Last week I ran an executive education course called “Strategy In Action“. It’s an intensive full-week course and we try to equip managers with ideas and processes that will help them to develop and execute strategy. As part of the course, I also arrange guest speakers who have examples of good strategy in their business or are interesting because of the way that they have overcome challenges in executing strategy. This execution focus matters. Like innovation, most strategies fail because they aren’t executed very well. Strategy analysis and development is where we tend to put the most effort but this is hardly ever where the problems occur.
I was very fortunate to have two guest speakers who are running companies and dealing with genuine strategy challenges. While they are both large companies with more than a billion dollars per year in sales the challenges that these executives were facing were quite different. Brett Clark, Managing Director of Chemist Warehouse has a very clear cost-leadership strategy. This business has grown quickly and is now among the largest retailers in Australia. Tom Maguire is general manager for innovation and corporate affairs at the Teys Group, a meat processing business that has been operating as a family owned business since 1946.
I asked both Brett and Tom to talk about their experiences with strategy and they both gave excellent presentations with very insightful messages about successful strategy. However, what I didn’t expect was such a clear link between innovation and strategy. In both companies, there were clear examples of innovation being used to execute strategy. Given that execution is a make-or-break part of the strategy process, I thought it would be worth discussing these examples in more detail on this blog.
Chemist Warehouse is a successful retailer of pharmacy (drug store for US readers) goods, including consumer items like perfumes. Like other low-cost retailers such as Costco (UK) Home Depot (USA) and Bunnings (Australia) they have used scale economies and purchasing power to drive down the cost of doing business. Chemist Warehouse get further scale economies from its online sales through ePharmacy. Scale is central to the business model so a key driver of the business is both number of customers and sales per customer.
Having a lot of people in the shop is great for most discounters but when there are a lot of people waiting for prescriptions then things can look a little bit chaotic from the customer’s perspective. Even in a small pharmacy, I don’t enjoy standing around waiting for my prescription to be filled out – particularly when I have two bored children waiting with me. Chemist Warehouse were able to execute their ‘big-box’ store model and maintain the customer prescription purchasing experience in a very ingenious way.
According to Brett, the story goes like this. One of his managers was at a large restaurant with the little alarms that tell you to collect your meal from the counter. The manager thought that this might work for prescriptions and it the system was tested in one store. Not only did the system stop the congestion around the prescription counter but it also resulted in increased sales. Obviously what was happening is that people were browsing the store while waiting for their prescriptions.
The competitive situation with Teys Brothers is different although it is also a very successful business. Traditionally, Teys has been a bulk processor of meat with a business model based on commodity products with high volume and low margins. Managing costs is central to the success of this business. Teys has been developing a new business based on a very different business model of customized products in small volumes and higher margins. Understanding the needs of customers such as supermarkets and restaurants and tailoring solutions is central to creating value for the buyer. Obviously, the operation and management of this business is very different from the core commodity business and Tom has been using collaborative research partnerships to develop technology to enable the flexible and specialized processing required to make the business work. Once again, this is an example of innovation being used to execute the strategy.
What I learned from Brett and Tom was that there are two key points for using innovation to execute strategy:
1. Be clear about the strategy of the business and the customer value proposition that you are trying to deliver.
2. Once you have a focussed value proposition, use innovation to improve the most important business activities to support that proposition. In Brett’s case the value proposition was ‘lowest cost’ but he needed to innovate to support customer numbers. In Tom’s case, the customer value proposition was ‘customized food solutions’ and the processing technologies enable the handling of small batches of product.