The 30 Day MBA (46 page)

Three variations on focus groups are:

• Neighbourhood forum: These are structured, regular local meetings for local people to consult about issues of local importance. The term local can mean any characteristic that binds people together – young mothers, pensioners, train users.
  
• Citizens' juries: These involve a small sample of the public spending perhaps a day or two, at most, debating an issue in a quasi-judicial setting. They hear experts present the various sides to an argument, much as in court they would take evidence from witnesses. This approach is used by local government and police forces, but is also used by major local employers to gain insights into local community issues that they might impinge on.
  
• Brainstorming sessions: These are group meetings designed to stimulate creative thinking to solve a particular problem or address a single issue. There are three steps to brainstorming. Initially the
  group should try to generate as many ideas as possible, without criticism, welcoming unusual and even apparently impractical or impossible propositions. Next, the propositions should be reviewed briefly to either eliminate the ones universally agreed to be unworkable or to combine ideas to form better solutions. Finally, the handful of feasible solutions are discussed and ranked. All that is needed by way of materials are a flip chart, marker pens and Blu-tack to fix the ideas that have been generated visibly onto walls.
  

Case studies

A case study is a comprehensive and systematic study of a specific organization, event or subject. They can be written, on film or computer and are usually used where wide-ranging, complex questions have to be addressed and the findings used either as a focus for further discussion, for illustrative purposes or for training. The case study needs an underlying question – how did the company go about closing down a particular unit, for example. It doesn't answer the question, rather it provides the ‘reader' with information from interviews, company and public documents, observations and such sources, from which they can debate and form an opinion.

Triangulation

This is the rather pretentious name given to the combination of qualitative and quantitative research methods; a sensible process that allows researchers to get the best of both worlds. In fact the disciplines already overlap. Quantitative research produces numbers – the number of people questioned, for example, or how many times a particular feeling or opinion was mentioned in an interview. Qualitative methodology can be used to shed light on qualitative issues, such as how strongly people feel about a certain issue. Triangulation strengthens qualitative and quantitative analyses by combining insights from both.

Surveys

The most common research method that combines quantitative and qualitative processes is the survey. This is a near-ubiquitous tool used in organizations to get a handle on almost every aspect from measuring employee morale or assessing customer satisfaction to getting the views of almost any stakeholder group on almost any issue. MBAs will certainly have to know how to get surveys done and, if working in a small organization, they may well have to do it themselves.

Around half of all surveys are conducted face to face, considered best for tackling consumer markets. Next in popularity come telephone, e-mail and
web surveys, which work well with companies and organizations. Postal surveys, once very popular, now account for less than 10 per cent of survey work.

Chapter 3
provides the guidelines for interviewing and questionnaire design.

Survey sample size

The size of the survey undertaken is also important. You frequently hear of political opinion polls taken on samples of 1,500–2,000 voters. This is because the accuracy of your survey clearly increases with the size of sample, as the following table shows:

So, if on a sample size of 600 your survey showed that 40 per cent of women in the town drove cars, the true proportion would probably lie between 36 and 44 per cent. For small businesses, we usually recommend a minimum sample of 250 completed replies.

ResearchInfo.com (
www.researchinfo.com/docs/websurveys/index.cfm
) gives the basics of writing a program in order for you to use your own questionnaire on the internet.

12

Strategy

• Devising strategies
  
• Differentiation, cost leadership, focus
  
• First to market, first to fail
  
• Tools and techniques for shaping strategy
  

J
oseph Lampel, Professor of Strategy at Cass Business School and author of
Strategy Bites Back
(Financial Times Prentice Hall, 2005), tells the story of when he received an urgent request from one of his MBA students: ‘Could I please provide a clear and easy-to-use definition of strategy?' ‘My career', wrote the student, ‘may depend on it', and ‘besides I would like to start the course with a better idea of what I am supposed to be looking out for.' Lampel goes on to explain that he was less surprised by the request than by the fact that it came before the course had even begun. He was used to being approached at the end of the course by students confessing that they still did not know exactly what strategy is.

Strategy, though a core subject in every business school, is less an academic discipline than an ever-shifting appraisal of how an organization should position itself to best meet the challenges it faces. Rather like the quote attributed to one Governor of the Bank of England who said that the true meaning of Christmas would not be apparent until Easter, when it comes to estimating retail sales, successful strategies are really only recognizable after the event. The case below gives a flavour of the dimensions of how strategy is shaped: part marketing, part money, part people, part culture, and mostly an appreciation of an ever-shifting and developing world.

