Blog Post #5

What makes as winning strategy?

I think the most important part of the strategy is to pick one thing and do it well. For this simulation there is no one good battery producer. You can only be good at one specific aspect of the business. Hopefully more than one type of product fits with what your company is good at then find ways to leverage that skill. If you get good at making on type of battery see where else you can use that one type.

As someone who did not make it to the end, I think the hardest part was forecasting sales correctly. The winning strategy aside from that was to either focus on getting the price of the Nihm batteries down so you can corner the market on powertools or to get the new UC battery to a place where it comes close to meeting all the needs of the target group. You obviously do not want to get too specific on exactly how good a product is for one particular purpose such as the hard drive example from the reading. A better bet would be to focus on developing UC's till they get good so you can disrupt the market.

Have you been in an organization facing disruption?

I have not directly been in this instance but working in higher education there has been lots of talk about trying to continue growth by trying harder to target non-traditional students. There has been severe disruption caused by online and more flexible universities picking up many of that group. The way a lot of colleges have been trying to combat that is to expand their offerings to better fit the needs of that group, like an online course over the summer, as well as an increased focus on student services. This way a uni increases their completion rate as well as getting an extra year of tutition from lapsed students. 

Blog Post #4: Sony's Strategic Choices and Sega's Shortcomings

Matt Singer

Course 94-811

Blog Post #4

Theme: Developing Strategic Options, Part II

            When I was a very young child, I remember that my sisters and I were quite envious of the Sega gaming console that my cousins had whenever my family went to visit theirs. I thought that the Sonic the Hedgehog franchise games were so fun, engaging, and interesting, and I couldn’t wait to one day get a Sega console when I was older and my parents would permit it. And yet, aside from my handheld Gameboy, the first tv-connected gaming console that me and my siblings ever got a few years after our first exposure to Sega systems was a Sony Playstation.

            The explanation for this was that “Sony dominated the video game market and would continue to do so into the next generation.” Thus, at this time in the 90s, my family wasn’t alone. Our situation was replicated and repeated across the United States into the early 2000s, as Sega competitors Sony and Nintendo continued to grow and succeed while “Sega suffered financial trouble from 1998 to 2002 due to poor console sales.”

            The first “console war,” as the skirmishes between videogame developers and industry observers would come to call them, was between the Sega Genesis and the Super Nintendo. My cousins’ Sega Genesis made up some of the global 40 million device sales for the company, which barely lost out to Nintendo’s 49.10 million. The second console war, however, wasn’t even close: Sony’s Playstation console moved 102.49 million units, whereas only 32.93 million Nintendo 64 consoles were sold and only 9.5 Sega Saturns were purchased.

            Some context may be helpful: Part of the reason that Nintendo lost the second console war so badly despite edging out a victory in the previous competition was because it failed to incorporate disc-reading technology into its systems, relying instead on a continuation of cartridge-based games, and because it marketed a blocky, unwieldy controller that went against industry norms. As Cisco’s John Chambers wrote in Harvard Business Review of his time at IBM and Wang, “even great companies are imperiled if they miss a market transition.”

            But while that somewhat accounts for Nintendo’s defeat, Sega’s drubbing requires a bit more detail, and that’s because Sony’s “biggest advantage wasn't directly visible to consumers.” You see, Sony ponied up the time, resources, and concerted effort to make its internal console architecture more developer-friendly for third-party video game producers, who in turn helped stock the Playstation with a diverse roster of game options. Leaning on Chambers once again, we can see here that this was a choice that would “[require] companies to make big investments in technology,” wherein the company in question was Sony, because “those that didn’t were...left behind.”

            A few years later, Sega put out its Dreamcast console, but that exercise, too, came up disastrously short compared to Sony’s performance with its Playstation 2. It supposedly had twice as much processing power as the original Playstation, but “Sony claimed its new Playstation was five times as powerful as the Dreamcast” and featured new, then-cutting-edge technology that allowed for backward compatibility so that users could play their old Playstation games on the Playstation 2, as well as the first built-in DVD player to appear in a gaming system. "As good as Dreamcast was, it's a classic example of solving last year's problem," Scot Bayless, a senior developer with Sega during this era, recounts.

            Clayton M. Christensen remarked that the “pace of technological progress can, and often does, outstrip what markets need.” By Christensen’s account, this results in various levels of applicability of differing strategies based on technological change at different times. In a way, consumers could see Sega’s strategies as relying on what Christensen described as “sustaining technologies,” or those that promote enhanced performance within an existing paradigm. At the same time, perhaps Sony’s methods were those of a company marketing “disruptive technologies,” which introduce consumers to an entirely new concept devoid of existing industry tropes.

            Christensen details the “strong evidence that companies entering...emerging markets early have significant first-mover advantages over later entrants.” That rings very true to me as I think back to my family’s consumer experience with these gaming consoles back in the day. We, like countless other families, were just following market trends and going with the most popular gaming console because we didn’t know what about the industry. And because Sony was dominating the industry at the time, we went with Sony.

