Category: Competitive Strategy

Contingency planning for the next few months.

In my article on contingency plans for the Covid-19 Pandemic, I outlined a threat-based approach to the pandemic impact.  This week, I’d like to extend that thinking into the next few months.  While this may not seem strategic to some people, huge chunks of market share will be up for grabs in the next 12-18 months as the global economy grapples with various approaches to the pandemic and its effects on your industry.

To begin with, we need to lay out a few key items and assumptions. 

My assumption for most businesses is that your revenue has taken a moderate to severe hit from stay-at-home orders, social distancing, and consumer fear.  Of course, these hits have spread through B to C industries and are also affecting B to B companies, whose customers are similarly harmed by the crisis.

We also need to make assumptions about the scenarios likely to play out over the next several months. 

I like to examine best-case, worst-case and most-likely scenarios when the outcome is uncertain and will affect your industry.  The current best-case scenario is that States in the US are about to begin moderate distancing.  They will allow some businesses to open while maintaining some precautions, such as masks and social distancing.  Consumers will begin to flow back into the marketplace, engaging in a somewhat reduced level of purchasing. This mild improvement will start to lift intermediate and basic products and services as well.  This approach will be followed by many countries as the results in larger and harder hit countries begin to materialize.  By Autumn, pent up demand will start to heat up some markets to pre-pandemic levels.  Others though (especially those built around crowded venues and large groups) will languish into the Winter.

The worst-case scenario is that current easing backfires.

This may lead to a resurgence of Covid-19 cases in countries that are starting to loosen up. Many will immediately re-enter strict lockdown, while some that do not experience much higher infection and death rates.  In this scenario, almost all industries will suffer greatly through the Winter, and a huge proportion of smaller businesses will go belly up.  Mild improvement and easing will only come about with the development of a vaccine and deployment of widespread testing and contact tracing, which are unlikely to be practical before early 2021.

The most likely scenario is between these two.

Mild easing will be OK but lead to some spikes in infections in some countries and States.  Companies with good game plans will end up having an unpleasant, but not terrible year, while some industries may be severely affected.  Unemployment will begin to drift slowly downward in August or September, as businesses recall some workers to begin creating the “new normal” that will only end with vaccinations and widespread testing.

Some industries – travel, restaurants, theaters, banking – are already seeing tremendous downturns, and they are likely to improve very slowly in these months in any scenario.  In the worst-case scenario, there will be bankruptcies and consolidation of larger and larger companies, with attendant unemployment and credit shocks.

One problem with our current planning is that we won’t know which scenario will happen for about two months. 

In the meanwhile, we need to plan as if any of these three could happen, and act accordingly.  Here are a few useful ideas that will help in each scenario.

1. Public support will be key for everybody.

Any company seen as profiteering or taking more than their share of support from government sources is likely to be shamed and shunned by customers.

2. Quick adaptation will help.

Effective, productive adaptation for the longer term, however, will be a hallmark of more successful companies. This means not just having Zoom meetings, but embracing alternative approaches to meetings, work and management of your workforce.

3. Your old standby customer base may not be as reliable as a newer base of customers.

In consumer markets, people in some lines of work (grocery, health care and remote office work, for example) are seeing steady and possibly rising income, while people in areas like manufacturing and entertainment will have a pretty bad year regardless of how good the scenario is.

4. Everyone is trying to pivot.  

This means your competitors are trying to change, to find the good customers, and to do the business that can still be done while you are.  You may need to dust off your strategic competency, or re-frame how to use it to create value in the “new normal”.

5. Because so much is changing, there is a lot in play in many markets.

How you re-enter your business could lead to domination or disaster.  If you have breathing space, now would be a good time to check in with your strategic plan, and look at how you can adjust it to be more competitive in rapidly changing markets.

In our experience, companies with well-considered contingency plans end up improving their competitive position when handling industry-wide and economy-wide threats.  This makes contingency plans an important part of your competitive strategy toolbox.  If you’d like to use Simplified Strategic Planning to create a contingency plan as part of your strategic planning, consider attending our next Simplified Strategic Planning seminar. If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process. Then you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  Furthermore, they understand how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

Strategies in recessions – What kind of strategies work best?

We’ve been using Simplified Strategic Planning for over 40 years now, and we’ve seen companies fare well through recessions many times.  Those that do well use strategies that are just a bit different from most of their competitors.  You should consider those differences for your own company.

Industries that are more susceptible to economic downturns have an approach that is baked into their culture.

As a general rule, some industries are more susceptible to economic downturns than others.  Companies that have succeeded in those industries usually have an approach that is baked into their culture.  For example, many years ago, most successful players in the RV manufacturing industry were located in communities with strong farming cultures.  They habitually accommodated farmers who would also work at their plants.  This worked well because the farm provided those employees with a backup to the manufacturing jobs they had.  Today, however, that particular alternative doesn’t work as well.  Now, both farming and manufacturing are more specialized and rely more on specific skills that don’t transfer easily.  Still, the idea that the culture of businesses scaling up and scaling down can be useful, even today.

More vulnerable industries require conservative strategies.

