Friday, November 30, 2012

Zynga's short-lived success




Facebook and Zynga ended their exclusivity agreement. This means that Zynga can now host its games on other platforms and use non-Facebook ads and payments on their website. However, Zynga no longer has special privileges on the Facebook platform. Facebook recently revised its agreement with Zynga to bring it in line with agreements with other gaming companies that are also utilizing the Facebook platform. Within hours of the news of this change in relationship status, the Zynga shares fell by 13%. This was expected because recent figures show that up to 80% of Zynga’s revenues were coming from Facebook users. Being too dependent on any one platform has its risks. Zynga’s dependence on one platform has been a cause for concern as they cut jobs and offices around the world.

Zynga had a brilliant strategy. They identified the social media boom and realized that people want to collaborate at all fronts, including gaming. They also identified the most successful social networking platform, Facebook, and successfully reached an agreement with them to get exclusive privileges on their platform. As the first movers within this area of gaming, they were tremendously successful. Seeing the growth and success of Zynga, several new companies mushroomed in this arena and today Facebook has little to no reason to keep the exclusivity for Zynga.

With such a new and innovative business model come new problems. Facebook has no competitors so to speak, which leaves Zynga with either collaborating with Facebook or create its own platform. With the new agreement, Zynga will have to start building on its own platform and of course continue to improve its presence on Facebook.

For Facebook, the termination of the understanding is a good thing. They can now sell themselves as being fair to all game developers and increase participation from other companies. In essence, the agreement seemed to make sense for Facebook only for the initial years.

The questions I would like to leave the readers with are:
- Will ending the exclusivity agreement with Zynga be of any harm to Facebook?
- Can Zynga bounce back with its own platform to be a leader again?


References:
http://www.sec.gov/Archives/edgar/data/1439404/000119312512485800/d446603d8k.htm
http://techcrunch.com/2012/11/29/zynga-facebook-partnership/
http://www.bbc.co.uk/news/technology-20554441

Thursday, November 29, 2012

Caterpillar to Sustain International Market Share



Caterpillar Revenue (2009-2019E)
Caterpillar Inc. is an American corporation which designs, manufactures, markets and sells machinery, and provides few financial products. It is the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The three major industries Caterpillar serves are resource, power systems, and construction industries as shown in the Caterpillar Revenue chart.

Rising world population and prosperity is driving the demand for energy, resources and infrastructure in the emerging countries. Many Chinese heavy equipment makers companies have realized this global opportunity and are become more active internationally. This has become a major threat for Caterpillar as experienced with Sany Heavy’s strategy to undercut Caterpillar prices by 20%, making them the largest hydraulic excavator manufacturer in China. Similarly, other Chinese companies such as Liugong, XCMG, Zoomlian and Shantui are gradually striving to capture market share in emerging countries.

With Chinese companies aggressively being offensive by improving their ability to produce efficiently and better finance through government funneled tax breaks and grants, Caterpillar has implemented a strategy to focus primarily on the Chinese market in order to gradually take out Chinese competitors. As said by Chief Executive Ed Rapp, “The best way to beat Chinese outside China is to compete and win with them inside of China”. Caterpillar’s strategic plan in China includes number of key steps:

  •  Capture Low-Price Segment: Shandong Engineering Machinery Co. (SEM), now wholly owned by Caterpillar, has expanded Caterpillar’s product line to inexpensive equipment which usually sell 30%-50% less than Caterpillars branded products. Similarly, Caterpillar is acquiring other small companies in China to weed out competitors and defend market share.
  •  Expand R&D for Emerging Countries: Caterpillar is expanding their R&D facilities in China to develop models specifically for the emerging market. R&D costs are considerably lower in China and having a model specifically for the emerging market allows them to further reduce price and build targeted equipment.
  • Build More Manufacturing Facilities in China: Caterpillar is building number of new manufacturing facilities in China to serve the emerging market, specifically for China and India.

Will this strategy help Caterpillar, considering other foreign competitors such as Volvo are heavily investing in China? Instead of focusing only in China, should Caterpillar expand their facilities in India and Brazil as well?

