Mac sales remain important for Apple, even though they accounted for only 43% of apples total revenue, in ’07.
Strategic Positioning: Apple put a high premium on creating machines which offered a cutting-edge, tightly integrated user experience.
High Premium , high priced software, hardware & peripheral products
Emphasized ease of use, interoperability with other machines, security, high quality software applications
Apple has become a less closed system, incorporating standard interfaces such as the usb port.
Technology & Innovation
June ’05 – Apple announced that it would move away from PowerPC chips in favor of Intel microprocessors.
The PowerPC chip couldn’t mach Intel’s performance and this was affecting apples ability to compete effectively in the laptop segment. Intel chips also enabled apple to build faster, more powerful laptops, capable of running Windows and other 3rd party operating systems. (this capability offset a longstanding disadvantage to choosing a Mac. By loading software applications such as VMware Fusion, Parallels Desktop - Macintosh users could operate both Windows & Mac-based applications.
Apple introduced a fully overhauled OS in ’01, called the Mac OS X, the new OS offered a more stable environment than previous Mac platforms. Apple introduced updates every 12-18 months with the aim of generating incremental revenue and new interest/awareness about Mac products (thereby driving increased loyalty amongst Mac users). In Oct ‘ 07 – apple launched Leopard, it’s 6th OS release.
Proprietary Software Applications
Apple developed proprietary software applications to support its Mac line. (iLife suite – iPhoto, iTunes, iWeb). In ’03, Apple launched its Safari web browser to compete with Internet Explorer and Firefox
Distribution & Sales
Apple opened it’s first retail store in may ’01. By June ’08, it operated 215 stores and its retail division accounted for almost 20% of total revenue. (Apple has retail stores in U.S and key international markets including Australia, Canada, Japan, Italy, China and the UK.
The retail stores logged over 350M visits in less than a year, many visitors were new to the Mac – over half of the 1.4M maces sold in ’07 were purchased in Mac stores. One key factor which brought people to Mac stores was the popularity of iPods
Results of Job’s strategy
By fiscal year ’07, Mac revenue came to over e$10B, a YoY increase of +40%. Unit sales exceeded 7M, Mac sales grew 3 times as fast as the overall PC market
By mid ’08 – apples US share had grown to 8.5%, yet it’s Worldwide share of the Global PC market – had edged up only slightly and remained in the same 2-3% range for almost a decade
PC Manufacturing
By ’08 PCs consisted of 4 key components (a microprocessor, a motherboard, memory storage & peripherals - monitor, keyboard, mouse, printers).
PC manufacturers also bundled their PCs with an OS
The industry had moved from desktop machines to lap tops, notebooks, netbooks, and work stations (more powerful desktops) & server computers
~$400 to produce a mass-market desktop computer, which would retail at $500. Manufacturers could push down the price by cutting back on hard drive capacity & memory and/or offering lower quality peripherals.
Microprocessor: $50 - $500
Motherboard, hard drive, memory, chassis, packaging: $120 - $250
Peripherals: Keyboard, Mouse, CD-ROM, floppy drives & speakers: $50 - $140
OS – Windows vista $70
As PC manufacture became standardized – leading manufacturers cut expenditure on R&D and focused on driving innovations & efficiency through distribution, manufacturing and marketing – in order to gain a competitive edge.
PC Supplier Categories (General Products & Key Products)
-> General: memory chips, disk drives, keyboards – several sources, buyer advantage, competitive pricing
Key Products: micro processors and operating systems – only available through Intel & MSFT
Target Audience – PC Buyers fall into 5 Categories
1. Home Buyers: 42%
2. Small & Mid Sized Businesses: 32%
3. Corporate – Business Customers: 12%
4. Education – institutions of learning: 8%
5. Government: 6$
Key buying factors: price, service/support, software availability, product design, mobility and wireless networking capability
By early 2000s, web retailers like Dell, which sold PCs at steep discounts, saw an increase in demand for generic machines. (very popular especially in emerging markets).
Key Manufacturers: HP, Dell, Lenovo & Acer
I. HP became the market leader by emphasizing product design, consumer marketing and improved R&D spending). The company also leveraged its very strong retail channel (110K outlets).
II. Dell has followed suit with an increase in investment in design and a focus on consumer-friendly products. Dell also made deals to sell its PCs through large retailers, (best buy, staples & wal-mart), in addition to its well established online channel.
a. International Revenue: Dell also partnered with retail chains in Europe, China & Japan, to push international sales – this was a new priority, as Dell had focused on the U.S market for some time
III. Acer/Lenovo: focused on emerging markets but also acquired U.S PC manufacturers – Gateway and IBM’s PC business
Operating Systems – Trends
1980’s: Microsoft introduced MS-DOS
1990: Microsoft introduced Windows 3.0 – which featured Macintosh like graphical interface. Although not as good as Apple, it was adopted by corporate managers. MSFT built on that momentum of 3.0, with new releases every few years. (Windows 95, XP, Vista) – revenue per copy was approx $45-$60
Note: value of an os corresponds directly to the quantity and quality of application software, available on that platform.
Apple II – did well because it supported some software applications which were very popular with business users (VisiCalc – spreadsheet application)
Other impt OS segments include – word processing, presentation graphics, desktop publishing, database management, personal finance & internet browsing.
Between 1990 and 2008 – the sheer volume of applications available on PCs, exploded, while ave price of PC’s & PC software, fell. MSFT – was the largest software vendor for Wintel PCs & second largest for Macs, and it benefited immensely from this trend.
Apple’s other products
iPod: portable music player based on MP3 compression standard – launched in Nov ’01 . It was geared towards consumes, offered a variety of devise ranges and ultimately sold at prices ranging from $49 - $499, with margins of 30%-35%
Apple built its share by innovating on the use of flash memory instead of hard drives (which cost more). Maintaining relationships with key suppliers of key components (especially flash drive components), was crucial to its strategy to maintain the low costs of manufacturing iPods. (Samsung: video-audio chip,
Toshiba: hard disk drives). Apple made a strategic decision to pay $500M to Intel/micron to secure output from a new flash-memory joint venture. It also struck deals with Hynix, Samsun & Toshiba for flash components, thereby cornering 25% of the market for flash production – to use in its iPods & iPhone’s (both of which rely on flash memory). Note – key source of competitive advantage
By mid ’08 – apple had sold 150M iPods, commanded 70% of US market for portable music players. Rivals have not developed software which rivals iPods or iTunes offering.
Learning from past mistakes: Initially the iPod could only synch with Macs – in Aug ’02, Apple introduced an iPod for windows. (it’s development of the iPod was also, much more collaborative than was the case with its approach to developing the Macintosh). iPod’s accessory market became very important – primarily because iPods were more widely available to a larger customer base. Apple also licensed its “made for iPod” logo to 3rd parties - who created over 1K iPod accessory items, and over $1B in incremental sales.
iTunes Music Store – Steve Jobs master stroke, in realizing that for the iPod to be successful, it had to have a legit music downloading component and a repository for iPod users to go download music, legally. He created iTunes Music Store in April ’03, to serve that purpose.
By June ’08 – it had sold over 5B songs & claimed 70% of the share of the worldwide digital music market. iTunes became the largest music retailer in the world and drove iPod sales from 113K/quarter to over 733K/quarter.
However, iTunes was a loss leader because apple basically used it as an enabler to move iPod units. Of the $0.99 cents charged for each music downloads, apple got less than $0.10. “the variable element served s a lows leader for a profit0driving durable goods”
iPod’s have since expanded from serving digital music to now included digital video, users can now download and watch TV shows and movies as well, making iTunes the world’s most popular online movie store.
iPhone – Jobs strived to “reinvent the phone” with the launch of the iPhone, in June ’07. iPhone was a multifunction communication device – internet in your pocket.
Saturday, December 12, 2009
Apple - Case Study (Historical Context)
Jan ’07 – Apple shed’s “computer” from its name, and becomes Apple Inc. (Mac Sales now account for less than half of Apple’s total revenue).
June ’08: Apple earned a net profit of $1.07B on $7.46B, in revenue – 38% increase in YoY quarterly sales.
Total sales in fiscal ’07 – topped $24B, up 24% YoY
However, Apple’s strategic profile remained largely unchanged – Apple’s share of worldwide PC market, peaked at 3%.
Key Question: Was Apple’s recent success just another temporary “up” in it’s up and down history, or had Steve Jobs finally established a sustainable strategy for the company.
Historical Context
1976: Apple Computer – founded in ’76. Jobs was the visionary who sought to change the world through technology.
1978: Apple II is launched – it helped drive PC industry to $1B in annual sales – in less than 3 years. Apple becomes the industry leader, selling more than 100K units by the end of 1980.
1981: IBM enters the PC Market – with the MS DOS operating system (OS), vs. Apple’s proprietary hardware & software (closed syst)
I. BM compatibles grew in popularity, Apple sales slowed and market share dropped to 6.2%
1983/84: Apple launches the Macintosh – breakthrough PC in terms of ease of use, industrial design and technical elegance – but slow processor speed and lack of widely compatible software, limited sales. (net income fell 17% and jobs was removed from his operational role and replaced by John sculley.
1985 – ’93: Sculley focused on making apple a leader in desktop publishing and education.
Competitive Advantage: Superior proprietary software and peripherals – provided extraordinary capabilities in desktop publishing. Sales grew and by 1990 and Apple’s worldwide share stabilized at 8%, $1B in cash and was the most profitable PC maker in the world.
Software/Hardware
Apple practiced horizontal and vertical integration – it designed it’s products from scratch using unique chips, disk drives and monitors. The company also manufactures its own proprietary operating system, application software and hardware peripherals.
