Trends in Retailing
Task(s):
Read “Trends in Retailing” on pages 111-112 in the course text.
Using an Academoc Library, search for recent articles that give examples of these trends in the retail industry.
Search for recent articles describing the trends discussed on pages 111 and 112:
1. For each of five of the eight trends listed, find a recent article that discusses a business and describes how it has adopted this strategy.
2. Discuss each of the five articles describing how the trend impacts the strategic marketing initiative of the firms. Consider the For Discussion questions on page 115 in preparing your response.
3. Cite the source and the edition that you have referred to for this assignment.
Deliverables and format:
Submit your answer in a Microsoft Word document in not more than 400 words.
Font: Courier or New Times Roman: 12
Line Spacing: Double
CHAPTER SIX
InternalAnalysis
Wehavemettheenemyandheisus.
—Pogo
Self-conceitmayleadtoself-destruction.
—Aesop, “The Frogand theOx”
Thefishislasttoknowifitswimsinwater.
—Chineseproverb
Shouldtheexistingstrategybeenhanced,expanded,altered,orreplaced?Areexist-ingassetsandcompetenciesadequatetowin?Aninternalanalysisofthebusinesswillhelpthestrategistaddressthesequestions.Thisexplorationissimilarinscopetoananalysisofacompetitororstrategicgroup,butmuchricheranddeeperbecauseofitsimportancetostrategyandbecausemuchmoreinformationisavailable.
Justasstrategycanbedevelopedatthelevelofabusiness,agroupofbusi-nesses,orthefirm,internalanalysiscanalsobeconductedateachoftheselevels.Ofcourse,analysesatdifferentlevelswilldifferfromeachotherinemphasisandcontent,buttheirstructureandthrustwillbethesame.Thecommongoalistoiden-tifyorganizationalstrengths,weaknesses,andconstraintsand,ultimately,todevelopresponsivestrategies,eitherexploitingstrengthsorcorrectingorcompensatingforweaknesses.
Fouraspectsofinternalanalysiswillbediscussedinthischapter.Thefirst,finan-cialperformance,providesaninitialapproximationastohowthebusinessisdoing.Thesecond,ananalysisofotherperformancedimensionssuchascustomersatisfac-tion,productquality,brandassociation,relativecost,newproducts,andemployeecapability,canoftenprovideamorerobustlinktofutureprofitability.Thethirdisananalysisofthestrengthsandweaknessesthatarethebasisofcurrentandfuturestrategies.Thefourthisanidentificationandprioritizationofthethreatsandoppor- tunitiesfacingthefirm.
98
Chapter6 InternalAnalysis 99
Thefinal section explores the relationship between strategy and the analysis oftheorganization,itscompetitors,andthemarket.Itsuggeststhatsuccessfulstrategyoccurswhenorganizationstrengthsarematchedagainstmarketneedsandcompeti- torweaknesses.
FINANCIALPERFORMANCE—SALESANDPROFITABILITY
Internalanalysisoftenstartswithananalysisofcurrentfinancials,measuresofsales andprofitability.Eithercansignalachangeinthemarketviabilityofaproductlineandtheabilitytoproducecompetitively.Furthermore,theyprovideanindicatorofthesuccessofpaststrategiesandthuscanoftenhelpinevaluatingwhetherstrategicchangesareneeded.Inaddition,salesandprofitabilityatleastappeartobespecific andeasilymeasured.Asaresult,itisnotsurprisingthattheyaresowidelyusedasperformanceevaluationtools.
SalesandMarketShare
Asensitivemeasureofhowcustomersregardaproductorservicecanbesalesormarketshare.Afterall,ifthevaluepropositiontoacustomerchanges,salesandshareshouldbeaffected,althoughtheremaybeanoccasionaldelaycausedbymarketandcustomerinertia.
Saleslevelscanbestrategicallyimportant.Increasedsalescanmeanthatthecus-tomerbasehasgrown.Anenlargedcustomerbase,ifweassumethatnewcustomerswilldeveloployalty,willmeanfuturesalesandprofits.IncreasedsharecanprovidethepotentialtogainSCAsintheformofeconomiesofscaleandexperiencecurveeffects.Conversely,decreasedsalescanmeandecreasesincustomerbasesandalossofscaleeconomies.
Aproblemwithusingsalesasameasureisthatitcanbeaffectedbyshort-termactions,suchaspromotionsbyabrandanditscompetitors.Thus,itisnecessarytoseparatechangesinsalesthatarecausedbytacticalactionsfromthosethatrepresentfundamentalchangesinthevaluedeliveredtothecustomer,anditisimportanttocoupleananalysisofsalesorsharewithananalysisofcustomersatisfactionandloyalty,whichwillbediscussedshortly.
Profitability
Theultimatemeasureofafirm’sabilitytoprosperandsurviveisitsprofitability.Althoughbothgrowthand profitabilityaredesirable,establishing aprioritybetweenthetwocanhelpguidestrategicdecisionmaking.
Ahostofmeasuresandratiosreflectprofitability,includingmargins,costs,andprofits.Buildingontheassetsemployedleadstothereturnonassets(ROA)measure,whichcanbedecomposedwithaformuladevelopedbyGeneralMotorsandDuPontinthe1920s.
profitsROA=sales
Xsales
assets
100 PartOne StrategicAnalysis
Thus,returnonassetscanbeconsideredashavingtwocausalfactors.Thefirstistheprofitmargin,whichdependsonthesellingpriceandcoststructure.Thesecondistheassetturnover,whichdependsoninventorycontrolandassetutilization.
ThedeterminationofboththenumeratoranddenominatoroftheROAtermsisnotasstraightforwardasmightbeassumed.Substantialissuessurroundeach,suchasthedistortionscausedbydepreciationandthefactthatbookassetsdonotreflectintangibleassets,suchasbrandequity,orthemarketvalueoftangibleassets.
MeasuringPerformance:ShareholderValueAnalysis
Theconceptofshareholdervalue,anenormouslyinfluentialconceptduringthepasttwodecades,providesanotherperspectiveonfinancialperformance.EachbusinessshouldearnanROA(basedonaflowofprofitsemanatingfromaninvest-ment)thatmeetsorexceedsthecostsofcapital,whichistheweightedaverage ofthecostofequityandcostofdebt.Thus,ifthecostofequityis16percentandthecostofdebtis8percent,thecostofcapitalwouldbe12percentiftheamountofdebtwasequaltotheamountofequity;iftherewereonlyone-fourthasmuchdebtas equity,thenthe cost of capital wouldbe 14 percent.Ifthereturn is greaterthanthecostofcapital,shareholdervaluewillincrease,andifitisless,shareholdervaluewilldecrease.
Someoftheroutestoincreasingshareholdervalueareasfollows:
? Earnmoreprofitbyreducingcostsorincreasingrevenuewithoutusingmorecapital.
