7 Powers: The Foundations of Business Strategy has been around for nearly ten years. It’s full of wisdom for business strategists. And it’s useful for designers too.
What is Power and how can you use it to guide your design effort?
I’ve put together a simple summary and a “four-step process” to help guide your most critical design decisions.
The meaning of Power
Strategy can often seem esoteric. Helmer makes it simple by explaining that it’s really just about gaining Power. He defines Power like this:
The set of conditions creating the potential for persistent differential returns.
In other words, a company has Power when it has engineered a situation where…
- It can make a lot more money than others in the same market – that’s the differential returns part (also known as the “Benefit”)
- And it can keep doing that for a long time because others can’t compete effectively – that’s the persistent part (also known as the “Barrier” or the “Moat”).
All the most successful businesses in the world, like Amazon or Nvidia, have Power. For years, they have made huge returns, and no-one has been able to knock them off the top spot. Every business that wants to grow should be seeking Power like that, in the hope that it can transform…
from an unattractive rat race commodity business to a bankable cash flow generator.
As a designer, that’s
the business you’re in too. Helping your organisation to succeed in the quest for more Power.
The seven types of Power
Power takes seven different forms. Just seven. After decades as a strategy consultant and lecturer at Stanford, the author, Hamilton Helmer, is confident that he has found them all.
Here they are:
- Counter positioning (AKA disruptive innovation): Disruptive innovations let companies change what people buy, and often reduce prices. Older players in the market can’t match the prices or the features, while still making a profit. For example, Sketch disrupted Adobe, and Figma disrupted Sketch.
- Scale economies: The bigger you get, the lower your costs for each unit of stuff you produce. So you can charge less, or increase profit margins, or both. AWS is a nice (digital) example of this – even though Microsoft and Google are catching up.
- Switching costs: Some businesses have customers that can’t leave them without incurring a cost that’s too high to bear. SAP is a good example.
- Network economies: Marketplaces and social networks are the most valuable when they have the most participants. Customers or users want to go to the place where they’ll find most other users to work with. An example: Instagram.
- Process power: A few businesses can deliver output at lower cost and higher quality than anyone else in a way that can’t be replicated by competitors. The famous example here is Toyota, with their unique production system.
- Branding: Having a strong brand is a source of Power. It means customers perceive your product to be of higher value than equivalent competitor products, will choose it in preference, and frequently pay more for it. Coca-Cola, for example.
- Cornered resource: If you have access to a resource that no-one else can access, or no-one else can access at a competitive price, you have Power. An interesting example right now is ASML, currently the only company in the world that can produce the EUV machines that create top-end microprocessors.
Absolute Power?
Great. But if you’re not working for a business that has already established an unassailable position of Power, should you give up? No. Complete Power is rare – and you still have to earn a living.
Chances are that if you work for an organisation that is turning a profit, it does have some Power. I think it’s interesting to analyse what Power your company does have, and then use your skills as a designer to help it strengthen that.
How to get Power
And there’s a fascinating twist. Helmer explains that the kinds of Power mentioned above are “static”. That means they’re a sort of “end state” and comparatively little changes once you have reached it (at leats for a while). But he also touches on the topic of “dynamics” – how you actually get to a position of Power in the first place.
There are only a few situations when a company can gain true Power, like the example companies above have attained. And those situations usually occur in a dramatically changing market or a brand-new one. At those moments there is little competition, or the competition hasn’t understood the moves you’re making.
Coca-Cola, for example, built their brand with intense focus for about 40 years before Pepsi managed to establish a consistent branding approach. And Toyota quietly and consistently established systems for delivering quality well before American car manufacturers realised that quality was the new competitive battlefield.
These moments of opportunity emerge when a company does something new. To attain Power, you need to do new stuff. That should be music to most designers’ ears.
Two killer quotes…
Power arrives only on the heels of invention. If you want your business to create value, then action and creativity must come foremost.
‘Me too’ won’t do: Action, creation, risk—these lie at the root of invention. Business value does not start with bloodless analytics. Passion, monomania and domain mastery fuel invention and so are central.
In other words, if your business isn’t creating, innovating, trying new stuff, you will never increase your Power. Design, anyone?
Applying Design to build Power
If you can identify know where your organisation gets its Power, you can focus your design effort on those areas. And by creating vision for what those areas could be, you might inspire the organisation to allocate effort to implement improvements or innovation in those areas.
Here’s my sketchy four-step process for how to get there…
Step 1: Identify the kind of Power your business has
Understanding how much Power your organisation has in each of the 7 dimensions is a great lens to understand your business, and where to focus your effort
So why not make yourself a little scorecard? Where does your org sit on the following seven dimensions…?
Counter positioning: Incumbent ....... Disruptor
Scale economies: Boutique craft ....... High-volume
Switching costs: Switching is easy ....... Strong lock-in
Network economies: No network effects ....... Dominant platform
Process power: Standard processes ....... Unique systems
Branding: Weak recognition ....... Loved and trusted
Cornered resource: Generic access ....... Exclusive ownershipFill in the chart and you might gain a fresh perspective on the strengths your company has that enable it to make money – and the weaknesses that are holding you back.
Step 2: Establish the elements that support your Powers
Each different Power has different elements that define and support it. When you understand which Powers your organisation has, you can look for the specific problems that go with it. That might mean expert evaluation, user testing, or some time with your analytics tool.
For example, if your organisation makes a product that has high switching costs, you might need to check:
- Activation: Do new customers make it to the moment of lock-in effectively, or do a lot of them give up and drift away? If there’s an issue, is it caused by high integration effort, a high learning curve, or internal resistance to change?
- Upsell: Are you understanding existing customers’ growing needs and creating the right new modules to upsell to them, so you can maximise ARR?
Or if your organisation is a two-sided marketplace, you might need to check:
- Liquidity: Are you successfully activating new sellers, and creating enough supply to attract buyers? And are you attracting enough buyers to make the marketplace attractive to sellers?
- Matching: Are buyers finding what they need via search? Are you attracting them back when the right supply does become available?
Maybe that’s obvious to you. But I’ve found it’s oddly beneficial to take that step right back and articulate what you’re choosing to focus on and why, as a designer. You might find yourself prioritising your time more wisely.
Step 3: How might we… build Power?
If you’ve found some problems that are reducing your Power, you’re back in familiar territory again. With a problem statement (or an insight into a new opportunity), you can flip the problem to a “How might we” question, and use that as a basis for ideation.
- How might we activate and lock in customers more effectively, given that they find the integration process too onerous?
- How might we get more customers to subscribe to alerts and increase demand, given that they are nervous about getting spammed?
- How might we make our core product offering more effective and delightful so that customers become effective word-of-mouth evangelists?
Step 4: Power play
Getting change to happen in your own organisation can be hard. You’ll need allies (usually your Product Managers) and you’ll need to pitch.
But as a designer, you’ve got the skills to explain user needs and create visions of solutions.
And this time you’ll have something extra in your arsenal. You’ll be focused on the dimensions that demonstrably matter to your business. You’ll speak a new language, which will make you smarter. And you’ll have a well-respected system to help you justify exactly why you’re proposing the change.
Bonus tips
- You can read the book and skip the maths. If you do, it’s pretty short, but still excellent.
- If you ask an LLM to help you understand and apply the 7 Powers, you can get plenty of interesting advice.