Strategy is Dead? – No, Not Really

In a recent blog posting on Forbes.com, Rick Smith states that the practice of strategy as it is taught and practiced is DEAD.

I suspect that he is exaggerating to get us talking and thinking, but my interpretation and summary of the article along with my thoughts:

  •  Incrementalism has been disrupted by disruption – that is, it is no longer sufficient to make incremental improvements.

My Response: This is nothing new. Disruptive tech and disruptive global competition has been around for the last 20+ years.

  • The past is no longer a good predictor of the future – the future has been clouded over by the rapid changes in technology and society.

My Response: The future ain’t what it used to beIt never was. Each successive generation of consumers and companies has always been different than the past.

  • Competitive lines have dissolved completely – competition and competitors can come from anywhere.

My Response: OK, you have a point. But competition has always come from both inside and outside of the industry.

  • Information has gone from scarcity to abundance – knowledge used to be the strategic discriminator.

My Response: But, all resources go from scarcity to abundance. It is not the abundance of information that results in competitive advantage, but what the firm does to convert the information to knowledge.

  • It is very difficult to forecast option values – big decisions are increasingly risky.

My Response: The future has always been dim. We are just smarter about how little we know.

  • Large-scale execution is trumped by rapid transactional learning – the ability to execute a big program, like six-sigma, is no longer as valuable as flexible and quick responses to market and environmental changes.

My Response: Yes, but we still need large-scale programs PLUS rapid testing of strategies. But, I agree that the pace of change has certainly picked up!

The author says that strategies today are guided more by the actions and reactions of the employees, not by the strategists and senior management. Along those lines a recent academic article proposes that losing middle, operations management is more damaging than losing senior management.

In my opinion, this has always been the case. Today’s strategy practice is just more rapid and riskier than it was in the past – middle management and the front lines know more, a lot more today, about the changing environment than senior management.

But I do agree that companies are doomed if they predict the future based on the past and believe that incremental improvements will win the day. Examples may include Dell and Sears and, perhaps, even Yahoo.

In summary, to win at strategy today, companies must have both a long-term direction and be making numerous low-cost experiments that keep them abreast of the changing environment. Examples? Google? Amazon?

Your comments and thoughts?

Let me know. Prof Goeltz

 

Sources:

http://www.forbes.com/sites/ricksmith/2014/09/22/is-strategy-dead-7-reasons-the-answer-may-be-yes/

Bermiss, Y Sekou and Murmann, Johann Peter, The Impact of Functional Background and Top Executive Mobility on Firm Survival (April 22, 2014). UNSW Australia Business School Research Paper No. 2014 STRE 02. Available at SSRN: http://ssrn.com/abstract=2470068 or http://dx.doi.org/10.2139/ssrn.2470068

The Tim Cook Miracle at Apple Inc.

And it’s not the Apple Watch.

The current issue of Business Week features an interview with Tim Cook, the CEO of Apple Inc. The story is not about the Apple Watch or the other recent announcements, although the Apple Watch is a central element of the article. It is about how Tim Cook changed the culture at Apple from a company of silos and secrets to one of collaboration. This was accomplished in just three years – the miracle is that it was accomplished at all, let alone in such a short period of time.

The change in culture might best be understood in terms of an article from 2007 (yes, I really do keep articles from that far back) that is about organizational archetypes of innovation. The authors developed four different archetypes based on a survey of 90 companies across industries and 14 countries.

Archetypes and company examples are:

  • The Marketplace of Ideas – Google
  • The Visionary Leader – Apple
  • Systematic Innovation – Samsung
  • Collaborative Innovation – Facebook

As you might surmise, everything about the Visionary Leader model is different from Collaborative Innovation – a different type of leader, staff, internal processes and structure, and culture. Also remember that any effective organization is a system where all of the elements are aligned and self-reinforcing. Changing any one element without changing the others is a recipe for organizational chaos.

Mr. Cook used the Apple Watch as the change agent, a high-visibility and high-risk project of a large cross-disciplinary team that included hundreds of engineers, designers, finance, and marketing people – a very different approach than the previous model of small, secretive teams that did not even know what the other teams were working on. Perhaps Apple pride in what they do is the real secret ingredient in Apple’s culture.

Bravo, Tim Cook. A few other bits in the article were also interesting to me. The watch was envisioned in a lab after Jobs passed away, perhaps indicating that innovation is embedded throughout Apple, not just resident in the former CEO. The other interesting tidbit was that Cook waited a year to act, observing and absorbing while allowing the organization to mourn the loss of Steve Jobs. That was also a very smart move, in my opinion.

