Thursday Jul 30, 2009

Deals and More Deals

Reuters deals pages are still the best and quickest source of news on deals and corporate strategy. 

For example, consider the page that summarizes global deals in terms of total number and value of deals among pairs of countries. (I agree that a complete summary graphic representation would also be good to add to the ones that capture deal totals for each country.)

Sunday Jul 12, 2009

Ten Thousand Days

In The Book of Five Rings, Miyamoto Musashi writes:

No matter how many opponents you beat, as long as you do anything in contravention of training, it cannot be the true path. ... 

This is something that requires thorough examination, with a thousand days of practice for training and ten thousand days of practice for refinement.


Monday May 25, 2009

The Mind of the Strategist

Yesterday, I completed my reading of Kenichi Ohmae's The Mind of the Strategist: The Art of Japanese Business.

Originally written in Japanese in 1977 and later translated into English, this is a quintessential book on business strategy.

Reading it makes one wonder whether the many strategy scholars of the 1980s, 1990s and 2000s have produced thoughts that flow directly from principles already laid out by Ohmae.

The book contains many vivid examples from the Japanese business scene.

I'll try to extract some useful quotes and comments in the coming weeks.

Thursday May 07, 2009

Puzzling on the Value of Bundles

Measuring values of a product bundle, particularly when the bundle contains non-equal or potentially complementary lots, has puzzled economists and business strategists alike. I don't claim to have solved the puzzle but I have puzzled on some other aspects of the problem in a short three page briefing I wrote a few weekends ago.  

Saturday Feb 28, 2009

Relative vs. Absolute Strength

In his classic work first published in the U.S. in 1982, Kenichi Ohmae outlines the general approach of a strategy analyst. He draws a distinction between absolute vs. relative strength and  explains why strategic thinking puts a particular emphasis on relative strength: 

I make the distinction between relative and absolute strength because there is a great difference between the two with respect to the degree of urgency. Internal weaknesses or inefficiencies can usually be tolerated, at least for a time. By contrast, deterioration of a company's position relative to that of its competitors may endanger the very existence of the enterprise. In effect, it will allow the company's profitability to be controlled by its competitors, a situation in which sound management of the enterprise will no longer be possible.

The Mind of the Strategist: The Art of the Japanese Business, Kenichi Ohmae

Tuesday Dec 02, 2008

Inescapable Facts of Mass and Distance

It is not clear whether Liam Denning was writing prose or an article on supply chain management and global logistics. Good writers lurk everywhere.

I will have to quote his whole article from The Wall Street Journal to make my point.

Ship Ahoy: New World's Supply Chain

By Liam Denning (The Wall Street Journal, December 3rd, 2008)

The world is bumpy.

In the age of globalization, conventional wisdom holds that supply chains prioritize labor-cost arbitrage over mere distance.

Geography, however, could make a comeback. Triple-digit oil provided the first intimation of this. Jeff Rubin, chief economist for CIBC World Markets, estimates $150 crude oil boosted the cost of shipping imports to the U.S. by 11%, costing roughly as much as trade tariffs in the 1970s.

Crude now trades under $50 a barrel, but the crash reflects faltering demand more than rising supply. When demand recovers, oil prices will, too.

Marc Levinson, author of container-shipping history "The Box," suggests the world also is hitting the limits of economies of scale in logistics, citing bottlenecks at ports and congested road and rail networks. These impose costs and delays and, as supply chains have become more complex, more potential points of failure. Initiatives forcing ships to reduce harmful emissions also will weigh on economics.

Innovation could change the equation again. But the ultimate facts of mass and distance are inescapable when it comes to rethinking logistics.

One answer will be shorter, regional supply chains -- a phenomenon observed in changing sources of U.S. imports during the 1970s oil shocks. That ought to have positive implications for exporting economies such as Mexico, while China could suffer.

U.S. workers cheered by the prospect of jobs returning home, however, shouldn't be too jubilant: Globalization and labor arbitrage aren't going away. And rising supply-chain costs mean U.S. workers will pay higher prices for the goods they buy.

Thursday Nov 20, 2008

In Need of an Economic Strategy

Michael Porter, the business strategy guru from Harvard, writes about "Why America Needs an Economic Strategy".

His essay deserves a careful read by business and political leaders in the U.S.


