-­‐cost,  full-­‐service  programme.   It  will  provide  customers  with   services  to  reach  any  number  of   destinations  with  a  larger  range  of   aircraft,  as  well  as  providing   comfort,  offering  in-­‐flight  meals,   arranging  connecting  flights,  and   checking  and  transferring   baggage.    Both  types  of  airline   operate  viable  and  valuable   strategic  positions  that  are  built   on  entirely  different  systems  of   interlocking  activities.   The  second  and  most  striking  way   to  create  a  new  and  sustainable   The  strategic  positioning  of  easy  Jet,  as  a  short-­‐ -­‐ -­‐cost  service  for  business  travellers,  tourists  and   students  in  Europe,  rests  on  an  interconnected  system  of   activities  that  it  performs  to  support  its  low-­‐cost   convenience  positioning.       These  include  fast  gate  turnarounds,  frequent  departures   with  few  aircraft,  automated  ticketing,  self  seat  selection,   meals  at  cost  price,  and  low  maintenance  and  fuel  costs.       In  contrast,  a  full-­‐service  airline,  such  as  British  Airways  or   Qantas  Airways,  performs  activities  to  support  a  high-­‐ cost,  full-­‐service  programme.  Both  airlines  provide  their   customers  with  services  to  reach  any  number  of   destinations  with  a  larger  range  of  aircraft,  as  well  as   providing  comfort,  offering  in-­‐flight  meals,  arranging   connecting  flights,  and  checking  and  transferring   baggage.     Both  types  of  airline  operate  viable  and  valuable  strategic   positions  that  are  built  on  entirely  different  systems  of   interlocking  activities.    
  31. 31. 31  |  P a g e     business  model  is  to  develop  a  new  way  of  doing  business  that  is  totally  different  from  the  way       For  example,  Apple  developed  a  deep  knowledge  of  the  end-­‐consumer  as  a  result  of  its  computer   and  iPod  operations  as  well  as  an  outstanding  reputation  in  electronic  gadgets.  What  better   solution  than  to  take  these  valuable  assets  and  employ  them  in  the  mobile  communications  and   the  internet  business  in  the  consumer  market  (rather  than  do  what  other  mobile  phone   companies  were  doing,  which  was  selling  a  phone  with  fewer  additional  features)?  To  an  outsider   on  existing  strengths.     Strategic  Assets  And  Capabilities  Are  Crucial     tences  is  one  way  to  create  new  products  or  new   forms  of  competition.  Generally,  breakthroughs  occur  when  a  company  exploits  its  existing   competences  to  create  and  accumulate  new  strategic  assets  more  quickly  and  cheaply  than   competitors  can  manage  rather  than  from  reinterpreting  existing  competences.  This  dynamic   exploitation  of  existing  core  competences  can  come  in  three  different  ways.     In  the  first  place  competences  amassed  in  one  business  can  be  used  to  improve  operations  in   another  business  faster  and  more  cheaply  than  competitors.  For  example,  when  Tesco  had   successfully  established  itself  in  food  and  drink  retailing  it  had  created  a  number  of  strategic   assets  in  retailing,  supplier  management,  warehousing  and  distribution  that  underpin  this   business.    But  in  the  course  of  its  operations  it  also  developed  a  series  of  competences  including   knowledge  of  how  to  manage  and  satisfy  a  growing  database  of  customers,  and  how  to  squeeze   better  productivity  out  of  high-­‐volume  production  and  packing  operations.       This  knowledge  has  been  used  to  help  Tesco  diversify  into  other  in-­‐home  product  groups.  As  a   result,  its  financial  service  business  can  get  up  to  speed  much  faster  and  in  a  more  cost-­‐effective   way  than  a  competitor  that  has  to  develop  this  knowledge  from  scratch.  This  type  of  relatedness   (that  is,  similarities  in  the  processes  required  to  improve  the  effectiveness  and  efficiency  of   separate,  market-­‐specific  stocks  of  strategic  assets  in  two  businesses)  opens  up  opportunities  
