Strategy Analysis

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 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 8, 2015 By Don Springer Leave a Comment

Evolving Constraints

Writer’s block can arise when staring at a blank page. Likewise for the business strategist, indecision can surface when facing a market of limitless possibilities. Rather than unbounded freedom, we need form to define the problem space of our work and we need problems to help formulate the work itself.

Constraints and obstacles can be assets to new ventures in that they facilitate and enhance design creativity. “Constraints shape and focus problems and provide clear challenges to overcome”, says Google’s Marissa Mayer, and thus constraints provide direction to our work.

Once you accept that constraints can actually improve your new product, initiative or business, can you identify all of the necessary business constraints at one time, prior to launch? New ventures and products are more about design and discovery than they are about executing a rigid comprehensive plan.

Over time, new constraints are continually revealed, highlighting appropriate problems at the appropriate time. For example, at the heart of agile software development is the segmentation of projects into small problems to be solved. The initial problems are derived from initial user needs. Minimal products with minimal features are then developed and released in a progressive manner, quickly and often. This allows frequent user feedback and product enhancements.

Traditionally, software is developed using a “waterfall” method where the “entire solution” is completely designed, detailed and planned prior to project initiation. Team members have their roles and tasks from the beginning of the development process to the end.

In contrast, agile projects reveal problems and constraints during each phase of software release and use. Small teams encounter new problems and learn as they progress, changing objectives, roles, and product features as needed. This progressive approach can be used for the development of new products and businesses of every kind.

To enter a market quickly, minimizing the cost of entry and ensuring success, it is important to let constraints direct and enhance your initiative or new business. While present markets are predictable to some extent, new markets and offerings are best discovered.

Constraints not only provide focus for creativity, they reveal the reality of markets progressively over time. Leveraging constraints, obstacles, and problems as they arise will enhance your adaptation to the dynamic business environment of today.

August 11, 2015 By Don Springer Leave a Comment

Transient Competitive Advantage

In a Harvard Business Review article (June 2013), Rita McGrath, professor of management at Columbia Business School, stated that long term sustained competitive advantage has been the dominant idea in the field of strategy for too long. With the turbulent changes companies and industries are undergoing, it is rare for a company to maintain a lasting advantage. The reasons are familiar: the digital revolution, a “flat” world, fewer barriers to entry, and globalization. In a world where advantage evaporates in less than 12-18 months, companies cannot afford to spend months developing a single competitive strategy.

McGrath proposes instead that companies continually start new initiatives, building and exploiting many transient competitive advantages. She sees the life cycle of competitive advantages as a wave, starting with launch, peaking at exploitation, and ending with reconfiguration and finally disengagement. Each phase requires different skills from the workforce and different metrics for process and success. To create a portfolio of transient advantages requires shifts in the way companies operate and McGrath suggests a guide to those shifts as follows:

Consider arenas instead of industries – Today industry lines are quickly blurred and competition can come from outside your industry. Thinking about arenas considers customer segments, the offer, and the place of delivery.
Let people experiment within broad themes – With a shift to arenas, simply analyzing markets is insufficient. You must add pattern recognition, direct observation, and evironmental weak signals to the mix.
Adopt metrics supporting entrepreneurial growth – Rather than ROI, use affodable loss to evaluate new moves, for example.
Focus on customer experience and solutions to problems – refrain from internally focused solutions versus well-designed experience and complete solutions to customer problems
Build strong relationships and networks – investing in communities and networks strengthens the ties to customers and employees
Learn healthy disengagement – find ways to continually adjust and readjust internal resources keeping downsizing to a minimum
Systematic innovation – creating and continually filling a pipeline of innovations within the organization
Experiment, iterate, and learn – the approach to new initiative is different than established business – discovery followed by business model definition and incubation.

Strategy is still useful and important, but it requires continual choices about where you want to compete, how you intend to win, and how you will move from advantage to advantage. As McGrath says, strategy is more important than ever.