Business Strategy Forum

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Why focus ?

2010-04-07T20:43:00.005+02:00

Confucius says: “Man who chases two rabbits catches neither!”

“I’d rather be strong somewhere than weak everywhere”.

When managers know they have only one battle to fight it concentrates their minds wonderfully.

Companies that broaden their line, for whatever reason, are vulnerable to narrowly focused competition that takes advantage of division.

Nobody loses business just because they have a broad focus. To lose business you have to run up against a competitor with a narrow focus.

What’s needed for success is focus, which sometimes can be achieved with a full line of products, but with sacrifices' made in other areas. Distribution could be one such area. Dell Computer deselected retail distribution and direct sales force with success.

Some managers equate size with power. Is a large company more powerful than a small one? Not necessarily. A highly focused company is more powerful than a less focused company.

What provide an organization with its power is its degree of focus and its share of market. Size is only important if it contributes to an increase in market share.

Power gives a company the ability to “control” an industry, taking it in a direction that will only increase the company’s power and domination.

Wouldn’t it be easier to increase the share of a business you know than to get a share of a business you don’t know?

A focus is not forever.

At any point in time, a company has 3 kinds of products. (1) yesterdays products, which are candidates for disposal; (2) today’s products, which are producing the bulk of the company’s profits; and (3) tomorrow’s products, which are the company’s future.

Nothing stays still long enough for a company to be perfectly focused.

Sooner or later even the most powerful focus becomes obsolete. That’s when a company must refocus itself.

Focus, the future of your company depends on it.

Abstracts from: “Focus, The future of your company depends on it”, by Al Ries

If you are a BtB-unit manager and you are interested in some practical DIY-tools on strategic focus maybe you will enjouy visiting my blog: Strategy On-line

Regards

Peter

Decision-focused Planning

2006-01-10T12:02:00.000+01:00

In a recent HBR article (Jan 06), Marakon consultants Michael C. Mankins and Richard Steele argue that in most companies, strategic planning is not about making decisions, but about documenting choices that have already been made.

They describe a disconnect between strategic planning and decision-making, which is caused by the length (1 year) and timing (annually) of traditional planning processes, and also because the strategy process is predominantly business-unit oriented, while decisions are often issue-oriented.

The authors recommend to add 6-8 issue-based meetings per year and integrate those in the planning process, which as a result becomes more continuous. Additionally this helps to improve the communication between senior corporate managers and business unit managers.

Although an occasional issue-based strategic meeting can have its merits, I believe that adding 6-8 of those each year plus an additional level of planning on top of the usual network, corporate, business and functional levels is too much of a thing and business unit managers are perfectly capable to take major decisions themselves. Besides, board-level executives cannot afford to spend that much time on the issues of their business units.

Are you an advocate of decision-focused planning?

Strategy in uncertain markets requires active waiting

2005-09-19T16:40:00.000+02:00

Strategy in uncertain markets requires active waiting. That is what Donald N. Sull says in HBR of September 2005. Furthermore, he identifies a number of management principles for surviving and thriving in unpredictable markets. These principles, taken together, define "active waiting":

Keep the vision fuzzy and the priorities clear.
Conduct reconnaissance into the future. Send probes and watch for anomalies and gaps.
Keep a war chest. Save cash for when disaster strikes or when faced with a golden opportunity.
Maintain the pressure. During the waiting, focus on improving operational efficiency.
Declare the main effort. Decide and communicate. Focus all resources on the golden opportunity.

Doing active waiting well requires from leaders that they are patient, disciplined and alert during the waiting process, and courageous and bold during the rare times of major disaster or major opportunity. Not many people are capable of aligning their leadership behavior to these crucial external circumstances.

A Radically Simplified Approach to Business Strategy

2005-08-20T10:08:00.000+02:00

It is now 25 years ago that Harvard professor, Michael E. Porter wrote "Competitive Strategy". Essentially Porter says you need to consider Five Competitive Forces to analyse the attractiveness of an industry for a company.

A new book on business strategy: "Competition Demystified - A Radically Simplified Approach to Business Strategy" by Bruce Greenwald, a professor at the Columbia Business School, and Judd Kahn, is a conscious simplification of Michael Porter's classic.

According to the authors, in most cases, studying only one factor will do: Potential Entrants. They claim the Barriers to Entry is by far the most important factor in business strategy.

If they are right that would make business strategy formulation a lot simpler!

