Sunday, March 31, 2013

The For-Profit Core Purpose is Not Just Making Money

Coming from a nonprofit background, I assumed that a strategic plan for a for-profit company would solely focus on making money and maximizing shareholder value. I was surprised to read about companies working together to create a "Core Purpose" in the article Building Your Company's Vision by James C. Collins and Jerry I. Porras. I did some of my own research about developing a strong core purpose and came across a very insightful blog post titled Purpose Beyond Profit at http://www.mattstocker.com/blog/purpose-beyond-profit/. The article talks about how a great company creates profit as a result of good strategic planning and strong sense of purpose. If profit is the driving purpose for a company, staff losses motivation and strategic planning has less direction. The blog lists 6 reasons why profit should not be the primary purpose. They are as follows:
  • Profit is an output and a symptom of success, not the cause.
  • Profit is temporary and can be wiped out in an instant.
  • In tough times, profit can be hard to come by.
  • You need more purpose than profit to make it through.
  • Profit doesn’t motivate the salaried staff who make success happen.
  • Customers don’t appreciate being seen just for their revenue.
  • Consumers are increasingly focusing on values and contribution to society when choosing who to do business with. 
These 6 statements seem like they could easily apply to nonprofits as well. Actually, these would probably be more likely found at a nonprofit strategic planning meeting than a for-profit company, which leads me to the next article I found relevant to this topic. The paper is titled What Corporates can learn from Not for Profit Strategy Setting by Steven Bowman of the Mt Eliza Business School in Australia. In the first part of the paper, called "Creating a Vision Filter", Bowman discusses how nonprofits use their vision (or core purpose) to "filter" their activities to align with the mission. For-profits should participate in the "vision filter" in order to create a stronger company purpose and better position themselves while creating an unique brand. For example: Walmart's core purpose is to "Save people money so that they can live better." Therefore, any activity of the company must create a good value for their customer. When Walmart began to sell music online, they should have used a "vision filter." By selling music online, they were not helping customers save any more money than if they bought music online through another website (aka itunes). It would be a better plan to drop this service and focus their efforts where they can save their customers money and stay true to their purpose.

In summary, it doesn't matter if the organization is nonprofit or for-profit. Customers/audiences are more likely to be loyal to a company that knows its purpose and stays true to it. Plus, customers probably wouldn't like it if they found out that purpose is "taking their money."

References:
1.) Bowman, Steven. "What Corporates Can Learn from Not for Profit Strategy Setting." Australian Strategic Planning Institute. Web.
 2.)  Stocker, Matt, Ltd. "Purpose Beyond Profit." Web log post. Matt Stocker Ltd. N.p., 10 July 2012. Web. 31 Mar. 2013. <http://www.mattstocker.com/blog/purpose-beyond-profit/>.

Change or perish : The importance of Innovation


The article "Reinvent Your Business Before It's Too Late," Paul Nunes and Tim Breene brought two fortune 500 companies to my mind, HP and Apple.

Consumer electronics and software companies that constantly produce cutting edge products to solve a customer’s problem have almost wiped out conventional, change-resistant product and sometimes even companies from previously dominant positions. An example of this is HP’s declining market share in the PC business1. The number of innovations in the PC business is few, and smaller companies have been able to do what HP has been doing, far more profitably. HP should have invested in “the next big thing”! This is easy to say, but what is the next big thing?

From the “The lost interview” – The interview of Steve Jobs by Robert Cringley in 1996, Steve Jobs talks about how he was introduced to the “Graphical User Interface” (GUI) at Xerox in the late 1970s. But, the lack of foresight and investment in the GUI by Xerox, proved an opportunity through which Apple made its fortune. Had it not been for Steve Job’s vision, judgment and focus on developing the GUI, this would not have been possible.

So, how does a company strategize to achieve a vision? This can be seen again, from HP and Apple as examples.