Sources:

http://professional.wsj.com/article/SB10001424127887323751104578146831913003980.html?user=welcome&mg=id-wsj&mg=reno64-wsj

http://www.trefis.com/company?hm=CAT.trefis&from=widget%3Aforecast&ovd_urlid=977286#/CAT/n-0560?from=sankey

Wednesday, November 28, 2012

Renaissance Learning transitioning from Red to Blue

Reflection of my 2012 summer internship as it pertains to red/blue strategy:

As a second year MPM student, I interned for Renaissance Learning, Inc. (see: renlearn.com) last summer as a State Policy Analyst intern. Broadly speaking, this company develops educational software for K-12 school districts throughout the country. In my opinion, I believe this company began over 20 years ago with a blue ocean strategy. Throughout its company history, it has transitioned to more of a red ocean strategy over the years, but is again currently redefining itself.

Renaissance Learning was created in 1985 by a teacher (Judi Paul) and her engineer husband (Terry Paul) out of their Port Edwards, Wisconsin home. According to the summer company training I received, Judi was looking for a way to incentive her own four children to "like" and ensure they comprehended their reading. She ultimately designed what would become "Accelerated Reader" (AR) comprehension quizzes. With a blue ocean strategy, AR would serve as the foundation to this company's start, "creating a new product in an uncontested market space" as Kim and Mauborgne's Blue Ocean Strategy described. Millions of students have taken AR quizzes over the years.

Over the years, between 1985 to the more recent launch and momentous growth in popularity of the Apple iPad and iPhone products, Renaissance Learning began to compete with a more red ocean strategy as competitors entered the market. Competitors include Plato Learning, Pearson, and Scholastic Reading, to name a few. Today, Renaissance Learning has educational software products (Accelerated Reader, Accelerated Math, STAR products, English in a Flash!, etc.) in roughly 1 out of every 3 U.S. schools, which I personally found to be impressive. To maintain this market share, Renaissance has implemented a red ocean strategy over the years with the market gaining more competition. Renaissance is now:

  • competing in the more developed, existing market space
  • aiming to beat out the competition (I witnessed this first hand with my position as a Policy Analyst with RFP proposals and state bids)
  • exploiting the existing demand (in an attempt to gain market share)
  • As a company, it held ongoing training for its sales and various groups to "align the whole system of a company's activities with its strategic choice of differentiation" from its competitors, as Kim and Mauborgne suggest)
Renaissance has had its own hardware computer, the NEO. This is still a useful and successful product. Yet, with the recent boom in popularity of Apple products, Renaissance made the wise decision to develop software apps for its existing products (Accelerated Reader, Accelerated Math, etc.) so that schools, students, and other customers with Apple products can utilize Renaissance products on their existing hardware. In this case, Renaissance avoided one of the seven ways to fail big, according to Carroll and Mui's article. That is, Renaissance avoided "stubbornly staying the course" as Kodak did (page 4). Renaissance recognized that Apple had a strangle on the market share and Renaissance successfully adapted its strategy as a company.

Renaissance is currently shifting again to a more blue ocean strategy as it attempts to further differentiate its products.


Tesla S in the Blue

I believe there are two type of people. Those who want a sports car and those who lie about not wanting a sports car.

Those in the latter category often site the environmental impact and the impracticality of such a vehicle. As someone who gets personal satisfaction out of being an environmentally conscious person, I have lied publicly to my friends and family for a long time. But no longer.

The Tesla S was awarded the Motor Trend Car of the Year for 2013. The article raves about it's specs, "drives like a sports car, eager and agile and instantly responsive. But it's also as smoothly effortless as a Rolls-Royce, can carry almost as much stuff as a Chevy Equinoc, and is more efficient than a Toyota Prius...At it's core, the Tesla Model S is simply a damned good car you happen to plug in to refuel."[1]
At its core, the Tesla Model S is simply a damned good car you happen to plug in to refuel.

Read more: http://www.motortrend.com/oftheyear/car/1301_2013_motor_trend_car_of_the_year_tesla_model_s/viewall.html#ixzz2DYgkfezh
At its core, the Tesla Model S is simply a damned good car you happen to plug in to refuel.

Read more: http://www.motortrend.com/oftheyear/car/1301_2013_motor_trend_car_of_the_year_tesla_model_s/viewall.html#ixzz2DYgkfezh

At its core, the Tesla Model S is simply a damned good car you happen to plug in to refuel.

