Strategy in the news

Citation

Henry, C. (2015), "Strategy in the news", Strategy & Leadership, Vol. 43 No. 5. https://doi.org/10.1108/SL-07-2015-0063

Strategy in the news

Article Type: CEO advisory From: Strategy & Leadership, Volume 43, Issue 5

Craig Henry

Craig Henry, Strategy & Leadership’s intrepid media explorer, collected these examples of novel strategic management concepts and practices and impending environmental discontinuity from various news media. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (craig_henry@centurylink.net).

Understanding competitive advantage

For Michael Mazzeo, a professor at the Kellogg School who teaches competitive strategy in the executive education program, getting the strategy right means thinking like an economist. “I think leaders are better off with more a systematic, analytical approach. The successful ones have a firm grasp of the underlying economics and how it applies to their industry.”

So what does a systematic approach call for? First, Mazzeo says, one has to understand exactly what “competitive advantage” means. “People hear the term everywhere, and they know that it’s a good thing, but we tend to forget what it’s actually describing.” True competitive advantage is based on resources or capabilities unique to a given firm, which makes it important for companies to carefully assess their own profile of assets. “Core competency is not enough,” he says. “You have to be superior to the competition, and you have to understand how that superiority ties in to the value proposition you are presenting to customers.”

Once a company has determined what its resources and capabilities are, Mazzeo advises sketching out a Value Creation Proposition – a succinct description of how a company uses these resources and capabilities and how it might leverage them further. “This step allows a company to think about growth opportunities – not just what else is going on in my business, but what am I really excellent at in comparison to the competition?”

Lego is one example of a company that used its traditional capabilities to create new value and maintain its competitive advantage. In this case, competition came not from toy manufacturers but from other forms of entertainment – video games, television – that threatened Lego’s customer base. To stay ahead, the company decided to participate in this new trend – by making movies, TV shows, and themed video games – while capitalizing on its strengths, such as manufacturing and branding. “The key,” Mazzeo says, “is to leverage existing capabilities while also determining how to be successful in a new area.”

Advantages are relative

Equally important is understanding that every competitive advantage is relative – and possibly temporary. “Companies should look at changes within their industries as touchpoints for making better decisions,” Mazzeo says. This approach leads to a more focused strategy than trying to read the zeitgeist. “If you’re not attuned to the underlying economics of your industry, you’re just left guessing what the next trend will be, and that is a fool’s game.”

For Mazzeo, any strategy must acknowledge that distinguishing oneself from the competition requires critical trade-offs. This is something even the most successful companies struggle with. Take Dell, for example. “We used to think of Dell as this paragon of everything that’s right about strategy,” Mazzeo says. “And now they’re almost an afterthought.” The company had perfected serving customers in the PC market and found itself in trouble when consumers shifted toward smartphones and tablets. “Serving your customers really well can be a double-edged sword,” Mazzeo says, because you might be missing opportunities to serve other customers in an ever-evolving competitive landscape. Dell’s dominance of the PC market eventually came at a cost.

“Why leaders should think like economists,” Kellog Insight, July 13, 2015, http://insight.kellogg.northwestern.edu/blogs/entry/why-leaders-should-think-like-economists

Know what rules to break

On the basis of our research, we found that just about every “not business as usual” innovation was effective because it broke one of five types of bottlenecks: (1) an outdated purchase or usage experience, (2) a superfluous major expense category, (3) significant financial risks for customers, (4) disengaged or demotivated employees, and (5) detrimental side effects of the product or service. … In many cases a bottleneck begins life as a seemingly unavoidable and, from the customer’s perspective, unpleasant or frustrating way of doing business. But very often companies can use advances in technology to eliminate the outdated practice and bust the bottleneck.

Until quite recently, buying clothes was an experience that hadn’t changed in over a century. … Entrepreneur Andy Dunn saw an opportunity to remove the frustration through an online shopping solution, especially for men. Launched in 2007, retailer Bonobos, named after the great ape species, initially provided better-fitting jeans and trousers targeted to younger consumers (who were more willing to try online solutions) at a moderate price. In 2011, following four years of rapid growth, Dunn identified yet another customer experience bottleneck. Many men were reluctant to order pants online, having learned from lifelong brick-and-mortar experience that pants often don’t fit. “No sense in ordering if I’ll just have to return them,” they concluded.

