Responding to Technological Trends to Sustain Market Leadership

Companies need to be aware of technological trends and advancements that can secure their positions in the market or to push them ahead in the competition. Losing sight of advancements in related fields that can eventually affect their industry can be costly to established firms. Also, the incumbent firms, however big they are, are susceptible to losing to a competition unless they pace themselves in the right direction.

Until 2000, there was no cloud-based solution in the market for ERP for CRM. This was a time when Oracle and SAP were the leaders in the CRM segment with their on-premise solutions. However, Salesforce, a new entrant in this segment disrupted the market with its “24/7 available- SaaS” ideology. It gained consumer-side force by advertising its advantages over the existing on-premise solutions. They also planned to make cloud-based applications customizable, to gain competitive advantage over the current leaders at the time. In 2007, Salesforce introduced its cloud-based CRM. They identified that they should target “Sales” teams that focus on immediate results, and since their tool did not require any set up, they could offer their product for free for first five customers at a firm without loss. They used this as their distribution channel, encouraging other people who heard about this product t use it as well, thus spreading the tool. By 2015, Salesforce has 19.7% market share in CRM.

Oracle and SAP realized how cloud is taking over their positions in the market, while they were fighting each other with their on-premise solutions. These competitors also quickly followed the trend, as SAP is now the biggest competitor for Salesforce CRM.

However, SAP recognized that cloud-disruption is not limited to CRM, and swiftly turned its eye on cloud-based ERP solution. This strategy can be seen as the company’s plan to defend its market position in the ERP segment by anticipating changes in the ERP industry. This follows trends in CRM that was established by Salesforce. Currently, SAP hold 25% of ERP market share, followed by Oracle with 13%.

These developments in CRM and ERP segments are an indication of how technology changes are disrupting major players in the industry and how these organizations can ward off newcomers by anticipating such changes. The market leaders need to watch out for disruptions in other related fields that can possibly encroach their market segments. To stay relevant for many years to come, the leaders need to be aware of long-term changes that might have to happen based off the current trends. Being prepared for uncertainties and change, while encouraging R&D to stay ahead in quality of service, and continuous market analysis and forecast are most vital for sustainability of market leaders.

References:

Michael E. Porter, “How Competitive Forces Shape Strategy”, Harvard Business Review, March-April 1979

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-global-forces-inspiring-a-new-narrative-of-progress

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-four-global-forces-breaking-all-the-trends

https://producthabits.com/salesforce-built-10-billion-empire-crm/

https://smallbusiness.chron.com/examples-successful-strategy-changes-15634.html

https://www.crmswitch.com/crm-industry/crm-industry-history/

https://www.itworld.com/article/3269585/sap-puts-salesforce-in-its-sights-with-major-crm-play.html

https://www.forbes.com/sites/louiscolumbus/2016/05/28/2015-gartner-crm-market-share-analysis-shows-salesforce-in-the-lead-growing-faster-than-market/#13eec7351051

https://chiefexecutive.net/anticipate-trends-ensure-business-success/

How we can develop better strategy by eating cornbread.

Cornbread.  Ain't nothin' wrong with that!

Many of you might have seen an article that was making the rounds on the internet a few months ago titled "7 Reasons This Muffin Mix Can Save America."  Go ahead and read it if you haven't yet.

How many of us can say that we had a complaint about a product?  And how many of us can say we actually spoke to the CEO of the company, not just some marketing or customer service intern saying that they'll pass the word on?  Cory Suter was not only able to see behind the curtain of Chelsea Milling Company (the parent company behind Jiffy Mix), but was able to bring about certain changes in the company.  Mind you, Cory Suter is not a marketing genius or a business marketing guru; he's just a simple blogger who wanted to voice his concerns with a company that he supported, and unexpectedly, they actually listened.

