One of the things that was so thrilling about Dell’s early business strategy was how clear and simple it was. Dell built high-quality but essentially commodity computers faster and cheaper than anyone else and developed superior supply chain and order taking processes that took years and years for competitors to even approximate. Looking at Dell and HP’s bidding for 3PAR recently, I think M&A run amok like this usually means the companies involved don’t have a lot of other strategy ideas to execute. It’s a shame to see Dell trying to buy growth now in contrast to their early strategic clarity. Continue reading 3PAR Overbidding Is a Sign of Cookie Cutter Dell Strategy
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I wrote about my hypothetical Twitter customer segmentation recently, and I thought I’d follow up with a rough stab at a market sizing for Twitter advertising. The exercise is helpful one for thinking about Twitter’s business model and potential revenue, even if some of the numbers are placeholders. Continue reading A Twitter Market Sizing I’ve been doing a series on Michael Porter’s Competitive Advantage book and the value chain analysis framework. Specifically, I’m using Clorox, Procter & Gamble, and Method Products to provide slight more concrete examples of Porter’s generic strategies and how to analyze them. The value chain is an odd framework in that Porter uses it to conduct at least two different analyses, for cost advantage and differentiation. The value chain approach to disaggregating what a company does is similar in both, but from there the two analyses diverge. In this post, I’ll be doing a deep dive into cost analysis. This type of work is especially important for figuring out whether a competitor has a true cost advantage (one of Porter’s generic strategies) and also for analyzing your company and competitors in general. In my last post, I held Clorox up as an example of a cost leadership strategy, but I have realized since that I was wrong. The company is actually pursuing more of a differentiation strategy. See the Clorox background section below for details. Nevertheless, let’s use the company as an example for a cost analysis. Along the way, we’ll also compare them with Procter & Gamble and Method Products to continue to add more depth to our understanding of the overall value chain analysis. This post is a long one, so my feelings will not be hurt if you choose to skim it. Think of it as a reference work. Continue reading Competitive Advantage by Michael Porter, Part 3 It always puzzled me why services like Evite and Hotmail that were once considered groundbreaking more or less stopped releasing new features. You can probably think of your own examples. I believe the most important reason is the lack of a strong revenue model. These companies start off with venture capital funding and offer a free service to reach critical mass. They eventually plan to generate revenue from advertising or similar sources, but overall the revenue per user ends up being quite low. Once they get past the venture capital stage, they often can’t afford to spend a lot on further product development and be profitable at the same time. So they get stuck in a bad equilibrium where they can’t afford to build features that could pull in higher revenue and end up trying to optimize a mediocre business at the margins. These companies are also tempted to start sacrificing the user experience in order to eke out more revenue. Sites that bug you with pop-ups, excessive ad content, or other annoying tactics are basically admitting that they can’t afford to offer a good experience because the revenue per user is infinitesimal. They’re perpetually scrambling for pennies. Continue reading The Trap of the Bad Revenue Model I recently wrote about Michael Porter’s concept of competitive advantage, and now I’d like to start really drilling down into the value chain analysis he uses to diagnose competitive advantage. A value chain analysis disaggregates a company into its activities, grouped by function, to understand how different activities contribute to or detract from competitive advantage. The analysis assesses both each individual activity and also how they are linked and configured. Often, it’s the connections between activities that provide the greatest advantage and are the hardest for competitors to imitate, rather than just a handful of specific processes. To bring the value chain to life, I thought I would take an example from consumer packaged goods that includes each of the generic competitive strategies: cost advantage, differentiation, and focus. I’ll be looking at Clorox, Procter & Gamble, and Method Products in detail over multiple posts. I don’t know much about these companies to start with, so you’ll have a chance to see the good, the bad, and the ugly of a value chain analysis done from scratch. Continue reading Competitive Advantage by Michael Porter, Part 2 |
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