Core Ideology and Envisioned Future

Blog Post 1 - Responding to “Build Your Company’s Vision” (Collins & Porras )

Collins and Porras propose that a Company’s Vision is a function of Core Ideology and Envisioned Future.

Core Ideology

Core ideology is synonymous with brand. It represents the unchaining personality of a firm. If the brand sends mixed messages about its values and objectives, both consumers and employees will flounder. The core ideology is a mantra about why the company exists and a value-set that can be used as an identity constant during a time when everything else might be changing.

I reflected on the thoughts of former presidential candidate Mitt Romney who took considerable flack for an offhand comment that “Corporations are people”. 1   Although he claims to have been echoing Marshall v Baltimore, I think he was actually speaking automatically about his feelings towards corporations.  After reading this article, I have gained an appreciation for this perspective (as it relates to business strategy – not politics). Perhaps one of the reasons Mr. Romney found so much success re-launching dozens of failing businesses is due to precisely that offhand comment. Seeing a corporation as a character with feelings, values, goals, and quirks creates a valuable perspective that helps to make difficult strategy decisions and focus on the brand mission.

One of the greatest strategy blunders of the 1980s was the result of Coca-Cola forgetting its core ideology. As young consumers were flocking to the sweeter tasting Pepsi Cola, Coke departed from its iconic recipe to launch “New Coke”. Although consumers liked the taste, they felt betrayed, as if an old friend was changing their personality to compete with the new kid on the block. The brand damage was so severe that coke had to reinstate the original soft drink within months of rolling out “new coke”. 2

Envisioned Future

A Company’s envisioned future encapsulates its ability to embark on ambitions plans and breathe life into what the realization of those plans would look like. Collins & Porras advocate ambitions in the form of “Big, Hairy, Audacious Goals” that take anywhere between 10 and 30 years to complete. Those goals must be paired with “vivid descriptions” that help investors, employees, and customers understand what the Promised Land will look like when they arrive.

1 http://www.washingtonpost.com/politics/mitt-romney-says-corporations-are-people/2011/08/11/gIQABwZ38I_story.html

2 http://content.time.com/time/specials/packages/article/0,28804,1913612_1913610_1913608,00.html

Southwest Airline disruption sustains and inspires

Erin O’Neill                                                                                                                              S.D. Blog week 1

Have you ever traveled on a major airline whose pilot tells jokes, wishes passengers happy birthday and sings country music over the intercom?

If this is a strategy with Southwest airlines it gets personal.

Southwest (SW) exercised my curiosity about their success early in life.  Southwest’s outlook and business practice impacted the way I look at any business from my first flight with them. They are and were a low cost airline. A short route between midsize cities was not new; a short routes’ only was new. Dynamic and positive customer service by invested; interesting employees gave fresh attention to a new model.  

            We all sang a sing along with the pilot! The stewardess threw bags of peanuts from 7 rows away!  Southwest had clearly and quickly differentiated themselves in several customer perspective ways.  Including cattle call seating style with first come first serve. No meals, low frills and serious doses of fun.

“The essence of strategy is

choosing to perform

activities differently than

rivals do”

                                                                                                Michael E. Porter

            While in Houston I experienced my SW plane arriving at the gate, incoming passengers disembarked, we loaded in and flew off.  That all happened in the time it took for another near by carrier to simply board the same size plane.  This made me want to know more.  I was a twenty-two year old student living in Texas and had flown various airlines at least seventy five times. 

             

Southwest continued the dynamism behind the scenes: always using and buying the same style Boeing 737 plane. This increased efficiency with crew, planning in airports and all logistic time was hugely reduced. 

A strategy to simplify and standardize reduced the behind the scenes operations across the company. Training was standardized and turnover was low.

Link: The Economist on same plane approach.

http://www.economist.com/blogs/gulliver/2012/06/southwest-airlines

This unique approach has sustained them and brought low cost happy passenger loyalty for more than 40 years. The priorities from top management are; People, Planet, and Performance, in that order, helping employees have focus and clear goals.

Link: 2011 CEO statement on success in a down market: http://www.southwestonereport.com/2011/#!/garys-message

Southwest seems serious about this… they fly planes but have always been a distinctive ‘company of people, and they are our greatest asset.’ Gary Kelly the Chairman of the Board, President and CEO exclaimed.

There must have been trade offs for Southwest’s tactics; AirTran was trying to edge in on their model. AirTran was doing a good job at it too expanding into larger cities on the east coast like Washington DC and Atlanta.  So, Southwest figured a way to buy AirTran and enlarge their footprint, mission, reach and family.  This allowed SW to ‘shift outward, lowering costs and improving value at the same time.’

