Interview: Professor Thomas Lawton
Break Out Strategy
SM:
Hello, I am Steve Macaulay and I am interviewing today Professor
Thomas Lawton about his book that he co-authored called Breakout
Strategy.
Now Tom, let’s start off – what’s the background to your book.
TL
The book actually has its genesis in executive education
engagements that my colleagues and had, dating back until really
the early to late 1990s. So I would say the genesis of the book is
probably an executive education programme that we did with a large
investment bank. And what we were finding, particularly Charles
Harvey and I, but then later Sidney Finkelstein from the US also,
was when speaking with executives and managers that many of
them were confused about strategy, and particularly how they could
create an integrated strategy system that worked in lots of different
contexts.
So we started to respond to that need and develop a set of tools
and techniques that would work for these people.
SM
Now you have called the book Break Out Strategy, what do you
mean by break out strategy?
TL
Well the concept of break out is a forceful emergence from a
restrictive form or position – that is the basic definition that we have.
There are a number of – if you were to Google the term break out
you would get quite a few hits and many of them are actually around
three different areas.
The first one is from ice hockey and if you are an ice hockey fan you
will be aware that a break out there is the idea of taking the puck
into the other side of the field, taking it into the opposition’s camp.
So you are really being proactive with how you do things.
Another definition of break out is from financial markets, which is the
idea of a significant shift in performance rather than just a gradual
shift or rather than a sort of up and down activity. So it’s a
significant shift in performance that often is not temporary, its
permanent.
The third form then is in military context, of course, and really it’s a
notion of breaking out from a position of besiegement or
encirclement to come around and take the enemy by surprise.
So all of those really work together to give a good understanding of
what break out means, I hope.
Professor Thomas Lawton
SM
So they all seem to have quite a bit of force behind them; so it is
something that has quite a lot of energy and force there.
TL
That is correct and the main word I would say is proactive. Being
proactive as an organisation, as a business unit, as a manager, as a
leader and really trying to set the conditions and terms of
competition yourself which others respond to, rather than you
responding to what others are doing.
SM
Now I notice in the sub title it says meeting the challenge of double
digit. Now, certainly in the current context, I would say is that
attainable, but presumably you are looking historically and in the
long term?
TL
That is correct and why we refer to double digit growth is the idea of
maximising your potential and your ability and your competencies as
an organisation and as an individual or an entrepreneur. So double
digit, we are not trying to say as soon as you hit 11 per cent or 10
per cent you have achieved break out necessarily, but it is an
indication that you are maximising your abilities and performance.
And if that is sustainable then perhaps you have reached break out.
SM
Now many people think of high growth as being dot com companies
like Google, say, or small companies that are exploding, but you
have got a wider definition of that, haven’t you, of growth?
TL
We do indeed, Steve. We have four routes to break out that we
have mapped from our extensive case studies. We did look at
about 113 or 114 organisations across the world and of various
sizes and various ages and identities. What we have found is that
the two main categories of break out companies are on the one
hand small, fairly entrepreneurial, perhaps quite new companies
that have reached the level of – they have sustained their existence,
they have gone beyond that initial crucial period and want to take it
to the next level. And that can manifest itself in different ways and
one of those is actually one of our types – that is, the spatial
expansion which is often internationalisation.
So the four types we have: taking by storm is the first category,
which is this new company that comes from nowhere to become a
big success story pretty quickly.
SM
Which is the kind of one I was talking about earlier on.
TL
That is great; it’s the often quite entrepreneurial organisation. The
second type is actually the internationalisation – I am not going to
put these in the exact types, it doesn’t really matter because it’s not
a case of following sequentially, necessarily. But the second type
is expanding horizons which is this idea of spatial growth. It can be
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Professor Thomas Lawton
internationalisation, but it can also be nationalisation; that is if you
have a large domestic market moving more across the national
jurisdiction. And again, a small company can do that or a midsized
company of course can do that.
A third type is laggard to leader. And that is actually often a very
different type organisation. It tends to be a larger, more mature
enterprise that either has fallen behind, or has never really
maximised its potential.
SM
So they are the kind of sleeping giants?
TL
Exactly, that has perhaps been number two, number three, number
four in its markets for perhaps a hundred years or one hundred and
fifty years, but has never really achieved the number one position.
So how do you break out from that underdog or secondary position
to become a market leader?