Another approach that’s common in businesses with greater volatility is a tendency towards financially conservative management.  While more growth is available to highly leveraged companies, a volatile business that is highly leveraged will inevitably go bankrupt.  The more volatile the industry is, the more likely the most successful players are going to have extremely conservative balance sheets.

Differences in volume is as important as differences in products or services.

In less volatile industries, you can still suffer if the economy goes south.  As a general rule, the greatest issues arise from building too much fixed cost into the business.  When sales decline, profits tend to decline much more rapidly if costs are too difficult to scale down.  This is true in many industries, and in the most competitive industries, differences in volume are as important as differences in products or services. 

For example, a tech manufacturer that makes 1,000 of a product will use largely different processes, equipment and people from one that makes 100,000 of the same product.  For the higher volume business, this means that scaling down will bring you into competition with companies that already operate efficiently at the lower levels of sales.  Clearly, this can be a serious strategic issue, and it goes without saying that growing your business to that level can leave you with a terrible downside when sales decline.

Fortunately, the strategic choices that lead us into this kind of volume trap are usually specific to targeting commodity customers.  Commodity customers are those that prioritize price over any other attribute of the product or service they are purchasing.  Targeting such customers – whether in B to C or B to B selling – usually leads to a very cost-sensitive and volume-sensitive position.  While these strategies aren’t inherently bad, commodity strategies usually leave a company more susceptible to economic downturns.  There is one exception to this, and it involves products or services that can be substituted for more expensive products and services.  A good example of this is beer replacing whiskey, which may lead certain producers of beer to do a little better in a recessionary market.

Commodity strategies usually leave a company more susceptible to economic downturns. 

If you’d like to use Simplified Strategic Planning to create a plan that will lead to success, consider attending our next Simplified Strategic Planning seminar. If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process.  Then you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  Furthermore, they understand how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

In strategic planning, we sometimes look at threats that will harm your business.  We avoid looking at every threat, since good strategy is about opportunities more than threats, but there are still some threats that may be worth examining.  In general, these are threats that will substantially reduce your likelihood of success, but they also include existential threats to your business.  When examining threats, remember that some threats are very specific to your company, while others threaten your industry (often due to supply issues or displacing technology), and a few, huge threats, are a problem for the entire economy.

Some threats will reduce the likelihood of your success.

Contingency plans for each of these types of threat will vary somewhat.  The more specific a threat, the easier it is to avoid.  A simple step to deal with a company specific threat about hurting our customers, for example, would be “Don’t hurt our customers”.  Industry-specific threats are often more difficult to avoid.  One way to avoid these threats is strategic re-positioning.   Another way is to expand into new areas that you can serve with your strategic competency.  You can consider both of these useful options in strategic planning.  Economy-wide threats are virtually impossible to avoid, and the knowledge that everyone else is likely to be suffering isn’t much consolation for that.  In each of these cases, contingency plans can be useful for the worst threats you face.

Economy-wide threats are virtually impossible to avoid, and the knowledge that everyone else is likely to be suffering isn’t much consolation

As you probably know from Simplified Strategic Planning, there are five basic steps to consider when you want to reduce the impact of threats.

1. Prevent
2. Limit exposure
3. Early warning
4. Contingency plan
5. Hedge

A similar set of steps is worth considering for contingency plans.

1. Stop the threat

If a fire breaks out at your business, you’d first attempt to put it out if possible.  If you can’t do it by yourself, you’d get help by calling the fire department.  This step should be examined closely in more specific threats, because you probably have a greater ability to simply stop the threat.

2. Seek alternative sources of revenue

Before cutting too deeply into your business, consider ways you could easily get more revenue.  Are there markets you have avoided because they are less profitable?  With many threats, an increase in revenue from a less-profitable market can help offset losses in other markets.

3. Set a threat level measurement.

This step is often overlooked, but scaling your contingent responses to the level of the threat is a great way to assure you don’t hurt yourself.  For example, in a short, mild recession, you may limit hiring and try to keep your workforce stable, while in a deeper recession you might look at cutting your workforce.  Setting your milestones before things get worse will help you to take a rational, scaled approach.  Having milestones will also help your team understand where you are as you navigate through the threat.

4. Limit threatened operations and expenses.

These steps will be about assuring survivability for your business.  You’ll want to maximize profitability and revenue by scaling back operations to match the anticipated demand.  Some strategic programs – new products, marketing, new facilities – will definitely be put on hold.  Less profitable market segments may be a good target for downsizing, especially if they are associated with high fixed costs.

The hardest part of these steps is to limit operations and expenses without greatly diminishing the value you create for customers.  If that is unavoidable, you may need to decide which customers will be getting less value as you wrestle with the threat.

5. Sell assets

This is the most drastic set of steps, in most cases, because the assets you have should be those required to do what your business does.  When shedding assets, give priority for assets with high associated fixed costs (not depreciation) and any assets that contribute less to the value you deliver to customers.

Assuring that your contingency plans contain these 5 types of steps can greatly improve their value.  In our experience, companies with well-considered contingency plans end up improving their competitive position when handling industry-wide and economy-wide threats.  This makes contingency plans an important part of your competitive strategy toolbox.

Do you have contingency plans for your biggest threats?  This can be an important benefit of strategic planning.

