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(originally published by Booz & Company)

Strategy & Leadership: The Essentials from Booz & Company

Billion-dollar Ideas: Finding Tomorrow’s Growth Engines Today

The power of this lens derives from the fact that the products and technologies that will generate the new growth are already in hand. Often the company already has a competitive advantage and recognition in the market by virtue of its existing products — many of which are proprietary. All that is necessary is to deploy them in new ways.

Church & Dwight Company, the household products manufacturer that owns the Arm & Hammer brand, broke out of its bicarbonate-of-soda cleaning niche when it tapped into the consumer demand for nontoxic products and started promoting baking soda as an odor-eating air freshener. Today, Arm & Hammer–branded products include baking soda–based toothpaste, laundry detergent, underarm deodorant, and kitty litter freshener. General Electric Company’s Ecomagination initiatives are similarly capturing a variety of new revenue streams and profits by meeting green demand for products with lower carbon and toxic footprints in both industrial and consumer markets.

4. Distinctive Capabilities

In their book The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010), Paul Leinwand and Cesare Mainardi argue that every successful company relies on a group of three to six mutually reinforcing distinctive capabilities, that enable it to create and execute corporate strategies that competitors cannot easily meet or beat. For example, Walmart’s capabilities — which include aggressive vendor management, point-of-sale data analytics, superior logistics, and rigorous working capital management — have enabled it to pursue a low-price/high-volume strategy that no other retailer has matched. The core question associated with this lens is, How can we use our own distinctive capabilities to create new offerings for our existing markets or enter new markets?

Distinctive capabilities are those that have been invested in and refined, so that they provide an extraordinary competence that other companies cannot master. This sets them apart from “table stakes”: capabilities that are required to do business, such as facilities management and tax management, but which do not necessarily distinguish the business. One example of a company that built its expansion around distinctive capabilities was an explosives manufacturer with a hard-to-replicate proficiency in carrying dangerous products long distances to remote mining sites. The firm extended its business operations to carrying hazardous waste for a much larger set of customers.

Similarly, a rail construction firm that had developed a unique capability in overhead wiring redefined its market several times by competing in the electricity transmission and distribution market. A building company with a well-honed project management capability, enabling it to complete jobs on time and on budget, extended that capability into a business managing sporting events. The company’s leaders saw that managing Formula 1 auto races requires extensive track preparation, installation of safety fencing, and construction of temporary stands within tight time frames. All these needs are similar to those of construction project management.

Looking through the capability lens, one can often conceive of chains of successful products that open new markets and win new customers. One of Apple Inc.’s key capabilities is its ability to achieve seamless integration of diverse functionalities in its digital devices. This skill led to the iPod, the iPhone, and most recently the iPad — a chain of products that has driven Apple’s growth to new heights and taken the company far beyond its roots in desktop computing.

5. Business Models

The business model lens focuses on how modifications or format shifts in a company’s business model can fundamentally alter the established customer value proposition in a company’s favor. This can enable your company to increase its margins, offer products at a lower price point than your competitors, or gain market share. The core question associated with this lens is, How could we change the way we serve our customers to increase both our profitability and customer value?

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