4 Ways to Flip the Script
February 19, 2010 | Leave a Comment
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
Don’t Call It A Comeback: Porter’s Five Forces Model
February 8, 2010 | Leave a Comment
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.
- economies of scale – cost per unit of delivered product/service
- product differentiation – perceived uniqueness (think value)
- capital requirements – investment of time and money
- switching costs – cost to consumer to switch measured in money and temporary lost productivity
- distribution channels – ability and/or cost to deliver product
- government policy – rules, regulations, and tariffs
- cost advantages independent of scale economies – access to favorable inputs; labor, material…
- 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.
