Friday, June 24, 2011

Immelt's Strategy for GE - bold and thoughtful

It was refreshing to hear a CEO say that “We are going back to basics.” This is especially profound if the CEO wasn’t someone who had just been appointed. We have heard many NEW CEO’s talk about change and how they would like to take the company in a different direction. But, there aren’t many precedents of CEO’s acknowledging their mistake midway into the role and charting a different course.

On the face of it, the decision by Jeffrey R.Immelt to focus on “building stuff” as opposed to pursuing lucrative financial deals seems to be easy post recession. But, one must consider this in a broader perspective. In 2007, GE Capital contributed to half of GE’s overall profits. Studies show that the financial industry is one of the few industries to make money quickly with less investment. Thus, I believe it was a bold move to pull back on investments in GE capital and get back to building factories again.

Another example that showed Immelt was clear on GE’s priorities was when he pushed to sell a part of GE’s stake in NBC to Comcast. This sale freed up much needed capital that is being invested by GE in its core business.

CEO’s often find it hard to take this kind of bold moves unless they have their backs to the wall. One of the few exceptions was Samuel J.Palmisano, chairman and CEO of IBM. IBM caught everyone by surprise when they announced the sale of the PC division to Lenova. It was a bold move considering that IBM was at the forefront of making PC a global phenomenon. Judging by the current results the plan seems to have worked. IBM reported revenue of $23.7 billion in second quarter of 2011. Its stock is traded around $165 and it has a market cap of $199 billion.

Contrast this with HP, another technology behemoth that has based its strategy around becoming bigger and bigger and becoming the one stop shop. In the second quarter of 2011, 29% of HP’s revenue was driven by the personal system group (PSG), which primarily sells laptops and PC’s. But the operating profit of PSG is just 5.7% of revenue. This is primarily because of the intense competition on price between the different players. Thus, though HP reported revenue of $31.6 billion (higher than IBM) in second quarter of 2011, its stock price is languishing around $34 and it has a market cap of $72 billion.

If you follow the contrasting paths taken by these two technological companies its clear that IBM’s strategy has played out better. Thus, based on past examples its clear that Immelt’s decision to focus on heavyweight engineering would take the company in the right path. Though Immelt’s strategy looks riskier in the short term, it would pay rich dividends in the longer term. I wish there were many such CEO’s who take calculated risks based on sound logic.

Iterative Strategic development


Strategy defines the path for company’s progress for future; it indicates the directions and also how to achieve the ultimate goal. Needless to say that Strategy implementation is of utmost importance in an organization’s growth; it is of even more importance to continuously refine the strategy as and when required. Now this leads us to some very important questions. When should the strategy be modified or amended? How frequently should this be done? Whether it should be done often or only once in many years?
These important questions force us to verify the validity of age old traditional strategy development process wherein the strategies are formulated and updated annually by senior executives. The article “Should you build strategy like you build software” by Keith McFarland suggests that there is a need of new release of the strategic development model which will suit to the demands of the new era. The author mentions that the traditional software development model also underwent through similar introspection as this traditional approach of planning way ahead for future was failing to deliver the goods for the ever growing challenges of the modern world. The complexities and dynamics of the software development have changed very dramatically from the past and hence it needed to come up with a more robust approach to handle these. He draws an analogy between Software development and Strategy development by mentioning that both the approaches are challenged and are finding it difficult to prove their worth in modern era. However the author states that Strategic development has fallen behind Software development as the field of software development has come up with newer approaches to handle the complexities and is more adaptive in nature. He believes that Strategic development arena has failed to adapt to changing conditions and newer version has become a necessity now.
He tries to support this claim by mentioning that pressure to accelerate and at the same time cope with increased uncertainty and complexity has led to demise of software development as well as strategic development. He goes ahead and says that as the traditional Waterfall model for software development is not suitable in today’s fast world, the traditional strategic development too is not the most suitable approach for formulating the strategies. He firmly believes that the traditional strategic development process should undergo a transition and take over more adaptive and iterative nature. He feels that strategic development can take a nature similar to modern software development practices like iterative and agile processes and be less resistive to changes. He goes on to say that the newer strategic process should be iterative and adaptive in nature. He lays emphasis on replacing big design upfront with more frequent and compact strategy “scrums”. This will break the development cycle into shorter iterations. The belief here is that it is always better to devise basic set of strategic assumptions and get them into hands of strategy “customers” to enhance iteratively.
Another point of focus should be to involve both - doers and thinkers. This will spread a feeling of “ownership” across all the horizontals of the organization and hence all the stakeholders will strive to contribute effectively towards strategic development. Importantly, it will remove the executives off centre stage. With the increased participation from across different layers, comes finer scrutiny of strategic options. Refining the strategy continually would result in getting an optimal approach by removing any potholes.
Having said all that, the iterative model for strategic developments sounds like an attractive option. However there are some questions which should be answered first. Why hasn’t this adaptive nature become more prevalent in current industry? Are organizations reluctant to adapt an iterative model? Are they apprehensive about its implications and effectiveness? Why has it taken so long for current industry to realize the need for different options for strategic Developments?
I believe the adaptive and iterative strategic development has its own benefits and strengths but organizations should to study this approach thoroughly before adapting this approach. The impact of dynamic nature of strategy should be analysed. Answers to questions like –
1)      Will constant changes to strategy make their employees more confused about the strategic directions thereby making them less productive?
2)      How these constant changes are welcomed? Does the organization as a whole accept to such changing goals and directions?
3)      Are the senior executives willing to give up their authority by getting off the centre stage?
4)      Will it lead to instability in organization?

