JWI 518, Marketing in a Global Environment, week2 summary, 10/15/12
Is marketing an art or a science ?
My position - marketing is both an art and a science
Based on the class lectures and the book (Kotler, 2012), my short answer
is that marketing is both an art and a science. To be effective in
reaching and influencing the right customers - and influencing their
perceptions and preferences, with the right promotions at the right
time, leaders will need to carefully balance data and instinct as
appropriate for the business situation. To do this, marketing leaders
need to conduct research through focus groups (to collect qualitative
data) and surveys (to collect quantitative data) and proceed with a
marketing plan with 8 attributes including goals, company SWOT, PESTEL
evaluation of external environment, buyer analysis, strategy, tactical
options, timetable and evaluation. I also believe that when time to make
the marketing decision is short and competition is fierce, a leader
must boldly move forward with decisions based on his gut instinct.
Jack Welch's position - marketing is both an art and a science
Jack Welch says marketing is both and art as well as science, depending
on the skills of those who make the decision. He confesses to being
guilty of practicing it more as an art but is quick to appreciate those
who practice it as a science. He adds that there are companies now that
do a fantastic scientific job of reaching Right customers, Right
Promotions, at Right Time. Finally, Jack Welch states that for mature
products it is much more an art to catch the eye of the consumer around
features that reach right into the soul and touch them.
Kotler's position - marketing is an art as well as science
******************
Kotler (2012) in the textbook makes a similar argument: "Marketing management is the art and science of
choosing target markets and getting,keeping, growing customers through
delivering and communicating superior customer value. Marketing is about
identifying and meeting human and social needs profitably. The aim of
marketing is to make selling superflous - to know and understand the
customer so well that the product or service fits him and sells itself.
The role of effective Marketing is to identify needs, wants, interests
of target customers, satisfy more effectively and efficiently than
competitors while preserving or enhancing consumers' and society's
long-term well-being".
Marketing begins with understanding the customer(JWI 518, week1, lecture1)
*****************************************************************
Need to understand why the customer makes a purchase and then influence
the perception and preferences before he makes the next purchase. To do
this, marketer needs to:
(a) Convey a persuasive message to target audience
(b) Design marketing pieces to stop customers, attract eyeballs and present a message
(c) Reinforce brand's image and communicate it is still around
(d) Create subconscious images to influence customer behavior
(e) People like to do business with people they like - so use right spokespersons to influence buying decisions at a later date
To understand the customer, Need a marketing plan & solid research
***********************************************************
Clearly, understanding the customer's perceptions and preferences is a
critical first step. To do this, a marketing plan - like a road map -
is needed. It shows a company the best route to get where it wants to
go. Without a map to guide its marketing journey,
a company may end up a long way from where it intended (JWI 518, week2, lecture1)
One of the worst approaches a company can take is to conduct marketing on an ad hoc basis.
A company says something like, “That sounds like a good idea. Let’s try it.”
Marketing plan must have eight attributes (week 2, lecture1):
********************************************************
(1) Goals and Objectives
A company must have a clear idea of what it wants to accomplish with its
marketing plan. Does it want to grow sales, increase market share,
enhance brand image, introduce a new brand, or reposition an aging
brand? Did we achieve our goals or not?
(2) Company Evaluation
A marketing plan must take into account the strengths and resources of
the company and its weaknesses–profitability, product lines,
acquisitions, management skills, technological capabilities, image with
the public, and the list goes on.
(3) Environmental Evaluation
It means analyzing all the outside factors that can influence the target market or the company eg. PESTEL, STEEP
(4) Buyer Analysis
An analysis of buyer motivation forms the foundation upon which the
marketing plan can be built. Buying first takes place in the mind of the
buyer.
(5) Strategy - the overall approach marketing message will take
(6) Tactics - how will the firm implement the marketing strategy
(7) Timetable - outline what needs to happen when for marketing
(8) Evaluation - did the marketing effort succeed or fail ?
To understand the customer, conduct research
**************************************
Research much have a purpose and be designed to answer specific questions.
Primary research has qualitative and quantitative approaches
Qualitative - focus groups to uncover depth of attitudes, ideas and feelings
Quantitative - Surveys to learn about buyer's attitudes and behaviors
Secondary research consists of company research, govt publications, trade and marketing journals, internet
Dr DP
Sunday, October 14, 2012
Task of a firm & Role of Marketing
JWI 518 Marketing in Global Environment, Week1, 10/14/12
Tremendous exposure to core marketing concepts in week1 itself.
Ia. Kotler 2012, Chapter 1: Defining Marketing for the Twenty-First Century
**********************************************************
Marketing is about identifying and meeting human and social needs profitably.
Marketing management is the art and science of choosing target markets and getting,keeping, growing customers through delivering and communicating superior customer value.
The aim of marketing is to make selling superflous - know and understand the customer so well that the product or service fits him and sells itself.
Ib.Task of the firm & Role of Marketing
***************************************
Identify needs, wants, interests of target customers
satisfy more effectively and efficiently than competitors
while preserving or enhancing consumers' and society's long-term well-being
The bottom line of marketing (JWI 518, week1, lecture1)
*********************************
Why your customer makes a purchase is in large part within your control.
(a) Convey a persuasive message to target audience
(b) Design marketing pieces to stop customers, attract eyeballs and present a message
(c) Reinforce brand's image and communicate it is still around
(d) Create subconscious images to influence customer behavior
(e) People like to do business with people they like - so use right spokespersons to influence buying decisions at a later date
Ic. Task of Marketing Management
*****************************************
(i) Develop marketing strategies and plans - based on core competencies and market experience, identify organization's long-run opportunities
(ii) Capture market insights - research to closely monitor market, information; assess market potential & forecast demand; assess market environment
(iii) Connect with customers - determine how to best create value for target customers; develop strong long-term relationships with customers
(iv) Build strong brands - understand how customers perceive brand's strengths and weaknesses; develop positioning strategy & how to deal with competition
(v) Shape market offerings - product (quality, design, features, packaging), services, critical marketing decisions related to pricing
(vi) Deliver value to target market - channel activities; retailers, wholesalers, distribution firms & how they make decisions
(vii) communicate value of products & services to target market - integrated marketing communications program;
individual & collective contribution of marketing activities; mass communication - advertising & PR; personal communications - direct & indirect marketing
(viii) Create successful long-term growth - consider changing global opportunities & challenges; put in place a marketing org capable of implementing marketing plan
Id. Implement with 4P + 4P framework
************************************
McCarthy's 4 Ps of Marketing
*****************************
Product: variety, quality, design, fetaures, brand name, packaging, sizes, services, warranties, returns; which offers competitive advantage?
Price: List price, discounts, allowances, payment period, credit terms; what are the financial as well as non-monetary costs ?
Promotion: Sales promotion, advertising, sales force, public relations, direction marketing; which offers competitive advantage over rivals ?
Place: Channels, Coverage, Assortments, Locations, Inventory, Transport; how convenient is it to get ?
Modern Holistic Marketing Management's 4Ps
******************************************
People - employees and internal marketing; understand people are not just as they shop but as people whose lives need to be understood broadly
Processes - creativity, discipline, structure of marketing managment; right set of processes to guide activities and programs for beneficial long term relationships;
generate insights; create breakthrough products, services, marketing activities
Programs - consumer directed activities online and offline; 4Ps + 4Ps
Performance - financial (profitability) and non-financial (brand, customer equity)
Ie. Marketing Fundamentals
**************************
what is marketing? Identification, creation, communication, delivery of customer value
What is marketed ? Goods, Services, Events, Experiences, Persons, Places, Properties, Organizations, Information, Ideas
Who Markets? A marketer is one who seeks a response - attention, purchase, vote, donation - from a prospect to achieve a sale.
What is a Market? Market is a collection of buyers and sellers who transact over a product.
Market types? based on needs, product, demographic, geographic, vote, labor, donor
Markets served? consumer, business, gloabl, non-profit or combos.
Marketplace can be physical or digital
Metamarket - cluster of complementary products and services closely related in minds of customers but spanning diverse industries.
What Sellers give and get
*************************
Sellers send goods, services, advertising communications
Sellers get money and information (customer attitudes and sales data)
If. Core Marketing Concepts
***************************
(ia) Needs preexist marketers
*****************************
Basic human needs: air, water, food, clothing, shelter
Secondary human needs: recreation, education, entertainment
Some customers have needs they are not conscious of or they cannot articulate
(ib) Types of Needs are:
************************
Stated need - customer says "I want a car.."
Real need - going deeper, customer wants something very specific; "a car whose operating cost is low - not necessarily initial price"
Unstated need - customer expects good service
Delight needs - customer would like GPS
Secret needs - customer wants to be seen as a savvy customer
(ii) Wants are needs that are directed to specific objects.
************************************************************
Demands are wants for specific projects backed by an ability to pay.
Measure demand not just by want but by ability of people to pay for it.
Marketers, along with societal factors, influence wants
(iii) Target markets, Segmentation
************************************
Identify and profile distinct buyer groups - who prefer varying products and services through demographic, psychographic, behavior differences
(iv) Positioning - Develop offering and position in the minds of target buyers as delivering specific benefits
*****************
(v) Offering
************
value proposition - address customer needs with a set of beliefs that satisfy those needs
Offer - a combinatin of products, services, information and experiences
(vi) Brand - an offering from a known source; build a strong, favorable, unique brand image
***********
(vi) value
***********
value - combo of quality, service, price; value perception increase with quality and service but decrease with price
(vii) satisfaction
*******************
a person's judgment of product's perceived performance vs expectations
sum of tangible and intangible benefits must deliver the most value in the marketplace and exceed customer expectations
(viii) marketing channels
**************************
marketers must choose the right mix of 3 channels to reach a customer
communication: deliver and receive messages from target buyers using newspapers, magazines, radio, TV, mail, phone, billboards, posters, internet, retail stores, websites, media, email, blogs, toll free number
distribution: display, sell, deliver product or service to buyer; direct & indirect (distributors, wholesalers, retailers, agents)
service:warehouses, transportation companies, banks, insurance companies
(ix) Supply chain
******************
raw materials to finished products delivered to buyers
each company captures a certain percentage of total value generated by supply chain's value delivery system
(x) Competition
****************
All actual and potential rival offerings and substitutes a buyer might consider
Key to think broadly about who the competition is
Ig. New Marketing Realities
***************************
(i) Major societal forces
IT allows accurate levels of production, targeted communications, relevant pricing
Globalization in transport, shipping and communication gives consumer choices
Deregulation creates more competition and growth opportunities
Privatization increases efficiency
Intense competition raises marketing costs, shrinks profit margins
Strong brands extended into other product categories and became megabrands
Industries converging - New opportunities are at intersection of two or more industries
Retail in transformation - store based vs nonstore competition; brick-and-click
Consumers seek new shopping experiences
(ii) New consumer capabilities
Disintermediation gives consumers buying power: removal of middle men by getting information for any offering online
Social media like Facebook, Flickr, Wiki, YouTube- Personal connections, user generated content; marketers inviting customers to help design and market offerings
Perception that product differences are minimal - customers less brand-loyal, more marketing resistant
(iii) New company capabilities
Internet for communicating and receiving information as a sales channel
augment geo reach; collect rich information about markets, customers, prospects, competitors
Social media like Twitter, Facebook - create online and offline buzz through brand advocates and user communitites
improve internal communications - purchasing, recruitment, employee training
pressure from corporate buyers pushing for increased cost efficiency with online technology
Special interest TV channels and magazines
micro-target audiences to deliver ads, coupons, personalized messages
Mobile marketing to target customers on the move
Make and sell individually differentiated goods - through Factory customization, computer technology, db marketing software
(iv) New Age of Turbulence is the new normal
chaos, risk and uncertainty characterize markets, industries, companies - spurts of periodic ups and downs
Ih. Choose among Five Competing Concepts to compete
*****************************************************
(i) Production Concept - Customers prefer products that are widely available and are inexpensive
Production efficiency, low cost, mass distribution key to also expand the market
(ii) Product Concept - Consumers prefer products that offer most quality, performance, or innovative features
Beware the "better mousetrap fallacy" - a better product by itself may not succeed in the market - pricing, distribution, advertising and proper selling are key
(iii) Selling Concept - Aggressive hard-selling effort key to push products into the marketplace
(iv) Marketing Concept - Sense and respond to customer need - being more effective than competitors in creating, delivering, communicating superior customer value to target markets
Find not right customers for your products but right products for your customers
(v) Selling vs Marketing - Seller vs Buyer focus; Selling focuses on needs of seller - convert product to cash
Marketing focuses on satisfying needs of customer - through the product creation, delivery, consumption
Ii. Marketers use consistent and holistic marketing concept
*************************************************************
Key Points for an integrated approach:
(i) Secure core customer segments against competitive moves
(ii) Aggressively take market away from weak competitors
(iii) Research customer needs and wants that are in flux
(iv) maintain or increase marketing budget rather than cutting it
(v) emphasize core values, safety and security of the firm and offerings
(vi) Act quickly to drop programs that are not working
(vii) Don't discount the best brands of the firm
(viii) save the strongest brands and products; lose the weakest
Ij. Four components of Holisting marketing are:
***********************************************
Relationship marketing
***********************
Customer Relationship Management (CRM) & Partner Relationship Management (PRM) -" build an effective network and profits will follow"
customers; employees; marketing partners - channels, suppliers, distributors, dealers, agencies; financial community - shareholders, investors, analysts
past trasactions, demographics, psychographics, media, distribution preferences
focus on most profitable customers, products, channels - achieve profitable growth, capture large share of customers' expenses, build customer loyalty
estimate customer lifetime value - design offerings and prices to make profit over customer lifetime
Integrated marketing
*********************
Design marketing activities such that "whole is greater than sum of parts"
Many different activities can create, communicate and deliver value
Marketerrs should design and implement any one activity with all other activities in mind
Choose communication options that reinforce and complement each other
Develop integrated channel strategy - optimize number of channels & resolve conflict among channels
Internal marketing
******************
Marketing is a company-wide undertaking - all departments must work together to succeed
Must communicate a vision of how the company's marketing orientation and philosophy serves customers.
