Wednesday, 25 September 2013

Why I believe Samsung is Successful? A look at core competences.

Hi all, sorry for the long absence I have recently started a masters in corporate strategy and I have been neglecting my blogging, finding Dr. Who didn't help either. I hope to start posting more regularly again and with the added insight gained from this masters.

Today I want to talk about the concept of core competences and how a company can utilise them to retain market share.

Samsung is a company that has been immensely successful in the last decade, I believe the reason for this is their ability to develop core competences.

Many companies become successful on the back of one or two majorly successful innovations and then find themselves unable to develop new products so they focus on incremental improvements or redesigns of old products.

As other firms imitate the original product the first to market firm loses its source of competitive advantage and must now find a new way to compete, often price which leads to outsourcing of tasks and an erosion of competences.

Samsung have perfectly avoided this by developing core competences in both screen and mobile processor technology, they did this through information sharing between business units and a focus on value adding components.

Samsung now produce some of the highest quality products in both of these fields and companies cannot imitate them. A result of this can be seen in the new iPhone 5s which uses a Samsung processor. Apple can no longer compete in this field and have lost any expertise they may have had due purchasing from a competitor. These are the activities that make Samsung successful.

A key theory and the grounding my thoughts on Samsung is an article called The Core Competence of the Corporation by Daniel Prahalad. I really recommend reading it.

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Monday, 12 August 2013

Corporate Social Responsibility or the Lack Thereof

Corporate social responsibility refers to the responsibility of organisations to give something back to society. After all, it is society which supports the organisation. The view is, that corporations need to make decisions based on the greater good of society and not just based on quarterly profits, this would lead to a lessoning of corporate environmental impact and social inequalities. While a socially responsible approach to business seems like something that should be central to business decision making, in many cases this is far from the truth. The problem lies in the fact that in many organisations board members answer solely to the shareholders and as we know shareholders are interested primarily in gaining a return on their investment. This leads to pressure on senior managers to behave in a way that provides maximum return even if this is at the expense of being socially responsible.

This approach has a damning effect on society and leads to problems such as unfair labour practices, failure to protect the environment and failure to protect workers. There is a blatant need for a greater emphasis on corporate social responsibility in society, this point can be illustrated by my earlier post, on the effects of bargain hunting, which highlights the savings corporations are willing to make at the expense of worker safety.

Apple have been in the news recently relating to this. Workers at Apple plant Foxconn have been driven to suicide apparently due to the harsh conditions they are faced with. Workers can live on site in terribly small quarters and work long hours for little pay. Apple are the most valuable company in the world but their workers are driven to suicide due to harsh conditions and many speak of how they could only dream about owning the products they make day in day out. This is a perfect example of shareholders before stakeholders and consumer apathy needs stop. Only we, as a collective, can force change by refusing to buy products from irresponsible companies.

To use a personal example, my family own a small business in a shopping area in Ireland. The building is ran by Tesco, similar to Walmart, who are refusing to reduce rents for any tenants who are still paying rates from the Celtic Tiger era. If I were to sign a lease in this shopping centre today I would receive a rate at roughly half of the price current tenants pay. Tesco officials have confirmed that and stated that reducing older tenants rent would affect shareholder returns. The average retailer has lost 30% of its turnover in this area but still pays the same rent so as not to effect shareholder returns of a company which had turnover of €3.07 Billion in its 2012 fiscal year.

When I here and experience things like this I can’t help but think of the poem attributed to Pastor Martin Niemöller:

“First they came for the communists, and I didn't speak out because I wasn't a communist.

Then they came for the socialists, and I didn't speak out because I wasn't a socialist.

Then they came for the trade unionists, and I didn't speak out because I wasn't a trade unionist.

Then they came for me, and there was no one left to speak for me.”

In society apathy has destroyed our solidarity with our fellow people. We will watch great injustice with little more than a fleeting thought but when it comes to our turn we will have no one to look to.

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Tuesday, 16 July 2013

The New Business Model That Could Save Physical Movie Rentals.

I am a big fan of strategy, as without effective strategy we are left with skills and resources. Without the ability to harness both, they are pointless and cannot lead to benefits. Strategy is the process of combining skills and resources to achieve certain goals. When I think of examples of effective strategy, I think of the Soviet Commander, Georgy Zhukov, who masterminded the defence of the Soviet Union during World War Two. Zhukov was a gifted strategist and many attribute his plots and ploys with turning the tide of the war. Effective strategies can be seen as cunning means to gain advantages and outperform competitors, and to see effective strategies unfold can be quite exhilarating.