? Investinhigh-returnproducts(this,ofcourse,iswhatstrategyisallabout).
? Reducethecostofcapitalbyincreasingthedebttoequityratioorbybuyingbackstocktoreducethecostofequity.
? Uselesscapital.Undershareholdervalueanalysis,theassetsemployedarenolongerafreegood.Ifimprovedjust-in-timeoperationscanreducetheinventory,itdirectlyaffectsshareholdervalue.
Theconceptofshareholdervalueistheoreticallyvalid.1Ifaprofitstreamcanbeestimatedaccuratelyfromastrategicmove,theanalysiswillbesound.Theproblemisthatshort-termprofits(knowntoaffectstockreturnandthusshareholderwealth)areeasierto estimateandmanipulatethanlong-termprofits.Investorswhoassumethatshort-termprofitspredictlonger-termprofitspayundueattentiontotheformer,asdoes the top management of a company with numerical targets to meet.The dis-ciplinetoinvestinastrategythatwillsacrificeshort-termfinancialperformanceforlong-termprospectsisnoteasytocomeby,especiallyifsomeofthefutureprospects areintheformofoptions.Forexample,theinvestmentinSaturnbyGeneralMotorsshouldhavebeenseenasanoptiontoexpandthatnameplateifagasshortageshouldoccurandsmallercarsbecamemorepopular.Unfortunately,Saturnwasseenasastand-alonebusinessanddidnotreceivethenewcarinvestmentthatwouldhave madeitaviableplatformtocompetewiththeJapanesefirms.Similarly, when
Chapter6 InternalAnalysis 101
Black&Deckerboughtthesmall-appliancedivisionofGE,itboughtanoptiontotakethebusinessintorelatedareas.
Theimpactofreducinginvestmentisalsonotwithoutrisks.When,forexample,Coca-Colasoldoffitsbottlerstoreduceinvestmentandimproveshareholdervalue,itscontrolofthequalityofitsproductmayhavebeenreduced.Ingeneral,invest-mentreductionoftenmeansoutsourcing,withitsbalancingactbetweenflexibilityandlossofcontroloveroperations.Acompanythatoutsourcesitscallcenterreducesitscontrolovercustomerinteraction.
Onedangerofshareholdervalueanalysisisthatitreducestheprioritygiventootherstakeholderssuchasemployees,suppliers,andcustomers,eachofwhomrep-resentsassetsthatcanformthebasisforlong-termsuccess.Itcanbearguedthattheshareholderhastheleastriskbecauseheorsheisverylikelydiversifiedandthushasonlyasmall partof aportfolio atrisk. Incontrast, employees,suppliers, andsome-timescustomershavemoretoloseifthefirmfails.Further,theshareholderdoesnotinanypracticalwayhaveanyinfluenceoverthemanagementofthefirm.Thus,itmightbereasonabletoelevatethepriorityofothershareholders.P&G,forone,putscustomersfirst,arguinginpartthatifcustomersaredelightedwiththeproducts,shareholderswillbenefitinthelongterm.Otherfirmshaveexplicitlyputemployeesfirst,assumingthatiftheyareproductive,shareholderswilleventuallybenefit. Makingtheshareholdersthefirstprioritycanleadtoprogramssuchascostreductionpossiblyinvolvingdegradingthecustomerexperience.Thisresultsinshort-termprofitsandthereforeenhancedshareholdervaluebutundercutsthefirm’sstrengthinthelong-term.
Infact,shareholdervaluemanagementhasmetwithverymixedresults.However,onestudyoftheexperienceof125firmsfoundsimilaritiesamongthosethathadappliedshareholdervalueconceptssuccessfully.2Thesecompanies:
? Gaveprioritytoshareholdervalueoverothergoals,particularlygrowthgoals.
? Providedintensivetrainingthroughouttheorganizationregardingshare- holdervalueandmadeitapracticaltoolforbusinessmanagersatalllevels.Thephilosophywasnotrestrictedtotheexecutivesuite.
? Weredisciplinedinidentifyingthedriversofshareholdervalue.Forexample,foracallcenter,driverscouldbethelengthoftimetoanswercallsandthequalityofresponses.
? Reducedoverheadbyadaptingthecurrentaccountingsystemandintegrat-ingshareholdervalueanalysiswithstrategicplanning.
Thesefirmsfoundavarietyofbenefits.First,theconceptledtovalue-creatingdivestmentsthatotherwisewouldnothaveoccurred.Second,firmswereabletotransfercorporateplanninganddecisionmakingtodecentralizedbusinessunits becauseallunitstendedtousethesamelogic,metrics,andmindset.Third,thebusi-nessinvestmenthorizontendedtobelonger,withprojectswithmulti-yeartimeframes getting approved.Fourth, thenew recognition thatcapital hada cost tendedtogenerate betterstrategic decisions.
102 PartOne StrategicAnalysis
PERFORMANCE MEASUREMENT—BEYONDPROFITABILITY
Oneofthedifficultiesinstrategicmarketmanagementisdevelopingperformanceindicatorsthatconvincinglyrepresentlong-termprospects.Thetemptationistofocusonshort-termprofitabilitymeasuresandtoreduceinvestmentinnewproductsandbrandimagesthathavelong-termpayoffs.
Theconceptofnetpresentvaluerepresentsalong-termprofitstream,butitisnotalwaysoperational.Itoftenprovidesneitheracriterionfordecisionmakingnorausefulperformancemeasure.Itissomewhatanalogoustopreferring$6millionto
$4million.Therealquestioninvolvesdeterminingwhichstrategicalternativewillgenerate$6millionandwhichwillgenerate$4million.
Itisnecessarytodevelopperformancemeasuresthatwillreflectlong-termvia-bilityandhealth.Thefocusshouldbeontheassetsandcompetenciesthatunder-liethecurrentandfuturestrategiesandtheirSCAs.Whatarethekeyassetsandcompetenciesforabusinessduringtheplanninghorizon?Whatstrategicdimen-sionsaremostcrucial:tobecomemorecompetitivewithrespecttoproductoffer-ings,todevelopnewproducts,ortobecomemoreproductive?Thesetypesofquestionscanhelpidentifyperformanceareasthatabusinessshouldexamine.Answerswillvarydependingonthesituation,but,assuggestedbyFigure6.1,theywilloftenincludecustomersatisfaction/brandloyalty,product/servicequality,brand/firmassociations,relativecost,newproductactivity,andmanager/employeecapabilityandperformance.