If you’d like to use Simplified Strategic Planning to create a contingency as part of your strategic planning, consider attending our next Simplified Strategic Planning seminar. If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process.  Then you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  Furthermore, they understand how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

 

Protectionism with tariffs in your country is often seen as a benefit to companies, especially manufacturers. The idea is that when countries put a tariff on imports of products similar to yours, you gain an advantage in your domestic marketplace. If they place a 25% tariff upon similar goods entering your country, your foreign competitors essentially face a competitive disadvantage. The result is their cost to consumers is 25% higher.

Is protectionism a benefit to companies?

A 25% tariff looks like it gives you a 20% discount against foreign competition. In fact, this is the case, but the strategic implication is more complex. For example, let’s examine some situations where there was protection. In the 1970s the Trabant was the highest selling automobile in Eastern Germany. This is because Eastern Bloc countries in the Soviet sphere of influence placed import controls on cars produced abroad. This protectionism enabled Trabant, admittedly not a good car, to compete only with automobiles manufactured in other Eastern Bloc countries.

Because of protectionism, Trabant didn’t have to compete in the global market .

After the fall of the Berlin wall, the reunification of Germany and collapse of the Soviet empire, this all changed. Trabant suddenly had to face competition from West German cars as well as Japanese and American cars. Because of decades of protection against this foreign competition, Trabant was ill-prepared to compete with these vehicles. The new imports were higher quality and the new players had a much better idea of how to effectively market their cars.  They knew how to sell a good vehicle in a competitive market.

Trabant, on the other hand, had very little experience with competing against such a large number of high-quality offerings. By 1998 Trabant was no longer a new vehicle you could purchase in Germany. So, the end result of decades of protection for Trabant was that they were not competitive. They had entered into a truly competitive global market and were unable to meet the challenges of competing. Nissan, General Motors and Volkswagen, among others, simply beat them out of the marketplace.

When human beings arrived in Australia, large marsupials could no longer compete in their insular environment.

Typically, insular environments eventually face global competition. Australia offers a great illustration from nature. As recently as 45,000 years ago, Australia had a thriving ecosystem where large marsupials like kangaroos were at the top of the food chain. There were also monstrous lizards up to 15 to 20 feet long that existed and hunted for prey. At that point, 45,000 years ago, a great disaster occurred. Human beings arrived in Australia. Within a few thousand years, most species in Australia that weighed over 100 pounds or 50 kg became extinct. 

Like Trabant, species including 9 foot tall carnivorous marsupials and gigantic wombats thrived in their insular environment. They didn’t have to compete in order to thrive. The introduction of the deadliest predator in the world from Asia put an end to that ecosystem. Soon and suddenly, their insular environment changed, and carnivorous kangaroos and giant wombats became a thing of the past.

Will your business succeed in its future environment?

How will protectionism and tariffs impact your business? We have to ask whether your business strategically is going to be a very competitive, adaptable and successful organism. What will be the outcome? Will it succeed in its future environment or will it be the giant wombat of the next decade?

We often seek less competitive situations strategically.  

Will the lack of competition weaken us?  Good competition, and by that I mean fair competition, strengthens us in the long term. It forces us to examine how we can best meet the needs and preferences of our customers. This means that nationwide anti-competitive practices can weaken the entire economy even if those practices are temporary. As an example of protectionism, the Trabant shows us that even though they lasted decades, these protections were inevitably temporary. This is partly because political regimes are temporary, but it is also because the reasons which make protectionist measures popular are temporary.

Anti-competitive practices can weaken the entire economy.

So, when is it good for your country to protect your industry with a tariff or other measures? The one clear answer is that these measures can help your industry develop in the face of stronger competition from outside your country. Once an industry is well-established in a country, however, protectionism only serves to reduce the adaptability and competitive strengths of the protected industry.

For example, many countries protected their internet businesses from about 1995 to 2005. This protection enabled companies to grow and thrive without worrying about competition that may have had regulatory advantages. One example of this is that the United States made little effort to collect sales taxes from e-commerce businesses before about 2005.  Companies like Amazon grew much stronger because of this protection. It also created an unfair advantage for online sellers over brick and mortar retailers. In the global economy, this was a useful choice for many countries. 

Protectionism made a company like Amazon much stronger.

Brick and mortar businesses that were similar to the e-commerce businesses, however, suffered, because they had to collect sales tax. We recognize changing from a tax-free environment to one in which e-commerce businesses had to collect taxes created a crisis for many. That crisis was worth it though because it gave them only a short period to develop the ability to compete successfully.

One important lesson from this is if a country protects an industry, successful players will use that protection. They will build capabilities and competitiveness so when they lose that protection they will survive in a rough and tumble world. The best long term strategy is to view protection as temporary and strive to build lasting competitive advantages.

What is your current situation regarding protectionism?

Is your country protecting your industry from foreign competition? Are you currently seeking some kind of protection in your home country from outside competition? Whether or not these approaches make sense is a complex issue. It will affect your growth and so it should affect your strategic choices. Good strategic planning is an excellent way to evaluate the impact, the challenges and the benefits of possible future changes in your industry.