Read more: http://www.motortrend.com/oftheyear/car/1301_2013_motor_trend_car_of_the_year_tesla_model_s/viewall.html#ixzz2DYgkfezh

At its core, the Tesla Model S is simply a damned good car you happen to plug in to refuel.

Read more: http://www.motortrend.com/oftheyear/car/1301_2013_motor_trend_car_of_the_year_tesla_model_s/viewall.html#ixzz2DYgkfezh
At its core, the Tesla Model S is simply a damned good car you happen to plug in to refuel

Read more: http://www.motortrend.com/oftheyear/car/1301_2013_motor_trend_car_of_the_year_tesla_model_s/viewall.html#ixzz2DYgfyHTY
At its core, the Tesla Model S is simply a damned good car you happen to plug in to refuel

Read more: http://www.motortrend.com/oftheyear/car/1301_2013_motor_trend_car_of_the_year_tesla_model_s/viewall.html#ixzz2DYgfyHTY

To date most of the electric sports car market is inhabited by manufacturers most of us have never heard of: Fisker, Lightning, Rimac, and PG. Audi only just has a car in production and there are rumors that Toyota will be making one soon.

The public recognition of the Tesla S represents a market about to explode. The ocean is wide an unpopulated. It is market that did not exist 5 years ago and still is untapped fully. It makes the electric car into a legitimate option for the sports car loving environmentalists like me, once I get the funds to throw down for it's significant price tag.

[1]MacKenzie, Angus. "2013 Motor Trend Car of the Year: Tesla Model S" Motor Trend. Jan 2013. Web. Nov. 28 2012. http://www.motortrend.com/oftheyear/car/1301_2013_motor_trend_car_of_the_year_tesla_model_s/

Agile: Strategy or Methodology

Before LinkedIn was launched, the start-up team had a prototype which they were working towards. In line with this week's topic which discusses generic factors that frame executive decision making, we would take a look at Reid Hoffman's strategy when LinkedIn was launched.



Prior to the launch, the LinkedIn team were working on actualizing five (5) features before the product launch. Reid Hoffman was quoted as saying "If you are not ashamed of your product when you launch it, you launched too late.” In line with this, LinkedIn was launched with just three of the proposed five features it planned to launch. Today, those initially "un-launched" features haven't hurt and LinkedIn is a very successful company.

After the initial launch, the founders of LinkedIn went back and kept on iterating on the product and getting consumer feedback. This brings to mind the Agile methodology. How can we explicitly classify Agile? Is it simply a methodology or is it more than. My take on this is that Agile can be broadly classified as a strategy which closely matches with the Lean strategy for entrepreneurship.

According to Ries, in his book, "The Lean Start up", 
"His premise is that we start with a testable hypothesis – where your idea is possible and can be built, and customers will want what you build – and then test it with the least effort possible. This least effort product, known as the Minimum Viable Product (or MVP), validates the hypothesis using the least amount of resources you can. The goal is to quickly verify that people are interested in what you plan to create, before you sink your time, energy and money in creating it. The MVP isn’t perfect, in fact, Ries likes to say that if you’re not embarrassed by the first version of your product then you’ve waited too long." [1]
However, in our bid to adapt an Agile strategy, how do we balance the tendency of wanting to develop a viable and ready product without much customer feedback and following the strategy of just launching what you have in a good-enough-state?

References
[1] Hoffstein, Brian. "The Exponential Rise of Lean Business - Forbes." Information for the World's Business Leaders - Forbes.com. Forbes, 5 July 2012. Web. 28 Nov. 2012. <http://www.forbes.com/sites/singularity/2012/07/05/the-exponential-rise-of-lean-business/>. 
[2] http://www.andersramsay.com/2012/04/24/agile-ux-vs-lean-ux/
 

Genzyme: The Way Forward for Sanofi Aventis












Sanofi Aventis is a Paris based pharmaceutical giant and is the fourth largest pharmaceutical company (by prescription drug sales) in the world. Sanofi recently acquired Genzyme, a new-age biotech company that focuses its product development activities on niche under-served markets. In this blog I want to talk about what this acquisition means for Sanofi in terms of getting innovation back into the pharma-company and how the top leadership is trying to implement this strategy, seated at the helm of an old and rigid giant.  I think that this story is an embodiment of what is being told in the two articles: “Right leaders for growth strategies”, and “Going from Global trends to Corporate Strategy”.