And in the final type, this is what we call shifting shape, which
means the idea of some form of transformation or transmutation
from what you are now to what you intend to be. And that can be a
complete transformation. One can think of IBM moving from being
a manufacturer into a services led company; GE perhaps under Jeff
Immelt and its more recent transmutation into, for example, life
sciences etc. Or it can be a partial shift where you potentially take
yourself into new related markets by extending your competencies
and taking yourself into different realms. One can think of, I would
say, Sainsbury’s if you go back to the 1990s moving into banking,
for example in collaboration of course with a bank.
So it can be for either a partial shift which doesn’t abandon what you
already are, but complements it – or it can be a complete
transformation over time into a very different type of business.
SM
So what you are suggesting really is that there is a wide range of
companies that are capable of this high growth strategy?
TL
That is true, and in our view within this book what we are saying I
believe is that everybody and every organisation has the potential to
break out and to maximise their ability and potential, if they have the
willingness to do it.
SM
It’s not just willingness, I mean you have researched these types
and these companies haven’t you? So it’s actually proven
examples that you have based this on?
TL
That’s right. We have looked as I said, a lot of different types of
organisations across the world, including some non private sector
ones as well and we have found, I would say, a similar pattern
across these organisations, which really revolves around a strategy
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Professor Thomas Lawton
system that they all adhere to.
SM
That’s interesting. You have used the word system there, so just
because you put a strategy down on paper that is not really enough
is it?
TL
No and sometimes perhaps you don’t want to put too much down on
paper because locking yourself into a plan is not a good thing very
often, particularly in today’s world where you need to be innovative,
adaptive, flexible, responsive, etc.
What we have found, in our view, strategy is like an operating
system of a business which is constantly running in the background,
constantly updating itself and improving itself. And the main
tenants of it, as we see it in a business context, revolve around
vision – ensuring that you have a clear and consistent vision that all
of your stakeholders understand and buy into. And in some ways
contribute to its shaping as well. And that is an important idea: that
we have almost a bottom up approach division creation, rather than
a top down which involves engaging in key stakeholders to see
where they want you to be and what they want you to be five, ten
years down the line.
SM
So that is quite a different notion from many companies that say a
leader or a small group of people have got this vision and they push
it and the followers follow?
TL
Exactly. Or that some external consulting company or PR firm
perhaps give you a vision that sounds good and that you have to
almost shape yourself to fit that vision.
SM
So if you have got a clear vision then, what else is it that is
required?
TL
The vision then must feed into and inform the second key step of
the system, which is the value proposition definition. That is to say,
very simply because we believe the best strategy is often simple
and clear, what is it that appeals about your organisation to the
market, to the customers – existing customers and potential
customers? Not only what appeals, but what is it that makes you
more attractive, more magnetic than any of the competition. And
we use the term here building the magnet company – the magnet
business. The idea being clearly that you want a value proposition
that both draws in customers and gets them to stick to you as a
loyalty. Whilst at the same of course, repelling competition.
SM
So it’s got two elements there – it’s got competitive advantage and
the very close alignment with the customer?
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Professor Thomas Lawton
TL
That’s correct and we have a tool within that, we talk about the six
elements or the six pillars of a value proposition which include
things like price, of course, and features and brand reputation
channels and so on and so forth, which are any customer – any of
us as consumers – will align those six pillars in different ways when
we buy whatever product it is. That is to say if we fly with a Ryanair
or an EasyJet, clearly price is paramount and other things like
customer service, product features are less important. And vice
versa if you buy say an Apple product.
SM
So you need to think very carefully about these six pillars to get your
proposition right?
TL
Exactly and from the point of view of the customer it’s often about
the clarity of this proposition and the consistency with which it is
delivered or purchased by them. And I think if there is a lack of
clarity and consistency, then it causes customers to either move to
another product or service, or to be, I would say perhaps, less
frequent in their use of that product or service for instance.
SM
So I mean, you have mentioned Ryanair and I know you use that in
the book. It is very clear what Ryanair stands for.
TL
It is and we try – although we have a lot of cases in the book, clearly
companies rise and fall and therefore what we would not want to do
is put up a number of companies and say these are the companies
you should always look at because companies’ fortunes change.
Instead our emphasis is very much on the system and techniques
underpinning those success stories. Ryanair is a good example,
they have had their ups and downs and they have their critics and
advocates, but I would argue that it is an extremely clear and
generally speaking consistent value proposition. People know what
they get typically and those that complain often are those that
simply don’t understand the proposition or don’t take the time to
understand it.
SM
So what is the next feature then of a successful break out strategy?
TL
The third stage is the business model definition and creation. And
what we are doing then is basically delving within the company and
within its supply chain in order to understand how can you, as a
business and as a manager, best deliver on that promise to the
customer. So it is really the flip side of the value proposition; it’s
the other side of the coin in terms of the delivery. And therefore we
look at things like, clearly if you talk about pricing then it’s about cost
management, how you do that, how you optimise that, both as a
company and in partnership with suppliers and outsourcing
contractors, etc.
