Wednesday, June 27, 2012

China's Advantage in Emerging Markets

The article in this week's reading on "Strategies that Fit Emerging Markets" is clearly written for an American or 'Western' audience. The term 'institutional void' to describe the weak or nonexistent institutional resources and processes in some emerging markets is obviously in relation to the more robust institutions in the U.S. and Europe. It seems that some of the largest hurdles in developing strategies for entering emerging markets (namely most areas of the world outside of the U.S. and Europe) are the required adjustments to 'institutional voids' and differences across political and social systems, levels of openness, product markets, labor markets and capital markets.

Does this mean that China has an advantage over the U.S. and Europe in understanding, addressing or adjusting to the context of other emerging markets? would seem so, especially in the case of Africa. According to an article in the Wall Street Journal from last year, "China's exports to Africa last year totaled about $54 billion, up from $5.6 billion a decade before, according to the IMF. U.S. exports to Africa totaled $21 billion last year, up from $7.6 billion in 2000....Western European companies, many of which had lingering business interests in Africa from colonial days, also took their eye off the ball. Western Europe's share of overall trade—the sum of imports and exports—with sub-Saharan Africa dropped to 30% in 2009 from 52% in 1990, according to McKinsey. The share of China and other Asian countries in Africa trade more than doubled to 30% from 14% in the same period, while North America's share slipped to 13% from 16%."

One key strategic difference is the fact that China makes less demands on its trading partners in the areas of human rights, democratic reform and overall development indicators than do other countries. While this 'laissez-faire' strategy has come under fire from multilateral development organizations, non-profits, and U.S. and European-based critics, African nations have largely  appreciated this approach, which entrusts their development trajectories to their own leadership rather than making what have been called patronizing demands. On the other hand, the phenomenon of cheap Chinese products flooding African markets has also been critiqued. Some local business ask if the Chinese are becoming too comfortable on African turf.

It is clear that emerging markets, in Africa in particular, are the next market frontier. But who will win these markets and based on what competitive advantage? Is China's current success based on its intimate familiarity with dynamic and less structured emerging market contexts? If so, will the U.S. and Europe ever be able to catch up?

Source: Hagerty, James & Connors, Will. "U.S. Companies Race to Catch up in Africa" Wall Street Journal, June 6, 2011.

Tuesday, June 26, 2012

DoCoMo’ s Evolutionary Strategy Implementation and it’s move into Hybrid NFC Phones

Founded in 1992, DoCoMO is a predominant mobile phone operator in Japan. It is largely run by government which account for around 46% of its share. It is widely known for its wireless and data communication technologies to subscribers in Japan. DoCoMo launched its wireless mobile service known as I-mode in 1999 and this was a huge success.
They followed a different strategy when compared to most European and U.S Mobile Carriers:

  1. 1.       I-mode used always-on packet switching technology, so that phones do not have to disconnect the internet to receive calls. While Europeans at that time carriers charged for internet for every minute logged in, I-mode charged the user for every data-packet transmitted.
  2. 2.       I-mode used compact HTML to encode the websites, the European carriers used WAP which required content providers to reformat the information.
  3. 3.       I-mode was able to offer i-mode data handsets and bore inventory risks whereas in US and Europe handsets were manufactured by popular brands such as Nokia.

But DoCoMO was unable to bring this model to USA because it could not dictate handsets and they moreover required very large investments.

In 2002, DoCoMo came up with a Next Generation High Speed data service using Wideband CDMA but its competitor KDDI came up with flat pricing model which was able to existing mobile infrastructure through Qualcomm’s CDMA2000-1X.This meant that KDDI handsets were of lesser costs; they had a higher battery life and were GPS ready. Soon, KDDI was able to gain large user share and a series of regulatory changes in 2006, meant DoCoMO had to build a newer lifestyle infrastructure to bolster subscriber retention.

