Manage to Win

Revitalize your business, wrong-foot your competitors

Foreword by Paul Lee, Former CEO, BBC America

Norton Paley

MANAGE TO WIN Revitalize your business, wrong-foot your competitors

Norton Paley

Published by Thorogood Publishing Ltd 10-12 Rivington Street London EC2A 3DU Telephone: 020 7749 4748 Fax: 020 7729 6110 Email: [email protected] Web: www.thorogood.ws

© Norton Paley 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying, recording or otherwise, without the prior permission of the publisher. This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than in which it is published and without a similar condition including this condition being imposed upon the subsequent purchaser. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher.

A CIP catalogue record for this book is available from the British Library. HB: ISBN 1 85418 301 X PB: ISBN 1 85418 395 8 Book designed and typeset in the UK by Driftdesign Printed in India by Replika Press

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Dedication In loving memory of Elias Paley and Bessie Paley

Foreword

Growing a business successfully from start-up to maturity requires management not just to reinvent its strategies, but also to reinvent itself. As a team goes from scrappy start-up to full-grown efficiency, managers need a route map to let them know how their business will change. Then they need the tools and training to thrive as the changes come. I have always believed that the most successful way to do business is not to change the management team for every different phase of a company’s growth, but to choose the right managers and help them change their skill set as they grow. I have found with a growing company that the skills needed seem to change from month to month. Certainly, the mood can change as dramatically as a child changes from infant to toddler to schoolgirl to adolescent. The way people talk to each other and about the company changes. The priorities, the politics, the social life, the aspirations, even the structure of the company changes. While all this is happening, the now successful sprinters need to learn – in mid-race – to pace themselves for a marathon. In a start-up, managers must be flexible enough to flip from long-term strategy to the nuts and bolts of everyday planning. They must be visionaries and inspirers who can sell an as-yet unproven idea, and then they need to roll up their sleeves and actually do it. Regardless of title or delineation, managers should be able to do all the tasks in the company. They need to inspire the people they meet and employ one at a time. Above all, they must have an absolute commitment to ‘getting it done’. As the company grows, those managers need to morph those skills to become strong recruiters and delegators. They have to change their work habits from crisis management to the steady application of pressure. They must keep faith with their long-term vision, but now they need to set and motivate staff for quarterly and annual targets. They need to inspire whole

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groups of people now at a distance. They need to cushion the company from the growing pressures from outside. Most important of all, they need to stay physically healthy throughout all the phases. It is my experience that at any given time, some aspect of the business is always in start-up. Departments and functions come online and change in priority at different times as the business grows. Throughout the growth phase of a company, managers need to be able to keep changing gears, sometimes from one hour to the next. It is also my experience that the managers who learn to enjoy those gear changes are the managers who thrive. Manage To Win is perfectly positioned to help managers to do just that, to prepare them for the disruptive changes that come with growth, and to give them the tools to manage those changes successfully. Norton Paley’s premise is right on target. Paul Lee (Fmr) CEO, BBC America

FOREWORD

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About the Author

Norton Paley has over 25 years of corporate experience in general management, marketing management and product development at McGraw-Hill Inc, John Wiley & Sons and Alexander-Norton Inc. He has authored seven books, including: •

The Strategic Marketing Planner

•

Action Guide to Marketing Planning and Strategy

•

Marketing for the Non-marketing Executive: An Integrated Management Resource Guide

•

The Marketing Strategy Desktop Guide

•

Pricing Strategies and Practices

•

Marketing Principles and Tactics Everyone Must Know

•

The Manager’s Guide to Competitive Strategies, 2nd Ed.

In addition to advising management on competitive strategies and strategic planning, Paley also has extensive global experience lecturing to managers at such firms as American Express, Cargill (worldwide), Chevron Chemical, Babcock & Wilcox, Dow Chemical (worldwide), W.R. Grace & Co., Prentice-Hall, Ralston-Purina, Hoechst, and McDonnell-Douglas. Also, he participated in lecture tours in the Republic of China and Mexico. His byline columns have appeared in The Management Review and Sales & Marketing Management.

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Contents

Introduction

2

Winning Actions of Managers

4

Chapter Outline

7

ONE Revitalize Your Strategies Reinvent Your Managerial Skills

14

Market Classifications

17

The Psychology of Applying Strategies and Tactics

30

Summary

36

TWO Estimate Your Chances For Success

40

A 5-Step Process to Estimate Your Chances of Success

44

Corporate Culture

53

Business Intelligence

60

Data Mining

63

The World Wide Web and the Information Revolution

65

Knowledge Management

74

THREE Act With Speed And Decisiveness

78

Using Speed as a Strategy

83

Managing an Organization

85

Organizing for Speed and Quick Reaction

90

Applying Cultural Diversity

93

Summary

102

CONTENTS

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FOUR Develop Offensive Strategies: Your Defining Moment As A Manager

104

Seven Applications to Enhance Your Management and Strategy Skills

106

Selecting a Market Segment

134

Using Field Ethnography to Select a Market Segment

140

Summary

147

FIVE Energize Your Company’s Potential – Develop Invincibility 150 Areas of Vulnerability and Invincibility

151

Business Ethics and Invincibility

170

Manage, Control and Deploy Resources

174

Summary

182

SIX Create An Ongoing Momentum Among Your Employees – The Possibilities Are Limitless The Planning Process

187

Energizing Your Company

196

Developing Opportunities

201

Global Business

217

Summary

218

SEVEN Strategies To Activate Profitable Growth

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184

220

Positioning a Product

224

The Power of the Indirect Approach

225

Competitive Intelligence

230

Developing a Competitive Intelligence System

232

Competitive Intelligence Applications

237

Summary

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EIGHT Lead By Making Strategic Maneuvers Maneuver – Turning Misfortune to Advantage

246 250

What, then, is Behind this Leadership Trait Called Heart?

254

Psychological Dimensions of Leadership

255

Summary

266

NINE Manage By Harnessing The Full Potential Of Your People 270 Orienting Front-Line Personnel With a Strategic Mindset

271

Responding to Opportunities

274

Determining Your State of Readiness

280

Applying Information Technology

284

Summary

291

TEN Lead By Signs, Signals And Movements

294

Techniques to Uncover Signs, Signals and Movements

295

Techniques to Guide Movements into Four Types of Markets

299

Interpreting Signs, Signals and Movements

313

Summary

318

ELEVEN Manage By Understanding The Nature Of Markets

320

Competitive Strategies for Six Types of Markets

321

Leadership and Personnel Relationships

333

Summary

345

TWELVE Lead By Employing Agents – The Manager’s Lifeline To Successful Performance

348

Guidelines to Employing Agents

357

How Competitive Secrets Leak Out

365

Getting Employees to Talk

366

Intelligence and the Law

369

Summary

370

CONTENTS

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THIRTEEN Implementing Tactics: The Hands-On Test Of Leadership Advertising

x

372 374

Sales Promotion

377

Sales Force

387

The Internet

393

Summary

396

CONCLUSION Looking Ahead As You Manage To Win

400

Appendix

404

Duties and Responsibilities of a Cross-Functional Team

404

The Strategic Business Plan Forms and Guidelines

406

Section 1: Strategic Direction

407

Section 2: Objectives and Goals

409

Section 3: Growth Strategies

410

Section 4: Business Portfolio Plan

411

Tactical Section

412

Section 5: Situation Analysis

412

Section 6: Opportunities

417

Section 7: Tactical Objectives

418

Section 8: Tactics and Action Plans

423

Section 9: Financial Controls and Budgets

424

General Electric Business Screen

425

Product Life Cycle

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MANAGE TO WIN

Introduction

Introduction

The 21st century overflows with brilliant case examples of executives plunging their companies headlong into e-commerce and e-business enterprises, and achieving monumental successes with the now familiar names of Amazon.com, e-bay, Yahoo!, and so on. Yet, there is a dark side to the Internet revolution replete with numerous dot.com failures. Rather than lay blame on the Internet, perhaps a measure of fault lies with the venture capitalists that fed the frenzy of start-ups and funded, it would seem, any impetuous entrepreneur with the courage to ride the crest of the Internet wave. It didn’t take long for a distressing toll of failures to show among those companies. It appears they had incomplete, or at best, shabby business plans, ill-conceived marketing strategies, vacuous corporate cultures, lack of even rudimentary competitor and customer intelligence, and poorly defined customer segments. For many unsuspecting entrepreneurs, the rude awakening came in the aftermath of evaluating the reasons for failure. Four realities emerged: 1.

Rigorous business principles do exist and need to be followed regardless of the type of business.

2.

Well thought-out strategic business plans backed by reliable business intelligence are an essential prerequisite to committing any amount of resources.

3.

Effective management requires well-honed leadership skills to implement even the most basic competitive strategies.

4.

A customer-oriented corporate culture anchored to identifiable core values, ideas and behavioural patterns are essential underpinnings to expect winning performance by employees.

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As for the surviving start-ups, clear-cut lessons unfolded with indisputable certainty: Strategic business practices must be studied thoroughly and put to work with a disciplined effort. Next, virtually all business activities are open to rational analysis. Further, successful managers should be able to visualize opportunities, with emphasis on new Internet-related technologies that permit reaching additional groups of individuals with the appropriate computer clicks. Finally, managers must look globally with a new perspective as geographic distances dissolve and cultural distances emerge as the more important barriers to overcome. The following example illustrates these points:

Case Example L’Oreal, the global cosmetics producer, has experienced extraordinary success with its various product lines including Maybelline, Soft Sheen, Helena Rubinstein, and its own L’Oreal brand. Chief Executive Linsay Owen-Jones attributes market share increases across all product lines to “conveying the allure of different cultures through its many products”. Whether it’s selling Italian elegance, New York street smarts, or French beauty through its brands, L’Oreal is reaching out to more people across a bigger range of incomes and cultures than just about any other beauty-products company in the world. “We have made a conscious effort to diversify the cultural origins of our brands,” states Owen-Jones. That approach proved to be the key to L’Oreal’s success. While many companies seek to homogenize their brands to make them palatable in myriad cultures, Owen-Jones’ savvy grassroots approach has taken L’Oreal’s products in the opposite direction. He wants them to embody their country of origin.

INTRODUCTION

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Examples: •

Maybelline is figuratively stamped as ‘urban American chic’ to identify its U.S. origins and targeted to urban women on the go. In just three years Maybelline sales rocketed from $320 million to $600 million with sales in more than 70 countries, where young women in such countries as China react to trendy New York styles.

•

Soft Sheen, a U.S. line of hair-care products aimed at AfricanAmerican women, is further positioned as a springboard for expanding into Africa.

•

L’Oreal expanded rapidly in India since it introduced its L’Oreal Excellence line of hair color in 1997 – the first time a company there dared sell any color other than black. In Mexico, L’Oreal ranks No. 1, with a soaring 28 per cent increase in sales.

•

Helena Rubinstein’s luxury line of skin care and cosmetics targets 20- to 30-year-old women in urban centers such as London, New York, Paris and Tokyo who want wild colors.

The fundamental concept behind L’Oreal’s brilliant performance is that cultural influences drive market growth, control internal operations and keep alive innovative strategies. Thus, the challenge to fuel a new burst of growth was appropriately channeled into sustaining a momentum of targeted new product development. The aim: Make each brand stand out with its own distinct and differentiated image.

Winning Actions of Managers During the heady (and at times reckless) period of Internet development, adhering to pragmatic business principles was often overlooked. For the most part, however, they remained alive and well at such venerable companies as General Electric and IBM. Those organizations applied business practices enhanced by Internet age technologies and performed with above-average success. One foundation practice stood out among those managers and it was demonstrated as a sharply honed competence: Their ability to develop credible strategic business plans. They were able to project clear visions

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for their respective business units, form objectives and strategies that translated into market actions, and shape a corresponding portfolio of products and services to support their objectives. Next, they connected that long-term focus with tactical blueprints that charted such practical day-to-day actions as entering markets, launching new products, and establishing viable positions to assure continued growth. As important, the plans underscored tactics to protect existing market positions against competitive intrusion. Another well-honed business practice continued: Successful managers sought ingenious ways to frustrate competitors’ plans. Where possible, they even attempted to unhinge their rivals’ alliances. Above all, they and their subordinates, including the sales reps in the field, were adept at gathering, analyzing and acting on business intelligence, with special attention to competitors’ moves. It is in this latter activity that managers probed for strategy-related answers to such questions as: What opportunities exist to create an unbalancing effect among competitors that result in opposing managers making tactical mistakes, or even sow the seeds of uncertainty and doubt among their personnel? In turn, what actions would reduce the competitor’s will to resist, even before the tough marketing battles began? Additional pragmatic lessons emerge, which you can apply immediately: Become totally familiar with your competitors’ activities. That is, ongoing business intelligence can spell the difference between success and failure in any competitive environment. (Many of the failed dot.coms discovered this truism, too late.) Consequently, look at competition with a 360-degree view, along with a reflective view of your own business circumstances in a changing marketplace of erupting technologies, environmental concerns and new customer dynamics. What you are likely to see is a panoramic scene that can impact your decisions about selecting markets, launching new products and services, and devising winning strategies.

INTRODUCTION

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Also, the circular view should offer-up valuable clues about evolving consumer trends. You should see clear opportunities to deploy material and human resources with the long-term view of nurturing the growth and prosperity of the market. Then, there is the seemingly intangible advantage of being able to think more clearly about such foundation questions as: Do you chase a new market and commit funds for additional products and enhanced services? Do you yield a portion of business because of an untenable position that is not worth further investment? Or do you stand firm and risk a price battle? Accordingly, by applying a disciplined approach, you can conceptualize and mold a business model likened to a masterpiece of business art. Relying on the tools of customer relationship management, together with the effective application of technology, you can paint a well-defined picture of how to conduct business in the Internet age. Thus, in practical application, move insightfully when the situation assures success, not before. Your primary aim: Make the competition vulnerable in the functional areas of product, service, price, promotion and distribution. Yet, vulnerability is not realized solely in those tangible areas. It could be accomplished by penetrating the psychological character of the opposing manager who by temperament may be vacillating, impulsive, stubborn, or easily deceived. Or, vulnerability could be achieved by exploiting observable handicaps where competing personnel are poorly trained, undisciplined, disloyal, unmotivated – or simply poorly managed. Such conditions signal voids and offer superior possibilities for you to devise an advantageous course of action, without undertaking costly market battles. Still other strategic lessons surface: Shape your position according to your competitor’s shape. This means: Continually observe and probe your opposition, yet take every means to prevent the competition from shaping you. Further, maintain flexibility and adjust strategies and tactics to have an impact on your opponent’s situation. Under such circumstances you might

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sacrifice a portion of business or give up some market share to gain a more valuable objective. Such yielding, therefore, masks a deeper purpose and is but another aspect of the intellectual resiliency that would distinguish you as a winning manager. Therefore, weigh the situation before moving. Avoid blundering aimlessly into baited traps or running after every Monday-morning news headline. Be prudent, but not hesitant. Realize that there are some markets not to enter; some competitors not to confront; some customers not to pursue; some positions not to challenge. Take calculated risks, but never needless ones. Yet when fruitful opportunities appear, act swiftly and decisively. That is, choose the markets with above-average chances for profitability and longterm customer relationships. Your chief characteristic as a winning manager: Create change and shape it into an advantage. What follows is that the single most significant outcome of managerial skill is to harness human and material resources to win: To win customers; to win market share; to win a long-term profitable position in a growing marketplace; to win a competitive encounter before a rival can do excessive harm. Ultimately, winning is what revitalizing your strategies and reinventing yourself is all about.

Chapter Outline The following chapters provide a highly practical framework for you to build managerial competencies. Just a casual awareness of the current competitive environment should shock you into observing that regardless of size, there are new, bold competitors challenging you. Also, if you internalize the reality of hungry competitors approaching your market turf, it should serve as another wake-up call to strengthen your resolve and build your company or business unit into a force that can withstand volatile markets and aggressive competitors from local, global, and cyberspace locations.

INTRODUCTION

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To that end, each chapter is laced with principles and supported with numerous real company examples – 89 in all. Throughout the book you will absorb fresh insights about your managerial capabilities, as you mold your personal skills and shape your strategies to meet the demanding realities of a 21st century manager.

Chapter 1: Revitalize Your Strategies, Reinvent Your Managerial Skills Provides a framework to understand the nine types of markets, which provides the clues to devise effective strategies to serve customers and successfully confront competitors.

Chapter 2: Estimate Your Chances For Success Effective management isn’t based on random acts of luck. Rather, it is inextricably attached to making deliberate and conscious estimates and calculations before committing people, financial and material resources.

Chapter 3: Act With Speed and Decisiveness This rule is based on a time-tested concept: There has seldom been a prolonged effort from which a company has benefited. Thus, speed is an essential ingredient for success. It doesn’t mean reckless or impulsive movement. It does forewarn that once you make careful estimates, hesitation and indecision can result in failure.

Chapter 4: Develop Offensive Strategies: Your Defining Moment As A Manager To a great extent, a company’s (or product line’s) future is in your hands as its leader. By taking an active look at the inner workings of your organization and its culture, you can objectively view the unique strengths and inherent values that could make your company formidable when faced with aggressive rivals.

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Chapter 5: Energize Your Company’s Potential, Develop Invincibility It is in your mind that you must envision the future and develop resourceful plans. Those plans must address external environments brimming with new categories of customers, culturally separated markets, and the limitless potential of the Internet.

Chapter 6: Create An Ongoing Momentum Among Your Employees – The Opportunities Are Limitless As a strategy-minded manager you must determine how and when to occupy a market and which form of strategy to use. All of which is based on the realities of comparative strengths and weaknesses with competitors.

Chapter 7: Strategies To Activate Profitable Growth This is your decisive moment as a manager. Waging continuous and costly marketing efforts for every point of market share is not the acme of managerial skill. Competence is measured by your ability to develop viable strategies that sustain profitable growth.

Chapter 8: Lead By Making Strategic Maneuvers One of the hallmarks of effective management is making correct choices. That means maneuvering skillfully, as you turn potential misfortune into advantage. This entails knowing when and how to select ripe opportunities to enter a new market, challenge an aggressive competitor, or introduce a new product.

Chapter 9: Manage By Harnessing The Full Potential Of Your People Triggered by an embattled marketplace, look at your position in a reshaped, downsized and revitalized organization where your role is to initiate an entrepreneurial zeal by rallying the workforce at the grass-roots level.

INTRODUCTION

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Chapter 10: Lead By Signs, Signals, and Movements As an effective manager your newly honed skills require interpreting the often partially concealed signs and movements of rivals. If properly deciphered, these subtle and sometimes obscure indications shed light about competitors’ dispositions – and most importantly reveal the likelihood of their next moves.

Chapter 11: Manage By Understanding The Nature of Markets Here is where you classify markets according to their potential. In turn, that valuable skill – and responsibility – becomes the focal point from which you implement plans and position resources to gain the best possible effect.

Chapter 12: Lead By Employing Agents – The Manager’s Lifeline To Successful Performance One of your lifelines to successful performance is employing individuals to gather trustworthy competitive intelligence.

Chapter 13: Implementing Tactics: The Hands-On Test of Leadership One final test of managerial competence: Know-how to skillfully implement tactics. This occurs when you compete in day-by-day encounters to win a customer, penetrate a geographic region, or carve out a position in a market segment.

Conclusion: Looking Ahead As You Manage To Win Reviews the combined traits and guidelines to revitalize your competitive strategies and reinvent your managerial skills.

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Appendix An extensive appendix provides practical guidelines, numerous management tools and usable checklists. Finally, you will find diverse case examples throughout each chapter. They were carefully selected at the time of writing to illustrate the concepts being presented. However, events during the tumultuous period of 2000-04 may have altered the subsequent outcomes. Therefore, consider each case only as an accurate snapshot at one point in time. Good luck in revitalizing your strategies and reinventing yourself for a new burst of growth.

INTRODUCTION

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ONE

Revitalize Your Strategies Reinvent Your Managerial Skills

ONE

Revitalize Your Strategies Reinvent Your Managerial Skills

Chapter Objectives Enhance your managerial skills as you: 1.

Define the internal and external factors that control how you approach your markets.

2.

Describe the nine types of markets and indicate the kinds of strategies to use for each.

3.

Identify the psychological factors in devising strategies and managing subordinates.

4.

Work out the advantages of making alliances an integral part of your strategic business plan.

Revitalizing your strategies and reinventing yourself pivots on two diverse groups: customers and competitors. Known as the two-zones of activity, they form the operational focus from which you monitor activities and dictate how you approach your marketplace. Those two zones, then, determine how you devise your business plans for the long-term growth and profitability of your company or product line. Understanding that framework will help you select the appropriate strategies to position material resources, as well as manage the development, morale and effective deployment of your personnel.

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Further, within that framework a tangle of internal and external forces exist, all vying for your attention. For instance, take the external twists and turns in the marketplace, such as industry changes, environmental concerns and competitive threats that would profoundly influence your business strategies, and would bear heavily on how you reinvent yourself to meet the challenges.

EXTERNAL FORCES

Current demand for product/service Future potential for product/service Industry changes Environmental concerns Emerging technologies Changing customer profiles Frequency of new product introductions Level of government regulations Supply chain position Entry and exit barriers

MARKETS

TWO-ZONES OF ACTIVITY Customers

Competitors CORPORATE CULTURE

INTERNAL SUPPORT SYSTEMS Finance Marketing/sales Product development Services Logistics Business strategy teams Administrative/planning Other

INTERNAL FORCES FIGURE 1.1: DYNAMICS OF THE MARKETPLACE

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Then look at the internal workings of your organization with its diverse business systems and assorted human interactions that make your company run day-in and day-out. Enveloping all of these internal dynamics is the imperceptible, but ever-present corporate culture that sets the tone and tempo of how you and your employees will react in an unstable and highly competitive market. Figure 1.1 illustrates the external and internal forces that ultimately converge in the marketplace. Markets, then, form the epicenter where customers and competitors meet. In practice, they correspond to the starting point and the finishing point for all efforts that precede and follow. Expressed differently, markets become the focal point to take advantage of new opportunities and become the grist for developing winning strategies. For example: Intel mounted a major effort to make new products fit evolving markets, trends and customers’ changing behavior, instead of looking to hike performance from existing products for existing customers. Managers moved to reconcile the billions of dollars spent each year on chip factories with the knowledge that many customers don’t need PCs with the latest chip. Instead, they aimed at entirely new markets, such as cell phones, handheld computers and networking gear whose much larger volume could make up for their lower profitability. Those three markets alone are potential multi-billion dollar growth opportunities, according to industry experts. Then, there is the attractive prospect to give each chip wireless capabilities, hoping to ride that evolving trend. Along the same line of thinking, Microsoft moved beyond its mainstay corporate market into new fields such as video-game players. Doing so forced it to become a different company, selling not just bits on disks, but machines and multimedia programming. Such levels of thinking are not reserved only for the industry giants. Relative newcomers with solid technology, from Salesforce.com’s online software service to Google’s formidable search engine, are still getting venture money to pursue the huge opportunities as their respective managers search for promising niches among emerging, neglected and poorly served markets.

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Market Classifications To give you a useable framework for understanding markets and applying the appropriate strategies, classify them as natural, leading edge, key, linked, central, challenging, difficult, encircled and desperate. This classification goes beyond the more traditional approaches to segmenting markets, such as geographic, demographic and psychographic. You will find those approaches highly practical for convenient sorting and creating useful audience profiles. However, the nine categories go further to add a higher level of thought that offers a far more substantive approach to devising strategies, deploying personnel and taking decisive action to deal with competitive threats. Also, you can think about the key variables of markets, such as customer relationships, emerging technologies, future potential for your products and services, supply chains, cost structures and entry/exit barriers. You will find yourself sensitized to the uniqueness, distinctiveness and innerworkings of each market. Let’s examine each with a view toward revitalizing your strategies and honing your managerial skills.

Natural Markets Natural means that a company operates in the familiar setting of its normal or traditional markets. The inference is that within such customary surroundings, personnel tend to be at ease and generally are not motivated to venture out of their comfort zone. Therefore, to expand you have to fire them up to move beyond the confines of existing markets. Also, natural takes on special significance in the framework of classic business life-cycle theory, which states that all markets (and products) go through the successive stages of introduction, growth, maturity, decline and phase-out. Of necessity, that means you have to take the lead in the search for new markets to enter and drive new product development. The following example illustrates this type of market.

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Case Example Apple Computer has long enjoyed the role of niche player in its natural setting of the personal computer market. Then, in 2002, PC market sales reached a plateau with Apple’s market share still hovering in the 3 per cent range, which it held for several years. The once comforting familiarity gave way to an anxious need for market expansion. Presented with the consequences and the opportunities, Apple’s managers made the bold move into the mainstream consumerelectronics market. Apple launched iPod, its version of a digital handheld music player smaller than a deck of cards. Industry statistics for such devices in 2002 pegged sales at 12 million units, with sales growth predicted at a rate of 74 per cent annually for several years. What gives the iPod a boost is its ability to work with most PCs. As a further aid, the product is at the introduction stage of its market and product life cycles. The opportunity? If Apple moved fast enough it could establish a viable market position and wouldn’t have to fight excessive battles against entrenched competitors. Therefore, market leadership for digital handheld music devices is up for grabs to the company that moves rapidly, establishes a brand identity and continues to maintain a competitive lead.

Leading Edge Markets Leading edge indicates a shallow penetration into a competitor’s territory, with no major interest in becoming a dominant player. The intent is to test a market’s feasibility as an additional revenue stream and determine the type of investment required, based on the depth of commitment from major competitors. In this type of market, to protect against an unwarranted competitive confrontation and be forced to exit, your efforts would steer toward gaining cooperation and fostering solid communications among personnel from sales, marketing, technical support, logistics, and other administrative personnel.

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The idea is to make certain that those individuals lodged in the leading edge market don’t feel isolated from the mainstream business. If they sense being cut off, and if unmonitored, the overall strategy to maintain a presence in a minor market could be in jeopardy. Consequently, an active vigilance on your part is always required. An application of a leading edge market approach is the initial minor penetration of the copier market with small copiers by a few Japanese companies into North America. Xerox, the market leader during the 1970s, dedicated its products to the market segment for large copiers. Xerox managers initially avoided the small copier market. That oversight allowed enterprising Japanese copier makers to enter freely into the vast market of small- and mid-size firms. Once established, they moved upscale and took over a significant amount of Xerox’s primary market share. In another example, during 2003 Hewlett-Packard expanded its penetration of the lucrative business-process (BPO) market, which entailed taking over entire functions of a company, such as human resources, finance and administrative tasks such as billing and invoices. The aim: Close the gap with market leader IBM.

Key Market Key means that a market is evenly advantageous to you and your competitor. Generally, you would not openly oppose an equally strong rival that occupies a key market. However, if confronted by a competitor that doesn’t choose to act by a live-and-let-live credo and decides to use a maximum effort to push you out of the market, then – and only then – it is advisable to launch a counter effort by concentrating as many resources as you can assemble. As in all business strategy, your intention is not to seek open confrontations with competitors, unless you have a clear superiority in resources and any aggressiveness on your part fits your overall strategic objectives. Depending on the market situation and your assessment of how your opponent is likely to act under pressure, it is possible that the mere threat of your strong counter-attack could bluff your rival into retreat. Thus, keep the strategic big picture in mind: If you expend excessive resources in hawkish-style actions such as price wars, then you may be

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left with a restricted budget for customer-directed activities and the means to secure your market position.

Linked Market Linked markets are equally accessible to both you and your competitors. Similar to key markets, your best strategy is to stay consolidated and maintain good communications. You don’t want your groups to disconnect and pursue independent objectives. Also for this type of market, pay strict attention to constructing barriers around those niches that you value most and from which you can best defend your position. Forms of barriers include quality and value-added products, above-average service, superior technical support, competitive pricing, on-time delivery, generous warranties, and the like. All of which build toward the venerated goal of achieving customer loyalty. In particular, focus on customer loyalty as a long-lasting, profit-generating advantage. The standard measures of performance, such as market share, return on investment, net income and other financial criteria still hold. But it is strong customer relationships that make a meaningful addition to your growth. As one analyst put it: “If you currently retain 70 per cent of your customers and you start a program to improve that to 80 per cent, you‘ll add an additional 10 per cent to your growth rate.” The following case illustrates how one company dealt with customer loyalty against formidable competitors with about equal access to the market.

Case Example John Deere, producers of farm equipment, taps the expertise of its managerial and hourly work force to implement its customer loyalty strategies. Deere’s resourcefulness in capitalizing on its employees’ skills has contributed to a sharp increase in net income, along with sizable jumps in sales and market share.

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To execute Deere’s strategy, teams of assembly-line workers crisscross North America and talk to dealers and farmers about Deere equipment. They travel singly or in small groups, and pitch their sales stories to farmers at regional trade exhibits. Workers in various job functions routinely make unscheduled visits to local farmers to discuss their problems and needs. In most places the ‘new’ reps are accepted as friendly, non-threatening individuals who have no ulterior motives other than to present an honest, grass-roots account of what goes into making a quality Deere product. At the time of initiating the strategy, enlisting the workforce for marketing duties was triggered by the weakening of demand for farm equipment during a recession period, as well as by the aggressive actions of competition – in particular from Deere’s chief rival, Caterpillar Inc. Underlying the workforce strategy is Deere’s view of customer loyalty: All employees are valuable resources to serve the needs of customers. Further, many of the workers supporting the effort had over 15 years experience with the company. They were trained in advanced manufacturing methods, total quality programs and teamwork. According to Deere’s management, harnessing that expertise demonstrates to customers that as makers of the products, they are the best company spokespeople. Noteworthy benefits of Deere’s strategy: •

Early identification of customers’ problems. Equipment performance or maintenance problems are quickly identified, with some handled on the spot by Deere workers. Others are addressed back at the plant by cross-functional teams.1

•

Early detection of competition and the identification of new benefits for customers. As the Deere workers hustle it in the sales territories, they experience real-world training that sensitizes them to the issues of product quality, technical assistance, on-time delivery, cost reduction, customer relationships – and the potential threats of competition.

•

Mobilization of the workforce to support the customer-loyalty effort. This fits the broad strategy of marketing the whole company – the sum of its competencies, products, services and value systems – in a form that makes customers want to do business with Deere.

1

The duties and responsibilities of a cross-functional team are detailed in the Appendix.

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•

A subtle, yet powerful image of management-labor harmony. The marketing implication of this strategy is that with unity of effort comes continuous product improvement and speedy resolution of customers’ problems.

•

Strengthening of relationships. Customers develop a stronger loyalty for the company through their meetings with workers from functions other than sales and marketing. This coming together has the positive result of breaking down sales resistance.

Tied to customer loyalties, and all the benefits of customer relationship management (CRM) initiatives, are the pragmatic financial numbers that result from retaining customers’ allegiance. It can cost up to 10 times as much to attract a new customer as to retain a current one. Consequently, sales models that focus on attracting as many new customers as possible – at the expense of properly servicing existing ones – are obsolete. There are always more competent suppliers that can and will fill the gap. Therefore, unless you can find a way to decrease selling expenditures, reduce the number of sales calls, or increase lifetime value, retaining a customer’s loyalty is far more cost effective, since the acquisition costs are sharply reduced or eliminated altogether. Let’s examine how you can install a customer retention program: •

Measure retention rate over a sustained period. If you have a few large customers, the calculation is simple. With a large customer base, the use of percentages or actual customer counts will give you a clear measurement.

•

Isolate the causes of customer defections. A customer that discontinues business relationships or moves to an area not serviced by your firm is one thing. Those leaving because of poor product quality, excessive pricing, shabby customer service, or faulty order processing are quite another matter and cause for concern. Once identified, focus on specific corrective actions and incorporate them into your business plan.

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•

Calculate how much profit you would forfeit from lost customers. This is expressed as a customer’s lifetime value.

•

Determine what it would cost your company to reduce the defection rate. As long as the cost is less than the lost profit, the expenditure is justified. Think, too, of the long-term effects of customer loyalty and its impact on existing markets, as well as on winning new ones.

Thus, to retain customers, your efforts should focus on serving them better than competitors do. An effective approach is to invest in the technology and numerous customer relationship management (CRM) programs that integrate all relevant information on each customer across the enterprise. Doing so increases your ability to facilitate more effective planning, marketing and servicing decisions throughout the customer life cycle.

Central Market Central means that divergent forces surround you and threaten your market position. These forces could be as diverse as watching dynamic small companies niching away at your market. Or observing large companies offering dazzling feature-laden products. Or looking at technology-rich firms generating new applications overlaid with enhanced value-added services. Your best course of action under those conditions is to take active control quickly, even if it compels you to venture away from your home markets and comfort zones. For instance, ally with firms in joint relationships so that the cumulative effects yield greater market advantages and strategy options than you can accomplish independently. For many companies the merger and acquisition (M&A) route, begun in earnest during the 1980s, has proved the strategy of choice. The following case illustrates this type of market.

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Case Example General Motors, surrounded on its home terrain by foreign and domestic competitors blazed a somewhat risky, yet innovative path, to reach Asian markets. GM was rigorously denied access to many of the Asian countries by insurmountable trade regulations and high tariff barriers. Taking assertive action, GM decided on traveling a particularly craggy road by acquiring or joint venturing with money losing firms. First, it acquired Japanese truck maker, Isuzu Motors. Then it picked up at a bargain price Daewoo Motor Co., at the time a bankrupt South Korean automaker. GM continued rounding out the buying binge by taking a stake in Shanghai Automotive Industry Corp. and Suzuki Motors. The reward in GM’s strategy is that it sells cars in Korea at a profit using Daewoo’s modern plants. And Korea remains a highly attractive market where just 1 per cent of cars sold there are foreign made. It is also Asia’s second-largest auto market behind Japan. The big payoff behind the acquisitions: GM combined and interchanged the manufacturing, design and distribution capabilities of Suzuki, Daewoo and Shanghai Auto to enter China’s burgeoning mass market, particularly for cars under $12,000.

Challenging Market Challenging means that if you penetrate deeply into a strongly supported competitor’s territory, such an incursion would place you at excessively high risk. That means you will likely encounter formidable market barriers at both ends, while entering and again when exiting the market. However, if your long-term objectives strongly support maintaining a presence in a tough market and if the expenditures of financial, material and human resources are consistent with your overall strategy, then one safe and prudent approach is to secure a solid position in the supply chain.

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It could be your single best chance for lessening the risk and achieving a solid measure of success. By definition, supply chain management focuses on information management tools that integrate procurement, operations and logistics from raw materials to customer satisfaction. In practice, then, it involves a host of activities, including: supplier selections and performance, vendor relationships, purchasing negotiations, operations, transportation, inventory, quality control, warehousing, e-commerce, supply chain electronic software and customer relations. The end result is to transform materials into intermediate and finished products and ensure the distribution of those finished products to customers. The entire outcome would provide a solid platform to add product value, increase quality, reduce costs and increase profits. The following case illustrates the concept.

Case Example Dell Computer is a prime example of excellent supply chain management. For Dell, the central idea is to activate their manufacturing process and the supply chain that backs it up, only when they have an order along with payment from a customer. They eliminate the costly problem of storing excessive inventory, which is often a result of mistaken sales forecasts. Further, the system allows Dell to ship just the right amount of components to its factories, so that it doesn’t invest in expensive warehousing. For instance, in one facility, what used to be done in more than two buildings is now accomplished in one by applying the techniques of supply chain management.

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Difficult Market Difficult suggests a market situation where progress is particularly slow and labor intensive. Gaining market penetration, securing key accounts, or maintaining reasonable levels of logistical support are blocked by assetdraining barriers. Overall, meager revenues and high costs characterize this type of marketplace. Here, again, your best course of action is to go forward, as long as the effort is consistent with your mission. Your starting point is to develop a strategic business plan. It represents one of the key decision-making formats for developing objectives and strategies. In its most pragmatic usage, the plan serves as a beacon to prevent you from wandering off and following every Monday-morning headline, which often results in diverting your efforts and squandering resources into areas unsuitable to your company. Specifically, your plan should include a mission statement or strategic direction, which results from answering a series of questions, such as: •

What are your firm’s distinctive areas of expertise?

•

What business should you be in over the next three to five years?

•

What types or categories of customers will you serve during that period?

•

What functions will customers want you to perform in this evolving era of customer relationship management?

•

What technologies will you likely need if you are to satisfy your customers and maintain a competitive advantage?

•

What changes are likely to take place in markets, consumer behavior, competition, the overall economy, as well as in any areas specific to your industry?

While those questions are future oriented, nonetheless they can be addressed through primary observation, team or task force participation and competent outside assistance.2

2

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See a sample outline of a strategic business plan and specific examples of mission statements or strategic directions in the Appendix.

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Encircled Market Encircled foretells a potentially risky situation. This condition exists when you control limited resources and where any aggressive action by a stronger, well-positioned competitor can force you to consider pulling out of a market. Therefore, it is in your best interest to maintain ongoing competitive intelligence to accurately assess the vulnerability of your position against that of your opponent. Armed with the intelligence, you can then develop a contingency plan that highlights your strengths and exposes your competitor’s weaknesses. If in your judgment, you still lack maneuverability and a capability to mount a meaningful competitive response to block further deterioration of your position, then exiting the market is a prudent way out, as long as it minimizes disruption to your main line of business. At that point, you would communicate to your subordinates the essentials of your exit plan, with special attention to what future business-building situations you envision. This is by way of giving them a psychological lift, particularly if you abandon regional offices and close other facilities. Conversely, you may decide to maintain a presence in the encircled market to satisfy longer-term strategic reasons. Even if the threats still remain apparent to your subordinates, you could deliberately avoid telling your employees about exiting. Instead, encourage a mindset so that they perceive themselves trapped by a competitor, with the possible consequences of job loss. These approaches take a good deal of leadership skill, finesse and sensitivity to tune-in and alter their attitudes and behaviors. Your aim: Fire-up individuals to make courageous save-my-company, save-my-job efforts and thereby turn potential defeat into victory. Accordingly, maintain a continuing humanistic awareness of what the psychological effects can have on your business strategies – and on your ability to manage your subordinates. For instance, within the framework of an encircled market, if individuals are placed in a no-escape predicament and if faced with the bleak outcome of dismissal, they are not likely to shrink from self-interest and will often use their utmost creativity and energy to fight out of the tight spot. Thus, a real or perceived threat often creates

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remarkable behavior among individuals – if inspired by an energetic manager with a disciplined strategy for survival, followed by a plan for a burst of growth. If, on the other hand, you encircle your competitor so that the opposing manager foresees an untenable position, it is prudent to give the rival a way out and not force him into a fight-to-the-end mind set. Strategies include exploiting a competitor’s weaknesses and aggressively staying ahead by developing product enhancements, value-added services, and initiating any other programs that would negatively affect his ability to maintain a profitable market position. The psychological intention? Discourage your opponent from making a monumental effort to survive. Instead, encourage him to take the more tempting approach and exit the market.

Desperate Market Desperate means that the competitive situation is chaotic and the only means of surviving the situation is by forging within yourself as much courage as you can mount. Then, with a stouthearted show of leadership, excite the determination of those you supervise to stay the course. To manage others in this type of competitive market, however, requires that you remain totally candid with your employees and explain the risks and indicate that there may be little or no chance of success. Here, again, what comes into play is the nature of individuals to resist vigorously when surrounded. As pointed out above, that means most will fight when pushed to the wall and where no viable alternatives exist. Also, when managing under those extreme conditions, more times than not, you enjoy the advantage of knowing that many individuals will remain with you and follow your lead. The following case illustrates this type of market as well as an encircled market.

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Case Example Nissan Motors drifted in a desperate market in 1999. Nearly bankrupt with a $20 billion-debt load and seven losing years out of the previous eight, a new CEO, Carlos Ghosn, arrived to drive the company toward firmer terrain. In three years Ghosn cut the payroll by 29,000 workers, shrank the number of suppliers by 60 per cent. Driven by what he refers to as a “near-death experience,” Ghosn dealt successfully with waste and inefficiencies that profitable companies routinely overlooked. Then, propelled by the in-flow of much-needed cash from France’s Renault, he energetically pushed to rejuvenate the product line with redesigned and new models. By 2002 Nissan’s 9.3 per cent EBIT margin (profit before interest and taxes) was better than EBIT margins of any of the world’s 11 other mass-market automakers. Particularly effective was the ability of Nissan to become a truly global organization. Ghosn and his team learned to harmonize with four distinct cultures: the French Renault, the Korean Samsung Motors (owned by Renault), the Japanese Nissan and Nissan North America.

Summarizing As you grasp the nuances and understand the characteristics of the nine types of markets, you are able to clearly define what you are up against. Then, your managerial responsibilities will converge into a course of action that adds precision to the strategies you can employ with customers – and against competitors. That knowledge also allows you to harmonize with the culture of your organization and influence the behavior of your employees with greater success. In turn, it forms the groundwork for revitalizing your business strategies and reinventing your leadership skills. Consequently, defining markets requires your best thinking as you formulate competitive strategies and tactics in the ongoing quest for

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customer satisfaction, and for the much sought after objective of nurturing the long-term health and prosperity of your organization. Also, accurate market definition resolves how you budget your valued resources and deploy your personnel for maximum impact. Altogether, markets determine where leadership and control take place and how you envision your firm’s prospects for the future – and perhaps its survival. These are the issues that require your serious consideration and practice. They also form the links to the rest of the chapters. What follows, then, is how you personally apply strategies and tactics, how you fight competitive battles, where market share is decided, how profit or loss is incurred, and ultimately whether your strategic business plans will succeed or fail.

The Psychology of Applying Strategies and Tactics The psychology of human performance surfaced in the discussion of encircled and desperate markets. Performance now deserves more room as it interfaces with your managerial style and how you apply strategies and tactics – specifically, in the use of deception. Deception in this framework does not imply, nor does it practice, illegal activities. Rather, deception fits within the psychological sphere of leading individuals through the effective application of strategy and tactics. View it in context of a battle of manager against opposing manager; mind against mind; your mind, mental power and experience pitted against your opponent. The aim of deception is to reduce a competitor’s resistance against your efforts, as you expend a minimum quantity of human, material and money resources to achieve an objective. Therefore, if deception is to have any psychological impact on a competitor, it must is applied with maximum speed. This concept, in turn, is centered on the indirect approach.3 The following case describes one application of strategy and tactics built on deception and speed.

3

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The values of speed, indirect approach and surprise are detailed in Chapter 4.

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Case Example The principle U.S. automakers, General Motors, Ford, Chrysler Division of DaimlerChrysler, have been losing market share steadily to quickreacting global automakers. Such companies as Toyota, Nissan and Honda have mastered the techniques of manufacturing efficiency, quality and flexibility. Historically, for Detroit’s Big Three, the 20th century represented America’s industrial might, beginning with the assembly line in 1913 and the remarkable achievements in producing vast quantities of tanks, ships, and aircraft during World War II, at a rate that bewildered even the most optimistic forecasters. That was the 20th century. Now half the passenger sedans sold in the U.S. are import brands and more than half of those foreign nameplates are made right in America’s heartland. Various models of Honda, Toyota, Hyundai and Mercedes-Benz have transferred production to the southern states, primarily in Alabama, Mississippi, Tennessee and West Virginia. With that shift, the U.S. is now the center of the global auto industry. How the move came about sits squarely with the principles discussed thus far: markets, deception and speed. With uncommon swiftness, the foreign companies wove their way into the fabric of the U.S., joined together with a dedicated network of parts suppliers, sub-assemblers, design centers and service businesses. Using an indirect strategy of product differentiation, they designed and produced more eye-appealing and higher quality cars, which gained huge consumer acceptance over their domestic competitors. The foreign automakers psychologically unbalanced their U.S. rivals, while avoiding a direct competitive confrontation. Thus, firmly entrenched in the U.S. with innovative, flexible and highly efficient plants, the foreign brands exploded geographically to serve a welcoming audience with well-designed product lines that covered the

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varieties of market4. Further, as the new factories poured out vehicles made by American workers, the mindset of a vast number of consumers changed, so that many of the foreign brands were perceived as domestic. Except for a short period in the 1980s and 1990s, Detroit was blindsided into complacency by the rising sales and profits from the robust U.S. economy. Even in the difficult market, with the accelerating onslaught of foreign competitors into North America during that period, the Big Three lagged in modernizing their factories, remained strapped to high labor costs and dragged their efforts to catch-up on quality. Their lethargic attempt to bandage the problem by bantering the madein-America slogan (valiantly supported by auto unions that were losing members) also bogged down. Worse yet, many leaders failed to internalize the full impact of globalization and its influence on markets. All those issues ultimately constricted market share, which tumbled a full 10 points to foreign-based rivals between 1995 and 2002. To add perspective on market share, every lost point of U.S. share represented a shift of $2 billion in sales. In its defense, Detroit automakers created the minivan, SUV and pickup truck market, and feasted on high market share and profits through most of the 1990s. However, that category also became the target for the highly efficient foreign producers. And the segment is in danger of rapidly losing share to the flexible manufacturing techniques of Japanese, European and South Korean companies. This time, however, as the past and present lessons fully sink in, the opportunity appears once again for Detroit to reinvent itself. That is, if executives absorb the lessons that deal with the variables of markets, speed and the indirect approach of deception. One promising remedy that has achieved almost awe-inspiring status among executives is Six Sigma. Made famous by its most visible leader,

4

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In addition to the nine types of markets previously discussed, the more conventional definitions of market segments include the categories of demographic, geographic, product attribute, cultural and psychographic (behavioural/life styles.) For additional details on segmentation see Chapter 4, Figure 4.3, Bases for Market Segmentation.

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former General Electric CEO Jack Welch, this rigorous, statistical approach to quality control is going far beyond the factory floor into backoffice, sales and R&D applications. Thus far, results have been impressive by saving millions of dollars, which reflect competitively through lowered product costs.

What personal and strategic value does the auto case hold for you? Markets and the psychological factors in devising strategies and managing subordinates raise fresh questions: •

How much information should you share with subordinates about a difficult competitive situation? (Some answers were given in the discussion of encircled and desperate markets.)

•

How much content should you furnish about strategic plans?

•

What information should you divulge about timetables for entering or exiting a market?

•

What positive or negative competitive intelligence reports should you provide that, in turn, would suggest the types of deception strategies to use?

Before coming up with reliable answers, respond to the following questions:5 •

How would you describe the state of readiness of your principal competitors? Readiness means the ability of the opposing manager to respond to your moves. For instance, does he have the resources to react effectively? Would you characterize the culture of the organization as aggressive, passive, or triggered by selected moves, which is likely to dictate the actions of the rival manager?

•

What are the characteristics of the market and its overall trends? Are there meaningful trends originating within your industry, observable changes in buying behavior, or pending legislation from

5

See Chapter 4, Figure 4.1, Competitive Analysis.

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federal or local governments? For instance, new distribution patterns are hitting a variety of industries with the pervasiveness of auction sites over the Internet, driven by the likes of e-bay, as well as from the increasing focus on supply chain management programs. •

What competitive strategies appear to be in force? Is there evidence of competing managers using aggressive strategies to unbalance you, or even dislodge you from the market? For instance, placing barriers to your market entry by low-balling you on price and thereby creating a difficult market? Are there aggressive movements in attempting to tie up key distributors or other types of intermediaries? Are there attempts to preempt you with value-added services and differentiated products to force a head-to-head, profit-draining confrontation?

•

How effective is the competitor’s leadership and what impact would it have on employees’ morale? Effectiveness means the extent to which a manager can accomplish his or her goals with the material, financial and human resources at hand. Additionally, effectiveness includes the ability to interpret the quantitative data that is continuously being pumped out by internal systems or generated through outside sources. For instance, such data consists of a market’s overall population, spending by product category, product line penetration rates and growth trends, as well as the standard data on market share and profitability. Even with the data, it is only meaningful if used to implement significant change or launch new initiatives.

Then, there is a follow-on question which relates to an ongoing trend: What impact would alliances have should you find your company immersed in one or more of the nine types of markets described thus far? Alliances, strategic partnerships, joint ventures, mergers and acquisitions have been discussed in their various incarnations. The General Motors case illustrates alliances applied to central markets and how those joint arrangements helped understand diverse markets. In today’s business environment, companies worldwide are rushing to find partners. They look to build bridges into new markets or advance

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technology in ways each cannot accomplish singly. The estimate is that the average large company, which had no alliances a decade ago, now has in excess of 30. For example, the more high-profile alliances exist with ChevronTexaco and Shell; Starbucks and Host Marriott; General Electric and Pratt & Whitney; Johnson & Johnson and Merck. Then there are also organizations, such as Oracle, IBM and American Express each with thousands of separate alliances. While not every alliance works out, sufficient benefits exist to make it an integral part of a strategic business plan. For instance: •

Partners can often access new markets and technologies with greater ease.

•

They can create and abandon products with minor disruptions.

•

Members of the alliance can share risks.

•

Members can retain their independent brand identification.

•

Members can tap a wide range of skills and benefit from major efficiencies.

•

Members that are competitors can often coexist in a market.

•

Alliances can take diverse forms – from value-added projects to more complex technology transfer efforts.

•

New ventures can call on other partners in an alliance to provide additional resources.

Alliances take on still another strategic focus for example: You might be responsible for attacking a rival alliance and preventing the concentrated power of its members whose purpose is bent on defeating your efforts. For example, United Airlines, part of a global alliance with seven other airlines, learned that one of its partners, Air Canada, was the target of a rival alliance. Concerned with the potential negative impact of the opponent’s move, United considered buying part of the Canadian airline just to block the deal. Thus, the intimidating activity of watching alliance pitted against alliance, company targeted against company, manager positioned against manager, should support your commitment for ongoing competitive intelligence.

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In turn, use that data to decipher the overall plans of an opposing alliance, along with its individual partners. The intelligence should also stimulate your mental ingenuity to frame a competitive advantage. Here again are the pragmatic lessons for revitalizing your strategies and reinventing yourself: •

Understand the nature of the nine types of markets.

•

Determine the culture of your organization and recognize what can realistically be accomplished.

•

Sensitize yourself to the motivations and frailties of what makes your employees act.

•

Follow the buying patterns of your customers.

•

Monitor the actions of your competitors.

Summary This chapter, and the rest of the book, cites rules, principles and guidelines to revitalize your business strategies. It also releases the sometime imperceptible, yet powerful energy forces that add precision to your judgments, sharpen your decision-making abilities, and contribute overall to reinventing your leadership and managerial skills. Be aware, however, these forces contain conflicting positive and negative influences, which affect all individuals at one time or another. You may notice them as vacillating feelings of uplifting or wavering confidence. For they reach to the subconscious life-long work experiences that surface as upbeat or damaging sensations. Also, there are the imbedded cultural habits and behavioural moves that penetrate a sometimes fragile mindset. They may give way to lingering fears about ill-fated outcomes and feed the irritating feelings that show up as doubts and hesitant moves. Then, other self-esteem issues surface that make an individual, so emphatically, a singular human being.

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Therefore, it is wise to become introspective and develop a sense of realism about your personal capabilities. So that when nurtured with sound, principles and techniques, you can personalize and strengthen your management style. Dwight D. Eisenhower summed up the point: “The only quality that can be developed by studious reflection and practice is the leadership of men.”

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TWO

Estimate Your Chances For Success

TWO

Estimate Your Chances For Success

Chapter Objectives Enhance your managerial skills as you: 1.

Apply a 5-step process to estimate your chances of success before committing resources.

2.

Use your organization’s culture as one of the dynamic forces to make accurate estimates and personalize your leadership style.

3.

Employ a 6-point guideline to deal with cultural change within your organization or group, as you develop leadership and managerial competence.

4.

Incorporate business intelligence to estimate competitors’ weaknesses and pinpoint strategies through which to exploit your strengths.

5.

Utilize the Internet to actively tune-in to market conditions, interpret competitors’ moves, provide options on how to maneuver resources, and make better use of customer relationship management efforts.

6.

Use the two-level framework of knowledge management to add greater insight, value and relevance in leading an organization or a business unit.

7.

Employ a 51-point checklist to make tactical estimates and develop a winning business advantage.

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Managing a successful business in today’s disordered economic climate is not transitory or anchored to random acts of luck. While there are numerous imponderables and seemingly unseen events, for the most part successful outcomes are based on hardnosed and conscious estimates and calculations. That means determining your chances of reaching your objectives is open to rational analysis and systematic procedures – all of which are grounded in ongoing business intelligence. If, for instance, estimates made before entering a new market or increasing your share of an existing market indicate success, it is because measured calculations show your company’s strength superior to that of your competitor. On the other hand, if estimates of the market and competitive situation indicate failure, it is because calculations confirm that your organizational resources, business plans, or people skills do not reveal a competitive advantage. Consequently, with many estimates and calculations you can improve your chances for success; with few you severely damage your ability to cope with a volatile competitive market. Exactly what should you estimate? Let’s look for practical answers by examining the exemplary performance of one outstanding company operating in a hotly contested global economy. It is an enterprise identified by many expert commentators as the new business model for the 21st century.

Case Example Cisco Systems Inc., the developer of technology networks, is a model for defining how a market-driven, customer-centric company organizes systems and creates an internal environment that guides its people for optimum results. It is a prime example of a flexible infrastructure that operates by calculating changes in market behavior and responding quickly

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to any meaningful variations. All of which boils down to personalizing strategies based on estimates of individual customer’s needs. Labeled an outside-in (market-oriented) rather than an inside-out (productionoriented) organization, Cisco operates as a resilient and adaptive champion in its industry. Founded in 1984 by a group of Stanford University (Calif.) scientists, the company has mushroomed to annual revenues in excess of $8 billion. Behind such brilliant success, and even battered by the downturn in the world economy during 2001-03, the underpinning structure still holds firm on how business should be practiced in this new century. The central ideas behind those practices include systematic and ongoing calculations in the following areas: •

Customers. This rock-solid measure is tied to the irrefutable belief that customers know more about what they need than Cisco’s executives do. That means translating the outside-in approach into reality by leaning heavily on core customers to come up with viable strategies.

•

Networks. Today’s sophisticated information technology allows secure and fast links among customers, suppliers, business partners and employees. As a result, Cisco’s ongoing, multidirectional flow of information synchronizes with the diverse internal and external activities from product concept to its final delivery along the supply chain. In turn, all these activities are overlaid with superior service that resolves customers’ problems quickly and efficiently. Ably applied, its informational technology works as a powerful competitive strategy and an effective business model. The result allows handson managers to estimate the real-time situation among customers and suppliers.

•

Alliances. In the current scheme of organizational and business strategy, alliances and other forms of partnering serve as the foundations for success. To make the connections work, Cisco maintains a seamless informational network by cultivating a high level of trust among various managerial levels to achieve mutually agreed short- and long-term goals.

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•

Corporate culture. The company’s culture – formed by values, objects, origins, ideas and behavioural patterns – appears as a set of mutually supportive relationships, which reflect not only on customers and suppliers, but also by the viewpoint that employees are intellectual assets to be nurtured and developed. Thus, indispensable to Cisco’s organization is management’s ability to help all personnel acquire a mind-set and maintain an orientation that is totally customer-driven.

•

Technology. The Internet is an integral component for making meaningful estimates and shaping them into business strategies. It impacts directly on such basic functions as R&D, manufacturing, marketing, distribution and customer service. For instance, Cisco obtains more than 50 per cent of its revenues selling complex, expensive equipment over the Net. Further, seven out of ten customer requests for technical support are filled electronically – at satisfaction rates that exceed face-to-face contact.

Summing up Cisco’s strategy, Chief Executive John T. Chambers manages by believing that making estimates and calculations about a competitive environment must ultimately relate to an organization that is: •

built on change, not stability;

•

organized around networks, not a rigid hierarchy;

•

based on interdependencies of partners, not self-sufficiency; and

•

constructed on technological advantage, not old-fashioned bricks and mortar.

What personal and strategic value does the Cisco case hold for you? If you reach further into Cisco’s model, you will find an ongoing reliance on business intelligence to provide competitive and market information. Managers use such intelligence to calculate the potential impact of unfolding market events, competitors’ moves, as well as to detect any ramifications on emerging technologies. They can then factor market developments into their estimates and forge more reliable offensive and defensive strategies. Central to implementing strategies is the Internet, with its infinite potential to generate ongoing and reliable business growth.

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Thus, the vast capabilities of the Internet – linked with fewer capital assets, a direct-to-customer connection and freedom from a formal management structure – offers a significant level of speed and operational efficiency that is unsurpassed in its ability to foster exceptional levels of customer relationship management (CRM). The Cisco case also reveals measurable factors that influence managerial competence. These include mental, morale, physical and circumstantial factors that continually intermingle within a business climate to limit or expand one’s ability to meet responsibilities. Mental reflects on the human and intellectual assets that sustain the vibrancy of the firm; morale deals with the attitudes and capabilities of individuals functioning in a harmonious customer-driven environment; physical and circumstantial factors relate to the organizational, technological and functional domains that embody a firm. Only if your broad estimates reveal superiority in those areas can you calculate with some reliability your level of managerial skills, relative organizational strengths, quality of personnel and, ultimately, your chances for success. To make specific estimates of your internal condition and external circumstances, use the following five guidelines: creating cooperative relationships, leadership, seasonal forces, market selection and policy.

A 5-Step Process to Estimate Your Chances of Success 1. CREATING COOPERATIVE RELATIONSHIPS

This estimate relates to the harmony that exists among all levels of personnel with its leadership. The essential meaning behind this calculation is that people imbued with a sense of purpose can and will go the extra mile to achieve corporate objectives, regardless of fatigue and without fear of personal risks. Cooperative relationships are anchored to the cardinal belief that when you treat your people with civility, good will, fairness and honesty; where

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you demonstrate straightforward belief in them, they will unite in mind, spirit, confidence and a sincere willingness to serve you in overcoming the inevitable competitive obstacles. Consider General Electric and its much-celebrated former chairman and chief executive, Jack Welch. In 19 years, during which time many other company titans crumbled in an uncompromising global economy, Welch led GE to one revenue and earnings record after another. His exceptional leadership and belief in the potential of the individual resulted in the unparalleled performance of GE’s value increasing from just $12 billion in 1981 to an extraordinary $300 billion in 2000. No other company CEO could make such claims, not even Coca-Cola, Microsoft, Intel, or Walt Disney. Welch successfully grew the company through 600 acquisitions, while pushing abroad into newly emerging markets.

2. LEADERSHIP

This estimate refers to the manager’s qualities of astuteness, straightforwardness, compassion, boldness and strictness. •

If astute, a manager can recognize from the onset the eventual impact of new competitive intrusions, customers’ changing behaviors, industry transformations and environmental variations. Once noted, the sharp manager is able to act rapidly and boldly to create opportunities and diffuse threats.

•

If straightforward, employees will have no doubt of how and when rewards and reprimands are meted out.

•

If compassionate, the manager respects people, appreciates their industry and toil, and empathizes with them under adverse situations.

•

If bold, the manager gains market advantage by seizing opportunities without hesitation.

•

If strict, the manager is demanding and dedicated to the mission and objectives of the organization. In turn, personnel are disciplined because they are respectful of all those strong-minded attributes, yet fearful of reprimands – or worse.

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Let’s refer again to the legendary Jack Welch’s tenure as GE’s CEO. Through sheer tenacity, together with a passion for winning at business, he displayed a character trait of paying attention to the smallest details. Welch demanded frankness, honesty and openness at staff meetings. All those deep-rooted personality qualities were wrapped around a firm belief in the power of individuals. To back up his convictions, Welch transformed GE into an informal learning organization with training directly linked to the strategic priorities of the company. He also grasped the pragmatic truth that if managers (and all employees) are unaccustomed to the rigors of travel and long hours of work, often they will worry and hesitate at the moment when levelheaded decisions are needed to handle tough competitive conditions. Welch devoted more than half of his time to people issues. With his folksy, hands-on and informal leadership approach, he gained the unwavering respect of his employees. Using the metaphor of a local grocery store, he acted as if each customer was a friend and each employee an associate. Known as Jack to every employee from clerk to factory worker, it was not uncommon for Welch to casually wander down an aisle to check the stacked products on a shelf. A favorite practice was to bypass the corporate hierarchy and communicate directly up, down and across layers of management. His handwritten note, sent to everyone from direct reports to hourly workers, presented a lasting and, in some cases, an emotional impression. All those actions were intended to lead, guide and influence the behavior of individuals throughout the complex organization. In contrast, many managers in various companies tried valiantly to improve their respective organizations. In the end they obtained just mediocre performance from operations the fraction of GE’s size. Accordingly, it is in your best interest to reinvent yourself and acquire the unique traits that characterize a successful manager. That means, hone your ability to shape a corporate or business unit’s vision, think with clarity as you decide on a strategic direction, stay focused, act with dedication and passion, communicate with accuracy and, most importantly, inspire individuals to rally around the corporate cause.

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The generally accepted managerial style has changed from the dictatorial and often less effective approach of pushing people, to the more proficient method of leading them. This means your aim is to inspire and empower people as part of a team effort to carry out the objectives of the business plan. Embodied in this management style are integrity, fairness, honesty and trust to form the required team bonding. Those traits constitute the bedrock of everything a manager attempts to live by or accomplish. Concisely stated: ‘Without integrity, sincerity, and honesty there is no trust. Without trust there is no leadership.’ Effective management, then, is calculated by: •

ability to conceptualize and communicate far-reaching strategies;

•

competence to deliver on financial goals;

•

power to bring urgency to your organization; and

•

leadership skills to convert your strategic vision into actions.

3. SEASONAL FORCES

This estimate focuses on the consequences of natural climate-related conditions. It influences how you manage your business within the variables of weather and logistics, such as the seasonal outcome of winter’s cold and summer’s heat. For instance, what impact does weather have on such industries as home building and road construction; on transporting materials to meet critical delivery schedules; on installing communications systems; on supplying energy, as well as all the ancillary products and services associated with those industries? Further, what is the weather or seasonal impact on food supplies, fashion, entertainment and retailing?

4. MARKET SELECTION

This calculation considers the geographic selection of your markets. In turn, it impacts strategies related to your supply chain and, in particular, the channels of distribution and the physical movement of your products and placement of services over long distances.

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Much anxiety about conducting transactions over extended distances has dissolved, however, with the global use of the Internet. In its place, attention has shifted to defining markets with as much accuracy as possible in closing cultural and behavioural distances. For instance, consider the boom in Latin America during the late 1990s. This vast region experienced explosive growth resulting from a variety of dramatic changes, such as lowering of trade barriers, declining inflation and steadier prices, economic recovery and rising incomes (in some countries), increasing democratic freedom, and the profusion of dazzling new communications technologies. Influenced by those dynamic changes, enterprising managers discovered attractive opportunities by segmenting markets and then targeting the identified groups. For example: •

Demographic estimates and behavioural patterns revealed that of Latin America’s nearly half-billion people, almost half the population is younger than 20. Hooked on new technology and yearning to follow the leading trends in world markets, these new consumers hungered for every enticement from fast foods to PC banking.

•

With an estimated 35 per cent of women in the workforce, this emerging group created a strong demand for new products and services tailored to their individual needs.

•

Upgraded telephone lines, the result of privatizing state-run telecom services, exposed large groups of individuals to the use of the Internet – with the corresponding skyrocketing sales in high-tech products and services.

•

With working class Latinos grabbing the latest electronic products, and with telephone rates and cellular phone prices dropping dramatically, cell phones multiplied at triple digit levels, thereby exposing a dynamic and previously overlooked segment.

•

Steadier currencies (in some countries) made it possible for banks to latch on to another emerging segment by offering consumer’s home mortgages, life insurance and private pension funds.

•

A new sensitivity emerged to otherwise poorly served groups, such as the millions of Afro-Latins whose buying power was also rising.

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Seeing the segment as an opportunity, beauty-product companies launched a line of makeup to reach this flourishing market. Some magazines even directed editorial attention to meeting their particular cultural characteristics and cosmetic cravings. As for logistics, in many geographic markets there is still the brick-andmortar consideration of warehousing products, shipping merchandise to destinations on time and in good order, and providing a dedicated location for customers to return unwanted or damaged merchandise. Consequently, it is a practical aspect of managing that you estimate beforehand the geographic and physical conditions of a territorial market. Calculating such factors can help immeasurably in determining the ease or difficulty of serving various segments of the market that may be a city or a continent away. The following case illustrates this type of estimate, which led the company to refresh its strategies.

Case Example Eddie Bauer Inc., a maker of casual-apparel and furniture, confidently followed one of the dominant marketing trends by establishing a brand identity over the Internet. Yet the leadership of this 85-year-old company saw the long-term geographic advantages for maintaining an infrastructure in brick-and-mortar stores to serve those customers attached to the touchand-feel of a traditional retail experience. At first, managers tried Internet banner ads to drive surfers to its Web site. But results indicated such advertising was expensive and conversions to sales were low. Then, learning that half the consumers who visited the Web site had never before shopped at Eddie Bauer stores, management had to be certain that the experience would go well beyond just duplicating a catalog page on the screen.

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Eddie Bauer’s Strategies The solution came through the following creative applications: •

Develop an online virtual dressing room where shoppers can click on a sports jacket and drag a colorful sweater or striped pants to view the style effects.

•

Offer online customers a reminder service that signals them by e-mail about forthcoming birthdays, anniversaries and holidays. The service also permits users to create an electronic shopping list of items they want relatives to buy for them.

•

Identify groups and individuals by buying patterns. Then use tailored e-mails to communicate special savings on selected merchandise to match the buyers’ fashion profile. Also, direct follow-up promotion to specific groups or special events, such as working women or back-to-school. The objective is 24/7 shopping, all anchored to brand name recognition.

•

Apply a similar interactive experience for its furniture line. For instance, online shoppers can plug in the floor plans for their homes and see how Eddie Bauer furniture designs look room-by-room.

Taking the multi-faceted approach to building its brand and expanding into new market segments, Eddie Bauer managers integrated all forms of communications, such as its Web site, catalogs, advertising, sales promotion – as well as the geographic locations of its stores – to build a total brand strategy. For instance, the Eddie Bauer catalog promotes its Web site with all the interactive online services. In turn, the online services inform visitors about returning products to its bricks-and-mortar stores, where ample crossreference is also made to the Eddie Bauer Web address.

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5. POLICY

This estimate covers the foundation operating guidelines for operating within an organization – or business unit. It forms an imprint of your company’s values, ideas, outlook and history. It’s what gives your organization consistency and a distinctive personality. Policy underscores and supports your ability to: •

Fulfill the mission or strategic direction of the business.

•

Direct the internal controls and systems, as well as the firm’s capability to innovate.

•

Select and assign subordinates to various levels of authority, as well as attract new talent.

•

Manage all parts of the supply chain, with particular attention to overseeing partnerships.

•

Deploy financial and employee resources to exploit opportunities and sustain long-term growth and prosperity.

Policy, if used as part of a company’s doctrine, also seeks to protect the natural growth of the market by avoiding hostile price wars and similar damaging activities, especially against competitors with little interest in developing the long-term prosperity of the marketplace. The following example illustrates policy – and superb managerial capabilities, as well.

Case Example Prior to its turnaround in the 1980s, IBM projected a ponderous dinosaur image of an old economy, bricks-and-mortar company. Then, under the brilliant leadership of CEO Louis V. Gerstner Jr., IBM recast its culture and redefined itself as a key player in the Internet business. By 1999, Gerstner was able to glory in the pronouncement that IBM generated more e-business revenues and more profits than all of the top

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Internet companies combined – including Yahoo!, America Online, Amazon.com, eBay and E*Trade. About 75 per cent of IBM’s e-business revenue resulted from sales of Net technology, software and services – and not from the old mainframe computers, which once made it famous. With a revamped policy, IBM’s direction took a monumental turn as it shifted internal functions to latch on to an emerging trend of providing solutions to customers’ problems through a vast array of services. Gerstner realized as early as 1994 that mainframes and other tech products were becoming commodities and that the real movement was away from the creation of technology to the application of technology. He redeployed 25 per cent of IBM’s research and development budget into Net projects. He also ordered that every IBM product must be Internetready. Thus, IBM was among the first to recognize the explosive growth in services. As a result, Gerstner established an Internet Global Services Division within IBM. Its mandate was to help companies design operations to take advantage of technology and the Internet, install and maintain complex software and hardware systems, and operate computer systems for large corporate customers. Important as technology was in reinventing IBM, still another ingredient associated with policy required Gerstner’s attention. He had to create a new IBM culture – an Internet culture. To begin with, that meant attracting and retaining Web-savvy employees. Gerstner began with an experimental, highly unstructured, ‘anything goes’ Web design office in Atlanta. That unorthodox approach led to setting up shop in ‘cool’ areas of the U.S., such as Los Angeles and close to the MTV and Sony studios. His goals: Shape a new corporate doctrine and attract a breed of individuals who could work comfortably and creatively with a new set of values, procedures, mindsets and ideas that were 180-degrees opposite from the old-line IBM culture that existed in prior decades. The intended outcome: Infuse IBM’s employees with the inventive approaches that would result in a string of breakthrough products and services for the successive waves of changes underway for the Internet – and for a changing global economy.

