Tuesday, December 11, 2012

Kick off of Shopping Season with Black Friday and Cyber Monday


With Black Friday started the annual shopping season of the year where American consumers shopped at malls, scanned bar-codes  compared prices and shopped online. This Thanksgiving event various stores like Wal-Mart, Target, Macys opened their stores with door busting deals and attracted customers to spend their hard earned dollars. National Retail Federation reported that more than 35 million Americans visited retail stores and websites on Thanksgiving alone compared to 29 million consumers visited in 2011. We clearly see the increase in the consumers visiting and making purchases on Thanksgiving. ShopperTrak, which measures and analyzes foot traffic at retail stores worldwide, reported that store visits on Black Friday increased by 3.5%. Even thought the foot traffic increased the sales decreased by 1.8%.  The customer behavior has changed over the years and consumers have learnt to wait for more deals and shop even after Black Friday. This strategy was followed by several companies like Amazon who rolled out more deal over the weekend and then there was the Cyber Monday with sales, promotions and discounts on websites. 


The new trend reported by IBM was that more consumers shopped on Black Friday using mobile device. Other than making purchases online, consumers used their mobile devices like iPad, iPhone and Android devices to compare prices online and get the best deal. With the increase in online shopping, two other businesses also saw an increase. When we shop online two most important things are online payment and delivery of the purchased products. Shipping and delivery services like FedEx, UPS see the seasonal increase in delivery services and every time we make a payment using the debit and credit card, Visa and MasterCard makes money. In this holiday season where we see an immense increase in the online sales, other companies are also making money and this trend leads to the evolution of a new ecosystem.

The question is whether this is Cyber Monday is affecting the sales on Black Friday and whether we are going to see a shift in the trend where consumers will make the purchases online and avoid the waiting time at odd hours at retail stores. 


References:
foxnews.com



Monday, December 10, 2012

Communicating Strategy



We began this course examining the history of strategy in military. Especially in the battlefield, effective and quick down-the-ranks communication of the strategy is primary. Failure of doing so, in any of the ranks could mean ineffective execution of the strategy or even worse units of the fighting each other. In team sports as well, a coach and the captain would vouch for the importance of effective communication of the game plan. Sport and combat have a lot in common. So seems the case for businesses and organizations as per the work of Collis and Rukstad, ‘Can you say what your strategy is?’. Companies that don’t have a simple and clear strategy are often seen to fail in execution of strategy.

Simplicity in strategy means higher effectiveness with which it can be communicated within the organization and beyond. This is makes sense for all kind of companies pursuing an opportunity strategy in fast moving markets like those in the new economy. In the writing ‘Strategy as Simple Rules’ by Sull and Eisenhardt, the writers emphasize the need for a strategy articulated succinctly and lucidly into simple rules which would guide managers through the confusion of turbulent markets. Some very apt examples of realization of these rules has been seen in the Tech Industry by organizations like Akamai, Intel, Cisco and Nortel. These simple rules for action helped managers align activities with the corporate objectives in an environment of unpredictability. The exploratory article by Neilson et al delves into the identified traits of organizational effectiveness. This writing reinforces the idea that effective flow of information is essential for good execution.

In a Fast Company article by the head of the design firm IDEO, Tim Brown ; he talks about the woeful inadequacy of traditional tools - spreadsheets and powerpoint decks. According to Brown, words are a powerful tool, but only for a supremely engaging storytellers. People who can communicate a visceral understanding of why you've chosen a particular strategy. Since strategy often gets mired in abstractions he introduces the radical idea of using design to communicate strategy. As in case of Motorola, he says designers are able to use prototypes, scenario or films to describe the strategy by helping people emotionally experience it. Can this method of communicating strategy be the next big thing that would help companies bring clarity to their strategy?


References and further readings:

The Shimmering Blue Ocean


The odds that you or your partner will spend a fortune on a gemstone in your lifetime are unbelievably high. What is even less believable is the fact that the notion of gemstones, particularly diamonds being the gift synonymous with love was practically unheard of till as late as the 1930s. However by the 1990s, (according to Bain and Company) more than 80% of the brides in the United States received diamond rings. The creation of the demand for stones can be attributed to the single-handed efforts of the South African firm founded by Cecil Rhodes - De Beers. This is perhaps one of the earliest known examples of a company creating a previously non-existent marketspace. A concept that is termed as the 'Blue Ocean Strategy' in the writing by W.C. Kim and R. Maurborgne.


Before the 1930s the stone was known primarily for being the hardest material known. A characteristic that meant that diamonds had a lot of potential to be used in industrial equipment. If it were only for the demand for diamonds for industrial equipment, it is estimated that the stones would retail today for a meager price between $2 and $30. Following the great depression, the price of diamonds was plummeting across the world. Positioning the stone as one of the most precious luxury product was a strategy that not many could have thought of. De Beers group which controlled 90% of the world’s rough diamond production and distribution saw a huge opportunity. They created an entirely new ‘blue ocean’ market which was virtually uncontested.


