Strategy in the media

Citation

Henry, C. (2010), "Strategy in the media", Strategy & Leadership, Vol. 38 No. 5. https://doi.org/10.1108/sl.2010.26138eab.001

Strategy in the media

Article Type: CEO advisory From: Strategy & Leadership, Volume 38, Issue 5

Moving beyond the value proposition

To think strategically is to think outside-in and to function strategically is to make decisions based on that outside-in thinking.

The four steps move in a cycle. Learn about the externalities and the organization’s own reality. Focus by using that set of insights to identify the few things that matter the most to the firm’s success and make choices about where the firm will compete, what it will offer its customers and how it will win. Align all of the elements of the business behind the strategy: organizational structure, culture, people, competencies, measurement, and reward systems and motivation to drive it all forward. Execution is the final step, a set of rigorous disciplines to implement changes faster and more effectively than competitors.

That takes the firm back to the learn step because the environment will have shifted, the organization’s own realities will have evolved and it will need to refresh its insights. It is an ongoing cycle of learning, discovery and renewal …

So many organizations still speak the language of the value proposition. A value proposition defines the value we aim to provide to our customers. But as I point out in the book, in a competitive world absolutes have no meaning at all. Our job is to create greater value. Our customers have choices, so they will go where the highest value is; the same is true of our investors.

So the big questions are why should customers choose our products or services, and why should investors give us their money? The only rational reason is because they seek greater value, and what we are offering is greater than competing alternatives. So we must always strive for a winning proposition that defines the margin of difference in the value we offer compared with the competing alternatives. And that is a higher hurdle than a value proposition, which is not comparative.

Willie Pietersen, “Strategy as learning,” Ideas@work, April 22, 2010, www4.gsb.columbia.edu/ideasatwork/feature/738321/Strategy+as+Learning#

Getting to plan B

Nearly every aspiring entrepreneur or innovator has a business plan, and virtually all of these individuals believe that their business plan – what we call Plan A – will work. They can probably even imagine how they’ll look on the cover of Fortune or Inc. And they are usually wrong. But what separates the ultimate successes from the rest is what they do when their first plan sputters. Do they lick their wounds, get back on their feet and morph their new insights into great businesses, or do they stick to their original plan? If the founders of Google, Starbucks or PayPal had stuck to their original business plans, we’d likely never have heard of them. Instead, they made radical changes to their initial models, became household names and delivered huge returns for themselves and their investors. How did they get from their Plan A to a business model that worked? Why did they succeed when most new ventures crash and burn?

First, an uncomfortable fact: The typical startup process, whether in nascent entrepreneurial ventures or in the innovation units of established businesses, is largely driven by poorly conceived business plans based on untested assumptions. This process is seriously flawed. Most new ventures, even those with venture capital or corporate backing, share one common characteristic: They fail. There is a better way to launch new ideas – without wasting years of time and loads of investors’ money. This better way is about discovering a business model that really works: a Plan B, like those of Google Inc. and Starbucks Corp., which grows out of the original idea, builds on it and once it’s in place, helps the business grow rapidly and prosper.

Most of the time, breaking through to a better business model takes time. And it takes errors, too, errors from which you learn. For Max Levchin, who wanted to build a business based on his cryptography expertise, Plans A though F didn’t work, but Plan G turned out to be PayPal Inc …

The key element for Google was its eventual revenue model, but initially there wasn’t a revenue model – just a free search engine. Plan B, to license its engine to other portals, wasn’t much better. In order to bring money in, Google’s Plan C – as anyone with an Internet connection knows – provided paid search listings alongside the “objective” ones. Google’s even more successful Plan D built on its proprietary search algorithms to deliver targeted ads to other Web sites, which has generated more than half of Google’s revenue since 2004.

John Mullins and Randy Komisar, “A business plan? Or a journey to Plan B?,” Sloan Management Review, Spring, 2010.

