The people in your organisation are your assets. Each person has unique talents that can be put to work to make your organisation a more successful one.

The question is though, where is that talent focused?  Is it focused on your products, your services, your relationship with the customer? Or is it focused internally: people are unhappy with the compensation system, you got that job and I didn’t.

If you take 100% of your people’s talents, what’s the percentage?  What’s the breakdown?

If 30% of your people’s effort is focused on internal affairs and you can redirect it so that only 10% of people’s effort is focused internally, then that is a major boost in productivity.

Focus on what matters.  Focus on the customer.

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I haven’t written for a while, and have spent far more time lately on blog re-design, and fighting fires than on thinking about consulting and business strategy.  Not ideal, I know, you’ll have to forgive me.

The good news is that reading my blog is not the only, or even the best way, to learn about consulting and strategy.  One of the best ways to get experience is to get out there and talk to people who know more than you do, and more than I do.

To make things interesting, I am proposing the following game: interview a consultant, win a prize!

I have one A$500 Red Balloon gift voucher to give away which can be redeemed in Australia for a range of awesome gifts and once in a life time experiences (sky diving, hot air ballooning, bungee jumping, para-sailing, jet boating, laser skirmish, you get the idea)!  RedBalloon is arguably Australia and New Zealand’s leading online retailer of experience based gifts, and the A$500 gift voucher could easily be yours.  The gift voucher is valid until December this year so if you don’t like nice gifts or exciting experiences you can easily re-gift it, or sell it on eBay!

Here are the rules:

1. Interview a consultant, entrepreneur or business leader.  Talk to someone who has the skills, knowledge and experience that you would like to have. Talk to someone interesting, someone who inspires you. Talk to one person, or talk to lots.
2. Record the interview. Write it down, record the audio, take a video, paint an oil painting, or do an interpretive dance. You are creative, and I’m looking forward to seeing what you come up with!  
3. Send me a copy of the interview by Friday 26 March 2010, Sydney time.

Once all the interviews are in, I will determine a winner, and publish the winning interview on this blog at the end of March.  The winner will not only get the satisfaction of winning, the recognition gained by producing a first class piece of work, and the experience gained by preparing for and interviewing the person (or people) of their choice … the winner will also receive my coveted A$500 RedBalloon Gift Voucher which can be redeemed on the RedBalloon website.

Best of luck!

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For me, I was just entering my final year of high school and gearing up to sit the final exams called the Higher School Certificate. Expectations were high! Our teachers told us that these were the most important set of exams that we would ever take because “a good performance will get you into a good university and ensure a bright future!” (what they failed to tell us was that a bright future requires, more than anything, a clear direction and the determination to overcome setbacks along the way).  So, with no clear direction in mind, I took their advice to heart and have spent the better part of the last decade at university.

I end the decade with only slightly more money than with which I started it. A decade of study is a heavy investment, and I am pleased to report that I think it has been worthwhile after all. I have learnt a lot, as one would hope, and I can always dust off and sift through the piles of text books and notes if I ever forget something.  The lectures and exams were instructive (and at times character building), but more than anything the years of formal study have given me the opportunity to meet, learn from, and become friends with a large number of exceptional people – some like-minded, some brilliant, some inspiring, all wonderful in their own way.

And so, I find myself ten years older, a little wiser, with a long and growing list of qualifications and many valued friends. Expectations are high and a clear direction is needed. Where to next?

Ten years from now, where will you be if you keep going in the direction that you are headed?

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1. The importance of a résumé

A résumé is a document which summarises your background and accompanies your cover letter as part of your job application.  The résumé is important because it helps you to win an interview and will probably be used by the company to compare you against other applicants.

2. Personalise your résumé

• Be direct: clearly state your results and achievements
• Tell a compelling story: be mindful of how the experience and activities you mention in your CV affect the story that you are trying to tell about yourself. For example, if all of your experience highlights your analytical skills, you would want to make sure that your extra-curricular activities highlight other qualities, such as your communication and team work skills
• Easy on the buzzwords: avoid unnecessary jargon and technical language. Your résumé should be easy to understand.

