DifferentionRadar

Last week, we decried that hollow bit of strategic advice, “differentiate.”  So obvious as to be trite, so natural as to be assumed.

But for all its obviousness, differentiation is essential … and difficult.

Unfortunately, too many of us in the strategy world argue stridently about what is meaningful and “strategic” differentiation. It’s a wasteful argument and deters organizations from the hard work of building meaningfully different and hard-to-copy franchises.

As I said last week, differentiation has to happen on at least three different levels: Territorial, Economic and Propositional.

Territorial Differentiation

The territorial level is the highest and most classic differentiation and involves two critical questions. To paraphrase the Monitor or Michael Porter “Choice Structuring” approach: Where are we going to got to market? And how are we going to convince customers to buy our stuff instead of the other guy’s? (See Roger Martin’s and AG Lafley’s book.)  How you answer these questions are termed “positioning” choices. (The “Blue Ocean” types are essentially talking these same choices, suggesting the key is to make territorial choices that “hit ‘em where they ain’t.”)

The territorial choices you make imply equally specific options you will NOT pursue:

“We are going to sell in urban centers through distributors; We are NOT going to sell in rural areas through mass merchants. We are going to sell to Fortune 1000 firms; We are NOT going to sell to mid size manufacturers. We are going to sell on price; We are NOT going to sell on quality.”

The problem, of course, is that the number and value of “positioning choices” diminish as the business grows. The bigger you get, the fewer there are. An entrepreneur can be very precise about customer selection. But a large multi-national that already owns big market share positions, can’t make many “different” choices. Their oceans are red indeed!

To be fair, classical Choice Structuring does try to concentrate on the “customer value” element … how you position yourself to “win”.  But the process tends to simplify the process of designing a competitively meaningful business model, let alone digging down to the work required to ensure the firm’s products and services are distinguishable from others.

Business Model Differentiation

Business model differentiation … what I also term “economic” differentiation … is the one we see so often in high tech but tends to get short shrift in more traditional venues. Many traditionalists will say that “strategy” and “business model” are different things.  But dismissing the strategic elements of business model design, or trying to narrow the work to very specific transactional choices (i.e., your price position, or whether to outsource certain functions, etc.) cuts off some of your best opportunities to create real competitive advantage.

Business model design (or redesign) is really an essential element of a strategy.

The core idea is to put under the microscope the way customers transact with suppliers … of re-engineering how profit develops. Adrian Slywotzky wrote a lot about how business models capture value in the ’90’s. The Profit Zone should be required reading.

High tech has been all about changing the way money moves. Typically, they have used digitization to disaggregate value chains. Amazon removes the bookstore, the inventory, the marketing, and the cost of intermediaries. Uber crashes the licensed taxi monopoly. Ebay creates a virtual but liquid marketplace and, in so doing, eliminates seller’s opportunity costs.

Large, incumbent firms can dance too! I just did a war game where the large multi-national client sold each of its equipment lines as stand alone franchises, marked by a quality and performance story backed up by high reputation selling. The client was starting to have real problems with one specific competitor.

That competitor, also a large multi-national, was beating my client by portfolio selling:  Cracking accounts with “loss leaders” and sample kits and steadily adding more profitable and specialized items. In addition, the competitor was changing contract terms and metrics in ways that changed how customers perceived and measured value.

Purists might argue these are just different selling tactics. But the competitor’s approach is comprehensive, sophisticated and changing customer behavior. The competitor is capturing value is a different way, on a different time-line, and making bank on the bet that my client would find changing its ways too costly to effectively counter them.

The competitor’s choices are the essence of strategic!

Proposition Differentiation

The third level of strategic differentiation is propositional. How is the specific product or service different?

The battle lines on propositional differentiation are sharp. Tech minds and innovation pundits see it as essential and elemental. On the other hand, strategy mavens will often say it is not enough. Too few inventions and technologies have the power to sustain competitive advantage. They can be readily copied or mitigated.

(Funny how the naysayers don’t see the disconnect in their argument. Product and service innovations that force efforts to match or overcome … that drive change … sound entirely strategic to me!)

