I need a discussion for my week 5 Strategy class and a response to 2 classmates

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JWI 540 – Lecture Notes (1214) Page 1 of 13

JWI 540: Strategy

Week Five Lecture Notes

JWI 540 – Lecture Notes (1214) Page 2 of 13

EXPLORING STRATEGIC OPTIONS What It Means

Organizations that excel at creating winning strategies – the kind that lead to sustainable competitive

advantages – are typically those that are willing to look beyond the status quo and the standard list of

levers that can be pulled by any of their competitors. They are willing to step back and ask a broader set

of “What if…?” questions. They look outside their own industries to generate ideas, and they seek input

from smart, engaged people. In Jack’s words, “they get every brain in the game.”

Why It Matters

• Strategists who are bold, think creatively, and explore lots of different ideas generate a better list of choices and uncover more strategic options. Even though the majority of these ideas may ultimately be rejected, there is no way to predict where the next breakthrough may come from.

• If you’re only looking for ideas in the same areas as your competitors, you’re a lot more likely to generate the same list of strategic options they generate.

• Moving too quickly to a “standard” set of moves usually just preserves the status quo way of thinking that typically only delivers a short-term advantage that your competitors can easily match.

“Great ideas are everywhere if you're

willing to look for them…never allow your

organization to be limited by ’not

invented here’ syndrome.”

Jack Welch

JWI 540 – Lecture Notes (1214) Page 3 of 13

YOUR STARTING POINT

1. What processes do you and your team use to identify new and innovative approaches to the

market that can increase your competitive advantage?

2. When was the last time you looked outside your own industry for new ideas?

3. How confident are you that you understand why your customers buy from you? How about why

potential customers buy from your competitors instead of you?

4. What big changes/developments, if they were to happen, would better fulfill the needs/wants of

customers?

5. If your organization were to start the business from scratch, with no preconceived restrictions,

what would you do differently?

6. How difficult would it be to implement some (or all) of these new ideas within your existing

business?

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HOW DO WE GENERATE STRATEGIC OPTIONS?

Imagine a restaurant that offers only one dish on the menu. The lack of choice is not likely to be

successful. The same is true for a company that only considers one strategic option. To craft a great

strategy, start with a full menu of options.

Now, it is true that some strategies start as a big “Aha!” moment – a sudden and surprising insight about

how to improve the company’s value proposition to outperform competitors in ways that are difficult for

them to imitate. More often, though, great insights emerge from great processes. To help you develop

such a process, we will explore two approaches that can get the creative juices flowing.

APPROACH ONE: GET SYSTEMATIC

Some strategists will tell you that there are three basic strategies: You can compete on cost, execution, or

innovation. Walmart has made a fine art out of beating the industry on price. Southwest Airlines is best in

class at execution. And Google is the king of innovation in its space.

But for open-minded strategy leaders, these three broad categories serve only as a starting point. Even if

you have a clear idea which one makes the most sense for your company, you'll have to get more

specific.

Imagine that you have decided to pursue a strategy broadly based on keeping your costs – and therefore,

your prices – lower than your rivals’. You might start by generating strategic options related to where you

compete. Which customer segments, which products, and which geographies would be the basis of a

viable and valuable low-cost strategy? Would you serve young families or single adults? Would you

compete in urban centers in one region or across the nation?

With cost as your umbrella strategy, you might also identify strategic options related to how you compete.

Would you reduce costs as you gain buying power with suppliers? Would you offer relatively standardized

products? Would you deploy a new production or distribution model?

Consider the furniture retailer IKEA. Its cost-based strategy began with the concept that there was an

opportunity to sell people quality furniture at low prices. But its build-it-yourself strategy – getting

customers to drive off with a box of furniture parts to assemble at home – emerged from the generation,

evaluation, and combination of an array of strategic options. That process explored a bevy of questions:

How will our stores be designed? Which products will we offer? How will we manufacture them? Whom

will we hire?

Systematically generating options is sometimes criticized for being slow and too easy for competitors to

predict and imitate. By contrast, getting more creative with options that are less related to your company’s

existing activities or are even completely new to your industry is more likely to surprise the competition

and give you a greater advantage.

JWI 540 – Lecture Notes (1214) Page 5 of 13

APPROACH TWO: GET CREATIVE

Innovation gurus have proposed a host of ways to help an organization break out of a rut in their thinking

and come up with outside-the-box ideas. Some are plain silly while others only put a creative veneer on

conventional notions. But a few exercises have proven to be quite effective.

