A Ten-Step Guide
Throughout this book, we have shared a broad range of valuable and interesting observations about how companies can find profitable growth opportunities. More importantly, we hope to have also instilled in you an edge mindset.
The preceding chapters were a practice of sorts, helping you develop pattern recognition for the edge strategy framework. We hope that you are already thinking about the edges you encounter in your own world and that somewhere in these pages you have had moments of epiphany and recognized something familiar and applicable to your business.
Companies worldwide are trying to grow by making risky and bold moves. Often these moves overlook the near-field potential on the edge of a business. With an edge mindset and the edge strategy framework, you should now be able to explore this transition space and find opportunity in the borderlands between your core business and the markets beyond. You should take comfort that this approach is not novel; we did not invent edges. Our research shows that edges are present in virtually every industry. Managers and leaders have applied exactly this kind of thinking for decades, if not since the dawn of commercial activity.
You will also recognize that despite its apparent ubiquity, most companies across most industries vastly underexploit edge strategy. They rarely tap its full potential. Our research indicates that fewer than 10 percent of companies appear to make a disciplined effort to unlock edgelike opportunities.1 Fewer still are likely conscious of what they are ignoring.
You will have seen in the many examples we detailed that, in deploying edge strategy, a company can access new sources of profitable growth that are less risky and typically higher margin than options in the core or beyond. These companies often have also made their customers happier by more completely meeting their needs or moving closer toward the completion of their missions. They have also been able to sustain the benefits of their innovation longer, as their own competitors adopt the strategies and help redefine market expectations.
With your new edge mindset, you will be thinking about what defines the edge of your current product: What could exist on the outside edge, given your customer set? What about opportunities to unbundle or de-content your offering on the inside edge? If you have subsets of customers that you think are not fully satisfied or perhaps are unprofitable, then you should be homing in on these opportunities to deploy a product edge strategy. You should also be thinking about your customers in the context of the journey that they are on, and what happens beyond your current interactions with them. What opportunities exist for you to assist them in completing more of their journey with you?
You should also be thinking about what constitutes the foundational assets that support your company’s core offerings. How could these support any of the three types of edge strategy: product, journey, or perhaps even enterprise? Which are the tangible assets you deploy, and what intangible or unconstrained assets do you possess or produce? Does your company produce by-products or could you consider something produced within the context of a by-product? Take a second look at any waste stream and intangibles like data and information. As we have seen throughout this book, companies of all kinds have found ways to leverage just such assets and resources to capitalize on edge opportunities and enterprise edges in particular. You should have started to think of answers to the question, Who, besides a direct competitor, would pay for the rights to any of my company’s foundational assets?
In all likelihood, your organization faces some similar themes to those addressed in part 2 of this book, in which we considered some of the common applications of edge strategy.
In chapter 5, we saw how product and journey edges are highly effective tools for supporting pricing strategy. Opportunities to introduce à la carte upsell offers to some or all of your customers may have occurred to you. You may have spotted how you could offer enhanced convenience or comfort to some of your customers, as in the JetBlue example. Maybe offering relief or peace-of-mind upsell strategies, as we saw used by the telecoms and automobile dealers, could resonate with the permission sets of your customers. Maybe you are in an industry where the type of passion upsell that Cirque du Soleil employed would be compelling, or one where a knowledge upsell strategy like the one Nielsen used would be valuable to customers.
Your market may be one of the many in which margin pressure is acute, and the strategies explored in chapter 6 resonate. You may acknowledge that you have unprofitable customers and are considering whether you, like W.W. Grainger, can also employ moves to unbundle some elements of your offering. This approach will challenge your unprofitable customers to either choose to alter their behavior and so reduce the cost burden they cause, or choose to pay extra for those services they valued but took for granted before. You may have recognized an opportunity to do less of something in your current core, similar to the self-service strategies retailers are starting to employ.
Similarly, if your organization is fighting the threat of commoditization, the discussions in chapter 7 prompted you to start contemplating edge-based moves to approximate customization, offer solutions, or even create targeted, recalibrated bundles. More than one of these approaches may make sense to you, and so you are considering how edge merchandising, a concerted system of coordinating these moves and evolving them, should be part of your strategy.
