Columbus Day: Reaching the New World

October 11, 2010 Leave a comment

Today we celebrate the anniversary of Christopher Columbus’ 1492 landing in the New World.

The Niña, the Pinta, and the Santa María; these were the ships that made this voyage across the Atlantic. These ships were sailing ships that leveraged the wind to power the vessel.

Because you are at the mercy of the wind, the worst thing a captain can do is to continue on course and ignore the winds. Ignoring the winds would undoubtedly lead to shipwreck. Imagine deliberately steering the ship into 30 foot waves in a stormy sea just because you are ‘staying the course’.

Unfortunately, many businesses have one destination in mind and ignore the winds. They have a well-defined ‘great idea’ and stick to it no matter what. This often leads to shipwreck.

To survive today’s turbulent waters, you have to have flexibility and maneuverability. You have to have change-ability, the ability to change your strategies midstream and let go of those you started with.

Here are some companies who embraced this mindset of change-ability

American Express started out in 1850 as a freight delivery service that shipped valuable items such as jewelry, cash, and stock certificates. The popularity of U.S. post office’s money order threatened AmEx’s business because it reduced the demand by banks for the transport of money and other valuables. In response AmEx introduced their own money order and entered into the financial services industry.

Founded in 1889 as a playing card company, Nintendo began experimenting in other areas of business in the 1960’s. They started a taxi company, a TV network, a love hotel chain, among other things, which all failed miserably. During this time they also moved into the toy industry and eventually into video games.

Cryptography for handheld devices was the original concept behind the popular online payment service PayPal. But no one bought it. Through some trial and error, the company stumbled into the electronic payment business.

Don’t be afraid to chart a new course. Don’t be afraid to change.

Filed under Brand Development, Business, Competition, Strategy Tagged with , , ,

Brand “Fit-ness”

February 26, 2010 Leave a comment

In my last post I explained why the merger with AOL and Time Warner that should have been successful, failed so miserably. This collapse was a result of a lack of strategic fit.

The Concept of Fit

Strategic fit, that is, aligning organizational activities, is paramount when evaluating a firm’s future direction. There are three types of fit: (1) external (2) internal and (3) dynamic.

External fit involves the fit between the business’ offerings and the existing environment. For instance, during the 1970’s, most retailers avoided remote areas of the country, rationalizing that sales would be maximized in highly populated areas. This prompted Sam Walton to adopt a strategy that fit this environmental trend; that is, Wal-Mart became focused on serving small town America.

Internal fit is concerned with matching an organization’s strategy with an organization’s structure. It ensures that every decision and activity reinforce one another. As a result of these actions, synergy is created. An example of a firm with tremendous internal fit is Southwest Airlines. Southwest’ product focus is to be a customer friendly airline who offers a high quality product for a low price. Despite its simplicity, many other airlines have tried and failed to implement this model in their own organizations. This is attributed to the fact that Southwest has a good internal fit; every aspect of the airliner’s strategy reinforces the other ranging from its corporate culture to its refund policies.

Lastly, dynamic fit maintains that businesses do not simply react to their environment, but rather dynamically interact with specific activities. Firms can perform specific activities to sustain a competitive advantage. Nintendo has accomplished this by continuously challenging the industry’s underlying assumptions, understanding their customers, and striving to be different rather than better.

As a result of external, internal, and dynamic fit, Synergy is created. Simply put, synergy is the sustainable competitive advantage that grows from this combination of fits, where the sum is greater than the parts. For that reason, creating synergy must be the objective of any strategy, as the resulting competitive advantage cannot be duplicated by competitors.

Filed under Business, Competition, Strategy Tagged with , , , , , , , ,

A Game-Changing Business Tool…

January 11, 2010 Leave a comment

As I discussed in a previous post, business is a game. It is crucial that you take the time to understand your brand’s game in order to make the next move. However, merely understanding the game will almost certainly lead to failure. Rather, success lies in the ability to shape the current playing field into a game that you can win.

If business is a game, then the value net is most certainly the playbook, the X’s and O’s so to speak. The value net helps you identify all the players of the game (not just competitors) and understand their roles and inter-dependencies.

The Value Net

Though the value net presents a picture of the players, it is important to remember that players are not fixed. Frequently, other players can change who is playing the game and how they are playing. An example of this was seen in the artificial sweetener market in the mid-1980’s. The NutraSweet Co. had effectively marketed aspartame, a low-calorie, high-intensity sweetener, around the globe. They were especially successful in the diet soft drink segment, where they enjoyed rare bargaining power over both Coca-Cola and Pepsi (a 70% profit margin). That was, until Coke and Pepsi pushed Holland Sweetener Company to develop the capabilities to compete with the powerful NutraSweet brand. Though Coke and Pepsi never had any intent of switching aspartame suppliers, pushing HSC into the mix drastically decreased NutraSweet’s bargaining power. The cola giants were able to change the game by changing who was playing the game.

What each player brings to the game is also fluid. Other players can take actions that increase or decrease their value-added, having a trickle effect over the entire value net. This situation was seen in the video game industry when Nintendo launched the Nintendo Entertainment System in 1985. Traditionally, Nintendo’s buyers had a tremendous amount of power (e.g. Wal-Mart, Toys-R-Us). However, Nintendo changed the game when they decided to limit production. This step prompted free press related to product shortages, but, more importantly, drastically decreased the bargaining power of major retailers. Once the Nintendo craze swept the nation, retailers only had as much power as Nintendo gave them.

By crafting your strategy around the value net, you brand will begin to gain game-changing power; power that enables you to capture the value you are creating.

Filed under Business, Competition, Strategy Tagged with , , ,

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