Strategy in the news

Citation

Henry, C. (2012), "Strategy in the news", Strategy & Leadership, Vol. 40 No. 2. https://doi.org/10.1108/sl.2012.26140baa.002

Strategy in the news

Article Type: CEO advisory From: Strategy & Leadership, Volume 40, Issue 2

Craig HenryStrategy & Leadership’s intrepid media explorer, collected these examples of novel strategic management concepts and practices and impending environmental discontinuity from various news media. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (Craighenry@aol.com).

What makes Apple Apple?

I don’t think it’s a particular strategy or person that makes Apple Apple; rather, it’s the company’s unstinting devotion to a particular set of ideals. Within the universe of inventors, designers, and artists, these ideals aren’t all that unremarkable, but within the universe of Fortune 500 companies, they’re as rare as water in the Gobi.

[…] when you ask yourself, “What sort of values would a company have to venerate if it wanted to duplicate Apple’s success?” the answers seem almost intuitive.

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  First, Be Passionate.

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  Lead, Don’t Follow.

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  Aim to Surprise.

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  Be Unreasonable.

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  Innovate Incessantly and Pervasively.

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  Sweat the Details.

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  Think Like an Engineer, Feel Like an Artist.

Unlike Apple, most companies are long on accountants and short on artists. They are run by executives who know everything about cost and next to nothing about value. Does that sound like an overstatement?

[…] bean counters seem to have forgotten that productivity is determined by two factors: the efficiency with which the organization uses its inputs, and the value customers place on its outputs. Executives often wrongly equate “good value” with “low price,” when what “good value” should mean is amazing value for the price.

Historically, many of Apple’s products carried a premium price tag, but customers anted up because they also delivered superior fun and functionality. Put simply, hyper-rational executives produce ultra-boring products.

The bottom line: Apple’s unique success is a product of its unique values – which are uniquely innovation-friendly and customer-centric. That’s why I don’t think any other company will soon duplicate the kind of run Apple has had over the past decade – whether or not Apple climbs higher still in the post-Jobs era.

Gary Hamel, What Matters Now, (Jossey-Bass Business, December 2011).

Why Sears is not Apple

The two biggest expectations-defying retailers of the past decade were Sears Holdings and the Apple Store. Expectations could hardly have been higher when [Sears Holdings] was created: it was one of those rare deals where the stock of the acquiring company went up on the news, and in an article headlined “Eddie’s Master Stroke“, Businessweek waxed positively rhapsodic about the prospects for the company becoming the next Berkshire Hathaway. Three years earlier, of course, it had published a column headlined “Sorry, Steve: Here’s Why Apple Stores Won’t Work“.

There are lots of reasons why Apple Stores succeeded while Sears stores have failed, not least the fact that people really want what Apple is selling. But the biggest and most obvious difference, I think, is in the two companies’ approach to spending money. Apple Stores are the most expensive on the planet: whatever it costs to make them insanely great, it will get spent. Meanwhile Eddie Lampert seems to have exactly the same attitude – only instead of spending money on his stores, he spends it on stock buybacks […]

Amazingly, Sears has spent $5.2 billion over the past five years buying back its stock, more than twice as much as on capital investment.

Steve Jobs was never very good at financial engineering; Eddie Lampert has never been very good at anything else. Lampert likes to buy things which already exist; Jobs liked to spend money building things the likes of which the world had never seen.

One of my favorite new toys is the Apple Store app for the iPhone. You walk into an Apple Store, find any product selling for less than $100, and scan the barcode with your phone’s camera. The app then asks you if you want to buy the product; if you do, you just type in your iTunes password, and you’re done. The purchase is charged to your iTunes account, and you can waltz out of the store without interacting with a single salesperson.

It’s just another small way in which Apple is revolutionizing the retail experience. And it seems to me that if you’re an ambitious retailer, then if you don’t want to revolutionize the retail experience, at least somewhere, somehow, you’re doing something wrong.

Felix Salmon, “A tale of two retailers,” A Twist of Lime in the Soda, December 28, 2011, http://blogs.reuters.com/felix-salmon/2011/12/28/a-tale-of-two-retailers/

Technology comes to Europe’s grocery stores …

Cooperative Consumers Coop, better known as Coop, was Italy’s first retailer to embrace hypermarkets, in the 1980s, and then began opening even bigger superstore venues while expanding its offerings to include insurance and banking services, electricity, and prescription drugs. Throughout this expansion, Coop sought innovative ways to support its strategy with technology. Massimo Bongiovanni has strongly helped the company realize that goal as president of Coop Centrale, which manages purchasing and distribution for the retailer’s cooperative network of stores, as well as the IT and services that support marketing, pricing, and other elements of Coop’s commercial policies.