Ensure organization and senior managers embrace marketing principles
Engineering - design right products
finance - provide right amount of funding
purchasing - buy right materials
production - make right tools in right time horizon
accounting - measure profitability in right ways
Build mutually satisfying long-term relationships with stakeholders
Select employees and managers - Must have positive attitude towards company, products, customers; must want to serve customers well
Train, motivate and empower entire staff - they should have knowledge, tools, authority to provide value to customers; give booklet outlining attitude about how to interact with guests
Establish standards for employee performance - remind them to deliver on brand promise; help them understand the brand and become effective advocates
Monitor employee actions - reward and reinforce good performance
Performance marketing
*********************
Understand financial and non-financial returns to business and society from marketing activities
Go beyond sales revenue - examine scorecard, interpret market share, customer loss rate, customer satisfaction, product quality
Financial Accountability
*************************
assess direct and indirect value created
- financial: impact to profitability
- intangible assets: brand building, growth of customer base, employees, distributor & supplier relations, IP capital
Social responsibility
*********************
PESTEL concerns including Ethical, Social, Environmental, Legal impact
Use social responsibility as a differentiator - for socially conscious consumers and firms; build consumer preference, increase sales, profits
II. Kotler, Wolcott and Chandrasekhar, Playing Well with Others
****************************************************************
The key message is:
The entire organization, from R&D to Marketing, must be brought together to think and act together from a customer point of view.
III. Video: Jack Welch, A Great Idea
****************************************
Nice thing about US is,
(a) there are fewer business regulations than any other place in the world and
(b) there is lots of money that most people in other countries don't have
Problem is, we have too few ideas and we are dying to find people with ideas.
If you have got an idea, just gotta have patience, knock on doors, show them your passion, sell like hell, get some capital to sell your idea. But you gotta have the ability to take no, Punches in the nose over and over again to sell, because it won't be an easy sell.
awesome training
Dr DP
Thursday, October 11, 2012
Managerial economics for better business decisions
JWI 515 Managerial Economics, Week1 Summary, 10/11/12
Summary below is based on readings (Hirschey, 2009), class lectures and learning from class discussions. Excellent opportunity for me to revisit the core economic principles and get trained in making better business decisions.
Ia. Managerial economics (week1 lecture1)
************************************
- uses powerful economic concepts and quantitative methods to solve managerial decision problems. Economic concepts include marginal analysis, theory of consumer demand, theory of the firm, industrial org and firm behavior, public choice theory, cost functions, supply demand curves, elasticity. Quantitative methods include Numerical analysis, Statistical estimation, Forecasting, game-theory, optimization techniques, information systems
- It is about winning through applied microeconomics. Maximize the value and efficiency for society by making constrained decisions and allocating scarce resources.
- Navigating competitive environment by making informed decisions, quickly adapting to changes in economic conditions
- illuminate economic forces at individual, firm, economy and market levels
- it is heavily quantitative and statistical; theoretical
- Heart of it is the Economizing problem: To maximize ability to meet unlimited wants and needs of businesses, households and society, using Resources that are are limited. Factors of production are limited resources such as Land, labor, capital, entrepreneurial ability. Organizations will pay for factors of production per current wages for labor, interest for capital and land, and make goods and services to sell. Consumers will purchase the products made with talent and pay with money. Companies will use sales revenue to pay for costs of business. Companies operate with joint effort between investors, suppliers, workers, management and serve customers. Understanding interrelationships is key to meet short term and long term goals. Companies are constrained by legal issues, regulations, public policy, market forces, supply chain, pricing factors, labor union, min wages. Constrained optimization is needed.
Ib. Types of Profits
1a. Normal Profit
******************
Normal profit is the rate of return expected to attract and retain capital
A business is making an economic loss when it fails to earn a normal profit.
1b. Economic Profit
*******************
Economic Profit is the above normal rate of return required to satisfy the firm's shareholders.
Economic Profit = Business Profit - Implicit cost (Opportunity Cost)
Use this to answer "Is it worthwhile running the business? Are opportunity costs (tangible and intangible) too high ? Is this a successful business ?"
1c. Business Profit
*******************
Business Profit (Accounting Profit) = Total Revenues - Explicit Cost
Use this to answer "Is the business viable ?"
If a firm produces an accounting profit that is lower than normal profit, then it is not viable in the long run.
2a. Explicit Accounting Cost (tangible, financial)
***************************************************
Cost of goods sold, rent, wages, interest, insurance
2b. Implicit Opportunity Cost (intangible, non-monetary)
********************************************************
Foregone value associated with current use rather than next-best use of an asset.
It is the highest-valued opportunity that must be turned down to allow current use.
In the job market, it is the income opportunity provided by next-best employment opportunity.
If another firm offers to double your salary, you can't afford to turn in down as the opportunity cost of staying with the current employer is too high.
Reference: Managerial Economics, Hirschey, 2009
Ic. Why Profit is important
***************************
- it is an indicator of business success
when positive, it signals a firms need to expand; says firm realized a gain for society and will continue to grow and prosper; attracts new entrants
when negative, it indicates a firm is in trouble; says the firm needs to change or die
- it is important for business and society
having a profit allows a firm to better fulfill the needs of society
IIa. Optimize, don't compromise (week1, lecture2)
************************************
Ability to identify and analyze costs properly helps make better decisions.
Optimization means to make something as effective, perfect, or useful as possible.
Optimal decision making requires evaluation of choices and alternatives to pick winners and losers.
This is vitally important to optimize resources to achieve the firm's objectives.
IIb. Revenue
*************
Total Revenue = Quantiy sold * Price of product
Average Revenue = Total revenue/Number of units sold => use this to Determine which customers drive most revenues and which product lines lag competition
IIc. Marginal Revenue
*********************
Marginal Revenue = change in total revenue from producing one more unit of product
Typically downward sloping line as prices decline with increasing output. When Total Revenue is maximized, marginal revenue equals zero. Each additional unit of production results in lesser and lesser added revenue. Negative marginal revenue occurs past the point of maximum revenue.
IId. Costs
**********
Short run costs - operating period in which at least one input is fixed eg. no time to buy or install new machinery
Long run costs - total flexibility in use of inputs
Fixed Costs - exists in short run; does not fluctuate with output
eg. machinery, buildings, trucks, mortgage payment, insurance premium, AMC
Variable Costs - fluctuates with level of production & output; exist in short run and long run;
eg. utility expenses, hourly wages, gas, phone bills, temps salary
Total cost = Fixed cost + Variable cost
Marginal Cost = change in total cost from producing one more unit of product; typically positive
Average cost = total costs/number of units sold = cost per unit
If Marginal cost is greater than average cost, average cost will rise.
IIe. Profit
************
Total profit = Total Revenue - Total costs
Marginal profit = change in total profit from a one-unit change in output.
When a firm maximizes profit, marginal profit equals zero
At point of maximum profitability, marginal revenue = marginal cost; does not make sense to keep expanding.
IIf. Optimization with Incremental decision making
***************************************************
One extra unit of production can affect revenue, cost and profit.
Incremental decision making analyzes effect of alternate choices.
IIg. To run a business, key metrics to track are: Revenues, Costs, Profits
***********************************************************************************
The aim of the firm is to Maximize Revenue, Minimize Costs, Maximize Profits. Revenue and Profit should show an upward slope with time while costs should ideally show a downward slope with time. Dysfunctional business will have these relationships reversed eg. IBM in 1993 (Gerstner, "who says elephants can't dance", 2002). Turning around such firms will require a solid grasp of concepts in managerial economics.
Dr DP
Summary below is based on readings (Hirschey, 2009), class lectures and learning from class discussions. Excellent opportunity for me to revisit the core economic principles and get trained in making better business decisions.
Ia. Managerial economics (week1 lecture1)
************************************
- uses powerful economic concepts and quantitative methods to solve managerial decision problems. Economic concepts include marginal analysis, theory of consumer demand, theory of the firm, industrial org and firm behavior, public choice theory, cost functions, supply demand curves, elasticity. Quantitative methods include Numerical analysis, Statistical estimation, Forecasting, game-theory, optimization techniques, information systems
- It is about winning through applied microeconomics. Maximize the value and efficiency for society by making constrained decisions and allocating scarce resources.
- Navigating competitive environment by making informed decisions, quickly adapting to changes in economic conditions
- illuminate economic forces at individual, firm, economy and market levels
- it is heavily quantitative and statistical; theoretical
- Heart of it is the Economizing problem: To maximize ability to meet unlimited wants and needs of businesses, households and society, using Resources that are are limited. Factors of production are limited resources such as Land, labor, capital, entrepreneurial ability. Organizations will pay for factors of production per current wages for labor, interest for capital and land, and make goods and services to sell. Consumers will purchase the products made with talent and pay with money. Companies will use sales revenue to pay for costs of business. Companies operate with joint effort between investors, suppliers, workers, management and serve customers. Understanding interrelationships is key to meet short term and long term goals. Companies are constrained by legal issues, regulations, public policy, market forces, supply chain, pricing factors, labor union, min wages. Constrained optimization is needed.
Ib. Types of Profits
1a. Normal Profit
******************
Normal profit is the rate of return expected to attract and retain capital
A business is making an economic loss when it fails to earn a normal profit.
1b. Economic Profit
*******************
Economic Profit is the above normal rate of return required to satisfy the firm's shareholders.
Economic Profit = Business Profit - Implicit cost (Opportunity Cost)
Use this to answer "Is it worthwhile running the business? Are opportunity costs (tangible and intangible) too high ? Is this a successful business ?"
1c. Business Profit
*******************
Business Profit (Accounting Profit) = Total Revenues - Explicit Cost
Use this to answer "Is the business viable ?"
If a firm produces an accounting profit that is lower than normal profit, then it is not viable in the long run.
2a. Explicit Accounting Cost (tangible, financial)
***************************************************
Cost of goods sold, rent, wages, interest, insurance
2b. Implicit Opportunity Cost (intangible, non-monetary)
********************************************************
Foregone value associated with current use rather than next-best use of an asset.
It is the highest-valued opportunity that must be turned down to allow current use.
In the job market, it is the income opportunity provided by next-best employment opportunity.
If another firm offers to double your salary, you can't afford to turn in down as the opportunity cost of staying with the current employer is too high.
Reference: Managerial Economics, Hirschey, 2009
Ic. Why Profit is important
***************************
- it is an indicator of business success
when positive, it signals a firms need to expand; says firm realized a gain for society and will continue to grow and prosper; attracts new entrants
when negative, it indicates a firm is in trouble; says the firm needs to change or die
- it is important for business and society
having a profit allows a firm to better fulfill the needs of society
IIa. Optimize, don't compromise (week1, lecture2)
************************************
Ability to identify and analyze costs properly helps make better decisions.
