To achieve comparative advantage you must choose. Are you slave or free? Which is more important, security or opportunity? Are you seeking a near-term exit or a long-term home? Who are you? Who are you not?
Moses was a very capable leader. He was skilled at creating a meaningful and motivating context through the stories he told and the purposes he advocated. Moses had profound insight regarding the fundamental strengths of individuals and organizations. He cultivated creativity, he empowered, and he loved. Moses refrained from interfering with the free choice of others, but he provided effective frameworks for making good choices. He demonstrated remarkable resilience. Moses was an expert practitioner of six key techniques for producing unique value.
But with all his strengths Moses still had to choose. He could not be all things to all people; he could only be himself – his true self. In leading his people he had to make a fundamental strategic choice, a decision that accurately reflected the reality of his people and their condition.
Strategy is the outcome of analysis. But strategy is not analysis. An effective strategist will consider a whole host of internal and external factors in assessing threat, vulnerability, and strength. A strategist will seek a careful and accurate definition of risk. But finally the strategist must make a choice. The choice can be open to change, but a choice must be made and trade-offs accepted.
In my consulting practice I have often found, especially with larger clients, superb strategic analysis. But the willingness to make a choice based on the analysis is often absent. There is an arrogance, or greed, or – most often – fear that leads many managers to avoid making a real choice.
I once worked with a jurisdiction to assess the threat of terrorism and develop an appropriate prevention strategy. Realistic threats specific to the jurisdiction were outlined. The current capabilities of the jurisdiction were reviewed. Some gaps between the perceived threats and current capabilities were identified and a set of risks defined. The analysis implied some likely priorities, but determining explicit priorities requires a set of choices that – very appropriately – could not be made by the analysts.
Even with superb staff work in-hand leadership resisted making choices. The most consequential risks outlined by staff related to agro-terrorism, an attack on the water system, and biological or radiological WMD. The jurisdiction almost certainly did not have the resources to deal effectively to prevent and mitigate all three threats. But leadership refused to choose and – in essence – left the jurisdiction equally vulnerable to all three threats
Another client was a pioneer in the development of a new product. The product was well-received in the market. The product could, however, be adapted to many purposes and was highly replicable. As the pioneer, the client had the unique opportunity to choose its preferred channels and categories. The founder refused to choose. He wanted to own and defend every niche. This was beyond his capacity. Within three years the company had gone from being the market leader to being an also-ran in every niche.
Michael Porter writes, “Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do. Without trade-offs, there would be no need for choice and thus no need for strategy.” (Porter, Michael; What is Strategy? Harvard Business Review, November-December 1996)
The Books of Moses include a number of “thou shalt not’s.” Saying no – and knowing when and why to say no – may be the most crucial decision made by senior leadership. The decision not to do one thing is often critical to focusing on and actually achieving another.
“General management is more than the stewarding of individual functions,” writes Porter. “It’s core is strategy: defining and communicating the company’s unique position, making trade-offs, and forging fit among activities. The leader must provide the discipline to decide which industry changes and customer needs the company will respond to, while avoiding organizational distractions and maintaining the company’s distinctiveness. Managers at lower levels lack the perspective and the confidence to maintain a strategy. There will be constant pressures to compromise, relax trade-offs, and emulate rivals. One of the leader’s jobs is to teach others in the organization about strategy – and to say no.”
When you choose to say no, you must also be able to articulate why and communicate how the no reinforces the chosen strategy and will advance the goals of the enterprise. This explanation will usually relate to either strategic integration or strategic consistency, or both.
Sunday, February 28, 2010
Saturday, February 27, 2010
Comparative Advantage
Moses lived during a period of profound and far-reaching change. The entire Eastern Mediterranean was in turmoil. The power of Egypt was in sharp decline. The Hittite Empire, long a source of stability in what is now Turkey, Syria,and Iraq, collapsed. New empires and numerous smaller kingdoms emerged. The Exodus is close in time to the Trojan War. Homer’s heroes may have been one of many aggressive “Sea Peoples” that terrorized the region for a century or more.
These changes created an opportunity that Moses exploited, but the same conditions presented several serious threats. The descendents of Jacob were comparatively few in number, militarily weak, and economically poor. Their survival was uncertain and, even, unlikely.
Moses was in serious need of a source of comparative advantage. His small enterprise was exceedingly vulnerable. To escape Egypt and conquer Canaan Moses and his people needed something that would give them strength greater than their size or wealth. In a world characterized by violent change and aggressive rivalries, the descendents of Jacob needed a source of security and continuity.
Moses promised a place – flowing with milk and honey – but if we consider his behavior it is clear that Moses did not consider the place a sufficient comparative advantage. Otherwise he would have moved to seize the place much sooner than he did. Instead he delayed.
In about the fourth year of the forty-year Exodus Moses sent spies into Canaan in preparation for an invasion. But most of the spies returned reporting, “The people who live in the land are strong, and the towns are fortified and very large…. We are not able to go up against the people for they are stronger than we.” (Numbers 13: 28-31)
Reacting to the spies’ reports most of the people began to talk of replacing Moses and returning to Egypt. Moses ultimately preserved – and even enhanced – his authority. But the episode demonstrated that his people were not ready to claim their potential. They saw themselves as weak and exaggerated the strength of the opposition. Their fears obscured reality and suppressed their potential.
Each of the great-grandsons of Abraham had arrived in Egypt in distress, but free and keenly aware of their unique value. In the generations that followed, however, the unique value had been nearly forgotten and the people fell into the false identity of slavery. The passivity and fear of slavery was, ultimately, too much for Moses to overcome. Almost all those who had been slaves in Egypt would die before a new generation was allowed to complete the Exodus and enter the Promised Land.
With the new generation born during the Exodus Moses worked to restore a sense of unique purpose and potential. To survive in an environment of convulsive change, Moses had to change the mind-set and worldview of his people. Instead of nostalgia regarding the security of slavery (a constant refrain in the book of Exodus) he encouraged an enthusiasm regarding future challenges.
