Posts Tagged ‘sum of the parts’

The Value Creator’s Dilemma: Opportunity and Growth in a Dog eat Dog World

There are two mindsets – the ‘competitive’ mindset where the market is believed to be finite in scope and scale, that assumes that resources are scarce, an approach to strategy based on solely on the competitive aspects of fundamental frameworks like Porter’s Five Forces. Or as I see it, a zero sum game.

That is, the mentality that thinks that ‘if the other guy wins, I lose’ or ‘If I win, the other guy loses’. That makes sense in poker, which is in fact a game, but not, imho, in the business of value creation, revenue generation and growth. It assumes the pool is stagnant.

The other mindset – one that is quite rightly gaining traction, but has yet to be wholly understood in the context of growing the market or generating revenue – is that of a ‘value creator’. The ‘value creation’ mindset believes that the market is infinite, in scope and scale, it assumes that value can be added, enhanced and created, it’s an approach to strategy that does not need ‘one right answer’ as the goal before it’s implementation. And due to this basic difference, there cannot, thus, be a zero sum game.

That is, ‘if I win, I would have created value, adding to the pool from which my wins come to me, therefore I’m not taking away the other guy’s wins which existed before I came along and added some more.’

Let me try to explain this thought a little further. Here is the basic ‘Competitive Forces‘ Model by Michael Porter, better known as the ‘Five Forces’:


This reference site offers a cautionary note however:

Porter’s model is particularly strong in thinking outside-in. Care should therefore be taken not to underestimate or underemphasize the importance of the (existing) strengths of the organization (inside-out) when applying this five competitive forces framework of Porter.

And quite rightly, since it’s a model that is used for analyzing the industry in which the company is a part of, rather than an analysis of the corporation itself. Better suited for the use by external management consultants than a corporate planner.

I would hazard a guess however that  ‘competitive strategy’ has been understood only it’s basic terms of competition without the nuances of strategic thinking behind it.

In 2001, Fast Company printed an article on Michael Porter’s contribution to strategic thinking and his opinions, which I find extremely relevant, particularly as we look to creativity, innovation and design as value creators for competitive advantage.

I’m reproducing here, a significant yet relevant portion of Porter’s insights, in order to support my viewpoint:

There’s a fundamental distinction between strategy and operational effectiveness.

Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different.

Operational effectiveness is about things that you really shouldn’t have to make choices on; it’s about what’s good for everybody and about what every business should be doing.
… only strategy can create sustainable advantage. And strategy must start with a different value proposition.

A strategy delineates a territory in which a company seeks to be unique. Strategy 101 is about choices: You can’t be all things to all people.

The essence of strategy is that you must set limits on what you’re trying to accomplish. The company without a strategy is willing to try anything.

If all you’re trying to do is essentially the same thing as your rivals, then it’s unlikely that you’ll be very successful. It’s incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long.

That’s especially true today, when the flow of information and capital is incredibly fast. It’s extremely dangerous to bet on the incompetence of your competitors — and that’s what you’re doing when you’re competing on operational effectiveness.

What’s worse, a focus on operational effectiveness alone tends to create a mutually destructive form of competition. If everyone’s trying to get to the same place, then, almost inevitably, that causes customers to choose on price. This is a bit of a metaphor for the past five years, when we’ve seen widespread cratering of prices.

There have been those who argue that in this new millennium, with all of this change and new information, such a form of destructive competition is simply the way competition has to be.

I believe very strongly that that is not the case. There are many opportunities for strategic differences in nearly every industry; the more dynamism there is in an economy, in fact, the greater the opportunity.

And a much more positive kind of competition could emerge if managers thought about strategy in the right way.

In sum, the much more positive kind of competition that Porter is talking about, one that demonstrates comparative advantage, offering different choices for different needs  can only emerge from the return to the basics of business.

That is, to create a strategy based on differentiation. Set yourself apart in the market, offering a unique product that no rival can offer, simply by virtue of it’s roots – it emerges from your understanding of your core value proposition, that differentiates you from any other, and then enhancing, creating and finally communicating that difference.

And that is where the basic principles of design methodology – design thinking, if you must – together with the basic principles of strategy can come together to provide you with the tools to observe the market, draw your insights on your intended ‘user’s needs, create a product or service for those ‘as yet undiscovered’ needs and so, create your market.

Which in turn, implies that you are then not taking away somebody else’s share of the pie, because you are baking a new pie.