Old-fashioned brainstorming, with no rules set and no judgments passed on the validity of ideas, can

sometimes help a group get past its normal self-filtering mechanisms and come up with more, different

options. You can collect data on dissatisfied customers, suppliers, and distributors to identify pain points

that your company can eliminate as a way to capture value. For example, IKEA’s strategy was designed,

in part, to eliminate the customer pain point of waiting around for the delivery of overpriced furniture.

An option-generation team could start with a broad societal trend or a radical change in an industry – the

move from print to digital media, for example – and then look for ways that the company could exploit that

disruption of the status quo. Or, having come up with an array of incremental and unexciting strategic

options, the team might try pairing them in surprising combinations that create unexpected advantages.

(Coyne, Clifford, & Dye, 2007)

INVOLVE THE RIGHT OPTION GENERATORS

A process is only as good as the people involved in it. And when it comes to options generation, you

should gather people with the right skills, personalities, and knowledge. You want to include creative and

lateral thinkers who are able to articulate ideas they generate. You want people who are skilled at both

debate and diplomacy, unafraid to voice their views, but tolerant of other viewpoints. They shouldn’t

bristle when laughed at and should be comfortable with ambiguity.

Knowledge of the organization, the industry, specific technologies, competitors, and regulatory issues is

also important. Even though naïve questions may open up new areas of exploration, there must be real

and credible expertise in the room. There must be people familiar with such issues as the company’s

capabilities, the cost ranges for various resources, and the time requirements for change efforts.

LEARN WHAT YOUR CUSTOMERS WANT

No one needs to tell you to listen to your customers. Most companies collect customer satisfaction data

and pay a lot of attention to the latest ways to meaningfully measure that satisfaction. In the case of a

business with a focused set of products or services – say, a specialty retailer – such data can be helpful.

But if your business serves multiple market segments – think of a department store, for example – it is

difficult to hear a single voice of the customer. That can lead a company down the dangerous path of

trying to be all things to all people. So, how do you further define which customers to target, and what to

sell them as you explore strategic options?

Consider that you have developed a state-of-the-art tennis racket made of the latest composite materials,

and you plan to price it at the high end. You might choose to target either the affluent customer who can

easily afford your high-tech product, or the tennis fanatic who is willing to pay almost any price for

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equipment that will improve their game. If you decide to focus primarily on the former, you might consider

unique style elements, like bold colors, that will heighten the racket’s perceived value.

In refining your target customer segment, keep in mind that some customers are more profitable than

others. Repeat purchasers, for instance, often buy a product without needing to be convinced through

advertising, or they may buy high-margin, after-sale services.

Along with identifying your target segment, you need to analyze these customers’ preferences and

estimate their demand, both for current and imagined offerings. Imagine that you are thinking about

opening a gas station. You could track the number of vehicles passing your location on the highway and

research the basic demographics of potential customers, as well as the amount they spend on non-

gasoline purchases when traveling. Deciding whether to include a donut shop, a game arcade, or an auto

repair facility at your station requires at least this level of customer understanding.

But descriptive customer data is only a start. You will also want to question consumers on basic

preferences such as how much they are willing to pay for your product. More useful questions will probe

the nature of the customer experience: Why and when do you choose our product over competing

offerings? What is different about the times you choose our product from the times you choose an

alternative?

INCREMENTAL OR GAME-CHANGING?

When asked about disrupting the playing field with new products, many companies focus on incremental

product development. This is natural and generally the fastest and safest approach; it is what

organizations do every day. Think about Nike and Reebok, constantly overtaking each other with a brand-

new running shoe with new colors and lighter weight, all of which is good. These are incremental product

design changes. Companies that truly gain a competitive edge, more often than not, get there with brand-

new products that can’t be easily copied, either through new manufacturing processes or because of

patent protections.

Meaningful differentiation does not have to involve making a brand-new invention or making a huge

technological leap forward. We all know this is not simple, or else your R&D department would be doing it

every day. But what you may be able to do more quickly is identify an unmet customer need and adapt an

existing product to enter a different market. GE enjoyed tremendous growth thanks to the invention of

polycarbonate, under the Lexan brand name. The product was originally used in 1960 for the visors of

NASA astronauts because of its hardness, transparency, and light weight. Over the years, GE identified

other uses for the material, often by combining it with other chemicals. By the late 1960s, Lexan was used

to replace glass in windows, signs, and greenhouses. When laminated in a greater thickness together

with glass, it was sold as bulletproof panels. In the 1970s, it started replacing more fragile and easily

scratched glass in car taillights and safety work glasses. When sprayed with an anti-paint coating, it

started being used for bus shelters and anti-graffiti applications. When coupled with other layers, it was

eventually used to produce CDs and DVDs.