So you may ask what this has to do with strategy.  Fundamentally, strategy has everything to do with how successful [or unsuccessful] your business might be.  Several methodologies used by Jiffy helped them be very successful.  They chose not to dump money into marketing via advertising, or making flashy boxes to catch the eye of consumers in the supermarket aisles.  The packaging has more or less been the same since creation, and the mixes are adequately priced so that it can be consumed by the masses.  Much like how the Ford Motor Company wanted to make vehicles affordable for everyone, Jiffy tries to make good quality but cheap costing products that can be found in any home any given day of the week.

They've also decided that even with their 55% market share of all corn muffin mixes across the country, that they were going to stay in local, family-controlled ownership.  There are no stockholders to keep satisfied, but rather a CEO who cares about what goes out of the doors and onto the shelves of millions.  Creating this message and keeping it consistent is one way Chelsea Milling Co keeps their brand held in high regard.  They have roughly 350 employees, and CEO Howdy Holmes knows most of them by first name.  He makes sure that they are paid well (at an average salary of $47,000/year) and that in the same breath, his products don't cost an arm and a leg to purchase.  "Most Americans don't have two homes or much extra money to spend on things that aren't necessary," Holmes said.  "We provide high-quality ingredients at the best price to help as many customers as possible."

Chelsea also breaks the traditional trends of being strictly profit-driven.  Again, there are no shareholders to please, and considering that the original recipe for Jiffy Muffin and Corn Bread mixes came from Holmes' grandmother, he wants the level of quality to be there without worrying about how much money he'd see in his bottom line if he would just raise prices or lay off some staff.  This keeps morale and brand loyalty high for the company.

They also consider honesty a big part of their culture.  For example, on the front of their blueberry muffin mix packages, Jiffy claims that their product is "artificially flavored with imitation blueberries."  One of their competitors, Betty Crocker, has a premium blueberry muffin mix which costs twice as much and have their blueberries saturated in high fructose corn syrup and artificial flavors.  There are no labels signifying that you're not getting the real deal with Betty Crocker, but Jiffy doesn't hide it from the customer.  It's consistent with their core values of honesty and integrity, and it shows.

If you read further in the Suter post, you may see that others asked in the comments about Jiffy's use of GMOs, or genetically modified organisms.  GMOs in food means that genetic modification is used to modify the components in their products to make them survive in inclement climate regions or to stave off bugs or bacteria or serve as preservatives.  There has been a crusade to stop the sale of GMOs in grocery stores or to have them labeled up-front.  Holmes responded to the concerned customers and shown that for products such as his corn muffin mix, 88% of the corn brought into the US is GMO.  Only 12% is not GMO, which is why they haven't made the switch.  While you may choose to avoid eating Jiffy because they use GMOs and imitation material, many customers feel that this full disclosure and honesty is a good reason to support the company, and thus why they have found so much success over the years.

Friedrich Schock, the CEO of Schock Holdings, GmbH had a great quote in regards to success.  "Success means 'it follows' in Latin.  Success is something that follows, the natural result of behaving right - not the number one target in your life."  Mr. Holmes has certainly figured out a way to be successful, and it's in no small part thanks to the culture he has created with his company.  While his approach may not work for everyone and for every business, it's certainly an "idealistic" model that has proven to be sustainable through the bigger part of a century.  Focusing on creating happy customers and happy employees can indeed lead to success.

Sources:
1. Suter, Cory.  "7 Reasons This Muffin Mix Can Save America."  Web.  http://www.policymic.com/articles/30626/7-reasons-this-muffin-mix-can-save-america  March 2013.

Why does an American old grandpa run so fast in China?

---Brief discussion on strategies of KFC in China

American fast food has been prevailing in China nowadays, especially in big cities like Beijing, Shanghai, Hong Kong and Guangzhou. KFC was very successful in China, which was expected to make 36% of an estimated $2 billion operating profit from 3700 restaurants and had a 40% market share among fast-food chains compared with 16% for McDonald's until 2010, according to Euro monitor International, a London-based market research firm.

