Resources Articles of Interests
Infusing A Company with Cutting-Edge Strategy
Posted in Growth
Posted by Oren Harari in November, 2002
Executive Summary
- Strategic planning by itself does not guarantee either competitive advantage or business success. Too often, companies’ strategies simply mimic each other (hence, no differentiation), they are not exciting or inspiring, their execution is poor, or they’re built on obsolete premises.
- Strategy is nonetheless relevant. In today’s hyper-competitive global economy, infusing a company with a clear, compelling, cutting-edge strategic direction is critical.
- Whether a company is publicly traded or privately held, effective strategy creates value for shareholders and customers. In today’s New Millennium Economy, value-creation follows new and different paths from yesterday’s value creation. Today, one’s strategy should generate unique value, breakthrough value, startling value, personalized value, turbo-speed value, and employee-driven value.
Introduction
We’ve made strategy far more complicated than it needs to be. Smart people with advanced degrees and high salaries generate elaborate documents containing complex analysis, algorithms, heuristics, scenarios, and projections – which seldom yield competitive advantage. In fact, more than 50% of the 1980 Fortune 500 companies – each having cultivated elegant, complex strategic plans – no longer exist. And literally 60-80% of megamergers – with strategies of impeccable depth, logic and financial wizardry – have been empirically shown to diminish shareholder value.
What’s wrong?
First, strategies often wind up looking pretty much the same. That’s a liability in a crowded marketplace, because it becomes difficult to distinguish oneself. After wading through the numbers, graphs and jargon, many strategic plans are ordinary and mundane, leading to uninspiring results for customers and investors.
It gets worse. Companies often find that even if their strategic plan makes sense, their execution fails. Bureaucracy, organizational inertia, and resistance to change subvert or critically delay noble goals, even those which represent genuine competitive opportunity.
It gets worse. Companies often find their strategies have become obsolete "overnight." The long-term growth and acquisition strategies of the major music recording labels, for example, were based on a marketplace of a known product (the compact disc), a known distribution chain, a known set of competitors, and a known "way of doing things." Then came MP3 formats, P2P file sharing systems, and other Web-based innovations.
Finding the Cutting-edge
Strategy is far from irrelevant. Effective strategy creates significant value for shareholders and customers. But in today’s fragmented, nanosecond, hyper-competitive, global economy, value creation follows new and different paths. Singly or combined, these new sources of value creation-lead to sustained growth and earnings, shareholder returns, investor enthusiasm, customer fanaticism, and market "buzz." A cutting-edge strategy:
Generates unique value
In crowded markets, where competitors are everywhere and customers are overwhelmed with choices, the most important strategic issue is uniqueness. A cutting-edge strategy demonstrates that the company is doing something special and different. It suggests best-of-breed and greatness.
Since its birth in 1987, Starbucks has completely redefined the concept of coffee, transforming a dull commodity into a high margin empire-- serving 20 million people weekly in 5000 stores, expanding the brand to numerous product spinoffs, and enjoying consistent profitability. In the 1990’s, Dell Computer’s built-to-order product customization and direct-to-customer sales channel were so unique that they restructured conventional value propositions and value chains, and in the process catapulted the company to a dominant role in the technology sector. Even today, amidst the rough seas of the economy and the post-September 11 environment, Dell maintains a powerful, "best-of-breed" position. Further, it continues its innovative march towards uniqueness by using the Web to literally conduct 75% of its total business, and by applying the company’s core skills to new digital niches like servers and storage. Where fragmentation, saturation, and constant upheaval exist, unique equals value.
Provides breakthrough value
What do FedEx, CNN, Siebel Systems and Palm have in common? They created new markets. With a crushing plethora of competitors vying for customers’ attention, significant value comes not from incremental improvements to the status quo, but from marketplace breakthroughs.
Originally, customers didn’t ask for overnight delivery, cable news, customer-relations management software, or Personal Digital Assistants. Smart companies like FedEx, CNN, Siebel Systems, and Palm initiated those breakthroughs and profited handsomely. Cutting-edge strategies demonstrate value by leading markets, which includes leading customers, not just by responding to their current desires.
Provides startling value
Increasingly, products and services are becoming "me-too" commodities. Companies with cutting-edge strategies create value by providing things that inspire excitement, intrigue, joy and titillation via exceptional functionality, design, and execution. Think Disney World: need I go on? Sony’s PlayStation with its functionality, design, and marketing execution set off a $20 billion computer game industry. Swatch’s mission has nothing to do with selling wristwatches, it’s about providing "joy in life" through fashionized timepieces and, more recently, through cool-designed, Web-accessible watches that allow you to "save time," not merely tell it. Anyone who’s received delightful services (like an on-board massage) on a Virgin flight, or has taken a ride on zany, irreverent Southwest Airlines – the only consistently profitable U.S. airline over three decades – can testify to what it means to have a little joy and titillation in their travel.
Provides personalized value
Mass (as in mass production and mass marketing) is dead as a value-driver. Nowadays, it’s all about "markets of one." As noted above, Dell Computer enjoyed explosive growth in the 1990’s with its "built-to-order" business model. Today, Cap One has 29 million holders of its credit cards, and no two of them have the same terms. The company’s digital capacity allows it to instantaneously canvas scores of thousands of possible combinations, so that a person with a lousy credit history and a fondness for fusion jazz gets a card with an entirely different set of financial and marketing arrangements than does someone with a great credit history and a love of the Chicago Bulls.
