7 Modern Marketing Frameworks Every Startup Needs to Know

Lloyd Alexander

As a young marketer navigating the digital landscape, I love frameworks. Not only do they help me plan and prioritize, but they help me visualize how everything I’m working on fits together.

No, I won’t be talking about (and I’m looking at you, classically trained marketers) the 4Ps, Porter’s 5 forces, or SWOT analyses. Sure, those frameworks have their place, but they don’t provide much direction for startups looking to focus their energy on growth. Plus, they’re getting pretty old.

The frameworks below were developed by modern marketing gurus. Together, they’ll help you make a growth strategy, select traction channels, and influence your customers’ behavior.

Growth Frameworks

Let’s start off with some growth frameworks. These models will help you determine how to grow, when to grow, and what metrics you should be tracking.

1. The Startup Pyramid

Sean Ellis (CEO of Qualaroo, godfather of growth hacking) uses this framework when thinking about startup growth. This one is great because it gives you a rough game plan depending on what stage your business is in. The pyramid is comprised of three stages:

• Product/Market Fit: Appropriately at the base of the pyramid, the first and most fundamental part of the model is achieving product/market fit. The idea behind this is that you should never waste resources on growing something that people don’t want. If you go down that path, you’ll just die trying.
• Transition to Growth: Once you know you have something people want, it’s time to transition to growth. This part of the model involves understanding what makes your product valuable to people and how you can get more people to experience this value. More specifically, you’re setting yourself up for success in the next phase by maximizing your conversion rate.
• Growth: Now you’re finally ready to put the gas on some growth channels and bring on the traffic. This stage begins with testing channels and analyzing their performance. After that, you’ll want to optimize and double-down on the high performers. As for selecting channels in the first place, I’ll dive into some other frameworks that will help us with that later.

(http://www.startup-marketing.com/the-startup-pyramid/)

2. Pirate Metrics: “AARRR!”

Dave McClure (Founder of 500 Startups) developed Pirate Metrics to guide startups on their quest to acquire and convert customers. I love this framework because it’s easy to see how a user might go through this funnel, and it shows you where your metrics are suffering the most.

Let’s take a look at the basics:

• Acquisition: How do users find you in the first place? Think of your growth channels. This could be from paid search, a Facebook ad, a piece of content, etc.
• Activation: Did users actually do anything once they landed on your site? While user activation will be defined differently for each business, this could be as simple as signing up for an account, to something more involved like completing a profile.
• Retention: Do users come back? Here you’ll have to define what it means for a user to be inactive. For your business, this could mean a user that hasn’t made a purchase in a two-month period. Calculate your churn rate and, as a starting point, make sure it’s at a good level for your industry.
• Revenue: How do you make money? Of course, all of this is pretty pointless if you don’t have a way to make money. Here you can look at metrics like customer lifetime value(LTV), conversion rate and shopping cart size.
• Referral: Do users tell others about your product? If they do, you’re benefitting from some degree of virality. This magnifies the effect of any of your acquisition efforts, and is particularly useful if you engage in paid acquisition. It effectively lowers your customer acquisition cost (CAC) because every user obtained brings on more users themselves.

(http://500hats.typepad.com/500blogs/2007/09/startup-metrics.html)

3. Lean Analytics Stages

In their book Lean Analytics, Alistair Croll and Ben Yoskovitz present their own framework called Lean Analytics Stages. Their model combines elements from a number of different frameworks, including the two above. In their view, startup growth is best broken down into five key stages:

• Empathy: The purpose of this stage is to inform the development of your minimum viable product (MVP). The metrics at this stage are mostly qualitative, since you’re empathizing with your customers and listening to their feedback. You’re ready for the next stage when you’ve identified a problem that you know you can solve profitably in a sizeable market.
• Stickiness: Now you need to build something that keeps people coming back. Engagement and retention are the focus here as you iterate your MVP to optimize these metrics. You’re ready for the next stage once you’ve got an engaged user base and a low churn rate.
• Virality: Before throwing money into advertising, you’ll want to maximize the growth you get from existing customers. As I mentioned before, virality helps you get more out of your marketing dollar. Once you’re seeing a good amount of organic growth, you’re ready for the next stage.
• Revenue: Once again, you’ve gotta make some money. On top of that, you need revenue coming in to fuel customer acquisition efforts. This is where you’ll be tweaking your business model to prove you can make money in a scalable way. CAC and LTV are important metrics here as you ensure customers bring in more money than they cost to acquire. When you’ve reached your revenue and margins goals, you’re ready to scale this thing.
• Scale: As a company that now knows its product and market very well, efforts will now be focused on making more money from your current market and/or entering new markets.

Channel Selection Frameworks

With so many possibilities and a million things to do, it’s hard to decide where to put your marketing efforts. These frameworks will help you find your killer acquisition channels.

4. The ICE Score

There’s two ICE frameworks. This one helps you prioritize what to test first by: measuring the impact of the test (impact), confidence level in the test working (confidence), and how easy the test is to implement (ease).

Here’s Sean Ellis with another dose of genius — the ICE score. I love this one because it’s a quick and dirty way to evaluate potential growth channels. All you have to do is ask yourself three questions:

• What will the impact be if this works?
• How confident am I that this will work?
• How much time/money/effort is required?

Let’s put this in context. When Airbnb first came up with the idea to integrate with Craigslist, the potential impact was undeniable. If this worked, they’d tap into Craigslist’s massive user base. They were confident in the idea, since they had team members that could pull it off, and no user would say no to more traffic on their listings. However, this plan would require a fair amount of effort from their team to get the integration up and running. Ultimately, Airbnb went for it due to the potential impact and their confidence in the idea — and it definitely paid off!

The second ICE framework helps you prioritize by: measuring growth and company benefits (impact), determining the cost of implementing (cost), and understanding the amount of resources required to test (effort).