Optimization means to make something as effective, perfect, or useful as possible.
Optimal decision making requires evaluation of choices and alternatives to pick winners and losers.
This is vitally important to optimize resources to achieve the firm's objectives.
IIb. Revenue
*************
Total Revenue = Quantiy sold * Price of product
Average Revenue = Total revenue/Number of units sold => use this to Determine which customers drive most revenues and which product lines lag competition
IIc. Marginal Revenue
*********************
Marginal Revenue = change in total revenue from producing one more unit of product
Typically downward sloping line as prices decline with increasing output. When Total Revenue is maximized, marginal revenue equals zero. Each additional unit of production results in lesser and lesser added revenue. Negative marginal revenue occurs past the point of maximum revenue.
IId. Costs
**********
Short run costs - operating period in which at least one input is fixed eg. no time to buy or install new machinery
Long run costs - total flexibility in use of inputs
Fixed Costs - exists in short run; does not fluctuate with output
eg. machinery, buildings, trucks, mortgage payment, insurance premium, AMC
Variable Costs - fluctuates with level of production & output; exist in short run and long run;
eg. utility expenses, hourly wages, gas, phone bills, temps salary
Total cost = Fixed cost + Variable cost
Marginal Cost = change in total cost from producing one more unit of product; typically positive
Average cost = total costs/number of units sold = cost per unit
If Marginal cost is greater than average cost, average cost will rise.
IIe. Profit
************
Total profit = Total Revenue - Total costs
Marginal profit = change in total profit from a one-unit change in output.
When a firm maximizes profit, marginal profit equals zero
At point of maximum profitability, marginal revenue = marginal cost; does not make sense to keep expanding.
IIf. Optimization with Incremental decision making
***************************************************
One extra unit of production can affect revenue, cost and profit.
Incremental decision making analyzes effect of alternate choices.
IIg. To run a business, key metrics to track are: Revenues, Costs, Profits
***********************************************************************************
The aim of the firm is to Maximize Revenue, Minimize Costs, Maximize Profits. Revenue and Profit should show an upward slope with time while costs should ideally show a downward slope with time. Dysfunctional business will have these relationships reversed eg. IBM in 1993 (Gerstner, "who says elephants can't dance", 2002). Turning around such firms will require a solid grasp of concepts in managerial economics.
Dr DP
Saturday, September 15, 2012
Strategy Concepts
JWI 540 Strategy, Key Concepts, 9/15/12
I. Course Summary - Succinct version for quick reference & high level view
***************************************************************
1. Goal Clarity
To find a unique way for the firm and win in the market place
2. People first, strategy second
If you get the right people, game is over
3. Be a strong manager
understand firm's capabilities, identify target customers, size up competition, envision success, decide on strategic option,
define critical activities, coordinate activities & resolve conflict, prioritize action items, allocate resources & budget, communicate effectively, translate strategy to results
4a. Be customer centric
4b. Refine with customer segmentation
5. Know your competitors
Get down to the nitty gritty details; what are they having for breakfast ?!
6. Determine strategic objectives
Gain market share, contain costs, increase profit margins, meet financial targets, increase customer satisfaction
eg. GE will be #1 or #2 in arenas it competes in; else fix, sell or close
7. Identify Competitive positioning
How will you create value ? - Differentiate with highest value, lowest cost or a unique offering
8. Competitive advantage
firm's ability to create value that is unique and difficult to imitate.
9. Face the competition
traditional, latent, oblique
10. Competitive analysis
Techniques: perceived value, critical dimensions, SWOT, 5 forces, PESTEL, Benchmarking, Strategy testing, value curve
Constantly seek competitive analysis about your rivals
11. Strategy formulation
Strategy formulation is about finding the big Aha, setting a broad direction, and playing a dynamic game about how to win
12. Strategy Development
CEO cannot delegate this responsibility - must continually find new ways of winning
(a) 3 basic strategies: cost, innovation, execution
(b) Jack Welch's 5 slides framework to define a winning strategy
(c) PARTS framework to analyze strategy in any industry
(d) Four stages of strategy development
Analyze - 5 forces, SWOT, core competencies, future trends
Generate & Evaluate options - what choices does the firm have ? feasible ? risks?
Craft possible strategies - combine options into an unusual strategy and a winning game plan
Choose & Test strategy - will strategy stand up in a competitive environment ? conduct small tests to test the market and refine strategy; predict costs and revenue over time
Test strategy with VRINE: value, rarity, inimitability, non-substitutability, exploitability
(e) Make strategic choices for sustainable competitive advantage
Prioritize the most important activities
Get activities into the budget
(f) Develop a portfolio of strategic opportunities
core enhancement launch, product launch, positioning option, scouting option, stepping stones
(g) Appreciate Uncertainty
Nothing is permanent and everything changes - markets, customer preferences, products, technology
where to compete ? - markets, customers, products
how to compete ? - technologies, skills
Develop skills to take advantage of the new opportunities
Constantly create a balanced portfolio of strategic opportunities with a mix of risk and reward.
(h) Growth options - M&A, Partnerships, Alliances
Carefully weight Risk/Reward for each move
Majority of M&As fail. To increase the odds of success avoid 6 sins of M&A:
Merger of Equals, Culture fit, Reverse hostage, being afraid and not going in boldly, conqueror syndrome, paying too much in deal heat
(i) Have Exit Strategy clear
Under what conditions would you walk away from an M&A or Partnership negotiation ?
Think about Risk/Reward and BATNA.
13. Strategy Implementation
Strategy implementation is about putting the right people and skills in right jobs, and relentlessly seeking best practices
13a. Pull the 5 Strategy implementation levers
organization structure, systems, processes, people & rewards
contradictions can occur between the levers as a firm gets globalized
- Think global, act local; Decentralize decision making but coordinate policy.
13b. Shape the organizational structure
- arrangement of responsibilities, tasks, people within an organization as required by strategy.
Determines how information will flow efficiently through the firm (Carpenter & Sanders, 2009).
- types of structure include: Functional, multi-divisional, matrix, network
Strategy determines organizational structure
But org structure can also influence strategy
13c. Mobilize to win - get everybody on board
(i) ask dissenters to leave early on
(ii) Use critical tools to set the pace:
- DVP: Actively Generate Dissatisfaction (the way people feel) with status quo, Communicate a compelling vision (where you want them to go), Process (how they're going to get there)
- Gap Analysis: review regularly and remove obstacles in the way of the team
- Six Sigma
(iii) use financial and non-monetary incentives for those that remain loyal
13d. Align the organization
- vision (broad view and overarching direction),
- strategy (where and how the firm will compete to win with durable competitive advantage),
- organizational structure (arrangement of people - clarity in ownership of roles, responsibilities and resources),
- business process (includes success metrics that will be tracked eg. balanced scorecard & strategy map) and incentives.
14. Position the firm to succeed in any type of strategic opportunity portfolio
Capitalize on and expand on current capabilities
Assemble portfolio of strategic opportunities
Balance risk and reward
Match opportunities and firm's capabilities
Ramp up firm's capabilities
Get right person to run new ventures and staff sensibly
15. Defend the strategy
Detect and React to market changes quickly - use Porter's 5 forces model, monitor competitors, new entrants, substitutes
16. Strengthen core competencies (desired behaviors)
At the core of every successful firm are a handful of capabilities that result in high performance
These are complementary value creating skills or activities that other firms find diffficult to imitate
strategic capabilities and behaviors of the firm; improve the game continuously
technical know-how, reliable mfg process, close relationships with customers & suppliers, culture that fosters employee loyalty,distinctive use of technology
Tests for a core competency:
Does it truly create value from customer's point of view ?
Is it difficult to imitate ? Does it rely on a complex combination of actitivities and knowledge that lead to sustainable competitive advantage?
Does it further the strategy - closely linked to firm's strategic advantage?
17. Make customers stick
shift from transaction model to a long term relationship model
- service the hell out of them with incredible experiences
- shift from short term product focus to longer term sustained productivity focus
- leverage the balance sheet to support the customer
- share know-how
- excite user communities
18. Learn as you go
18a. Be discovery oriented and explore new ideas
18b. Ensure firm's resources and capabilities are on top of the game
18c. Be Agile: Be open and flexible to change the strategy game with new data
18d. Be constantly on the move
- update fact base constantly
- think about relative strengths to anticipate competitor move
- look outside the firm: what is changing and what is likely to change in future ?
- look inside the firm: what are the obstacles and internal challenges could undermine strategy ?
II. Course summary - Detailed version for deep dive into details
****************************************************
1. Goal Clarity - To find a unique way for the firm and win in the market place
Good things come with winning:
Firm gets stronger - profits allow sustainability and fuel future growth; growth energizes the whole place
Shareholder returns - shareholders get short term commitments and long term vision
Customer satisfaction - customers will get superior products, services, post-sales relationship
Employee satisfaction - employees get job security, better rewards
Community benefits - communities will benefit from employees giving back
2. Be Customer centric
How will you create value ?
understand the customer to make correct choice of
- objectives (what you hope to achieve in a given time period)
- competitive advantage (how you will uniquely compete for the consumer's spending)
- scope (markets, products, channels, geos)
Which customers to target - Who will buy what we sell?
Which products and services to offer them ?
How to better satisfy them ? - become customer centric, understand consumption chain, and develop long term relationships
Customer preferences evolve with time - understand the customer ; stay vigilant of changes in market shifts
3. Know your competitors
Know your competitors. Understand their styles.
Know their plays. Anticipate their next moves.
Operate proactively rather than reactively.
Define your strategy to win.
4. Be a strong manager
Understand firm's strategic capabilities
Identify target customers
size up competition
decide on strategic option
translate strategy from high level concept to results
Envision success
Define critical activities
Coordinate activities and resolve conflict- balanced score card, strategy map
Prioritize action items in the plan - clarify barriers of success
Communicate effectively - be received, understood, credible, actionable, timely
Allocate resources and budget - iterative feedback
Understand Linkages in Consumption chain
Customer Need, Demand, Strategy & Competitive Advantage, Distribution Channel, Sales as the beginning of a Customer Relationship, Post Sales Service, Customer Delight
5. Customer segmentation
Segment customers into behavior clusters (Derick Jose, 2010)
Business question, variables, isolate key variables, cluster technique, iteration, segment personas, overlay geos, overlay sentiment, evolve actionable items, track ROI
6. People first, strategy second
If you get the right people, game is over
The team with the best players wins
7. Strategic objectives
Gain market share, contain costs, increase profit margins, meet financial targets, increase customer satisfaction
eg. GE will be #1 or #2 in arenas it competes in; else fix, sell or close
8. Competitive positioning:
How will you create value ? - Differentiate with highest value, lowest cost or a unique offering
9. Competitive advantage
It is the firm's identity in the market
It is the firm's ability to create value that is unique and difficult to imitate.
Internal sources of competitive advantage - managers should check if resources and capabilities offer the most value. If lacking, acquire them.
External sources of competitive advantage - compete in attractive industries, position the firm relative to competitors; or adopt strategies to make current industry more attractive
In a dynamic market, Competitive advantage is temporary - look for emerging opportunities; develop unique resources to create disruptive change
Relentless innovation is critical to sustain competitive advantage.
10. Face the competition
Tough competitors keep the pressure on a company to drive down costs and come up with new ways to win and keep customers.
Traditional competitors - these are the well known players
Latent competitors - players who can enter the industry from a different part of the same value chain; read their signals early and react defensively and offensively
Oblique competitors - players who enter from an unrelated field; unpredictable, can attack without warning; never underestimate them; recognize and react quickly
11. Competitive analysis
(a) Techniques
"Perceived Value" Mapping - focus firm's efforts on creating value the customer wants
Critical dimensions analysis - identify critical differentiating factors, figure out how competition provides value and where firm stands
SWOT - Analyze strengths, weakenesses, opportunities, threats
Five forces - Analysze industry structure with effects of rivalry, threat to new entry, supplier power, buyer power, threat of substitutes; complementors - provide complementary products and services
PESTEL analysis - Analyze market growth and decline using political, economic, socio cultural, technological, environmental, legal context
Benchmarking - quantitative & qualitative metrics to compare firm's performance vs competitors
Strategy testing - test for situations when strategy fails; rooted in facts or hope ? unrealistic ? undifferentiated? does it drive financial shareholder value? market too small? sustainable?