Moses was a realist. He understood his position in the world. He understood the strength of his adversaries. Moses knew the limitations of his people and foresaw the disasters ahead. He anticipated failure, but was confident that recovery was possible.
The strategy that Moses implemented to achieve comparative advantage was focused on recurring recovery more than immediate success. This was a crucial choice. He was focused on long-term survival and continuity. The descendents of Jacob would outlast their adversaries. They would encounter disaster, but would be restored.
When you have had children and children’s children, and become complacent in the land, if you act corruptly by making an idol in the form of anything, thus doing what is evil in the sight of the Lord your God, and provoking him to anger, I call heaven and earth to witness against you today that you will soon utterly perish from the land that you are crossing the Jordan to occupy; you will not live long on it, but will be utterly destroyed. The Lord will scatter you among the peoples; only a few of you will be left among the nations where the Lord will lead you. There you will serve other gods made by human hands, objects of wood and stone, that neither see, nor hear, nor eat, nor smell. From there you will seek the Lord your God, and you will find him if you search after him with all your heart and soul. In your distress, when all these things have happened to you in time to come, you will return to the Lord your God and heed him. Because the Lord your God is a merciful God, he will neither abandon you nor destroy you; he will not forget the covenant with your ancestors that he swore to them. (Deuteronomy 4: 25-31)
Over one hundred generations later the effectiveness of this strategy is evident. It was a courageous and creative strategic choice. It was also very realistic. Most strategies are based on much more short-term and much less realistic thinking.
Most organizations fail within seven years; very few last a generation. An enterprise that has preserved its identity and independence for a century is remarkable. Most of our lives are forgotten and our contributions lost within a few years of our death. In some cases, these outcomes are the result of explicit choice. But more often these are the unintended consequences of failing to make a choice. In the words of Moses they are the outcome of complacency.
The organization – or individual – that makes a choice and then moves to behave consistently with that choice has a significant advantage over the complacent.
These changes created an opportunity that Moses exploited, but the same conditions presented several serious threats. The descendents of Jacob were comparatively few in number, militarily weak, and economically poor. Their survival was uncertain and, even, unlikely.
Moses was in serious need of a source of comparative advantage. His small enterprise was exceedingly vulnerable. To escape Egypt and conquer Canaan Moses and his people needed something that would give them strength greater than their size or wealth. In a world characterized by violent change and aggressive rivalries, the descendents of Jacob needed a source of security and continuity.
Moses promised a place – flowing with milk and honey – but if we consider his behavior it is clear that Moses did not consider the place a sufficient comparative advantage. Otherwise he would have moved to seize the place much sooner than he did. Instead he delayed.
In about the fourth year of the forty-year Exodus Moses sent spies into Canaan in preparation for an invasion. But most of the spies returned reporting, “The people who live in the land are strong, and the towns are fortified and very large…. We are not able to go up against the people for they are stronger than we.” (Numbers 13: 28-31)
Reacting to the spies’ reports most of the people began to talk of replacing Moses and returning to Egypt. Moses ultimately preserved – and even enhanced – his authority. But the episode demonstrated that his people were not ready to claim their potential. They saw themselves as weak and exaggerated the strength of the opposition. Their fears obscured reality and suppressed their potential.
Each of the great-grandsons of Abraham had arrived in Egypt in distress, but free and keenly aware of their unique value. In the generations that followed, however, the unique value had been nearly forgotten and the people fell into the false identity of slavery. The passivity and fear of slavery was, ultimately, too much for Moses to overcome. Almost all those who had been slaves in Egypt would die before a new generation was allowed to complete the Exodus and enter the Promised Land.
With the new generation born during the Exodus Moses worked to restore a sense of unique purpose and potential. To survive in an environment of convulsive change, Moses had to change the mind-set and worldview of his people. Instead of nostalgia regarding the security of slavery (a constant refrain in the book of Exodus) he encouraged an enthusiasm regarding future challenges.
Moses was a realist. He understood his position in the world. He understood the strength of his adversaries. Moses knew the limitations of his people and foresaw the disasters ahead. He anticipated failure, but was confident that recovery was possible.
The strategy that Moses implemented to achieve comparative advantage was focused on recurring recovery more than immediate success. This was a crucial choice. He was focused on long-term survival and continuity. The descendents of Jacob would outlast their adversaries. They would encounter disaster, but would be restored.
When you have had children and children’s children, and become complacent in the land, if you act corruptly by making an idol in the form of anything, thus doing what is evil in the sight of the Lord your God, and provoking him to anger, I call heaven and earth to witness against you today that you will soon utterly perish from the land that you are crossing the Jordan to occupy; you will not live long on it, but will be utterly destroyed. The Lord will scatter you among the peoples; only a few of you will be left among the nations where the Lord will lead you. There you will serve other gods made by human hands, objects of wood and stone, that neither see, nor hear, nor eat, nor smell. From there you will seek the Lord your God, and you will find him if you search after him with all your heart and soul. In your distress, when all these things have happened to you in time to come, you will return to the Lord your God and heed him. Because the Lord your God is a merciful God, he will neither abandon you nor destroy you; he will not forget the covenant with your ancestors that he swore to them. (Deuteronomy 4: 25-31)
Over one hundred generations later the effectiveness of this strategy is evident. It was a courageous and creative strategic choice. It was also very realistic. Most strategies are based on much more short-term and much less realistic thinking.
Most organizations fail within seven years; very few last a generation. An enterprise that has preserved its identity and independence for a century is remarkable. Most of our lives are forgotten and our contributions lost within a few years of our death. In some cases, these outcomes are the result of explicit choice. But more often these are the unintended consequences of failing to make a choice. In the words of Moses they are the outcome of complacency.
The organization – or individual – that makes a choice and then moves to behave consistently with that choice has a significant advantage over the complacent.
