How to Think Strategically - WPYL - 3-4-16

How to Think
Strategically
Embrace Change.
Create Value.
Greg Hopper
3/4/16 © 2016 Strategic Edge Executive Resources, LLC 1

2
How many of you have an iPhone?
© 2016 Strategic Edge Executive Resources, LLC3/4/16
How many of you still have the box?

Today Is Your One-Hour MBA*!
*Completely unaccredited.

Strategy, for many people:
Not
for
us!

My Strategy Mentor

My Real Strategy Mentor
William S. “Ozzie” Osborne
VP, GM, and CTO – IBM Personal Computer Company

My functional resumé
73/4/16 © 2016 Strategic Edge Executive Resources, LLC

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Resources (partial)
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Thi
s
im
ag

Strategy defined

Strategy 101
Sell more stuff.
Make the stuff cheaper.
Get more stuff to sell.
12

Strategy
14
Drive revenues up
Drive costs down
New products
New markets
New value

Fundamental challenge of strategy
in technology-based companies
15
1. You start selling
a successful
product.
2. You continue to
improve the
product and sell a
lot more.
3. You’re selling
product faster than
ever just as you
saturate the market.
4a. These people
find your product
to be “too much”.
4b. These people
find your product
to be “too old”.

You’ve heard this…

But in today’s business world…
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Doing the same thing over and over
and expecting the SAME results
is insanity!

Market Dominators

Market Dominators Were Insane

Profits appear more and more as a lagging indicator of
yesterday’s innovations. Around three-quarters of
Microsoft’s profits come from two extremely successful
products that the company introduced in the 1980s and
1990s: the Windows operating system and Office
productivity suite.
As Paul Graham, co-founder of Y Combinator wrote,
“Microsoft cast a shadow over the software world for
almost 20 years starting in the late 80s … But it’s gone
now. I can sense that. No one is even afraid of Microsoft
anymore. They still make a lot of money … But they’re not
dangerous.”
That was in 2007.
Source: “Too Much Profit Can Doom Your Company,” Brad Power and Ric Merrifield, 6/1/2015, HBR.com

Market Dominators Were Insane

Return to Relevance

HBR: March 2008
24

Impact is severe
25

Stalling
“Once a company suffers a significant
downturn in revenue growth, it has only a 7%
chance of ever recovering to see moderate or
high growth.”
- Olson and Van Bever, Stall Points
Further, 2/3 of stalled companies were
acquired, declared bankruptcy, or were taken
private.

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Why does a company exist?

There is only one valid definition
of a business purpose:
to create a customer.
Peter Drucker, The Practice of Management (1954) pg. 37)
30

Theodore Levitt (1925—1996)
• Escaped Nazi Germany; PhD in
Economics from OSU
• Taught at HBS from 1959 – 1990
• Editor of HBR from 1985 – 1990
• Wrote eight books; had 25
articles in HBR
• Created the term “globalization”
as a strategic phenomenon
• Vaulted marketing to primary
role in business

Theodore Levitt (1925—1996)
Very
Smart
Guy

Levitt on Business
The purpose of a business is to create and keep a
customer.
33© 2016 Strategic Edge Executive Resources, LLC3/4/16

Levitt on Business
• The purpose of a business is to create and keep a customer.
To do that you have to produce and deliver
goods and services that people want and value
at prices and under conditions that are reasonably
attractive to those offered by others to a
proportion of customers large enough to make
those prices and conditions possible.

Levitt on Business
• Produce and deliver goods and services that people want and value.
To continue to do that, the enterprise must
produce revenue in excess of costs in sufficient
quantity and with sufficient regularity to attract
and hold investors in the enterprise, and must keep
at least abreast and sometimes ahead of
competitive offerings.

Levitt on Business
• Produce revenue in excess of costs.
No enterprise, no matter how small, can do any of
this by mere instinct or accident. It has to clarify
its purposes, strategies, and plans, and the larger
the enterprise the greater the necessity that these
be clearly written down, clearly communicated,
and frequently reviewed by the senior members of
the enterprise.

Levitt on Business
• No enterprise can do any of this by mere instinct or accident.
In all cases there must be an appropriate system of
rewards, audits, and controls to assure that what’s
intended gets properly done and, when not, that
it gets quickly rectified.

Levitt on Business
• The purpose of a business is to create and keep a
customer.
• Produce and deliver goods and services that people want
and value.
• No enterprise can do any of this by mere instinct or
accident.
• Assure that what’s intended gets properly done.

Elements of Strategy
• Mission: Why are you in business?
• Vision: What is your desired “future state”?
• Values: What is important to the company?
40

Mission Statement
“A long, awkward sentence
that demonstrates
management's inability
to think clearly.”
41

Mission Statement
Inform,
educate,
and
entertain.

