Saturday, April 29, 2017

Why is Uber Struggling to Enter Indonesian Market?

Uber began its business in San Francisco with a vision to be one of transportation options, replacing traditional taxi cab [1]. Sophisticated algorithms, GPS, and mapping technology are some Uber competitive advantages to provide more convenience service for passengers. Even though facing legal issues in many cities, Uber are growing rapidly, especially in the United States. Uber also profitable in some other countries in North America, Australia, Europe, the Middle East and Africa [2].

Being profitable in some countries does not guarantee Uber’s success in other places. In the first half of 2016, Uber lost more than $1 billion when trying to beat the local competitor in China [3]. Besides China, Uber decided to enter countries in Southeast Asia, including Indonesia. Uber has started its operation in Indonesia since 2014 [4]. However, up until now, Uber still cannot gain a substantial market share in this country. In my observation, at least three things impede Uber business in Indonesia:

1. Pressure from traditional taxi cab

Indonesia has Blue Bird Group as its largest taxi company that operates more than 30.000 vehicles and gain about 50% market share in Indonesia [5]. Blue Bird has a good reputation as a convenience and reliable taxi cab. It also has Silver Bird as a premium taxi cab to serve high-end customers.

Blue Bird realized the threats from online ride-hailing companies. To compete with these new entrants, Blue Bird launched a mobile application. It also forced Indonesian government to ban online ride-hailing that do not have a legal permit as a commercial transportation. The tensions got into climax when Blue Bird and other taxi drivers lined the streets in Jakarta to protest tech firms that “stole” their customers.

2. Indonesian are not familiar with credit card

When entering Indonesian market, Uber only allowed credit card payment; while credit card user in Indonesia is few. This payment option also becomes one factor for other multinational online businesses cannot compete in Indonesia. To deal with it, Uber started to allow cash payment in 2016 [4].

3. Intense competition from local players

Like other countries in Southeast Asia, Grab is popular in Indonesia. Grab is a Singapore-based ride-hailing company with about 95% of the ride-sharing market in Southeast Asia [2]. In Indonesia, Grab has a tough competition with Go-Jek, especially in motorbike taxi (or "ojek" in Indonesian). Since motorcycles are more popular than cars, Uber introduced UberMotor in April 2016 [6].  

Uber seems to start to adapt its strategy with the Indonesian business model by providing a cash payment and motorbike taxi service. However, it was too late since Grab and Go-Jek has dominated the market. It seems there is still a long way for Uber to attract Indonesian market.

References:
[1] http://www.tc.umn.edu/~ssen/IDSC6050/Case15/Group15_index.html
[2] http://sea-globe.com/uber-southeast-asia/
[3] http://www.businessinsider.com/uber-2016-losses-2016-8
[4] https://newsroom.uber.com/indonesia/jakarta-cash-payments-have-arrived/
[5] https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x658913&serialid=vh0Bso4cU7hEi71m8VHIY8ZL8zy2SNLUAdntxl%2fAVto%3d
[6] https://newsroom.uber.com/indonesia/introducing-ubermotor

Wednesday, April 26, 2017

Fintech Startups Sound Cool but Can They Name a Strategy?

Fintech is a buzzword that became trendy when the financial technology industry received $20 billion in investments in 2015. This was a 60% increase from the previous year that spurred talks about startups that could potentially disrupt the banking industry. Technology in consumer and commercial finance has allowed for a variety of new competitive advantages. Innovations in machine learning and predictive analytics are being used to undercut traditional lenders and advisors through pricing and services. As this industry takes form and fintech startups grow in capacity, my question is, will they be able to name their strategy?

This industry is driven by technology in a currently niche market. As competitors increase and the market expands, having the best technology is vital to a company’s success. Strategy is not driven by a business model or a vision, it is driven by the science behind your product. This works for a startup fighting for investment but not for a legitimate player in an established market.

Can You Say What Your Strategy Is? By David J. Collis and Michael G. Rukstad explains the need to have a defined strategy and business objective. Strategy can be defined by what the company is trying to achieve, or where they want to go. How they get there is determined by their objective. This should be driven by a competitive advantage. For fintech companies, it is important to identify scope because the technology is seemingly unbounded.

