Preface
3. Matthew S. Olson, Derek van Bever, and Seth Verry, “When Growth Stalls,” Harvard Business Review, March 2008.
1. The Origins of Modern Business Strategy Thinking
1. Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review 57, 2 (March–April 1979): 137–145.
2. Martin Reeves, Sandy Moose, and Thijs Venema, “BCG Classics Revisited: The Growth Share Matrix,” BCG Perspectives, June 4, 2014.
3. Buffett made this observation in 1989. See Carol J. Loomis, “The Wit and Wisdom of Warren Buffett,” Fortune Magazine, November 19, 2012.
4. Lee Dranikoff, Tim Koller, and Antoon Schneider, “Divestiture: Strategy’s Missing Link,” Harvard Business Review, May, 2002.
5. Jack Welch was CEO of GE from 1981 to 2001. See “There’s Just One Word For Jack Welch,” Knowledge@Wharton, September 13, 2001.
6. Since Welch’s retirement in 2001, GE’s market capitalization has declined by more than 40 percent. Whether the company’s declining valuation reflects weak performance by Welch’s successor or that GE’s historical success was built on risky, overleveraged forays into financial services is open to debate. Under any circumstances, there is no question that Welch aggressively reconfigured GE’s business portfolio during his tenure as CEO.
9. Extracted from the following Jim Collins books: Built to Last (New York: HarperCollins, 1994) and Good to Great (New York: HarperCollins, 2011).
10. Jim Collins acknowledges that based on his research, he cannot claim a definitive causal relationship because the rigorous experiments required to establish true causality simply do not exist in the real world of management. Rather, he asserts that “the variables we identify in our research are correlated with the performance patterns we study, and we cannot claim a definitive causal relationship.” But as noted in this chapter, strong “halo effects” associated with his data render his results more tautological than correlative, and therefore have questionable value. For a more complete description of Collins’s research methods, see http://www.jimcollins.com/books/research.html.
11. An excellent explanation of this phenomenon is described in IMD professor Phil Rosenzweig’s The Halo Effect…and Eight Other Business Delusions That Deceive Managers by IMD professor Phil Rosenzweig, (New York: Free Press, 2009). Also, the halo effect is more broadly discussed in behavioral economics terms in Daniel Kahneman’s Thinking, Fast and Slow, (New York: Farrar, Straus, and Giroux, 2011).
12. Michael V. Copeland, “Reed Hastings: Leader of the Pack,” Fortune Magazine, November 18, 2010.
13. For an example of subsequent criticism, see Dave Smith, “Netflix Earnings Release: Why Reed Hastings Needs to Go,” International Business Times, “October 24, 2011.
14. Adam Lashinsky, “How Tim Cook Is Changing Apple,” Fortune, May 24, 2012.
15. Al Gore, “The World’s 100 Most Influential People,” Time, 2012.
16. Nick Bilton, “Disruptions: Will Apple Be the First to Break $1 Trillion?” New York Times, September 23, 2012.
17. Ian Sherr and Evan Ramstad, “Has Apple Lost Its Cool to Samsung,” Wall Street Journal, January 13, 2013.
19. An excellent analysis of the analytical flaws in Collins’s books is covered by Michael E. Raynor, Mumtaz Ahmed, and Andrew D. Henderson, “Are ‘Great’ Companies Just Lucky,” Harvard Business Review, April 2009.
21. James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 1994), and James C. Collins and William C. Lazier, Beyond Entrepreneurship: Turning Your Business into an Enduring Great Company (Paramus, NJ: Prentice Hall, 1995).
22. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston, MA: Harvard Business School Press, 1997).
23. The term “sustaining technology improvement” in Christensen’s book refers to the continuous improvement all companies make to their core products over time. For example, each new generation of personal computer has a faster processor, more storage, and a higher resolution screen. At some point, the state-of-the-art PC becomes more than good enough for most consumers, opening opportunities for disruptive newcomers to find more cost-effective products to satisfy the needs of overserved customers.
24. The term “creative destruction” was first popularized by Austrian economist Joseph Schumpeter in the 1940s. The term refers to the process of industrial transformation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. Christensen recognizes that the forces underlying his disruptive technology theory have been present for centuries. His theory attempts to explain why such forces are so pervasive and inevitable.
25. In his original book, The Innovator’s Dilemma, Christensen focused primarily on explaining his theory of disruptive technology, drawing on a wide range of industry examples. But he offered little advice on how incumbent companies could avoid becoming victims of disruption. His next book, The Innovator’s Solution, co-authored with Michael Raynor in 2003, showed how businesses can effectively disrupt themselves to sustain long-term growth. Christensen then co-authored Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change with Scott Anthony and Erik Roth in 2004 to predict how disruptive changes might impact the future development of several dynamic industries, including education, aviation, telecommunication, semiconductors, and health care. Christensen also applied his framework to explain the dynamic growth or stagnation of national economies as discussed in Clayton M. Christensen, Thomas Craig, and Stuart Hart, “The Great Disruption,” Foreign Affairs, March/April 2001.
26. Thinkers50 has been dubbed the Oscars of management thinking, recognizing the most influential contribution to business theory every two years. Clayton Christensen earned the top award in 2011 and 2013. See http://www.thinkers50.com.
31. Larry Downes and Paul Nunes, Big Bang Disruption: Strategy in the Age of Devastating Innovation (New York: Portfolio, 2014).
33. Downes and Nunes, Big Bang Disruption.
34. Rita Gunther McGrath, The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business (Boston, MA: Harvard Business School Press, 2013).
