A new analytic model by Tuck professor Ron Adner offers a more nuanced and powerful tool to examine strategic positioning.
A key to success in business is finding your strategic position—the mix of product, price, quality, and delivery that your firm is able to provide, your customers are willing to pay for, and your competition can’t match. Yet despite its central importance to business success, strategic positioning has rarely been the subject of rigorous analytic research.
Tuck strategy professor Ron Adner addresses that void with a powerful new tool in the study of strategic positioning: a model that combines elements of two popular positioning models to create a more nuanced and effective tool. Adner and his co-authors, Felipe A. Csaszar of the Ross School of Business at the University of Michigan and Peter B. Zemsky of INSEAD in France, present the model in “Positioning on a Multiattribute Landscape,” published in November 2014 in the journal Management Science.
Existing models generally fall into two groups, each with unique strengths and shortcomings. Productivity frontiers provide a graphic representation of business trade-offs, such as quality versus price. The theory holds that any position that maximizes both attributes represents a viable business strategy, and will appear on the graph’s outer edge—the “efficient frontier” in the lexicon of industrial organization. These models help firms identify strategic sweet spots, but provide little clarity on how to capture that high ground. Imagine a map showing a destination, but no roads leading to it.
Another class of positioning model draws on evolutionary theory to visualize the ways in which discrete policy choices relate to each other in complex organizations. These models, called rugged landscapes because the graph often resembles a relief map, help researchers analyze the ripple effects that given policies are likely to have in an organization. Think of an auto dealership. Sales incentives, commission structure, financing, and sticker price all influence the number of cars that move through the showroom each month. Changing any of these policies will affect the others, a phenomenon Adner calls ‘business policy interdependence.’ Rugged landscapes are very good at modeling these complex relationships. However, almost none of these models consider the effect of competition, and therefore provide little insight into the effect of positioning on market share, concentration, and profits.
Adner wanted a more comprehensive instrument. After all, managers can’t simply announce a strategic position and make it so; they have to provide the policies and leadership to move their organizations to that place. Nor do firms operate in a competitive vacuum. As Adner writes, “Understanding positioning requires understanding two distinct mappings: how policies are transformed into positions and how positions are transformed into market performance.”
Adner and his co-authors developed a new, more complete mapping of competitive positioning that combines the strengths of productivity frontiers and rugged landscapes. Their mathematical model provides insight into questions that have long vexed business managers. How, for example, does the value of a certain trade-off vary in the presence of competition? And how do consumers assess the value of products that have many different attributes? The new model allows researchers to distinguish between strategy and position, and to begin to discover how decisions in one of these can affect outcomes in the other.
The model already has led to some unexpected findings. For example, the belief that all positions on the efficient frontier are viable isn’t so certain. By introducing consumer choice to the equation, the Adner model shows that some positions, though efficient, are not viable. Say you manage a hotel, and provide a competitive mix of quality and comfort. That should be a winning strategy, but the position is only viable if it represents the most attractive option for at least one customer. If all of your potential hotel guests need to stay either downtown or by the airport, and your hotel is close to neither, you don’t have a viable position.
Perhaps most intriguing, the model shows that increases in business policy interdependence can decrease the number of viable positions. Back to our car dealership analogy: Even if you know that a hybrid version of a particular car would fly off your lot, you can’t simply order a truckload of them from Detroit. For a Big Three automaker, adding a new engine option across just one model line requires a host of changes throughout the organization, from the supply chain to advertising. In contrast, if you’re an independent hotelier, it's easy enough to add a piano bar and scoop up a sizable share of the music lovers who visit your city. After all, what’s a longer cab ride compared to a martini and an evening of good jazz?
R. Adner, F. Csaszar, and P. Zemsky, “Positioning on a Multiattribute Landscape,” Journal of Management Science, November 2014.