  32. 32. 32  |  P a g e     that  allow  a  company  to  design  different  ways  of  competing  in  different  markets.       Secondly  competencies  developed  in  one  business  can  be  used  to  create  a  new  strategic  asset  in   a  fresh  business  either  faster  or  at  a  lower  cost  than  competitors.    For  example,  Tesco  can  use  its   experience  of  building  food  and  drink  distribution  to  build  a  new,  parallel  distribution  system  for   in-­‐home  entertainment  products.    This  sort  of  asset  deployment  and  creation  is  an  advantage   that  companies  can  use  to  break  the  rules  and  generate  enormous  value.       Lastly  a  company  can  enlarge  its  stock  of  competences.  As  a  company  builds  strategic  assets  in  a   new  business,  it  will  learn  new  skills.  For  example  in  creating  the  assets  required  to  support  the   design  and  development  of  a  business  in  banking,  Tesco  will  acquire  fresh  competences  that  it   could  use  to  improve  its  food  and  drink  and  white  goods  businesses.  Alternatively,  combining  the   competences  developed  in  its  core  businesses  and  banking  businesses  may  help  it  to  quickly  and   cheaply  build  the  strategic  assets  required  to  succeed  in  a  fourth  market  -­‐  the  mortgage  business.       A  new  unique  strategic  position  will  occur  when  a  company  tries  to  satisfy  customer  needs  on  the   basis  of  new  sets  of  strategic  assets,  unfamiliar  to  existing  competitors.  In  the  process,  the  assets   of  established  players  become  obsolete.  Entrepreneurial  competitors  will  create  such  new  sets  of   strategic  assets  by  using  their  core  competences  to  either  develop  new  assets  or  bundle  together   unique  combinations  of  existing  strategic  assets.       Successful  innovators  need,  therefore,  to  identify  and  deploy  the  right  core  competences.  A   better  understanding  of  how  customers  are  changing  leads  to  a  better  understanding  of  what   core  competences  leads  to  a  better  segmentation  and  choice  of  customers  as  well  as  a  more   productive  development  of  new  strategic  assets  that  allows  the  company  to  break  the  rules.     The  Value  Of  ICT   Coming  up  with  a  new  unique  strategic  position  is  easy!  The  difficult  part  is  to  implement  the  new   strategy  in  an  economical  and  effective  manner,  so  that  real  value  is  delivered  to  customers  in  a   cost  efficient  way.  This  is  what  usually  separates  success  from  failure.  How  then  could  potential  
  33. 33. 33  |  P a g e     strategic  innovators  implement  their  radical  strategies  successfully?       Obviously,  many  factors  can  influence  the  successful  implementation  of  a  radical  new  strategy  -­‐   leadership,  timing,  resources,  competitor  reaction,  and  so  on.  We  may  add  Information   Communications  Technology  (ICT)  to  this  list  of  key  ingredients  of  successful  implementation.   Whilst  ICT  is  not  the  only  factor  facilitating  success,  it  has  been  a  key  enabler  for  many  strategic   innovators.     But  how  could  ICT  support  the   implementation  of  new  strategies?  In   appreciating  the  role  that  ICT  plays  in   contributing  to  a  unique  strategic   that  innovation  takes  place  when  a   company  questions  its  existing  Who-­‐ What-­‐How  position  -­‐  or  strategic   position  -­‐  in  the  industry  and,  in  that   process,  discovers  a  new  position.       The  first  requirement  to  creating  a   unique  strategic  position  could  be  any   of  the  following:  The  discovery  of  a  new   or  different  customer  (a  new  Who);  the   discovery  of  a  new  or  different  value  proposition  that  attracts  a  different  customer  (a  new  What);   or  the  discovery  of  new  or  different  ways  of  producing,  delivering,  or  distributing  existing,  or  new,   products  or  services  to  existing,  or  new,  customer  segments  (a  new  How)  that  requires  the   innovator  to  put  in  place  a  new  business  model  to  serve  it.     But  being  first  in  identifying  and  exploiting  a  new  strategic  position  does  not  guarantee  success;  a   company  still  has  to  exploit  the  new  business  model  in  a  value-­‐creating  way.  This  is  where  ICT   Since  its  creation,  ING  has  become  the  largest   Internet  bank  in  the  United  States  with  additional   operations  in  Austria,  Australia,  Canada,  France,   Germany,  Italy,  Spain,  and  the  UK.  It  targets  low   maintenance  and  self-­‐service-­‐oriented  customers   and  offers  them  simple  and  easy-­‐to-­‐understand   financial  products  through  the  Internet,  by   phone,  or  by  mail.       With  its  home  market  locked  up  ING,  a  Dutch   financial-­‐services  conglomerate  sought  to  expand   around  the  world.  But  buying  or  building  enough   branches  to  break  into  a  mature  market  like  the   United  States  would  be  hugely  expensive.  So  the   company  decided  to  run  an  experiment,   communicating  with  customers  via  the  Internet.   Given  cheaper  banking,  ING  Direct  has  been  able   to  offer  a  significantly  higher  interest  rate  on   savings  accounts  and  minimum  account  balance   requirements.    