In addition, you may have more opportunistic thoughts on how your new edge mindset can help. One of the areas where you will want to focus your edge thinking in order to find new opportunities for growth is the data and information your company generates and uses. As we explained in chapter 8, this is one of the nascent and least exploited uses of edge strategy. Our discussion should have prompted you to start thinking about how your data could be useful to others and how it is not unilaterally useful for the purposes of your core business. You should be considering how data could form part of a product edge upsell to current customers or possibly the basis of an enterprise edge if that data, harvested and deployed differently, nearly enables a new offering with a new set of customers.
If your company is contemplating inorganic growth opportunities or even regularly executes such moves, then the application of edge thinking described in chapter 9 will have been valuable. After reading this book, you should look at possible transactions with a newfound lens. Your new edge mindset will focus you on where a deal is truly complementary and will realistically create synergies. It should help you provide greater discipline in screening for new possible deals and a framework for how to ensure that you do not overpay if you decide to proceed with an opportunity. Your new edge mindset should help you and your company beat the odds in M&A.
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Overall, we hope you, like us, conclude that most companies should be able to find and successfully realize new incremental sources of profitable growth by leveraging their foundational assets more than they might have previously thought possible. We hope you are asking yourself the many questions this book poses, and that this activity sparks many new ideas for how you can find your own opportunities. Most of all, we hope you are asking the question, What is my edge strategy?
Even if you fully embrace an edge mindset and the associated edge strategy framework, you still need to make it all happen. So in this final chapter, we provide a methodical process, using tools you or others in your organization already know, to put edge strategy into action.
At a high level, developing and executing growth strategies can involve some familiar steps, whether you are developing a new product, building a line extension, commercializing a new technology, or trying to launch a product in a new market. In working with many companies, industries, and geographies, we have found certain specific patterns of activities across initiatives that are especially helpful for unleashing edge economics. What we will detail here, therefore, is twofold. First, we will lay out all the steps required to apply edge strategy successfully. Second, we will detail where edge strategies require specific attention or deviate from standard ways of executing on growth strategy initiatives.
To be comprehensive, we have also mapped out these steps on the premise of a company seeking to equally explore, identify, and capitalize on any one of the three types of edge strategy. We recognize that this exhaustive approach will not always be necessary. If, by contrast, only a specific type of edge strategy is the initial focus, some of these steps are less important, as we will explain.
We generally advocate that the overall process encompasses ten steps, taking you from strategy development to activation.
– Step 1: Understand your customers.
– Step 2: Fractionate your products and services.
– Step 3: Map the customer journey.
– Step 4: Assess your foundational assets.
– Step 5: Prioritize your edge opportunities.
– Step 6: Determine your likely customer adoption rates.
– Step 7: Define the operating model.
– Step 8: Build a winning business case.
– Step 9: Execute the plan.
– Step 10: Observe and refine.
Product and journey edge strategies are focused on your current customers, so an essential starting point is to understand these key stakeholders. We recommend an edge-specific needs-based segmentation for this purpose. In various ways, ask your customers why, and for what purpose, they buy your products. You want to explore what they are missing, what else they do on their journey, and where gaps are in your offer. You can then couple this with data on their characteristics and behaviors to match what they say with what they do. With this information, you will be able to assign each customer to one of a discrete set of groups or edge-specific segments.
As familiar as a company may be with its customers and its market, it needs to invest in targeted primary market research for edge strategy development to build the necessary peripheral-vision insights. Many companies perform detailed customer segmentations as part of other efforts. But we’ve found that using these segmentations is often inappropriate for edge strategy development. Segmentations are only useful if they are well calibrated with their purposes; for this reason, successful organizations often apply several different ones. For example, we often see executives who are tempted to use a segmentation that they use regularly for marketing communications (e-mails, direct mailings, and so on). Even if well-thought-out, descriptive, and perfectly geared toward the needs of the marketing communication group, this segmentation is unlikely to tell them much about how customers would respond to edge products. Existing segmentations tend to be focused on selling core product. If you don’t take the time and effort to analyze edge receptivity empirically at the start, then your strategy will be unlikely to have the analytical backbone it needs to gain approval later.