If you’d like to use Simplified Strategic Planning to find the best path for your company, consider attending our next Simplified Strategic Planning seminar. If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process.  Then you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  Furthermore, they understand how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

The best defense is sometimes a good offense.  One of the most successful strategies I’ve used with clients is to stop worrying about disruption as a threat.  Instead, become the company that is disrupting your industry.  In some cases, this is easier said than done.  There are a few simple steps you should take, however, if you would like to be the disruptor.

First, you cannot start too early.  It’s useless to attempt to be a disruptor in your industry if the disruption has already occurred without you.  It’s very difficult if there is already a 300 pound gorilla dominating the disruption you would use.  Unfortunately for some, disruption is a game that rewards the first movers heavily.

Second, you must understand your strategic competency.  We discussed strategic competency in our last disruption article.  Therefore, without a solid awareness of your unique means of creating value for customers, you will likely struggle with success.

Beyond those two things, the difficult part is identifying how you can be a disruptor most effectively. 

There are several places in your strategic planning process where you should pay particular attention to the possibilities of disruption.  (To  help people using the Simplified Strategic Planning process, I’ve indicated the relevant worksheets for each of the key steps).

Highlight key unmet needs

1. Highlight key unmet needs and preferences when reviewing your Market Segment Analysis worksheets (page 1.1). Always ask the question “Why is this need not being met?”.  Customer needs and preferences are so powerful that failing to meet them inevitably creates an opening for new competitors and new technologies.  If your company can figure this out, you will have a tremendous competitive position, even if your approach is copied.

Disrupt your competitors

2. Understand which disruption would create the greatest difficulty for your competitors when examining competitive data (pages 1.2 and 4.2). If undertaking a little difficulty for yourself creates huge threatening problems for your competitors, it’s well worth the effort.

Pay attention to currently available technology

3. Pay attention to currently available technology that might enable radically different approaches in the Technology Assessment worksheet (page 1.3). You may need to find technologies outside of those currently used in your industry.  Furthermore, you may need to find some relevant scientific research from the past few years.

Discard why you do things

4. In the Perceived Opportunities (page 4.4) exercise, spend a few minutes asking how you might change why your sales, marketing and operations use their current processes. This step is critical because we often do things a certain way “because you can’t make money the other way” or “because it’s impossible to do it that way”.  Strategically, things are usually possible, but we don’t do them for several reasons. They are expensive, require expertise we don’t have, or don’t fit with our current operations.

Use threats as opportunities

5. When examining Perceived Threats (page 4.6), identify threats that you might be able to participate in or cause.  Threats are a great way to identify disruption opportunities.   This is because our fear of a threat often indicates how likely the disruption is to succeed.  Rather than avoiding the threat or attempting to prevent it, you may be able to co-opt the threat and make it your competitive tool.

Remember this will be expensive

Clearly, all five of these steps may lead to dramatic shifts in your strategy and undertakings that consume large amounts of time and money.  The scale of these shifts are often why we instinctively shy away from them – even if the resource investment is tiny compared to the cost of failing to make the shift.  Even more importantly, the competitive advantage of causing the disruptive shift is so huge that it’s difficult to think of an investment that could have higher returns for your business.  There are very few – if any – new multi-billion-dollar businesses that were not built on a disruptive shift in some part of their markets.

If you’d like to use Simplified Strategic Planning to find the best path for your company to become a disruptor, consider attending our next Simplified Strategic Planning seminar. If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process.  Then you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  Furthermore, they understand how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

Market disruption happens in just about every industry, no matter how mature it is. How is it that some players seem to shrug off or even thrive through disruption, while others are ruined?  One of the keys to a successful response to disruption is strategic competency.

In our Simplified Strategic Planning seminar and our book on the subject, we defined a strategic competency as a combination of skills, processes and knowledge. This creates great value for your customers. in a truly unique way.  The resilience of a company can be measured by the level of value and uniqueness that its core competency brings to its market.

When faced with the most destructive types of disruption, resilient companies inevitably undergo a strategic shift. 

The disruption usually makes that company’s means of meeting needs in the marketplace irrelevant.  As a result, the company usually shifts away from the old way of meeting customer needs.  In some cases, this means a shift away from a product or technology. In others it could also be a shift away from a distribution channel or method of sale.  This shift is critically dangerous to any company. Our success is generally built upon doing one thing (or type of thing) better than our competitors.  To shed the old way means we are shedding our recipe for success.  This is where strategic competency becomes a life or death issue.  As the old way of succeeding loses value, a surviving company must find new ways to apply its strategic competency.

One example of this can be seen right now in the automotive industry.   

Currently, the future of internal combustion engines becomes threatened by electric vehicles. So, many players are examining how their competencies can be successfully applied to the new technology.  In some cases – people who sell seats or headlights, for example – the transition is simple and easy.  For companies that make fuel system components and engine components, the transition is likely to be difficult.  By focusing on applying their strategic competency, such companies can shift much of their successful activity into new applications.

An historical example of this exists in the print industry. 

In the 1980s, Sears Roebuck saw a decline in catalog sales and began shifting their marketing approach.  By 1993, they had stopped printing catalogs altogether.  If you look back 20 years before that, the Sears catalog, which was very large, was a major part of the print industry.  Some estimate that the Sears catalog accounted for 30% of the four-color printing capacity in the Midwestern United States.  Clearly, this shift was a huge disruption for printers who specialized in this kind of work.