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Corporate Culture Although the above reference to corporate culture is listed under policy, it is inextricably tied to all the previously discussed guidelines for making estimates. Culture is defined as ‘the invisible web of behaviors, patterns and rules of a group that has contact with one another and shares a common language or cause.’ 6 Table 2.1 indicates how various organizations changed their respective cultures.

Table 2.1: Changing Corporate Cultures

HEWLETT-PACKARD CO.

From: An old ‘HP Way’ emphasized teamwork that evolved into a bureaucratic, consensus-style culture, characterized by a general malaise. To: A new Net Age mentality that accommodates to a Net-speed era and results in an infusion of new thinking, greater customer focus and innovative new products. Intended Outcome: Create a new strategy that highlights integrated suites of products, with a focus on corporate-level branding to solve problems, rather than hawking stand-alone products.

MICROSOFT CORP.

From: An obsolete corporate mantra of a ‘PC on every desk and in every home.’ To: A reinvigorated corporate vision with a clear mandate whereby employees have the power to do what they want, anywhere they want, and on any device. The process: Follow the customers. Listen closely to customers and make them happy.

6

Another useful definition of culture is the moral, social and behavioural norms of an organization based on the beliefs, attitudes and priorities of its members.

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Intended Outcome: Create a radical departure from the former stringent product guidelines to a free and creative spirit to develop Internet-age products that do not have to revolve around Windows software.

ALBERTO-CULVER CO.

From: A ‘patriarchal and secretive’ culture driven with a top-down management style that resulted in its flagship brands losing market share. To: A bottom-to-top friendly and upbeat work environment, expressed in highly personal ways where employees’ business and individual achievements are recognized by such office trappings as balloons, gift baskets, mementos and food. Intended Outcome: Re-energize the workforce, backed by highflying marketing campaigns aimed at holding on to shelf space for its 40-year-old brands, such as Albert VO5 and TRESEmme shampoo, as well as establish its St. Ives skin-care products.

ROYAL DUTCH/SHELL GROUP

From: A moribund corporate environment that had not produced much innovation. To: An energized atmosphere built around teams known as GameChangers to stimulate and manage innovation by putting the brightest new ideas into the hands of the people who can turn them into products rapidly. Intended Outcome: Use the power of the Web among teams to trigger innovation at a rate unknown to the organization. In one year, GameChanger teams assembled 320 ideas from employees throughout the geographically dispersed firm with ideas ranging from reducing company paperwork to using laser sensors to discover oil.

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DUPONT CO.

From: A company characterized as slow moving and insular, relying primarily on inside thinking. To: A reformed structure to speed-up decision-making and introduce fresh thinking. Intended Outcome: Bring in outsiders who can sort through strategic alternatives.

TABLE 2.1: CHANGING CORPORATE CULTURES

As shown in Table 2.1, cultures vary from one company to another. Often these variations derive from the backgrounds, experiences, adopted behaviors and values of the founders or current leaders. Consequently, each company – your company – can adopt a unique personality and display a set of behaviors that are dissimilar to others. For instance, at online brokerage E*Trade Group, CEO Christos M. Cotsakos tries his hand at creating a corporate culture for the Internet age. For Cotsakos that translates into a blend of disciplines and inventive approaches that attempt to simulate Net speed. Cotsakos designs way-out situations to make his particular brand of culture come alive, such as having executives race Formula One cars at upwards of 150 miles an hour. Or having other employees carry around rubber chickens or wear propeller beanies to foster creativity. In contrast, Cisco Systems’ culture is characterized by a near-religious convergence on the customer, a total belief in employees as intellectual capital and an energetic willingness to team-up with outsiders to develop active partnership. This passion for molding such an outside-in focus is credited to the leadership of CEO John T. Chambers who saw from previous job experiences at the old IBM and Wang Laboratories the negatives associated with a culture of arrogance and reluctance for change.

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In still another example, a relatively small chain of stores, Bagel Works Inc., plays out its culture in the form of an annual ritual. At all nine outlets, employees review local charities and vote on the neediest of financial support and promotional help through Bagel Works. This seemingly mildmannered ceremony has as its foundation a set of socially conscious values that its founders wish to retain as an enduring cultural design, beyond the bottom-line revenue tally that governs day-to-day operations.

What personal and strategic value do these diverse examples hold for you? If culture is part of the dynamics associated with leadership and making estimates, how can you recast cultural changes within your organization or group? What follows are six approaches that have emerged from the collective experiences of successful companies challenged by the 21st century Internet age. Select those that can help you initiate any cultural changes appropriate for your firm. Bear in mind, as noted in the above examples, culture can be highly personalized in keeping with the experiences and values of the owner, founder, or current unit leader.

Changing Corporate Culture •

Failure is permitted. A measure of risk is okay, depending on the availability of resources and the level of confidence senior management shows in its employees. If the risk succeeds, offer ample rewards; if failure results, avoid damaging repercussions.

•

Try new ideas. Linked to the above is maintaining a cultural sensibility that retains an open mind and avoids the idea-killing verbiage, ‘We’ve tried that’. It also means allowing sufficient time for ideas to incubate and hatch into new technologies, products and services.

•

Learn to live with change. This is a cultural attribute that is often difficult to embed within an organization, but it needs the manager’s full support. Support means maintaining an outward display of resolute calmness and unshakable confidence during the period of change.

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For some employees, however, extreme change creates an unsettling situation where any perceived upheaval in working conditions is difficult to endure. Yet, it’s a singular characteristic that must be addressed with extreme sensitivity. As such, it is an imperative for operating successfully in the Internet age. •

Act as your own aggressive competitor. This combative exercise helps you discover where your firm is most vulnerable. It exposes weaknesses in your products, services, logistics and overall organizational structure. It examines relationships with suppliers, intermediaries and customers along the entire supply chain. The process exposes strengths and weaknesses in technology, manufacturing, human resources, capital resources – and any other areas that might endanger your firm to competitive attacks. It also unmasks touchy information on employee behavior and suggests clues on how to undertake change. Such exposure also sheds light on those senior managers who cannot (or choose not to) make determined efforts to revamp the company’s culture. In practical terms, few executives are effective for all seasons. Not all individuals are capable of performing optimally through successive stages of a corporate cycle – startup, growth, maturity and decline – or even within different cultural environments.

•

Build a solid market position. The aim is to create a unique market position from which you cannot easily be dislodged by competitors. To the extent you are able, try to create brand equity and brand recognition. Your managerial efforts should be directed toward mounting a long-term positive image for your firm. Research has indicated that high market share equals high return on investment. Some executives go so far as to advise building market share at any cost. The latter viewpoint, however, remains controversial. Others believe that chasing market share no longer guarantees profitability. One point that isn’t controversial is that customer satisfaction and long-term customer relationships remain the enduring principles.

•

Stay close to evolving technology. Tune-in to what’s happening in those technologies that can help transform your business to

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the new economy models, (look again at the Cisco case.) Several choices exist: buying in technology, investing in start-ups, or partnering with a compatible company. You can employ all or some of these steps to drive cultural change. How drastic those changes are depends on the severity of your company’s problems. Therefore, you can react to problems as they arise or be proactive by anticipating changes. It’s all part of leadership and managerial competence, which relies on estimating your internal and external environments, competitors, suppliers and, most of all, your customers.

Case Examples The following successful examples illustrate the variety of actions used to initiate cultural change. Again, how those changes were implemented relates to the personalities and inventiveness of their leaders. This is especially so where the motivational memos to employees and the cajoling at various staff meetings have met with blank stares and general apathy. At Charles Schwab & Co., where employees initially resisted taking brokerage orders over the Net, senior management assembled nearly 100 managers at the base of San Francisco’s Golden Gate Bridge, handed each a jacket imprinted with the slogan, ‘Crossing the Chasm’. The group proceeded to march across the bridge – and, symbolically, walked into the Internet Age. That 1997 act also symbolized the cultural reinvention of the company and the burning of bridges behind them. At Intuit, the finance-software developer, internal change was initiated through a terse press release from company management to the trade press stating emphatically that the company would deliver its new products as services over the Web, rather than in its traditional software format. Further, the changes would start immediately and without a

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phasing-in process. It was the shock value of the pronouncement that moved the company ahead rapidly – and resulted in a competitive advantage. At GE Aircraft Engineers division, change took a physical approach. Management shifted its engineers into a renovated warehouse that had the look and feel of a high-energy start-up. The aim was to redefine an existing culture from a slow moving, tradition-based establishment to one that emphasized creativity and ingenuity. At Heineken Brewery serious market challenges triggered change at the 400-year-old beer maker. Beer consumption was declining in Europe and the U.S., the source of two-thirds of Heineken’s profits, because of tougher drink-driving laws and a growing appreciation for wine. At the same time, the beer marketplace was becoming more crowded, due to a flood of new brands. To overcome these challenges, management pushed Heineken to break out of its play-it-safe corporate culture. For instance, the Amsterdam company made a dozen acquisitions, which is projected to make it the number one beer-maker in seven countries in Eastern Europe. Also in a bid to capture the sought-after twenty-something segment, advertising and packaging became more daring, with the introduction of Heineken’s silver-and-green aluminum ‘bottle’, which sells at trendy clubs for three times the price of Heineken on tap. Within the Heineken corporate structure, management slowly creates a sense of urgency that is seeping into its ranks. The aim is to stir employees out of their complacency. A video produced for staff viewing attempts to jolt viewers into a mindset to win-over consumers who have not yet developed a strong loyalty to a particular beverage. The mission is to reach out to younger customers without alienating the middle-aged beer drinkers who are the company’s core market.

What personal and strategic value do these cases hold for you? There are no successful managers who do not have some level of understanding of the five factors – cooperative relationships, leadership, seasonal forces, market selection and policy. Those who master them win;

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those who do not lose. Consequently, you demonstrate your understanding when you exhibit an above level of competence to: •

Reach for and achieve harmonious relationships among your employees.

•

Boast better trained and motivated employees than those of your competitors.

•

Nurture those individuals who are anxious for the chance to outrun the competition and hesitant about holding back.

•

Develop a vision for your company or business unit, and be able to translate that view into a tangible portfolio of products, services and markets.

•

Utilize the advantages of technology, geography and logistics for competitive gain.

•

Revitalize or change the corporate (or business unit) culture to match the objectives and strategies set forth in your strategic business plan.

THEN, based on finite comparisons with your rivals, you can calculate with a fair degree of success, who will be the likely winner. The foundation for all your estimates, and the strategies described thus far, are incorporated in business intelligence. The following discussion covers that area as a prerequisite to managing wisely, effectively and responsibly.

Business Intelligence Most business actions incorporate elements of secrecy, surprise and even some deliberate practices of spreading misinformation. For instance, a weak company may develop a facade that outwardly communicates strength to its customers, competitors, investors and the general public. At times, even a strong manager may find it prudent to appear incapable, as a cover-up to entering a new market. Public relations and advertising campaigns at times can fashion an image to reinforce desired beliefs – whether accurate or not.

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Being misleading means giving an impression opposite of your real intentions. For instance, when able, pretend inability so you won’t show your true hand to vigorous competitors intent on paralyzing your efforts. When flexible, make it appear that you are sluggish and unresponsive. When entering a particular market, maintain secrecy for as long as possible. Or, issue rumors of your intention to move into different segments, thereby distracting competition from your real strategies. The aim is to confuse the opposing manager of your real goals. Creating a level of discomfort could result in your opponents making hasty and incorrect decisions about sales force deployment, advertising expenditures, and even forcing the premature launch of a new product. Any form of cunning may seem disquieting with the fair-and-square attitudes with which many business owners and managers are raised. Nevertheless, as long as there is no legal wrongdoing, the approach is part of a normal and historically accurate process in strategy development (see Chapters 3 and 6 on strategy.) In other endeavors such as sports, moves are based on doing the opposite of what the opposing team expects, e.g., driving against weak spots, avoiding strong points, making end-runs and winning by cunning strategy. It is all part of leading your people to a positive outcome, as well as managing your resources in a profitable manner. Typically, a manager would scramble fast at the idea of reaching a new market, while it distracts competitors from making serious inroads into its segment. Further, a manager would relish the opportunity to send obscure messages that would confuse competitors into deploying resources away from the real action, or use any ingenious deception to fortify its competitive position. From a manager’s vantage point, the practical effect of using deceptions is to avoid costly head-on clashes that consume valuable physical, human and financial resources with little or nothing to show for those efforts. For it is the draining of resources that causes most businesses to fail. Whereas, developing a strength-conserving, indirect approach, delivered rapidly is purposeful, responsible, prudent and most often results in positive results; and without a debilitating and costly direct confrontation. Such acts of deception can materialize only if you set up procedures for making accurate estimates of your strengths, weaknesses and overall

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capabilities. Then you can rank them against those of your competitors and expose areas of weakness through which to exploit your strengths.

How, then, do you use business intelligence? Business intelligence consists of two parts: First, you use intelligence primarily to make estimates and calculations of your internal company conditions as well as external market situations. Those estimates would help shape strategies to secure your corporate or product-line objectives. Putting them into action, however, requires that you gain the freedom of maneuver if you are to: •

maintain an effective market position;

•

satisfy customer needs; and

•

block competitive inroads.

Additionally, your purpose is to gain time as you figure out the best approach to deploy resources and obtain the optimum mix of product, price, promotion and distribution. Second, you use intelligence to unravel behavioural, transactional and historical data about your markets and individual customers. These are accomplished through the increasing use of data mining software, particularly through the sophisticated systems available over the Internet. Here’s how sellers, customers and intermediaries can benefit from business intelligence. Sellers can: •

Utilize market data to produce an economy of effort as it focuses on factual customer behavior, not on vague and costly suppositions.

•

Obtain an orderly and more accurate product-planning program with improved chances for success.

•

Maximize the efficiency of the supply chain as it shores-up weak links from supplier to ultimate user.

•

Conserve resources and permit more accurate forecasting and production scheduling, with the potential for cutting costs and increasing profitability.

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Customers can: •

Obtain accurate data to make timely and prudent decisions on purchases.

•

Improve inventory control and identify usage patterns.

•

Achieve greater flexibility to respond to changes in the competitive environment.

Intermediaries can: •

Obtain accurate and real-time information to monitor transaction performance and avoid possible confrontations that have historically muddied channel relationships. This is particularly valuable where middlemen are buyers as well as competitive sellers.

Data Mining The significant breakthroughs in obtaining business intelligence in recent years have come from the vast improvement in analytical tools built around the Internet. Surfacing in the mid-1990s, data mining has evolved to become a vital component for most business strategies for 21st century operations. Data mining is a computer-based process that uses a variety of analytics to discover patterns and relationships in data that may be used to make valid predictions. For instance, mining the data might determine that males with incomes between $35,000 and $65,000 who subscribe to certain magazines are likely purchasers of a product you want to sell. Typically, the data to be mined is first extracted from a company’s data warehouse into a data-mining database. This process generally is not a do-it-yourself project. Numerous vendors with the appropriate software are available to install the system in a company, or provide a capability for outsourcing. The following case illustrates the scope of business intelligence and how leaders use it to drive business development, product innovation and overall marketing strategies.

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Case Example Procter & Gamble has taken the bold move of spinning off a totally independent company separated physically, organizationally and culturally from its vast 163-year-old corporate structure. The new start-up is known by an imaginative name, reflect.com. The business model calls for selling cosmetics and hair products customized to the looks and preferences of each woman who shops on the Internet. Its specific goal is to introduce makeup and shampoos so personalized that no two individuals would get the same items.

P&G’s Strategies Pivotal to making its core strategy come alive, reflect.com managers moved forward with the following actions: •

Acquired finite intelligence about each woman’s needs through an interactive question-and-answer process. To execute the strategy, reflect.com allied with Ask Jeeves Inc., which specializes in a technology that enables customers to pose questions on a Web site through a natural dialogue that easily obtains answers to key questions.

•

Used P&G’s research-and-development lab to formulate a truly personalized product and package to match each customer’s specifications. Each product, in turn, contained the buyer’s name. Reflect.com managers envisioned as many as 50,000 different hair, skin and makeup combinations from which to tailor unique products. The product is marketed at a cost no greater than highend merchandise at a department store cosmetic counter.

•

Maintained ongoing business intelligence to watch over competitors’ product offerings and make certain that they would not throw up barriers to impede its progress.

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The World Wide Web and the Information Revolution As illustrated by reflect.com’s strategy, the World Wide Web is now the trigger for the explosive level of activity designed to acquire finite intelligence not only about groups, but also about individual behavior. The technology is becoming so pervasive and eye-popping that individuals can conveniently surf the Web and do their shopping – while leaving useful information about their transactions. As customers make inquiries or complete their transactions, hidden files or tags called ‘cookies’ are deposited on their computers. Software programs then use those files to track and analyze online behavior. Such data becomes the foundation to design a product or service offering, built around a one-on-one approach. Another case illustrates the point and emphasizes the need, in fact the necessity, for using every valid piece of business intelligence that can be acquired. It is one of the infallible marks that will reinvent you as a highly effective manager.

Case Example Britain’s ICL illustrates the major innovations created by the new information technology. For instance, individuals can order groceries over the Net by scanning product bar codes on computers built into their refrigerators using ICL’s technology. Smart cards allow users to do everything from storing personal information to earning bonus points at retailers. In turn, such information provides vendors with valuable data on usage patterns, expenditures, time of purchase and numerous other pieces of information that, when assembled, provide an exacting customer profile.

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The information-gathering activity is so mammoth that one Web portal, Yahoo!, collects some 400 billion bytes of information every day – the equivalent of a library crammed with 800,000 books – about where visitors click on a site. Armed with the information, it calculates which ads and products appeal most to visitors so it can garner more e-commerce sales. Whether a company – your company – selects a top-down data warehouse strategy or uses a bottom-up data mart strategy, the output is intended to provide reliable and applicable information to enhance decision-making and improve a company’s competitive advantage. In the evolution to its present state of business intelligence, reporting has moved from static reports on historical trends, product usage data and marketing campaign feedback to the present sphere of comprehensive, interactive intelligence. The result is real-time intelligence, which provides additional insights about customer behavior and offers valuable feedback to multiple functions of the organization, from product development to marketing. Strategically, the process serves to support all-out customer relationship management (CRM)7. Tactically, it provides individualized recommendations that extend the sales life of the customer. Thus, the shift is away from merely accumulating raw information to generating explicit intelligence to feed the five-point estimate model described in this chapter. As the movement to total business intelligence continues to evolve, new applications emerge. For instance, the customer profile is enhanced with psychographic, behavioural and competitive facts that attempt to dig into how a customer is likely to feel about a product, as opposed to a competitive offering. Thus, the focus is to leverage intelligence throughout the entire supply chain to secure a favorable market position and develop a sustainable competitive advantage. The following case illustrates another practical application of business intelligence.

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CRM is the practice of building long-term satisfying relationships with key parties – customers, suppliers and distributors – in order to retain their long-term preference and business.

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Case Example During the late 1990s, Ford Motor Co. was plagued with the problems of costly 80-day inventories sitting on dealer lots and a 64-day average time from customer order to delivery. Also, there was the growing problem of some disgruntled suppliers complaining about having to manufacture and inventory parts based on last-minute changes in orders resulting from Ford’s ever-changing sales forecasts. At that time, there were conflicting opinions about the viability of the century-old ‘push’ business model, where the plant builds a predetermined mix of cars and delivers them to dealers who rely on aggressive sales tactics or hefty rebates to move cars off the lot. Recognizing the depth of those concerns, Ford leadership decided to seize the opportunity and utilize the latest Internet technology and e-business techniques to reinvent itself before competitors could respond. Central to the strategy was to change from the ‘push’ model to a ‘pull’ model, where customers decide what kind of vehicle they want built. The Ford vision encompassed a far-reaching system that integrates business intelligence throughout the entire supply chain, its internal operations and the ancillary services offered to its customers. In practice, a customer could custom-configure a particular Ford model online. Then, the detailed information would be transmitted to the factory that builds the car to order. When completed, the dealer would deliver the car and instantly report any problems so that the plant could make appropriate adjustments. Ford designers, watching closely from the sidelines, would then crankin the customer-driven information into future models. Within the supply chain, vendors would continuously monitor inventories at Ford factories through electronic linkages. In a related Ford business, a finance unit could underwrite the purchase and handle the insurance. The entire strategy is based on a magnificent blend of business intelligence, technology and the integration of every function inside the organization

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and throughout the entire supply chain. Further, all activities would link into an integrated Web to create customer satisfaction, company growth, as well as nurture the long-term prosperity of the market. Executing the plan, however, was never conceived as a do-it-yourself activity. Ford began by assembling a high-powered, high-tech group of partners. Oracle would provide the software and databases needed to exchange information and conduct transactions seamlessly. Cisco would contribute the essential networking expertise. Microsoft would use its CarPoint Web site to offer a build-to-order service. And Yahoo! would monitor behavioural buying patterns. What are the tangible advantages of the above plan? Factories build cars to order; manager’s tune-in to the evolving needs of customers; and suppliers control expensive inventories. The savings alone from streamlining the suppliers’ distribution system using the Internet are estimated at 25 per cent of the retail price of a car. Such a system is not unlike the ongoing methods Wal-Mart Stores uses to give suppliers responsibility for stocking its store shelves, or the practices Dell Computer employs to fine-tune its ordering and manufacturing processes with the result that it is able to assemble more than 25,000 different computer configurations for customers. Precise estimates, therefore, supported with ongoing business intelligence feed competitive strategy development, invigorate customer relationships and lead new market development initiatives. Overall, the process contributes to sound management of human, financial and physical resources. In the everyday application of business intelligence, you can benefit by actively tuning-in to market conditions. It can help you interpret competitors’ moves and provide meaningful options on how to maneuver resources. To trigger your thinking in diverse areas, let’s examine the following applications of business intelligence: •

American Express gathers existing customer information from its call centers and uses the data to make highly targeted crosssell and up-sell offers to customers when they reconnect with the call centers.

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•

Charles Schwab compiles routine requests from its investor accounts to form a comprehensive profile of its customers. The in-depth data is then reconfigured and applied to such revenue and profitability goals as customer retention, cross-selling and upselling. The aim is to maintain an advanced level of differentiation in an industry that has become intensely competitive.

•

Kodak collects, analyzes and acts on precise data to constantly identify and differentiate customers and prospects, and then personalizes messages and offerings.

•

Hilton Hotels probes guest information from its hotels and resorts and makes it available to its hotel managers over the Internet. Those managers can then develop new or improve existing services for their guests, manage corporate loyalty programs and manage marketing campaigns.

•

Verizon leverages its data to develop profiles for each of its telecommunications customers. Then, based on each customer’s history and preferences, it offers products and services that are likely to appeal to each individual.

Thus far, in line with the central theme of this chapter, if accurate estimates in the planning stages indicate success, it is because calculations show your strength to be superior to that of your competitor in key internal and external areas. Conversely, if estimates indicate defeat, it is because calculations show that your situation is inferior. With many calculations, you have a superior chance of winning; with few you do not. Think about how much less chance of success you would have with no estimates at all. By this means, you can accurately examine the situation and the outcome will be clearly apparent before you make major commitments. As already pointed out, making estimates and creating comparisons of relative strengths is a deliberate and rational process. You can make two separate calculations: •

The first is on a corporate or strategic level using the five estimates described earlier.

•

The second is on a tactical level using the checklist in Table 2.2.

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Table 2.2. Tactical Estimates

Part I: Market Environment ESTIMATES OF CONSUMERS

1.

What are the demographic and behavioural profiles of your end-use buyers?

2.

What key factors influence buyers in making buying decisions?

3.

How do prospective buyers perceive your products or services?

4.

How are your consumers’ cultural attitudes, values, or habits changing?

ESTIMATES OF CUSTOMERS

5.

Who are your intermediary customers, e.g., distributors, wholesalers, retailers?

6.

Who or what influences their buying decisions?

7.

What is their size and what percentage of your total revenue does each group represent?

8.

How much support do they give your product?

9.

How can you motivate them to work harder on your behalf?

10. How do they function within the supply chain? 11. Would you be better off setting up your own distribution system?

ESTIMATES OF COMPETITORS

12. Who are your competitors by location, market segment and product lines? 13. Is their participation in this field growing or declining?

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14. What new domestic and international competitors may be on the horizon? 15. Which competitive strategies and tactics appear particularly successful or unsuccessful? 16. What are the strengths and weaknesses of your major competitors, including the capabilities of their leadership?

ESTIMATES OF RELEVANT ENVIRONMENTAL COMPONENTS

17. What are the legal constraints affecting your marketing effort? 18. To what extent does government regulation restrict your flexibility in making marketing decisions? 19. What threats or opportunities do the new technologies hold for you? 20. What broad cultural shifts are occurring in your primary markets that may affect your business? 21. What consequences will demographic and geographic shifts have for your business?

Part II: Estimates of Management Practices and Policies 22. Do you conduct regular and systematic market analyses? 23. Do you subscribe to any regular market intelligence service? 24. Do you test and retest carefully before you introduce a new product? 25. What systems and procedures do you have to examine opportunities and threats to your business? And how aggressively can you cope with them?

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ESTIMATES OF EFFECTIVE PLANNING

26. Do you have a well thought-out mission statement that is part of a formal strategic business plan? Is it clearly communicated and embraced by all personnel? 27. Are your objectives achievable and measurable? 28. What are your core strategies for achieving your objectives? 29. How effectively are you segmenting your target markets? 30. Are you allocating sufficient resources to take advantage of e-commerce breakthroughs? 31. How well does your strategic business plan coordinate with other functional plans?

ESTIMATES OF THE ORGANIZATION

32. Is there a need for more or upgraded employee training, incentives, supervision, or evaluation? 33. Are your managerial responsibilities structured to best serve the needs of different products, target markets and sales territories? 34. Does your entire organization embrace and practice a customer-centered orientation?

Part III: Estimates of Strategy PRODUCT

35. What is the makeup of your product mix and how well are its components selling? 36. Do you carefully evaluate any negative ripple effects on the remaining product mix before you make a decision to phase-out a product? 37. Do you have a product audit program to assist in considering modification, repositioning and/or extension of sagging products?

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38. What additions, if any, should be made to your product mix? 39. Which products are you best equipped to make yourself and which items should you buy and resell or private label?

PRICING

40. To what degree are your prices based on cost, demand and/or competitive considerations? 41. Do you use temporary price promotions and, if so, how effective are they? 42. How do your wholesale or retail margins and discounts compare with those of competitors?

COMMUNICATIONS

43. Do you have clearly stated advertising objectives? 44. Are your advertising themes effective? 45. Do you make aggressive use of sales promotion techniques? 46. How is the Internet integrated into your overall promotion strategy?

PERSONAL SELLING AND DISTRIBUTION

47. Is your sales force the right size to accomplish your marketing objectives? 48. What is the role of the sales force in an e-commerce environment? 49. Is the sales force adequately trained, motivated and provided with adequate incentives? 50. Are you taking advantage of opportunities in supply chain management for streamlining your distribution network? 51. Is your customer service at a high enough level to create a competitive advantage?

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Knowledge Management All the categories of estimates described in this chapter are part of a broader managerial and information framework that is fast becoming a central focus for managers: Knowledge Management (KM). You can view it as a more elevated form of information, so that when interpreted it provides new meaning, value and relevance to managing your organization or a business unit. KM consists of two parts: 1. Explicit knowledge exists in your internal databases, records, manuals, documents, the raw numbers in spreadsheets and increasingly through Web sites. In particular, sophisticated analytics incorporate additional data from a variety of customer touch points, such as the call center, field service, prior marketing programs and external back office information. When organized into a useable format, there is greater reliability and accuracy for estimating a market situation. 2. Tacit knowledge generally resides in the minds of individuals who have accumulated it through discovery, experience, or through the numerous interactions with others. Since tacit knowledge tends to be less structured, it cannot always be put down on paper. Instead, it is transferred indirectly through conversation, observation, or other types of informal interchange. Tacit knowledge can originate in a variety of patterns, such as the impressions, feelings and insights of a sales rep returning from a visit with a key customer. Or it can start with an engineer making an offhand comment about a gestating idea with an associate in a casual setting over lunch. If taken with the seriousness and discipline given to any other business system, KM can operate as a balanced, multi-disciplinary framework for capturing, sharing and spewing forth immensely valuable knowledge. Consequently, in keeping with your key managerial role of making a diverse range of estimates, actively involve yourself in developing an internal KM exchange network. Regardless of the size of your company, it should blend with the everyday life of your organization and feed the transfer of meaningful knowledge.

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For many organizations explicit knowledge is tangible and is available on a widespread basis, or is at least accessible to specific personnel. On the other hand, as discussed above, tacit knowledge is somewhat unbounded and tends to be used by individuals who need to protect what they know as a personal defense or a power barrier. To break through the barriers and add KM to the culture of the firm means establishing a level of trust up and down the organization and instilling a spirit of teamwork, to make knowledge management work to the full benefit of the organization. By blending explicit and tacit knowledge, accurate estimates can evolve to justify the development and timely rollout of new products, the adoption of an evolving technology, or the choice of market segments to enter. And, perhaps most importantly, to shape those strategies and tactics that sustain a competitive edge. The responsibility for KM can reside with any number of individuals, depending on the size of your company and the level of priority given to the project. The range of individuals includes company librarian, information technology (IT) manager, market research manager, or the new title of internal infomediary who creates or manages systems to connect employees with the knowledge they need. Regardless of title, the central responsibility is to tap into the immense fund of knowledge flowing around the organization. Finally, information, intelligence and total knowledge management are only as valuable as your willingness to apply the mass of knowledge to make appropriate estimates and create a winning business advantage.

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THREE

Act With Speed And Decisiveness

THREE

Act With Speed And Decisiveness

Chapter Objectives Enhance your managerial skills as you: 1.

Identify an organizational design that encourages a rapid response to a market opportunity.

2.

Acquire nine operating skills to trigger speed and quick reaction.

3.

Utilize cultural diversity as a dynamic factor to connect the perspectives, talents and contributions of your employees.

Having completed the five estimates described in Chapter 2, you are now ready to take action. What form should it take: Fast, slow, deliberate, cautious? From virtually every field of endeavor, speed surfaces as the single most important element for successfully implementing a strategy. This rule doesn’t mean reckless or impulsive movement. It does forewarn, however, that once careful and prudent estimates have been made, hesitation and indecision become your enemies. For instance, speed impacts a number of managerial, organizational and competitive issues, including: •

How you organize your company’s or business unit’s pecking order so that your decisions flow downward to their swift implementation

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in the field. Also, how communications move smoothly without getting stuck in a maze of managerial layers, which often results in unsuspecting distortions and misinterpretations of what was originally intended. •

How fast you react to an aggressive competitor, where his clearcut aim is to feed-off your customers and erode your market position.

•

How confident you are in your strategic business plan, so that preplanned strategies and tactics are set in motion in a timely manner that produces utmost effect – rather than reacting with hasty, fitand-start movements.

•

How and when you launch a new product to gain a competitive edge and secure a favorable share-of-mind position among early adopters.

•

How rapidly you harness the exceptional advantages of the Internet and integrate it into your internal operations, so that the technology impacts favorably on customer solutions.

•

How fast you adopt new systems to foster virtual communications within your organization and along the entire supply chain.

In contrast, tardiness unquestionably affects many internal functions of the organization and influences your ability to manage employees effectively. Further, sluggishness, often identified as an ingrained cultural trait of the organization, also reflects exceedingly on your managerial style and, in turn, could inhibit your ability to lead under real-time market and competitive conditions. Just as damaging for you is to get bogged down in dragged-out market campaigns that drain your company’s resources over long periods. In its worse-case scenario, excessive slowness and lethargy in a fast-moving marketplace can result in bankruptcy. Such consequences have tormented managers in many organizations, from old-line blue chip companies to the shaky start-ups plagued by inadequate operating capital to sustain themselves over prolonged periods. Learning to act with rapid action and quick response to an opportunity or threat, more times than not, improves your market position as opposed to slow, deliberate and potentially ruinous delays. Speed offers the

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indispensable advantage of conserving precious resources from being dissipated over prolonged and arduous campaigns. Also, you gain the personal advantage of sustaining your employees’ morale with decisive action. The following examples illustrate other ramifications of speed versus tardiness. Early in Amazon.com’s development, capital management firms taunted Amazon’s management wanting to know how long it would take to turn a profit. The mere inquiry of what was perceived as a prolonged time for a profitable payout resulted in Amazon losing 25 per cent of its value during one quarterly period. In a parallel situation, Xerox warned of an earnings shortfall in its ongoing and long-drawn-out efforts to reengineer the company and counter the effects of its plummeting market share. Xerox management also found itself combating European rumors that its delayed efforts were a ploy to prepare for bankruptcy protection. As the company’s stock continued to tumble, management was forced to state publicly that it had adequate liquidity to continue operations. But the announcement did little to calm investors who, only weeks before, were told by then CEO Paul A. Allaire that the company’s financial model was ‘sustainable’. Xerox’s freefall continued and its market value plunged 36 per cent from a 1999 peak. In the meantime, archrival Canon moved swiftly to attack the mainstay of Xerox’s business: digital office copiers. Using its high-quality ImageRunner line as a weapon, Canon rapidly entered the market at prices 15 per cent lower than Xerox’s offering. Acting quickly to take advantage of Xerox’s woes, Canon outsold its rival by two-to-one in the first half of 2000 in the critical segment of office copiers. Then, at the high-end of the market, which Xerox owned for over ten years with its super fast DocuTech printing line, a raft of competitors took advantage of the timing to enter the fray and grab at least a third of the market, further eroding Xerox’s earnings. Thus, the erratic situation resulting from protracted efforts dissipated Xerox’s strength, eroded market share and depleted scarce capital. Also,

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Xerox’s managers experienced the pain of watching hungry competitors take advantage of the chaotic situation and rapidly gobble up its customers, thereby increasing their market share. Under such conditions, even prudent and experienced managers at the helm would have had a tough job reversing the downward spiral, stabilizing the situation and then developing effective plans for future growth. In situations where a company operates in distant markets (domestic or foreign), capital would have been consumed rapidly in setting up physical locations, maintaining the additional administrative infrastructure, developing distribution channel networks and even funding the necessary travel and entertainment budgets. The common element in Xerox’s case focuses on management’s inability to build a quick-response strategy for a variety of scenarios and include them in a strategic business plan. Then, there is still another significant element that indisputably ties to the unfolding actions: Corporate culture. Did Xerox’s history, practices and traditions hinder senior management’s ability to act rapidly and decisively to prevent the downturn? Certainly there would be an influence on the resulting actions that did or did not take place. (See Chapter 2, Table 2.1, Changing Corporate Cultures and the section on Cultural Diversity further on in this chapter.) In yet another situation, Motorola, a major player in mobile phone handsets and other telecom products, found itself losing market share. According to market analysts, leadership was slow to seize on the shift from analog to digital wireless, which resulted in lost ground to the fast-moving Nokia and to the relatively new competitor, Samsung. By 2003, Motorola’s leading global share had dropped to 19 per cent. Faced with the declining situation, the company began a quick turnaround to recapture its lead by churning out new products and pushing its marketing effort hard in the global race for market share. At the same time, Motorola’s management made the tough decisions to cut jobs and replace or reshuffle 75 per cent of senior managers. In those cases, the troublesome situation for the front-line manager is that postponements and drawn-out periods to establish profitable operations mean previously earmarked budgets would not suffice. Also, as is often

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the case, going back to senior management for additional funding is received with reluctance or downright refusal. In contrast to the above examples, the following case illustrates how one technology company overcame the debilitating effects of stodginess in the age of the Internet.

Case Example Nortel Networks Corp. found itself plodding along as a maker of phone equipment. That was its dominant business situation prior to 1997. With the entry of a new CEO, John A. Roth, the Canadian company got on the fast-track to become a highly competitive seller of Internet gear against a leading rival, Cisco Systems. In less than two years, Roth revamped the company from top to bottom. Result: Sales growth averaged 30 per cent, a rate close to high-flying Cisco’s performance of 36 per cent. What was behind the successful transformation and the subsequent skyrocketing growth? Roth took control, he revitalized the company by implementing bold actions.

Nortel’s Strategies As the centerpiece of his strategy, Roth acquired Bay Networks, a Silicon Valley maker of Internet and data equipment. The move immediately gave Nortel access to cutting-edge Net technology, an area where phone and data networks were converging. In the process of merging the two organizations, a fundamental cultural issue arose: The Silicon Valley company displayed a do-it-now style, typical of the fast-sprinting companies in that locale. In contrast, its parent to the north maintained a slower, more deliberate pace. Roth decided to undertake a difficult cultural makeover and adopt Bay’s fast-paced operating behavior for the merged companies.

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Two definitive outcomes resulted from the changeover. First, product introductions accelerated to months from the previous norm of years, a significant strategic outcome where product life cycles are at best short-lived and transitory. Second, a monumental competitive advantage resulted where Nortel was able to capture customers away from hard-driving rivals. For example, Nortel won out over Cisco to supply gear for a national network in Sweden, and it scored as a supplier for a $1 billion fiber network in Spain. In the latter example, the order was given to Nortel because it responded rapidly to a request and put a design team on the project for three months before winning the business. Another bidder, Lucent Technologies, wanted commitments up-front before designers went to work.

Using Speed as a Strategy Examining business performance on a case-by-case appraisal reveals few business winners with overlong, dragged-out campaigns. Exhaustion – the draining of resources – has irreparably damaged more companies than almost any other factor. As for managers, extended deliberation without action, overall procrastination and long chains of command from home office to the field, are all detriments to personal success. To give weight to the above point, the following gripping case surfaced during 2003.

Case Example A dramatic series of newsworthy events unfolded when DaimlerChrysler declared an operating loss of $1 billion for the second quarter. Also, a long-awaited turnaround was still not in sight. The 1998 merger of the

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two giants, Daimler-Benz and Chrysler, appeared to flounder. Touted as the biggest industrial merger in history up to that time, Daimler-Benz had pumped $36 billion into Chrysler with the hope of creating the world’s most profitable carmaker. While the German company still flaunts the strong brand image of Mercedes, the losses seriously impacted the parent company’s overall financial performance for that period. A chorus of sharp questions followed the news: Was the merger a colossal mistake? Did Daimler management misjudge Chrysler’s competitiveness? Could a luxury carmaker realistically integrate with a mass-market automobile manufacturer? Would the merging of the two companies damage the image of its premier brand, Mercedes? Was the setback merely a management problem that could ultimately be fixed? Should the merger be dissolved? While the case has not been resolved, valuable lessons do emerge with application for large and small businesses: Drawn out efforts divert interest, diminish enthusiasm and depress morale. Also, the danger exists for individuals to become bored and their skills lose sharpness. Probably the most serious possibility is that the gaps of time created through lack of action give competitors a greater chance to react and blunt even the best laid plans. (Also see Xerox case.) More so now than at any other time, the manager’s mandate in a netspeed market environment is to evaluate, maneuver and concentrate business assets quickly to gain the most profit, at the least cost, and in the shortest span of time. The proverb, ‘Opportunities are fleeting’ or in the current vernacular, ‘The window of opportunity is open’ has an intensified truth in today’s markets. Speed is essential for gaining the advantage and exploiting the advantage gained.

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Managing an Organization A formal pecking order exists within most organizational structures. In practice, the organization operates as a living organism in which visions, hopes, ideas and cultures flourish. In such a corporate ‘community’ there is a hierarchy consisting of levels of command and control – even in the free-flowing corporate structures identified with Silicon Valley. In the various frameworks people interact not only among themselves, but in everchanging external surroundings of customer behavioural shifts, competitors’ backlashes, industry and technological transformations, and environmental changes. As already pointed out in the discussion on the advantages of speed, the long chain of command is at a distinct disadvantage. Instead, fewer layers of management tend to increase the timely and accurate flow of information up and down the organization. Complementing the streamlined corporate structure is the proliferation of wireless communication devices. Let’s look at both organizational design and communications.

Organizational Design As corporations of the 1980s and 1990s reengineered and downsized to create cost-effective, lean, market-driven organizations, a further innovation evolved. Surviving mid-level managers, and individuals reporting to them, were asked to develop viable competitive strategies for their respective products and services. Additionally, they were told to assume greater responsibility for results. That is, in many situations, individuals from sales reps to district managers were asked to take on the broader obligations of a general manager and become accountable for short- and long-term market development and bottom-line results. Consequently, the downsizing for pure economic reasons turned into a strategic bonus by transferring more authority and responsibility to those closest to the competitive field of action. Figure 3.1 graphically shows one organizational design, where a marketdriven orientation prevails.

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President

Senior VP Marketing and Sales

Marketing VP

Sales VP

Sales Force

Advertising/Internet Sales Promotion Marketing Research/Competitor Intelligence Other support functions (internal and external)

Cross Functional Teams

Team Leader(s)

Finance

Production and Quality Control

R&D

Supply Chain Management

Marketing/ Sales

Market Intelligence

Other

FIGURE 3.1. MODERN MARKET-DRIVEN OPERATION

This organizational structure defines the modern workings of a company. Here is where business life exists and where the relationships with those of the same function, or with other functional executives and subordinates, interact. It is within the business unit that product, service, promotion, pricing and distribution strategies emerge. It is where leadership is exercised with the intention of influencing the attitudes and morale of individuals in the group. For the foreseeable future this organizational design, which reflects a customer-centric orientation, will continue as one of the workable business models that permits market-driven practices to flourish. (Also review Cisco Systems in Chapter 2 as the striking example of an

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organizational model, which serves as a benchmark for the 21st century market-oriented organization.) Consequently, a dedicated customer focus will be the prototype for the big growth engines of the U.S. , the consolidated efforts of a unified Europe, and the upsurge of economic power along the Pacific Rim. Such a dynamic and energized business scene means more intense competition; rapid technology advancement; continuing product innovation; and, especially for the smaller company, the on-going search for emerging, neglected and poorly served market segments.

Where in this whole scenario does reinventing yourself fit? As new markets emerge, others decline. Countries once dormant will awaken others once supreme will fade. The entire global business scene will be enveloped by the overriding pursuit for customer satisfaction through customer relationship management initiatives. It is in these pulsating undercurrents of change that revamping managerial skills must surface if you are to maneuver people and resources to a successful and sustainable future. On an individual company basis, the following case illustrates the global/local-balancing act facing managers, particularly where a company has a subordinate position in a broad product category.

Case Example Hershey Corp. is besieged by bigger and richer food giants with global reaches. The competitors are enticing customers away from candy, in particular chocolate, the mainstay of Hershey’s sales. Instead, they vigorously push such trendy snack substitutes as chips, sports bars, or granola-coated munchies.

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Reeling from such relentless pressure, Hershey managers have moved rapidly to implement an ambitious three-pronged strategy. First, Hershey slashed costs, shuttered facilities and cut layers of middle management to facilitate rapid movement and forestall further incursions on its markets. Also, they cut weak product lines, such as Luden’s throat drops, and hundreds of slow selling package sizes. Second, executives improved distribution and boosted Hershey’s presence in convenience stores, where margins are higher than in supermarkets. To improve services to customers along the supply chain, new sales reps were hired. In particular, they worked hard to provide innovative store displays that gained the most product visibility from limited shelf space. Third, Hershey managers pushed aggressively to introduce a stream of much-needed new products. Instead of launching one big product every year or two, the company activated a steady stream of new products and line extensions, such as Reese’s Inside Out Cups – peanut butter on the outside, chocolate inside – and chip-shaped versions of some Hershey candy bars. It began making sugar-free chocolates, which is tagged as an evolving segment of the market. Also, managers made certain that sales reps gave special attention to working with customers far in advance of new product offerings. That approach is in contrast to the former practice of dropping new products in their laps without sufficient time to prepare for the new product launch. The key strategy in product development, however, is building on existing brands rather than creating new ones from scratch, which is expensive and overly risky. There is also a movement among Hershey executives to move into snacks, such as cookies, crackers and snack bars.

Communications Within the scaled-down organization, the flow of information has taken a new turn with the proliferation of wireless communications devices, such as two-way pagers, handheld personal digital assistants (PDAs), datacapable smart phones, laptop PCs, RFID (radio-frequency ID tags that track products from the factory to the warehouse to the supermarket shelf), and a host of emerging wideband appliances.

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The movement is so profound that it will reshape the way you manage a business. For instance, by linking personnel at corporate offices, branch offices, warehouses, field personnel and consumer outlets, you can stay in touch anywhere along the supply chain, anytime, with astonishing speed. It provides the heretofore unheard of personal advantage to see a clear picture of the marketplace. You then have the opportunity to take realtime actions by responding rapidly to such issues as pricing, product specifications, purchasing decisions, advertising themes, or the leeway to deploy sales and technical service personnel. The interactive communications network also permits you to monitor production schedules, marketing campaigns, as well as post-purchase product usage. You benefit from the tremendous advantage of supporting speed as you embrace technologies and reach markets quickly and efficiently. You thereby reduce the damaging effects of prolonged efforts in all aspects of operating a business. The following examples show the wide-ranging applications and advantages of speed and communications that lead to a competitive advantage: •

Ebay, with humble beginnings as an online flea market, is a global online marketplace where people find products to buy, as well as list their own products to sell. It is the virtual hub of trade for everything from antiques to BMWs, to industrial equipment from the U.K. to Germany, Korea and Brazil.

•

Amazon.com is the No. 1 e-tailer. Its prowess is best illustrated by the ability to ship 1.4 million copies of Harry Potter & the Order of the Phoenix in a single day. Its expansion goes well beyond books and media to sell other retailers’ products to its 33 million customers

•

Intel with its innovative Centrino Wi-Fi chip is establishing a global standard for wirelessly connecting devices and for tapping the Net.

•

IBM is rebuilding its corporate structure around a new technology vision called e-business on demand. The idea behind the initiative is to provide corporate customers with computing power as simply and reliably as an electric utility. The technology will be delivered over the Internet and customers will only pay for what they use. The promise is to drive a new round of productivity gains by making

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it easier, faster, and cheaper for companies to maximize benefits out of technology. •

Salesforce.com, a smallish start-up, gained market attention by demonstrating to corporations that buying software delivered as a near-instant service over the Web is a viable alternative to software packages that can cost tens of thousands of dollars and take months or years to install. For other software companies, Salesforce.com shows that money can be made selling software as a service.

Organizing for Speed and Quick Reaction Taking into account the previous discussion on organizational design and communications, let’s now examine factors that make it possible for you to react with speed. First and foremost, as discussed above, e-business has become the pillar of the economy. Consumers are more eager than ever to go places where only the Web can take them, and the companies making the smartest use of the Internet more times than not, will surpass their competitors when it comes to operating swiftly and efficiently. Your challenge is to use new technologies to collect market intelligence as you react quickly and decisively in a ratio of a short span of time to a large amount of space. However, even with the expanded use of dazzling new communications technologies, gathering market intelligence entails long periods of research, experimentation and a hefty investment. Therefore, interjecting speed into your organization or business unit requires an organizational design that maintains a simplified system of control, which, as already highlighted, means shortening the chain of command. As for the very small organization, the owner or president is typically at the helm with little or no staff. He or she is in a unique position to control both policy-making and execution. Because decisions do not have to be channeled through several organizational layers, they are unlikely to be misinterpreted, delayed, or contested. Thus, the senior executive is in the best possible position to take action with consistency and speed. Beyond the small, single-product business ruled by one leader, there are multi-product firms, and the new breed of diversified corporations

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created by mergers and acquisitions. With those developments come managerial problems of dealing with people and the ever-present influences of cultural diversity – as illustrated in the Nortel case. New people, new products, new positions and new levels of authority coming together into one organization may well result in a cumbersome, inflexible operation. Individuals in the field often feel that there are obstructions in the decisionmaking process for moving into new markets. Missed opportunities are common and ‘go’ decisions get stuck, for reasons other than the competition. Even first-line managers think that there are too many people at the staff level or in service departments, and not enough on the job with revenue divisions. The large office staffs and the shortage of efficient managers are sources of constant complaint. As a result, many companies continue to follow the trend of downsizing and reengineering to reduce their staffs to an efficient ‘lean and mean’ level and thereby speed-up reaction time. Your own experience may well support the obvious conclusion that an organization with many levels in its decision-making process cannot operate with speed. This situation exists because each link in a chain of command carries five drawbacks: 1.

Loss of time in getting information back.

2.

Loss of time in sending orders forward.

3.

Reduction of the top executive’s full knowledge of the situation.

4.

Reduction of the leader’s personal influence on employees.

5.

Inability to respond rapidly to competitive threats.

Therefore, to conduct business more efficiently and avoid a prolonged effort, it is in your best interest to shrink the organizational levels. That is, reduce the layers of management. The fewer the intermediate levels, the more dynamic the operations tend to become. The result is improved management effectiveness and the increased flexibility of the entire organization. A more flexible and flattened chain of command can achieve greater market penetration because it has the capacity to adjust to varying circumstances, ability to take on alternative objectives and flexibility to concentrate resources at the decisive point. In particular, using cross-functional strategy

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teams consisting of junior and middle managers, who represent different functional areas of the organization, can enhance organizational flexibility. The following case illustrates how one company reacted in the race to keep up with competitive activities – or be left behind.

Case Example Sony Corp. faced a serious dilemma during 1999 and 2000. In the huge video game market, Sony’s chief rival, Sega Enterprises had received a grand reception for its new souped-up Dreamcast game console. The threat had profound overtones for Sony in that the company relied on games for survival. As Sony President Nobuyuki Idei pointed out, the PlayStation business is “one of the four pillars” supporting the Sony Group. Prompted by the seriousness of the situation, the company reacted quickly to the challenge.

Sony’s Strategies At the time of Sega’s product launch, Sony leaped into action with a great fanfare by issuing an announcement that it would launch a 128-bit, DVDbased game platform – a successor to its highly popular PlayStation machine – into the Japanese market in less than a year. The aim of the rapidly initiated strategy was to create a blocking movement to divert buyers’ attention away from Sega’s new product and instead wait for Sony’s promise of a faster and improved graphics product to hit the market. Was there really a threat to Sony? Not only was it a threat, Sega’s product introduction had all the makings of a disaster for Sony. Sega expected to sell 1 million Dreamcast units in Japan alone, followed by a full market rollout in North America. Thus, Sony’s product announcement contained significant drama and boldness. At the time of the communication, Sony had no real hardware prototype on display. Emboldened by the successful and even flattering

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press coverage, Sony pulled out all the stops and moved ahead at breakneck speed with the audacious strategy to build its next generation product, while continuing to divert video-game fans away from Dreamcast.

Activating Speed at the Lower Echelons Today, competitive business relies on the ability of managers – you – to adapt quickly to the unexpected. Market success has evolved to a serial process composed of many local market opportunities. Exploiting these situations depends on the intelligence and initiative of junior managers. It is they who first grasp the urgency for change, even where senior executives are reluctant to swerve from their accustomed paths. Long training and extended time at one job level may make managers more expert in execution, but such expertise is bound to be gained at the expense of fertility of ideas, originality and flexibility – the essential elements for swiftly meeting market demands and opportunities. Front-line managers, on the other hand, often prove an excellent source of qualities needed for speedy reaction as they, along with sales and service people, make on-the-spot decisions.

Applying Cultural Diversity There is yet another dimension to activating speed and quick response in the organization: cultural diversity. Increasingly, the topic is gaining the thoughtful attention of managers in two ways: First, there is the practical need to successfully harness the inherent richness of corporate culture to develop insightful decisions throughout the organization (as illustrated in the Nortel case); second, to focus on the intrinsic value of cultural diversity and tap into the treasure-trove of ideas. The Hudson Institute Workforce 2000 study, commissioned by the U.S. Department of Labor, revealed the following: Between 1985 and 2000 of the more than 25 million who joined the workplace, 85 per cent were women, immigrants, and minorities of various black, Hispanic and Asian Orgins; while white males accounted for only 15 per cent of the additions to the labor force.

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Coming to grips with cultural diversity now takes center stage as the new downsized, reengineered and compact organizations implement the vital strategies of getting closer to their customers through CRM (Customer Relationship Management) and similar initiatives. As a result, managing diversity means leading an organizational culture that welcomes multiple perspectives by engaging the talents and contributions of all employees.

Guidelines To benefit from diversity, try to grasp the essence of your organization’s culture. That means tuning in to the variety of values and assumptions held by diverse groups of individuals in your firm. Once you understand the variety of values, you can build a core set of shared values and communicate them within your group. Those core values help determine the boundaries for harnessing the positive effects of cultural diversity. As a means of welcoming their contributions, begin the process by involving employees from diverse backgrounds in decision-making. The best organizational format for doing so is the cross-functional strategy team8. The following case illustrates how the subtleties of an organization’s culture guided its business strategy.

Case Example Medtronic Inc. is the world’s leading supplier of heart pacemakers. The company has been on a roll ever since it invented the pacemaker in 1957. At one point in the 1990s, however, momentum slowed, mostly due to organizational and competitive conditions that had a negative impact on marketing performance.

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See Appendix for the duties and responsibilities of a cross-functional team.

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For example, a swelling internal cost structure and an unsuccessful diversification effort took its toll on earnings and market share. Then aggressive competitors challenged Medtronic’s leadership position. Rivals such as St. Jude Medical Inc. joined with a hospital giant, Columbia/ HCAHealthcare Corp., to become a preferred supplier of cardiac products. Also, Guidant/CPI and Ventritex Inc. won government approval for new products aimed at Medtronic’s 50 per cent share of the huge implantable defibrillators market, used to control runaway heartbeats.

Medtronic’s Strategies Attempting to rekindle the spark and regain its dominant market position, Medtronic’s leaders recognized early on that two organizational cultures had to co-exist. One, a highly disciplined culture to cut costs; the other, a free-spirited and experimental culture to generate product innovations. What followed was the merging of individuals from each of the identified cultures into teams (not unlike Nortel’s approach.) The move soon paid off. Medtronic engineers streamlined manufacturing functions, while R&D personnel focused on creative product innovations to satisfy customers’ needs. For instance, in the past Medtronic had designed new computer chips for every new pacemaker model it developed. One team scrapped that process and replaced it with a procedure whereby one microprocessor chip operates with different models. The change cut development cycles by 50 per cent. In one year, Medtronic rolled out six new pacemaker models at one time using the chip, with a resounding 15 per cent jump in sales in a market rising by only 4 per cent. Next, management set up a five-member review team to enforce strict schedules and financial criteria for projects. At the same time, product developers were encouraged to explore unique applications for Medtronic’s technology. For instance, one of its European-based scientists experimented with ways to treat stomach disorders with pacemaker technology. The results from responding to culture-based influences were gratifying. Medtronic regained momentum and its dominant position in cardiovascular

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therapy devices with a 45 per cent share of a multi-billion dollar industry, more than double the size of its nearest competitor, Guidant/CPI.

What can you learn from the Medtronic case? Managers in an increasing number of firms of all sizes are beginning to internalize the full impact of their organizations’ unique cultures for maintaining a competitive edge. As illustrated above, many progressive firms use cross-functional teams to formulate strategies and monitor product development. However, those team efforts primarily seek limited interdisciplinary interaction, rather than the broader benefits of harnessing the cultural dynamics imbedded in an organization’s history, values, beliefs and practices. Beyond the superficial approach of giving lip service to define cultural influences, managers should adopt more systematic procedures. Doing so means embracing a discipline that is steeped in the practices and interpretations of cultural diversity. Such a discipline is cultural anthropology. Defined as the science of human beings, anthropology has enormous potential for expanding your leadership capabilities. Calling in individuals trained in cultural anthropology, for instance, could furnish insightful information about the behavioural patterns of employees, as well as customer groups, in their natural settings. For your purposes, infusing such fresh thinking from individuals trained in that discipline can sensitize you and others to the inherent strengths that exist in your organization. You then have the opportunity to draw on the abundant creativity of employees at various levels. What follows is that by connecting the ideas emerging from a free-flowing corporate environment, you can apply them to product innovations for new or unserved market segments. In all, you will acquire the practical managerial skills to distinguish among the behavioural patterns and harness the energy of culturally diverse groups.

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To illustrate the point, one executive at Dow Chemical Company said in Applying Corporate Anthropology:9 “Today we’re the best in the world at what we do, but if we keep doing things the same way for another two or three years, we’ll be out of business. That’s how quickly this industry is changing and that’s how tough our competition is.” Although Dow had idea rooms in which people could draw their ideas and put them up on the wall, he continued, “We were stuck. So at one meeting, we concluded, we’ve tried everything else, why not bring in an anthropologist?” The object was to incorporate culturally accurate methods of getting staff to contribute. However, barring your ability to hire a trained anthropologist, you can still activate an informal process to obtain input from individuals representing diverse backgrounds and apply the ideas to such pragmatic issues as: •

Identifying untapped market segments.

•

Securing a strong product position.

•

Developing operational efficiencies.

•

Fostering new and faster modes of communications.

•

Motivating personnel to new heights of achievement.

•

Shortening product development time to respond rapidly to competitive inroads (see Sony case).

Then, within the broader framework of managing business operations, you can gain input from various individuals by asking such penetrating questions as: •

“What business are we in?”

•

“What business should we be in over the next three to five years?”

•

“What categories of customers will we serve?”

•

“What changes do you see taking place in markets, consumer behavior, competition and the economy that will impact our company?”

9

Laabs, Jennifer, 1994. Corporate Anthropologists, Applying Cultural Anthropology, (ed. by A. Podolefsky and P. Brown), Mayfield Publishing Co., pp. 34-40.

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Obtaining answers to such visionary questions will assist in developing a noteworthy mission statement or a strategic direction for your company, business unit, or product line. A well thought out mission statement gives you the reassuring effect of boosting morale among personnel who need to have a sense of purpose and direction. Further, it will reduce the amount of floundering and set the company or business unit forward toward making time-sensitive decisions. Thus, sorting out your organization’s thought processes, values, beliefs and practices sharpens your ability to think critically when developing objectives, strategies and new product/service opportunities. Any manager who is unable to fully internalize the inherent dangers of protracted efforts to an organization is equally unable to understand the advantageous ways of managing personnel within the larger picture of conducting business in an expeditious and profitable manner. What operating skills, then, should you hone that can apply to practical purposes? We discussed several factors in Chapter 1. Specifically, within the framework of speed, there are additional traits to acquire and practice, such as: 1.

Concentrate on identifying and then utilizing your company’s core competencies to the maximum. Providing, of course, they are competitively viable and fit the vision or big idea you have for your company or product line. In some instances, it may be necessary to create an internal cultural upheaval – albeit a regulated one – that retains the strategic direction as you push to modernize systems and create changes in employees’ mindsets and attitudes.

2.

Supplement your company’s core competencies with additional growth initiatives that can generate a new level of excitement for your personnel. At that point, you may find it necessary to reshape the images of how your company, product and people are perceived in the marketplace.

3.

Create an internal culture that can grow new ventures in the shadow of your existing bread-and-butter business. As noted above, doing so may require you to redefine or re-tool your existing corporate culture. Part of that revamping is making certain that all employees are focused totally on customers, even to the point of coddling them.

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Also, depending on any unique situations within your company or in the marketplace, you will probably need to recommend deep organizational changes. Such alterations would likely be triggered by the profound changes springing from the Internet revolution. As a prodigious tool of the new business model, the Web permits an increasing number of ways you can optimize speed. And, as illustrated, speed of reaction can often trump the advantages inherent with even large-size competitors. Previously discussed cases, such as Cisco, Medtronic, Charles Schwab, Ford, and others provide working examples. 4.

Initiate a working climate that generates a lot of creative energy. For instance, push for change in the way your employees behave, so that they clamor for more growth, increased market expansion, and are frustrated by complacency. Realistically, as a manager, your prime role is to orchestrate activities that foster aggressiveness and determination among your people. Within such a setting, your continuing efforts should work toward an environment rooted in cooperative skills, so that even instances of spontaneous collaboration work to your advantage. Simply stated: Get people to work together.

5.

Encourage junior managers (see John Deere example in Chapter 1) to go off and work in new areas, if consistent with the new longerterm vision you previously identified. The intent is to push devoted employees to migrate from old-economy thinking to a new-economy orientation.

6.

Find profitable new businesses that are likely to grow faster than the market – and which are of a size your company can realistically handle with existing or obtainable resources.

7.

Encourage personnel to acquire strategy skills. Also nurture their abilities to think like strategists and thereby breathe new life into your business on such key issues as: (a) evaluating multiple points of entry into new markets and then following-up with related action plans, and (b) maintaining ongoing market intelligence and implementing aggressive defense strategies against any incoming competitors intent on damaging your market position.

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8.

Create a flexible and responsive organizational tone that inspires employees to reach new levels of achievement. You can lead the march to change with such humane efforts as making certain impressive ideas are not stifled. Inspire employees by acknowledging their opinions and successes – both large and small. Be gracious and give them tangible rewards for accomplishments, and let them revel in the excitement and pride that follows.

9.

Stay visibly involved. Develop superior communications. Listen closely to what your employees have to say. Above all, sustain a high level of trustworthiness, integrity and confidence. What you desperately want to avoid is a crisis of confidence, where employees defect and teams disintegrate.

The following case applies the above nine points.

Case Example The merger of old-line media dynamo Time Warner Inc. and Internet powerhouse America Online Inc. illustrates the techniques of employing people within the big picture of conducting business in an expeditious and profitable style. The major hurdle, at the time of the merger and before the subsequent problems, was to break down the existing cultural barriers and move toward blending two diverse groups separated by unique values, beliefs and behaviors into a redefined culture. As one executive aptly described the differences: Time Warner and AOL moved at two speeds when launching the new venture. At Time Warner it was, ‘Let’s do lunch.’ At AOL it was, ‘Let’s skip lunch.’ Overall, the desired result of the changeover was to get employees from both camps working in productive harmony – and do so, rapidly. The central aim at the time was to move quickly to unite individuals from the two companies and take full advantage of the Internet while opportunities were still fresh. For Time Warner, mountains of copyrights

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existed that put the company in an outstanding position to take advantage of the Net. In turn, AOL offered substantial assets and expertise in providing the Web pathway to a vast audience. Those advantages were somewhat obvious at the onset of discussions to justify the merger. The real issue was to exploit the relationship by harnessing powerful new consumer services. First, the new company moved rapidly to deliver AOL’s Internet access to homes over Time Warner Cable wires, as well as to individuals wherever they may be through wireless mobile devices. Then, there was the online music business, where subscriptions to music from Time Warner artists were offered on the AOL site. Similarly, the pattern would follow for interactive-TV services. In all instances, services would be delivered by a series of interlocking actions that would cross-promote Web sites, pinpoint customers with AOL’s instant messaging, and embrace them with similar technologies. Thus, the whirl of synergies would take advantage of numerous cost-saving and revenue-producing possibilities. Spearheading the operational part of the merger at the time was Robert W. Pittman, one of the creators of MTV. Pushing for more cross-pollination and speed of response, he moved forward and pressed groups to work together more closely as he revamped the new enterprise’s culture through a series of actions, although at times over a very rocky road. For instance, he: •

adopted AOL’s e-mail system for the entire company with projected savings of tens of millions of dollars in paperwork, while providing real-time information to employees.

•

fostered open discussions to help subdue corporate intrigue and create a safe and comfortable working environment centered on trust.

•

forged a team among aggressive, individualistic executives by scheduling biweekly operating committee meetings that encouraged constructive debate.

•

maintained a high level of integrity and considered the dignity of people at all levels as the behavioural standard for the company.

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Summary Using the strategy guidelines in this chapter, and learning to manage people along the lines discussed here, you will succeed in triggering competitive actions with utmost speed. Further, you will have latched on to the art of conducting competitive business operations and, you will have grasped the underlying role of managing in today’s business environment, which is to achieve market victory while protecting the total health and viability of your organization. Such knowledge and skill are particularly applicable at all organizational levels, as decision-making spirals down to the grass-roots level where realtime intelligence challenges you and others in your group to make fast and accurate decisions.

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FOUR

Develop Offensive Strategies: Your Defining Moment As A Manager

FOUR

Develop Offensive Strategies: Your Defining Moment As A Manager

Chapter Objectives Enhance your managerial skills as you: 1.

Define the five ruling principles that characterize all strategy.

2.

Utilize the two-zones of activity as the model for developing offensive strategies.

3.

Grow more observant and analytical before jumping into markets, confronting competitors, and formulating strategies.

With the emphasis so far on making accurate estimates and acting with speed and decisiveness, it is fair to conclude that winning over a competitor through combative sales tactics, predatory pricing and waging continuous marketing conflicts for every point of market share, is not the acme of leadership skill. It is hardly a sign of managerial competence when due to those aggressive actions that customers feel weary, confused and angry. Rather, the peak of managerial know-how is measured by the ability to develop a market that is wholly intact, growing – and with a strong, financially-sound company. Expressed differently, the test of your skill is a top-of-mind awareness that the object of business is a thriving marketplace anchored to stable customer relationships, with particular

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sensitivity to the grass-roots culture of each market segment. All the beneficial results flow out of achieving a market condition that is profitable, environmentally cared for and economically strong over the long term. To damage it with shoddy products, imperfect services and ruinous pricing tactics is shortsighted and grossly irresponsible, particularly with today’s emphasis on customer relationship management as the cornerstone of business practice. The following examples illustrate managerial awareness of the external environment and the competence in matching internal operations to the dominant issues of the marketplace: •

BP has begun to reduce emissions in exploration and production, and is marketing cleaner fuels.

•

Appliance maker Electrolux uses recycled materials and has launched the first product line of refrigerators and freezers without the chlorofluorocarbons that contribute to ozone depletion.

•

Toyota and Honda introduced hybrid cars that combine internal combustion and electric propulsion that can achieve between 50 and 70 miles per gallon.

•

Xerox introduced its first fully digitized copier, which contains more than 97 per cent recyclable parts.

Whether the motives of these companies were entirely altruistic, or they were reaching for a competitive advantage, or simply acting on a costsaving initiative, may be questioned. Yet, the conscious decision to actively move in the direction of performing for the public and environmental good, displays a sensitive and socially responsible approach to the long-term viability of the market. Thus, leading your group toward business expansion, market penetration and marketing victories is made up of multi-dimensional judgments, and doesn’t necessarily take on the character of hostile aggressiveness or downand-dirty actions.

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Transposing those concepts to enhance your management and strategy skills are encompassed in the following seven applications:

Seven Applications to Enhance Your Management and Strategy Skills 1. To entice and win over a competitor is far better than forcing it out of business through combative tactics. At times it is far more advantageous to lure key executives, sales, technical, or manufacturing personnel to join you than to battle them in a hostile marketplace. This is made clear by the momentous surge in industry consolidations and the various forms of joint ventures and partnerships that took shape during the past decade and still remain quite prevalent. A variation of that strategy is to develop a competitive advantage by obtaining a new technology through acquisition or licensing. In contrast, attempting to cripple a competitor’s business through costly and strong-armed marketing actions may result in weakening customer confidence and eroding market growth. Application of these principles is illustrated in the following example.

Case Example SAP, Europe’s largest software company, had been falling desperately behind U.S. rivals in the fast-growing business-to-business (B2B) marketplaces on the Web. To ease the painful effects of a direct confrontation with competitors, SAP bought three per cent of U.S. -based Commerce One, an outstanding Net software company – and a competitor, as well. The collaboration gave SAP’s sales reps immediate access to Commerce One’s suite of e-market software for its European customers.