You and your research team will also want to carefully reflect on new edge-based segments: Who are each of these customers? What do they value most in your offer? What unmet needs do they have? For example, would certain customers appreciate the extra peace of mind that comes with an extended warranty? Do others require special assistance in installing, maintaining, or servicing your product? Are there customers who do not value certain aspects of your core offer?
These segments reflect how each group engages with your offer. Therefore, this kind of segmentation analysis enables you to understand which variations of customer needs have sufficient traction to support a viable edge business case.
Central to any edge strategy is an understanding of what you currently do. In returning to the framework from the first part of this book, the second step involves carefully defining your core offering to juxtapose it with the customer permission set.
Begin by “fractionating” your offering, that is, conducting a detailed analysis of each service or product you offer. By doing this, you will understand the component parts of your offer and how each fulfills different types of customer needs. Take your customer’s perspective during this process. How does your customer see your product or service? Repeat this thought process for each product or service and for each customer segment defined in step one.
For example, consider a company that manufactures industrial etching tools. It offers a set of service levels depending on the customer type (for instance, large multinational customers have a dedicated account manager and twenty-four-hour technical support; smaller customers make purchases via distributors and have online support and a nine-to-five telephone help line). These different service levels are fractions or elements of the offer each customer segment receives. Rigorously cataloging the elements of the offer by customer segment is what we call “fractionating.” Each of these discrete elements could form the basis of either edge-based upselling or, potentially, unbundling strategies.
The easiest and most direct way to fractionate is to speak to your customers and your frontline sales employees. How do they define your offer? What basic customer needs are you meeting? What problems are you solving? By adopting this needs-focused view, you can build a valuable perspective on how your offer is currently configured and how it could alternatively be fractionated.
Needs-based segmentation and product fractionation are great starting points. However, taken alone, they would miss the possibility of journey edge opportunities. If you consider your customers only on the basis of the transactions you have with them today, you can miss their underlying agenda. You must also investigate how your product or service fits into their journeys.
As we described in chapter 3, the key is to first recognize the mission your customers are trying to complete and, for a given segment, the different missions they have. For each mission, you need therefore to understand the holistic journey your customer is on in order to complete it and break that journey into discrete elements. Then you must consider the customer’s specific needs at each stage of the journey.
When building this view, it is important to adopt the customer’s perspective and engage him in conversations about how your business solves his underlying needs. You need to specifically emphasize the stages immediately before and after she engages your product or service, where a journey edge is most likely. This significant task must be mapped for each identified customer segment.
In some cases, we have found that simply talking through the journey with customers in a focus group setting can yield valuable insights. Again, do this discretely for each customer segment. In other cases, it’s necessary to go out and mimic the customer experience yourself. Consider walking through the journey with some actual customers, observing them as they engage with your offering. While you may do this regularly in the context of your current offer, for identifying edges, take the extra steps to join their journey earlier and stay with them longer, after they have moved on from your current offer. What brought them to the purchase point? What key steps did they take to get there? What will they do next, immediately after they disengage from the business? What is the final resting place of the purchase—be it a TV installed and fully wired to your surround-sound system, or a more efficient warehousing operation as a result of a third-party logistics service.
If you’re a pet owner, you know that the pet supply business can be a highly competitive market. You can purchase food, toys, treats, and even veterinary medicine from a number of different types of stores—big-box retailers, pet specialty retailers, local grooming studios, and even online retailers like Amazon. How could a pet supply retailer find an edge strategy in this crowded market? If you consider the customer journeys for this business, you would recognize that they are highly differentiated based on two different factors: the type of product the customer is shopping for and the age of her pet. For example, puppy owners looking for training toys often prefer a high-touch, knowledge-based sales process and tend to ask the sales associates a lot of questions. On the other hand, when the same puppy owners are shopping for dog food, they tend to view it as a convenience-driven purchase; they are looking to “get in, get out” because they know what they want.
This is a simple but significant insight. Even within a single customer segment (the puppy owner), there might be multiple journeys based on the context of the purchase. If a pet retailer were to plot out a single mega-journey, encompassing every significant step along the way for all customer types, missions, and products, it would miss important insights about the convenience-driven nature of some purchases and the knowledge requirements of others. As detailed in chapter 5, these two insights guide you to different types of product edge strategy.