I find it very interesting, and even exciting, when I see a company change their business model in a way that positively changes their outlook, this is done by developing new strategies. One business model that has been in major need of overhaul in recent times is the business of renting physical media such as Block Buster and Xtra-Vision. With sites such as Netflix delivering cheaper and more convenient services, not to mention the vast amount of content that can be downloaded for free by illegal means,  these businesses have seen their market share obliterated with many expecting that DVD rentals will soon be a thing of the past.

However, this business model has one key ally and that is the broadband deficit. Many people living outside major urban zones don’t have access to fast broadband and must go further out of their way to get movies. This has led many to share content with friends using flash drives which is also illegal but never the less very common and only furthers the woes of movie rental sites.

However, I have recently been alerted to a wonderful new strategy implemented by these companies and that is a switch to the more popular subscription basis. Now, both Block Buster and Xtra-Vision have started offering unlimited rentals for a modest monthly fee of around $25.00 or €20.00. I believe that this will allow the chains one final hurrah before they are forced into total obsoletion in the future. But anything that can keep thousands of people in employment in such a difficult field must be viewed as a major success and I would tip my hat eagerly to the man or woman who was so willing to creatively destroy an old business model to make space for the new!

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Sunday, 7 July 2013

The Human Cost of Bargain Hunting

With personal and business finances stretched thin for many, a quest for bargains has emerged. Greater society is now heavily focused on getting value for money and businesses are aware of this. Companies such as Primark/Pennies have built business models around closely mimicking the designs of high-street brands and these companies have seen major boosts in revenue, which insinuates that people are willing to sacrifice brand labels if the perceived benefit of cheaper products are higher. This is putting compressive pressure onto the value chains of both designer brands and discount brands, which may be good for the consumer but often leads to deteriorating conditions for the workers who are expected to produce garments at lower and lower costs.

Since the beginning of the global economic crisis consumers have become more and more willing trade brand labels for better value, which has put a major emphasis on cost reductions in the production of clothing. As high-street brands have lost market share to cheaper non branded producers they have had to follow suit and look to increase profit margins by reducing cost on the production side of the business which leads to a cycle of decreasing labour standards in the third world countries which make the clothing they sell.

Our drive towards cheaper consumer products has created a knock on effect which culminates in events like we saw earlier in the year at the Bangladesh Rana Plaza factory, which collapsed killing one thousand one hundred and twenty nine Indian garment makers. The factory owners were under pressure to reduce costs so they illegally built two additional floors, to increase output, using cheap and below standard construction methods. Vibrations from large generators in the building then caused the newly constructed floors to collapse, toppling the rest of the building.

Conditions in factories which produce garments for larger brands are typically better than what was seen in the Bangladesh Rana Plaza factory with companies like Adidas, Nike and Asics signing up for better practices. However, this is more often than not just to avoid corporate scandal and these practices can be more for show than anything else, with the actual conditions likely to be very poor for the workers with Nike often being accused of running sweatshops. I have read about cases where labour inspectors have seen workers hiding on roofs of factories belonging to major brands so they don't break overcrowding rules.

While it is easy to point the finger at these companies and say, how dare you cut so many corners and place such a low value on human life, every person who buys products made in these conditions are also to blame. Without us buying these garments there would be no demand for their products.

The issue seems to be apathy from consumers. I don’t believe that a company could make the move to competing on the basis of fair trade and not loose immense market share to cheaper competitors. Until we see public demand for human safety above bargains scenes like the Bangladesh factory collapse will never go away.

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Sunday, 16 June 2013

Trying to catch up with Google Maps? No “Waze”.

In 1987 Michael Porter published, “From Competitive Advantage to Corporate Strategy”. Porter’s research for this article showed that, at the time, corporations often performed poorly in relation to corporate level strategy. Through Porters study he found that, of thirty three large successful corporations, over half of acquisitions in new industries were divested and 60% in totally new fields were divested. This combined with a 74% divestment rate in unrelated acquisitions shows there was a startling need for better corporate strategy. 

