Strategy on-line

HOW YOUR VALUE CHAIN IS BEING DISRUPTED AND WHY YOU SHOULD FOCUS AND GO GLOBAL

2016-02-18T02:18:00.000-08:00

This post describes 3 of the most important disruptive forces and their impact on current value chains for small and medium sized enterprises. It asks the question if a global virtual community for SME-managers should be established aiming to provide a platform where ideas and examples can be shared and questions can be answered on how best to develop SME-businesses in future.

IF YOU ARE INTERESTED IN LEARNING MORE ABOUT OUR GLOBAL COMMUNITY FOR SMALL AND MEDIUM SIZED ENTERPRISES "SMEXO", PLEASE CONTACT ME AT: ps@psb-management.dk

Think of Kodak, Blackberry and Blockbuster – classic examples of a component manufacturer, a finished good manufacturer and a retail business that were once dominating their industry but now have been massively diminished in size and importance, transformed and/or acquired by others. Digitalization of print, touch screens over key boards and video streaming versus hard copy were some of the disruptive forces that Kodak, Blackberry and Blockbuster did not embrace or only to late.

But Kodak, Blackberry and Blockbuster were all giants and perhaps they had very inflexible organizations – what if you are a manager of a small or medium sized company, what and how will disruptive forces influence your business in the coming years?

E-Commerce has already shown itself as a major disruptive force not only to global brands but also to small local retailers like clothing and book stores. Physical location is rapidly becoming less important.

3D-manufacturing is rapidly moving from small scale development projects to on-site, just-in-time component manufacturing for OEM-equipment and may in future have major disruptive effects not only to sub-suppliers of components but also to the shipping industry, which to a lesser and lesser degree will be transporting components and finished products between continents and increasingly will be transporting 3D-manufacturing bulk raw materials. Product standardization is rapidly becoming less important.

The Internet of Things however may in future disrupt not only companies and entire value chains but IoT may also decide who gets to become centers or integrators of the future value hubs and who are left to the role of spokes or sub suppliers.

FOCUS AND GO GLOBAL.

Getting closer to your customers is key if you want to keep as well as get new customers.

Getting closer to the customers has traditionally meant establishing sales offices, legal companies or entire production facilities in the countries or regions where customers are concentrated.

This has traditionally been a barrier for small and medium sized companies but not so anymore according to a February 2015, McKinsey Quarterly article, “Harnessing the power of shifting global flows”:

“Smaller enterprises add a new dimension to global competition as they begin expanding across borders. Internet platforms are empowering these “micromultinationals,” enabling them to find customers, suppliers, funding, and talent around the world at lower cost…. digital platforms can cut the cost of exporting by 83 percent as compared with traditional export channels.

And global flows of goods, services and finance are rapidly increasing:

The same McKinsey article shows that global flows are rising rapidly in value—and will grow further in all economic scenarios over the coming decade.

If you are a manager of a small or medium sized business digitization thus opens new possibilities, but it works both ways - foreign small and midsize competitors can also reduce their contact costs towards your customers.

If you want to stay competitive you need to continuously develop and market goods or services that fulfil important customer needs better than competition - unless you want to end up in pure price competition.

Thus getting closer to your customer is going to be key to be one of the future winners - not so much in order to sell products that you currently produce but rather to get deep and profound insight into your customer needs and behaviors, collect (big) data from many sources and thereby deduct (by use of algorithms) how to develop and market the new solutions that fulfil customer needs better than competition.

Therefore, segmenting and focusing your business on few customer segments each sharing similar needs is important if you want to be able to use your resources efficiently and increase in profitability.

Focusing on fewer customer segments reduces the available market close to you thus in order to grow and be profitable you need to think about going global – this brings you back to digitization be it in the form of internet marketing, strategic alliances, supplier sourcing or perhaps even 3D-Manufacturing.

YOUR VALUE CHAIN IS BEING DISRUPTED.

If your business is focused on physical products, then your traditional value chain is threatened to be crushed or disrupted by at least 3 megatrends sweeping through businesses all over the world: 3D-Manufacturing and E-Commerce as described above but also and perhaps more disruptive: The Internet of Things.

Traditionally raw material producers supplied materials to component manufacturers who in turn supplied components to finished goods manufacturers. Finished goods were sold through wholesale to retail and finally bought by consumers.

3D-Manufacturing threatens component manufacturers as finished goods manufacturers, wholesale, retail and even consumers may be able to produce the products they require “on-demand” at the right quality, quantity and cost. E-Commerce threatens wholesale and retail as consumers may be able to buy the products they require direct from the finished goods manufacturers “where they are and when they want”.

The Internet of Things however may be the biggest threat to your value chain if you are a finished product manufacturer and if your product collects or can collect valuable digital information.

In a recent article by Michael E. Porter et al.: “How Smart, Connected Products Are Transforming Competition” it is described how The Internet of Things threatens finished goods manufacturers by enabling “Smart Connected Products”:

The Internet of Things may reshape whole industries:

“The powerful capabilities of smart, connected products not only reshape competition within an industry, but they can expand the very definition of the industry itself. The competitive boundaries of an industry widen to encompass a set of related products that together meet a broader underlying need. The function of one product is optimized with other related products. For example, integrating smart, connected farm equipment—such as tractors, tillers, and planters—can enable better overall equipment performance.

