“Brilliant Strategy, More Brilliant Execution”

1. “Brilliant Strategy, More Brilliant Execution” Prof. Jose. M. Faustino Asian Institute of Management

2. Brilliant Strategy, More Brilliant Execution Managers under pressure • Adjust, anticipate, accelerate • Faster beat of the market • Replace old technologies • Faster changes • More threatening competition

3. Brilliant Strategy, More Brilliant Execution Managers respond • TQM • Improving quality, do it right • first time, reducing waste

4. Brilliant Strategy, More Brilliant Execution • Time-based competition • Reduce cycle times, • time to market • Outsourcing • Reinforcing core activities, • Contracting out non-core

5. Brilliant Strategy, More Brilliant Execution • Benchmarking • Studying best practices, • applying them to improve • Partnering • Strategic alliances to • develop products, markets • technologies faster

6. Brilliant Strategy, More Brilliant Execution • Reengineering • Reviewing all operations, • reinventing to increase • productivity

7. Brilliant Strategy, More Brilliant Execution The Use of the Management tools lead to: Operational Effectiveness

8. Brilliant Strategy, More Brilliant Execution Prof. Michael Porter says: “Operational effectiveness is not strategy.” Example of the 1980’s: Japanese competing with superior operational effectiveness (or OE).

9. Brilliant Strategy, More Brilliant Execution • Result: • Global competitors respond with TQM, reengineering, benchmarking • They eliminate inefficiencies improve quality, enhance customer satisfaction, achieve best practice.

10. 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.

11. 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.

12. Brilliant Strategy, More Brilliant Execution Emergence of the Value War, that no one can win. It is a Lose-Win proposition.

13. Brilliant Strategy, More Brilliant Execution Yes, OE is important for success. But it is not enough, because OE is not strategy.

14. Brilliant Strategy, More Brilliant Execution Unique Strategy No. 1: Southwest Airlines, most profitable U.S. airline for the past 40 years.

15. Brilliant Strategy, More Brilliant Execution Operational Effectiveness is doing similar things better than competitors. Competitive strategy is about being different.

16. 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

17. Brilliant Strategy, More Brilliant Execution • Southwest Airlines strategy: • Short flights • Midsize cities • Secondary airports • Many flights per destination • Low, low price

18. 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

19. Brilliant Strategy, More Brilliant Execution Competitive strategy is deliberately choosing a different set of activities to deliver a unique mix of value.

20. 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.

21. Brilliant Strategy, More Brilliant Execution • Southwest Airlines competition: • bus, train, PTM • Inexpensive fare • + fun aboard • = customer loyalty

22. SOUTHWEST AIRLINES’ ACTIVITY SYSTEM No baggage transfers No meals Limited passenger service No connections with other airlines No seat assignments Limited use of travel agents Frequent, reliable departures 15 minute gate turnarounds Standardized fleet of 737 aircraft Short-haul, point-to-point routes between midsize cities and secondary airports Lean, highly productive ground and gate crews Very low ticket prices Automatic ticketing machines High compensation of employees High aircraft utilization Southwest, the low-fare airline Flexible union contracts High level of employee stock ownership

23. Brilliant Strategy, More Brilliant Execution Unique Strategy No. 2: A late entry that avoided me-too and devised a unique strategy.

24. 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.

25. Brilliant Strategy, More Brilliant Execution Schultz built his marketing concept around the superior product and developed STARBUCKS.

26. 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.”

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

28. Brilliant Strategy, More Brilliant Execution • The Starbucks PTM: • Yuppies 25 - 45 years • Income over $35,000 • University educated • Sophisticated self perception

29. Brilliant Strategy, More Brilliant Execution • Starbucks’ constant interaction with customers • Consumer education together with Starbucks’ staff • Product testing

30. 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

31. Brilliant Strategy, More Brilliant Execution • Treats employees as assets, not expenses • Communicates Starbucks isa career, not a stopover. • Result: low turnover, happy crew, upbeat rapport with customers

32. 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

33. Special roasting process High Premium pricing MAPPING STARBUCKS STRATEGY R & D: Special blends, new varieties Buying the best coffee worldwide In-house only: product testing and market research One week shelf life, only fresh coffee Consumer education and acculturization Blending only the best coffees Superior coffee quality The STARBUCKS ConsumptionExperience (coffee culture) Take-home sales of coffee and satellite products Clustering outlets in same location Well designed, strategically located coffee bars Persuasive well trained and motivated people Programs donating to CARE in coffee source countries Low staff turnover with co. ownership leadership skills

34. Brilliant Strategy, More Brilliant Execution Example No. 3 Jollibee Foods Corporation No. 1 in fast foods using any measure: revenue, profit, market share, top of mind

35. Brilliant Strategy, More Brilliant Execution Jollibee has always developed products following Filipino taste preferences.

36. Brilliant Strategy, More Brilliant Execution Jollibee’s obsession to keep improving quality and taste. For CEO Tony Tan it is an obsession.

37. Brilliant Strategy, More Brilliant Execution • Invisible weapon: • Jollibee’s corporate culture • quiet, unassuming • focused on PTM • low key but professional • positive relations with franchisees

38. The Jollibee Value Creation System Advertising, Promo & Research Store Expansion • Service • courtesy • fast service • convenience Service Quality Monitoring Strict Quality Control Franchisee Relations Jollibee Culture • Cleanliness • store design • maintenance Central Commissary • R & D • new products • new methods • IT Systems • on line • processes • Own Bakery • buns • pies • Food Quality • delicious, fresh • local taste

39. 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.

40. Brilliant Strategy, More Brilliant Execution Excellent OE will only guarantee your survival but at a low profit.

41. Brilliant Strategy, More Brilliant Execution Comparing the strategy of the 1990’s with the unique strategy model, we see significant differences.

42. Brilliant Strategy, More Brilliant Execution ALTERNATIVE VIEWS OF STRATEGY THE IMPLICIT STRATEGY MODEL OF OF THE PAST DECADE SUSTAINABLE COMPETITIVE ADVANTAGE • 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

43. 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

44. 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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