PART 1:INTRODUCTIONSooner or later, every manager has to make or follow a plan. Whether it involves planning their day, writing a budget, or putting together a project, managers must look at their present resources, estimate their future needs, and assemble the proposed actions, deployments, and expectations that will allow the planned future to happen. Almost all managers don’t plan for failure, of course, but the concept of “according to plan” is oftentimes a hope that is seldom completely realized, even if you discount external factors such as an economic crisis or terrorist disaster like 9/11 (Heller, “Changing the scenario, n.
d.)Most companies and organizations have strategies, but studies show that between 70 percent and 90 percent of organizations with formulated or planned strategies fail to execute them “according to plan.” According to a Fortune Magazine study, 7 out of 10 CEOs fail to not because of bad strategy but because of bad execution. In another study by Times 1000 companies, 80 percent of directors said they had the right strategies but only 14 percent thought they were implementing it well.
From the same study, it was showed that only 1 in 3 companies achieved significant strategic success (Chapman, 2004).Implementing an organizational strategy is typically more challenging than formulating the strategy to begin with. Without effective implementation of a company’s set or planned strategy, the success of “business and strategy” both become uncertain. Most managers are capable of formulating and developing strategies which link businesses, operations, and projects, but the real challenge lies at the execution stage, especially when the strategy as planned is not executed precisely according to plan.
Despite the experience of many organizations, it is possible to turn strategies and plans into individual actions necessary to produce a great business performance. Many companies repeatedly fail to truly motivate their people to work with enthusiasm towards common organizational aims. And even though most companies and organizations know their businesses, and the strategies required for success, many of these corporations struggle to translate theory into action plans that will enable the strategy to be successfully implemented and sustained (Chapman, 2004). SIGNIFICANCE OF THE STUDYStrategic intent must evolve on the basis of experience during implementation of the strategy.
“Separating strategy creation from strategy implementation by using corporate planners or consultants for the former activity is thus a hindrance to the evolution of a successful strategy. Linking creation and implementation supports the overall process, and thus a dynamic strategy emerges and evolves.”Planning and execution are two distinct activities, with the action or execution stage usually taking a longer period of time to complete. The sources required at the action stage are usually also more than that acquired during the formulation stage, and this in itself poses as one of the limitations that many companies do not anticipate at the planning stage.
Effective strategy realization is key for achieving strategic success in an organization (Chapman, 2004).Structural dimensions of communication, coordination and decision-making are key to successful implementations of business strategies. The literature reviewed for this thesis will examine strategic performance measurements involved in implementing company strategies particularly in the implementation stage. In analyzing strategies, the thesis will examine the difference between business and operational strategic plans, and will explore any possible methods for integration of the strategies.
Pursuant to the literature, structural dimensions of communication, coordination, and decision-making are key factors in successfully implementing business strategies. The implementation stage can be categorized in four steps: pre-implementation, organizing the effort, ongoing management of process, and maximizing cross-functional performance. Senior executive invest in long-term retreats, extensive marketing research, and expensive external consulting services during the strategy development stage, but these plans often do not come into fruition at the implementation stage. It is thus important to identify the major variables or factors that influence implementation of business strategies within organizations.
NATURE OF THE PROPOSED STUDYThe challenges for any manager in implementing a company’s strategic plan involves the examination of the influence of the major variables in implementation, such as information systems, communication, technology and learning in the organization, allocation of resources, formal organizational structures and culture, political factors and personnel management.Thus, the research question of this thesis will be as follows: “What are the key major variables that influence the success and failure of the implementation stage of business strategies?”The aim and objectives of this study involves an analysis of all these variables of implementation, and their influence on the various aspects involved in the implementation scenarios such as stakeholder input, employee empowerment, interaction of product strategy corresponding to growth rate, research and development, profit, financial stability and future prospects. Each variable will be analyzed separately in independent chapters, with case study references to be used as concrete examples of the influence of these variables in implementation in the selected companies under review.Recommendations will be made after analyzing the major impact of these major variables on management teams involved in the implementation process.
Conclusions on the major factors will involve identifying the key factors of success and failure in strategic implementation based on the literature reviewed. The variables as discussed will then be compared in order to identify which of the major variables emerged as the most key or important variables necessary in successfully implementing an action plan or strategy within an organization. SCOPE OF THE STUDYThe variables of implementation to be examined for this thesis have been narrowed down to six major factors: communication, role of technology, learning in the organization, allocation of resources, organizational structures, and lastly, personnel management. An existing dot.
com and airline firm will be the case studies used as reference to better understand the influences of these variables on existing strategic implementation plans. Key variables for the success and failure of the implementation phase of strategic plans will then be compared and identified in the conclusion of the study, with recommendations as to the important variables which emerged from the literature review as crucial in effectively implementing business strategies. PART 2:BACKGROUND ON THE STUDYCompanies and organizations around the world, of whatever scale and rank, have to deal not only with staying competitive in an ever-volatile market, but must also plan for the unpredictable, such as economic crises. In modern corporate America, organizations have begun to realize that, in order to survive, they have to learn how to plan and asses economic damage on two counts: first, the impact of the recessions in key industries (notably electronics and telecommunications), which would have happened and were happening, anyway; second, the degree to which this impact has been intensified by the setback to consumer and corporate confidence after terrorist attacks like 9/11(Heller, “Changing the scenario,” n.
d.)Strategy is the direction and scope of an organization over the long-term. A company’s strategy achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations. Strategy involves the following elements:· Direction (“Where is the business trying to get to in the long-term?”· Markets/Scope (“Which markets should a business compete in and what kind of activities are involved in such markets?”)· Advantage (“How can the business perform better than the competition in those markets?”)· Resources (“What resources – skills, assets, finance, relationships, technical competence, facilities – are required in order to be able to compete?”)· Environment (“What external, environmental factors affect the businesses’ ability to compete?”)· Stakeholders (“What are the values and expectations of those who have power in and around the business?”) (Tutor2U, 2006).
Planning an organization’s strategy thus involves almost all aspects of the business process. Strategic planning has gone through major changes since it emerged almost three decades ago. New techniques, changing contexts, novel managerial perspectives and aspirations have all resulted in the evolution (and some say, occasionally the revolution) in the design of strategic planning systems (Camillus, 1999). Understanding the challenge of effective implementation requires examining its interconnectedness with strategy formulation, and in reviewing these two aspects of strategic planning.
Strategic planning is a dynamic process involving a complex pattern of actions and reactions. It is partially planned and partially unplanned. Strategic thinking is divided into two important segments: strategy formulation and strategy implementation. Strategy formulation is done first, followed by the strategy implementation phase (Markides, 1999, 1997; Wikipedia, 2007a; Moncrieff, 1999).
Strategy formulation involves the following three steps, sometimes referred to as determining where you are now, determining where you want to go, and determining how to get there:Performing a situation analysis. (Determining where you are now). This involves both internal and external situation analysis, and both micro-environmental and macro-environmental situation analysis.Setting objectives.
(Determining where you want to go). This step is concurrent with assessment, and involves crafting vision statements (long term), mission statements (medium term), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.Drawing up a strategic plan. (Determining how to get there).
The objectives set should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to obtain these goals (Markides, 1999, 1997; Wikipedia, 2007a; Moncrieff, 1999).The next phase in strategic planning is implementation. Strategy implementation involves, but are not limited to, the following activities:· Resource allocation.
This involves allocating sufficient resources to implement the strategy formulated, such as financial resources, personnel, time, technology or IT system support.· Establishing cross-functional teams. This involves establishing a chain of command or some alternative organizational structure.· Assigning responsibility of specific tasks or processes to specific individuals or groups.
· Managing the process. This includes monitoring results, comparing them to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary.· Implementing specific programs. This involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes (Markides, 1999, 1997; Wikipedia, 2007a; Moncrieff, 1999).
One of the biggest impediments to strategy implementation is the traditional functional mindset of many senior executives (Kotelnikov, 2003). “The traditional functional mindset, prevalent since the industrial revolution, promotes attitudes and behaviors that are counterproductive in the current business environment. Functional thinking is based on an inside-out view in which departmental focus, reporting relations, and the flow of authority are predominant factors. This drives a disproportional preoccupation with company structure and leads to frequent restructuring in the hope that if the organization chart were properly defined and filled, the organization’s performance would automatically improve.
Functional view also reinforces the traditional view of performance measurement in which the dominant factors are actual-vs.-budget performance by department and a conservative view of technology.”Organizations that excel at strategy implementation know how to create sustainable value for customers and shareholders through defining key organizational capabilities and applying a balanced approach to business systems. A more balanced approach involves the shift to a capability model (or resource-based model), wherein senior managers are more concerned with issues revolving around the quality of products and services provided to customers (external and internal), the flow of value-added work, and roles and responsibilities.
The dominant view of performance measurement shifts from the traditional focus of actual-vs.-budget to a more balanced model that includes the timeliness, quality, and cost of providing products and services to customers. Resource allocation and budgeting shifts away from the traditional practice of individual units within the organization competing for resources based on their own needs towards cross-group teams that jointly assess resource needs based on the flow of work needed to create value for customers. Problem solving would seldom involve situations in which unit managers had to compete with each another.
In its place, organizations would adapt to departmental interdependence, recognizing that issues are best addressed through cross-group problem-solving sessions focused on providing services to customers and the required flow of work (Kotelnikov, 2003).An organizational capability approach, one premised on a resource-based or capability model, should nurture these three critical factors which are essential to achieving superior, sustainable results: strategic focus, organizational alignment, and operating discipline. “Conversely, taking action to achieve strategic focus, organizational alignment, and operating discipline develops capability thinking.”Shell Petroleum was one of the first major corporations to adopt ‘scenario planning’, in which managers are presented with a set of possible outcomes.
Shell decided that adapting a single forecast approach had severe defects, especially if the planning was handed down to managers by central staffs. First, executive were misled into thinking that the selected forecasts were the most likely to come true, instead of being those which best suited top management’s requirements. Second, lesser managers were taken off the hook if events belied the company’s forecasts, then the blame was always on the strategic planners’ fault, rather than that of the managers for managing badly. By adapting a scenario planning, management gets put back on the hook.
Its task becomes that of putting in place policies that will cope with any of the eventualities. In its simplest form, ‘Best World, Worst World’, scenario planning has only two alternatives – the very worst fate that you think could befall the company, and the very best alternative, taking all rationally possible outcomes into account (Heller, “Changing the scenario,” n.d.)How do managers benefit from resorting to scenario planning? For one, it forces them to think about the future and to consider what different courses of action should be followed to meet different circumstances.
One of the most common failures of thought is to ignore the possibility of events diverging from the single forecast. Failure is often compounded by refusal to change the plans when they are overtaken by events (Heller, “Changing the scenario,” n.d.) “If planning isn’t flexible, it isn’t planning.
In its proper sense, planning provides a framework for reaction to all eventualities, and for action to make the best of whatever hand is dealt by fate.”Strategies exist at different levels in any organization, ranging from the overall business (or group of businesses) through to individuals working within in. The types of strategies are business or corporate strategy, business unit strategy, operational strategy and production strategy (Tutor2U, 2006; The University of Michigan College of Engineering, 1999). For purposes of this research, only business strategy and operational strategy will be examined and compared, as well as the integration of the two types of strategies with each other in effective strategy execution.
BUSINESS STRATEGYThe business or corporate strategy is concerned with the overall purpose and scope of the business to meet stakeholder expectations. It involves managing to increase profit and survive in competitive environments, and building capabilities that provide superior customer value. The business strategy is a crucial factor in an organization since it is often heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Some business strategies are also intertwined with social welfare.
It also embodies the responsibility of senior and functional management and is often stated explicitly in the organization’s mission statement (Tutor2U, 2006; The University of Michigan College of Engineering, 1999).According to the research study by Chapman (2004), there are three essential elements in effective business strategy realization: motivational leadership, turning strategy into action, and performance management. Motivational leadership involves concentrating on achieving sustained performance through personal growth, values-based leadership, and planning that recognizes human dynamics. Real leadership is required to compete effectively and to deliver growth.
Employees turn to leaders to bring meaning, to make sense of the seemingly unending demand for results, and the need for individuals to find purpose and value in their work and their role in the organization. Leadership is the common thread which runs through the entire process of translating strategy into results, and it is a key factor in engaging the hearts and minds of employees. Whether a manager is distilling strategy to achieve clarity of intent, engaging employees to drive the strategy into action process or performance managing the resulting actions, effective leadership is crucial in effective implementation of business strategies.Turning strategy into action entails a phased approach, linking identified performance factors with strategic initiatives and projects designed to develop and optimize departmental and individual activities.
Performance management involves the construction of organizational processes and capabilities necessary to achieve performance through people delivering results. The ultimate goal of “Strategy into Action” is to enable organizations to effectively translate strategic intent all the way through to results in a clear and powerful process. The real need is to creatively and systematically unfold the strategy and to bring it into life by creating integrated action plans across an organization that will ensure all functions and divisions are aligned behind the strategy. There are three phases involved in turning strategy into action, as identified and demonstrated by the questions listed below (Chapman, 2004):· Distil business strategy to achieve clarity of intento What is the intent behind the strategy?o What does it mean for each operational unit within the organization?· Developing the strategic thrusts and broad based action planso What are the few important themes that need to be worked on to deliver the intent?o What are the sub-themes and projects?o What will success look like and how will it be measured?· Cascading out detailed work planso How will the projects be led and resourced?o Who will be responsible for each task?o Are individual work plans aligned?o What is the review process?The objective is for everyone to in the organization to understand the strategy and how what they are doing will contribute to overall delivery.
Involving the right people is essential for making the right decisions on priorities and in creating action plans that are clear and aligned (Chapman, 2004).Performance management ensures that the initial energy and enthusiasm generated during the planning process are sustained all throughout implementation of the business strategy. Typically, organizations tend to resort to reactive task scheduling instead of planning proactively to deliver the new strategic plan. Everyone in the organization needs to be engaged in taking action, which means performance management involving:· Communicating the strategic intent, thrusts and action plans· Using rigorous project management principles to deliver the change agenda· Setting individual targets and work plans aligned to the strategic priorities· Consistently measuring progress, assessing and giving feedback about performance (Chapman, 2004).
Performance management is a key factor in getting the whole organization aligned and mobilized to reach higher and work collaboratively together to deliver results. The characteristics of an effective performance management system are as follows:· It must communicate strategy· It must measure performance in real time· It must offer an integrated project management capability· It must acknowledge and enable emotional contracting with all staff, which is crucial for linking individual commitment and activity to the attainment of organizational plans (Chapman, 2004).Emotional contracting in particular, also referred to as the “psychological contract,” is one element commonly overlooked by organizations. It is a powerful link between organizational intent, and the motivations, values, and aspirations of the people (Chapman, 2004).
The most sustainable business strategies are those whichdo not depend on favorable events to achieve favorable results. The simpler the business model adapted by the organization, the stronger the business strategy. The solution is the same: strategic planning, which used to be reserved to staff specialists or outsourced to experts, is now plainly a requirement for all line managers. Staff managers too need to be able to plan, to organize present activities to achieve the best future outcomes (Heller, “Changing the scenario,” n.
d.)One example of a sustainable business strategy which has remained successful despite economic crises and 9/11 is the one adapted by the legendary Herb Kelleher for Southwest Airlines. Alongside other business giants such as Lee Scott, the heir to the even more renowned Sam Walton at retailer Wal-Mart; Craig Barrett, who followed another legend, Andy Grove, at Intel; and Michael Dell, the living legend himself, at Dell Computer, Kelleher works on a Less Cost, Higher Value approach. At Southwest, Kelleher didn’t compete on the prestigious routes with the major airlines.
Instead, he filled in the gaps in the route-maps with pioneering low-cost, no-frills operations. Innovative service and people policies helped the airline. This simple, straightforward business economics explain why Southwest has been valued in the stock market at a capitalization which surpassed that of all other US airlines put together (Heller, “Changing the scenario,” n.d.
)Southwest’s business model has been dubbed by the airline industry as The Southwest Effect. In the early 1970s, during the first major energy crisis in the US, the Dallas-based company’s original mission statement was to make it less expensive than driving between two points. They did this by developing a template for entering markets at rates that allowed the airline to be profitable, yet only on the basis of lean operations and high aircraft utilization. The key concept to the Southwest Effect is that when a low fare carrier, or any aggressive or innovative company, enters a market, the market itself changes and usually grows dramatically.
For instance, when airfares dropped by 50 percent from their historical averages, the number of new customers in that market may not just double, but actually quadruple, or more (Wikipedia, 2007b).The airline has been a major inspiration to other low-cost airlines, with its business model been copied many times around the world. In Europe, easyJet and Ryanair are the two best-known airlines to follow Southwest’s business strategy, although easyJet, unlike Southwest, operates two different aircraft models today. Canada’s WestJet, New Zealand’s Freedom Air, Malayasia’s AirAsia, and Thailand’s Nok Air are other airlines which follow Southwest’s business strategy.
In the US, Southwest purchased Morris Air and absorbed the capital and routes into its own inventory and service. David Neeleman, who worked with Southwest for a short period, eventually left the airline and when his non-compete agreement expired, he founded JetBlue Airways, a competed airline that also incorporates many principles and practices pioneered by Southwest, including building a positive, warm employee culture and operating a simple fleet (Peterson, 2004). Aside from purchasing Morris Air, in the US, Southwest also injected capital in 2004 in ATA Airlines, one of its main competitors in the Chicago market operating out of Midway Airport alongside Southwest. When ATA declared bankruptcy in 2004, Southwest acquired 27.
5 percent ownership stake in the company, and also entered into its first domestic code-sharing agreement with ATA, which enabled Southwest to serve ATA markets in Hawaii, Washington D.C., and New York City. In late 2005, ATA secured $100 million in additional financing from the firm of Matlin Patterson, and Southwest’s original deal with ATA was modified such that Southwest no longer retained the 27.
5 percent stake (or any other financial interest) in ATA. However, the code-share agreement continues to remain in place and has expanded, with some internal controversy, to include all of ATA’s 17 destinations and all of Southwest’s 63 destinations. During 2006, Southwest took over ground operations for ATA at Chicago’s Midway Airport. Southwest ramp personnel began to handle routine ground operations such as loading of aircraft, ground servicing, and the like, which further added to Southwest’s commitment to make the code-share agreement with ATA successful (Wikipedia, 2007b).
The success of Southwest can be attributed to the simple, straightforward approach of Kelleher, who championed the Less Cost, Higher Value framework. What it teaches is us is that by adapting a very focused and simple business strategy which aligns organizational objective with factors influencing execution, such as personnel management, resource allocation, technology, and communication, then the chances for success become much higher. OPERATIONAL STRATEGYAn organization’s operational strategy is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction. Operational strategy focuses on how business units achieve a desired operations structure, infrastructure, and set of specific capabilities in support of the organization’s competitive priorities (Boston College, 2001; Tutor2U, 2006).
Components of the operation strategy involves the following:Structural decision categories (capacity, facilities, vertical integration, technology)Infrastructural decision categories (workforce, organization, information/control systems)Capabilities (unique to each firm)Competitive priorities (cost, quality, time, flexibility, speed) (Boston College, 2001).An example of a company’s competitive priority with regard to cost is Southwest Airlines’ organizational strategy of utilizing only one type of airplane. This strategy helps to keep crew changes, record-keeping, maintenance and inventory costs at a minimum. The company’s strategy of making use of direct flights means no baggage transfers.
An additional cost-cutting measure by Southwest comes from its $30 million annual savings in travel agent commissions by requiring customers to contact the airline directly (Asllani, 2006).Issues and trends in operations include the impact of global markets, global sourcing, and global operations, virtual companies, emphasis on service, speed and flexibility, supply chains, collaborative commerce, technological advances, knowledge and ability to learn, and environmental and social responsibilities (Asllani, 2006). These trends affect an organization’s operations strategy, and in evaluating the effectiveness of a company’s strategy should include considering several criteria:· Consistency (internal and external). This means consistency between the operations strategy and the overall business strategy; between the operations strategy and the other functional strategies within the business; among the decision categories that make up the operations strategy; between the operations strategy and the business environment (such as resources available, competitive behavior, governmental restraints).
· Contribution (to competitive advantage). This means evaluating whether the operations strategy is effective in: making trade-offs explicit, enabling operations to set priorities that enhance the competitive advantage; directing attention to opportunities that complement the business strategy; promoting clarity regarding the operations strategy throughout the business unit so its potential can be fully realized; and providing the operations capabilities that will be required by the business in the future (Boston College, 2001). INTEGRATION OF BUSINESS AND OPERATIONAL STRATEGIC PLANSAs previously discussed, an organization’s overall strategy is a deliberate search for a plan of action that will develop a business’s distinctive competence and compound it (Boston College, 2001). In practice, strategy (vision) and tactics (actions) converge in order to fulfill the company’s planned objectives and priorities (The University of Michigan College of Engineering, 1999).