Friday, February 26, 2010
Moses as Strategist
We have been trying to make sense of how Moses became an effective prophet of differentiation.
We have seen how Moses developed a strong sense of his true self. This self-understanding gave him the courage, patience, wisdom, and love to enhance self-understanding across his community.
Moses was never entirely successful. There were always aspects of his true self that were not realized. There were always members of the community and characteristics of his community trapped in distraction in delusion. But the sense of differentiation that was achieved gave both Moses and his community significant comparative advantage. This differentiation is fundamental to the extraordinary sustainability of Moses and his community.
In our next and final consideration we will see how differentiation is the outcome of self and community making strategic choices.
Moses faced extraordinary challenges. He demonstrated the ability to achieve comparative advantage by making clear choices from among tough options. Moses made choices that advanced the integration of belief and behavior. He sought to inspire coherence more than regulate conformance. Moses especially attempted to balance righteousness and justice. In execution of strategy Moses worked to reinforce his own true self and the true self of his enterprise. The fundamental link between righteousness and justice is the foundation of any successful and sustainable strategy.
We have seen how Moses developed a strong sense of his true self. This self-understanding gave him the courage, patience, wisdom, and love to enhance self-understanding across his community.
Moses was never entirely successful. There were always aspects of his true self that were not realized. There were always members of the community and characteristics of his community trapped in distraction in delusion. But the sense of differentiation that was achieved gave both Moses and his community significant comparative advantage. This differentiation is fundamental to the extraordinary sustainability of Moses and his community.
In our next and final consideration we will see how differentiation is the outcome of self and community making strategic choices.
Moses faced extraordinary challenges. He demonstrated the ability to achieve comparative advantage by making clear choices from among tough options. Moses made choices that advanced the integration of belief and behavior. He sought to inspire coherence more than regulate conformance. Moses especially attempted to balance righteousness and justice. In execution of strategy Moses worked to reinforce his own true self and the true self of his enterprise. The fundamental link between righteousness and justice is the foundation of any successful and sustainable strategy.
Thursday, February 25, 2010
Sustainable Unique Value
A significant challenge for Starbucks is its emerging ubiquity. Can the variety of personal choices inside Starbucks overcome a growing perception that Starbucks is itself the new generic? Is the differentiation strategy implemented by Starbucks sustainable when the rule-breaker has become the rule-maker?
Starbucks will face new challenges. But their initial differentiation strategy has been proven. It was a big risk, but they chose well, and executed effectively. Their strategy has been sustainable.
Many attempts at differentiation fail because the enterprise cannot afford the costs of differentiation. Early in the new century Mitsubishi Motors focused its marketing on drivers in their 20s and early 30s. Product design and advertising signaled and secured a shared value chain with this audience. In 2002 Mitsubishi Motors joined many of its competitors in offering “zero down, zero interest, zero payments for 12 months.”
The pricing tactic was successful in moving product among the demographic market – young and single – that the differentiation strategy had targeted. This market includes the highest credit risks of any demographic segment. An extraordinary percentage of 2002 buyers failed to honor their loan commitments. Two years later Mitsubishi Motors faced a serious threat to its survival directly related to a successful differentiation strategy.
In the enterprises I have led, I have struggled with effective execution of a differentiation strategy. Most customers have communicated that these enterprises lowered buyers’ costs and increased buyers’ performance. But even when prices are – according to long-time clients – 20 to 30 percent below market averages, we have had difficultly persuading prospective clients (and a few current clients) to recognize this value.
In some cases the unique value offered relates to costs and performance that a client considers peripheral to its core value. This suggests we have not effectively linked value chains and have not done a good job signaling unique value. So far we have been unsuccessful in changing the rules. In seeking strategic advantage I am inclined to pursue differentiation, but because of poor execution the customer base has often remained too shallow to ensure sustainability.
According to Michael Porter, “The sustainability of differentiation depends on two things, its continued perceived value to buyers and the lack of imitation by competitors. There is an ever present risk that buyers’ needs or perceptions will change, eliminating the value of a particular form of differentiation. Competitors may also imitate the firm’s strategy or leapfrog the bases of differentiation the firm has chosen.”
Moses was ready to adjust his tactics and techniques to achieve effective strategic execution. But his fundamental strategy was very consistent. He focused his differentiation strategy on what he understood to be the core human need to love and be loved; to value and be valued. Moses chose to organize around a need so fundamental that there was no risk that the buyers’ needs might change.
In preparing his people for his death, Moses admonished, “You must not distort justice (mishpat); you must not show partiality… Righteousness, only righteousness (tsedeq), you shall pursue.” (Deuteronomy 16:18-20) Righteousness and Justice were the two interlocking strategies that Moses was confident would differentiate his people and provide them a key comparative advantage. Later it was written of God, “Righteousness and Justice are the foundation of your throne, steadfast love and faithfulness go before you.” (Psalm 89: 14)
In the Books of Moses righteousness is evidence of God’s will expressed within the individual. This is the fundamental true self. Justice is evidence of God’s will expressed within community. Justice is the outcome of a harmonious web of human relationships where each true self is valued and respected without partiality. Moses almost certainly understood that these goals would never be fully achieved. But he also perceived that the struggle to achieve these goals would have innate, recognized, and sustainable value.
Most enterprises could choose to organize their strategy around the fundamental human need for a community of true selves. But many enterprises actively choose another path. In our personal relationships we often make a similar choice.
One of the first neuroses identified by Sigmund Freud was the “narcissism of small differences.” This is characterized by behavior where the individual seeks to differentiate him or herself from others through superficial means. I often wear bow-ties. In a healthy person or enterprise, such behavior is a signal of a more substantive source of differentiation. I hope my bow-ties signal a thoughtful non-conformity and creativity. The behavior becomes unhealthy when these signals are the only source of differentiation. I have four or five bow-ties. If I had dozens and agonized over which one to wear I would have slipped from signaling to narcissism.
