The Chemistry of Strategy tm Newsletter April 03, 2011

Growth's Strategic Cycles

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As a significant IBM customer I got a free trip to their Poughkeepsie, NY facility every year. We spent the day enjoying a combination of plant tours, technology education, and a peek into IBM’s strategy and future plans. (One of the seldom-recognized reasons for customer defection is a loss of confidence that a vendor will be able to meet your future needs. IBM’s yearly briefings kept us in their fold.)

One memorable IBM presentation explained their feature/technology strategic cycle.

  • In one generation, you add new functions using the previous generation’s existing technology and architecture. The strategy was to keep the technology stable and focus on adding new functionality.
  • In the next generation, you keep the functionality stable and enhance the implementing technology and architecture. The new technology optimized performance of the previous generation's features that proved themselves to be valuable for users. Along with technology to optimize existing features, you include new architecture that enables adding new features in the future.

IBM learned early that when you try to simultaneously enhance features and technology, a project becomes unmanageable. IBM mainframe design is not the only type of development that can be enhanced by thinking in terms of cycles of two.

A company’s product/market strategy has two elements. Exploration and exploitation.

  • All innovation starts with exploration. You explore lots of different ideas for markets and products. Eventually you find a potential big winner. (HP used to have a rule of thumb that you needed to explore at least 100 ideas to stumble across 6 potential big winners.)
  • Once you find the “magic” formula, your strategy switches to focusing on exploitation. “Go big, or don’t go at all.” Soak up all the cream. Drive to gain dominant market share. Optimize production of your products and maximize profitability. Eventually every product or market reaches its limits and it's time again to emphasize exploration.

The alternating focus on exploration and exploitation should be driven by your product/market strategy.

Creating your product/market strategy

The term product/market strategy sounds fancy and hard to create. We have found that a simple approach is to get the senior team together and form a shared visualization of what they want the company to look like within five years. When the team sees over 96% of future revenue coming from existing products and markets, your strategy focus for the next few years is exploitation. We have the magic formula, the strategy is to accelerate its execution. When the team sees 50% of future revenue coming from new products and/or markets, your strategic focus for the next few years is lots of exploration followed by exploitation of the 6% of winning ideas.

The ideal vehicle for developing strategy is a well-structured strategic planning process.

 

John W. Myrna

is co-founder of
Myrna Associates Inc


My next Webinars
Shift from Survival to a Growth Strategy
April 7, 2011
1:00-2:00 PM ET

Create and Communicate Your Strategic Plan
May 5, 2011
1:00-2:00 PM ET


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