A strategy success case

iRobot was founded in 1990 by Massachusetts Institute of Technology roboticists with the vision of making practical robots a reality. Their tagline is to designs and builds robots that make a difference.

In 2011, iRobot generated more than $465 million in revenue andRoomba employed more than 600 of the robot industry’s top professionals, including mechanical, electrical and software engineers and related support staff. e.g., www.irobot.com/us.

In 2002 they introduced the Roomba, a series of autonomous robotic vacuum cleaners. As of February 2011, iRobot claims that over 6 million units have been sold. Previously robots where used only for government and industrial purposes. With the introduction of the Roomba, iRobot redefined the robot industry boundaries opening a new market for robotic products, and as a result, this meant that there was no competition. Their entry into this market therefore gives them ‘attacker’s advantage’ ahead of other who may want to enter the market. This move into a new market reduced the competition they faced (to nothing in the beginning) and allowed them to deliver a level of value to the consumer not previously seen within the market. All of this without having to particularly care about other vacuum high competitive market key factors to differentiate from other competitors.

Instead, to differentiate into a high competitive market, a company has to add value to products (increasing in the production costs) dealing with well known key factors. This is due to the fact that, to beat the competitors without value innovation, there are a limited set of options. Most of the competitors know these options and are willing to use them. In this type of market, companies will be forced to move within a strict value-cost trade-off to compete. To differentiate their products/services companies will have to add value, with higher production costs, or, on the other end, to lower the street price or apply both strategies. In any case they will end up with a lower profitability.

In an attempt to move away from this fierce competition many firms look to tailor their products to better meet a subset of customers. This practice add value to products but often results in increasingly small target markets with a consequent higher risk related to environmental changes. Moreover, having to deal with a subset of customers means higher production costs since the company will not benefit from large scale production. Again the company is forced to move within a strict value-cost trade-off.

Instead of focusing on the differences that separate customers, wouldn’t it be better to look for commonalities? Searching ways to aggregate new demand was the strategist goal achieved with the Roomba project. Looking for commonalities across robots noncustomers, new demand was unlocked, minimizing scale risk. Opening a new market means to be able to add high value for customers through the offer of elements that competitors have never offered before. To attract customers the company will not need any more to include all of the traditional key competing factors, due to the high value included in newly added key factors. This way it is possible to break the value-cost trade-off to end up with a highly profitable strategy.

“Value innovation” is relevant here as the company is oriented toward achieving a leap in value for both buyers and themselves.

Instead, “innovation” may, for example, lower the production cost without changing the buyer perceived value. Innovation usually involves only a part of the company, like the production chain introducing automation in the assembly line, while all parts of the company are involved to achieve a “value innovation”. Here the firm reduces costs, which they may not pass on to the consumers, since customers deemed added value from the product or service itself.

Author: Carlo Olmi

The importance of strategy

“Mission is at the heart of what you do as a team. Goals are merely steps to its achievement”. e.g., (Dixon P. 2012).

“The expert in battle seeks his victory from strategic advantage and does not demand it from his men.”  e.g., (Tzu S. 2009).

A company is made up of people, assets and financial resources. It is a collection of skills and resources. Combining these items and focusing them toward a shared objective is the main strategy goal for the company. The importance of combining skills and resources was well highlighted by Porter in his “value chain” concept from business management.

A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in a set order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activities’ values.Porter1

The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will activate different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the “value system”. A value system includes the value chains of a firm’s supplier (and their suppliers all the way back to the basic raw materials of the product), the firm itself, the firm distribution channels, and the firm’s buyers.

Author: Carlo Olmi

Being a strategist

“Because your own strength is unequal to the task, do not assume that it is beyond the powers of man; but if anything is within the powers and province of man, believe that it is within your own Marcus Aureliuscompass also.” e.g., (Aurelius M.)

Being an effective strategist is difficult and you need to know yourself, your enemies and the outer world. You need to be positive since keeping a positive mental approach is your strength. If you find difficulties, you should try to analyze your task to find out the key factors. Then you should be able to disaggregate your main task into smaller (and easier to accomplish) sub tasks. Through next chapters we will disaggregate the strategic building process to highlight the key factors around which to work to building up an effective strategy.

