Archive for the ‘Strategy’ Category

Strategy: What’s your market? Who are your competitors?

February 9, 2016

We’re covering market definition in class this week, so it’s time to pull from the archives …

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Sounds like an easy question with an obvious answer, right?

Not really.

Sometimes, properly defining the market is a stumbling block for strategists.

Harvard guru Clayton Christensen tries to cut to the crux with a simple principle:

People “hire” products to do “jobs”

The jobs are situation-specific problems that customers have to resolve.

Christensen says that the best way to define (and segment) is based on “jobs to be done”.

He calls the approach “milkshake marketing”  …. the 5-minute video explains why.

 

Here’s a more rigorous definition of the “Jobs to be DOne” Framework …

(more…)

How do big companies compete with quick, small competitors?

February 4, 2015

They focus on customer value.

McKinsey says that leading companies combine insights about customers, competitors, and costs to develop more innovative and cost-effective products.

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Excerpted from McKinsey Quarterly’s, “Designing products for value”

A rising tide of prosperity in developing economies is reshaping the nature of competition. Recognizing the challenges of the new environment, a few product makers … are taking a different approach.

Here are some examples:

(more…)

Strategy: What’s your market? Who are your competitors?

February 3, 2015

Sounds like an easy question with an obvious answer, right?

Not really.

Sometimes, properly defining the market is a stumbling block for strategists.

Harvard guru Clayton Christensen tries to cut to the crux with a simple principle:

People “hire” products to do “jobs”

The jobs are situation-specific problems that customers have to resolve.

Christensen says that the best way to define (and segment) is based on “jobs to be done”.

He calls the approach “milkshake marketing”  …. the 5-minute video explains why.

 

Here’s a more rigorous definition of the “Jobs to be DOne” Framework …

(more…)

Strategy: What’s your market? Who are your competitors?

January 23, 2015

Sounds like an easy question with an obvious answer, right?

Not really.

Sometimes, properly defining the market is a stumbling block for strategists.

Harvard guru Clayton Christensen tries to cut to the crux with a simple principle:

People “hire” products to do “jobs”

The jobs are situation-specific problems that customers have to resolve.

Christensen says that the best way to define (and segment) is based on “jobs to be done”.

He calls the approach “milkshake marketing”  …. the 5-minute video explains why.

 

Here’s a more rigorous definition of the “Jobs to be DOne” Framework …

(more…)

Strategy: What’s your market? Who are your competitors?

April 29, 2014

Sounds like an easy question with an obvious answer, right?

Not really.

Sometimes, properly defining the market is a stumbling block for strategists.

Harvard guru Clayton Christensen tries to cut to the crux with a simple principle:

People “hire” products to do “jobs”

The jobs are situation-specific problems that customers have to resolve.

Christensen says that the best way to define (and segment) is based on “jobs to be done”.

He calls the approach “milkshake marketing”  …. the 5-minute video explains why.

 

Here’s a more rigorous definition of the “Jobs to be DOne” Framework …

(more…)

How do big companies compete with quick, small competitors?

December 3, 2012

They focus on customer value.

McKinsey says that leading companies combine insights about customers, competitors, and costs to develop more innovative and cost-effective products.

* * * * *
Excerpted from McKinsey Quarterly’s, “Designing products for value”

A rising tide of prosperity in developing economies is reshaping the nature of competition. Recognizing the challenges of the new environment, a few product makers … are taking a different approach.

Here are some examples:

(more…)

Which Kraft brands are getting the boot?

November 20, 2012

Punch line: Since splitting earlier this year, Kraft Foods and Mondelez are both pursuing similar growth strategies: trimming slower, smaller brands and focusing efforts on powerhouse brands to drive economies of scale.

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Excerpted from brandchannel’s, “The Kraft/Mondelez Dilemma: Which Brands to Trim, Which Brands to Boost?”

MondelezPic_460

One of the main reasons for Kraft to split into its new Kraft Foods and Mondelez International units was to free the latter to pursue the beckoning opportunities in the global snacking business without being tied down to the slower-growth, mature North American groceries business.

Both newly independent entities are pursuing something of the same strategy to tap into their separate growth opportunities: paring back non-performing, small brands, and applying innovation resources and expansion ambitions to big brands

Mondelez has said that it may divest some products as it seeks to streamline its range. The company will pursue a “simplification agenda,” Tom Cofer, head of Europe, confirmed to Bloomberg.

