Leadership is a double-edged sword. On the plus side, leadership in your industry means that every possible competitor will have to play catch-up with any strategic choices you make – you will be defining the game of strategic competition, and this can lead to extremely strong profitability. On the minus side, leadership requires that you constantly push your company outside of its comfort zone. You won’t always know what to do – or even, in some cases, what you are doing – and you will end up making mistakes along the way. This is the main reason most companies fail to effectively pursue a leadership position – it is scary and bad things can happen if you do it wrong.
Author, Robert Bradford
The good news about strategic leadership is that the main perceived disadvantages are not real. This is not to say that leadership isn’t scary, nor is it to say that things can’t go wrong. Rather, those problems will exist whether you are in a leadership position or not! In other words – you will make mistakes whether you are leading your industry or trailing it. True, more people will notice the mistakes of the leader, but the sad truth is that companies that “play it safe” make just as many mistakes – and have the added disadvantage that the market never perceives an advantage to innovation “safety”.
So, if we accept the mandate to lead our industry, how do we pick the “BIG Things”? What really makes the difference between incremental innovation and industry-leading innovation? There are three main innovations that will tend to lead industries:
1. Innovation that is TOO DIFFICULT for most competitors.
2. Innovation that is TOO EXPENSIVE for most competitors.
3. Innovation that most competitors are UNWILLING TO PURSUE for any other reason.
If your strategic planning has helped you find a strategic competency that works in your industry, chances are that certain types of innovation you can pursue will fit neatly into at least one of these categories. This is because one of the great side-effects of competency-based strategy is that it leads organizations to focus on things that are easier for them and harder for competitors. For example, it is no secret that user-experience based design is a strong suit for Apple. What this means, strategically, is that Apple products may not always be the leading edge of what is technically possible – but the experience of using an Apple product will always be better. Why? Because it is more intuitive, simpler and has been designed for “feel” rather than features. Is it possible for a competitor to get this right, and effectively compete with Apple? Certainly – and in some rare cases, competitors can give Apple a run for their money – but at the end of the day, Apple will win at this kind of competition because it is now easier and cheaper for Apple.
If you want to compete effectively with Apple, you can do so by focusing your strategy on the things Apple doesn’t do as well – technical features, open-sourcing, and commodity pricing. This combination is exactly why Google’s Android operating system is so successful in competing with Apple’s iOS. It is not that one system is better than the other – rather, Android has strengths that would be difficult for Apple, and vice-versa. In terms familiar to those of you who have read Simplified Strategic Planning, iOS is dominating the specialty end of the market, and Android is dominating the commodity end. Make no mistake – the sheer volume numbers will favor Android – but the profit numbers will favor iOS.
To further dissect this particular example, let’s look at what the “big things” are in the cell phone market. What do users actually care about? Here is a short list of reasons why you might be satisfied/dissatisfied with a phone:
- Style
- Quality of service (i.e. no dropped calls, etc.)
- Applications (i.e. what can I do with my phone?)
- Ease of use
- Price
- Quality of components (i.e. camera, controls, etc.)
As you may surmise, it would be virtually impossible for one hardware manufacturer to win on all of these features. So is one of these the “big thing” in the cell market? The answer is no – any one or two of these items can qualify as a big thing when you are considering strategic leadership. The important thing is to develop the strategic ability to win so decisively that the market clearly acknowledges your leadership. This, just being a little better than HTC on quality of service will not yield a leadership position for Apple. Likewise, having one or two little design advantages over Apple doesn’t get you the style crown or the ease of use crown. It is only where the market perceives clear superiority that industry leadership results – and the benefits of true leadership only come after the market begins acting on that perception.
To see how this might play out in a different arena, let’s look at some very strange developments that are occurring in another market – television entertainment. Interestingly, some of the same players (Apple and Google) are taking a strong interest in this market. Also interesting is that there are two very clear channels for innovation – hardware and content delivery. As of the writing of this article, Netflix appears to be dominating content delivery through a strategic approach to content acquisition and marketing, but services such as Hulu and Xfinity are taking increasing market share. One could also argue that Google’s YouTube and Apple’s iTunes are also part of this market, since video content can be delivered by any of these channels. So – what are the big things you need to dominate in order to lead the video content market?
- Content library
- Pricing
- Ease of use
- Portability
That’s it. There isn’t much else that would drive a winner here. Netflix has the lead right now because their content library is great, but they are also very strong on portability (I can use Netflix on my iPhone, my Windows PC and my Nintendo Wii, and it doesn’t matter who my phone or broadband provider is). Apple gets pretty strong marks on ease of use, but isn’t necessarily a clear winner here since YouTube, Hulu and Netflix are all pretty darn easy to use. Leadership on pricing may turn out to be a giant-killer for someone who wants to de-throne Netflix, but success with this approach will take well-negotiated content and delivery deals along with a very large volume of users. Interestingly, many, many other players, including Intel, for some bizarre reason, are trying to gain a foothold in this business by becoming “virtual cable TV operators”. Without a strategic competency that can yield industry leadership in one of the big things, these me-too initiatives don’t stand a chance.
So who will come out on top in the video wars? Again, there is no sure bet. Apple is betting that integrating hardware with a content ecosystem will yield profitable, committed customers – and their business model does seem to prove that is correct. Google seems to be taking a more open-source approach, which, again, fits their competency and business model. Netflix will have to pedal harder and harder to stay in this race, and will face continued challenges from the owners of pieces of its downstream distribution system, such as cable companies. However, if they continue to lead on portability, there is a good chance that Netflix will retain market leadership in the foreseeable future. This is because portability isn’t even attractive to most of the big competitors in this space, with the possible exception of Google. You can, however, count on some of the distribution network players (such as Comcast), to attempt to use the power of their position to either gain traction with their own video offerings (like Xfinity) or gain some favorable concessions from the bigger players in this market.
How about your industry? Do you have a clear idea of what the big things are that you might dominate? How do those things stack up against your strategic competency? In my next article, I will discuss some ways to pick the big thing you focus on – and how to feel OK about letting go of the other big things.
For more on innovation, click here.
For an article on competitor consolidation, click here.
If you would like to discuss strategic choices around innovation please contact Robert Bradford at rbradford@cssp.com.