Product and service differentiation is complex and can be fleeting. But it is how most businesses come into existence. The problem -and a very strategic one- is how to keep it going. This problem drives entrepreneurs while it constantly trips up and diminishes the innovation capability of large firms (see Innovator’s Dilemma).

No amount of high level “fixing” can overcome the dilemma. Firms cannot do “one and done” on their “better than” proposition. They have to work out lines of innovation. Once they establish their “better” product or service, they have to start mapping out the next iterations and improvements. Then they have to marry these innovation lines to their business model and territorial decisions.

Some times the higher level choices are about protecting and extending the value created by propositional elements. Keeping competition out.

Other times they are about enabling and exploiting propositional elements. Taking on competition.

Bottom line, the greatest business strategies happen when firms differentiate on all levels: They differentiate in terms of the territory they stake out. They are different in how they capture value. And then they ensure the nature of their product or service causes customers to say “wow.”

 

Several weeks back I posted on the wisdom of retired Marine Corps General James Mattis. Here he his on Uncommon Knowledge. Every minute is worth your time. What a blessing to know such men serve and protect us!

How do you overcome today’s short and taxed attention spans? Everyone talks. Few listen. Fewer understand.

Well, if you happen to be in the vicinity of Columbus, Ohio on April 9th, I’ve got a sure bet for you! An engaging seminar on “personal branding” given by my friend Becky Okamoto, a former operations executive at Procter & Gamble and proprietor of Evoke.pro.

Becky will be teaching how to explain what you do and the value you bring in a more concise and compelling way.

We work in an instant gratification, multi-tasking, attention-deficit environment. Some days it feels like we only have 140 characters to connect before our audience moves on. Simple, clear communication is a competitive advantage for every professional. And it starts with being able to express what you can do for your audience.

This is especially true for those of us trying to relay intelligence and strategic insight to key decision makers.

Everyone’s heard of the “elevator speech” but few know how to craft it and deliver it.  In this interactive, hands-on event, Becky will show you.  In a world where we typically get one shot to make that first impression, Becky will give you practical advice and know-how to get noticed and make a big impact.  You won’t want to miss this session!

This is a SCIP SW Ohio event, but you don’t have to register online. You can simply click here and let me know directly. Cost is $15 for SCIP members  and $25 for non-members which includes a boxed lunch.  Schedule is below:

Date: Thursday, April 9, 2015  LOCATION HAS CHANGED!
Battelle Memorial Institute | 505 King Avenue, Columbus | Conference Room A

Agenda:

  • 11:15am-11:30am
    Arrive / Registration / Networking / Boxed Lunch Service
  • 11:30am-1:00 pm
    Program & Hands-on Exercise
  • 1:00pm-1:30pm
    Optional Networking

 

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Rebecca Okamoto
In 6 words, “Committing my voice to those without.” Rebecca is the editor of Evoke.pro. and principal of Evoke Strategy Group LLC, She has over 20 year’s experience as a supply chain leader and manager at The Procter and Gamble Corporation, most recently as director of Supply Logistics for P&G’s Salon Professional Division in North America and Latin America. Rebecca was P&G’s first Asian American woman at the Associate Director Level in the Product Supply function.

In addition to supply chain expertise, Rebecca is a recognized expert in the field of brand protection including anti-diversion, anti-counterfeiting, and copyright/trademark protection. Since retiring from P&G in 2014, Becky has been helping craft supply chain solutions that help firms make more money!

After a couple of weeks off from blogging it’s time to get back to our theme of bad strategic advice.

We started this discussion talking about the perils of the famous advice “focus”. We then explored the wisdom (or lack thereof) of avoiding price based competition. Now let’s take on that all-purpose bromide:  Differentiate.

You are not alone if you have grown impatient with that most quintessential of all strategic advice: “you have to differentiate.” Well, of course, don’t we all?

There’s even a book out there with the title, Differentiate or Die. I can’t comment on the book since I haven’t read it. But isn’t the insight damn obvious?

Every business is born “different.” Either it brings to market a new and innovative way to get at something … the really different. Or it provides a better, cheaper, smarter alternative to those currently in the market … the merely different.

The trick … the real conundrum … is how to differentiate. Too often those of us in the strategy making business commit malpractice because we leave this really hard question as follow-up. The client audience says: “Ah yes, differentiate.  Brilliant!” The consultant says: “Okay, go figure it out.” The most important work is consigned to a flip chart or post-it note.

