|Table 1 : Hamel & Prahalad's New Strategic Lexicon |
One doesn't get to the future first by letting someone else blaze the trail. So what is it that compels some companies rather than others to take up the difficult challenge of inventing the future? What allows some companies to create the future despite enormous resource handicaps while others spend billions and come up short? Why do some companies seem to possess over-the-horizon radar while others seem to be walking backwards into the future? In short, what does it take to get to the future first? At a broad level it requires four things : (1) an understanding of how competition for the future is different; (2) a process for finding and turning insight into tomorrow's opportunities; (3) an ability to energize the company top-to-bottom for what may be a long and arduous journey toward the future; and (4) the capacity to outrun competitors and get to the future first, without taking undue risks.
Implicit here is a view of strategy quite different from that which prevails in many companies. It is a view of strategy that recognises:·it is not enough to position optimally within existing markets; the challenge is to pierce the fog of uncertainty and develop great foresight into the whereabouts of tomorrow's markets.
·the need for more than an incrementalist, annual planning rain dance; what is needed is a strategic architecture that provides a blueprint for building the core competences needed to dominate future markets
·less concern with ensuring a tight fit between goals and resources and more concern with creating stretch goals that challenge employees to accomplish the seemingly impossible
·the quest to overcome resource constraints through a creative and unending pursuit of better resource leverage
·competition often takes place within and between coalitions of companies, and not only between individual businesses
·to capitalise on foresight and core competence leadership, a company must ultimately preempt competitors in critical global markets; that the issue is not so much time to market, but time to global pre-emption
Hamel & Prahalad, "Competing for the future"
|Table 2 : surprising new assets|
There is constant tension between the accountant - valuer of old assets (cash and tangible items) - and the operations executive - the orchestrator that believes he should invest to enhance the value of all his assets. Cutting-edge leaders of business today concentrate more on the new assets (brands, process capabilities, people and knowhow) than the old, putting up to five times more effort on the new assets than ten years ago.
(1993), Business Process Reengineering, Johansson, McHugh, Pendlebury, Wheeler (Coopers & Lybrand), Wiley, 1993
|Table 3 : Will Cott become a virtual General Foods?|
Says Heather Reisman Cott's President "Pencer likes to say let's see if we can create the next General Foods. He's probably projecting a decade, but there is a fundamental transformation taking place in the whole food chain. Who manufactures, how they work with suppliers, how they work with retailers, how the marketing happens. If we understand that change, we could build a giant company".
What this means is that Pencer thinks he's figured out how to use other companies' manufacturing facilities and expertise to build his own conglomerate. For instance, when faced with making soft drinks for an exploding market, Pencer negotiated "copacking" deals that saw existing bottlers use their excess capacity to pump out his product. Pencer has bought three bottling plants in the US and is building a new Montreal facility, but he relies heavily on copacking deals with a network of Royal Crown bottlers in the US. In Europe, he is expanding through similar arrangements with Benjamin Shaw and sons in the UK and Cadbury Schweppes on the continent.
Now Pencer wants to catapult from soda pop into a full range of products and services, replicating the operating philosophy of his soft-drink business as he goes. As Reisman explains it, private-label soft drinks sell better when they are part of a comprehensive, well merchandised program. The company will create packaging for a retail program and help locate suppliers. It will refine recipes and develop the products themselves. All of this Cott will do, ostensibly free of charge, in the belief that it promotes the company's core business.
Cott plans eventually to spread the costs of these services over as many as six or seven categories. All must be high-volume, high-profile products that currently do not return enough profit to the retailers. They must all, in other words, resemble the soft-drink category of a few years back. Pet food is one promising category. Snack foods, beer (including non-alcoholic beer) and juice-based drinks may prove to be others. Cott is buying into these President's Choice supplier companies in order to gain expertise in their product categories, and to test the vision.If more opportunities become available and other product categories fit the bill, Cott is "definitely open" to further investments says Reisman. The plan is to negotiate more excess capacity deals, manage more relationships and leverage Cott's intellectual capital. "I'm not saying we don't have to own anything" says Reisman "but we don't have to own things, in the way the old world did, in order to create value. If we wrap our ingenuity around someone else's bricks and mortar, we add value and make money. It's not so much a "new-age General Foods" as a kind of "virtual" General Foods."