5. The Bullseye Framework

The Bullseye Framework, developed by Gabriel Weinberg and Justin Mares for their bookTraction: A Startup Guide to Getting Customers, gives us a more in-depth model for channel selection. Their five step framework breaks down the process of finding the one channel you should focus on (bullseye!):

• Brainstorm: Naturally, you’ll have biases towards certain traction channels. To avoid missed opportunities, they suggest thinking of at least one idea for each of the 19 traction channels. I won’t list those here, but Traction covers all of them in detail!
• Rank: This step has you thinking critically about your mountain of ideas. The goal is to categorize ideas as either high potential, possibilities, or long-shots.
• Prioritize: Now you want to re-think your categories once again, carefully selecting your top three high potential channels.
• Test: With your three ‘high potentials’, you can now devise cheap tests to gauge feasibility. The goal here is to find which one of these channels is worth your undivided attention.
• Focus: Armed with your test results, start directing resources towards your most promising channel. You’ll want to squeeze every bit of growth out of this channel by continually optimizing results through experimentation.

Behavioral Frameworks

To close out this list, let’s take a look at two frameworks you can use to influence user behavior. You’ll notice these tie in nicely with key growth concepts we talked about earlier — stickiness and virality.

6. The Hook Model

User psychology guru Nir Eyal presents the Hook Model in his recent book, Hooked: How to Build Habit Forming Products. He suggests that the products we use regularly work their way into our lives by cultivating habitual user behavior. He also believes that these habit forming products follow a similar iterative cycle:

• Trigger: Bringing a user into the cycle starts with a trigger. At first these will be in the form of external triggers such as push notifications, but as the cycle repeats they will convert into internal triggers that will continue to drive the user forward. Since negative emotions are often internal triggers, one example would be a pang of loneliness followed by the urge to jump onto Facebook.
• Action: The easier it is to do something, the more users will do it. Habit forming products make action easy.
• Variable reward: To create a habit, it’s necessary to reward the action that was triggered. However, research shows that humans are motivated by the anticipation of a reward. By adding variability into the reward system, you increase anticipation. Think about the sweet sweet anticipation that you might have a notification waiting for you on Facebook.
• Investment: Finally, to solidify the habit, users need to invest themselves in your product. On Facebook we build a network of friends, and on Instagram we have collection of photos. These investments make it hard to leave.

7. STEPPS

Jonah Berger, author of Contagious: Why Things Catch On and creator of STEPPS, says it best: “Virality isn’t luck. It’s not magic. And it’s not random. There’s a science behind why people talk and share. A recipe. A formula, even.” Luckily, you can use this formula to create your own contagious content:

• Social currency: People care about how they are perceived by others. Use this to your advantage, and people won’t be able to resist talking about you. Invite-only web apps harness this by making users feel like insiders.
• Triggers: If people are frequently reminded of your product, they’ll talk about it more. Jonah notes the example of Rebecca Black’s song “Friday” having a huge spike in plays on — when else? — Fridays.
• Emotion: Content is more likely to go viral if it is highly emotional. The type of emotion matters too — something that evokes anger (a high arousal emotion) is more likely to be shared than something that evokes sadness (a low arousal emotion).
• Public: The more public something is, the more likely people will talk about it. Think about the ALS Ice Bucket Challenge: the creators were able to take something that was normally private (donating to charity) and make it very public. Genius.
• Practical value: People like to share things that are useful. Make high value content and they’ll pass it on. Like this article for instance! 
• Stories: People like to tell stories. Jonah describes stories as your Trojan Horse—build compelling narratives, and they’ll carry your idea along for the ride.

While this is just a quick overview of some of my favorite modern marketing frameworks, you probably have an idea of how each one might apply to you. I’d recommend diving deeper into each one and thinking about how you can apply them to your business.

https://cutt.ly/h72hz85

10 Principles of Organization Design

These fundamental guidelines, drawn from experience, can help you reshape your organization to fit your business strategy.

by Gary L. Neilson, Jaime Estupiñán, and Bhushan Sethi

Illustration by Lars Leetaru

A global electronics manufacturer seemed to live in a perpetual state of reorganization. A new line of communication devices for the Asian market required reorienting its sales, marketing, and support functions. Migration to cloud-based business applications called for changes to the IT organization. Altogether, it had reorganized six times in 10 years.

Suddenly, however, the company found itself facing a different challenge. Given the new technologies that had entered its category, and a sea change in customer expectations, it needed a new strategy. The CEO decided to shift from a product-based business model to a customer-centric one. That meant yet another reorganization, but this one would be different. It had to go beyond shifting the lines and boxes in an org chart. It would have to change its most fundamental building blocks: how people in the company made decisions, adopted new behaviors, rewarded performance, agreed on commitments, managed information, made sense of that information, allocated responsibility, and connected with each other. Not only did the leadership team lack a full-fledged blueprint—they didn’t know where to begin.

This is an increasingly typical situation. In the 18th annual PwC survey of chief executive officers, conducted in 2014, many CEOs anticipated significant disruptions to their businesses during the next five years as a result of external worldwide trends. One such trend, cited by 61 percent of the respondents, was an increasing number of competitors. The same number of respondents foresaw changes in customer behavior creating disruption. Fifty percent said they expected changes in distribution channels. As CEOs look to stay ahead of these trends, they recognize the need to change the organization’s design. But for that redesign to be successful, a company must make its changes as effectively and painlessly as possible, in a way that aligns with its strategy, invigorates employees, builds distinctive new capabilities, and makes it easier to attract customers.

Today, the average tenure for the CEO of a global company is about five years. Therefore, a major reorganization is likely to happen only once during that leader’s term. The chief executive has to get the reorg right the first time; he or she won’t get a second chance. Although every company is different, and there is no set formula for determining your appropriate organization design, we have identified 10 guiding principles that apply to every company. These have arisen from years of collective research and practice at PwC and Strategy&, using changes in organization design to dramatically improve performance in more than 400 companies across industries and geographies. These fundamental principles point the way for leaders whose evolving strategies require a different kind of organization than the one they have today.

