On Tuesday, we discussed the case of Intel Corporation. A significant portion of the case focused on Andy Grove, who began his career at Intel as the director of operations, and eventually was elevated to the position of CEO in 1987. Grove was regarded by many as one of the most effective managers of the late 20th century. He was very demanding, sometimes to the point of being autocratic, who set high expectations for everyone, including himself. He was detail oriented and was constantly looking for ways to drive down costs and speed up development processes. He was also known for a confrontational “in your face” management style and would frequently intimidate employees. He also demanded discipline and control. Despite all this, or perhaps as a result of this, he was admired and respected within the company for being a brilliant problem solver and a hard worker.
I thought it was interesting to learn about Grove’s management style and how he contributed to Intel’s success over the last few decades. Grove isn’t someone I’ve ever heard about before in any of my business or management classes, but that doesn’t mean he wasn’t as effective as someone much more prolific and well-knowns like Steve Jobs. I don’t know if I would necessarily subscribe to his aggressive style of management as my chosen management style, but it was certainly effective in motivating and inspiring his employees to work hard and seek creative solutions to problems. I think that my personal management style would be much more of a quiet leader who works behind the scenes to empower employees to reach their full potential. While I do think that being confrontational and demanding works quicker to intimidate employees into working hard, I don’t think I could personally do that just because it’s not my personality at all. I hope that if I end up going into management, I learn how to strike a balance between being too aggressive and too passive. Obviously, I wouldn’t want my employees to walk all over me and have zero respect for my leadership abilities, which is something I think many quiet leaders struggle with.
On Thursday, we discussed strategy and industry environment. The most interesting takeaway I got from the lecture was learning about the different types of industry environments – fragmented, embryonic, growth, shakeout, mature, or declining.
Fragmented – composed of a large number of small & medium-sized companies, with low barriers to entry permitting constant entry by new companies. For example, restaurants and law firms.
Embryonic – just beginning to develop when technological innovation creates new market or product opportunities. The objective is to share building. For example, solar power.
Growth – first-time demand is expanding rapidly as many new customers enter the market. The objective is to maintain competitive position. For example, CFLs and LEDs for lighting.
Shakeout – the objective is to survive when competition is the strongest.
Mature – dominated by a small number of large companies whose actions are so highly interdependent that success of any one company’s strategy depends on the response of its rivals. The objective is to defend the business model. For example, breakfast cereals.
To relate what we learned to Hasbro, I think that the games & toys industry exhibits characteristics of several of the different types of industry environments. If I had to categorize it into one, I would probably say it is in the shakeout or mature environment just because it is definitely not in the embryonic or growth stage, as the industry has been around for a very long time and hasn’t faced any significant technological innovations that would cause rapid growth. I think that it could be considered a fragmented industry because it has low barriers to entry. It isn’t difficult to create a new game or toy and enter the market.
On Tuesday, we discussed the case of Apple in 2008. It was pretty interesting to read about the firm’s history, because I had never really known that much about how the company started other than it was the brainchild of Steve Wozniack & Steve Jobs, and they created the first Apple computer out of their garage. I didn’t know about all of the changes in executive management the company had gone through and the different leadership styles and ideas each person brought to the table. When Steve Jobs rejoined Apple in 1997, the company was struggling to stay afloat and to stay competitive in the PC industry. His strategy to turn the company around was to form an alliance with Microsoft, cut product lines from 60 to 4, redesign products with elegance and style, establish physical retail locations, and to create innovative applications and products such as iTunes, the iPhone, and the App Store. It really is pretty remarkable how much Apple has been able to turnaround its business in the last decade.
Today, Apple products are so prevalent wherever I go. However, Professor Tuggle made a good point during our discussion when he said that Apple never pursued the business segment and could have established dominance in the market had they pursued it. This is true – even today, businesses and companies still use PC’s and Microsoft Operating Systems. Apple products are popular among the younger generation, and I see its dominance among my peers at school. But realistically, Apple still has a minority stake in the PC industry. They have a target niche that they dominate, but the company’s products are still not the industry standard.