The basis of competition thus shifts from the functionality of a discrete product to the performance of the broader product system, in which the firm is just one actor. The manufacturer can now offer a package of connected equipment and related services that optimize overall results. Thus in the farm example, the industry expands from tractor manufacturing to farm equipment optimization. ……

Increasingly, however, industry boundaries are expanding even beyond product systems to systems of systems—that is, a set of disparate product systems as well as related external information that can be coordinated and optimized…….

John Deere and AGCO, for example, are beginning to connect not only farm machinery but irrigation systems and soil and nutrient sources with information on weather, crop prices, and commodity futures to optimize overall farm performance…….

Companies whose products and designs have the greatest impact on total system performance will be in the best position to drive this process and capture disproportionate value.

Some companies—like John Deere, AGCO, and Joy Global—are intentionally seeking to broaden and redefine their industries. Others may find themselves threatened by this development, which creates new competitors, new bases for competition, and the need for entirely new and broader capabilities.

Companies that fail to adapt may find their traditional products becoming commoditized or may themselves be relegated to the role of OEM supplier, with system integrators in control.”

So how are you as manager of a small or medium sized business going take advantage of the disruptive forces of E-Commerce, 3D-Manufacturing, The Internet of Things, etc., so that you may surf the wave of disruptive transformation rather than being crushed by the breakers when these technologies hit the shores of mass markets?

Surely you are not alone, there are millions of managers of small or medium sized business out there facing the same disruptive forces. Some of you compete but many of you don’t, and on your own you may find it difficult to navigate these waters.

Could the solution be to establish a global virtual community for SME-managers aiming to provide a platform where ideas and examples can be shared and questions can be answered on how best to take advantage of present and coming disruptive technologies?

About the author

Peter Sørensen is an internationally experienced strategy consultant, business manager, board member and business broker. Peter helps BtB managers and/or owners increase the profitability or realize the value of their business.

Peter would like to thank Claus Amann for valuable support and input to this post.

B2B - StrategyFocus - increases the profitability of your company!

2012-11-08T07:50:00.002-08:00

Click to get a dynamic presentation of StrategyFocus

StrategyFocus ABC:

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B2B - Strategy Tools - Part 20

2010-04-01T02:18:00.001-07:00

Strategy as a road map?

A strong strategy shows the chosen route to reach the long term goals of your company.
A strategy is a living document - a tool that is adjusted from time to time, is used to decide where and how to employ resources and to evaluate if new business opportunities are to be pursued.
Your strategy should not be seen as a straitjacket but rather as a road map clearly pointing out the goal, describing the terrain and the chosen route under the known or assumed conditions.

According to Lars Bo Hansen "Strategiplanen" Your strategy plan should answer 4 questions:

The first strategic question is about where you want to go, what is your long term goals? Goals should be specific and measurable. They should reflect your company vision and mission.

The second strategic question is about how you will achieve your long term goals. Who are your customers, what products or services are you offering, through which distribution channels will you reach your customers, on what geographical markets and which organization and competences will you employ?

The third strategic question that a strong, sustainable and realistic strategy plan should contain relates to your company's competitive position: How will you get the decision makers in the chosen customer segments to buy from your company and not competition - and at a price that ensures a satisfactory profitability ? What is it that should make your company known and preferred as a supplier? What makes your company unique?

The fourth strategic question is about "why" - what is the logic of the strategy? Is it coherent? Can others be convinced that the plan is the right answer to your company's strategical challenges and opportunities? Do your colleagues and employees believe in it? And do they believe to the extent that they will go the extra mile to reach the goals?

The strategy must be simple, understandable and useful - in spite of any complexities in your company set-up and business environment. If your strategy is simple - in a positive way - it can be communicated. If it can be communicated it can be understood and when it can be understood it can be realized!

"When the strategy is meaningful- the company creates results!"

When the strategy is clearly communicated it can be the guiding star and facilitate that every one in your company pulls in the same direction
It is of course you as management that ultimately decide on the strategy but it is my experience that involving key employees in developing the strategy is very important and fruitful.

At the same time you should be aware that involvement also creates expectations about being informed and up-dated on how the plan is progressing.

I am convinced that a clearly communicated strategy is an extremely useful management tool!

PETER SØRENSEN

B2B - Strategy Tools - Part 19

2009-09-01T07:48:00.000-07:00

Strategy implementation - revolution or evolution?

In my previous posts Employee Alignment with Strategy, Aligning Organisation with Strategy and Culture and Customer Intimacy Organization a lot has been written about change of organisation and alignment with strategy.

But why change a winning team?

No, why do that - if rules and competition stay the same.

We have discussed how the landscape is changing. The market is going from local to global and we are no longer alone with our solutions.That is why we must change - because the rules and competition are changing!

Change means going through phases:

Typically there is a pre-change phase of contentment: Things seem to be ok - one does not even think about change.

When a big change is announced, the first reaction is often one of denial: Why change - and if change, certainly not like this!

Over time - shorter or longer - the mood changes into one of confusion - ok, so we have to change but what does this mean for me?

Through information, consultation, involvement, the new focus starts to show up as results - results that improve the competitive position and the bottom line. The last cyclical phase in change has been achieved: Enlightenment - yes it was right to change and we did it!

Change is not new - change is constant.

But the degree of change has changed.

When will we land on both feet again?

If you want to or need to move forward, you cannot always have both feet on the ground - a jogger at the most has one foot on the ground the other is in the air. Still with a little training she manages to move ahead and stay on track.

To change and move ahead, you have to be dynamic.