Though the “new release“of strategic planning model seems to be promising, we are yet to see the results of this on significant level. Only time will tell about the effectiveness and suitability of iterative strategy. 

Wednesday, June 22, 2011

Strategies that fit emerging markets

This article was heart warming to me especially since I work at a health
insurance provider. In my department we are bounded by the decisions of
elected officials.So a lot of these signs are hard to implement within our
business especially with the upcoming health reform.

Lessons in tech longevity

I found the article very interesting. I recently bought three new computer
and the Lenovo was worth the money I used on it. I've seen alot of
companies rewrite their strategies time and time again, and it usually the
companies with longer histories who have survived.

Strategy Implementations Top 10 Checklists

The implementation of strategy on a company has a huge impact on its overall success. Good strategy would not materialize unless it is successfully implemented. Given that so many efforts were poured in formulating the strategies, it is only fair that the strategy implementations are given the same attention.

Based from the article “Strategy implementation – an insurmountable obstacle?” by Andreas Raps, I want to share the top ten checklists when implementing strategy.

1. Commitment Of Top Management

This is certainly a must for strategy implementation. Top managers must display their enthusiasm and readiness to commit to the implementation process. At the same time, they also should demonstrate an optimistic behavior to motivate the employees.

2. Involve Middle Manager’s Valuable Knowledge

Strategy implementation is not a top-down-approach. The success of any implementation effort depends on the level of involvement of middle managers. Therefore it is crucial in making sure that these managers know that they are an important part of the implementation process.


3. Communication Is What Implementation Is All About

Two-way communication with employees during and after strategy implementations process is a key success factor within strategy implementation because feedbacks at these both times are vital to successfully implement the strategy.


4. Integrative Point Of View

Strategy implementation requires an integrative point of view between organizational structures; cultural aspects and the human resources perspectives. Integration allows all the important scopes are not left behind while development for implementation activities.


5. Clear Assignment Of Responsibilities

Action plan with clear assignments of responsibilities regarding detailed implementation activities is a must when executing strategy so that potential problems are avoided.


6. Preventive Measures Against Change Barriers

Company must be equipped with preventive measures because more often then not implementation of the strategy can lead to a complete collapse of the earlier formulated strategy. By preparing precautionary procedures, company can effectively changes those obstacles into successful execution.


7. Emphasize Teamwork Activities

Teamwork plays an important role within the process of strategy implementation because obviously, executing company’s strategy is not a one-man or one –woman show.


8. Respect The Individuals’ Different Characters

To successfully implement the company’s strategy, it is advantageous to create a fit between specific personality profiles of the implementation’s key players in the different organizational departments. This mainly due to the fact that different individual usually require different management styles.


9. Take Advantage Of Supportive Implementation Instruments

To smooth the progress of the implementation, some implementation instruments such as balanced scorecard or supportive software solution should be applied to support the implementation processes.


10. Calculate Buffer Time For Unexpected Incidents

While estimating the time frame to implement the strategy, it is wise to find out the time-intense activities and synchronize them with the time capacity and taking into account for unexpected incidents that might occur at any time.

Source : http://www.emeraldinsight.com/journals.htm?issn=1077-5730&volume=6&issue=1&articleid=874434&show=html

DOI: 10.1108/08944310510557152 (Permanent URL)

Comparing GE and Sony’s Strategic Moves

Sony Corporation has been in the news recently for all the wrong reasons. Predominantly, the Hacking scandal, the earthquake and bad sales have impacted its earnings in a big way with estimations of $3.2 Biliion in losses.

Sony’s rising star, Sony Games seems to be in a lot of pain. The hacking attack on their website exposed 1 million customer accounts and potential credit card details of their gamers. Prediction of a does not help their gaming industry aspirations which were already hurt badly by Microsoft and Nintendo. Nintendo’s Wii already surpassed Sony in sales and with Microsoft’s Kinect doing quite well, Sony would need to come up with their trump card to get things back on track.

Sony’s LCD tv market is also wounded with higher competition and lower income in the LCD TV area taking its toll on fiscal third-quarter earnings. For the quarter ended December 31, the Japanese electronics giant reported a net profit of 72.3 billion yen ($885 million), a drop of 8.6 percent from the 79.2 billion yen earned in the year-ago quarter. Heavy competition from TV makers including Samsung, Panasonic, and LG have forced Sony to keep its own prices lower.

