Finding Better Strategies
thinking, Schultz announced the end of monthly comparative sales reporting, and the chain shifted its merchandising to products that were tied to coffee, such as the now-popular “Via” instant cof- fee. Shultz and his team strategically figured that if they could “integrate Via and other products into the emotional connection we have with customers in our stores,” they could launch a new model that would still feed the bottom line but in a way that is consistent with the organization’s mission. Even being able to choose the industry or to dictate the rules of competition, should the company be so fortunate, are legitimate outcomes of strategic thinking (Webb, 2011).
Strategic thinking is not just “thinking” or “blue-skying,” but trying to find different and better ways of competing, of delivering customer value, and of growing—that is, thinking with some purpose in mind. Without such thinking and absent many years of experience, coming up with alternative strategies or business models and choosing a preferred or “best” one becomes con- siderably more difficult. The following sections go into more detail about how to engage in stra- tegic thinking.
3.2 Finding Better Strategies Having discussed the range of potential business strategies in Chapter 1, we shall next examine how companies can make decisions about which strategy or strategies work best for them. Searching for a better strategy could simply mean “look at strategies we aren’t currently pursuing and see whether adopting any of them makes any sense for us.” In meaningful terms, however, the challenge is more complex. In this section, we explore three ways of thinking that would yield better results:
• Play a different game • Be entrepreneurial • Find more opportunities
Play a Different Game Strategy is all about standing out from the competition by finding a unique way to dominate the industry. To paraphrase Michael Porter of the Harvard Business School and leading scholar in the field of strategy, improving the way you do business is desirable, but will not produce long-term benefits if it is something that your competitors can replicate (Porter, 1996). If competitors can easily copy your strategies, you will have to rethink them as you will not be about to maintain your advantage for long.
Discussion Questions 1. Chatting with a guest over dinner, you learn that he manages a small business and that, as this is
a new experience for him, he feels somewhat overwhelmed. How might your knowledge of stra- tegic thinking help him?
2. Is being highly creative the same as being a good strategic thinker? Why or why not? 3. What might be an apt analogy for trying to do strategic planning without doing any strategic
thinking? 4. If a company did only strategic thinking, would it need to do strategic planning? Discuss.
CHAPTER 3Section 3.2 Finding Better Strategies
Consider concentration, a recognized strategy by which a company continues to better its product and broaden its market share. If the competition imitates this success by playing the same game, at best a company may gain a limited or momentary edge by developing a new product or power- ful advertisement. Porter would say that this is achieving greater operational effectiveness, not strategy (Porter, 1996). The difference comes when a company can successfully differentiate itself in a way that is difficult or impossible for competitors to imitate. Differentiation is a form of playing a different game—a game which ideally only your company is positioned to win.
For example, TOMS Shoes founder Blake Mycoskie has created a unique business model that’s a win for the company, its customers, and the hundreds of thousands of impoverished children in Argentina, Africa, Ethiopia, and the United States who receive a free pair of shoes for every pair purchased (Cook, 2009). There is nothing particularly special or unique about selling shoes, or the design of the TOMS model. Consumers have hundreds, if not thousands, of choices when it comes to casual, affordable footwear. But Mycoskie’s differentiation strategy of introducing a social mes- sage of “doing good” into his business has resulted in a recognizable and profitable brand.
Gary Hamel and C. K. Prahalad, who formulated the “core competencies” business model, made a similar point when they said that firms should not be too concerned about competing with their current competitors. Focusing on the actions of competitors puts a company in the position of simply making attempts to “catch up,” by which time the industry leaders would have lengthened their lead again. Instead, they suggest that companies should prepare to compete in a future market, one that only they know about and for which, therefore, they would have the greatest lead time pre- paring to serve. When a company comes up with the right products to serve that market, it will, by defini- tion, be the leader and have all others scrambling to follow and catch up (Hamel & Prahalad, 1994). These are valuable points, but identifying such a market is no trivial feat. Preparing to compete in a future market requires an intimate knowledge of industry and mar- ket trends as well as what is changing in the general external environment. These are, in fact, the requisite elements for strategic thinking when it is done prop- erly, all the time, year round.
One clear example of successful differentiation is the grocery store chain Trader Joe’s. The chain began as a small group of stores based in Southern California and by 2011 grew to become a nationwide chain with 365 stores and an estimated $8.5 billion in revenue (Super- market News, n.d.). Joe Coulombe, the chain’s founder, quickly realized that he could not compete against tra- ditional convenience stores such as 7-Eleven or well- known grocery store chains like Safeway. In order to be different, he drew on his love of traveling to France for food and wine, turning trips abroad into business trips to purchase for his stores. Today, Trader Joe’s dif- ferentiates itself in five distinct ways:
Associated Press/Ric Francis
Trader Joe’s stores differentiate themselves from other grocery stores by having fast turnaround; selective and privately labeled products; small, intimate environments; great customer service; and extraordinary value.