PETER SØRENSEN

B2B - Strategy Tools - Part 18

2008-07-01T07:49:00.000-07:00

Customer Focus & Collaboration Culture

In my previous post: "Aligning Organization with Strategy and Culture" I described 4 different ways to organize your company depending on your chosen strategy. Below I offer you an example of a company, let's call it Industrial Inc., that changed its organization to align with its strategy.

Industrial Inc. used to be organized with sales and logistics regionally and centralized product development, production and purchases.

Industrial Inc.'s strategy was to focus on creating and documenting customer value in selected industries. Consequently Industrial Inc. reorganized it self as follows:

"As many employees in Industrial Inc. as possible should know the customers as well as possible.

In continuation of recent years' focus with customer adapted system solutions, maybe we should change the organisation of Industrial Inc. in order for the greatest possible number of employees to get most possible knowledge of their customers' core needs.

Sales, marketing, technical service and R&D employees could be organized in the same department - segment - working towards a selected group of customers. The customers in these segments are working within defined application areas and many of their demands and requirements will therefore be identical.

Working in the same department will facilitate communication between customers, sales, marketing, technical service and R&D, and by focusing on fewer issues, we can gain more customer-oriented competence.

Technical services and product development of customer-adapted solutions will thus be strengthened.

Order booking service, production planning, warehouse and shipping could also be organised in the same department - Logistics - to ensure optimal customer service as regards flexible, efficient and economical handling of the order from receipt to delivery to the customer.

We do not have to wait for the customer to place the order. We shall also closely follow the customers' purchasing rate and contact the customer ourselves about new orders.

In this way the customer will come in closer contact with production planning, warehouse and distribution.

Production, Purchasing and Quality, Health & Safety could be integrated into the same department. Contact persons in the customer-oriented segments will be attached to groups working with products for the segments concerned. The contact persons shall inform the groups about customer demands and requirements in a wider perspective than what appears alone from the daily activities in Production and Purchasing.

The customer will thus also be visible all the way into Production and Purchasing.

If we get a better understanding of the customers, we become better at developing solutions giving increased customer value. Only by continuously increasing the customer value can we be ahead of the competitors by changing the name of the game. By doing this, we will get more and more loyal customers - customers who can provide good earnings and interesting jobs in future."

PETER SØRENSEN

B2B - Strategy Tools - Part 17

2008-06-30T07:38:00.000-07:00

Aligning Organization with Strategy and Culture

In their book: " Executing your Strategy: How to break it down & get it done" Morgan, Levitt & Malek describe 4 traditional ways companies organize themselves depending on chosen Strategic Focus

Technology Focus & Disruptive Innovation Strategy

New technologies continue to emerge.
Customers are responsive to new products or services that offer unique new solutions.
Unique creative skills of key employees are seen as key to success.
Examples could be eBay, Amazon.com and other web application based companies.

"Skunk Works" Organization & Cultivation Culture
The Cultivation Culture places a high value on recruiting, retaining, and nurturing highly creative employees to produce unique products.
To conceive, develop and prototype the next disruptive innovation....... (these) companies must create Skunk Works, sometimes also called Tiger teams - semi autonomous mini divisions or true corporate spin-offs that share the parents' high-level goals and can access all of their considerable resources but that have the freedom and flexibility of start-ups. This is done by creating formal or virtual groups that have a respected leader, a simple and highly informal structure, and the financial backing and marketing clout of the large parent organization.

Customer Focus & Customer Intimacy Strategy

Existing technologies are beginning to mature but new technologies do come up.
Responsive delivery of customized products or services are required.
Strong cross-discipline coordination between employees is seen as key to success.
Examples could be custom home builders and some OEM-suppliers.

Strong Matrix Organization & Collaboration Culture
The Collaboration Culture places great value on understanding the unique needs of each customer.
The Strong Matrix Organization promotes the responsiveness and agility that are required for customer intimacy strategies and in fast changing markets. In a strong matrix structure, workers receive primary day-to-day direction from their product line or project managers, with only occasional direction and supervision from functional specialists.

Product Focus & Product Leadership Strategy

Improvements primarily come in existing technologies.
Customer needs are fairly stable but customers are open to improved solutions.
Deep technical expertise is seen as key to success.
Examples could be some pharmaceutical firms and makers of standardized manufacturing or testing equipment based on complex technology.

Weak Matrix Organization & Competence Culture
A Competence Culture values technical excellence above all else.
Workers in Weak Matrix Structures are generally assigned to multiple product lines or projects. They receive their primary direction from their functional manger, who helps them mediate among competing demands for their time.

Function Focus & Operational Excellence Strategy

Only a few improvements and mostly in existing technologies.
Customer needs are stable and there is little demand for new types of solutions.
Operational excellence and control are seen as key to success.
Examples could be package delivery companies and insurance firms.

Traditional Hierarchy Organization & Control Culture
A Control Culture values order and security above all else.
The Traditional Hierarchy Organization may avoid the matrix altogether: the additional managerial overhead of coordinating multiple dimensions exceeds the benefits of either a weak or a strong matrix structure.

What is your Strategic Focus, how is your culture and how have you organized your company?
Maybe you should organize differently and "Change the name of the game" - I will describe one such example in a coming post.

PETER SØRENSEN

B2B - Strategy Tools - Part 16

2008-06-10T02:20:00.000-07:00

Value Based Leadership

What is the role of corporate values in strategy formulation and implementation?

