Edge Strategy
By Alan Lewis and Dan McKone
(Harvard Business Review Press, 208 pages, $37.50)
Most Canadians live within 100 miles of the American border. We may attribute that to many things – the proximity to rivers and lakes, the transportation challenges of early settlers, the more temperate weather, or history. But the writers of a new business strategy book point to its economic roots.
"Here, along a 4,400-mile stretch of land, lies the possibility of doing business with the biggest economy in the world. Throughout history, people have focused on edges and build ports – literally, 'doors,' or gateways – to facilitate trade between different communities that exist on either side," consultants Alan Lewis and Dan McKone write in Edge Strategy.
They suggest that if you want to reduce risk and increase your chances of expanding your business, you'll also want to think deeply about edges, although it's not geography they have in mind. Instead, it's three other opportunities that might exist at the edge of your core offering:
1. Product edges
This is the most common. It opens up when you offer more or less to certain customer segments in order to better satisfy their overall requirements. When Apple's iPod first hit the market in 2001, the company also pursued opportunities at the outside edge of that product, by licensing companies to sell accessories like cases and FM transmitters, and developing iTunes to sell music. By contrast, an inside edge happens not at the periphery but within its current context, by unbundling, as airlines did when they realized the most common passengers – business travellers – often didn't check luggage, so the ticket price no longer includes an implicit charge for that privilege.
2. Journey edges
Your customer uses your product or service while on a bigger journey or mission of which the purchase is but a part. In some cases, your product forces the next part of the journey: The flat-screen TV has to be assembled, installed, and programmed. Best Buy, after fielding many queries that salespeople answered for free, built a technical services team, the Geek Squad, to make money from that opportunity. Whole Foods realized its customer's journey was to eat a meal, and developed prepared foods, barbecue stands and sushi bars to help in that daily mission.
3. Enterprise edges
The most challenging to find are those edges that use the assets of your company in ways not foreseen when they were developed to support the core business. Inadvertent value is buried within your enterprise, notably with data, which the authors suggest can often be of more value to other companies than to your own. Toyota's data from tracking real-time car location and speed of its GPS-enabled vehicles is now being sold to municipal and business customers in Japan interested in traffic patterns. In 2014, Cargill unveiled NextField DataRX, software that guides farmers on how to best plant their fields, based on information the company had been gathering for its research. As for farmers, many of them are renting their land for wind and solar energy. They aren't in the energy business but the assets of their farming enterprise has added value they can exploit.
Edges aren't easy to spot. They can be fuzzy, hidden. But the consultants argue that opportunity lies within that ambiguity: "If its edges are not well-defined, a business can redefine them, ever so slightly, in their favour." Risk is reduced because this isn't a huge leap – it's more of a riff, something that the company has at least some understanding of because the opportunity is close to the current core or, at least, leverages some aspect of that main operation.
And financial returns can be great because the company has already invested in the main asset that is now being further leveraged. Toyota and Cargill already developed the data. Farmers own the land. Apple and Best Buy already have relationships with the customers for the offshoot products and services. "Edge opportunities are additional dividends from your core business," they write.
To some extent, you already operate on the edge when you upsell to clients, trying to get them to buy more – assembly and delivery, product warranties, or customizing products. To deal with margin pressure, airlines and telecommunications have been unbundling products, trying to gain extra revenue by charging for in-flight meals or call-forwarding options. But the book offers a larger framework for these approaches.
The effort begins by understanding your customer, going beyond current segmentation as you explore unmet needs. At the same time, you have to conduct a detailed analysis of every offering, breaking it down to its component parts to see whether some of those can be sold in a different way. Finally, you need to map the customer's journey – how do they use your product or service toward a greater goal – and assess your foundational assets, to see whether they can be sold beyond your current enterprise.
The book is clearly written – a touch repetitive, but maybe good repetition, to help learn the approach – and offers many examples of how to apply these ideas to your own company.
POSTSCRIPT
In The Art of Change Leadership (Wiley, 235 pages, $30) consultant Cheryl Cran looks at resistance to change and how to build your change leadership skills.
Robert Gates, defence secretary for both U.S. presidents George W. Bush and Barack Obama, looks at how big institutions are failing us and how to reform them in A Passion for Leadership (Knopf, 239 pages, $35.95).
In The Power of Broke (Crown Business, 289 pages, $34) Shark Tank investor Daymond John shows how empty pockets and a tight budget can become your greatest competitive advantage.
Harvey Schachter