Why this American old grandpa runs so fast in China?

I think its success in China is closely associated with its analysis on environment, industry and company, which is the important step in the framework to conduct a strategic planning process.

Grandpa: I knew myself and where I am going.
Grandpa: I knew how to love and win the Chinese young” kids” hearts.

KFC knew clearly its strengths, weaknesses, opportunities and threats of the potential market in China, which laid a solid foundation for its market positioning.

KFC’s first strength should be the strong brand in the fast food industry. It has been more widely accepted and recognized in China than any other fast food brand like McDonald, Burger King, and Pizza Hut and so on. High quality of food should be his second advantage. KFC announced that their food quality was controlled by the local franchise. Their third strength should be their fast speed service and short processing time, which helped distinguish them from traditional Chinese food when they first entered China market. However, these operational advantages cannot guarantee whether the fried chicken could be successfully accepted by Chinese people and how to compete with local restaurants remained KFC’s two weaknesses.

Grandpa knows his strengths and weaknesses, and he knew which potential market he would target. Here come the opportunities and treats.

Without a large number of fast food restaurants at that time, KFC seized the opportunities to grow and expand. Until recent years, the number of KFC’s stores has been 2-3 times that of McDonald. The basic thing is to cover more customers and show its advantages of high quality, convenience and strong brand.

However, with people paying more attention to health trends, KFC has to face new challenges to develop their market and maintain the current market share when the friend chicken and potato chips were regarded as junk food. Besides, how an American company can survive under the legislative and policy of a foreign country remained a big problem.

Based on the analysis above, I really appreciated three strategies that KFC adopted under such circumstances. The strategies fully reflected that KFC knew how to love and win the Chinese young “kids” hearts.

-Localization

In order to compete with local companies that possessed the local resources and understood the local markets, KFC chose the right joint-venture partners and employed local management team and gave them decision making power. The local employees helped open up supply line and tap the local market potential.

What impressed people the most was its strategy of localizing its menu. KFC customers can purchase a bowl of congee, a rice porridge that can feature pork, pickles, mushrooms and preserved egg, which is traditional Chinese food. Besides hamburger, sandwiches, milk and hot chocolate, KFC promoted its new nutritious breakfast deep-fried dough sticks, porridge, and soy-bean milk. Afterwards, KFC also provided a chicken, bacon and mushroom rice dish. It was very unique to Chinese customers that you can find traditional Chinese food in an American fast food chain. KFC cared more about what the real customers’ need was and how to integrate their strengths into the needs. Localization without losing its uniqueness in friend chicken and other fast food was an outstanding feature of
KFC in China.

-Innovation

I also was impressed by KFC’s innovation and the speed of creating new trends. Not only did KFC focus on new types of services but also it developed new food types. KFC had diverse types of set meals for individuals, couples, families with children and also a group of friends with reasonable prices, which provided a different convenience from the short processing time.

Also, KFC offered new dishes with fish, shrimp, and other seafood that you would not combine with friend chicken. Combined with local features, KFC had specialized menu terms like a Sichuan cuisine influenced wrap. These new items together with special gifts and meanings mentioned in the attractive advertising and promotion always caused a series of consumption trends.Grandpa really knew what the young customers need and like.

-CSR

Another thing I want to mention is its Corporate Social Responsibility strategy. Its attention on charity such as Red Ribbon activity gradually got the government's recognition and improved its public relationship. Also customers would like to buy more when they knew 1% of their money spent in KFC would be contributed to charity issues.

After knowing the KFC's case, I better understand how a good strategic planning process could help a company develop faster and more successful.

However, with more and more entrants and new substitutions, KFC needs to develop more strategies to maintain its dominant position in the market.

Also, as Liu mentioned, who was the author of KFC in China: Secret Recipe for Success, how much reliance on a single market should a company have no matter how financially attractive that market is?

