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What is it that differentiates your business from others in the same space?
Do you know immediately or is your answer a bit vague? Sometimes it’s not as clear-cut as you might think.
Nobody would argue that differentiation is important. It’s obvious. Being different will help your company develop unique niches within competitive markets and enable it to thrive. Yet many businesses try to be all things to all people. And often, they’ve no clear handle on what it is that makes them unique.
When we ask our clients about their differentiators, they’re often wrong. Assumptions that they’ve made just don’t hold up when we dig down into the details of their business. This is where an Activity Fit Map can really help. It’s something we use all the time to bring clarity.
The beauty of this tool, developed by Michael Porter in the mid-80s, is it takes our clients on a journey of discovery. For the first time, they can properly visualise their business model in glorious technicolour. It’s so satisfying to see their ‘Eureka’ moment as the scales fall away from their eyes!
In a nutshell, an Activity Fit Map is a diagnostic tool to identify your company’s competitive advantage. It connects your value proposition to the activities of your organisation that enable you to deliver this value proposition better than any competitors. OK – sounds great. But how does that really work?
The example that’s often given is the activities of Southwest Airlines.
They built a value chain that was highly successful, leading to impressive growth in profitability. In their model, frequent reliable departures are connected to 15-minute gate turnarounds. These in turn were connected to standardised fleets of 737s which correlated with low ticket prices. Like an interconnected set of cogs all turning together, this led to growth in their business.
Interestingly, when Continental Airlines launched their own budget airline, Continental Lite, to compete with Southwest, they only copied a proportion of these activities. And it resulted in abject failure. They copied enough to make it pointless and, even worse, Continental Lite had a negative impact on their core business. A complete ‘lose lose’ situation.
When I look at Southwest Airlines’ map and others, such as Ikea’s, my thought is always, they’re brilliant but they’re retrospective. Nobody sat there and mapped all of this out as a way of driving their strategy. It happened serendipitously. They ended up where they ended up and happened to be the winners. And so, someone maps out their connected strategy afterwards to show how all their activities work together.
However, it’s possible to find parallels in other businesses. When we start to populate the Activity Fit Map for our clients, we’re looking for activities that complement each other. Ones where an improvement in one is correlated with an improvement in the other. These are your true differentiators – the things that set you apart.
We take all the activities in the value chain and think about what the strategy’s going to be in the next three to five years. Then we work out what’s different about how you do that activity that will drive this strategy. A great book to refer to here is ‘Connected Strategy’ by Nicolaj Sigglekow – in fact, I interviewed him for my Melting Pot podcast back in June.
After we’ve put all activities from the value chain into the fit map, we colour code them in terms of importance. If we come across something that’s likely to be a constraint, we project forwards into the future, thinking about the possible outcomes from this activity. Our client Smartsourcing has identified a future constraint of recruitment of the A-Players they need to drive their growth. So recruitment is an activity with high priority.
OK great. Now we have this, we put it on the map and work out the resulting cluster of activities. What will they look like in three years’ time? An attractive employer brand, testing and onboarding at scale, PR to build their image along with platform software development were all included.
And Southwest Airlines? Their differentiation was ‘wheels-up’. All the other airlines flew six domestic trips per day in the US. Because Southwest could turn them around more quickly they could fly eight. That’s where they make their margin. All the planes were the same, every pilot was trained to fly them, the crews were trained to work in all areas and even the customers were trained to know what bag sizes they could carry on. All of these differentiators connected, driving each other forward.
The fascinating thing about Activity Fit Maps is you start to see the other things your company does that have no bearing on your differentiation. Because they have no relationship with anything else, we call them orphan activities. Historically, you’ve probably run the business in silos. Instead of a leadership team, you get a leadership committee with each head of department thinking theirs is the most important area. Instead of collectively deciding where resources should go, they’re actually competing. And HR might have developed a silo around a particular activity because it’s their hobby horse. Or maybe in Operations, there’s this thing that they do exceptionally well but the customers don’t care.
These orphan activities can lead to undercharging and overdelivering. And the Activity Fit Map will help you spot them. Instead of starting with ‘Why’ (to use Simon Sinek’s famous phrase), start with ‘Who’. Look through the lens of your customers to identify which activities, products or services they really care about.
We produced an Activity Fit Map recently for a client firm of solicitors. Another ‘OMG’ moment. Suddenly they could see the three to five points of difference that were also most connected. It’s led them to change their whole approach. Historically, they were constrained by geography but having picked a core customer who is UK wide, they’ve opened new areas of possibility. They identified this core customer type as an entrepreneurial business that has ended up owning its own premises. Our client can provide the full range of legal services for that buyer.
Their activity fit map changed shape as they worked through the process. At first, the key things they’d highlighted were rapport/technology/no-nonsense advice/client responsiveness/referrals. This morphed into rapport/technology/great place to work/simple, effective, open. Rapport is their priority as their competitors are typical solicitor firms who tend to keep customers in the dark and pass them from person to person. It’s so important they’ve designed a brand promise around this activity.
Great place to work appeared in the final map because they realised that, in order to drive rapport, they needed to hire a different breed of solicitors. People that their customers will trust who are good at building relationships. They want to create a perception that, whilst they’re not the cheapest, their customers will always know what’s going on, they’ll never have to chase them and they’ll work with the same person all the way through.
Dominic Monkhouse is a proven architect of business growth with a demonstrable track record. As managing director, he scaled two UK technology companies from zero revenue to £30 million in five years. Since 2014, Dominic has worked as a CEO and executive team coach, helping ambitious CEOs and their leadership teams reach their full potential and achieve sustainable growth. He is the host of “The Melting Pot with Dominic Monkhouse” where he talks with some extraordinary thought leaders, fellow business authors, and CEOs to absorb their wisdom. Dominic is the author of F**K PLAN B: How to scale your technology business faster and achieve plan A, an exciting blueprint for cultural change and business transformation.
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