Wednesday, February 14, 2007

The need for a strategic approach

Qualitative opinion-significant inputs-Pradosh

What do you do when you have a commanding market share and everything you touch turns into gold? How do you approach such a situation? As organizations span borders and reach the size of small countries, they would be well aware to look at threats from all possible examples.

A look at the US automobiles industry: The Detroit big 3 had close to 85% of the market share and believed that they would control the market forever. They built large capacities got into all sorts of contracts with their employees, and behaved.. like well errr large organizations-with the mentality that the market is right. The Japanese came (using Pradosh's direct anology) and started competing. The Japs started with a handicap and consumers stayed wiht the big 3 because the news players were unreliable. Slowly, the new players gained traction and critical mass and within the next 15 years the big 3 had a market share of about 65%. Should the lessons have been learned by this time? Apparently they had not been. The us players began to move to SUVs, the symbol of the american consumerist, a fuel guzzing larger than life, high margin high growth segment. All these time the Japanese began to use their better organizational techniques (JIT, lean manufacturing and jazz) and used resources efficiently, moving slightly ahead on the race because they built fuel efficient cars which did well.

The americans were at their wits end. They had huge capacities, and produced like crazy. To sell they used all sorts of schemes(ya apparently free gasoline :D and patriotism) and there were the SUV's. With secular price rise in oil, that segment too was hit. And then the melt begins. These organizations have no option but to close down operations (most of it overcapacity), meaning large one time costs. They would also need to significantly copy the japs in processes (but as motley fool points out, that would not give them a competitive advantage would it ? ) and get in new designs ( from where tho', but GM is revamping 85% of their product line). But still it begs the question, what was the management doing.

The first thing you learnt in those mind numbing strat courses was to analyze competition. I used to love that resource based model. To identify the primary resource as a key driver for the success and potential competition: once that resource becomes a commodity, the faster and leaner will win. Should see how the japs themselves respond in future if threatened. But if the really really big guys ( walmart type) do not look out from everyone, they will become a dead man's stock. Poor stock analysts. boo hoo. The key is to prepare for possible changes in environment. The cliche still works: Change or perish.

Me and pradosh will mount a bid for Ford ( much sexier name than GM or chrsyler). :D

1 comment:

Pradosh said...

OK .. thought this should be an interesting end to the story.
When Toyota/Honda first appeared in the US market around 1968, they were laughed at for being toy cars. Ofcourse the japs being smart,copied the best from the Americans and then used their ingenuity to better them and make them cheaper.
The results are there for everybody to see.

When the Koreans came into the US market 6-7 years ago, everyone laughed at their cars - calling them cheap copies of old Japanese cars.

In 2006,Hyundai and Kia together already command 4.6% of the US market (Honda has 9.1%, Toyota 15.4%)

Any thoughts anybody :) ?