Posts Tagged ‘Peril’
Monday, December 3rd, 2012
Harvard’s #1 Strategy Guru: “The key decision to make your business excel”
Monday, October 29, 2012
by Dan Richards, ClientInsights.ca
Competition has brought many once-dominant names to the brink of survival– think General Motors, Kodak, Sears and Xerox. There’s an important lesson here that advisors ignore at their peril.
“For your business to thrive, you shouldn’t compete to be the best. Rather, you should compete to be unique.”
That was the key message delivered at a recent talk by Harvard Business School’s Michael Porter. The author of 18 books on strategy and six-time winner of the award for best Harvard Business Review article of the year, Porter is today’s undisputed leading voice on competitive strategy and positioning.
And he had an important message for financial advisors.
The flaw with being the best
Porter began by addressing the flaws with the goal of being the best, a notion popularized by former General Electric CEO Jack Welch, whose dictum was to exit any business in which GE couldn’t be number one or two in market share.
Porter presented a different view. The notion that you have to be the best comes from the world of sports and war, where there is one winner. The problem with that “winner take all” mindset is that the field is littered with the losers, with only one winner emerging. The battle to be the best also leads to a focus on operational excellence, where businesses strive to out-execute, doing the same things as their competitors, only better.
There are two big downsides to this approach. First, given the growing focus on industry “best practices”, this can be a difficult strategy to sustain over time. And second, focus on operational efficiency alone can lead to a downward spiral of price competition as firms try to squeeze other entrants by capitalizing on their lower cost structure.
In Porter’s view, a better analogy comes from the performing arts, where you can have many outstanding entertainers and actors, each building his or her own distinct audience. And by having multiple performers thriving, they expand the total audience as a result.
And he pointed to retailing, where it’s possible to have successful companies as different as Walmart and Costco on one hand and Tiffany’s and Coach on the other. The thing that successful retailers have in common: They have homed in on a distinct audience.
The problem with IKEA
Porter used IKEA as an example, a company on everyone’s list of retail success stories
But Porter hates IKEA – he hates the long drive to get to their stores, the huge parking lots, the unending winding trek inside the store with no ability to cut it short, the lines to pay, the trek to get the furniture home and then the hassle of assembling it. If it was up to him, he would never set foot in IKEA again..
But when his daughter was a university student in Washington DC, she loved IKEA — whenever he visited her during his trips to Washington, she asked him to rent an SUV so that they could make an IKEA run for her apartment.
Porter’s point: IKEA isn’t concerned in the slightest that he hates shopping there, because he’s not its target consumer. What IKEA cares about is that it’s put together a unique value proposition that appeals intensely to his daughter and her friends – because they’re the audience it’s targeting.
“Are you Sears or are you Target?”
The advantages of having a narrowly targeted audience are indisputable. Think successful retailers: Unique niche players are the first to come to mind — Apple Stores, H&M, Lululemon and Zara. Even within the realm of mass retailers, look at the success stories of upscale entrants Bloomingdales, Nordstrom, Target and Neiman Marcus at one extreme and lower end retailers such as Winners and dollar store leader Dollarama at the other. These each deliver a unique value proposition to a targeted audience – and present a dramatic contrast to the struggles of Sears and JC Penney in the U.S. and the Bay in Canada that cater to everyone and have strong appeal to no-one.
The problem is that most advisors look much more like Sears than Target — failure to be unique is arguably the biggest thing holding most advisors back. Indeed, when I ask advisors how they’d respond to a prospect’s question about what sets them apart, here are the most common answers:
“our focus on planning”
“putting clients first”
“a disciplined investment approach”
“our conservative philosophy”
While all of these traits are important, the difficulty is that they fail to be differentiating – if everyone uses the same words to describe how they work, nobody stands out.
What you do – or whom you do it for?
Note that all these answers focus on what advisors do rather than whom they do it for. Most advisors are generalists, dealing with business owners in the morning, clients planning retirement at lunch and retirees in the afternoon. That’s because this is how most advisors started in the business – trying to appeal to as broad a market as possible and indiscriminately working with any client who’d have them.
That may have made sense when advisors were starting out – but all too many advisors have failed to evolve, continuing to use the same approach as when they began. In fact today the primary basis on which most successful advisors target new clients is based on minimum assets and price sensitivity, almost never by need. And by trying to serve everyone, advisors are unable to fine-tune their practice to the specific needs of any one unique group.
Three things happen as a result:
1. Advisors fail to develop specialized expertise and operational efficiencies that come from focus and that would allow them and their team to develop a unique, targeted value proposition in their marketplace.
2. Consequently, they fail to serve anyone exceptionally well – and end up with clear competitive differentiation
3. The outcome of which is that advisors struggle to charge a premium price and are unable to build a strong reputation and get word of mouth going for them, the most powerful form of marketing there is.
Getting there from here
The challenge with a focused, unique value proposition is that it entails making trade-offs; to serve one group exceptionally well, you have to decide to de-emphasize other groups.
And Michael Porter pointed out that people resist making trade-offs: “People hate to choose” he said “because in choosing, they focus on what they give up rather than on what they gain.”