Value curve - visually plot how firms compete by consolidating competitors in a single value curve (key success factors vs performance rating); examine assumptions; predict moves
(b) Constantly seek competitive analysis about your rivals
12. Strategy formulation
Strategy formulation is about finding the big Aha, setting a broad direction, and playing a dynamic game about how to win
Strategy is an approximate course of action that is frequently redefined according to shifting market conditions
Strategic management is about CEO's view of how to compete in the marketplace and lead the firm to a win.
To find your strategy, think, what is the big Aha, the special sauce in your business, the differentiator that gives competitive advantage ?
Possess some unique skills & core competencies, make some contribution, apply some process better than anyone else
Strategy diamond for coordinated pattern of attack - arenas, vehicles, differentiators, staging & pacing, economic logic
Implementation levers - organization structure, systems & processes, people and rewards
Strategy formulation and implementation should be connected
Strategic leadership is critical for decisions regarding implementation levers and resource allocations
Execution is far more important than strategy & segmentation
Constantly monitor industry dynamics with Porter's 5 forces
Experience of setting strategy can turbocharge a manager's advancement within an organization.
Rising stars take on broader responsibilities and keep a perspective beyond their function and business unit.
Involvement in strategy-development raises visibility with top management
Presents new intellectual and political challenges - an opportunity to create lasting value through analysis and actions
Each of our situation is unique - Recognize a new way to look at something (Dr D)
Pull value and wisdom from wherever you can to make the best strategy tools perspectives
Take advantage of the situation - just do something well, provide value and deliver exactly what customers need when they want it
13. Strategy Development
CEO cannot delegate this responsibility - must continually find new ways of winning
(a) 3 basic strategies: cost, innovation, execution
(b) Develop a strategy creatively
Involve the right mix of people - skills, knowledge, personalities - and ask the right questions
original insights, lateral thinkers, articulate, diplomatic, unafraid to voice views, tolerant of views
Use qualitative and quantitative analyses and take into account diverse points of view
Do not bristle when laughed at; be comfortable with ambiguity
know the organization, industry, technologies, competitors, regulatory issues
Naive questions may open up new areas of exploration
De-average buyers and users
examine binding constraints
explore unexpected successes
imagine perfection
look beyond boundaries of the business
revisit assumptions underlying processes and products
Ask potential customers at the time they are experiencing the pain if they like the idea
eliminate customer pain points & capture value;
consider radical departure vs incremental improvements;
find surprising combinations & unexpected advantages
be the first to see opportunity - focus on a subset of unexplored possibilities, overlooked corners
bound the range of acceptable ideas
Four stages of strategy development
Analyze - 5 forces, SWOT, core competencies, future trends
Generate & Evaluate options - what choices does the firm have ? feasible ? risks?
Craft possible strategies - combine options into an unusual strategy and a winning game plan
Choose & Test strategy - will strategy stand up in a competitive environment ? conduct small tests to test the market and refine strategy; predict costs and revenue over time
Test strategy with VRINE: value, rarity, inimitability, non-substitutability, exploitability
Timing is important - how long will it take to get results ?
Buy In : CEO, Analysts of past performance of firm, rivals, current industry trends, company specialists in competitive intelligence, rgulatory analysis, marketing, finance, Ops, engineering
Evaluate options
Eliminate weak ideas; focus on top 3
Is the market big ? does it fit the org? is there demand - is the market ready ?
Defend it (5 forces), create growth options, be discovery-driven and be constantly on the move
Translate strategy from high level concept to results by envisioning success, defining critical activities to break through barriers, resolving conflict through coordination,
prioritizing action items and communicating effectively.
Jack Welch's 5 slides framework to define a winning strategy
Playing field - market size, market share, high value or low cost position? business rules? profit drivers? competitors SWOT,culture? main customers?
competitors - what have they done to change competitive playing field in last year - key people stolen ? products introduced ? new distribution channel ? new entrants ?
you - what have you done- key people stolen or lost ? innovative products introduced ? bought a company ? licensed or lost new technology? leading, chasing or outflanked ?
foresight around the corner - what 1 or 2 things a competitor can do to change the game and nail you - eg new product launches or technologies ? which M&A will knock you out ?
your winning move - what can you do to change the playing field - acquisition, new product, globalization ? What can you do to make customers stick more than ever or to anyone else?
Avoid analysis paralysis. Leap from analysis to action.
PARTS framework to analyze strategy in any industry
Define game changing levers
Players who create value - rivals, competitors, new entrants, suppliers, customers, complementors
Added value - high performance, timely, cost-effective ?
Rules - what can and cannot be done in the game ? eg Legal, industry standard. who makes the rules ? add higher value by breaking rules
Tactics - score points with stakeholders, suppliers, customers; get a better position in the strategy game; drive perceived cost lower than perceived value
Scope - what are the boundaries of the game? stand-alone or can link to other games?
Develop a portfolio of strategic opportunities
14. Create Strategic Opportunity Portfolio
Balance market uncertainty vs technical execution uncertainty
Core enhancement launch - low risk
Platform launch - opportunity close to the core business; build new skills
Positioning options - new market based on good customer information; execution risk high; experiment cheaply to verify
Scouting options - high market risk; test merit with experiments before heavy investing
Stepping stones - where and how to compete is not clear; high risks; experiment to lower uncertainty, monitor signals
15. Position the firm to succeed in any type of strategic opportunity portfolio
Capitalize on and expand on current capabilities
Assemble portfolio of strategic opportunities
Balance risk and reward
Match opportunities and firm's capabilities
Ramp up firm's capabilities
Get right person to run new ventures and staff sensibly
Bigger the risk, bigger the payoff
16. Make strategic choices for sustainable competitive advantage
Prioritize the most important activities
Get activities into the budget
17. Defend the strategy and react to market changes quickly - use Porter's 5 forces model, monitor competitors, new entrants, substitutes
18. Strategy Implementation
Strategy implementation is about putting the right people and skills in right jobs, and relentlessly seeking best practices
Strategic positions - "A" jobs critical to deliver value proposition
- they have the greatest strategic impact on capabilities.
- there is high level of performance variability in these positions
- needs disproportionate investment
It is an iterative process
Actively manage strategy to achieve desired behaviors, avoid surprises and deliver results
19. Strengthen core competencies
Core competencies: what enables the firm to do something really well
at the core of every successful firm are a handful of capabilities that result in high performance
complementary value creating skills or activities that other firms find diffficult to imitate
strategic capabilities and behaviors of the firm; improve the game continuously
technical know-how, reliable mfg process, close relationships with customers & suppliers, culture that fosters employee loyalty,distinctive use of technology
Does it truly create value from customer's point of view ?
Is it difficult to imitate ? For Sustainable competitive advantage, a firm must rely a complex combination of actitivities and knowledge
Does it further the strategy ? core competency must be closely linked to firm's strategic advantage
Build core competency or buy it - create something superior to industry standard
- shift resources and decision making power to the competency you want to develop
- skunkworks: free up a small group of stars to incubate new idea
- Buy it: acquire a firm, retain the true sources of value
Protect and Maintain a core competency
create a core competency with numerous elements
Continually invest in your core competency - help employee upgrade skills, hire more people, add new machines, shore up firm's advantage, keep close watch on rivals
Do not dilute resources: keep priorities straight
20. Appreciate Uncertainty
It is a fundamental fact of business
what changes? - markets, customer preferences, products, technology
Develop skills to take advantage of the opportunities
Create a balanced portfolio of strategic opportunities with a mix of risk and reward.
where to compete ? - markets, customers, products
how to compete ? - technologies, skills
21. Growth options - M&A, Partnerships, Alliances
21a. Fastest growth option - Mergers & Acquisitions (M&A)
Fastest, most powerful tool a firm can use to change its game.
Allows firm to quickly acquire capabilities and resources
Reduce costs through consolidating, elimination of redundant positions
Increase size, share, competitive advantage
Avoid common traps in M&A and make a successful acquisition?
************************************************************
(i). Check if the same business result can be achieved at lower risk with a partnership or organic growth.
(ii). Does it make strategic sense and further the strategic objectives of the firm ?
Is this acquisition aimed at getting quick results that organic growth cannot match ?
Is this to Acquire a competitor?
Is this to move quickly into an area where you don't currently compete?
(iii). If acquisition is justified, are clear criteria for selection of target company set ?
(iv). Does the acquisition create value?
(v). Before starting the acquisition process, stay aware of the common traps in M&A (Welch, 2005)
Sin#1 - Beware of merger of equals. Anticipate people dueling over who is really in charge. Identify roles and responsibilities ahead of the acquisiton.
Sin#2 - Cultural fit based on values of the two companies is as important as strategic fit that is based on products, technologies and numbers. Some cultures don't combine, they combust. Cross-cultural differences in a merger are usually not addressed until it is too late.
Sin#3 - Reverse hostage situation
Due to deep concessions given, the acquired firm is in charge in the end. Don't pay too much for something you don't own.
Sin#4 - Being afraid rather than going boldly
Complete the integration process within 90 days of closing (eg. Lou Gerstner at IBM managed transitions successfully by drawing attention to the firm-wide priorities of the 90-days). Do not let uncertainty morph into inertia or fear.
Sin#5 - Conqueror syndrome
Don't march into new territory and install your people everywhere.
For new and expanded firm to survive, it needs the best team - you may need to let go of some of your own.
Sin#6 - Paying too much
Beware of deal Heat that comes from overheated desire.
Don't get caught in the negotiation frenzy fanned by competitive bidders and investment bankers.
M&A Risks:
People in acquired firm could have different objectives or be difficult to manage
M&A Risk mitigation
(i) Manage actively
(ii) Have clear and shared goals with well-defined targets
(iii) Have clearly defined and quantified benefits supported by strong business rationale
(iv) Monitor progress - Explicit metrics and detailed reporting must be used to ensure targets are met, problems are resolved quickly and effectively.
(v) Create and encourage formal and informal connections between the two firms
Provide multiple channels of communication about both opportunities and problems.
Ensure clear accountability so there is never any doubt about who is in charge and where decisions will be made.
(vi) Place qualified managers chosen from both firms - It is vital to Select, prepare, support, reward qualified managers.
Wisdom to know what not to do - and not doing it - is among the most valuable contributions of a strategic manager (JWI 540, Week8, Lecture1)
(vii) Manage expectations across both firms and encourage a learning mindset
PIPP During M&As
Pace - beware deal heat; quickly discover if there is any value in the acquisition and a future in the deal
Power - Read the power bases of both firms; create a power map; who is in charge - will make key staffing decisions ? who will control resources ? whose systems and culture to use ?
Information - reduce anxiety and increase trust before, during after M&A; avoid miscommunication; don't share too much or too little
People - match right people with right jobs; face resistance; decide who should go; deal with emotions; balance needs of top 20% vs middle 70%
21b. Partnership
Capitalize on other firm's resources - people, money, skills, energy
Benefits of Partnering
***********************
(a) Opportunity to learn fast and fail fast - walk away without trying to salvage a large investment.
(b) Enjoy a high potential upside for a relatively small investment while being protected from serious downside risk.
(c) Share different skill sets and financial risk
Beneficial in High-risk investments: share knowledge and financial exposure.
eg. Green energy industry has great deal of uncertainty around consumer preferences, dominant technologies, regulatory decisions, costs.
(d) Take small stakes in entrepreneurial firm in the form of Joint ventures or partnerships on selected projects.
eg. Rapidly changing high-tech sectors. Cisco & MSFT
Lower cost and higher flexibility than M&A
Different ways to partner
**************************
(i) Informal relationship: Preferred supplier network; agree to give purchasing preference to certain suppliers in exchange for better terms.
(ii) Formal relationship: Contractual agreement; Joint venture in which two firms share ownership of a project or enterprise.
(iii) Strategic Alliance: Formal agreement but not shared ownership.
(iiia) Highly integrated alliance: Functions almost like a formal relationship
Different functions inside both firms are involved from R&D, marketing, customer service, manufacturing, distribution eg. Apple & Nike with ipod sensors
(iiib) Focused alliance: involves a limited part of each partner's business such as manufacturing.
eg.IKEA had long standing mfg arrangements with some supplires, got favorable rates
(iiic) Experimental alliances: shorter duration, project-specific. Temporarily use a partner's distribution network to get customer reaction to
your product in a foreign market.