Not to be outdone, Kraft Foods also is planning “product pruning.” Kraft hasn’t indicated what products and brands it will trim, but analysts have speculated that Oscar Mayer, Gevalia coffee, Jell-O and Planters comprise a list of “power” and “jewel” brands safe from disposition. On the other hand, Breakstone sour cream, Grey Poupon mustards and A-1 steak sauces could be targets for divestiture.

Kraft Foods’ board of directors, meanwhile, just approved a $650 million “restructuring, related implementation and spinoff transition program,” the company reported in an SEC filing, which includes severance, asset disposal and professional service fees.

Mondelez has indicated that it will be creating new synergies among the many powerhouse brands in its stable … to supercharge growth especially in emerging markets including the Middle East, even as it trims in more mature markets, such as Canada.

So, for instance, Mondelez is leveraging a “nervous” Cadbury’s long presence in India to help growth of its Oreo brand, in part by packaging Oreos in that market in Cadbury’s signature purple packaging rather than the red and white of Oreo’s Nabisco brand.

Mondelez also is trying to goose growth with marketing innovations such as its use of a new digital-advertising diagnostics tool and by its plans to crowdsource some marketing tactics in Europe.

Significant growth is what Mondelez, and Kraft Foods, need — otherwise, what was the split for?

Edit by BJP

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Strategy Lesson: The fight for Pennsylvania

November 3, 2012

I think the unfolding political fight is Pennsylvania will certainly be interesting to watch … and, possibly will be enshrined as a strategy “teaching moment”.

First, a disclaimer … the underlying logic for this case comes from Dick Morris … he’s a hard right partisan with a grudge against the Clintons and a penchant for newsworthy predictions – many of which are airballs.  So, I usually take him with a grain of salt.

That said, I think he may have something here:

Obama’s Pennsylvania Blunder

There are many reasons why Obama will lose this election — by a lot — on Tuesday.

But when the history of this contest is written, it will be especially important to probe why Obama blundered by virtually ignoring Pennsylvania.

Team Obama was so focused on the swing states that they ignored the semi-swing states which could come into play.  Ohio, Florida, Colorado, North Carolina, Virginia, Iowa, New Hampshire, Iowa, and Nevada loomed so large in their calculations that they forgot about Pennsylvania, Wisconsin, Michigan, and Minnesota.

Adopting an all-or-nothing approach, Obama advertised heavily in the swing states and not at all in the semi-swing states of the Midwest. 

The Detroit, Pittsburgh, Milwaukee, and Minneapolis media markets — and all the smaller cities in between got no Obama advertising.

Obama took care to irradiate the swing states with his negative attacks on Romney. 

When the voters in those states saw that Mitt was not a Halloween monster but a pretty nice and reasonable guy, his negative stopped working and the states started falling to Romney.

But in Pennsylvania, Wisconsin, Minnesota, and Michigan, the negatives on Romney never ran. 

The only Romney they saw in these states was the very presentable and attractive one who showed up in the debates.  So there was no obstacle to hold them back from voting for Mitt.

Obama’s static dependence on the swing states to constitute a firewall backfired. 

The firewall became like the French Maginot Line of 1940, easily outflanked

When Romney began to buy ads in the semi-swing states, Obama was slow to respond.

Initially, his campaign dismissed Romney’s ads in Pennsylvania as a bluff intended to draw Obama’s resources away from Ohio.

But it was no bluff.  Romney’s people realized that 20 votes in Pennsylvania were as good as 18 in Ohio.

And, in this final week, Romney’s campaign and its allied groups are spending $11 million on Pennsylvania ads as opposed to only $2 million for Obama.

Most polls show Obama leading in PA by at least a couple of points.

But, Romney’s internal campaign polls show the race well within the margin of error.

And, they’ve got a couple of strong targeted messages (coal, gun rights) … without the burden of the auto bailout debate.

That’s why Mitt is doing a closing campaign event in Philly on Sunday.

No way, Team Obama could have expected that.

Whereas Mitt has plenty of $$$ to throw at PA, Obama is more limited … each dollar that goes to PA comes out of a swing state.  in the vernacular, Team O blew their wad early in the campaign … not much dry powder left.

And, add Hurricane Sandy to the mix.

Conventional wisdom is that Dems are more fair-weather voters that Republicans.

If folks in Philly’s center city don’t get to the polls, Romney’s gambit may play out.

We’ll see.

>> Latest Posts

HOT: The 4 Stages Strategic Thinking

December 16, 2011

I’ve gotten a couple of requests from alums to post some of the material that I’m now pitching to current classes.

