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The Fallacy of the "Middle of the Road" Strategy

These days, the news is pretty bleak for some of the biggest and best-known companies around. Wal-Mart reports results that don't only disappoint in the short term, but also raise doubts about the wisdom of its long-term strategy. Hewlett-Packard begins to bounce back from the soap opera in its leadership only to discover that its growth plans need a thorough cleansing as well. Meanwhile, Microsoft has struggled for the better part of a decade trying to devise a formula that allows it to keep up with Google, Facebook, and the darlings of the Internet.

And yet...amidst all these dark clouds ands ominous forecasts, there are patches of bright sun and clear skies. IBM recently reported eye-popping results and reached its all-time high in terms of stock price. Netflix, the online-movie pioneer whose fortunes skeptics have loved to question, has become a business juggernaut of the first order. And Southwest, everybody's favorite airline, just goes about its business of adding cities, adding people, and making money.

How is it that IBM, Netflix, and Southwest manage to thrive, when so many of their peers struggle to break out of their ruts? The answers don't just speak to these three competitors, but to the new logic of competition itself.

1. It's not enough to be "pretty good" at everything anymore. As a company, you have to be the most of something--the most exclusive, the most affordable, the most responsive, the most friendly. Companies used to want to be in the middle of the road--that's where all the customers were. But now, in an age of hyper-competition and non-stop innovation, the middle of the road is the road to ruin. What do they say in Texas? "The only thing in the middle of the road are yellow lines and dead armadillos." To which we might now add: "And once-great companies that are slowly going out of business."

There's no doubt that IBM, Netflix, and Southwest have always understood what they are the most of. IBM is legendary for its focus on the mission-critical needs of its customers and on its "complex-systems" mindset. Netflix understands that it doesn't just offer customers the widest variety of movies to rent, but that it helps customers make smarter choices about the movies they watch And Southwest has always managed to combine low fares with great service-anything else is a distraction.

2. In an era of great turmoil, the best strategy is to stick with what you believe in. Business thinkers love to excoriate big companies and their leaders because they don't have the guts to change. In fact, the problem with many big companies is that all they do is change. They lurch from one consulting firm to the next, from one management fad to another, from one target customer base to a different set of customers.

Even in a business environment filled with dramatic change, IBM, Southwest, and Netflix stick to their guns. Sure, they tweak things at the margins:

  • Southwest has fine-tuned its boarding procedures to appeal to business travelers and has made a big acquisition.
  • Netflix is pushing hard on digital downloads as opposed to DVDs-by-mail.
  • IBM captures the public imagination with the appearance of "Watson" on Jeopardy, but it will never be confused with Apple.
These three winners have made big, consistent strategic bets for the long term-and they don't hedge their bets based on fads or fashions.

3. Each of these companies connects with its customers based not just on price and features, but on identity and emotion.
They have become virtually irreplaceable in the eyes of their customers. The researchers at Gallup have identified an escalating hierarchy of connections between companies and their customers--from confidence to integrity to pride to passion. To test for passion, Gallup asks customers a simple question: "Can you imagine a world without this product or brand?"

It's a lofty goal, but great companies (like IBM, Netflix, and Southwest) get there.

Ask yourself, honestly: Can your customers live without you? Because if they can, they probably will.

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Image courtesy of flickr user, LabyrinthX
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