Likewise, Sony’s movie and music divisions haven’t been doing very well. A poor performance at the box office, both in theaters and at home, pulled down sales and operating earnings at Sony's Pictures division and Sony's Music segment saw its revenue and operating profit both fall, largely due to the ongoing slump in CD sales.

Considering all the losses that were piling up, the big boys at Sony had to make some strategic decisions. For the first time in history Sony management decided to outsource production of their HD TV units. This looks like a classic Strategy decision to cut operating costs and reduce fixed assets. This example shows that maybe GE’s decision to outsource was not as harsh as some of my friends think it was.

The similarity between GE and Sony’s strategic decisions doesn’t end here. One of Sony Corp.'s chief cash generators is its thriving business in Japan selling insurance policies and online banking services. Sony Financial Holding was created back in 1979, when Sony set up a venture with Prudential Insurance Co. of America. The idea was that the Japanese would trust the company that builds their Trinitron TVs to sell them high-quality financial services. So, the financial market has seemed to be an attractive proposition for non-financial companies to venture out into.

The reason why I am pointing out to the synergies between strategic decisions of Sony and GE is to bring out a point to my friends who have been very critical of GE’s strategic decisions is that perhaps GE was making the right strategic moves but they lacked a thorough implementation plan.

Reference:http://news.cnet.com/8301-1001_3-20030491-92.html#ixzz1Py8gG1l0

Week 5: Developing Strategic Options

Week 5: Developing Strategic Options

Articles:
GE Goes with What It Knows: Making Stuff,
Can You Say What Your Strategy Is?, and
The Secrets to Successful Strategy Execution.

Key Notes:

A company’s strategic options start with a good statement of strategy which is a brief statement that reflects three elements- objectives, scopes, and advantages- of the company. Such effective strategy can go a long way in terms of success of the company. Having an explicit statement of strategy also makes execution process easy due to easier communication and internalization by everyone in the organization. A statement of strategy that has clearly defined objective, scope, and advantage, has helped employees of companies such as Merrill Lynch, Wells Fargo, LPL Financial easily understand how their daily activities contribute to the overall success of the firms and how to correctly make the difficult choices they confront in their jobs. One ought to remember that mission statement is not a strategic option. Therefore, strategic option needs greater level of thoughts and creativity; and focuses on the following four fundamental building block - clarifying decision rights, designing information flows, aligning motivators, and making changes to structure.

Reflection with respect to Coles

One of the largest retail food supermarkets in Australia is Coles. With a history of almost a century, Coles had managed to survive. However, during the period since the turn of the millennium, Coles faced some serious problem. Its immediate competitor, Woolworths Inc., had started to claim Coles’ market share. There appeared to be a mismatch between what Coles was advertising, how they were developing their products and the shopping experience the consumers had. Customers were getting mixed messages about Coles that adversely affected Coles’ bottom line directly. In 2007, Coles was taken over by Wesfarmers- a conglomerate in Australia. Led by new CEO Ian McLeod, Coles developed strategic option and have since turned things around.

Unlike conventional leaders, who generally believe that in order to change things around, structural changes is the first place to start, Mr. McLeod observed that Coles’ problems were not structural, the problem resided in management challenges centered around staff service, store format, produce range and the pricing strategy (1). What was apparent for him was a lack of clarity among the brand, the primary customer and the marketing strategy. He emphasized that the ‘Coles brand’s core objectives are quality, service and value’.

Simplicity and clarity in this strategic option made execution of other plans, communication among corporate and store employees much easier and faster. While definition of quality, service, and value can is debatable, the message from Coles’ strategic direction is straight forward. While the strategic option may not be the only reason for Coles’ recent success, it did behave as a catalyst and made other managerial and execution process easier. The recent success of Coles can therefore be attributed to the strategic directions, other decisions and commitment that were made to provide quality, value, and service to its customers.

In Coles’ strategic direction, we can observe, few key points highlighted in this week’s reading. Noticeably, the information was made clear to the entire workers from corporate level to store workers that the company’s objectives were to provide quality, value and service to its consumers. In addition, because the message was clear, employees could easily internalize it and use it. Similarly, the strategy defined the company’s core objective clearly, defined ‘consumer’s preferences’ as scope, and ‘affordable quality daily food’ as advantage for Coles.


Works Cited
1. http://www.smh.com.au/business/simple-strategy-for-coles-to-win-the-race-20090316-8zxz.html#ixzz1Pzm5zpdH, Read more:.
2. http://www.coles.com.au/About-Coles/Company/History.aspx
3. http://www.asb.unsw.edu.au/newsevents/events/Pages/eventdetails.aspx?campid=b8c431e3-6101-df11-a86e-005056830908

Tuesday, June 21, 2011

Secret Weapon for Successful Strategy Execution

For this week’s reading, I strongly agree with the importance of information flow for successful implementation of strategy that explained in “The Secretes to Successful Strategy Execution”. Information about competitive environment flows quickly to headquarter. The three points made by the author that company need to pay attention to information flow on the competitive environment and organizational boundaries, as well as the information flow will help filed employees better understand what their contributions to the large picture of company, catch the different organizational level where information flows can help and apply. Actually, in the modern age, information flow is a very important management tools, and will increase communication efficiency. That’s also one of the main reasons major on Information System and Management become more and more popular, and MISM graduates of CMU are so welcomed by the current job market.