Comments?

Let me know. Prof Goeltz

 

Sources

http://www.businessweek.com/articles/2014-09-17/tim-cook-interview-the-iphone-6-the-apple-watch-and-being-nice#r=read

http://www.forbes.com/forbes/2007/1112/137.html

 

Competition is For Losers?

Zero

You can tell when a new Biz Book is about to be published – I heard about this book on NPR, then a review appeared in the WSJ, and it popped up on GoodReads, and on Business Insider. The author is even scheduled to appear in Philadelphia!

All before the book is released on 9/16/14.

The headliner in the WSJ was particularly striking – “Competition is For Losers.”

Hey Professor, I thought that competition was good, that freedom to compete was the foundation of capitalism, that competition forced out the weak and kept prices in the vicinity of the optimal, equilibrium price. Competition leads to the “creative destruction” that Shumpeter touted as the entrepreneurial engine of growth in capitalism.

All authors exaggerate to make a point, but the point here is that capturing the most value occurs in making the first viable product or service and therefor capturing the most value. Think Apple iPhone and Google search. Zero to One. Do not think of the airline industry where profits are dismal and have been for ages, ever since competition was unleashed by deregulation. One to N, in the author’s language, copying and imitation, does not lead to capturing the most value.

The authors state that the next “big things” will not be the same as the last ones – it will not be a PC, or an iPad or a search engine, but something entirely new. It is worth noting that the iPad and IBM PC were not the first models of tablets and personal computers to appear, but that they were the first attractive, scale-able models.

Will the Apple Watch be a Zero to One product? Why?

Is this what Michael Porter has us looking for in the Industry 5 Forces analysis?

Let me know what you think. Prof G

 

Sources

http://www.npr.org/2014/09/13/348181054/peter-thiel-in-zero-to-one-how-to-develop-the-developed-world

http://online.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536?mod=LS1

http://www.businessinsider.com/peter-thiel-book-zero-to-one-2014-5

http://www.goodreads.com/book/show/18050143-zero-to-one

USA Burger and Soft Drink Industries

burgerAre we over-burgered? Is the quick-serve burger industry reaching the maturity-to-decline stage of its life cycle in the US? How about the soft drink industry?

Several recent articles (see below) would lead one to conclude that the burger business is fried in the USA, and that the soft drink industry in the US has gone flat (ouch, stop that!). This is not new news to the industry – McDonald’s has 66% of its revenues from overseas markets, while Burger King is expanding overseas, and Yum Brands long ago saw the growth opportunities in foreign markets.

And the trend is picking up speed, as measured in same-stores sales. For example, McDonald’s same-store sales rose 2 percent in Europe and 5.4 percent in the company’s Asia Pacific, Middle East and Africa region in January 2014, while USA same-stores are declining.

These are the symptoms, but what are the drivers behind decreasing US sales of Big Macs? It could be that there are just too many places to get a burger, and that we are just tired of burgers. There are over 200,000 fast food locations in America. However, every tavern, bar, and American-themed restaurant in any sector of the industry offers a burger. There are at least 20 places that I can buy a burger within 20 minutes of my house. Burgers are big, Mack.

Plus, 5 Guys has grown from five outlets in the Washington DC area in 2003 to over 1000 locations today. We apparently still like our burgers, so maybe we are tired of fast food that is not all that good for us. For example, Coke and Pepsi have seen US sales fall every year since 2005. Maybe the falling sales of burgers and soda are health related.

Health concerns are not news to the US fast food industry. In 2012, McDonald’s worked with mothers/bloggers to define the health issue and attack it with new menu offerings and social media. To solve this problem, McDonald’s continually experiments with healthy food options. But progress is slow – salads are just 2% of McDonald’s sales in the US.

Perhaps Coke and McDonald’s, and to a lesser extent Pepsi, suffer from a fast-food case of the Innovator’s Dilemma (Clayton Christensen) – they are so dependent on the current customer’s needs that they can’t or won’t invest in future needs. Innovation in any industry tends to come from the new, smaller companies – in the drink industry in 2007 20% of the revenue and 50% of the sales growth came from small, regional brands. Coke and Pepsi can keep on buying up small brands. However, McDonald’s does not have that option, with its large investment in real estate.