As all of the players tried to find work to fill their expensive, high volume, four color presses, it became clear there wasn’t more catalog business.  Likewise, other traditional customers, like magazines, did not offer enough growth to fill the idle capacity.  A few well-placed companies found one application that would benefit from the low-cost four-color process they had – newspaper inserts.  While in 1970 there were very few four-color newspaper inserts, by 1995 they were everywhere, and made up a large part of ad revenue for newspapers.

Both examples show companies taking a manufacturing process and seeking to apply it to some new product. 

This isn’t the only way to succeed with this approach.  Companies have also succeeded by applying a completely different process to the old product.  Others have responded by  outsourcing many of their processes to focus on the core expertise that drives their strategic competency.  In some industries, this approach has led to leading players who only provide a part of the value chain.  One example of this is Nike, who designs and markets shoes but does not manufacture any shoes themselves.

These examples should illustrate the importance of understanding and using your strategic competency when you consider your response to disruption in your industry.  If you would like to learn how best to know and apply your strategic competency, contact me to find out some of the ways we can bring this powerful approach to your company.

If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process.  Then you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  Furthermore, they understand how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

Disruption strategy – What to do when you see disruption coming.

In my last two articles, I discussed types of disruption and how to anticipate disruption in your industry.  In this article, we’ll take a look at what steps you can take when you see disruption coming.

When disruption threatens your markets, it’s easy to become fearful.  Disruption, after all, is an existential threat to existing players in most circumstances.  The best way we can effectively respond to disruption is to address the nature of the threat.  Furthermore, address any ways we can use existing competencies to retain relevance.

In general, the reason a threat is a problem for you will vary by the type of disruption.

1. Cost disruption

With cost disruption, the clear reason you’ll feel threatened is because something is dramatically changing the cost structures of your market.  Quite often this is because a new competitor or alternative product is significantly lower cost than what you are offering today.

2. Displacement disruption

In the case of displacement disruption, something new is replacing your product or service.  Usually, this happens because the replacement is clearly superior in meeting customer needs OR it has a clear cost advantage.

3. Demand disruption

Demand disruption threatens us because something is altering the customer decision making process.  This means that the way we reach potential customers and convert them into actual customers may no longer work.

4. Utility disruption

With utility disruption, the way customers meet their needs is in flux.  This can lead to displacement, but it can also change how customers select and use your product or service.

Cost and displacement disruption strategy

Clearly, if some fundamental need or preference is shifting, ask if you can profitably change your current offering sufficiently.  If the preference is primarily cost, a realistic assessment of your costs versus disruptive costs is vital.  In some cases, radical redesign of products or processes can bring your cost structure into line.  Alternatively, you may need to assess how to exit your old approach while preserving the value your business creates.

Displacement disruption strategy

With displacement disruption, unfortunately there will likely be an end point (or near end point) to your current offerings.  Although there are still people buying vacuum tubes today rather than cheap transistors, the old players are basically gone. If this is happening to your industry, you should focus on high-value competencies that you can shift into something new.  For example, a vacuum tube manufacturer might have successfully downsized to meet the smaller, more specialized market needs. More likely, that manufacturer might have sought other applications of their precision metal and glass manufacturing capabilities and prosperously survived.

Demand and utility disruption

When sales or marketing-based elements cause disruption, the old way of reaching customers is likely to decline in effectiveness.  In some cases, you may need to shift the effective messages that you use in promotion. This shift is not small, and it may fall beyond the current capabilities of your team.  The sooner you realistically assess this, the better off you will be.  If you can precede the disruption with learning about the new approach to the market, you’ll be much more competitive in the changed market.  If you delay too long, you will end up playing catch up on new approaches to the market.  While catching up is possible, it is usually expensive and time consuming.  Consequently, some companies realize that acquisitions may be a faster way to gain the required market competencies to succeed.

How will you meet disruption that is coming to your industry?  The disciplined, data-driven approach of Simplified Strategic Planning is a great framework for both evaluating and strategizing around disruption.

If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process.  Then you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  Furthermore, they understand how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

The past two decades have seen market disruption spreading in ripples through almost every industry. 

In some, market disruption has been the new normal – and in others, a hope that disruption will pass persists.  Whatever the past or current state of your industry and markets, anticipating new disruption is now critical to strategy.

Seeing new market disruption coming is a matter of understanding causes. 

In my previous article, I discussed four commonly seen types of market disruption:  cost, displacement, demand and utility.  Changes in the environment drive these types of disruption.

Changes that radically alter the cost of inputs in a market drive cost disruption.  In plastics, for example, the use of new technology to extract fossil fuels has decreased the cost of some plastics.

Clearly, anything that causes great shifts in costs upstream in your value chain signal the possibility of a cost disruption. 

This is one reason why we want to pay attention to supplier markets – include labor and key services – in strategic planning.  Noting where technology, regulatory and other shocks are dramatically shifting costs in your supplier markets is the best way to anticipate this type of disruption.

Displacement disruption occurs when a new approach, product or process displaces previously used approaches.  Travel websites displaced travel agents for most travel arrangements over the past 30 years, is an example.