On Thursday, we discussed business level strategies. Professor Tuggle tried something new with having the class break into groups and discuss amongst ourselves a company that embodies one of the four generic business-level strategies:
Cost Leadership – lowest cost structure vis-a-vis competitors allowing price flexibility and higher profitability – Class Example: Ikea
Focused Cost Leadership – cost leadership in selected market niches where it has a local or unique cost advantage – Class Example: Dollar Tree
Differentiation – features important to customers and distinct from competitors that allow premium pricing – Class Example: Toms
Focused Differentiation – distinctiveness in selected market niches where it better meets the needs of customers than the broad differentiators – Class Example: Tiffany’s
I thought it was a nice change to have the class get more involved in learning the important concepts. I think it would be good to occasionally switch up the typical lecture and have some class participation, but I don’t think the lectures/powerpoints should be completely eliminated. I would like to see a balance between lectures/powerpoints and class activities. Sometimes lecturing is more effective, especially when there is a lot of important information that needs to be covered. Class activities like the one we did on Thursday helped us gain a good understanding of the four business-level strategies, but we didn’t have time to learn any of the other terms or concepts in the chapter. So my overall opinion would be to keep the lectures and powerpoints, but occasionally throw in some class activities when an appropriate activity can be used to supplement the chapter.
On Tuesday, we discussed a case on Charles Schwab. It was interesting because this was the first case we’ve looked at that is an “appreciation case” versus a “decisional case.” With an appreciation case, there is no decision to be made. The purpose of the case is to give the reader a good understanding of the industry and the characteristics and strategy of the company. All of the previous cases we’ve looked at (Bally, Wynn, Harley-Davidson and Toyota) have been decisional cases, in which the reader is faced with a strategic problem the company has encountered and challenged to discover a solution.
The business model for Charles Schwab is to offer discounted stock trades without providing investing or consulting advice. The company’s competitive advantage is that it is trusted by customers because they are not trying to offer advice or sway the customer’s decision to purchase a particular stock. The company is also extremely operationally efficient both online and in their physical branch locations.
We reviewed a brief history of the firm and its origins as an entrepreneurial venture started by a young, smart businessman with the idea of forming a discount brokerage company that would empower investors by giving them the information and tools required to make their own decisions about securities investments. The firm was initially sold to Bank of America in 1983, but went through a management buyout a couple of years later, followed by an IPO. Charles Schwab served as CEO until 2003, when David Pottruck became CEO. However, one of the most interesting actions that happened with the firm was their decision to fire Pottruck in 2008 and reinstate Schwab as CEO, after Pottruck failed to maintain the company’s focus and mission on empowering investors and providing them with ethical financial services. It was interesting to learn the company’s justification for firing Pottruck because you don’t often hear about CEO’s being fired.
On Thursday, we learned about functional-level strategies, which are aimed at improving the effectiveness of a company’s operations. The desire is to give a firm superior: (1) efficiency, (2) quality, (3) innovation, or (4) customer responsiveness. One of the most interesting parts of the lecture for me was learning about the strategies to achieve superior quality; i.e. through cost leadership or differentiation. The differentiation strategy states that strong reputation for quality allows a company to differentiate its products. The cost leadership strategy states that eliminating defects or errors reduces wastes, increases efficiency, and lowers cost structure, thereby enabling low cost leadership and increasing profitability.
In the case of Hasbro, I think the company has done a pretty good job of achieving superior quality through the differentiation strategy. Hasbro has a great reputation for quality because it fulfills both dimensions – reliability and excellence. Even though the company is facing challenges right now with coming up with products that are attractive and relatable to kids today, I think the reason that Hasbro has been around for so long is because the company has been able to maintain a reputation of quality and excellence. Consumers associate the Hasbro brand name with superior quality and would pick up a Hasbro product over a similar product that didn’t have the brand name. The brand name is definitely something that Hasbro needs to leverage and take advantage of in their design and marketing of products.
On Tuesday, we discussed a case on Harley-Davidson Motor Company. It was really interesting to trace the company’s turnaround as a struggling company faced with a hostile takeover in the early 1980’s, to becoming a successful leader in the industry by the end of 2007. Throughout the case, the authors stressed the long-term steps that the executive leaders took to usher in Harley-Davidson’s revival. The complete turnaround took decades to show any significant progress, but this baby steps approach worked for the company because the small changes made overtime led to a major overhaul. Some of the steps taken included a change in leadership, more employee involvement, improving operations by studying Japanese quality and operations, and improving marketing relations with suppliers and customers through efforts such as the Preferred Suppliers Program and H.O.G. program. The company also had legal help from the U.S. government, which imposed tariffs on imported Japanese motorcycles for 3-5 years in order to allow the company to catch up and institute changes to become competitive again.
I thought this case was a great real-world example of a company that was able to revitalize a dying operation through small, incremental changes that eventually led to a major strategic shift in management style and operations. I think the mistake that a lot of managers make when they see a dying business is to try to implement major changes that will lead to a quick turnaround, but this is not always possible. Sudden changes can often lead to employee resentment and can end up hurting the business more than helping it. Sometimes, the baby steps approach is what the business needs in order to survive, so it should definitely always be taken into consideration.