  34. 34. 34  |  P a g e     comes  into  play.  Information  and  communications  technology  can  help  a  company  create  and   exploit  a  unique  strategic  position  in  four  different  ways:     1. It  enables  a  company  to  reach  and  profitably  serve  customers  who  are  new  or  different   from  those  that  traditional  competitors  target  and  serve.  Edward  Jones,  an  American   insurance  broker  targeted  customers  that  established  competitors  ignored  because  they   were  uneconomical  to  serve  and  used  ICT  to  enable  its  brokers  to  communicate  up-­‐to-­‐ the-­‐minute  financial  information  to  them.       2. ICT  allows  a  company  to  offer  a   radically  different  value   proposition  for  the  same   product  or  service  and  in  an   economical  way.  CEMEX,  one  of   companies  used  ICT  in  a   radically  new  way  to  deliver   just-­‐in-­‐time  cement  and   thereby  re total  cost.    In  such  cases  ICT   enables  the  innovator  to   underline  distinctive  product   attributes  or  add  new  benefits  to  the  product.     3. ICT  allows  a  company  to  replace  an  unwieldy  and  uneconomical  value  chain  with  an   operational  footprint  that  can  deliver  value  to  the  customer  in  an  innovative  or   radically  reduce  the  design-­‐to-­‐sale  cycle  in  the  clothing  industry.     4. ICT  lets  a  company  scale  up  its  business  model  quickly  but  in  the  process  affords  it   protection  from  competitive  attacks  and  so  ensures  its  sustainability.  Companies  such  as   The  Mexican  company,  CEMEX,  redefined  the  way   in  which  customers  purchase  cement.  Using  ICT  to   deliver  just-­‐in-­‐time  cement,  customers,  rather   than  order  days  in  advance  and  then  receiving   delivery  within  a  specific  delivery  window,  could   expect  same-­‐day  service  and  unlimited  free  order   changes  as  standard,  given  the  business  processes   created  by  CEMEX  that  have  made  this  possible.     The  basis  of  their  offer  was  a  global  positioning   system  (GPS)  that  freed  the  company's  delivery   trucks  from  fixed-­‐zone  assignments,  allowing    to  roam  an  entire  city  or  region.   Using  precise,  real-­‐time  data  about  the  location,   direction,  and  speed  of  every  vehicle  in  the   CEMEX  fleet  to  ensure  highly  efficient  delivery   processes.    