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The move during 2000 couldn’t have been timelier. Europe’s market was growing at triple-digit speed. Unless SAP moved rapidly, the revolution in business practice would pass it by. There was even danger of losing its hard-won standing as the world leader in enterprise resource systems – software that runs the internal operations of a company, from finance to managing inventories. At that time, SAP’s core markets were showing signs of penetration by such swift-moving companies as Ariba Inc., Siebel Systems Inc. and i2 Technologies Inc. Even archrival Oracle Corp. was growing faster in SAP’s hub markets. With the Commerce One link-up, SAP halted the revenue drain and interrupted the brain drain of key sales and technical personnel who were looking for growth opportunities in other organizations. As important, SAP stopped the additional pouring out of resources in battling its former competitor – and now partner – Commerce One. As anticipated, however, merging the two diverse organizations didn’t come without some internal fighting. There was visible resistance from both sides in trying to blend the cultures of a swift-moving Silicon Valley start-up with a slower moving and more conservative European organization. The initial problem emerged when many of Commerce One’s business-related decisions needed the prompt approval of SAP management. Instead, it received an unhurried response from its bureaucratic headquarters in Walldorf, Germany. At the other end, SAP’s German engineers also faced a cultural upheaval. They watched their methodical approach in perfecting a product became unhinged as some customers defected and made deals with start-up firms, mostly based on the mere promise of dazzling new technology. All told, even with those numerous cultural and procedural issues at stake, enticing a competitor to join in a cooperative and market-building undertaking is a far superior strategy to slugging it out in open market conflict – barring, of course, any monopolistic and collusion issues that could jeopardize the arrangement. There is still another example where joint action and cooperation rather than disunity and hostile encounters win the day. In the automotive industry, carmakers now can link their diverse product-development computer

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systems together on the World Wide Web. The system encompasses design and parts procurement to final assembly. These global collaborations cut months from the time it takes to create a new model, and days from the time required to build a car. With such advantages, carmakers are quickly forming strategic alliances with producers of manufacturing software to make their design and engineering programs run securely over the Web. When the systems are firmly in place, engineers residing in different locations around the world can communicate with each other in real time while viewing an individual part – or an entire car – on their computer screens. Thus, in a digital framework, an engineer in London can depress a brake pedal and engineers in Detroit and Tokyo can watch the internal movements of the part, as well as their effects on the entire car, under a variety of road and operating conditions. 2. What is of supreme importance is to attack the competitor’s strategy. By blocking a competitor’s strategy, you create an unbalancing effect that alters the opposing manager’s ability to perform rationally. This instability often results in impromptu and at times imprecise and rash decisions, such as ordering a premature launch of a new product, expending promotion funds without adequate analysis, or initiating a careless redeployment of the sales force. Stated differently, the unbalancing could strike fear in the opposing leader’s mind, which could result in costly mistakes. Unbalancing takes place at two levels: physical and psychological. At the physical level, a sudden attack on a market segment might include actions to impair a competing manager’s ability to supply outlets or make on-time deliveries, with the possible effect of damaging its supply-chain relationships. Or, it could be a burst of promotion followed by deep discounting that could challenge a competitor’s ability to respond effectively. Executing such moves depends on correctly estimating market conditions, assessing the competitor’s ability to resist your efforts, and correctly timing the actions. At the psychological level, unbalancing is the effect any physical move has on the mind of the competing manager – and consequently on his or her strategies. Most often, a psychological unbalancing relies on surprise

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to distract and demoralize the competing manager into making sudden and faulty decisions. When the competing manager feels trapped and unable to counter your moves quickly enough, he or she may make mistakes in judgment and thereby play into your hands. Achieving surprise, therefore, is an integral component in your thinking about when and how to attack a competitor’s strategy. It depends on a reliable estimate of those conditions most likely to affect the competing manager’s will to resist your actions. As pointed out in Chapter 2, there are five elements to assist in analyzing your company’s internal and external situation, as well as for calculating the condition of your competitor. These include: creating cooperative relationships, leadership, seasonal forces, market selection and policy. (Also see Table 2.2, Tactical Estimates.) Attacking a competitor’s strategy, therefore, requires that the physical and psychological elements work together. That means, if you purposely combine physical and psychological techniques, you have a better chance of distracting the competing manager from reacting to your efforts. If you distract his attention and disperse his resources among many unprofitable avenues, you are in the best situation to dislocate his grip on your market. Consequently, over-extended and limited in his options, the opposing manager will be less likely to interfere with your moves. Once again, do not battle the competition directly. Rather, your aim is to apply your subtle strategy to disrupt his intended strategy. The following example illustrates the principle of attacking a competitor’s strategy.

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Case Example IBM’s recent growth owes a great measure to the phenomenal success of its Global Services division. The division has averaged more than 10 per cent sales growth annually, which helped raise IBM’s overall growth rate by about five per cent a year. The growth was so impressive that IBM expects to double the division’s sales in the next five years. That would make it IBM’s largest unit. Overall, the primary objective is to focus efforts toward e-business services and assist client companies to move their operations to the Internet. In the meantime, attacking from all directions, competitors began assaulting IBM’s strategy with a series of counter-efforts. Hewlett-Packard Co. moved to beef-up its services division by acquiring the consulting arm of PricewaterhouseCoopers. Dell Computer Corp. and Sun Microsystems Inc. moved forward to increase the size of their respective service units. These units do everything from Web-page design and installing local-area networks to managing an information technology department, helping to develop an e-business strategy, as well as managing a company’s entire computer operation. Additional attacks on IBM’s strategy continued unabated as scores of harddriving competitors, from fledgling start-ups to large firms such as Andersen Consulting and EDS flooded the market with armies of consultants. They all scrambled to punch a hole in the market leader’s strategy by locating deficiencies in IBM’s service offerings. Or, they located unserved or emerging market segments through which to cause further disruptions. 3. The manager who excels at resolving internal difficulties before they arise, wins. The manager who succeeds in blunting competitors’ threats before they materialize, wins. The manager who overcomes customers’ resistance and solves their problems, wins.

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The essential point is you need a 360-degree view of both internal and external operating environments. While, at the same time, keeping your customer at the center of attention. Internally, that means you determine the state of readiness of your operation, as compared with competition. A state of readiness means that you have motivated your people and you have sharpened your internal procedures in tune with a changing competitive market landscape. To gain a complete picture of your organization, evaluate it by using the following guidelines10: •

Overall Performance. Look at your organization through a variety of lenses. For instance, observe how your entire company is organized, as well as the individual departments or business units. Observe such areas as personnel skills, corporate culture, newness and efficiencies of business systems, level of innovative product or service development, and the application of technology to improve productivity. This evaluation also allows you to conduct a comparison with key competitors and estimate which one has the strongest advantage. As important, you can look for any unique factors that would help you benchmark performance to the accepted standards of your industry.

•

Strategy. Here you look deeply at the capabilities of your personnel to react against aggressive competitors, defend existing markets and attack new markets. To assess their capabilities, make use of a two-phase guideline: First, do your personnel have the mindset and physical strength to endure the stresses that go with a hotly contested market? (This assessment cannot be separated from the caliber of your leadership. See Chapter 2 for details on leadership.) Second, do your personnel fully understand the basics of putting together and implementing competitive strategies and tactics? At

10 You will find numerous guidelines and checklists on the following pages. It is in your best interest to review them and apply as much as you can in the normal course of your activities. The intent is not to get you lost in the proverbial paralysis-by-analysis syndrome, which often results in little or no action.

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the very least, have they internalized the five primary elements of strategy: speed, concentration, indirect approach, alternate objectives and unbalancing competition (detailed later in this chapter)? If not, then it’s in your best interest to look hard at the consequences of this lack of understanding and assess its ramifications on your firm’s ability to sustain itself in tough times. •

Strategic priorities. This assessment considers your company’s position as you look outward in the market for three- to five-years. For instance, is there a clearly delineated strategic direction for the organization, as well as for its individual business units and product lines? What is the long-term outlook for those target markets you plan to serve? What new-wave technologies should you acquire to stay competitive? What financial and human resources will you require? What type of commitment exists to improve product and service quality and maintain a viable competitive position? How does it compare to what competitors can deliver and with what your customers demand? How strong is the corporate resolve to develop a genuine customer orientation throughout the organization? Are there customer relationship initiatives in place? Is there an acceptable internal climate for service and product development and is it geared to satisfying customer needs and solving their problems? How important is the whole question of intellectual capital versus just giving lip service to the familiar phrase, “People are our most important asset?” Similarly, is there a pervasive attitude at all levels of management that people truly make a qualitative and quantitative difference to the success of an enterprise? If so, what programs are in place to create an ongoing learning atmosphere for human resource development and for sharing knowledge?

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Cost analysis. This evaluation views cost efficiencies as a major strategic focus to achieve competitive advantage. Accordingly, is there a prudent balance between costs, profitability and market share that corresponds with your strategic priorities? For instance, what criteria do you use to evaluate market share?

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If you serve a single segment rather than an overall market, there are implications for costs and profitability. Or is your business priority restricted to entering a new market rather than defending an existing one? If so, consider that it costs less to defend an existing market share by investing in value-added services and differentiated products than it is to buy back market share or launch into an entirely new market. •

Portfolio analysis. This evaluation offers a panoramic view of markets, products and services. It helps you estimate the competitive strengths of business units serving each market. Various models provide a systematic approach to assess a competitive position and determine investment levels for your products. One popular model is the General Electric Business Screen, a multifactor analysis that graphically displays where a product fits competitively in relation to a variety of criteria. It also aids in estimating the chances for a new product’s success. The business screen consists of criteria within the following two categories: Industry attractiveness and business strength.11

•

Financial resource. Here, you quantify your strategy decisions. The broader financial measurements include return on investment, return on sales, cash flow, marketing expense-to-sales analysis, breakeven analysis and market share analysis. More specific estimates cover quantitative and qualitative analysis, such as current-to-past sales comparisons, customer satisfaction evaluations and sales rep appraisal. (Use the financial personnel in your organization to assist in these measurements.)

•

Weaknesses and Strengths. Here you assess your company’s distinctive competencies, along with types of unique assets. Further, you examine strong and weak points in comparison with those of your competitors. This assessment helps you decide where to concentrate your attention and resources in areas of highest potential. You also compare and summarize the internal areas described above. (More on weaknesses and strengths in Chapter 6.)

11 See Appendix for a graphic illustration of this analysis.

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Externally, your evaluation focuses on the following: •

Customers. This most critical analysis helps you sense the deepseated motives and intrinsic buying behavior of customers. With the aid of existing and ever-changing CRM (customer relationship management) systems, you can tap into the thinking behind buying decisions and attempt to forecast with increasing accuracy what offerings your customers would likely react to favorably. Such insightful information is the fiber that binds together the disparate thoughts, assumptions and speculations about product and service development, and reshapes them into strategies to satisfy market needs. Specifically, such data helps you plan, price, promote, and distribute want-satisfying products and services to customers at a profit.

•

Market and Product Segments. In this analysis, you focus on segmentation, which allows you to split the overall market into smaller niches that display similar characteristics. Then, you can concentrate on the particular needs of target groups that are underserved. Or you can single out segments through which you can gain market entry or pursue expansion. Your ability to correctly identify an emerging, neglected, or poorly served segment is crucial to developing successful competitive strategies. Some common ways to segment a market include groupings by demographic, geographic, psychographic (behavioural), and product attribute factors. (Segmentation is detailed later in this chapter. Also look again at the nine types of markets described in Chapter 1.)

•

Unfilled Wants and Needs. As an extension of the above points, you and other functional managers should be adept at identifying emerging trends that can convert into marketable products and services. Not only must you be able to sort out market gaps and unfilled customer needs, but also know how to communicate breakthroughs and motivate employees to respond effectively to those opportunities.

•

Competitors. As an active participant in the marketplace, your company is probably at odds with other firms that are trying to increase their own market share. Consequently, you need a sharp picture of your competitors’ relative positions in the

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marketplace, if you are to implement effective moves that unhinge their strategies. Competitor analysis examines competitors from four angles: (1) how customers select products and services from your competitors; (2) how competitors segment their respective markets; (3) how customers display their purchase patterns or preferences as they relate to competitors; and (4) how competitors develop their strategies. One workable comparison you can use is built around the familiar marketing mix (Figure 4.1). From that comparison, you can identify the major components of your competitors’ strategies and project their future actions. You can also use Table 2.2 Tactical Estimates for a more comprehensive comparison.

Figure 4.1. Competitive analysis (Rank by market or product 1-10, 10= best) Product

Your Firm/Product

A

Competitor B

C

List Advantages and Define Strategies

Quality Features Options Style Brand name Packaging Sizes Services Warranties Returns

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Product

Your Firm/Product

A

Competitor B

C

List Advantages and Define Strategies

Your Firm/Product

A

Competitor B

C

List Advantages and Define Strategies

Versatility Uniqueness Utility Reliability Durability Patent protection Guarantees Compatibility with the Internet (if applicable)

Price

List price Discounts Allowances Payment period Credit terms Distribution

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Channels and Supply Chain

Your Firm/Product

A

Competitor B

C

List Advantages and Define Strategies

A

Competitor B

C

List Advantages and Define Strategies

Direct sales force Distributors Dealers Market coverage Warehouse locations Inventory control systems Physical transport

Promotion

Your Firm/ Product

Advertising: Customer Trade Personal Selling: Incentives Sales aids Samples Training

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Promotion

Your Firm/ Product

A

Competitor B

C

List Advantages and Define Strategies

Sales Promotions: Demonstrations Contests Premiums Coupons Manuals Telemarketing Internet Publicity TOTAL SCORE

Analyzing competitors’ strategies is one of the most important parts of competitive analysis. From your knowledge of competitors’ strategies you can then devise strategies that target markets of opportunities and effectively position your product against the competition. Also, such analysis helps you shape pricing, promotion and distribution strategies. How important is competitive analysis? It is so intrinsically connected to your successful performance that it is appropriate to single it out for specific rules. First, if you correctly evaluate competitors’ strengths, weaknesses and strategies, as well as your own, then in most competitive encounters your organization will emerge the winner. On the other hand, if you do not know your competitors’ strengths, weaknesses and strategies, but are fully aware of your own company’s capabilities, your chances of winning or losing are about equal.

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If unaware of both your competitors’ and your company’s strengths and weaknesses, you are certain to be at a distinct market disadvantage in virtually every competitive encounter. •

Industry analysis. Industry analysis gives you an integrated picture of how customers, competitors and the environment interact within your industry. The analysis operates at two levels. Level one provides a broad inquiry into suppliers, existing competitors, emerging competitors and alternative product offerings. Level two is more detailed and permits you to examine specific market features that could affect your marketing effort. These include current product demand, future product potential, industry life cycle and emerging technology. Based on the availability of accurate information, you would also look at changing customer profiles, frequency of new product introductions, level of government regulations, distribution networks, entry and exit barriers, marketing innovation and cost structures. This analysis forces you to look beyond the narrow dimensions of products and customers to view the variety of interactive forces that make up an industry.

•

Environmental analysis. Here, you look at the powerful forces of demographic, economic, natural resources, technology, legislation, and cultural values that can make or break your ability to sustain purposeful market efforts for your business. Through environmental analysis, you judge the impact each of the events would have on your strategy. (See earlier references to BP, Electrolux, Toyota, and Xerox.) Further, this analysis permits you to consciously react to a variety of environmental forces and ask yourself a qualitative question for each, “What potential does this environmental factor hold for my product or service?” The statements serve as indicators of trends that may emerge in the coming years and which may affect your strategies.

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Let’s look at how one company practices this principle in a highly competitive industry – and wins:

Case Example Southwest Airlines has been dealing successfully with airline passengers who were increasingly disenchanted with long departure and arrival delays and congested airports. With most major airlines plagued with skyrocketing fuel costs, labor problems and charges of predatory pricing, Southwest Airlines managed to stand apart from the market turmoil. The carrier learned to overcome environmental obstacles and solve customers’ travel dilemmas through the effective application of indirect strategies. Instead of a frontal assault on its formidable competitors, Southwest managed to avoid most of the problems associated with its competitors. With major airlines locked into mainstream airports where most of the snarls occur, Southwest flies in and out of smaller U.S. regional airports located in such areas as Long Island (New York), Oakland and San Jose (California). It also maintains lower costs by selling about one-third of its tickets online and by hedging fuel costs during 2000 and 2001. All together, Southwest’s strategies resulted in low cost, low fares, high growth and outstanding profits. What Southwest leadership has done so successfully is implement a solid three-point winning strategy. First, it avoided a costly confrontation with bigger and financially stronger competitors by building a strategy that tunes-in to the strong environmental factors and customer needs that drive the market. Second, it established internal procedures that resulted in meaningful cost savings. Third, it resolved the travel dilemmas of harassed passengers.

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4. The manager who earnestly tunes-in to customers’ needs and behaviors through all the touch points of knowledge management (see Chapter 1) can translate the findings into new market and product opportunities. Where you have a dual understanding of customers’ needs and problems, as well as competitors’ intentions, you can be more skillful at anticipating potential problems and then shape strategies to diffuse serious competitive threats before they spawn. As indicated earlier, your dominant job is to track competitors’ plans at their inception and then attack them. The following cases illustrate the constructive balancing between customers’ needs and competitors’ intentions.

Case Example Eastman Kodak Co. has honed a remarkable capability for keeping track of the substantial number of patents developed by its 5,000 scientists, engineers and technicians around the world. At least 120 of its inventors have 20 or more patents in their names, and several have more than 100 each. Every year the company adds about 2,500 additional patents to its treasuretrove. That number does not include the patents with companies in which Kodak initiated cross-licensing arrangements. This immensely important asset is part of Kodak’s knowledge management system that is built around imaging science and technology. Its real value lies in extracting relevant information to create competitive intelligence, allocate resources, prioritize new product projects and make critical decisions about markets. In particular, to obtain a detailed view of the competitive scene, Kodak analysts tap numerous databases of patents and gather information about inventors and companies.

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The real challenge is sifting through the vast amount of data and making sense of it. By using a variety of analytics to support knowledge management, managers take the overwhelming quantity of complex patent information and crystallize it into useable competitive intelligence. For instance, Kodak has mined patents filed by other organizations, such as printer manufacturer Lexmark International Inc., to gain insights into its new ink-jet technology. Then, they accessed data about the inventors, found out about their other inventions, and speculated about what future products might evolve from those patents. Armed with that information, and if Kodak had an interconnecting technology with Lexmark’s patents, overtures could be made about joint relationships to harness the resulting body of knowledge into new products or systems. Or, if Kodak found its patents were being infringed upon, legal action might diffuse the competitor’s efforts. Or, if Lexmark were to develop a superior product from its patents, Kodak would have enough facts to consider additional expenditures to develop its own product to meet the potential competitive threat. Thus, the Kodak manager could gain a hefty advantage by using such choice pieces of knowledge to develop a critical benefit by intercepting – and possibly hindering – the competitor’s plans at its source. Kodak learned the hard way about the value of patents when it was on the receiving end of patent infringement in the 1980s. Kodak launched its line of instant cameras when rival Polaroid had previously patented the technology for such products. Polaroid legally challenged Kodak for patent violation and won a huge settlement. If you hold such explicit information, just think about the boundless possibilities open to you, as well as the decisive plans you can make by leveraging knowledge. For instance, you can:

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Attract and retain profitable customers.

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Optimize the supply chain and all the various relationships.

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Prioritize new product development initiatives.

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Support product customization and specialization.

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Determine where and how to upset a competitor’s strategy.

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Deploy marketing and sales efforts to best advantage.

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Provide timely and comprehensive intelligence reports to management.

In still another case of internalizing customer needs and behavior, the following company stands out:

Case Example Sun Microsystems received a resounding wake-up call about customer needs when one of its key customers, eBay Inc., reported with a level of desperation that its computer system was crashing from a series of outages due to a problem of a bug in Sun’s top-of-the-line server. Central to the problem was eBay’s lack of sufficient expertise to run a multimillion dollar computer system. On further examination, it turned out that there wasn’t sufficient air conditioning to keep the equipment cool, in addition to a host of other software and operating problems. Who was at fault? Sun had no difficulty answering the question. CEO Scott G. McNealy and President Edward Zander woke to the reality that it was clearly their company’s fault. Sun had the absolute responsibility to make certain eBay’s computer system was in pristine operating condition. It was Sun’s obligation to make sure that all new or replacement software was installed properly and in top working condition. After the necessary round-the-clock meetings, repairs and quality checks were completed, McNealy and Zander reflected and then asked the opportunistic next question, “How many other customers – both oldeconomy and start-up dot.com – were drowning in similar problems that were dragging down their businesses and putting them in jeopardy with their customers?”

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A business-building response followed. They tore down and rebuilt Sun into a company modeled after an AT&T core concept. Meaning, just as AT&T provided continuous and reliable dial-tone service, so too, Sun would supply top-to-bottom reliability and the equivalent of a dependable and always-available Web tone. In turn, that decision drove Sun to extend its product and service portfolio to include storage products, a variety of e-business software, as well as provide consultants to install the systems and remain on call to monitor performance. The changeover created a high-level of caring for customers and resulted in such initiatives as compensating managers and sales reps based on levels of customer satisfaction. Further, a variety of customer audits encompassing two-days of extensive work with its top customers and capped by 100page reports advised alterations to assure optimal performance for Sun equipment. Through McNealy’s active leadership, Sun established a Customer Advocacy Organization to make certain all divisions placed reliability and customer satisfaction as top priorities. To back-up the move, Sun embraced General Electric Co.’s well-known Six Sigma quality program as an operating system and labeled it Sun Sigma. Then, following the telecom model – always-available dial-tone services – Sun put it all together by integrating software, hardware and services into one neat package. 5. Where possible disrupt competitors’ alliances. Attempt to avoid competitors getting together, even if it means devising an appealing offer of your own, just to buy time. Or, if appropriate, challenge the impending alliance through legal action. To sit passively, however, and not even make an effort, could end up as an insurmountable problem because the sum of two competitors mounted against you would fortify their respective positions beyond your ability to defend. Conversely, if the competitor has no alliances the problem is somewhat manageable and the competitor’s position is potentially weaker. If, after all reasonable efforts are made and you cannot nip its plans or disrupt the alliances, then be ready for market combat.

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The ongoing trend of alliances, joint ventures, acquisitions and the variety of creative partnering arrangements dominating the business scene, make this point particularly troublesome. Yet, even where competitors join against you, it is still possible to find soft spots in market coverage or weaknesses in their strategy. As illustrated in the SAP case, there was a time gap to exploit the newly formed alliance as its management experienced difficulties finding a comfortable middle ground from which to operate in a unified manner. Also, a time period existed where the alliance experienced problems in implementing agreed-upon values for its new corporate culture. Within those gaps, a savvy competitor could have created opportunities to move rapidly and devise upsetting obstacles. Such time intervals could prove invaluable for priming your creative thinking and devising new strategies, or reviving old strategies that are tried and tested. The following example illustrates the principle.

Case Example Cox Communications operated under the prevailing industry opinion that cable companies couldn’t last in the Digital Age. During the 1990s, satellite competitors such as DirecTV and EchoStar, plus a variety of companies created through acquisition and joint ventures, began delivering more channels via digital video than cable could supply over analog lines. Not to be pushed aside, some cable companies, in particular Cox Communications, rose to the challenge and upgraded networks to handle high-speed digital traffic. The primary force behind Cox’s fight-back strategy was to find a critical weakness in the satellite competitors’ strategies. At the time, the newly formed satellite companies did not offer high-speed two-way Internet access. With only one-way transmitters, they could only send data to a consumer who could not send any back.

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Consequently, the technology gap for the satellite companies became an opportunity for Cox. The company rushed forward using a time-honored strategy of bundling services. These packages allowed customers to buy more than one service from the same company, such as video and high–speed Net access. With the one pipe running into the home, Cox earned fees for Net access, video and even telephone, instead of just traditional video. The bundledservice strategy produced greater customer retention, higher revenues, increased cash flow, improved profits – and did some damage to the satellite alliances, as well. 6. Attack the competitor by creating and sustaining a competitive advantage. If you cannot reverse or neutralize your competitor’s strategies or disrupt impending alliances, then you are still left with a few courses of action. Either aggressively attack the competitor or exit the market and find another opportunity. If, however, you decide to engage the competitor, then be ready to sharpen your business and marketing practices. Look for success by forming strategies that lessen resistance in two zones of activity. First, attempt to reduce buying resistance among prospects and customers you wish to target. Second, neutralize competitors who attempt to frustrate your efforts. Figure 4.2 shows how various components fit together if you are to successfully attract and satisfy a customer; yet block the efforts of a competitor. The components consist of (a) the internal focused marketing mix that you control within the firm, (b) the external environment that shifts emphasis from carrying out a single transaction to forming a long-term customer relationship, and (c) the five elements of strategy through which victory is achieved in the most strength-conserving manner. These components converge into a two-zone framework with a customer occupying one zone and the competitor filling the second zone.

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EXTERNAL ENVIRONMENT

ELEMENTS OF STRATEGY

Customer Competitor Industry Environmental

Speed Indirect approach Concentration Alternative objectives Unbalancing competition

MARKETING MIX Product Price Promotion Distribution

TWO ZONES OF ACTIVITY

COMPETITOR NEUTRALIZATION

CUSTOMER SATISFACTION

FIGURE 4.2. FRAMEWORK FOR STRATEGY DEVELOPMENT

Let’s look more closely at each of the components in Figure 4.2.

Marketing Mix One key component in Figure 4.2 is still the reliable marketing mix that has been around since the 1950s and is ascribed to Harvard University Professor Neil Borden. It is also known as the four Ps for product, price, promotion and place or distribution. With the advent of CRM (Customer Relationship Management) as the new business model, there has been some criticism of the marketing mix from the academic community because of its inward focus. In this author’s

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opinion, however, it still remains a highly practical management tool to organize the controllable elements of the business and aid in the decisionmaking process. The marketing mix is particularly useful for gaining a broader perspective of your business, especially when it converges with other components shown in Figure 4.2. As a tool for screening and selecting competitive strategies, the marketing mix is especially valuable for differentiating your product or service among customers and for creating an indirect approach against competitors. In all, the marketing mix holds up equally well in mobilizing the company’s assets and managing the two-zones of activity.

External Environment Whereas the marketing mix looks inward at the organization, the external view looks outward to customers, competitors, the industry and the environment. Although discussed earlier in this chapter, the following summarizes the four components within the framework of attacking a competitor: •

Customers are the central focus, with special emphasis on customer relationship management. Your intent is to plan, price, promote and distribute want-satisfying products and services to customers at a profit. In order to fulfill that prime function, you must know what customers want and how to deliver products and services that convey satisfaction to them. In particular, your role as a leader and manager is to infuse your personnel with that same business-building message.

•

Competitors are ongoing threats to your firm. They, too, are trying to increase their own market share. Where there is no natural market expansion, due to a flat, no-growth market, then any increases by competitors may come at your firm’s expense. Along with customers, competitors should remain your major concern, as suggested by the two-zones of activity in Figure 4.2. That means, no strategy can develop beyond the level of mediocrity without knowledge of your competitor’s strategy, culture, methods of operation, and how it will respond to any aggressive actions on your part.

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To underscore this point, there is no viable way you can construct a successful business plan and related competitive strategies without a thorough understanding of your competitor, which should indicate how your competitor is likely to position itself against you – and consequently how you can position yourself against it. •

Industry provides an integrated picture of how your customers, competitors, and the environment interact. An industry operates at two levels. The first consists of suppliers, existing competitors, emerging competitors, and alternative product offerings, with customers as the center of attention. The second, and more detailed level, includes the following: current product demand, future product potential, industry life cycle, emerging technology, changing customer profiles, frequency of new product introductions, level of government regulations, distribution networks, entry and exit barriers, marketing innovation and cost structures. While the listing is quite expansive, perhaps to the point of being overwhelming; nonetheless, each warrants your careful estimate – or minimally, an informed awareness.

Elements of Strategy Five ruling principles characterize all strategy, be it military, athletic, political, or financial. They include speed, indirect approach, concentration, alternative objectives and unbalancing competition. •

Speed, as discussed earlier, is essential to the successful implementation of competitive strategies. For many businesses, perhaps your own, traditional markets with once predictable purchasing patterns are now challenged by competitors who can plow into your market through the speed of the Internet or by means of alliances. Then there are the new categories of customers available to you in scattered markets, also through the Internet or joint ventures. If you are to maintain any semblance of an advantage, these evolving events should force a rapid response with new or differentiated

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products, exceptionally high levels of customer service, expanded distribution networks and services, as well as with related promotion and pricing strategies. The indisputable message is waiting and pondering can only result in lost momentum and needless obstacles in reaching your goals. Here, too, this message should reach down to all levels of personnel. Toyota President Fujio Cho talks of “the criticality of speed” when referring to his company’s obsession to increase productivity and market responsiveness. There are some exceptions to speed, however, such as: waiting for a competitor to explore a new market first at its own expense; watching for the opposing manager to make a tactical error; delaying market entry to see signs of incompetence by a competitor to fulfill customers’ requirements; waiting to spot a vacant market segment that a competitor cannot or chooses not to reach. Even then, swift action is essential to exploit the time-related event before the opportunity dissipates. Or another competitor is wise enough to take quick action. (Review Chapter 2 for a more detailed discussion, along with case examples, on how to implement speed.) •

Indirect approach means avoiding a direct frontal attack against a competitor. Instead, select differentiation strategies from the numerous options within the marketing mix. You can then decide which one(s) should spearhead your indirect approach against your competitor. Thus, the object of the indirect approach is to circumvent the strong points of resistance and concentrate your efforts with a competitive advantage built around a mix of product, price, promotion and distribution – all tied to long-term customer relationships; all converging on the two zones of activity.

•

Concentration has two applications. First, it means directing your resources toward a market or group by fulfilling its specific needs and wants. In business terms concentration applies to target marketing, segmentation and niche markets. Second, as discussed with the indirect approach, concentration means focusing your strengths for maximum impact against the weaknesses of your competitor.

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•

Alternative objectives encompass three areas. First, on a broad strategic front, most managers have a variety of long- and shortterm goals to fulfill, such as markets to enter, products to launch and profit levels to achieve. These require multiple objectives with a variety of timeframes. Second, alternative objectives allow flexibility to respond to opportunities as they arise. Designing a number of objectives provide options for achieving one objective when others fail. It also allows for implementing a strategy of concentration. Third, alternative objectives keep your competitors on the ‘horns of a dilemma’, unable to detect your real intentions. Consequently, by developing a number of possible threats – or alternative objectives – you force a competing manager to spread thin his resources and attention to match your actions. This dispersal of financial, personnel and material resources most often psychologically unbalances the opposing manager into making mistakes through distraction, fear, erratic movements and wrong decisions, resulting from misreading your real intentions. You thereby expose a weakness that you can exploit through concentration of effort.

•

Unbalancing competition results from applying speed, indirect approach, concentration and alternative objectives. Victory in many competitive situations is not necessarily due to the brilliance of the attacker or defender, but to the mistakes of the opposing manager. If brilliance plays a roll at all, it is in your deliberate efforts to develop situations that unbalance the competition.

As in all confrontations, your aim is to leave the market intact, with the least amount of disruptions in product and service quality. As important, your own personnel should not be worn down and budgets drained to the point where the company is placed in jeopardy through exhaustion. The responsibility for the health of the organization – or an individual business unit – still relies on a manager’s ability to maintain a correct balance of achieving corporate objectives, while securing a viable organization of people and material resources.

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In situations where you are unable to control your impatience and you confront a competitor in a reckless manner, much of your energy is sure to dissipate without achieving your objectives. Instead, a well-planned effort built around a strategic business plan is the hallmark of an effective leader and manager. 7. The worst policy is to attack an entire market. The significance of this principle is that you should not attempt to be all things to all segments of the market. As noted above, it violates the fundamental strategy principle of concentration. Your best course of action is to focus resources on one or more segments of the market that would give you a measurable and substantial advantage over opposing competitors. Focus means selecting an industry, a segment within an industry, or a niche within a segment. Then, once you locate a soft spot through which to mount a substantial and concentrated effort, you increase your odds of winning your objective. How you decide on the dimension of your market depends largely on your available resources and the innate capabilities of your personnel. (That is one of the reasons for determining the internal conditions of your firm, discussed above under principle 3.) Focusing also means locating a segment that is emerging, neglected, or poorly served. Then using an indirect approach, look for ways to differentiate your product or service to give you a sustainable advantage. At this point, you can once more refer to the marketing mix to determine how to develop a differentiation strategy. Doing so avoids introducing a me-too product and the possibility of a direct confrontation with a competitor. The following example illustrates the points.

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Case Example Wegmans Food Markets is successfully surviving against the U.S.’s largest grocer, Wal-Mart. Not only is Wegmans holding on, it is expanding in number of stores, growing same-store sales, and increasing earnings. That is quite a challenge where typically as a new Wal-Mart opens, two rival supermarkets close. The Rochester, NY-based firm, does not directly confront Wal-Mart. That would be marketing suicide. Instead, Wegmans applies several of the strategies described above. First, Wegmans locates a segment it describes as a spot between price and quality. That means, lanterns and canopied window shutters lead to a display of artisan breads that convey a feel of a Parisian open-air market. Store chefs in white hats cook in full view of customers under a copper stove hood. They also conduct three cooking classes a day in high-traffic aisles and frequent shoppers get a glossy magazine of recipes and nutrition lectures. Second, there is a high level of differentiation with a “nearly telepathic level of customer service” according to President Daniel Wegman. Attention to service ranks the company as the country’s second-best supermarket chain, after Raley’s in California, according to a Consumer Reports survey. Expressed as an extension of segmentation and differentiation, stores provide customers with such non-traditional supermarket items as a $5.49 bottle of Belgium beer and $14-a-pound halloumi cheese; or specially prepared foods aimed at career couples, such as shrimp-and-goat cheese quesadillas and salmon primavera with champagne vinegar. Third, as an indirect strategy, Wegman states, “We need to do what WalMart can’t do.” Thus, the stores carry on average 42 per cent more items than the industry standard and produce shelves are restacked seven times a day.

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Fourth, Wegman nurtures the supply chain with a ‘tough love’ approach. Suppliers must have their goods and produce delivered directly to stores at tightly defined times as short as 30 minutes, come rain or shine. Further, all suppliers must conform to rigid bar code standards and synchronize data with each store. Thus, the ever-present threats from giant competitors as well as nimble smaller competitors are an on-going problem, yet there is also a spacious platform for new opportunities. Segmentation and differentiation are two of the driving forces in Wegmans’ strategies. If you again refer to Figure 4.2, keep in mind the convergence of all the external forces on the two-zones of activity. That is, stay alert so that as you focus on satisfying your customers’ needs, you still keep a sharp eye on your competitor who undoubtedly is trying to undermine your efforts. As for market segments, there are numerous approaches to selecting a market. Here, too, be watchful how your offerings will be positioned in the minds of the buyers, and against your competitor. The following discussion will assist you in selecting a segment in which to concentrate your efforts.

Selecting a Market Segment Segmentation means splitting the overall market into smaller sub-markets or segments that have more in common with one another than with the total market. As previously pointed out, subdividing the market helps you focus on satisfying the specific needs of individuals within your selected segments, thereby helping to strengthen your market position. Segmentation also allows you to concentrate your strengths against the weaknesses of your competitors, at which point you can improve your competitive ranking.

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Use the following criteria to guide you in selecting market segments. (Note, too, how these guidelines relate to making estimates, in Chapter 1.) •

Measurable. Can you quantify the segment? For example, how many factories, how many engineers, or how many people with and without your particular product or service are within the market segment?

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Accessible. Do you have access to the market through a dedicated sales force, distributors/dealers, transportation and the Internet?

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Substantial. Is the segment of adequate size to warrant your attention? Further, is the segment declining, maturing, or growing?

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Profitable. Does concentrating on the segment provide sufficient profitability to make it worthwhile? Use your organization’s standard measurements for profitability, such as return on investment, gross margins, or profits.

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Compatible with Competition. To what extent do your major competitors have an interest in the segment? Is it of active interest or of negligible concern to your competitors?

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Effectiveness. Does your organization have suitable personnel and financial resources to serve the segment effectively?

•

Defendable. Does your firm have the capabilities to defend itself against the attack of a major competitor?

Answering those questions will help you decide if the market segment holds sufficient potential for concentrating your resources. While new computer software may speed up the segment selection process, be certain the criteria presented here are included when you select the program. Figure 4.3 displays the four most common ways to segment a market, based on demographic, geographic, psychographic and cultural, and product attribute factors. Each of these approaches, or in combination with the others, represents an opportunity that you can satisfy with a product or service. Also, note the addition of the nine types of markets discussed in Chapter 1.

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DEMOGRAPHIC SEGMENTATION

PSYCHOGRAPHIC AND CULTURAL SEGMENTATION

Sex

Life styles

Age

Psychological variables:

Family life cycle

•

Personality

•

Self-image

Race/ethnic group Cultural influences: Education •

Group behavioral patterns

Income Occupation Family size Religion Home ownership

GEOGRAPHIC SEGMENTATION

PRODUCT ATTRIBUTE SEGMENTATION

Region

Usage rate

Urban/suburban/rural

Product benefits

Population density City size Climate

9 TYPES OF MARKETS:

Natural, Leading edge, Key, Linked, Central, Challenging, Difficult, Encircled, Desperate

FIGURE 4.3. BASES FOR MARKET SEGMENTATION

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To apply market segmentation to your strategy requires a thorough understanding of the various categories of segments. Let’s examine the following approaches to segmenting a market by demographic, geographic, psychographic/cultural, and product attributes.

Demographic Segmentation Demographic variables are among the most widely used segmentation approaches. They owe their popularity to two facts: First, they are easier to observe and/or measure than most other characteristics. Second, their breakdown by sex, age, family life cycle, race/ethnic group, education, income, occupation, family size, religion and home ownership is often closely linked to differences in buying behavior. In many instances, you can combine demographic variables to produce a more meaningful breakdown than just relying on a single criterion. For example, it is common to combine the age of the head of the household with the family size and the level of household income. Watch out, however, for unrelated demographic characteristics that could be unreliable. Gender may produce marginal differences in the usage patterns of telephones or in the consumption of toothpaste and soft drinks. Or chronological age is not always a reliable indicator of behavioural patterns. Income level may prove relevant only when used with other variables such as social group, family life cycle and occupation.

Geographic Segmentation Geographic segmentation is relatively easy to perform because the individual segments can be clearly defined on a map. It is a sensible strategy to employ when there are distinct differences in climatic conditions, access to transportation, proximity to round-the-clock service or repairs – as well as with such geographic considerations as varying regional tastes or unique culture-based habits and behaviors. Geographic segmentation even extends to facial features used in advertising. When Kodak originally introduced its Instamatic camera worldwide, the company quickly learned through adverse market feedback that potential consumers in many countries around the globe, from the

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Philippines to India, from Hong Kong to South Africa, could not relate to the Caucasian girl portrayed in the advertising. Kodak promptly modified its advertising by using local models that contributed to a phenomenal success story. Internationally, blocks or clusters of countries can often be approached in a similar fashion, particularly if they share the same language and cultural heritage. For instance, in most of Latin America the same advertising media are often appropriate for several countries. While there are numerous cultural differences in many of those countries – as well as in other parts of the world – there are common problems with shared features, known as cultural universals. These include economic systems, marriage and family systems, educational systems, social control systems and supernatural belief systems. Geographically, you can segment by region, city size, by population density, or by other geopolitical criteria. However, such segmentation is effective only if it reflects differences in need and buying patterns. Many firms, for example, adjust their advertising efforts to as small an area as a county.

Psychographic/Cultural Segmentation The most exciting form of segmentation deals with psychographic variables, such as life style, personality and self image. This includes the emerging interest in cultural influences and what it means to belong to a segment. For instance, how do individuals and groups indicate membership through consumption, what social messages are inherent in their consumer behavior, and what overall group dynamics are exhibited that would enhance a managers ability to formulate successful strategies? In the U.S., the current surge in the Hispanic population points to the variations in cultural influence of those immigrants and the magnitude of impact they have on markets. Their huge numbers are changing old ideas about assimilation. Subdivided into groups, they form three broad possibilities: •

Melting in, which indicates that many Hispanics follow the path of all other immigrant groups and gradually meld into American life, giving up Spanish and marrying non-Hispanics.

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•

Acculturation, where most Latinos speak both languages and retain much of their own culture and ties to their home countries, even as they adapt to U.S. lifestyles.

•

Mexifornia, where many remain in Spanish-speaking enclaves and set the cultural and political agenda in soon-to-be majority-Hispanic states like California and Texas.

Banks, car manufacturers, food producers and liquor producers, to name a few, benefit from the advantages of this form of segmentation. It is a category that is still evolving and promises great vitality in the future. Department stores use lifestyle departments that vary according to neighborhoods. However, personality is still an isolated psychographic variable and requires developmental work before it can prove a valid criterion for segmentation. Overall, the next wave of psychographic inquiry would benefit greatly from the active involvement of cultural anthropologists. Building on their collective expertise of delving into the behavioural patterns displayed by target groups, they can offer insightful direction to managers in ways that serve the best interests of consumers. For instance, a technique borrowed from cultural anthropologists known as field ethnography demonstrates its viability for becoming more observant and analytical before entering markets, committing to new products and confronting competitors. The following process shows its application.

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Using Field Ethnography to Select a Market Segment Field ethnography gives you the distinct advantage of adding insight and sensitivity to your decision-making process that is not available though the other segmentation methods. (However, blending all the methods gives you a more complete picture of a market and its behavior.) Let’s begin with definitions: •

Ethnography is the study of people in other cultures and the resultant written text from that study.12

•

Culture is the invisible Web of behaviors, patterns and rules of a group of people who have contact with one another and share a common language.13

The following steps for conducting a segmentation study consist of a very broad interpretation14 based on Paul Kutsche’s ethnographic techniques.

Step 1: Map A Segment PURPOSE

In this first step, define the physical dimension of the market segment that you have singled out as a potential opportunity. Initially, approach this activity as you would any other market investigation. Use personal observation, data bases, and printed information to (1) assess, verify and redefine your existing segments; and (2) identify emerging, neglected, or poorly served segments worth entering to which you would commit your company’s resources. For the most part, the activity requires you to observe closely and avoid being strapped by biases and preconceptions such as, “We’ve looked at that market before.” Initially, describe a segment in nonjudgmental terms. Use facts built around the physical layout of factories, stores, warehouses, roads or transportation hubs, as well as consumers’ locations within specific and well-defined geographic areas.

12 Source: Paul Kutsche, Field Ethnography: A Manual for Doing Cultural Anthropology, Upper Saddle River, NJ: Prentice-Hall, 1998. 13 Source: Elizabeth Chiseri-Strater and Bonnie Stone Sunstein, Field Working: Reading and Writing Research, Upper Saddle River, NJ: Prentice-Hall, 1997, pp. 43. 14 This interpretation represents my application of the ethnographic principles presented by Paul Kutsche.

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PROCEDURE

The area you select could include a large office complex in a suburban area, a 20-block business section, or a large area of a midsize city. At first, without interviewing the people you encounter, describe the area in detail. For instance, if looking at an industrial sector, draw a map and annotate it with items that provide a clear picture of the area, such as period of architecture, condition of buildings, proximity of buildings to main roads, accessibility to railroad sidings, access to suppliers and services, condition of streets, and other physical details that are pertinent to your business. In the case of a residential neighborhood, also draw a map of the area and comment on the physical condition and location of stores for purchasing daily essentials, availability of banks and similar services, types of residential housing, condition of schools, adequacy of street lighting, condition of main and secondary streets, and any other relevant physical details that would contribute to the validity of your choice as a segment.

PITFALLS TO AVOID

To avoid forming impressions based on your personal perspective of life, do your best to remain nonjudgmental about what you observe. Therefore, be certain to avoid adjectives such as attractive/unattractive, middle-class folks, pricey, cheap, nice, interesting, and so on. Just assemble facts at this stage of the process and use your eyes and your ability to observe with accuracy. Your purpose is to collect accurate onsite ground intelligence that you can project to as large an area that retains the same commonalities. Impressions and conclusions come later.

Step 2: Create A Special Language PURPOSE

Our ‘professional’ language can, at times, confine us in a straight-jacket. Your so-called objective business and marketing terms used to define the culture of a segment or the characteristics of a group may be laced with false or misleading assumptions that would delimit and distort a picture of the actual cultural ‘web of behaviors, patterns and rules of a group.’ One remedy is to create your personal descriptive language. Another approach is to use terms, descriptions, or vocabulary borrowed from a

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neutral field or source that doesn’t affect you with emotional or pre-judged terminology, such as military, architecture, sports, or agricultural terms. It doesn’t matter what terms you use, since the intent is to free your mind of biases. Again, you are attempting to capture accurate, unadorned and objective characteristics of a segment.

PROCEDURE

Write down in narrative form your description of the segment. Include maps and other appropriate references related to demographics, geographics and behavior. Again, avoid the standard business jargon and technical terms normally used in your industry. This process will help you redefine the makeup of an existing segment and even reveal fresh opportunities you may have missed by using conventional demographic studies. Or, you may discover the segment no longer fits into your longterm plans. Once again, use your special language as a device to open your mind and release your creativity to invent a business-building scenario that translates into a product or service, and satisfies the specific needs of a defined group of individuals.

PITFALLS TO AVOID

The familiar business language, terminology, technical and industry jargon tend to trigger usual responses and restrict innovation and dynamic thinking. Therefore, your special language can release in you a fresh viewpoint to see groups, segments, and their respective cultures in a new light – and for a new opportunity.

Step 3: Observe Body Language PURPOSE

The common phrases, “I can read him like a book” or “Clothes maketh the man,” imply that individuals believe in non-verbal forms of body language that can, if observed carefully, communicate significant amounts of valuable information. Observing body language is not new. It is an art form supported by substantial quantities of literature from many of the behavioural sciences, including psychology, sociology and anthropology.

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The intent, however, is not to make you an expert in this field. Rather, the object is to equip you with a keen awareness of how to apply body language as a step in the ethnographic process for defining a segment with greater accuracy. Accordingly, learn to interpret meaningful gestures, for example, during prospecting and while observing the purchasing process. (Familiar dogma from the selling process discusses body language related to how a prospect leans forward with interest or inclines backward with disinterest or apprehension.) There are also the sophisticated electronic approaches that use hidden cameras aimed at supermarket aisles to observe non-verbal buying patterns, and the application of scientific instruments to measure the dilation of the pupil in the eye when viewing a television commercial. However, for everyday use you can conduct a more modest approach by watching body language as part of your overall observation of market and customer behavior. Of course, not all gestures are readily interpreted, unless you have an intimate knowledge of the group. Until sufficient experience is accumulated, you will have to gain expertise through continuous observation and by asking knowledgeable individuals who understand the gestures to decode them for you.

PROCEDURE

Through observation – and outside of hearing range – write down a communication exchange and examine the behavior between two or more people. Try to interpret the event, including its social, business and cultural context. For instance, where two or more individuals are involved, how close or distant did the individuals stand during conversation? Were there cultural implications connected to the stance or gestures? (For instance, Arabs tend to stand very close to others in conversation, whereas Northern Europeans and North Americans tend to stand further apart.) What other characteristics did you observe that would give you a clue to behavior? Were there any unusual body movements that would require interpretation by hiring experts or ‘insiders’?

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Write down your observations. The outcome should result in pinpointing buying patterns or in determining how deliberate or impulsive the buying decision is. In turn, such astute observations can influence how you promote to a customer, the amount and format of the information you put on a package, the type and quantity of backup service you provide, and the range of languages you make available to answer a problem. The central idea is to dispel stereotypical communications that result in inaccurate and costly assumptions about customer reactions and buying patterns. Where observation is not possible, as in behind-closed-door buying situations, you will have to obtain information about the buying process by interviewing individuals who can answer pointed questions related to behavior (see Chapter 5 for market research techniques).

PITFALLS TO AVOID

Gestures are less specific than words and more easily misinterpreted. Therefore, observe carefully. If you are unsure about some form of body language, confirm the meaning with someone associated with the company or group.

Step 4: Describe The Ritual PURPOSE

This step is likened to the shopping and decision-making ‘ritual’ practiced by a consumer, group, purchasing manager, or senior executive. While much has been written in marketing and sales literature about the buying process, we can now add another layer of knowledge from the formidable body of work accumulated by cultural anthropologists over a period of almost 100 years. As rituals vary with individuals, groups and societies, so too, do distinctive practices exist among consumers, companies and various institutions. What is a ritual? “A ritual is almost always a collection of symbols, which a good analysis separates out and considers one by one. You may find an event that is entirely ritual; for instance, initiations, weddings, funerals and other rites of passage…”15 For our purposes, rituals usually apply to

15 Paul Kutsche, Field Ethnography: A Manual for Doing Cultural Anthropology, pp. 48.

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an event and all those practices that are innate to a particular group or organization.

PROCEDURE

Write an insightful description of the ritual. There are no limitations about which rituals you observe. For example, they can include the purchase of sophisticated capital equipment, a computer system for a home, ordinary office supplies, life insurance, or home furniture. For greater accuracy in targeting various purchasing rituals, you can categorize them by demographic, ethnic, geographic, and all those segmentation categories previously discussed. Also, rituals apply to company promotions, orientations and training of new employees; or it can include the handling of employee grievances and customer complaints. In all cases, you want to find out what practices are important to members of the group. This is a critical point – if you are to grasp the viewpoint of the customer, which is the essence of relationship marketing. Therefore, stay flexible as you discover the key forms of behavior associated with an event. Describe in detail the physical setting and record (or flow chart) the events that make up the ritual, as in purchasing a product. The amount of detail you record will vary with the product or service; for instance, hiring a financial consultant, purchasing a computer network, or selecting a beverage. Finally, shape your observations and interpretations into a meaningful recommendation about the market segment you select, and indicate the type of product, service, packaging, pricing and distribution you would recommend. The format in which this information is presented is usually a strategic business plan.

PITFALLS TO AVOID

Rituals include sentiments, emotions and symbolic expressions that tie in to an event or occasion. Therefore, keep in mind that rituals are built-in to the culture of a group or market segment. While it may be difficult to stay objective, recognize that you are attempting to grasp the meaning

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behind the actions of those individuals you are observing. Accordingly, avoid giving your personal opinion of some practice as right, wrong, strange, or familiar. Finally, the purpose of this four-step process is to add greater precision to shaping your strategies. With resources often limited, competition more intense and viable segments harder to locate, you now have an additional evaluation tool to aid your decision-making. The following case example provides a more complete perspective of the direct and indirect uses of segmentation.

Case Example Ericsson, the Swedish phone giant, defines its growth markets against a backdrop of intense competition and swift movements in technology. Within that twofold framework, managers faced tough decisions at the turn of the 21st century about how to defend their hard-won positions in established segments. In particular, they had to determine how to keep ahead of aggressive competitors, while obtaining a foothold in new segments. For Ericsson, the nagging problem was that even with a substantial share of wireless and fixed-line networks, it lagged in a key telecom growth market: mobile handsets. That void provided hard-driving competitors with an opening to gain solid positions. For example, Finland’s Nokia consolidated its hold on the mobile-handset business with a 23 per cent market share vs. Ericsson’s third-place 15 per cent. Such North American powerhouses as Cisco Systems, Lucent Technologies and Nortel seized the lead in the Internet telephony field. The situation was that telephone handsets, once a big earner, were barely profitable because of pricing pressure, aging products and bulky designs.

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Ericsson’s Strategy To fight back, the Stockholm-based company advanced by using the following steps: Recognizing a prime opportunity, Ericsson employed its vast technical expertise to concentrate heavily on the growing applications for mobile phones to transmit reams of information. Also, the company expanded the segment for mobile phones by intensifying its efforts to offer wireless Internet access. As the wireless networks multiplied, Ericsson managers concentrated on the stunning forecast of one billion mobile subscribers worldwide by 2005, along with 30 per cent to 40 per cent using mobile systems for the Internet. With those healthy projections, a massive market for equipment upgrades looked particularly attractive and Ericsson positioned itself to grab a significant piece of that lucrative market segment.

Summary Managerial skill and leadership competence are not typically demonstrated by costly, hard-driving encounters in the marketplace that often deteriorate into price wars and other combative tactics. Instead, competency is exhibited by taking responsibility for the long-term growth and viability of a market, retaining long-term customer relationships, and keeping the organization healthy by acting responsibly through the following principles: 1.

To win over a competitor through strength-conserving strategies is far better than forcing it out of business through combative marketing tactics.

2.

What is of supreme importance is to attack the competitor’s strategy.

3.

The manager who excels at resolving internal difficulties before they arise, wins. The one who succeeds in blunting competitors’ threats before they materialize, wins. The one who overcomes customers’ resistance and solves their problems, wins.

4.

The manager who internalizes customers’ needs and behavior through all the touch points of knowledge management can then translate the findings into new market and product opportunities.

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5.

The manager who succeeds in disrupting a competitor’s alliance can reduce the potential impact of having to face a more formidable competitor.

6.

When unable to disrupt alliances, attack the competitor by creating a sustained competitive advantage.

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FIVE

Energize Your Company’s Potential – Develop Invincibility

FIVE

Energize Your Company’s Potential – Develop Invincibility

Chapter Objectives Enhance your managerial skills as you: 1.

Use analytical tools to determine potential areas of vulnerability and invincibility.

2.

Incorporate business ethics to strengthen your strategies.

3.

Identify techniques to achieve invincibility by managing, controlling and deploying your resources.

Take comfort. It’s entirely realistic to assume that your company’s (or business unit’s) success, and perhaps its eventual destiny, lie within your grasp. To a greater extent than you may imagine, any feeling of invincibility you possess depends on yourself – if you are willing to seize hold of it. Equally, any realization of superiority – or even vulnerability – an opposing manager may feel depends on his or her inner beliefs. What supports this seemingly exaggerated premise of being able to energize your company’s potential and retain a sense of invincibility? It begins with a disciplined look at the inner workings of your organization – in those areas where you can objectively view the unique strengths that could make your company unbeatable.

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Areas of Vulnerability and Invincibility Initially, the object is to expose indefensible sectors that could make your company vulnerable. Such areas include product development, technology, personnel skills, marketing and sales, distribution, production, internal business systems, inventory control, company culture – and any other area that could weaken the vital underpinnings of your organization. The task also means looking at the feasibility and credibility of the long-term vision that envelopes the strategic business plan. Even with such an elaborate scrutiny, an uncomfortable reality does exist. While savoring a measure of inward control over your company’s or department’s future, you still have to live with a wide gap of uncertainty. For instance, what strategies can the competitor spring on you to undermine your efforts? How would your company act if the roles were reversed? As the seesaw effect evolves, how can you rebuild those areas of your business that remain vulnerable? A vital lesson emerges. Your best chance for success is to reduce the number of variables that cause vulnerability and eliminate as much of the risk as possible. By continuously monitoring your situation, and that of your competitor, you would narrow the gap and expose your opponent’s weaknesses.

Determining Vulnerability Let’s examine actual situations to illustrate the realities of invincibility and vulnerability.

Case Examples Valeo, considered one of the best European auto-parts makers, was ranked the world’s No. 10 supplier and Europe’s No. 2 supplier of innovative and quality components at competitive prices. Then in 2001, at the retirement of its notable CEO Noel Goutard, the Paris-based supplier slipped and fell into the murky depths of vulnerability.

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This meant the company experienced difficulties integrating new businesses and meeting delivery deadlines. The result was that Volkswagen threatened to cut Valeo’s share of contracts for headlights and interior lights across its model range from 70 per cent to 20 per cent. Drastic cuts were also discussed for windshield wiper orders. Then the inevitable took place, an eager competitor emerged to take advantage of the confusion. Stuttgart-based Robert Bosch, Europe’s leading parts producer, moved in to improve its market position, gain bargaining clout, and generally benefit from the shift in competitive power. Valeo’s board observed with heightened alarm how its proud company could fall so rapidly into a condition of vulnerability. Awakened to action, the board wrestled with a time-sensitive solution. First and foremost, call back Goutard from retirement and rapidly implement critical changes. Among them: Immediately confront the troublesome quality and delivery problems plaguing customers, restore customers’ confidence, reverse the losses in orders and generally broadcast a powerful message to any reluctant customers – and the entire automobile market – that Goutard is back and in charge. Lucent Technologies, the telecom-equipment maker, is a resounding example of a once all-powerful, virtually invincible company toppling to the brink of vulnerability. During 2001, the company experienced severe problems from complaining customers, along with deep uncertainties about how to sustain a lifeline of cash flow to support day-to-day operations. Eliminating 10,000 jobs, representing some 9 per cent of the workforce, and making other drastic cuts alleviated the situation somewhat and narrowed the operating losses. Fundamental to the dilemma appears to be Lucent’s original core strategy. When Lucent was spun off from AT&T back in 1996, it emphasized the breadth of the company’s products and services, rather than developing cutting-edge products in a few key niches. However, many of Lucent’s phone company customers were asking for just the opposite. As one customer put it, “What we do is buy best-of-breed technology and integrate it ourselves. It’s very difficult for a single equipment maker to be best-ofbreed in every category.”

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Yet Lucent’s executives sincerely believed that it wasn’t important to have the best product if you can offer a telephone company a complete communications network, as well as services such as installation and maintenance. The final outcome has yet to be played out. Nonetheless, the condition of vulnerability – temporary or permanent – is a reality. Now, let’s look at the conditions surrounding invincibility.

Determining Invincibility The initial task in controlling your company’s destiny is to make your company or business unit invincible to a competitor’s aggressive actions. First, that means shoring-up your areas of weakness (as illustrated in the Valeo case), then thinking about attacking the weak points of your opponent. Therefore, you defend when strength is inadequate; you attack when it is sufficient. How do you approach the task? There are popular approaches that have worked well for many firms striving for a realistic level of invincibility. How effective they are depends first and foremost on the level of commitment management makes to the effort. What follows are practical actions to identify areas of vulnerability and bolster the core requisites of invincibility. One frequently used method, for an entire organization or individual business unit, is a SWOT (strength, weakness, opportunity, threat) analysis. Begin by developing a grid headed with the four areas representing SWOT on the horizontal axis. For the vertical axis, select major factors that make up the areas of invincibility and vulnerability, and which provide the most meaningful assessment about your industry, your market and your competition. Next, give each of the factors a numerical weighting to indicate its level of importance to your market and competitive situation. Also, where appropriate, add descriptive data or reasonable assumptions for each factor. You will find that digging for precise information will add greater precision to your analysis and eliminate any ambiguity in the ratings. A further value of SWOT is that it highlights areas of your business that you can convert to objectives and strategies in your strategic business plan.

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For another valuable approach, refer to Chapter 2, Table 2.2, Tactical Estimates. The 51-question checklist allows you to review your market environment, examine management practices and policies, and validate your strategies. Also within Chapter 2, Table 2.1, Changing Corporate Culture, you can provide an additional perspective that is often overlooked in determining how invincible you are – or could become. Increasingly, the power of a cohesive corporate culture is topping the manager’s list of interests in projecting what a company is capable of achieving. (Also see the General Electric and IBM case examples in Chapter 2.) For another valuable analysis see Chapter 4, Table 4.1, Competitive Analysis. Using the internal and controllable components of the marketing mix (product, price, promotion and distribution), you can obtain a fairly accurate and detailed assessment of where you are invincible and vulnerable. You also gain an advantage by comparing your company’s marketing mix against that of your competitors. Regardless of which type of analysis you choose, don’t consider it a onetime event. On the other hand, don’t get stuck in a relentless pursuit of data that leads to a condition of ‘paralysis by analysis’. With the Internet introducing profound changes in how companies conduct business and with dazzling new technologies evolving steadily, periods of invincibility and vulnerability have short life cycles. Consequently, you should maintain a momentum of continuous assessment and improvement as an essential ingredient of success – and of leadership.

Case Examples Dell Computer made the proud claim in 2001 that it achieved market share leadership for computer sales in the U.S. To achieve that lofty position, Dell looked hard at a troubled marketplace where overall computer sales were sagging. Although industry sales growth climbed by 15 per cent, that was only half the rate of growth just a few years before.

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Then Dell executives reflected on its internal corporate objectives, competitive ranking and, most importantly, its core competencies. They concluded that the Texas-based company’s single most important strength, and one that could be justly claimed an area of invincibility, was its lowcost structure. That embedded advantage, along with its time-tested strategy of selling directly to consumers and businesses while bypassing store distribution, added decisively to Dell’s overwhelming strength. Totaling all the positive advantages, Dell decided it was a safe bet to drive forward and increase its market share with aggressive pricing as its driving force. Noting the comments from cautious industry watchers that the company would suffer reduced profits, Dell management nonetheless focused on the bigger picture. It knew that its competitors, especially the smaller computer makers, could not sustain a drawn-out defense against hard-line pricing in a prolonged weakened PC market. Motorola inc. has rolled precariously on an up-again, down-again, upagain cycle in recent years. Having won the prestigious Malcolm Baldrige National Quality Award and the esteemed honor of inventing the cellular industry, the company fell from favor in 1998. Its customers were incensed at salespeople dictating to them the kinds of mobile phones they could buy. At that point, agile rivals such as Finland’s Nokia Group moved quickly to crack Motorola’s up-to-then invincible barriers with innovative products that captured the attention and business from key customers in global markets. Once the full impact of Motorola’s vulnerability took hold, then CEO Christopher B. Galvin, grandson of the founder, made a rational and deliberate assessment of the company’s situation. What emerged were decisive goals. First, galvanize the company to reclaim Motorola’s once prominent market position. Second, build Motorola as a new and invincible organization that would set the stage for a resounding comeback. Galvin cut costs, slashed jobs, shut down semiconductor and paging plants, and generally overhauled the company top to bottom. The makeover included uprooting Motorola’s inhibiting culture, with its disparate and fiercely independent groups operating separately and displaying adversarial attitudes toward each other. With a wrenching effort,

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the revitalized company was transformed to act as a cooperative and responsive customer-oriented powerhouse ready to serve its customers’ wants and needs. Then, ready for the comeback, Motorola personnel fanned out around the globe calling on every wireless customer and prospect hawking a vast lineup of Web phones. In one year, Motorola shipped 1 million phones capable of browsing the Net, more that any other cell phone maker at the time. As one customer put it, “Motorola is clearly rising to the mark.” In sum, there is no limit to how far you can go in conducting an analysis. Depending on your resolve, determination, people resources and time, you can – and should – make extensive evaluations. In addition to the references already cited, Table 5.1 includes a comprehensive checklist that assesses invincibility and vulnerability for both you and your competitors. As with all checklists, you can modify the content to suit your firm’s precise needs. For instance, you can add additional categories to the table, such as finance, R&D, production, organization and administration, workforce and technology.

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Table 5.1. Checklist for Determining Invincibility and Vulnerability Where applicable, indicate the areas of invincibility and vulnerability of your company against those of major competitors for each of the categories.

I. Market A. MARKET DIMENSION

In what size market do you and each of your competitors operate? Be specific with respect to: Your company

Comp A

Comp B

Comp C

Single market Multimarkets Total market Regional market National market International market

B. MARKET ENTRY

How do you and your competitors usually enter a market? Is there a market leader? Who are the followers? Identify by: Your company

Comp A

Comp B

Comp C

First-in Follow-the-leader Last-in

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C. MARKET COMMITMENT

How much commitment do you and your competitors give to a specific market in terms of priorities and resources? Your company

Comp A

Comp B

Comp C

Major commitment Average commitment Limited commitment

D. MARKET DEMAND

How flexible are you and your competitors in changing strategies for different market situations? Your company

Comp A

Comp B

Comp C

Prune markets when demand slackens Concentrate on key markets when demand increases Harvest profits when sales plateau

E. MARKET DIVERSIFICATION

How have you and your competitors responded to diversification opportunities? Your company Added new businesses, product lines, or another stage of production or distribution Diversified into unrelated businesses

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Comp A

Comp B

Comp C

II Product A. POSITIONING

How efficient are you and your competitors in monitoring customer perceptions and identifying customer niches, as they relate to: Your company

Comp A

Comp B

Comp C

Positioning a single brand Positioning multiple brands Repositioning older products

B. PRODUCT LIFE CYCLE

How efficient are you and your competitors in extending the life cycle of products, as to: Your company

Comp A

Comp B

Comp C

Promoting more frequent product usage Finding new users Finding more applications for the products Finding new uses for the products’ basic materials or technology

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C. PRODUCT COMPETITION

To what extent do you and your competitors attempt to gain a larger share of a market by introducing: Your company

Comp A

Comp B

Comp C

Competing product Private label product Generic product Branded product

D. PRODUCT/SERVICE MIX

Where do you and your competitors stand in relation to width and depth of product lines and service offerings for: Your company

Comp A

Comp B

Comp C

Single product Multiple products Product systems Value-added services

E. PRODUCT DESIGN

How much manufacturing and design flexibility do you and your competitors maintain for: Your company Standard products Customized products Standard product, modified

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Comp A

Comp B

Comp C

F. NEW PRODUCTS

How do you rank among competitors in the following areas: Your company

Comp A

Comp B

Comp C

Product innovation Product modification Product line extension Diversification Re-merchandising existing products Extending market for existing products

III. Price A. NEW PRODUCTS

What has been the pattern for you and your competitors in pricing new products? Do you/they tend to use: Your company

Comp A

Comp B

Comp C

Skim (high) pricing Penetration (low) pricing Psychological (odd/even) pricing Follow-the-leader pricing Cost-plus pricing

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B. ESTABLISHED PRODUCTS

What has been the pattern for you and your competitors in pricing established products? When do each of you use: Your company

Comp A

Comp B

Comp C

Slide-down (gradual reduction) pricing Segment pricing Flexible pricing Preemptive pricing (reacting aggressively prior to knowing of competitors’ pricing) Loss-leader pricing

IV. Promotion A. ADVERTISING

To what extent do you and your competitors use advertising to do the following: Your company Support personal selling Inform target audience about the availability of a product Persuade prospects to buy directly from advertising Utilize the Internet in the total promotion mix

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Comp A

Comp B

Comp C

B. SALES FORCE

How does your sales force compare with competitors’ sales forces regarding: Your company

Comp A

Comp B

Comp C

Sales force size Sales force territorial design Compensation systems Training Technical or service backup

C. SALES PROMOTION

How well do you and your competitors integrate sales promotion with advertising, Internet and sales force strategies? How effective is sales promotion to: Your company

Comp A

Comp B

Comp C

Encourage more product usage Induce dealer involvement Stimulate greater sales-force efforts

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VI. Distribution A. CHANNEL STRUCTURE

How effective is the supply chain in reaching customer markets: Your company

Comp A

Comp B

Comp C

Direct distribution to end user Indirect distribution through intermediaries (distributors, dealers) Use of the Internet in direct or indirect distribution; and in B-to-C or B-to-B channels

B. CHANNEL DIMENSION

Are you or your competitors displaying any strategies that could alter distribution methods, as you look at: Your company Exclusive (restricted) distribution Intensive (widespread) distribution Selective (high sales potential) distribution

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Comp A

Comp B

Comp C

C. CHANNEL CONTROL

Are you or any competitors attempting to control the supply chains through the following approaches: Your company

Comp A

Comp B

Comp C

Adding a wholesaling function Adding a retailing function Controlling more of the manufacturing process Adding franchises Combining with other organizations to achieve purchasing economies Incorporating the Internet within the supply chain and/or participating in online exchanges

How is invincibility accomplished? If a competitor or any other interested observer in your industry can easily interpret your business plans with a fair level of accuracy, then your element of surprise is compromised. More specifically, if your competitor can foresee your plans, then he can act to deflect your efforts with little or no gain on your part. Let’s carry the thought a step further: Think again about the elements of strategy that were discussed in Chapter 4: speed, indirect approach, concentration, alternative objectives and unbalancing competition. To succeed, each of these elements must rely on secrecy, including any discreet

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means that prevents an opponent from unraveling the true objectives and strategies of your plan. Beyond just maintaining secrecy, the issue goes deeper into the psychology underlying strategy development. Your aim is to devise plans with ingenuity and creativity that are securely wrapped around the two-zones of activity (see Figure 4.2, Framework for Strategy Development) that characterize all market situations. That is, in zone one, respond with sensitivity to customers’ needs and problems; in zone two, decipher competitors’ strategies and devise ways to outwit them, yet maintain secrecy about any actions that provide your competitors clues about your forthcoming plans. “Keep ‘em on the horns of a dilemma”, is an often-repeated quote by the U.S. Civil War General William T. Sherman that clarifies the principle. The salient points: Success takes place before you undertake any combative market actions against competitors. Through the types of analyses recommended earlier, you can expose your competitor’s weaknesses, which then leads to a course of action. Doing so will help you gain victory before the market situation crystallizes – and certainly at the least expenditures of material and financial resources. For instance, as a result of your analysis, test its value with the following questions: •

Can you position yourself in the market so that the competitor cannot anticipate your moves, and thereby cannot maneuver fast enough to counter your moves?

•

Can you focus your resources on an emerging market trend before the competitor can react?

•

Can you create a differentiated product that is not easily cloned?

•

Can your management systems provide quick market feedback for you to take remedial action?

•

Can you develop alliances or solidify contracts with customers that lock out competitors for an extended sales cycle?

