Business Book Blog

"The things that get rewarded get done!"

I haven't read this book but the quote has come up in a bunch of my reading. For right now I'll paste a link to a book summary here.

http://my.fit.edu/~dclapp/sectb.htm#grtst

Hopefully I'll get to reading this book.  

Posted by janowski at 11:55 AM | Permalink | Comments (0) | TrackBacks (0)

Two main types of games:

• Structured (rules based)
• Unstructured (open market)

Business is a combo of both.

In unstructured actions you cannot take away more than you bring to the table.

Egocentric – focus on your position in the game

Allocentric – focus on other’s positions in the game

Business strategy is about shaping the game you play as much as playing the game (think of all the companies that have lobbied the government to “change the rules” of the game)

Business is not a war, there are many times you may op for a win-lose strategy but several other companies have made plenty of money working on a win-win strategy.

Three advantages of Win-Win

• More opportunities because less explored
• Easier to get cooperation
• Imitation helps

Value Net – (this sounds a lot like Porter's Five Forces)

• Customers and Suppliers,
• Complementary Products and Substitute Products

Five Elements of Game Theory (PARTS)

• Players
• Added Value – what each player brings to the game
• Rules – how the game is played
• Tactics – moves that shape how one plays the game and perception of the game
• Scope – boundaries that sometimes can be changed 

Changing Players – Coke and Pepsi example with Nutrasweet (they created a rival to Nutrasweet just for negotiation purposes, they didn't contract with the rival, the rival should have asked Pepsi and Coke to pay them just for exisiting), Pay me to play

Create Cheap Complements – Software companies that let any company create hardware

Changing Added Value – raise your own value (or protect your current value) or lower others (card match game where you burn matching cards to raise the value of yours - Did I read something similar in a judo-economics article?)

Change Rules – like “one price to all” rule , or have “last bid” clauses in contracts

Tactics: Change Perception – show the effects of a price war by starting a small one to prevent a big one

Change the scope – Nintendo didn’t follow Sega quickly into the 16-bit market so it could prolong its profits in the 8-bit market

Traps to Avoid

• Thinking you can’t change the game
• Thinking your change has to cause a win-lose situation
• Thinking you have to do something that others can’t do
• Failing to see the whole game
• Failing to think you’ll need to change the game again after you’ve done so already

This article was published in Harvard Business Review (R95402).

Posted by janowski at 06:58 AM | Permalink | Comments (0) | TrackBacks (0)

 “Strategy is the creation of a unique and valuable position, involving a different set of activities (from your competitors)”

Operational Effectiveness – performing similar tasks better than your competitors

Strategy – performing different tasks or similar activities in different ways than your competitors 

Main Strategies 
Generic Strategies: Low Cost Leadership, Differentiation, Large or Small Segment Focus

More Detailed Versions of Generic

• Variety-based positioning – producing a subset of products or services (Jiffy Lube oil only), does not rely on customer preferences
• Needs-based positioning – targeting a segment of customers (Ikea – all home furnishings for customers) ), does not rely on customer preferences
• Access-based positioning – targeting customers who need different activities to reach them

• Threat of new Entry
  
• Intensity of rivalry among existing market
  
• Pressure from substitute products
  
• Bargaining power of buyers
  
• Bargaining power of suppliers

*Many people add that government is the sixth force

Productivity Frontier – a curve of buyer value (Y axis from low to high) versus cost position (X axis from high to low)

Because of rapid diffusion of best practices operational effectives does not span the test of time. It is not a strategy!

I like to think of this in Game Theory terms. If there are two companies and both have the decision to make or outsource Product X. If they both choose to make Product X themselves then the only advantage Player 1 can gain is to be more operationally effective than Player 2.  Similarly if both outsource the one that finds the best partner wins. In both of these cases it is operational effectiveness (which is easier to copy) rather than strategy that determines the outcome of the competition (in game theory this would be clear by the payout).

• Reposititioners – move to a new position
• Straddlers – hold same position but change to match benefits

Tradeoffs prevent imitation by creating the need for choice between two positions

Tradeoffs Occur for Three Reasons

• Reputation and Image
• Activities themselves
• Limits on internal coordination and control

Quality versus Cost tradeoff is only false when you are behind on the productivity frontier or the frontier shifts outward

“Strategy is making tradeoffs in competing”

“Strategy is choosing what not to do” - Without tradeoffs you could hold all positions at the same time. Tradeoffs therefore dictate strategy

Strategy fitness – all tradeoffs support the same position, activities support each other, lists like “core competencies”, “critical resources” and “key success factors” normally go against fitness 

Three Types of Strategy Fitness

• Simple Consistency – among activities (e.g. all are aligned on low cost strategy)
• Reinforcing Activities – activities make the other activities stronger
• Optimization of effort –

 “Strategy is creating fitness across a company’s activities”

What Prevents a Sound Strategy, (decreases fitness)

• Misguided View of competition
• Organizational Failures
• Desire to grow – forces broadening of position over deepening it
  

Many go after operational effectiveness because it is tangible and measurable

Extend your uniqueness

Posted by janowski at 11:42 AM | Permalink | Comments (0) | TrackBacks (0)

Red Ocean – markets where there is competition

Blue Ocean – new markets

Example: Cirque Du Soleil over a  normal circus.

Stop trying to beat competition but instead make them irrelevant.

Industries never stand still.