Too many enterprises depend on the cultivation of narcissism. This approach will occasionally result in significant tactical success. It is, however, a strategic dead-end. The narcissist will never be satisfied and a narcissistic customer has no loyalty. In a market where narcissism is the reigning value there is no sustainable unique value or comparative advantage, there is only churn, mutual destruction, and survival of the last one standing.
Some enterprises – for example prominent advertisers in Vanity Fair – may seem to do very well responding to and encouraging narcissism. But there are very few enterprises or individuals in this sector that achieve sustained success. The executive of a leading cosmetics firm was once asked the secret of its unusually long-term success. He is said to have replied, “I always remember we are not selling colors and fragrance, rather we are selling hope!”
Addressing real and healthy human needs – including our abilities to create, empower, love, refrain, frame, and redeem – is a sustainable path to comparative advantage.
Starbucks will face new challenges. But their initial differentiation strategy has been proven. It was a big risk, but they chose well, and executed effectively. Their strategy has been sustainable.
Many attempts at differentiation fail because the enterprise cannot afford the costs of differentiation. Early in the new century Mitsubishi Motors focused its marketing on drivers in their 20s and early 30s. Product design and advertising signaled and secured a shared value chain with this audience. In 2002 Mitsubishi Motors joined many of its competitors in offering “zero down, zero interest, zero payments for 12 months.”
The pricing tactic was successful in moving product among the demographic market – young and single – that the differentiation strategy had targeted. This market includes the highest credit risks of any demographic segment. An extraordinary percentage of 2002 buyers failed to honor their loan commitments. Two years later Mitsubishi Motors faced a serious threat to its survival directly related to a successful differentiation strategy.
In the enterprises I have led, I have struggled with effective execution of a differentiation strategy. Most customers have communicated that these enterprises lowered buyers’ costs and increased buyers’ performance. But even when prices are – according to long-time clients – 20 to 30 percent below market averages, we have had difficultly persuading prospective clients (and a few current clients) to recognize this value.
In some cases the unique value offered relates to costs and performance that a client considers peripheral to its core value. This suggests we have not effectively linked value chains and have not done a good job signaling unique value. So far we have been unsuccessful in changing the rules. In seeking strategic advantage I am inclined to pursue differentiation, but because of poor execution the customer base has often remained too shallow to ensure sustainability.
According to Michael Porter, “The sustainability of differentiation depends on two things, its continued perceived value to buyers and the lack of imitation by competitors. There is an ever present risk that buyers’ needs or perceptions will change, eliminating the value of a particular form of differentiation. Competitors may also imitate the firm’s strategy or leapfrog the bases of differentiation the firm has chosen.”
Moses was ready to adjust his tactics and techniques to achieve effective strategic execution. But his fundamental strategy was very consistent. He focused his differentiation strategy on what he understood to be the core human need to love and be loved; to value and be valued. Moses chose to organize around a need so fundamental that there was no risk that the buyers’ needs might change.
In preparing his people for his death, Moses admonished, “You must not distort justice (mishpat); you must not show partiality… Righteousness, only righteousness (tsedeq), you shall pursue.” (Deuteronomy 16:18-20) Righteousness and Justice were the two interlocking strategies that Moses was confident would differentiate his people and provide them a key comparative advantage. Later it was written of God, “Righteousness and Justice are the foundation of your throne, steadfast love and faithfulness go before you.” (Psalm 89: 14)
In the Books of Moses righteousness is evidence of God’s will expressed within the individual. This is the fundamental true self. Justice is evidence of God’s will expressed within community. Justice is the outcome of a harmonious web of human relationships where each true self is valued and respected without partiality. Moses almost certainly understood that these goals would never be fully achieved. But he also perceived that the struggle to achieve these goals would have innate, recognized, and sustainable value.
Most enterprises could choose to organize their strategy around the fundamental human need for a community of true selves. But many enterprises actively choose another path. In our personal relationships we often make a similar choice.
One of the first neuroses identified by Sigmund Freud was the “narcissism of small differences.” This is characterized by behavior where the individual seeks to differentiate him or herself from others through superficial means. I often wear bow-ties. In a healthy person or enterprise, such behavior is a signal of a more substantive source of differentiation. I hope my bow-ties signal a thoughtful non-conformity and creativity. The behavior becomes unhealthy when these signals are the only source of differentiation. I have four or five bow-ties. If I had dozens and agonized over which one to wear I would have slipped from signaling to narcissism.
Too many enterprises depend on the cultivation of narcissism. This approach will occasionally result in significant tactical success. It is, however, a strategic dead-end. The narcissist will never be satisfied and a narcissistic customer has no loyalty. In a market where narcissism is the reigning value there is no sustainable unique value or comparative advantage, there is only churn, mutual destruction, and survival of the last one standing.
Some enterprises – for example prominent advertisers in Vanity Fair – may seem to do very well responding to and encouraging narcissism. But there are very few enterprises or individuals in this sector that achieve sustained success. The executive of a leading cosmetics firm was once asked the secret of its unusually long-term success. He is said to have replied, “I always remember we are not selling colors and fragrance, rather we are selling hope!”
Addressing real and healthy human needs – including our abilities to create, empower, love, refrain, frame, and redeem – is a sustainable path to comparative advantage.
Wednesday, February 24, 2010
Changing the Rules
To lead effectively you must find your true self. To live authentically you must find your true self. To contribute meaningfully of your true self to others you must find a way to differentiate their perception of you. Through differentiation you allow others to perceive the value you have to offer the relationship. In this way your unique value can enrich a whole community.
In the life of Moses and in the work of Michael Porter we find four shared techniques for achieving strategic differentiation: lowering buyers’ costs, raising buyers’ performance, linking values, and using signals and symbols to communicate value.
But these techniques are not always enough.
Many are insensitive to innate value. This is especially the case with those who have not found their own true selves. If they have been unable to choose and cherish their own unique value they are unlikely to recognize your value. This can be a major impediment and source of constant trouble.