Analysis is fun – what should McDonald’s do? Options for McDonald’s in the US could include:

  • Ignore the slowing in the USA – focus on growth markets overseas;
  • Innovate, but do so slowly to keep and expand the base;
  • Reverse innovate – bring some of the innovations and trends from overseas back to the USA;
  • Expand offerings – McBrunch anyone?
  • Diversify – start a more-upscale fast casual burger joint – e.g. buy or imitate 5 Guys;
  • Redesign the darned restaurants – a redesign of a store in California resulted in a 20% jump in revenues.

Are these the only options? Which one or what combination is best?

What do you think? Let me know. Prof G

Sources

http://www.bloomberg.com/news/2014-02-10/mcdonald-s-january-sales-top-estimates.html

http://investor.bk.com/conteudo_en.asp?idioma=1&tipo=43682&conta=44&id=165734&storyId=65728632

http://www.fool.com/investing/general/2014/02/20/the-best-way-to-invest-in-fast-food-growth-in-emer.aspx

http://www.businessweek.com/articles/2014-09-09/mcdonalds-happy-meal-problem-kids-turn-away-from-fast-food

http://www.nytimes.com/2012/05/06/magazine/how-mcdonalds-came-back-bigger-than-ever.html?pagewanted=6&_r=2&

http://www.fiveguys.com/about-us.aspx

http://www.businessweek.com/articles/2014-07-31/coca-cola-sales-decline-health-concerns-spur-relaunch

What Is Apple Really Up To?

apple watch
picture courtesy of Apple via Forbes

Silly question? Announcing new products, as usual. But perhaps there is more going on.

We have seen the announcements this week on the new iPhones and the prospective Apple Watch. The iPhone 6 is bigger, faster, sleeker, and its bigger brother is – bigger. These are expected upgrades to an existing product line, and if it weren’t for the fact that the iPhone 5 is a half step behind the competition, it would not be all that exciting. Analysts are predicting a rush of conversions from the older 4 and 5 models to the 6, with the attendant sales and profits flowing to Apple. OK, nice job Apple.

But the more interesting announcement was the much-anticipated Apple Watch. The videos and the demo tapes elicited the OOOhs and AAAhs from the press, and indeed it looks like an Apple product – sleek and cool and different. So Apple may have established a fourth product line to accompany the desktops/laptops, iPads, and iPhones. May have are the operative words, as it was also clear that the Apple Watch is not ready , as it was postponed until after the holiday season. Battery issues perhaps? No apps yet? We shall see.

But, I think that the more interesting aspects of the announcements and of Apple moves over the last six months are service related, not hardware related. Apple Pay was announced, a mobile payment system to accompany the Apple Watch and the iPhones and iPads. Within the last two days Forbes, the Wall Street Journal, Bloomberg, Business Insider, et al have started digging in with article about the death of PayPal, questioning the security of the system, and touting the retailers that have lined up (Disney, McDonald’s, Macy’s) and those who have not (Wal-Mart). (If you want to dig into this further look up CurrentC on your favorite search engine).

In addition, Apple announced on Tuesday and had announced in prior releases that a new focus would be on health and fitness services that the i-stuff would support. From the apple.com web site:

“Heart rate, calories burned, blood sugar, cholesterol — your health and fitness apps are great at collecting all that data. The new Health app puts that data in one place, accessible with a tap, giving you a clear and current overview of your health. You can also create an emergency card with important health information — for example, your blood type or allergies — that’s available right from your Lock screen.”

OOOOh, AAAAh, now those two announcements ARE interesting, to me. They indicate that Apple is moving more towards a service company rather than a device company that can be attacked by high-volume. In a way, that has been the apple strategy all along, particularly with iTunes as the service that cuts across all devices. But if you look at the profit stack (for example http://arstechnica.com/apple/2014/01/apple-breaks-revenue-iphone-and-ipad-records-in-q1-of-2014/) you will see that over 75% of the profits are from the iPhone and iPad. This is risky business, as, historically, hardware profits come under attack from lower-cost, high-volume producers (see Sony and Dell for examples).

Is this an indication of a subtle, but significant change in strategy? Are we going to continue pay a premium for Apple products that are “cool” including the new Apple Watch, and, as a result, are the majority of Apple’s profits going to be in hardware 5 years from now? Or, is Apple going to be the perfect blend of a high-margin hardware company and a very high-margin services company?

Let me know what you think. Prof G