Not the Watson’s IBM

Last week I called my old IBM buddy Luis Suarez at his home office in a small village on the Canary Islands. I wanted to find out directly what the new IBM was like.

… Luis’s reporting boss is in Madrid and his team is in the US. Each one of his US team lives in a separate city. One lives in Toronto. Luis doesn’t even work in the capital of the Canaries but in a small village. He is part of a group of 200,000 IBMers who work remotely. He is one of 5,000 who use Macs! The IT group at IBM, far from being the Gestapo, has a mandate to serve the workplace of the future. Mobility is the key issue. Everything is done to ensure that the individual is connected to the team at any time. The individual chooses their kit. All laptops are supported. All apps are supported. Skype plays a huge role in the organization. All access is supported. Again the key here is to give the IBM worker the ability to control their own work space and to be connected to the larger whole …

I asked Luis about that dreaded part of the conventional office – all those interminable meetings!

The team is connected in real time by a variety of chat tools. If you have a question, you ask it. Most issues are settled in real time meaning that they only have one meeting a week and that is very focused.

Rob Paterson, “IBM – the new workplace – it’s all about the culture,” Fast Forward Blog, May 31, 2010, www.fastforwardblog.com/2010/05/31/ibm-the-new-workplace-its-all-about-the-culture/

A glimpse of the future? Gary Hamel tweets strategy

The US and the EU got drunk on debt. The only Q: Who will pay it off? The prudent or the profligate, this generation or the next?

May 27th

United & Continental. When will execs learn what our research proves? Size and profitability aren’t correlated. “Big” is not a strategy.

May 10th

Are you kidding? HP and Palm? Sounds like a marriage of the late and the lame.

Apr 29th

RNs and MDs most trusted professions in US; HMO managers and congress members the least. Weird the latter wrote rules for the former.

Apr 8th

Gary Hamel, http://twitter.com/profhamel

Making internal rivalries productive at GE

I don’t focus on people winning and losing. I focus on people sorting out the pluses and minuses of different options. That’s a big, vitally important contribution. I think our scientists and technologists see it that way too. And I have never heard anybody complain about us doing these things.

Of course, that organizational dynamic depends in a significant way on having competent people judge these competitions. If you have somebody in a decision-making position who is viewed, particularly by the losing team, as not really capable of making good technical assessments – say, a manager who is more of a generalist than the deep specialists on the team – that’s organizationally bad. So we have mechanisms to guard against that, not the least of which is getting outside people who are experts in on the judgment …

Let’s say a team working on battery life is making good progress on the chemistry. We might say, “You know, the chemistry isn’t going to be enough; we need to work on the configuration too. And we know a person who is brilliant at configuration; let’s challenge that person to put together a team.” That really happened in this battery case, and it’s not uncommon.

… some of our cooler ideas have come from people dreaming up things on their own and then saying, “Let’s look at this idea.” And we do have pools of money for seeding ideas. We fund the idea a little bit, we find out we like it, and we fund it more. What we’re hoping to do is get these ideas to blossom to the point where the businesses become interested, pick them up, fund them, and turn them into products. It’s not people individually sitting around having a lot of free time to do whatever they want to do. But there’s a process to get them access to money, which gives them flexibility to do more. That’s very much part of how we get new ideas.

Mark Little, “Using rivalry to spur innovation,” McKinsey Quarterly, May 2010.

Dominant logic and competitive inertia

The more successful companies become, the more difficult it is for them to recognize when they must change. We all know that many industries, such as entertainment, education, publishing, and financial services, are going to look very different tomorrow – yet today’s market leaders will probably be the last ones to transform themselves, even if they realize they must in order to survive. Why do companies find it so tough to tackle the obvious?

One reason could be that over time successful enterprises create distinct business ideologies – such as the Toyota Way (http://en.wikipedia.org/wiki/The_Toyota_Way) and the Xerox Way. These doctrines contain specific ideas about how to compete, performance measures, organizational structures, and whom to reward. The beliefs and practices constitute a company’s dominant logic. The logic may not always be articulated, but every employee knows: That’s the way we do things here. But these success factors often turn into orthodoxies, and no one challenges them.

