Strategy in the media
Article Type: CEO advisory From: Strategy & Leadership, Volume 40, Issue 3
Lessons from Kodak’s failure
The easy narrative is that Kodak is a classic case of a company blind to the disruptive changes in its marketplace. Like many easy narratives, this one is not quite right.
In the 20th century, Kodak was truly one of the world’s powerhouses […]Of course, being a dominant film provider became increasingly irrelevant in light of recent technological shifts. Today people turn to digital cameras embedded in their mobile phones, share pictures over the Internet, and eschew prints altogether.
Kodak wasn’t blind to this shift. It created a working prototype of a digital camera in 1975. The engineer behind that project, Steve Sasson, offered a memorable one-liner to the New York Times in 2008 when he said management’s reaction to his prototype was, “That’s cute –but don’t tell anyone about it.”
But Kodak did invest heavily in digital imaging – billions of dollars– and carved out a reasonable position in the digital camera space with its line of EasyShare products. Early in the 2000s it made a bold bet: buying photo sharing site Ofoto in May 2001 […]
What lessons can we take from Kodak’s struggles?
It’s the business model, stupid. One fatal flaw of Kodak’s efforts in photography is they primarily focused on […] photography […]
Start before you need to. The challenge – what I call “The Innovator’s Paradox” – is when you have the freedom to change,you don’t feel the urgency […]
Place multiple bets. It’s always hard to know which idea is going to be“The One,” especially in fast-changing industries. An ideal response involves a portfolio and pipeline of growth strategies […]
Don’t go it alone. Transformation-minded companies should be promiscuous, investing in companies at the seeming periphery of their business.
Scott Anthony, “Kodak and the brutal difficulty of transformation,”HBR Blogs, January 17, 2012, http://blogs.hbr.org/anthony/2012/01/kodak_and_the_brutal_difficult.html?
Is Kodak an outsourcing cautionary tale?
When American companies move pieces of their operations overseas –often because manufacturing and labor costs are much cheaper – they run the risk of moving the expertise, innovation, and new growth opportunities just out of their reach as well.
Take Eastman Kodak, for example, the 120-year-old American company that filed for bankruptcy protection in January. The company developed the first digital camera in 1975. Yet Kodak was never able to ride the digital wave over the long haul, and the company’s invention ironically served to thwart its success […]
HBS Professor of Management Practice Willy C. Shih served as president of Kodak’s Digital & Applied Imaging business through the turn of the 21st century. Shortly after starting at Kodak, he visited the company’s highly automated production line and realized that all the significant pieces used to make Kodak’s digital cameras – lens, shutters, electronic screen displays – were manufactured far from the factory floor in Rochester, New York, largely because American companies had ceded much of the camera-related technology to Japan years earlier […]
Outsourcing manufacturing operations has been occurring for decades, based on the assumption that moving grunt work overseas wouldn’t affect US companies’competitive edge in the global marketplace.
But this assumption is wrong, and the fallout has been disastrous, Shih says. In reality, developing and executing a manufacturing process often sparks ideas that lead to creation of innovative new products, Shih explains. So when American companies allow the production of high-tech products like televisions and memory chips to disappear from the local landscape, they also inadvertently risk losing expertise to produce the next generation of cutting-edge products like high-end servers and electronic paper displays for e-readers. Outsourcing ends up chipping away at what Shih calls America’s “industrial commons,” the collective R&D, engineering, and manufacturing capabilities that are crucial to new product development.