Strategy has three dimensions: the intellectual analytical and thinking aspect used to devise broad strategic direction; the development and shaping of specific actions in pursuit of those strategies; and the implementation of strategy through the execution of business plans. If an organization gets it wrong in any of these areas the results it is aiming for may not be achieved, it may fall behind others in the market or in the worst case fail altogether.
Getting all three areas right can be more of an art than a science, rather like a short-sighted person trying to thread several needles, held in parallel by different people, in one swift movement.

CASE STUDY

Michael Dell, gazing around his empire in October 2010, had plenty to be pleased about. Dell's latest product, the Inspiron Duo, scheduled for a pre-Christmas launch, looked like capturing a slice of the tablet market created by Apple with its iPad. He had certainly come a long way since founding his business from his dorm at the University of Texas nearly a quarter of a century earlier, aged just 19. He had turned his $1,000 initial stake into a business generating over $60 billion a year in revenues making nearly 16 per cent of PCs sold globally. It was only in 1980 that he had acquired his first computer, the Apple II, and on founding his company, PC Limited, had as his goal to beat IBM. His first product, The Turbo PC, was supported by a no-quibble returns policy and a unique home support service. The IPO in 1988 valued his $1,000 business, founded four years earlier, at $85 million. From the outset Dell had three golden rules: disdain inventory, always listen to the customer and cut out middlemen.

An internet pioneer, the company launched a static online ordering page in 1994, and by 1997 Dell.Com claimed to be the first company to record a million dollars in online sales.

Dell, since its early beginnings, has focused on fundamentally different strategies from its competitors. Unlike Apple, it has never tried to design sexy devices or to build a global network of retail outlets. Dell's strategy was to create the leanest possible supply chain direct to the end user while allowing them to choose the features they wanted. It extended that successful strategy across to related products such as servers, printers and storage devices to build a business shipping 140,000 systems a day worldwide – more than one every second – ranking 34 in the Fortune 500 listing of companies and one of the world's leading brands.

But just as Dell looked to be in an unchallengeable position the company lost its position as the world's biggest maker of personal computers to Hewlett-Packard (HP), a company founded back in 1939 in a Palo Alto garage. No stranger to setbacks, HP had seen that growth in the PC world had crossed from corporate markets to consumers and from developed economies to emerging markets where people had less access to the internet and were both more wary and less able to shop online. In addition, the competition was hotting up on a new front brought about by past success and galloping innovation, with auction sites like eBay and uBid enjoying flourishing growth rates in PC sales. Dell saw that it had to develop new strategies for the new environment. As well as beefing up its website and launching ‘IdeaStorm', a blog that has already pulled in 9,000 customer suggestions for improvements, the company's products are now in 10,000 outlets worldwide. It has set up a bulk supply chain alongside its lean customized one and started to design products to hanker after rather than just highly specified black boxes. Dell has also bought up several firms in the IT systems management sector as it sees the shift from product- to service-driven growth as an important factor in the future of its business sector. Dell has had to cut $3 billion of expenses, lay off 8,800 employees and change the mindset of its engineers and designers to reposition it to execute its new strategy.

Devising strategy – the overview

Credit for devising the most succinct and usable way to get a handle on the big picture has to be given to Michael E Porter, who trained as an economist at Princeton, taking an MBA (1971) and PhD (1973) at Harvard Business School where he is now a professor. His book,
Competitive Strategy: Techniques for Analyzing Industries and Competitors
(1980, Free Press, Old Tappan, New Jersey, United States), which is in its 63rd printing and has been translated into 19 languages, sets out the now accepted methodology for devising strategy. As well as being essential reading in most business schools, courses based on Porter's work are taught in partnership with more than 80 other universities around the world, using curriculum, video content and instructor support developed at Harvard.

The three generic strategies

Porter's first observation was that two factors above all influenced a business's chances of making superior profits. First, there was the attractiveness or otherwise of the industry in which it primarily operated. Second, and in terms of an organization's sphere of influence more important, was how the business positioned itself within that industry. In that respect a business could only have a cost advantage in that it could make product or deliver service for less than others. Or it could be different in a way that mattered to consumers, so that its offers would be unique, or at least relatively so. He added a further twist to his prescription. Businesses could follow either a cost advantage path or a differentiation path industry wide, or they could take a third path – they could concentrate on a narrow specific segment (see
Chapter 3
for more on market segments), either with cost advantage or with differentiation. This he termed ‘focus' strategy.

Cost leadership

Low cost should not be confused with low price. A business with low costs may or may not pass those savings on to customers. Alternatively, it could use that position alongside tight cost controls and low margins to create an effective barrier to others considering either entering or extending their penetration of that market. Low-cost strategies are most likely to be achievable in large markets, requiring large-scale capital investment, where production or service volumes are high and economies of scale can be achieved from long runs.

Low costs are not a lucky accident; they can be achieved through these main activities:

• Operating efficiencies: New processes, methods of working or less costly ways of working. Ryanair and easyJet are examples where analysing every component of the business made it possible to strip out major elements of cost, meals, free baggage and allocated seating, for example, while leaving the essential proposition – we will fly you from A to B – intact.
  
• Product redesign: This involves rethinking a product or service proposition fundamentally, to look for more efficient ways to work or cheaper substitute materials to work with. The motor industry has adopted this approach with ‘platform sharing', where major players including Citroen, Peugeot and Toyota have rethought their entry car models to share major components; this has become commonplace in the industry.
  
• Product standardization: A wide range of product and service offers claiming to extend customer choice invariably leads to higher costs. The challenge is to be sure that proliferation gives real choice and adds value. In 2008 the UK railway network took a long, hard look at its dozens of different fare structures and scores of names, often for identical price structures, which had remained largely unchanged since the 1960s, and reduced them to three basic product propositions. Adopting this and other common standards across the rail network they estimate will substantially reduce the currently excessive £½ ($0.8/€0.56) billion transaction cost of selling £5 ($8/€5.6) billion worth of tickets.
  
• Economies of scale: This can be achieved only by being big or bold. The same head office, warehousing network and distribution chain can support Tesco's 3,263 stores as well it can, say, the 997 that Somerfield had prior to being bought out by the Co-op. The former will have a lower cost base by virtue of having more outlets to spread its costs over, as well as having more purchasing power.
  

Even young innovative companies have to keep the pressure on cost reduction if they are to maintain their growth rates as they mature. Google, see the case below, shows there is no exception to this rule.

The experience (or learning) curve

The fact that costs declined as the output volume of a product or service increased, though well known earlier, was first developed as a usable accounting process by T P Wright, an American aeronautical engineer, in 1936. His process became known as the cumulative average model or
Wright's model. Subsequently, models were developed by a team of researchers at Stanford, known as the unit time model or Crawford's model, and the Boston Consulting Group (BCG) popularized the process with its experience curve, showing that each time the cumulative volume of doing
something – either making a product or delivering a service – doubled, the unit cost dropped by a constant and predictable amount. The reasons for the cost drop include:

• Repetition makes people more familiar with tasks and consequently faster.
  
• More efficient materials and equipment become available from suppliers themselves as their costs go down through the experience curve effect.
  
• Organization, management and control procedures improve.
  
• Engineering and production problems are solved.
  

CASE STUDY
  
Google discovers cost cutting

In October 2010, whilst most technology companies were reporting almost static profits and the motor and banking industries barely breaking even, Google managed to report that sales for the third quarter of the year were up 23 per cent compared with the previous quarter. Profit margins held steady at 35 per cent, significantly better than the 31 per cent achieved three years earlier. Their success was not attributed to increased revenues from new products. True, Gmail, Google Docs, Google Calendar and other web applications had all played a part in lifting sales revenue by around 3 per cent, but that left the lion's share of profit growth to keeping a tight lid on costs.

Out went bottled water and a host of other perks. Programmes were instituted throughout the company to ensure cost effectiveness. For example, their food service team closely examined café usage, food consumption and labour costs to find areas where efficiency could be improved without compromising food quality and nutrition. Cafeteria opening hours were trimmed back and the practice of those working late taking the dinners provided in the office to eat at home later was discouraged. Afternoon tea on Tuesdays for all and sundry was to be suspended, though to keep morale up, the company stated that there may be occasional surprise ‘snack attacks' in the future. Capital expenditure was slashed by 80 per cent and due to natural wastage the company ended the quarter with fewer employees.

TABLE 12.1
  
Google's sales and profit performance –
2007
–Q
3
2010