Posts Tagged ‘strategy’

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.

Ford: Epiphany in Dearborn | The Economist

December 9th, 2010 Comments off

Here’s a lengthy piece from this week’s Economist magazine that outlines the culture shift at Ford that has allowed it to survive (and thrive) while other automakers required bailouts.  The opening paragraph says a lot about how things began to change:

SOON after Alan Mulally arrived as Ford’s chief executive in September 2006 he organised a weekly meeting of his senior managers and asked them how things were going. Fine, fine, fine, came the answers from around the table. “We are forecasting a $17 billion loss and no one has any problems!” an incredulous Mr Mulally exclaimed. When he asked the same question the next week, Mark Fields, head of Ford’s operations in the Americas, raised his hand and—in what once would have been a moment of career suicide—admitted that a defective part threatened to delay the launch of an important new car. The room fell silent, until Mr Mulally began to clap his hands. “Great visibility,” the new boss added.

From a strategy standpoint, culture is often ignored because it can be one of the hardest things to change.  That, however, doesn’t meant that it isn’t necessary to address.  It appears that Ford has been able to go down a path of culture change that is necessary to be a world-class competitor today.  Sometimes even companies have to hit rock-bottom to realize that things aren’t “fine.”  Sometimes even then it is too late to recover.  I recently read a great book called Dethroning the King: The Hostile Takeover of Anheuser-Busch, an American Icon that detailed the complacency of management at Anheuser-Busch prior to being purchased by InBev a few years ago.  The executives at A-B realized too late that changes needed to be made and it was only when they were about to be swallowed up that they even tried to act.  For them it was too little, too late.  It appears, for now, that Ford has been able to avoid a similar fate.

Read more at: Ford: Epiphany in Dearborn | The Economist.

Is Chrysler Destined to Repeat Errors?

November 22nd, 2010 Comments off

The Wall Street Journal today had a piece about an effort by Chrysler to market it’s new Fiat 500 model by offering so many options for customers that they may be creating excessive strategic risks as a result. 

The car, which goes on sale in January, will be available in three versions—”Lounge,” “Sport” and “Pop”—offering 14 exterior colors, 14 seat colors, six wheel styles and a range of graphical designs that can be applied to the car’s body panels, allowing customers to make their Fiat just about the only one of its kind.

All told, there will be about a half a million combinations, Chrysler says.

The title of the article includes the phrase “options overload” to describe this situation.  The decision to offer customization of the Fiat is to try to appeal to those that want a car that is an exact fit for their wants or needs.  It ignores, however, the fact that most customers want to take their new car home with them immediately.  If that were not true, car dealers would not have 500 cars each on their lots tying up capital.  It sounds like Chrysler has done a nice job redeploying an existing plant to allow for greater customization, but they will still produce cars that are not special-orders to keep the plant running and that is where the risk lies. 

Too many choices also can leave dealers holding lots of cars but not the exact one a particular customer is looking for — a recipe for losing a sale, said Mark Rikess, an auto dealer consultant based in Los Angeles. That’s because most customers don’t want to wait for the model they want to be shipped from another dealer or custom-made at the factory.

“We are an instant-gratification society,” said Mr. Rikess. “About 80% of car buyers expect to drive off the lot with their new car that day.”

For the last several years, car makers have tried hard to bundle features so they can produce a dozen or so versions of a vehicle that will satisfy most buyers. That limits the complexity on the factory floor and dealership lots.

To allow customers to order specialized models, Chrysler has retooled the plant in Mexico where the 500 is being built. Scott Garberding, Chrysler’s manufacturing chief, said the factory has been set up to move special orders to the front of the manufacturing queue.

Suppliers have be asked to keep more parts on hand so they can more quickly build a seat or interior combination and ship it to the plant within a few hours, Mr. Garberding said. The plant also will use a paint system that will allow a faster changeover in colors.

Still, some customers may have to wait 30 days or more to get their custom-ordered car.

For those who don’t want to wait, the company plans to hold a pool of the most popular versions that can be customized with features added at dealerships, such as stripes and checkerboard decals on the roof.

Read more of today’s article at:

Options Overload for Fiat’s 500 — Buyers Offered 14 Colors, Six Wheel Styles, Decals; Will It Leave Orphan Cars? Jeff Bennett. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 22, 2010. pg. B.1

Furthermore, I was reminded of a couple articles from 2007 when I read about Chrysler’s plans in today’s paper.  I managed to dig these up thanks to D2L not being purged yet from way back when.  Both of these are examples of car companies not being focused on customer wants/needs…we’ll have to see if Chrysler can execute its strategy today to avoid the errors exhibited only a few short years ago.  Read these pieces for some examples of what has happened before when car companies have tried to guess what customers wanted and “orphaned” models lingered on dealer lots as a result (to be sold only after massive discounting).

