Business Strategy Manifesto

Business Strategy
MANIFESTOHow A Company Can Stake Out A Unique And Sustainable
Strategic Position And Discover More Proﬁtable Business
by Andrew Pearson

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Business Strategy
MANIFESTO

How A Company Can Stake Out A Unique
And Sustainable Strategic Position
And Discover More Profitable Business

© Copyright 2013 Andrew M. Pearson

ALL RIGHTS RESERVED. No part of this report may be reproduced or transmitted in any form
whatsoever, electronic, or mechanical, including photocopying, recording, or by any informational storage or
retrieval system without express written, dated and signed permission from the author.

DISCLAIMER AND/OR LEGAL NOTICES:

The information presented herein represents the view of the author as of the date of publication. Because of
the rate with which conditions change, the author reserves the right to alter and update his opinion based on
the new conditions. The report is for informational purposes only. Whilst every attempt has been made to
verify the information provided in this report, neither the author, nor his affiliates/partners, assume any
responsibility for errors, inaccuracies or omissions.

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Contents

PAGE
Forward 4
Preface 6
Introduction 8
Part I Strategy Formulation Today
Actually happens;
Do companies Really Innovate?; New Positions Must be Sought Continually; A
Dynamic View On Strategy
11
Part II What Strategic Planners Need To Know
What Strategic Planners Need To Know; To Invent New Business -‐ or Not; What
is A Unique And Sustainable Strategic Position; Defining a Unique Strategic
Position
18
Part III The Quest For A Unique Strategic Position
Crafting A Unique And Sustainable Strategic Position; Redefine The Business The
Company Is In; Redefine Who Really Is The Customer; Redefine The Offer To The
Customer; Redefine The Way To Play The Game; Strategic Assets and Capabilities
Are Crucial; The Value of ICT; The Right Organisational Environment
24
PART IV How A Company Can Sustain A Unique Strategic
Position
Managing Two Positions Simultaneously; Sustaining Competitiveness; How
Competitive Advantage Is Established And Maintained, How Should A company
Respond to A Fresh Strategic Innovation; Choosing Between The Options
37
PART V Creativity In Strategy Formulation
The Dynamic Imperative; Strategy Is About Breaking Free!; The Focus Of
Creativity; Ask The Right Questions; Involve All Managers In Strategy Creation; Is
Questioning Sufficient?; Identify And Quantify All Significant Strategic Risks;
Choosing Between Options; So, Where Are We Now...?
46
PART VI The Case For Implementation
The Case For Implementation; Entrepreneurship In The Top Team; Maintain
Momentum; So, There You Have It...
58
PART VII Questions And Assignments 65
About The Author 71

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Forward
I am privileged to write a few words in support of my dear friend, Andrew Pearson. I know
Andrew as a tutor and now as a business associate. Andrew is one of those rare personalities able
to capture your interest from the second he walks through the door. His greatest strength lies in
his capacity to bring the numerous strands of strategic management thought together. He never
teaches 'just' marketing, 'just' strategy or 'just' operations management -‐ because he knows that
these are pure academic distinctions which have no place in real businesses.

The breadth of his knowledge and the clarity of his focus is quite enlightening and these are the
key elements that make up the experience of being a student of his. He once said something that
summarises his practical approach to strategy that really impressed me, it was this; "Successful
business strategies result not from rigorous analysis but from a particular state of mind." This is of
course a subject sorely lacking in traditional management training. Maybe it is the difference
between good managers (rigorous analysts) and exceptional ones (having an appropriate state of
mind).

Andrew has provided precious help to all his students including me, in a very friendly
atmosphere. I should confess that his professional manner has made him the most popular tutor
among his students and this proves his excellent leadership skills. I have enjoyed the opportunity
to be his student and would recommend Andrew to anyone who is interested in working with
someone who is fun and has business experience in his background. He is able to give students of
business confidence, by giving them a sense of clarity and purpose. His lessons are sprinkled with
anecdotes.

Andrew has that rare ability to listen and not criticise, yet add value to student comments and
questions, which he always encouraged us to volunteer. It is not possible to talk about him in just
a few paragraphs but I hope these few paragraphs will help you to know the best tutor that I ever
had the benefit of working with. I commend the Business Strategy Manifesto

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courses on How to Create and Exploit a Unique Business Strategy and Business Model Generation
to you as practical tours de force.

Rees Ellingham
Oxford,
December 2011

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Preface
Peter Drucker tells us that there are three kinds of opportunities: additive, complementary and
breakthrough.

1. An additive opportunity more fully exploits already existing resources. It does not change
the nature of a business. Such an opportunity would take the form of an extension of an
existing product line into a new and growing market. The pharmaceutical distributor who
extends his marketing from distribution management to logistics and information
management for hospital pharmacies avails himself of an additive opportunity -‐ even
though his products and his selling methods may need considerable change.

2. The complementary opportunity is something new which, when pooled with the present
business, results in a new total larger than the sum of its parts. The opportunity of
pharmaceutical distributor establishing a drug administration business in patient care,
through acquisition of a company that made machines that automated much of the drug
administration process, is a complementary opportunity. The breakthrough opportunity
changes the fundamental economic characteristics and capacity of the business.

3. A breakthrough opportunity requires great effort. It requires the employment of first-‐
class resources, research and development and especially human resources. And the risk
is always great.

The story of IKEA -‐ -‐ is a breakthrough
offer in home furnishings. It was first offered to a good many larger retailers, all of whom turned
it down as too contentious and risky to develop. Yet it persisted and through considerable
opposition it developed a business model that worked. And then the rewards were extraordinary
and came quickly.

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No company that wants to have a future can afford to spurn the breakthrough opportunity. This
classically is the opportunity to make the future happen. But the effort needed is so great that
the breakthrough, if it is successfully realized, should always be capable of creating a new market
rather than an additional product.

This manifesto is all about breakthrough opportunity.

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Introduction
This short book brings lasting benefits to all managers and business owners who are responsible
for the strategic development of their companies.

Based on our successful coaching programme; Invent New Unique Business Strategies; Andrew
Business Strategy Manifesto, gives managers and business owners the tools to create
sustainable differentiation for any business.

The book presents a refreshingly simple yet practical way to use strategy in practice, it combines
and provides a road map for competition. It shows managers how they can zero in on the major
choices that lie at the heart of all innovative strategies. By reading Business Strategy Manifesto
you will find out how established companies can discover viable new business and thus stake out
a unique strategic position.

Business Strategy Manifesto is based on several years of research and involvement in strategy
development. It is grounded in efforts to understand just how successful strategic innovators
have been able to create sustainable value for their customers, move ahead of their competitors
and achieve outstanding success!

Look further and you
principles. In other words the principles that drove Marks and Spencer to success over the last
100 years or so are the same ones that have thrust Zara to success in the early 21st century.