Value Innovation -  is the cornerstone of Blue Ocean Strategy, drive costs down while driving value up (like cirque du Soleil they removed animals from a circus driving down costs while driving performance value up)

Strategy Canvas – what are the key factors in an industry, where does the premium players line up?, where do the low cost players line up?, each player has a value curve that they are offering , shows three things: industry factors, competitors strategy, and your value curve all in the same place

• Focus of the value curve – do not diffuse across all categories
• Shape of value curve diverges from competitors
• Clear tagline

• Over delivery without payback
• An Incoherent Strategy
• Strategic Contradictions
• Internal versus External Market Driven

• Trying to be best in your currently “defined” marketplace
• Striving to stand out in a narrow scope of your currently “defined” marketplace
• Focus on the same buyer groups
• Scope of products and services defined by industry
• Accept industries functional or emotional orientation
• Focus on same point in time and on competitive threats in their strategy

Substitute products – offer different form but fill same functionality

Alternative products – different forms but fill same purpose (restaurant or cinema fill the night out purpose)

Strategic groups within markets – luxury versus economy car builders don’t compete with each other, many companies look across strategic groups to create blue oceans

Purchaser, User, and Influencer of purchasing decisions are all important and all three hold different ideas of value

Untapped values are normally hidden in complementary services (cinema with a babysitter)

Three principles for trends, they need to be:

• decisive to your business
• irreversible
• have a clear trajectory 
  

Second Principle of Blue Ocean: Focus on the big picture, not numbers in your strategy

• Draw your “as-is” canvas
• Look to the six paths, get in the field yourself, find the value
• Create a new canvas based on opportunities in the six paths (eliminate, create, reduce, improve)
• Close the gap

Never outsource your eyes.

• Pioneer – pursue Blue Ocean,
• Migrators – Best in class Red Ocean
• Settlers – pursue Red Ocean

What is your portfolio PMS map? Revenue, profit, and market share cannot tell the future because the environment changes too fast. Instead use value and innovation to predict the future.

Instead of looking for customers, look at non customers

• those at the edge of your market
• those that refuse your market
• those that have never thought of your market as an option

Look at their commonalities and find the largest group of untapped customers

Fourth Principle of Blue Ocean: Get the strategic sequence right: buyer utility then price then cost then adoption
Buyer utility – price = customer value

You should not allow cost to drive price.  

Buyer Utility Map (Matrix) – 6 Levels versus 6 Levers, for each lever ask which level is the greatest block to buyer utility

Six Levels of Buyer Experience

• Purchase
• Delivery
• Use
• Supplements – Do you need other products to make this work?
• Maintain
• Dispose

Six Levers of Utility

• Customer Productivity
• Simplicity
• Convenience
• Risk
• Fun and Image
• Environmental Friendliness

Price

Knowing the price that captures the mass of the market is becoming more important, volumes are becoming more important in profitability, and many product exhibit the network effect (like the telephone, the more people that use it the more useful it is)

Rival good – cannot be copied by competitor, example an employee that works for one company cannot work for another

Non-Rival good – ideas that can be copied by your competitor

Price Corridor of the Mass

• Same form offerings
• Different form same function
• Different form and function, same objective

Plot (above) versus price tiers and find volume of customers at each tier

Factor in the excludability of your product

Excludability – the ability to exclude your competitors to using your concept, ideas, and strategy

Use Best Tier for Pricing

Derive Cost from target price minus the profit margin you want

Cost Levers

• Streamline Operations – MFG and Distro cost reductions
• Partnering
• Change the Pricing model of the industry: time-share, slice-share, equity interest instead of cash,

Three adopters – employees, business partners, and the public

Fifth principle: Overcome key hurdles to execute the strategy  
Execution’s four hurdles: cognitive, resources,  motivation, politics

Tipping point leadership – there are people, acts, and activities that influence a disproportionate amount of influence in any organization, change the tipping points and the rest will follow

Cognitive -“Seeing is believing” quickest way to change is to show positive or negative stimuli directly to the people who need to change, show the problem or solution to the stakeholders 

Resources

• Hot Spots – low resource input but high performance gain
• Cold Spots – high resource input but low performance gain
• Horse Trading – leverage excess resources from one area to another (outside of your normal boundaries)

Move resources from cold spots to hot spots and horse trade outside of your normal resources your excess

Motivation

• Kingpins – key influencers and natural leaders
• Fishbowls – place kingpins in a transparent fishbowl so everyone can see their progress base it on transparency, inclusion and a fair process
• Atomization – break strategy into small goals so no one can say its not attainabl
  

Politics

Get a strong number two on your team

Who are my biggest opponents? What is their argument?

Sixth principle: To build people’s trust and commitment to the strategy you need to build in execution from the start.

Need a fair process so people don’t feel coerced.

“People care as much about how a decision was produced as what the decision was”

Fair Process

• Engages – show you want input from everywhere
• Explains – shows everyone why this is important
• Expectation clarity – what is expected out of everyone

Commitment, trust, and voluntary cooperation are intangible capital.

Imitation Barriers to Blue Ocean

• It does not make sense as traditional strategy
• Brand image conflict helps prevent it
• Natural monopolies may form
• Patents or legal protection
• High Volume can be hard to overcome
• Network externalities
• Loyal following by being first on the market

Posted by janowski at 09:12 AM | Permalink | Comments (1) | TrackBacks (2)