Eddielogic

– Thoughts on Strategy and Management

July 25, 2007
by Dagmar
1 Comment

The Language of Strategy and their Practical Problems

In his last post, Oliver has discussed various aspects of the language of strategy with a focus on strategic conversations and strategic discussions. This reminds me of a more practical problem I experienced quite often. The language of strategy is full of specific terminology. Most people know these terms (you can hardly not know them in today’s business world) and many people like to use them more or less excessively. The problem is, however, that for many of these terms there is no common understanding about their meaning. Simply ask five people around you to explain the difference between mission and vision or to give examples for strategic vs. operative measures. The result of such varying perceptions or lacking knowledge of popular terms may lead to some level of confusion, misunderstanding and disappointment about messages not gotten across.

Let me give you some real life examples for this. One of my favourite tools is the well-known SWOT. I like to use it as a tool to summarise and to structure the findings from more detailed analyses. Unfortunately, many users do not really understand the theory behind the SWOT. At least this is true for the SWOT’s I have seen. Continue Reading →

July 23, 2007
by Dagmar
Comments Off on Another Takeover in Specialised Financial Services

Another Takeover in Specialised Financial Services

Today Hypo Real Estate Holding AG (HRE), a specialised German real estate financing institute, and DEPFA BANK plc, Ireland, announced that HRE would take over DEPFA. DEPFA, which has German roots too, is specialised in public sector and infrastructure financing. Both are listed companies with a high free float. Both banks are active in the most important international markets. The combined group would have a size that makes it one of the larges German banks.

On a global scale, the takeover between two mid-sized specialised banks is probably not overly interesting. Nevertheless, the reason why this is worth a post here is that this is a nice example of how short-lived the rationales between major strategic moves have become. A look at the history of both banks reveals some quite interesting things:

HRE is the former real estate financing business of Hypo-Vereinsbank AG which was spun off in 2003. This real estate financing business was part of Hypo-Vereinsbank’s problems, which eventually led to the takeover of Hypo-Vereinsbank by Unicredito. HRE, however, developed nicely. It shows a steady improvement of financial results and ratios and is one of the most profitable German mortgage banks.

DEPFA has a much longer history, which dates back to 1922. Until 2001 DEPFA was located in Germany and had a full mortgage financing business. Thus it followed the business model of most German mortgage banks with two major activities: mortgage banking (i.e. commercial and private real estate financing, refinanced by Pfandbrief, the German coverd bond) and public finance. In 2001 DEPFA spun off its mortgage financing business in the form of newly founded Aareal bank. Moreover, DEPFA moved its registered office from Wiesbaden in Germany to Dublin, Ireland, for legal reasons.

Isn’t that a nice turn: HRE, the former problem child, feels strong enough to take over a not-so-small competitor, and DEPFA will again be part of a German group which will operate the mortgage banking business and the public finance business. There is a lot of talk about synergies and how well the two businesses complement each other in the press releases from both banks.

In a time span of only four (HRE) to six (DEPFA) years we have seen a complete change in the strategic situation which led to the regrouping of two major players in their industry. I am quite sure that there will be some more spin-offs, mergers, takeovers and the like in this industry in the next future.

By the way, if you struggle to keep track of who belonged to whom, was spun off from whom or was created by a merger of even other banks, the Association of German Pfandbrief Banks publishes a “family tree” of the operative members with former names, mergers etc. (in German language only) 

July 19, 2007
by Oliver
Comments Off on Do you talk the language of strategy?

Do you talk the language of strategy?

OliverIn a former post I discussed whether companies have a strategy or not. So, we found out that there are some options that strategies might not exist in your organization and that for a very specific reason the absence of strategy could help the organization during a certain intermediate step. I have to stress “very specific reasons”, since I prefer to argue that the absence of strategy will leave most organizations rudderless in a world of environmental dynamics. Today I would like to address a sub topic for strategy formation: The language.

If one wants to review, to change or even to form a strategy, one has to take care for the right language in the organization. So, let’s look at the reasons.
Strategy formation can be understood as a communicative process or at least as a process that is attended by communication. In particular in ambiguous situations with justification of decisions and demands for legitimacy, communication can play a major role. Sometimes we can observe situations in which “the best” arguments stopped an excellent strategy or promoted it for implementation. Communication tactics, role playing as well as coordination skills have an impact, too.
One fundamental aspect that we should have in mind when we develop a strategy is the human perception of reality. Various sources in the academic literature have the assumption in common that human reality is a linguistic designed phenomenon which is radically different from an objective environment presentation. MINTZBERG confirms this in terms of strategy, since he argues “They are abstract concepts, in the mind of people”.

