Marketing Innovation

Seven Core Articles on Strategy

Here are seven core articles that explain key principles that, in my opinion, people concerned with strategy should be familiar with:

• “Marketing Myopia,” Theodore Levitt, Harvard Business Review, July-August 1960
• “How Competitive Forces Shape Strategy,” Michael Porter, Harvard Business Review, March-April 1979
• “The Core Competence of the Corporation,” C.K. Prahalad and Gary Hamel, Harvard Business Review, May-June 1990
• “Meeting the Challenge of Disruptive Change’”, Clayton Christensen and Michael Overdorf, Harvard Business Review, March-April 2000
• “The Era of Open Innovation,” Henry W. Chesbrough, MIT Sloan Management Review, Spring 2003
• “Blue Ocean Strategy,” W. Chan Kim and Renee Mauborgne, Harvard Business Review, October 2004
• “The Big Idea:  The New M&A Playbook,” Clayton Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck, Harvard Business Review, March 2011

 

Innovation: Make the NASCAR Sprint Cup Chase a real playoff

The format of the Chase to the Sprint Cup (NASCAR) and the FedEx Cup (PGA Tour) both bother me because they are billed as a "playoff," when they are, in fact, nothing of the sort.  

In order to have a playoff, you need to have at least two leagues/divisions/conferences/etc.  Neither sport has that. Just singling out the top performers during the regular season and making them the only ones who can win does not a playoff make.

Those two programs are not, in my mind, marketing innovations.

The upcoming IndyCar Racing League (IRL) race at Texas June 11 gave me an idea, though.  Instead of one long 550 km race, they are running two back-to-back 275 km races.  These are both full-field affairs, with the running order in the first race determined by traditional qualifying procedures (fastest lap starts first), and the second race starting positions determined by the finishing order in the first race (could be highest finish first, or invert the field).

Pretty cool.  More action for the fans.

My idea For NASCAR takes it quite a bit further.

Let's organize the Sprint Cup drivers into two leagues -- let's call them the American and National leagues, just for convenience.

Before the season starts, the drivers are assigned to each league based on the prior season's point finish. Drivers who finished in an odd numbered position (1,3,5, etc.) would go into the American League, and the even-numbered finishers go into the National League.  There would be 25 (or more) drivers in each league, with pretty good parity between the leagues.

The first 26 races of the season would be run as two league races -- half field events.  Instead of the Goody's Fast Relief 500, as at Martinsville last weekend, there'd be the Goody's Fast Relief American 250, and the Goody's Fast Relief National 250. Points would be awarded according to the current system.

It would be great for fans, because they get more meaningful action each weekend.  NASCAR would have a great opportunity to stage some sort of event between the races -- a “halftime show,” if you will.  The networks would love it.

After 26 races, only the top 12 to 15 drivers from each league go into the Chase -- that's the 24 to 30 top drivers, which would make for great racing. The Chase races would all be full length affairs, designed to test the durability and talent of the teams competing.  And the Chase would be a true playoff between drivers from two leagues.  There would be a champion driver and a champion league.  Drivers might cooperate on track more to prevent a rival league’s driver from advancing -- it would add a new dimension to race strategy.

The drivers who didn’t make the cut end their season there.  No “start-and-park” teams in the Chase, no wasting money driving laps that don’t mean anything. 

Races would be both shorter and more exciting. There would be lower costs associated with fielding a team for 26 short races, which might bring more sponsors into the sport.  Sponsor deals could be worked for the “regular season” and then again for the playoffs.  Much more flexibility.

NASCAR fans tune in more during the summer than the fall -- the NFL is pretty stiff competition.  For a team owner running outside the top 10 or 12, the Chase is currently a huge money drain.  With my proposed playoff system, there is more excitement for the fans and a better ROI for the owners and sponsors.

With a total of 50 cars each weekend, there's more opportunity for owners and drivers to compete at the Cup level -- and more opportunity for sponsors.

That strikes me as a marketing innovation!

 

Angry Birds as a Strategy Simulator? You bet it is!

I am one of the 40 million regular “active monthly users” of Rovio’s “Angry Birds” game…er, strategy simulator…and a professor of competitive strategy.  I think one of the addicting aspects of the game is the nature of the challenge.