This insight led to a new concept, the Guideshop. Now with 17 locations in major cities from New York to San Francisco, Guideshop showcases its merchandise in small spaces that hold a full array of sizes and styles for trying on but offer nothing for sale on-site. Thus it eliminates the supply chain requirements that brick-and-mortar retailers face while addressing the “try before you buy” challenge that plagues online retailers. Guideshops have no inventory to manage, racks to stock, or cash registers to staff. Customers make an appointment, and when they visit they are treated to personalized, private service; typically there are no more than two or three customers in the store at a time, each with his own guide. No products are purchased at the stores. Instead, a guide aids the customer in placing an online order, and retains the customer’s information to streamline future purchases and service.

Industries with long-standing customer experience formats are quite likely to have bottlenecks. Customers become used to formats and don’t question them – and if they don’t complain, it’s unlikely that incumbent companies will recognize a problem.

Barrett Ersek, Eileen Weisenbach Keller, John Mullins “Break your industry’s bottlenecks,” Harvard Business Review, July 2015.

The paradox of innovation

How do we bring the right people to the right place at the right time to discover something new, when we don’t know who or where or when that is, let alone what it is we’re looking for? This is the paradox of innovation: If so many discoveries – from penicillin to plastics – are the product of serendipity, why do we insist breakthroughs can somehow be planned? Why not embrace serendipity instead?

… at Paris Jussieu – the largest medical research complex in France – researchers were doing some of their best work. … Between 1997 and 2012, Jussieu’s campus in Paris’s Left Bank reshuffled its labs’ locations five times due to ongoing asbestos removal, giving the faculty no control and little warning of where they would end up. An MIT professor named Christian Catalini later catalogued the 55,000 scientific papers they published during this time and mapped the authors’ locations across more than a hundred labs. Instead of having their life’s work disrupted, Jussieu’s researchers were three to five times more likely to collaborate with their new odd-couple neighbors than their old colleagues, did so nearly four to six times more often, and produced better work because of it (as measured by citations).

The lesson? We still have no idea how to pursue what former US Defense Secretary Donald Rumsfeld famously described as “unknown unknowns.” Even an institution like Paris Jussieu, which presumably places a premium on collaboration across disciplines, couldn’t do better than scattering its labs at random. It’s not enough to ask where good ideas come from? – we need to rethink how we go about finding them.

Greg Lindsay, “How to engineer serendipity,” Time, July 9, 2015.

Strategy trumps technology

MIT Sloan Management Review and Deloitte’s 2015 global study of digital business found that maturing digital businesses are focused on integrating digital technologies, such as social, mobile, analytics and cloud, in the service of transforming how their businesses work. Less-mature digital businesses are focused on solving discrete business problems with individual digital technologies.

The ability to digitally re-imagine the business is determined in large part by a clear digital strategy supported by leaders who foster a culture able to change and invent the new. While these insights are consistent with prior technology evolutions, what is unique to digital transformation is that risk taking is becoming a cultural norm as more digitally advanced companies seek new levels of competitive advantage. Equally important, employees across all age groups want to work for businesses that are deeply committed to digital progress. Company leaders need to bear this in mind in order to attract and retain the best talent.

Digital strategy drives digital maturity. Only 15% of respondents from companies at the early stages of what we call digital maturity – an organization where digital has transformed processes, talent engagement and business models – say that their organizations have a clear and coherent digital strategy. Among the digitally maturing, more than 80% do.

The power of a digital transformation strategy lies in its scope and objectives. Less digitally mature organizations tend to focus on individual technologies and have strategies that are decidedly operational in focus. Digital strategies in the most mature organizations are developed with an eye on transforming the business.

Maturing digital organizations build skills to realize the strategy. Digitally maturing organizations are four times more likely to provide employees with needed skills than are organizations at lower ends of the spectrum. Consistent with our overall findings, the ability to conceptualize how digital technologies can impact the business is a skill lacking in many companies at the early stages of digital maturity.