Although business strategy and operations strategy are two distinct types of strategies, the integration of both types is important for successful strategy implementation. Operations’ role in business strategy execution is providing support for a differentiated strategy. Operations serves as the company’s distinctive competence in executing similar strategies better than competitors (Asllani, 2006). Strategic management involves the integration of both operational and business strategic plans, and integrating the set of managerial decisions and actions with the end goal of generating sustainable competitive advantage (Wikipedia, 2007c).
The key difference between successful and unsuccessful organization is not having better strategies that outdo their competitors. Most of the time, what separates a successful organization from an unsuccessful one is not the superiority of their strategies, but the superiority of the execution of their strategies. Strategic management sends an important message to all people involved in operations – from employees, to customers, to suppliers and investors. An organization’s strategy management system shows that the company’s leadership recognizes that one of its most important jobs is to align business strategy to operations.
Alignment is but one of the five core principles of successful strategic management. The five core principles of successful strategic management are as follows (Kaplan, 2006):· Leadership. Successful organizations operate with a clear vision, mission, and strategy, and hold people accountable for getting things done.· Translating strategy into operation terms.
This involves getting the right things done.· Aligning the organization to its strategy. Successful organizations are designed to achieve their strategic goals.· Communicating/motivating.
An organization’s employees understand the goals of the company and are energized to attain them.· Sustaining. Successful organizations continually monitor their execution, refine it, improve it, and integrate into the daily flow of business.A management system is necessary to translate the five core principles into operational reality.
Most corporations have historically relied on the budget as their primary management system. However, by relying solely on the budget, organizations risk sacrificing long-term strategic goals to short-term financial targets. In other words, budgets alone are not sufficient for implementing strategy across an entire organization. Strategic management is the system that can link strategy and execution across the organization.
It also involves the integration of business strategy into specific operational action plans and strategies. Strategic management also incorporates some of the latest developments in performance and cost management such as creating and defining the enterprise value proposition; aligning business units to the corporate strategy; aligning support units to corporate and business unity strategy; aligning the board of directors to strategy; and integrating strategic planning and operational budgeting (Kaplan, 2006).Most importantly, strategic management involves stating the organization’s broad strategic themes and aligning local operations to deliver excellence on their own terms while at the same time supporting the organization’s broader themes. By integrating business strategy and operations, synergies between operations are identified and the benefits of those synergies are realized.
This is accomplishing by identifying the organization’s enterprise value, which in turn can be created in two distinct ways: through 1) the customer-derived value, which is the value created by what the company sells); and 2) the enterprise-derived value (EDV), which refers to the value created through economies of scale, coordinated activities, shared customers or services, and distributed risk. EDV is particularly important since it is how corporate head offices justify their existence. The task of corporate head offices and top management is to create enough EDV to make each individual business unit within the organization more valuable as part of a whole than it would be as a freestanding entity. EDV occurs on four levels or perspectives (Kaplan, 2006):· From the financial perspective.
Corporations create EDV when, for instance, they allocate resources effectively or develop processes for acquiring and integrating business units.· From the customer perspective. Organizations generate EDV by coordinating multiple business units to offer common customers lower prices, greater convenience, or more complete solutions.· From the process perspective.
EDV is generated when business units consolidate back-office operations, collaborate on research, or share manufacturing facilities. Such EDV can be enhanced using data integration and other IT systems that will permit real-time tracking of key business processes.· From the learning and growth perspective. Corporations can produce EDV by developing the skills of talented managers by moving them across different business units.
Another example of learning and growth EDV would involve IT-based systems which allow organizations to capture and disseminate specialized knowledge and best practices throughout the organization.Establishing a company’s EDV requires integration of both the company’s business and operational strategies. Without such integration, the organization’s objectives, although essential for informed decision-making, will never attain full implementation. All organizations and individuals have objectives and values, either express or implied, that guide their decisions to some extent (Keeney & McDaniels, 1992).
Without integrating the business strategic plans with the operational strategic plans, these mission statement or organizational goals, which are key steps in developing approaches to strategic management, will never attain clarity throughout the organization. Integration of multiple objectives is highly important especially with companies dealing with more complex decision tasks and action plans (Byars, 1987; Thompson & Strickland, 1992). Unless an organization’s mission and direction are translated into measurable performance targets, the company’s mission statement remains just a plan, or even just window dressing. Integration of both business and operations strategic plans allow managers to set objectives for each key result area and then aggressively pursue actions aimed at achieving their performance targets.
This approach outperforms companies wherein managers operate with mere hopes and good intentions of pursuing a mission statement. Explicitly stating organizational objectives in measuring terms in both the business strategy and the operations strategy, and holding managers accountable for reaching assigned targets, substitutes purposeful strategic decision-making for aimless actions and confusion over what to accomplish. More importantly, it helps to provide a set of benchmarks for judging the organization’s performance and execution of the organizations objectives (Walls, 1995).Integration of the business strategy and the operations strategy requires an examination of the variables of implementation that affects execution on both levels.
The next part of this thesis, the Literature Review, will examine these key variables and their influence on the success or failure of an organization in implementing its strategy. PART 3:LITERATURE REVIEWThe literature review will examine the key variables of implementation which influence the success or failure of implementing an organization’s business strategy as integrated with its operations strategy. The variables to be examined include communication, technology, learning in the organization, resource allocation, organizational structure, personnel management and corporate culture. Each variable will be examined separately in light of relevant related literature analyzing each area, coupled with some case study subjects to provide for real-life examples of such variable in practice.
CHAPTER 1:COMMUNICATIONIn trying to improve performance and the implement a strategy within a company, both words and action are required – communication should be both verbal and visible. If more effective actions producing better results are not flowing, this means that communication within an organization has not been achieved in any meaningful way. A study by Heller (n.d.
) shows that on the long-term performance of 20 companies committed verbally to “values,” they succeeded in expanding their net income 23 times, while America’s gross national product had managed to rise only 2.5 times in the same period (Heller, “Business Communication,” n.d.)What this tells us is that values in themselves do not add values.
Organizations derive their values and culture from the people within in. As in all societies, traditions are handed down, while physical assets influence how people behave. Behavior is the crucial outcome of a company’s culture. A company may communicate verbally about its business strategy (“high degree of attention to customer” “dedication to quality”) but all these become meaningless concepts unless translated into, and proved by, behavior (Heller, “Business Communication,” n.
d.)Organizations who have the goal of accomplishing their strategic goals need to establish well-defined communications strategies. A well-defined communications strategy is one that engages employees and aligns with the organization’s business goals. There is a close tie between business, performance technology, and communication strategies, and this tie will help to focus understanding and support for the direction of the organization.
Different combinations of performance interventions developing to help execute change in an organization cannot be effective without a sound communications program. Effective communications is crucial for building awareness and motivating the employees into action by explaining a program or strategy’s value to employees as well as to solicit the employee’s buy-in (Simmons, n.d.)Effective communications means more than just words or verbalizing values.
It must reflect genuine actions, practices and commitment to ethics. The acts of an organization coupled with the interpretation of those acts by not just the employees but by the public, forms the opinion about the company. The organization’s communications program is integrally important to share its objectives and shape the opinions of its key audiences. Everything from earnings announcements, hires, layoffs, accidents, new accounts, charitable donations, changes in structure, promotion, shifts in business objectives, emanate down to all levels of the organization through effective communication (Ryerson, 2003).
Implementing a business strategy will inevitably bring about change in an organization, no matter how minimal, change will be a driving force to enhance performance. However, communicating the gospel of change can only be done effectively through effecting change. The business strategy to be implemented is a plan, an example at best, and this plan or example needs to be communicated. The communication is turned into action by adopting the improved process as proposed by the plan.
Organizations resort to various communications devices such as use of pep rallies, company songs, to boost employee morale. In Home Depot, at 6:30 am one morning every month, Breakfast with Bernie and Arthur is relayed lived over closed circuit TV to nearly all 45,000 employees. The dominant refrain is to contrast “Where do you go if you want a job?” with “Where do you go if you want a career?” – to which employees scream enthusiastically “Home Depot!!!” This communication device shows clearly management’s priority of making the distinction between a job and a career (Heller, “Business Communication,” n.d.
). These types of communication help to embody management priorities and to boost employee morale.Why the need to boost employee morale to implement organizational objectives? The simple answer is that nothing can be executed without people. The organization has to put people and their lives first in order to effectively implement any company strategy, mission statement or objective.
Employee involvement is crucial for implementing any strategy. The object is to ensure that all necessary strengths for execution are intact and aligned, and that everyone in the company agrees and/or believes with the decisions and the strategies, and their implementation (Heller, “Business Communication,” n.d.)The company needs to deliver communications that are timely, accurate, effective and efficient.
The objectives for their communications are to create effects, maintain effects, increase effects, and decrease effects – depending on the strategy formulated at the planning stage. These objectives are directly related to ensuring performance that meets the strategic goals set by the organization and the line of business they are involved in. Communications that create effects focus on that which did not exist previously, such as new awareness, fresh attitude, and new behavior. This sends the message for a need for change or to adapt to a strategy formulated, and at the same time it creates excitement and motivation among the principal actors for change – the employees.
Communications that maintain effects focus on continuing the level of comprehension and maintaining the present rate of participation among the employees (Simmons n.d.)Communication needs to be two-way, between management and employees, in order to create, nourish, and sustain a creative culture of change. Management’s overarching responsibility is to ensure that communication is two-way, particularly when they wish to executive a new strategy formulated by the organization.
To send this message that communication should be two way, management should avoid unnecessary meetings which may actually just be a waste of time instead of being productive communication devices. Managers who are always unavailable because they are “in a meeting” shut down open communication between them and their employees. Leaving their doors open, and setting aside one morning a week to anyone who can just walk in without an appointment will allow managers to hear from all levels of employees. Such processes drive into people’s consciousness, and thus the corporate culture, the idea that communicating and accepting practical suggestions is part of the way the company manages.
In effecting a culture of change, the role of the managers should shift from command and control to facilitating and communicating (Heller, “Business Communication,” n.d.)In implementing a strategy, businesses are expected to perform by selected yardsticks as established in the strategy formulated. It then becomes important to communicate these selected yardsticks or expected performance outcomes.
Change agents look for critical success factors linking performance measurements to strategy. In execution a new strategy, a company needs to change the system of performance measurement to make it consistent with the new strategy. The task of change agents is to select those new measures which will best communicate the company’s new objectives, whether financial or non-financial. And rather than given order-and-obey instructions, communications should serve as a device in informing the people clearly of their expected responsibilities and performance outcomes.
The process of communication then becomes a continuous loop, wherein feedback leads to action which leads to feedback which leads to action, and so on. Without that process, change cannot be achieved. And without change, the organization can never accomplish what is known as total organizational capability. To achieve this, managers need to ask the following questions: Are priorities effectively ordered? Is decision-making of the highest quality? How efficient is execution? (Heller, “Business Communication,” n.
d.)Inadequate capability within an organization shows in observations from senior managers as a result of ineffective internal communications: “ ‘I will tell you why I cannot get things moving. I can never get the right people together at the right time, and when I do the action step is another meeting, or let us set up a working committee or something, but I can’t get action’..
. ‘I have so many people to speak to get a decision that it takes ages and I’m exhausted at the end of it. I can’t do that on every issue’..
. ‘I have got two major problems in trying to get to grips with the business myself: I cannot get the right data and when I do, eventually, force what I need out of the system, it’s inconsistent or unreliable.’”These complaints reflect communication obstacles in the way of prioritization, decision-making and efficient execution. Removing communication obstacles will result in changing company culture and improving total organization capability.
People in the organization all need to know what common goal they are shooting for, and their individual responsibilities in getting there. These serve as the guiding principle around which all good communication should revolve. Staff, skills, style, symbols, systems and controls, and shared values should all be used to communicate and achieve the desired business results. Before a company begins the execution phase of its strategy, it needs to ask questions which its employees are expected to ask in order to believe in the new formulated strategy and their role in its, and provide the answers thereto.
The three questions which need to be asked before the organization embarks on the implementation phase are (Heller, “Business Communication,” n.d.):· Do I need to do this?· If yes, how can I do it at no extra cost?· Now it’s done, how can I do it at less cost next time?Unfortunately, in many organizations, communication is often written or talked about too much about changing culture, with very little done to perform worthy thoughts into valuable deeds. Good communication should also concentrate less on what media are being used and should focus more on how people are aligned with the collective purposes.
The overall objective is to improve processes continually in a culture which becomes self-generating and self-regenerating. This can be realized through process change, and not just by preaching. Getting procedures and structures out of the way so that people can focus on process and behavior will allow everyone in the organization to learn what’s going on and why (Heller, “Business Communication,” n.d.
) To increase effects, communications should seek to bring about growth, increasing favorable attitudes (causing a larger retention rate) and expanding awareness. Communications that decrease effects, conversely, focus on subtraction, lessening criticism, reducing disharmony, decreasing turnover, and softening opposition (Simmons, n.d.) CHAPTER 2:ROLE OF TECHNOLOGYManagement, as previously discussed, tends to focus merely on talking about strategy.
They rely on tools such as Michael Porter’s Five Forces of Industry Structure to go through volumes of data and to formulate future plans and strategies. And while strategy formulation can be exciting and critical, the nuts and bolts of successfully executing a strategy involve tactics – a variable which is often neglected. According to Sun Tzu, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
” Thus, strategy and tactics are interdependent, and keeping this interdependence in mind will help an organization reconcile potential conflicts between long-term strategic planning and tactics – the latter being most commonly embodied in Internet, technology or management system solutions that a company utilizes to help implement strategy (Braunstein, 2003).The Internet can be used to create a distinctive business strategy. In eBay, for instance, all the work is done by buyers and sellers via the Internet with no marginal costs for the company. The Internet serves to provide unlimited capacity and a huge market for eBay.
Technology can also be used to strengthen existing competitive advantages by integrating new and traditional activities. In Intel for instance, it sells $ 2 billion of products each month over the Internet, and purchases 90 percent of its direct materials online. The Internet has also replaced 19,000 sales-order faxes the company received daily (Asllani, 2006).These tactics, collectively labeled the Internet, contribute to underlying corporate strategies.
Getting strategy aligned effectively with tactics is no easy task, and usually because planning and executing Internet strategies are not aligned with the common objective (Braunstein, 2003). Technology has often been described as the “great equalizer” — it allows innovations to be copied with little investment, it allows companies to reach a larger market, and it gives customers more information and allows them comparison of prices and features of various products (Asllani, 2006). It is thus important for organizations to align their operations strategy with their operating systems. In doing so, the company needs to ask itself the following questions as to the role of technology in their strategy implementation:· How will operating systems execute strategic decisions?· How does one align information technology and operations strategic goals?· How does information technology support both customer and worker demands for rapid access, storage and retrieval of information?· How does information technology support decision-making processes related to inventory levels, scheduling priorities, and reward systems? (Asllani, 2006).
DOT.COM COMPANIESThe role of technology in strategic implementation is most apparent in the case of dot.com companies. How technology has been utilized effectively for strategic implementation can be best seen from an examination of the failures and successes of various dot.
com companies in the history of e-commerce. In the study by Korgaonkar and O’Leary (2006), they examined whether the Internet is indeed a new paradigm or merely a new delivery and communication system. The study by Korgaonkar and O’Leary will be used as primary reference to study the role of technology as creating a real difference between online and offline businesses, and on whether technology plays a role on the issues encountered by traditional brick-and-mortar business and e-businesses.Online companies, more popularly known as dot.
com companies, are businesses that exist purely and primarily in the online environment. Despite the fame dot.com crash in the early 2000s, dot.com companies are now seen as an integrated part of society.
Online companies have changed the traditional form of running business, the infrastructure of the company, and also broke down the boundaries to cover a wide range of customers. Dot.com companies use e-commerce technology to provide online business transactions, electronic data interchange (EDI) for providing interaction and communication between companies (from suppliers to consumers), and in the long-term, e-commerce also helps online businesses to reduce production costs by replacing the paper-based business processes with the latest information system technology (Daley, et al., 2005).
From the year 2000 to the end of the second quarter of 2002 alone, 862 e-businesses failed, and this includes both venture capital-funded ventures and other companies (Korgaonkar & O’Leary, 2006). Most shutdowns and bankruptcies of Internet firms occurred in 2000 and continued into 2001 and 2002. Why did some e-businesses fail while others survived? Understanding the reasons behind the successes and failures of e-business will provide insight on the influence of technology on effective strategy implementation. An examination of factors contributing to the success or failure of dot.
com companies will also contribute in providing for any similarities or differences in the success and failure factors that may be relevant in brick-and-mortal businesses.Studies have shown several management factors that have lead to the failure of dot.com companies: management vision, professional orientation, and managerial experience. Each failure factor will be explained as follows:Management vision.
The first factor, management vision pertained to lack of a clear and broad vision of the business. One of the reasons for failure was that the management teams ignored the fact that they were marketing innovative services (Pandya & Dholakia, 2005). Managers concluded that the dot.com disaster was not just the result of poor management and lack of funds, but of the failure of a whole new genre of services.
Thus, the vision of e-business managers was lacking in depth of understanding of the products sold and the kind of marketing needed for this new game (Korgaonkar & O’Leary, 2006). Lack of focus on the definition of the firm can also lead to failure if the firm has been trying to be everything to everyone, and fails to narrow down the source of its competitive advantage (Grossi, et al., 2000). For instance, in the case of Wired magazine, too many co-founders had different views and visions on what the company should be, resulting in confusion for the employees and the eventual sell-out of the large magazine conglomerate (Korgaonkar & O’Leary, 2006).
Strategy planning was also useful in successful new ventures, not only in creating strategy but for how management planned to acquire the skills and perform the tasks necessary to run the business (Gartner, et al., 1989). Studies on the failure of dot.com companies showed that poor planning has been a key factor for failure of the businesses (Perry, 2001; Rovenpor, 2003).
Professional orientation. Whether or not e-business management teams used professionals (like lawyers, accountants, marketing firms) in the start-up phase has been found to be a factor in their success or failure (Duchesneau & Gartner, 1990; Gartner, et al., 1989). Few managers are experts in every discipline, and seeking expert advice on relevant issues before they become problems are recommended for new businesses such as start-up dot.
com companies. Especially since the environment of the online business world was characterized with rapid technical change and strategic complexity, managers may have spent most of their time on more traditional concepts of marketing and product functions instead of looking for professional resources to help them initiate a solid e-business model (Gartner, et al., 1989). The area of e-business was so new that many managers felt they were more qualified than professionals to handle different areas of business functions.
However, studies show that the use of professional was found to be an important element of success, with management teams open and flexible to any information, good or bad, that would help them improve their company’s performance (Duchesneau & Gartner, 1990; Korgaonkar & O’Leary, 2006).Managerial experience. Another management factor recognized as one of the factors behind the failure of dot.com companies is the inability of the management team to manage rapid growth and change in the first several years of the firm’s existence (Grossi, et al.
, 2000; Huang & Brown, 1999; MacMillan, et al., 1987; Venkataraman, et al., 1990). Lack of experience in a situation requiring handling significant growth was thus found be a factor for the failure of e-businesses, as showed by various related literature (Huang & Brown, 1999; Rovenpor, 2003; Thornton & Marche, 2003).
The level of experience that an entrepreneur brings to the table is a useful predictor of success (Dubini, 1989). Measuring the level of the entrepreneur’s skill and competence is a more precise way to measure management acumen than the entrepreneur’s gut feelings. How the entrepreneur has reacted in the past to risk and unstable environments, and the ability to manage people and to sustain the effort involved in making a business successful, will give the venture capitalist a more objective standard by which to choose firms for investment. However, in the sudden growth of e-businesses in the mid to late 1990s, many venture capitalists overlooked this factor.
With an opportunity at their doorstep to reap what they thought would be high rewards, experience was probably not a factor in their decision (Korgaonkar & O’Leary, 2006).Although there are many similarities in the factors that bring about the success or failure of e-businesses and regular brick-and-mortar companies, dot.com companies are usually more informal and attempt to foster an air of creativity. The typical e-business exists in an environment that moves at real time (Grossi, et al.
, 2000). Companies that have trouble moving quickly in this environment are at a severe disadvantage. This is in contrast to traditional brick-and-mortar organizations where the parent company usually mandates a careful, slow adaptation to the Internet environment (Korgaonkar & O’Leary, 2006).An example of an e-business which failed to implement a focused management vision is Flooz.
com. Flooz, which was endorsed by comedian Whoopi Goldberg, was a venture started in the late 1990s, with the objective of introducing a currency unique to the Internet. It allowed consumers to purchase Flooz currency for themselves or gifts and use it like money at sites that accepted Flooz. After buying a certain amount of Flooz, the consumer could then use it at a number of Flooz’s retail partners.
Initially, the objective was to provide for an online currency that would serve as an alternative to credit cards. Some sites like American Greetings also offered Flooz as rewards for frequent buyers. One fatal day in 2001, Flooz customers were dismayed to discover that trying to use Flooz at sites around the web were repeatedly informed that Flooz was no longer an acceptable form of currency. The reason was that the company was going out of business (Wikipedia, 2007d; Enos, 2001; German, 2006).