Mobile Felica  and Business Risk Mitigation
DoCoMO then aimed to implement Felica chips into Mobile phones to enable them to remotely control all the activities. It was a way to implement lifestyle infrastructure model envisioned by its leaders.
Wary of first mover disadvantage and to reduce inventory and business risks, DoCoMo sought to partner with Sony to produce Felica mobiles .They founded a joint venture known as Felica Networks, which specially subsidized the costs of Felica mobile phones to DoCoMo in order to maintain the competitive advantage.Felica soon became de-facto standard in JR East Commuter ticketing and was built in 80 million handsets.
A Felica phone

Development and Implementation of Hybrid Models
As of 2011,NFC is a standard for cell phones to communicate with each other over small distances. DoCoMo plans to support NFC in Felica Phones. Two implementation options are being sought after:
     1. The phone will have two embedded chips one for NFC and other for Felica.
     2. NFC enabled Sim cards will be developed in future implement a single chip Felica phone.

Felica currently is predominant only in Japan and other countries especially in Europe use NFCs. This shift to NFC will enable phones in Japanese to use contactless services such as payments and transit ticketing when they move to foreign countries.
Docomo’s move to NFCs will not be without challenges especially in the context of  updating payment terminals to use the new methodology and also cooperating with SIM vendors to put Felica into their products.


1. DoCoMo Reveals Strategy for Its Move to NFC

2. DOCOMO Enriches Mobile NFC Ecosystem

3. “Contactless” Convenience with Sony’s Felica

Decision Rights: Define them or die!

At first glance, Gary Neilson, Karla Martin and Elizabeth Powers' conclusion that "decision rights" are the most influential determinant in successful strategy execution might seem surprising – or downright counterintuitive.

But if you've ever worked for an organization, it rings true.  The common phenomenon of blurry, ill-defined decision rights has hampered many organizations, including the one for whom I work now.

Perfect example:

A division head, in consultation with the people in her department, decides to change a policy that was hurting revenue growth.

The division head then went up the ladder and talked to an executive who might have been inclined to oppose the change. But after hearing from the division head, the executive reluctantly authorizes the change.

So the division moves forward and changes the policy.

Unfortunately, this is not the end of the story.

The executive subsequently tells the president of the organization that he opposes the new policy. So the president blocks the policy change, and  doesn't tell the division head.

The division head only finds out about the veto weeks later.

I'm being particularly vague to protect the reputations of the people involved, but this is a true story.

Why was one executive able to veto a policy change? Why didn't it go to the board of directors for a vote? Why wasn't the veto immediately communicated to the division?

Needless to say, this caused great frustration within the affected division.

The lack of a clearly defined process for making the decision led to a poor decision and low morale.

It might be inconvenient and time-consuming to develop clear protocols for decision-making, but it will save your organization a lot of aggravation down the road.

So it doesn't surprise me in the least that clearly defined decision rights correlate so closely with successful strategy implementation.

What is your experience with decision rights? Would you agree that it is the most influential determinant in the success of strategy implementation?  

Zynga Pursues New Hits for a Fickle Market

Zynga Pursues New Hits for a Fickle Market

Zynga is the one of the big names in social on-line gaming.  Their success is due in large part to their cooperative agreement with Facebook.  Lately, their dominance on Facebook and their overall success in providing on-line games has decreased.  Their stock shares have been valued at ½ their original IPO offering and their reliance on Facebook to promote and offer their games has slowed, just as the growth rate of Facebook.  Part of this decline can be attributed to game apps that are used through a smart phone, while other gamers simply want to try something new.  In response to the decrease Zynga strategic plan has been to expand to acquire some smart phone app games and is looking forward to new games that might score the big silver bullet.  They exist in a fast-paced, ever-changing, fickle market with customers that readily drop one game in favor of another.      

The company appears to apply the same type of strategy to their business plan as they do to their software which is the same model McFarland writes about in, “Should You Build Strategy Like You Build Your Software?”  As I read both the article and the assignment, I can see the value in this strategic planning process for certain industries, but it might not be a strong fit for others.  For example, I cannot see the value in this planning process for a university such as CMU or even in the commodities market or medical field.  I think one of the downsides of using the spiral model for strategic planning is that it could be very easy for leaders to change direction and forget about the big picture or using Collins’ term the BHAG. 

