Competitive Advantage by Michael Porter, Part 2

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

Revenge of the Blockbuster

A few years ago, Chris Anderson described the phenomenon of the “long tail” for digital content.  Unlike the traditional bookstore, Amazon could carry a book selection approaching infinity, and someone would buy most of the books that never even appeared in a bricks and mortar bookstore.  More than half of Amazon’s book sales at the time came from books outside its top 130,000 titles.  Other online content outlets like Netflix and Rhapsody experienced similar phenomena, and costs for carrying this selection had gone down dramatically since you no longer needed inventory in local stores.  Anderson concluded that content industries, which had traditionally sought blockbusters to cover the cost of unprofitable long tail sales, would now be driven by those long tail products.

Anderson makes a great point from the perspective of the distribution channel.  Amazon, Netflix, and other companies have made a huge virtue of carrying a massive selection.  It’s both part of the value proposition, and to a lesser extent, a driver of profitability.  I’m less convinced that the long tail is a reality for content producers.  Can you really be profitable (or pay the rent) if you have the 100,000th most popular book on Amazon?  Content publishing, whether in books, music, or movies, has traditionally been a scale game.  Companies needed to maintain a big taste-making apparatus and also to subsidize up-and-coming works through hits.  Between piracy and a high cost base, the industry incumbents no longer have a viable economic model, but what will the new equilibrium look like?  Will they be replaced by a sea of mom and pop producers, or simply by a new wave of large publishers better able to deal with digital distribution challenges and opportunities? Continue reading Revenge of the Blockbuster

Being Delightful Is No Substitute for Strategy

In a recent post on Tom Peters’ site, Seth Godin wonders how we should define excellence these days.  He writes that while people used to consider quality excellent, it’s become boring.  Just meeting the customer requirement isn’t enough – no one gets excited that their water company keeps the faucet running or that the local grocer has stocked shelves.  Instead, you have to set the bar for everyone and provide unique customer service like Virgin Atlantic or Ritz-Carlton.  You have to be “so surprising, so delightful, so over-the-top and, yes, so human that there really isn’t anyone else I’d rather dance with.”

Really?  I don’t think so.

Customer service fixation

Like Godin says, this definition of excellence is a moving target.  Once you slow down and your competitors provide the same level of service, you’re no longer excellent.  In my mind, contrary to popular opinion, sometimes chasing a moving target like that is a bad idea.  Or maybe more to the point, don’t chase the same moving target everyone else is. Continue reading Being Delightful Is No Substitute for Strategy

Quick Cisco Update

Yesterday, I wrote about how Cisco, despite strong strategy and execution, wasn’t seeing the rewards in the stock market.  Coincidentally, the company chose the same day to announce a product that was going to “change the Internet forever,” which turned out to be a faster router.  While this is a great way to address the need for ever-greater bandwidth, as exemplified by AT&T getting continually pounded by the iPhone’s massive data traffic, it’s not revolutionary.  It’s likely another industry-leading product from Cisco on a well-defined trajectory, but it doesn’t change the overall playing field.  As such, it doesn’t do much to change my earlier analysis.  Here’s more detail from Information Week.

Cisco's Great Execution Goes Unrewarded

Cisco is a fascinating case study in company strategy and a bit of a puzzle.  The networking equipment giant is known for being phenomenally well-run and dominates many of the markets in which it competes.  In the 1990’s, Cisco advised many companies not just on networking equipment, but also on how to use the Internet in general for business purposes.  Recently, they have been expanding into diverse areas including the smart grid, set-top boxes, and even server hardware, and they are becoming known as a leader in online collaboration.  Yet the stock has gone sideways since 2001, not even taking into account the huge drop after the dot-com bust.  Part of that is simply bad timing, but Cisco is also struggling against the age-old problems of extremely successful companies – maturing markets, the law of large numbers (the difficulty of maintaining growth rates as a company gets bigger, not to be confused with the statistical law), and maintaining adaptability as an ever-larger organization.  Is Cisco’s strategy really all that great, and if so, will it be recognized by the market? Continue reading Cisco’s Great Execution Goes Unrewarded