So today, I’m posting the first HOT – Homa Online Tutorial – something right out of the classroom to you via the HomaFiles.

Some stuff will be classic, some will be edgy; some will be original, some will be “borrowed” from other sources (with proper attribution of course).

Here’s the first HOT topic …

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Great Strategy

In my Advanced Marketing Strategy introduction, I tell students that the course goal is to get them to “internalize a mindset geared to creating great marketing strategies.”

That raises a logical question: what’s a “great” strategy … as opposed to a “good” strategy.

I try to put “great” in the context of the 4 stages strategic thinking.

click for the online tutorial “The 4 Stages of Strategic Thinking” (4:30 min)

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Synopsis: The 4 Stages of Strategic Thinking

Companies can be at one of 4 levels of strategic thinking.

Level 1 is “reactionary” … responding to market and forces as they happen … hoping to make it through this day and see the sun come up tomorrow … and rejoicing when it does (think, my dog Captain)

Level 2 is “remedial” … proactively stop doing dumb stuff … and try doing mostly the same things, just a bit better … often by benchmarking companies with best practices and trying to emulate them. Consultants make mucho $$$ on these folks … taking the #3 company in an industry and telling them to be like #1 … in hopes of overtaking #2.

Level 3 is “resourceful” … think typical MBA training … analyze SWOTs, assess competitive advantages, find “white spaces” or “blue oceans” … basically fit the existing world and play by the rules.

Level 4 is “revolutionary” … try to change the way the game is played … alter the rules of the business to your company’s unique advantage … think, FedEx, early Netflix or Apple iPad … don’t just report the weather, create it.

>> Latest Posts

Strategy: The GE–McKinsey nine-box matrix

October 26, 2011

Excerpted from McKinsey Online: “Enduring ideas: The GE–McKinsey nine-box matrix”, September 2008

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The GE–McKinsey nine-box matrix, a framework that offers a systematic approach for the multibusiness corporation to prioritize its investments among its business units.

Below is a summary of the article, a link to the full article, and a link to an online presentation on the topic.

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With the rise of multibusiness enterprises in the 20th century, companies began to struggle with managing a number of business units profitably. In response, management thinkers developed frameworks to address this new complexity. One that arose in the early 1970s was the GE–McKinsey nine-box framework, following on the heels of the Boston Consulting Group’s well-known growth share matrix.

The nine-box matrix offers a systematic approach for the decentralized corporation to determine where best to invest its cash. Rather than rely on each business unit’s projections of its future prospects, the company can judge a unit by two factors that will determine whether it’s going to do well in the future: the attractiveness of the relevant industry and the unit’s competitive strength within that industry.

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Placement of business units within the matrix provides an analytic map for managing them.

With units above the diagonal, a company may pursue strategies of investment and growth; those along the diagonal may be candidates for selective investment; those below the diagonal might be best sold, liquidated, or run purely for cash.

Sorting units into these three categories is an essential starting point for the analysis, but judgment is required to weigh the trade-offs involved. For example, a strong unit in a weak industry is in a very different situation than a weak unit in a highly attractive industry.

The criteria for assessing industry attractiveness and competitive strength have grown more sophisticated over the years.

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Full article
Online presentation with interactive matrix
>> Latest Posts

Creating demand … by tapping non-customers.

December 8, 2009

Ken’s Take: “Blue Ocean” Strategists say to stop competing head-on in established markets and refocus on uncontested part of markets — the wide open, blue ocean.  A critical componect of a blue ocean strategy is to “unlock” non-customers …

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From the folks at the Blue Ocean Institute …

Traditional strategic thinking looks to capture a greater share of existing demand. But companies can reach beyond existing demand to unlock demand from non-customers, too.

The key is to understand the three tiers of non-customers who buy opportunistically  … or  refuse to buy  …or are unaware of the product offering.

First-tier non-customers are closest to the existing market. They are the buyers who minimally purchase an industry’s offering out of necessity but are mentally
non-customers. They are waiting to jump ship and leave as soon as an alternative is spotted. These are potentially “soon-to-be” non-customers.  But, if they are offered a step-up in value, they can be retained … and may even increase their purchases.

Second-tier non-customers are people who consciously refuse an company’s offerings. These are buyers who have recognized an company’s offerings as an
option to fulfill their needs but have opted against them. These are “refusing” non-customers.