In the case of Zynga, comparing their current efforts to Collins’ flywheel theory there is a risk if they don’t maintain the big picture.  They are passionate about on-line gaming, it is what drives their economic engine, and they could very easily be the best at.  However, they will miss out on gaining the momentum of the flywheel if they try and move away from their core strengths. 

I have the same concerns with the organization we selected for our group project, lululemon.  I do not believe that the spiral model would fit their business model.  Having and maintaining the big goal of expansion in the U.S market is their single focus.  Using a traditional model for strategic planning supports their overall vision.  Using the traditional model does not mean sacrificing the ability to change or react to an opportunity, but it is important to remain focused on the main goal.  For clarity, I am not stating that using the spiral model prevents an organization form maintaining its focus on the goal, it just seems easier to get caught up in the spiral and lose focus.      

Do What You Know Best

By Drew Eisenbeis

            This week in the readings there was an article from the New York Times that discussed G.E. and how it is best to go with what it knows, making stuff. This article reminded me some of the company that I’ve been researching for our group project, Nintendo.
            Nintendo began as a playing card company, and was a successful one for the first 60 years of its life. In the mid 1950’s leadership noticed that in order to grow, the company was going to have to adapt. Management began to try all sorts of new ventures to make money. Management first tried selling instant rice, since in Japan rice is a staple food, it was thought that instant rice would have been a big hit. However, in the late 19050’s the idea did not catch on. Selling instant rice was a complete 180-degree turn from what the company had been making and selling – game cards.
            Nintendo tried again with another idea, a “love hotel” that offered people to rent rooms by the hour. This idea is U-turn from a company selling game cards, and the family entertainment company that it is today. This venture, while it had some success, still proved to not be a market Nintendo wanted to stay in.
            After the “love hotel” Nintendo launched a taxi company, another 180-degree turn. Nintendo adventures with a taxi company found it difficult to negotiate with unions in the taxi business. Nintendo eventually sold off the taxi business as well.
            These failed ventures allowed management to re-evaluate itself and eventually Nintendo realized its assets, a distribution system into department stores. Nintendo then took another try at the market; learning from the past experiments and launched a toy called the Ultra Hand. This new venture in the toy industry proved to be a success and set Nintendo up to evolve into the video game industry.
The management of Nintendo learned the importance of “sticking to what they know best” philosophy. From reading examples in the course packets, and examples discussed in class, it seems that it is essential for management to have a firm understanding of the core competencies of the company. As many companies evolve to keep pace with all the technology changes, it will be interesting to see how strategies adapt.


RIM split: a question of good strategy or implementation

Research in Motion (RIM), the maker of Blackberry products, has been struggling with success for the past few years.  As a former Blackberry believer, turned Android fan, I have kept a close eye on the news concerning RIM.  There have been times where I have scratched my head, like after hearing the news about a new Blackberry tablet called “PlayBook” which I had a feeling was destined for failure before launch.  And there have been times when I have felt a genuine sadness for the firm, like when I heard news reports that analysts believed RIM would need to eliminate close to 90% of its workforce. 

The latest news circulating about the firm and their supposed plan to split the company into two businesses: a hardware and software business.  The hardware/handset portion which includes all blackberry products would be split from the popular blackberry messaging service.  I thought it was an interesting idea but sounded familiar.  Then I came across the article below.

The article compares the supposed RIM split to two other businesses: Apple and Palm.  Both of these firms at one point tried to split their business in a similar fashion.  Neither attempt was met with success.  However, the author talks about some key missteps in the implementation of this strategy by each company.

RIM is not in the same situation as either of those companies was at the time.  The situation for RIM might be even more grim:  its hardware is no longer popular and its messaging service is quickly becoming forgotten. However, with partners such as Google and Microsoft available to RIM, this strategy might not be such a bad idea.

What do you think?  If this strategy is sound, what must RIM do to ensure its successful implementation?


How is military’s strategy execution?

