5a. Strategy Kick-Off

Let’s talk about strategy. I know you are desperate to get to some juicier product stuff, but since product development needs to align with strategy, it’s important to cover strategy first.

NBC

This section will cover:

• Key concepts for business strategy
• Key concepts for product strategy
• Good books and articles on strategy

Let’s get right to it. Here are two good quotes on strategy.

“Competitive Strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” — Michael Porter, What is Strategy HBR.

“Strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition.” — Playing to Win, Lafley

Keywords: Different; activities; positions; advantage; value.

Unlike a mission statement or vision statement, a strategy is about tactics and actual activities.

Southwest Airlines Case Study

Let’s talk about Southwest Airlines because it’s a favorite topic of business school books, and most everyone knows what it’s like to fly. The strategy of a low-cost airline involves many activities, such as using the same model aircraft to reduce complexity in maintenance, reducing turn-around time on the ground, not offering meal service, not charging for baggage, not assigning seating, and focusing on customer service.

These activities are unique, they advantageously position the company, and they help southwest deliver value (benefits minus cost) to the competition.

Another key insight is that strategy is about trade-offs.

Trade-offs are essential to strategy because you cannot be everything to everyone; defining a strategy means clearly defining the things that are not important (consumers, markets, activities).

If there are no trade-offs, there is no strategy.

That’s it for the strategy kick-off.

Main Sources:

Michael Porter’s What is Strategy, HBR. If you’re just starting to read about strategy, start here. 

Playing to Win, Martin, and Lafley. Good book. Both informative and readable.

5b. There are Two Types of Strategies

One of the favorite strategy books out there is Playing To Win. The former P&G CEO, A.G. Lafley, wrote it, so if P&G is still in business at the time you are reading this, chances are there are some good takeaways from this book.

In chapter 4, Lafley explains that at the highest level, there are really just two fundamental strategies: a low-cost strategy and a differentiated strategy.

Two Fundamental Types of Strategy

A “Low-cost strategy” is pretty self-explanatory — it is the strategy to have the lowest cost. Design your company to be profitable and sustainable while providing products at prices lower than your competitors.

Product differentiation is helpful with a low-cost strategy, but it’s not the primary objective.

Companies that pursue this strategy are always seeking to squeeze money out of their supply chain. Cost reduction is relentlessly pursued. But remember: there is only one true low-cost competitor in any market.

“In real life, there are no points for second place” — Viper, Top Gun, talking about dogfighting, but also low-cost strategy.

The second type of strategy is a “Differentiated” strategy. This strategy likely comes to mind when you think of a company’s strategy, and it involves doing something different than your competitors.

In this strategy, the “brand identity” is relentlessly built, and the understanding of consumer behavior and preference is king. The product focus is on finding distinct and unique ways to delight and attract paying customers.

Strategy is about choosing a unique set of activities. While it can be an intimidating topic to read about, a simpler way of thinking about it is to roughly consider that there are fundamentally only two types of strategies.

Source: Playing to Win, A.G. Lafley and Roger Martin

5c. Strategic Arenas and Strategic Alignment

Here’s the executive summary on Strategic Arenas and Alignment:

A strategic arena is an area of focus for your product development efforts. It’s a good term to describe the market segment, consumer type, price category, or whatever other “arena” within which your product is meant to compete.

Strategic alignment is a concept from the book “Third Generation R&D,” which describes when R&D/product development is aligned with a company’s strategic objectives.

Both of these terms get at a similar concept: strategic objectives should drive product development activities Products should align with the strategy.

Super cheesy way of visualizing product development aligning with Strategy

Digging Deeper into these two concepts

“A prerequisite to effective idea generation is having a product innovation strategy for your business. This strategy, among other things, defines the arenas of strategic focus or “strategic arenas” — in short, where you want to focus your R&D efforts and thus where you want to hunt for ideas.” — Robert Cooper, Winning at New Products

Strategic Arena — an area of focus…a market segment, or a particular retail channel, or at a particular price point, or within a specific technology or platform ecosystem.

In the simplest sense, product development efforts should focus on a few key strategic arenas. It’s typically unwise to develop a product that’s focused on everybody everywhere in every market (“typically unwise” is used as a euphemism for “stupid” here).

The alignment concept is quite simple. Strategic Alignment happens when product development activities support the overall business strategy.

This support says that if your strategy is to be low-cost, you achieve strategic alignment by focusing product development efforts on achieving low-cost.

It seems ridiculous to think you wouldn’t have strategic alignment, but it’s easier said than done.

Key Take-away

The point of this post is this: you should know the term “strategic arena” and appreciate that product development should align with a company’s overall strategy.

Source: Winning at New Products, Robert Cooper. Cooper is one of the most prolific authors in product development, and his Stage-Gate method is very well-known. Winning at New Products isn’t the end-all-be-all, but it’s a necessary read.

5d. Top-down and Bottom-up Strategic Alignment

Continuing on the topic of Strategic Alignment, let’s see how it happens in practice.

There’s a good book on the topic of “Managing the Project Portfolio” called Portfolio Management for New Products.

(By the way, the “project portfolio” can be thought of as a collection of projects that are happening in the product development team; basically what the PD group is working on.)

This book, like most others, reinforces the fact that product development activities/projects should align with an organization’s strategy.

But how do you actually do this?

The book suggests two methods: top-down and bottom-up.

Understanding these approaches helps to solidify how product development can come to align with strategy.

Top-down: Start with the strategic goals, the vision, the objectives of the company, and from there, flow down the individual projects and product roadmap that best fits with the strategy.