The chief executive has to get the reorg right the first time; he or she won’t get a second chance.

1. Declare amnesty for the past. Organization design should start with corporate self-reflection: What is your sense of purpose? How will you make a difference for your clients, employees, and investors? What will set you apart from others, now and in the future? What differentiating capabilities will allow you to deliver your value proposition over the next two to five years?

For many business leaders, answering those questions means going beyond the comfort zone. You have to set a bold direction, marshal the organization toward that goal, and prioritize everything you do accordingly. Sustaining a forward-looking view is crucial. That means letting go of the past.

We’ve seen a fair number of organization design initiatives fail to make a difference because senior executives get caught up in discussing the pros and cons of the old organization. Avoid this situation by declaring “amnesty for the past.” You collectively, explicitly decide that you will neither blame nor try to justify the design in place today, or any organization designs of the past. Whether or not they served their purpose, it’s time to move on. This type of pronouncement may sound simplistic, but it’s surprisingly effective for keeping the focus on the new strategy.

2. Design with the “DNA.” Organization design can seem unnecessarily complex; the right framework, however, can help you decode and prioritize the necessary elements. We have identified eight universal building blocks that are relevant to any company, regardless of industry, geography, or business model. These building blocks will be the elements you put together for your design (see Exhibit 1).

The blocks naturally fall into four complementary pairs, each made up of one tangible (or formal) and one intangible (or informal) element. Decision rights are paired with norms (governing how people act), motivators with commitments (governing what they feel about their work), information with mind-sets (governing how they process knowledge and meaning), and structure with networks (governing how they connect). By using these elements and considering changes needed across each complementary pair, you can create a design that will integrate your whole enterprise, instead of pulling it apart.

You may be tempted to make changes with all eight building blocks simultaneously. But too many interventions at once could interact in unexpected ways, leading to unfortunate side effects. Pick a small number of changes—four or five at most—that you believe will deliver the greatest initial impact. Even a few changes could involve many variations; for example, the design of motivators might need to vary from one function to the next. People in sales might be more heavily influenced by monetary rewards, whereas R&D staffers might favor a career model with opportunities for self-directed projects and external collaboration and education.

3. Fix the structure last, not first. Company leaders know that their current org chart doesn’t necessarily capture the way things get done—it’s at best a vague approximation. Yet they still may fall into a common trap: thinking that changing their organization’s structure will address their business’s problems.

We can’t blame them, as the org chart is the most seemingly powerful communications vehicle around. It also carries emotional weight, because it defines reporting relationships that people might love or hate. But a company hierarchy, particularly when changes in the org chart are made in isolation from other changes, tends to revert to its earlier equilibrium. You can significantly remove management layers and temporarily reduce costs, but all too soon, the layers creep back in and the short-term gains disappear.

In an org redesign, you’re not setting up a new form for the organization all at once. You’re laying out a sequence of interventions that will lead the company from the past to the future. Structure should be the last thing you change: the capstone, not the cornerstone, of that sequence. Otherwise, the change won’t sustain itself.

We saw the value of this approach recently with an industrial goods manufacturer. In the past, it had undertaken reorganizations that focused almost solely on structure, without ever achieving the execution improvement its leaders expected. Then the stakes grew higher: Fast-growing competitors emerged from Asia, technological advances compressed product cycles, and new business models that bypassed distributors appeared. This time, instead of redrawing the lines and boxes, the company sought to understand the organizational factors that had slowed down response in the past. There were problems in the way decisions were made and carried out, and in how information flowed. Therefore, the first changes in the sequence concerned these building blocks: eliminating non-productive meetings (information flows), clarifying accountabilities in the matrix structure (decisions and norms), and changing how people were rewarded (motivators). By the time the company was ready to adjust the org chart, most of the problem factors had been addressed.

4. Make the most of top talent. Talent is a critical but often overlooked factor when it comes to org design. You might assume that the personalities and capabilities of existing executive team members won’t affect the design much. But in reality, you need to design positions to make the most of the strengths of the people who will occupy them. In other words, consider the technical skills and managerial acumen of key people, and make sure those leaders are equipped to foster the collaboration and empowerment needed from people below them.

You need to ensure that there is a connection between the capabilities you need and the leadership talent you have. For example, if you’re organizing the business on the basis of innovation and the ability to respond quickly to changes in the market, the person chosen as chief marketing officer (CMO) will need a diverse background. Someone with a more conventional marketing background whose core capabilities are low-cost pricing and extensive distribution might not be comfortable in that role. You can sometimes compensate for a gap in proficiency through other team members. If the CFO is an excellent technician but has little leadership charisma, you may balance him or her with a chief operating officer (COO) who excels in this area and can take on the more public-facing aspects of the role, such as speaking with analysts.

As you assemble the leadership team for your strategy, look for an optimal span of control—the number of direct reports—for your senior executive positions. A Harvard Business School study conducted by associate professor Julie Wulf found that CEOs have doubled their span of control over the past two decades. Although many executives have seven direct reports, there’s no single magic number. For CEOs, the optimal span of control depends on four factors: the CEO’s position in the executive life cycle, the degree of cross-collaboration among business units, the level of CEO activity devoted to something other than working with direct reports, and the presence or absence of a second role as chairman of the board. (We’ve created a C-level span-of-control diagnosticto help determine your target span.)

5. Focus on what you can control. Make a list of the things that hold your organization back: the scarcities (things you consistently find in short supply) and constraints (things that consistently slow you down). Taking stock of real-world limitations helps ensure that you can execute and sustain the new organization design.

