Contents
Preface
1. The Origins of Modern Business Strategy Thinking
2. There’s No Such Thing as a Bad Industry
3. Why Are We In Business?
4. The Search for the Holy Grail of Business:
Long-Term Profitable Growth
5. Do You Know What Your Strategy Is?
6. Getting Strategy Right
7. Creating Strong Brands
8. Brand Builders and Killers
9. What Makes Products Meaningfully Different?
10. Where Do Great Ideas Come From?
11. Strategies to Break Away from the Pack
12. Hitting the Bull’s-Eye
Preface
1. The Origins of Modern Business Strategy Thinking
2. There’s No Such Thing as a Bad Industry
3. Why Are We In Business?
4. The Search for the Holy Grail of Business:
Long-Term Profitable Growth
5. Do You Know What Your Strategy Is?
6. Getting Strategy Right
7. Creating Strong Brands
8. Brand Builders and Killers
9. What Makes Products Meaningfully Different?
10. Where Do Great Ideas Come From?
11. Strategies to Break Away from the Pack
12. Hitting the Bull’s-Eye
Chapter 1: The origins of modern business strategy thinking
- Only 13% of Fortune 100 companies have been able to sustain as little as 2% annual real revenue growth from one decade to the next
- No one management prescription fits all businesses. What works well for one may actually be quite harmful if applied by another
- Effective business strategy can trump industry structure, even in sectors with a reputation for lousy economics
- The notion that sophisticated data analysis can uncover timeless and universal truths about management effectiveness is misguided.
- For companies that succeed in becoming a cat in a dogfight, the question isn't whether, but only when they’ll be in another dogfight
- Business theories are often applied by acolytes far beyond the authors’ original intent or logical limits to the theory’s extensibility
- Keys to long-term growth: continuous innovation, meaningful differentiation and business alignment of corporate capabilities
Chapter 2: There’s No Such Thing as a Bad Industry
- Wine is a classic dogfight industry: thousands of producers clawing for a share of the 10% of the population who regularly drink wine
- Yellow Tail wine broke a number of industry conventions. In so doing, it was dismissed by wine snobs, but loved by consumers.
- The airline industry is bad per Porter’s 5 Forces, but Southwest created enormous value for shareholders, customers & employees
Chapter 3: Why Are We In Business?
- The goal of maximizing shareholder value may actually be destroying value and undermining societal and economic welfare
- If a company needs frequent stock buybacks to buoy EPS, is the company really worthy of such heavy investment?
- The trouble with incentives is that they work!
- J&J, IKEA, and Starbucks built great companies by creating a distinctive & clearly articulated customer-centric corporate purpose
- A customer-centric corporate purpose that balances value creation for all stakeholders provides a North Star to guide effective strategy
Chapter 4: The Search for Business’ Holy Grail: Long-Term Profitable Growth
- Is it realistic to expect every employee to understand & care about how their efforts contribute to overall corporate performance? Yes.
- Given the paramount importance of growth, how well have companies done in achieving it over the long term? Not well!
- Is it possible that large corporations are destined to decline and fail in some Darwinian evolution of the species?
- While inevitable, product life cycle effects are not inescapable
- The assertion that Apple cannot continue to outperform the market because of the “law of large numbers” is pure sophistry
- Companies can overcome the “law of competition,” provided they continue to innovate with superior products
Chapter 5: Do You Know What Your Strategy Is?
- Far too often, companies can’t articulate their strategy in terms that are clearly understood and embraced by their stakeholders
- A racing scull in which each oarsman rowed at his own pace or her own direction would not win many races
- Only 34% of directors agreed that the boards on which they served fully comprehended their companies’ strategies
- Strategic choices of which opportunities to ignore are just as important as actionable commitments
- Twitter’s lack of strategic clarity has been costly. MAU growth sharply declined, turnover was rampant & market cap declined by 67%
- The essence of an effective strategy is one that creates, captures and sustains value
- Competitive advantage, while it lasts, is a wonderful thing
- Strategy renewal needs to be as dynamic as the market, technology, and competitive forces influencing business
- Traditional strategic planning puts a premium on predictability & orderly execution, belying considerable market dynamism
- Strategic inertia is still prevalent in corporate strategy processes
- Incumbent market leaders too often tend to prop up existing products long after they have begun to show signs of commoditization
- Why is there such a disconnect between corporate recognition of market shifts and willingness to respond aggressively?