This enabled apple to control all aspects of its computer and offer customers a complete desktop solution (hardware, software and peripherals) – at the time the only credible competitor, IBM-compatible machines, could not offer the same level of integration. Apple’s competitive advantage enabled the company to chart a premium price for its products – gross profit was ~50%. IBM-compatibles dropped prices and competed on price points, with the more high end Apple products.
1990: Sculley became CTR & CTO – and strove to move apple to mainstream by offering “products & prices designed to regain market share. That meant becoming a low-cost producer of computers with mass market appeal.
I. Oct ’90: apple shipped the Mac Classic, a $999 computer designed to compete head on with lower priced IBM-clones.
1991: apple launched the PowerBook laptop, to rave reviews
1991: Apple formed an alliance with IBM (Taligent) – the goal was to create a revolutionary new OS @ the cost of $500M. Apple also undertook another cooperative project with Novella and Intel – to rework the Mac OS to run intel chips.
1993: Apple introduced the Newton – a high profile PDA, unfortunately – the product failed
Cost Cutting: Apple tried to cut costs by shifting manufacturing to subcontractors = but profitability still declined. Apples gross margin dropped to 34%, down 14pts from 10 year averages. Sculley was eased out and replaced by Michael Spindler
1993 – ’97: Spindler/Amelio
Back to basics: Spindler tried to reinvigorate Apple’s core markets – (education & desktop publishing), in which Apple held 60% and 80% share, respectively. Spindler killed the plan to put the Mac OS on Intel chips and instead announced that Apple would license a handful of companies to make Mac clones.
II. International Growth became a key objective for Apple – by 1992, 45% of the company’s sales came from outside the U.S.
III. Cut costs: Apple slashed its work force by 16% and reduced R&D spending
Still, apple lost momentum – and by 1995, Intel based PCs were in the ascendancy
1995: Taligent fell through at a cost of ($500M) – and in early ’96, apple reported a ($69M) loss and more layoffs. Splinder was replaced by Gilbert Amelio
1996: Amelio sought to push Apple into high-margin segments – (servers, internet access devices and PDAs).
Amelio soon declared that Apple would return to its premium-price differentiation strategy.
Amelio cancelled the Devpt of the proposed new Mac OS, and in Dec ’96, announced that apple would acquire NeXT software and develop an new OS based on the work done by NeXT. (the company started by Steve Jobs, after he was kicked out of Apple
Amelio led Apple through 3 reorgs and several deep payroll cuts, despite these cost cutting initiatives, apple lost $1.6B on his watch and it’s WW mkt share, dropped from 6% to 3%. The board forced Amelio out and in ‘’97, brought back Steve Jobs as the interim CEIO
1997: August – jobs announced that MSFT would invest $150M & develop MS Office for the Mac.
Steve Jobs – Strategic moves
He ended the Mac licensing program (Mac clones had reached 20% of Mac sales at that point) and Mac market had fallen to 11%
He refused to license the latest Mac OS – his belief was that Mac Clones were cannibalizing sales of the Mac Units
Jobs consolidated Apple’s product range – reducing the number of its lines from 15 to 3
1998: Jobs launches the iMac, in Aug ’98. (low end CPU, CD-ROM drive & modem)
The imac supported key peripherals which were designed for Windows –based machines (previous Macs had required peripherals which were built of the Apple platform only).
Imac sold about 6M units vs. 300M PCs during that same time frame. (2% share).
More Strategic Moves / restructuring efforts
It outsourced manufacturing of Mac products to Taiwanese contract assemblers and revamped its distribution system
Apple eliminated relationships with thousands of smaller outlets & instead built relationships with national chains.
New Distribution Channel: In Nov ’97 apple launched a website to sell its products directly to consumers – for the first time
Internally (jobs worked to streamline operations and reinvigorate innovation – apple pared down its inventory significantly and increased its R&D spending
Brand Image
Jobs also took steps to reenergize apples image – the company started promoting itself as a hip alternative to other computer brands. Jobs had a vision for apple – as a cultural force.
June ’08: Apple earned a net profit of $1.07B on $7.46B, in revenue – 38% increase in YoY quarterly sales.
Total sales in fiscal ’07 – topped $24B, up 24% YoY
However, Apple’s strategic profile remained largely unchanged – Apple’s share of worldwide PC market, peaked at 3%.
Key Question: Was Apple’s recent success just another temporary “up” in it’s up and down history, or had Steve Jobs finally established a sustainable strategy for the company.
Historical Context
1976: Apple Computer – founded in ’76. Jobs was the visionary who sought to change the world through technology.
1978: Apple II is launched – it helped drive PC industry to $1B in annual sales – in less than 3 years. Apple becomes the industry leader, selling more than 100K units by the end of 1980.
1981: IBM enters the PC Market – with the MS DOS operating system (OS), vs. Apple’s proprietary hardware & software (closed syst)
I. BM compatibles grew in popularity, Apple sales slowed and market share dropped to 6.2%
1983/84: Apple launches the Macintosh – breakthrough PC in terms of ease of use, industrial design and technical elegance – but slow processor speed and lack of widely compatible software, limited sales. (net income fell 17% and jobs was removed from his operational role and replaced by John sculley.
1985 – ’93: Sculley focused on making apple a leader in desktop publishing and education.
Competitive Advantage: Superior proprietary software and peripherals – provided extraordinary capabilities in desktop publishing. Sales grew and by 1990 and Apple’s worldwide share stabilized at 8%, $1B in cash and was the most profitable PC maker in the world.
Software/Hardware
Apple practiced horizontal and vertical integration – it designed it’s products from scratch using unique chips, disk drives and monitors. The company also manufactures its own proprietary operating system, application software and hardware peripherals.
This enabled apple to control all aspects of its computer and offer customers a complete desktop solution (hardware, software and peripherals) – at the time the only credible competitor, IBM-compatible machines, could not offer the same level of integration. Apple’s competitive advantage enabled the company to chart a premium price for its products – gross profit was ~50%. IBM-compatibles dropped prices and competed on price points, with the more high end Apple products.
1990: Sculley became CTR & CTO – and strove to move apple to mainstream by offering “products & prices designed to regain market share. That meant becoming a low-cost producer of computers with mass market appeal.
I. Oct ’90: apple shipped the Mac Classic, a $999 computer designed to compete head on with lower priced IBM-clones.
1991: apple launched the PowerBook laptop, to rave reviews
1991: Apple formed an alliance with IBM (Taligent) – the goal was to create a revolutionary new OS @ the cost of $500M. Apple also undertook another cooperative project with Novella and Intel – to rework the Mac OS to run intel chips.
1993: Apple introduced the Newton – a high profile PDA, unfortunately – the product failed
Cost Cutting: Apple tried to cut costs by shifting manufacturing to subcontractors = but profitability still declined. Apples gross margin dropped to 34%, down 14pts from 10 year averages. Sculley was eased out and replaced by Michael Spindler
1993 – ’97: Spindler/Amelio
Back to basics: Spindler tried to reinvigorate Apple’s core markets – (education & desktop publishing), in which Apple held 60% and 80% share, respectively. Spindler killed the plan to put the Mac OS on Intel chips and instead announced that Apple would license a handful of companies to make Mac clones.
II. International Growth became a key objective for Apple – by 1992, 45% of the company’s sales came from outside the U.S.
III. Cut costs: Apple slashed its work force by 16% and reduced R&D spending
Still, apple lost momentum – and by 1995, Intel based PCs were in the ascendancy
1995: Taligent fell through at a cost of ($500M) – and in early ’96, apple reported a ($69M) loss and more layoffs. Splinder was replaced by Gilbert Amelio
1996: Amelio sought to push Apple into high-margin segments – (servers, internet access devices and PDAs).
Amelio soon declared that Apple would return to its premium-price differentiation strategy.
Amelio cancelled the Devpt of the proposed new Mac OS, and in Dec ’96, announced that apple would acquire NeXT software and develop an new OS based on the work done by NeXT. (the company started by Steve Jobs, after he was kicked out of Apple
Amelio led Apple through 3 reorgs and several deep payroll cuts, despite these cost cutting initiatives, apple lost $1.6B on his watch and it’s WW mkt share, dropped from 6% to 3%. The board forced Amelio out and in ‘’97, brought back Steve Jobs as the interim CEIO
1997: August – jobs announced that MSFT would invest $150M & develop MS Office for the Mac.
Steve Jobs – Strategic moves
He ended the Mac licensing program (Mac clones had reached 20% of Mac sales at that point) and Mac market had fallen to 11%
He refused to license the latest Mac OS – his belief was that Mac Clones were cannibalizing sales of the Mac Units
Jobs consolidated Apple’s product range – reducing the number of its lines from 15 to 3
1998: Jobs launches the iMac, in Aug ’98. (low end CPU, CD-ROM drive & modem)
The imac supported key peripherals which were designed for Windows –based machines (previous Macs had required peripherals which were built of the Apple platform only).
Imac sold about 6M units vs. 300M PCs during that same time frame. (2% share).
More Strategic Moves / restructuring efforts
It outsourced manufacturing of Mac products to Taiwanese contract assemblers and revamped its distribution system
Apple eliminated relationships with thousands of smaller outlets & instead built relationships with national chains.
New Distribution Channel: In Nov ’97 apple launched a website to sell its products directly to consumers – for the first time
Internally (jobs worked to streamline operations and reinvigorate innovation – apple pared down its inventory significantly and increased its R&D spending
Brand Image
Jobs also took steps to reenergize apples image – the company started promoting itself as a hip alternative to other computer brands. Jobs had a vision for apple – as a cultural force.
Mergers & Acquisitions - Pitney Bowes
Pitney Bowes has acquired 70 companies in 6 years – in doing so, the company made a deliberate decision to treat each acquisition as a business process. (each company should have a disciplined approach to making acquisitions and learning from them as an organization.
Key guidelines for making acquisitions.