Employees want to work for digital leaders. Across age groups from 22 to 60, the vast majority of respondents want to work for digitally enabled organizations. Employees will be on the lookout for the best digital opportunities, and businesses will have to continually up their digital game to retain and attract them.

Taking risks becomes a cultural norm. Digitally maturing organizations are more comfortable taking risks than their less digitally mature peers. To make their organizations less risk averse, business leaders have to embrace failure as a prerequisite for success. They must also address the likelihood that employees may be just as risk averse as their managers and will need support to become bolder.

Gerald C. Kane, Doug Palmer, Anh Nguyen Phillips, David Kiron and Natasha Buckley, “Strategy, not technology, drives digital transformation,” Sloan Management Review, July 14, 2015, http://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/

The global infrastructure challenge

From now through 2030, the world will need to spend at least $57 trillion to build the ports, power plants, rails, roads, telecommunications, water systems, and other infrastructure that the global economy needs. For advanced economies, the priority is to renew aging and dilapidated infrastructure; for emerging ones, it is to build the structures required to support growth – this is the larger part of the total bill.

Our research, based on 400 global case studies, suggests that governments could boost infrastructure productivity by $1 trillion a year in three ways: improving project selection, streamlining delivery, and making the most of existing investments. None of these actions requires radical change, and successful examples exist.

1. Project selection. Beyond palpable abuses of spending power, the more common problem is that decisions about whether or not to build are sometimes made without considering the larger socioeconomic objectives of the country. This happens when officials look at projects one by one rather than considering how each particular project fits into the entire portfolio.

2. Streamlining project delivery. In simple terms, “delivery” refers to getting the job done. Both the supplier and the client bear responsibility for this, and both parties can often fall short.

In the construction sector, labor productivity, when measured in real value added per hour worked, has been flat or worse in many developed economies for decades. In the United States, productivity in the construction sector has fallen about 20 percent since 1989.

3. Underutilization. The cheapest, least intrusive infrastructure is that which doesn’t have to be built. “Intelligent” transportation systems, which use advanced signaling to squeeze more capacity out of existing roads and rail lines, can sometimes double asset utilization at a relatively low cost. Active traffic management on England’s M42 roadway, for example, directs and controls the flow of traffic; this has reduced journey times by 25 percent, accidents by 50 percent, pollution by 10 percent, and fuel consumption by 4 percent – at only 20 percent of the cost of widening the road.

Nicklas Garemo, Martin Hjerpe, and Jan Mischke, “The infrastructure conundrum,” McKinsey Insights, July 2015.

Finding the right expert

As networks harness the wisdom of crowds and computing power grows, the ability of experts to add value in their predictions is steadily declining. I call this the expert squeeze, and evidence for it is mounting. …

Philip Tetlock’s work shows that while expert predictions are poor overall, some are better than others. What distinguishes predictive ability is not who the experts are or what they believe, but rather how they think. Borrowing from Archilochus – through Isaiah Berlin – Tetlock sorted experts into hedgehogs and foxes. Hedgehogs know one big thing and try to explain everything through that lens. Foxes tend to know a little about a lot of things and are not married to a single explanation for complex problems. Tetlock finds that foxes are better predictors than hedgehogs. Foxes arrive at their decisions by stitching “together diverse sources of information,” lending credence to the importance of diversity. Naturally, hedgehogs are periodically right – and often spectacularly so – but do not predict as well as foxes over time. For many important decisions, diversity is the key at both the individual and collective levels. …

Flooded with candidates and aware of the futility of most interviews, Google decided to create algorithms to identify attractive potential employees. First, the company asked seasoned employees to fill out a three-hundred-question survey, capturing details about their tenure, their behavior, and their personality. The company then compared the survey results to measures of employee performance, seeking connections. Among other findings, Google executives recognized that academic accomplishments did not always correlate with on-the-job performance. This novel approach enabled Google to sidestep problems with ineffective interviews and to start addressing the discrepancy.