In many cases your unique value will remain unrecognized and underutilized unless a way is found to fundamentally alter the context of the relationship. Whether the relationship is personal or commercial there are times when the existing value chains must be broken up and replaced; only then will it be possible to meaningfully link your value chains with those of the market. This often involves transforming how others perceive themselves. This may even involve helping others embrace their true selves.
Michael Porter explains, “The discovery of an entirely new value chain can unlock possibilities for differentiation… Opportunities to achieve dramatic levels of differentiation often result from reconfiguring the value chain.” Porter outlines several ways to “change the rules to create uniqueness.”
Starbucks changed the rules and essentially created a new category. For several generations small privately owned European cafes have sold good coffee, a pleasant place to meet or privately reflect, and even a statement of personal style… for a price. But in America the café became a diner, a truck stop, or a small restaurant where the coffee’s quality was undermined by a tradition of free refills. In the United States the rules were firmly focused on lowering buyers cost. Even in our most cosmopolitan cities most of the coffee served was generic and weak, but cheap. Ordering a cup of coffee and hanging around was limited mostly to bums and brassy college students.
Starbucks took a risk and stepped into this rule-bound context with something very different. Instead of a choice between regular and de-caf, the buyer is given a mind-boggling range of choices. Instead of large cans of a single generic, Starbucks offers fresh-ground exotics. Instead of Formica and fluorescent, Starbucks offers soft lights, living room sitting and, most recently, WiFi connections. Instead of turning tables, Starbucks aims at repeat sales. Today the risk seems like an inspired yet obvious choice. Given the rules originally in place, the eventual success of Starbucks was anything but obvious.
It helped that a similar model could be seen working in Europe. Starbucks started small and stayed small for a number of years. In this process Starbucks found its true self and remains a strongly value-based enterprise. These values have largely persisted (or been consciously reclaimed), even under the pressure of rapid and significant growth.
Equally important was helping buyers recognize and express their true selves. Starbucks tapped into a fundamental need for human socialization and personally chosen quality in an increasingly generic world. At Starbucks buyers are given a helpful framework within which they are empowered to be creative in making their own choices. Starbucks changed the rules, helped its buyers recognize and claim what they valued, and in the process the enterprise came to be highly valued.
Moses changed the rules: regarding what it meant to be a descendent of Abraham, regarding what it meant to be a human being, and regarding the nature of God. In changing the rules – and in creating a framework of innate value – Moses implemented his differentiation strategy.
In the life of Moses and in the work of Michael Porter we find four shared techniques for achieving strategic differentiation: lowering buyers’ costs, raising buyers’ performance, linking values, and using signals and symbols to communicate value.
But these techniques are not always enough.
Many are insensitive to innate value. This is especially the case with those who have not found their own true selves. If they have been unable to choose and cherish their own unique value they are unlikely to recognize your value. This can be a major impediment and source of constant trouble.
In many cases your unique value will remain unrecognized and underutilized unless a way is found to fundamentally alter the context of the relationship. Whether the relationship is personal or commercial there are times when the existing value chains must be broken up and replaced; only then will it be possible to meaningfully link your value chains with those of the market. This often involves transforming how others perceive themselves. This may even involve helping others embrace their true selves.
Michael Porter explains, “The discovery of an entirely new value chain can unlock possibilities for differentiation… Opportunities to achieve dramatic levels of differentiation often result from reconfiguring the value chain.” Porter outlines several ways to “change the rules to create uniqueness.”
Starbucks changed the rules and essentially created a new category. For several generations small privately owned European cafes have sold good coffee, a pleasant place to meet or privately reflect, and even a statement of personal style… for a price. But in America the café became a diner, a truck stop, or a small restaurant where the coffee’s quality was undermined by a tradition of free refills. In the United States the rules were firmly focused on lowering buyers cost. Even in our most cosmopolitan cities most of the coffee served was generic and weak, but cheap. Ordering a cup of coffee and hanging around was limited mostly to bums and brassy college students.
Starbucks took a risk and stepped into this rule-bound context with something very different. Instead of a choice between regular and de-caf, the buyer is given a mind-boggling range of choices. Instead of large cans of a single generic, Starbucks offers fresh-ground exotics. Instead of Formica and fluorescent, Starbucks offers soft lights, living room sitting and, most recently, WiFi connections. Instead of turning tables, Starbucks aims at repeat sales. Today the risk seems like an inspired yet obvious choice. Given the rules originally in place, the eventual success of Starbucks was anything but obvious.
It helped that a similar model could be seen working in Europe. Starbucks started small and stayed small for a number of years. In this process Starbucks found its true self and remains a strongly value-based enterprise. These values have largely persisted (or been consciously reclaimed), even under the pressure of rapid and significant growth.
Equally important was helping buyers recognize and express their true selves. Starbucks tapped into a fundamental need for human socialization and personally chosen quality in an increasingly generic world. At Starbucks buyers are given a helpful framework within which they are empowered to be creative in making their own choices. Starbucks changed the rules, helped its buyers recognize and claim what they valued, and in the process the enterprise came to be highly valued.
Moses changed the rules: regarding what it meant to be a descendent of Abraham, regarding what it meant to be a human being, and regarding the nature of God. In changing the rules – and in creating a framework of innate value – Moses implemented his differentiation strategy.
Tuesday, February 23, 2010
Symbols and Signals
In pursuing differentiation a firm must not only lower buyers’ cost and/or increase buyers’ performance. It must also ensure that the value produced by the firm is linked to value that the buyer recognizes. Without this recognition, the value does not have impact.