Continue Reading →

July 12, 2007
by Oliver
2 Comments

Endless liquidity?

Two weeks ago Dagmar discussed some important issues of the real estate business in Germany. Hence I would like to present some interesting data that explain supporting factors for this development. So let’s look at liquidity.

Presently we face an amazing level of financial liquidity; we could argue that the world rolls in money. Hence a wave of liquidity – the free floating capital – searches for investment opportunities on the entire planet. (Not to forget all the liquidity that can be created by leveraged finance transactions) Hence we see that all major asset segments increase in their value, no matter they are real estate, equities or noble metals…Don’t forget Dagmar’s post: Real estate in Germany belong to those assets, too.

So what is the matter? The world has started to establish some interesting records:
Some figures illustrate the problem

Continue Reading →

July 9, 2007
by Dagmar
3 Comments

How do you differentiate (or not)?

I made a quick and dirty competitor benchmarking today in the office. This was a spontaneous idea when I worked on the profile of one of my company’s competitors. When doing this I realised how many buzzwords this company used to describe how great it is and why customers should do business with this company and not with the competitors.
So I decided to have a look at all major players in our industry (specialised financial services) in our local market. The result turned out to be something like “bullshit bingo”. Here is how many companies out of ten used particular terms or their equivalents:

  • Individual / tailor-made products or solutions – 8 out of 10
  • lean processes / flat hierarchies / quick decision making – 6
  • speed in general – 6
  • reliability – 5
  • expert know-how – 5
  • competitive prices – 4
  • flexibility – 4

The good news in this research was that 7 out of these 10 companies bothered to mention one or more characteristics that were more or less unique (or at least not used by the others).

This result left me a bit surprised. OK, not too much surprised since I had suspected something like that. How on earth plan these companies to differentiate themselves from the rest of the crowd if they all use the same marketing language? I acknowledge that they all have fairly the same business model and that characteristics like good prices, quick decision making and individual solutions are crucial. But in this case these characteristics are more a necessary prerequisite than a differentiator.
It fits quite nicely into this picture that everybody in the industry is telling me that price competition is more than fierce at the moment.

I also acknowledge that this is a people business and differentiation is – among others – achieved by the individual one-to-one relationships. Obviously, this is hard to describe on a corporate website. Nevertheless, if it is not possible to develop some offerings or competencies that are really unique, wouldn’t it be worth to invest a bit more creativity into the corporate self-portraits?

June 27, 2007
by Dagmar
3 Comments

Private Equity Investors not happy with their residential real estate investments in Germany

This headline hit the news in Germany over the last couple of time. Currently, Cerberus is reported to plan a divestment of their 22,000 appartments, held by Baubecon, the housing association formerly owned by German trade unions. Blackstone has already sold 31,000 apartments.

This is quite interesting since it is really not so long ago that the acquisition of large residential real estate portfolios by international private equity firms was a big topic in Germany. Not only large corporations like Deutsche Bahn sold their residential real estate, but also many communities that simply needed the proceeds to solve their budgetary problems. There were immense concerns about the social implications. Many were afraid that the locusts would simply rise rents and thus make housing something closed to unaffordable.

Rent rises were indeed part of the investors’ business models. The German real estate market has become very popular among international investors over the last two years, due to a combination of developments: German economy was finally recovering, compared to other countries; real estate was undervalued and considered to be managed less professionally. In combination with the low interest rate level, Germany promised very attractive yield gaps. So the plan was to build up large portfolios for economies of scale and synergies, to increase cash flows through rent rises and cost savings, and to leverage the financing highly for high returns on equity. A fast exit with a nice increase in value was expected from IPOs and privatisations of the apartments to their current tenants.

So what went wrong? Many things. Continue Reading →

June 25, 2007
by Oliver
2 Comments

Learning organizations and strategic planning

Sometimes during discussions I receive the question, whether there is a link between learning organizations, knowledge and strategic planning. My answer is “yes” and I would like to illustrate this matter a little bit more.

