4 Ways to Flip the Script

February 19, 2010 | Comments Off

pic­ture source: US Army
All to often the teach­ing of busi­ness mod­els and prac­tices is not only stiff but also overly aca­d­e­mic. In other words its full of a aca­d­e­mic phrase­ol­ogy while seem­ingly irrel­e­vant to the typ­i­cal day-to-day bat­tle. Well I’m set on not only chang­ing that but also debunk­ing the ver­biage and pro­vid­ing use­able frameworks.

In the first parts of this series on mod­els used to iden­tify com­pet­i­tive advan­tages we explored the Five Forces Model and an alter­na­tive frame­work the Flag­ship Model, both of which are great at pro­vid­ing a snap­shot of the cur­rent sit­u­a­tion. I thought it would be inter­est­ing to explore a frame­work, Strate­gic Intent, that one can use use to only under­stand but also tilt the play­ing field in their favor. What it comes down to it that you can either be a fol­lower — fully dri­ven by exter­nal actions — or game changer who can manip­u­late, and on rare occa­sions ini­ti­ate, the com­pet­i­tive forces that even­tual dic­tate the eco­nomic gains.

Think of it this way. Dur­ing any com­pet­i­tive event — ten­nis, foot­ball, car rac­ing — actions are exploited to play into a strength or exploit a competitor’s weak­ness. Why is Ser­ena Williams so dom­i­nate in ten­nis? Its because oth­ers don’t matchup across the board with her speed, agility, and strength. Where they fall short is the point of attack. This poten­tial breach area can come to light dur­ing the event but more often than not is iden­ti­fied by observ­ing past per­for­mance well before she hits the court. Hours of research and game plan­ning are invested to develop a win­ning play­book. Strate­gic Intent — the empha­sis is on intent — grows out of this same ambi­tion and obses­sion with achiev­ing an objec­tive, be it win­ning or secur­ing a cer­tain level of success.
The frame­work is based on the prin­ci­ples of W.E. Dem­ing. The essence of Deming’s think­ing is that one must cre­ate tomorrow’s advan­tages faster than your cur­rent ones are mim­ic­ked or leapfrogged. Think con­tin­u­ous improve­ment. I hap­pened to have been in an Apple store ear­lier today — yes I’m a Mac shop — and was reminded of this fact not by their line of com­put­ers or phones but by how fast they are will­ing to can­ni­bal­ize their soft­ware. Every year there is a new major ver­sion with the high­lighted changes often based on the public’s per­cep­tion of a competitor’s weak­ness. By posi­tion­ing your­self aware from com­peti­tors you not only enhance your rev­enue model but also share­holder value.

When study­ing the model there are four ele­ments that one ana­lyzes and then rearranges to fine tune busi­ness operations.
  • build­ing lay­ers of advantage
  • search­ing for loose bricks
  • chang­ing the rules of engagement
  • col­lab­o­rat­ing
Lay­ers of Advantage
Crit­i­cally eval­u­ate other areas in which you can improve. Look along the value chain to con­tin­u­ously place addi­tional hur­dles. World class track stars do the same by:
  • work­ing with their shoe com­pany to pro­duce a prod­uct (process machin­ery) that has the ideal fit, flex­i­bil­ity, and traction
  • employ top notch nutri­tion­ist to develop a cus­tomized meal plan (sys­tem input).
  • .…, you get the concept.
Loose Bricks
Build mar­ket share and rep­u­ta­tion where they are not (geo­graphic or prod­uct) play in the voids. So you might be just shy of the world class ranks in sprint­ing but you could become the top pusher in bobsleding.

Chang­ing the Rules
Don’t fol­low the leader’s rules or struc­ture. Cre­ate what works best with your strengths. If one isn’t able to do this todays NFL games would still be pre­dom­i­nately based on the straight ahead run and bas­ket­ball wouldn’t have the hard charg­ing, high-flying fast break.

Col­lab­o­rat­ing
Use know-how devel­oped by oth­ers. Acquire and give credit. The best of teams, and after all if you are involved in run­ning a busi­ness you are part of a team, look out­ward for inspi­ra­tion, knowl­edge, and joint suc­cess. By and far part­ner­ship devel­op­ment is a path that we can all take. Look to your cham­pi­ons, cus­tomers, and sup­pli­ers to see how you can col­lec­tively excel.
“There are plenty of teams in every sport that have great play­ers and never win titles. Most of the time, those play­ers aren’t will­ing to sac­ri­fice for the greater good of the team. The funny thing is, in the end, their unwill­ing­ness to sac­ri­fice only makes indi­vid­ual goals more dif­fi­cult to achieve. One thing I believe to the fullest is that if you think and achieve as a team, the indi­vid­ual acco­lades will take care of themselves.”
- Michael Jordan

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Posted by Donald McMichael | Filed Under Insight 

Don’t Call It A Comeback: Porter’s Five Forces Model

February 8, 2010 | Comments Off

In part one of this series we started to take a look at strate­gic analy­sis method­olo­gies. The first up was the Flag­ship Model devel­oped by Alan Rug­man and Joseph D’Cruz. It is pre­sented as an alter­na­tive to the bet­ter known and used Five Forces Model which was devel­oped by Michael Porter. In this slice of the series I’m going to jump back and take a look at the Five Forces Model. But more impor­tantly for this con­ver­sa­tion, pro­vide much needed context. 