  35. 35. 35  |  P a g e     CEMEX,  Edward  Jones,  Zara  and  Cisco  Systems  are  all  companies  that  have  scaled  up  their   business  models  quickly  and  efficiently  and  safeguarded  their  positions  through  ICT.     The  Right  Organisational  Environment       Given  sufficient  time,  vision  and  enterprise  any  company  is  capable  of  designing  a  unique   strategic  position.  The  tough  part  occurs  when  it  comes  to  design  and  implementation.  The   creation  and  translation  of  strategy  into  action  is  usually  an  incredibly  weak  link  in  exploiting  a   superior  strategy.  Thus  a  key  mainstay  of  a  unique  strategic  position  is  an  organisational   environment  that  is  conducive  to  creating  and  supporting  the  development  and  implementation   of  a  new  strategy.  While  this  is  not  a  new  idea  it  has  far  reaching  implications  for  strategy  makers.       What  the  point  suggests  is  that  to  develop  a  superior  strategy  a  company  must  also  create  an   efforts  to  create  and  exploit  a  unique  strategic  position.  A  company  that  wants  its  strategy  to  be   both  decisive  and  to  be  implemented  accurately  must  ask  and  answer  the  question:  What   organisational  environment  must  I  create  to  elicit  the  behaviours  that  will  support  my  chosen   strategy?     Winning  this  sort  of  commitment  requires  managers  to  think  differently  about  the  role  of   strategic  management  and  to  view  themselves  as  makers  of  meaning  and  vision,  rather  than  as   planners  of  specific  programmes  to  be  followed.  This  sort  of  environment  fosters  creativity  and   support  for  strategy  development  and  implementation  and  is  at  the  heart  of  any  attempt  to   secure  commitment.     A  pragmatic  way  of  building  a  supportive  environment  is  to  stage-­‐manage  four  basic   organisational  elements  to  bring  about  desired  behaviours:       1. People  particularly  their  motivation,  skills  and  capabilities.     2. Culture  of  the  company,  including  its  norms,  values  and  undisputed  assumptions.       3. Structure  of  the  company,  including  its  formal  hierarchy,  organisational  setup,  activities  
  36. 36. 36  |  P a g e     and  systems  (information,  recruitment,  market  research,  etc.).     4. Incentives  both  financial  and  non-­‐financial,  to  encourage  people  to  perform  well.       It  is  the  blend  of  these  four  elements  that  creates  the  organisational  environment  and  thus  the   mainsprings  for  strategic  formulation  and  management.    This  sort  of  environment  is  particularly   appealing  to  people  who  are  entrepreneurial  by  nature  and  willing  to  question  the  status  quo.  It   is  important  to  ensure  that  people  talk  to  each  other  and  that  there  is  regular  and  intensive   interchange  between  disciplines  within  the  business.  People  must  work  together,  communicate   and  do  whatever  it  takes  to  extract  from  the  core  technology  every  product-­‐market  possibility.     Overall,  this  kind  of  environment  is  characterised  by  entrepreneurship,  vision  and  opportunity,  a   sense  of  belonging,  teamwork  and  fast  as  well  as  efficient  responses.     A  further  important  motivator  is  recognition.  Most  people,  whether  they  are  engineers,  business   managers  or  machine  operators  would  like  to  be  creative.    They  want  to  identify  with  the  success   of  their  business  and  through  this  share  in  the  results  and  excitement  of  better  business.  Thus   their  greatest  reward  is  receiving  appreciation  for  making  a  contribution  to  making  something   meaningful  happen.  Successful  innovation  should  be  rewarded  commensurate  to  ability,  effort   and  results.  Successful  innovators  should  not  only  receive  recognition  for  their  work,  they  should   also  be  awarded  cash  bonuses,  salary  increases  and  promotions.     This  approach  to  securing  emotional  commitment  in  strategy  innovation  and  design  is  poles  apart   from  the  rational  commitment  required  of  people,  by  managers,  when  a  change  in  strategy  is   involved,  as  it  is  in  fact  of  many  decisions  implemented  in  business  today.              
