Wednesday, March 30, 2016

The Indian Dream

Since the opening of the economy in the early part of 1990’s India has been the poster child of the emerging markets. Albeit China is a close competitor, however owing to the expertise over language, India has managed to channel most of the businesses, that dealt with human interface such as customer support and marketing call centers, towards itself. Due to such investments, the last 15-20 years in the country, has seen unprecedented infrastructural growth that is barely keeping up with the even faster economic and social growth. It has resulted in unrestrained migration from the rural areas to urban centers further adding to the chaos. Finally its biggest contribution is giving rise to a middle class with a consumerist attitude that didn’t exist before. This class of people is now exposed to international standards and now demands the same or similar luxuries in their setting. Obviously many brands across the world have recognized this potential and are actively involved in exploiting this new market. However keeping in mind the still comparatively limited means of a developing economy many brands are embedding themselves in the system by launching affordable lines.

While this is going on politically a new situation is brewing. The current Prime Minister, Narendra Modi, has embarked upon two very required but contrasting programs. The first one is ‘Make in India’ that is urging foreign investors to move their manufacturing to the country. Logically these units will either be built near existing urban centers or new satellite urban centers will have to be developed. The second program aims to reverse the influx of rural dwellers into the city by developing rural centers to the extent that they become self-sustaining. Further as land and resources are limited, due to current state of population, the two programs are bound to clash with each other. The first program will attract further international attention, as this new class of labor will be the next line of consumers for their products. However the second program that is more nationalistic in nature may have mixed results. Either it could potentially dent the affect of the first or establish a completely new market that the many foreign investors have not considered as yet.

The point that this post is trying to make is that the based on the article ‘What happens next’ the first wave of expected changes has already happened. However there are many other dynamics within emerging economies that are not necessarily considered by developed economies. The reason behind this is not necessarily a lack of empathy rather in my opinion a genuine ignorance about the grass root social fabric, which has a very important role in developing economies than it if often given credit for.

Identifying Competitive Landscape in Murky Waters

As a public relations firm based in Pittsburgh, PA, it's tough to compete nationally, though all new markets are outside of the region. In my industry, it's often the case that it's not what you know, but who you know. Publicists working in Manhattan where nearly every major media outlet is housed have easier access to national media as well as celebrity-based clients that can lead to easily-landed media interview and thus, more relationships. Given this reality, and after reading the Competitor Analysis article, I realize it's up to me to define realistically what strategies will help my firm carve out a profitable niche in this dynamic marketplace.

I've been thinking intently on "what's coming next." The media landscape keeps changing drastically with the advent of new players (Huffington Post and other popular blog sites) and of course social media's unintended consequence of corporations' need for social-based crisis communications. On the flip side, social media offers an uncharted market niche for my company. I'm exploring ways now on how getting more technical when it comes to getting stories to go viral after media placement - will greatly increased my company's value to clients. The catch is making the time to re-jig, and effectively strategize and market this expanded offering. After all, I'd like to be thought about as the "potential competitor" to these big box national ad and PR firms who claim to do everything well. Carving a niche in this large sea of competition will be critical to future business growth.

10 IT trends changing businesses

Taking example from my previous work, it paid a lot of attention to social and digital media expansion. My company grew to be competitive with other telecom companies as it became first to fully invest in social media, improve engagement with customers and add new technologies to support the operations for this new business direction. They used social media to increase their footprint as a customer caring and also future foward company as part of their strategy. Other companies followed suit and caught up with  digital trend years after the Telenor had implemented it.

Similarly, Telenor ventured into developing big data skills by training its employees and becoming first to pilot run big data analytics to be incorporated as a strong strategy to implement on thego campaigns or live campaigns for customers. Recently in past one year Telenor has aggressively entered into internet of things applications, acquiring new companies and improving business functions to accommodate new technology.

These trend following activities translate into how companies shape their strategy and gain competitive advantage over other companies in industry landscape.

The Limitations of Porter's Five Forces Model

In The Five Competitive Forces That Shape Strategy, Michael E. Porter discussed the factors that shape the influence that each of the Five Factors has on an industry. He goes on to explain the implications that these forces have on an industry in terms of positioning the company, taking advantage of change in the industry, and exerting one’s own influence on the industry. It is described that this model is a snapshot of an industry at a point in time, but what are the other limitations presented by the Porter’s Five Force model?

The model was developed in the 1970’s and the market has changed notably since that period. Industries are just not as static as they used to be. For example, technological breakthroughs create disruptions that are almost instant in the market place. The time between a product’s conception and maturity has changed since the 1970’s due to changes in marketing strategy and rate of technological development. In order for Porter’s Five Force model to keep up, it as to be updated regularly.

