The New Imperative – Managing Dual Value Propositions
When it comes to answering the all-important strategic question of "What is our value proposition?" I’ve always believed any private, public sector or nonprofit organization should choose one of three possibilities: operational excellence (resulting in low costs), product leadership (best product, often achieved through constant innovation), or customer intimacy (best service/best relationship). This rationale, one shared by many experts, is that focusing on more than one at the same time will lead to contradictory investment choices, misaligned processes, and ultimately produce a fog of confusion over your employees and customers who don’t know what the company stands for.
A discussion of this topic appears in each of the Balanced Scorecard and Strategy books I’ve written, along with many of the articles I’ve penned over the years, and it sometimes occurs to me that the appearance of such opinions in print transforms and empowers them from mere words to a truth that is unquestionable and unyielding to change. Such is the power of the printed word. But, as we’re all well aware, the world of business is changing, and my views are evolving along with it, including my feelings on value propositions. Might ‘dual strategies,’ now be an imperative for all organizations?
Those offering premium products and services can no longer expect a recession-weary public to line up, cash in hand, for their latest wonders. History has demonstrated that many people trade down to lower-priced options in tough times, and increasing numbers will maintain that stance even as economic conditions bounce back. Companies providing high-end offerings must now discover ways to serve the middle and low-end of the markets or risk being overlooked in favor of competitors who frequently offer a ‘good-enough’ alternative at a more attractive price point. Conversely, firms relying on low costs to rally purchasers to their doors are finding it more and more difficult to compete with global competitors who are introducing innovative business models and employing new technologies to slash prices and margins ever lower. As the forces of change - among them globalization, lower barriers to entry, new business models, and the growing prominence of emerging markets – continue to gain momentum, adopting a dual strategy may prove to be a necessity.
Beyond its role as a new business imperative, the adoption of a dual strategy can also signal a recognition of the duality present in all things – what Chinese philosophers term yin yang. This ancient concept suggests that polar or seemingly opposite forces are in fact interconnected and interdependent parts within a greater whole. Here in the West we tend to consider the pursuit of dual strategies an exercise in contradiction, and fail to see how the two forces can be reconciled. Not surprisingly, however, Asian companies are more open to the possibilities presented by dual strategies as the underlying philosophy is embedded in Eastern thought. As changes in the business world continue to shrink our once incomprehensibly large world, it will be important for all companies, regardless of where they find themselves both geographically and philosophically, to welcome this concept. Let’s look at three companies that are doing just that.
Conde Nast Traveler has chosen a World’s Best Airline twenty-two times. Twenty-one of those times the recipient has been Singapore Airlines (SIA). Everything about this exceptional carrier, launched in 1972 and yet to post an annual loss, shouts differentiation: from the exceptional customer service resulting from an industry- leading four months of training for new hires to the widest seats in business class, SIA offers a five-star experience in every aspect of its operations. What you may not know, however, is that SIA is also a cost leader, boasting a cost per available seat kilometer (a key industry metric) of 4.58 cents, besting that of most European and American budget airlines. SIA balances service excellence and low costs by employing a relatively simple practice: invest heavily in all those things that touch the customer, while employing diligent cost control on everything customers don’t see. Often, these forces work in tandem to produce benefits for both customers and the company. For example, SIA operates one of the youngest fleets in the industry, with an average age of 74 months, about half the 160 month average of their competitors. Revenue is enhanced thanks to flyers who appreciate the comfort, amenities, and safety advantage of newer aircraft, but the fleet’s relative youth also drives cost advantages as fuel, maintenance and repair bills are all lower thanks in part to enhanced energy efficiency.
From the rarified air filtering gently through the luxurious cabin of an SIA jet, let’s take a trip to your local bus depot. I doubt you’ll find any Dom Perignon champagne flowing there, a place often considered the last resort of travelers and, until recently, completely off the radar of business people. Companies like BoltBus, RedCoach, and the venerable Greyhound, are trying to change that perception, however. Buses have always been a very price competitive mode of transportation, earning their firms a well-deserved reputation for cost effectiveness, but now they too are crossing the threshold into the arena of dual strategies. Particularly for short haul routes like New York to Washington, Orlando to Tampa, etc., taking the bus is not only the thrifty choice but now affords the rider an experience similar to, or exceeding, that of riding in an airline’s First Class. On RedCoach, for example, you can stretch out in your leather seat and watch a movie on one of the coach’s descending LCD screens, or if you feel like working, lower your lap desk, plug in your computer, and take advantage of free Wi-Fi. And since the bus never leaves the ground, you can even make a call. Neither the airlines nor Amtrak are shaking in their boots quite yet, but the changes are beginning to take root. As one industry veteran notes: "Now you have sleeker buses and a whole new clientele…riding the bus isn’t being a second-class citizen. You could take the bus and be proud of it."
After a long trip, whether on an A380 out of Singapore, or a BoltBus motoring into Miami, maybe you’re a little hungry so you decide to grab a bite and head to a local McDonald’s. You walk in and wonder if it’s jet lag or white line fever because this doesn’t look like any McDonald’s you’ve ever seen - sleek and elegant furniture, vibrant colors, and funky lamps hung low enough to make you think you’re in a quiet bistro, not a bustling fast-food behemoth. Welcome to the new McDonald’s. In 2011 the company launched a $2.4 billion total makeover campaign, their first such endeavor since a time when disco was ruling the airwaves. The campaign will see 400 domestic restaurants redone, while another 1,600 in foreign locations will be completely refurbished. It’s all part of the company’s "Plan to Win" strategy, anchored by three pillars: menu innovation, store renovation, and an upgrade to the ordering experience. Notice anything about two of the three strategic imperatives? Both menu innovation and store renovation are an unquestionable move into product leadership territory. However, by also including an upgrade to the ordering experience as a key tenet of the strategy the company remains committed to its roots as a paragon of operational excellence. The question for McDonald’s as they embark on this historic strategic journey, one espoused by their own leadership team is this: Can you increase service speed and efficiency and optimize the customer experience at the same time? For McDonald’s that is the essence of managing a dual strategy.
In their book, "Built to Last," authors Collins and Porras implore us to "preserve the core, but stimulate progress." In many ways that sentiment represents the heart of a dual strategy approach. Each of the companies profiled above has a core that has served them well, in some cases over the course of decades, but they all recognize the seismic shifts taking place in the world around us and understand the necessity to adapt in order to maintain their place in an ever-evolving marketplace. It seems that as we continue to stare change in the face the old paradigm of either/or thinking is no longer sufficient. To compete in today’s global environment it’s time to shed the autocratic grip of the "or" and embrace the brilliance of the "and" as in cost leadership and innovation…cost leadership and customer intimacy. That is indeed the new imperative.
1. "BoltBus, RedCoach, other bus lines go for business travelers," USA Today, September 20, 2010.
2. Loizos Heracleous and Jochen Wirtz, "Singapore Airlines’ Balancing Act," Harvard Business Review, July-August, 2010. PP. 145-149.
3. Ben Paynter, "SuperStyle Me," Fast Company, October 2010. PP. 104-112.
4. James C. Collins and Jerry I. Porras, Built to Last (New York, NY, Harper Collins, 1994).