35. Youngme Moon, Different: Escaping the Competitive Herd (New York: Crown Business, 2010).
38. W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy (Boston, MA: Harvard Business School Press, 2005).
39. John R. Graham, Campbell R. Harvey, and Shiva Rajgopal, “The Economic Implications of Corporate Financial Reporting,” National Bureau of Economic Research, Working Paper 10550, June 2004, http://www.nber.org/papers/w10550.
40. Phil McKinney, former chief technology officer of Hewlett-Packard, observed that a high percentage of new project ventures in large corporations are terminated after eighteen months. McKinney’s “Rule of Eighteen Months” posits that a new venture typically starts halfway through a fiscal year with funding cobbled together from existing budgets, based on high, and likely unrealistic, expectations for project results. When the next full budget cycle comes around, the project is well underway and the funding is all but assured, given that no one expects the project to have any impact—yet. The next funding decision is a different issue. When the second budget cycle comes around, new priorities often crowd out ongoing development efforts, particularly those saddled with unrealistic financial targets. Phil McKinney, “Why Projects are Cancelled for the Wrong Reasons,” Forbes, March 10, 2011, http://www.forbes.com/sites/philmckinney/2011/03/10/why-projects-are-cancelled-for-the-wrong-reasons.
42. Joanna Barsh, Marla M. Capozzi, and Jonathan Davidson, “Leadership and Innovation,” McKinsey Quarterly, January 2008.
45. William Lazonick, “Profits Without Prosperity,” Harvard Business Review, September 2014.
47. Booz Allen Hamilton has gone through two metamorphoses since my employment there. In 2008, the corporate consulting group was spun off from the government consulting practice under the new name Booz & Company. In 2013, Booz was acquired by PricewaterhouseCoopers, taking on the new name Strategy&.
48. C. K. Prahalad and Gary Hamel, Competing for the Future (Boston, MA: Harvard Business School Press, 1994).
49. Another strong proponent of capabilities-driven strategy was advocated by Paul Leinwand and Cesare R. Mainardi, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Boston, MA: Harvard Business Review Press, 2010).
50. Chris Zook and James Allen, Profit from the Core: A Return to Growth in Turbulent Times (Boston, MA: Harvard Business School Press, 2001), and Chris Zook, Beyond the Core: Expand Your Market Without Abandoning Your Roots (Boston, MA: Harvard Business School Press, 2003).
51. George S. Day and Christine Moorman, Strategy from the Outside In: Profiting from Customer Value (New York: McGraw-Hill, 2010).
52. James Womack and Daniel Jones, The Machine That Changed the World (New York: Free Press, 1990).
53. W. Edwards Deming, Out of the Crisis (Cambridge, MA: MIT Press, 1986).
54. Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done (New York: Crown Business, 2002).
55. Bossidy and Charan, Execution.
56. Casella Family Brands in New South Wales, Australia, and Deutsch Family Wine & Spirits in White Plains, New York, co-launched Yellow Tail wine in the U.S., which will be the focus of chapter 2.
2. There’s No Such Thing as a Bad Industry
1. Merrill Research & Associates, Wine Trends and Market Analysis.
2. Market research has shown that wine consumers are far more likely to shop for a wine varietal (e.g., merlot or chardonnay) than a country of origin. Imagine how odd it would be to shop for a television in a store that had separate display areas for televisions from Korea, Japan, and the United States, rather than aggregating all televisions by size or price class.
4. Quote from James T. Lapsley, a winemaker, author, and member of the faculty of University of California, Davis Viticulture and Enology Department. Quote cited in W. Chan Kim, Renée Mauborgne, Jason Hunter, Brian Marks, and Wayne Mortensen, “Crafting Winning Strategies in a Mature Market: The US Wine Industry in 2001,” Harvard Business Review, July 2009.
5. Unless otherwise indicated, quotes attributed to Bill Deutsch in this chapter are taken from conversations with the author.
6. Frank J. Prial, “The Wallaby That Roared Across the Wine Industry,” New York Times, April 23, 2006.
7. Quoted verbatim from bottles of Château de Fontenille, Grand Vin de Bordeaux (2005), Château D’Arcins, Haut Medoc (2006), and Yellow Tail Shiraz (2001).
8. Kim et al., “Crafting Winning Strategies.”
9. Frank J. Prial, “The Wallaby That Roared Across the Wine Industry,” New York Times, April 23, 2006.
10. It’s important to note that the notion of wine being a product for everyday, casual consumption as opposed to a beverage reserved for special occasions is not at all unusual elsewhere. Yellow Tail achieved its most notable meaningful differentiation in the United States. Although Casella Family Brands exports Yellow Tail wine throughout Europe, Asia, and South America, the United States accounts for twice the consumption of the rest of the world combined.
11. AC Nielson, Yellow Tail Impact Study, 2004.
12. Prial, “The Wallaby That Roared Across the Wine Industry.”
15. Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review, January 2008. Figure 2.5 depicts a subset of the industries shown in the analysis presented in the article.
16. For example, in surveys conducted by Glassdoor on employee satisfaction across all industries, Southwest ranked numbers 1 and 2 in 2010 and 2011 respectively. Southwest has also been consistently at or near the top of airline customer satisfaction rankings, based on research conducted by ACSI and J. D. Power & Associates.
17. Pat Cataldo, “Focusing on Employee Engagement: How to Measure It and Improve It,” UNC Kenan Flagler Business School, 2011.
19. Total shareholder return is the percentage increase in stock price appreciation including reinvested dividends achieved over a specified time period.
20. Evan Hirsh and Kasturi Rangan, “The Grass Isn’t Greener,” Harvard Business Review, January–February 2013.
22. J. L. Pfeiffer, “Their Careers Hint at Where Not to Go: A Tip from Harvard MBAs,” New York Times, January 29, 1994.
24. “Banks? No thanks!” The Economist, October 11, 2013.