CustomerSatisfaction/BrandLoyalty
Perhapsthemostimportantassetofmany firmsistheloyaltyofthecustomer base.Measuresofsalesandmarketshareareusefulbutpotentiallyinaccurateindicatorsof
CustomerSatisfaction/BrandLoyalty
Product/ServiceQuality
Brand/Firm AssociationsRelative Cost
CURRENT
PERFORMANCE LONG-TERMPROFITS
Innovation
Manager/EmployeeCapabilityand Performance
Values and Heritage
Figure 6.1 PerformanceMeasuresReflectingLong-termProfitability
Chapter6 InternalAnalysis 103
howcustomersreallyfeelaboutafirm.Suchmeasurescanreflectmarketinertiaandarenoisy,inpart,becauseofcompetitoractionsandmarketfluctuations.Measuresofcustomersatisfactionandbrandloyaltyaremuchmoresensitiveandprovidediag-nosticvalueaswell.
GuidelinesforMeasuringSatisfactionandLoyalty
First,problemsandcausesofdissatisfactionthatmaymotivatecustomerstochangebrandsorfirmsshouldbeidentified.Infact,themostsensitiveandinsightfulinfor-mationcomesfromthosewhohavedecidedtoleaveabrandorfirm.Thus,exitinter-viewsforcustomerswhohaveabandonedabrandcanbeproductive.Second,thereisabigdifferencebetweenabrandorfirmbeinglikedandtheabsenceofdissatis-faction.Thesizeandintensityofthecustomergroupthattrulylikesabrandorfirmshouldbeknown.Third,thelifetimevalueofacustomerbasedontheirusagelevelandthetimeperiodthattheyareexpectedtobeattachedtothefirm’sofferingsisoftenausefulconcept.Estimationoflifetimevalueforkeysegmentscanbeillumi-nating.Fourth,measuresshouldbetrackedovertimeandcomparedwiththoseofcompetitors. Relative comparisons and changes are most important.
ProductandServiceQuality
Aproduct(orservice)anditscomponentsshouldbecriticallyandobjectivelycom-paredbothwiththecompetitionandwith customer expectations and needs. Howgoodavalueisit?Canitreallydeliversuperiorperformance?Howdoesitcomparewithcompetitorofferings?Howwillitcomparewith competitor offerings in thefuturegivencompetitiveinnovations?Onecommonfailingoffirmsistoavoidtoughcomparisonswitharealisticassessmentofcompetitors’currentandpotentialoffer-ings.AnewlyappointedCEOofFrito-Layonceputallprogramsonholdforayearuntilthefirm’s manufacturing units around the world were able to make productsthatwouldwinblindtastetests.Herealizedthatproductqualitywasanecessarycon-ditionfor success.
Productandservicequalityareusuallybasedonseveralcriticaldimensionsthatcanbeidentifiedandmeasuredovertime.Forexample,anautomobilemanufacturercanmeasuredefects,abilitytoperformtospecifications,durability,repairability,andfeatures.Abankmightbeconcernedwithwaitingtime,accuracyoftransactions,andthequalityofthecustomerexperience.Acomputermanufacturercanexaminerela-tiveperformancespecificationsandproductreliabilityasreflectedbyrepairdata.Abusinessthatrequiresbettermarketingofagoodproductlineisverydifferentfromonethathasbasicproductdeficiencies.
Brand/FirmAssociations
Anoftenoverlookedassetofabrandorfirmiswhatcustomersthinkofit.Whatareitsassociations?Whatisitsperceivedquality?Perceivedquality,whichissometimesverydifferentfromactualquality,canbebasedonexperiencewithpastproductsorservicesandonqualitycues,suchasretailertypes,pricingstrategies,packaging,advertising,andtypicalcustomers.Isabrandorfirmregardedasexpertinaproduct
104 PartOne StrategicAnalysis
ortechnologyarea(suchasdesigningandmakingsailboats)?Innovative?Expensive?Forthecountryclubset?Isitassociatedwithacountry,ausertype,oranapplicationarea(suchasracing)?Suchassociationscanbekeystrategicassetsforabrandorfirm.
Associationscanbemonitoredbyregularlyaskingcustomerstodescribetheiruseexperiencesandtotellwhatabrandorfirmmeanstothem.Theidentificationofchangesinimportantassociationswilllikelyemergefromsuchefforts.Structuredsurveysusingarepresentativesampleofcustomerscanprovideevenmoreprecise trackinginformation.
RelativeCost
Acarefulcostanalysisofaproduct(orservice)anditscomponents,whichcanbecrit-icalwhenastrategyisdependentonachievingacostadvantageorcostparity,involvestearingdowncompetitors’productsandanalyzingtheirsystemsindetail.TheJapaneseconsultantOhmaesuggestedthatsuchananalysis,whencoupledwithperformanceanalysis,canleadtooneofthefoursituationsshowninFigure6.2.3
Ifacomponentsuchasacar’sbrakingsystemorabank’stelleroperationisbothmoreexpensivethanandinferiortothatofthecompetition,astrategicproblemrequiringchangemayexist.Ananalysiscouldshow,however,thatthecomponentissuchasmallitemintermsofbothcostandcustomerimpactthatitshouldbeignored.Ifthecomponentiscompetitivelysuperior,however,acost-reductionprogrammaynotbetheonlyappropriatestrategy.Avalueanalysis,inwhichthecomponent’svaluetothecustomerisquantified,maysuggestthatthepointofsuperioritycouldsupportapriceincreaseorpromotioncampaign.If,ontheotherhand,acomponentisless expensivethanthatofthecompetition,butinferior,avalueanalysismightsuggest
More Expensive
Change
• Design
• Manufacturing/systemsIgnore
Value analysis
• Raiseprices
• Promote Cost reduction
Inferior
OURCOMPONENT IS
Superior
Value analysis
• De-emphasize
• Upgrade
Value analysis
• Emphasize/promote
• Leaveitalone
Less Expensive
Figure6.2 RelativeCostvs.RelativePerformance—StrategicImplications
Chapter6 InternalAnalysis 105
thatitbede-emphasized.Thus,foracarwithacostadvantagebuthandlingdisad-vantage,acompanymightde-emphasizeitsdrivingperformanceandpositionitasan economycar.Analternativeistoupgradethiscomponent.Conversely,ifacompo-nentisbothlessexpensiveandsuperior, avalueanalysismaysuggestthatthecom-ponentbeemphasized,perhapsplayingakeyroleinpositioningandpromotion strategies.
SourcesofCostAdvantage
ThemanyroutestocostadvantagewillbediscussedinChapter8.Theyinclude economiesofscale,theexperiencecurve,productdesigninnovations,andtheuseofano-frillsproductoffering.Eachprovidesadifferentperspectivetotheconceptofcompetingonthebasisofacostadvantage.