If you understand these principles then any manager or business owner can design a successful
strategy
to invent sustainable new business... and how to do it in practice.

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The Structure of the Book
The rationale behind this book is that superior strategy is all about identifying and exploiting a
unique strategic position in a company's business while at the same time finding new strategic
positions on a rolling basis. From a managerial perspective, this raises a number of sensitive
questions, including:

1. What precisely is a strategic position and how can a company create a unique one in its
business?
2. How can an established company discover a new strategic position, especially at a time
when its existing operations are quite profitable?
3. How can an established company shift its attention away from improving its existing
position to discovering a new one?
4. How can a company know if a newly discovered position will turn out to be a profitable
one?
5. Even if a company discovers a new strategic position, can it manage two positions (the
old and the new) at the same time? Is this even possible, or should the company focus on
one of the two?
6. How can a company respond

My intention is to deal with these questions in the following manner. Following a series of
introductory sections the core text is broken down into several parts as follows:
Part I explores the issue of contemporary strategic planning.
Part II , and
Part III explains how a company can discover new unique position in its industry.
Part IV explains how established companies can serve the old as well as the new simultaneously
and the means to respond to competitors own strategic innovations?

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Part V provides a broad view of the ways in which a company can discover new positions.
Part VI examines issues concerning implementation, and lastly
Part VII
learning and learning requirements.
Finally a number of case examples provide supportive insights to the issues and material offered
here.
Like a latter-‐day Franci
changing seascapes in search of new and unexploited strategic domains and chart your way to lay

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PART I
Strategy Formulation Today
We start with one of the great statements to be found anywhere in the whole realm of business
literature. Success is in the strategy! This is, of course, a proclamation that has engaged the
attention of business people ever since it was first spoken, and many great books have been
written in an attempt to expound it.

In spite of all that has been written about business strategy and not wishing to add anything
further to the subject in an exhaustive sense, my plan is to contend with something of the
advantages that are to be gained by strategists taking a dynamic view of strategy; a view that
puts innovation and creativity back at the heart of strategy.

should approach them with the purpose of discovering what underlies their emphasis. I would
suggest that if they were appreciated and understood many more businesses would come up
with ideas that would differentiate them from their competitors and enable them to stake out a
unique strategic position!

Now I think that anyone who looks at the present state of strategy formulation in the light of that
background will be driven to the conclusion that the outstanding characteristic of strategy making
is its superficiality.

Many business leaders responsible for the strategic direction of their companies actively seek the
latest idea to do what they want to do better than they do now! Let me put it like this. All that
way for

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Surely, if a management team is ambitious enough to want to offer its customers real value why
would it spend time trying to tweak things when it could be looking for a breakthrough?

Then there are the various and assorted thoughts of many managers on the subject of strategy.
-‐to-‐
help y and now you have a picture of apathy
and indifference illustrating ignorance about strategy and its would-‐be potential that persists in
many companies today.

The opinions and viewpoints that we have just seen spring from the minds of those least able to
innovate the breakthroughs that would otherwise separate them out as winning strategists from
the imitators and the also-‐rans.

It seems to me that what really characterizes strategy formulation and management today is,
alas, its superficiality. A judgment based on contemporary observation in the light of what such
strategic innovators as Body Shop, Swatch, Kimberly Clark (Kleenex), Lego, Starbucks, Direct Line
and countless others have all achieved.
What Actually Happens
a subject that has perplexed academics and practitioners since the word strategy was first
plans? Well it seems to me that most people formulate strategies in the way I am about to
describe. They start by identifying areas of strategy where there are identifiable markets and
where profit, management and resources are largely independent of other sectors.

Then they draw up strategic plans based on a comprehensive analysis of market attractiveness,
competition, showing long-‐term goals, key strategies, operations and fund requirements.

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And finally they review these plans with a seven to
ten year planning horizon; assess total risk,
profitability, cash flow and resource requirements;
and allocate priorities against specific targets and
funds?

Like most people involved in strategy, I too once
depended on such methods. And like countless
others I was taught to strategize and to construct
strategic decisions with a systematic approach; a
discipline still taught to innumerable MBA students
-‐day.

Yet it is not easy to reconcile such approaches with
the ingenuity, inventiveness and originality
underpinning the innovations brought to us by such
pacesetters as Amazon, Apple, Honda, IKEA, Nokia,
Tesco, Virgin, William Cook, Xojet, Zara and many,
many others.

If the issue is the future, then the future is not
contained in models and frameworks. Nor is it dictated by theories such as PEST, and extended to
STEEPLE and STEEPLED rules for macro-‐environmental analysis and environmental scanning. Such
frameworks, I suggest, are derived from observations made by academics and consultants at
some stage following the success of the very innovators of which we write and then written up to
represent best practice in crafting business strategy.
Do Companies Really Innovate?
It is incredible to think of Marks and Spencer, a company that has enjoyed a long history of
growth and profitability, slipping into decline when a change in fortune takes place. But this is
what happened to Marks and Spencer in the late 1990s.
Honda is often credited with
identifying and targeting an untapped
market for small 50cc bikes in the
United States. Honda's planned
strategy for the US had been to
compete with larger bikes of 250ccs
and over. But disaster struck when
Honda had to recall the larger
the wear and tear imposed on them
by US motorcyclists.

Despite these setbacks something
extraordinary happened! Sports
shops and ordinary bicycle shops and
department stores expressed interest
its wish to enter the US with its larger
models, Honda had no alternative but
to sell the small 50cc bikes just to
raise money. They proved very
popular with people who would
never have bought motorbikes
before.

careful planning or the result of trial
and error? Surely it was the
consequence of all three elements
working together.

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What happened was that Marks and Spencer failed to see changes taking place in its core market.
A focus on past performance, entrenched thinking and confidence in its market position and
reputation were the causes of decline. New competitors some including Next, Gap and Zara
with fresh solutions of value and experience yet further!

Needless to say some pretty vigorous thinking, a
painful turnaround strategy and erudite
repositioning saved the business.

But the middle of a crisis is hardly the best time to
implement strategies for market led change and new
growth! In such circumstances there is often little
time as well as shrinking and inadequate resources
and capabilities to engage to turn a company round,
re-‐establish customer confidence and put it back
onto a trajectory of sustainable development and
long-‐term growth. But as we know this is what
Marks and Spencer achieved.

action before a crisis strikes. You have probably
heard this a million times before. Few managers
few actually abide by it.
Most business owners and managers start thinking
about change when profits are already in decline and, worse still, they only start doing anything
about it when there is pressure to do so and when things get really bad!!! It is surely much more
prudent to plan for new growth whilst in growth, before maturity hits to avoid managing for
After losing market share to a low
cost and me-‐too cruise companies, a
British operator, tried a variety of
strategies, including a new and
bigger fleet with which to offer a
range of services to meet the
demands of price conscious and
discerning customers, without any
significant increase in market share.