As detailed in chapter 1, all edge strategies are supported by leveraging the latent value in the existing foundational assets of a company. We therefore recommend a regimented process of working through your company’s resources and capabilities.
First, develop an inventory of all your assets. This assessment may seem simple, but it is important to consider all possible forms of asset, not only hard assets like equipment and facilities, but also capabilities like customer service expertise and empowered leadership culture. Also consider your softer assets—knowledge, technology, information and data, and expertise in a specific topic. Channel access and market presence are also good examples of market-based assets that companies can leverage. We encourage you to be as broad in your consideration as possible.
With a comprehensive list of foundational assets in hand, work through a simple checklist to consider how the different assets can provide a foundation for your edge strategy:
Steps one through three are mainly focused on finding product and journey edges through an examination of your customers and their needs and missions; this is an outside view of edge opportunities. The additional lens of exploring the utility of foundational assets and asking how they can be leveraged for moves along product and journey edges brings together the inside view and completes this thinking. With both perspectives in hand, you can examine where opportunities are complementary: where an identified use of your assets aligns with a recognized unmet need of a customer segment. You can do this exercise effectively in one or more internal workshops of commercial and operational managers. Moderation and leadership are important in any such activity, and a dedicated owner of the edge strategy initiative should prepare structured materials, lead the session, and capture takeaways.
In order to identify opportunities for moves along enterprise edges, you must take this assessment a step deeper. We recommend asking some additional questions:
When exploring assets in pursuit of an enterprise edge, employ a similar workshop approach, but augment this discussion with an expert panel. Select a diverse group of industry executives and observers from other related markets in the sphere of influence affected by your business. Then, stage a facilitated workshop at which you ask the experts to explain where your assets could be valuable beyond your current market. Sometimes we invite executives from customers or suppliers, as well as key industry observers in sectors further afield from our client’s, but with the potential to find value; academics are often a valuable addition to these sessions. This activity is highly valuable; an external view can help your team focus on the periphery of your business and take a perpendicular view of its assets and capabilities.
After completing the first four steps, you may have discovered a potentially long list of product, journey, and enterprise edge “proto” opportunities. The next step is to sort through them and create a short list of the most promising ones, using a methodical, objective approach.
Begin by establishing defined, edge-specific criteria consistent with your company’s existing strategic goals. These measurable criteria will typically include the profit potential of the opportunity, the feasibility of implementation, the amount of investment, the degree of risk, the time to delivery, and so on.
Make sure that you have sufficient information to evaluate the opportunities along each dimension. Typically, the types of information you need will not be readily available or quantified. To overcome this, identify a few key functional experts in your organization with whom you work one-on-one to assemble high-level “what you need to believe” business cases for each opportunity. You can then compare and prioritize these in a workshop with a cross-section of your organizational stakeholders (for example, sales, marketing, finance, operations, technology, human resources).
Next, have a steering team of senior leaders review the opportunities and the prioritized list of the best opportunities to decide which merit further consideration and investment. This should set the strategic priorities to take forward into detailed planning.
Once you have determined a short list of strategic options, you have the basis of your strategy. The next step is to build the detailed plan that will define not only what is needed to realize the strategy but also what outcomes to expect. You may still have a short list of options; if so, this helps to maintain flexibility. At this stage, you cannot fully know which will be the true winners or where hidden red-flag issues exist, so try to move more than a single idea into detailed planning. This way, if issues emerge with one idea, you can pivot your focus to the remaining option(s) without going back to the drawing board.
Predicting the revenue potential of any edge strategy, regardless of whether it is product, journey, or enterprise, is a key effort that involves deep quantitative research with your customers (or, in the case of many enterprise edges, customers in a new market). First, understand how many of your customers will buy the edge offering. What will be the adoption rate? How many of your customers will purchase the new à la carte feature? What percent of your customer base would purchase the new services? Intimately linked with this question is the price of the offering. As such, test how customers react to various prices. Edge strategy uses marginal economics, and pricing can therefore be set to maximize profitability.