-Xin Wan

March 28, 2012

References:

http://www.bloomberg.com/news/2011-01-26/mcdonald-s-no-match-for-kfc-in-china-where-colonel-sanders-rules-fast-food.html

http://www.thechinaexpat.com/kfc-in-china-4-reasons-why-kfc-kills-mcdonalds/

http://www.slideshare.net/blakefelson/kfc-in-china

Strategy – Thinking And Speaking (A.K.A Can You Tell Me What You Are Thinking?)

Introduction

Strategy has always been of the pivotal cornerstones of organizations. Yet, it is also one of the easiest of entities to be misunderstood. People always believe that they think the right way and say the right things. In this blog post, I would like to focus on one specific way of thinking that might help you set your organization’s strategy and a few pointers on how to put your strategy into words so that everyone can execute your brilliant strategy.

Thinking The Rooted Way

Managers have been formulating strategies for decades. One feeling that is unanimous is that there is no right way of thinking and coming up with a strategy. However, there are some well-known ways and some not-so-known ways. One of the latter kinds is the Rooted Maps approach. Pankaj Ghemawat explains in the McKinsley Quarterly how to re-think your point of view in a global sense.

In today’s world, we have boundaries not merely on maps but also in our heads. This forms one of the restrictive blocks to creative thinking and execution. We are currently constrained by imaginary lines on maps that define the reach of our strategies. However, we need to understand that these boundaries are not relevant to our plan, but that there are other boundaries that need to be drawn to make sense as far as our organizations are concerned. For eg: let’s take Apple and try to decode the world. We will see that the majority of Apple’s sales come from Americas. However, it is important to note that India, Australia and Europe are also major contributors. However, other countries in Asia and Africa are not even on the rooted maps that we can draw for Apple. The former countries are drawn bigger than their actual sizes to conform to the amount of sales that they generate. The latter ones are drawn smaller to show that they contribute lesser. This makes it easier to visualize the world from Apple’s point of view.

How does this help, you ask? Well, one of the most important ways this helps Apple will be to find out which countries to focus new marketing on and which countries to focus customer retention policies on. Also, Apple can focus on extending spread in established countries and starting new factories in other countries. Other rooted maps can be drawn taking into consideration factors such as product lines, market share, number of years, etc. This will help in risk identification and assessment as well.

Saying Out Aloud The Right Way

· Why don’t they understand what I am trying to say?

· Why don’t my employees work as per our mission and strategy?

· Why are my projects always turned down at the end?

Managers often face questions similar to these in an organization without a clue about why they are always on the wrong end of decisions. One of the issues that they might be facing is the lack of simple, clear, and succinct strategy. While it is easy enough to come up with a strategy, it is far more difficult to explain the strategy in an effective way to the hundreds of employees in the organization. Imagine the amount of wrongs that can be done when one employee performs work without knowing the strategy and multiply that a hundred-fold and you end up with chaos. This is exactly what happens in most organizations today.

In my opinion, this is largely due to two reasons:

· Managers feel that they are awesome at articulating things when they are not

· Employees feel that they either understood the strategy or pretend to understand the strategy

In order to circumvent this problem, a strategy statement needs to have three major well-defined components:

· Objective – what the strategy aims to achieve in what time frame

· Scope – where the company is aimed at and where it is not aimed at

· Advantage – what the company has that other companies don’t have

A good strategy should be simple, clear and succinct to ensure that everyone who reads it has a firm understanding of these three key attributes so that the execution is merely dependent on their skills and not on the strategy itself. One way to think about it is: If you can convince me of the worth of your strategy in two minutes or less, I have utter faith in your execution of the strategy to its success.

Citations

1. “Remapping Your Strategic Mind-set” – Pankaj Ghemawat

2. “Can You Say What Your Strategy Is?” – David J. Collins, Michael G. Rukstad

3. “Saul Steniberg’s Depiction Of World From New York” - http://saulsteinbergfoundation.org/gallery_24_viewofworld.html

How To Choose A Strategy (A.K.A Salmons Or Sharks?)