The company then decided to tackle
the question who was its
customer?
before? Apparently not! And what
did they find? It found that its
customers were primarily interested
in making their experience in the
Greek islands as exciting as possible!
This led the company to upgrade
their whole offer. It sold the bigger
boats it had purchased, replaced
them with smaller, more modern
vessels and ramped up the service
provision!

The strategy was dramatically
successful. The company
completely rejuvenated the
business and enabled it to recapture
the high ground!

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growth following decline and turnaround!
New Positions Should be Sought Continually
We have so far observed the need for a company to seek fresh direction and leadership to ensure
competitive advantage and avoid stagnation and decline. Now, I want to illustrate the point
further, so that we understand the importance of continuously seeking fresh direction and
leadership. The graphic below illustrates the strategic positions occupied by a major auto parts
business in 2004.

The matrix confirms the presence of three possibly four businesses generating healthy cash flows
s precious profits
and reserves.

So what is the position of this company? Well
s resting on its laurels!
There is really very little indication of any
meaningful attempt to generate ideas to
develop new business. Nor does it appear that
effort on the part of the business to proffer
new products and services.

In summary then, here is a business that is fixed
intents and purposes is languishing in

internally cohesive yet losing touch with its environment where new demands and fresh
competition render its products less attractive than they were in the past.

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A Dynamic View On Strategy
What then is necessary for sustainable success? Here is
the answer. Dynamic leadership and direction, and,
above, all new ideas, that might already be available
inside the business but not yet captured. In short,
nothing less than, brand new domains in which to
operate and sustain business growth!

In every industry there are several viable positions that
a company can occupy. The essence of strategy
therefore is to choose the one position that your
company will claim as its own. A strategic position is
products to of
in to sell the selected product to the selected

My point is this. Strategy is about making tough choices in these three areas. Yet strategy is often
hammered out at annual planning meetings via the use of numerous planning tools taught to us
at business schools, when what is required is a dynamic approach to strategy formulation. What,
you may indeed ask, is a dynamic approach? Well it is this. A dynamic approach to strategy is one
that questions the established rules of the game and that puts innovation and creativity back into
the heart of strategy.

A company will succeed if it develops a strategy that allows it to create and colonise a unique
position in its industry. Unfortunately, most established companies are not good at seeking, let
alone uncovering, such new positions. Even though their success today can be traced back to an
earlier decision to create a unique strategic position for themselves, they now expend little effort
on finding new ones. Instead they spend their time trying to improve the position they already
Ever since it unveiled the Macintosh
computer in 1984, Apple has
become the standard-‐bearer in how
to market consumer products in an
array of valuable fields. Moreover
Apple has transformed itself into a
commanding force in the new digital
universe by combining innovation
and desig got-‐to-‐have

For example in introducing the iPod
in late 2001, Apple changed the way
we listen to music. Six years later
Apple launched the iPhone which
combined phone, iPod and internet
device in one. The latest iPhone
offers desktop-‐class email, an
impressive maps application, and
Safari; probably the most advanced
mobile web browser available to-‐
day.

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have.

The basic premise of this book is that superior strategy is about finding and exploiting a unique
strategic position while at the same time searching for new unique strategic positions.

this question.

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PART II
What Strategic Planners Need To Know

Many people have great products or services. But most find that they are unable to convince
their prospects and customers to buy them. This costs them tens or even hundreds of thousands
of pounds in wasted effort, time and resources, not to mention lost business.

Getting your strategy right is critical to success, but many who manage, or who are responsible
for the strategic direction of their businesses have never been shown the best way to do it. And,
when they are, they are taken through a proliferation of analytical tools and frameworks to help

Strategy formulation should be creative; its focus tilted towards discovery and renewal. It should
tackle questions such as how to produce superior customer value for a specific group of
customers and how to put the business two steps ahead of its competitors with unique and
efficient operational activities.

Ultimately, the chief means of ensuring survival and prosperity is to craft superior value-‐driven
strategies. In the end, superior strategy is all about finding and exploiting a unique strategic
positions on a systematic and rolling basis.

The Strategy Manifesto distils the important elements of strategy making into an easy-‐to-‐follow
system for crafting today s -‐
To Invent New Business -‐ Or Not
The dilemma facing an established company with a perfectly successful business model is how it
can attempt to evolve -‐ or even abandon its existing business -‐ in favour of something new or to
grow the new model alongside its existing business model.

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The challenge incidentally is quite different to serving different segments with different brands as
Unilever or Proctor and Gambol or Volkswagen or BMW do. VW sells the Audi brand to one
segment, the Golf to another and the SEAT to another, but the company still operates the same
business model. The issue with business model innovations is not how to operate different
brands for different customers but how two different (sometimes conflicting) business models
can operate in the same business.

The decision should be based on a cost
benefit analysis together with an
appreciation of the strategic health of a
business. This would include factors of
growth opportunities such as diversifying
into adjacent markets or taking its existing
business model internationally. It would also
include some of the disagreeable
characteristics that new business models
present.

Thus a company that already operates a certain business model might ask of itself the following
questions:

1. What is a unique strategic position?
2. How can we identify and develop a unique strategic position or business model -‐ in our
business?
3. How can we convince the company and secure commitment to such a programme?
4. How can we implement a new business model in an efficient way?
5. How can we operate with two business models in the same market simultaneously?
6. How should we
7. When should we pursue new business development in a positive way?

recently concluded what is undoubtedly one
of the biggest acquisitions of recent times by
purchasing Land Rover and Jaguar from Ford
in a £3bn deal! The acquisition takes Tata and
its offer of the Nano, a cheap saloon car, to
the middle class Indian family market into the
prestigious and affluent international markets
occupied by Land Rover and Jaguar!

Tata has admitted that it wishes to compete
with the likes of BMW, Mercedes and Audi
and establish a global footprint with global
brands with a readymade product pipeline and
technology.

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Let us go to the first of these questions.
What Is A Unique And Sustainable Strategic Position?
To qualify as a unique strategic position a company must offer a business model that:

1. Is new to the company and to the market it serves and that the innovation will change
the existing market.
2. Offers value rather than being a creative idea. Amazon, Apple, Dell and Swatch are
examples of companies that introduced
new business models in their respective
markets that attracted new customers
and got existing customers to buy more.
3. Embraces a different combination of
tailored activities (value chain as well as
culture, structures, and incentives) from
the ones that established companies
already have in place.
4. Enlarges the market. Business model
innovators do not discover products,
they re-‐define what the product or
service is, what the customer gets from
it and how it is made available.
5. Causes disruption to established
companies in the selected market

This means that a unique strategic position is
more than the discovery of a radical new
strategy by a company. It also indicates that
strategic innovators like Amazon, Dell, IKEA and Swatch do not invent new products or services;
they redefine the value of an existing product for the customer and brings it to them in an
efficient way. For example Amazon did not invent book selling; it redefined the service and the
The decision to set up a trans-‐Atlantic
airline in 1984 took Sir Richard Branson a
few weeks to make, although it took him
several years to establish. Branson
analyzed why small airlines such as
-‐frills Skytrain failed. He
noted that when the major airlines
compete, as it had no other competitive
advantage.

