What Makes You (and Tully’s) Special? A Bain & Co. Primer
The Source
Bain & Company is a global management consulting firm founded in 1973 with 48 offices in 31 countries around the world. The firm’s clients include many of the largest organizations that comprise the Fortune 500 and it boldly claims that its clients out-perform the market (as measured by the S&P 500, a standard market index) by a ratio of 4:1.
Of the three elite “pure strategy” consultancies – McKinsey & Co., The Boston Consulting Group, and Bain & Co. – I most resonate with Bain and, if Bain had an office in Seattle, I probably would’ve applied for a job in its mailroom just for a chance to be a cog in its high-performance engine. I was granted permission by Bain & Co. to reference and apply its products and I want to share its strategy team’s position on the key to business success.
The Sustainable Business Model
In The Great Repeatable Business Model, authors Chris Zook and James Allen, co-leads of Bain’s global strategy practice, state that “Differentiation is the essence of strategy, the prime source of competitive advantage…The sharper your differentiation, the greater your advantage.”1
“In studying companies that sustained a high level of performance over many years, we found that more than 80% of them had this kind of well-defined and easily understood differentiation at the center of their strategy…Every industry has leaders and laggards, and the leaders are typically the most highly differentiated.
“…Most really successful companies do not reinvent themselves through periodic ‘binge and purge’ strategies. Instead they relentlessly build on their fundamental differentiation, going from strength to strength.
- They learn to deliver their differentiation to their front line, creating an organization that lives and breathes its strategic advantages day in and day out;
- They learn how to sustain it over time through constant adaptation to changes in the market; and
- They learn to resist the siren song of the idée du jour better than their less-focused competitors.
“The result is a simple repeatable business model that a company can apply to new products and markets over and over again to generate sustained growth.”
Challenges of Growth
However, Zook and Allen also warn that differentiating advantages deteriorate over time. Sometimes the reason is that competitors make adjustments and the market landscape changes but the greatest cause is that the growing business becomes more complex:
“The growth generated by successful differentiation begets complexity, and a complex company tends to forget what it’s good at. Products proliferate. Acquisitions take it far from its core. Frontline employees, more and more distant from the CEO’s office, lose their sense of the company’s strategic priorities. A lack of consistency kills economies of scale and retards the company’s ability to learn.”
The Formula
Zook and Allen state that the keys to replicating your successes are:
- Deeply understanding the root causes of success,
- Maintaining a 360-degree view of where they could be adapted, and
- Ensuring that the entire organization internalizes the strategy and the differentiation on which they are built.
They say the best way to grow is usually by replicating your strongest strategic advantage in new contexts. Companies typically expand in one of four ways. They:
- Create or purchase new products or services,
- Create or enter new customer segments,
- Enter new geographic locations, or
- Enter related lines of business.
And once you identify your differentiation, you need to support it by developing:
- Non-negotiable principles – identify and disseminate the core differentiating principles throughout the organization, all the way down to the front line, and
- Robust learning systems – create a rapid learning and adaptation system to respond to market changes (i.e., a customer or sales staff feedback system married with an employee training program to apply the newly learned insights).
The Bottom Line
“…the simplest strategies, built around the sharpest differentiations, have hidden advantages not only with customers but also internally, with the frontline employees who must mobilize faster and adapt better than competitors. When people in an organization deeply understand the sources of its differentiation, they move in the same direction quickly and effectively, learning and improving the business model as they go.”
The Dempsey Strategy for Tully’s
It was reported recently that actor Patrick Dempsey and his team won the bid for Seattle-based Tully’s Coffee retail stores in TC Global, Inc.’s Chapter 11 bankruptcy auction, beating out Starbucks Corporation and others.2 Dempsey’s company, Global Baristas LLC, reportedly offered $9.2 million for the struggling 47-store coffee chain.
It’s a heroic moment for Dempsey who endeared fans on the hospital drama Grey’s Anatomy and became endeared with Seattle, in which the show is fictionally set. The report stated that “The star actor says he hopes to provide Tully’s with some energy.”
“Our employees need to have a morale boost, they need to feel confident,” he said. “I need to get to know them and I need to get to know the communities and I need to spend a lot more time here. I really like it here, I like waking up and being in this town.”
It’s definitely a feel-good scene but, I’ve spent more than my fair share of time in both Tully’s and Starbucks’ coffee houses, and unless the good TV doctor wants to see his $9.2 million slowly burn away like raw coffee beans in a roaster, he’d be well advised to invest in market research to learn how he can differentiate the consumer experience in Tully’s retail stores and/or work with Green Mountain Coffee Roasters, Inc., the owner’s of Tully’s wholesale business, on R&D if he expects the company to realize a different fate in the specialty coffee market.
From the Fortune 500 to Your Small & Midsize Business (SMB)
For your convenience, I’ve summarized the Bain & Co. business growth model as follows:
- Identify your core business and create systems that perpetuate and support the core. Keep things simple.
- Make sure everyone in the organization understands the differentiating advantage(s) of your business.
- After your organization is successfully operating the business, grow the business by moving into its adjacencies – either a new product/service, new customer segment, new geographic location, or related line of business.
- Repeat Step 2. Should the market situation become difficult, re-focus on the core business.
Click on the thumbnail to see the image in its full size.
How I Can Help
I can help your organization focus on its core business, identify adjacency opportunities, and grow a high performance organization. For a complete strategic assessment of your organization and/or to develop a 360-degree business growth strategy, contact me to get started.
References:
- Chris Zook and James Allen, “The Great Repeatable Business Model,” Harvard Business Review, November 2011, http://hbr.org/2011/11/the-great-repeatable-business-model/ar/1.
- “Patrick Dempsey does Seattle on first day as Tully’s owner.” Seattle Post-Intelligencer, January 4, 2013. http://www.seattlepi.com/local/komo/article/Patrick-Dempsey-does-Seattle-on-first-day-as-4167955.php.