Alibaba, a great company creating and benefiting a lot from shared value

As the biggest E-Commerce company in the world, Alibaba Group has been benefiting a lot from shared value it created.

Starting as a B2B E-Commerce platform providing business information to companies, Alibaba has changed their business strategy since 2003, launching online C2C platform, Taobao. The C2C business model helped millions of people and even changed their lifestyles. First, as an information platform with great market influence, a lot of people started their online stores on Taobao. The number of online stores operated by individuals had reached up to 6 million since the beginning of 2016, which greatly helped a lot of people. For example, people in poverty or lacking knowledge could sell some special local products online, with no burden of rent for warehouse or retail store; people seeking for part-time job opportunities could provide service like typing files with many pages for people, or translating articles for people do not know foreign languages.

Taobao not only helped the owners of online stores but also customers buying stuff from Taobao. They could buy almost everything they want from Taobao's online store. The price of goods sold online may also be cheaper than in physical stores because of the savings of storage, logistics. In addition, the express mail service industry has flourished because the huge amount of transactions created the great demand for mail services. Apart from the societal value Alibaba created, this great corporation has earned more than 1.075 billion of USD net income in the first quarter of fiscal year 2017 from the advertising fee it charges and the time value of money during the time between customers paid and sellers receives (Taobao's role is to guarantee the transaction and release the money to seller after transaction).

Considering that the fee charged for inter-bank transfer, and people do not want to take wallets everywhere, Alibaba launched a third-party online payment platform, Alipay, which is an APP could be installed on cell phones. Alipay users could use a cell phone to make almost every kind of payment in China, such as for taxi fee, movie ticket, fines charged by police, credit card payments and so on. Because of the convenience, more and more people combine their bank cards to Alipay. And since the network externality, the product could be more valuable as more people use. A virtuous circle created. Nowadays in china, even some beggars have adopted Alipay on a cell phone as the tool to accept people's donations. Alibaba earned a lot from this convenient payment platform. Alipay attracted billions of dollars deposited money, which could improve the financial liquidity and provide adequate money for the company to make an investment in bonds or securities.

Last but not least, Alibaba is good at taking advantage of its innovative online payment platform from various perspectives. Alibaba always tries to popularize the online payment, introducing the benefit of energy saving compared to traditional payment method to the public. The company has launched an activity, encouraging people to use Alipay which do not produces receipts in the physical paper because all the transaction records could be retrieved from Alipay APP. As people use more times of online payment tool, they have made more contribution to our environment. As a user has accumulated contribution reaching a certain limit, Alibaba Group will plant a tree in the forestry farm, and that tree will be named after the use's name. Such an activity could not only provoke people to reduce consumption of paper and pulps but also encourage people to use Alipay more frequently, which is obvious a good example of shared value.

The Idea Behind Shared Value

The basic idea behind shared value is an age-old concept.  Simply put, it’s the idea that if one postpones immediate gratification and strategizes for the long run, they will generate more overall benefit.  Just like creating a savings account for retirement is an excellent idea, the concept of shared value is an excellent idea for generating more overall benefit for companies and society alike.  However, I wonder how likely it is for companies to ubiquitously employ shared value strategies.  This skepticism is in part due to precedent, and in part due to the rapidly changing context of our world.

Based on empirical evidence, humans have difficulty postponing gratification for the distant future.  Take, for instance, a more primal study of human instinct in which Walter Mischel tested children’s ability to delay gratification.  In this famous experiment, children were left alone with a marshmallow for fifteen minutes.  The children were told that if they waited the full 15 minutes without eating the marshmallow, they would get two marshmallows instead.  Less than 30% of the children were able to wait the full 15 minutes.[i]  Of course, one might argue that adults are better than children at preparing for the long-term.  But in fact, in 2013 the median American retirement savings account was a paltry $5,000.[ii]  If it is inherently difficult for humans to plan for value in the distant future, how can large companies find a way to do this?

As another example of how difficult it can be to plan for long-term benefits, take the American government.  Government officials are beholden to their constituents.  Betray their constituents, and the official will be voted out of office.  Thus, representatives often must support policies that result in short-term, tangible benefits rather than indirect, long-term ones.  Similarly, companies are beholden to their shareholders.  If a CEO takes a strategy that generates less wealth for the shareholders than another one would have, the board of directors will reappoint the CEO.  Thus, as the article points out, it is difficult for CEOs to corral support for shared value strategies.