The problem with this vision established by Flooz was that it lacked focus. While the concept behind the business was similar to a merchant’s gift card, at least gift cards are tangible items that are backed by the merchant and not a third party. Flooz successfully sold this concept of using online currency in lieu of actual credit cards to retail partners, and raised a staggering $ 35 million from investors, and signed up retail giants such as Tower Records, Barnes & Noble, and Restoration Hardware (German, 2006). Although Flooz started as a B2C online currency site, with the plan of facilitating the use of Flooz dollars for gift giving, signing up online stores to accept the Flooz currency proved to be difficult.
At the height of the organization’s presence on the Internet, the Flooz currency could be used at only about 60 online stories, many of which were sites with relatively less traffic and were themselves looking for ways to built a following. As a result, a consumer had a limited set of choices when she wanted to spend her Flooz dollars. Flooz.com then chose to morph its e-commerce strategy by turning to the corporate rewards market, thus moving upstream from B2C to B2C2B.
Its business model reveals that the organization failed to provide a unique value proposition to customers on the corporate side. That marketplace, already crowded with brand-name corporate affinity marketing service providers, was no easier arena to compete in. As a result, it became clear that Flooz.com failed to offer a unique value proposition in any viable marketplace.
The limited acceptance of the Flooz currency also unrealistically constrained its value to consumers and other companies using Flooz as employee appreciation rewards. The cumbersome task of integrating Flooz as a method of payment and the commission Flooz.com charged also reduced incentives for online stores for accepting Flooz at their sites (Kaufmann, Miller & Wang, 2002). The dot.
com filed for bankruptcy in August of 2001 (Flooz.com, 2001).The case of Flooz.com is an example of a management team ignoring the fact that they were marketing innovative services (Pandya & Dholakia, 2005).
Flooz.com failed not because of the failure of a whole new genre of services, but because of poor management and lack of a clear management vision. The vision of the e-business managers in Flooz.com lacked depth of understanding of the product they were selling, and the kind of marketing needed for this new game.
They also lacked focused on defining the firm and failed to narrow down the source of its competitive advantage (Grossi, et al, 2000). Lack of a clear and defined management vision and definition of a firm’s products and services are factors that lead to the failure of not only e-business but also traditional brick-and-mortar enterprises.Studies show that there is no real difference between an online and offline business (Korgaonkar & O’Leary, 2006). The discussions here clearly indicate that some of the issues faced by an e-business are also significant issues faced by a traditional brick-and-mortar business.
CONSOLIDATIONOrganizations are looking to consolidate their servers, storage, network, applications, data or database instances not only to align systems with their operational strategies, but for cost containment and better utilization of resources. Consolidation initiatives should be integrated into business strategies and viewed as business projects in themselves albeit supported by technology. Consolidation should not be viewed as strictly a technical problem, but as a variable in strategy implementation that in the long rung will provide for more efficient and effective business processes within the organization. Consolidation allows a company better opportunities to train their people since consolidation provides for common practices.
This in turn helps to meet the goals of an organization, particularly useful for a global organization operating from different parts of the world with different systems and processes. In strategic implementation, consolidation efforts can result in 30 percent savings on IT costs and a similar amount of reduction in training expenses (Wiseth, 2004).Consolidation of technology begins by creating an end-state vision. This is followed by the discovery phase (identifying existing assets) and an execution phase, where the organization tries to realize the end-state vision through a variety of prototyping, testing, and data migration and conversion techniques (Wiseth, 2004).
Server consolidation in particular tops the list as the most efficient type of consolidation to ensure strategic implementation, and it can be further divided into three broad types or stages – logical consolidation, physical consolidation, and rationalized consolidation (or simply “rationalization”) (Wiseth, 2004).Logical consolidation occurs at an organizational level, when all the enterprise servers are put under the control of a central IT group. This does not involve reducing the number of servers the company has, but simply means that the organization puts all of its IT assets under the control of a central, controlling organization. The controlling organization can then start enforcing standards, implementing hardware and software asset management, and putting other best practices into place (Wiseth, 2004).
The next stage involves physical consolidation, which aims to reduce the number of places where servers are located. This entails the location of multiple platforms at fewer locations. After physical consolidation, organizations ultimately want to achieve rationalization, in which they actually start reducing the number of servers by implementing multiple applications on fewer, more powerful platforms, often through partitioning or workload management.Another type of consolidation project that can bring great benefits to organizations is database instance consolidation, which allow for greater visibility into processes for companies.
It involves getting one database information source that can reside on a single physical device, or with tools such as Oracle’s Real Application Clusters environment, creating a virtual database made up of multiple pieces of hardware. The key is having a single global database. Instance consolidation can give organizations the opportunity to explore how putting everything together can conceivably improve processes. Instance consolidation is especially beneficial to global organizations since these companies that have different systems and processes in many parts of the world.
In addition to achieving cost containment, organizations that consolidate instances want to be able to support better data and transaction transparency. For instance, organizations want to consolidate database instances as a proactive response to product safety regulations.Consolidation and standardization apply not only to servers or databases but to business processes as well. According to Oracle Senior Director of Technology Marketing George Demarest, “The more you can standardize common business processes and consolidate skill sets, the less complicated and costly it is to run your company.
As we can see from Southwest’s business model, this holds true beyond IT operations.”To further illustrate the benefits of consolidating on a single platform, we go back to the case of Southwest Airlines. At its headquarters in Dallas, the airline runs some 400 enterprise applications that support the gamut of its operational, financial, and administrative activities. This means everything from aircraft maintenance management systems to accounting; finance; business intelligence; data marts; and ground operations, including crew scheduling, reservations, and ticketing.
Southwest makes use of a service parts management (SPM) system which is an extensive supply chain management system that facilitates provisioning and other activities among more than 1,500 parts and service suppliers related to repair and maintenance of Southwest’s fleet. The company’s portfolio of enterprise applications runs on several database management systems, including Adabas, IDMS, Informix, Oracle, SQL Server, and Teradata. According to Lionel Reynolds, manager of database administration at Southwest. Southwest’s primary objective behind this consolidation project, long-term, is to reduce the DBMS footprint at Southwest.
For instance, by bringing all Oracle-based applications to a single release simplifies patching, maintenance, and support within the organization. In addition to reducing the number of Oracle database releases, consolidating on Oracle9i RAC has also provided much-needed high availability for Southwest’s critical applications (Wiseth, 2004).Migrating close to 100 applications to a new environment required thoughtful planning and rigorous attention to detail, and in fact had a lot of the characteristics of a large-scale enterprise resource planning (ERP) project, requiring the same planning, support, and execution. Southwest’s consolidation process was treated like any new development project, involving first enlisting the participation of the stakeholders (the business application people whose application were going to be migrated) as well as the other teams we would be working with throughout the consolidation process.
Educating stakeholders –end-users in Southwest – was also a crucial step in consolidation.As with its fleet of aircraft, Southwest Airlines takes a single-platform approach to its database, standardizing on Oracle9i RAC. At the heart of Southwest’s success is its single-platform strategy: Its fleet consists exclusively of aircraft from the Boeing 737 line. Since it became the first commercial U.
S. airline to compete on price, Southwest Airlines has brought many innovations to air travel since its first Boeing 737 left the tarmac, in 1971. Its no-seat-assignment boarding process, for example, provides efficiency on the ground, helping Southwest achieve quick turnaround and a superior on-time record. Another innovation and boon to efficiency was Southwest’s introduction of ticketless travel, systemwide.
The airline also uses cost efficiency strategically, aggressively finding more efficient ways of doing things. For example, in 2004 Southwest has begun equipping all new planes and retrofitting its fleet with “blended winglets,” an aviation technology (a wingtip extension) that can improve takeoff performance, reduce engine maintenance costs, and has an estimated fuel burn savings of 3 to 4 percent per aircraft. A common fleet significantly simplifies scheduling, operations, and maintenance. Training costs for pilots, ground crew, and mechanics are lower, because there’s only a single aircraft to learn.
Purchasing, provisioning, and other operations are also vastly simplified, thereby lowering costs. CHAPTER 3:LEARNING IN THE ORGANIZATION“The ultimate competitive advantage lies in an organization’s ability to learn and rapidly transform that learning into action.” – Jack WelchTo gain the greatest return on investment from a strategic implementation, employees must understand how to use resources to its fullest capabilities. Delivering the right training at the right time requires choosing a learning approach that will move an organization towards its strategic objectives and then deploying the training as effectively as possible.
A blended learning model is recommended to allow an organization to deliver effective training to a distributed enterprise at a reasonable cost, and to maximize the benefits of implementing any strategy. In the past, training has typically been delivered in an instructor-led format in classrooms or on the job, and has not been scalable in terms of cost, resources, and time away from the job. As a result, most organizations have struggled with delivering training to as many people and for the appropriate duration as was truly needed to achieve the greatest benefit (Radiant Systems, 2003).In recent years, technology-based instructor has begun to replace the traditional instructor-led training in organizations.
While studies have shown there are many advantages to online training, there are also some limitations that diminished its effectiveness, such as lack of collaboration with other learners, inability to simulate complex exercises, and limited tools to track and measure results. As technology has improved, a new training model has evolved called “blending learning” which is one that incorporates a variety of delivery styles and accommodates different organizational needs to achieve the most effective knowledge transfer. An example of this model is when a retail organization rolls out a new technology solution which includes a combination of classroom training for point-of-sale and change management topics, e-learning used to deliver software, training, practice and testing, and a learning management system utilized to post job aids, schedule courses, and track attendance and results for all training events. Developing a blended learning approach serves several objectives, including (Radiant Systems, 2003):· Accommodating a variety of different learning styles, ensuring individuals receive the most effective training for each type of content.
· Allowing training to be rolled out over a period of time so that each phase of learning is reinforced by the next.· Capitalizing on the latest technology initiatives in the training arena, maximizing the training dollar, and delivering first-hand training to a larger audience than ever before.· Facilitating consistent training throughout the technology lifecycle, allowing new employees to receive the same training as those who were trained during the initial implementation.· Providing a vehicle to deliver training for future technology upgrades.
Table 1 in the next page outlines the different learning styles of a typical training audience, the suggested mode that meets the learning style, and the content that is best delivered via that mode: Table 1. Different Learning Styles for an Organization Targeted ContentLearning StyleDelivery StyleDelivery Mode(s)· Pre-implementation communications· Job aids· Online helpVisualInformational· Post content on a learning management system, portal, or company intranet· Email· Printed materials· Product introduction· Application training & software simulations· Business processesInteractiveSelf-paced (Asynchronous)· Web-based training· Computer-based training· Change management· POS training· Business processes· Shared best practices· TroubleshootingCollaborativeFacilitated (Synchronous)· Virtual classroom· Live classroom· On-the-job(Source: Radiant Systems, 2003) A learning that includes a blend of learning styles allows an organization’s training administrators to distribute, and learners to absorb, relevant knowledge efficiently, quickly, and at the least cost to the organization. In other words, developing a blended approach learning model will allow an organization to train employees faster and better, thereby shortening the time before the company begins recognizing a return on their technology investment (Radiant Systems, 2003).As new strategies are developed within the organization, it becomes necessary to constantly developed new technical and managerial skills.
The human resources department becomes a close working partner with headquarters and planning personnel in effecting change. Special training programs tailored to new technologies adopted in the new strategies need to be developed by a company’s human resources department. Similarly, leadership and management skills need to be honed to respond to the evolving strategic directions (Camillus, 1999).Building and maintaining a learning program within an organization is an ongoing process.
Companies need to address each of the following learning phases and their associated activities to develop the program that best meets their needs (Radiant Systems, 2003):Assess training needs. A learning approach should take many factors into consideration, including previous training successes, learning style, and aptitude of the learners, and resources available. Conducting a thorough assessment of an organization’s training needs will identify key factors that will maximize learning success and support the creation of a training program that is aligned with the organization’s business strategy.Develop a learning blueprint.
After conducting a careful assessment of the organization’s specific needs, it needs to develop a learning approach framework or blueprint which will serve as the organization’s strategic and tactical plan to drive the creation of a training program that meets these needs. Some areas to cover when developing the blue print are:Learning goals based on business and program objectives.Key stakeholders of the learning program from executive sponsorship to site-level learners.Readiness of the organization to implement a learning program, including the ability to adapt to change and the technical infrastructure to support the learning initiative.
An implementation plan for rolling out the learning program, by learner group, which is aligned with the organization’s available resources and the overall program implementation timeline. Included in this plan is consideration of logistics (such as location and timing) and allocation of resources available.A measurement plan which includes an approach and metrics that will track the overall success of the training initiative and its alignment with the business strategy and objectives.Risks of the program to bring awareness to potential barriers and an outline of steps to mitigate these risks and enable prioritization of each component of the training program.
Building the learning program. Using the blueprint as a guideline, organizations can begin developing all components of the training program.Launch the training program. Once training program development is completed, it is time to pilot the learning approach.
Evaluate and revise. Following the pilot, organizations should incorporate any adjustment into the approach for rollout of the full learning program. One way to note the adjustments is by maintaining a log throughout the pilot face. Evaluation should be an ongoing process throughout the rollout to ensure that the training program is on target and that the overall program and business objectives are being met.
Critical decisions. Before finalizing the training strategy, the organization will need to formulate responses to these critical questions:What training delivery modes will the organization use? For which audiences?If using classroom training, will it be regional or will learners travel to one location?How will the organization map the overall program to the program implementation?What tool will the organization use to launch an e-learning content, if it decides to make use of technology to rollout training?Who will develop the initial training materials, including manuals and e-learning courses? Who will maintain it moving forward?How will the organization determine training success? CHAPTER 4:ALLOCATION OF RESOURCESStrategic implementation involves aligning capacity and facility with the organization’s objectives. In strategic planning, a resource-allocation decision is a plan for using available resources to achieve future goals. It is the process of allocating resources among the various projects or business units.
It means ensuring that the organization has the resource capacity and facility to implement strategic plans, objectives and decisions. Capacity strategic decisions include when, how much, and in what form to alter capacity. On the other hand, facility strategic decisions include determining whether the demand should be met with a few large facilities or with several smaller ones; and whether facilities should focus on serving certain geographic regions, product lines, or customers. Facility location can also be a strategic decision (Asllani, 2006; Wikipedia, 2007e).
Resource allocation involves two parts: first, there is the basic allocation decision; and second, there are contingency mechanisms. The basic allocation decision is the choice of which items to fund in the business strategy, what level of funding it should receive, and which to leave unfunded. Resources are allocated to some items, not to others. There are also two contingency mechanisms: there is a priority ranking of items excluded from the business strategy, showing which items to fund if more resources should become available; and there is a priority ranking of some items included in the business strategy, showing which items should be sacrificed if total funding must be reduced (Wikipedia, 2007e).
What strategies and ideas then get sponsored and funded in strategic implementation? The key is to understanding that strategy is more than the statement of strategy as represented in company documents or written plans, but that it is the actual aggregation of commitments and their relationship to the realized strategy of the firm. In some organizations, the resource allocation process is inherently a multi-level process in that the middle manager and the operating manager have just as big an impact on strategy as the corporate level managers. In other words, the roles of the top, bottom, and middle managers, how they interact, and how the top can provide guidance, are important elements to consider in resource allocation for effective strategy implementation (Lagace, 2006).Organizations need to learn how to commit enough resources to whatever is necessary to gain scale and capture market share.
Strategic resource allocation requires considering the customers and the capital market. When competing for resources with other business units within the organization, the most powerful argument is that important customers want it and will commit. “How customers capture the resource allocation process at every level happens in ways that are not always intuitive to people who think about strategy as a top-down planning process.” Capital markets also play an important role in the resource allocation process.
Organizations may document whatever they want about growth in their business strategy or annual report, but often top management responds to the capital market’s need for quarterly returns, and it turns out that quarterly earnings drive the resource allocation process. What results is that the projects and plans that get approved are the ones that deliver earnings in the short term (Lagace, 2006).Customers and capital markets are just some elements which influence resource allocation within a company. Yet studies that the most fundamental issue associated with executing and implementing a company’s business strategy is the process of allocating scare investment capital, in the face of business risks and uncertainties (Walls, 1995).
A research study by Walls (1995), describes a multi-objective decision model designed to aid company decision makers in the allocation of capital across a set of risky investment opportunities. Walls’ (1995) model application demonstrated that once a set of corporate objectives are specified, utility functions can be constructed that consider management’s value tradeoffs among business objectives and propensity to participate in risky projects. Called as the multi-attribute utility theory (MAUT), this approach was utilized to identify the appropriate mix of investment for an organization, consistent with its corporate objectives and overall business strategy. According to Walls (1995):“This work intends to provide an important link between (1) the strategic management process, which is concerned with how a business is going to compete, what its objectives should be and what set of decisions is needed to achieve those objectives; and (2) the multi-objective decision making techniques from the field of decision analysis.
The formal and systematic approach associated with MAUT provides a naturally appropriate decision model for the strategic management process. The process of setting corporate objectives, defining business decision alternatives, establishing management values, and modeling the uncertainty associated with the business environment all represent critical components of both the MAUT approach to decision making and the sum and substance of business strategy.”Organizations have traditionally used a capital budgeting theory which have been inadequate models in incorporating strategic issues into the capital allocation process. Managers regularly face the issue of constructing an appropriate portfolio of investment opportunities consistent with the organization’s business objectives.
Decisions about capital allocations may focus on selecting the appropriate mix of high risk vs. low risk projects, domestic vs. foreign activity, R & D vs. production, acquisiton v.
expansion, as well as a wide variety of other dimension. Since these issues and the significant amounts of capital are at stake, the firm’s capital budgeting process represents a fundamentally important task in terms of the organization’s overall competitive strategy and performance. Unfortunately, traditional capital budgeting theory focuses primarily on the concept of building or maximizing shareholder value. Adhering strictly to the traditional capital budgeting theory comes with several problems with respect to resource allocation for the organization:The theory assumes that choice among project alternatives is the key step in the capital budgeting process.
The theoretical characterization of a project is that it is a financial security. Managers are limited to an identifiable set of decisions which often results in a descriptively inaccurate conceptual framework (Walls, 1995).The theory is correct in the special case where a zero level of uncertainty exists. This is of course an ideal situation, and organizations seldom find themselves in a situation wherein there is zero risk involved for a planned objective or strategy.
Traditional capital budgeting theory requires a certain and accurate projection of cash flows for independent and mutually exclusive projects. More often than not, decisions concerning resource allocation are characterized by a high degree of uncertainty, alongside any number of dimensions which the organization needs to consider (Walls, 1995).The theory assumes the organization is concerned with maximizing a single objective, net present value. However, modern business organizations are increasingly concerned with a complex set of corporate and business objectives.
In strategic management, this has been referred to as the stakeholder theory of objectives. This theory maintains that the objectives of an organization are derived by balancing the conflicting claims of the different stakeholders in the firm – managers, employees, stockholders, suppliers, vendors, and even local communities. It is unrealistic to assume that managers are merely agents for shareholders (Hacket, 1985). In reality, an organization has a responsibility to all stakeholders, and must thus configure its business strategy to provide a measure of satisfaction for each stakeholder (Walls, 1995).
Complexity in the resource allocation process cannot be avoided in making decisions. However, there are options concerning the degree of formality used to address the complexity. Top management will be able to deal with these complexities and in satisfying the different stakeholders by determining how the company will compete in its business, articulating that strategy by specifying a set of organizational objectives, and utilizing a decision model designed to achieve those objectives. The organization’s reasonable decision model with regard to resource allocation must thus obtain and combine available information, explore and evaluate critical value tradeoffs, recognize the uncertainty for each alternative and incorporate the business objectives of the company.
A comprehensive model must also appraise the degree to which each objective is achieved by the competing alternatives (Walls, 1995).The multi-attribute utility theory or MAUT would help to better serve these needs rather than the traditional capital budgeting theory. MAUT normally presumes a single decision maker who is to choose among a number of alternatives that he or she evalutes on the basis of two or more criteria or attributes. The alternatives involve risks and uncertainties, and may require sequential actions by the company at different times (Walls, 1995).
Since making important decisions often requires incorporating major uncertainities, risks, long time horizons, multiple alternatives, and complex values issues into the decision model, the organization needs to establish a sound decision analysis model. Decision analysis is defined as “a discipline comprising the philosophy, theory, methodology, and professional practice necessary to formalize the analysis of important decisions.” Another definition provides that decision analysis is “a formalization of common sense for decision problems which are too complex for informal use of common sense.”The foundations of decision analysis are provided by a set of axioms which provide principles for analyzing decision problems.
These axioms provide that the attractiveness of alternatives presented before a decision maker should depend on the following (von Neumann and Morgenstern, 1953; Savage, 1954; Pratt, Raiffa, & Schlaifer, 1964): 1) the likelihood of the possible consequences of each alternative; and (2) the preferences of the decision makers for those consequences. The main purpose of decision analysis is to help decision makers make better decisions and to ultimately know where to allocate their resources based on these decisions. The decision analysis provides a basis for the decision, not just the decision itself. Information gaps can be uncovered and filled, differences in values can be openly examined and communication about objectives, values and risk attitudes become more open within the organizational structure (Walls, 1995).