In 1938, De Beers identified United States as a big market for diamonds. The game plan was to convince Americans that diamonds equated love. The aspirational value of these stones was created by a brilliant marketing and supply control strategies. Some pioneering advertising campaigns for DeBeers by the agency N.W. Ayer caused the sales in United States to increase by 55%. This was a success given that this was during the uncertain times of the World War II. Some iconic campaigns including using paintings of Picasso, Dali and other famous artists followed. In 1947, the legendary slogan “A Diamond is Forever” appeared with Hollywood celebrities promoting diamond jewels. The campaign went on to inspire a James Bond franchise. The sales of diamonds has never slowed down since, in the United States.

DeBeers has replicated the introduction of diamonds and equated them to romance in other countries with no traditional affinity towards diamonds as gemstones. The strategy was executed almost unto perfection in multiple geographies. An often quoted example of this is Japan where diamonds were non-existent as a luxury product till the 1960s! The creation of this billion dollar industry was definitely a case of creation of psychological value for a product at a global scale.




Oppenheimer, the head of De Beers is known to have commented -
“A gemstone is the ultimate luxury product. It has no material use. Men and women desire to have diamonds not for what they [diamonds] can do but for what they desire”. 

 The psychological need and the aspirational value of diamonds as the ultimate luxury product is perhaps the result of near perfect execution of strategy by the De Beers Group. Allegedly, the scarcity of diamonds is also strategically architected too, by a cartel-like control of the supply chain that runs from South-Central Africa to South America to South Asia to Antwerp. In the last decade, the industry has been in controversies involving ethical issue related to use of child labor and mining in conflict zones. With the introduction of relatively cheaper and good quality synthetic diamonds, the question is if the manufacturers can create a substantial shift in the market for diamonds? Has the story of the diamond industry come a full circle? Are diamonds really forever?

References and further readings:
http://www.bain.com/Images/PR_BAIN_REPORT_The_global_diamond_industry.pdf
http://www.businessinsider.com/history-of-de-beers-2011-12?op=1
http://pages.stern.nyu.edu/~lcabral/teaching/debeers3.pdf
http://www.gemnation.com/base?processor=getPage&pageName=forever_diamonds_1
http://www.contrib.andrew.cmu.edu/~gsmailag/portfolio/B4%20-%20Marketing%20Final%20Paper.pdf
http://www.debeersgroup.com/ImageVaultFiles/id_1007/cf_5/DB_Group_RtS06.PDF
Blue Ocean Strategy (Kim and Mauborgne, Harvard Business Review, Oct ‘04)

Super-fast internet in the UK by 2015

The plan is to have 90% of the UK covered with at least 24Mbps for everyone by 2015. The Broadband Delivery UK had been awaiting for the £530 million approval to use State Aid cash to fund the rollouts. This step has implications boosting the economy said Maria Miller, the Secretary of State for Culture, Media and Support.

BT and Fujitsu were the companies that were likely to have the offer of delivering the local broadband infrastructure project. However, BT won the contract because Fujitsu had previous failures with the UK government. The projects will start in Wales, Surrey, Cumbria, Rutland, Herefordshire, and Gloucestershire.

The European Union's digital agenda has a scheme of which all European residents must have access to broadband speeds above 30Mbps and at least half the subscribers must have packages above 100Mbps by 2020. This step of providing high speed coverage in the rural areas in the UK is certainly a step in the right direction.

How can high speed broadband (>30Mbps) be achieved by 2020? What is the impact on the average citizen having this speed? Is an average of 24Mbps needed in the rural areas now? In the future?

Resources :
[1] http://www.zdnet.com/uk/europe-gives-green-light-to-uks-super-fast-rural-broadband-plan-7000007672/
[2] http://www.zdnet.com/uk/eu-enquiry-requests-minor-changes-to-rural-broadband-funding-process-7000005392/
[3] http://www.zdnet.com/uk/britain-quizzes-eu-over-delay-to-530m-rural-broadband-push-7000007101/

Smart Device Shipments Broke Records In Q3 2012, Reaching 303.6 Million Devices; Expected To Grow To 362 Million In Holiday Quarter

The image below summarizes the latest report on smart devices shipment. As it shows Samsung and Apple are leading the market with Samsung having 21.8% share. This growth in shipping smart devices has increased every year and it is expected to break the record reaching 362 million shipments in the fourth quarter of 2012. 

Year after year the the growth of shipment of smart devices has increased. Although Samsung has the lead statistically in the market, the methods of measuring such a lead remain questionable. IDC forecasts that smart device shipments will reach to 2.1 billion devices in 2016 with a market value of approximately $800 billion worldwide. It is predicted that the PC market will experience a great decline by that time. Also, the increase in smart devices is an indicator of a decline in the average smart device price in 2016.

Will the smart device market reach its peak by 2016? or will it see more years of growth to come? Will Samsung and Apple take over the market making it between only these two companies? What is the best strategy for PC suppliers and PC software providers to sustain their market share and not become an "old fashion" in technology?