Choosing a strategy is undoubtedly one of the most important decisions that any organization takes and it is made arduous by the forces that determine good and evil in the industry. In this blog post, I intend to briefly examine 4 strategies and how to stray away from the trodden path to determine your own fate. Let me dive right in to the 4 types.

A. Low-cost leadership strategy

This particular type of strategy is known to all and focuses on primarily ensuring the lowest cost of goods sold. This is mostly viable for small to medium businesses, but it is equally used largely by big companies. For eg: in India, we see a large competition between telecom companies like Vodafone, Airtel, Tata Indicom, Reliance, Idea, etc, reducing the price of calls to 1paise/second. Imagine calling people at 0.02cents a second!

B. Differentiation strategy

This type of strategy aims at ensuring that customers look at your company differently from other companies. The best example of this that is easily understandable to everyone is Apple. Apple products like iPod, iPhone, iPad, and MacBook have created a niche for the company that is truly their own.

C. Customer-relationship centric strategy

This type of strategy is the most pleasing one to the common man since it creates a scenario where the organization is focused on the customer. This is employed by fewer companies in the manufacturing industries and more by service oriented organizations. This is self-evident, but I would like to point out the retail shops Dick’s Sporting Goods. Every time, I go to a store in America, I am met by emptiness and lack of service. However, Dick’s makes sure that I am met by a guy who points me to where I want to go.

D. Network externalities strategy

This type of strategy is the least accessible to the common man, but is the most obvious to the geeks out there. Every user of this service needs other users to use the service. Skype used network externality to the extreme similar to AT&T in the early era of telecommunications and ensured that their business is backed by the enormous customer base that they have. Network externalities ensure fewer new entrants and give the incumbent the advantage.

Blue Oceans And Red Oceans

I propose two options for you today:

i. Stay on the same path that everyone has been following since time immemorial?

ii. Beat your own path, do your own thing and make your own destiny?

Which one would you take? What are Blue Oceans? What are Red Oceans?

Red oceans are the environments that you see around you that have always been there. Blue oceans are the ones that you make for yourselves. In my opinion, true success and large money lies in the for-profit sector in innovation. For everyone who has downloaded music illegally, Napster is a household name. Napster made a new market where none was earlier available. Many other companies like Facebook, Google, and Tata (Nano) found crevices, nooks and niches while other companies were too busy fighting in the open market. These are the organizations that really make a difference in the world. The trick is to find the perfect rapport of low cost, innovation, and buyer value. Would you rather be a salmon in the old sea or a shark in the new sea?

Citations

1. “Types Of Strategy – Which Fits Your Business?” – Excerpted from “Strategy: Create and Implement the Best Strategy for your Business”

2. “Blue Ocean Strategy” – W. Chan Kim, Renee Mauborgne

“Can You Say What Your Strategy Is?”

Today, I would like to go through the strategy of Mitsubishi UFJ Financial group (MUFG) in Japan. Almost 1 year has passed since I left for the United States. During my study in Carnegie Mellon University, I felt significant environmental changes such as demographic of the world and rise of nations. By reviewing current strategy of MUFG, I would seek a way for traditional Japanese company to survive in the drastic changing world.

MUFG consists of financial companies such as commercial banks, trust banks, securities companies, credit card companies, leasing companies, consumer finance companies, investment trust companies, and a U.S. bank (Union Bank). Its customer base is approximately 40 million retail accounts and 400,000 corporate clients with over 500 locations in more than 40 countries. MUFG earned 29% of profit from retail business in Japan, 31% from corporate business in Japan and 36% from global markets and others. The Bank of Tokyo Mitsubishi UFJ is the core of MUFG group. It earned 66% of MUFG’s profit in FY 2009. Its headquarters is located in Tokyo. According to Bankersalmanac.com, the ranking of the bank in the world is 8^th in terms of asset in US dollar.