Lots of Vehicles — Big Dealer to Detroit: Fix How You Make Cars; AutoNation CEO Sees Inventories Rising Fast; The Big-Wheel Problem. Neal E. Boudette. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 9, 2007. pg. A.1

 One of the toughest problems facing the ailing U.S. car industry stems from Detroit’s century-old business model, which dates to Henry Ford’s mass production of millions of largely identical Model T’s. Rather than build cars to suit customer tastes, U.S. auto makers churn out what makes sense for their plants, and then use incentives and rebates to lure buyers.

Another piece about the auto industry not being focused on the customer.  This one is a letter to the editor that was in the Wall Street Journal in February 2007.  Same song, different day…

I Wrestle Chrysler for a Wrangler, Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 24, 2007. pg. A.5

Did Google Arm Its Own Enemies With Android?

November 16th, 2010 Comments off

Photo credit: on Picasa

Smart phones are one of the hottest consumer products these days.  Preferences change and technology advances seemingly overnight.  A piece I found today at HBR looks at the popular Android phones that run on the Google operating system of the same name.

What isn’t obvious is that Google’s strategy in developing the Android operating system for phones was to drive traffic to its advertising centered around its popular search tools since that is where Google makes its money.  In doing so, Google made their software open-source and, as such, allowed handset makers to use it free of charge and also allowed others (as is common with open-source software) to modify the software to suit their needs.  This has turned out to be a threat to Google instead of an opportunity.

The first signs of trouble brewing came out of China. Earlier this year, when Google looked like they were going to withdraw from China altogether, a number of Open Handset Alliance manufacturers realized they could be left selling smartphones in China without access to a number of key smartphone services that Google had traditionally supplied. So they started to look for replacements to Google’s services. The open-source nature of Android made that possible. More recently, Baidu, the internet search engine that has successfully challenged Google for ownership of the Chinese market, has taken an even bolder approach. It’s reportedly in negotiations with a number of smartphone manufacturers to remove all references to Google, and replace them with Baidu.

That was bad news. But what should really have Google concerned, however, is that there are instances of this fight being moved to domestic soil. Microsoft recently negotiated with Verizon that some of the Android phones that ship to Verizon customers will have Microsoft’s Bing, not Google, as the default search engine. And the manufacturers are getting in on the act too: Motorola recently released a new phone, the Citrus, based on Android, but shipping with Bing.

Time will tell whether or not Google can salvage enough from Android to benefit from the endeavor, but this may be a case where unintended consequences spell doom.  Highlighting and learning from botched strategy is as important as looking at the successes so this will be an important development to watch as things progress.

Read more:

Did Google Arm Its Own Enemies With Android? – James Allworth – The Conversation – Harvard Business Review.

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:

Panera Bread Strategy – Keep Spending in Recession

November 10th, 2010 Comments off

When tough times hit, lots of companies curl up inside a shell and slash spending on things like research & development and expansion thinking that doing so will be the way to survive. Often, though, companies would be better served to pursue strategic plans that focus on growth rather than merely survival during economic downturns. Companies with access to cash and with strong strategic plans have more options with regard to location and competitors that are weak will not be in a position to respond during periods of recession.

Panera Bread Company is a great example of a company that didn’t just survive — it thrived — during the recession. 

Panera has, for a very long time, played for the long term and stayed consistent. Going into the recession, we said, “This is a time to continue with our strategy.”Almost every single one of our competitors said, “We need to pull costs out.” As a consumer, if you walk into their restaurants, the lines are longer, the waits are longer. You have a table next to you with dirty dishes. That is the effect of increasing labor productivity. It has to come out of somewhere.

We’ve continued to invest in labor in our cafés and the quality of our people. We’ve invested in the quality of the food. When everybody pulled back and we did more, the difference between us and our competitors went up.

And we’ve been taking market share. We had near double-digit [same-store sales] for over a year now. The stock has tripled in the recession.

BusinessWeek has the rest of the interview with Panera Executive Chairman and founder Ronald Shaich on its website:

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

Volkswagen to make U.S. push

October 5th, 2010 Comments off

The Wall Street Journal today has an excellent front-page article documenting some missteps made by Volkswagen in the United States market that has resulted in VW claiming a paltry 2.2% market share along with plans to turn that around in an effort to become the world’s largest automaker by the end of the decade. One of the ideas being implemented is designing, for the first time, a car to specifically meet American tastes rather than selling what works in Europe in North America in nearly identical form.  This is interesting to me because I’ve read elsewhere that Ford is taking the opposite approach trying to produce car models that are virtually identical no matter where in the world they are sold.  VW also risks, in the process, alienating the small but devoted following that it currently has.