In the article “A quick guide to successful strategy execution” written by Mike West, Inform people on the rationale for the change and improve of information flow is the first point he made, followed by “Build ownership of the strategy at all levels”, “Create a sense of urgency to overcome challenges and maintain momentum”, and “Inspire people to embrace change and lead by example”. Why is information flow very important and mentioned as the first rule of the guideline? Information flow is the key for internal and external communication. Information flow assists decision making process. People will behave differently with different perceiving, and information flow feed people with the message to change their perceiving. Also, all the other three rules actually rely on sufficient information flow. “Build ownership of the strategy at all levels” is actually the purpose to “help filed and line employees understand how their day-to-day choices affect your company’s bottom line”. “Create a sense of urgency to overcome challenges and maintain momentum” cannot be achieved without the inflow information of the changing environment, which might lead to challenges. “Inspire people to embrace change and lead by example” is approached by “follow through on deliverables, anticipate roadblocks and obtaining timely performance feedback”, which will be done efficiently with the assistant of information system technologies.

Therefore, Executive and managers in 21th century should be aware of the importance of information flow. It will greatly add the chance for a successful execution of strategy, and can be applied to every layer of the breakdown of the strategy.

Reference:

West, M. (2009, April 20). A quick guide to successful strategy execution. Retrieved June 21, 2011, from Innovation Reactor blog: http://www.innovationreactor.com/innovation_reactor/2009/04/a-quick-guide-to-successful-strategy-execution.html

Mr. Immult Can Talk the Talk, but Definitely Hasn’t Been Walking the Walk!

I decided to delete the previous blog I posted after reading Jeremy’s post. Originally, I wrote about GE’s current CEO’s belief in “heavyweight products that take patience and piles of cash to develop, weigh tons, and last for years.” He goes on to say that businesses with “big moats” – those that are hardest to get in and hardest to do – have the best returns over time.

/

I definitely like that way of thinking and think that companies like LinkedIn, a professional social network that recently went public with a valuation of around $9 billion, are overvalued and vulnerable. $9 billion is a pretty big number considering their net income in 2010 was $15.4 million. To me having $9 billion worth of a good idea floating around in cyber space isn’t exactly the same as having $9 billion worth of factories and machines and people.

/

There are many other companies out there like LinkedIn that just seem to lack substance. Recall the bursting of the dot-com bubble not so long ago. This link lists some of the most famous dot-com companies that failed big (and they’re all long forgotten): http://www.cnet.com/1990-11136_1-6278387-1.html. Round two might be right around the corner.

/

I decided to switch directions because the NY Times article left me with an impression of GE that changed more than a little after reading some of the things Jeremy pointed out. Interestingly, almost all articles on-line paint GE in a light similar to that of the NY Times article. I’m guessing there are a lot of GE stockholders out there who are also in the professional writing business.

/

One thing that struck me when I went back and reread the article is that Mr. Immelt has been the CEO since 2001, well before the GE Capital fiasco. And more than a few years have passed since that fiasco. What’s he done since? One thing I’ll give him credit for is talking a good game, but it seems that’s really all he’s good for.

/

Like the NY Times article, the vast majority of articles on the Internet were heavy on cute quotes but a little light on facts. So, I used some of my recently acquired Financial Analysis skills and looked at GE’s most recent 10-K filing with the SEC. Cute quotes don’t help much there.

/

I would’ve guessed, based on everything Mr. Immelt said in the article, that investment in and revenue from “heavyweight products” would have increased substantially. That’s just not the case. Property, Plant, and Equipment declined by $2 billion in 2010 and 17,000 employees lost their jobs (40,000 since 2007). Also, there was only a slight increase in spending on machinery and equipment, coupled with a slight decrease in spending on buildings, structures, and related equipment.

/

Last year, revenue from Energy Infrastructures dropped by about $3 billion and revenue from Technology Infrastructures dropped by about $600 million, while revenue from NBC Universal increased by $2.7 billion. In 2010, GE Capital saw the largest segment profit increase (of over $1.5 billion, although it’s still recovering from a multi-billion dollar drop a few years ago).

/

In 2010 revenues declined by about $5 billion and total assets dropped by $8 billion, so maybe GE isn’t the best company to model a business strategy off of. Of course, GE is still a company in recovery, but where are the investments in the “heavyweight products” that Mr. Immult spoke of in the article? The last thing I expected to see were billion-dollar increases in revenue from NBC Universal and huge increases in profits from GE Capital in 2010 right below huge drops in revenues from energy and technology infrastructures.