Because displacement is usually driven by technology, it’s vital to watch for technology that may displace your product or service. 

It’s absolutely vital to understand the functional or psychological need you serve in your customers.  You also want to know how new technologies may meet those needs better than your current product or service.

Demand disruption usually occurs as a by-product of displacement in a related industry. 

For example, the travel industry disruption mentioned above gave rise to extreme discount air carriers. These could only exist because people use travel websites to find the cheapest airfares.  This radical change in customer selection led to market disruption in the low end of the air travel market.

To anticipate demand disruption, pay close attention to major displacements in related industries.  Pay particular attention to both upstream industries (those that provide your inputs or raw materials) and downstream industries (those that would be your customers or drive demand for their products).  A major change in either direction may cause changes in the way customers evaluate your product or service in the future.

Utility disruption is also a second-order effect of other disruption, usually displacement.  It usually follows a fundamental change in underlying products or services that enable them to meet entirely new needs. Smart phones becoming cameras and computers is an example.

Again, looking both upstream and downstream for market disruption is the best way to anticipate utility disruption. 

For example, if I were involved in the car wash industry, I’d want to pay close attention to driverless vehicle technology.  While it’s not directly a technology in that industry, it might change the way customers use their vehicles, and in turn, disrupt the car wash industry.

In simplified strategic planning, we closely examine supplier markets and technology in the external situation and assumptions sections. 

When considering both opportunities and threats, you may also wish to drive anticipated changes into new ideas about the future of your business.  Without question, you will have a much more successful future if you can anticipate any of the disruptions which are coming to your industry.

If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

Market disruption is a catchy phrase that describes changes which redefine many elements of competition in markets.

These changes sometime even eliminate markets altogether.  One of the examples from the past few decades is when online travel websites displaced travel agents.  Another example was the migration of some manufacturing activities to China.  Yet another example was the four-color inserts that began appearing in newspapers in the early 1980’s.

One can understand most of these disruptions by examining the immediate drivers. Recognize drivers like declining raw material prices in Asia.  In the second example, recognize a decline in utilization of four-color pressed in the Midwestern US.  It helps, when considering strategy, to be aware of disruptions.  First be aware of where it can come from.  Second, know how to see it coming.  Finally, understand – in some cases – how to cause it.

First, let’s look at types of market disruption. 

At the most basic level, disruption happens when something completely changes a dynamic in a market.  Large cost changes or processes and technology which enable a different approach to the market can drive the change.  Here are the commonly seen disruption types of the past thirty years.

1. Cost disruption

This type of disruption occurs when the cost of a major input, such as raw materials or labor, changes drastically.  First of all, slight changes are more likely to cause a gentler, more predictable change in the market.  Second, cost changes over 15-20% in a single year may cause much more severe swings.  A good example was when improved extraction technologies opened up large sources of cheap natural gas in North America.  Clearly, gas is an important raw material for some types of plastic production.  Therefore, we saw a shift where some production moved back into North America from other parts of the world.

This type of large-scale shift usually carries great second and third-order effects.  It is usually associated with cost changes in commodities. The ability to substitute one commodity source for another is much higher than that ability in more specialty-oriented markets.  Economists would say that these markets exhibit much greater price sensitivity.  Then that can cause buyers to make dramatic changes in behavior for a slight cost advantage.

2. Displacement market disruption

This type of disruption occurs when one product or service starts meeting the same needs as another product or service. An excellent example is when online travel websites displaced travel agent offices.  The advantages of the newer product drive displacement for reasons other than cost.  Cost is sometimes also an advantage of the newer product, too.  Another example of this from years ago is when hand held calculators displaced slide rules.

3. Demand disruption

Demand disruption occurs when something changes how customers meet their needs in the marketplace.  It may not be a direct displacement, but when customers evaluate their purchases differently, they can disrupt the market.  For example, advertising for breakfast cereal which focused on children was highly profitable for some markets in the late 1900’s.  First cable networks and then video streaming technology changed both what children watched and when they watched it.  Then this advertising shifted from being focused on certain times (Saturday morning cartoons) to being focused around content.  A strange result of this change is that there are no longer broadcasters offering youth-driven programming on Saturday mornings.

4. Utility disruption

Utility disruption is similar to displacement disruption, but is usually driven as a second-order effect of displacement.  For example, the use of smart phones to navigate displaced older ways of navigation. This displacement of maps and GPS devices created new markets for products like auto mileage apps and traffic aware navigation.  These could not exist before that displacement became widespread.

Consequently, as customers become used to using a faster, more convenient, or higher utility substitute, anything that  enhanced the usefulness of the older product or service changed the competition.  As one example, the shift to smart phones also changed the competition around the design of the phone itself.  When the use of the phone was just voice (and maybe limited data), the design was driven by looks, ease of use, size and cost more than other factors.

This led to phones that looked completely different from competitors’ products.  As a result, players like Nokia and Motorola sought to define their markets through innovations.  By 2015, the great majority of phones were smartphones that were basically indistinguishable in physical design from competing products.  This change, in turn, disrupted markets like switches and packaging for the phones. These changes disrupted markets, because producers wrapped more uses up in a single product.

