Helmer’s Power Progression associates initial barrier establishment with origination for Counter-Positioning and Cornered Resource, takeoff for Scale Economies, Network Economies and Switching Costs, and stability for Branding and Process Power.

Evidence 8 passages

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Stage 1. Before Origination This occurs before a company clears the Compelling Value Threshold, at which time sales rapidly pick up pace. For microprocessors, the entire BUSICOM period, including Intel's efforts up until the release of the 8080, constituted the origination stage. Stage 2, during, takeoff. This is the period of explosive growth. Stage 3, after, stability. The business may still be growing considerably, but growth has slowed from explosive levels, with 30-40% per year unit growth as a workable choice for the cutoff. Above this rate, the market doubles in two years, sufficiently fluid for market leadership swaps without value-destroying countermoves. A word of caution, parsing by growth should not create the impression that the phases above are congruent with the well-known product lifecycle stages of introduction, growth, maturity, and decline. They do not align, and the differences are critical. First of all, the three stages described above are defined by the metric of business growth, not industry growth. See definitions in Appendix 9.3 in the supplemental PDF. Business growth best reflects the degree of flux a company faces in that business. Secondly, the breakpoints are entirely different. The origination stage precedes these familiar product lifecycle stages and may exhibit no sales for
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a long time. Stability, on the other hand, features considerable growth, and so it overlaps all of the last three stages of the lifecycle model. My parsing utilizes takeoff to delineate stages. When trying to discern the availability of power, this grouping proves essential. The product lifecycle grouping will not serve this purpose. Bearing this in mind, I can now tackle the challenge laid down at the beginning of this chapter. Can one meaningfully generalize about when power is established? I will use the same methodology as Chapter 8, parsing the question by power type. For each of the seven powers, must they be established in origination, takeoff, or stability? Distilling it further, what I am really asking is this. When must one establish the barrier? Power results from the simultaneous presence of a benefit and a barrier. Both of these play a pivotal role in dynamics. Chapter 8 demonstrated the vital role of invention in implanting benefits and forging the potential for power. As I have discussed throughout this book, benefits are common, and they often bear little positive impact on company value,
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as they are generally subject to full arbitrage. The true potential for value lies in those rare instances in which you can prevent such arbitrage, and it is the barrier which accomplishes this. Thus, the decisive attainment of power often syncs up with the establishment of the barrier. The power progression maps this barrier timing. For the Intel example previously discussed, see figure 9.3 in the supplementary PDF. The power progression maps when power must be established by power type. It indicates at what point the window is open. Intel's three power types continued on into the stability phase, of course. That's why the company's value has endured. However, if Intel had not established scale economies, network economies, or switching costs, by the time they reached stability, the possibility of power would have vanished forever. They would have likely become a low-margin electronic components company, a relentless treadmill fate that awaited many other semiconductor firms, including the Japanese juggernauts that trumped Intel in the memory business only years before. The Power Progression, Origination Now let's turn our attention to the origination stage that occurs before takeoff. There are two types of power that typically become first available during this earlier period. Cornered resource. The crucial step in Intel's microprocessor victory came when they reacquired the rights to their invention from Busycom, which they accomplished three years prior to takeoff.
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The promise of this type of power, secure from the start, is what underlies the industry's willingness to pour billions into high-risk research efforts. Counterpositioning Counterpositioning requires the invention of an attractive business model that presents a vexing damned if you do, damned if you don't cul-de-sac for incumbents. It is this business model's whole product that creates the takeoff or the challenger, so it must proceed that phase and occur during origination. Thus, counter-positioning and cornered resource are most likely to be established in the origination stage. These are wonderful, durable types of power, specifically because your route to power is locked in early, so long as you execute well. I have mapped these two onto the The power progression, stability. Finally, there are two types of power that are likely to be established in the stability stage. Processed power. Process power occurs if a company over time develops a significantly superior internal process, which competitors cannot emulate easily. Process power typically avails itself only in the stability stage. Why then? Because only when a company has scaled sufficiently and operated long enough, can it have evolved processes which are sufficiently complex or opaque to defy speedy emulation.
