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Copyright © 2005, Emerald Group Publishing Limited
These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.
Stretching strategic thinkingStan Abraham
The task of looking for and coming up with better ways of providing customer-value and competing never ends. The key question is, “Is your company harnessing the internal capabilities of it resources?” Has it made strategic thinking an important part of every manager’s job?
A company would not need a strategy if it did not have to compete – it could make do simply with a plan. But strategy implies competing and outwitting competitors. Strategic thinking is identifying alternative viable strategies or business models that deliver customer value.
To be continuously competitive, a business needs to continuously stretch company thinking about different and better ways of competing, delivering customer value, and growing. There are five approaches to stimulate the strategic thinking exploration:
Being successfully different – Strategy is about being different from your competitors – finding your race to run and winning it. Differentiating is a way of playing a different game or playing the same game differently, one that ideally only your company can win. So one challenge in strategic thinking is to find a way to do what the organization does differently or adopt a business model different from its competitors. Differentiation takes many forms. Done correctly, differentiations are very difficult for competitors to emulate, thus creating a sustained competitive advantage.
Emulating entrepreneurs – Entrepreneurs constantly try to find ways to create and deliver value. Strategic thinking is concerned with generating alternative possibilities of generating customer value that the organization could deliver. Strategists, organizational leaders, and marketing people should learn to look at the world with entrepreneurial eyes.
Finding new opportunities – if the ongoing focus of the company is opportunity-recognition, then its revenue model would be continually refreshed. Six opportunity-seeking questions are offered to serve to get a brainstorming process underway for identifying possible opportunities.
Being future-oriented – Scenario planning is one technique to use for analyzing the future. The value of the method lies in its ability to stretch participants’ thinking, introduce new possibilities, challenge long-held assumptions, update mental models, form valuable vehicles for learning and shared understanding, and guide strategic decision-making.
Being collaborative – Collaboration is a great source of opportunities and strategic stretch thinking. A continuum of collaboration with other businesses is offered, but the innovative challenge is to expand the scope of this subject to include customers as collaborators in co-creating value, and the opportunities that abound in that realm.
Retail in 2010: a world of extremesJoseph L. Gagnon, David Thomas and Julian Chu
The consumer marketplace around the world is evolving rapidly, driven by with unprecedented social diversity, technological innovation and competitive intensity. In this scenario, five macro trends are redrawing the rules of competition for all retailers in 2010:
Customer value drivers fragment – Profound shifts in demographics and value systems are making customers harder to define, categorize and reach. Value-oriented buying, based on traditional cost-benefit trade-offs, is increasingly replaced by a values orientation, where purchasing decisions are based on personal beliefs or self-expression.
Customers become more guarded – Customers will seek greater control over how their personal information is used by companies. As customers become more guarded, retailers will face a new urgency to understand the effectiveness of their marketing tactics and to evaluate them in terms of their contribution to lifetime customer value.
Information exposes all – Customers are becoming “super shoppers,” empowered by the ability to access information where, when and how they want it. The challenge for retailers is to harness interactive electronic media to engage the customer in a productive dialog and positive word-of-mouth.
Mega-retailers break the boundaries – “Mega-retailers” are aggressively expanding across stores, formats and categories, blurring the boundaries between traditional industry segments.
Partnering becomes pervasive – Retailers are rethinking their business models, searching for ways to become more agile, responsive and efficient by morphing the traditional, vertically-integrated value chains into more flexible “value networks.” Effective alliance management is a strategically important competency.
Together, these mega-trends are driving us toward the world of extremes – a marketplace where super shoppers, armed with ubiquitous information access and equipped to fend off unsolicited contact, choose to do business with those companies that provide them with the most overall value – both financial and personal. Incumbent retailers risk being displaced by more focused, innovative and agile competitors better able to meet the demands of these customers.
Strategic imperatives for retail in 2010:
Craft an exceedingly focused, distinctive brand proposition.
Drive customer-valued innovation through deeper insight.