Think about how the main characteristics of your products can be directly applied to another industry

either by themselves or in conjunction with other products or services.

JWI 540 – Lecture Notes (1214) Page 7 of 13

ALTERING CUSTOMER PREFERENCES

As you explore strategic options, do not ignore the possibility of proactively working to alter customer

preferences as a way to change the playing field. In some cases, organizations can directly influence the

customer by creating a desire for a product through marketing efforts. Social media is often a key

strategic marketing tool for many consumer companies, given its ability to reach and influence large

populations, especially younger demographics.

You have probably already seen how better information can persuade you to buy one product over

another. One of the consumer trends that has picked up speed in recent years is the demand for organic

fruits and vegetables. Farmers and nonprofit organizations have been dedicating time and resources to

inform the public about the risks of mass-farmed crops and the use of antibiotics and hormones in meat.

Grocery stores nationwide have been influenced by this change in customer perception and have steadily

increased the amount of organic produce and meat they carry to meet customer demands. They often

provide better margins for the producers as well.

Especially if your product is clearly differentiated from the rest of the market, you may pursue a marketing

and education strategy to influence your customers. Sometimes, the industry may be more receptive to a

new message in light of a catalyst event. Scientific studies showed that currently available, reusable

water bottles might release particles of BPA, a toxic chemical. Companies like Nalgene, which did not use

BPA, took advantage of the opportunity and heavily promoted their products, significantly growing their

market share.

LIFE CYCLE AND MEANINGFUL DIFFERENTIATION

An important set of factors to consider in assessing which options may be best to pursue concern the life

stage of your industry. Traditional management theory breaks down the life cycle of an industry into four

main stages:

1. Introduction

2. Growth

3. Maturity

4. Decline

These are fairly broad terms, but reflecting on where your industry is in its life cycle can help you

determine what could be your best approach to growth.

During the "Introduction" stage, a product or service has just emerged, and the focus is on educating

customers on the benefits of the innovation while trying to define new standards. Think about the creation

of the computer industry in the second half of the last century. As personal computing was becoming a

technical possibility, the first set of challenges revolved around helping customers understand what a

personal computer was and why anyone would need one.

As the boundaries of the new industry became clearer during the “Growth” stage, customers were

becoming better informed about what options were available. During this phase, there was less of a need

to define the space and pitch the concept. Instead, the growth challenge was focused on direct head-to-

JWI 540 – Lecture Notes (1214) Page 8 of 13

head battles. Who was faster, cheaper, and more capable? If your industry is in this stage, you will

probably favor organic growth as your main strategy. Customer demand is increasing, typically at a fast

pace, so the focus is on providing the right products and ensuring there is enough capacity to fulfill

demand. Research & Development often plays a particularly significant role at this stage, as

organizations help push the boundaries of existing solutions while coming up with new ways to serve

unmet customer needs. Depending on the cycle time of your industry, this phase can be very short or

very long.

As a side note to the definitions of market cycles, keep in mind that whether the cycle is viewed as short

or long may depend on how broadly or narrowly you define your industry. If you look at your industry as a

particular subset of clothing or toys, such as something that may be sold in just one fashion or holiday

season, your main product may move from high growth to mature as a short-term fad passes. If you

defined your industry as toys and family entertainment, you may have experienced the rapid growth of

board games, followed by maturity, then circling back to new growth in video games and interactive

games.

Companies that are in a “mature” industry generally find it difficult to create the meaningful differentiation

needed to grow. Mature industries have well-defined products and educated customers. As a result,

finding new, untapped opportunities or product niches becomes more difficult. The focus often shifts to

offering better prices to attract new customers. The airline industry is a great example of a mature

industry in which gaining a customer generally means another company is losing those sales. The size of

the pie is fixed, and the only question is how it gets sliced. In such an environment, inorganic growth

would be your preferred growth strategy. This explains why, over the years, many airline companies have

either merged or made acquisitions.

Since the number of new customers has not been significant enough to drive growth for all industry

players, and the need for business travel has been reduced with the acceptance of videoconferencing,

the best option has often been to acquire, or create an alliance with, another airline in order to realize

economies of scale and absorb its customers. But, beyond acquisitions, there are other strategic

directions for growth even in mature markets.

