Saturday, December 17, 2011
Friday, December 16, 2011
A major weakness of Groupon’s business model is the profitability for merchants that Groupon’s deals create. In recent months, examples of small businesses that have been hit hard by their deals through Groupon have resulted in a streak of bad P.R. for the company. Groupon’s response to criticisms has been weak or completely absent. Enthusiasm for the company has since declined as reflected by its stock price .
As Richard Rumelt detailed in his article “The Perils of Bad Strategy,” a strategy has to reflect the challenges a company faces and craft a thoughtful response. Groupon has so far remained faithful to its primary and highly criticized business model of selling deals at deep discounts--leading many to believe that the company’s success will be short-lived. Despite the many critics, Groupon does not appear prepared to lessen its reliance on daily deals. The company’s vision is also shortsighted. To fix this, Groupon needs to revise its strategy to directly reflect this challenge. Advertising that demonstrates their commitment to helping merchants is a start. Creating deals specifically to boost consumer loyalty should be part of this strategy as well.
1. Smith, Randall and Grocer, Stephen. “Wall Street Cools to Groupon.” The Wall Street Journal. http://online.wsj.com/article/SB10001424052970204026804577098804223481254.html
2. Rumelt, Richard. “The Perils of Bad Strategy.” McKinsey Quarterly. June, 2011.
Our semester project was on the United States Postal Service, and it was extremely interesting to do because the extent of the government intervention as one of the main drivers of their current crisis. Having a political science background, it was interesting to work at the nexus between politics and business and asses the results. While the USPS has problems of its own including the maintenance cost of over 36,000 offices ( more than McDonald’s, Starbucks, and Walmart combined), it has also been seriously affected by government regulation since President Nixon signed the 1970 Postal Reorganization Act that not only established that USPS should pay extremely expensive benefits for its employees ( about ten percent more than other government agencies), but also that it should leave the logistics and parcel market to private companies like UPS and FedEx. The 1970 legislation contributed to the Postal Service’s inability to profit from the rise of online shopping given that its competitors were able to establish exclusive deals with profitable online stores without having to mend legislation as the USPS would have been required to do.
Moreover, an assessment of the USPS current strategy ( one of the parts I chose to cover for the report) reveals weaknesses in the areas of 1) government relations; 2) location, and 3) the policy to drive to every location. The relationship between USPS and the federal government has been extremely tense in the past few years, and many believe that USPS’s current crisis a government-created on. The Postal Enhancement and Accountability Act of 2006 mandated that USPS should pay the health benefits for its retirees at least 75 years in advance, and therefore pay $5.6 billion per year for a period of ten years. USPS, however, had overpaid its previous obligations to the government to the extent that the government owes USPS $75 billion. They are negotiating on the terms of receiving that money back, and the government asked that they do not perform any budget cuts until May 2012. Thusfar, government intervention has only exacerbated the crisis and kicked the can further down the road for USPS to settle in 2012.
With regard to the number of locations, USPS currently runs over 36,500 offices throughout the county, a number that far exceeds that of Walmart, Starbucks, and McDonald’s combined. USPS is not currently allowed to close any of its offices for lack of revenue, and also holds some of the most expensive real estate in the country. Our analysis suggests that USPS ought to employ many of the strategies adopted by Deustche Post in the past two decades. They sold all but 24 of their 29,000 offices and currently operate out of pharmacies, convenience stores, and gas stations so as to save on rent costs as well as the cost of paying union workers since the kiosks are operated by the workers at the respective location.
Lastly, delivering mail to every home is embedded in USPS culture, yet it may be time to revise that goal. It would be more cost effective for USPS to designate town centers with P.O. Boxes instead of driving long distances between homes in rural America. The drop-off location is usually a well-known spot that members of that community frequent, and delivering the mail there instead is likely to save both time and resources. The answers to the USPS problem are not easy mainly because it is not allowed to operate like a business. Our recommendations will have to be approved by government and will be highly unpopular with some of the largest unions in the country, so there is really no telling how it will be resolved.
