Monday, September 15, 2008

Analogy #208: Phone Tag

Who invented the telephone? Well, that depends on your point of view. Conventional wisdom is that Alexander Graham Bell invented the telephone in 1876. He has the patent to prove it.

However, in the recent book The Telephone Gambit, author Seth Shulman makes a compelling case that Elisha Gray invented the telephone. The book claims that Alexander Bell had gone to the patent office and seen some of Gray’s superior work on the phone. He then supposedly copied the work and got the patent hours before Gray tried to do the same.

Then again, in June of 2002, the US government officially declared that Antonio Meucci was the inventor of the telephone. Meucci had a working telephone as early as 1848 and a perfected version by 1871, years ahead of both Bell and Gray. Because Meucci was destitute, he could not afford the $250 fee for a US patent, so in 1871 he filed a one-year renewable notice of a pending patent. Three years later, in 1874, Meucci could not afford the $10 fee to renew the notice, so it lapsed. Had Meucci paid the $10 for the renewals, Bell would have never been granted his patent.

And then there are others with varying degrees of legitimacy to their claims to have invented the telephone. These names include Johann Reis, Innocenzo Manzetti, Charles Bourseul, Amos Dolbear, Sylvanus Cushman, Daniel Drawbaugh, Edward Farrar and James McDonough. For some background on the controversy, you can look here, here, here, and here.

In the end, I guess it doesn’t matter so much who invented the telephone as much as who was able to harness that knowledge and become the driving force behind making the telephone the important invention that it was.

Coming up with a great invention is a lot like coming up with a great business strategy. One can become excited about dreaming up a great strategic positioning, but that claim isn’t worth much if you aren’t able to exploit it.

Gray and Meucci may have had greater claims to the invention of the telephone, but Bell was the one who got to exploit it. Meucci died in poverty...Bell became enormously wealthy.

Great strategic positions, like great inventions, are not always in abundance. It becomes a race to see who can get the opportunity to exploit the good ones first. Bell beat Gray in the race by a few hours. Those few hours made all the difference.

The principle here is that it is not enough to just come up with a great strategy. You also have to win the race to execute the strategy and get credit for it in the minds of the public. I call this part of the strategic process “pursuit.”

In the last blog (see “Eight Questions”) we looked at the eight questions to ask when trying to invent a great position. In this blog, we will look at the three steps one must take to pursue and win with this position.

To win and hold a position, one must defend it from those who would like to take that claim away from you. One way to stop them is to prevent them from any opportunities to establish a beachhead. In other words, if you can prevent them from having any openings to grab for staking a claim, then the only one who can claim the position is you.

To close these openings, one needs to quickly fill the market to capacity. This means getting your business into all places, all platforms and all potential as soon as feasible.

All Places: For example, if you start up your business in one country, as soon as you are ready try to go international. Otherwise, someone might come up with a similar strategy in another country and use that as a base to eventually fight you in your own country. Wal-Mart became what it is, because Kmart and the other discounters ignored the rural markets. By not filling rural markets to capacity, they left an opening for Wal-Mart back in the 1970s, which it used to build a power base to conquer the rest of the US. And now they are rapidly going international.

All Platforms: If you start your business in the physical world, eventually move it to the digital world (and vice versa). Any platform you do not conquer becomes available territory for someone else to conquer and use against you. Even in the digital world, there are various platforms like laptops, mobile, etc. AOL was the master of the slow speed dial-up world, but missed out on the high-speed platform. It lost its position and has not been able to catch up.

All Potential: Just being in a place or on a platform is not enough. You need to soak up as much of the market potential there as possible. Look at Starbucks. It didn’t just build a few coffee shops here and there. It saturated the markets, soaking up as much of the potential as possible, by building in every conceivable location. This allowed Starbucks to really grab ownership to the concept and not leave room for anyone else to profitably build another large chain. The capacity already belongs to Starbucks.

To summarize, if you want to own the capacity for a position be first, be fast and be full.

Strategic positions are built on tradeoffs. You excel at certain attributes by playing down others. For example, if you want to win at convenience, you may do things which keep you from being the low cost leader. That’s fine, as long as you can find enough customers who are willing to pay a little more for your convenience. The trick is that whatever you choose to emphasize in your position, you need to do it so well that it is worth people trading to you.

Whatever the capabilities are that create excellence in this area, you need to race to stay ahead of the crowd in getting these capabilities. New advances keep pushing the envelope, so what was excellent yesterday may be sub-standard today.

Therefore, you need to do two things:

a) Shore up any weaknesses you have in your capabilities to deliver on your promised position. This could include expertise, infrastructure, technology, human resources, or whatever.

b) Push the envelope by being innovative in the area most critical to your position. Stay one step ahead of the others in defining the new frontiers for your position.

Apple understands this concept. They want to excel at the attribute of having “cool technology” so they do whatever it takes to have greater capabilities to do so than anyone else. They are the best at cool product design. They built their own distribution channel in order to control the “cool” buying experience. They keep pushing the envelope on design and rapidly introduce upgrades and variations, so that no one else can leapfrog and become cooler. They even found a way to inject superior “coolness” into the advertising. Apple continually ensures that it has the capability to deliver on all fronts on this attribute.

3) CAPTURE (of Customers and their Cash)
It does little good to win on capacity and capability if you cannot translate it into cash. You need to connect it to consumption that people are willing to pay for.

Part of this has to do with bonding well to the customers most likely to enjoy your position. The more you can bond with these customers, the more likely they are to spend lots of money with you. If you look at a lot of the admired companies of today, like Apple, Starbucks and Google, you will see that they have amazingly loyal advocates for their brand. This strong brand loyalty makes them very receptive to your new offers and less likely to patronize others.

Today, one of the ways to increase this bonding is to include the customers more fully in the way you run your business, such as being included product design and marketing. Loyalty clubs are another tactic.

Another point to remember is that positions can be doorways to new product offerings. The more you have to offer, the more you can sell. Take, for example Kaplan. It started out as a tool to help people pass college entrance exams. However, because it gained such a strong position in the education space, Kaplan was able to grow into a multi-billion dollar education business, including even the selling college degrees.

By levering your customers and your strengths, you can take your position into profitable places you may not otherwise have been able to reach.

Once you have a chosen position, there are only three things you must do to optimize your potential with that position: soak up as much capacity as you can, build up the capabilities to deliver as well as you can, and capture as many customers and selling opportunities as you can. The strategic planning process then is the act of choosing how to prioritize your actions in these areas, so that at any given time you have a manageable and achievable work load.

The race was not over when Alexander Graham Bell got the patent for the telephone. He had to continue to pursue to create the business which allowed him to reap the benefits of the invention. The race is never over. The day you think the race is done is the day your prospects for future success are done.

No comments:

Post a Comment