/

Mr. Immult seems to have read “Can You Say What Your Strategy Is,” because he’s able to articulate it very well. It seems, however, that he should take a look at “Secrets to Successful Strategy Execution” and actually put all those ideas into practice. He’s been there since 2001 and based on everything that’s happened under his watch along with GE’s current performance, I can’t believe he still has a job.

Monday, June 20, 2011

should yo build strategy like you build software

I found this article to be very interesting. Many companies have moved
from being adaptive to predictive. Far too many companies do what is
predicted of them, where adapting is more uncommon.

"Making Stuff" Marketing

G.E. has an amazing story to tell its investors. As Steve Lohr’s story points out, its resume stretches back to Edison’s invention of the incandescent light bulb and forward to the development of Generation III+ nuclear reactors.

It feels good to hear about G.E. focusing once again on “making stuff” instead of relying on money-for-nothing profits via its downsized financial arm, GE Capital.

It’s pleasing to hear about G.E. creating manufacturing plants where workers operate in teams and aren’t suffocated by a hierarchical structure laden with weighty titles.

But will this new focus be profitable as profitable as the old one was? It’s still unclear.

I raise this point because GE Capital generated tremendous profits for the firm, and investors knew that. At the time of the story (December 2010), G.E.’s stock price was stuck at $16.78 a share. The high so far this year is $18.56, a far cry from its 10-year high of 51.86 in June 2001 and only slightly more than six months ago. G.E. hasn’t persuaded Wall Street of its strength, yet, though many financial analysts rate the blue-chip stock positively for its stability.

Perhaps the reason investors – and people like myself who are inspired by G.E.’s story - should be hesitant about buying into G.E.’s “making stuff” story is its 10-year track record with jobs.

Immelt is on President Obama’s Council on Jobs and Competitiveness, but since 2001, the year Immelt took over from from CEO Jack Welch, G.E. has cut 25,000 to 34,000 domestic jobs (depending on the source) and created about 25,000 overseas. Plus, it received billions in a federal buyout to stay afloat, meaning Warren Buffett wasn't the only one putting money into the company. Taxpayers did, as well.

“Immelt's firm stands as Exhibit A of a successful and profitable corporate America standing at the forefront of the recovery. It also represents the archetypal company that's hoarding cash, sending jobs overseas, relying on taxpayer bailouts and paying less taxes than envisioned,” says the Huffington Post.

“Since 2001, GE has shed at least 25,000 jobs domestically — and created an equal number or more overseas — while shuttering 29 plants in the U.S. over the last couple of years. It's also worth noting that GE's financial arm received a multi-billion-dollar liquidity injection from the Federal Reserve during the 2008 financial meltdown,” says a conservative commentator in the Daily Beast.

It seems like these job cuts and strategy of sending some jobs overseas would be worth noting in the NY Times piece. The word “bailout” isn’t mentioned. As for jobs, the only reference to jobs is the 4,000 jobs being created at new factories in Kentucky, Ohio, New York, Alabama and Mississippi.

That’s good, but it’s hardly 25,000 jobs to replace the ones the company cut on his watch. I just think it was worth noting that G.E. has cut a lot of jobs in the last decade even if it is starting to create them now that it’s focusing on “making stuff." When you say a company wants to "make stuff" again, you raise the notion of The Greatest Generation cranking out steel, cars, appliances, etc. You don't imagine those jobs going overseas. So it's "making stuff" with an asterisk.

As an aside, I love that Immelt quoted Mike Tyson, as saying, “Everybody has a plan till they get punched in the mouth.”

It’s such an excellent quote that I had to delve into its history. It was new to me.
Tyson is credited with saying variations of this quote in 1987 before he fought Tyrell Biggs for the heavyweight championship belt. Tyson KO’d Biggs (an Olympic gold medalist) in the seventh round in November 1987 in Atlantic City, N.J.

Before the fight, newspapers quote “Iron Mike” Tyson as saying, “Everybody has plans, until they get hit,” and some tack on the phrase “for the first time” after the word “hit.” There are no references to “punched in the mouth.” Many athletes have borrowed and reconstituted the boxing ring wisdom since that time.

Tyson vs. Biggs - Newspaper Clippings via Google Archive:
http://news.google.com/newspapers?id=Z-M0AAAAIBAJ&sjid=h5ADAAAAIBAJ&pg=4825,3650242&dq=mike+tyson+and+tyrell+biggs&hl=en

http://news.google.com/newspapers?id=ZiAyAAAAIBAJ&sjid=ouUFAAAAIBAJ&pg=6363,5017081&dq=everybody+has+plans+until+they+get+hit&hl=en

Citations:

The Huffington Post: http://www.huffingtonpost.com/2011/01/21/obama-picks-jeffrey-immel-ge-jobs-overseas_n_812502.html

Daily Beast: http://www.thedailybeast.com/articles/2011/01/23/jobs-boss-jeffrey-immelt-illustrates-obamas-entrepreneur-problem.html?cid=hp:beastoriginalsL6

Sunday, June 19, 2011

“Can You Say What Your Strategy Is?”