As I wrote in Part 2 (Strategy on-line: About this blog), values are according to Collins & Porras:"The organization's essential and enduring principles - a small set of general guiding principles: not to be confused with specific cultural or operating practices; not to be compromised for financial or short-term expediency."

In other words values describe how we do things whereas strategy as defined in Part 3 (Business Strategy - definition) describes what we do towards and with whom.

In 2004 Booz Allen Hamilton and the Aspen Institute conducted a global study of corporations in 30 countries and five regions. Senior executives of 365 companies were polled and it was found that 89% of companies had written corporate value statements.

(The Value of Corporate Values by Reggie Van Lee, Lisa Fabish and Nancy McGraw)

So what are the values that these companies include in their Corporate Values?

Ethical behavior/integrity (90%)
Commitment to customers (88%)
Commitment to employees (78%)
Teamwork and trust (76%)
Commitment to shareholders (69%)
Honesty/openness (69%)
Accountability (68%)
Social responsibility/corporate citizenship (65%)
Innovativeness/entrepreneurship (60%)
Drive to succeed (50%)
Environmental responsibility (46%)
Initiative (44%)
Commitment to delivery (41%)
Adaptability (31%)

But more companies are going well beyond simply displaying values statements: They are engaging in values-driven management improvement efforts. Among those efforts are training staff in values, appraising executives and staff on their adherence to values and hiring organizational experts to help address how values affect corporate performance.

Personally I believe that the value of Corporate Values lie not in listing as many "right" values as possible but in the identification and selection of the few key values that truly reflects the owners, top management and key employees basic business beliefs as well as fulfil basic customer needs.

Value goals should be set, included in the Key Performance Indicators (KPI's) and performance should be meassured and acted upon.

PETER SØRENSEN

B2B - Strategy Tools - Part 15

2008-05-30T06:30:00.000-07:00

Employee alignment with strategy

So by now you have a strategy that is "clear as crystal" and an organisation that "fits like a glove" with the strategy; but how do you get " a winning team of employees with the right competencies"?

In Part 14:"Organizational alignment and building a Leadership Brand" I wrote about the importance of employing and building the right leaders throughout the organization. Leader's who through their: "knowledge, skills, and values focus employee behavior on the factors that target the issues that customers care about"

To help you and your leaders in that process you may find the below tool useful:

Click on image to enlarge

Each and every of your leaders should evaluate their employees based on the degree to which their competencies (Skills, knowledge and experience) and their motivation (values,dreams and interests) are in line with your company's values, strategy and their present position in the organisation.

The graphic may be useful in a discussion with your leaders about to what extent you have " a winning team of employees with the right competencies" and even more importantly suggestions as how to help develop your employees.

It is of course also a good idea to discuss with and get input from your employee to his or her individual position on each of the 2 parameters.

Peter Sørensen

B2B - Strategy Tools - Part 14

2008-05-09T05:27:00.000-07:00

Building a Leadership Brand

In Part 6: "Strategic Focus" I stated that: "The strategy must be clear as crystal and clearly describe how the company creates a unique position in relation to its customers and against its competitors. The organisation must fit like a glove with the strategy and a winning team of employees with the right competencies must be set. Operations must show positive figures and the key figures must point forward to show future potential of the business."

In the first 12 parts of this Business-to-Business blog I have described and given suggestions as to how you can formulate a strategy that is "clear as crystal". In my latest post I started to discuss how to implement the strategy.

Actually I believe that a successful strategy implementation already begins during strategy formulation. External consultants can be bright analytics, skilled coaches and sharp "Devil's Advocates" but top management leadership and commitment throughout the formulation and implementation process is essential. And not only that - also middle management and other key employees should at least participate and be involved in the formulation process.

Having management and key employees involved in the formulation process and committed to the strategy facilitates building an organisation that is aligned with or "fits like a glove with the strategy".

Alignment

For a discussion about various ways to align your organisation to your chosen Strategic Focus please look to part 17: "Aligning Organization with Strategy and Culture".

As regards setting " a winning team of employees with the right competencies" I recently read some interesting articles, abstracts and reviews relating to a recent book by Dave Ulrich and Norm Smallwood: " Leadership Brand - developing Customer-Focused Leaders to Drive Performance and Build Lasting Value" (Børsen, Harward Business Review and Robert Morris of Dallas, Texas)

Ulrich & Smallwood say that top management leaders should work to build a Leadership Brand. Leadership Brand is a reputation for developing exceptional managers with a distinct set of talents that are uniquely geared to fulfil customer and investor expectations. A company with a Leadership Brand inspires faith that employees and managers will consistently make good on the firm's promises.

Building a strong Leadership Brand requires that companies follow 5 principles:

They have to do the basics of leadership - like setting strategy and grooming talent - well.
They must ensure that managers internalize external constituents' high expectations of the firm.
They need to evaluate their leaders according to those external perspectives.
They must invest in broad-based leadership development that help managers hone the skills needed to meet customer and investor expectations.
they should track their success at building Leadership Brand over the long term.

In the preface to their book, Dave Ulrich and Norm Smallwood make this affirmation:" We believe that leaders matter, but leadership matters more. We have all experienced a gifted leader who engaged all of us - our hearts, minds and feet. Dynamic leaders enlist us in a cause, and we willingly follow their counsel. But leadership exists when an organisation produces more than one or two individual leaders. Leadership matters more because it is tied not to a person but to the process of building leaders.

