Is Your Value Creation PlayBook Running Out of Steam?

There are three things that determine success or failure in business. These are; the Game© the business plays; the PlayGround© on which it plays and the PlayBook© it uses to win within its chosen playground. By a way of illustration, Walmart plays the retail game and sells the “right to own¹, use and dispose,” goods made by others. Originally, Walmart played in “little one horse towns which everybody else was ignoring²,” and offered everyday low prices on a wide assortment of goods.

Like every good story, every Game©, PlayGround© and PlayBook© runs out of steam at some point. As an example, “harvested ice” ran out of steam in the 1900’s³, and eventually faced distinction, purely because whilst the “cooling” game remained relevant and desirable, the playground shifted and with this, the playbook changed. Compact discs and DVD’s are almost distinct today not because the need for music and motion picture entertainment declined in significance, but because the playground and the accompanying playbook shifted.

In the “VUCA” world, where change is the only constant, the value generation capability of your firm’s playground and playbook is bound to be impaired at some point. As customers’ priorities, interests and motives change, as they become more aware and knowledgeable, as the service you offer become more widely available and as new regulations get passed and new knowledge and technologies are employed, value is bound to shift from where you are, to some other playground or playbook. In these conditions, it makes good business sense to constantly search for, anticipate “sources of change,” build pictures of how the future might unfold and determine the implications for your business. More importantly though, it is absolutely critical to build a value creation PlayBook© for all seasons. What do we mean by this?

In our view, based on more than 10 years of observing and following what we call “assets of significance,” we found that “assets of significance” set themselves apart by making every dollar or rand of invested capital more valuable over time. Specifically, they generate cash flows that exceed the cost of capital over and over again. This is made possible by three distinguishing features. Firstly, they build dynamism into their DNA’s that enable them to leverage and use headwinds, to lift themselves onto a higher plane, the same way that eagles do. Secondly, they have an unsurpassable ability to create new economic assets and to endow existing economic assets with new “wealth producing potential.” Lastly, they deploy capital, managerial bandwidth, effort and time on profitable endeavours. How do they do this?

Firstly, watch the Game© with a hawk’s eye. Every industry or business solves an underlying problem or helps a sizeable number of customers to address a job to be done. It is the problem or job to be done that customers have, that “birth” industries and firms. The continued existence of the need to solve the problem or get the job to be done, as well as its continued importance and centrality in customers’ lives, is what drives and sustains industries and firms and their ability to generate value for the firm and stock owners.

When the problem that customers have or the job that they to perform goes away, this takes away the need, willingness to pay and with this, the very existence of firms and industries. In addition to this, when the problem or job to be done gets downgraded in terms of significance and centrality for whatever reason, this changes the economics of the game. Over and above this, when the solution to their problem or job to be done becomes widely available, this also changes the economics and ultimately the operating cashflows that the firm can generate.

Under the circumstances described above, assets of significance do two things really well. Firstly, they build foresight and eagle’s eye on emerging and latent high value problems or jobs to be done that customers will be willing pay premiums for. Secondly, they build an insight base as well as unsurpassable value creation Playbooks© that enable to squeeze value from a shrinking pie. In short, they build the ability to have one foot on the platform and another in the train.  In Clayton Christensen parlance, this is akin to keeping tabs on mainstream customers whilst at the same time reaching out to customers who are excluded either because of the existence of wealth, time or skill barriers.

In addition to paying attention on the Game©, “assets of significance” also pay a lot of attention on the PlayGround©. This is because at times, the game or underlying job/problem remains intact, but the PlayGround© changes. In other words, the geographies where the solution is sold, or the channels through which it is delivered or made available changes. In other situations, the form in which the solution comes and the way it is made changes. At times, firms change their focal points or scope by either going downstream or upstream. When the above happens, especially, when the form and the channels change, the impact on the top-line, gross margins as well as the operating profit margins is significant.