Porter finished by summarizing the essence of successful strategy that results in superior performance:
1. By narrowly defining whom you work with and the needs you address, you can achieve competitive advantage within the group on which you’ve chosen to focus
2. As a result, you create superior value for your target customers
3. And you capture some of that value for yourself
After Porter’s talk, I spoke to a Chairman’s Club producer at a bank owned firm who has a traditional generalist client base – but who especially enjoys dealing with successful entrepreneurs and their multiple holding companies as well as complex succession issues. That’s also where he feels that he provides the clearest, most concrete value.
This advisor has no plans to abandon the hard-won clients that currently pay the bills. What he is looking at, however, is a three year plan to shift the focus of the new clients he attracts to concentrate on entrepreneurs. That decision will shape the expertise he builds on his team, how he organizes his practice and where he focuses his networking efforts and marketing investments.
You don’t get to hear Michael Porter every day – his talk was the keynote at an alumni day sponsored by the MBA program at the University of Toronto, where I’ve taught for 20 years. Indeed, one of the other attendees told me he’d graduated from Harvard Business School 15 years ago – and heard more from Porter in his 90 minute talk than he had in the entire two years doing his MBA.
The limited opportunities to hear from today’s #1 thinker on strategy makes it all the more important that you pay serious attention to his message. If you’re frustrated by the failure of your business to excel, consider whether your problem may be that you’ve fallen into the trap of putting too much focus on operational efficiency and being the best — and whether you need to focus instead on being truly unique.
That’s the advice Michael Porter provides to the large multi-national companies that pay his million– dollar consulting fees – and chances are that’s the advice he’d give you as well.
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Tags: Analogy, Brink, Competitive Strategy, Dictum, Downward Spiral, Financial Advisors, General Electric, General Motors, Harvard Business Review, Harvard Business School, Losers, Michael Porter, Mindset, Operational Efficiency, Operational Excellence, Peril, Price Competition, Sears, Time Winner, World Of Sports
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Wednesday, November 16th, 2011
The investment landscape has altered fundamentally since last fall.
One of the important changes is a basic shift in what investors look for in terms of communication from their advisors.
In my October column in Investment Executive, I outlined four new imperatives for client communication that advisors ignore at their peril.
Since last fall, I have talked to more than 500 investors in round-table focus groups and one-on-one interviews about their response to the market downturn.
Some of the things that investors seek from their financial advisors have stayed constant . Investors still look for advisors who listen, demonstrate they care, put their clients’ needs first and provide advice tailored to each investor’s needs along with the ability to recommend solutions that choose from the widest range of offerings.
At the same time, a fundamental shift has occurred in some other things that investors look for from their financial advisors – and four new imperatives have emerged.
Imperative one: Demonstrate empathy
In many cases, the first priority for financial advisors is to establish a bond of empathy and to tap into client feelings – often, clients are unable to listen to their advisor until they first feel listened to.
If an advisor hasn’t had an indepth conversation about how a client feels, one of the better ways to start a meeting is to say something like: “Many investors have lost sleep because of the market events last fall. Tell me, how have you been affected by the market over the past while?”
Imperative two: Provide guidance and direction… with an outlook of balanced optimism
While almost no one is happy with what’s happened to their portfolios in the past, most investors aren’t blaming their advisors for this – they see everyone they know in the same boat.
What is causing dissatisfaction among many investors is what’s happening today. Many clients say that their advisor is overly passive and not providing direction on what they should be doing going forward. Today, investors are looking for guidance on how to move forward – and if they don’t get it from their existing advisor, they’ll look elsewhere. Even given the uncertainty of today’s environment, advisors need to sit down and talk to clients about the different scenarios for the period ahead and the implications for their portfolios.
Imperative three: Incorporate fresh perspectives
A common complaint among investors is that their portfolios are unchanged since the market meltdown began last fall – a comment I hear a lot is “If my portfolio made sense then, given everything that’s changed, I don’t see how it can be right now.”
In cases where investors are in mutual funds or managed money, of course, their portfolios have been actively managed – and it’s incumbent on the advisor to help clients understand how their investments have changed.
In other instances, it might make sense to introduce a new element into client portfolios, such as investment grade corporate bonds. Clearly, any recommendation has to be appropriate and you never want to make change for the sake of change – but failing to recommend appropriate changes runs the risk that clients will see their advisor as taking them for granted.
Imperative four: Ramp up communication
The final new imperative for advisors relates to the demand for communication.
The events of last fall have dramatically heightened demand for frequency of contact – whatever level of contact clients wanted a year ago, it’s almost certainly higher today.
And it’s not just demand for quantity that has increased – many investors are looking for more substantive commentary on prospects for the market and for their portfolio.
Many advisors can’t meet this demand simply by increasing the number of meetings and phone calls. New communication vehicles need to be be used to supplement the traditional personal contact – emailing articles, conference calls and group sandwich lunches in a boardroom to name just three.
The events of last fall have caused investment managers to re-examine their practices and adopt new approaches – in a similar vein, to be effective investment advisors need to fundamentally rethink their approach to client communication, bearing these four new imperatives in mind.
To read the full article, look at the October issue of Investment Executive.
And to watch a video summarizing these changes, click play on the following video:
Tags: Array, Client Communication, Dissatisfaction, Empathy, Feelings, Financial Advisors, First Priority, Focus Groups, Fundamental Shift, Guidance, Hasn, Imperatives, Indepth Conversation, Investment Executive, Investment Landscape, Investors, Market Downturn, Offerings, Optimism, Peril, Portfolios
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