Earlier this year, McKinsey’s Brad Brown, Lorenzo Forina, and Johnson Sikes spoke with Massimo Bongiovanni about technology’s role in fostering growth and innovation […]

Massimo Bongiovanni: Traditional customer categories are now blurring across hypermarkets, discount stores, and superstores. We see the same customers shopping across all our store formats – something that did not happen in the past. So our business processes, formats, and technology need to become more customer-centric.

This has meant developing a single view of the customer across all our store formats and brands. We also need a business model that allows us to show customers new prices and products very frequently, on a weekly or even a daily basis. So as the cost of technology decreases, we are evaluating, for example, electronic labeling, which will support the rapid change of prices at the store level. It will also enable us to customize the information we provide to customers – improving the display and accessibility of products […]

Another stream of innovation I foresee is the adoption of multimedia technology at the point of sale, to make the shopping experience more interactive and more dynamic for customers. We imagine the new point of sale as a theater. While some areas will be more stable, others will frequently change. For example, we envision the ability to display multiple offers and events at each point of sale during the course of a single day. We also want to massively enhance our ability to do customer profiling […]

“How a grocery giant puts technology at the center of innovation,” McKinsey Quarterly, December 2012.

… and brings new life to old channels in the US

As the Apple Store demonstrates, retail needs to get more human at all levels. One place we’re seeing this is in the experience of paying for an item. The road from tills to cash registers to large and complex point-of-sale machines has lead to an increasingly literal divide between the buyer and the seller. Store employees spend more time looking at their displays than at the customer – and the customer is left looking at the back of the display, which is rarely an attractive sight. But at the Apple Store, you don’t need to wait in line to purchase your items from someone behind a counter. Purchases take place anywhere in the store, and the customer and sales associate typically stand side-by-side during the transaction, which is executed on a modified iPod Touch.

Such technology can find its way to any merchant, thanks to services like Square, which enable any iPhone or iPad to accept credit card payments […] Square, in turn, points the way to new transaction opportunities. Square can enable a nearly frictionless transaction, where the customer walks up to a counter, asks for and is given some item, and walks away without ever taking out cash, presenting a card, or even a phone […]

For the longest time, retail used technology as a way to automate or make more efficient the interactions between buyer and seller, typically at the cost of any connection or relationship between the two […]

The technologies that are succeeding don’t supplant people, or make them more efficient, but instead ease transactions and encourage something that can never be replaced by machines — the conversational interaction between people. In our increasingly connected world, people crave authentic human interaction, and the future of retail is going to look a lot more like it did in the more distant past (or still does in markets and bazaars), and a lot less like the bureaucratically-driven mass consumerism we grew to expect in the twentieth century.

Peter Merholz “ The future of retail? Look to its past,” HBR Forum, December 12, 2011, http://blogs.hbr.org/merholz/2011/12/the-future-of-retail-look-to-i.html

Integrating story-telling and quantitative research to boost the bottom line

Most of my clients […] prefer to see a cause-and-effect relationship between spending and a return. They often have a science or engineering background, and have a predilection for anything that can be measured and spreadsheeted – preferably with error bars. They have huge intellectual horsepower and readily assimilate the concepts around complex adaptive systems, but less readily want to deal with the attending implications of managing ambiguity.

This preference for certainty (with error bars) is reflected in their allocation of market research spend […] but I have yet to see any business link a return on the investment for these surveys which ties in directly the resultant actions from these surveys. I think there is an opportunity to shift this experience to the better?

[…] I introduce the power of narrative research through an accepted quantitative tool. Some clients are happy users of the Net Promoter Score (NPS). NPS was developed by Fred Reichheld as means of determining a level of customer satisfaction […] The Net Promoter Score is obtained by asking customers a single question on a 0 to 10 rating scale, where 10 is “extremely likely” and 0 is “not at all likely”: “How likely is it that you would recommend our company to a friend or colleague?”.

You can see how this tool, simple to use and with immediate “quantitative” feedback, might be attractive to a resource constrained business. But the real value, often overlooked, is held with the second, supporting, question; “what story, anecdote, experience, reasons did you have that prompted that particular score?” This feedback often provides the richest source of improvement opportunity, and provides a perfect entry into a discussion on the power of narrative research […]

The output can be very powerful indeed on three levels:

1. 1.

   It demonstrates the power of narrative research (it is holistic and detailed, qualitative and quantitative).

2. 2.

   It demonstrates to the senior teams the benefits of involvement in the complexity of the market place (access to granular information, reduction of cognitive bias, disintermediation).

3. 3.

   On more than one occasion, this “taster” has lead to a Big Idea which has shifted a marketplace (and business performance).