"Either the existing firms within the market are protected by barriers to entry or they are not," the authors write. " No other feature of the competitive landscape has as much influence on a company's success as where it stands in relationship to these barriers." And: "Avoiding competition is the only way to escape a level playing field in which anyone can join... [and] only the best... survive and prosper."

Greenwald and Kahn argue that:

Firms operating without competitive advantages should concentrate all their efforts on being efficient;
Companies that do have competitive advantages need to design strategy with their competitors in mind;
Most competition is over pricing or capacity, and there are established techniques for analyzing these situations and devising the right strategies to handle them;
Cooperation between competitors is possible and beneficial and can be accomplished without breaking the law;
In an increasingly global economy, competitive advantages still stem primarily from local conditions. Even large international firms need to understand and protect the local sources of their success.

Most importantly, according to the authors there are really only three sustainable competitive advantages;

Supply. A company has this edge when it controls an important resource: in Hollywood, for example, it may mean having Julia Roberts or Tom Cruise star in a movie. Or a company may have a proprietary technology, like a prescription drug, that is protected by patent.
Demand. A company can control a market because customers are loyal to it, either out of habit - to a brand name, for example - or because the cost of switching to a different product is too high. Companies often put off changing software vendors, for example, for that reason.
Economies of scale. If your operating costs remain fixed while output increases, you can gain a significant edge because you can offer your product at lower cost without sacrificing margins.

Greenwald and Kahn explain in depth how a business can capitalize on each type of advantage.

Bestselling Books on Strategy and Competition

2004-12-29T14:15:00.002+01:00

Customer S. taken beyond CRM

2004-12-07T09:14:00.000+01:00

In the HBR of December 2004, Jeffrey F. Rayport and Bernard J. Jaworski write that the task of managing customer interfaces and managing interface systems is an underestimated strategic imperative. Those who deal with this in their customer S. cracking the code of interface systems will have a competitive advantage.

Advances in service technology have opened up new possibilities for how companies can create value not only through improvements in productivity but through better interactions with their customers. Businesses must change fast to embrace these new realities. Reengineering the front office will eliminate and displace many jobs, but it will also inevitably create new opportunities for human labor. Getting the balance right will require Corporate leaders to develop a subtle understanding of how to manage the intelligent division of labor between people and machines. A company's interface system works best when it combines the best of what people and machines can do.

Every customer interface must deliver high levels of customer-perceived value relative to the competition. This is possible along the four dimensions of a customer interface:

physical presence and appearance
cognition (recognize customers, draw intelligent conclusions and act upon that)
emotion or attitude (right sense of humor, repect, etc, calibrated with the customer)
connectedness (Amazon generates recommendations based on buying patterns of people with similar interests)

In all of this, the Personalisation Paradox should be kept in mind: the notion that a personalized interaction or relationship may be one that is actually coldly and impersonal (not all customers want to be treaded with lots of personal attention).
After years of cost cutting, it may well be that Customer S. will become more interesting now as a source of creating competitive advantage with so many new technology options to choose from.

Industry Change

2004-10-25T09:45:00.000+02:00

A new article on strategic industry change can be found in the Harvard BR of October 2004. As we all know, industries change. Some industries change fast, some change slowly over time, but all of them do change eventually. Anita McGahan explains industries actually change in one of 4 ways: radical, progressive, creative or intermediating.

She argues that if your company's innovation S. is not aligned with your industry's change trajectory, your plan for achieving returns on invested capital is less likely to succeed, "Moreover, a firm's S. - its plan for achieving a return on invested capital - cannot succeed unless it is aligned with the industry's change trajectory". If you understand which path your industry is on, you can determine which strategies will make your company succeed and which ones may backfire on your company.

A further description of McGahan's innovative industry change model can be found here.

It's interesting to note that while McGahan seems to focus only on aligning your business strategy to industry changes, Chan Kim and Renée Mauborgne in another article in this same HBR issue advise to try to create a new uncontested market space yourself, which they call a blue ocean strategy.

Competitive Advantage and Workforce Agility

2004-09-24T09:00:00.000+02:00

In the search for competitive advantage, workforce agility - a well-trained and flexible workforce that can adapt quickly and easily to new opportunities and market circumstances - could make the difference. Working within a structure that is continuously aligned with BS, companies can drive revenues up, keep costs down, and clearly differentiate themselves in the marketplace.

Unfortunately, large corporations are not effectively using their workforces, and they are losing revenue and market share potential as a result. Even though the U.S. Labor Department reports that the productivity of American workers rose at an annual rate of 2.9 percent last spring, a study by Convergys, Saratoga and the University of Michigan has found a whopping 84 percent of executives surveyed admitted they were unable to take advantage of their workforce's full potential.