Third-tier non-customers are furthest from the existing market. They are non-customers who have never thought of a company’s offerings as an option. These are “unexplored” non-customers.

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The key question to ask: “What are the factors keep non-customers out of the market … and what can be done to pull them into the market?”

Start by by focusing on the key commonalities – not differences – across these non-customers and existing customers to gain insight into how to create demand among these non-customers.

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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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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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About your bold strategic move … will your competitors even notice?

November 16, 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.

” * * * *

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:

  1. Will the competitor react at all?
  2. What options will the competitor actively consider?
  3. Which option will the competitor most likely choose?

The first step in analyzing competitor reaction, therefore, is to address the likelihood of no reaction.

To determine this, you must ask four subquestions. If the answer to any of them is no, the chances of a response are low.

1. Will your rival see your actions?
Even if an action appears obvious to you, your competitor may not recognize it.

First, most companies rely on incomplete data to assess changes in the marketplace, e.g. market research that only survey certain segments, markets, or channels.

Second, if your strategic move will affect several of your competitor’s business units, it may not register as significant to any one unit and so may be
overlooked.

2. Will the competitor feel threatened?
Even if your competitor sees your actions, he may not feel threatened—and, accordingly, will not think that mounting a response is
worth the expense and distraction.

That is, the competitor may not consider the strategic move to be statistically significant to their in place plan.

3. Will mounting a response be a priority?
Your adversary probably already has a full agenda before you make a move. On it are product launches, marketing campaigns, reorganizations,
major acquisitions, plant openings, and cost reduction efforts—some or all of which must be curtailed in order to react to your move.

Therefore, to the degree that your adversary has already committed to plans that will fully occupy his attention, he will be reluctant to shift priorities.

4. Can your rival overcome organizational inertia?
Even if top management wants to react, the organization as a whole may resist.

First, if reacting requires the company to make major organizational changes, it is very unlikely to do so unless the threat is immediate and deadly.

Second, managers are generally reluctant to abandon their success formula, and if they decide to go ahead and make a change, they are very poor at doing so.

Third, companies have great difficulty mounting a response that requires the cooperation of third parties, which may not share their sense of urgency.

For example:

In the late 1980s, a small U.S. pizza delivery chain called Papa John’s noticed a change in consumers’ perception of the quality of Pizza Hut and Domino’s (the top two chains) and used the opportunity to create a differentiated value proposition captured in the slogan, “Better ingredients. Better pizza.”

Papa John’s expanded rapidly throughout the 1990s and became the third largest pizza chain in the country, while the two bigger rivals stagnated.

Unable to mobilize their franchises around quality until the threat became undeniable, the big chains did not respond with better pizzas of their own until 2000.

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Punch line: Competitors do not respond to their rivals’ moves at least 1/3 of the time.

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Upcoming: What if your competitor does respond ?

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Brainstorming strategic assumptions …

November 5, 2009

Question: What are the “killer assumptions” that underlie your strategy? 

STRATEGY & INNOVATION, Not-So-Risky Business, September 16, 2009

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Start by asking:

Consumer:
Who is the end user?
What are they willing to pay?
Will they have to change their behavior?

Solution:
What constitutes “good enough”?
What are the technical challenges?
Are there logical external partners?
Do we have/need IP protection?

Profit System:
What price makes sense?
What do we expect in terms of trial/repeat purchase?
What capital investment is required?
What marketing support will be needed to launch?

Channel:
Who are the necessary channel partners?
Are they willing to push the solution?
What incentives are required?

Competition:
Who are they?
How do we expect them to respond?
How quickly?
What impact would it have?

Organization:
Do we have the capabilities required?
Are resource allocation processes conducive to success?
Will we gain buy-in from key internal constituents?

Upside:
How scalable is the solution?
What are the stepping stones to the broader opportunity?
How will we achieve longer-term competitive advantage?
 
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Full article:
http://www.innosight.com/innovation_resources/article.html?id=842

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McKinsey’s “enduring” strategy frameworks … Check this out !

November 2, 2009

McKinsey consultants are in the process of constructing an interactive site with tutorials on core strategic analysis frameworks.

Below is a snapshot of the current “map” of frameworks .. those in green are active; those in blue or black are under development.

To access the site, go to http://tinyurl.com/n75fea

A great resource for current students and alums …

 

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 http://tinyurl.com/n75fea

An unequal playing field … Big really is better … much better!