When Sanofi’s CEO Chris Viehbacher first met the Genzye staff, he told them that he did not want planeloads of people from Paris to come and “Sanofize” them. More than a year later, the contrary seems to have happened. The company’s U.S headquarters are now run by Genzyme employees and Sanofi’s newly-appointed deputy R&D operations head, Gary Nabel is based at Genzyme’s head office in Cambridge. It is not only the U.S offices that can see these changes. Sanofi is witnessing a global change in its work culture. Even the company’s new global headquarters with open-plan offices and multiple meeting rooms in Paris have an edgy biotech feel to it that encourages open communication, and facilitates innovation.
It is not a surprise that Chris is not a French national. The German-Canadian has faced a good share of problems in Paris to see his strategy being implemented. Sanofi has had a history of strong acquisitions which brought it to the pedestal that it now stands on. Innovation however had never been a part of the Sanofi culture. The end result of this was a centralized system that had several research centers looking to Paris for decision making. In spite of spending more than its peers on drug development, Sanofi has not come up with a new product for 20 years. When Chris mentioned this in France, his comments were met with quite a stir.
As the aging pharma industry is threatened by generics, big companies like Sanofi have had to look to the risk-hungry, innovative and nimble biotech companies in order to boost productivity and learn new ways of doing business. For the time being, Sanofi can depend on Genzyme’s pipeline of drugs, targeted at rare diseases that have no cure. Meanwhile, Chris has had to design a strategy that revives the entire company. Sanofi has now strengthened cooperation with universities, the hubs of biotech innovation, merged its research centers and stepped up its search for new drugs outside the company.
 Sanofi also launched a cost cutting drive so that it could boost productivity in the U.S. and parts of Europe. This was met with quite a frosty welcome in France. The matters worsened enough for Government to step into the matter. However, after the launch of this drive, its share price has gone up by 20 percent, vindicating the strategy.
I believe that Chris is pursuing multiple growth strategies as described in the article “Do you have the right leaders for your growth strategies?”  Do you think implementing Chris’ strategy will pay off in the long, at the cost of alienating his staff? What would you do to encourage leadership, drive and open-communication amongst Sanofi’s reluctant Paris employees?   

Social Media Mergers: #Like?


 According to a Bloomberg Businessweek article, the 2009 failed merger between Facebook and Twitter qualifies as one of the twenty worst in recent history[1]. The clip suggests that the deal fell through when the valuation of Facebook was called into question. Granted, the potential deal was in talks before Twitter and Facebook had reached their current respective popularity and value, but there are many factors that could have doomed or promoted the success of the merger had it been completed. Various factors including the “synergy mirage”, as explained by Carroll and Mui[2], respective target audiences, and each company’s corporate culture could have greatly affected the outcome of the possible partnership.

The corporate structure and culture of the social media sites are both described as innovative, fun, and open, however there are some distinct differences between the two companies in the way that they approach their users. While Facebook prioritizes connecting users while allowing them to secondarily produce posts, Twitter tends to focus on an individual’s ability to create content. This suggests that the companies are targeting different audiences who have different goals for their social media usage.

Despite the differences between sites, a recent study suggests that the most common users of Facebook and Twitter fall into generally the same demographic category, based on age and gender[3]. While this is not entirely surprising, as those who use one kind of social media tend to use others, it is surprising that the differently perceived functions of both social media sites attract almost identical user profiles. This is a good indicator that the merger could have been effective, as both companies already cater to the same demographic pool while working to attract those demographic categories that are still only potential consumers.

Another potential pitfall of the merger that has been overcome is the profound gap between Twitter and Facebook as lucrative companies. What would have once been a potential free-riding opportunity for Twitter is far less apparent, given the recent and consistent growth of the social media site. The individual success of each company puts them both in complimentary positions. Fusing creative resources and capabilities might in fact allow both companies to expand further than possible individually.  

As merger talks between the two companies are speculated to resurface, there is also talk that Google may try and step into the absorb Twitter instead. Based on the similarities and advantages brought to the table between Facebook and Twitter, I believe that partnership could prove quite successful. With other companies beginning to factor themselves into the equation of merging social media, it is only a matter of time before we can see the real effects of such partnerships.  