Leadership Brand is the identity of the firm in the mind of the customers, made real to employees because of customer centric leadership behaviors. In other words, Leadership Brand occurs when leader' knowledge, skills, and values focus employee behavior on the factors that target the issues that customers care about."

The challenge for any organisation (whatever its size or nature) is to formulate a program ensuring that everyone in that organization embraces the values, gains the knowledge, and strengthens the skills need to drive performance and build lasting value.

PETER SØRENSEN

B2B - Strategy Tools - Part 13

2008-04-15T00:28:00.000-07:00

Strategic Leadership

In their recent book: "Strategy that makes sense", Mark Holst-Mikkelsen and Flemming Poulfelt summarise their findings based on a survey of 60 Danish companies, employing 45.000 people out of whom 3.300 were involved in the survey.

Their conclusion is that there are 3 characteristic's in a successful strategy:

The strategy must be meaningful to the organisation
There must be commitment to the strategy
There is sufficient empowerment in the organisation to carry out the strategy

In other words the strategy must have "Mind, Heart & Legs"

This is well in line with my comments about "Strategic Focus" in a previous post.

Holst-Mikkelsen & Poulfelt conclude that there are in total 6 tasks that must be executed in an excellent way in order to perform Strategic Leadership:

Develop a strategy that makes sense, a strategy that by the organisation is felt to be right and reasonable in relation to the actual situation of the company.
Develop and maintain commitment in the organisation to the strategy over time.
Empower the organisation and create a framework so that each employee can contribute to the strategy.
Develop, test and challenge the mental thinking that lie behind the strategy and the decisions that are part of it.
Contribute to and manage a strategic process tailor-made to the company.
Enable all managers to communicate the strategy with special focus on how to make the individual employees role clear and attractive.

In my previous posts focus has been on discussing tools and ways to develop a strategy that makes sense particularly in business-to-business (i.e. how to develop a strategy that is meaningful to the organisation.

In coming posts I will invite to a discussion about how to create commitment and empowerment in the organisation towards the strategy.

Peter Sørensen

B2B - Strategy Tools - Part 12

2008-04-14T07:57:00.000-07:00

Value creation for customers, employees, partners and shareholders

Click on image to enlarge

Value Innovation is the key to creating "Blue Oceans" as described in a previous post. Arthur D. Little Inc. identified in their book: "The Innovation Premium": 3 primary types of innovation that together in my opinion can create Value Innovation:

Product/service innovation: The creative development and commercialization of radically new products or services, often grounded in new technology and linked to unmet customer needs.
Process innovation: The development of new ways of producing products or services that lead to advantages in cost or timeliness of delivery.
Business innovation: The development of new businesses and new ways of conducting business that provides unbeatable competitive advantage.

But Value Innovation, be it product/service, process and/or business innovation is not created in isolation, hidden away in the back offices of the company.
According to Arthur D. Little innovative (Blue Ocean?) or "Next Generation Enterprises" create value for customers, employees, partners as well as shareholders:

"Capture the innovation premium for customers

Next generation enterprises typically recognize that their creativity benefits customers by providing valuable new products and services and high levels of customer satisfaction - the reason d'être of any business. And they stretch to excel even further by focusing on specific customers and treating them in innovative ways. They go the extra mile to make it easier and more worthwhile - even exciting - for their customers to do business with them.

Direct customer input is an increasingly valuable resource that is actively sought and leveraged to facilitate both product and process innovation.

Capture the innovation premium for employees

Next generation companies have leading-edge employees. The best and the brightest are drawn to forward thinking, innovative companies because these companies create extraordinary value for their employees. They treat employees as individuals, integrating personal needs and interests with the needs of the business, and they strive to offer meaningful rewards and recognition - using the resources accumulated from successful innovation.

The best and the brightest like the risk taking that goes along with innovation. They like holding exciting jobs in dynamics organisations in which they have high levels of responsibility and a variety of tasks and assignments. They like a continuous learning environment and a supportive atmosphere that encourages creativity without fear of punishment if new ideas don't always pan out.

They know that people are the only assets that appreciate with use, so that, in the long run, companies compete on the basis of people, not technology.

Capture the innovation premium for partners

Partnering is vital to innovative companies. In face of shrinking product-development cycles, rising development costs, rapid technology changes, and increased customer sophistication, innovative companies recognize that they can't go it alone. So they build extended networks of partners, sources, and suppliers to capture emerging opportunities by acquiring and levering competences, both internal and external, and by accelerating technology transfer and the pace of commercialisation.

Strategic alignment is an important consideration, of course, and alliances are usually sought to fill competence gaps and accelerate time-to-market. But unlike most companies, which tend to partner with suppliers in technology ventures and sourcing activities, innovative companies differentiate themselves by partnering up and down the value chain - not just with suppliers, but with customers, competitors, and other industry participants. By stepping outside the usual bounds of collaboration, innovative companies derive value from accelerated commercialisation as well as from venturing and sourcing.

Capture the innovation premium for shareholders

In sum, innovation builds customer satisfaction and brand loyalty, it helps keep employees satisfied and boosts a company's employee-retention rate; it increases partner satisfaction and preference; it wins more share of the market and of the mind - all of which translates into improved investor returns and growing financial health, because the benefit of sustainable innovation leadership is consistently strong financial performance...

Is there a risk involved in committing a company to setting out on the pathways leading to the innovation premium? Of course. Innovation implies risk. But to risk is to dare, and to dare is to seize the opportunity to succeed in previously unimagined ways. When innovation is properly conceived and managed, the reward repays the risk many times over. The consequence of consistent, enterprise-wide growth and the ability to reward all stakeholders with the benefits of the innovation premium make it a risk well worth taking."