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Branding With branding in the mix, there is only one barrier of consequence. The long time and uncertainty a challenger would face in emulation. Think of the steep slope a new entrant would face against Hermes, with their many decades of carefully cultivated quality and exclusivity. Because this long path serves as a defining characteristic, the opportunity for branding must be squarely placed in the stability stage. Prior to that, there just hasn't been enough time to thoughtfully cultivate the necessary associations. You might lull yourself into thinking that there are opportunities for branding in the origination phase. Perhaps your existing brand is considering some transforming initiative, a thrust into an entirely new arena of business. You reasonably assume the brand's reputation can provide significant pricing power from the start. Use caution. This is possible, rare. Consider such failures as Hermes cognac or Porsche sunglasses. Perhaps the most notable exception would be Disney's move into theme parks, but again, such cases are rare. This then fully populates the power progression, which answers the question, for each of the seven powers, when does power first become available? This is a potent shorthand, because it enables you to quickly narrow your search for power to only those types that map to the current growth stage of your
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business. The power progression provides another solid instantiation of Professor Porter's insight to understand statics before tackling dynamics. This crucial question of the timing of strategy windows can only be meaningfully answered by asking it for individual power types. And these types are revealed by statics. The time character of the four barriers. Let's now delineate by time the seven powers chart developed earlier. See figure 9.6 in the supplementary PDF. This pulls into focus another dynamics insight. Each of the four generic barriers is specific to stage. This results from the nature of those barriers. Historesis. The barrier here? A structural time constant facing all players. It makes sense then, that all powers relying on hysteresis, would only become available in the stability stage. As the take-off stage is relatively short-lived, and does not usually provide sufficient time to build up the benefit, constrained as it is by the time constant. Collateral Damage Here it is the economics of the challenger's business model which threatens collateral damage to the incumbent. But the initiation of this business model is what gets the challenger off the ground, so it must occur in origination. Fiat The critical issue here concerns whether the right protected by fiat is fully priced.
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As the business proposition involving the cornered resource develops during takeoff, the resource's value becomes more widely known, substantially reducing the probability that it will be materially underpriced, and it must be underpriced to qualify as a cornered resource. Cost of Gaining Share Of course, the whole notion of gaining share carries no meaning in the origination stage, as sales have not yet materialized. When the business takes off, there are many factors which determine which company can scale most rapidly. Channel position, product features, communication approaches, location, production constraints and so on. As a consequence, the price of share usually does not reflect its intrinsic Upon reaching the stability stage, the most effective modalities become better known and accessible to many players. There the customer's focus turns from, can I get it, to, what is the best deal. In this situation, each player grasps the value of share, and will game accordingly, usually arbitraging out its value. Hence, generally speaking, only in the takeoff stage can a player gain share on attractive terms. Otherwise it is too costly to be worthwhile. The power progression. The data. Frequency histogram of power type. So far I've relied upon theory, supported by anecdote, to develop the power progression. To provide some empirical validation, I turned to the research of my students,
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as for the last seven years I have been teaching business strategy in the economics department at Stanford University. I had a team review the instances of power in all the research papers of my students, to determine at what stage at which power first occurred. The frequency histogram in figure 9.7 of the supplementary PDF displays the results of this distillation. The histogram lends strong support to the stage timing of power developed earlier. There are exceptions, but by and large the power progression is borne out. Origination, contrapositioning and cornered resource. Takeoff, scale economies, network economies and switching costs. stability, process power and branding. The Dynamics Difference In moving from statics to dynamics, scope is broadened considerably. At a high level, we see that in the fundamental equation of strategy, value equals the product of M sub-zero and G and bar S and bar M. Statics concerned itself only with power, and hence just the last two terms, R-S market share, and R-M differential margins. Primarily it focused on just one, R-M. In contrast, in a dynamics context, a company can profoundly influence both the two market size M sub 0, the current market size, and G, the discounted growth factor. The creation of compelling value, for example, is joined at the hip to the creation of a market. In the lingo of economists, in statics, M sub 0 and G are taken as exogenous, whereas in dynamics they are endogenous.

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