1. Stick to Adjacent Spaces – pursue adjacencies, logical extensions of a company’s current business mix which can provide incremental value. P&G: uses acquisitions to expand it’s product lines – it then grows acquired brands through aggressive marketing and powerful distribution capabilities. adjacent acquisitions correlate with increased shareholder value – whereas diversification into non related areas actually reduces shareholder value.
I. take advantage of tacit strengths of an org (mgt experience, custome insights, cultural orientation
II. Brand consistent = because the adjacent products often have features and functionality which are consistent with those of the product (offerings) of the acquirer
Key adjacency question from Pitnew Bowes: “Can we really add more value to the target company than any other acquirer can? Ideally, the company pursues acquisitions in which the acquired company’s mgt believes that it brings something unique to the table.
Adjacent acquisitions make for a much more compelling growth strategy than diversification does. It’s much more logical to explain the rationale behind an adjacent purchase, to key stakeholders and interested parties (including customers, employees, financial analysts, shareholders, management). Key stakeholders have to believe in an acquisitions potential for it to succeed.
2. Bet on Portfolio Performance
Manage like an investment portfolio, make multiple, smart acquisitions, instead of one or two big bets. The portfolio approach to acquisitions means that acquisitions will not only be of a manageable size but will also be sufficient in number to hedge the risk that any one will go awry.
Classics benefit of this strategy: produces more predictable financial results, over time. Which is helpful to companies which hope to attract investors b being consistent performance in a broad range of macroeconomic environments. (buy, invest, profit – model)
Diversification also helps meet investment requirements of business that are in varying stages of development.
I. Large Deals vs. Small Deals: One can learn as much from a small deal, as from a large one – however, the learning curve experience is itself a valuable asset. (the risks of learning whilst executing a smaller deal are often much lower than the risks from larger deals).
3. Get a Business Sponsor
It’s a good idea to create a corporate development group to help drive the acquisition process – however that team should never be allowed to drive the acquisitions. The leaders of business units are in the best position to gauge a potential acquisitions strategic and cultural fit, identify potential business synergies and establish the roadmap for delivering expected outcomes.
Sponsorship by business leaders is especially important to talent retention, people must be encourage to establish and maintain strong working relationships with new management teams, smooth out org culture shifts and help drive operating procedures.
Business Unit Managers - should be the sources and owners of acquisition proposals – the corporate development groups role should be to facilitate and execute the details of the transaction.
Biz Mgrs should appoint integration managers to oversee the actual execution of the acquisition – achieving revenue targets, engineering cost synergies and delivering expected ROI.
Snr Mgt should follow up with The Business Unit sponsor frequently, in order to make sure that the acquisition integration plan, remains on track
4. Be Clear on how the acquisition should be judged?
I. What does success look like? What are we looking for in terms of growth potential, market leadership, financial objectives?
Types of Acquisitions: (Bolt-on vs. platform) Important to distinguish between these two types of adjacent acquisitions – because it leads to diff criteria for evaluating potential deals.
Platform Acquisition: purchase of an existing business which allows acquire to establish a beachhead in a new market space
Bolt-on: fits neatly into an existing business or market of the acquirer
II. Less complex, lower risk, potential lower reward
III. Performance measurement: focus on probably business synergies, short term rev opportunities, cost savings, efficiencies, economies of scale, complementarytechnology, IP, features & functionality? Opportunities to cross sell / upsell products & services?
o Incremental ROI – within 1 – 3 years (short term growth)
Platform: takes the acquirer into a new (though adjacent) business space or adctivity
I. Higher degree of complexity, higher risk – higher reward
II. Performance measurement: near-term revenue opportunities an cost savings are less important
o Strategic questions become paramount – right business, right value proposition vis-à-vis are current offering, marketing intelligence, brand extensibility, faster growth potential, cultural fit?
o Long term growth
5. Don’t shop when you’re Hungry
I. Grocery shopping analogy: people purchase more than is needed and are less price sensitive about it, when their hungry, or shopping on an empty stomach
o This often results in buyers remorse
II. Expand from a position of strength, not from weakness (HP + Compaq)??
III. Avoid this habit by displaying analytical and emotional discipline
Due Diligence: The more you do, the more you know. (All companies in the midst of an acquisition must perform a due diligence review to identify and eliminate major sources of potential risk before the transaction is closed.
I. Start small, keep doing deals, learn as much and as fast as you can
II. Don’t expect to get by with a light checklist – dig deep, ask key questions and make sure you do your research
III. Build a due diligence team and use that same team to perform each due diligence review
IV. Use your due diligence data to guide the integration effort – after the acquisition has been completed
Pitney Bowes has a bottom’s up approach – acquisition ideas emanate from business units. This requires balanced disciplined thinking and consistent governance procedures.
Key guidelines for making acquisitions.
1. Stick to Adjacent Spaces – pursue adjacencies, logical extensions of a company’s current business mix which can provide incremental value. P&G: uses acquisitions to expand it’s product lines – it then grows acquired brands through aggressive marketing and powerful distribution capabilities. adjacent acquisitions correlate with increased shareholder value – whereas diversification into non related areas actually reduces shareholder value.
I. take advantage of tacit strengths of an org (mgt experience, custome insights, cultural orientation
II. Brand consistent = because the adjacent products often have features and functionality which are consistent with those of the product (offerings) of the acquirer
Key adjacency question from Pitnew Bowes: “Can we really add more value to the target company than any other acquirer can? Ideally, the company pursues acquisitions in which the acquired company’s mgt believes that it brings something unique to the table.
Adjacent acquisitions make for a much more compelling growth strategy than diversification does. It’s much more logical to explain the rationale behind an adjacent purchase, to key stakeholders and interested parties (including customers, employees, financial analysts, shareholders, management). Key stakeholders have to believe in an acquisitions potential for it to succeed.
2. Bet on Portfolio Performance
Manage like an investment portfolio, make multiple, smart acquisitions, instead of one or two big bets. The portfolio approach to acquisitions means that acquisitions will not only be of a manageable size but will also be sufficient in number to hedge the risk that any one will go awry.
Classics benefit of this strategy: produces more predictable financial results, over time. Which is helpful to companies which hope to attract investors b being consistent performance in a broad range of macroeconomic environments. (buy, invest, profit – model)
Diversification also helps meet investment requirements of business that are in varying stages of development.
I. Large Deals vs. Small Deals: One can learn as much from a small deal, as from a large one – however, the learning curve experience is itself a valuable asset. (the risks of learning whilst executing a smaller deal are often much lower than the risks from larger deals).
3. Get a Business Sponsor
It’s a good idea to create a corporate development group to help drive the acquisition process – however that team should never be allowed to drive the acquisitions. The leaders of business units are in the best position to gauge a potential acquisitions strategic and cultural fit, identify potential business synergies and establish the roadmap for delivering expected outcomes.
Sponsorship by business leaders is especially important to talent retention, people must be encourage to establish and maintain strong working relationships with new management teams, smooth out org culture shifts and help drive operating procedures.
Business Unit Managers - should be the sources and owners of acquisition proposals – the corporate development groups role should be to facilitate and execute the details of the transaction.
Biz Mgrs should appoint integration managers to oversee the actual execution of the acquisition – achieving revenue targets, engineering cost synergies and delivering expected ROI.
Snr Mgt should follow up with The Business Unit sponsor frequently, in order to make sure that the acquisition integration plan, remains on track
4. Be Clear on how the acquisition should be judged?
I. What does success look like? What are we looking for in terms of growth potential, market leadership, financial objectives?
Types of Acquisitions: (Bolt-on vs. platform) Important to distinguish between these two types of adjacent acquisitions – because it leads to diff criteria for evaluating potential deals.
Platform Acquisition: purchase of an existing business which allows acquire to establish a beachhead in a new market space
Bolt-on: fits neatly into an existing business or market of the acquirer
II. Less complex, lower risk, potential lower reward
III. Performance measurement: focus on probably business synergies, short term rev opportunities, cost savings, efficiencies, economies of scale, complementarytechnology, IP, features & functionality? Opportunities to cross sell / upsell products & services?
o Incremental ROI – within 1 – 3 years (short term growth)
Platform: takes the acquirer into a new (though adjacent) business space or adctivity
I. Higher degree of complexity, higher risk – higher reward
II. Performance measurement: near-term revenue opportunities an cost savings are less important
o Strategic questions become paramount – right business, right value proposition vis-à-vis are current offering, marketing intelligence, brand extensibility, faster growth potential, cultural fit?
o Long term growth
5. Don’t shop when you’re Hungry
I. Grocery shopping analogy: people purchase more than is needed and are less price sensitive about it, when their hungry, or shopping on an empty stomach
o This often results in buyers remorse
II. Expand from a position of strength, not from weakness (HP + Compaq)??
III. Avoid this habit by displaying analytical and emotional discipline
Due Diligence: The more you do, the more you know. (All companies in the midst of an acquisition must perform a due diligence review to identify and eliminate major sources of potential risk before the transaction is closed.
I. Start small, keep doing deals, learn as much and as fast as you can
II. Don’t expect to get by with a light checklist – dig deep, ask key questions and make sure you do your research
III. Build a due diligence team and use that same team to perform each due diligence review
IV. Use your due diligence data to guide the integration effort – after the acquisition has been completed
Pitney Bowes has a bottom’s up approach – acquisition ideas emanate from business units. This requires balanced disciplined thinking and consistent governance procedures.
Getting Offshoring Right
Advantages: Reduce Costs, Become more efficient, gain strategic advantage
Potential Disadvantages: Consumer Dissatisfaction, resistance from employees.