AverageCosting
Inaveragecosting,someelementsoffixedorsemivariablecostsarenotcarefullyallocatedbutinsteadareaveragedovertotalproduction.Averagecostingcanprovideanopeningforcompetitorstoenteranotherwisesecuremarket.Largecustomerscanbemuchmoreprofitablethansmallonesandpremiumpricedproductscanbemorelucrativethanvaluepricedones.Aproductlinethatissubsidizingotherlinesisvulnerable,representinganopportunitytocompetitorsandthusapotentialthreattoabusiness.
Innovation
DoestheR&Doperationgenerateastreamofnewproductconcepts?Howdoestheflowofpatentscomparetothatforcompetitors?Istheprocessfromproductconcepttonewproductintroductionwellmanaged?Isthereatrackrecordofsuccessfulnewproductsthathasaffectedthe productperformanceprofileandmarket position?
Arethenewproductsarrivinginthemarketplaceinatimelyfashion?Timetomarketisparticularlyimportantinmanyindustries,fromcarstosoftware.
Morebroadly,doestheorganizationalculturesupportinnovation?Isitpossibletogeneratesubstantial(ifnottransformational)innovationsinadditiontoincremen-talinnovations?Arethereprogramstoprecipitateinnovation?
Manager/EmployeeCapabilityandPerformance
Alsokeytoafirm’slong-termprospectsarethepeoplewhomustimplementstrate-gies.Arethehumanresourcesinplacetosupportcurrentandfuturestrategies?Dothosewhoareaddedtotheorganizationmatchitsneedsintermsoftypesandqual-ityoraretheregapsthatarenotbeingfilled?Isthereenoughdiversitysothattheorganizationcanidentifyandrespondtonewthreatsandopportunitieswhentheyarenotwithintheexistingbusinessarena?
Anorganizationshouldbeevaluatednotonlyonhowwellitobtainshumanresourcesbutalsoonhowwellitnurturesthem.Ahealthyorganizationwillconsistofindividualswhoaremotivated,challenged,fulfilled,andgrowingintheirprofessions.Eachofthesedimensionscanbeobservedandmeasuredbyemployeesurveysand
106 PartOne StrategicAnalysis
groupdiscussions.CertainlytheattitudeofproductionworkerswasakeyfactorinthequalityandcostadvantagethatJapaneseautomobilefirmsenjoyedthroughoutthepastthreedecades.Inserviceindustriessuchasbankingandfastfoods,theabilitytosustainpositiveemployeeperformanceandattitudeisusuallyakeysuccessfactor.
ValuesandHeritage
Thefirmswithstrongperformanceovertimeusuallyhaveawell-definedsetofval-uesthatarebothknownandacceptedwithintheorganization,valuesthataremorethansimplyincreasingfinancialreturn.Strongvaluesthatguideandeveninspireareenhancediftheyaresupportedbyawellknownandrelevantheritage.Valuesandaheritagenotonlycreateastrongandconsistentbrandbutalsosupportthebusinessstrategy.Infact,whenbusinessfalters,onetactthatoftenworksistoreturntotherootsofthebusiness—whatmadeitstronginthefirstplace.WhenMcDonald’sfal-tered,aturnaroundwasbasedinpartontheirhistoriccorevaluesofservice,people,convenience,quality,andgoodprices.
Valuesprovideareasontobelieveinforemployeesandwillinfluencethebrandasaresult.Amongthevaluesthatareofteninfluentialaretheorganizationalassoci-ationsdiscussedinChapter9suchasinnovation,socialresponsibility,concernforthecustomer,quality,service,andbeinggloballyandenvironmentallyresponsible.
Havingaheritagebasedonafounderoronearlysuccesscanbeaguideandavalueanchor.ConsiderL.L.Beanwithavisionoftheirfounderwhodesignedashoeforhuntersthatwaswaterproof.Whenthefirstbatchhadaproblem,hetookthemallback.Hisfocusonthecustomerandontheoutdoorsandtheoutdoorsmencontinuetoguidethefirm.GeneralElectricstillhastheinnovationemphasisthatwasthehallmarkofitsfounderThomasEdison.
Moregenerally,valuesarebestcommunicatedinsideandoutsideafirmwithstories.Peoplerememberandrespondtostories.Afirmshouldstrivetohaveastorybank,asetofstoriesthatcollectivelyillustratethevaluesofthefirm.Thestoriesarenotlimitedtotheheritageofthefirmbutcanreflecttheactionsofanemployeeoraprogram.ThelegendthatNordstrom’soncetookbackadamagedtiresayssomuchabouttheircustomerservice.
STRENGTHSANDWEAKNESSES
Indevelopingorimplementingstrategy,itisimportanttoidentifytheassetsandcompetenciesthat represent areasof strength andweakness. A successfulstrategyneedstobebasedonassetsandcompetenciesbecauseitisgenerallyeasierforcompetitorstoduplicatewhatyoudoratherthanwhoyouare.Further,currentassetsandcompetencies,asillustratedinChapter11,canbeleveragedtocreatenewbusinesses.
Figure3.4hadapartiallistofthetypesofassetsandcompetenciesthatanorga-nizationmightdevelop.Thereweremorethanthreedozen,organizedunderthecategoriesofinnovation,manufacturing,accesstocapital,management,marketing,andcustomerbase.Thischecklistisagoodplacetostartwhenidentifyingthemostrelevant assetsandcompetencies.Anotherarethemotivating questionsintroduced
Chapter6 InternalAnalysis 107
inChapter3thatidentifyassetsandcompetenciesimportanttocustomers,thosedevelopedbysuccessfulcompetitors,andthoserepresentinglargeorimportantpartsofthevalueaddedchain.
Eachassetorcompetencerelevanttothebusiness,suchasanewproductdevel-opmentcapability,accesstolow-costlabor,aninnovativeculture,brandstrength,oraloyalcustomerbase,shouldbeevaluatedastoitsstrengthandimpact.
Isitdominantinthatitprovidesapointofadvantagethathasenduredandislikelytoremainsointhefuture?TheservicedeliverycapabilityofDisneythemeparks,for example, isso superior thatother firms studyits operation. Isthe organi-zationwillingtoinvesttomaketheassetorcompetencedominantintothefuture?Certainly,Disneyhasshownthiswillingnessovermanydecades.Theinvestmentcommitmentneedstobefactoredintothefinancialresourcepicture.Itmaymeanthatresourcesfornewventureswillbelimited.
Isitstrongbutvulnerable?Areotherscatchingup?Shouldthefirmattempttoinvesttoregainadominantpositionsothatitisapointofadvantage?Ifso,whatprogramatwhatcostisimplied?Orshouldthefirmretreatsothattheassetorcom-petenceissimplyamodestadvantageoversomecompetitorsandapointofparitywithrespecttoothers?