Resources :
[1] http://techcrunch.com/2012/12/10/smart-device-shipments-broke-records-in-q3-2012-reaching-303-6-million-devices-expected-to-grow-to-362-million-in-holiday-quarter/
[2] http://www.businesswire.com/news/home/20121210005216/en/Worldwide-Smart-Connected-Device-Market-Led-Samsung

Barclays, Absa, and South Africa

Absa Group is considered one of the largest financial services institutions in South Africa which offers a wide range of products including retail and commercial banking, investment management, finance and insurance, credit cards, private equity, and wealth management. A £1.3 billion deal has been reached as Barclays are going to will up their share in Absa from 55.5% to 62.3% and Absa will take over Barclays in nine countries in Africa.

This step came as a continuation result of Barcalys moving out from Dubai in 2011 and have the headquarters in Johannesburg, South Africa. This move will result in a 14.4 million as customer base, also the FSA boss Hector Sants is considering joining the bank as a compliance and regulatory overseer. This role will have him reporting directly to the chief executive and a former boss of the UK's financial regulator is certainly a great step for the company having a reputation being involved in the Libor Scandal.

Can Hector help preventing Barclays from future predicaments? How will this deal effect Absa in the future? Is Barclays benefiting from investing in South Africa? How? 


Resources : 
[1] http://www.managementtoday.co.uk/news/1163391/barclays-bigs-africa-mulls-sants-hire/
[2] http://en.wikipedia.org/wiki/Absa_Group
[3] http://en.wikipedia.org/wiki/Libor_scandal

Sunday, December 9, 2012

RT-MART vs. WALMART in China

Sun Art Retail Group has been a huge competitor in the Chinese retail market where Wal-Mart, Tesco, and Carrefour are the big players. However, having the feel of an ordinary local store plus making it scale to the size of the big players seems to be a very effective strategy in China. This indicates that RT-Mart is becoming dominant in most provinces and cities.

The advantage of knowing the customer needs more precisely than other western providers made the difference. Local management accompanied with offering discounts on regional specialties had made a setback for the western retailers. Actually the western retailers also counted on the market in Asia to compensate for the recently reported decrease in revenues in Europe.

Can we see a dawn of localized retailers in each region of the world who would become "Wal-Mart" of that region? Is it possible to move retail stores to a different culture and compete with local stores? What is the best strategy to understand the customers needs if they come from a very different culture? 

Resources :
[1] http://www.bloomberg.com/news/2012-12-09/sea-bass-with-barbie-dolls-challenge-wal-mart-in-china.html
[2]http://www.wal-martchina.com/english/walmart/wminchina.htm

Wednesday, December 5, 2012

In a Struggling Music Industry, Taylor Swift May Have Cracked the "Successful Album Release" Code

The last decade has been awash with reports about the imminent demise of the music industry.  And while the industry has certainly dealt with major disruptions from a variety of sources (most notably new technology and shifting consumer habits), at the end of 2012 the major record labels remain (mostly) intact.

Album sales have declined steadily over the last decade. So a successful album release strategy for a major artist is still largely unknown.  But with that in mind, the innovative strategy behind the October release of Taylor Swift's new album, Red, may have finally cracked the code, selling 1.2 million copies in its first week.

Swift first leveraged her existing marketing partnerships to make sure promotion was at a peak leading up to the actual release. She also limited the availability of the record in its initial release to those outlets that would give her the most money for each album sold: i-Tunes, Walgreens, Wal-Mart, and Target.  Some of those were partnerships she made specifically for the release of Red, for instance Walgreens is open 24 hours which meant that true fans could pick up the album at 12:01am the morning it was released.  Creating new opportunities where I can't imagine anyone saw one previously, she also partnered with Papa Johns, offering a Taylor Swift pizza deal that came in a special box with a copy of the new album-- at the full price of $14.

The distribution strategy is also significant in the outlets that she chose not to allow the album to be released through.  Generally speaking, these were the streaming music services such as Spotify.  By withholding the album from these outlets, it forced fans who wanted to hear the album to go out and purchase it. The thinking behind this strategy is simply that streaming music is an advertisement for the artist, and Taylor Swift is already so huge and has so many loyal fans that there was very little value added by those services. 

This strategy is also based around an assumption that fans needed to hear the album first and early. While the album has been incredibly successful in the weeks after its initial release, this release strategy (of which, the distribution strategy was just a part) prioritized first week sales, and did so very effectively.

Questions: Can the release and distribution strategies used by Taylor Swift for the release of Red be used by other artists in the music industry, or was this a unique case?  What lessons can be extracted and applied to other industries?  Have you heard Taylor Swift's new album and if so, what did you think of it?  (It received a 77/100 rating on MetaCritic)  Finally, is this release strategy applicable outside of her unique demographic?

