The first thing to recognize is that a business can perform—or reach ripe fruit—only within the context of capabilities and opportunities that it has assembled. With time and competitor inroads, however, these opportunities and capabilities wear away. The only way to remain competitive is to continuously renew existing capabilities and to find and add new and distinct ones.
There are two ways to do this: 1) Protect and renew existing markets by continuously improving the way your business approaches, services, and engages customers. For example, train salespeople to close more deals, implement customer relationship management (CRM), etc. This is what I call renovation. 2) Innovation, on the other hand, is about entering markets, old or new, with entirely new competencies. It is not about how distant a business is in terms of its market space, it is about how devastating the idea is to competition. For example, in 1996 when Amazon.com started there was nothing unique in its business model as far as product goes. It was selling the same books that were available at any other bookstore. The innovation that devastated competitors was, however, how Amazon.com sold them over the Internet. Similarly, when Dell started, computers were sold by salespeople in fixed configuration in traditional face-to-face sales. Dell changed the game by offering build-to-specification computers sold over low-cost, wide-reach sales channels like direct mail, telephone, and later the Internet.
Both of these are the examples of innovations in business processes—in the sales process to be specific. The question is how should you go about instilling innovation in your business? Should you protect and extend your core, or should you completely change the way you sell? The slow economy is forcing all executives to rethink this question.
Experience shows that as long as a business is not radically changing the market, the ideal approach is to make evolutionary moves inside the business that have a revolutionary impacts o the market i.e., combine both approaches in a single explosive and coherent strategy for maximum benefits. Figure 3.1 shows this approach:
Figure 3.1: Strategy for Profitable Growth
The first step in this strategy is to protect and renew your existing customer base. This is because competitors always catch on to whatever competitive advantage you have. For example, once Amazon.com was successful, everyone started selling books online. Seeing this, Amazon.com protected its core business by engaging customers in the delightful customer experiences of "Online Review," "Look Inside," and customer loyalty programs. Amazon.com was also the first to implement and execute a lead referral program in the shape of Amazon Associates that created the needed boundaries for competitors.
The second step was to penetrate adjacent markets by leveraging existing competencies. Amazon.com, which had a strong foothold with the right customers who were willing to buy online, and which had built a strong IT infrastructure, decided to leverage these assets by first renting them to other bookstores to sell their books. Next, Amazon enhanced its IT infrastructure to sell any product online, hence becoming the marketplace of choice.
The third step is to build new competencies that will be the source of a new competitive advantage. Keeping Amazon.com as an example, we can see its next move was to build a strong Amazon.com web service model—based on the existing IT infrastructure—that revolutionized the IT storage space field. Now, instead of buying hard drives, a business can simply rent disk space from Amazon and pay only for the usage. Amazon also ventured into search engine technology.
Hence, in three simple steps, you can completely transform your business as Amazon.com did. It started as an online book retailer, morphed into a marketplace, and then completely changed into an IT storage service provider. The process doesn’t stop here; you can repeat the cycle. Jeff Bozz, CEO of Amazon.com, is doing it again. In the second cycle, Amazon.com started again with its core business, i.e. book sales. This time its strategy to protect and renew the core business was an e-book reader, Kindle, which created a strong barrier for other top book retailers. Their second move to leverage Kindle’s assets is to engage authors and publishers to write books for the new platform, augmented with on-demand publishing services.
So what do you think? If Amazon.com can completely change its business in three simple steps, can you do the same for your business? The answer is yes. The five-step implementation process below explains how.
Related
- Table of Content
- Red Queen Effect – An Introduction
- The Billionaire Code
- Cracking the Code
- Implementation Plan