  37. 37. 37  |  P a g e     PART  IV   How  To  Sustain  A  Unique  Strategic  Position     There  are  a  number  of  issues.  The  first  concerns  approaches  to  managing  two  positions   simultaneously.  When  an  established  company  discovers  a  new  strategic  position  the  question  is   how  to  manage  both  the  new  and  the  current  business  models.      A  second  issue  is  to  sustain  the   advantages  with  a  sustainable  competitive  advantage.  We  examine  each  of  these  issues  in  turn.       Managing  Two  Positions  Simultaneously   When  an  established  company  discovers  a  new  and  unique  strategic  position  the  question  is  how   to  manage  both  the  new  business  model  and  the  existing  business  one  in  the  same  industry!  It   should  come  as  no  surprise  to  learn  that  this  is  easier  said  than  done  because  conflicts  and  trade-­‐ offs  between  the  two  positions  makes  their  ordered  coexistence  difficult.     Thus  a  consumer  goods  company  that  attempts  to  move  into  private  label  brands  while  still   marketing  its  branded  products  risks  cannibalising  its  existing  brands  and  diluting  the   attempts  to  compete  in  two    positions  simultaneously  it  is  possible  that  the  cost  of  managing  two   positions  can  far  outweigh  any  potential  benefits  emerging  from  exploiting  the  market  created  by   a  new  business  model.     The  decision  to  adopt  two  business  models  is  a  sensitive  one.    Many  suggest  that  competitive   advantage  in  an  industry  can  only  be  achieved  by  choosing  to  focus  in  one  strategic  position  and   perform  a  tailored  and  different  set  of  activities  from  those  of  their  rivals.  All  this  implies  that    The   solution,  advocated  by  many  writers,  is  to  establish  stand-­‐alone  units,  each  with  its  own  identity   and  underlying  value-­‐chain.  Keeping  the  two  businesses  separate  achieves  a  number  of  benefits   as  described  below:  
  38. 38. 38  |  P a g e     1. A  company  can  prevent  its  existing  processes  and  culture  from  overpowering  the  new   business.  By  establishing  a  separate  unit  the  new  business  can  develop  its  own  culture,   processes,  and  strategy  without  interference  from  the  parent.       2. A  new  market  requires  an  autonomous  business  unit  to  enable  a  company  to  exploit   entrepreneurial  spirit  and  organizational  flexibility  in  order  to  succeed  in  a  fresh   operating  environment.       3. The  task  of  creating  competences  required  to  extend  into  chosen  markets  is  also   dependent  on  a  great  deal  of  latitude  and  independence  from  encumbrances  imposed  by   parent  companies.     Logical  as  separation  might  be,  it  is  not  without  problems  and  risks  of  its  own.  Even  though  new   businesses  need  space  to  develop  simply  separating  a  new  business  from  the  mainstream  can   prevent  it  from  obtaining  invaluable  assets,  resources  and  knowledge  that  reside  in  the  parent   company,  and  deprive  their  parents  of  the  vitality  they  can  generate.     On  balance  there  is  no  one  right  answer  to  the  problem.  This  suggests  that  rather  than  adopting   an   either  or  stance,  a  company  may  be  better  off  deciding  how  it  can  best  adapt  its  new   strategic  position  to  best  fit  the  demands  of  its  immediate  environment.     That  is  that  the  underlying  context  or  environment  a  company  must  create  that  supports  and   promotes  the  behaviours  that  reinforce  its  strategic  decisions.  Thus  a  company  should  attend  to   such  issues  as  founding  a  strong  vision  and  culture,  fostering  shared  values,  recruiting  the  right   people,  creating  the  structures,  processes  and  incentives  to  ensure  the  appropriate  fit  between  a     Sustaining  Competitiveness   Inevitably,  a  new  unique  strategic  position  signals  the  opportunity  it  is  exploiting  to  competitors,   both  existing  and  potential.  If  the  strategic  innovator  is  to  prevent  them  moving  in  and  exploiting   the  opportunity  as  well,  he  or  she  must  close  the  window  behind  him  or  her  to  preserve  any  hard  
  39. 39. 39  |  P a g e     won  first-­‐mover  advantages.  This  means  building  a  sustainable  competitive  advantage  for  the   venture.     The  key  point  to  note  is  that  in  simple  terms  a  competitive  advantage  is  something  the  new   business  does  that  creates  value  for  customers  in  a  way  that  competitors  do  not.  Also  that   competitive  advantage  is  sustainable  if  competitors  find  it  difficult  (i.e.  expensive)  to  imitate  it.         A  fundamental  distinction  should  be  drawn  between  competitive  advantage  as  something  that  a   company  offers  in  the  marketplace  and  the  source  of  that  advantage  in  something  it  has  or  the   way  it  does  things.     In  general  terms  competitive  advantage  can  be  gained  by  offering  the  customer  a  lower  price  or   by  achieving  greater  differentiation.  Such  distinctiveness  may  be  achieved  by  differentiating  the   product  through  features,  quality  or  performance,  differentiating  the  product  through  add-­‐on   service,  differentiating  through  branding  or  brand  imagery  and  differentiating  through   distribution  or  access  to  the  product.     These  market-­‐ own  strategic  assets  and  distinctive  capabilities;  the  source  of  competitive  advantage  as   mentioned  earlier.    These  strategic  assets  and  distinctive  capabilities  may  be  described  like  this:     1. Strategic  assets  may  be  described  as  something  the  new  business  owns,  for  example  a   unique  product  or  technology,  patents  and  copyrights,  government-­‐awarded  monopoly   rights.       2. Distinctive  capabilities  may  be  described  in  terms  of  the  busi ;   Productivity  -­‐  the  ability  to  deliver  value  to  the  customer  at  a  lower  cost.   Innovation    the  ability  to  come  up  with  new  and  valuable  ideas  faster  than   competitors.   Reputation    being  better  thought  of  than  competitors  and  taking  advantage  of  the   lower  costs  that  arise  from  trust.  
