afternoon keynote: renewing your business via strategic innovation

© Teamhopf, [email protected] 2011 1

Renewing your Business via Strategic Innovation

Leo Hopf, [email protected]

801-828-5041

Twitter @leohopf

mailto:[email protected]


What actions are expected when running your business?

But there is another option – Business Renewal

• Expected actions for running your business:• Product/service line extensions (“whiter & brighter”)• Geographic expansion (“Let’s open a new office”)• Cost reductions (“Let’s get lean and mean”)

• The above are valuable, but they bring unintended consequences• They reduce the sense of urgency for long-term action• They misdirect management’s attention• They often substitute “action” for good thinking.


Remember Blockbuster?


Netflix stock performance:

Price increase announcement

June 20, 2011 September 19, 2011

Netflix / Qwikster announcement

Bigcharts.com


Why is it difficult to renew your business while you are running your business?

• • • • • • • • • • •


Renewal can take place at any level:

• Renew companies

• Renew divisions

• Renew business units

• Renew products / services

• Renew business processes

• Renew workforce skills


The key:

Focus on what you can control at your level in the

organization


It takes different things to win at different points along the business life-cycle:

Create a business model that will be of

value to a set of target customers

Acquire lead customers to validate the concept and build word of

mouth

Invest to grow the business in new markets, geographies, and product /

service extensions

Reduce investment, increase profitability

Protect through patents, copyrights, customer relationships, brand, standards, litigation…

Dominate one market, refine the value proposition

Either renew or milk / divest / minimize investment

Milestones Growth, share, NPV NPV, EVA Trends in revenue & margin

Business Innovation

Emerging / Growth

Mature

Renewal

Decline

Met

ric

s


Over time products and services are moving faster and faster from one end of the lifecycle to the other.

Record player, 125 years

Radio, 100 years

MP3’s, ???

CD’s, 25 years

Cassette Deck, 40 years


Where are the parts of the business you control on their lifecycle?

Business Innovation

Emerging / Growth

Mature

Renewal

Decline


How can we generate powerful renewal alternatives?

• Tailor made• Start from scratch to build renovation

alternatives specific to you• This will take longer, cost more, but will

fit better in the end• Tools: Decision table, value chain,

concentric circles• Off-the-rack

• Apply proven renovation solutions to see if they are close enough to fit your situation with minor alternations

• Tool: The 12 strategies


Strategy #1: Catch the New Wave Milt and Edie’s Dry Cleaning (I)

• For most of us, getting our clothes dry cleaned is as exciting and rewarding as taking out the trash each week.

• It is just something that has to be done each week or two, and at best, you will get your clothes back as they were so you can start the cycle again.

• Dry cleaning is full of hassle and annoyance:– “What do you mean it is not ready?”– “The button was on the shirt when I dropped it off!”– “I’m sorry dear. I know your flight is Monday

morning, but it is Sunday and the dry cleaner isn’t open.”

– “This looks worse than it did when I dropped it off!”


But what if your clothes came back in better shape than they were when you dropped them off?

Strategy #1: Catch the New Wave Milt and Edie’s Dry Cleaning (II)

• Replace missing buttons• Repair torn pockets• Replace hooks & eyes• Re-sew open seams• Repair linings• Check zippers• Pant cuffs opened, brushed, and re-tacked• All garments hand-finished & neatly bagged• Prompt, friendly & efficient service• The perfect garment at no extra charge.


Rest of the Industry Milt & Edie’s

What business are we in? Throughput Customer Service

Business designed to: Operate efficiently Delight the customer

Rules for adding / removing services Cost / benefit analysis Impact on customer

experience

What does success look like?

Get paid with minimal complaints Wow!

