Tagged Posts: Strategy
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Allan Kelly commented on my post from last year about the possibilities of using pattern languages to describe business strategies, to point out that he has done quite a bit of this already.
So far the only paper I’ve had a chance to read is Business Strategy Patterns for The Innovative Company, which is a set of patterns derived from “Corporate Imagination and Expeditionary Marketing” (Hamel and Prahalad, 1991). In this Allan derives:
- Innovative Products
- Expeditionary Marketing
- Seperate Imaginative Teams
Apart from the patterns themselves there were two things I found interesting about this paper:
Firstly, Allan describes a rather rough ride he received at VikingPLoP 2004, where apparently a lot of negative attention was focussed on whether there was “prior art” for these patterns in the pattern field. I think there is something here that any autodidact will feel an empathy towards. Whereas the scientific community (rightly) puts a lot of emphasis on whether something is new knowledge, in the world of applications there is at least as much value in “new-to-me” knowledge, or even “applications of existing knowledge in a new context”. To me patterns and pattern language fall firmly into the camps of education, application and transference between domains; not the camp of new knowledge creation. Given that, an over-obsession with “prior art” would seem to be rather inward-looking.
Secondly, Allan goes on to elaborate how his understanding and view of patterns has developed and changed, especially as a result of reading “The Springboard” (Stephen Denning, 2001), and “Patterns of Software” (Dick Gabriel, 1996) and that he now sees them as a particularly-structured form of story about a problem domain. I find this an appealing viewpoint, as it harks back to the fundamental way that human beings pass on knowledge, through the telling of stories. Of course, the nature of stories is that each person who retells a story does so in a subtly different way, and over time the story changes. Extending the simile, patterns too will change over time in a two-way exchange of knowledge between the pattern and the environment of the current user, so to say that a particular pattern is derived from (but not the same as) an earlier pattern is merely to state that evolution has occurred.
[bliki]Enterprise Architecture[/bliki] is one of those Humpty-Dumpty-like words that conveniently mean whatever you want them to mean.
I’ve also found that a lot of people have a violent antipathy to the term, as for them it summons up the spectre of IT geeks piling layers of jargon and obfuscation on top of their common-sense understandings of how a set of systems fit together with the business they serve. Add in a healthy dose of scepticism about the use of any jargon by someone who is trying to spend your money, and you wonder why any of us continue to use the term at all.
What I’ve found useful is to confine use of the words “Enterprise” and “Architecture” (together or apart) to those occasions when I’m talking to people from the IT world – for dealing with colleagues I resort to pictures. Although it’s incredibly tedious to manage big, comprehensive, models without specialist tools, for the level of conversation needed with most business colleagues I’ve found that fairly simple diagrams suffice.
The sort of situation I’d use this in would be to discuss with a business unit manager how changes to processes in their area would impact on the systems that support them (or conversely to explore the business impact of a technology change).
Keeping the diagram simple is an important part of making the conversation manageable – the key is to only show what is really necessary to help people make better decisions.
Here’s a generic example of the sort of thing I mean:
Of course this also relies on segmenting the areas you work with into sufficiently small and de-coupled chunks that one person can hold the key links in their head. This is an aspect of technological architecture that is (I believe) often missed in the quest for “economies of scale” – but that’s another post!
Over the summer I’ve been spending more time reading than writing, but even then the reading has been going more slowly than I expected! Just finished [bliki]Thinking Strategically[/bliki] and started to wrap my thoughts around [bliki]Strategy Maps[/bliki].
Unlike the previous books in my strategy reading which have focused on the [bliki]Game Theory[/bliki] approach to strategy, this book is more aligned to the core competence / resource-based view of the firm.
Strategy Maps are a visual way of drawing out the cause-and-effect relationships between the strategic success factors of a company, the internal goals that lead to them, the internal strengths that contribute to those goals and the necessary tangible and intangible infrastructure needed to develop those strengths. The authors bring in their earlier work on the [bliki]Balanced Scorecard[/bliki] by suggesting the map is stratified along the balanced scorecard axes of Financial, Customer, Internal and People/Knowledge factors.
My short-term goal is to look for a way to combine this approach with some elements of [bliki]Enterprise Architecture[/bliki] to create a pragmatic model for building strategic systems development plans.
A podcast and related blog post from Dave Winer [via Doc Searls] makes some important points about the true impact of DRM on the media industry, and led me to start thinking about the strategic forces at play in the current “Internet will eat the Media” debate.