HP has been a late entrant in the tablet space 2.They launched the HP Touchpad but failed3. The product was not bad, so why did it fail?
The reasons were found to be:
  1.  The product was too slow to market.
  2. WebOS supported too few apps in comparison to Apple’s AppStore and the Android Marketplace.
  3.  Low differentiation from competition.
  4.  Inadequate promotion.
  5. Exclusive software relationships that turned away potential users.
  6. High Price


Apple is the market leader in this space. They have successfully created an Apple ecosystem that users do not want to get out of4.  Android devices have entered this space and are steadily gaining market share. How is Apple going to counter this?

From the above examples, we see that in technology companies (especially those in consumer electronics), strategy must revolve around innovative products. Innovation could be interpreted as solving an existing problem but with an alternative approach.

Steve Jobs, in the “Lost Interview”, emphasizes the importance of continued innovation. As an example, he talks about how the Macintosh was way ahead of all other operating systems and computers when it was launched. But, Microsoft through its partnership with Intel caught up especially because “Apple stood still”.
How should a company time a product launch? When is it okay to launch a product with minimal functionality and gain the first-mover advantage?


References:


Co-creation – How companies can use it to make their good ideas ‘great’!


“We were also blown away by the quality of the submissions and to be honest some of the film quality was better than we get from our global agency partners”, exclaimed Leonardo O’Grady, the Asia Pacific regional director for sparkling and activation platforms for Coca Cola after they utilized the eYeka platform to generate thousands of ideas from a global community of consumers to get new perspectives on a brief for marketing2.

Difference between co-creation and crowdsourcing

Co-creation like crowdsourcing is a collaborative initiative which leverages the power of a global community of people. To completely understand co-creation it is important to distinguish it from ‘crowdsourcing’, a more popular and better understood word.  A key difference between both is that co-creation involves a specific group of people unlike crowdsourcing, which is open to all1&4. These people either subscribe to, or have certain knowledge which can be utilized to generate ideas, solve problems etc.

Co-creation is slowly making its way into the imagination of organizations and a few organizations have been successful in generating new quality ideas at very less costs which has not only given them new avenues to explore, but have also helped them better their own ideas.

Coca Cola and co-creation

A great example of this concept being utilized successfully is Coca Cola’s campaign on the eYeka platform. Coca cola was having some trouble working on new ideas for a brief to position coke in the market and they invited to “create a film, print, illustration or animation against that brief”2. They received some top notch responses which helped them work on their own ideas2. In fact, some of the work submitted was better than the work by agencies commissioned by Coca Cola to work on such briefings2. Also the work was top quality and the whole process increased their productivity by 900% compared to the traditional methods of briefing2.

BMW's Co-creation lab

Another success story is BMW’s co-creation labs. They have created a virtual community of people interested in cars, can critique BMW’s work and generate new ideas for them. You can look at their website at - https://www.bmwgroup-cocreationlab.com.

                                                                                                                                                                              
                                                                            Source- https://www.bmwgroup-cocreationlab.com


Why is co-creation successful

Co-creation is successful, because people involved in co-creation are both interested in the work and knowledgeable. Also, they share their ideas, which are looked over by others and give rise to newer and better ideas1. Due to instant feedback and knowledge sharing, the quality of ideas increases with each iteration.  Often someone will come up with an idea but get stumped somewhere. Then someone else with the required knowledge can step in to solve the problem. It works like regular teamwork, but at a global level. Co-creation helps you reach a better more elegant solution in lesser time and more productively1.

Even though co-creation is a good idea, companies must be careful while using it. It cannot be used to generate new products or ideas. Rather companies should use it to refine and fine-tune their ideas. It can also be used as a tool to get instant feedback1. I see this trend growing in the future where companies will find interesting and unique ways to leverage the power of the crowd.