Istheassetorcompetenceadequate,apointofparity?Isitstrongenoughsothatcustomersdonot avoidthe firmbecause ofit? Ifso,is thata satisfactorylong-term position?Canadvantagebeachievedonotherdimensions?Whatinvestmentisimpliedtomaintainthecurrentstrengthsothatitdoesnotbecomeapointofdisad-vantage?Productqualityisofteninthissituation.IfTarget,forexample,candeliverqualityadequateenoughsothatcustomersdonotuseaqualityjudgmentasareason toexcludeTargetfromtheirconsiderationset,thebattlewillshifttootherdimen-sionsonwhichTargetislikelytoexcel.
Isitaliability?Isitholdingbackthefirmfromgainingandretainingcustomers?ConsidertheKoreanautomobilefirmswhosequalityandsocialacceptabilitydeficitprecludedpeoplefrombuyingtheirproducts.Theyneededtoconvertthisliabilitytoapointofparity.
THREATSANDOPPORTUNITIES
Theotherhalfofaninternalanalysisistheidentificationofthreatsandopportunities.Intheexternalanalysis,ahostofpotentialthreatsandopportunitieswillhavebeenidentified.Theinternalchallengeistodeterminewhicharemost relevant for thefirm’sbusinessandtoprioritizethem.Thedimensionsusedtomanagestrategicuncertainlyingeneral,immediacyandimpact,areappropriatewhenassessingthreatsand opportunities.
Thosethreatsthatareimminentandhavehighimpactshoulddriveastrategicimperative,aprogramthathasthehighestpriority. Ifthereisavisiblequalityprob-lem(suchascontaminatedPerrierwaterordefectivetiresonFordExplorers,forexample), fixingthat problemand thusaddressing theassociated threatneeds tobeahighpriority.Whenthethreatisoflowimpactorisnotimmediate,amoremea-suredresponseispossible.
108 PartOne StrategicAnalysis
BENCHMARKING
Comparingtheperformanceofabusinesscomponentwithothersiscalledbench-marking.Thegoalistogeneratespecificideasforimprovement,andalsotodefinestandardsatwhichtoaim.Onetargetmaybecompetitors:whatcostandperformancelevelsaretheyachieving,andhow?Knowingyourdeficitswithrespecttothecompe-titionisthefirststeptodevelopingprogramstoeliminatethem.Best-practicecompaniesareanothertarget.Thus,manybenchmarkagainstDisneyintermsofdeliveringconsistentserviceintheirthemeparks,orAmazonasthestandardforInternete-commerceoperationsandcustomersupport.Lookingoutsideone’sownindustryisoftenawaytobreakawayfromthestatusquoandtherebycreatearealadvantage.
Themostextremethreatisonethatpotentiallymakesthebusinessmodelobso-lete.AOLwithits“You’vegotmail”greetingandaroutetotheInternetfornewbiesandtheintimidated,hadadominantbusinessmodelwithsome35millionsub-scribers.However,itfailedtorespondtothefactthatitscustomerseventuallyobtainedmoresophisticationandbetterequipment.AOLwasinapositiontobethesocialnetworkInternetcompany,butinsteadwatchedotherslikeMySpaceandFacebookassumethatroleandalloweditsvaluepropositiontoerode.Dialingupthethreattothebusinessmodelinatimelyfashionandmakingtheorganizationrespon-sivemighthaveledtoaverydifferentoutcomeforAOL.
Threatscancomeintheformofastrategicproblemoraliability.Strategicprob-lems,events,ortrendsadverselyaffectingstrategygenerallyneedtobeaddressedaggressivelyandcorrectedevenifthefixisdifficultandexpensive.Strategicliabilities—the absenceofanasset(suchasgoodlocation)orcompetence(forexam-ple,new-productskills)—usuallyrequireadifferentresponse. A business oftencopesovertimewithaliabilitybyadjustingstrategiesinawaythatwillneutralizethatliability.Afirmthatlacksnewproductcompetenciesmightengageinasystem-aticproductacquisitionstrategy.
Anopportunitysimilarlycanbeevaluatedastowhetheritsimpactwillbeimmediateandmajor.Ifso,theorganizationshouldbesetuptomovequicklyanddecisively.Onestudyfoundthatmostorganizationsonlygetfacedwitha“goldenopportunity”onceortwiceadecade.Themarkofafirmthatcanadapttonewconditionsandstillcomeoutamarketleaderisrecognizingandreactingto suchopportunities.Opportunitiesthathavealowimpactorareinthefuturemayjus-tifyseriousinvestmentandperhapsanexperimentalentryintoanewbusinessareatogaininformation,buttheresourcecommitmentislikelytobemoremodest.
Ingeneral,lostopportunitiesarecostlyandareonlytoocommon.AsDruckerwroteinseveralforms,managersneedtospendmoretimeonopportunitiesandlessonsolvingproblems.
Chapter6 InternalAnalysis 109
FROM ANALYSIS TO STRATEGY
Inmakingstrategicdecisions,inputsfromavarietyofassessmentsarerelevant,asthelastseveralchaptershavealreadymadeclear.However,thecoreofanystrategicdeci-sionshouldbebasedonthreetypesofassessments.Thefirstconcernsorganizationalstrengthsandweaknesses.Thesecondevaluatescompetitorstrengths,weaknesses,andstrategiesbecauseanorganization’sstrengthisoflessvalueif itisneutralizedbyacompetitor’sstrengthorstrategy.Thethirdassessesthecompetitivecontext,thecustomersandtheirneeds,themarket,andthemarketenvironmentinordertodeterminehowattractivetheselectedmarketwillbe,giventhebusinessstrategy.
Thegoalistodevelopastrategythatexploitsbusinessstrengthsandcompetitorweaknessesandneutralizesbusinessweaknessesandcompetitorstrengths.Theidealistocompeteinahealthy,growingindustrywithastrategybasedonstrengthsthatareunlikelytobeacquiredorneutralizedbycompetitors.Figure6.3summarizeshowthesethreeassessmentscombinetoinfluence strategy.
GE’sdecisiontosellitssmall-appliancedivisionillustratesthesestrategicprinci-ples.SmallapplianceswereapartofGE’slegacyandlinkedtoitslampandmajor-applianceproductlinesinthemindsofretailersandcustomers.Thesmall-applianceindustrywasnotprofitable,however,inpartbecauseofovercapacityandthepoweroftheretailer.Also,costpressurescontributedtoareductioninproductperformanceandreliability.Further,GE’s strengths,suchasitstechnologicalsuperiorityandfinan-cialresources,werenotleveragedinthesmall-appliancebusiness,asanyinnovationcouldbecopied.Thus,GEdecidedthatastrategicfitdidnotexist,anditsoldthesmall-appliancebusinesstoBlack&Decker.
