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Strategy Management

A case study of Wal-Mart

Introduction

            Porter (2002) states that root of the problem lies in the lack of distinguishing between operation effectiveness and strategy. The expedition for productivity, quality and speed has resulted in management tools and techniques, total quality management benchmarking, time based competition, outsourcing, partnering, reengineering, change management.  In any organization, strategy management is the key to its success. There are many theories based on this assumption that without a proper strategy and planning, it is difficult for any industry to survive irrespective of its size. It is necessary to understand here that all the major corporate organizations have established themselves, thanks to superior strategic planning and implementation. The retail industry is making news everywhere with not only the traditional industries increasing their outlets but some major corporate industries also intruding into this industry like Fresh @ Reliance of Reliance Industries, More of Aditya Birla Group in India. Wal-Mart, a US based retail industry, which is known as the giant in the retail industry has survived and is still the huge enterprise in the world which deals with almost all the F&B products, apparels, etc. It is not only the largest company in world but also the largest company in the history of world.(Fishman, 2006) The present paper is divided into four sections to understand and answer as what makes Wal-Mart the best in the industry, 1) retailing industry at the time of Wal-Mart’s innings, 2) Wal-Mart’s Competitive advantage and key components, 3) Wal-Mart’s Strategy and 4) Sustainable growth of Wal-Mart.

 

 

I. Retail Industry – Wal-Mart says Hello!

            Strategic decisions are ones that are aimed at differentiating an organization from its competitors in a way that is sustainable in the future. (Porter, 2002) Porter strongly advocates that decisions in business can be classified as strategic if they involve some innovation and difference that results in sustainable advantage. According to Patrick Hayden et al (2002) the retailing industry adopted the style of discounting on its merchandise after the Second World War. It is learnt that discount retailing was not the strategy at the time Kmart, Target and Wal-Mart first started operating their business. Frank (2006) states that when Sam Walton was franchising for Ben Franklin’s variety store, invented an idea of passing on the savings to his customers and earning his profits through volume. Prior to Wal-Mart’s entry into the market, Sidney and Hebert from Harrison founded Two Guys discount store in the year 1946 which dealt in hardware, automotive parts and later on groceries. Two Guys was the forerunner as compared to today’s retailers like Super Target, Wal-Mart which succumbed to the economic recession. Another discount store set up by Eugene as E.J. Korvette, which is often cited as first discount store which did not raise from 5 & 10 cents roots and eventually declared bankruptcy due to inability to compete with the new entrants.

            Porter (2002) states that combination of operational effectiveness and strategy is essential for superior performance which is the primary goal of any organization. He also says that a company can perform its rivals only if it can operate in different ways which are not in practice. Much emphasis had been laid on strategic positioning like variety based positioning, needs – based positioning and access based positioning.

            Along with Wal-Mart, other stores that started operating were Target, Woolworth (Woolco) and K-Mart. However, Target has been functioning successfully, courtesy Wal-Mart, but other two failed in their operations and filed bankruptcy.( Michael Bergdahl, 2004) Porters five forces model explains what strategic decisions should be made and on what basis.  The model explains the basic strategies to be considered while starting a business like bargaining power of suppliers. While franchising of Franklin he always looked for cheaper deals and thought of passing his savings to the customers and earning through the margin on volume of bulk purchases. Through the way of discount stores, shoppers were given the cheapest price as compared to any other store. In regard to threats of new entrants, Wal-Mart has been constantly in the news for acquisition of other small retail shops in view of its expansion. But nevertheless it has stiff competition from likes of Super Target, Tesco, etc. it is the world’s biggest retail industry. 

