Author: edamdoctor

Evidence of the end of globalisation is building up.
According to Satyajit Das, growth in trade and cross border investment, which has underpinned prosperity and development, is being reversed in a major historical shift.


Customer trust may be the single most important asset any business can have, and two conditions must be met before a customer will trust you:

  1. Intent. The customer has to perceive that you have the right motive – that is, that you intend to act in the customer’s own interest, and that you won’t sell the customer’s interest short when that advances your own business goals.
  2. Competence. You must be capable of carrying out that good intent in a reasonably competent manner.

Both these conditions must be met for a customer to trust a business. Either one, by itself, will not be sufficient. It does a customer no good to deal with the best-meaning company in the world if that company doesn’t have enough competence to deliver on their good intentions. The problem is that customer trust is too often overlooked by busy executives, under pressure to show immediate financial results in their operations. It’s easy to overlook the central role of customer trust in the success of a business, because trustability is not something we normally measure and report to shareholders on any regular basis. If you want to begin to understand your own company’s attitude toward customer trust, these are the kinds of questions you should ask yourself:

  • Do you ever find the need to have one story for the company
    but another for the client?
  • Do you remind customers when their warranties or service
    agreements are almost up?
  • Would you rather sell to knowledgeable and informed customers,
    or to uninformed customers?
  • Do your salespeople make more money by selling products?
    Or by building relationships?

from Strategy Speaks: a Peppers and Rogers Blog

Journal of Management Excellence: Creating Value

 Creating value is the most important objective of every organisation, but it is also the hardest to define.
Oracle takes a look at the many different ways to create value.


  • Connect Enterprise Performance Management Processes to Drive Business Value (Ivo Bauermann)
  • Commentary: If You Are Ready, Now Is the Time! (John Kopcke)
  • The Need for Profitability Management (VJ Lal)
  • Commentary: The Complete Value of an Enterprise Performance Management System (Thomas Oestreich)
  • Centraal Boekhuis: Creating Value by Delivering Business Intelligence as a Service (Emiel van Bockel)
  • Commentary: The Overinstrumented Enterprise (James Taylor)
  • True Value Index: A Measure for Sustainable Business Success (Frank Buytendijk)
  • Industry Insights (Mark Conway)


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Journal of Management Excellence: Creating Value, Part II

Creating value is the most important objective of every organization, but it is also the hardest to define. In part two of this series, Oracle‘s newsletter takes another look at the many different ways to create value.


  • World-Class EPM Drives More Than Twice The Shareholder Return (Tom Willman)
  • Commentary: Creating Value By Doing More With Less (Thomas Oestreich)
  • The First Oracle Enterprise Performance Management Index Reveals Modest (Steve Walker)
  • Achievement of Management Excellence (Steve Walker)
  • Guest Commentary: Closing The Loop (Wayne Eckerson)
  • Uncertainty Management: The Source of All Management Value (Jim Franklin)
  • Managing Stakeholder Value With Analysis Chains (Tony Politano)
  • Building the Business Case For Return on Enterprise Performance Management Investment (Ron Dimon)
  • Industry Insights (Mark Conway)

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Jim Champy, coauthor, with Harry Greenspun, of Reengineering Health Care: A Manifesto for Radically Rethinking Health Care Delivery, introduces a lesson on the pitfalls of measurement from Faster, Cheaper, Better: The 9 Levers for Transforming How Work Gets Done, by Michael Hammer and Lisa W. Hershman.

The late Mike Hammer always delivered the unexpected in a strong voice with an intelligent edge that woke you up. When we coauthored Reengineering the Corporation, I discovered that no partner could have been more insightful, more probing into the behaviors of companies and their managers. Mike also had a great talent for metaphor. He said that inefficiencies were like fat marbled into a piece of meat, and that to get costs out you had to grind up the company and fry out the fat. That metaphor never made it into our first book. I told Mike that executives wouldn’t respond well to the notion of treating their companies so brutally.
But that didn’t stop Mike from being a radical thinker, always challenging the way things are done. He disdained the notion “if it ain’t broke, don’t fix it.” In this excerpt, from the book that Mike was working on before his untimely death at age 60 in 2008 (a work completed by his colleague Lisa W. Hershman), you will see that even things that look right can be wrong. Read it several times to grasp everything that’s here on how managers misuse metrics and measurement processes — sometimes unwittingly, sometimes purposely to deceive. It’s quintessential Hammer.

— Jim Champy

Excerpted from Chapter 2 of Faster, Cheaper, Better:
The 9 Levers for Transforming How Work Gets Done

In the sixth century Pope Gregory the Great formulated his famous list of the seven deadly sins — gluttony, greed, wrath, lust, sloth, envy, and pride. There are also seven sins of corporate measurement. Gregory’s list was meant to help an individual’s quest for salvation. Ours is more mundane: saving companies from fatal flaws in performance measurement…