Strategy is about allocating resources to accomplish a goal.  Resources are people, equipment, facilities, money, etc. that companies use to deliver value to their customers.  Constraints are conditions that act to inhibit the effectiveness of your resource deployment on accomplishing your goal. 

For those of you who are not one of the 75 million people who have downloaded some version of the game, here is what it is all about:

The Goal:  Kill pigs by hurling various types of birds from a slingshot into structures that act to protect the pigs.  The structures collapse and the pigs die in the rubble.  (The pigs brought on such animosity by stealing the birds eggs, which made them angry.)

 

 

The Resources (birds):  You are presented with a variety of birds that each have some sort of special aptitude that is deployed when you tap the screen whilst the bird is in flight.

• Red birds are basic projectiles.  They possess inertia and no special “tappable” capabilities. 
• Blue birds split into three smaller birds upon tapping.  These birds don’t have much inertia, but seem especially effective against glass (one of the structural materials).
• Yellow birds accelerate dramatically when you tap.  They seem to work well penetrating wood.
• Black birds turn into a bomb, and explode upon tapping.
• White birds drop a bomb, and zoom off to the upper right when you tap the screen during their flight.
• (I understand there is a toucan in higher levels that comes back toward the slingshot, but I haven’t gotten there yet.  More simulating is required!)

The Constraints (structures):  These are the buildings in which the pigs hide.  They are built from stone, wood, and glass.  

The Game:  You are presented with a limited number of birds, with varying capabilities, in a specific order, that you must figure out how to use against the structure(s).  You choose where to aim the birds; the launch angle; and when to deploy the special power of each bird.

Choosing where to aim often requires thought about what will happen after the bird hits -- will a structure fall over and knock down an adjacent structure, for instance?  In essence, you will intend to set a process in motion that will result in competitive advantage (removal of as many constraints as possible with a single resource).

If and when you fail to kill all the pigs, the remaining pigs -- bruised and battered though they may be -- flash a mocking smile just prior to the “Level Failed!” screen appearing.

If and when you succeed, the flock of spectator birds that are apparently watching just off-screen erupt into wild cheering.  Very rewarding!  

If only stockholders would cheer wildly when a strategy is successfully executed!  Oh, wait, they do, right?  The share price goes up!  I guess that proves my point about just how realistic Angry Birds is as a strategy simulator!

P.S.  When I presented my students with this analogy, they all agreed, and then asked if they could play “Angry Birds” in class.  I said no -- it's homework.  :-)

 

What the Market REALLY Wants

The market doesn't want innovation, it wants results.

Dan and Chip Heath in the November, 2010 issue of "Fast Company" magazine (page 84) put it very succinctly:  

You've heard the old saying "If you invent a better mousetrap, the world will beat a path to your door."  Don't bet on it.  The world's felt need isn't for a better mousetrap.  It's for a dead mouse.

Excellent advice for innovators -- focus on the result, not the process.

The Vanilla Paradox: Crossing the Blue Ocean to Mass Market Success

Do you have an innovative product in a mature market?  That isn’t an oxymoron -- most innovations are improvements on existing products or services, and need to be differentiated from what is currently available.  Otherwise, they risk becoming, as a former IBM colleague put it, “just another flavor of vanilla”.

So, how do you go about avoiding the Vanilla Paradox^TM?  I believe that the answer lies in combining the lessons in Geoffrey Moore’s “Crossing the Chasm”/“Inside the Tornado” books with the ideas in W. Chan Kim and Renée Mauborgne’s “Blue Ocean Strategy”.

The main lesson from Moore is that to penetrate the mass market (aka “cross the chasm”), you should identify a niche, or market segment, and provide a “whole product” to it.  A “whole product” is defined as “the minimum set of product and services necessary to ensure that the target customer will achieve his or her compelling reason to buy”.  (Click on the image to see a larger version.)

In other words, a complete solution to a real problem.

That may appear to be obvious, but the key words are “complete” and “real”.  In many innovations, the entrepreneur will offer a new capability, but not a solution.  The customer must still perform some integration-type work to make the innovation into a success.  (These customers are the “early adopters” on the other side of the chasm.)  The “whole product” concept is key.

