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Ideas and Strategy

Ideas and Strategy. PRESENTATION TO DUKE BUSINESS PLAN COMPETITION PARTICIPANTS. Kevin Coyne, McKinsey & Company. December 1, 1999. Today. Developing an idea Assessing your idea Describing your strategy A couple of wrinkles. Developing an idea. Why brainstorming usually fails

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Ideas and Strategy

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  1. Ideas and Strategy PRESENTATION TO DUKE BUSINESS PLAN COMPETITION PARTICIPANTS Kevin Coyne, McKinsey & Company December 1, 1999 AT-CZG002-120199Coyne-MSTR

  2. Today • Developing an idea • Assessing your idea • Describing your strategy • A couple of wrinkles AT-CZG002-120199Coyne-MSTR

  3. Developing an idea • Why brainstorming usually fails • 3 frameworks • Product trees • 4 killer questions • The 5Cs model AT-CZG002-120199Coyne-MSTR

  4. Product idea tree • Creative bundling to eliminate complements • . . .radically modify existing products • Radical distortions of key value equation components • Unexpected users • New uses for existing products • Heavy users • Search for killer product ideas by exploring opportunities to . . . • . . . generate radical increases in existing product sales • Potential users blocked by one obstacle • New users for existing products • Potential users who differ in one way from current users • New ways to meet existing needs • . . . develop new products • Stimulating new needs AT-CZG002-120199Coyne-MSTR

  5. Product idea tree • Question • Existing example • Potential idea • What would it take to make my product at half the cost? • Southwest Airlines • PC clones • 6 packs of single-use, lightweight, disposable umbrellas • Can I reduce by half or double my distribution cost? • Personal shopper • Mail order • Discount realtors • Could I offer my product at 5 times the cost if it had greater feature/function? • Premium ice cream • A bank with home cash delivery • Radical distortion of key value equation components • Could I double my product depth or cut breadth in half? • PetSmart • Baby Superstore • Home decorator superstore • What input, if reduced by half the cost, would allow me to cut my price 20%? • Zinc in batteries • Low-rate credit cards for high credit rating • Industrial pawn shop for small business lending AT-CZG002-120199Coyne-MSTR

  6. 4 killer questions • 1. What is the biggest hassle about this product? • For what subgroup of users . . . • For what subgroup of usages . . . • Etc. • 2. What do the Batman movie, roller blades, and Ben and Jerry’s have in common? • 3. How would I do things differently if I had perfect information? • 4. Where are the search, order entry, and tracking costs a large percentage of total costs? AT-CZG002-120199Coyne-MSTR

  7. The 5Cs model • Price • 3 • Capture surplus from customers • 4 • Create new demand • 2 • Concentrate surplus from channels • Retailer • Costs • 1 • Compete for surplus • 5 • Cooperate to capture surplus • OEM • Costs • Client • 2 • Concentrate surplus from suppliers • Raw material suppliers • Costs • Volume AT-CZG002-120199Coyne-MSTR

  8. Today • Developing an idea • Assessing your idea • How powerful? • How large? • Describing your strategy • A couple of wrinkles AT-CZG002-120199Coyne-MSTR

  9. Invent: create a new standard • Create a new standard of performance that previously was not recognized as important but becomes one of the critical buying factors for a target market • Innovate: radically improve an existing important standard • Accelerate pace of innovation in a critical performance dimension by 3-5 years Performance enhancement • Unique performance AT-CZG002-120199Coyne-MSTR

  10. Price-based value propositions must offer extreme discount to market Percent below competitors • Home Depot 20 • Amazon 20 • Staples 50 • Retailers • Office Depot 50 • Old Navy* 20-50 • CompUSA 20-80 • Dell** 40 • Average price discounts of 30-45% • PC manufacturers • Gateway** 50 • Commodore 40-50 • America West 30 • Airlines • People Express 50-70 • E-Plus 15 • Orange 20-30 • Telecom • Mobilcom 30-50 • Other • Iomega Zip Drive 60-70 * Compared to The Gap ** Compared to IBM and Compaq AT-CZG002-120199Coyne-MSTR

  11. Estimating market size • Primary effects • Secondary effects AT-CZG002-120199Coyne-MSTR

  12. Today • Developing an idea • Assessing your idea • Describing your strategy • A couple of wrinkles AT-CZG002-120199Coyne-MSTR

  13. Communicate • Deliver Describing your strategy • A strong business concept . . . • . . . driving a reinforcing business system • Where to compete • How to compete AT-CZG002-120199Coyne-MSTR

  14. Where to compete • Product range • Target customers • Channels • Geography AT-CZG002-120199Coyne-MSTR

  15. How to compete • Sustainable competitive advantage • Value proposition • + • “The compelling reason why the target customer should buy your product instead of alternatives” • “Why competitors cannot copy you once it is obvious you are succeeding” AT-CZG002-120199Coyne-MSTR

  16. Reinforcing business system • Communicate the value • Provide the value • Sales message • Adver-tising • Promotion, PR • Design product, process • Procure, manu-facture • Distribute • Service • Price AT-CZG002-120199Coyne-MSTR

  17. Today • Developing an idea • Assessing your idea • Describing your strategy • A couple of wrinkles AT-CZG002-120199Coyne-MSTR

  18. How valuable is the first mover advantage? • Real value • Absolute resource scarcity • True network externalities • False value • “Controlling the space” AT-CZG002-120199Coyne-MSTR

  19. 4 primary models exist for rollout • High • (“Big bet”) • “Big bang” • “Blitzkreig” • Establish presence in many local markets simultaneously • Target relatively large percentage of national market from the outset • Levels of rollout aggressiveness • “Sneaky scaler” • “Serial replicator” • Establish presence in local market or region, then move onto the next • Initially target small percentage of national market, then attempt to increase scale • Low • (“boot strapper”) • Replicator • Scaler • Natural business scale • Local • National AT-CZG002-120199Coyne-MSTR

  20. Determine level of rollout aggressiveness through careful balance of strategic and operating risk • Strategic risk • Function of • Extent of “crowding” – how close are your competitors? • Scale advantages – when you do run into competition, how much scale/market capture is necessary to win? • Capturing scale resources – are there a limited number of key scarce resources (e.g., scientists, store locations) that you must capture? • Operating risk • Risk • Function of • Management capacity • Capital available • Ability of company to replicate skills • Physical availability of scarce resources • Quality of management decision making • Velocity of growth (in a given year) AT-CZG002-120199Coyne-MSTR

  21. CONCEPTUALCATEGORY/KILLEREXAMPLE • 0 • 1 • 2 • 3 • 4 • 5 • 6 • 7 • 8 The combination of these two provides direction on the aggressiveness of rollout • With low strategic risk, company can afford to open optimal number of stores from operating risk standpoint • Strategic risk scenarios • But as strategic risk increases, companies • will be forced to increase expansion to a straining point in a “big bet” • Risk • Velocity • Number of stores added in that year AT-CZG002-120199Coyne-MSTR

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