Vanity. One of the most widespread failings in performance measurement is to use measures whose sole purpose is to make the organization, its people, and especially its managers look good. As one executive said, “Nobody wants a metric that they don’t score 95 on.” This is especially true because bonuses and other rewards are usually tied to performance measures. For instance, in distribution logistics, it is common for companies to measure themselves against the promise date — that is, whether they ship by the date that they promised the customer. A moment’s impartial reflection shows that this sets the bar absurdly low — a company need only promise delivery dates that it can easily make in order to look good on this metric. Even worse, companies often measure against what is called last promise date — the final date promised the customer, after changes may have been made to the delivery schedule. It takes real effort not to hit the last promise date. Moreover, achieving good results on the last promise date has no larger significance for company performance; it does not lead to customer satisfaction or any other desirable outcome. All you have to do is keep promising a later date. Even if you manage to hit that target 100 percent of the time, it’s likely that your customer wanted the product days, weeks, or even months ago, so don’t go patting yourself on the back.
A far better metric would be performance against customer request date. But achieving that goal would be far more difficult and might lead to managers not getting their bonuses. When executives at a semiconductor manufacturer proposed shifting from last promise date to customer request date, they encountered widespread resistance.
A metals refiner had been using yield — the percentage of raw material that was turned into saleable product — as a key performance metric, and everyone was very pleased that this figure was consistently over 95 percent. An executive new to the company made the observation that this figure glossed over the difference between high-grade and low-grade product. The refinery was supposed to produce only high-grade product, but poor processing sometimes led to low-grade product. The company then started to measure the yield of high-grade product and discovered that figure was closer to 70 percent. That was a much more meaningful representation of the refinery’s real performance. Unsurprisingly, that insight did not generate a lot of enthusiasm.
Provincialism. This sin permits organizational boundaries and concerns to dictate performance metrics. On the surface, it would seem natural and appropriate for a functional department to be measured on its own performance. That is, after all, what its managers can control. In reality, however, measuring so narrowly inevitably leads to suboptimization and conflict. One insurance company CEO has complained that he spends half his time adjudicating disputes between sales and underwriting. The sales department is measured on sales volume. Not surprisingly, the sales force tries to sell any willing customer. Underwriting, on the other hand, is measured on quality of risk. Naturally, the underwriters want to reject all but the best prospects. The two departments clash constantly. If the salespeople win, the company will be paying out more in claims. If the underwriters win, revenue will be less than it would otherwise have been. Higher costs or lower revenue? The top brass has to choose between two evils.
Narcissism. This is the unpardonable offense of measuring from one’s own point of view, rather than from the customer’s perspective. One retailer measured its distribution organization on how well the goods in the stores matched the stock-on-hand levels specified in the merchandising plan. They had a satisfying 98 percent availability when measured in this way. But when they thought to measure to what extent the goods in the stores matched what customers actually wanted to buy, rather than what the merchandising plan called for, they found the figure was only 86 percent. Another retailer measured goods in stock by whether the goods had arrived in the store; eventually the company realized that simply being in the store did the customer no good if the product wasn’t on the shelf — and on-shelf availability was considerably lower than in-store availability. These companies measured things that interested them, not their customers.
A consumer goods maker managed its distribution operations by focusing on the percentage of orders from retailers that it filled on time. Sounds sensible. By tracking, reporting, and relentlessly seeking to improve this number, the company got it up to 99.5 percent consistently. That’s the good news. The bad news is that when the company happened to take a look at the reality of retailers’ shelves — which is what consumers see — it found that many of its products were nonetheless out of stock as much as 14 percent of the time. Many companies measure the performance of order fulfillment in terms of whether the shipment left the dock on the date scheduled. This is of interest only to the company itself. Customers care about when they receive the shipment, not when it leaves the dock. Perhaps the most egregious instance of narcissism that we have encountered was at a major computer systems manufacturer. This company measured on-time shipping in terms of individual components; if it shipped, say, nine of ten components of a system on time, the company claimed a 90 percent score. The customer, of course, would give the company a 0 percent rating, since without all ten components the system is useless.
Laziness. This is a trap into which even those who avoid narcissism often fall: assuming you know what is important to measure without giving it adequate thought or effort. A semiconductor maker measured many aspects of its order processing operation, but not the critical (to customers) issue of how long it took from the time the customer gave the order to the time the company confirmed it and provided a delivery date — simply because the company never thought to ask customers what was really important to them.
An electric power utility assumed that customers cared about speed of installation and so measured and tried to improve it, only to discover later that customers cared more about the reliability of the installation date they were given than speed of installation. Companies often jump to conclusions, measure what is easy to measure, or measure what they have always measured, rather than go through the effort of ascertaining what is truly important to measure.
Pettiness. Too many companies measure only a small component of what matters. Executives at a telecommunications systems vendor rejected a proposal to have customers perform their own repairs because that would require putting spare parts at customer premises, which would drive up spare parts inventory levels, a key metric for the company. It lost sight of the fact that the broader and more meaningful metric was total cost of maintenance, which is the sum of labor costs and inventory costs. The increase in parts inventory would be more than offset by a reduction in labor costs produced by the new approach.
Inanity. Metrics drive behavior, but too many companies implement metrics without giving any thought to the consequences of these metrics for human behavior and consequently for enterprise performance. People in an organization will seek to improve a metric they are told is important, especially if they are compensated on it and even if doing so is counterproductive. For instance, a regional fast-food chain specializing in chicken decided to improve financial performance by reducing waste, which was defined as chicken that had been cooked but unsold at the end of the day and then discarded. Restaurant managers throughout the chain obediently responded by driving out waste. They told their staff not to cook any chicken until it had been ordered. Thus did a fast-food chain become a slow-food chain. Yes, waste declined, but sales declined even more. Managers might keep in mind this variant of an old adage: “Be careful what you measure — you may get more of it than you want.”
Frivolity. Not taking measurement seriously is perhaps the most grievous sin of them all. The symptoms are easy to see: arguing about metrics instead of taking them to heart, finding excuses for poor performance instead of tracking root causes, and looking for ways to blame others rather than shouldering the responsibility for improving performance. If the other errors are sins of the intellect, this is a sin of character and corporate culture. An oft-heard phrase at one financial services company is “The decision has been made; let the debates begin.” When self-interest, hierarchical position, and voice volume carry more weight than objective data, even the most carefully designed and implemented metrics are of little value.
As with the seven deadly sins, the sins of measurement often overlap and are related; a single metric may be evidence of several sins. A company that commits these sins will find itself unable to use its metrics to drive improvements in operating performance, which is the key to improved enterprise performance. Bad measurement systems are at best useless and at worst positively harmful. And don’t be fooled by the old adage “That which is measured improves.” If you are measuring the wrong thing, making it better will do little or no good. Remarkably, these seven deadly sins are not committed only by poorly managed or unsuccessful organizations; they are rampant even in well-managed companies in the forefront of their industries. Such companies manage to succeed despite their measurement systems, rather than because of them.

— Michael Hammer and Lisa W. Hershman

Excerpted from Faster, Cheaper, Better by Michael Hammer and Lisa W. Hershman © 2010 Hammer and Company. Reprinted by permission of Crown Business, an imprint of the Crown Publishing Group.

In his book Strategic Innovation, professor Allan Afuah provides us with a comprehensive strategic framework for assessing the profitability potential of a strategy or product.- the value of “new game” strategies –  in the face of rapid technological change and increasing globalization.
It’s not enough to create value in new and different ways, he says. Nor is it sufficient to merely capture value today. To compete and win, firms may need to rewrite the rules of the game altogether, overturning existing ways of both creating and appropriating value.
The most important thing, he stresses, is that a firm pursue the right new game strategy… (more…)

Do you want to increase your productivity in such a way that you get more done in less time and get more done with less work?

So often, when we think about productivity, we think about time management tricks, ways to work faster, and how to get motivated. It’s all about more, more, and more. Which works in the short run. Those temporal things help us work faster and get more done in the short run.

But in the long run, we can burn out. We do too much, too fast, and our bodies can’t keep up. Or our minds get overworked and that can take 6 months to 2 years or more to reverse.

So what if we were to use another route to get the same – or better – productivity, rather than using these tricks and faster, faster, faster techniques?

I believe the answer lies in our underlying core motivation, our internal desire and drive, and the real-world implementation of the most important things. And one way to achieve these internal states of mind that lead to real productivity without the drawbacks of working faster is to influence our own psychological state.

So today I’ll share with you 12 psychological tricks that can help you influence your own psychological state in such a way that you reframe your mindset to create a mental environment that safely results in increased productivity.
1. Recognize that most of what you do doesn’t matter.