Risks of Partnering
********************
(i) Difficult to manage
***********************
Partners Not fully committed. Relationship can easily dissolve. Partner can suddenly pull out resulting in a rude suprise.
- Slow in decision making
- reluctant to commit resources
- unwilling to respond with sense or urgency when internal problems arise
(ii) Different objectives
**************************
Partners kid themselves into thinking they will be able to reach their goals
but end up working at cross-purposes
(iii) Betrayal
***************
Malicious partner
Secretly allocates costs from other parts of its business to a Joint Venture, cheating the partner.
Loss of proprietary data, processes, product designs - clear guidelines and safeguards not in place.
Hollow out one partner - cheating partner grabs substantial knowlede, people, resources.
Mole - partner's real intent is to weaken the other firm.
Victim firm does not realize what is happening until it is deeply committed to the partnership and the damage is done.
(iv) Intangible and unquantifiable metrics for success
********************************************************
(v) Constantly Nitpicking a Strong contract
********************************************
Insisting on following the letter of the contract
(vi) Too formal or Too informal relationships
*********************************************
Too informal: No relationships at all
Too formal: Rigidly defined with specified points of communication
To ensure a successful partnership
*********************************
(i) Manage actively
********************
Increase managerial attention more than in-house action items as they focus on risky new activities
(ii) Have clear and shared goals with well-defined targets
***********************************************************
(iii) Have clearly defined and quantified benefits supported by strong business rationale
******************************************************************************************
eg. tangible increase in sales
Intangible benefits could result in less disciplined partnerships
eg. hoping both partners will learn about new markets
need to specify what they hope to learn over a certain time period, how knowledge will be measured, how it will be used.
(iv) Have a strongly worded contract - but never use it to nitpick
*************************************
Mistrust and failure can result from nitpick
Very existence of a contract can lead to success
(v) Monitor progress
********************
Vitally important to good alliances and partnerships.
Do not delegate duties to partner firm and hope for the best.
Explicit metrics and detailed reporting must be used to ensure targets are met, problems are resolved quickly and effectively.
(vi) Create formal and informal connections between partner firms
*****************************************************************
Provide multiple channels of communication about both opportunities and problems.
Encourage informal contact between people from two firms.
Ensure clear accountability so there is never any doubt about who is in charge and where decisions will be made.
(vii) Place qualified management on both sides
**********************************************
Vital to Select, prepare, support, reward qualified managers.
Partnerships complicated by Geos, culture eg. US-China joint venture
No single manager can master all necessary skills without support from home team
(viii) Manage expectations
***************************
Learning mindset - manage expectations about how much can be accomplished
Removes stigma of failure when partnership or alliance dissolves.
Ending or restructuring an alliance is a powerful indicator of success.
Companies may now know enough to pursue similar opportunities on their own or acquire resources they need on a temporary basis.
Wisdom to know what not to do - and not doing it - is among the most valuable contributions of a strategic manager
****************************************************************************
22. Have Exit Strategy clear
***********************
Under what conditions would you walk away from an M&A or Partnership negotiation ?
Think about Risk/Reward and BATNA.
23. Make customers stick
shift from transaction model to a long term relationship model
- service the hell out of them with incredible experiences
- shift from short term product focus to longer term sustained productivity focus
- leverage the balance sheet to support the customer
- share know-how
- excite user communities
24. Learn as you go: Be discovery oriented and explore new ideas
Ensure firm's resources and capabilities are on top of the game
25. Be Agile: Be open and flexible to change the game with new data
26. Be constantly on the move
- update fact base constantly
- think about relative strengths to anticipate competitor move
- look outside the firm: what is changing and what is likely to change in future ?
- look inside the firm: what are the obstacles and internal challenges could undermine strategy ?
27. Mobilize to win - get everybody on board
(i) ask dissenters to leave early on
(ii) Use critical tools to set the pace:
- DVP: Actively Generate Dissatisfaction (the way people feel) with status quo, Communicate a compelling vision (where you want them to go), Process (how they're going to get there)
- Gap Analysis: review regularly and remove obstacles in the way of the team
- Six Sigma
(iii) use financial and non-monetary incentives for those that remain loyal
28. Align the organization
- vision (broad view and overarching direction),
- strategy (where and how the firm will compete to win with durable competitive advantage),
- organizational structure (arrangement of people - clarity in ownership of roles, responsibilities and resources),
- business process (includes success metrics that will be tracked eg. balanced scorecard & strategy map) and incentives.
29. Shape the organizational structure
- arrangement of responsibilities, tasks, people within an organization as required by strategy.
Determines how information will flow efficiently through the firm (Carpenter & Sanders, 2009).
- types of structure include: Functional, multi-divisional, matrix, network
Strategy determines organizational structure
But org structure can also influence strategy
30. Pull the 5 Strategy implementation levers - organization structure, systems, processes, people & rewards
contradictions can occur between the levers as a firm gets globalized
- Think global, act local; Decentralize decision making but coordinate policy.
This is one of the finest courses I have ever taken in my life.
It is a complete game changer that informs and transforms the way for a CEO to think and lead a firm to a win in the market place.
Dr DP
I. Course Summary - Succinct version for quick reference & high level view
***************************************************************
1. Goal Clarity
To find a unique way for the firm and win in the market place
2. People first, strategy second
If you get the right people, game is over
3. Be a strong manager
understand firm's capabilities, identify target customers, size up competition, envision success, decide on strategic option,
define critical activities, coordinate activities & resolve conflict, prioritize action items, allocate resources & budget, communicate effectively, translate strategy to results
4a. Be customer centric
4b. Refine with customer segmentation
5. Know your competitors
Get down to the nitty gritty details; what are they having for breakfast ?!
6. Determine strategic objectives
Gain market share, contain costs, increase profit margins, meet financial targets, increase customer satisfaction
eg. GE will be #1 or #2 in arenas it competes in; else fix, sell or close
7. Identify Competitive positioning
How will you create value ? - Differentiate with highest value, lowest cost or a unique offering
8. Competitive advantage
firm's ability to create value that is unique and difficult to imitate.
9. Face the competition
traditional, latent, oblique
10. Competitive analysis
Techniques: perceived value, critical dimensions, SWOT, 5 forces, PESTEL, Benchmarking, Strategy testing, value curve
Constantly seek competitive analysis about your rivals
11. Strategy formulation
Strategy formulation is about finding the big Aha, setting a broad direction, and playing a dynamic game about how to win
12. Strategy Development
CEO cannot delegate this responsibility - must continually find new ways of winning
(a) 3 basic strategies: cost, innovation, execution
(b) Jack Welch's 5 slides framework to define a winning strategy
(c) PARTS framework to analyze strategy in any industry
(d) Four stages of strategy development
Analyze - 5 forces, SWOT, core competencies, future trends
Generate & Evaluate options - what choices does the firm have ? feasible ? risks?
Craft possible strategies - combine options into an unusual strategy and a winning game plan
Choose & Test strategy - will strategy stand up in a competitive environment ? conduct small tests to test the market and refine strategy; predict costs and revenue over time
Test strategy with VRINE: value, rarity, inimitability, non-substitutability, exploitability
(e) Make strategic choices for sustainable competitive advantage
Prioritize the most important activities
Get activities into the budget
(f) Develop a portfolio of strategic opportunities
core enhancement launch, product launch, positioning option, scouting option, stepping stones
(g) Appreciate Uncertainty
Nothing is permanent and everything changes - markets, customer preferences, products, technology
where to compete ? - markets, customers, products
how to compete ? - technologies, skills
Develop skills to take advantage of the new opportunities
Constantly create a balanced portfolio of strategic opportunities with a mix of risk and reward.
(h) Growth options - M&A, Partnerships, Alliances
Carefully weight Risk/Reward for each move
Majority of M&As fail. To increase the odds of success avoid 6 sins of M&A:
Merger of Equals, Culture fit, Reverse hostage, being afraid and not going in boldly, conqueror syndrome, paying too much in deal heat
(i) Have Exit Strategy clear
Under what conditions would you walk away from an M&A or Partnership negotiation ?
Think about Risk/Reward and BATNA.
13. Strategy Implementation
Strategy implementation is about putting the right people and skills in right jobs, and relentlessly seeking best practices
13a. Pull the 5 Strategy implementation levers
organization structure, systems, processes, people & rewards
contradictions can occur between the levers as a firm gets globalized
- Think global, act local; Decentralize decision making but coordinate policy.
13b. Shape the organizational structure
- arrangement of responsibilities, tasks, people within an organization as required by strategy.
Determines how information will flow efficiently through the firm (Carpenter & Sanders, 2009).
- types of structure include: Functional, multi-divisional, matrix, network
Strategy determines organizational structure
But org structure can also influence strategy
13c. Mobilize to win - get everybody on board
(i) ask dissenters to leave early on
(ii) Use critical tools to set the pace:
- DVP: Actively Generate Dissatisfaction (the way people feel) with status quo, Communicate a compelling vision (where you want them to go), Process (how they're going to get there)
- Gap Analysis: review regularly and remove obstacles in the way of the team
- Six Sigma
(iii) use financial and non-monetary incentives for those that remain loyal
13d. Align the organization
- vision (broad view and overarching direction),
- strategy (where and how the firm will compete to win with durable competitive advantage),
- organizational structure (arrangement of people - clarity in ownership of roles, responsibilities and resources),
- business process (includes success metrics that will be tracked eg. balanced scorecard & strategy map) and incentives.
14. Position the firm to succeed in any type of strategic opportunity portfolio
Capitalize on and expand on current capabilities
Assemble portfolio of strategic opportunities
Balance risk and reward
Match opportunities and firm's capabilities
Ramp up firm's capabilities
Get right person to run new ventures and staff sensibly
15. Defend the strategy
Detect and React to market changes quickly - use Porter's 5 forces model, monitor competitors, new entrants, substitutes
16. Strengthen core competencies (desired behaviors)
At the core of every successful firm are a handful of capabilities that result in high performance
These are complementary value creating skills or activities that other firms find diffficult to imitate
strategic capabilities and behaviors of the firm; improve the game continuously
technical know-how, reliable mfg process, close relationships with customers & suppliers, culture that fosters employee loyalty,distinctive use of technology
Tests for a core competency:
Does it truly create value from customer's point of view ?
Is it difficult to imitate ? Does it rely on a complex combination of actitivities and knowledge that lead to sustainable competitive advantage?
Does it further the strategy - closely linked to firm's strategic advantage?
17. Make customers stick
shift from transaction model to a long term relationship model
- service the hell out of them with incredible experiences
- shift from short term product focus to longer term sustained productivity focus
- leverage the balance sheet to support the customer
- share know-how
- excite user communities
18. Learn as you go
18a. Be discovery oriented and explore new ideas
18b. Ensure firm's resources and capabilities are on top of the game
18c. Be Agile: Be open and flexible to change the strategy game with new data
18d. Be constantly on the move
- update fact base constantly
- think about relative strengths to anticipate competitor move
- look outside the firm: what is changing and what is likely to change in future ?
- look inside the firm: what are the obstacles and internal challenges could undermine strategy ?
II. Course summary - Detailed version for deep dive into details
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1. Goal Clarity - To find a unique way for the firm and win in the market place
Good things come with winning:
Firm gets stronger - profits allow sustainability and fuel future growth; growth energizes the whole place
Shareholder returns - shareholders get short term commitments and long term vision
Customer satisfaction - customers will get superior products, services, post-sales relationship
Employee satisfaction - employees get job security, better rewards
Community benefits - communities will benefit from employees giving back
2. Be Customer centric
How will you create value ?
understand the customer to make correct choice of
- objectives (what you hope to achieve in a given time period)
- competitive advantage (how you will uniquely compete for the consumer's spending)
- scope (markets, products, channels, geos)
Which customers to target - Who will buy what we sell?
Which products and services to offer them ?
How to better satisfy them ? - become customer centric, understand consumption chain, and develop long term relationships
Customer preferences evolve with time - understand the customer ; stay vigilant of changes in market shifts
3. Know your competitors
Know your competitors. Understand their styles.
Know their plays. Anticipate their next moves.
Operate proactively rather than reactively.
Define your strategy to win.