Strategic change … the surfacing of options and pathways to being profitably different … is too important to allow this.

Experience and process flowcharts simply aren’t enough. You have to dig and discover. You have to be willing to tear the scabs off current assumptions and beliefs. And you have to be ready for the heavy organizational lifting of moving people and assets into place to take on the new direction.

Entrepreneurs do this as easily a little children learn to play. Established businesses with their many cultural, organizational and reward system hang-ups have a tougher time. They are chock-full of “yes, but’s”. Which is probably why high priced strategy consultants throw the challenge back in their face, take their fee, and go home.

Business teams or executive leaders think they can get away with investing a day converging on goals and aspirations or brainstorming new market moves. The real question is how many days, weeks or months are you willing to explore, study and test acts of real difference?

Differentiation can and probably needs to happen on at least three different levels: Territorial, Economic and Propositional. Working on one level, say a specific segment of customers or a unique method of financing a transaction, simply doesn’t get most firms far enough to make hay out of change.

Sadly, the various schools of strategy tend to emphasize one type of differentiation, not all three. The Michael Porter view tends toward the territorial. Technical or innovation views tend to emphasize the propositional. Investors and incubators cue on the economic. Some will also argue that it depends on the life stage of the organization, that a General Motors can do one kind of strategy while a Silicon Valley Start-Up does another.

Well, it may be harder and more involved, but great companies do all three. They utilize what we call Differentiation Radar and understand that being purposely and intelligently different on several levels is the key to their long term success:

DifferentionRadar

A certified member of the Greatest Generation passed away last week. My dad typified the kind of gentleman who made the world we live in worthwhile. My brother’s obituary of him gives you a great sense of the man.

DadObitLt BrooksPPBjraskid1

As business people, there are some important lessons from my father we could all benefit from. They may sound simple or sentimental but they are incredibly hard to live up to:

Don’t just say it, do it! Whatever it is, do the work. Work comes before play. And no matter how daunting or unpleasant, work is a source of both pleasure and enlightenment. A job well done stays with you and makes you a better and more interesting person.

Everyone you meet deserves respect and dignity. They have a story to tell and you might benefit from hearing it, so listen and give them the space and the ground to tell it as an equal human being.

Follow-up on your commitments. People deserve that from you and you will be rewarded in multiple ways for being good to your word.

Know what you’re talking about. Or listen to those who do. While my dad loved ideas and marveled at innovation and creativity, he was insistent on knowing the facts and understanding the argument. In his line of work -investments- he never accepted the press release or the punditry. He ran the numbers and reached out to those who could help him understand the details of a particular business or investment offering.

Don’t complain or draw undue attention to yourself. You can’t do anything about the water that has passed under the bridge. Focus instead on what you can do going forward. For my dad, optimism was your best head light AND tail light.

Be on time! Being on time is the simplest commitment you make, so punctuality should be easy. Plus, you can’t take on the world if you miss the bus.

Good manners are essential and they are only good if they come from the heart! My father had simply impeccable manners. They were natural. They came from inside because he always considered the dignity and interests of others. His chivalry was no game or ploy, it was simply the right thing to do … because men and women of all ranks deserved it.

Friendships are about your friends. Be a friend, no matter the circumstances. My father built wonderful enduring relationships because he never asked anything of friends but simply to be themselves. As a result, he kept an enormous correspondence and never failed to call or visit. He had friends all over the world. Nearly every family vacation was punctuated by hour or two visits with acquaintances he’d developed from childhood, college, the military, and through his professional life. It might be a rancher in Wyoming, or an aging bank secretary living in a trailer in Oregon, or his WWII bombardier in Pennsylvania who had fallen on rough times. It didn’t matter the person or the station, my dad never failed to reach out.

Bottom line, we could use a lot more Pres Brooks’s in our world! He lived a beautiful and meaningful life and we will miss him.

Feb 26

internet

Billions of bits yearning to be free!