CHAPTER 5:ORGANIZATIONAL STRUCTURESuccessful strategic implementation requires a determination on whether the intended strategy is appropriate to the company’s current organizational structure. Companies have to consider whether the organizational structure is appropriate to the intended strategy. For instance, if a firm intends to develop new products, but does not have a research and development group in its organizational structure, then product development will most likely be left to another division, such as manufacturing, which is not adept at handling the new responsibility (Birnbaum, 2006).Strategy and organizational structure are closely intertwined.
As strategy evolves, so too must the organization’s structure. Organizational structure is a major variable affecting the implementation of changes in strategy. Traditional thinking among managers tends to view organizational structure as a constant, unchanging element of organizational design, based on principles derived from bureaucracy and contingency theory, where contingencies are external to the organization. Instead, organizational structure should be view as fluid and evolving constantly just as strategy evolves.
As organizational strategy changes, so too should organization’s managerial responsibility be constantly redefined (Camillus, 1999).One key aspect in evolving organizational structures is that managers know more about strategy formulation than implementation. They are trained to plan, not to execute plans. Training for managers emphasize conceptual work, primarily planning, and not on doing.
Unfortunately, execution is something that is difficult to teach, it is something managers learn from experience. One common mistake among top level managers is that they leave execution to their subordinates and lower-ranking employees. Managers develop the plans and simply leave it to lower-ranking employees to follow through on and to make it work. Every organization’s structure has some separation of planning and doing, and of formulation and execution.
However, when such a separation becomes dysfunctional – such as when planners see themselves as above executing “the dirty work” and leaving that to the doers – there execution problems will inevitably arise. When top level managers view execution as something below them, then successful implementation of strategy is in jeopardy. Managers should regard themselves as doers as well, regardless of their position in a company’s organizational structure. From the CEO on down, sound execution demands that managers roll up their sleeves and pitch in to make a difference.
Strategy thus must be implemented from top-down and bottom-up in a company’s organizational structure. The content and focus of the execution may vary between top and middle management, but nevertheless, execution demands commitment to and a passion for results, regardless of management level (Hrebiniak, 2005).Another way of putting this, is that execution demands ownership at all levels of the organizational structure. From management to rank and file, people must commit to and own the processes and actions which are key to effective execution.
Ownership of execution and the change processes crucial to execution are necessary for successful strategic implementation. Execution of strategy should never be regarded as a trivial part of managerial work – in fact, it defines the essence of that work, and it is that essence which trickles down to the rank and file (Hrebiniak, 2005).In addition to ownership of execution across all levels in the organizational structure, the following factors should be considered as important in aligning organizational strategy with the organization’s structure (Camillus, 1999):Development of new skill sets is required to support changed strategies.Task forces or special teams specifically charged with the responsibility for implementing key strategic programs enhance the effectiveness of implementation.
Executives responsible for the planning function need to ensure that the logic of the planning process is communicated and that planning capabilities are constantly improved.Successful implementation also often requires that the strategic planning function be integrated with the human resources and quality functions. CHAPTER 6:PERSONNEL MANAGEMENTManaging people is a central challenge in every organization, and all managers need to understand the strategic, general management perspective of personnel or human resource (HR) management. To sustain competitive advantage, an organization needs to ensure that its business strategy is valuable to the firm in that it exploits weaknesses or neutralizes threats, and that the strategy must be rare among competitors, difficult to imitate, and not easily substitutable.
In implementing such a strategy, the organization must ensure that its personnel is highly motivated and focused on taking the strategy into action. HR management integrates organizational processes, strategy, and economics. In successfully implementing business strategies, people-centered practices were associated with almost twice the productivity and quality as conventional mass-production, indicating that business strategies which revolve around people-centered practices result in positive effects.Personnel management should focus on people-centered practices in order to effectively implement strategic plans.
In effective strategic change within the organization, and in helping to align employees towards the new strategy or direction which the organization wishes to purse, strategic management should consider the following questions (Chapman, 2004):How closely do the employees identify and associate their own roles with the organizational purpose?Do the employees really know what the corporate aims are, and if so, do they see and agree with how they fit into the scheme?With regard to aligning operational strategies to personnel management, as having an important role in training and motivating employees to respond to these operational strategies, human resources should ask the following more specific questions (Asllani, 2006):What are the training requirements and selection criteria?What are the skill levels and degree of autonomy required to operate production systems?What are the policies on performance evaluations, compensation, and incentives?Will workers be salaried, paid an hourly rate, or paid a piece rate?Will profit sharing be allowed, and if so, on what criteria?Will workers perform individual tasks or work in teams?Will workers have supervisors or work in self-managed work groups?How many levels of management will be required?Will extensive worker training be necessary?Should the workforce be cross-trained?What efforts will be made in terms of retention?Unfortunately, n many organizations the vast majority of employees do not understand the corporate aims, let alone see themselves as an integral part of the effort. Strategy realization will not happen without the people being an enthusiastic part of the effort (Chapman, 2004).The intention to emphasize people-centered practices in implementing business strategies are not without HR issues and challenges such as widespread corporate restructuring, increases in contingent work, new work organizations, and the ever-increasing diversity of the employee pool. Yet despite these challenges, HR has been and remains crucial in driving employee behaviors which must necessarily come to fore in implementing a business strategy.
Behaviors such as commitment to organization (loyalty and effort), innovation, attitude towards customers, and ability to do the job (skills) are primary behaviors driven by personnel management (MIT Sloan School of Management, n.d.)Southwest Airlines is an example of an organization which adapts a people-centered practice in managing personnel and in aligning their employee behavior and culture to the organizational strategy. Southwest selects prospective employee for attitude and fit, rather than skills.
It has a strong corporate culture emphasizing sense of family and performance, and stresses on leadership reinforcement, information sharing, and psychological ownership of tasks, responsibilities and contributions to the overall strategy. Employees are provided the same concern, respect and caring attitude within the organization that they are expected to share externally with every Southwest customer. Other concrete examples of people-centered practices in Southwest are as follows (Govindarajan & Lang, 2002; MIT Sloan School of Management, n.d.
):· Southwest initiated the first profit-sharing plan in the US airline industry in 1974 and offered profit sharing to its employees every year since then. Through this plan, employees owned about 10 percent of the company stock. In 2000, Southwest offered its employees a record-setting $138Mm in profit sharing. This tax-deferred compensation represented an additional 14.
1 percent of each employee’s annual salary.· Southwest pilots were the only pilots of a major US airline who did not belong to a natural union. National union rules limited the number of hours pilots could fly. But Southwest’s pilots were unionized independently, allowing them to fly far more hours than pilots at other airlines.
Other workers at Southwest were nationally unionized, but their contracts were flexible enough to allow them to jump in and help out, regardless of the task at hand.· Kelleher, founder of Southwest, shares this philosophy of putting employees first: “If they’re happy, satisfied, dedicated, and energetic, they’ll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy.
”· Southwest’s walls were filled with photographs of its employees. More than 1,000 married couples (2,000 employees) worked for the airline. The average age of a Southwest employee was 34 years. Southwest employees were among the highest paid in the industry and the company enjoyed low employee turnover relative to the airline industry.
· Southwest’s culture of hard work, high-energy, fun, local autonomy, and creativity was reinforced through training at its University of People, encouragement of in-flight· The airline also has a rigorous approach to hiring new employees. In 2001, Southwest reviewed 194,821 resumes and hired 6,406 new employees. The company’s hiring process was somewhat unique: peers screened candidates and conducted interviews; pilots hired pilots, and gate agents hired gate agents. To better understand what the company sought in candidates, Southwest interviewed its top employees in each job function (such as pilots, gate agents, baggage handlers, ground crew) and identified their common strengths, then used these profiles to identify top candidates during the interview process.
Southwest hired for attitude as much as aptitude. Noted Kelleher: “We want people who do things well, with laughter and grace.”Thus, personnel management in business strategy implementation should consider the degree of proximity of the business strategy in relation to the employee, and the degree of skill specificity required of the employee as to implementation, as well as the degree of coupling across worker tasks. An effective personnel management system should also ensure ease of monitoring employee performance, avoid ambiguity of worker tasks, and stress the importance of employee creativity and discretion.
It should also provide for the following motivations on its employees: avoiding loafing/free riding, avoiding output restriction, instilling craft pride and organizational commitment, and making the employees feel that their efforts are appropriately rewarded (MIT Sloan School of Management, n.d.) PART 4:METHODOLOGYThe research method selected for this thesis is the qualitative research method. Qualitative research emphasizes understanding complex, interrelated and/ or changing phenomena, which is particularly relevant to the challenges of conducting management research.
This method also allows for the examination of experience and interpretation of events by actors with widely differing stakes and roles, conducts initial explorations to develop theories, generates and tests hypotheses, and moves towards explanations of phenomena studied. The qualitative research methodology studies relationships, patterns, and configurations among factors, or the context in which activities occur to describe, understand and explain complex phenomena (United States Department of Veterans Affairs, 2006).In this case, the complex phenomena sought to be understood is the failure and success of business strategies in the implementation phase. The relationships, patterns, and configurations among factors were also studied, and these factors, specifically, pertain to the variables of implementation: communication, technology, learning in the organization, resource allocation, organizational structure and personnel management.
The focus of the thesis is in understanding the full multi-dimensional, dynamic picture of the subject of study – success and failure of the implementation phase of business strategies.Some key qualitative research methods include the following: naturalistic inquiry and participant observation; case study research; structure observation of meetings and events; content analysis of documents; collection and analysis of other archival, administrative and performance data; focus groups; cognitive interviews; and mail and telephone surveys (United States Department of Veterans Affairs, 2006). For purposes of this research, the following combination of qualitative research methods were selected: case study research, content analysis of documents, and collection and analysis of other archival, administrative and performance data.Content analysis of documents.
This non-intrusive form of research was the primary qualitative research method use, since much of the data gathered for this thesis involved a review of documents, and related literature for content and themes (United States Department of Veterans Affairs, 2006).Case studies. The case study method was chosen as the preferred strategy to answer “when” and “why” questions during the research and analysis process of this thesis. The case study approach was particularly helpful in providing for real-life contexts to conceptual situations and theories examined throughout the research.
The case study approach for this paper involved multiple cases, but focused primarily on case studies about Southwest Airlines, and secondarily, on Flooz.com. This approach was especially useful for the research since case studies are designed to bring out details from the viewpoints of actual participants in business strategy implementation, through the use of multiple sources of data (Trellis, 1997; United States Department of Veterans Affairs, 2006).Collection and analysis of other archival, administrative and performance data.
This non-intrusive qualitative research method was also used, since information that has been previously collected, or secondary data contained in primary data in the literature review, were also examined to gain a better understanding of the topic (United States Department of Veterans Affairs, 2006). PART 5:CORRELATIONS, CONCLUSIONS AND RECOMMENDATIONSThis section of the paper contains the conclusions and findings of the study, based on the literature reviewed. It will also provide for the correlations among the variables of implementation analyzed throughout Chapters 1-6 of Part 3 (Literature Review). Recommendations as to how these factors may be utilized by an organization for successful strategic implementation will also be provided.
CORRELATIONSPlanning (strategy formulation) and execution (strategy implementation) are two distinct activities, with the execution stage usually taking a longer time to complete, and usually involving more complex decisions and capabilities required from the people expected to execute the planned strategy. The challenges for any manager in implementing a company’s strategic plan involves the examination of the influence of the major variables in implementation, such as communication, technology, learning in the organization, allocation of resources, organizational structures and culture, and personnel management.Of the variables analyzed, communication emerged as the most important factor in influencing the success of a company’s business strategy in the implementation stage. Communication is correlated with all the other variables of implementation – technology, organizational structure, learning in the organization, and personnel management.
Technology can be used as a tool in providing extensive and precise coordination across various business units to ensure strategic alignment. Business strategies may thus be communicated in a consistent manner across the organization through the development of uniform business systems and processes. IT support, the Internet, and management systems can all contribute to providing a single and unified global database that will ensure that business and operational strategic plans are clear and replicated in all branches and offices of an organization. Two-way communication has also been an integral tool in facilitating a culture of change within a company.
Change cannot simply be communicated through words, but must be communicated through action plans by all levels of management in the company’s organizational structure. Fluid, and flexible organizational structures ensure that all employees, from top to bottom, and from bottom to top, participate in the execution phase of a business strategy. This is again facilitated by communication which helps to define and clarify responsibilities and expectations. In short, communications, with the support of other factors such as technology, organizational structure, and learning within the organization, basically helps to define what common goal the entire organization is aiming for, and the individual responsibilities required to get there.
Another important factor that emerged, second only to communication, is learning in the organization, in particular with its correlation to organizational structure. Evolving business categories require that organizational structures evolve as well, and this requires constant training and learning within the company. For the organizational structure to constantly evolve with strategy, managers must constantly learn to own the execution process, and the execution of strategy. Constant learning within the organization, through redefining tasks and duties, not only help to shape organizational structure, but is also correlated with both technology and communication as useful tools for learning.
The correlation of the variables of implementation can be best seen when the company fails to execute its business strategy. Oftentimes, such a failure is due to a combination of these variables, and lack of attention to their influence in the change process (Wikipedia, 2007c):· Failure to understand the customer· Inability to predict environmental reaction· Over-estimation of resource competence (RESOURCE ALLOCATION/TECHNOLOGY)· Failure to coordinate (COMMUNICATION/TECHNOLOGY)· Failure to obtain senior management commitment (COMMUNICATION/ ORGANIZATIONAL STRUCTURE)· Failure to obtain employee commitment (COMMUNICATION/ LEARNING IN THE ORGANIZATION/ PERSONNEL MANAGEMENT/ TECHNOLOGY)· Failure to follow the planned strategy (COMMUNICATION/ PERSONNEL MANAGEMENT/ LEARNING IN THE ORGANIZATION/ TECHNOLOGY/ ORGANIZATIONAL STRUCTURE/ RESOURCE ALLOCATION)· Failure to manage change (ORGANIZATIONAL STRUCTURE/ COMMUNICATION/ PERSONNEL MANAGEMENT/ LEARNING IN THE ORGANIZATION)· Poor communications (COMMUNICATION/ PERSONNEL MANAGEMENT/ TECHNOLOGY)· Failure to focus (COMMUNICATION/ PERSONNEL MANAGEMENT/ ORGANIZATIONAL STRUCTURE/ LEARNING IN THE ORGANIZATION).Of the list of correlations that attribute to the failure of implementation, only two aspects are due to faulty planning – understanding the customer, and inability to understand environmental reaction. The rest of the reasons for the failure involve the variables of implementation, as correlated to each other, during the implementation phase of strategic management.
CONCLUSIONS AND RECOMMENDATIONSCommunicationThe most successful companies create a workforce that understands the mission, goals, values and procedures of the organization (Bacal, 2004). The essential step for effective strategic implementation is knowing the desired performance outcome of a specific communication (awareness, acceptance, and action). Depending on the strategy formulated, the company may want to build a new level of awareness with respect to a new business initiative or training available. Alternatively, it may wish to sustain a desired level of retention with information, image, and recognition of a new strategy over time (acceptance).
Communication as a variable in implementation should seek to enhance performance by increasing the likelihood that employees maintain a value system that controls their behavior for a sufficiently long period of time for them to develop a characteristic “lifestyle” that will enable change and execution (Simmons, n.d.) The aim then is to use communication to ensure behavior that is pervasive, consistent and predictable. The intent of creating such a culture or lifestyle is not to use communication as a tool to dominate or control employees, but to steer them towards a set of common goals on which they can act every day (Bacal, 2004).
TechnologyTechnology is an important variable for strategic implementation since it provides for the tactical day-to-day processes and procedures that people within the organization use everyday to achieve a common goal. The Internet in particular has served a key tactic in allowing strategies to come into action, in addition to providing a wider market and reducing marginal costs for a company.The factors which contributed to the success or failure of dot.com organizations may very well be applied to traditional brick-and-mortar organizations especially with regard to how the former reacted to and made use of technology boom.
The results of the analysis of management factors affecting dot.com companies, such as management vision, professional orientation, and management experience strongly indicate that these issues do matter in the ultimate success or failure of a dot.com organization. Managers who had a clear vision of the business performed better than those without clearly defined objectives and goals.
Making use of professional resources was also crucial, as management teams were either just “technology experts” or “marketing experts” but rarely were they both. Resorting to professional resources for areas wherein the management team did not have adequate knowledge or capabilities was thus vital to ensure implementation of the dot.com organization’s business model. Many of the new e-business people were young, enthusiastic, entrepreneurial types who thought they could do almost anything.
However, hiring professional to help in areas where the entrepreneur or manager was not skilled in is especially relevant in the rapid rush to market environment of e-businesses. Managers who also did not have the ability to manage rapid change and react quickly and decisively to risk factors did not enjoy the same success as those who possessed these qualities. Adequate planning is also important to ensure a better chance of success. The level of experience was also an important management factor for success.
Managers with prior business experience, and with prior experience in this type of venture, were more apt to be successful than new managers with little or no business experience. Many owners of dot.coms came from the more technical side and had little experience in management. Lack of experience in running a business, young entrepreneurs with no understanding of business fundamentals and with poor management skills, simply riding on the “Internet high” phase, could not see risk in the venture (Korgaonkar & O’Leary, 2006).
Approaching technology thus requires emphasizing management factors such as having a clear and focused management vision, availing of professional resources, and highlighting the importance of managerial experience. These factors are likewise just as important for traditional brick-and-mortar companies. Another factor to consider in the case of traditional brick-and-mortar companies is consolidation. Organizations looking to implement strategy have been turning to IT consolidation to lower costs, achieve savings, and to provide for a global database that will align business processes for the entire organization wherever its offices may be located nationally or internationally.
Learning in the OrganizationLearning and training within an organization is an important factor to help people prepare for any changes within the company. Fully implementing a strategic plan requires teaching the people of what the objectives are, how to achieve them, and their roles in achieving them. It also requires equipping employees with the right knowledge and capabilities in order to contribute in execution a business strategy. This chapter outlined the critical steps necessary in developing and executing a successful learning program for strategic implementation.
According to the study by Radical Systems (2003), an organization needs to consider the following critical steps: First, the organization needs to conduct a thorough analysis and development of a training plan that will provide for the most efficient and effective learning solutions to organizational objectives. Second, using a blended learning approach will allow the organization to make use of different learning styles that may be appropriate to its target learning audience. This may include classroom training, e-training, synchronous and asynchronous online training, and printed materials, in order to support the training needs for a widely distributed and changing audience. Third, should the organization wish to avail of e-learning, then it must ensure that it produces content that is interactive and relevant, while at the same time addressing the “whys” and the “hows” which will help keep learners engaged and increase overall knowledge retention.
It should also market e-learning through a variety of mediums which will prepare and excite users for new methods of training delivery. Fourth, the organization should provide adequate time for training on the job, and ensure that managers support the type of learning selected. Fifth, the organization should track results and tie these to performance reviews in order to hold learners accountable no matter what learning delivery mode is selected. And finally, the organization should provide adequate operational and technical support before, during, and after training to always make sure that what the people learn are constantly aligned with the organization’s strategy and objectives.
Resource AllocationOne of the key issues confronting senior management in all organizations is the effective management of the resource allocation process. It is critical to the resource allocation process to integrate the capital allocation policy with the overall business strategy. The problem arises when organization decide to adhere strictly to a traditional capital budgeting theory. For one, the theory assumes that choice among project alternatives is the key step to capital budgeting process.
Second, the theory is only applicable in a scenario where there is zero level of uncertainty and risk involved. Third, the theory assumes that the organization is concerned with maximizing a single business objective. The most fundamental issues associated with implementing and executing an organization’s business strategy is the process of allocating scarce investment capital, in the face of business risks and uncertainties (Walls, 1995). As such, the traditional capital budgeting theory has shown to be an inadequate model for the resource allocation process.
A multi-objective design model is necessary to help organizations to allocate capital across a set of varied investment opportunities. The multi-attribute utility theory (MAUT) should be used in place of the traditional capital budgeting theory in that MAUT allows for the identification of the appropriate mix of investment for an organization, consistent with its corporate objectives and overall business strategy. MAUT presumes a single decision maker who is to choose among a number of alternatives that he or she evalutes on the basis of two or more criteria or attributes. In deciding the attractiveness of alternatives presented before making a decision, the organization must consider the likelihood of the possible consequences of each alternative, and the preference of the decision makers for those consequences.
Making important decisions often requires incorporating major uncertainities, risks, long time horizons, multiple alternatives, and complex values issues into the decision model, the organization needs to establish a sound decision analysis model. The main purpose of decision analysis is to help decision makers make better decisions and to ultimately know where to allocate their resources based on these decisions. A decision model such as MAUT thus allows for insight for the decision makers as to the effects of setting business strategies and objectives, and risk policies involved in the investment choice process (Walls, 1995).It is thus critical in the resource allocation process to clarify objectives and communicate a coherent risk policy for organizational decision making.
