Chinese Galanz was the world's largest microwave oven manufacturer in 2013. It had sales of 20 million microwave ovens, group revenues of RMB46 billion (US$7.3 billion) and 46,000 employees. Founded in 1978, it started manufacturing microwaves in 1991. Since then it had grown its business rapidly; in the early 2000s, Galanz had become the largest microwave manufacturer in the global market in terms of units, a position it continued to hold in 2013. In addition, it had become the top seller of electric ovens in the world, and established significant presence in the air conditioning (AC), refrigerator, and dishwasher categories. The case outlines Galanz's impressive achievements in just two decades, describing the reasons for its success: the unique market conditions on both supply and demand side, Galanz's successful OEM model and pricing strategy, and its ability to transform the industry dynamics in the process. However, with increasing pressure of competitive threats, it could no longer rely on its business model to ensure continued growth and profitability. Galanz decided that it needed to move beyond its OEM business to become a consumer brand. The case investigates the way that Galanz is seeking to do this, investing in R&D to stimulate product innovation and changing the organisational design to get closer to its customers. It then looks at Galanz's efforts to diversify into other categories. It also explores some of the global market dynamics at play in various white goods industries.
This is an MIT Sloan Management Review article. Is it better to reward existing customers for loyalty -or spend your marketing dollars on attracting new ones? Many companies face that management dilemma, and expert opinions on the subject conflict. The authors argue that the answer to that question depends on how fluid customer preferences are in a market and to what degree some of a company's customers are much more valuable than others. In markets where consumer preferences are highly fluid and where the highest-value customers are much more valuable than others, companies should focus on rewarding their best existing customers. Examples of industries in which this is the case include airlines and car rentals. However, if either or both of those two characteristics -customer shopping flexibility and concentrations in customer value -is not in place, then companies should focus on offering their best prices to new customers. When identifying high-value customers, it's important to remember that revenues and profits may not necessarily be correlated. The authors note that it is not only possible that high-volume customers are not as valuable as they seem, but, in some settings, they may be downright unprofitable. For example, at one bank with which one of the authors worked, about 50% of customers contributed negatively to profits. The authors suggest several approaches to addressing the problem of unprofitable customers, including customer education and selectively increasing prices to those customers.
The author grew up on a dairy farm in Turkey, where his mother made yogurt from scratch. When he moved to the United States, in 1994, he found the yogurt to be "disgusting--too sugary and watery." So he made his own at home. By 2005 he was running a cheese factory in upstate New York when he saw an ad for a run-down but fully equipped yogurt factory that Kraft was divesting. It had a price tag below $1 million. Against the advice of his attorney and business adviser, he bought the factory with a bank loan backed by the Small Business Administration and immediately hired a master yogurt maker from Turkey. They spent two years perfecting their recipe, and Ulukaya worked hard to get the packaging just right. Three crucial decisions allowed him to finance growth after the business took off: He insisted that Chobani be sold in mainstream grocery stores and be stocked in the dairy aisle alongside existing yogurt brands. He negotiated with retailers over their slotting fees. And he spent a lot of time determining the right unit selling price. Within a few weeks of launch, very large orders started coming in; by 2009 the company was selling 200,000 cases of yogurt a week. It needed to make a big investment to increase capacity--but Ulukaya ruled out private equity investors. Here he tells why.
In health care, the days of business as usual are over. Around the world, every health care system is struggling with rising costs and uneven quality, despite the hard work of well-intentioned, well-trained clinicians. Health care leaders and policy makers have tried countless incremental fixes--attacking fraud, reducing errors, enforcing practice guidelines, making patients better "consumers," implementing electronic medical records--but none have had much impact. It's time for a fundamentally new strategy. At its core is maximizing value for patients: that is, achieving the best outcomes at the lowest cost. We must move away from a supply-driven health care system organized around what physicians do and toward a patient-centered system organized around what patients need. We must shift the focus from the volume and profitability of services provided--physician visits, hospitalizations, procedures, and tests--to the patient outcomes achieved. And we must replace today's fragmented system, in which every local provider offers a full range of services, with a system in which services for particular medical conditions are concentrated in health-delivery organizations and in the right locations to deliver high-value care. The strategy for moving to a high-value health care delivery system comprises six interdependent components: organizing around patients' medical conditions rather than physicians' medical specialties, measuring costs and outcomes for each patient, developing bundled prices for the full care cycle, integrating care across separate facilities, expanding geographic reach, and building an enabling IT platform. The transformation to value-based health care is well under way. Some organizations, such as the Cleveland Clinic and Germany's Schon Klinik, have undertaken large-scale changes involving multiple components of the value agenda. The result has been striking improvements in outcomes and efficiency, and growth in market share.