Note. Businesses don't make decisions about off shoring systematically enough. (3 fundamental mistakes)
1. Focus their effort on choosing countries , cities and vendors, and negotiating prices - instead o evaluating which process they should offshore and which they shouldn't. First – Distinguish between what processes can be offshore or outsource – and what processes must stay in house
I. Core Processes – (which you must control)
II. Critical Processes = which you can procure from best in class vendors
III. Commodity process – which you can outsource
2. Organizations don’t take into account the risks that accompany off shoring – due diligence must go beyond the cost/benefit analysis to making decisions. (how much power are you handing over to your vendors? How much of your value is now being captured by your vendors?
3. Off shoring or off shoring is no longer an all or nothing choice. There are options – companies can execute some processes in house, offshore/outsource others. Buy services from local providers, entire into joint ventures or set up captive centers overseas (internal off shoring).
Note: Both location and organizational form – decide the fate of off shoring strategies.
Rank Process by Value:
1. Create a Value Hierarchy of core processes: How does each process help create value for customers? The relative importance of each process determined the risks/rewards of off shoring
2. Identify & Manage Risk - (Operational Risk, Structural Risk)
Operational Risk – risk that processes won’t operate smoothly after being offshore or outsourced. (transparent processes, Opaque processes, codifiable processes
Structural Risk – primarily based on the behavior of vendors, based on contractual obligations, lack of resources, qualified staff. Vendor captures value and then changes terms, Vendors may steal intellectual property.
3. Choose the right organizational form: match org structures to the needs boy considering structural and operational risks of off shoring processes.
Use location to combat operational risk and captive centers/joint ventures or alliances – to combat structural risks
Potential Disadvantages: Consumer Dissatisfaction, resistance from employees.
Note. Businesses don't make decisions about off shoring systematically enough. (3 fundamental mistakes)
1. Focus their effort on choosing countries , cities and vendors, and negotiating prices - instead o evaluating which process they should offshore and which they shouldn't. First – Distinguish between what processes can be offshore or outsource – and what processes must stay in house
I. Core Processes – (which you must control)
II. Critical Processes = which you can procure from best in class vendors
III. Commodity process – which you can outsource
2. Organizations don’t take into account the risks that accompany off shoring – due diligence must go beyond the cost/benefit analysis to making decisions. (how much power are you handing over to your vendors? How much of your value is now being captured by your vendors?
3. Off shoring or off shoring is no longer an all or nothing choice. There are options – companies can execute some processes in house, offshore/outsource others. Buy services from local providers, entire into joint ventures or set up captive centers overseas (internal off shoring).
Note: Both location and organizational form – decide the fate of off shoring strategies.
Rank Process by Value:
1. Create a Value Hierarchy of core processes: How does each process help create value for customers? The relative importance of each process determined the risks/rewards of off shoring
2. Identify & Manage Risk - (Operational Risk, Structural Risk)
Operational Risk – risk that processes won’t operate smoothly after being offshore or outsourced. (transparent processes, Opaque processes, codifiable processes
Structural Risk – primarily based on the behavior of vendors, based on contractual obligations, lack of resources, qualified staff. Vendor captures value and then changes terms, Vendors may steal intellectual property.
3. Choose the right organizational form: match org structures to the needs boy considering structural and operational risks of off shoring processes.
Use location to combat operational risk and captive centers/joint ventures or alliances – to combat structural risks
Globalization & International Strategies - II
Emerging Giants
Key Objective: Focus on the role that strategies and business models have played in creating global companies – from emerging markets
Competing in International markets, examples include
1. Brazil’s: AmBev – (merged with Interbrew to form INBev
2. Chile’s SACI
3. China’s Baosteel, Lenovo
4. India: Tata, Wipro, Infosys
5. Israel: Teva Pharmaceuticals
6. Mexico: CEMEX
The advantage which western, Japanese and s/Korean companies seem to have, in emerging markets include: (well known brand names, efficient innovation processes and management systems and sophisticated technologies. Also – they have vast reservoirs of financing and leadership/mgt talent.
Institutional voids, absence of specialized intermediaries, regulatory systems and contract-enforcing mechanism, corporations in emerging markets cannot access capital or talent as readily as more established companies from eh west or developed Asian markets. However, these factors are also distinct advantages for indigenous companies who are used to operating without well developed institutional infrastructure. Local companies understand the business terrain and are adept at working through the 4 institutional contexts (Openness, Products markets, socio political systems, labor markets and capital markets). The structure of markets in developing countries helps local companies counter their multinational rivals.
Emerging giants create systems and mechanisms for raising capital and developing talent. They know where to go to get strong mgt talent and how to train employees to be successful in navigating the peculiar challenges which each developing market presents. Once they’ve achieved a certain level of success, emerging giants can start to tap international talent from the West and other developed countries. They can raise capital by listing themselves on the New York Stock exchange or Nasdaq
Multinationals are reluctant to tailor their strategies to every developing market in which they operate. The find it costly and cumbersome to modify their products, services and communications to suit local tastes – especially in cases where the opportunities in the developing market, are small or risky
Market Structures In Developing Countries – 4 Distinct Tiers
1. A global tier - customer segment – wants product of global quality with global quality features and attributes
2. A Glocal segment which demands product so global quality but with local features
3. A local segment, which wants local products with local features at local prices
4. Bottom-of-the-pyramid segment – for folks who can afford to buy only the most inexpensive products.
Multinationals can only service the global tier segment – but emerging giants are capable of servicing all 4 segments. Over time, the Glocal tier becomes competitive for multinationals and emerging giants.
Nando’s provides special cooked chicken for south Africans
Haier thrives over GE, Electrolux and Whirlpool in China, because it provides products tailored to the needs of Chinese consumers (custom machines for 1 set of clothes, cleaning vegetables). Distribution & service network for semi-urban and rural china – is a competitive advantage.
Haier demonstrated a structured and patient approach to International expansion first in Asia, Europe and finally in the U.S. It took time to establish relationships and partnerships with American retailers such as Best Buy, Home Depot and Wal-Mart. As of ’05, Haier had 26% of the U.S market for compact refrigerators and 50% of the market for low end wine cellars.
Key Characteristics of Emerging Giants – Expanding Into Large Intl. Markets
1. Emerging giants generally start off by expanding into other developing markets
2. Leverage their knowledge of products, cost bases in smaller markets
3. Enter advanced markets by attacking niche opportunities which allow them to capitalize on their strengths. They don’t attack established players, head on
4. Haier’s experience in Europe and Asia, prepared it well for the U.S and will serve the company well as western retailers enter its home market, in china.
Advantages For Emerging Giants – they treat institutional voids as business opportunities.
1. Recruit local talent – it’s hard for multi-nationals to identify and recruit local talent.
2. In many cases – institutional voids are sources of competitive advantage for indigenous firms, and help them become emerging giants. This is one reason why multinationals sometimes choose to acquire local giants or align with them, through partnerships.
3. Note: Execution and Governance determine whether companies in emerging markets can realize their potential. This is especially critical in emerging markets.
Good Governance: laws differ across nations.
Note: what is important is whether global scope results in competitive advantage – rather than being the result of advantage derived in some other fashion.
Emerging giants can be successful without leaving their local markets & companies, same goes for companies in developed markets.
Key Objective: Focus on the role that strategies and business models have played in creating global companies – from emerging markets
Competing in International markets, examples include
1. Brazil’s: AmBev – (merged with Interbrew to form INBev
2. Chile’s SACI
3. China’s Baosteel, Lenovo
4. India: Tata, Wipro, Infosys
5. Israel: Teva Pharmaceuticals
6. Mexico: CEMEX
The advantage which western, Japanese and s/Korean companies seem to have, in emerging markets include: (well known brand names, efficient innovation processes and management systems and sophisticated technologies. Also – they have vast reservoirs of financing and leadership/mgt talent.
Institutional voids, absence of specialized intermediaries, regulatory systems and contract-enforcing mechanism, corporations in emerging markets cannot access capital or talent as readily as more established companies from eh west or developed Asian markets. However, these factors are also distinct advantages for indigenous companies who are used to operating without well developed institutional infrastructure. Local companies understand the business terrain and are adept at working through the 4 institutional contexts (Openness, Products markets, socio political systems, labor markets and capital markets). The structure of markets in developing countries helps local companies counter their multinational rivals.
Emerging giants create systems and mechanisms for raising capital and developing talent. They know where to go to get strong mgt talent and how to train employees to be successful in navigating the peculiar challenges which each developing market presents. Once they’ve achieved a certain level of success, emerging giants can start to tap international talent from the West and other developed countries. They can raise capital by listing themselves on the New York Stock exchange or Nasdaq
Multinationals are reluctant to tailor their strategies to every developing market in which they operate. The find it costly and cumbersome to modify their products, services and communications to suit local tastes – especially in cases where the opportunities in the developing market, are small or risky
Market Structures In Developing Countries – 4 Distinct Tiers
1. A global tier - customer segment – wants product of global quality with global quality features and attributes
2. A Glocal segment which demands product so global quality but with local features
3. A local segment, which wants local products with local features at local prices
4. Bottom-of-the-pyramid segment – for folks who can afford to buy only the most inexpensive products.
Multinationals can only service the global tier segment – but emerging giants are capable of servicing all 4 segments. Over time, the Glocal tier becomes competitive for multinationals and emerging giants.
Nando’s provides special cooked chicken for south Africans
Haier thrives over GE, Electrolux and Whirlpool in China, because it provides products tailored to the needs of Chinese consumers (custom machines for 1 set of clothes, cleaning vegetables). Distribution & service network for semi-urban and rural china – is a competitive advantage.
Haier demonstrated a structured and patient approach to International expansion first in Asia, Europe and finally in the U.S. It took time to establish relationships and partnerships with American retailers such as Best Buy, Home Depot and Wal-Mart. As of ’05, Haier had 26% of the U.S market for compact refrigerators and 50% of the market for low end wine cellars.