  Terrible earthquake was happened around east side of Japan on March 11th 2011. A lot of people had died because of a big tsunami; 15,854 people had died and 3,155 people are still missing. However, many people had also helped and they could save their lives. Especially, Japanese Self Defense Force (SDF; so-called Japanese Military) rescued more than 19,000 people within three days though SDF had lost many its planes and equipment. Why did they contribute greatly to rescuing many people? In the reading “The Secrets to Successful Strategy Execution”, it mentioned about elements of strong execution. I think SDF also had some elements of strong execution. I would like to mention about 5 most important elements as follows.

 One of the elements, everyone has a good idea of the decisions and actions for which he or she is responsible. SDF’s chain of command is very clear, this means SDF defines clearly who has to decide and provide direction. In fact, there happened a lot of accident beyond SDF members’ prediction (e.g. planes were broken by tsunami, cars were lost by tsunami), however, commanders gave orders on a case-by-case basis, for example, SDF members hastily built boats to rescue by using rubble. Thanks to such kind of orders, SDF could help a lot of people rapidly and effectively.

 Second crucial element, important information about the competitive environment gets to headquarters quickly. In spite of very bad condition, field members reported their information to their boss quickly and precisely, after that, the information also had been sent to Ministry of Defense. This means important information about the competitive environment against terrible earthquake got to Ministry of Defense (headquarters) quickly. As a result, army, navy and air-force had combined and they had unified chains of command, this was the event without precedent.

 Third, once made, decisions are rarely second-guessed, this is also important element. SDF members were trained very well, so, once they received orders from their bosses, they had to do their best until achievement without complaint. For example, some of SDF field members received an order that they rescued people by using helicopter in the midnight, this means life-threatening mission because helicopter rescuing in dark environment was very dangerous. However, they rescued about 200 people only by one helicopter and they continued to rescue until morning, after that, they accomplished the mission completely. This means once the order was made, decisions were rarely second-guessed by members, so they could accomplish.

 Next important element, information flows freely across organizational boundaries. SDF was hierarchical organization not flat, but SDF members did not forget to contact among other organizations. In fact, each army post had organizational boundary, however, SDF members in army posts around earthquake area shared their information among each other. Therefore, they could know which army posts were suffered from tsunami. After that, they could set up some army posts as the crucial site immediately. This is because their information crossed over organizational boundaries.

 Finally, field and line employees usually have the information they need to understand the bottom-line impact of their day-to-day choices, this is also crucial. Also in SDF, field members know the impact of each member’s activity. For example, though some SDF field members were also gone missing after tsunami for a few days, almost of them had rescued many general citizens on their own responsibility without any equipment until they had come back to their army posts. This was very dangerous because they did not have any equipment. This means they know their rescue encourage all sufferers and this was very huge impact, so, they chose to rescue at their peril though their boss did not give an order. In fact, not only sufferers but also almost Japanese people had admired.

 As above, I think SDF had these elements of strong execution. Military often comes up against the situation which is fatal to humans. Therefore, I think strongly that military should be one of the best strategy execution organizations. How do you think? In addition, how is your country’s military?

Lessons from Higashi-Nippon-Earthquake by Japanese Ministry of Defense

Yammer: Corporate Social Networking and Strategy Execution

In the article, The Secrets to Successful Strategy Execution, the authors highlight two elements that prevail in companies with strong strategy execution: decision rights and information. Today, companies have started exploring a new avenue in the sharing of information and improving strategy execution; corporate social networking.

One such provider of social networks is Yammer, which began offering its services in 2008 and cites that it was “among the fastest growing enterprise software companies in history, exceeding over four million users in just three years.” When reading their description, it almost seems as if they read the HBR article and decided to start a company to address those needs;

Yammer empowers employees to be more productive and successful by enabling them to collaborate easily, make smarter decisions faster, and self-organize into teams to take on any business challenge. It is a new way of working that naturally drives business alignment and agility, reduces cycle times, engages employees and improves relationships with customers and partners.”

