7 Powers: The Foundations of Business Strategy by Hamilton Helmer
INTRODUCTION
- Power: the set of conditions creating the potential for persistent differential returns
- Powers much have benefits & barriers:
- Benefit: Some condition which yields material improvement in the cash flow of the Power wielder via reduced cost, enhanced pricing and/ or decreased investment requirements.
- Barrier: Some obstacle which engenders in competitors an inability and/ or unwillingness to engage in behaviors that might, over time, arbitrage out this benefit.
PART I: STRATEGY STATICS
CHAPTER 1 SCALE ECONOMIES – SIZE MATTERS
- A strategy must meet the high hurdle of “A route to continuing Power in a significant market.”
- The quality of declining unit costs with increased business size is referred to as Scale Economies.
- Scale Economies emerge from a number of sources:
- Fixed costs
- Volume/ area relationships.
- Distribution network density.
- Learning economies.
- Purchasing economies.
CHAPTER 2 NETWORK ECONOMIES – GROUP VALUE
- Network Economies occur when the value of a product to a customer is increased by the use of the product by others.
- Industries exhibiting Network Economies often exhibit these attributes:
- Winner take all.
- Boundedness.
- Decisive early product.
- A common twist I have not covered are indirect network effects (also called demand side network effects). If a business has important complements and these complements are somehow exclusive to each offering, then a leader will attract more and/ or better complements.
CHAPTER 3 COUNTER-POSITIONING – SCYLLA AND CHARYBDIS
- Counter-Positioning: A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
CHAPTER 4 SWITCHING COSTS – ADDICTION
- Switching Costs arise when a consumer values compatibility across multiple purchases from a specific firm over time.
- Switching Costs can be divided into three broad groups:
- Financial.
- Procedural.
- Relational: Tolls which would result from the breaking of emotional bonds built up through use of the product and through interactions with other users and service providers.
CHAPTER 5 BRANDING – FEELING GOOD
- Branding is an asset that communicates information and evokes positive emotions in the customer,
- A strong brand can only be created over a lengthy period of reinforcing actions
CHAPTER 6 CORNERED RESOURCE – MINE ALL MINE
- Cornered Resource: Preferential access at attractive terms to a coveted asset that can independently enhance value.
CHAPTER 7 PROCESS POWER – STEP BY STEP
- Process Power: Embedded company organization and activity sets which enable lower costs and/ or superior product, and which can be matched only by an extended commitment.
PART II: STRATEGY DYNAMICS
CHAPTER 8 THE PATH TO POWER – “ME TOO” WON’T DO
- Operational excellence is not strategy.
CHAPTER 9 THE POWER PROGRESSION – TURN, TURN, TURN
- Your business must attain Power. Operational excellence by itself is not enough.
- By and large the Power Progression is borne out:
- Origination: Counter-Positioning and Cornered Resource
- Takeoff: Scale Economies, Network Economies and Switching Costs
- Stability: Process Power and Branding