Chapter 12 Sustaining The Lead

HDCS 4393/4394 Internship

Dr. Shirley Ezell

CasesScenarios

Picture Kenneth Olsen (Founder Digital Equipment Co.):Moment 1: In the cover of Fortune Magazine (1986). Moment 2: Out/retirement

Picture Manager Folk Wisdom:Moment 1: CEOs Face appears in leading magazine. Moment 2: Decline.

What is wrong with this picture?Questions you might ask: Was Fortune magazine publicity the kiss of death?

Over & over companies slip after a few years of rave reviews.

So What Happened?Research suggests companies/CEOs once praised fall into decline and fail

to keep advancing strategically.

They attain market leadership and rest on their laurels.

Critical Rule: Dominate your market by improving value year after year.

What Should We Remember?• When you lead, every competitor is waiting to

knock you off.

Another rule of business: People emulate. If they don’t actually duplicate what wins, that means you now have to change.

What About the Continental Airlines Case? And Others…..

• While Continental is trying to replicate Southwest Airlines Operating Model... Does that work?

• Microsoft is roughly matching Apple Computer’s easy to use operating system.

• Question: So how do market leaders of different disciplines become product leaders with Customer Intimacy and Operating Excellence and then stay ahead?

What Lessons Have Co.s Learned?

a. Maintain the focus on their chosen discipline & intensely compete with their own success.

b. Work to improve their operating model and then make it obsolete.

c. Become Operation Excellence firms striving to reach benchmarks of price and hassle-free service.

d. Customer Intimate firms are trying to make their own total solutions obsolete.

Additional Lessons Learned

e. Product leaders are trying to destroy demand for their current products with brand new ones and better these products ahead of their competition.

f. For all market leaders, advances in value to customers are gained by:- Tightening Performance Standards- Re-engineering Work Processes- Up-grading Competencies

What Are The Future Challenges?• Operationally excellent companies have to shift to the

next generation of no frills standardized assets to achieve the next level of efficiency.

• Product leadership companies have to see the next technology (the next concept) which may be beyond their current expertise.

• Customer Intimate companies have to let go of their current solutions and move themselves and their clients to the next paradigm.

So What Are The Mistakes To Avoid?• Do not over invest in efficiency (enhancing

assets by acquiring new fangled machines).• What is an example of this? Look at American

Express. In 1980’s, they feel into this trap by launching a 1 billion dollars genesis program to boast operating efficiencies through information technology.

• What did they do? They collected large amounts of data on cardholders’ buying patterns and this effort distracted them from their customer concerns. Result: They forget the increasing price sensitivity of their merchants and consumer clients and the heavy investment in efficiency only added to AE’s cost structure (Bad move!).

Other Examples... American Airlines• Developed a high tech Sabre division and made a

science out of streamlining standard operating procedures including systematizing reservations and filling planes.

• What happened? The heavy investment in core assets (planes, gates, and hub structure) have now blocked further improvements. In the end, they couldn’t compete against Southwest Airlines. American’s major hubs at Dallas/Ft. Worth and Chicago’s O’Hare were high cost facilities compared to Southwest facilities at smaller airports in the same cites (Love Field & Midway).

What Else Complicated The Case?• American had a wide span of different models of

airplanes. This added complexity and killed efficiency.• The American Sabre system was a high cost asset

with large annual investments in maintenance. This was a good system for the domestic airline business but not the right asset for a hyper-efficient operating model used by Southwest Airlines.

What Can We Learn From ?They have streamlined their operations and mastered the operational skills for running warehouse stores. What are there assets?a. Stores, Distribution Centers, Long-haul Trucksb. Good Inventory Systems

But what will happen if customers move to home shopping?

What Happened To MCI Telecommunications?• Main asset is its telephone network that enables it

to offer customers low prices on long distance.• What if cable TV companies offer telephone

service through their coaxial or fiber-optic lines?• MCI will face grave competition from Time-Warner

Telecommunication, Inc. and Microsoft, so they will need to restructure their assets to compete. Why? These other companies are investing in the future, and so must MCI.

What Have We Learned About Sustaining Product Leadership?

• Product leadership companies often become fascinated with great products. With each new idea or complaint, they rush back to labs and maybe they perceive shortcomings that are not so relevant.

• Product leadership companies may get too close to customers. User groups can critique current products but they don’t produce the breakthrough innovations.

• These companies may invest improvements in current products and miss the next great product.

So What lessons Have We learned?• Products leaders often fumble with the future.

Examples: Lord Kevin (President of Britain’s Royal Society) declared that heavier than air flying machines were impossible.

Jack Warner (cofounder of Warner Brothers Studio) produced the first talking picture & was skeptical and remarked “Who the hell wants to

hears actors talk?”A company can develop

blind spots that impair its skill at sensing the potential of new technologies & concepts.

What Are Some More Examples Of Company Blind Spots?

GM didn’t understand or act on the changing tastes of young car buyers who wanted lighter, faster, nimbler cars with a European feel. They thought the Chevy buyer would upgrade to bigger Buick's and then to Cadillac's.

What Are Some More Examples Of Company Blind Spots? (Cont.)

a. Who knows what will happen to cars next?Will it be fully recyclable cars, battery cars, computer-guided transportation?

b. Take this example to other firms. What will pharmaceutical companies do when genetic research prevents the disease and we don’t need to cure it?

c. Is the Microsoft example part of the answer?Invest heavily to accelerate innovation through close ties with faster-moving start-up companies?

How Do We Sustain Customer Intimacy?

• Customer intimacy companies are susceptible to illusions that they can do absolutely anything to give customers the total solutions promised.

• This leads them to take on tasks they should decline.

• When your competition has copied you, you need to move on.

What Are Some Cases Of Customer Intimacy Companies?

• IBM had a dedicated a base of information systems professionals and their clients replaced their counterparts with financial executives and line managers. IBM professionals needed to learn new ways to speak to their new clients.

• Customer intimate companies have to stay 2 steps ahead of customers: they must assimilate experience from multiple clients and acquire fresh insights from new people. They must stay smart.

• Companies must also periodically improve secondary disciplines.

• They must always focus on strengthening the company’s value position.

• They must maintain operational focus. They often grow shortsighted about short-term rewards and they may expand too rapidly.

• The greatest temptation is greediness, milking their success instead or moving forward. They need to watch myopia, temptation and the loss of balance.

So… What Did CEOs Learn?