On Thursday, we learned about the importance of conducting an internal analysis for a company. An internal analysis pinpoints the strengths and weaknesses of the organization and includes assessments of the firm’s resources and capabilities and distinctive competencies. In order for a company to build and/or sustain a competitive advantage, the company must achieve superior efficiency, quality, innovations or responsiveness to customers. A company is efficient if they require fewer inputs to produce given output. They have achieved differentiation through quality if customers perceive that a product’s attributes provide higher utility in excellence and reliability. Companies differentiate themselves through innovation through their products or processes. Finally, companies have a high degree of customer responsiveness if customers attribute more utility by a company creating differentiation with competitive advantage.
In the case of Hasbro, the company has aimed to achieve competitive advantage by differentiating itself through the innovative games and products they offer. As stated in their 2010 annual report, their success is dependent on continuous innovation in their entertainment offerings, including both the continuing development of new brands and products and the redesign of existing products to drive consumer interest and market acceptance. While some of their toys and games have become dated or out of style, the company is still pursuing other ways to renew and regenerate their brand name with consumers. For example, two of the most recent news stories I’ve found on Hasbro have mentioned how the company is teaming up with Zynga, which is a digital game maker that created the popular Facebook games FarmVille, Mafia Wars, and Words with Friends, to transform these digital games into physical board games. Hasbro also recently re-introduced some of their popular older board games, The Game of Life and Monopoly, with iPad and iOS integration, to appeal to tech-savvy consumers. Consumers can download apps from the App store, and use their iPads when playing the actual physical board games. For example, with The Game of Life, the app turns into a digital spinner that can be placed in the middle of the board game and substituted for the physical spinner. These actions are examples of Hasbro trying to maintain relevance in an industry that is constantly being reinvented due to technology.
On Tuesday, we did a case analysis on Wynn Resorts, Ltd. It was pretty interesting to read the case on Wynn, because while I was aware of the the resort’s presence in Las Vegas, I didn’t know that they also had a location in Macau, China. At first glance, it seemed like kind of a random location to have a resort in, but it actually makes sense because Macau, an island located about 37 miles southwest of Hong Kong, is actually a very popular gaming destination. While there are other operating casinos in Macau, most are relatively small facilities that are not on the high-end like the Wynn. The Wynn has found a tremendous growth opportunity in Macau because although the Chinese government does not allow casinos on its mainland, they have broken the casino monopoly in Macau.
Wynn’s main focus is to target high-end players. Wynn focuses on differentiating the company by concentrating on the atmosphere and design of the resorts and by enhancing customer service and luxury. The product that Wynn sells is a luxury destination experience, which allows consumers to justify spending significant amounts of money gambling, dining, drinking, shopping and at spas. I think that Wynn is definitely a great example of a company that has strategically developed their brand name to be synonymous with high-quality goods and services. Much of this strategic marketing can be attributed to the founder, Steve Wynn, and his passion, connections and experience in the tourism/gaming industry. On that note, one weakness that the case touched on was the company’s utter reliance on Steve Wynn, and the lack of succession plan in place should Wynn ever leave the company. I think it’s definitely dangerous whenever a person becomes more important than the company itself. Apple is another example of a company that relied heavily on its founder, Steve Jobs, to come up with ideas and lead the company to success. With Jobs’ recent death, I think we are all still waiting to see how the company fares without him. Hopefully, Wynn will be able to put a succession plan in place to avoid any fallout should they ever lose Steve Wynn.
On Thursday, we learned about the importance of performing an external analysis in order to identify strategic opportunities and threats in an organization’s operating environment. In order to perform an external analysis, you must understand the environment (the industry vs. the sector vs. market segments). One of the most effective ways to analyze a company’s external environment is to use Porter’s Five Forces Model, which I described in my last blog.
Another factor of the external analysis is the Industry Life Cycle Analysis, which analyzes the effects of industry evolution on competitive forces over time. There are five distinct life cycle stages:
In the case of Hasbro, I think it’s pretty safe to place the company in the Maturity stage. In mature industries, the market is saturated with little or no growth. Market share competition also leads to shrinking prices, price wars and declining profits. Surviving companies are efficient low-cost, have strong customer loyalty, and/or are strongly differentiated. Hasbro, by nature of being primarily a games & toy company, faces strong competition from other toy manufacturers who may come up with products that are more original or innovative. Success in the market is based heavily on meeting consumer entertainment preferences and on the quality of products manufactured. Hasbro must also deal with the phenomenon that many children have been moving away from traditional toys and games at a younger age and the array of products and entertainment offerings competing for the attention of children has expanded. In other words, “children getting older younger.” The company has recognized this stagnant growth and is making attempts to focus its brand blueprint on “continuously re-imagining, re-inventing, and re-igniting our brands.”