What Branson saw was an opportunity to
offer value and superior service at
competitive prices, and concentrate on a
limited number of the most lucrative long-‐
haul routes -‐ starting with the USA. When
Virgin broke into the trans-‐Atlantic market
with its innovative new service, it took the
existing carriers by surprise -‐ this was
competition from an unexpected source.

Since then, Virgin Airways has developed
routes to various destinations around the
world. By 2006, Virgin Airways carried
almost 5 million passengers -‐ which placed
it a clear second among UK airlines in the
long haul airline business.

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provision of the service and ultimately the value this gave the customer. The innovation
amounted to a new business model.

This point is underlined in Figure 1 below which compares the value propositions and
performance attributes emphasised by established companies and by innovators in a number of
industries.
Defining A Unique And Sustainable Strategic Position
The essence of strategy, therefore, is to choose the one position that a company will claim as its
own. For any business seeking to develop a unique business strategy a prerequisite is proactive
and continuous challenging and questioning of the way that a company currently operates. Such
Figure 1. Strategic Innovations
Innovator Industry New Position
Amazon.com:

General retailing

Online distribution

Dell Computers: 1983 Computer industry Selling direct to customers
First Direct:

Banking industry

Direct banking

Direct Line Insurance

General insurance
industry
Direct insurance

Virgin Direct: June 1996 Life insurance and
pensions industry
Direct life insurance and
personal pensions
Ryan air: 1991
(routes between U.K. and
Ireland only) easyJet: November
1995
European Airline
industry

Low-‐cost, no-‐frills, point to-‐
point airline service

Food Ferry Co., Teleshop: Early
1990s (London area)
Tesco Direct: 1998 (now part of
Tesco.com, 2000)
Retail supermarket
industry

Home-‐delivery grocery service
Online home-‐delivery
grocery service

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searches should focus on two key areas:

1. The definition of what business the company feels it is operating in.
2. The firm's current Who-‐What-‐How position, that is, Who its customers really are, What it
offers them and How it plays the game.

Ultimately, strategy is all about making choices, and a company will be successful if it chooses a
distinctive strategic position that is a position that is different from its competitors. The most
common source of strategic failure is the failure to make clear and explicit choices in each of the
two dimensions mentioned above.

The value of making the right strategic choices in these areas is illustrated in the example of
Virgin Atlantic shown in Figure 2 below.

Virgin built its success on finding and exploiting a unique strategic position in its industry. It did
not try to replicate the strategic positions of its competitors. Virgin and other companies like it
created unique positions for themselves that allowed them to compete with different business
models. Thus there is no question that success stems from the management of a unique strategic
position

It should be obvious by now that no strategic position remains unique or attractive forever. New
strategic positions emerge all, the time. Over time, the players with the new positions will rise to
Figure 2: Virgin
The Customer Individuals and families for long-‐haul leisure and business flights.

The Offer Premium economy, superior value at affordable prices.

The Game Plan A small fleet of wide-‐bodied, fuel efficient passenger carriers, including
Boeing 747s, 787s and Airbuses.
A small number of long-‐haul, lucrative routes around the world.

American Airlines).

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challenge the status quo in other words the companies that have grown too comfortable in
what once were their unique positions. A company must therefore never settle for what it has.
While fighting it out in its current position seeking additive and complementary product service
opportunities, it must continually search for breakthroughs in new positions.

the who-‐what-‐how choices that lie at the heart of
innovative strategies and are the chief sources for the ideas that differentiate a business from its
competitors and thus the means to stake out a unique strategic position.

PART III

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Crafting A Unique And Sustainable Strategic Position

To be successful, a company must create and exploit a unique strategic position. This essentially
means that it should challenge and question the way it currently operates. The company must
focus on four fertile areas for producing business models that offer a unique strategic position. It
must by necessity:

1. Define the business it believes it is in
2. Decide who its targeted customers will be
3. Decide what products or services it will offer them, and
4. How it will achieve this in an efficient and distinctive way

There are additional tactics that can used to enhance corporate creativity and some of these are
described in PART V

Redefine The Business A Company Is In
The behaviour of every business is conditioned by its individual perceptions (or beliefs) of the
world. This means that there is probably no more prevailing belief a company has than its
perception of its definition of its
business purpose, in other words its
strategy or business model.

Clearly this implies that a company
seeking a different, or new, business
strategy should begin to question the
existing definition of its business! Thus in
most case, the source of a unique
business strategy is to be found in
Back in the 1800s, if you had asked The Surrey
Iron Railway Company, the world's first public
railway company, what business they were in,
they would have told you the "railway business".
So when the railways spread across the South
East of England and the rest of the UK, The
Surrey Iron Railway Company fought hard to
remain competitive, but lost.

Had it seen itself in the transportation of people
and goods business, and not in competition with
other railway companies, it might have become
a major force in road and sea transport, air
travel, hotels and holidays.

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What tends to surface are resolutions to such issues as; who the business visualises as its
customers and its competitors, what it
regards as its competitive advantage, what it
believes its key success factors are, what its
offer to its customers should be and how it
should compete -‐ its strategy. Here are some
examples.

Starbucks does not believe that it is in the
coffee business, but rather in creating a
consumption experience of which coffee is a
part. Maybe not doing things better but just
doing them differently.

the business of selling handbags. We are in the business of selling

new or even better definition will be discovered, but even if there is an outside chance of
discovering something new it should be asked.

serves two purposes. First it allows them to identify the deterioration of that position in sufficient
time early on. Second, and more importantly, it gives them the opportunity to proactively explore
the emerging terrain, situating their company to be first to discover the new and attractive
strategic positions waiting to be exploited.

ICI asked the question in the 1990s when
considering its dependence on bulk chemical
and petroleum production. Then in 1997 ICI
embarked on a strategy to move up the value
chain into specialty paints where higher
growth and higher margins could be attained

In a period of dramatic change ICI disposed
of many of its industrial chemicals and
petroleum businesses and acquired a
number of well-‐known brands including
Dulux, Cuprinol, Glidden, Polycell and
s leading paint
manufacturer within a period of ten years.