The other challenge is the “real” problem.  If you have improved an existing product or service, whether it is a light bulb, trailer hitch, asthma inhaler, or invoicing service (etc.), there are a great number of existing customers who are perfectly content to stick with the status quo.

What you want to do is make these customers think differently about the product or service in a way that makes them predisposed to consider buying your innovation.  The message from “Blue Ocean Strategy” is that you need to reinvent the “value curve”.  The objective is to create a “blue ocean” (i.e. uncontested market space) vs. a “red ocean” (a hyper-competitive market space).

The value curve is the relative weight that customers assign to various factors in the purchase decision. Very often price is the most important factor in the value curve, but there are usually others.  

Let’s take ice cream.  Store brands will win on price, but Häagen-Dazs, Edy’s and other premium brands have differentiated based on purity of flavor, fat content, texture, and so on.  And that’s just for vanilla! Ben & Jerry’s has all sorts of funky names for their flavors and a mystique that customers buy into as part of the brand.

Chan and Mauborgne show that the innovator has four strategy options in reshaping the value curve (click on the image to see a larger version of the chart):

• REDUCE certain factors below the industry standard
• CREATE new factors that the industry does not offer
• RAISE certain factors above the industry standard, and
• ELIMINATE certain factors altogether.

Sometimes, the best way to do this is “create” a new way of looking at the product or service -- ask customers to think about their product usage in a new way.  Are they wasting time using existing products?  Is there a safety problem with the current way of doing things?  Is there a new capability that your innovation would enable?  If so, bring that to your customers attention, and you know have a “complete solution” to a “real problem”.  

And you’ve crossed the blue ocean! 

Entrepreneurs vs. Employees: What do we want?

In the current issue(April 13, 2009) of BusinessWeek, the following letter appears, responding to an article by Vivek Wadhwa:

PUT AMERICAN ENGINEERS TO WORK FIRST
As an engineer with a graduate degree, I take exception to "America's Immigrant Brain Drain" (Outside Shot, Mar. 16).

The spirit of entrepreneurship existed in Silicon Valley well before the influx of H-1B immigrants. It's insulting to hear the author repeat the claim that there aren't enough qualified engineering and science grads in the U.S., while many of my colleagues find themselves out of work.

If companies truly believe this, they should lobby Congress to use some of the stimulus money to help graduates of American universities pursue advanced science degrees.

The author is confusing entrepreneurs and employees.  He says that his colleagues find themselves out of work and says that the solution is more spending on advanced science degrees.  I disagree.

Mr. Wadwha wrote that "[a]lthough [immigrants] represent just 12% of the US population, they have started 52% of Silicon Valley's tech companies".  That is fascinating -- and a vital part of US competitiveness.   (The point of his essay is that closing our visa process turns away people who are critical to our economy.)

That statistic can be rephrased -- the market for new capital has decided to invest 52% of its assets in companies led by people born and raised overseas and coming to the US to realize economic opportunity through business creation.  (Mr. Wadwha's research also shows that immigrants contributed to more than 25% of US global patents, make up 24% of science and engineering workers with bachelors degrees and 47% of PhDs.  This would indicate that they are making substantial contributions to new business creation in existing firms as well as startups.)

This raises an interesting question in my mind -- does the US education process churn people through a system where they graduate from college optimized to be traditional employees?  

For most of the last century, the US economy was dominated by corporations, large and small. That worked -- up through the 90's.  The pace of technological change accelerated at that point, and (to dramatically oversimplify things) the existing corporations couldn't keep up.  New business creation exploded, and Mr. Wadwha's research shows who led the charge.  

Further, if you were to read Mr. Wadwha's original piece, nowhere does he say that there is a lack of "qualified engineering and science grads in the US".   There are many (of all nationalities) and they are highly skilled.  However, it appears that there is a greater opportunity for those who create new businesses rather than are hired by them.  (Note that I don't say "start a company".)

The old phrase "Get a Job" (with a song by the same name made popular by the Silhouettes in 1957) might be better transformed in today's economy into "Create a Business".  As a student, consultant, and practitioner of entrepreneurial activity, my working definition of entrepreneurship -- applied at every level of business activity from start-up to intrapreneurial behavior inside a large corporation -- is the transformation of a concept into cash flow.

