Tuesday, September 25, 2012


I have created market research and business intelligence functions in a variety of industries, but my current job is my first in a pure technology company. As such, this is my first direct experience outside of my consulting work that has to take into account timeframe in strategic planning.

Timeframe turns out not to be super important in most industries when you can create a sustainable competitive advantage. Theoretically, it should have been easy to create a great competitor to IKEA, Southwest Airlines, or any of the companies with truly integrated strategies. In practice, however, each of these companies has grown for decades without serious competition on the same business model.

This long period of unchallenged growth rarely exists in technology industries. Dell and Microsoft had a relatively long two decades of growth before their business models started to become outdated, but they are the exceptions that prove the rule. I remember a survey we did at the Corporate Executive Board in 1998 asking what company would dominate the software world in 20 years, and the majority of respondents answered, "A company that we haven't heard of yet." It's getting close to 20 years later, and I believe few of those individuals would have guessed Google.

"Sustainable competitive advantage" simply means something different in technology businesses because of the speed of innovation, often from forces outside your own industry, which makes compromises underpinning your strategy no longer valid. Netflix is the classic example. In their heyday, DVD rentals by mail made a ton of sense and Internet-based delivery of movies sounded crazy. Fifteen years later, bandwidth explosion, Moore's Law, and the plummeting cost of hardware has made DVD rentals by mail almost quaint.

So what's a company to do? Follow the Netflix example (no, not pissing off your customers) by continuing to innovate. Netflix saw the future death of their sustainable competitive advantage before anyone else did and spent millions trying to make their own model obsolete. They recognized that if they failed to kill their own company, someone else would. Which is why I watch movies through Netflix on my Wii today.

You don't have to be a technology company to take this approach to heart. If Kaplan or Princeton Review had been a little more thoughtful and innovative, they might not be getting killed today by Revolution Prep, a startup college test prep company that changed the model from book-based learning to online, adaptive training. Should've been obvious to see that one coming.

Tuesday, September 11, 2012

Inspiration Versus Perspiration

You've heard that genius is 1% inspiration and 99% perspiration? Well, I was interested to read a few months ago an insightful article on Wells Fargo and their success in retail and commercial banking. The relatively new CEO John Stumpf states that a good strategy flawlessly executed will always win versus a brilliant strategy poorly executed.

I would personally modify that statement a bit. I believe that a good strategy enables flawless execution but does not ensure it. In other words, a good strategy is necessary but not sufficient to win.  I would say that company success is 20% strategy and 80% execution. But you can't get the 80% right without the 20%.

I advocate the concept of "employee bandwidth" in management. The executive team has only a certain amount of time in the day, so anything that distracts their focus from work critical to the future of the company will ultimately help to sink the company. Having a single strategy, with elements that are mutually reinforcing and move towards a common goal, enables everyone to use their limited bandwidth to drive towards greater customer insight and profitability.

Where does market research come in to this equation? Done properly, the market researcher stands at the vanguard of understanding customer value. When communicated properly to executive management and the company at large, the market researcher has the unique responsibility to explain how to break value compromises that customers have endured in the past.

Take Southwest Airlines as an example again. The market researcher should have explained that pleasure travellers are willing to give up many perks of flying to get a better price. They are willing to give up free food, assigned seats, flight attendants in uniform, first class seating, entertainment options, non-stop flights, but not on-time arrival. Southwest Airlines could therefore orient their "value" offering to eliminate most perks as long as turning around the plane quickly (a key to their strategy) did not result in late departures.

Most of Southwest Airlines' approach helps to ensure that they can turn planes around quickly and still achieve one of the best on-time records in the industry. Nevertheless, their strategy has been devilishly difficult to implement. In fact, Herb Kelleher repeatedly has taunted his competitors to try his approach because he knows how difficult it is.

Difficult-to-execute strategies are not bad; in fact, they are excellent. "Difficult to replicate" equals "long-term competitive advantage." The history of companies attempting to copy Southwest Airlines is filled with failures, and I can only think of one partial success (Alaskan Airlines).

The great moment for the market research professional is the moment at which the strategy has been set, and the company is desperate for more information on what the customer is or is not willing to give up to get the benefit your company now offers. If you're offering a complete ecosystem of products that work seamlessly together, is the customer willing to give up in-person service? If you're offering the same product as competitors for half the price, is the customer willing to order direct instead of going through a distributor? If you're offering unparalleled service, is the target customer willing to pay a premium price and still give up ever going into a physical store? Market research can and should be spending money to find out these secrets.

Thursday, September 6, 2012

What Is Strategy?

Having just finished presentations for Vocollect's strategic planning efforts this year, I am reminded of one of my all-time favorite business articles, Michael Porter's "What Is Strategy?" (You can find a free copy here apparently.) In a nutshell, Porter argues that strategy is a set of inter-related and mutually reinforcing decisions about what to do and not to do. Companies that try to execute two strategies at once often pay a "straddling penalty" because the two strategies compete for resources and detract from each other. Take a look at the diagrams, in particular, which I have found wonderfully instructive for explaining how good strategy works.

Back when I was in the paint industry, Benjamin Moore had an excellent strategy:
  1. Target the residential repainter.
  2. Sell through dealers only (no home centers, no company-owned stores).
  3. Market to consumers as "high-design, high-fashion, color-forward."
Each of these decisions had implications and mutually reinforcing benefits. Targeting the residential repainter meant making the paint easy to apply, high coverage, and fast to dry. In fact, Benjamin Moore's highest-end paint dries so fast that regular consumers can't even use it because they paint too slowly. The company seems to have skimped a bit on the qualities that consumers value such as ability to wash the walls without leaving marks, but residential repainters don't care about these qualities. Selling through dealers enables full support for the design aspects that consumers value. The high-design positioning justifies the higher price at the dealer as well as making consumers tend to ignore the less appealing functional qualities of the paint in favor of the design knowledge.

I often look at technologies in our industry and wonder why nobody has tried to own a strategy in RF scanning devices. They are really just sold as commodities, but the supply chain market has room for a number of potential strategies:
  • The "Dell" strategy: go direct, reduce cost and inventory, become a "fast follower" on technology, customize orders prior to shipment, compete on price.
  • The "Apple" strategy: sell through proprietary network of high-value consultants, work really hard on the user interface, make the devices intuitive for users, solve problems in the supply chain with easy-to-download "apps" for the devices, provide a robust ecosystem of matching applications (printers, device management software, etc.), limit inter-operability to require the entire ecosystem and provide benefits for using all one vendor's ecosystem.
  • The "Sub-Zero" strategy: go super up-market, provide extraordinary value for a premium price, sell through a network of carefully chosen partners with only the best knowledge base, focus only on niche applications that cannot take a commodity scanner.
I would be hard-pressed to explain any RF scanner's strategy in this space although many have a positioning. Consequently, none of the vendors seem to be making lots of money with RF scanning. Fortunately, I believe that our parent company Intermec has some of the best technology and thinking in the field and has the ability to create a break-out strategy that could win some serious market share and profits. Maybe I'll send them the article.