  40. 40. 40  |  P a g e     Channel  relationships  or  architecture    the  general  organisation  of  the  venture  and   its  relationships  with  supporters  making  the  business  more  responsive  and  flexible.   How  Competitive  Advantage  Is  Established    And   Maintained   Specifically  for  any  new  business,  these  may  be  thought  of  in  terms  of  four  types  of  advantage:     1. Cost  advantages.  These  may  be  derived  from  obtaining  lower  input  costs    through   having  access  to  unique  suppliers;  economies  of  scale    dilution  of  fixed  overheads  over   output;  experience  economies    cost  reductions  gained  through  organisational  learning;   and  economies  of  scope    dilution  of  fixed  costs  over  a  wide  product market  domain.     2. Knowledge  advantages  can  be  derived  from  the  design  and  promotion  of  products,   market  knowledge  and  product  and  production  technology.     3. Relationships.  Unique  and  valuable  relationship  advantages  can  be  built  with  customers,     investors,  suppliers  and  employees.     4. Structural  sources  can  be  gained  from  a  unique  and  particularly  productive  organisation   of  the  new  business  in  terms  of  its  structure,  systems  and  routines.       Clearly  the  building  of  future  competitive  advantage  should  take  a  central  position  in  the   planning  of  the  venture  in  its  early  stages.  This  means  evaluating  the  potential  for  each   source  of  competitive  advantage  in  order  to  find  the  drivers  and  their  magnitude  in  relation   to  developing  cost,  knowledge  relational  and  structural  advantages  are  required.     A  competitive  advantage  may  give  a  new  business  a  good  start.  But  if  it  is  to  be  an  effective   platform  for  long-­‐term  growth  it  must  be  sustainable.    Some  important  considerations  in   relation  to  maintaining  a  competitive  advantage  based  on  cost,  knowledge,  relational  and   structural  advantages  are  based  on  the  type  of  considerations  shown  in  Figure  5.  