25. Barefoot Cellars was founded in 1986 by industry newcomers Michael Houlihan and Bonnie Harvey. Long before Yellow Tail hit U.S. shores, Houlihan and Harvey had the idea that it was time for a wine that didn’t take itself too seriously. They chose the name Barefoot because it was easy to pronounce and used the foot imprint of one of their founders as the brand logo. They initially ran the company out of their home on a shoestring budget, relying heavily on word-of-mouth referrals and “cause marketing” (trading wine supplied to non-profit organizations at fund-raising events for free publicity) to gain consumer awareness. After twenty years of operation, Barefoot was selling about five hundred thousand cases, primarily in the western United States. Since being acquired by Gallo in 2005, Barefoot sales have grown to over ten million cases nationally. See Michael Houlihan and Bonnie Harvey, “The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand,” Evolve, 2013.
26. Data provided by Deutsch Family Wines & Spirits.
27. Data provided by Deutsch Family Wines & Spirits.
29. Southwest’s average pilot wage in 2013 was 66 percent higher than the industry average. Nonetheless, by operating at high productivity levels, Southwest is able to serve 72 percent more passengers per flight crew than the U.S. airline average. After adjusting Southwest’s costs for stage-length differences, as shown in figure 2.11 Southwest maintains a considerable (33 percent) cost advantage over larger legacy airline rivals on an adjusted cost per available seat mile basis.
3. Why Are We in Business?
1. Michael Jensen and William Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3, 4 (October 1976): 305–360. By the end of 2014, this article had been cited in almost forty-six thousand academic articles.
2. Friedman was the head of the Economics Department at the University of Chicago and won the Nobel Prize for Economics in 1976. He has been described by the Economist as the “most influential economist of the second half of the twentieth century…possibly all of it.”
3. Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times, September 13, 1970.
4. “The Jack Welch MBA,” Economist, June 23, 2009.
5. Geoffrey Colvin, “The Ultimate Manager,” Fortune, November 22, 1999.
6. Francesco Guerrera, “Welch Condemns Share Price Focus,” Financial Times, March 12, 2009.
7. Jack Welch and John A. Byrne, Jack: Straight from the Gut (Business Plus, 2001), 224–225.
8. Roger Martin, “The Age of Customer Capitalism,” Harvard Business Review, January–February 2010.
9. Clayton M. Christensen, “Are Investors Bad for Business,” Harvard Business Review, June, 2014. Christensen’s primary concern is with the inappropriate financial metrics used by many senior executives in managing the business with an overly short-term focus. His views are strongly related to but not specifically directed at MSV doctrine per se.
10. William Lazonick, “Profits Without Prosperity,” Harvard Business Review, September, 2014.
12. Caroline Fairchild, “Starbucks CEO Howard Schultz: ‘Profitability Is a Shallow Goal,’” Huffington Post, June 28, 2013. Schultz’s primary concern is with the need for broader societal objectives, beyond MSV, in managing the enterprise.
13. Martin Wolf, “Opportunist Shareholders Must Embrace Commitment,” Financial Times, August 26, 2014.
14. Steve Denning, “The Dumbest Idea in the World: Maximizing Shareholder Value,” Forbes, November 28, 2011.
15. Wolf, “Opportunist Shareholders.”
16. William Lazonick pointed out that companies have generally timed their stock purchases poorly (Lazonick, “Profits Without Prosperity”). Stock buyback activity tends to be highest when a company’s stock price is high and lowest when its stock price is depressed. This pattern contradicts a commonly cited rationale for stock buybacks as occurring when a company believes its stock is undervalued.
17. Eric Olsen, Frank Plaschke, and Daniel Stelter, “Avoiding the Cash Trap: The Challenge of Value Creation When Profits Are High,” BCG Perspectives, September 2007.
18. Olsen et al., “Avoiding the Cash Trap.” In the referenced study, BCG found that investors preferred that companies seeking to return profits to shareholders do so in the form of dividends rather than share buybacks.
19. Clayton M. Christensen and Derek van Bever, “The Capitalist’s Dilemma,” Harvard Business Review, June 2014.
21. Alyssa Davis and Lawrence Mishel, “CEO Pay Continues to Rise as Typical Workers Are Paid Less,” Economic Policy Institute, June 12, 2014.
22. Lazonick, “Profits Without Prosperity.”
23. Peter F. Drucker, The Practice of Management (HarperBusiness, 2006). Originally published in 1954.
24. Telis Demos, “Alibaba IPO Biggest in History as Bankers Exercise ‘Green Shoe’ Option,” Wall Street Journal, September 21, 2014.
25. Ryan Mac, “As Alibaba’s IPO Approaches, Founder Jack Ma Pens Letter to Potential Investors,” Forbes, September 5, 2014.
26. Bezos, “Letter to Shareholders.”
27. Through the end of 2015, Amazon has executed only four share repurchases, amounting in aggregate to approximately 3 percent of its float. These targeted share repurchases, executed during periods of low stock-market valuations, have delivered triple-digit returns to shareholders, based on subsequent stock price movements. See J. Allen Capital Management, Investor Newsletter, October 14, 2014, http://jallencapitalmanagement.com/posts/amzn-amazons-share-repurchases.html.
28. Matthew Yglesias, “Amazon Profits Fall 45 Percent, Still the Most Amazing Company in the World,” Slate, January 29, 2013.
31. “The Institutional Yes: An Interview with Jeff Bezos,” Harvard Business Review, October 1, 2007.
33. Denning, “The Dumbest Idea in the World.”
34. Ed Wallace, “When GM First Messed Up,” Bloomberg Businessweek, June 4, 2009.
35. Mike Spector and Christopher M. Matthews, “U.S. Charges GM with Wire Fraud, Concealing Facts on Ignition Switch,” Wall Street Journal, September 17, 2015.