Today, it states that it is “used by more than 200,000+ companies worldwide”, many of whom cite the improvements in information sharing and decision making through an online network. Vodacom claims that a social network helped employees engage in and successfully execute a major rebranding strategy. ModCloth’s employees used the network to retain a sense of connection and collaboration at a time of rapid expansion. LG used it in the development of an employee training guide and because it was able to gain real-time input and feedback from subsidiaries around the world, it completed the project eight weeks earlier than planned.

According to an article in The Economist, the success of Yammer has caught the attention of Microsoft, which may or may not have offered a bid of $1.2 billion for the company. If Microsoft truly is interested in Yammer, it would appear that the company is looking to strengthen its software division services. As noted in the article, IBM at 100, Microsoft should be concerned that 

it still gets over 80% of its operating profit from the franchising of PC software. So its interest in Yammer is understandable. Such an acquisition would make Microsoft more competitive while offering businesses around the world a product that will strengthen their strategy execution.

The Economist:
The NY Times:

Yum! Brands Emerging Market Strategy Flows to India

After reading a HBR article “Strategies That Fit Emerging Markets,” I was reminded of Yum! Brands recent attempts to take hold of the Indian market as strongly as it did in China. Yum! Brands, the owner/operator of KFC, Pizza Hut, and Taco Bell, have played their emerging market cards well in the last decade as it has taken advantage of consumer acceptance of its fast food dining model. Earlier this month, a writer for the Financial Times detailed this emerging market strategy and one can see that Yum! Brands is appropriately implementing the same effective tactics discussed by HBR writers regarding the entrance and strategy in markets outside of a company’s base.

Yum experienced wild success with its aggressive entrance into the China market in 1987, and the company now boasts a 3,400 outlet growth in the country since 2001. McDonald’s has seen slower growth than Yum, which means that Yum’s strategy team has done a better job at examining the forces that shape a solid emerging market strategy. The most important aspect involving Yum’s successful emerging market strategy is what HBR writers refer to as “Change the Contexts”. Yum realizes the importance of crafting its strategy to the local markets in which it operates. That is why it plans on implementing the same tactic of “changing the contexts” in India, in the hopes that the results will be similar to its China success. One example of Yum “changing the contexts” in India is its plan to tailor each menu by region, such as making its spicy chicken even spicier. This could cause some complex supply chain issues for the fast food chain because of the specific ingredients needed in the different localities, but Yum realizes this and is preempting this by investing heavily in its food sourcing within the regions.

In order for Yum’s India strategy to be successful, it will need to be increasingly cognizant of the external factors that can aid, or prevent, a company in its mission to enter global markets. Yum will surely recall its 1990’s failed attempt in India because of protests over its ingredients and treatment of chickens. The company is planning to take a more effective tactful approach this time around in regards to its localized strategy within India’s regions. Will “Changing the Contexts” tactic be enough for Yum to attract its targeted consumer in India, who is increasingly dining out and whose busy lifestyle demands Yum’s fast food? That will all depend on whether or not Yum’s strategy includes a focus on heavy market research within the specific markets it plans to serve, according to the HBR writers. Yum’s greatest challenge in its India endeavor will be to ensure that there exists no institutional void within the “Product Markets” aspect of its emerging markets strategy. 

Evan Morrison

HBR article: Strategies That Fit Emerging Markets, by Khanna, Palepu and Sinha

Lessons in Longevity - Failed Strategies

In this week's reading, Lessons in Longevity from I.B.M., the author Steve Lohr, had a common theme throughout his writing. Company's, like I.B.M. in the mid 1990's, shouldn't walk away from the market when facing becoming antiquated / irrelevant. Rather, Lohr says to build on the organization's past. The crucial building blocks are skills, technology and marketing assets that can be transferred or modified to pursue new opportunities. These are the company's core assets, far more so than particular product or service (Lohr, 2011).

After reading the article, I found myself asking questions like:

  • What wiill happen to companies that once dominated their markets? Companies like BlackBerry, Netscape, Yahoo, Blockbuster,  Kodak, etc... 
  • Why do they deflate while organizations like Apple and Nike continue to succeed?
  • Other firms are more susceptible than RIM, so how have they created strategies for continued development and RIM has not?