Finally, what does shared value mean in the context of our rapidly changing world?  For example, software has been developed for self-driving trucks that could save the truck-driving industry $168 billion in fuel efficiency, wages, and productivity.  It could also reduce human errors leading to 87% of truck accidents.  On the other hand, in as little as 10 years, such software could put millions of drivers out of work, which would be a blow to an industry that serves as the biggest job sector in 29 states.[iii]  Is such software promoting shared value, or does the social impact of lost jobs outweigh any value created?  These are one of the many questions shared value has yet to answer.  But, as the article says, more research and exploration of shared value must be done in order to determine such answers.

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[i] http://www.whatispsychology.biz/deferred-gratification-stanford-marshmallow-experiment

[ii] CNBC Article (2016): http://www.cnbc.com/2016/09/12/heres-how-much-the-average-american-family-has-saved-for-retirement.html

[iii] The Economist short film (2017): https://www.youtube.com/watch?v=DClcrd-2T7g

Why is Uber Struggling to Enter Indonesian Market?

Uber began its business in San Francisco with a vision to be one of transportation options, replacing traditional taxi cab [1]. Sophisticated algorithms, GPS, and mapping technology are some Uber competitive advantages to provide more convenience service for passengers. Even though facing legal issues in many cities, Uber are growing rapidly, especially in the United States. Uber also profitable in some other countries in North America, Australia, Europe, the Middle East and Africa [2].

Being profitable in some countries does not guarantee Uber’s success in other places. In the first half of 2016, Uber lost more than $1 billion when trying to beat the local competitor in China [3]. Besides China, Uber decided to enter countries in Southeast Asia, including Indonesia. Uber has started its operation in Indonesia since 2014 [4]. However, up until now, Uber still cannot gain a substantial market share in this country. In my observation, at least three things impede Uber business in Indonesia:

1. Pressure from traditional taxi cab

Indonesia has Blue Bird Group as its largest taxi company that operates more than 30.000 vehicles and gain about 50% market share in Indonesia [5]. Blue Bird has a good reputation as a convenience and reliable taxi cab. It also has Silver Bird as a premium taxi cab to serve high-end customers.

Blue Bird realized the threats from online ride-hailing companies. To compete with these new entrants, Blue Bird launched a mobile application. It also forced Indonesian government to ban online ride-hailing that do not have a legal permit as a commercial transportation. The tensions got into climax when Blue Bird and other taxi drivers lined the streets in Jakarta to protest tech firms that “stole” their customers.

2. Indonesian are not familiar with credit card

When entering Indonesian market, Uber only allowed credit card payment; while credit card user in Indonesia is few. This payment option also becomes one factor for other multinational online businesses cannot compete in Indonesia. To deal with it, Uber started to allow cash payment in 2016 [4].

3. Intense competition from local players

Like other countries in Southeast Asia, Grab is popular in Indonesia. Grab is a Singapore-based ride-hailing company with about 95% of the ride-sharing market in Southeast Asia [2]. In Indonesia, Grab has a tough competition with Go-Jek, especially in motorbike taxi (or "ojek" in Indonesian). Since motorcycles are more popular than cars, Uber introduced UberMotor in April 2016 [6].  

Uber seems to start to adapt its strategy with the Indonesian business model by providing a cash payment and motorbike taxi service. However, it was too late since Grab and Go-Jek has dominated the market. It seems there is still a long way for Uber to attract Indonesian market.

References:

[1] http://www.tc.umn.edu/~ssen/IDSC6050/Case15/Group15_index.html

[2] http://sea-globe.com/uber-southeast-asia/

[3] http://www.businessinsider.com/uber-2016-losses-2016-8

[4] https://newsroom.uber.com/indonesia/jakarta-cash-payments-have-arrived/

[5] https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x658913&serialid=vh0Bso4cU7hEi71m8VHIY8ZL8zy2SNLUAdntxl%2fAVto%3d

[6] https://newsroom.uber.com/indonesia/introducing-ubermotor

Fintech Startups Sound Cool but Can They Name a Strategy?