One tool for building robust business cases for edge strategy is choice-based conjoint analysis. At its simplest level, conjoint analysis involves surveying or interviewing customers and asking them to choose between different versions of a complete solution. This method is ideal for product and journey edge strategy testing as the approach allows you to toggle in and out various levels of edge elements. For example, a car manufacturer might ask customers to choose between a sedan with standard seats and an XM radio for $25,000, or the same base model with leather seats, a DVD player, and navigation system for $30,000. While this may seem like an arbitrary question, the key with conjoint analysis is to repeat it for many possible product combinations and customers. Once you have explored all possible product combinations tested over a variety of price points, you can then employ statistical analysis software to work out the value of each edge element or attribute. In other words, over a large enough number of responses, this type of study allows you to understand, on a quantifiable basis, how customers value the different edge elements in your offering and what price they are willing to pay for them.
With this knowledge, you can then vary the price of your edge offerings in order to reach the adoption rates that should maximize profitability.
The next step is to address the basic question of how to deliver this strategy. Developing an understanding of the required operating model is a key step to answering four essential questions for any edge business case:
First, define the manifestation of each edge product, that is, how will customers experience it, where, and in what way? To do this, develop a detailed product profile or specification that fully defines what you want this product to be and how customers will experience it. Often, this road map explains how the customer will experience the product at launch and then how you will expand it in the future. For example, in a launch, specification pricing may be fixed, but you might contemplate moving to a dynamic pricing model in the future. You might launch with only one point of sale but plan to expand to several in the future.
Next, examine how the organization needs to change in order to activate this new product experience. A great framework for this step is to adhere to the hierarchy of “people, process, technology.”
Begin with the people. Who in your organization will be involved in offering and fulfilling the edge strategy? How will their roles be affected? Will you need to create new roles? How will you design responsibilities and ownership for the new edge products? This will help to inform the labor cost impact of the new product. It also informs the requirements for implementation. Who will need to be engaged? What will they need to know and understand about the new strategy?
One of the common reasons that companies have not taken advantage of edge strategies is because there is no clear owner in the organization for these initiatives. As we will detail in step nine, edge strategy typically crosses functions, and often no single area has clear responsibility. Finding and appointing someone to own edge initiatives is often the first step to establishing real momentum. It is also essential to have a single dedicated owner once edge opportunities are in operation in order to ensure delivery of results.
Next, consider the processes. How will your teams’ day-to-day activities need to change to ensure that they carry out the new service, product, or activity effectively? What do you need to do in order to bring this offering to your customers? For example, will you need to train employees? This stage is critical for determining the activities you will need to successfully implement the strategy, the new systems you need, the metrics you need to measure, the training and changes to operating procedures, and the likely duration of this change process.
Finally, after you have considered the first two criteria, turn to technology. Technology should be a function of the process requirements determined in the prior step. Avoid a scenario in which strategies become captive and overly influenced by the availability or requirements of technology.
Building this operating model requires broad organizational engagement. At this point, you should typically have a working team of cross-functional point managers from the company engaging regularly. This team must work through the implication for their own functions using the steps discussed earlier and then develop the overall model.
A big hurdle in making edge strategy a reality is building the case for investment. Every organization has constrained resources, and edge strategy, like any other, must vie with all the other requirements and obligations for funding that a company wrestles with regularly.
A robust economic model is an essential component of a successful business case. This is where the detailed effort to quantify the revenue opportunity and map out the operating model we have discussed will bear fruit. A strong business case is one that delineates a multiyear financial view and drives this analysis to cash flow, fully considering all investment capital over time. It considers sensitivity to key inputs and tests scenarios for how a launch may materialize, given acknowledged uncertainties. It includes a fulsome risk assessment, one that has engaged a comprehensive group of functional leaders.
Decisions rarely happen in the moment, particularly for opportunities that are, by design, on the periphery of your core business. Be patient and engage in an extended period of socialization and buy-in before such investment sessions. Ideally, almost no one in attendance should be unfamiliar or disagree radically with what you present before the session. This is vital for flushing out concerns or objections ahead of time so that you can address and mitigate them.
Few organizations welcome change, and some operational executives are programmed to avoid it at all costs. This inherent challenge to corporate growth is often especially acute for edge strategies. All too often, edge strategies can be viewed as a minor benefit if only considered from a revenue context and not worth the distraction to the core. So the creation of a fully vetted business case that quantifies the bottom-line impact is essential. When initiatives are evaluated without taking the time to drive the analysis to the profit line, with functional buy-in to key cost line items, promising edge strategies can fall foul of the committee room of opinion and institutional folklore.
