GROWTH STRATEGIES Internal Environment: Sources for Growth Pavel Olegovich Luksha [email_address]
Four criteria of sustainable competitive advantage: resource & capabilities <ul><li>Valuable: help the firm to exploit opp...
Leveraging on core competencies <ul><li>Firms achieve strategic competitiveness when their unique core competencies are ef...
Strategic flexibility: Panasonic <ul><li>Modular production systems give fast switch between assembled models and swift im...
Creating value: Lego <ul><li>Focus on quality: elements with tolerance of 2 microns </li></ul><ul><li>Cost-cutting: manufa...
Resources and core competencies <ul><li>Compared to tangible resources, intangible resources are a superior and more poten...
Capabilities <ul><li>Capabilities: the firm’s capacity to deploy resources that have been purposely integrated to achieve ...
The internal environment:  Caterpillar’s competitive advantage <ul><li>Resources :  </li></ul><ul><ul><li>modernized facto...
Capabilities: Vopak <ul><li>Created in 1999 as the merger of two oldest Dutch companies in shipment sector (Van Ommeren & ...
Capabilities: Avon’s direct marketing <ul><li>Receives 70% of its sales from overseas (fastest growing are China and Russi...
Core competencies: Starbucks <ul><li>Plans to have 40K stores  worldwide by 2012  (10K more than McDonald’s) </li></ul><ul...
Novozymes: leader in enzymes <ul><li>Division of Novo Nordisk   that  has become independent in 2002.  Focused on medical ...
Growing competencies  and growing: Lenovo <ul><li>Became IBM distributor in 1984 </li></ul><ul><li>Localized IBM PCs for C...
Managing internal environment:  ‘point of view’ <ul><li>Revising the ‘point of view’ can be the most important (and one of...
Business model:  the key management innovation <ul><li>Business model is the core of business:  how to make money with you...
Eastern Exclusives:  pioneer in couponing <ul><li>Direct marketing company that prints discounter coupon books for student...
Amway: success in MLMs <ul><li>Sells homecare products, electronics, health & beauty (60% of sales), jewelry etc. </li></u...
Management innovations (G. Hamel) <ul><li>Change of organizational management practice </li></ul><ul><ul><li>budgeting  ( ...
Aldi :  pioneer in super-discounter format <ul><li>Cost cutting in service : </li></ul><ul><ul><li>minimal no of shopfloor...
Zara :  management innovations Traditional industry  business model Zara business model <ul><li>long design to production ...
No need for IT solutions: dabbawallah <ul><li>Lunch delivery organization in Mumbai </li></ul><ul><ul><li>dabbawallah-coll...
Time for the group project Organizational ‘core competences’: how does ‘thinking out of box’ help in redefining organizati...
Building core competencies:  learning organizations <ul><li>Organizations learn from  failure more than they learn  from s...
GE: innovation from the bottom <ul><li>Stimulate organizational and  technological breakthrough </li></ul><ul><ul><li>midd...
Innovations as planned failures <ul><li>Multi-layer automotive glass :  </li></ul><ul><ul><li>created when the lab analyze...
Building blocks of learning organizations 1:  Supportive  environment 2 :  Specific learning  practices & processes 3 :  L...
Google: the learning organization <ul><li>Innovations built into workload </li></ul><ul><ul><li>engineers :  80% for resea...
Organizational culture of Prime Movers <ul><li>‘ Prime Movers’: </li></ul><ul><li>do not accept the ‘rules of the game’, b...
IKEA as Prime Mover <ul><li>Value proposition </li></ul><ul><ul><li>cheap functional furniture with designer quality </li>...
Creativity in   Pixar <ul><li>Delegation :  project managers responsible for product development  ( not the top-management...
Five elements of  efficient learning culture <ul><li>1.  Increase innovation activity among employees .  </li></ul><ul><ul...
Five elements  … (2) <ul><li>3. Increase share of innovations coming from outside  ( clients, suppliers etc .).  </li></ul...
Innovation in   Cemex <ul><li>Mexican producer of construction materials  ( no.1 globally )  and cement  ( no.3 globally )...
Sources of growth  for snack producing companies
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Growth Strategies: Internal Environment - Sources for Growth

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This is the 4th part of the undergraduate course in Growth Strategies: Internal Environment - Sources for Growth. Read by Pavel Luksha

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Growth Strategies: Internal Environment - Sources for Growth

  1. 1. GROWTH STRATEGIES Internal Environment: Sources for Growth Pavel Olegovich Luksha [email_address]
  2. 2. Four criteria of sustainable competitive advantage: resource & capabilities <ul><li>Valuable: help the firm to exploit opportunities or neutralize threats in its external environment </li></ul><ul><li>Rare: possessed by few, if any, competitors </li></ul><ul><li>Costly-to-imitate: cannot be easily developed by other firms </li></ul><ul><li>Non-substitutable: don’t have strategic equivalents </li></ul>
  3. 3. Leveraging on core competencies <ul><li>Firms achieve strategic competitiveness when their unique core competencies are effectively acquired, bundled and leveraged to take advantage of opportunities in the external environment </li></ul><ul><li>Over time, any firm’s value-creating strategy can be copied by its competitors, THUS need for sustaining current core competencies while simultaneously developing new ones </li></ul>
  4. 4. Strategic flexibility: Panasonic <ul><li>Modular production systems give fast switch between assembled models and swift implementation of new products </li></ul><ul><li>JIT: cluster of synchronized robots at Saga plant - time to finishing gadgets reduced from 2.5 days to 40 minutes </li></ul><ul><li>Steady growth to 91 Bln USD in 2008, profit to 4.1 Bln USD </li></ul>Range of Panasonic products, including digital TV, camera and phone
  5. 5. Creating value: Lego <ul><li>Focus on quality: elements with tolerance of 2 microns </li></ul><ul><li>Cost-cutting: manufacturing outsourced to cheaper locales like the Czech Republic and Singapore </li></ul><ul><li>Faster development cycles: development time for new toys has been sliced in half (through use of parallel 3D modeling) </li></ul><ul><li>‘ Hot’ theme sets: SpongeBob, Harry Potter, Indiana Jones etc. </li></ul>
  6. 6. Resources and core competencies <ul><li>Compared to tangible resources, intangible resources are a superior and more potent source of core competencies </li></ul><ul><li>Intangible resources are less visible and more difficult for competitors to understand, imitate or duplicate </li></ul><ul><li>The more intangible a resource is, the more sustainable will be the competitive advantage that is based on it </li></ul>
  7. 7. Capabilities <ul><li>Capabilities: the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state </li></ul><ul><li>Emerge over time through complex interaction among tangible and intangible resources </li></ul><ul><li>Based on developing, carrying and exchanging knowledge and unique skills grounded in organizational practice </li></ul>
  8. 8. The internal environment: Caterpillar’s competitive advantage <ul><li>Resources : </li></ul><ul><ul><li>modernized factories with new robots and automated tools (109 worldwide) </li></ul></ul><ul><ul><li>a global distribution network to sell and service Cat’s equipment (220 dealers) </li></ul></ul><ul><ul><li>R&D facilities </li></ul></ul><ul><li>Capabilities : R&D, production, distribution, branding </li></ul><ul><li>Core competencies : building innovative machinery and trucks for construction, mining, forestry etc. </li></ul>Cat’s mining truck
  9. 9. Capabilities: Vopak <ul><li>Created in 1999 as the merger of two oldest Dutch companies in shipment sector (Van Ommeren & Pakhoed), focused on chemical shipment since 1980s </li></ul><ul><li>Sold lowprofit divisions ( transport and distribution of chemicals ) </li></ul><ul><li>Focused on port storage and loading of chemicals and oil products </li></ul><ul><li>Grew 15-17% p.a. in 2003-7 up to 850 Mil.Euro in 2007, high profitability (180 Mil. Euro in 2007) </li></ul>Vopak storage Singapore
  10. 10. Capabilities: Avon’s direct marketing <ul><li>Receives 70% of its sales from overseas (fastest growing are China and Russia) </li></ul><ul><li>Relies on ‘Avon ladies’ MLM along with shop sales </li></ul><ul><li>Introduced 1,000 new skin-care and makeup products (lab of over 300 researchers) </li></ul><ul><li>Reached 10 Bil USD in sales by 2007 </li></ul>Avon makeup line
  11. 11. Core competencies: Starbucks <ul><li>Plans to have 40K stores worldwide by 2012 (10K more than McDonald’s) </li></ul><ul><li>Leverages underperforming shop closing in developed countries by continuing expansion into emerging markets </li></ul><ul><li>Long-term contracts with selected coffee and cocoa producer </li></ul><ul><li>CoffeeMaster program (since 2004) to improve personnel skills in coffee brewing </li></ul>Starbucks coffee shop
  12. 12. Novozymes: leader in enzymes <ul><li>Division of Novo Nordisk that has become independent in 2002. Focused on medical and technical enzyme synthesis. </li></ul><ul><li>Expansion in non-medical enzymes : </li></ul><ul><ul><li>detergents , lubricants etc. </li></ul></ul><ul><ul><li>food & fodder enzymes </li></ul></ul><ul><li>Leveraging R&D competencies : </li></ul><ul><ul><li>customized enzyme production </li></ul></ul><ul><ul><li>reduce development cycle from five to two years </li></ul></ul><ul><li>Leader in global enzyme market (40%), dominant in niche markets ( e.g. enzymes for breweries ) </li></ul>Novozymes lab, Denmark
  13. 13. Growing competencies and growing: Lenovo <ul><li>Became IBM distributor in 1984 </li></ul><ul><li>Localized IBM PCs for Chinese market in late 1980s </li></ul><ul><li>Began to produce PCs in early 1990s using components and competencies of IBM suppliers (became top Chinese player by 1996) </li></ul><ul><li>Exited retail and focused on production in 1999 </li></ul><ul><li>Bought IBM global division of PC and notebook production in 2005 </li></ul><ul><li>Third largest computer manufacturer by 2008 (after HP and Dell) </li></ul>Lenovo ‘Olympic’ laptop
  14. 14. Managing internal environment: ‘point of view’ <ul><li>Revising the ‘point of view’ can be the most important (and one of the cheapest) innovations that helps boost both the growth and the performance </li></ul><ul><li>This is the essence of management innovation as a source of growth </li></ul>
  15. 15. Business model: the key management innovation <ul><li>Business model is the core of business: how to make money with your value proposition </li></ul><ul><li>Some business models : </li></ul><ul><ul><li>razor & blades ( or bait & hook ) </li></ul></ul><ul><ul><li>MLM </li></ul></ul><ul><ul><li>product as service </li></ul></ul><ul><ul><li>clicks & bricks </li></ul></ul>HP Laserjet: bait & hook Amazon Kindle: clicks to bricks
  16. 16. Eastern Exclusives: pioneer in couponing <ul><li>Direct marketing company that prints discounter coupon books for students </li></ul><ul><li>Books distributed under agreements with university administration </li></ul><ul><li>Organizations that sell goods & services to students in university neighborhoods pay to appear in coupon books </li></ul>
  17. 17. Amway: success in MLMs <ul><li>Sells homecare products, electronics, health & beauty (60% of sales), jewelry etc. </li></ul><ul><li>Operates as MLM: consumers as promoters, gain income depending on the level of distribution they control </li></ul><ul><li>Sales of 8.4 Bln USD in 2008, top private company & top retailer </li></ul>SA8 fabric care line
  18. 18. Management innovations (G. Hamel) <ul><li>Change of organizational management practice </li></ul><ul><ul><li>budgeting ( DuPont), brand management ( Procter&Gamble), project management ( Lockheed) , lean manufacturing ( Toyota) </li></ul></ul><ul><li>Can give greater return than any R&D </li></ul><ul><li>Four principles : </li></ul><ul><ul><li>the bigger the problem , the more serious innovation can be </li></ul></ul><ul><ul><li>search for new principles </li></ul></ul><ul><ul><li>abandon strict rules of the existing management system </li></ul></ul><ul><ul><li>search for similarities in non-typical organizations </li></ul></ul>
  19. 19. Aldi : pioneer in super-discounter format <ul><li>Cost cutting in service : </li></ul><ul><ul><li>minimal no of shopfloor workers ( long queues compensated by effective counter checkout system) </li></ul></ul><ul><ul><li>minimal advertisement </li></ul></ul><ul><ul><li>compensation for additional service: plastic bags , shopcart deposits </li></ul></ul><ul><li>Goods presented in wholesale pallets, minimal shelf spreading </li></ul><ul><li>Efficient system of procurement and logistics planning </li></ul>Palettes in Aldi
  20. 20. Zara : management innovations Traditional industry business model Zara business model <ul><li>long design to production cycles ( around 6 months ) </li></ul><ul><li>collections change by seasons (average shelflife 2-3 months) </li></ul><ul><li>tastes are ‘forecasted’ by fashion collections of future seasons </li></ul><ul><li>model design and development is a responsibility of a single author </li></ul><ul><li>divide between design and production , cost cutting through outsourcing to Asia </li></ul><ul><li>short design to production cycles ( not more than 10-15 days ) </li></ul><ul><li>collections change constantly (average shelflife 2 weeks) </li></ul><ul><li>fast adaptation to trends instead of ‘taste forecasting’ </li></ul><ul><li>designer of house of 200+ designer team </li></ul><ul><li>major production facilities in Europe , cost cutting through efficient inventory management and logistics </li></ul>
  21. 21. No need for IT solutions: dabbawallah <ul><li>Lunch delivery organization in Mumbai </li></ul><ul><ul><li>dabbawallah-collectors pick lunchboxes from home kitchens and deliver to train stations </li></ul></ul><ul><ul><li>dabbawallah-delivers collect at stations and deliver to offices </li></ul></ul><ul><ul><li>average 175-200 K lunchboxes delivered daily by 5K delivers </li></ul></ul><ul><li>Standardization and color coding create highly reliable delivery system </li></ul><ul><ul><li>1 error in 6 Mil boxes (!) ( no hightech solution – same is Kanban ) </li></ul></ul><ul><ul><li>efficient teamwork ( flat hierarchy , high autonomy , team pride ) & time management </li></ul></ul>Dabbawallah at a train station
  22. 22. Time for the group project Organizational ‘core competences’: how does ‘thinking out of box’ help in redefining organizations?
  23. 23. Building core competencies: learning organizations <ul><li>Organizations learn from failure more than they learn from success </li></ul><ul><li>Employees know things better than their managers </li></ul><ul><li>Divisions need information exchange to get knowledge to those who need it most </li></ul><ul><li>New knowledge must be sought outside of organization </li></ul><ul><li>Learning organizations are those where knowledge is gained and retained </li></ul>
  24. 24. GE: innovation from the bottom <ul><li>Stimulate organizational and technological breakthrough </li></ul><ul><ul><li>middle-management trained in methods that help create and implement innovations </li></ul></ul><ul><ul><li>Imagination Breakthroughs are selected and implemented </li></ul></ul><ul><ul><li>additional communication channels to collect innovative ideas from employees ( e.g. virtual Idea Box in company intranet ) </li></ul></ul><ul><li>Encourage innovators : </li></ul><ul><ul><li>bonuses and prizes for ‘growth heroes’ and ‘best innovators’ </li></ul></ul><ul><li>Dynamic portfolio of breakthrough innovations is ca. 50-100 projects </li></ul>
  25. 25. Innovations as planned failures <ul><li>Multi-layer automotive glass : </li></ul><ul><ul><li>created when the lab analyzed why the retort with liquid plastic did not break </li></ul></ul><ul><li>Cardio-stimulator </li></ul><ul><ul><li>created as a by product of military research in fast reheating of seamen </li></ul></ul><ul><li>Viagra </li></ul><ul><ul><li>created due to occasional by-effect of a new (failed) heart medicine </li></ul></ul>
  26. 26. Building blocks of learning organizations 1: Supportive environment 2 : Specific learning practices & processes 3 : Leaders that support learning a . Psychological safety ( opportunity to express yourself , to fail etc .) b . Acknowledged differences ( opportunity to have different opinions or do things differently ) c . Openness to new ideas d . Time to reflect ( no tight workload or tough time schedules, time to think and discuss ) a . Experimenting b . Data collection ( clients, competitors , trends ) c . Analysis d. Training and education ( inside and outside organization ) e . Knowledge exchange ( inside / between divisions , or with external environment ) Support from managers ( support to alternative and non-standard opinions , support and provision of resources in data collection and analysis , acknowledgement of self-limitation in knowledge or competencies )