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Now let us proceed to the second element of creating a unique strategic position, that of
customers, what should the company offer them and how should it do this effectively for
sustainable advantage?
Redefine Who Really Is The Customer
This second area of aspect of building a new unique strategic position begins with redefining the
are not for a company. This depends not only on the essential characteristics of a customer group
-‐ such as its willingness and ability to pay on time or its profitability -‐ but primarily on whether a
company is able to serve that customer better or more efficiently than its competitors as a result
of its unique bundle of assets and capabilities.

The purpose of thinking strategically about this issue is to either identify new customers or to re-‐
segment the existing customer base in a more creative way and so create brand-‐new customer
segments. Many people appear to believe that identifying new customer-‐needs is key, but whilst
new needs is an important source of new customer segments it is not the only way to define
and redefine the customer. New customer segments can be discovered in a variety of ways, as
shown in Figure 3.

Figure 3: How to Discover new Customer Segments
1. Search for customer segments that competitors are either ignoring or undeserving; (Ryanair
and easyJet)
2. Identify changing customer needs or priorities and develop product offerings to meet these
new needs. (Starbucks)
3. Re-‐segment the market creatively and merge smaller customer niches, examples include
(Direct Line, IKEA)
4. Create a new customer need and build a customer segment around it (Swatch and Body Shop)
5. Remove functionality from over engineered. products and attract customers to a simpler
version (Canon, Honda)
6. Segment the market by customer needs (Avis, Rent-‐A-‐Car)
7. Target a different customer from those that established competitors concentrate on (SKY,
Bloomberg)
8. Exploit technology to offer anew value propositions to customers (Amazon, CEMEX, eBay, ING)

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The graphic shows how companies that first identify a customer segment, that has not been
properly served by existing competitors, then designed their products and delivery systems to fit
the requirements of their chosen customer segments. What they ended up with was a strategic
position fundamentally different from the ones adopted by their mainstream competitors,
thereby breaking the rules in their respective markets, not because they set about doing so but
because what they did (and still do) is exactly what their customers want.

However, just choosing a customer segment that's different will not necessarily lead a company
to an innovative breakthrough. For this to take place, a company must offer something, such as
new and superior benefits that
increase demand and help grow the
total market. Moreover an important
issue is to pick the right segment
where needs will grow in the future.

There is no ready formula to help
select the right niche. This requires a
deep appreciation of customer needs
and priorities and how these are
changing in the future. It also requires
the entrepreneurial courage to actually
take the risk to pursue what might
appear to be a promising customer
segment but which may very well turn
out to be a grave mistake.
Redefine What Is Offered To The Customer
products or services should we be selling to our customers and what should be our value

In selling to the home PC market, Dell did not want
to sell to first time buyers because these require a
lot of costly first time support and service. Instead it
targeted experienced users who require limited
and
support team.

So in positioning itself, Dell set about pricing its low
end machines more expensively than its
competitors and pricing its high-‐end machines less
expensively than its competitors.

The effect was, as intended, first time users
preferring cheaper, lower end models went to
competitors and experienced buyers wanting more
machines!

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Strategic innovators tend to offer the same product or service as their competitors but emphasize
different product or service attributes from those emphasized by established competitors. In
essence they offer the same product or service but sell it on the basis of a different value
proposition. Thus, strategic innovators such as those listed in Figure 4 took their respective
markets by storm by drawing attention to fresh propositions of value.

A point to note from each of these examples is that each value proposition is characterised by
three important criteria. Firstly
secondly a sizeable segment should be interested in the new proposition and lastly competitors
should find it difficult to imitate, or substitute it.

There are a number of ways companies can discover new value propositions. The first is to ask
customers. The key is to find out how to satisfy these needs and this requires a creative leap on
the part of the company; something which is extremely difficult to do. But it can be done. For
example by listening to their customers Sony came up with the Walkman, Yamaha the electric
piano and Apple the iPod.

This line of questioning though points to another source of new products: building on a
ies should be ongoing to generate
knowledge and facilitate new competitive advantage. This is readily apparent in companies such
Figure 4: Value Propositions and Key Performance Attributes Emphasized by Strategic
Innovators.
Xerox, speed of copying v
Cannon, good enough in speed of copying and
superior price and quality.
Seiko, accuracy, functionality and price
v
Swatch, good enough in price and superior in
style.
Gillette, closeness of shave
v
Bic, good enough in closeness of shave and
superior in price and convenience.
British Airways: number of
destinations, frequency of travel,
service
v
easyJet, good enough in service, destinations
and superior in price.
Traditional banks: personal service,
branch network and product
availability
v
ING Direct, good enough in service and
superior in price and convenience.
Traditional universities, research-‐
based, quality education and career
placement
v
Open University, good enough in quality of
education and superior in flexibility and price.

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as Apple, Canon, Walmart and Tesco who have successfully diversified. By competing in different
markets, diversified companies gain access to fresh assets and capabilities to create new and
better products, to improve operations and create new capabilities faster or at lower costs than
competitors.

The important thing is to understand that the bottleneck in seeking new product ideas is not the
availability of tactics such as those outlined above but the mind-‐sets that constrain the thinking of
managers. The company must be constantly on the alert, searching customers. And such a search

Redefine The Way To Play The Game?
differences between the company and others that can be created and exploited in ways that
would represent superior value are important drivers of business model innovation. But is this
enough?

Actually the question raises another important question and that is this. Can these differences be
defended and sustained in the face of competition? Superficial differentiation of products or
services that is effectively identical is not sustainable. Direct Line introduced telephone-‐based
insurance sales and changed the way insurance was sold in the UK. But virtually every insurance
company can imitate telephone selling and this is what they did.

So what can be done to find and establish real and sustainable differences which matter to
customers? The first and most obvious way that a company can build a sustainable business
model is to select and perform activities differently, or to perform activities that are different, to
those of competitors.

Approaching sustainable competitive differentiation in this way is also dependent on two further
s strategic positioning with their
current operations. Second, the activities needed to support the position should actually fit to
This means that for a strategy to

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be superior, it needs to reflect what the business does best not what its competitors can do just
t. In other
words, the activity system itself!

This is not easy because it is much harder for a rival to replicate an array of interlocking and
reinforcing systems than it is to copy a product and match a process technology. For example,
-‐ -‐ -‐cost service for business travellers,
tourists and students in Europe, rests on an interlocking system of the activities it performs to
support its low-‐cost convenience positioning. These include fast gate turnarounds, frequent
departures with few aircraft, automated ticketing, self seat selection, meals at cost price, and low
maintenance and fuel costs.

