jump to navigation

Shifting Your Business Strategy – 6 September 28, 2009

Posted by David Dirks in business strategy.
Tags: , , , , ,
add a comment

David DirksThere are plenty of times when changes within your industry justify a shift in your core business strategy.  Industry changes like new product or service innovation, pricing, manufacturing processes, delivery mechanisms and such can create an opportunity for the business that is able to detect and executive on such changes.

Hewlett-Packard is just such a company that has recognized some major changes within the personal computer industry and is striking hard to take advantage of them.  In the September 9, 2009 issue of the Wall Street Journal,  writer Justin Scheck wrote that, “Hewlett-Packard Co. is using the dismal technology market to  bolster its position as the world’s largest personal-computer maker.  How it’s doing so is evident from a $298 laptop it sold at Wal-Mart Store Inc. in July.”

H-P has long been a big player in mid-and upper priced personal computers.  You could call it a ‘premium player’ in the non-Apple world if you compare it to the low-priced gang of Dell and Acer in particular.  Like Apple, H-P has positioned it’s brand as a higher quality, premium priced PC maker.  The folks that I  know who own H-P sound very similar in their praise and brand loyalty to people like me who are just nuts about iMacs and Macbooks.

So let’s review the changes in the PC market that led H-P to make a shift in its core strategy of positioning itself as a premium PC brand (still much less in price than Apple but higher than Dell or Acer) and shifting some emphasis on low-cost PC’s.

1.  H-P demanded cheaper rates from both suppliers and contract manufacturers using the leverage from its huge sales volume to drive prices down.

2.  According to the Wall Street Journal, it has “taken advantage of an improved supply chain to quickly design and deliver new, less expensive PC’s.”  H-P is working closer with retailers like Wal-Mart to improve sales forecasting for PC demand.  They are focused on maintaining a competitive edge based on large efficiencies in their entire design-to-ship process.

3.  H-P is also taking advantage of a weaker competitor in Dell.  With Dell not willing to match H-P with discounting of its own, H-P has been able to increase market share by almost 20% in the second quarter of 2009 (global shipments of PC’s).

While H-P has lowered it’s margins on PC’s, it is faring better than it’s other competitors and the additional marketing share (meaning more volume!) helps to keep the profit margins moving in the right direction.

What does the H-P experience mean for you?  Here are just a few top-line points to consider for your own business:

1.  H-P has demonstrated that it can take in the changes going on around it and move quickly with a strategy to take advantage of it and trounce competitors.  Lot’s of businesses note changes in their industry, the economy, global shifts, competition, and consumer preferences but how many are willing to act on those changes?  Are you prepared to take in the changes in your business & industry and create ways to take advantage of them for your business?

2.  H-P is willing to make a shift from its core strategy in order to increase market share and keep profits moving in the right direction…up.  Many businesses, comfortable with strategies that have worked very well in the past (or recent past), are reluctant to change or shift strategy and risk ‘killing the golden goose’.

3.  Outside of external changes, H-P continues to find ways to make their PC’s cheaper by constantly improving its own internal operations.  H-P demonstrates that sometimes it takes a two-pronged approach to get the results you need instead of relying on one factor alone to help you grow your business.  In their case, the combination of leveraging a changing PC industry landscape and creating greater operations efficiencies from within is the perfect duo for increasing market share and keep profits stable.

Shifting Your Business Strategy – 5 September 11, 2009

Posted by David Dirks in business strategy.
Tags: , , , , ,
add a comment

David DirksShifting a business strategy doesn’t always mean that it will be successful.  However, business is about risk and making investments in strategy options that seemed to show the most promise.  Often times the need to shift business strategy is driven by events outside the span of control that a company normally exercises.  Then again, prior business strategy decisions that didn’t pan out with the necessary results will require you to re-adjust.

IBM has long been known for its huge investment and consistent commitment to research & development, the incubator for innovative products and services the feed revenues and profitability.  In the September 7 issue of BusinessWeek, there was a story on how IBM is making some significant changes in how it manages its R & D process.  One change that is particularly eye-opening is how IBM is shifting how it shares and partners with others in R & D efforts.