Vision
• 5 year+ time horizon
• Aspirational
• Inspirational
43

Create the most compelling car company of the 21st century
by driving the world’s transition to electric vehicles.

Values
• Important characteristics (personal or corporate)
that determine how you will act in executing
your strategy
45
“Character is not made in a crisis, only exhibited.”
- Robert Freeman

VW Values?

Three Layer Model of Competition
48
Benefits
Reputation
Commodity

Basic
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Commodity
Benefits
Reputation
Price

Bare Minimum Expectations
Courtesy Roshan Bhoj

Typical Offering
51
Benefits
Reputation
Price
Compare features
Commodity

Features That Matter
52
“It’s a war of better products
and convenience and features
for riders,” Amit Jain,
president of Uber in India, said
of the competition with local
Indian ride-hailing apps.
“The dwell times in [traffic in]
India are one of the longest in
the world and making
constructive use of that time
by people able to access
emails, communicate with
friends and family is a feature
that is very beneficial to
consumers,” he added.

Marketing Nirvana
53
Benefits
Reputation
Price
Compare features
Brand-driven
Commodity

Extended Reputation

More representative
57
Benefits
Reputation
Commodity
This is where the battles
are usually fought.
Extreme loyalty J
Price wars L

Definition
A business model describes the rationale of
how an
organization creates, delivers, and
captures
VALUE.

Dimensions of Business Design
3/4/16 60
Dimension Key Issue
Key
Questions
Customer Selection
Which customers do
I want to serve?
To which customers
can I add real value?
Which customers will
allow me to profit?
Value Capture
How do I make a
profit?
How do I capture a
portion of the value I
created for
customers?
Differentiation/
Strategic Control
How do I protect my
profit stream?
How do I resist
customer or
competitor power?
Scope
What activities do I
perform?
Make, buy, or
partner?
From “The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits” by Slywotsky and Morrison
© 2016 Strategic Edge Executive Resources, LLC

Christensen Definition
“Four interdependent elements that create
and deliver value”
1. Customer Value
Proposition
2. Profit Formula
3. Resources
4. Processes

Business Model Generation

Canvas Components
Nine building blocks
1. Customer Segments
2. Value Proposition
3.Channels
4.Customer Relationships
5. Revenue Streams
6.Key Resources
7. Key Activities
8.Key Partnerships
9.Cost Structure
8
7
6
4
3
2 1
9 5
BASIC TEST: Does revenue exceed cost?

Two Sides
CSVP
Ch
R$
KP
C$
CR
KR
KA
VALUEEFFICIENCY

Focus on Segmentation
Nine building blocks
1. Customer Segments
2. Value Proposition
3.Channels
4.Customer Relationships
5. Revenue Streams
6.Key Resources
7. Key Activities
8.Key Partnerships
9.Cost Structure
8
7
6
4
3
2 1
9 5

The question segmentation
(tries to) answer
What will customers want to buy?
• What should we develop?
• On whom should we focus?
• What will they value (and what won’t they)?
• How should we communicate with them?

Usual Approaches to
Segmentation
• Demographics
• Age
• Gender
• Income
• Home ownership status
3/4/16
• Profession
• Education
• Location
• Etc.
© 2016 Strategic Edge Executive Resources, LLC 67

3/4/16
Breakout
Are traditional segmentation
strategies successful?

Things no one said, ever.
Hey! Why did
you buy that cool
thing?
Because I’m between
the ages of 18 and 34.
Artwork R. Hopper

Traditional Segmentation
• Defined by attributes of product and/or
customer
• Based upon a correlation between
attribute and outcomes (i.e. purchase and
use)
Is this enough to base a strategy on?

Short Answer: No.
When your marketing theory offers a
plausible statement of causality
AND
is based on circumstance-based
categorizations (i.e. segmentation)
THEN
you can predict what features, functions
and positioning will CAUSE customers to
buy a product.

Key Insight: Customers Hire
Products
Customers have “jobs” to be done.
They “hire” products and services – and
people – to do those jobs.

Job-
to-
be-
done

Three Fundamental Questions
• Who is it for?
• Why will they buy it?
• Why will they buy it from you?
Note: “What does it do?” and “How does it
work?” are not fundamental questions. No
one cares.

Three Fundamental Answers
1. Who is it for?
2. Why will they buy it?
3. Why will they buy it
from you?
1. Target market
2. Value proposition
3. Source of
competitive
advantage

Competitive Advantage Over Time
77
Distinguishing
Features
Reputation
Commodity
No good
idea goes
uncopied.