Ronald S. Jonash & Tom Sommerlatte- Arthur D. Little, Inc

Peter Sørensen

B2B - Strategy Tools - Part 11

2008-03-14T05:13:00.000-07:00

Blue Ocean Strategy

This post and some of the coming posts are inspired by and will use some of the key tools from Kim & Mauborgne's break-through book: " Blue Ocean Strategy". However the tools and concepts have been further developed and adapted to the particular challenges faced by Business-to-Business companies.

In my earlier post: "Change the name of the game" I described how Business-to-Business companies faced with direct competition change the name of the game by developing more and more unique solutions.

"Blue Ocean Strategy" is about changing the name of the game by developing unique solutions - innovations - that at the same time create added value for your customers and reduce procurement costs in your company.

Kim & Maubourgne call it: "Value Innovation".

In my previous post:" Strategies for different customer segments" I described how you could end up with strategies like: Go, Keep, Investigate or Drop for your various customer segments.

As regards "changing the name of the game" you may want to start in the "Investigate" segment that you find attractive but where your competive strength is poor or maybe even in the "Drop" segment where both segment attractiveness and your strength are poor.

You should start by drawing up the current strategic profile of the customer segment in question. A customer segment may comprise customers from different industries but they share the same important needs that you to a greater or lesser extent are able to fulfil.

List the customer segments core needs that are presently being fulfilled by you or your competitors and list the core needs in order of importance.
For each of the core needs list the degree to which you and your major competitors fulfill these needs at the customers in the segment

Based on the current strategic profile of the customer segment in question you may ask the following questions:

Are the important customer needs being fulfilled to create maximum value to the customers?
Are some needs of lesser importance being fulfilled while creating excessive procurement costs for you?
Are there important customer needs not currently being fulfilled by neither you nor your competitors?

PETER SØRENSEN

B2B - Strategy Tools - Part 10

2008-03-06T08:00:00.000-08:00

Strategies for different customer segments

As the size of your business grow you may find yourself providing different products or services to different customer segments.

By customer segment I mean a group of customers sharing the same important needs - as shown in a previous post customers in a customer segment do not necessarily belong to the same industry but they share they the same need - a need that you can fulfil with your product or service.

What strategies should you then pursue towards the individual customer segments?

Michael Porter, Lars Bergendorff Business Consulting and The Boston Consulting Group have each developed strategy tools that when combined give an excellent input to the choosing of strategy.

In his book:" Competitive Strategy", Michael Porter introduces "5 forces" that influence an industry's attractiveness. I believe that they can be used for customer segments as well:
In short you should look at the following 5 forces:

Rivalry amongst you and your competitors
Bargaining power of customers
Bargaining power of suppliers
Threats of substitute products or services
Threat of new entrants

In addition to the above 5 forces I also believe that you should look at 2 more factors in order to determine the attractiveness of a customer segment:

The yet unrealised potential of the segment, i.e. the potential customers for your particular product or service that are not currently your customers
The growth rate of the customer segment

In my previous post: "Competitive Strength" I described the "Business Triangle" - an important strategy tool from Lars Bergendorff Business Development. The Business Triangle can be used to describe your strength in a particular customer segment in relation to fulfilling important customer needs better than competition.

Finally The Boston Consulting Group have with their classic "BCG matrix" developed a strategy tool whose principles are still valid. Using the above 2 dimensions: Segment attractiveness and competitive strength you can plot your customer segments in a strategy grid:

By making the size of the circles proportional to the current profitability of each of your customer segments you can add a 3rd dimension to the strategy grid - the current importance to your bottom line of each of your customer segments.

Due to issues with cost allocation you may want to use contribution or margin figures instead of profit per segment.

The strategy grid can now help you in making 1 of 4 strategic decisions for each of your customer segments:.

Go - when your strength in a customer segment is strong and the segment is attractive.
Keep - when your strength is strong but the attractiveness of the segment is low.
Investigate - if the segment is attractive but your strength is low.
Drop - if both segment attractiveness and your strength are low.

How you from an operational point of view execute your decisions is of course dependant also on how your current profitability in the segments are (size of the segment circles).

There may of course be other factors influencing your strategic decisions for each of the customer segments and before you decide you may want to look at the possibilities of making some "Blue Oceans" - I will discuss this in a later post.

PETER SØRENSEN

B2B - Strategy Tools - Part 9

2008-02-25T03:33:00.000-08:00

Change the name of the game

"Nike are just producers of sports shoes and sports wear. They are not the only ones but they are the only ones selling the shoes the way, they do. They do not sell the shoes at all, you see. They sell the experience of using Nike, the winning experience, compressed into three words: Just do it.

Stop and do something radically. You cannot just continue drifting along, spending the time watching your competitors and finding out what the customers want. What do you want? - underlining you. What is your future contribution to the world?

If the answer is "er, not really anything" you might as well leave your office right away. You will have to find out how you are going to enrich the world, believe so firmly in it that you become unique at what you are doing.

In order for your company to offer something unique, you must focus. You must appeal to narrower segments and compensate for rejecting the broad segments by selling your brand globally. So more communication in order to be accepted on more markets by narrower segments, and consequently more added value.

This means that you as a manager must be capable of rejecting a lot of things, be capable of cutting away, and believe in something and pursue it without compromise. This ultimate belief in something should then spread to the whole organisation and this should be the thing to steer by."