4. Be a strong manager
Understand firm's strategic capabilities
Identify target customers
size up competition
decide on strategic option
translate strategy from high level concept to results
Envision success
Define critical activities
Coordinate activities and resolve conflict- balanced score card, strategy map
Prioritize action items in the plan - clarify barriers of success
Communicate effectively - be received, understood, credible, actionable, timely
Allocate resources and budget - iterative feedback
Understand Linkages in Consumption chain
Customer Need, Demand, Strategy & Competitive Advantage, Distribution Channel, Sales as the beginning of a Customer Relationship, Post Sales Service, Customer Delight
5. Customer segmentation
Segment customers into behavior clusters (Derick Jose, 2010)
Business question, variables, isolate key variables, cluster technique, iteration, segment personas, overlay geos, overlay sentiment, evolve actionable items, track ROI
6. People first, strategy second
If you get the right people, game is over
The team with the best players wins
7. Strategic objectives
Gain market share, contain costs, increase profit margins, meet financial targets, increase customer satisfaction
eg. GE will be #1 or #2 in arenas it competes in; else fix, sell or close
8. Competitive positioning:
How will you create value ? - Differentiate with highest value, lowest cost or a unique offering
9. Competitive advantage
It is the firm's identity in the market
It is the firm's ability to create value that is unique and difficult to imitate.
Internal sources of competitive advantage - managers should check if resources and capabilities offer the most value. If lacking, acquire them.
External sources of competitive advantage - compete in attractive industries, position the firm relative to competitors; or adopt strategies to make current industry more attractive
In a dynamic market, Competitive advantage is temporary - look for emerging opportunities; develop unique resources to create disruptive change
Relentless innovation is critical to sustain competitive advantage.
10. Face the competition
Tough competitors keep the pressure on a company to drive down costs and come up with new ways to win and keep customers.
Traditional competitors - these are the well known players
Latent competitors - players who can enter the industry from a different part of the same value chain; read their signals early and react defensively and offensively
Oblique competitors - players who enter from an unrelated field; unpredictable, can attack without warning; never underestimate them; recognize and react quickly
11. Competitive analysis
(a) Techniques
"Perceived Value" Mapping - focus firm's efforts on creating value the customer wants
Critical dimensions analysis - identify critical differentiating factors, figure out how competition provides value and where firm stands
SWOT - Analyze strengths, weakenesses, opportunities, threats
Five forces - Analysze industry structure with effects of rivalry, threat to new entry, supplier power, buyer power, threat of substitutes; complementors - provide complementary products and services
PESTEL analysis - Analyze market growth and decline using political, economic, socio cultural, technological, environmental, legal context
Benchmarking - quantitative & qualitative metrics to compare firm's performance vs competitors
Strategy testing - test for situations when strategy fails; rooted in facts or hope ? unrealistic ? undifferentiated? does it drive financial shareholder value? market too small? sustainable?
Value curve - visually plot how firms compete by consolidating competitors in a single value curve (key success factors vs performance rating); examine assumptions; predict moves
(b) Constantly seek competitive analysis about your rivals
12. Strategy formulation
Strategy formulation is about finding the big Aha, setting a broad direction, and playing a dynamic game about how to win
Strategy is an approximate course of action that is frequently redefined according to shifting market conditions
Strategic management is about CEO's view of how to compete in the marketplace and lead the firm to a win.
To find your strategy, think, what is the big Aha, the special sauce in your business, the differentiator that gives competitive advantage ?
Possess some unique skills & core competencies, make some contribution, apply some process better than anyone else
Strategy diamond for coordinated pattern of attack - arenas, vehicles, differentiators, staging & pacing, economic logic
Implementation levers - organization structure, systems & processes, people and rewards
Strategy formulation and implementation should be connected
Strategic leadership is critical for decisions regarding implementation levers and resource allocations
Execution is far more important than strategy & segmentation
Constantly monitor industry dynamics with Porter's 5 forces
Experience of setting strategy can turbocharge a manager's advancement within an organization.
Rising stars take on broader responsibilities and keep a perspective beyond their function and business unit.
Involvement in strategy-development raises visibility with top management
Presents new intellectual and political challenges - an opportunity to create lasting value through analysis and actions
Each of our situation is unique - Recognize a new way to look at something (Dr D)
Pull value and wisdom from wherever you can to make the best strategy tools perspectives
Take advantage of the situation - just do something well, provide value and deliver exactly what customers need when they want it
13. Strategy Development
CEO cannot delegate this responsibility - must continually find new ways of winning
(a) 3 basic strategies: cost, innovation, execution
(b) Develop a strategy creatively
Involve the right mix of people - skills, knowledge, personalities - and ask the right questions
original insights, lateral thinkers, articulate, diplomatic, unafraid to voice views, tolerant of views
Use qualitative and quantitative analyses and take into account diverse points of view
Do not bristle when laughed at; be comfortable with ambiguity
know the organization, industry, technologies, competitors, regulatory issues
Naive questions may open up new areas of exploration
De-average buyers and users
examine binding constraints
explore unexpected successes
imagine perfection
look beyond boundaries of the business
revisit assumptions underlying processes and products
Ask potential customers at the time they are experiencing the pain if they like the idea
eliminate customer pain points & capture value;
consider radical departure vs incremental improvements;
find surprising combinations & unexpected advantages
be the first to see opportunity - focus on a subset of unexplored possibilities, overlooked corners
bound the range of acceptable ideas
Four stages of strategy development
Analyze - 5 forces, SWOT, core competencies, future trends
Generate & Evaluate options - what choices does the firm have ? feasible ? risks?
Craft possible strategies - combine options into an unusual strategy and a winning game plan
Choose & Test strategy - will strategy stand up in a competitive environment ? conduct small tests to test the market and refine strategy; predict costs and revenue over time
Test strategy with VRINE: value, rarity, inimitability, non-substitutability, exploitability
Timing is important - how long will it take to get results ?
Buy In : CEO, Analysts of past performance of firm, rivals, current industry trends, company specialists in competitive intelligence, rgulatory analysis, marketing, finance, Ops, engineering
Evaluate options
Eliminate weak ideas; focus on top 3
Is the market big ? does it fit the org? is there demand - is the market ready ?
Defend it (5 forces), create growth options, be discovery-driven and be constantly on the move
Translate strategy from high level concept to results by envisioning success, defining critical activities to break through barriers, resolving conflict through coordination,
prioritizing action items and communicating effectively.
Jack Welch's 5 slides framework to define a winning strategy
Playing field - market size, market share, high value or low cost position? business rules? profit drivers? competitors SWOT,culture? main customers?
competitors - what have they done to change competitive playing field in last year - key people stolen ? products introduced ? new distribution channel ? new entrants ?
you - what have you done- key people stolen or lost ? innovative products introduced ? bought a company ? licensed or lost new technology? leading, chasing or outflanked ?
foresight around the corner - what 1 or 2 things a competitor can do to change the game and nail you - eg new product launches or technologies ? which M&A will knock you out ?
your winning move - what can you do to change the playing field - acquisition, new product, globalization ? What can you do to make customers stick more than ever or to anyone else?
Avoid analysis paralysis. Leap from analysis to action.
PARTS framework to analyze strategy in any industry
Define game changing levers
Players who create value - rivals, competitors, new entrants, suppliers, customers, complementors
Added value - high performance, timely, cost-effective ?
Rules - what can and cannot be done in the game ? eg Legal, industry standard. who makes the rules ? add higher value by breaking rules
Tactics - score points with stakeholders, suppliers, customers; get a better position in the strategy game; drive perceived cost lower than perceived value
Scope - what are the boundaries of the game? stand-alone or can link to other games?
Develop a portfolio of strategic opportunities
14. Create Strategic Opportunity Portfolio
Balance market uncertainty vs technical execution uncertainty
Core enhancement launch - low risk
Platform launch - opportunity close to the core business; build new skills
Positioning options - new market based on good customer information; execution risk high; experiment cheaply to verify
Scouting options - high market risk; test merit with experiments before heavy investing
Stepping stones - where and how to compete is not clear; high risks; experiment to lower uncertainty, monitor signals
15. Position the firm to succeed in any type of strategic opportunity portfolio
Capitalize on and expand on current capabilities
Assemble portfolio of strategic opportunities
Balance risk and reward
Match opportunities and firm's capabilities
Ramp up firm's capabilities
Get right person to run new ventures and staff sensibly
Bigger the risk, bigger the payoff
16. Make strategic choices for sustainable competitive advantage
Prioritize the most important activities
Get activities into the budget
17. Defend the strategy and react to market changes quickly - use Porter's 5 forces model, monitor competitors, new entrants, substitutes
18. Strategy Implementation
Strategy implementation is about putting the right people and skills in right jobs, and relentlessly seeking best practices
Strategic positions - "A" jobs critical to deliver value proposition
- they have the greatest strategic impact on capabilities.
- there is high level of performance variability in these positions
- needs disproportionate investment
It is an iterative process
Actively manage strategy to achieve desired behaviors, avoid surprises and deliver results
19. Strengthen core competencies
Core competencies: what enables the firm to do something really well
at the core of every successful firm are a handful of capabilities that result in high performance
complementary value creating skills or activities that other firms find diffficult to imitate
strategic capabilities and behaviors of the firm; improve the game continuously
technical know-how, reliable mfg process, close relationships with customers & suppliers, culture that fosters employee loyalty,distinctive use of technology
Does it truly create value from customer's point of view ?
Is it difficult to imitate ? For Sustainable competitive advantage, a firm must rely a complex combination of actitivities and knowledge
Does it further the strategy ? core competency must be closely linked to firm's strategic advantage
Build core competency or buy it - create something superior to industry standard
- shift resources and decision making power to the competency you want to develop
- skunkworks: free up a small group of stars to incubate new idea
- Buy it: acquire a firm, retain the true sources of value
Protect and Maintain a core competency
create a core competency with numerous elements
Continually invest in your core competency - help employee upgrade skills, hire more people, add new machines, shore up firm's advantage, keep close watch on rivals
Do not dilute resources: keep priorities straight
20. Appreciate Uncertainty
It is a fundamental fact of business
what changes? - markets, customer preferences, products, technology
Develop skills to take advantage of the opportunities
Create a balanced portfolio of strategic opportunities with a mix of risk and reward.
where to compete ? - markets, customers, products
how to compete ? - technologies, skills
21. Growth options - M&A, Partnerships, Alliances
21a. Fastest growth option - Mergers & Acquisitions (M&A)
Fastest, most powerful tool a firm can use to change its game.
Allows firm to quickly acquire capabilities and resources
Reduce costs through consolidating, elimination of redundant positions
Increase size, share, competitive advantage
Avoid common traps in M&A and make a successful acquisition?
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(i). Check if the same business result can be achieved at lower risk with a partnership or organic growth.
(ii). Does it make strategic sense and further the strategic objectives of the firm ?
Is this acquisition aimed at getting quick results that organic growth cannot match ?
Is this to Acquire a competitor?
Is this to move quickly into an area where you don't currently compete?
(iii). If acquisition is justified, are clear criteria for selection of target company set ?
(iv). Does the acquisition create value?
(v). Before starting the acquisition process, stay aware of the common traps in M&A (Welch, 2005)
Sin#1 - Beware of merger of equals. Anticipate people dueling over who is really in charge. Identify roles and responsibilities ahead of the acquisiton.
Sin#2 - Cultural fit based on values of the two companies is as important as strategic fit that is based on products, technologies and numbers. Some cultures don't combine, they combust. Cross-cultural differences in a merger are usually not addressed until it is too late.
Sin#3 - Reverse hostage situation
Due to deep concessions given, the acquired firm is in charge in the end. Don't pay too much for something you don't own.
Sin#4 - Being afraid rather than going boldly
Complete the integration process within 90 days of closing (eg. Lou Gerstner at IBM managed transitions successfully by drawing attention to the firm-wide priorities of the 90-days). Do not let uncertainty morph into inertia or fear.
Sin#5 - Conqueror syndrome
Don't march into new territory and install your people everywhere.
For new and expanded firm to survive, it needs the best team - you may need to let go of some of your own.
Sin#6 - Paying too much
Beware of deal Heat that comes from overheated desire.
Don't get caught in the negotiation frenzy fanned by competitive bidders and investment bankers.
