Competitive Strategy with Peter Sheahan
Founder & Group CEO of Karrikins Group, Peter Sheahan is known internationally for his innovative business thinking and thought leadership. Peter has advised leaders from companies as diverse as Apple, Goldman Sachs, Microsoft, Hyundai, IBM, Pfizer, Wells Fargo, and Cardinal Health. He is the author of 7 books, including Flip, Generation Y, Making it Happen and, his latest, Matter.
SPEAKING.COM: Your new book, Matter, which was just released, examines how people can elevate their business above the competition. How does Matter differ from previous books on competitive strategy?
SHEAHAN: Matter offers insight for the world as it is now, not the world as it used to exist.
For example, consider that the theory of competitive strategy itself is based on academic perspectives which suggest that market opportunity is a zero sum gain, where available share is set, and where margin is primarily about competition between you and your buyer.
In the companies we studied, leaders exhibited a much more abundant mindset and found that by moving towards disruption, opportunities to create net new demand could be found. Margins were measured on how much value they could co-create, rather than how much value they could extract from their customers.
SPEAKING.COM: The description of the book states that, “Going head-to-head with competitors is a recipe for slow growth and low margins.” Could you elaborate on that idea?
SHEAHAN: Price wars are a slippery slope. They start with eroding margin in an attempt to win the business by improving the cost-benefit equation for the buyer through cost reduction alone. This eroded margin reduces the capital available to invest in innovation and defensible points of difference from competitors. As a result, price becomes the only and easiest differentiator and so the negative spiral continues.
With competition operating in a similar fashion, you have a recipe for low margins, no innovation, commoditization, and slow growth.
In Matter, we studied how companies can change the cost-benefit equation by focusing on the benefit instead. The result being increased value created for the buyer and the margin for the seller. This additional margin makes more capital available for innovation and creating a defensible point of difference. In turn, it enables the organization to increase value and begin the upward spiral of innovation, differentiation, and improved margins which feeds itself and accelerates growth.
We looked specifically at where the opportunities to create more value could be found – the edge of disruption – and what successful companies do to leverage opportunity there. We were able to identify three critical capabilities and a number of characteristics that created a roadmap for becoming the obvious choice in the hearts of minds of the people who matter most.
SPEAKING.COM: You emphasize the importance of “creating value.” Which successful companies illustrate this concept?
SHEAHAN: There are many case studies profiled in the book. Three of my favorites are Lakeside, Adobe, and Domtar.
Lakeside moved toward the edge of disruption and found that the most valuable problem they could solve for their clients was to absorb the complexity of their entire freight operations and use the single-source provider advantage to extract millions of dollars of cost out of the supply chain for major CPG companies in Canada. They grew 10x in the years that followed the shift, escaped rapacious commoditization, and positioned themselves as strategic partners in their clients’ organizations.
In four short years, Adobe was able to move from the low-value, highly commoditized image and document management solutions into the more complex world of marketing automation and analytics. The solutions they acquired and developed enabled their clients to not only create beautiful content but to use that content and the related CRM assets to compete and win in the dynamic world of omni-channel commerce. Combined with the shift Adobe made to software-as-a-service and the benefits of recurring revenue found there, solving this problem was extremely valuable to marketers across the world. Adobe has since doubled the share price on the same top-line revenue performance.
Domtar sells paper, a seemingly simple and commoditized category. Only Domtar, in the face of massive consumer and activist pressure on the entire industry, was able to pioneer radical new models for extracting the base product for pulp and paper and manufacture in such a way that actually creates a net positive impact on our natural forest land. By leading the industry in environmental practice, Domtar created some of the most successful paper products in the market and positioned themselves as key partners for retailers who are struggling to differentiate themselves. Office supply retailers facing similar environmental pressures rely on Domtar as a rich source of thought-leadership. Furthermore, by purchasing their “green” office paper products from Domtar, retailers can compete on the increasingly important attribute of being environmentally friendly.
SPEAKING.COM: In this low-cost world, what are three benefits of selling value rather than selling on price?
SHEAHAN: Better margins, stickier relationships, and higher levels of engagement.
Margins create cash-flow and capital to invest in innovation. Innovation enables differentiation which further enables you to win without competing on price. In turn, margins improve and so the process continues in a generative and upward direction.
