Strategy

Understand 80 vs 8: Do You REALLY have a Competitive Advantage?

McKinsey & Company’s February 2018 magazine included an important article, Strategy to Beat the Odds, with interesting implications.

Most CEOs know the fundamentals of business strategy, including Michael Porter’s “5 Forces” model and the concept of Competitive Advantage which arises from a set of conditions that makes your company superior to rivals and facilitates greater profits.  The article notes a study which found that “80 percent of executives believe their product stands out against the competition – but only 8 percent of customers agree”.

WOW! Peter Drucker said that “the purpose of a business is to create a (profitable) customer”; therefore, it’s their opinion –not that of the executives – that really counts!

Why the discrepancy?  The reason that the article focuses on is what they call “the social side” of strategy. First, when people make decisions, there are inherent biases, such as overconfidence and cognitive biases, (e.g., anchoring, loss aversion, confirmation bias and attribution error), as Daniel Kahneman described in Thinking, Fast and Slow. While they help us filter information in our daily lives, they can distort the outcomes when we make big, consequential decisions infrequently and under high uncertainty – as we do with strategy. Also, affecting the process is the “agency” challenge: presenters who want to get a “yes” to their proposal may exclude contrary information; knowing that proposals are compromised often, executives may overstate requests; and people’s decisions are often influenced by other factors including their own egos and career aspirations.

Another reason stems from Drucker’s perspective: who are your customers? Do you really know who they are and what they want? For instance, what’s really important to potentially-loyal customers who:

  • Use the product infrequently because they are not enamored with it
  • Choose not to use it for reasons the company may not know
  • Never even considered it.

We all know the limits of what rivals can do selling similar customers, similar products for which none have a real Competitive Advantage: (e.g., McDonald’s, Burger King and Wendy’s who fight over “dollar” meals.) Kim and Mauborge propose executives get out of the “bloody” red ocean and service new customers with a “Blue Ocean Strategy” (e.g., Shake Shack). Using value innovation, companies like Cirque do Soleil, NetJets, Curves, Salesforce and Lyft) companies can deliver REAL competitive advantages to targeted new customers.

What does all this mean for you?  Check whether your current customers really perceive your service/product as having a Competitive Advantage. If not can you fix it? If not, does it make sense to:

  • Identify the needs of potentially profitable new customers
  • Build new profitable service/product models that can offer a (sustainable) Competitive Advantage.

 

 

Less is More: Meet Customers’ Attention and Retention Spans

This week, I ran into a number of different situations where the same rule concerning “Audience-driven” needed to be mastered: “Less is More” when it comes to customers’ attention and retention.

  • Starbucks just announced (Fortune, March 1, 2018) that it was removing 200 items or 30% of the types of merchandise that it sells in front of the counter. The goal they say is to simplify operations, declutter shelves and not saddle customers with decisions between products they like and those they don’t like.  Two other retailers, Target and Kohl similarly are shrinking the number of sizes, flavors and brands on its shelves.

Years ago, I heard that Macy’s once offered over 24 different irons; yet the top four accounted for 80% of sales. Also, a study was done in which youngsters stood behind a “traditional” street lemonade stand – selling home-made jams.  The study found that passers-by were more likely to make purchases when the selection was halved from six to three.

In other words, to stay profitable, companies need to provide a manageable amount of choices – from both the perspective of operations and customer selection. As former P&G CEO,A.G. Lafley  notes: you’re wasting their time”.

  • Two companies sought help with presentations where the same rule had to be driven home. One was raising millions of dollars from investors for early stage investors. He spent over half of the presentation discussing a new (and exciting) new model for scaling an early stage fund in many different ways; only then did he discuss the specific venture investors could buy into; by then people were lost. From an audience perspective, the presentation focus should have been reversed: here’s a great venture opportunity and the extra benefit of working with us, is that it’s offered by a company with a model that can grow quickly to fund many other ventures.

The second CEO was presenting his company to a group so they could speak about it with greater insight and expertise and provide referrals. We decided that the focus has to be on its unique software consulting strategy that has delivered incredible success for many years. The initial draft followed the traditional presentation mistakes: 6-8 bullets on each slide (the best slides are “5+/2”, with 3-5 being best) and a focus on process, (the black box people buy), and not enough on proof of success: case studies with great ROI.  Less is more: When you hear a company had an IRR over 20 years of 23.2%, you’re hooked on wanting to learn more and have something easy to share with other people who might now buy from a company.

  • A billion dollar company is making a pitch and the presentation is focused on all the details of the special product they offer. Our client, who’s mastered our ADAP formula, realized that it will never maintain people’s attention. When given a chance, he proposed a different frame-work, explaining how social/technology trends have changed, are changing and will change, and then how some key elements of the company will drive future trends. As Antoine De Saint-Exupery said hundreds of years ago: “If you want to build a ship, don’t drum up men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.” 

The bankers got it and the result is a vastly superior presentation with supportive details.

In sum, use the ADAP formula: focus on the needs and wants of audience members to pay attention, absorb information and retain it so they can share it with others. Then you, too, can achieve “presentation excellence!” and close more deals and advance your career.

To Win: Focus on Results, not Activities.

 We have a saying in our office:  “Don’t Confuse Activities with Results”. We find it applies to so many different aspects of our work, because many of us fall back to old habits thinking that larger size papers, more hours put into a project, higher costs for a project, etc.  necessarily make it better.   It doesn’t.

