Emerging Trends in Business Strategy

Dr. Kabaly P SubramanianFaculty of Business Studies Arab Open University

Transient Advantage

Transient Advantage

Sustainable Vs Transient Sustainable : Creating a strong position

and defend it for extended periods of time

GE, IKEA , Unilever,… Transient : Constantly start new strategic

initiatives building and exploiting many competitive advantages at once.

Milliken&Company (Chemicals), Cognizant (IT), Brambles (logistics),…

Anatomy of a Transient Advantage

Launch Ramp up Exploit Reconfigure Disengage0

0.5

1

1.5

2

2.5

Anatomy of a Transient Advantage

Stage Nature People Comments

Launch Identifies an opportunity and mobilize resources to capitalize on it

Capable of generating ideas, comfortable with experimentation and iteration

Ramp up Business Idea brought to scale

Capable of assembling right resources, at the right time, at the right quality and deliver on the promise

Exploitation Captures profits and share and forces competitors to react

Capable of analytical decision making, M&A and efficiency

Traditional companies have plenty of talent

Anatomy of a Transient Advantage

Stage Nature People Comments

Reconfigure Keep the advantage fresh

Capable of radically rethinking business models or resources

Disengagement Resources are extracted and reallocated

Candid ,tough minded and can make emotionally difficult decisions.

Facing the brutal truth

Companies shore up an existing advantage for as long as possible, until the pain becomes so obvious that there is no choice.

IBM,Nokia,Sony,Kodak,…

Assessing the current advantage I don’t buy my own company’s products or services. We are investing at the same or higher levels and

not getting better margins or growth in return. Customers are finding cheaper or simpler solutions

to be “good enough”. Competition is emerging from places we didn’t

expect. Customers are no longer excited about what we

have to offer. We are not considered a top place to work by the

people we’d like to hire. Some of our very best people are leaving Our stock is perpetually undervalued

Seven Dangerous Misconceptions

Deeply embedded assumptions lead companies into traps

1. The first mover trap2. The Superiority trap3. The Quality trap4. The hostage-resources trap5. The white-space trap6. The empire building trap7. The sporadic innovation trap

first mover-trap

Belief that first to market and owning assets create a sustainable position.

In some businesses like aircraft engines or mining it may be true.

But most industries a first mover advantage doesn’t last.

Example : Motorola , Ford,…

Superiority trap

Early-stage technology, process or product won’t be as effective as something that’s been honed and polished for years.

Example : Kodak , Barnes and Noble

Quality Trap

Many businesses in exploit mode stick with a level of quality higher than customers are prepared to pay for.

When a cheaper , simpler offer is good enough, customers will abandon the incumbent.

Nokia

Hostage-resources trap

Nokia developed a product that was remarkably similar to today’s iPad in about 2004.

Nokia never capitalize on this groundbreaking innovation.

Companies emphasis was on mass-market phones, and resource allocation decisions were made accordingly.

White-space trap

When opportunities don’t fit their structure , firms often simply forgo them instead of making the effort to reorganize.

Foe instance a product manufacturer might pass up potentially profitable moves into services because they require coordination of activities along a customer’s experience, rather than by product line.

Empire building trap

Bureaucracy building and fierce defense of status quo.

It inhibits, experimentation, learning and risk taking.

It causes employees who like to do new things to leave.

Sporadic-innovation trap

Many companies do not have a system for creating a pipeline of new advantages.

Vulnerable to swings in the business cycle.

Strategy for Transient Advantage-Eight ways

1. Think about arenas, not industries2. Set broad themes, and then people experiment3. Adopt metrics that support entrepreneurial

growth4. Focus on experiences and solutions to

problems5. Build strong relationships and networks6. Avoid brutal restructuring : Learn healthy

disengagement7. Get systematic about early-stage innovation8. Experiment,iterate,learn

Think about arenas , not industry

Untraditional competitors take companies by surprise.

Google’s move into operating systems

Wal-Mart into healthcare Arena : combination of a customer

segment, an offer, and a place in which that offer is delivered.

Customer’s jobs to be done.

Set broad themes and then let people experiment

Interpretation of weak signals in the environment to set broad themes.

Within those themes , they free people to experiment with different approaches and business models.

Adopt metrics that supports entrepreneurial growth

Conventional metrics can effectively kill off innovation

Focus on experiences and solutions to problems.

Many companies are so internally focused that they are oblivious to the customer’s experience.

Australia’s Brambles : Company realized that one of grocers’ biggest

cost was the labor required to shelve goods delivered to their stores.

Brambles designed a solution : plastic bins It has cut labor costs significantly Fruits and vegetables arrive in better shape This lead to substantial profits, appreciation

and growth.

Brambles Innovation : Plastic Bins

Build strong relationships and networks

Evidence indicate that the most successful and sought after employees are those with the most robust networks.