II. Key Components of Wal-Mart Business Model

            Wal-Mart is the leader in retailing industry with fiscal revenue of $244.52 billion in 2003 making it the world’s largest corporation. Mike reports that Wal-Mart as of 2002 had 1,283,000 employees growing at 11.2%. The above data explains that strategy of Wal-Mart is extraordinary which manages and operates over 4150 retail facilities globally. The key components of Wal-Mart (The Value Chain), which offers cheap prices than its competitors includes firm infrastructure like frugal culture, no regional offices and pleasant environment to work. Managements take lots of visits and it is learnt there are no rehearsals before any meeting which is usually scheduled on every Saturday. In any organization, human resource is the key to development and Wal-Mart efficiently manages its sources. Wal-Mart terms its employees as associates. Manager compensation is linked to the profit of store operated by him, within promotions, compensation offered to associates depending on company’s profits and also offered some incentives on their performances. The workforce at Wal-Mart is not unionized as the company takes all the measures of their benefits and provides them training on related issues. Technology plays a vital role in development of the organization and Wal-Mart is well equipped with technological innovations like POS, store performance tracking, real time market research, satellite system and UPC. Wal-Mart procurement measures like hard-nosed negotiations, partnerships with some vendors, centralized buying, planning packets, etc. helps at large the cause of providing the goods and services on cheap prices. The other factors that increase the margin of profit for Wal-Mart are inbound logistics with frequent replenishment, automated DCs cross docking, pick to flight, EDI, hub and spoke system. Wal-Mart strategy of operation is innovative with big stores in small towns with monopoly in the market at low rental costs, local prices, concentric expansion, merchandising in brand name, private labels, little space for inventory, store within store, etc. In relation to marketing and sales, merchandising is tailored from locals, spent less on advertising and the prices are fixed low and it depends on the store manager to fix the latitude of pricing. All the above factors combined together form the key components of Wal-Mart which not only increase the margin of profits through bulk sales but also boost the confidence of the customers with services like point of sale information system and everyday low prices.   

III. Wal-Mart Strategy

            Wal-Mart dominates the American retailing industry due to number of factors like its business model which is still a mystery and its effectiveness in not letting the rivals let know about the weaknesses. Wal-Mart made strategic attempts in the its formulation to dominate the retail market where it has its presence, growth by expansion in the US and Internationally, create widespread name recognition and customer satisfaction in relation to brand name Wal-Mart and branching into new sectors of retailing.

            It is learnt that Wal-Mart strives on three generic strategies consisting of Focus Strategy, the Differentiation Strategy and overall cost leadership. Managers strive hard to make their organizations unique, distinctive and identify key success factors that will drive the customers to buy their products. Thus, firm specific resources and capabilities are crucial in explaining the firm’s performance. The Resource Based View (RBV) explains competitive heterogeneity based on the premise that close competitors differ in their resources and capabilities in important and durable ways. The company’s capability can be found through its functionality, reliable performance, like Wal-Mart superior logistics. (Helfat, 2002) Wal-Mart has firm infrastructure, well equipped in human resource with management professionals and technologically too.

            Any organizations thrive hard to be successful for which it needs to have better resources and superior capabilities. Wal-Mart has strong RBV with economically and financially very strong enough to stand still in the time of crisis. Pereira states that dominating the retail market is its key strategy. Wal-Mart operates on low price strategy which is operated as every day low prices (EDLP) which builds trust among the customers.(Brunn, 2006) The strategy lies in purchasing the goods at lower prices and selling the goods to customer at much lower prices, cutting the price as far as possible and increasing the profit by increasing the number of sales. This ferociously increases the competition in the market and Wal-Mart competes with all its competitors till it is dominant it the market.

            Wal-Mart is expanding seriously and rapidly which is also its strategic goal. Wal-Mart employs over 1.3 associates, owns over 4000 stores out of which 3000 are in US and serves around 100 million customers weekly. Wal-Mart has acquired many international stores and merged with some super stores like ASDA in UK. Wal-Mart far flung network of retail outlets has ensured that Wal-Mart interacts with and has impact on virtually every locality within US. (Helfat, 2002) The expanded strategy has led the hunger of Wal-Mart to many European Countries. It is learnt that three countries with no Wal-Mart stores became part of corporation’s international presence wherein the domestic retail chains were taken over by Wal-Mart including 122 Woolco stores in Canada, 21 Wertkauf stores in Germany and 229 ASDA units in United Kingdom. The takeover strategy by Wal-Mart keeps the company at forefront when entering into the new market and the number of competitors is also minimized. The strategies have helped the Wal-Mart to rein in number one position in international countries making it the largest retailer in the world.

            It is seen that Wal-Mart has significantly the Porters five force model wherein through proper strategic planning and strategic implementation has led to removal of barrier entry, rivalry from competitors and pricing norms. In regard to substitutes, Wal-Mart in order to achieve its aim of customer satisfaction has selling goods under its own legal brand.  Wal-Mart’s big box phenomenon has changed the retailing industry in the United States which is often considered as discount stores and makes profit through high volume of purchases and low markup on profits.(Parnell, 2008)Wal-Mart with its low cost and ever expanding strategy has made a dramatic impact since 1962 when Sam Walton first started his business. With this strategy, Wal-Mart has now over 4000 stores and outlets in US and other countries through acquisition and mergers.