Extracted from "The Hired Hand Waves Goodbye", Mark Stevenson, Canadian Business, August 1994
|Retailer Nick Kirkbride has joined the Virgin Cola Company as its new managing director. The Virgin Cola Company is a joint venture between Virgin and the European subsidiary of the Cott Corporation. It oversees Virgin's soft drinks business, including its own-brand cola and forthcoming energy drink, understood to be called Pure Virgin Energy.|
Kirkbride has also spent five years at management consultancy McKinsey. His connection with Virgin goes back six years, when he worked at Cadbury Schweppes alongside Simon Lester, who is now managing director of Virgin partner Cott Europe.
Marketing Week, February 24, 1995
Branson is leading the chase in the cola market. In line with his taste for David-and-Goliath battles, Branson has pumped up his ambitions since launching Virgin cola in November 1994; now his ultimate goal is for his cola to be the number one brand.
In his 50/50 venture with Cott, he hopes to capitalise on the Virgin brand name and launch the drink this year in Asia, continental Europe and the central battlefield of the cola war - America. Branson accepts that it may take him the rest of his life to knock Coca-Cola from the top spot, but believes he has the brand and product to do it " We have come up with a drink that people prefer to Coke that is also much cheaper". Branson believes that there is room for three main global cola companies. " I hope the market will support three" he says "I would certainly hate Coke to go bust".
The Sunday Times, 5 March 1995
|Table 4 : Leaders find their own way to go closest to consumer needs|
1) What is noteworthy about Cott and Virgin is that basically they use the resources of others. This has to be the best way to avoid risk and achieve good margins. If Virgin cola flops, there appears to be no real loss to Branson. Putting the package together (as bankers once did) has to be sound strategy.
2) Consumers are discriminating and long run success depends on taste - the first test for any cola will in the end be do you want to drink it day in day out? For example, even though Pepsi often wins in a blind test (ie a one-off serving), it does not seem historically to have achieved the same permanent drinkability as Coke.
3) The big markets for these brands are turning to Africa, India , China, and the rest of Asia. The lion's share of the cola market will go, as the market develops, to Coke and Pepsi. Competing entries will come in after the markets are established.
4) Remember that even in the UK, a hot summer may produce an impulse market of half a billion dollars of colas not easily tapped by Sainsbury, Cott, Virgin et al. This is bought from non-grocery outlets. The key, as always, is whether the product is within easy reach when you feel thirsty. This is where Coke scores with its distribution and merchandising systems.
5) The end position will come when you can make decent drinks in your own home. You are then likely to want to drink the brand leaders, who will presumably patent their cartridges so that outsiders cannot use their system.
|Table 5 - Our tip : no better buy in the world at around this price!|
The US magazine, Financial World, has a paid circulation of over 500,000 readers. In 2 August 1994, it reported results of a brand valuation survey carried out by FW staffers.
"Here's a shock: The IBM brand name is now worthless. That's just one thing we discovered in valuing 290 of the world's most popular brands.
Of the 290 brands surveyed, 14 had negative or zero value... In such cases, a competing generic product could have generated high profits on the same level of sales.
IBM is in trouble because, while pouring millions into its mainframe business, it neglected the general switch into personal computers. And as PCs became more and more of a commodity, they began selling more and more on price. Now, thanks to low-cost producers like Dell, IBM is a big loser"
"If nothing else " says Raymond Perrier of Interbrand " what brand valuation does is to get marketing and financial people to talk to each other in the same language - the language of brand value, because it involves every part of the business".
|Table 6 : how great is the knock-on effect of any stakeholder on the relationships of all other stakeholders?|
Writing in 1989, we advised branders to think through the magnifying impacts that journalists would increasingly have on world class brands.