Links:
The Guardian - "Music is thriving, but the business is dying. Who can make it pay again?"
TechDirt - "Where Record Labels Ran Into Trouble: Monoculture"
ThinkProgress - "The Record Industry Is In Even More Serious Trouble Than We Thought"
Planet Money - "Album Sales Hit Record Lows. Again."
Billboard - "How Taylor Swift's 'Red' Is Getting A Boost From Branding Mega-Deals"
Planet Money - "The Secret Genius of Taylor Swift"
Taylor Swift - Official Site

The Positives and Negatives of Reliance Industries’ Strategy


Indian company, Reliance Industries (RIL) has its core business in oil and gas. But its diversification strategy has brought it under the spotlight, recently. This week, we read about IBM’s diversification strategy that drove it to move beyond main-frame computing and into services. The one thing we surely learnt from this week’s readings is that if a company must diversify, it must first realize its strengths and use them to successfully expand or diversify its business.

RIL’s profitability has been steadily declining. This can be seen in the fact that it posted its third consecutive drop in profits last quarter with net profits falling over 20%. Reliance India has diversified from its core business to enter the retail and broadband sector in India. In the past, diversification has done RIL much good making it India’s largest private sector enterprise. However, the question lies, where to deploy the company’s resources?

The Negatives
 Diversification into areas unrelated to its core competencies has exerted a lot of financial and human resources. This often leads to unnecessary rationing of resources across the various business segments that do not complement each other. Furthermore,  investments made by its subsidiaries come from RIL’s funds raised or accrued from shareholders for its core oil and gas business. This has resulted in the three business segments competing for the funds from the oil and gas business. In comparison, Bharti Enterprises, a competitor, has successfully managed to implement a similar diversification strategy. Its retail subsidiary, Bharti Retail has nothingto do with its telecom subsidiary, Bharti Airtel. They are structured in a way that money is raised separately for each enterprise and every subsidiary is focused on its own sector, not having to compete with the other subsidiaries for any resources. This is a huge problem for RIL because all its businesses are in the “high-growth” sectors competing for resources from a common pool.
Venturing into the retail and broadband space, however attractive they may be, can take away from the competitive edge of its core business that RIL most desperately needs.  

On the other hand, competing in the retail and telecom space has been difficult for RIL. In the last six years it has been unable to penetrate the Retail market and gain considerable market share, while segment focused competitors like Bharti and Birla aggressively take over the space.
While RIL fails in retail and telecom, there is rising demand for oil and gas in India, which is an emerging economy. RIL needs to invest more in this sector in order to better address the market needs.

The Positives
Much like Exxon Mobil and BP, RIL remains vertically integrated in terms of exploration, production, refining, petrochemicals and pumps. This has resulted RIL in controlling pricing and feedstock supply. Companies without this backward linkage, like Haldia Petro and NOCIL, are finding it very difficult to survive. This is an RIL masterstroke that has resulted in winning the shareholder’s confidence for the last three decades. Also, RIL has entered into a joint partnership with BP so that it can undertake initiatives like non-conventional production using shale formations and deep water exploration in order to boost its oil and gas business. This is thought to be a strategic move in response to the low outputs from their fields, rising demands and a need to attain better expertise in their core business.  

RIL believes that its shares are undervalued, which has resulted in one of the largest buy back of shares in recent times. If you were the CEO of RIL, would you completely shut down the telecom and retail subsidiaries of RIL to invest in oil and gas? Or would you rather restructure these subsidiaries to make them more independent?  

source: http://www.thehindubusinessline.com/opinion/article3785478.ece 

Why wasn't the Nokia Droid born?




Nokia has sold its headquarters in Finland, but will continue to use the premise under a lease. The step was taken to raise cash for the company that has been struggling for a while. Once a leader in the mobile phone industry, Nokia found itself in a difficult position after heavy competition appeared in the smartphone arena.

Being successful is a difficult place to be in. It puts the company in a place where change has a lot of risk to offer. At a time when Apple’s iPhone started to capture the market, Google was quick to launch its open source mobile operating system called Android. Apple’s iOS maintained its place within iPhones and some companies such as HTC took advantage of the Google platform and created a place for themselves in the market.

Nokia, however, never looked at Google’s Android. They delayed their response and later decided to hire a Microsoft executive to lead the company. Not surprisingly, Nokia decided to go with Microsoft’s operating system as opposed to its native operating systems which were not up to the mark.

Samsung, Motorola, HTC and many other companies expanded massively by using Android, which today has captured 60% of the mobile market. Nokia had to collaborate with Microsoft, and launched reportedly amazing Windows phones recently, but clearly they took their time to do so.

Windows mobile is new, with very few applications and users. The network effect will not play in Nokia’s favor any time soon. The company continues to struggle and has yet to launch a product that would lead iPhone and Android phones. Had they chosen to go with Android in the first place, things might have turned out differently for the company.

The questions I would like to leave the readers with are:
- Should Nokia have adopted Android at the earlier stage or is the quality Windows phone better in the longer run?
- Is it too late for Nokia to even consider moving to the Android platform?

Winning beyond Endurance, PPG to IBM

While IBM may have turned 100 last year[1], PPG is now 129.