GE Power Systems allows a purchaser of its turbine engines to build-to-order and follow the path of the product’s construction, all online and while receiving one-to-one – online and face-to-face – consulting help from GE personnel throughout the process. Customized products and personalized services are, increasingly, the primary way that customers conclude that they are receiving true value.
Provides turbo-speed value
Whatever winning organizations do, they do very fast. They see competitive advantage in how rapidly they can capitalize on changes in technologies, customers, competitors, population demographics, and capital markets. Or how dramatically and exponentially they can shrink decision and cycle times. Or how quickly they can disseminate information and knowledge throughout the organization, put together a team or alliance, implement a change, start an experiment or pilot, and get to market. Winners think about time the way most conventional companies think about costs. They do strategy "on the run."
Pharmaceutical Novartis launched an extraordinary 4 new drugs in 2001, including a breakthrough leukemia drug after only 32 months of clinical testing Medtronics’ quick capitalization on new, unanticipated opportunities in the medical products arena has yielded 70% of its revenues coming from products that didn’t exist three years ago. Nokia is a similar speedster, generating innovations in technology and design that generates a launch of two dozen new models of mobile phones annually. Upon recognizing that operational speed was critical for competing in the
Provides all hands-driven value
The traditional scenario of a few high-ranking executives and high-priced consultants determining strategy, and then pushing it down for others to execute, is destructively anachronistic. It’s too detached, rigid, slow, and limited in possibilities. Real value, and its corollary competitive advantage, accrues to organizations that fully invest in and capitalize on the brains and talents of their people. Top management sets broad strategic priorities and directions, as well as clear values and culture. But within those parameters, cutting-edge strategy and accountability, a.k.a. value, bubbles up from anywhere. This is a quantum departure from conventional "empowerment" and "employee participation."
At PE Biosystems (a billion-dollar division of Perkin Elmer), the 17-year run of 20% annual growth rates is fueled not by a brilliant grand "plan," but around the personal initiatives of engineers, scientists and marketers. Their efforts result in a large number of projects going on simultaneously, none of which requires any initial approval from top management. As soon as a promising concept emerges from the hubbub, PE Biosystems quickly galvanizes the resources to rush it to market. Copenhagen-based Oticon takes the same approach to leading the hearing-aid market in technological and design innovation; the self-propelled, cross-disciplinary structure is called a "spaghetti organization."
Value can be created by all-hands strategic involvement. At GE Capital and Cap One frequent meetings of entrepreneurial-minded employees are held to bat around "crazy" business-enhancement ideas and put together project teams to take those ideas to fruition, especially if they violate sacred cows. Intel and Merck take that idea a step further by literally funding employee-driven startups. Intel, for example, has provided over $100 million in seed capital to different employees who have put together viable plans for high-growth businesses that fit into Intel’s mission.
Meanwhile, executives at IBM are proud to point out that the e-business solutions strategy that turned IBM in the late 1990’s into a dominant player in the Internet services arena was not initially a "top-down" strategy. A group of mid-level Internet IBM’ers banded together to develop and eventually "push" the strategy up to CEO Lou Gerstner’s attention. While top management then fanned an organization-wide momentum, it is important to remember that initially, it was a group of passionate individuals from different levels and sites who found each other, did due diligence, crafted pilots, and in effect, changed a company’s direction.
All-hands driven strategy is not one detailed grand plan, but rather an organizational template that encourages the constant, all-hands fermentation of great ideas, preparation, execution and accountability. Clearly, in this environment, executives still define the fundamental direction, lead the charge and take on primary fiduciary responsibility. But employees are viewed as genuine partners: they have immediate access to any information (including financials), incessant training and development (talent is viewed as an appreciating asset), complete opportunity for self-control (so as to take on full responsibility for initiatives and outcomes), and a healthy dose of outcome- and performance-based compensation (including profit-sharing and equity ownership).
Making It Happen
1. Have regular and frequent policy-making conversations with colleagues that address the following questions: What are we doing – or need to do – that is unique, special, and different? That generates market breakthroughs? That indicates best-of-breed, and suggests greatness? That sets us apart from the rest of the pack? And, most important, do customers and investors recognize all that? Build strategy around the answers.
2. Concentrate your strategic goals and organizational systems on achieving 100% customized products and 100% personalized services.
3. Make speed a strategic priority in both goal-setting and execution. Regularly canvass how long it takes to make a decision, launch an investigation or pilot, collect and disseminate relevant information, bring something to market, cut a deal, and so on.
4. Allow strategic initiatives to emerge from anywhere in the organization. Insist that everyone be responsible for improving the competitive position of the firm. Make certain that all hands receive sufficient tools, technology, training, direction, freedom and accountability.
Conclusion
A cutting-edge strategy is grounded in constant, relentless innovation and customer-centricity. What a cutting-edge strategy does is offer unique, breakthrough, startling and customized value. How it does this is by "collaboration on the run": all hands working together as strategic partners, obsessing on speed, speed, speed. When this process is ignited and fueled by top management, something wonderful happens. Strategy becomes a living, breathing, agile, market-centric collaborative process. It also becomes a lot of fun.