Fintech is a buzzword that became trendy when the financial technology industry received $20 billion in investments in 2015. This was a 60% increase from the previous year that spurred talks about startups that could potentially disrupt the banking industry. Technology in consumer and commercial finance has allowed for a variety of new competitive advantages. Innovations in machine learning and predictive analytics are being used to undercut traditional lenders and advisors through pricing and services. As this industry takes form and fintech startups grow in capacity, my question is, will they be able to name their strategy?

This industry is driven by technology in a currently niche market. As competitors increase and the market expands, having the best technology is vital to a company’s success. Strategy is not driven by a business model or a vision, it is driven by the science behind your product. This works for a startup fighting for investment but not for a legitimate player in an established market.

Can You Say What Your Strategy Is? By David J. Collis and Michael G. Rukstad explains the need to have a defined strategy and business objective. Strategy can be defined by what the company is trying to achieve, or where they want to go. How they get there is determined by their objective. This should be driven by a competitive advantage. For fintech companies, it is important to identify scope because the technology is seemingly unbounded.

Companies in this space need to make tradeoffs to strategically distinguish themselves from other firms. Fintech startups are vulnerable to focusing too much on the technology that gives them an advantage. As the market matures and fintech startups become the more formal, financial technology firms, they will need to find a way to satisfy customer needs in a way that rivals cannot.  In the fintech lending industry, revenue is driven by competitive pricing. When multiple fintech firms with the same advantage are in the same niche, the winner is the one that can offer something the others cannot.

From my experience with a local mortgage lending firm who specializes in financial technology, resources are not properly allocated to strategy and infrastructure. The data driven analytics can provide a valuable advantage in pricing strategy but there is a problem when multiple firms with similar intellectual properties compete in the same region. Leadership neglects to articulate a company strategy and when success dries up, decision makers through out the company, lack direction or motivation. Strategy for this type of firm needs to be decisive to ensure that the company can follow a vision. Technology must be the driver and not the strategy.

The Scientific Method applied to Customer Discovery.

According to the Business Model Canvas template, one of the key building blocks to creating a viable new business model is to conduct comprehensive customer discovery. Without understanding the exact needs and types of customers the company plans on taking on, it is impossible to gauge the requirements and specifications the business will need to have. In "Bringing Science to The Art of Strategy", Lafley et al describe how conventional strategic planning is in fact not scientific; they argue that strategy-making needs to follow certain guidelines in order to be scientific instead of simply rigorous [1]. In this post, I will describe how the seven steps for scientific strategy development outlined by Lafley et al can also be applied to one of the first steps of designing a new venture - customer discovery.

The first step to scientific customer discovery would therefore be framing a choice - in this case choosing what segment of customers you would target, and consequently which segments of customers you will not cater to. The second step involves considering additional customer niches or segments that all the decision makers could potentially agree that the company could cater to, given some conditions. This leads to the third step, which is identifying the sets of conditions that must be met for the company to cater to each of the customer options described previously. These could include conditions such the company requiring additional capital, equipment, manpower, specialists etc. or they could be specific circumstances, such as the product selling well among a specific demographic. If any of the decision makers feels that the company can not foreseeably cater to a particular type of customer under any realistic circumstances, then these barriers should be identified and discussed. In this step, the barriers should be realistic and chosen while keeping in mind the goals and attributes of your company.

Once various potential customer segments have been identified, the fifth step is to create potential tests to determine the validity of the selected customer segments analyzed thus far. This will allow us discover the customer segment that best fits the company in terms desired market size, cost-to-entry, locality, technical difficulty etc. The sixth step for customer discovery would then be to execute these tests in the real world to determine whether your desired targeted customers are a good match for you. This can be done by contacting potential customers finding out if and how much they are willing to pay for what your company has to offer them. Additionally, customer preferences can be recorded so as to better determine the type of product or service your company will provide to those future customers. The seventh and final step in this case would then be making an educated choice as to your targeted customer segment, based on the results of the tests. By comparing different choices and then testing out hypotheses regarding customer attributes, it is therefore possible to use the Scientific Method in Customer Discovery.

References:

[1] Lafley, A., Martin, R., Rivkin, J., Siggelkow, N., Bringing Science to The Art of Strategy, Harvard Business Review, Sept. 2012

IKEA’s Value Proposition

IKEA’s Value Proposition

IKEA is one of the most successful retailers in the world with operations in 43 countries and growing at 6% annually. From humble beginnings, IKEA now has more than 150,00 employees and has been ranked among Forbes Top 50 World's Most Valuable Brands.[1]  Undoubtedly, it is IKEA's forward-thinking strategy that has helped to transform itself into a furniture behemoth.