36. Rachel Abrams, “Lumber Liquidators Chief Robert Lynch Resigns,” New York Times, May 21, 2015.
39. Howard Schultz and Joanne Gordon, Onward: How Starbucks Fought for Its Life Without Losing Its Soul (Rodale Books, 2011), 273–274.
40. John H. Ostdick, “Rekindling the Heart and Soul of Starbucks,” Success, March 6, 2011.
41. Nancy F. Koehn, Kelly McNamara, Nora N. Khan, and Elizabeth Legris, “Starbucks Coffee Company: Transformation and Renewal,” Harvard Business School Publishing, Case 9-314-068, June 2, 2014.
42. Drucker, The Practice of Management.
43. “Benchmarks by Industry,” American Customer Satisfaction Index, accessed [June 1, 2016], http://www.theacsi.org/index.php?option=com_content&view=article&id=148&Itemid=213. The two industries at the very bottom of the American Customer Satisfaction Index are (cable) subscription television services and Internet service providers. Most customers of companies in these industries would gladly and instantly switch providers if and when a viable alternative emerges.
4. The Search for the Holy Grail of Business: Long-Term Profitable Growth
1. A company’s market valuation at any given time reflects the discounted value of expected future cash flows, not profits or margins per se. But cash flows are derived from a company’s revenues and profit margins, which in turn are directly influenced by management action throughout the enterprise. The point of this section is to decompose the drivers of shareholder value into specific management actions that individually and collectively affect shareholder value.
2. Peter F. Drucker, The Practice of Management (New York: HarperBusiness, 2006). Originally published in 1954.
3. Comments by Rob Maruster, chief operating officer of JetBlue, at the employee orientation session, August 28, 2013.
6. This definition is somewhat simplified for clarity. Other factors added in the calculation of enterprise value are the equity value of preferred shareholders and minority interests, while cash equivalents (e.g., accounts receivable) are usually subtracted along with cash.
7. Free cash flow is defined as a company’s cash from operating activities net of capital expenditures required to sustain current operations. For ease of calculation, free cash flow is often computed by netting total capital expenditures from operating cash flow.
8. Jason D. Schloetzer, Matteo Tonello, and Melissa Aguilar, “CEO Succession Practices: 2014,” The Conference Board, Report Number:TCB_R-1544-14-R, April 9, 2014.
9. Matthew S. Olson, Derek van Bever, and Seth Verry, “When Growth Stalls,” Harvard Business Review, March 2008. The CEB study focused on revenue rather than profit or earnings growth. The authors note that no company can sustain profitless growth over the long term, so focusing on topline performance is a reliable indicator of long-term business performance.
10. To be more specific, the CEB study established three criteria to define a stall. First, real revenue growth in the prior decade had to be at least 2 percent. Second, real growth after the stall had to be less than 6 percent. That is, companies who continue to enjoy greater than 6 percent real revenue growth are not considered to have stalled, even if prior decade growth was in double digits. And finally, the difference in revenue growth in the decade before and after the stall had to be at least 4 percent.
13. Malcolm Gladwell, David and Goliath: Underdogs, Misfits and the Art of Battling Giants (Boston: Little, Brown, 2013).
15. Paul Ingrassia, Crash Course: The American Automobile Industry’s Road to Bankruptcy and Bailout—and Beyond (New York: Random House, 2011).
16. Jerry Kim and Bruce Kogut, “General Motors 2.0: What Happened? What’s Next?” Columbia Business School Caseworks, 2010.
18. Paul Krugman, “On the Symmetry Between Microsoft and Apple,” New York Times, August 24, 2013.
19. Cromwell Schubarth, “Disruption Guru Christensen: Apple, Tesla, VCs, Academia May Die,” Silicon Valley Business Journal, February 7, 2013.
20. Yukari Iwatani Kane, Haunted Empire: Apple After Steve Jobs (New York: HarperBusiness, 2014).
24. Daisuke Wakabayashi, Eva Dou, and Lorraine Luk, “Can Apple Crack the Smartwatch Code,” Wall Street Journal, June 20, 2014.
26. For 2015 sales estimates, see Paul Lamkin, “Apple Watch Sales Hit 12 Million in 2015,” Wareable, February 9, 2016, www.wareable.com/smartwatches/apple-watch-sales-hit-12-million-in-2015-2279. The Apple Watch revenue estimate in this paragraph generously assumes that Apple sells all watches through its own stores, capturing all retail proceeds as revenue. In fact, Apple is also selling its watches through selected retail partners, reducing the value of its unit sales to wholesale price levels. Julia Love, “Average Apple Watch Sells for $529, at Top End of Estimates,” Reuters, September 30, 2015, www.reuters.com/article/us-apple-watch-idUSKCN0RU1AA20150930#pQd5246hh4K0krKW.99.
28. Lucas Mearian, “Mobile Health Device Market to Grow Eightfold to $42B,” Computerworld, July 2, 2014.
31. Vanessa Friedman, “Reviewing Google’s Smartwatches—The LG G and the Samsung Gear Live,” On the Runway, New York Times, June 26, 2014.
32. Andrew Hoyle, “Samsung Galaxy Gear Review,” CNET, September 27, 2013.
33. Geoffrey A. Fowler, “Apple Pay Review: Easy to Use, but Still Hard to Find,” Wall Street Journal, October 28, 2014.
34. Note that the product life cycle depicted in figure 4.8 displays the typical sales trend for a successful product. Most new product launches fail before hitting the growth phase.
35. Sharon Reier, “Half a Century Later, Economist’s ‘Creative Destruction’ Theory Is Apt for the Internet Age: Schumpeter: The Prophet of Bust and Boom,” New York Times, June 10, 2000.