Porter’s Five Force model fails to incorporate the complex dynamics of some corporations. For example, a corporation like Walmart has several different product lines. How can it choose which industry to position itself in? Should compare itself in every industry? And if so, to what end? The risk of pigeonholing a corporation into an industry is high when analysis should be done at the product level.

Finally, organizations need to prepare for the effects of forces beyond those of entrants, suppliers, buyers, substitutes, and competitors.  Porter’s Five Force model does not take into account corporate responsibility, social awareness, industry culture, or legislation. For example, an industry may appear attractive due to benign forces, but there may be very demanding corporate responsibility standards that need to be met in order to be acceptable.

In conclusion, Porter’s Five Force model presents a critical and thorough examination of an industry at a particular instant of time. It helps a firm analyze the profitability of its industry and the strategies it must employ to leverage industry strengths. That being said, it is important to remember that industries are more dynamic than ever before, and there are many complex relationships and dynamics that are overlooked by the model.


The Five Competitive Forces That Shape Strategy (Porter, Harvard Business Review, January 2008)

Porter’s five forces for strategizing in airline industry

In the article, ‘The five competitive forces that shape Strategy’, Michael Porter talks about how the five forces can be used to decide the strategy for operation in a competitive industry. We can study this in relation to the airline industry and their strategies of success. The business strategy developed in this years is generally the one with mergers and acquisitions. The industry which had ten competitors at the start of 2000 has narrowed down to four by 2013. The mergers were justified due to mismanagement of airlines/routes and even due to the Chapter 11 bankruptcy filing but the overall effect on the market has been about price hikes and collusion.

The four major airlines operating in US are the American Airlines, Delta Airlines, Southwest airlines and United Airlines. To operate simultaneously without much competition and rivalry, these airlines tacitly colluded on price setting and capacity discipline. They use cross-market initiatives (CMIs) to avoid airlines undercutting on each other’s prices in various markets and different routes.
The airlines are aware that the threat of new entrant in this industry are low due to high initial investment. But it has been competitive due to the mergers and acquisitions. For example, the 2013 merger of US Airways & American Airlines earned American airlines the status of the biggest airlines in the United States. Due to its economic drawbacks, US government has been trying to restrict further mergers. But for a new entrant, the entry to a market might be expensive in terms of gaining initial funds to acquire resources.

The airlines strategized to keep the price of tickets high with tacit collusion thereby giving minimal or no power for the customers. As for the suppliers, the current duopoly in the airline industry is Airbus and Boeing. COMAC, Irkut and Bombardier have been trying to break this duopoly but have suffered due to lack of experience in terms of supply chains as well as reliability/safety of the airplanes. So currently, suppliers have a high bargaining power.

Substitutes in the airline industry can be of two forms: 1. Substitute route by other airline. 2. Substitutes in terms of mode of transport. In the airline industry, the threat from both of these substitutes is low since airfares for substitutes are controlled by means of CMIs whereas other modes of transport do not provide the service quality in terms of convenience and time of travel.

From the analysis of industry vis-à-vis the porter’s five forces for current situation of the industry, we can conclude that the airlines industry is extremely attractive in terms of profits. The airlines have recently made huge profits in 2015 when oil prices sunk. Moreover, other than the bargaining power of suppliers, there is not much threat to the industry for any other forces that determine competition. 

Brewing positive-sum growth

                The key takeaway from the readings this week, for me, was the value of competition based on quality of service and brand image, rather than competition as an arms race to lower prices. More specifically, Michael E. Porter talks about “positive-sum” gains in “The Five Competitive Forces That Shape Strategy”. Reading about this, I realized that there are industries that very successfully allow for both price-based competition and value-added competition. Near and dear to my heart is the American beer industry, containing consumers who just want the largest quantity for the lowest price, and then consumers who go for individual characteristics—whether quirky branding, local charm, or hoppy-est taste.
                Bearing this in mind, and bearing in mind the multi-faceted nature of the industry, as well as the crucible of “the market state” in “What happens next? Five crucibles of innovation that will shape the coming decade,” I think it would behoove the government to create an incentive for brewers to adopt the most economical, environmentally friendly brewing methods, with one incentive aimed at macro brewing processes, and one incentive aimed at micro brewing processes.
                The benefits for both sides of the industry seem apparent, especially if you consider the potential intersectionality of the spectrums of income and environmental consciousness: craft brewery Southern Tier might benefit more, from a branding perspective, than Anheuser-Busch by being able to put the environmental seal of approval on its products, but the same distinction likely would not hurt Anheuser-Busch, and likely would make more environmentally conscious consumers more inclined to purchase a Budweiser.
                And that’s the rub: by providing an incentive to brewers to become environmental stewards, the government can also nudge (to use a favorite term of libertarian paternalists) the beer industry toward profitable competition. Moreover, the government would be nudging the beer industry to address “Crucible 4: Pricing the planet” in its quest for further growth.
                Granted, the incentive structure would have to be devised to prevent rent seeking (perhaps a tiered award system, based on proof that a breweries methods have reached certain standards and, ideally, lower production costs). But considering the room for differentiation and market segmentation in the beer industry, based on both branding and location (I can get excited about both an environmentally-friendly brewer from PA, and an environmentally-friendly brewery from my home state of New York, in addition to an environmentally-friendly Budweiser when I’m low on cash), I think there is room to stimulate competition that is not price-based.
There is room for more positive-sum growth in beer.