As a teacher, I have countless students who graduate college and start jobs for large consulting firms, investment banks, etc.,, where interns and junior associates are encouraged to work sometimes between 12-18 hours (or even longer), because the “culture” reinforces spending time of the project rather than measuring the quality of workmanship/productivity throughout the process. These young people later confess that they feel they make more mistakes and spend more time trying to check for and correct errors, because they’re sleep-deprived and not able to think things clearly.

Recently, one such person, after several months of “killing himself” and getting little positive feedback voluntarily choose to reduce his workload slightly, in order to focus on quality of results, not just throughput. Within two weeks, he received kudos from team members for offering new perspectives and insights making the work more valuable for the client and team; these results could not have been accomplished under the old regime.

Morten Hansen arrives at the same insight in his new book Great At Work: How Top Performers Do less, work Better and Achieve More. While working at a large consulting firm for several years, he often worked as many as 80-90 hours per week. One day,  he noticed that a colleague’s presentation “contained crisper insight, more compelling ideas” and wondered why. Talent might seem like an answer, but both had similar education and experience and had been selected for skills through the same rigorous screening process. One key difference is that she worked from 8 Am to 6 PM, no nights no weekends.  Was she doing better because she worked less?

This led to lots of research including a five-year survey of 5000 managers and employees in a wide-range of industries. What differentiated highest-rank performers? Top performers mastered selectivity. Whenever they could, they carefully selected which tasks, customers, meetings, ideas to undertake and which not. They applied “intensive, targeted effort on those few priorities in order to excel….Rather than simply pile on more hours, tasks, etc., they cut back.”

The researchers discovered that “just a few key work practices related to such selectivity, accounted for two-thirds of the variation in performance about the subjects. Talent, effort and luck undoubtedly mattered as well, but not nearly as much.”

The results make two points: (1) individually, we can change our work habits to perform at a higher level and (2) the organizationally, we should change our cultures to not focus/reward those who engage the most hours in the most activities, but enable those who, within accepted standards of performance, produce the most excellence results.

What’s your experience in this area?  Have you ever tried to change such a culture? What tips do you recommend companies adopt to cha shift cultures focused on maximizing people’s activity time to ones  focused on excellence in results.

Presenting Personalized Purpose Increases Success

As Simon Sinek tells us, to motivate people you need to go beyond telling them WHAT they should do to giving them a WHY. And the WHY needs to be more than logical facts; it needs to have an emotional content for the audience.

Adam Grant, a Wharton professor, demonstrated this fact in a controlled study involving fundraisers. All of the university fundraiser were given call lists and were armed with reasons that people should donate: they’re raising funds for scholarships to help students who need them.  Some callers were able to share with the recipients a five minute story by a scholarship beneficiary. These recipients spent more than double the amount of time on the phone – but generated triple the donations as compared to the recipients who had no contact with the beneficiary’s story.

In other words, these callers had a double-emotional tool to help them with the calls: the callers were charged as they “felt” why their jobs existed and the recipients could identify with the beneficiary. In all probability, the success is synergistic 1+1=3, because they caller feels more involved in delivering the story.

This double-impact phenomenon is key to the success of many presenters. When a presenter designs a presentation to include personalized appeal – stories, graphic images, pictures and videos – two things happen: the audience connects better with the content and the presenter becomes feels more engaged with it as well. Again, a 1+1=3 synergy takes place because by taking the time to find just the right content to connect with the audience, the presenter’s authentic passion is heightened.

So don’t cut corners when delivering messages. As we discuss in our training/coaching programs, take the time to find compelling stories, pictures and quotes; your involvement in finding the right material increases your energy and power when presenting, and produces more winning results! What’s your experience in personalizing a presentation to make it more powerful?  Share with us.

Discover the New Opportunities

As you may know I teach a capstone business course for CUNY. I help the students a mindset that the world is changing rapidly and they need to get ahead of them, before automation, artificial intelligence, etc. eliminate many of those jobs.

One of the topics we discussed is the interesting competition between the e-commerce leader, e.g., Amazon, as it invades the former territory of retail stores and creates new opportunities, and the actions of the retail stores, e.g., Walmart, to move into the e-commerce space and create new opportunities. The issue isn’t who will win, the issue is how will the new opportunities to serve existing and future customers’ expanded set of needs morph the entire playing field.

Initially, the retail stores simply responded to the ecommerce threat by offering their own version. Then Amazon redefined the playing field to integrate retail and ecommerce, through its purchase of Whole Foods, its experiment with its Amazon stores, and more recently with the experiment of Go stores which offer a cashier-free app-based shopping experience.

Walmart responded by buying Jet.com, to get the expertise and insights of Marc Lore, including his interest in creating greater access to more upscale brands than Walmart has traditionally served. The results are experiments such as the following

  • Project Kepler is an effort to “change in-store experiences leveraging emerging technologies to define and deliver on evolving customer expectations”. The goal is to create physical stores that, like Go, will operate without checkout lines or cashiers.
  • Code Eight is designed to reach high net worth urban customers, such as busy NYC moms, who they could never reach customers with stores. Allegedly, its goal is to provide them with personal shopping services: product recommendations will be made via text messages for health, beauty, household essentials and apparel/accessories. Walmart also acquired Bonobos to experiment with provide personalized clothing services for men.)

In other word, both sides are not going to fight directly over the turfs they currently dominate (i.e., the “Red Ocean” strategy) but instead to discover new opportunities in terms of markets and products (i.e. “Blue Ocean” strategy. (See: Blue Ocean Strategy by Chan and Mauborgne).

And that’s where all the best opportunities exist for us in 2018 and the future: harnessing the technology and cultural changes taking place and finding new opportunities to serve existing and future clients.  How are you doing so?  Share your experiences and plans!

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