Dina Gerdemaneman, “Kodak: a parable of American competitiveness,”HBS Working Knowledge, February 6, 2012, http://hbswk.hbs.edu/item/6921.html?wknews=02082012
Innovation in unexpected places
Hunting for business success stories in a recession is a difficult (and sometimes depressing) task. Most of the feel-good stories seem to come from the high-tech world and the burgeoning app economy. One important exception is Chipotle Mexican Grill, a company that shows there’s clearly room for growth and innovation in even the most basic sectors of the economy […]
Chipotle stock is up 50 percent on the year and over 500 percent over five years, far outperforming the market as a whole or the restaurant sector in particular. They announced last week that revenue grew 23.7 percent in 2011,with an 11 percent increase in same-store revenues. Restaurant operating margins are more than 25 percent […]
In many ways, the Chipotle burrito is very similar to the iPhone. Founder Steve Ells invented a way to maintain the basic speed and experience of the standard fast-food experience and make the quality of the food a little better. The better food costs a bit more money, but consumers turn out to be happy to pay a premium for a superior product […]
Chipotle stands out for some unusual process innovations as well. Their“barbecued” meat products – carnitas and barbacoa – are vacuum-packed and cooked sous-vide in Chicago before being shipped out for on-site reheating.
The sous-vide cooking method is mostly associated with cutting edge haute cuisine […] What it does, in effect, is use capital (the fairly expensive vacuum sealer and immersion circulator) to make it trivially easy to cook precisely. Done this way, workers with little training can produce expert and completely uniform results.
Matthew Yglesias “Chipotle is Apple,” Slate, February 9,2012, www.slate.com/articles/business/moneybox/2012/02/chipotle_is_apple_how_the_burrito_chain_is_revolutionizing_fast_food_.html
The danger in outsourcing “crazy” creativity
The most painfully awkward debates I hear in ostensibly innovative organizations revolve around “crazy ideas.” When unexpected challenges arise, what ideas are acceptably crazy? Which ideas are too crazy?Which ideas are so crazy that no one looks at or listens to their champions quite the same way ever again?
Consequently, top management teams tend to be the Goldilocks of crazy: They don’t want insane, and they don’t need conventional; they want their craziness to be “just right.” Defining those crazy zones is one of the most difficult but more important cultural decisions innovation leadership teams can make. Crazy ideas, of course, can be a source of sustainable competitive advantage.
But where should they come from? What I increasingly observe are intensifying“make vs buy/open source vs proprietary” conflicts between getting outrageous ideas from inside the enterprise versus acquiring them from external eccentrics and lunatics. Crazy ideas create cultural – and political– quandaries for organizations. Outside-the-box eccentricities are OK coming from the inside. But truly “crazy” ideas – ones that tempt fate and taunt taboos – appear better off and safer coming from the outside. Accessing crazy ideas may matter more than generating them […]
Organizations frequently have both institutional biases and incentives to avoid developing crazy ideas. Real craziness is what gets outsourced. It’s too risky to be seen as too crazy.
Of course, as anyone following global trends in manufacturing, software development, and customer support well knows, outsourcing dynamics create their own dysfunctional dependencies. Firms lose the ability to innovatively manufacture, modify their systems on the fly, and build bonds with key customers when they over commit to outsourcing. Similarly, organizations lose the ability to discriminate between – and gain insight from – usefully crazy ideas when they take asylum in outsiders. When organizations aren’t careful, the craziness becomes predictably comfortable and comfortably predictable. Even worse, some organizations institutionalize their “crazy”and create a petting zoo of provocative eccentrics.
Michael Schrage, “Managing the ‘crazy ideas’ conundrum,”HBR Blog Network, February 9, 2012 http://blogs.hbr.org/schrage/2012/02/managing-the-crazy-ideas-conun.html
Managing successful diversification
It’s almost inevitable: to boost growth when a company reaches a certain size and maturity, executives will be tempted to diversify […]
As managers contemplate moves to diversify, they would do well to remember that in practice, the best-performing conglomerates in the United States and in other developed markets do well not because they’re diversified but because they’re the best owners, even of businesses outside their core industries […]
What matters in a diversification strategy is whether managers have the skills to add value to businesses in unrelated industries – by allocating capital to competing investments, managing their portfolios, or cutting costs […]We find three characteristics the high performers shared:
Disciplined (and sometimes contrarian) investors.High-performing conglomerates continually rebalance their portfolios by purchasing companies they believe are undervalued by the market – and whose performance they can improve.