According to Mariam Naficy, qualities to emphasise in your consulting résumé include:

• Evidence of intellectual curiosity e.g. research thesis
• Analytical skills
• Communication skills e.g. member of the university debating team
• Business skills e.g. starting a small business
• Enjoyment of travel (include this information under “Personal”)
• Team work skills e.g. university group assignments, work experience
• Language skills

3. Structure your résumé

Structuring your résumé is important.  There are a few tips to bear in mind:

• Employ consistent formatting throughout
• Place your name, address, phone number, and email address at the top of the résumé

It makes sense  to organise the information on your CV so that it portrays you in the best possible light. The firm you are applying to will be interested in the following information:

1. Education
2. Work Experience
3. Extra-curricular Activities
4. Skills
5. Personal (optional)

3.1 Education

If you have limited work experience, place your education first. If you have won numerous honors and awards, you may want to create a separate “Honors” section rather than list all of your achievements under “Education”. If your grades are not good, there are at least four ways that you can paint yourself in a more positive light:

1. Highlight your marks in a particular subject. E.g. GPA in economics of 4.0
2. Highlight your marks for particular years E.g. WAM for final year of 82
3. Highlight your marks in your major
4. Highlight your work experience. If you have relevant and impressive work experience you should highlight this in your cover letter, and provide supporting details on your résumé

3.2 Experience

Include paid jobs as well as relevant business-related extra-curricular activities; other nonpaid activities can be included under “Activities”.

There are a few tips to bear in mind:

• Arrange your experiences in a logical order (e.g. reverse chronological order)
• Outline your achievements and responsibilities
• Don’t include menial jobs, such as your stint flipping burgers at McDonald’s

3.3 Activities

Include nonpaid activities that you have undertaken outside the class-room. You may want to arrange this section in order of significance rather than reverse chronological order.

3.4 Skills

In my opinion this section is not crucial, but you should consider whether you have any special skills that would be relevant for the job e.g. computer skills, language skills.

3.5 Personal

This section is optional, and can be used to demonstrate your personality by including information which you couldn’t include anywhere else e.g. overseas travel, community service.

4. Sample résumé

To help you get started, I have prepared a sample résumé to give you an idea of what your résumé might look like when it’s finished.

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Consultants are people who borrow your watch, tell you what time it is, and then walk off with the watch.

Attributed to Robert Townsend, this well known stereotype conveys the idea that consultants charge a high price in exchange for  providing you with information that you already have.

There is an element of truth here.  Consultants do charge high fees, and can often provide common sense advice which appears to be no more than a statement of the obvious.  While it may seem counter intuitive, there are 3 good reasons why paying consultants to provide “statement of the obvious” advice may be extremely beneficial. In particular, consultants are able to help an organisation by:

1. Supporting organisational change: Politics, vested interests, and the force of habit can make it difficult to effect meaningful change within an organisation.  Consultants can assist management by supporting organisational change in two way.  Firstly, consultants are able to provide independent research-based support for a particular plan of action.  This kind of external support can legitimise management’s plan, and provide an impetus for action by clearly explaining the reasons why the proposed plan of action should be undertaken.  Secondly, consultants are able to engage with staff at all levels within an organisation.  If employees within the organisation feel a sense ownership in the change process then they are less likely to resist any changes that are made, and the proposed plan of action is more likely to succeed.
2. Accelerating information gathering: Anecdotal evidence suggests that employees are often more honest and open with external consultants than with their peers.  As such, consultants are well placed to be able to collect more information more quickly than could be done by full-time staff members.
3. Ensuring rigorous analysis: Consultants like to be in a position to provide their clients with clear recommendations and, in order to support these recommendations, they will ask questions, conduct interviews, obtain data, consider industry reports, and conduct rigorous analysis.  The ultimate recommendation may be straightforward, or even a “statement of the obvious”, however the important thing is that the reasoning and analysis behind the recommendations are sound.  By obtaining an outside opinion, management can avoid the inherent risks associated with rash and ill-informed decision making.

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Management consultants are often loudly criticised. Why is this so?

A large part of the reason is that consultants are paid a lot of money to provide recommendations which may or may not be implemented, and may or may not work.  They get paid regardless of the outcome, and this rubs a lot of honest, hard working people the wrong way.