January 19, 2009

Excerpted from McKinsey Quarterly, “Using ‘Power Curves’ to Assess Industry Dynamics”, by Michele Zanini, November, 2008

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Major crises and downturns often produce shakeouts that redefine industry structures. However, these crises do not fundamentally change an underlying structural trend: the increasing inequality in the size and performance of large companies.

The past decade has seen the rise of many “mega-institutions”—companies of unprecedented scale and scope—that have steadily pulled away from their smaller competitors. What has received less attention is the striking degree of inequality in the size and performance of even the mega-institutions themselves.

Plotting the distribution of net income among the global top 150 corporations in 2005, for example, doesn’t yield a common bell curve, which would imply a relatively even spread of values around a mean. The result instead is a “power curve,” which, unlike normal distributions, implies that most companies are below average. Such a curve is characterized by a short “head,” comprising a small set of companies with extremely large incomes, and drops off quickly to a long “tail” of companies with a significantly smaller incomes.

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Exhibit 1 shows the top 30 US banks and savings institutions in June 1994, 2007, and 2008, measured by their domestic deposits. The exhibit shows that inequality has been increasing from 1994 (when the number-ten bank was roughly 30 percent of the size of the largest one) to 2008 (when it was only 10 percent as large as the first-ranked institution). It also shows how in 2008, the financial crisis accelerated the growth of the top five compared with the other banks in the top ten as the largest financial institutions took advantage of their relatively healthy balance sheets and absorbed banks in the next tier.

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Power curves are also promoted by intangible assets—talent, networks, brands, and intellectual property—because they can drive increasing returns to scale, generate economies of scope, and help differentiate value propositions. Exhibit 2 shows a significant degree of inequality, across the board, in the size and performance of companies in a number of sectors we researched. But the more labor- or capital-intensive sectors, such as chemicals and machinery, have flatter curves than intangible-rich ones, such as software and biotech.

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The fact that industry structures and outcomes appear to be distributed this way opens up an intriguing new field of research into the strategic implications. Notably, the extreme outcomes that characterize power curves suggest that strategic thrusts rather than incremental strategies are required to improve a company’s position significantly.

Consider the retail mutual-fund industry, for example. The major players sitting atop this power curve (Exhibit 3) have opportunities to extend their lead over smaller players by exploiting network effects, such as cross-selling individual retirement accounts (IRAs), to a large installed base of 401(k) plan holders as they roll over their assets. The financial crisis of 2008 may well boost this opportunity further as weakened financial institutions consider placing their asset-management units on the block to raise capital.

 

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Unlike the laws of physics, power curves aren’t immutable. But their ubiquity and consistency suggest that companies are generally competing not only against one another but also against an industry structure that becomes progressively more unequal. For most companies, this possibility makes power curves an important piece of the strategic context. Senior executives must understand them and respect their implications.

Edit by DAF

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Full article:
http://www.mckinseyquarterly.com/Strategy/Growth/Using_power_curves_to_assess_industry_dynamics_2222 

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Click link => 
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Even in a recession, companies still paying big bucks for potential blockbusters.

January 9, 2009
Excerpted from WSJ, “Blockbuster or Bust” by Anita Elberse, January 4, 2009

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Amid the worst economic crisis to hit the United States in decades, publishing executives are still making what many see as outrageous gambles on new manuscripts.

With double-or-nothing daring, most large media firms make outsized investments to acquire and market a small number of titles with strong hit potential, and bank on their sales to make up for middling performance in the rest of their catalogs.

Given the constantly shifting tastes of consumers, it is extremely difficult to forecast demand for a new title. The one useful indicator is its resemblance to an existing bestseller. This similarity is an indicator that’s evident to any editor or publisher who sees the proposal … triggering competitive bidding situations.

When a publisher spends an inordinate amount on an acquisition, it will do everything in its power to make that project a market success. Most importantly, this means supporting the book with higher-than-average marketing, advertising and distribution support.  With such high stakes and money tied up in a few big projects in the pipeline, the need to score big becomes more pressing, and the process repeats itself. The result is a spiral of ever-increasing bets on the most promising concepts, creating a “blockbuster trap.”

But what would happen if a publisher decided to stop making large bids and systematically walked away from the most sought-after — and therefore expensive — new properties?

First, agents would stop sending such a publisher their most promising book proposals, the most talented editors and other creative talent would leave to work for a publisher that would let them pursue the projects they thought had the highest chances of success, and firing up the publisher’s sales reps would be a major challenge.