Companies in this space need to make tradeoffs to strategically distinguish themselves from other firms. Fintech startups are vulnerable to focusing too much on the technology that gives them an advantage. As the market matures and fintech startups become the more formal, financial technology firms, they will need to find a way to satisfy customer needs in a way that rivals cannot.  In the fintech lending industry, revenue is driven by competitive pricing. When multiple fintech firms with the same advantage are in the same niche, the winner is the one that can offer something the others cannot.


From my experience with a local mortgage lending firm who specializes in financial technology, resources are not properly allocated to strategy and infrastructure. The data driven analytics can provide a valuable advantage in pricing strategy but there is a problem when multiple firms with similar intellectual properties compete in the same region. Leadership neglects to articulate a company strategy and when success dries up, decision makers through out the company, lack direction or motivation. Strategy for this type of firm needs to be decisive to ensure that the company can follow a vision. Technology must be the driver and not the strategy.

The Scientific Method applied to Customer Discovery.

According to the Business Model Canvas template, one of the key building blocks to creating a viable new business model is to conduct comprehensive customer discovery. Without understanding the exact needs and types of customers the company plans on taking on, it is impossible to gauge the requirements and specifications the business will need to have. In "Bringing Science to The Art of Strategy", Lafley et al describe how conventional strategic planning is in fact not scientific; they argue that strategy-making needs to follow certain guidelines in order to be scientific instead of simply rigorous [1]. In this post, I will describe how the seven steps for scientific strategy development outlined by Lafley et al can also be applied to one of the first steps of designing a new venture - customer discovery.

The first step to scientific customer discovery would therefore be framing a choice - in this case choosing what segment of customers you would target, and consequently which segments of customers you will not cater to. The second step involves considering additional customer niches or segments that all the decision makers could potentially agree that the company could cater to, given some conditions. This leads to the third step, which is identifying the sets of conditions that must be met for the company to cater to each of the customer options described previously. These could include conditions such the company requiring additional capital, equipment, manpower, specialists etc. or they could be specific circumstances, such as the product selling well among a specific demographic. If any of the decision makers feels that the company can not foreseeably cater to a particular type of customer under any realistic circumstances, then these barriers should be identified and discussed. In this step, the barriers should be realistic and chosen while keeping in mind the goals and attributes of your company.

Once various potential customer segments have been identified, the fifth step is to create potential tests to determine the validity of the selected customer segments analyzed thus far. This will allow us discover the customer segment that best fits the company in terms desired market size, cost-to-entry, locality, technical difficulty etc. The sixth step for customer discovery would then be to execute these tests in the real world to determine whether your desired targeted customers are a good match for you. This can be done by contacting potential customers finding out if and how much they are willing to pay for what your company has to offer them. Additionally, customer preferences can be recorded so as to better determine the type of product or service your company will provide to those future customers. The seventh and final step in this case would then be making an educated choice as to your targeted customer segment, based on the results of the tests. By comparing different choices and then testing out hypotheses regarding customer attributes, it is therefore possible to use the Scientific Method in Customer Discovery.

References:

[1] Lafley, A., Martin, R., Rivkin, J., Siggelkow, N., Bringing Science to The Art of Strategy, Harvard Business Review, Sept. 2012

IKEA’s Value Proposition


IKEA’s Value Proposition

IKEA is one of the most successful retailers in the world with operations in 43 countries and growing at 6% annually. From humble beginnings, IKEA now has more than 150,00 employees and has been ranked among Forbes Top 50 World's Most Valuable Brands.[1]  Undoubtedly, it is IKEA's forward-thinking strategy that has helped to transform itself into a furniture behemoth.

IKEA’s success in the long run can be attributed to its development of efficient and well planned global network from manufacturing to distribution. IKEA’s business strategy is “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”.[2] IKEA’s business strategy not only provides it a competitive advantage, but also a clear vision of what it wants to achieve, guided by its strong values.  Here are a few of IKEA’s value proposition that has helped it to become a market leader:

1.     Pricing

IKEA’s products are neither too cheap nor too expensive. They are priced perfectly. The consumers are extremely satisfied with the value for the price they pay. Price is the one which stands out among other attributes of IKEA which include quality, sustainability, and functionality. IKEA is able to sustain such low prices because they start the product development with a target price point. [3]