Shane Parrish, “The wisdom of crowds and the expert squeeze,” Farnam Street, June 29, 2015, http://www.farnamstreetblog.com/2015/06/the-expert-squeeze/

Customer insight beyond big data

A common problem arises when corporate innovation teams over-rely on data to uncover new insights about customers, or understand user behavior on a deeper level. They become seduced by numbers, convinced that statistics reveal indisputable truths about target-market behavior. While this data can be informative and even comforting (“Forty-eight percent of our new buying cohort claims they’ll repeat within three months!”), it also carries risk; it can miss the nuances of human behavior, paint abstract representations of people and generate information that’s void of empathy. Consumer needs, motivations, emotions and behavior can easily get lost in numerical translation and interpretation. As the Talking Heads once sang, “Facts all come with points of view; facts don’t do what I want them to.”

At the Kellog School of Management we advise corporate innovators to follow the lead of lean startups to gain a clearer and richer understanding of their customers. These startups, constrained by scarce resources, are forced to learn about their prospective customers in the most rudimentary way: by getting out into the market and observing and talking to people on an individual basis in the right context.

It might seem unsophisticated, but this approach is how startups often discover the key consumer insights that large companies miss. And it’s how they create products, services and experiences with potential to disrupt massive industries.

Manufacture constraints for yourself

Act as if your corporate infrastructure and resource capabilities don’t exist. Just set them aside for a bit. That means getting out of the office and talking to your customers directly, or finding opportunities to tag along with customers for extended periods of time while they go through the purchasing process. Give yourself short deadlines to force resourcefulness (“We need to interview at least 30 users in the next 2 weeks!”).

Become best friends with your customer service center

Inside the office, park yourself in the customer call center and answer phones so you can hear customers’ comments and complaints firsthand. By interacting with your customers in a direct, unfettered way, you will quickly learn what’s working for them, what isn’t, and what you can do to make their experience with your product or service better. Are the mice-type assembly instructions for your baby crib exasperating to customers? Is it hard to find the “image upload” button in your expense-management software? It’s not surprising that many successful entrepreneurs start off by handling the bulk of their company’s customer service calls themselves. There is no better way to learn.

Think of your customers as individuals, not data sets

In the early days of developing a new product or service, seek depth over breadth. Move beyond large surveys and customer data sets, and have long, open-ended conversations with 10 current or potential customers about their experiences with your product and competitors’ products. Explore: What problem are they really trying to solve by using your product?

Carter Cast and David Schonthal, “Exchanging breadth for depth: how corporations can better understand customers,” Kellog Insight, July 15, 2015, http://www.forbes.com/sites/kellogg/2015/07/15/exchanging-breadth-for-depth-how-corporations-can-better-understand-customers/

Getting your news from Starbucks

The futurists never stood a chance. Even a decade ago, as publishers were wringing their hands over the death of print, who would have thought that one version of saving journalism would look like the app you also use to pay for your coffee.

Yet, in a funny way, that’s the kind of future suggested by Starbucks’ new partnership with The New York Times. Beginning early next year, Starbucks’ loyalty club members (of which there are millions) will be able to read the Times’ top news of the day as well as some select articles for free on the Starbucks mobile app. In effect, Starbucks becomes a kind of publisher. …

And yet integrating Times content into its app is more than Starbucks acting as a digital version of a print newsstand. Yes, Starbucks loyalists gain “stars” by purchasing a subscription; the “stars” will be redeemable for food and beverages at the company’s shops.

But Starbucks says it plans to add articles from other news sources over time, making its app effectively a news reader. While it’s unclear whether the stories will live natively in the Starbucks app or be accessible via some kind of proprietary link, adding Times content to its app puts Starbucks at least in the ballpark of initiatives like Facebook Instant Articles or Apple News. …

“This is another in a series of arrangements we have made recently in order to ensure that the Times continue to expand the reach of our journalism to new and interesting pools of readers,” Mark Thompson, president and CEO of the Times Company, said. If the Times can capture the staring-at-phones-while-waiting-in-line demographic, maybe news really does have a future.

Julia Greenberg, “So um, Starbucks may be a big player in the future of news,” Wired, July 22, 2015, http://www.wired.com/2015/07/um-starbucks-may-big-player-future-news/?mbid=social_twitter