In 1999, Proctor and Gamble fundamentally changed their approach to product development, embracing a concept known as “Open Innovation” where new ideas are found both inside and outside the company.  (Please read Henry Chesbrough’s excellent book of the same name for more information.)  The $50 billion company realized that in order to grow by 10% per year, it needed to create a new, $5 billion company out of thin air every single year.  That is a daunting task, and it requires not only open innovation, but people who can create new businesses.

That requires key business skills and knowledge, calculation of risk and return, identification of opportunity -- and the ability to craft a business strategy to capture that opportunity.  This is not what our educational system teaches - we teach the skills geared toward creating employees.  That may have been appropriate in the last century, but it doesn't fit the demands of this century.  

Fact:  People who create businesses, create jobs.   They do so regardless of nation of origin.  If more people from overseas are willing to create business in the US -- start-up or inside the Fortune 500 -- more power to them.  Let's welcome them with open arms and help them succeed!

In addition to being a question of immigration policy, I think this is something that needs to enter the ongoing conversation on educational strategy, starting at the high school and community college levels and continuing on through graduate school and internal corporate education programs.  

Do we want to produce employees, or Creators of Business?

Dell: Return to its Roots to Find a New Future?

Dell is (again) restructuring its top management, and altering its strategy in an effort to rekindle growth.  Sometimes, there is value at looking at history through a different lens to gain insights into what made a company great.

In Dell’s case, the company started by selling a product directly to consumers.  What were the characteristics of that product (and the business model) that made the company even possible, much less successful?

Six factors:

• It used commodity components, meaning that there were multiple suppliers and (perhaps more importantly) no research and development was required.
• There was value added in the assembly (however minor) by the company.
• Supplier terms were favorable to Dell, especially later.  Multiple suppliers of each component meant competition kept prices low.  The exception was the CPU, where paradoxically the Intel monopoly kept prices low because there was always the threat of going to AMD.
• Mass customization of the end product was possible through mixing and matching a virtually infinite number of different component configurations.
• Massive inventory turns enabled by the direct-to-customer model meant that Dell could collect the price of the machine before they had to pay for the parts.
• A brand name that stood for quality.

This is ideal for a desktop computer.  It could be built in a dorm room (or a garage, or pretty much anywhere, which ultimately gave birth to the “white box” built in the so-called “screwdriver shops”, so named because anyone with a screwdriver could build a PC.)  It is also ideal for a PC-based server.

Notebook computers, on the other hand, remove four or five of these sources of competitive advantage.

• Assembly is not done by Dell, but by contract manufacturers, removing that value add.
• Supplier terms aren’t as favorable, because there are fewer contract manufacturers, and they aren’t able to be played off against one and other like, say, power supply suppliers could be.
• Mass customization was much more difficult, because there were a relatively low number of fixed configurations in notebooks.
• All the above three factors combined to produce much lower inventory turns.

As Dell grew, they diversified their product line to include more and more peripherals (printers, for instance) and other electronics (flat screen TV’s, for instance).  These items moved even further away from the six core principles that made Dell successful -- where was the ability to differentiate?  Why was a printer or TV purchased from Dell any better than one from Best Buy?

So what does this mean for the future?  For one possible answer, let’s ask the question a different way:  What products of the next 5 - 20 years share the six characteristics of the original PC?

Perhaps those products are in the PC business, like blade servers, or even parallel supercomputers.  On the other hand, the answer might be in completely different industries.  NOTHING about the “Six Success Factors of Dell” say anything about personal computing or even electronics.  The next industry to be transformed might be something like transportation, where the six competencies described above can provide some competitive advantage in an emerging and/or high growth market.

As for transportation:  We can compare the not-as-Big Three of today to the IBM and Digital Equipment of the 80’s.  Who would have thought that the lowly PC (a “toy”, in some early reviews) would transform one of those business so completely, and eliminate the other one?

Innovation in the Newspaper Business? New Thinking is Needed.

Today’s local paper brought news of yet another cutback in the size of its staff and itself.  The company is contending with “one of the worst advertising slumps in its history”, citing particular pressures in real estate, employment and automotive advertising.  It is the third such cut in the last five months.