There are three business goals in MUFG. First goal is to become “No. 1 in Service”. MUFG group will provide high-quality services using comprehensive financial functions. Second goal is to become “No.1 in Reliability”. MUFG group aims to be a financial group with financial strength using internal controls and other compliances. And MUFG contributes to the society through enhancing customer satisfaction and CSR activities. Final goal is to become “No. 1 in Global Coverage”. MUFG group aims to utilize the global network to meet the requirements of customers globally.

MUFG has short-, medium-, and long-term strategies. The short term strategy is developed as one year plan; medium term is designed as three years plan. The medium-term plan indicates that FY 2011 would be the period to actualize sustainable growth. To execute this plan, there are short-term strategies for each core business unit.

First is Retail business strategy that offer diverse product in accordance with customers needs and life stages such as asset management, inheritance, real estate and loans and so on. Second is corporate business strategy that facilitates corporate investment banking using strategic alliance with Morgan Stanley and securities companies. And MUFG expands business area in Asia, Europe, and the United States where high growth potential is expected. Final is Trust Assets business strategy that increases the balance of entrusted assets through using group’s synergy effect, developing products and improving global management institution.

In addition, as a whole group, MUFG focus on the promotion of corporate social responsibility that address of global environmental issues and nurturing society’s next generation. The bank increases the supply of money for companies and individuals that would deal with aforementioned problems. These strategies are aimed to strengthen MUFG brand.

In my opinion, the strategy of MUFG seems to be conservative at glance. However, the strategy and decision making of upper management were consistent and reasonable. For example, the bank acquired the project finance assets from the Royal Bank of Scotland Group (RBS). MUFG developed strategic alliance partnership with Morgan Stanley to provide financial products for its customers.

In addition, MUFG already took into consideration of the changes of demographic in Japan and the world. In general, the profit obtained from traditional commercial banking businesses is in accordance with the market scale in case that the risk is managed. The population of Japan is decreasing due to aging population combined with the diminishing number of children. Therefore, MUFG tries to expand business area across the globe.

The next mid-term strategy of MUFG would be released within 6 months from now. I wish that MUFG would recognize the importance of the business operation in North America as well as emerging market such as BRICs. People moves toward the major city all over the world. The United States would be the center of the world for a decade. It would create a business opportunities. Moreover, it is reasonable to build global organization and recruitment of diverse workforces at the center of the world. Human Resource Management section should start periodic and large scale recruitment of local staff and international officers at North America and major cities in the world. It would be a stepping stone to be a global corporation.

[1] http://www.bankersalmanac.com/addcon/infobank/bank-rankings.aspx

“Blue Ocean Strategy” in public sector, the New York City Police Department (NYPD).

I remember that the subway of New York was one of the most dangerous places for travelers in the early 1990s. Thanks to the strategy taken by NYPD, safety and security of the subway in New York was notably improved. Today, I would like to introduce NYPD’s Blue Ocean Strategy using Zero tolerance theory.

In February 1994, Bill Bratton took up a post as police commissioner [1]. His mission was to reduce high crime rate that had been increased for a few decades. Despite the difficulty of the mission, the budget was frozen.

He made a strategy to deal with problems. His strategy was Zero tolerance theory that would be currently widely used in the police system in the world [2]. Zero tolerance can be seen as an automatic punishment to eliminate undesired conducts [3]. For example, in case that a window in the school was broken and there was no countermeasure, other windows would be broken in sequence. By contrast, if the broken window repaired as soon as possible and the person in charge punished severely, other windows would not be broken.

Based on his strategy, NYPD started to arrest all criminal regardless the significance of the crime. They erased all scribbles in the public space of the subway and arrested all criminals who made scribbles and fare cheatings. The arrested criminals in handcuffs were linked together in front of the entrance gate. This strategy had a positive impact on the reduction of the crime rate. Not only light crime, but also index crimes, such as murders and burglaries were drastically decreased. Zero tolerance toward crimes became crime deterrent power.