Strategy #1: Catch the New Wave Milt and Edie’s Dry Cleaning (III)


Rethink

• Scan the portfolio for possibilities

• Size the potential value

• Select the short list

Reinvent

• Structure the effort for success

• Stretch the team’s thinking

• Screen by applying the 12 strategies

Reposition

• Schedule what needs to happen

• Secure what is needed for success

• Switch to the new business model

Commit to the reinvention effort

Choose the best alternative

The renewal process:


Rethink




What parts of your portfolio need renewal and which do not?

What is the ballpark value potential of renewal?

What is on the final short-list of renewal candidates?

Rethink addresses three distinct, but interrelated topics:


Strategy #6: Get a Personality Transplant Activision Blizzard (Vivendi) (I)

• What was the largest grossing entertainment opening day ever?– Spiderman 3 at $151 million? – The Dark Knight at $158 million? – The answer is the video game Call of Duty:

Black Ops which sold $360 million on its first day.

• Creating a modern video game is far too complex for individuals and much too expensive to be funded by small groups. But the creativity necessary to envision and create a top selling game is endangered by the efficiency required by large companies.

• Activision had fallen into the efficiency trap and was spinning its wheels because of endless arguments between creative designers and financial management. And while they were arguing they weren’t making great games.


Strategy #6: Get a Personality TransplantActivision Blizzard (Vivendi) (II)

• In 1989 Bruce Davis took control of the company.• His first move was to fire 142 of Activision’s 150 employees. And

then he rebuilt the company from the ground up to appeal to creative game makers.

• He abandoned the commoditized approach to game development and placed his bets on unleashing the creative people to do as they thought best. Along with this creative freedom came measurements and rewards based on the performance of their games franchises.


Strategy #6: Get a Personality Transplant Activision Blizzard (Vivendi) (III)

Title Copies Sold Gross RevenueCall of Duty

33 million $1.8 billion

Tony Hawk Skating 40 million $1.6 billion

Guitar Hero

25 million $2 billion

World of Warcraft

11 million $1 billion in annual subscriptions


Commit to the renewal effort

What are the key questions addressed in Commit?

Does this part of the business truly require

renewal right now?

Do we have the resources necessary to do the job right?

Given everything else we have going on, are we really ready to commit the resources, time, and

attention to a renewal effort?


A quote from George Canning 1770-1827, British Foreign Secretary:

“Indecision and delays are the

parents of failure.”


Question #1: How fast is your organization changing relative to the industry you are in?

A. We change faster than the industry and lead the way.

B. We change at the same rate as the industry.

C.We change more slowly than the industry and tend to play catch-up.


What happens if you decide too slowly?

• Yahoo was the market leader in search a decade ago. And they were staffed with very smart people.

• But over the past decade they made numerous acquisitions unrelated to their basic search engine product. Rather than push forward towards a clear vision they meandered as if they had all the time n the world.

• Meanwhile Google rolled out new products and continued to refine its link-based search engine. From the market leader in search a decade ago, Yahoo searches have plummeted to less than 25 percent of Google’s.

• After turning down an acquisition offer of $33 per share by Microsoft in May, 2008 (Yahoo was holding out for $37 per share), Yahoo’s stock price dropped below $10 per share within the year.


A quote from Mario Andretti, race car driver:

“If everything seems under control, you're just not

going fast enough.”


Reinvent




How are we defining the work which will be done in

the renewal effort?

How can we stretch our thinking to include the

wild as well as the mild?

Which of the 12 strategies best fits our particular

renewal needs?

Reinvent addresses three distinct, but interrelated topics:


Strategy #8: Shift to the Sweet SpotTrader Joe’s

• Trader Joe’s started as Pronto Markets and competed in the convenience store industry with 7-Eleven. They carried products similar to what other convenience stores carried. But without 7-Eleven’s financial strength, their ability to expand was limited.

• So they changed the game and their name and moved to the Sweet Spot.

• They decided not to go head to head against either convenience stores or standard supermarkets. Instead they created something new and highly profitablea shopping adventure centered on their private label products.



