Growth Strategies: External Environment


Published on

This is the 2nd part of the undergraduate course in Growth Strategies: External Environment, the Space for Growth. Read by Pavel Luksha

Published in: Business, Technology
1 Comment
1 Like
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Growth Strategies: External Environment

  1. 1. GROWTH STRATEGIES External Environment: Space for Growth Pavel Olegovich Luksha [email_address]
  2. 2. Defining the growth Growth is the idea of expansion Employees Units (e.g. offices, plants, shops, sq.m.) Organizational expansion Sales (revenue, units sold, no of items, no of countries etc.) Expansion into markets Metrics Idea
  3. 3. Why is growth important? globalization hypecompetition technological changes social changes GROWTH
  4. 4. Growth dynamics Revenue and growth rate: Wal-Mart between 1971 and 2002 Growth rate goes down as revenue goes higher Source : ( Ghemawat, 2004)
  5. 5. It is difficult to retain growth rate Source : ( Cao, Jiang, Koller, 2004) Growth rate reduced as companies ( S&P500) grow
  6. 6. Growth dynamics: why? low high low high revenue growth rate crisis management negative growth management recovery from no-growth hyper-growth
  7. 7. Growth dynamics: lifecycle growth management management of no-growth crisis management revenue time hyper - growth
  8. 8. Blockbuster Inc. <ul><li>Video rental chain since 1980s </li></ul><ul><li>VHSs (later DVDs), incl. latest movies, for home rental </li></ul><ul><li>Franchise and intl expansion since mid-1990s </li></ul><ul><li>Switch to rent online model (Netflix), yet not enough to cope with change in market structure </li></ul>Source : ( Warren 2008 )
  9. 9. Factors behind the strategy and growth MICRO-LEVEL FACTORS (ORGANIZATION) MESO-LEVEL FACTORS MACRO-LEVEL FACTORS politics econo- my technology culture demo- graphy clients suppliers investors job market competitors natural environment social movements
  10. 10. External environment: growing in markets <ul><li>Growing as expansion FROM core markets: Growing from the core Extension of the value proposition </li></ul><ul><li>Growing as expansion INTO market segments: Granularity of growth </li></ul><ul><li>Growing as creation OF new markets: Blue Ocean strategy </li></ul>
  11. 11. Growth into related markets: Olam <ul><li>Created in 1989 as a Nigerian cashew nut supplier to global retailers and food processors </li></ul><ul><li>Extended to other crops: cocoa, sugar cane, rice, coffee etc. (17 agricultural commodities in total) </li></ul><ul><li>Extended to procurement in other countries in Africa, and then in Asia (procurement in 56 countries) </li></ul><ul><li>Largest global supplier of cashew, coffee and sesame, top supplier of cocoa, rice and spices </li></ul><ul><li>Grew from zero to 5 bln USD </li></ul>
  12. 12. Growing from the core <ul><li>Growing from the core (Zook&Allen, 2003) : extending from the core market into related / adjunct markets using the leverage of core competencies </li></ul><ul><li>Core competency (Hamel, Prahalad, 1994): an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity </li></ul><ul><ul><li>provides consumer benefits </li></ul></ul><ul><ul><li>is not easy to imitate </li></ul></ul><ul><ul><li>can be leveraged to many products and markets </li></ul></ul>
  13. 13. Identification of the core business <ul><li>The most potentially profitable customers </li></ul><ul><li>The most differentiated and strategic capabilities </li></ul><ul><li>The most critical product offerings </li></ul><ul><li>The most important channels </li></ul><ul><li>Any other critical strategic assets that contribute to the above (such as patents, brands) </li></ul>
  14. 14. Growth into related markets: Santa Bremor <ul><li>1993: Started as a frozen fish importer </li></ul><ul><li>1996: Started to produce German-type pickled herring . Actively educated consumers in Belarus, Russia and Moldova </li></ul><ul><li>2000: JV with Abellman , a major German producer of pickled fish. Built a plant in Brest, launched new product lines. </li></ul><ul><li>2002: Launch of the innovative product line ‘Ikra no.1’ (creamsauce + capelin caviar) </li></ul><ul><li>2005: Bought Brest dairy plant. Launched ‘Savushkin product’ line . Used promotion competencies to get into Russian retail chainstores </li></ul>сс
