Posts tagged strategy

Photo credit: Brenden Schaaf taken September 29, 2010 at MSP

Southwest Airlines to Acquire AirTran

1 year ago
by Brenden Schaaf in , , , , , ,

Spreading Low Fares Farther | Southwest Airlines to Acquire AirTran Holdings, Inc..

See the link above for the official website related to the buyout of AirTran by Southwest.  There are numerous news reports as well that you can read elsewhere.

Photo credit: Brenden Schaaf taken September 29, 2010 at MSP using a BlackBerry Bold

Probably the biggest way this story relates to our class is in the value chain discussion with Southwest obviously feeling that they needed expand to remain competitive.  Specifically, news reports I have read and heard have indicated that Southwest had a desire to expand and/or enter the Atlanta, New York City, Orlando, and Milwaukee markets.  A year ago, Southwest was seen a suitor for Midwest Airlines but they lost out in that attempt to expand to Frontier Airlines.

Mega-mergers are the pattern in the airline industry these days following tie-ups by Delta/Northwest and United/Continental.  It will be very interesting to watch how Southwest proceeds as they try to avoid the negative aspects of mergers that have plagued many companies including other airlines (such as America West and US Airways).  Southwest probably has the most unique culture of all airlines with a playful, fun way of dealing with customers.  Anyone that has ever flown Southwest can tell you that you will not mistake it for a legacy carrier.  Culture clash is a common reason for merger failures…Southwest will have to be careful to avoid the traps associated with this as they proceed.

Another challenge will be how Southwest integrates aircraft and frequent flier programs at AirTran into the Southwest fleet and system.  Southwest is known for flying only Boeing 737 aircraft to make maintenance and other issues easier, while AirTran flies Boeing 717 aircraft in addition to 737s.  Perhaps this is a strategy for Southwest to branch out to different, but related, types of aircraft.

Another issue that will be interesting is how Southwest configures the AirTran aircraft post-acquisition.  AirTran has a small First Class cabin on most (all?) planes and they likely attract a certain segment of the business traveler population that is accustomed to the additional services provided.  Will Southwest risk alienating business travelers by going to the “cattle call” seating that they have today once they acquire AirTran and enter markets like Atlanta where there is a loyal business traveler following?  Will business travelers defect to Delta, which is also based in Atlanta?  Perhaps they already have?

Stay tuned to this situation in the months to come.  There will be lots of examples in the news related to what we discuss in class.

Other links to news about this story:

Walmart Bringing Smaller Store Format to America?

1 year ago
by Brenden Schaaf in , , , ,

I posted a few months ago about Walmart’s smaller store footprint in the U.K. Today’s Financial Times reports on its front page that Walmart is lining up real estate across the US to roll out smaller format stores in its home country.  The article cites chatter amongst real-estate brokers as the source of this information and the world’s largest retailer has yet to announce detailed plans, but suffice it to say that anything Walmart does has the potential to shake things up.

“They’ve been looking at sites between 20,000 and 50,000 sq ft over the summer,” said one broker in northern California.

Garrick Brown, a vice-president of research at Colliers International, said the retailer was looking at taking over existing buildings, and that “chatter” from brokers suggested the retailer was looking for scores of sites across the US. “It is going to be huge,” he said.

Walmart lines up sites across US to roll out smaller format stores. Jonathan Birchall. Financial Times. London (UK): Sep 20, 2010. pg. 1

Walmart lines up sites for smaller stores. Jonathan Birchall. Financial Times. London (UK): Sep 20, 2010. pg. 15

[EDIT TO ADD LINK TO AP STORY]

The AP has the story now too at this link: http://apne.ws/b8nNUz or via StarTribune.com at this link: http://www.startribune.com/business/103300079.html

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Groupon’s Success Disaster

1 year ago
by Brenden Schaaf in , , ,

There are some interesting strategic lessons in this blog post about a coffee shop’s brush with bankruptcy following a “successful” Groupon promotional campaign.  A couple that I’ll point out:

  1. Fixed costs are very real and need to be taken into account. High “revenues” are not a measure of success when the costs are even higher than the money coming in.
  2. Being a cost leader (or viewed as one — which is essentially the same thing) can be dangerous because all of the people that want a deal will buy — but only as long as they get a deal.
  3. In a related area, customers that search for “deals” will move on to the next deal when it comes along rather than becoming a long-term customers.

Read more at this link: Groupon’s Success Disaster | Redfin Corporate Blog.

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Estée Lauder touches up makeup push

1 year ago
by Brenden Schaaf in , , ,

Estée Lauder has been mentioned in at least one class the last couple weeks as we have discussed strategy.  In that context, here is an interesting piece from today’s Wall Street Journal that talks about changes that are being made at department store cosmetic counters to revitalize the Estée Lauder brands with younger shoppers.

In an effort to reshape Estée Lauder’s U.S. department-store base, which is nearly one-third of the company’s revenue, executives from the company’s Clinique, Estée Lauder and MAC brands have been testing new counter designs that allow shoppers to browse on their own, new promotions and express lanes for busy shoppers.

“There is huge opportunity to restart sales growth and shopper traffic in department stores,” says Mr. Freda.

