Strategy and Tactics have been discussed a few times on this blog so far1. They are a hot topic within Change Management and one of the pillars of effective improvement initiatives in the business world. Yet for many managers and business leaders they remain abstract and intimidating.
The actual implementation of S&T is relatively easy. It is often the way to get there that is the tricky part. How do you decide on the direction your organization is to take? What do you have to be aware of? Do you even need to change at all when everything is running smoothly?
These are some of the questions these articles will attempt to answer, based on a webinar held by Eli Schragenheim in June 2015.1
Step 1: Why do we need change at all? Everything is fine!Once a business has secured a big enough market share to allow it to survive fairly comfortably, there is often little incentive to make big, sweeping changes. Change always carries risk, and why take a risk when business operations are stable?
There are several reasons why this is a dangerous attitude. Most industries are in stagnation, explains Eli Schragenheim. The various competitors divide the existing customers between them, mostly imitate each other and are largely indistinct from one another. It is a deadlock: they are each sitting in their respective corners eyeing the competition, but barely moving. Great innovation doesn’t happen, as the focus is merely on survival rather that substantial growth.
This fragile equilibrium only holds until someone finally breaks the deadlock and sets the whole industry into uproar with a breakthrough innovation. Unless that someone is you, your organization will be one of those scrambling to keep up – which already puts you on the losing side. A striking example of this phenomenon are the low cost airlines – with Ryanair at the helm – which fundamentally changed consumer air travel in Europe and nearly brought massive (but sluggish) companies like Lufthansa and British Airways to their knees.
This highlights another important argument against remaining in a state of inaction – and a frequent mistake managers make: fundamental changes are much easier to perform for a successful organization than one that is already fighting for survival. “Why change when we’re doing well?” is exactly the wrong question. It is precisely because the business is strong and stable that it is in a perfect condition to grow and develop. The low success rate of change initiatives is also due to the fact that many businesses put off change until they can no longer avoid it – and then it is often too late.
Step 2: Fine, change is good. But how do we get started?
Are you ready to break the deadlock and put fear into your competitors? Well done, you have completed the first step. Now you get down to the nitty-gritty as you determine how to set your organization apart.
What you need is a Decisive Competitive Edge (DCE), as Schragenheim calls it. The DCE needs to fulfil a number of criteria in order to lead to long term, sustainable success:
- It must offer your clients significant and unique value.
- Your clients must recognize and appreciate this value.
- Your competitors are unable to offer the DCE (in the foreseeable future).
- In all other aspects your business is on par with your competitors.
Trying to find this DCE can seem quite overwhelming and fraught with risk. There are so many variables! You cannot predict the market precisely. What if it goes wrong? It is understandable that this can seem daunting, but if you carefully do your research and preparation, you can significantly decrease or even eliminate these risks.
Through the eyes of the customer
Finding your DCE requires that you are highly familiar with your clients and can assess your products or services from their point of view. Do the clients need what you are offering? Do they know this? You may have the most amazing product feature – if no one outside of your developers can appreciate it, you will have some trouble selling it, let alone turning it into a competitive edge.
If you do however have a true breakthrough advantage, convincing your customers should be a piece of cake. You can find a striking example of how Eli Goldratt, founder of the Theory of Constraints (TOC), defined such a DCE in this article. This also provides a good illustration of a DCE that would have been easy for everyone to see if only they had tried to question the status quo.
TOC methods such as Critical Chain Project Management or Drum Buffer Rope provide you with the means to turn Rapid Reliable Response (RRR) into your Decisive Competitive Edge. Significantly shorter production or project lead times allow you to leave your competition miles behind: fast delivery is a significant need for many customers – but one that they know from bitter experience they need not even hope for. We will discuss Rapid Response in more detail in a future blog post.
It is important to also consider any negative side effects your DCE might have and how you might counter these. You may for example have developed a very powerful piece of software that would save your client a lot of time and money – but only once they have trained their entire workforce at considerable expense. You might consider offering appropriate workshops or courses. Modify your product so as to mitigate negative effects and prepare appropriate arguments to meet reservations the client might have (e.g. “you will recoup the initial investment within X months…”).