Which social media sites do you think would best compliment each other?



[2] Paul B. Carroll and Chunka Mui, “Seven Ways to Fail Big”, Harvard Business Review, September 2008 edition, (Accessed 28 November 2012) http://hbr.org/2008/09/seven-ways-to-fail-big/ar/1
[3] “Social Network Demographics”, Royal Pingdom, 21 August 2012, (Accessed 28 November 2012) http://royal.pingdom.com/2012/08/21/report-social-network-demographics-in-2012/

The dreamer... The realist... The critic... And then there was Mickey Mouse!

With a whopping 400 movies under its belly, some of the world's best amusement parks, and assets in film, television and the internet, the Walt Disney Company is the world's largest media conglomerate with a net income of $5 billion and a revenue of $41 billion easily outpacing its competitors Time Warner, Viacom and News Corp. 
Known internationally for the iconic Mickey Mouse, the Barbie Doll, The Pirates of the Caribbean and the legendary Disney World this company goes way beyond -- incorporating the ABC television network and other stations, The Disney Channel, ESPN, Marvel Comics and the Pixar Studio among others.
So, why Disney? What is it about this supremely successful company that I want to talk about today? While researching Disney's strategy I realized that it ties in with all the various aspects that we have learned and studied so far in class. I was wondering if I should highlight the way Disney strategically first partnered with and then acquired Pixar Studios to enhance its creative engine and drive growth across all its segments? Or talk about Disney's 5 Strategic Business Units [SBUs] -- Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive Media that each contribute to the Disney empire by forging new paths. How Disney strategically uses each BU to complement the other? Disney's marketing and branding strategy is also a very interesting area. It's exciting to see that just before the release of a major feature film Disney goes all out to include and position any major animated character in Disney World, on the small screen and in various merchandise to entice and enamor its young wide-eyed audience. 
But, No! I do not want to blog about any of these. I would like to talk about the 'stuff' that is at the crux of Disney's strategy. Sort of, like the birthplace of its strategy. The kind of stuff that made Walt Disney create 'Snow White and the Seven Dwarfs' in 1937 - the first fully animated feature film in the history of motion pictures named the greatest American animated films of all time. Every single screen of Snow White was first enacted, then hand drawn, painted and then processed on film. The film was estimated to cost $250,000 but eventually cost $1.5 million. Disney had to mortgage his house and endure taunts from everyone who dubbed it as Disney's folly. At the end the movie received a standing ovation and garnered $8 million ending with a historic run. 
I believe, it is such passion, such desire and commitment to create and innovate something great that forms the strategy for great companies. It originates as a single idea that is set as a vision by a company's executive. When successful, this vision then becomes a company's mindset and its strategy. For instance, ever since its first leap, Disney has never looked back and continued to foster an environment of thorough innovation giving us some of the world's best movies in The Little Mermaid, The Lion King and The Beauty and the Beast. Disney's corporate strategy involves a person playing 3 roles: the dreamer (who goes for disruptive innovation), the realist (who knows what can be done) and the thinker (who cares about the risks). With this philosophy at its heart Disney has given us some ground breaking technological innovations such as the first multi-plane camera that re-invented animation, audio-animatrics that was a breakthrough in theme-park entertainment and several others. This vision to innovate and break all barriers lies at the heart of Disney and is what guides all its strategies. 
So, I think that one great idea followed by true commitment is enough to create a great company. The  other 'strategies' just fall in place. Other companies that embody this philosophy that I can think of is Apple with its 'Think Different' strategy -- such a great company. Google with its mind-blowing products designed to keep it simple and useful -- another great company. What other companies are there that you know of that have crafted strategies based on ideas, disruptive innovations and the 'We can do anything' philosophy?

References:
[1] http://blog.silive.com/goofy_about_disney/2012/08/post_20.html
[2] http://dev.change-management-toolbook.com/mod/book/print.php?id=74&chapterid=25
[3] http://www.slideshare.net/nav_neteng/the-company-presentation-walt-disney

Finding Blue Ocean Deeper, Not Farther


The blue ocean metaphor has become an extremely popular model for fledgling and incumbent businesses to follow.  Kim and Mauborgne, in their well-regarded article “Blue Ocean Strategy,” accurately capture how firms in competitive markets interact, as well as the virtue in finding market space that is previously untouched by competitive forces.