If you answered yes to all or most of those questions, then you have the greatest chance for achieving victory before any costly confrontation takes

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place. The wisdom of the strategy is further expressed by the following maxim: A winning company wins before seeking a competitive encounter; a company destined to lose fights in the hope of winning. In any of the above actions skilled managers typically don’t make the news headlines or always win their deserved accolades. Their competitive battles are most often won quietly and decisively before any encounter takes place – and before the ‘ordinary’ manager internalizes what is happening. The critical point: An effective plan is a byproduct of making correct estimates16 that results in seizing success from a competitor already subdued, and before there is need to take costly and aggressive actions.

What kind of leadership and managerial skills are required to handle such subtle responsibilities? 1.

Learn to sharpen your perceptiveness by looking outward at the industry, market trends, customers’ needs and problems, competitive dispositions and any pertinent legal or political issues that clarify your situation.

2.

Develop harmonious relationships and a feeling of cohesiveness with your staff. The adage, “There’s strength in numbers” is an essential truth, particularly if you can muster a solid phalanx of dedicated personnel enveloped with determination, morale and direction.

3.

Create a far-reaching strategic business plan with defined objectives and explicit strategies, which aims at reducing resistance and exploiting the weakness of competitors. (A sample plan is provided in the Appendix.)

4.

Understand the geographic dimensions of the market and any seasonal, logistical and even cultural conditions that could affect plans.

16 For details on making estimates see Chapter 2.

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5.

Internalize the various human and behavioural factors that are present in a buying situation, especially in segmented markets with diverse buying patterns.

6.

Immerse yourself in the technologies that can launch your business into new levels of performance. For instance, new customer relationship management software lets corporate sales forces track their customers and analyze markets. Now managers can learn exactly what their customer’s want before they design a new product. Manufacturers can even let buyers specify the key features they would like before a product is assembled. The new generation of software offers even more efficient ways to gather information collected at companies’ Websites, direct response operations, customer service call centers, retail stores and field sales.17

Without those finely honed skills, you may stumble and hesitate if unable (or unwilling) to estimate your company’s capabilities or cannot fully grasp the fundamental advantages of maintaining flexibility when facing a competitive threat. Further, you may anxiously look to the right and then to the left and feel powerless to act decisively, unless guided by a clear and precise plan. Believing at one moment and doubting the next, you may likely place confidence in unsubstantiated reports and casual opinions from the misinformed. The worst case is that such erratic and anxiety-ridden behavior can dissolve the confidence of your personnel and even ruin the company. The following cases illustrate some of the above ideas.

Case Example Toys ‘R’ Us recoiled from a failed e-tailing initiative during 1999. Faced with huge numbers of disenchanted customers complaining about not receiving merchandise in time for the holiday season, it reeled further from

17 For greater detail on these managerial attributes see Chapter 2.

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a decisive hit by then high-flying eToys. Quickly, quietly and determined, Toys ‘R’ Us licked its wounds, acknowledged that it bungled its efforts to develop a viable online activity and subsequently formed an alliance to sell its toys online via Amazon.com. Armed with a sound market-driven business plan and a determined resolve, the company sprang back to its former market position and posted a strong season by 2000. In the meanwhile, eToys failed to foresee its opponent’s strategy and before long filed for bankruptcy.

In Another Case Example Two budding companies emerged with non-confrontational strategies in the cell phone market against the big telephone players. Telespree and Dieceland saw a market for disposable phones that would appeal to a diverse mix of customer segments. Golden age customers might favor them for their ease of use. Travelers apprehensive about losing their costly cell phones could purchase a disposable one from an airport store. Parents could provide their children with inexpensive phones to assure on-going contact away from home. People on meager budgets or with credit problems could pick up a disposable phone without worrying about long-term contractual arrangements. Analysts estimate that 15- to 16-million disposable units will be sold in the U.S. annually by 2006. Each company took somewhat of a different approach to the market. Telespree’s phones come in a variety of trendy colors including ‘calypso green’, ‘scuba blue’, and ‘citrus yellow’. Its voice-activated system allowed users to dial numbers vocally. In contrast, Dieceland’s Phone-Card phone looked like a small calculator with a complete numerical keyboard that fits easily in a shirt pocket. Initially, both companies planned to penetrate those fringe segments of teens and seniors that are generally neglected by the larger phone companies. Relying on dependable estimates about markets, trends and

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competitors’ positions, any potential competitive battles between market leaders and start-up phone companies turned out not to be head-to-head confrontational battles at all.

In Still Another Case Example Peet’s Coffee & Tea Inc. searched for a viable position in the lucrative coffee market against the dominant player, Starbucks Corp. Here, too, the battle was played out in a non-confrontational market arena. Starbucks commanded the already-brewed or coffee-in-the cup market with more than 4,100 outlets worldwide. In contrast Peet went after the fresh-roasted, whole-bean market. It sold its products through retail outlets, mail order, the Internet, specialty grocers, offices and restaurants. The company expected to grab a healthy portion of the highly fragmented gourmet-coffee business, estimated at $8.5 billion. Roughly half of that comes from whole-bean sales that Peet claimed as its target market. In all three cases, direct confrontation was avoided and for the most part their precise strategies were undisclosed – or generally disguised for even the ‘average’ manager to understand – until revealed by the media or some good intelligence gathering efforts by research companies.

Business Ethics and Invincibility There is yet another managerial skill that supports invincibility and one you should cultivate. It deals with the deep-seated behaviors of moral values and fairness – the practices and institutions that set the tone and mannerisms for running your group or the entire organization. These principles delineate issues you should be aware of and, if empowered, to change or preserve. Before transmitting them to your

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organization or group, however, you must first internalize these feelings and value systems yourself. The familiar title for this high-minded managerial skill is business ethics. It is defined as treating all stakeholders – employees, customers, vendors, communities and stockholders – with respect. That means displaying integrity, fairness and generally acting with a high degree of honesty in all dealings. Generally lodged with the founder in a small business or at the most senior management levels in a larger organization, such attributes form the culture and, in turn, shape the observable values of an organization. Ethical issues are not fanciful concepts or academic theories. They are fundamental and intrinsic to the conduct of business and to the eventual outcome of your strategies. They form the core foundation for strengthening the invincibility of your firm, keeping vulnerability at bay, while harmonizing with the tempo of today’s markets. The practical output of ethical behavior emerges internally in shaping policies, plans and procedures; recruiting and developing employees who can act in sync with the ethics and value systems of your organization; and interacting dutifully with all those with whom they have contact. Externally, ethical behavior flourishes by treating customers fairly and with respect, supporting long-term customer loyalties, and solving problems related to product performance, delivery, technical support, and general customer service quickly and correctly. Overall, business ethics means striving to advance any and all issues linked with customer relationship management (CRM) initiatives. By aligning employees with shared values in your company, you contribute to unified efforts and the hoped for status of invincibility.

What actions can you take? First, align the values and culture of your company with the positive characteristics of your industry and the markets you plan to serve. That means: •

Re-examine the mission statement (if one exists) for your company or business unit. (The mission statement or strategic direction is

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central to a strategic business plan. See the Appendix for an example.) •

Search for policy statements about ethical practices in such areas as accepting gifts.

•

Look at the rules related to disclosures of sensitive and confidential information in speeches or articles.

•

Review regulations concerning the dealings with vendors.

•

Identify any materials that discuss corporate values and codes of conduct.

Second, where needed, draft or revise clear policies and procedures related to the above ethical issues. Use such statements as, ‘Here’s what our company stands for’. ‘This is what we mean by integrity, fairness and responsibility to our customers, employees, suppliers and all stakeholders’. Wherever possible survey the various echelons of employees for their input. This is particularly important in developing standards for those areas that are prone to quarrelsome encounters, such as confrontations between manufacturing and sales or marketing and finance. Third, establish a process that encourages and enables people to raise questions that may fall outside the stated policies and land in gray areas. Even if you choose to personally carry the banner of ethics for the good of your company and its people, it can be a very weighty task unless your most senior management provides total support. Ultimately, it is the leader’s honesty, integrity and personal values that will define ethics for the organization. Then, middle managers can step in to interpret and apply those values to their respective staffs. The following examples bring reality and practical applications to these concepts.

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Case Example BP Amoco faced the frustrating task of being sued by the families of six scientists stricken with a rare form of brain cancer. All those individuals were diagnosed soon after retiring from long careers at one of BP Amoco’s chemical research labs. Medical experts brought in by management concluded the brain cancer was probably work-related. Management had the opportunity to sit out the unfolding drama with its impending class action suits and wait for the evidence to be presented in court. Instead, an ethics-related decision was fashioned by BP Amoco management to own-up immediately to its responsibilities that workplace liabilities were its implicit duty. Even before the lawyers could file their case, management had hired eminent researchers from Johns Hopkins University and the University of Alabama to construct medical histories of everyone who had ever worked in the lab. BP Amoco then moved rapidly to take the moral high ground with an honest, compassionate, and humane disclosure that the deaths were work related. The result was that BP Amoco won dismissal of a potential devastating class action court drama. It subsequently made a financial settlement out of court, thereby diffusing a potentially long drawn-out, image shattering and more costly outcome. While there are more litigation episodes to follow, this portion of the case illustrates the underlying values of the organization. In contrast, management had options, which it dismissed, that could have taken it down a more contentious path.

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In Another Case Example Time Warner used controversial procedures to gather competitive intelligence, even where clearly stated ethical guidelines existed as company policy. The situation arose in 2000 where employees were offered free Internet service or a chance to win $100. To win, however, employees had to order high-speed Internet service from Southwestern Bell. Then, employees were instructed to cancel the order and report the details of the transaction back to Time Warner. They were asked to describe how the order was handled, what appeared as a distinctive competitive advantage, and what looked like an area of vulnerability that could be used to Time Warner’s benefit. When Southwestern Bell asked for state and federal investigations of ‘anticompetitive’ and ‘underhanded’ practices, Time Warner admitted the practice violated its own corporation’s ethical standards. With corporate image as much a marketing weapon as price, product quality, and service, the cases illustrate that ethical doctrines play a powerful competitive role in strengthening the bulwark of invincibility.

Manage, Control and Deploy Resources After internalizing the above managerial skills, you should now prime your mind to the next stage of invincibility – making levelheaded decisions related to how you are going to manage, control and deploy your resources. Dispositions rely on using the following guidelines to create the effect of superiority.

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Observe the physical makeup of markets Monitor those business activities that relate to the physical circumstances of your marketplace. These include: 1.

the special characteristics of the distribution channels, as well as the entire supply-chain;

2. 3.

the ease or difficulty of maintaining adequate market coverage; the disposition of competitors and where they have penetrated the market;

4.

the proximity to customers for providing prompt back-up service; and

5.

the evaluation of any other distinctive features that would increase your knowledge of the market.

Estimate quantities Obtain the numerical measurements covering such areas as the volume of orders from various segments, frequency and recency of orders, seasonal influences on purchases, and the patterns of behavioural buying practices of various customer groups. Overall, quantities reflect your company’s ability to fulfill market demand and satisfy customers’ expectations, as measured by customer satisfaction ratings.

Calculate the chances of success Assemble all your data, quantitative and qualitative, as part of the decision-making process to determine the probability of success. These calculations typically translate into market share, return-on-investment, sales and profits, and any other numbers pertinent to your business. They also provide the pragmatic guidelines to render a go/no-go decision. Note: All these calculations are made prior to committing resources and taking any offensive actions.

Compare key dispositions Look carefully at such areas as the deployment of front-line sales and service people and the expenditures for advertising and sales-support functions. Do so in comparison to similar dispositions of the competition. Then,

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observe the soft side of comparisons to determine the morale of the competitors and calculate what type of spirited response they could possibly mount against your marketing efforts. (See Chapter 4, Figure 4.1. Competitive Analysis, for additional areas of comparison.) These guidelines give you an opportunity to sensitize your thinking and make all the appropriate estimates about your company’s dispositions. You also get a sense of how preparedness takes enormous risk out of your judgments and becomes the best input for shaping competent decisions that lead to invincibility. What are the practical circumstances surrounding invincibility, vulnerability, managerial skills and dispositions? Consider in the following diverse case examples how changing market conditions, the inability to foresee and deal with a precarious competitive position and internal management discord, can contribute to the make-or-break outcome of a company.

Case Example IBM and Oracle have been battling in an ongoing punch and counterpunch competitive arena of corporate software. All the hard fighting is about who will seize a lion’s share of that lucrative $50-billion market in the coming years. The contest began with Oracle introducing a new product. IBM followed on its heels with a competitive one in every area from databases, applications, to e-business foundation software. Below the surface, however, the companies’ strategies are quite different. Oracle offers customers a complete and highly integrated package of software to handle its manufacturing, sales force logistics, e-commerce and suppliers. IBM takes a strikingly different ‘best-of-breed’ approach in which it assembles the software from other companies, including its own, and integrates it into a seamless package.

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The strategies are so vastly diverse that enormous implications exist for the entire software industry. With IBM’s move, such software producers as Siebel, People-Soft and SAP, as well as countless start-ups have a chance to introduce their unique products to market. In contrast, Oracle drives only its own products and provides less maneuvering room for rivals. That is, the Silicon Valley company competes in the applications sector with those same software firms it relies on to help sell its databases. On the other hand, IBM’s strategy aims at what it views as Oracle’s major vulnerability. That means IBM doesn’t sell applications of its own. By positioning itself in an impartial role, IBM attempts to take the high ground by partnering with those same companies that compete with Oracle. The perceived advantage for IBM is an increase in database sales, since applications companies often recommend to customers which databases they think should be used with their software. IBM’s consultants then join the software together from a variety of vendors. While the final event has yet to be played out, the situation does illustrate the precarious nature of competitive battles and how invincibility and vulnerability each contend for its own paradoxical position.

In Another Case Example Yahoo! Inc. faced the daunting task during 2001 of attempting to recover from several strategic decisions that placed the company in a somewhat vulnerable condition. From a high-point stock price, it plunged by 60 per cent in just 10 months. Revenues nose-dived 42 per cent, and for the first time the company laid off 400 employees. Reports at the time indicated that a number of executive mistakes caused the debacle. First, on hearing that rival America Online Inc. was about to join with media giant Time Warner Inc., Yahoo’s senior executives argued about

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taking the same path and finding a company with dedicated resources to provide a steady stream of fresh news and entertainment. The eventual decision was to stay the course, rely on its own resources and avoid a similar media connection. As market events evolved, that ominous decision, coupled with a souring economy and the devastating dot.com failures that slashed advertising revenues, exacerbated an already deteriorating situation. Second, months later, after revisiting its fateful decision to go it alone, Yahoo considered partnering with another firm and began serious talks with Web auction leader eBay Inc. Again, with Yahoo’s senior management at odds about how such an acquisition would function organizationally and culturally, the deal never materialized. Meanwhile, revenues continued to decline, internal bickering elevated to the point that co-founder and CEO Timothy A. Koogle resigned and an outsider from Warner Bros. took over as chairman and CEO. Quickly the new leader went to work devising a turn-around plan through a series of priority objectives. First, revitalize advertising to lure back disgruntled advertisers. Second, rebuild management into a cohesive whole and energize the rank-andfile. Third, provide new fee-based services for the Internet. And fourth, from its venerable position among consumers, expand into the corporate market with fresh products and service. The pieces are still coming together and will become valuable lessons in invincibility and vulnerability. In a totally different case example: Changing market trends often can distort pre-conditioned images among those managers who cannot visualize changes emerging within their industries. For example, there is the implacable image projected of the motorcycle world centered on a predominately male population thundering down a highway on Harleys, or crowding into racetracks for its biking events. Yet, the actual marketplace tells quite a different story. Motorcycle sales swelled as aging baby boomers, women and young executives with disposable income leaped onto the new lifestyle trend of driving powerful bikes. More affluent and better educated than ever before, these new riders spent an estimated $6 billion on new motorcycles in 2000 at an average price of $9,500 each.

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In particular, women account for a good portion of the new riders who are fueling the jump in sales. Women’s clubs are catching on, often segmented by type of bike, age and even occupation. “The whole image of motorcycling is changing. Hell’s Angels don’t run the sport anymore. Now it’s groups of lawyers and doctors,” comments an industry watcher. These cases support several of the strategy development and personal managerial skills discussed thus far: •

Prepare measurable estimates of the internal workings of your company.

•

Assess the operating styles and strategies of your competitors.

•

Estimate changes in market trends and determine what ramifications they have on your long-term corporate goals, as well as on your short-term marketing mix strategies.

•

Measure any significant changes or trends affecting the buying behavior of your audience.

The significant point is that success and failure, invincibility and vulnerability, boil down to a 360-degree awareness of your internal and external environments. In turn, these factors are embedded in the timehonored principles organized and applied in all fields of endeavor. While the erratic behavior of a marketplace offers no guarantees of success, in pragmatic terms even where prior estimates are made and the rules of engagement are diligently followed, all you can expect is that the competitive edge falls in your favor. And should some estimates lack total accuracy, consider the opportunistic effect where your competitor has made little or no prior estimates. Therefore, following the proverbial seat-of-the-pants approach, your rival would react to every news headline and scatter resources without direction. Certainly, the competitive odds would be on your side. “Now the shape of an army resembles water. Take advantage of the enemy’s unpreparedness; attack him when he does not expect it; avoid his strength and strike his emptiness, and like water, none can oppose you.” Sun Tzu

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Several bits of transferable knowledge emerge from the 2,500-year-old wisdom of Sun Tzu that is applicable to conducting business in the 21st century. First, the notion of shaping a company or business unit to resemble water means maintaining a resilient mindset to correspond to the changing behavioural nuances of the market and its individual segments. Does this mean that planning is obsolete? Not at all. A business plan, or for that matter any other type of plan, should contain a strategic focus as well as a tactical implementation. The long-term view keeps you on a correct path, based on your company’s mission or strategic direction. As long as there are valid assumptions backed by reliable assessments, it should hold you on course. Flexibility also plays an active part primarily at the shorter-term tactical level, where there is greater need for agility to take advantage of opportunities – as long as they link to your longerterm objectives. That principle, in turn, leads to the second major theme – take advantage of a competitor’s unpreparedness. There is no honor in braving repeated battles with competitors and falling prey to harmful price wars18 and other combative actions. Instead, the honor goes to those managers who avoid sustained and careless draining of resources. Yet they are still able to achieve the desired objectives. The following case summarizes the practical aspects of invincibility and vulnerability.

18 An exception would be in the Dell Computer case, where aggressive pricing is a planned and deliberate strategy to increase market share and where the company is willing to absorb lower margins for the bigger gain. Also, Dell’s core strength is as an efficient, lowcost manufacturer. Accordingly, that permits the company to profitably withstand such a pricing strategy.

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Case Example Convergys Corp., a Cincinnati, OH telecom-services business, cleverly built a solid foundation for its business through the sharp strategic and tactical vision of its CEO, Jim Orr. The company’s customer-service outsourcing group operates about 48 centers nationwide that handle telephone inquiries and e-mails for clients such as American Express, Cisco Systems, and DirecTV. What makes the company unique, and somewhat invincible, is how Orr positioned the company using the two-zones of activity described earlier. First, he correctly viewed the broader strategic trends that customer relationship management and the necessity of customer retention were beginning to dominate executives’ thinking as an efficient strategy to sustain a competitive advantage. At precisely that strategic juncture, Orr mustered his resources and concentrated on providing client companies with customized customer relationship programs, thereby relieving his clients to concentrate on their core operations. The programs consist of seamless customer-service telephone centers where clients’ customers’ phone calls or e-mails are answered by Convergys employees trained in the subtleties of that client’s business and with the ability to answer questions and resolve problems. Second, Orr positioned Convergys to attack the exposed vulnerabilities of competitors, most of whom were equipped to handle only outbound calls for clients. None offered big companies the chance to outsource their inbound calls. That is, there was no soup-to-nuts solution that even came close to that of Convergys’ management-of-customer-relationship programs. For Convergys, establishing invincibility involved identifying the strategic issues facing its target customers. For example, it devised a formidable service that both secured a customer base and attacked the vulnerability of its competitors who existed precariously on their one-dimensional product offering.

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Summary Reducing resistance is the essence of strategy. Therefore, with no (or rare) exception, any plan that entails a head-on confrontation is the least likely path for you to follow. Instead, it is in your best interest to take all actions against a competitor that permit you to penetrate his weak points and avoid the strong areas. These guidelines link to the overall theme of this chapter: Invincibility is an acquired condition that permits you to shape your company’s destiny in a strength-conserving manner. The techniques for implementing these strategies have been presented in this and previous chapters through numerous checklists, practices and case examples. In that disciplined way, your company’s (or business unit’s) success, and perhaps its eventual destiny, are in your hands.

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SIX

Create An Ongoing Momentum Among Your Employees – The Possibilities Are Limitless

SIX

Create An Ongoing Momentum Among Your Employees – The Possibilities Are Limitless

Chapter Objectives Enhance your managerial skills as you: 1.

Design a strategic business plan.

2.

Apply a systematic approach to identify fresh opportunities.

3.

Learn to use the normal and extraordinary forces to energize your company’s potential.

Generally, to lead a large group is not unlike leading a small group. It is a matter of organization and it begins with an organization chart containing neatly drawn reporting lines that label functions and individuals operating within a definable structure, and a finite chain of command.19 That internal view includes related activities, such as prioritizing objectives and strategies; deploying people, materials, and financial resources; assigning levels of authority, responsibilities, and duties to managers; and enhancing the strengths of the rank and file. And surrounding the organizational chart is an all-embracing dimension: personal leadership and managerial skill.

19 Organizational design and chain of command are discussed in greater detail in Chapter 3.

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There is also the external environment brimming with the many categories of customers in geographically and culturally dispersed markets, as well as the limitless domain of the Internet that exposes the organization to vast global possibilities. Thus, the phrase, “it begins with an organization chart” goes well beyond that narrow dimension and incorporates a myriad of activities, events, and issues – along with all the weighty decisions that accompany managerial responsibilities. What, then, binds those diverse elements together into a cohesive and managerial whole? What organizing element envelops the internal and external arenas and creates order out of what can easily deteriorate into disorder? The answer is business plans and the process of planning! The organization chart, then, is an output of planning and serves to manage a multitude of people, functions and activities. In some organizations business plans are known as strategic plans, strategic business plans, corporate plans, or strategic marketing plans. The precise title is relatively unimportant. What remains significant is the mental process that goes into developing plans. Behind the process are the minds of the managers who must envision the future and implement resourceful plans that energize their company’s potential. The following example illustrates the meaning.

Case Example Dow Chemical executives conducted a strategic planning session during the 1990s that examined in depth each of their diverse businesses with the aim of setting a firm direction for the organization. They concluded that as far as they could see into the 21st century, Dow’s total concentration of resources would remain in chemicals.

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Further, as long as the company could retain global leadership in its various markets, it would avoid diversification, which was prevalent among Dow’s competitors. Implementing the new strategy meant selling off such wellknown consumer products as Ziploc bags and Saran Wrap. In place of the divested business units, extensive acquisitions were made, including Union Carbide and numerous other chemical companies. Once all the divesting, acquiring and consolidating of assets, people and businesses were completed, Dow set in motion a comprehensive restructuring to bring the diverse units into a cohesive force to achieve the strategic objectives of the plan. Among the changes, Dow formed a Web-based buying consortium with other large companies, which resulted in huge savings. It also established a Web strategy to improve interactions with its customers through, ‘My Account at Dow’. This feature established the interactive Internet connection for customers to conveniently place orders, track orders and handle billings. The centerpiece of the restructuring – and the essential component of managerial effectiveness – was Dow’s enhanced ability to control its geographically dispersed businesses located all over the United States, United Kingdom, Europe, Latin America and the Pacific Rim. Dow streamlined its corporate structure so that the layers of management, from the CEO at its headquarters in Midland, MI to the most junior employees at an off-site location were reduced from its former 12 layers to a mere five. Also germane to the grand plan was the rapid transfer of information through the purchase of 38,000 PCs and terminals, so that everybody was online, everybody had appropriate information and everybody could communicate rapidly and accurately – both in and out of the company. That move improved the rapid transfer of knowledge and information to employees throughout its far-flung empire, so that managers could make rational decisions based on real-time conditions. In effect, the system created a virtual managerial forum for conducting a cohesive global meeting.

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The Planning Process The plan in and of itself is not a magic elixir; more accurately, it is the mental process that goes into planning that yields favorable outcomes. “The plan is nothing; planning is everything”, advised former U.S. President and General Dwight D. Eisenhower. Meaning the plan is but a format containing a series of questions or a list of directions. It is the mode of planning that stretches out into the future, analyzes events and statistics, sharpens judgments, formulates ideas and converts them into action. Within that context, planning engages the mind to think about and act on such mind-challenging questions as: How do you maintain control so that leading the many is the same as controlling the few, particularly where individuals are widely separated and directives from higher-ups are often imprecise? How do you integrate the skilled individuals and the not so-skilled to work in harmony at the critical junctures of spotting opportunities, forming alliances, or negotiating favorable deals? How do you reach an acceptable balance in deploying personnel to suit each situation, so that the more aggressive individuals act boldly but not impulsively; and the more reticent act with some bravado yet don’t retreat prematurely under pressure? How do you shape a winning strategy and deploy your resources to maximize results? Perhaps the most stunning example that deals with many of the above questions, in particular how individuals exhibit different sets of skills as they interact with each other, is the shocking demise of many dot.coms during 2000-01. At the onset of the Internet revolution, venture capitalists were clambering to fund millions to any entrepreneur with the guts and an idea for a company. In the aftermath of the failures, the mood changed dramatically and the demand from those same money backers was for experienced managers as the key to rescuing floundering companies and funding new start-ups.

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While some experienced executives from the Old Economy companies were somewhat conservative and slow to act, they knew enough to deploy resources based on hard estimates of the marketplace20, and not wishful thinking. They could calculate the financial consequences of their strategic and tactical decisions, grasp the need to balance growth with meeting financial targets, and recognize the value of a motivated workforce as intellectual capital. They also knew how to develop a strategically focused business plan with a vision that permitted them to look beyond short-term obstacles. In contrast, the entrepreneurs were often viewed as inexperienced, impulsive and driven by a ‘damn the torpedoes, full speed ahead’ mindset. However, in many instances entrepreneurs did demonstrate outstanding technical expertise, intuitive spark and inner-directed fearlessness. Above all, they exhibited the fiery passion and related personality traits endemic to fast-track individuals. The relevant meaning is that you can effectively balance diverse skills and utilize divergent talents by blending experienced (or conservative) executives with hotshot entrepreneurs. To convert these points into useable managerial guidelines, select individuals according to their skills and innate capabilities, so that an aggressive one can engage a competitor in a hotly contested situation. A more cautious and steadfast individual can defend a market position. A thoughtful and prudent person can offer wise counsel. In other words, do not charge people to do what they cannot do. Select them and give them responsibilities commensurate with their abilities. Thus, no ones’ talents are wasted. Consequently, the plan – and the mental process of planning – permits you to address the above issues. The process also allows you to estimate the strengths and weaknesses of your organization or business unit, measure the tangible outcomes of your analysis, and form judgments about individuals and their management styles. As a result, you can determine the level of skills required to achieve planning objectives and pinpoint the areas of training to shore-up skills. And you can address the types of internal and external communications required to lead the many as the few.

20 See Chapter 2, Estimating Your Chances For Success.

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When completed, the plan is perhaps the most comprehensive and useful people-to-people communications vehicle of all. The effective plan clarifies a corporate or business unit vision and the objectives and strategies that may otherwise be distorted through verbal communications and the telegraphic language typically used in e-mail. When thoughtfully read and fully internalized by individuals, the plan transmits guidelines to personnel on how to actively participate at significant business events where onthe-spot decisions are needed. The document can clear up vaguely communicated directions, indicate clear paths of actions where there is an impasse, and generally decrease misunderstanding up and down the organizational chart. Thus, the plan, when viewed against a backdrop of long-term strategic goals and strategies, reduces the level of miscommunications, misinterpretations, and reinforces your effectiveness as a manager. Further, the plan results in an organizational design that matches the competitive and market conditions. It also initiates a system of controls and leads to the optimum grouping of personnel based on complementary sets of skills. As indicated above, all talents and levels of expertise are utilized to identify fresh opportunities. The quality of answers and thereby the effectiveness of the plan, however, depends on the personal commitment given to planning, the level of support by senior management and the skill of individuals writing the plan. And probably most important to the planning process, the willingness and courage to move beyond the pressing problems of today and take a strategic look into the foreseeable future, where fresh opportunities prevail, new markets materialize, trends surface and breakthrough technologies offer enticing new possibilities. Exactly what constitutes fresh opportunities and new possibilities? The following case provides answers within a framework of identifying fresh opportunities for market and product development, determining an organizational design and system of controls, identifying strategies for competitive problems, and utilizing the talents of personnel by giving authority along with accountability. All of these issues are enveloped by sound planning that employs a long-term strategic viewpoint and a shortterm tactical action plan.

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Case Example Cisco Systems Inc.21 thought it could steer clear of the tech downturn of 2001 and avoid the gut-wrenching scenario of laying off loyal employees and taking other radical cost-cutting measures. Not so. Customer feedback and all market estimates indicated that expenditures for networking equipment would be severely slashed. Only when the reality set in about how the company would survive the market debacle did damage control begin. The outcome, however, was more than just taking defensive measures of cleaning house, watching for paper-and-pencil savings and reducing staff. The result incorporated far more strategic thinking, so that Cisco emerged from the experience as one of the strongest competitors in its field. Here’s how the networking giant revitalized the entire organization into a formidable competitor: •

Product Development. Using a planning system, which included conducting a product audit, Cisco slashed its product line by 27 per cent and focused on the most successful products. The change also helped the company gain volume discounts worth hundreds of millions of dollars.

•

Corporate Culture. Before reorganization, planning lacked coordination. Teamwork was elevated to importance and backed with a system of compensation that tied 30 per cent of annual bonuses to team members’ ability to work with peers.

•

Operations. Formerly, each operating unit functioned as an independent entity whereby it could select its own suppliers and manufacturers. As an extension of its cultural makeover, Cisco cut suppliers and manufacturers, and productivity began to surge with sales per worker rising by 24 per cent.

21 This viewpoint of Cisco Systems supplements the more extensive examination of the company in Chapter 2. Taken together they provide a balanced view of how to revitalize a company’s strategy, while reinventing one’s managerial skills.

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•

Information Systems. Focusing on its strength in e-commerce, executives set up clear-cut goals to find new ways to use the Web. The effort is so pervasive that the company realized multi-billion dollars in savings from using the Net.

•

Mergers and Acquisitions. One of Cisco’s primary growth strategies aimed at acquiring companies at a rapid rate. That slowed to a more deliberate pace based on sound estimates and calculations whereby prospective companies were more stringently screened for their ability to generate earnings from day one. The result was 23 acquisitions in 2000 and two in 2001. Further, those managers making the recommendation had to assume accountability for the success of the acquisition.

•

Strategic Viewpoint. Looking for growth, the company expanded its vision beyond its primary business in networking gear. Now it pursues six markets, including high-growth opportunities in security and Net phones. That translates into new products, including wireless gear, such as security cameras for consumers.

While you certainly face pragmatic and often urgent issues, as well as the responsibility for keeping short-term earnings top of mind, nonetheless, given the definition of a manager you must also look beyond the immediate and plan for the future – even if the future is defined as 12, 24, or 36 months. To support the principle, a survey by PricewaterhouseCoopers reveals the following dramatic findings: “Two thirds of rapid-growth firms have written business plans. Firms with written plans grow faster, achieve a higher proportion of revenues from new products and services, and enable CEO’s to manage more critical business functions than those firms whose plans are unwritten. Additionally, growth firms with a written business plan have increased their revenues 69 per cent faster over the past five years than those without a written plan.” While numerous planning formats exist, we’ll look at one workable plan that encompasses many of the issues discussed above: The Strategic Business Plan.

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Strategic business planning is defined as the managerial process for developing and maintaining a strategic fit between the organization and its changing market opportunities. It relies on developing: 1.

a mission statement or strategic direction;

2.

objectives and goals;

3.

growth strategies;

4.

a business portfolio consisting of markets and products/services; and

5.

tactical actions.

As shown in Figure 6.1, The Strategic Business Plan consists of two levels. The top level has a strategic timeframe of three-to five-years. The bottom row has a shorter or tactical time period of one year to implement the time-sensitive portions of the strategic-level plan.

STRATEGIC PLAN: 3 TO 5 YEARS Section 1 Strategic Direction

Section 2 Objectives and Goals

Section 3 Growth Strategies

Section 4 Business Portfolio Plans

TACTICAL PLAN: 1 YEAR Section 5 Situation Analysis

Section 6 Opportunities

Marketing Mix

Targets of Opportunities

Section 7 Tactical Objectives

Primary Objectives

Section 8 Tactics and Action Plans

Section 9 Financial Controls and Budgets

Functional Objectives

Competitor Analysis

Market Background

FIGURE 6.1. THE STRATEGIC BUSINESS PLAN

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The following is a brief review of the plan’s basic structure. (The Appendix contains complete details for writing a plan.)

Strategic Direction The first box, Strategic Direction, is also known as the mission or vision of a company, business unit, or product line. Developing a carefully crafted statement is the key to the entire plan. It sets the direction and overall tone for the plan. It helps you visualize all that you want your organization or business unit to be over the longer term. It pinpoints the markets to be served, as well as the products and services to be developed and marketed. The process of developing a strategic direction impacts virtually every part of the organization, including all its human and material resources. It accounts for the types of skills required to fulfill the defined mission, indicates how to deploy individuals with specific skills to accomplish their tasks and defines how you should manage yourself and those reporting to you. Further, it identifies the competitive position you want the organization to take in a contested marketplace. The more expansive your strategic direction the more open the company would be to all types of innovations and markets. It paves the way to expand a portfolio of products, services and markets, which would be less the case with a narrower mission.

Strategic Objectives The second box in Figure 6.1, objectives, pinpoints what you want to accomplish. They are quantitative and qualitative statements based on your Strategic Direction. If you write your direction from a narrow viewpoint, the objectives correspondingly will be restrictive and limited in scope. If based on a broader statement, the possibilities will open up far more opportunistic objectives that deal with revenues, market share, competitive position, product development, distribution, market intelligence, people development, as well as a full-range of technology issues.

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Growth Strategies In box three, strategies are defined as actions to achieve your objectives. That is the critical point. Any plan without a solid and substantive strategy section will only deteriorate to mere good intentions. With the need for a longer-term perspective, every objective requires multiple strategies indicating what actions are required to achieve each objective. For those strategies selected for immediate implementation, the specific actions would be detailed in the tactical one-year portion of the plan (the bottom row of boxes in Figure 6.1,) along with budgets, fulfillment dates and names of responsible individuals.

Business Portfolio This is the final section of the strategic portion (top row) of the plan. It includes bottom-line results of your work up to this point. Using a highly organized approach, it lists your offerings of products, services and markets that you currently serve, and those that you wish to serve within the threeto five-year timeframe of the plan. Again, referring to the strategic direction, the broader the scope of your strategic direction, the more expansive the range of products and markets in the portfolio. Conversely, the narrower the dimension of your strategic direction, the more limited the content of products, services and markets. Thus, your strategic direction mirrors the content of your portfolio. The portfolio is represented as a grid consisting of the following cells: •

Existing products that you currently offer to existing markets. This listing aids you in selecting products for additional market penetration.

•

New products (and those modified, reformulated, or repackaged) that you can sell into existing markets. Here you identify areas for new product development.

•

Existing products that you offer to new markets. This effort would be part of a market development strategy.

•

New products that you would sell into new markets. This strategy has greater risk and requires larger expenditures of resources. Yet, it has proportionately the greatest return if the effort succeeds.

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It is part of a strategy of diversification. However, you would implement this approach in earnest providing it legitimately fits your strategic direction, and is not diversification for its own sake.

Tactical Plan The second row of boxes in Figure 6.1 displays the short-term portion of the Strategic Business Plan. In practice, you have a seamless flow in preparing the plan, since the content feeds off the strategic portions of the plan. That is, you use only those objectives, strategies and parts of the portfolio selected for implementation over the following 12 months. The tactical section deals with the following parts (boxes 5-9):

Situation analysis While the strategic direction looks to the future, the situation analysis completes the 360-degree view and provides you with a well-rounded look at the internal and external conditions over the past three- to five-years.

Opportunities This section feeds off those findings in the situation analysis that would represent opportunities. It also views the primary findings in the strategic portions of the plan that represent your prime opportunities. Thus, opportunities serves as an idea generator and a screening device from which you can consider expenditures of resources.

Objectives Here you indicate what you want to accomplish within a timeframe of one year (usually the period to match an accounting period observed by most organizations.) Here, too, the objectives you select come from two directions: the opportunities section and those strategic objectives that you would implement within the following 12 months.

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Tactics With tactics defined as short-term actions to achieve short-term objectives, the section is presented in finite detail about actions to be taken, when and by whom.

Financial controls and budgets This final section includes all the performance statistics required by your organization, as well as the various measurements to alert you to the need for caution, aggressive action, or any mid-course corrections. Developing a comprehensive Strategic Business Plan entails far more than filling out forms as some mechanical or obligatory chore. It involves a human touch that embodies your innate talents and managerial skills. Further, the winning plan warrants the combined mental energy, experience, personality and training of participating individuals absorbed in the planning process. The most efficient approach to planning is to form a cross-functional team by selecting individuals not only for their specific functional expertise, but by such distinctive characteristics as temperament, personality and disposition. Once the team has completed the plan, it must be implemented or else the document is but a grouping of words, figures and good intentions.

Energizing Your Company Deploying people effectively means harnessing their energies without exhausting them, or dissipating your organization’s physical and financial resources without reaching your objectives. Deployment also means energizing your company through the prudent management of resources in two ways: utilizing the normal and the extraordinary. The normal relates to the collective activities used first, to market your products and services in a way that satisfies your customers’ needs; and second, to successfully match your offerings to those of your competitors, thereby canceling out any competitive advantage.

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In contrast, the extraordinary points to those unique strategies and innovative offerings that can outstrip your rivals’ performance. Usually associated with differentiated products and value-added services, they are difficult for even the most aggressive competitor to imitate – at least for the short-term. Examples include: exceptional product performance and quality, frequency and availability of back-up services, price discounts and special financial incentives, inventory control and just-in-time delivery, or special promotional support. The possibilities are limitless and, consequently, rely on the creativity, talents and boldness of individuals involved in planning inventive strategies. In actual practice, you engage with the normal to initially match the competitor’s offerings. Then you swiftly launch with the extraordinary offerings to wrest the advantage from competitors. The essential point is that you cannot achieve any measure of success without using the plan to devise strategies that artfully coordinate both the ordinary and extraordinary forces. Otherwise, the business suffers the consequences of inching along in a laborious and resource-draining manner that can only end up with marginal or failed performance. How many possibilities are there for creating the extraordinary? Figure 6.2 provides an organized list of possibilities to trigger your mind to the enormous range of possibilities for combining the ordinary with the extraordinary.

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PRODUCT

PRICE

PROMOTION

DISTRIBUTION

Quality

List price

Advertising: Customer and Trade

Channels:

Features

Discounts

Personal selling:

Direct sales force

Options

Allowances

• Incentives

Distribution

Style

Payment period

• Sales aids

Dealers

Credit terms

• Samples

Market coverage

Brand name Packaging

Financing

• Training

Warehouse locations

Sizes

Sales Promotion:

Services

• Demonstrations

Inventory control systems

Warranties

• Contests

Physical transport

• Premiums

Supply chain management

Returns Versatility Uniqueness Utility Reliability Durability Patent protection

• Coupons • Manuals Telemarketing Internet Publicity CRM

Guarantees

FIGURE 6.2. A SOURCE FOR DEVELOPING EXTRAORDINARY FORCES

In competitive situations, therefore, the normal and extraordinary forces work together. Once you plan your strategies, then it is your leadership skill that deploys those interlocking forces to maintain an energized momentum. When implemented with speed, the competitor cannot determine where one force ends and the other begins. The resulting mental impact on your rival is that he thinks the normal is extraordinary and the extraordinary is normal. This is all part of creating situations by which the competitor conforms to your dispositions by surprising, enticing and distracting him from your real intentions. Thus, it is in your hands to regulate the timing, momentum and intensity of those normal and extraordinary forces that energize your company’s potential. What follows, therefore, is a manager creates victory from the

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market and competitive situation and does not demand it solely from subordinates. Consequently, for you personally, success or failure relies on your leadership abilities, organizational skills and aptitude to either recognize an opportunity or create one from a prevailing situation. You cannot place such a heavy burden exclusively on the rank-and-file employees. In particular, don’t demand great feats from those who do not display the talent, experience, or have the appropriate training. Those individuals are there to exploit the opportunities you have set up. The following case illustrates the point.

Case Examples During 2001, a market battle erupted in Europe between PC makers and phone manufacturers. The initial contenders, Palm Inc. and Microsoft along with their hardware partners, were ready to take dominant positions in the mobile-phone market with PDAs (personal digital assistants) that double as phones. Scanning the available markets, each company’s senior executives saw that their best opportunity was to attack the market’s most profitable niche: the lucrative corporate customers who wanted larger screens and more powerful features for their tiny mobile devices. As the contentious market struggle built momentum, Microsoft executives spotted a further opportunity to outflank rivals by taking advantage of sudden market turmoil among some competitors. In particular, Europe’s former PDA front-runner, Britain’s Psion PLC, wavered after a critical joint project fell through with Motorola for a personal organizer. Microsoft, noting the market instability, took advantage of the distraction and grabbed the opportunity to expand its beachhead into several key European markets, along with its hardware partner Hewlett-Packard Co.

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Nestle’s CEO Peter Brabeck-Letmathe perceived an opportunity to use the Internet to create an online virtual supermarket. It was in early 1992, well before the onset of the e-revolution, that he envisioned his food company could create interactive communications with customers. He ordered a market test in a regional area within Nestle’s home country of Switzerland. It was there that Brabeck-Letmathe and other executives learned a great deal that would lead to geographically wider marketing successes. First, within the test area, shopping for the most part was difficult. Many shops closed at 6 p.m., making it unreasonably difficult for working couples to go shopping. Second, many of the younger people preferred to go skiing rather than travel to a supermarket. Nestle executives also observed that the question of logistics was conveniently answered by the Swiss Post Office that served as a highly reliable distribution network. Further, the post office functioned as a bank for collecting payments. Nestle executives were quick to observe that e-tailing would not displace the conventional brick-and-mortar supermarkets. It did, however, add another channel of distribution and permitted the use of market segmentation techniques to target specific groups based on demographic and behavioural factors. The electronic interaction with customers also would provide Nestle with an added opportunity, and potentially a competitive edge, to tailor product and service offerings to emerging, neglected, or poorly served market niches. All this opportunistic thinking and innovative activity took place well in advance of counter actions by Nestle’s competitors. The key points in these two examples are that senior executives either created situations or they observed potentially lucrative opportunities by examining current market conditions, competitive actions, emerging technologies and customer needs. That phase of identifying opportunities, however, represented only one part of the success equation; the other part was selecting and leading the people to implement the strategies and tactics that would exploit the situation and result in a market victory.

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Developing Opportunities How can you unearth fresh opportunities? First, adopt a pragmatic mind set that market, competitive and environmental conditions constantly ebb and flow. Thus, while you can readily internalize wide-ranging principles and follow a prescribed set of guidelines, the hardnosed reality is that there are no fixed rules when you are surrounded by unstable internal, market and competitive conditions. The mix of external and internal circumstances that supported a previous set of strategies may not exist in the same form again. However, what you can do is apply a systematic approach to help you sort through and isolate potential areas that would meet your criteria for long-term, profitable opportunities. For starters use the following categories and examine their supporting case examples: •

Customers

•

Suppliers

•

Existing competitors

•

Emerging competitors

•

Products and services

•

Alternative products and services

•

Logistics (supply chain)

•

Corporate culture

•

Technology

•

Internet (interactive customer relationships)

•

Global business.

Customers Customers are classified at all stages of the buying cycle, from end-use consumers to business-to-business buyers, as well as to the various types of intermediaries such as distributors, wholesales and retailers. In that grouping, how would you find the best opportunities to focus your resources? Initially, through surveys, observations, or simply by asking them, try to get a fix on the primary problems your core customers face.

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Look for ways to provide special back-up services or initiate on-going interactions through person-to-person or electronic means. In all investigations, your highest aim is to expose all potential opportunities, from which you can eventually utilize both normal and extraordinary forces to convert them to reality. You can also refer to Figure 6.2 to activate your thinking. The following example illustrates one application of using customers to trigger opportunities.

Case Example H&R Bock, the tax preparer, is pursuing a far-reaching strategy to expand beyond the single activity that made it a household brand name. With its vast database of customers, most of whom are served in a concentrated tax-preparation period from February through April, the company is moving persistently forward to become a one-stop resource for financial products. That means offering its customers brokerage, mortgage and other financial services, which it has introduced by cross-selling to its taxpaying customers. The opportunity to cross-sell makes good marketing sense. Given that available information within clients’ tax returns yields valuable data, H&R Block can customize services by determining if customers own or rent, whether they have dependents and whether they have retirement accounts.22 In addition to increasing the revenue value of its existing customers, the company is tapping into another opportunity to expand its customer base by attracting higher-income individuals. The higher the income, chances are the more complicated and costly the tax preparation, and the better the opportunity to tie them into additional financial services.

22 Government regulations permit tax information to be used only for preparing returns unless the individual filing signs a waiver. Consequently, H&R Block has increased its efforts to get clients to sign such waivers.

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Suppliers If a few suppliers in an industry influence the flow of materials, which results in the control of prices, then a powerful influence is exerted on all the other forces within the industry. Therefore, a review of supplier practices at key stages of the distribution chain should provide clues to future patterns of supplier behavior. Do you see any conditions that can convert into opportunities among your suppliers?

Case Example Fleming Companies, a leader in food distribution, not only is a major player in the logistics end of the business, but it is an able innovator in translating situations into remarkable market opportunities. The conditions for growth emerged in 1998 as an outcome of Fleming shifting its strategic focus from a singular mission to serve only traditional supermarkets to an under-served market segment consisting of non-supermarket retail channels that sell food and sundry items. Fleming did not give up its core business, however, even though it was stagnant. Management recognized that the best chances for growth would occur in areas it did not currently serve. Yet they were mindful that any new efforts should feed off its fundamental strengths: an above-average ability to warehouse and deliver items economically and efficiently. In 1998, 77 per cent of Fleming’s distribution went to conventional supermarkets, with super center discount stores, convenience stores and other channels accounting for the balance. By 2000, conventional supermarkets accounted for 63 per cent of distribution sales. Continuing its opportunity-seeking initiatives, managers looked deeper into innovative approaches to create new streams of revenues. For instance, Fleming signed a 10-year exclusive distribution arrangement with Kmart, a general merchandise chain of stores, which turned into a creative alliance.

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In addition to serving as Kmart’s exclusive distributor, Fleming’s ‘Best Yet’ brand of private label products would become Kmart’s only private-label line of food products. Under the terms of the arrangement, Kmart would benefit with reduced prices that would reflect on its bottom line. Fleming would use its share of increased revenues to reinvest in lowering operating costs and harvesting additional business from other customers. Looking at emerging industry trends and changing market conditions that could convert to fresh opportunities for growth, Fleming management also saw price-impact supermarkets (those outlets that offer deepdiscount prices in a warehouse-style layout) and convenience stores with its multi-billion dollar market as outstanding opportunities – and the next engines for growth.

Existing Competitors Competitors often take on distinguishing characteristics. They seem to display patterns of behavior that in many instances are predictable. Some may have the same management in place for many years, while others may employ new leaders with fresh influences that appear as aggressive strategies. Your initial task is to rank your competitors by their commitment to a product line or market segment. Also make every effort to pinpoint their strengths and weaknesses and note where they are most vulnerable. Then, as a result of your review, single out any opportunity to displace a competitor, which hopefully would give you a preferred market position or improve your market share. (There are numerous checklists and guidelines throughout these chapters to assist you.) The following example illustrates how a dismal economic condition hardened the resolve of a company’s leadership to maintain its vigil for new opportunities among existing competitors.

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Case Example Palm, a leading supplier of handheld electronic organizers, experienced a grinding cut back in demand during 2001’s economic slow down. Whereas forecasters predicted bright double-digit increases in revenue right through 2004, the situation turned quite different as sales declined and inventories increased. What’s more, Palm was pressured into a price war with its existing competitor, Handspring. Also, competition in handhelds turned into a fiercely contested market with the inroads from the likes of Sony and Hewlett-Packard and their lower-price models. Where, then, were the opportunities? Palm began by taking a more strategic look at the marketplace, rather than being jammed into a narrow arena of slugging it out in pricing battles. It saw that the temporary economic slow-down would fade and demand would indeed pick-up. Regrouping and boldly looking for market opportunities, Palm expanded its corporate sales force with an eye to raising revenues with larger purchase orders. The recast strategy shifted its previous reliance on the one-at-a-time purchases through retail stores. It also saw opportunities to increase efforts by persuading educators to buy handhelds instead of desktop computers.

Emerging Competitors The entry of new competitors over the last 25 years in many industries – such as steel, automobiles, consumer appliances, textiles, footwear and high technology – have had jarring effects on established companies. Some executives have succumbed to the ravages of aggressive competitors. Others have risen to the threat by reinventing their companies through reengineering, downsizing and imbuing personnel with the spirit to fight back and use new skills to develop extraordinary strategies. In viewing your industry there may be a tendency to focus only on existing players. The wrenching lesson is that you must identify and analyze emerging competitors with the same intensity of detail as you apply to existing ones.

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The job is more difficult when applied to emerging competitors because patterns of behavior are not always visible. Where do you see conditions that could result in a newfound opportunity? The following case offers some clues.

Case Example Procter & Gamble and Kimberly-Clark have long dominated the consumer goods field. In particular those giants have commanded leading positions in such products as tissues and toilet paper. In every day operations, however, each company focused sharply on the other by studying its product lines, market share, promotional tactics and overall strategies. That vigilant activity was enough to keep both companies intent on dealing with the volatile goings-on in their respective segments. But what of emerging competitors looking for fruitful opportunities? Such was the case in 2001 when Georgia-Pacific decided to diversify beyond its long-held position in forest products to become the biggest tissue maker in the world. While GP already had a market presence in consumer products with its brands of Coronet paper towels and Angel Soft toilet paper, the giant breakthrough came when it acquired Fort James. With the deal came such formidable brands as Brawny paper towels and Dixie cups. No doubt Procter & Gamble and Kimberly-Clark needed to take evasive action to be sure that their valuable brands, such as Charmin and Bounty wouldn’t suffer from the costly effects of lost market share. That could mean pumping more money into promotions and in some instances rewriting marketing plans to anticipate how the insurgent Georgia-Pacific would penetrate their strongholds in a generally flat market. The central lesson from the case was opportunities do exist, either from an offensive or defensive position, or from existing and emerging competitors.

23 (Opposite page) Refer to Figure 6.2 as a source of ideas for differentiation and value-added strategies.

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Products and Services At the heart of a business – any business – are product and service offerings that justify the existence of a company in an active marketplace. Along with such an obvious circumstance is the natural phenomenon that products have defined life cycles, analogous to the biological sequence of birth, growth, maturity and decline. Figure 6.3 shows a sample pattern of a product’s life cycle. The intent here is to peak your interest in searching for any opportunity that can extend the sales life of your product. This is usually accomplished by looking for possibilities through the infusion of differentiation and value-added strategies23 that would create a product or service advantage beyond what your competitors can deliver. Such strategies have the potential to kick-off an entirely new life cycle,

Units

providing the market perceives the differentiated product as new.

Market Volume

+ Percent

0 Rate of Change of Market Volume

+

Time

Decrease Growth

|

0

Time

Dollars

Shrinkage

Profit/Loss Curve Profit

+ |

0

Loss

Loss

Time

Breakeven Points

Introduction

Growth

Maturity

Saturation

Decline

FIGURE 6.3. PATTERNS IN A PRODUCT LIFE CYCLE

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Once those opportunities have been exhausted, however, and the product has reached its maturity or decline stage, it may be necessary to phaseout the product and launch an entirely new product – one that has presumably been in the pipeline and ready for the occasion. Figure 6.4 provides an organized approach to sort through a variety of product opportunities.

CATEGORY

DEFINITION

NATURE

BENEFIT

Modification

Altering a

Same number

Combining the

product

of product

new with the

feature

lines and

familiar

products Line extension

Adding more

Same number

Segmenting

variety

of product

the market by

lines, higher

offering more

number of

choice

products Diversification

Entering a new New product

Spreading risk

business

line, higher

and

number of

capitalizing on

products

opportunities

Re-

Marketing

Same product,

Generating

merchandising

change to

same markets

excitement and

create a new

stimulating

impression

sales

Market

Entering a new Same product,

Broadening

extension

market

the base

new market

FIGURE 6.4. NEW PRODUCT CATEGORIES

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The following example illustrates the life cycle changes for an industry as well as for a product category.

Case Example In 2001 the computer industry hit the wall with a first-time decline in sales. The dire effects of the problem took an immediate toll on Intel, the major producer of computer chips, with lowered revenue forecasts. While industry forecasters speculated about resumptions in the upward curve of the industry life cycle, the predictions indicated that growth would not climb back to the 30 per cent rate of the past golden years. Where, then, would the growth opportunities lie? Intel saw a prime opportunity to move forward with new products, such as its 2001 launch of Pentium 4 processor chips. It continued to fund new R&D, which has been the hallmark of Intel’s success. Along with those efforts, the company continued to search for specific applications, such as boosting sales in the use of flash memory, so that it could make and sell more chips. It also revamped marketing efforts to move more aggressively into the laptop segment, as well as spur continued initiatives with specific industry applications.

Alternative Products and Services The auto industry provides familiar examples of aluminum replacing some steel parts and plastics and other space-age materials providing alternatives to aluminum. Such opportunities can surface from a variety of sources. Consequently, it is wise to tap into the expert knowledge of R&D and manufacturing personnel who are more likely to know about alternative products and services.

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Outside industry specialists from academia, research organizations and other industry consultants are also useful sources of information. The following example illustrates this source of opportunity.

Case Example DataPlay, a small start-up, introduced a tiny storage disk in 2000 with claims that it would gain major inroads by displacing a good portion of the traditional compact disk market. The quarter-size device stores 500 megabytes of memory, nearly the same as much larger CDs. A major feature is that the disk comes with built-in piracy protections that music companies crave. With the rising popularity of downloadable music and with the capability to burn and playback music files stored in one of the popular formats, the product promised to penetrate key segments of the market, such as teenagers. Above all, the new DataPlay technology could push so much music onto the small space of the disk so that it can handle as much as five CDs worth of music. To what extent DataPlay would reach the hundreds of millions of CD users worldwide remains speculative. However, the disk’s features are formidable enough to establish a firm footing in various segments of the market as an imposing alternative product opportunity.

Logistics (Supply Chain) One of the hallmarks of competitive advantage is a logistical system that incorporates speed, reliability and accuracy in the movement of goods. At the heart of that system is the supply chain with its integrated processes linking suppliers, manufacturing plants, distribution centers and retailing outlets.

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Foremost among the successful players are Federal Express and UPS that have evolved into multi-billion dollar enterprises handling vast quantities of shipments daily with incredible accuracy. The following example illustrates how a start-up company seized an opportunity in what is a highly sophisticated industry.

Case Example Accuship, a small and privately owned shipping-logistics company, opened for business in 1994 and earned a profit in all but two years through 2001. Accuship, under the leadership of founder Mason C. Kauffman, created a virtual shipping portal without owning a single truck, plane, or warehouse. Through its Web site, customers such as Coca-Cola could find the lowest rate among scores of shippers and then schedule delivery, and even print out a shipping label on its desktop printer. What makes the business unique is exclusive database software called STAR that tracks down the lowest rate to ship a package. Using any desktop computer, a company can type in the weight of a parcel, indicate its location and desired time of delivery. STAR displays a list of shipping alternatives, ranking them by price. The system also permits following the shipment through every point of its journey until final delivery. That system is but one part of a total suite of services whereby Accuship acts as a middleman between its customers and shippers. For instance, Accuship consolidates all of a customer’s shipping invoices on one regularly scheduled bill. Also, one of its prominent services is an ability to audit a customer’s shipments, check to insure that billings are accurate and that packages arrive when promised.

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Corporate Culture As discussed in Chapter 2, corporate culture24 is gaining increased attention among managers. For those who keep hawking the high-minded phrase, “Employees are our greatest asset,” and other well-meaning references used to preserve or change the culture of an organization, there are numerous chances to give corporate culture innovative and opportunistic meaning. The following example provides a pragmatic lesson on how culture became the centerpiece for a company’s venturesome strategies.

Case Example Graybar Electric Co., a distributor of communications and electrical gear, has survived numerous business cycles since its founding in 1869. Throughout the decades, the company for the most part has kept up with the various business and technology cycles. Other times it trailed its competitors. Such was the case in 1997 with the explosive rise of the Internet, followed by the increasing demand for related technology. With calls for speed as the screaming mantra from suppliers and customers, the problem – and the opportunity – for Graybar was to meet their demands by delivering its products quickly and efficiently. On-time delivery was, in fact, the deep-rooted problem that caused the company to lose ground to competitors. With its network of 231 local distribution centers, each run as an independent entity, Graybar could take as long as a week to fill an order. Worse yet, deliveries arrived at a customer’s location from as many as eight different branches with eight different bills to pay.

24 Corporate culture – defined as values, things, ideas and behavioural patterns – forms a set of mutually supportive relationships, not only with customers and suppliers, but also as a healthy attitude about employees as intellectual assets.

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The solution was clear to Graybar’s leaders: Centralize supplies of certain products, so orders could be filled quickly and from one facility. Also, build new warehouses to supplement the existing network of distribution centers. However, the problem was how to implement the solution. That is, how to put into operation the solution without undermining the basic culture at the employee-owned company that worked so well, for so long. In particular, how would senior management deal with the local managers who traditionally exercised almost complete authority over their regional warehouse operations? It was a daunting task to change a tradition-bound company with its deeprooted customs. Only by gingerly introducing modifications could senior management expect to affect changes and reinvent the mindsets of individuals, many of whom spent virtually their entire careers at Graybar. That said, rather than take away local independence or close any branches, the new warehouses were designed to coexist with the local facilities. With a great deal of sensitivity to the ongoing systems and the existing work patterns of managers and other key personnel, a new corporate culture slowly and steadily evolved whereby the ‘old time’ managers embraced the changes as essential to Graybar’s success in the Internet age. Results: With the new logistical framework, customers exuded surprise and pleasure as most orders began arriving overnight. Even better, the consolidated orders come from a single warehouse with only one bill to pay. Once the solution for creating an opportunity was clearly identified, it was the leaders’ sensitivity for Graybar’s innate culture that made the opportunities a reality.

Technology In all fields of endeavor from military, medical, scientific and through virtually every segment of industry, technologies placed in the purposeful hands of managers with vision and skill have brought about extraordinary wonders in new products and services. The opportunities for employing technology are without limits for those who can explore, create and apply knowledge to unearth new products for markets; as are the prospects for making the daily tasks of life more tolerable for the multitudes.

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The following case offers a micro example of technology applied to one field: the medical industry. It shows the far-reaching ramifications on office efficiency, medical errors and cost reductions that plague that industry. It also impacts insurance companies, affects patients and their advocates, and concerns local and national governments.

Case Example MDPad, a small start-up serving the medical field, is heavily invested in bringing technology to physicians’ offices. Founded by Pankaj Merchia, a Harvard-trained physician, the firm’s goal is to equip doctors with handheld computers that check for medication allergies, warn of adverse drug interactions and suggest appropriate dosages. To make the visits more comfortable for the patients and more efficient for the doctors, the device would electronically beam prescriptions to local pharmacies, collect billing information, dispatch insurance claims and update medical histories. “We’re investing heavily in the technology side,” says Merchia. For him, technology is the driver of opportunity to attack big problems faced by physicians: to reduce medical errors and boost their revenues.

Internet Before the dot.com meltdown of 2001, the industry bragged that it employed more workers than the insurance industry and that revenues exceeded those of the auto and truck industry. Even after the smoke cleared from the Internet crisis, the economic measure on productivity growth was undeniable. The Internet contributed an impressive two-thirds of the one percentage point improvement in productivity growth between the first and second halves of the 1990s.

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Commentators see the Internet revolution as only in its infancy. Using other major historical and technological transformations to gauge progress, they cite that canals took 40 years to build, the railroads 50, and the pervasive usage of electricity about 40. What of the present? Experts see the habits of business-to-business and business-to-consumer buyers have changed most dramatically with everyday applications from industrial product purchasing, online banking, to shopping for a book or placing an online order for groceries. The following case illustrates how a company created its own specialized opportunity using the Internet.

Case Examples HomeRuns.com, an online grocery-delivery company, began its service in 1996 within a defined metro trading area. Then in a deliberate and welltimed rollout, it expanded to other metro markets making deliveries to homes and offices. HomeRuns.com provided all the advantages that the Internet could offer. A customer would fill an e-cart any time of the day or night, seven days a week. A grocery order submitted by 10 p.m. could be delivered the next day, including weekends. Even customers with particular travel needs and diverse buying styles can conveniently place orders a week in advance. On-time deliveries arrive in clean white vans by courteous drivers wearing white uniforms with an identifiable HomeRuns logo. HomeRuns.com is organized like a conventional supermarket, with e-aisles for produce, meat, soups and detergents. There are even separate sections for a variety of ethnic food from Asian to middle-eastern.

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For HomeRuns.com, the growth strategy is to expand geographically by replicating the successful profiles of regions and customers honed from past experiences. While the wonders of the Internet have transformed business functions, it is still a technology. It takes managerial skill and strategy know-how to successfully exploit its attributes into fruitful opportunities. eStyle.com, founded in 1998, survived the demise of those dot-com competitors that either went bankrupt or were gobbled up by larger organizations. “We are a retailer; and retailing is all about merchandise. There were a lot of Internet companies that defined themselves by the technology”, declares eStyle’s CEO and founder Laura McCartney. The e-tailer thrived by serving the flourishing maternity market, with the average expecting mother estimated to spend $2,500 to $5,000 on clothes, cribs, car seats and sundry items. It is in that market niche that eStyle launched two Web sites: BabyStyle.com that focuses on new and expectant mothers and KidStyle that targets moms of two- to five-year-olds. Its success is attributed to healthy business-like performance. For instance, it did not blow advertising budgets on big-dollar TV campaigns with obscure and esoteric messages as many now defunct competitors have done. Instead, the dollars were spent on carefully crafted campaigns that relied on as much free publicity as possible. Sound merchandising practices also focused on profitability. By limiting choices to several best-selling items within a category and by mixing branded merchandise with its private-label products, eStyle was able to obtain the much-needed 55 per cent to 75 per cent profit margins to survive and grow.

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Global Business Toward the end of the 20th century, a powerful global framework emerged – the Atlantic Economy. Based on such commonalties as escalating technology, advances in flexible manufacturing techniques, skyrocketing progress in Internet commerce, widespread industry deregulation, shared business values and substantial financial resources, cross-ocean titans such as DaimlerChrysler and BP Amoco came on the scene. These new high-powered global firms began setting the pace for how business strategy would be practiced in the new millennium, not only by large conglomerates, but by small and mid-size organizations, as well. The new rules of global competition demand that organizations are: 1.

built on change, not stability;

2.

organized around networks, not a rigid hierarchy;

3.

based on interdependencies of partners, not self-sufficiency; and

4.

constructed on technological advantage, not old-fashioned bricks and mortar.

(These are the same rules cited with the Cisco case, Chapter 2.) What distinguishing features will characterize business leaders searching for new opportunities in the 21st century? How will a market-driven, customer-oriented firm be organized? To a great measure, the answers to those formidable questions were taking shape during the last two decades of the 20th century through a continuous string of momentous events. For instance: •

Intensifying competition from developing countries shocked many traditional-minded managers from mainline firms into devising fresh strategies to respond to prices that often ranged from 30 per cent to 40 per cent below prevailing market pricing.

•

Changing market behavior, along with new flexible manufacturing techniques, convinced even the most skeptical executives about the vast opportunities and competitive advantages of creating specialized products and services targeted to dissimilar groups based on age, income, education, occupation, race and ethnic characteristics.

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•

Shifting life styles influenced managers to focus on how different groups live, spend and act – all of which were highlighted by the media and influenced by diverse political, economic, cultural and social movements.

•

Shortening product life cycles due to the proliferation of new products and the continuing flow of dazzling new and affordable technology convinced executives to probe for emerging or previously unserved market segments. In turn, those circumstances triggered even greater efforts to push for faster-cheaper-smallerbetter products.

•

Continuing pressures on profitability and productivity activated the pervasive movement toward downsizing, reengineering and outsourcing. The result was a rush by many forward-looking managers to create market-sensitive global organizations committed to total customer satisfaction.

For the foreseeable future, the U.S. and Europe, as well as the skyrocketing economies of China and India, will be the leaders of the world economy. With intensive competition in both hemispheres, far-reaching use of strategic alliances will continue, as will major corporate mergers and minor joint marketing efforts by a wide-range of companies. Thus, the effective application of competitive strategies will saturate managers’ time and energy as they immerse themselves in initiating efficient operations, outsourcing numerous functions, and adopting new technology innovations.

Summary The possibilities are limitless, if you can create an ongoing momentum among your employees. Then, your skills as a manager can play out in being able to select those possibilities that would generate the greatest success in proportion to your expenditures of time and resources. Your purpose, therefore, is to isolate any circumstance and expose any detail that represents, or could convert into, an opportunity. Defining business-building situations is essential to energizing your company’s potential and ultimately to your success as a manager.

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SEVEN

Strategies To Activate Profitable Growth

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Chapter Objectives Enhance your managerial skills as you: 1.

Determine how and when to position a product in a competitive marketplace.

2.

Identify the steps to implement a competitive intelligence system.

3.

Develop indirect strategies and avoid head-on competitive confrontations.

4.

Shape strategies to attack your competitors’ vulnerabilities with a fair level of confidence that the advantages lie with you.

Generally, it is a strategy maxim that if a company occupies a market first it enjoys an initial competitive advantage. The company that arrives later and rushes to establish a foothold would be at a disadvantage, burdened from the expenditure of too many resources to secure a desirable position. Consequently, from that truism we can formulate a combination of stratagems and principles that should concern you. The notion of who occupies a market first relates to circumstances under which you consider the pros and cons of first-in, next-in, or last-in strategies to a market.

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The generally accepted premise is that the late arrivals suffer most and are at the mercy of the initial contender for a primary position. If a company makes a strategic choice to be the first-in company, it can capitalize on opportunities to snare key customers, dominate a distribution network, or tie up major suppliers as ways to secure a solid footing. In contrast, the company that comes on the scene later and rushes to establish a foothold is left to scramble for the remaining unserved segments, or a niche purposely left unattended. Or it is forced to directly challenge an established company for its prime market position and thereby set off a resource-draining market confrontation. Yet, there are situations where a credible case can be made for the secondin competitor deliberately waiting on the sidelines, without major commitments of resources, observing how the market is reacting to the initial market-entry effort. Doing so allows an alert manager to assess the strengths and weaknesses of the first-in competitor. Those estimates provide meaningful clues to pursue various strategies, such as change a product mix, provide a value-added service, offer price discounts, select an overlooked or poorly served market niche, or introduce better/faster /cheaper products. The rationale is that the first-in company has done all the market research, investigated specific opportunities, committed resources and experienced the inevitable mistakes of market entry. The following case illustrates the point.

Case Example Guiltless Gourmet, a baker of low-fat tortilla chips, entered the market as a small one-person start-up in 1989. The company became a first-in contender for a then vacant and vibrant segment with its baked, not fried, tortilla chips. With consumers clamoring for fat-free foods and the growth curve seemingly unending, Guiltless Gourmet grew from the founder’s kitchen into a multi-million dollar business with an 18,000 square-foot plant.