Once you have defined your edge strategy and the business case has been approved, you can begin the strategy activation phase. Here an edge strategy project can start to look a lot more like a typical capital project implementation or change management process. You have achieved the critical task of securing buy-in and approval. This does not mean, however, that success is assured.
An essential element of implementing edge strategies is to employ good project management practices: a dedicated strategy activation office; a seasoned project management team; sensible governance structure; clearly articulated, measurable goals and objectives; achievable timelines; project procedures; and resource management tools.
A specific challenge to be aware of in edge strategy activation, as with development, is dealing with its cross-organizational nature. Unlike many investment projects and initiatives, edge strategy does not often come from an established operating function, for example, like a manufacturing plant building a new production line. It is often a nascent activity run by a small group from, say, the marketing team or strategy group. The implementation process tends to touch many different functions: sales, procurement, IT, finance, operations, customer service, HR, communications, but none of whom will own the final result. As such, an edge strategy activation office should be established in order to foster cooperation and engagement from people across the organization for which the goals of the project may not be a day-to-day focus. The office requires a project team with particular skills in building relationships and influencing without direct authority, which is not always present in a traditional project management office function. This approach also factors in the amount of engagement and time for buy-in that should be built into the project timeline.
While activating an edge strategy—as detailed in this book—is far less risky than many growth strategy options, there is always some risk associated with poor execution: what we call “yield loss.” Yield loss occurs when the final solution fails to achieve some of the original financial goals of the project, which happens most often because critical aspects of the project were compromised during activation. To mitigate this, ensure that the strategy activation office retains members of the original strategy development group. By doing this, you ensure that, as challenges arise during implementation or you discover unforeseen complexities, you develop solutions with an intimate awareness and sensitivity to the commercial underpinning of the strategy versus ones that purely prioritize expediency. This explicit inclusion of a strategy perspective throughout implementation is what distinguishes activating strategy from simply project management, and is essential to mitigating yield loss.
Strategies are rarely conceived in their final form. You will inevitably adjust your strategy along the way. This is especially true with edge strategy, given the inherently incremental nature of these opportunities; it is likely that you can push the strategy further once it is launched. Building in an expectation that this will happen—and that the same level of strategic thinking will be in place to support these adjustments, as was the case in the initial development of the strategy—is critical to making the most of your edge strategy.
A structured and metrics-based monitoring and refinement effort should operate for at least the first year after the launch of your edge strategy. Are adoption rates in line with what you expected? Are there any features that are playing particularly well (or poorly) in the market? Are you hitting monthly sales milestones? Are there delivery failures or unexpected cost increases?
As part of the activation phase, the strategy activation office should create goals that will be monitored in the first twelve months after launch. You can use a dashboard that monitors the company’s progress against these goals. Are sales tracking along with your expectations? Are you investing the appropriate amount of resources?
This same strategy activation office should also meet monthly postlaunch to review the dashboard and correct course where necessary. During the first few months that your edge strategy is “in market,” you will get invaluable feedback from customers. Could you tweak pricing to drive adoption in a key customer segment? Has the competitive response paved the way for additional edge strategies? Recall the examples of United Airlines in chapter 6, which was the first to market with checked-bag fees. But shortly after all major airlines started charging for the second checked bag, American Airlines announced it would charge for the first bag too. United was paying attention and was able to respond quickly by introducing a similar policy a few weeks later.
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There are no silver bullets in growth strategy. Nothing is free, and there are few truly untapped market opportunities for most companies. New competitors to your core businesses emerge every day and are constantly probing, seeking to nullify points of differentiation. Your customers are empowered with information and technology to evaluate every facet of your offer and hold you constantly accountable on performance and price. The pace of competition has never been faster, and the market has never been more ruthless at exposing laggards.
Yet, there is a place you can look and a discipline you can bring that should help you unlock incremental sources of profit for your company—a way of finding growth that avoids the win-lose market share game and that is less risky and easier to realize.
We hope this book empowers you with a new, complementary mindset. We hope that it provides you with a powerful new tool to affect your company’s growth potential. All that remains is for you to find your edge strategy.
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