Eddielogic

– Thoughts on Strategy and Management

January 8, 2007
by Dagmar
Comments Off on Siemens – Amendment

Siemens – Amendment

In his last post, Oliver wrote about some potential strategic problems at the former Siemens mobile phone business.
At the moment I read a book about what great companies do differently (Bailom, Matzler, Tschemernjak: Was Top-Unternehmen anders machen). As it happened, I bumped into a quote from Michael Mirow, head of strategic planning at Siemens for 15 years, when reading in this book on my daily commute from work back home. What he said about the main reasons for the success (or failure) of top-performers illustrates quite nicely what happened (loosely translated from German):
“In my experience, today’s success is one of the greatest threats for a company. It must not happen to a company, that it grows stiff by the success of today and doesn’t agonize about the question what it needs for the success of tomorrow. Based on my experience, I am convinced that ‘tomorrow’ is always different from ‘today’. In order to master ‘tomorrow’ successfully, companies have to do everything to be prepared already today. What I mean with that is that the whole leadership team hast to deal with some radical thoughts here and now. Who can guarantee that the success which is based on today’s products and technologies will really last for ten to twenty years? Unfortunately, especially the very successful business units have missed radical technological changes many a time. They were so exited about the here and now that they always found reasons and excuses not to change anything. However, eventually the market and the requirements had changed and there was no more time to act reasonably.”

January 7, 2007
by Oliver
Comments Off on My first “SIEMENS”…and the problems of external analysis

My first “SIEMENS”…and the problems of external analysis

Yes, this phrase segment is a small adaptation to another big slogan. But I think it is a very appropriate one… A long time ago one of the major players in the German technology industry, SIEMENS, developed, designed and produced mobile phones in Germany.

  • In 1996 the market share of SIEMENS mobiles is 40 %.
  • In 1997 I bought my very first mobile phone, a SIEMENS “S4”.
  • In 1997 SIEMENS introduced the first mobile phone (S10) with a “colour display” (just 4 different colours). SIEMENS produced 3,5 million devices; NOKIA made a 5 time figure. The SIEMENS objective for 2001 was a market share in the world of around 15 percent.
  • In 1998 the “SL10”, the first mobile with a shift mechanism is introduced to the market.
  • In 2000 I bought my second mobile phone, a SIEMENS “S25”.  In 2000 SIEMENS introduced the “S35”, a mobile phone, which is specified for business needs.
  • In 2001 Dagmar bought her second mobile phone, a “S35”.
  • During the years 2001 – 2004 the loss within the mobile phone business segment amounts to 726 million EUR. According to the German business journal “manager magazine”, management style (“par ordre du moufti”) seemed to be a major problem during this time. Probably due to this and due to lacking analysis of trends the organisation was not able to keep up with the competition in terms of design trends as well as technology trends in the mobile business.
  • In 2002 I bought my third mobile, an Ericsson “T39”.
  • In 2003 the company started a fashion design driven mobile, the “Xelibri” mobiles, which is a huge flop.
  • In 2005 I bought my last mobile by SIEMENS, a “S65”, for a single reason: The mobile phone interface in my car allows a S65.

Continue Reading →

January 3, 2007
by Dagmar
Comments Off on Perspectives for Toyota and Lexus in Germany

Perspectives for Toyota and Lexus in Germany

Contrary to the United States, where Toyota and their luxury brand Lexus have gained a considerable market share, both brands have been struggling for years in Germany. According to official statistics, both brands together have a market share of new cars sales of only 4 %. Although Toyota had been enjoying a reputation for superior reliability and even for customer satisfaction for years, they have not been able to improve their position significantly.
I have a few hypotheses why this is so:

  • Firstly, most Germans prefer German or at least European car brands over Asian brands. A German car is related to a higher status and so Toyota as a Japanese brand has a natural disadvantage.
  • Secondly, despite ongoing advertising activities in Germany, I think that Toyota’s main strategic focus was on America over the last decades. According to their website, they have 10 manufacturing companies with a production volume of 1.5 million units in North America – 8 of those were set up in the seventies, eighties or nineties. In Europe, there are currently 7 manufacturing companies (plus one planned for Russia in 2007) with a total production volume of 0.6 million units. Of those, only two are from the nineties and one from the sixties.