If you take a look at what you have done in the last 40 hours of work, you’ll likely see that about 30 of those hours were spent on things that were either unplanned, unnecessary, or even downright unproductive. And it’s not just the last 40 hours of your work-life, it’s a week-in week-out problem.

If you don’t believe that that is the case with you personally, take the time to do a 15-minute interval diary for the next 40 hours of work. Write down what you work on for each 15 minute period. Tally up all the periods at the end of the 40 hours. You will likely be amazed at the unproductive tasks in which you are engaging, even if you believe you are 80%+ productive right now.

You will likely see that becoming more productive might not be so much a matter of adding something to your day, but instead first eliminating everything that doesn’t belong in your day. Once that happens, and you have pared a 40 hour week down to 10 hours, then it makes it easy to add a little more in. For example, adding 10 hours of truly productive work to your schedule after paring your 40 hour week down to 10 hours, means you get two times as much done in half the time, with half the stress, and with a reduced risk of burnout and other negative effects of trying to do more and more and more.
2. Do what you know you need to do as soon as possible

We tend to spend much of our mental energy putting things off. But if instead you were to prioritize things that need to be done, and do them as quickly as possible, you may be amazed at what happens to your productivity. You see, when you are using negative energy on worrying about doing something you don’t want to do, that energy can’t be used on being creative or productive.

Now there is one caveat to this: these “need to do” things should be done AFTER your MIT – your most important task of the day. You see, your most important task, when done first, tends to definitely get done each day. The first thing you do tends to get done!

So your productivity schedule for the day is this:

1) Most important task (MIT)

2) Most needed to be done task

3) Everything else, bounded by a limited time frame (for example, 2 hours per day on these “everything else” tasks)
3. Postpone your rewards

Give yourself a reward for doing something great, and give it immediately after the something great occurs. This programs your brain to believe that you will reward it for tasks well done, on time, and on priority. When you do this consistently, you’ll likely find that you are more motivated to do your MIT each day, and to do the most needed tasks. You may even find it’s easier to just not do the less important tasks – and they may just disappear!
4. Make sure that you have a clear conscience

If your mind is dragging with negative thoughts, worry about what you need to do, or even shame or guilt over things you are doing wrong, you simply can’t be as productive. So get rid of those negative thoughts, fix the things that lead to a negative conscience, and get your mind clear!
5. Congratulate yourself for what you accomplish.

Your mind will subconsciously work harder when it believes that it will be appreciated. But the only way to train your mind to believe it will be appreciated is to appreciate it. Do this once a day for 30 days and you may be amazed at how much clearer your thinking is, and if your thinking is clearer, your productivity should increase!
6. Focus on what you can do

This is a huge key to productivity. Simply focus on what you are good at, and do the things you are good at. Prioritize them. You may find that the things you aren’t good at simply resolve themselves, or you may find that when you have done everything that you are good at, there is only a small part of the project left, and the motivation of being “nearly finished” will drive you to finish faster. When you focus instead on what you are not good at, if may be a small part of the project, but the act of focusing on it makes you feel like it’s a huge part of the task, and demotivates you to get the task done.

When you get the bulk of the task done before focusing on your weaknesses, it simply becomes easier and faster to complete it.
7. Concentrate on how to help those who will use your product or service

When you focus on how you are able to help others through what you are doing, it gives your mind a much-needed reason for finishing quickly. Our minds don’t like to work on things that have no purpose, and if what you are doing is helping someone else, then it gives your project purpose, which leads your mind to get the job done.

(Note how so much of what I am discussing is this idea of giving your mind the ideal environment to be productive, instead of focusing on productivity. When you give your mind the ideal environment to be productive, it will do it for you, instead of you having to focus so much on productivity itself to be productive.)
8. Strive for balance

This goes back to the idea of doing too much of the wrong things, and this limits your productivity. When you, instead, strive for balance in your day, doing more of the right things, and getting rid of the 30 hours a week of non-productive work, you become more productive with less effort.
9. Stay connected with people

Sometimes when you work totally alone, your productivity goes down, your creativity goes down, and your effectiveness goes down. As humans, we are social, and if we take that away, you may find you can’t focus as well. So you may need to increase your social time during work, and find that the rest of your time is more productive.

The flip side of this is that if you are spending too much time with other people, your productivity may go down. So use good judgement. Look around and see what needs to change.
10. Change your environment

When you change your environment, you release your mind to be more creative, which often leads to increased productivity. Here’s why: when you change your environment, you release your brain to be more curious (looking around at things that are not the same as before) and when you release your mind to be creative about your surroundings, you release your mind to be more creative about what you are working on. And when you are more creative about what you are working on, you tend to get better results with less work – hence increased productivity!
11. Avoid perfection

Ever been 90% done with a project that has taken 10 hours already, and then it takes 20 more hours to do the last 10%? Is that last 10 % really worth it? Or could you sand the edges of the project, do some last minute dusting, and have a finished project in just one more hour instead of 20 more hours?

You have to use judgement. If you are a heart surgeon or you rebuild engines, you probably have to go 100%. But if you are writing an article, writing a book, teaching a class, or doing many, many other things, you may be 99% at 90% completed. So just do the last 1%, make 91% your very best, and leave perfection alone and you may find your productivity soars!
12. Keep track of your time

When you keep track of your time, you become intimately aware of the time you are losing through doing unnecessary things. One of the most effective ways to get more productive is to simply track your time. Know what you are doing each 15 minutes, and over time, that awareness will yield additional results.
Tie all this together

What is the #1 tip on this list that resonates with you? What could get you the most increase in results, the fastest? Do that tip first. Next week do the next one down in line. Incorporate 6 of these tips over the next 6 weeks, and you may see your productivity – meaning what you get done each day – double, without any increase in effort, and possibly even a reduction in effort!

by Sean Mize

Kaspars Parfenovics of Latvia, who reads the weekly magazine Lietiska Diena, sent in the questions that follow about business, motivation and project management. Enjoy, and please keep those e-mails coming!

There are just too many messages for me to respond to all of them personally, but I will answer a few questions in this space every month.