Adhering to one best way of doing things worked well during the industrial era, but the forces of globalization, digitization, mobile communications, and sustainability pose a different set of challenges today. However, many executives remain in denial, claiming that consumers don’t change quickly, that existing products are superior, that people won’t give up on familiar experiences, and so on. They don’t accept in time the need for change …

Tales about unknown rivals emerging from the woodwork to turn industries on their heads are often hyperbole. Competitors usually emerge slowly because of the time taken by technology development, business model creation, and consumer adoption. However, incumbents acknowledge rivals only after they have become potent threats – Napster preceded iTunes, if you remember – and lose the time needed to bring about transformations in an orderly fashion.

C.K. Prahalad “Why is it so hard to tackle the obvious?,” Harvard Business Review, June 2010.

Pharma’s new challenges

Pharmaceutical companies have managed their business in much the same way for decades. But significant changes in government regulations, market conditions, and technology will force the industry to look for new business models and practices …

Increasing role of generics. A record number of patents are expected to expire in the next few years. As soon as a drug goes off patent, generics force drug prices to drop by almost 85 percent. Pharmaceutical companies have responded to the generic threat in several ways.

Perhaps the most promising approach is drug companies getting into “branded generics” themselves. These branded versions of their original drugs sell for higher prices than unbranded generic equivalents but are less expensive than the true branded product. Why would consumers pay more for a branded generic than a cheaper version? We need only look at the consumer packaged goods industry to understand the power of branding – be it a bar of Dove soap or an Apple computer. Moreover, in emerging markets where fake products are common, branded generics provide a level of assurance that makes them worth the premium they charge.

Emerging markets. Rapid growth in emerging markets is a beacon of hope for the pharma industry. The Indian drug market is expected to reach $20 billion by 2015 and China could grow even more rapidly. However, drug firms’ traditional approach of creating drugs in the West and then pushing them in the East is not likely to work any longer for a several reasons.

First, there is a significant price pressure in these emerging markets, which argues for a stronger role for branded generics. Second, drugs developed in the West are not always relevant in emerging countries …

Personalized medicine. New developments in genomics suggest that the era of personalized medicine may be the future of the industry. Personalized medicine and targeted therapies can significantly increase the effectiveness of new drugs in specific patient groups. Drugs that would be deemed ineffective in typical clinical trials now have a chance to show high degree of success among certain patients.

This changes the economic model of firms and calls for highly specialized marketing. Some experts argue that this specialization may force the industry to move away from its vertical structure and focus instead on a few core areas such as drug discovery or development. It also calls for drug firms to take a larger role in diagnostic procedures.

Sunil Gupta “Pharma’s future depends on these three trends,” HBS Faculty Blog, April 26, 2010 http://blogs.hbr.org/hbsfaculty/2010/04/pharmas-future-depends-on-thes.html

The key to disruptive innovation: customer input

In a recent study published in the Journal of Product Innovation Management, researchers measured the benefits of user involvement in the product innovation process for future mobile phone services. The study rated three distinct user groups – ordinary users (customers), advanced users (technology and/or computer trained users) and professional product developers (from a leading European telephone company) – to determine their ability to generate ideas for innovative products.

Each group was measured in four areas: originality (newness of an idea), value (extent to which an idea solved a perceived problem), realization (ease of developing an idea into a commercial product), and total number of ideas …

Researchers found that ordinary users not only produced more original new ideas, but their ideas were also rated as significantly more valuable. In contrast, professional developers and advanced users produced the greatest number of realizable ideas, but they were perceived as having less value to customers.

In other words, advanced users and professional developers came up with more ideas that had a good chance of actually making it to market, while customers created more ideas that solved their problems …

From a market leadership standpoint, there are two kinds of innovation – disruptive and incremental. Incremental innovation focuses on making small improvements to existing products and services. It adds a few new bells and whistles here and there, but does not dramatically alter the product or the value it provides the customer.