  41. 41. 41  |  P a g e       Gaining  and  sustaining  meaningful  sources  of  competitive  advantage  and  using  them  to  deliver   value  in  the  marketplace  offers  the  promise  of  a  virtuous  circle  of  customer  reward  and   investment  in  growth.   How  Should  A  Company  Respond  to  a  Fresh  Innovation?   What  would  you  do  if  your  competitors  beat  you  to  it  and  invaded  your  market  with  a  new   business  model?  It  is  not  unusual  for  established  companies  to  respond  with  the  question:     Thus,  the  debate  within  established  booksellers  has  long  been  about  whether  to  get  into  online   bookselling  or  not.  Similarly,  the  debate  within  established  airline  companies  has  often  been   about  getting  into  the  low-­‐cost,  no-­‐frills  part  of  the  business,  or  not.     Figure    5.  Sustaining  Competitive  Advantage.   COST  *    How  are  cost  reductions  related  to  output?  *  Can  the  venture  gain  output  leadership?  *   How  much  of  a  cost  advantage  will  this  offer?  *  Can  technological  innovations  produce  discrete   cost  reductions?  *  If  so,  will  the  venture  get  to  these  first?*  Does  the  venture  have  the  right   structure  and  systems  to  manage  down  costs?  *  Will  competitors  gain  access  to  this  technology?     KNOWLEDGE  *  Does  the  venture  have  the  most  effective  knowledge  management  and   organisational  learning  capabilities?  *  Does  it  have  unique  human  resources  to  manage  these?    *   Can  the  venture  make  new  discoveries  faster  than  competitors?  *  Can  different  knowledge  areas   be  integrated  into  a  holistic  approach  to  product  development  and  marketing?  *  How  important   are  knowledge-­‐protection  devices  such  as  patents  and  copyrights?  *  Can  intellectual  property   rights  be  established  and  made  protectable?     RELATIONAL*  What  means  are  used  to  establish  and  maintain  relationships  with  stakeholders?  *   Are  relationships  with  customers  long-­‐term  or  short-­‐term?  *  What  are  the  risks  for  stakeholders   in  establishing  new  relationships?  *  Can  a  sense  of  trust  be  built?  *  If  so,  how  valuable  will  it  be?   *  How  important  are  the  reputations  of  firms  in  the  industry?  *  On  what  platforms  can   relationships  be  built    expectations,  outcomes  and  communication?     STRUCTURAL  *  How  valuable  are  particular  structure  and  process  systems?  *  What  flexibility  do   they  offer?  *  How  does  this  add  value  for  the  customer?  *  What  cultures  are  adopted  by  firms  in   the  sector?  *  Can  any  of  the  above  be  developed  or  changed  to  create  new  value  for  the   customer?  *  How  are  they  dependent  on  particular  skills  and  insights?  *  How  important  is   leadership  in  holding  them  together?  *  What  leadership  styles  are  adopted?*  Can  they  evolve  in   response  to  change    both  internal  resulting  from  growth  and  external  due  to  changing   circumstances?                                                 *  What  actions  should  you  be  taking?  *  How  can  you  leverage  super  productive  capabilities  in   the  future?  *  Can  you  see  any  new  customer  segments  and  customer  needs  emerging  that  you  
  42. 42. 42  |  P a g e     It's  as  if  the  only  available  response  to  an  invading  business  model  is  to  either  ignore  it  or  imitate   it!  Adopting  the  new  business  model  is  certainly  one  way  to  respond,  but  it's  not  the  only  one.   There  are  five  possible  solutions:     1.    Concentrate  on  the  Current  Business  Model.  The  incumbent  player  could  invest  in  its   existing  business  to  make  the  traditional  way  of  competing  more  competitive  relative  to   the  new  way  of  competition.  This  might  seem  obvious,  but  many  established  competitors   seem  to  overlook  it.     Like  all  business  model  innovations,  disposables  entered  the  razor  market  by  emphasizing  a   different  value  proposition  based  on  price  and  ease  of  use.  This  allowed  them  to  grow   quickly  and  claim  a  large  segment  of  the  market  in  a  short  time.  But  how  did  Gillette,  an   established  player,  respond  to  this  innovation?    Well  it  chose  to  produce  disposable  razors   business  and  created  two  successful  new  products,  the  Sensor  and  the  Mach-­‐3.       2.    Ignore  It!  Many  new  business  innovations  appear  to  be  simple  extensions  of  the  main   market  and  easily  attract  established  companies  to  enter  them  whereas  the  reality  is  that   they  are  in  fact  miles  away.  For  example,  is  the  budget  airline  market  an  extension  of  the   main  airline  market,  or  are  the  two  markets  unrelated  for  all  practical  purposes?       The  truth  is  that  very  often,  the  new  markets  created  by  strategic  innovators  comprise   customers  that  posses  different  needs,  and  require  such  different  skills  and  mindsets  from   new  is  akin  to  unrelated  diversification  for  the  established  company.    In  such  cases,  it  may   be  better  off  by  simply  ignoring  the  new  business  model.     From  the  perspective  of  an  established  competitor,  the  key  question  to  ask  is  whether  the   new  market  created  by  the  new  business  model  is  "strategically  related"  to  the  existing   business.  In  other  words,  could  it  transfer  strategic  assets  from  its  existing  business  to  this  