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Caught up in the euphoria of their resounding success, Guiltless’ managers initially did not see an almost inevitable situation unfold. FritoLay Co., the snack-food giant, had been quietly keeping a watchful eye on how swiftly Guiltless had penetrated the market with only a single product and a paltry marketing budget. Viewing a ripe opportunity, Frito-Lay moved forward in a hushed and rapid movement to launch its own market entry of low-fat Baked Tostitos. Guiltless’ executives weren’t even aware of the move until they saw FritoLay’s packages stretched across the supermarket shelves. Almost predictably, after establishing a foothold in test markets, FritoLay mobilized its powerful marketing arsenal and rolled out its product nationwide, pushing Guiltless into full retreat. Year 2000 showed that Guiltless’ revenues had plummeted, which prompted management to close its plant and outsource production. However, even with the devastating situation, the Guiltless Gourmet brand managed to retain a credible position in one-third of the supermarkets and hold a favorable brand image in its category. To survive and prevent further deterioration, its executives initiated several survival strategies. First, recognizing that the fat-free fad was beginning to wane, Guiltless moved out of the health-food sections and into snack food aisles with its new line of all-organic corn chips, latching on to the emerging trend of consumers’ worrying over pesticides and genetically modified crops. It added new flavors such as Chile and Lime and Spicy Black Bean. Second, realizing that it needed to revamp distribution, it dropped some of its old distributors. In their place, Guiltless began tying-in delivery runs with other snack-food companies, which also monitored the supermarket shelves and actively pushed Guiltless’ products.

What personal and strategic value does the Guiltless case hold for you? The case exposes two highly conspicuous lessons: First, Frito-Lay kept a careful vigilance on the marketplace for both offensive (looked for new market and product opportunities, and found one with Guiltless’ initial success) and defensive reasons (protected existing niches against aggressive competitors.) In the case of Guiltless’ initial success, Frito-Lay

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followed a second-in strategy as it waited and watched the newly found niche show profitable growth; then it launched its own product entry. Next, Guiltless Gourmet, was taken by complete surprise before being able to develop a counter-strategy or even prepare the most meager defense against the competitive onslaught of Frito-Lay. Such a scenario could have been anticipated if there were a strategic business plan25, which by management’s own admission did not exist. Also, there were potential remedies to the situation, which could have been detailed as a back-up strategy in the plan, such as relocating earlyon to another market niche that was more defensible. (This move was eventually taken by moving into health foods.) If Guiltless’ managers had internalized even the most fundamental applications of product life cycle theory, they could have anticipated the inevitable entry of competitors waiting for the prime moment to enter with differentiated products, unique packaging, promotional innovations, or a variety of supporting services at the growth stage of the cycle. Moreover, they would have realized that the practical purpose for conducting product life cycle reviews is to activate strategies that extend the sales life of the product – actions that subsequently came to pass, albeit a little late. (See Appendix for a more detailed explanation of product life cycle strategies.) Instead, Guiltless lacked even the most rudimentary early-warning system. From all the evidence, it is fair to assume managers had little or no competitor intelligence systems in place to monitor a highly volatile market where competition is always intense, consumer tastes are fickle, distribution is in continuing flux, and supermarkets frequently shift loyalties as they cope with the mounting pressure of shrinking profit margins. As it turned out, Guiltless did all the spadework for Frito-Lay’s secondin entry, and if it weren’t Frito-Lay, surely it would have been another food company that would have pounced on the opportunity. If Guiltless had followed the sound business practice of assessing strengths and weaknesses and anchoring decisions on market intelligence, it would have picked-up

25 See details of Strategic Business Planning in the appendix. Note that it includes sections related to the environment, consumer behavior, market trends, competitor intelligence, technologies, and other diverse areas.

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the signals of hungry rivals looking for fruitful opportunities in a growing market or product category – particularly, in an arena where there are aggressive go-getters like Frito-Lay. Notwithstanding the dynamic events of the Guiltless Gourmet case, the overall advantages and benefits still remain with the company that establishes a solid foothold with a first-in strategy. That is, as long as the effort is backed up with a strategic business plan, sound market intelligence, continuing new product development and active offensive/defensive strategies. From your viewpoint, monitor your situation through continuing market research and astute observation of the goings-on in the marketplace. Make certain you tune-in to opportunities as well as threats. In particular, it is your responsibility to maintain a guarded eye on the aggressive moves of competitors by acting on two supporting considerations: Positioning and competitive intelligence.

Positioning a Product Pioneered by Al Reis and Jack Trout during the 1980s, positioning was popularized as, “Not what you do to a product. Positioning is what you do to the mind of the prospect.” From Professor Philip Kotler (Northwestern University), “Positioning is the act of designing the company offer and image so that it occupies a distinct and valued place in the target customers’ minds.” Both definitions presuppose that a product’s position results from securing a valued place early-on in the mind of the prospect and, barring unforeseen circumstances, retaining the dominant position. A product’s position exists in a customer’s mind and is the result of four influences: 1.

Internal efforts that shape an appropriate image for the company, brand, or individual product and the marketing mix (product, price, promotion, and distribution) that is used to configure strategies and tactics to establish the ideal market position.

2.

External market factors, including the demographic and behavioural characteristics of your target segment.

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3.

Customers’ actual perceptions of your products, services and company.

4.

Customers’ perceptions held about your competitors.

In turn, these influences impact on the primary strategy principle of the indirect approach.26

The Power of the Indirect Approach The object of the indirect approach is to circumvent the strong positions of competitive resistance and concentrate in those markets that represent advantages built around long-term customer relationships, as well as one or more controllable elements of the marketing mix. Numerous cases illustrate the application of the indirect approach and have since become marketing legends. Japanese and German firms entered the U.S. auto market during the fuel crisis of the 1970s and positioned themselves with fuel-conserving small automobiles. In contrast, their U.S. rivals stuck to building the big fuelguzzling cars27, while executives watched in dismay an alarming decline in their companies’ market share. Once a foothold was secured, the foreign companies proceeded to expand into all price ranges and size segments of the market. Also in the 1970s, rather than create a frontal attack, Japanese copier makers entered the North American market with small copiers targeted at small businesses. Giant Xerox, the company that built the market and dominated it, remained steadfast for a prolonged period positioning its large copiers to large organizations. It, too, found its share of market dwindling over the following decades.

26 The initial reference to the indirect approach was made in Chapter 3, along with the other strategy principles of speed, concentration, alternative objectives and unbalancing competition. 27 With some fairness to U.S. automakers, Detroit had few successes building small, economical cars up to that time, whereas the European and Japanese producers had notable accomplishments with small cars for decades.

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During that same period, Sony Corp. employed the indirect approach to assault the world markets with small television sets against the longestablished giants that focused only on larger sets. Once established, Sony introduced a wide range of upscale products and simultaneously improved its market position by expanding its distribution network. Further, to prepare barriers against those rivals attempting an indirect approach on its flanks, Sony began private-labeling sets for many of its competitors, thereby creating for itself a win-win situation. If one channel or brand failed, another picked up the slack in sales. Another business classic is Columbia Records that used an indirect approach centered on distribution to start the first record club. The highly successful innovation circumvented the previously dominant buying pattern, whereby consumers purchased musical recordings principally through retail stores. In the late 1920s, the Book-of-the-Month Club squarely challenged and successfully circumvented the traditional distribution channel of bookstores. Its founders mocked the previously held industry opinion that bookstores were the ‘only’ way to sell books. In time, that channel also lost ground to the Internet and the likes of amazon.com. The following case describes a more comprehensive application of the indirect approach where a company reached out for an advantageous position when its product faced aggressive competitors.

Case Example McAfee Associates, a software maker, sets a brilliant example of how to use positioning to grow market share by employing an indirect approach, while successfully preventing competitive encroachment. The company operates in an aggressive, fast-moving industry where new products flow daily from both established organizations and enterprising start-ups.

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McAfee discovered that to survive and grow required first, breaking away from some of the standard marketing practices; second, developing a positioning strategy as an essential component of its overall marketing efforts. Here’s how managers executed the strategy. Note, too, the multifaceted approach to its implementation.

McAfee’s strategy •

McAfee licensed its computer network security and management software for two years at a time. In contrast, most competitors followed the traditional industry approach of selling their software. Result: McAfee reduced its customers’ upfront costs and positioned itself advantageously for the long term.

•

The industry’s product cycle averaged about 18 months and upgrades were typically sold to customers. Instead, McAfee issued mini-upgrades every three months and gave them to customers free of charge. These frequent upgrades positioned the company with a favorable image among its customers. Result: Customer loyalty translated to a remarkable renewal rate of over 85 per cent.

•

McAfee used technology advances to speedily send product upgrades to customers over the Internet. Results: McAfee benefited from low-cost distribution and applied the cost saving to under-price competitors by as much as 50 per cent, thereby gaining market share.

•

As McAfee’s indirect strategy increased market share its leaders soon recognized that the company’s limited product line of antiviral programs was a distinct weakness and made it vulnerable to competitive inroads. To strengthen its hard-won market advantage, McAfee responded by launching product acquisitions of network security and management programs that created barriers of entry against competitors.

Results: In the reporting year after implementing the strategies, even with sizable expenditures in product line expansion, McAfee generated a striking gross margin of 95 per cent.

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What personal and strategic value does the McAfee case hold for you? To activate an indirect approach, do the following: 1.

Search for emerging, neglected, or poorly served market segments through competitive analysis. The purpose of which is to avoid at all costs a head-on frontal confrontation.

2.

Identify a competitive position centered on price, product, promotion, or distribution. (Refer to Chapter 6, Figure 6.2 for an expanded list of possibilities from which to develop an indirect approach.)

3.

Use maneuver, surprise, speed and alternative objectives to dislocate and disorient your competitor.

4.

Once you gain a point of entry, move toward market expansion.

Background to the Indirect Approach In his book Strategy, B. H. Liddell Hart28 presents a massive study covering 12 wars that decisively affected the entire course of European history in ancient times and 18 major wars of modern history up to 1914. In all, these 30 conflicts embraced more than 280 major military campaigns, and spanned 2,500 years. The study reveals that in only six of those campaigns did a decisive result follow a direct frontal approach, and of those six, most began with an indirect attack but were changed to a direct attack due to a variety of battlefield conditions. Consequently, Liddell Hart states: “History shows that rather than resign himself to a direct approach a Great Captain will take even the most hazardous indirect approach – if necessary over mountains, deserts or swamps with only a fraction of his force even cutting loose from his communications. He prefers to face any unfavorable condition rather than accept the risk of frustration inherent in a direct approach.”

28 B. H. Liddell Hart, Strategy (New York: Praeger, 1954).

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Thus, reviewing the overwhelming evidence of history, and in keeping with the theme of this chapter, we can rightfully conclude that no general is justified in launching his troops in a direct attack upon an enemy who is firmly in position. Similarly, we can transpose the concept to state that no leader is justified in launching sales and marketing forces in a direct assault against a competitor that is firmly entrenched in a market-leader position. Just how much stronger is the defense against a direct attack? Napoleon estimated a three-to-one advantage was needed to break through a defender’s line in a direct frontal attack. In Napoleon’s time, a three-toone advantage meant having three times more infantry, artillery and cavalry; and three times more logistical support than the defender. Thus, even if a breakthrough did occur by using a massive infusion of resources, inadequate human and material assets would remain for follow-up and penetration. In business terms, a three-to-one advantage translates to three times more salespeople, advertising expenditures, research and administrative support – a huge expenditure for little, or perhaps no, return. A classic business example of a direct attack is General Electric, RCA and Xerox launching a direct frontal attack during the 1970’s against IBM, an entrenched and aggressive defender. Those companies attempted to enter the computer market positioned with little or no perceived differentiation in their products or in other areas of the marketing mix. All retreated from the market leaving IBM in its commanding position. To add still another perspective to the negatives of the direct attack, during World War II, General Douglas MacArthur made the following statement at a strategy meeting with U.S. President Franklin D. Roosevelt: “The use of a direct frontal attack is a sign of a mediocre commander and there is no room in modern warfare for such a commander.” To paraphrase MacArthur for our topic, the use of a direct frontal attack against an entrenched competitor is a sign of a mediocre manager and there is no room in a 21st century competitive environment for such a manager!

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The underpinnings for implementing an indirect approach connects with assessing strengths and weaknesses, making accurate estimates, selecting a first-in versus a second-in strategy, developing a competitive position – and, once again, employing the obligatory competitive intelligence.

Competitive Intelligence The central idea behind competitive intelligence (CI) is that if you know your rival’s plans and are able to monitor his moves, you can fairly well estimate which strategy will be successful and which will not. With ongoing CI you can then probe and determine his operating patterns. You can determine his positions and so determine where you will likely face contentious niches. You then have lead-time to take appropriate actions. Taken as a whole, you have the advantage of knowing where your competitor’s strength is formidable and where weak. What better way is there for you to establish credibility and motivate your staff to deal with any potentially harmful situation? CI is a system for gathering information that affects all operating parts of a business either directly or indirectly. It is the centerpiece of all offensive and defensive actions. As a pragmatic issue, CI is the core component of any effort to develop strategies and tactics by exposing strengths and weaknesses in your situation as well as in those of your competitors. If utilized with the same care you would give a delicate monitoring instrument, CI can signal subtle changes in the marketplace. For instance, it can help you preempt and outmaneuver competitors, preserve financial expenditures for the most expeditious timing, and protect your corporate secrets from inquisitive onlookers. Had it been applied skillfully by Guiltless Gourmet, CI could have accomplished most, if not all, of the positive actions needed to maneuver around Frito-Lay’s incursion into its marketplace. The following case example focuses directly on the practical application of CI.

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Case Example Nutrasweet, a unit of Monsanto Co., found itself in a dilemma. Its sales reps had acquired reliable intelligence from customers that Johnson & Johnson was close to launching a rival sweetener and government approval was imminent. Acting on the information, managers at Nutrasweet proposed an elaborate and immediate defensive strategy backed-up with a lofty marketing budget to protect market share and blunt the competitive product-launch effort. In the meantime, Nutraweet’s CI unit discreetly made inquiries among its government contacts. The scrutiny revealed that in fact approval was not imminent and launching an expensive defensive campaign would be a waste of money, time and manpower. Five years later, the governing agency still hadn’t approved the product. A Nutrasweet senior executive estimated that its CI unit was worth at least $40 million a year in sales gained or revenues not lost.

What personal and strategic value does the Nutrasweet case hold for you? The resounding lesson is that market research and competitor intelligence are the centerpieces of all maneuvers. Expressed differently, if the uninformed manager does not know where to attack or defend against those using reliable intelligence, then he or she is always, always at a disadvantage. Let’s examine competitive intelligence in greater depth.

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Developing a Competitive Intelligence System As already noted, competitive intelligence drives effective decisions, as well as any subsequent actions related to positioning and market selection. In practice, therefore, when shaping your overall strategy insist on accurate and reliable intelligence. Today’s unyielding marketplace does not allow for a great deal of management by instinct and intuition – as illustrated by the harrowing experiences in the Guiltless Gourmet and Nutrasweet cases. Still, many managers feel compelled to utilize the gut-feel approach because they find management science techniques overwhelming and even intimidating. Also, they convince themselves (often mistakenly) that they have a firm grasp of what is happening in their respective markets. Or, they are unsuspecting victims of the dynamic upward movements of markets and revenues that mesmerize them with over confidence, but with little pragmatic evidence. Such was the state of affairs prior to the dot.com debacle of 2000-01, where many managers failed to mount even the most meager business intelligence probes. While it is not easy to work through the quantitative language often accompanying sensitive intelligence, the alternative of ‘flying blind’ is hardly promising. Thus, a compromise between the two extremes could be a workable answer. Meaning, instinct plus experience, validated by competitive intelligence, combine for effective business management. However, in a real-time competitive world, the give-and-take should tilt in favor of scientifically-based information to support and streamline your decision-making. To adequately satisfy this need, your information sources must be managed. This can be accomplished by clearly defining your information requirements. In turn, that defines the scale of the effort required to gather and process information. The process of building a competitive intelligence system could begin with this inquisitive thought: “If I knew the patterns of the past and some insight into what actions competitors might take in the future, I would have more accurate insights about what strategies are needed.” That statement reveals a need for some mechanism or process to supply meaningful and up-to-date market intelligence that can improve decisionmaking. Activating such a mechanism leads to the next step of setting up

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a current and organized reservoir of information responsive to the “If I knew…” wishes. This reservoir is associated with such areas as customer relationship management (CRM), database marketing, data marts, data mining and data warehousing, all of which are components in establishing an intelligence system.29 The underlying intent of all those activities is to gain a broad view of the market place so that you can deliberately deploy your financial, marketing and manpower resources. While at the same time you maintain security and secrecy about your deployment or ‘shape’. Shape underlies the mental process in which you lay plans. It parallels the previous discussion on the indirect approach. Meaning: In a competitive encounter you shape your efforts so that you deploy your strength against the weakness of your rival. For those observing your actions from the outside, all they see are the superficial aspects of the marketing effort. Whereas few understand the way in which you have exercised your managerial skill and created a winning situation through shapes. For obvious reasons, the cost of intelligence is justifiable only as long as it continues to improve your decision-making ability to develop innovative strategies and tactics to improve your competitive position. Specifically, an active intelligence system can accomplish the following: •

Monitor competitors’ actions and thereby shape your counterstrategies.

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Identify neglected, poorly served, or emerging market segments, as well as single-out points of entry and defense.

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Identify optimum marketing mixes.

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Assist in decisions to add a product, drop a product, modify a product, or provide a value-added service.

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Develop an accurate strategic business plan.

Even where a separate competitive intelligence unit exists – as in the Nutrasweet case – the lines of communication should reach to the

29 Note the distinction between information and intelligence: Information is simply an accumulation of random data, while intelligence is refined and synthesized information.

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appropriate strategy maker, from the CEO down to the sales rep, depending on the scope of the situation. The following guidelines illustrate how to organize the data flow coming into the system from diverse sources. To understand the process and the flow of data, examine each of the following sections, and thereby stay alert to detect patterns – or shapes – that will ultimately help you develop your own winning plans.

Collecting Field Data The CI process begins by collecting field data. Topping the list is the sales force, which represents one of the most valuable sources of on-the-ground competitive intelligence. When salespeople are trained to observe key events, if they are oriented to believe their input fits into the competitive strategy process, these men and women are first-line reporters of competitors’ actions. You can maintain communications with salespeople by periodically traveling with them. Then, conduct formal debriefing sessions to tap their insights about competitors’ actions. Another highly useful approach to securing information is adding or expanding a section of the sales force call report to record key competitor actions. You will also find that other employees from technicians, customer service and financial personnel can provide insightful information that, when pieced together, offers an accurate pattern of competitor behavior. Further, suppliers and others in the supply chain, when questioned diligently can serve as a gold mine of intelligence about competitors’ actions. Then there is a variety of surveillance hardware, such as fountain-pensize video cameras, encryption devices, infrared viewers and other counterintelligence tools readily available from an expanding number of spy shops that cater to corporate customers.30

Collecting Published Data There are numerous sources of published information, from small-town newspapers, in which a competitor’s presence makes front-page headlines, to large-city, or national newspapers and magazines that provide financial

30 See Chapter 12, Lead By Employing Live Agents, for more detailed information.

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and product information about competitors. Monitoring want ads in print and over the Internet provides clues to the types of personnel and skills being sought. Also, surfing a competitor’s Web site could reveal a wealth of information. Speeches by leaders of competing companies often provide beneficial insights into other firms’ future plans, industry trends and emerging strategies. At times it is astonishing how much sensitive information is provided in speeches at trade shows and professional meetings, which subsequently get into print, or appear as keynote speeches and interviews available in various Web sites. Also, look at Web monitoring services that provide ongoing sources of intelligence. Beyond the do-it-yourself activities, a variety of consulting and market research firms specialize in CI.

Compiling the Data Interviewing individuals who come in contact with competitors provides additional sources of CI. You can even create special forms that capture data at key events, such as trade shows. Or you can subscribe to clipping services that submit pertinent articles clipped from newspapers and magazines on competitors’ activities related to such areas as pricing, new product introductions, distribution, or special promotions.

Cataloging the Data The varied sources of data come together at this point in the system. Depending on the facilities available to you, organize and maintain the data under the overall direction of a senior marketing or sales manager, information technology executive, market analyst, manager of marketing intelligence, market researcher – or any executive in charge of devising competitive strategies.

Digestive Analysis The first four procedures are mechanical and electronic ways of collecting, compiling and cataloging data. The creative aspects now apply as you begin to synthesize the data to detect opportunities. At this time confer with key functional managers from finance, marketing, manufacturing

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and product development to assist in the analysis by sorting out nice-toknow versus pertinent information. It is also an opportunity to verify key pieces of information, as was the situation in the Nutrasweet case.

Communication to Strategist There are various approaches to communicate the synthesized information: oral reports at weekly staff meetings and the increasingly popular competitor newsletter. Whatever form of communication you select, the primary purpose is to feed the next section.

Competitor Analysis for Strategy Formulation The single most important goal of the entire competitive intelligence system is to develop competitive strategies. In turn, the resulting strategies become an integral component of the strategic business plan. Consequently, if you can figure out your competitor’s dispositions, his weaknesses and strengths, as well as how he deploys resources market by market, then you are in the most valuable position to know where and when to concentrate your assets. Therefore, you are better able to deploy your resources to gain a superior advantage. Further, if at the same time you conceal your own strategies from your rival, then you are in the optimum situation to concentrate your efforts at selected points with the least risk and the greatest chance of success. If your competitor chooses to respond, he will be forced to divide his resources to anticipate your moves. So that, if you concentrate while he divides, you can apply your entire strength to attack a fraction of his. As a result, you will be numerically superior. That means you have attained the most advantageous situation of maximizing the effectiveness of the resources available to you. This, then, is managerial competence at its best.

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Competitive Intelligence Applications While it is in your best interest to become the driving force behind installing and managing a competitive intelligence system, your next important role is to know where and how to apply the information to improve performance through enterprising strategies. For instance, maintaining a strong market presence or expanding into new markets can be viewed through market segmentation analysis, product life cycle analysis and new product development. All of which depend on a solid foundation of reliable business and competitive intelligence.

Market Segmentation For market segmentation analysis, use competitor intelligence to: •

Classify segments as demographic, geographic, psychographic (lifestyle), or according to a more finite sorting by the nine types of markets described in Chapter 1.

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Determine common buying factors and usage rates within segments.

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Monitor segments by measurable characteristics – for example, customer size, growth rate and location.

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Assess potential new segments by common sales and distribution channels.

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Evaluate segments to protect your position against inroads by competitors and determine which segments to attack and avoid.

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Shape the optimum marketing mix (product, price, promotion and distribution) for protecting or attacking segments.

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Case Example With segmentation as a central focus of your thinking, it supports one of the five foundation principles of strategy development: concentration. The others include speed, indirect approach, alternative objectives and unbalancing competition, which are detailed in Chapter 3. Segmentation, therefore, is the basis for success and is intrinsically connected to the previous comments on shaping your competition. Segmentation has numerous applications, for example: The marketers of Smirnoff Vodka introduced its market entry, Smirnoff Ice. Targeted at a youthful segment that grew up on fruit drinks and soda, it was aimed at consumers who had just reached legal drinking age. The low-alcohol, sweet tasting drink was meant for those young people who chose not to leap all the way to the more potent and premium beverages such as Absolut or Chivas Regal. PepsiCo embraces segmentation as a core strategy to its growth. The giant beverage and snack-food company skillfully extends its application by taking a strategic focus and applying segmentation to its broad business objectives. Implementing segmentation filters down to its tactical execution from market niche to market niche. Specifically, executives concentrate on those areas that the company chooses to dominate. For instance, PepsiCo gave up its self-defeating strategy of going head-on against rival CocaCola in overseas markets. Instead, it concentrates on uncontested markets that are emerging or poorly served. Intel split its Pentium line into distinct price and performance lines to target different market segments. They devised the Celeron line for inexpensive PCs and the Xeon family for high-powered servers and workstations, while keeping the flagship Pentium IV aimed at the middle tier of the market. The segmentation strategy helped Intel maintain its healthy 60 per cent gross margins by balancing high- and low-end sales. Here, too, management used the indirect approach to shape its strategy against leading competitors. That meant avoiding the squandering of its

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strength through damaging head-on market confrontations in a brawling contest that often resulted in exhaustion and disgruntled consumers. Instead, they adroitly employed the resource-conserving strategy of concentrating strength against weakness.

Product Life Cycle For product life cycle analysis31, CI can be used at the introductory stage to: •

Identify possible points of market entry.

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Determine if the product is reaching the intended audience segment by monitoring initial customer reactions to the offering.

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Analyze the marketing mix and its various components for possible modifications – for example, product performance, backup service and additional warranties.

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Monitor product positioning. Determine if customer perceptions match intended product performance levels and to what extent a favorable advantage exists over competitors’ offerings – if any.

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Develop tactical initiatives by using product or packaging innovations, aggressive pricing, creative promotions, distribution incentives, or add-on services.

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Evaluate distribution channels for market coverage, shipping schedules, customer service, effective communications and technical support.

At the product life cycle growth stage, CI can be used to: •

Analyze product purchases by market segment.

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Identify emerging market segments and any new product applications.

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Conduct a competitor analysis and tailor counter strategies by type of competitor.

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Adjust the marketing mix to emphasize specific groups; for example, change a product’s positioning by shifting from a pullthrough advertising strategy directed at end users, to a push-

31 Product life cycle concepts are discussed in Chapter 6 and the Appendix.

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through advertising program aimed at distributors and other intermediaries. •

Decide on the use of penetration (low) pricing to protect specific market segments.

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Determine when and how to incentivise the sales force.

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Provide feedback on product usage and performance information to R&D, manufacturing and technical service for use in developing product life cycle extension strategies.

At the product life cycle maturity stage, CI can be used to: •

Evaluate differentiation possibilities to avoid facing a commoditytype situation, where price wars are prevalent.

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Determine how, when and where to execute additional product life cycle extension strategies – for example, finding new applications for the product and locating new market segments.

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Expand product usage among existing market segments or find new users for the product’s basic materials.

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Monitor threats to market segments on a competitor-by-competitor basis.

At the product life cycle decline stage, CI can be used to: •

Evaluate options such as focusing on a specific market niche, expanding into additional segments of the market, forming joint ventures with manufacturers or distributors, and locating export opportunities.

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Determine where to prune the product line to obtain the best profitability.

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Fine-tune parts of the marketing mix to improve financial performance.

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Identify additional spin-off opportunities through product applications and services, or by using different distribution networks to create new product life cycles.

The following case example illustrates a particular application of CI and product life cycle.

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Case Example Toyota Motor Corp. noticed with alarm that sales of its cars had stalled in its home market for much of the 1990s, with the resulting loss of market share. In an effort to jump-start sales, Toyota executives decided to target the youth market, while still retaining a firm hold on its traditional segment, the well-heeled and middle-aged buyers. To place a framework of thinking around Toyota’s situation, its managers observed quite accurately that their core product line had reached a maturity level in sales growth when plotted on the product life cycle curve. One strategic choice – an obvious and vital one – was to make every reasonable effort to preserve its hard-won market share. Doing so meant developing marketing strategies to extend the sales life of Toyota cars by promoting more frequent purchase among existing customers, finding new customer segments for its basic line of cars, and shifting buyers away from purchasing a similar car from a competitor. It also considered issues such as the frequency of model changes, adding new and innovative add-on features perceived as ‘must-have’ by prospects, utilizing new technology that would dramatically impact product quality and performance, and deciding on the ever-present tactical options of using pricing and other promotional incentives to attract buyers. Implementing all those initiatives would elongate the sales curve. Although, it might not necessarily give it a steep sales curve of growth on the cycle.

Toyota’s Strategies Management’s major effort focused heavily on creating new levels of sales growth by establishing a totally new product life cycle curve. It latched hold of the twenty-something buyer market with an all-new line of streamlined cars that conjured up a mental image of stealth fighters.

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The company rolled out six new cars over a 20-month period designed specifically for young auto buyers. The maximum effort called for halting the decline in market share by starting a new life cycle and gaining a meaningful share of the youth market. Tied inextricably to Toyota’s new product life cycle are all the components of the new strategy: Designing new cars dedicated to the youth market, setting prices for budget-minded young people, using promotional media that reach and influence the youth segment, and setting up a separate distribution network of new dealerships, versus absorbing the new models into existing Toyota dealerships.

New Product Development For new product development, CI can be used as a preliminary screening device to: •

Identify potential market segments and use them as an idea generator for new product development.

•

Determine the marketability of the product.

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Assess the extent of competitors’ presence by specific market segments.

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Develop a product introduction strategy from test market to rollout.

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Define performance against strategic business plans.

The previously cited examples of Smirnoff, Toyota, Frito-Lay, and Intel illustrate the development of new products. In all cases these efforts were strategically joined to the companion processes associated with product life cycle, positioning and segmentation. To continue with the concept of shapes, it is one of the primary outcomes of competitive intelligence. By internalizing the full meaning of shapes, you can begin to sense the wisdom of hiding from competitors any information about the disposition of your resources, thereby denying them knowledge of your plans, strengths and weaknesses. Conversely, you can see the advantages of knowing the shape of your competitors and their strengths and weaknesses. Armed with such information, you can shape your strategies to attack your competitors’

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vulnerabilities with a fair level of confidence that the advantages lie with you. Also, within this concept, you should recognize that shapes do not remain the same for extended periods of time. External conditions recast events resulting from changes in the economy, consumer behavior, your industry and government. Then consider any internal situations that can also affect shapes. These include variations in organizational design, new technology, availability of resources, and the personalities and managerial skills of the senior executives who drive the organization. Thus, to lead, you need to be in continuing touch with your own organization and monitor your surroundings in accordance with customer needs and competitors’ positions. This latter point was referred to earlier as the two-zones of activity. Consequently, once you’ve detected the shape (deployment and positions) of your competitors, then you are better able to devise and apply strategies. Developing strategies was covered in Chapter 3. However, there are additional guidelines that fit with weaknesses and strengths. To fully benefit from Competitor Intelligence (CI), follow these guidelines: •

CI must be accurate: Critical decisions are at stake that affect expenditures of money, human resources and time.

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CI must be timely: Events have time cycles. Past a certain point, an opportunity may not occur again – or competitors may seize the opportunity.

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CI must be usable: Data without application becomes irrelevant.

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CI must be understandable: Information that cannot be interpreted with relative ease by the average manager and then applied to developing strategies and tactics is nearly useless.

•

CI should be meaningful: If it cannot boil down to competent strategic choices, it’s just nice-to-know information.

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Summary In keeping with the central theme of this chapter on weaknesses and strengths, use positioning and competitive intelligence to attack the vulnerable areas of your competitors – as illustrated by the irrefutable strategy principles of the indirect approach and concentration. Also, seek a defensible position that permits you to successfully protect your interests against the incursion of competitors by remaining without detectable shape. In all of these actions, incorporate the time-tested processes and tools of strategic business planning, market segmentation and product life cycle strategies. Underlying all these efforts is for you to establish and maintain a competitive intelligence system superior to that of your competitors. Then you can be considered a modern-day leader who is referred to as professional, experienced, savvy and a solid strategist.

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EIGHT

Lead By Making Strategic Maneuvers

EIGHT

Lead By Making Strategic Maneuvers

Chapter Objectives Enhance your managerial skills as you: •

Learn how to incorporate maneuver into your overall competitive strategies.

•

Shape a maneuvering strategy by incorporating both the physical and psychological components.

•

Identify the key factors that define leadership.

Strategic maneuvers require numerous key decisions on your part, most of which center on the indirect approach. Maneuvers also involve the clever application of positioning that, in turn, is supported by an extensive use of business intelligence.32 This chapter extends the discussion, with special emphasis on those factors that go into making strategic choices. When practiced with finesse and skill, they make up the fine art of maneuver. The following case introduces you to one of the many guises of maneuver.

32 See Chapter 7 for an in-depth review of the indirect approach and the use of competitive intelligence.

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Case Example Scale Eight, a small start-up with a big idea, actively entered the competitive arena of data storage and retrieval in 2000. Its central strategy: Maneuver around the standard practices of the industry by transforming data storage from a hardware business into a software business. Scale Eight implemented its maneuver using the following indirect strategies: First, product developers engineered their unique software to serve customers with prices as much as 80 per cent less than the cost of existing hardware-based systems sold by such competing powerhouses as Sun Microsystems, Network Appliance, EMC and others. Second, to maneuver around the market leaders and avoid the dangers of a direct confrontation, Scale Eight focused on a few well-defined niches where product specifications were less stringent than those offered by competitors. One such niche is data retrieval of media files from the Internet, where response times are less critical and measured in seconds as opposed to microseconds, which the competing storage systems could accomplish with greater efficiency. As a market trend, the business opportunity is huge. With storing and retrieving data becoming increasingly essential to doing business, storage infrastructure costs have ballooned to consume more than 50 per cent of the information technology capital budget of many corporations. Estimates indicated that if Scale Eight could snare even a fraction of the existing $30 billion storage-device market, the company would be a resounding success. All told, the global market for such devices is expected to skyrocket to $75 billion by 2006. Scale Eight’s bold maneuverings among high-powered competitors counted heavily on reliable competitive intelligence. As intelligence flowedin, it was analyzed, interpreted and continuously fed into planning the relevant indirect strategies to position its product toward responsive market

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niches. In all, Scale Eight successfully maneuvered its product system into an up-to-then heavily fortified storage market defended by an entrenched phalanx of contenders.

What personal and strategic value does the Scale Eight case hold for you? First and foremost, the practical application of maneuver entails turning misfortune to advantage. Therefore, from your viewpoint, maneuver should heighten your interest and command a dominant place in your day-today thinking and in your subsequent selection of actions. The clear implications for you: There are always ripe possibilities to turn even an unsettling competitive encounter to your advantage, whether it deals with entering a new market, challenging an aggressive competitor, or introducing a new product. Maneuvers, therefore, contain inherent advantages as well as potential dangers. Given such a precarious balance between success and failure, both possibilities deserve your deep attention. As both an art and skill, maneuver requires roundabout moves and secrecy of plans. It means taking actions opposite of what your competitor might expect. You thereby avoid showing your hand to vigilant competitors. You also avoid direct confrontations, such as damaging price wars. That is why in Chapter 2 you were advised to make careful estimates about your customers’ buying patterns, look at the cost-effectiveness of networks within your supply chain, track the compatibility of any strategic alliances, examine your corporate culture for positive and negative influences, and evaluate the state of your company’s use of technology. You were also counseled to estimate your internal strengths and external conditions by using the five elements as a comprehensive intelligence guide: creating cooperative relationships, leadership, seasonal forces, market selection and policy.33

33 At this point, it would be useful to review Chapter 2, Lead By Estimating Your Chances for Success. You are likely to gain additional insights on the value of making extensive estimates. Doing so will also provide the solid foundation for all your business planning and strategy development.

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To reinforce these points and transpose them into business applications, look again at the rationale for gathering competitive and market intelligence. By using incisive intelligence, you can form more accurate estimates about conditions facing you. Beyond the pragmatic intelligencegathering guidelines already suggested, some companies such as General Motors Corp. and Ford Motor Co. go to the extreme by tapping professional futurists for leading-edge trends. For example, many of the full-time futurists predict that most employees eventually will work from home or at satellite offices near their homes, and show up at their respective headquarters only occasionally. The practical implications suggest that changing technologies will dominate home-based work. For instance, a likely scenario displays several large flat screens hanging on walls like pictures, performing all the functions of a PC. Such computers would be voice-operated and allow for life-size, threedimensional, interactive teleconferencing. Also, buying habits for the basic commodities are likely to change. Some futurists go so far as to predict a popular movement will develop, whereby substantial size segments of people will have groceries delivered directly to their homes, and a service company would stop by once a week to replenish food essentials. Or the entire service would be handled electronically. Futurists may not be a practical source of trends for you, but you certainly can tap into specialized industry experts, academics at universities and onsite consultants who are well equipped to supply detailed information about the changing conditions within your markets. That is, they can pinpoint the locations of distribution hubs, warehouse sites, communications networks and describe the general infrastructure of the area. Other individuals, primarily from the social sciences, such as cultural anthropologists, psychologists and other market researchers steeped in consumer behavior can document with a good deal of accuracy the likely buying patterns of various groups of prospects based on ethnic and cultural characteristics. They can also uncover in-depth information that could apply to specific product offerings and services, along with the potential promotional themes for a marketing effort. Based on the sophisticated analytics that are part of the many CRM programs now available, this knowledge is becoming even more applicable to decision-makers.

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Still others can supply a variety of statistical methodologies to forecast the future, from sophisticated econometric modeling to time-series analysis. These experts are readily available to advise on how prospects think; even documenting their predispositions and motivations in everything from clothes, foods, to airline travel. In all these situations, and even where you may claim special expertise in those areas, it is comforting to validate, update, or discard previously held assumptions.

Maneuver – Turning Misfortune to Advantage Maneuver entails both dangers and advantages. For instance, even with good analysis, there are still the ever-present uncertainties when launching a new product or entering a previously unserved market. If you just repeat yesterday’s strategies, then you just blunder ahead chasing an elusive advantage with uncertain outcomes. Instead, incorporate into your thinking and planning a three-part process of probe, penetrate and exploit. Probe means making forays into test markets based on the competitive intelligence guidelines already indicated. However, before taking action consider two schools of thought that could influence your final decision: First, deliberately probe for viable market segments and obtain feedback about consumer acceptance of your product or service, as well as responses to various pricing, distribution and promotion strategies. You would use the probes to refine your strategies with a series of small-scale tests in preparation for a fine-tuned rollout. Or, second, withhold tests and rapidly mount a full-scale campaign into a market with the primary aim of ensuring secrecy and achieving surprise that could unbalance your competitors into making untimely or rash decisions. The essential prerequisite with either choice is that you make the appropriate estimates and calculations with deliberate care and accuracy. Since the many variables connected with any market campaign are at best erratic, many leaders take the more prudent approach. They attempt to

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diminish the level of risk by first probing for the best strength-conserving opportunity with the least expenditures of physical and financial resources. Penetrate means expanding your presence in those segments initially identified in the market probes. Once you have located likely points for market entry, maneuvering takes over to avoid an outright confrontation with any opposing competitor. Here is where you maximize your presence by locking up key customers, securing a workable position in the supply chain, and enriching your product and service offerings to satisfy the specific needs of customers. Exploit suggests further maneuvering to obtain maximum advantage and increase market share through such strategies as differentiation and valueadded services built around the marketing mix.34 The following case illustrates how a company used one form of maneuvering by looking at past estimates and emerging trends to refocus its product line.

Case Example Over the past decades, managers at RadioShack prided themselves in reading the market correctly and making several maneuvers to position RadioShack on the leading edge of consumer trends. Its historical bent had been selling blank cassette tapes, phone cords, batteries and a variety of gadgetry at its retail chain. Then the company’s leadership moved into high-ticket items including TVs, computers and a variety of audio products. That move positioned the company head-to-head with the likes of electronics retailers such as Best Buy and Circuit City. Notwithstanding, RadioShack was rewarded with increases in sales and profits, without the expense of adding many new stores to its existing 7,100 outlets.

34 See Chapter 4 to review the wide variety of strategies within the marketing mix.

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Then, during 2000, sales of those big-ticket items began to wane, reflecting the onset of hard times in electronic retailing. Once again, RadioShack maneuvered. Executives ordered the reduction in the number of large consumer electronics items and emphasized the return to its core business of selling parts, batteries, and accessories – this time, however, with a twist. Relying heavily on detailed calculations and finite estimates to drive strategy selection, RadioShack managers observed several key factors that would affect their actions: 1.

Parts and accessories offered considerably greater margins than the higher-ticket items.

2.

The sales curve for those items was moving in a steady upward trend.

3.

Research indicated that while 80 per cent of RadioShack’s customers came in to buy parts, a relatively high 30 per cent left without finding what they were looking for.

4.

The parts market was projected to expand by a solid 10 per cent annually, while sales of major electronics products were declining sharply during the slowing economy of 2001.

After digesting the various estimates and pondering the options, company managers settled on a strategy to vastly expand store offerings of parts, accessories and wireless phone products to provide customers with greater depth of selection. Their objective was to convert more lookers into buyers. If RadioShack could switch just a small percentage of that unmet demand into additional sales, revenues would get a substantial boost. What is the magnitude of the maneuver? Management reckons that with its mere five per cent share of the multi-billion dollar parts market, it has plenty of room to grow.

What personal and strategic value does the RadioShack case hold for you? While the probe/penetrate/exploit sequence suggests physical actions, maneuver requires an additional dimension to give it wholeness. It encompasses the leader’s mental nimbleness to devise and implement

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maneuvers using such deep-seated traits as judgment, courage, spirit and discipline.35 Some commentators also use the insightful and sensitive term, heart, to collectively describe the underlying emotional qualities by which an executive leads. For instance, order or confusion, commitment or indifference, boldness or cowardice are qualities that typically dominate the heart. There is also a highly pragmatic application of heart in a competitive market situation where it is essential for the manager to influence and, to the extent possible, control his rival’s actions. That is, with the aim to frustrate the competing manager and move against him. If he aggravates his competitor and confuses him into indecision or into making hasty and unwise choices, he thereby robs his competitor of the heart to plan with the winning spirit and courage appropriate to the demands of an uncompromising marketplace. Therefore, in the hands of an astute manager this psychological aspect of human nature becomes an effective strategy tool to unbalance a competitor. Not only does heart underlie your role as a strategist, it reflects in your outward behavior and ability to perform as an inspiring leader. Your comportment and attitude filters down and impacts the performance of staff members reporting to you who might be robbed of spirit and deprived of courage. Accordingly, leadership requires, among other traits, for you to project confidence and display the discipline and grit that will prevent you from caving in on every obstacle. Heart is how you create stability out of confusion, enthusiasm from discouragement, and bravery out of cowardice. For these are qualities dominated by the heart. As in the lyrics of a famous song, “You’ve got to have heart, miles and miles and miles of heart”, actively reach out to win your employees’ hearts. In practice, encourage them, convey confidence in their work and attitude, offer appreciation and, wherever possible, provide tangible security through compensation as well as through meaningful training.

35 The attributes associated with leadership were also discussed in Chapter 2, within a framework of examining internal strengths and external conditions.

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On the other hand, if you personally lose courage, a winning spirit, and decisiveness to identify indirect approaches and positioning strategies to complete the planned efforts, then your ability to lead under stressful situations is at serious risk. Such highly humanistic considerations profoundly impact maneuver. If, for instance, you move into unfamiliar markets where cultural, economic and logistical influences have not been fully identified, the real and potential dangers could impact your judgment and result in fence-straddling indecisiveness. The effect leads to flying blind and reacting randomly to every trap, entanglement and barrier – as well as reacting to apparent opportunities. Keep in mind, too, that these same factors also affect your competitors’ decisions and general mental state. There are also potentially unfortunate consequences if, unknown to you, an alert competitor awaits your entry and pounces on your efforts before you can recover from the unbalancing effect. That was the situation with the Guiltless Gourmet case cited in Chapter 7. Imagine, too, the financial outcome and competitive impact to your firm if under psychological strain you lost heart and formed incorrect conclusions about the capabilities of your sales force, the efficiency of physical distribution within the supply chain, or the economic realities of your various markets. In due course, dire outcomes would certainly plunge you headlong into questionable and risky market campaigns. Unless, that is, you had a carefully drafted strategic business plan that allows for a variety of contingencies.

What, then, is Behind this Leadership Trait Called Heart? Are the mannerisms innate or learned? Is it a case of nature versus nurture? Some behaviors may be naturally innate. Or they can be deliberately instilled in early childhood. Others may be shaped by deep-seated experiences, which leave individuals with indelible personality traits that are either displayed throughout the early stages of life; or remain dormant until triggered later in life by a jarring set of circumstances.

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“I can’t define leadership, but whatever it is, I’ve got it,” declared the renowned General George C. Patton. Yet even with such an inconclusive statement by an acknowledged leader, there is enough evidence to suggest some matters of the heart related to leadership and managerial performance do contain learned skills. If the acquired skills merge with an individual’s innate abilities, the outstanding leader is clearly distinguished from the mediocre manager.

Psychological Dimensions of Leadership Thus, we come down to the mental or psychological dimensions of leadership. Numerous authors, academics, consultants and other practitioners lay claim to understanding and teaching the components of leadership. What follows is a summary of the generally accepted leadership traits which, if adapted, can enhance your ability to manage people, resources and implement effective maneuvers. These include vision, culture, strategy, planning, training and development, customer orientation, employing people and technology. Let’s examine each:

VISION

Develop a habit of looking forward in time for at least three- to five-years. Picture what you want your company or business unit to look like. Describe what business your company will be in. Indicate which markets you will likely serve. List the range of services your customers will likely require. Find out what types of technologies will probably be in use. This effort is not crystal ball gazing, but a defined process that permits you to take into account a variety of internal and external factors36. The process is part of the procedures for developing a strategic business plan.37 Notwithstanding disturbing economic, political, or terrorist events, it is still possible to determine a future direction. A well-defined vision, in turn, translates into a written mission statement or strategic direction that keeps

36 Internal and external factors are listed in Chapter 4. 37 In the Appendix see the outline of a Strategic Business Plan. In particular, view the section on developing a Strategic Direction.

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you focused and prevents meandering into badly chosen and strengthdispersing situations. The statement provides direction and improves your ability to make strategic choices in such diverse areas as market selection, product development, technology, global competition, or the Internet.

38

CULTURE

Take into account the history and values that define the intrinsic culture of your organization. As you attempt to develop a vision of where you want your business to be in three- to-five years, also determine if that culture is consistent with reaching your goals – or will your company languish in an increasingly cutthroat marketplace. Even with a superficial observation of how your company reacts in a variety of competitive situations, you should be able to determine if the behaviors and attitudes of individuals from sales reps to senior executives are equal to the task when played out in the realism of a tough global economy. Will they be proactive or passive; confident or worried; daring or timid? Depending on what you observe, is there some corporate credo, an identifiable set of historical values, or a collection of intrinsic beliefs by which you can rally individuals and energize them to act with conviction and thereby change an adverse situation into a positive one? Culture encapsulates the soul of an organization. It defines the organization’s identity. It highlights the principles for which it stands. Unfortunately, it is an often-overlooked factor in galvanizing individuals into action and asserting leadership. Yet it is pivotal to the vitality and ultimately the successful outcome of any business effort. In a different time period and another organizational setting, U.S. Civil War General William T. Sherman observed, “There is a soul to an army as well as to the individual man. And no general can accomplish the full work of his army unless he commands the soul of his men, as well as their bodies and legs.”

38 A company’s culture is defined as the invisible web of values, things, ideas and behavioural patterns that exist within the organization. Chapter 2 illustrates how such companies as Hewlett-Packard, Microsoft, Alberto-culver and others changed corporate cultures to match their new strategic directions.

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Sherman’s insightful comment impacts directly on a business organization. It bears on all the previous discussions about managing your people and confronting an aggressive competitor.

STRATEGY

Cultivate the vital skills for developing and implementing strategies, including the art of maneuver. Defined as actions to achieve your objectives, strategy encompasses all those activities covered thus far in this and preceding chapters. These include estimating your competitive situation, utilizing business intelligence, developing a flexible and responsive organization, locating your optimum market position and practicing the art of maneuver. In effect, while a leader defines the strategy; strategy defines the caliber of the leader.39 As such, you are virtually mandated to give serious attention to understanding the foundation elements of strategy: speed, indirect approach, concentration, alternative objectives and unbalancing competition. Moreover, look to strategy as a natural extension of vision and culture. Meaning: A vision without a strategy remains a rosy-eyed blur. A corporate culture without defined objectives and proactive strategies shrinks to a nebulous, unwieldy mass of good intentions.

PLANNING

Hone your planning skills. Central to any business enterprise is a strategic business plan that is worthy of a manager’s vision. And embedded in leadership are the insights, confidence, tenacity and other inherent personality traits that individualize a plan and give it uniqueness. The planning process should motivate you to evaluate the past, view the future, assess competition, and examine internal and external conditions. If the strategic business plan were handled correctly, the tangible outputs would provide you with a list of differentiated products and value-added services to satisfy existing customers and newly identified prospects. Overlaying the entire process is the opportunity to think about and take

39 Strategy also can be defined to include a broader perspective: It is the art of coordinating the means (money, human resources and materials) to achieve the end (profit, customer satisfaction and company growth) as defined by company policy and objectives.

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concrete action that would expectantly lead to the prosperous long-term growth of the market. As for personnel interactions and information exchanges, the plan is one of the best mediums to connect with all managerial levels, as well as reach the rank and file. Within the framework of secrecy and a need-to-know, it provides finite statements related to the strategic direction, objectives and strategies of the organization or business unit. Further, as a communications device, it has the far-reaching advantage of improving employee morale.

TRAINING AND DEVELOPMENT

Concentrate on training and continuing retraining of your personnel. In many marginal situations, trained personnel often turn the tide and decide the success or failure of a campaign – or even the total enterprise. Training can impact directly on overall company performance and efficiency; and it contributes significantly to cost containment and productivity. Ultimately, it affects virtually every operation of the business. For instance, maneuvers often require audacious and circuitous moves to throw competitors off track. Such maneuvers can only be made to take place by individuals who exhibit the skills and discipline honed through ongoing training to carry them out. Often, there are situations where competitors may surprise you with an innovative product or with deep price cuts. Here, too, decisive strategies require professionally trained individuals with the ability and confidence to correctly assess the situation and take positive action. The unfaltering lessons endure: Only the skilled will survive. The quality of your individuals is far superior to quantity. Consequently, don’t sacrifice quality. If you do, there is failure – unless the competition is far inferior. While no situation offers certain results, it is axiomatic that the skilled and watchful eyes of highly trained individuals can turn disadvantage to advantage and prevent an advantage from turning into a route. Conversely, the unskilled will fail. Where, then, does the ultimate responsibility lie to assure a prompt and successful response to a competitive move? Plainly, accountability for bottom-line results remains with you.

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Training your personnel to act promptly and correctly so they don’t falter is an essential factor in managerial competence. By inference, then, you are responsible for the outcomes of the strategic business plan. In that scenario, either you develop the objectives and create the strategies or you approve them. In effect, you create the situations for your people to take action. Ultimately, how they perform is your responsibility.

CUSTOMER ORIENTATION

Initiate a customer-oriented mindset among all those who surround you. In this era of global competition it should be self-evident that a total customer focus is mandatory for a firm’s existence. Yet, it must be restated, if leadership is to take up a singularly important role, it is to establish the customer orientation as the operating philosophy behind what is generally accepted as a 21st century market-driven organization. Expressed differently, a customer-driven orientation justifies a company’s existence. Over the past four decades, a customer orientation evolved as the centerpiece of modern business doctrine which, in turn, defines the broadened status of marketing in such an organization: Marketing is a total system of interacting business activities designed to price, promote and distribute want-satisfying products and services to consumers and business-to-business users in a competitive environment at a profit. Clearly, the customer orientation, encompassing every activity of the organization, is imbedded in that definition.

EMPLOYING PEOPLE

Look to your people, with all their idiosyncrasies, mannerisms and subtleties, as a focal point of leadership and the means by which you implement business strategy. The following four areas cover a multitude of people issues: First, employing people correlates with maneuver as you discreetly and skillfully avoid direct confrontations with competitors. It means that you avoid pressing an opponent at bay, where the competing manager could

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resist with renewed vigor, desperate to survive. The essential point is don’t sacrifice your resources through costly confrontations. For instance, should a competitor attempt to leave a market, do not intervene directly. Let the company leave at its own time and pace. Allow it an easy way out without imposing any exit barriers. Where possible even go so far as to help eliminate barriers. Second, don’t lead your people blindly into seemingly profitable areas left open by an exiting competitor without first assessing if there are unseen traps, such as an inefficient supply chain, disgruntled customers, or changing technologies for which you are not prepared. Find out the exact reasons for the competitor giving up a market. Third, communicate fully and completely with your staff. That is, be with them physically and emotionally. Respond to them face-to-face, wherever possible. Use tangible signs of support, beyond the well-intended personalized memos. Most often, they will only respond resolutely to what they see. Various mottoes used by leaders illustrate the maxim, such as ‘Remain visible’, ‘Manage by walking around’, and ‘Don’t expect what you don’t inspect’. Fourth, pay strict attention to the highly sensitive issue of how you pairup people or form a team. Try to position your best individuals with your weakest performers. Join them, so that one supports the other and the guidelines of performance are clearly observed. Doing so offers a unity of effort that can be monitored. Thus, aggressive individuals do not operate out of phase with the weaker performers. Also, a coordinated team effort is more likely to achieve maximum results without an independent Rambo-type action. Consequently, holding the aggressive ones in line is as important as forcing the timid to act. Such attention to detail is the method of employing people. You are then better able to use a diverse range of flexible maneuvers to concentrate and disperse resources – both physical and personnel – to take advantage of all possibilities.

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TECHNOLOGY

Embrace technology. The prime differentiator, now and likely for the future, is how fervently you grasp the immense possibilities of technology. More than ever, technology will continue to have far-reaching effects on R&D, manufacturing productivity, marketing, distribution and customer service. In particular, the current Internet age presents vastly different situations from what existed during the previous decades. For instance, as a 21st century manager you now face an increasing number of global competitors. Internet entrepreneurs leap into so-called secure markets and whisk away once loyal customers. Mind-boggling new technology harnesses innovative products customized for customers’ exacting specifications. New forms of communication connect sellers to waiting customers with amazing speed in an ever-spreading global arena. At this point, it is useful to characterize the salient attributes of leadership: •

If wise, a leader is able to recognize changing competitive, customer, industry and environmental circumstances, and act rapidly and boldly to create opportunities and diffuse threats.

•

If sincere, employees will have no doubt about how and when rewards and reprimands are meted out.

•

If humane, the leader respects people, appreciates their industry and toil, and empathizes with them under adverse situations.

•

If courageous, the leader gains victory by seizing opportunities without hesitation.

•

If strict, the leader is demanding and dedicated to the mission and objectives of the organization. In turn, his personnel are disciplined because they are respectful of all those factors and fearful of reprimands – or worse.

How, then, do the above leadership characteristics apply to maneuver? As discussed, maneuver entails the use of the indirect approach and secrecy. It also means movement and surprise, or making circuitous movements. This means you gain the maximum advantage by masking your real intentions from competitors, as you deftly maneuver your resources.

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Circuitous movements also means misleading competitors about where you will deploy your people and how you will allocate resources. It necessitates using any creative ploy (within legal and ethical bounds) to put your competitor on the wrong track. That means practicing the art of dispersal and concentration of resources, which often results in a new set of market conditions. Dispersion and concentration serve two purposes: (1) conceals your real intentions by deliberately spreading out your resources with the intention of confusing your competitor; then (2) concentrates all efforts at the point of opportunity, as defined by specific and measurable objectives in the business plan. This two-step process gives you another dimension through which to use your wits to apply winning strategies. The following case illustrates one business application of the process.

Case Example Nortel made an end run around its competition by acquiring JDS, Uniphase’s Zurich subsidiary, which produces a key component of the most advanced fiber-optic networks. The speed with which Nortel made the move in 2001 surprised its chief rivals Lucent Technologies, Cisco Systems, Juniper Networks and Ciena. The acquisition quickly maneuvered Nortel into a powerful position on two fronts. First, the newly acquired factory produces a substantial 40 per cent world share of specialized pump-laser chips, the components needed to regenerate beams of light along the hundreds of miles of optical cable. That high concentration of production gives Nortel a major competitive advantage toward attaining a dominant share of the fast-growing optical components market. Also, with demand outpacing supply, Nortel is assured of ongoing supplies at an insider’s price. With such control of production,

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it even has the option of allocating supplies to those rivals that previously purchased the JDSU chips. Second, acquiring the Swiss-based factory permits the Canadian-based Nortel to immediately disperse geographically by gaining a foothold in Europe. Also, the facility will provide considerable expertise in helping Nortel maintain an industry lead by developing next-generation products.

What personal and strategic value does the Nortel case have for you? What is notably significant about the case is how Nortel concealed from its competitors that it was planning to fortify its existing market position, grow share of market, concentrate chip production, and lay plans for geographic expansion into Europe. Once the strategic plan was set, Nortel was able to move rapidly to nail down the acquisition. The case also illustrates that your market opportunities must be sought out or created. Once identified, it is necessary to create advantages by temporary dispersal and then concentration of efforts to throw competition off your track. Therefore, to deceive means employing strategies that unbalance the competing manager psychologically into making mistakes. For instance, in lax periods of activity, seem formidable in all outward appearances. Also, avoid any impression of being easily penetrated, weakened, or unbalanced. Doing so can foil competitors from taking advantage of even the smallest gap of opportunity. That is why in executing a maneuver, you must scrutinize the profitable and weak segments of the market. Try to understand how these segments are served – or not served. Judge the quality, depth and width of the existing product lines and assess the distribution network serving those markets. Also evaluate the pricing policies and practices and determine the promotional frequency, mix and media used. As important, appraise the professional caliber of the competing managers and their supporting staff. (The strategic business planning format forces you to explore all these areas.)

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Case Example The University of Phoenix, the U.S.‘s largest private university, launched into online education for working adults. The move was a clear-cut example of maneuvering with an indirect approach. Rather than catering to 18- to 22-year-olds looking to find themselves and competing head-on against the traditional universities, University of Phoenix focused on the then-neglected market of individuals at an average age of 35. Whereas most universities are in dire financial straits, University of Phoenix Online is highly profitable. With more than 9,000 faculty, only 250 are fulltime with the balance made up of working professionals. Most of all, while the majority of traditional universities require student unions, sports teams, student societies and so on, UP Online avoids those heavy expenditures. That affords the university the market-appealing advantage of charging 55 per cent less in tuition than a typical private university. Further, for those students who do not go online, UP holds classes in leased office spaces around the U.S. The next move is to shift away from the traditional form of textbooks and transfer all texts and materials into electronic formats. What personal strategic value does the University of Phoenix case have for you? For the most part, the psychological aspects of leadership – and by extension the value of the strategic business plan and its output of strategies – outweigh the physical surroundings. While the physical location, furniture and similar accouterments are important, they can never be as vital as the spirit and the enthusiasm of the employees.

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Accordingly, when maneuvering within a competitive struggle, watch the morale of those with whom you interact, such as subordinates, peers, superiors and competitors. For instance, during the early stages of a campaign cycle spirits are sharp, excitement is high. During the middle stages enthusiasm wanes and focus is often diverted to other real or fabricated events. In the later stages of the cycle, careless thoughts often turn to vacuous issues or wishful desires. In practice, therefore, be constantly vigilant and carefully observe a competitive situation. However, try not to interfere with a subordinate in charge of a project, such as a new product launch in its early stages. His or her attention is keen and enthusiasm is peaked. All attention is on performance. Stay alert and intervene only when attention is diverted, spirits downcast, morale marred, or you see obvious mistakes unfolding. Recognize, too, that morale building is an essential part of your duties as a manager. Enhance morale through training, appreciation, recognition and security. Aim toward active participation and mutual commitment to goals and objectives. Applying the physical and psychological factors to maneuver, therefore, means that you direct strength against weakness and maintain a posture of opposites. That is, with patience you wait for periods of apparent competitive disorder, such as changes in executive leadership or reorganization. With composure you look for outward appearances of apprehension or impulsive movements. You thereby control seemingly uncontrollable situations. When you are calm and firm, you are not easily unbalanced by negative events. In that state, physical and mental calmness work together to reduce and eventually eliminate the emotions of anger, fear, worry, resentment, which are the causes leading to the real possibility of you and your group losing grip and possibly being defeated by a competitor. With heart as the defining element in the ability to plan, and subsequently in the ability to devise clever maneuvers, the operating framework contains the human expressions of emotion, resolve and spirit. These dynamic displays result from the psychological-based relationships carefully nurtured between leader and employees.

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Consequently, the responsibility for the emotional and spirited well-being of employees is in your hands as a manager. You trigger the emotions and set the tone of behavior. So that enthusiasm generates enthusiasm; confidence spawns confidence. Conversely, discouragement breeds discouragement, along with other negative behavioural displays. These include the inability to exercise good judgment when responding to adverse circumstances; powerlessness and confusion when unable to make calm decisions; alarm when unexpectedly confronted with grave difficulties; and stress when incapable of controlling the myriad problems of responsibility. There is hope! Acquiring bona-fide managerial techniques and mastering the prescribed leadership skills will result in building your inner strength. You will gain the confidence and resiliency to project definite objectives through which to guide decisions and implement astute maneuvers.

Summary Maneuver means controlling events in the face of a competitive environment where advantages and disadvantages fight for dominance. Consequently, anticipating change and understanding when to act or when to stand firm, requires the mental and physical flexibility to help you seize the opportunity at a given moment. One time-tested technique used by numerous leaders is to sharpen your ability to picture possible scenarios according to best, average, or dangerous conditions, and then create responsive strategies for each situation. Another proven approach – and tied to the previous section on training – is to surround yourself with skilled and experienced individuals who have a wide range of successful experiences with proven and measurable results. They, too, are more likely to mentally picture future events, display flexibility, propose alternate courses of action, and maneuver quickly as compared with the less experienced.

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Therefore, weigh the external and internal situations. Devise a plan of action. Take action. Use the lessons of direct and indirect approach. Such is the art of maneuvering and making strategic choices.

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NINE

Manage By Harnessing The Full Potential Of Your People

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Chapter Objectives Enhance your managerial skills as you: •

Orient your front-line personnel to adopt a strategic mindset, even if it entails disobeying some orders from senior management.

•

Maintain a state of readiness to respond to aggressive competitors.

•

Utilize four approaches for applying information technology (IT) as the springboard to innovation.

There are some markets not to enter, some distribution channels not to use, some competitors not to confront and some dubious tactics not to exploit. They land squarely on the types of evaluations, judgments and eventual decisions typically made by senior-level leaders, as well as by junior managers making local market assessments. What organizational mechanism is behind the do’s and don’ts of deciding on some markets not to enter and some competitors not to confront? Organizations normally adopt a decision-making process; some highly structured, others relaxed and informal, or a combination of both. The process then boils down to senior managers issuing orders that have longterm strategic impact, and in many cases micro-managing short-term tactics, as well.

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Orienting Front-Line Personnel with a Strategic Mindset Now, the trend is clearly gathering speed. In the center of the market action, junior managers are taking on an increasingly more influential role. Under a variety of localized market conditions they modify some orders, or in extreme situations outrightly disregard them. The rationale: Market situations surface that could not be viewed objectively by those up the chain of command who are separated by time, geography and the rapid movements of competitors reacting with realtime data. In some cases, grass-roots decisions can be justified if they contribute to the greater good of the market campaign – or possibly the entire company. A growing number of enlightened managers recognize the practicality of this ‘up-the-organization, give-‘em-some-slack’ trend. Senior managers now devote more time to talking with employees, motivating them and relying on their judgment, regardless of level and rank. For instance, at Metrocall, a paging firm, senior executives listen closely to employees’ opinions and consider them vital to achieving superior performance. This practice ties in to the use of cross-functional teams as an organizational framework. In turn, it is anchored to three principle guidelines: authority, responsibility and accountability. At Alliant Techsystems, an aerospace and defense company, the CEO thinks about each employee as the single most important asset. To bolster decision-making at the market level he pushes for, and insists on, strict discipline as the bedrock characteristic of the new management wave. He also insists on face-to-face communications and personal observation of the workplace. At Bancorp, the CEO empowers local managers to find the best ways to produce double-digit growth in each and every market. This grass-roots movement for making strategic decisions began in earnest during the tough economic times of the 1970s and 1980s with the devastating body blows inflicted on numerous corporations by hard-hitting offshore competitors. The unceasing poundings – mostly by aggressive

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rivals with superior quality and deep price-cutting – resulted in mass layoffs among such assaulted industries as autos, machine tools and consumer electronics. Then, in a remarkable turnaround triggered by governmental and private-sector initiatives, and motivated by an unparalleled fighting-back mentality, leaders of those embattled companies picked up the pieces and began the painful process of corporate restructuring. They reshaped, downsized and revitalized their organizations, which emerged as lean and productive entities. Fired-up with entrepreneurial zeal and rallying the remaining workforce, they enthusiastically embraced the stunning treasure-trove of technologies that would transform their companies into efficient, cost-effective and formidable competitors.

Case Example Intel has been in the forefront among those companies attempting to reinvent themselves. In 1985, Intel exited the memory chip business and bet its fortunes on microprocessors. The company shifted from a diversified maker of chips into a more expansive strategy of producing the electronic brains for personal computers. It was an ingenious move that set the company on an upward growth spiral. By 2000, Intel again endured a complete overhaul that redefined the company as a diversified supplier of semiconductors for networking gear, information appliances and, of course, PCs. In fact, the changeover was so drastic that for the first time in 15 years, it was necessary to change the mission statement from being the leading purveyor of PC technology to a more sprawling direction of making the building blocks for the entire Net Economy. Challenged with a fresh new mission, propelled by a changing marketplace, driven by emerging technologies and provoked by worldwide competitors, Intel plowed into such dynamic areas as e-commerce, consumer electronics, Internet servers and wireless phones.

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As greater responsibility and corresponding authority filtered down to the most junior levels, even solitary sales people armed with their newfound trustworthiness, in many instances found themselves operating as if they were general managers of their respective small pieces of a sales territory. For sales people, authority meant correctly evaluating local economic factors; making prudent assessments of customers’ buying patterns and their impact on logistics, pricing and promotion; and dealing with the myriad of other specialized needs. Trained in strategic business planning, those individuals in the field even provided upper-level management with a comprehensive plan for the long-term development and profitability of their respective territories.

What personal and strategic value does the Intel case hold for you? The empowerment approach to managing is workable and desirable. To succeed, however, implementation is entirely predicated on the capabilities of individuals built on extensive training40 and experience. Such was the case with district sales managers and sales reps at a business unit of the chemical giant, Hoechst, who were trained in developing strategic market plans and formulating competitive strategies. In effect they began to act like general managers and, most importantly, think like strategists. Understandably, making the mental transition to the enhanced role of a general manager is not easy for some field supervisors and sales people who are immersed in the grueling chore of making sales quotas. Certainly, the mental transition is painful. Many individuals are so intent on the daily trials of getting through the day, they just can’t cope with strategic issues. Nonetheless, the trend is endemic in the 21st century organization, as individuals at all levels are increasingly asked to view the big picture and act upon it. With the appropriate training and a well-ordered process, such as the strategic business plan41, you can instill a discipline among those in the lower echelons to address key issues from a broader perspective.

40 The full discussion on the value of training to turn the tide of a campaign from possible failure to success is detailed in Chapter 8. 41 The strategic business plan has been referred to numerous times in previous chapters and is outlined in the Appendix.

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If you have made all reasonable efforts to orient front-line individuals to adopt a strategic mindset toward their respective market niches without measurable success, then you would have to evaluate the situation caseby-case and determine their real value to the organization. As for the specific issue of disobeying orders, that in and of itself is not the primary concern. Where necessary, that issue can always be handled with the appropriate disciplinary action. Instead, the central point for easing the dogmatic adherence to ridged orders is anchored to salvaging profits, dealing with aggressive competitors and taking advantage of a time-sensitive market opportunity. Also, where transactions move at cyber speed, the major concern is reversing the damaging effects of lost market share. That means, with fast-moving global events crowding senior managers’ minds, they are unable to respond quickly enough to all the riveting events triggered by enterprising overseas rivals. The situation becomes critical when competitors suddenly cut prices in selected markets to gain share, or to secure an instant foothold, in a market by acquiring a local competitor.

Responding to Opportunities More and more, businesses are virtual businesses. Expanding communication networks rapidly link sales people and local managers to customers, the supply chain and the home office. The cornerstone of all these revolutionary changes is the adoption of the Internet. Thus, the rigid pattern of adhering slavishly to home-office directives gives way to this overriding rule: When you see an opportunity and a correct course of action, don’t wait for orders – take it. Given the legitimacy of localized authority and responsibility for implementing self-developed actions, how then do you operate a strategic business unit or tackle the unique tactical issues within a local territory? The following do’s and don’ts provide pragmatic guidelines: Don’t go after market niches with slim pickings and where little purchasing power exists, or where the buying patterns of customers suggest only a meager level of brand loyalty. Those markets often consume an inordinate amount of time and attention in comparison to their sales and profit

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potential, and the customers are more apt to defect to competitors on the least provocation. In marketing parlance, they are known as laggards. Of vital importance, therefore, is to instill among local managers and sales people the idea of taking a long-term view of how a market is structured, its economic outlook, the evolving needs of customers and the operating patterns of main-line competitors. The object is to gain meaningful insights by assembling reliable market and competitive intelligence to make accurate decisions.

Case Example Hyundai Motor Co. found itself in a dilemma. In 1999, its lines of cars were cheap knockoffs of Japanese cars. The future looked bleak as it served a fluid market where competitors were striving for quality, consumers were demanding performance, and the company was losing money and market share. Brand loyalty was virtually non-existent, especially in the transitory and lackluster market segment it served. During that same timeframe, a new CEO, Chung Mong Koo, son of the company’s founder, took charge. His immediate decisions dealt with righting the past wrongs that were getting in the way of catering to what the market demanded and what rivals were offering; namely, quality and performance. Chung didn’t wait long to tour the manufacturing plants. To his dismay he saw cars coming off the assembly line with loose wires, tangled hoses and bolts painted four different colors. With unabashed anger, he demanded immediate action to fix the problems and ordered that no car would role off the line until the faults were resolved. So that there would be no misunderstanding, Chung made certain to communicate clearly to the rank and file that they would use Toyota’s level of quality as the company’s benchmark.