Porter explains, “Buyers… frequently do not fully understand all the ways in which a supplier actually or potentially might lower their costs or improve performance – that is, buyers often do not know what they should be looking for in a supplier… The buyer’s perception of a firm and its product, therefore, can be as important as the reality of what the firm offers in determining the effective level of differentiation achieved… Buyers will not pay for value that they do not perceive, no matter how real it may be… A firm that delivers only modest value but signals it more effectively may actually command a higher price than a firm that delivers higher value but signals it poorly.” (Porter, Michael E.; Competitive Advantage, Free Press, 1985)
Signaling is especially important when dealing with intangible value, future value, or value that is difficult to measure. In education learner satisfaction and learning efficacy do not always travel together. When new concepts or processes are introduced there can often be an inverse correlation between satisfaction and efficacy. Early in a successful educational program the buyer will often perceive failure, unless an effective means is discovered of signaling the future value being delivered.
There is a similar challenge in adoption of many technology products. Well-designed technology lowers buyers’ costs or increases buyers’ performance by changing buyers’ behavior. But there is a cost – often a high social cost – in achieving the initial change in behavior that will produce the value. In many cases the technology “fails” because it is never truly adopted. It is not adopted because the initial cost of changing behavior is underestimated – or purposefully obscured – and becomes a major impediment to adoption.
In the late 1970s I was responsible for introducing an early word-processing system into a mid-sized professional firm. The principal benefit of the system was to allow the professionals who authored documents to also personally finalize edits and be responsible for the final product. This increased the speed of producing documents and, usually, improved the accuracy of final documents. The professionals – all of whom were proficient typists – generally welcomed the new technology.
The secretaries were much more skeptical. There was a nearly one-to-one-ratio of professionals to secretaries. A core value produced by the secretaries was the time consuming process of retyping various drafts on their state-of-the-art IBM Selectrics. The word processing system was seen as a threat to their employment future. Given their prominence in the office and their long-time relationship with key professionals, the secretaries could have significantly complicated adoption of the word-processing system.
About six months before the technology was installed we began a process of retraining the secretaries as “account associates.” In this new role the secretaries were focused on research, some client service, and document management. We invested in the creation of an in-office research library and crafted business relationships with public and university libraries (well before the Internet, much less Google). In a variety of ways we signaled and symbolized that the secretaries, until then part of a self-contained and quickly capped career-track, were to be integrated into the professional career-track, would be assured of good jobs, and would be expected to contribute in significant ways to the firm’s productivity.
Less than two years later traditional secretarial duties, measured in time expended, had been reduced by approximately two-thirds, revenues had nearly doubled, and most of the secretarial staff had been transitioned into much more value-producing (and usually more satisfying) roles. The word processing system contributed to this outcome. Without the technology, the transition would not have been possible. But the technology was the easy part. The hard part was designing and executing the human transition that would accompany the technology.
The new technology was the explicit value – and threat – perceived. The new behavior was the implicit value – and most important value – offered. To convert the secretaries from skeptics to buyers, we had to credibly signal future value. We could not deliver future value immediately. Until the new technology was fully adopted, creation of future value was not possible. Our credible signals and symbols of future value built a bridge to the future and the reality of increased value.
In my experience many business people – and especially business men – are incompetent in the use of signals and symbols. They either avoid symbols as “too soft” or “unreal” or they use signals that are not linked to substantive issues of cost or performance. As a result they come off as cold and uncaring or superficial and hypocritical.
Porter argues that signals must be tightly related to the cost and performance criteria that matter most to the buyers. “Signaling criteria can be identified by understanding the process the buyer uses to form judgments about a firm’s potential ability to meet use criteria, as well as how well it is actually meeting them. Examining each use criteria is a good place to start… Like use criteria, signaling criteria should be defined as precisely and operationally as possible in order to guide differentiation strategy.”
Prior to the encounter at Mt. Sinai God is characterized primarily by direct action. Following Mt. Sinai the nature of God is increasingly communicated through symbols and signals. Much of the last half of Exodus is taken up with instruction regarding the application of symbols and signals.
Late in his life Moses assured his people of future value by reminding them of past signs and symbols that had been fulfilled:
He will love you and bless you and multiply you; He will also bless the fruit of your womb and the fruit of your ground, your grain and your new wine and your oil, the increase of your herd and the young of your flock, in the land which He swore to your forefathers to give you… You shall be blessed above all peoples… You shall well remember what the Lord your God did to Pharaoh and to all Egypt: the great trials which your eyes saw and the signs and symbols and the mighty hand and the outstretched arm by which the Lord your God brought you out. (Deuteronomy 7:13-19)
In the Books of Moses the Hebrew מופת or mowpheth is translated as symbol. It is also often translated as wonder or miracle. The word for sign can also mean omen or remembrance, warning or proof. A thoughtful and substantive use of signs and symbols is crucial to the creation of recognized and differentiated value. Well-chosen and carefully used signs and symbols can do miraculous work.
Porter explains, “Buyers… frequently do not fully understand all the ways in which a supplier actually or potentially might lower their costs or improve performance – that is, buyers often do not know what they should be looking for in a supplier… The buyer’s perception of a firm and its product, therefore, can be as important as the reality of what the firm offers in determining the effective level of differentiation achieved… Buyers will not pay for value that they do not perceive, no matter how real it may be… A firm that delivers only modest value but signals it more effectively may actually command a higher price than a firm that delivers higher value but signals it poorly.” (Porter, Michael E.; Competitive Advantage, Free Press, 1985)
Signaling is especially important when dealing with intangible value, future value, or value that is difficult to measure. In education learner satisfaction and learning efficacy do not always travel together. When new concepts or processes are introduced there can often be an inverse correlation between satisfaction and efficacy. Early in a successful educational program the buyer will often perceive failure, unless an effective means is discovered of signaling the future value being delivered.
There is a similar challenge in adoption of many technology products. Well-designed technology lowers buyers’ costs or increases buyers’ performance by changing buyers’ behavior. But there is a cost – often a high social cost – in achieving the initial change in behavior that will produce the value. In many cases the technology “fails” because it is never truly adopted. It is not adopted because the initial cost of changing behavior is underestimated – or purposefully obscured – and becomes a major impediment to adoption.