"Fame and the high international standards expected of world class brands make them natural candidates for global news headlines. Like superstars, megabrands own the hallmarks which journalists revel in:
·They have differentiated themselves as the world's number one in something
·They offer stereotyped images which can be used in international copy with few words of introduction to the reader
·As celebrities they are fair play for public scrutiny where the ground rules of the popular media are passive adoration of success and "rotweiller" investigation into failure. Branded contradictions will prove to be as naggingly self-destructive as human scandals.
World class brands as the most public faces of international corporations are drawing an increasing share of media attention. This trend will accelerate as parochial news barons are being replaced by transnational news merchandisers. All of this puts a premium on a corporate appetite for what-iffing alternative future scenarios in relation to their impacts on brand processes."
Since making this observation, we wonder whether we understated the case given such examples as:
·1993 : Marlboro receives globally critical publicity over a local pricing manoeuvre. As the shares of an increasing number of brand owners suffer, Wall Street christens the day of the price cut as Marlboro Friday. We doubt whether Marlboro's marketing tactic would have made any global headlines in earlier years before it became the world champion of all brands with a reported valuation of over 30 billion dollars of goodwill.
·1994 : Unilever starts European detergent "Power" wars. In 1994, Unilever brought PR into its branding mix in a big way offering leading European newspapers exclusives on one of the company's biggest ever new product launches featuring the "power" of an aluminium detergent catalyst - to be launched simultaneously across Europe as the culmination of a ten year R&D program. PR boomerangs back in an even bigger way when you find out in the marketplace that there has been a product slip up somewhere between R&D and marketing.·1994 : Intel's overt branding of the chip's importance inside the PC added value chain was a strongly executed strategy apart from one side-effect. It became too much for IBM who, as both manufacturer customer and rival producer of chips, was prepared to join in a global PR war over a technical and very infrequently experienced imperfection in the Intel Pentium. Part of IBM's purpose in this was to redress the balance of global perceptions as to whose brand contributes most as a quality guarantee to the end-consumer of personal computers, and presumably future products which include computer chips in their ingredients.
|Table 8 - Strategic precepts are branding precepts, and vice versa|
·Strategic architecture and foresight
·Keys for the brand architect : banner brands, core competences
·Added value chain and industry surplus - alternative models of branding
|Table 9 : New architects for old planners|
"Not only must the future be imagined, it must be built; hence our term "strategic architecture". An architect must be capable of dreaming of things not yet created - a cathedral where there is only a dusty plain, or an elegant span across a chasm that hasn't yet been crossed. But an architect must also be capable of producing a blueprint for how to turn the dream into reality. An architect is both a dreamer and a draftsman. An architect marries art with structural engineering.
To build a strategic architecture top management must have a point of view on which new benefits or "functionalities" will be offered customers over the next decade or so, on what new competences will be needed to create those benefits, and on how the customer interface will need to change to allow customers to access those benefits most effectively. Strategic architecture is basically a high-level blueprint for the deployment of new functionalities, the acquisition of new competences and the reconfiguring of the interface with the customer.
Strategic architecture is not a detailed plan. It identifies the major capabilities to be built, but doesn't' specify exactly how they are to be built. Try a cartographic analogy: strategic architecture is a high level map of interstate highways, not a detailed map of city streets. It is specific enough to provide a general sense of direction.
Creating a detailed plan for a ten- or fifteen- year competitive quest is impossible. Planning assumes a degree of exactitude (which price points, which channels, where to source from, what merchandising strategy, what exact product features) that is impossible to achieve when one looks out beyond the next two or three years. Insisting on such exactitude before embarking on a new strategic direction is a recipe for inertia and incrementalism. Luckily, it is possible to create a broad agenda for functionality deployment and competence acquisition." Hamel and Prahalad, Competing for the future
|Table 10 : Strategic architecture - the new style rules|
·Incremental improvement in market share and position
·formulaic and ritualistic
·existing industry and market structure as the base line
·industry structure analysis ( eg segmentation analysis, competitive benchmarking...)
