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A Sweet Victory – How Krackel took it to Nestle and won

June 23rd, 2011 Comments off

Candy MacroFrom the book, Killing Giants, here is an excerpt of how a small player, Krackel, took on the mighty Nestle Crunch bar and scored a significant blow by being strategic with pricing.  Krackel (owned by Hershey) utilized the vending machine retail channel as a battlefront to take on Crunch since most vending machine operators would only stock one of the two similar candy bars.

Mullen’s proposal to management was to give the vending distributors a 30 percent trade discount on Krackel where other brands hovered in the 5 to 10 percent range. This was understandably a bold move. “I originally took it to my boss and he choked on it. He said we couldn’t afford it. Giving away thirty points was a big deal. I said, ‘Think of the options. If Nestlé tries to match us, the dollar cost to them is huge. That, or we blow Krackel out in every vending machine in the country.’” With nothing to lose — and aiming at the brand that paid for so many of its chief competitor’s other brands — Krackel could play the role of spoiler. “My boss balked at it at first, but the more he looked at it, the more he got this smile on his face. He said this is a pretty evil plot. The big guy can’t win on this and we can’t lose.”

Read more at: A Sweet Victory

Helping the CIO Lead

December 27th, 2010 Comments off

Is it me or is the idea of getting IT and business units to work together rather than separately gaining traction?  As I reported in my review of Empowered, it is essential for leading companies to find a way to make this happen.  Users are going to find a way to get things done (or at least he ones that are tired of dealing with IT delays will).

The interview by strategy+business of Charlie Feld about his role as an IT leader at Frito Lay and about his new book, Blind Spot: A Leader’s Guide To IT-Enabled Business Transformation, is an interesting one. I look forward to reading the book (after I plow through about 20 others on my list).

Read more here: Helping the CIO Lead.

Cut Costs, Grow Stronger

October 6th, 2010 Comments off

Money Bag in Blue
I don’t know how I managed to never post this here, but I’m getting a new computer and found the PDF version of this article on my Desktop while I was cleaning things up for the transition.  In fact, I think it was this article that first brought me to the strategy+business website, a great resource that I highly recommend.

This article focuses on cost cutting in the beginning, as evidenced by statements like this:

Dramatic cost cutting gives you a chance to refine or even reformulate your company’s overall strategy.

…but it quickly becomes a piece about strategy, capabilities, and execution as well:

On its own, for example, PepsiCo’s high-performing capability for launching new food and drink products might not amount to much. But PepsiCo also has a related capability: a world-class skill at retail outlet distribution. That capability has made PepsiCo one of the most successful food companies in the world.

There is much to be learned from this great article.  We are perhaps the point where most companies are dramatically slashing costs, but knowing what to do “next time” and focusing on the strategic issues in here are still important.  Keeping strategy at the center of any major decisions, such as which costs to cut, is important and because it at least gets everyone “on the same page.”

Cut Costs, Grow Stronger. To reduce expenses for the long term and lead the way to recovery, start by taking a strategic view of your capabilities. By Shumeet Banerji, Paul Leinwand, and Cesare R. Mainardi. strategy+business.  September 15, 2009

A Better Choosing Experience

September 27th, 2010 Comments off

Photo credit: verbeeldingskr8 on flickr

When we discuss decisions in detail we will discuss the importance of filtering out the relevant information from the irrelevant. As I’ve written about before, people today are overwhelmed with information but the cognitive ability to process information is pretty much where it was 100 years ago.

This leads us to a strategy+business piece posted today that takes the position that limiting choices to customers can be a successful strategy for businesses:

Consumers have grown accustomed to having a lot of choice, and many people still express a strong desire for having more options. But that doesn’t make it a good idea. There are neurological limits on humans’ ability to process information, and the task of having to choose is often experienced as suffering, not pleasure.

That is why, rather than helping consumers better satisfy their preferences, the explosion of choice has made it more difficult overall for people to identify what they want and how to get it. Thus, if the market for your product is saturated with choice, you can’t gain a competitive edge by dumping more choices into the mix. Instead, you can outthink and outperform your competitors by turning the process of choosing into an experience that is more positive and less mind-numbing for your customers. You can design a more helpful form of choice.

