Can your company survive and even prosper in chaotic times?

September 8th, 2004 Posted in Strategy

Asks Axel Chaldecott & Alan Moore

Digitisation is already causing chaos across all economies. But its effects are only just beginning.

Is your company equipped to meet these challenges?

Can it source the assistance that will be required to face the future with confidence and in a leading role in the marketplace?

The smartest companies are turning to a new kind of help.

Problem 1: What’s happening to our business
The corporate world is dividing into two sections; insurgents and incumbents.
As Evans & Wurster point out in their book “Blown to Bits”;

In the vast majority of traditional competitive situations, the defense has the advantage. But when the economics of information (and digitisation) are shifting, insurgents are advantaged precisely by their lack of legacy systems, legacy assets and a legacy mindset. Having nothing to lose becomes an advantage.

They say the “glue that holds today’s value chains and supply chains together” is melting and that even “the most stable of industries, the most focused of business models and the strongest of brands can be blown to bits by new information technology.”

They reveal how the spread of connectivity and common standards is redefining the information channels that link businesses with their customers, suppliers and employees. Increasingly, your customers will have rich access to a universe of alternatives, your suppliers will exploit direct access to your customers and your competitors will pick off the most profitable parts of your value chain. Your competitive advantage is up for grabs.

The internet and other digital technologies are changing ? everything. The new corporate leader must take direct charge of the full on implications of these new technologies. “The wise CEO leader is his own CIO.”

The whole basis upon which value is created is shifting beneath our feet.

Corporations are built on the assumption of continuity; their focus is on operations. Capital markets are built on the assumption of discontinuity; their focus is on creation and destruction ? Unless companies open up their decision-making processes, relax conventional notions of control, and change at the pace and scale of the market, their performances will be drawn into an entropic slide to mediocrity.

Foster and Kaplan’s ‘Creative Destruction’

We see this happening all around us; to companies that we have grown up with like WHSmiths, Boots and Kodak.

But there are others who show what can be done. Nokia is a very good example. Nokia started out in timber and pulp. Then moved to rubber. Rubber led to cabling and to telecommunication infrastructures. This then led to the present day where they are now world leaders in mobile handset manufacturing. At each stage the company became more and more successful. Though they have had a torrid time recently as their competitors have caught them up.

Or Preussag (big in steel) who have changed over a very short space of time into TUI (big in holidays).

Arguably, this is not a trait that UK companies are particularly good at. For instance, we haven’t witnessed ICI, the former darling of the FTSE 100, change into anything other than a smaller and less successful ICI.

The central question is whether companies, be they on-line, “clicks and mortar” or just ‘bricks and mortar’ can continually ‘re-imagine’ themselves to keep pace with digitisation, convergence, and the consequent change in customer behaviour.

And this need for constant re-imagining and re-invigoration is because the over-arching, though least appreciated, consequence of digitisation is the fragmentation of customer attention. As Gary Hamel says,

Customers become harder to find and more difficult to keep.

There is indeed not a sector of business that is exempt from this challenge. Of course, you may feel you have heard all this before ? about 5 years ago, in fact. The ‘dot com crash’ may have led people to think that the vision of a connected society had died a death. But all that happened was that the vision of how things would develop got ahead of the technology’s ability to deliver. Now technology has caught up with the vision and digital convergence is gathering pace across all industries.

A classic instance of change being over-estimated in the short-term and under-estimated over the long-term. The rehearsal is over. The real performance is just beginning.

Problem 2: What’s happening to our channels of communication
There are now at least 60 different possible connections between brand and customer including editorial content (newspapers, TV, for instance), packaging and environmental design, many different advertising and direct marketing channels, “action marketing” (such as events, cause-related marketing), public relations, and so on.

These connections are not all ‘one way’, in fact many of them are out of the marketer’s control.

In the US, for example, 60 per cent of car buyers now use the Net to research models, features and prices before even passing through the dealer’s door. Ads being an irritant is nothing new. Customers having the means to do something about it is. And the result is a shift in control of the sales process.
As manufacturers and marketers lose control, consumers are seizing it. As a result, marketing will change totally in the next few years.

Forward-thinking marketers and advertisers are talking about a new kind of advertising, centred on interactive media. In this world, consumers will listen to marketing messages when and if they’re relevant to them. As TV audiences fragment and shift to other media, TV will no longer be the prime brand-building tool. Brands are being built at every point of contact and every channel will be underpinned by interactive data capture and relationship management. The companies that survive will be those that recognise they’re now in a service business.

Problem 3: How companies are behaving
Most companies are fighting over the spoils of existing marketplaces, when they should instead be seeking to create new ones.

The ’surplus society’ has a surplus of similar companies, employing similar people, with similar educational backgrounds, coming up with similar ideas, producing similar things, with similar prices and similar quality.

Kjell Nordstr?m and Jonas Ridderstr?le, Funky Business

To grow, companies need to break out of a vicious cycle of competitive benchmarking, imitation and pursuit … Aiming to beat the competition has the opposite effect to the one intended. It keeps companies focused on the competition. When asked to build competitive advantage, managers typically rate themselves against competitors, assess what they do and try to do it better

W. Chan Kim & Renee Mauborgne, Think for Yourself ?Stop Copying a Rival

The Solution : Transformational Strategies
Innovation is the key to creating growth and profitability for a business.
There are two very distinct types of business innovation : Transformational and Incremental

Incremental innovation is something for which most companies have established processes. However it is insufficient to tackle the problems outlined above.