 

kids-sharing-cone

Last week I saw this pro consultant on Linked In … a colleague, you might say, in the great consulting constellation … trying to do a take down of Uber, Airbnb, Instacart, etc. The influencer, Victoria Pynchon, was essentially ripping off that great font of economic misunderstanding, Robert Reich, who’d published this absurdity on Salon.com the week before.

This discussion just cries out to be swatted. The reason is that if we even begin to accept the premises, we are sunk … our understanding of economics and business -human organization, for that matter- will be hopelessly flawed.

These pieces make the argument that proprietors of software driven business models that create liquid marketplaces where none existed before (think eBay) are the new “exploiters”, busily destroying the “middle class” and sowing alienation among the proletariat.

Apparently, Uber, Airbnb and Instacart are stealing the real value of participant’s assets and time. The math is a bit fuzzy, but according to Pynchon and Reich, there is no way you are getting fair recompense from Uber for picking up someone at the airport, or renting out your guestroom on Airbnb.  At least give Ms. Pynchon props for trying to unpack the economics (even if she demonstrates she slept through the concepts of sunk costs and opportunity costs in Econ 101).

Contrary to the argument that Uber, Lyft and Airbnb are taking a free ride on your assets, they are actually helping you recover a portion of the sunk costs of owning a car or home. Meanwhile they remove the opportunity cost of deciding whether or not to open a Bed & Breakfast or buy a Taxi Medallion. How good is that?!

Underlying both arguments is another, more pernicious idea that the participants in these schemes -the drivers, shoppers, and room renters- are desperate, Skid Row types who’ve been cashiered by the modern economy and left to the scraps thrown them by the fat cats who run Uber, Airbnb, Amazon and others.

Let’s dissect Reich for a minute. He thinks these businesses represent a new low in the history of capitalism because they don’t provide full time jobs. These firms, in his little mind, are immoral because they don’t make you an employee, give you healthcare benefits and a full pension. So, even though they create a market for your talents and assets that NEVER existed, they actually destroy things.

Say what? Dude, I’m just trying to rent my cottage! Or make a few bucks between client gigs driving people to the airport!

Apparently, I’m too stupid to make these choices and understand the deal. Thank goodness Father Reich is there to save me. Thank goodness Ms. Pynchon is there to suggest these businesses need to be regulated so as to protect the “laboring classes.” And the sooner the better! (By the way, who in the world calls people the “laboring classes” anymore?)

I’m never quite sure how we come to ascribe the term “liberal” to these points-of-view. They are actually Luddite … the height of reactionary response to innovation.

Folks like Reich and Pynchon appear stuck in a frame of mind that seeks a corporatist future as the ultimate objective and end state for modern society: Government elites lording over an assemblage of giant corporations. The elite know-it-all’s direct the operation and “the people” all have safe, little, life-time jobs in the corporations.

The corporations translate the will of the elite and transmit the benefit package. Shut up and take your medicine!

This kind of sharing is somehow good. Your kind of sharing … one that is unregulated, free, full of trade-offs, successes and failures … is very bad. Got it?

Friends, this isn’t progressive, this is fascist … and the true road to the middle class (i.e., all of us) becoming peasants.

price-cut

Continuing the bad strategic advice theme, here’s another questionable bit of counsel: “Avoid competing on price.”

Most strategy consultants will tell you that price competition “destroys value” (i.e., upsets Wall Street), diminishes brand equity or “sends the wrong signals” to competitors.  (The attorneys usually get agitated by the word “signal”, so then the consultants correct themselves and say “sets a bad precedent”.)  And besides, you can’t win!

Well, tell that to Wal-Mart. Or Apple. Or any number of firms that have created, disrupted or transformed markets. Price is one, if not the, most powerful strategic weapon in the arsenal.

A case can be made that northern New Jersey owes much of its character to a price war. When Commodore Vanderbilt cornered the ferry boat market in New York in the early 19th century, he substantially cut the fare to cross the Hudson. Yes, he did it to beat competition … that terrible old “robber-baron”. But he also did it to drive revenue. “Cut the price and pack ‘em in!”

Low ferry prices made the very idea of “suburban living” on the hills and meadows of the Garden State possible.

So why again is price competition such a no-no?

Obviously, short term and financially driven reward structures penalize price moves … whether up or down. Price moves untether most, if not all, the budget assumptions.  One might say it is a case where “strategic planning” (read “budgeting”) kills strategy.

