Incorporates: The Antidote
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Subject Area: Strategy
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Article citation: Catherine Gorrell, (2012) "Quick takes", Strategy & Leadership, Vol. 40 Iss: 2, pp. -
These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.
Joan Magretta discussed her new book, Understanding Michael Porter: The Essential Guide to Competition and Strategy with these two veteran S&L contributing editors. Based on her long editorial relationship with Porter she suggested some key lessons practitioners should take to heart:
She believes that most people think of competition too narrowly, as a contest between rivals. But the real point of competition is not to beat your rivals, or win a sale. The point is to earn profits. Competing for profits involves multiple players: rivals, customers, suppliers, potential entrants, and producers of substitutes. Sustainable profitability is the sign that you’re creating economic value, using resources effectively to meet customers’ needs.
S&L asked Magretta to summarize Porter’s advice on innovating. Some highlights of her response:
Michael Porter provides answers to the most frequently asked questions from practitioners seeking his advice. Here is a sampling:
Q: What are the most common management strategy mistakes?
A: Confusing operational effectiveness with strategy. And confusing marketing with strategy. In the latter case, strategy must links choices on the demand side with unique choices on the supply side; focusing only on the value proposition (demand side) is only half way to competitive advantage.
Q: What are obstacles to good strategy?
A: There are many strategy killers. Three are:
A: The pressure to grow (within a business) is among the greatest threats to strategy.
A: The business model is best used as the most basic step in thinking about the viability of a company: ways of getting revenue and managing costs. If you’re satisfied with just being viable, stop there. If achieve superior profitability (or avoid inferior profitability) is the goal, then strategy will take you to the next level.
Other questions Porter addresses:
Businesses in every industry are under intense pressure to rethink their customer value propositions and operations. Almost every company is now in the business of creating and delivering “content” – product and service information that is personal, relevant and timely when accessed by the customer. To meet the needs of the continually connected customer, leading companies are undergoing digital transformation to innovatively deliver their unique value proposition.
Three strategic paths to transformation
The path to digital transformation will vary by industry, as will customer adoption and an organization’s legacy environment. Based upon our research and industry experience, the strategic routes to transformation can be summarized by three basic approaches:
Seeking innovative ways to create distinctive and valued offerings for customers is the new survival imperative for corporate leaders. So how can open up the innovation process beyond a few designated thinkers and to engage the organization’s many stakeholders – customers, employees, suppliers and strategic allies – to play more active roles in the value creation process? As a start managers need to learn to use all three new tools of stakeholder engagement: design thinking, value co-creation and the power of “pull.”
1. Design thinkingDesign thinking “is beginning to explore the potential of participation – the shift from a passive relationship with the consumer to the active engagement of everyone in experiences that are meaningful, productive and profitable.” Many leading companies – Kaiser Permanente, P&G, Steelcase – have adopted this approach. Masterclass reading: Change by Design by Tim Brown highlights how organizations can employ the principles and perspective of design thinking, so that more and more people within, and across, company boundaries, can collaborate in the development of novel solutions to business opportunities.
2. Empower the user as active collaboratorAs Nike’s global director of consumer connections put it, in the past, “the product was the end point of the consumer experience” as the company viewed it, but now “it’s the starting point.” Masterclass reading: The Power of Co-creation by Venkat Ramaswamy and Francis Gouillart broadens the perspective beyond collaborative design to place the customer experience at the heart of the entire value creation process and show how companies can go about developing engagement platforms that enable the co-creation of personalized value at scale.
3. The power of pullShifting from “pushing” product to passive customers to “pulling” together, and mobilizing resources – as needed – to meet the demands of more engaged consumers, responsively and flexibly as they unfold. The resource that is most central to success in this scenario is human passion and talent. Institutions must learn to become “powerful pull platforms, helping individuals to gain leverage they could never achieve on their own, and as a result, develop their talents more rapidly than they could as independent agents.” Masterclass reading: The Power of Pull by innovateurs John Hagel III, John Seely Brown and Lang Davison, widens the horizon of possibilities by showing how to foster learning and innovation networks capable of achieving increasing returns to scale.
Implementing these three powerful “tools” is an evolutionary process, starting with individual initiatives, local experimentation, and far-sighted leadership to help accelerate and broaden the process.
The premise of “open innovation” is that corporations learn to manage an in-and-out flow of ideas and technologies to vastly increase their access to talent, opportunities and partners. The practice now includes input from customers, crowd-sourcing, open-source projects, patent acquisitions, soliciting external insights, supplier integration, venture investing, and joint-development projects. The myriad options for engaging external partners can be daunting, so leaders need a guide for getting started with open innovation that matches the needs of their firm.
Guide to starting
Step one: assess your company’s innovation process by using five key questions:
Step two: learn how to manage external relationships
Once the initial opportunities for open innovation are identified, next consider the nature of the relationship with external partners. Relationship types vary from transactional to a full-out acquisition. But all must balance promoting openness and protecting self-interests. Proactive steps are cited.
Making it work for you
Adopting an open-innovation approach does not require wholesale replacement of all your current innovation efforts. But it does change the primary question leaders should be asking from, “How can my company capture all the value from our innovations?” to “How can my company create significantly more value by leveraging external partners to bring many more innovations to market?” Look critically at your innovation process, understand where your new venture business models are weakest, and honestly assess the points at which open innovation could add some needed spark. Start with deliberate baby steps. Over time you will find that reaching outside the company can breathe new life into your innovation pipeline.
When is it true that early mover advantage can lock leadership in various markets? What industry circumstances will allow fast followers and late followers to triumph? Each of these three options will only work under certain conditions.
Condition test for early movers
Early movers can win only when a company can:
Condition test for fast followers
Followers need the discipline to hold back and then to move quickly before an industry’s competitive order becomes set in stone. But there is a critical caveat. Many companies find it impossible to be a fast follower because of their slow decision-making timeframes, product-development cycles and the length of the sales process.
There are some circumstances that give fast followers special advantages. For example, if a company has strong local market power – such as a grocery or newspaper – it can learn from experiments happening in other territories and then copy the winning formulas. Also, firms that have strong sales capabilities can overcome the lead of early movers. Additionally, fast followers can do well if high upfront expenses for early players sap the pioneers’ financial strength and leave followers with a cost advantage.
Condition test for late followers
When can late followers win? Late followers can succeed best if they can: exploit missteps, leverage their channels, use their network, and/or redefine the category. Apple’s iPhone was a very late entrant into the mobile phone industry. But, by using its immense network of users and application developers, when Apple did enter, it became a dominant player in the mobile Internet space.
Moving to action
A business assessing its strategic options, given its market timing, should first analyze and understand what industry it’s in – what are customers really buying and what is its true competition? Once done, then determine the factors of entering the industry at different times and with its strategic resources, taking into account what its competitors are doing.