The periscopic media tour

Citation

Henry, C. (2005), "The periscopic media tour", Strategy & Leadership, Vol. 33 No. 5. https://doi.org/10.1108/sl.2005.26133eaf.001

The periscopic media tour

The periscopic media tour

Blue ocean strategy

MCNews: How do you define blue ocean strategy, and why is it important for executives to embrace the idea?

W. Chan Kim: Blue ocean strategy is about creating uncontested market space. Too many companies are swimming in the red ocean of bloody competition where there is limited room for real growth. The image of the vast blue ocean conveys the infinite possibilities for profitable growth that exist with this strategy.

MCNews: Can you explain your concept of “value innovation” and how it relates to creating a blue ocean strategy?

Renée Mauborgne: Value innovation is a strategic move that allows a company to create a blue ocean. Typically, companies in the red ocean pursue incremental improvements for customers through either low cost or differentiation. Value innovation helps companies make giant leaps in the value provided to customers through the simultaneous pursuit of differentiation and low cost.

It shouldn’t be a trade off between the two; exceptional value and innovation should be inseparable. Offer buyers a huge leap in value, and that will give rise to new markets. That’s how you make the competition irrelevant … .

MCNews: What are some examples of red and blue ocean companies?

Kim: If you look at the airline industry, the airlines that are either in bankruptcy or close to it remain stuck in the red ocean of competition. Southwest Airlines, on the other hand, created a totally blue ocean by attracting car drivers.

Southwest did not compete head-on against other airlines by offering better meals or other incentives. Instead, they attracted car drivers by making flying closer to the car-driving experience. They offered the speed of the airplane with the economics and flexibility of driving.

Starbucks and IKEA are other examples of companies that have created new markets for their products through value innovation.

“Meet the MasterMinds: W. Chan Kim and Renée Mauborgne”, Management Consulting News, May 2005, www.blueoceanstrategy.com/pages/QandA.htm

Globalizing innovation

“The ecosystem for innovation is now starting to be created here [Bangalore],” said Nandan Nilekani, the C.E.O. of Infosys. For several years now, when venture capitalists funded companies in the USA, they insisted that the R&D for the products be done in India. But now, increasingly, Western companies will come up with a new idea and then tell Infosys, Wipro or Tata, India’s premier technology companies, to research, develop and produce the whole thing.

As one Wipro executive put it, “You go from solving my problem to serving my business to knowing my business to being my business.” What will be left for the Western companies is the “ideation,” the original concept and design of a flagship product (which is a big deal), and then the sales and marketing.

“We’re going from a model of doing piecework to where the entire product and entire innovation stream is done by companies here,” Mr. Nilekani added. All of this means that innovation will happen faster and cheaper, with much more global collaboration.

“Bangalore: Hot and Hotter”, Thomas L. Friedman, New York Times, 8 June 2005

Top down disruptive innovation succeeds

In stark contrast to the bottom-up variety, top-down disruptive innovations actually outperform existing products when they’re introduced, and they sell for a premium price rather than at a discount. They’re initially purchased by the most discriminating and least price-sensitive buyers, and then they move steadily downward, into the mainstream, to recast the entire market in their own image. A top-down disruption is as revolutionary as a bottom-up one. But the good news for incumbents is that they have a much better chance of surviving, or even spearheading, the former than the latter.

FedEx’s overnight document-delivery service and Wang Labs’ word-processing system are two examples of top-down disruptions that overturned established markets. When Federal Express started up in the early 1970s, the US package-delivery business was dominated by two big organizations. The United States Postal Service held a near-monopoly on the delivery of letters and other documents, and it also shipped small parcels, mainly between residences. United Parcel Service (UPS) had a flourishing operation shipping packages of various sizes to homes and offices.

In pursuing their particular business models, both the postal service and UPS overlooked an opportunity at the high end of the market. Businesses often needed to ship documents to other businesses very quickly, and these time-sensitive commercial customers were more than happy to pay a premium for such a service. FedEx saw this competitive opening, and it organized itself to deliver documents and other small packages overnight, using its own fleet of aircraft. On a critical measure of shipping performance, delivery time, FedEx’s service outstripped that of its competitors – the best UPS could offer was second-day delivery – and it was able to charge its exclusive set of customers a high price for its unprecedented speed.

“Top-Down Disruption”, Nicholas G. Carr, Strategy & Business, Summer 2005, www.strategy-business.com/article/05203?pg=all

A ground-level view of high-performing knowledge workers

To gain more insight into these high performers, we conducted inter-views with forty of them across four organizations. Our intent was to get a rich view of the strategies high performers employ in finding in-formation and solving important problems at work. We emerged with a set of consistent practices used by high-performing knowledge workers. First, they engage in certain activities that keep them on the cutting edge of their own expertise and help them develop new capabilities as appropriate. Second, they are proactive and intentional in developing, maintaining, and leveraging relationships around them. As a result, high performers are able to tap into others for information more effectively, and other people bring opportunities to them more frequently. Finally, they are adept at maintaining a “good enough” information environment that enables them to fluidly juggle information and priorities.