In this post I summarise his key points, and then build on them to produce a value net analysis of the media industry from the perspective of the current incumbents. In later posts I will look at the analysis from the perspective of the people who create the content and devlop some thinking on the strategies open to both parties.
The Dave Winer view
In the podcast Dave draws strong parallels between the current rush of music, audiobook and video producers to adopt various strong forms of DRM to the practices of the software industry in the 80′s when copy-protection of software was common. What was once the industry norm rapidly fell out of favour as companies began to get lots of negative reactions from paying customers who wanted to do sensible things like make backup copies of the software.
The introduction of tools to circumvent copy-protection from companies such as Central Point Software (who merged with Symantec in 1994) didn’t, to the surprise of the software companies, result in a sharp fall in revenues. On the contrary because software that you can backup is more useful than software you can’t, sales increased.
Dave extrapolates some key lessons about copy protection and its aftermath:
- It makes life harder for genuine, paying customers “Locks only keep out honest people”
- Eventually, legitimate customers react badly to being treated as thieves
- The companies that thrived were the ones that listened to their customers and built features for them (in other words, they found ways to reward loyalty and honesty).
He goes on to suggest that companies can only get away with the reduction in perceived product value (caused by the inconveniences of DRM) whilst the majority of the customer base are too technologically naive to realise how much easier and robust their use of the material they have bought would be if they could copy files, make backups etc.
Further, he suggests that because of the inconveniences of protected material, the takeup of digital media (in particular audiobooks) has been lower than it would otherwise have been, leaving an opportunity in terms of available listening attention that has been exploited by the explosion in podcasting. Even more, he suggests that just as tech blogging has undermined the market for paid-for technology magazines, the growth in podcasting will undermine the market for paid-for content.
Would you like an Apple with that?
Of course the latest big change in the podcasting world has been Apple’s entry (podcast modifications to iTunes, combined with the addition of a podcast directory to the ITMS). Dave references this New York times article by Randall Stross that speculates about why Apple would make easier for users to access free content that competed with the paid-for audio content (e.g. that by Audible.com) on ITMS.
The answer in the article comes in the form of an analyst’s view that the podcasting phenomenon had simply become too large for Apple to ignore – it had to embrace it or resist it.
I think it’s more straightforward than that – lots of available content is a very clear complement to sales of iPods, so I’d guess that Apple believes that what it might lose on lost content margin will be surpassed by increased hardware sales.
There’s A New Game in Town
Who are the players in the online content game? Let’s pretend that we are an existing media supplier, using DRM as a way of extracting payment from our customers (and probably working from a mindset that says to do otherwise would be “giving away the family silver”).
The easy bits of the [bliki]Value Net[/bliki] to fill in are the Customers and Suppliers. The Customers of our mythical company are the people who give us money for the services we provide – in this case this is the end-user who is prepared to hand over cash in return for a protected copy of one of our pieces of content. Our Suppliers are the people to whom we give money in return for services or goods – primarily in this case the content creators who are prepared to sell us the distribution rights on their material in return for money (either up front or in the form of royalties).
Complementors come in two forms, the first and more obvious of which is the group of players who increase demand for the services our company offers. So in this case that would typically be the people who manufacture audio devices and the aggregation/e-trading sites that lead people to our services – hence the tie-up between Audible.com and Apple ITMS. The second form of Complementor is the group of other customers of our suppliers who, collectively with our demand, drive up the overall size of the Supplier market and reduce prices. I’m not sure how that model applies to knowledge creations (as opposed to physical goods) so will pass over that factor for the moment.
Substitutors, like Complementors, come in two flavours. The first group are people or companies who provide goods or services to our Customers which reduce their desire to give us money for our goods or services. The obvious group here are other media suppliers who may tempt away “our” customers with a more attractive offering. An important, and growing, subset of this group are content creators themselves, using the dis-intermediating technologies of the internet to build direct relationships with the people who want to enjoy their creative work. Whether they are charging, and thus drawing money away from our services, or providing free content that competes for the attention of our customers, the more such alternatives exist the harder we will find it to continue drawing in money.