Key Characteristics of Emerging Giants – Expanding Into Large Intl. Markets
1. Emerging giants generally start off by expanding into other developing markets
2. Leverage their knowledge of products, cost bases in smaller markets
3. Enter advanced markets by attacking niche opportunities which allow them to capitalize on their strengths. They don’t attack established players, head on
4. Haier’s experience in Europe and Asia, prepared it well for the U.S and will serve the company well as western retailers enter its home market, in china.
Advantages For Emerging Giants – they treat institutional voids as business opportunities.
1. Recruit local talent – it’s hard for multi-nationals to identify and recruit local talent.
2. In many cases – institutional voids are sources of competitive advantage for indigenous firms, and help them become emerging giants. This is one reason why multinationals sometimes choose to acquire local giants or align with them, through partnerships.
3. Note: Execution and Governance determine whether companies in emerging markets can realize their potential. This is especially critical in emerging markets.
Good Governance: laws differ across nations.
Note: what is important is whether global scope results in competitive advantage – rather than being the result of advantage derived in some other fashion.
Emerging giants can be successful without leaving their local markets & companies, same goes for companies in developed markets.
Globalization & International Strategies - I
Strategies That fit Emerging Markets
Globalization: Critical Challenge
Quality of market infrastructure varies widely in developing markets
Successful companies must work around institutional voids – develop strategies so doing business in emerging markets - different from those they use at home.
Macro factors: degree of openness and the sociopolitical atmosphere
5 contexts framework
1. Political & Social Systems
Social environment, relationships between ethnic, regional and linguistic groups, power centers (media, bureaucracy), govt system
2. Openness
a. Perceived Openness vs. real Openness to foreign investment (China Vs. India)
3. Product Markets
Reliable consumer information, consumer research, market research and advertising is unreliable in developing countries, consumer reports which provide reliable, accurate inform on quality of product?
4. Labor markets: skilled workers?
Skilled, local managers, search firms and recruiting agencies in low-income countries?
5. Capital markets: lack of sophistication. Regulatory systems, credit rating agencies, local debit/equity capital to run businesses?
Institutional intermediaries vs. industry factors
Industry structures – degree of competition, should influence companies strategies.
Factors such as scale economies, entry parries and ability to differentiate – are important , but they vary in importance from one market to another.
Spot Institutional Voids by asking the right questions about – each of the 5 instuutional contexts
The 3 Strategy Choices
Compaies tailor stratgies to each countiry’s contexts. They can capitzliza on sthe strnghs of particular locations. In order to do so, they most compare the enbeintts of sodoign wso with additoao coordination costs they’ll incure. Tehre are 3 distinct choices
1. Adapt biz model to countires will keeping their core valuep ropsitions constant (e.g Macdonalds in Russia)
2. Try to change the Institutional contexts (STAR – Asian satellite TV – transformed the Indian market place, and drove a booming TV manufacturing industry, as well as the launch of several other satellite based channels, aimed at the Indian audiences). (Big 4 accounting firms set up offices in Brazil to provide global auality audit services. There by raising the financial reporting and auditing standards in brazil.
3. Stay out of the coutieis where adapting strateis may be uneconmical or imprttcial (or both). Home Depot tired setting up two stores in chille in 1998 and one in argentina. Both were sold at a net loss of $14M. Home Depot switched from a greenfield strategy to an acquisition approach – by buying a home improvmenet retailer in Mexico (total home). The compnaynow has 42 store sin mexico and is exploring the possitibllity fo entiering china, perhaps through an acquisition
Companies can’t use the same straties in all decveloing coutiresa, but they can generate synergies by treating diff markes as pasr o a system. (e.g – GE Healthcare makes parts for diagonstic machines in europe, asia and s/america.
Globalization: Critical Challenge
Quality of market infrastructure varies widely in developing markets
Successful companies must work around institutional voids – develop strategies so doing business in emerging markets - different from those they use at home.
Macro factors: degree of openness and the sociopolitical atmosphere
5 contexts framework
1. Political & Social Systems
Social environment, relationships between ethnic, regional and linguistic groups, power centers (media, bureaucracy), govt system
2. Openness
a. Perceived Openness vs. real Openness to foreign investment (China Vs. India)
3. Product Markets
Reliable consumer information, consumer research, market research and advertising is unreliable in developing countries, consumer reports which provide reliable, accurate inform on quality of product?
4. Labor markets: skilled workers?
Skilled, local managers, search firms and recruiting agencies in low-income countries?
5. Capital markets: lack of sophistication. Regulatory systems, credit rating agencies, local debit/equity capital to run businesses?
Institutional intermediaries vs. industry factors
Industry structures – degree of competition, should influence companies strategies.
Factors such as scale economies, entry parries and ability to differentiate – are important , but they vary in importance from one market to another.
Spot Institutional Voids by asking the right questions about – each of the 5 instuutional contexts
The 3 Strategy Choices
Compaies tailor stratgies to each countiry’s contexts. They can capitzliza on sthe strnghs of particular locations. In order to do so, they most compare the enbeintts of sodoign wso with additoao coordination costs they’ll incure. Tehre are 3 distinct choices
1. Adapt biz model to countires will keeping their core valuep ropsitions constant (e.g Macdonalds in Russia)
2. Try to change the Institutional contexts (STAR – Asian satellite TV – transformed the Indian market place, and drove a booming TV manufacturing industry, as well as the launch of several other satellite based channels, aimed at the Indian audiences). (Big 4 accounting firms set up offices in Brazil to provide global auality audit services. There by raising the financial reporting and auditing standards in brazil.
3. Stay out of the coutieis where adapting strateis may be uneconmical or imprttcial (or both). Home Depot tired setting up two stores in chille in 1998 and one in argentina. Both were sold at a net loss of $14M. Home Depot switched from a greenfield strategy to an acquisition approach – by buying a home improvmenet retailer in Mexico (total home). The compnaynow has 42 store sin mexico and is exploring the possitibllity fo entiering china, perhaps through an acquisition
Companies can’t use the same straties in all decveloing coutiresa, but they can generate synergies by treating diff markes as pasr o a system. (e.g – GE Healthcare makes parts for diagonstic machines in europe, asia and s/america.
Sunday, November 29, 2009
Putting Leadership in Strategy
Strategy has been narrowed to a competitive game plan, divorcing it from a firms larger sense of purpose. Sustainable competitive advantage is important, but it’s not (in of itself), a Strategy.
Strategy is not just a plan, it’s a way of life for a company. It doesn’t just position a firm in its external landscape, it defines what a firm will bee – what it can be. It’s the CEO’s job to set the strategy, outwit the competition. It’s also his or her greatest opportunity to shape the firm’s future.
In order to claim value – firms must first create value “Brandenburger & Nalebuff”. This requires bring something new to the Arena – some new value proposition, some new product or a new way of delivering a service! Bring something customers want that is different from or better than what others are providing.
Value Related Questions
1. If your company were shuttered, to whom would it matter and why?
2. Which of your customers would miss you the most, and why?
3. How long would it take for another firm to step into that void?
What’s truly distinctive about your value proposition?
Purpose should be at the heart of strategy – it should give direction to every part of the firm – from the cooperate office to the loading dock. It should define the nature of the work what must be done.
“A business has to have a clear purpose. If the purpose is not crystal clear, people in business will not understand what kind of knowledge is critical and what they have to learn in order to improve performance.
A company’s suppose is what makes it distinctive. It what we as a company exist to achieve and what we’re willing and not willing to do to achieve it “ John Browne – former CEO of British Petroleum
An organic conception of strategy recognizes that whatever consitutesstrategic advantage will eventually change.
Leaders need to recognize the difference between defending a firms added valjue as established at aany given moment and ensuring that a fir is adding value over time.
“the need to create and re-create reaons for a company’s continued existience sets the strategies apart from every other individual in the company”
Strategy is not just a plan, it’s a way of life for a company. It doesn’t just position a firm in its external landscape, it defines what a firm will bee – what it can be. It’s the CEO’s job to set the strategy, outwit the competition. It’s also his or her greatest opportunity to shape the firm’s future.
In order to claim value – firms must first create value “Brandenburger & Nalebuff”. This requires bring something new to the Arena – some new value proposition, some new product or a new way of delivering a service! Bring something customers want that is different from or better than what others are providing.
Value Related Questions
1. If your company were shuttered, to whom would it matter and why?
2. Which of your customers would miss you the most, and why?
3. How long would it take for another firm to step into that void?
What’s truly distinctive about your value proposition?
Purpose should be at the heart of strategy – it should give direction to every part of the firm – from the cooperate office to the loading dock. It should define the nature of the work what must be done.
“A business has to have a clear purpose. If the purpose is not crystal clear, people in business will not understand what kind of knowledge is critical and what they have to learn in order to improve performance.
A company’s suppose is what makes it distinctive. It what we as a company exist to achieve and what we’re willing and not willing to do to achieve it “ John Browne – former CEO of British Petroleum
An organic conception of strategy recognizes that whatever consitutesstrategic advantage will eventually change.
Leaders need to recognize the difference between defending a firms added valjue as established at aany given moment and ensuring that a fir is adding value over time.
“the need to create and re-create reaons for a company’s continued existience sets the strategies apart from every other individual in the company”
Saturday, October 24, 2009
Creating a Balanced Scorecard - (e Chapter 2)
Sound strategy helps to create a position of sustainable competitive advantage in the market place – which should result in superior performance.
1. What are the 3 aspects of performance which are important to consider – from a strategic point of view.
ð Note: Strategy should be assessed by a balance of both customary financial and emerging nonfinancial measures.
ð Economic Profit: the residual income above and beyond normal profit that accrues to owners, deriving from eh prowess of management in planning, supervision and control.
ð Residual income associated with economic profit occurs when a company’s return on equity (ROE) is greater than its cost of equity capital.
