What are we actually good at, and does it matter?

Competitive advantage for SMEs, Part TwoSpudgun goes for the 'epic' look

 

In Part One we looked at what we need to be good at. We also looked at the issue of what our different customers and non-customers tell us that we actually do well, or not so well. That gives us a few circles to square – do we need to bridge the gaps between what we’re told are our strengths and weaknesses and what we need to do to create a competitive advantage, or do we accept that there are trade-offs and hang some potential customers out to twist?

This bit is hard work, and there’s no getting around that. We need a deep understanding of what we do now and how it all connects together to hit our objectives, we need to know where our efforts are falling short or even actively frustrating what we’re trying to do, and we need to know what we’re doing that is a waste of time and money because, although we might be good at it and it sounds as if it should be a good thing to do, it isn’t actually doing anything to help us hit our objectives. Be very suspicious of any general advice from any quarter (especially the golf club) that purports to tell you what ‘good practice’ is until you’ve subjected it to this test.

Anyway, it’s called activity mapping. Sorry about that.

The idea is to create a detailed schematic of the business which is organised not by function or department or however else you draw up your organisation chart when the bank asks for one, but by reference to your key drivers – the stuff you need to be really good at to put clear blue water between you and anybody else who competes with you. 

Once you’ve got some experience with this there are some short-cuts you can take to get a quick and dirty sense of what’s going on, and I’ll get to that later, but really it’s best to know how to do this properly. So here goes.

You’re going to need some big pieces of paper and an even bigger wall to stick them on. If that’s not practical then a stack of Post It notes and a big table might do the trick. It might also be an idea to assemble your ‘team’ to do this – your core group of people that you rely on to understand all the key areas of your business in detail. At some point you’re going to need them to get on board with all this strategy stuff, so you might as well involve them from the start. Besides, there’s an outside chance that some of them may know things that you don’t.

Your starting point is your list of differentiators, your key drivers, from Part One. List them down the right hand side of whatever canvas you’re using, spacing them well apart. Then take each in turn and drill backwards across the page. What is it that you do or have that enables you to deliver on that driver? Big picture stuff at first, then more and more detail as you work from right to left.

As you drill further down into the business you’ll need to think expansively. Think about:

  • Your product and service proposition and design
  • How you manage relationships with your particular customer segments
  • Your channels to market and customer touch-points
  • Your pricing and revenue model
  • Your cost structure and cost drivers
  • Your resources
  • Your supply relationships and partnerships
  • The culture of your business

 In particular don’t forget to think hard about what you might consider your support or back office functions, things like HR (or ‘Personnel’ if you prefer), your financial processes, the technologies you use, where and how you buy your paper clips, whatever.

While you’re going along you’ll need to grab another coloured pen (red would be symbolically suitable) and note down the stuff you do which actively frustrates your efforts to deliver. Be brutally honest. Just because that stuff has a benefit somewhere else or makes life easier for you doesn’t mean it gets out of jail here.

And finally, a third colour pen, say blue, to make a note as you go along of the things that you don’t or can’t do if you are going to deliver on your differentiators – the trade-offs you have to make.

Let’s suppose that one of your key drivers is to to give your retailer-clients priority – as all your competitors try to elbow them out in the rush to develop direct relationships with consumers via the interweb (we’ll look at why this may or may not be a good idea in a later article). Your key themes in being ‘the retailers’ friend’ might be:

  • A policy of ensuring that retailers get the same product range, at the same prices, and the same special offers, as consumers get from your B2C website.
  • A website tailored for retailers, including problem solving tools and extra content that makes them look good in front of customers.
  • A call centre trained up to support retailers rather than consumers.
  • A culture that emphasises that ‘we are the retailers’ friend’ at all levels.
  • Publication and development of point-of-sale material, neglected by your direct-to-the-consumer competitors. 

The first of these might be delivered by, among other things:

  • Preferential rates from your suppliers, who recognise the value of a retail channel they can’t easily access and your cost of servicing it.
  • Running a retailer training and incentivisation scheme, including an annual awards programme.
  • Finance policies which allow the retailer to match his obligations to you with his own cash income.
  • Recognising retailers’ customers as belonging to them not you, and not trying to market directly to them once their details are on your database (blue pen).

 Of course, the first of these, preferential supply terms might mean (blue pen) that you are limited to a narrower range of suppliers than some of your direct-to-consumer competitors, which in turn means (red pen) that your retailers are offering a more restricted range of product than some of them would like…

We’ve only just begun, but we are already starting to put together an activity map that runs several layers deep…

 It’s important to keep drilling hard at this stage, challenging yourself to unpick how every aspect of the business (and it’s supply chain) contributes to or frustrates your strategic differentiators.

