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Next hurdle for Bombardier’s C Series: cutthroat prices

December 7th, 2010 Comments off

Photo credit: Caleb Howell at Flickr

Bombardier is a Canadian company.  They used to be involved in recreational equipment such as Ski-Doo snowmobiles and Sea-Doo watercraft and their Transportation division is involved in light-rail transit including here in the Twin Cities.

Their Aerospace division, however, is probably their best known operating segment and is known as a leading manufacturer of commuter jets (most notably the CRJ series that many of you may have flown on) containing 50-100 seats.

As Bombardier attempts to expand its aircraft product line into medium-sized aircraft (100-149 seats), it is entering space that is getting very close to the market segment dominated by industry giants, Boeing and Airbus.  While those companies tend to focus on even larger aircraft, they may want to protect themselves by defending against Bombardier in the medium-sized aircraft segment because left unchecked, Bombardier could later expand into the lucrative large-aircraft segment.

Bombardier’s $3.4-billion bet on the market for narrow-bodied aircraft faces a potential threat: a price war instigated by Boeing Co. and Airbus SAS.

I think this could be very interesting.  In general, price wars often create only losers but this could be a case where pricing power may be a big enough weapon for Boeing and Airbus to use.  In doing so, they would be hoping to establish a barrier that would keep Bombardier from becoming a thread in the market for larger planes.  It also doesn’t hurt that Boeing and Airbus are “one-stop-shops” for the increasingly larger airlines that are often looking to do more business with fewer vendors.

“The full family of airplanes offered by Airbus and Boeing give them the ability to price the A319 and 737-700 as loss leaders (should they choose to) or to wrap discounts into larger models and … twin-aisle airplanes,” AirInsight noted.

Read more at Next hurdle for Bombardier’s C Series: cutthroat prices – The Globe and Mail and stay tuned in the months and years ahead.  Perhaps we’ll forget about this foray by Bombardier into medium-sized aircraft or maybe we’ll look back and say this was the strategic move that started something big.

Lessons Learned in Manufacturing Applied to Healthcare

November 10th, 2010 Comments off

We spend time in class discussing lots of things in the setting of a manufacturing plant or business.  There is always an asterisk that the same principles can be applied elsewhere such as in service industries or not-for-profit entities.  Today I ran across a great piece that looks at how manufacturing knowledge has been applied to healthcare in Canada to cut down on wait times and to reduce costs. 

A key inspiration came from an unexpected place: the shop floor. Health-care practitioners are borrowing techniques from manufacturers by streamlining operations and spinning off bits of their businesses as separate, specialized units. Clinics dedicated to one medical procedure are slowly but steadily emerging in Canada with a “focused factory” approach that produces better care for less money.

Inherent in the philosophy being promoted is a sense that incentives drive performance, which is something else we will look at in a couple weeks.

Health-care experts say the waiting-time strategy would never have succeeded without incentives for doctors to perform more surgeries. But the fee structure has not kept pace with technological advances that have dramatically reduced cataract surgery time. At Kensington, it takes 20 minutes on average to do a cataract surgery; the same procedure took an hour in the 1980s.

Read more here: http://www.theglobeandmail.com/news/national/time-to-lead/healthcare/how-the-factory-floor-inspired-a-new-model-for-health-care/article1792676/singlepage/#articlecontent

How Tim Hortons will take over the world

September 24th, 2010 Comments off

This is a great article that highlights a lot of the topics we cover in class.  It is quite long, but worth your time if you have 15-20 minutes to read and think about a variety of things including:

  • The strategic decision made by Tim Hortons to take control of coffee roasting by moving that operation in-house.  Like we discussed in the early chapter of the Blocher textbook, sometimes controlling quality (probably the biggest factor for this company), delivery schedules, etc. necessitates a move in-house even when it may cost more.

If you were a Tim Hortons devotee back then, you might have noticed that the coffee in, say, Halifax didn’t taste quite the same as it did in the chain’s spiritual home base of Hamilton. That’s because the chain bought its coffee from third-party roasters. Then-CEO Paul House decided the company needed to take control of the consistency of its brew, and to that end built a lab at the firm’s Oakville HQ.

  • The tweaks necessary when a successful company moves to new markets.  In Canada, Tim Hortons is the king of the market.  The article references, though, difference between Western Canada and Eastern Canada and then spends a lot of time looking at ways that they are trying to crack the American market as they expand into new areas in the East & Midwest.

In 2008, Tim Hortons undertook what David Clanachan, Tim Hortons’ jovial head of U.S. and international operations, calls “a deep dive,” surveying tens of thousands of people about what would get them through the door of a Tim Hortons. The company built a full-sized model store in a warehouse in Oakville, spending months testing and refining the concept before rolling it up, so to speak, to the gates of Troy.

The result is a cross between the likes of Starbucks and the Tim’s Canadians know. “Not that I’m gonna hang around, write poetry and sing songs,” says Clanachan, “but I am gonna feel comfortable.”