·tests for fit between resources and plans
·capital budgeting and allocation of resources among competing projects
·individual businesses as units of analysis
·business unit executives
|Crafting strategic architecture|
·Rewriting industry rules and creating new competitive space
·exploratory and open-ended
·an understanding of discontinuities and competences in the base line
·a search for new functionalities or new ways of delivering traditional functionalities
·enlarging opportunity horizons; tests for significance/timeliness of new opportunities
·development of plans for competence acquisition and migration
·the corporation as unit of analysis
·the collective wisdom of the company
·line and staff driven
| Renewing resource leverage|
>·building consensus on strategic goals
>·specifying precise improvement goals
>·emphasising high-value activities
>·fully using the brain of every employee
>·accessing resources of partners
>·combining skills in new ways
>·securing critical complementary resources
>·reusing skills and resources
>·finding common causes with others
>·shielding resources from competitors
>·minimising time to paybackExtracted from Hamel and Prahalad, Competing for the future
|Serve and serve again|
"Virtually everything we buy is a combination of product and service. For a brand to be successful, the service element will have to become more dominant.
This fact in turn will imply, in an era of technological leapfrog, that the company brand will become the main discriminator. That is, consumer's choice of what they buy will depend less on an evaluation of the functional benefits to them of a product or service, but rather more on the assessment of the people in the company behind it, their skills, attitudes, behaviour, design, style, language, greenism, altruism, modes of communication, speed of response, and so on - the whole company culture, in fact.
|Regarding consumers' relationships with corporate brands, two vital components of successful positive relationships are : trust in the brand and consumer satisfaction with the brand.|
Trust in a brand has been defined by Eric Baron as:
TRUST = (1/RISK)*CREDIBILITY*INTIMACY
Many corporations act as if only credibility counts. They act as if producing good quality products and services, which gives the corporation a good image for dependability and reliability, is sufficient to gain the consumer's trust. They forget two other critical factors. First, the greater the level of risk consumers perceive, the less likely they are to place their trust in the brand. Second, the degree of intimacy is a measure of a brand's success in creating a personal link with the individual consumer. It means showing that the brand knows the consumer.
SATISFACTION = PROACTIVE + SUPPORTIVE
People want to deal with companies which they see as innovative, ambitious to succeed, ingenious in the development of new ideas and hardworking. In image terms, this can be summarised by the term proactive. However all this proactivity comes down to aggressive salesmanship unless customers perceive this energy as being as a response to and in support of their needs. So supportiveness communicates to the customer that a company listens and responds appropriately.
Extracted from a chapter by Max Blackston "Beyond brand personality" in "Brand Equity and Advertising" edited by D Aaker and A Biel
|Reengineering accountancy - the case for debate|
Core competences and banner branding are the kind of flexible concepts we will all need as witnesses of two revolutions in the environment which world class companies must pace themselves for. These are:
·change from the industrial era to the post-industrial information era
·change from competing in markets with hard and fast local borders to the ultimately far greater and freer competition of "glocal" global and local marketing.
Accountants have hindered the great brand changeover from product branding to banner branding by trying to count up brand worth on the basis of proven past performance when almost every other kind of business person can see that meaningful brand leaders are dynamic assets. Fortunately, accountants have not yet got round to trying to value the other great intangible - core competences - and it is to be hoped that they do not until they have reengineered their own profession.
Who ever said that the strength or weaknesses of a world class company's horizons-for-performance could be counted up every 3 months? Indeed, if you can do this why not audit a company's results every day, and all the world can be accountants, and then all wealth production can be counted precisely and in the process precisely extinguished.
The new reality which Hamel & Prahalad architectural school is forcing us to confront is that world leading products will often involve longer development processes than new product outputs of recent decades. They will require greater combinations of resources brought to bear in the pre-marketing phase than products which survived because they only had to be locally competitive. Increasingly, they will not be the produce of one company's stock of competences resources but will instead of need to draw on the best networking capabilities which groups of companies could offer.
Henceforth, business units will need to plan how to delight future customers by knowing what specific corporate focus of excellence they leverage and what gaps in corporate knowhow they must fill through partnering companies. They should not be isolated counting houses within a company whose foundations and managers' incentives (and careers) stand or fall on every quarters' results.