The above paragraphs are extracts from the Danish "Brand Name Guru" Jesper Kunde's book: "Unique now...or never" ("Kunde" actually means customer in Danish!).

I believe that there is a lot of truth in the above but if you are a "Business-to-Business" unit manager then unlike Nike you cannot rely on image and perception alone. Your products or services have to bring measurable added value to your customers as described in my earlier posts.

"Business-to-Business" companies have traditionally seen themselves as suppliers of components, be it as products or services, that their customers integrate into their products or services.

In order to differentiate from competition and bring more value to customers many B2B companies increasingly focus on fewer types of customers for whom they develop customized applications (systems) that fit uniquely into their customers products or production processes.

Maybe the ultimate customer adaptation that differentiates you from competition and bring high customer value is "Pay-Per-Unit"?

Pay-Per-Unit means that the customer shall only pay you when a unit of his product or service is produced successfully using your product or service.

The added value to the customer is of course that he only pays you when he has been able to produce a sellable unit - his economic risk is thus minimised. Likewise if your product or service does not perform in an optimal way and fewer units can be produced, the customer pays less and you are strongly motivated to get your product or service to work right again.

The benefits to you?

Firstly it will change the name of the game and give you a unique competitive position.

Secondly with the economic risk of your customer minimised you should be able to get a good selling price.

Thirdly I expect that before you venture into your first Pay-Per-Unit contract, you may need to develop new improved products or services whose customer value can be documented and most likely improve the performance over and above what is offered today.

Also you must of course look into ways of reducing or minimizing your costs while offering Pay-Per-Unit.

Are you ready for Pay-Per-Unit?

Pay-Per-Unit could perhaps be a "Blue Ocean Strategy" - I will discuss this in a later post.

PETER SØRENSEN

B2B - Strategy Tools - Part 8

2008-02-14T03:43:00.000-08:00

Who are your real customers?

The value chain

In business you naturally think of your customer as the one you invoice and from whom you receive your payment. But in Business-to-Business that is only partly true - your customer use or integrate your product or service in their product or service and so on until the final product is used or consumed by the end-user or consumer.
If you e.g. produce sealable lids for food packaging your direct customer may well be a producer of dairy foods like yogurt.
Referring to my previous post about customer value the value you can create for your yogurt producer can happen in 3 ways:

Sales price: Increase the sales price of your direct customers product by e.g. improving the barrier properties or the print quality of your product.
Productivity: Improve the productivity of your direct customers production by e.g. reducing the sealing time required.
Unit cost: Reduce the unit cost of your direct customers production by e.g. enabling him to reduce the waste - but as I also wrote don't start by reducing the price of your product!

But maybe you should think of the consumer as your real customer? Without someone eating yogurt there would of course be no need for sealable yogurt lids.

So you should also look at the important needs of the consumer and also the other participants in the value chain between you and the consumer.

How can your product or service create added value for them - maybe re-sealable lids?

PETER SØRENSEN

B2B - Strategy Tools - Part 7

2008-02-05T00:03:00.000-08:00

2 ways to develop a customer focus

What are you excellent at?

Most businesses probably start by people doing what they like and consider themselves good at. But as I discussed in my previous posts in order to stay in business you must fulfil important customer needs and create more value for you customers than competition.

Look at your competencies and skills and ask customers for a second opinion.

When you have found out where you are excellent look at your customers, across industries and to current non-customers to find similar needs that can be fulfilled with your excellent competencies and skills.

Focus and develop your business around these customer groups.

Look for unfulfilled customer needs!

Through your contacts with and by working for your customers you may be able to identify customer needs that are not currently being fulfilled or maybe only fulfilled poorly.

Are you able to develop solutions to these customer needs that create value for your customers and yourself?

PETER SØRENSEN

B2B - Strategy Tools - Part 6

2008-01-31T02:18:00.001-08:00

Strategic Focus

The Strategy must be clear as crystal and clearly describe how the company creates a unique position in relation to its customers and against its competitors. The organisation must fit like a glove with the strategy and a winning team of employees with the right competencies must be set. Operations must show positive figures and the key figures must point forward to show future potential of the business.
Strategic focus means acting based on knowledge regarding:

What is the business strategy of the company? (Customers, product, technology, distribution system, employee competences…)
Who are the key employees and what are their competencies and motivation?
What key performance indicators give decisive information about where the company is going?

Why focus?

”In a world where knowledge is rapidly expanding, a focus can be of particular help. No one company can hope to stay on top of the technological developments in many different application areas.
A focus helps direct our production, development, marketing and management efforts.
A focus helps us in becoming more powerful.”

”Focus – the future of your company depends on it” by Al Ries

PETER SØRENSEN

B2B - Strategy Tools - Part 5

2008-01-29T23:02:00.001-08:00

Competitive Strength

Knowing the value you create for your customers by fulfilling one or more of their important needs is not enough. You must also be able to fulfil your customers important needs better than your competitors in order to keep your customers or gain new customers.
The Business Triangle© by Lars Bergendorff Business Development is an illustration of this:

The important customer needs that you can fulfil and the value it brings to your customer.
Your own ability to fulfil the important customer needs.
Your competitors’ ability to fulfil the same important customer needs.

In identifying important customer needs you should be more specific than to say: “Quality, service and price”.
After listing and rating the important needs of your customers the question is how good you are at fulfilling these needs compared to your major competitors.
Your most important competitors may not necessarily be those who supply similar products or services as you do.

