With an eye on the margins
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In Edge Strategy: A New Mindset For Profitable Growth, writers Dan McKone and Alan Lewis advise companies to literally look at the margins of their businesses. “We define ‘edge’ as the outer rim that frames what you do, and separates it, quite conveniently, from what you don’t,” they write. McKone and Lewis, both of whom are managing directors and partners in the Boston, US, office of LEK Consulting, a global management consulting firm, explain in their book how companies can exploit these edges for additional profits from existing assets and business relationships. Edited excerpts from an email interview:
What is the “edge strategy”?
The edge strategy is a disciplined approach to finding new opportunities in your existing business. By finding new offerings for your existing customers and additional ways to capitalize on your assets, your company can dramatically increase its profitable growth while reducing risk.
Could you give an example?
A big success of the edge strategy has been the Amazon Web Services (a collection of cloud-computing services). The company took some of what we call the foundational assets of their business—the infrastructure to store, process and deliver vast quantities of data—and moved it from the back office to the front room. Now Amazon has a whole series of products that offer other companies access to its capabilities in computing, logistics transactions and more. While these services are a small portion of Amazon’s revenue, they represent the bulk of its profits.
Tell us about edge strategy for businesses that deal in huge volumes of data.
For many companies, data represents their most under-utilized asset. There is information in routine accounting systems and customer databases that can be mined and analysed not only to support the service of a company’s existing customers but, occasionally, to create new products for a new set of clients. The way to determine if your data harbours an “enterprise edge” (or a strategic by-product that can be exploited) is to ask, “Who besides a direct competitor would pay me for use of my data?”
Toyota, for example, has information on the real-time positions of cars in Japan that use its GPS navigation systems. It now aggregates the information and sells it to trucking firms that need to optimize their delivery routes and municipalities that want to reduce congestion. Data that was little more than industrial waste has become a product that costs $2,000 (around Rs.1.32 lakh) a month and up.
Could you tell us five ways in which companies can find their “edges”?
The first step is to realize that this isn’t a one-time exercise. Rather, it is a set of skills and disciplines to cultivate, much like judo training for a business executive. Once you have learnt how to recognize and exploit the edge-strategy patterns, you can use the skills in many situations.
Second, focus your attention on the grey areas on the periphery of what you do now. It is here, with activities you may have dismissed as not related to your core business, that many of the best opportunities can be found.
Third, study your customers to understand what they are trying to accomplish. When you look at your business from the perspective of your customers’ journeys, you will likely find gaps, products or services that will help them get where they want to go.
Fourth, create an inventory of all the assets of your business, not just physical assets, but the information, skills, brands and everything else you use to create value. For each of these, ask who else—other than a direct competitor—would pay you to use them. It’s often surprising how many answers you come up with.
Finally, take an honest look at your existing products to see if you are giving your current customers too much. Products typically include a bundle of features that are not equally valued by every customer. Creating limited-core offerings with a range of add-on services can lower costs, boost margins and offer more personalized solutions for your customers.
What is “edge-based upselling”?
The classic good-better-best approach is to create a line of products, bundled with increasingly attractive features for higher prices. Our approach is to be more granular, to find specific needs and desires of certain customer groups that can be delivered as optional services.
Take the Cirque du Soleil, a Canadian entertainment company. Sure, if you pay more for a ticket, you sit closer to the stage. But Cirque also recognized that some of their best fans want even more. So they created premium packages to let customers go backstage and meet the cast. This is pure incremental profit.