Organizational Strengths andWeaknesses
CompetitorStrengths andWeaknesses
STRATEGYDEVELOPMENT
• StrategicInvestment
• ValueProposition
• AssetsandCompetencies
• FunctionalStrategies and Programs
Market Needs,Attractiveness, and KeySuccessFactors
Figure6.3 StructuringStrategicDecisions
110 PartOne StrategicAnalysis
KEYLEARNINGS
? Salesandprofitabilityanalysisprovideanevaluationofpaststrategiesandanindicationofthecurrentmarketviabilityofaproductline.
? Shareholdervalueholdsthattheflowofprofitsemanatingfromaninvest-mentshouldexceedthecostofcapital(whichistheweightedaverageofthecostofequityandcostofdebt).Routestoachievingshareholdervalue—suchasdownsizing,reducingassetsemployed,andoutsourcing—canberiskywhentheyundercutassetsandcompetencies.
? Performanceassessmentshouldgobeyondfinancialstoincludesuchdimensionsascustomersatisfaction/brandloyalty,product/servicequality,brand/firmassociations,relativecost,newproductactivity,andmanager/employeecapabilityandperformance.
? Assetsandcompetenciescanrepresentapointofadvantage,apointofparity,oraliability.Threatsandopportunitiesthatarebothimminentandimportantshouldtriggerstrategicimperatives,programswithhighpriority.
FOR DISCUSSION
1. Explainshareholdervalueanalysis.Whymightithelpfirms?Whymightitresultinbaddecisions?
2. LookatthequotationsthatbeginChapters2through6.Whichonedo youfindthemostinsightful?Why?Underwhatcircumstanceswoulditsimplicationsnothold?
3. WhatperformancemeasurewouldyouconsidermostimportantforMcDonald’s?ForChevrolet?
4. Conductastrengths,weakness,opportunities,andthreats(SWOT)analysisforFord.ForFrito-Lay.
NOTES
1. ForanexcellentreviewoftherisksofshareholdervalueseeAllanA.Kennedy,
TheEndofShareholderValue,Cambridge,MA:PerseusPublishing,2000.
2. Philippe Haspeslagh, TomoNoda, and Fares Boulos, “It’sNot Just About theNumbers,”HarvardBusinessReview,July–August2001,pp.65–73.
3. KenichiOhmae,TheMindoftheStrategist,NewYork:PenguinBooks,1982,p.26.
CASE CHALLENGES FOR PART I
UnderstandingandWorkingwithIndustryTrends
TRENDSINRETAILING
Considerthefollowingtrendsinfoodandnonfoodretailing.
NonfoodRetailing
1. Movingawayfromthemiddle.Retailersareofferingamoreupscaleexperience.Macy’slocationsaregettingaface-liftandimageadvertising.Bath&BodyWorksistransformingintoanaffordablebeautyboutique.HighendretailerssuchasSaks,Neiman’s,ColeHand,andCoachareclearlypositionedtoofferself-expressivebenefits.
Atthesametime,otherretailersaremovingdowntocompetewiththediscountstores.DiscountstoressuchasTJMax,Target,andoutletmallsarebecomingmoreimportantespeciallyasconsumersreacttotherecession.
2. Towardabettershoppinglifestyle.Enclosedmallsareindecline;theyarebeingreplacedbythe“lifestylecenter,”whichisacombinationofstoressuchasPotteryBarn,Barnes&Noble,Gap,Victoria’sSecret,andWilliams-Sonoma,withopenwalkwaysandnodepartmentstore.Theseareofteninarevitalizedurbansetting.
3. Installationisincluded.Retailersarestartingtoofferservicescomple-mentarytotheirproducts,inparttoaddtosalespersquarefootbutalsotodifferentiatetheirofferings.BestBuy,HomeDepot,andLowe’s,forexample,areamongstoresthathaveaddedinstallationservice.Searshasanactivehomeimprovementservice.
4. Fasterfashion.TheabilityofretailerssuchasZara,H&M,Forever21,Target’sGoInternational,andUniclotocapturein-seasontrendsbyafast-turnarounddesignandmanufacturingcyclemeansthattheirstoresaredynamicandinterestingwithnewitemsflowingthrough.
FoodRetailing
5. Private-label strength. Private-labelgoodscontinuetogrowatasteadyrate.TheprivatelabelbrandssuchasSafeway’s“S”orWal-Mart’sSuperValueofferexceptionalpricesavingsandtendtothriveincategoriesthatdon’tseealotofinnovation.ThehighendprivatelabelbrandssuchasSafewaySelectoftenbecomecompetitiveintermsofqualityandeveninnovationwhilestillofferinglowerprices
6. In-storemedia.Retailersarefindingthatconventionalmediaarelesseffectiveandaregoingtoin-storemediaincludingdisplaysonshoppingcarts,couponingattheproductsite,andindividualizedcouponing.
111
112 PartOne StrategicAnalysis
7. Organicofferings.Organicfood,oneofthesuccessfactorsofWholeFoods,isgoingmainstream.Safeway’sOOrganicsaresoldoutsideSafewayand Target’sArcher Farmsisadding energytoTarget.
8. Trackingpurchases.Manyretailers,especiallygrocerystores,aretrackingandrewardingcustomerpurchases.Thetrendistowardrewardingtheloyalcustomerwithmoreinformationandtargeteddiscounts.Someretailersemployhigh-techpaymentsystemsthatallowshopperstocheckoutwithanidentificationnumberandatouchofafinger.
FOR DISCUSSION
1. Whatisdrivingeachofthesetrends?Whicharesupportedbyunderlyingconsumertrends?Identifythem.
2. Whichthreetrendswillbearoundinfiveyears?Howwouldyouforecastthe probability that the trend will persist for that long?
3. WhatarethethreatsandopportunitiesrepresentedbythesetrendsforMacy’s,LeviStraus,Safeway,andGeneralMills?
4. Whenmightaretailerconsidergoingagainstthetrend?
5. Anotherpotentialtrendisthereturntoastore’sroots.Severalretailers,suchasGapandSaks,lostcorecustomersbyattemptingtoappealtoyoungerbuyers.Asaresult,theyarenowattemptingtoreturntotheirrootsanddelivertheclassicfashionsthatmadethemattractivetotheirnownot-so-youngcustomers.Whatpossessedthemtogotrendyinthefirstplace?Cantheyrecapturethecustomersthattheyhavealienated?
CaseChallengesforPartI 113
A New, DynamicIndustry
THEENERGYBARINDUSTRY
In1986,PowerBar,afirminBerkeley,California,single-handedlycreatedtheenergybarcategory.Positionedasanathleticenergyfood,itwasdistributedatbikeshopsandeventsthatusuallyinvolvedrunningorbiking.Thetargetsegmentwastheathletewhoneededanefficient,effectiveenergysource.