Buzz Words

Buzz words in the field of Data Science (itself a buzz word) run rampant, seemingly increasing with each day. From big data to advanced analytics to machine learning, every company worth its salt wants a piece of the newest data technologies, a way to store data, a way to manipulate data, and a way to understand data. This hype, however, is not excessive. From the McKinsey article, “the world’s stock of data is now doubling every 20 months”, which means not only that the stores of data are increasing, but the gap between what is understood by that data is also increasing.  In “Five Crucibles of Innovation that will Shape the Coming Decade”, we understand that continuous innovation is the key to remaining relevant, i.e. developing new products, attracting new customers and finding better ways to operate.
Innovation is the reality of our present circumstance. Innovation will continue to increase with each year, and so staying on board the boat is a matter of innovating with your competitors. In the Cola Wars case study, Coke and Pepsi continually innovated with one another, each nipping at the heels of the other and forcing them to find new, innovative solutions to their problems. As computers’ capacities have increased, so have the size of the data sets to be manipulated by them. The new capacity of these computers is now being utilized not just to optimize retail prices and balance sheets, but to improve the impoverished world, innovating new products suitable to 3rd world countries ( .
Predictive analytics, machine learning and data science are more than buzz words, they’re necessary to meet the challenges of the increasing rate of innovation on the planet today, and without the capabilities to harness these technologies, we would not be where we are today, nor where we expect to be tomorrow.

Changes in the competitiveness of the US airline industry

The article „The Five Competitive Forces that Shape Strategy“ by Michael Porter from 2008 investigates further his established five drivers of profitability, speaks about the importance of other factors, and the implications of these for a company’s strategy.

At several instances Porter thereby applies the airline industry as an example for a very competitive industry. Out of my experience with the European market and considering the development within these eight years since when the article has been written, I believe the US airline industry to considerably have been shaped towards a less competitive and more airline-friendly industry.

If we take a look at the first force, the Threat of Entry, I believe that one has to distinguish between small- and mid-sized airports and large domestic and international airport hubs. Porter is right in pointing out that by means of leases, capital requirements are not huge for a new entrant airline. However, the landing rights to the airport hubs often have long waiting times and therefore considerable value: Once American Airlines took over US Airways, for regulatory reasons it had to sell landing rights for the Ronald Reagan Airport and the LaGuardia Airport and it received roughly $400m for them. Thus, I believe that there exist considerable entry barriers for entrants that want to use these hubs.

The Power of Suppliers also have positively changed for the airlines in my opinion. Pilots and employees are still organized in unions but nowadays airlines are likely to have a much better influence on kerosene prices with the current oil glut. And as Porter points out, there is an intense fight between Airbus and Boeing, which together with the other two continental plane producers Embraer and Bombardier will limit their position.

The Power of Buyers is of course given in the case of almost no switching costs. However, there are few substitutes available. There is no broad fast train network as in Europe, which allows for journeys that often need only two thirds of the time a car needs. This might limit buyer’s influence in oligopolistic situations.

The Threat of Substitutes is in my mind much smaller in the US than in Europe: With no meaningful fast train network in the US, substitutes mostly stem from car driving, which is mostly much slower and does not allow road warriors to work along the way, or from video conferences that lack the personal contact.

I see the biggest changes in the Rivalry among existing competitors. In 2010 the Delta – Northwest Airline integration was complete, in 2012 United Airlines finished its integration of Continental Airlines, and in 2013 American Airlines and US Airways completed their merger. For the big hubs that Southwest does not serve this has led to an oligopoly, which from my experience often lead to identical prices for all three airlines and 90-minutes inner-US flights being almost as expensive as 8-hours transatlantic flights. In September 2015 even the US Justice Department felt compelled to investigate whether fare collusion exists.

