It all comes down to the HTW and WTP pairing we've already discussed in our comments on this platform. I tend to start with my existing know-how, which gives me more-or-less defined boundaries for HTW, and then choose a matching WTP. That said, starting from the WTP side is also possible (expanding into a new segment with the own "world of specific norms, values, language, roles, relationships, rituals, practices, and boundaries"), but then existing know-how can become somewhat misleading, pushing us to expand our current know-how in order to create a new HTW that matches the new WTP. However, this new HTW may differ significantly from our existing one, and we must carefully plan how to present this to different customer worlds.
Agree entirely, Alex. My way of thinking about this is that HTW is a more restrictive box than WTP. You can choose to play anywhere you want - e.g. colas. No one can stop you from entering. But when you get to HTW, you have two big problems - called Coke and Pepsi. They can't stop you from entering. But they can sure as hell stop you from winning - and have for 100 years. So when a company casually waltzes into a new WTP acting as if HTW is child's play, my alarm bells go off. Best, R
It's a cliche to say that your posts are insightful but really this one was a light bulb moment for me.
There is a whole litterature about moving into adjacent markets (Chris Zook's books remain classics despite being 20 years old). We're told to:
- assess the attractiveness of the market
- assess whether we have the right to win (and notably avoid what Zook called the "trap of false enthusiasm”, i.e., a lack of understanding of a market that makes a corporation believe its core competence will enable it to win while there are other – maybe more critical - key factors of success)
- assess any potential conflict with the current WTP choices BUT it's usually limited to proposed new product/service (risk of cannibalization) and the new sales channel (risk of angering current ones). It's the first time I see a warning about angering your target customer segments (besides luxury brands moving down market)
Olivier: There are a couple of good books that have come out of Bain - Chris' and Fred's being the one's that stand out for me. I think Chris' ideas on this front are good and I think of it similar to you - I have provided one more thing to think about when you try an adjacency. Best, R
"The first principle is that strategy involves trade-offs, which comes by way of the great Michael Porter, who argued that if you haven't made a trade-off, you won't achieve competitive advantage." --> That sounds so simple but it's so true. From my (relatively limited experience with strategy processes), what happens is that people dance around it with expensive analyses or PowerPoint slides for as long as possible, until real either-or decisions actually have to be made. Often "both" then gets justified via the diversification approach (though based on your articles, one could argue this is just papering over a strategy problem), because the reasoning goes: we need more growth, so we're expanding our offering.
And of course (duh), into the most attractive segment or the high-margin products — which naturally all competitors are also going after, in some cases with the same consultants selling them the same benchmarking — and per the 5 Forces, that lowers attractiveness for everyone. And then, please, on top of that, a high-CAGR industry for the new growth, without analyzing more closely how one wants to be positioned once that strong growth cools off (because by then, most of the managers currently making the decisions won't be around anymore anyway).
I've meanwhile developed almost a "sympathy" for industries with moderate growth (or even low growth), because here the market doesn't "forgive" mistakes, there are fewer wannabe competitors, and you're forced to keep things maximally simple for the strategy clients too ("strategy as problem-solving" works very well with the German Mittelstand). Could you write up your thoughts on how you view very traditional, slow-growth industries? Because the vast majority of companies I've worked with so far, mainly in Germany, operate in rather moderately growing industries - and have done so for decades. (Plus, your thought in that context on strategy in family vs. non-family businesses)
Hey Jasper. I will put that on the list of things to potentially write about - strategy for slowly growing industries. I can imagine that being useful to folks.
I like all of your points above, BTW. Even very sophisticated companies make the mistake of viewing structural attractiveness as stable even with entry. Highly sophisticated P&G once entered the extremely attractive US orange juice market - dominated by Tropicana and Minute Maid - with Citrus Hill. What they didn't take at all into account was that they would turn a lovely duopoly into a three-way nightmare. They exited years later with their tail between their legs.
On family businesses, I think they have a better chance of success than public ones - even if some of them go off the rails due to nepotism. The modern public markets are unhealthy for companies.
Your main point lands: a way to win only works for the customers you already have. Chase a new group and the whole playbook comes with it, but it rarely fits the new crowd.
The second point is the sharper one. Going after new customers because you're bored of the old ones says the move is about the company's ego, not the customer.
Great reflection on today's discussion. While business leaders not knowing what strategy truly means is arguably one of the biggest problems in the business world today, I believe a close second is not genuinely understanding their customers.
There is so much confusion around this topic: Who are a company's real customers? How well do we actually know them? Why did they choose to buy our products or services — and, more importantly, why did they choose not to?
Both gaps together can destroy a company quickly. However, when business leaders truly grasp both, they unlock the ability to build businesses that create real value — for customers and for society as a whole.
JM: Thanks for the kind words. Interestingly, for an article next week, I just rewatched the (video) conversation I had with Peter Drucker on-stage at the Rotman School 25 years ago. He certainly had no confusion in his mind about the centrality of the customer - and it was nice to hear him lay out his thoughts. The link to the clip will be in Monday's piece.
BTW, he agreed totally with your final thoughts on societal benefits.
Thank you for your message — I apologize for the delay in my reply.
It was truly wonderful to read that your next article will feature your interview with Peter Drucker. What an extraordinary opportunity it must have been to speak with him.
I hope that more and more companies come to understand that customers are the very reason for a business's existence.