Bottom-up: Let the focus be on opportunities in the market and on consumer needs, allowing project ideas to emerge from anywhere in the organization, and then screen possible projects/products to fit with strategy.

Both Top-down and Bottom-up: When you have two good options, why not do both?!

It’s not easy, but the book suggests that you could theoretically take both approaches in different situations. A nimble organization could be ambidextrous.

The book explains both approaches in much more detail. I encourage you to read it if the topic seems like something you want to understand more deeply.

Suffice to say that in both methods, alignment with the organization’s strategy is vital for working on the right projects and building the right products.

Strategic alignment is critical in product development.

Source: Top-down and bottom-up strategy are discussed on page 107 in Portfolio Management for New Products by none other than Robert Cooper.

5e. Strategy Recap and Resources

Let’s wrap up Strategy by summarizing what we learned, adding one new concept, and then listing a bunch of terms and links. Yeah, that’s a lot of shit, but it’s a big topic.

One last new concept: Competitive Strategy and the Five Forces

Any conversation on the topic of strategy (with a capital S) has to reference Michael Porter’s Competitive Strategy. This book is pretty much the O.G. Bible for strategy. I actually don’t think you need to read it though (gasp!). See footnote for why.

Competitive Strategy is probably most famous for Porter’s Five Forces:

• Industry rivalry
• Power of suppliers
• Power of customers
• Barriers to entry or the threat of new entrants
• Threat of substitutes

In short, the five forces provide a framework for analyzing a business’s competitive position relative to the market (i.e., its rivals, its customers, and its suppliers).

I’m not going to explain each of those five forces. From a Distillery standpoint, you should understand that the massive complexity of a firm’s position in a market can be framed within these five key forces. If you want to understand them better, start with Porters’ HBR article.

Key Take-Aways on Strategy

If you just want to know what matters for product development, just remember these things:

• Strategy is about activities and selecting/choosing a unique set of activities
• Product Development should align with Strategy. #strategicalignment
• A Strategic Arena is an area or segment where you focus your product development efforts

And Now, Some Strategy Jargon

Five Forces — A framework for analyzing competition in an industry based on five major factors: industry rivalry, power of suppliers, power of customers, barriers to entry or the threat of new entrants, and the threat of substitutes. The supplier and customer elements are vertically related, while the new entrants, existing rivalries, and threat of substitutes are horizontally related.

Trade-Offs — Trade-offs are essential to strategy because you cannot be everything to everyone; defining a strategy means clearly defining the things that are not important (consumers, markets, activities); if there are no trade-offs, there is no strategy.

Marketing Strategy — The unique set of Marketing activities undertaken by a firm; the mix of 4 P’s (product placement promotion and pricing), which are determined to support the overarching company strategy.

Strategy versus Effectiveness — Effectiveness is compared to Strategy in Michael Porter’s article “What Is Strategy?” Strategy is about doing a different set of activities than other companies or doing the same activities differently. Operational effectiveness is about how well you do a particular activity; it is more related to efficiency than to strategy.

S.W.O.T — Yet another analysis framework for a company relative to its competitors, market, and industry: Strengths, Weaknesses, Opportunities, Threats.

Strategic Pipeline Management — The planning and activities which align company resources — and thus the ability to execute projects and deliver products — with company strategy.

P.E.S.T.L.E. — Another framework for analyzing markets and industries: Political, Economic, Social, Technological, Legal, and Environmental.

Big Hairy Audacious Goal — The BHAG is a strategic business statement meant to focus the team on a medium-term goal that is deliberately audacious and bold, sort of like a vision statement, from Collins and Porras “Built To Last” book.

Value Chain — Describes the set of activities that a firm performs to deliver a product or service of value; it would include how labor and materials are converted into finished products.

Strategic Arenas — Term from the book Winning at New Products, describing areas of the market that you determine to be compelling places to explore new product introductions; you can’t compete everywhere, so this is similar to “Playing To Win’s” focus on “where to compete.”

Business Case — The justification for making a product, from a financial and market standpoint, justifying why it makes sense to embark on the project.

Core Competency — A specific ability, strength, or strategic advantage of a company; discussed in reference to strategy when considering if building certain products aligns with the company’s core competency.

Hedgehog and the Fox — Hedgehogs are really good at one thing and foxes are pretty good at a lot of things; a concept popularized in the book “Good to Great,” defined here because people use it to describe companies that focus on doing one thing really well versus trying to be too many things to too many customers.

Mission Statement — According to Steve Blank of “Four Steps to the Epiphany,” the mission statement tells your employees why they come to work every day, what you plan to do as an organization, and how you’ll know when you get there.

Best Reading

And here are what I think are the best books and articles on strategy:

• What is Strategy — Michael Porter (HBR article)
• WTF is Strategy — Vince Law (Medium article)
• Competitive Strategy — Michael Porter (10 lb book, not a fun read)
• Playing to Win — P&G CEO A.G. Lafley on Strategy
• Start With Why — Simon Sinek (Also see his TEDx talk)
• Portfolio Management for New Products — Connects Strategy with Product Portfolio Mgmt
• Executing Your Strategy — Book has a useful visual on how various elements of a corporation all connect and affect strategic execution.

Footnote

Despite being so “important,” the book “Competitive Strategy” is not very fun to read, and I honestly don’t think these concepts influence product development all that much.

Understanding how product development relates to strategy is important when creating a new product development process., but do you really need to know that the supplier and customer forces are vertically related while the new entrants, existing rivalries, and threat of substitutes are horizontally related?

I say no.

Just know that this book exists and that if you want to dive deep into the world of competitive strategy, you should read it.