How to Think Strategically - WPYL - 3-4-16

How to Think Strategically

Embrace Change.

Create Value.

Greg Hopper

3/4/16 © 2016 Strategic Edge Executive Resources, LLC 1

2

How many of you have an iPhone?

© 2016 Strategic Edge Executive Resources, LLC3/4/16

How many of you still have the box?

Today Is Your One-Hour MBA*!


*Completely unaccredited.

Strategy, for many people:


Notforus!

My Strategy Mentor


My Real Strategy Mentor


William S. “Ozzie” Osborne

VP, GM, and CTO – IBM Personal Computer Company

My functional resumé

73/4/16 © 2016 Strategic Edge Executive Resources, LLC

8


Resources (partial)

9

This imag



Strategy defined


Strategy 101

Sell more stuff.

Make the stuff cheaper.

Get more stuff to sell.

12



Strategy

14

Drive revenues up

Drive costs down

New productsNew marketsNew value


Fundamental challenge of strategy in technology-based companies

15

1. You start selling a successful product.

2. You continue to improve the product and sell a lot more.

3. You’re selling product faster than ever just as you saturate the market.

4a. These people find your product to be “too much”.

4b. These people find your product to be “too old”.



You’ve heard this…


But in today’s business world…

18

Doing the same thing over and over

and expecting the SAME results

is insanity!


Market Dominators


Market Dominators Were Insane



Profits appear more and more as a lagging indicator of yesterday’s innovations. Around three-quarters of Microsoft’s profits come from two extremely successful products that the company introduced in the 1980s and 1990s: the Windows operating system and Office productivity suite.

As Paul Graham, co-founder of Y Combinator wrote, “Microsoft cast a shadow over the software world for almost 20 years starting in the late 80s … But it’s gone now. I can sense that. No one is even afraid of Microsoft anymore. They still make a lot of money … But they’re not dangerous.”

That was in 2007.Source: “Too Much Profit Can Doom Your Company,” Brad Power and Ric Merrifield, 6/1/2015, HBR.com

Market Dominators Were Insane


Return to Relevance


HBR: March 2008

24


Impact is severe

25


Stalling

“Once a company suffers a significant downturn in revenue growth, it has only a 7% chance of ever recovering to see moderate or high growth.”

- Olson and Van Bever, Stall Points

Further, 2/3 of stalled companies were acquired, declared bankruptcy, or were taken

private.


27



29

Why does a company exist?



There is only one valid definition of a business purpose:

to create a customer.

Peter Drucker, The Practice of Management (1954) pg. 37)30

Theodore Levitt (1925—1996)


• Escaped Nazi Germany; PhD in Economics from OSU

• Taught at HBS from 1959 – 1990

• Editor of HBR from 1985 – 1990

• Wrote eight books; had 25 articles in HBR

• Created the term “globalization” as a strategic phenomenon

• Vaulted marketing to primary role in business

Theodore Levitt (1925—1996)


Very Smart Guy

Levitt on Business

The purpose of a business is to create and keep a customer.

33© 2016 Strategic Edge Executive Resources, LLC3/4/16

Levitt on Business

• The purpose of a business is to create and keep a customer.

To do that you have to produce and deliver goods and services that people want and value

at prices and under conditions that are reasonably attractive to those offered by others to a

proportion of customers large enough to make those prices and conditions possible.


Levitt on Business


• Produce and deliver goods and services that people want and value.

To continue to do that, the enterprise must produce revenue in excess of costs in sufficient quantity and with sufficient regularity to attract

and hold investors in the enterprise, and must keep at least abreast and sometimes ahead of

competitive offerings.


Levitt on Business



• Produce revenue in excess of costs.

No enterprise, no matter how small, can do any of this by mere instinct or accident. It has to clarify its purposes, strategies, and plans, and the larger

the enterprise the greater the necessity that these be clearly written down, clearly communicated,

and frequently reviewed by the senior members of the enterprise.


Levitt on Business




• No enterprise can do any of this by mere instinct or accident.

In all cases there must be an appropriate system of rewards, audits, and controls to assure that what’s intended gets properly done and, when not, that

it gets quickly rectified.


Levitt on Business




• No enterprise can do any of this by mere instinct or accident.

• Assure that what’s intended gets properly done.



Elements of Strategy

• Mission: Why are you in business?

• Vision: What is your desired “future state”?

• Values: What is important to the company?

40


Mission Statement

“A long, awkward sentence

that demonstrates

management's inability

to think clearly.”