  15. 15. Growth into new sales chanels: Top Kniga <ul><li>Largest book trader in Russia </li></ul><ul><li>Benefited from recovered interest to book reading (esp. after 1998) </li></ul><ul><li>Several retail formats: classical bookstores ( Книгомир), cash&carry ( Литера ), convinient stores ( Городская сорока , Пиши-читай ), hypermarkets ( Лас Книгас ) , online shops </li></ul><ul><li>Began with dominance in Siberia, moved to Central Russia and CIS afterwards </li></ul>
  16. 16. Six ways of growing from the core <ul><li>Extend to new geographies </li></ul><ul><li>Explore new sales channels </li></ul><ul><li>Extend along the value chain ( e . g. to distribution or component business ) </li></ul><ul><li>Create new offers for existing clients </li></ul><ul><li>Offer existing products to new market segments </li></ul><ul><li>Extended to empty niches to support the core market </li></ul>Source : ( Zook , Allen 200 3 )
  17. 17. Growth to new niches to support the core market <ul><li>SABRE booking system </li></ul><ul><ul><li>created by American Airlines to resolve its own booking process inefficiencies in early 1960s </li></ul></ul><ul><ul><li>became world’s largest booking system for air and railway tickets, tours, hotels, car rental etc </li></ul></ul><ul><ul><li>business worth more than AA </li></ul></ul><ul><li>Travelocity online travel agency </li></ul><ul><ul><li>created on the basis of SABRE </li></ul></ul><ul><ul><li>became a top travel agency in the US: 6 th in sales , 2 nd in sales among online agencies </li></ul></ul>
  18. 18. Growing from the core: value extension <ul><li>Customers perceive businesses / brands as being able to deliver on specific customer value </li></ul><ul><li>Businesses can generalize to extend their ‘value proposition’ (e.g. airline lowcoster going into different kinds of low cost businesses) </li></ul><ul><li>This is a risky strategy – competencies and brands have limits of stretching! </li></ul>
  19. 19. IT giants and green energy <ul><li>IBM </li></ul><ul><ul><li>powergrid management solution Smart Grid ; </li></ul></ul><ul><ul><li>investment into thin foil solar battery manufacturing </li></ul></ul><ul><li>Intel </li></ul><ul><ul><li>WiMAX-based ‘smart’ power management systems ; </li></ul></ul><ul><ul><li>investment into solar power module manufacturing </li></ul></ul><ul><li>Google </li></ul><ul><ul><li>investment into solar power, geothermal power, tide power; </li></ul></ul><ul><ul><li>electric car manufacturing (Tesla Motors) </li></ul></ul>
  20. 20. What can be seen as value extension Value proposition Growth directions Cases low price lowcoster businesses combining comfort and low prices <ul><li>Wal-Mart brands </li></ul><ul><li>EasyJet expansion to Internet cafe and car rental </li></ul>customer relations businesses competent in customer-tailored solutions <ul><li>IBM </li></ul><ul><li>GE Aircraft Engines </li></ul>techno-logical superiority innovation management competence , market creation in new technologies <ul><li>Intel </li></ul><ul><li>Merck </li></ul><ul><li>Nokia </li></ul>
  21. 21. Brand extension <ul><li>Jeep Wrangler ( SUVs ) : stroller manufacturing </li></ul><ul><li>BIC ( disposable ballpoint pens ) : disposable lighters and razors </li></ul><ul><li>Caterpillar ( heavy construction equipment ) : trekking shoes </li></ul><ul><li>New product should ‘connect’ with existing ones either in a product category or in consumer qualities; maximal ‘distance’ is culture-dependent ( Asians are more flexible ) </li></ul>Source : (Ahluwalia , 2008)
  22. 22. Growth driven by segment growth <ul><li>Industry matters </li></ul><ul><ul><li>500 fastest growing companies in the US in 2007 inlcuded </li></ul></ul><ul><ul><ul><li>4.2% startups in IT sector </li></ul></ul></ul><ul><ul><ul><li>0.005% startups in hotel industry , 0.007% startups in restaurant and fastfood industry </li></ul></ul></ul><ul><li>Starting in a right place </li></ul><ul><ul><li>right choice of micro-segment WITHIN the industry explains 65% of company growth (*) </li></ul></ul>Source : Forbes, 2008; (*) Baghai, Smit, Viguerie, 2007
  23. 23. Industry growth and company growth Industries 1. Homeware 2. Food , tobacco 3. Automotive components 4. Pharmaceuticals 5. Insurance & financial services 6. Software and IT services 7. Medical equipment 8. Semiconductor manufacturing 9. Energy Source : ( Baghai, Smit, Viguerie, 2007)