IV. Sustainability in Discount Retailing – Wal-Mart

            According to Porter, (2002) operational effectiveness and efficiency are the key elements of success in any organization. A company can outperform its rivals or competitors in the market only with superior management and efficient control creating a difference from the others which eventually attracts customers. Porter defines operational effectiveness as performance of similar activities as its rivals but better than them. In a study, it is stated the Wal-Mart is expert in manipulating perceptions. It is termed that low price is not the strategy of Wal-Mart but the advertisement manipulates the consumer perceptions by making them think that its prices are lower than its competitors’ price using ‘price spin’. Wal-Mart makes the consumer addicted coming to its stores by convincing them the prices are lower than in the other stores by selling itself cheaper by advertising that ‘we have lower prices than anyone else’ and placing a ‘opening price point’. The ‘opening price point’ is the lowest price in the store which is kept at high visibility which makes consumer believes that the products in this store are really cheaper. (Race Cowgill, 2005)

            The SWOT analysis of Wal-Mart reveals that it is most powerful retail brand, reputation for money, value, commitment, and provides wide range of products. It is growing at a brisk pace with expanding its horizon to other parts of world through acquisition and merger. Wal-Mart has good opportunities in markets of Europe and China and focuses on acquiring the market through acquisition of smaller stores and merger with leaders in the specific markets. Wal-Mart is always under threat to sustain its top position in market nationally and internationally. Global leader in the industry leaves the organization vulnerable to many socioeconomic and political problems of the country.

            Sustainability at the top place is the most important job that makes its managers strives hard to frame the policies and strategy to compete with its rivals in the market. Slack, Imitation, Substitution and Hold-up are some of the threats to any organization in retail industry. However, Wal-Mart with its visionary goal of attaining zero waste status and reaching 100% renewable energy has planned to launch number of sustainability initiatives. (GreenBiz, 2008)Imitation increase profits by increasing the supply. But imitation puts reputation, relationship at stake. James Hall reports that Wal-Mart is planning to open convenience stores as Tesco has started and operating in US called Fresh & Easy Neighborhood Markets. (James, 2008) Such tactics will create mixed response among the consumers while degrading the reputation of the leader in market. Substitution reduces the demand for what a firm uniquely provides by shifting the demand elsewhere due to changes in technology. The threats of substitution can be subtle and unexpected like minimizing expenses through videoconferencing instead of air flights to long distance meetings with its managers of other stores, etc. Therefore, substation is an especially effective way of attacking dominant rivals in the market. Substitution offers mixed responses after identifying and understanding the threats. The organization should fight the threat and merging with them, switching to different options of substitution to be in the market. Hold-up diverts the value to customers, suppliers or complementors who have some bargaining leverage which results in tough negotiations, contractual agreements and vertical integration.

            Wal-Mart is having great network with almost over 7800 stores       and Sam’s Club locations in 16 markets worldwide. It employs more than 2 million associates and serves more than 100 million customers every year. According to Fishman (2006) Americans spend $26 million every hour at Wal-Mart which makes it believable that Wal-Mart is financially very strong and is capable of combating any threat from its rivals in the market. Wal-Mart is ever expanding its boundaries by way of acquisition and mergers. Thus Wal-Mart with such a vast network of stores and alliances in the forms of ASDA, Target and many other stores is well protected enough to sustain its top position in the retail industry. 

There are three ways to react to an organizational crisis. One way is to turn your head to ignore the situation and hope that it will fix itself (best of luck!). Another way is to run around in a panic-induced cost-cutting frenzy that could seriously impair the organizationâ??s long-term growth potential and future state. The third and, of course, smartest method is to recognize the impending threat to both your top and bottom line, and quickly adapt the organizationâ??s strategic outlook and business model to the new environmental conditions. So, the question to answer is this: â??what are the decision makers within your organization currently doing? Are they connecting the organizationâ??s strategy with its innovative approach to meet a successful Future Picture?â? But what if you, as the leader, are having a difficult struggle to influence others to your point of view and get them to rethinking and reinventing the organizationâ??s strategy forward as circumstances and economics rapidly change. If you are experiencing this challenge, hereâ??s some advice to help your people to win the battlefield of transition.