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In the first 10 months after making the demands for change, Hyundai’s worldwide sales increased by a healthy eight per cent over the previous year. In North America alone, sales skyrocketed by 42 per cent. Remaining on a roll, Chung established a quality-control unit. Still using the Japanese cars as its standard for quality, performance and features, the unit bought several models of Toyotas and Hondas. Engineers tore them apart to analyze them and devise innovative approaches to meet and, where possible, beat their rivals. Still looking to the future, Chung sold 10 per cent of Hyundai Motor to DaimlerChrysler with the aim of building a strategic alliance and gaining access to its state-of-the-art technology.

What personal and strategic value does the Hyundai case hold for you? Behind this guideline of not going after markets with meager potential is maintaining a competitive posture by comparing your company or business unit to the leading organizations that are the pace-setters for your industry. In turn, that guideline leads to the strategy of segmenting your market, which permits you to concentrate maximum resources at the point of greatest return. Do make every effort to create mutually beneficial alliances. In many markets it is too costly to go solo, particularly where there are technology options that are simply not affordable (as shown in the Hyundai example). That was also the case when Microsoft eyed the growing cell-phone software market and targeted mobile-phone makers such as Nokia. Recognizing the potential threat, Nokia participated in the launch of a new mobile-phone consortium. The strategy aimed at setting technical standards for next-generation mobile phones and services that would be independent of Microsoft’s technologies. That group was just one of several alliances that were formed as companies became increasingly anxious about Microsoft’s power. They banded together to block the software giant from dominating everything from mobile computing to a new generation of Web services. Here, too, the strategy was to push for industry standards on the Internet – other than with Microsoft’s Windows.

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Don’t linger in declining markets with outmoded technologies or with products languishing in the declining stages of their product life cycles. Instead, recognize that the more prudent path is to redirect your efforts into more viable sectors with promising growth forecasts. (Of course, that doesn’t mean there is no sales life left in low-tech markets or with commodity products, if those areas are part of your strategic business plan.) Therefore, pay close attention to the life cycle curves for your industry, the markets you serve, technologies in use, and the relevance of your product offerings. Once done, then you can determine where to shift direction to a new growth curve that would warrant an investment of time and resources. Again referring to Intel, the company was bound tightly to microprocessors, which dominated its strategy. In effect executives were blind-sided about thinking of emerging markets and new products. By activating a cultural change as well as an organizational restructuring, the focus shifted to persuading various levels of personnel to concede that the 1980’s strategy of concentrating on ever-more powerful computers would no longer work in the era of the Internet. With the reorganization underway and managers’ thinking freed-up, events moved in rapid succession. The company unveiled a new family of chips for the networking and communications gear that moves data traffic through the Internet. Soon after, Intel launched an Internet services business worldwide, whereby huge computer centers could run Web and e-commerce sites for other companies. That was followed by a forward-looking distribution initiative to sell branded information appliances, such as screen phones, e-mail stations and TV set-top boxes, through phone companies and Internet service providers. Do use resourcefulness in highly competitive situations, or where your sales come primarily from commodity products. Resourcefulness means searching for value-added services and product enhancements – or using other innovative approaches to create differentiation42.

42 See Chapter 6, Figure 6.2, as a rich source of ideas for implementing differentiation strategies.

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Continuing with the Intel example, executives recognized that even with its new strategy to move beyond the familiar PC world, they still needed to retain a foothold with their bread-and-butter, commodity-type computer chips. Meanwhile, the market turned sharply toward inexpensive computers, a scenario that Intel initially believed was a short-lived fad. The opposite happened. The situation turned critical when rival AMD’s market share soared in the low-end market. Awakened by the threat and jolted by recalling the hard-learned history of the past three decades that once you give an aggressive competitor a foothold, the natural follow-on strategy would be to creep upscale and, in Intel’s case, challenge its main product lines. Once roused, Intel responded to the threat with resourcefulness and innovation. The company introduced the Celeron chip to accomplish two ends: First, latch on to the trend for cheaper computers; second, block competitors from attempting an indirect approach on its entire line of pricier chips. Do fight after all else is exhausted. That means, for instance, slugging it out with price. However, if you choose such a battleground, you may need to preserve profitability through low-cost operations, using drastic cost cutting and implementing workplace efficiencies. You will also have to ally with suppliers to find creative ways to hold down costs and maintain profits. Overall, however, continue to search for innovations across the entire enterprise, from production through to marketing. For example, between 1996 and 2000, firms within the retailing industry frantically built stores to keep pace with consumers’ insatiable appetite for new merchandise and services. The building rate of 20 per cent was double the population growth during that decade. Most of it occurred during a five-year period of low unemployment, soaring housing values, and a rousing stock market. Then, with the recession and the terrorists’ attacks in 2001, the retailing bubble stretched to its limits. Stores closed and a shakeout began. Retailers began to squeeze their suppliers for cost reductions to salvage their profitability.

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Also, many of the traditional department stores carried similar brands in look-alike store interiors. For those leaders who did not exert extra effort to innovate and seek areas of differentiation, their situation became most vulnerable. They had little latitude for maneuver and sales increases relied on super incentives and drastic price discounts. In contrast, the emerging key players held a clear and definable position in the consumers’ eyes: Wal-Mart staked out its position as a price leader by continuing to lower costs, invest in new supply systems, and maintain its strategy of discounting. Kohl’s out-maneuvered Sears Roebuck by opening smaller stand-alone stores rather than move into shopping malls. Kohl’s also projected an image of carrying more national brands at better prices than traditional department stores. Best Buy maintained a tight focus on consumer electronics and appliances, while rival Circuit City branched out into the used-car business. Target carved out a neat position by going slightly upscale and creating an image for inexpensive chic. For many retailers fighting a price war, the predicament also meant facing an identity dilemma. They desperately needed to find a definable niche in an increasingly crowded market.

What personal and strategic value do these diverse examples hold for you? Fighting back doesn’t mean launching into head-on confrontations against competitors with, for instance, profit-draining price wars, which often end up threatening the stability of the marketplace and angering customers and suppliers. Rather, it means using ingenuity, maneuver, indirect approaches, and differentiation strategies – all those strategy principles discussed thus far in this and previous chapters. The underpinnings for your strategies would be supported by reliable competitive intelligence, overlaid with accurate estimates of your internal resources and the external market environment.

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Do act wisely about how you deploy your resources. To repeat this chapter’s opening comments: There are some markets not to enter, some distribution channels not to use, some competitors not to confront, and some dubious tactics not to exploit. That statement doesn’t advocate an extremely conservative approach, which in itself may be as dangerous as employing an exceptionally bold move. Instead, any actions you decide on require assessing your competitive situation, level of personnel skills and resources available to you. Also, your focus should look at the culture of your organization, which defines how you and your people would respond to a tough situation.43

Determining Your State of Readiness It is a practical policy – and an indispensable rule of leadership – to assume that a competitor will challenge your aggressive efforts. Thus, your straight message should be, don’t presume your rival will not vigorously confront your efforts. Instead, rely on your readiness to meet him and find ways to make your group or organization invincible. Expressed differently, it should be the clear policy of your organization – as well as the responsibility of each manager, and those in front-line activities – to accept the reality that competitors will respond in some form to your market-expansion efforts. This is especially the case in flat, no growth markets, where efforts to increase sales must come from rivals. What follows in your planning is to consider both favorable and unfavorable factors, even though some situations cannot be foreseen. The primary point is be ready for some type of competitive response to your overt moves. Turning away from this certainty is a violation of effective managerial control; not only for your company, but also for the fundamental responsibility you have to subordinates who look to you for guidance. Consequently, by taking into account favorable factors, you make your plans feasible; by taking into account unfavorable ones, you move to resolve

43 See Chapter 2 for details on making specific estimates of your internal condition and external circumstances, using the following fire guidelines: creating cooperative relationships, leadership, seasonal forces, market selection and policy.

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potential difficulties, and by accepting the possibility of competitors challenging you and inflicting harm, you can shape strategies to blunt their efforts. The following classic case gives credence to these propositions.

Case Example Heublein produced Smirnoff vodka, a leading brand with a dominant share of the U.S. market. During the 1960’s, Wolfschmidt, a competing brand produced by The Seagram Company Ltd., attacked Smirnoff on price. Wolfschmidt priced its product at $1.00 a bottle less than Smirnoff and claimed the same quality. Recognizing a real danger of customers switching to Wolfschmidt, Heublein managers needed a strategy to protect its market dominance. They had a number of options: 1.

Lower the price of Smirnoff by $1.00 or less to hold on to its market share.

2.

Maintain the price of Smirnoff but increase advertising and promotion.

3.

Maintain its price and hope that current advertising and promotion would preserve the Smirnoff image and market share.

While some options were attractive, they were all obvious approaches that could reasonably be seen by the competition. Instead, Heublein managers decided on a more innovative approach. First, they raised the price of Smirnoff by $1.00 in order to preserve the premier image the brand already enjoyed. Next, they introduced a new brand, Relska, and positioned it head-to-head as a fighting brand against Wolfschmidt’s price and market segment. Using the new product entry as a holding action to distract Wolfschmidt’s managers from the next move, Heublein introduced still another brand, Popov, at $1.00 less than Wolfschmidt.

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That action had the decisive effect of enveloping Wolfschmidt. By the mid 1980’s, Smirnoff remained number one in cases shipped of all imported and domestic vodkas sold in the United States, with Popov in the number two position. Wolfschmidt did not achieve its objective and was strategically outwitted by Smirnoff managers. Many reasons led to Wolfschmidt’s outcome. However, one conclusion is plain, the Wolfschmidt managers did not fully anticipate Heublein’s aggressive and innovative response to its price attack and consequently were not ready to respond. Meaning: How could Wolfschmidt managers have taken the bold action of lowering price for the sole purpose of increasing its market share and realistically assume that its rival – which held a dominant market position – would not respond? Just what state of readiness was Wolfschmidt in should Heublein develop a counter-offensive? The fair conclusion is that Wolfschmidt managers did not adequately consider the consequences of their initial actions. As the events unfolded, Heublein’s brilliant maneuvers stalled Wolfschmidt in its tracks. Smirnoff maintained its primary market position and the two additional product entries enveloped the market. For all practical effect, Heublein defeated Wolfschmidt’s share-building strategy.

What personal and strategic value does the Heublein case hold for you? The case clearly illustrates that any action that negatively impacts a competitor – particularly a strong one – is likely to initiate some type of counter-action. To think otherwise, goes squarely against a powerful strategy tenet, which is: •

Assume that a competitor will vigorously confront your efforts. If, for whatever reason, a competitor does not respond, you still acted responsibly.

What logically follows is to rely on your readiness to meet an opponent going after the same market. The key word is readiness. For you, readiness means first and foremost sticking to the fundamentals of operating your business, regardless of type or size.

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Take these steps to assure readiness: •

Set up an interactive organizational structure that encourages creativity and harnesses maximum energy among all levels of personnel, which includes harmonizing with the culture of your organization.

•

Systematize strategic business planning as an ongoing business priority, and one that links all operating levels of the organization.

•

Maintain ongoing competitive intelligence as the key component to developing and implementing competitive strategies.

•

Initiate human resource training and development programs to give your group a fighting edge.

•

Establish a cross-functional team to gain maximum input and create a high-level of buy-in to implement plans.

•

Install effective, managerial, financial and production controls to monitor events; these permit you to make rapid decisions that affect strategy outcomes.

Then, there are the additional leadership dimensions of readiness as defined by a technology-driven, 21st century global operating environment. The benchmarks consist of network-centric and information-driven systems built around the pervasive use of the Internet. Central to all the above activities is innovation. As applied to readiness, it focuses on truly imaginative and differentiated products or processes, and not just cosmetic embellishments of what already exists. To achieve real innovation, dig below the surface and search for the nuances of customer behavior that result in business-building product and service offerings. That also includes finding fresh approaches to reach new markets and serve existing ones more efficiently. In effect, innovation requires a new level of thought consistent with a Webbased economy. In particular, it requires a company culture that encourages innovation as a prerequisite for readiness. However, the reality is that you and your company may not have the resources and other capabilities to come up with dazzling new-age products. Instead, your innovation may come from providing fresh marketing

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approaches, after-sales services, financing plans, or providing warehousing and distributing systems for other companies. Yet the common factor for most resourceful approaches includes the extensive use of information technology (IT) as the springboard to innovation. The following guidelines for IT can impact readiness for your organization:

Applying Information Technology Use IT as an integral component of your strategic business plans There are numerous planning applications, such as strategies for cutting procurement costs, directing supply chain procedures, linking salespeople electronically to customers and warehouses, or initiating online after-sales support services. Used in planning internal processes, IT can apply to financial management, workforce relationship management and product life cycle management.

Use IT as the driver of new products and services The possibilities are enormous and cover a wide range of applications. For instance, in the medical field IT is central to providing real-time information to physicians and patients. In the financial field, the Internet provides customers with instant data and news. With utility companies, IT is the critical connector to providing energy traders with precise data on trends such as electricity demand across the entire energy grid.

Use IT and the data it provides to project the buying patterns of customers Information from the elaborate networks of IT provides the source data to test a variety of combinations within the marketing mix. Such information is particularly valuable for targeting various market segments. In other situations, IT can improve customer service by automatically identifying those customers calling-in, and even predicting why they are calling.

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Use IT to hook-up with your customers and suppliers For many companies the mainstay of IT is using the Internet to take orders from customers, keep track of inventories online, and maintain ongoing links with customers and suppliers through the variety of customer relationship management (CRM) programs. Thus, for your purposes, readiness is composed of innovation, information technology and speed. The above discussion focused on readiness and whether your competitors will or will not respond to your actions. (In the Heublein case, we saw the dire effects where Wolfschmidt managers were not ready when Smirnoff managers responded aggressively and creatively to a price attack on their product’s dominant market position.) Now, let’s look at the final part of readiness: Make your group or organization invincible44. If broken down to its component parts, invincibility is composed of both physical and psychological dimensions.

Physical Dimension In the physical sphere, you make your company invincible when you take the following actions: •

Initiate plans to improve internal operating systems, which include raising the performance levels of your personnel. It also means selecting those markets to exit or stand firm, deciding on segments to consolidate into defensible groups, or choosing emerging markets to enter. All this preparation relies on expanding the types of competitive intelligence you acquire and incorporating them into your strategic business plan.

•

Design your organization, department, or business unit so that there is a fluid chain of command that can act with speed and accuracy to satisfy real-time customer needs – as well as repel competitors’ threats. In particular, improve the effectiveness of your decisions and enhance operating performance by improving communications as the essential link from the home office to the field, and ultimately to your customers.

44 Chapter 5 contains a full and detailed discussion of invincibility and is worth reviewing at this point.

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That means your organization should be devoid of excessive layers of management. Your goal is to have fewer decision points to diffuse the real intent of your messages and impede the flow of information. The organizational design should also take into account corporate culture and determine if it is in harmony with realizing future objectives45. •

Develop offensive strategies as a three-pronged effort. First, assess customers’ needs as the prime focal point of any market-driven effort. Second, use a strength and weakness analysis to determine your competitors’ vulnerabilities. That gives you the ability to apply your strengths against their vulnerabilities. Third, evaluate the competencies of your organization and mobilize them into actions that combine product, price, promotion, distribution and people into a potent force46.

•

Consolidate your thinking and focus your business unit’s efforts by utilizing strategic business planning. The physical aspects of the plan looks at your vision for the future, the company’s (or product line’s) past history, objectives to realize your vision, strategies to achieve your objectives, and a portfolio of products and services consistent with your future direction. Not only does the plan organize your thoughts into a systematic approach of quantitative and qualitative statements, it serves as a solid form of communications to encourage inter-departmental cooperation and diffuse inter-personal conflicts.

•

Maneuver your resources so that you utilize your strengths against the disadvantages of your rivals. Such maneuvering fuses the above actions to deal with all the physical aspects of invincibility.

45 See the section on Cultural Diversity in Chapter 3 for comprehensive guidelines on harnessing the richness of the built-in culture within the organization. 46 See Chapter 2, Table 2.2 Tactical Estimates, for a comprehensive process to evaluate competencies.

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Psychological Dimension Having reviewed the physical, now let’s look at the psychological dimensions of ‘make your group or organization invincible’. There are five negative traits, which are dangerous in the character of a leader and calamitous in managing a business: Recklessness, cowardice, quicktempered, delicate and overly compassionate. As you examine your personal managerial style, you will likely expose specific areas of vulnerability that require improvement. As important, those same traits are extremely valuable for unmasking severe weaknesses about your competitors. If you understand what makes your opponents ‘tick’, you can enjoy a major competitive advantage. Such information certainly takes on special meaning, if you fully accept the truism that leadership is the indispensable ingredient to a winning outcome, assuming all other significant areas among competitors remain somewhat equal. In the final reckoning, the success or failure of any business endeavor is decided as an encounter of manager against manager; mind against mind; strategies against strategies. Use the following five leadership traits to gain meaningful insights about possible competitors’ shortcomings. (Also use the same checklist for selfappraisal.) When applied to developing your own plans, strategy solutions will likely surface.

Five Negative Traits of Leadership47 If reckless, your competitor would be hasty and impulsive in judging a situation and end up having to live with the consequences of faulty or, at best, questionable decisions. Perhaps the pressure of the moment, a mindset of negative thinking, fear, or just the impulsive nature of a person, could trigger a shoot-from-the-hip response.

47 No attempt is made here to conduct a comprehensive or professional psychological profiling. Rather, my intent is to offer general behavioural characteristics for you to highlight about yourself and those with whom you compete. With the appropriate resources, you can also tap the expertise of professionals to provide further in-depth assistance.

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Any such display of what you perceive as reckless behavior could be to your advantage. For instance, if as a result of a rash decision, your opponent becomes mired in an ill-fated alliance, the situation could create an advantageous distraction that would work in your favor. Acting promptly, you have a time-sensitive window of opportunity to carry out a surprise product launch. Or you could move into a new market before the competitor would mount a meaningful response. If cowardly, your competitor would likely avoid risk, or exhibit an aversion to unnecessary exposure toward potentially negative outcomes. Insecurity, a don’t-rock-the-boat mentality, or fear of damaging his or her career can provide you with prime opportunities to take advantage of such risk-adverse behavior. By creating an intimidating aggressive move that would be perceived as a threatening situation, you could force a competitor to make risky decisions, such as making unplanned price cuts, canceling or adding new distributors, launching a costly and unbudgeted promotional effort, or making draconian cuts in staff to preserve profitability. Typically, such moves would be made in an impetuous manner without sufficient market intelligence. Protecting one’s career or avoiding criticism from superiors has always proved a powerful motive to run away from risk. Even where there is the probability of forfeiting market share and giving up key customers, there is still the tendency not to deviate from so-called safe and standard procedures. If quick-tempered, there is a tendency to be obstinate and spontaneous. This is particularly problematic within today’s organizational structure of using cross-functional teams. Gaining consensus among team members is considered an essential ingredient to achieving maximum participation, as well as gaining psychological involvement to assure the successful implementation of ideas. Unless a quick-tempered leadership style is deliberately used and has proved successful, such irascible behavior often creates fear in subordinates and results in second-rate performance. It can also stifle bottom-up creativity and initiatives, which are so essential to today’s generally accepted managerial style when dealing with knowledge workers in a flattened organizational framework, and where relationship marketing is the driving force.

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Yet, such a character trait is not uncommon. In all likelihood, managers will continue to exhibit quick tempers and find intimidation or flaunted anger (whether real or contrived), as an acceptable form of leadership. When you are up against this form of behavior, try creating a marketcentered situation using speed and surprise, which might embarrass the individual in the eyes of his superiors and peers. Show him up as someone unaware of what is going on in his area of responsibility. In turn, that should unleash unabashed rage against his subordinates – those who are in the best position to remedy the situation. Obviously, precise behavior is difficult to predict, but it is in your best interest to be on guard and create situations that would conjure up a hotheaded response from your competitor. If he or she acts true to form, the circumstances could work to your advantage. If too delicate, this type of person is overly concerned about his or her reputation. Triggered by a sense of honor, sensitivity, insecurity, or extreme ambition, any of these traits often disregard the good of the organization or the specific job to be completed. The primary interest is in defending his name and status, even at the expense of someone else’s reputation. Such an individual can be thrown off balance by rumors and sundry comments. Of course, you must tread very lightly; the major concern is not to become associated with libelous and slanderous statements, or any unethical actions that could backfire on you. If compassionate, such an individual has a tendency to act emotionally with such profound sentiment that he or she often overlooks the big picture. This type of person often fears any short-term losses, cutbacks of personnel, plant or office closings, and other stringent measures, even if evidence suggests a positive long-term effect for the organization. Such a person is not willing to look forward and envision the promising outcome of making immediate, although painful decisions. Typically, there is a great tendency to internalize the suffering of individuals to be laid off and to linger excessively with what used to be the ‘good old days’. While such a humanitarian attitude is most commendable, an organization can otherwise suffer grievous long-term consequences if the tough, responsible actions are avoided – or delayed too long.

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In a contentious situation, feed his or her gentle nature with tactics that would create unusual pressure and add to the burden of having to endure short-term losses. These five traits can ruin an organization and cause the inevitable failure of a manager. Consequently, you have to ponder them with honest effort. Ultimately, what is essential in the temperament of a leader is steadiness. Where there is steadiness in temperament, solid performance often follows. The following list of executives represents a sampling of the stable behavior that won them accolades from Business Week: Louis V. Gerstner Jr., former CEO of IBM, is committed to long-term strategies. When presented with a plan to break up the company that was badly hit by a tech downturn, he made a huge strategic bet in favor of the services business and away from the company’s emphasis on hardware. In 2001, IBM Global Services was the biggest and fastest-growing part of the company. At meetings, he focused on key issues and didn’t deviate by rambling into irrelevant issues. He made clear and precise statements to everyone about his expectations. Howard Schultz, CEO of Starbucks, traveled to oversee an initial public offering of his company’s stock in the Japanese market shortly after the terrorist attacks of September 11, 2001 – and in the midst of a worldwide economic downturn. Such a display of steadfastness of purpose is a tribute to Schultz’s commitment to the future of his company. Starting with just 17 stores in 1987, Starbucks served 20 million people a week from nearly 5,000 outlets in 2002. And consistent with his dauntless personality, expansion plans included opening 1,000 stores from Beijing to Vienna. Fujio Mitarai, CEO of Canon, is described as fast and decisive. Such behavior is quite different from the culturally prone Japanese mannerisms of seeking consensus before taking action. Soon after taking charge of the company, he stunned senior managers by shutting down Canon’s large personal-computer division. Then, he followed-up quickly by closing four other divisions and overhauling inventory control systems. His aim was to attack Canon’s rigid policy of achieving sales and market share gains at any cost. His new focus aimed at profit improvement. The results speak loudly of Mitarai and his courage to go against the traditional thinking of his peers. Canon’s mainline business of printers and copiers

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flourished and sales and profits soared, while competitors cowered during the 2001 business slump. Richard S. Fuld Jr., CEO of Lehman Brothers, is credited with a “straight-shooting, gutsy, contrarian leadership style.” Even with so-called experts speculating that the investment banker wouldn’t stay independent very long, Fuld disregarded the negative expressions and rallied his team. Coming together with a burst of energy, Lehman gained market share in global debt and equity issuance, and its market cap held steady as rivals looked on woefully as theirs sank. Daniel Vasella, CEO of Novartis, the seventh largest pharmaceutical company, has the reputation of making a quick diagnosis, determining the urgency of the situation and surrounding himself with a competent team. He successfully transformed the once-stodgy Swiss conglomerate, formed through the merger of Sandoz and Ciba-Geigy, into an aggressive innovator. In 2000, Vasella oversaw the launch of four new drugs, including a breakthrough cancer treatment. He also pioneered programs to improve global access to costly new medicines by offering discounts of up to 40 per cent on all its drugs to the estimated 11 million elderly Americans without prescription coverage. Further, Vasella set in motion initiatives to improve access to drugs in the developing world by donating leprosy medicine and selling malaria drugs at cost in poorer countries. Such positive steps were part of revamping the culture of the newly formed organization, as he introduced performance-linked compensation, beefed-up marketing and boosted R&D spending.

Summary When dealing with the psychological dimension of invincibility, pull out all stops and strengthen your competitive intelligence efforts. Figure out the underlying nature of how your competitor thinks and acts. Using the guidelines described earlier, define the traits of those opposing managers you are up against. Learn about their behavior under a variety of market conditions. Meaning: As you would describe the performance

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of a product through a strength and weakness evaluation, do similar assessments with competing managers using the above five traits. If your situation permits, use professional assistance to develop a psychological profile of your rivals. The more you know about your opponent, the more reliable your business strategies, the better your chances of attaining your objectives and the more competent your managerial performance. Further, this type of personality assessment is not reserved only for upperand middle-level management. It should be taught to regional sales managers, and especially to sales reps in the field who are up against their counterparts competing for the same business. Finally, when you combine the physical and psychological dimensions, you clearly define the two-pronged approach to create invincibility. The overall effect is to help you lead by harnessing the full potential of your people.

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TEN

Lead By Signs, Signals And Movements

TEN

Lead By Signs, Signals And Movements

Chapter Objectives Enhance your managerial skills as you: 1.

Identify the techniques to uncover signs, signals and movements before entering a market.

2.

Apply four types of market positions: superior markets, natural barriers, fragmented markets and level ground.

3.

Interpret the various forms of signals that indicate problems for competitors – and fresh opportunities for you.

4.

Recognize the primary leadership characteristics related to signs, signals and movements.

In previous chapters you observed the dire outcomes of not devoting close enough attention to the strategic and tactical patterns of competitors. You then reviewed the numerous practices of estimating a competitive situation. These ranged from evaluating internal operations, assessing competitors’ strengths and weaknesses, appraising the makeup of the marketing mix and judging the caliber of the competitors’ leadership. There is still another dimension you can use to develop accurate estimates about your competitors: It is more subtle and means interpreting the physical and partially concealed signs, signals and movements of your rivals. If properly deciphered, these sometimes-obscure indications could shed light about your competitors’ dispositions; and most importantly reveal the likelihood of their next moves.

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Keeping one step ahead of competitors often makes the difference between winning and losing. You thereby gain maneuvering room and valuable clues about how to enter a market without undue waste of resources through pointless competitive confrontations.

Techniques to Uncover Signs, Signals and Movements Various business scholars have developed pragmatic guidelines to uncover signs and signals before entering a market. Noteworthy among them are those by Michael Porter (Harvard University), Philip Kotler (Northwestern University), and through a system known as the General Electric Business Screen. Porter identifies five basic competitive forces, which determine the ultimate profit potential and long-run attractiveness of a market or market segment.48 He indicates that the object is to find a defensible position where a company can best withstand competitive forces. The five forces consist of: •

Intensity of rivalry among industry competitors Rivalry occurs where one or more competitors see the opportunity to improve a market position and use such tactics as price, promotion, new products, or distribution and other elements within the marketing mix to gain an advantage.

•

Threat of potential new entrants The extent of the threat depends on the various types of preventative barriers in place. Such barriers include economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels and government policies or regulations.

•

Bargaining power of buyers Buyers competing within an industry have the potential power to force down prices and bargain for higher quality products,

48 For complete details see Michael Porter’s book, Competitive Strategy (Free Press, New York: 1980.)

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improved performance, or additional services. Most often this power is displayed in such diverse situations as where there are large volume purchases, specific demands for standard or undifferentiated products, or where purchases represent a fraction of the buyers’ costs. The buyers’ bargaining powers take on special significance with the accelerated use in various industries of the pervasive bidding process over the Internet. •

Pressure from substitute products or services Firms in one industry often compete with other industries for substitute products or services that can perform the same or better than those from the originating industry. In the security guard field, for example, electronic surveillance systems are a potent substitute for security guards, usually at less cost. It is up to the originating industry to adapt to the change, for instance, by creating packages that combine guards and electronics for maximum protection.

•

Bargaining power of suppliers Suppliers can exert power in an industry where there are a few dominant companies, where their products are an important part of the buyers’ business, or where their products are highly differentiated. Also, high switching costs can exert power in preventing customers from getting out of one product or system and into another.

Kotler identifies several signs and signals in the form of major entry barriers: high capital requirements, economies of scale, patents and licensing requirements, scarce locations, availability of raw materials or distributors and reputation requirements.49 For a company established in a market, Kotler further highlights mobility barriers. These occur when a company tries to enter additional and presumably more attractive market segments. Such was the case when PepsiCo tried to move its Grandma’s brand cookies from their niche in the vending machine market to the supermarket shelves. The small brand could not mount a suitable defense against the marketing power of Nabisco and Keebler.

49 See Philip Kotler’s excellent book, Marketing Management, 11th Edition (Prentice Hall, New York: 2003.)

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Kotler then characterizes types of competitors, which further signal patterns of behavior. These include: •

Laid-back competitor: A competitor that does not react quickly or strongly to a rival’s move.

•

Selective competitor: A competitor that reacts only to certain types of attacks and not to others.

•

Tiger competitor: A competitor that reacts swiftly and strongly to any assault on its terrain.

•

Stochastic competitor: A competitor that does not exhibit a predictable reaction pattern.

A third approach is the General Electric Business Screen (Figure 10.1), also known as multifactor analysis. This comprehensive and highly useful approach graphically displays where a company or product is positioned competitively in relation to a variety of criteria.

• • • • • •

Relative market share Price competiveness Product quality Knowledge of customer/market Sales effectiveness Geography

Market size Market growth rate Profit margin Competitive intensity Cyclicality Seasonality Scale economics

High

• • • • • • •

Weak

Green

Green

Yellow

Medium

Industry Attractiveness

Average

Green

Yellow

Red

Low

Business Strength Strong

Yellow

Red

Red

FIGURE 10.1. GENERAL ELECTRIC BUSINESS SCREEN

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A company, together with its rivals, is plotted on a grid. The vertical axis, Industry Attractiveness, ranks market size, market growth rate, profit margin, competitive intensity, scale economies, and such natural barriers as cyclicality and seasonality. The horizontal axis, Business Strength, ranks relative market share, price competitiveness, product quality, knowledge of customer/market, sales effectiveness and geography. Regardless of which set of guidelines you employ, these physical and behavioural approaches serve as road signs that provide directions for you to channel your resources efficiently and through which to concentrate your strength for maximum impact. Some signals are quite apparent; others are more discreet. The key points are observe signs, signals, and movements, interpret them, then define your strategies. The process is not confined to any particular organizational level. Each has access to signals. For instance, the sales rep observes tactical moves that reveal changes in promotional activities among competitors by product line and territory. A sales manager looks from a higher vantage point to observe how competitors’ salespeople are deployed, the patterns of movements within a defined territory and meaningful deviations in activities from previous periods. Advertising and market research people, if setup to receive market intelligence, interpret a variety of signs, such as how a new competitor moves into a market, timely news of acquisitions or divestitures, new product entries and significant shifts in competitors’ key managerial positions. Financial or accounting personnel examine the financial health of a competitor by looking at such indicators as debt-equity structure, inventory turnover, capital resources, credit rating, and any other clues that signal the magnitude of strengths and vulnerabilities. Production personnel look for signs that reveal production processes, plant locations and logistics, age of equipment or technologies, quality control systems, and similar areas from which an accurate assessment can be made.

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Techniques to Guide Movements into Four Types of Markets Beyond those generally accepted and highly useful modern techniques, there are valuable signs, signals and movements, albeit abstract ones, to guide your movement into a market. For instance, the following application discusses four types of positions: superior markets, natural barriers, fragmented markets and level ground.

Superior Markets Superior means a market with above average opportunities for growth and where you can take a commanding lead in market share. Such a position is defined by the size of the market or segment you select, relative to your available resources. Then, by latching on to new product trends, adapting marketing methods to new buying patterns, securing a solid position in the supply chain, or locating flourishing geographical regions, you can gain a dominant position from which to operate. Even where there may not be double-digit growth, nevertheless, there is growth. Former General Electric CEO Jack Welsh always maintained his superior markets by only selecting those in which the company could command a number one or two market position. What comes with that dominant position? Typically it includes high market share, growth opportunities, economies of scale and profitability. Then, once you have established a reliable infrastructure that includes a substantial customer base, efficient communications and a reliable distribution network, you can move outward to second-tier opportunities from your initial point. Going after secondary efforts is not without risks. For instance, after winning solid footholds in their respective segments, automakers of luxury cars such as Mercedes-Benz, Lexus, Infiniti and BMW have moved into broader markets with lower-priced vehicles that often sell for half the price of their original models. However, such movements create the possibility that the exclusivity image honed over many years of diligent positioning might be diffused.

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From another perspective, it is overly risky to initially occupy flat or lowgrowth segments where there is little chance to secure brand loyalty, solidify customer relationships, develop a reliable supply chain, or build on similar strengths associated with a reliable infrastructure. If found in such an unstable situation with the need to pull out of a weakened position, you would be at a distinct disadvantage when attempting to move up and secure high-growth segments, particularly those already occupied by others. You are likely to experience excessive time and cost investments to create a new image for the brand or entire company. This situation occurred with mass-market retailer, Sears, which attempted to go up-scale by focusing heavily on designer clothes, without success. Industries, markets, competitors and customers are in a continuously fluid state. Therefore, before you gain the rewards of market success, there are numerous signals to interpret as you run into the maelstrom of competitive encounters and the arduous decisions needed for survival and growth. The dictum, ‘Take the high ground and hold it’, plainly reinforces this lesson. Two well-known companies illustrate the advantages of taking the high ground (superior markets) – and then overcoming the barriers to hold those choice positions.

Case Example Sony Corp. enjoys the reputation of owning one of the world’s 10 most powerful consumer brands. From camcorders, digital cameras, video games and computers that cover the spectrum of music, movies and the Net, it clearly holds the high ground with an incredible array of products, with more than 100 million devices produced a year. Holding that highly valued position, however, is quite another issue. During 2002, lurking in the shadows of the marketplace were an array of signs, signals and movements that threatened to topple Sony from its lofty position.

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For one, an aggressive incursion got underway during 2000 as South Korean and Chinese rivals churned out ever-cheaper alternatives to Sony DVD players, TVs and digital cameras. While Sony mastered key technologies related to the manufacture of DVD players, digital storage, the miniaturization needed for its palm-size Net camcorder, and the seamless data transmission between devices and digital television, there hasn’t been a true breakthrough product introduced in over two decades. On the more positive side, however, Sony wisely recognized that hanging on to superior markets is always tenuous. Essential to its overall future prosperity and profitability is the protection of its renowned brand name. By harnessing a monumental effort, the company earnestly pushed to transform itself into a broadband-entertainment company. Sony’s plan was to shift its weight from making low-margin ‘boxes’ to selling movies, music, games and Internet services. Central to that effort is the fusion of its digital devices along with content, all transmitted within a network of high-speed connections, both wired and wireless. Computer Associates holds a near dominant position as the world’s fourth largest maker of computer software. It is the leader in software for managing computer networks and holds top positions in the fast-growing security and data-storage markets. Yet it faced a series of troublesome signs during 2002. First came a barrage of customer grievances about inattentive salespeople and overly inflexible contract terms. Then there was the hard-nosed, but unsuccessful proxy battle to take control of CA’s board by a Texas-based entrepreneur. Also at that time, Moody’s Investors Service issued concerns about CA’s cash flow, thereby aborting the company’s effort to sell billions in bonds. Rushing to shore up its defenses, CA set up a 650-person customer-relations staff in 2000 to remove the sting of customers’ complaints. It also made a concerted effort to develop technologies internally and not rely as heavily on acquisitions, which was one of CA’s primary strategies for growth. Part of that effort involved the addition of products to handle wireless data and to support a new generation of applications called Web services.

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What personal and strategic value do these cases hold for you? For both companies, legitimate questions arise: Were there signs, signals and movements that should have alerted each company’s leadership to the competitive threats before they materialized? Were adequate systems in place – or did a plan even exist – to forewarn of menacing problems? Were various levels of personnel negligent in not observing telltale signs of problems – and were they even trained to raise a red flag? If intelligence reports were issued, did managers read them and react appropriately? Late responses to danger signals often result in knee-jerk actions with too-little-too-late solutions. The essential point in these two cases is that taking a superior position is clearly the most favorable situation. However, a prerequisite to maintaining that position is establishing special defenses against rivals looking to topple you from the peak. Also, as already indicated, the superior market position provides a superb launching point into secondary and tertiary markets.

Natural Barriers Each marketplace has a unique personality and an innate culture. It is in your best interest to be sensitive to your customers’ value systems, moves, histories and experiences that overlay the market, as well as to the more subtle ones that forge ethical behavior. This type of barrier took on special meaning during the Enron scandal of 2002. Accounting scams, off-the-books deals and eventual bankruptcy destroyed jobs for thousands of dedicated employees and decimated their life savings and retirement prospects. The barrier, then, took the dual path of a deep distrust in Big Business and excessive government influence. The backlash forced investors to demand a new veracity and integrity from leaders and the balance sheets they represent. In a broader framework, harmonizing with the natural makeup of markets means facing-up to issues related to the environment, weather, safety, pollution, legislation, social movements, public opinion, workers’ concerns and economic matters before they become overbearing barriers. It also means looking forward in time to the availability of raw materials, energy, transportation and technology before they, too, become constricting barriers.

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For many years, Europe’s chief executives complied, even with very rigid controls (barriers) imposed on them by various governments that attempted to enforce welfare-state type operating environments. Then in 2001, business leaders of powerful business federations such as the Confederation of British Industry, the German Federation of Employers and Italy’s Confindustria emerged in a unified voice to spell out conditions for reform. Included in the demands were concrete recommendations to drop barriers by liberalizing labor laws and making it cheaper to hire and fire workers, eliminating France’s 35-hour working week, cutting away at corporate income taxes, deregulating electricity and gas markets, and initiating pension reforms to slash costs. Those executives pushed for changes that would permit companies to reach their full potential. They envisioned a growth track by which governments, managements and workers would gain a firm competitive position, and prosper in a global marketplace. Therefore, when preparing your strategic business plan, highlight specific issues that could take the form of barriers50. Here, the intent is to develop objectives and strategies that would overcome any natural barriers that impede your movement into a market. Doing so would help lower buyer resistance and permit greater acceptance of your products and services by customers. Pivotal to the successful outcome of your product launch is to act rapidly before an unsuspecting competitor even acknowledges that barriers exist and decides to take preemptive action. To gain a ‘feel’ for the market’s natural barriers, sense the ebb and flow of the market’s natural environment. Note the patterns of customer behavior and take into account any subtle changes among buyers’ practices. Also look for those understated nuances that give your market a distinctive personality. Similarly, where your competitor is unaware, or simply rejects such issues, you thereby enjoy the distinct advantage of blunting his efforts.

50 One useful technique is to use a four-part SWOT analysis, consisting of a grid listing strengths, weaknesses, opportunities, and threats. The ‘threat’ part of the analysis specifically equates to barriers.

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The following example illustrates the impact of the environment as a natural barrier.

Case Examples Contaminated wastewater streaming from factories, poison in landfills that decompose as nutrients into the soil, products made from toxic materials and dangerous greenhouse gases fouling the atmosphere have existed as top-of-mind management, consumer and governmental issues for a few decades. Then, beginning in the late 1990’s, an active movement began as governments enacted legislation and companies actively moved to devise manufacturing processes in which factories would avoid contributing to greenhouse gases and consumer products would stop emitting carcinogenic compounds. For example: The European Union passed ‘end-of-life’ legislation, which requires automakers to recycle or reuse at least 80 per cent of their old cars by 2006. Contracting with environmental designers William McDonough and Michael Braungart, Ford Motor Co. moved to transform its huge Rouge plant from a dirty manufacturing facility into a showcase clean factory, flooded with natural light, topped with a grass roof and surrounded by reconstructed wetlands that keep storm water from going into the public system. The wetlands alone are projected to save the company up to $50 million. The same design team also worked with Nike to develop a material for its sneakers, where the soles of the shoe safely biodegrade into the soil. Its Nikes are considered virtually free of PVC and volatile organic chemicals.

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Steelcase Inc. created a fabric with its Designtex Inc. subsidiary that is so free of toxins that one can eat it. Lufthansa installed the fabric on the seats of its planes. Also working with McDonough, Herman Miller Inc. built a nearly transparent factory that is bathed in sunlight and whose solar heatingand-cooling system helps cut energy costs by 30 per cent. Productivity at the factory shot up 24 per cent, enabling the company to increase annual sales by $60 million a year. By treating the environment as a natural barrier, and thereby an opportunity, these organizations tuned-in creatively to the interests of significant numbers of potential customers. At the same time, their actions created a substantial advantage over those competitors that were blindsided to such barriers.

What personal and strategic value do these examples hold for you? Attempting to strategize natural barriers means turning them to your benefit and making them into time- and resource-consuming obstacles for competitors, and, if possible, prevent damaging effects from inhibiting legislation. As you address natural barriers in your strategic business plan, also factor them into your marketing mix strategy, thereby adding an action component to your plans. This is particularly effective where your competitor has not taken similar steps. In all, take advantage of his avoidance or inability to address environmental, cultural and other natural barriers. Also associated with natural barriers are the signs that point to overly fragmented markets. It is in your best interest to move quickly out of those niches that could bog you down by the high costs of acquiring customers. Also watch for signs of doubtful buyer loyalties, where customers are unresponsive to your company’s reputation, product differentiation efforts, or brand recognition. In no way does this caution go against the advantages of segmentation and the fundamental strategy principle of concentration. Concentrating maximum strength toward market opportunities, while exploiting the

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weaknesses of competitors, remain powerful strategies. The approach works as long as you thoroughly sort out segments in which you are determined to remain from those you want to exit. As you select segments, if you do encounter an aggressive competitor, quickly initiate actions to reinforce those segments where you wish to retain a presence. Specifically, take on a mindset of a two-zone strategy. In the first zone, strengthen customer relationships and secure your longterm arrangements within the supply chain. However, if you see signs and movements of a looming confrontation with a determined competitor, don’t divide your resources. Doing so makes you vulnerable to a competitor who can eat away piecemeal at your key customers, regional locations, or other distribution points. If you do find yourself in such a precarious situation, consolidate your marketing and customer relationship efforts as quickly as possible so that they form a defensible barrier. In the second zone, your objective is to exploit your competitor’s vulnerabilities. Even with limited resources, you can still take a proactive approach by employing indirect strategies. For instance, if a competitor is preparing to confront you head-on, time your response until he makes a partial market entry into your market space before attempting to counter his moves. Normally, at the onset of market entry, the competitor is still in somewhat of a disorderly condition. Splitting the competitor’s efforts creates situations that deny him maneuverability. Examples include, tying up key suppliers, securing major customers, preempting your competitor’s pricing deals with your own and making the culture of the market work against him. In the latter example, that means playing off the competitor’s inability to understand consumers’ buying patterns, cultural diversity and overall industry characteristics, which include Porter’s five basic competitive forces cited earlier. All these actions would be carried out within the bounds of legal and ethical conduct to avoid any backlash. The strategic effect should result in tarnishing the competitor’s strategy and generally dividing his efforts, since only a portion of his resources could be used with any meaningful effect at any one time. Timing is

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important because the execution of the strategy takes place when the competitor is still in a precarious state of entering a market. The following case illustrates how one niche product endured in a fragmented market under severe market conditions, high costs and wavering buyer loyalties. The product held on. It survived because the brand fit the overall grand strategy of the parent company.

Case Example Cadillac, a treasured icon of General Motors Corp., has had distressful experiences over the past three decades. Plagued with design blunders, quality problems and severe losses in market share to German and Japanese rivals, it continues to survive beyond its long-gone grandeur and market dominance. During the 1950s, eight out every ten luxury cars sold were Caddies. Then came the likes of Mercedes, Lexus and BMW that swept aside Cadillac and captured sizable chunks of luxury car sales. Also, external forces emerged during the ‘60s and ‘70s that created a huge backlash. A new generation of consumers arrived on the buying scene that protested Vietnam and cast aside waste and ostentatious displays. Further, they also had no misgivings about buying foreign autos, whereas their flag-waving parents were precariously holding on to the label. Then came the ‘70s gas crisis. Among the casualties were the gas-guzzling autos, such as the Cadillac. In a desperate move, GM attempted a kneejerk action to salvage the situation by taking its smallest and poorest quality model, the Chevrolet Cavalier, and introduced it with minor cosmetic changes as a Cadillac. The cramped feel and drab styling had far-reaching ramifications in dragging down the once proud name in the minds of potential customers.

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Yet, even in a fragmented market where Cadillac was regarded as a pure niche product, GM viewed the brand as an integral part of the company’s overall strategy. If the company was to remain the world’s preeminent carmaker, then a full line of vehicles from entry-level Chevrolet up through top-of-the-line Cadillac was needed to cover most buying segments. Then, too, there is the ever-present profit motive, where a luxury car can earn an automaker as much as $3,500 compared with $500 for a midsize sedan. GM leadership decided that after years of neglect and costly mistakes, it was high time to make a firm commitment to its grand strategy. GM plowed through the barriers with a massive investment over a four-year period to restore the Cadillac brand to a dominant role in the luxury lineup of world-class automobiles. To refurbish the tarnished brand against the increasing presence of formidable competitors became monumental design, production and marketing tasks. The brand had to gain appeal to a new generation of consumers with a mindset favoring foreign cars. Implementing the new strategy meant introducing radically designed eyecatching new models to tune-in with the evolving tastes, lifestyles and cultures of a younger consumer segment. At the same time, the company made a determined effort to retain its core group of older customers with such classic labels as DeVille and Seville. To avoid getting bogged down again, Cadillac now looks incisively at a more demanding consumer who wants more customized choices. That means paying greater attention to the wide range of uncontrollable issues and barriers that must be leveraged into the decision-making process, particularly in a fragmented market. Cadillac also looks sharply at how to challenge an all-powerful group of global competitors.

What personal and strategic value does the Cadillac case hold for you? There are clear-cut advantages to staying in fragmented markets, yet there are sinkholes that must be avoided, as well. As for advantages, even if yours is a company with scant resources, you can still secure a dominant position in a segment or niche. The size would

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be determined by a number of criteria that apply to selecting a segment51. The choice depends on your wherewithal to sustain a competitive position under a variety of market and competitive conditions, as well as the soundness of the overall direction of your strategic business plan. You also hold the advantage of maintaining greater control over your segment by setting up barriers to a competitor’s entry, as long as the actions are supported by reliable market intelligence. The bedrock foundation underlying this entire approach is supported by the time-tested strategy principle of concentration. The disadvantages of the fragmented approach are in your ability to make a precise selection of the segment or niche and by not incorporating your choice into a larger plan. Meaning: In the course of time the segment will mature into a flat, no-growth market. That fact of market life could harm you, if you don’t recognize that sooner or later you have to face choices: take actions to prolong the life of your segment through ongoing customer-related initiatives, create barriers to your competitor’s entry, or exit the segment altogether.

Level Ground In level ground, which is defined as markets where you encounter widespread competition, you would employ a positioning strategy that reduces the number of directions from which competitors can attack. That means, search for segments that you possibly overlooked or those that are poorly served. Plug those segments before competitors can move in with their offerings and make your position untenable. Also, look at product, price, promotion and distribution to identify possibilities where competitors could initiate strategies of differentiation for their offerings. In all these strategy approaches, aim to: •

Sharpen your ability to correctly interpret signs, signals and movements as they unfold.

51 Segmentation is discussed in Chapters 1 and 4.

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•

Find the best position to keep your product line or company strong and viable.

•

Strengthen your resolve to fortify your market position against the inevitable entry of an aggressive competitor that might unseat you.

In the normal routines of conducting business, new opportunities can crop up at any time as you view the physical and psychological posture of a competitor. Therefore, internalize the basic tenet that marketplaces move and shift relentlessly and are subject to a variety of dynamic forces, as already described under natural barriers. Once again, that takes us back to the enormous value of market intelligence and competitor intelligence, which are further supported by the wisdom from the ancient writings of Sun Tzu52: “Know your enemy and know yourself; in a hundred battles you will never be in peril. When you are ignorant of the enemy but know yourself, your chances of winning or losing are equal. If ignorant both of your enemy and of yourself, you are certain in every battle to be in peril.” The following case shows how one company could have been dragged along into a highly competitive level ground. Instead, it sustained the high ground by observing the market’s signs, signals and movements that rivals overlooked.

52 Samuel B. Griffith, Sun Tzu, The Art of War, (Oxford University Press, 1963), p. 84

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Case Example Siebel Systems, the sales-automation software company, made magnificent progress from 1993 through 2000 by doubling sales and profits for each of those years. The company achieved a commanding 70 per cent share in its core market and optimistic plans called for continuing the same doubledigit growth. Then the alarm sounded. In February 2001, before the opening signs of recession, CEO Thomas M. Siebel looked with shock at his company’s internal situation. The backlog of pending sales had declined sharply from just days before, and for the first time, the figures showed that hundreds of potential deals, ranging in value from a few thousand dollars to several million each, suddenly stalled. Sales reports began to include the stinging phrases: ‘budget eliminated’, ‘all IT spending frozen’, or ‘decision deferred to following quarter’. With his own forecasting software quantifying the signals that foretold bad times lay ahead, Siebel moved at turbo speed to redeploy his resources. He ordered his senior executives to alter the just-completed strategic plans and move to a recession mode. Executives, managers and sales reps hit the road with urgent orders to lock-in as many pending deals as quickly as possible. They did so before lagging competitors could take notice and move to counter the action. Siebel was clearly ahead of the curve. Even economists took nine months to confirm that a recession had settled on the economy. To hunker down for the rough times and take all possible moves to preserve the company’s viability, Siebel furloughed 800 employees, eliminated three money-losing business units and slashed budgets for travel, marketing and hiring, including cutting 20 per cent of executives’ pay. Once the signs of an improved economy appeared, Siebel was in trim shape and ready to move forward. By December 2001, Siebel reps began knocking

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on customers’ doors with resounding success in closing deals. They were again in prime position to leapfrog the competition.

What personal and strategic value does the Siebel case hold for you? There is always some pandemonium in the market, which can be sorted out as signs, signals and movements: Economic gyrations appear with alarming suddenness. Competitors abruptly announce an all-new, valueadded service. Distributors hyped by rich financial incentives move with unexpected aggressiveness. Customers respond to competitors’ unforeseen promotional bursts that siphon-off sales you counted on. Then, there are worrying signs that can indicate endemic problems: Surprise movements by a competitor craftily shoring-up a market segment with additional sales reps, or a sudden introduction of an enhanced product quietly stirring customers’ interests. Other more suggestive and potentially jarring signals could appear, as well: Competitors’ opening or closing regional offices, sudden changes in management, news reports surface from regional distributors signaling a changing local economy, or upsetting rumors hint of new competitive alliances. All these signs, signals and movements should be reported through an established internal network that rapidly leads back from field manager to the highest-level executives. Initially, Siebel’s competitors did not detect signs of an economic downturn and consequently were not able to forge a timely defensive strategy. Whereas, Siebel management noted the signals and skillfully prepared for the industry turmoil that followed. Thus, any remedies you initiate to blunt adverse movements must be anchored to a workable intelligence-gathering network. To detect any meaningful marketplace changes, Siebel utilized its own software products to forecast and ‘red flag’ variations in the flow of sales. That information was then coupled with live reports from front-line sales reps about what customers were experiencing.

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As discussed extensively in previous chapters, competitive intelligence is the driver of strategy. There can be no effective strategy that is not substantially and unequivocally tied to competitive intelligence. For instance, if a competitor’s strategy points to retrenchment; if analysis reveals its financial health is failing; or if its sales representation in a segment decreases, then that organization may be in dire trouble. For an astute manager, those signals should drive a prompt decision to move in and pick-up market share at a relatively low investment of resources.

Interpreting Signs, Signals and Movements Not to be overlooked are the telltale signs of internal disorder as you observe competitors’ personnel. Managers openly show discouragement, display low morale, or exhibit short tempers. Sales reps overtly look for other jobs, gripe about working conditions, or complain about shortages of sales aids and supplies. They mutter about ineffectual leadership and cuts in pay. They whine about stringent rules restricting travel-related expenses. Or they object to executives condoning (or overlooking) abuses in corporate procedures. Look, too, for signs of general disorder, sloppiness, or indications of desperation. Do they represent changes in a competitor’s traditional operating style, patterns in handling customer relationships, or in the general demeanor of how executives interact with their personnel? Also, observe the signals coming from customers who openly complain about a competitor’s policies, rules and procedures, and if pumped for detailed information, they often surge forward with a torrent of grievances. All these words and actions could indicate fear, uncertainty, insecurity and a variety of deep-seated internal problems. It is in such a state of unbalance and discontinuity that you take action – fast – before the opportunity disappears or another rival seizes the opening. What follows? Give managers and other key personnel at the grass roots level greater authority and responsibility to act promptly and gain the advantage. As a result, you should now see how paying considerable attention to signs, signals and movements logically converges with the

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downward flow of decision-making. This localized decision-making requires an efficient channel of communications from the field to the home office as a system for maintaining ongoing market intelligence. Be mindful, however, when you grant permission to make business-related decisions to various ranks of personnel that you consider how corporate culture and ethics overlay some issues. For instance, the internal upheaval leading to the Enron Corp. debacle illustrates how its imbedded corporate culture, when compared with old economy and new economy behavioural patterns, contributed to faulty decision-making and its subsequent problems. (See Table 10.1.) For those competitors closely observing Enron’s signs and then comparing them to generally accepted industry norms, there could have been clear signals for rival managers to create opportunities.

Corporate culture

Employee outlook

Remuneration Leadership

Old economy

Security

Wages

Top-down

New economy

Personal development

Stock options

Inspired

Enron approach

Personal wealth

Type of organization

Corporate strategy

Patterns of behavior

Authoritative Consistent growth

Conform to regulations

Team work

Rapid growth

Stake in the Independent Self-directed Unrelenting business growth

Test the limits of regulations Do what works

TABLE 10.1. SIGNS, SIGNALS AND MOVEMENTS

Indirect Signals Indirect signals may be harder to interpret. Yet if examined with care these, too, could reveal valuable pieces of information. For instance, if a competitor’s management hands out rewards indiscriminately, it suggests the company is struggling and playing a fitful game of ‘buying’ support from employees. In turn, if criticisms, reprimands, or similar forms of disapproval are meted out with undue frequency, such signs could indicate that the company as a whole, or an individual executive in particular, is desperate.

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In addition, if personnel are censured before their loyalty is secured, they are likely to remain disobedient and consequently difficult to employ effectively. In situations where personnel are loyal, but remedial actions are not taken seriously, or if guidelines are inconsistent, these, too, could become problems in employing them efficiently. Also, there is the further likelihood those individuals will become troublesome. On the positive side, it is highly useful to observe signs of how effective leaders manage their personnel. Start by asking the following questions: Is there a leadership style where managers use civility and respect to imbue their employees uniformly with commitment and encouragement? Are guidelines dependable and consistently observed? Is there an equal measure of tolerance and reproach in a manner that displays positive signs of leadership? If such behavior exists in your firm – and not with competitors – then relationships with your staff should be satisfactory and success is in your favor. What follows is that those indirect signals have far-reaching consequences when applied to the tasks of dynamic leadership. For instance, when you harness the energies of your personnel with a unity of commitment against the vulnerabilities of your opponent, you forge a solid link to one of the foundation doctrines of business strategy and managerial competence: Create conditions that unbalance your opponent. Doing so exists in various forms within the physical makeup of your competitor’s organization and in the behavioural mannerisms of its personnel. (Those mannerisms – or indirect signals – are detailed above.) Then, you move forward and exploit the situation by continuing to expose your rival’s weaknesses and creating a state of disarray. In its most straightforward form, the success of an entire enterprise, or even an isolated marketing campaign, boils down to the clash between the mind of one manager against the mind of a competing manager. Translated, it is the caliber of your strategy pitted against that of your opponent. As a strategy principle, therefore, numbers alone don’t always confer a competitive advantage. Relying strictly on sheer promotional power does not necessarily give you the leading edge. Instead, look for the quality of the strategy and its effective implementation to reduce the level of

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competitive resistance. Such resistance is lowered where a competitor’s physical resources are depleted and its employees’ morale or will to resist is reduced to a feeble level. Taken together, these factors are inexorably intertwined into a network of traits associated with leadership. While discussed at length in Chapters 1 and 7, the primary leadership characteristics within the framework of signs, signals and movements are summarized as follows: •

Create a vision of what you want your company or business unit to look like as you view a time period of at least three- to five-years. Better yet, refine your vision into a mission statement with the assistance of key individuals formed as a cross-functional team. Then communicate it to all others involved with its achievement, so that there is buy-in and a resulting unity of effort.

•

Take into account the culture of your organization. Determine if its values, ideas, history and patterns of behavior are consistent with the requirements for operating successfully along two branches of a modern business enterprise. First, a commitment in which all individuals are deeply concerned with the market’s growth, prosperity and in satisfying the needs and wants of customers. Implicit in that commitment means avoiding pitched battles with competitors that inhibit growth. Second, a further commitment whereby an operating environment exists through which differentiation and innovations are used to sustain a competitive advantage over competitors. If such cultural attributes do not exist, then prepare to make organizational changes, as illustrated in Chapter 2 by such superior organizations as Cisco Systems, General Electric, IBM, Microsoft and others.

•

Cultivate within yourself and key members of your staff, including salespeople, the ability to craft effective strategies. Strategies are actions to achieve objectives. Without actions there are only good intentions. The successful outcome for any business or campaign relies on the quality of the business strategy and how well it is implemented.

•

Hone your skill in developing a strategic business plan. A welldesigned plan includes a vision (or mission statement), objectives,

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strategies, and a portfolio of markets and products that are consistent with the vision for your enterprise. As you immerse yourself in the planning process, you can also conduct an organized evaluation of the internal workings of your organization. That gives you a prime opportunity to see how your operating systems blend with market forces and their subsequent impact on your objectives and strategies. Also, by involving your subordinates in the planning process, you encourage a high-level of buy-in. The plan further serves as a highly effective medium to communicate effectively and dispel wrong intentions or inaccurate interpretations. •

Provide continuous training to sharpen your personnel’s business skills and develop their discipline. As more authority and responsibility shift to the grass-roots level, it is outright good leadership to provide a safeguard to assure that those individuals who are going to make decisions and implement them don’t cave in under competitive pressure. This means they have to deliver on their objectives with a high level of competency.

•

Initiate an uncompromising commitment to a customer orientation. This leadership trait has been the critical link throughout these chapters. Make it the centerpiece of all business activity in the vision you create, the objectives you develop and in the strategies you implement.

•

Embrace technology. In an ever-increasing range of business applications, technology, if properly employed, still wins many key competitive battles. It is often the driver of differentiated products and services. It is the area in which you can achieve the much sought after competitive advantage. It is now axiomatic to state that the Internet and all its mind-boggling technology will be the connector to reach customers, fortify relationships, and provide the goods and services tailored to their needs, wants, and for the resolution of their problems.

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Summary Leading by signs, signals and movements requires that you correctly estimate the visible, and at times barely distinguishable, conditions about your competitor’s situation. If achieved, you then enjoy the indisputable advantage of concentrating your strength in ways that prevent rivals from inhibiting your plans. There is no more to it than this. Any manager who lacks foresight and underestimates his rivals will surely lose out in today’s contentious environment.

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ELEVEN

Manage By Understanding The Nature Of Markets

ELEVEN

Manage By Understanding The Nature Of Markets

Chapter Objectives Enhance your managerial skills as you: 1.

Develop competitive strategies for six categories of markets.

2.

Describe the negative types of interpersonal relationships that can exist between you and your staff, which could prevent you from achieving your objectives.

3.

Apply five leadership rules to guide you in determining the capabilities of your organization or business unit.

In practical terms, if you fully grasp the characteristics of markets, then you are in an ideal situation to decide how to lead your personnel and where to expend your material resources. In chapters 1 and 4, the discussions centered on various categories of markets and how to position your resources to gain the best possible effect. Here, particular emphasis is given to interpreting and applying competitive strategies to distinct market situations. For those purposes, markets are classified as accessible, entrapping, indecisive, constricted, precipitous and remote.

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Competitive Strategies for Six Types of Markets Accessible This type of market means that both you and your competitors can operate harmoniously in the same markets with relative ease. All contenders feel reasonably comfortable about dealing in their respective market niches without feeling the pressure of being pushed to the wall. Outright aggressive confrontation is seldom, if at all. Accessible also means that at the highest levels of management, there is a common strategic interest among most competitors for the continuing growth and prosperity of the market. Further, there is even general consensus among active competitors about which company legitimately lays claim to where each ranks in market share. (In this context, such consent in no way relates to collusion; rather the intent is to perpetuate the general well-being of the market in which all contenders can legitimately prosper.) If any one company chooses to gain a meaningful benefit, a likely option might include securing a more advantageous position on the supply chain. Doing so would help differentiate the company from a competitor and permit it to meet unfolding supply and demand situations with greater efficiency. As contradictory as it may appear with the mayhem of competitive encounters, global rivals scrambling for market share, or price wars eating away at profitability, it is still possible to have a level of market harmony and an opportunity to thrive in accessible markets. Here’s how one company succeeded.

Case Example Liz Claiborne Inc. is an apparel company skillfully balancing 26 brands that attract consumers spread over the demographic and psychographic (behavioural) spectrum, from teens to middle-aged women to bargain shoppers.

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The company is the master of niche marketing and branding. Obsessively anchored to research trends and sales data, Claiborne’s business practices have ingeniously assumed the status of a science in a business traditionally bent on fashion by inspiration, whim and by attempting to make trends rather than by following them. Claiborne relies heavily on initiating numerous consumer studies, hiring color-and-trend-consulting firms, and even utilizing a small research firm staffed by psychologists who study women’s shopping behavior, going so far as to comb through their closets. Armed with reams of data, Claiborne’s 250 designers methodically interpret the market trends for their respective clothing labels, which include DKNY, Lucky Brand Dungarees, Shelli Segal, Kenneth Cole, Dana Buchman, Villager and Crazy Horse. Nine additional brands alone play off the Liz Claiborne name. Thus, the profile and buying behavior associated with each brand is carefully dedicated to the market niche in which each designer operates. Does the system stifle creativity? Apparently not. In a chaotic market where industry sales plummeted 7 per cent, revenues at Claiborne jumped 11 per cent in 2000. In 2001 sales skyrocketed 66 per cent. Dedicated market research continues to drive the business and permits Claiborne to prosper in a market that is as accessible to the giants as it is to numerous boutique firms.

Entrapping This situation relates to markets that are easy to exit but are difficult to return to because of new entry barriers, or where competitors may have taken your place in the vacated niches or on the supply chain. Conversely, if you are soundly entrenched in the market and a competitor attempts to re-enter, your active defense should provide a superior advantage. That is, as long as you stay alert to the competitor’s entry strategies and move speedily to blunt his efforts. However, if a competitor is fully prepared, takes you off-guard, and you subsequently lose your market position, it is difficult to return to your former situation. In effect, you are entrapped in an untenable condition and your entire business strategy could be in jeopardy.

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The following case is an example of an entrapping market that, depending on the side you are on, can alternate between problem and opportunity.

Case Example The health care industry in the U.S., once served by 355 distributors, handled a broad array of products such as pharmaceuticals, medical instruments, surgical supplies and the like. Today just three companies – Cardinal Health, AmerisourceBergen and McKesson – control 90 per cent of the business. All three maneuvered into a superior market position, while the remainder became entrapped in an indefensible situation, unable to compete and were subsequently acquired or simply exited the business. Such is the nature of the pharmaceuticals industry, characterized as a huge marketplace that continues to grow and is propelled by a burgeoning aging population that consumes increasing quantities of drugs. Further, the market is expanding dramatically with the elevated usage of these products in hospitals, surgery centers, nursing homes and pharmacies. Most of those outlets, however, lack warehousing facilities. Instead, they depend on distributors with high levels of service to make just-in-time deliveries of pharmaceuticals and related products. In addition, the growth rate for drugs over the next ten years is projected to be higher than in the previous decade. One of the three large distributors, Cardinal Health, commands a lions share of the business and illustrates how to survive and prosper in an entrapped market. Evolving through a series of well-planned strategies, the company initially undertook massive internal structuring to become the industry’s lowest cost operator. Then, using sound cash management strategies, Cardinal created an additional advantage by making aggressive purchases to build inventory when it anticipated inflated drug prices, thereby giving

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its margins a solid boost. It also used its cash to make more than 50 acquisitions of distributors over a period of ten years, some of which were lackluster performers entrapped in the industry. Cardinal continued to build its value-added services by catering to diverse groups of customers with profitable revenue generators such as packaging drugs for pharmaceutical producers, providing contract manufacturing services, and developing alternative drug-delivery formulations such as soft-gel capsules and rapid-dissolving tablets. With a looming shortage of pharmacists during 2000-2001, Cardinal introduced its Pyxis machines to hospitals and nursing homes. Pyxis, an automated drug dispenser with an installed base of over 100,000 machines, is similar to a bank ATM as it reduces labor needs and medical errors. To further aid hospitals, Cardinal also became the largest manager of hospital pharmacies in the U.S. Any distributor seeking to re-enter such an entrapped market would have to demonstrate extraordinary creativity; hold formidable resources; or exhibit outstanding foresight to locate a vacant, poorly served, or emerging segment not served by the three leaders.

Indecisive This type indicates that a highly contentious market exists. Even if outward signs indicate that a market is attractive, lucrative and accessible, don’t unwittingly fall into a time- and resource-consuming trap by entering into a murky head-on confrontation against strong competitors. Such would be the case, for instance, if you encounter the profit-draining effects of a price war against a competitor with a low-cost advantage. Instead of entering such a fray, a more favorable approach is to lure the rival into an entirely different competitive arena of your choosing. You begin by finding a new direction using value-added and differentiation strategies53. Initiating such indirect actions gives you the opportunity to bait your competition, thereby placing you in a prime position to entice him to match your advantage – but from a substantially weakened position.

53 Refer to Chapter 6, Figure 6.2, A Source for Developing Extraordinary Forces. It provides a comprehensive list of areas through which you can develop value-added and differentiation strategies.

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That works if the competitor does not have marketing savvy or the resources to improve on, or even comes close to duplicating, your strategies. You thereby place the competitor in a second-rate position. By adopting a more proactive role, you have skillfully drawn out the competitor from his strong price haven, disengaged him from any advantage, and left him partially extended and unable to challenge you. A specific application of such a situation is in the following David vs. Goliath type of example in the banking industry.

Case Example The banking industry has been consolidating for well over a decade into the hands of several mega banks, dominated by the likes of Citigroup, J. P. Morgan Chase, Bank of America and Wells Fargo. During the highprofile maneuvering of the giants, small banks fell by the wayside and remained in a somewhat dormant state. Then a fissure slowly appeared among the big banks into which a few surviving smaller banks forced a cavernous opening. The crack first became visible to executives at smaller banks as increased numbers of retail customers and commercial borrowers complained about long waiting periods for loan approvals, increasing account minimums, rising ATM fees and declining customer services. Taking advantage of the opening, small banks charged forward offering scorned customers the royal treatment with an extensive variety of friendly efforts, from serving Starbucks coffee, free baby-sitting, investment advice, no minimum balances, customized account services, to super-fast approval of loan applications. In effect the small banks played their winning hand by exposing the mega banks’ inability to respond appropriately with superior service, reach out to underserved niches within minority communities, open branches in

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areas abandoned by big banks, or cultivate loan terms backed by the personalized attention from senior-level bank executives. Results: Deposits at small banks have grown by 5 per cent a year since the mid-1990s, while growth at large banks has been flat. Profits have grown at ll.8 per cent annually vs. 8.5 per cent for the big players. The major banks did not generally respond suitably during that period. They continued to pursue very focused strategies, dominated by maximizing profits through cost-cutting and similar financially-oriented measures.

Constricted In this market, if you decide on a first-in entry strategy to gain a meaningful competitive advantage, then to retain your preeminence you should block exposed entry points where a competitor can enter against you. Entry points include market niches left unoccupied or through the introduction of a new product or service using advanced technology. On the other hand, should a competitor enter first and occupy a particular niche that totally blocks your entry, then avoid entering unless you find the types of entry points described above. The following classic case illustrates this type of market.