CHAPTER 3Section 3.2 Finding Better Strategies
• Selective products. Trader Joe’s has a limited assortment of about 3,200 SKUs (stock-keeping units), a relatively small number for a grocery store. In contrast, a large supermarket would have on the order of 50,000 SKUs. The items turn over quickly.
• Private-labeled unique products. About 70% of the items in the stores are unusual items that were found on international buying trips and immediately repackaged with the Trader Joe’s brand label. The stores do not stock commodities. Because most of the items are unique, customers can buy them only from Trader Joe’s.
• Small, intimate feel of each store. The stores are kept intentionally small and very intimate. A Trader Joe’s market is on average about 10,000 square feet. Safeway by comparison has an average store size of 55,000 square feet. If a store gets too crowded, another one is opened. Giving each location a neighborhood-store atmosphere that is not slick or chainlike turns it into a unique social experience for the customer. The Trader Joe’s brand is, in fact, the store.
• Fanatical attention to customers. Everything Trader Joe’s does centers on the customer. Its whole philosophy of buying and offering products is predicated on choosing those products that customers will and do buy. The products are selected and tested with the customer in mind. This forges a bond with its customers and gets them to come back time and time again.
• Extraordinary value. Trader Joe’s buying target is a product with significant value, com- prising taste, quality, private labeling, and price. Each product has to pass a number of tests in the tasting process. Trader Joe’s thus ensures that the products taste good, meet rigorous standards of quality, and are priced competitively. That spells value from the customer’s point of view. If Trader Joe’s cannot find the best price for a product, the item is not carried in its stores (Abraham, 2002).
Trader Joe’s is a model of what it means to play by your own rules and win. The chain’s busi- ness model is unrivaled, with popular products and a trusted brand name. Customer loyalty is what sets Trader Joe’s apart from competing grocers. After all, isn’t one supermarket much like another? Finally, Trader Joe’s selects the items it stocks and sells, whereas chain supermarkets all stock the same selection of brand-name products that manufacturers supply to all supermarkets. Because the grocery chains stock a common selection of name brands, manufacturers have bar- gaining power over them. That is why Trader Joe’s is also more profitable.
Be Entrepreneurial Those with an entrepreneurial mindset are “different” from everyone else. They see opportunity where others do not. They seem to have a special knack for discovering opportunities and thinking outside the box. Entrepreneurs are extremely mindful of value generation and tirelessly seek new ways to produce and deliver value. When something takes a long time to accomplish, they look for a faster way. If something keeps breaking down while using it, they look for a more reliable way. If something is too complex, they find a simpler solution.
The entrepreneur’s ability to see opportunity depends first on a level of dissatisfaction with what exists today and a clear conception of the problem. After that, they generate ideas and possible solutions until arriving at a resolution to the problem, which they then develop into a product or service with commercial potential. In each instance, it is the customer’s needs and level of per- ceived satisfaction that drive the changes pursued. The customer base is considered the number one concern, and the entrepreneur must constantly attempt to “walk in the customers’ shoes” in order to determine what will fulfill their needs.
Dustin Moskovitz and Justin Rosenstein were two of the founders of Facebook. In their experiences at the growing giant, they frequently became frustrated with the difficulty of project management
CHAPTER 3Section 3.2 Finding Better Strategies
in an organization with layers of management, hun- dreds of employees, and a seemingly endless stream of innovations and new ideas. Realizing that their struggles to streamline collaborative work and com- munication were common to many professionals, they eventually left Facebook to create Asana, a workplace- productivity-software company. Because Moskovitz and Rosenstein had literally walked in the customer’s shoes, they had a great foundation for launching a business that would help other professionals solve common workplace-collaboration and project-man- agement problems (Vance & MacMillan, 2011).
To be able to take advantage of strategic opportunities that they are missing, strategists, organizational lead- ers, and marketing professionals must learn to look at the world with entrepreneurial eyes and see it from
the customer’s perspective. Strategic thinking is concerned not simply with how to be different but with generating alternative possibilities of creating customer value that the organization can deliver.
Figure 3.1 shows a matrix of products and markets. All companies in business are, by definition, in the top-left cell, selling existing products or services to an existing market. When product- or market-development strategies are implemented, it is rare that only one of the components is affected. Improving the product is likely to expand the market, and expanding the market usually entails improving the product. Improving or modifying the product often attracts new customers, for example when a sedan is modified to be sportier or even into a convertible. Expanding a market
Exsisting Markets Product development
M a rk
e t d e ve
lo p m
e n t
Exsisting Products
Improved Products
New Products
Expanded Markets
New Markets
Conglomerate Diversification
Figure 3.1: Concentration strategies
Associated Press/Rick Bowmer
Nike used a concentration strategy to develop a whole new line of athletic apparel in addition to its athletic shoes.