  24. 24. Mobile content market <ul><li>New growth platform for telecoms : </li></ul><ul><ul><li>MTS invests into portal / service to claim a 40% market share </li></ul></ul><ul><li>Advantage for mobile phone manufacturers </li></ul><ul><ul><li>agreement between Nokia and Warner Music to provide access to licensed content download with every phone </li></ul></ul><ul><li>New market for music majors </li></ul><ul><li>Mobile content revenue in Russia in 2007 was 576 M USD , incl. Ring Back Tone revenues of 70 M USD (10 M users ) </li></ul><ul><ul><li>Serious growth ahead : 5.4 Bln USD by 2012, +30% p.a. (additional services up to 13.4 Bln , will comprise 25% of telecom revenue) </li></ul></ul>
  25. 25. Videogaming : a recession-proof sector? <ul><li>US growth : </li></ul><ul><ul><li>Fall 2008 sales : +35% to Fall 2007 </li></ul></ul><ul><ul><li>97% children / kids and 53% adults are into videogaming </li></ul></ul><ul><li>Growth in Russia : sales in 2008 were 850 M USD (+60% to 2007) </li></ul><ul><li>World sales : in 2008 , videogame sales for the first time were larger than sales of video (53% of sales ) </li></ul><ul><li>Factors of success : </li></ul><ul><ul><li>relatively cheap ( by hour, compared to other types of entertainment ) </li></ul></ul><ul><ul><li>demand for illusions and support to escapism </li></ul></ul>
  26. 26. ABB: efficient equipment maintenance <ul><li>Global leader in heavy and energy machinery, robotics etc. </li></ul><ul><li>Competencies in repair and maintenance as a part of client service </li></ul><ul><li>Equipment maintenance outsourcing service </li></ul><ul><ul><li>a promising market : estimated market in the US alone is 125 Bln USD </li></ul></ul><ul><ul><li>growing market when all others decline </li></ul></ul><ul><ul><li>Feb 2009: contract with Stora (largest for pulp&paper industry) </li></ul></ul>
  27. 27. Market creation : ‘blue oceans’ business competencies competitor propositions client needs & wants sweet spot Source : (Collis, Rukstad, 200 8 )
  28. 28. Defining the difference Source : (Collis, Rukstad, 200 8 ) <ul><li>Wal-Mart value proposition: </li></ul><ul><li>Reliable low prices with selection across categories and rural convenience </li></ul>
  29. 29. Blue Ocean strategy Source : ( Kim, Mauborgne, 200 4 ) Red Ocean strategy Blue Ocean strategy work in existing markets try to beat competitors use existing demand cost OR quality organizational structure complies with the cost leadership or differentiation strategy create new markets make competition non-relevant create and fulfill new demand cost + quality organizational structure complies with the strategy that combines cost leadership and differentiation
  30. 30. Nintendo Wii <ul><li>Videogame industry stereotypes </li></ul><ul><ul><li>target audience </li></ul></ul><ul><ul><li>traditional product </li></ul></ul><ul><ul><li>traditional customer value </li></ul></ul><ul><li>Nintendo Wii : </li></ul><ul><ul><li>different audience </li></ul></ul><ul><ul><li>radical change in device appearance, introduction of new interfaces: MagicWand, PowerMat </li></ul></ul><ul><ul><li>6 mln devices in first year, 17 mln since beginning of sales, world leader in sales </li></ul></ul>
  31. 31. Six ways of finding Blue Oceans <ul><li>Consider not only your industry competitors, but any player that may deliver similar consumer value </li></ul><ul><ul><li>NetJets : shared ownership club for business jets </li></ul></ul><ul><li>Consider other factors beyond price and quality that impact consumer choice </li></ul><ul><ul><li>Starbucks : ‘a third place’ ( other than home and office ) </li></ul></ul><ul><li>Consider those who actually makes the purchase decision </li></ul><ul><ul><li>Novo Nordisk : comfortable insulin NovoPen syringes (needs of patients , not doctors ) </li></ul></ul>
  32. 32. Six ways of finding Blue Oceans (2) <ul><li>Consider additional value-generating services </li></ul><ul><ul><li>Home Depot : DYI furniture with free designer masterclasses for clients </li></ul></ul><ul><li>Detach functional and emotional components of value proposition </li></ul><ul><ul><li>Swatch : functional device as fashion </li></ul></ul><ul><ul><li>Quick Beauty House : ultra-quick haircut </li></ul></ul><ul><li>Forecast global trends </li></ul><ul><ul><li>CNN : the first 24hrs global news channel </li></ul></ul>
  33. 33. Blue Ocean in Gaming: Facebook Games <ul><li>Realtime simulations using Facebook environment </li></ul><ul><li>Use social networking aspect to promote and earn revenues </li></ul><ul><li>‘ Piercing through to real life’ as the key to success </li></ul>
  34. 34. Beverage market: strategies for growth