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 / First Quarter 1997 / Issue 6(originally published by Booz & Company)


How to Stop Bad Things from Happening to Good Companies

More recently, in the computing field, customer decision-making moved from an information technology monopoly to any number of departments and then to individuals. Within the past few years, for many traditional companies, decision-making has been elevated from management information systems (MIS) to top management, as an increasing number of companies outsource their entire MIS operation, fueling a 25 percent growth rate in the outsourcing of data processing. Without clearly understanding how decision-making changes and how fast, value migration is extremely difficult either to predict or to perceive. (See Exhibit II.)

Exhibit II 

The Customer Field of Vision

Lack of Perspective

The closer we get to our business and the more focused we become on executing our current business design, the more we lose the ability to maintain a perspective on our position. This is exacerbated by success, the number of people invested in the old successful business model and their unwillingness to confront the fact that business designs must be reconfigured to serve new realities.

No one disputes the value of facing reality. Yet so often, success affects our ability to hear clearly, to see clearly and to ask tough questions. Leaders who signal an unwillingness to "hear the truth" rarely become aware of what is, in fact, going on. (How many people who actively disagree with current practice get promoted?) Thus, senior managers join the conspiracy to subvert the recognition of market realities, even though "protecting" the C.E.O. is exactly the opposite of what is needed.

Conversely, when "bad things" do begin to happen, leaders frequently try to short-circuit their organizations and immediately confront customers directly. However, C.E.O.'s, except in very small companies, cannot on their own fully perceive value migration and its underlying customer and competitor changes. They need a supple and forward-looking organization working with them.

A Complex, Silent, Yet Measurable Process

As Exhibit III illustrates, in the earliest stage of the process, several enabling factors begin to fall into place. These factors always reflect two common denominators: evolving customer needs and new competitive options becoming available to customers. This needs-and-options interaction initiates value migration.

Exhibit III 

The Value Migration Process


When the factors join (point B), migration begins, but this movement occurs well below the "visibility" line. Inexorably, the process hits critical mass (point C), with the momentum hurling it above the visibility line. Unfortunately for the industry's incumbents, when the process becomes visible it is already often unstoppable.

Although the earliest signals of value migration are difficult to detect, they do trigger measurable indicators that constitute evidence that the process is under way. The diagnostic questions are designed to provide you with these early measurable signals of value migration and to enable you to assess the urgency of the "need to move."

While these questions are straightforward, their effectiveness lies in how they are answered. There is, in fact, a powerful motivation to make biased responses: protect the current system. The usefulness of these diagnostics, therefore, is in direct proportion to the honesty with which the answers are given. We suggest for both sets of diagnostics that:

managers respond to the questions individually;

answers should be quantified as much as possible, to encourage comparisons over time and among different managers;

the individual results should be thoughtfully and vigorously discussed so that they can be integrated into a joint conclusion.

Value Migration Questions: The Need to Move

1) List your most important product and customer service attributes for five years in the future, for today and for five years ago.

Rate each attribute on a 1-to-10 scale of importance (10 being most important). Rate your company on each attribute for today only. Rate each of your "traditional" competitors on each attribute for today. Rate each "nontraditional" competitor for today.

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