By J. Daniel Beckham
Hot Concepts in Strategy
Six strategic models that are driving thinking and actions in every industry, including
health care. It’s important to understand them.
Taking action without reason leads somewhere, but so does a roll of the dice. Strategy is a game of ideas
brought to bear against uncertainty, opportunity, and resistance
Strategy formulation has always been the domain of the consulting industry's highest-profile (and highestpaid) intelligentsia. There is hype and fad aplenty in the consulting bag of tricks. But the strategic models
and ideas offered by leading consultants drive thinking and actions in every industry, including healthcare.
It's important to understand them.
Here is a quick overview of the concepts that are currently having the most impact on thinking and
direction of industries worldwide. Every one of these ideas has made its way into best-selling business
books.
Discipline
The Discipline of Market Leaders has been popularized by Michael Treacy and Fred Wiersema. Their
basic premise is that to succeed in a competitive marketplace, you have to follow four rules:
1. Excel at a specific dimension of value. Market leaders develop a compelling and unrivaled value
proposition to one of three categories of customers: (1) those who value "product performance or
uniqueness" most, (2) those who value personalized service and advice most, or (3) those who value
lowest total cost most. You need to pick one of these customer categories and focus on it by excelling in
the one value proposition that is most important to that customer category.
2. Maintain threshold performance on other dimensions of value. If you focus on creating leadership
on "lowest total cost," then you still need to maintain reasonable performance on the other values relative
to competitors.
3. Dominate your customer category by continuously improving value. You have to be aggressive
about maintaining your leadership on the value dimension you've chosen. Competitors will constantly
attempt to displace you.
4. Create an operating model that allows you to excel in the one dimension of value you've
chosen. If you've chosen to target customers who are most concerned with cost, then that means you've
got to structure your operations to reduce costs, even if it means giving up some of your responsiveness
to customers on other dimensions of value.
There are, according to Treacy and Wiersema, three disciplines that market leaders can pursue: (1)
operational excellence (your proposition is guaranteed low price and/or hassle-free service);(2) product
leadership (you provide the best products by consistently innovating and producing new performance
standards); and (3) customer intimacy (you focus on creating high levels of loyalty among customers you
work hard to know well; the focus is on relationships, not transactions).
Intent, Competencies, and Expeditions
Three concepts that have made a significant impact in boardrooms and on management thinking have
been set forth by Gary Hamel and C.K. Prahalad and tied together in their book, Competing for the
Future: Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets of
Tomorrow.
Strategic intent is a rallying cry that embodies the essence of winning and the organization's sense of
ambition. It is personally relevant to a wide cross-section of the organization's members and conveys
clear direction. It represents a goal that will cause the organization to stretch beyond its current
capabilities and resources. The commitment of Lexus to "beat Mercedes Benz" is an example of strategic
intent.
Copyright © The Beckham Company
Hot Concepts in Strategy
1
By J. Daniel Beckham
Core competencies represent a set of capabilities that underpin leadership for an organization in a range
of products or services. They involve the development of a "bundle" of skills and technologies (rather than
a single skill or technology). A competency is core if it makes a disproportionate contribution to value as
perceived by the customer. It also significantly differentiates the organization from its competitors. In
addition, a core competency is "extendable" to a variety of products and customers. Adhesives at 3M
provides an example of extendibility. At American Airlines, the bundle of skills and technologies that
underlie information systems might represent a core competency. So do powertrains at Honda.
Expeditionary marketing involves "maximizing the ratio of learning over investment." It focuses on
learning faster than competitors about where the locus for customer demand will be in the future. To
accomplish this, the organization must continuously make a series of "low cost, fast-paced market
incursions" that each time nudges the organization into closer alignment with the "heart of future
demand." Bringing lots of new products to market at low cost provides this kind of feedback and
alignment.
Re-engineering
As a central business strategy, re-engineering continues to have a pervasive impact on all manner of
industries. Unfortunately, re-engineering has become an increasingly visible lightning rod for those who
have been most impacted by (or are most vulnerable to) downsizing. As its primary advocates Michael
Hammer and James Champy pointed out in their best-seller Reengineering the Corporation: A Manifesto
for Business Revolution, re-engineering is not about downsizing (although it may lead to downsizing).
Central to Hammer's and Champy's original book (as well as their more recent ones) is this definition: Reengineering "is the fundamental rethinking and radical redesign of business processes to achieve
dramatic improvements in critical, contemporary measures of performance such as cost, quality, service,
and speed."
The key words in the above definition tell the story, starting with "fundamental": Re-engineering involves
starting with a blank sheet and asking "Why do we do what we do?" and "Why do we do it the way we do
it?"
"Radical" means that re-engineering is about "business reinvention," not improvements, enhancements,
or modifications.
"Dramatic" refers to the fact that re-engineering is about performance breakthroughs on the order of 4050 percent, not 10 percent. It's designed for "heavy blasting."
"Processes" points to re-engineering's focus on how work gets done--the processes involved--not on the
tasks, jobs, people, and structures. A process takes one or more kinds of input and creates output that is
valuable to the customer.