Originally known as Pittsburgh Plate Glass Co and established in 1883, it changed its name to PPG Industries in the 1960s[2]. While they started in glass, in the 1990s they began to divest themselves of those holdings and focus primarily on coatings and paint through acquisitions  When the shift started 50% of their holdings were in coatings and in it is now closer to 75%. After their planned merger with Georgia Gulf Corp, coatings will be 90% of their portfolio. Glass consists of only 7% and they are looking to divest it fully in the future.

IBM managed to weather the 90s by also moving past their success in mainframe manufacturing. They built on their past and focused more on the how rather than the what. They focused on their core values.[1]

PPG has a similar story. "Patience has underscored the entire strategic transition. Bunch said the company only divests businesses at a time when such a move will result in a fair price for shareholders. At the same time, the company strives to make acquisitions that fit within PPGs financial metrics." Charles Bunch, the CEO and president of PPG Industries is described as a disciplined and pragmatic leader not afraid to make a slow and deliberate move to a more consistent business model.[3]

By focusing on the shareholder and their values, PPG is comfortable looking in the mirror to see a future that might not involve its past in glass.

[1] Lohr, Steve. "Lessons in Longevity, From I.B.M." The New York Times. Jun 18 2011.
[2]"Company History" PPG Industries. Web. Dec 5 2012 http://www.ppg.com/en/ourcompany/Pages/CompanyHistory.aspx
[3] Spencer, Malia. "PPG Evolution Part of Long Range Plan." Pittsburgh Business Times. Nov 9-15, 2012.  web. Dec 5. 2012. http://www.ppg.com/en/newsroom/news/Documents/PghBusinessTimes_BunchArticle110912.pdf

Selling the Simple Ingredients of Success

 Trader Joe's is often seen as an anomaly in the grocery business.  As other smaller "Mom-and-Pop" operations are going out of business, and "co-ops" and "farmer's markets" are pushed to the shopping fringe, Trader Joe's has found the recipe for success while still maintaining small size and simplified product offerings.  Their adversaries such as Giant Eagle, Stop N' Shop, Kroger's and others are instead becoming larger and more diversified, yet not seeing the same rapid expansion and growth by their much smaller competitor.

One of Trader Joe's keys to success is its philosophy of keeping things simple.  It carries far fewer variations of products then its competitors, and its stores are markedly smaller.  As illustrated in "Simple Rules for A Complex World" by Donald Sull and Kathleen M. Eisenhardt, it is often the company that can retain its focus over time on its core competencies that achieves success, instead of the one that makes desperate gambles or tries to capitalize on the "hit of the moment".  Trader Joe's uses simple rules, such as only picking the best products, and undercutting the price of competition by keeping firm "private label" agreements with its distributors.  This agreement is often extremely secretive, so that customers (and competitors) rarely can compare products based on anything else than price and ingredients, instead of branding.



The strategy of remaining simple is one that is often lost as companies start experiencing growth and success.  Instead, a need to branch out and expand product offerings in order to please shareholders or increase growth in unsaturated markets often drives companies into risky endeavors that may not hold as high of a payoff.  A classic example is GE, who jumped on the financing bandwagon when economic times were good and its cash reserves were flush, but forgot where its core competencies truly laid ("in making stuff" as simply stated by its CEO Jeffrey Immelt).  GE has recently made efforts to return to its roots of manufacturing, and is looking to expand geographically and into tangent markets while still staying near to its core.

IBM has encountered a similar issue, and thought that their times as a producer of mainframes and personal computers would last indefinitely with the same return on investment.  However, that time quickly faded, and IBM was forced to cut back on its offerings.  Instead, IBM realized that it had developed a core competency in the IT services industry (which were often provided to its clients for free along with its hardware), and learned that it had to pair down its focus (and offerings) and instead narrow its concentration.

In the case of Trader Joe's, it appears that it already has carved a market niche for itself by selling its limited private label products, however it will remain to be seen whether it will be able to hold its singular focus.  Already, it is seeing reactions from its competition as they look to establish their own private label products, as well as create similar smaller specialty stores. 

Resources
http://www.businessweek.com/stories/2008-02-20/trader-joes-recipe-for-success

Tis' The Season to be Blue...





With the holiday season approaching, Internet companies are expecting a huge commercial push both from e-commerce sites, as well as content sites that drive revenue from their advertisements.  In the case of Facebook, they have traditionally fallen into the later camp.  This has traditionally allowed them to make comfortable profits, however they are coming to a crossroads where that strategy is being heavily challenged. 

As outlined in Robert Simon's Harvard Business Review article titled "Stress-Test Your Strategy", executive leader's must always review who the target customer is when shaping their strategy.  When Facebook started, that customer was its primary users, who were essential to Facebook's growth and adoption strategy.  Once that user base was large enough and established, Facebook's strategy changed as it looked to monetize its user base and reinvent itself as a social-advertising platform.  Finally, with Facebook's recent IPO, its new "customers" driving strategy have often shifted to its stockholders and the public marketplace.  While Facebook obviously now has several factions of "customers", it finding that its strategies (such as monetizing user's data) are often at odds with the wishes of each of those factions.