Some companies decide to grow their business by focusing on specific niches where they have a

competitive advantage. This was the preferred approach by Southwest Airlines, which focused on fewer

routes, lower costs, and creating a company culture and customer service that were very different from

other airlines. To succeed with this approach, the company strategy needed to be laser-focused, so that it

could create a competitive advantage through differentiation. Southwest’s success is clearly linked to that

unrelenting strategy focus. And they understand that they cannot be everything to every customer. In

2008, the CEO of Southwest, Herb Kelleher, helped his customer service department when they were

struggling to address a litany of complaints from a single passenger. This passenger had become

infamous at Southwest; every time she flew with them, she sent several complaints to their customer

service department. Southwest did not know how to respond anymore until the CEO decided to send a

personal note to her. It simply said: “Dear Mrs. Crabapple, we will miss you. Love, Herb”. As Jack said,

you need to be "laser-focused on your strategy," which includes defining which customers you want to

impress.

Another opportunity for meaningful differentiation available to all companies, independent of their

industry’s maturity stage, is to expand their product offerings. To do this, an organization needs to

JWI 540 – Lecture Notes (1214) Page 9 of 13

understand which other types of products or services their customers would be interested in and make it

convenient to buy them all in one place. Online retailers, such as Amazon, do this very well by displaying

a list of other products that customers may be interested in buying when they review a selected item. To

find complementary products and services your existing customers would buy requires a deep

understanding of the customers’ needs and their buying patterns, but you don’t need to do all the legwork

yourself. Ask your customers what other products and services you could provide to make their lives

easier.

STRATEGIC OPTIONS IN A DECLINING INDUSTRY

Opportunities for growth through meaningful differentiation narrow considerably once an industry moves

into the “Decline” stage. At this stage, some companies decide to stay in the game and grow their share

within a shrinking playing field. As an example, look at the tobacco industry and Altria, the parent

company of Philip Morris. They focused on maintaining their market share in the U.S. and driving

international expansion to maintain their margins in a declining industry in the Western hemisphere.

Other companies have stuck around to become the “last and best” of a dying industry. While such an

approach may not sound too inspiring to some, it can take a long, long time for an entire industry to

completely die out. The one or two companies that remain may well be able to maintain some very

lucrative business for many years.

Regardless of which approach makes the most sense for your organization, execution is the fundamental

driver of success.

TURN YOUR OFFERING INTO A CUSTOMER’S SOLUTION

Focusing on attributes rather than on products and services leads us to the next level of satisfying

customer desires. In the memorable words of marketing expert Theodore Levitt, “People don’t want to

buy a quarter-inch drill. They want a quarter-inch hole.” (Christensen, Cook, & Hall, 2006) People often

are not interested in acquiring your product. All they want is a solution to their problem. Forget about what

you are selling and focus on how what you are selling can help the customer.

Too many companies think from a producer’s perspective and spend a lot of time considering how to

make and distribute what they sell. Depending on the power in their supply chain, they may feel they have

little ability to shape the consumer environment or influence the consumer’s purchasing process. Instead,

they try to excel in terms of product features or packaging, adapting their offerings to consumer demand

now or in the near future.

Let’s return to our example of the company with a new technology for tennis rackets. Typically, it would

devote a lot of resources to perfecting the new technology and touting its benefits. A more strategic

approach, though, would be to start with the tennis-playing customer rather than with the high-tech racket.

Rather than pushing your product through the supply chain to the customer at the other end, think about

solving a customer’s problems. How can you persuade her to bring your product into her life? Think about

this customer as she steps into her tennis club’s pro shop and walks up to a display of rackets. Does she

JWI 540 – Lecture Notes (1214) Page 10 of 13

see information-rich display materials describing the racket’s new technology and how it can improve her

game? This can make it easier for her to accept the significant premium she will have to pay to acquire

this cutting-edge piece of equipment. But why limit your thinking to the point of purchase? Before the

customer encountered the display, she moved along what we will call a consumption chain that stretches

back well before the moment she handed over her credit card. (MacMillan & McGrath, 1997)

MEET THE CUSTOMER ALONG THE CONSUMPTION CHAIN

About a month before this hypothetical customer entered the pro shop, she had an experience that

sparked her desire for a better-performing racket. She was playing in a club match, and the opposing

team had newer rackets, fancier bags, and high-tech tennis shoes. Her thought process at that moment

linked cool equipment to status, confidence, and performance. When she thought about a racket, its

technical specifications were less important than its image as state of the art.

