Blog 4 - Rippen Liu

Taking Strategy to Implementation

The extensive discussions of the term “strategy” and the validation of whether certain companies have the “true source of strategy” remind me of the “moat theory” brought up by Warren Buffett. “Moat” is a term that refers to when Buffett believes a company actually has a true differentiator that is hard for the rest of the players in the industry to catch up, at least for the foreseeable next few years. Further, Buffett believes that a company doesn’t necessarily have to make profits every year, but he would like to see the “moat” widening. From this strategy, Buffett and Berkshire Hathaway have invested in multiple gems such as Costco Wholesale. Interestingly, what’s so special about Costco? How different is it from Walmart, Target, and all the other supermarkets anyway? Well, it turns out by selling in bulk Costco is able to optimize the supply chain, get a very competitive price on every item, which in turn selling very competitive prices directly to the consumers. Through this way, Costco has been able to attract a loyal sum of customers, therefore the wide “moat” that competitors such as Walmart, Target, even Amazon cannot catch up with.

The idea of “moat” can be pretty much understood as competitive advantages. True competitive advantages that can stand the test of economic fluctuations. In the same sense, Amazon is another clear example of “moat”. For 10+ years, the company hadn’t been profitable, but the shareholders were not worried at all, and in fact, have encouraged the act. Why? Amazon could have easily been profitable anytime it wanted, but the internet giant just put the extra money right back into building the “moat”. It now has one of the best, most advanced warehouse and supply chain systems in the world, which guarantee the insane “one-day delivery” which has, and will for most, competitors to catch up with. 

On the other hand, one of the classic counter-example of “putting yourself ahead of trend” is BlackBerry. At the time, BlackBerry is an exemplary corporation of executing “consumer needs”. It pretty much nailed every aspect of the customer needs and reached high customer satisfaction: physical keyboard, size, battery, etc. The company had zero intention of exploring what would be the next frontier of cellphones, and they had some of the best reasonings as well: “We have one of the best customer satisfaction!”.

Another counter-example is the Next computer, the failed adventure that was led by Steve Jobs. I watched one of the clips online showing Steve Jobs’ analysis of the competitive market at the time. Basically, there was a consumer world, and there was a professional world. What Next computer realized was that since they had way more computing power to stay in the consumer world, why shouldn’t they enter the professional world as well, although the market was quite competitive with a few established players such as Sun. However, the competitive advantage that Steve Jobs defined Next had over the competitors, were not true “moats”. He and the team were proud of the easy-to-use and intuitive interfaces, which were far better than the competitors. This was absolutely true. However, the thing about the professional world is, the much better user interface does not make that much of a difference, especially if you have such a high price tag. 

In terms of implementing strategies in the real world, there will always be choices and sacrifices, and different companies will select dramatically different choices, but the most important criteria above all are to recognize whether your competitive advantages put through your strategy are true advantages. In practice, it means constantly testing your strategy with objective guidelines to screen out subjective assumptions as much as you can, and don’t be afraid to make drastic changes once you realize your strategy can’t answer the majority of the testings.