Author: harborcapitalgroupinc

 An alternative way to get the insight you need to create your strategy  

This is an alternate method of making your diagnosis. The information here is from Christopher J Frank and Paul Magnone and their book, “Drinking from the Fire Hose,” which is about making smarter decisions without drowning in information.

The problem today is the amount of information that is available and continues to expand at an incomprehensible pace. I had a friend who, in 1948, was one of the very early computer programmers. At that time, it cost 1 million dollars to produce and store one megabit (MB) of information. Today, the estimates are that by 2020, we will be generating 1,7 MB of data every second for every person on earth. That’s a lot of data to go through looking for an answer.

The good news is that most of that data is irrelevant. Frank and Magnone have created a way to use only seven questions to get the data you need to answer your question. That section is about another way to diagnosis a problem or opportunity to create a strategy that will set you apart from your competitors.

This method is one of several approaches you can use to diagnose the problem. You can use one or all of them. That goes for the seven questions, as well. You can use them all or use the ones you need to get your answer.

I encourage you to look at this method as one way to make your diagnosis. It offers many benefits, including:

This system of questioning helps you recognize the difference between data that measures and data that informs.

Using these questions will help optimize what you do and what you can do with the time you have.

These questions make it easier for you to zero in on the essential information you need to make timely, practical decisions and inspire others on your team to do the same.

• It shows you how to divide data into two fundamental groups: data that measures and data that informs.
• Data that measures tracks performance by assessing the impact or by tracking the market.
• Data that informs builds understanding, tests concepts, and strategies, and shapes decisions

We often spend way too much money and time on data that measures and not enough on data that informs. This method and these seven questions bring a big-picture perspective to the problem and make it possible to turn this information into useful insights.

Following is a summary of the seven questions. The seven items are divided into three parts: one, Discovery, two, Insight and three, Delivery.

Discovery.  Here is where you gather information, but only focus on the information you’ll need.

That means limiting the amount of data you gather by using question

1. “What is the one, vital piece of information you need to move forward?” This is the Essential Question.  If the information does not relate to or help you answer that question, you don’t need it.

2. The second question in discovery is, “What is your customer’s Northstar?’ Only gather data that w you to interpret and understand your customer’s needs, wants, and behavior in absolute and relative terms.

3. The third question is, “Should you believe in the squiggly line?’ In other words, how relevant are short-term movements to your long-term objectives? Learn to identify long-term trends that coincide with your long-term interests. Also, triangulate results using absolute position changes over time and comparative measures (e.g., year-over-year).

It takes time to shift your focus from amassing data to finding and interpreting only the data needed to answer the Essential Question and move your business forward. As you can see, this limits the volume of information you have to gather to only information you can use to solve the problem.

Insight. These questions lead you to fresh insights and allow you to see complex situations clearly.

4. Question four is, “What surprised you? Here you are looking for game-changing information, not confirmation bias. Game-changing information is always a surprise. Look at the numbers on the page, not the numbers you expected. Anomalies in the data are more likely to reveal opportunities than numbers that conform to expectations. Use your intuition and natural skepticism to look for surprises.

5. Question five is, “What does the lighthouse reveal?”  As you navigate through the useful information, you need to know which numbers symbolize the rocks in your path. Define the criteria that are meaningful to your business. But because things are changing all the time, watch for information that could be damaging. For example, what kind of data, numbers, or information do you need to keep out of trouble?

6 Question six is, “Who are your swing voters?” Most companies focus on their delighted customers or critical customers who will never become customers. But, categorizing, segmenting and targeting your swing voters is the most effective way to drive growth at the lowest cost. Segment your neutral customers into learners, neutrals, or defectors. Profile each segment so you can engage it. Then target each segment with a dedicated message. This does not mean you ignore your most loyal customers, but you can get trapped if loyal customers are your only focus.

Delivery.

7. Question seven is, “What? So What? Now What? These questions are different from the first six. This question goes from gathering and analyzing information to communicating results. This question uses a simple, pragmatic framework to deliver the results of your study. Very simply, it is finding the data that matters (diagnosis), determining what the information means (insight), and creating cohort action plans based on that meaning. Answer the Essential Business Question and demote the rest of the data, methodology, and supporting materials to the appendix.