My personal feeling is that they consistently pursue the overall strategic objective of becoming the world market leader for passenger cars. They seem to take a step-by-step approach. Put in very simple words – they started from their strong home base and than focused on North America as the worlds largest and homogenous automotive market. This was a logical step, since Europe, on the contrary, is very heterogonous – consisting of several very different countries with different languages and preferences for cars and car promotion.

Continue Reading →

January 2, 2007
by Oliver
Comments Off on Improving strategic planning

Improving strategic planning

In terms of strategic planning issues, new survey results have been published by McKinsey. In July and August 2006 McKinsey Quarterly conducted a survey and received 796 responses from a worldwide panel of executives.

According to this survey,

  • most companies have a formal strategic planning process but do not use it to make major business decisions and
  • only less than half of respondents are satisfied with their organisation’s approach to make strategic decisions.

The survey results can be found on the McKinseyQuarterly website. If you are not a reader of this journal, you can get a direct access to the pdf-file with the survey results on the website of the California State University, Fullerton.

January 1, 2007
by Dagmar
Comments Off on On the efficiency of frequent change initiatives

On the efficiency of frequent change initiatives

There is no doubt that change and change initiatives play an essential role for every organization in our days. An organisation that refuses to change in order to adapt to new situations will most probably fail sooner or later. However, my theory is that organisations can successfully cope with only a limited number and frequency of change initiatives. If there is too much change, it will eventually do more harm than good. Here are my reasons: Continue Reading →

December 31, 2006
by Oliver
Comments Off on Smoking numbers

Smoking numbers

A new year is coming. In Germany a lot of regulations (e.g. tax issues, financial subsidies) will be object to change. Another issue is that advertising for cigarettes will be forbidden in newspapers, journals and electronic media, beginning on January 1, 2007. Let’s look at some related figues:

– 82 billion cigarettes were consumed per year in Germany, 5 years ago the figure was higher (125 billion cigarettes)
– Tax on tobacco is also a source of revenues for the government: 12 billion EUR tax on tobacco was received in 2006
– The turnover of the tobacco industry was 20 billion EUR. Nearly 9000 employees work within this industry.
– The industry spends 600 million EUR for adverting campaigns. Among this amount 118 million EUR have been spend for “traditional” advertising in newspapers, journals and electronic media.

(Source: Giersberg, G. (2006): Die verdammte Lust am Laster, in FAZ, 30.12.2006, volume 303, page 15)

Due to this new regulation, tobacco advertising has to focus on poster walls, advertising pillars and cinemas.

I have serious doubts about the success of this measure. In the former countries of the Eastern Bloc there was no advertising in general, and of course no advertising for tobacco products in particular. However, people also consumed tobacco products….

Happy New Year!

December 22, 2006
by Oliver
1 Comment

ALLIANZ sends bankers to agent offices

Beginning in January 2007 the German insurance company ALLIANZ will send bank clerks (of the Dresdner Bank, which was acquired in 2001) as an experiment to 100 agent offices. Customers of the insurance company will be able to get banking accounts, credit cards, personal loans as well as saving and investment schemes. These future “banking agent offices” will be operated by self employed agents. Customer will have a single stop in order to get insurances, financial services or to use the ATM. At the beginning of this experiment the salary for the bank clerk will financed by the Dresdner Bank.

This experiment is part of certain measures to strengthen the integration of Dresdner Bank into the insurance company. According to some statements by the CEO of ALLIANZ, the insurance company was able to win 360.000 new customers for the Dresdner Bank within the customer base of the insurance company in 2006.

This is a very interesting strategy, but various factors will make or break this concept.

Positive aspects.

  • In general we can see a small trend within retail banking business to extend the number of branches in order to serve customers more personally. (It is also possible to identify an alignment of the different business concepts, e.g. branch networks focus on direct banking activities and “Internet banks” invest in their sales force activities or even establish branches in very good locations.) But a large branch network means to accept fix cost. Integration retail banking services into existing agent offices would extend the network of Dresdner Bank while simultaneously keeping low fix costs.
  • Since the personal consulting service should be a core competence of both branch retail banks and of financial sales organisations (e.g. ALLIANZ agents’ offices) this approach tries to leverage this competence factor.
  • The presentation of both companies in the same place and the personal contact by a real bank clerk should increase the chances to transfer customers of the insurance company to the retail bank. In general cross-selling activities and a “cross-selling customer care”-approach should be easier.
  • The ALLIANZ has got a strong brand; this approach make it a little bit more physical for potential customers and can demonstrate the acquisition benefits for customers, in particular for potential retail banking customers. (Remark: After its acquisition of the “Dresdner Bank” the insurance company “Allianz” had planned a brand changes (“Allianz Bank”) but then decided to keep the original brand. However the known slogan “with the green bond of sympathy” was abolished.)