Sunday, December 11, 2011
This week's blog concentrates on the last two weeks of our strategy class which primarily focuses on two broad topics namely Taking Strategy From Development to Implementation and Future of Strategy. The readings starts with the article "G.E. Goes With What It Knows: Making Stuff" which centers around the fact that even for a Fortune 500 company like GE which apparently does not seem to make a mistake, actually does make a mistake. Many a times they have been in near disaster situations from which they have gradually recovered. From a huge portfolio of products and business units, it is not easy for high level GE mangers to pick certain products and/business units and then strategize on those. Neither it is easy for Start Ups especially in their incubation to finalize their product and/service lines and strategize on them. What really matters is that extra vision? That ability to see beyond certain obvious things. A classical example with regards to this would be "Amazon". Even like two years ago who knew that cloud computing would be the new buzzword in the IT arena. Amazon was one of the first few to spot this if not "the" first. Not many people would have even believed the possibility of an existence of this kind of a business model. But Amazon's founder Jeff Bezos had this vision and more importantly also had the conviction against all odds that it is going to succeed which he eventually proved it to the entire world. Amazon at some point of time was approaching near failure and was on the brink of being shut down but they came back from there. They came back from there bigger and better, stronger and higher making themselves as an idol or role model for many other Start Ups for ages to come.
Having said that, let us now focus on the second article from week 6 which says that most managers and executives cannot articulate their key strategies which however is none the less easy but real important. I once heard another Professor telling us that the best way to test what the strategy undertaken is good enough to be articulated and easily understood is by writing the strategy at the back of your business card;to which I totally agree. If the idea is so long that it cannot be printed at the back of a business card, maybe it is time for the mangers and the executives to revisit some of the strategies that they have undertaken. As we can see that there are two parts to strategy: one is the development and the other is the implementation of strategy and there is no hard and fast rule that the one is important than the other. Rather it is the heart and lung story wherein each is equally important for the body. Having said this,Keith Mc.Farland in his article "Should you build Strategy Like you build Software" pretty much sums up all the concepts of Strategy that we have studied so far wherein he highlights the fact nothing except change is the most constant thing and so there is no one single strategy that might work for one single company all the time. One strategy which might work now has a 50% chance of failing in the future. So, strategies might always be iteratively revisited till we are confident that "this is the one". And next we might once again go back to our vicious loop by asking when the question when and how can we certain about the moment that "this is the one". And this where true leaders excel over typical managers, level 5 leaders excel over level 4 leaders wherein they step up and take that once major decision based on their guts, intuition, foresightedness which might be a career turning one both for himself and the company. And who knows: may be sometimes it is just a sheer accident which we see it as a genius' act. What is your stance on this?
# In The News: G.E. Goes With What It Knows: Making Stuff (New York Times, December4, 2010)
# Article: Can You Say What Your Strategy Is? (Collis and Rukstad, Harvard Business Review, April 2008)
# Article: The Secrets to Successful Strategy Execution (Neilson, Martin, and Powers,Harvard Business Review, June 2008)
# Article: Lessons in Longevity, From IBM (Lohr, NY Times, June 2011)
# Article: Strategies That Fit Emerging Markets (Khanna, Palepu, and Sinha, Harvard
Business Review, June 2005)
# Article: Should You Build Strategy Like You Build Software? (McFarland, MIT Sloan Management Review, Spring 2008)
# Article: Creating Shared Value (Porter and Kramer, Harvard Business Review, January-February 2011)
Neilson, Martin and Powers in “The secrets to successful strategy execution” say that information and decision propagation are key you successful strategy execution but the conclusion is derived from a biased data set. This can be applicable to large organizations but start-ups and small companies give exactly opposite observations in this context. The paper emphasizes on information, decision rights, motivators and structure as the four major strengths of a company and discusses their relative importance. The article explains how motivators and structure are more importance for small companies and start-ups.
Usually, it is easier for small companies to propagate the decision making through the organizational hierarchy because of small size. The common problems faced by large organizations like middle managers, deep hierarchy, complex informal networks, indirect performance measurement and appraisals are very uncommon for small companies. This makes information flow much easier and flexible to manage. Small companies have lesser levels in their hierarchy and thus the strategy makers work closer to executers and workers. Decision making process becomes transparent and even if decisions are not transparent, they are propagated very quickly. Strategy requires the same level of transparency and hence, small companies are better able to execute their strategies.
