“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


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

• Outsourcing

Reinforcing core activities, Contracting out non-core


• Benchmarking

Studying best practices, applying them to improve

• Partnering

Strategic alliances to develop products, markets technologies faster


• Reengineering

Reviewing all operations, reinventing to increase productivity


The Use of the Management tools lead to:

Operational Effectiveness


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

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


Result:• Global competitors respond

with TQM, reengineering, benchmarking

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



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

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


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


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


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


Unique Strategy No. 1:

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


Operational Effectiveness is doing similar things better than competitors.

Competitive strategy is about being different.


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

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


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


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


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


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

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


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


Unique Strategy No. 2:

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


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


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


Schultz’ Strategic Positioning”

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


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


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


Starbucks’ constant interaction with customers

• Consumer education together with Starbucks’ staff

• Product testing


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


• Treats employees as assets, not expenses

• Communicates Starbucks is a career, not a stopover.

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


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


Example No. 3Jollibee Foods Corporation

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

market share, top of mind


Jollibee has always developed products following Filipino taste preferences.


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


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


Reviewing the Unique Strategy• All three examples have OE

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

unique strategy no one has matched.


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


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


• 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


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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“Brilliant Strategy, More Brilliant Execution”