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Tenet #6 - Ten Tenets of Strategy

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by Larry Pendergrass, Principal

In my last blog entry, Ten Tenets of Strategy –Tenet #5, I advised company leaders to look first at the industry forces when designing their strategy. Depending upon those forces, they may decide to design their core capabilities (the integrated set of processes throughout the value chain that deliver a unique and valued customer outcome) in very different ways. For example, for a consumer electronics supplier, the power of the customer (the retail store owner controlling shelf space) may be dominant. This situation needs to be addressed in any strategy. Addressing it may require setting up processes, relationships and deals to assure excellent shelf space access for products. Alternatively, a higher-risk strategy may be to attempt to deliver only exciting new products that the retail store owner must have. Apple’s iPhone strategy is a famous example of the latter. This strategy takes the typical power out of the hands of the store owner and places it back in the hands of the product provide, changing the forces, changing the game. In any case, addressing these industry forces needs to result in conscious decisions about the strategy.

Recently through this blog, I have offered Ten Tenets of Strategy. These tenets were gained through years of personal experience and discussions with key thought leaders and are offered as guidance for the development of your strategy.

  1. Your core competency is not your strategy.
  2. Compete on core capabilities, your set of business processes integrated throughout your value chain.
  3. Make hard choices. Decide what you will not do.
  4. Focus on customer outcomes. Design your strategy through the customers’ eyes.
  5. Analyze and design for the industry forces.
  6. Understand and analyze the landscape of possible customer outcomes.
  7. Know your competitors and their strategies profoundly.
  8. Diversify around your core capabilities.
  9. Balance the stakeholders.
  10. Strategy is dynamic. Adjust as necessary, but with caution.

Here I provide an explanation of the sixth of these Tenets:

Tenet #6: Understand the landscape of customer needs. Segment and analyze.

Once you understand the industry forces (as discussed in Tenet #5), you should outline the landscape of possible customer outcomes. This outline should come before you choose the customer outcome that you will attempt to deliver; that differentiable and defensible core that will drive all of your strategy. As you create this landscape of possibilities, try to expand beyond the obvious. Strive to imagine unique and even improbable outcomes. You may be surprised at the unusual choices rival companies can and will make, and how they turned these choices into a successful business! Examples of typical customer outcome statements that may be chosen by various companies include “one stop shopping”, or “service on demand”, or “lowest cost”, or “the latest technology”. But these statements may also include “best handling of customer financing” or “taking away all inventory concerns” or even “most comfortable while you wait”.

You need to carefully state the customer outcome from the standpoint of what is important to the customer, not the firm. For example:

  • Important to the firm: Operational excellence
  • Important to the customer: On time delivery, not early, not late

Just because you have not seen a good example of a particular customer outcome in your industry, please don’t assume that it has no place in it. Take for example the “most comfortable while you wait” customer outcome listed above. You may know how this outcome works in the car industry, as we see the difference in the waiting areas in a luxury car dealership compared to budget-oriented dealers. What would this outcome look like in a business-to-business high-tech capital equipment industry? A company that chooses this as a cornerstone of its customer outcomes might have the following as key objectives (The O in COAR as discussed in Tenet #4):

  • Provide loaners while you wait for your equipment arrival, plus
  • Early access to prototypes to keep the customers’ business moving forward, plus
  • Access to equipment in other locations (a network of other customers, equipment at the company’s headquarters, etc.), plus
  • Arrangements for full service in performing the task for which the equipment is designed (pick up samples, get to the equipment location, make adjustments, take data, return the samples).

The point is that you should not assume that because you have never seen a company in your industry focus on a given customer outcome, that one couldn’t provide it! Ten years ago, how many people would have guessed that two of the most popular ways to get a DVD today would be through the mail service (Netflix), or through a vending machine (Redbox)? Are these DVD customer outcomes the same as each other? No, not really. Although on the surface they both deliver DVDs, to really understand the customer outcome you need to dig a little deeper. Netflix delivers something more profound and valuable for the customer. They deliver access to a wide range of movies including those that are hard to find, plus the ability to make choices ahead of time, aided by a growing understanding of the customer through Netflix’s recommendation engine, and then stack them up for continuous delivery to the home. The Redbox strategy is completely different, appealing to the impulse renter of mainstream movies who is not only willing to go to the market to get a movie, but might even consider it a preamble to a fun evening by combining it with buying snack food for a late night. These strategies represent two very different customer outcomes (planned, convenient, organized renting compared to impulse, run-to-the-market experience renting) and they appeal to different segments of the market.

In order to decide on the “best fit” strategy for your firm, you will want to diverge to gather ideas before you converge on the answer. First lay out as many different winning customer outcomes as you can imagine for your industry. Then identify the choices your competitors have made. As you will see in my next blog and Tenet #7, it is essential that you know your competitions’ choices as you consider making or modifying your choices for customer outcomes.

Choosing the customer outcome you will deliver is one of the most pivotal decisions you will make in your strategy, driving all other aspects of your business. Don’t make these choices lightly, or without fully understanding the landscape of possibilities. You might be surprised how this exercise will open your mind and produce exciting new ways to set your firm apart and capture the hearts, minds and wallets of your customers. And don’t settle on a set of customer outcomes without understanding what sets your competitors have chosen and how they will deliver them.

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