Q: I have read that you believe in trusting people to perform their duties at a high level and giving them a great degree of autonomy, and that those beliefs have been key to both Virgin’s creation of new businesses and its tremendous overall success. I know from my own experience that the average employee works less efficiently for someone else’s company than when in business for himself. How do you manage to achieve the opposite?
A: One of the key skills I learned as a young businessman was the power of delegation. That was prompted me to bring in strong managers to build the Virgin companies, which allowed me to focus on our latest ideas and projects, and on finding the next businesses to start up. Along with my ability to listen to other people and to realize when their suggestions are better than my own, this has helped me to attract and retain the excellent people on our team.
Our people are creative and innovative and, above all, they have a great sense of fun. If I set them challenges, keep encouraging them and create a dynamic environment, I find that people will always work hard.
Q: Do you lay out a detailed strategy for accomplishing every one of your aims, or do you mainly follow your intuition and react according to the situation?
A: I research new ideas very thoroughly, asking a lot of people about their experiences and for their thoughts. But on many occasions I have followed my intuition – you can’t make decisions based on numbers and reports alone.
It’s important to have the courage to follow through on a project if you truly believe it’s worth pursuing. We all have an intuitive sense of what’s best – follow it! This approach has made a great difference in my life and has never let me down.
Q: Virgin operates in various sectors. How do you manage to focus your attention solely on the project you’re working on? Do you start a new project only when the previous one is launched or you develop several ideas simultaneously?
A: At Virgin, we are always working on several different projects simultaneously, all in various stages of development, and with employees based in many different countries. This is what keeps the brand fresh and exciting. We have teams in each sector that focus on the ventures in their area; this allows us to work on a number of new projects at the same time. In the last few months we have invested in a U.K. health business, launched Virgin Mobile in Qatar and Virgin Bank in the U.K.
My senior management team, led by CEO Stephen Murphy, keeps everything moving along. My role allows me to dive in and out of situations, ensuring we keep challenging the orthodoxy in every sector we’re competing in.
Q: Do you ever lose faith in a particular project? Do you ever have doubts?
A: No, not at all. I like to remain positive. A huge part of building a business is about taking risks that may or may not work out. You need to be resilient and confident – but not overconfident.
I learned two things about new ventures early on. First, limit the downside and control the risks. For example, when I started our airline, I made sure I could give our plane back to the manufacturer if things did not work out. Second, it’s important to change tack quickly if things do not work out. Never be too proud to say you got it wrong and move on to the next idea.
Q: Do you believe that every person has a task to fulfill in life? If yes, have you already fulfilled your own?
A: I am not sure about everyone’s having a mission in life, but I do feel you will do better if you follow your passion and work at something you really enjoy.
Over the last 40 years, I have been able to focus on building Virgin. It has been a great journey and I have made some wonderful friends. I definitely don’t feel I have accomplished everything I want to. I’m spending a lot of time on issues such as climate change, peace and health through my foundation, Virgin Unite. This has given me a great sense of purpose.
Inspiration often precedes innovation, a topic I love. This is my third installment on the subject.  The first is titled, “2010: The Year of Spontaneous Innovation” and the second is, “The Art of Bold Innovation.”   Innovation is such a personal, creative endeavor, but the influence of others plays a big role in helping us succeed.  Here I’ll share insights from some of those who’ve inspired me when it comes to developing innovative practices in my business. Perhaps they will have the same effect on you.
At the end of each passage, there’s a lesson learned along with a big question to get a conversation going.
Walt Disney
“My father was not a complicated man.” ~ Diane Disney Miller (daughter of Walt Disney)
If there is one way to foster innovation in your business, it is to be innovative yourself and to be straightforward.  In “
Walt Disney: An American Original” by Bob Thomas, Diane Disney Miller says this about her dad:  “I think Dad was an easy read.  He didn’t want to be complicated.  He was always straightforward, never devious.  Not unless he could be devious in a constructive way.”  Diane continues,“We always ate dinner late, because Dad worked late at the studio.  He would tell about what he was doing, but he also wanted to know about our lives, too.  And he would listen.”
Did Walt go through tough times with his business?  You bet.  Yet he did not let financial woes get in the way of fostering innovation.  “I’ve always been bored with just making money,” Walt once said.  “I’ve wanted to do things, I wanted to build things.  Get something going.  People look at me in different ways.  Some of them say, ‘The guy has no regard for money.’  That is not true.  I have had regard for money.  But I’m not like some people who worship money as something you’ve got to have piled up in a big pile somewhere.  I’ve only thought of money in one way, and that is to do something with it, you see?  I don’t think there is a thing that I own that I will ever get the benefit of, except through doing things with it.” 
Lesson:  To create a culture of innovation, be straightforward.  Listen.  Simplify.  Do things.  Build things.  Get something going.
Question:  Do you think innovation has a heart?  Where some go for the intellect, Walt seemed to know how to tap into people’s emotions.  What do you think?  How do you feel about innovating from the heart?
Samuel J. Palmisano
As Samuel J. Palmisano, Chairman and CEO of IBM Corporation says, “Few words are more ubiquitous in business or society today than ‘innovation.’  It’s rare to walk through an airport, watch an hour of television or pick up a major publication without running across it.  It’s on the minds of a growing number of CEOs, government officials, and academic and community leaders as they look for ways to survive and thrive in an increasingly complex and connected world,” he writes in “Global Innovation Outlook 2.0” (International Business Machines Corporation 2006).
“We use the word at IBM, too – but that’s nothing new.  Innovation has been central to our company for nearly a century.  It’s the primary reason our clients do business with us, and the simplest and truest statement of IBM’s purpose in the world.  In fact, three years ago, IBM employees affirmed ‘innovation that matters – for our company and the world’ as one of our three core values.”
According to the GIO, innovation is no longer invention in search of purpose, no longer the domain of a solitary genius looking to take the world by storm.  Instead, innovation is increasingly global, multidisciplinary, collaborative and open.
Lesson:  To create a culture of innovation, connect globally; diversify your talent and expertise; work together in new and integrated ways.
Question:  How open are you with intellectual property and how often are you collaborating with your constituency base to create more value for your clients?  If you could see innovation take place as a result, would you be inclined to share your interests, expertise and world view with others more often?
Steve Jobs
What would an article on innovation be without the mention of Steve Jobs?  Worthless.  That’s because Steve is the King of Innovation as we know it, and we have witnessed the countless ways he has transformed Apple into an innovative, life-changing enterprise.  One of the most humbling and inspiring talks that I discovered is Steve’s commencement speech at Stanford University in 2005. Considering all the obstacles he’s run up against and overcome, his mind stays strong and is nothing short of brilliant. This statement sums up what I believe empowers him to be innovative each and every day of his life:
“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice.  And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”
He closes with, “Stay hungry.  Stay foolish.”
Lesson:  To create a culture of innovation, don’t live someone else’s life.  March to your own drum and beat it with all your might.
Question:  Are you following your heart and intuition on matters of innovation?  If so, how?  If not, why?
Technology enables broader innovative business model possibilities — allowing us to enter other markets and secure new capabilities, for example — and causes us to start thinking about things we couldn’t do before that we can now.  That’s innovation in its purest form.
About the Author:  Global business expert Laurel Delaney is the founder of GlobeTrade (a Global TradeSource, Ltd. company).  She also is the creator of “Borderbuster,” an e-newsletter, and The Global Small Business Blog, all highly regarded for their global small business coverage.  You can reach Laurel at or follow her on Twitter@LaurelDelaney.