So, I believe that for these US hub-serving airlines competitive forces have shaped very positively since Porter wrote his article.

Own experience
Wikipedia regarding US Airways, Delta, and American Airlines

Free Technology Services and Creative Ways to Earn Revenue

The article by Mickinsey & Company “Ten IT-Enabled Business Trends for the Decade Ahead” highlights IT trends that they foresee will be prevalent in businesses  and the world within the next 10 years. One particular trend that stood out to me was the “ ‘Freeing’ your business model through Internet-inspired personalization and simplification” trend.

On a recent episode of Shark Tank, a popular show on ABC where entrepreneurs pitch their company and product to established businessmen, I saw entrepreneurs present a new exercise app called Sworkit.[1] The app was free, easy to use, and the workouts were completely customizable to the user.

As I continued to watch the show their business strategy became evident. The company was using a freemium pricing method by offering the app for free but also giving the customers an option to purchase more workouts. However, since the workout library is pretty extensive, there are people who would probably never have to or want to purchase additional workouts. For the free-riding customers who never purchase additional workouts they are shown ads.

I was really intrigued by this app because I was looking for an exercise app but I did not want to purchase one and the ones that were free were poor quality, hard to use, and not customizable. This relates back to McKinsey article that customers now expect everything to be free. If the app is not free then the customer will just download another app that is. In addition, if the app has a learning curve to it, it might just be more time efficient to download another app that is easier to use. 

Also in relation to the McKinsey article, businesses need to find ways to utilize their high quality technology to produce revenue without charging the end-user. The Sworkit app had a multi-sided revenue model by charging the end-user only if he wanted to purchase more workouts and otherwise not charging the user and showing them ads instead. These ads are sold to advertisers who purchase the ad space.

Sworkit does allow you to register with a Google or Facebook account and collects basic information about the user from those accounts. I am assuming that Sworkit is collecting some user data that would allow it display ads that are relevant to its customers.

In general, I agree completely with the prediction that IT-enabled businesses will now offer free services and find creative ways to earn revenue without charging its end-users.


Strategizing in the face of environmental concern and climate change

In the McKinsey and Company report “What Happens Next?” (Bisson, Kirkland, Stephenson, Viguerie, 2010), the authors acknowledge the projected increase in resource consumption worldwide, the decreasing supply of fossil fuels and other natural resources, and the growing consumer demand for environmental sustainability. Additionally, the Global Trends 2030: Alternative Worlds report (National Intelligence Council, 2012), acknowledges projected increases in food, water, and energy demand in the next 15 + years, which will be complicated by the effects of climate change.

With these inevitable trends and major changes looming in our future (even beginning to occur now), businesses, organizations, and governments of all types will be impacted somehow. Some businesses will be forced by consumer demand to develop environmentally sustainable practices, some will be affected by government regulation related to fossil fuel use and greenhouse gas production, some will incur increased costs as resource scarcity grows. Non-profits of all types will be impacted. For instance, humanitarian organizations face the consequences of mass migration from places heavily impacted by climate change (eg. locations impacted by coastal flooding or severe drought), whereas environmental non-profits face the ever growing challenge of developing programs to mitigate climate change effects. Governments must determine how to regulate greenhouse gas emissions while also planning to deal with the effects of climate change on their countries.

With so many uncertainties and organizations that will most likely be impacted, I have some big questions.  1. How can all of these different types of organizations incorporate such uncertainty surrounding the effects of climate change and the potential for food, water, and natural resource scarcity into their company’s strategy? From my personal observations and experiences, it is difficult to get some companies and governments to consider such uncertainties and to have the forward thinking necessary to incorporate these things into strategy. 2. Additionally, how can adequate planning occur when there are so many unknowns?  3. Going further (and perhaps unrealistically), is it practical for these groups to identify ways that they can reduce their contribution to the problem as part of their strategy development?

As the McKinsey and Company report states, “For CEOs, understanding their true exposure to energy and environmental risk will require more sophistication than ever and will emerge for many as a—if not the—decisive factor determining the long-term viability of their companies” (Bisson, Kirkland, Stephenson, Viguerie, 2010, p. 18). Such strong language makes it sound like such understanding and planning is a necessity, yet how many companies and organizations are actually adequately planning? Are there resources to assist in evaluating an organization's true exposure to these risks?

Bison, P., Kirkland, R., Stephenson, E., & Viguerie, P. (2010). What Happens Next? Five Crucibles of Innovation that will Shape the Coming Decade. McKinsey Special Report.

National Intelligence Council. (2013). Report: Global Trends 2030: Alternative Worlds.