What you can learn from ‘BCG On Strategy’ by Carl Stern and Michael Deimler (2006, 403pages)

Posted by Max on September 3, 2016 in Book reviews, strategy | 1 Comment

Strategy, like leadership, is a contested topic.  The Boston Consulting Group (BCG) has a long history of innovation in strategy consulting, having been the powerhouse behind the growth share matrix, the experience curve, time-based competition and the rule of three and four.

Perspectives, BCG’s publication, seeks to expose their latest thinking both within the company and with clients.  In this compendium on strategy, BCG lays out their top articles on strategy.

‘On Strategy’ is a very well written and compelling book.  The content is very useful, but it is a tough book to read from cover to cover.  A better way to approach this book is to be familiar the main themes (see index pvii-xi) and read the articles that relate to your current work or problem.

The key lessons that I take from this book are written below.  Please excuse the list, but it is difficult to condense so much material.

• Strategy is maintained differentiation which results in a competitive advantage
• Strategic competition:
  • Involves the whole system (customers, competitors, money, people & resources)
  • Attempts to predict the consequences of interaction
  • Attempts to predict risk and return
  • Needs the commitment of money, people and resources
• The more you produce of something, the more experience you gain, this reduces the cost.   Therefore, the competitor with the largest market share is likely to have the lowest costs, as they are the most experienced.
• In strategy, market share is king – if you increase price in the short term to increase margin, you open space for others to introduce new capacity, and they will take your market share
• If you have the lowest cost, don’t raise prices (unless this does increase the growth rate of all other players), add capacity 
• Never expand a customer base or product line, unless you can be sure to gain a competitive advantage over everyone else
• Volume and cost are easier to change than industry price
• Innovation can lead to disruption, which means that your costs can become lower than the market price leader
• To innovate make sure you measure what matters to customers, and use this for performance evaluations
• The five capabilities of success are:
  • Speed
  • Consistency (quality)
  • Acuity
  • Innovation
  • Agility
• There is always a trade-off when interacting with people (e.g., customer) between reach vs. richness
  • Reach – the number of people you can interact with
  • Richness  is dependent on customisation, bandwidth and interactivity
• You can reinvent your brand through
  • Repositioning
  • Extension
  • Transformation
• You can build innovation in companies by
  • Building tension in objectives (customer satisfaction and innovation)
  • Senior execs should have dual roles (product and function)
  • Visibly reward people who contribute in both directions
  • Remove barriers
• Strong leaders:
  • Gain complete and willing acceptance of their leadership
  • Determining business goals and objective and standards of behaviour that are ambitious
  • Introduce and motivate the organisation to these objectives and the rate of introduction should be the maximum that the organisation can handle without loosing their leadership
  • Change organisations relationships to allow acceptance of these new objectives and then achieve them
• To ensure that you remain competitive you should constantly question:
  • Have you lost control of your marketing?
  • Have you had swings in volume?
  • Have substitutes stolen volume/share?
  • Have you lost major accounts?
  • Have your distributor’s margins gone down?
  • Hav your distributions had to change what they offer?
  • Have distributors defected?
  • Has a traditional competitor gained market share?
  • Has new competitor entered the marker?
  • If your volume/profit relationship changing?
  • Have you experience a cost/price squeeze?
  • Do you have the right data to make a decision?
  • Have you lost responsiveness or moral?
  • Have people defected?
  • Is your intuition working?
• Lack of alignment at the executive level is the most common cause of change failure
• A key component of strategy is to ask why
• 10% of time spent in a company is non-value adding
• Manager need to focus on the dynamics of a system – not just making sure that tasks get done, but when and how they are done and how performance effects everything else in the system
• In boom years prices are determined by the ability to supply – that is, by the full cost-plus return of new capital
• In normal times prices are determined by the full cash cost of the marginal competitor – or even (with high exit costs) by the marginal cash costs of the marginal competitor