For example, consider the impact you might face if 20 percent of the people who had the most knowledge and expertise in making and marketing your core products—your product launch talent—were drawn away for three years on a regulatory project. How would that talent shortage affect your product launch capability, especially if it involved identifying and acting on customer insights? How might you compensate for this scarcity? Doubling down on addressing typical scarcities, or what is “not good enough,” helps prioritize the changes to your organization model. For example, you may build a product launch center of excellence to address the typical scarcity of never having enough of the people who know how to execute effective launches.

Constraints on your business—such as regulations, supply shortages, and changes in customer demand—may be out of your control. But it’s important not to get bogged down in trying to change something you can’t change; instead, focus on changing what you can. For example, if your company is a global consumer packaged goods (CPG) manufacturer, you might first favor a single global structure with clear decision rights on branding, policies, and usage guidelines because it is more efficient in global branding. But if consumer tastes for your product are different around the world, then you might be better off with a structure that tends to delegate decision rights to the local business leader.

6. Promote accountability. Design your organization so that it’s easy for people to be accountable for their part of the work without being micromanaged. Make sure that decision rights are clear and that information flows rapidly and clearly from the executive committee to business units, functions, and departments. Our research underscores the importance of this factor: We analyzed dozens of strong-execution companies and found that among the formal building blocks, information flows and decision rights had the strongest effect on improving the execution of strategy. They are about twice as powerful as an organization’s structure or its motivators (see Exhibit 2).

A global electronics manufacturer was struggling with slow execution and lack of accountability. To address these issues, the manufacturer created a matrix that would identify who had made important decisions during the past few years. Then it used the matrix to establish clear decision rights and motivators more in tune with the company’s desired goals. Regional sales directors were made accountable for dealers in their region and were evaluated in terms of the sales performance of those dealers. This encouraged ownership and high performance on both sides, and drew in critically important but previously isolated groups, like the manufacturer’s warranty function. The company operationalized these new decision rights by establishing the necessary budget authorities, decision-making forums, and communications.

When decision rights and motivators are established, accountability can take hold. Gradually, people get in the habit of following through on commitments without experiencing formal enforcement. Even after it becomes part of the company’s culture, this new accountability must be continually nurtured and promoted. It won’t endure if, for example, new additions to the firm don’t honor commitments, or incentives change in a way that undermines the desired behavior.

7. Benchmark sparingly, if at all. One common misstep is looking for “best practices.” In theory, it can be helpful to track what competitors are doing, if only to help you optimize your own design or uncover issues requiring attention. But in practice, this approach has a couple of problems.

First and foremost, it ignores your organization’s unique capabilities system—the strengths that only your organization has, producing results that others can’t match. You and your competitor aren’t likely to need the same distinctive capabilities, even if you’re in the same industry. For example, two banks might look similar on the surface; they might have branches next door to each other in several locales. But the first could be a national bank catering to Millennials, who are drawn to low costs and innovative online banking. The other could be regionally oriented, serving an older customer base and emphasizing community ties and personalized customer service. Those different value propositions would require different capabilities, and translate into different organization designs. The tech-leading bank might be organized primarily by customer segment, making it easy to invest in a single leading-edge technology that covered all regions and all markets, for seamless interplay between online and face-to-face access. The regional bank might be organized primarily by geography, setting up managers to build better relationships with local leaders and enterprises. If you benchmark the wrong example, then the copied organizational model will only set you back.

If you feel you must benchmark, focus on a few select benchmarks and the appropriate peers for each, rather than trying to be best in class in everything related to your industry. Your choice of companies to follow, and of the indicators to track and analyze, should line up exactly with the capabilities you prioritized in setting your future course. For example, if you are expanding into emerging markets, you might benchmark the extent to which leading companies in that region give local offices decision rights on sourcing or distribution.

8. Let the “lines and boxes” fit your company’s purpose. For every company, there is an optimal pattern of “lines and boxes”—a golden mean. It isn’t the same for every company; it should reflect the strategy you have chosen, and it should support the most critical capabilities that distinguish your company. That means that the right structure for one company will not be the same as the right structure for another, even if they’re in the same industry.

In particular, think through your purpose when designing the spans of control (how many people report directly to any given manager) and layers (how far removed a manager is from the CEO) in your org chart. These should be fairly consistent across the organization.

You can often speed the flow of information and create greater accountability by reducing layers, but if the structure gets too flat, your leaders have to supervise an overwhelming number of people. You can free up management time by adding staff, but if the pyramid becomes too steep, it will be hard to get clear messages from the bottom to the top. So take the nature of your enterprise into account. Does the work at your company require close supervision? What role does technology play? How much collaboration is involved? How far-flung are people geographically, and what is their preferred management style?

In a call center, 15 or 20 people might report to a single manager because the work is routine and heavily automated. An enterprise software implementation team, made up of specialized knowledge workers, would require a narrower span of control, such as six to eight employees. If people regularly take on stretch assignments and broadly participate in decision making, then you might have a narrower hierarchy—more managers directing only a few people each—instead of setting up managers with a large number of direct reports.

9. Accentuate the informal. Formal elements like structure and information flow are attractive to companies because they’re tangible. They can be easily defined and measured. But they’re only half the story. Many companies reassign decision rights, rework the org chart, or set up knowledge-sharing systems—yet don’t see the results they expect.

That’s because they’ve ignored the more informal, intangible building blocks. Norms, commitments, mind-sets, and networks are essential in getting things done. They represent (and influence) the ways people think, feel, communicate, and behave. When these intangibles are not in sync with each other or the more tangible building blocks, the organization doesn’t work as it should.

At one technology company, it was common practice to have multiple “meetings before the meeting” and “meetings after the meeting.” In other words, the constructive debate and planning took place outside the formal presentations that were known as the “official meetings.” The company had long relied on its informal networks because people needed workarounds to many official rules. Now, as part of the redesign, the leaders of the company embraced its informal nature, adopting new decision rights and norms that allowed the company to move more fluidly, and abandoning official channels as much as possible.