In the late 1970s I was responsible for introducing an early word-processing system into a mid-sized professional firm. The principal benefit of the system was to allow the professionals who authored documents to also personally finalize edits and be responsible for the final product. This increased the speed of producing documents and, usually, improved the accuracy of final documents. The professionals – all of whom were proficient typists – generally welcomed the new technology.
The secretaries were much more skeptical. There was a nearly one-to-one-ratio of professionals to secretaries. A core value produced by the secretaries was the time consuming process of retyping various drafts on their state-of-the-art IBM Selectrics. The word processing system was seen as a threat to their employment future. Given their prominence in the office and their long-time relationship with key professionals, the secretaries could have significantly complicated adoption of the word-processing system.
About six months before the technology was installed we began a process of retraining the secretaries as “account associates.” In this new role the secretaries were focused on research, some client service, and document management. We invested in the creation of an in-office research library and crafted business relationships with public and university libraries (well before the Internet, much less Google). In a variety of ways we signaled and symbolized that the secretaries, until then part of a self-contained and quickly capped career-track, were to be integrated into the professional career-track, would be assured of good jobs, and would be expected to contribute in significant ways to the firm’s productivity.
Less than two years later traditional secretarial duties, measured in time expended, had been reduced by approximately two-thirds, revenues had nearly doubled, and most of the secretarial staff had been transitioned into much more value-producing (and usually more satisfying) roles. The word processing system contributed to this outcome. Without the technology, the transition would not have been possible. But the technology was the easy part. The hard part was designing and executing the human transition that would accompany the technology.
The new technology was the explicit value – and threat – perceived. The new behavior was the implicit value – and most important value – offered. To convert the secretaries from skeptics to buyers, we had to credibly signal future value. We could not deliver future value immediately. Until the new technology was fully adopted, creation of future value was not possible. Our credible signals and symbols of future value built a bridge to the future and the reality of increased value.
In my experience many business people – and especially business men – are incompetent in the use of signals and symbols. They either avoid symbols as “too soft” or “unreal” or they use signals that are not linked to substantive issues of cost or performance. As a result they come off as cold and uncaring or superficial and hypocritical.
Porter argues that signals must be tightly related to the cost and performance criteria that matter most to the buyers. “Signaling criteria can be identified by understanding the process the buyer uses to form judgments about a firm’s potential ability to meet use criteria, as well as how well it is actually meeting them. Examining each use criteria is a good place to start… Like use criteria, signaling criteria should be defined as precisely and operationally as possible in order to guide differentiation strategy.”
Prior to the encounter at Mt. Sinai God is characterized primarily by direct action. Following Mt. Sinai the nature of God is increasingly communicated through symbols and signals. Much of the last half of Exodus is taken up with instruction regarding the application of symbols and signals.
Late in his life Moses assured his people of future value by reminding them of past signs and symbols that had been fulfilled:
He will love you and bless you and multiply you; He will also bless the fruit of your womb and the fruit of your ground, your grain and your new wine and your oil, the increase of your herd and the young of your flock, in the land which He swore to your forefathers to give you… You shall be blessed above all peoples… You shall well remember what the Lord your God did to Pharaoh and to all Egypt: the great trials which your eyes saw and the signs and symbols and the mighty hand and the outstretched arm by which the Lord your God brought you out. (Deuteronomy 7:13-19)
In the Books of Moses the Hebrew מופת or mowpheth is translated as symbol. It is also often translated as wonder or miracle. The word for sign can also mean omen or remembrance, warning or proof. A thoughtful and substantive use of signs and symbols is crucial to the creation of recognized and differentiated value. Well-chosen and carefully used signs and symbols can do miraculous work.
Monday, February 22, 2010
Linking Values
Moses has a product he desperately wants his people to choose and cherish. The product has innate value and offers substantial benefits. Despite the quality of the product, the market is reluctant, skeptical, and inclined to choose low quality substitutes.
Moses works hard to demonstrate how his product can reduce the buyers’ costs and increase the buyers’ performance. In this process he is making links between the values and activities of God with the values and activities of the chosen people. He is trying to demonstrate that “I am Who I am” is uniquely powerful, uniquely loving, uniquely just. Moses is seeking to persuade his people that the God of their ancestors is not just one of many possible gods, but is absolutely differentiated from all other gods, is the one true God of the universe, and is their unique source of meaning and purpose.
Moses can observe that assurance of meaning and purpose is valued by his people. In what they say and do, they want and need what God is offering. But, still, it is challenging to link the values – even when what is valued is fundamentally shared.
Porter writes, “The starting point for understanding what is valuable to the buyer is the buyer’s value chain. Buyers have value chains consisting of activities they perform just as a firm does… The buyer’s value chain determines the way in which a firm’s product is actually used as well as the firm’s other effects on the buyer’s activities. These determine the buyer’s needs and are the underpinnings of buyer value and differentiation.” (Porter, Michael E.; Competitive Advantage, Free Press, 1985)
My firm’s principal value-delivered – reflecting its true self – is learning efficacy. But many of our clients have only a passing interest in evidence of real learning. In most markets “education” is seen as a viable product whether or not the delivery results in learning. The quicker, cheaper, and easier education can be delivered, regardless of actual impact, the happier many of our clients will be. But this low expectation regarding learning translates into a tendency to low-ball budgets. The disconnect between what we value and what many clients value is clearly disadvantageous to the firm.
Almost all of our clients, however, place high value on increasing their budgets. This is often the preeminent activity in their value chain. Recognizing this buyer value, we have also observed that many of our clients depend on PowerPoint presentations to argue for their budgets. As a result, we have increasingly used PowerPoint presentations to report on learning efficacy. We produce these PowerPoints with the buyers’ funders in mind. This tends to encourage our buyers to use learning efficacy – and the same PowerPoints – as an argument to justify increased funding, which, if successful, tends to encourage our buyers to give greater value to our firm’s core value in learning efficacy.