The big lesson is that there is always room to build a strategy including disruption with more satisfied and happy humans.  The results can be long lasting sustainable performance within an established market.  Be ready for  competition to mimic success and head them off with satisfied customers, employees and consistency. 

I still love and use Southwest airlines and share my stories of them often.

Threat of Entry to the Cola War

This week I read the case: “Cola Wars Continue: Coke and Pepsi in 2010” and Porter’s article “The Five Competitive Forces that Shape Strategy”. The aim of this post is to link the Cola Wars with Porter’s ideas, specifically the threat of a new entrant to this Cola War. In my country, Peru, the Cola War was never between Coke and Pepsi, but between Coke and Inca Kola. It was so intense that they performed a joint venture in 1999. However, besides Inca Kola, I also thought about AJE Group and Big Cola while reading this week.

In the 80’s Peru was a chaotic country, facing recession, world-record inflation rates, unemployment, and two terrorist groups trying to overthrow the government to implement a centralized communist regime. 65,000 Peruvians perished in 20 years of terrorism. When I was a kid in the 80’s I had little opportunities to travel to inner cities in the highlands of Peru as it was too dangerous because of the presence of terrorist groups. The Peruvian society was affected by this context and businesses were not the exemption. It was too costly and too risky for many companies to deliver their products to inner cities and rural areas, as their trucks were terrorists’ targets. Coca Cola and Inca Kola had to stop shipping their products to some areas. However, despite terrorism, people missed their favorite beverages.  

Ayacucho is a Peruvian inner region in the highlands and the most affected one by terrorism. However, in 1988 the local family Añaños looking how to economically survive decided to satisfy the demand of their neighbors. With an investment of $30,000, they implemented a small bottling plant in their house, with their own-developed formulas, and started to produce soft drinks to substitute Coca-Cola and Inca Kola. Initially they filled empty beer bottles with their beverages. By the mid 90’s terrorism started to soften and the Añaños family business started to grow nationwide. With their own plants in several cities, under the name of AJE group (AJE) and with their best known brand, Kola Real, this family business started to fight Coca Cola and Inca Kola. Their strategy was simple, but smart. They delivered their soft drinks in bigger bottles (more than 2 liters per bottle), focused on low-income families and, of course, at substantial lower prices. Also, the company was in charge of the whole production process.  

In 2000 AJE started its international expansion in Venezuela. Using the same successful strategy as in Peru, but with Big Cola instead of Kola Real as a brand name. Eventually, the group spread throughout South America, including Brazil. Also, they developed new products such as juices, bottled water and sports drinks. Then came Central America and Mexico, the second largest soft drink market after USA. In all of these countries AJE grew by decreasing the market share of Coca-Cola and Pepsi. But that was not enough. Using the same pricing strategy, focusing on emerging markets, using in-house production and developing agreements with local distributors, Asia was the next market to conquer. In 2005 AJE inaugurated a plant in Thailand, followed by many others in Vietnam, Indonesia, and India. From 2000 to 2013 their yearly sales increased at a 22% average rate, accounting to $2 Billion.  

  

Returning to the first paragraph of this post, the Cola Wars case states that 80% of Coca Cola sales derive from international markets, while Pepsi focuses more in the USA. USA alone represents 1/3 of the world soft drinks market. However, both companies plan to invest more than $2 Billion each in China and other Asian markets in the next few years. I wonder if Pepsi and Coke are doing their homework—as suggested by Porter—of analyzing AJE as a new entrant threat to their purposes in the Asian markets. As Porter says: “new entrants bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete.” AJE is doing precisely that.

For more information and supporting facts and figures, please go to these links:

http://www.ft.com/cms/s/0/dd0e0c00-0cf2-11e4-bf1e-00144feabdc0.html#axzz3W04toq3Q

http://www.tharawat-magazine.com/en/family-business-articles/strategy/1613-ajegroup-the-most-global-peruvian-family

http://amitavac.com/musings/lessons-perus-big-cola

http://wearedevelopment.net/2011/11/27/always-cocacola/#more-222

The Real Value of Strategic Planning in City Hall

In the public sector, the strategic planning process operates very differently from the model proposed in Kaplan and Beinhocker's piece The Real Value of Strategic Planning.  Ultimately, while the mayor is the head of the administration and is responsible for both proposing a vision (in the state of the city address when he introduces his budget, through public engagement, etc.), the mayor's strategy needs to be analyzed and approved by a sometimes adversarial City Council.  This system of checks and balances results in a slow-moving organization, but Council’s role is to make sure strategic decisions are given a thorough public process since ultimately the strategy of the City is the collective strategy of the taxpayers.