  43. 43. 43  |  P a g e     new  business,  or  are  the  two  businesses  only  related  in  a  superficial  and  cosmetic  manner?     The  mistake  that  established  competitors  make  is  to  assume  that  because  the  new  market   lies  on  the  periphery  of  their  industry,  it  would  be  easy  for  them  to  compete  in  it.  This  may   be  far  from  the  real  situation  that  they  find,  should  they  enter  the  new  market.    If,   therefore,  the  answer  is  an  unqualified  yes,  the  incumbent  company  may  be  better  off   ignoring  the  new  business  model.     3.  Counterattack.  A  feature  of  strategic  innovation  is  the  introduction  of  a  second  value   proposition.  This  means  that  the  new  entrant  can  claim  to  be  good  enough  in  the  value   proposition  of  the  established  competitors  and  better  in  some  other  area.  Established   competitors  could  respond  with  an  alternative,  or  third,  value  proposition  by  accentuating   a  different  set  of  attributes  from  those  promoted  by  the  innovators.  This  means  that  they   ing  parity  in  the  innovators'  value  proposition  and   superiority  in  a  further  desirable  attribute.     Note  the  response  of  the  Swiss  watch  industry  to  the  Japanese  attack  in  the  late  1970s.  As   with  every  business  model  innovation,  the  Japanese  did  not  attack  by  trying  to  become   attracted  to  the  new  watches  prompting  huge  growth  in  market  share.     Instead  of  adopting  the  new  way  of  playing  the  game,  the  Swiss  responded  by  introducing   the  Swatch.  The  new  watch  did  not  pretend  to  be  better  than  Seiko  or  Timex  in  price  or   features.  Instead,  the  Swatch  counterattacked  by  successfully  making  the  claim  that  the   Swatch  was  good  enough  in  price  and  superior  in  style  and  design.  Thus,  instead  of   responding  to  the  invading  game  by  embracing  it,  they  went  after  it  by  creating  their  own   game.  Since  its  launch  in  1983,  Swatch  has  become  the  world's  most  popular  timepiece,   with  more  than  100  million  sold  around  the  world.  It  is  a  lesson  to  all  companies  facing   similar  attacks  in  their  business.     4.  Adopt  the  New  Business  Model.  For  the  most  part  an  established  firm  views  strategic  
  44. 44. 44  |  P a g e     in  its  industry  and  increase  its  market  share.  Thus  an  important  issue  for  an  established   company  having  decided  to  embrace  the  new  business  model  is  to  find  a  way  to  adopt  it   next  to  its  existing  business  model  could  be  problematic.       The  challenges  of  competing  with  dual  business  models,  in  either  a  separate  unit  or  within   the  existing  organisation  have  already  been  discussed.    However,  what  really  creates   problems  for  established  companies  is  the  tendency  for  the  new  business  model  to  conflict   with  the  established  way  of  doing  business.       5.    Take  over  and  Scale  Up  the  New  Business  Model.  The  last  option  is  for  an  established  firm   to  embrace  the  new  business  model  wholeheartedly  and  abandon  its  existing  one.  This   requires  the  established  company  to  differentiate  the  new  model  and  to  scale  it  up  and   grow  it  into  a  mass-­‐market.       Consider  Amazon,  generally  recognized  as  the  innovator  in  online  bookselling,  was  actually   third  or  fourth,  opening  its  Web  site  two  years  after  Charles  Stack,  an  Ohio-­‐based   bookseller,  in  1995.   innovation.  One  company  may  come  up  with  a  new  and  disruptive  way  of  playing  the  game   yet  another  may  take  the  idea  and  scale  it  up  into  a  mass  market.       The  skills  and  competences  needed  to  scale  up  an  idea  are  essentially  different  from  the   skills  and  competences  needed  to  generate  the  new  idea.    It  is  this  that  offers  the   established  business  a  competitive  advantage  over  innovators.  Their  skills  and   competences,  better  suited  to  scaling  up  others'  ideas,  enable  them  to  respond  to  a   business-­‐model €