IKEA’s success in the long run can be attributed to its development of efficient and well planned global network from manufacturing to distribution. IKEA’s business strategy is “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”.^[2] IKEA’s business strategy not only provides it a competitive advantage, but also a clear vision of what it wants to achieve, guided by its strong values.  Here are a few of IKEA’s value proposition that has helped it to become a market leader:

1.     Pricing

IKEA’s products are neither too cheap nor too expensive. They are priced perfectly. The consumers are extremely satisfied with the value for the price they pay. Price is the one which stands out among other attributes of IKEA which include quality, sustainability, and functionality. IKEA is able to sustain such low prices because they start the product development with a target price point. ^[3]

2.     Stores are a destination.

While many retailers in the furniture industry are shutting physical stores and moving into digital sphere, IKEA is expanding and growing in both the spheres.  IKEA strongly believes that in-store experience can’t be subsisted by virtual reality as stores enable customers to have a “three-dimensional” feel of the products. To enhance the in-store experience, IKEA provides great ambience in its showroom as well as wide range of options in its cafeteria. [4]

3.     Home visits

It is very crucial for IKEA to understand what people want at their homes to fulfil its goal of being "the leader of life at home." Hence an arm of IKEA’s management visit their customer’s home frequently. During the visit, they observe, ask the customer’s their needs and take pictures. This information is compiled in their quarterly “Life at Home” report which help them understand the trend. To complement this, IKEA uses predictive analytics and data-mining to forecast the customer needs. [5]

4.     Sustainability

IKEA obtains its wood from 21 forests and ensure that all the wood is obtained as per the company’s sustainable forestry standards. IKEA uses more than 30% of the wood from sustainable sources for its products.[6] The company has set goals to increase the use from sustainable sources to 50% by 2017. And by 2020, the company aims to become completely self-sufficient- produce as much energy as it consumes. The company has been working towards this and operates 137 wind turbines and 550,000 solar panels on its buildings globally. [7] There are many initiatives taken by IKEA to promote the concept of “sustainable lives at homes” of its customers by providing them with innovative products that use less energy, save & recycle water and reduce waste.

5.     Staff

Staff occupy the central position in IKEA’s strategy.  They aim at having women in half of all management levels across business to foster diversity and equality. Unlike other retailers, IKEA offers its staff with 3 months of paid leave during maternity. Lars Peterson, IKEA’s US head, believes that this strategy is good investment for them in the future that will ensure low turnover. IKEA strongly encourages its staff to actively participate in community activities in their region of operation. The charitable wing of IKEA- The IKEA foundation- donates millions of euros from its profit to support programs organized by UNICEF and Save the Child.[8]

6.     Emphasis on design

IKEA strongly promotes the design of products rather than the designer for they believe that it is the product that would meet the needs of the customer and not the designer.  IKEA has over 9500 products and launches about 2,00 products annually thanks to its 12 in-house designers and 60-70 on-contract external designers. [9]

7. Demographic

For students and non-working class, IKEA has been a destination for the quality and range of furniture products at reasonable price. IKEA has managed to attract the youth with their clean, easy to assemble and quality products. [10]

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[1] "IKEA Facts and Figures - IKEA." IKEA Highlights 2016. N.p., n.d. Web. 26 Apr. 2017.

[2] Feb 16 2014 at 4:53 PM, and 1. Hr Ago. "Power of IKEA's 25-word Strategy Statement." Financial Review. N.p., 20 Feb. 2014. Web. 26 Apr. 2017.

[3] Skobaya, /. "Secret behind IKEA's Pricing Strategy." T1 2016 MPK732 Marketing Management (Cluster B). N.p., 15 May 2016. Web. 26 Apr. 2017.

[4] News.com.au. "How Ikea Uses Food to Trick You into Buying Furniture." New York Post. N.p., 03 June 2015. Web. 26 Apr. 2017.

[5] "IKEA Makes Home Visits – RetailWire." RetailWire. N.p., n.d. Web. 26 Apr. 2017.

[6] Schutte, Shané. "IKEA Becomes First Company to Have Its Very Own Forest." Real Business. N.p., 25 Aug. 2016. Web. 26 Apr. 2017.