3/4/16 78
Breakout
How do you
respond to this?
© 2016 Strategic Edge Executive Resources, LLC
Distinguishing
Features
Reputation
Commodity

81

Example: 1978
82
These two companies were the world’s
largest consumers of silver.
They dominated the photographic industry.
They had “sustainable competitive
advantage.”

Enter the Hunt Brothers

Breakout
85
You’re the strategy consultant.
What do you advise these two
companies to do?
Why?

(some of) The rest of the story

Move forward a couple years, and…

You’re the strategy consultant.
Now what do you advise these
two companies to do?
Why?
Breakout

Context: The Old Way had two
fundamental assumptions
Assumption 1: Industry mattered most.
• Relatively stable and enduring forces
• Understand the forces
• Keep them under control
• Premium on analysis and long-term planning
• The next five years were “continuously
predictable”
90

Context: The Old Way had two
fundamental assumptions
Assumption 2: Once achieved, advantages are
sustainable.
• Management becomes supreme (vs.
entrepreneurs)
• Not so in most industries: music, technology,
communications, travel, consumer
electronics, publishing, automobiles, razors,
everything-as-a-service, taxis, food, etc.
• Advantages are copied quickly, technology
changes, or customers just move on
91

Lesson
“The assumption of sustainable advantage
creates a bias toward stability
that can be deadly.”
92

Lesson
“A preference for equilibrium and stability
means that many shifts in the marketplace
are met by business leaders denying
that these shifts mean anything
negative for them.”
93

Problems that stability creates
http://javaiscoool.blogspot.com/2013/01/benefits-of-avoiding-software-silos.html http://www.biomedcentral.com/bmcmed/series/Autoimmunity

How not to embrace change!

Source of problem
Industries are the wrong thing to study
• Not granular enough to provide leaders enough
information to make decisions on
96

New unit of analysis: The “Arena”
• An arena reflects the connection between the
customer, the offer, and the geographic
location
• Characterized by the particular connections
between customers and solutions
• NOT by conventional description of offerings
that are near substitutes for one another
97

Driver of categorization
The customer’s desired outcome - the “job to be
done”
• The customer will evaluate all the alternative
ways to get that job done, whether or not a
particular vendor feels that the alternatives
are “competitors”
• “The most substantial threats to a given
advantage are likely to arise from a peripheral
or non-obvious location.”
98

“…peripheral or non-obvious
location”

Implications
The source of competitive advantage is changing
• Old way: features, incremental changes --
“better mousetraps”
3/4/16

JTBD: Dead mice

Implications
The source of competitive advantage is changing
• Old way: features, incremental changes --
“better mousetraps”
• New way: deep customer relationships, “ability
to design irreplaceable customer experiences
across multiple arenas”
3/4/16

“Core competency…is a dangerously inward-looking notion.
“Competitiveness is far more about doing what customers
value than doing what you think you’re good at.
“And staying competitive as the
basis of competition shifts necessarily
requires a willingness and ability
to learn new things rather
than clinging hopefully
to the sources of past glory.”
- Clayton Christensen

Example: Today
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• Embraced digital
• Disengaged from film
• Got out of comfort
zone
• 2015 Revenue of $22B

New strategy playbook
Based on “transient competitive advantage”
• Advantage evolves with time, changing
customer preferences, and context
107
Deliberate strategy
(every play part of a
“game plan”)
Emergent strategy
(adjusting constantly
to game on field)

How to compete
108
“The Wave of Transient Advantage"
Launch Ramp up Exploit DisengageReconfigure
Returns

Other views of the “wave”

Remember this?
110
1. You start selling
a successful
product.
2. You continue to
improve the
product and sell a
lot more.
3. You’re selling
product faster than
ever just as you
saturate the market.
4a. These people
find your product
to be “too much”.
4b. These people
find your product
to be “too old”.

Breakout
111
Returns
This makes sense.
Why don’t more companies
follow this advice???

Problem
112
Returns
This is where companies live!
Investors know how to value them, metrics are readily available,
and companies can be compared. Managers are rewarded for
maximizing the metrics and discouraged from investing in non-
core activities.

Edges require different skills than
exploitation phase
113
Returns
Needed:
Innovators and experimenters
comfortable with ambiguity
and prepared to learn (from
failure, if necessary).
Needed:
People with analytic skills to
detect early signs of decline
and not afraid to make
divestment decisions.

Your One-Hour MBA* is Over!
*Completely unaccredited.

How to think strategically
• Think BIG
• Think WIDE
• Think FORWARD but learn from the past
• Use FRAMEWORKS
• Embrace change, and create VALUE.

117
Source: Pricing-Hub.com

Thank you!
Contact information: Greg Hopper
ghopper@StrategicEdgeER.com
Facebook.com/CompStrat

How to Think Strategically - WPYL - 3-4-16

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