  • The focus on quality as a competitive advantage as highlighted by the frequent “cupping” sessions that even involve some senior executives.  The management team realizes that without quality, Tim Hortons has no competitive advantage:

Consistency is key—both Schroeder and West never tire of that axiom. Achieving it is tricky, since coffee from a particular mountainside will not taste the same from season to season. Flavours change depending on the weather: too much rain or too little, more sun or less. The mercurial nature of the bean means that Tim’s coffee team is constantly revising the secret blend to maintain its trademark flavour.

  • The breakeven-point ramifications of the “Always Fresh” program where the cost of individual products (the article mentions donuts) is higher on a per-unit basis, but the hope was that the benefits of not running out of goods and with not having to discard stale product would offset this.  It seems like that hasn’t happened, at least in the eyes of some franchisees.

For 37 years, standard Tim Hortons stores were equipped with in-store kitchens, where staff bakers produced batches of fresh, hot doughnuts twice a day. Shortly after Joyce sold his Tim Hortons stake in 2001, the company brokered a deal with Ireland’s IAWS Group to build the $75-million Maidstone facility. Then-CEO House promised franchisees that the conversion—which cost store owners between $35,000 and $50,000—would boost their bottom line. Instead of letting unsold doughnuts go stale during downtimes, operators would be able to zap new batches as needed, in a glorified microwave oven. Voilà—“fresh-baked” in two minutes. And though the cost of producing one doughnut would change from eight or nine cents to 12 cents, that increase would be offset by a reduction in operating costs—no highly paid bakers on the payroll, less discarded product.

  • The value-chain relationships between Tim Hortons and its franchisees.  There are pending lawsuits between the parties and it is interesting that two groups that are so dependent on each other find themselves locked in these kinds of battles.

Still, it’s clear some franchisees have become disillusioned with Always Fresh. Arch Jollymore, a former high-ranking executive at Tim Hortons (and Joyce’s cousin), is seeking certification of a class-action lawsuit against the company. At issue: the impact of the Always Fresh conversion on franchisee margins. Jollymore and his wife, Anne (who owns a store in Burlington in her own right), are alleging breach of contract, negligent misrepresentation, and breach of the duty of good faith and fair dealing. They are seeking damages of $1.95 billion.

  • The decision to centralize or decentralize decision-making.  Most franchise systems rely on strict centralization with standard signage, colors, marketing,etc.  Tim Hortons is selectively decentralizing certain things:

De Nardo leads a tour of Riese’s four other Tim Hortons counters at Penn Station, proudly pointing out the New York-only promotions—the only instance of non-standard advertising allowed in the chain. “It’s the New York mentality. We like to be a little on the edge.” Whenever he can, he steers clear of earnest in favour of funny. “Hell,” he says, “it’s doughnuts and coffee.” Hence Tea and Timbits (T&T—it’s dynamite!) and $5 dozens after 5. “And for New Yorkers, $5 is basically free.”

  • The impact of sourcing raw materials globally and the potential cost changes due to weather in parts of the world where coffee is grown:

“Central and South America are coming off the worst crop in 44 years,” West says as he slaps a sack of beans. And Colombia was deluged with rain for 16 months straight, diminishing crops. That has helped drive standard-grade coffee to a 12-year high of $1.75 (U.S.) per pound. The top-quality beans Tim Hortons buys—West says they compete with Starbucks for the finest Arabica beans on the market—are much pricier.

To read more (and please do!), visit this link: How Tim Hortons will take over the world – The Globe and Mail.

How a small coffee shop took on the big guys

July 30th, 2010 Comments off

Here is a short case study written by a professor from the University of Manitoba about a small coffee shop in Winnipeg that has successfully positioned themselves in the very competitive market of selling coffee drinks.  Even in an arena filled with competitors from Starbucks to Tim Hortons to McDonalad’s, this one-location operation has managed to succeed through careful application and execution of their well-defined strategy.

Mr. Iafolla and Mr. Paquette have sought to define and defend their turf by doing what the big guys can’t, or at least can’t do as easily – began to differentiate themselves two years ago by offering an array of dishes that score heavy on the ‘home made’ element. Sales have increased every month since they were introduced.

Whether its offering home made soups, such as their special Hungarian mushroom or West African peanut, or specialty baked products, Daily Grind Coffee has sought and found a way to differentiate itself by offering something different and desirable. The efforts have met with approval from customers and local organizations.

Read more details about this business and their competitive environment at this link:  How a small coffee shop took on the big guys – The Globe and Mail.

Embedding sustainability in company culture – The Globe and Mail

April 28th, 2010 Comments off

To be truly effective, big initiatives have to become part of every-day life.  My company has done this with safety but the same concept applies to other concepts like sustainability, work-life balance, etc.  It is not effective to “do as I say, not as I do” because people see through that quickly.  Here is something from The Globe and Mail about a couple companies and the efforts they have undertaken at every level of their firm to make environmental choices a part of every decision.

Embedding sustainability in company culture – The Globe and Mail.