Saturday, July 26, 2008

Global vs. Local

Ford announced this week that it was shifting more of its production to small cars, and that it was going to bring some of its popular European small cars to the United States. The news reports suggest that Ford is finally making more progress toward standardizing models across countries, whereas in the past, the company focused on building different models for different local markets.

The Ford situation reminds us that there are two different reasons that firms customize their products for local markets. First, they might do it to tailor their products and services to local customer tastes and needs. This is a perfectly viable reason for localization, though of course, companies must weigh the benefits of local customization against the foregone economies of scale. However, there is a second reason that firms customize for local markets, and it is not value maximizing. As companies grow and develop local management in various countries, those organizational units grow in power. Sometimes, they become fiefdoms run by managers behaving like feudal lords. These managers insist of building their own products for those markets, rather than adopting global product platforms. Yet, they might be doing so because they want to control their region and accumulate more resources under their control, rather than because it is actually the right thing to do for the business. The Ford story suggests that firms need to be particularly attuned to this second, value destroying reason for local customization in different geographic markets.

Wednesday, July 23, 2008

Airline Service

Sorry about the long delay between postings. I was finishing up the manuscript for my next book, and then I flew here to Tokyo to teach an executive program. I did have an interesting experience on the flight over here. I flew from Boston to Dallas, and then from Dallas to Tokyo on American Airlines. I've flown this route every year now for the past five years, and I always fly American Airlines as I have elite frequent flyer status with them. I was quite surprised, though, when I landed in Dallas. As I walked off the jetway into the gate area, a woman from American Airlines stood there with a placard with my name on it, as well as the name of one other passenger. She offered to drive us to our gate for the departure to Tokyo. Now, Dallas is a huge airport, and it was quite some distance between the gates. However, we had plenty of time before our next flight. I had never been offered this type of service on prior flights to Tokyo. I think it's interesting that American Airlines appears to be going that extra mile to provide service to its best customers, even while cutting back in many areas. While we have read so much about labor reductions, here we had a person driving us through the airport. It seems clear that the airlines are very focused on trying to enhance service to their core customers. It's always been tough for the airlines to differentiate their products. Flying has simply become a commodity product. Yet, here we have an airline trying to make sure that it offers a small amenity that may help it retain its best customers. It will be interesting to see if more attempts are made at differentiating their products and services, and if these efforts are any more successful than they have been in the past.

Friday, July 11, 2008

A Friendly Deal for Bud?

The Wall Street Journal reports this morning that Inbev may be raising its bid from $65 per share to $70 per share in an effort to secure a friendly deal with Anheuser Busch. It's not surprising to see Inbev up its offer, given that a friendly deal likely means a smoother integration process than a hostile takeover. Achieving key synergies becomes crucial to justify the takeover premium, and those synergies require the cooperation of Anheuser-Busch managers and employees. Most experts believe Anheuser-Busch would have a hard time devising a strategic plan that would allow it to argue to shareholders that it can get to $70 per share on its own, even if it sells noncore assets such as the theme parks and packaging business. It will be interesting to see if the two firms can hammer out a friendly deal. Moreover, it will be interesting to see how analysts and investors react to the larger takeover premium being offered by Inbev. Will they think that the potential synergies justify that acquisition price?

Thursday, July 10, 2008

Deliberate Practice and Simulations

Research by K. Anders Ericsson and others has shown that elite performers in a wide variety of fields do not excel simply due to innate talent. Instead, these stars engage in a great deal of what Ericsson calls "deliberate practice." It's more than just hard work. Elite performers engage in practice that is aimed at a very specific performance improvement goal, and which provides immediate feedback. Moreover, deliberate practice involves focusing on the things that elite performers don't do well; many of us tend to practice that at which we already excel in our leisure sport activities. Finally, deliberate practice consists of extensive repetition of the very same activity, so as to hone a particular skill. It emphasizes focus over variety in the building of skills - i.e. working on one thing at a time. As famous tennis instructor Vic Braden has said, "“Losers have tons of variety. Champions just take pride in learning to hit the same old boring winning shots."

Can businesses leverage the power of deliberate practice to develop their human capital? Surely, they can. We can engage in deliberate practice when it comes to key activities such as drafting and making presentations. Leadership development programs can provide opportunities for deliberate practice at a variety of skills related to communication, negotiation, and the like. Beyond that, we can employ technology to create opportunities for deliberate practice. One innovative new methodology for doing so involves the use of simulations and video game technology to train employees. For instance, Hilton Garden Inn employs an interactive training game called "Ultimate Team Play." This game allows individuals to immerse themselves in various scenarios that take place in a hotel. They have to make decisions about serving customers, and they have to complete various tasks. The game provides immediate feedback to the trainees, enabling them to see how their efforts impacted measures such as customer loyalty and satisfaction.

Wednesday, July 09, 2008

Starbucks Closing Locations

Starbucks recently announced that it was closing 600 locations this year. Interestingly, it appears that the company will close company-owned locations, rather than any of its licensed locations (such as small airport shops). While this closure strategy may make sense economically, one still wonders about the strategic logic of the company's massive growth of licensed locations. It seems quite likely that the proliferation of licensed locations, including the abundant licensing to food service companies, has diluted the Starbucks brand.

It's hard to argue that you are one of the highest quality coffee companies in the country when you have your coffee being brewed and then sold from air pump dispensers in tons of different locations. How long does that coffee sit in those dispensers before it is sold? Is it really fresh? Does it always taste as good as Starbucks drip coffee sold in its company-owned locations?

In my view, the company must address this fundamental strategic question. The craving for growth above all else clearly drove them to expand at a frenetic pace in recent years. Now, retrenching can be painful. Stepping back from its licensing strategy won't be easy. It may even be economically a negative in the short run, but it may be precisely what the company must do strategically to position itself for the future.