41


Mission Statement


Inform, educate, and entertain.

Vision

• 5 year+ time horizon

• Aspirational

• Inspirational

43



Create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.

Values

• Important characteristics (personal or corporate) that determine how you will act in executing your strategy

45


“Character is not made in a crisis, only exhibited.”

- Robert Freeman

VW Values?



Three Layer Model of Competition

48

Benefits

Reputation

Commodity


Basic

49

Commodity

Benefits

Reputation

Price


Bare Minimum Expectations

Courtesy Roshan Bhoj


Typical Offering

51

Benefits

Reputation

Price

Compare features

Commodity


Features That Matter

52

“It’s a war of better products and convenience and features for riders,” Amit Jain, president of Uber in India, said of the competition with local Indian ride-hailing apps.

“The dwell times in [traffic in] India are one of the longest in the world and making constructive use of that time by people able to access emails, communicate with friends and family is a feature that is very beneficial to consumers,” he added.


Marketing Nirvana

53

Benefits

Reputation

Price

Compare features

Brand-driven

Commodity


Extended Reputation




More representative

57

Benefits

Reputation

Commodity


This is where the battles are usually fought.

Extreme loyalty J

Price wars L


Definition

A business model describes the rationale of how an

organization creates, delivers, and captures

VALUE.


Dimensions of Business Design

3/4/16 60

Dimension Key IssueKey

Questions

Customer SelectionWhich customers do I want to serve?

To which customers can I add real value? Which customers will allow me to profit?

Value CaptureHow do I make a profit?

How do I capture a portion of the value I created for customers?

Differentiation/

Strategic ControlHow do I protect my profit stream?

How do I resist customer or competitor power?

ScopeWhat activities do I perform?

Make, buy, or partner?

From “The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits” by Slywotsky and Morrison© 2016 Strategic Edge Executive Resources, LLC

Christensen Definition

“Four interdependent elements that create and deliver value”

1. Customer Value Proposition

2. Profit Formula3. Resources4. Processes


Business Model Generation


Canvas Components

Nine building blocks1. Customer Segments

2. Value Proposition

3.Channels

4.Customer Relationships

5. Revenue Streams

6.Key Resources

7. Key Activities

8.Key Partnerships

9.Cost Structure

8

7

6

4

3

2 1

9 5


BASIC TEST: Does revenue exceed cost?

Two Sides

CSVP

Ch

R$

KP

C$

CR

KR

KA

VALUEEFFICIENCY


Focus on Segmentation

Nine building blocks1. Customer Segments

2. Value Proposition

3.Channels

4.Customer Relationships

5. Revenue Streams

6.Key Resources

7. Key Activities

8.Key Partnerships

9.Cost Structure

8

7

6

4

3

2 1

9 5


The question segmentation(tries to) answer

What will customers want to buy?

• What should we develop?• On whom should we focus?• What will they value (and what won’t they)?• How should we communicate with them?


Usual Approaches to Segmentation

• Demographics• Age• Gender• Income• Home ownership status

3/4/16

• Profession

• Education

• Location

• Etc.

© 2016 Strategic Edge Executive Resources, LLC 67

3/4/16

Breakout

Are traditional segmentation strategies successful?


Things no one said, ever.


Hey! Why did you buy that cool

thing?Because I’m between

the ages of 18 and 34.

Artwork R. Hopper

Traditional Segmentation

• Defined by attributes of product and/or customer

• Based upon a correlation between attribute and outcomes (i.e. purchase and use)

Is this enough to base a strategy on?


Short Answer: No.

When your marketing theory offers a plausible statement of causality

AND

is based on circumstance-based categorizations (i.e. segmentation)

THEN

you can predict what features, functions and positioning will CAUSE customers to

buy a product.


Key Insight: Customers Hire Products

Customers have “jobs” to be done.

They “hire” products and services – and people – to do those jobs.



Job-to-be-

done


Three Fundamental Questions

• Who is it for?

• Why will they buy it?

• Why will they buy it from you?

Note: “What does it do?” and “How does it work?” are not fundamental questions. No one cares.


Three Fundamental Answers

1. Who is it for?

2. Why will they buy it?

3. Why will they buy it from you?


1. Target market

2. Value proposition

3. Source of competitive advantage

Competitive Advantage Over Time

77

DistinguishingFeatures

Reputation

Commodity

No good idea goes uncopied.


3/4/16 78

Breakout

How do you respond to this?