Incremental innovation generally costs less and is easier to achieve. But it does little in the way of providing real market leadership or a sustainable competitive advantage. Most of what passes for innovation these days is incremental.

Disruptive innovation is far more difficult to achieve. It requires coming up with new products or services that solve customer problems in entirely new and different ways. Often, disruptive innovation solves problems that customers didn’t even know they had or were unable to clearly articulate to themselves or their vendors. With disruptive innovation, the risks are high, but the payoff is enormous.

Holly G. Green, “Making the leap to disruptive innovation,” Blogging Innovation, June 4, 2010, www.business-strategy-innovation.com/wordpress/2010/05/building-a-better-pizza/

Political risk and the “new normal”

Last week, Mohamed El-Erian, the CEO of the bond giant Pimco, sent a letter to investors saying that “the new normal” is a world in which “the public sector plays a much more influential role.” That’s a more uncertain world and therefore one in which markets will be more volatile …

Also injecting uncertainty is the fact that, even when politicians do the right thing, timing is all. Take the TARP bailout plan. Congress rejected it the first time around, in the fall of 2008, and the Dow fell nearly eight hundred points in a day. TARP passed on a second attempt, but by then the damage was done: fear and risk aversion had spread, and the stock market tumbled fifteen per cent more in a week. The bill for the Greek bailout has ballooned as a result of similar delay. In March, people were talking about a commitment of twenty-two billion euros. By early May, the EU and the IMF planned to come up with a hundred and ten billion euros. Now more countries need bailouts and the total cost is seven hundred and fifty billion. The initial estimates were certainly too low, but, had Merkel acted sooner, the bill could have been a lot cheaper …

Political risk adds new complexity to markets, and, as Nassim Taleb, the author of The Black Swan, recently said to me, “As the system gets more complex, it becomes harder to forecast.”

James Surowiecki “The age of political risk,” The New Yorker, May 24, 2010.

Deficit hawks ignore Japan’s example

For the past few months, much commentary on the economy – some of it posing as reporting – has had one central theme: policy makers are doing too much. Governments need to stop spending, we’re told. Greece is held up as a cautionary tale, and every uptick in the interest rate on US government bonds is treated as an indication that markets are turning on America over its deficits. Meanwhile, there are continual warnings that inflation is just around the corner, and that the Fed needs to pull back from its efforts to support the economy and get started on its “exit strategy,” tightening credit by selling off assets and raising interest rates.

And what about near-record unemployment, with long-term unemployment worse than at any time since the 1930s? What about the fact that the employment gains of the past few months, although welcome, have, so far, brought back fewer than 500,000 of the more than 8 million jobs lost in the wake of the financial crisis? Hey, worrying about the unemployed is just so 2009.

But the truth is that policy makers aren’t doing too much; they’re doing too little. Recent data don’t suggest that America is heading for a Greece-style collapse of investor confidence. Instead, they suggest that we may be heading for a Japan-style lost decade, trapped in a prolonged era of high unemployment and slow growth …

So what we should really be asking right now isn’t whether we’re about to turn into Greece. We should, instead, be asking what we’re doing to avoid turning Japanese. And the answer is, nothing.

It’s not that nobody understands the risk. I strongly suspect that some officials at the Fed see the Japan parallels all too clearly and wish they could do more to support the economy. But in practice it’s all they can do to contain the tightening impulses of their colleagues, who (like central bankers in the 1930s) remain desperately afraid of inflation despite the absence of any evidence of rising prices.

Paul Krugman, “Lost decade looming?,” The New York Times, May 20, 2010.