Infosys , for instance is choosy about which customers it will serve , but it maintains a 97% retention rate.

In GE, the senior leaders spend inordinate amounts of time building and preserving relationships with other firms.

Avoid brutal restructuring; learn healthy disengagement

Netflix’s efforts to get out of the DVD shipping business and into streaming movies is an interesting lesson in the wrong way to do.

Two decisions that infuriated customers.

Massive price increase across board and split the DVD and streaming business.

Get systematic about early stage innovation

To have a process for filling your pipeline with new ones. Your innovation process needs to be carefully orchestrated.

Experiment,iterate,learn.

Planning new ventures with the same approaches they use for more established businesses.

They need to focus on experimentation, iteration and learning

Leadership as orchestration Difficult to handle the complexity Figure out some key directional guidelines Putting in place good processes for core activities

such as innovation Use their influence over a few crucial inflection

points to direct the flow of activities Initiates conversations that question, rather than

reinforce, status quo. Seeking contrasting opinions and honest

disagreement. Involving broader constituencies in strategy process Recognizing the need for speed Fast and rough vs slow and precise

Conclusion

Defining where you want to compete How you intend to win How you are going to move form

advantage to advantage is critical

Value Innovation

Case : Accor group of Hotels

Innovate for Value

Prepare a list of factors on which the industry competes

Eating facility Architectural Aesthetics Lounge appeal Room size 24-hour reception Room furniture and amenities Bed quality Hygiene Silence Price

Four Actions framework

Which factors should be reduced well below the industry standard

Which of the factors that the industry takes for granted should be eliminated?

Which factors should be raised well above the industry’s standard?

Which factors should be created that the industry has never offered

A new value

ERRC Grid

Eliminate Raise

Reduce Create

The case of Accor's Formule 1

Formule 1 Room

Formule 1 Reception

Lesson : Challenge the Industry Standards

What are the big problems?

Poverty, climate change, ageing population, food and water security, education,…

Solution : “INNOVATE”

How to Innovate?

Innovator’s DNA model for generating innovative ideas

Challenging the Status

Quo

Taking risks

Questioning

Observing

Networking

Experimenting

Associational Thinking

Innovative Business

Idea

Questioning

What is ? What caused? Why? Why not? What if?

Observing

Observe customers Observe whatever strikes your fancy Observe with all your senses

Networking

Tap outside experts Attend Idea networking events Form a personal networking group

Experimenting

Take apart products, processes and ideas

Test new ideas through pilots and prototypes

Cross physical borders Cross intellectual borders

Associating

Creativity is connecting things : Steve Jobs

Connecting wildly different ideas, objects,services,technologies,and disciplines and dish up new and unusual innovations.

Plastic appliances : casing for Mac Computer + Media Industry =

iTunes,iPod,iPhone,iPad,…

Net Promoter System

NPS

Net Promoter score, a method of measuring customers’ loyalty by sorting them into promoters, passives and detractors.

Customer Loyalty

Loyal, passionate customers stay longer, spend more, contribute suggestions and sing your company’s praises to friends and colleagues.

That’s why loyalty correlates so strongly with sustainable, profitable organic growth. On average, an industry’s loyalty leader grows more than twice as fast as its competitors.

Ideally, companies ask just two questions in their surveys:

1. How likely is it that you would recommend us (or this product or service) to a friend or colleague? (On a zero-to-10 scale : least likely -most likely)

2. What is the primary reason for your score?

NPS

A company’s Net Promoter Score indicates whether it’s winning with customers.

A company with a high Net Promoter Score relative to key competitors usually grows faster and more profitably. The competitive advantage of having a higher percentage of promoters than detractors is tough to beat. Promoters defect at lower rates than other customers. They also spend more over time and cost less to serve.

NPS

Companies that use NPS often create the right products. That’s because they know their customers better. They seek client feedback and respond with products suited to customers’ needs. In The Ultimate Question 2.0, Fred Riechheld and Rob Markey discussed how low Net Promoter scores exposed design flaws in Logitech’s MX 5000 keyboard and mouse. Logitech listened to customer criticisms and improved its next model.

NPS

NPS leaders have the most powerful marketing tool: positive word of mouth. All the advertising in the world can’t overcome a bad image spawned by customer detractors. But when a company does right by its customers, word spreads fast—and in most companies, new customers generated through referral expand purchases quickly and tend to stay longer than new customers generated through any other means.

NPS

More companies cite their Net Promoter Score as a sign of improvement in investor presentations and earnings reports.

References

Transient Advantage : Rita Gunther McGrath

Blue Ocean Strategy : W. Chan Kim and Renée Mauborgne

Innovators Dilemma : Clayton Christensen et al.,

Net promoter System : Fred Riechheld and Rob Markey

Thank YouEmail : kabaly@aou.edu.om