We place high value on learning efficacy. Many of our clients place high value on generating higher budgets. By making it easy for our clients to see and use a relationship between what we value and what they value, we create a greater sense of shared value, and better position our product as having unique value.
This one linkage is not enough to create a sustained strategic advantage. We must make similar links with a wide variety of buyer activities. As Porter explains,“Differentiation… stems from the specific activities the firm performs and how they affect the buyer. Differentiation grows out of the firm’s value chain. Virtually any value activity is a potential source of uniqueness.” The more links in the value chain that the supplier and buyer clearly share, the stronger the supplier’s strategic advantage.
What do you do? How you actually behave is the best evidence of what you value. How are your various activities linked? Are they linked? How do the links impact your results? Try to map out your value chain – the sequence of behavior – that results in your “product.”
What does your client do? How are your client’s activities linked? Try to map out your client’s value chain. Where can you forge a connection between links in your value chain and links in your client’s value chain?
After the debacle at Mt. Sinai – with the chosen people fleeing from their loving creator – Moses and God substantially adjust their approach. In place of thunder, lighting, trumpets, smoke, and devouring fire – a veritable volcano of a God – Moses receives instructions to craft an exquisite tabernacle of fine wood, precious stones, and rare metals in which God will dwell among the people in a tent.(Exodus 25) Talk about strategic repositioning.
From this Ark of the Covenant, made of acacia wood, God will travel with the chosen people, and meet with Moses “face to face, as one who speaks to a friend,” (Exodus 33: 11) and in this less dramatic way build a relationship with the whole community. The buyers no longer have direct access, but through Moses there is significant indirect access. The power available is still the same, but the packaging is much less intimidating. The God of the tabernacle is just as responsive to the profound needs of the people as the God of the fiery mountain, but the subtle mystery of the tabernacle is, evidently, more acceptable than the full power of the volcano.
Throughout the Bible we can perceive God working to link our value chain to the source of ultimate value. It remains the buyer’s choice. But God is trying to make it easy for the buyer.
Moses works hard to demonstrate how his product can reduce the buyers’ costs and increase the buyers’ performance. In this process he is making links between the values and activities of God with the values and activities of the chosen people. He is trying to demonstrate that “I am Who I am” is uniquely powerful, uniquely loving, uniquely just. Moses is seeking to persuade his people that the God of their ancestors is not just one of many possible gods, but is absolutely differentiated from all other gods, is the one true God of the universe, and is their unique source of meaning and purpose.
Moses can observe that assurance of meaning and purpose is valued by his people. In what they say and do, they want and need what God is offering. But, still, it is challenging to link the values – even when what is valued is fundamentally shared.
Porter writes, “The starting point for understanding what is valuable to the buyer is the buyer’s value chain. Buyers have value chains consisting of activities they perform just as a firm does… The buyer’s value chain determines the way in which a firm’s product is actually used as well as the firm’s other effects on the buyer’s activities. These determine the buyer’s needs and are the underpinnings of buyer value and differentiation.” (Porter, Michael E.; Competitive Advantage, Free Press, 1985)
My firm’s principal value-delivered – reflecting its true self – is learning efficacy. But many of our clients have only a passing interest in evidence of real learning. In most markets “education” is seen as a viable product whether or not the delivery results in learning. The quicker, cheaper, and easier education can be delivered, regardless of actual impact, the happier many of our clients will be. But this low expectation regarding learning translates into a tendency to low-ball budgets. The disconnect between what we value and what many clients value is clearly disadvantageous to the firm.
Almost all of our clients, however, place high value on increasing their budgets. This is often the preeminent activity in their value chain. Recognizing this buyer value, we have also observed that many of our clients depend on PowerPoint presentations to argue for their budgets. As a result, we have increasingly used PowerPoint presentations to report on learning efficacy. We produce these PowerPoints with the buyers’ funders in mind. This tends to encourage our buyers to use learning efficacy – and the same PowerPoints – as an argument to justify increased funding, which, if successful, tends to encourage our buyers to give greater value to our firm’s core value in learning efficacy.
We place high value on learning efficacy. Many of our clients place high value on generating higher budgets. By making it easy for our clients to see and use a relationship between what we value and what they value, we create a greater sense of shared value, and better position our product as having unique value.
This one linkage is not enough to create a sustained strategic advantage. We must make similar links with a wide variety of buyer activities. As Porter explains,“Differentiation… stems from the specific activities the firm performs and how they affect the buyer. Differentiation grows out of the firm’s value chain. Virtually any value activity is a potential source of uniqueness.” The more links in the value chain that the supplier and buyer clearly share, the stronger the supplier’s strategic advantage.
What do you do? How you actually behave is the best evidence of what you value. How are your various activities linked? Are they linked? How do the links impact your results? Try to map out your value chain – the sequence of behavior – that results in your “product.”
What does your client do? How are your client’s activities linked? Try to map out your client’s value chain. Where can you forge a connection between links in your value chain and links in your client’s value chain?
After the debacle at Mt. Sinai – with the chosen people fleeing from their loving creator – Moses and God substantially adjust their approach. In place of thunder, lighting, trumpets, smoke, and devouring fire – a veritable volcano of a God – Moses receives instructions to craft an exquisite tabernacle of fine wood, precious stones, and rare metals in which God will dwell among the people in a tent.(Exodus 25) Talk about strategic repositioning.
From this Ark of the Covenant, made of acacia wood, God will travel with the chosen people, and meet with Moses “face to face, as one who speaks to a friend,” (Exodus 33: 11) and in this less dramatic way build a relationship with the whole community. The buyers no longer have direct access, but through Moses there is significant indirect access. The power available is still the same, but the packaging is much less intimidating. The God of the tabernacle is just as responsive to the profound needs of the people as the God of the fiery mountain, but the subtle mystery of the tabernacle is, evidently, more acceptable than the full power of the volcano.
Throughout the Bible we can perceive God working to link our value chain to the source of ultimate value. It remains the buyer’s choice. But God is trying to make it easy for the buyer.
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