Strategic conversations should revolve around three questions:
- Where to play
- How to play
- How to win.
These three questions form the essence of crafting your strategy. Other questions like, 'what are our aspirations and objectives', 'what’s the sequence of our moves', or 'what resources do we need' etc., focus on execution and can be answered after you’ve worked through the first three.
Now, answering these questions can be approached from various angles.
The Traditional Way
Traditional strategy theory would have you think about industries, and product market combinations when it comes to answering ‘where to play’ for example. Tools like Porter’s Five Forces or the Ansoff matrix help to focus and visualize your discussions.
When it comes to ‘how to play’ my experience from working with executives and facilitating strategy processes, is that many conversations focus on how to better satisfy the best customers, how to improve existing products, sell more of the same, or how to achieve cost reductions and higher efficiencies through what we might sum up as operational excellence.
The ‘how to win’ discussions mostly revolve around how to lower the price or differentiate, in order to beat the competition.
As important as these traditional approaches might be, if your strategic objectives are new growth (especially outside your core), innovation, and intrapreneurship, walking the traditional path will not lead to any new destinations.
The New Way
In 2012, the leading German TV media company, ProSiebenSat.1 (Pro 7), set itself the objective to grow revenues by 1 billion Euro, from 2.4 bn to 3.4 bn, within five years. The question was obviously where this 1 billion should originate from. After years of consolidation, the German TV market is dominated by two players, Pro 7 and RTL. TV advertising is bought by large agencies and companies like Nestlé, Proctor and Gamble, Unilever, and the like, which have a high amount of negotiating power and often buy advertising minutes at heavy discounts. Moreover, the amount of advertising minutes that TV companies are allowed to broadcast on average per hour is regulated and limited by law in Germany. So acquisitions, raising prices, or selling more of the same, were no options.
Where to play: Instead of thinking about existing customers, Pro 7 asked itself, who is not buying TV advertising and why not? The answer: Startups and small and medium enterprises (SMEs). Why don’t they buy? They usually don’t have the money. If they have the money, they don’t want to spend it on something like TV advertising with an uncertain outcome. And even if they were interested in buying TV advertising, they didn’t have the experience and skills to plan and execute a TV media campaign.
How to play: Instead of simply thinking about how to make the existing product, TV advertising, available to startups and SMEs, Pro 7 took a more holistic approach, thinking about the products, services, the customer experience, but also the business and revenue models required to turn these noncustomers into customers, while at the same time making sure Pro 7 would not sacrifice its margins. The initial answer was to give away advertising minutes for free and in turn receive a share of the revenues created by its advertising. Along with this new revenue model, Pro 7 took care of media strategy and planning, spot production and execution, offering the new customers a holistic customer experience. Since its origins in 2012, the model has evolved into media-for-revenue-share and media-for-equity, making Pro 7 the first company in the world investing with its media power into startups.
How to win: The change in the revenue model occurred only after some time. The initial media-for-revenue-share model made a lot of sense for the customers, but not for Pro 7. Only after offering media-for-equity did the new strategy create value not only for the customers, but also for Pro 7, and other equity partners, who had complained about the revenue-share model, as Pro 7 was taking cash out of the business.
So in other words, Pro 7 asked about noncustomers and what their barriers to consumption where; it took a holistic approach towards how to play, crafting a comprehensive offering, business model, and revenue model; and it thought about how to create value not only for its customers, but also itself, and its ecosystem partners.
How well did the new strategy work? After an initial couple of months of designing and testing, the new business area quickly turned a profit of 20 million Euro, which led Pro 7 to launch a new company, dedicated to this customer segment. At the end of 2015, Pro 7 announced that it had achieved its +1 billion revenue target already (three years ahead of the original deadline!), and increased the 2018 target to 1.85 billion. A year later, the target was again raised, this time to 2.15 billion Euro. When was the last time your company had to increase revenue targets because the strategy was working so much better than expected?