Even limiting choices internally to employees can have benefits, even in the case of investment options in retirement plans that, at least to me, seems counter-intuitive (I would think that more choices would equal more participation)

We see this frustrated response to “choice overload” even when the decision has serious consequences. For example, in 2001, at the request of Steve Utkus, the director of the Center for Retirement Research at the Vanguard Group, Iyengar and her collaborators, Wei Jiang and Gur Huberman, tried to determine why so few of the 900,000 employees covered by Vanguard were participating in their defined-contribution retirement savings plans — also known as 401(k) plans. Analysis of the data revealed that participation fell significantly as the average number of funds in a plan rose. By controlling for individual-level variables such as age and income, as well as plan-level variables such as the size of the company and the extent of employer matching contributions, Iyengar and her collaborators showed that the decline in average participation rates was due to an increase in choice. When plans offered only two funds, 75 percent of the relevant employees participated; when plans offered 59 funds, the percentage of participants fell to 61 percent.

Read more of this long piece at:

A Better Choosing Experience. When consumers are overwhelmed with options, marketers should give them what they really want: ways of shopping that lower the cognitive demands of choosing. By Sheena Iyengar and Kanika Agrawal. strategy+business.  September 27, 2010

The Life’s Work of a Thought Leader

September 4th, 2010 Comments off
2009 Dean's Distinguished Scholar Lecture

Courtesy Mays Business School on flickr

Ideas that seem so obvious now to the point that we take them for granted often had their start as something that, at the time, seemed more radical.

You cannot escape it. That is why, for me, the test of a good, powerful piece is when people say, “But it’s so obvious.” You agonize and agonize and then somebody says, “But it’s obvious.” When I was younger, I used to get so irritated by that. Now I think it’s the highest compliment you can get.

Such was the concept that a small competitor could successfully take on a huge foe even in the face of big obstacles such as barriers to entry and entrenched business models and habits.  C.K. Prahalad advanced several of these ideas including the core competencies model that said that small competitors could be successful if they leveraged what it is that they do best.

But if you looked closely, exactly the opposite was happening in business. A selective set of small companies were successfully taking on larger ones. Canon took on Xerox; Sony took on Philips. Toyota took on GM. By probing this, Gary and I concluded that these new competitors were leveraging their intellectual resources — as groups, not as individuals. That is how the idea of core competencies [as published in Competing for the Future] was born.

This is a lengthy piece put together after the death of this scion of strategic management.  Even so, I’d encourage you to read it as the ideas presented are as powerful today as they ever have been.  Perhaps the most important message is that things that seem to be outliers shouldn’t necessarily be ignored…those could be the seeds to the next batch of great ideas that are just beginning to grow.

Read the complete article by strategy + business at: The Life’s Work of a Thought Leader.

Culture at Zappos

August 24th, 2010 Comments off

Company culture is probably more important than what we discuss in class given its impact on so many aspects of company performance as well as employee satisfaction (which then touches so many things).  Online shoe-seller, Zappos, puts culture first and focuses on performing well in terms of finding employees that are good cultural fits and lets the results flow from that process:

At the top of the list of Zappos’ values is “Deliver WOW through service.” In fact, Zappos describes itself as a service company that happens to sell shoes and other products. This value is reflected in such niceties as a 365-day return policy with free shipping both ways, 24/7 customer phone lines, live online help, and customer product ratings — none of which is all that weird. But things do become, if not weirder, then at least different, when seen from the perspective of Aaron Magness, Zappos’ director of business development and brand marketing. He told me, “I read about how Zappos is focused on customer service. It isn’t. It’s focused on company culture, which leads to customer service. We don’t talk about customer service; we allow it to happen on its own by having the right people.”

The genuine happiness of employees is felt by customers and Zappos appears to, as a result, have very loyal customers (as well as employees).  By focusing on culture, Zappos has differentiated itself in an online world crowded with commodities.

I encourage you to read more about Zappos at this link: http://www.strategy-business.com/article/10311

A Better Way to Fix Bankers’ Pay

November 14th, 2009 Comments off

sb-t-sb_logo_mainHere is  a thoughtful article discussing the benefits of linking risk, performance, and compensation.  In order to prevent banking collapses in the future there needs to be goal congruence between the managers and the companies so that managers are not pursuing goals to earn higher pay that turn out to be bad for the firm.  Of course this should have always been a goal but it seems that things got out of whack and that, at least partially, is why the financial system experienced such chaos in the last year.