Gone are the days where people buy from us (or us from them) simply out of habit or because a personal relationship exists. Today, we are constantly being asked to do more. By creating more value at the edge of disruption, we can help our partners solve the most complex problems they face. Creating relationships built on value and strategic contribution are more important and harder to dislodge.
People want to work for companies that matter, solving problems that matter, for clients that matter. We extract meaning — which is becoming increasingly important for the most talented individuals — from work that is meaningful. By focusing on creating value rather than just cutting price, we engage the hearts and minds of not just our customers but our best and brightest talent as well.
SPEAKING.COM: The subtitle of Matter refers to becoming “the obvious choice” in one’s market. Out of the companies you studied, how long did it take them to build a reputation before they became “the obvious choice?”
SHEAHAN: The answer is varied. For some, like Standard Plumbing, they have been at it since their inception some 50 years ago. For others, like Burberry, they had it and then failed to move as the market moved and needed to get it back. With courageous leadership, Burberry was able to do so in under five years. And for companies like Blueshore Financial, they were able to completely redefine their value proposition and the market they served and create one of the most successful Credit Unions in Canada in a few short years.
Companies that matter don’t see moving to the edge of disruption and creating more value as a program they invest in or an initiative they champion for a short term point of difference; it is a way of life. And the model our research was able to extract from their experience is a generative and self-fulfilling one. Each step reinforces the one before and the one after, creating an upward spiral of differentiation for them and overtime establishing them as the go-to people in their fields: the obvious choice, as we would say. Or put differently, becoming the obvious choice is a constant but also self-perpetuating journey and not just a change initiative with a set start and finish date.
SPEAKING.COM: What are some steps businesses can take to create more value for their customers?
SHEAHAN: Funny you should ask… I just wrote a book on this very topic.
Start by identifying YOUR edge of disruption – the place where disruptive forces overlap with market need and the potential capabilities of your organization.
Then move towards that edge to learn everything you can about the opportunities and challenges that emerge there, and how you can partner with your clients to solve the problems the underlying disruption is creating for them.
Extract specific insights from what you are learning that you can package and use to contribute strategically to your clients’ and customers’ lives and become a go-to source of information and future-focused perspectives.
These three things will give you an Elevated Perspective and the credibility and access you need to develop Elevated Relationships.
Use your Elevated Perspective to engage at higher levels inside your client’s organization or to engage your individual consumers on issues of more importance in their lives. To create more value, you will ultimately need to make an impact and you can’t do so if you are engaged in price driven conversations with low-level players. You need to play high.
Once you are engaged at that level, go deep into your clients’ and customers’ lives. Understand how they live and how they work and what you need to know to create impact in their specific circumstances. It’s not enough to know where the opportunities exist. You need to know how to make the required solutions you find there a reality in their complex lives.
At the same time, step back and see the whole board. Understand that every partnership is part of a broader web of partnerships and your solution does not live in isolation. You need to understand the entire value chain. If you really want to create impact, you need to create influence more broadly then just with your buyers.
Your ability to play high, go deep, and see the whole board will give you Elevated Relationships.
The Elevated Perspective you have from the edge of disruption will reveal opportunities to solve more complex and valuable problems for your clients. The access, influence, and insight your Elevated Relationships can provide will create the setting and conditions you need to have an Elevated Impact on your clients and customers.
Doing the hard work comes next. We are all working hard; however, creating more value requires that you move beyond just insights and relationships and start developing scalable solutions to very complex challenges – challenges which other competitors are avoiding and which require a significant level of change for you, your client, and likely the entire value chain. This work is not easy and to pull it off we need to lean into the complexity, do the hard work, and develop the innovative solutions to the most important problems our clients and customers need solved.
And finally, we need to answer the call that comes with being a leader and act in a way worthy of our leadership position. Companies that matter do not exist solely to make money. They exist to have an Elevated Impact on the lives of all their stakeholders. As such, they invest in developing the practices and creating cultures that simultaneously feed their economic mission but respect their role as a social actor too. They grow their business and their people, too.
The impact these companies that matter have on the lives of their clients and customers, the people they employ, and the communities they serve, differentiates them by creating more value consistently over time and in turn makes them the obvious choice.
To bring Peter Sheahan to your organization, please contact Michael Frick at: Mike@Speaking.com.
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