A right to win: Undisputed competitive advantage

Business strategy is at an evolutionary crossroads. It’s time to resolve the long-standing tension between the inherent identity of your organization and the fleeting nature of your competitive advantage.

It’s 8 a.m. in the executive conference room of a large global packaged-foods manufacturer (a real company, its name withheld to preserve confidentiality). For the past two months, a team made up of 15 senior people has been exploring options for growth, winnowing them down to three basic strategies. Each is now summed up in a crisp 20-minute presentation.
The first option focuses on innovation. The company would rapidly develop and launch many new types of snacks and foods, packaged in new and interesting ways, offering leading-edge nutrition and convenience.
Under the second option, the company would get closer to its customers, producing the food people ask for. It could incorporate ideas gathered online into its offerings and provide busy working families with customizable, convenient, and well-balanced meals.
The third option would involve transforming the dynamics of the relevant food sectors by competing more aggressively. The company would become a category leader by investing in new process technology, rightsizing operations to push costs down, and completing key acquisitions.
After the screen goes blank, the CEO leans forward and asks a simple question: “Which strategy would give us the greatest right to win?” His tone, calm and direct, makes everyone sit up a little straighter. And they probably should, for this is the core question underlying every business strategy, although it isn’t always phrased that way.
A right to win is the ability to engage in any competitive market with a better-than-even chance of success — not just in the short term, but consistently….

Imagine a coach, observing a player entering a sports competition, saying, “That kid has the right to win out there.” Or a teacher, watching a student about to take a test, saying, “That student deserves to excel.” What they are really saying is, “That contestant is the right player, in the right type of contest, with the precise capabilities needed to meet this particular challenge.” Of course, the contestant will lose at times, but over the years, a consistent innate advantage will establish itself, giving this contestant the ability to pull off seeming miracles while making it all look easy. This essential advantage is particularly rare in business — a more free-form and unpredictable game than sports or academia. But it is increasingly important at a time of unprecedented competitiveness.
The phrase right to win may strike some observers as arrogant. After all, no company has this kind of assurance handed to it. But that’s precisely the point. The right to win cannot be taken for granted. It must be earned. You earn it by making a series of pragmatic choices that align your most distinctive and important capabilities with the way you approach your chosen customers, and with the discipline to offer only the products and services that fit. At Booz & Company, where we call this approach a capabilities-driven strategy, research and experience have led us to conclude that only high levels of coherence — among market strategy, capabilities systems, and a company’s portfolio of offerings — can give any firm the right to win.
All corporate strategies are at heart theories about the right to win. That is why, for those trying to understand the nature of business success, the history of strategy is both helpful and fascinating. One valuable recent source is The Lords of Strategy: The Secret Intellectual History of the New Corporate World (Harvard Business Press, 2010), in which former Fortune managing editor Walter Kiechel recounts the prevailing theories of business strategy over the past 50 years, and the stories of the people who developed them. Drawing on Kiechel’s history and those of others, such as Henry Mintzberg, Bruce Ahlstrand, and Joseph Lampel in Strategy Safari: The Complete Guide through the Wilds of Strategic Management (2nd ed., FT Prentice Hall, 2009), we have created a map of this conceptual landscape, organized on the basic principles underlying theories of the right to win. (See Exhibit 1.) The map depicts four broad schools of strategy; each represents a hypothesis about the nature of long-term success in a competitive world.

The Basic Tension in Strategy

Business strategy, as we know it today, has a relatively short history. The word strategy was first applied in print to mainstream business in 1962, with the publication of Alfred Chandler’s book Strategy and Structure: Chapters in the History of the Industrial Enterprise (MIT Press). Since then, at least a dozen major trends and ideas have appeared under the rubric of business strategy, often in great conflict with one another, often drawing companies in very different directions. Despite their differences, all four schools of strategy represent attempts to resolve the same basic underlying problem: the tension between two conflicting business realities.
The first reality is that advantage is transient. Even the most formidable market position can be vulnerable to technological disruptions, upstart competition, shifting capital flows, new regulatory regimes, political changes, and other facets of a chaotic and unpredictable business environment. As William P. Barnett showed in The Red Queen among Organizations: How Competitiveness Evolves (Princeton University Press, 2008), this turbulence can never level off into stability; as companies copy and outdo one another’s proficiencies, the game of business continually becomes more challenging. Rapid economic growth in emerging markets has made advantage even more transient, bringing billions of people into the global economy, along with hundreds of energetic new business competitors.
One might assume that the answer is to become completely resilient, morphing to match the changing demands of the market. But companies can’t, because of the second reality: Corporate identity is slow to change. The innate qualities of an organization that distinguish it from all others — its operational processes, culture, relationships, and distinctive capabilities — are built up gradually, decision by decision, and continually reinforced through organizational practices and conversations. Very few companies have thoroughly reinvented themselves, and those that have managed it have typically had to force many people out, including top executives, and to replace them with new recruits chosen for a different set of attitudes and skills. Even when leaders recognize the need for change or know that the company’s survival is at stake, this identity is difficult to shift; if no deliberate effort is made to refresh it, it can stagnate to the point where it erodes advantage from within. As writers such as Jim Collins, Clayton Christensen, and Donald Sull have noted, it’s all too easy for established companies to fall prey to complacency and hubris (Collins), entrenched customer relationships and disruptive technologies (Christensen), or inertia (Sull).
Yet although the “stickiness” of a company’s identity is typically regarded as a weakness, it’s also a great source of strength. No company can survive long, let alone distinguish itself, without a rich body of capabilities and a resonant corporate culture. Indeed, the fundamental enabler of strategy — the source of competitive advantage — is a distinctive, coherent corporate identity. This is the quality that attracts customers, investors, employees, and suppliers. It is grounded in internal capabilities (that is, the things your company can do with distinction) and in market realities (that is, the games in which your company chooses to play).
The yin and yang of strategic fad and fashion — the movement of business leadership from one trend to another over the past 50 years — has often led companies to make incoherent and ineffective moves. The answer is not to keep adopting new theories in hopes of finding the right answer, but to develop your own capabilities-driven strategy: your own theory of coherence for your business. How do you capture value, now and in the future, for your chosen customers? What are your most important capabilities, and how do they fit together? How do you align them with your portfolio of products and services? The more clearly and strongly you make these choices, the better your chances of creating a corporate identity that gives you the right to win in the long run. Not surprisingly, each of the four basic schools of thought in Exhibit 1 (position, execution, adaptation, and concentration) has something significant to offer business strategists, so long as they are adopted in an appropriately balanced way.

