How do I create a new strategy

One challenge new GMs will we face is how to build a strategy or reposition a business with a new strategy. Let me tell you a story.  I was in San Francisco with some customers, flying to Las Vegas, booked on Southwest Airlines.  As usual we milled around the departure gate, like you did then, waiting to board, having never flown Southwest.  We wondered why people were patiently standing in lines in various corralled areas. Then we realised NO DESIGNATED SEATS. Passengers were let on board in these groups ready to fight for the bets seats. We quickly joined the a group and marveled how quickly the plane was boarded. Wow so fast! We left early and arrived early. I was impressed.

The foundation for Southwest Airlines was fast turn around, and low-low prices with a nice crew and a fun on-board environment. No food, no drinks- ah we didn’t need on a 2 hour flight.

Let me then take Southwest Airlines as an example as we discuss strategy.

I’m not one to complicate processes, so here’s my strategy development process, 5 simple questions to get your strategy right; “where are you now”, “where do you want to be”,” how can you get there”, “who must do what by when”, and “how will you know when you have arrived”.  Simple right- but sufficient for you to develop a strategic plan.  I’ll be using Southwest Airlines as an example here.

Beyond that, the thinking about how you can get there, needs an investigation of four elements.

  1. What’s the Contextual Environment like- what’s going on in your industry, what are the trends, what are the real key success factors in your industry and what SHOULD you be doing to succeed… you’ll end up with a laundry list.  For example in the Airlines industry the rise and fall of Oil pricing has had a great impact, as had increasing Government regulation.
  2. Consider then Customer Needs – within your industry create a list of your target Customer needs, the features/benefits that they are seeking from your product or service. Consider what’s relevant, distinctive and valuable.  Again back to the Airline Industry- what do people want, well cheap airfares (if you are in the low-fare target customer segment), on time arrival, maybe lounges, food on board, designated seating etc
  3. What do you offer now- list all the features/benefits of your product/service. For example with Southwest Airlines- cheap prices, on time arrival, free bags, no designated seats, no food on board.  You can also think what you could offer… but lets get back to that later, once we assess competitive offers.
  4. Finally, consider what your Competitor Offers – again a list of the key competitors and what they offer their customers.

Then we can draw this Venn diagram

Competitive landscape

Simply put, your strategic focus should be on the elements that Consumers really value highly, and that you offer (or could offer) and that your competitors don’t.

The next step needs some external validation- some research on what your Customers really value. Not just what they say they like, but elements that customers are willing to pay for, pay more for, and even change products or services to get.

Then we can create a simple Competitive value-offering graph. like this from Southwest Airlines.

SWair competitive offering

On the horizontal axis are plotted the features that customers could value, that you offer and competitors offer.  On the Vertical axis it notes the level at which you and your competitors offer these features.

This map compares typical airlines, with Southwest airlines, with the family car- as Southwest’s positioning was to offer the speed of a plane with the price of a car. They saw that the family car was a real competitor to their short haul business, as well as competitive airlines.

As you can see, the competitive airlines try to be all things to all people, offering a range features they believe customers desired, but ended up just being average about all of these.

Southwest Airlines, really understood both their positioning and their customer, and identified through their research that some of the features they could offer, were not valued by their price conscious short haul customers (lounges, meals, seating choices).

Meals, lounges, seating choices, were nice-to-have features for customers, they would say they liked them, but when it came to the crunch and paying for these elements they didn’t feature. So Southwest Airlines rigorously cut these out in their short haul offering. They knew customers valued three things;  LOW prices, high speed and frequent departures.  These were the relevant, distinctive and motivating features their target customer would choose from and value. Southwest focused on these and built a resilient and very profitable business serving these customers and their needs.

 

So how can you use this type of thinking in your business.

The foundation of great strategy is an indepth knowledge of your customers real desires, as well as a deep understanding of what your competitors offer and what the critical success factors are in your industry.

Then, in considering how to flex your strategy, apply the following four simple questions to developing your new strategy, your new value offering, for your customers.  In using this approach, the essential success factor is really understanding what your customers really value, what they really desire and they they are either willing to pay more for, or to switch to you (or remain with you) if you really offer these.

 

creating a new value offering

 

So lets apply this thinking to Southwest Airlines offering in 2012.  Compared to traditional airlines Southwest has

ELIMINATED – lounges, designated seats

REDUCED – food and drink (only peanuts and water)

RAISED – on-time arrival performance, consistently low pricing, free check-in luggage

CREATED – fun on-board culture, responsive customer service

Of course this value-proposition WON’T appeal to everyone, And as long as there are more customers than plane seats Southwest Airlines will continue to make money.

A fundamental learning, is that you can’t be all things to all people, you really can’t make money by trying to offer a little of everything- success comes from a focus on what customers really think of as distinctive relevant and motivating.

These two diagrams can show you how you can be targeted on what your customers really desire, and enable your performance to improve.