“A lot of people worry that we are going to start making VWs for the masses,” says Mark Barnes, VW’s U.S. chief operating officer. “I like to say we’re going to bring the masses to VW.”

The retooled compact sedan marks the first time VW engineers have designed a model specifically for the U.S.

Next year, a new family-size sedan is scheduled to roll off the assembly lines at a newly built $1 billion plant in Chattanooga, Tenn. It is VW’s first U.S.-made car since the 1980s. On its heels comes a revamped New Beetle.

“I am fully aware that Volkswagen was too cautious for too long in North America,” Volkswagen Chief Executive Martin Winterkorn said at a test-driving event for the new Jetta in San Francisco this summer. His remark was a nod to the car maker’s decades-long penchant for deploying cars designed for European tastes across the Atlantic. That left its U.S. operations with models too small and expensive to go head-to-head with Asian and American rivals. Now, he vowed, “we have turned that upside down.”

Adding to the challenge is the constant change at the top in VW’s American operations:

Adding to the challenge is an unanticipated switch at the helm of VW’s U.S. operations.

In June, Stefan Jacoby, a blunt-spoken German who took to wearing cowboy boots to dealer meetings and car shows, left his post as U.S. chief to become Volvo Cars’ new chief executive. His departure came just a week after he presented the new Jetta at a splashy launch party in Manhattan’s Times Square featuring pop singer Katy Perry. VW bosses scrambled much of the summer to fill the void left by a key architect of its American comeback strategy.

Mr. Jacoby’s replacement, former General Motors executive Jonathan Browning, is new to the U.S. market, having spent most of his career at GM’s European operations and managing Jaguar under Ford Motor Co.

Some U.S. dealers complain that the revolving door of U.S. chiefs—Mr. Jacoby was the third to go in five years—reflects a culture at VW’s headquarters in Wolfsburg, Germany, that views the U.S. as a career way station, or worse, graveyard.

Assuming that the leadership and design challenges can be met, there is still the issue of getting Americans to notice.  Marketing has been ramped up to target certain demographics such as Hispanics and families, but the results thus far appear to be mixed.  Before reading this article, I didn’t even know that Volkswagen offered a minivan even though my family purchased a Toyota Sienna less than a year ago. In an interesting partnership with Chrysler, VW rabadges the American van as it’s own with some minor tweaks but production had to be halted due to low sales.

After dropping plans for a modern version of its Microbus for fear it would be too niche and costly, it signed a deal with Chrysler to modify and rebrand the U.S. car maker’s Town & Country minivan under the VW Routan name. VW tightened the minivan’s suspension, gave it a sleeker front end and kept it in the same price range as the Chrysler. With an ad blitz featuring Brooke Shields, it aimed to capture 5%, or 45,000, of the 700,000 annual minivan market.

But the Routan’s launch coincided with the auto industry’s nose dive in late 2008. So many of them sat unsold on VW dealer lots last year that the auto maker asked Chrysler, which builds them at its Windsor, Ontario, plant, to temporarily halt production. While much of the rest of the minivan market has rebounded, Routan sales have slipped 0.8% to 12,539 vans so far this year, one-seventh of the number of Town & Country sales in the same period.

VW officials argue that the Routan has enabled them to sell to a key new customer segment. The company still expects the Routan’s market share to grow as more consumers become aware of it as a minivan option.

But Casey Gunther, VW’s top-selling U.S. dealer, says the Routan isn’t what people expect from VW.

“It’s like someone trying to sell you a piece of chicken and claiming it was a steak,” Mr. Gunther says.

VW, he argues, could achieve its 800,000 sales target, “but we need to elevate the brand with products that play up our heritage,” such as the Microbus concept or VW’s sporty Scirocco, which it sells only in Europe. “There are so many people out there who love the lifestyle VW represents,” Mr. Gunther says. “I’m worried we’ve turned into a follower and not the leader.”

There are countless other great examples in this article that address things we discuss in class like strategy, international competition, product design, and more.  It is not a short piece, but is well worth the read when you have 10-15 minutes.  Seeing where things are at in 2, 5, or 10 years will be even more interesting.

Volkswagen Aims At Fast Lane in U.S.. Vanessa Fuhrmans. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 5, 2010. pg. A.1

“Bolt-on” Merger Deals Dominate Business Scene

September 27th, 2010 Comments off

Piggybacking on the Southwest/AirTran piece I posted earlier, here is a video piece from The Wall Street Journal that touches on that strategic move along with few others.