10. Build on your strengths. Overhauling your organization is one of the hardest things for a chief executive or division leader to do, especially if he or she is charged with turning around a poorly performing company. But there are always strengths to build on in existing practices and in the culture. Look to these strengths—whether formal or informal—to help you fix those critical areas that you’ve prioritized. Suppose, for example, that your company has a norm of customer-oriented commitment. Employees are willing to go the extra mile for customers when called upon to do so, delivering work out of scope or ahead of schedule, often because they empathize with the problems customers face. You can draw attention to that behavior by setting up groups to talk about it, and reinforce the behavior by rewarding it with more formal incentives. That will help spread it throughout the company.

Perhaps your company has well-defined decision rights—each person has a good idea of the decisions and actions for which he or she is responsible. Yet in your current org design, they may not be focused on the right things. You can use this strong accountability and redirect people to the right decisions to support the new strategy.

Conclusion

A 2014 Strategy& survey found that 42 percent of executives felt that their organizations were not aligned with their strategy, and that parts of the organization resisted it or didn’t understand it. The principles in this article can help you develop an organization design that supports your most distinctive capabilities and supports your strategy more effectively.

Remaking your organization to align with your strategy is a project that only the chief executive can lead. Although it’s not practical for a CEO to manage the day-to-day details, the top leader of a company must be consistently present to work through the major issues and alternatives, focus the design team on the future, and be accountable for the transition to the new organization. The chief executive will also set the tone for future updates: Changes in technology, customer preferences, and other disruptors will continually test your business model.

These 10 fundamental principles, which we have observed and cultivated while working with hundreds of diverse organizations, can serve as your guideposts for any reorganization, large or small. Armed with these collective lessons, you can avoid common missteps and home in on the right blueprint for your business. 

AUTHOR PROFILES:

• Gary L. Neilson is a senior partner with Strategy& based in Chicago. He focuses on operating models and organizational transformation.
• Jaime Estupiñán is a partner with Strategy& based in New York. He focuses on consumer strategic transformation and organization for the healthcare industry.
• Bhushan Sethi is a partner with PwC Advisory Services. Based in New York, he leads the PwC network’s financial-services people and change practice.

Competing With Ordinary Resources

Frédéric Fréry, Xavier Lecocq and Vanessa Warnier

One classic approach to strategy revolves around gaining competitive advantage through valuable, scarce and distinctive resources — such as a strong brand or innovative technology. But there’s also a case to be made for building your company’s strategy around the innovative use of quite ordinary resources.

Ben Kaufman is the founder and CEO of Quirky, a company that leverages the collective intelligence of an online community to launch new products such as Pivot Power, a flexible power strip.

Image courtesy of Flickr user OFFICIAL LEWEB PHOTOS.

In July 2007, TomTom, a European personal navigation device manufacturer based in Amsterdam, launched a takeover bid for Tele Atlas, a Dutch provider of cartographic data. The initial offering was 21.25 euros per share, which represented a premium over the stock price at the time, and the supervisory and management boards of Tele Atlas announced their support of the offer.1 But in autumn of that year, Nokia, which at that point was a leading cellphone manufacturer, announced an agreement to acquire Chicago-based Navteq, Tele Atlas’ main competitor, for an astounding price of approximately $8.1 billion — a move that indicated that smartphones would include navigation services in the future. The control of cartographic databases suddenly became a strategic imperative in the GPS industry. In reaction, TomTom’s main competitor, Garmin, tried to secure its access to what was now considered as a strategic resource by announcing an offer for Tele Atlas in October 2007 at a higher price of 24.50 euros per share. TomTom raised the stakes to 30 euros per share and eventually acquired Tele Atlas for 2.9 billion euros.

However, the Tele Atlas acquisition proved to be an example of the “winner’s curse” — the idea that winners in auctions tend to overpay. TomTom had to borrow 1.6 billion euros to complete the acquisition of Tele Atlas and subsequently had to write down the value of the acquisition.2 Moreover, TomTom’s sales declined as the company faced increasing competition from GPS-enabled smartphones; during the period from fiscal 2008 through fiscal 2013, TomTom’s revenues fell more than 40%.

Meanwhile, the Israeli startup Waze launched its community-driven navigation smartphone application. Waze’s business model was quite different from TomTom’s: Waze’s cartographic data was directly collected from the users, at little cost, and Google acquired Waze in 2013 for a price in the neighborhood of $1 billion. Seven years after the takeover of Tele Atlas, it is clear that TomTom paid too much for a resource that seemed strategic and rare at the time.

The Trouble With Strategic Resources

During the last three decades, research on resources has concluded that a sound strategy should rely on the exclusive control of valuable and rare resources — such as a distinctive brand name, an unparalleled set of talents or an incomparable technology. Extraordinary assets, the theory goes, are needed to reach extraordinary goals. In this view, the essential pillars of strategic success are nonsubstitutable resources and inimitable capabilities, and competitive advantage stems from unique and scarce resources.3

However, TomTom’s example suggests that competing on unique, rare and inimitable resources can be risky, because acquiring and protecting such resources can be costly; after all, most companies in an industry are seeking to obtain them. While strategic resources can yield superior competitive advantage, their cost can sometimes outweigh their benefits. In this article, we contend that ordinary resources may play an overlooked but important role in successful strategies — and competing with ordinary resources can be a valuable complement to competing with strategic resources. (See “About the Research.”)