Whatever the disruption we see in our markets, there are both ways to anticipate the changes and to respond strategically.  In my next article, we’ll take a look at how to see disruption coming.

Are you facing disruption in your industry?  Simplified Strategic Planning offers a powerful approach to assessing disruption and formulating your strategic responses.

If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

One of the incredibly interesting things about humans is our ability to make up stories.  Many of the hallmarks of civilization are really no more than this.  Government, the economy and money are all based on stories we have made up – and agreed to – over time.

A business can portray many of the reasons that drive success and failure as stories.

Your business is no different.  First of all, a corporation is a useful idea turned into a story.  Secondly, a business can portray many of the reasons that drive success and failure as stories.  We use Windows machines because Microsoft operating systems are better for business?  Definitely a story.  Rolls Royce automobiles are the epitome of luxury?  Also a story.  Wendy’s makes their hamburgers fresh?  A story, as well.

Now, most of the business stories that work are based upon some reality.

Microsoft, for example, designed Windows to be able to run legacy code written for MS-DOS.  This was a very important consideration in the 1980s for businesses that had invested heavily in new software.  Rolls Royce designed the Silver Shadow with beautifully appointed interiors and assembles it carefully from expensive parts.  And Wendy’s actually does have operating practices that assure their burgers are fresh.

An important part of stories is that people believe them, and purchase products and services based on those beliefs.

How can you use this idea in your business?  There are a few of key questions to address.

1. What is different about your company, product or service?
2. How can a customer tell that this difference is real?
3. How can a customer feel confident that this perception validates that the product or service matches their ideals?

Many companies are aware of this approach but fail to successfully build a real story.  There are three good reasons this happens.

1. Instead of focusing on a single value or concept, we try to connect a laundry list of desirable traits to our brand.

This is a killer.  Customers don’t remember laundry lists.  They do remember stories.  We tend to want to dump a list on the customer, because we don’t know which value the customer will prefer. Unfortunately,  this usually just befuddles the customer, or worse, makes them think we are just like competitors.  The examples above (Microsoft, Rolls Royce and Wendy’s) all worked, because they started with ONE story built around ONE value.  While these stories became more elaborate later on, it’s crucial to remember that the early wins for any successful brand requires the single story.

2. We fail to dramatize the distinction that clarifies the difference in the customer’s mind.

If we claim higher quality, and competitors claim higher quality, who will customers believe?  It’s likely the customer will believe no one.  If the customer does believe one competitor, it will be the one who spent the most on effective promotion of their story – and not just through advertising.  For example, a (possibly apocryphal) story about Nordstrom’s tells of their accommodation of people attempting to return tires to a store chain that doesn’t sell tires. 

The point of the story is that the customer is right – even in ridiculous situations. 

The fact that the story seems silly is exactly why people remember it.  The same can be said about the old story about LL Bean replacing a pair of 25-year-old Bean Boots.  If you can back up these stories with real examples, and don’t see many counterexamples, you can grab the imagination of those who hear them.  Why don’t we do this?  Because backing up a story like this will cost us, and we are often afraid of cost.

3. We damage the story in pursuit of other things, like efficiency, cost management or volume.

A good example of this happened to McDonald’s a few years back.  For a while, the brand has been pushing the story that McDonald’s sells nutritious, quality food.  Obviously, some will believe this message while others won’t.  When stories about McDonald’s (and other chains) making burgers from chemically treated “pink slime” surfaced, this damaged their story.  I don’t know enough about meat to say whether this was fair or not, but the pictures of unappetizing-looking ingredients and discussion of the chemicals used was enough to hurt the story that McDonald’s wanted to sell.  Why did restaurants use this product?  It improved shelf life and likely reduced health risks that are very real when you are mass-producing hamburgers.  Good reasons, perhaps – but it damaged the story.

What is the compelling story behind your product or service? 

Can you tell the story in a convincing way – and do you back the story up with your practices and policies?  If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2020 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

Over the years, I’ve seen companies amplify their success by focusing on a clearly specialty or clearly commodity strategy. 

In simple terms, a commodity strategy involves targeting customers whose primary decision making factor is price.  The specialty strategy simply involves targeting any factor but price.  The specialty strategy leads to lower volumes in most markets.  This is because the customers who will pay for premium features or service are outnumbered by the price-driven customers.  With that lower volume, however, we also see much higher margins.  These higher volumes are why many smaller and medium sized companies see the best profitability coming from the specialty approach.

It’s pretty clear that cost advantages weigh heavily in favor of online businesses when pursuing a commodity strategy. 

At this moment in time, many online markets are dominated by large, commodity-focused players who want you to buy from them because their prices are low.  So how does the smaller player compete in this world?  As with classic approaches from 20 or 30 years ago, the key is the clearly focused specialty strategy.

With a specialty strategy, we are targeting customers who want the right product or service, and prefer that to a less ideal offering at a lower price. 

This kind of customer may buy $2,000 shoes – or beer that costs ten cents a bottle more.  The focus for the customer is the value they perceive – and the price is secondary.  Extreme specialty customers may pay ridiculous prices for top-shelf offerings that are only one or two percent better, but there are plenty of markets with more moderate specialty customers.  Buying a branded product that costs 5-10% more than the cheapest alternative is a fine example.  Using a specialty strategy online we can highlight specialty value.  Seeing this value would appeal to the customer that would make this kind of purchase.