Sources
1.       Williams, John. "'Co-creation' Is the New Crowdsourcing." The Guardian. Guardian News and Media, n.d. Web. 31 Mar. 2013.
2.       Moth, David. "How Coca-Cola Uses Co-creation to Crowdsource New Marketing Ideas."Econsultancy. Econsultancy.com, 13 Nov. 2012. Web. 31 Mar. 2013.
3.       The BMW Co-creation labs at https://www.bmwgroup-cocreationlab.com/
4.       Yousef, Ramon. "Crowdsourcing vs. Co-Creation: Is There a Difference?" Daily Crowdsource. Daily Crowdsource, n.d. Web. 31 Mar. 2013.


Saturday, March 30, 2013

How does strategic planning apply to neighborhoods?


Sarah Kaplan and Eric Beinhocker paraphrase Louis Pasteur to postulate that the real value in generating strategic plans lies in creating a mindset for management teams to use for decision-making.[1] Mindset creation, an endeavor to focus an organization’s direction around a mission, has long been used among nonprofit organizations to focus their limited energies and finances. While most organizations have strategies, does it make sense for neighborhoods to have strategies?

People in the same neighborhood share space and so have similar needs such as a business district, open space, convenient transportation, a sense of community, the list goes on. Neighborhoods also have physical boundaries. Since people in a neighborhood have shared needs and the area has a limited geographic scope, it makes sense to organize to achieve common goals. A community development corporation (CDC) is designed to do just that. The strategy of a CDC is typically to improve the well-being of the people in that area by focusing on certain characteristics of the neighborhood. CDC’s serve broad needs of many customers in a narrow market and occupy “a unique and valuable position, involving a different set of activities, and creating fit among those activities.”[2]

A local CDC, Economic Development South (EDS) is a private, nonprofit corporation that brings together local businesses, government, school districts, and technical professionals “to create and recreate redevelopment plans and efforts” for neighborhoods in the southern area of Pittsburgh and bordering municipalities.[3] Their core emphases are:
1. Creating a vibrant economy (local wealth, prosperity, and jobs)
2. Focusing on people, communities, and their needs
3. Conserving natural  systems and minimize ecological impacts

To this end they study the area, develop neighborhood strategies, propose and help finance real estate and transportation development projects, and facilitate collaboration between groups with similar goals. The value of strategic planning for EDS is essentially the same as in any organization.

Moreover, the process of strategic planning for EDS is largely the same. They continually conduct conversations with residents and leaders in the area who regularly challenge their strategy. This happens naturally because the mission of the organization demands a focus on the communities. EDS has initiated projects that fit its mission, most recently receiving a $50,000 grant to plan a special commercial district.[4]

When considering projects, EDS recognizes that they are in a dynamic environment. They should consistently be asking about predictability and malleability somewhat differently than discussed by Reeves, Love, and Tillmanns.[5] Changes in infrastructure, community dynamics, and natural systems last lifetimes and have ripple effects. In terms of predictability, how will the strategies that EDS adopts sustainably increase demand for the area for residents and businesses? In terms of malleability, to what extent will the project under consideration influence that demand? And in terms of realistic implementation, will the community support it?

Strategic planning applies to neighborhoods in a similar manner as to other organizations. Both the value and process of strategy development are similar despite the broader stakeholder groups inherent in CDC’s. EDS has defined and pursued its strategy well but some questions remain. What is the residents’ and leaders’ vision for the area? Under what circumstances will the strategy change? Can and should their strategy be narrowed or prioritized?


[1] http://sloanreview.mit.edu/article/the-real-value-of-strategic-planning/
[2] http://www.ipocongress.ru/download/guide/article/what_is_strategy.pdf
[3] http://www.economicdevelopmentsouth.org
[4] http://www.sopghreporter.com/story/2012/11/20/front-page/hilltop-organizations-receive-renaisance-fund-awards/13021.html
[5] http://hbr.org/2012/09/your-strategy-needs-a-strategy

Wednesday, March 27, 2013

Spotify's Strategy - Road to success


                                                                                       
The business insider article “Spotify Plans to Take on Netflix and HBO with Streaming Video Service”
dated March 25th, 2013 talks about Spotify’s plans to launch a subscription based video streaming service. Will this succeed? I believe yes. They definitely have a strategy to their strategy!