About the Research

This article draws on a research program carried out in the last seven years. We have conducted in-depth case study research on German Internet platform company Rocket Internet, French citizen journalism website AgoraVox, popup discount store company Chronostock, Irish clothing retailer Primark, French hotel group Accor, Yahoo!, French multinational retailer Carrefour, Italy-based fashion company Benetton, Dell, Renault-Nissan Alliance, Renault subsidiary Dacia, French apparel and accessories company Kering, French telecommunications provider Iliad, English Premier League team Arsenal Football Club and Danish consulting company Specialisterne. Our goal was to identify processes related to resources in various kinds of business models. To do so, we used both primary and secondary sources. We also supervised a series of in-the-field strategic analyses with participants in an executive MBA program, focusing on the resource base of their organizations.

About the Research

This article draws on a research program carried out in the last seven years. We have conducted in-depth case study research on German Internet platform company Rocket Internet, French citizen journalism website AgoraVox, popup discount store company Chronostock, Irish clothing retailer Primark, French hotel group Accor, Yahoo!, French multinational retailer Carrefour, Italy-based fashion company Benetton, Dell, Renault-Nissan Alliance, Renault subsidiary Dacia, French apparel and accessories company Kering, French telecommunications provider Iliad, English Premier League team Arsenal Football Club and Danish consulting company Specialisterne. Our goal was to identify processes related to resources in various kinds of business models. To do so, we used both primary and secondary sources. We also supervised a series of in-the-field strategic analyses with participants in an executive MBA program, focusing on the resource base of their organizations.

The Argument for Ordinary Resources

While there is no question that possessing valuable strategic resources can benefit a company, strategic resources also can have drawbacks — and the benefits of ordinary resources can offset those drawbacks.

1. Strategic resources can capture their own value. In some circumstances, the value of a strategic resource can be captured by the resource itself, at the expense of the company using it: For example, highly talented “stars” can use their bargaining power to demand higher compensation. This is notably the case in global industries where the value generated by top talent is readily visible and a profusion of online rankings keeps raising the bar; examples include entertainment, professional sports leagues and CEOs of large, publicly traded global companies. Talented individuals, once they realize they are strategic resources, may capture a significant part of the value they are producing. This phenomenon was already noticeable some years ago,9 but the broad diffusion of professional databases and the ubiquitous use of social networks exacerbate its competitive impact.

In some industries, talented individuals may capture a significant part of the value they produce. For example, the average pay for professional soccer players in the English Premier League increased dramatically between 1990 and 2010.

For instance, consider the compensation of top British professional soccer players. Between 1990 and 2010, the average pay for a soccer player in the English Premier League rose from 1,500 pounds to 33,868 pounds per week, whereas the average weekly wage in the U.K. scarcely doubled during that period (from 295 pounds to 656 pounds).10 However, in the meantime, many of the top clubs in the English Premier League experienced financial losses and/or debt. More than 10 years ago, Gary Lineker, the former captain of England’s national soccer team, was already observing, “Of course, players are taking too much money out of the game, but they don’t dictate market forces.”11

Cases of value capture by rare or unique resources can be found in other settings as well. For instance, a French film producer recently brought to the fore the idea that French actors were paid too much compared to the revenues generated by movies, even in the case of blockbusters.12 Indeed, given the pay earned by top French actors, only a few, if any, French movies turn a profit. This situation results from the organization of the heavily subsidized French film industry. It also stems from the fact that actors — and their agents — know their value and eventually consider that they are worth more than the expected revenues of the movies they star in.

In contrast, ordinary talents are by definition easily substitutable. As a consequence, they do not boast enough bargaining power to capture value at the expense of their employers. Many management techniques, from Frederick Taylor’s scientific management13 to modern knowledge management approaches, specifically aim at codifying know-how in order to avoid the pitfall of excessive dependence on the specialized knowledge and skills of particular employees. Management scholars Sumantra Ghoshal and Christopher Bartlett once wrote that “the key function of management is to help ordinary people produce extraordinary results.”14 Creating extraordinary results with unique talents may be great, but it is not the general rule in management.

2. Competing on rare resources is costly. The TomTom case demonstrates that once a resource is collectively considered as strategic in an industry, access to it becomes a vital challenge, and rivals compete to obtain it. If you view a resource as strategic, you may raise its cost up to the point that the cost outweighs the resource’s value. Companies whose business models are built around strategic resources are prone to allocate a significant part of their efforts to controlling and securing higher-value assets, as exemplified by numerous patent wars in the electronics or the pharmaceutical industries. So-called “patent trolls” thrive on this dynamic.

In contrast, ordinary resources are inexpensive, and since most businesses overlook their strategic influence, their cost usually has no reason to rise. They can be acquired and secured at a comparatively low price, and even if they do not provide competitive advantage on their own, they may contribute to it.

If you are convinced your company possesses unique resources and core competencies, you will very probably try to defend and leverage them — and hesitate to implement any disruptive innovation that could jeopardize your strategic commitment.

3. Day-to-day business performance does not rely on uniqueness. If all competitors in an industry attempt to be unique and to possess nonsubstitutable resources and inimitable competencies, most of them will fail in that attempt. In truth, very few businesses possess unique resources and distinctive competencies that fit the environment’s threats and opportunities. Focusing exclusively on strategic resources does not explain the everyday performance of the vast majority of businesses, which remain profitable and competitive, even if they only possess relatively ordinary assets.

Gathering a group of executives in order to help them identify the core competencies of their own business — even with the assistance of a series of practical tools such as an activity mapping or a benchmarking process — can be a disappointing exercise. If some companies do possess valuable brands, highly talented people, deep pockets or patented technologies, it does not necessarily provide them with a true competitive advantage, for some of their rivals often boast a similar resource portfolio. For instance, in the pharmaceutical industry, dominant players such as Pfizer, Sanofi or Roche possess comparable assets: Little is truly unique in their R&D capacity or in their marketing approach. However, this does not prevent those companies from reaching excellent levels of profitability.

