From the Ask Tom mailbag –
In your recent workshop, you mentioned that timespan and levels of work could help us understand our strategic platform and compete more effectively against our competitors. Can you elaborate?
Timespan and levels of work can easily be applied to your strategic platform. Levels of work helps us understand the complexity inside our business model and the moves we make to resolve our challenges, solve our problems and make our decisions.
The future is uncertain and ambiguous. The further in the future, the more uncertain. Yet, in the face of that future ambiguity, we still have to make decisions today. The near term impacts of our decisions may be markedly different from long term impacts. The more complex our business model, the more we have to look into that future to make our strategy more effective.
The strategy we employ contemplates a time frame. That framework can be discreetly segmented into levels that help us understand our strategy in the midst of our competitors. It is often difficult to see ourselves, sometimes much easier to see our competitors. If we can effectively analyze our competitors, there is a good bet that we contain very similar characteristics. If we want to beat our competitors, we have change our strategy. But how?
Levels of work provides some guidance.
- S-I – Product or service strategy. Timespan – 1 day to 3 months.
- S-II – Process or method strategy. Timespan – 3 months to 12 months.
- S-III – System strategy. Timespan – 1 year to 2 years.
- S-IV – Multi-system integration strategy. Timespan – 2 years to 5 years.
- S-V – Market (responsive) strategy. Timespan – 5 years to 10 years.
S-I – Product or service strategy. Timespan – 1 day to 3 months.
Most companies start out this way. The startup entrepreneur has an idea that people might want to buy this or that product or service. If it’s a great idea (lots of people might want it) a business is born. People buy it because it is useful or they like it. If this startup business is the only company with this product or service, they make money. People may even be willing to put up with a bit of wonkiness, limited availability or cumbersome utility because it’s the only product or service that does what it does.
If enough people buy it, the company attracts attention. First competitors simply copy it, and now there are two companies with a relatively identical product or service (as perceived by the customer). Look around. Your product may not be so unique, few are in this internet age. And, if it is unique, it won’t be for long.
What do you do if you wake up one morning and find your product or service is one of a handful of look-a-likes. Move up to the next level. Move from a product or service strategy to a process or method strategy. It is no longer enough to just have a product because several others have an identical offering. What does process allow you to do? Faster, better, cheaper. Other companies may have an identical product, but if you have a process, your offering may be at a lower price, a little less wonky, more available in more places.
S-II – Process or method strategy. Timespan – 3 months to 12 months.
It’s doesn’t take rocket science to understand that your company can sell more of an identical product or service if you drop your price. But don’t think you can drop your price and stay in business if you are simply eroding your margins. Process and methods allow you to make moves related to pricing, crank out more finished product, with faster output. This S-II strategy will beat your competition.
What do you do if you wake up one morning and find your competitors not only met your price point, but undercut it by another couple of points, on sale at an even lower price. You assume they must be buying off your customer, eroding their margins and will soon price themselves into bankruptcy. Though shalt not kid thyself. While you were figuring out how to make it better, faster, cheaper, so was your competitor.
S-III – System strategy. Timespan – 1 year to 2 years.
How do you beat a cheaper price? At some point, even with brilliant process and method, there is no margin left. There is no more race to the bottom, because everyone is there already. But some things happened on the way to the forum. As volume pushed higher, that small decimal defect became a larger number, a substitute material didn’t hold up as well, the cheap paint flaked off. Customers, used to an expected standard become finicky, think twice before they purchase. They don’t need a third widget to go with the two broken ones they already own. How do you stand out?
Offer a warranty. With a warranty, you can even push your price point back up. A warranty removes the risk in the purchase. But warranty claims can eat your lunch. Product replacement, warranty service can be expensive. Do NOT offer a warranty unless you have a system that builds in consistency and predictability. If your competitor tries to match your warranty and they don’t have a system, you win.
Of course, your competitors are not stupid. They can figure out your system, sooner or later, and copy it, so they can offer the warranty as well. How do you beat your competitor who has figured out your materials, your sequence, your tooling.
S-IV – Multi-system integration strategy. Timespan – 2 years to 5 years.
At this point, the selection of your product or service over your competitor’s has little to do with the product or service. All the product or service offerings are identical, quality is high and predictable. The customer’s choice now has more to do with the support systems that surround your core system (because all the core systems are the same).
Your logistics system becomes more important, your customer service system, return policy, store location, response time system. And this is where scalability lives. A company may become profitable at S-III – System strategy, but can only scale at S-IV – Multi-system integration. The competitors are fewer, but the fight is fierce. The big difference between a single system MRP (Materials Resource Planning) and a multi-system ERP (Enterprise Resource Planning) is integration.
S-V – Market (responsive) strategy. Timespan – 5 years to 10 years.
And, here is a huge sea change. Everything discussed so far looks inside the organization and the way it works. These are all internal systems with an internal focus. When all your competitors have fully integrated systems, how do you win? You can no longer depend on an internal focus, you now must look outside, looking at your external systems. Those external systems take the form of market systems, regulatory systems, finance systems, labor systems, technology systems. These external systems are not under your control, yet your success now depends on your ability to navigate them.
Look at your competitors to determine your current strategic platform, based on levels of work. Beat your competitor by moving to the next level.