Aggressive capital managers. Many large companies base a business’s capital allocation for a given year on its allocation the previous year or on the cash flow it generates. High-performing conglomerates,by contrast, aggressively manage capital allocation across units at the corporate level. All cash that exceeds what’s needed for operating requirements is transferred to the parent company, which decides how to allocate it across current and new business or investment opportunities, based on their potential for growth and returns on invested capital […]
Rigorous “lean” corporate centers.High-performing conglomerates operate much as better private-equity firms do:with a lean corporate center that restricts its involvement in the management of business units to selecting leaders, allocating capital, vetting strategy,setting performance targets, and monitoring performance. Just as important,these firms do not create extensive corporate-wide processes or large shared-service centers. (You won’t find corporate-wide programs to reduce working capital, say, because that may not be a priority for all parts of the company.)
Joseph Cyriac, Tim Koller, and Jannick Thomsen, “Testing the limits of diversification,” McKinsey Quarterly, February 2012.
Using social media to drive organizational change
Facebook, Twitter, YouTube, instant messaging, video conferencing, web meetings: These and many other collaboration and social media platforms are now an everyday part of people’s lives around the world. They are also finding their way into enterprise communications and management strategies. But are these social media applications and technologies ready for an even greater challenge – helping companies and government agencies successfully navigate major business change programs?
[…] Executives know that achieving success at major business transformation requires more than simply telling everyone about the new ways things are going to be done. Acceptance of change – processes, services,working relationships, policies and more – can be accelerated across the organization through the real-time sharing of experiences. Social networking and collaboration applications are extremely effective ways of bringing employees together to perform new processes and to share experiences – both the successes and the temporary setbacks. People with common interests or related roles can form communities to learn from and support one another.
Social media can also help in cases where creating a more collaborative culture is one of the major objectives of the change initiative. This has been the case with the United States Transportation Command, or USTRANSCOM. Because of new responsibilities the Command had been given across the entire US Department of Defense supply chain – from factory to point of delivery– executives sought to change the structure and culture of USTRANSCOM from a “command and control” emphasis to one that encouraged staff to interact directly with executives and supported the kinds of collaboration that can lead to innovation.
USTRANSCOM launched several social media initiatives including an executive blog and a Q&A blog hosted on the Command’s intranet, as well as a public presence on Facebook and Twitter. The executive blog (which has been recognized by the US Department of Defense as a best practice) enables executives to hear from staff directly, without having messages filtered through intermediate management levels. These social media programs – which quickly generated more than 5 million impressions – have flattened the organizational hierarchy and driven positive culture shifts, as measured by an annual staff survey. The collaboration and networking platforms are empowering employees, customers and partners to be active participants in the global conversation of the Command. The Command’s Facebook presence was also recognized by “Government on Facebook” – which highlights best-practice use of Facebook by government organizations – for its coverage marking the 10th anniversary of the 9/11 attacks in the United States.
Mohsin Ghafoor, Trinity Martin and Elizabeth S. Choo, “Six ways social media technologies can accelerate large-scale change,“ Accenture Outlook, January 2012, www.accenture.com/us-en/outlook/Pages/outlook-online-2012-social-media-technologies-accelerate-large-scale-change.aspx
Firm size and entrepreneurial success
So how can someone with entrepreneurial ambitions increase their chances of reaching their goals?
To get an idea of how an aspiring entrepreneur will do, you have to look at where they’ve been, says Professor Damon Phillips. The career experiences of entrepreneurs – before they become business owners – directly affect their success. “If an MBA student wants to be an entrepreneur, they often ask, ‘what type of firm should I work for, and why?’”Phillips says.
