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The BCG matrix revisited

October 25, 2015 Leave a comment

In 1970 Bruce Henderson drafted the Growth-Share matrix as a tool to help companies allocate their resources to their different products, according to the market attractiveness and the firm`s competitiveness in each market. (1) The BCG has revisited the concept in a paper by Reeves, Moose and Venema. (2) and (3)

Matriz y vision

They state in the years passed, the number of conglomerates has dropped and also a more dynamic and unpredictable environment has emerged. Read more…

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What`s the core of a Digital Transformation?

In this post we will be following the research-survey made by Gerald C. Kane, Doug Palmer, Anh Nguyen Phillips, David Kiron and Natasha Buckley, recently published by MIT and Deloitte, (1).

Their first contribution denies technology itself as a strong digital transformation tool; what really transforms businesses is the way firms integrate technologies, (social, mobile, analytics and cloud). And digital leaders, apart from having a clear digital strategy, have the leadership and culture to invest in organizational change, talent gathering and build-up.

Mit and Deloitte classify firms in Early, Developing and Maturing stage in their path to be a digital firm, that is one ”transformed by digital technologies and capabilities that improve processes, engage talent across the organization and drive new value generating business models.” Read more…

Choosing among strategy options. Strategy approaches.

I have posted several comments on strategy before, (1), and a certain idea that all options seem reasonable arises, but of course, strategy cannot be drafted following ten different alternative procedures, (if there were only ten…). Harvard Business Review published in June 24th 2015 an article by Martin Reeves, Knut Haanaes and Janmejaya Sinha, based on this particular idea, which at the same time is an abstract of their book “Your strategy needs a strategy” (2) y (3). Choosing a strategy option correctly is more relevant every year as the path of change becomes faster and faster. The authors compile up to 81 options since 1958, and they state that the relationships between them are not clear and neither are the reasons clear to choose one or the other in any given set of circumstances. (See below just a sample of the options). Read more…

20 Questions to be asked by directors about strategy, by the Canadian Institute of Chartered Accountants

October 11, 2014 1 comment

The CICA published in 2012 a third version of their “20 Questions Directors Should Ask about Strategy”, that they first released in 2003. This is just one among different reports of the kind, their “20 Questions series”, which they provide to enhance the directors effectiveness and education.

 

Strategy is one of these areas where directors need to be more focused than ever in the XXI century, as many new factors have appeared, (many of them correctly named after the word “fast”: globalization, evolving regulation, technology dominance, etc,).

 

The 20 questions are structured under certain areas: (I) allocation of responsibilities, strategy design and implementation. We will briefly follow each of them. Read more…

What is left of Porter`s five forces model?

July 27, 2013 2 comments

In November 20th 2012, Eteve Denning wrote an article in Forbes under the title ”What Killed Michael Porter’s Monitor Group? The One Force That Really Matters”.

 

It was a very critical approach to Porter`s main contribution to the theory of Strategic Management, and was very unfairly supported in the fact that the Monitor Group, (once created by Porter as a consulting firm that applied his theories), had been forced to file for bankruptcy protection.

 

The five forces model allows firms to protect and preserve in time a situation of above-normal profits, whether through strategic relationships with customers, providers, competitors, potential entrants and substitutes. Firms with above-normal profits were those that were able to introduce some oligopolistic strength to their relationships with those five forces, some kind of barrier to the competing inertia they exert.

 

What he discovered was a way to determine the structure of the market, so that firms could alter (or use) the way the Harvard Industrial Economics paradigm understood market forces; according to Bain and Mason, in the 1920`s, the structure of a market determined the Conduct of participants, and consequently, certain effects were obtained: price, volume of the market, efficiency, and so on. Somehow Porter discovered that market structures are an endogenous variable, that depended on the conduct of the market agents, so that insofar as they were able to alter the structure, they could also obtain the above-normal profits, and preserve them in time as desired.

 

Steve Denning remarks the thought that Porter`s recommendation was to avoid competition, so as to preserve the profits, which is slightly unfair. It does not follow from his model that a company could forget about customer`s evolving needs, new technologies, new products and services, (substitutes or not). When talking about emergent industries in which a firm could invest, his proposal was that a decision would be good if the ultimate structure of the market (not the initial one) allowed to obtain above-average profits.

 

But still Denning and others view Porter as considering the market as a given, where the customers exist and continue to be there for the best strategist to obtain the above-average profits for ever. And he unfairly takes the example of his consulting group, that, briefly said, used the five-forces model, forgot about adding value to its customers, and failed. As Denning puts it, for Porter “Strategy is all about figuring out how to secure excess profits without having to make a better product or deliver a better service”.

 

Denning nevertheless recognizes Porter tries to correct his failure in 2011 with his article about “Shared Value”, which is defined as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.” Even tough, Porter is not given too much credit for that.

 

Another critic by Denning suggests the time in which Porter created his model, was a time of oligopolistic firms, where it was easier to preserve profits in time. But he argues this time is past, as globalization and internet destroyed the capacity by firms to build barriers; new products and entrants constantly redefine markets. Disruptive innovations have a formidable strength to alter the profit capacity of industries, thus to turnaround the players group in each industry through time.

 

He uses the examples of Zara, Amazon, Salesforce, and some others, as firms that centered their efforts in innovation and adding value to their customers, instead of in protecting whatever profit situation they might have had at a certain moment in time. But at the same time, he states his doubt about the fact that continuous innovation can be sustained.

 

As I see the answer to that doubt, continuous innovation can be obtained in some cases for some time, but the big amount of resources obtained by those firms might help them avoid innovation by others, whether by purchasing succesful start-ups, by blocking their commercial possibilities, and so on. This has been a normal practice by so-called disruptive firms once they are not the first innovation champion in the industry: take Microsoft, Google, and  many other firms in so many smaller markets and you will still see a lot of this five-forces model battle. All those firms fight for their trademark, in order to build barriers; all of them fight with each other with crossed and multiple patents, more useful against competitors that for the firm itself; they purchase small innovative firms that lack resources to fight with their fantastic financial situation, (what has that to do with customer satisfaction?).

 

Perhaps the time passed for the model as a single tool, but his place is still well among us, and for long.

 

In her book “The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business”, Rita McGrath takes a more moderate approach than Denning. She admits “sustainable competitive advantage” is not an acceptable unique concept today, and advocates for what she calls “transient competitive advantage”.  Some of the most successful companies have very fast seen their competitive advantage fail, (just think of RIM-Blackberry), so that a firm cannot rely on protecting it, but to keep itself in a continuous process of reconfiguration. And there is also a need to know this is the new environment, so as to avoid sunk costs that are incompatible with the idea of constant reconfiguration.

 

This is perhaps a more pragmatic approach: keep the above-average profits while you can, but keep always looking for innovation and reconfiguration, so as to have a “transient competitive advantage”.