A consulting joke one of my good friends told me recently provides some insight into the negative sentiment that sometimes surrounds the profession:

A man drives up to a farmer who is herding his sheep and says “if I tell you how many sheep you have, can I have one of your sheep?” Intrigued, the farmer agrees. The man sits down, pulls out his laptop, does some calculations, makes some phone calls, takes some satellite photos and finally announces, “you have exactly 413 sheep.” The farmer is impressed, “that’s exactly right, you can have the sheep of your choice.” The man picks one of the animals and the farmer says “now can you do something for me? If I can tell you what you do for a living, will you give me back my sheep?” The man agrees and the farmer immediately replies, “you’re a consultant!” The man is amazed, “yes, how could you know that?” “Well”, says the farmer, “you came without being asked, you told me something I already know, and you don’t know anything about my business … Now give me back my dog.”

Hat tip to Nick Cocco for the joke.

This joke, apart from being pretty funny, conveys the idea that consultants don’t add value. Could this be true?

“NO!”, I hear myself say (shout, scream), “if consultants don’t add value then they wouldn’t be highly paid and smart managers would stop using them. But consultants are highly paid and smart managers do use them. Therefore, consultants must add value!”

Mustn’t they?

This argument is certainly sound. Or at least, I like the sound of this argument.

The question is, why would smart managers employ expensive consultants if they don’t add value to the company?  Why indeed!  To quote Peter Spencer:

… it all started when executives at large companies decided that they needed some external scape-goats to blame if and when costly new business ventures failed.

Over the years this symbiotic relationship has developed enabling the consultants to charge huge sums for sometimes superficial but well “powerpointed” presentations in return for the Company Executives’ right to take full credit for any successful outcomes while shifting the spotlight of blame comfortably away from themselves in case of failure. “Failure is a bastard but success has many executive fathers”.

What do you think, are consultants just highly paid scapegoats?

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Former McKinsey consultant Victor Cheng provides us with an interesting insight. The skills that get you hired as a consultant are not the same skills that get you promoted, and the skills that get you promoted are not the same skills that take you to the top.

You get hired for your analytical skills, you get promoted based on management skills and client skills, and you go all the way to the top based on sales skills.

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I just read Seth Godin’s post on Dunbar’s Number.

Dunbar’s Number is thought to be around 150, and represents the number of people that we humans can place in a group before stable social relationships begin to break down.  The thinking is that we simply lose track of new people when the group gets bigger than this.

Last week I created a Facebook group for people who are interested in business and investment strategy.  Members are able to create discussions, share ideas, and post interesting links, photos and videos.  I am hoping this new group will be a good learning experience for everyone involved.

The group is called “Dunbar’s Strategy Group“, and when it grows to a size of 150 it will be closed to new members.

If this sounds like a group you would like to be a part of, please consider joining.

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Mismatch between what science knows and what business does

Daniel Pink puts forward the idea that there is currently a mismatch between what science knows and what business does.

Pink presents the Candle Problem, an experiment invented in 1945 by Karl Duncker. The experiment works as follows: I bring you into a room and give you a candle, a box of tacks, and some matches. Your job is to attach the candle to the wall so that the wax doesn’t drip onto the table. This is a seemingly simple problem, but the problem is difficult to solve because of the difficulty of overcoming something known as “functional fixedness”. The items are presented in such a way that there is a “mental block against using [them] in a new way that is required to solve a problem” (Duncker 1945). Watch the video to see a good explanation of the Candle Problem.

Now here is the interesting thing. At Princeton University, an experiment was conducted using the Candle Problem to look at the power of incentives. Two groups of people were taken and the first group were offered individual monetary rewards if they solved the Candle Problem quickly. The control group were not offered an incentive. The result was amazing, the incentivised group performed significantly worse than the control group … external incentives reduced performance.

Pink makes a number of insightful points on motivation, in summary:

• As long as a task requires only mechanical skill, bonuses work as they would be expected – the higher the pay, the better the performance.
• Once a task calls for even a rudimentary amount of cognitive skill, a larger reward often leads to poorer performance.
• Extrinsic motivators, which Pink refers to as “if-then” rewards, often destroy creativity.
• In early 2009, economists at LSE looked at pay for performance schemes and concluded that “financial incentives … can result in a negative impact on overall performance.”
• The secret to high performance isn’t rewards and punishment but rather that unseen intrinsic drive, the drive to do things for their own sake, the drive to do things because they matter.