According to the case study report on the website [1], “the Felony crime fell 39 percent, murders 50 percent, and theft 35 percent.” And the value of the public trust on the NYPD increased from 37% to 73%.

I believe that there were several features that matched with the idea proposed in the textbook [4]. First of all, Bill did not emphasize on crime-arrest ratio as a benchmark in the beginning. In my opinion, he made the competition using crime rate indexes irrelevant by the pile of small efforts. Second of all, the budget stayed the same level through the period that NYPD had significantly reduced crime ratio. Thus, this example clearly fortified the idea that the blue ocean strategy could be applied to existing organizations including public sectors.

Reference

[1]http://www.blueoceanstrategy.com/abo/nypd.html

[2]http://allabout.co.jp/gm/gc/59768/2/

[3]http://en.wikipedia.org/wiki/Zero_tolerance

[4]Harvard Business Review, Blue Ocean Strategy, Chen Kim and Renee Mauborgne, October 2004, p6

Strategic Outsourcing The Factor of Success

“Strategic Outsourcing” Today, I would like to introduce two companies that tried strategic IT outsourcing in the past. One company changed mind from outsourcing to in-house development. Another company succeeded and expanded the area of outsourcing. These cases must give us important implications.

First case is the outsourcing of JPMorgan Chase. In March 2003, JPMorgan Chase placed the contract in connection with the outsourcing with IBM. It was $5 billion, seven-year agreement, and the purpose of this outsource was to reduce IT cost, and it would enable JPMorgan Chase to focus on core business areas. Management of JPMorgan did not regard IT as their core business area. In addition, they transferred all systems and staff in IT section to IBM including core systems in strategic business areas.

In July 2004, JPMorgan Chase merged with Bank One. Bank One had cost cutting know-how. According to the Baseline[1], Bank One reduced headcount 12% from 2000 to 2003, and increased revenue 17% at the same period. In contrast, JPMorgan Chase reduced only 6% of headcount and increased revenue 1% during the same period. After the merge, management agreed that in-house development of IT systems using Bank One’s know-how would be more efficient than outsourcing. Based on this decision, the contract was cancelled in 2004.

Second case is the successful outsourcing of American Express. In March 2003, American Express signed the outsourcing contract with IBM[2]. The deal was $4 billion, seven-year. The aim of this outsourcing is to focus the in-house IT resource into core business areas. The scope of outsourcing was limited only peripheral areas such as Human Resource Management systems, Accounting systems, and so on. This outsourcing was succeeded. The management of American Express decided to expand the area of outsourcing. In December 2008, American Express close an outsourcing contract with EDS, and HP company in connection with desktop PCs, voice, and data networks[3]. Using the strategic outsourcing, American Express could allocate IT resources to core business and strategic areas.

In my opinion, the failure of JPMorgan Chase stemmed from the lack of self analysis and strategy development. In turn, the success of American Express was result from superior strategic decision making. There are two questions in the article, “What should you outsource?” and “How strong are your capabilities?” Aforementioned cases imply that these two questions would be crucial to Strategic Outsourcing.

Reference

[1] http://www.baselinemag.com/c/a/Projects-Management/Why-JP-Morgan-Chase-Really-Dropped-IBM/

[2]http://www.cioupdate.com/news/article.php/1005431/Behind-American-Express-4-Billion-Outsourcing-Bet.htm

[3]http://www.cio.com/article/496663/American_Express_Inks_Outsourcing_Deal_with_HP_EDS

Nintendo's history and its business model reinvention process

The article “Reinventing Your Business Model[i]“ reminded me of Nintendo. Nintendo is well known as a hardware and software provider in the area of digital game. In this blog, I would like to introduce their business model reinventions basing on the historical transition of successes and failures.