4. Excessive persistence in exploiting rare resources can restrain innovation. If the possession of specific resources is the ultimate explanation for success, innovation poses a problem: Breakthrough ideas and groundbreaking processes can threaten years of patient accumulation of talents and assets. As a consequence, a by-the-book implementation of a strategic resource-based approach can lead to inertia. If you are convinced your company possesses unique resources and core competencies, you will very probably try to defend and leverage them — and hesitate to implement any disruptive innovation that could jeopardize your strategic commitment. By protecting carefully accumulated rare resources, businesses may repel innovation and change. In a continuously evolving digital environment, such inertia can rapidly prove lethal.

Kodak, Sony and Nokia each fell into this resource trap. In 1985, Leo J. Thomas, senior vice president and Kodak’s director of research, famously told The Wall Street Journal: “It is very hard to find anything [with profit margins] like color photography that is legal.”15 Of course, in order to protect those profits, Kodak preferred not to switch to digital cameras. As regards Sony, why is it not an absolute winner in the MP3 industry? Sony literally invented portable music devices and pioneered digital music. However, in order to protect its unique resources provision, it also vertically integrated by acquiring what became Sony Music Entertainment, a global leader in the music industry. This bold strategic move had a drawback: Once it owned a large music company, Sony became very reluctant to enter the MP3 business in the early 2000s, for this industry — a least at that time — was heavily relying on peer-to-peer piracy. Nokia made a similar mistake: By preserving its unique competencies in design and logistics, it refused to admit that with the launch of the iPhone, Apple had changed the game from a battle between devices to a war between ecosystems.

On the other hand, there is growing interest in “frugal innovations”16 such as the low-cost ChotuKool fridge, a tiny refrigerator using thermoelectric cooling. Such “frugal innovation” demonstrates that it is possible to design and develop convincing solutions by leveraging low-cost technologies and largely available assets. Moreover, leveraging ordinary resources is consistent with the implementation of simple rules that facilitate the execution of strategies, even in rapidly changing circumstances.17

5. Fascination with “crown jewels” can lead to competitive mimicry. The belief in the superiority of key resources may lead competitors to focus too much on a small part of the spectrum of available resources, which may restrain their differentiation capability. Harvard Business School professor Cynthia A. Montgomery already observed this phenomenon of fascination with resources considered “crown jewels” and called for the inclusion of the complete range of resources — including the good, the bad and the boring.18 To be useful, the typology of resources cannot be limited to a binary opposition: strategic resources (in other words, rare and very valuable ones) on the one hand, and all the negligible rest on the other.

Ordinary resources can play an important role in creating a competitive advantage in at least two situations:

1. Unless ordinary resources are leveraged, strategic resources cannot always deliver their full-fledged competitive potential.
2. The mobilization of massive amounts of ordinary resources through platform business models19can outweigh the value of a few unique strategic assets: ‘Crowd jewels’ can be a valuable substitute for “crown jewels.”

We will now explore these two scenarios.

Ordinary Resources as Strategic Enablers

Strategic resources offer limited benefits if you cannot gain value from them. Business models focusing on strategic resources usually underestimate the necessity of ordinary assets, day-to-day activities and common talents you must leverage in order to achieve the full-fledged potential of the few strategic resources you master. Moreover, companies are usually unable to develop or gather strategic resources in every domain of their business. In many respects, it would be pointlessly costly in terms of search costs or internal development to seek unique resources for every task involved in an entire value chain. Ordinary resources are a cheap and necessary way to leverage unique assets — and thus allow replication and scalability.

In particular, the use of ordinary resources enables the duplication of a business model in many business units and/or in many countries. If such replication is a key success factor, as it is in industries such as retailing,20 extending a business model through the acquisition of ordinary resources is much easier — and much cheaper — than implementing a business model relying on unique assets. By definition, strategic resources are rare, expensive and difficult to replicate.

For instance McDonald’s Corporation is the world’s largest chain of fast-food restaurants, with more than 36,000 restaurants in more than 100 countries. It has achieved this impressive growth in only 60 years. While a top brand, efficient processes and premium locations for restaurants are often seen as the main strategic resources of the company, the replication of McDonald’s business model is only possible because the model leverages relatively ordinary resources, in the form of more than 1.8 million employees worldwide. Millions of young adults worldwide got their first entry-level job with the company, helping to keep wage bills down. Far from being the talented human resources described in human resource management books, most entry-level McDonald’s employees are not highly qualified, are part-time workers and can be easily replaced. However, the McDonald’s brand can only be leveraged thanks to these ordinary resources. While scalability (the ability of a business to grow and develop without major organizational barriers) may be related to cultural and cognitive dimensions,21 it also depends on the type of resources on which the business builds. When they are used to leverage strategic resources, ordinary resources allow scalability.

Leveraging the Ordinary

Ordinary resources — not just unique ones — can yield strategic benefits and eventually become the basis of competitive advantage.22 They can play a central role in the emergence of new business models. (See “Two Approaches to Business Models.”) This evolution may give rise to drastic changes in the competitive landscape in a given industry and eventually lead to the emergence of new markets. For instance, the creation of the low-cost business model in the airline industry by Southwest Airlines in the early 1970s is sometimes explained by a unique blend of operational constraints and entrepreneurial ingenuity. However, it also derived from the fact that Southwest Airlines was endowed with relatively ordinary resources (access to small regional airports, old airplanes and a comparatively inexperienced workforce) while it was lacking what were perceived at that time as strategic assets (hub airports, connections, diversified fleet of airplanes, etc.).23 As the example of Southwest illustrates, it is possible to develop extraordinary performance and to gain competitive advantage by combining and leveraging ordinary resources in new ways.

Two Approaches to Business Models

Like strategic resources, ordinary resources can be used to build profitable business models. But a business model leveraging many ordinary resources will often take a different approach than one focused on scarce strategic resources.