I work in capital budgeting, so a good portion of my work is related to long term planning.  The City cannot afford to pay for all of the desired street repaving, building repair, and park reconstruction in one-go.  In addition, the concept of intergenerational equity means that we are tasked with making sure we spend money today on projects that will last for years or even decades, since future generations will be paying debt service on purchases today.

We actually just restructured our Capital Budget process, including making changes to our "Capital Program Facilitation Committee", which is made of primarily of department directors, as well as representatives of the City Controller's Office and City Council.  This group helps the Budget Office and senior administration members make decisions about not only next year's budget, but a rough five-year plan of what sort of priorities will be focused on in succeeding years.

One aspect of the process described by Kaplan and Beinhocker that I really like and would be interested in integrating into our structure is the introduction of a template that standardizes some questions and asks departments to put themselves in the larger context of the City as a whole.  While we have historically not required heavy analysis from departments on this front, it is a useful opportunity for self-introspection on the part of departments and a good baseline for Budget office and administration representatives. 

Shaping strategy with Five Forces

Whenever I read a case study about an Industry, the first thing that I see on their strategic analysis is the ‘Porter’s Five Force’. I have read about the methodology in Wikipedia but I never got the chance to study in detail. When I read this week’s article ‘The Five Competitive Forces that shape Strategy’ I was truly stunned by how this simple tool can be used to formulate a giant corporate’s strategy and several subtle underlying factors that I was not aware before. I am a major in Biomedical and after reading this, I would like to apply this concept in my area of expertise- Healthcare especially Pharmaceuticals.

Threat of Entry – The threat of new entrants is very high in Healthcare industry. The main reasons are to establish a pharmaceutical company, you need a high initial capital for the Research & Development. Forming a business model is another big issue. The US health market is very diverse, the rules and structure varies widely between the insurance companies and they mostly control the pharmaceutical industry as they are the one’s covering patient’s bills. Another big challenge is the Government policy on drugs. A new drug developed has to undergo through a series of FDA regulations and tests and this usually takes several years before reaching the market. Navigating through all these channels sets a high barrier for new entrants to the market. This is the reason why the US Health industry is primarily dominated by only few companies.

The power of Suppliers – The key suppliers for this industry can include chemical companies, IT vendors, and providers of raw materials. The suppliers have advantage in some areas. For example, the clinical study and Drug safety testing software have high designing and implementation costs. Once they are implemented in the company, the switching cost is very high. But, they have advantage over some suppliers, For example, the companies can easily change their raw material provider, if the prices of materials are not negotiable with their current supplier.

The power of Buyers – The buyers could include Hospitals, pharmacies, patient and insurance companies. Usually the power of buyer is high, the Hospitals and Insurance companies has the power to choose between their suppliers. But in some cases, if the pharmaceutical company offers patented and efficient drug with distinctive medical benefits they have more power over the hospitals and other drug buyers. But it loses its power once the patent expires and the drug becomes generally available.

Rivalry among Competitors – The pharmaceutical industry is highly competitive. This is due to the reason that they have High Fixed costs and Exit barriers. The industry is associated with substantial long-term investment and continuous research which leads to high fixed cost. Also they have high exit barrier because of Labour settlements, contract with suppliers, agreement with government and the Insurance companies. Because of these reasons they prefer to stick to the competitive market by price advantage and continually providing low risk, low side effects and efficient drugs.     

Threat of Substitutes - The pharmaceutical industry’s profits are greatly affected by substitutes after the patents of drugs has expired. When the patents expire, all pharmaceutical companies have the opportunity to make the drug. Consumers tend to move toward cheap drug if it has the same effect as of another costly drug. So, you are forced to reduce the price and sell it for thin margin. This is the reason why pharmaceutical industries invest heavily in research and development. They could eliminate the risk of substitute by always introducing efficient drugs and stay ahead in the market.

references - http://eopoku3.blogspot.com/2011/03/porters-five-forces-healthcare-industry.html

http://issthinktank.wikispaces.com/Healthcare+Business+Strategy+-+Porters+5+Forces+and+Steep+Analysis

The Five Forces and the Non-Profit Culture Industry

The Five Forces that Shape Industry Competition is an interesting concept. While the article focused primarily in the for-profit arena, the five forces concept can be applied to defining a non-profit industry.  For example, many arts organizations operate in the non-profit culture arena; Broadway and traveling shows are for-profit entities and thus don’t apply to this though exercise. The culture industry is large and varied, so defining the industry may be a challenge, as understanding the competitors and the threat of new entrants can be difficult.