Starbucks coffee shops, IKEA, Ralph Lauren, Southwest Airlines, Formule 1 - the French low cost hotel chain and in the UK, Orange, First Direct, Go. They are all very good examples of transformational strategies creating new marketspace. Transformational strategies, which arise from a creative reconciliation of fundamental customer needs on the one hand, with the constraints facing a business or sector on the other, are something which few companies are equipped to develop or implement. They are, by their very nature, outside the ordinary course of business.

Companies need help but obtaining the right help presents companies with a dilemma.

The Dilemma
Their dilemma is that no outside source of help is equipped to provide what is required.

On the one hand, there are management consultancies who aim to know more about the client’s business than the client. This is why they are often organised around industry groups rather than by function.

They mainly concentrate on supply-side efficiencies.
A lot of their work involves importing best practice. But importing this supply side ‘best practice’ is in fact a sure fire way of destroying your competitive advantage.

True transformational thinking will come from the demand creation side of the business, from finding connections between what customers desire, what a company can do, and unlocking the constraints that exist to prevent the one satisfying the other. It will come from value innovation, from what W. Chan Kim & Renee Mauborgne call creating new ‘marketspace.’

Faced with the task of creating transformational strategies, management consultancies lack two things.

Firstly, an understanding and experience of customers. Their mental models for thinking about customers are a product of what they themselves feel comfortable with, and bear little relation to how and why customers actually behave the way they do. Hence their methodologies can and do deliver incremental efficiencies. Very rarely can they deliver transformational strategies.

Secondly, transformational strategies only come into existence as and when they are communicated to other people ? staff, customers, other stakeholders. Otherwise they just stay right there on the drawing board.

And every single aspect of going-to-market is part of that communication. Whatever the transformational strategy was before it was communicated (i.e. the brilliant “message” you meant to send), you can’t escape the reality that what-the-communication-means to other people is what the idea ultimately becomes (the “message” received by them).

So the communication isn’t about what you are doing. It is what you are doing.
And, as sales (as distinct from marketing) professionals have known for many years, what determines the message received, is far less a result of what you say, and far more to do with how you say it and who you appear to be taking the addressee to be.

So even when you’ve armed yourself with a great transformational strategy, there’s far more to bringing it to market than most people realise.
On the other hand, advertising agencies and brand consultancies have greater depth of knowledge and experience in customer needs than clients and consultancies. However there is little depth of knowledge in specific sectors, and hence little appreciation of sector or business-specific constraints.

They also have competencies rooted in interruptive communications which is declining in efficiency and more importantly, effectiveness. Twenty first century marketing will instead be about engagement.

Despite strong recent economic indicators and continued consumer spending, marketers remain under pressure to cut costs and to prove the value of marketing investments, and they are seeking alternative ways to reach customers who are less and less inclined to sit through commercials.

Ad agencies and brand consultancies are the incumbents here. Their legacy systems, assets and mindset mean they have too much to lose by adopting the emerging marketing model wholeheartedly.

A new source of help
Usually, in times of recession, industry structures change and mature, and innovative leaders emerge. This is such a time.

Clients don’t want piecemeal products from different parts of the value chain, they want complete solutions that create value for their shareholders.
To provide such value vendors need to be able to help clients transform their understanding of the competitive dynamics of their own industry / sector; to have a broad view of the customer so they can see how the sector-specific needs fit in with the rest of the customer’s life, and to have the expertise in communication to ensure a unity between the transformational strategy and the implemented reality.

From this starting point a new offering can create ‘disruptive thinking’ by hard wiring real commercial objectives to marketing communications strategies.

This new offering should ?
?be focused upon value innovation ? helping the client to create new market space
?recognise that every single aspect of the implementation of the new strategy is a communication, and that the “message received” about the new strategy is what that strategy ultimately becomes.
?value the multiple customer contact points that have come about through digitisation, and
? recognise that every contact point is a communication with the customer.
We’re talking about an offering that is both strategic and creative, that can explore new ‘marketspace’ at speed and helps clients go to market in a much more effective, efficient and engaging way.

Take a company like WH Smith. Its problems won’t be solved solely by management consultants nor will it be solved by a prolonged ad campaign. They have tried that for the past 20 years to a slow and steady decline. Their problems won’t be solved by a re-branding exercise, a store re-design, or a re-configured supply chain. These may eventually be helpful but their problems lie further up stream than that.

The chances are they need to define what business they are in.
As recent analyst highlighted in the Financial Times. If you were starting a new company from scratch today you would not come up with the present WH Smith business model.

The wrong kind of future?
On average most boards spend only 3% of their time thinking about the future, and so the future creeps up and takes them unawares. Just as the British are not equipped to cope with the occasional heavy fall of snow, few companies have the skills and resources to envision and deliver fundamental change ? they need them too rarely for it to make sense as in-house resources.

This is where business needs help.
Creating industry foresight is just as important to shareholder returns as achieving operational excellence. Enormous business opportunities reside where the changes in commerce, popular culture and technology meet.
As Tom Peters says

It is the foremost task ?and responsibility? of our generation to re-imagine our enterprises and institutions, public and private.

The right kind of future
So what type of company exists out there that can help re-imagine your enterprise?

What type of company can hard wire commercial objectives to marketing communication strategies?

The success stories most often cited such as First Direct, Orange, Go. were created by ‘hybrid teams’ of professionals from both consulting, branding and advertising.

This is the emerging model that the successful consultancies of the future will be based upon.