Sixyearslater,seekingtoprovideanalternativetothesticky,drynatureofthePowerBar,acompetitor,alsolocatedinBerkeley,developedanenergybarwithsuperiortasteandtextureandbrandedittheClifbar.Aboutthesametime,anothercompetitorintroducedtheBalancebar,whichofferedablendofprotein,fat,andcarbohydratesbasedonthenutritionformulaassociatedwiththe“Zonediet.”Facedwiththesechallengers,PowerBarrespondedwithHarvest(abarwithamuchmoreaccessibletasteandtexture)andProteinPlus(anentryintothehigh-proteinsubcat-egorycloselyrelatedtothatdefinedbyBalance).
ThemakersoftheClifbarobservedthatmanywomenwereathletesandmanymorewereinvolvedinfitness.Theyfurtherobservedthatthishalfofthepopulationhaduniqueneedsintermsofvitaminsandsupplements,andthattheenergybarindustryhadyettorecognizeorfillthem—aclassiccaseofunmetneeds.Asaresult,theyintroducedLunaasthefirstnutritional(notenergy)barforwomen,usingmediaandpromotionstargetingactivefemales.Thebarhadalightcrunchytexture,cameinflavorslike“lemonzest”andchaitea,andcontainednearlytwodozenvitamins,minerals,andnutrients.Thetargetmarketconsistedoftime-strappedwomenwhowantedbothtasteandnutritionandwouldappreciateabartailoredtotheirneeds.
BothinreactiontoLuna’ssuccessandtoexpandthesegmentsforwhichthecategorywasrelevant,PowerBarstudiedwhywomendidnotbuyitsproducts,whichthefirmconsideredtobenutritious,convenient,tasty,andabletoprovideaquickpick-me-upinmid-morningormid-afternoon.OneanswerwasthatthecaloriehitfromanymemberofthePowerBarfamilywassimplytoogreat.Inresponse,thefirmcreatedthe almost indulgent, PowerBar-endorsed Pria. With only 110calories, PriawasdesignedtorespondtoLunawhileattractingnewusersintothecategory.
TheBalancestrategywastointroduceaseriesofproducts,allofwhichstucktotheoriginalbar’s40/30/30nutritionalformulabuthaddifferenttasteandtextures.ThesespinoffsincludedBalancePlus,BalanceOutdoor(withnochocolatecoatingtomelt),BalanceGold,BalanceSatisfaction,andtheBalance-endorsedOasis,abardesignedforwomen.ThebigsuccesswasBalanceGold,whichwaspositionedclosetothecandybarcategory(indeed,itstaglinewas“likeacandybar”)bycontainingingredientssuchasnutsandcaramel.SuchabarprobablyriskedsomeofBalance’sperceivedauthenticityasbeinganenergybar.However,becauseBalanceenteredthecategoryfromthedietperspectiveanywayandprobablywasneverconsideredinthecenteroftheenergybarworld,theriskmayhavebeenacceptable.
Inadditiontothemajorbrands,challengersfromavarietyofsmallandlargefirmsadvancedsubcategories bypositioning themselvesaround suchfactors asage(barsforseniorsandkids)andhealth(productstofitdairy-free,diabetic,andheart-consciousdiets),tosaynothingofnumeroustextures,flavors,sizes,andcoatings.
114 PartOne StrategicAnalysis
Overaten-yearperiod,some450productswereintroduced.Forexample,thepopularityoflow-carbohydratedietshaspromptedahostofentries,includingAtkinsAdvantage,developedbytheAtkinsorganization,whichgainedasubstantialmarketsharethatpeakedin2003andfelloffsharplythereafter.OtherparticipatingbrandsincludeZonePerfect,Met-Rx,GeniSoy,EAS,CarboLite,CarbSolutions,andGatoradeenergybars.Masterfoods’SnickersMarathon—acandybarwithablendofvitamins,minerals,andprotein—hasblurredthedivisionbetweencandyandenergybarsbyseekingtogainshareinthelattermarket.Oneconcernoftheenergybarindustryistheskepticismamongsomequartersastohowqualitativelydifferentitsproductsarefromcandybarsinthefirstplace.
Themotivationforusinganenergybarisprimarily to provide a convenientenergyboost. The original heritage of being a product to enhance the performanceoftopathletesengagedindemandingphysicalactivities(likeLanceArmstrong,aPowerBarendorser)createdcredibilityandself-expressivebenefitsinthecategory’searly years. Because household penetration was still under 20 percent, however, themajorfirmsworkedtogeneralize“performance”toberelevanttoanyonewhoneedstoperformwellduringtheday.Infact,theindustrydreamistogetpeopletolabelthecategory“performancenutrition”andthinkofitasenhancingone’sabilitytocomplete any task.
Newproductsinthecategoryaregoinginseveraldirections.Atrendtowardindulgenticings,coatings,andcoveringshasledsometomorphtowardcandybars.Othersgotheoppositeway,usingwhole-grainingredientsforproductssomewhatliketheoriginalClifbarandQuaker’sOatmealSquaresforwomen.ThemakersoftheClifbaralsohaveintroducedaMojolineofsaltysnackbarstoprovidealterna- tivestosweet-tastingbarsandtheClifNectarbar,anentirelyorganicnutandfruitbar.PowerBarintroducedNutNaturals,alowglycemicindexbar.Therearebarspositionedaroundingredientssuchasproteinorsoybars.AmajorJapanesebrandofsoybars,SoyJoyisnowinthemarketwithadrybarthatwillnotbeconfusedwithacandybar.
Theenergybarcategoryhasgonemainstream,movingfromthebikeshopstothegrocerystoresandexplodingfromjustover$100millioninrevenuein1996toan estimated$2billionormoreadecadelater,withexpectedfuturegrowthexceeding10percentperyear.Itisfueledbothbytheconfluenceoftrendstowardlow-carb,portable,nutritioussnacksandmealreplacements(alongwithageneralconcernforhealthandweightcontrol)andbytheintroductionofnewproducts.Alongtheway,itbecamelargeenoughtoattracttheattentionofmajorpackaged-goodsfirms.In2000,NestlépurchasedPowerBar,whichhasremainedtheleadingplayer,withtheClifbar(whichhasremainedindependent)emergingasitsmostformidablecom-petitor.TheBalancelineofproductswasboughtbyKraft,alsoin2000.
Energybarscanbeconsideredapartofalargerfoodbarcategorywhichisalsogrowingrapidly.Themarketisdividedfairlyequallybetweengranolabars(positionedasasnackfoodthatishealthierthancandybars),breakfast/cereal/snackbars(usedasamealreplacement),andenergybars.Energybarshaveafarlowerhousehold penetrationthantheotherfoodbarforms.ThetopmarketersoffoodbarsareKellogg’s(Nutri-Grain),QuakerOats,GeneralMills,andSlim-Fast.
