In the article titled "Bringing Science to the Art of Strategy" (A.G. Lafley, Roger L. Martin, Jan W. Rivkin, and Nicolaj Siggelkow) state that the key to creating novel possibilities in strategic planning is to recognize that conventional strategic planning is not actually scientific, because there is no generation of a hypothesis and testing of those hypotheses. The authors state that to produce novel strategies teams need to adopt a step by step process in which creative thinking yields possibilities and rigorous analysis tests them. They offer a framework by which teams can go about "framing" the opportunities and then fleshing out these opportunities using the scientific method while at the same time using organizational management structures to ensure inclusiveness and avoid unnecessary influence.
One of my previous posts (Back Bay Battery Question #2) outlines a perfect example of a company that would have benefitted from framework outlined in this article.
Monday, August 3, 2015
A Novel Strategy - Saving a dying ISP
In the early 90's I worked for a mom and pop ISP (Internet Service Provider) called Netrus.net. Netrus was a pioneer in the (ISP) market in the South Florida market. Netrus was initially created to provide satellite internet services in remote areas where land based internet service could not be delivered. Netrus provided T1s, frame relay and website design as well but their core competency was providing internet access. Over time Netrus was able to succeed because they had the advantage of being one of the first few ISP’s in the South Florida market. For many years, Netrus was profitable and continued to grow. Unfortunately AT&T, Comcast, Dish, DIRECTV and other large media and cable companies used their existing infrastructure (wiring into homes, neighborhoods, buildings) and were able to deliver faster internet services than what traditional dial-up based internet services providers could compete with. Netrus did not recognize the threats and did not make any strategic plans to alter its trajectory and was eventually forced out of business (its clients were eventually sold off to another ISP). I often think of what the company could have done to avoid closing its doors. I was not privy to senior management meetings but the article hit home for me. I can see where the framework described in the article could have been used to generate multiple options for Netrus. The article states that the issue must be converted into at least two options. In keeping to this Netrus could have framed their choices into the following:
Step 1: (Framing a choice)
Step 2: (Generate possibilities)
· Status quo (unsustainable)
o Continue to provide traditional dial-up internet services while massively funded media and cable companies enter the market with newer and faster technologies and force prices downward.
· Netrus pivots (become a CDN (content delivery network)
Step 3: (Specify conditions)
o Netrus’s largest customers do not have a content delivery network but are struggling to provide their subscription base with better streaming and content delivery options.
o Content providers need to be able to deliver localized content quickly to different parts of the world without hoping around the internet (reduce latency)
o Content provider must be willing to pay a premium for the ability to deliver content through a CDN.
o Netrus has data centers in every major airport in the South East and therefore has the ability to deliver content locally to the South East where most of its large clients do business.
o There are very few competitors in the market providing CDN type services.
Step 4: (Identify barriers)
o Significant investment needed to upgrade Netrus’s infrastructure and bandwidth
o Unproven ability to sell this offering to existing Netrus clients and new clients.
o Netrus will need to hire highly skilled networking engineers to manage more complex infrastructure.
Step 5: (Design test)
o Create a survey to poll existing Netrus clients regarding interest in CDN
o Create a poll to test price sensitivity of potential CDN customers
o Create a method to test existing infrastructure to determine existing capacity of Netrus’s network.
Step 6: (Conduct tests)
o Poll existing Netrus clients regarding interest in CDN
o Poll existing and new clients regarding price of CDN offering
o Test existing infrastructure to determine existing capacity
Step 7: (Make a choice)
o Review key conditions and reach a decision
Using this simple example, Netrus’s senior management could have generated opportunities to take the company in a different direction. Through the framework it is clear to see that its traditional internet services offering will no longer be able to sustain the company’s growth and profits. A new line of business needs to be created. In order to do that a new direction needs to be charted. A new strategy needs to be adopted. Using the framework one of those strategies could have been the transformation of Netrus into a Content Delivery Network (ex: Akamai).