On the contrary, what small companies lack is a structure for decision making and information management. Information is a major strength for any organization and there lies the opportunity for most small companies. If small companies achieve a concrete structure for operations from the beginning, they can leverage this strength in long run for competitive advantage. Assigning right employees to right roles, performance based promotions, internal competition are some of the areas where structure can bring motivation and strength to the company. Thus, motivators and structure can help the small company to execute their strategy in a better way.
The blog presents one of the reasons why many large companies try to implement flat hierarchies so that they can get advantage of “startup-like” information flows and decision propagation efficiency. On the other hand, almost all the start-ups strive for a structure like large organizations. Both kinds of firms try to come closer to a balance where strategy execution is most efficient. Summarizing, the key factors for strategy execution remains the same, it’s just the relative importance that changes.
Reference: “The Secrets of Successful Strategy Execution” by Gary L. Neilson, Karla L. Martin, Elizabeth Powers
Branding is today a vital part of almost every companies strategy. It is essentially used by companies to differentiate their products from their competitors. Branding has become even more important in industries and markets where the competition has resulted in development of products , which are similar in quality and utility. Brands were initially built to give products a human touch and reassure the consumer about the concept of factory –produced-goods. With time the influence of brands has became so powerful that in today’s world , it is at times more important than the product itself. Consumers make decision’s based on the brand rather than the product. People today tend to get emotionally attached to the brands and the values that the brand stands for. This has both , a positive and a negative side to it. While brands today have become a larger than life version and at times more valuable than the companies physical assets, it also means that they can lose their value overnight.
Take for example the Coca-Cola brand. The executives at Coca-Cola had decided to replace the old coke with a new flavor in order to counter Pepsi’s growing market share. Extensive and in-depth research was carried out by coke to make sure that the new flavor would be liked by people. Blind tests were conducted on groups of consumers and it was concluded without doubt that the consumers preferred the new, less sweet flavor of coke as compared to the older one. What the executives did not expect was the huge backlash and anger there was when they released the new coke. Loyal coke fans , who in blind tests actually liked the new coke ,threatened to stop drinking coke altogether and coke feared losing its loyal customers to Pepsi. As a result just 3 months later the old flavor of coke was released and eventually the new flavor was pulled from the market. After the re-release of the old flavor ,the market share of coke increased by about 20% as compared to its share before releasing the new coke flavor. This is a classic example of the emotional quotient related to brands today. Coke had always branded itself as ‘the real thing’ and when the company tried to replace it ,the consumers felt betrayed. They refused to accept the new version of coke , even if it was a better product.
The consumers also tends to associate immense importance to how a brand differentiates itself and the core values it is built up on. This is something any companies strategy development team should keep in mind while formulating a company’s growth strategy. An excellent example is when the executives at Harley Davidson decided to increase their product line by lending their brand name to various products such as perfumes, clothes and other apparel. This change was not well received by the loyal Harley Davidson consumer base as it took away from the rugged masculine brand reputation that Harley Davidson had. The company soon realized its mistake and pulled its brand name of products which did not gel with its reputation. The lesson learnt is that while expanding ones line of product, a company should ensure that it does not weaken its brand or takes away from its core reputation .In today’s competitive world it is very important for one brand to differentiate itself from the other. Each brand essentially differentiates itself based on its core values , and there is always the risk of these core values getting dilutes as a result of adding more products to the brand.
This however does not mean that a brand cannot expand itself or add to its product line. A classic case in point is apple which has done exactly this with resounding success. However ,it is important to note that while apple increased its product line it stayed true to its core brand value , which was and has been an easy and simplified user experience even if it drives the cost high. However after reading about how brands can affect a company’s strategy I am compelled to think about how the values that a brand is built on are conceived. Should the company build its brand based on its basic and inherent core values , or should it decide those values strategically so that it can blend in with its long term strategy , or even help it to expand across multiple markets. Does the key lie in branding oneself on values which can be upheld across multiple markets such as quality rather than the the more restrictive values on which brands like Harley Davidson are built. However building ones brand on more generalized values also means that it would be less differentiated from other competitors in the market. What do you think ?
- Kailash Pande
As a kid, I never really paid much attention to the brand name for the various Fast Moving Consumer Goods that I was consuming. I always knew that there is this company called ITC India Ltd. that operated in this space, however it was in the Digital Transformation course that I first took a closer look at the company.
