insight008/366 – Einsichten / Insights, by Boris Thaser, under a CC-BY-2.0 licence

A famous philosopher once said that if you do not know who the patsy is at a poker table, you are the patsy.  In card games, relying on maximising your winnings when you are dealt good hands and limiting your losses when you are dealt bad ones serves only to fast track you to the title of table’s patsy.  To finish in the black, you need to know how to play the players.

The same principle is applicable to business strategy.  If you are using the same data, the same insights and the same analyses as the other companies in your sector, you are basically relying on being luckier than everyone else. Yet, companies do that all the time. Consider how much time and resources a typical company invests on planning and strategising and how unimpressive the typical results are.

A study by McKinsey & Company shows that, worldwide, ten per cent of publicly held companies account for 80 per cent of all profits. All others had nothing noteworthy to show for all the trees they killed in planning retreats and the caffeine they consumed in executive meetings.

Figure 1. Share of global profit pool (trillions of US dollars, 2013)

Zorzella chart

Source: MGI, analysis

Many factors contribute to building a lackluster performance. Many companies have cultural dysfunctions and office politics tainting decision-making. Many take bad shortcuts or lack the capabilities to implement a good plan. Many focus excessively on small “s” strategy, working relentlessly to fine tune their systems and structures within a big “S” Strategy which is fundamentally flawed. But the first fundamental hurdle companies must overcome if they aspire to be in the selective group of value creators is this: is your strategy really different?

If your strategy is comprised of: “pursue the biggest market”, “partner or acquire capabilities” and “let go of assets you do not need”, then you are doing what everyone is doing.  And you are probably buying the same forecasts and analyst reports that your competitors use and applying the same DCF, 5-forces and SWOT frameworks. Like the proverbial patsy, you are looking at your cards and trying to make the best of it.

A successful strategy requires a unique insight.  And by “unique”, we mean “one that you and only you have”. These insights can be about any aspect of your business or the world you compete in including what are the true needs of buyers (e.g. Apple on the potential of iPhones and iPads), how the future might unfold (e.g. Walmart on the emergence of the Chinese market), what technology can do (e.g. Tesla on the implications of battery technology) or how to achieve a strategic objective (e.g. Walmart on low cost and Every Day Low Prices). Bill Gates famously took several weeks off each summer to ponder and develop insights about how the world might unfold, and what it meant for Microsoft.

Producing and cataloging insights before the formal process of strategy development is critical. Once development starts, executives are typically too busy and too pressed for time to create new unique, primary, Big “S” Strategy insights. The best they can do is manufacture superior conclusions from existing data and brainstorm small-“s”-strategy ideas.

A client of ours for example has implemented this process within its innovation framework.  This client is a leading provider of security services and they had a process to identify and prioritise new ideas but this process was too focused on (small “s” strategy) improvement opportunities: product features, pricing corrections, technology-based tools, etc.

All they had to do was expand the scope of what they were doing to explore the strategic implication of the questions they were already investigating.  For example, an idea on how to innovate and improve zoning for their salesforce was expanded to identify an underserved, high-conversion segment and design an innovative strategy to capture it.

In this example, what was originally an idea for the Sales organisation grew to encompass Product Management, Operations and Human Resources. We identified one type of customer with high propensity for referrals, identified changes to products to increase their value for that segment and make it easier to generate referrals and included it on Sales Managers’ incentive program.

This was a unique insight, made possible only because our client’s market leadership meant that they had a lot of proprietary data and dared using a unique, creative idea on how to use it.  Rather than competing using gold-plated but commoditised data and insights, they took maximum advantage of knowledge to which only they had access.

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Notes:

  • The post gives the views of its author, not the position of LSE Business Review or the London School of Economics.
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Luiz ZorzellaLuiz Zorzella is an expert on new markets and a strategy consultant at Amquant. He is a former McKinsey consultant and former JP Morgan investment banker. He co-authored “Revenue Growth: Four Proven Strategies” (McGraw-Hill). Follow him on Twitter @lzorzella Email: lzorzella@amquant.com

 

 

Stephen-DullStephen R. Dull is a management consultant with over 20 years of experience. He started his career at McKinsey & Company in Washington, D.C. and later joined Paris-based spin-off consultantcy Stratorg. He went on to establishe Stratorg’s Washington, D.C. office. Stephen led the Price Waterhouse consulting practice in Western Canada and established partnerships with several “boutique” firms including Decision Strategies International (affiliated with Wharton), Umbrex, and Vici Partners.His practice areas focus on business strategy, marketing, and organizational performance. His clients have spanned a wide range of industries including Oil & Gas, Utilities, Construction, Aerospace, and Telecommunications. Stephen holds an undergraduate degree in Physics and Mathematics from Brown University and an MBA from Stanford.