The implicit response seems to be that they were distracted by their greed. According to this view, these villains exploited the financial system for their own gargantuan end-of-year bonuses, got bailed out, and have every reason to do it again. Given this inherent moral hazard, it’s no wonder that so many political leaders in the U.S., Europe, and elsewhere are eager to rein in bankers’ compensation.

The moral hazard is a real concern. But the plans to limit compensation will not work, because they do not address the core problem: the disconnect among bank capital, risks (borne by both banks and society), and compensation structures (particularly the way traders are paid). If the financial leadership of the Group of 20 (G-20) can follow a “triangle principle” — building a tight regulatory connection among those three factors, making them interdependent at a granular level — they will get closer to mitigating the moral hazard. And they won’t have to regulate bonuses directly.

A Better Way to Fix Bankers’ Pay. Instead of bashing bonuses, let’s put in place the incentives we need: linking compensation to risk and capital. Shumeet Banerji. strategy+business. November 2, 2009.

Cutting Costs & Growing Stronger: Strategy is the Key

September 15th, 2009 Comments off

sb-t-sb_logo_mainOne of my favorites sites lately is the one for strategy+business magazine.  Today they posted a rather lengthy piece called Cut Costs, Grow Stronger that relates to so many parts of our class that it really is impossible to capture them all here.  The main theme of this article as I see it, is to reinforce the idea that cutting costs simply for the sake of cutting costs is not a good idea.  Rather, cost cutting should be a action driven by other factors that pushes us to refocus the company’s strategy while looking for opportunities to save costs.

Dramatic cost cutting gives you a chance to refine or even reformulate your company’s overall strategy. After all, you’re never just cutting costs. You’re making a decision that something is no longer strategically relevant, and that other things are essential to keep. Yes, you may have to lose some product lines and activities, and perhaps some of your employees and customers. You also, however, have the opportunity to help your company grow stronger in the process.

It is important to keep corporate strategy central to all decisions including cost cutting initiatives or there is risk that a company will become weaker by cutting the “wrong” costs.

Another reason to keep strategy in mind is that it helps to focus company personnel on their company’s unique capabilities as opposed to playing follow-the-leader trying to emulate competitors.  Trying to do what the competition does can mean lost focus in areas in which a company excels at the very time they need that focus to remain competitive.  Seldom do two competitors even in the same industry compete in the same way — that is the core of differentiation strategy: finding things that you do better than everyone else and emphasizing that differentiation to the marketplace.

The best definition of capabilities, in our view, reflects this essential quality: Capabilities are the interconnected people, knowledge, systems, tools, and processes that establish a company’s right to win in a given industry or business. The right to win, in turn, is a clear path to sustained profitability, higher market share, or both, supported by the critical set of capabilities that will make a difference in that market.

It might seem that companies in the same sectors would need the same capabilities to win in the market, but that is rarely the case. Apple and Dell both compete in the computer market, but their capability sets are completely different. Apple’s success depends on continued product and service innovation combined with a deep understanding of the way in which people interact with technology; Dell’s success depends on rapid delivery, low-priced customization, and high-quality customer service.

There are many great examples in this very relevant article.  Check it out when you have time and refer back to it as we cover different concepts in class.  I believe that doing so will make it easier to identify with and understand the material that comes from the textbook and our in-class discussions.  Articles like this are why I maintain this blog…I hope that you find this one particularly helpful.

Note that the links reference below may require registration to access.  In my opinion it is well worth doing so.

Cut Costs, Grow Stronger. To reduce expenses for the long term and lead the way to recovery, start by taking a strategic view of your capabilities. Shumeet Banerji, Paul Leinwand, and Cesare R. Mainardi. strategy+business.  Autumn 2009.

Synchronizing Formal/In-Formal Rules & Learning From Failure

August 31st, 2009 Comments off

Often what managers say and what they do are two different things.  When a company’s formal rules/systems are not aligned with informal rules/systems there can be confusion, resentment, and misunderstandings that could be avoided if these things were in synch.  Also, different parts of the organization work best within different cultures so even saying that a company “has a culture” may be misleading.  The creative teams (like advertising, design, etc.) may thrive in loosely based teams while functional teams (like accounting, legal, etc.) may need a more rigid structure.  It is important to recognize that and find ways for those sub-cultures to exist while still maintaining ways for them to work together when needed.