Unfortunately for many companies, finding blue ocean space is a demanding process.  Arguably new entrants have a significant advantage because they can act swiftly without the organizational inertia that accompanies existing organizations.  Unless incumbents have a substantial cash or positional advantage to move into a new market, it would seem that finding untouched blue ocean space is likely too costly and too risky to try.

After reflecting on Kim and Mauborgne, I would suggest that blue ocean space is not simply a horizontal move away from red ocean.  Rather, blue ocean can be a vertical movement, or a deepening of investment and strategy in what, at the surface level, seems to be a red ocean.  For example, the highly-competitive mobile phone industry began as a quest to make phone more compact and more reliable.  The “uncontested market space” that captured serious value was the addition of other capabilities, such as camera and internet functionality.  This strategy constitutes a depth-based blue ocean strategy, distinct from a breadth-based approach.

My contention is that start-ups and incumbents with a clear cash or otherwise competitive advantage can form an effective horizontal blue ocean strategy, but less agile, existing firms must make vertical, "dark-water" moves to stoke innovation.

Kim and Mauborgne discuss the many ways that companies can create demand by way of a blue ocean strategy.  My hope is to delineate some of those tactics as vertical strategies:

1) Expand Existing Product Capabilities or Services: innovative expansions to existing products or services provide a great way to capture larger market share by increasing functionality.  It was recently reported that LinkedIn will be expanding its website to include macro-level employment tools, intentioned to help assess labor markets in particular geographic areas or professional fields.

2) New Product Development: the shift from desktop computer usage to tablet usage was precipitated by a risk that developers took: investing in an untested, new product.  The rewards are self-evident now to companies like Apple, who has redefined how consumers used computers by creating a new product within their existing industry.

3) Mixing Industry Expertise: it would have seemed reasonable if J.C. Penney hired a long-time retail clothing industry expert as their CEO last summer.  Instead, they hired Apple’s retail guru Ron Johnson, an accomplished tech retailer more than anything clothing related.  And yet the decision to mix industry expertise makes sense given that a staffing change like this is a far more reasonable strategy for finding blue ocean than moving J.C. Penney into the computer industry.

This distinction between vertical and horizontal blue ocean strategies add credence to the holistic blue ocean ideology while democratizing its application.  Innovation occurs across the full spectrum of organizational tenure and financial condition, in large part because these strategies are available for the brave leaders willing to try them.

What then compels organizations to stay firmly within red ocean environments when innovative strategy is available to all?

Sources:

Blue Ocean Strategy
(Kim and Mauborgne, Harvard Business Review, Oct ‘04)

Unlimited Vacations: A low cost strategy to improve productivity



Over the last two decades or so, companies have started trusting their employees with more data, more privileges and more liberty. Some companies are taking it to the next level by not capping the number of vacations their employees can take in a year. Companies have discovered that Paid-Time-Off (PTO) which has always been an important part of an employee’s package can be used strategically without any apparent limit. Over a period of two years they have discovered that apart from a few abuses of the practice, it has largely been a very successful exercise.

A case in point is Red Frog Events which is a weekend entertainment organizer. It has allowed unlimited vacations for the past two years and hasn't seen a drop in productivity at all. While it is true that such a privilege can be put to practice in a small organization with a relative ease, as there are less calendars to coordinate; it still remains one of those rare benefits that can be used to compensate a marginally less offered salary or a low bonus. It is so rare that according to the Society for Human Resource Management's 2012 Employee Benefits Survey, only 1% employers offer it.

Another firm to implement such a policy is LRN, which is an advisory-services firm. The Chief Executive,  Dove Seidman concedes that he has seen his employees being more thoughtful of their responsibilities and considerate about others’ calendars ever since the firm implemented this rule, about three years ago.

As an employee, I would like my organization to trust me to not abuse such a policy and offer me the privilege of taking as many offs as possible. What is your take on this? Do you think this is sustainable?

Source:  http://professional.wsj.com/article/SB10000872396390443686004577637730320709396.html?mod=WSJ_mgmt_below_LeftTopNews&mg=reno-wsj