ð Normal Profit: may be viewed as the minimum return earned by a company that is necessary y to attract and secure the owners inputs.
2. ROE [Profitability, asset productivity & financial leverage].
3. Why is revenue growth such an important financial indicator for CEOs & Strategists?
4.
ð Revenue growth often occurs at the expense of growth in profitability, since the factors that generally drive up sales (marketing, advertising, investment in product development and sales forces), often add expenses which diminish the bottom line.
ð Common Stock Returns: take into account both the dividends paid by a company to its shareholders as well as increases in prices of shares
ð Market Capitalization: defined as the market value of outstanding shares of stock – also depends on stock price and characterizes the total value of the company.
ð Quantitative & Qualitative Performance – is the key outcome of interest for those studying strategy and managing strategy.
What are the 3 key dimensions of performance which we can use to develop balanced scorecards?
1. Summary measures that reflect the impact of integrated efforts across the entire company
2. Measures that can be compare to competitors
3. Measures that account for longer periods of time.
The current school of thought indicates that companies would be best served by focusing not just on the returns to shareholders but also by paying attention to the needs and requirements of important stakeholders as well. This approach can help create profitable new growth opportunities and strengthen existing franchises.
1. What are the 3 aspects of performance which are important to consider – from a strategic point of view.
ð Note: Strategy should be assessed by a balance of both customary financial and emerging nonfinancial measures.
ð Economic Profit: the residual income above and beyond normal profit that accrues to owners, deriving from eh prowess of management in planning, supervision and control.
ð Residual income associated with economic profit occurs when a company’s return on equity (ROE) is greater than its cost of equity capital.
ð Normal Profit: may be viewed as the minimum return earned by a company that is necessary y to attract and secure the owners inputs.
2. ROE [Profitability, asset productivity & financial leverage].
3. Why is revenue growth such an important financial indicator for CEOs & Strategists?
4.
ð Revenue growth often occurs at the expense of growth in profitability, since the factors that generally drive up sales (marketing, advertising, investment in product development and sales forces), often add expenses which diminish the bottom line.
ð Common Stock Returns: take into account both the dividends paid by a company to its shareholders as well as increases in prices of shares
ð Market Capitalization: defined as the market value of outstanding shares of stock – also depends on stock price and characterizes the total value of the company.
ð Quantitative & Qualitative Performance – is the key outcome of interest for those studying strategy and managing strategy.
What are the 3 key dimensions of performance which we can use to develop balanced scorecards?
1. Summary measures that reflect the impact of integrated efforts across the entire company
2. Measures that can be compare to competitors
3. Measures that account for longer periods of time.
The current school of thought indicates that companies would be best served by focusing not just on the returns to shareholders but also by paying attention to the needs and requirements of important stakeholders as well. This approach can help create profitable new growth opportunities and strengthen existing franchises.
Are you sure you have a strategy? (Hambrick & Fredrickson)
Framework for Strategy Design – based on 5 elements
[Arenas, vehicles, differentiators, staging & economic logic]
1. What actually constitutes strategy?
2. What are the 5 key elements of strategy?
Arenas: Be specific about where you will be active, what areas/categories you will emphasize. Strategy may be centered on one product or one category or one customer segment
[Product Categories, market segments, geographic regions, core technologies, value creation stages?? Key product or complementary one?
Vehicles: how do you intend to attain a significant business presence in your chosen Arena?
(Joint Ventures, strategic alliances, acquisitions, R&D, Product Development, Marketing, Globalization)?
Differentiators: Image, customization, price, styling, quality, reliability? What is the value proposition?
“Arena’s, Differentiators & Vehicles – constitute the “substance of strategy”.
Staging: Set priorities – what do we do first? What’s the plan of a record? What is the sequence by which we entire a specific arena? How quickly do we move? What’s our time horizon?
[Key influencing factors include: Funding, Urgency – i.e. first mover advantage? achievement of credibility]. Sometimes the pursuit of early wins is also important because it can help build momentum.
Economic Value: How will profits be generated? What’s our biz model and how does it tie in to the other 4 elements? What’s our pricing strategy?
o Economic logic analytics, results in a determination of how profit will be generated. That could happen on the front end, through aggressive pricing, or on the back end by effectively monitoring costs
Note: Strategy is not primarily about planning- it’s about intentional, informed, and integrated choices. The strategy diamond featuring the 5 strategic elements is a basis for creating a well thought out intentional, informed and plan.
[Arenas, vehicles, differentiators, staging & economic logic]
1. What actually constitutes strategy?
2. What are the 5 key elements of strategy?
Arenas: Be specific about where you will be active, what areas/categories you will emphasize. Strategy may be centered on one product or one category or one customer segment
[Product Categories, market segments, geographic regions, core technologies, value creation stages?? Key product or complementary one?
Vehicles: how do you intend to attain a significant business presence in your chosen Arena?
(Joint Ventures, strategic alliances, acquisitions, R&D, Product Development, Marketing, Globalization)?
Differentiators: Image, customization, price, styling, quality, reliability? What is the value proposition?
“Arena’s, Differentiators & Vehicles – constitute the “substance of strategy”.
Staging: Set priorities – what do we do first? What’s the plan of a record? What is the sequence by which we entire a specific arena? How quickly do we move? What’s our time horizon?
[Key influencing factors include: Funding, Urgency – i.e. first mover advantage? achievement of credibility]. Sometimes the pursuit of early wins is also important because it can help build momentum.
Economic Value: How will profits be generated? What’s our biz model and how does it tie in to the other 4 elements? What’s our pricing strategy?
o Economic logic analytics, results in a determination of how profit will be generated. That could happen on the front end, through aggressive pricing, or on the back end by effectively monitoring costs
Note: Strategy is not primarily about planning- it’s about intentional, informed, and integrated choices. The strategy diamond featuring the 5 strategic elements is a basis for creating a well thought out intentional, informed and plan.
Understanding Industry Culture (Michael Porter)
1. What is the essence of the job of a strategist?
2. What are the 5 basic competitive forces of an industry?
Threat of new entrants
Bargaining Power of Customers
Bargaining Power of Suppliers
Threat of substitutes
Competition from other players / competitors
3. What are the barriers to entry?
[Supply side economies of scale, Demand side benefits of scale, customer switching costs, capital requirements, restrictive govt policy, unequal access to distribution channels]
4. Power of suppliers:
{Bargaining power prices, shifting costs downstream, limiting quality of goods/services, supplier offers differentiated products, and buyer is dependent on supplier
5. Power of Customers : (corporate customers and consumers)
6. Threat of substitutes: A substitute performs the same or similar functions as an industry’s product =- but by a different means. [Substitutes limit profits and constrain the size of an industry. Some are subject to trends improving price/performance. Substitutes drive fierce competition.
7.
8. Rivalry from competitors: [Price discounting, new product introductions, advertising campaigns, service escalation – different value proposition}
Intensity of competitive rivalry can undermine an industry’s profit potential. The degree to which this can happen depends first on the bases on which the companies compete and on the intensity with which they do so.
Price is typically the most destructive basis of competition for industry profitability. Price reduction transfers profits from an industry to customer savings in the hands of customers. Price wars are common in cases where there’s not much differentiation, switching costs are similar for all competitors, buyers can shift to different vendors or products, fixed costs are high and marginal cost are low.
Intensity of competition is great where there are numerous competitors, industry growth is slow, exit barriers are high, and rivals are committed to the business
9. What are complements and how do they affect industries?
Note: Effective strategist look for opportunities to alter conditions in complementary industries in their favor, by boosting demand, improving overall structure or advancing a firms standing within its industries.
10. What are the implications of Industry Structure – for strategists
Industry structure provides a baseline for sizing up a company’s strengths and weaknesses. It guides managers toward possibilities for strategic action – including1. Positioning the company vis-à-vis the current competitive forces, 2, anticipating shifts in the forces and exploiting them, 3., shaping the balance of forces to create a new, more favorable structure or on that favors the company
Industry structure thinking reveals differences in customers, suppliers, substitutes, potential entrants and rivals that demark distinct competitive arenas in which distinct strategies are needed. It’s important to thing structurally about competition.
2. What are the 5 basic competitive forces of an industry?
Threat of new entrants
Bargaining Power of Customers
Bargaining Power of Suppliers
Threat of substitutes
Competition from other players / competitors
3. What are the barriers to entry?
[Supply side economies of scale, Demand side benefits of scale, customer switching costs, capital requirements, restrictive govt policy, unequal access to distribution channels]
4. Power of suppliers:
{Bargaining power prices, shifting costs downstream, limiting quality of goods/services, supplier offers differentiated products, and buyer is dependent on supplier
5. Power of Customers : (corporate customers and consumers)
6. Threat of substitutes: A substitute performs the same or similar functions as an industry’s product =- but by a different means. [Substitutes limit profits and constrain the size of an industry. Some are subject to trends improving price/performance. Substitutes drive fierce competition.
7.
8. Rivalry from competitors: [Price discounting, new product introductions, advertising campaigns, service escalation – different value proposition}
Intensity of competitive rivalry can undermine an industry’s profit potential. The degree to which this can happen depends first on the bases on which the companies compete and on the intensity with which they do so.
Price is typically the most destructive basis of competition for industry profitability. Price reduction transfers profits from an industry to customer savings in the hands of customers. Price wars are common in cases where there’s not much differentiation, switching costs are similar for all competitors, buyers can shift to different vendors or products, fixed costs are high and marginal cost are low.
Intensity of competition is great where there are numerous competitors, industry growth is slow, exit barriers are high, and rivals are committed to the business
9. What are complements and how do they affect industries?
Note: Effective strategist look for opportunities to alter conditions in complementary industries in their favor, by boosting demand, improving overall structure or advancing a firms standing within its industries.