36. Larry Downes and Paul Nunes, Big Bang Disruption: Strategy in the Age of Devastating Innovation (New York: Portfolio, 2014). See chapter 1 of this book for a description of the dynamics underlying big bang disruptions, which can dramatically shorten product life cycles.
37. Hannah Karp, “Apple iTunes Sees Big Drop in Music Sales,” Wall Street Journal, October 24, 2014.
5. Do You Know What Your Strategy Is?
1. Harvard Business Review Staff, “When CEOs Talk Strategy, Is Anyone Listening?” Harvard Business Review, June 2013.
2. Dominic Barton and Mark Wiseman, “Where Boards Fall Short,” Harvard Business Review, January, 2015.
4. Comments by Brian Roberts, Comcast CEO in the Q3 2014 Comcast earnings call.
6. Kim Wagner, Eugene Foo, Hadi Zablit, and Andrew Taylor, “The Most Innovative Companies 2013: Lessons from Leaders,” BCG Perspectives, September 26, 2013.
7. Joanna Barsh, Marla M. Capozzi, and Jonathan Davidson, “Leadership and Innovation,” McKinsey Quarterly, January 2008.
9. Jeff Bercovici, “Rewriting the Definition of Success, Twitter Gets Eccentric,” Forbes, October 27, 2014. Of the three eccentric circles, one circle was meant to represent core users of the social-media service; another denoted those who visited the site but didn’t log in; and the third circle was for people who saw Twitter content embedded on other sites.
10. Yoree Koh and Kirstin Grind, “Twitter CEO Dick Costolo Struggles to Define Vision,” Wall Street Journal, November 6, 2014.
11. David J. Collis and Michael G. Rukstad, “Can You Say What Your Strategy Is?” Harvard Business Review, April 2008. In this article, the authors propose three components for strategy formulation: scope, advantage, and objective, where the latter specifies financial targets. For the simplified exercise described in this chapter, financial objectives have been omitted from the thirty-five-word strategy statement, but should of course be included in any statement of corporate or business unit strategy.
12. Coors lost its basis of competitive advantage when competitors attacked its market-share leadership in the western United States and Miller led the market shift towards light beers. In response, Coors expanded to national distribution and added new products, which weakened its distinctiveness against stronger competitors, Anheuser-Busch and Miller.
13. Pankaj Ghemawat, “Adolph Coors in the Brewing Industry,” Harvard Business School Publishing, Case 9-388-014, June 23, 1992.
14. In this example, cost to serve is equivalent to operating costs, which include the cost of goods sold, plus the allocated unit costs to attract and retain customers and to invest in product renewal over time.
15. Airline fees are hidden in the sense that it takes a fair amount of digging through an airline website’s fine print to understand all the types and levels of fees charged. On the other hand, when a consumer uses an online booking service like KAYAK or CheapTickets to purchase a ticket, the primary basis of comparison between competing fares is base price, which is boldly displayed, with no distinction between free and fee-based service perks.
18. Orit Gadiesh and James L. Gilbert, “Profit Pools: A Fresh Look at Strategy,” Harvard Business Review, May 1, 1998.
19. Jad Mouawad, “Pushing 40, Southwest Is Still Playing the Rebel, New York Times, November 20, 2010.
20. Luca Ciferra, “BMW Development Chief Diess Says Internal Synergies Key to Premium Strategy,” Automotive News Europe, February 4, 2014.
21. Brad Smith, “Intuit’s CEO on Building a Design-Driven Company, Harvard Business Review, January-February 2015.
22. Willie E. Hopkins, Paul Mallette, and Shirley A. Hopkins, “Proposed Factors Influencing Strategic Inertia/Strategic Renewal in Organizations,” Academy of Strategic Management Journal 12, 2 (2013): 77.
23. Rita Gunther McGrath, The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business, (Harvard Business Review Press, 2013): xi.
24. Stephen Hall, Dan Lovallo, and Reinier Musters, “How to Put Your Money Where Your Strategy Is,” McKinsey Quarterly, March 2012.
25. Richard H. Thaler, Amos Tversky, Daniel Kahneman, and Alan Schwartz, “The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test,” Quarterly Journal of Economics 112, 2 (May 1997): 647–661.
26. Lovallo and Musters, “How to Put Your Money Where Your Strategy Is.”
27. Dynamic capital reallocation need not compromise short-term financial performance. Ideally, in an enterprise with multiple business units, a company can manage its portfolio of new product investments, such that in any given year, the resulting mix of products at varying stages of their life cycle can yield attractive overall financial performance.
28. Dan Lovallo and Olivier Sibony, “The Case for Behavioral Strategy,” McKinsey Quarterly, March 2010.
6. Getting Strategy Right
1. The events recounted here are based on a confidential consulting engagement that I led with Audi. While the account is accurate, respecting corporate and personal confidentiality, I have refrained from identifying the real names of client executives.
2. Unless otherwise noted, Audi of America will be referred to as Audi.
3. In Audi’s vehicles, the accelerator and brake pedals were closer together than in typical American-designed cars, which may have contributed to drivers mistakenly depressing the wrong pedal.
5. Subaru offered the only other AWD car on the market at the time but promoted their version as a utilitarian vehicle for adverse weather, rather than as sporty vehicle intended for everyday high-performance driving.
6. Ian Austen, “In Canada, the Torch Is Passed on a Quiet but Profitable Legacy,” New York Times, July 3, 2006.
7. Michelle Krebs, “Good-Bye Pontiac, Saturn, Saab, Hummer,” Edmunds Auto Observer, April 27, 2009.
9. Brad Stone, “Steve Jobs: The Return, 1997–2011,” Bloomberg Businessweek, October 6, 2011. Jobs was referring not only to the need to streamline Apple’s product line but also to the need to partner with rather than compete against Microsoft.