The essence of any strate­gic analy­sis is to relate the strengths of the orga­ni­za­tion to it envi­ron­ment. The Five Forces Model was specif­i­cally devel­oped in to help mold one’s com­pet­i­tive strat­egy by under­tak­ing a crit­i­cal eval­u­a­tion of a set of five major con­cerns. Three of the forces refer to com­pe­ti­tion from exter­nal sources while the remain­der focus on inter­nal threats. The model was orig­i­nally pre­sented in 1979 as just one ele­ment of the com­plete Porter strate­gic models. 

The busi­ness model vul­ner­a­bil­ity points that Michel Porter iden­ti­fied con­sisted of those ele­ments close to a com­pany that affect its abil­ity to serve its cus­tomers and make a profit. More specifically:

I.   Threat of New Entrants:
Porter has laid out eight bar­ri­ers to mar­ket entry. The level of exist­ing of which dic­tates the ease of which an out­side force can move into a niche.
  1. economies of scale — cost per unit of deliv­ered product/service
  2. prod­uct dif­fer­en­ti­a­tion — per­ceived unique­ness (think value)
  3. cap­i­tal require­ments — invest­ment of time and money
  4. switch­ing costs — cost to con­sumer to switch mea­sured in money and tem­po­rary lost productivity
  5. dis­tri­b­u­tion chan­nels — abil­ity and/or cost to deliver product
  6. gov­ern­ment pol­icy — rules, reg­u­la­tions, and tariffs
  7. cost advan­tages inde­pen­dent of scale economies — access to favor­able inputs; labor, material…
  8. com­peti­tor response

II.  Threat of Sub­sti­tute Products:
How easy is it to sub­sti­tute a prod­uct or ser­vice? The ability/desire to sub­sti­tute is often enhanced by the cur­rent level of ser­vice or prod­uct commoditization.

III.  Rivalry Among Competitors:
This is the best under­stood and vis­i­ble forces. It man­i­fests itself in the form of adver­tis­ing bat­tles, price com­pe­ti­tion, and attempts to dif­fer­en­ti­ate. A clas­sic bat­tle that has been rag­ing for decade is Coke ver­sus Pepsi (dif­fer­en­ti­a­tion). a more con­tem­po­rary bat­tle is the US cell phone pro­vides Ver­i­zon ver­sus AT&T (adver­tis­ing, dif­fer­en­ti­a­tion, and price).

IV.  Bar­gain­ing Power of Buyers:
Can the buyer dic­tate win­ners and also rans (think Wal-mart’s influence)

V.  Bar­gain­ing Power of Suppliers:
How much power the sup­pli­ers have over other indus­try firms.

As noted ear­lier, the essence of any strate­gic analy­sis is to relate the strengths of the orga­ni­za­tion to it envi­ron­ment. An envi­ron­ment that includes com­peti­tors, cham­pi­ons, and alter­na­tives. Over the 30 year period since the Five Forces Model was develop tech­nol­ogy lower the cost of entry and in cer­tain niches allowed the con­ver­sion of prod­ucts into bits. Addi­tion­ally, the improve­ment in the speed and access of global com­mu­ni­ca­tions has expanded mar­kets from domes­tic to regional to inter­na­tional allow­ing a host of new com­pet­i­tive issues to jump into the pool. I can hear you say­ing, wait a minute I run a small­ish shop that is exclu­sively focused on ser­vic­ing a local clien­tele. Well let me put this ques­tion to you. Do you have a web-site, Face­book Fan Page, Twit­ter account… well you get what I’m dri­ving at. 

Essen­tially every busi­ness today has a global fin­ger­print. What con­cerns me the most is the poten­tial for clients to reach out to a com­peti­tor and pulling them into your mar­ket. They will and have doe this. In the video con­tent niche there are ser­vices and mod­els spring­ing to life that look to deliver con­tent directly between the creator(s) and con­sumer. They view them­selves as infra­struc­ture ver­sus the incumbent’s cura­tor mind­set. Busi­ness model reeval­u­a­tions of this sort are a fact of life. This is why we must mas­ter tech­niques that keep our fin­gers on the pulse of the mar­ket­place and frame our under­stand­ing of com­pet­i­tive advan­tages at both the local and national levels.

I don’t want any­one to be con­fused about my think­ing. I def­i­nitely believe that the Five Forces Model has its own place in any type of cor­po­rate or strate­gic analy­sis. Oth­er­wise why would I be wast­ing your time dis­cussing the sub­ject. Its just that the Five Forces Model is hard pressed in the cur­rent envi­ron­ment. That is why I advo­cate con­tin­u­ously eval­u­ate and upgrad­ing our tool chest such that we can develop busi­ness mod­els that exploit strate­gic opportunities.

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Posted by Donald McMichael | Filed Under Blog