Case Example Xerox Corp. provides a dramatic illustration of constricted ground. In the mid-1970’s, Xerox enjoyed an 88 per cent share of the copier market, mostly selling large- and mid-size copiers. By the mid-1980’s, Xerox forfeited more than half of the market for plain copiers to competitors, even though it had virtually created the plain copier machine with its classic 914 model. What happened to cause the disastrous plunge? Japanese companies, hoping to expand into North America during the mid-1970s, looked to the vast office products field and, in particular, to

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the still emerging copier market. Scanning the market they saw a sizable segment that was virtually unattended by Xerox: small-size copiers for use in small-size companies. Research indicated that clerks in tens of thousands of companies were making copies at coin-operated machines in local stationery shops. At that time, those business owners never thought they could afford to own a copier. Noting the opportunity, the Japanese companies implemented a differentiated market-entry strategy (detailed below) into the exposed segment of the small business market. Meanwhile, Xerox continued to face in one direction by supplying large copiers to medium and large organizations. Initially, they paid little attention to competitors such as Canon, Sharp and Ricoh coming from another direction. If the Japanese companies had tried to force their way into the market with large machines, they would have been blocked by Xerox’s dominant market presence. They would have expended huge amounts of time and money, exhausted their resources for future progress and might well have failed completely. Instead, they used the following entry strategies.

PRODUCT

The Japanese companies introduced a small tabletop copier that used plain paper, no chemicals and performed only the basic copying function. It could not copy two sides, staple, punch three holes, or collate. It simply made a copy. That was exactly what the small business owners wanted at that time.

PRICE

They entered with low prices to penetrate the small-business market and gain market share rapidly. They reasoned that profits would come later as market share increased.

PROMOTION

They selected relevant media to target the small business audience.

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DISTRIBUTION

The Japanese manufacturers could not match Xerox’s huge direct sales force. Instead, using indirect distribution, they engaged office supply dealers as middlemen to gain immediate access to the vacant small business market. Those actions worked and vividly describe the successful application of entry strategies into a constricted market.

What personal and strategic value does the Xerox case hold for you? Any manager attempting to establish a foothold in a market occupied by a leading company with an established brand name faces a potentially risky situation. Meaning: The Japanese companies were successful in the first round by gaining a visible presence through the small-business segment of the market. Understanding they were in a precarious situation and with the potential threat of being pushed out by Xerox, they took the next logical move to push for market expansion and to consolidate their hard-won position. Expanding their product line with a full range of mid-size and large models, they eventually compressed Xerox’s market share down to 44 per cent before leveling off. How could Xerox have responded? If Xerox’s leaders immediately applied their resources to developing a small copier; or if they private labeled one from outside sources, the Japanese attack would have stalled. That one move could have slowed down the penetration and could possibly have pushed the Japanese manufacturers out of the market – temporarily, at least. Xerox had the product name, the image, the reputation and the dominant market presence to maintain a solid hold on the market. The initial strength was with the defender and dominant leader: Xerox. Japanese manufacturers would have had to expend huge resources to gain a paltry share of the market if they were initially blocked from the small business market and took the bait to go for a direct head-to-head attack on Xerox’s primary market in mid- and large-size firms. However, Xerox did not respond in time to the Japanese companies’ initial entry. Today, Xerox has made excellent strides in making a comeback and

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is now a ‘lean and mean’ organization with a full line of small and large copiers. But the fight back to regain market share is always costlier than retaining market share it already possessed. Through subsequent management changes, Xerox’s leaders executed a counterstrategy with the following steps: •

Utilized cost improvement strategies through quality teams, assembly-line automation and less labor-intensive product designs.

•

Changed its attitude on profitability by forgoing short-term results in favor of long-term profitability and market-share expansion.

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Slashed prices on certain models to recapture market share.

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Introduced new lines of copiers to envelop Japanese product line

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Increased R&D and invested heavily in new product development.

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Attacked the Japanese home markets through its joint venture with Fuji Xerox.

•

Competed against the Japanese in every market segment.

Having lost its market dominance through an inadequate defense and general complacency in a constricted market, Xerox turned to the above strategies to recapture some lost ground.

Precipitous This type of market dictates that you would take up strong positions in markets that you can defend with high confidence of success. It is vitally important, however, to make certain you secure those positions and not get embroiled in confrontations that would shift you away from your allimportant focus on customers. That means trying to anticipate your competitor’s moves; not attempting to imitate them. Further, take a more proactive posture to maintain customer loyalty through the appropriate customer relationship management (CRM) initiatives. Also, stay tuned to advances in technology and match them to the needs of the marketplace. The following example illustrates good intentions, but adverse effects, in a situation that resulted in fighting on precipitous ground.

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Case Example The giants in the photography industry launched a new film-and-camera combination with tremendous fanfare in 1996. By 2002 the product was clearly an under-achiever based on actual revenues. The mainstays of the industry: Canon, Fuji, Kodak, Minolta and Nikon collaborated on the technology, and poured more than $1 billion into perfecting and promoting Advanced Photo System (APS.) The system touted many benefits, such as helping processors improve picture quality and offering customers a choice of three print shapes off the same roll. The major appeal, however, was the product’s simplicity, small size and a film that came in foolproof cartridges. The overriding strategy was that APS would be a bridge between traditional and digital photography. It was purported to ease consumers through a transition to the digital format. But the market turned out to be a precipitous one. Digital photography hit the market and achieved a major breakthrough much faster than expected, and APS developers failed to position the system as a worthwhile alternative. The rest of the product launch was plagued with problems that aggravated consumers. In the first year, the cameras weren’t readily available. When they finally got into consumers’ hands, it often took days for their APS film to be processed because many mini-labs did not buy the costly processing equipment. The marketing and pricing efforts also stumbled at the onset. Every photo company marketed APS products under a different name. Pricing was set at about 15 per cent higher than 35mm film and the related advertising did not have a comprehensive price-benefit message that consumers fully understood. Also, consumers never knew how much they would pay for processing and were particularly shocked by the costly panoramic prints. In the meantime, while the various producers were struggling to sustain the momentum for consumer acceptance of APS, digital cameras slowly but surely positioned themselves in the precipitous market terrain and moved steadily toward the high ground.

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What personal and strategic value does the photography industry case hold for you? Ordinarily, first-in to a market with a new product or system would gain the advantage. But that is always contingent on staying on the offensive and executing the market-entry strategy with skill, keeping alert to emerging technology and being able to predict consumer behavior. In the above case, the unknowns were how fast consumers would accept digital photography and how exasperated they would be with a fumbled APS marketing effort that preceded it.

Remote This situation relates to markets where you and your competitor are positioned with equal strength. Thus, it is difficult, and perhaps foolhardy, to lure a rival and provoke a competitive battle, unless there are major advantages at stake. Otherwise any undertaking could turn unprofitable, particularly if you engaged a competitor in his highly defensible position. Therefore, remoteness or distance in itself creates a protective barrier. That is, until some competitor attempts to close the distance and create a form of confrontational ground in your space. The following case example illustrates the application of distance and space.

Case Example Samsung Electronics Co. manufactures high-definition TVs, phones, plasma displays, and digital music and video players. It thrives in low-margin consumer electronics and, most significantly, it favors hardware over software, which defies generally accepted industry doctrine, thereby creating its own defensive barrier remote from high-flying industry competitors. Samsung has made remarkable progress over a six-year period from where it was as a financially drained company with a brand name associated

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with cut-rate, me-too TVs and microwaves. It now wins design awards and produces feature-jammed products, which is rapidly moving the company to the top of consumer-brand awareness surveys in big-screen TVs, cell phones, flash memory, LCD displays, DVD players and DRAM chips. From virtually nowhere, Samsung has risen as a market leader across the technology range. It is doing so by maintaining a remote strategy that defiantly refuses to cut across lines and enter the software business of music, movies and games, as Sony and Apple have done. Instead, it emphasizes a vertically integrated manufacturing strategy and avoids typical industry approaches by outsourcing production. The highlights of Samsung’s strategies include: •

Cutting bureaucracy so that fewer layers of management exist to win approval for new products, budgets and marketing plans, thereby speeding up the decision-making process and increasing its ability to seize market opportunities and latch on to emerging buying trends.54

•

Creating a highly competitive environment internally and among outsiders. This results in Samsung obtaining the best solutions in design, function, features and cost.

•

Customizing as much as possible. For instance, in memory chips, the definitive commodity, Samsung commands prices that are 17 per cent above the industry average. The primary reason is that 60 per cent of its chips are customized for products like Dell servers, Microsoft Xbox game consoles, and even Nokia’s cell phones.

•

Maintaining speed. What used to take 14 months to go from new product concept to rollout now averages only five months. To achieve that level of efficiency, Samsung maintains an extremely flexible organization. For instance, when Samsung sold a new camera-phone to a customer, it quickly assembled 80 designers and engineers from its chip, telecom, display, computing and manufacturing operations. In just four months, they delivered a

54 Organizational design and the value of shortening the lines of communication are detailed in Chapter 3.

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prototype for the innovative product, which swivels 270 degrees and transmits photos wirelessly. Then Samsung flew 30 engineers to a field-test location designated by the customer. The same flexible approach of rapidly deploying personnel also permits the company to refresh its product line-up every nine months, which beats competitors’ capabilities and results in a credible market advantage.

What personal and strategic value does the Samsung case, including the characteristics of all six types of markets, hold for you? Gaining insight about the six different types of markets should rank as one of your highest managerial responsibilities. Doing so, equips you with the positive habit of diligently estimating your competitor’s situation and honing your ability to calculate the characteristics of each market, along with appropriate strategies. That work is comparable to controlling unfolding events and is one of the prime managerial qualities that you want to gain control of. Consequently, if you operate with full knowledge of this responsibility, you are more likely to succeed; if you do not, you are very likely to lose the competitive race.

Leadership and Personnel Relationships There is still another dimension that legitimately connects the characteristics of the six markets with a key managerial responsibility: Your ability to get the job done by managing the efforts of others; namely, your staff. In turn, that leads to the types of relationships that exist between you and your personnel. For instance, if personnel are insubordinate, distressed, or retreat under pressure; if they display an inability to face a situation that is risky; or they lack discipline to withstand the mental and physical strains of a competitive confrontation, then all your good efforts to achieve objectives are in jeopardy. Blame under those circumstances is rightfully directed to you – or to other managers. Responsibility for failure cannot justifiably be attributed to natural causes.

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You may also find other interrelated forces that would hinder your efforts to achieve objectives. These are multi-faceted and could go back to the underlying estimates and judgments you initially used, for instance, to plan and implement a product launch strategy. (See the above photography and APS example.) Additionally, at that level there are interpersonal issues of how personnel (managers and staff) on either side of the competitive encounter are motivated, disciplined, compensated and trained. Let’s pursue these issues more precisely. What follows are five down-to-earth leadership propositions that should provide top-of-mind awareness as you look at your organization or business unit: 1.

When employees are strong and managers weak, the effects on the organization can be disruptive and potentially rife with dissenting attitudes. The revolving doors at the executive suites in recent years attest to the prevailing weaknesses among numerous leaders as they come and go with increasing frequency. The more high-profile organizations that experienced these disruptive effects include Worldcom, Enron, Anderson Worldwide, Tyco, Sunbeam, TimeWarner, Lucent and AT&T. Where there is evidence of leadership powerlessness, it generally encompasses several common characteristics. These swirl within a harmful maelstrom of personality issues, such as character, ethics, drive, perseverance and attitudes toward employees – all of which are embodied within the foundation culture that exists, or is intentionally nurtured, within the organization. Those weaknesses are in sharp contrast with the extraordinary capabilities of gifted leaders who are able to uplift personnel and rally them to go the extra mile, even when failure appears imminent55. If you find yourself in a disruptive organizational situation, then your basic managerial skills should come into play. First and foremost, show your staff that you are able to correctly assess

55 Numerous examples of excellent leadership are given in Chapter 2, as well as in other chapters.

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market conditions and make accurate decisions. Next, gain their confidence by actively displaying your ability to shape winning strategies and the competence to implement them. (All the previous chapters document numerous approaches to revitalize the essential skills to achieve such competency.) 2.

When a manager is bold and employees unproductive, the organization is in a setback. If general inefficiency, inadequate skills and dismal employee performance are identified as the root causes of failed initiatives, then much can be attributed to poor personnel selection, improper orientation, or lack of ongoing training. Regardless of how valiant the manager, allowing such a distressful situation to occur in today’s operating environment is tantamount to irresponsibility on his/her part. What are the possible consequences if, after building a viable business plan, obtaining funding, developing (or acquiring) a product, you get bogged down with ineffectual personnel who don’t have the ability to carry the effort to a successful conclusion? Certainly, there is a lost opportunity as competitors grab the initiative, morale sags and resources are depleted. There are remedies, however. Begin by conducting an evaluation of your employees’ existing skills. Match them to the competencies needed to perform the work. If possible, compare the skill levels with those exhibited by the competitor’s employees. Then identify the gaps and close them through focused training, better orientation and improved leadership. Use an outside consultant (or an in-house trainer, if available) to perform such a skills assessment (also known as a needs analysis). Also, gain input from those line managers who are directly involved in initiating the strategy. Doing so adds greater precision to the training by aligning the precise skills to suit the competitive situation. One caution, when dealing with company-wide systems, such as business planning, business intelligence, or customer relations management programs, avoid training personnel individually. In those instances a unified group-training program is required, which should be fully supported by senior management.

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3.

Where managers are frustrated and insubordinate, and when confronted by an aggressive competitor they rush to respond with no understanding of the risks of taking impulsive actions, and without communicating with appropriate individuals, the organization is in – or near – a state of breakdown. Where managers act with personal pride or exhibit excessive ambition and make decisions primarily for personal gain, their staffs can turn against them, undermine a project, or simply leave the organization. Yet, is it realistic to think that some executives are so altruistic as to totally shy away from personal fame? The central point, and the hallmark of an effective manager, is to maintain emotional balance and keep in check these natural urges that can deteriorate into anger and impulsiveness, which often crush objective reasoning and pulverize responsible actions. Consequently, the formidable task for all managers is to control those emotions that tend to be wildly erratic. Instead, stand back and look at the big picture. Try to fully internalize that there is a managerial process that is driven by a corporate mission, longterm objectives and strategies. Governing emotions also becomes paramount when adverse market conditions and sudden competitive moves warrant speed of response. A ‘rush to do battle’ without accurate information about competitive deployment, intimate knowledge about the condition of the market and a rational action plan can also cause a loss of control. Yet, there are extenuating circumstances whereby a degree of insubordination can be justified and tolerated. Such behavior is built around a series of ifs:56 If a senior executive doesn’t see a threatening market situation and has not issued directions to blunt a competitor’s aggressive moves, then there is a legitimate reason for a junior manager to prudently disobey an order (or in this case the lack of one) and carry out damage control to contain a potentially dangerous situation. (See Xerox case.)

56 See Chapter 9, Manage By Harnessing the Full Potential of Your People, for a further discussion on situations where insubordination can be justified.

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If a manager receives an order to engage a competitor, but after an exhaustive assessment of the market situation sees no reasonable chance of winning the encounter, the subordinate may choose to disobey the order citing the best interest of the company as the primary reason to resist. At that point, it may be wise for that manager to build a credible case supporting the thinking behind the disobedience and try to save face for all sides, and, if possible, support the decision with an alternate action plan. If, in fact, insubordination truly advances the interests of the organization and the junior manager does not seek personal fame; if, in disobeying or withdrawing from a resource-squandering situation he or she is not concerned with personal censure, but whose only purpose is to advance the prospects of the company, then such a person should be regarded with the highest esteem. The reality is, however, that few reach such a high standard. 4.

When a manager is morally weak and his discipline ineffective, when his instructions are not accomplishing anything, when there are no consistent rules to guide the subordinate managers and other personnel, and when systems are substandard, then the organization is in chaos. If a manager exhibits the above characteristics and faces an economy bouncing from recession to inflation, or reels from the fierce gyrations of global competition (as experienced in the upheavals of 2000-03), then the business unit or the entire organization has little chance of surviving the ordeal. Such a manager should be relieved. To some extent, a precedent is in motion with the current momentum of the revolving-door CEO. In quite another situation, there are circumstances where an executive voluntarily steps down because of the stress of the job; or where he or she decides that a greater contribution could be made in another area within the organization. After assessing his personal strengths and singling out where the best contribution can be made, an acceptable alternative is to hire a competent individual who can lead effectively. The following case illustrates this type of situation.

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Case Example Microsoft Corp. chairman and founder Bill Gates voluntarily turned over the reins of day-to-day command to Steve Ballmer who assumed the role of CEO. After an exemplary career spanning almost three decades of building a global empire designing and producing computer software, Gates understood that Microsoft was ready for the transition into a 21st century organization after he masterfully handled the era of the 1980s and became a legend in spearheading the PC revolution. He shifted work roles and immersed himself in his great passion for developing products by envisioning the future and harnessing the intricacies of new technology. Armed with his new title, Ballmer took over by laying out a new mission statement, with the consensus of other top executives: “To enable people and businesses throughout the world to realize their full potential.” Simple in its outward communications, yet monumental in its far-reaching potential, the statement set Microsoft on a path for entering innumerable markets with products and services for seemingly unlimited periods of time. The mission is far broader and packed with greater promise than its prior statement of “building software for any device, any where.” To make the changes come about, Ballmer pushed authority down the hierarchy, established cross-company collaboration, created new business processes for the creation and timely launches of new products, all dedicated within a framework of building customer loyalty and establishing industry trust.

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5.

Where a manager is unable to estimate his competitor’s capabilities and uses inadequate resources to engage a company with greater resources, or where poorly trained personnel are used against seasoned competing personnel, or when the leader fails to select specialists, the result is defeat. When transformed to a pragmatic business situation, the above statement consists of two parts: The first deals with the manager who is unable to estimate the competitive situation and consequently miscalculates the amount and size of the material, financial and human resources required for the job. In effect, it is a situation of flying blind into a chasm where potential losses cannot, and should not, be tolerated. Thus, the sobering questions: “Did information exist, but was overlooked?” “Was reliable information unavailable from general sources, but with some expenditure of time and money specialists could have made a reliable assessment?” (See Liz Claiborne example.) “Would such an outlay have yielded useable intelligence to assist in developing an action plan with a fair expectation of success?” The second part of the statement, “select specialists”, means singling out individuals with a record of high achievement and who generally exhibit more talent and experience than others in a group. Little else in the tactical use of personnel should be as important as using them to spearhead your plan. These exceptional individuals serve two purposes; they strengthen your own determination and set a positive example for others involved in executing the plan. Also, with superior skills they can, with a greater degree of reliability, blunt a competitor’s advantage.

The following statement is an interim summary of a manager’s responsibilities and is a link to the above five propositions: If a manager indulges his employees, but is unable to employ them effectively; if he shows strong affection for them, but cannot enforce his orders; if employees are unmanageable and he is unable to control them, then they are totally ineffectual for accomplishing the job. On the other hand, superior managers exhibit the delicate balance of being esteemed, valued, respected – and in some cases, feared.

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Going one step further: As you merge the nature of markets and competitive strategies with managerial responsibilities, you can quantify your chances of success as described through the following three scenarios: 1. If you know that your employees are capable of confronting a competitor, but you don’t know if your rival is invulnerable to attack, your chance of success is about half. Here, again, is the recurring theme that underlies all business activity and managerial competence: Anchor all plans and strategies to accurate and ongoing competitive intelligence. To know that your personnel are competently trained, motivated and supported by adequate company resources is but half the equation. The other half, which can strangle your most diligent efforts, is relying on scant information about your competitor’s strengths, weaknesses and specific areas of vulnerability. What you want to know with the greatest accuracy: Is your competitor equal to you, or possibly superior to you, in the tangibles of providing sufficient sales personnel, promotion, or customer support? Further, what is the level of your competitor’s leadership? This remains the indisputable force that motivates personnel to succeed beyond normal expectations. The following example depicts a related situation.

Case Example JetBlue Airways Corp., a start-up airline in 2000, rocketed into prominence as a low-cost carrier. Up until 2002 it stayed out of the way of the major airlines by keeping a low profile and sticking to regional East Coast routes with flights to just 17 U.S. cities. Then, hyped with success, the discount airline made the bold move to go bicoastal by establishing a West Coast base to reach such cities as Las Vegas, Salt Lake City and Oakland, Calif.

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That move placed tiny JetBlue nose-to-nose against the world’s biggest airline, by flying nonstop from New York’s JFK airport to Long Beach, Calif., JetBlue’s new West Coast hub. JetBlue then turned into a target for major rivals, in particular American Airlines. But what prompted diminutive JetBlue to gain American’s attention? Consider the nature of the market at that time. The major airlines were still suffering from a travel slump resulting from the terrorist attacks of 9/11. Revenues nose-dived. Expenses soared. Stock prices tumbled. Was JetBlue blindsided? Did its leadership not take into account American Airline’s possible response to its West Coast incursion? Was it acting capriciously, as would any other start-up so enthralled with its initial success, and not see the possibility that its large rival might be invulnerable to attack and decide to fight back? American did fight back. In an immediate counter-effort to thwart JetBlue’s moves, American Airlines requested Long Beach airport authorities to revoke some of JetBlue’s unused landing rights, take back some already assigned slots, and turn over those spaces to American so that it could add more daily flights to its schedule. To further impede JetBlue’s intrusion, American then petitioned airport authorities to raise the daily limits on round trips from that airport, thereby placing even greater pressure on the new entrant’s resources. But JetBlue was different from other start-ups when it opted to become visible on the airline industry’s radar screen. From JetBlue’s vantage point, its leaders saw a challenge and an opportunity. When scrutinizing American’s situation during that period, they saw an area of vulnerability. American was losing more money since 9/11 than any other airline. At that point, JetBlue’s management was willing to live with the loss of some landing rights and speculated that American’s executives wouldn’t take any other serious actions that might deepen its losses. Then turning inward to re-examine its internal condition, management looked at the past problems of other start-ups that ultimately folded operations. JetBlue did not seem to suffer their ills. Namely, the other startups tried to expand routes too rapidly, but went short on cash and couldn’t sustain operations.

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In contrast, JetBlue had ample financial resources from private investors and a highly successful initial public offering. By 2002, it had a cash reserve of $300 million and a $2.5 billion market cap, which, at the time, exceeded the value of United Airlines, Northwest Airlines and US Airways, combined. Utilizing their substantial financial resources to fund their carefully paced expansion strategy, JetBlue’s executives prudently focused on their markets, customers and product offerings. They discovered an expanding base of loyal customers who raved about the new planes, 24 channels of live satellite TV, leather seats and low prices. Beyond that, its leaders reached deep into JetBlue’s internal operations by continuing an unshakable commitment to maintain low-cost operations. They pushed for fast turnaround times, landings at smaller airports that bypassed locations used by the majors. Doing so made it harder to target in damaging price wars. 2. If you know that your competitor is vulnerable, but don’t know that your employees are incapable of taking decisive action, your chance of success is about half. This situation floats precariously between success and failure. On one dimension, there is the energizing situation where a competitor is viewed as vulnerable to assertive action and there are the exciting expectations of successfully grabbing additional market share, securing a profitable position in an emerging market segment, or occupying a favorable attachment on the supply chain. The second dimension, however, describes a dismal (and unnecessary) condition whereby a manager is unaware of one of the most fundamental and intrinsically vital pieces of information: An inability to recognize or consciously tune-in to his personnel’s strengths and weaknesses. This one managerial failing can result in a serious information gap about the capabilities of those individuals charged with carrying out the business plan with all its broader strategic consequences. Or even on a tactical level, their abilities to successfully execute a product launch with all its detailed activities. In its extreme, such a weakness in managing can affect the viability of the company.

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Moreover, the situation is potentially so grave that in the hands of unprepared or unqualified individuals, even the most brilliant strategies will fail. Thus, the central issue here – and perhaps the most ominous one for you – is managing and strategizing without taking into account the capabilities of those who are going to implement the strategies. By any measure, allowing such a situation to persist is an outright abuse of a manager’s responsibilities. 3. If you are confident that you can engage your competitor and know that your employees are capable of carrying out the plan, but don’t realize that due to an unstable market the timing is not right to enter, your chance of success is about half. Here is where your responsibilities converge with understanding the nature of the market, which is classified in the beginning of this chapter as accessible, entrapping, indecisive, constricted, precipitous and remote. Here, too, is the juncture where market intelligence, segmentation, market trends, consumer behavior and the marketing mix, flow together to shape your strategic business plan. The following case parallels the above condition.

Case Example Charles Schwab Corp. has been fighting the Wall Street establishment for over 30 years. From the firm’s beginning in 1973, founder Charles R. Schwab diligently executed an audacious plan. He knew the nature of the tough market in which he would enter and where he would position his fledgling company. Schwab understood the competitors’ characteristics right down to the details of their business models. Based on solid intelligence, he set in motion a piercing attack at the fixedrate brokerage commission structure. He won by slashing brokers’ commissions – even forcing some old-line firms out of the market. Thus,

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the discount brokerage business began its journey. The next quantum leap came in 1992 with the successful launch of OneSource, the no-fee mutualfund supermarket. That coup was followed in 1996 with a sweeping move to online trading. Then Schwab moved again with a bold move, this time into a precipitous market. In 2002, the San Francisco-based firm closed the distance between his operation and the likes of Merrill, Morgan Stanley Dean Witter, Salomon Smith Barney and UBS Paine Webber by going after their affluent clients with $500,000 to $5 million to invest. Using the then gloomy mood of investors and the negative feelings toward their regular brokers as an advantage, Schwab emphasized its unimpeachable image. The company began introducing clients to personal advisers who would meet in plush offices by appointment only. There, clients received personalized advice on stocks picked by a computer model. Schwab emphasized that advisors had no investment-banking conflicts or other corporate relationships, and they were void of all pressure to push a ‘hot’ stock or look for a hefty commission. Instead Schwab offered a flat-fee arrangement that was anchored to a new stock-rating system coupled with private-client service, which included the safety of insured banking products. Schwab’s executives understood the nature of the market. Every move by Schwab was calibrated to the needs of customers, a thorough knowledge of the tempo of the market, and quantified information about the prospective clients’ sensibilities after the dot-com failures and the general slump in the stock market of 2001-02.

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What personal and strategic value does the Schwab case hold for you? If you take the time to fully understand the market; that is, you estimate the character of your markets and calculate the available resources (see Chapter 2), if you support all actions with market intelligence and maintain a two-zone view of the market by catering to the needs of customers while defending against aggressive competitors, you are likely to win with few mistakes. This is not to infer that experienced managers don’t make mistakes. It is to emphasize that they consciously maintain an awareness of current market conditions and painstakingly take into account unforeseen market forces, unexpected political and environmental initiatives, sudden moves by opposing managers, or unanticipated shifts in consumer behavior. They understand there are always present and powerful movements that can cause errors.

Summary Your aim, then, is to eliminate as many of the causes of mistakes as possible. That means: •

If you exhibit the leadership traits of wisdom, sincerity, humanity, courage and strictness, you will succeed.

•

If you are skilled in understanding the nature of your market, you will prevail with the least waste of resources.

•

If you assemble relevant estimates of your firm’s internal strengths and external circumstances based on moral influence, weather, geographic factors, command and company policy, you will win over those who are negligent and thereby more vulnerable57.

57 To review these traits in greater detail, see Chapter 2.

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Lead By Employing Agents – The Manager’s Lifeline To Successful Performance

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Lead By Employing Agents – The Manager’s Lifeline To Successful Performance

Chapter Objectives Enhance your managerial skills as you: •

Determine what you want to know about competitors before considering the use of agents.

•

Distinguish among the five categories of agents and employ them purposefully.

•

Identify the five characteristics that define managerial competence.

Market data, trends, forecasting, knowledge management – information, information and more information – have been continuing themes in virtually every chapter and have supported every bit of advice on how to revitalize your strategies and reinvent yourself. This extensive barrage of guidance connects with the continuing references to foreknowledge and competitive intelligence. These are the active ingredients that progressive managers rely on to achieve their goals, and for good reason. Just consider the value of timely and accurate business intelligence in this turbulent era where clones move in and attack new product innovations with startling speed in short spans of time.

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For example, EMC owned the data-storage market during a high-flying decade of continuous double-digit growth. Then, in 2001, IBM, Hitachi Data Systems, Dell and other powerhouses piled in and created such frenzied competitive conditions whereby prices plunged as much as 60 per cent, placing EMC in an unaccustomed predicament. What could EMC have done to forestall, or at least alter, the unfolding events? Looking back over the situation, what possible assumptions could EMC leaders have made?58 Typically, they would have included assumptions about the environment, emerging technology, the economy, market growth, availability of capital, human resources, competition and the like. In particular, one assumption should have been highlighted: Few, if any, monopolies exist any longer, particularly in the technology-driven industry. Therefore, if EMC held a major position in a growth market that is part of the broader electronics industry, then it should have expected its market share to be fair game for hungry, growth-oriented firms that were actively looking for expansion into fresh markets with new products. Consequently, strenuous attacks by competitors would be predictable, feasible, realistic – and would in fact occur. Making that single assumption suggests that a set of contingency plans supported by substantiated competitor intelligence should have received upper-level priority. Continuing with that assumption, suggests the next question: What likely strategies could eager competitors use to enter a contested market against market leader EMC? Examining scores of case histories over three decades of tumultuous competitive warfare would have revealed repeated patterns for market entry against an entrenched market leader. For instance, typical market-entry strategies include: •

Introducing breakthrough product innovations.

•

Offering a variety of ‘bells-and-whistle’ features.

•

Adding an assortment of value-added services.

58 It is not my intention to come up with an abstract Monday-morning-should-have plot. Nor do I have any inside knowledge about what EMC’s plans contained. The point is to emphatically reinforce the hard lesson that all strategic business plans should contain a section devoted to absolute threats, which is firmly supported by ongoing business intelligence. The absolute threat in EMC’s case is that formidable competitors eventually would blast their way into the data-storage market. And it would have been a priority, indeed a necessity, for EMC to set up defensive barriers well in advance of such inevitability.

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•

Locating a vacant or poorly-served segment.

•

Using low market-penetrating pricing. (This latter strategy was actually used by Dell Computer against EMC.)

Referencing additional case histories in the business literature would have shown that deep penetration pricing, in some instances by as much as 40- to 60- per cent below prevailing industry prices, was the major strategy for market entry used by the Japanese during the 1980s in North America and Europe. That strategy still prevails during the current period among countries along the Pacific Rim. Now, there is the added emphasis on product quality, thereby using a two-pronged strategy for market entry. Accordingly, during the early growth years at EMC, its leaders would have developed realistic and continuously updated what-if scenarios that addressed the most reasonable attack strategies open to competitors. Then, pre-emptive plans could have been readied for an active response that minimally would cut losses, save key customers and discourage some competitors from entering through the erected barriers. Thereupon, the stage would be set for a viable counter-response to recover lost market share. For instance, a portion of the contingency plan could have examined the following options:

MODIFICATION

Alter the product features, if possible, to match the competitors’ features and thereby nullify their selling advantages.59 Doing so could have combined the new with the familiar to heighten the perception of a new product.

LINE EXTENSION

Add more variety. The number of product lines could remain the same, but include a higher number of products in each category. This means segmenting the market and going after additional customer groups that had not previously been approached.

59 Here, too, such an effort should have started early on when EMC’s product line was still in its early stages of development. Held in reserve for just such a condition, it could have been introduced at the correct strategic moment. The same comment fits the following options. Again, I had no prior knowledge about what was or was not done during that period.

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DIVERSIFICATION

Enter a new business. Although somewhat risky, it would have been appropriate early-on to explore where storage technology could apply in an entirely new type of business or application. Such a move, in turn, would suggest exploring ideas with potential partners worldwide.

RE-MERCHANDISING

Marketing change to create a new impression. With this option, nothing is physically done to the product. The same products would go to the same markets. The intent would be to generate market excitement and stimulate sales in such a way that the effort is timed to disrupt the effectiveness of the competitors’ efforts.

MARKET EXTENSION

Enter a new market. This overlaps with line extension and diversification. It is listed here to emphasize the importance of using the same number of products to broaden EMC’s customer base. Selecting any of the above options depends on factual information about customers’ needs as well as competitors’ plans. Further, in choosing a response option, the aim of the manager would be to shape the competitor’s strategy and lessen its damaging impact. Thus, any realistic expectations about competitors’ strategies would depend on reliable intelligence communicated to the appropriate decision-making managers. In turn, that would translate into quick-response actions. Possibly, then, the severity of the sales, profit and market share losses could have been reduced. To further emphasize the value of foreknowledge as the centerpiece to mastering dynamic managerial skills, the following strategic principles from various chapters of this book sum up for you applications and actions about companies, markets, competitors and the like. (In recapping the principles, notice how some concepts tend to overlap, but with different frames of reference. Where those principles have multiple applications, they are called universals.) If you are unaware of your competitor’s plans, you cannot prepare the appropriate counter-measures in sufficient time; if unfamiliar with market conditions, customer trends, impending legislation, you cannot mount a

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suitable market-entry plan; if unable to make use of local experts you cannot gain the essential insights to attain a market advantage. Knowledge of the market is of the utmost value when dealing with day-today issues. Therefore, the measurable skill is in your ability to correctly calculate the level of competitive resistance and the degree of difficulty you face to enter a market. If you act with full knowledge of these factors you are certain to win; if not you will surely lose. In applying business strategy, the essence of your role lies in correctly determining your competitor’s condition and then devising plans that concentrate your strength against his weakness. This is the core principle behind giving hope to smaller organizations confronting superior-size competitors. If you don’t accept this essential principle, then the larger competitor will surely prevail. There is no more to it than this. There are some markets not to enter; some competitors not to challenge; some regions not to penetrate; and some evolving trends not to defy. Your decisions are only as good as your judgment, managerial experience and the quality of market intelligence you can assemble. The best application of strategy is based on deceiving your opponent of your real intentions, lessening the resistance against you, and then using the indirect approach to keep the competitor in a state of unbalance. Therefore, act only when all those conditions are in your favor. What follows is to create change in a market situation by first spreading out resources and then concentrating them at the point of greatest advantage. If you uncover your competitor’s plans, then you can figure out which strategy will likely succeed and which will probably fail. The object is to find out your rival’s dispositions, while at the same time concealing yours. This permits you the flexibility to concentrate your efforts as he divides his efforts. What follows, if you concentrate while he divides, is that you can focus your entire strength to tackle a fraction of his. That gives you a numerical advantage at selected niches where the competitor is in dire straits. It is through these skillful movements that you lay the plans for success. Unfortunately, most managers do not grasp this concept. While the subtleties of these movements are there for others to see, some cannot understand the way in which you have achieved success.

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The psychological characteristic of strategy is subterfuge. Therefore, when capable, act as if you are incapable of mounting a marketing effort. When active, pretend inactivity. Offer your competitor bait to lure him into an untenable situation, then mount an effort against him. As a result, a successful company wins an advantageous market position without resorting to resource-draining market confrontations. And a company certain of losing often carries on in the hope of winning 60. Finally: Know your competition and know yourself; in a hundred encounters you will not be at serious risk. When you are ignorant of the competitor but know yourself, your chances of winning or losing are equal. If ignorant both of your competitor and of yourself, you are certain in every confrontation to be in danger 61. There is no attempt at vagueness or wavering in summarizing these points. The emphasis is on the unequivocal validity of foreknowledge. Therefore, if unaware of any one of these matters, it is a strong signal for you to revitalize strategies and reinvent your managerial skills. Transposing these points into additional business applications means the following: •

Displaying lack of knowledge of your competitor’s leadership is intolerable. Making plans without definitive market information is foolhardy.

•

Avoiding the use of agents, consultants and various industry specialists to map out a competitor’s dispositions is unthinkable.

•

Creating strategies and tactics without trustworthy intelligence is reckless, rooted in failure and defies any semblance of competent leadership.

The following case illustrates a specific application of the above concepts.

60 The indirect approach, which this discussion is about, is detailed at length in Chapter 4, Develop Offensive Strategies: Your Defining Moment As A Manager. 61 Paraphrased from Sun Tzu, The Art of War.

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Case Example Microsoft Corp. needed to move out of a flat-sales condition for its popular Office, a word-processing and spreadsheet software program that generated sales of over $60 billion since the early 1990s. The goal was to double the sales of Office (within a specified period.) The problem is how to gather information that supports a market-expansion strategy, within a relatively new customer segment of small and mid-size companies, and where contentious competitors are not likely to give up customers without a battle. Further, there is an immediate need to obtain intelligence about prospective customers’ requirements, since the market is not clearly defined other than by company size, and prospects do not perceive a need for Office. Without reliable foreknowledge, erratic and impulsive moves by Microsoft would have scattered a great deal of marketing effort with little return. Also, a lack of intelligence about worthy competitors such as SAP and Hyperion Solutions would certainly have tempted failure as those savvy companies would have been alerted to every overt move. To resolve these problems, Microsoft fielded sales advisers to ‘live’ with corporate customers and prospects for an extended period of time and counsel them on how to get more from existing software. Once inside, the advisers patiently gained the users’ confidence. They diligently gathered information about product gaps and passed the information back to headquarters personnel to figure out where potential new products, programs and applications could fit. They also obtained valuable intelligence about competitive systems. They asked users what they liked or disliked about them; inquired about what new offerings they were considering; questioned users about back-up technical support; and, of course, queried about competitors’ pricing, deals and sales terms. In many instances these grassroots sales advisers surreptitiously bypassed corporate technology departments and met directly with workers.

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Once the two-pronged information flow about users and competitors was gathered and analyzed, a strategy began to take shape about how to secure a solid foothold in a relatively new segment for Microsoft, the small and mid-size market that is expected to explode over the next decade. Then, backed by continuing market feedback from the sales advisors, a Microsoft development team began working on a host of innovative products; from software for a new tablet computer to programs that would help workers quickly analyze a mountain of data.

What personal and strategic value does the Microsoft case hold for you? Foreknowledge has added dimensions that should heighten your interest: It concerns your staff’s comfort, security, and skills required to do a job successfully. Further, if you remain unaware of your competitor’s situation, it ultimately affects the morale of your employees and places you in a precarious position as a manager. It also affects the support you can give to your organization, and consequently stifles your efforts to develop successful strategies and the ability to implement them. The rationale for this concern is anchored to the managerial attribute of creating harmony among all levels of personnel62. When personnel are imbued with a sense of purpose, they go the extra mile to achieve an objective, regardless of weariness from exertion and without fear of personal risk. The idea is that when you treat individuals with attentiveness, good will, fair play and justice, they will cooperate in mind, spirit and with a sincere earnestness to serve in overcoming the inevitable obstacles. Consequently, it is your highest responsibility to protect them and assure victory for their hard work, sacrifice and devotion to a cause. What better way to do so than with foreknowledge of about where, when and how they will be deployed without being exposed to potentially harmful situations. (Thus, this book takes a two-pronged and parallel approach.)

62 This application is in contrast with some executives deliberately creating a highly competitive internal working atmosphere of pitting one manager against another.

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Inherent in all this striving for harmonious employee relationships and loyalty, however, is an alarming condition that currently exists: Many organizations simply trying to survive in an embattled competitive world face the ruthless push for lower and lower costs to stay profitable as they strain to hold on to precarious market positions. Thus, the move to outsourcing jobs. It isn’t a new situation. Looking back to the post-World War II period, the U.S. clothing industry began sending its manufacturing jobs to the islands in the Caribbean beginning in the early 1950s, which meant laying off long-term loyal employees. In the 1970s and 1980, such industries as consumer electronics, machine tools and automobile parts, left for the Far East and wasted many manufacturing plants in the Mid-West. In 200003 various categories of information technology jobs moved in great numbers offshore to India.63 Nevertheless, even with the intelligently presented pros and cons of those moves, the managerial principles cited above still hold true. The Microsoft case underscores the manager’s overriding obligation to assume a more strategic view by masterminding a strategy that retains a viable market position, along with expansion possibilities, which hopefully results in increased employment. Within those seemingly diverse and explosive issues are the enduring qualities of managerial competence, which are defined by five characteristics: •

Wisdom to recognize changing circumstances and act rapidly and boldly to create opportunities and diffuse competitive threats.

•

Sincerity so that subordinates have no doubt of how and when rewards, as well as reprimands, are doled out.

•

Humane practices that show respect for people and empathizes with them under adverse situations.

• •

Courage to gain victory by seizing opportunities without delay. Strictness to show determination and dedication to reaching an objective.

63 This condition is not isolated with the United States; Japan has been shipping manufacturing jobs off to low-cost labor in China, as has many European companies.

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The above issues of intelligence gathering as the precursor of strategy decisions now enters the phase of employing agents as the lifeline to successful managerial performance.

Guidelines to Employing Agents For starters, determine what you want to know about competitors before considering the use of agents. For instance, take into account the following questions: •

What is the competitor’s overall strategy?

•

What is the competitor’s financial picture, including detailed breakdowns of costs and sales by specific divisions and products?

•

What new products or services are under development?

•

What new markets are targeted?

•

How are particular units of the competitor staffed and organized, especially among sales and product development?

•

What is the caliber of the leadership?

•

What market positions are held within each segment and in what strength?

•

Where are the potential areas of vulnerability by product depth, product quality, service, price, distribution, and reputation?

Would gathering this information and combining it with other intelligence offer meaningful insights about your competitor that, in turn, could enhance the quality of your business plans? To illustrate this point, consider what value reliable answers to the above questions would have had in altering the outcomes of the following situations: Procter & Gamble thought that the introduction of its $50 Swiffer WetJet mop, which sprays water on floors, would make a big splash in housecleaning. With unforeseen speed, however, Clorox Co. launched ReadyMop with aggressive pricing and forced P&G to cut its price by half in a mere seven months.

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What did P&G know or not-know about Clorox’s product development efforts in that category? Were they aware of Clorox’s ability to rollout with a competitive product so rapidly? Were there information leaks at P&G during the early days of Swiffer WetJet development? What were Clorox’s internal costs that would permit pricing a competitive product by half of P&G’s price? Is it Clorox’s strategy to buy market share with penetration pricing and accept initial lower profits? If so, for how long? Is there a strategy pattern evolving that would set the tone for future product introductions, thereby making it necessary for P&G to rethink how to recover start-up costs more rapidly? Then, from a different direction, how soon would unbranded, lower-priced clones surface to further challenge prices, profits and market share? Now consider Kyocera Corp.’s Smartphone, a combination personal digital assistant and Web-ready phone that was introduced at $500 in 2001. Soon after, Samsung Electronics Co. launched a smaller PDA-phone with a color screen. Within months Smartphone was forced to reduce its price to $300. Now apply a similar pattern of questions to this situation. Could the dramatic outcome of this case have been changed? Can there be any doubt that in an era where timeframes are compressed and technologies tied to software are easily copied, that foreknowledge should not attain the manager’s highest – highest priority? The following represents categories of agents, along with commentary for business applications.

Native Agents Native agents reside throughout the competitor’s rank and file. They are individuals with whom you would normally interact during a variety of professional gatherings. Seemingly oblivious to the resounding effect it could have on their personal careers and the security of their respective companies, they freely share information and discuss plans as if the act is an innocent school game. The following represents a variety of places to meet native agents and gather information: •

Private shows set up by competitors to influence customers are often easily accessed. Native agents may voluntarily share

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information with you to satisfy personal interests, such as making new industry contacts. •

Trade shows serve as extremely valuable reservoirs of valuable data, as competitors typically reveal extensive information through literature and elaborate demonstrations about their products, which includes current facts about pricing deals, back-up services, logistics and so on. Also, competitors’ employees often present technical papers at open meetings, which at times leak sensitive information about upcoming products, services and market-entry plans. Then there are the familiar and easy-going hospitality suites where alcohol and talk flow freely. Security in these areas is often lax.

•

Professional association meetings offer ripe pickings for information, particularly when executives and other key personnel make erudite speeches and gratuitously reveal mountains of information. Then there is the Q&A period that usually follows where the speaker, trying further to impress an audience, pours out more information.

•

College classrooms represent another prime source of information, particularly where adjunct professors are also senior-level executives and use their respective companies as case examples. Also, where fellow students work in companies that interest you, useful data is often revealed about their companies through class presentations, term papers, and casual conversations.

•

Civic and community groups invite company executives to speak at Lions or Rotary Clubs, Jaycees, Boards of Trade, and Chambers of Commerce. Just traveling the lunch circuit to hear what competitors have to say can result in a wealth of information.

Inside Agents Inside agents are those individuals working for competitors who you could employ. They may have been passed-up for promotion, feel under-paid and under-appreciated, relegated to an insignificant job, or generally pushed aside in a variety of political or power struggles within the organization. They feel abused and see their careers languishing unless they make some bold move. They may also find themselves surrendering to financial pressures to keep family and self whole. They thereupon adopt a nowor-never attitude.

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You need to assess such individuals carefully for their stability and determine how to use them judiciously. Obviously, you want their information, within the bounds of ethical and legal guidelines, and as dictated by your own company’s policies. (See following section, Intelligence and the Law.) Beyond personal observations, you would employ them to gather competitor intelligence and use their expertise to sort out meaningful information from the following sources: •

Scientific and professional journals detail new technological developments or innovative projects in articles written by competitors’ employees. The content can be of great value, since the articles must be well documented and wholly authoritative to qualify for publication, particularly in a prestigious journal. The information provides most benefits when piecing together a competitor’s plans. Here, your primary consideration is how such data will impact your product development activities and strategic business plans.

•

Product literature and product specification sheets are readily available and often packed with tremendous detail. Your agent would have ready access to such material at a trade show or from a sales rep. (The same information is usually available to almost any attendee.)

•

In-house company newsletters contain a fountain of information about individuals who left a competitor’s employment and may have moved to the consulting circuit. If approached, they may be willing to reveal information – unless specific contractual restrictions apply. Other information includes new employee announcements along with mini-job descriptions, contracts and awards received, training programs available, offices or factories opened or closed, and other news that denotes an overall pattern of a competitor’s movements. Here, again, your inside agent could handily provide a useful interpretation.

•

News releases often contain information such as new customer contracts, planned market entries, new executive appointments, reorganizations and joint ventures. Also, on-line databases can search literally thousands of trade journals, business magazines and newspapers for news of competitors. Many of the articles result from reporters interviewing company personnel, as well as by

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analysts who add insightful commentary. These, too, need confirmation for accuracy. •

Industry studies contain valuable information about companies and are available for purchase. Securities analysts and consultants with expertise in an industry typically author such studies. The reports are available from a variety of sources: commercial publishers who sell off-the-shelf industry studies, trade association publications, reports from Departments of Commerce, consultants or analysts specializing in an industry, or by a company that repackages the information in a variety of formats.

•

Government disclosures reveal valuable information based on mandatory information required by various levels of governments. Such information could include products sold to the government, along with data on product specifications, pricing and so on. Also, a local tax assessor would hold information about the assessed value and estimated market value of a company’s buildings and equipment, as well as their uses.

•

Applications filed with government agencies for patents and trademarks, including permission forms to construct a new plant or expand existing facilities, are generally available to the public. Gathering this knowledge would lead to such follow-on questions as: Would the patent offer a threat to our existing product line? What is the principle reason for the construction of a new plant?

•

Requests for subsidies and benefits include information about companies asking local or state governments for special services or even for financial subsidies. Some of those filings have information on the number of employees in the facility, number of trucks going to and from the facility daily, number of jobs to be added, salaries for all the new positions, training programs for the new positions, and more.

•

Government investigations often provide sensitive intelligence that comes from executives’ testimony during a public inquiry.

Beyond the above listing, there is the continuing flow of industry, customer and supplier leaks that your agent can sort out and verify. The sources are limitless and are in constant use by business intelligence individuals. Additional local sources worth tapping include banks, local trucking companies and real estate offices.

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Then there is a technique for soaking up grass-roots information by ‘hanging around’ a location and talking to everyday people who seem to know what is going on. The ‘hanging around’ approach requires either your personal observation or agents you employ. Although at first glance this approach seems unstructured, in fact it can yield an extensive quantity of substantive information, if acquired through the following organized steps: 1.

From an observation point in a public area, describe the competitor’s facilities. For instance, if surveying an office complex, factory, store, or warehouse, describe in factual terms its physical layout. Indicate the type of location; for instance, an urban or suburban area, a defined business section of a large or midsize city, an inner-city neighborhood, or a sprawling industrial park.

2.

Draw a detailed map and annotate it with items that provide a clear picture of the area, such as the architecture, condition of specific buildings as well as surrounding ones, and the proximity of the office building or factory to main roads. Also, incorporate information on approaches to railroad sidings and other transportation hubs, access to suppliers and services, condition of streets, and other physical details that are pertinent to the business. Observe, too, the type and flow of traffic in, out and around the targeted facilities.

3.

Observe the body language of the employees entering and exiting the competitor’s facilities. Look for non-verbal forms of language, such as the gestures of individuals walking together, signs of animated conversations, general patterns that would indicate employees’ alertness or apathy, and any special behavioural mannerisms that radiate clues about the characteristics of the people. Notice, too, signs of a dress code (if one exists) and what types of cars are in the parking area.

4.

Look for patterns about how employees arrive at work. Is it an on-time, orderly pull-in – or otherwise? Describe their appearance, walking stride and general demeanor. Observe them leaving work. How many carry brief cases? Is there a mass exodus at the end of the day? Or are there signs of extended work periods, as viewed by the number of remaining cars.

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5.

Watch a communication exchange between two or more individuals from outside hearing range. Try to interpret the scene as a social or business conversation. Look for the intensity or casualness of the talking, its length and if they appear to be clerical or managerial types.

The purpose of the organized approach is to create a fairly accurate profile of people and facilities, all of which would add useful insights about the competitor. As a manager and strategist, therefore, your aim is to unravel some of the innate practices as you observe your competitor’s culture. Here is the juncture at which an inside agent can offer meaningful interpretations.

Double Agents These are competitive agents trying to extract intelligence about your company. Stay alert to their intentions. Once identified, you could attempt to turn them around and get them working on your behalf. They would then serve in the same capacity as inside agents. Here, too, you can assume double agents seek lavish rewards and may even show similar personality traits and motivations as the inside agents. However, it is in your best interest to exercise caution. That is, determine the veracity of these individuals, the reliability of their information, and how long you can expect them to remain loyal to your cause.

Expendable Agents These agents are your own people who are deliberately fed inaccurate information, which is disseminated in a variety of ways to cause competitors to make wrong decisions. These contrived leaks take many forms. For example, passing fabricated information about new product features through sales reps who come in contact with competitors’ reps; product managers who pass out false dates about a product launch that would disrupt a competitor’s plans. In spite of your possible discomfort when undertaking such activities, look at the situation from strictly a managerial viewpoint. Misinformation needs

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distribution to divert competitors from opposing your real moves. You thereby preserve the viability of your company’s hard-won market position, control the needless expenditure of financial and human resources fighting unnecessary market battles, and avoid compromising your strategies.

Living Agents These agents generally return with credible information. They are generally experienced, talented and, above all, loyal individuals who can gain access to and become intimate with a competitor’s high-level executives. They are in a position to learn a competitor’s plans and observe their movements. These individuals are truly the manager’s eyes and ears, and often enjoy the closest and most confidential relationships. When using agents, first and foremost, it is essential to estimate their motivations, personality traits and talents. Then, you can determine in what capacity to employ them. For instance, some individuals’ only interest is in acquiring wealth without obtaining the true situation about competitors. They only meet requirements with empty words. In such cases you must evaluate their integrity with great care and be extremely thoughtful about their use. Then you can assess the truth or falsity of the agent’s statements and discriminate between what is useful or trivial. Perhaps the one unsettling issue to cope with in the use of agents – but worth knowing – is which of your employees knowingly or inadvertently passes on your company’s information directly or indirectly to competitors. Eventually, those individuals are exposed; at which time you can obtain valuable clues about what motivated them to those acts. You can then take steps to organize and control the flow of information. Further, you can deal with the sensitive human resource issues of employees’ loyalty and motivation. In turn, that examination often reaches deep into the organization and raises questions about corporate culture and values, your leadership abilities and the breed of managers that run various departments.

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Another concern is that engaging in such stealth activities is usually contrary to the type of practices most managers care to undertake. Again, think of business intelligence as essential to running a company in a highly competitive environment. Above all, it is indispensable to the development and integrity of competitive strategies. Candidly stated: Intelligence exists to provide decision-makers with an accurate, comprehensive and unbiased understanding of what’s going on in their respective industries, markets and among competitors. Consequently, from your perspective, using agents can be pragmatically and responsibly sanctioned – if done within the generally accepted legal, ethical and corporate guidelines. (Ultimately, it is your personal decision to use agents.)

How Competitive Secrets Leak Out Recognize that you cannot protect all information. Therefore, qualify and quantify the value of your company’s information. If received by a competitor, what type of information would cause you the most damage? For instance, with the increases in alliances, joint ventures and other forms of partnerships, greater openness exists for sharing information with employees from R&D, manufacturing, sales, technical services and other key departments. Then, there are the information sources through the pervasive communities of lawyers, accountants, media and stock analysts. While a high incidence of vulnerability does exist for yourself, it is counter-balanced by a huge opportunity to learn about your competitors. Also, in recent years, much progress in gathering information comes from the wave of new electronic systems, such as business intelligence software, spyware, analytics, customer relationship programs, all of which are wrapped around the ever-expanding power of the Internet. Underneath it all are the shady and illegal activities surrounding companies that steal secrets by scouring a competitor’s trash, or by using payoffs and other devious ploys.

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Notwithstanding, the hard fact remains. Most competitive secrets are gleaned from people talking with people. That is, obtaining information directly from employees or from other well-meaning individuals, such as suppliers, customers and, as indicated above, from joint-venture partners.

Getting Employees to Talk Although employees may understand the necessity for secrecy, nevertheless they can fall victim to a skilled individual who knows how to ferret out information. Those involved in competitive intelligence can use a variety of techniques to get people to talk, such as:

Direct Approach This approach simply means going from one individual to the next and asking a straightforward question. In many cases the answer will spring forth willingly. Also, direct contact refers to communications with competitors’ employees by telephone, Internet, or through personal visits. Hiring an independent research firm or competitive intelligence firm to act on your behalf also serves a similar function. For specific information, direct contact would be made with individuals in technical, manufacturing, marketing and sales departments. Gathering general information means going to other repositories of information, such as stockholder relations, consumer relations and product information hotlines that tend to be less discriminating about disseminating information. Marketing departments, in particular, hold key information about marketing strategies, test markets, sales volume, sales performance of specific products, and the like. Then there are the company libraries that have proprietary information in the form of corporate research, company manuals, newsletters, reports of consultants’ studies and even corporate memos. Inadvertently, a librarian who is used to being helpful with information would make any number of sources available for the asking from someone who appears to be unassuming.

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Indirect Approach This approach suggests using either a fictitious name of a company or a real research firm’s name to circumvent any doubts. Some companies set up a research arm with a legitimate name, one that is not readily associated with the firm gathering competitive intelligence. Individuals from those research firms can often get into a company and maintain anonymity. Such a smokescreen often overrides any barriers.

Other Approaches No company affiliation – making individual calls without using a company identity. They simply use their own names and begin asking questions. Position-related identity – using a job title and hoping to divert attention from a real company identity. Some unobtrusive titles could be a librarian from Chicago or a market researcher from Atlanta. Other titles – calling as a student doing a research paper; job seeker looking for a position or information about the company (some actually apply for a job interview); consultant doing an industry study; sales reps looking to find out about a company’s needs for raw materials, parts, supplies, or services; prospective buyer interested in buying a company’s product or service; committee member of a trade association seeking statistics; writer researching an article or book; and so on.

Why Employees Talk Employees generally want to be helpful. If asked courteously, or if impressed with the name of an organization or title of an individual, they will willingly offer ample information. Flattery works, too, in many cases especially when an employee at a competitor’s location is called on and complimented profusely about overheard new research, a product design, or a selling strategy. The employee may believe the information is widely known or is of minor importance. Such an individual is not likely to realize that even a mere trifle of information can fit neatly into an evolving puzzle about a competitor. Also, an inexperienced or plainly naive employee can innocently tell a caller what percentage of sales go through the Internet or into overseas

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markets; or provide details about a new product innovation and its launch date. In other instances, the employee may be looking to network for personal contacts and job opportunities with the competitor. Then, there is internal job competition among employees. Self-promotion, self-importance, winning a power struggle and career advancement are strong enough motivations among ambitious individuals who may not hesitate to share information with an outside party, particularly if interdepartmental rivalry exists. Faced with those realities, human frailties are a real and ever present consideration. Consequently, loyalty to a company may be less important than an individual’s desire for self-advancement. Also, the loyalty issue takes on even greater significance, particularly among those battered companies that have had to dismiss thousands of otherwise dedicated employees. Where a person’s job is in jeopardy, self-interest often overrides any concern for secrecy and company loyalty. Then, there is the simple reality that some individuals simply like to talk for vanity reasons. There is the excitement of feeling important, particularly when placed in the traditional information-gathering venues of lunch meetings, trade shows, cocktail parties and the like.

Other Sources If you know a competitor is attempting to recruit one of your employees, and if that person can be trusted and persuaded, you may wish to intervene and send him or her on an interview. Brief him carefully about the potential intelligence-gathering opportunities that can result from such a meeting. After the interview, de-brief and reward. (See the following section, Intelligence and the Law, for guidelines.) Also, where a competitor’s key employee submits a resume have it forwarded directly to you. Call the individual in for an interview. Even if ground rules exist about not revealing confidential information, in many instances it will naturally surface during the course of the interview. Not to be overlooked, are those customers willing to talk freely. Often, they willingly turn over a competitor’s sales literature and share product and price information. In particular, this approach works if they perceive it benefits them with a better bargaining position. (‘There are no free lunches’, still remains a viable truism.)

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Intelligence and the Law All of the above areas of intelligence gathering are subject to legal and ethical guidelines. Yet there are gray areas that are subject to national and local laws. Should an intelligence gathering situation get to the courts, there is the interpretation by a judge and jury on a case-by-case approach. For instance, before the courts will intervene to help an owner of information, modern trade secret law requires that the owner has made reasonable efforts to keep the information secret. For competitive intelligence professionals, a failure to meet this standard will be the firstline defense against a charge of misappropriation. In general, however, it is best to obtain your information from public sources. Also, use the Internet and focus on the creative interpretation of the voluminous amounts of available public data. However, as already pointed out, don’t eliminate the judicious use of person-to-person contact, which is the central theme of this section. Even with the various laws regarding the theft of trade secrets as a criminal offense, there are still numerous gray zones. For instance, finding a lost document on a plane, overhearing competitors’ talk at a trade show, having a drink with a competitor, removing your name tag at a convention, or even misleadingly identifying yourself as a writer or student, are acts which – while they may be considered unethical – do not necessarily constitute trade secret violations in and of themselves. In other instances, it is permissible to conduct reverse engineering, where a product is bought openly and then torn apart to examine its operation and components. This is done with the open awareness that there may be patent violations even if there is no intent to violate the patent. As for photographs, in general, anyone who observes from public property can photograph a competitor’s installation. However, the air above a business facility is not public property and aerial photographs should generally be avoided. Therefore, as an overriding rule, where any ethical or legal question exists regarding the acquisition of information, contact an attorney and refer to the appropriate corporate guidelines.

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Summary Where do your managerial responsibilities lie? Begin by looking at the big strategic picture and reflect carefully about your moral and professional accountability to your organization, its ongoing prosperity, your employees’ economic livelihood and safety, and the community at large.

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THIRTEEN

Implementing Tactics: The Hands-On Test Of Leadership

THIRTEEN

Implementing Tactics: The Hands-On Test Of Leadership

Chapter Objectives Enhance your managerial skills as you: •

Identify the major tactical features of the marketing mix.

•

Learn how to coordinate tactical actions with long-term objectives.

•

Develop a tactical plan.

When you expand your managerial skills to effectively employ tactics, there are down-to-earth consequences because tactics impact directly on how you handle day-to-day competitive situations. It stands as a monumental skill because of its immediate and action-oriented potential to control heated exchanges among competitors to win a customer, penetrate a geographic region, or dominate a market segment. First and foremost, employing tactics successfully means staying alert to everyday movements of competitors; acting with speed and decisiveness in employing advertising64, sales promotion, the sales force and the Internet. The following case illustrates how unpredictable events forge a powerful merging of front-line managing with grassroots tactics. Following the 9/11 terrorist attack in the U.S., computer makers scuffled with each other to sell their boxes during the business downturn that

64 While advertising is often used to forge a long-term corporate or product image, it refers here to its short-term tactical application.

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followed. Companies such as Hewlett-Packard, Dell, Gateway and Apple, bogged down with more than a half-million unsold PCs, used every promotional incentive possible, such as flooding the market with free digital cameras and printers, big rebates, and daily sweepstakes to fire-up demand, and move inventory piling up on store shelves and in warehouses. For some companies, inventory reduction also presented a prime opening for the alert manager during that same time period. One company, in particular, shows what happens when a long-term strategic objective is added to a short-term sales promotion tactic and executed with astute managing.

Case Example Dell Computer managers ignited several tactical ‘fires’ to create a larger blaze with strategic implications. Consumers were offered an additional incentive to participate in a daily sweepstakes to win $25,000, if they bought Dell PCs during a designated timeframe. Behind the unprecedented industry move was Dell’s skillful use of speed and surprise that resulted in undermining rivals’ efforts to move their inventory. More importantly, that action also triggered Dell’s overall ambitious long-term strategic objective to increase its share of the PC market. That’s not all, Dell added fuel to the fire by cutting off a long-time arrangement with Hewlett-Packard to push its printers. Instead, Dell launched its own branded line of printers and cartridges. Plans then called for a scorching expansion into handheld computers, servers, storage and networking gear, thereby taking on a host of new competitors, such as mighty IBM, Sun Microsystems and Cisco Systems. Those tactics blended perfectly with Dell’s overall brilliant strategic leadership to create one of the most successful companies in the industry.

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Its basic strategy: Sell directly to customers and bypass the costly middlemen, buy components in huge volume to get the lowest prices, and force suppliers to locate within a few miles of Dell’s facilities so that parts could be delivered only hours before needed. Such supply-chain efficiencies allowed Dell to radically undercut rivals’ prices. Even with the fierce price wars that followed, competitors could not find a suitable deterrent and subsequently were choked by insufficient profits.

What personal and strategic value does the Dell case hold for you? To develop an overall strategy, your best approach is to shape a program that combines all the tactical promotional and communications tools into an integrated force. Keeping them separate leads to vague advertising, ineffectual sales promotion, costly sales force efforts and negative Internet feedback. The following overview offers the chief features of each of the tactical tools65.

Advertising The first of the tactical tools is advertising, which is but one part of the communications mix. Communications is just one part of promotion. Promotion is only one component of the marketing mix – along with product, price and distribution. Thus, with all those connections, on no account should you create advertising in isolation; rather, your goal is to integrate it into the entire mix. Initially, determine the job you want advertising to accomplish. For example, support personal selling, inform a target audience about the availability of your product, or persuade prospects to buy. Then, you can choose media and copy themes to match those objectives. As a result, your advertising becomes realistic, measurable and results-oriented.

65 The intent of this overview is to make you aware of the primary functions of the tactical tools and how they fit into your overall thinking about competitive strategies. Learn how to incorporate the tactics into your strategic business plan, but leave the finite details of implementing the effort to those individuals expert in their respective fields.

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One highly useful tool to pinpoint your audience with as much precision as possible is the adoption process. It serves as a convenient guideline by pinpointing five behavioural styles of individuals (business and consumer) and identifying when they are likely to enter the buying process. Known as adopter groups, they are characterized as: •

Innovators: Venturesome individuals and leading-edge companies that are first to try new ideas and generally are insensitive to price.

•

Early adopters: Opinion leaders with high visibility who adopt new products early but only after careful scrutiny, since their reputations are on the line.

•

Early majority: Individuals or companies that buy before the masses. However, they are rarely industry leaders.

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Late majority: Individuals who are skeptics and adopt after a significant number of people or companies have tried the product.

•

Laggards: Tradition-bound groups that are cautious, price sensitive and last to buy.

By pinpointing and profiling early adopters, for instance, you can launch an intensive promotional effort targeted at that group using such promotional tactics as a free trial of your product or service. Then, based on the test results develop sales strategies for other adopter groups that are waiting and watching the purchasing patterns of the early adopters. As for the laggards, you will have to decide whether the time and resources to secure this group is worth the expenditures. Once the relevant data have been assembled and examined, you are ready to make a number of strategic decisions that will guide the detailed work that follows. As in all planning activities, the first major decision is to set advertising objectives.

Advertising Objectives Objectives are guidelines for action that spell out what you want to achieve. You could say that the basic objective of all advertising is to sell something – a product, service, idea, or company. To that end, advertising is effective communication, resulting ideally in positive attitudes and behavior on the part of the recipients of the message, which results in increased sales.

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However, the objective of increasing sales is too broad to be implemented effectively in an advertising program. Rather, you should formulate more specific aims that you can nail down with greater precision and which you can measure with accuracy. For example: •

Support a personal selling program.

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Achieve a specific number of exposures to your target audience.

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Address prospects that are inaccessible to your salespeople.

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Create a specified level of awareness, measurable through recall or recognition tests.

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Improve relationships along the supply chain.

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Improve consumer attitudes toward your product or company.

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Present a new product and generate demand for it.

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Build familiarity and easy recognition of your company, brand, package, or trademark.

The list is as expansive and varied as are companies and market situations. It illustrates some of the possibilities and pinpoints the need for precision to derive maximum results from objectives. Further, because objectives imply accountability for results, they are valuable as methods for evaluating individual or company performance.

Advertising Appropriation Having determined what you want to accomplish, you must now decide how much money to allocate. You can choose from a number of alternative approaches for setting the level of total advertising spending: •

Affordable method ignores your objectives and is simply an expression of how much you think you can afford to spend. This viewpoint makes your level of appropriation subject to whim and may grossly over- or under-estimate the amount in relation to your needs.

•

Percentage of sales approach is probably the most widely used because of its simplicity. That is, it ties your advertising allowance to a specified percentage of current or expected future sales. This procedure, with its built-in fluctuations, not only discourages long-

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term advertising planning but also neglects current business needs and opportunities. •

Competitive parity method proposes that your company match competitive spending levels. This simplistic outlook is no more sophisticated or justifiable than the two preceding approaches.

•

Objective and task method offers the most meaningful results. You proceed in three steps: (1) define your advertising objectives as specifically as possible (see above list); (2) identify the frequency, or number of repetitions, needed to put across your message and achieve your objectives; and (3) estimate the costs of performing these tasks.

The sum total of these costs represents your expenditure. While this approach does not examine or justify the objectives themselves, it nevertheless reflects a reliable assessment of your perceived needs and opportunities, which you can translate into a workable budget. As already pointed out, advertising is not an end in itself. It has to support and be supported up and down the organization. Therefore, a logical last step in the tactical phase is to confirm that what you intend to do is compatible with your overall business strategy – and is in harmony with your entire strategic business plan.

Sales Promotion The second tactic is sales promotion. The overriding rule for implementing a sales promotion campaign is to integrate it with your advertising, sales force and Internet plans, which then become the tactical portion of a strategic business plan. Specifically, then, from your vantage point, understand the flexibility of sales promotion and how to use it to your best advantage. For instance, an effective sales promotion campaign can assist in the following: •

Launch a new product.

•

Encourage more product usage.

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Induce dealer involvement.

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•

Stimulate greater sales force efforts.

•

Move inventory off the store shelves and out of the warehouses during a market downturn (as illustrated in the Dell case).

Think of sales promotion as any promotional effort that does not come under advertising, personal selling, or publicity. Expressed another way, regard sales promotion as any activity that encourages salespeople, resellers and ultimate buyers to activate a business plan, by providing special incentives related to a product or service. Effective sales promotion, therefore, should work as an incentive to buy immediately, in contrast with general advertising that provides a reason to buy. Consequently, sales promotion permits tremendous flexibility, creativity and application, as noted in the following categories: •

Consumer promotions consist of samples, coupons, cash refunds, premiums, free trials, warranties and demonstrations.

•

Trade promotions include buying allowances, free goods, cooperative advertising, display allowances, push money, video conferencing, Internet seminars and dealer sales contests.

•

Sales force promotions employ bonuses, contests and sales rallies.

The following example illustrates one tactical application. It also illustrates a successful outcome where there is effective leadership in knowing when and how to deviate from the normal procedure when introducing a new product.

