Posted tagged ‘Business Strategy’

And in summary…part 1

May 1, 2009

Our session to the housewares association is less than a week away. It seems appropriate to review the lessons that we have learned and the strategic underpinnings for our recommendations.

The challenge that was posed was this:

What should you do if you find your company to be one of those that now must sell its products to a handful of superstores such as Wal-Mart, Target and Bed, Bath and Beyond and these “clients” are now in a position to dictate your pricing, the way that you do business and even your margins?

Underlying this big question was a series of smaller but no less important ones:

  1. Are there alternative marketing channels that can be leveraged?
  2. Where does the social media fit into addressing this challenge?
  3. Is there a way to identify products that need to be invented and how can we test them faster and better?

With the help of several very talented, knowledgeable and experienced friends and business colleagues, we sought to develop and create a framework, if you will, for addressing these questions.

Here is a quick review of the lessons that we learned.

Lesson 1: There is Nothing New Under the Sun. What the housewares industry is experiencing now has happened to many industries before it. This is not meant to be cold comfort and it is important. It teaches us that there are historical experiences and prescribed and proven methods that can be incorporated in our plan and framework.

Lesson 2: The Only Way to Fight the Tyranny of Kings is with Creativity. When we live inside a problem, it can be very difficult to identify the way out of the problem. All is likely not lost. Brands can be reinvented through consumer franchising, where the goal is to communicate distinctive brand attributes, develop and reinforce brand identity that is consistent with the image of the brand, build long-term brand preference, encourage repeat purchase and long-term patronage, and engage active consumer involvement.

Lesson 3: Know Your Segment and Know Your Category. Those products that add value and are successful are often so because their manufacturers and marketers understand to whom they are selling. Many companies segment broadly hoping that they can earn a “small slice of a large pie.” However, all too often, the solution is realized by segmenting finely and catering to a very defined and discrete group. We learned some tried and true ways to do this.

Lesson 4: Think Beyond the Obvious. One of the easiest and most difficult exercises to do – at least by one’s self – is to challenge what one knows to be a “fact.”  We have difficulty doing this because as intelligent and educated people, we learn and we learn well. While effective for many, many circumstances, this mechanism actually works against us in addressing these issues because we naturally self-edit and discard options that. although inappropriate at a particular time, are now valid and appropriate. (This is why when brainstorming, really top flight facilitators will not allow anyone to eliminate an idea when people are putting them up for consideration). Marketplaces change. Technology eliminates one issue but generates another. These are new opportunities for inventors. There are some wonderful books on rethinking the marketplace such Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by W. Chan Kim and Renée Mauborgne if you wish to explore this thinking in more detail.

Lesson 5: A Brand Community is a Business Strategy. Reconnecting with your customers will alter everything about your business. It will change the way your products are designed, delivered, marketed and supported. If done well, it will generate passion and excitement for you and your staff as well as for your customers. To effectively accomplish this, you will need to be vulnerable and open.

In our last post before Tuesday’s session we’ll review the remaining lessons that we learned.

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Lesson 5: A Brand Community is a Business Strategy

April 2, 2009

As fate would have it, April 2009’s Harvard Business Review presents an article titled “Getting Brand Communities Right.” The article written by Susan Fournier and Lara Lee highlights seven ideas that are important to our analysis. I’ve summarized them here. To purchase this fascinating article so that you can read it in its entirety, click here.

(1)    A brand community is no longer a marketing strategy. It is a business strategy. To be most successful, allow your brand community be a high-level strategy that supports all of your business goals. Communicating with the community allows your business activities to take on new meaning and reflect the needs of those you wish to have as customers.

(2)    A brand community exists to serve the people in it. The authors state that if you meet the needs of the individuals within the community, you will in fact be meeting the needs of the business. Here’s the challenge. All businesses like to control the products they sell, the conversations they have and how they are perceived. Being effective here though means being vulnerable, not all-knowing and committed to addressing a need – rather than building your brand. Now, here’s the payoff. You just might discover an unmet need not related to your opportunity but one that keeps people very related to your business.

(3)    Engineer the community and the brand will follow. There is a science to engineering a community. Typically, people try to build communities around pools. These are individuals united by share values or goals (such as Republicans or Democrats). The authors explain that the relationships these pools form are limited and suggest that Web affiliations based on strong one-to-one connections (the example they use is a Cancer Survivors Network) is the catalyst that creates an engaging energy that sustains the community. The last element is to build a web community around hubs, individuals whom the community admires and is related to. Hooking up with such an individual will again drive passion.

(4)    Smart companies embrace the conflicts that make communities thrive. The natural reaction when one hears a complaint is to address it or squelch it. But in order to be an “in” group you need an “out” group. (Think Apple vs. PC, Coke vs. Pepsi). Strengthen the conflict and you strengthen the community.

(5)    Communities are strongest when everyone plays a role. The best metaphor that I could think of for this principle was the physical neighborhood within which that I live. What gives a neighborhood color, charm and notoriety are the characters within it. Each contributes to the fabric. Allowing people to be diverse in their thinking, types of support and nature makes the community engaging. To see a full list of roles, check out the article.

(6)    Online networks are just one tool, not a community. On-line networks re not enough to create a community. Communities grow from traditional approaches as well. Companies build communities using advertisements, celebrity spokespeople (“hub”), social interaction, entertainment, expert advice, packaging…and on and on.