© 2016 Strategic Edge Executive Resources, LLC

DistinguishingFeatures

Reputation

Commodity



81


Example: 1978

82

These two companies were the world’s largest consumers of silver.

They dominated the photographic industry.

They had “sustainable competitive advantage.”


Enter the Hunt Brothers



Breakout

85

You’re the strategy consultant.

What do you advise these two companies to do?

Why?


(some of) The rest of the story


Move forward a couple years, and…



You’re the strategy consultant.

Now what do you advise these two companies to do?

Why?

Breakout


Context: The Old Way had two fundamental assumptions

Assumption 1: Industry mattered most.

• Relatively stable and enduring forces• Understand the forces• Keep them under control• Premium on analysis and long-term planning• The next five years were “continuously

predictable”

90


Context: The Old Way had two fundamental assumptions

Assumption 2: Once achieved, advantages are sustainable.• Management becomes supreme (vs.

entrepreneurs)• Not so in most industries: music, technology,

communications, travel, consumer electronics, publishing, automobiles, razors, everything-as-a-service, taxis, food, etc.

• Advantages are copied quickly, technology changes, or customers just move on

91


Lesson

“The assumption of sustainable advantage

creates a bias toward stability

that can be deadly.”

92


Lesson

“A preference for equilibrium and stabilitymeans that many shifts in the marketplace

are met by business leaders denying that these shifts mean anything

negative for them.”

93


Problems that stability creates


http://javaiscoool.blogspot.com/2013/01/benefits-of-avoiding-software-silos.html http://www.biomedcentral.com/bmcmed/series/Autoimmunity

How not to embrace change!


Source of problem

Industries are the wrong thing to study

• Not granular enough to provide leaders enough information to make decisions on

96


New unit of analysis: The “Arena”

• An arena reflects the connection between the customer, the offer, and the geographic location

• Characterized by the particular connections between customers and solutions

• NOT by conventional description of offerings that are near substitutes for one another

97


Driver of categorization

The customer’s desired outcome - the “job to be done”

• The customer will evaluate all the alternative ways to get that job done, whether or not a particular vendor feels that the alternatives are “competitors”

• “The most substantial threats to a given advantage are likely to arise from a peripheral or non-obvious location.”

98


“…peripheral or non-obvious location”


Implications


The source of competitive advantage is changing

• Old way: features, incremental changes --“better mousetraps”

3/4/16

JTBD: Dead mice


Implications


The source of competitive advantage is changing

• Old way: features, incremental changes --“better mousetraps”

• New way: deep customer relationships, “ability to design irreplaceable customer experiences across multiple arenas”

3/4/16


“Core competency…is a dangerously inward-looking notion.

“Competitiveness is far more about doing what customers value than doing what you think you’re good at.

“And staying competitive as the basis of competition shifts necessarily requires a willingness and ability to learn new things rather than clinging hopefully to the sources of past glory.”

- Clayton Christensen

Example: Today

104

• Embraced digital• Disengaged from film• Got out of comfort

zone• 2015 Revenue of $22B




New strategy playbook

Based on “transient competitive advantage”

• Advantage evolves with time, changing customer preferences, and context

107


Deliberate strategy (every play part of a

“game plan”)

Emergent strategy (adjusting constantly

to game on field)

How to compete

108

“The Wave of Transient Advantage"

Launch Ramp up Exploit DisengageReconfigure

Returns


Other views of the “wave”


Remember this?

110

1. You start selling a successful product.

2. You continue to improve the product and sell a lot more.

3. You’re selling product faster than ever just as you saturate the market.

4a. These people find your product to be “too much”.

4b. These people find your product to be “too old”.


Breakout

111


Returns

This makes sense.

Why don’t more companies follow this advice???


Problem

112


Returns

This is where companies live!

Investors know how to value them, metrics are readily available, and companies can be compared. Managers are rewarded for maximizing the metrics and discouraged from investing in non-core activities.


Edges require different skills than exploitation phase

113


Returns

Needed:Innovators and experimenters comfortable with ambiguity and prepared to learn (from

failure, if necessary).

Needed:People with analytic skills to detect early signs of decline

and not afraid to make divestment decisions.


Your One-Hour MBA* is Over!


*Completely unaccredited.


How to think strategically

• Think BIG

• Think WIDE

• Think FORWARD but learn from the past

• Use FRAMEWORKS

• Embrace change, and create VALUE.


117

Source: Pricing-Hub.com


Thank you!

Contact information: Greg Hopper

[email protected]

Facebook.com/CompStrat


Documents

How to Think Strategically - WPYL - 3-4-16