In recent times, we have seen the impact of the above mentioned phenomena on “attention” oriented businesses that use information or entertainment assets to attract attention and in turn, sell that attention to advertisers. With the increasing usage of the internet, penetration of screens; mobile, computers and tablets, and the explosion of publishers and aggregators for example, the informations assets changed from physical to digital/intangible. This in turn, changed the way the information assets get delivered as well as the address where the information or news assets are delivered to. Instead of delivering the news product in a physical form to some location; to street vendors who “on-sell” to the man in the street or retailers and grocery stores who “on-sell” to their end customers, subscriptions based deliveries to households and offices, today most news products are delivered onto screens and in real time.

The changes on the PlayGround© indicated above, have had and continue to have far reaching implications. Firstly, the barriers to entry have been lowered. In other words, the capital intensity of the industry has all but disappeared. As a result, new players have entered and continue to enter the industry on a massive scale, and with this, the product is now widely available and commoditised. This has in turn, affected the PlayBook©; 1) the top-pline playbook – type, size, frequency and sustainability of revenues, where and how they are generated e.g., target segments, problems or jobs, and pricing structure etc.; 2) gross margin playbook – spread (difference between the price and cost of sale/service) as well as the strategy and tactics employed to achieve the targeted spread; 3) operating playbook –  the size, scope and nature of support that is required to drive the top line as well as gross margins.

Net, in addition to the PlayGround©, assets of significance pay close attention on the PlayBook©, namely, the key strategies and tactics that bring in the revenue, deliver good enough gross and operating margins. Over and above this however, they recognise that slashing operating expenses and marketing budgets, redesigning products and services to ease the pressure on margins, can only take you thus far, in the end, you need to have a strong top-line playbook for all seasons. This is a playbook that works regardless of the season/cycle you are in, and that works for businesses whose top-line is dependent on the X-M part of the(C+I+G+X-M) the same way it does C, I or G dependent businesses.

 

Notes & References

  1. The concept of the “right” or “asset” that is being sold was sourced from; Malone et al (2006), Do Some Business Models Perform Better the Others?, MIT Working Paper 4615-06
  2. Quote was sourced from; Magretta M. (2012) Understanding Michael Porter: The Essential Guide to Competition and Strategy, Harvard Business Press, Boston.
  3. https://en.wikipedia.org/wiki/Ice_trade (date accessed, 21/12/2017)
  4. The concept of “jobs to be done” was borrowed from; Ulwick AW., (2005) What Customers Want: Using Outcome Driven Innovation to Drive Breakthrough Products and Services, McGraw-Hill, New York
  5. Alexander, J., (2007) Perfomance Dashboards and Analysis for Value Creation, Wiley, New York.
  6. McKean, J., (2010) Managing Customers Through Economic Cycles, Wiley, Sussex

NB: Should you wish to obtain more insights or tools to help you with any of the topics raised above, please engage with us or contact us by using the contact widget on the contact page. Alternatively, get in touch with Kheepe Moremi.

 

Notes About the Author: Kheepe Lawrence Moremi

Seasoned strategy & market facing professional with strong business acumen, operating experience and entrepreneurial flair. Former founder board member of the Marketing Association of South Africa, former founder marketing director of Brand South Africa, executive lead of customer strategy at Deloitte Digital, Advisor to the Board Chair of Eskom, head of strategy, innovation and marketing at FNB (a division of First Rand Bank), marketing manager at Nedbank, brand manager at African Bank and Procter & Gamble.

  • https://www.linkedin.com/in/kheepe-moremi-337a03/
  • http://whoswho.co.za/kheepe-moremi-829354
  • https://www.marketingawards.co.za/council/
  • https://www.youtube.com/watch?v=kGd3ZdgA1yY
  • https://www.fin24.com/Finweek/Advertising-and-marketing/Brand-SA-focus-shifts-20050920
  • https://www.iol.co.za/business-report/economy/brand-sa-worth-r380bn-says-marketing-council-754643
  • https://mybroadband.co.za/news/cellular/4092-fnb-launches-cellphone-business-banking.html
  • http://allafrica.com/stories/201308270985.html
  • http://www.the-esa.org/news/articles/-/south-africa-saves-energy-with-49m-campaign
  • https://www.mediaupdate.co.za/marketing/6807/masa-announces-new-board-of-directors

Academic Profile

  • Beta Gamma Sigma Lifetime member,
  • Executive MBA From Brown & IE Business School
  • Strategy & Innovation from Oxford

 

 

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