2.     Stores are a destination.

While many retailers in the furniture industry are shutting physical stores and moving into digital sphere, IKEA is expanding and growing in both the spheres.  IKEA strongly believes that in-store experience can’t be subsisted by virtual reality as stores enable customers to have a “three-dimensional” feel of the products. To enhance the in-store experience, IKEA provides great ambience in its showroom as well as wide range of options in its cafeteria. [4]



3.     Home visits

It is very crucial for IKEA to understand what people want at their homes to fulfil its goal of being "the leader of life at home." Hence an arm of IKEA’s management visit their customer’s home frequently. During the visit, they observe, ask the customer’s their needs and take pictures. This information is compiled in their quarterly “Life at Home” report which help them understand the trend. To complement this, IKEA uses predictive analytics and data-mining to forecast the customer needs. [5]



4.     Sustainability

IKEA obtains its wood from 21 forests and ensure that all the wood is obtained as per the company’s sustainable forestry standards. IKEA uses more than 30% of the wood from sustainable sources for its products.[6] The company has set goals to increase the use from sustainable sources to 50% by 2017. And by 2020, the company aims to become completely self-sufficient- produce as much energy as it consumes. The company has been working towards this and operates 137 wind turbines and 550,000 solar panels on its buildings globally. [7] There are many initiatives taken by IKEA to promote the concept of “sustainable lives at homes” of its customers by providing them with innovative products that use less energy, save & recycle water and reduce waste.



5.     Staff

Staff occupy the central position in IKEA’s strategy.  They aim at having women in half of all management levels across business to foster diversity and equality. Unlike other retailers, IKEA offers its staff with 3 months of paid leave during maternity. Lars Peterson, IKEA’s US head, believes that this strategy is good investment for them in the future that will ensure low turnover. IKEA strongly encourages its staff to actively participate in community activities in their region of operation. The charitable wing of IKEA- The IKEA foundation- donates millions of euros from its profit to support programs organized by UNICEF and Save the Child.[8]



6.     Emphasis on design

IKEA strongly promotes the design of products rather than the designer for they believe that it is the product that would meet the needs of the customer and not the designer.  IKEA has over 9500 products and launches about 2,00 products annually thanks to its 12 in-house designers and 60-70 on-contract external designers. [9]



7. Demographic

For students and non-working class, IKEA has been a destination for the quality and range of furniture products at reasonable price. IKEA has managed to attract the youth with their clean, easy to assemble and quality products. [10]





[1] "IKEA Facts and Figures - IKEA." IKEA Highlights 2016. N.p., n.d. Web. 26 Apr. 2017.
[2] Feb 16 2014 at 4:53 PM, and 1. Hr Ago. "Power of IKEA's 25-word Strategy Statement." Financial Review. N.p., 20 Feb. 2014. Web. 26 Apr. 2017.
[3] Skobaya, /. "Secret behind IKEA's Pricing Strategy." T1 2016 MPK732 Marketing Management (Cluster B). N.p., 15 May 2016. Web. 26 Apr. 2017.
[4] News.com.au. "How Ikea Uses Food to Trick You into Buying Furniture." New York Post. N.p., 03 June 2015. Web. 26 Apr. 2017.
[5] "IKEA Makes Home Visits – RetailWire." RetailWire. N.p., n.d. Web. 26 Apr. 2017.
[6] Schutte, Shané. "IKEA Becomes First Company to Have Its Very Own Forest." Real Business. N.p., 25 Aug. 2016. Web. 26 Apr. 2017.
[7] Bowden, George. "Ikea Has Some Very Surprising Uses For Its Recycled Material." The Huffington Post. The Huffington Post, 17 Jan. 2017. Web. 26 Apr. 2017.
[8] "Over 12 Million Children Have Better Educational Opportunities through IKEA Foundation, Save the Children and UNICEF Partnership." IKEA Foundation. Https://www.ikeafoundation.org/, n.d. Web. 26 Apr. 2017.
[9] "The IKEA Products Professional Designers Use." Fox News. FOX News Network, n.d. Web. 26 Apr. 2017.
[10] Wollen, Todd. "IKEA Named One of Canada's Top Employers for Young People for the Second Consecutive Year - IKEA." IKEA CA/EN. N.p., n.d. Web. 26 Apr. 2017.