Today, I would like to go through the strategy of Mitsubishi UFJ Financial group (MUFG) in Japan. Almost 1 year has passed since I left for the United States. During my study in Carnegie Mellon University, I felt significant environmental changes such as demographic of the world and rise of nations. By reviewing current strategy of MUFG, I would seek a way for traditional Japanese company to survive in the drastic changing world.

MUFG consists of financial companies such as commercial banks, trust banks, securities companies, credit card companies, leasing companies, consumer finance companies, investment trust companies, and a U.S. bank (Union Bank). Its customer base is approximately 40 million retail accounts and 400,000 corporate clients with over 500 locations in more than 40 countries. MUFG earned 29% of profit from retail business in Japan, 31% from corporate business in Japan and 36% from global markets and others. The Bank of Tokyo Mitsubishi UFJ is the core of MUFG group. It earned 66% of MUFG’s profit in FY 2009. Its headquarters is located in Tokyo. According to Bankersalmanac.com, the ranking of the bank in the world is 8th in terms of asset in US dollar.

There are three business goals in MUFG. First goal is to become “No. 1 in Service”. MUFG group will provide high-quality services using comprehensive financial functions. Second goal is to become “No.1 in Reliability”. MUFG group aims to be a financial group with financial strength using internal controls and other compliances. And MUFG contributes to the society through enhancing customer satisfaction and CSR activities. Final goal is to become “No. 1 in Global Coverage”. MUFG group aims to utilize the global network to meet the requirements of customers globally.

MUFG has short-, medium-, and long-term strategies. The short term strategy is developed as one year plan; medium term is designed as three years plan. The medium-term plan indicates that FY 2011 would be the period to actualize sustainable growth. To execute this plan, there are short-term strategies for each core business unit.

First is Retail business strategy that offer diverse product in accordance with customers needs and life stages such as asset management, inheritance, real estate and loans and so on. Second is corporate business strategy that facilitates corporate investment banking using strategic alliance with Morgan Stanley and securities companies. And MUFG expands business area in Asia, Europe, and the United States where high growth potential is expected. Final is Trust Assets business strategy that increases the balance of entrusted assets through using group’s synergy effect, developing products and improving global management institution.

In addition, as a whole group, MUFG focus on the promotion of corporate social responsibility that address of global environmental issues and nurturing society’s next generation. The bank increases the supply of money for companies and individuals that would deal with aforementioned problems. These strategies are aimed to strengthen MUFG brand.

In my opinion, the strategy of MUFG seems to be conservative at glance. However, the strategy and decision making of upper management were consistent and reasonable. For example, the bank acquired the project finance assets from the Royal Bank of Scotland Group (RBS). MUFG developed strategic alliance partnership with Morgan Stanley to provide financial products for its customers.

In addition, MUFG already took into consideration of the changes of demographic in Japan and the world. In general, the profit obtained from traditional commercial banking businesses is in accordance with the market scale in case that the risk is managed. The population of Japan is decreasing due to aging population combined with the diminishing number of children. Therefore, MUFG tries to expand business area across the globe.

The next mid-term strategy of MUFG would be released within 6 months from now. I wish that MUFG would recognize the importance of the business operation in North America as well as emerging market such as BRICs. People moves toward the major city all over the world. The United States would be the center of the world for a decade. It would create a business opportunities. Moreover, it is reasonable to build global organization and recruitment of diverse workforces at the center of the world. Human Resource Management section should start periodic and large scale recruitment of local staff and international officers at North America and major cities in the world. It would be a stepping stone to be a global corporation.

[1] http://www.bankersalmanac.com/addcon/infobank/bank-rankings.aspx

Wednesday, June 15, 2011

Learn how NOT to manage a blue ocean strategy from Cisco

This is a classic example of a big whale eating a young, beautiful, prosperous fish and then puking it out due to indigestion. The big whale here is Cisco Networks and the small fish is Pure Digital Technologies which created FLIP and the low-end highly portable video camera market, and was ranked by Deloitte as one of the fastest information technology companies before being bought by Cisco in 2009 for $590 million (pardon me for my bad analogy).

Cisco is a smart company. They have made a comfortable living as a solutions provider for networking infrastructure for quite some time now. On a nice sunny day, somewhere in an executive board meeting, a top B-school MBA would have come up with a brilliant idea to impress his bosses (just like we are hoping next week for our final presentation) - to enter the consumer product market. And how to get a jump start?? Simple, go shopping !! This is my hypothetical reconstruction of what might have occurred before the takeover of Pure Digital.

That was in 2009, now lets come to the present, Cisco has announced shutting down of the Flip camera product line in just two years. Our condolences to a great product that knocked camcorder market giants such as Sony, Canon, JVC on their collective ear. Clearly, Cisco lacked a clear strategy how to manage this product. Since its acquisition the product did not get any major upgrades apart from skins and an HD. Despite being a networking company, Cisco did not think of adding social network integration or a wi-fi connectivity to the product. The company is stuffed with smart product managers but they clearly lacked direction in the consumer electronics market segment.

