Archive for November 24th, 2009

When it comes to profits, smart guys node a lot !

November 24, 2009

Takeaway: Companies that invest in power nodes, or sources of strength and leverage, have an increased likelihood of earning extraordinary profits.

Accordingly, classically trained strategists understand the potency of a brand, the power of relationships, and the advantage of captive markets. However, two new power nodes have quietly emerged.

Those who understand them well will likely rise to a level of strategic importance in their firms and thereby establish a power node of their own.

What can aikido and hubs do for you?

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Excerpt from Strategy+Business, “The Most Powerful Paths to Profits,” by Mia de Kuijper, November 16, 2009.

In the 1990s, AT&T still controlled a huge share of the lines, hardware, and software required to deliver long-distance networking and telephone services to businesses and consumers. With minimal competition, the telecom giant could charge deliciously high rates for its services. The company’s vast network infrastructure amounted to what is called a power node: a source of strength or leverage that the company could reliably use to effortlessly dominate its market and fend off rivals.

In AT&T’s case, the power node was its preeminent stake in a network. But a power node can also be a coveted brand, a skill, a set of industry relationships, a process, a customer base with switching costs, regulatory protection, or access to resources. In short, it can be anything that a company depends on to influence financial outcomes.

The power nodes listed above have been around for a while, however two power nodes are strikingly novel.

The aikido asset power node is named after the Japanese martial art that exploits the energy of an opposing force. The key to aikido assets is being able to perceive and move with the momentum of the network. In the current information environment, it is no longer useful to “push” advertising and marketing messages to consumers. Most customers reach out for information they need on their own. If they find a source that they like, they tell other customers. They use search engines, which tend to drive large numbers of people to the most popular sources. 

Companies whose power node is based on the aikido approach are skilled in new forms of marketing. They “sow seeds,” tossing out many messages at minimal cost; Frito-Lay, for example, continually puts new flavors and packaging in the marketplace. These companies conduct surveillance, continually analyzing their digital media to see which messages are catching on.  And they react very quickly to what they learn from the networks, introducing or discontinuing products almost instantaneously. This may require the rapid retooling of sourcing, manufacturing, and distribution functions as they shift from one product to another.

Hubs are people or products that attract viewers, clients, buyers, or users in part because others are drawn to them as well; hubs are among the most effective power nodes imaginable in a transparent economy. Hubs represent the ability to become the beneficiary of self-reinforcing popularity.

The first Harry Potter book took off rapidly because friends recommended it to friends. It became a hub as others wanted to know what was driving people to read it. The existence of this hub ensured the popularity of the rest of the series. The transparency and immediacy of communications added momentum. Companies that can heighten the allure of their products this way, triggering attachment and emerging as hubs, will have a tremendously valuable power node.

When hub dynamics are at work, products or ideas that are ahead stay ahead for a long time.

That explains why Microsoft and Yahoo have not been able to catch up with Google in search volume. But because hubs are not a winner-take-all phenomenon, Google’s rivals have sizable numbers of users, leaving some room for market share to eventually turn against Google if a competitor comes up with a product that itself becomes a preferred hub. Microsoft hopes to exploit this opening with Bing, its new search engine.

Edit by BHC

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Full Article
http://www.strategy-business.com/article/09412?pg=all

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Posted in AMS Concepts-Frameworks-Examples, Social Media & Networking, Strategy | Leave a Comment »

How many Palin books does it take to outsell 4 of Barack’s?

November 24, 2009

Botton line: Interesting analysis of the first week economics of Going Rogue — both to Palin and to others in the media.

Obvious answer to the headline question: one. 

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Excerpted from The Daily Beast: Palin’s Gold Mine, Nov. 22, 2009

Did you hear that Sarah Palin has a book out? 

Sarah Palin sold 300,000 copies of Going Rogue on its first day of sale.

The book is No. 1 on Amazon, ahead of both Stephen King’s new novel, Under the Dome, and Dan Brown’s The Lost Symbol. Any way you carve it, Going Rogue looks to be a $12 million goldmine.  