India provides a huge consumer base for the FMCG space. Not a surprise given a population of around 1.2 billion people. In such a huge country, with huge amount of competition at such low prices, it becomes a challenge to differentiate and stand out. ITC however has done that brilliantly by creating initiatives that have affected the general population.
One of their most famous initiatives is the eChoupal – a system where soya bean farmers’ lives have been completely transformed. The farmers were only able to sell their produce in over-crowded markets where there were no price guarantees. This caused a lot of uncertainty and unfairness leading to low quality of living for the farmers. By introducing the eChoupal concept, ITC provided villages with computers, Internet connection and training to know the rates and the prices that ITC would offer. No one was forced to sell the goods to ITC in return for the equipment. They just enabled to farmers to know what was the best price and sell to the highest bidder. Also, when a farmer came to the ITC factory, they were given the best of services with very low waiting time. In addition to this, ITC also provided advice on crops weather conditions and future price trends, helping the farmers know in advance how to maximize their yield. This ultimately helped ITC to gain better products and the ability to sell the goods at higher rates in the international markets. By having a social goal in their actions, they were able to tie their activities in a way that would create an environment conducive for all the stakeholders.
Another one of ITC’s new initiatives involves the use of Twitter, the social networking and micro blogging site, in order to revolutionize supply chain. ITC introduced a new brand of baked snacks called Hippo and asked its consumers – primarily youth with smartphones and data plans to tweet whenever they saw Hippo running out of stock. This helped a lot in identifying shortages in the highly unorganized and huge Indian retail market. By creating a new brand with activities involving all things that would create buzz among the young people – “Fight Hunger” motto, social media integration and newness, ITC was able to get their foothold in a hugely competitive space.
ITC as a company was able to understand what the market demanded and was able to customize their activities to make sure they were looking at the bigger picture. Similarly, by creating value for the society and by involving people in their decisions, they were able to create a brand that people can relate to and feel one with.
- ITC eChoupal Initiaitive, David M. Upton and Virginia A. Fuller, Harvard Case
- Managing your supply chain in Real Time: Hippo Case Study, Marissa McNaughton, http://therealtimereport.com/2010/12/03/watch-managing-your-supply-chain-in-real-time-hippo-case-study/
Saturday, December 10, 2011
Strategy has always been of the pivotal cornerstones of organizations. Yet, it is also one of the easiest of entities to be misunderstood. People always believe that they think the right way and say the right things. In this blog post, I would like to focus on one specific way of thinking that might help you set your organization’s strategy and a few pointers on how to put your strategy into words so that everyone can execute your brilliant strategy.
Thinking The Rooted Way
Managers have been formulating strategies for decades. One feeling that is unanimous is that there is no right way of thinking and coming up with a strategy. However, there are some well-known ways and some not-so-known ways. One of the latter kinds is the Rooted Maps approach. Pankaj Ghemawat explains in the McKinsley Quarterly how to re-think your point of view in a global sense.
In today’s world, we have boundaries not merely on maps but also in our heads. This forms one of the restrictive blocks to creative thinking and execution. We are currently constrained by imaginary lines on maps that define the reach of our strategies. However, we need to understand that these boundaries are not relevant to our plan, but that there are other boundaries that need to be drawn to make sense as far as our organizations are concerned. For eg: let’s take Apple and try to decode the world. We will see that the majority of Apple’s sales come from Americas. However, it is important to note that India, Australia and Europe are also major contributors. However, other countries in Asia and Africa are not even on the rooted maps that we can draw for Apple. The former countries are drawn bigger than their actual sizes to conform to the amount of sales that they generate. The latter ones are drawn smaller to show that they contribute lesser. This makes it easier to visualize the world from Apple’s point of view.
How does this help, you ask? Well, one of the most important ways this helps Apple will be to find out which countries to focus new marketing on and which countries to focus customer retention policies on. Also, Apple can focus on extending spread in established countries and starting new factories in other countries. Other rooted maps can be drawn taking into consideration factors such as product lines, market share, number of years, etc. This will help in risk identification and assessment as well.
Saying Out Aloud The Right Way
· Why don’t they understand what I am trying to say?
· Why don’t my employees work as per our mission and strategy?
· Why are my projects always turned down at the end?