In an attempt to come up with a workable strategy that will appease advertisers, shareholders and users, Facebook recently has made a push to reinvent itself as an "e-commerce" site, in at least a partial sense.  The launch of Facebook Gifts will allow users to maintain "wish-lists", and also drive gift recommendations based on their social data.  This information can then be used to help the friends of users give gifts, not only for the holidays, but also for weddings, or birthdays (all of which are events that users already rely on Facebook for as a means of tracking and notification of these life-events).  This is clearly a strategic deviation for Facebook, however it may be exactly what it needs.

Facebook has chosen to pursue a "blue ocean" strategy by seeking out an undeserved aspect of the consumer marketplace.  Although there are plenty of e-commerce sites that sell items to be purchased as gifts, there are almost no stores that cater exclusively to gift givers and seekers.  When discussing "blue ocean" strategies, W. Chan Kim and Renee Mauborgne point out that successful strategic endeavors into new marketplaces are often made by "incumbents" who are capitalizing on their core competencies.  In Facebook's case, they already have a platform used to establish consumer's purchasing interests, and have established themselves as a prime place for users to communicate birthday and other life events to each other.

While it is still too early to tell if this strategic foray will succeed, it should still be noted that not every synergistic move such as the one attempted by Facebook has been successful.  It will take a fundamental change for Facebook to successfully reinvent itself as a place where uses go to "shop" instead of seek content.  As Paul B. Carroll and Chunka Mui point out in their essay "7 Ways to Fail Big", it is often the allure of these seemingly "synergistic" or "adjacency" moves into new marketplaces that can lead a successful company down a calamitous path.  

Resources
https://www.nytimes.com/2012/11/28/technology/facebook-gifts-urges-users-to-shop-while-they-share.html

The Twin Armour of Strategy and Tactics in Customer Acquistion

Organizations have often time invested so much time and resources in coming up with strategic plans without a plausible road-map of actualization. According to Sun Tzu in his book, the Art of war,
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”
From the medieval times where these terminologies emanated, a perfect example can be drawn from a war situation. Here, the goal of the opposing armies is usually to be victorious in the war. The strategy could be "turn the tables" - a counter attack strategy. finally the tactics can range from baiting the opposition to creating a false illusion.

Most organizations fail in this step because they either sometimes jump into action (tactics) without substantiating a direction or they create a direction (strategy) without tangible steps of actualization(tactics). To succeed, high level strategies ought to be created accompanied and broken down into self contained actualization units. Going ahead with a tactic without routing the tactic into a strategy can be likened to flock without a shepherd because your direction is not motivated by well laid down principles for success but rather it is orchestrated by external forces, like the industry, competition and regulations.

It should be noted that a great strategy does not depend on brilliant tactics for success. If the strategy is good, you can get by with mediocre tactical execution. However, even the best tactics can’t compensate for a lousy strategy.

Tying strategy to tactics enables the organization to measure the impact of the strategy. Ultimately, our strategies should be focused on creating value for the  end customer because all organizations exist to meet or fulfill one human need or the other. Thus, all strategies, tactics and initiatives should stem from a solid foundation of understanding the customer.

References

[1] http://www.brandingstrategyinsider.com/2007/09/defining-the-ta.html
[2] http://www.ducttapemarketing.com/blog/2006/02/22/strategy-before-tactics/
[3] http://www.brandinsightblog.com/2009/11/01/marketing-strategy-vs-tactics/

Branding as Strategy Communication?


This week’s class reading touches on the importance of concise, dependable strategy to the overall success of an organization. The assumption is that if top representatives of a company can’t explain their strategy comprehensively and consistently, how can the company possibly move forward successfully? As the chain of command deviates from the top employees, the understanding and ability to communicate goals and actions is likely to be muddled, resulting in general confusion, inefficiency, and failure in the long run.

To fight this confusion of company identity and offerings, many organizations create branding campaigns that help to communicate their message to investors and consumers in a reliable, repetitive way. While this seems like a catchall for streamlining the perception and message of a company, it appears that even the most successful of groups struggle with properly communicating their goals and strategy. To emphasize this point, I’ve compiled the mission statements of the top 5 2012 Most Successful Companies, according to Forbes Magazine:

1. Exxon Mobile: Using innovation and technology to deliver energy and petrochemical products to meet the world’s growing demand. 

2. Walmart: Saving people money so they can live better.

3. Chevron: To be the global energy company most admired for its people, partnership and performance.

4. Conoco Phillips: Use our pioneering spirit to responsibly deliver energy to the world.

5. General Motors: Design, build and sell the world's best vehicles.

While each of these companies is deemed at the top of all international corporations, they too employ vague missions to communicate their goals and abilities as a company. The missions begin to give consumers and investors an idea about the company’s offerings, but each statement gives very limited insight into the real function of each group or how they might achieve their stated goals.  Why then haven’t any of these companies struggle with the relationship between clear strategy and representation of said strategy?