The Importance of Knowing Yourself

David J. Collis and Michael G. Rukstad's ask a question with their article's title: "Can You Say What Your Strategy Is?" I was particularly struck by their emphasis on a company knowing what it is and what it stands for, regardless of how challenging it might be to convert ideated corporate self-image into realized corporate reality. More importantly, such a choice requires both bravery and fortitude.

In my own experience in the startup world, I have far too often seen companies that attempt to shift gears based on every barrier encountered. Working for an ed tech startup in Pittsburgh, for example, in the few months I was with the company we shifted multiple times from being teacher-facing to student-facing, with other markets under constant consideration. This led to a situation wherein employees were really unsure as to what to focus on, whether that be in sales, product development, or user experience.

The temptation to pivot is quite strong in the startup world, and it should be: startups are - ideally - lean, flexible, and staffed with individuals possessing broad skillsets. Where pivoting becomes problematic, however, is when it is viewed as an antidote for challenging situations. It is all too easy to pivot when encountering a challenge. Students aren't interested? Focus on teachers. Teachers aren't interested? Well maybe we should focus on students. Rather than optimizing a product for a given market segment - as Edward Jones has focused on conservative clients - startups can pivot themselves into oblivion, lacking the fortitude to optimize a product to fit customer needs.

Family-owned companies will often face the same challenges as startups, simply because there is often little in the way of leadership structure, with one or a few individuals making all major decisions with as much or as little input as they want. I experienced this firsthand working for a family-run, closely-held contact lens company. Ownership would visit our stateside offices once or twice per year, and each time they visited we were given different instructions as to what our business focus should be. Exacerbating this problem, the company in question had operations worldwide without the resources to properly service all of them, ultimately resulting in frequent resource shifts that left all outfits under-resourced and often prioritized resources based on the flavor of the moment - or the last office visited - rather than prioritizing the best business-case and focusing resources on developing in that market-segment or region.

Ultimately, I think this comes down to a similar problem in both startups and closely-held family companies: an unwillingness or inability to recognize the necessity of tradeoffs, as outlined by Collis and Rukstad. This makes sense; both startups and family companies tend to have an emotional hold on their managers. These companies are somebody's baby, and it stands to reason that in many cases people who might otherwise be excellent managers suffer due to their emotional investment in their company. While they might be capable of recognizing and realizing tradeoffs in someone else's company, to do so on their own requires developing a certain emotional distance that can be quite challenging to achieve (doubly so when we're discussing companies where people - founders or business-owners - have invested their own funds). Collins and Rukstad's article highlights just how critical it is to make these decisions, even when they are incredibly challenging.

The Yahoo! Geek Tragedy

Yahoo was the biggest internet company in the world at the turn of the century. It was the de facto standard home page of the early internet. It was a web ‘portal’ in the truest sense, with search, sports, finance, news coverage, job services, video streaming, original entertainment among other things. This breadth and lack of identity without a singular strategic outlook, I believe, led to Yahoo’s sad decline.

But how did Yahoo specifically go from being synonymous with the early internet, to being a shorthand for a business spiraling into irrelevance?

The three critical components of a competitive game-plan, identified by Michael G. Rukstad & David J. Collis in ‘Can You Say What Your Strategy Is?’, can be found deficient in Yahoo’s story;

Objective – Yahoo was never certain if it was a media company, or a technology company. They aspired to be a ‘web’ company, and the fact that they set the ball rolling in the internet company culture possibly hurt them. Dabbling in search, news and email, it was never sure what it wanted to be. Marissa Mayer, the current CEO-President of Yahoo (Mayer was brought in as a last-ditch attempt to revive the company), even once said that she was always willing to consider ‘Strategic Alternatives’, highlighting the mess that Yahoo strategically was/is. Rukstad & Collis say that an objective profoundly impacts a firm and the stakeholders involved. A lack of objective, thus, seems to have had a profoundly negative impact on Yahoo.

Scope – Knowing and sticking to the scope in terms of offerings, location, and vertical alignment, allows a firm to reap benefits of simplicity, standardization, and experience, according to the authors. Instead, Yahoo is characterized by a myriad of offerings as a portal. In Mayer’s tenure, the buzzword was ‘MaVeNs’, an acronym for Mobile, Video, Native, and Social, indicative of Yahoo being a mare’s nest of epic proportions. Yahoo has maintained a start-stop nature of operations around many locations around the world, not helping the scope cause. These unclear boundaries have in-turn proved damaging to Yahoo’s cause (if there ever was one).

