Good morning!

At the Uncertainty Project, we explore models and techniques for managing uncertainty, decision making, and strategy. Every week we package up our learnings and share them with the 2,000+ leaders like you that read this newsletter!

In case you missed it, in our last post, we covered the first part of this post and today we’ll wrap it up with post #2.

Competition and Strategic Decisions - Part 2

Building competitive power 

A sad reality in many enterprises today is that we spend more energy thinking about internal competition (for resources, for promotions, for favor) than external competition.

To improve strategic decision making, we need to intentionally force the conversation to focus outside the walls of the organization.

This can introduce a structured sense-making approach for leadership teams, one that captures shared beliefs to set the table for strategy development.

Moore has built a model to support this kind of exploration, one that is centered in the concept of building power to address competitive forces.

Hierarchy of Powers: (as defined by Geoffrey Moore)

• Category power - “a function of the demand for a given class of products or services, relative to all other classes.”

• Company Power - “reflects the status and prospects of a specific vendor relative to its competitive set (e.g. market share)”

• Market power - “company power within the confines of a single market segment (a set of customers who share a common and unique set of needs and who reference each other when making their purchase decisions)”

• Offer Power - “function of the demand for a given product or service, relative to its reference competitors”

• Execution Power - “ability to outperform your competitive set under conditions that favor no vendor in particular” (e.g. making the numbers and driving change initiatives)

He describes this Hierarchy of Powers as “a map that will engage you and your colleagues in the various domains of power in a systematic and structured way, ensuring that the right questions get the right answers at the right time and in the right sequence.”

This exploration of uncertainty in the competitive landscape is a great way to lead with questions at the front end of strategy work.

The map highlights unique playing fields at each level, with their own forces at play, that can be discussed independently. However, each level (and the choices made there) will influence the levels immediately above and below them.

But can this hierarchy be useful at the front lines, as well as in the C-suite? Could a department of say, 5-8 teams find it informative to explore and expose aspects of their competitive environment? Let’s go deeper to find out.

Imagine you lead a shared service department, say for legal services in the company. Or maybe a shared marketing department. Or instead, maybe you are a product leader, accountable to the business for delighting the customers that use the product.

Hierarchy of Powers (interpreted for “front line” teams):

• Category power - 

  • Ask, “what do you produce?“

  • What’s the industry-wide term for it? 

  • Is the category static? Emerging? In a state of flux? Declining?

• Company Power - 

  • Think of yourself or your team as an independent “vendor” 

  • How’s your “brand” (across those that consume the value you produce)? 

  • What is your “market share”? (i.e. do some opt to not use your shared service?)

• Market power - 

  • Do you serve multiple classes of users or customers? 

  • Do they have differing jobs-to-be-done, that shape your offering differently? 

  • Isolate those as markets, to talk about power relative to each.

• Offer Power - 

  • The value you create is delivered (for consumption) by some “vehicle”, like a product or service. 

  • Factor in the price of that vehicle (explicit or implicit)

  • Could you compete with that offer on the open market? 

  • Is there a threat of disruption to your internal offers?

• Execution Power - 

  • How well do you execute, relative to other teams trying to deliver the same kind of value? (both inside and outside your company or organization)

So with a little creativity, we can bring an entrepreneurial framing to our internal work in a large organization, and study competitive power. The big idea here is that you’re starting to see things relatively, instead of as absolutes like “good or bad”.

How should we get started? How do we create a strategy that builds up our relative power, to better compete?

And of course, these are dialogs about beliefs, since the sense-making that drives vision and strategy is full of uncertainty. And it’s also a great chance to apply a core principle of The Uncertainty Project: Analyze Less, Discuss More

Resist the temptation to overdo the research and data collection around category, company, and market shares. Instead, drive dialogs in an environment that creates sufficient safety for fundamental questions, and build a shared understanding of the competitive dynamics. Then pursue information where needed (and where justified by the Value of Information).

These dialogs set the table for your key strategic decisions - the difficult choices that chart a path to competitive advantage.

We’ve established that Company Power is a real thing (since it can be measured as market share). But Roger Martin, in “A New Way to Think”, says that companies don’t really compete with one another, that only products (and services) do. 

Hmmm, but what’s the point of company brands, then? Isn’t Coke vs. Pepsi a battle of the (company) brands?

In “Better, Simpler, Strategy”, Felix Oberholzer-Gee says that brands are useful (to consumers) because they help to reduce uncertainty, as those consumers make choices. He uses the example of generic drugs vs. major pharmaceutical brands to explain why customers are willing to pay a premium for the brand products: 

So what’s your department’s “brand”? Is there something there in your reputation that reduces the uncertainty around the choice (which often involves a change) and therefore helps your consumers more easily choose your offerings? [It’s not a crazy question…]

Staying on the playing field for company power for a bit longer, we can see that for external brands, it helps organize the “competitive set” into tiers of competitors. Tier 1 includes the top brands, Tier 2 covers the rest of the recognizable brands, while Tier 3 picks up the rest, which have no brand presence. Targeting competitors in your tier, to climb to the next one, is another proven strategic tactic.

So the “structured set of dialogs” should baseline the beliefs around the Hierarchy of Powers, and give specific attention to forming beliefs in areas where there is likely considerable uncertainty today. You are seeking more “precision” here, Moore says, and that precision can clarify the shared understanding. 

Suggestion: Focus on some dialog in areas like the following, to produce beliefs (in the shape of these templates below).

Competitive Set - Who (or what) you are genuinely competing with, and why…

• “We believe that we are/will be competing with <this set of competitors (could be companies, or any alternatives to your total package of value)>.”

Differentiation - specific innovation/investment required to create unmatchable capabilities 

• “We believe that we can win with <this set of unmatchable capabilities>.”

• “We believe that <this innovation> with <this investment> can produce <these capabilities>.”

Execution Strategy - resource shifts required to fund your innovation/investment commitments

• “We believe we can make these needed investment commitments <with these shifts in funding>.”

These beliefs can form the foundation for building differentiation into your strategy.

Moore also stresses that the differentiation should be built upon, and leverage, some current sources of strength (i.e. some things you already have).

This echoes the categories from one of the oldest strategy templates: SWOT analysis. Your existing strengths can and should be leveraged to pursue your opportunities and neutralize threats.

So if the competitive landscape helps us get precise about “where we play”, and our differentiation adds precision to “how we win”, then how can we start getting precise about specific opportunities for strategic investment? 

With precisely targeted value creation. 

And that will be the topic of Part 3, in next week’s newsletter.