Like most things, the practices envisioned here only sound revolutionary if you are not already organising them. A primary reason why leading Japanese and Asian companies continue to outperform Western counterparts is the longer time horizons they use to evaluate marketing success. They have found forms of financial back up that are consistent with world class intent and realisation. They are not burdened by short-termism and over-accounting.
We have argued for a new form of marketing discipline which networks its added value learning across the organisation instead of departmentalising itself. Similarly, we argue for a new kind of accountancy skill that teamworks instead of acting as short-term judge and jury. Doubtless there will be professional backlashes as the millennium changeover takes place. Professional luddites who want to talk themselves out of participating in world class business have that right individually, but societies will not thank them where they sacrifice the competitive advantages that nations and regions would otherwise have enjoyed by co-hosting the greatest wealth producing companies and added value spheres of business the world will come to know. In "World Class Brands" (1990), we argued that the greatest threat to world class marketing as companies entered the nineties was overbranding. Writing in the mid 1990s, we now argue that one of the greatest threats to elevating communal prosperity is situated in those regions of the globe where companies are subject to the extraordinary false precisions in business thinking which over-accounting directly and indirectly causes.
|"Over the past 30 years the UK has systematically destroyed its manufacturing base, losing 50% of its share of world manufacturing trade. Time after time, we have allowed strategic industries to be sold overseas.|
We are involved in a third world war, a war of economies which we are losing. The fact of the matter is business leaders don't know there is a war - the "what war" attitude, born of complacency. We need to change the whole business culture of the UK. Why, for example, do we need 20 times more accountants per head than either Germany or Japan?
Teamwork amongst members of the EC is a crucial element. We should play to the combined strengths of the team rather than drag it down to the lowest common denominator. Members including the UK have much to learn from the manufacturing strengths of each other. Germany, for example, with its high level of support for manufacturing quality and design. Italy, with its emphasis on its network of subcontractors."
Extracted from Business Life, April 1995
|Table 12 : Winning the right to brand|
Focusing on market share seems to concentrate attention on competing manufacturers, when perhaps the key need today is to understand the total system in which a company operates. Adopting a total system perspective is critical in a world where suppliers and customers are more sophisticated, always seeking to shift the balance of power and gain profit at the expense of each other. Market share, we would therefore argue - if taken as the primary aim - is fundamentally misleading.
In fact, marketing should be measured against market surplus. By market surplus we mean simply the difference between the price paid by the consumer and total industry costs - ie the total profit earned by suppliers, by manufacturers and retailers. This new measure introduces two critical changes in perspectives : it focuses on profit rather than simply on income or revenue (hence capturing the different profitabilities of brands and channels) and it focuses on the total system and the profits earned by everyone within it. It stimulates concentration not only on grabbing share from direct competitors, but by exploring how total industry surplus might be increased (through adding extra value for the consumer), or how industry costs can be cut through increased supply chain efficiency and it focuses attention on whether supplier, manufacturer or retailer is strategically secure in retaining its share of the total profit pie.
The right to brand will tend to go to the company that, other things being equal, meets three criteria:
·it is part of a winning value proposition
·it controls the core assets to deliver the value
·it owns the consumer relationship in the most efficient way. McKinsey's : Winning the right to brand
|Table 13 : The discernible sequential pattern in consistently successful, foresighted decision-making|
The business domain must be clearly defined
The forces at work in the business environment must be extrapolated into the future on the basis of cause and effect, and a logical hypothesis on the most likely scenario must be stated simply and succinctly
Of the many strategic options open to the business, only a few may be chosen. Once the choice is made, people, technology and money must be deployed very boldly and aggressively. By concentrating more resources in support of fewer options, the company gains a bigger edge over its competitors in those businesses and thereby improves its success rate. This is why successful and unsuccessful companies diverge so greatly over time.
The company must pace its strategy according to its resources rather than going all out to achieve too much too soon. It must guard against overreaching itself.
Management must adhere to the basic assumptions underlying its original strategic choice as long as those assumptions hold. But if changed conditions demand it, they must be prepared to change even the basic direction of the business.
Kenichi Ohmae, "The mind of the strategist - the art of Japanese business", McGraw Hill, 1982