From the outside looking in, though their strategies were clearly flawed, I suspect that these failed / failing organizations began to focus on the wrong angles of strategy, viewing it as a function / logic that had a definitive answer instead of an open book, a green field, and a perpetually dynamic process.  These companies became focused on the next iterative, the next quarter, the next product. 

Strategy, at its core, is the making of choices, not just once, but over a sustained continuum. These decisions pivot off of a long-term vision and ideal (years in advance), not a narrow slice of time (the immediate few months or years). Strategies leverage the organization as a whole, their body of work, their talent, and  requires imagination, defined purpose / ideal, and a deep understanding and relationship with the organization's target market.

As Lohr referenced, organizations like Microsoft have had similar pitfalls like I.B.M. throughout their tenure, but have been able to evaluate, reset, and execute new strategies that allowed them to maintain relevancy and a competitive advantage. Microsoft never neglected their "core company assets", and continued to focus on their long-term strategy (not their immediate needs).

I'll be looking forward with strong curiosity as RIM tries to compete with the new heavy hitters in the mobile space. How do you think they'll adjust, if at all?

Works Cited:
Lohr, S. (2011. June 18). Lessons in Longevity, from I.B.M.. Retrieved from

Monday, June 25, 2012

Silos in City Government

The reading “The Secrets to Successful Strategy Execution” lists 17 fundamental traits that make an organization effective in implementing its strategy. Decision rights and information flow are stressed as being more important than organizational restructuring, which may yield results in the short term but inevitably sees an organization resort to its old habits in the long run.  

On the strength index, the free flow of information across organizational boundaries is ranked at 4th with a rating of 58%. When information does not flow horizontally across different parts of an organization, units behave like silos, forfeiting the transfer of best practices. Each unit communicates and plans in its own way, taking tremendous energy for one unit to understand another units’ priorities, expending energy and time on tailoring its communications to each one. It’s a scenario I have encountered recently as an employee of City government.

A pivotal issue faced by urban cities such as Pittsburgh is the puzzle posed by vacant and abandoned structures. The traditional tool used for vacant buildings has been demolition, which leaves behind vacant lots that negatively affect the property values of surrounding structures, and can create a domino effect wherein those neighboring properties are similarly abandoned in a cycle that cannibalizes communities. With demolition costs averaging about $10k-$15k per building, and in a City with limited resources in a tough economic climate, which structures to tear down becomes a strategic decision for the City’s administration, departments, bureaus and authorities.

Buildings must first be condemned by the Bureau of Building Inspection (BBI) before they are prioritized and placed on a demo list. Input is received from City government’s various departments/authorities on which structures to target. What often happens is that information does not flow across these governmental divisions on what should and what shouldn’t come down. What one division claims is a building that can be prepped for demolition, another claims could be restored and put back on the tax rolls. It is the compartmentalized ‘silo’ effect described by the reading.

As an example, about a year ago, a community organization in the historic Manchester neighborhood of the Northside contacted the councilperson I work for with protestations that historic structures had been placed on the City’s demolition list. These were mostly brick buildings with unique features that, although abandoned and in disrepair, had strong structural foundations that could be stabilized and salvaged to save and preserve the neighborhood’s historic character.  BBI had determined, without input from the community, the Councilperson or the administration, that the buildings needed to come down, when there were other structures throughout the City in much further states of decay with no historic value that did indeed need to be demolished for safety reasons. Luckily, the Councilperson was able to convene all parties in a series of meetings to prioritize the buildings that should be saved and that should be demolished. With input from community groups and with assistance from the administration, a list was drafted where structures that posed serious public safety risks were placed at the top of the demolition list, while the community group was charged with the task of coming up with plans and financing to rehab and salvage the historic structures that had been saved.