One of the biggest challenges with defining the non-profit culture sector is the definition of culture itself. According to Culture Track ’14, Americans have broadened the definition of cultural activities to include events focused on food and drink, visiting national parks, and watching television, along with traditional cultural events like live-theatre, opera and museums.[1] Since not all activities can be a direct competitor for the arts, the first step in defining the cohort’s niche. For example, Theatre A may see its obvious competitors as other theatres with similar production themes and qualities. Less obvious competitors could be restaurants and movie theatres. Knowing that socialization is a motivator for attending the arts[2], Theatre A can narrow its competitors down by identifying partnerships that can strength their market share. This could involve partnering with a restaurant for a pre/post show wine event, or jointly producing a show with another theatre company. By partnering with complementing groups, competitors will stand out more readily, in this case movie theatres, sporting events, and large symphonies, among others. Symphonies, Operas and Dance companies may be more “learning” competitors, as members of their audience may have similar inclinations to attend the art organization’s programming. The strategy would then be to identify those people and market to them so they learn about the organization.

When defining the industry, it is essential to look at barriers to entry. For nonprofit arts, barriers to entry can be quite low, depending on the area, as it is with the Washington, DC theatre scene. With a high percentage of non-equity actors in the area, there is a high demand from these artists to create their own work and contribute to the landscape. As the number of theatres increases, this increases the struggle for rehearsal/performance venues, financial resources and audience. Many small theatres will fade away, but new ones will emerge in a short time to take its place. For a theatre in the DC landscape, it would be important to have a continual understanding of what makes them different.

The traditional organizations that are associated with culture are generally not the most innovative. It is hard to be innovative, for example, when a Shakespeare play requires the same number of actors as when it was first written, but production costs have skyrocketed. No matter how challenging, non-profits must understand their industry and the nature of their local competitive landscape.

---

[1] Rinker, Campbell. “Culture Track ’14.” LaPlaca Cohen. Culture_Track_2014_Supporting_Data.pdf

[2] Rinker, Campbell. “Culture Track ’14.” LaPlaca Cohen. Culture_Track_2014_Supporting_Data.pdf

The War of Two Giants

I found the Coke and Pepsi cola wars article to be very interesting. I have always viewed Coke and Pepsi as rivals, but it was fascinating reading about the over 100 year war. Their rivalry never missed a beat.

I think it was impressive that Pepsi entered sort of late in the game and has been able to compete with Coca Cola the way that it has. Reading the trends and fads that Coke and Pepsi dealt with over the years is a lot most other industries. What you're doing only works for so long until the new trend comes into play. For these giants it was watching the decline of carbonated soda consumption. First for the calorie conscience, the diet sodas were introduced. Coke also introduced Coke Zero. The premise for this was that it tasted like regular coke, but had zero calories. For Coke especially, the diet and calorie free drinks were and still are a popular soda. Now, with even more health concerns people are looking for something other than soda. To go along with the trends, Pepsi and Coke introduced their water product. They has to scramble to find alternatives to carbonated beverages to keep up with the trends. Along with new products, they realized the potential for growth abroad. This means a new market and new innovation possibilities. This also meant finding new marketing strategies and ways to become relatable to other cultures.

Even with declining sales and more and more non-carbonated drinkers: I think that Pepsi or Coca-Cola will find a way to keep up with the shift. I think that there is plenty rivalry left for these two. I think this article is great to help you think about whatever industry you might be working in. Rivalry, product shift changes, and new marketing strategies happen in all industries. This is a great example of the struggles and roller coaster that it can be. It proves that you have to stay on top of the trends and what your competition is doing and that you have to evolve quickly. This is a great article that can be applied to any business.

The Strategy for Custom 3D Printing

In response to: “Your Strategy Needs a Strategy” by, Martin Reeves, Claire Love, and Philipp Tillmanns.

Just how far will printing lead? Less than a decade ago, this question would have been met with raised eyebrows and mutterings of delusion, but with the introduction and growth of 3D printing the question has grown in traction. 3D printing can help prototype development, large scale productions, and individual creations.  It has spawned a new industry revolving around the printing of custom objects and has allowed those skilled in creating 3D models to sell digital creations to consumers who receive physical, never-touched objects.

Entrepreneurs of 3D printing need to understand what type of strategy they should be employing. When scaled with predictability and malleability, the 3D printing market falls neatly into the upper-right corner. The industry and technology is simply too new for accurate predictability. Companies like Shapeways have quickly taken the mantle to print out small custom models but the utility for expansion has still barely been scratched. For this same reason, the industry is still highly malleable; companies are still finding new areas to expand the utility of 3D printing.