As giant companies, it is expected that the inner-workings of each group are too complicated for a single sentence or catch phrase, but this simply underlines the importance of strategy definition and widespread agreement and compliance to said strategy among all employees within a company. By focusing on internal streamlining (rather than the external streamlining seen in branding) companies can afford to rely on proper representation by employees, who each take an active part in the international branding process.

How else might these companies account for successful strategy communication?

Sources:
Money.CNN.com “Top Corporations, 2012”.

Can You Say What Your Strategy Is? (Collis and Rukstad, Harvard Business Review, April 2008) http://hbr.org/2008/04/can-you-say-what-your-strategy-is/ar/1

Instagram Twitter relationship: beginning of the end?


I had written an earlier blog (http://strategyatheinz.blogspot.com/2012/11/facebooks-instagram-strategy-going.html) about the changing nature of Instagram after being acquired by Facebook. Last week, another act in this strategic drama was played out when Instagram pictures would show up off-focused or just not sharp on Twitter. This is certainly not a bug in the code or an accident but a conscious policy decision of Instagram.

After long being friends, Twitter and Instagram have had rather bitter fallout. Instagram’s contention is that the traffic for such pictures, which reports suggest is much more popular than text tweets, rightly belongs to Instagram.com and not Twitter. This looks like a sound strategic decision as the image website has a substantial user-base to seek traffic directly, than through twitter. Also, with their alliance with Facebook, they have a tremendous latent user base that can be developed outside the US.

Twitter on the other hand, is reported to have been fervently involved in developing its own picture sharing tool so that it can reduce its dependence on Instagram. It will be critical for the micro-blogging site to develop a simple solution really quickly to give its huge subscribers an effective alternative.
With Instagram making these interesting decisions, it will be exciting to see how the social media landscape changes in time to come. Do you think it’s a wise decision for Instagram? Would Twitter be able to develop a technology that’s good enough?

Source: http://allthingsd.com/20121205/instagram-gives-twitter-the-bird/
http://www.huffingtonpost.com/2012/12/05/twitter-instagram-photo-sharing-feud_n_2245418.html

Leadership Succession – Facebook


More than 40 percent of public companies don’t have a formal succession plan in place for the company leaders. The investors, analysts and regulators are scrutinizing CEO succession. According to the Conference Board’s CEO Succession Practice 2012 report, only 32 percent of companies said that the company board plans their CEO succession. For Facebook to shift from a highly successful startup to a publicly traded company, its board will need to play a significant role in planning the company’s leadership succession plan.

Engaging the board and utilizing their expertise and guidance will be even more important now as Facebook is public. Mark Zuckerber has the chance to create a legacy by setting a gold standard for CEO succession. Here are some ways this strategy can be implemented:

  1. Work with the board members to translate the strategic vision into specific organizational capabilities that define requirements for Facebook. This is analogous to creating a Facebook profile of the successful leader of the future.
  2. Think couple of CEOs ahead to allow the selected brightest stars today to be developed for the future.
  3. Board should be familiar with the leadership group and their potential. Generations of CEOs can be groomed by assigning mentors and sponsors, and creating tailored leadership development programs that will aid in management development.
  4. Cross-training the successors with mix of job training, intensive coaching and educating will give them the opportunity to learn about other parts of the company.
  5. Make CEO succession a continuous process development agenda item, as it addresses a multigenerational process. It is crucial for the board to iteratively discuss, create and refine the C-suite development process. Finally the most important rule is for the current CEO to be well dedicated in the process of developing strong successors.


These implementations require a long-term dedication from Facebook and there it should be their mission to develop and practice long-term strategies that will foster the company’s growth and investor’s trust. Should Facebook use a consulting firm’s help to develop governance and succession process? 


Sources:
http://www.nonprofitquarterly.org/governancevoice/21062-the-importance-of-linking-leadership-succession-strategy-and-governance.html
http://digitaledition.strategy-business.com/publication/?i=121556&p=13

The Need To Go With “What It Knows” - A Look At Big Pharma’s Patent Expirations



Pharmaceutical companies are beginning to face a new world. An environment where patents for blockbuster drugs are expiring and where there is not much hope of replacement drugs in the pharmaceutical company’s pipelines. These companies will be forced to deal with major revenue losses. For example, 50% of AstraZeneca’s revenue is expected to lose patent protection over the next five years.[i] The looming patent expirations are particularly frightening because of the extremely long development time for bringing a new drug to market. In order to combat revenue loss and bulk-up their pipeline, AstraZeneca will likely need a strategic acquisition. AstraZeneca is not alone when it comes to approaching patent expirations on blockbuster drugs.  Novartis and Sanofi are under the same pressures AstraZeneca.