Autonomy, mastery and purpose

The solution to achieving high performance in business in the 21st century will be based on intrinsic motivation, on the desire to do things because they matter, because they are interesting, and because they are important. Pink argues that this new operating system for business is to be based around 3 elements:

1. Autonomy – the urge to direct our own lives;
2. Mastery – the desire to get better and better at something that matters; and
3. Purpose – the yearning to do what we do in the service of something larger than ourselves.

As Pink argues, if we can repair the mismatch between what science knows and what business does, and bring our notions of motivation into the 21st century, we can strengthen our businesses, solve a lot of those Candle Problems … and maybe even change the world.

Book version of this speech

I wrote Dan an email to thank him for this great speech.  He informs me that the book versionof the speech will be released in the US in December and in Australia around April or May.  If the book is even half as insightful as the speech, I think it will be well worth reading.

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Wait a second, I hear your say, there are dozens of consulting blogs, why does this blog rate a mention?

Well, KR is not your ordinary consulting blogger.  Apart from being an eloquent writer, KR is a PharmD,PhD,MBA graduate who is currently working as a postdoc at Harvard Medical School, and playing the Harvard trump card to get interviews at all the big consulting firms. KR is giving us an up-close-and-personal look at the consulting application process.

The name of the blog is Consider Consulting, and I’ve added a link to my blogroll for our future reference.

This blog is well worth following over the next few weeks/months.  I am looking forward to reading all of KR’s insights on the consulting application process, straight from the horses mouth!

Good luck in the interviews, KR!

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(Flickr: bold army)

There is talk about town and in the media of an economic upturn in the final quarter of 2009 – “banks are lending, consumers are buying, and companies are hiring.”  While it is not possible to predict the movement of the economy with any level of certainty, and recent history has reminded us of this fact, it is important for business people and government policy makers to have some idea of what lies ahead.

The practice of reading omens in order to foretell the future has been employed since ancient times. In ancient Rome, priests known as “Augurs” would determine the will of the gods by studying the flight of birds, while other persons known as “Haruspices” practiced a form of divination which involved inspecting the entrails of sacrificed animals.

Things have progressed a little since then. Today economists devine the future by examining “economic indicators”.

Economic Indicators

In order to assess the likely strength of the economy in the future, economists look at “economic indicators”.

An economic indicator is any economic statistic (e.g. the unemployment rate, GDP, or the inflation rate), which indicates the current strength of the economy and/or the future strength of the economy.

Economic indicators are generally classified by reference to  two attributes:

1. Correlation with the strength economy; and
2. Contemporaneousness with the strength of the economy (let me know if you can think of a simpler word)

1. Correlation

If an economic indicator is “correlated” with the economy, then we would expect a change in the value of the economic indicator to correspond with a movement in the economy.  The correlation of an economic indicator may be described as procyclical, countercyclical, or acyclical:

1. Procyclical: A procyclical economic indicator is one that moves in the same direction as the economy. For example, Gross Domestic Product (GDP) is a procyclic economic indicator because it gets larger as the economy gets stronger.
2. Countercyclical: A countercyclical economic indicator is one that moves in the opposite direction as the economy. For example, the unemployment rate is a countercyclical economic indicator because it gets larger as the economy gets weaker.
3. Acyclical: An acyclical economic indicator is one that has no relationship to the economy and is generally of little use in predicting the future strength of the economy.

2. Contemporaneousness

Contemporaneousness refers to the timing of the change in the economic indicator relative to the movement in the economy.  The contemporaneousness of an economic indicator may be described as leading, lagged, or coincident:

1. Leading: A leading economic indicator changes before the economy changes. For example, construction activity is a leading indicator as the level of construction activity usually begins to decline before the economy declines and improve before the economy improves. Leading economic indicators are the most important type of indicator for investors, business people and policy makers because they help to predict the future performance of the economy.
2. Lagged: A lagged economic indicator is one that does not change direction until a few quarters after the economy does. For example, the unemployment rate is a lagged economic indicator because it typically takes at least two quarters to decrease after the economy begins to recover.
3. Coincident: A coincident economic indicator is one that moves at the same time as the economy does. For example, Gross Domestic Product is a coincident indicator.

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I really hope that my effort was successful because, in the process of deleting Wordpress, all of my photos and images have been lost. I have backup copies and I will be replacing these over the next couple of weeks, so please bear with me.