The pay-off for talent management

Global organizations are meeting the demands of today’s economy by taking a more sophisticated approach to their talent management programs, says a new report released today by Ernst & Young. According to the report, “Managing today’s global workforce: elevating talent management to improve business,” leading companies have developed a strategically aligned and integrated way of managing talent on a global level, using these programs to successfully execute their overall business strategy and ultimately drive revenue. “An organization’s commitment to executing its strategy effectively is directly related to its ability to attract, retain and develop talent,” says Bill Leisy, a Principal with Ernst & Young LLP’s Performance & Reward practice and an author of the report. “Global organizations must understand the needs and motivations of their people in order to provide opportunities that not only appeal to different generations and cultures, but help the company retain the necessary skills and competencies it will need to emerge stronger down the road.” …

According to the report, more than half (63 percent) of respondents say their current talent management programs are aligned to the business strategy and continue to be proactively modified to reflect changes in the direction of the company. A separate analysis of the data shows that the group with better alignment had significantly higher financial performance (a 20 percent higher annual return on equity (ROE) over a five-year period) than those that did not. This clearly demonstrates that today’s leading employers are not only forecasting budgetary needs, but also talent and skill requirements that will be necessary to meet future business strategies …

According to an additional analysis of the data, leading organizations with better integrated talent management programs experience return on equity (ROE) that averages 38 percent higher per year over a five-year period. Unfortunately, many organizations are still not capitalizing on this opportunity when it comes to integration. Only 32 percent of respondents say all the components of their talent management programs are integrated on a global, enterprise-wide scale versus 20 percent who only integrate their programs regionally, 18 percent by business unit and 24 percent who do not integrate their programs at all.

“Managing today’s global workforce,” Ernst & Young, May 24, 2010, www.ey.com

Getting past “NIH”

Right now, in meetings at corporations around the world, the wise are suffering. They are trapped in rooms where debate rages over how to solve a problem. The rub is that the problem has already been solved, just not by someone in the room – and solutions from outside are ignored. This is the disease known as “NIH,” or “Not Invented Here” syndrome, and it’s alive and well in 2010. Despite our many technological advancements in communication, none have eliminated this perennial waste of time. Why is this problem so hard to shake? Will we always be confronted with people who insist on reinventing wheels?

The key reason people look to reinvent things is that they don’t know what’s already been done. Ignorance, one way or another, is the leading cause of wasted effort everywhere. People who don’t spend time studying the problems they’re trying to solve are bound to reinvent something, and likely not nearly as well. There are only so many ways to design a website, a marketing campaign, or even a product strategy. Instead of driving minions into further brainstorming sessions, it would be wise to ask: Who else has tried to solve this problem? Can we learn from what they have done?

Scott Berkun, “Stop trying to reinvent the wheel,” Businessweek, June 2, 2010.

Improving M&A performance

It may come as a surprise in an M&A landscape struggling to recover, but executives are getting better at deal making. From 1995 to 1998, only one out of every four acquirers beat their peer index by more than 10 percentage points, according to Bain & Company research. From 2002 to 2005, the success rate had nearly doubled, to 45 percent or about one out of every two acquirers.

What’s behind the improvement? In our view, shaped by working on more than 1,800 M&A projects worldwide with corporate acquirers and more than 4,000 due diligence engagements for PE investors, the most salient factors are increased discipline at opposite ends of the deal value chain: Companies are completing deals with sounder strategic rationales, and they are executing more effectively on merger integration.

Even with these improvements, however, about half of deals larger than $250 million fail to deliver the promised returns. The problem lies in the middle of the deal value chain: commercial due diligence. Only one in three business development executives we surveyed said they are satisfied with how their companies manage deal diligence. Too many executives treat diligence as an audit to confirm what they think they know, rather than a solution to the problem of “I don’t know what I don’t know.” The focus on getting the deal done leads to reliance on conventional wisdom that flows from off-the-shelf information or standard industry research. In fact, diligence is a critical step to test and quantify what seems like a good idea.

The key to effective diligence is recognizing that you are making an over/under bet versus the conventional wisdom. The most successful acquirers consistently uncover a deal’s hidden upside, which allows them to bet the “over.” But they are also careful to anticipate the downside fully, making sure potential risks are well understood. With that understanding, they can calculate when to bet the “under.”