In contrast, a full-‐service airline
performs activities to support a
high-‐cost, full-‐service programme.
It will provide customers with
services to reach any number of
destinations with a larger range of
aircraft, as well as providing
comfort, offering in-‐flight meals,
arranging connecting flights, and
checking and transferring
baggage. Both types of airline
operate viable and valuable
strategic positions that are built
on entirely different systems of
interlocking activities.
The second and most striking way
to create a new and sustainable
The strategic positioning of easy Jet, as a short-‐ -‐
-‐cost service for business travellers, tourists and
students in Europe, rests on an interconnected system of
activities that it performs to support its low-‐cost
convenience positioning.

These include fast gate turnarounds, frequent departures
with few aircraft, automated ticketing, self seat selection,
meals at cost price, and low maintenance and fuel costs.

In contrast, a full-‐service airline, such as British Airways or
Qantas Airways, performs activities to support a high-‐
cost, full-‐service programme. Both airlines provide their
customers with services to reach any number of
destinations with a larger range of aircraft, as well as
providing comfort, offering in-‐flight meals, arranging
connecting flights, and checking and transferring
baggage.

Both types of airline operate viable and valuable strategic
positions that are built on entirely different systems of
interlocking activities.

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business model is to develop a new way of doing business that is totally different from the way

For example, Apple developed a deep knowledge of the end-‐consumer as a result of its computer
and iPod operations as well as an outstanding reputation in electronic gadgets. What better
solution than to take these valuable assets and employ them in the mobile communications and
the internet business in the consumer market (rather than do what other mobile phone
companies were doing, which was selling a phone with fewer additional features)? To an outsider
on existing strengths.

Strategic Assets And Capabilities Are Crucial
tences is one way to create new products or new
forms of competition. Generally, breakthroughs occur when a company exploits its existing
competences to create and accumulate new strategic assets more quickly and cheaply than
competitors can manage rather than from reinterpreting existing competences. This dynamic
exploitation of existing core competences can come in three different ways.

In the first place competences amassed in one business can be used to improve operations in
another business faster and more cheaply than competitors. For example, when Tesco had
successfully established itself in food and drink retailing it had created a number of strategic
assets in retailing, supplier management, warehousing and distribution that underpin this
business. But in the course of its operations it also developed a series of competences including
knowledge of how to manage and satisfy a growing database of customers, and how to squeeze
better productivity out of high-‐volume production and packing operations.

This knowledge has been used to help Tesco diversify into other in-‐home product groups. As a
result, its financial service business can get up to speed much faster and in a more cost-‐effective
way than a competitor that has to develop this knowledge from scratch. This type of relatedness
(that is, similarities in the processes required to improve the effectiveness and efficiency of
separate, market-‐specific stocks of strategic assets in two businesses) opens up opportunities

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that allow a company to design different ways of competing in different markets.

Secondly competencies developed in one business can be used to create a new strategic asset in
a fresh business either faster or at a lower cost than competitors. For example, Tesco can use its
experience of building food and drink distribution to build a new, parallel distribution system for
in-‐home entertainment products. This sort of asset deployment and creation is an advantage
that companies can use to break the rules and generate enormous value.

Lastly a company can enlarge its stock of competences. As a company builds strategic assets in a
new business, it will learn new skills. For example in creating the assets required to support the
design and development of a business in banking, Tesco will acquire fresh competences that it
could use to improve its food and drink and white goods businesses. Alternatively, combining the
competences developed in its core businesses and banking businesses may help it to quickly and
cheaply build the strategic assets required to succeed in a fourth market -‐ the mortgage business.

A new unique strategic position will occur when a company tries to satisfy customer needs on the
basis of new sets of strategic assets, unfamiliar to existing competitors. In the process, the assets
of established players become obsolete. Entrepreneurial competitors will create such new sets of
strategic assets by using their core competences to either develop new assets or bundle together
unique combinations of existing strategic assets.

Successful innovators need, therefore, to identify and deploy the right core competences. A
better understanding of how customers are changing leads to a better understanding of what
core competences leads to a better segmentation and choice of customers as well as a more
productive development of new strategic assets that allows the company to break the rules.
The Value Of ICT
Coming up with a new unique strategic position is easy! The difficult part is to implement the new
strategy in an economical and effective manner, so that real value is delivered to customers in a
cost efficient way. This is what usually separates success from failure. How then could potential

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strategic innovators implement their radical strategies successfully?

Obviously, many factors can influence the successful implementation of a radical new strategy -‐
leadership, timing, resources, competitor reaction, and so on. We may add Information
Communications Technology (ICT) to this list of key ingredients of successful implementation.
Whilst ICT is not the only factor facilitating success, it has been a key enabler for many strategic
innovators.

But how could ICT support the
implementation of new strategies? In
appreciating the role that ICT plays in
contributing to a unique strategic
that innovation takes place when a
company questions its existing Who-‐
What-‐How position -‐ or strategic
position -‐ in the industry and, in that
process, discovers a new position.

The first requirement to creating a
unique strategic position could be any
of the following: The discovery of a new
or different customer (a new Who); the
discovery of a new or different value proposition that attracts a different customer (a new What);
or the discovery of new or different ways of producing, delivering, or distributing existing, or new,
products or services to existing, or new, customer segments (a new How) that requires the
innovator to put in place a new business model to serve it.

But being first in identifying and exploiting a new strategic position does not guarantee success; a
company still has to exploit the new business model in a value-‐creating way. This is where ICT
Since its creation, ING has become the largest
Internet bank in the United States with additional
operations in Austria, Australia, Canada, France,
Germany, Italy, Spain, and the UK. It targets low
maintenance and self-‐service-‐oriented customers
and offers them simple and easy-‐to-‐understand
financial products through the Internet, by
phone, or by mail.

With its home market locked up ING, a Dutch
financial-‐services conglomerate sought to expand
around the world. But buying or building enough
branches to break into a mature market like the
United States would be hugely expensive. So the
company decided to run an experiment,
communicating with customers via the Internet.
Given cheaper banking, ING Direct has been able
to offer a significantly higher interest rate on
savings accounts and minimum account balance
requirements.

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comes into play. Information and communications technology can help a company create and
exploit a unique strategic position in four different ways:

1. It enables a company to reach and profitably serve customers who are new or different
from those that traditional competitors target and serve. Edward Jones, an American
insurance broker targeted customers that established competitors ignored because they
were uneconomical to serve and used ICT to enable its brokers to communicate up-‐to-‐
the-‐minute financial information to them.

2. ICT allows a company to offer a
radically different value
proposition for the same
product or service and in an
economical way. CEMEX, one of
companies used ICT in a
radically new way to deliver
just-‐in-‐time cement and
thereby re
total cost. In such cases ICT
enables the innovator to
underline distinctive product
attributes or add new benefits to the product.

3. ICT allows a company to replace an unwieldy and uneconomical value chain with an
operational footprint that can deliver value to the customer in an innovative or
radically reduce the design-‐to-‐sale cycle in the clothing industry.

