The COVID-19 pandemic has altered our global economy. It has also spurred a new way of working, encouraged fast innovation and has taken some industries into productive new directions. There is immense pressure to understand the new corporate landscape, find new ways to create revenue and market share, and maintain shareholder value. Options to improve the bottom line through cost reduction and efficiency programs have largely been exhausted. Organisations that are engaged in the turnaround will be best positioned for success and will capture market share from those that are not.

It is time to find new and sustainable opportunities by looking beyond the immediate horizon.

Right now, the business is re-calibrating. People inside the organisation seek a new direction. The business is mature. The team is not used to fast, adaptive innovation. There is a rival that is making strategic moves.

Normally, the go-to play to gain market share is an acquisition, however this strategy can often be a false prophet. The data consistently shows that between 70-90% of mergers and acquisitions fail [1]. This means CEOs have a 10-30% chance to get it right, at a cost of millions. According to research by PwC of over 2500 companies, CEO tenures are shorter and more brutal. Turnover is at an all time high of 17.5% [2]. Strong financial performance in a fast changing environment is imperative.

In this position, a validated strategic growth option without a risk laden capital investment is the holy grail. For the CEO, there are two problems with achieving this. Firstly, there is often a lack of spare capacity to do anything outside of the current business model. Secondly, it is difficult for the current executive team who have been tasked with operating the business to then turn their hand to innovation.

Shareholders, customers and suppliers are watching revenue plummet, EPS dive, dividends evaporate, and they already know that profits, if there are any, will be hard to come by. Such generational challenges are devastating and will have far-reaching, long term resonance. Still, within this incredibly difficult time, there will be opportunities, to take a risk, accelerate change, repair, or adapt and set for the future. In this future, the consumer holds enormous power. So perhaps a better question is this:

How will you use the opportunity COVID presents you? [3]

To succeed, organisations need to be ambidextrous

According to a Harvard Business Review study completed in 2004 [3], most organisations are adept at refining their current offer, but they falter when it comes to pioneering radically new products and services. The reason lies in an ability to be ambidextrous.

Ambidextrous organisations are able to exploit the present and explore the future, simultaneously.

Typically, the same people and systems can't both 'exploit' and 'explore'. There needs to be a separation between the business operations and discovery oriented work. This is where external teams with deep knowledge and experience in strategic innovation are best used. They are capable of delivering the needed level of ambidexterity when new strategic thinking is imperative.

With the right capability, effectively exploring the future horizons of growth becomes an engaging process and can ignite the culture of an organisation. But where is the best place to look for a 'no regret' next move that will drive future success?

The results of a year long research project into the best performing organisations showed that the most effective growth horizon to innovate within is not inside the next budget cycle, iterating on what we do now. Nor is it going after a moon-shot transformation project. It is in Horizon 2, creating an adjacent position to your core business.

The Roman god Janus had two sets of eyes—one pair focusing on what lay behind, the other on what lay ahead. General managers and corporate executives should be able to relate. They, too, must constantly look backward, attending to the products and processes of the past, while also gazing forward, preparing for the innovations that will define the future.

The Ambidextrous Organisation
Harvard Business Review, 2004

The Three Horizons of Growth

Discovering a 'no regret' move, or as CapFeather defines it - the Best Next Move, relies on the Three Horizons of Growth framework. This framework was originally developed by McKinsey and Company in 1999 [4] and has been widely used in competitive strategy and innovation. Based on research into how companies sustain growth, it illustrates how to manage for current performance while maximizing future opportunities for growth.

Horizon 1 represents core business that provides the greatest profits and cash flow. This is where performance improvement and cost cutting takes place.

Horizon 2 encompasses emerging opportunities adjacent to core business that are likely to generate substantial profits in the future. Horizon 2 is the best place to innovate and add enduring value.

Horizon 3 contains ideas for transformational growth and holds the highest level of risk.

Sustainable competitive advantage is found at Horizon 2

In over a year of researching the competitive landscape of high performance businesses, including 'unicorns', we discovered that the most profitable innovation pathways centered around Horizon 2.

Dr Robert Dew

Amazon carved out a 'no regret' innovation pathway

Amazon.com, formed in 1996, is today considered one of the Big 4 tech companies and is known for its disruption of well-established industries through technological innovation on a mass scale. A market cap of over $US 750B makes it one of the world’s most valuable firms. The company has expanded far beyond its original start as an online book retailer by innovating a range of customer experience improvements for more revenue. Analysing Amazon’s innovation pathway over the last 20 years, it becomes clear that their success stories congregate in Horizon 2 (pictured below).

Sustainable competitive advantage
is found at Horizon 2

Amazon’s innovation pathway seems ‘transformational’, or at Horizon 3, because it is such a ground-breaking company. However this is not the case. Horizon 3 is prone to high levels of risk.

As a mature business, Amazon has taken the most effective route to successful innovation and has achieved enormous competitive advantage for it’s shareholders.

Amazon’s amazing growth story is based on innovations that help customers buy more easily. For example, they saw that more than 67% of online shoppers abandon their shopping cart before purchase. They designed the One-Click purchase button to enable immediate online shopping transactions, helping customers avoid the shopping cart entirely. Since it’s first successes, Amazon has consistently innovated in adjacent positions to its existing business model. But it isn't only companies like Amazon that have benefited from this innovation pathway.