David Harding and Hugh MacArthur, “Deal making: using strategic due diligence to beat the odds,” Bain and Co. http://resultsbrief.bain.com/1005/rb1005bos.htm#1

Low-profile innovation at Procter & Gamble

The Edison Best New Products Awards recently bestowed a Gold medal in the Consumer Packaged Goods, Consumer Drug Segment to “Align Probiotic Food Supplement” from Procter & Gamble. This gives me the opportunity repeat a story that has important lessons for innovators everywhere.

I first met the Align team in 2004. The team was developing a probiotic pill whose daily use could alleviate the symptoms of irritable bowel syndrome. More than 30 million people in the United States alone are reported to have this condition. The best that most can do is to modify their lives to account for the condition.

The idea was brimming with disruptive potential. A pressing problem with no adequate solutions. A potentially category-creating way to get the job done. The product had unique intellectual property, and consumers who tried it reported that their lives were changed.

And, of course, it was about to get shut down.

Why the disconnect? The original market forecast said that the opportunity would be relatively small. Launching a new brand is expensive, and the team hadn’t yet worked out all the technological kinks. Big investment, high risk, small return is not a recipe for corporate approval.

Yet, the team, under the guidance of Nancy McCarthy, persevered. We helped the team conduct scenario analysis to identify the assumptions that would have to prove true to justify a full-scale launch. Management agreed to provide a small amount of money to learn more about these assumptions. The team quietly launched the product over the Internet. It didn’t spend tens of millions in advertising; rather it used its existing pharmaceutical sales force to push the product in a few cities.

P&G then moved to sell the product online through websites like Walgreens.com. Finally, the product launched nationally early last year.

Important insights came from this process. Instead of simply having a vial with a bunch of pills in it, the Align team created a “blister pack” with days of the week on it to remind consumers to take the pill every day. Branding changed as well. Initial packaging said Align was “from the makers of Metamucil.” Today Align stands alone.

As Chief Technology Officer Bruce Brown told me for a 2008 Forbes article describing Align, “The team stair-stepped to market, never investing ahead of learning.”

Scott Anthony, “How P&G quietly launched a disruptive innovation,” Innovation, May 11, 2010 http://blogs.hbr.org/anthony/2010/05/how_pg_quietly_launched_a_disruptive _innovation.html

The future of business education

We are approaching the end of an era. Since 1959, business schools have taken a more analytical and discipline-based approach than before. For the last 50 years, then, business schools have emphasized analytics, models, and statistics.

Yet MBA graduates increasingly need to be more effective: they need to have a global mindset, for example, develop leadership skills of self-awareness and self-reflection; and develop an understanding of the roles and responsibilities of business, and the limitations of models and markets …

Yet rebalancing from the current focus on “knowing” or analytical knowledge to more of what we call “doing” (skills) and “being” (a sense of purpose and identity) must occur. Business schools need to think innovatively about how best to use the resources available to them. For example, there are many exciting opportunities to engage alumni in the learning process.

Faculty could be expanded in creative ways. Think of Harvard Medical School. It has incoming classes of 165 students and 10,000 faculty! It’s an astonishing number that makes sense only after you realize Harvard has 17 affiliated hospitals and many of the doctors in those hospitals teach tutorials and lead clinical rotations, and in that sense are considered faculty. The same notion of an extended faculty could apply to business schools, where the 10,000 might include alumni such as local business leaders, who with suitable oversight and training by core faculty could help with team projects and experiential learning. Training might come initially through the collective work of multiple business schools, with cohorts of alumni who receive a short dose of either functional knowledge or research skills or teaching training, or some combination of the three.

Srikant M. Datar and David A. Garvin, “What is the future of MBA wducation?,” Working Knowledge, May 3, 2010, http://hbswk.hbs.edu/item/6363.html?wknews=050310

Craig HenryStrategy & Leadership’s intrepid media explorer, collected these sightings of strategic management in the news. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (Craighenry@aol.com).