Crowdsourcing and crowdfunding strategies are two new types of business models based on the development of a mass of ordinary resources. The ability to leverage massive amounts of comparatively ordinary talents and trivial assets through a platform and its ecosystem is not only a game changer, it questions the very principles of by-the-book strategies.24 For example, the sharing of small units of available resources by the crowd is a successful business model for the crowdfunding company Kickstarter. The concept of Kickstarter, where potential investors can invest as little as $1 to finance innovative projects, has created an industry of its own, and many competitors are jumping on the bandwagon. In this model, it is a crowd of people, their abundant little pennies and an ample number of competing projects that yield success — not unique assets, high fixed costs and unparalleled talents.

Similarly, the use of the collective intelligence of a mass of ordinary people is at the heart of New York City-based Quirky. This collaborative platform has developed a unique value proposition: to transform good ideas into ready-to-market products. Anyone can submit ideas for new products on Quirky’s website. Then Quirky staff members and the Quirky online community evaluate the ideas. If Quirky brings a product to market, the inventor of the idea and the community members who contributed to its development — called influencers — receive royalties based on product sales. Quirky’s best-selling product is the Pivot Power, a flexible power strip invented by Jake Zien with the help of 708 influencers.25 Quirky receives thousands of ideas a week, and, since the creation of the website, members of the community have enabled the development of hundreds of products.

Can You Leverage Ordinary Resources?

Could your company better exploit the hidden value of ordinary resources? Consider these three questions.

Examples like Kickstarter and Quirky indicate that strategic success can derive from a platform that draws on an abundance of ordinary resources. This suggests that, instead of only focusing on unique resources, executives should also focus on leveraging a vast supply of more mundane talents. (See “Can You Leverage Ordinary Resources?”) As physicist and Nobel laureate Philip Anderson wrote in 1972, “More is different”: Beyond a certain size, a system is endowed with new capabilities that significantly differ from what its various constituents can offer.26 In business, the traditional strategic paradigm, based on the tight ownership of competitive-advantage generating assets, loses its significance when the wisdom of millions of people are involved, when ordinary resources are combined to achieve extraordinary performance. Here are the critical points of the “more is different” pattern in business:

1. Platform business models harness the hidden value of ordinary resources. Traditionally, executives overlook and underemphasize ordinary resources. As a consequence, ordinary resources often stay under the radar of strategic plans. In their benchmarking processes, companies focus on new capabilities and new resources, but they do not investigate the potential value creation from ordinary resources, existing knowledge and ordinary talents. However, our examples show that innovative entrepreneurs can develop new services from a mass of ordinary resources.

2. The strategic resource is the platform, not the assets it leverages. The main challenge consists in developing and growing an attractive platform — which in that case is a true strategic resource — in order to capture scattered ordinary assets and talents. Indeed, while strategic resources are concentrated, ordinary resources can be highly distributed among different companies and individuals. However, without the ordinary resources to fuel it, the platform has limited strategic value. It is the combination of the platform and the mass of ordinary resources that create sustained competitive advantage.

3. Make sure the cost of the platform does not outweigh its value. The Internet has significantly reduced the cost of harnessing collective and distributed ordinary resources. However, as a strategic resource, the platform bears all the risks we highlight: Exploiting a vast amount of data, people or initiatives can be costly; rare talents can capture value; protecting the platform can hinder innovation; and a focus on the platform as an asset can limit executives’ perspectives. As a consequence, the platform must remain open, frugal and scalable.

Implications for Strategy

According to author Chris Anderson’s famous “long tail” concept, it is time companies stop focusing so much of their marketing efforts on flagship products to the detriment of more ordinary ones.27We make a similar observation about the resources portfolio: Businesses should consider the “long tail of resources” and stop analyzing their resources portfolio primarily through the prism of uniqueness and scarcity. Many executives dedicate a disproportionate amount of attention to strategic resources and neglect the rest of the resources spectrum. When properly exploited, overlooked ordinary resources unveil untapped profit pools. What’s more, taking into account the implications of ordinary resources opens new business perspectives.

Our key message is that a strategic value proposition does not necessarily derive from unique resources and core competencies. Acquiring and mastering unique resources undoubtedly yields competitive advantage, but it can be extremely costly, and building barriers to imitation can erode your future competitive advantage. Focusing on unique strengths implies specialization, and if you try to become a one-trick pony, sooner or later the trick will be matched by competitors. Innovations can undermine the market value of a portfolio of superior assets. By focusing on securing unique resources, executives may jeopardize the agility of their business and their ability to sustain a competitive advantage. For instance, consider how the Wikipedia anonymous crowd, with its improvised bricolage, outperformed Microsoft Encarta and its deliberately crafted strategy.

By eroding established barriers to imitation, ordinary resource-based business models may disrupt the business landscape. In a whole array of industries (retail, manufacturing, banking, automobile, hospitality, higher education, etc.), enabling the power of strategic resources requires mundane assets, and leveraging massive amounts of ordinary resources through platforms and ecosystems could be as profitable as securing unique possessions and talents. Instead of promoting secrecy and defending industrial property rights at all costs, powerful incumbents should reconsider the advantages their distinctive assets provide and contest the taken-for-granted assumptions that underlie their success. Overconfidence and inertia lurk in the blind spot of some resource-based strategies, whereas frugal innovation and crowdsourcing-based approaches are gaining increasing attention. Ordinary resources were once overlooked and considered as negligible strategic assets. Rapidly expanding platform business models raise questions about this bias, and it is time executives start exploiting the “long tail” of resources.

REFERENCES (27)

1. M. van de Hoef and J. Kanner, “TomTom Agrees to Acquire Tele Atlas for Eu2 Billion (Update 10),” July 23, 2007, www.bloomberg.com.

2. “TomTom Lost $1.3 Bn in Fourth Quarter,” Financial Times, February 24, 2009, www.ft.com.