Sunday Oct 19, 2008

Market Focused Strategy and the Long Term

Market-focused strategy formulation helps to solve the problems of today as viewed through our understanding of the current markets. Markets, however, tend to change rapidly in modern societies. Just observe what is going on around you, the number of products that have come and gone, and business that have failed and hailed, fashions and habits that have come to fore in the last decade. Under such rapid change, it becomes difficult to maintain stability and constancy needed for long-term strategy. For some companies, a long term strategy might run a course of a 100 years. (It is reputed that some Japanese companies have 100-year, and some longer-term, strategic vision.) To serve long-term strategy, it seems more advisable to view the firm as a bundle of evolving and emerging resources, skills and capabilities, and focus on building long-term strategy based on the synergy and the development of these resources and capabilities. 

Sunday Sep 28, 2008

Porgramming Strategy

In his Contemporary Strategy Analysis, 6th edition, Robert M. Grant writes:

We must also recognize the nature of strategic analysis. Unlike many of the analytical techniques in accounting, finance, market research, or production management, strategy analysis does not generate solutions to problems. It does not yield rules, algorithms, or formulae that tell us the optimal strategy to adopt. The strategic questions that companies face (like those that we face in our own careers and lives) are simply too complex to be programmed.

The purpose of strategy analysis is not to provide answers but to help us understand the issues.

Sunday Aug 31, 2008

Time Delays

In Competing Against Time: How Time-Based Competition is Reshaping Global Markets, George Stalk, Jr. and Thomas M. Hout wrote:

Distortion between actual demand and perceived demand plague most businesses today. To escape them, companies have a choice. They can produce to forecast and try to ignore the reverberation that would cause them to do otherwise, or they can reduce the time delays in the flow of information and product through the system. The traditional solution is to produce to forecast...The new solution is to reduce the consumption of time throughout the system.

Managing time and information in supply chains have improved considerably since Stalk and Hout wrote their 1990 book. Bullwhip effect remains universally and as well-recognized (starting with ideas rooted in Jay W. Forrester's work) as in 1990. It is also known that even in the case of perfect information flow up a supply chain, some amplification of oscillations will continue to propagate upstream of any supply chain, and the only control action that remains (in a world of "perfect" information flow) is still the reduction of time delays, some of which will continue to survive due to the physical conditions of lived time and space. It still takes time to transport goods from point A to point B.

Saturday Aug 16, 2008

Organizing Production

In his Contemporary Strategy Analysis, Robert M. Grant describes a more recent phase in the long evolution of economic organizations:

As late as 1840s, the largest enterprises in the US in terms of numbers of workers were agricultural plantations. Most manufacturing was organized through networks of self-employed, home-based workers. The English woolen industry consisted of home-based spinners who purchased raw wool (on credit) from a merchant to whom they sold the yarn; the merchant resold the yarn to home-based weavers from whom he purchased cloth. This "putting-out" system survived until the onset of the Industrial Revolution. With the advent of water-powered looms, weavers moved to factories where, initially, they rented looms from factory owner by the hour. Factory-based manufacture made this system of independent contractors inefficient—it was difficult to schedule machine time, and there was little incentive for the independent workers to look after their rented machines. The emergence of firms where market relationships among workers, machine owners, and merchants were replaced by employment relationships between the owner of capital and the workers was a more efficient means of organizing production.

The issue of relative roles of firms and markets is a central aspect of economic organization. In the capitalist economy, production is organized in two ways: in markets (by the price mechanism) and in firms (by managerial direction). The relative roles of firms and markets is determined by efficiency… 

Monday Mar 10, 2008

Systems: Exploration vs. Exploitation

When it comes to learning, systems and resources, James March has summarized it all:

Maintaining an appropriate balance between exploration and exploitation is a primary factor in system survival and prosperity. 

Monday Sep 10, 2007

"Core" Competence

Here, the experts remind us what the phrase "core competence" really stands for:

[T]here is a difference between "necessary" competencies and "differentiating" competencies. It makes little sense to define a competence as core if it is omnipresent or easily imitated by competitors ... A core competence is truly core when it forms the basis for entry into new product markets. In assessing a competency's extendability, senior management must work hard to escape a product-centric view of the firm's capabilities [and focus on a skill-centric view].

That should be a simple enough recipe to remember.

Wednesday May 23, 2007

Throwing 'Resources' at Problems

I wrote about strategizing vs. economizing attitudes in my first ever entry on this blog. The problems associated with variations in these attitudes keep surfacing again and again.