M&A Risks:
People in acquired firm could have different objectives or be difficult to manage
M&A Risk mitigation
(i) Manage actively
(ii) Have clear and shared goals with well-defined targets
(iii) Have clearly defined and quantified benefits supported by strong business rationale
(iv) Monitor progress - Explicit metrics and detailed reporting must be used to ensure targets are met, problems are resolved quickly and effectively.
(v) Create and encourage formal and informal connections between the two firms
Provide multiple channels of communication about both opportunities and problems.
Ensure clear accountability so there is never any doubt about who is in charge and where decisions will be made.
(vi) Place qualified managers chosen from both firms - It is vital to Select, prepare, support, reward qualified managers.
Wisdom to know what not to do - and not doing it - is among the most valuable contributions of a strategic manager (JWI 540, Week8, Lecture1)
(vii) Manage expectations across both firms and encourage a learning mindset
PIPP During M&As
Pace - beware deal heat; quickly discover if there is any value in the acquisition and a future in the deal
Power - Read the power bases of both firms; create a power map; who is in charge - will make key staffing decisions ? who will control resources ? whose systems and culture to use ?
Information - reduce anxiety and increase trust before, during after M&A; avoid miscommunication; don't share too much or too little
People - match right people with right jobs; face resistance; decide who should go; deal with emotions; balance needs of top 20% vs middle 70%
21b. Partnership
Capitalize on other firm's resources - people, money, skills, energy
Benefits of Partnering
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(a) Opportunity to learn fast and fail fast - walk away without trying to salvage a large investment.
(b) Enjoy a high potential upside for a relatively small investment while being protected from serious downside risk.
(c) Share different skill sets and financial risk
Beneficial in High-risk investments: share knowledge and financial exposure.
eg. Green energy industry has great deal of uncertainty around consumer preferences, dominant technologies, regulatory decisions, costs.
(d) Take small stakes in entrepreneurial firm in the form of Joint ventures or partnerships on selected projects.
eg. Rapidly changing high-tech sectors. Cisco & MSFT
Lower cost and higher flexibility than M&A
Different ways to partner
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(i) Informal relationship: Preferred supplier network; agree to give purchasing preference to certain suppliers in exchange for better terms.
(ii) Formal relationship: Contractual agreement; Joint venture in which two firms share ownership of a project or enterprise.
(iii) Strategic Alliance: Formal agreement but not shared ownership.
(iiia) Highly integrated alliance: Functions almost like a formal relationship
Different functions inside both firms are involved from R&D, marketing, customer service, manufacturing, distribution eg. Apple & Nike with ipod sensors
(iiib) Focused alliance: involves a limited part of each partner's business such as manufacturing.
eg.IKEA had long standing mfg arrangements with some supplires, got favorable rates
(iiic) Experimental alliances: shorter duration, project-specific. Temporarily use a partner's distribution network to get customer reaction to
your product in a foreign market.
Risks of Partnering
********************
(i) Difficult to manage
***********************
Partners Not fully committed. Relationship can easily dissolve. Partner can suddenly pull out resulting in a rude suprise.
- Slow in decision making
- reluctant to commit resources
- unwilling to respond with sense or urgency when internal problems arise
(ii) Different objectives
**************************
Partners kid themselves into thinking they will be able to reach their goals
but end up working at cross-purposes
(iii) Betrayal
***************
Malicious partner
Secretly allocates costs from other parts of its business to a Joint Venture, cheating the partner.
Loss of proprietary data, processes, product designs - clear guidelines and safeguards not in place.
Hollow out one partner - cheating partner grabs substantial knowlede, people, resources.
Mole - partner's real intent is to weaken the other firm.
Victim firm does not realize what is happening until it is deeply committed to the partnership and the damage is done.
(iv) Intangible and unquantifiable metrics for success
********************************************************
(v) Constantly Nitpicking a Strong contract
********************************************
Insisting on following the letter of the contract
(vi) Too formal or Too informal relationships
*********************************************
Too informal: No relationships at all
Too formal: Rigidly defined with specified points of communication
To ensure a successful partnership
*********************************
(i) Manage actively
********************
Increase managerial attention more than in-house action items as they focus on risky new activities
(ii) Have clear and shared goals with well-defined targets
***********************************************************
(iii) Have clearly defined and quantified benefits supported by strong business rationale
******************************************************************************************
eg. tangible increase in sales
Intangible benefits could result in less disciplined partnerships
eg. hoping both partners will learn about new markets
need to specify what they hope to learn over a certain time period, how knowledge will be measured, how it will be used.
(iv) Have a strongly worded contract - but never use it to nitpick
*************************************
Mistrust and failure can result from nitpick
Very existence of a contract can lead to success
(v) Monitor progress
********************
Vitally important to good alliances and partnerships.
Do not delegate duties to partner firm and hope for the best.
Explicit metrics and detailed reporting must be used to ensure targets are met, problems are resolved quickly and effectively.
(vi) Create formal and informal connections between partner firms
*****************************************************************
Provide multiple channels of communication about both opportunities and problems.
Encourage informal contact between people from two firms.
Ensure clear accountability so there is never any doubt about who is in charge and where decisions will be made.
(vii) Place qualified management on both sides
**********************************************
Vital to Select, prepare, support, reward qualified managers.
Partnerships complicated by Geos, culture eg. US-China joint venture
No single manager can master all necessary skills without support from home team
(viii) Manage expectations
***************************
Learning mindset - manage expectations about how much can be accomplished
Removes stigma of failure when partnership or alliance dissolves.
Ending or restructuring an alliance is a powerful indicator of success.
Companies may now know enough to pursue similar opportunities on their own or acquire resources they need on a temporary basis.
Wisdom to know what not to do - and not doing it - is among the most valuable contributions of a strategic manager
****************************************************************************
22. Have Exit Strategy clear
***********************
Under what conditions would you walk away from an M&A or Partnership negotiation ?
Think about Risk/Reward and BATNA.
23. Make customers stick
shift from transaction model to a long term relationship model
- service the hell out of them with incredible experiences
- shift from short term product focus to longer term sustained productivity focus
- leverage the balance sheet to support the customer
- share know-how
- excite user communities
24. Learn as you go: Be discovery oriented and explore new ideas
Ensure firm's resources and capabilities are on top of the game
25. Be Agile: Be open and flexible to change the game with new data
26. Be constantly on the move
- update fact base constantly
- think about relative strengths to anticipate competitor move
- look outside the firm: what is changing and what is likely to change in future ?
- look inside the firm: what are the obstacles and internal challenges could undermine strategy ?
27. Mobilize to win - get everybody on board
(i) ask dissenters to leave early on
(ii) Use critical tools to set the pace:
- DVP: Actively Generate Dissatisfaction (the way people feel) with status quo, Communicate a compelling vision (where you want them to go), Process (how they're going to get there)
- Gap Analysis: review regularly and remove obstacles in the way of the team
- Six Sigma
(iii) use financial and non-monetary incentives for those that remain loyal
28. Align the organization
- vision (broad view and overarching direction),
- strategy (where and how the firm will compete to win with durable competitive advantage),
- organizational structure (arrangement of people - clarity in ownership of roles, responsibilities and resources),
- business process (includes success metrics that will be tracked eg. balanced scorecard & strategy map) and incentives.
29. Shape the organizational structure
- arrangement of responsibilities, tasks, people within an organization as required by strategy.
Determines how information will flow efficiently through the firm (Carpenter & Sanders, 2009).
- types of structure include: Functional, multi-divisional, matrix, network
Strategy determines organizational structure
But org structure can also influence strategy
30. Pull the 5 Strategy implementation levers - organization structure, systems, processes, people & rewards
contradictions can occur between the levers as a firm gets globalized
- Think global, act local; Decentralize decision making but coordinate policy.
This is one of the finest courses I have ever taken in my life.
It is a complete game changer that informs and transforms the way for a CEO to think and lead a firm to a win in the market place.
Dr DP
Tuesday, September 11, 2012
Leverage the changing trends that shape work
JWI 520 People Management Week11 summary, 9/12/12
Key changes in the way work will be conducted in the coming decade include:
(i) workplace is everywhere
Emerging mobile and social technologies will grow rapidly - those firms that are ON 24x7 and allow transparent collaboration will gain competitive advantage. Line separating work and life will blur further.
(ii) Tech-native Millenials will become a much larger part of the workforce
Technological changes will be embraced continually; Older generations will also become tech-savvier
(iii) Wireless internet access will grow in speed, bandwidth, ubiquity
Intelligent instruments will interconnect people like never before;
unforeseen new technologies will evolve.
(iv) Expect higher stress for employees
Rapid innovation and change will mean higher stress for employees and higher risk of burnout and turn over if workforce is not managed well
(v) Knowledge work will be all pervading
Best knowledge workers are inspired and energized when reacting to unexpected challenges and see opportunity to learn something new. Such employees go on a quest to solve tough problems and display a strong tendency to connect with others who can help solve problems.
(vi) Routine and highly structured work will be replaced by non-routine tasks
Tasks that require greater autonomy and critical thinking skills will dominate (Benko& Anderson, 2010)
(vii) New and critical competencies are required such as innovation and adaptability
Job descriptions grow more fluid and malleable; emphasis is on competencies rather than tasks. Best people enjoy lack of definition around their roles and what they can contribute (Benko & Anderson, 2010)
(viii) Workplace will be further atomized to extract maximum productivity as only the most efficient firms will survive
Evaluation and rewards will be based on results rather than face-time, output rather than hours. Results-only orientation will rise eg. Best Buy employees set their own work hours and locations to get the job done. Get paid for a chunk of work, not chunk of time (Ressler & Thompson, 2010).
(ix) Workforce is a corporate lattice rather than a corporate ladder
promotions means going up or to the side
(x) Productivity and engagement will rise but ways need to be found for turnover to fall
(xi) Real time collaborative teams and leadership is increasingly ad hoc
Will be always-on and diversity-intense
(xii) Diversity considerations become mission-critical
Diversity informs a deeper understanding of the customer along multiple dimensions: Gender, generation, culture, ethnic lines, geography, background, education, expertise, roles. Diversity of thoughts backgrounds experiences increases value of new products and services that result from collaboration (Benko & Anderson, 2010). Best to treat employees as individuals as it could be dangerous to generalize and miss subtleties.
(xiii) Career paths are non-linear
employees may need to down-shift their career temporarily to care for a child or a family member. Accomodating would be key to retain stars. Need to offer a variety of career options. Employees will advance at individualized pace, with development tailored to their interests, needs, goals (Benko & Anderson, 2010)
(xiv) Companies face talent war
Increasing pressures to retain top performers in a global, hyper-connected economy is a norm.
Fueling employees' passion is a key way companies can sustain intense performance improvement
(xv) Web2.0 tools broaden participation
Tools such as social network Facebook, microblogging Twitter and wikis broaden participation at organizations. They encourage participation in projects, idea-sharing, knowledge creation, less hierarchical information flows, collaboration across departmental silos, collaboration across external stakeholders eg customers, suppliers and partners. Bottomline is speedy and lower cost access to knowledge and internal experts.
(xvi) Innovations would also originate from worldwide entrepreneurs
Enterprising employees outside of a firm's central labs in the US will play a key role (eg. P&G)
(xvii) There will be more smart people outside the firm than within it
Need to aggressively create opportunities for people within firm to work with leading-edge talent outside it
(xviii) To be successful, help develop the careers of direct reports
Shape and adapt to whatever the future holds - make and drive your own performance and also performance of people who work for you
Dr DP
Key changes in the way work will be conducted in the coming decade include:
(i) workplace is everywhere
Emerging mobile and social technologies will grow rapidly - those firms that are ON 24x7 and allow transparent collaboration will gain competitive advantage. Line separating work and life will blur further.
(ii) Tech-native Millenials will become a much larger part of the workforce
Technological changes will be embraced continually; Older generations will also become tech-savvier
(iii) Wireless internet access will grow in speed, bandwidth, ubiquity
Intelligent instruments will interconnect people like never before;
unforeseen new technologies will evolve.
(iv) Expect higher stress for employees
Rapid innovation and change will mean higher stress for employees and higher risk of burnout and turn over if workforce is not managed well
(v) Knowledge work will be all pervading
Best knowledge workers are inspired and energized when reacting to unexpected challenges and see opportunity to learn something new. Such employees go on a quest to solve tough problems and display a strong tendency to connect with others who can help solve problems.