 

I have continued to state enthusiastically over the last few years that, in a world where the pace of change has gone hypercritical, todayâ??s most important race is the race for transformational leadership and organizational renewal. It is the race to change as fast as the environment is changing around you; the race to influence positive organizational behaviors and the race to reinvent your strategy and your business model before they become obsolete. When the economy is in a state in flux, most organizations tend to postpone their professional development efforts and favor cost cutting as the strategy that will preserve the future. This is a grave mistake that will affect the future of the organization in ways that will likely kill the very spirit the leadership teams are hoping to preserve. Their efforts during the challenging times will only prolong the inevitable; ultimate demise once the current crisis is diminished. The lesson here is this; a successful business model will break almost overnight when the waves of the ocean start crashing against the pillars of the pier if leadership does not remain on a continuous, yet discontinuous approach to train the organizationâ??s greatest asset â?? the people.

 

So what exactly is Strategic Organizational Renewal (SOR)? Organizations undergo change to enhance their productivity. Changes can be effected in several areas of the organization including culture, strategy, mission, teams and organizational structure. SOR is a framework that defines the role, responsibilities, and performance of human capital across the organization and the planning for it must only take place in the organizations â??war room.â?  To explain the war room concept, leadership appoints a specific room that will be specified as the location where the organizations strategy is planned. This location must remain under lock and key to ensure the organizationâ??s intellectual capital offers an uncompromised agenda that influences positive outcomes. SOR is the resulting effect that is birthed from the war room. This is only possible when those appointed to the war room each understands the importance of establishing the organizationâ??s â??Memorandum of Understandingâ? (MOU) â?? the principles to achieve professional mastery.  

 

Establishing Principles to Achieve Personal Mastery â?? People First, then the Organization

 

You now have before you the opportunity to take the steps that achieve a high level of professional mastery that achieves organizational growth. It requires the adoption of a â??codeâ? as a living, breathing organism to each level of the organization. How can people build awareness, use their experiences to implement a new approach to deportment and develop a strategy, which includes resolve and ethical conduct? This is the task that lies before them.

 

It sounds like the normal work that we all know and do so well. But be cautioned, it is not! When individuals combine the code with rules and regulations, reporting and accountability to force conformity to standards, they will fail â?? to oppose change by way of fear is not what is required. Rather, achieving professional mastery is a continuous pursuit of ethical behavior that ultimately manifests into a quest of improving the human spirit; to pursue good, to do the right thing in across the workplace. The code says that who ever should adopt it into his/her life, will possess a level of courage â?? both physically and emotionally â?? to execute the necessary task that drives performance to exemplify the highest level of personal and professional conviction.

 

Why establish a code to live by? The answer is simple; establishing a code or set of principles ensures a level of conduct (code of conduct) that extends the life cycle of the organization. This code of conduct is what I have been referencing â?? the â??Memorandum of Understanding.â? As a code of conduct, the MOU provides a resource to assist people in their personal development, growth, guidance, and assessment in the leadership of self. The MOU establishes a strict perspective for instructing successful practices, theories, and beliefs that drives people to achieve a successful future (how you intend to conduct yourself into the future for others to emulate).

 

The Memorandum of Understanding is also designed for people to learn broadly; to inspire the service out of generosity for others; and to prepare them to lead systems courageously into the future. A MOU must encourage a perspective to become firmly grounded in the potential for successful growth using the following constructs:

 

§         The Cardinal Rules

 

§         The Guiding Precepts

 

§         The Forms of Disposition 

 

§         The General Orders

 

§         The Strategy Forward â?? Establishing Professional Mastery

 

§         The Centers of Gravity

 

The Cardinal Rules. The Cardinal Rules are a set of guidelines that are invaluable for people and organizations to follow while planning and executing at the strategic or tactical level. These rules, once established by the individual(s) or teams are the rules that govern forward movement and must not change. 

 

The Guiding Precepts. The Guiding Precepts are designed to inform people what they should and should not be doing in accordance with executing a well designed strategy to win. They also inform of the reasons â??whyâ? an action must occur and the repercussions should the individual and/or organization fail at meeting such a task.