In short, there are two modes of thinking when it comes to organized group or individual activity: the strategizing one and the economizing one. 

Throwing troops, tanks and dollars into fighting unwinnable battles for ill-conceived aims, throwing resources into implementing badly conceived business propositions, and other such activities --- all stem from strategizing thinking.

Creating an environment that improves complementarity of people's activities engaged in commerce, improving broad and varied commerce in goods and services at all economic scales, and reducing transaction costs (including security costs, transportation costs, etc.) --- all stem from the economizing attitude.

The strategizing calculations end with calling for more resources to gain leverage against one's opponents.

The economizing attitude focuses on a strategy of greater resourcefulness to accomplish global aims geared towards mutually rewarding commerce.

Wednesday May 02, 2007

Narrow Strategy

Narrow strategy understands the world in terms of conflicts and opponents.

In this narrow view of the world, relationships are rarely built. They are more often broken or leveraged against each other.

Broad strategy understands the world as communications and commerce among interdependent parties in relationships that can always be conceived to exist for mutual benefit.

In this broad view of the world, relationships are not only sought but also fostered. They are nurtured with care to be embedded in networks of value for all.

Tuesday May 01, 2007

The Business of Software

After the usual foreword, Michael Cusumano opens his book, The Business of Software, by outlining the main chracteristics of that business:

In how many businesses does making one copy or one million copies of your product cost about the same? How many businesses have up to 99 percent gross profit margins for their product sales? In how many businesses do many products companies eventually become services or hybrid companies (that is, providing some customization of product features and technical services such as system integration and maintenance), whether they like it or not? In how many businesses is there frequently a ten- or twentyfold difference in productivity between your best employee and your worst one? How many businesses tolerate some 75 to 80 percent of their product-development projects routinely being late and over budget, with "best practice" considered to be 20 percent on time? How about a company where people who build products often consider themselves artists rather than scientists or engineers and have the mercurial temperament to go with it? In how many businesses are customers "locked in" to a particular vendor because of product decisions someone made a decade or two ago that can't easily be reversed?

…[G]et the strategy and the management side right, and the software business can be like having a license to print money…But get the business model wrong, and—to borrow a metapor from Frederick Brooks's The Mythical Man-Month—software companies can resemble dinosaurs futilely trying to escape the death grip of an ancient tar pit. The more you struggle—that is, the more time, money, and people you pour into product development, sales, and marketing in the hope of a turnaround—the deeper you sink and the quicker you die. In the software business, this is not only because the more people you add to a late software project, the later the project can become—a rule of thumb now described as "Brook's law" (and not always true). But the broader downward spiral can accelerate for a whole company and become self-fulfilling as present and potential customers flee from software producers unlikely to survive long enough to deliver, support, and upgrade their products.

Cusumano's summary strikes all the important chords when it comes to describing the characteristics of commercially produced software. It misses some important characteristics of open-source software communities and economic networks dependent on them.

In an open-source, community project, which (company or private) participant is the producer? Who is paying the production cost? Who is reaping the benefits?

However, when it comes to a business built on bundling of open-source software or on applying such software to solve specific problems through various kinds of software extensions and customizations, we return to the general laws described by Cusumano.

Then, there are a whole set of companies that may appear to some as software companies, say Google, but they are in fact not software companies at all even if they may produce a great deal of software.

This class of companies are indeed more like modern-day AT&Ts or Sprints. Modern day equivalents are web service (e.g. Google Search) or content (e.g. YouTube, Orkut, etc.) or Internet communications (e.g. Skype) concerns. Cusumano's description does not really apply to these companies either. These companies are not in the business of selling software but rather in the business of selling service for a fee (subscription or advertisement). They do software to the extent it helps them to render their services useful and appealing.

Monday Dec 04, 2006

Strategy and Commerce

Where commerce takes hold, strategy finds its limits.

When an opportunity for commerce surfaces itself, a fair deal grounded in reality can always be found to work for all parties. Even if not globally optimal for any individual party, the deal may be composed to be locally optimal and it will always be better than no deal. Of course, all deals happen in a temporal scope and while some can last for long periods, no worldly deal can prove to be an eternal giving away of rights. (All deals involve giving away some rights in exchange for receiving some other rights.) History shows that commerce needs a convincing regime of peace to conclude, not the guise of forced power differentials extracted by strategy nor the shadow of costly battles filled with empty hallucinations of stratagem.

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