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October 6, 2015 By Don Springer Leave a Comment

Pruning Your Business

Strategically, it is just as important to formulate what to stop doing as it is to formulate what to start doing. In Rita McGrath’s book, The End of Competitive Advantage, she argues for healthy disengagements of businesses.

It is a case of recognizing decline as soon as you can and appropriately disengaging from the business in a way that conserves resources and supports your strategic direction.

Signs of decline can easily be spotted and usually long enough before it creates a crisis. But as McGrath identifies, the measurements for decline are not the usual routine operational measurements. She lists the categories of declines as:

Diminishing Returns to Innovation – next generation innovations start to be smaller and smaller improvements in the user’s experience
Increasing Commoditization – alternatives start to be increasingly acceptable to potential customers
Diminishing Returns to Capital Employment – growth rates in certain portfolio offerings begin to perform below an acceptable target

Once a portfolio business becomes a candidate for shifting resources or divestiture, you have to act quickly to conserve the value as it declines. McGrath identifies three reasons a business should be removed from the corporate portfolio:

Capability-Offering is core – the offering is heading for obsolescence, but customers, suppliers, and the organization need to be transitioned to a new platform or service offering
Capability-Offering has value, but not for us – divest for reasonable prices
Capability-Offering is in decline – optimum pay for customer support while decreasing investment

Of course, to complicate each of these reasons and actions is the element of time. If there is relatively little time pressure, then the delineated approach can work in a deliberate fashion, but if time pressure exists, the response becomes more urgent. A migration becomes a divestiture, divesting for reasonable prices become bargain prices, and continuing support becomes transitional in an end-game.

To equip your business to prune in a healthy manner, McGrath recommends that you identify the warning signs of decline, create metrics to highlight the import, and once the decision for disengagement has been made, pick the appropriate approach in accordance with value to the business, the reason for decline, and the pressure of time.

Pruning your business is an important on-going strategic action for businesses who desire to build and exploit transient competitive advantages.

September 29, 2015 By Don Springer Leave a Comment

A Tightrope for Growth

With markets in continual turbulence and competitive advantage transient, how do companies grow and thrive?

In her book, The End of Competitive Advantage, Rita McGrath contends that companies must continuously reconfigure. They do that by balancing flexibility with stability and thus avoid integration breakdown on one hand or stalling innovation on the other.

When facing extreme uncertainty for extended periods of time, most people become ineffective or even paralyzed with inaction. The high performing business today understands that and provides a ballast to stability in terms of social architectures. McGrath addresses several of these social structures:

Ambition – using stretch goals to keep a company from becoming complacent with today’s market advantages
Identity and Culture – investing in common corporate identities, culture, and leadership
Deployment via Development – educating employees when shifting from one market focus to another
Strategy and Leadership – establishing and reinforcing consistent strategic priorities and guiding principles
Stable Relationships – maintaining long term relationships with past and present employees and partners

Despite the internal systems and social structures above, today’s high performance business must create processes that foster strategic agility. McGrath found that high performance companies do this via the following principles:

Shape Shifting – leveraging industry evolutions and embracing the change rather than dramatic restructurings
Fast Budgeting – centralizing flexible resource allocation to avoid budget hostage situations by powerful executives in the business
Frequent Adjustments – adjusting strategy and changing resources quarterly versus annually
Innovation is the Norm – innovation is continuous and mainstream for everyone rather than episodic
Options Oriented Pattern to Market Exploration – entering markets to test response with small initial investments

McGrath found that the high performance companies “navigate seeming incompatible demands deftly”. While grand strategic priorities, values, and guiding principles are kept stable over time, the companies initiate prodigious amounts of experimentation and innovation.

The very stability of certain principles, culture, and leadership provide organizational energy enabling effective innovation in accordance with market evolutions as well as sheer change.

September 22, 2015 By Don Springer Leave a Comment

Do Industries Matter?