The Pentagon's Defense Advanced Research Projects Agency arguably has the longest-standing track record of radical invention in history. Over the past 50-plus years, DARPA has produced an unparalleled number of breakthroughs, including the internet, global positioning satellites, stealth technology, MEMS, and carbon composites. The agency's advances are now used in everything from smartphones to sporting equipment to artificial limbs, and it has played a central role in creating a host of multibillion-dollar industries. What makes these accomplishments even more impressive is DARPA's swiftness (its programs last only three to five years) and relatively tiny organization (about 120 permanent staffers) and modest budget (about $3 billion annually for roughly 200 programs). With its unconventional speed, efficiency, and effectiveness, DARPA has created a "special forces" model of innovation. In this article, two former DARPA leaders who now head an advanced research group at Google decipher the DARPA model and explain how it can be adapted for the private sector. The model has three critical, mutually reinforcing elements: (1) Ambitious goals. Projects are designed to push the boundaries of science to solve urgent real-world problems or create new opportunities. (2) Temporary project teams. DARPA contracts world-class experts from industry and academia to work on projects with relatively short durations. They are led by about 100 technical managers who have been brought in for fixed terms. (3) Independence. By charter, DARPA has autonomy in selecting and executing projects. Its model also challenges assumptions about how personnel are hired, and how contracting and intellectual property are managed. Such independence allows the organization to move fast and take bold risks, and helps it persuade the best and the brightest to join it.
For decades, large companies have been wary of corporate venturing. But as R&D organizations face pressure to rein in costs and produce results, companies are investing in promising start-ups to gain knowledge and agility. The logic of corporate venturing is compelling: A well-run fund can help a firm respond quickly to changes in markets and gain a better view of threats. In some cases, it can stimulate demand for a company's own products. And its investments may earn attractive returns. During their first three years as public companies, firms backed by corporate venture funds show better stock price performance, on average, than companies backed by traditional VCs. Managing corporate venture funds is not easy. Some companies have seen their venture initiatives fail, and even firms with successful funds have struggled to make use of the knowledge gained from start-up investments. Six steps can help companies avoid the pitfalls: (1) Align goals. Corporate venture funds are more successful if the business of the corporate parent and of the portfolio firm overlap. (2) Streamline approvals. A complicated decision process can burden the fund with too many goals and lead to ineffective investing patterns. (3) Provide powerful incentives. Companies that don't offer adequate compensation to their venture capitalists will face a steady stream of defections. (4) Tolerate failure. A zero failure rate may indicate that the fund is playing it too safe. (5) Stick to your commitments. If a company is seen as a fickle investor, professionals will be wary of joining its venture unit, entrepreneurs will be reluctant to accept its funds, and independent VCs will be hesitant to join in. (6) Harvest valuable information. Companies need to invest as much in learning from their start-ups as they do in making and overseeing deals.
Companies everywhere compete to find the best talent in knowledge work, and often wind up with thousands of expensive employees who aren't as productive as hoped. So they lay off a huge number of them, and soon after are out recruiting again. This binge-and-purge cycle is highly destructive, writes the author: Aside from the human and social costs involved, it is an extremely inefficient way to manage any resources, let alone knowledge workers. The problem exists, he believes, because most companies misunderstand how knowledge work does and doesn't differ from manual work. They think they should structure the former like the latter--with each worker doing the same job for a full shift. But they also assume that knowledge is necessarily bundled with the workers--and is almost impossible to codify and transfer as one could do with manual work. The trouble is that knowledge work comes primarily in the form of projects, not routine daily tasks, so these employees often have downtime. Of course it's not in their interest to advertise any spare capacity--that could lead to a poor performance review or even a layoff--and this survival imperative gets in the way of knowledge transfer. The solution is to structure knowledge work the way professional services firms do--with capabilities flowing to the projects that need them--and to put key executives in charge of codifying knowledge.