10. Mark Gottfredson, Steve Schaubert, and Hernan Saenz, “The New Leader’s Guide to Diagnosing the Business,” Harvard Business Review, February 2008.
11. A. G. Lafley, “What Only the CEO Can Do,” Harvard Business Review, May 2009.
12. Brian Christian, “The A/B Test: Inside the Technology That’s Changing the Rules of Business,” Wired, April 25, 2012.
13. SMH—Swiss Corporation for Microelectronics and Watchmaking Industries Ltd.—was renamed Swatch Group in 1998.
7. Creating Strong Brands
5. Thomas Oliver, The Real Coke, the Real Story (New York: Random House, 1986).
6. Robert Klara, “Perspective: Generation Appreciation,” Adweek, October 13, 2011.
7. Coca-Cola’s market share would have been even lower, were it not for its dominant position in exclusive distribution contracts with major restaurant chains (e.g., McDonald’s) and vending-machine distribution.
8. Oliver, The Real Coke, 181.
9. Mark Pendergrast, For God, Country, and Coca-Cola (New York: Basic Books, Second Edition, 2000), 360.
11. Ewan Spence, “Apple’s Amazing iPhone Conquers China with Spectacular Q1 2015 Results and 74.5 Million Sales,” Forbes, January 27, 2015.
13. Kevin Lane Keller, Strategic Brand Management: Building, Measuring, and Managing Brand Equity, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2012).
14. Ted Wright, Fizz: Harness the Power of Word of Mouth Marketing to Drive Brand Growth (New York: McGraw-Hill, 2014).
15. Tanzina Vega, “Ad About Women’s Self-Image Creates a Sensation,” New York Times, April 18, 2013.
19. Peter Evans, “Procter & Gamble and Unilever Escalate Big-Hair War,” Wall Street Journal, February 24, 2014.
3. “Guru: Alfred Sloan,” Economist, January 30, 2009.
4. Robert Hutchins, “New Dimensions: Is Toy Retail Ready for 3D Printing?” Toy News, February 3, 2015.
8. James H. Gilmore and B. Joseph Pine II, “The Four Faces of Mass Customization,” Harvard Business Review, January 1997.
9. Richard Teerlink and Lee Ozley, More Than a Motorcycle: The Leadership Journey at Harley-Davidson (Boston, MA: Harvard Business Review Press, 2000).
10. James R. Hagerty, “Harley Goes Lean to Build Hogs,” Wall Street Journal, September 21, 2012.
12. “USAA, Kaiser Permanente, Amazon.com, Pandora, Costco, Wegmans, Apple, TracFone, Southwest and Westin Among the Highest in Customer Loyalty in the 2014 Satmetrix® Net Promoter® Benchmarks,” PR Newswire, March 5, 2014.
15. Nick Wingfield, “GoPro Sees Opportunity in Its Amateur Daredevils,” New York Times, January 30, 2014. All clips on GoPro’s YouTube channel indicate the model of GoPro camera used to shoot the video. The referenced fireman video can be found at https://www.youtube.com/watch?v=CjB_oVeq8Lo.
16. While GoPro gets high marks for brand building, it has been unable to overcome structural weaknesses in the category in which it competes. Action video cameras represent a niche consumer discretionary product, and growth in category sales showed signs of slowing by 2015, despite the entrance of several low-price competitors. As a result, GoPro’s recent financial results have weakened, sending its stock price tumbling 90 percent below its peak in late 2014. See Tim Bradshaw, “GoPro Shares Dive 27 Percent on Revenue Warning,” Financial Times, January 16, 2016.
18. Figure 8.4 was compiled from data provided by Twitter as of February 20, 2014.
19. Gregory Karp, “JetBlue, Southwest Top-Rated Carriers for Customer Experience,” Chicago Tribune, March 19, 2015.
20. “The American Way,” Gulliver Business Travel, Economist, March 16, 2015.
21. Quote attributed to Alfred Sloan, who was president, CEO, and/or chairman of General Motors from 1923 to 1956.
22. The descriptions in this section refer to GM’s brand strategy up to the 1970s. As noted in the text, GM radically changed its approach to product positioning in the 1980s and discontinued the Pontiac and Oldsmobile brands in 2004 and 2009 respectively.
23. Car and Driver editors, “Dishonorable Mention: The 10 Most Embarrassing Award Winners in Automotive History,” Car and Driver, January 2009.
24. Paul Niedermeyer, “Will Success Spoil General Motors,” Fortune, August 22, 1983.
25. James B. Stewart, “Netflix Looks Back on Its Near-Death Spiral,” New York Times, April 26, 2013.
27. Jim Edwards and Charlie Minato, “How Ex-CEO Ron Johnson Made JCPenney Even Worse,” Business Insider, April 8, 2013.
28. Andrew Martin, “Smelling an Opportunity,” New York Times, December 9, 2010.
29. Estimates of product-line extension failures range from 60 percent to 90 percent. See for example, David Aaker, “Brand Extensions: The Good, the Bad, and the Ugly,” MIT Sloan Management Review, July 15, 1990, and Laura Ries, “How Crocs Crashed,” Ries’ Pieces, October 2009, http://ries.typepad.com/ries_blog/crazy_lineextensions.
30. Hadley Freeman, “A Tasty Little Present for Men—Burger King Body Spray,” Guardian, December 16, 2008.
31. David Hughes, “A Bottle of Guinness Please”: The Colourful History of Guinness (Wokingham, UK: Phimboy, 2006).
32. Kevin Lane Keller and Sanjay Sood, “Brand Equity Dilution,” MIT Sloan Management Review, Fall 2003.
33. See for example, James Poniewozik, “VIA Taste Test: Grading Starbucks’ New Instant Coffee,” Time, October 2, 2009, and Barry Silverstein, “Starbucks Favors, Flavors Instant Coffee,” Brandchannel, May 17, 2010, http://content.time.com/time/arts/article/0,8599,1927544,00.html.
