WHY YOUR STRATEGY STINKS
Richard Farr
Brian Wood
Telos Solutions
Life Convention, Edinburgh: November 2009
Introductions
Brian Wood
Actuary CEO, Telos Solutions Former CEO of 2 lifecos ‘Blue Ocean Strategy’
licensed practitioner Co-author of “Beat the
Pensions Crisis”
Richard Farr
Marketing specialist Business Development
Director, Telos Former director of AIFA
and Association of Mortgage Intermediaries
Extensive experience in building societies and mortgages sector
2Why your Strategy Stinks Farr & Wood
What is Strategy?
3Why your Strategy Stinks Farr & Wood
Examples of great strategy
(not FS)
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Four attributes of great strategy:
4. Delivery3. Differentiation
1. Future orientation
2. Customer intimacy
5Why your Strategy Stinks Farr & Wood
Strategy in Business
Established in the 1950’s and 1960’s Need for common objectives Origins in military strategy (zero-sum assumption)
Later theories focussed on numbers Competitor review Current industry conditions Current customers
More time spent analysing than observing and thinking
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Classic strategy theory (Porter et al)
Analyse the market boundaries, plotting value against cost
Choose the optimum position along the high value/ high cost to low value/ low cost spectrum
There are no other choices Assumes the market is
inherently static – innovation changes it slowly
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The classic strategy development process
Optimise your
position in current market
structure
Allow for some
emerging trends
Analyse data on
your competito
rs
Analyse data on current
customers
• Finer and finer segmentation of existing markets• Customer wants “more for less”, “more for less”, “more
for less”• A slow death spiral
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“When a BCG consultant walks through your door, he or she will be thinking
about two things: the competition you face and new ways for you to win.”
“McKinsey takes an overall, independent, and
fact-based view of a client’s performance. We
rely on facts because they provide clarity and
align people.”
“Booz Allen are experts in understanding industry structure and dynamics and in boiling it down to
the insights that are most relevant to our clients’
situations.”
“Bain work with top management to beat their competitors and generate substantial,
lasting financial impact ... we dig deep into the
numbers, as the basis for creating solutions.”
Major strategy firms ...
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So: this is why your strategy probably stinksClassic strategy
techniques
• Analysis of past data• Management fear – go for the
‘sure thing’
• Data on current customers, products, competitors
• Little attempt to observe anew
• Analysis assumes that the current market is fixed
• Change is evolutionary
• Little evidence that this is ever considered at all
1. Future orientation
2. Customer intimacy
3. Differ-entiation
4. Delivery
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Life assurance business
• Products and systems emanate from the past
• Strong tradition/profession
• Separation via ‘Distribution’• Confusion policyholders/IFAs• Information asymmetry
• Belief that customers ‘should’ want existing products
• Regulatory suspicion
• Difficult to manage progress with intangibles
• Complex products
What makes a perfect strategy?
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1. Future orientation
2. Customer intimacy
3. Differ-entiation
4. Delivery
• A new market with NO competition
• Products that customers want to pay for
• Refreshed on a regular basis
• Capable of being delivered
• Costs reduced to lowest possible level
Market for video games(Xbox, PlayStation):
Young males:• Fantasy• Violence• Complex graphics• Tricky controls
Nintendo
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Unexplored customers:
Older females.
Observation:They like games!
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Nintendo Wii: strong differentiation
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Market for Nintendo Wii:
Everyone
• Simple physical games
• Simulations• Sociable• Intuitive controls
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Impact on Nintendo
Low-cost graphics Low-cost controls Low-cost game development
Production cost of Playstation: $800
Production cost of Wii: $150 Wii sales overtook Xbox and
Playstation combined in 2008 Nintendo now worth more than
Sony
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The area to expand
FALSE
Competitor World View
Our World View
Source of poor strategy
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Nintendo used ‘Blue Ocean’ tools
RED OCEAN Existing markets Fierce competition Cost-plus pricing High legacy costs Thin margins
BLUE OCEAN Uncontested market
space Competition is irrelevant Market pricing Low costs High margins
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Video games: “As-Is” strategy canvas
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Current customers:where do we add cost/pain but no value?
Purchase Delivery Use Maint-enance Maturity
Ease for customer
Simplicity
Conven-ience
Risk
Fun & Image
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Where do I get one?
Under-writingChange of address
Difficult to understand
Masses of docs
Is it doing well/badly?
Have to visit IFA?
Weeks to process?
Advise me what to do with cash?
Have I got the right one?
May not pay claim
Will it pay out?
Poor FS reputation
Little personal contact
Unexplored
Now
Soon-to-be
Refusing
Observing non-customers
You have many more non-customers than customers
Current customers are already served by you - and your competitors
Everyone is a customer somewhere – so you can observe what they need/ like
If the further reaches are too scary, dip your toe in by observing the “Soon-to-be”
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Observe non-customer needs: Six paths
Industries that offer an alternative
Other strategic groups
Chain of buyers
Complementary products & services
Functional and emotional appeal
Time622
Why your Strategy Stinks Farr & Wood
Construct a new Canvas based on value
CreateWhat factors that the industry has never offered should be
created?
ReduceWhat factors should be reduced well beyond industry standard?
RaiseWhat factors should be
raised well beyond industry standard?
EliminateWhat factors that the industry has taken for
granted should be eliminated?
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Nintendo Wii: strong differentiation
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A simpler example
John Lasseter, animator Left Disney as he could not convince them as to the
power of CGA Joined Lucas Films Computer Graphics Group Co Founded Pixar with Steve Jobs Sold Pixar to Disney in 2006 for $7.4bn Head of Pixar and Disney Movie Studios
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John's view on strategy
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Four attributes of great strategy:
4. Delivery3. Differentiation
1. Future orientation
2. Customer intimacy
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Strategy and Deliveryare completely different disciplines
Strategy is about creating a coherent direction that customers can relate to.
Operations is about the nitty-gritty of internal process, expertise, people, costs.
Success requires both – no point having a strategy that you can’t implement.
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The delivery gap
Strategy thinking is: outside-in risk-taking conceptual
Operations thinking is: inside-out risk-avoiding tangible
So a natural gap tends to exist in most organisations
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Closing the gap
Convert the strategy into operational terms tangibles: what will it
look/feel/sound like? Explicitly manage the
continuous flow between strategy and operations always messy
Start with a ‘top-slice’ exercise to evaluate: costs timescales risks
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Integrate with
delivery
The full strategy development process
Construct new
strategy canvas
Engage with non-
customers
Existing customer pain-points
“As-is” StrategyCanvas
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The acid testsAre you offering something different and special to potential customers?
Will people pay a fair “market price” for what you offer?
Can your costs be low enough so that you generate a profit?
vs
Can you deliver it?
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References and links
A LinkedIn group specially set up for this presentation
http://bit.ly/73BjfJ
“Why your strategy stinks”
Telos Solutions www.telossolutions.co.uk
Brian Wood [email protected]: briandwoodhttp://uk.linkedin.com/in/brianwoodtelos
Richard Farr [email protected]: richardfarrcoukhttp://uk.linkedin.com/in/richardfarr
Beat the Pensions Crisis www.thepensionscrisis.com
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