While a greater focus on strategy has led to more effective mergers and acquisitions, it is still clear that some corporations do not understand how to make effective acquisitions. For example, News Corp.’s takeover of Myspace in 2005 was a major failure. Many cite the decline of Myspace as being caused by the acquisition. In 2005 Myspace was close to, if not, the most popular social network in the world. After becoming part of the News Corp. portfolio there was a clear failure to innovate and this allowed Facebook to effectively wipe the company out.

This is just one of a long line of failed acquisitions from around the world so when a corporation makes a really smart acquisition it is something to be admired. In the last few days Google has completed a one billion dollar deal to take ownership of Israeli based Waze.

Waze was created in 2008 by Israeli trio Uri Levine, Ehud Shabtai and Amir Shinar. The premise was simple, to create a mapping system which gathers real time traffic data from its user base and then alerts other users of traffic jams, accidents and even fuel prices. The system has become widely used and according to Yahoo! has amassed nearly fifty million users.

In recent times companies such as Apple have tried to take on Google in the mapping arena. Apple feels the need to develop its own map system as they are overly reliant on Google services such as YouTube and Google Maps. However Apple’s attempt failed miserably, with one man blaming the software for sending him the wrong way through a desert road which nearly led to his demise.

I believe that Google’s purchase of Waze can be viewed as both predatory and defensive and should be lauded as a wonderful takeover. While Waze will benefit the Google system it could have been used to give major credibility to Apple Maps and this was recognised and prevented by Google. While the value of Waze is likely to be far away from the one billion dollars paid, the value of keeping Waze away from Google’s competitors could justify the acquisition.

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Sunday, 2 June 2013

You Can Future Proof Any Business

The death of the high street should serve as a major warning to businesses about the changing times we live in. Some high streets are still successful but these are typically located in densely populated areas. There are also discontinuities in relation to types of businesses. I find it hard to believe that, without major transformation, the sale of physical media such as CD’s and DVD’s will continue for much longer. Companies such as HMV would have proved to be a major draw for city centre shopping fifteen years ago but now the company is struggling through receivership and I worry that at any price the new buyers will have made a less than prudent move.

So what are the discontinuities of the future? Will retail be hit harder and harder by online sales? Can businesses do something to protect themselves?

While it is hard to know which sectors will be the next to collapse under the weight of its own evolutionary failings, the decision makers of businesses are by no means helpless. The most important thing to do to protect your business from becoming obsolete is to stay ahead of the curve in relation to adopting cutting edge technologies or products relevant to your sector. In my next entry I am going to illustrate how any business can safe guard its future by doing this. I have found an Irish butchers which should serve as a shining beacon to any business unsure of how to modernise.

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Tuesday, 28 May 2013

The Forgotten Importance of Retail Managers

Being a manager has been described as, “serving the greater good by bringing people and resources together to create value that no single individual can create alone”. In many sectors and industries there is sufficient importance placed on the role of management. This importance is translated into extensive policies and practices in relation to the operations of management and the recruitment of managers. However, I have recently noticed major managerial failings in retail businesses.

For the purpose of this post it is important to understand that, in relation to retail chains which supply their own products for sale, the sentiments referenced only apply to the retail section of the business, thus excluding the production side.

Retail chains create value by selling products made by other businesses or by selling products made by their own parent company, in many cases both are true. This means that retail businesses have less opportunity to add value than other businesses. The main potential for value creation in retail is to create a strong brand image or create a unique customer experience. Yet in many retail chains, management’s major focus is to drive employees towards keeping the store neat and well stocked. While this is important it ignores the major benefits that could be gained by a focus on creating a customer-centric environment.

Imagine for a second that you are in a clothing store and you ask staff member to help you with a product. The staff member is clearly agitated as they are being pushed by management to perform a task in a set time. The experience you then have is one of being hurried by an impatient worker who is not interested in your query. Your view of this establishment will be permanently tarnished and if it continues you will take your custom elsewhere. This interaction would not be the fault of the worker but instead, the managers. In many cases retail managers are selected based on time of service and when promoted they receive very little training in relation to leadership but are only taught how to perform new operational tasks. These operational tasks would be primarily focused on rotas and ordering, but this is not the most important aspect of managing in retail as illustrated by the above story.

This issue is a failing in relation to business level strategy. Businesses and parent companies need to put more focus on genuine leadership as opposed to forcing managers to be no more than higher paid operational employees. Creating a customer-centric environment will lead to major gains in retail chains but this cannot be done without training managers to better understand their roles and importance within the industry.

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