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Professor Thomas Lawton
If you are talking about features, if for example a customer wants
more features in a product then how do you invest in innovation in
order to deliver on that promise?
SM
So it’s getting all your ducks in a row to be able to deliver that value
proposition?
TL
It is. The business model in our definition is quite simply the
vehicle for delivering the value proposition.
SM
So what is the next area that we need to look at?
TL
The next area is the delivery really of this. There is another stage
which I will get back to in a second which can be put at different
places within this system, depending on where you are as an
organisation and I will talk about that in a second.
But the next stage, the third stage, is around the delivery of the
strategy: the implementation system. And what we do there is we
follow on from how you configure the value proposition and the
business model to think about implementation in terms of the
balance between what we call socio and techno systems, which
really is people and process. Technology and various hard aspects
of delivery, which would include things like business process reengineering, total quality management etc, versus the softer ways of
delivering on the promise, which would include things like perhaps
creating protected space, communities of practice and so forth.
So what we are doing there is really generating twelve projects and
programmes that flow from the six pillars of the business model.
SM
Now Dell for years was known as being excellent at delivery,
although it seems to have faltered of late.
TL
Dell certainly have been an excellent company in the past. I would
say very simply that the problems Dell face right now is that their
value proposition has become unclear to the customer and there are
many clearer propositions in the market.
SM
So in other words, it is quite a useful diagnostic to take the tools that
you have got and say things have shifted away from that?
TL
That is right, there is an element of dynamism in this approach that
we have, which actually feeds into the fourth element of the strategy
system that we propose, which is around what we call the capital
accumulation cycle. And very quickly that is a notion that there are
four different forms of capital that you need to accumulate as an
entrepreneur or as a mature organisation, which would be
organisational capital – the obvious things of money and resources
and buildings. It would be human capital, which I don’t need to
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define I think, but it is not just of course about good people and
knowledge, but it is also about knowhow and tacit knowledge. And
thirdly there is social capital, all the other areas – networks and
relationships that we possess as individuals and of companies.
And finally there is symbolic capital which is a combination in our
view of brand, but also reputation which in these days of corporate
social responsibility and business ethics clearly is a very important
component of your strategy to and how you dove tail that with your
overall strategy and proposition in the market, as opposed to seeing
it simply as an add on.
So what we are saying very simply there is that in order to remain
dynamic to stay ahead of the competition or to grow – and to grow –
would be the need to accumulate all four forms of capital and then
continually re-invest in and re-accumulate different forms of capital.
SM
And what is the fifth component?
TL
The fifth component is leadership and leadership capabilities. We
speak about five capabilities of leadership which are positive
capability – the ability to vision, to sell, to bring people along behind
you. Negative capability, which is the ability to deal with negative
situations – negative people, negative conditions and really to fix
problems before they escalate into crisis. Conceptual capability,
which is the operational details, the numbers – understanding and
managing those effectively, the cost. Fourthly creative capability,
which is the entrepreneurial mindset, it’s the risk taking, it’s the big
picture thinking. And finally relational capability. The ability not
only to build good relationships with customers, with suppliers, with
shareholders, with regulators – but also to manage those effectively
over time.
And our argument simply is that if you as a chief executive or as an
entrepreneur don’t possess all five capabilities in fairly equal
measure, which is unlikely – many people don’t – you need to
somehow either develop some of those yourself by reflecting on and
finding your way to build them; or to surround yourself with people
who have complementary capabilities and therefore as a team you
are rounded and able to manage and deliver a break out strategy.
SM
So finally then Tom, if you were to put all these elements together,
what would you hope that people would be able to do with these?
TL
Well my view is that in this current time there are many companies
that are – for obvious reasons – either losing sight of their strategy
or ditching their strategy in order to stay alive, to make some money
and to respond to needs of stakeholders or to the demands of
government, for example. And what we are simply saying is that
strategy is always important and I think it is probably even more
important during times of crisis not to lose sight of that long term
sense of direction and purpose and to really have something which
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Professor Thomas Lawton
works in all situations.
And therefore our system, as we see it, is equally applicable in all
sorts of different companies, different countries and different
conditions and is very adaptable and robust during in terms of crisis.
And if you adhere to our simple five stage approach, understanding
which route to break out you are pursuing at that time, it will take
you through and it will ultimately deliver success.
SM
That is a very positive note to end on. Thank you Tom.
TL
Thank you Steve.
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