When we pursue specialty customers offline, we can look for advantages in location and service that aren’t available online. 

In addition, commodity competitors may be offering high-end products for cheaper prices (think a Rolls-Royce for $5,000 less).  This means that – while confined to the restrictions of the digital interaction – we need to provide excellent products and services with some distinction that the specialty online customer will value.  This is no small feat.

There are five key ways we can add the value that our commodity competitors cannot or will not match, in our digital strategy.

1. We can assure a superior digital experience.

This one is challenging simply because the commodity players, who are much larger, may be willing and able to invest much more in their digital platform than we can.

2. We can blend in superior non-digital elements.

Features like live chat, physical locations and more expensive customer contact options that humanize and personalize the interaction add value.

3. We can simplify the customer’s buying process by curating our offerings.

Sure, you may be able to find a bigger selection of aquarium accessories on Amazon, but a specialty player may offer only the ideal accessories for specific customers.

4. Beyond simple curation, we can add a large dose of expertise in a focused market area that would be too expensive for a commodity competitor.

For example, in the aquarium example above, we may offer both products and advice specific to one variety of fish on a page, along with videos, interest groups and offline events that go far beyond what the commodity players want to do.

5. We can create or seek out solutions and packages that add specific value for a segment of customers.

For example, we might offer a “Neon Gobi package” to fish fanciers who like that particular species, with appropriate tanks, a monthly food delivery program, informed support staff, etc.

All five of these approaches count on a very simple fact.

Commodity competitors just want to move products or services with the lowest effort and cost.  Many commodity players don’t really want to know much about their product, beyond how to deliver a good product cheaply.  Those that attempt to add value find that only free or very inexpensive value-added tweaks work for the commodity business model.  Anything beyond that drives costs up enough that it becomes difficult to maintain margins with a truly competitive commodity price.

When you look at your business, do you see a clear strategy targeting either commodity or specialty customers?  Which one works best for you?  If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

Digital marketing strategy – the hybrid strategy is one of the most powerful.

In the past few articles, I’ve written about how brick and mortar companies can handle digital competition, and vice versa.  One of the most powerful strategies in each of these situations is the hybrid strategy.  When a company uses both digital and non-digital approaches, they create better customer experiences, better service, and more cost-effective operations.

There are situations where a hybrid strategy works very well. 

There are also situations where a hybrid strategy is less useful.  In general, the hybrid strategy works best when the alternate approach enhances the effectiveness of the core approach.  For example, when Best Buy allows customers to search, compare and choose products on their website and pick the selected product up at a physical store, they are gaining an advantage of the online interaction.  Shopping online is quick, convenient and data-rich, but the advantage of offering nearly-instant pick up, eliminates the cost of delivery.

Most companies that are using hybrid strategies today started as strong brick-and-mortar players with good locations and efficient distribution. 

They may have attempted to stave off the loss of customers to cheaper online competitors by using the hybrid strategy. This was certainly the case with Walmart, Best Buy and Sears.  Does this approach help, though?  In the case of Walmart, the business model is partially defined by a vast, data-rich, efficient distribution system. The ubiquity of Walmart stores in the US market means that picking up product is nearly as convenient as delivery.  Furthermore, it’s much faster for many people in their market.  For other stores, the geographic coverage may not be as great.  That means the convenience of the hybrid approach only applies to certain areas in the market.

Another element that makes this attractive for some retail players is that they already have a fairly cost-effective distribution system. 

Large scale distribution means that the cost of in-store deliveries is very competitive with postal or other parcel delivery services.  When the distribution network is smaller and handles lower volumes, delivery by USPS, FedEx or UPS may add little, if anything, to the final cost to the customer.  This is because such delivery is “baked into” the pricing of products at the tail end of the distribution chain.

A final advantage many traditional players have with the hybrid digital strategy is that a brick-and-mortar location is often a better facility for handling customer care issues, returns and possible troubleshooting that may arise. 

There is a strong perception that companies handle the service element better when the customer can talk with a person, in person.  While online, email and phone customer service can be very good, many customers have experiences with terrible remote service. That adds to the perceived benefit of the brick-and-mortar point of contact.

An interesting question clients ask when discussing digital marketing strategy is “Can this work the other way?”  

Can a largely digital business gain some of these advantages by establishing brick-and-mortar points of contact for customers?  So far, only very large digital businesses, such as Amazon, have experimented with this approach.  One severe impediment to the hybrid strategy from this angle is that it is simply not how digital companies think.  The costs seem astronomical (compared to online-only approaches).  Also, the inflexibility of physical locations often grates on managers who like to change the appeal of a website instantaneously.  So far, we haven’t seen much traction for this approach. Some would argue that the Apple Store, however, is essentially this.  It is largely a digital business extending customer service, product presentation and sales into the real world of physical stores.  If we accept the Apple Store in this light, it’s the one shining example of how digital-to-brick-and-mortar can create customer value.

What is your experience with hybrid strategy? 

Does the change in expectations technology drives in your markets have a positive or negative effect on your business?  If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission