|
|
EE353/CS394 presents
the major functional areas and key concepts involved in making successful
business decisions. These areas include:
corporate strategy, new product development, marketing, sales, distribution, customer
service, and financial accounting. The
central objective is to teach students how to identify and analyze issues in
each of these areas. The course develops
frameworks and tools for formulating, evaluating and recommending action from
the perspective of the general manager in computer, high
Definitions
of Strategy
Business strategy is a plan of action carried
out tactically to achieve a business objective. A business objective is a desired result.
I)
The Classic Approach to Formulating Strategy: "Competitive strategy is a
combination of goals for which the firm is striving and the means by which it
is seeking to get there."
II)
The Decision Based Definition of Strategy: "A business strategy is a set
of dynamic, integrated decisions which you must make in order to position your
business in a complex environment."
III)
The "Bottom-up Marketing" View of Strategy: Traditional strategy is top down, in other
words, decide what you want to do and figure out how to do it. An alternative is to find a tactic that works
and build a strategy around it. Go down
to the front lines, where the marketing battle is being fought. Where is the front? In the minds of your customers and your prospects.
Example:
Motorola's vision is a world where people
want to be able to send and receive information anywhere, anytime and in any
imaginable form, from voice to high-speed data transmission.
Motorola figures that such a roomy universe
of opportunity will allow it to set a goal of expanding its techno-empire at a
15 percent annual clip, doubling revenues every five or six years, just as it
has for the last two decades.
Motorola's strategy –
and size – also force it into an ever-shifting and sometimes
confusing array of alliances and battles with governments, rivals and
customers. In addition, Motorola is building
a worldwide consumer brand
Related
Articles:
What
Is Strategy by Michael Porter
What's
Wrong with Strategy?
Value
Innovation: The Strategic Logic of High Growth
Strategy
and the New Economics of Information
Going
Where the Money Is (THE PROFIT ZONE)
Price/Features
Matrix
The New
Business-Cycle
Foresight,
Complexity and Strategy
Successful
Entrepreneurs Tell Where Great Ideas Come From.....myths and realities
How
competitive forces shape strategy
The nature and degree of competition in an
industry hinge on five forces:
- The threat of new entrants
- The bargaining power of customers
- The bargaining power of suppliers
- The threat of substitute products or services
- The jockey for position among current contestants
The weaker the forces
collectively, the greater the opportunity for superior performance. Often a subset of the forces are responsible for the industry
dynamics, e.g., Intel and Microsoft as suppliers have been the primary force in
the PC industry. Understanding the current competitive forces and anticipating
which ones will become most important in the future is critical for shaping a
firm's strategy.
Related
Articles:
IBM: Becoming
a growth company again
Intel: The silicon
age it's just dawning ( and the DRAM system chip)
Microsoft: Microsoft's
Future
Netscape: Strategy Redux
The PC Industry: Morgan
Stanley Overview
Yahoo: Challenges AOL As a Portal
to the Web
Core competencies
are the collective learning in an organization.
Sony's core competence in miniaturization has led it to develop consumer
products in markets where smaller size is valued. 3M's core competence in sticky tapes led to
“post-it” notes. A firm's
core competencies can be seen in its primary products.
At least three tests can be applied to
identify core competencies within a corporation:
- A core competence
provides access to a wide variety of markets;
- A core competence
should make a significant contribution to the perceived customer benefits
of the end product;
- A core competence
should be difficult for competitors to imitate.
Core competencies spawn unanticipated
products (e.g., post-it notes). A
corporation must know and grow its core competencies in order to survive and
prosper.
Matching
the Process of Product Development to Its Context
Key marketing and
development issues are highlighted by positioning a product in the context of a
"newness" map and its "development risk versus opportunity
cost" map.
Newness is plotted
as a function of newness to the company and newness to the market.
|
Newness Map |
|||
|
Hi |
New product lines Example: 3Com's
development of disc-less workstation |
|
New to the world Example: Apple's |
|
Newness to Firm (Product/Company
fit issue) |
Improve existing products |
Intel Multimedia chips |
|
|
Low |
Cost reduction Example: HP's DeskjetLC printer |
|
Repositioning Example: ETAK's
digitized map images used as a geo-locating service on the WorldWide Web |
|
|
Low |
Newness to Market (Product/Market
fit issue) |
Hi |
Lower Left:
New products in the lower left portion of the map may be sold at the expense of
existing products (cannibalization). But, if a company does not cannibalized its own products, a competitor will.
Upper Left:
Products in the upper left corner raise the issue of company/product fit. How
well can the company deal with the development, manufacturing, and marketing
issues as compared to the established competitors?
Upper Right:
Products in the upper right corner offer the allure of "breakthrough"
opportunities (Brave New World), but the risk of market acceptance and fit with
corporate skills is high thus the risk of failure is high.
A product's position identifies its risks
and required strategies and resources.
Engineering
scheduling and product feature issues are illuminated by positioning a product
on the "opportunity risk" map.
|
|
|||
|
Hi |
Crash program Example: Microsoft's
Internet Explorer version 1.0 |
. |
100% right Example: Netscape's new browser |
|
|
|
. |
. |
|
Low |
New Products Examples: IBM PC when
first introduced in 1981; Sun1 |
. |
New version of established products Examples: Polaroid's
instant camera; Xerox
copier |
|
. |
Low |
Development Risk |
Hi |
In situations of low development risk and
high opportunity cost, getting to market is everything, and a crash program is
required. Low opportunity cost coupled with high development risk makes time to
market less important, and places the emphasis on making sure the product is
right.
Lower
Left: Products in the lower left quadrant
typically are new markets where customer expectations are low. The early
adopters often want the product now because it offers breakthrough benefits,
and they will "live with" problems.
Upper
Left: Products in the upper left quadrant
have the same “forgiving" customer attributes, but expected
competition forces a crash program.
Products on the far right are problematic.
Upper
Right: The worst case is the upper
right quadrant. The product must be perfect the first time, e.g., start-ups
going against existing competitors.
Lower
Right: The position on the lower right
quadrant is often the introduction of a follow on product which is relatively
protected from competition (possibly by patent, technological leadership or by
monopoly).
A
Process for Industrial New Product Development
Findings from many research studies of new
product success and failure have led to several major observations and suggest
a model for moving a product from idea to launch.
Observations (*) indicate that approximately
90% of product successes are market driven (market pull) and 10% are technology
driven (technology push).
At GE labs technology driven breakthrough
products shared the following characteristics:
1) Market needs
were recognizes and R&D was targeted at satisfying these needs.
2) When a technical success did not have a specific market need, the product
was adapted to suit an identified need.
3) Research managers communicated the possibility of a technical breakthrough
clearly to other departments which facilitated the identification of a market
need.
A study (*) of Japanese and European firms
with market pull successes showed the following:
1) No initial
difficulties in marketing
2) A real product advantage
3) Strong internal communications
4) Superior techniques for data gathering, analysis, and decision making
A product success development model based on
observation includes seven stages:
1) Idea generation
2) Preliminary assessment
3) Concept
4) Development
5) Testing
6) Trial
7) Launch
Each stage is separated from the previous
one by an evaluation point and a corresponding GO / Kill decision node.
Related
Articles:
Launch Your Product
Without Getting Sunk
Technology
Integration: Turning Great Research into Great Products
IBM's
Research Cutbacks Now Seem to Be Brilliant
Spark
Innovation Through Empathic Design
Defining
Next-Generation Products: An Inside Look
The
Search for New Killer Apps, Systems That Change a Company
Successful
Entrepreneurs Tell Where Great Ideas Come From.....myths and realities
The Product Life
cycle is a fundamental concept for planning, strategy, product development,
marketing, and manufacturing. Product Life
Cycle refers here to a category of products like personal computers or
workstations, not to the life cycle for an individual product like the IBM PC
XT. Individual products ascend and
decline but more insight is gained from looking at the category as a whole. Vertical axis below is Sales Volume (in
arbitrary units).
Product
Life Cycle Chart
There are five
stages and correspondingly five customer types. Varying customer needs and a basis for
competition are linked to each stage.
|
|
Introduction |
Early
Growth |
Late
Growth |
Maturity |
Decline |
|
Customer
type |
Innovators |
Early
adopters and opinion leaders |
Early
Majority |
Late
majority |
Laggards |
|
Customer
need |
Features |
Product
capability |
Price/performance
education and capability |
Service/support
price and assurance of quality |
Cheapest
solution |
|
Basis
for competition |
First
to market and real benefit |
Capability |
Price/performance
education on how to use |
Price
and unique fit to their needs (segmentation) |
Market
share gains |
|
Number
of competitors |
Few/none |
Some
but little contention due to expanding market |
Several
competing head to head |
Many
players Competition kills some off and consolidation begins |
Poor
profitability so only the largest survive |
|
Profitability |
Uncertain |
High |
Declining |
Declining |
Minimal |
|
Risks |
High |
Lower |
Higher |
Higher |
Highest |
Forecasting
Total Market Demand
Recent history is
filled with stories of companies and entire industries that have made grave
strategic errors because of inaccurate industry-wide demand forecasts. These inaccurate forecasts did not stem from a
lack of forecasting techniques: regression analysis, historical trend
smoothing, etc. The inaccuracy stemmed
from not seeing the forest for the trees:
There are four steps in any total market
forecast.
1) Define the
market (e.g. Personal computers)
2) Divide the total
market into segments (e.g. Desktop computers, notebooks, and PDAs)
3) Identify and
forecast the drivers for demand in each segment and project how those drivers are
likely to change over time (e.g., the cost of components, competitors’
pricing, buyer upgrade cycle, customer acceptance, capability, performance)
4) Build a model
and conduct sensitivity analyses to understand the most critical assumptions
and to gauge risks to the baseline forecast
Building the model is the essential step. It allows the forecaster to select the
fundamental drivers and understand their interaction before the actual numbers
obscure the picture.
Accounting is a
language and set of rules to enforce consistent "score keeping"
across companies. The purpose of any
language is to convey meaning. Accounting information is conveyed by reports
called financial statements. These
statements convey the financial condition of an entity. The most important of these statements are:
·
Balance sheet
(assets, liabilities, and equity)
·
Income statement
(revenues, expenses, and profit)
·
Cash flow
statement (sources and uses of funds)
Nine concepts govern all of accounting and
are used as the guiding principals in recording information in these financial
statements.
1) The dual aspect concept (Assets = Liabilities
+ Equity)
2) The money measurement concept (Accounting
reports only facts that can be measured in monetary amounts)
3) The entity concept (Accounts are
kept for entities as distinguished from the persons associated with those
entities)
4) The going concern concept
(Accounting assumes that an entity will continue to operate indefinitely and it
is not about to be sold or liquidated)
5) The cost concept (Accounting
focuses on the cost of an asset rather than on their market value)
6) The conservatism concept (Revenues
are recognized when they are reasonably certain. Expenses are recognized when they are
reasonably possible)
7) The materiality concept (Disregard
insignificant matters. Disclose all
important matters)
8) The realization concept (Revenues
are recognized when the goods or services are delivered and accepted)
9) The matching concept (The expenses
of a period are associated with the revenues or activities of the period)
Alternate
Sources of Financing
Below are several
sources of funds for both start-ups and established companies. The list is not
exhaustive but is meant to give a broad perspective of where to obtain funds
and the relative merits of those sources.
|
|
||||
|
Source |
Primary fit into Typical |
Positives |
Negatives |
Cost |
|
Self |
Initial
money to at least document or demonstrate the idea to the point where other
investors can understand it |
Nobody's
permission required |
It's
your money to lose |
However much you are
willing to risk |
|
Family and Friends |
If
more money is needed to get the idea to an invest-able point and the
individual's funds are limited |
These
investors don't ask many tough questions |
You
could alienate friends an family if the money is lost |
Friends and family and
their money |
|
Angel investors |
Early
in the company concept stage |
Some
coaching and contacts |
Some
meddling by investors and regular results reporting |
5-10% of the company |
|
Venture capital |
Early
stage typically before product and team are built |
Don't
have to pay the money back. VCs can also bring advice and partners |
VCs
involvement in the company may challenge management |
Typically 20-50% ownership
of the company |
|
Suppliers and trade
credit |
Available
early in product development and pre production period if the vendor believes
in the product and its customers |
Easy
source of credit |
Few |
Bundled in the price paid
for the product or service |
|
Commercial bank |
Available
after the company has revenues and profits |
Low
cost |
Money
must be paid back in the future |
Current market rates for
borrowed funds |
|
Institutional investors |
Invest
just prior to an initial public offering |
Typically
pay a premium for stock |
Few |
Equity is sold slightly
cheaper than at the time of the IPO |
|
Asset based lenders |
Can
be early in the life of a company where lender holds title to equipment in
the company |
Non
equity source of additional cash |
Requires
monthly cash payments and the company risks repossession of equipment if the
business does not meet certain financial milestones |
Higher than straight bank
debt |
|
Public equity |
Historically
has occurred when a company is $10M or greater in revenues and profitable.
Some companies today go public on the basis of a hot concept with little
revenue and a period of substantial losses ahead. |
Access
to large amounts of capital. Liquidity for investors |
Scrutiny
of investors, inability to give employees very low cost options, cost of
public accounting and reporting, defocusing of top management away from the
customer and toward Wall Street |
High in terms of
management time and energy |
At the heart of any
business strategy is a marketing strategy. Businesses exist to deliver products to
markets. Marketing is the process of
planning and executing the conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges that satisfy individual and
organizational objectives. A marketing
strategy is composed of several interrelated components called the marketing
mix:
The Marketing
Mix
1. Market selection (choosing the customer)
2. Product planning (what products are the company going to sell to the selected customers)
3. Pricing (a
quantitative expression of the value of the product to the customer)
-See also the discussion of the Price/Features matrix
4. Distribution (the wholesale and retail channels through which the product moves to
the people who ultimately buy it and use it)
5. Marketing communications
a. Positioning
(what is the message that states the purpose and benefits of the product in the
market and how it competes)
b. Selling
(direct or indirect through others)
c. Promotion
(informing people about your product, showing them how it can be useful, and
persuading the to buy it)
d. Support
(helping the customer make the product work and replacing or repairing it when
its broken)
Decision Making
Unit and the Decision Making
Process
The actual selling process breaks down into
two components called the decision making unit (DMU) and the decision making process (DMP). The decision making unit consists of all of the people who will
play a role in the decision to purchase a product. The marketing mix program must understand the
needs of each of these individuals and find a way to communicate the marketing
message to each of them. These people
are typically identified as:
Buyer
– the person who actually issues the check i.e. the purchasing
agent)
Decider – the person or group that actually
says this is the product we want, i.e. the MIS manager
Influencer – who helps the decider decide, i.e. the press, analysts, peers,
evaluation groups
User – the individual or group
who actually uses the product and derives benefit from it
The people included in the decision making
unit interact to make the purchasing decision. The
decision making process (DMP) is a description of this interaction. By understanding this process a salesperson
can best understand who, how, and when to work on getting the customer order.
For example, a
company has decided to pick a workstation standard. The engineering VP made this decision. Since the standard affects all software
engineers within the company, an evaluation team is formed to make the
recommendation. The evaluation team hires
a consultant to research alternatives. The
consultant has great influence due to his strong technical background and years
of experience. Recent magazine articles
are also reviewed. After a few months, the evaluation team makes a
recommendation and the VP R&D decides to accept it and go ahead. The purchasing manager is asked to negotiate
the best deal. The salesperson for the
winning workstation company was on top of and influenced every person at every
stage of the decision making process.
Related
Articles:
Are Tech
Buyers Different?
The rise of the
"Net Generation" stands to transform marketing
The
Competitive Dynamics of Network-Based Businesses
Basic Quantitative Analysis for Marketing
Simple calculations often help in making
quality marketing decisions. One of the most useful quantities is calculating
break-even volumes, i.e., the quantity of units which must be sold to recover
an initial investment. With this number we can then ask how long will it take
to sell this many units and is it reasonable to assume that the market overall
is big enough to support this volume. When sales exceed the break-even volume,
the firm starts making a profit.
To apply this calculation we must understand
the following definitions:
Variable cost (K)
= $cost uniquely associated with each unit produced (example, Microprocessor on
a PC mother board)
Fixed cost(FC)= $cost
which are fixed and do not vary with the volume of output(example, a new IC fab plant)
Contribution(C) = The difference between the price($P) of one unit - Variable cost per unit($K)
C=P-K
Volume(V)=quantity of units
produced
Break-even volume (BEV) = $Fixed Cost FC/C
($contribution per unit)
Designing a distribution channel to deliver
both a product (or service) and it's benefits to a
customer begins with a question:
"What needs
to be done to get my product sold?"
Suppose a watch manufacturer decides to
compete in the mass market for watches in the $15 price range. Successfully selling this kind of product
requires the firm to have:
1. An Established brand name
2. Distribution in a large number of convenient outlets
3. Good display in those outlets
4. An efficient means of restocking retail outlets
The next
question is "Who is to do each task?"
Here we are asking whether the company
perform the function or delegate it to an intermediary. This is the question of Channel Length.
Consider the good display of watches in
a large number of outlets. Theoretically,
the manufacturer can perform this function by opening a large number of retail
outlets. However, existing retail and
department stores accomplish this task more efficiently.
There is also
the question of Channel Breadth
How many firms of each type does the
manufacturer want to have? The basic
alternatives are:
1. Exclusive distribution (only one place to get it,
typically for high priced specialty goods "Rolls Royce")
2. Selective distribution (a few well trained and
qualified "Mercedes")
3. Intensive distribution (find it everywhere thus
convenience is the driver "Honda")
The intention here is to present a
collection of sales strategies to provide a common reference base and
vocabulary. The marketing manager operates at a level selecting the target segments
and executing the marketing mix. The sales manager must deal at a lower level
with the specific customers (names, addresses) .
Team selling (Multiple disciplines and people working together on
a high price, complex sale)
Key accounts (A culling of potential customers into those who
display a desirable attribute: size, profitability, or opinion leadership,
etc.)
National
accounts (Companies with nation wide
disbursement that are sold to at a central headquarters location)
Multi-level
selling (Contacting people at all
levels in the organization from engineer to VP marketing and convincing them to
buy the product)
Systems selling (Involves elements of team selling and includes
multiple products which tied together often deliver a "solution")
Third party
sales (Using other organizations
like retailers or OEMs to sell your product)
Telemarketing (Telephone selling often involving automatic dialing
from targeted lists. )
Related Articles:
Fly by Night, Sell by Day
Managing sales is different from any other kind of management
Putting
the Service-Profit Chain to Work
The service-profit
chain establishes relationships between profitability, customer loyalty, and
employee satisfaction, loyalty, and productivity. The links in the chain are as
follows:
Profit and growth
are stimulated primarily by customer loyalty. Loyalty is a direct result of customer
satisfaction. Satisfaction is largely
influenced by the value of services provided the customer. Value is created by satisfied, loyal, and
productive employees. Employee
satisfaction, in turn, results primarily from high-quality support services and
policies that enable employees to deliver results to customers.
It is estimated (*)
that a 5% increase in customer loyalty can produce profit increases from 25% to
85%
For many firms an
important means of achieving marketing communications goals is the development
of an advertising strategy. Communications goals are usually expressed as
desired increases in sales or market share. Sometimes intermediate goals such
as product awareness and knowledge are employed. Integral to good advertising
strategy is an efficient media plan that maximizes the achievement of
communications goals within the constraint of a fixed budget.
Some of the more important criteria for
evaluating a media plan are:
1) Cost of space/time- the
price for a one page ad or a 30 second TV spot
2) Reach- The size of the audience reached (ex. LA times circulation of 1,000,000)
3) Audience composition- description of the audience in terms of
various demographic characteristics such as age, income, or education.
4) Impact- is one media type more forceful at commanding attention
than another
5) Exposure value- evaluation of a given media vehicle may be
undertaken on the basis of cost per thousand (CPM) exposures.
In the example of
life cereal, both children and mothers are desired targets. Beyond this,
mothers of families with children 10-18 might be considered better prospects
than those with younger children. Also, families with higher education might be
considered generally more receptive to nutritional claims in the advertising
strategy.
The conventional factory produces many
products for numerous customers in a variety of markets, thereby demanding the
performance of a multiplicity of manufacturing tasks all at once from one set
of assets and people. Its rationale is "economy of scale" and lower
capital investment.
A factory that focuses on a narrow product
mix for a particular product niche will outperform the conventional plant,
which attempts a broader mission. Because its equipment, supporting systems,
and procedures can concentrate on a limited task for one set of customers, its
costs and especially its overhead are likely to be lower than those of the
conventional plant. But, more important, such a plant can become a competitive
weapon because its entire apparatus is focused to accomplish the particular
task demanded by the company's overall strategy and marketing objective.
Related
Articles:
Why
(and How) to Take a Plant Tour
The Job
of the General Manager
The general manager's job can be one of the
most challenging and desirable assignments in any business. It is distinguished
from the functional manager's job by its significant multi functional and
profit responsibilities. A GM may be responsible for running a company, a
division, or several of each.
GMs have different responsibilities in
different companies and industries but most often they face common issues. The
basic job of the GM is to get results in both the long and short term. To that
end, the job entails the following:
1) Establishing strategic direction
2) Setting goals and maintaining standards of
performance
3) Marshaling and allocating resources
4) Selecting and developing people
5) Organizing the effort
6) Maintaining an understanding of day to day operations
7) Building a positive work environment
Related
Articles:
Chief Executive Officer
(CEO) Skills Inventory
Making a Good Hire
How
management teams can have a good fight
The
Myth of the Top Management Team
Fair
Process: Managing in the knowledge economy
Real
Work
A
New Mandate for Human Resources
Making
the Deal Real: How GE Capital Integrates Acquisitions
The
Necessary Art of Persuasion