When you’re satisfied that you’ve mapped the business thoroughly from this perspective of competitive advantage, ask yourself what you’ve missed. Make any adjustments necessary, then stand back and admire your handiwork. Now fix yourself a coffee and ask yourself some questions:

  • Is this good enough? Is there more we could be doing to make sure no one else can come close to us on delivering on these vital objectives? Where are we making unnecessary compromises?
  • How do we stop doing these things that are working against us? How can we make sure everything we do is joined up and reinforces our strategy (there, I said it)? Are we having to do things which are fundamentally inconsistent in order to meet the needs of two different customer segments? Do we have a tough decision to make about letting some customers go? If we do this, can we turn a real advantage against competitors not willing to make trade-offs – especially the Big Boys?
  • What’s missing altogether from the map? What stuff are we doing, that’s costing us money and attention, but that’s not really making any contribution to our competitive advantage? Can we stop doing it? Do it cheaper? Outsource it to Mars, Tajikistan or Bethnel Green?
  • Are we linking up our activities to reinforce our efforts, or are people working in sulky little silos? Can we connect better to deliver a more effective service or reduce costs?
  • Above all, how easy is it to copy what we do, and how can we make it harder? 

The chances are, after indulging for a while in this process of deep, collective navel gazing, that you’ll conclude that you have quite a lot to do, that you can now see is of genuinely strategic importance. There are ways and means of handling this without falling on your arse, and we’ll get to that in a later article in this series.

You’ll have gathered by now that this exercise is not for the faint-hearted. It’s a big job, and as I said earlier that there are some short-cuts available once you have a strong practical grasp of how activity mapping works. In truth, nothing can really take the place of going through this process from first principles as described above, and if you’re serious about competitive advantage you’ll find the time to do this (and revisit it periodically).

But for those with strategic ADHD who already know how this works there are some tools that you can use to help you sort out your thoughts and get a high level view fairly quickly. Remember though that the devil is in the detail. The higher level and more generic the view you take, the more chance you have of missing things which are important. 

We’ll look quickly at three models: the ‘business model canvas’ (Alex Osterwalder), the ‘value chain’ (Professor Michael Porter, may his tribe increase) and ‘cartoon mapping’ (me, but I forgot to copyright it).

The business model canvas groups some of the categories above into a single schematic so that you see how your big strategic themes fit (or don’t fit) into a single picture. This is illustrated below. Sales and revenue stuff is on the right, cost and supply side on the left, and the product (the ‘value proposition’) where it belongs – smack in the middle.

Business Model Canvas
Business Model Canvas

The approach is fairly self-explanatory, but if you’d like to read more then go read ‘Business Model Generation’ by Osterwalder et al. A word of warning though – you are still trying to build a business around competitive advantage, which among other things means doing stuff that is unique. There is a tendency among some to use this framework as a way of generating generic business models that any idiot can copy.

The business model canvas is basically an updated version of an older model, the value chain, devised by Harvard professor and supreme strategy ninja Michael Porter. Again, it’s just a way of grouping activities into generic categories which may make the task more manageable, and again the danger is in taking a cookie-cutter approach instead of hunting for unique competitive advantage. It’s well suited to traditional manufacturing businesses, and if that’s your species then we’re all with you, son. If not, you may find it more trouble than it’s worth trying to shoehorn it into your new age hippy business model.

Value Chain
Value Chain

 

In both cases the point isn’t just to list the stuff you do (what Porter calls ‘higher order strategic themes’, which is more likely to get you tenure at Harvard), but to explore how they link to and reinforce each other.  Assuming they do.

Sometimes where these themes are evident it can be best to jettison the standard templates and draw a picture that’s specific to your business – what I call cartoon mapping.  Unfortunately I can’t give you an example since by definition these illustrations are not generic, and the ones I’ve come up with in the past are covered by highly toxic non-disclosure agreements and several strategic arms limitation treaties.

Anyhow, by now all this navel gazing should mean that we know damned well what our customers want, and what we need to do to finely tune our throbbing engine to blow them away with our insanely great awesomeness. Assuming we’ve been watching too many Steve Jobs videos on Linked In. But we’ve been tilting at windmills. It’s time to ride to the big city and enter the pas des armes.

Because we have enemies out there. Big, ugly ones. With B.O. Which will take us to Part Three.

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