The potential for 3D printers is growing; they can print new materials such as silver and recyclable materials are becoming more common as well. Furthermore, 3D printing heavily syncs with other technologies, such as 3D modeling software. The startup HeroForge, which allows printing of small figurines, has made their own 3D software for customers to use. Though their idea is small in scale, the idea of coupling easy 3D software with 3D printing could open up an entirely new market.

I encourage many companies to utilize and expand on 3D printing, but I also believe that any company that wishes to stay in the 3D printing market needs prepare a shaping strategic style. The barriers of entering the market are not particularly high. The uses for 3D printing are changing and expanding too quickly. As mentioned in the “Your Strategy Needs a Strategy” article, the goal for companies in 3D printing needs to be to shape the unpredictable environment of the market to their own advantage. Companies need to stay on top of these changes, innovate their own, and show consumers they are doing so.

Currently, there has been dangerously low marketing within industries that utilize 3D printing. Companies such as Shapeways have focused on building one side of their clientele, modelers, but have focused less on actual consumers. As modeling software becomes more readily available Shapeways and similar companies will need to quickly build a larger ecosystem of customers before competition takes them away.

Companies which wish to utilize or completely focus on the custom creations allowed by 3D printers need to uphold a strategy which is not only flexible to changes in the technology, but also adapting to and finding new technological couplings which will further expand their industry.

Daniel Johnson

http://www.shapeways.com/about?li=footer

https://www.heroforge.com/

War never ends...

I often wonder why an industry, whose product requires relatively low manufacturing cost and does not vary much across competitors, can be so profitable. Hundreds of experts and researchers study the matter. Forbes reports that Coke has a brand value of $56.1 billion as the 4^th most valuable brand in the world with revenue of $3.3 billion (Forbes, 2014). At the same time, the competition in CSD industry is fierce, particularly between Pepsi and Coke.

The key in this sort of industry is to establish a unique image and a strong brand connection to trendy themes. Of course, value chain is the key to operational effectiveness. Throughout the years, Coke and Pepsi have tried to formulate the best value chain strategy (bottlers in particular) through partnership, acquisition and consolidation. (New Coke: Bottlers are Back) However, in my opinion, the critical component for their success is the ability to really understand each other (the competitors), and to establish a unique position in the industry through intensive marketing campaigns.

For decades, Pepsi and Coke have battled to win the competition and establish strong images in CSD industry. For example, the famous blind taste testing known as “Pepsi Challenge” was carried out throughout the United States in 1974. And according to Bloomberg, PepsiCo would spend over $579 million for marketing in 2012 alone. (Stanford, 2012) However, the ultimate goal of such an intense effort is to build a strong brand image. As the article points out, Diet Coke is the most successful CSD product in 80s. The success of Diet Coke is largely due to people’s consciousness for “health”. Coke captured the trend and responded with a “right” product immediately. And as a new mover in the global market, Coke successfully connects itself with American culture and dominates the non-US market. Pepsi, on the other hand, first connected itself with “young” image. After the acquisition, PepsiCo has a more diversified portfolio and presents itself as a snack and beverage company. Through marketing and promotion, both Coke and Pepsi have been able to adjust their branding strategies and also brand connections.

However, all these differentiations could not be done without sufficient knowledge of competitor’s strategy (what the other part wants to be). Just like the quote at the beginning:

 “… I’m sure the folks at Coke would say that nothing contributes as much to the present-day success of the Coca-Cola company than… Pepsi.” – Roger Enrio (former CEO of Pepsi)

Both Pepsi and Coke have been successfully analyzing their competitors, which other companies in similar industry should learn.

(Photo Source: Business Insider)

Application

In order to be unique, companies have to know what images competitors try to establish, just as well as what images they want to establish for their own brand. The competitor analysis is critical. In HBS’ article Competitor Analysis: Understand Your Opponent, a systematic list of relative strengths and a matrix of components’ reaction are two powerful tools, which companies can utilize in competitor analysis.

Work Cited

Forbes. (2014. December). The World's Most Valuable Brands. Source: Forbes.com: http://www.forbes.com/powerful-brands/list/

StanfordDuane. (2012.1.27). PepsiCo May Boost Marketing Budget to Take On Coca-Cola Retail. Source: Bloomberg.com: http://www.bloomberg.com/news/articles/2012-01-27/pepsico-may-boost-marketing-budget-to-take-on-a-surging-coca-cola-retail