Iwan Jenkins, “Dots and patterns: making your competitors colour blind,” Cognitive Edge, December 13, 2011, www.cognitive-edge.com/blogs/guest/2011/12/dots_and_patterns_making_your.php

Leadership feedback to fix the dysfunctional organization

Some of the most dysfunctional organizations I’ve observed have evolved from dealing with a leader’s idiosyncrasies: He’s stereotypically passive aggressive, erratic, a bully, or plays favorites. Whatever the weird behavior, it drives massive turmoil as the company adapts a workaround to the “Emperor’s New Clothes” syndrome. The frequent resolution is the CEO is fired because dysfunctional organizations underperform their peers and the board finally reacts. The sad fact is that the vast majority of these CEOs are likely great leaders who had poor role models and lacked frequent, candid feedback to know how to change.

After experimenting with a number of different approaches, I believe there’s a process to solicit feedback for just about any leader:

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  Present it as a private “for your eyes only” gift that has no other purpose than to make the recipient a better leader. It has to be separate from any other evaluation for advancement or compensation.

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  The interviews should be conducted and delivered by a truly independent and unusually competent third-party – typically an external consultant.

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  A critical mass of 360-degree feedback should be gathered from 10 to 20 different people. For a CEO: the entire board, direct reports, customers, partners, admins – the more the better.

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  The interviewees need to be prepped as follows: 1) this is to make the recipient a better leader, not for compensation evaluation purposes; and 2) everything is kept extremely confidential (e.g. quotes are anonymized and intermingled with a critical mass of other interviewees).

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  The questions are short and simple: What are the leader’s three greatest strengths? Three biggest areas for improvement?

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  The interviewer must create a comfortable, trusting environment and press hard for examples. Ideally, he should read back the quotes to the interviewee to ensure clarity and anonymity.

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  The feedback should then be summarized and the raw quotes attached as backup and presented to the leader.

[…] And this shouldn’t be a one-time thing. It’s important for a leader to hear about his blind spots on a regular basis so working on them is periodically top of mind.

Scott Weiss “Treating the dysfunctional CEO,“ A16Z.com, December 6, 2011, http://scott.a16z.com/2011/12/06/treating-the-dysfunctional-ceo/

The fate of the Euro […] and why it matters to US companies

[…] business leaders must realize that there is a real threat of the euro breaking up and of several euro zone countries reverting back to their former currencies (the so-called redenomination risk).

In this scenario, European nations will revert to their original currencies, with some weaker than others. How will that affect you? Do you have customers in Europe? Suppliers? You want to start investigating their business models and financing […]

What will happen if the Euro is no more? Will capital flight move trillions of dollars from European markets to the “safe haven” of US markets, broadening the availability of cheap credit in the United States? Will Euros suddenly flee to precious metals, driving gold up and the Dollar down? Will “liberated” German sovereign bonds provide an alternative to T-bills?

If your business is any more plugged into the global economy than a corner convenience store, you will want to look into this risk. Depending on your exposure and business model, managing this risk could be as simple as updating a few competitive assessments, or it could be as involved as wargaming or tabletop exercises to pinpoint precise tactical maneuvers and probabilities.

Michael G. Thomas, “‘Redenomination risk’ is real,” MGT Analytics, December 16, 2011, http://mgtanalytics.posterous.com/redenomination-risk-is-real

“Can” does not equal “should”

[…] [I]f I had to pick one small story that provides a huge “teachable moment” for business leaders going forward, I’d choose Bank of America’s late-September decision to charge customers a $5 monthly fee to use their debit cards – an idea that was withdrawn one month after it was announced, amidst waves of protest that threatened to engulf the bank. Why did (presumably) smart executives make such a bone-headed move, and what can the rest of us learn from this high-profile blunder?

To me, the lesson is as simple as it is profound: Just because you can doesn’t mean you should. That is, just because you can, by virtue of your size or market power, extract more money from customers or partners, doesn’t mean you should, especially if doing so serves no purpose other than filling your coffers. There is more to leadership, particularly in these troubled and uncertain times, than tweaking the “value proposition” – the narrow calculus of costs vs benefits, doing things for customers vs taking things away from them. Real leadership is about embracing the “values proposition” – doing the right thing at all times, and figuring out how to build a great business around that unwavering promise.

It seems clear that the leadership of Bank of America, desperate to extract greater profits from its nationwide retail presence, made a bloodless economic bet. It knew that plenty of customers would be ticked off by the fee, especially since the bank had encouraged them to replace credit cards with debit cards. But it calculated that the costs and inconvenience to customers of closing their accounts and switching to a new bank would outweigh their displeasure. They calculated wrong. Ultimately, the New York Times concluded, “The revenue the bank expected to raise from the debit fee was not worth the damage to its reputation” […]

Bill Taylor, “Just because you can doesn’t mean you should,” Harvard Business Review blogs, December 6, 2011, http://blogs.hbr.org/taylor/2011/12/just_because_you_can_doesnt_me.html

Learning from failure

Seth Godin […] poked a sore spot in me about teaching innovation and entrepreneurship: The difference between a failure and a mistake. He makes a useful distinction that, even if it’s not going to change Webster’s definitions, should change how we talk about and teach innovation.