(7)    Of and by the people, companies defy managerial control. Much like your physical community, to thrive, an on-line community can’t be controlled. Yes, it can be supported and nurtured…but not controlled. Supporting and nurturing may be done with scripts that articulate behavior guidelines  and those that encourage appropriate behavior in a particular setting. In fact, you can create settings that have different rules and allowed behaviors.

The plan for addressing our challenge incorporates these rules. Still there is more analysis to be done.

Stay tuned…

The Five Tests of a Sound Strategy

September 24, 2008

Assuming that we know “what we want to be,” that is, we now have a vision in place, we can begin to immerse ourselves in deciding the best path toward reaching our destination.

Yes, we are finally ready to formalize our business strategy.

Strategy is defined based upon (1) the industry and your position within the industry as well as (2) your position relative to your competitors’ position.

Most people think of strategy as optimizing what they already do and being the best at it, leading them to conclude that there is one, best way to compete. Strategy is really about choosing to differentiate one’s product / services from one’s competitors.

Failing to differentiate one’s products / services from those of one’s competitors – meaning the consumer can’t decide which product is better — creates destructive competition in which the only distinction is price. Price competition is never sustainable and is unwinnable.

Competing effectively means that a company is

  • Exceeding the Industry Average Return
  • Creating a return greater than those of most or all of your competitors

To win, you either have to have a higher price (justified by a differentiation of product / service) or a lower cost (justified by a more efficient value chain). You need to operate from the industry cost vs. your cost and the industry price vs. your price. Regardless, you have to be profitable. After all, you can’t have an army without feeding it…and you can’t have a business without being able to sustain it.

Five Tests of a Sound Strategy

There are five tests of a sound strategy

1.      A unique value proposition compared to competitors

2.      A different, tailored value chain

3.      Clear tradeoffs, and choosing what NOT to do

4.      Activities that fit together and reinforce each other

5.      Strategic continuity (having the strategy permeate throughout the organization)

Defining the Value Proposition

Defining the value proposition means identifying the end users and the channels used to sell to them; understanding the end user’s needs and which products, features, and services will address them; and creating a profitable price at which they will buy. We have already discussed how we can learn more about what our customers are really buying.

According to UCLA Anderson’s School of Management Professor Richard Rummelt, there are two ways to get to a successful value proposition. One, you can invent your way to success. Unfortunately, you can’t count on that. The second path is to exploit some change in your environment – in technology, consumer tastes, laws, resource prices, or competitive behavior – and ride that change with quickness and skill. The key is to take a position while there is uncertainty and ambiguity. Clarity occurs only after a company takes a position. However, by choosing to let another take a position, one loses the opportunity to profit from the knowledge.

The second path is how most successful companies develop their plan. Changes do not come along in nice annual packages, so the need for strategy is episodic, not necessarily annual.

Sustaining Competitive Position – The Role of Tradeoffs

  • Choosing a unique position is necessary but not sufficient to create a sustainable advantage because of the threat of imitation
  • Traditional thinking focuses on competitors’ difficulty or ability to imitate
  • Equally, if not more important, is whether competitors want to imitate
  • Tradeoffs are incompatibilities between strategic positions that create the need for choice
  • Strategic tradeoffs lie at the heart of sustainability
  • An essential part of strategy is choosing what not to do

The takeaway is that as business leaders, we want to encourage choice. In fact, we want to our offering to appeal to our target consumers. We want the service / product to contain exactly what they would like and not have more features than are required, even if they are additional to what the consumer wants. Additional and unnecessary features only drive up our costs and reduce profitability.

In the next post, we’ll talk about companies who employed this approach to great success.

The Four Questions You Must Answer and The Importance of Your Vision

September 4, 2008

It’s time then to get down to the more practical aspects of creating a business strategy.

Fundamentally speaking, every strategic plan must answer these four questions and they must be answered in this very logical progression:

  1. Who are we?
  2. What are we?
  3. What do we want to be?
  4. What can stop us from getting there?

The answer to the first question is articulated in the mission and vision of the company. The mission states what business we are in and what we do and provide for our clients.

However, it is the vision of what the company hopes to become that establishes the strategic direction for the organization. An effective vision lays out a future about what the company hopes to become. It typically is uncomfortable, much like clothing that is too big because it doesn’t fit who we are today. (I still remember that as a child, my Mom would always say “don’t worry, you’ll grow into it.” Visions are just like that.)

The vision states the value that we are ultimately committed to providing to our clients, employees, stockholders and even ourselves. It motivates us to stretch beyond where we are today.

Establishing a vision first is critical because it becomes our corporate compass. It sets a direction and destination for the company. The tactical options that we choose to implement must propel us towards reaching that destination, and so, the vision helps us to make intelligent choices. When opportunities present themselves we are able to evaluate them in a context of whether it moves us forward and whether it moves us forward more effectively than the other options that are available to us.

It is important to recognize that understanding the vision is a requirement for every member of the organization. If you subscribe to the belief, as I do, that every job in a company is meaningful – otherwise why do it or pay someone to do it? – then you must conclude that every employee will be expected to make choices on behalf of the company. The greatest tool that we may provide to our people is the vision as it will provide the context for so many decisions.

A vision is very different from goals and objectives. Goals and objectives are predictions of what we are going to accomplish or do in the next weeks or months or quarter to get to our vision. The vision though must come first as it is the foundation for goal setting that is based in the future and not in the past.


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