Almost a year ago in this blog, I reviewed Strategy Rules: Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs. As a legendary CEO (of Intel), and all-round godfather of Silicon Valley, I found Andy Grove’s thoughts on strategy provocative and promised myself time to study him more once workload allowed.
Strategy Rules highlights five rules great strategists live by:
- Start with a vision of where you want to go and then define it in great detail
- Think big. Make bold bets that can change the game, but don’t bet the company.
- Build platforms and ecosystems NOT just products
- Consider the tactics required to deliver
- Spend time planning your execution
Sadly Grove passed away a couple of weeks ago – in that light, it feels the right time to take a closer look a classic strategic plays from him, one that cemented his reputation for all time in the corporate world.
Grove worked closely with renowned Harvard Business School Professor Clayton Christensen. Christensen is best known for the theory of Disruptive Innovation, a concept Grove thrillingly deployed at Intel – most clearly in these three moves:
- RAM made Intel a fortune. The thought of shifting focus to microprocessors was madness to most conservative corporates… Grove could see increasing competition from Japan would decimate Intel’s profitability in the mid-long term. He spent three years (yes, three years!!) badgering the board to shift focus, so strong was his conviction and passion. In the end, he was right.
- Once he shifted Intel, he then committed them to a piece of marketing genius – the ‘Intel Inside’ Before this, consumers never stopped to think what was in the machine – by the end they cared as much about Intel components as they did the brand they were buying.
- Finally, back in the late 90s, he was one of the first tech innovators to cannibalise his own product line, launching the low-end processor ‘Celeron’. Now ubiquitous, at the time this was a move of breathtaking audacity.
Although each of these moves show serious chops, it’s Celeron that most impresses me. It’s particularly instructive at a time when it’s fashionable to propose cannibalising your own revenue… usually with no idea how or why.
Employing a cannibalisation strategy means successfully arguing the “do nothing” strategy will make things worse. It takes conviction to promote a strategy that actively proposes lower returns than those currently enjoyed.
To build this case you need a clear vision of your market’s future along with the bravery to challenge that reality – value is always temporary, and someone somewhere is always surveying your monopoly rents and hatching ways to survive on a fraction of them.
Rather pleasingly, this spirit of Celeron is alive and well here in NZ. Here are a couple of my favourite examples:
- Way back in 1995, Air NZ confronted the competition of Kiwi Air with the launch of Freedom Air. Freedom Air deliberately played with the customer value equation to protect the premium Air NZ brand… yes, it was cheaper, but it flew from secondary airports and focused on no frills to appeal to a cost conscious customer. High-value customers hated the inconvenience, and in refusing to trade down, protected margin – keeping both customer segments on the Air NZ network.
- More recently Spark has launched Skinny, a no frills (prepay-only) mobile offering designed to target 2Degrees. I like the Spark strategy. They have clearly segmented the market and moved the Spark brand to the high-value segment, offering add-ons such as Spotify and free Wi-Fi. Skinny has now become the entry-level proposition.
Key Takeaways
- Talk is cheap. It’s easy to say you’re going to cannibalise your own business… do you really believe it? And are you prepared to build a case for it?
- Strategy Rules’ five guidelines can help you define the look of your future, strategy rules will define your future’s look, focusing your mind on the real impact of “do nothing”
- Right now someone is looking at your business, working ways to replicate it on lower margins and destroying your value…