I like to think that life is a constant process of creative destruction, and I am hoping that the destruction of my blog will lead to some improvements. I am trialling a new Wordpress theme called “Arthemia” which I have been thinking about trying for a little while. Arthemia is a very clean and crisp theme and allows me to feature my newest and most interesting content at the top of the page, which should help direct readers to the articles which are most interesting and useful.

I am a bit worried about the new look though. My previous blog was a nice shade of blue and this new theme is very white, perhaps too white!?

I am also concerned about the two prominent spots for ads in the new theme. This may offend people or turn readers away because it may appear that I am emphasising advertising over ideas and content. My main priority has always been to share ideas about consulting, business strategy and investing, and I can’t help but think that the prominence of advertising might detract from this. Either because it distracts readers from the content on my blog, makes them think that the blog looks cheap and mercenary or, even worse, because it distracts me from the reason why I started the blog in the first place.

So – what do you think? Am I worried about nothing? What would you change about the appearance of this blog?

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The very first management consulting firm was Arthur D. Little, founded all the way back in 1886 by a professor at MIT whose name was (funnily enough) Arthur D. Little.

Almost 30 years later, Booz Allen Hamilton was founded in 1914. Booz was the first management consultancy to serve both industry and government clients.

Interestingly, McKinsey & Company was the world’s first pure management and strategy consulting company. Founded in 1926, McKinsey is is now the world’s most prestigious consulting firm.  The culture of the firm was heavily influenced by a man named Marvin Bower, who served as managing director from 1950 to 1967. Bower believed that management consultancies should adhere to the same high professional standards as lawyers and doctors. To this day, the core guiding principle at McKinsey is professionalism.

Boston Consulting Group, arguably the world’s second most presigious consulting firm, was founded in 1963 by Bruce Henderson. It all began when Henderson left Arthur D. Little to accept a challenge from the CEO of the Boston Safe Deposit and Trust Company to start a consulting arm for the bank.

Ten years later, in 1973, Bill Bain and others left the Boston Consulting Group to form Bain & Company, which is also one of the world’s leading consulting firms.

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Top tier management consulting companies are the preferred destination for many MBA graduates, as well as graduates with less traditional backgrounds. In general, the consulting positions for those straight out of an undergraduate program are fewer and farther between. That’s because the more junior analyst positions typically don’t lead to partner track consulting positions in most firms; analysts are expected to return to graduate school and only then, should they return, be on a partner track. This can vary from firm to firm but is definitely true for the McKinsey, Bain and BCG type firms.

That doesn’t mean that fresh graduates cannot find positions, even in financial times as difficult as these. Believe or not, consulting companies are busier now than in the prior recession of 2001, so don’t lose hope. I have personally coached over a hundred potential candidates and many were truly amazed that they were able to secure the coveted offer letter during a competitive interviewing season. In order to maximize your chances during the interviewing process, it’s important to prepare carefully, below are some tips to help you ace the interview:

1. Make a good first impression

This goes for any interview you’re on but is particularly true for fields like management consulting. Make sure you look like a consultant – what does that mean? Many of the smart people that interview for consulting positions have not interviewed anywhere before or only for academic type positions. Others are foreign born graduates of top MBA or other programs – whatever, the case may be, they have never interviewed for a top tier management consulting job or similar positions in companies. The fact that these firms interview the brainy types only makes the situation worse. Invest in well made suit, dark blue or grey with or without pinstripes is perfect for men, for women, black can also work. A tie with a splash of color is fine, it can convey a little bit of energy or pizzazz, but nothing too flashy, they like energy but not attention seekers. A briefcase or attaché is a perfect complement to an outfit, you can always borrow a friend or colleague’s and it doesn’t necessarily have to be new to convey a polished look.

2. Keep your poise

Much of the interviewing process is very intense, with some companies intentionally playing “good cop, bad cop” between their interviewers. All this means is that you need to remain poised, don’t let them ruffle your feathers with abrupt or unfriendly behavior, pushing paper around or looking angry. Remember, you’re not here to make friends, you’re here to get a job and they’re here to test whether you can deal with nasty clients, managers and co-workers should the occasion arise. Keep smiling and a resilient positive attitude, you’re interviewers will find it irresistible.