 

The Forms of Disposition. The Forms of Disposition offer a substantive transformation in â??thoughtâ? about how people achieve a perspective on things in life. It refers to an orchestrated, systemic and revolutionary new world-view resulting in a â??changeâ? of societies, cultures, and marketplaces due to behavioral perspective. This is today often called “systems theory,” which sees a web of relationships coalescing to become something greater than the parts. Individuals must be able to look at things from a perspective that they are always changing and evolving into new forms â?? thinking â??out-of-the-box!â? We are doomed to a slow death unless radical change occurs in the way we think. Change your way of thinking or die a slow death.  

 

The General Orders. The General Orders are broad, community-wide “need statements,â? designed to encompass a variety of related issues in a personâ??s life or within the life cycle of an organization. These related issues are referred to as â??Guiding Objectives,â? which are specific items that need to be addressed. The Guiding Strategies (developed to fit current and future circumstance) are the methods identified for addressing the Guiding Objectives, and the Guiding Policies are the specific action steps that are recommended to implement the Guiding Strategies. The General Orders, all eleven of them, offer the ability to explore implications in an open and reflective manner and reinforce each other in providing a coherency and wholeness often lacking in life cycles.

 

The Strategy Forward â?? Establishing Professional Mastery. The traditional values are the foundation of the modern day; that was yesterday. Tomorrow, you have an opportunity to create commitment and the needed momentum to establish, publish, share, and teach a different set of lifeâ??s code, values, and ethics to journey into the future. After much hard work, you are prepared to develop a strategy to move forward and plan the next steps to target critical successes for winning the Future Picture. What a legacy you will leave when executed with personal and professional bearing for others to follow. This is the way of the future. This is a new chapter!  

 

The Centers of Gravity. Just as time changes, so does the internal and external influence in your life and in the life cycle of an organization. The Centers of Gravity are the dynamics within a process that offer the greatest impact on the overall system when change happens. They offer a high level of â??valueâ? and return on your energy â??investment.â? When combined with the concept of parallel deposits (creating energy from various perspectives in a short period of time), the Centers of Gravity make possible the seemingly impossible task of realizing success in changing paradigms. The Centers of Gravity places significant influence on the five established epicenters of any changing system to receive desired effects: Leadership, Processes, Infrastructure, Population, and Action Units.     

 

In summary, I see the Memorandum of Understanding (once established for the organization), as an opportunity to free up the actions of people as servants, but develop them as encouraged opportunists. It is empowering, it is enabling, and it grounds people in a public way on the fundamentals that they all must share to benefit the organization. There is no ethical malaise. It is important to realize that the new is not a finding from what has been lost. Rather, it is like the journey of the scarecrow in the Wizard of Oz in search of a brain (brain power in this context), the tin man in search of a heart, and the lion in search of courage. Peopleâ??s value system is intact and in most cases, has been during the journey of personal growth. The MOU simply articulates and reaffirms the core value and behavioral perspective that already underlie their personal and professional appearance and conduct to achieve significant growth. And, all of this is stimulated from the affects of the war room; hence, the influences that lead to significant strategic organizational renewal in the end.

 

The Memorandum of Understanding is designed to help an organization answer four fundamental questions in order to develop and execute an effective strategy forward plan. These questions are:

 

§         Where does the organization want to be in the future?

 

§         What will the organization apply its resources against to achieve the Future Picture?

 

§         How will the organization apply those resources?

 

§         When and under what conditions will the organization exit from their current strategic plan?

 

Itâ??s the act of dynamically adjusting business models and strategies to the deep changes at work in the external environment. Above all else, this requires innovation and the Memorandum of Understanding definitely offers an innovative perspective to most organizations. In a 2003 article in Harvard Business Review entitled â??The Quest for Resilience,â? Gary Hamel wrote, â??Strategic renewal is creative reconstruction.â? Itâ??s all about dissecting the traditional business model and examining it for imaginative ways to reconstruct it to create significant intellectual and emotional thought space for value creation to positively influence the internal and external customers of the organization. This becomes all the more urgent in challenging times, when customer needs and market conditions swiftly and dramatically change.

