“Brilliant Strategy, More Brilliant Execution” Prof. Jose. M. Faustino Asian Institute of Management

Brilliant Strategy, More Brilliant Execution Managers under pressure Adjust, anticipate, accelerate Faster beat of the market Replace old technologies Faster changes More threatening competition

Managers respond TQM Improving quality, do it right first time, reducing waste Brilliant Strategy, More Brilliant Execution

Time-based competition Reduce cycle times, time to market Outsourcing Reinforcing core activities, Contracting out non-core Brilliant Strategy, More Brilliant Execution

Benchmarking Studying best practices, applying them to improve Partnering Strategic alliances to develop products, markets technologies faster Brilliant Strategy, More Brilliant Execution

Reengineering Reviewing all operations, reinventing to increase productivity Brilliant Strategy, More Brilliant Execution

The Use of the Management tools lead to: Operational Effectiveness Brilliant Strategy, More Brilliant Execution

Prof. Michael Porter says: “Operational effectiveness is not strategy.” Example of the 1980’s: Japanese competing with superior operational effectiveness (or OE). Brilliant Strategy, More Brilliant Execution

Result: Global competitors respond with TQM, reengineering, benchmarking They eliminate inefficiencies improve quality, enhance customer satisfaction, achieve best practice. Brilliant Strategy, More Brilliant Execution

In the 1990’s, global competitors caught up with Japanese lead in OE. Result: Profits have declined for the Japanese & have not recovered.

Brilliant Strategy, More Brilliant Execution Need constant improvement in OE to achieve superior profitability. But difficult over longer run as best practices circulate and major players adapt well.

Brilliant Strategy, More Brilliant Execution Emergence of the Value War, that no one can win. It is a Lose-Win proposition.

Brilliant Strategy, More Brilliant Execution Yes, OE is important for success. But it is not enough, because OE is not strategy.

Brilliant Strategy, More Brilliant Execution Unique Strategy No. 1: Southwest Airlines, most profitable U.S. airline for the past 40 years.

Brilliant Strategy, More Brilliant Execution Operational Effectiveness is doing similar things better than competitors. Competitive strategy is about being different.

Brilliant Strategy, More Brilliant Execution Full service airline: Many points to fly Connecting flights, hub and spoke First class, business class Baggage transfer Long flights: serve meals

Brilliant Strategy, More Brilliant Execution Southwest Airlines strategy: Short flights Midsize cities Secondary airports Many flights per destination Low, low price

Brilliant Strategy, More Brilliant Execution Southwest also offers: Online ticket purchasing Automatic ticket machine No meals No interline baggage transfer No business or first class

Brilliant Strategy, More Brilliant Execution Competitive strategy is deliberately choosing a different set of activities to deliver a unique mix of value.

Brilliant Strategy, More Brilliant Execution Strategic positioning begins with defining target segment and objectives to achieve. Essence of strategy: You choose to perform activities differently than rivals do.

Brilliant Strategy, More Brilliant Execution Southwest Airlines competition: bus, train, PTM Inexpensive fare + fun aboard = customer loyalty

SOUTHWEST AIRLINES’ ACTIVITY SYSTEM Short-haul, point-to-point routes between midsize cities and secondary airports Limited use of travel agents Flexible union contracts High compensation of employees No meals No seat assignments No connections with other airlines Standardized fleet of 737 aircraft Southwest, the low-fare airline High level of employee stock ownership Automatic ticketing machines Limited passenger service No baggage transfers Lean, highly productive ground and gate crews Frequent, reliable departures 15 minute gate turnarounds High aircraft utilization Very low ticket prices

Brilliant Strategy, More Brilliant Execution Unique Strategy No. 2: A late entry that avoided me-too and devised a unique strategy.

Brilliant Strategy, More Brilliant Execution Howard Schultz wanted to start his gourmet coffee chain in Seattle with a superior product, i.e., coffee manually and lovingly roasted by experts.

