Building a socially valuable chain of activities at Ben and Jerry’s

Wednesday’s presentation from the Ben & Jerry’s founders was certainly a popular event (I guess free icecream trumps the pain for many of us standing for an hour+). They told some fantastic tales of their almost accidental rise to fame and fortune.

The main message of their talk was how a business can be run in a socially responsible fashion. They offered some intriguing examples of (as they put it) “improving the quality of life in our community” without necessarily contradicting the usual modus operandi of business (i.e. pursuing customers with an attractive product).

It was great to see how they had leveraged their existing value chain and capabilities to deliver genuine social benefits.

At the supplier end they discussed their involvement with Greyston Bakery in Yonkers, New York. This bakery offers training and employment opportunities for socially-disadvantaged folks. Rather than just throwing these guys some money to keep up their good work, Ben & Jerry’s designed an ice-cream (Chocolate Fudge Brownie) using the Bakery’s output. They said this now sends around $4m worth of business the bakery’s way each year. See more on this here (including a cool video).

At the distribution end the firm has awarded a number of their retail franchises free to not-for-profits in various locations. Again, these NGOs usually offer training and employment opportunities for at-risk youth. These Partnershops look and feel like the for-profit stores, and the charities presumably seek to make surpluses in just the same fashion, equipped with the processes and expertise transferred to all franchisees.

Both of these approaches embrace the power of the firm’s core competitive advantages (designing, marketing and delivering fancy ice-cream) so as to achieve a financially and socially profitable result. It’s a great model for others to follow and adapt.

Oh, and the free Chunky Monkey Ice-cream tasted great. See a brief snippet from Jerry here.

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Putting a pretty face on internationalisation

There was a nice piece in yesterday’s paper on the international expansion by Aussie cosmetics wonder Napoleon Perdis.

It is chock full of value chain choices that appear to have made considerable difference to his firm’s success:

1. Building a dedicated distribution facility in Los Angeles (thus cutting out the middle-man and accessing those rents)
2. Tapping into the retail outlets of Target across US (and helping them to go upmarket)
3. Jumping onto parallel value chains in terms of the beauty school, body and bath, skincare and now even health spa and hotel businesses (leveraging strong brand awareness and relatedness)

In an international business sense, the firm doesn’t seem to have been hampered by any particular liability of foreignness. I guess it might be hard for a consumer to work out where the product is from anyway…. Greece? France? Australia? Austria?

Sticking to your knitting at Citi

A common catchcry in the strategic management literature is the phrase stick to your knitting.

This refers to the need to focus your intention clearly within a well-understood competitive domain. We might call this domain ‘an industry’, or we might call it ‘a market’, or a bunch of ‘consumers’.

The argument rests on the logic that firms often cannot replicate business models or business strategies when the underlying technology/production or distribution process differs too substantially; or put differently, when they can’t get any synergies across value chains.

This opinion spot from the Wall Street Journal makes a pretty convincing case that US banking giant Citi ignored this mantra, as they pursued the idea of a financial supermarket – a one-stop shop for everyone’s financial needs.

Citi made claims that they wanted a billion customers(!), which is a viable (if enormously hairy and audacious) goal if there were sufficient commonalities between the customers.

The reality of the financial sector is that it isn’t a supermarket or even a hypermarket. We don’t have a large swathe of relatively inert consumers picking and choosing between whatever mass-produced goods are plonked down on the shelf. Running the store is not as simple as offering shelf space and negotiating with suppliers, real estate developers and building big and efficient warehouses.

Banking works in a much complex way. Banks are, in essence, intermediaries between a range of different parties who in themselves often play multiple roles.

Thus we have firms and individuals who supply the input (money through savings and investments), and more of them again who purchase these funds (via mortgages and loans). We have more folks, again, designing complex products that may serve to generate returns and offset risks, and more again spruiking such products, or bundling them up.

And don’t forget those interested in attracting equity to their business, or in facilitating sales and purchases of other businesses. Nor should we overlook that most of roles are not mutually exclusive and the same firms may be seeking some or all services at a given time. As household consumers we play a less multifaceted but still complex role.

Citi look to have got their value chains very tangled up. They failed to adequately deal with significant (and perhaps irreconcilable) conflicts of interest. They neglected to distinguish between suppliers and buyers.

They are finally starting to extricate themselve from this mess. They have spun off their brokerage arm and rumours are flying about more to come.

It remains to be seen whether such efforts are too little too late. Without bailout money from the US government it is unlikely this strategy would have survived this long. So, remember, stick to…Follow @drsamma




Too much Wii in this Blue Ocean?

I am certainly not alone in relishing my user experience with a Nintendo Wii. Nor am I the first person to think about the Wii strategy as clearly Blue Ocean.

For those of you who haven’t encountered this concept, Blue Ocean Strategy is the idea, as espoused by two INSEAD academics and consultants, that firms will reap much greater rewards from seeking out a competitive space where they encounter few or no competitors. Doing so requires firms to identify non-customers who are ignored by current competitors in the red-ocean market space (it is red because of the “blood in the water”), and then offering them new and unexpected sources of value.

The Wii strategy fits this definition on several fronts. It targeted non-gamers, such as females, families and all of us folks who sneered at hardcore gamers. The Nintendo president has described the firm as “swimming in a clear sea teeming with women, pensioners and repentant couch potatoes” . It broke the nexus between console innovation and chip technology. It made gaming more of a collective, social, family endeavour. It did not pursue the console as a loss leader (i.e. didn’t adopt the razor model – ‘charge a little for the handles but a lot for the blades’). The firm reportedly makes a nice profit on the consoles (unlike Sony and Microsoft who drop >$100 on each pricey console they sell but hope to make it back on games sales to their frequently purchasing customers).

This analysis highlights the extent to which Nintendo’s new value proposition is built around fun (and the elimination of costly elements that the new customer segments weren’t after anyway, such as the ability to play movies or experience hyper-real graphics). There is further discussion of the Blue Ocean arguments here.

Most of these discussions have ignored the other key (non-Blue Ocean) strategic advantage that Nintendo have – that they control a greater proportion of their Value Chain than their rivals. Nintendo do much of their game development in-house, and thus reap greater returns from the decision of consumers to choose the Nintendo format over others. As Forbes has noted, the biggest sellers for the Wii are Nintendo’s own products, and not having to pay license fees (plus the simpler technology involved) has kept game prices down (and thus sales up).

Of course, this also means Nintendo bear the risk of any new game failing. For example, there is considerable doubt in the market about the Wii Music offering. The general criticism is that it doesn’t match up to our typical expectations of a game – it is too educational, with no clear winner/loser. But isn’t that what Blue Oceans are all about?

Little white rabbits – the logic of multiple brands

Western Australian craft/micro brewer Little World Beverages (LWB) has announced that its adding another line of beers to its stable. The listed firm, which currently brews several beers under the Little Creatures label, is opening a new brewery just outside Melbourne, and the beers out of this new location will be called White Rabbit. This raises a few strategic management questions:

Scale: Is there a maximum efficient scale for microbrew brands? To clarify, Little Creatures is a very successful boutique beer, priced above the mainstream Aussie faves and around the same as imports. It gets reasonable shelf (or tap) space in most decent pubs and bottle shops. There are currently a few different variations in the Little Creatures range (Pale Ale, Pilsner, Bright Ale and lower alcohol Rogers), all of which maintain consistent branding, with the usual shifts in label colours.

It appears White Rabbit will be run as a distinct brand (hopefully looking much niftier than my effort to the left). Presumably this an attempt by LWB to achieve more shelf (or tap) space, i.e. they can have two pale ales on the shelf (for example), thus doubling their chance of grabbing consumer attention. Had the firm hit diminishing returns from the Little Creatures marque?

Segments: Traditionally craft or micro-brewing has been seen as a bit of an “us against them” situation. The bad guys were the big brewers (i.e. Fosters and Lion Nathan), and beer aficionados have often bemoaned the instrusions into the craft segment by pseudo-brands such as James Squire (a Lion Nathan effort), Matilda Bay and Redback (both from Fosters’).

The legitimacy of such brands is questioned, in particular if they are seen as simply copy-cat or as shutting out more honourable or real microbrewers. The strategic question is has this segment matured (or segmented further) such that this effort by Little Creatures is not seen as selling out? Or alternatively, is the choice to run multiple brands a deliberate attempt to dodge such a bullet (i.e. stay legitimate in this fussy segment)?

Photo by: avlxyz

The Value Chain: This aspect is a bit more complex. LWB has traditionally shipped beer in bottles and kegs over 3000 kilometres from Perth to Melbourne (and beyond). It appears they are going to continue to do so, while scaling up the White Rabbit operations over time.

It is unclear how any economies of scope advantage can be developed here, as the firm presumably will need to bottle, label, package etc on site in Victoria (i.e. away from the Perth operations). Any gains in terms of delivery costs would seem pretty marginal as it may necessitate more movement to end up with centralised warehousing… but then the current delivery truck (see photo above) doesn’t seem overly cutting edge either 🙂

All in all, it is a very interesting move. Taking my strategic management hat off, I am, of course, excited by some more beer choices and wish White Rabbit many happy years to come…