why your strategy stinks

WHY YOUR STRATEGY STINKS

Richard Farr

Brian Wood

Telos Solutions

Life Convention, Edinburgh: November 2009

Introductions

Brian Wood

Actuary CEO, Telos Solutions Former CEO of 2 lifecos ‘Blue Ocean Strategy’

licensed practitioner Co-author of “Beat the

Pensions Crisis”

Richard Farr

Marketing specialist Business Development

Director, Telos Former director of AIFA

and Association of Mortgage Intermediaries

Extensive experience in building societies and mortgages sector

2Why your Strategy Stinks Farr & Wood

What is Strategy?


Examples of great strategy

(not FS)


Four attributes of great strategy:

4. Delivery3. Differentiation

1. Future orientation

2. Customer intimacy


Strategy in Business

Established in the 1950’s and 1960’s Need for common objectives Origins in military strategy (zero-sum assumption)

Later theories focussed on numbers Competitor review Current industry conditions Current customers

More time spent analysing than observing and thinking


Classic strategy theory (Porter et al)

Analyse the market boundaries, plotting value against cost

Choose the optimum position along the high value/ high cost to low value/ low cost spectrum

There are no other choices Assumes the market is

inherently static – innovation changes it slowly


The classic strategy development process

Optimise your

position in current market

structure

Allow for some

emerging trends

Analyse data on

your competito

rs

Analyse data on current

customers

• Finer and finer segmentation of existing markets• Customer wants “more for less”, “more for less”, “more

for less”• A slow death spiral


“When a BCG consultant walks through your door, he or she will be thinking

about two things: the competition you face and new ways for you to win.”

“McKinsey takes an overall, independent, and

fact-based view of a client’s performance. We

rely on facts because they provide clarity and

align people.”

“Booz Allen are experts in understanding industry structure and dynamics and in boiling it down to

the insights that are most relevant to our clients’

situations.”

“Bain work with top management to beat their competitors and generate substantial,

lasting financial impact ... we dig deep into the

numbers, as the basis for creating solutions.”

Major strategy firms ...


So: this is why your strategy probably stinksClassic strategy

techniques

• Analysis of past data• Management fear – go for the

‘sure thing’

• Data on current customers, products, competitors

• Little attempt to observe anew

• Analysis assumes that the current market is fixed

• Change is evolutionary

• Little evidence that this is ever considered at all



3. Differ-entiation

4. Delivery


Life assurance business

• Products and systems emanate from the past

• Strong tradition/profession

• Separation via ‘Distribution’• Confusion policyholders/IFAs• Information asymmetry

• Belief that customers ‘should’ want existing products

• Regulatory suspicion

• Difficult to manage progress with intangibles

• Complex products

What makes a perfect strategy?




3. Differ-entiation

4. Delivery

• A new market with NO competition

• Products that customers want to pay for

• Refreshed on a regular basis

• Capable of being delivered

• Costs reduced to lowest possible level

Market for video games(Xbox, PlayStation):

Young males:• Fantasy• Violence• Complex graphics• Tricky controls

Nintendo


Unexplored customers:

Older females.

Observation:They like games!


Nintendo Wii: strong differentiation


Market for Nintendo Wii:

Everyone

• Simple physical games

• Simulations• Sociable• Intuitive controls


Impact on Nintendo

Low-cost graphics Low-cost controls Low-cost game development

Production cost of Playstation: $800

Production cost of Wii: $150 Wii sales overtook Xbox and

Playstation combined in 2008 Nintendo now worth more than

Sony


The area to expand

FALSE

Competitor World View

Our World View

Source of poor strategy


Nintendo used ‘Blue Ocean’ tools

RED OCEAN Existing markets Fierce competition Cost-plus pricing High legacy costs Thin margins

BLUE OCEAN Uncontested market

space Competition is irrelevant Market pricing Low costs High margins


Video games: “As-Is” strategy canvas


Current customers:where do we add cost/pain but no value?

Purchase Delivery Use Maint-enance Maturity

Ease for customer

Simplicity

Conven-ience

Risk

Fun & Image


Where do I get one?

Under-writingChange of address

Difficult to understand

Masses of docs

Is it doing well/badly?

Have to visit IFA?

Weeks to process?

Advise me what to do with cash?

Have I got the right one?

May not pay claim

Will it pay out?

Poor FS reputation

Little personal contact

Unexplored

Now

Soon-to-be

Refusing

Observing non-customers

You have many more non-customers than customers

Current customers are already served by you - and your competitors

Everyone is a customer somewhere – so you can observe what they need/ like

If the further reaches are too scary, dip your toe in by observing the “Soon-to-be”


Observe non-customer needs: Six paths

Industries that offer an alternative

Other strategic groups

Chain of buyers

Complementary products & services

Functional and emotional appeal

Time622

Why your Strategy Stinks Farr & Wood

Construct a new Canvas based on value

CreateWhat factors that the industry has never offered should be

created?

ReduceWhat factors should be reduced well beyond industry standard?

RaiseWhat factors should be

raised well beyond industry standard?

EliminateWhat factors that the industry has taken for

granted should be eliminated?


Nintendo Wii: strong differentiation


A simpler example

John Lasseter, animator Left Disney as he could not convince them as to the

power of CGA Joined Lucas Films Computer Graphics Group Co Founded Pixar with Steve Jobs Sold Pixar to Disney in 2006 for $7.4bn Head of Pixar and Disney Movie Studios


John's view on strategy


Four attributes of great strategy:

4. Delivery3. Differentiation




Strategy and Deliveryare completely different disciplines

Strategy is about creating a coherent direction that customers can relate to.

Operations is about the nitty-gritty of internal process, expertise, people, costs.

Success requires both – no point having a strategy that you can’t implement.


The delivery gap

Strategy thinking is: outside-in risk-taking conceptual

Operations thinking is: inside-out risk-avoiding tangible

So a natural gap tends to exist in most organisations


Closing the gap

Convert the strategy into operational terms tangibles: what will it

look/feel/sound like? Explicitly manage the

continuous flow between strategy and operations always messy

Start with a ‘top-slice’ exercise to evaluate: costs timescales risks


Integrate with

delivery

The full strategy development process

Construct new

strategy canvas

Engage with non-

customers

Existing customer pain-points

“As-is” StrategyCanvas


The acid testsAre you offering something different and special to potential customers?

Will people pay a fair “market price” for what you offer?

Can your costs be low enough so that you generate a profit?

vs

Can you deliver it?


References and links

A LinkedIn group specially set up for this presentation

http://bit.ly/73BjfJ

“Why your strategy stinks”

Telos Solutions www.telossolutions.co.uk

Brian Wood [email protected]: briandwoodhttp://uk.linkedin.com/in/brianwoodtelos

Richard Farr [email protected]: richardfarrcoukhttp://uk.linkedin.com/in/richardfarr

Beat the Pensions Crisis www.thepensionscrisis.com


http://bit.ly/73BjfJ

http://www.telossolutions.co.uk/

mailto:[email protected]

http://uk.linkedin.com/in/brianwoodtelos

mailto:[email protected]

why your strategy stinks

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