The number of full time staff will be reduced, and the paper itself will run 10 fewer pages per week.

This is sad, but it looks like it is headed into an irreversible spiral down. 

1.  Ad revenue slows
2.  Reduce staff
3.  Shrink size of paper
4.  Readership declines
5.  Repeat as long as possible

Or is it irreversible?  Let's see if innovation can play a role.

This cutback highlights a risk with an increasingly popular form of business model:  the ad-supported subsidy.  Any business that depends solely on revenue from advertising dollars works for only the advertisers.  You do not work for the people you call your “customers” or “users”.  Your true customers are the people that pay you.

Newspapers have a hybrid business model, with subscribers (readers) and advertisers both paying.  It seems like the subscription basically covers the cost of distribution, and ad dollars pay to produce news and editorial content.  This is necessary -- people simply won’t pay enough for a subscription to foot the bill to profitably produce a daily paper.

There’s a two things about ad dollars:  there’s only so much of them; and they only go where they can be shown to work.  If advertising revenue is decreasing, it is a function of one, the other, or both of these factors.

The first factor means that you will need to compete for ad spending.  The second factor is how you will compete.  You will need to show that your customer will do better by spending money with you than with all the zillions (and growing) of other places that their ad money can be spent.

There are a couple reasons why money is spent on advertising.  First is to build awareness.  The second (particularly in the employment and classified advertising) is to generate action (apply for a job; call and buy the item).

Advertisers presumably want to know that the audience to which they are pitching their wares is likely to buy those wares.  They want to know that they are reaching a sizable number of those people per dollar spent.  So the question is how to recruit and retain a sizable, loyal audience of people who have a preference of deciding to buy things based on ads in the paper?

The traditional way is to have enough content that people find essential to their existence that they will read the paper cover to cover, and linger on the ads to see which businesses offer what they need to buy at that time.  This isn’t very targeted, and relies on a host of assumptions about subscribers’ buying habits.

However...the number of people who depend on a daily newspaper is shrinking, and those people are older.  Older people are not as susceptible to advertising (if, in fact, anyone still is), but they have more disposable income than the young. (An aside:  The only reason that I can fathom that the 18-34 year old male demographic is regarded as the most desirable for advertisers is that 18-34 year old males spend money like drunken monkeys.  By the time they turn 34, they have either run out of money; gotten married and have to answer for their financial indiscretions (personal experience speaking); they have already bought everything worth buying; or they simply grow up.)

How do we make this model work with the constraints of a smaller, ad-resistant readership?  The answer is to produce something of value to that readership, and perhaps others.

This is about innovation.   Businesses must innovate and separate themselves from their competitors.  There are not a great many inspiring stories of businesses cost-cutting their way to growth and success.

What is it that papers are good at?  I think that it is in editing, printing, and distributing.  Putting stuff into the printing press, and distributing what comes out of it. 

Content typically comes from the reporting staff, augmented with national and international wire services.  The staff is typically focused on local information and opinion.

Is there an opportunity for innovation here?  Is there a way for low-cost (or even free) content generation?  How about giving subscribers a free website and/or blog in return for the right to harvest what they put on those websites and blogs?  Use the editorial and management skills to build a daily report of the most compelling and newsworthy sources.  Use technology to search, sort, and harvest content from the blogs and websites, and organize it into these new editions.  Print that and distribute it.  

It would be easier to target advertising on the blogs/websites themselves than in a traditional paper.  Or, better yet, publish several editions, aimed at different audiences.   For instance:  a political edition, a business edition, a lifestyle edition, a technology edition, and so on.  Advertisers might just like to see such targeting. People might even subscribe to several of these editions, instead of one.  (I subscribe to two dailys, plus another dozen or so magazines.)  The operating principle is called “mass customization”.

Perhaps the days of a single flagship daily per city are gone.  In their place, though, the same organization that stood behind that single flagship daily could be producing multiple, focused, dailies.  (Or biweeklies, or.....)    Maintain a solid, consistent editorial policy, and stay a force in government and open, civil, discourse.

Who knows?  It could just work!

Mass-customization leads to "Made in USA"?

