“Brilliant Strategy, More Brilliant Execution”

“Brilliant Strategy,More Brilliant Execution”

Prof. Jose. M. FaustinoAsian Institute of Management

Brilliant Strategy, More Brilliant Execution

Managers under pressure

• Adjust, anticipate, accelerate• Faster beat of the market• Replace old technologies• Faster changes• More threatening competition

Managers respond

• TQM Improving quality, do it rightfirst time, reducing waste

Brilliant Strategy, More Brilliant Execution

• Time-based competition Reduce cycle times, time to market

• Outsourcing

Reinforcing core activities, Contracting out non-core

Brilliant Strategy, More Brilliant Execution

• Benchmarking

Studying best practices, applying them to improve

• Partnering

Strategic alliances to develop products, markets technologies faster

Brilliant Strategy, More Brilliant Execution

• Reengineering

Reviewing all operations, reinventing to increase productivity

Brilliant Strategy, More Brilliant Execution

The Use of the Management tools lead to:

Operational Effectiveness

Brilliant Strategy, More Brilliant Execution

Prof. Michael Porter says:“Operational effectiveness isnot strategy.”

Example of the 1980’s:Japanese competing with superior operational effectiveness (or OE).

Brilliant Strategy, More Brilliant Execution

Result:• Global competitors respond

with TQM, reengineering, benchmarking

• They eliminate inefficiencies improve quality, enhance customer satisfaction, achieve best practice.

Brilliant Strategy, More Brilliant Execution

Brilliant Strategy, More Brilliant Execution

In the 1990’s, global competitors caught up with Japanese lead in OE.

Result: Profits have declined for the Japanese & have not recovered.

Brilliant Strategy, More Brilliant Execution

Need constant improvement in OE to achieve superior profitability. But difficult over longer run as best practices circulate and major players adapt well.

Brilliant Strategy, More Brilliant Execution

Emergence of the Value War, that no one can win. It is a Lose-Win proposition.

Brilliant Strategy, More Brilliant Execution

Yes, OE is important for success. But it is not enough, because OE is not strategy.

Brilliant Strategy, More Brilliant Execution

Unique Strategy No. 1:

Southwest Airlines, most profitable U.S. airline for the past 40 years.

Brilliant Strategy, More Brilliant Execution

Operational Effectiveness is doing similar things better than competitors.

Competitive strategy is about being different.

Brilliant Strategy, More Brilliant Execution

Full service airline:• Many points to fly• Connecting flights, hub and

spoke• First class, business class• Baggage transfer• Long flights: serve meals

Brilliant Strategy, More Brilliant Execution

Southwest Airlines strategy:• Short flights• Midsize cities • Secondary airports• Many flights per destination• Low, low price

Brilliant Strategy, More Brilliant Execution

Southwest also offers:• Online ticket purchasing• Automatic ticket machine• No meals • No interline baggage transfer• No business or first class

Brilliant Strategy, More Brilliant Execution

Competitive strategy is deliberately choosing a different set of activities to deliver a unique mix of value.

Brilliant Strategy, More Brilliant Execution

Strategic positioning begins with defining target segment and objectives to achieve.

Essence of strategy: You choose to perform activities differently than rivals do.

Brilliant Strategy, More Brilliant Execution

Southwest Airlines competition:• bus, train, PTM

Inexpensive fare

+ fun aboard= customer loyalty

SOUTHWEST AIRLINES’ ACTIVITY SYSTEM

Short-haul,point-to-point

routes betweenmidsize citiesand secondary

airports

Limited useof travelagents

Flexibleunion

contracts

Highcompensationof employees

No meals

No seatassignments

No connectionswith other

airlines

Standardizedfleet of 737

aircraft

Southwest,the low-fare

airlineHigh level

of employeestock

ownership

Automaticticketing

machines

Limitedpassenger

service

No baggagetransfers

Lean, highlyproductiveground andgate crews

Frequent,reliable

departures

15 minutegate

turnarounds

Highaircraft

utilization

Very lowticket prices

Brilliant Strategy, More Brilliant Execution

Unique Strategy No. 2:

A late entry that avoided me-too and devised a unique strategy.

Brilliant Strategy, More Brilliant Execution

Howard Schultz wanted to start his gourmet coffee chain in Seattle with a superior product, i.e., coffee manually and lovingly roasted by experts.