The Value of Position

According to Walter Kiechel, strategy became relatively formal in the 1960s for two reasons. The first was an increasing amount of available data on business costs, prices, and operational performance. The second reason was uncertainty, and the anxiety that went with it. The economic stability of the early 1960s dissolved into the turbulence of the 1970s and ’80s, striking different components of society with different degrees of prosperity and calamity. No company could ever be sure it would remain on top (even in established industries such as steel and automobiles), global economies were highly interconnected (although it wasn’t always quite clear how they might interact), and corporate decision making was increasingly constrained by fiercer capital markets and upstart technologies.
When intuitively obvious decisions fail, people yearn for better guidance. Thus, starting in the mid-1960s, the idea of strategic planning, with echoes of Napoleon, Carl von Clausewitz, and Sun Tzu, evolved into an irresistible business management fashion. In its pure form — as delineated by Kenneth Andrews and Igor Ansoff, the premier authorities on business strategy at that time — a strategy was an overarching plan for growth, usually written up in a formal document and endorsed by the CEO, aimed at creating an unassailable position for the company in the marketplace.
These early efforts by the position (or positioning) school assumed that the right to win would be held by companies that comprehensively analyzed all critical factors: external markets, internal capabilities, and the needs of society. Although Andrews said the goal should be a simple “informing idea” about the direction of the business, it inevitably became a complex checklist of strengths, weaknesses, opportunities, and threats (the origin of the SWOT analysis still prevalent today). This was long before the invention of the spreadsheet program, so big companies hired armies of planning staffers to compile all this data into elaborate documents, which were debated in annual strategy sessions that became exercises in bureaucratic complexity. Only gradually did it become clear that the plans did not correlate with real-world performance or issues.
A breakthrough in the position school occurred in 1966 when Bruce Henderson, founder of the Boston Consulting Group (BCG), began to market services based on what he called the “experience curve.” Analyzing cost and price data across companies and industries, Henderson showed that as experience with operations led to greater proficiency, the capacity to produce increased and costs dropped. The phenomenon was hardly noticeable month by month, but every few years, capacity doubled and costs dropped 10 to 30 percent, so reliably that many companies could plan their investment cycles and competitive marketing accordingly. For example, Texas Instruments Inc. (TI) cut the prices of its semiconductor chips and electronic calculators every few months. Sales rose as customers switched to TI from competitors, and production costs then fell further, which allowed TI to drop prices even more. Even the billing procedures and advertising budgets became more efficient as those departments managed greater volumes.
To Henderson, the right to win went to companies that made the best use of the experience curve by holding the leading position in market share for their sectors. This meant emphasizing the value of some divisions over others, basing those judgments on the dynamics of each business’s customer base (Henderson was an early proponent of market segmentation) and on its competitive position. The famous growth-share matrix divided a company’s businesses into “stars” (high growth and market share), “dogs” (low growth and share), “question marks” (high growth, low share) and “cash cows” (low growth, high share), thus providing a clear rationale for reallocating investment. For instance, it was worth borrowing money to keep a star shining, because a star might end up dominating its market niche.
The experience curve and growth-share matrix rapidly became popular because they worked powerfully well — at first. But in practice, these tools had a serious flaw: As retroactive analyses of a company’s past success, they made it irresistible to continue that same behavior into the future, even when circumstances changed (for example, when competitors began to apply the same approach). This led many companies into counterproductive strategies. Some, including Texas Instruments, got caught up in ruthless price wars that contributed to the commoditization of their own products.
More generally, many business leaders became disenchanted with the idea of formal strategic planning. It was expensive, and it didn’t necessarily make companies profitable. For example, Ford and General Motors experienced losses of more than US$500 million in 1979 and 1980 — their first such losses in decades. In the aftermath of these and other sharp reversals, mainstream business leaders began to question the wisdom of the position school, and its claim on the right to win.

Execution Strikes Back

Those most annoyed by the position school tended to be in production and operations. No wonder, then, that the first great contrary reaction came from operations; specifically, from the Harvard Business School’s (HBS) operations management department, which had been gradually losing status to finance. Two members of the faculty found themselves in Vevey, Switzerland, during the summer of 1979: William Abernathy, the HBS expert on auto manufacturing, and Robert Hayes, known for his studies of assembly lines. Researching the differences between European and U.S. multinationals, Hayes visited a small machine tool manufacturer in southern Germany. Sophisticated Americans barely understood computer-aided manufacturing software, but this firm of 40 people was using it on a daily basis, and producing custom-made tools. Other plants in Germany, Switzerland, France, and even eastern Europe were using machine tools in ways that the Americans couldn’t match.
At a seminar that summer, a European businessman asked Hayes why American productivity had declined so much during the past 10 years. Hayes hauled out the standard answers: organized labor, government regulations, the oil crisis, and the attitudes of the younger generation (which, at the time, meant the baby boomers). The attendees looked at him with polite amusement. “We have all those factors here,” one said, “and our productivity is increasing.”
Confused and shaken, Hayes began taking regular hikes and having long conversations with Abernathy, who had just arrived in Vevey and saw similar stagnation in the U.S. auto industry. Only one explanation made sense to them: The reliance on market share and financial growth as strategic objectives was crippling U.S. industry. For example, many companies had cut back any initiative that didn’t seem to guarantee rapid returns, and the entire U.S. economy was suffering as a result.
Abernathy and Hayes wrote up this conclusion in an article for the Harvard Business Review (HBR) called “Managing Our Way to Economic Decline,” published in July/August 1980. It is still one of the magazine’s most requested reprints, and one of the most controversial articles in its history. They had introduced another school of strategic thought, based on the idea that the right to win came from execution and operational excellence: the development and deployment of better practices, processes, technologies, and products.
The execution message was bolstered by companies such as General Electric and Motorola, which provided influential examples of operations-oriented strategies with their reliance on executive training and such practices as Six Sigma.
Operational excellence was also a basic tenet of the quality movement — the continuous improvement practices that were developed at the Toyota Motor Corporation and a few other Japanese companies in the 1950s and ’60s and are now generally known as lean management. Of the many people associated with the quality movement, including Toyota’s influential chief scientist Taiichi Ohno, the most significant for corporate strategy was W. Edwards Deming. Deming was an American statistician born in 1900. He began consulting regularly in Japan just after World War II, helping Japanese companies develop their production systems. Ignored in the West at first, he became prominent in the United States after 1980, and actively taught and consulted with many of the world’s leading companies until his death in 1993. Deming saw his methods as critical for escaping economic malaise (his most prominent book was titled Out of the Crisis [MIT Press, 1986]). In his view, the right to win was held by companies that honed and refined their day-to-day processes and practices, eliminating waste, training people throughout the company to use statistical methods, and cultivating the intrinsic “joy in work” that people feel when they are truly engaged in their jobs.
Although the execution school would be frequently challenged, it continued to gain influence through the early 1990s — especially after it was adapted by Michael Hammer, an MIT computer science professor, into an approach called “reengineering.” According to Hammer, the right to win went to companies that looked freshly at all their processes, as if redesigning them from scratch. Unfortunately, many companies used reengineering as a launching pad for across-the-board layoffs that left them weaker, and operational excellence couldn’t compete with the exuberance of the high-tech bubble. By the end of the 1990s, execution-based strategy had been largely relegated to the production side of the business.
The idea of building value through managerial methods returned to strategic relevance after the dot-com bubble burst. Its return was symbolized by the business bestseller Execution: The Discipline of Getting Things Done, by strategy expert Ram Charan and then Honeywell CEO Larry Bossidy, a well-known GE alumnus (with Charles Burck; Crown Business, 2002). Many leaders now understood, through experience, both the value of improving execution and its challenges. It generally required major changes in managerial and employee behavior. As BCG strategist George Stalk complained to Walter Kiechel, “That was a lot more difficult than just ‘buying a concept off a shelf.’”