Going Rogue is going gangbusters, and it looks like both Palin and her publisher, HarperCollins, are going to make some serious money off of it.

According to industry insiders, Palin got a $7 million advance for her book. She’s earning a royalty rate of 15 percent, which means she makes $4.35 per book sold, and therefore needs to sell all 1.6 million books that have printed to earn out her advance.

As a frame of reference, Nielsen BookScan reports that in 2008, the four books published by  Barack Obama between 2004 and fall 2008 sold a combined 912,000 copies.

http://blog.nielsen.com/nielsenwire/consumer/obama-books-out-sell-mccain-titles-in-2008/

On the media front, Palin was of particular value to  Oprah Winfrey this week. Oprah averages 6.8 million viewers. According to The New York Times, Palin’s appearance was Oprah’s best in two years, reeling in 8.7 million viewers.

There’s no way to argue with it: This was a triumphant week for the brand called Sarah Palin.

Given that people either think she’s a Godsend or a national joke—there’s really no in-between—it’s difficult to think that her popularity could be rising. But it certainly isn’t falling.

Whatever she’s selling, there are millions of people who are going to be buying. 

Full article:
http://www.thedailybeast.com/blogs-and-stories/2009-11-19/palins-gold-mine/?cid=hp:mainpromo7

Posted in Books & Publishing, Palin, Sarah | Leave a Comment »

About your bold strategic move … how is your competitor likely to respond (if he does)?

November 24, 2009

TakeAway: How to assess a competitor’s response to your strategic moves?  Game theory is often too complex and too assuming to fit the real world.  Intuitive-based war gaming is often skewed by personal biases and hidden agendas.

So, McKinsey proposes a practical approach to predicting competitive behavior that “stays close to the theoretical rigor and accuracy of game theory but is as easy to apply.

A prior post outlined why — at least 1/3 of the time — competitors do not respond at all to their rivals’ strategic moves .

This post outlines what moves — if any — a competitor might actively consider and most likely choose.

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Excerpted from HBR: Predicting Your Competitor’s Reaction, by Coyne and Horn, April 2009

 
The McKinsey approach involves distilling all possible analyses of a rival’s response to a particular strategic move into a sequential
consideration of three questions, the first of which is “Will the competitor react at all?”

Once it is concluded that a competitive response is likely, it’s time to project the the nature of the response. Specifically, (1) What options will the competitor actively consider? and (2) Which option will the competitor most likely choose?

Although competitors may discuss many response options, they seriously investigate only a small number.

Even if companies consider multiple response options, most will have a clear preference for one or two.

And, the most common option competitors analyzed was “the single most obvious counteraction” (e,g. introducing a me-too product or matching a price change).

Of the options your adversary seriously considers, he will choose the one that is most effective (according to his analytic technique) within the constraints of his trade-off between short-term and long-term pain.

And, managers find it difficult to trade the certainty of short-term expense for the uncertainty of long-term gain.

To understand how competitors will respond to your move, evaluate the situation in their terms — not yours.

Companies often mistakenly assume that everyone measures success in the same way. This explains why many of our clients claim that their competitors are “irrational.”

Ask yourself: has your competitor chosen this moment to take leave of his senses? Or is he simply pursuing a strategy that looks poor according to your preferred measures but looks very clever according to his?

Most companies use simple, short-term measures.

In our survey, only about 15% of respondents used NPV to evaluate their options; 37% focused on market share; 38%  focused on earnings.

And again,  managers usually find it difficult to trade the certainty of short-term expense for the uncertainty of long-term gain.

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Bottom line: A rigorous analysis of competitors’ behavior doesn’t have to involve a lot of math and talk of Nash equilibria.

The key is to focus on understanding how a competitor actually behaves rather than on the theory of how everyone should behave.

By studying your competitor’s past behavior and preferences, you can estimate the likelihood of his responding at all, identify the responses he is likely
to consider, and evaluate which will have the biggest payoff according to his criteria.

This information can give you an accurate idea of what your competitor is likely to do when you make a strategic move.

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Posted in AMS Concepts-Frameworks-Examples, Competitive Analysis, Strategy | Leave a Comment »