Case Example Procter & Gamble Co. scored a huge hit with its launch of SpinBrush, an electric toothbrush. The tactical campaign quickly blazed a path into the market and succeeded in becoming one of P&G’s most successful product launches. In just two years it became the industry’s best-selling toothbrush, manual or electric.

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The launch displayed a number of tactical innovations, some of which went counter to P&G’s normal business model. The major change was in pricing SpinBrush. P&G usually prices its merchandise at a premium and pegs it to the cost of technology. With SpinBrush, however, the company reversed its usual practice with an aggressive price of just $1.50 above the most expensive manual bushes. P&G’s aims were first, discourage eager competitors that normally shadow the consumer-products giant and then introduce lower-price knockoffs. Second, gain broad market coverage and maximize market share swiftly before rivals could react. SpinBrush accomplished both aims by achieving a resounding record of success for the brand by initially penetrating 35 countries, making it the quickest global rollout ever, while discouraging the entry of bargain-priced clones. Also, to maintain the low price and still earn a profit, P&G managers decided to forego the usual bombardment of heavy pre-launch TV advertising and the practice of using a high price to amortize upfront costs. Instead, it held off extensive advertising at the onset and relied on the tactical effect of innovative packaging, which encouraged consumers – at the immediate decision-making point of purchase – to turn on the battery-operated demonstration brush in the store. The successful implementation of tactics didn’t just happen in isolation. Savvy managers understood the strategic implications of supporting P&G’s broader objective of retaining the coveted position as the No. 1 oral-care brand.

What personal and strategic value does the P&G case hold for you? While you should consider the broader strategic issues associated with sales promotion and the need to coordinate with other tactical efforts, carefully think about the suitable times to implement tactics. For instance, a brand ‘on deal’ one-third of the time or more is likely to suffer image problems. Or if a leading brand is in a mature market, it would be wise to use sales promotion sparingly. The probability is slim that you will gain any lasting advantage from a more aggressive effort. In fact, your brand could lose value and suffer an image problem.

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Thus, timing is especially significant in its effective use and raises a practical question for you: How is the value of a brand influenced by the tactical use of sales promotion, particularly when the brand is tied into long-term strategic objectives, as illustrated in the P&G and Dell Computer cases?

Value of a Brand Now more than ever, managers understand the marketable value of a strong brand66. For the most part, a familiar brand has the power to lift sales and earnings and deliver them straight to the bottom line. Even in tough economic times where consumers tighten belts on spending, they are more likely to stick with names they know and trust. Also, with brands taking on such focused attention, rather than leave value to the vagaries of customer perceptions, there is mounting interest in giving a brand a quantitative valuation and a visible line on a balance sheet. Increasingly, analysts now value brands in the same way as other assets. For instance, they calculate the strength of the brand and how much it is likely to earn in the future. To project a true economic value several additional criteria are used, including the brand’s market leadership, its stability, and its ability to cross geographical and cultural borders. During 2002, Business Week listed the top 10 global brands and their values: 1.

Coca-Cola, still the top brand worldwide: value $69.6 billion.

2.

Microsoft, a powerful brand, even with stagnant PC purchases and legal problems: value $64.1 billion.

3.

IBM, high on the list because of its thrust into services, which is the growth segment of tech spending: value $51.2 billion.

4.

General Electric, a company with diverse product lines that permeate a wide array of businesses: value $41.3 billion.

5.

Intel, although hit by the sluggish PC sales, still strong with its brand-making strategy of ‘Intel Inside’: value $30.9 billion.

6.

Nokia, ranked as the cell-phone brand of choice: value $30.0 billion.

66 The American Marketing Association defines a brand as: a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.

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7.

Disney, churning out movie hits, even when hurt by the events of 9/11: value $29.3 billion.

8.

McDonald’s, continuing its foreign expansion and overcoming the negative effect of Mad Cow disease: value $26.4 billion.

9.

Marlboro, using its extensive promotional clout to overcome court challenges and high cigarette prices: value $24.2 billion.

10. Mercedes, the leading luxury brand even with aggressive competitors making serious challenges: value $21.0 billion. From a manager’s viewpoint, nurturing a strong brand throughout its economic life cycle allows a company to command premium prices. Such products as Budweiser beer and BMW cars have been able to keep growing without succumbing to the pricing pressures of fiery promotional battles. A strong brand can even open opportunities when growth depends on breaking into new markets. Such is the case of the rising Starbucks coffee brand, which opened outlets worldwide. Then, there is the startling success of the Internet search service, Google. In just five years the service has grown from an academic exercise created by two graduate students in search of better ways of finding information on the Web. It has evolved into a prosperous, exceptional advertising business acclaimed by users, sought by a hundred thousand advertisers, coveted by Wall Street and envied by rivals. Google has become much more than a search service that can handle a peak rate equal to 7 million queries per hour. It is a daily tool and main entry point for millions of users in more than 36 languages. Google has become a solid brand with an awareness level that comes close to old standbys such as Kleenex and Band-Aid. With a mounting reputation, the brand is open to all types of expansion opportunities.

Future of Sales Promotion With all its assorted advantages, sales promotion is likely to increase in use for the foreseeable future. It is feasible, if you consider the wide variety of sales promotion methods that can be organized rapidly with maximum flexibility. And contributing to the increases are the torrential flows of realtime data about economic conditions of various markets, the rapid feedback

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about competitors’ tactical attacks, and detailed information about swings in customers’ buying moods. Such data allows for the rapid shifts in sales promotion tactics to contact points for maximum impact. Further, there are internal influences contributing to sales promotion’s wider acceptance. A majority of corporate leaders, often reluctant in the past to provide adequate funding, now embrace sales promotion as an acceptable and effective stimulant to sales. Also, sales promotion is currently viewed as a flexible and quick response weapon against sudden competitive moves. In addition, product managers have acquired a sharper strategic vision when looking at sales promotion not only for its tactical possibilities, but also for its long-term strategic capabilities to build brand value (see Dell example). Then, there are several external reasons contributing to the increased use of sales promotion. First, the number of products in the business-to-business and businessto-consumer marketplaces has multiplied, leading to intensified competition and creating the need for targeted promotions to potential buyers. Such was the case with DaimlerChrysler’s venerable Jeep. Once dominating the off-road and sport-utility field, the vehicle faced an avalanche of 57 different SUVs to compete against. Management also viewed with mounting concern the precipitous decline in Jeep’s market share to 15 per cent in 2002; half what it was at its peak in 1993. Consequently, sales promotion programs built around price deals and zero per cent financing incentives were used to bolster market share. The longer-term focus then dealt with penetrating additional market niches, which meant modifying the Jeep to suit the increasing demands for more creature comforts. Doing so also required performing a balancing act to retain its rugged brand image against hard-driving competitors like General Motors’ Hummer that was attempting to further dislodge the Jeep. Second, managers have to respond to increases in promotional spending from competitors, even at the expense of a possible escalation into a price war.

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Third, in a downturn economy, manufacturers are more willing to use rebates and other incentives to shrink inventories and improve liquidity. This situation occurs in a business environment where consumers are more responsive to sales stimulation programs, as illustrated in the previous computer-industry example. Fourth, there is the growing power and resulting pressures from intermediaries, such as wholesalers, distributors and brokers that tend to demand more promotional allowances in exchange for their greater support.

The Sales Promotion Plan To develop a planned approach over a haphazard one requires two types of leaders: strategic thinkers to shape long-term objectives; tactical implementers to execute day-to-day actions. Here, again, is the rationale for reinforcing the connection of short-term tactical sales promotions to the strategic business plan and its long-term objectives. To create a firm linkage for the short- and long-term, you will find it profitable to follow a series of logical steps to maximize impact and efficiency. Again, blending your thinking with action works only if a sales promotion campaign is undertaken not in isolation but as part of a long-term plan, carefully coordinated and integrated with the other elements of your firm’s promotion mix and its marketing mix. The following steps show the evolution of a sales promotion campaign:

STEP 1: ESTABLISH SALES PROMOTION OBJECTIVES

While the main purpose of sales promotion is to increase the sales volume of a product, reduce inventory, or stimulate customer traffic, you can set other objectives depending upon the type of audience and the nature of the task. For instance, sales promotion efforts can imbue your company’s sales force with enthusiasm and zeal. Implementation might include offering your salespeople special incentives to excel, as well as provide additional back-up support. A second targeted group is your company’s dealers or distributors, without whose active cooperation your entire supply chain and, more specifically,

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a sales promotion campaign would falter. Lastly, while the support and loyalty of your sales force and dealer/distributor network are certainly crucial, a sales promotion campaign would hardly be complete if it failed to stimulate actual purchasing.

STEP 2: SELECT APPROPRIATE TECHNIQUES

Once you have decided which market segments you want to address, you can select specific techniques to motivate the dealer, introduce new products and promote existing products. Table 13.1 aids your selection process by presenting the advantages and disadvantages of sales promotion techniques.

TECHNIQUE

ADVANTAGES

DISADVANTAGES

Free samples

Induce trial

Expensive

Attract new customers

Lacks precision

Speed-up adoption

Cumbersome

Free trial

Overcomes consumer resistance Costly to administer

Door-to-door couponing

Very selective

Time consuming

High redemption rate

Needs careful supervision Lead time needed

Direct-mail couponing

High targetability

Costly

At-home coverage

Dependent on list quality

High redemption rate Newspaper couponing

Magazine/supplement couponing

Money refund

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Quick and convenient

Low redemption rate

Geographically targetable

Retailers may complain

Low cost

Requires careful planning

Targeted audience

Can become expensive

Effective coverage

Consumers neglect to clip

Increases in readership

Slow redemption rate

Generates new business

Results can be slow

Reinforces brand loyalty

Modest impact

TECHNIQUE

ADVANTAGES

DISADVANTAGES

In-or-near pack premiums

Increases product sales

Rewards loyal buyers

Modest distribution cost

Pilferage problem

Low cost

Modest sales impact

Boosts brand image

May be too popular

Moves merchandise

Not selective

Keeps up visibility

May cheapen brand image

No purchase required

Expensive

Increases brand awareness

Modest participation

Self-liquidating premiums

Price pack

Contests/sweepstakes

Trading stamps/promotional games

No extra expense for consumer Consumer boredom Creates store preference

Expensive

Point-of-purchase displays or demonstrations

Effective stimulation

Requires dealer cooperation

TABLE 13.1. ADVANTAGES AND DISADVANTAGES OF VARIOUS SALES PROMOTION TECHNIQUES

The variety of sales promotion tools listed in Table 13.1 suggests that a plan must mirror changing market conditions. That means respond accurately and decisively with sales promotion programs tailored to achieve your objectives for one or more of your prospective audiences – sales force, distributors, retailers, or consumers. Then work out the operational details of your campaign and set in motion selective sales promotion techniques. Also, of practical necessity, make allocations according to the promotional needs of the product during a given year. That allows funds for implementing contingency plans to oppose sudden competitive actions. Then look at the size of the overall annual appropriation for sales promotion, which is usually spelled out as a percentage of a company’s advertising budget and may run anywhere from 20 per cent for businessto-business firms to 60 per cent for consumer goods companies. As for the competition, stay on high alert to the likelihood of how and when competitors will respond to your initiatives. It would be totally unrealistic to think they would not respond. For instance, some competitors will follow your lead and others will lay back and not react. Still others will be innovative and highly aggressive, as cited in the Dell case.

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As for deciding on the length and timing for your campaign, you are again at a critical point. If the promotion is too short, neither you nor your target audience will derive sufficient benefit from it. On the other hand, if it is too long, your brand’s image is likely to be cheapened and your campaign’s ‘act now’ urgency will be diluted. A related issue is frequency: How often should you trigger a sales promotion campaign for a given product? Generally, the rules are not too often, not too short and not too long. Most important, the overall guideline is to look at changing market patterns and tune into the tactical advantages of sales promotion, which are speed and flexibility. Next, having determined when to run your campaign, make sure your schedule ties in smoothly with the other elements of your tactical plan and with the operational plans of your finance, purchasing and production departments. Then, proceed to pre-test your campaign on a limited scale. This will reassure you that you have chosen the most appropriate sales promotion techniques and have implemented them in the most effective manner.

STEP 3: IMPLEMENT AND EVALUATE YOUR CAMPAIGN

After you have fine-tuned the campaign and feel confident that it is fully operational against various market segments and customer groups, you can activate parts of the plan and time it for maximum impact. For instance, if introducing a new product, you may want to develop a lively demonstration at a sales meeting to motivate your sales reps to go all out and push the product. For an established product, however, you may choose to send your salespeople kits that spell out the objectives of your campaign and its operational details, which include the type and size of the incentives offered to them, as well as to your dealers and consumers. As an in-charge manager, continually monitor the progress of your campaign. Poor execution can cause it to backfire by creating frustration and ill will. Therefore, make every effort to achieve your campaign objectives. You can measure campaign effectiveness in various ways. The essential gauges are in the form of products moving through the supply chain,

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market-share figures, the rate of product usage, and the level of customer satisfaction. At this point remind yourself of the limitations of your sales promotion campaign, namely: Sales promotion is a short-term tool that can support your long-term goals only in a supplementary capacity. It cannot build a consumer franchise. To the contrary, if used too often, it can destroy the image of a brand. Thus, don’t use it as a substitute for advertising, but rather as a complementary effort.

Sales Force The next function of the mix is the sales force. Its role is as diverse as those of advertising and sales promotion. Sales force activities can range from order taker, technical sales, missionary sales, to solution provider. During the 1990s and into the first decade of the 21st century, the costs related to sales came under intense scrutiny as managers analyzed the rising expenditures of a business-to-business sales call, which averaged between $200 and $450. With closing a sale typically requiring five sales calls, the total customer-acquisition costs triggered alarm. Associated with costs, the major managerial concerns in dealing with the sales function include sales force objectives, sales force strategies, sales force size, compensation, recruiting and training, and performance. Let’s examine each:

Sales Force Objectives The use of sales promotion, which is represented here in a framework of assisting sales reps in making individualized person-to-person contacts, requires intelligent planning. This is the point of contact with prospects and customers, where advertising and sales promotion converges to provide coordinated backup support to close the sale. In a sense this is the culminating activity for all the preceding tactics. To illustrate the point, McGraw-Hill Publications used what has now become a classic advertisement to show the inter-relationship of supporting

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functions. The magazine ad showed a stern faced executive looking directly out at the reader with the following copy: •

I don’t know who you are.

•

I don’t know your company.

•

I don’t know your company’s product.

•

I don’t know what your company stands for.

•

I don’t know your company’s customers.

•

I don’t know your company’s record.

•

I don’t know your company’s reputation.

•

Now – what was it you wanted to sell me?

This ingenious ad takes into account all the functions of pre-contact through backup advertising and sales promotion. It paves the way for the sales rep, who is made more powerful in a period of the spiraling costs of sales calls. Further, such coordinated assistance is most meaningful when you consider that the current sales strategy has shifted from the pushmerchandise mode to the problem-solving approach. That means a sales rep must gain credibility and demonstrate a refined skill to accurately diagnose a customer’s problems and provide reliable solutions. Two major categories fill this latter area: revenue expansion and cost reduction, as described in Table 13.2.

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A. REVENUE EXPANSION OBJECTIVES: DEFINE PROBLEMS AND PROVIDE SOLUTIONS

•

Reduce customers’ returns and complaints.

•

Speed-up production and delivery to benefit your customers’ customers.

•

Improve your customers’ market position and image.

•

Create a brand strategy that would impact your customers’ revenues.

•

Uncover product or service benefits to enhance your customers’ operations.

•

Create areas of differentiation to give your customers a competitive advantage.

•

Improve re-ordering procedures with a positive impact on revenues.

B. COST REDUCTION OBJECTIVES: DEFINE PROBLEMS AND PROVIDE SOLUTIONS

•

Decrease customers’ purchase costs.

•

Cut customers’ production costs.

•

Trim customers’ production downtime.

•

Reduce customers’ delivery costs.

•

Slice customers’ administrative overhead.

•

Maximize customers’ working capital.

TABLE 13.2. DIAGNOSING CUSTOMER PROBLEMS/PROVIDING RELIABLE SOLUTIONS

In addition to the above revenue-expansion and cost-reduction objectives, other related activities include allocating products in times of shortages, counseling discontented customers, communicating company plans and disseminating news about new products in the pipeline.

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Sales Force Strategies To be successful, tune-in to sales force strategies and get sales reps to want to focus totally on placing the customer at the center of attention. That means following a process built around a continuing vigilance to define customers along demographic, geographic and psychographic (behavioural) characteristics. It also entails observing changes that would pinpoint unmet needs, which could be satisfied in the form of meaningful products, superior services, efficient methods of delivery, enhanced credit terms, advanced technical assistance and the like. Further, more finite strategies entail documenting customer usage patterns, frequency of purchase, and any significant deviations in regional and seasonal purchasing patterns. Those strategies, however, are one-dimensional. That is, they point in a single direction: the customer. The critical second dimension is to develop a total 360-degree awareness that includes attention to your competitor’s strategies, particularly if they aim at undermining your efforts. Your best plans, including all your sales reps painstaking efforts, would deteriorate if you cannot command a response option for igniting a tactical sales attack to blunt your competitor’s efforts.

Sales Force Size You can determine the size of a sales force by how much promotional power you need to achieve your objectives. That includes figuring on the average number of calls required to complete a sale. Then, decide what supporting role should be assigned to advertising and sales promotion for various groupings of customers. Finally, calculate all the costs to field a sales force compared with available alternatives. For instance, can a shift to telemarketing or the Internet accomplish the same sales results among lesser-volume customers, or among those who require less personalized service from a sales rep?

Sales Force Compensation Money and similar tangible rewards still drive the sales force. In one company, Parametric, sales reps who are in the rough-and-tough business of persuading customers to make a substantial investment to adopt

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its CAD/CAM engineering software often clear over $100,000 a year with commissions. In turn, the company spends 40 per cent of sales to field a sales rep. That is all part of the company’s image, which also requires a dress-for-success code by sales reps wearing such expensive items as Hickey Freeman suits for men and Coach bags for women. The basic types of sales force compensation plans include straight salary, straight commission, and combination salary and commission. Of the three, the most favored type of compensation is the combination plan. Here, again, to determine your compensation plan consider your company’s strategic goals, the market environment, the type of product or service and, as always, the intensity of competitive firepower.

Sales Force Recruitment and Training Recruitment and training relate to the types of strategic and tactical objectives (expansive, aggressive, or limited); the nature of the product or service (commodity, customized, or technology-based); the level of customers’ needs (minimal or highly interactive); the managerial style of the executive in charge; and the characteristics of the competitor’s sales force. For instance, under the leadership of a former CEO at EMC, developers of computer storage equipment, salespeople moved by forceful verbal pushes that prodded them to reach sales objectives beyond their normal quotas. In return, they were rewarded with a combination of stock options, commissions and bonuses that drove yearly wages in many cases over $750,000. To handle the high-performance sales job, outstanding athletes were recruited from universities because they were used to the rigors of driving hard and reaching deep into their inner strengths to achieve a goal. At Parametric, sale reps were known to insist that customers make a commitment to test their software. If a rep felt the decision process was dragging, he or she would go over a prospect’s head to the next level of authority and to levels beyond, if necessary. If curtly turned away, the rep would persistently return a few days later undaunted, congenial, confident and firmly armed with new reasons to buy. Preparing individuals for such hard-hitting encounters required intensive leadership training aimed at honing their attitudes and skills.

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In keeping with the trend in problem-recognition and problem-resolution consultative selling (see Table 13.2), you should not compromise when selecting talented individuals. They should exhibit the inherent qualities that display a problem-solving competence, demonstrate the tenacity to stick with a prospect until the order is obtained, and show leadership potential to build long-term customer relationships. Further, training and more training make the difference in peak performance. Its worth proves out when you observe with satisfaction a sales rep’s ability to endure a tough selling environment. Its true value is in watching the inventiveness, skill and boldness that surface during that singular tenuous moment where near defeat changes to exhilarating victory – and results in a sale. The convincing case for providing on-going training is most apparent when up against a competitor’s sales force that is weak, due to inadequate product knowledge, inability to plan an effective sales presentation, lack of courage to fight it out against a similar offering and is led by incompetent management.

Sales Force Performance In an upward movement, sales force performance links to sales objectives. In turn, sales objectives link to a short-term tactical marketing plan, and then to a long-term strategic business plan. Performance evaluation also requires that you make real-time connections about market conditions, customer behavior and competitive activities. Then, you have to consider some negative factors that can short-circuit those connections, such as inept leadership, poor monitoring procedures and, once again, inadequate training. As for the standard type of performance evaluation, you can rely on sales reports to provide the most value. That is, if they contain detailed information about sales call activities, key points discussed, recommended action for follow-up, significant intelligence about buying patterns, changes in local economic conditions and competitive activities.

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Still other comparative types of performance evaluations provide useful information from a managerial perspective, such as: •

Current-to-Past Comparisons. This form of evaluation contrasts current performance with past periods in such areas as average number of sales calls per day, average time spent with a prospect or customer, number of new prospects visited versus existing customers, and costs of travel and entertainment.

•

Customer Satisfaction Evaluation. With consultative selling and problem-solving becoming an increasingly important factor in today’s selling environment, customer satisfaction takes on greater importance in sales force evaluation. This is accomplished by personal visits from a ranking executive, telephone surveys, or mail questionnaires.

•

Behavioural Evaluation. There is the qualitative aspect of a sales rep’s performance, which includes knowledge of products, services, legal factors and ethical responsibilities. It also includes personal areas of dress, speech, mannerisms and personality that are consistent with the image desired by the company. (See Parametric example.)

Ultimately, in all these forms of evaluations, set your own personal standards, then benchmark them alongside the best companies in all industries, as well as against those within your industry.

The Internet The last of the functional applications of tactics is the Internet. Whether it has had or will have the explosive changes in business that are attributed to electricity, railroads, or the internal-combustion engine is a matter of speculation and scholarly examination. Notwithstanding, competent observers and leaders in business generally accept the Internet as the spearhead of monumental change in the manner in which business is conducted now, and well into the future. Its blazing power dissolves geographic barriers and leaves political, legal and cultural ones to overcome. It changes the buying and selling procedures through the pervasive use of auction networks in businessto-consumer and business-to-business commerce.

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Further, the Internet accommodates an assortment of software that comes close to achieving the ultimate promise of the marketing concept: to determine the needs and wants of customers and satisfy them with individualized products or services. Now, you can access the ever-expanding availability of sophisticated software with the capability to capture, store and retrieve significant data on general business intelligence and specific competitive activities. In dimensions, volume and complexity the quality and quantity of data were only theorized about prior to the active use of the Internet. Such information adds greater precision to ways in which you can promote with higher expectations of success. That said, the principles cited thus far endure. It is the marvels of technology that now permits such profound advances to come alive. It is for you to apply them in a changing business environment.

Marketing Over the Internet From retailers to brokers to manufacturers, the Internet is transforming the way individuals buy and the methods by which companies conduct business. Its usage is as far-reaching as the World Wide Web itself, with applications as sweeping as trading stocks, obtaining information on autos, subscribing to book and music clubs, getting price quotes on mortgages and purchasing airline tickets.

Case Example Many organizations are moving frantically into the explosive use of the Internet. For example: •

Government Computer Sales, a hardware and software procurement service, has created a profile of 3,400 government departments according to online and traditional sales. The profiles help the company conduct 60% of its interactions online, as well

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as track buyer behavior to reach those customers who buy with the greatest frequency. That precise targeting has helped GCS tailor its communications and convince its clients, on average, to nearly double the number of software programs and computer products they buy. •

Consolidated Freightways, a trucking company, found a way to cater to small businesses. When visitors click on its Web site to look at specific rate quotes, a window pops up offering online help. While customers get rapid information, Consolidated also collects valuable data from them that, in turn, it uses to solicit additional business at relatively low cost.

•

SmarterKids.com, an online educational retailer, tracks every inquiry and transaction that resulted from its online campaigns. Armed with finite sales statistics from every site, it maximized its budget by focusing on only a few sites, such as Microsoft Network and Yahoo! – sites that attracted the most clicks on its ads. The result is half its customers are people who bought after viewing the online ads.

•

PIMCO Funds, an investment-advisory firm, offers an Internet service that uses each investor profile to tailor a proposed investment portfolio within two minutes after receiving the information. About 30 daily proposals are now being generated from the system. PIMCO estimates if half the proposals are accepted, that will add 75% more business than it would have gotten from other marketing efforts.

•

BabyCenter inc., an online baby products site, opened its cyberstore for business. Within a short time period about 100,000 people signed up for a bimonthly newsletter about promotions and new items.

To be more specific about the impressive workings of the Internet, let’s track a particular transaction where a computer maker is searching for the best price and delivery of a memory chip in an open-market networking system: 1.

A computer maker needs 10,000 memory chips to assemble one of its new models.

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2.

The purchasing department logs on to the Internet network and enters specifications about the chip. The system shows a list of available chips with price, quantity and other data.

3.

The computer maker puts in a price. E-mail notifies the suppliers and other buyers interested in the same part of the bid.

4.

The seller indicates its selling price. The buyer is alerted by e-mail and accepts the price.

What the above example illustrates is the workings of Internet bidding exchanges for a wide array of products to connect buyers and sellers in both consumer and business-to-business transactions. The ability to utilize the Internet is not confined to the large organizations, small companies with limited sales resources can establish a home page as a way to communicate a product message, offer special deals, announce a new service, or launch into foreign markets.

Summary The art and skill of managing and leading are in your hands. The handson test of your managerial competence is exploiting every positive tactical action that achieves success, such as gaining additional market share that can positively impact growth and profitability. Competence also incorporates the all-important issue of securing market positions so that vacant or poorly served segments are not left exposed through which aggressive competitors can enter and do irreparable damage. (See previous Xerox case and the following case.) Then, there is the intrinsic obligation of leadership to avoid exposing your company, personnel and resources to undue danger, especially if negative business intelligence yields any doubts about achieving your objectives and profiting from the market’s long-term growth. For instance, if after examining your internal situation you determine you cannot succeed, even with tactical resources behind you, then don’t fight! Look for alternate – indirect – routes to your objectives.

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Finally, in all circumstances, the fundamental test of managerial competence is to understand the applications of tactics for either offensive, defensive, or turnaround situations. The following case illustrates the point:

Case Example America Online, a unit of AOL Time Warner, found itself under siege during 2002-03. High-speed broadband rivals raided its 26-million customer base, reports of accounting irregularities surfaced, senior executives became paralyzed by complacency and the unit’s chief executive resigned. Behind-the-scenes a downbeat corporate culture prevailed. Employees were dismayed and discouraged by the merger of AOL and Time Warner. Blinded by get-rich-quick imaginings about their big stock options, managers’ attentions were diverted. Throughout the turmoil, the inevitable casualties were the employees as moral plummeted and warring factions formed within AOL. Industry experts justifiably asked, “Will America Online be the next company to collapse?” Instead of collapsing, however, AOL began showing signs of a turnaround spearheaded by a new take-charge leader during that period. In rapidfire movement, AOL issued new software and upgrades, pushed swiftly into broadband, promoted a variety of new premium services and revitalized its slumping advertising revenue. In the first quarter of operations under new leadership, operating income jumped 18 per cent over the previous year and the rate of subscriber defections slowed. New management initiated changes by getting employees to own-up to the reality that AOL was in trouble. He set clear goals about regaining market leadership with breakthrough products, shifting existing old dialup customers into broadband, and getting advertising rolling into an upward spiral.

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Executives set the tone that personal get-rich agendas and complacency were out; hard work and innovation were in. “My whole message has been that it’s about the work. This place has gone back to work,” declared one executive. Setting the pace, he made prompt decisions and skipped the former approach of agonizing and second-guessing by layers of senior managers. “My response was so fast that people did not know how to react. No one had ever just said ’yes.’”

What personal and strategic value does the AOL case have for you? First, develop and continually hone your managerial skills. They remain the driving force in offensive, defensive and turnaround situations. Second, create a far-reaching vision for your company or business unit. However, the vision, mission, or strategic direction that emerges is useful only if you tie it to implementing strategies and tactical actions.67 Above all, it is your persuasive qualities of leadership that should result in getting employees to want to act. Third, leadership is inextricably tied to a corporate culture with its prevailing traditions, ideas, habits, patterns of behavior and values. The culture of the organization or business unit is the bedrock foundation from which to build and fulfill the vision or strategic direction of your organization. One caveat, however: In today’s operating environment, the organizational culture must exhibit as its core the ability to sustain the stresses of a competitive marketplace, otherwise the organization falters. If it cannot withstand the maelstrom of forces hitting it, then a new culture must be forged. Consequently, it is your duty to determine if there is an appropriate corporate culture to do the job. If not, then you must deal with change. The pervasive issues related to culture have been discussed in various sections of this book68.

67 Creating a mission statement and a strategic direction are the initial steps in developing a strategic business plan, which is outlined in the Appendix. 68 Specifically, review the section on Corporate Culture in Chapter 2.

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CONCLUSION

Looking Ahead As You Manage To Win

CONCLUSION

Looking Ahead As You Manage To Win

Today’s managers display a variety of personalities, with equally diverse leadership styles. There are the greedy and the generous; the ambitious and the apathetic; the unassuming and the arrogant; the autocratic and the democratic; the hands-on and the hands-off; the available and the inaccessible; the compassionate and the austere; the forward planner and the myopic thinker. Business history contains leaders of all those stripes. An early business leader, such as John H. Patterson, the builder of the National Cash Register Co., (1884 to 1925) was an austere man of arbitrary one-man rule. His autocratic rule did not take into account the feelings of any individual, who could be fired on a whim. Yet, to his managerial credit and in stark contrast to his personal style, he introduced innovations such as the designated sales territory, the ‘canned’ sales pitch, the paid suggestion system and annual sales conventions for top performers. He even started a training school near the company’s Dayton, Ohio headquarters. Alfred P. Sloan Jr. took over a floundering General Motors in 1923 and systematically organized its numerous car lines into the now familiar multidivisional structure that exists today. It was also his legacy to establish the business model of committees, councils and controls, that set the organizational and operational standards other corporations vigorously copied. He was reserved, temperamental and remote. One magazine source described him as “displaying an almost inhuman detachment from personalities with a human and infectious enthusiasm for the facts.” Henry Ford, the founder of the auto giant, wrote in his autobiography, “There is no bent of mind more dangerous than that which is sometimes described as the genius for organization. And so the Ford factories and enterprises have no organization, no specific duties attaching to any position, no line of succession or of authority.” To that end, rival General

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Motors would post higher profits than Ford every year from 1925 to 1985. It was the government contracts awarded during World War II that sustained the company after the tough decade of the 1930s. Harold S. Geneen assumed control of International Telephone & Telegraph in 1959. He turbocharged the organization into a 350,000 employee dynamo with holdings as diverse as Avis Rent-A-Car, Sheraton Hotels, Continental Baking, Hartford Insurance and others. Geneen was a financial guru who was driven by numbers and statistics, with little concern for the humanistic aspects of leadership. His personal credo was “The drudgery of the numbers will set you free.” It was not until well into the second half of the 20th century that another type of leader emerged. John F. Welch took over General Electric in 1981 and declared that corporate America’s economic troubles were the fault of America alone. This bold statement was in glaring contrast to the leading CEO’s of the 1970s who blamed outside factors: oil shortage, unions and government regulations, rather than themselves. Welch’s leadership style of managing people and his dynamic presence and devotion to solving GE’s problems has been amply described in earlier chapters. He became the most admired and copied CEO of his day and personified the characteristics of other winning executives. The 1990s revealed a mixed bag of leaders. There were the outright winners, such as IBM’s Louis Gersten, Intel’s Andy Grove, CNN’s Ted Turner and Amazon.com’s Jeff Bezos. But there were also deposed executives from such famous organizations as AT&T, Sunbeam, General Motors and American Express who resigned or were asked to leave. Harvard Business School professor Rakesh Khurana wrote in his book, Searching for a Corporate Savior, that CEO’s “were no longer defined as professional managers, but instead as leaders, whose ability to lead consisted in their personal characteristics or, more simply, their charisma.” It is quite clear that personal characteristics mark the leader. It is also abundantly clear that one bedrock attribute identifies the 21st century leader, manager and chief executive officer69, the skill to devise strategies and the ability to implement them. That trait is the foundation concept, the

69 The use of CEO didn’t gain wide usage until the 1970s (‘president’ was the accepted standard.) It was not until the late 1980s that it becomes a generally accepted title.

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common theme that links all the rules of leadership to revitalize your strategies as you reinvent yourself. As pointed out in previous chapters, there are subordinate processes associated with strategy implementation, such as: •

Make relevant market estimates of opportunities and threats.

•

Assess internal strengths and weaknesses of human and material resources.

•

Gather competitive intelligence.

•

Prepare innovative strategic business plans.

•

Make strategic choices of markets to enter or avoid.

•

Initiate quick response with short-term tactics that utilize speed, indirect approach, concentration, unbalancing competitors and alternate objectives.

•

Advance the long-term growth of a market.

•

Develop a viable market position and manage it with a view that supports two-zones of activity: (1) maintain reliable customer relationships; and (2) deter hostile competitive moves.

•

Cultivate a corporate culture that energizes personnel with the will to win. The end result is you achieve objectives through the effective application of strategies.

For you to Manage to Win, master the indispensable personal skills outlined in this book, which include the processes of strategy implementation. Next, select the best managerial attributes from acknowledged leaders and personalize them to fit your own personality and leadership style. Finally, as pointed out in this book’s introduction, the single most significant outcome of managerial skill is to harness human and material resources to win: To win customers; to win market share; to win a longterm profitable position in a growing marketplace; to win a competitive encounter before a rival can do excessive harm. Ultimately, winning is what revitalizing your strategies and reinventing yourself is all about. Good luck!

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Appendix

Appendix

Contents 1.

Cross-functional team duties and responsibilities

2. 3.

Strategic Business Plan outline General Electric Business Screen multi-factor analysis

4.

Product Life Cycle strategies

Duties and Responsibilities of a Cross-Functional Team The purpose of coordinating the talents of diverse individuals into a cohesive force is to (1) assist the cross-functional teams to develop competitive strategies; (2) broaden the perspective of teams to look at new developments and incorporate them into competitive strategies; and (3) guide the team members to think like strategists. You can effectively blend people interactions by involving all functional areas of the organization such as manufacturing, product development, R&D, finance, distribution and sales/marketing. While these functions may vary in some organizations, the key point is that representation from the major interacting areas must be present on a strategy team to fulfill the broad aims of the business within a competitive environment. This arrangement not only allows for the dynamics of team members working together, but often defuses traditional adversarial relationships – for example, between marketing and manufacturing.

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Team members may change from time to time and the frequency of meetings may vary with teams, but the key element is that the permanency of the team as part of the organizational structure exists and can be called into action at any time. In establishing a strategy team in your organization, take the lead in educating the team members to the key corporate concepts and expectations, planning requirements and strategy techniques illustrated in the preceding chapters. Further, brief the members, with the concurrence of senior management, on the team’s roles and responsibilities which follow. The strategy team is one of the most successful organizational formats for conceiving and delivering innovative and entrepreneurial thinking to the organization. Such a team should be initiated at every operational level by adopting the following role and responsibility guidelines.

Roles The team serves as a significant functional contributor to the strategic business planning process with leadership roles in: •

Defining the business or product strategic direction.

•

Analyzing the environmental, industry, customer, and competitor situations.

•

Developing long- and short-term objectives and strategies.

•

Defining product, market, distribution and quality plans to implement competitive strategies.

Responsibilities •

Creating and recommending new or additional products.

•

Approving all alterations or modifications of a major nature.

•

Acting as a formal communications channel for field product needs.

•

Planning and implementing strategies throughout the product life cycle.

•

Developing programs to improve market position and profitability.

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Identifying market or product opportunities in light of changing consumer demands.

APPENDIX

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•

Coordinating efforts with various functions to achieve short- and long-term objectives.

•

Coordinating efforts for the interdivisional exchanges of new market or product opportunities.

•

Developing a strategic business plan.

The Strategic Business Plan Forms and Guidelines You can develop your personalized Strategic Business Plan (SBP) using the outline that follows. You have the flexibility to customize the forms by inserting specific vocabulary and unique issues related to your industry and company, while retaining the planning structure of a proven format. Also, you can make the SBP a permanent part of your management operating system by adding special forms required by your organization or inserting any of the commercially available spreadsheet programs, as well as the growing number of Customer Relationship Management (CRM) programs. You can obtain optimum results for your SBP by following the process diagrammed in Figure 1. As you examine the flowchart, notice that the top row of boxes represents the strategic portion of the plan and covers a 3- to 5-year timeframe. The second row of boxes displays the tactical 1-year plan. It is the merging of the strategic plan and tactical plan into one unified SBP that makes it a complete format and an operational management tool to energize your company’s potential. You will find that following the SBP process will add an organized and disciplined approach to your thinking. Yet, the process in no way confines your thinking or creativity. Instead, it expands your flexibility, extends your strategy vision and elevates the creative process. In turn, the strategy vision results in providing you with a choice of revenue-building opportunities expressed through markets, products and services.

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STRATEGIC PLAN: 3 TO 5 YEARS Section 1 Strategic Direction

Section 2 Objectives and Goals

Section 3 Growth Strategies

Section 4 Business Portfolio Plans

TACTICAL PLAN: 1 YEAR Section 5 Situation Analysis

Section 6 Opportunities

Marketing Mix

Targets of Opportunities

Section 7 Tactical Objectives

Primary Objectives

Section 8 Tactics and Action Plans

Section 9 Financial Controls and Budgets

Functional Objectives

Competitor Analysis

Market Background

FIGURE 1. STRATEGIC BUSINESS PLAN

Section 1: Strategic Direction The first box in Figure 1, Section 1, Strategic Direction, allows you to visualize the long-term direction of your company, division, product, or service.

Planning Guidelines The first step is to use the following questions to provide an organized approach to developing a strategic direction. Answering the questions

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below will help you shape the ideal vision of what your company, business unit, or product/service will look like over the next 3 to 5 years. More precisely, it should echo your (or your team’s) long-term outlook, as long as it conforms to your company’s overall objectives and policies. To develop your strategic direction answer the following six questions: 1.

What are your firm’s distinctive areas of expertise? You can answer by evaluating the following: •

Relative competitive strengths of your product or service based on customer satisfaction, profitability and market share.

2.

•

Relationships with distributors and/or end-use customers

•

Existing production capabilities

•

Size of your sales force

•

Financial strength

•

R&D expenditures

•

Amount of customer or technical service provided

What business should your firm be in over the next 3 to 5 years? How will it differ from what exists today?

3. 4.

What segments or categories of customers will you serve? What additional functions are you likely to fulfill for customers as you see the market evolve?

5.

What new technologies will you require to satisfy future customer market needs?

6.

What changes are taking place in markets, consumer behavior, competition, environmental issues, culture and the economy that will impact your company?

Now compress your answers to the above six questions into one statement that would represent a realistic Strategic Direction for your company, business unit, or product.

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The following sample is an actual Strategic Direction for a manufacturer of hypodermic needles: “Our strategic direction is to meet the needs of consumers and healthcare providers for drug-delivery devices by offering a full line of hypodermic products and product systems. Our leadership position will be maintained through internal research and development, licensing of technology, and/or acquisition options to provide alternative administration and monitoring systems.”

Section 2: Objectives and Goals Planning Guidelines State your objectives and goals both quantitatively and non-quantitatively (the second box in the top row in Figure 1). Your primary guideline is to take a strategic focus covering a timeframe of 3 to 5 years. That means, look again at how you defined your Strategic Direction, so that you can develop objectives that will have the broadest impact on the growth of your business.

Quantitative Objectives Indicate, in precise statements, major performance expectations such as sales growth, market share, return on investment, profit, and any other quantitative objective required by your management.

Non-quantitative Objectives Think of these objectives as setting a foundation from which to build on to your organization’s existing strengths or core competencies, as well as to eliminate any internal weaknesses. Use the following examples to trigger objectives for your business: •

Upgrade distribution channels

•

Expand secondary distribution or enhance your product’s position on the supply chain

•

Build specialty products for market penetration

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•

Establish or improve business intelligence

•

Focus training actions to improve skills and performance of employees

•

Launch new and reposition old products

•

Upgrade field services

•

Improve marketing mix (product, price, promotion and distribution) management

Section 3: Growth Strategies Planning Guidelines This section outlines the process you can use to secure your objectives and goals. Think of strategies as actions to achieve your longer-term objectives and tactics as actions to achieve shorter-term objectives. Since this timeframe covers 3 to 5 years, strategies are indicated here. The 1year portion, illustrated later in the plan, identifies tactics. Overall, your thinking about strategies boils down to actions related to the following: •

Growth and mature markets

•

Long-term brand development and product positioning

•

Product quality and value-added options

•

Market share growth potential

•

Distribution channel and supply chain options

•

Product, price and promotion mix

•

Asset allocations

•

Specific marketing, sales, R&D and manufacturing strengths to be exploited

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Section 4: Business Portfolio Plan Planning Guidelines The business portfolio includes listings of existing products and markets and new products and markets. Following a logical progression, it is based on the strategic direction, objectives and goals, and growth strategies outlined in the previous sections. Use the following format and guidelines to develop your own business portfolio.

Existing Products/Existing Markets (Market Penetration) List those existing products you currently offer to existing customers or market segments. In an appendix of the SBP, you can document in numerical or graphic form sales, profits and market share data. After identifying new opportunities, it may be necessary for you to revisit Section 3 (Growth Strategies) and list actions you would take to implement the opportunities.

New Products/Existing Markets (Product Development) Use this section to extend your thinking and list potential new products you can offer to existing markets. The general rule is the broader the dimension of your Strategic Direction the broader the possibilities for the content of your portfolio.

Existing Products/New Markets (Market Development) Now list your existing products into new markets. Explore possibilities for market development by identifying emerging, neglected, or poorly served segments in which existing products can be utilized.

New Product/New Markets (Diversification) This portion of the business portfolio is visionary, since it involves developing new products to meet the needs of new and yet-untapped markets. Consider new technologies, global markets and potential strategic alliances to provide input for this section.

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Tactical Section The tactical plan, the second row of boxes designated as Sections 5 through 9, is not a stand-alone plan. It is an integral part of the total SBP. Input to the tactical plan flows from two directions: 1.

From the strategic portion of the SBP (top row) containing the strategic direction, objectives, strategies and business portfolio; and

2.

From the situation analysis (second row), which progresses to opportunities, annual objectives, tactics and budgets.

Section 5: Situation Analysis The following 3-part situation analysis details the past and current situations of your business: •

Level A: Marketing Mix (product, price, distribution and promotion)

•

Level B: Competitor Analysis

•

Level C: Market Background

Planning Guidelines LEVEL A: MARKETING MIX – PRODUCT

•

Objectively describe the performance of your product or service by sales history, profitability, share of market and other required financial data. Where appropriate, graphically chart sales history with spreadsheets or your company’s forms.

•

Current position in the industry related to market share, reputation, product life cycle (introduction, growth, maturity, or decline) and competition.

•

Future trends related to environment, industry, customer and competitive factors that may affect the position of your product.

•

Intended purpose of your product in terms of its application or uniqueness.

•

Feature and benefits of your product as related to quality, performance, safety, convenience, or other factors important to customers.

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•

Other pertinent product information such as expected product improvements and additional product characteristics; recent features that enhance the position of your product; competitive trends in features, benefits, technological changes; and changes that would add superior value to the product and provide a competitive advantage.

LEVEL A: MARKETING MIX – PRICING

•

Examine the history of pricing policies and strategies for each market segment and/or distribution channel. Consider their impact on the market position of your product.

•

Look at pricing trends as they pertain to product specification changes, financial constraints and expected market changes.

LEVEL A: MARKETING MIX – DISTRIBUTION CHANNELS AND METHODS

•

Describe your current distribution channels. Identify the function performed for each stage in the distribution system (distributor, dealer, direct, e-commerce.) Indicate levels of performance (sales volume, profitability and percentage of business increases.)

•

Analyze your physical distribution system, such as warehouse locations, inventory systems, or just-in-time delivery procedures.

•

Characterize the effectiveness of coverage by the programs and services provided for each channel.

•

Comment on effectiveness of distribution systems. Specify the key activities performed at each point and indicate any areas that require corrective action.

•

State the impact of future trends in distribution channels and methods, such as e-commerce.

•

Indicate special functions performed by your company’s sales force. Also include your distributors’ sales forces, if applicable.

•

List target accounts and their levels of performance related to sales and quantity.

•

Indicate future trends in distribution methods and channels. Project what growth is expected in each major market segment.

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LEVEL A: MARKETING MIX – ADVERTISING, SALES PROMOTION, INTERNET AND PUBLICITY

•

Analyze your efforts directed at each market segment or distribution channel based on the following elements: expenditures, creative strategy, media, types of promotion and other forms of communications unique to your industry.

•

Identify and evaluate competitive trends in the same categories as above. If available, your advertising agency, advertising department and/or sales force may prove helpful in compiling this information.

•

Identify your company’s past and current communications strategies by product and market segment and describe trends in these areas.

•

Identify other support programs (publicity, educational, professional, trade shows, the Internet) that you have used and evaluate their effectiveness.

Planning Guidelines LEVEL B: COMPETITIVE ANALYSIS

•

List all your competitors in descending-size order along with their sales and market shares. Include your company’s ranking within the listing.

•

Identify each competitor’s strengths and weaknesses related to such factors as product quality, distribution, pricing, promotion, management leadership and financial condition.

•

Identify competitive pricing strategies, price lines, and price discounts, if any. Identify those competitors firmly entrenched in low-price segments of the market, those at the high end of the market, or competitors that are low-cost producers.

•

Compare the specific product features and benefits with those of competitive products. In particular, focus on product quality, design factors and performance.

•

Identify competitive spending levels and their effectiveness. Such measurements are conducted through formal advertising research conducted by your advertising agency, independent marketing research firms, or some publications.

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•

Compare competitive distribution strengths and weaknesses. Address differences in market penetration, market coverage, delivery time and physical movement of the product by regions or territories. Also identify major accounts where competitors’ sales are weak or strong.

•

Compare the package performance, innovation and preference of competitive products. Also review size, shape, function, convenience of handling, ease of storage and shipping.

•

Review both trade and consumer attitudes toward product quality, customer/technical service, company image and company performance.

•

Review sales force effectiveness as it relates to sales, service, frequency of contact, and problem-solving capabilities by competitor and by market segment.

LEVEL C: MARKET BACKGROUND

•

This last part of the situation analysis focuses on the demographic and behavioural factors of your market.

•

Define the profile of present and potential end-use customers that you or your distributors serve. Your intent is to look further down the distribution channel and view the end-use consumer. Examine the following factors:

Frequency and Magnitude of Products Used Define customer purchases by frequency, volume and seasonality of purchase. Additional information might include customer inventory levels, retail-stocking policies, or volume discounts.

Geographic Aspects of Products Used Define customer purchases regionally or territorially. Segment buyers by specific geographic areas or by other factors relevant to your business.

Market Characteristics Assess the demographic, psychographic (life style) and other relevant characteristics of your customers.

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Decision Maker Define who makes the buying decisions and when and where they are made. Note the various individuals or departments that may influence the decision.

Customer Motivations Identify the key motivations that drive your customers to buy the product. Why do they select one manufacturer (or service provider) over another?

Customer Awareness Define the level of consumer awareness of your products. To what extent do they: •

Recognize a need for your type of product?

•

Identify your product, brand, or company as a possible supplier?

•

Associate your product, brand, or company with desirable features?

Segment trends Define the trends in the size and character of the various segments or niches. A segment should be considered if it is accessible, measurable, potentially profitable and has long-term growth potential.

Other Comments/Critical Issues Add general comments that expand your knowledge of the market and customer base. Also identify any critical issues that have surfaced as a result of conducting the situation analysis.

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Section 6: Opportunities Planning Guidelines In this section, you examine strengths, weaknesses and options. Opportunities will begin to emerge as you consider the variety of alternatives. Try to avoid restricted thinking. Take your time and brainstorm. Dig for opportunities with other members of your cross-functional team. Note the two-directional flow used to create opportunities: (1) the visionary thinking you used to shape the strategic portion of the SBP now flows down to focus on 1-year opportunities; and (2) the situation analysis that exposes voids and weaknesses also represents opportunities. Now review the following screening process to identify your major opportunities and challenges. Once you identify and prioritize the opportunities, convert them into objectives and tactics, which are the topics of the next two sections of the SBP.

Present Markets Identify the best opportunities for expanding present markets through: •

Cultivating new business and new users

•

Displacing competition

•

Increasing product usage or services by present customers

•

Redefining market segments

•

Reformulating or repackaging the product

•

Identifying new uses (applications) for the product

•

Repositioning the product to create a more favorable perception by consumers and to develop a competitive advantage over rival products

•

Expanding into new or unserved market niches

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Targets of Opportunity List any areas outside your current market segment or product line not included in the above categories that you would like to explore. Be innovative and entrepreneurial in your thinking.

Section 7: Tactical Objectives This section consists of three parts: • •

Assumptions: projections about future conditions and trends Primary objectives: quantitative measurements related to your responsibility, including targets of opportunity

•

Functional objectives: operational goals for various parts of the business

Assumptions For objectives to be realistic and achievable, you must first generate assumptions and projections about future conditions and trends. List only those major assumptions that will affect your business for the planning year as it relates to the following: •

Economic assumptions: comment on the overall economy, local market economies, consumer expenditures and changes in customer needs. If available, document market size, growth rate, costs and trends in major market segments.

•

Technological assumptions: include likelihood of technological breakthroughs, availability of raw materials and production innovations.

•

Sociopolitical assumptions: indicate pending legislation, political tensions, population patterns, educational factors and changes in customer habits.

•

Competitive assumptions: identify activities of existing competitors, inroads of new competitors and changes in trade practices.

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Primary Objectives Focus on the primary financial objectives that your organization requires. Also include targets of opportunity that you initially identified as innovative and entrepreneurial in Section 6. List current and projected sales, profits, market share, return on investment and other quantitative measures. (Use Table 1, a form provided by your organization, or any spreadsheet software.)

CURRENT Product Group Breakdown

Sales Units $s

Margins Share of Market

PROJECTED Sales $s

Units

Margins

Share of Market

Product A Product B Product C Product D TABLE 1 PRIMARY OBJECTIVES

Functional Objectives State the functional objectives relating to both product and non-product issues in each of the following categories. You can alter the list of objectives to fit your business and industry.

Product Objectives •

Quality List quality objectives that would achieve a competitive advantage by exceeding industry standards.

•

Development Deal with new technology through internal R&D, licensing, or joint ventures.

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•

Modification Deliver major or minor product changes through reformulation or engineering.

•

Differentiation Enhance competitive position through function, design, or any other changes that can differentiate a product or service.

•

Diversification Transfer technology or use the actual product in new applications, or diversify into new geographic areas, such as developing countries.

•

Deletion Remove a product from the line due to unsatisfactory performance, or keep it in the line if the product serves some strategic purpose, such as presenting your company to the market as a full-line supplier.

•

Segmentation Create line extensions (adding product varieties) to reach new market niches or defend against an incoming competitor in an existing market segment.

•

Pricing Include list prices, volume discounts and promotional rebates.

•

Promotion Develop sales force support, sales promotion, advertising, Internet, and publicity to the trade and consumers.

•

Distribution channel Add new distributors to increase geographic coverage, develop programs or services to solidify relationships with the trade, remove distributors or dealers from the channel, or maintain direct contact with the end user.

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•

Physical distribution Identify logistical factors, such as order entry, physical movement of a product through the supply chain and eventual delivery to the end user.

•

Packaging Use functional design and/or decorative considerations for brand identification.

•

Service Broaden the range of services, from providing customers access to key executives in your firm to providing on-site technical assistance.

•

Other Indicate other objectives as suggested in Targets of Opportunities (Section 6.)

Non-product Objectives Although most activities eventually relate to the product or service, some are support functions that you may or may not influence. How much influence you can exert depends on the functions represented on your planning team. •

Target Accounts Indicate those customers with whom you can develop special relationships through customized products, distribution or warehousing, value-added services, or participation in quality improvement programs.

•

Manufacturing Identify special activities that would provide a competitive advantage, such as offering small production runs to accommodate the changing needs of customers and reduce inventory levels.

•

Market research Cite any customer studies that identify key buying factors and include competitive intelligence.

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•

Credit Include any programs that use credit and finance as a value-added component for a product offering, such as rendering financial advice or providing financial assistance to customers in certain situations.

•

Technical sales activities Include any support activities, such as 24/7 hot-line telephone assistance that offers on-site consultation to resolve customers’ problems.

•

R&D Indicate internal research and development projects as well as joint ventures that would complement the Strategic Direction identified in Section 1 of the SBP.

•

Training List internal training programs, as well as external end-user programs.

•

Human resource development Identify specialized skills required by those individuals who would make the SBP operational.

•

Other Include specialized activities that may be unique to your organization.

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Section 8: Tactics and Action Plans Strategies are actions to achieve long-term objectives; tactics are actions to achieve short-term objectives. Therefore, in this section tactics have to be identified and put into action. Responsibilities are assigned, schedules set, budgets established and checkpoints determined.

Planning Guidelines Restate the functional product and non-product objectives from Section 7 and link them to the strategies and tactics you will use to reach each objective. Note: If you state an objective and don’t have a related strategy, you may not have an objective. Instead, the statement may be an action for some other objective.

Summary Strategy Summarize the basic strategies for achieving your primary objectives. Also, include alternative and contingency plans should situations arise to prevent you from reaching your objectives. Be certain, however, that such alternatives relate to the overall SBP. As you develop your final strategy statement, use the following checklist to determine its completeness: •

Changes needed to the product or package, including differentiation and value-added features.

•

Strategies to create a competitive advantage, along with contingency plans to counter competitors’ aggressive moves.

•

Changes to price, discounts, or long-term contracts to address market share issues.

•

Changes to advertising strategy, such as the selection of features and benefits, or copy themes to special groups.

•

Strategies to reach new, poorly served, or unserved market segments.

•

Promotion strategies related to private-label products; dealer and/or distributor, consumer and sales force incentives.

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Section 9: Financial Controls and Budgets This final section incorporates your operating budget. If your organization has reporting procedures, you should incorporate them into this section. Included below are examples of additional reports to monitor progress at key checkpoints of the plan and permit either major shifts in strategies or simple mid-course corrections: •

Forecast models

•

Sales by channel of distribution –

Inventory or out-of-stock reports

–

Average selling price (including discounts, rebates, or allowances) by distribution channel and customer outlet

•

Profit and loss statements by product

•

Direct product budgets

•

R&D expenses

•

Administrative budget

•

Spending by quarter

Finally, the system should provide an upward flow of fresh market intelligence that, in turn, could impact on broad policy revisions at the highest levels of the organization. The only other part left in your SBP is an appendix. It should include the following items: •

pertinent industry data and market research;

•

additional data on competitors’ strategies, including information on their products, pricing, promotion, distribution and profiles of management leadership (if available); and

•

details about new product features and benefits.

(Various computer-based data bases, CRM, and other software programs can assist to strengthen your plan.)

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General Electric Business Screen The General Electric Business Screen (Figure 2) on the other hand, is a more comprehensive, multifactor analysis that provides a graphic display of where an existing product fits competitively in relation to a variety of criteria. It also aids in projecting the chances for a new product’s success.

• • • • • •

Relative market share Price competiveness Product quality Knowledge of customer/market Sales effectiveness Geography

Market size Market growth rate Profit margin Competitive intensity Cyclicality Seasonality Scale economics

High

• • • • • • •

Weak

Green

Green

Yellow

Medium

Industry Attractiveness

Average

Green

Yellow

Red

Low

Business Strength Strong

Yellow

Red

Red

FIGURE 2. GENERAL ELECTRIC BUSINESS SCREEN

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The key points in using the GE Business Screen are: 1. Industry attractiveness is shown on the vertical axis of the matrix. It is based on rating such factors as market size, market growth rate, profit margin, competitive intensity, cyclicality, seasonality and scale of economies. Each factor is given a weight classifying an industry, market segment, or product as high, medium, or low in overall attractiveness. 2. Business strength is shown on the horizontal axis. A weighted rating is made for such factors as relative market share, price competitiveness, product quality, knowledge of customer and market, sales effectiveness and geography. The results show the ability to compete and, in turn, provide insight into developing strategies in relation to competitors. 3. Three color sectors divide the matrix: green, yellow and red. The green sector has three cells at the upper left and indicates those markets that are favorable in industry attractiveness and business strength. These markets indicate a ‘go’ to move in aggressively. The yellow sector includes the diagonal cells stretching from the lower left to upper right. This sector indicates a medium level in overall attractiveness. The red sector covers the three cells in the lower right. This sector indicates those markets that are low in overall attractiveness.

Product Life Cycle The product life cycle has particular relevance for the Strategic Business Plan, with specific application in Section 4 (Business Portfolio.) Figure 3 indicates the various strategies that extend the sales life of products, which are the pillars for successful growth. You will find these life-cycle extenders are the safest and most economical strategies to follow. To identify the best extension opportunities, seek the cooperation of product developers, manufacturing, finance, distribution, marketing and sales personnel.

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Promote more frequent usage among customers Find new users for product Find more uses for product Find new uses for product’s basic materials

Sales Time

FIGURE 3. STRATEGY APPLICATIONS FOR EXTENDING THE LIFE CYCLE

The product life cycle offers a reliable perspective for observing a ‘living’ product moving through dynamic stages, influenced by outside economic, social and environmental forces – as well as by inside policies, priorities and resources. For many companies, monitoring the life cycle curve often prevents the severe consequences of allowing a product to reach a commodity status, where price is often the solitary weapon in the marketing arsenal. Consequently, the classic product life cycle model remains a highly effective framework for devising marketing strategies at various stages of the curve. Examples abound of organizations successfully extending the sales life of their products. The classics include nylon, Jell-O brand gelatin desserts, and Scotch brand tape. All have had average life cycles of more than 60 years and are still going strong.

Measuring the Product Life Cycle If the product life cycle is of any strategic value to you and your firm, you have to determine where in the life cycle your product is at any given time. You can determine the stage of your product category’s life cycle by identifying its status on the three curves shown in Figure 4.

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These curves are: 1.

Market volume, expressed in units to avoid any distortion resulting from price changes.

2. 3.

Rate of change of market volume. Profit/loss, illustrating the differences between total revenue and

Units

total cost at each point in time.

Market Volume

+ Percent

0 Rate of Change of Market Volume

+

Time

Decrease Growth

|

0

Time

Dollars

Shrinkage

Profit/Loss Curve Profit

+ |

0

Loss

Loss

Time

Breakeven Points

Introduction

Growth

Maturity

Saturation

Decline

FIGURE 4. CURVE TRENDS USED TO MEASURE LIFE CYCLE POSITION

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Successful management of your product’s life cycle requires careful planning and thorough understanding of its characteristics at the various points of the curve. Only then can you respond quickly and advantageously to new situations, leaving competitors in your wake.

Strategies Throughout the Life Cycle As illustrated in Table 2, different conditions characterize each stage of the product life cycle and suggest potential strategies. These conditions also highlight the need for continuous monitoring of your tactical approach, if you are to optimize results. You can then identify timely adjustments in your marketing mix – that is, the particular combination of marketing tools that you use at each life cycle stage and which, in turn, apply to Section 8 (Tactics) of your Strategic Business Plan.

Marketing Mix Elements LIFE CYCLE STAGE

PRODUCT

PRICING

DISTRIBUTION

PROMOTION

Introduction

Offer technically mature product, keep mix small

‘Skim the cream’ of price insensitive innovators through high introductory price

‘Fill the pipeline’ to the consumer; use indirect distribution through wholesalers; integrate the Internet as a distribution and promotion channel

Create primary demand for product category, spend generously on extensive and intensive broadbased advertising

Growth

Improve product; keep mix limited

Adjust price as needed to meet competition

Increase product presence and market penetration

Spend substantially on expansion of sales volume

continued over…

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LIFE CYCLE STAGE

PRODUCT

PRICING

DISTRIBUTION

PROMOTION

Maturity

Differentiate your product from competition; expand your product offering to satisfy different market segments

Capitalize on price-sensitive demand by further reducing prices

Take over wholesaling function yourself by establishing distribution centers and having your own sales force call on retailers

Distinguish your product in the minds of prospective buyers; emphasize brand appeal

Saturation

Proliferate your Keep prices mix further, stable diversify into new markets

Intensify your distribution to increase availability and exposure

Maintain the status quo; support your market position

Decline

Prune your product mix radically

Carefully increase Consolidate your prices distribution setup; establish minimum orders

Reduce advertising activity to reminder level

TABLE 2. STRATEGIES THROUGHOUT THE PRODUCT LIFE CYCLE

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Other titles from Thorogood THE A-Z OF EMPLOYMENT PRACTICE David Martin £19.99 paperback, £42.00 hardback Published November 2004 This book provides comprehensive, practical guidance on personnel law and practice at a time when employers are faced with a maze of legislation, obligations and potential penalties. It provides detailed and practical advice on what to do and how to do it. The A to Z format ensures that sections appear under individual headings for instant ease of reference. The emphasis is not so much on the law as on its implications; the advice is expert, clear and practical, with a minimum of legal references. Checklists, procedures and examples are all given as well as warnings on specific pitfalls.

DEVELOPING AND MANAGING TALENT How to match talent to the role and convert it to a strength Sultan Kermally £12.99 paperback, £24.99 hardback Published May 2004 Effective talent management is crucial to business development and profitability. Talent management is no soft option; on the contrary, it is critical to longterm survival. This book offers strategies and practical guidance for finding, developing and above all keeping talented individuals. After explaining what developing talent actually means to the organization, he explores the edimension and the global dimension. He summarizes what the ‘gurus’ have to say on the development of leadership talent. Included are valuable case studies drawn from Hilton, Volkswagen, Unilever, Microsoft and others.

GURUS ON BUSINESS STRATEGY Tony Grundy £14.99 paperback, £24.99 hardback Published May 2003 This book is a one-stop guide to the world’s most important writers on business strategy. It expertly summarises all the key strategic concepts and describes the work and contribution of each of the leading thinkers in the field. It goes further: it analyses the pro’s and con’s of many of the key theories in practice and offers two enlightening case-studies. The third section of the book provides a series of detailed checklists to aid you in the development of your own strategies for different aspects of the business. More than just a summary of the key concepts, this book offers valuable insights into their application in practice.

GURUS ON MARKETING Sultan Kermally £14.99 paperback, £24.99 hardback Published November 2003 Kermally has worked directly with many of the figures in this book, including Peter Drucker, Philip Kotler and Michael Porter. It has enabled him to summarise, contrast and comment on the key concepts with knowledge, depth and insight, and to offer you fresh ideas to improve your own business. He describes the key ideas of each ‘guru’, places them in context and explains their significance. He shows you how they were applied in practice, looks at their pros and cons and includes the views of other expert writers.

HIGH-PERFORMANCE CONSULTING SKILLS The internal consultant’s guide to value-added performance Mark Thomas £14.99 paperback, £24.99 hardback Published November 2003 This book provides a practical understanding of the skills required to become a high-performance internal consultant, whatever ones own area of expertise. It will help you to: market your services and build powerful internal networks; secure greater internal client commitment to initiatives and change projects; enhance your own worth and value to the organisation; develop stronger more productive working relationships with internal clients.

MARKETING STRATEGY DESKTOP GUIDE Norton Paley £16.99 paperback, £49.99 ring-bound A practical source of reference, guidance, techniques and best practice, with an abundance of summaries, checklists, charts and special tips. Contents include: market segmentation; marketing strategy; competitive position; market research; customer behaviour; products and services; pricing; promotion mix; sales force; marketing plan; financial tools of marketing. “A remarkable resource… indispensable for the Marketing Professional” DAVID LEVINE, V-P STRATEGIC SOURCING, NABS INC, USA

SUCCESSFUL SELLING SOLUTIONS Test, monitor and constantly improve your selling skills Julian Clay £12.99 paperback, £22.50 hardback Published September 2003 This book is like having a personal coach at your side. Using self-assessment models it shows you how to track your progress in your sales campaigns, how to identify where you may be going wrong and how to build a successful sales path of development. It provides a variety of templates, tables, exercises and ideas alongside clear, practical advice on every aspect of making a sale. “Julian Clay is a master of the selling process…” LAWRIE SITEMAN, MANAGING DIRECTOR, IDS GROUP

SUCCESSFUL BUSINESS PLANNING Norton Paley £14.99 paperback, £29.99 hardback Published June 2004 “Growth firms with a written business plan have increased their revenues 69 per cent faster over the past five years than those without a written plan.” FROM A SURVEY BY PRICEWATERHOUSECOOPERS

We know the value of planning – in theory. But either we fail to spend the time required to go through the thinking process properly, or we fail to use the plan effectively. Paley uses examples from real companies to turn theory into practice.

THE SHORTER MBA A practical approach to the key business skills Barrie Pearson and Neil Thomas £35.00 Hardback • Published July 2004 A succinct distillation of the skills that you need to be successful in business. Most people can’t afford to give up two years to study for an MBA. This pithy, practical book presents all the essential theory, practiced and techniques taught to MBA students – ideal for the busy practising executive. It is divided into three parts: •

Personal development

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Management skills

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Business development

Thorogood also has an extensive range of reports and special briefings which are written specifically for professionals wanting expert information. For a full listing of all Thorogood publications, or to order any title, please call Thorogood Customer Services on 020 7749 4748 or fax on 020 7729 6110. Alternatively view our website at www.thorogood.ws.

Focused on developing your potential Falconbury, the sister company to Thorogood publishing, brings together the leading experts from all areas of management and strategic development to provide you with a comprehensive portfolio of action-centred training and learning. We understand everything managers and leaders need to be, know and do to succeed in today’s commercial environment. Each product addresses a different technical or personal development need that will encourage growth and increase your potential for success. •

Practical public training programmes

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Tailored in-company training

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Coaching

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Mentoring

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Topical business seminars

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Trainer bureau/bank

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Adair Leadership Foundation

The most valuable resource in any organisation is its people; it is essential that you invest in the development of your management and leadership skills to ensure your team fulfil their potential. Investment into both personal and professional development has been proven to provide an outstanding ROI through increased productivity in both you and your team. Ultimately leading to a dramatic impact on the bottom line. With this in mind Falconbury have developed a comprehensive portfolio of training programmes to enable managers of all levels to develop their skills in leadership, communications, finance, people management, change management and all areas vital to achieving success in today’s commercial environment.

What Falconbury can offer you? •

Practical applied methodology with a proven results

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Extensive bank of experienced trainers

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Limited attendees to ensure one-to-one guidance

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Up to the minute thinking on management and leadership techniques

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Interactive training

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Balanced mix of theoretical and practical learning

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Learner-centred training

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Excellent cost/quality ratio

Falconbury In-Company Training Falconbury are aware that a public programme may not be the solution to leadership and management issues arising in your firm. Involving only attendees from your organisation and tailoring the programme to focus on the current challenges you face individually and as a business may be more appropriate. With this in mind we have brought together our most motivated and forward thinking trainers to deliver tailored in-company programmes developed specifically around the needs within your organisation. All our trainers have a practical commercial background and highly refined people skills. During the course of the programme they act as facilitator, trainer and mentor, adapting their style to ensure that each individual benefits equally from their knowledge to develop new skills. Falconbury works with each organisation to develop a programme of training that fits your needs.

Mentoring and coaching Developing and achieving your personal objectives in the workplace is becoming increasingly difficult in today’s constantly changing environment. Additionally, as a manager or leader, you are responsible for guiding colleagues towards the realisation of their goals. Sometimes it is easy to lose focus on your short and long-term aims.

Falconbury’s one-to-one coaching draws out individual potential by raising self-awareness and understanding, facilitating the learning and performance development that creates excellent managers and leaders. It builds renewed self-confidence and a strong sense of ‘can-do’ competence, contributing significant benefit to the organisation. Enabling you to focus your energy on developing your potential and that of your colleagues. Mentoring involves formulating winning strategies, setting goals, monitoring achievements and motivating the whole team whilst achieving a much improved work life balance.

Falconbury – Business Legal Seminars Falconbury Business Legal Seminars specialises in the provision of high quality training for legal professionals from both in-house and private practice internationally. The focus of these events is to provide comprehensive and practical training on current international legal thinking and practice in a clear and informative format. Event subjects include, drafting commercial agreements, employment law, competition law, intellectual property, managing an in-house legal department and international acquisitions. For more information on all our services please contact Falconbury on +44 (0) 20 7729 6677 or visit the website at: www.falconbury.co.uk.