Thinking for a Living, Thomas Davenport (HBSP, 2005)

Getting close to the customer: sitting in her kitchen

Roughly 80% of the people who buy P&G products in the USA are women. That’s why [CEO A.G] Lafley routinely stops women in stores to ask them about their purchases … And that’s why on a recent morning, Mr. Lafley climbed up a steep set of concrete stairs in Caracas, into the cramped kitchen of 29-year-old Maria Yolanda Ríos, to listen to her describe how often she washes her hair, what kind of skin cream she uses and if she wears nail polish … But when a P&G executive asked Ms. Ríos to bring her beauty and hygiene products into the kitchen, she came back with 31 bottles of cream, lotion, shampoo and perfume and placed them on the embroidered tablecloth. She has two lotions for her feet, one for her body, one for her hands and another for her face. She dug out her old Avon catalogues and showed the dog-eared pages where she marked certain products.

“It’s her entertainment,” Mr Lafley said, putting his Cartier glasses case on the kitchen table and perusing the room. Every year, in different parts of the world, Mr Lafley makes 10 to 15 visits like this where he observes women doing everything from washing their clothes to applying makeup. “Her entertainment is looking at the Avon catalogue at night, and we need to remember that,” he said.

“P&G Chief’s Turnaround Recipe: Find Out What Women Want”, Sarah Ellison, The Wall Street Journal, June 1, 2005; Page A1

From product satisfaction to customer loyalty

“We want our customers to be truly loyal,” Metzger says. “If they are accessible, high risk, or reluctant, they are automatically flagged for follow-up.”

Follow-up is a hallmark of Diebold’s loyalty program – truly loyal customers receive a call thanking them for taking the time to complete the survey. Customers who fall into the other three loyalty quadrants receive follow-up through a formal improvement plan contained in a web-based Smart Loyalty module. When a customer’s survey response places him in one of the three non-truly loyal groupings, that customer is automatically flagged for follow-up, which includes several steps:

1. 1.

   An alert goes to the sales or service rep responsible for following up with the customer.

2. 2.

   The rep reviews the customer information, including the survey results and service contract, and then contacts the customer to discuss the issue.

3. 3.

   The rep enters a “root cause” into the Smart Loyalty system, which categorizes them. Root causes are regularly analyzed to determine if an issue is unique or widespread.

4. 4.

   The issue is resolved and the rep enters that resolution into the system. The module also generates reports used to monitor the improvement plan.

“We can categorize and then analyze the issues our customers are experiencing,” Metzger says. “Was it specific to that customer? Or, is it something that represents a regional or global issue that we need to look at from a higher level?”

“Differentiate a satisfied customer from a loyal one”, Eric Krell, 07 Jun 2005 SearchCRM.com, http://searchcrm.techtarget.com/originalContent/0,289142,sid11_gci1093440,00.html

The profitability of current and future customers

Some reports suggest that in 2003, US automakers spent as much as $3,310 on each vehicle in the form of cash rebates and below-market loans. A recent study examined the US luxury passenger car market to determine how marketing efforts influence sales (the traditional metric) versus customer profitability (the customer metric). The study examined nine brands (Acura, Audi, BMW, Cadillac, Infiniti, Lexus, Lincoln, Mercedes-Benz, and Volvo) from January 1999 to June 2002.

Using rigorous time series models, this study arrived at some startling conclusions. It found that all brands’ discounting efforts either increased or maintained sales volume. Therefore, discounting may be considered an effective marketing tool by the traditional metric of sales. However, on average, across these nine brands, discounting rarely increased a brand’s customer equity (i.e., profitability of current and future customers) in the long run. The results were even more dramatic in some cases. For example, discounting had a positive effect on Lincoln’s short-term sales, but the brand’s discounting activities hurt its customer equity in the long run due to the negative long-term impact on its acquisition rate.

Managing Customers as Investments: The Strategic Value of Customers in the Long Run, Sunil Gupta, Donald Lehmann, (Wharton School Publishing, 2005)

Getting the most from market research

If you want to get the value from research, we suggest:…Opening the windows and getting out of the box. Make sure research includes “out-of-the-box” concepts, product/service attributes and benefits, and eventually analysis – stuff that’s different than anything currently used in a category. As Kevin Clancy’s mother Anne used to say, “If all you do is what you’ve done, all you’ll get is what you got.” And that’s not going to break your advertising, products and services, or brand through the clutter and away from competitors.

“Beware of Death Wish Research”, Copernicus Marketing Consulting, www.copernicusmarketing.com/discover/docs/essential.htm

Inoculating the brand against PR disasters

Poor Wendy’s. One crazy woman wrongly accuses the fast-food chain of an unthinkable crime (serving Chili containing a severed finger) and boom the brand has been dealt a major PR and marketing blow … .The worst thing about the Wendy’s situation is that if one thing been different I think the whole mess could have been handled quickly and effectively. What is that one thing? If Dave Thomas were still alive.