10. What are the implications of Industry Structure – for strategists
Industry structure provides a baseline for sizing up a company’s strengths and weaknesses. It guides managers toward possibilities for strategic action – including1. Positioning the company vis-à-vis the current competitive forces, 2, anticipating shifts in the forces and exploiting them, 3., shaping the balance of forces to create a new, more favorable structure or on that favors the company
Industry structure thinking reveals differences in customers, suppliers, substitutes, potential entrants and rivals that demark distinct competitive arenas in which distinct strategies are needed. It’s important to thing structurally about competition.
Thursday, October 22, 2009
RIM Case Study
I.How important is it for RIM to grow its pool of software developers?
It’s very important that RIM grow it’s pool of software developers for a number of reasons:
With ’07 revenues up 98% YoY, the current team of 1.400 software engineers are less than 50% of the figure required to drive engineering innovations and technological advances – required to maintain current growth rates and profit margins
Similar to its competitors – RIM’s policy is to maintain its R&D spending as a consistent percentage of total sales. Investment analysts often looked to this number to gauge the sustainability of revenue growth
R&D expenses are often seen as a proxy for new product or service development and therefore used as a key indicator of future revenue potential
II.What are the different options for substantially increasing the number of software developers?
RIM faces 3 key options – in its quest to increase the number of software developers which it can hire
Change or Optimize Hiring Practices
Recruit aggressively from Waterloo and other nation –wide campuses, in Canada. (by expanding its co-op programs to more universities and creating incentives for more students to join the co-op program
Form a global scouting group – dedicated to finding the best talent worldwide and bringing them into RIM (value proposition would be RIM’s org culture, which is very favorable to engineers – and the allure of Waterloo / Canada
RIM can vastly Improve its hiring processes by better managing the qualified pool of candidates who apply for engineering jobs, every year. RIM can utilize online job sites, exec search firms which specialize in technology jobs and even revamp its own career website in order to make its overall hiring experience, more efficient
Grow & Expand Existing Geographies
RIM can expand its existing Product & Tech Devpt facilities, across Canada and the U.S – and actively recruit engineers for those locations.
Increase Acquisitions
Bring has already had some success by bringing in new people through acquisitions. In order to maintain its current rate of innovation and support revenue growth, RIM may need to consider some strategic acquisitions – in geographic locations which attract strong engineering talent. European technology companies offer good opportunities – many eastern European nations have a lot of engineers and these markets are often hard to penetrate because of the nationalistic tendencies of European consumers
Go Global? Not possible – RIM’s technology is too valuable and it may be at risk, if RIM were to allow engineers across south east Asia, to have access to it. RIM could outsource some project mgt and process driven work to Asian subs – but that may not help with the engineering (R&D) problem.
III.
Which option(s) should RIM pursue? Why?
RIM should pursue the following options
1.Change or Optimize Hiring Practices: Clearly there is an opportunity to improve efficiency in the hiring process and capture more talented technologists. This opportunity exists today and does not require significant investment – just some progressive thinking and better organizational structure
Recruit aggressively from Waterloo and other nation –wide campuses, in Canada. (by expanding its co-op programs to more universities and creating incentives for more students to join the co-op program. Expand this initiative to include aggressive recruitment of engineering students at the undergrad and postgraduate level, from U.S & European Universities.
Form a global scouting group – dedicated to finding the best talent worldwide and bringing them into RIM (value proposition would be RIM’s org culture, which is very favorable to engineers – and the allure of Waterloo / Canada ( RIM should Start developing relationships with the top 20 technology universities in Europe, N/America, Asia and Africa)
RIM can vastly Improve its hiring processes by better managing the qualified pool of candidates who apply for engineering jobs, every year. RIM can utilize online job sites, exec search firms which specialize in technology jobs and even revamp its own career website in order to make its overall hiring experience, more efficient
2.Grow & Expand Existing Geographies – (Increase Acquisitions & technology develop partnerships): Strategic acquisitions help RIM solve two key issues – the company can gain almost instant access to new engineering talent – and if the purchase is a strategic one – they can mine the geographic regions where the companies are located, for more talent). RIM can expand its existing Product & Tech Devpt facilities, across Canada and the U.S – and actively recruit engineers for those locations.
Bring has already had some success by bringing in new people through acquisitions. In order to maintain its current rate of innovation and support revenue growth, RIM may need to consider some strategic acquisitions – in geographic locations which attract strong engineering talent. European technology companies offer good opportunities – many eastern European nations have a lot of engineers and these markets are often hard to penetrate because of the nationalistic tendencies of European consumers
IV.
How would you recommend Yach begin to implement the option you recommended? (Be as detailed and specific as possible.)
The Challenge: Yach needs to expand the base of engineers at RIM who would be focused on research, product development of hardware and software applications for the future. Given RIM’s 98% increase in revenue and positive forecast.
First: Yach needs to review his current plans and commitments for R&D and Product Development and determine his priorities for the next 2 years – he must do so, taking in to account RIMs 1st quarter revenue projections of $2.2B and the fact that another $2.2B in revenue from new subscribers, is expected in the next fiscal year.
Next, Yach must immediately determine the level of resources required to maintain the existing RIM infrastructure (hardware - handsets, software and services). Next – he must determine his big bets for the next 2 years and boldly outline the amount of resources he would need in order to accomplish his goals. (1000 new engineers, 2,500, 3,000? (How many of these engineers could be new graduates vs. leaders/experienced technologists who would be thought leaders in the RIM organization
Once Yach has determined the number of engineers required and the mix of youth vs. experience – he can share that vision with Mike and the senior leadership team. Yach should recommend that the company undergo a two tier approach in order to recruit the necessary talent.
It’s very important that RIM grow it’s pool of software developers for a number of reasons:
With ’07 revenues up 98% YoY, the current team of 1.400 software engineers are less than 50% of the figure required to drive engineering innovations and technological advances – required to maintain current growth rates and profit margins
Similar to its competitors – RIM’s policy is to maintain its R&D spending as a consistent percentage of total sales. Investment analysts often looked to this number to gauge the sustainability of revenue growth
R&D expenses are often seen as a proxy for new product or service development and therefore used as a key indicator of future revenue potential
II.What are the different options for substantially increasing the number of software developers?
RIM faces 3 key options – in its quest to increase the number of software developers which it can hire
Change or Optimize Hiring Practices
Recruit aggressively from Waterloo and other nation –wide campuses, in Canada. (by expanding its co-op programs to more universities and creating incentives for more students to join the co-op program
Form a global scouting group – dedicated to finding the best talent worldwide and bringing them into RIM (value proposition would be RIM’s org culture, which is very favorable to engineers – and the allure of Waterloo / Canada
RIM can vastly Improve its hiring processes by better managing the qualified pool of candidates who apply for engineering jobs, every year. RIM can utilize online job sites, exec search firms which specialize in technology jobs and even revamp its own career website in order to make its overall hiring experience, more efficient
Grow & Expand Existing Geographies
RIM can expand its existing Product & Tech Devpt facilities, across Canada and the U.S – and actively recruit engineers for those locations.
Increase Acquisitions
Bring has already had some success by bringing in new people through acquisitions. In order to maintain its current rate of innovation and support revenue growth, RIM may need to consider some strategic acquisitions – in geographic locations which attract strong engineering talent. European technology companies offer good opportunities – many eastern European nations have a lot of engineers and these markets are often hard to penetrate because of the nationalistic tendencies of European consumers
Go Global? Not possible – RIM’s technology is too valuable and it may be at risk, if RIM were to allow engineers across south east Asia, to have access to it. RIM could outsource some project mgt and process driven work to Asian subs – but that may not help with the engineering (R&D) problem.
III.
Which option(s) should RIM pursue? Why?
RIM should pursue the following options
1.Change or Optimize Hiring Practices: Clearly there is an opportunity to improve efficiency in the hiring process and capture more talented technologists. This opportunity exists today and does not require significant investment – just some progressive thinking and better organizational structure
Recruit aggressively from Waterloo and other nation –wide campuses, in Canada. (by expanding its co-op programs to more universities and creating incentives for more students to join the co-op program. Expand this initiative to include aggressive recruitment of engineering students at the undergrad and postgraduate level, from U.S & European Universities.
Form a global scouting group – dedicated to finding the best talent worldwide and bringing them into RIM (value proposition would be RIM’s org culture, which is very favorable to engineers – and the allure of Waterloo / Canada ( RIM should Start developing relationships with the top 20 technology universities in Europe, N/America, Asia and Africa)
RIM can vastly Improve its hiring processes by better managing the qualified pool of candidates who apply for engineering jobs, every year. RIM can utilize online job sites, exec search firms which specialize in technology jobs and even revamp its own career website in order to make its overall hiring experience, more efficient
2.Grow & Expand Existing Geographies – (Increase Acquisitions & technology develop partnerships): Strategic acquisitions help RIM solve two key issues – the company can gain almost instant access to new engineering talent – and if the purchase is a strategic one – they can mine the geographic regions where the companies are located, for more talent). RIM can expand its existing Product & Tech Devpt facilities, across Canada and the U.S – and actively recruit engineers for those locations.
Bring has already had some success by bringing in new people through acquisitions. In order to maintain its current rate of innovation and support revenue growth, RIM may need to consider some strategic acquisitions – in geographic locations which attract strong engineering talent. European technology companies offer good opportunities – many eastern European nations have a lot of engineers and these markets are often hard to penetrate because of the nationalistic tendencies of European consumers
IV.
How would you recommend Yach begin to implement the option you recommended? (Be as detailed and specific as possible.)
The Challenge: Yach needs to expand the base of engineers at RIM who would be focused on research, product development of hardware and software applications for the future. Given RIM’s 98% increase in revenue and positive forecast.