3. Think and listen

This might sound obvious, but most people don’t do this during the case interview and miss the boat on what the interviewer is asking for or don’t get the hints that are being dropped during the discussion. A classic issue for interviewees is writing too much instead of listening to the question being asked. Practice listening to case questions and writing very few words, use symbols for profit (π), revenue (R) and other common words and don’t write down the fluff in the questions, flowery language is there to confuse, good consultants can spot the key facts quickly. Listen and then think about the implications of the question being asked. If there are declining profits in a business that is becoming commoditized, then opine as much and state your rationale. You can be thoughtful and comment on the question at hand based on what you know. Continue this process throughout the case interview, each piece of information is a clue, not just a plug into an equation or out of the box framework so common in business schools.

4. Ask questions

Now that you’re thinking about the case and the information you’re being given, be sure to ask intelligent questions; start a dialogue rather than barreling down a path that is preconceived or based on early inferences on the case at hand. Remember, you are expected to be engaging during team problem solving situations, be sure to appear this way during the interview and engage the interviewer. There is probably a lot you know about a particular industry based on general reading (you should be reading business publications to build your business acumen if you don’t have a typical business background). If the case is about the magazine industry, you should be able to guess what their sources of revenue are without having worked in the business – that’s just common sense, practice applying this common sense. Curiosity is a relentless trait in good consultants, mix this curiosity with intelligent thought to come up with hypothesis driven questions: “One would think that the roofing industry is seasonal…..are there seasonal variations in this company causing cash flow issues?” rather than, “is there uneven earnings throughout the year?”

5. Pass the airport screen

Consultants always ask, is this someone I’d like to be stuck at an airport with for 4 hours or in a small team room for 8 – 12 hours per day for weeks on end? Be sure you’re the type of person that is tolerable, hopefully enjoyable, to be around. Be yourself, don’t be too pushy or aggressive, it just turns people off. Have fun with the interview, if you’ve prepared well it should be fun for both you and the interviewer. Be sure to prepare well for the interview and the fit questions on your background, resume, interests, strengths and weaknesses – these all count, remember, they’re looking for the next round of leaders for their organizations, their people are their product so show them what a great product they’re looking at!

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Tony Robbins is an American self-help writer and professional speaker who believes that there are six basic human needs, and that people are motivated by their desire to fulfill these needs:

1. Certainty/Comfort

We all require a basic level of certainty that we will be able to avoid pain and obtain pleasure. For example, at a very basic level we want the comfort that comes from having a roof over our head, clean water and three meals a day for ourselves and our family.

2. Variety

If life is completely certain and predictable it is likely to become boring. So, we also require some level of variety.

3. Significance

We all require a feeling that we are unique and important, and that our life has meaning. This need can be fulfilled in various ways, one way might be work in a highly paid, highly respected profession.

4. Connection/Love

We all want to feel part of a community, to be cared for and cared about.

5. Growth

Growth is an important part of life in general. We all want to grow, develop and improve our abilities and position in life.

6. Contribution

On some level, we all want to contribute something of value, to help others, or to make the world a better place.

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The event was organised by the ever dynamic and always delightful Melissa O’Young. The name of the event sounds pretty random, and it is, but it is also quite clever. Since this was an Australian TED event the thinking was as follows: Australia – Oz – Wizard of Oz – Emeral City … but of course!

There were twelve of us at the event, all from a diverse range of backgrounds: artist, journalists, lawyers, bloggers, photographer, fashion design, financier, film producers, travellers, and entrepreneurs.   It certainly was an interesting and unlikely group of people to be assembled in the one place, not your ordinary pizza and beer night.

The evening was driven by the high minded desire to share interesting and important ideas, watch a number of TEDTalks videos, network with people from outside our normal group or friends, and to get inspired by new ideas, projects and opportunities. It was an engaging and thought provoking evening, and I feel lucky to have been a part of it.

Over the course of the evening we watched four TEDTalks videos, all very different, all of them fascinating. If you’re interested, I have linked to each them:

1. Alain de Botton: A kinder, gentler philosophy of success
2. Dave Eggers’ wish: Once Upon a School
3. Rick Smolan tells the story of a girl
4. Eric Lewis plays chaos and harmony

My personal favourite is the one by Alain de Botton on his kinder, gentler philosophy of success.  This talk is particularly relevant and eye opening to all of us who strive for “success”, what ever that may mean. Check it out!