This customer reads tennis and fashion magazines. If the company studied her behavior carefully, it

might surmise she has clipped out an ad for a tennis shop downtown (she craves more variety than her

local pro shop offers), and she has asked her husband for a new racket for her birthday. She has also

tried out two different rackets while on vacation in Florida but is unable to recall the brand of either one,

let alone the stringing pattern or the specifics of the technology. She is not loyal to any one pro shop, and

she buys new tennis outfits every six to ten weeks.

By carrying out this type of analysis as part of your strategic options generation process, you can create a

detailed understanding of this consumer and the segment she represents. Good strategic analysis

enables you to understand segment-specific preferences and purchasing triggers at a deep level.

If there are enough consumers out there like this one, the racket company may decide to launch a survey

on racket preferences in tennis magazines, featuring the chance to win a new tennis wardrobe. The

company may decide to partner with another equipment firm specializing in tennis bags and accessories.

It may even decide to sell directly to customers, cutting out the pro shop middleman.

Clearly, a company needs to do more than focus on superficial characteristics of a particular customer

segment. Looking at the various points along the consumption chain where it might create opportunities

to interact with customers boosts sales and encourages customer loyalty. For our hypothetical tennis

racket company, relationships can continue long after consumers have decided to buy a racket.

Many companies increasingly see after-sales service as a way to extend their active relationship with

consumers. Ideally, it will stick with customers to the end of the consumption chain — to the moment of

product disposal. Given the premium price of the racket, does it offer discounted or even free restringing?

Can it motivate a repeat purchase through a donation drive to collect rackets for a school program?

As this example indicates, numerous opportunities exist in the life of a product: awareness of a need,

openness to solutions, search for solutions, selection of the product and accessories, purchase,

maintenance, and disposal. The exact steps in the consumption chain will vary depending on the product

or service, the industry, the consumer group, and geographies. A clear, data-driven picture of the stages

in the consumption chain is invaluable to both strategy development and execution. Consumer

JWI 540 – Lecture Notes (1214) Page 11 of 13

preferences and behaviors evolve over time as the customer interacts with your firm, your people, your

brand, and your product. Preferences and behaviors shift as different options become available in the

marketplace, as fads and fashions wax and wane, and as a consumer’s spending power shifts up or

down.

Understanding the consumption chain enables more meaningful market segmentation based on

consumers’ behavior or their relationship with an industry, a product, or a brand, rather than simply on

observable characteristics like age or gender. The more you understand your customer, the better you

will be at choosing your objectives (what you hope to achieve in a given time period), your competitive

advantage (how you will uniquely compete for the same consumer’s spending), and your scope (the

markets, products, channels, and geographies in which you will operate).

JWI 540 – Lecture Notes (1214) Page 12 of 13

SUCCEEDING BEYOND THE COURSE

As you read the materials and participate in class activities, stay focused on the key learning outcomes

for the week and how they can be applied to your job.

• Examine different approaches for generating strategic options

Now that your team has identified risks and opportunities, you are ready to generate options to

mitigate those risks and capitalize on the opportunities. Use the techniques presented in the

course readings and lecture notes to get every brain in the game. The goal is not to make a final

decision on the preferred winning move(s), but to generate a viable list of options which can then

be further refined to identify the best choice.

• Review, refine, and socialize your initial strategy ideas

Gather other team members who have not been a part of the strategy meetings and get their

input. Strategy leaders often don’t want to present their ideas until everything is finalized, but

there is a danger to this. Ideas that could have been vetted and refined can open the door to

even bigger ideas. Not socializing initial strategy ideas robs the organization of the benefit of

additional input. Also, those who have not been a part of the strategy development process may

feel excluded or may not want to challenge an idea that is being presented as a done deal.

• Evaluate your ideas to identify red flags and avoid possible “traps”

When you’re working on a new strategy, it’s natural to be filled with company pride. Of course,

you want to be excited. You want to be the best and you want to find new ways to conquer the

world. But don’t let your enthusiasm blind you to reality. Being aware of the traps that can

undermine your winning move is critical. The time to do this is when the strategy is being

developed, not after you have launched it.

JWI 540 – Lecture Notes (1214) Page 13 of 13

ACTION PLAN

To apply what I have learned this week in my course to my job, I will…

Action Item(s)

Resources and Tools Needed (from this course and in my workplace)

Timeline and Milestones

Success Metrics