A re-engineered organization will tend to have these characteristics:
•
Several jobs have been combined into one.
•
Workers make decisions.
•
Steps in the processes are performed in a natural sequence (rather than a linear one).
•
•
•
•
Processes are tuned to the requirements of different markets (they are not standardized across all
markets).
Work is performed where it makes the most sense (rather than being dictated by department lines or
functions).
Checks and controls are reduced because they create no value for the customer and are often no
longer required.
The need to reconcile information and data at multiple points in the organization is reduced.
Copyright © The Beckham Company
Hot Concepts in Strategy
2
By J. Daniel Beckham
•
A case manager provides customers and vendors with a single point of contact for a process.
•
Centralized and decentralized operations are prevalent in the same process.
•
Attention has shifted from activity to results.
•
The organizational structure has moved from hierarchical to flat.
•
Executives are focused on leadership, not scorekeeping.
One of the central tenets of re-engineering is its close alliance with information technology. In the reengineered organization, information is an enabler--a powerful solution to a wide range of problems the
organization may or may not know it has.
Value Migration
Another hot concept in strategy formulation today is described in Adrian Slywotzky's best-seller Value
Migration: How to Think Several Moves Ahead of the Competition. Slywotzky sees value through the
quantitative lens of a stock market analyst. Companies gain or lose market value related to their stock
prices.
Between 1984 and 1994, IBM and DEC lost $55 billion in market value while Microsoft, Intel, EDS, and
Novell gained $80 billion. In Slywotzky's view, market value was reallocated across these various players
in the computing industry. The reason? The "business designs" of the former became obsolete and value
moved to the new business designs of the latter.
He sees three states of value migration: (1) value inflow--superior business design attracts market value
from other parts of the industry; (2) stability--the business design retains value, but new value is not
migrating to the company; and (3) value outflow--this may start slowly, but it accelerates as the
company's business design becomes increasingly obsolete.
A superior business design, in Slywotzky's model, describes an organization whose elements are aligned
with the customer's most important priorities and are consistent with one another so that the business
design functions as a coherent mutually reinforcing whole.
Underlying the business design is a set of assumptions about customers and economics. A business
design that is inconsistent with these basic assumptions will fail and so will one built on unquestioned
assumptions. Slywotzky identifies three key questions as providing a path to fundamental assumptions:
(1) How are customers changing? (2) What are customers' priorities? (3) What are the profit drivers for
the business? With the answers to these questions, a business design can be crafted. The figure on the
opposite page illustrates the traditional business design in the American auto industry versus the one that
Toyota used.
Slywotzky identifies four steps to capture value growth:
1. Map the changing customer priorities.
2. Identify new business designs.
3. Compare business designs (yours with that of competitors).
4. Build new business designs.
Copyright © The Beckham Company
Hot Concepts in Strategy
3
By J. Daniel Beckham
Slywotzky's comparison of two business designs
Design
Traditional American Auto
Toyota
Key Elements
Product focused
Customer focused
Rigid manufacturing system
Flexible manufacturing and selling
Backward integration
Specialization
Technology and scale drive
success.
Customer understanding and
business design drive success.
There is only one way to do
business.
Innovative improvement is possible.
Key Assumptions
Building to Last
James Collins and Jerry Porras, both professors at Stanford University, have built a following with their
book Built to Last: Successful Habits of Visionary Companies. They take an approach reminiscent of the
one Tom Peters and Robert Waterman used for In Search of Excellence and identify eight characteristics
they found to be fundamental to a set of successful organizations that have lasted for 50 years or more.
Collins and Porras call these organizations visionary companies that "prosper over long periods of time,
through multiple product life cycles and multiple generations of active leaders. In most cases, they are the
best of the best in their industries and have been that way for decades." The authors identify eight
characteristics shared by the 18 companies they studied. These companies:
1. Engage in clock-building, not time-telling. A great idea is not fundamental to the startup or
sustenance of a company that lasts. Such an organization focuses on building the mechanisms of a great
clock that will work for generations. Ideas, or "telling time," are secondary to the company, which is
represented by the "clock."
Likewise, the company is not the vehicle for products. It's the other way around. The products are
vehicles for the company. What's more, a clock is a set of processes reduced to mechanical linkages and
interactions.
2. Pursue more than profits. Compared to competitor organizations that set goals based on largely
financial criteria, organizations that last focus on a wider range of concerns, including customers,
employees, products, risk-taking, and innovation. They integrate these broader concerns into a "core
ideology" that combines "core values"--the "essential and enduring tenets of the organization" with
"purpose"--the fundamental reasons for existing "beyond just making money." They fit employees,
structures, and strategies to this ideology.
3. Preserve the core/stimulate progress. Organizations that last are committed to "progress," impelling
themselves to change and make forward movement by exploring, creating, discovering, achieving,
changing, and improving along the way. At Motorola, this commitment is summarized as, "Be in motion,
for motion's sake." Progress is a fundamental commitment, but not at the cost of core ideology. A balance
must be struck between preserving the core while continuing to push ahead.