Spotify, one of the largest online music streaming providers, gained popularity when it ventured out to create new business ecosystems by taking risks and targeting the market. The key idea behind this is to take steps for the company’s own benefit or advantage. Such features align with the SHAPING STRATEGY.

The goals of this strategy include:
Communicating a shaping view – Future view of the industry with opportunities for all participants.
Developing a shaping platform – Standards that support participant activities.
Shaping acts and assets- Commitment and capability

 Spotify had a 2 sided- market business model. One side with the customers and the other with music providers. The main challenge was of providing quality music. To ensure this, Spotify provided lucrative offers to music labels and artists which eventually lured them to provide music on Spotify. Also, customers could easily adapt to the platform due to the variety in services. They provided a free version of the service along with the premium and unlimited subscription based versions. Also, music providers were able to promote their music and reach larger audience in lesser time, hence benefitting from the platform. They ensured long term commitment to all participants. Thus, they kept in mind interests of all by creating opportunities for all. Their platform provided standards for both music providers and customers, reducing the cost of participation. Spotify looked at long term perspectives and the future of the market
The best time to adopt a shaping strategy is when there is a major shift in the technological or regulatory environment. Piracy was at its peak before Spotify came in. Different countries were passing laws for piracy control. At this time, Spotify strategized to create a long term structural advantage and critical mass of participants in order to unleash increasing returns.

Spotify also had higher risks in an unpredictable environment, by providing a free version of their product. Costs were high and there was no guarantee on the kind of profits they would make. Partnership which Facebook was a great move, but that also involved the risk of sidelining customers who were not active on Facebook.

Versioning and Bundling of services was probably one of the best strategies which they used. This helped in increasing value of their product. They also aimed at reducing the cost of switching to spotify.The end result was that customers locked in to other platforms started exploring the potential benefits of Spotify.

What lies in the future?
Pandora is one of Spotify’s major competitors. I think product differentiation is one of the key areas on which Spotify should focus now in order to combat the high competition from Pandora. Spotify could think of strategies such as partnership with different distribution channels such as car companies to offer a service to stream a user’s library to their car. They can improve the services of their like based radio stations. They should leverage their network effects to their advantage.


Good strategy is one of the key points to success. As shown above, innovation, ideas, analysis planning etc also relate to the strategy chosen. An organization may choose any strategy – Adaptive, Visionary, Classical or Shaping. The aim should be to achieve success.

References:


85% statistics are wrong? Really?


You might remember that strategy’s roots are military and on the battlefield you could count on a few constants:
  • The past was a good predictor of the future.
  • Good data was scarce and hard to get & rely upon.
But, times have changed since then. Today, a large portion of strategic planning is based on imperfect knowledge and involves assumptions about the future based on available data, combined with the experience of the planning team. Most strategic plans assume a certain future, which is a dangerous misconception. The future is always subject to change and add to this the competitive pace of change in your market and uncertainty increases even more.

The primary purpose of strategic planning is to devise a synchronized strategy by ensuring that the key decision makers have a solid understanding of the business, share a common fact base, and agree on important assumptions. Thus, we lay our strategic plan on a set of strategic assumptions. How do we make assumptions? We make assumptions by using conventional wisdom, measuring new market potential using surveys/expert opinions, identifying and analyzing current market trends, predicting the future using data analytics, etc. Most of these assumptions are either based on facts (competitor's performance in the last quarter) or statistics (35% potential customers do not have a bank account in New Jersey).

Based on a statistical survey, management at a large bank attributed fast growth and share gains to superior customer perceptions and satisfaction. Examining the bank’s markets at a more granular level suggested that 90% (fact) of its performance could be attributed to a relatively high exposure to one fast-growing city and to its presence in a fast-growing product segment. This insight helped the bank avoid building its strategy on false assumptions about what was and was not working for the operation as a whole.