According to me, buying FLIP was a poor decision in the first place. A company should only think of acquisitions that align to its core competency. Cisco is a service company. Buying a promising consumer electronics product and just showing up in a new market space does not look like a very thought out plan. A bigger mistake was shutting down the venture. I understand that Cisco is going through a bad phase but they could have easily afforded tweaking the product a little or even selling it.

This strategic move surely gets a B- from my side! What do you say Prof Zak ?

Blue Oceans - The unconquered territories

Competition – the main concern for most of the organizations these days. How do we outwit our competitors? How do we outperform them? How do we transform ourselves so that we can always maintain a competitive advantage over them? These are some of the major questions which form the back-bone of strategic moves of most companies. All the organizations are investing huge amounts of efforts in keeping themselves ahead of competitors. Does this struggle to thrive in an accelerating and expanding business universe always pay rich dividends? May be ‘Yes’ or may be ‘No’.
To survive in fierce competition is a daunting task and it takes enormous planning, and carefully crafted strategic moves to achieve the desired results. One may wonder what if I put same amount of efforts in some new adventure, an unexplored territory; how much return would I get on my investments? Will it be same as the investing in competitive market or lesser than that or even higher? A superb article “Blue Ocean Strategy” by Chan Kim and Renee Mauborgne answers this exact question very precisely. As part of a study undertaken, they found out that out of total expansion plans of organizations only 14% were focussed towards creating new markets while rest 86% for improvements to existing industry offerings. Though the larger investments in existing offerings contributed to 39% of total profit, the smaller investments in new offerings resulted in staggering 61% of profits. Wow!!! Here’s some food for thought for today’s organizations!
The article lays strong emphasis on importance of Blue Oceans. The current known market place represents the Red Ocean while the unknown market place – all the industries not in existence today are represented by Blue Ocean. Blue Ocean strategy is about creating new market space that is uncontested. These are not tainted by competitions, these are yet to be explored and crowded by others. Would it not make a manager’s life much easier if he does not have to deal with any competition? Entire market share is yours since you are the pioneer (or even sole owner) of the market. You may have total command over this, it’s your territory! Furthermore, the Blue Oceans present ample opportunity for growth that is both profitable and rapid. Isn’t this a dream of any organization?
As prospects in Red Oceans disappear faster than ever due to dense crowd of competitors, Blue Oceans have the highest potential to become the engine of growth of an organization. In Red Oceans, the fierce competition has forced the variety of brands to be similar thereby diminishing the differentiation and the value offered by their services. This has a detrimental impact on the brand of the organization. On the contrary, in Blue Ocean markets when a company offers a leap in value, it rapidly earns brand buzz and a loyal following in marketplace. And once an organization gains such loyalty, it is extremely difficult for other latecomer organizations to unsettle them. Thus, the Blue Ocean strategy allows organizations to simultaneously pursue differentiation and low cost which is almost impossible in Red Oceans.
So, the question that would bother is how are Blue Oceans created? Are they totally new arenas? Though one may think that Blue Oceans are totally new and completely different than current market areas, rarely it is the case. Blue oceans are right next to every industry. Most Blue Oceans are created within Red Oceans of existing industries and are aided by advances of leading technologies. For example, Infosys is rapidly making moves to embrace Cloud Computing, a latest technology trend, to enhance its services and provide new offerings. Infosys is key player in providing IT services in global market place. However, it is not the only player in this market. It faces severe competition from the likes of other IT giants - TCS, Accenture, Wipro, CTS and many others. However, what Infosys is trying to do now is enhance its offering and create new market offerings with the help of Cloud computing technology. Infosys has recognized that Cloud computing arena is growing at a rapid pace and is answer to many challenges associated with a traditional IT landscape. Its efforts to embrace this new technology in current market place will create a new market within current IT world i.e. a Blue Ocean. This field is not yet crowded with other competitors and thus presents Infosys with lots of opportunities to amplify its market presence and profit. Moreover, the enhanced services in this Blue Ocean will help Infosys not only strengthen their brand value but also achieve differentiation. Though, Cloud Computing looks very promising, it is yet to see how much Infosys benefits from this Blue Ocean. Though, Infosys and the leading market analysts firmly believe that Cloud is the future of IT world, only time will validate or invalidate this belief. We can just wish Infosys “All the best”!
To conclude, it is important to note that Blue and Red oceans have always co-existed and always will. Currently, though competing in Red Oceans is predominant; but the need to create Blue Oceans is gaining strength. Organizations need to understand that Blue Oceans are the areas which can provide more benefits than Red Oceans.

References:
The Article - Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne

Blue ocean strategies - not for every organization

Of all the readings assigned this week, I found the article on Blue Ocean Strategy very engrossing. I was especially surprised to know that 14% of investments (out of the total investments) in blue ocean strategies accounted for 61% of total profits while the 86% investments (out of the total investments) in red ocean strategies accounted for just 39% of total profits. After reading the numbers, every CEO might be inclined to look for new innovations or markets.