Traditionally, IBM research was in locked-down mode; a closely guarded and very secretive organization.  Now, IBM is cutting deals with corporations and research universities across the globe to collaborate on research.  Intellectual property issues aside (and that is no small issue by the way), this shift in business strategy gives IBM several key advantages:

1.  By sharing the cost of R & D with key partners, IBM gets more bang for its research budget than ever before.

2.  The collaborative process allows IBM to get viewpoints and insights to research that it normally wouldn’t get access to and thereby exposes its researchers to potentially more ideas.

3.  Globalization of IBM research by collaborating with foreign governments and major research universities gives IBM a leg-up on competitors when it comes time to start selling products and services.  If you have a critical relationship with someone like IBM that is working, why wouldn’t you consider buying their products and services?  This strategy allows IBM to develop key customer relationships in places that it had not considered before in the context of sharing research.

Will this R & D strategy shift work?  The jury is still out on that and it will take some time to see the full measure and benefit of the new open collaboration on research.  IBM is willing to make a real investment in this strategy primarily because it has so many positive outcomes for the company if it executes it effectively.

Shifting Your Business Strategy – 4 September 4, 2009

Posted by David Dirks in business strategy.
Tags: , , ,
add a comment

David DirksThere is a point when the definition of shifting business strategies gets a bit muddled.  In general, there are two types of business strategy shifts.  The first is when you make adjustments or shifts within your core business.  For example, a local dry cleaner may want to expand revenues by adding a pick-up & delivery service.  That adjustment is relevant to their core business of providing dry cleaning services to the public.  It’s a shift from relying on just the brick & mortar building where people bring their garments to them.

The second shift is when you make an adjustment to your business strategy that is outside the core business.  Using our dry cleaning example, if the dry cleaner decided to utilize some extra space and open a cafe within his/her shop, that would be considered an out-of-core strategy.

In our current economic times, not a day goes by without another large corporation declaring that it is shedding ‘non-core’ operations and ‘re-focusing  efforts on our core business of (you  fill in the blank)’.  This is all neatly packaged as a ‘retrenchment’.  It’s more aptly called a ‘retreat’.

Why is that?  The answer is rather simple.  In a roaring economy, it’s far easier to justify shifting business strategy outside of your core business in the name of more revenues and profitability.  That old cliche, ‘a rising tide floats all boats’ comes to mind.

When the economic tide finally goes out something bad happens.  Those non-core business strategy shifts can sometimes become sink holes for cash or they require greater and greater internal investment to keep them moving forward…all at a time when capital is scarce.  Or capital is all of a sudden guarded like Fort Knox (unlike the free wheeling days of the booming economy).

When this happens, everyone heads for the hills.  The golden geese of last year suddenly have no supporters that want to keep them.  One of the main issues is that when a non-core business hits the skids, it’s much tougher to nurse it back to health.  Why?  Mostly because the intellectual capital of the company is not well invested in the non-core strategies.  There’s another saying is appropriate here:  Times of high profitability and growth can hide a lot of mistakes.  When the music stops, all of a sudden things are much more complicated and there isn’t enough talent available to fix it.  Again, it’s outside their core knowledge base.

A lot of times these non-core strategies get sold off to the companies that should have had them in the first place.  Now they can pick these assets up for song because the seller can’t get rid of them fast enough.

I know what you’re thinking.  Isn’t Berkshire Hathaway, Warren Buffets conglomerate, an example of shifting business strategy out of your core business?  In a word, no.  While Buffet buys and owns many different kinds of businesses, each runs independently and sticks to its core business strategy.  Geico, for example, was primarily known for car insurance but has expanded it’s core strategy to include other insurance lines like homeowners insurance.  Geico doesn’t own anything outside of that core business strategy of providing insurance.

So for now, we’ll continue to hear about businesses of all sizes and shapes starting to declare that they’re going back to their core business once again.  In many cases, refocusing on the core strategies makes sense.  However, when the next economic boom hits, they’ll be a migration once again to chasing profits by adding non-core business strategies to the mix.

The relentless drive for increasing shareholder value and profits will once again find executives scrambling to acquire or develop cash cows outside of their core business strategy.