In addition to this, the process of specifying objectives and utility functions is also useful for identifying potential business strategies and decision alternatives. Well-articulated strategies, and systematic models of decision making, improve the quality of decisions that organizations makes in relatin to their resource allocation process, and at the same time provides a solid framework for executing a competitive business strategy (Walls, 1995). Organizational StructureOrganizational structure is a major variable affecting the implementation of changes in strategy within a company. Contrary to the traditional managerial approach that organizational structure is a constant, unchanging element of organization design, a company’s structure should actually be fluid and evolve constantly just as strategy evolves.
Aligning organizational structure with organizational strategy is necessary to ensure implementation of strategic plans. As organizational strategy changes, so too should the company’s managerial responsibility be constantly redefined. Managers traditionally know more about strategy formulation than implementation, being trained more on planning rather than executing plans. Managers also have a tendency to view execution as beneath them, as work that lower-ranking employees should be responsible for once the plan has been laid out for them.
A fluid organizational structure requires that ownership of execution should be present at all levels of the organizational structure (Hrebiniak, 2005). Strategic implementation must occur from top-down and bottom-up in an organization’s structure, with people being committed to own the processes and actions which are critical to effect execution of strategy. Personnel ManagementPersonnel management is most crucial in helping employees to understand and define their role in an organization’s strategy formulation and execution plan. A people-centered practice in personnel management helps to provide for a positive and energetic work culture were people grow to believe in a company’s objectives and goals, and at the same time feel the importance of their role and contributions in the company’s overall plans.
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oracle.com/technology/oramag/oracle/04-sep/o54swest.html APPENDIX A:SOUTHWEST AIRLINES CASE STUDIES Case Study # 1: Southwest AirlinesBraunstein, M. (2003).
Aligning Strategic Goals With Internet Tactics (Part 1 of 2). Pixel Bridge. Retrieved January 19, 2007 from: http://www.pixelbridge.
com/articles/index.php?p=38 Most executives take great pleasure in talking “strategy.” They rely on tools such as Michael Porter’s Five Forces Theory of Industry Structure to wade through volumes of data and formulate future plans. While strategy can be exciting and critical, the nuts and bolts of successfully executing a strategy – tactics – are often neglected.
According to Sun Tzu, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” Hence, strategy and tactics are interdependent. This article outlines how “stractical thinking” can help you reconcile potential conflicts between long-term strategic planning and Internet tactics.
The PremiseGetting strategy aligned effectively with tactics is no easy task. These days executives find themselves busy with the real work of making this astounding set of tactics – that we collectively label the Internet – contribute to underlying corporate strategies. Suffice to say that few of us are in the business of selling ‘Internet’ anymore, and that success is a matter of deploying only those strategically-aligned programs on which sufficient margins and profits can be attained. And now we all know who is winning the battle for the hearts, minds and wallets of Internet users…it’s pretty much the same brands who were winning it before.
My own special interest is in those out-of-the-way companies that discovered how to enrich their customer offerings in ways that are wholly consistent with their decades-old ways of doing business.Hussey Seating CompanyFounded in 1835, the Hussey Seating Company of North Berwick, Maine has more than 50% of the global market for stadium seats. A close look at the company Web site – www.husseyseating.
com – reveals one of the best sets of stadium seating applications you could possibly imagine. The site has tools for specifiers that would just knock you out of your bleacher seat. Company president Timothy Hussey proudly notes that new customer utilization of the site was over 90%. In a business such as his where bidding is tight, the Web site is making significant contributions in helping the company hold pricing.
Mr. Hussey further remarks, “We’re not letting the technology call the shots. We’re using the Internet to help us do exactly what we’ve always done. Only much much better.
”Andersen WindowsThe Andersen Windows Web site – www.andersenwindows.com – offers one of the best examples of strategic and tactical alignment, what I call the art of “stractics.” Founded in 1903, the company’s site navigation is simple: you can quickly get information involving SKUs that Andersen hasn’t stocked since 1965.
There’s a fantastic level of integration with all other customer service channels (e.g. CSR references Web pages on phone, takes order, then follows up via e-mail). All paper-based documentation are available online, as well as installation tips, and links to other points of interest.
And the “Come Home” main navigation link in the Home Owner section is a delightful touch.Linking Strategy & Internet Tactics is TrickyMy research for the book Deep Branding on the Internet resulted in exposure to interesting, out-of-the-way businesses such as Hussey and Andersen. This got me to thinking about how planning and executing Internet strategies isn’t as easy as it sounds. And the reason is because there’s a real disparity in the system.
We’re all familiar with how things are supposed to work: strategic marketing and business development initiatives come from senior management like Moses brought down the tablets from Sinai…and all the while the sales people are out there in the field making graven images of the company brand, screwing up their trade show presentation and trying to reconcile what they’re supposed to be doing with what they think might work. That leaves all of us caught in the middle, confronted with the relentless challenge of aligning strategies and tactics with consistency and excellence. And this is vital, because without complete alignment even the best-laid plans are going to fail to achieve the desired gains. Or the company will pursue activities that distract and run contrary to the goals of the organization.
This thinking led me to suggest a simple solution by imaging a place where strategic planning and tactical execution converge…a “stractical” zone. Once I began to define this area, I found it helpful in aligning marketing efforts, particularly in the critical territory of the Internet, with strategic initiatives.Case Study: Southwest AirlinesHerb Kelleher and Southwest Airlines are a good example to review, because most people are familiar with the company and it illustrates the stractical concept effectively.Southwest Airlines is routinely rated as the number one airline in customer service, even among the full-fare competition.
The company is one of the most profitable airlines in the world, and is growing at over 10% a year. Further, the company’s advantages are highly sustainable. How has the company achieved this? Through planning, actions, and the place where they all come together – stractics.Southwest’s top-level strategy is what everyone’s should be: a singular expression of the enduring long-term plan which brings consistency and continuity to all of those dozens of tactics which are required to support it.
And here it is: Southwest’s goal from the back of the napkin on day one was to be – the most convenient, highest value carrier to customers located along over-priced and under-penetrated airline routes. It’s exactly how Herb Kelleher saw the future and the competitive vacancy he wanted to fill. This strategy, like all good strategies, was a powerful differentiator in the airline business, and it was developed with the understanding that tactics alone are easily copied by competitors over time. (Actually, it’s the original Wal-Mart strategy without landing gear.
)What did Southwest do to arrive at this destination? A laundry list of Southwest’s operational tactics would be long, and it would be difficult to take that strategy statement alone and figure out what to do next. You don’t get more operationally intensive than in the airline business, and some of Southwest’s tactics are unique while others define ‘must have’ business requirements in the industry. Alignment would be a challenge to envision and maintain. Some examples:- No interairline connections.
– They only fly one size airplane with one size seat.- There’s no interline baggage checking.Does this sound like America’s favorite air carrier to you?But look what happens when you start organizing these tactics through the use of stractics in between. (Click here to see chart.
) The reasons for your actions get clearer and it’s no longer such a great leap from strategy. One of the reasons why Southwest flies exclusively to secondary city pairs is because it can guarantee 15-minute turnarounds in those cities. The company doesn’t have to spend a fortune on media to get heard in these markets. Southwest’s strategy is based upon a cost effective aircraft utilization strategy accomplished by flying one airplane type.
The stractical construct is not a perfect model – no model is. The important thing to understand is that the middle ground is where we can further break out strategies into more substantive chunks, to help organize our tactics, and to see how well things are lining up.Understanding “Stractics”Thinking of stractics as either collections of related tactics, or as the building blocks of a strategy can be helpful. Also, you can have as many as half a dozen stractics, but beyond that they’re going to become too explicit and therefore less effective in organizing and guiding our actions.
Stratics can be a good tool for ideation as well, while ensuring alignment and integration with other tactics.While it’s clearly more desirable to articulate a strategy before developing the tactics, sometimes it isn’t that easy. Particularly in those companies with less sophisticated marketing. To wit: Henry Mintzberg at the University of California argues it doesn’t matter which comes first – the strategy or the tactics – as long as they line up effectively.
Mr. Mintzberg likes to think of strategy as a pattern that develops in a stream of actions, and sometimes that pattern only emerges after time goes by.So if you find yourself in the situation where strategy development or reaching strategic concensus among the management team has become a struggle, start by trying to organize your successful tactical programs into stractics first. Make stractical maps of your own businesses and/or divisions.
Don’t feel as if you have to start at the top and work your way down. Another option is to first formulate a set of stractics and then to work your way out. When conducting this exercise, you’re always going be sorely tempted by some tradeoffs, but if these tactics won’t fit convincingly on your stractical map, then you’re better off ignoring them. Southwest will never be able to take advantage of passenger flows through Logan or O’Hare.
Southwest will never capture high-margin first-class revenue. Southwest will never fill up a 747.Because your Web sites will swallow pretty much anything you can feed them, you will feel an almost overwhelming tendency to overwhelm your prospect or customer. Remember this: a wealth of information creates a poverty of attention.
Lead a customer down the very few paths that are truly worthwhile, and you will not only find your navigation simpler, but yield will improve as well.ConclusionThe key question to ask yourself when considering the alignment of strategy and Internet tactics is this: what kind of formal process, if any, are you using to coordinate and align Internet tactics with other tactics being used throughout the organization? In next month’s issue of The Pixel Bridge Briefing I will introduce five telltale signs that illustrate when Internet tactics are out of alignment with corporate strategy, and what you can do to achieve alignment. Case Study # 2: Southwest AirlinesWiseth, K. (September/October 2004).
Southwest’s Strategy for Success: Consolidate! Oracle Magazine. Retrieved January 15, 2007 from: http://www.oracle.com/technology/oramag/oracle/04-sep/o54swest.
html As with its fleet of aircraft, Southwest Airlines takes a single-platform approach to its database, standardizing on Oracle9i RAC.As the first commercial U.S. airline to compete on price, Southwest Airlines has brought many innovations to air travel since its first Boeing 737 left the tarmac, in 1971.
Its no-seat-assignment boarding process, for example, provides efficiency on the ground, helping Southwest achieve quick turnaround and a superior on-time record. Another innovation and boon to efficiency was Southwest’s introduction of ticketless travel, systemwide.Southwest uses cost efficiency strategically, aggressively finding more-efficient ways of doing things. For instance, this year Southwest has begun equipping all new planes and retrofitting its fleet with “blended winglets,” an aviation technology (a wingtip extension) that can improve takeoff performance, reduce engine maintenance costs, and has an estimated fuel burn savings of 3 to 4 percent per aircraft.
At the heart of Southwest’s success is its single-platform strategy: Its fleet consists exclusively of aircraft from the Boeing 737 line.In Southwest’s case, a common fleet significantly simplifies scheduling, operations, and maintenance. Training costs for pilots, ground crew, and mechanics are lower, because there’s only a single aircraft to learn. Purchasing, provisioning, and other operations are also vastly simplified, thereby lowering costs.
Now, Southwest is planning on saving by consolidating in another area: the data center. The company began a database consolidation effort last year to create a common platform to support its enterprise applications.Southwest isn’t alone in looking to achieve savings from IT consolidation. In general, according to Gartner, Inc.
, data, “There has been a strong trend toward server consolidation since 1997, led by enterprises in the U.S., Canada, and Western Europe.” Between 1998 and 2001, for example, the number of organizations with a server consolidation under way grew from 30 percent to 69 percent, according to a Gartner survey of its clients.
Rewards of ConsolidationOrganizations are looking to consolidate servers, storage, network, applications, data, or database instances for a number of reasons, but cost containment and better utilization are often at the top of the list, according to John R. Phelps, research vice president at Gartner, Inc. Phelps focuses on server consolidation, and from that perspective, he defines three broad types or stages of server consolidation—logical consolidation, physical consolidation, and rationalized consolidation (or, simply, “rationalization”).Logical consolidation occurs at an organizational level, when all the enterprise servers are put under the control of a central IT group.
“Logical consolidation doesn’t reduce the number of servers you have—it just means that the organization puts all of its IT assets under the control of a central, controlling organization,” says Phelps. The controlling organization can then start enforcing standards, implementing hardware and software asset management, and putting other best practices into place, Phelps explains. The next stage is physical consolidation, which aims to reduce the number of places where servers are located. Says Phelps, “It entails the colocation of multiple platforms at fewer locations.
“After physical consolidation, organizations ultimately want to achieve “rationalization, in which you actually start reducing the number of servers by implementing multiple applications on fewer, more powerful platforms, often through partitioning or workload management,” says Phelps.Another type of consolidation project that can bring great benefits to organizations is database instance consolidation, says Don Lovett, managing director at BearingPoint, one of the world’s largest business consulting and systems integration firms and an Oracle alliance business partner. With instance consolidation, organizations can gain “greater visibility into processes,” says Lovett.Instance consolidation is especially beneficial to global organizations, according to Lovett.
“Global organizations that have different systems and processes in many parts of the world stand to gain more-effective, more-efficient business processes with a consolidated global instance,” says Lovett.In addition to achieving cost containment, organizations that consolidate instances want to be able “to support better data and transaction transparency,” says Lovett. For example, many organizations want to consolidate database instances as a proactive response to the Sarbanes-Oxley requirements, HIPAA (Health Insurance Portability and Accountability Act of 1996), and product safety regulations, Lovett explains.According to Lovett, divergent instances may exist in many organizations for historical reasons (legislative requirements at the time) or lack of ability to scale, for example.
An instance consolidation initiative can give organizations the opportunity “to explore how putting everything together can conceivably improve processes,” says Lovett.”Although it’s a journey that has a few bumps in the road, it’s well worth doing. The people who have come out the other end to the planned state are enjoying lower IT costs and more-efficient and -effective business processes. They have a much better ability to train their people, because they have common practices.
It certainly helps meet the goals of a global organization. These global firms traditionally had a lot of challenges in different parts of the world, having different systems and different processes. So the whole vision of a consolidated global instance is worth pursuing,” says Lovett. “Twenty to thirty percent savings on IT costs and a similar amount of reduction in training expenses for most instance consolidation efforts is what we’d expect to see.
“Lovett recommends “crafting consolidation initiatives as business projects supported by technology” for optimal return on investment. “We’ve seen people miss some of the ingredients of success when they approach consolidation strictly as a technical problem,” says Lovett.Consolidation starts with the “creation of an end-state vision. This is rapidly followed by a discovery phase—identifying existing assets—and an execution phase, where you try to realize that end-state vision through a variety of prototyping, testing, and data migration and conversion techniques,” says Lovett.
“It’s all about getting one database information source that can reside on a single physical hardware device, or with tools such as Oracle’s Real Application Clusters environment, creating a virtual database made up of multiple pieces of hardware,” says Lovett. “But the key is the single global database—that’s what enables the consolidation to really provide benefits.”But, as suggested in the Oracle Information Architecture (see “The Oracle Information Architecture”), consolidation and standardization apply not only to servers or databases but to business processes as well. According to Oracle Senior Director of Technology Marketing George Demarest, “The more you can standardize common business processes and consolidate skill sets, the less complicated and costly it is to run your company.
As we can see from Southwest’s business model, this holds true beyond IT operations.”Southwest Consolidates on a Single PlatformAt its headquarters, in Dallas, Texas, Southwest runs some 400 enterprise applications that support the gamut of its operational, financial, and administrative activities—everything from aircraft maintenance management systems to accounting; finance; business intelligence; data marts; and ground operations, including crew scheduling, reservations, and ticketing.As an example, Southwest’s service parts management (SPM) system is an extensive supply chain management system that facilitates provisioning and other activities among more than 1,500 parts and service suppliers related to repair and maintenance of Southwest’s fleet. outhwest’s portfolio of enterprise applications runs on several database management systems, including Adabas, IDMS, Informix, Oracle, SQL Server, and Teradata.
According to Lionel Reynolds, manager of database administration at Southwest, “One of the primary motivations for our consolidation project, long-term, is to reduce the DBMS footprint at Southwest.” For example, bringing all Oracle-based applications to a single release simplifies patching, maintenance, and support.The consolidation effort started last fall, by migrating all the Oracle-based applications—about 25 percent of the 400—onto one central release of Oracle. Prior to the start of the consolidation effort, “We were running everything from Oracle8i Release 8.
1.5, Release 8.1.6, and Release 8.
1.7 and 8.1.7.
4 to Oracle9i Release 22.214.171.124,” says Murugesan Paramasivam, senior Oracle DBA at Southwest.
Selecting Oracle9i Real Application Clusters (RAC) was an easy decision for Reynolds and his team. “We decided to move to the Oracle RAC platform because our Interactive Marketing group had been very successful in implementing Oracle9i RAC for the Rapid Rewards and southwest.com system,” says Reynolds. “Having witnessed that group’s success with Oracle9i RAC, we just took the idea and went with it.
“The approximately 100 Oracle-based applications that were running across various releases are now all running on Oracle9i RAC, Release 126.96.36.199.
The team plans to roll out Oracle9i Release 188.8.131.52 by the end of this year, and then after that, Oracle 10g in the first quarter of 2005.
Longer-term, the vision is to run an enterprise grid that supports all Southwest applications.In addition to reducing the number of Oracle database releases, consolidating on Oracle9i RAC also provides much-needed high availability for Southwest’s critical applications and was another primary motivation for the consolidation project, according to Reynolds.Although Southwest’s consolidation onto Oracle9i RAC is too new to provide any quantifiable data, such as return on investment (ROI) or performance statistics, Reynolds, Paramasivam, and others have witnessed firsthand the benefit of Oracle’s clustering technology during a recent outage. According to Paramasivam, “One of the servers went down, and nobody noticed.
We didn’t receive one call from the system’s end users.”In the past, continues Paramasivam, when a server node failed, it would take three to four minutes—or longer—for the database to come back up on the backup node. Now, with Oracle9i RAC, says Paramasivam, “you’re talking seconds.”Southwest Senior Oracle DBA Tem Youngblood concurs: “When the server crashed, the UNIX engineering team called us, anticipating issues, but “the database connections failed over seamlessly onto the other nodes in the cluster.
“How They Did ItMigrating close to 100 applications to a new environment required thoughtful planning and rigorous attention to detail. According to BearingPoint’s Lovett, the typical consolidation project “has a lot of the characteristics of a large-scale enterprise resource planning [ERP] project” and requires the same planning, support, and execution (see “Four Keys to Successful Consolidation”).According to Youngblood, “We treated the consolidation process just as we would any new development project, by first enlisting the participation of the stakeholders—the business application people whose application we wanted to migrate—as well as the other teams we would be working with throughout the consolidation process.”Working together, the DBA team and the application team would run some jobs to shake out the issues and make sure everything looked OK, passing the application to the software application testing (SAT) team.
Once the application passed the SAT team’s acceptance tests, it would go into production. Testing the Oracle RAC component involved shutting down nodes and the database to evaluate the application’s responses.”Every application had to pass through this series of tests individually and then in the aggregate,” adds Paramasivam, “to ensure that they would continue to meet all expectations.” And, Youngblood adds, “each DBA took a group of application teams; therefore, in parallel, we were able to accomplish this task in a reasonable amount of time.
“Educating StakeholdersAnother important part of the process was educating all stakeholders about the benefits of Oracle9i RAC, as well as about the responsibilities that the respective application teams would have to assume in order to ensure that their applications migrated successfully to the new Oracle9i RAC environment. For example, an important part of the education process included telling the application developers about how to take advantage of transparent application failover (TAF) and other features of Oracle9i RAC, says Youngblood.In many cases, application developers had little to do, but in some cases, some amount of minimal code tweaking was necessary to ensure that the application, when deployed on Oracle9i RAC, would respond gracefully to outages. Part of the reason, opines Paramasivam, is that the Southwest application portfolio for Oracle-based applications comprises a wide range of technologies.
“We have all kinds of applications, ranging from in-house custom-built J2EE-based, to C++/XA, to PL/SQL, and in addition to that, we also have various third-party applications,” all of which typically require different database connection methods.For example, an application that used a hard-coded connection string to make a connection to the database application prior to migration to Oracle9i RAC would likely need some minor modification to be able to reconnect to a new node after a failure.Nonetheless, says Reynolds, “Overall, we were very pleased with the ease of the process of migrating to the Oracle9i RAC environment.”Some of the bumps in the road were due to factors such as third-party applications that had not yet been certified for Oracle9i RAC.
Says Reynolds, “Several vendors had to come on-site during this process to certify their application for Oracle9i RAC.” This is one thing to keep in mind if your organization plans a major consolidation. In some cases, vendors simply hadn’t had the capability to certify on an Oracle RAC cluster, so coming on-site to Southwest gave them that chance.Looking AheadSouthwest’s consolidation of the approximately 100 Oracle-based applications took about eight months from start to finish.