In “G.E. Goes With What It Knows: Making Stuff”, Steve Lohr describes G.E.’s strategy for dealing with the financial crisis. G.E.’s post-financial crisis success can be attributed to its willingness to revamp their strategy by relying on the strategy that made them successful at their beginning.[ii] I think that in order for AstraZeneca and other big pharmaceutical companies struggling to build their pipeline in the wake of patent expirations, they will need to continue to look for strategic acquisitions to replenish, diversify and renew their pipelines. Although the lack of blockbuster drugs to generate revenue is a new hurdle for these companies, the acquisition strategy they have used is one that will lessen the impact of these losses.

How do you think pharmaceutical companies should deal with their blockbuster drugs going off patent?


[i] Hodgson, Jessica. "Big Pharma Tries to Look Past 'Patent Cliff'" The Wall Street
Journal. N.p., 24 Oct. 2012. Web.
[ii] Lohr, Steve. “G.E. Goes With What It Knows: Making Stuff,” The New York Times, December 2010. 

Zipcar: How it exploited the strategic ‘sweet spot’


In the HBR article ‘Can you really say what your strategy is?’ authors David Collis and Michael Rukstad talk about the strategic sweet spot, among other things. The strategic sweet spot is characterized by fulfilling customer needs using unique capabilities that are unavailable to competitors. I think that Zipcar is a great example of a company that fully exploited this sweet spot.


Zipcar was founded in early 2000, at the height of the dot-com period. Car rental services had been around for a significant period of time. Hertz had been around since the early 1920s while Enterprise was founded in 1958. They dominated the market space with their huge fleets of cars and had market presence in several different countries. Cars could be rented by the day or by the month from any rental office, but not by the hour. These services were primarily aimed at individuals who traveled long distances or frequently for long periods of time.

Zipcar pioneered the concept of ‘car-sharing’.  Entering the market by competing on numbers would be next to impossible. However, existing car rental services were missing a big customer need; there was a significant percentage of the population who were infrequent drivers and needed them only for a short period of time, sometimes at short notice. Therefore, the company focused on two aspects of customer needs. One, it made wireless technology its core capability and leveraged it to create a quick, hassle-free car rental experience.  It enabled people to rent cars by the hour at the spur of the moment by reserving a car online. After completing the rental process, the car was remotely configured to open only for the renter. Zipcar members had member access cards that they could swipe on the reader placed on the car windshield to open it. The whole rental process took just a few seconds. The second thing Zipcar did was to improve access to its fleet of cars. It put its cars in reserved parking spots near downtown business areas and universities. Cars were unmanned and could be accessed 24X7 only by the specific renter using his or her Zipcar member card. This eliminated the need for the individual to travel to the rental office and fill out lengthy paperwork to get the car.

Zipcar’s strategy to provide by-the-hour, quick car rental services (customer need missed by competitors) using hassle-free, wireless technology (capability) worked: its revenue at the end of 2011 was $242million and it offers services in five countries. More importantly, Hertz is sitting up and taking notice; it started its own car sharing service in 2008, and is in the process of revamping it for a re-launch in the middle of 2013.
While Zipcar has first mover advantage, Hertz plans to use its huge fleet of cars to give Zipcar a run for its money. Do you think Hertz will be successful in its endeavor? What changes should Zipcar make in its strategy for the future?

References:

http://ir.zipcar.com/annuals.cfm
Collis D and Rukstad M (2008) "Can you really say what your strategy is?" Harvard Business Review

YKK: The Simplest Strategy



What is one of the most commonly used items that you probably rarely think about? The zipper. YKK makes almost half the zippers and having been doing so since the 1920s.  The strategy of Yoshida Kogyo Kabushikikaisha or Yoshida Company Limited is centered on a high quality product that the company can control every aspect of it. YKK manufactuers all of the components necessary to make its product including creating the machines that the zippers are made on. 
“The Cycle of Goodness”
The management philosophy of YKK is called The Cycle of Goodness: A business is a member of society and therefore should exist within that society and benefit the society as a whole. This has driven the company to “produce ever-high quality with ever-low costs.”[1] The company has done this by creating a good product and employing successful execution strategies.

Strategy Execution:

Conflicting messages are rarely sent to the market:
The strategy of YKK is interesting because it barely has a public image at all despite being on the clothes that people wear everyday. By making itself the standard for industry insiders, the product is held in high esteem and considered to be the only choice for quality garments. It offers a simple quality product but in the range of colors and styles that meet that total demand of the market. 

Once made, decisions are rarely second-guessed:
The choice to bring all things in house and produce quality every time conveys a message to the market that YKK is always a solid and dependable choice. YKK is also a very old company and is now entrenched in the industry in such a way that make competition difficult.

Lessons Learned:

A company like YKK can make someone wonder--why diversify at all? YKK has always done one thing, done it well and survived economic peaks and valleys. While this model works wonders for such a tangible and necessary product, is it employable for a company that offers services or less tangible products? Furthermore, YKK has an advantage because it doesn't have to cater to a wide range of consumer demands--just that of the specific high end industry it serves. This is definitely to the advantage of YKK, but there could be lessons learned across all large markets. 


[1] http://www.slate.com/articles/business/branded/2012/04/ykk_zippers_why_so_many_designers_use_them_.html