Blog #4

One of the main themes of the readings this week, and a consistent theme of the course as a whole, is that successful companies are the companies whose strategies are clearly defined, yet flexible enough to adapt to a changing and evolving market. 

In the excerpts from Why Good Companies Fail to Thrive in Fast-Moving Industries, Clayton M, Christensen discusses how companies, who by every metric would be considered “good” and successful”, fail to see the disruptive entrants to their market and miss out on opportunities or, at worst, wind up going defunct due to the disruptive technology taking over their market.  A good example of this within the executive compensation consulting industry is the emergence of web-scraping software that can quickly and effectively scrape financial information from 10-Ks and Def-14As and generate market trends and preliminary recommendations nearly instantaneously.  The executive compensation consulting industry was born out of the poor public perception of how top end executives were compensated, and companies needed a third party to sign off on all decisions in order to be able to “pass the buck” if there were public backlash.  When Dodd-Frank was passed and companies were required to disclose certain compensation information for top executives, the executive’s compensation consulting industry survived by aggregating compensation figures for their client’s peers and making compensation recommendations based on company philosophy and market data.  The services were customized, and the consulting firms could charge top dollar for their work.  Recently, however, companies like Equilar and Main Data Group have streamlined the data collection process and began to profit as a result.

Equilar and Main Data Group began as companies that just scraped financial data to provide to consulting firms, but in recent years have begun to morph from a service provider to a competitor.  Equilar opened a consulting branch to their operation that was cheaper than most consulting firms and provided bare-bones data with market trends and compensation targets with minimal customization.  As they began to gain some market share, my former company sought other options for data aggregation as to not bolster the revenue of a competitor.  They saw an opportunity and purchased Main Data Group, the other data aggregator in the industry.  The plan was to bring them in-house and cut down on costs by not having to purchase our data from Equilar.  While the motivation of my former company was to try and cut down costs and increase the margin on their current business, they missed an opportunity to be one of the first entrants into a disruptive space.  I believe that my firm should have kept the Main Data Group name as a differentiated brand and begun to offer low-cost, low-customization consulting under the Main Data Group name while continuing to provide their premium service under the name of the parent company.  This would have been a low-expenditure, low-risk decision that would have likely gained market share and increased revenue.  Unfortunately, it seems as though the company has missed their opportunity and Equilar continues to gain market-share in the consulting space.

Blog 4

I currently work for CMU’s Computer Science Department, where scientific discoveries – and related trends in society --  are discussed all the time. It’s fun to think about where an invention might take society — or vice versa: where society might take an invention, as could have been the case for HP’s Kittyhawk drive if management had exercised more prudence regarding the unknown in their initial product design and marketing strategy. This week’s articles were rewarding because they pragmatically explained the dynamics behind such trends.

As I began “Introduction: Why Good Companies Fail to Thrive in Fast-Moving Industries”, the first trend that came to mind was: electric cars. A colleague told me that electric cars, despite their positive impact on the environment and even with a significant tax credit, are not cost-effective for consumers (yet).1 In that case, I wondered, how could a company rely on anyone buying them, if the choice would be against a consumer’s own financial interests? My friend explained that companies in the electric car business rely on early adopters and company loyalists to purchase the vehicle until its technology has been made efficient enough where it can be made to be financially appealing to a wider range of consumers. Indeed, electric cars were the first disruptive technology mentioned in the article.

The article goes onto warn against some natural management intuitions: listening too much customers now rather than anticipating their future demands, chasing large profit margins, and pursuing substantial rather than niche markets. Jeff Bezos states that Amazon – our group’s organization -- must “obsess over its customers” and resist worrying about itself in order to stave off its (and any company’s) eventual demise.2 Amazon’s strategy largely seems to account for Clayton Christensen’s: it keeps profit margins low to pursue a broad range of investment activities and to gain market share.3 In Amazon’s 2018 Annual report, Jeff Bezos writes “Amazon will be experimenting at the right scale... if we occasionally have multibillion-dollar failures. …we won’t undertake such experiments cavalierly…not all good bets will ultimately pay out.”4

The two biggest takeaways from this week’s readings for me were (1) seeing threats as opportunities and (2) the importance of experimentation. Today, everyone advocates “data-driven decision making” …but what if there is no data? “Discovering New and Emerging Markets” clarifies how decision makers can act in anticipation of markets that don’t yet exist: by compensating for uncertainty and conserving resources for trial and error testing of possible strategies. Returning to the example of electric cars: while pioneer Tesla struggles with making its car financially viable5, Tesla is still seen as a threat. Traditional automakers are restructuring in order to invest competitively in electric car R&D in anticipation of electric car markets to come.6

1 Dee-Ann Durbin. “Electric cars have benefits, but likely won't save you money.” Phys.org. February 7, 2018. https://phys.org/news/2018-02-electric-cars-benefits-wont-money.html

2 Eugene Kim. “Jeff Bezos to employees: ‘One day, Amazon will fail’ but our job is to delay it as long as possible.” CNBC. November 15, 2018. https://www.cnbc.com/2018/11/15/bezos-tells-employees-one-day-amazon-will-fail-and-to-stay-hungry.html.