The second group of Substitutors are media providers who compete with us for the attention of our content Suppliers. Providers who can offer a more attractive deal to content creators are likely to be their preferred route. This might be a matter of more money for their work, it might also be less tangible rewards such as greater exposure, being seen “in good company” etc. Again, a growing subset of this group of Substitutors will be groupings of content creators who find ways to gain economies of scale without needing an internediate organisation.
The Added Value of the media company comes from several inter-related roots, all of which relate to the “middle man” role. One group of these relate to the aggregation role played by a media company. As a content aggregator our company makes it possible for a given viewer/listener to find stuff that interests them. As an audience aggregator we bring together a group of viewers/listeners who like certain types of material.
Both of these lead us to the role of an aggregator of funding – either advertising funds drawn by our aggregated audience, subscription funds drawn by our aggregated content or public funds drawn by our ability to deliver certain sorts of content to certain parts of the audience. All of these ways of adding value work because they facilitate the flow of money to the content creators and the flow of interesting content to the viewers and listeners.
The other main class of value-adding activity comes from the control of the means of distribution in a broadcast-based world – there have traditionally been high costs of entry to these markets because of the investment in technology, licences etc. Traditionally these barriers to entry created a situation where there was a shortage of routes for material to get to the people who wanted to watch, listen to or read it, and because there was a scarcity of distribution routes there was the possiblity to extract money for the use of one.
In [bliki]PARTS analysis[/bliki] Rules cover everything from laws and contracts to “unwritten rules” of how a market operates. By far the most powerful of these sets of rules in this context are the contractual provisions around the rights to broadcast in different territories. Historically media companies were able to extract very broad rights from content creators in return for access to money and a distribution medium.
The Tactics traditionally used by media companies have revolved around controlling the methods of distribution and using their considerable financial muscle to oppose any technological change which threatened that control.
The Scope of this game used to be constrained to “professionals” – largely because of the costs of entry. This too is an area that is especially vulnerable to imposed change because of technology development.
Playing To Win
In the paragraphs above I’ve (briefly) outlined the strategic position of our traditional media company. The beauty of the [bliki]Value Net[/bliki] as an analysis tool is that you can take any of the players and place them in the centre of their own net, thus helping enormously with the task of thinking allocentrically. I think the other interesting group (and one that is often overlooked) are the people who create the content in the first place. I’ll save analysis of their Value Net for another post. Also to follow is a look at the strategies that are open to the players.
As a footnote – listening to (and making notes on) DW‘s 40+ minute podcast reminded me of Euan‘s post Less is More – the essential argument about the true market impact of DRM could have been made in a few hundred words of text – perhaps more labour to produce but easier to analyse!
I’ve been working through the books I added to my collection after the strategy course, especially Co-opetition
and (just started) Thinking Strategically.
When I was on the course, especially as we started to touch on the idea that certain strategies arise inherently from the structure of any situation (especially the [bliki]Value Net[/bliki]) it occurred to me that design patterns may be the natural way to express the thinking in a condensed form.
Unfortunately (in one sense) this was also a new idea to the people on the course, and as I didn’t have time to refresh my rather surface knowledge of pattern languages whilst I was on the course, I wasn’t really in a position to develop the thinking.
In the spirit of release early, release often, I’ve made a small start with this, indexed at Strategy Patterns, and will continue to build it as I work through the books and a review of my course notes.
In the strategy course we touched on (in varying levels of detail) the three main views of company strategy – since the course finished I’ve been adding reading on all three to my “incoming” bookshelf:
The market-focused, competitive advantage approach of Michael Porter:
The resource-based view of the firm, typified by Hamel and Prahalad:
The game theory approach described by Dixit and Nalebuff:
and then popularised by by Brandenburger and Nalebuff:
Shared bookmarks for del.icio.us user Synesthesia on 2005-5-9
- Management and Virtual Decentralised Networks:
This paper from George Dafermos examines the virtual networked organisation, with particular reference to the Linux development model. It concludes that this approach can be superior to the traditional corporation provided it is properly implemented. Keywords: Networks
Part 3 of the pre-work for the strategy course, based on the tram company fictional case study.
Continuing the [bliki]PARTS analysis[/bliki] started in part 2, I now look at Added Values. In [bliki]The Right Game[/bliki] Brandenburger and Nalebuff define Added Value as “the difference between the value created with the player included and the value created by the remaining players when that player is removed”
If we imagine the Biddiford economy without the tram company, clearly the overall income will be reduced by tram company revenues. There will be other effects too – in particular the businesses in Old Orchard Bay (which rely on the tram company as the monopoly source of transport to bring them their customers) are likely to see reduced revenues too. So the added value of the tram company is greater than the tram revenues alone.