An alternative way to do your diagnosis with an emphasis on creating value vs. competitors

This alternative diagnosis method comes from Renee Mauborgne and W. Chan Kim from their book, “Blue Ocean Strategy”. The idea is to create a blue ocean (new market you own) and make the competition irrelevant. Blue oceans are mostly created within red oceans.

A red ocean is a market where the parameters are known and the rules set so you are forced to compete for temporary gain, usually by giving up some margin. But, when supply exceeds demand, you have to create new ways to compete, hence create a blue ocean.

The basic idea is to create value innovation. Creating value without innovation will not make you stand out. Innovation without value tends to be technology-driven, market pioneering, futuristic and often going beyond what buyers are ready to accept and pay for. 

To create new value, you first need to find cost savings by eliminating and reducing the factors an industry competes on. Buyer value is created by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in due to higher sales and greater value.

There are four key questions you need to ask to challenge an industry’s strategic, logic and business model.

1. Which of the factors that the industry takes for granted should be eliminated?
2. Which factors should be reduced well below the industry’s standard?
3. Which factors should be raised well above the industry’s standard?
4. Which factors should be created that the industry has never offered?

Most companies focus on improving their competitive position within a strategic group (BMW vs Mercedes, both competing in the luxury care business). Rarely do sellers think consciously about how their customers make tradeoffs across alternative industries? 

Here are a couple of examples.  What if movie theatres offered a babysitting service at the movie theater? Curves, the women’s fitness company, was seen as entering an oversaturated market. However, it tapped into an untapped market of women struggling and failing to keep in shape and because it was for women, took the advantage away from traditional health clubs and home exercise programs. 

There are six systematic patterns one can use to reconstruct market boundaries and create blue oceans.

Pattern One. Look across alternative industries

One competes with other firms in its own industry but also with companies in other industries that produce alternative products or services. Alternatives are a broader category than substitutes (e.g., for personal finances, people can buy a software package, hire a CPA or simply use pencil and paper which are substitutes vs. restaurants that also show movies are alternatives. What are the alternative industries in your industry?

Pattern Two: Look across strategic groups within industries

A strategic group is a group of companies within an industry that pursue a similar strategy. They can be ranked usually by two dimensions; price and performance (VW competes with Toyota and BMW competes with Mercedes). The key to creating a blue ocean across existing strategic groups is to break out of this narrow tunnel vision by understanding which factors determine customers’ decisions to trade up or down from one group to another. For example, women did not care for the fancy health club or restaurants, they didn’t want men to see their imperfect bodies as it made them uncomfortable. A new opportunity.

Pattern Three: Look Across the chain of buyers

In most industries, competitors generally converge around a common definition of who the target buyer is. In reality, there is a chain of “buyers” who are directly or indirectly involved in the buying decision. Also, the purchasers who could differ from the users and influencers as well.

Challenging an industry’s conventional wisdom about which buyer group to target can lead to the discovery of a new blue ocean ( the trucking company that becomes the transportation company for example.)

Path Four: Look across complementary Product and service offerings

Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers see when they chose a product or service. A simple way to do this to think about what would happen before, during and after your product is used (babysitting and parking the car are needed before people can go to the movies or the cost of the car plus maintenance).

Path Five: Look across functional or emotional appeal to buyers

Some industries compete principally on price and function largely based on calculations of utility and their appeal is rational Other industries compete largely on feelings where their appeal is emotional. Yet most products or services are rarely intrinsically one or the other. When companies are willing to challenge the functional-emotional orientation of their industry, they often find new market space (for example, Swatch transformed the functionally driven budget watch industry into an emotionally driven fashion statement.)

Path Six: Look across time

All industries are subject to external trends that affect their businesses over time.  Most companies who are aware of a trend, pace their own actions to keep up with the trend. But key strategies rarely come from projecting the trend itself and how it will impact customers and change the business model. Don’t keep up with the trend, look across time — from its market value today to the value it might deliver tomorrow. This can actively shape your future and create a blue ocean. 

Here are some questions to ponder. What trends have a high probability of impacting your industry, be irreversible and have a clear trajectory? How will these trends impact your industry? What would the trend look like if taken to its logical conclusion?

We will have more articles in the future about creating blue ocean strategies but this article should give you plenty to think about for now.