To break through these silos and ease the horizontal flow of information, the Department of City Planning recently proposed a plan dubbed Preserve Pittsburgh which offers a template for the condemnation and demolition of abandoned structures in Pittsburgh. The goal is to streamline the process by defining a clear set of criteria and steps that entities such as the Urban Redevelopment Authority, the Housing Authority, BBI, Public Works, the Administration and City Council must follow to either place a structure on the demo list or to keep it off the demo list. It is a positive and hopeful step at improving the horizontal flow of information and reduce the silo effect in City government.

Toyota should be more globalized

Hirokazu Kitahara

Considering the Japanese yen appreciation, Toyota pursues to reallocate the units to be produced in each country. In 2011 while its internal production capacity is around 3.6 million units, the internal sale is 1.2 million units. This means 2.4 million units were made to export from Japan to other countries. Thanks to Toyota Global New Body Line, Toyota can produce each type of vehicles in any factory. This flexibility makes it possible for factories in Japan to produce any types of vehicles demanded by the world market.

However, beyond the scope where the flexibility of production can cope, the strong Japanese yen has a negative impact on Toyota’s bottom line. Therefore, Toyota decided to take two measures. Firstly, it increased the target market share from 44.4 percent in 2011 to 55.6 percent in 2015. By increasing internal sales, it intends to mitigate the impacts caused by strong yen as long as possible. Next, Toyota decided to decrease the internal output by 400 thousands units and to enhance output in emerging economies like China.

Although Toyota says in Vision and Philosophy that "from development and design to production, as well as sales and service, Toyota has now achieved consistent globalization and localization," it seems that Toyota pays too much attention to the internal production and market still now. Considering the trend of strong yen and the declining Japanese population, Toyota should shift its production allocation more drastically.

However, this mismatch does not come from their failure of implementing strategy. The global strategy is set partly cosmetically. Toyota is still a Japanese company and not a global company. But the situations surrounding it require for Toyota to consolidate its public and private selves in strategy. To implement its global strategy, Toyota itself should be more globalized.

[1] Toyota aims for 55% of Japan market
[2] Toyota to cut Japan output over high yen
[3] Toyota Global New Body Line
[4] Toyota Global Vision

Sunday, June 24, 2012

ENRON: Beyond the Shroud of the Scandals

In this week’s reading article “The Secrets to Successful Strategy Execution” by Neilson, Martin, and Powers, two levers represent the most important pre-requisites for successful long-term strategy execution – Decision Rights and Information Flow. The former encouraged higher-level managers to delegate operational decisions and ensuring that everyone knows their authority, while the latter suggested that important information must be raised quickly to the top management so that the correct decisions could be made. To illustrate how these two levers could topple a big organization earning $101 billion revenues, let us take a closer look at Enron Corporation.

Touted as the largest bankruptcy reorganization in American history at that time, Enron (with $63.4 billion in assets) filed for bankruptcy in Dec 2001. The most widely known reasons for it are the financial scandals that it was involved in. According to Wikipedia, “its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance”. While such scandals are not new and unique, one begs the question of how such misfortunes could have happened to such a profitable organization. Was it just due to the greed and non-ethical actions of a few top brasses? Or is there more?

Although greedy and non-ethical businessmen are not a rarity in the high-end business world, we do not see companies going bankrupt every other day. This is because of the strong regulations established by governments, and more importantly, the internal checks and balances of every organization. In a typical large organization, there would be a Board of Directors (in addition to the shareholders) and Advisors (i.e. auditors, legal counsel, etc.) overseeing the Management. Together, the Board and Advisors serve as the “gatekeeper” of sorts, keeping the Management in check of its operations. In Enron’s case, it was quite possible that the Board was oblivious to the ongoing scandals, and the key reasons are very much affiliated to the two levers discussed above.

On the issue of Decision Rights, Enron’s Board did well in delegating operational decisions to the Management. In fact, it probably did it too well. In Enron’s structure, the Board was perceived with little or no authority and relevance in the decision-making process. All power went to the Management, and this was because of the corporate structure. Enron’s Board Directors were devoted to their responsibilities for the most part as a part-time commitment. They delegated most, if not all, of the executive powers to the Management, and simply took the easy way out by relying on the Advisors to help them keep the Management in check. However, they made a grave mistake by allowing their Advisors to play a dual-role as Consultants for the company. Apart from being auditors, Enron’s financial auditor, Andersen, was also employed as consultants. And since the consultant fees were far more profitable, Andersen worked in the interest of the powerful Management, and against the passive Board.