  27. 27. Google: the learning organization <ul><li>Innovations built into workload </li></ul><ul><ul><li>engineers : 80% for research related to core business ( search & ads ), 20% for projects of their choice </li></ul></ul><ul><ul><li>managers : 70% for core business , 20% for related projects , 10% for completely new projects </li></ul></ul><ul><ul><li>motto : if you don’t like it, change it yourself </li></ul></ul><ul><li>Cultivate taste for errors and chaos </li></ul><ul><ul><li>the sooner it is clear that the project failed, the faster one can move on to try something else </li></ul></ul><ul><li>Use data to inspire </li></ul><ul><ul><li>huge analytical database : data on user behavior , information traffic etc. </li></ul></ul><ul><ul><li>over 300 groups involved in future forecasting </li></ul></ul>
  28. 28. Organizational culture of Prime Movers <ul><li>‘ Prime Movers’: </li></ul><ul><li>do not accept the ‘rules of the game’, but create these rules for themselves and the industry : ‘map changes the landscape’ </li></ul><ul><li>split and revise familiar value chain divisions in search of new value propositions </li></ul><ul><li>stress non-monetary values </li></ul><ul><li>project their culture over their business partners: suppliers and consumers </li></ul>Richard Normann
  29. 29. IKEA as Prime Mover <ul><li>Value proposition </li></ul><ul><ul><li>cheap functional furniture with designer quality </li></ul></ul><ul><li>Revising relations with consumers : </li></ul><ul><ul><li>shift part of the traditional furniture producer costs: choice, picking from the warehouse, delivery and assembly </li></ul></ul><ul><li>Revising relations with suppliers : </li></ul><ul><ul><li>outsourcing & localization </li></ul></ul><ul><ul><li>modular solutions </li></ul></ul><ul><ul><li>efficient logistics and warehouse management </li></ul></ul>
  30. 30. Creativity in Pixar <ul><li>Delegation : project managers responsible for product development ( not the top-management ) </li></ul><ul><li>Culture and processes facilitate exchanges about unfinished work and create mutual support </li></ul><ul><li>Natural barriers between divisions are broken </li></ul><ul><li>Constantly incoming ‘outsiders’ disrupt organizational status-quo </li></ul><ul><li>No drive on success: ‘post mortem’ consideration of mistakes even in successful projects, reminder of previous failures </li></ul><ul><li>Strong leadership supporting creative culture ; yet leaders encourage initiative </li></ul>
  31. 31. Five elements of efficient learning culture <ul><li>1. Increase innovation activity among employees . </li></ul><ul><ul><li>‘ how to’ training for employees ( e.g. Whirlpool) </li></ul></ul><ul><ul><li>‘ Innovation Days’ ( e.g. Cemex) </li></ul></ul><ul><ul><li>time to create ( e.g. W.L.Gore or Google) </li></ul></ul><ul><li>2. Increase share of radical innovation that : </li></ul><ul><ul><li>(а) change expectations or behavior of consumer , and/or </li></ul></ul><ul><ul><li>(б) change competition grounds ( e.g. digital cameras in photo industry ), and / or </li></ul></ul><ul><ul><li>(в) change industry economics ( e.g. no-frills airways in air transportation ) </li></ul></ul>
  32. 32. Five elements … (2) <ul><li>3. Increase share of innovations coming from outside ( clients, suppliers etc .). </li></ul><ul><ul><li>Epic Games uses Internet to bring game players to develop and customize their products </li></ul></ul><ul><li>4. Gain more innovations through organizational learning . </li></ul><ul><li>5. Focus on a low number of goals in innovative activities and stick to them . </li></ul>
  33. 33. Innovation in Cemex <ul><li>Mexican producer of construction materials ( no.1 globally ) and cement ( no.3 globally ) </li></ul><ul><li>Innovation Day ( 9 times a year ). Innovations sorted into four categories : </li></ul><ul><ul><li>stars ( big & valuable, implement immediately ), </li></ul></ul><ul><ul><li>balls ( interesting, need to push around awhile ), </li></ul></ul><ul><ul><li>apples ( small immediate improvements ), </li></ul></ul><ul><ul><li>bones ( no particular value ) </li></ul></ul><ul><li>Top-management Innovation Committee monthly considers new project portfolio to support initiative within divisions </li></ul>
  34. 34. Sources of growth for snack producing companies

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