Before I start I have to define the term “learning organization”: In general the learning organization can be described as an organization which “encourage continuous learning and knowledge generation at all levels, have processes which can move knowledge around the organization easily to where it is needed, and can translate that knowledge quickly into changes in the way the organization acts, both internally and externally.” JOHNSON and SCHOLES (1999) see that the learning organization “is capable of benefiting from the knowledge, experience and skills of individuals through a culture which encourages mutual questioning and challenge around a shared purpose or vision”. PEDLER et al (1991) sees learning organizations as an organization that enables learning of all its participants and transforms itself.

But now let’s come to business. Continue Reading →

June 12, 2007
by Oliver
1 Comment

Lufthansa starts to change its strategy

Lufthansa starts to change its strategy was a headline of a German business newspaper today. So let us take a brief look behind this headline.
To respond to the increasing competition in the German aviation market the German airline Lufthansa will change some parts of its strategy. So far, the airline focused their long distance flights on the airports of Frankfurt, Munich and Düsseldorf. Now Lufhansa has announced its plans to offer those flights from other German cities, too. Hamburg, Stuttgart and Berlin are potential candidates for those ideas. In recent years other competitors were able to win market share, e.g. the airline Emirates offers flights from Hamburg to New York; furthermore this airline started to evaluate the option to extend their flight plans to Berlin and Stuttgart. Quatar Airlines, Continental and Delta (that is not more under chapter 11 since 2007) have been successful as well.

This idea offers some major benefits for Lufthansa:

  • It reduces their dependency from the Frankfurt airport, which capacities can not extended quickly enough.
  • It enables the airline to respond to an increasing demand for intercontinental flights. Due to the high ratio of first class and business class travellers these flights are more profitable than other routes.
  • It enables the airline to keep track of their competitors that have demonstrated higher growth rates recently

  Continue Reading →

June 6, 2007
by Oliver
3 Comments

Strategy, Sony and the DSLR

OliverA couple of weeks ago I posted my concerns about Sony and its DSLR business activities. This week “Sonys camera strategy” was presented in a German PC Magazin “CHIP” (June special edition “Foto Video digital” 2007). Takashi Kondo (Vice President Digital Imaging Sony Europe) explained some of Sony’s business concepts. According to him Sony regularly reviews both, Sony-customers as well potential customers (“non Sony Customers”) and their demands for camera features. Furthermore Mr. Kondo informed that Sony did achieve the third position in the DSLR business segment; Canon and Nikon would hold the first and the second place. “We need to further solidify our position in the digital SLR market. To do that, we must cater to varying degrees of customer requirements, and we are working on the second wave of products in order to expand the world of ‘α’,”.

That’s not bad, isn’t it?

Two new DSLR bodies would be introduceed to the market in 2008; they are intended to help Sony to become the number two or even number one in the market. He sees Sony’s DSLR activities as to be slow on the uptake; hence Sony would introduce unique features for the new camera bodies. Other indices within the interview were that the new flagship would be likely to have a full format sensor and would use CF cards as memory.

Well, I am little bit more confused than last time; but let us start with the good news. Continue Reading →

May 29, 2007
by Dagmar
Comments Off on Examples on how to make customers happy

Examples on how to make customers happy

We experienced some examples of excellent customer relationship management during our vacation on Majorca last week. The funny thing is, that most of these experiences probably were not even intended to be something like “superior customer service” or “activities to increase customer loyalty”. To fully understand our “customer experiences” you need to know that we are repeat visitors to Majorca – same hotel for the fifth year, same care rental for several years and we have our favorite places to eat.

This is what happened:
We rented our car at Vanrell, a local car rental. The don’t have an office at the airport in Palma, but they have an airport service. This works in the way that somebody brings you the car to the airport, we meet at the public Meeting point there, we sign the contract and he hands us over the keys. Normally, he would than lead us to the car, which is parked at the public airport parking. This time the guy simply said “Hey, I know you from last year. Here is the key. You know where the car is.” It was 8 in the morning and this guy had recognized us! What a welcome!
As every year, we were totally happy with Vanrell: airport delivery was in time, the car was fairly new and in an excellent condition, we got the car we wanted (The Peugeot 206 cc is a great fun car for this purpose).

Then we went to the hotel. We stayed at Viva Blue of Viva Group for the fifth year now. Continue Reading →