Fibre King's Best Next Move leads to bottom line growth

Fibre King, established in 1926, is a fourth generation family owned machinery engineering firm. It focuses on end line packaging machinery that includes robotics and industry 4.0 capabilities. It’s challenge was understanding how to grow in a fast changing industrial environment. Robert Dew, a partner in CapFeather, worked with Fibre King to design and test an adjacent positioning strategy that would make a difference. They re-segmented the industrial market to discover a new niche.

Their Best Next Move was rolling out the ‘Little Packer’, a machine with a smaller footprint and lower cost of capital that fit the burgeoning craft brewery vertical. It directly impacted bottom line growth for Fibre King.

The DNA of the Best Next Move

The Best Next Move is discovered in an adjacent market position. It builds on the current business model but finds new value. It holds minimal risk because it is validated through market testing.

1. RE-SEGMENT THE MARKET
   Conduct a deeper level of market analysis to find a unique, value creating niche.

2. EVOLVE THE OFFER
   Enhance the value of the existing offer in an evolutionary way.

3. BE DIFFICULT TO COPY
   Design innovations that are difficult to copy by rivals because of a strategic bind, complexity or inobvious causality.

4. GET SMALL SCALE PROOF
   Market testing is imperative. Get small scale proof from leading and lagging indicators to quantify the expected ROI at scale.

5. BE REMARKABLE
   Design an aspect of the customer experience that is remarkable to ensure a marketing bump when introduced at scale.

The first step: Maturity Diagnostic Workshops

CapFeather’s Maturity Diagnostic Workshops help you understand your overall customer maturity, potential gaps, and opportunities for your organisation. Knowing where you are now is the first step in delivering what your clients need.

At CapFeather, we understand the decision to retain us as your strategy consultant is not something your team does every day. We have learned over decades of experience the single most important factor is learning how to collaborate. To eliminate the risk in this process we work with you at our cost to confirm we can succeed together. We facilitate four workshops covering the key search domains for your best next move.

Each workshop would require participants to take 15 mins – 30 mins to prepare and then get interactive for 90 mins – 120 mins over 4 sessions.

Context Workshop

1. Explore in detail the range of products and services you currently offer.

2. List the current macro environmental trends the management team is aware of.

3. Run an opportunity | threat assessment for each trend against the organisational offerings.

4. CapFeather would analyse the results to assess your context maturity level.

5. You would gain prioritised critical external opportunities and threats.

Customer Workshop

1. Identify the different quality elements for the most important services.

2. Classify these into different types to identify expected | preferred | surprised customer value drivers.

3. Apply acumen-based discretion to evaluate service offering versus customer value drivers.

4. CapFeather would analyse the results to assess your customer maturity level.

5. You would gain specified key quality product and service gaps for competitive advantage.

Competitor Workshop

1. Identify the major market rivals for the most important services.

2. Assess their offerings against the expected | preferred | surprised customer value drivers.

3. Create a market map using two dimensions of customer value drivers and plot rivals to identify white spaces.

4. CapFeather would analyse the results to assess your competitor maturity level.

5. You would gain new market positioning options.

Capability Workshop

1. Identify the range of Physical | Reputation | Organisation | Financial | Individual | Technological resources in your organisation.

2. Analyse these for leverage, imitability, value, exclusivity to identify sustainable competitive advantages.

3. Estimate spare capacity available for growth in both tangible and intangible resources.

4. CapFeather would analyse the results to assess your capability maturity level.

5. You would gain sizing of spare capability and strategic capability gaps.

Next steps

If after the Maturity Diagnostic Workshops you want to deeply understand more about your customers and communicate change activities inside the organisation, CapFeather can:

• Conduct further research with clients

• Map the client journey

• Design the target state experience

• Run an innovation and change process to create the ideal result for the organisation

Alternatively, if you have a goal to move quickly to be a market leader or get a new revenue opportunity, CapFeather can help you:

Use the Lean CX Methodology to find and market test a new opportunity

Phase 1: Prepare and align the teams

Phase 2: Find an adjacent market position for the organisation

Phase 3: Design a minimum viable initiative to market test

Phase 4: Scale and refine the initiative with real market feedback 

The Lean CX Book

Lean CX: How to Differentiate at Low Cost and Least Risk by Dr Robert Dew, Bill Russell, George Bej, Cyrus Allen is now available at your favourite book supplier.

Find out more about the Maturity Diagnostic Workshops

Get in touch with:

Dr Robert Dew

Senior Partner

Why CapFeather?

We help mature firms find new and sustainable opportunities by looking beyond the immediate horizon.

Ambidexterity is needed for exponential growth. While your team excels at business right now, we help you design the path for its future success.

Over 20 years of senior advisory, our people have worked on more than 200 projects to deliver bottom line growth and new revenue through product and service innovation - achieved though compelling customer relationships.

References

[1] Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck, The Big Idea: The New M&A Playbook, Harvard Business Review March 2011

[2] PWC CEO Success Study 2018

[3] Lean CX: How to Differentiate at Low Cost and Least Risk by Dr Robert Dew, Bill Russell, George Bej, Cyrus Allen, De Gruyter 2021

[4] Charles A. O’Reilly III and Michael L. Tushman, The Ambidextrous Organization, Harvard Business Review, April 2004

[5] Mehrdad Baghai, Stephen Coley, and David White, The Alchemy of Growth, New York: Perseus Publishing, 1999.