4. ICT lets a company scale up its business model quickly but in the process affords it
protection from competitive attacks and so ensures its sustainability. Companies such as
The Mexican company, CEMEX, redefined the way
in which customers purchase cement. Using ICT to
deliver just-‐in-‐time cement, customers, rather
than order days in advance and then receiving
delivery within a specific delivery window, could
expect same-‐day service and unlimited free order
changes as standard, given the business processes
created by CEMEX that have made this possible.

The basis of their offer was a global positioning
system (GPS) that freed the company's delivery
trucks from fixed-‐zone assignments, allowing
to roam an entire city or region.
Using precise, real-‐time data about the location,
direction, and speed of every vehicle in the
CEMEX fleet to ensure highly efficient delivery
processes.

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CEMEX, Edward Jones, Zara and Cisco Systems are all companies that have scaled up their
business models quickly and efficiently and safeguarded their positions through ICT.
The Right Organisational Environment

Given sufficient time, vision and enterprise any company is capable of designing a unique
strategic position. The tough part occurs when it comes to design and implementation. The
creation and translation of strategy into action is usually an incredibly weak link in exploiting a
superior strategy. Thus a key mainstay of a unique strategic position is an organisational
environment that is conducive to creating and supporting the development and implementation
of a new strategy. While this is not a new idea it has far reaching implications for strategy makers.

What the point suggests is that to develop a superior strategy a company must also create an
efforts to create and exploit a unique strategic position. A company that wants its strategy to be
both decisive and to be implemented accurately must ask and answer the question: What
organisational environment must I create to elicit the behaviours that will support my chosen
strategy?

Winning this sort of commitment requires managers to think differently about the role of
strategic management and to view themselves as makers of meaning and vision, rather than as
planners of specific programmes to be followed. This sort of environment fosters creativity and
support for strategy development and implementation and is at the heart of any attempt to
secure commitment.

A pragmatic way of building a supportive environment is to stage-‐manage four basic
organisational elements to bring about desired behaviours:

1. People particularly their motivation, skills and capabilities.

2. Culture of the company, including its norms, values and undisputed assumptions.

3. Structure of the company, including its formal hierarchy, organisational setup, activities

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and systems (information, recruitment, market research, etc.).

4. Incentives both financial and non-‐financial, to encourage people to perform well.

It is the blend of these four elements that creates the organisational environment and thus the
mainsprings for strategic formulation and management. This sort of environment is particularly
appealing to people who are entrepreneurial by nature and willing to question the status quo. It
is important to ensure that people talk to each other and that there is regular and intensive
interchange between disciplines within the business. People must work together, communicate
and do whatever it takes to extract from the core technology every product-‐market possibility.
Overall, this kind of environment is characterised by entrepreneurship, vision and opportunity, a
sense of belonging, teamwork and fast as well as efficient responses.

A further important motivator is recognition. Most people, whether they are engineers, business
managers or machine operators would like to be creative. They want to identify with the success
of their business and through this share in the results and excitement of better business. Thus
their greatest reward is receiving appreciation for making a contribution to making something
meaningful happen. Successful innovation should be rewarded commensurate to ability, effort
and results. Successful innovators should not only receive recognition for their work, they should
also be awarded cash bonuses, salary increases and promotions.

This approach to securing emotional commitment in strategy innovation and design is poles apart
from the rational commitment required of people, by managers, when a change in strategy is
involved, as it is in fact of many decisions implemented in business today.

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PART IV
How To Sustain A Unique Strategic Position

There are a number of issues. The first concerns approaches to managing two positions
simultaneously. When an established company discovers a new strategic position the question is
how to manage both the new and the current business models. A second issue is to sustain the
advantages with a sustainable competitive advantage. We examine each of these issues in turn.
Managing Two Positions Simultaneously
When an established company discovers a new and unique strategic position the question is how
to manage both the new business model and the existing business one in the same industry! It
should come as no surprise to learn that this is easier said than done because conflicts and trade-‐
offs between the two positions makes their ordered coexistence difficult.

Thus a consumer goods company that attempts to move into private label brands while still
marketing its branded products risks cannibalising its existing brands and diluting the
attempts to compete in two positions simultaneously it is possible that the cost of managing two
positions can far outweigh any potential benefits emerging from exploiting the market created by
a new business model.

The decision to adopt two business models is a sensitive one. Many suggest that competitive
advantage in an industry can only be achieved by choosing to focus in one strategic position and
perform a tailored and different set of activities from those of their rivals. All this implies that
The
solution, advocated by many writers, is to establish stand-‐alone units, each with its own identity
and underlying value-‐chain. Keeping the two businesses separate achieves a number of benefits
as described below:

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1. A company can prevent its existing processes and culture from overpowering the new
business. By establishing a separate unit the new business can develop its own culture,
processes, and strategy without interference from the parent.

2. A new market requires an autonomous business unit to enable a company to exploit
entrepreneurial spirit and organizational flexibility in order to succeed in a fresh
operating environment.

3. The task of creating competences required to extend into chosen markets is also
dependent on a great deal of latitude and independence from encumbrances imposed by
parent companies.

Logical as separation might be, it is not without problems and risks of its own. Even though new
businesses need space to develop simply separating a new business from the mainstream can
prevent it from obtaining invaluable assets, resources and knowledge that reside in the parent
company, and deprive their parents of the vitality they can generate.

On balance there is no one right answer to the problem. This suggests that rather than adopting
an either or stance, a company may be better off deciding how it can best adapt its new
strategic position to best fit the demands of its immediate environment.

That is that the underlying context or environment a company must create that supports and
promotes the behaviours that reinforce its strategic decisions. Thus a company should attend to
such issues as founding a strong vision and culture, fostering shared values, recruiting the right
people, creating the structures, processes and incentives to ensure the appropriate fit between a

Sustaining Competitiveness
Inevitably, a new unique strategic position signals the opportunity it is exploiting to competitors,
both existing and potential. If the strategic innovator is to prevent them moving in and exploiting
the opportunity as well, he or she must close the window behind him or her to preserve any hard

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won first-‐mover advantages. This means building a sustainable competitive advantage for the
venture.

The key point to note is that in simple terms a competitive advantage is something the new
business does that creates value for customers in a way that competitors do not. Also that
competitive advantage is sustainable if competitors find it difficult (i.e. expensive) to imitate it.

A fundamental distinction should be drawn between competitive advantage as something that a
company offers in the marketplace and the source of that advantage in something it has or the
way it does things.

In general terms competitive advantage can be gained by offering the customer a lower price or
by achieving greater differentiation. Such distinctiveness may be achieved by differentiating the
product through features, quality or performance, differentiating the product through add-‐on
service, differentiating through branding or brand imagery and differentiating through
distribution or access to the product.

