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May 14,2021

Target Conditions

Target Conditions

Target Conditions

Target Conditions

We all have ideas. It would be unique if some didn’t spawn ideas as some promote that they just aren’t creative people. From the CEO to the Mail Clerk, ideas are abundant. Unfortunately, most are suppressed due to the caste system that organizations inhibit.

This parable is mirrored in history during the Dark Ages. Growth and innovation stagnated for a thousand years after the fall of Rome. Many believed that all the important knowledge had been uncovered and power dynamics kept great minds from pushing the boundaries of knowledge. This happens in companies too.

Sports Replicating Strategy

In American Football, the team on offense has four attempts to move the ball ten yards, where they will then gain another four opportunities to go an additional ten yards. There is a situation that occurs when on first down if significant yardage is gained resulting in a second down with two yards to go. Conventional wisdom has always called for teams to run the ball to gain the remaining yards to receive a new set of downs. This is considered a low-risk option.

The Green Bay Packers, however, typically throw the football on second and short scenarios, more than any other team. This is considered a higher risk option. They also, gain the most yards than teams that go out of their way to run on second and short. The Packers gain on average 14.2 yards on second and short scenarios which is two times more than the second ranked leader They are doing something intelligent instead of something bold with minimum consequences.

Similarly, golf is known as a game of control and risk mitigation. Bryson DeChambeau bucked the trend of accuracy and focused on power. Wanting to maximize the distance of his drives, he routinely out hit his competitors by fifteen to thirty yards farther. This distance comes with decreased accuracy but puts him at an advantage of closeness to the hole. While his golf game has been boom or bust in overall performance, it did lead to his winning of the treasured 2020 U.S. Open. His advantage of understanding how his opponents approach game conditions and going against conventional norms.

Designing the Decision Process

At this point in the strategy process, you have identified hundreds of possibilities and ideas. You proceeded to narrow them to a handful of great ideas. Instead of picking the winner without data, my process calls to run experiments to see which one works the best. This gives the power to make a more informed decision.

First you decide what market conditions to experiment with. The desire is to replicate what will happen to give the best insight on how your strategy will be received. This is very similar to the test stores that Walmart and Target operate where they make subtle changes in the store to observe how customers react to them.

During this design process your team will be forced to think through market conditions and how to control the conditions or shape the battlefield. A.J. Lafley believed there were six signs of winning conditions. Being different from all competitors, selecting the right customers, allowing room for competitors, having more resources than competitors, a market where competitors attack one another and not you, and being the innovation leader.

To Test or Not to Test

Throughout my career I have observed several organizations that either want to test all their ideas to become saturated in data, or they want to skip testing all together and jump to the strategy they know is the right one. Testing takes time, money, and resources to execute. However, it saves money in the long run. Additionally, there may be a barrier to entry into the new market with a large capital investment. If you can test the waters prior to paying that upfront investment, you’ve just enhanced your risk profile.

For example, vertical integration is a popular strategy. While being very effective, it can also be costly and complex. Creating economies of combined opportunities, obtaining control and coordination, your organization can mine more information, and achieve greater stability. However, vertical integration creates mobility barriers, reduced flexibility, and increased capital investments. This is where testing vertical integration prior to full implementation is so valuable.

Testing markets on past performance is data rich. Testing in pioneering becomes very difficult as these are new markets with no available data. The one given is that Pioneers expend excessive resources to defend their market shares. Meaning if you are testing a market it will show you right away if it is an occupied market and who is willing to defend it. Testing can also show if no one defends your market test, that it truly is a pioneer market or a market with treacherous conditions.

Testing the Plane While Flying

As you start to design your strategic tests you need to grasp the market conditions. I like to use the CARVER Analysis to gain a better understanding of what impact my actions will make and what my dependencies are. Developed by the United States Army Special Forces during the Vietnam Conflict, the matrix was designed to rank targets to use your resources most effectively.

You begin the analysis by outlining your targets or strategies. Then each target is evaluated with a ranking of 1 to 5. First evaluated is criticality, how essential is this target to your competitor and what impact does it have on their business. Second is accessibility or how exposed is the target to the outside. For example, a vertically integrated company is less exposed whereas an organization dependent on many vendors is highly exposed.

Recoverability is the third area of evaluation to determine how long it would take your competitor to get back to normal after being targeted. The fourth evaluation is vulnerability to attack based on how exposed they are compared to the capabilities of their competition. The fifth evaluation area is the projected effect of actions and what their impact would be. Lastly, the analysis focuses on recognizability and if your competitor would recognize an attack.

CARVER Matrix In Action

For example, using a hypothetical situation of two local grocery stores that are competing for market share. Company A plans on attacking Company B by using cost leadership of having the best prices in town. Performing the CARVER matrix, they recognize that Company B’s customers are price conscious, and that price is a criticality of 5. Company B has an online ordering system that publishes its food prices and then scores a 5 for accessibility. It is believed that Company B would be able to adjust prices quickly and could recover quickly earning a score of 2. Also believed that 75% of the customer base of Company B is price conscious instead of brand loyalty scoring them a 4 in terms of vulnerability.

The actions project that a price strategy would have an impact of 4 on Company B’s business and that they would immediately recognize the strategy. Overall, the cost leadership strategy scores a 21 out of a possible 30. The intent of the CARVER Matrix is to give a baseline understanding of the conditions for what to expect of strategic moves. It helps set the hypothesis for testing while identifying the conditions. While not a necessary step to testing, it helps refine your design of experiments.

Best Practice Testing

When setting up a design of experiments to test your strategies, be sure to incorporate external perspectives. A default is to move fast and only use an inside view. Little explanations are needed with insiders and the tendency is to ignore pertinent data and believe that their situation is unique. This drives the test into false confirmation and degrades the value of the process.

Another natural tendency is to want to prove that you are better, smarter, and faster than your competitor. This leads organizations to attack their competitor’s strengths. That bravado typically leads to lost capital and ego. Most effective tactical strikes have come from indirect attack using the conditions of your advantage. Here you can pit strength against weakness, where true concentration is the fruit of calculated dispersion.

Use your testing period to play the field. Probe to understand your competitor’s least fortified approach. Then choose the course of least expectation. This gives you a market to run wild with.

Transitioning to the Digital Age

The Eastman Kodak Company came to life in 1892 bringing with them the commercialization of the photograph. Later known simply as Kodak, they ruled the photographic film industry. In the 1976 Kodak owned 90% of film market share and 85% of camera market share.

Known for their innovative culture, Kodak invented the digital camera in 1973. However, they thought that it would disrupt their print business too much and shelved the idea. It wasn’t until 1988 when Nikon released the first digital camera and eventually change the industry forever.

Kodak unfortunately had not kept pace with the technology and lagged significantly behind as the marketplace shifted towards digital imagery. In 2012 the firm filed for chapter 11 and has never been the same. By strategically testing a digital camera and designing the right market conditions in 1976, Kodak wouldn’t have been able to commercialize the industry yet, but they would have been able to position themselves for the future by slowly disinvesting in print and shaping the digital market.

References

Market Share-A Key to Profitability

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