- The risk of failing to respond to emerging threats is greater than the risk of pursuing new opportunities
Chapter 6: Getting Strategy Right
- Formulating the right strategy depends on the hand you’ve been dealt
- A company's CEO is uniquely responsible for four roles…
- First, define the meaningful outside; a realistic, accurate, & evolving
- understanding of the market and competitive environment
- Second, decisively decide what business the company is (and is not) in
- Third, balance the present and future in allocating human and financial capital
- Fourth, shape corporate values and standards to establish and nurture a culture strongly aligned with strategic priorities
- Meaningful differentiation should be a company’s consummate strategic objective
- Leading a strategic transformation that significantly departs from company tradition & industry norms may fail, perhaps catastrophically
- Strategies committed to continuous product innovation require a resource that is often in short supply: CEO courage
- Strategy is context sensitive
- The CEO must own the strategy
- Meaningful differentiation lies at the heart of successful strategy
- Leading strategic change takes courage
- The company must go all-in to completely support its strategy
- Continuous innovation is essential to sustaining superior performance
Chapter 7: Creating Strong Brands
- Strong brands are the physical and emotional embodiments of successful business strategy
- Strong brands often evoke a deep emotional response, underscoring consumers’ feelings about their experience with the brand
- Strong brands deliver a promise, convey mutual trust, and reinforce a consumer’s symbolic identity
- Maintaining a strong brand promise requires creative & disciplined product development & effective marketing communications
- Brands that build a strong bond with customers enjoy a symbiotic relationship of mutual trust.
- The most celebrated case of a company breaking its mutual trust with customers was the 1985 launch of New Coke
- In the smartphone wars, Samsung has touted its technical prowess and speed, outspending Apple on global advertising
- Samsung has been losing global market share over the past 3 years, and Apple’s mobile devices earned 10X higher operating income
- Strong brands define themselves as much by what they WON’T do as by what they will do
- Strong brands define themselves as much by whom they DON’T seek to sell to as whom they target
- For many consumers, the purchase or ownership of a brand signals membership in a desired social grouping
- Dove's Real Beauty campaign created a viral sensation, becoming the most-watched YouTube advertisement in history
- Companies should focus on building and nurturing strong brands as if their lives depended on it, because it often does
Chapter 8: Brand Builders and Killers
- Brand strength can be enhanced by product personalization, community-based marketing and effective customer dialog
- Personalized M&M’s allowed Mars to tap new markets at price points 10X higher than traditional product variants
- Personalized services change the basis of competition from generic products & price to what’s best & most convenient for me
- Native digital products are designed to promote personalized product configuration as the foundation of their value proposition
- Community-based marketing engages customers in interactive dialogues to promote and extend a brand’s reach
- Community-based marketing stars include Harley-Davidson and GoPro who have built strong bonds with customers
- Social media is a two-edged sword, which can enhance or erode brand image, depending on how effectively it is utilized
- Fastest ways to destroy brand equity: break a brand promise or dilute brand meaning with dissonant products
- Breaking its brand promise wasn’t the only reason GM slid into bankruptcy, but it certainly was its most serious and longest-lasting mistake
- It takes a long time to build a valued brand promise, but a frighteningly short amount of time to betray customers’ trust
- Successful product line extensions exhibit two fundamental properties: brand leverage and category fit
- Absurd product line extensions like Burger King body spray are eye candy for lovers of schadenfreude
- Excessive product line complexity not only harms costs, quality and profitability, but also weakens the foundation of a company’s brand
- Effective product and brand strategy are mutually reinforcing; both continuously innovate to deliver meaningful differentiation
Chapter 9: What Makes Products Meaningfully Different?
- Product positioning dynamics follow predictable patterns over time, often yielding increasingly undifferentiated products
- Feature/function “arms races” that yield products with more functionality & cost than most consumers want, need, or value
- Becoming a cat in the PC dogfight proved highly rewarding for Apple’s iPad
- Consumers come to accept industry norms as just the way business is done until a newcomer challenges conventional wisdom
- Like Swatch in the 80’s, the Apple Watch is seeking to redefine the basis of competition in the watch industry
- Understanding category imagery is important because it helps identify opportunities for meaningful product differentiation
- Enlightened companies reject industry norms, focusing on new product attributes that appeal to unserved customer needs
- A concerted effort to break from current category norms lies at the heart of all spectacularly successful new product launches
Chapter 10: Where Do Great Ideas Come From?
- The genesis of all breakaway products is an innovator’s recognition of a better way for users to perform desired tasks
- Enlightened entrepreneurs envision products that tap latent needs many consumers didn’t realize they had, e.g. GoPro
- Inventors sometimes identify a novel solution, then search for a relevant problem to solve, e.g. Post-It Notes
- The two foundational skills underlying successful innovation are behavioral insight and problem solving ability
- Henry Ford once quipped, “If I had asked people what they wanted, they would have said faster horses”
- Steve Jobs: “People don’t know what they want until you show it to them. That’s why I never rely on market research”
- Are we to believe that innovators operate in their own creative bubble, without the need to interact with prospective customers?