Optimize core activities through systematic advanced analytics.
Realign the organization to operationalize customer centricity.
Visible optionsJane C. Linder
Innovation is a competitive strength. But which innovation initiatives should be funded? Executives must answer such questions as which projects are the most promising, whether they should act now or bide their time, and how much they should pay to stay in the game. Unfortunately, the commonly used tools to measure such opportunities provide limited insights. Both the discounted cash flow (DCF) method and the real options approach have drawbacks, particularly their failure to estimate results at the high end and their tendency to present static snapshots of possible outcomes.
A new complementary tool, the visible options tool, is offered. It displays the potential benefits more graphically and gives a more complete picture of possible results over time. The ability of the visual options approach to delineate future conditions means that executives can graphically express windows of opportunity, the impact of competitors’ expected new product introductions, and changing market dynamics. Initiatives that look identical to each other in DCF and real options approaches will now vary in their profiles and the ways these change over time. This allows decision makers to scan a set of initiatives and quickly spot projects inspired by opportunities and those developed in response to threats; the projects with big potential future outcomes and those that have only modest prospects. They can now see urgent opportunities with windows that are closing rapidly as well as the proximate threats that are often easier to recognize.
Executives will want to use the real options method to evaluate how much they want to invest to keep a hand in the game. But they can also use the visible options approach to manage initiatives by taking the following steps:
Review the composition of the project portfolio. Many portfolios, even for companies seeking innovation, pursue more initiatives responding to outside threats than projects designed to take advantage of opportunities. Executives will want to focus on cultivating both to make the most of their firm’s talents and resources.
Cross check the announced initiatives with the company’s future value. Companies can now calculate the portion of their enterprise value that stems from activities beyond current operations. If the total value of announced initiatives is not as great as the company’s calculated future value, a critical issue has been identified. This mismatch can be an early warning system that the company is allowing upside opportunities to languish.
Don’t leave upside-intensive initiatives on the back burner. Managers have a tendency to put projects with an uncertain payoff on an indefinite hold. A visible options approach keeps such projects at the forefront and increases the likelihood that managers can turn up the heat if and when the market changes.
Different leadership skills for different innovation strategiesJean-Philippe Deschamps
Choosing one or more internal champions and project leaders to entrust with the critical mission of stimulating innovation is one of the most important decisions a CEO has to make.
Choosing innovation champions and project leaders can be framed with answers to three questions:
Is there a specific and distinctive form of leadership for innovation?
The answer is ‘yes.’ There are six traits that distinguish innovation champions from other top company leaders.
Is a different leadership profile needed for each particular type of innovation? On the basis of their process focus, different innovation leaders are needed at different stages of the innovation effort (leaders should have different traits for the fuzzy front-end versus the speedy back-end part of innovation). Furthermore, because there are many different types of innovation, there are different set of skills and strengths. Adding to this is the fact that the companies have different strategic frameworks (a bottom-up innovations mode, a top-down innovation or a mix).
How to choose the best leadership profile for each particular type of innovation? A typology of innovation by strategic focus offers four strategic dimensions. Viewing the company’s position through the filter of these dimensions (examples are given) will facilitate the selection of champion innovation leaders. The four dimensions are:
The objective of the innovation: is it for a new business or reinforcement of the current one?
The scope or focus: is the innovation of a new product or new system?
The boundaries: innovation within the company or with a partner?
The intensity level: innovation that is incremental or radical?
Four cases are discussed, with a recommended innovation leader type for each: totally new product/service, totally new business model, new/improved customer solution/system, new/improved product, process or service offering. Of the four case examples, three have a very strong, if not predominant, top-down component. This challenges some of the traditional clichés and beliefs that innovation is, fundamentally, a spontaneous process that can be neither mandated nor managed. In reality, top management plays the vital role of hiring the right people to manage each kind of innovation effort. It follows that top management must fully understand the importance of matching the skills of innovation leaders with the specific tasks and roles they will face in specific situations.