CaseChallengesforPartI 115
FOR DISCUSSION
1. Conductathoroughanalysisofthiscategory’scustomers,competitors,market,andenvironmentfromtheperspectiveof PowerBar.Whatarethekeystrategicquestions?Whatadditionalinformationwouldyouliketoobtain?Howwouldyouobtainit?Whatarethethreatsandopportunities?Inparticular,addressthefollowingissues:
a. Howisthemarketsegmented?Whatarethekeycustomermotiva-tionsandunmetneeds?Whatarethesimilaritiesanddifferencesamongthesegments?Howmightacompanylinkcustomermotivationstovaluepropositions?
b. Identify thecompetitors.Whoare themostdirectcompetitors? Theindirect competitors? Substituteproducts? Whatare the strategicgroups?
c. Whatarethemarkettrends?Thegrowthsubmarkets?Thekeysuccessfactors?
d. Whataretheenvironmentaltrendsthatwillaffecttheindustry?Generatetwoorthreeviablefuturescenarios.
2. Howwouldyougoaboutevaluatingemergingsubmarkets?What criteriawouldyouusetoentereach?ConsiderPowerBar’sreactiontotheCliforganicbar.
3. CanbrandssuchasHarvest,Luna,BalanceGold,BalanceSatisfaction,andothersbeleveraged?
4. Willtheenergybarcategorymorphintofoodbars,withelementslikediet,tastinglikecandy,andbreakfastreplacementdominatingastheenergydefinitionrecedes?HowcanNestlé’sPowerBarkeepthatfromhappeningandstillmaintainitsmainstream/supermarketposture?
5. Atwhatstageistheenergybarmarketrelativetotheproduct-lifecycle?Whatstrategiescanbeusedtoextendthelifecycle?Doyouseeaconsolidationonthehorizon?
6. WhataretheprospectsfortheJapaneseSoyJoybar?Itcomesinmultipleflavorsbutisratherdry.Whatstrategywouldyouadvisethemtopursue?
Source:AdaptedwiththepermissionoftheFreePress,adivisionofSimon&SchusterAdultPublishingGroup,fromDavidAaker,BrandPortfolioStrategy,Chapter4,“BrandRelevance,”pp.98–101.
116 PartOne StrategicAnalysis
EvaluatingandAssessingtheImplicationsofaTransformationInnovation
TRANSFORMATIONALINNOVATIONS
Business2.0nominatedseveralfirmswiththepotentialtobegamechangerswithtransformationalinnovations.Themagazinenotedthatthetelephonewasdismissedin1876byWesternUnionTelegraph(whichwasofferedthetechnologyfor$100,000)andbyJ.PierpointMorgan,whocalleditanoveltywithnocommercialapplication.Yetthetelephoneasweknownowtransformedthecommunicationindustry.Willthesefirmstransformindustriesaswell?Orwilltheybehistoricalfootnotes?
Zopa—Peer-to-PeerLending
Bankingisahighlyprofitableindustry,basedinlargepartonitscapacitytolendmoney provided bysavers and in part by its use of credit cards to generate loans athighinterestrates.Zopa,aU.K.startup,providesanalternativetobanksbyenablingpeopletolendtoeachother;boththeborrowerandlenderpotentiallyreceivebetterratesthanabankwouldoffer.PeoplejoinZopaeitherasborrowersorlenders.Zopaassessesthecreditriskofborrowersusingconventionalinformationsuchascreditreportsandverifiedincome,aswellaslessconventionalsourcessuchaseBayratings.Bothborrowersandlendersarepooledsothatanindividuallenderactuallyispartofagroupthatwilllendmoneytoagroupofborrowers,therebyreducingdefaultrisks.Zopaprocessesthepaymentsandreceivesa1percentfeesharedbytheborrower andlender. TheLendingClubisaU.S.startupinasimilarmode.
Eestor—ANewAutomobilePowerSource
Eestor, formedin2001,isdevelopinganewsolid-statebatteryintheformofhigh-power-density ceramic ultra-capacitors called Electrical StorageUnits (ESUs).AlthoughthetechnologyiskeptconfidentialbyEestor,reportsindicatethatanESUcanstoreover10timestheenergyofleadacidbatteriesatone-tenththeweight,canberechargedinminutes,hasvirtuallyunlimitedrechargecycles,andhasnoover-heatingriskorhazardousmaterials.In2009,Eestorwasabletoobtainathird-party validationofitsperformanceclaims.
Theautomobilemarketisanimportantpotentialapplication.Eestor’sESUscanrunnotonlysmallautomobilesbutevenlargeSUVs.Ithasbeenestimatedthatan Eestor-poweredcarcoulddrive500milesonabout$9worthofelectricityandthattheengine wouldcost justover $5,000,where aconventional gasolineengine costsfrom$3,000to$5,000.ATorontomakeroflow-speedelectriccarscalledFeelGoodCarshasapparentlyobtainedanexclusiveworldwiderighttopurchaseESUsfromEestor.
NextMedium
NextMediumfacilitatesthemarketingofbrandintegration(atermthatincludesproductplacementbutalsobrandpresencewithoutanactualproduct)intelevisionshows,movies,andvideogames.NextMediumwillhelpentertainmentcompaniespresenttheirinventoryofpotentialbrandintegrationopportunities,withminimum
CaseChallengesforPartI 117
bidssetforth.Itwillthenputthatinventoryinfrontofadvertisers.Whenabrandintegrationopportunityispurchased,thereischeck-offapprovalbythecreativeentertainmentprofessional.Foradvertisers,thiswillprovideaneasywaytoviewandselectfromtheinventoryofbrandintegrationoptions.ThroughNextMediumadver-tiserscanvieworlistentotheirplacementinitscontext.Inaddition,NextMedium willmonitortheplacementandprovideinformationonthesizeandcompositionoftheaudienceexposedtotheplacement.
FOR DISCUSSION
Foreachpotentialtransformationalinnovation,answerthefollowingquestions.
1. Whoaretheindustriesandfirmsforwhichthiswouldbeathreat?Whatisthenatureofthethreat?Howwouldyougoaboutevaluatingit?Howcanyouforecasttheimpact?Whatsimilarexamplesfromhistorycanprovideinsights?Howdotheydiffer?HowcanyouavoidmakingadecisionliketheWesternUnionCEOin1876?Couldthisbeanopportunityaswellforthesesamefirms?Whatpreventsthemfromparticipatinginthenewtechnology?
2. Willthistechnologyexpandthemarket,bringinginnewcustomers,orwillitsimplyreplacetheexistingbusiness?
3. Whatarethestrategicoptionsforthefirmswiththetransformationaltechnology?Whataretheprosandconsofeach?
4. Howwouldyougoaboutbrandingandpositioningthenewproductclassbeingproposed?Howshoulditbelabeled?
Source:ErickSchunfeldandJeanetteBovzo,“TheNextDisruptors,”Business2.0,October2006,pp.80–96.
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