Nintendo was founded in 1889[ii] as a card game company. The grandson of a founder, Hiroshi Yamauchi, took up a post as CEO in 1942. After he took office, Nintendo invented plastic cards and customized cards for children using Disney characters.

However, CEO realized that the growth of the company was limited as a card game company. He decided to diversify business areas. The company started the operation of hotels and Taxi Company, the production of instant food, and so forth[iii]. Unfortunately, every trial was failed because the company did not have know-how. Among all, Laser Clay Shooting System, which the company bet their future as core business area, was the biggest failure. As a result, the company saddled with huge debt. At that time, an employee of Nintendo came to him in a flash watching a person used a calculator in the train. Thanks to this inspiration, Nintendo could invent the mobile game machine, Game Watch. This product became a hit and took up the debt. Thus, the company had a little strategy and operated on a hit-or-miss basis several decades ago.

In 1980s, Nintendo prepared for digital game market for the consumer. Basing on the previous failures, they analyzed the market and decided to reinvent their business model. At that time, Atari was the major player in the United States; however the Atari’s market was shrinking. Nintendo analyzed that the cause of decline stemmed from the low quality software. Therefore, Nintendo built software market management system before they would start selling new hardware platform “Family computer”, the first mega-hit product of this company. The system is that only licensed software companies could develop and sell the game for Family Computer. Nintendo screened the contents. And the contents providers had to request Nintendo to produce their cassette media. Thus, Nintendo provided not only hardware platform; but also they established new business models using four features. First was customer value proposition that certified the quality of software for customer. Second was profit formula that yields continuous income in accordance with the expansion of the game market. Third were key resources such as technology of hardware and brand of Nintendo. Fourth was key process that was established by software market management system.

The second crisis had come in 1994. Sony released Play Station that had a CD-ROM. At that time, Nintendo focused on the performance of CPU and loading time of the game. Therefore, they adopted 64 bit CPU and decided to use cassette as a media in their new product, Nintendo 64[iv]. As a result, Sony grabbed market share from Nintendo. Based on the market trends, Nintendo changed strategy and released Game Cube, which had a superior media. However, Sony released Play Station 2 at the same time. It was difficult for Nintendo to retake control of market share.

In this circumstance, Nintendo decided to reinvent business model again. They found that the number of people who play with digital game seemed to hit a peak. They thought that the causes had roots in the complex game system and its difficulty for the beginner. The reduction of these factors was requires for the increase of consumer market such as women and middle-aged people who did not interested in the game. And Nintendo also focused how they could provide efficient and productive environment for developers. The reduction of investment and software development cost had a positive impact on the increase in contents providers. Based on these analyses, Nintendo DS and Wii had developed. It can be seen as a blue ocean strategy, and it made Nintendo irrelevant from competition.

In conclusion, I learned that business model reinventions would be required periodically from history of Nintendo. The successes and failures of Nintendo might be the same as the word of Darwin, “"Fitness” does not refer to whether an individual is "physically fit" – bigger, faster or stronger – or "better" in any subjective sense. It refers to a difference in reproductive rate from one generation to the next.” Nintendo clearly learned from the failures, and they did not persistent in business model that succeeded in the past. The persistence in the past success might be result in Inertia as a gradual decline. On the other hand, the trials and errors of reinventions seems to raise employees’ skill and knowledge to cope with current and future crises.

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[i] Reinventing Your Business Model, Harvard Business Review, Mark W.Johnson, Clayton M.Christensen, and Henning Kagermann

[ii] Nintendo Homepage

http://www.nintendo.co.jp/corporate/history/index.html

[iii] Wiki Nintendo

http://ja.wikipedia.org/wiki/%E4%BB%BB%E5%A4%A9%E5%A0%82

[iv] The crises that Nintendo overcame

http://allabout.co.jp/gm/gc/215654/