Thinking like a strategist

“In manufacturing, we try to stamp out variance. With people, variance is everything.” e.g., (Welch J. 2001) – Chairman and CEO of General Electric between 1981 and 2001.

Everyone can be a strategist. It is a matter of mental approach; it is the result of preparation, hard work and learning from failure.

First of all it is essential to take some time to look at the “big picture”. Don’t start planning before thinking since you could end up with the wrong solution. To think strategically it is not needed to know dedicated tools but it is not possible to come out with a great strategy without being a strategic thinker.

The strategic thinker is interested in any aspect of the company since a good idea may come out from the examination of specific areas. He has to be capable of a kind of mental gymnastic allowing him to link ideas from different specialists, highlighting opportunities, contradictions, tensions and paradoxes.

Of course for action oriented individuals it would be somehow painful spending time thinking when they should be doing. The risk is to start planning to early and since planning is getting the things done, strategist would go too early through a less imaginative (and uninspiring) part of the job.

Acting like a strategist

“People will only follow you if they see you’re ahead, are convinced you know the route, trust you, and want to get there too.” e.g., Dixon P.

“You cannot have strong leadership without passion.” e.g., (Dixon P.)

“The best way to support dreams and stretch is to set apart small ideas with big potential, then give people positive role models and the resources to turn small projects into big businesses.” (Welch J. 2001)

To act as a strategist you need to ask yourself and to the other people inside the company:

  1. Why not change the rules?
  2. Why do we do what we do?
  3. Why are we happy (or not) with the status quo?
  4. Why not do something different?
  5. Why will our plan work (or fail)?

e.g., (McKeown M. 2012)

At first strategists use to work alone but sooner or later they have to work with a dedicated team (also to give more straight to the proposed strategies). In any case they will strictly interact with the key specialists of the company since these people could be a good source of inspiration for strategic thinking. For this reason it will be important throughout all the strategy design and deployment to involve the company specialists.

A practical suggestion is to start interacting with these specialists not presenting you as “THE STRATEGIST”. Instead you should keep a low profile asking them to explain the actual company strategies. They will be happy to collaborate with you showing their point of view about the company.

Never forget that it is like entering in other people houses and even if you have a strong commitment from the head of the company you cannot put “your boots on their tables”.

Through these interviews, strategist will collect the specialists’ interpretation of the company strategy. Comparing these interpretations, it will be possible to determine how different they are from each other. If there is a clear company strategy it will be possible to determine the lock of permeability to strategies of the organization.

In the real world it is normal to find different interpretations of the current company strategy since people are naturally interested in different aspects of the “big picture” do to their professional background and emotions. If the interpretations are too far from the original strategy, specialists will drive the part of the company they are responsible of toward different directions. As previously stated, through a strategy, the company has to focus all the company resources toward a common object. This way the company will be able to offer a value added product/service. Without focusing to the same object, the company will be able to add less value to the products/services with the consequence of lowering their competitiveness.

Author: Carlo Olmi

What does strategy means?

Leonardo da Vinci ArtworkA strategy is a plan of action designed to achieve a vision. It derives from the Greek “στρατηγία” (strategia), “office of general, command, generalship” e.g., (Wikipedia, 2014). Dixon P. suggests that Business strategy “is the battle plan for a better future”.

Strategy is about changing unfavorable circumstances into a favorable situation by reorienting an existing business in a new competitive environment. In order to achieve this goal, strategists will shape the future of an organization involving every part of the company in the business process redesign/reengineering.

Business’ can have more than one strategy. For example, a firm may have an overall corporate strategy guiding the business as a whole, whilst its individual branches have their own strategies that compliment and support the main strategy.

Strategy aims to guarantee the long-term success and survival of the company. In doing this, the strategy is often far longer than one year. Due to changing markets and consumers the business strategy must adapt alongside market evolution.

Strategist aim to anticipate the market changes, thus only needing small changes to be made to the strategy canvas.

In order to monitor the market evolution a feedback structure is set to anticipate market changes, thus allowing the firm to react and to minimize their impact for the company.