Dave Thomas was one of the best CEOs, PR spokespersons and advertising pitch people all rolled up into one. He was honest, sincere, straightforward, likeable, smart and well spoken. Had Dave been around, I imagine he would have hit the TV talk shows immediately and inoculated the brand against the PR destruction that one woman attempted to cause.

“Finger Food”, Laura Ries,http://ries.typepad.com/ries_blog/2005/05/finger_food.html

How industries evolve

UBIQUITY: In your book [How Industries Evolve HBSP, 2004] you talk about the “four trajectories” – tell us about them.

ANITA MCGAHAN: The four major trajectories of industry change describe the broad types of trajectories that tend to emerge. The simplest one is called “progressive change” is the most similar to what Clayton Christensen calls “sustaining technological change” in his book “The Innovator’s Dilemma.” It’s what I’ve just described as occurring in discount retailing when the system of activities in a business where the assets of the business are easy to understand and are not threatened, and so the way you make money and the way you innovate is by coming up with new insights about how to organize your system of activities effectively. So Home Depot, for example, did that in the home improvement business . …

UBIQUITY: And progressive change contrasts with what?

MCGAHAN: At the other end of the spectrum, we have radical change where all the assets and activities of the business are becoming irrelevant, because they’re being blown away by some new approach, as is occurring in land line telephony or in overnight letter delivery. … So with regards to a business undergoing radical change, the challenge is figuring out a way to make money in the short run and to devolve your commitment to the business over the long run.

UBIQUITY: Then so far we have progressive change versus radical change. What are the other two industry trajectories?

MCGAHAN: They’re ones that Clay Christensen does not focus on particularly. The first one is intermediating change and it reflects very serious threats to the way that you make money in a business. It occurs when your activities – the way you interact with your customers, for example – are threatened, but your underlying assets retain some relevance to your customers, and continue to carry the potential to create value. This is what’s occurring, for example, in the auctions business or in auto dealerships and news bureau services, where you have capabilities in assets that carry the potential to create value, but you can’t make money off of them in the same old way you have historically. And that technically constitutes an architectural change, in the sense that it’s more similar to disruptive change than it is to sustaining change, to use Christensen’s language. But it’s easy to underestimate the significance of the change.

UBIQUITY: What would a good example be?

MCGAHAN: There’s a great case study that’s been written from Harvard Business School on Sotheby’s, the auction house, that describes how Sotheby’s initially responded to the Internet opportunity as just a new channel, whereas fundamentally the Internet really blew up the whole auctions business. It’s easy to underestimate the significance of that kind of challenge under intermediating change.

UBIQUITY: Is underestimation of the change the main problem?

MCGAHAN: No, it’s equally quite possible to overestimate it, and that brings us to the fourth trajectory, which is creative change. It’s easy to overestimate the significance of creative change – the kind of change occurring in the pharmaceutical industry or filmmaking or oil exploration. In these businesses, it’s part of the course of doing business that you have to have these big development projects and throw Hail Mary passes and really develop new assets. But the downstream relationships with customers don’t turn over very frequently …

Anita McGahan on Industry EvolutionUbiquity, Volume 6, Issue 4, (February 9 – February 15, 2005),www.acm.org/ubiquity/interviews/v6i4_mcgahan.html

How to make your product exciting

Exciters are so overwhelmingly attractive to a particular customer segment that they not only distinguish you from competitors but also so delight the customer that they can constitute the basis for buying and using your offering … .Exciters can be, and often are, technically simple changes that add to the convenience or ease of using the product. Hewlett-Packard, for example, is currently receiving rave reviews for designing ink-jet printers that not only produce high-quality printed photographs (a nonnegotiable) but also use photo memory cards from many manufacturers directly as inputs, thereby eliminating the need to use a computer and greatly enhancing the ease of use of the printers.

MarketBusters: 40 Strategic Moves That Drive Exceptional Business GrowthRita Gunther McGrath and Ian C. Macmillan (HBSP, 2005)

Cost-cutting companies are getting customers to do their work for them

Want to know the secret weapon in America’s race for productivity and global competitiveness? … The much-touted self-service economy is actually a brilliantly concealed strategy to outsource American jobs. Instead of sending them overseas, though, we are sending them after hours to … the other 54 million of us … We join together each evening to complete the work our corporations can no longer afford to pay for … .

But as companies tout productivity increases and gleefully sell us on the pleasure and convenience of self-service, there’s a fly in the ointment. The 54 million “average Internet users” are already giving up 70 minutes each day with their families and about 25 minutes of sleep … As much as we may want to be good soldiers in America’s shadow workforce and help out our poor corporations, we are simply running out of time!

“America’s Productivity Secret? You”, Shoshana Zuboff, Fast Company, May 2005, www.fastcompany.com/magazine/94/szuboff.html

Craig HenryStrategy & Leadership’s intrepid media adventurer collected these sightings of strategic management in action around the world. Craig Henry is a marketing and strategy consultant based in Carlisle, Pennsylvania (Craighenry@aol.com). He welcomes your contributions and suggestions.