 

As in the case of the New Covenant Church of Philadelphia organization, where the senior pastor and Chief Executive Officer Bishop C. Milton Grannum, set aside a specific room on the same floor of the building as his office for directing the organizationâ??s strategic organizational renewal efforts. The organizationâ??s new â??war roomâ? had the same critical importance as Winston Churchillâ??s cabinet war room in London, used to direct military strategy during World War II. Bishop Grannumâ??s Innovation War Room was a simple, but highly effective device that guided the New Covenant Church of Philadelphiaâ??s appointed leadership team to focus on establishing the strategy forward to reinvent the business model and find bold, new growth opportunities. And, its impact on the organizationâ??s strategies â?? and, ultimately, its performance â?? is still being felt today.

 

Late in the month of November 2008, even in the face of formidable pressures and economic challenges, New Covenant Church of Philadelphia braved the climate and made the decision to bring in yet another trainer, speaker and author Dr. David Ireland from the region only to learn that they were on the right path to extend the organizationâ??s life cycle. The New Covenant Church of Philadelphia continues to be one of the most progressive thinking faith-based organizations in the region. The reason; the CEO fully understands that the time to input integrated talent management to boost the organizationâ??s human capital is when most organizations are calling on â??cost cuttingâ? as its strategy in the face of adverse conditions.   

 

Very few organizations, for-profit and not-for-profit, can claim to have a specific innovation war room somewhere on location. But, what every organization can and should do â?? right now! â?? is organize a serious, high-level strategy forum (at least call it the â??Innovation War Roomâ? where innovation intersects strategy) to begin exercising transformative thinking and rethinking their business from the customer backward. One of the fundamental questions the leadership team must ask is this: â??how do we get the people to buy-into the organizationâ??s new perspective of transformational thinking to experience upward movement in a market where people no longer have financial resources?â? And, in a nutshell, it is my perspective that in answering the question, these people should take a look at the slogan of Royal Bank of Scotland: â??Less Talk!â? â??Start engaging the necessary requirements to strategically execute flawlessly to influence the organizations Future Picture.â? Innovation powers us out of everything and must be taken seriously as a strategy that wins.

 

The absolute worst thing any organization can do during the greatest of challenging times is to assume they can go on with â??business as usual â?? and to go along with the status quo.â? Instead, they must conduct themselves as great leaders do and get busy working to understand how organizational clientsâ?? (internal and external) priorities may have changed and quickly realign the organizational business model to address their new needs. Reading through a past edition of the Wall Street Journal, most of the advertisements (for luxury watches, exorbitant real estate, and fabulous vacation resorts) looked embarrassingly inappropriate in view of the ongoing national economic crisis that the United States of America has been facing in the past few years and the next years to come.  

 

One ad, from NOKIA, stood out in contrast. The headline: â??Can anyone provide cost cutting solutions that work now? My answer is YES. Now, thereâ??s an organization that seems to get it. But wait a minute. Didnâ??t that headline sound more than a little like Barack Obama? NOKIA seems to have understood the lesson from the past monthâ??s U.S. election between President Elect Barack Obama and Senator John McCain: Whether youâ??re overcoming organizational politics or training people to remain on top in their careers, the winners will be those who recognize that the game has changed, and that â??same old stuffâ? just does not cut it any longer. The worldâ??s processes have changed in ways that the world looks much different than it did a year ago (unemployment is up 47% from 2007 â?? 2008, home ownership is down 26% and the statistics continue to get grim). The way to make effective decisions require innovative thought and those who miss the opportunity to change will be left behind. The best quote that I teach from fits great here: â??If people seek to achieve what they have never had, they MUST be prepared to do what they have never done.â?Â Â 

 

As a U.S. Marine turned business professional, responsible for leading a dynamic team of specialist into the lionâ??s belly when the team engages a client who is seeking to overcome business and process challenges, innovation takes precedent as our strategic starting point. Our team defines the importance of the war room, helps to identify its location and then the work begins â?? in the newly organized Innovation War Room. Without this component added to the mix, thereâ??s no need to start because without it, the potential for failure rises incredibly. As we establish these critical strategy rooms, we teach companies to unpack their business model into five Centers of Gravity: Leadership, Infrastructure, Processes, Populations and Action Units. These five are used to influence positive organizational behavior from the leadership who is responsible for making the decisions to drive momentum: who they serve, what service they provide how they provide it, how they generate revenue and how they differentiate and sustain a strategic advantage.