Two items in this morning's newspapers caught my eye for their similarity to each other and their novelty.  First was an item in the Raleigh (NC) News and Observer titled "HDTV plant may be first in United States".  The second was on the front page of the "Marketplace" section of the Wall Street Journal titled "Still Built on the Homefront".  (No link because a paid subscription is required.)

Both stories were about the benefits of manufacturing in the US.  Syntax-Brillian is makes the Olevia brand of LCD flat panel televisions and usually sells for 20-30% less than the better known brands.  It has become the 10th largest supplier of these sets.  Bobcat, the subject of the WSJ story, manufactures small "skid steer" loaders in North Dakota.

The following quotes from the articles are what caught my attention:

"Moving to a plant in Southern California will allow [Syntax-Brillian] to react to changing demands more quickly, better control inventory, and save the 5.3 percent duty it pays on each imported set."  -- News and Observer

"'Now we don't have the inventory of completed TVs sitting on the water for three weeks,' said Syntax-Brillian Chief Executive Vincent Sollitto.  'And we use about one-tenth as many containers to send the raw materials across.'"  -- News and Observer

"Loader-Maker Bobcat Finds Sticking to North Dakota Roots Helps It Be Nimble, Responsive" -- Wall Street Journal

"...the company can usually deliver any of the hundreds of attachments it sells for its machines to a customer within four days, a feat almost impossible and certainly costly for any company with long supply lines stretching overseas." -- Wall Street Journal

Combining these thoughts with "long tail" thinking leads to an environment where manufacturers of any goods can rapidly build versions of a base product to meet the specific needs of increasingly smaller market segments -- or "niches".

Looking at the "three weeks on the water" statement -- with finished goods inventory tied up for at least three weeks, that gives a maximum inventory turnover of 17 times a year.  That's not very good, and especially not if your profit margins are under pressure.  Making your product closer to your market allows you to both increase turnover and trim margins (and hence prices) and still remain profitable.

I think that this type of thinking is key for companies introducing innovative products that must (by definition) hit smaller market segments than established product categories.  Mass-customization and "Made in the USA" might just be made for each other.

P.S.  The WSJ article is the first of a four-part series this week.  The series will, in their words, "show how diverse manufacturers have managed to survive and thrive by improving productivity, responding quickly to clients' growing demands for customization, and, in some cases, tapping unique local skills to produce their goods.  Innovative companies, take note.

What is a strategy, and why do you need one?

Good questions -- glad you asked!  Let's take them in order.

What is a strategy?

Broadly, a strategy is a plan for setting long term goals and putting in place the actions (tactics) for achieving them.

A corporate level strategy would include the following types of items (this is not an exhaustive list):

    •    Mission of the company (why it exists);
    •    Vision for the company (what is the desired future state);
    •    What products and/or services to offer, now and in the future (a roadmap);
    •    How to make money (business design);
    •    Growth targets (if any);

A marketing strategy fits within an overall corporate strategy. It is the process of:

    •    Determining who your customers are (or should be);
    •    What is important to them; and
    •    What sets you apart from your competition.

Why do you need one?

Most people think of strategy at one of three main points in the lifecycle of a business:  The start-up phase; when things are stagnating; or when growth has run amok.  A strategy provides focus to a business -- which is particularly important at each of these stages.

Strategies are developed as part of a discrete planning process.   Take that mission and vision thing to heart -- that will provide the illumination for the strategic plan.  It will help you see the customer needs; the changing environment; competition (existing, emerging, and potential); trends in technology; and forces affecting people and hiring.

Once the company strategy is in place, the marketing strategy can be developed.  How to position your offerings, how to generate awareness of and demand for them, and what you need to deliver a complete solution to the customer will come from that strategy.

The most important part is the execution.  There are far more great strategic plans than there are corporate success stories.  Putting the right actions into place, and then measuring the right performance elements, and adjusting based on this feedback are essential to the bottom line --  where the money hits the bank account.

I recently had the opportunity to meet with executives at OVO Innovation (www.ovoinnovation.com), who make some very interesting software to help the innovation process.  Their motto is "Innovate on Purpose" (TM)-- what a great thought!

Many businesses are reasonably successful without a well-defined strategy.  Just like innovation, it can happen without a process.  However, a good strategy can help you become successful on purpose.