It all comes down to the HTW and WTP pairing we've already discussed in our comments on this platform. I tend to start with my existing know-how, which gives me more-or-less defined boundaries for HTW, and then choose a matching WTP. That said, starting from the WTP side is also possible (expanding into a new segment with the own "world of specific norms, values, language, roles, relationships, rituals, practices, and boundaries"), but then existing know-how can become somewhat misleading, pushing us to expand our current know-how in order to create a new HTW that matches the new WTP. However, this new HTW may differ significantly from our existing one, and we must carefully plan how to present this to different customer worlds.
Agree entirely, Alex. My way of thinking about this is that HTW is a more restrictive box than WTP. You can choose to play anywhere you want - e.g. colas. No one can stop you from entering. But when you get to HTW, you have two big problems - called Coke and Pepsi. They can't stop you from entering. But they can sure as hell stop you from winning - and have for 100 years. So when a company casually waltzes into a new WTP acting as if HTW is child's play, my alarm bells go off. Best, R
It's a cliche to say that your posts are insightful but really this one was a light bulb moment for me.
There is a whole litterature about moving into adjacent markets (Chris Zook's books remain classics despite being 20 years old). We're told to:
- assess the attractiveness of the market
- assess whether we have the right to win (and notably avoid what Zook called the "trap of false enthusiasm”, i.e., a lack of understanding of a market that makes a corporation believe its core competence will enable it to win while there are other – maybe more critical - key factors of success)
- assess any potential conflict with the current WTP choices BUT it's usually limited to proposed new product/service (risk of cannibalization) and the new sales channel (risk of angering current ones). It's the first time I see a warning about angering your target customer segments (besides luxury brands moving down market)
Olivier: There are a couple of good books that have come out of Bain - Chris' and Fred's being the one's that stand out for me. I think Chris' ideas on this front are good and I think of it similar to you - I have provided one more thing to think about when you try an adjacency. Best, R
Great piece!
"The first principle is that strategy involves trade-offs, which comes by way of the great Michael Porter, who argued that if you haven't made a trade-off, you won't achieve competitive advantage." --> That sounds so simple but it's so true. From my (relatively limited experience with strategy processes), what happens is that people dance around it with expensive analyses or PowerPoint slides for as long as possible, until real either-or decisions actually have to be made. Often "both" then gets justified via the diversification approach (though based on your articles, one could argue this is just papering over a strategy problem), because the reasoning goes: we need more growth, so we're expanding our offering.
And of course (duh), into the most attractive segment or the high-margin products — which naturally all competitors are also going after, in some cases with the same consultants selling them the same benchmarking — and per the 5 Forces, that lowers attractiveness for everyone. And then, please, on top of that, a high-CAGR industry for the new growth, without analyzing more closely how one wants to be positioned once that strong growth cools off (because by then, most of the managers currently making the decisions won't be around anymore anyway).
I've meanwhile developed almost a "sympathy" for industries with moderate growth (or even low growth), because here the market doesn't "forgive" mistakes, there are fewer wannabe competitors, and you're forced to keep things maximally simple for the strategy clients too ("strategy as problem-solving" works very well with the German Mittelstand). Could you write up your thoughts on how you view very traditional, slow-growth industries? Because the vast majority of companies I've worked with so far, mainly in Germany, operate in rather moderately growing industries - and have done so for decades. (Plus, your thought in that context on strategy in family vs. non-family businesses)
Thanks so much for your great articles!
Jasper
Hey Jasper. I will put that on the list of things to potentially write about - strategy for slowly growing industries. I can imagine that being useful to folks.
I like all of your points above, BTW. Even very sophisticated companies make the mistake of viewing structural attractiveness as stable even with entry. Highly sophisticated P&G once entered the extremely attractive US orange juice market - dominated by Tropicana and Minute Maid - with Citrus Hill. What they didn't take at all into account was that they would turn a lovely duopoly into a three-way nightmare. They exited years later with their tail between their legs.
And for sure, all high growth industries slow down. I actually wrote a piece on that in the series: https://rogerlmartin.substack.com/p/2022-01-10_strategy-in-high-growth-industries-2feddbcb72cchtml
On family businesses, I think they have a better chance of success than public ones - even if some of them go off the rails due to nepotism. The modern public markets are unhealthy for companies.
Best, R
Your main point lands: a way to win only works for the customers you already have. Chase a new group and the whole playbook comes with it, but it rarely fits the new crowd.
The second point is the sharper one. Going after new customers because you're bored of the old ones says the move is about the company's ego, not the customer.
Dieter: Glad the piece resonates with you. And I concur with your summary of the core points of the article. Best, R
Hi Roger,
Great reflection on today's discussion. While business leaders not knowing what strategy truly means is arguably one of the biggest problems in the business world today, I believe a close second is not genuinely understanding their customers.
There is so much confusion around this topic: Who are a company's real customers? How well do we actually know them? Why did they choose to buy our products or services — and, more importantly, why did they choose not to?
Both gaps together can destroy a company quickly. However, when business leaders truly grasp both, they unlock the ability to build businesses that create real value — for customers and for society as a whole.
Have a great week!
JM
JM: Thanks for the kind words. Interestingly, for an article next week, I just rewatched the (video) conversation I had with Peter Drucker on-stage at the Rotman School 25 years ago. He certainly had no confusion in his mind about the centrality of the customer - and it was nice to hear him lay out his thoughts. The link to the clip will be in Monday's piece.
BTW, he agreed totally with your final thoughts on societal benefits.
Best, R
Hi Roger,
Thank you for your message — I apologize for the delay in my reply.
It was truly wonderful to read that your next article will feature your interview with Peter Drucker. What an extraordinary opportunity it must have been to speak with him.
I hope that more and more companies come to understand that customers are the very reason for a business's existence.
Have a great weekend.