First: Yach needs to review his current plans and commitments for R&D and Product Development and determine his priorities for the next 2 years – he must do so, taking in to account RIMs 1st quarter revenue projections of $2.2B and the fact that another $2.2B in revenue from new subscribers, is expected in the next fiscal year.
Next, Yach must immediately determine the level of resources required to maintain the existing RIM infrastructure (hardware - handsets, software and services). Next – he must determine his big bets for the next 2 years and boldly outline the amount of resources he would need in order to accomplish his goals. (1000 new engineers, 2,500, 3,000? (How many of these engineers could be new graduates vs. leaders/experienced technologists who would be thought leaders in the RIM organization
Once Yach has determined the number of engineers required and the mix of youth vs. experience – he can share that vision with Mike and the senior leadership team. Yach should recommend that the company undergo a two tier approach in order to recruit the necessary talent.
Sunday, October 11, 2009
Putting Leadership Back Into Strategy
Strategy has been narrowed to a competitive game plan, divorcing it from a firms larger sense of purpose. Sustainable competitive advantage is important, but it’s not (in of itself), a Strategy. Strategy is not just a plan, it’s a way of life for a company. It doesn’t just position a firm in its external landscape, it defines what a firm will bee – what it can be. It’s the CEO’s job to set the strategy, outwit the competition. It’s also his or her greatest opportunity to shape the firm’s future. In order to claim value – firms must first create value “Brandenburger & Nalebuff”. This requires bring something new to the Arena – some new value proposition, some new product or a new way of delivering a service! Bring something customers want that is different from or better than what others are providing. Value Related Questions 1. If your company were shuttered, to whom would it matter and why? 2. Which of your customers would miss you the most, and why? 3. How long would it take for another firm to step into that void? What’s truly distinctive about your value proposition? Purpose should be at the heart of strategy – it should give direction to every part of the firm – from the cooperate office to the loading dock. It should define the nature of the work what must be done. “A business has to have a clear purpose. If the purpose is not crystal clear, people in business will not understand what kind of knowledge is critical and what they have to learn in order to improve performance. A company’s suppose is what makes it distinctive. It what we as a company exist to achieve and what we’re willing and not willing to do to achieve it “ John Browne – former CEO of British Petroleum An organic conception of strategy recognizes that whatever consitutesstrategic advantage will eventually change. Leaders need to recognize the difference between defending a firms added valjue as established at aany given moment and ensuring that a fir is adding value over time. “the need to create and re-create reaons for a company’s continued existience sets the strategies apart from every other individual in the company”
The Balanced Scorecard - Measures That Drive Performance
What you measure is what you get!
Financial Accounting measures such as ROE, ROA and earnings per share - don't provide sufficient insight on how a company is doing with regard to customer satisfaction, innovation or continuous improvement in specific qualitative measures.
Some choose to focus primarily on quantitative metrics, such as financial accounting measures. Others, have said - forget financial measures and improve operational measures such as cycle time and defect rates, financial results will follow.
However - mangers should not have to choose between financial and operational measure - that's the whole concept of creating and maintain a balanced scorecard. The key goal being to help managers focus on a handful of critical measures.
The Balanced Scorecard complements well defined financial measures with operational measures on customer satisfaction, internal processes, organizational culture & innovation.
The balanced scorecard enables manages to look at the business from 4 impt perspectives
[Financial Perspective, Internal Business Perspective, Innovation & Learning Perspective & Customer Perspective]. We use these perspectives to answer 4 key questions about the organization.
1. How do customers see us ? - that's the customer perspective
2. What must we excel at? - Internal business perspective
3. Can we continue to improve and create value? - Innovation and learning perspective
4. How do we look to shareholders? - that's the financial perspective
The balanced scorecard helps managers consider al that important operational measures - together. This is important because even the best objective can be achieved badly. Most companies have mission statements which focus on serving customers/consumers - so the scorecard must reflect that commitment. What are the specific measures which matter to customers and how do we track them through a scorecard.
Customer Concerns: [Time, Quality, Cost (price), Performance and service]
Companies much article goals for the key customer concerns which may impact their businesses and then translate these goals into specific measures.
Some customers hire 3rd party organizations to provide customer evaluations or administer customer service surveys. Benchmarking procedures are yet another technique which companies use to compare their performance against competitors best practices.
To achieve key customer related goals, managers must devise measures which are actionable for their reports, but yet impact the critical measures on the balanced scorecard.
One concern could be that the scorecard information in the balanced scorecard is not timely, reports have to be submitted in time so that managers can analyze insights and come up with recommendations to improve overall performance.
Customer based and internal business measures on the balanced scorecard identify the parameters that the company considers most important of competitive success.
That said, targets keep changing at the external climate becomes more and more competitive. A company's ability to effectively service it's customers , innovate and improve - is key to creating sustainable value for its products, services, and improve operational efficiencies. The targets will help drive continuous improvements in csat and internal biz processes.
Financial Measures have often been criticized because they tend to be backward looking focus - and their inability to reflect contemporary - value creating actions. It's been said that operational efficiencies are much more important indications of success - thank Financial Measures. "one school of thought indicates that making fundamental improvements in operations will result in stronger financials. However, the alleged linkage between improved operating performance and financial success is actually quite tenuous & uncertain.
Operational efficiencies can certainly improve overall quality, but that doesn't necessarily translate to profits. Companies have to put a plan in place to capitalize on improvements in operational achievements. Quality and cycle time improvements can create excess capacity -and companies have to be prepared to either put the excess capacity to work or get rid of it all together. the excess capacity should be used to help boost revenues or eliminating expenses.
Increased efficiencies may result in layoffs or creating new jobs for skilled, flexible employees.
A balanced scorecard will help remind mgrs and executives that quality improvements in cost, performance of services, response times and overall productivity, only benefit the company went they're translated into improved sales and market share, reduced operating expenses or higher asset turnover. The scorecard will establish goals based on vision and strategy for the organization.
By combining the financial, customer, internal process and innovation as well as organizational learning perspectives - balanced scorecards help managers understand inter-relationships between key measures. This leads to improved decision making and problem solving - and helps companies keep looking forward, not backward.
Are You Sure You Have A Strategy?
Strategos: "the art of the general"
You need a strategy: an integrated overarching concept of how the business will achieve its objectives. If a business much have a single, unified strategy, then it must necessarily have parts.
What constitutes a Strategy? A strategy consist of an integrated set of choices - but it's not a catchall for every impt choice an executive faces.
Elements of Strategy: Arena's, Vehicles, Economic Logic, Staging & Differentiators.
Arena's: Where will we be active? What business will we be in? one needs to be very specific about product areas, customer/market segments, geographic areas and core technologies. Products or Services should be targeted to the specific parameters outlined in the chosen Arena
If the plan is to focus on multiple market or customer segments or different geographic areas, product categories e.t.c, the strategy must be outline the level of emphasis which will be placed on each segment.
Vehicles: Once we've outlined the Arena's we must decide how we get to them. How do we get there? What steps do we need to take in order to be competitive in our chosen Arena's. Joint Ventures, Acquisitions, Strategic Alliances or other initiatives? What vehicles will we use to grow/expand and drive towards our goals? how much do we know about each vehicle - or the parameters of the vehicle?
Differentiators: How do we expect to win, in the market place? Our strategy must highlight how we intend to effectively compete in our chosen arena's. What resources do we have available? Any proprietary technology which gives us a competitive advantage? what's our strategic positioning plan? How do we differentiate ourselves from competition? (Brand, Price Points, Customer Services, Quality of product - e.t.c). We must choose / decide how we intend to differentiate and then devise a plan of action to actively differentiate ourselves in our chose arenas.
Staging: We can't do everything at once, or at the same pace? Some initiatives must come first, followed by others. We must lay a strong foundation on which to build modules for the future. If we're looking at a broad arena, which segment do we target first and why? Do we have specific vehicles which compliment certain arena's better than others? If so, we should take that into consideration when planning/staging our strategic initiatives.
Decision about staging are driven by a number of factors - including availability of resources, (human and capital), Urgency is also a factor - perhaps we may have a strategic advantage in one arena, which is time sensitive. Credibility is also a key factor - does our reputation and experience provide certain advantages for us in specific segments or with the use of certain vehicles?
We need to keep things simple - it's often smarter to get some quick early wins and build momentum, rather than try to do too much at once.
Economic Logic: count your costs and model out your revenue / profit potential. Why do certain Arena's seem more attractive than others? What's the benefit of using certain vehicles to reach clearly defined Arena's? Are your Arena's sustainable? Will customers continue to pay high prices for your products/services, or will pricing pressures eat into your bottom line? What's the economic value of your offering, what's your value proposition? Does your "value" allow you to charge premium prices for your products? Is your economic logic rooted in your companies enduring capabilities? Can then enable you to deliver strong revenue and profit growth over an extended period of time? These are the key questions which one needs to address when reviewing this element of a strategic plan.
These 5 Strategic Elements are each critically important. They are important enough to warrant specific, intentional planning. It's clear that we cannot think about any one element in isolation - for each impacts the others and therefore each must be consistent with the others. Each element must support and align with the others.
These 5 elements form the foundational framework on which companies can build org structure, foundational policies, operations programs/processes and other important elements of building an organization.
Key Questions Which Test The Quality of Your Strategy
1. Does your strategy fit with what's going on in the environment?
2. Does your strategy exploit your key resources?
3. Will your envisioned differentiators be sustainable?
4. Are the elements of your strategy internally consistent?
5. Do you have enough resources to pursue this strategy?
6. Is your strategy implementable?
A good strategy is not static - it should be flexible, it should evolve, as your business evolves in response to changing market dynamics, new arena's or new competitive advantages - all of which present interesting opportunities or challenges.
Having a strong strategic framework doesn't mean one maintains a specific approach, one can have multiple options. Ideally, a strategy should have a specific time-span - based on a set of intentional, informed choices.
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