Managers often face questions similar to these in an organization without a clue about why they are always on the wrong end of decisions. One of the issues that they might be facing is the lack of simple, clear, and succinct strategy. While it is easy enough to come up with a strategy, it is far more difficult to explain the strategy in an effective way to the hundreds of employees in the organization. Imagine the amount of wrongs that can be done when one employee performs work without knowing the strategy and multiply that a hundred-fold and you end up with chaos. This is exactly what happens in most organizations today.
In my opinion, this is largely due to two reasons:
· Managers feel that they are awesome at articulating things when they are not
· Employees feel that they either understood the strategy or pretend to understand the strategy
In order to circumvent this problem, a strategy statement needs to have three major well-defined components:
· Objective – what the strategy aims to achieve in what time frame
· Scope – where the company is aimed at and where it is not aimed at
· Advantage – what the company has that other companies don’t have
A good strategy should be simple, clear and succinct to ensure that everyone who reads it has a firm understanding of these three key attributes so that the execution is merely dependent on their skills and not on the strategy itself. One way to think about it is: If you can convince me of the worth of your strategy in two minutes or less, I have utter faith in your execution of the strategy to its success.
1. “Remapping Your Strategic Mind-set” – Pankaj Ghemawat
2. “Can You Say What Your Strategy Is?” – David J. Collins, Michael G. Rukstad
3. “Saul Steniberg’s Depiction Of World From New York” - http://saulsteinbergfoundation.org/gallery_24_viewofworld.html
Friday, December 9, 2011
Blue ocean strategy is about creating a new market with a specific customer base and demand for your product/service. It is usually used by startups to create a new market for their innovative ideas and very few established companies try to explore a new market using blue ocean strategy. Blue ocean strategy also gives a first mover advantage which is very difficult to maintain. It is very likely that some other players see the new market developed by you and they try to perform better in the areas that you have explored. Here, I would walk you through my thoughts on how to sustain the “Blue Ocean Advantage” of low cost and differentiation for a longer time.
Standardization and Regulations
One of the major advantages of creating a new market is that you get to write the rules. Microsoft has been one of the most successful companies in history to set favorable standards in the market. Microsoft created a huge market for their operating system, Windows, by putting it in almost every personal computer in the world by different methods. As a consequence, users got so much used to Windows, that all new entrants in its market had to follow some specific user interface patterns and had to allow Microsoft auxiliary software on their operating systems. Thus, standardizing, patenting or regulating the market according to your own needs and competencies is very useful.
Differentiation by Value Innovation
Innovation could be a must while entering the blue ocean but pure innovation does not help to keep the ocean blue. “Value innovation” is to create your innovation at lower cost and offer it at best price to the consumers. It is a threat that other big players quickly enter your blue ocean after you and start providing value innovation to your consumers. Hence, differentiation by value innovation is a key requirement to keep the ocean blue in long run.
Create competitor friendly market
When companies are creating a niche in the market for theirselves, they need to make sure that they make it attractive to other entrants as well. Deterring market entry by various means is an obsolete concept now. Google, the biggest and the most successful executer of Blue Ocean strategy, has used similar concept for their Android open handset alliance. This free alliance allows any hardware producer to modify the operating system software (Android) as per their needs and sell it with their phones. It appears to be a risky strategy as Google also produces and sells phones and they themselves are encouraging competitors to use their OS. Essentially, they are not inviting other competitors in its Blue Ocean of open source mobile operating systems. Such tie ups and eco systems make the ocean of auxiliary products even more red while keep your own ocean blue.
Make switching easier and make loyal customers
The traditional competitive red ocean strategy insists on imposing heavy switching costs on existing consumers while blue ocean strategy focuses more on making loyal consumers and keeping switching costs low. For example, when Zipcar created its blue ocean, a lot of car rental companies had customers locked in (using gold memberships, etc). Yet Zipcar has been successful in attracting and retaining customers by offering lower switching costs. Consumers can anytime go back to car rental companies but they do not because they are loyal to Zipcar and not locked in with Zipcar.
Blue ocean strategy is widely being used but it quickly turns into red ocean. Keeping the ocean blue for a long time helps sustain the company for a long time and meanwhile making a lot of money and consumer loyalty!
Blue Ocean Strategy, Kim and Mauborgne