While many factors determine whether someone will become a successful entrepreneur, previous research has indicated that the size of an individual’s previous employer is particularly influential – and the smaller, the better. “Skill and vision are the two most important considerations for potential entrepreneurs,” Phillips explains. “In a small company, you have to integrate across different functions and skills. Money can be tight, so there’s often an innovative, entrepreneurial mindset among employees. You don’t get that general skill set and broad vision in a larger company,where most employees have very specific jobs to do.”
But to date, scholars have been focused on pinpointing which individuals will become entrepreneurs, not on predicting how successful someone will be after they make the jump to self-employment. “It won’t do any good to become an entrepreneur if you’re going to crash and burn,” Phillips says. “So the next logical question is, ‘how successful will you be?’”
Phillips, working with Jesper Sørensen of Stanford University, examined this question with labor market data from Denmark’s tax system. The detailed data tells researchers where the country’s entrepreneurs previously worked, for how long, and at what salaries.
The researchers defined entrepreneurial success in two ways: financial performance, measured by each entrepreneur’s income from their company, and commitment, or how likely an entrepreneur was to stick with their venture. Even when the researchers controlled for many factors such as whether parents were also entrepreneurs (Denmark tracks this data point), they found that smaller companies not only bred more entrepreneurs, but also bred more successful business owners – with some caveats. For financial performance, the larger the previous employer, the lower the entrepreneurial income. However, if the entrepreneur was a sole proprietor and had only himself on the payroll, the previous employer size had no effect.
The researchers also found that independent of financial success,entrepreneurs are less likely to stick with their venture if their previous employer was larger – for instance, a firm with more than 100 employees as opposed to five. But again, the effect was weaker if the entrepreneur worked solo, with no employees, compared to those with employees.
“That suggests the management and leadership skills entrepreneurs might develop at a previous employer matter much more when they become employers,”Phillips says. “If the entrepreneur’s company is a one-person venture, though, those skills are less relevant.”
“Predicting start-up success,” Columbia Ideas@work,January 31, 2012, www2.marketwire.com/mw/mmframe?prid=849073&attachid=1878816
Strategies for bricks and mortar marketers
How will you make a profit when your customers know everything about your costs and pricing and have more or less instant access to your strongest competitors, anywhere in the physical world? This dilemma will soon confront every business in every industry, but since we started with brick-and-mortar retailers, let’s stick with them. A physical store’s natural advantages, when it comes to competing with online retailers, include its local presence, a physical showroom, and so forth. Using these advantages, I can think of at least four competitive strategies; maybe you can think of more:
Improve the customer experience within the store. When Target puts a Starbucks in front of the cashiers’ stations, or when a bookstore adds a reading lounge and brings in authors for book signings, this is what they’re trying to do. The only problem is, even though customers might find the store experience more inviting, they could still choose to buy the product somewhere else (perhaps just by using their smartphone), which is one reason Borders has closed its doors and Barnes & Noble isn’t doing so well, while online book vendors continue to grow briskly.
- 1.
Charge admission. Don’t laugh, this is exactly what warehouse stores like Sam’s Club and Costco do. They charge customers an annual membership fee for the privilege of entering their stores. Other kinds of stores do this on an occasional basis. When the iPhone was first introduced,Apple stores charged admission in order to manage the crowds of customers jamming in to see it. And some independent bookstores have begun charging admission for customers who come to the store for author book signings and similar events. It isn’t hard to imagine a retailer charging customers a one-time fee for entry, and refunding that fee against any product bought within, say, 48 hours.
- 2.
Build a service business. Help your customers install,maintain, and repair the products they buy in your store. A car dealer with a great service reputation is likely to generate better car sales, even when facing competition from no-service vendors selling the same cars for less […]
- 3.