[7] Bowden, George. "Ikea Has Some Very Surprising Uses For Its Recycled Material." The Huffington Post. The Huffington Post, 17 Jan. 2017. Web. 26 Apr. 2017.

[8] "Over 12 Million Children Have Better Educational Opportunities through IKEA Foundation, Save the Children and UNICEF Partnership." IKEA Foundation. Https://www.ikeafoundation.org/, n.d. Web. 26 Apr. 2017.

[9] "The IKEA Products Professional Designers Use." Fox News. FOX News Network, n.d. Web. 26 Apr. 2017.

[10] Wollen, Todd. "IKEA Named One of Canada's Top Employers for Young People for the Second Consecutive Year - IKEA." IKEA CA/EN. N.p., n.d. Web. 26 Apr. 2017.

The Importance of Knowing Yourself

David J. Collis and Michael G. Rukstad's ask a question with their article's title: "Can You Say What Your Strategy Is?" I was particularly struck by their emphasis on a company knowing what it is and what it stands for, regardless of how challenging it might be to convert ideated corporate self-image into realized corporate reality. More importantly, such a choice requires both bravery and fortitude.

In my own experience in the startup world, I have far too often seen companies that attempt to shift gears based on every barrier encountered. Working for an ed tech startup in Pittsburgh, for example, in the few months I was with the company we shifted multiple times from being teacher-facing to student-facing, with other markets under constant consideration. This led to a situation wherein employees were really unsure as to what to focus on, whether that be in sales, product development, or user experience.

The temptation to pivot is quite strong in the startup world, and it should be: startups are - ideally - lean, flexible, and staffed with individuals possessing broad skillsets. Where pivoting becomes problematic, however, is when it is viewed as an antidote for challenging situations. It is all too easy to pivot when encountering a challenge. Students aren't interested? Focus on teachers. Teachers aren't interested? Well maybe we should focus on students. Rather than optimizing a product for a given market segment - as Edward Jones has focused on conservative clients - startups can pivot themselves into oblivion, lacking the fortitude to optimize a product to fit customer needs.

Family-owned companies will often face the same challenges as startups, simply because there is often little in the way of leadership structure, with one or a few individuals making all major decisions with as much or as little input as they want. I experienced this firsthand working for a family-run, closely-held contact lens company. Ownership would visit our stateside offices once or twice per year, and each time they visited we were given different instructions as to what our business focus should be. Exacerbating this problem, the company in question had operations worldwide without the resources to properly service all of them, ultimately resulting in frequent resource shifts that left all outfits under-resourced and often prioritized resources based on the flavor of the moment - or the last office visited - rather than prioritizing the best business-case and focusing resources on developing in that market-segment or region.

Ultimately, I think this comes down to a similar problem in both startups and closely-held family companies: an unwillingness or inability to recognize the necessity of tradeoffs, as outlined by Collis and Rukstad. This makes sense; both startups and family companies tend to have an emotional hold on their managers. These companies are somebody's baby, and it stands to reason that in many cases people who might otherwise be excellent managers suffer due to their emotional investment in their company. While they might be capable of recognizing and realizing tradeoffs in someone else's company, to do so on their own requires developing a certain emotional distance that can be quite challenging to achieve (doubly so when we're discussing companies where people - founders or business-owners - have invested their own funds). Collins and Rukstad's article highlights just how critical it is to make these decisions, even when they are incredibly challenging.

The Yahoo! Geek Tragedy

Yahoo was the biggest internet company in the world at the turn of the century. It was the de facto standard home page of the early internet. It was a web ‘portal’ in the truest sense, with search, sports, finance, news coverage, job services, video streaming, original entertainment among other things. This breadth and lack of identity without a singular strategic outlook, I believe, led to Yahoo’s sad decline.

But how did Yahoo specifically go from being synonymous with the early internet, to being a shorthand for a business spiraling into irrelevance?

The three critical components of a competitive game-plan, identified by Michael G. Rukstad & David J. Collis in ‘Can You Say What Your Strategy Is?’, can be found deficient in Yahoo’s story;

Objective – Yahoo was never certain if it was a media company, or a technology company. They aspired to be a ‘web’ company, and the fact that they set the ball rolling in the internet company culture possibly hurt them. Dabbling in search, news and email, it was never sure what it wanted to be. Marissa Mayer, the current CEO-President of Yahoo (Mayer was brought in as a last-ditch attempt to revive the company), even once said that she was always willing to consider ‘Strategic Alternatives’, highlighting the mess that Yahoo strategically was/is. Rukstad & Collis say that an objective profoundly impacts a firm and the stakeholders involved. A lack of objective, thus, seems to have had a profoundly negative impact on Yahoo.