Michael Porter’s Advantage

The other major limit of the execution school was best articulated by HBS professor Michael Porter — probably the most influential thinker on corporate strategy in the institution’s history, and a source of new vitality for the position school. In his early publications, from the late 1970s to the early 1990s, Porter brought positioning to a level of unprecedented sophistication. He recast the turbulence of a company’s business environment into a “value chain” and “five forces” (competitors, customers, suppliers, aspiring entrants, and substitute offerings): two frameworks that could be used to analyze the value potential and competitive intensity of any business.
Then, in his flagship HBR article called “What Is Strategy?” (November/December 1996) Porter pointed out that operational excellence could guarantee competitive advantage for only a limited time. After that, it too would lead to diminishing returns as other companies caught up. (Indeed, most observers believe that Ford, GM, and other Western automobile manufacturers have done exactly that between 1980 and 2010; it may have taken them 30 years, but the quality and resale value of their motor vehicles is, as a whole, rising to meet that of Toyota and Honda.)
To Porter, execution-oriented ideas like reengineering, benchmarking, outsourcing, and change management all had the same strategic limit. They all led to better operations, but ignored the question of which businesses to operate in the first place. Porter argued for picking industries or markets where either overall conditions were favorable — where most companies were relatively weak, suppliers had relatively little clout, and aspiring entrants were few — or where a company could differentiate itself. In “What Is Strategy?” Porter used Southwest Airlines Company as an example of differentiation in a relatively unattractive industry. Southwest’s market power came from the choice not to follow the spoke-and-hub routing model of other airlines, but to offer “a unique and valuable strategic position” — flying only direct routes, with one type of aircraft, using automated ticketing and limited services (for example, no assigned seats). These and other strategic choices allowed the airline to operate a different type of flying business, one that could offer attractive prices and convenience even when compared with travel by bus, train, or car. Sure, operational excellence was involved: Southwest had perfected fast turnarounds and friendly customer service. But the core strategic decision was the pursuit of simplicity through a clear market strategy.
The position school became a major driver of the resurgence of corporate competitiveness in the West during the 1980s and ’90s. W. Chan Kim and Renée Mauborgne took the position argument to its extreme with Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Harvard Business School Press, 2005). Big companies, they advised, should look for new upstart positions themselves, in places where there were no competitors already, breaking out of conventional ways of looking at their industry. The popularity of that approach demonstrated the pressure that business leaders felt to break free of established practices and find a niche that they could dominate with first-mover advantage.
The limits of the position school became evident in the 1990s and 2000s. Although Michael Porter took pains to explain that industry structures can change and can be shaped by the actions of leading companies, he was interpreted as saying that some industries are innately good and others are irredeemably bad. To many corporate leaders in tough businesses, or in highly regulated industries like electric power generation, there was no real advantage to developing distinctive capabilities or facility with execution. Some companies tried to escape by entering new businesses where they had no distinctive capabilities, “blue oceans” where they didn’t know how to swim. These efforts generally failed. And as the 2000s unfolded, companies with enviable market positions, such as Microsoft, also saw their advantage fade when new competitors, such as Google, emerged. This didn’t disprove Porter’s hypothesis, but it gave others an opening to criticize his thinking.

Adaptation and Experimentation

Starting in the 1990s, another group of strategy thinkers provided an alternative to the position and execution schools. This was the idea of strategy as perpetual adaptation, best represented by Henry Mintzberg, professor of management studies at McGill University. In his history The Rise and Fall of Strategic Planning: Reconceiving Roles for Planning, Plans, Planners (Free Press, 1994), Mintzberg dismissed the position school (which he called the design school) as formulaic. He acknowledged that execution was important, and much of his work was dedicated to analyzing what managers did in practice, but, like Porter, he felt execution was insufficient for success. His strategic approach centered on finding a more creative, experimental approach to executive decision making.
Thus, instead of analysis and planning, executives in the adaptation school (or, as Mintzberg called it, the learning school) sought to gain the right to win by experimenting with new directions. In Mintzberg’s words, they “let a thousand strategic flowers bloom…[using] an insightful style, to detect the patterns of success in these gardens of strategic flowers, rather than a cerebral style that favors analytical techniques to develop strategies in a hothouse.”
Adaptation has helped many companies; it’s been the source, for example, of the vitality of the Chinese manufacturing industry. It’s also been the most central guiding theme of Tom Peters’s work. The companies applauded by Peters — starting with his seminal business bestseller, In Search of Excellence: Lessons from America’s Best-Run Companies (with Robert Waterman; Harper & Row, 1982) — have varied enormously in their industries, approaches, and philosophies, but they all share a willingness to experiment with new ideas and directions, discard those that won’t work, and adjust their efforts to meet new challenges.
But the adaptation school is also seriously limited, because its freewheeling nature tends to lead to incoherence. A multitude of products and services that all have different capability needs and different market positions cannot possibly be brought into sync. The more diverse a company’s efforts become, the more it costs to develop and apply the advantaged capabilities they need. Letting a thousand flowers bloom can lead to a field full of weeds — and to businesses that can’t match the expertise and resources of more focused, coherent competitors.