Though I agree with the authors, on the need to find tomorrows successful industries I feel the article depicts only one side of the coin. What if the people did not like the performances staged by Cirque du Soleil? The odds of the idea failing was very high as they were trying something radically new. But Cirque de Soleil took the risk and it paid off handsomely. The fact that Cirque de Soleil was able to pull this off doesn’t mean that there is no risk associated with blue ocean strategies. On the contrary, I believe there are high risks (though the rewards are equally high) in pursuing blue ocean strategies.

The authors also emphasize that it is difficult to imitate a blue ocean strategy. However, I don’t believe this is the case always. H&M pursued a blue ocean strategy by offering chic clothes at a cheap rate. However, Inditex followed suit with its Zara line of stores to compete with them. The low cost trendy segment servicing the hip population is now overcrowded and has turned red.

Most of the examples picked up by the authors are industries that require huge investments (auto, computers etc.), which makes it difficult for the competitors to imitate quickly. However, I feel the blue ocean strategies in certain industries can be easily imitated. Consider the case of the Indian micro finance industry. SKS Microfinance set up shop in India by creating a new market – to lend people who earn a meager daily wage. These poor people had no access to credit, as the big banks would turn them away. SKS was able to charge a very high interest rate due to this and were able to command a high profit margin. But, soon many institutions imitated the strategy of SKS and there was intense competition. On top of this, in September 2010, the government increased the regulations in the still nascent industry making it difficult for the micro lenders to charge a premium interest rate. I feel that pursuing a blue ocean strategy backfired in SKS’s case.

I agree with authors that pursuing blue ocean strategies gives the organizations higher ROI and helps in creating an ever-lasting brand. However I think that blue ocean strategies have their own risks and every company must evaluate its various options carefully before deciding upon one.

References

http://in.reuters.com/article/2011/06/11/idINIndia-57536820110611

http://www.scribd.com/doc/19484802/On-Logistics-in-the-Strategy-of-the-Firm

Stubbornly staying the course...

...Was one of Carroll's and Mui's seven ways to fail big. We can apply this to the example we brought up in class about Borders booksellers. Their bankruptcy can be largely attributed to the fact that they "stubbornly stayed on course" and did not establish a presence on the internet or invest in e-readers. Their counterparts Amazon.com and Barnes & Noble saw the trend and caught on quickly with the Kindle and Nook, respectively. Eventually, Borders entered the game with the Kobo eReader but apparently was too late.

In reading the articles this week, I understand and appreciate the frameworks and the questions we should ask ourselves in order to craft and implement an effective strategy. But I still scratch my head and think, "How do you know sometimes?" There are technologies and ideas out there where I say to myself, "That won't work! It will never catch on." But then it becomes popular and what I previously used or thought becomes obsolete. Let's say you do all the research, you follow the guidelines in the readings, but things don't turn out as expected. How do you know when to stop? When do you consider your strategy a failure? Maybe the problem is simply there's just not enough effort spent on educating and informing consumers that they ultimately fail to recognize that your product or service is fulfilling a need they never thought they had. Some quick examples I can think of off the top of my head are Apple's iPod and MacBook Air. The iPod was not popular at first; critics claimed it would fail. It was introduced in 2001, but sales didn't take off till 2004. The MacBook Air was introduced in 2008 but fell off the radar and is back on with its redesign in 2010. In my opinion, the MacBook Air is more relevant now because it is an alternative to Netbooks, which weren't as well known back then in 2008.

Anyway, I digress :). Going back to the example of Borders, I don't necessarily agree with their strategy of stubbornly staying on course for some time and then ultimately entering the digital media arena with Amazon and Barnes & Noble. This reminds me of the example in the "Seven Ways to Fail Big" article about Ames Department Stores competing with Walmart and ultimately failing. They didn't necessarily have to compete with Walmart, they could have differentiated themselves. Given the fact that Borders hesitated in seeing the potential of digital media, Borders should have rethought their strategy on who to serve and perhaps find a blue ocean.

I admit, I did not like the idea of the Kindle or e-Books at first. I don't mind it now - I have a few free books on my iPod Touch for starters. But I still prefer having a book in my hand, physically flipping the pages, highlighting passages, making dogears, etc. And I'm sure there are many people out there like me. In a Wall Street Journal article on the Borders bankruptcy, it cites a customer who still prefers actual books.

"I know that there is a lot of buying online, but I like crawling through the stacks and holding a book in my hands."

So, perhaps Borders could have avoided bankruptcy if it observed the trends earlier on and determine whether they want to (1) compete with Amazon.com and Barnes & Noble in digital media or (2) focus on serving the market of people who prefer those book stacks and an actual book in their hands. I would have been interested to see how strategy #2 worked out if Borders were still in the game.

Resources:

Chapter 11 for Borders, New Chapter for Books (Wall Street Journal)
Amazon Kindle | Barnes & Noble Nook | Kobo eReader | MacBook Air | Apple iPod | Netbook