This led to the issue of Information Flow. With Advisor and Management in cahoots, a group hierarchy system that was ranked according to access of information and knowledge of Enron operations was established. Through this, the Management was able to restrict access of information to the Board in order to increase their own authority in the decision-making process. As a result, the Board became less informed and relied on the Advisors to determine if the dealings proposed by Management were appropriate. With this, a vicious cycle was formed. Because the Board depended a lot on the Advisors, getting approvals from the Board became insignificant, which resulted in less important information raised to it, and in the end, it became less of an authority in the decision-making process.

To sum it all up, the key reasons for the scandals were due to an ineffective Board that delegated too much authority to the Management, allowing the latter to buy over the Advisors and create information blockages to the Board to undermine its authority. The Management was then free to partake in the scandals without the Board’s knowledge, thereby causing the organization’s ultimate downfall. Could Enron have adverted this disaster? Yes, I believe that if the Board had been able to regulate its authority delegation and information flow better, Enron would still be alive today making handsome profits as before. 


I.B.M. Should be Model for Rochester Companies

This week’s article “Lessons in Longevity, From I.B.M.” reminded me of two companies that have, like I.B.M., survived for over 100 years in operation: Xerox and Kodak.  These two companies were both founded in Rochester, NY and Kodak is still headquartered there.  I lived in Rochester for three years of undergrad at Rochester Institute of Technology, so my academic experience there was heavily influenced by those two companies.  As the article states, “I.B.M. faced the challenge that all great companies do sooner or later – they dominate, they lose it, and then they re-create themselves or not.”  These two Rochester-based companies have faced similar challenges as I.B.M but with disparate outcomes.

Xerox made a name for itself with photocopying, printing, and faxing products, paving the way for the industry so much so that ‘photocopying’ became synonymous with ‘Xerox.’  For a long time, Xerox dominated the copying and printing industry, until younger companies were able to catch up and utilize the same technology in their products.  Companies like Canon and Hewlett-Packard have been making printers for years in an attempt to rival Xerox and steal the juggernaut’s market share, with varying degrees of success.  However, what makes Xerox a great company is its ability and willingness to change in order to survive.   The Reuters article linked below, states that Xerox has been studying I.B.M.’s expansion into territories other than selling mainframes as an example for how Xerox can “shed its stodgy image as a printer and copier company.”  Xerox is a perfect example of a company that has used I.B.M. as a role model for longevity, and like I.B.M., it is also making a push to include a services segment for its business.

As we have discussed in class, Kodak is a company that made the mistake of resisting change as the photography industry shifted from film-based imaging to digital imaging.  In retrospect, this was a huge blunder as the company lost a major chunk of its market share to rivals who embraced the advancement in photographic technology.  What separates Kodak from Xerox and I.B.M. is that it no longer appears to be a profitable company.  Kodak’s hesitation—or stubbornness—to quickly jump into the digital photography realm looks like it may have put the company at a permanent disadvantage to the companies that made the transition immediately and are now thriving as leaders in photography.  In January 2012, Kodak filed for Chapter 11 bankruptcy, and one of its main strategies for recovery has been to sell the company’s patents and sue major companies, like Samsung and Apple, for infringement (Bloomberg).  Needless to say, Kodak is fighting an uphill battle and surely could have used I.B.M.’s enthusiasm for change as a basis for its own recreation.

Do you think Xerox will be able to reshape its image so that it is recognized exclusively for its copying and printing machines?  Will Kodak be able to rebound from its extremely costly initial resistance to digital photography, or will that mistake result in the company’s failure to survive in photography any longer?

Lohr, Steve. “Lessons in Longevity, From I.B.M.” 

Reuters article:

Bloomberg article: