Plotting a Winning Business Strategy
The key is recognizing shifting patterns in your industry
Corporate strategy is becoming a winner-takes-all game played at breathtaking speed. Where once a successful strategy could give a company an edge over the competition for decades, today a strategy might be out of date a few years after it's implemented. So companies need to reinvent themselves regularly, creating new business designs on the fly.
At first glance, this seems to present managers with an overwhelming problem. But strategies don't need to be created from scratch. On the contrary, most strategies fit into larger patterns that have been recurring in business over the past two decades.
Being able to recognize patterns in your industry is a fundamental cognitive skill, one that separates great executives from the merely mediocre. Genetics, seismology, medicine, and meteorology all harness "pattern thinking" to understand and predict complex phenomena. The same is true of business, and managers who learn these patterns and apply them to their own situation will be that much quicker to
adapt and to leave their competitors behind.
My colleagues and I have been studying patterns for the past several years, and have identified more than 30 so far. Consider these:
No doubt you've already noticed one of the classic patterns, the collapse of the middle. This pattern has appeared in retailing, financial services, computing, and elsewhere. It is characterized by the movement of customers toward opposite ends of the value spectrum. At one end are well-informed customers who want basic products and services at the best price possible. At the other end are customers who prefer tailored solutions. In retailing, one-size-fits-all companies such as J.C. Penney and Montgomery Ward & Company have stagnated over the past decade. The lion's share of growth has come at the extremes, with Wal-Mart capwring the low end and upscale retailers such as Nordstrom locking up the high end.
Another common pattern is the reintegration of the value chain. In this pattern, companies, running counter to the trend of spinning off businesses and outsourcing, actually expand the scope of their businesses. Ethan Allen, for example, moved from furniture making into furniture retailing to control its presentation to the con-sumer. Coca-Cola took a greater ownership stake in its bottler network to strengthen its performance and gain access to the high-margin vending machine and restaurant markets. In both cases, the companies aimed to increase their opportunities to sell to customers along different points of the value chain.
The cornerstoning pattern, which only a few companies have pursued extensively, provides effective answers to the question: What's the next single best opportunity for our organization to pursue? In cornerstoning, a company starts with a terrific strategic position, then expands to a somewhat related space in the market that's significantly larger than the prior one. Rentokil, a European firm, has done just that. Originally in the pest control industry, it has expanded selectively to hospital and restaurant hygiene services, office and retail cleaning, office machine maintenance, security services, catering, and on and on. Each step was a logical move from the previous one. Overall, this progression has generated revenue and profit growth of more than 20 percent annually for the past 15 years.
Another pattern to observe is product to solution. This pattern occurs when your customers start to pay attention to their total economics (as opposed to just individual component costs), or when they consider hiring a vendor--namely your business--to perform activities they might once have performed themselves. A company that anticipates this shift in customer priorities can respond with an integrated offering to reduce its customers' costs or complexity of operations. Honeywell provided Boeing with a solution by designing and delivering the entire flight management system, speeding the time-to-market, and optimizing the flight costs of the 777. General Electric anticipated changing customer systems economics to develop solutions packages--including maintenance, service, and financing--in its jet engine, railroad, and hospital equipment businesses.
Beyond memorizing patterns already documented, managers also should anticipate new ones. Start by answering these questions:
Which patterns are most likely to take hold in my industry?
Which set of moves puts me in the best position?
Is my organization ready to change quickly--do my people "get it"?
Managers who learn this discipline and act before the ground shifts beneath them can stake out the next profit opportunity again and again, beating competitors who don't see the patterns that lie underneath the surface chaos.