4. Set big, hairy, audacious goals (BHAGs). Such goals motivate an organization and focus it. "Be
number one or number two in your industry" (GE) or "democratize the automobile" (Ford). A BHAG
requires confidence and a taste for risk. Of course, the BHAG needs to be consistent with the
organization's core ideology.
Copyright © The Beckham Company
Hot Concepts in Strategy
4
By J. Daniel Beckham
5. Foster cult like cultures. Organizations that last have a tight cultural climate that is supportive of
those committed to core ideology and tough on the uncommitted. Such ideologies are represented by the
"unquestioned right to make individual decisions about what to buy" (at Phillip Morris), the Mormon
commitment to a clean-living service orientation(at Marriott), and the magic of "pixie dust" (at
Disney).These organizations indoctrinate their employees, expect them to fit tightly, and perpetuate a
feeling that they are among the elite. Although they are very tight about culture, at the same time they
afford a great deal of autonomy at an operational level. Ideological control preserves the "core" while
operational autonomy stimulates "progress."
6. Try a lot of stuff and see what works. Organizations that last make some of their best moves as the
result of experimentation, trial and error, and luck. In retrospect, these moves may look brilliantly planned
when instead they were the result of "opportunistic experimentation" and "purposeful accidents." Such
sustainable organizations evolve through incremental steps or "mutations" that result from this
experimentation.
7. Home-grown management. Promotion from within is the road to sustainable management excellence.
This helps ensure that core ideologies are respected, preserved, and leveraged. According to Collins and
Porras, the companies they studied were six times more likely to promote insiders to CEO positions than
their less successful competitors. Colgate is described as suffering from disruptive "discontinuity" through
management turnover, while successful Procter & Gamble is described as having "stacked talent like
cordwood."
8. Good enough never is. "Mechanisms of discontent" are bred into sustainable organizations. This has
to be a constant and persistent commitment because these organizations, as market leaders, have every
reason to be complacent, overconfident, and self-satisfied. At Procter & Gamble, this mechanism is the
competition that is cultivated between brands (and brand managers).Employees learn to appreciate that
comfort is not the goal of the organization and that leadership is not easy.
Evolving into Business Ecosystems
Finally, a book by James Moore called The Death of Competition: Leadership & Strategy in the Age of
Business Ecosystems has pushed him into the elite corps of strategy consultants. His premise: Today,
companies no longer can compete for product superiority or even industry dominance--but instead must
focus on establishing total system leadership in an environment characterized by "organized chaos."
In Moore's view, co-evolution describes the relationship between separate business entities that are
highly interdependent. Success depends on orchestrating the contributions of a network of players to
create new "economic wholes" giving rise to "new businesses, new rules of competition and cooperation,
and new industries."
Business ecosystems are, according to Moore, economic communities that produce goods and services
of value for customers who are also members of the ecosystem. The members of this community coevolve and align with the direction set by one or more central companies whose leadership role is
acknowledged and accepted.
Moore's business ecosystems must accomplish four tasks to reach successful maturity: (1) Establish "a
system and sequence of symbiotic relationships that result in the creation of something of real value"
(relative to what already exists); (2) establish "critical mass for the ecosystem"; (3) provide leadership for
innovation and co-evolution across the ecosystem; and (4)ensure that the ecosystem pursues
"continuous performance improvement." These four tasks create a unique set of cooperative and
competitive challenges.
Moore envisions a series of clear shifts from:
•
•
Establishing and growing individual companies to creating frameworks for co-evolution that bring
together multiple competencies from many firms into a growing economic community.
Doing a better job meeting market needs already being addressed with current resources to identifying
powerful unmet needs and untapped resources, and inventing new value chains that link fragmented
and underutilized resources.
Copyright © The Beckham Company
Hot Concepts in Strategy
5
By J. Daniel Beckham
•
•
Identifying resources primarily within your own company or industry to looking for creative ways to tap
resources in companies and industries other than your own.
Managing and leading through control of inanimate assets and coercion of people and organizations to
inspiring people, organizations, and companies to join you in realizing common goals.
Common Themes
Although all six of these books come at the challenge of setting superior strategy and building successful
organizations from dramatically different angles, they share some common themes:
•
•
Business reality begins and ends with the customer.
Organizations must cultivate processes, capabilities, and competencies. The days of functional
hierarchies are gone.
•
Organizations must stretch beyond their current assumptions, structures, and ambitions.
•
Measuring organizational progress and success on the basis of financial performance is insufficient.
•
•
•
•
The role of leadership has changed. The first responsibility of leaders is to articulate an inspiring vision
and get their organizations committed to it.
Organizations must focus their resources toward creating differentiation that is valued by the customer.
This always means giving up some opportunities.
Things are increasingly connected inside and outside the organization. A critical challenge for
leadership is to manage interactions, not actions.
It is not enough to meet the market. You have to lead it.
The ideas and models presented here have left an indelible imprint on the face of industries and the
companies that comprise them, including healthcare. Hopefully, this overview has provided a useful
abstract of the key ideas currently reshaping strategic thinking inside and outside our industry.
Originally published in Health Forum Journal
Copyright © The Beckham Company
Hot Concepts in Strategy
6