PETER SØRENSEN

B2B - Strategy Tools - Part 4

2008-01-24T01:39:00.000-08:00

3 ways to create customer value

The first question to ask one self in business is: “How can we create value for our customers?” (The second is of course:”… and how can we make a profit doing it?”)

For now I will concentrate on the 3 ways a typical company working in the “Business-to-Business” (BtB) segment can create value for its customers:

By influencing the sales price of your customer’s products or services.
By influencing the productivity/efficiency of your customer’s processes.
By influencing the unit costs of your customer’s products or services.

Value is created by satisfying needs and you should start by listing the most important needs of your customers that you fulfil today or that you will be able to fulfil with some development efforts.

For customers in the BtB-segment you will probably find that by supplying your products or services to your customers you will be able to fulfil some of the following needs related to their values generators sales price, productivity/efficiency and unit cost:

Sales price

Functionality of your customers’ product or service.
Durability of your customers’ product or service.
Life time of your customers’ product or service.
Aesthetics of your customers’ product or service.

Productivity/efficiency

Production cycle time of your customers’ process.
Units produced per production cycle in your customers’ process.

Unit cost

Total waste per unit produced of your customers’ product or service.
Man power requirement per unit produced of your customers’ product or service.
Process equipment and other fixed capital requirement per unit produced of your customers’ product or service.
The cost of your product or service per unit produced of your customers’ product or service.

Look for needs that you can fulfil today or with some development effort and that generate high value for your customers. In particular look where your products or services by fulfilling these needs are able to significantly improve the value generated by your customers.

Do not start with the price of your product or service!

PETER SØRENSEN

B2B - Strategy Tools - Part 3

2008-01-23T04:28:00.001-08:00

Business Strategy - definition

A Business Strategy answers the following questions:

Who are our customers
What needs of our customers do we want to fulfill?
With what tools do we plan to fulfill our customers needs?

A Business Strategy is supported by specific Actions Plans that are important in carrying out the Business Strategy. The Action Plans answer the following questions:

What should be done?
What is the expected result ?
When should it be done ?
Who is responsible?
With what resources should it be done?

As Lars Bergendorff from "Lars Bergendorff Business Development" puts it a Business Strategy improves the profitability of the company:

By increasing the revenue

increasing the value to the customer and the sales price level.
increasing the demand from customers and the sales volume.

By decreasing the costs

eliminating activities which are not supporting the Business Strategy

PETER SØRENSEN

B2B - Strategy Tools - Part 2

2008-01-22T09:59:00.000-08:00

Strategy on-line: About this blog

This blog will focus on discussing strategy formulation and implementation.

Strategy is the choice of ways to best achieve long term goals and fulfill the vision of the company.

Goals and vision can be reached and fulfilled and new ones set, but they are always within the overall values and mission of the company.

In their remarkable book:” Built to last”, Collins & Porras give a very good definition of values, mission (purpose), vision and long term goals (big hairy audacious goals). With some modifications this is what they say:

Values: The organization's essential and enduring principles – a small set of general guiding principles; not to be confused with specific cultural or operating practices; not to be compromised for financial or short-term expediency.

Mission (purpose): The organization’s fundamental reasons for existence beyond just making money – a perpetual guiding star on the horizon; not to be confused with specific goals or business strategies.

Vision (vivid description): A vibrant, engaging and specific description of what it will be like to achieve the company’s long term goals. Think of …… creating an image that people can carry around in their heads. On the one hand, it conveys a senses of concreteness- something vivid and real; you can sees it, touch it, feel it. On the other hand, it portrays a time yet unrealised – a dream, hope, or aspiration

Long term goals (Big Hairy Audacious Goals): Applies to the entire company and requires (several business cycles) of effort to complete. It requires thinking beyond the current capabilities of the company and current business trends, forces and conditions.

www.images.ksc.nasa.gov

“I believe this nation should commit itself to achieving the goal by the end of this decade… of landing a man on the Moon and returning him safely to the Earth..”

President John F. Kennedy in Speech to U.S. Congress May 25, 1961

The Values, Mission, Vision and Goals guiding this blog are:

Values: Knowledge is the only resource that increases in value with use and sharing.

Mission: To provide and exchange knowledge and practical tools that create high value for companies working in the businesses-to-business segment by continuously organizing, structuring and improving their business strategy formulation and execution processes.

Vision: A global network of business professionals that contribute to and share a common strategy formulation and execution process platform based on which they develop and grow into innovative, focused and profitable businesses.

Long Term Goal: By 2010 to have established a network of 100 business professionals from at least 5 continents. A network professional contributes at least once per month with content to “Strategyonline.blogspot.com “.

PETER SØRENSEN

B2B - Strategy Tools - Part 1

2008-01-21T08:44:00.000-08:00

Business Execution Excellence - the process

Business execution excellence is achieved through an iterative process.

Values and Mission describe the purpose and basic beliefs

Vision and Long term Goals describe the ambitions.

Goals & Objectives are clearly defined qualitative and quantitative results that must be achieved during the planning cycle.

Strategy describes who are the customers, what needs will we fulfill and with what means are
we going to achieve the goals.

Plan details per business area what should be done, by who and when.

Implementation is done by teams and managed by project or line managers.

Follow-up is done at regular intervals or ad hoc and provides feed-back to the plan, strategy
and perhaps goals.

PETER SØRENSEN