Concentration at the Core

Hence the appeal of the fourth group of strategy thinkers — the concentration school. Its forerunners were Gary Hamel and C.K. Prahalad, authors of Competing for the Future (Harvard Business School Press, 1994), who argued that the most effective companies owed their success to a select set of “core competencies”: These were the bedrock skills and technological capabilities (such as new forms of hardware, software, systems, biotechnology, and financial engineering) that allowed companies to compete in distinctive ways. Companies that focused on these, and used them to develop a long-range “strategic intent,” would claim the right to win.
Chris Zook of Bain & Company, drawing on his firm’s experience with private equity, has been the most prominent recent exponent of this school. In his book Profit from the Core: A Return to Growth in Turbulent Times (2001, with James Allen; Harvard Business Press, 2010), he argues that the right to win tends to accrue to companies that stick to their core businesses and find new ways to exploit them for growth and value. This means differentiating a company by starting with its central capabilities: Enterprise, Dollar/Thrifty, and Avis all prospered by focusing on, respectively, rentals for people with car repairs, vacationers, and business travelers.
However, in practice, the concentration strategy often becomes a way of holding on to old approaches, even when they become outdated. Many companies (and private equity firms) translate this strategy into slash-and-burn retrenchment. They cut costs and minimize investments in R&D and marketing to create a pared-down company that produces more profits at first, but that can’t sustain the growth required for a healthy bottom line. When they seek to grow, it’s through “adjacencies”: products or services that seem related to their existing core businesses. But many adjacencies are less profitable than they were expected to be, in part because they may require very different capabilities — and in part because the truly successful game-changing leaps, like Apple’s into consumer media or Tata’s into the inexpensive Nano automobile, can’t be managed from a concentration strategy alone.

Strategy as a Way of Life

It’s important to note that most of the thinkers who introduced these strategies to business leaders saw the challenges and limits of their approaches, and even warned against misapplying them. But businesspeople misapplied them nonetheless. Each theory thus backfired, and created opportunities for the next.
How can your company gain the most from considering all these theories of the right to win? Only by stepping back, away from any particular answer, to look at your company’s identity as a whole, encompassing the way you expect to compete, the capabilities with which you will compete, and the portfolio decisions that fit. In fact, that’s exactly what happens with the packaged-foods company described at the beginning of this article.
The CEO’s question about the right to win has sparked many levels of discussion. For several more days, spread over a few weeks, the executive team talks through its three proposed strategies in detail: the estimated market value of each, the risks involved, and the capabilities required. All three strategies have roughly the same potential for increasing enterprise value, but the differences among them become clear when the functional leaders speak.
For example, the head of operations explains that the three strategies would require completely different investments. Becoming an innovator would mean configuring a flexible value chain to launch new products rapidly and economically. The closer-to-customers option would mean selling more food at different temperatures: some frozen, some fresh. It would also mean building a more direct, collaborative relationship between operations and R&D. And the category transformation strategy would require new process technologies, economies of scale, and deftly managed acquisitions.
The head of marketing and sales has a similar presentation. As an innovator, the company would focus advertising and promotion on new products, while ensuring rapid, widespread retail distribution. Being a solutions provider would move the company directly into engagement with consumers, through websites, social media, and better in-store displays. As a category leader, the company would seek to own the grocery shelf through “sharp pencil” tactics (in other words, tactics tailored to each brand and geographic region) for pricing, promotion, and merchandising.
The company executives ultimately settle on the category leader strategy. It fits best with the capabilities that they already have. Another company, even with the same market dynamics, might choose differently — appropriately so, because of very different capabilities and customs.
A capabilities-driven strategy process, like this one, takes into account “market back” aspirations (the position the leaders want to hold) and “capabilities forward” concerns (the company’s ability to deliver). In the course of discussion, ideas from all four schools of thought come forward: ideas about holding an unassailable position, executing with new capabilities, adapting rapidly to competitive pressures, and focusing on the core business as a platform for growth. It takes time to complete this process, and it is very difficult and stressful at times, but the company gains, in the end, from a far higher level of coherence.
It’s taken 50 years for the field of business strategy to reach the point at which many companies can conduct this kind of conversation effectively. Most companies have relied on business strategists for strategic answers. But now we see that we have to generate our own answers — our own theory of the right to win for each company, with its unique identity and circumstances — and that we have the tools to do so. Given the pressures that business continues to face, this leap in knowledge is coming just in time. 

The Sirens of CPG Strategy
by Steffen Lauster

Some strategic concepts, if they’re held as sacrosanct, can lead an entire industry in the wrong direction. Something of that sort has happened during the past two decades in the consumer packaged goods (CPG) industry. Two of the most influential strategy ideas are so widely held, so intuitively appealing, and so apparently true in practice that they are very hard to give up. Yet they can also be quite dangerous to follow.
The first of these misleading ideas is that “bigger is better.” Since the 1980s, CPG companies have tried hard to expand. The conventional wisdom said that the best shareholder returns would accrue to companies with huge brands and the scale to compete in developing markets. The second idea is that “consolidation is inevitable.” For years, experts have predicted that most consumer packaged goods segments would end up like carbonated beverages, shaving products, and disposable diapers — dominated by just two or three big players that took advantage of their scale to acquire or crowd out rivals, while a handful of niche players battled over the scraps.
Recent studies conducted by Booz & Company of total shareholder return among CPG companies show that both of these ideas are, at best, incomplete. Companies that follow them end up sacrificing performance. To be sure, there are categories where scale matters, where one or two players dominate. But many food and consumer products sectors are fragmenting instead, with room for many profitable entrants. In coffee, ready-to-eat meals, shampoos, and pasta sauces, for example, there are more small companies than there used to be; mass and price don’t matter as much as perceived quality. In the New York area, jars of Rao’s Homemade marinara sauce (the same sauce served in the famous Rao’s restaurant of East Harlem) are flying off the shelves.
These days, the best-performing consumer products companies — whether large or small — are those with the greatest coherence. Their market strategy, capabilities system, and product lineup all fit together. They invest their capital and attention in just three to six differentiated capabilities, supporting all the products they offer. This gives them a level of efficiency and effectiveness that most of their competitors can’t match.
In the end, the problem with strategy concepts is not that they’re wrong; they are, in fact, often right. But they are not universal. Beware any strategic idea that most other companies find beguiling. The right strategic destination is different for every company, even in a mature industry like consumer packaged goods.

Steffen Lauster is a partner with Booz & Company based in Cleveland.

Reprint No. 10407

strategy and business

Author Profiles:

  • Cesare Mainardi is the managing director of Booz & Company’s North American business and a member of the firm’s executive committee. He is coauthor, with Paul Leinwand, of The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010).
  • Art Kleiner is the editor-in-chief of strategy+business and the author of The Age of Heretics: A History of the Radical Thinkers Who Reinvented Corporate Management (2nd ed., Jossey-Bass, 2008).
  • Disclosure: At least four people named in this article have been contributors to s+b: Ram Charan, Walter Kiechel, Henry Mintzberg, and C.K. Prahalad. Others named in the article have had associations with s+b staff members, with Booz & Company, or with its competitors. Where we assess individuals’ contributions and impact, we have tried to do so independent of any such associations.