Advantage – A firm’s advantage is characterized by its value proposition and its differentiating nature. Yahoo although a pioneer, did many things wrong to maintain a clear advantage. As we now know, tech companies are defined by their hacker-centric cultures and innovative worldview, whereas Yahoo downplayed the importance of tech and lost out early. After losing out, Yahoo made a slew of acquisitions to maintain advantage (rather, stay afloat). With Flickr, Tumblr and Yahoo Mail all teeteringly close to insignificance, Yahoo currently has only a romanticized brand-name as an advantage.

Yahoo never hit what the authors call ‘The Strategic Sweet Spot’, where it meets customer needs in a way rivals cannot. Because Yahoo could never do this, their downfall was always impending. This occurred in 2017, with the sale of Yahoo’s core businesses to Verizon for ~$4.5bn.
I believe the sale was still a coup for Yahoo, given its non-existent strategic approach, since inception.

Ref.
A Tale of Two Brands: Yahoo's Mistakes vs. Google's Mastery - Feb 23, 2016 Opinion Strategic Management Global FocusNorth America - http://knowledge.wharton.upenn.edu/article/a-tale-of-two-brands-yahoos-mistakes-vs-googles-mastery/
RIP Yahoo: Why Marissa Mayer Failed - Steve Tobak - http://www.foxbusiness.com/features/2016/07/26/rip-yahoo-what-caused-its-very-slow-painful-death.html

Yahoo: 9 reasons for the internet icon's decline - Cara McGoogan - http://www.telegraph.co.uk/technology/2016/07/25/yahoo-9-reasons-for-the-internet-icons-decline/

Understanding your Strategy

Studying this week’s articles, I was surprised by the fact that many executives cannot express the objective, scope, and advantage of the businesses they are currently in. This speaks volumes about the inner working of these companies. Companies with such leadership will further fail to motivate the other employees to work at their best abilities and capabilities. How companies define their business strategy will determine the direction of their business and will shape their future. It is also important that companies define their goals and objectives very clearly, both at the corporate and business unit levels. Thus, by defining their strategy comprehensibly and succinctly, they can ensure that everyone in the company is homogeneously aligned so as to achieve their growth and business plans and accomplishing their goals.

When strategies are not understood by the employees themselves it is not surprising when all the efforts to make a beautiful strategy is worthless. These strategies are never implemented to their fullest extent. The benefits which were to be reaped by these strategies are never realized. Further, the company starts hitting rock bottom due to failed attempts at achieving growth and decreasing morale among the workforce. In this regard, it would be fruitful to delineate the elements of a strategy as identified by Mike Rukstad. He identifies the three vital components of a magnificent strategy statement as objective, scope, and advantage. 

In my opinion, we have to answer the ‘W’ questions when designing a strategy statement - Who? What? When? Where? Why? And How? Companies who adopt to answer these questions will be able to better explain and understand the strategy among themselves first. After which, they can help the society to understand their place within the community, and the values they bring to the citizenry. 

Another important aspect to consider is to understand and include the competitive advantage within the strategy. Competitive advantage is what distinguishes companies from its competitors. It defines the special value proposition that the business offers to the clients. The sweet spot that needs to be attained is at the crossroads of the company’s capabilities and customers’ needs within the context where the company has its current business. A recent example can be of Apple when they introduced Apple Pay. They had a very clear strategy and goal when they introduced it in late October 2014. They aimed at becoming the m-commerce leader in a fixed time-span. Moreover, the executives from Apple were very clear on the strategy and to where they were heading in the near future. Further, they were able to translate their vision to their other clients like merchants (Dunkin’ Donuts, Kohl’s, BJ’s Wholesale Club, JCPenney, Panera Bread etc) 

Lastly, in my opinion, many a time, strategies are made wonderfully, but the problem comes when this vision is not translated to all employees properly and the strategic working is not sustained. This causes a large disconnect between expectations and the goals that are assigned within the company. With the current fast pace of the world, especially in the technology field, it becomes a strategy by itself for the companies to ensure that the employees are on-board with the vision and goals of the company. A strategy for strategy dissemination could be a need of the hour.