 

Then we demonstrate how the Centers of Gravity are used to radically rethink each component using the â??Six Lenses of Innovationâ? â?? the cutting-edge military-style ideation and methodology, â??Battleplan for Preemptive Strike,â? outlined in my latest book â??Business WARFIGHTING For GREAT Teams.â? So, we get the strategy teams to (1) Establish Achievable Aims; challenge deeply-held orthodoxies about who their customers are, how they interact with them, how they define their products or services, how they configure the value chain, and so on; (2) Identify Means; harness emergent trends and discontinuities to substantially change the way things are done in their industry; (3) Ensure Intelligence; leverage core competencies and strategic assets in novel ways to generate new growth; (4) Enforce Security; understand and address deep customer needs that are currently going unmet; (5) Engage the Strike; a deliberate Battleplan used by a strategic and numerically inferior power to head off a situation in which ultimate defeat would be inevitable; and lastly, (6) Flawlessly Execute the Exit Strategy; just as everything has a beginning, all things have an end. Leaders are instructed how-to establish exit points using 32 solution-centric precepts to face fierce challenges in short time frames using the process.

 

We believe that as organizations begin to reshape their cultures; itâ??s not hard to recognize how the principles found within the military-style ideation and methodology of the Battleplan for Preemptive Strike apply to the many burning platforms organizations are facing today. Isnâ??t it time you subjected your own business model to some â??creative reconstruction,â? aimed at making it better suited to todayâ??s shifting customer needs and new economic realities?

Are you running your business into the ground? Thats what you are doing if you aren’t innovating. It’s “innovate or die” you know. Products have a life cycle. Eventually they die. You have to continually give birth to new products in order to keep your company young, vital and profitable.

Gillette’s Innovation Strategy

Let’s examine the fruits of the innovation strategy for Gillette razor blades. Following is a list of the innovation made by Gillette over the years:

* Safety razor invented in 1895
* Razor marketed specifically to women 1916
* Razor dispenser 1946
* Stainless Steel blades 1963
* Double-blade razor 1971
* Disposable double-blade razor 1976
* Razor with a pivot point 1977
* Razor with a lubricating strip 1985
* Razor with spring-loaded blades 1990
* Razor with microfins 1995
* Razor with three blades 1998
* Manual Razor with battery power 2004
* Razor with five blades 2007
* Razor with rear trim blade 2007

Gillette innovated on a regular basis to provide fresh new products to market. There was only one invention, but a stream of innovations. In 1999 Gillette’s market value was $43 billion dollars.

What Does an Innovation Strategy Look Like?

Your innovation strategy should be an integral part of your business plan. SWOT analysis is an excellent starting place. SWOT stands for strengths, weaknesses, opportunities and threats. Once you know the major factors that will likely impact your business for good and bad, then it is time to make your innovation plan.

Consider how the management of Gillette might have approached innovation in the 1960′s. Their prime product, the safety razor, was no longer covered by patent protection. There were a number of competitors coming into their market space. Management attacked this threat head on. Their plan was to innovate their core product to differentiate themselves from their competition. As a result they introduced a double bladed safety razor in 1971.

This new product was a success, but their competitors soon learned to duplicate it. This threat required continuous innovation to stay ahead of the game. Gillette’s stated strategic innovation goal was to earn 40% of their revenue from products introduced within the last 5 years.

An Innovation Strategy Model

Let’s create a possible innovation plan for Gillette in the 1960′s:

Strengths:

1. Strong products for shaving
2. Strong demand for products.
3. Efficient manufacturing facilities.

Weaknesses:

1. Lack of diversity in products

Threats:

1. Increasing competition against core products.

Opportunities

1. Products for women.
2. Increased the value of products to the consumer.

From our SWOT analysis we as Gillette’s management could make the following innovation plan:

1. Goal: 40% of revenue from products introduced within the last 5 years.

2. Create diversity in the product line by introducing products for women.

3. Develop new products continuously to stay ahead of the competition.

The following action plan was used to accomplish the innovation plan.

1. Commit a significant portion of resources to research and development to innovate new products.

2. Create a diverse group of innovators from different cultures and backgrounds.

Gillette’s actual implementation of their innovation strategy resulted in research and development centers in the United States, Great Britain, Spain and Germany.

Summary

This brief look at innovation strategies has given you an idea of their importance. In addition, you now have a basic understanding of how to implement them. Without innovation a company will gradually succumb to market forces and become obsolete.