Chapter 12 Sustaining The Lead

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Chapter 12 Sustaining The Lead

• HDCS 4393/4394 InternshipDr. Shirley Ezell

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CasesScenarios

• Picture Kenneth Olsen (Founder Digital Equipment
  Co.)
  
• Moment 1 In the cover of Fortune Magazine
  (1986).
  
• Moment 2 Out/retirement
• Picture Manager Folk Wisdom
• Moment 1 CEOs Face appears in leading magazine.
  Moment 2 Decline.
  
• What is wrong with this picture?
• Questions you might ask Was Fortune magazine
  publicity the kiss of death?
  
• Over over companies slip after a few
  years of rave reviews.

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So What Happened?

• Research suggests companies/CEOs once
  praised fall into decline and fail to keep
  advancing strategically.
  
• They attain market leadership and rest on their
  laurels.
  
• Critical Rule Dominate your market
• by improving value year after year.

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What Should We Remember?

• When you lead, every competitor is waiting to
  knock you off.
  
• Another rule of business People emulate.
• If they dont actually duplicate what wins, that
  means you now have to change.

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What About the Continental Airlines Case?
And
Others..

• While Continental is trying to replicate
  Southwest Airlines Operating Model...
  Does that work?
  
• Microsoft is roughly matching Apple Computers
  easy to use operating system.
  
• Question So how do market leaders of different
  disciplines become product leaders with Customer
  Intimacy and Operating Excellence and then stay
  ahead?

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What Lessons Have Co.s Learned?

• a. Maintain the focus on their chosen discipline
  intensely compete with their own success.
  
• b. Work to improve their operating model and then
  make it obsolete.
  
• c. Become Operation Excellence firms striving to
  reach benchmarks of price and hassle-free
  service.
  
• d. Customer Intimate firms are trying to make
  their own total solutions obsolete.

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Additional Lessons Learned

• e. Product leaders are trying to destroy demand
  for their current products with brand new ones
  and better these products ahead of their
  competition.
• f. For all market leaders, advances in value to
  customers are gained by
  
• - Tightening Performance Standards
• - Re-engineering Work Processes
• - Up-grading Competencies

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What Are The Future Challenges?

• Operationally excellent companies have to shift
  to the next generation of no frills standardized
  assets to achieve the next level of efficiency.
  
• Product leadership companies have to see the next
  technology (the next concept) which may be beyond
  their current expertise.
  
• Customer Intimate companies have to let go of
  their current solutions and move themselves and
  their clients to the next paradigm.

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So What Are The Mistakes To Avoid?

• Do not over invest in efficiency (enhancing
  assets by acquiring new fangled machines).
  
• What is an example of this? Look at American
  Express. In 1980s, they feel into this trap by
  launching a 1 billion dollars genesis program to
  boast operating efficiencies through information
  technology.
• What did they do? They collected large amounts of
  data on cardholders buying patterns and this
  effort distracted them from their customer
  concerns. Result They
  forget the increasing price sensitivity of their
  merchants and consumer clients and the heavy
  investment in efficiency only added to AEs cost
  structure (Bad move!).

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Other Examples... American Airlines

• Developed a high tech Sabre division and made a
  science out of streamlining standard operating
  procedures including systematizing reservations
  and filling planes.
• What happened? The heavy investment in core
  assets (planes, gates, and hub structure) have
  now blocked further improvements. In the end,
  they couldnt compete against Southwest Airlines.
  Americans major hubs at Dallas/Ft. Worth and
  Chicagos OHare were high cost facilities
  compared to Southwest facilities at smaller
  airports in the same cites (Love Field Midway).

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What Else Complicated The Case?

• American had a wide span of different models of
  airplanes. This added complexity and killed
  efficiency.
  
• The American Sabre system was a high cost asset
  with large annual investments in maintenance.
  This was a good system for the domestic
  airline business but not the right asset for
  a hyper-efficient operating
  model used by Southwest Airlines.

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What Can We Learn From
?

• They have streamlined their operations and
  mastered the operational skills for running
  warehouse stores. What are there assets?
  
• a. Stores, Distribution Centers, Long-haul
  Trucks
  
• b. Good Inventory Systems
• But what will happen if customers
  move to home shopping?

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What Happened To MCI Telecommunications?

• Main asset is its telephone network that enables
  it to offer customers low prices on long
  distance.
  
• What if cable TV companies offer telephone
  service through their coaxial or fiber-optic
  lines?
  
• MCI will face grave competition from Time-Warner
  Telecommunication, Inc. and Microsoft, so they
  will need to restructure their assets to compete.
  Why? These other companies are investing in the
  future, and so must MCI.

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What Have We Learned About Sustaining Product
Leadership?

• Product leadership companies often become
  fascinated with great products. With each new
  idea or complaint, they rush back to labs and
  maybe they perceive shortcomings that are not so
  relevant.

• Product leadership companies may get too close
  to customers. User groups can critique current
  products but they dont produce the breakthrough
  innovations.
  
• These companies may invest improvements in
  current products and miss the next great product.

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So What lessons Have We learned?

• Products leaders often fumble with the future.
• Examples Lord Kevin (President of Britains
  Royal Society) declared that heavier than air
  flying machines were impossible.
  
• Jack Warner (cofounder of Warner Brothers
  Studio) produced the first talking picture
  was skeptical and remarked Who the hell wants
  to hears actors talk?
• A company can develop blind spots that
  impair its skill at sensing the potential of
  new technologies concepts.

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What Are Some More Examples Of Company Blind
Spots?

• GM didnt understand or act on the changing
  tastes of young car buyers who wanted lighter,
  faster, nimbler cars with a European feel. They
  thought the Chevy buyer would upgrade to bigger
  Buick's and then to Cadillac's.

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What Are Some More Examples Of Company Blind
Spots? (Cont.)

• a. Who knows what will happen to cars next?
• Will it be fully recyclable cars, battery cars,
  computer-guided transportation?
  
• b. Take this example to other firms.
• What will pharmaceutical companies do when
  genetic research prevents the disease and we
  dont need to cure it?
  
• c. Is the Microsoft example part of the answer?
• Invest heavily to accelerate innovation through
  close ties with faster-moving start-up companies?

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How Do We Sustain Customer Intimacy?

• Customer intimacy companies are susceptible to
  illusions that they can do absolutely anything to
  give customers the total solutions promised.
  
• This leads them to take on tasks they should
  decline.
  
• When your competition has copied you, you need to
  move on.

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What Are Some Cases Of Customer Intimacy
Companies?

• IBM had a dedicated a base of information systems
  professionals and their clients replaced their
  counterparts with financial executives and line
  managers. IBM professionals needed to learn new
  ways to speak to their new clients.
• Customer intimate companies have to stay 2 steps
  ahead of customers they must assimilate
  experience from multiple clients and acquire
  fresh insights from new people. They must stay
  smart.

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So What Did CEOs Learn?

• Companies must also periodically improve
  secondary disciplines.
  
• They must always focus on strengthening the
  companys value position.
  
• They must maintain operational focus. They often
  grow shortsighted about short-term rewards and
  they may expand too rapidly.
  
• The greatest temptation is greediness, milking
  their success instead or moving forward. They
  need to watch myopia, temptation and the loss of
  balance.