Just as the Players analysis suggested that the Old Orchard Bay bars and restaurants were Complementors, and therefore that the tram company should explore strategies that worked to mutual benefit, the Added Value analysis suggests that the tram company should be able to extract more from that relationship – in one sense the bars and restaurants need the tram company more than the tram company needs them.
More on the tram company pre-work for the strategy course.
Having identified one option fairly quickly by applying constraints thinking, I went on to use the [bliki]PARTS analysis[/bliki]:
Using the [bliki]value net[/bliki] approach, who are the various players, and what do we know about them?
The customers fall into two groups:
- The local residents
We know that they are price-sensitive, and regard the trip to Old Orchard Bay as only one option competing for their leisure time and spend.
- Peak-season tourists
We are told that they regard the tram ride as a key feature of their visit and the fare is immaterial.
Combining these two factors gave rise to the seasonally-adjusted pricing strategy.
The only suppliers mentioned are:
- The contracted-out tram maintenance company.
They are only mentioned in passing, so it is presumed they do a reasonable job.
- The staff who work for the tram company.
It’s noted that the staff are on flexible contracts, and that there may be an opportunity to reduce staffing by making the driver role multi-functional. Training new drivers only takes 2-3 hours so it may be reasonable to assume that finding replacements for any who leave is relatively easy. So a later part of the strategy could be to reduce costs by introducing multi-skilling
There don’t appear to be any – the case study describes the tram company as having an effective monopoly on transport to Old Orchard Bay. A broader consideration, however, would be to consider the tram ride as an entertainment experience, therefore the Substitutors would be competing sources of entertainment that do not require the customers to take a tram ride – e.g. the attractions in Biddiford itself.
The most obvious Complementors are the companies providing entertainment in Old Orchard bay, e.g. the bars and restaurants. They need the tram service to deliver their customers; the tram service needs them, to some extent, to create a demand for travel to the Bay. There may be demand stimulation strategies that are based on co-operation with Collaborators. Going further and considering how to stimulate competition amongst the Collaborators, there may be a way to exploit some kind of preferential relationship.
I’ve started looking at one of the pieces of pre-work for the strategy course.
Summary notes of the problem are here.
The challenge is to make the system profitable, with a strong steer to focus on increasing revenue. This post contains my first thoughts about a solution.
My first thought was to look at the constraints in the system – how could the management increase Throughput without increasing Operating Expense or Investment?
It would appear that there are different constraints at different times of the year.
In the peak summer season the trams run near capacity at all times, suggesting that there is excess demand, and the constraint is in the contribution received for each passenger carried. An easy strategy to try here would be to increase the fare price and thus the contribution per passenger carried. The case asserts that for the affluent tourists the current fare is insignificant, so the market should bear this.
In the early and late weeks there is excess capacity on the trams that run, suggesting that the market is the constraint. The passengers are mostly locals, and are price-sensitive. A 20% price rise has created a drop of 40% in passenger numbers in the early weeks of the season. If this is reversible then reducing prices in the off-peak part of the season should be offset by increased passenger numbers.
So strategy 1 is seasonally-adjusted pricing, with a reduction in the off-peak weeks and an increase during peak periods. There is a policy constraint that requires the average fare across the season to remain at $2.
Assuming that the price-sensitive drop in passenger numbers is reversible, then initial analysis suggests that reducing the price to $1.66 (i.e. a reduction to prices from 20 years ago) in weeks 1-13 and 25-32, combined with a price rise to $2.50 in weeks 17,18, 22-24 and to $2.60 in weeks 19-21 (the increases calculated to meet the average price constraint) will move the company to profitability, even accounting for the loss of state subsidy, wage increases and loan repayments.
To sense-check this would need some detailed figures on capacity which are not available in the study.
I’ve just received the joining instructions and pre-work for Developing Deliverable Strategies
There are two pieces of pre-work:
Some interesting stuff to get my teeth into!
As I’ve noted here my learning goals are to:
- Enhance my ability to think strategically
- Gain further insight into overall business strategy and the ways to support and enhance that with technology.
- Understand the strategic drivers for organisational success.
- Acquire a toolkit for strategic thinking.
- Informal learning through networking with other delegates.