For a company to excel at innovation, it must have high levels of creative capabilities, such as R&D, and production capabilities, such as operational execution. Moreover, the people with these capabilities need to work together seamlessly. For example, in setting up wise and decisive approval mechanisms that can separate the wheat from the chaff, companies must take a variety of factors into account — the designers’ original intent, the limitations of downstream production, and the needs of the marketplace — that are typically perceived differently on the creative and production sides.

Getting people to work well together requires not only measuring the successes, but also the failures.  It is as bad to waste time on a bad idea as it is to fail to capture a good one, but often managers focus only on the latter.  Certainly failure should be expected and even encouraged (if you aren’t failing “enough” you are missing out on some opportunities to be sure).  And, of course, companies can learn from failures if they take the time to effectively study them to avoid making similar mistakes in the future.  This article does a nice job exploring all of these concepts.

Right at this moment, in a conference room or at an executive off-site meeting, a group of senior leaders of a large global company are wondering why they aren’t innovating enough. They’re probably focusing on a few specific questions: “Why don’t we have enough good ideas? How can we tell which idea is going to be the next big thing? Why is it so hard to get an idea from the drawing board into the market?” Most telling of all is the question: “Why do we still waste resources on ideas that people don’t believe in?” In other words, even though an idea has been effectively “killed,” it still remains on the agenda, with nobody fully willing to learn from the mistake, put it to rest, and move on to other endeavors.

Are You Killing Enough Ideas?. Companies can improve their innovation performance by getting their formal and informal organizations in sync. Zia Khan and Jon Katzenbach. strategy+business. Autumn 2009.

Collaboration, Quality, & Value Chain

August 31st, 2009 Comments off

A great piece was posted recently to the strategy+business site.  It encompasses a lot of the concepts we discuss in class such as collaborating beyond your company’s legal borders to build better ideas with customers/suppliers than can be built acting alone.  Quality initiative often drive these collaborations but many companies have expanded on the concept for other reasons and even to bridge gaps across internal departments.

As companies outside the computer industry adopt the collaborative precepts of open source to improve their research and development efforts, they too undergo some major management shifts. P&G, for example, once known as an obsessively secretive organization, has thrown open its laboratory doors and invited outside collaborators to help develop new technologies and products, and at the same time is sharing some of its own intellectual property freely.

This is a lengthy piece, but really does cover a lot of ground including quality, culture, collaboration, kaizen (coninuous improvment), innovation, alignment of goals/rewards, and fostering trust.  It also covers pitfalls that companies may have learned to avoid given past failures in this area .

But the quality movement of the 1980s also had many failures. Under such names as “statistical process control,” “Six Sigma,” or “total quality management,” the practice of quality-oriented management was frequently misunderstood, misapplied, and eventually abandoned, often at the expense of customers, employees, and shareholders. Today, many companies that once embraced the concept — for example, some manufacturers of cell phones and appliances — are being challenged by Korean companies that have borrowed more successfully from Toyota’s quality playbook.

Perhaps the biggest barrier to a style of open collaboration is that it contradicts what many managers are comfortable with.  And it requires them and their companies to change.  Change is seldom an easy task at organizations because it represents a shifting of powers and may require actually pushing the culture to change, which can make lots of folks unhappy.

Open collaboration is already facing the same formidable barriers that held back the quality movement, especially in traditional companies. The persistence of hierarchical thinking, particularly a reliance on experts rather than the expertise of knowledgeable employees at all levels, can undermine any open collaboration effort. Also, although much of the publicity around the movement has focused on finding outside ideas through joint ventures and partnerships, it can be far more difficult, and more important, to cultivate and tap in-house creativity. Executives in many Western companies have never been comfortable soliciting the opinions of employees — especially rank-and-file workers — in any systematic way.

Companies that recognize this trend and capitalize on it sooner than others will likely have the most success in the marketplace in the next several years.  In fact, companies that fail in this regard may no longer be around when the dust settles.  Check out this great piece when you have a chance.

The Promise (and Perils) of Open Collaboration. Companies like IBM and P&G have prospered by opening their borders, but there are cautionary lessons from the quality movement of the 1980s.Andrea Gabor. strategy+business.  Autumn 2009.