The schedule was aggressive, given that it was done with the six senior Oracle DBAs, who also had to maintain an operational steady state as well as manage new projects during the migration process. Reynolds credits his team of six senior DBAs—Sree Bammidipati, Alex Hwang, Kent Schneberger, Guillermo Solano, Murugesan Paramasivam, and Tem Youngblood—and UNIX engineers Zachary Lawson and Jason Norman with making the first phase of the consolidation such a success.Over the next several years, Southwest will continue to migrate the remaining applications to Oracle RAC. First on tap is the Crew Solutions, Southwest’s enterprisewide scheduling system that lets flight personnel (pilots and attendants) bid for flight routes and shifts, schedule vacations, and conduct other operations-scheduling activities, taking into account union rules and other important business considerations.
According to Reynolds, this application is one of the most critical to Southwest’s day-to-day operations.Migration for the other applications will be driven by the business application owners, and the DBAs who support the other, non-Oracle databases will be trained on Oracle, according to Reynolds. “Those DBAs bring a lot of expertise from those other environments, so we’re going to retrain them in the Oracle environment,” says Reynolds. The endgame is to have all the Southwest enterprise applications running on Oracle RAC clusters.
“Oracle is the strategic database for Southwest,” says Reynolds. “Just as with our fleet of Boeing 737s, the Southwest philosophy is to pick one model, one platform, to gain economies of scale.” Case Study # 3: Southwest AirlinesGovindarajan, V. & Lang, J.
B. (2002). Southwest Airlines Corporation. No.
2-0012. Tuck School of Business at Dartmouth. William F. Achtmeyer Center for Global Leadership.
Retrieved January 15, 2007 from: http://mba.tuck.dartmouth.edu/pdf/2002-2-0012.
pdf Southwest Airlines CorporationIn 2001, Southwest Airlines Corporation’s (Southwest) year-end results marked 29 consecutive years of profitability. Southwest, which was incorporated in Texas, commenced customer service on June 18, 1971, with three Boeing 737 aircraft serving three Texas cities: Dallas, Houston, and San Antonio. The company grew to become the fourth largest U.S.
airline (in terms of domestic customers carried). In 2002, it boasted a fleet of 366 Boeing 737 jets. Southwest was the United States’ only major short-haul, low-fare, high-frequency, point-to-point carrier. (Refer to Exhibit 1 for five-year financial highlights.
) Southwest had the lowest operating-cost structure in the domestic airline industry and consistently offered the lowest and simplest fares. Southwest also had one of the best overall customer service records. In 2001, the airline had 35,000 employees and generated total operating revenues of $5.6 billion from a passenger load factor of 68.
1 percent. Its stock exchange symbol was LUV, representing Southwest’s home at Dallas Love Field, as well as the theme of its employee and customer relationships. Fortune magazine consistently recognized Southwest as one of the top 10 businesses to work for in the U.S.
and one of the most admired companies in the world. Among airlines, Southwest ranked on top as the most admired airline worldwide from 1997 through 2001. In 2002, The Wall Street Journal reported Southwest Airlines ranked first among airlines for customer service satisfaction, according to a survey by the American Customer Satisfaction Index. Business Ethics listed Southwest in its “100 Best Corporate Citizens,” a list that ranks public companies based on their corporate service to various stakeholder groups.
The Southwest DifferenceSouthwest did not employ the “hub-and-spoke” approach used by other major airlines, such as United, American, and Delta. Instead, its approach was shorthaul (average flight time was 55 minutes) and point-to-point (e.g., Dallas to Houston, Los Angeles to Phoenix).
Southwest had no assigned seats, paid its crews by trip, and used less congested airports (e.g., Baltimore instead of Washington’s Dulles or Reagan; Manchester, N.H.
, instead of Boston, Mass.). Forty-six percent of Southwest’s passenger revenue was generated by online bookings via southwest.com.
In 2002, the cost per booking via the Internet was about $1, compared to the cost per booking of $6-$8 through a travel agent. Terra Lycos, the largest global Internet network, reported that Southwest received 50 percent more searches than any other airline. Southwest pilots were the only pilots of a major U.S.
airline who did not belong to a national union. National union rules limited the number of hours pilots could fly. But Southwest’s pilots were unionized independently, allowing them to fly far more hours than pilots at other airlines. Other workers at Southwest were nationally unionized, but their contracts were flexible enough to allow them to jump in and help out, regardless of the task at hand.
From the time a plane landed until it was ready for takeoff took approximately 20 minutes at Southwest, and required a ground crew of four plus two people at the gate. By comparison, turnaround time at United Airlines was closer to 35 minutes and required a ground crew of 12 plus three gate agents. CEO Herb Kelleher, who founded Southwest, was deeply committed to a philosophy of putting employees first. “If they’re happy, satisfied, dedicated, and energetic, they’ll take real good care of the customers.
When the customers are happy, they come back. And that makes the shareholders happy.”1 Southwest’s walls were filled with photographs of its employees. More than 1,000 married couples (2,000 employees) worked for the airline.
The average age of a Southwest employee was 34 years. Southwest employees were among the highest paid in the industry and the company enjoyed low employee turnover relative to the airline industry. Southwest’s culture of hard work, high-energy, fun, local autonomy, and creativity was reinforced through training at its University of People, encouragement of in-flight contests, and recognition of personal initiative. Being in the people business meant a rigorous approach to hiring new employees.
In 2001, Southwest reviewed 194,821 resumes and hired 6,406 new employees. The company’s hiring process was somewhat unique: Peers screened candidates and conducted interviews; pilots hired pilots, and gate agents hired gate agents. To better understand what the company sought in candidates, Southwest interviewed its top employees in each job function (e.g.
, pilots, gate agents, baggage handlers, ground crew) and identified their common strengths, then used these profiles to identify top candidates during the interview process. Southwest hired for attitude as much as aptitude. Noted CEO Kelleher, “We want people who do things well, with laughter and grace.” Southwest initiated the first profit-sharing plan in the U.
S. airline industry in 1974 and offered profit sharing to its employees every year since then. Through this plan, employees owned about 10 percent of the company stock. In 2000, Southwest offered its employees a record-setting $138Mm in profit sharing.
This tax-deferred compensation represented an additional 14.1 percent of each employee’s annual salary. Discussion Questions1. What is Southwest’s strategy? What is the basis on which Southwest builds itscompetitive advantage?2.
How do Southwest’s control systems help execute the firm’s strategy? Sources: www.southwest.com; What Management Is: How it works and why it’s everyone’s business byJoan Magretta, ©2002 The Free Press. NUTS! Southwest Airlines’ Crazy Recipe for Business andPersonal Success by Kevin Freiberg and Jackie Freiberg ©1996 Bard Press, Inc.
; Southwest Aims East(Condensed), case study written by Steven Sullivan under the supervision of Paul W. Harris. University ofVirginia Darden School. Case no.
UVA-M-0464. “The Talent Myth,” The New Yorker, July 22, 2002.© 2002 Trustees of Dartmouth College. All rights reserved.
APPENDIX B:FLOOZ.COM CASE STUDY Kaufmann, R.J., Miller, T.
& Wang, B. (July 2002). When Internet Companies Morph: Understanding Organizational Strategy Changes in the ‘New’ New Economy. First Monday, 7(7).
Retrieved January 19, 2007 from: http://firstmonday.org/issues/issue7_7/kauffman/index.html AbstractWhen Internet Companies Morph: Understanding Organizational Strategy Changes in the ‘New’ New Economy by Robert J. Kauffman, Tim Miller, and Bin WangThe rapid ascent of the Internet economy funneled almost $US90 billion of venture capital money into Internet startups over a period of four years that roughly ended in mid-2000.
An equally rapid bust in the cycle that year abruptly shut off funding and thrust remaining Internet companies into an unprecedented frenzy of adaptive strategic and organizational re-focusing behavior. In this article, we relate the findings of our study of this period of hyper-evolution and give a snapshot of the publicly reported “morphing” activities of 125 Internet companies, based on which we propose a profitability-driven typology of Internet firm repositioning behavior. The study provides academic researchers with an overview of industry strategic mutation patterns and provides executives with a process analysis for identifying and evaluating their own strategies in a way that is essential for success in the highly volatile Internet economy. We also offer our predictions on these strategies’ efficacy in light of the current emphasis on business profitability and return on investment (ROI).
ContentsThe Beginning of the ‘New’ New EconomyStrategic Morphing and Sustainable AdvantageNew Results on Strategic Morphing in the Internet Firm MarketplaceUnderstanding Morphing StrategiesEvaluating the Mutation Strategies of Internet CompaniesLearning From the Morphing Strategies of Internet CompaniesConclusionsThe Beginning of the ‘New’ New EconomyThe rapid ascent of the Internet economy followed by its equally rapid shakeout has set the stage for a period of business repositioning that is historic in both its scale and its speed. The now-failed magazine Industry Standard (www.industrystandard.com) reported that from 1998 through 2000 private investors, in an attempt to capitalize on what appeared to be record growth rates of the Internet, poured more than $US90 billion into an estimated 7,000 to 10,000 startups while public investors drove Internet IPOs to stratospheric price heights .
Operating on assumptions that companies needed to operate on “Internet time” and spend big to grab market share at the expense of profits, investors placed large rounds of funding in Internet companies and instructed them to spend it quickly. Short-term profitability and return on investment (ROI) seemed to be far from the minds of the market leaders.However, by the end of the first quarter of 2000, it had become apparent that most Internet companies would not produce positive cash flow in the near term, if at all. On 20 March 2000, Barron’s published a luridly illustrated cover story entitled: “Burning Up – Warning: Internet Companies Are Running Out of Cash (Fast)” (Willoughby, 2000).
The article suggested that 51 of the 207 Internet companies that were studied could run out of cash in the next 12 months. Shortly after stock prices for Internet firms started to plunge (Schiffman, 2000) and by the end of the year had taken the NASDAQ to its worst annual loss in 29 years and effectively shut down the IPO market; see Figures 1, 2, and 3. Figure 1: The Extended Plunge of the NASDAQ Following 20 March 2000.Source: BigCharts.
com, July 10, 2002 (www.bigcharts.com) Figure 2: Number of IPO Issues, NASDAQ-Listed Stocks, 1999-2001.Source: www.
nasdaq.com Figure 3: Value of IPO Issuance, NASDAQ-Listed Stocks, 1999-2001.Source: www.nasdaq.
com With IPO opportunities having largely shut down and market valuations for New Economy firms imploding, private equity investors abruptly closed their purses, leaving numerous Internet companies with shortfalls of operating cash and budgets that no longer matched their business ambitions in a rational market context. As a result, Internet companies abruptly began to curtail their spending, compounding the difficulties their peers were experiencing with raising money, since many Internet firms had been relying almost solely on the hype of the “digital Gold Rush” and the earlier market following that had built up.These dramatic and sudden changes in the market climate forced many Internet companies into a period of readjustment to conserve cash, diversify their customer bases and more effectively focus on higher-return market niches. Those that have not been able to adapt to the tough market environment have been forced to exit, and the number of failed Internet companies now totals more than 800 firms, according to research reports by Webmergers.
com (Webmergers, 2002).In this study, we explore the spectrum of adaptive strategies employed by the Internet firms to cope with the economic slowdown in their sector, and the overall reorientation of market investors towards the ‘new’ New Economy. On the basis of our analysis of the strategic moves and business model reconfigurations of 125 electronic commerce-focused companies, as they have been reported in the major business and trade publications and through a variety of interviews conducted at Webmergers.com and the MIS Research Center at the Carlson School of Management of the University of Minnesota, we propose a process model for identifying and assessing Internet firm strategy “morphing” behavior.
In addition, we also provide our thoughts on how likely different strategies will work out for these firms. The results from the current study can help academic researchers understand the diverse strategies Internet companies use to improve the sustainability of their competitive advantage in the context of fierce market competition. In addition, business professionals, especially managers of Internet-focused firms, can use our process model to evaluate the alternatives that remain available to them, so they can identify a strategy that generates higher payoffs.Strategic Morphing and Sustainable AdvantageWe draw upon the literature on evolutionary game theory (Maynard Smith, 1982; Samuelson, 1998; Weibull, 1997) as the theoretical background of the current research.
Evolutionary game theory tackles the dynamics of evolution in biological populations, and is motivated by such referent disciplines as population biology and genetics, as well as by economic analysis of markets and the firms that compete with them. Evolutionary game theory treats how individuals in a population learn through a trial-and-error process, and explains why certain species survive the process of natural selection in their competitive environments, while others do not.Two prerequisites for the selection process are the limited resources that are available in the environment and the individual differences that occur among competing members of the population. The former determines that some individuals in the population will survive while others will become extinct.
The latter indicates that there may be different capabilities for adaptation that occur within populations in a competitive environment. Together, they determine that only those that are the fittest will be able to survive. In the evolutionary process, individuals (and firms) can also learn by a process of trial and error which strategies they apply generate higher payoffs. Consequently, they can adjust their strategy in the competition with others and enhance their chances of survival.
We equate this organic view of market competition and natural selection among “species” to what we have been observing the last couple years in the competition and market shakeout among companies in the Internet economy. There are differences among Internet companies in aspects such as industry, products, customers served, management teams, market niche specificity, and capacity to continue raising capital. There are also differences among Internet companies in terms of the “ripeness” of the sector in which they compete. By ripeness, we mean the relative readiness of a market to accept a product or service.
The limited numbers of customers, suppliers, and financial resources determine that only those companies that have been best positioned for the rough and tumble competition have been able to survive. Indeed, to continue our analogy: an Internet firm’s adaptability to the ‘new’ New Economy is determined by its “competitive genetics.” These include the unique value it provides to its customers, its relative costs compared to its competitors, the quality of its market niche relative to more traditional reintermediating firms, and its financial strength. A company that can stay on top of the competition in these aspects is in an advantageous position to its competitors and is more likely to succeed .
The trial-and-error learning process that evolutionary game theory suggests as a possible interpretation of the manner in which firms compete in the marketplace is crucial to our understanding of the strategy morphing behavior that we have seen many Internet companies firms engage in. Strategic mutation to the organizational business models of these firms occurs through purposeful, intentional changes that reflect a firm’s adaptability to its marketplace in competition with other businesses. However, strategic mutation may also reflect almost random actions with organizational strategy (or at least some that are not very well conceived), permitting firms to observe the feedback that the market has to offer (in market share, revenue, funding capacity, etc.).
Through this process, firms will come to realize which strategies will put them in an advantageous position with respect to competition with their rivals, access to capital markets and top notch human capital, and so on, and permit them to update their strategies accordingly.GartnerG2 (www.gartnerg2.com), a research division of Gartner Group, proposed a strategy model that is similar to the process that we find analogous to the thinking that is associated with evolutionary game theory (Rountree, 2001).
A firm exists in both external and internal environments, learning to acquire knowledge by scanning and sensing these environments. In addition, a firm also innovates and adapts, which allows it to further accumulate new knowledge. This constantly updated knowledge base further powers a firm through activities such as mutation and strategic change. Using this rough script of the process GartnerG2 depicts the rich process through which firms learn to achieve higher performance by mutation.
Evolutionary game theory provides a high level framework for understanding the Internet firm strategic morphing process. We next present the results of our case study analyses and propose a classification of strategic morphing behaviors that appears to characterize well what we have observed in the Internet company marketplace. Instead of focusing on the whole process as evolutionary game theory does, however, we take snapshots of the morphing behavior we observe when Internet companies change their strategies to achieve a better fit with the marketplace. It is worth noting that since our observation period is the early stages of the Internet firm strategic morphing process, our categorization of the morphing strategies is specific to firms in the early e-commerce life cycle.
As e-commerce firms mature, the morphing we may observe might be different or less dramatic. However, as evolutionary game theory points out, mutations still occur as the competition in the marketplace goes on. Our discussion of the case study findings, and our classification of the observed morphing behaviors sets up our subsequent proposal for a framework that enables us to extend our interpretation from description to prediction, and to offer normative guidance to managers who are faced with problems with their firm’s business model or organizational strategy that requires an evolutionary approach to increase the likelihood of firm survival.New Results on Strategic Morphing in the Internet Firm MarketplaceThis research is based on a set of industry and organizational mini-case studies that are drawn mainly from published articles in business and trade publications.
Given the number of cases and the diversity of published sources from which we drew, we believe the results of this research provide a reasonably representative picture of the strategic mutations that characterize the Internet company market during the last couple years.Research MethodCase study research is known to provide an excellent means for supporting the exploration for new theoretical perspectives on problems that are of interest to managers (Benbasat et al., 1987). In the earliest stages of the research process with respect to an issue or problem area that has not been studied to date, it is important for the researcher to ground himself or herself in the real world aspects of the problem to ensure that an appropriate understanding of the actual problems for research can be reached, and that the perspectives that are developed along the way add value to the stakeholders for the work.
Our research approach takes advantage of case study methods to develop an understanding of the strategy changes of Internet firms. The work does not involve survey methods, in that no questionnaires were mailed to corporate executives, nor were there any online opinion polling or consistent interviewing tactics that were applied to a targeted population of respondents. As such, the findings are not the result of a “random” survey. If we had taken this approach, then we would be reporting on many Internet companies that failed to be nimble or adaptive enough to sustain their place in the market, and are no longer in business today.
This, of course, would not have been possible. Nor are our findings a by-product of many in-depth interviews. Indeed, for some of the firms that figure in our data set, it would have been difficult to carry out interviews with corporate leaders in times so difficult as those we have seen, since many potential respondents would have been “on the street” again, looking for new entrepreneurship opportunities where venture capital funding has remained available.Instead, similar to Subramani and Walden (2001) who developed a database of articles on corporate announcements related to e-commerce, we built a database of several hundred articles that profile individual Internet companies or address the strategy changes of one or more firms in an industry cluster.
Most of these articles were published in 2000 and 2001 in business or trade publications, such as the Wall Street Journal, Business 2.0, BusinessWeek, Industry Standard, New York Times, and other similar publications. After initial rounds of reading the articles, we developed a set of potential categories that could be used to classify the various business model change strategies that were represented. Further refinement of the initial set of categories led us to assign each company that was represented in the data set to one or more of those categories.
Since some of the firms made multiple changes and adjustments during the period of study, we assigned several companies to more than one category.Morphing Strategies: A Five-Category ClassificationWe identify five broad categories of strategic morphing behavior that Internet companies have employed. They include changes in product and service offerings, changes in customers, adjusting pricing model, establishing offline presence, and other strategies. Table 1 provides a summary of the firms we examined in terms of these categories.
A majority of the repositioning strategies take the form of market and product offering changes. Some have shifted to the application service provider (ASP) pricing model. Market repositioning emphasizes the most profitable customers, either from B2C to B2B or upstream within the B2B sector. Expand or contract product and service offerings include both expansions and narrowing of offerings.
To increase revenue, companies also make pricing model adjustments. Some have made adjustments to a fee-based model, for example, shifting from individual product pricing to bundle pricing, or waiving certain fees if a business volume criterion is met. In addition, some pure-play Internet companies in our sample also realized the importance of an offline presence, and expanded their business model to incorporate non-Internet-based operations to match their e-commerce capabilities. These strategies often take the form of e-commerce adjustments to the bricks-and-mortar model for business, enabling firms to penetrate the markets associated with the traditional media.
Table 1: Internet Firm Strategic Mutations, 2000-2001.Description of Strategic MutationsCountPercentChange Product/Service Offerings in Existing MarketsShift to application service provider (ASP) business model108Expand product/service offerings1714Refocus and narrow product/service offerings1714Move Upstream to New Higher Quality CustomersExpand or shift from B2C to B2B4234Expand or shift upward in B2B markets1210Adjust Pricing ModelMake adjustments to the fee model76Pursuing Offline PresenceAdopt bricks & mortar strategies97Adopt traditional media model119Other1210Total Number of Companies in Sample 125To what extent are these changes consistent across business-to-business (B2B) and business-to-consumer (B2C) e-commerce? We define B2B firms as Internet companies that have other companies as their direct customers, and B2C Internet companies as those having consumers as their direct customers. This is similar to the definition Subramani and Walden (2001) used in classifying B2B vs. B2C e-commerce initiative announcements.
It turns out that both the B2C and B2B sectors have used an upstream migration strategy in search of higher quality customers. The most common and most visible strategic direction change has been among B2C companies that have adopted what we call the “B2C2B morph,” a strategy employed by 42 of the 95 companies in our sample. This approach typically involves a firm that was founded as a B2C e-commerce product or services provider, which then works towards broadening its target market into the B2B marketplace, which has been shown to be far richer in terms of potential revenues for the firm. Table 2 provides an illustrative breakdown of the various strategies for B2C and B2B Internet companies.