Brilliant Strategy, More Brilliant Execution Schultz built his marketing concept around the superior product and developed STARBUCKS.

Brilliant Strategy, More Brilliant Execution Schultz’ Strategic Positioning” “Our business is not selling coffee… it is creating a consumption experience, in which coffee plays a part.”

Brilliant Strategy, More Brilliant Execution Schultz: “A visit to Starbucks is romance, theatrics, community - the totality of the coffee experience.”

Brilliant Strategy, More Brilliant Execution The Starbucks PTM: Yuppies years Income over $35,000 University educated Sophisticated self perception

Brilliant Strategy, More Brilliant Execution Starbucks’ constant interaction with customers Consumer education together with Starbucks’ staff Product testing

Brilliant Strategy, More Brilliant Execution Starbucks’ made a study revealing it cost more to hire/train/lose than retaining employees with benefits. So now it: Selects, trains with care Offers stock ownership plan

Brilliant Strategy, More Brilliant Execution Treats employees as assets, not expenses Communicates Starbucks is a career, not a stopover. Result: low turnover, happy crew, upbeat rapport with customers

Brilliant Strategy, More Brilliant Execution Starbucks now the dominant brand in gourmet coffee with little media advertising word-of-mouth (delicious) advertising unique consumption experience

The STARBUCKS Consumption Experience (coffee culture) Superior coffee quality One week shelf life, only fresh coffee Low staff turnover with co. ownership leadership skills Well designed, strategically located coffee bars Persuasive well trained and motivated people Consumer education and acculturization In-house only: product testing and market research High Premium pricing Special roasting process Buying the best coffee worldwide Blending only the best coffees Take-home sales of coffee and satellite products R & D: Special blends, new varieties Programs donating to CARE in coffee source countries Clustering outlets in same location MAPPING STARBUCKS STRATEGY

Brilliant Strategy, More Brilliant Execution Example No. 3 Jollibee Foods Corporation No. 1 in fast foods using any measure: revenue, profit, market share, top of mind

Brilliant Strategy, More Brilliant Execution Jollibee has always developed products following Filipino taste preferences.

Brilliant Strategy, More Brilliant Execution Jollibee’s obsession to keep improving quality and taste. For CEO Tony Tan it is an obsession.

Brilliant Strategy, More Brilliant Execution Invisible weapon: Jollibee’s corporate culture quiet, unassuming focused on PTM low key but professional positive relations with franchisees

The Jollibee Value Creation System IT Systems on line processes Service courtesy fast service convenience Cleanliness store design maintenance Advertising, Promo & Research Service Quality Monitoring Franchisee Relations Store Expansion Strict Quality Control R & D new products new methods Jollibee Culture Central Commissary Own Bakery buns pies Food Quality delicious, fresh local taste

Brilliant Strategy, More Brilliant Execution Reviewing the Unique Strategy All three examples have OE (but so do competitors). But all three developed a unique strategy no one has matched.

Brilliant Strategy, More Brilliant Execution Excellent OE will only guarantee your survival but at a low profit.

Brilliant Strategy, More Brilliant Execution Comparing the strategy of the 1990’s with the unique strategy model, we see significant differences.

ALTERNATIVE VIEWS OF STRATEGY THE IMPLICIT STRATEGY MODEL OF OF THE PAST DECADE One ideal competitive position in the industry Benchmarking of all activities and achieving best practice Unique competitive position for the company Activities tailored to strategy SUSTAINABLE COMPETITIVE ADVANTAGE Brilliant Strategy, More Brilliant Execution

Aggressive outsourcing and partnering to gain efficiencies Advantage rest on a few key success factors, critical resources, core competencies Flexibility and rapid responses to all competitive and market changes Clear trade-offs and choices vis-à- vis competitors Competitive advantage arises from fit across activities Sustainability comes from the activity system not the parts Brilliant Strategy, More Brilliant Execution

Operate with quality and speed, but remember, the customer of the 2000’s likes to buy from the supplier with the distinctive, if not unique, value.

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