- The idea for a new product reflects nothing more than a hypothesis and hunch, borne out of personal experience and observation
- Comparing an innovator’s initial breakthrough product concept with the final version invariably involves considerable evolution
- Habit inures us to inconvenience; as consumers, we create work-arounds forget we behaving in a less-than optimal fashion
- Behavioral observation sparks the insights to envision new products. As Yogi Berra said, “You can observe a lot by just watching”
- Behavioral observations can enlighten researchers about the context in which customers would actually use a new product
- The singular advantage of behavioral observation is in identifying pain points that may be hidden in plain sight from consumers
- Behavioral observation helps understand consumer pain points, but shows only how and what people do, but not necessarily why
- The problem with many usability tests is that pre-scripted tasks may not reflect how individual users actually interact with a product
- Exploratory conversations can uncover unexpected consumer insights that inspire ideas for a completely different type of product innovation
- Behavioral observations and exploratory conversations are well suited to help identify opportunities for innovative new products
- Focus groups are good at capturing opinions, particularly when respondents are allowed to see, taste, or try alternative product concepts
- Focus groups are generally not good at eliciting reliable insights on consumer needs or abstract speculation on desired new features
- The failure of the Honda Element demonstrates the importance aiming a new product at a big enough target customer segment
Chapter 11: Strategies to Break Away from the Pack
- Enlightened companies reject industry norms, focusing on new product attributes that appeal to poorly served consumers
- Feature replication and performance augmentation, leads most co.’s to undifferentiated products, over-serving the same customers
- Reverse positioning addresses a large number of consumers who are not well served by traditional high- or low-end industry players
- Do you really need more pixels on your smartphone screen than can be detected by the human eye? #tryreversepositioning
- Are those knee-jamming, non-reclining seats on long-haul budget airline flights really worth the cost savings? #tryreversepositioning
- Reverse positioning strip out features add more cost than value and add unexpected attributes that were overlooked by existing players.
- Breakaway” products redefine product design by borrowing features drawn from an entirely different product category
- Swatch is a quintessential example of breakaway positioning. Others include Swiffer, PullUps and SpecialK Snack Bars
- Swatch prices were transparent, memorable, and every model carried the exact same price tag, later adopted by iTunes and Kindle
- In many respects Steve Jobs followed the same playbook that proved highly successful for Nikolas Hayek at Swatch, 20 years earlier.
- When Kimberly Clark launched a breakaway product called Pull-Ups, they figuratively caught P&G with their pants down
- Blue Ocean players consciously reject Red Ocean behaviors by reconstructing the basis of competition within their product category
- Unlike conventional wisdom that co.’s must choose between best product & lowest cost, Blue Ocean strategies strive to deliver both
- Red Ocean products conform to tit-for-tat feature replication and performance augmentation across common product attributes
- The race towards ever-higher performance on multiple attributes leaves an many consumers poorly served or priced out of the market
- Blue Ocean strategies redefine one or more of the boundaries that have historically constrained industry behaviors
- Christensen has been criticized for being too narrowly focused on only a narrow form of disruptive technologies
- High End disruptive technology offer breakthrough product performance at a premium price, declining over time to build demand
- Big Bang disruptive technologies offer dramatic improvements in product performance and lower prices (e.g. Google Maps)
Chapter 12: Hitting the Bullseye
- Unless companies can consistently renew their product portfolios to maintain market appeal, their growth, profitability, and even survival are at risk
- Conflating outcomes with strategy promotes a mindset in which companies often lose their business and sometimes even their moral compass
- Over his 45-year tenure, founder & CEO Fred Smith has relentlessly reinforced FedEx’ corporate mission, with outstanding results
- It seems incongruous in an era of rapid change to advocate stubborn adherence to a company’s core ideology and purpose
- It is because of, not despite the rapidly changing business environment that a company needs an anchoring ideology to guide it
- There’s an old Warren Buffett story, that he has three boxes on his desk: in-box, out-box, and too hard
- Bezos: Whenever we’re facing one of those too-hard problems, we try to convert it into a straightforward problem by saying, What’s better for the consumer?
- A principle central to Amazon’s core values is the virtue of patience
- Bezos aptly advises to “be stubborn on the vision and flexible on the details”
- Stubborn adherence to a guiding corporate ideology & flexibility in adapting ongoing strategy are the yin and yang of management effectiveness
- Three imperatives for effective strategy: Continuous Innovation, to deliver Meaningful Differentiation, enabled by Business alignment