Scope – Knowing and sticking to the scope in terms of offerings, location, and vertical alignment, allows a firm to reap benefits of simplicity, standardization, and experience, according to the authors. Instead, Yahoo is characterized by a myriad of offerings as a portal. In Mayer’s tenure, the buzzword was ‘MaVeNs’, an acronym for Mobile, Video, Native, and Social, indicative of Yahoo being a mare’s nest of epic proportions. Yahoo has maintained a start-stop nature of operations around many locations around the world, not helping the scope cause. These unclear boundaries have in-turn proved damaging to Yahoo’s cause (if there ever was one).

Advantage – A firm’s advantage is characterized by its value proposition and its differentiating nature. Yahoo although a pioneer, did many things wrong to maintain a clear advantage. As we now know, tech companies are defined by their hacker-centric cultures and innovative worldview, whereas Yahoo downplayed the importance of tech and lost out early. After losing out, Yahoo made a slew of acquisitions to maintain advantage (rather, stay afloat). With Flickr, Tumblr and Yahoo Mail all teeteringly close to insignificance, Yahoo currently has only a romanticized brand-name as an advantage.

Yahoo never hit what the authors call ‘The Strategic Sweet Spot’, where it meets customer needs in a way rivals cannot. Because Yahoo could never do this, their downfall was always impending. This occurred in 2017, with the sale of Yahoo’s core businesses to Verizon for ~$4.5bn.

I believe the sale was still a coup for Yahoo, given its non-existent strategic approach, since inception.

Ref.

A Tale of Two Brands: Yahoo's Mistakes vs. Google's Mastery - Feb 23, 2016 Opinion Strategic Management Global FocusNorth America - http://knowledge.wharton.upenn.edu/article/a-tale-of-two-brands-yahoos-mistakes-vs-googles-mastery/

Yahoo's top 6 biggest mistakes | TheINQUIRER - http://www.theinquirer.net/inquirer/feature/2460321/top-6-yahoo-mistakes/page

RIP Yahoo: Why Marissa Mayer Failed - Steve Tobak - http://www.foxbusiness.com/features/2016/07/26/rip-yahoo-what-caused-its-very-slow-painful-death.html

Yahoo: 9 reasons for the internet icon's decline - Cara McGoogan - http://www.telegraph.co.uk/technology/2016/07/25/yahoo-9-reasons-for-the-internet-icons-decline/

Understanding your Strategy

Studying this week’s articles, I was surprised by the fact that many executives cannot express the objective, scope, and advantage of the businesses they are currently in. This speaks volumes about the inner working of these companies. Companies with such leadership will further fail to motivate the other employees to work at their best abilities and capabilities. How companies define their business strategy will determine the direction of their business and will shape their future. It is also important that companies define their goals and objectives very clearly, both at the corporate and business unit levels. Thus, by defining their strategy comprehensibly and succinctly, they can ensure that everyone in the company is homogeneously aligned so as to achieve their growth and business plans and accomplishing their goals.

When strategies are not understood by the employees themselves it is not surprising when all the efforts to make a beautiful strategy is worthless. These strategies are never implemented to their fullest extent. The benefits which were to be reaped by these strategies are never realized. Further, the company starts hitting rock bottom due to failed attempts at achieving growth and decreasing morale among the workforce. In this regard, it would be fruitful to delineate the elements of a strategy as identified by Mike Rukstad. He identifies the three vital components of a magnificent strategy statement as objective, scope, and advantage. 

In my opinion, we have to answer the ‘W’ questions when designing a strategy statement - Who? What? When? Where? Why? And How? Companies who adopt to answer these questions will be able to better explain and understand the strategy among themselves first. After which, they can help the society to understand their place within the community, and the values they bring to the citizenry. 