There are also some elements of cooperation between value chain partners highlighted in the article:

Shaking up beauty departments involves cooperation between cosmetics manufacturers and retailers, because the counters and sales staff is typically funded jointly in closely guarded agreements. Mr. Freda says the economic downturn has helped ease negotiations.

“The recent recession has opened up many companies—for sure ourselves and many of our retail partners—to be willing to put more dynamic change into the way we go to market,” he says. “We are cooperating, I believe, better than in the past in the area of change.”

Theory & Practice: Estee Lauder’s Counter Makeover — Cosmetics Company Touches Up Department-Store Sections With Express Lanes, Browsing Areas. Ellen Byron. Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 7, 2010. pg. B.10

The Life’s Work of a Thought Leader

1 year ago
by Brenden Schaaf in ,
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.

What is “Management” in the 21st Century?

1 year ago
by Brenden Schaaf in , ,

50 years ago, management meant a top-down, dictatorial structure.  Today, things are more collaborative with participation in strategy formulation and execution not only at the top of the pyramid but in the middle and low levels as well.  Where will things be 50 years from now?  The Wall Street Journal offers some interesting thoughts about where we have been and where we are headed.

The new model will have to instill in workers the kind of drive and creativity and innovative spirit more commonly found among entrepreneurs. It will have to push power and decision-making down the organization as much as possible, rather than leave it concentrated at the top. Traditional bureaucratic structures will have to be replaced with something more like ad-hoc teams of peers, who come together to tackle individual projects, and then disband. SAS Institute Inc., the privately held software company in North Carolina that invests heavily in both research and development and in generous employee benefits, ranging from free on-site health care and elder care support to massages, is often cited as one company that could be paving the way. The company has nurtured a reputation as both a source of innovative products and a great place to work.

The End of Management — Corporate bureaucracy is becoming obsolete; Why managers should act like venture capitalists. Alan Murray. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 21, 2010. pg. W.3

Should Business Benefit Society?

1 year ago
by Brenden Schaaf in , , ,

We discuss things like “sustainability” and the “environment” and “human capital investment” as new ideas in the business world…but are they really new?  I guess the increased focus is new but it seems like recent postings on this blog have linked to articles where the case has been made that focusing on these things is secondary to focusing on the financial aspects of business.  Many of the Environmental Accounting posts echo this sentiment…they say that business should focus on pleasing shareholders through increased profits and respond to environmental/sustainability only a means to that end.

But maybe focusing on financial measures is exactly what creates the short-term approach and expectations that cause problems for companies and the economy. As I mentioned this week in class, strategy is supposed to be a long-term vision and positioning of a company but time and time again we see that the measures and incentives are increasingly short-term.  A posting at the HBR blog caught my eye with some thoughts on this issue.  Read more at HBR: http://blogs.hbr.org/cs/2010/08/should_your_business_be_for_be.html

It’s an interesting notion that Business, held captive by a narrow definition of fiduciary responsibility, is not able to make the long-term investments that could benefit communities, the environment, and ultimately the shareholders. If this notion is even partly correct, then our most powerful institution will be unable to do enough to solve the social and environmental crises confronting us.

The HBR piece goes on to mention that the state of Vermont now provides for a new kind of organization: a Benefit Organization that exists not simply to pursue profits but also to provide a benefit to society.  Perhaps this is going to spread beyond Vermont and will ultimately cause companies to take longer-term views and set long-term strategies tied to incentives for their employees to think long-term.

Are the directors of a Benefit Corporation still obliged to act in the best interests of the company’s owners? Absolutely. But they have legal protection to make investments with an eye to the long term, aiming for sustainable returns, not fast paybacks for shareholders.

As I mentioned in class, the book The Big Short: Inside the Doomsday Machine by Michael Lewis talks extensively about how incentives influence behavior and that the impacts are real as evidenced by the recent economic meltdown on Wall Street and beyond (you can view a great 60 Minutes piece with the author on this site as well).

Whether through the expansion of the Benefit Organization concept or some other way I think that businesses with long-term visions and strategy ultimately do their shareholders a greater service than the ones that take risks for temporary, short-term gains.  Hopefully that philosophy becomes more prevalent and we begin to demand more of our business leaders so that their behaviors and decisions will align with this concept.

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Culture at Zappos

1 year ago
by Brenden Schaaf in ,

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

How a small coffee shop took on the big guys

1 year ago
by Brenden Schaaf in ,

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.

GE Finds Rougher Sledding in China – WSJ.com

1 year ago
by Brenden Schaaf in , ,

General Electric is about as big as multinationals come and this article gives some examples of issue even a large company can have implementing strategy worldwide.

Chinese wind-turbine makers such as Sinovel Wind, Xinjiang Goldwind Science & Technology and Dongfang Electric — buoyed by China’s national spending on wind energy — grew rapidly, stealing share from world leaders such as Denmark’s Vestas Wind Systems A/S and GE, and now rank among the top 10 wind turbine producers globally. In April, China Commercial Aircraft Co., or Comac, selected Hamilton Sundstrand, a subsidiary of United Technologies Corp., to supply the $1 billion worth of electric power generation and distribution systems for a proposed jet plane instead of GE and other bidders.

GE’s Road In China Is Getting Bumpier. Paul Glader, Shai Oster. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 9, 2010. pg. B.1

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