Book Review: Focus On The Core
The authors stress the importance of an edge mindset to identify and exploit opportunities, writes V.N. Bhattacharya
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In the hypercompetitive business landscape today, managers are open to advice on revenue and profit growth. Authors Alan Lewis and Dan McKone provide practical suggestions in this easy-to-read book Edge Strategy.
Opportunities for growth and profit exist at the periphery of every business just as life teems at the edges of oceans. Three types of prospects are most prevalent: at the edge of product, edge of customer journey or mission, and at the rim of enterprise.
Edge of product opportunities occur when a product or service does not fully meet needs of one or more customer groups. Upselling accessories, complementary services, etc., are ways of capturing them. Automobile companies offer extended warranties; laptops can be insured at the time of purchase; and one can back-up important data on one’s computer by buying additional storage on the cloud.
Sometimes, a product or service offers more than the customer desires. In such cases, unwanted features or services can be unbundled from the original offering, thereby reducing cost and making it attractive for price sensitive customers. Unbundling can also help manage unprofitable customers — weeding out those that are especially costly to serve.
Self-service is another approach. By persuading customers to check in online, or pay for extra baggage airlines leverage product edge strategies. iTunes is an excellent example of unbundling. Instead of having to buy an entire album, Apple permitted customers to download one song at a time for 99 cents.
Promising prospects exist at the edges of customer journeys. Firms can gain additional revenue by helping customers accomplish the mission for which the product or service is just one element. The value of accounting software is greatly enhanced when it comes with the facility to prepare and submit tax returns. Taxation software (a complementary product) enables the customer to complete the job of managing the firm’s finances and complying with the tax laws. iTunes enabled customers of iPod, and now other Apple products, enjoy music more by making available a large online collection for downloading. Solution selling is another approach to helping customers fulfil their missions.
Innovative ways of customer segmentation is essential to identify opportunities at the edges of products and customer journeys. Opportunities at the edges of enterprise are more lucrative but complex and harder to exploit. A firm can make better use of its assets, technologies, and capabilities to reduce costs, generate new streams of profitable revenue, or improve margins.
Cane sugar plants burn bagasse, a waste product, to produce cheap energy.
Telecom companies configure their broadband infrastructure to offer corporates secure virtual private networks. Amazon originally invested in large banks of servers to deliver their round-the-clock online shopping service. Later, they developed Amazon Web Services, one of the largest cloud platforms in the world today, so that businesses would not have to build their own. LinkedIn offers free membership to millions of individuals and organisations. Their paid service packages range from talent sourcing to recruiter and marketing services. In the process, they created new streams of profitable revenue and greatly enhanced their market capitalisation.
The authors stress the importance of an edge mindset to identify and exploit opportunities. They highlight its utility in mergers and acquisitions. This mindset enabled P&G-Gillette merger to unlock valuable synergies. Its lack led eBay to acquire Skype with disastrous consequences.
The book does not, however, address the issue that many edge strategies, especially those at the edges of product and customer journey, are imitable. For that reason, most gains of edge strategy are likely to be short-lived. The book is silent on how edge strategy can be made sustainable.
The concept of edge itself is not new. Igor Ansoff (1957) outlined four growth alternatives: market penetration, market development, product development, and diversification. Chris Zook and James Allen wrote about growth opportunities in adjacent spaces (HBR, 2003). Adam Brandenburger and Barry Nalebluff proposed that bundling complementary products or services enhance customer value and make primary offerings more competitive (HBR, 1995). Edge strategies echo these ideas. This weakness is also the book’s strength. The concept of edge combines several frameworks in one approach. The book offers a step-by-step guide on how to implement edge strategy. Rightly, the authors highlight that it is the way of thinking — the edge mindset — that unlocks opportunities.
The writer is a visiting professor in IIMs and a consultant on business and corporate strategy