Continue Reading →

December 18, 2006
by Oliver
2 Comments

Youtube meets Japan

As posted at the beginning of December the legal disputes (in terms of copyright issues) and the opportunities to generate “Web 2.0-returns” will proceed.

23 entertainment-associations and TV stations from Japan, which are represented by the Japanese Society for Rights of Authors, Composers and Publishers (JASRAC) have contacted Youtube at the beginning of December. They requested more proactive measures by Youtube against publishing of copyright protected content. Until now copyright holders have to contact Youtube and need to request for deletion.
Now JASRAC demands that technical measures should stop uploading copyright protected content right at the beginning and that Youtube should show references to potential users, not to publish copyright protected content.

At this weekend Youtube demonstrated willingness for discussions. Within a short time a warning reference shall be published on the website.

December 13, 2006
by Oliver
Comments Off on Some notes about marketing strategies

Some notes about marketing strategies

You can find a huge number of definitions of strategies in theory and practice. In order to explain the term marketing strategy I would like to use this definition: The strategy determines kind, direction, intensity and importance of (strategic) measures.

Two major groups of marketing strategies can be distinguished: (a) Strategies, which describe how to influence the relevant market. On the other hand there are (b) Strategies, which describe, to which extend an organisation employs “power” or “force” to tackle market related issues.

For (a) 4 different types can be differentiated:

  • Segment strategies: Which market in terms of product/customer-combinations will be managed? Which products and /or services will be offered to which customer segment?
  • Strategies for market stimulation: Which marketing instruments will be employed in order to develop certain preferences?
  • Strategies for market itemisation: Which fundamental market items (in terms of structures) are useful? Does the organisation employ mass marketing or segment marketing techniques? Does the organisation cover the entire market or “only” parts of this market?
  • Strategies for market areas: Which areal dimensions should be used to implement a strategy?

For (b) 3 types can be distinguished, too:

  • pull back strategy: to make a strategic withdrawal (in military terms: a fall back strategy)
  • Assert strategy: to assert and to extend a certain position
  • Competition strategies

December 10, 2006
by Oliver
2 Comments

Strategies and their problems in practice – the sunk cost dilemma

It is really hard to execute a good strategy? There is no ultimate answer in terms of “yes” or “no”, but we can consider a lot of issues in order to ensure strategy implementation. Before considering this, it is essential to understand that success of strategy implementation is not related to “magic” and requires the acceptance of “typical” managerial weak points. The following statements illustrate the difference between strategy development and strategy implementation

  • “Organizations often fail at strategy execution. Various sources have reported implementation failure rates between 60 and 90 percent.” (Kaplan, Norton (2005))
  • “Most companies invest a significant amount of time and effort in a formal, annual strategic planning process – but many executives see little benefit from the investment.” (S. Kaplan, Beinhocker (2003))
  • “After more than 30 years of hard thinking about strategy, consultants and scholars have provided an abundance of frameworks for analyzing strategic situations. Missing, however, has been any guidance as to what the product of these tools should be…” (Donald C. Hambrick and J.W. Fredrickson (2001))

An issue, which can be observed in practice, can be described as “sunk cost dilemma”. It is actually an investment problem, which is sometimes also known as “throwing good money after bad (money)”. It occurs when large / financially heavy projects do not meet the schedules and budgets. Often these projects have been very important to the business model of the organisation (e.g. installation of a new business processing system). As a result the planned business case no longer works and the financial projections are out of control. However, since of the invested capital so far is huge, the organisation can not turn back the time and has to keep investing to complete the project. At this point it can be argued that the organisation and their executives have been felled into a sunk-cost trap. Unfortunately there is no easy way out. What can be lessons learned?

  • Be careful and realistic when assessing projects and organisational capacities to run large projects. Try to avoid over-optimism. Set up a list of “project risks” and decide, if you are prepared to accept these risks.
  • Use the entire tool set to analyse those heavy investments and set up a worst case scenario. Define a PSR (point of safe return). Look also only at incremental costs and revenues.
  • Prepare the organisation to stop and to kill strategic projects early when they are not able to meet milestones.
  • Employ a gated funding strategy: Set up certain small milestones, which have to be met. If the project overrun these milestones, stop it.