The study called "Workforce Agility" outlines some common obstacles companies face in maximizing their return on human investment:
- poor alignment between workforce S. and BS,
- disability to mobilize workforce to meet B. demands with adequate speed, precision, and agility,
- lack of financial awareness at top HRM executives.

The full study can be obtained via Convergys Public Relations, Email: news@convergys.com

Boards spend 3 hours a month discussing S.

2004-08-30T09:55:00.000+02:00

Top management spends less than three hours a month discussing S. issues (and that includes mergers and acquisitions) or making strategic decisions. Michael C. Mankins, managing partner of Marakon Associates, in the September 2004 HBR issue, once more measured what everybody already knows: typical company’s senior executives spend less than three days each month working together as a team, and in that time they devote less than three hours to strategic issues. Moreover, these three hours are seldom well spent. S. discussions tend to be diffuse and unstructured, only rarely designed to reach good decisions quickly.

One global firm spent more time each year selecting the company’s holiday card than debating its vital Africa S.

However at a number of Marakon clients — ABN AMRO, Alcan, Barclays, Boeing, Cadbury Schweppes, Cardinal Health, Gillette, Lloyds TSB, and Roche — executives have found ways to improve teamwork at the top. Leaders spend their time together addressing the issues that have the greatest impact on the company’s long-term value creation.

Based on the experiences at these companies, Mankins provides 7 techniques for exploiting valuable time of executive boards:

Deal with operations separately from S.
Focus on decisions, not on discussions
Measure the real value of every item on the agenda
Get issues off the agenda as quickly as possible
Put real choices on the table
Adopt common decision-making processes and standards
Make decisions stick

Mankins' article ("Stop Wasting Valuable Time") fits well in the Value Based Management tradition of Marakon Associates. My time reading this article was certainly not a waste of time and I recommend reading it to any topmanager and MBA student.

BS for SMEs

2004-08-24T08:48:00.000+02:00

In a new book 'The Keystone Advantage: What the New Dynamics of B. Ecosystems Mean for S., Innovation, and Sustainability' - Marco Iansiti and Roy Levien argue niche players should think of their B. environment as a series of ecosystems.

These ecosystems feature "keystone" companies such as Microsoft and WalMart, providing for the health of all who do B. with them.
Iansiti and Levien recommend small companies in such ecosystems should follow a specialization BS by taking explicit advantage of the opportunities provided by the ecosystem, while avoiding the traps that challenge firms in such environments.

Amongst the many tips the writers have for small companies in these ecosystems around leaders such as Microsoft or Walmart are:

Specialize in unique capabilities.
Leverage other capabilities from keystones
Sustain innovation
Tight coupling: Manage risk and dependencies
Loose coupling: Embrace mobility and flexibility
Niche leverage: Power over keystones

The HBS article and book are recommended readings for 'small fish in big ponds' considering a niche specialization BS in an ecosystem dominated by a big fish.

Creating Customer Value

2004-08-10T10:47:00.000+02:00

Much has been written about customer orientation, customer relationship management (CRM), Customer Lifetime Value (CLV) metrics, Customer Centric organization models, customer retention, customer care…add any high sounding word with ‘customer’ preceding or succeeding that word and you have a new model, a new theory. Headline hitting books, celebrity author seminars and training till another theory comes along.

And we see the poor customer is still the most dissatisfied lot (that includes all of us specialists too, as customers).

What a manufacturer or service provider often thinks as a market or value proposition, customers respond in a diametrically different fashion. Why does this happen?

While business thinks in terms of products and derived values, customer is looking at satisfaction. The key question is whether all the strategy, product features, add-ons and value creation lead to ultimate customer satisfaction.
Continue

Services Industry facing Industrial Revolution

2004-06-22T11:36:00.000+02:00

According to Uday Karmarkar in the HBR of June 2004, the services industry is facing a change process resembling the industrial revolution. The industrialization of services is here, and outsourcing and offshoring are only part of this revolution. Automation, customer self-service, and global competition have been added to the mix, presenting a threat and a significant opportunity for all service companies. The churn, restructuring, and transformation of services will continue—and even accelerate—for the foreseeable future. This will mean a different landscape for companies, managers, and workers. In the end, the survivors of the service revolution will be those who understand the opportunities and rework their strategies and reorganize their processes, and people for the challenge ahead. The alternative is disaster, as was proven by industrial companies not acting in a timely way upon the industrial revolution.