Table 2: Internet Firm Mutation Strategies By Sector, 2000-2001.Description of Strategic MutationsB2C FirmsB2B FirmsCountPercentCountPercentChange Product/Service Offerings in Existing MarketsShift to application service provider (ASP) business model001029Expand product/service offerings781029Refocus and narrow product/service offerings151726Move Upstream to New Higher-Quality CustomersExpand or shift from B2C to B2B4247N/AN/AExpand or shift upward in B2B marketsN/AN/A1234Adjust Pricing ModelMake adjustments to the fee model6713Pursuing Offline PresenceAdopt bricks & mortar strategies6739Adopt traditional media model111200Other89411Total in Sample 9035However, as Table 2 also demonstrates, a similar proportion of B2B companies – 12 of the 35 reviewed – also shifted their focus upstream, moving from one class of business customer toward better-heeled prospects in the Fortune 1000 or other larger enterprises with larger spending budgets for technology services. Overall, we found that B2C firms were more likely than B2B firms to tighten and refocus their offerings, in many cases to cut out low-margin products or focus on a niche, thereby reducing the enormous marketing costs involved in addressing broad consumer audiences.Understanding Morphing StrategiesIn this section, we go into greater detail on these strategic moves and discuss their applications by the companies in our sample.
Adjusting Product Offerings for an Existing Customer BaseMany Internet companies have adjusted their product mix to renew revenues that have fallen off sharply since Spring 2000. Several online marketplaces and electronic exchanges moved from a transaction model to an ASP business model to provide private exchange services to an increasing number of businesses that desire such services. In addition, our case study evidence shows that about the same number of companies expanded or contracted and re-focused their product and service offerings. Expansionist strategies appear to have been designed to grow revenue-per-customer and to differentiate an Internet firm from its competitors by increasing the breadth of its product line.
Product-focusing strategies, on the other hand typically stripped down the product line to core offerings in an attempt to eliminate low- or no-margin products, to stem the cash hemorrhage, differentiate the brand, and accelerate profitability.· Shifting to ASP Pricing.While many companies moved upstream to tap enterprise dollars, a significant number of industry players, many of them in the B2B market exchange patch, shifted laterally. They attempted to sell their products or services using a subscription revenue model that is widely known as the applications service provider model.
About eight percent of companies examined in our study adopted an ASP model or significantly expanded an existing set of ASP offerings during the 2000 to 2001 time frame. The applications that we observed ranged from consumer software to tools that enable businesses to better manage proprietary business relationships and multi-step supply chains. Another rapid and somewhat unanticipated shift, related to B2B marketplaces and exchanges, has occurred. The early high hopes for these public marketplaces rapidly dimmed in the face of intense competition and much slower-than-expected participation and implementation among stakeholder firms (Dai and Kauffman, 2002; Kauffman and Mohtadi, 2002).
Instead, many Internet companies are now adjusting their focus to provide companies with private marketplaces tailored to their own operations and customers. David Perry, CEO of chemical exchange services provider, Ventro Corporation (www.ventro.com, now NexPrise Inc.
, www.nexprise.com), told ZDNet’s eWeek magazine: “Every exchange is essentially a very specialized ASP anyway, so it makes sense for us to take the next step and offer some of the applications ourselves” (Fisher and McCright, 2001). In fact, AMR Research (Bermudez, 2001) predicted most of the commerce transacted over the Internet by 2005 will pass through a private exchange.
While Internet company migration to application services points in of itself to possible market saturation in the ASP arena, there are still multiple market niches to be addressed. They include aviation, automotive, steel, metal, transportation and logistics optimization, and the life sciences.· Expanding Product and Service Offerings.About 14 percent of the companies sampled were observed to have expanded their products or services, driving their business models and brands into new market categories and increasing the perceived breadth of their market coverage.
In some cases, companies expanded their range of offerings to increase their revenues. For example, BusinessWeek reported that BlueLight (www.bluelight.com) increased its offerings to 250,000 items, up from 100,000 sale items, after its second launch in October 2000 (Lee, 2000).
In April 2001, Bluelight.com relaunched its site again with a new floral delivery section, expanded selections in its specialty stores featuring brands such as Black & Decker, and provided more choices in the Martha Stewart Everyday store (Bluelight.com, 2001c). In other cases, Internet companies have attempted to introduce unique services or products to increase their strategic barriers to competitor entry in their market.
As an example of the latter strategy, online music syndicator, Listen.com (www.listen.com) has been maneuvering to become a one-stop-shop for music offerings, acquiring Wired Planet (www.
wiredplanet.com) in September 2000. The purpose of the acquisition was to integrate Listen.com’s streaming audio technologies and personalization tools into its offerings for both distribution partners and customers.
The combined technology assets of the firms will permit its distribution partner to have the tools to develop systems to support streaming entertainment that enable the adopters to customize them for use with their own audiences.· Narrowing Focus to Core or Niche Offerings.While many Internet companies have been busy expanding their offerings, an equal number – about 14 percent of firms in our study – have concentrated their efforts on their core market or on a newly-emphasized niche. Buy.
com (www.buy.com), for example, previously criticized for spreading itself too thin, began to increase its focus on its core market of technology and consumer electronics goods sales activities in January 2001 (Davis and Neel, 2001). BN.
com (www.bn.com) likewise has shifted emphasis to more focus on content and has also transformed its nascent electronic book offerings early last year into a full-fledged electronic bookstore, which many expect to lead the new market. According to DSN Retailing Today (Craig, 2001), even Amazon.
com (www.amazon.com) is working to refocus its core book business. Some observers predict that companies will find greater success in their core businesses.
Indeed, there are no doubt many e-commerce firms that have not been able to extend themselves beyond their core business models with any real success, but still have the opportunity to make their core strategy profitable. In addition, a ten-year longitudinal study of more than 2,000 technology, service, and product companies in a variety of industries conducted by Bain & Company (www.bain.com) and reported in the book Profit from the Core: Growth Strategy in an Era of Turbulence (Zook and Allen, 2001) led to the conclusion that most growth strategies fail to deliver value – and may even destroy it.
This occurs, according to the authors, primarily because the firms wrongly diversified from their core businesses, into new market areas that they failed to fully understand or be able to exploit at the same level of profitability.Moving Upstream to Address a More Profitable Customer BaseBy far, the most popular repositioning action involved a “flight to quality” in the customer base targeted. In the B2C sector, many companies cut back on their marketing expenditures and addressed deeper-pocketed business customers by extending or shifting their product and service offerings from consumers to business clients in what has become to be known popularly as the “B2C2B strategy.” Companies that already targeted the B2B market in their product or service niche also tended to move upstream.
The most typical switch in focus was away from the once-wealthy Internet companies to more established corporate names or the Fortune 1000 market.· B2C2B Strategies.In the B2C arena, about 34 percent of the firms in our sample began selling their software or services to other companies instead of, or in addition to, consumers. This model evolved in response to the steep marketing costs required to reach broad consumer markets, slower-than-expected sales conversion rates, declining advertising revenues on Internet company Web sites and stiff competition.
Some B2Cs, like group-buying site operator MobShop.com, switched from a pure B2C business model to licensing software in a B2C2B model. But when that failed to revive the firm’s revenue stream, it began to sell its group-buying service directly to business users. In fact, we observed the B2C2B strategy being applied in multiple Internet sectors.
They include content sites such as tech hub GirlGeek.com (www.girlgeek.com) and service companies such as online file-sharing ASP, Driveway Corporation (www.
driveway.com). The B2C2B trend also has encompassed a variety of vertical sectors. For example, streaming-video entertainment sites such as Atom Films (www.
atomfilms.com), IFILM (www.ifilm.com), MP3.
com (www.mp3.com), BigStar Entertainment (www.bigstar.
com, which recently suspended operations), Eveo.com (www.eveo.com), and now-defunct Quokka Sports veered towards business services, including corporate online videos and software licensing.
Auction companies, eBay (www.ebay.com) and Homebid.com (www.
homebid.com, now merged with HomeStore.com), and portal sites, Yahoo! (www.yahoo.
com) and China’s Netease (www.netease.com) all reported plans to sell in-house technology or services to independent companies.· Moving Upstream Within B2B Markets.
As many B2C companies looked to the wholesale market for revenue source, so too did many B2B companies begin to turn away from their increasingly shaky Internet company customers to seek bigger, richer and more stable business customers. In fact, 10 percent of companies in our sample expanded or shifted their target business-markets upstream to enterprise or mainstream companies. For example, online banking systems provider Sanchez e-Profile (www.e-profile.
com) moved beyond its “first wave” of clients to bigger corporate concerns, such as American Express (Roth, 2001). Again, we saw the flight to quality in several B2B sectors. In the professional services arena, for example, consulting groups, such as Concrete (Media), iXL Enterprises (www.ixl.
com, now merged into Scient Corporation, www.scient.com), and the failed MarchFIRST, attempted to lessen their reliance on pure-play Internet companies to focus on helping traditional enterprises implement their Internet strategies. Third-party news aggregators and infrastructure vendors, iSyndicate (www.
isyndicate.com, now YellowBrix.com, www.yellowbrix.
com) and ScreamingMedia (www.screamingmedia.com), began aggressively targeting large enterprises with content products, such as Web portals and intranets. And e-commerce software providers, such as Interworld (www.
interworld.com) and Vignette (www.vignette.com), steered away from serving smaller consumer Web sites to addressing large established Web properties and mainstream companies.
Even companies that were not heavily exposed to Internet companies followed the “northward trail.” For example, software providers like ASP aggregator, Jamcracker Inc. (www.jamcracker.
com), began to migrate upstream from the small-to-midsize market to large companies.Adjusting the Pricing ModelAnother set of Internet companies developed new revenue models in an attempt to better monetize their existing customers. They made adjustments to the fee model that they used.· Adjusting Fee-Based Models for Enhanced Business Profitability.
Instead of repackaging content into traditional media formats, six percent of the Internet-only companies in our sample have radically adjusted their fee models. The most common action in this category is for providers of free content or services to incorporate or switch to a per-use or subscription-based fee model. This coincided with the abrupt drop-off in advertising rates and advertising volume, increasing the difficulties that some firms faced to earn a profit. For example, free-content providers Britannica.
com (www.britannica.com) and the beleaguered Napster (www.napster.
com) are pursuing plans to charge consumers for information or music, while others, such as PayMyBills.com (www.paymybills.com) and the Asian portal 21C (www.
21c.com.cn) introduced new service fees. In the rare instance of TheStreet.
com (www.street.com), the company experimented with a shift from fee-based content to mostly free content in an attempt to find the right revenue model.Pursuing an Offline PresenceMany bricks-and-mortar enterprises are deploying Internet technologies to stay competitive.
However, the real pressures in the marketplace are focused on former pure-play Internet companies that have now shifted their resources to explore how to leverage bricks-and-mortar capabilities to make their own business models more attractive, and target and better serve new customers. In some cases, the firms have even sought to retrofit their core businesses by de-emphasizing their Internet capabilities somewhat to distinguish themselves from other Internet market competitors. We have seen this occur in two prototypical forms. Let’s consider each in greater detail.
· Adopting Bricks-and-Mortar Strategies.More than seven percent of Internet companies in this study have adopted some form of strategy involving physical real estate. One such company was BN.com.
In early 2001, the company’s interim CEO, Stephen Riggio, announced that the e-tailer would launch an aggressive cross-pollination strategy with its bricks-and-mortar book superstore counterpart, Barnes and Noble, Inc. “In 2001, we will execute our vision of uniting our retail stores and Web site,” he told the New York Times (Hansell, 2001). “By mid-2001, every single Barnes and Noble store will have Internet Service Counters, enabling customers to place orders from titles and products listed on our Web site right in the store.” Customers can also return their online orders to BN’s stores (Patton, 2001).
In addition, Internet portal Yahoo! briefly opened a shop in London last year for publicity, demonstrating, according to the Guardian, “a need for pure-plays to extend their presence beyond the Web” (Azeez, 2001). And e-tailers, such as women’s workout clothier Lucy.com (www.lucy.
com) and Gazoontite.com (www.gazoontite.com), actually closed their Internet stores to focus on bricks-and-mortar stores.
In addition, Minnesota-based employment and recruiting Web site, Techies.com (www.techies.com), nixed plans to build overseas operations and instead explored partnerships with online and bricks-and-mortar companies overseas.
Techies.com’s CEO, Dan Frawley, told Internet-based Business Wire (2001) that his moves were intended to utilize overseas partners’ infrastructure and their customer relationships to increase the firm’s service reach and decrease its operating costs. Still other observers contend that such convergence of offline and online models is inevitable and perhaps overdue. “We need .
.. [to] see the Internet for what it is,” wrote Harvard Business School strategy professor Michael Porter, as “an enabling technology: a powerful set of tools that can be used, wisely or unwisely, in almost any industry and as part of almost any strategy” (Porter, 2001). Indeed, to judge from the actions of many Internet companies, the digital convergence that Porter speaks of is already occurring.
· Adopting Traditional Media.As the recent case of Yahoo!’s revenue shortfall illustrates, many advertising-sensitive Internet companies have faced a two-barreled assault: steep declines in advertising rates and a simultaneous collapse in spending by the Internet companies that had been purchasing the bulk of online advertising. To supplement lackluster ad revenues or broaden readership, news content sites such as Inside.com (www.
inside.com), Space.com (www.space.
com), Salon.com (www.salon.com) and Slate.
com (www.slate.com) have either tested, offered or are considering offering print editions in the form of magazines (some have tried and abandoned this model, but we can’t say which of the above are in that category) or, in some cases, printable newsletters. In addition, e-commerce sites such Confetti Network in Great Britain (www.
confetti.co.uk), the failed Kozmo.com, and LastMinute.
com (www.lastminute.com) launched catalogues or newspaper inserts to generate new sales, while a traditional television producer purchased the online digital entertainment assets of Icebox.com (www.
icebox.com) to turn them into broadcast television programming.Other ActionsAlthough the above categories reflect the most common adaptive strategies, Internet companies have deployed other maneuvers that may be of interest to other companies. Some other strategies include:· Leveraging Excess Capacity.
Several companies in our sample are now selling their excess operating capacity to their peers. For example, Amazon.com, which overbuilt its warehouse and related distribution network infrastructure in anticipation of higher-than-realized growth, has begun providing e-commerce services to Borders and other traditional retailers.· Entering an Entirely New Business.
A few Internet companies have diversified away from their old businesses into entirely new ones, motivated for the most part by a lack of market opportunities and cash. For example, Backflip Inc. (www.backflip.
com) de-emphasized its original advertising-based Internet bookmarking Web site and spun off a new company, Intanda Inc. (www.intanda.com, which shared its board of directors with Backflip during 2001).
Intanda’s strategic thrust was in the wireless messaging application provider market, which bears no relationship to what the management team had been doing at Backflip. Another company, arts directory Culturefinder.com (www.culturefinder.
com, whose Web operations were recently interrupted by the World Trade Center disaster), revealed plans to transform itself from a money-losing commercial venture to a non-profit organization in hopes of seeking financial support from philanthropic organizations, corporations and other donors.However, another version of this approach that we have seen – the “dowry deal” – occurs for different reasons. In the past several years, we have seen Internet companies’ stocks trade for less than it is worth in aggregate than the cash reserves that they hold. In a dowry deal, the primary basis for synergy for a marriage between two Internet companies is that one can provide cash.
The cash-rich player with a weak business model seeks to find a cash-poor company that has a strong business model. In the deal, the buyer gets the business model, and the seller gets the cash in a deal that offers favorable terms. Webmerger.com’s (2001) Web M&A Report illustrates:”An example of this kind of business model morph is found in the case of one dowry deal that took place last week when E-Stamp Corporation [.
..], an e-shipping company with $19 million in cash, acquired a 50.1% majority of Learn2.
com,, a growing, but cash-constrained e-learning company. Now, what does an e-learning company have in common with an e-postage company? Nothing. But what these companies did have in common was the need to put cash to good use. And E-Stamp had concluded that ‘good use’ did not include spending any more money on the shipping business.
So E-Stamp is exiting its business and putting its cash to work in the e-learning sector” (Webmergers.com, 2001).Evaluating the Mutation Strategies of Internet CompaniesEarlier in this article, we reported on the range of approaches that Internet-focused firms have been applying in their strategic morphing process. But how effective will their maneuvers and adjustments be? Are Internet companies able to leverage these strategies to obtain sustainable competitive advantage in their markets? How can a company pinpoint the appropriate mutation strategies it should carry out, given the variety of possibilities? Does morphing under duress lead to a different likelihood of success than when the strategy adjustments are made with financial resources in hand? In this section, we propose a process analysis for mutation strategy evaluation.
We emphasize the importance of finding strategic mutations that can provide a company with sources of sustainable competitive advantage over its competitors. We apply our proposed model to two Internet companies, Britannica.com and BlueLight.com, to illustrate the process analysis that we advocate.
However, we also note that in the New Economy sector, the reality has been that many firms are forced to undertake “pain morphing” to be able to avoid bankruptcy. And so, the reader should recognize that our evaluations apply with special relevance to the recent developments in the marketplace, where scarcity of capital resources has put many Internet companies into panic model.How should we as observers evaluate the effectiveness of the morphing strategies we observed in the electronic marketplace? We adapt an approach for evaluating Internet company strategic mutations on the basis of a more general decision framework proposed by Shaw (1990) to enhance organizational effectiveness in strategy selection among service industry firms. Shaw uses a multiple-module process to illustrate the steps a service firm should go through to identify the directions for its strategic change.
In this analysis, the author asserts that a firm should first evaluate its status relative to its competition in the marketplace. Then it should identify the directions for change. Thereafter, the firm should finalize the implementation details of the strategy. In this section, we propose a similar process analysis through which we can evaluate various morphing strategies that an Internet firm may undertake in order to identify the most appropriate ones.
This process analysis can also be used internally as Internet companies try to identify and select among different strategic mutations. See Figure 4. Figure 4: A Process Analysis for the External Evaluation of Internet Firm Business Model Changes.Source: Adapted from J.
C. Shaw, The Service Focus: Developing Winning Game Plans for Service Companies. Homewood, Ill.: Dow Jones-Irwin, 1990.
The first question we need to answer is: What is the nature of the business? That is, which markets does the company serve and what is its primary value proposition to its customers? As Porter (2001) points out, delivering unique value to its customers is critical to an Internet company’s long-term survivability. With a keen understanding of its business, a firm can direct its limited resources available toward the efforts that bear strategic significance. We expect this to be a critical step, even for Internet companies that are forced into “pain morphing” mode. Getting the answer to these questions right will be the basis for longer-term business strategy solutions.
After determining the answers to this starting question, the second step is to assess the Internet-focused firm’s position in the marketplace in competitive terms. Who are the current and prospective competitors that may enter the Internet marketplace? Will they be other Internet companies, or will they be traditional firms that develop new Internet-focused strategies? In light of competition from these kinds of firms, what are the company’s strengths and weaknesses compared to its rivals? Is it resistant to being disintermediated by other firms that can achieve direct links with the customer? Or is there another firm that can achieve a more effective product or service portfolio? Developing answers to some of these questions will help the company to prepare to identify directions in which to adjust its business model.In the third step, we should try to pinpoint the focus of the Internet firm’s intended business improvements. For this part of the process, we emphasize the importance of a forward-looking perspective.
When the company’s interest to morph its strategy is due to some form of duress, the emphasis on long-term positioning remains critical. In addition, the rate of change in the technology and Internet sector has been so rapid, that any assessment of process, product or service improvements must be made with a sense of what else is technologically possible in the near-term, market-wide. Thus, it is important for the company not only to examine the current market competition, but also to foresee future market trends and prepare itself early for the range of future challenges that are likely to arise. In this respect, considerations of the possibility of digital convergence, competitive threats that may be mounted by other firms that have the potential to mitigate the beneficial impacts of a firm’s business improvements, are important.
After deciding on the general nature of the strategy changes to be made, the next step is to choose the set of actions that can take the firm there. At this stage, we should evaluate the efficacy of potential strategies and their possible outcomes in greater detail. Porter (2001) examined the recent turbulence in the electronic marketplace and called for a “return to fundamentals.” He argued that a firm is more likely to benefit from adopting strategies that can lead to sustainable competitive advantage over its rivals.
Porter also emphasized that Internet technologies were no different from the traditional technologies in this aspect. So an Internet company can only reap the benefits of an advanced technology if the technology puts it ahead in the competition with other businesses. As a result, we emphasize in our process analysis the importance of identifying potentially sustainable competitive advantages that can be achieved through strategic mutation. After scanning the spectrum of possibilities, a company should select among the business model and strategy changes that are most likely to provide it with sustainable competitive advantage over its competitors.
In addition, the foregoing analysis may turn up other firm needs to acquire certain strategic necessities (Clemons and Kimbrough, 1986) that are critical for the firm to remain in the competition even if there is no sustainable competitive advantage that develops.The final step related to evaluating strategic mutations is outcome evaluation. We can compare the intended strategic plan based on our process analysis with the actual plan the Internet company carried out. If they are the same and the market feedback is less than desirable, we need to identify possible reasons for the outcome, and what should be done to make further changes to the firm’s strategy to be better able to deliver business value.
If the actual and the recommended strategies are different and the strategy taken did not result in the expected outcome, the Internet firm might have selected the wrong strategic direction, wasting its resources in the process. More generally, we expect that this, like all strategic planning, should be an iterative process.Next, we consider two examples of firms from the New Economy sector, Encyclopedia Britannica Online and BlueLight.com.