Another important aspect to consider is to understand and include the competitive advantage within the strategy. Competitive advantage is what distinguishes companies from its competitors. It defines the special value proposition that the business offers to the clients. The sweet spot that needs to be attained is at the crossroads of the company’s capabilities and customers’ needs within the context where the company has its current business. A recent example can be of Apple when they introduced Apple Pay. They had a very clear strategy and goal when they introduced it in late October 2014. They aimed at becoming the m-commerce leader in a fixed time-span. Moreover, the executives from Apple were very clear on the strategy and to where they were heading in the near future. Further, they were able to translate their vision to their other clients like merchants (Dunkin’ Donuts, Kohl’s, BJ’s Wholesale Club, JCPenney, Panera Bread etc) 

Lastly, in my opinion, many a time, strategies are made wonderfully, but the problem comes when this vision is not translated to all employees properly and the strategic working is not sustained. This causes a large disconnect between expectations and the goals that are assigned within the company. With the current fast pace of the world, especially in the technology field, it becomes a strategy by itself for the companies to ensure that the employees are on-board with the vision and goals of the company. A strategy for strategy dissemination could be a need of the hour.

Focus: An Important Task

“Can You Say What Your Strategy is?” – well many companies need to ask this question to themselves. Most of the startups have an idea but don’t know how to capitalize on the innovation, generate revenue, acquiring the market share, how are your competitors doing. It was the same with our startup too, startup called “Skylark Drones Pvt. Ltd.” At first we had only an idea – sell serviceable UAVs, by serviceable we meant which can be used to serve a purpose that generates revenue.

We started to analyze the market for our product, luckily we had only a handful companies using UAV and plus was most of them were very small. The UAV’s were not considered as a serviceable product till then. Most of the other companies were focused on aerial photography. Aerial photography was easy money, everyone in the market wanted their products to be shoot from birds’ eye view. But we knew that this can be easily acquired by anyone or any new company with UAV, we wanted to be different. So we started searching for new opportunities. We found out that there were few flaws in the field of infrastructure survey and data acquisition. We knew there was no one in the market who served it. It required lot of investment. Then we came up with a plan to use the aerial photography as a cash generator and invest on other products such as survey UAV’s and data acquisition UAV’s. We started investing on R&D of the products, we spoke with professors who have worked in remote sensing and started discussing the requirements. We were successful in designing a proto type. Then started experimenting and correcting the bugs. Once we were in markets’ acceptable range we started approaching the companies, showed our sample projects and presented how we will be able to overcome the flaws in the traditional methods. They were impressed and asked us do to a small project to start. The company was in fields of petroleum, renewable energy and infra-structure. We achieved success in infrastructure and renewable energy fields, petroleum storage was difficult and nearly impossible because of absence of light (Light was important requirement for analysis). We got our first project from the company. We started approaching many other companies, but since the technology was new they were not ready to invest on service. By the end of our first project we listed all our target companies and tried to convince them to use our service. We faced lot of rejection. During this time we did not stop using aerial photography as a cash generator. Once we were successful on completing our first project, few companies expressed the interest. We capitalized the opportunity in gaining market.

Few months later we were all over the infra-structure market. Today the company is handling projects for most of the Project Management Companies in the region. Started from 6 members, now we are 60 people in span of one and half year.

In conclusion, will sticking to the same strategy from the beginning will help you grow? Our first strategy sticky to aerial photography would have not helped us grow as fast as we are now. Our second strategy was focusing on Data acquisition and Survey. Although we had success in data acquisition we did not take it up, because the fields Data acquisition and aerial photography are easily done. We wanted to acquire the market share where it’s difficult for our competitors to reach. Gain the market while your competitors are still figuring out was the plan. So our third strategy was Focus on infrastructure. We worked on it and gained market in our region. Next move is “EXPAND”. Although we shifted focus for one to another, we did not forget our core idea “Sell Serviceable UAVs”. 

Is Franchising good or bad?

Among the readings assigned for this week, the Ben and Jerry’s case has a lot of data that is relevant to those of us studying strategy development. Starting as an ice-cream vendor at a gas station in Burlington, Vermont, Ben and Jerry’s grew to become the second largest in terms of market share for super premium ice-cream in the United States by 1994. The lessons worth noting here include a broad spectrum of strategies such as product differentiation, dealing with healthy competition, manufacturing, distribution, human resources and the social mission. However, what really drew my interest was when the author mentioned franchising.