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Pass mark: 70%

Pass rate: 46%

Result: Pass!!

Feeling: very relieved

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In an article entitled “Strategy and the Internet” published in the March 2001 edition of the Harvard Business Review, Michael Porter outlined six principles that he believes companies need to follow if they want to establish and maintain a distinctive strategic position in the market place.

Since the internet is a business platform with low barriers to entry, these six strategic principles are particularly relevant to any company that wants to be profitable online:

1. Stand for something

In order for a company to develop unique skills, build the right assets, and establish a strong reputation it is important to define what the company stands for so that the company will have continuity of direction.

2. Focus on profitability

This point seems obvious, however many internet based companies have instead focused on “unique visitors” and “page views” as measures of performance. At the end of the day, sustainable profits will only be possible where goods or services can be provided at a price which exceeds the cost of production.

3. Offer consumers a unique set of benefits

Good strategy involves being able to provide a distinct set of benefits to a particular group of consumers. Trying to please every consumer will not give a company a sustainable competitive advantage.

4. Perform core activities differently

If a company is able to establish a distinctive value chain by performing key activities differently from its competitors, then this will help the company establish a sustainable competitive advantage.

5. Specialise

There is no competitive advantage to being a jack of all trades and a master of none. Porter recommends making trade-offs.  By focusing on certain activities, services or products at the expense of others a company can establish a unique strategic position.

6. Ensure that all activities reinforce the company’s strategy

All of a company’s activities are interdependent and, as a result, they must be coordinated so as to reinforce the company’s overall strategy. A company’s product design, for example, will affect the manufacturing process and the way that products are marketed. By coordinating all of its activities, a company makes it harder for competitors to imitate its strategy.

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(Autoblog: 2010 Nissan Leaf EV)

On 1 August 2009, at the opening of its new global headquarters in Yokohama, Nissan launched its first fully electric vehicle, the Nissan Leaf EV.

Nissan appears to have made a long term strategic commitment to electric vehicles. According to one source, Nissan has been busy developing electric vehicles since 1992.

Nissan, with alliance partner Renault, has bold ambitions. Toyota and Honda have both produced fuel-electric hybrids, but Nissan is the first car maker with plans to mass produce a fully electric vehicle.  The Nissan Leaf EV will be able to run 160km (100 miles) on a single charge which, according to Nissan, would make it suitable for the daily driving needs of over 80% of Americans.

Fully electric cars are not a new idea but, up until now, there have been a number of factors preventing mass market introduction, including:

1. limited battery life;
2. the high cost of battery technology;
3. inconvenience of lengthy battery charging times; and
4. lack of supporting infrastructure.

Carlos Ghosn, CEO of Nissan, has responded to these consumer concerns about affordability and convenience.   The Nissan Leaf EV will incorporate two clever innovations:

1. Battery leasing: Electric cars have traditionally been more expensive than petrol cars, due mainly to battery costs.  Battery costs will most likely fall with mass production. However, Nissan’s key innovation is their plan to lease batteries to customers rather than sell the car at an inflated price. As a result, the Nissan Leaf EV is expected to cost no more than a petrol car.
2. Quick charge: The batteries will have fast charge capabilities, with a 10 minute quick charge providing an extra 50km of range.

Will cities around the world commit to building the necessary infrastructure to support these new electric vehicles?  If so, the Nissan Leaf EV could be the bright spark we’ve been waiting for.

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In September 2008, the McKinsey Quarterly published an interactive audio presentation on the GE-McKinsey 9-Box Matrix.

An outline of this framework is provided below, but I highly recommend watching the original presentation.

1. Background

The 9-Box Matrix follows in the footsteps of Boston Consulting Group’s growth share matrix which was introduced in 1968.

The 9-Box Matrix was developed as part of work that McKinsey did for GE in the early 1970s. At that time, GE had around 150 business units and was faced with the challenge of how to manage such a large number of business units profitably.

The 9-Box Matrix was developed as a result of the realisation that it is important to separate the ability of a business to generate cash from the decision about whether to put more cash into the business.

2. Purpose

The 9-Box Matrix offers any decentralised corporation with multiple business units a systematic approach to help it decide where to invest its cash.

The 9-Box Matrix solves the problem of trying to compare potentially very different business units: one might be capital intensive; another might require high advertising expenditure; a third might have economies of scale.

