Personal Finance

Why is strategy like a rare earth?

finance

Summary

  • Business is about trying to create, extract, squeeze out monetary value along a chain of activities – giving the customer something that they really feel they want.
  • Unique strategy in business is rare - because like water running in a babbling forest stream - we all often default to the path of least resistance.
  • A bright disruptive strategy usually comes from the business person who sees customer needs and the marketplace differently.

Chances are that in 2007 you had one of these phones. Fourteen years ago there were five major phone manufacturers: Nokia, Samsung, Motorola, Sony Ericson and LG. Together they accounted for 90 percent of the phone business's global profits.

By 2015 the Apple iPhone generated 92 percent of global profits, and the former market leaders made no profit at all. What happened?

The incumbents like Nokia had all the classic strategy advantages; product differentiation, a trusted brand, and huge research and development budgets.

A platform delivered

What happened was Apple had a distinct strategy. It imagined the iPhone as a platform, a way to connect participants on two sides of the market, app developers and app users on the other side, creating value for both groups. By January 2015 Apple’s App Store offered 1.4 million apps and generated $ 25 billion in revenues for app developers.

Apple saw the iPhone as more than a product or a pathway for services. It saw the phone as a platform, shifting away from a traditional pipeline business, based on controlling a linear set of activities, along a value chain.

Strange thing is that this game-changer strategy almost did not happen. It was a bit of a fluke. If you read Walter Isaacson’s highly recommended 2011 biography of Steve Jobs, Jobs originally wanted to retain Apple’s closed architecture. He did not want outsiders to create applications for the iPhone as he thought that it would mess it up with viruses and ‘pollute its integrity.

He relented when Apple board members and others eventually convinced him. The Apple App Store opened in July 2008, and the billionth download happened nine months later. In no time, it had created a new industry overnight, creating a significant shift in the digital world, that we now take for granted.

On the Kenyan and East African scene having a distinct business strategy is as uncommon as the rare earth Scandium, used as an alloy in aerospace components. But why is strategy so rare? And, why do managers call an operational plan, with a rolling budget, a strategy?

Default is the most common position

To be fair, what is often in a play is a move to the default position of 40 years ago. Traditional thinking about strategy, thanks to Michael Porter, was that a company has three choices: 1) be the cost leader, which meant being the cheapest. The problem is being the least expensive is a slippery slope, and they're always will be a competitor, who will be cheaper.

2) Differentiation which could be based on quality, for instance, a Bentley or a Rolex watch.

3) Focus on a niche market like, for instance, residents of Kibera or Muthaiga, or golfers. The thinking was that you had to choose only one approach, and not risk trying to be all things to all people, risking becoming a nonentity to everyone. While some of the default position thinking can apply, a platform business model could deliver each approach, all at the same time.

Business is about trying to create, extract, squeeze out monetary value along a chain of activities – giving the customer something that they really feel they want.

During the height of the pandemic when everyone else was struggling, trying to figure out how to just survive, the businesses that were booming where platform delivery services that could charge margins of as high as 30 percent, when the poor restaurant owner, or other providers, was barely getting by or making a loss.

And, the platform delivery service thrived, with no traditional physical bricks and mortar assets; they were simply a digital stage, linking the buyer and the seller.

Unique strategy in business is rare - because like water running in a babbling forest stream - we all often default to the path of least resistance. A sort of ‘cut and paste’, hope-for-the-best approach, with a heavy dose of marketing hype, to paper over the gaping cracks in the business thinking.

Perhaps we should not feel too bad. After all, even Steve Jobs initially resisted a game-changing platform approach, instinctively relying on his traditional biases. But eventually, after being pressed by Apple board members he changed his tune. He was open to possibilities.

Search for the where

Another way to approach the idea of business strategy is to think about where the bright ideas are likely to come from. Where does one look? If we cannot easily figure out the ‘what’, another approach is to look for the: ‘where’. Focus on the geography of where bright ideas are likely to be spotted.

Or, let’s begin where the more innovative ideas are less likely to come from. For instance, in large corporate, bright ideas are unlikely to come from conference board room discussions, here the focus is on governance and preserving the status quo. [Sure there may be exceptions, but these rare moments, don’t disprove the rule.]

Similar to the way innovation almost always comes from the small [almost] ignored company on the edge of the marketplace, on the periphery. In the same way, a bright disruptive strategy usually comes from the business person who sees customer needs and the marketplace differently.

And, then develops and product, or service, that the big players ignore because it serves a small, unprofitable market. For instance, for the 40 plus large [me too] insurance companies, a bright idea may come from a small [single mum] broker in Busia.

To solve the mystery of how to provide affordable quality healthcare, the answer might become from a small medical clinic in Kijiado.

Today platforms [that own no traditional assets] dominate the business world. At some point in time, a platform business model will become as old-fashioned as a pager. Heaven knows what the metaverse will bring with it?

What do Jeff Bezos and the Kenyan business thinker Michael Mithika have in common? Both are asking the rare and fundamental question – How do we make products and services more affordable, simpler, and accessible to all?

All with the aim of delivering, by creating business models that spread prosperity widely. Answer that, in your business strategy, and you will likely have a game-changer.