The essential elements of a strategy are:

1)     Value based orientation

2)     Profitability

1)  All relevant stakeholders have to see clearly the advantages (added value) related to the product or service offered by the company. Most of all the added value must be clear to customers to encourage adoption of the product or service. Such advantage can be established and defended through superior values in customers key competing factors.

2) The strategy must display profit potential through a clear and structured business plan.

The business plan is the direct consequence of a strategy and it is a set of, well documented, actions to be followed to implement the strategy in the real world. This action plan will include numbers and information to give strength to the strategy and to direct the business redesign/reengineering.

In game theory, a strategy refers to one of the options that a player can choose. That is, every player in a non-cooperative game has a set of possible strategies, and must choose one of the options that a player can choose. e.g., (Wikipedia, 2014)

Chess is a classic high-end strategic game. It is a two-player board game played on a ‘chessboard’, a square-checkered board with 64 squares arranged in an eight-by-eight grid. Each player begins the game with sixteen pieces; each of these types of pieces moving differently.

A chessboard is the equivalent to the business market in which the company competes in. The Chessboard’s boundaries are known and unchangeable. In the company business market boundaries should also be well known but changeable. One of the strategists’ tasks is to figure out how to enlarge the company market boundaries in order to increase the number of customers.

In chess there are two players. In the company business market there could be several players that have an interest in competing with the company. Strategists need to know those players and their strategies to be able to better focus the company business plan.

In chess, both players start the game with the same type and number of pieces being allowed to move within a strictly defined set of rules. In company business market there could be big, small, national and international players. Some of them will be able to move aggressively (ex. dumping price policy) to conquer a new market. This gives them an advantage over other firms and therefore various firms must adapt their strategy to play on their own strengths and against the competitions weaknesses.

In the company business market legal rules are set but it is left great freedom to act. A good strategist needs to be aware of the environmental (legal, political, consumer) changes to be ready to re-focus company strategy. A better strategist will anticipate these occurrences.

The object of chess game is to ‘checkmate’ the opponent’s king by placing it under an inescapable threat of capture. In addition to checkmate, the game can be won by the voluntary resignation of one’s opponent,

which may occur when too much material is lost, or if checkmate appears unavoidable.

In the company business market the objective is to reach a position of value based orientation and profitability that are unchangeable like checkmate for chess players.

Chess strategy consists of setting and achieving long-term goals during the game – for example, where to place different pieces – while tactics concentrate on immediate maneuver. These two parts of the chess-playing process cannot be completely separated, because strategic goals are mostly achieved by the means of tactics, while the tactical opportunities are based on the previous strategy of play. e.g., (Wikipedia, 2014)

In chess, tactics mainly concentrate on short-term actions – thus allowing them to be calculated in advance by a human player or by a computer. The possible depth of calculation depends on the player’s ability. In quiet positions with many possibilities on both sides, a deep calculation is more difficult and may not be practical, while in “tactical” positions with a limited number of forced variations where much less than the best move would lose quickly, strong players can calculate long sequences of moves in order to give them the best possibility of winning. e.g., (Wikipedia, 2014)

A great strategist will be able to evaluate more variables while defining the strategy and like a good chess player he will be able to reconsider the strategy, analyzing the other players’ actions through an effective and efficient feedback system. Unlike chess, where only two players are involved in the game, strategists have to deal with several direct and indirect players (stakeholders) and they need to be aware that underestimating their influence will increase the risk of failure. Since companies are made of people, a good example could be found looking at employees. People tend to create a comfort zone around themselves, where they don’t feel in danger and where they are not stressed. Some of them may be reluctant to accept changes related to the introduction of a new strategy since changes would move them out from their comfort zone. On the other hand, it is also possible that some of these people may have a vested interest in the status quo and they will try to obstacle any change in the existing strategies. A strategist has to deal with this problem by himself and by using facilitators. A facilitator is someone who helps a group of people to understand their common objectives. Some facilitator tools will try to assist the group in achieving a consensus on any disagreements that preexist or emerge in the meeting so that it has a strong basis for future action.

Author: Carlo Olmi