We use them to illustrate how we can use our five-step process analysis to understand the efficacy of different strategy mutations.Encyclopedia Britannica OnlineThe reference king, Encyclopedia Britannica Inc., first launched a Web-based product, Encyclopedia Brittanica Online (www.eb.
com), in 1994. The purpose of establishing Encyclopedia Britannica Online was to provide institutional and individual users with access to the complete content of the print edition of Encyclopedia Britannica (Disabatino, 2001). Since that time, Encyclopedia Britannica Online, which initially was developed as a subscription service, has reshaped its online strategy three times. Analyzing some of the strategic mutations to Britannica’s business model on the Internet offers a useful illustration of the application of our evaluative process for strategic mutations.
Q1: What is the nature of the Internet firm’s business?The encyclopedia business has been traditionally targeted at the reference and educational market when only print editions were available. This market has exhibited consistent demand over time for encyclopedias with an extensive coverage of diverse topics and has not been very price-sensitive. As an authoritative reference publisher with a history of more than 200 years, Encyclopedia Britannica had a solid customer base of educational institutions such as schools and colleges. Enabled by advancements in information technology, encyclopedias that are now published on CD-ROM, DVD and the Internet have drastically reduced production costs and made inroads into the consumer market, which prefers satisfactory coverage at an affordable price.
Q2: Where does the Internet firm stand in its markets?With the entrance of other companies into the digital reference market in late 1980s, especially Microsoft (which began to offer its own product bundled with its operating system), Encyclopedia Britannica experienced a significant drop in sales volume. The aggressive pricing of Microsoft’s Encarta reference series attracted the consumer market and enabled Microsoft to obtain a significant market share. As a result, Encyclopedia Britannica was forced to redirect its revenue-generation efforts, and began to develop strength by building on its customer base in the educational market. It continues to face competitive weakness that it has yet to overcome in the consumer market.
Q3: Where should the Internet firm improve its position?Encyclopedia Britannica’s competitive advantage over Microsoft has lain in its institutional market. To maintain its success, it must continue to focus on this market to preserve its market leader position. In addition, to recapture its lost market share to Microsoft, Encyclopedia Britannica should develop another version of its contents on the Internet to cater to the demand of the consumer market.Q4: What strategies should the Internet company take?In developing two versions of its encyclopedia to meet the needs of the two markets, Encyclopedia Britannica should differentiate the two products.
This way, the company will not be cannibalizing its sales in the institutional market by providing a much more affordable consumer version, and institutions will find that paying a higher subscription fee for the more extensive contents can be justified.Q5: How should the Internet firm’s implementation and outcome be evaluated?In October 1999, Encyclopedia Britannica Inc. launched Britannica.com (www.
britannica.com) as a separate corporate entity using an advertising-supported model with the aim of broadening its market beyond an institutional-heavy customer base. It offered the full text of the Encyclopedia Britannica free of charge, selling instead a high-end version supplemented with bonuses, including in-depth features and integrated searches. Within a couple of months, however, the Web site was repositioned by the firm as a portal, buttressing its reference data with free original content, as well as stock, news and sport information.
The primary intent was to ramp up advertising sales (Useem, 1999). Now, as Internet ad dollars dwindle, the company is refocusing on its core business – reference content and education – and returning to a two-tiered pricing model with the some basic content free and the complete version for a subscription fee (Disabatino, 2001). In 2001, Britannica.com also launched a fee-based Web site called Britannica School (www.
britannicaschool.com), which is especially packaged for students and teachers (Britannica.com, 2001).Providing its entire content at Britannica.
com for free endangered its competitive advantage in the educational market. With such content freely available on the Web, educational institutions find it more difficult to justify paying a high subscription fee. Moreover, the redirection toward a portal site also conflicted with the reference authority image that the company built up over the years. As Porter (2001) pointed out, competition based solely on price would only ignite a price war and was ultimately destructive.
Instead, the key to success is to provide unique value to customers so that a firm can take advantage of their willingness-to-pay. In the case of Britannica, even if the advertising market were still strong, its decision to adopt a free pricing model still would not allow the company to build upon its strengths and sustain its competitive advantage in the educational market. Thus, compared to these strategies, Britannica’s return to a subscription model and the launch of Britannica School are more in line with its core competencies and competitive advantages.BlueLight.
comAfter its initial attempts to launch a Web site failed in 1998 and 1999, Kmart teamed up with Yahoo! and SOFTBANK Investment Capital and launched BlueLight.com (www.bluelight.com) in December 1999 (Davis, 2001; Kaufman, 1999).
Later, BlueLight.com went though a couple of relaunches and a series of strategic mutations in trying to compete with Wal-Mart, Target, and their online sites.Q1: What is the nature of the Internet firm’s business?BlueLight.com is the online shopping site for Kmart, which has competed as a discount retailer.
It offers products in categories such as electronics, computer, home, jewelry and toys. BlueLight’s value proposition to its customers has been the convenience of Internet shopping at a reasonable price. In addition, the company also offers the Martha Stewart product line, which is widely known to be available at Kmart.Q2: Where does the Internet firm stand in its markets?BlueLight and Kmart’s competition have come from their two rivals in the discount retailing sector, Wal-Mart and Target, and their respective online shopping sites.
Over the years, Wal-Mart has built an image of a low-price leader and maintained a tight supply chain that has allowed it to minimize its operational costs. Target’s focus has been on a somewhat more upscale consumer market. Even though it does not always post the lowest prices, Target provides shoppers with a nice shopping environment and more product variety. In contrast, Kmart has failed to portray a clear image to the consumers, though its strategy with BlueLight was intended to help the company differentiate itself.
Q3: Where should the Internet firm improve its position?Kmart failed to portray a distinct image to its customers and differentiate itself from Wal-Mart and Target. It has not had as efficient a supply chain as Wal-Mart, nor has it focused on developing a shopping environment to make itself more appealing to higher income consumers. However, Kmart and BlueLight’s potential advantage could have come from exclusive merchandising arrangements, such as with the Martha Stewart product line and others (Gaffney, 2002). By building an image of a provider of high quality home furnishing merchandise, Bluelight.
com could have been able to develop a loyal customer base, which could have been a source of sustainable competitive advantage.Q4: What strategies should the Internet company take?Strategies that Bluelight.com can take include providing a direct link to its Martha Stewart department at its homepage, and make shopping in this department an easy and pleasant experience. To establish an image as a discount retailer with unique product offerings, Kmart and Bluelight also can launch cross-channel advertising campaigns to make consumers more aware of their exclusive merchandise.
In addition, to improve the stickiness of the Web site, BlueLight can also provide helpful tips for home decoration such as “Martha Stewart Tip of the Day”, which can also help the company to promote its product lines.Q5: How should the Internet firm’s implementation and outcome be evaluated?Gallanis (2000) reported that there were five key elements in BlueLight’s strategic plan:· To build a customer base.At its inception, BlueLight provided free Internet services with the strategy to introduce its online site to its 30 million weekly bricks-and-mortar shoppers. Even though the service now is no longer free for unlimited Internet access, the company managed to sign up more than two million users in the process, rapidly establishing an installed base.
· To provide an easy to use Web site with a variety of products.Following its official launch in Fall 2000, BlueLight redesigned its Web site in April 2001 to provide its customers with an easy-to-navigate interface, an enriched selection of products, and a variety of shopping assistance functions (Bluelight.com, 2001c).· To integrate its online and offline operations.
In addition to putting its weekly circulars online and allowing its customers to return unwanted online purchases to its physical stores, Kmart installed online shopping kiosks in those locations to create synergies with the two channels (Bluelight.com, 2001a). This way, shoppers could place online orders for products that were not available in store. In addition, even though it was initially launched as a spin off of Kmart, BlueLight was brought back in-house at Kmart in July 2001 (Prior, 2001).
· To develop brand loyalty programs.Using its “BlueLight Specials” in both channels, Kmart rewards its frequent shoppers with lower prices (BlueLight.com, 2001b). In late August 2001, the company also started migrating toward an everyday-low-price model, following its rival Wal-Mart.
The firms called this scheme “BlueLight Always” pricing (Howell, 2001).· To establish strategic partnerships.Currently, BlueLight relies on Kmart for its merchandising, marketing and procurement (InfoWorld, 2001). Meanwhile, it has chosen to outsource substantially all of its technology, fulfillment and customer service functions through third-party providers.
In 2000, BlueLight selected SubmitOrder.com (www.submitorder.com), to handle a range of its fulfillment-related services, including pick, pack and ship distribution services, customer service responses, and mail-in returns.
However, in August 2001, it decided to switch vendors and transitioned to an e-infrastructure services partnership with Global Sports (www.globalsports.com) (Preston, 2001).Now when we examine the strategies that BlueLight has employed, we see that even though they were intended to provide the firm with a competitive edge, there were few elements that made for sustainable advantage.
For example, BlueLight’s easy-to-use Web site and broad product selection are two strategic necessities for competition; they have not been sufficient to give BlueLight a competitive edge over its primary rivals, WalMart and Target, however. The synergy between the bricks-and-mortar channel and online stores could provide the company with a competitive advantage over pure-play online discount retailers, but not over Wal-Mart and Target, who also have had very strong offline presences. Instead, these strategies only provided the necessary conditions for BlueLight to compete in the digital marketplace.To become a “great” online shopping site, BlueLight had to turn to other strategies that are sources of sustainable competitive advantage.
A loyal customer base is one such example. By motivating its bricks-and-mortar shoppers to go online and by developing brand loyalty programs, BlueLight might have been able to enjoy a steady source of revenue from its repeat customers. In addition, the expansion of the Martha Stewart Everyday and the Disney stores at BlueLight.com (BlueLight.
com, 2001c) had the potential to help the company to build a loyal customer base and differentiate itself from Wal-Mart and Target. Recent events have overtaken BlueLight’s efforts to morph, however. Its parent, Kmart filed for Chapter 11 bankruptcy protection on 22 January 2002, and is currently undergoing a major business reorganization.Learning From the Morphing Strategies of Internet CompaniesIn the previous sections, we discussed the morphing strategies that Internet companies employ to achieve a better strategic fit with their highly competitive marketplaces.
We also proposed a process analysis which can be used to evaluate these strategies. In this section, we offer our thoughts on the likelihood that these strategies will improve an Internet company’s position in the competitive landscape.During the early days of market hype around Internet firms, when financial capital could be easily extracted from the capital market, many entrepreneurs viewed the Digital Economy as a revolution and equated innovative ideas that were surfacing around new applications of IT with the potential for future success. With goals of growing scale size as quickly as possible and capturing a significant market share, many of these firms expanded without a sound game plan and made fraught-with-risk attempts to achieve a critical mass by pricing below their costs.
We now know, of course, that most Internet companies were unable to sustain their operational growth and fast-burn cash consumption. Many turned to employ some of the morphing strategies we discussed earlier to improve their survivability. But, are these strategies likely to work out for them in the long run? Does strategic morphing change the overall likelihood of survival? If this is not the case generally, then what about in specific instances and with specific kinds of business model changes? Unfortunately, the answers are not so straightforward.As Mahadevan (2000) pointed out, there are three elements to a business model: the value stream, the revenue stream, and the logistical stream.
The value stream is the firm’s value propositions to its customers. The revenue stream refers to the firm’s source of income. The logistical stream emphasizes the channel management and product and services distribution aspects, and where the firm places itself along the supply chain. It is helpful to use an example to understand the relevance of these elements, as we think about the efficacy of business model changes.
Covisint: The Automotive Industry E-Procurement SpecialistWe consider an Internet-based intermediary in B2B e-commerce, the automotive manufacturers’ e-market, Covisint (www.covisint.com), as an example. Covisint’s core value propositions for buyers include reduced search costs, possibly reduced prices due to aggregated demand in a single market, and an ability to control the general workings of the marketplace.
Sellers, meanwhile, benefit from being hooked up in the focal market for automotive manufacturers’ purchases, and also can take advantage of reduced search and operational costs, since interorganizational information systems standards are set for the marketplace. Its revenue stream as a captive, but third-party electronic markets operator materializes from the exchange of supply information and the demand for transactions services from buyers and suppliers. There probably is a high willingness-to-pay among participants for Covisint’s services, since it aims to streamline supply chain operations beyond what was available before. The logistical stream in this context emphasizes the manner in which trade settlements and economic exchange are finalized, so that the appropriate goods are available for use in manufacturing operations where they are demanded.
Among the three streams, Mahadevan argued that value stream is the most important and it is crucial to a firm’s long-term survivability. The reason is that a firm is only able to survive if it delivers value to its customers. Porter’s (1985, 2001) theory of sustainable competitive advantage further informs us that a firm has to deliver unique value to its customers to survive, and companies doing business on the Internet are no exception. As a result, in trying to predict the efficacy of Internet companies’ morphing strategies, we argue that the company has to have a value stream, i.
e., a unique value proposition. Otherwise, no matter what strategies the company embarks on, it is not far away from failure. This appears to the case with Covisint, and other similar intra-industry e-markets that are built by a coalition of major firms in an industry that could not construct solutions of similar quality by themselves.
Flooz.com: Electronic Money for Affinity Marketing and Corporate Rewards ProgramsAnother interesting example that we have tracked is Flooz.com (www.flooz.
com, now in bankruptcy), which has not enjoyed as much success as Covisint. Flooz.com started as a B2C online currency site. Bringing electronic money solutions to the Internet has proven to be a difficult business, as industry startups such as E-Cash Technologies (www.
ecash.com, and the now-failed Digicash), iPin (www.ipin.com), Digital Equipment Corporation and Compaq Computer Corporation’s Millicent (www.
millicent.com) have shown. In Flooz.com’s case, consumers could purchase “Flooz dollars,” a form of electronic currency, and spend it at specific stores in a network of connected firms.
The company’s initial plan was to facilitate the use of Flooz dollars for gift giving. Even though Flooz.com kept working towards building Flooz dollars’ acceptability at Internet stores, signing up online stores to accept proved to be difficult. At the height of the firm’s presence on the Internet, Flooz.
com’s currency could be used at about 60 online stores, many of which were sites with relatively less traffic that were themselves looking for way to built a following. As a result, a consumer had a limited set of choices when she wanted to spend her Flooz dollars.After experiencing difficulties in the consumer market, Flooz.com chose to morph its e-commerce strategy, turning to the corporate rewards market, thus moving upstream from B2C to B2C2B.
A closer examination of Flooz.com’s business model reveals that the company failed to provide a unique value proposition to customers on the corporate side. That marketplace, already crowded with brand-name corporate affinity marketing service providers, was no easier to compete in. As a result, it became clear that Flooz.
com failed to offer a unique value proposition in any viable marketplace. The limited acceptance of the Flooz currency unrealistically constrained its value to consumers and other companies using Flooz as employee appreciation rewards. In addition, the cumbersome task of integrating Flooz as a method of payment and the commission Flooz.com charged also reduced online stores’ incentives for accepting Flooz at their sites.
With other forms of currency available, Flooz.com was not able to make additional headway, and filed for bankruptcy in August 2001 (Flooz.com, 2001). See Figure 5.
Figure 5: A Dead-End Morph: Flooz.com’s Recent “New” Home Page on the Internet Final Thoughts: On the Efficacy of Morphing StrategiesHow likely is it that morphing strategies will work out for Internet companies that do deliver some sort of unique value? Under the current conditions of economic slowdown, strategies that help New Economy firms to improve their core businesses are the most likely to pay off. This is typically the case for traditional firms in times of recession. Thus, the focus will need to be on profitability and return on investments, instead of growth and critical mass as before.
In fact, among the many Internet companies that have yet to achieve critical mass in the marketplace, probably those that focus on niche markets are most likely to benefit from strategies that help the companies to redefine their core business, reduce the number of their total product or service offerings, and focus on their operational support. These strategies will help Internet firms to sharpen their value propositions and improve profitability. Once they begin to achieve profitability, Internet companies can try out other strategies that involve expansion. But unlike before, the market will force them to do so with more of a blueprint.
For the market leaders, product and service expansion strategies are likely to be more viable. However, we still recommend caution in executing these plans since they are often expensive and risky, and senior management can exert little control over changes in the economy that would lead to more favorable conditions for profitability.Finally, we want to point out the importance of time as a key aspect of whether morphing strategies will succeed or fail. As we pointed out earlier, many of the companies that we have reviewed did not have the luxury of time to see their strategies mature.
The market simply was changing too fast around them to afford them the time to see whether some of the original strategies they selected and other strategies they chose along the way that didn’t work out as planned (e.g., BlueLight.com) could have worked given enough time.
ConclusionsIn this research, we conducted case studies of 125 Internet companies and categorized their strategic moves. Even though market expansion strategies, such as expanding product offerings and penetrating into the bricks-and-mortar world, are present in the strategic moves taken by the Internet companies in our sample, the general trend is a change in the generic characteristics that relate to the bottom line. The new emphasis is business profitability and ROI. No longer do we see any “blind” market expansion strategies similar to what we observed prior to the tech stock value shift in the stock market in March 2000.
With the market turndown, shifting demand in the economy, and ever more difficult access to the capital markets, the Internet-focused firms have had to slow down their “cash burn” rates and focus on the long-term survivability of their businesses. In evaluating their strategic mutations, we have emphasized the critical role of obtaining sustainable competitive advantage. An Internet company should focus its efforts on strategies that it can use to distinguish itself from its competitors, such as delivering unique value to its customers and building a loyal customer base.The contributions of our research are twofold.
First, based on our results, academic researchers can better understand the different strategies Internet companies have taken to adapt to fiercer market competition and the economic slowdown. Second, business professionals, especially Internet firm executives, can use our process analysis to both externally evaluate and internally identify directions for strategic mutation and the strategies that can be employedAbout the AuthorsRobert J. Kauffman is Co-Director, MIS Research Center, and Professor and Chairman of the Department of Information and Decision Sciences at the Carlson School of Management, University of Minnesota. His doctorate is from Carnegie Mellon University, and he has held faculty positions at New York University and the University of Rochester.
His research interests center on senior management issues in IS, organizational strategy and technology, e-commerce, and IT in various services industry contexts. His articles on IS and e-commerce issues have appeared in leading academic journals, and he was recognized four times recently with best-of-conference awards (WITS 1999, AMCIS 2000, ICIS 2000) for his work on strategic pricing in e-commerce and IT infrastructure investment decisionmaking.E-mail: [email protected]
eduTim Miller is president of Webmergers.com, a hub for buyers and sellers of technology properties. Webmergers.com provides information, analysis and buyer-seller matching services for acquirers and sellers of Web properties and maintains a database of more than 3,000 technology M&A transactions.
Prior to establishing Webmergers in 1999, Tim Miller spent five years as President of New Media Resources, a consulting firm to interactive media startups. Before starting New Media Resources, Miller spent five years in corporate development at Ziff Communications Co., assisting senior management in acquisitions research, strategic planning and development of online products. Before that, Miller studied interactive services in a fellowship at the Gannett Center for Media Studies at the Columbia University in New York.
Miller has written a number of articles on interactive media, serves on the program committee of the MIT/Stanford Venture Laboratory and has chaired several national conferences on Internet M&A topics.E-mail: [email protected] Wang is a third year doctoral student in Information and Decision Sciences at the Carlson School of Management of the University of Minnesota. She has a Master of Science in Retail Management from Purdue University, and is a past graduate of Renmin University in Beijing, China.
Her research interests focus on electronic commerce, the analysis of electronic marketplaces and the new business models of the Internet, and the applications of theory and methods from marketing science and economics. Her empirical study of the performance of MobShop.com’s group-buying mechanism was recognized as “best paper” in the Economics and Electronic Commerce Mini-Track at the Hawaii International Conference on Systems Science in Maui, Hawaii in January 2001. Her work also has appeared in the Journal of Management Information Systems.
Her most recent publication is “Bid Together, Buy Together: On the Efficacy of Group-Buying Models in Internet-Based Selling,” In: P.B. Lowry, J.O.
Cherrington, and R.R. Watson (editors). Handbook of Electronic Commerce in Business and Society.
Boca Raton, Fla.: CRC Press, 2002.E-mail: [email protected]
edu AcknowledgmentsWe would like to thank Hui Peng, Eric Walden and the corporate participants of the MIS Research Center Seminar for their helpful comments and suggestions on prior versions of this paper. The involvement and support of Webmergers.com has also been an important asset to this work, for which the University of Minnesota authors are grateful to have obtained.Please direct comments about this paper to [email protected]
umn.edu. Notes1. For details of the many IPO deals that have been offered in the past few years, we refer the interested reader to VentureReporter.
net at www.venturereporter.net.2.
By the same token, this is made all the harder in a very “green” market. Consider the case of digital entertainment companies that faced such a market for their products. They ran into difficulties because broadband telecommunication capabilities failed to materialize in the marketplace. Thus, we view this as an issue of timing: both market timing and the amount of time the company has to meaningfully penetrate its marketplace before running out of cash.
3. Total firm count exceeds 125 and percentages sum to more than 100 percent because some companies deployed multiple strategies, and hence, are counted two or more times.4. Some companies deployed multiple strategies; as a result, five were counted in both the B2B and B2C categories.
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