Failure happens when something doesn’t work the first time. It has the potential to teach you something (even as simple as “that door is closed”). A mistake is trying the same thing over again and expecting a different outcome. It can come from carelessness, selfishness, or hubris; it can come from not taking the time to understand what happened and why. And it can come from not being allowed, or taught how, to learn from the experience […]

If failure is critical to innovation and entrepreneurship, then we need to teach people how to try again. That means we should never assign work that doesn’t give students a chance to fail, learn, and try again. If all our assignments: papers, projects, faux business plans, and finals are one-off deals, then aren’t we just teaching people how to make mistakes (and move on)?

Teaching failure (build, test, rebuild) means focusing on the rebuilds. Rather than have a final project that slowly and steadily builds towards one final plan/paper/presentation, we should have the final assignment due in the first few weeks, and then spend the rest of the term learning how to learn, recover, regroup, redirect, and resubmit through multiple iterations. Life happens opposite how it’s taught.

Andrew Hargadon, “Teaching failure,” December 18, 2011, http://andrewhargadon.typepad.com/my_weblog/2011/12/teaching-failure.html

New uses for old tools

When Dow Jones decided to revamp the Wall Street Journal in the mid-2000s, the newspaper had just endured five years of flat circulation and advertising revenue, and the whole industry was ailing […]

To help develop its strategy, Dow Jones employed a variant of conjoint analysis, a technique that has been widely used in market research for 30 years. In a traditional conjoint analysis, survey respondents are asked which products or product attributes they value as a trade-off between two or more options, repeated in enough combinations to yield a reliable ranking of each attribute’s importance. Dow Jones used this type of analysis in a new way, to identify prospective readers and reveal their preferences. After its redesign to attract this new customer segment, the Journal (now part of the News Corporation) saw a 35 percent improvement in its efforts to add new subscribers through direct marketing, reversed a three-year slump in ad sales, and experienced an annual revenue improvement of US$25 million from new programs and pricing initiatives.

The methodology needed to use conjoint analysis in this new way […] has a key variation: The marketing team uses the results to organize customer groups (and prospects) with similar preferences, providing a more detailed view of the categories they fall into, the needs they have, and the likelihood that they might become bigger (or smaller) sources of revenue.

In other words, conjoint analysis has become a new source of insight into customer segments. Of course, it would be hard to find a company that hasn’t done some kind of customer segmentation, and using conjoint analysis is certainly not the only way to achieve it. Companies usually have a sense of who their real and prospective customers are, and have an idea of what each segment considers important. But by segmenting customers with the help of conjoint analysis, companies can develop a more layered form of intelligence, with implications for which segments to prioritize, which value propositions to offer them, and how to market to them.

David Meer, “How conjoint analysis, a tried-and-true market research tool, can be used to support organic growth,” Strategy + Business, Winter 2011.

The hard work of sustaining sustainability

Figuring out what’s good for the environment can be tricky, says Yvon Chouinard, founder of Patagonia, an outdoor apparel and gear retailer committed to doing right by the planet. He points to the firm he founded in 1974, which is widely regarded as an early leader in corporate social responsibility, as an example of why it’s not easy being green.

In the 1980s, decades before Americans had widely embraced sustainability, Patagonia entered the clothing business, opening a brand-new store in Boston. The racks displayed an array of all-cotton spring items. However, within three days, many employees were complaining of headaches. The store was shuttered until officials could figure out what was wrong.

They pinpointed the store’s ventilation system, which was recycling inside air and “poisoning” employees, said Chouinard, who was shocked when told that the source of the pollution was the very clothing he considered environment friendly. Those all-cotton garments contained formaldehyde or other harmful chemicals designed to control shrinkage and make clothing wrinkle resistant.

That surprise prompted him to tour some California cotton farms, where he found land dramatically affected by the defoliant sprayed on plants as part of the harvesting process. “It was a dead zone,” Chouinard remarked, adding he didn’t even see bugs or birds on the property. The discoveries led to his decision to give Patagonia 18 months to stop using cotton produced on such farms, a radical change requiring him to co-sign on bank loans with the fledgling organic cotton farmers, some of whom called him in the middle of the night seeking emergency cash […]

While seeing its own operations expand from a tiny maker of steel pitons – rock climbing tools – to a multifaceted retailer with $340 million in sales last year, Chouinard said Patagonia has taken other steps to improve the environment. “We have 1,500 styles of clothing and shoes, and we follow every one of those products all the way from the farmer to the very end to make sure there are no unintended consequences of our actions and it’s as clean as we can possibly make it,” he said.

“Patagonia keeps a close eye on its supply chain,” Stanford GSB News, December 2011.