34. Mark Gottfredson and Darrell Rigby, “The Power of Managing Complexity,” Harvard Business Review, January 12, 2009.
35. Sydney Finkelstein, Why Smart Executives Fail (New York: Portfolio, 2004).
37. Scott Austin, Chris Canipe, and Sarah Slobin, “The Billion Dollar Startup Club,” Wall Street Journal, February 18, 2015.
38. Eugene Kim, “The Inside Story of how $1 Billion Evernote Went from Silicon Valley Darling to Deep Trouble,” Business Insider, October 3, 2015.
39. Chris O’Brien, “Evernote’s 5 Percent Problem Offers a Cautionary Lesson to Tech Companies,” VentureBeat, January 5, 2016.
40. Johan Sjöström Bayer, Mikael Hilding, Antal Kamps, Gustaf Sahlén, and Robin Sparrefors, “When Product Complexity Hurts True Profitability,” Accenture Outlook, February 2013.
41. Thomas Gryta, “Inside the Phone-Plan Pricing Puzzle,” Wall Street Journal, July 31, 2013.
43. Sheena Iyengar, The Art of Choosing (New York: Twelve, 2010).
44. Barry Schwartz, The Paradox of Choice (New York: HarperCollins, First Edition 2004).
45. Subsequent research has raised questions as to whether the choice paradox always holds true. Benjamin Scheibehenne and colleagues examined multiple studies of the impact of complexity on consumer choice and found the net effect to be zero, sometimes increasing demand and sometimes not. See Benjamin Scheibehenne, Rainer Greifeneder, and Peter M. Todd, “Can There Ever Be Too Many Options? A Meta-Analytic Review of Choice Overload,” Journal of Consumer Research 37, October 2010.
46. In-N-Out Burger does offer a number of condiments not listed on its menu to add flavor to its burger fare. This is a good example of “versioning,” wherein a company sharply limits its core product line (to control costs and enhance quality) but still caters to varying consumer tastes with low-cost add-ons and accessories, which are relatively simple and cheap to provide. Chipotle has followed a similar versioning strategy.
47. Julie Jargon, “McDonald’s Acknowledges Service Has Suffered,” Wall Street Journal, November 14, 2013.
9. What Makes Products Meaningfully Different?
1. Al Ries and Jack Trout, Positioning: The Battle for Your Mind (New York: McGraw-Hill, 2001).
2. Anil Kaul and Vithala R. Rao, “Research for Product Positioning and Design Decisions: An Integrative Review,” International Journal of Research in Marketing 12, 4 (November 1995): 293–320.
3. Yoram Wind, “Beyond the 4Ps: A New Marketing Paradigm Emerges,” Harvard Business Review, April 1, 2014.
4. Orville C. Walker and John W. Mullins, Marketing Strategy: A Decision-Focused Approach, 6th ed. (New York: McGraw-Hill/Irwin, 2008), 159.
5. There are several analytical techniques that can be used to add these additional insights. The relative importance of each attribute can be determined by a revealed preference analysis. For example, by running a regression on preference rankings as the dependent variable and the attribute ratings as the independent variables, researchers can analytically determine the relative importance of each attribute in explaining the observed overall rankings of preferred retailers. Alternatively, survey respondents could be asked directly to rank the importance of each attribute. Finally, researchers could choose to perform a conjoint analysis, to quantitatively measure the value associated with each retailer attribute. Under any of these approaches, the research can be used to identify distinct market segments within which consumers tend to exhibit common behavioral traits in the perception of the relative importance of product attributes.
6. Adapted from William L. Moore and Edgar A. Pessemier, Product Planning and Management: Designing and Delivering Value (New York: McGraw-Hill, 1993), 145.
7. The technique used to reduce the number of factors used in a perceptual map to combine highly correlated attributes is called factor analysis. For a description of factor analysis, see John R. Hauser and Frank S. Koppelman, “Alternative Perceptual Mapping Techniques: Relative Accuracy and Usefulness,” Journal of Marketing Research 16 (November 1979): 495–506.
8. The length of the vector is related to the magnitude of the underlying variance in perception ratings for a given factor. The greater the variance, the more significant the factor is in explaining the perceived difference between beers. Thus the length of the vectors gives a visual cue as to which factors are most important in distinguishing competing beers.
9. In this case, the consumers rated competing beers very differently with respect to being popular with men (or not), whereas all beers were rated similarly on being good value.
10. The orientation of the vectors and product positions can be rotated as a set without changing the interpretation of the perceptual map. In figure 9.4, the perceptual map was oriented so that heavy/light vectors were positioned around the vertical axis and budget/premium vectors aligned with the horizontal axis.
11. “Ad Age Advertising Century: Top 100 Campaigns,” Advertising Age, March 29, 1999.
12. Ingwer Borg and Patrick J. F. Groenen, Modern Multidimensional Scaling: Theory and Applications (New York: Springer, 2005), 37–41.
13. Kevin Lane Keller, Strategic Brand Management, 3rd ed. (Upper Saddle River, NJ: Prentice Hall, 2007), 49–51.
14. A recent paper has suggested that business performance measures can also be added to perceptual-mapping analyses to more directly link product positioning to business strategy. See Charan K. Bagga, “A Better Way to Map Brand Strategy,” Harvard Business Review, June 2015.
15. Many of the observations in this section were inspired by Youngme Moon, Different: Escaping the Competitive Herd, (New York: Crown Business, 2010).