Generally, at the end of many statistic-based statements you find a disclaimer '*' which says that "The study was conducted on 2000 residents of ABC area in XYZ city" or something similar. If this statistic works in the favor of an executive he/she uses it to gain maximum advantage wherever possible but the other more-aware executives would point to the disclaimer '*' to question his/her assumption. The problem is, most of them do not even know that there exists a '*' and would just consume this statement as a fact and reproduce it in front of their seniors as basis of their assumptions. There you go.

In today's world of uncertainty, we need to make assumptions, and statistics definitely play a key role. But, the question is should we rely on statistics? If yes, how much and when?

References:
  • http://www.ssireview.org/blog/entry/the_strategic_plan_is_dead._long_live_strategy
  • http://www.mckinseyquarterly.com/Have_you_tested_your_strategy_lately_2711

Merger and Acquisitions: The Role of Strategic Planning



Mergers and Acquisitions (M&A) have been the focus of attention since the 1980’s.  More recently, the approach of many companies in considering M&A has been a more strategic and reasoned procedure. Forbes has called 2011 the “year of the M&A”.
With all the attention on mergers and acquisitions (M&A) of late, today’s blog explores the role of the strategic planning behind an M&A success. A recent study by KPMG found that more than 85% of all M&A deals fail. This is a daunting number for any CEO thinking of venturing into an M&A.   
There are several reasons for M&A transactions to go off track. This is because an M&A needs to address several issues like unions, pay scales, benefit plans, technology, legal implications and financial implications. So where does strategic planning come into play? How does it improve the odds of success of an M&A?

Let us analyze the recent merger between American Airlines (AMR) and US Airways. US airways clearly defined its M&A objectives and goals which were primarily to increase cost efficiencies and achieve economies of scale (new company creates largest airlines in the United States), improve the operational efficiency and provide a better network to its passengers by using American’s international routes. I would say that had US Airways had a "Situation-Target-Proposal" approach of strategic planning. They evaluated their current situation and defined target goals for the M&A and finally mapped a route or path to achieve the target. 
I would say that had US Airways had a "Situation-Target-Proposal" approach of strategic planning. They evaluated their current situation and defined target goals for the M&A and finally mapped a route or path to achieve the target. 


To assess the company's interests and priority is crucial in a M&A. US Airways might have been interested in making the deal as profitable as possible (get the maximum possible equity share distribution for its shareholders). However, their priority is to increase cost efficiencies and achieve economies of scale, improve operation efficiency and minimize job losses. Hence, I feel US Airways stuck with their priorities and were able to come up with a good deal for themselves (Or Not? ). Doug Parker, CEO, US Airways focused on the benefits the M&A would bring for the two companies. He relied on the creditors of AMR to put pressure on the AMR senior management and was able to make the deal. A  a lot of groundwork and preparation must have been done by the US Airways senior executives before coming into the negotiation meetings. This is also an important aspect of strategic planning. What should be discussed in the stakeholder meetings? What should be the follow up required? Where should be the participants? The answers to these questions are crucial when planning any strategy.

I would like to conclude by saying that any organization requires a good strategic planning to succeed and function effectively. With that said, What happens next for AMR-US? Do you think strategic planning is more important for a merged organization or a organization going into a M&A?



References:
1. “US Airways approaches AMR in April”, Wall Street Journal
http://online.wsj.com/article/SB10001424127887323596204578243662271095012.html

2. “What an American-US Airways Deal means to air flier”, Wall Street Journal
http://online.wsj.com/article/SB10001424127887324906004578288553293302268.html
  
3. “Why American Airlines and US Airways Tied the knot”, By Thomas.C.Lawton
http://www.usnews.com/opinion/blogs/economic-intelligence/2013/03/01/whats-behind-the-american-airlines-us-airways-merger

Image Source: http://www.businessweek.com/news/2013-02-13/amr-us-airways-said-to-agree-on-terms-for-merger