• Trader Joe’s creates this adventure through fun and cheekiness. Its uniforms are colorful Hawaiian shirts. And it has created linked but cute private label names for its foods focused on ethnicity: Trader José’s, Trader Ming’s, Arabian Joe’s, and Trader Joe-San, for example.

• The stores continuously rotate 10 to 15 new items in each week and make room for them by eliminating the same number of older items. Thus, rather than being a predictable grocery store, which always has the standard offerings, Trader Joe’s has become a shopping adventure and has created the “Treasure Hunt.”



• Trader Joe’s does not try to be the best at everything. In fact, the company’s approach leaves it at a disadvantage in four key areas:– You can’t go into Trader Joe’s and purchase a

complete market basket of groceries.– The company’s prices tend to be higher than

many other stores.– Trader Joe’s carries very few national brands.– The stores tend to be in weak locations in aging

or rundown shopping centers.• But the treasure hunt and adventure aspects

outweigh these weaknesses. Whether a customer is looking for wine, organic herbs, organic rice, dried fruits, imported cheeses, hummus, or frozen chocolate croissants, Trader Joe’s will always have something that interests them.


Choose the best renewal alternative

What are the key questions addressed in Choose?

Is the proposed renewal strategy clear and

compelling?

Have we done the work necessary to make a high

quality decision?

Is everyone needed to execute this choice aligned and committed to its success?


Organizations don’t need consensus, they need clarity, alignment, and commitment.

• Consensus sounds like a great idea. But consensus:– Holds an organization hostage to its least visionary, least

creative, and least risk taking person– Slows organizational decision making due to endless meetings

attempting to reach consensus. And once consensus has been reached, plans must be locked in place lest the can of worms is opened once again.

Everyone can have their say, but they can’t always get their own way!


Eight executives from all over the US are in town. Where do they go for dinner?

A. Korean hot pot

B. Sushi

C. Italian

D. Indian


How long will it take to reach consensus…

… so that the chicken will vote for Colonel

Sanders?


Who should make the decision?

• The decision team should be explicitly identified, rather than implicitly assumed

• The decision team should be the smallest group at the lowest level such that if they collectively agree they are unlikely to be overruled

• Getting decisions made at the right level requires delegation, trust, and empowerment


Reposition




What has to change and what is the portfolio of projects that will

bring these changes about?

What assets are needed for the identified projects?

How should we balance the efforts and transition between the old and

new business models?

Reposition addresses three distinct, but interrelated topics:


Here is the twitter handle @qwikster:


Strategy #12: Cash Out and Double DownBoise Cascade (I)

• In what businesses does Boise Cascade compete?

Pulp Mills Paper Mills Timberlands

Building Products Distribution

Boise Office Solutions(Business-to-Business Office Products)


Strategy #12: Cash Out and Double DownBoise Cascade (II)

• What could they do? – Most of their business units were in their late stages of maturity

or had begun to decline. – All the low hanging operational improvement fruit had long ago

been plucked.– There is always opportunity for additional continuous

improvement, but that alone would not revitalize the market positions of Boise Cascade’s businesses.

• So in 2004 George Harad, the CEO of Boise Cascade, and his leadership team made a bold move to cash out and double down. They sold 100% of their timberland, pulp and paper, and building products assets for approximately $3.7 billion.

• And what did they do with the proceeds???


Strategy #12: Cash Out and Double DownBoise Cascade (II)

• They bought OfficeMax!• Combining OfficeMax with Boise Office Solutions brought the company

closer to buying power parity with Staples and Office Depot. • It also provided the brand recognition and retail presence that they could not

afford to build on their own. And it shifted their asset holdings to office products, an industry with a relatively brighter future than paper and building products.


What is the renewal choice facing the financial side of the organization?

Don’t

Attempt Renewal

Success

Failure

Drag out the pain

A valuable piece in your portfolio

Clarity on direction – manage the decline / exit


Rethink




Reinvent




Reposition




Commit to the reinvention effort

Choose the best alternative

The renewal process:


Remember…

No business grows forever, but there are always growth

businesses