In strategy, do industries or customer needs matter the most? Can the competition and playing field be sufficiently defined such that execution becomes the focus?

To evaluate age old assumptions for strategy, these are some of the questions to ask according to Rita Gunter McGrath, professor at Columbia Business School of New York. In her book, The End of Competitive Advantage, she makes a case that your strategy is most likely based upon two old assumptions: (1) industries matter most and (2) once achieved, advantages are sustainable.

We have been taught that industries are enduring and stable and so once you assess the players and the offerings, you can begin to take action to position your company in a place of advantage and then compete to sustain that advantage. The strategic emphasis is on the analytical capabilities necessary to assess the competitive forces and the industry trends. The goal becomes a positional goal to achieve market share. In strategy design and execution, the only competitors of interest are those inside the industry and the industry drivers are the comparative product and service price, functionality, and quality.

We have also been taught that once a strong position and market share has been achieved, the strategic objective is to be fortified by optimizing people, assets, and processes to sustain the advantage. This all made sense and the operational objectives were all about efficiency, eliminating costs from the enterprise, value chain, and supplier/delivery links. This approach can indeed be sustained in some industries today.

However, in more and more industry sectors, the threat is from outside the industry and the changes are continual and rapid. McGrath argues that “the presumption of stability creates all the wrong reflexes”.

Inertia builds up along existing business units and business models. It creates conditions for rigidity in the organization. She argues that it also critically inhibits innovation. It calcifies the organization’s ability to be proactive in design and growth, ever mindful of alternatives to satisfy specific customer demands no matter what the industry of origin.

For McGrath, what matters most in a dynamic environment is not industries and long term sustainable advantages, but the links between customers’ needs and the solutions that satisfies those needs.

It is about looking across industry boundaries to add new capabilities so that customers can be retained as their needs and the required solutions change. Industry analysis and sustained advantage may become a rigid playing field of the past.

September 15, 2015 By Don Springer Leave a Comment

Serendipity

“Never underestimate serendipity” said one expert serial entrepreneur being interviewed by Saras Sarasvathy, Darden School researcher.

Dr. Sarasvathy was researching serial entrepreneurs to assess and codify the domain expertise they represented. Among the principles she discovered was one she identified as “The Lemonade Principle” evoking the widespread classic notion, “when life gives you lemons, make lemonade’.

Entrepreneurs, business developers, and product marketers all use contingencies for their benefit when the market is unknown and unknowable. New ventures are often products of contingencies or serendipity. The very structure, goals, competencies, and culture of the venture are the residual sediment of human activity striving to fulfill their aspirations with the particular tools and in the particular location and time in which they live.

As Sarasvathy notes however, it is not the contingencies themselves, but how an entrepreneur leverages those contingencies that forms the difference. Their approach is in contrast to the traditional approach of managing for risks and minimizing the surprises.

When you are executing a plan with a clear objective, minimizing risk is relevant. However, when you are creating a new venture with an unpredictable and perhaps unknowable market, your solution logic is more about designing and constructing than deciding. In that context, serendipity becomes an asset.

As Sarasvathy recounts, in 1985 two days prior to a 4th of July weekend, Thomas Stemberg had recently lost his division manager job in a supermarket chain and was working on a business plan for a new chain when he ran out of printer ribbon for his Apple printer. He found that stationary stores had closed for the weekend and those that were open did not carry the ribbon.

Relating the episode years later to a CNN interviewer, he said he realized that small businesses could not purchase ribbons at the cost of large businesses and furthermore could often not purchase the product at all. That weekend he had no printer ribbon, but he had an idea for Staples.

While surprises are usually considered in terms of errors or failures, for the entrepreneur they are sources of opportunities or value creation.

The context of “constructing something” allows serendipity to be viewed as an asset, so it is incumbent upon the entrepreneur to adopt a “designer mindset” and seize upon contingencies in an actionable way.

Serendipity can help you build something better than the original plan if you are open to the nudge.