Extreme trust. This may be the strongest strategy of all,because it makes it likely your customers themselves will want you to succeed. Being proactively trustworthy (we call it “trustable”) requires you to watch out for your customer’s interest even when your customer isn’t paying attention. For instance, if you try to buy something from iTunes that you already bought, they’ll remind you that you already own it. Ditto Amazon. Extreme trust like this engages people’s natural impulse to show empathy,transcending the commercial domain of monetary incentives and tapping into the social domain of friendship, sharing, and reciprocity. And extreme trust should be even easier for a physical store to earn, because most people find it easier to trust other people they come face to face with.
Don Peppers, “The only lasting competitive advantage is extreme trust,”Fast Company, January 19, 2012, www.fastcompany.com/1809038/the-only-lasting-competitive-advantage-trust
Why Apple went to Asia
In its early days, Apple usually didn’t look beyond its own backyard for manufacturing solutions. A few years after Apple began building the Macintosh in 1983, for instance, Mr Jobs bragged that it was “a machine that is made in America.” In 1990, while Mr Jobs was running NeXT, which was eventually bought by Apple, the executive told a reporter that “I’m as proud of the factory as I am of the computer.” As late as 2002, top Apple executives occasionally drove two hours northeast of their headquarters to visit the company’s iMac plant in Elk Grove, Calif.
But by 2004, Apple had largely turned to foreign manufacturing. Guiding that decision was Apple’s operations expert, Timothy D. Cook, who replaced Mr Jobs as chief executive last August […] For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.
For Mr Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the US.” The impact of such advantages became obvious as soon as Mr Jobs demanded glass screens in 2007. For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc. to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare. Then a bid for the work arrived from a Chinese factory.
When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,”the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day. The Chinese plant got the job.
“How the US lost out on iPhone work,” New York Times,January 21, 2012.
Motivating employees to innovate
Tips and techniques abound for how to create and promote innovation within large enterprises, but few address the specifics of motivating a workforce to be actively engaged in the innovation process. At USAA, our employees innovate continuously on behalf of our members – US military men and women and their families. Every day, each of our employees seeks to find innovative ways to make the lives of our members better, simpler, and more financially secure.
Here are 5 keys that have helped USAA build a successful and long-lasting employee-led innovation culture.
[…] In order for innovation to be enduring, top corporate executives must continually encourage, challenge, and recognize employees who innovate. The theme of innovation should permeate monthly staff meetings, memos and emails within departments. Employees should be allowed time in their schedules to learn about innovation and practice it on an ongoing basis. Senior leadership needs to attend and participate in innovation celebrations, even (or especially) when those innovations might be considered failures.
Make it easy to innovate. If employees are required to innovate only at certain times or in certain places within the enterprise, then innovation will be stifled. The business must provide easily accessible tools, preferably web-based allowing universal access, for employees to submit and develop innovative ideas […]
Encourage Collaboration. A study by two Princeton economists confirmed that two heads are indeed better than one. When it comes to innovation, especially disruptive innovation that is breaking new ground, the power of multiple minds creatively working together far exceeds the ability of a single individual to envision the end result. Your innovation platform should not only be easy to use by all employees, but it should facilitate and promote collaboration among employees […]
Communicate, communicate, communicate. Most enterprises today are doing more with less. Employees are stretched thinner and thinner as businesses try to maintain the status quo or even grow slightly without increasing expenses. Because of this, innovation often takes a back seat in the employee’s mind. But with thoughtful, directed communications to the employee base, innovation can remain at the forefront of each employee’s priority list […]
Reward with more than just dollars. It is true that many innovators are“coin-operated,” in that that they respond favorably to monetary rewards. So your innovation program should include cash or merchandise rewards that will speak to those employees. However, don’t overlook the employees who are motivated more by recognition among their peers […]
Matthew Reedy, “Sustaining an employee-led innovation culture,”Innovation Excellence, February 14, 2012, www.innovationexcellence.com/blog/2012/02/14/sustaining-an-employee-led-innovation-culture/
Craig HenryStrategy & Leadership’s intrepid media explorer, collected these examples of novel strategic management concepts and practices and impending environmental discontinuity from various news media. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (craighenry@aol.com).