Blue Cross and Blue Shield of Florida implements a system for measuring and reporting alliance performanceBridget Booth, Reneé Finley and Matt McCredie
Alliances allow organizations to rapidly accelerate growth, provide an advantage of speed to market, enable expansion into new markets, and allow sharing of the costs and risks of introducing new products and services to market.
Alliance metrics allows a company to determine if an alliance relationship is delivering financial and strategic value. But there are several hurdles that must be overcome to deliver the metric answers. BCBSF addressed this challenge by:
Creating a Alliance Management Group (a community to harvest and propagate best practices)
Developing a metrics framework and a standard set of value measures
Implementing a software system for tracking and reporting.
Two critical but distinct categories of alliance metrics were used:
Alliance value metrics ensure that alliances are clearly linked to and supportive of enterprise goals and strategic objectives.
Relationship quality metrics enable systematic audits of the health of alliance relationships. Semi-annual surveys scoring performance against six dimensions of working relationship quality ensure that alliance managers remain aware of relationship considerations such as the level of trust and efficiency and quality of communication between partners. They also ensure that BCBSF and its partners explicitly discuss expectations of one another, thus helping to prevent a common cause of alliance failure.
From their experience using a software system to support alliance metrics, several key lessons learned are cited, including:
Start simple and be flexible.
Try to capture useful data and look for simple ways to aggregate it.
Ensure that metrics are used to guide positive change, not to grade performance.
Emphasize benefits of the metrics program to alliance managers.
Be realistic about frequency of reporting cycles
Make subjective metrics more rigorous by having multiple points of review and require data to support metric conclusions.
Armed with the right approach and tools, alliance managers and enterprise alliance groups can gauge critical factors that might seem too complex or subjective to measure. In the process, they can generate tremendous benefits and enhance corporate value in terms of operations, strategy and financial performance for both their companies and the partners with which they have aligned themselves.
Metrics to successfully manage alliancesLarraine Segil
Alliances are a powerful strategic tool in the arsenal of highly competitive companies. But they can also create a financial and operational wreck. The use of alliance metrics increases the ability of all parties to track the health of the relationship and the achievement of alliance goals. And – to the degree that the company’s internal groups share practices, knowledge, and experiences with alliance metrics – a company’s ability to solve and anticipate alliance problems is vastly improved over time.
Good alliances are built with an understanding of four points:
The alliance must be managed differently in each of its four stages of the life cycle. The process of identifying success at each stage of the alliance life cycle allows for the creation of appropriate metrics.
There are two types of measurements (development metrics and implementation metrics) to be monitored across the life cycle stages. These are the top categories of the metric pyramid structure.
Knowledge transfer is an important metric. Migratory knowledge transfer is often the primary purpose of the alliance. Embedded knowledge (information that is unique to a company’s culture) may be an underlying source of tremendous value; and may/or may not be unwittingly transferred.
The shift in life cycle stages can bring with it a shift in culture that directly impacts the alliance performance. For example, a communication deficit is often found in the mature stage and it usually leads to a failure of mutuality and a breakdown in the alliance.
To illustrate the points made about alliance metrics, the case of the Avnet and Hewlett-Packard (HP) alliance shows the dynamic relationship of the two parties.
In the mature stage of the Avnet-HP alliance, two characteristics had emerged: complacency and HP’s new focus on reducing costs. The latter spurred HP to abruptly decide to bring Avnet’s function in-house. Because the processes were well established, the alliance was, seemingly, a system that functioned if left alone. But this was not true.
When HP undertook a number of the activities they believed they could do in-house, they found that the cost efficiencies were not sustainable. Avnet had not communicated their embedded knowledge value, thus causing HP to neither recognize it, nor value it. To keep the alliance from failing, Avnet had to make HP realize their real value. A different computation of return on investment could then be understood, thus leading to the re-launch of the relationship with new metrics and deliverables.
Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (firstname.lastname@example.org) and a contributing editor of Strategy & Leadership.