These market-‐
own strategic assets and distinctive capabilities; the source of competitive advantage as
mentioned earlier. These strategic assets and distinctive capabilities may be described like this:

1. Strategic assets may be described as something the new business owns, for example a
unique product or technology, patents and copyrights, government-‐awarded monopoly
rights.

2. Distinctive capabilities may be described in terms of the busi ;
Productivity -‐ the ability to deliver value to the customer at a lower cost.
Innovation the ability to come up with new and valuable ideas faster than
competitors.
Reputation being better thought of than competitors and taking advantage of the
lower costs that arise from trust.

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Channel relationships or architecture the general organisation of the venture and
its relationships with supporters making the business more responsive and flexible.
How Competitive Advantage Is Established And
Maintained
Specifically for any new business, these may be thought of in terms of four types of advantage:

1. Cost advantages. These may be derived from obtaining lower input costs through
having access to unique suppliers; economies of scale dilution of fixed overheads over
output; experience economies cost reductions gained through organisational learning;
and economies of scope dilution of fixed costs over a wide product market domain.

2. Knowledge advantages can be derived from the design and promotion of products,
market knowledge and product and production technology.

3. Relationships. Unique and valuable relationship advantages can be built with customers,
investors, suppliers and employees.

4. Structural sources can be gained from a unique and particularly productive organisation
of the new business in terms of its structure, systems and routines.

Clearly the building of future competitive advantage should take a central position in the
planning of the venture in its early stages. This means evaluating the potential for each
source of competitive advantage in order to find the drivers and their magnitude in relation
to developing cost, knowledge relational and structural advantages are required.

A competitive advantage may give a new business a good start. But if it is to be an effective
platform for long-‐term growth it must be sustainable. Some important considerations in
relation to maintaining a competitive advantage based on cost, knowledge, relational and
structural advantages are based on the type of considerations shown in Figure 5.

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Gaining and sustaining meaningful sources of competitive advantage and using them to deliver
value in the marketplace offers the promise of a virtuous circle of customer reward and
investment in growth.
How Should A Company Respond to a Fresh Innovation?
What would you do if your competitors beat you to it and invaded your market with a new
business model? It is not unusual for established companies to respond with the question:

Thus, the debate within established booksellers has long been about whether to get into online
bookselling or not. Similarly, the debate within established airline companies has often been
about getting into the low-‐cost, no-‐frills part of the business, or not.
Figure 5. Sustaining Competitive Advantage.
COST * How are cost reductions related to output? * Can the venture gain output leadership? *
How much of a cost advantage will this offer? * Can technological innovations produce discrete
cost reductions? * If so, will the venture get to these first?* Does the venture have the right
structure and systems to manage down costs? * Will competitors gain access to this technology?

KNOWLEDGE * Does the venture have the most effective knowledge management and
organisational learning capabilities? * Does it have unique human resources to manage these? *
Can the venture make new discoveries faster than competitors? * Can different knowledge areas
be integrated into a holistic approach to product development and marketing? * How important
are knowledge-‐protection devices such as patents and copyrights? * Can intellectual property
rights be established and made protectable?

RELATIONAL* What means are used to establish and maintain relationships with stakeholders? *
Are relationships with customers long-‐term or short-‐term? * What are the risks for stakeholders
in establishing new relationships? * Can a sense of trust be built? * If so, how valuable will it be?
* How important are the reputations of firms in the industry? * On what platforms can
relationships be built expectations, outcomes and communication?

STRUCTURAL * How valuable are particular structure and process systems? * What flexibility do
they offer? * How does this add value for the customer? * What cultures are adopted by firms in
the sector? * Can any of the above be developed or changed to create new value for the
customer? * How are they dependent on particular skills and insights? * How important is
leadership in holding them together? * What leadership styles are adopted?* Can they evolve in
response to change both internal resulting from growth and external due to changing
circumstances?

* What actions should you be taking? * How can you leverage super productive capabilities in
the future? * Can you see any new customer segments and customer needs emerging that you

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It's as if the only available response to an invading business model is to either ignore it or imitate
it! Adopting the new business model is certainly one way to respond, but it's not the only one.
There are five possible solutions:

1. Concentrate on the Current Business Model. The incumbent player could invest in its
existing business to make the traditional way of competing more competitive relative to
the new way of competition. This might seem obvious, but many established competitors
seem to overlook it.

Like all business model innovations, disposables entered the razor market by emphasizing a
different value proposition based on price and ease of use. This allowed them to grow
quickly and claim a large segment of the market in a short time. But how did Gillette, an
established player, respond to this innovation? Well it chose to produce disposable razors
business and created two successful new products, the Sensor and the Mach-‐3.

2. Ignore It! Many new business innovations appear to be simple extensions of the main
market and easily attract established companies to enter them whereas the reality is that
they are in fact miles away. For example, is the budget airline market an extension of the
main airline market, or are the two markets unrelated for all practical purposes?

The truth is that very often, the new markets created by strategic innovators comprise
customers that posses different needs, and require such different skills and mindsets from
new is akin to unrelated diversification for the established company. In such cases, it may
be better off by simply ignoring the new business model.

From the perspective of an established competitor, the key question to ask is whether the
new market created by the new business model is "strategically related" to the existing
business. In other words, could it transfer strategic assets from its existing business to this

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new business, or are the two businesses only related in a superficial and cosmetic manner?
The mistake that established competitors make is to assume that because the new market
lies on the periphery of their industry, it would be easy for them to compete in it. This may
be far from the real situation that they find, should they enter the new market. If,
therefore, the answer is an unqualified yes, the incumbent company may be better off
ignoring the new business model.

3. Counterattack. A feature of strategic innovation is the introduction of a second value
proposition. This means that the new entrant can claim to be good enough in the value
proposition of the established competitors and better in some other area. Established
competitors could respond with an alternative, or third, value proposition by accentuating
a different set of attributes from those promoted by the innovators. This means that they
ing parity in the innovators' value proposition and
superiority in a further desirable attribute.

Note the response of the Swiss watch industry to the Japanese attack in the late 1970s. As
with every business model innovation, the Japanese did not attack by trying to become
attracted to the new watches prompting huge growth in market share.

Instead of adopting the new way of playing the game, the Swiss responded by introducing
the Swatch. The new watch did not pretend to be better than Seiko or Timex in price or
features. Instead, the Swatch counterattacked by successfully making the claim that the
Swatch was good enough in price and superior in style and design. Thus, instead of
responding to the invading game by embracing it, they went after it by creating their own
game. Since its launch in 1983, Swatch has become the world's most popular timepiece,
with more than 100 million sold around the world. It is a lesson to all companies facing
similar attacks in their business.

4. Adopt the New Business Model. For the most part an established firm views strategic

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