(vi) Routine and highly structured work will be replaced by non-routine tasks
Tasks that require greater autonomy and critical thinking skills will dominate (Benko& Anderson, 2010)
(vii) New and critical competencies are required such as innovation and adaptability
Job descriptions grow more fluid and malleable; emphasis is on competencies rather than tasks. Best people enjoy lack of definition around their roles and what they can contribute (Benko & Anderson, 2010)
(viii) Workplace will be further atomized to extract maximum productivity as only the most efficient firms will survive
Evaluation and rewards will be based on results rather than face-time, output rather than hours. Results-only orientation will rise eg. Best Buy employees set their own work hours and locations to get the job done. Get paid for a chunk of work, not chunk of time (Ressler & Thompson, 2010).
(ix) Workforce is a corporate lattice rather than a corporate ladder
promotions means going up or to the side
(x) Productivity and engagement will rise but ways need to be found for turnover to fall
(xi) Real time collaborative teams and leadership is increasingly ad hoc
Will be always-on and diversity-intense
(xii) Diversity considerations become mission-critical
Diversity informs a deeper understanding of the customer along multiple dimensions: Gender, generation, culture, ethnic lines, geography, background, education, expertise, roles. Diversity of thoughts backgrounds experiences increases value of new products and services that result from collaboration (Benko & Anderson, 2010). Best to treat employees as individuals as it could be dangerous to generalize and miss subtleties.
(xiii) Career paths are non-linear
employees may need to down-shift their career temporarily to care for a child or a family member. Accomodating would be key to retain stars. Need to offer a variety of career options. Employees will advance at individualized pace, with development tailored to their interests, needs, goals (Benko & Anderson, 2010)
(xiv) Companies face talent war
Increasing pressures to retain top performers in a global, hyper-connected economy is a norm.
Fueling employees' passion is a key way companies can sustain intense performance improvement
(xv) Web2.0 tools broaden participation
Tools such as social network Facebook, microblogging Twitter and wikis broaden participation at organizations. They encourage participation in projects, idea-sharing, knowledge creation, less hierarchical information flows, collaboration across departmental silos, collaboration across external stakeholders eg customers, suppliers and partners. Bottomline is speedy and lower cost access to knowledge and internal experts.
(xvi) Innovations would also originate from worldwide entrepreneurs
Enterprising employees outside of a firm's central labs in the US will play a key role (eg. P&G)
(xvii) There will be more smart people outside the firm than within it
Need to aggressively create opportunities for people within firm to work with leading-edge talent outside it
(xviii) To be successful, help develop the careers of direct reports
Shape and adapt to whatever the future holds - make and drive your own performance and also performance of people who work for you
Dr DP
Sunday, September 9, 2012
Strategy and Organizational Structure
JWI 540, Strategy, Week10 Summary, 9/9/12
Another great week of learning. Highlights from Week10 learning for me include the following. I see this collection of concepts, with a compilation of key questions, as a vital framework I can use to define a strategy for organizations I will lead to win in the marketplace.
(I) Win
Always keep in mind the single strategic goal: winning in the marketplace
(IIa) Define the strategy at the beginning:
Sketch out a high-level but clear picture of the task:
- How will you create value ?
- What’s our overarching goal?
- Where will we compete?
- How will we outperform our rivals - what is the unique competitive advantage of the firm?
(IIb) Develop the strategy with the planning group
- use qualitative and quantitative analyses and analyzing different points of view.
(IIc) Develop a portfolio of strategic opportunities by balancing risk and rewards.
(IId) Make strategic choices for sustainable competitive advantage: be flexible vs stay the course
Create the strategic plan: translate high level objectives to set of activities; consider strategy, people, structure, processes, metrics.
(IIe) Prioritize the most important activities and tackles the ones that matter most.
(IIf) Get the activities into the budget
(IIg) Defend the strategy and react to market changes quickly - use porter's 5 forces model; monitor competitors, new entrants, substitutes
(IIh) Consider Growth options: organic internal growth by investing in new technologies and strengthening core competencies? M&A? alliances ? partnerships?
(IIi) Learn as you go: Be discovery-oriented and explore new ideas; ensure firm's Resources and Capabilities are on top of the game
(IIj) Be agile: be open and flexible to changing the game with new data
(IIk) Be Constantly on the move: Never be a sitting duck
- update fact base constantly
- think about relative strengths to anticipate competitor move
- look outside the firm: what is changing and what is likely to change in future ?
- look inside the firm: what are the obstacles and internal challenges could undermine strategy ?
(III) Implement the Strategy but recognize that it is a dynamic and iterative process.
Actively manage strategy to achieve desired behaviors, avoid surprises and deliver results.
Pay attention to the time and way the strategy is introduced and measure the degree of success in implementing it.
(IV) Mobilize to win by getting everyone on board
(i) ask dissenters to leave early on
(ii) Use critical tools to set the pace:
- DVP: Actively Generate Dissatisfaction (the way people feel) with status quo, Communicate a compelling vision (where you want them to go), Process (how they're going to get there)
- Gap Analysis: review regularly and remove obstacles in the way of the team
- Six Sigma
(iii) use financial and non-monetary incentives for those that remain loyal
(V) Align the organization to win
- vision (broad view and overarching direction),
- strategy (where and how the firm will compete to win with durable competitive advantage),
- organizational structure (arrangement of people - clarity in ownership of roles, responsibilities and resources),
- business process (includes success metrics that will be tracked eg. balanced scorecard & strategy map) and incentives.
(VI) Shape the organizational structure
- arrangement of responsibilities, tasks, people within an organization as required by strategy.
Determines how information will flow efficiently through the firm (Carpenter & Sanders, 2009).
- types of structure include: Functional, multi-divisional, matrix, network
(VII) Pull the 5 Strategy implementation levers suitably
- organization structure, systems, processes, people & rewards (Carpenter & Sanders, 2009).
What works in one region or country may not work in another region or country and so contradictions can occur between the levers as a firm gets globalized - Think global, act local; Decentralize decision making but coordinate policy.
(VIII) Strategy determines organization structure
But learning in an organization through the structure (eg. employees working at customer sites) can also change the strategy itself (Carpenter & Sanders, 2009).
Dr DP
Another great week of learning. Highlights from Week10 learning for me include the following. I see this collection of concepts, with a compilation of key questions, as a vital framework I can use to define a strategy for organizations I will lead to win in the marketplace.
(I) Win
Always keep in mind the single strategic goal: winning in the marketplace
(IIa) Define the strategy at the beginning:
Sketch out a high-level but clear picture of the task:
- How will you create value ?
- What’s our overarching goal?
- Where will we compete?
- How will we outperform our rivals - what is the unique competitive advantage of the firm?
(IIb) Develop the strategy with the planning group
- use qualitative and quantitative analyses and analyzing different points of view.
(IIc) Develop a portfolio of strategic opportunities by balancing risk and rewards.
(IId) Make strategic choices for sustainable competitive advantage: be flexible vs stay the course
Create the strategic plan: translate high level objectives to set of activities; consider strategy, people, structure, processes, metrics.
(IIe) Prioritize the most important activities and tackles the ones that matter most.
(IIf) Get the activities into the budget
(IIg) Defend the strategy and react to market changes quickly - use porter's 5 forces model; monitor competitors, new entrants, substitutes
(IIh) Consider Growth options: organic internal growth by investing in new technologies and strengthening core competencies? M&A? alliances ? partnerships?
(IIi) Learn as you go: Be discovery-oriented and explore new ideas; ensure firm's Resources and Capabilities are on top of the game
(IIj) Be agile: be open and flexible to changing the game with new data
(IIk) Be Constantly on the move: Never be a sitting duck
- update fact base constantly
- think about relative strengths to anticipate competitor move
- look outside the firm: what is changing and what is likely to change in future ?
- look inside the firm: what are the obstacles and internal challenges could undermine strategy ?
(III) Implement the Strategy but recognize that it is a dynamic and iterative process.
Actively manage strategy to achieve desired behaviors, avoid surprises and deliver results.
Pay attention to the time and way the strategy is introduced and measure the degree of success in implementing it.
(IV) Mobilize to win by getting everyone on board
(i) ask dissenters to leave early on
(ii) Use critical tools to set the pace:
- DVP: Actively Generate Dissatisfaction (the way people feel) with status quo, Communicate a compelling vision (where you want them to go), Process (how they're going to get there)
- Gap Analysis: review regularly and remove obstacles in the way of the team
- Six Sigma
(iii) use financial and non-monetary incentives for those that remain loyal
(V) Align the organization to win
- vision (broad view and overarching direction),
- strategy (where and how the firm will compete to win with durable competitive advantage),
- organizational structure (arrangement of people - clarity in ownership of roles, responsibilities and resources),
- business process (includes success metrics that will be tracked eg. balanced scorecard & strategy map) and incentives.
(VI) Shape the organizational structure
- arrangement of responsibilities, tasks, people within an organization as required by strategy.
Determines how information will flow efficiently through the firm (Carpenter & Sanders, 2009).
- types of structure include: Functional, multi-divisional, matrix, network
(VII) Pull the 5 Strategy implementation levers suitably
- organization structure, systems, processes, people & rewards (Carpenter & Sanders, 2009).
What works in one region or country may not work in another region or country and so contradictions can occur between the levers as a firm gets globalized - Think global, act local; Decentralize decision making but coordinate policy.
(VIII) Strategy determines organization structure
But learning in an organization through the structure (eg. employees working at customer sites) can also change the strategy itself (Carpenter & Sanders, 2009).
Dr DP
Understand workforce trends & shape the world of work
JWI 520, People Management, Week10 Summary, 9/9/12
This was another excellent week with many insights coming from the lecture and the DQ discussions.
I learned about work force trends that made me think and question my assumptions about work/life balance.
Key take aways:
1. Workforce is constantly changing
Key forces that affect work are technology, globalization, knowledge based economy. Managers need to understand the trends and shape the world of work, rather than waiting for things to happen.
2. Key work place trends are:
Workplace is everywhere - 9-5 is gone; firms are downsizing office spaces; Workers are at their desks only 40% of the day; temporary office spaces - hoteling and hot desks inclusive - are increasingly common; technology enables work anywhere and anytime.
Workforce is becoming diverse - sex, race, citizenship and generational differences are key diversity factors
Career paths are nonlinear - flatter hierarchies, expanded spans of control
New competencies are required - Knowledge work more valuable than traditional transactional jobs. Most successful knowledge workers have a questing disposition - seeing problems as opportunities to learn and solve problems, and a connecting disposition - they connect with others who can help them get better faster
Social technologies help connect and amplify knowledge exchange - everybody is in the game with "activity streams"
3. Work/Life balance is going through change
While ideally, work must fit into life, more often than not it is a struggle to fit life into a work dominated culture. Work/Life balance needs to be redefined especially in the context of global competition where 24x7 operation is the norm. Additionally, CEOs notoriously work 18 hour days for years and sacrifice family life in the process. For those of us aspiring to lead our own organizations at some point, we can now make informed decisions.
Dr DP
This was another excellent week with many insights coming from the lecture and the DQ discussions.
I learned about work force trends that made me think and question my assumptions about work/life balance.
Key take aways:
1. Workforce is constantly changing
Key forces that affect work are technology, globalization, knowledge based economy. Managers need to understand the trends and shape the world of work, rather than waiting for things to happen.
2. Key work place trends are:
Workplace is everywhere - 9-5 is gone; firms are downsizing office spaces; Workers are at their desks only 40% of the day; temporary office spaces - hoteling and hot desks inclusive - are increasingly common; technology enables work anywhere and anytime.
Workforce is becoming diverse - sex, race, citizenship and generational differences are key diversity factors
Career paths are nonlinear - flatter hierarchies, expanded spans of control
New competencies are required - Knowledge work more valuable than traditional transactional jobs. Most successful knowledge workers have a questing disposition - seeing problems as opportunities to learn and solve problems, and a connecting disposition - they connect with others who can help them get better faster
Social technologies help connect and amplify knowledge exchange - everybody is in the game with "activity streams"
3. Work/Life balance is going through change
While ideally, work must fit into life, more often than not it is a struggle to fit life into a work dominated culture. Work/Life balance needs to be redefined especially in the context of global competition where 24x7 operation is the norm. Additionally, CEOs notoriously work 18 hour days for years and sacrifice family life in the process. For those of us aspiring to lead our own organizations at some point, we can now make informed decisions.
Dr DP
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