Instead of relying on the projections provided by the manager of each individual business unit, the company can determine whether a business unit is going to do well in the future by considering two factors:

1. attractiveness of the industry; and
2. the business unit’s competitive strength within that industry.

3. Using the matrix

(Source: McKinsey Quarterly)

Placing each business unit within the 9-Box Matrix offers a framework for comparison between them.

In order to keep things simple, the framework offers only three investment strategies:

1. Invest/Grow;
2. Selectivity/Earnings; and
3. Harvest/Divest.

Allocating one of these investment strategies to each business unit is a necessary first step. However, it is important to note that two business units that have been given the same strategy will not necessarily be treated in the same way. For example, a strong unit in a weak industry is in a very different situation than a weak unit in a highly attractive industry.

After placing a business unit into one of the nine boxes, there are at least two questions that are worth asking:

1. If a business unit is in one category, say “selectivity/earnings”, is there anything that can be done to change its position? That is, would it be possible to move a business unit from the “selectivity/earnings” category and into the “invest/grow” category by making any kind of strategic investments?
2. If a business unit is to receive money, what should it do with that money? It is important that money is given with a purpose in mind because the best use of money will vary depending on the industry and on the business unit. For example, advertising to enhance the brand might work for one business unit, whereas investing to increase research and development might work for another.

4. Axes of the matrix

The 9-Box Matrix places “industry attractiveness” along the vertical or y-axis, and “competitive advantage” (otherwise known as competitive position, or competitive strength of the business) along the horizontal or x-axis.

4.1 Industry attractiveness

Industry attractiveness refers to whether the industry is going to do well in the future. Are most players in the industry likely to do well? How easy will it be for the average company in the industry to make profits over the long run?

There are a number of different factors that affect industry attractiveness and those factors will vary in importance from industry to industry, for example: long run growth rate of the industry, current profitability, etc.

The Structure Conduct Performance model or, its more popular simplified version, the Porters Five Forces model both provide a formal approach to look at industry attractiveness.

4.2 Competitive advantage

According to Coyle, the first formal definition of “sustainable competitive advantage” was not determined until the mid-eighties.

In the early days of the 9-Box Matrix, analysts used proxies for sustainable competitive advantage:

• Is the business unit’s market share growing? Maybe we can infer from this something about its competitive advantage.
• How strong is the business unit’s brand equity? That is, how much of a price premium can it charge?
• Is the company more profitable than its competitors?

A business has a competitive advantage when it is able to achieve profits that exceed the industry average. Competitive advantage may be established by offering consumers greater value by way of:

• lower prices;
• differentiated goods or services that justify higher prices; or
• establishing a market niche and achieving a narrow, rather than an industry wide, competitive advantage.

5. Available strategies

5.1 Invest / Grow

A business unit will be in the “invest/grow” category if the prospects for the industry as a whole are attractive and the business unit’s position in the industry means that it is likely to do better than most of the other firms in the industry.

A business unit in this category should be given as much money as it needs regardless of whether it can generate those funds itself.

5.2 Selectivity / Earnings

Business units in this category are given second priority to those in the “invest/grow” category. So, the amount of money spent on business units in the “invest/grow” category will determine how much money is left over for business units in this category.

When allocating money to a business unit in this category, it is important to be selective about where the money is spent and monitor earnings closely. With the right combination of strategies, it may be possible to move the business unit into the “invest/grow” category.

In this part of the matrix it is a good idea to be careful. If the business unit doesn’t improve then it may be best to invest money elsewhere.

5.3 Harvest / Divest

A business unit will be in the “harvest/divest” category if it is in an unattractive industry and its competitive position is weak.

There are two suggested strategies:

1. sell the business unit (divest); or
2. increase short-term cash flows as far as possible, even at the expense of the business unit’s long term future (harvest).

6. Related articles

If you enjoyed this article, you may also want to read:

1. Product Life Cycle model
2. Five C analysis of borrower creditworthiness
3. Value Chain Analysis
4. Four P’s marketing framework
5. McKinsey 7-S model
6. NPV: Net Present Value
7. Porter’s Five Forces analysis
8. BCG growth matrix
9. SWOT analysis
10. McKinsey’s MECE framework
11. Understanding the cost benefit analysis

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