Today is the last day, before the break. And already there were many missing people in the class today - may be they wanted an extra day before they come back by Tuesday evening.
The plan for today is two classes, when end by noon. Packed lunches will be served in the McArthur lounge itself, for people to grab something quickly and take off. Multiple buses have been arranged to take people to the airport. Many participants have the families come over here and there are many family events organized for them - including two classes for them !
The first session was by Prof. Ananth Raman, continuing our discussions on building competitive advantage through operations. The case today, was a pasta manufacturer in Italy - Barilla. It shows that managing product availability - having too much or too little product - can be at a substantial cost. We also discussed the much talked about "bullwhip" effect in supply chain, whereby a small change in end-consumer demand leads to a massive change upstream in the supply chain. Some interesting thoughts:
- Most marketing guys want to increase the number of SKU's, without deleting the old SKU's; this can lead to large supply chain issues
- In operations and supply chain, the missionary (who makes it work) is more important than the scientist (who comes up with the concept)
- Missionaries win quickly and win more often - both big and small wins
The final session was on Samsung Electronics - part of the strategy sessions. The issue at hand was this - Samsung has been quite successful in having a unique combination of high premium and low cost - in the memory businesses. Should it now partner with an entity in China to have operations there ?
Huge debate in the class, which I think was more evenly split this time on the decision. Some of us felt that the decision should be "NO" for the following reasons:
- Biggest cost was depreciation - and not labor; so there will be not much savings
- Pollution levels in China is high in cities - and memory manufacturing needs clean facilities - which may force either an increase in cost or move away from big cities, which in turn may lead to shortage of skilled labor and higher costs of transportation
- Selling in China is not an issue - because most MNC are manufacturing in China and you can sell to the MNC design teams outside of China
- Chinese local companies will anyway buy from Samsung, as they are lowest in cost
- Concerns related to IP protection
We were fortunate to have in our class, Mr. Sang Wan Lee, who is the President of the LCD Division of Samsung. He is a participant of AMP179. He shared his thoughts as well. Samsung did not go to China for manufacturing memory chips.
The key take-aways here are:
- If you don't understand the roots of a firms competitive advantage, it is very hard to defend, attack or extent it
- Common pressures are: "China is BIG", "we've got to be there", "My board is killing me";
- if we analyse in detail based on data, the decision will be clear
- Samsung has a dual advantage - high premium and low cost; this dual advantage arises when:
- .. choices that lower cost also boost WTP (Willingness To Pay)
- .. rivals cannot or don't reproduce these choices
- Common situation is the choices to boost WTP and lower costs are undertaken by everyone
- ... leaving distinctive choices that lower costs but reduce WTP, or
- .. raise WTP but increase costs
- Even among companies with dual advantage, strategy is often led by one type of advantage or the other
Prof. Rivkin touched upon a very relevant issue of the traditional strategy making process.Obviously in the following description, there is some over dramatization to get the desired effect. The steps are as follows:
- Management team focuses on one preferred option
- Compilation of functional plans or product line budgets
- plus, perhaps a non-viable "stawman" proposals
- Down sides
- Very internally focused
- Driven by corporate calendar, not outside demands
- Incremental changes at best
- Staff conduct exhaustive set of analyses
- Many analysis, interesting but useless
- Largely a search for confirming data !
- Down sides
- Simple sum of functional parts
- Senior Management ratifies preferred option
- Usually indistinguishable from existing strategy
- Analyses collect dust
- Down sides
- Changes in the outside world suppressed
- Future = linear trend based on past
The ideal approach should be something like this:
- Management team activates the process when an issue arises
- Driven by outside opportunities and threats
- Systemic changes possible
- Explicit recognition of what company is not doing
- Cross functional management team generates a set of truly distinct, plausible, integrated strategic choices - basically detailed concrete alternatives
- Team agrees on the "burden of proof" required to select one integrated option over the other
- Team conducts required analyses
- Team accepts the option confirmed by the analyses and fleshes out the implementation details
Most of the time organizations get the process wrong.
After the classes was over, it started raining. Many of us had decided to go to an Indian restaurant for lunch - which we did. And came back all drenched - there is a certain "school boyish" thrill when you get wet in the rain. The families were all trooping in and the clouds are expected to give way to good weather by Saturday morning. I was getting ready to leave for Indianapolis for a few days ..more on this later.
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