Posts Tagged ‘michael porter’

The Shifting Language of Strategy

December 23, 2010

My post on International Business terms got me thinking about the shifting popularity of Strategic Management terms.

So, here we go with some comparisons.

Let’s start with the topic itself and its two main constituent threads (i.e. strategic management, corporate strategy, and business strategy):

All three terms boomed from the late 1970s, but it was business strategy (i.e. decisions about how to compete in markets) that screamed away from corporate strategy (what markets to compete in).  As with many of the IB terms, all the concepts have faded in recent years, perhaps as conversations became more specific (or even less-business focussed).

It doesn’t surprise that such corporate strategy has waned in a relative sense, as the orthodox rhetoric has been towards streamlined, focused organisations.  Looking at some of the typical such corporate strategy terms (diversification, mergers, acquisitions, outsourcing), shows a genuine plateauing in all terms, other than outsourcing which has raced up in the past decade (this no doubt reflects not just usage by strategy scholars, but also the critics thereof). Diversification peaked way back in the late 1980s (although this term has a considerably wider usage than its strategy meaning), which correlates pretty nicely with the decline in such behaviour (at least by Western firms):

The influence of Michael Porter, and his big ideas/tools (Five Forces, generic strategies) have proven surprisingly consistent in terms of usage, although they too have waned this millennium:

In terms of talking about competitive advantages, core competences/core competencies peaked in the early 200s, while dynamic capabilities are still on a steady rise (I get similar results with the singular versions of the terms):

What terms have I missed (conscious that comparing phrases with different word counts is not practical/tenable, nor does it make much sense to use terms with other common uses, such as resources)?

As this is likely to be my last pre-Christmas post, I wish you all a fun festive season and safe passge into 2011.

 

The power of Aussie retail giants

March 17, 2010

I blabber on here regularly about the strategic decisions of Australia’s two biggest retailers – Coles (now part of the Wesfarmers empire) & Woolworths. The sheer size and breadth of these two firms’ operations warrant considerable attention.

The folks at ABC TV’s Hungry Beast have done a great job of bringing together the relevant stats and information about strategic agenda (and outcomes) for these two giants in a very neat, short presentation:

As their graphics show (although not explicitly), there is a lot going on in terms of Porter’s Five Forces.  Coles/Wesfarmers and Woolies have affected the economic structure of their industry(s) substantially so as to:

– reduce Rivalry (by acquiring competitors, and by building strength across retail markets so as to reduce the likelihood of competitive attacks)

– increase their Bargaining Power vis-a-vis Suppliers

– reduce Buyer’s choices of store operators (and thus their Bargaining Power)

– build substantial Barriers to Entry (although I would argue the Hungry Beast folks have misused the term greenfield).

The result is two firms that a massively oversized for the relatively small economy in which they operate.  Australia accounts for roughly 1.1% of the global economy (in terms of GDP).  Adding NZ (where these firms have much smaller coverage) only raises that figure to 1.26%.

Nevertheless, these firms come in at #26 and #28 on the Deloitte rankings of Global retailers by revenue. They are larger than all but 3-4 of the US’s supermarket chains, and of the British chains only Tesco is larger. Other than the US’s Kroger, Safeway and Supervalu, and Germany’s Edeka, no other large grocery chains operate in anywhere near as few countries (the rest are in 8-36 countries).

Seems like more evidence why I should be shopping at Aldi, my local farmers’ market and independent liquor outlet…

And thanks to Sakshi for bringing this clip to my attention.

Bargaining over Bubbly

August 27, 2009

Students from my Strategic Management classes (and those taught by my colleague Tom), will be familiar (if not sick of) the champagne example we use to illustrate and explore the Five Forces framework.

We spend quite a bit of time trying to untangle that likely dynamics of the relationship between the numerous (but geographically confined) growers and the champagne houses who transform their grapes into the bubbly bottled stuff.

This recent piece in The Economist sheds some light on the recent state of affairs. Faced with a recent slump in demand for their product, the champagne-makers have been stockpiling output, and are now bargaining fiercely with the growers (seeking effectively a 50% cut in prices in the upcoming round of contract negotiations). Faced with such a situation, growers’ profits can only be hurt (with a commensurate boon for the makers).

Beware of the Sticky Middle

August 21, 2009

One concept students (and scholars) of strategic management sometimes struggle with is the warning from Michael Porter about being stuck in the middle.  So too do businesses.

The idea is that firms who sit on the fence, differentiating somewhat while keeping costs at the lower end, will invariably struggle with the incompatibility of such goals, and thus fail.  More single-minded competitors will win out by pursuing EITHER (i) uniqueness that competitors value (and therefore pay for); OR (ii) cost efficiencies such that their products will have a low price advantage. 

Critics of Porter’s generic strategies have argued that he is too simplistic in his conceptualisation of markets and consumer behaviour, and that firms adhering to his gospel may miss a large, valuable middle ground of consumers where some slight differences and some best price offering will win out.

Source: The Economist (2009)Data presented in this Economist article (and the accompanying graph – right) would seem to support Porter’s arguments.  It shows the massive uptake in store brand groceries (a.k.a. private label or home brands), and the corresponding drop in sales for other brands in the German market over the past decade.

High end offerings and the most popular brand in a given category have held their ground. But elsewhere in a category, it is the more efficiently manufactured (due, in part,  to the enormous economies of scale guaranteed by retailer endorsement), lower priced products that have won out.

Message to firms:  be very, very good at what you do (that smells like the resource-based view to me)  and/or find an attribute consumers will pay considerably more for, or get extremely efficient at product manufacturing (thus winning the contract to produce a store brand). Otherwise, you will perish.

Supermarket hold-up in Belgium – quasi-rents at stake

February 19, 2009

It is rare that we see public demonstrations of what we verbose academics call the appropriation of quasi-rents. But just such a scenario is playing out in the Belgian retail arena.

In early February Belgian supermarket chain Delhaize (the 33rd largest retailer on Deloitte’s list) ceased stocking around 300 products from Unilever, the world’s 3rd largest fast-moving consumer goods giant (behind Nestlé and P&G). This represents a sizable majority of the 480 products usually stocked (and includes such brands as Dove, Sunsilk and Lipton).

delhaize-vs-unilever2

This move springs from Delhaize’s unwillingness to match Unilever’s price demands and also the retailer’s desire to not stock some of Unilever’s less popular brands.

This is exactly the sort of scenario transaction cost economists get all excited about. There are a series of relationship-specific investments in place (in brands and locations) leading to small number bargaining. This means firms are want to hold up the other party in an attempt to extract the quasi-rents from the situation.

Put differently, this is the bargaining power of suppliers/buyers element of Porter’s Five Forces at work.

It is a little unclear who triggered this. Supermarket chains are often chastised for squeezing suppliers and there is a feeling that the current climate is escalating this tendency. On the other side of the equation, giants such as Unilever are typically viewed as less susceptible to such pressures due to the enormous breadth of their offerings. The fact that this breadth is a stumbling block in this standoff is enlightening. Delhaize would seem to be trying to shift the balance.

Currently, the data coming out seems to indicate that Delhaize is been hurt by this decisions with customers showing considerable loyalty to the brands rather than the retailer.

It is worth noting that Delhaize is only pursuing this approach in one national market at the moment, and that market is less than a quarter of their business. Perhaps they are getting some practice (or testing the waters) before trying it on a bigger stage (such as the US which constitutes almost 70% of their sales).