Smart Strategies: Putting Ideas To Work

In the early 1980s, Michael Porter gave us Competitive Strategy and told us what fueled the engines of corporate growth. A decade later, C.K. Prahalad and Gary Hamel told us to mind our "core competencies." In the years since, however, there hasn't been a whole lot of shaking going on in the world of corporate strategy. As one consultant put it, "There have been several great eras in strategy. This is not one of them."

One reason, of course, has been the seasick economy. Companies busily battening down the hatches and tossing employees over the gunwales weren't exactly interested in charting innovative courses for growth. Another problem was guru-fication. Too many experts quit doing the hard research and instead hit the speaking circuit armed only with derivative sequels to their previous groundbreaking works, plus plenty of charm.

But there are signs of spring in the land of strategy. Quietly, minus all the hoopla, a few innovative thinkers have been doing the work of finding new strategies to succeed in a tough environment. Ram Charan has a new book out this spring; C.K. Prahalad does, too; Mercer Management Consulting's Adrian Slywotzky and Monitor Group's Bhaskar Chakravorti turned out books of case studies last year; and Porter is working on a new strategy tome for next year.

The true test of a strategy, of course, is whether it has any traction in the real corporate world. We wanted to know who out there on the front lines of business has been putting smart ideas into action, seeking to grow in saturated markets, hunting for talent in new places, and navigating a fully globalized environment. And so, with input from several of these thinkers, we offer these five tales of strategic innovation--not as it's pondered or promoted, but as it's practiced.

Create demand by solving problems

Robert Walter, Cardinal Health

Life used to be a lot simpler for companies, says Adrian Slywotzky, vice president at Mercer Management Consulting Inc. You invented some great products, bought up smaller competitors, and kept getting bigger. But now, says the coauthor of How to Grow When Markets Don't (Warner Books, 2003), things are much tougher. "Product markets are saturated; the good acquisitions are done already."

One way to grow in that world, Slywotzky says, is to innovate your own demand. That's what Cardinal Health Inc., a Dublin, Ohio-based health-care-services company, is doing. Cardinal uses its unique access to both drug manufacturers and hospital chains to figure out where the problems are in the pharmaceutical business. Cardinal then creates new products to solve those problems, save customers money, and produce a tidy profit for itself. "They grow by figuring out how to improve their customers' economics," Slywotzky says.

Take the thorny issue of delivering medicines to patients in hospitals. Messy, handwritten prescriptions, a growing shortage of nurses and pharmacists, and pills lost during the dispensing process all add up to a dangerous and expensive problem. Incorrectly dispensed drugs can injure or kill patients and cost hospitals millions in lost medications or lawsuits.

Cardinal CEO Robert Walter smelled an opportunity. "We were already delivering products to the loading dock," he says. "Why not manage delivery all the way to the bedside?" Walter bought a company called Pyxis, which makes ATM-style machines that are prestocked with the most commonly used medications. Approved prescriptions are loaded into the machines' memory; nurses gain access via their fingerprints. Pyxis cuts down on mistakes and requires fewer personnel to dispense medications, improving safety and cutting costs. For Cardinal, which has deployed the machines into about 90% of U.S. hospitals, it means a steady new source of revenue plus a boost to its drug distribution business: Hospitals with Pyxis machines are more likely to buy their drugs from Cardinal.

Cardinal also found a problem it could solve for its suppliers: how to keep supply-chain costs down--a big challenge drug companies face when one of their patents expires and a once-hot product becomes a commodity. Walter's solution? "I bought a packaging business, so we can bottle and box drugs for the big pharma companies," he says. Drug companies can now cheaply outsource the manufacturing, packaging, and distribution of drugs to Cardinal while focusing their own efforts on developing the next blockbuster. With revenue that grew from $1.9 billion in 1993 to $51 billion in 2003 and operating earnings that ballooned from $60 million to $2.5 billion, it looks as if Walter's strategy is sound medicine.