In most media markets, support from the biggest retailers is decisive. A significant share of books is bought on impulse, so significant shelf space and room on display tables (“pile ’em high and watch ’em fly” tactics) are particularly important. Book retailers like Borders and Barnes & Noble want to see evidence that a book is worthy of their scarce resources. They like nothing better than to know that a book publisher … is planning an extensive marketing campaign. 

Consumers prefer blockbusters. Because they are inherently social, people find value in reading the same books and watching the same movies that others do. This is true even in today’s markets where, thanks to the Internet, buyers have easy access to millions and millions of titles. Compounding this tendency is the fact that media products are what economists call “experience goods”: that is, shoppers have trouble evaluating them before having consumed or experienced them. Unable to judge a book by its cover, readers look for cues as to its suitability for them, and find it very useful to hear that “Dewey” is “a ‘Marley & Me’ for cat lovers.” In much the same way that potential publishers do, readers value resemblances to past favorites.

Edit by NRV

Full article:
http://online.wsj.com/article/SB123093737793850127.html

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By the way: Saw Marley & Me over the break — a major disappointment.  ALL of the funny scenes are in the trailer and TV commercial.  Marley was undisciplined and unlovable, Owen Wilson is a dufass (grossly miscast as a reporter), and Jennifer Aniston is showing some serious mileage.  Even a shot of Oxyglobin wouldn’t have saved Marley or the movie. Wait for it on free TV.

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Strategy: Lessons from Obama’s Campaign

September 18, 2008

Excerpted from MSNBC: Obama’s woes have nothing to do with ‘lipstick’, by Howard Fineman,  Sept. 10, 2008

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Note: Fineman is a left-leaning political commentator. I thought this piece was an interesting strategic analysis.   Try to put the politics aside — whether you agree or disagree — and pull out the strategy lessons.

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For two years, Obama played the golf course of presidential politics with the ice-cold self-assuredness of a Tiger Woods. But since securing the Democratic nomination, he’s made a series of strategic errors that could jeopardize his chances in November.

Here’s my list of his errant shots:

Declining to take federal financing for the general election
This mistake is multi-pronged. Obama stands accused of flip-flopping … appears to have ceded some higher ground to McCain, who, with his public funding, appears slightly more immune to interest groups …  will have to leave the campaign trail more often to headline fundraising events.

Declining McCain’s offer to hold ten town hall debates
When Obama was leading the race in leaps and bounds, he blew off this GOP proposal. Too bad. Had Obama locked in that deal, he would now be able to confront McCain face-to-face about some of the Republicans’ more aggressive … claims.

Failing to go all the way with the Clintons
I know, the Clintons are difficult to deal with and probably hope Obama fails.  They are not eager to do so, but it was still Obama’s task to trap them into displays of political enthusiasm. Obama also neglected to court Clinton fundraisers and supporters in places like Los Angeles. 

The 22-state strategy
For months, the Obama campaign invested advertising time and organizing money in an impressive array of red states that haven’t been on the Democrats’ radar in recent elections … for the most part, it was a waste of assets … He’d be more successful focusing on traditional battlegrounds.

Failing to state a sweeping, but concrete, policy idea
It is not enough to be for change – everybody is, or is trying to be. To make it stick, Obama needed, and needs, to put forth an easy-to-grasp grand proposal, one that would encapsulate what his central message … Instead, he’s got more of a laundry list than an actual rallying cry.

Remaining trapped in professor-observer speak
When you listen to Obama, it sometimes feels like you’re hearing a smart but distant analysis of the political scene. He sounds like a writer or teacher, but not the leader of a political crusade … Voters want an action plan, not an exegesis.

Failing to attack McCain early
Obama was wary of attacking a man who had suffered so much during the Vietnam War – an understandable emotion. But that wariness, combined with Obama’s natural inclination to be seen as the nice guy (one who lets others do the knifing) lead to an unfortunate result. It gave two free months for McCain to build up a head of steam as a war hero, as opposed to … a man beholden to corporate interests and a likely clone of George W. Bush. 

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I would be worried that his mistakes have a common thread – pride.

Obama seems to want to do things on his own, and on his own terms. It’s understandable. Obama has his own crowd – from Chicago, from Harvard, and from a new cadre of wealthy, Ivy-educated movers and shakers.

“He’s an arrogant S.O.B.,” one of the latter told me today. “He wants to do it his way, and his way alone.” But politics doesn’t work that way.

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Full article:
http://www.msnbc.msn.com/id/26640489/

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