Growing up in a business family, I was only exposed to the merits of franchising. In 2001, my father and his cousins started a hotel in the central business area of our hometown in India- a city called Hyderabad. It was a successful business operation which prompted them to open a couple more hotels in close distance. As all three hotels began to bring healthy profits, we decided to expand by franchising our hotel brand known as “Swagath Group of Hotels.” Today, there are about 40 outlets in Hyderabad and business has been stable. The model is simple- Retain a large stake in each branch of the hotel while giving a stake to a partner who has the time to be responsible for the respective branch because we cannot be in all places at once. The brand value of “Swagath” brought us more customers and as a group, we were able to leverage our resources and knowledge that are required to effectively run the myriad of day-to-day operations of a hotel.

However, after reading the Ben and Jerry’s case, I realized that franchising does not necessarily have to be a boon for any business. Ben and Jerry’s franchised retail stores, known as “scoop shops” during its early years. These franchises failed to add substantial value since they only accounted 3% of the total company sales in 1994.  Another concern was that the scoop shops was causing damage to Ben and Jerry’s unique image. This struck me to think about more risks that come with franchising, such as losing control over quality; dilution of core values and consequential reputational risks. Ben and Jerry’s eventually suspended their franchising operations in the 1990s.

Although, franchising can still be a great channel for expansion, if done carefully, like I saw my family do with Swagath hotels in Hyderabad. They always controlled a majority stake and hence had the say in all big decisions. As a group, this helped to make sure that the core values were guarded and the quality remained consistent across all branches. Ben and Jerry’s too, eventually, started a new, more closely controlled franchise program which was more real-estate and retail-traffic focused.

To conclude, organizations that are looking to expand must surely consider franchising, but should tread with caution. It’s important to make sure that the quality of the product as well as the core values do not get affected.

How Defining Strategy Plays an Important role: An Employer's View

“Clarity about what makes a firm distinctive is what most helps employees understand how they can contribute to successful execution of its strategy.” – [1]

As I was delving in this week’s reading, one thing that stood out to me is How important is the clarity of the strategy. Today, I am going to discuss on the strategy of the company I worked for and what clarity means to the organization.

As an organization, Larsen & Toubro is multinational construction company with over 100 years of foundational values. Like every other major sectors, construction sectors have several branches under its main organization. Added to it, a completion of task flow consists of many levels of workers. Thus, it is very important to maintain a clarity and uniformity inside the organizational level.

As a company L&T has carved out its focus for its development over the years. What started as a housing construction company, has completely shifted its focus to major public projects under government. As the company has grown over the years, it bagged its first public project back in 1987, and it was a major success. Since then, it has built its base gradually in this sector.

Create a specialized market in the competition: There are several big players in the construction sector, but what separates L&T from other companies is they only cater to Megastructures (like Dams, Airports, Sea links, ports), and under public sector.

Generate several strategic possibilities: Today, the company is almost expected to win the bid of any major project under government auctions. However, this does not mean the company do not focus on other kinds of projects. They also cater to private project but above a certain constraint.

Identify barriers to choose: With years of experience in megastructures, the company has created a work force which specializes in delivering such tasks in the specific time frame. This is specialization is very important, because, in construction industry in-efficient project timeline can cost company millions of dollars. It must have been a part of strategy in the board room back in 1960’s-70’s, to target this segment of the market and build barriers so large that it does not match to any new entrants.

Defining the Advantage and strategy to all employees: As a site engineer with one year of experience, I am aware of the company’s direction. This shows that the organization is clear in defining its goals and objectives even to a new entrant. This plays an important role in the workforce mechanism of the company. One of the important part of the strategy is to deliver good quality project within the time and maintain safety on site. And as an employees it very important to have a definitive goal to deliver the work. Few things which my organization follows to make sure the definition of objective reaches to all level of people is : a) organizing workshops for all level of work forces and b) provide target quotes in banners, in different languages, both in site and in office, such that people are aware of the focus of the company in which they are working for and contribute accordingly.

The best part is, I was not even aware that these small events is an integral part of a successful company until I was made aware in this class. However, when I give it a thought, I felt it kept my focus to the bigger objective of my ex-company.

Reference:

[1] David G. Collis, Michael Rukstad; 2008; HBR; “Can You Say What Your Strategy Is?”

[2] Roger L. Martin; 2012; HBR; “Bringing Science to the Art of Strategy”