Brilliant Strategy, More Brilliant Execution

Schultz built his marketing concept around the superior product and developed STARBUCKS.

Brilliant Strategy, More Brilliant Execution

Schultz’ Strategic Positioning”

“Our business is not selling coffee… it is creating a consumption experience, in which coffee plays a part.”

Brilliant Strategy, More Brilliant Execution

Schultz: “A visit to Starbucks is romance, theatrics, community - the totality of the coffee experience.”

Brilliant Strategy, More Brilliant Execution

The Starbucks PTM:• Yuppies 25 - 45 years• Income over $35,000• University educated• Sophisticated self perception

Brilliant Strategy, More Brilliant Execution

Starbucks’ constant interaction with customers

• Consumer education together with Starbucks’ staff

• Product testing

Brilliant Strategy, More Brilliant Execution

Starbucks’ made a study revealing it cost more to hire/train/lose than retaining employees with benefits. So now it:

• Selects, trains with care• Offers stock ownership plan

Brilliant Strategy, More Brilliant Execution

• Treats employees as assets, not expenses

• Communicates Starbucks is a career, not a stopover.

Result: low turnover, happy crew, upbeat rapport with customers

Brilliant Strategy, More Brilliant Execution

Starbucks now the dominant brand in gourmet coffee

• with little media advertising• word-of-mouth (delicious)

advertising• unique consumption

experience

The STARBUCKSConsumptionExperience

(coffee culture)

Superiorcoffee quality

One week shelflife, only fresh

coffee

Low staff turnoverwith co. ownership

leadership skills

Well designed,strategically located

coffee bars

Persuasive well trained and

motivated people

Consumereducation andacculturization

In-house only:product testing and

market research

HighPremiumpricing

Specialroastingprocess

Buying thebest coffeeworldwide

Blendingonly the

best coffees

Take-homesales of coffee andsatellite products

R & D: Specialblends, new varieties

Programs donatingto CARE in coffeesource countries

Clusteringoutlets in

same location

MAPPING STARBUCKS STRATEGY

Brilliant Strategy, More Brilliant Execution

Example No. 3Jollibee Foods Corporation

No. 1 in fast foods using anymeasure: revenue, profit,

market share, top of mind

Brilliant Strategy, More Brilliant Execution

Jollibee has always developed products following Filipino taste preferences.

Brilliant Strategy, More Brilliant Execution

Jollibee’s obsession to keep improving quality and taste. For CEO Tony Tan it is an obsession.

Brilliant Strategy, More Brilliant Execution

Invisible weapon:Jollibee’s corporate culture

• quiet, unassuming• focused on PTM• low key but professional• positive relations with

franchisees

The Jollibee Value Creation System

IT Systems• on line • processes

Service• courtesy • fast service • convenience

Cleanliness• store

design•

maintenance

Advertising, Promo& Research

Service Quality Monitoring

Franchisee Relations

StoreExpansion

Strict QualityControl

R & D• new products • new methods

Jollibee Culture

CentralCommissary

Own Bakery• buns • pies

Food Quality• delicious,

fresh• local taste

Brilliant Strategy, More Brilliant Execution

Reviewing the Unique Strategy• All three examples have OE

(but so do competitors).• But all three developed a

unique strategy no one has matched.

Brilliant Strategy, More Brilliant Execution

Excellent OE will only guarantee your survival but at a low profit.

Brilliant Strategy, More Brilliant Execution

Comparing the strategy of the 1990’s with the unique strategy model, we see significant differences.

ALTERNATIVE VIEWS OF STRATEGY

THE IMPLICIT STRATEGY MODEL OF OF THE PAST

DECADE

• One ideal competitive position in the industry

• Benchmarking of all activities and achieving best practice

• Unique competitive position for the company

• Activities tailored to strategy

SUSTAINABLE COMPETITIVE ADVANTAGE

Brilliant Strategy, More Brilliant Execution

• Aggressive outsourcing and partnering to gain efficiencies

• Advantage rest on a few key success factors, critical resources, core competencies

• Flexibility and rapid responses to all competitive and market changes

• Clear trade-offs and choices vis-à-vis competitors

• Competitive advantage arises from fit across activities

• Sustainability comes from the activity system not the parts

Brilliant Strategy, More Brilliant Execution

Operate with quality and speed, but remember, the customer of the 2000’s likes to buy from the supplier with the distinctive, if not unique, value.

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