Another reason is price moves are hard. They require careful reasoning and foresight. Price competition is a chess match. The near and long term objectives of price moves have to be considered together with both the probable and improbable reactions of rivals and customers.

Rival (and customer) behavior are uncertainties. And these uncertainties have to be addressed both conceptually (i.e., cost or profit outcomes) and practically (i.e., “How are we going to sell this?”). New product introductions can be project managed and stage-gated into the market. Price moves require a bit more jujitsu.

But what about that classic Michael Porter argument against price competition? Students of Porter will quickly note that price competition is a mark of instability and value destruction. In Peter Thiel’s recent book Zero to One, he talks about how he avoids these markets as he seeks to invest only in ideas that provide monopoly pricing power.

Well that’s great for the first mover, but pricing power is rarely durable.

Over the last decade or so, large parts of the consumer goods industry came to believe they had solved the pricing power conundrum. Brand marketing combined with high churn of product upgrades supposedly enabled consistent and regular price increases forever and a day. Further, high profit margins and financial market expectations forced rivals to always behave properly … to follow price increases even when they might not be able to match the other guy’s latest features or upgrades.

Ah, halcyon days! Price stability and consistent results as far as the eye can see.

Which turns out to be not quite as far as the strategic planners thought. Ask the good people at Energizer or Procter & Gamble about Dollar Shave Club.

Remembering his Adam Smith, Micheal Porter also noted that stable and substantial profitability attracts newcomers to markets, like bees to the flowers. The higher the profitability, the more entrepreneurs and innovators are inclined to scale entry barriers. And, typically, once the newcomers get past the barricades, it’s the prices that come crashing down.

So, rather than avoid price wars, the wiser course of action may in fact be to precipitate price competition. Doing so from a position of strength raises the cost for newcomers. Taking advantage of market position allows you to set the terms of price versus value in the minds of customers. You reap the benefits of increased volume and consumption. And you earn the goodwill of customers.

When seeking strategic advice, be careful about buying into myths about price stability. The most stable looking markets may, in fact, have targets painted on their backs. We should be careful not to make those targets any bigger.

Sooner or later, price competition is going come to your market. The question is, who is going to lead it?

Another great and pithy clip for your Friday…

The data demonstrating the fundamental unfairness and regressiveness of the US tax system never fails to amaze. And yet mindless “eat-the-rich” propaganda continues to rule the debate.

However, the sad truth of the matter is that reform is now near impossible. A simplified system would unemploy far too many influential people and obliterate bureaucratic power. Think of the army of accountants, attorneys and civil servants who depend on the heinously complex US tax code for their livelihood. They simply aren’t going to lay down and take a wholesale “your income times x percent and send it in” kind of reform that could end the corruption and bizarre incentives inherent in the current system.

Welder-011

“I think a trillion dollars of student loans and a massive skills gap are precisely what happens to a society that actively promotes one form of education as the best course for the most people. I think the stigmas and stereotypes that keep so many people from pursuing a truly useful skill, begin with the mistaken belief that a four-year degree is somehow superior to all other forms of learning.”  Mike Rowe

A friend and I were having lunch the other day and getting caught up on the comings and goings in each other’s families.

My friend has three remarkable, talented daughters who have fled the nest and are busy taking the world by storm. All three are degreed engineers and off to fast starts in the oil and gas industry.

My friend’s son, on the other hand, has struggled with college and is not on an engineer’s career path into the halls of corporate America. His father is worried and wonders how to help his boy get off the starting line. But the answer was right there.

His son is not going to be a doctor, engineer or mathematician. He is affable and engaging but tends to talk too much, so a sales or retail environment might not work out.

But he can weld! He’s good at it AND he likes it.

Demand for welders is high. If you are willing to go to remote places or take on difficult conditions, six figure incomes are readily attainable.

Which brings me to this remarkable post from Mike Rowe of Dirty Jobs fame. He sets out to comment on Howard Dean’s foot-in-mouth incident where he attempted to belittle Wisconsin Governor Scott Walker for lacking a college degree. He ends up illustrating the crucial difference between competence and qualification.

Truly worth a minute of time to read and consider!