3 Rani Molla and Jason Del Rey. “Amazon’s epic 20-year run as a public company, explained in five charts.” May 15, 2017. https://www.vox.com/2017/5/15/15610786/amazon-jeff-bezos-public-company-profit-revenue-explained-five-charts.

4 Jeff Bezos. “2018 Amazon Annual Report.” https://ir.aboutamazon.com/static-files/0f9e36b1-7e1e-4b52-be17-145dc9d8b5ec.

5 The Guardian. “Tesla posts record $710m net loss as it struggles to produce Model 3 cars.” May 2, 2018. https://www.theguardian.com/technology/2018/may/02/tesla-loss-model-3-elon-musk

6 David Meyer. “Automakers Are Pursuing an Electric, Autonomous Future. But First: Massive Cuts”. Fortune. http://fortune.com/2019/03/20/bmw-cuts-electric-autonomous/.

Blog #4 - The only thing that is constant is change

“The only thing that is constant is change” – Heraclitus

This week’s module focused on developing strategic options in response to change. The technology revolution has been an impetus in disrupting industries that once appeared immune including – health care, government services, manufacturing and finance.  In fact, an Accenture analysis which computed a disruptability index found that 63% of the largest companies in the world “face high levels of disruption.” The bigger question facing organizations isn’t when their industry is going to be disrupted but rather when it does occur, will it be in a strong enough position to be able to react and respond quickly. The “pivot” strategy requires a little foresight and patience. More importantly, it relies on a strong leadership capable of anticipating and developing strategic options for entering into disruptive markets which inherently have forecasts and predictions that are more often or not incorrect. 

So how does one build a comprehensive strategy when there are so many unknowns? One recommendation is like in any risk-based approach, you plan for it and mitigate as much as possible. This starts by allocating resources and a percentage of your budget towards R&D in anticipation of the impending change like Cisco has done which has positioned them as trailblazers within their industry. In addition, it requires a strong balance in organizational assets in which you continually focus on the long-term while executing in the short term. Just like the game of basketball a “pivot” requires you to keep one foot planted while shifting the other foot at the same time. In 2011, Netflix saw the writing on the wall when it quickly pivoted from DVD to streaming. By splitting the company in two, Netflix was able to use its revenue stream from its DVD service to invest into the R&D for its streaming platform. Ironically, back in 2000 the CEO of Netflix at the time – Reed Hastings, flew to Blockbuster to propose a partnership that would allow the fledgling company to run Blockbusters online business. That deal never went through and we all know what happened next.  

This week’s Back Bay Battery simulation really conveyed this point as well. While power drills where initially the company’s bread and butter, the pivot to battery packs was integral. If you did not invest into process improvement or the necessary R&D for battery packs, the organization was left in a re-active position when the market shifted. The question is not if you will need to pivot but ultimately how to do it and that was an invaluable lesson I learned that I will take from this class. I personally went into the exercise without a strategy for my strategy and paid the price when my fictitious company cratered multiple times. The simulation provided a real-world context into some of the challenge’s organizations face. Businesses will ultimately need to “play catch-up with emerging technologies if they want to remain relevant in this era of artificial intelligence, automation and e-commerce.” The key strategy behind responding to change is all about positioning and as the reading illustrates only those companies who “establish a timely position in a disruptive technology” are the ones who preemptively allocate resources and some cases “build new and independent businesses around the disruptive technology.”

The lessons learned is that one could develop a strategic plan to not only respond to change but potentially drive it as well or simply don’t do anything all. There are risks on both sides ie investing in the wrong area or getting left behind. However, in an era of the mercurial Generation Z and Millenials who operate and behave differently than the baby boomers, it seems change within any industry is likely. Business adopting a “start-up” mindset while keeping an enterprise level focus strategically position themselves at the forefront.

The Art of War by Sun Tzu discusses two relevant concepts to this week's topic 

1. Change Represents Opportunity – In the midst of chaos there is opportunity and any organization who is calm, collective and takes calculated risks are better suited to benefit when those opportunities arise.
2. Know Yourself and Enemy – An organization should remain coherent while simultaneously adopting a start-up mentality. Ideally, you wouldn't need to pivot but in this age it's almost a required skill because there are constant "enemies" who are diligently working to take away your market share.

https://www.cnbc.com/2019/06/19/why-companies-prepared-for-disruption-are-the-smartest-investment-bets.html

https://hbr.org/2015/05/ciscos-ceo-on-staying-ahead-of-technology-shifts

https://www.bworldonline.com/charting-best-practices-amid-tech-disruption/

https://www.inc.com/greg-satell/pundits-love-to-tell-these-three-famous-innovation-stories-none-of-them-are-true.html

http://blog.tutorming.com/expats/life-lessons-from-the-art-of-war