Consulting's fundamental business model has not changed in more than 100 years: Very smart outsiders go into organizations for a finite period of time and recommend solutions for the most difficult problems confronting their clients. But at traditional strategy-consulting firms, the share of work that is classic strategy has sharply declined over the past 30 years, from 60% or 70% to only about 20%. What accounts for this trend? Disruption is coming for management consulting, the authors say, as it has recently come for law. For many years the professional services were immune to disruption, for two reasons: opacity and agility. Clients find it very difficult to judge a firm's performance in advance, because they are usually hiring it for specialized knowledge and capability that they themselves lack. Price becomes a proxy for quality. And the top consulting (or law) firms have as their primary assets human capital; they aren't hamstrung by substantial resource allocation decisions, giving them remarkable flexibility. Now incumbent firms are seeing their competitive position eroded by technology, alternative staffing models, and other forces. Market research companies and database providers are enabling the democratization of data. The vast turnover at consultancies means armies of experienced strategists are available for hire by former clients, whose increasing sophistication allows them to allocate work instead of relying on one-stop shops as they did in the past. Drawing on the theory of disruption, the authors offer three scenarios for the future of consulting.
When Alex Ferguson took over as manager of the English football team Manchester United, the club was in dire straits: It hadn't won a league title in nearly 20 years and faced a very real threat of being relegated to a lower division. In 26 seasons under Ferguson, United won 38 domestic and international trophies--giving him nearly twice as many as any other English club manager--and became one of the valuable franchises in sports. In 2012, during Ferguson's final season before retiring, Harvard Business School professor Anita Elberse had the unique opportunity to observe Ferguson's management style in a series of visits and in-depth interviews. In this collaborative explication, she details eight parts of Ferguson's "formula" as she observed them and gives the manager his say. The lessons described range from the necessity of maintaining control over high-performing team members to the importance of observation and the inevitability of change. The approach that brought Ferguson's team such success and staying power is applicable well beyond football--to business and to life.
Despite the rising power of developing economies, few corporations from emerging markets have succeeded in establishing brands in the West. The problem isn't just that they're late to enter the global market; the perception is that they offer poor-quality products, not next-generation ones. Conventional wisdom holds that they'll have to spend huge sums to overcome these obstacles. But some emerging giants, such as the Indian bank ICICI and the maker of the Mexican beer Tecate, are figuring out ways to build global brands on a shoestring. They are learning to outsmart, rather than outspend, their multinational rivals. One powerful strategy they're using: targeting the emigrants who have left their homelands. Regional concentrations of these individuals can provide excellent springboards into developed markets. The key is to target the right segments of emigrants, say the authors. Assimilators, who quickly try to adopt the customs and practices of their new country, are not likely to purchase products made in their homeland. Neither are marginals, who lack economic and educational opportunities and buy mostly functional, affordable products. But two other categories of immigrants hold promise: ethnic affirmers, who cling fervently to their homeland identity, and biculturals, who tend to be affluent and well-educated and move easily back and forth between their home and host countries' cultures. Biculturals are especially attractive; because they're integrated into their local communities, they can influence other consumers and make good conduits to the general population of their host countries.
A rise in collaborative workplaces and dynamic teams over recent years has heightened the demand for "authenticity" and "instant intimacy," and managers are supposed to set an example. But sharing thoughts, feelings, and experiences at work can backfire if it's hastily conceived, poorly timed, or inconsistent with cultural or organizational norms. Getting it right can be challenging for leaders at any stage of their careers. The authors draw on four decades' worth of research in social and organizational psychology to look at common mistakes executives make when they're trying to be authentic and to offer a five-step plan for moving toward more-effective self-disclosure: (1) Set the foundation with self-knowledge. The best approach is to solicit honest feedback from coworkers and follow it up with coaching. (2) Consider relevance to the task. Before sharing personal information, ask yourself if it's germane to the situation. (3) Keep revelations genuine. Making up or exaggerating stories is easily discovered and can damage credibility. (4) Understand the organizational and cultural context. Some societies are more inclined than others to disclose personal information. (5) Delay or avoid very personal disclosures. First take note of how open others are. The authors include a tool to help you assess when and when not to share.
The wildly successful restaurateur Nobu Matsuhisa, whose hospitality group has 22 outlets in 13 countries, overcame a lot of adversity early in his career. In this edited interview he talks about selecting the talent for his kitchens, the pleasure he gets from seeing happy customers, his partnership with the actor Robert De Niro, and more.
A handful of global players dominated the telecommunications infrastructure industry in 2007. The benefits to scale were significant: substantial funding requirements were necessary to sustain continuous innovation and development of networks, products and services; key customers themselves were globalising (e.g., operators such as Telefónica and Vodafone); and low-price competition from Asia (e.g., Huawai) increased pressures towards consolidation. In 2006, French Alcatel and the US firm Lucent Technologies joined forces and in 2007 Nokia Siemens Networks (NSN) was established.