It also pays off to think further than just your immediate customer: who is the end user of your product – or the product your part will be built into? Do also bear in mind the differences between B2B and B2C. A business follows other motivations than a consumer when deciding on a purchase: it will want to increase throughput while keeping costs down. However, the individuals within the business that you interact with may not have such rational motives. This too will play a role in any decisions made.
What exactly defines „value“?
Your Decisive Competitive Edge is something that offers customers clear and significant additional value. It is therefore important to fully understand this concept of value, which can mean different things depending on context. Eli Schragenheim distinguishes between three main categories:
- Answering a practical need – or, in the words of Eli Goldratt, “eliminating or reducing a current limitation”. The value here lies in solving a problem, and the actual price of the product is determined by other, similar products available on the market. This practical need is the main criterion on the B2B market – unlike the next two categories.
- Increasing the status of the person owning it. The product is appreciated by others and thus makes a statement about its owner. This can be financial (e.g. a vintage watch) as well as more subtle statements about “tribal affiliation” (common for groups on the fringes of society, e.g. goths or hippies).
- The product gives the owner pleasure – art, jewelry, holidays etc. This is a very subjective perception of value, making it hard to quantify. What is important in this category is that having more of the product creates additional value. You will not likely find an art enthusiast who says “Well, I’ve got one painting now; that will do.”
Determining the value of the product is not always that easy for the vendor (your business, in this case). It is often determined through references with similar products. This offers possibilities of manipulating these references and positioning the product differently on the market. This can often be seen with functional clothing turning into fashion statements, as was the case for blue jeans or Timberland boots.
The six technology questions by Dr. Goldratt also provide a helpful guide for determining the value of your product. These have been discussed previously on this blog. Eli Schragenheim uses them primarily for value assessment in the first category: fulfilling a practical need. It is worth applying the six questions to your proposed product or feature when trying to determine value.
SWOT analysis the TOC way
The SWOT analysis (Strengths, Weaknesses, Opportunities, Threats), mostly used as a marketing tool, can also be very helpful in order to determine your position on the market and the general direction of your strategy. The Theory of Constraints approach to SWOT is rather more holistic than the traditional one – this was briefly mentioned in the article New Applications and Developments of the S&T on this blog. Eli Schragenheim, too, appreciates the use of SWOT for developing a business strategy.
Schragenheim sees the Strengths of a business not just in the current advantages of the product compared with the competition, but above all, in the unique capabilities the business can currently build on or that it can quickly acquire. What can you do better than anyone else? This is where you will find your DCE.
For this, it can be helpful to foster a culture of learning within your organization: even if you cannot currently offer or perform something, this needn’t be an obstacle if you have the kind of people who can – and want to – develop new skills.
Weaknesses are the opposite of that: which aspects of your business in its current state prevent you from achieving more and reaching your goal? Most importantly: what can you do about it? Again you approach this from an enabling, rather than a limiting, point of view. Weaknesses should not be seen as something unavoidable that must somehow be circumvented, but as something that can be improved upon or eliminated: all you need are the right strategies.
Opportunities are created by combining your Strengths with a respective need in the market. Your customers need something only you can provide: this is precisely where you will find your DCE! The most urgent need of the market is of no use to you if you cannot fulfil it better than anyone else. Similarly, even a most impressive ability is useless if no one has a need for it (though here it may be worth investigating whether a different market segment may have the “corresponding” need for your strength).
Finally, Threats for Schragenheim are mostly developing situations which may suddenly create significant undesired effects – a newly emerging technology for instance, or a change in the market. These may initially be barely noticeable, but it is important to identify them before they become a real threat. For this you will need appropriate monitoring mechanisms (which will be discussed in more detail later on). If a development in the market takes you by surprise, it is a sure sign that you have not fully understood your environment. Analyze the situation and draw your lessons from it.
In the second part of this series you will find out what to pay attention to during preparation and implementation of the strategy and tactic that will take you all the way to your Decisive Competitive Edge
1: Introduction to Strategy – Much more than the S&T, Eli Schragenheim 2015 TOCICO Webinar