16. Youngme Moon, “Rethinking Positioning,” Harvard Business School Module Note 506-025, October 2005 (rev. March 2006).
17. Despite close parity on technical smartphone specifications, Apple has gained considerable market share at Samsung’s expense as a result of its ease of use, tactile and visual elegance, and ecosystem strength, all of which are more difficult to emulate.
20. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston, MA: Harvard Business School Press, 1997).
22. Brett Molina, “IDC: Smartphone Growth to Continue Slowing Down,” USA Today, May 26, 2015.
23. For the four years following its IPO on May 22, 2011, Spirit’s stock appreciated by 447 percent, while the industry as a whole appreciated by 127 percent. For this comparison, Spirit’s stock price (ticker SAVE) was compared to the airline stock index (ticker ^XAL) between May 31, 2011, and May 31, 2015.
24. Maria Doulton, “‘You’re Just Caretaker of This Watch,’” Financial Times, April 4, 2008.
25. W. Chan Kim and Renée Mauborgne, “Strategy, Value Innovation, and the Knowledge Economy,” MIT Sloan Management Review, April 15, 1999.
26. Luke Williams, Disrupt: Think the Unthinkable to Spark Transformation in Your Business (Upper Saddle River, NJ: FT Press, 2010), 32–33.
27. Stuart Elliott, “Geico’s Lizard Offers a New Message of Reassurance,” New York Times, February 18, 2009, and Ashley Rodriguez, “Flo’s Progressive Evolution,” Advertising Age, November 12, 2014.
28. Category images vary widely by country. In Italy and Spain, for example, prosecco and cava sparkling wines are widely considered to be appropriate for casual, everyday consumption, particularly in hot summer months.
10. Where Do Great Ideas Come From?
1. Ryan Mac, “The Mad Billionaire Behind GoPro: The World’s Hottest Camera Company,” Forbes, March 25, 2013.
2. Donald G. McNeil Jr., “Car Mechanic Dreams Up a Tool to Ease Births,” New York Times, November 13, 2013.
3. Sydney Brownstone, “The 100 Most Creative People, 2014—#17: Jorge Odón,” Fast Company, June 2014.
5. Michael Szycher, How to Create Wealth for Your Company and Stakeholders (Productivity, 2014), 21.
6. Andrew Adam Newman, “Turning 30, an Office Product Works at Home,” New York Times, July 27, 2010. The 3M Company does not release revenue data for individual products. The estimated Post-it Notes revenue of over $500 million is based on author estimates from published figures on Post-it Notes unit volumes and prices.
7. Jessica Salter, “Airbnb: The Story Behind the $1.3bn Room-Letting Website,” Telegraph, September 7, 2012.
8. Clare O’Connor, “How Spanx Became a Billion-Dollar Business Without Advertising,” Forbes, March 26, 2012.
9. William R. Duggan, Strategic Intuition (New York: Columbia University Press, 2007).
10. Patrick Vlaskovits, “Henry Ford, Innovation, and That ‘Faster Horse’ Quote,” Harvard Business Review, August 29, 2011.
11. Walter Isaacson, Steve Jobs (New York: Simon & Schuster, 2011).
13. Dorothy Leonard and Jeffrey F. Rayport, “Spark Innovation Through Empathic Design,” Harvard Business Review, November-December 1997.
14. This exercise was adapted from a description of the actual process used to design the innovative OXO measuring cup, as described in Marc Hurst, Customers Included: How to Transform Products, Companies and the World—With a Single Step, 2nd ed. (New York: Creative Good, [2015]), Kindle edition.
15. Ibid. On this project, OXO worked with Smart Design Worldwide for customer research and product design.
16. The angled measuring cup that OXO marketed also featured some of the other product design suggestions shown in figure 10.2, including plastic construction, rubber handle, and multiple product sizes.
17. Brian O’Keefe, “Meet the CEO of the Biggest Company on Earth,” Fortune, September 9, 2010.
18. Krystina Gustafson, “Time to Close Wal-Mart Stores? Analysts Think So,” CNBC.com, January 31, 2014.
20. Hayley Peterson, “Meet the Average Wal-Mart Shopper,” Business Insider, September 18, 2014.
21. Behavioral observation and exploratory conversation are schematically shown as overlapping, since they are often conducted simultaneously. Also, both these market-research types could also be beneficially used in succeeding stages of product development, but the reverse is generally not true.
22. Gary King, Robert O. Keohane, and Sidney Verba, Designing Social Inquiry: Scientific Inference in Qualitative Research (Princeton, NJ: Princeton University Press, 1994).
23. Ken Anderson, “Ethnographic Research: A Key to Strategy,” Harvard Business Review, March 2009.
25. Jon Kolko, Well-Designed: How to Use Empathy to Create Products People Really Love (Boston, MA: Harvard Business School Press, 2014), 73.
26. Byron Pope, “Ford Escape Auto Liftgate,” Ward’s Auto, May 30, 2012.
27. Mark Hurst and Phil Terry, Customers Included: How to Transform Products, Companies and the World—With a Single Step (New York: Creative Good, 2013), 70.
28. Kolko, Well-Designed.
29. Hurst and Terry, Customers Included.
30. Paul Farhi, “Behind Domino’s Mea Culpa Ad Campaign,” Washington Post, January 13, 2010.
31. Isaacson, Steve Jobs.
32. Janet Smithson, “Using and Analysing Focus Groups: Limitations and Possibilities,” International Journal of Social Research Methodology 3, 2 (2000): 103–119.
33. Jerry Wind, Paul E. Green, Douglas Shifflet, and Marsha Scarbrough, “Courtyard by Marriott: Designing a Hotel Facility with Consumer-Based Marketing Models,” Interfaces 19, 1 (January 1989): 25–47.
34. Paul E. Green, Abba M. Krieger, and Yoram Wind, “Thirty Years of Conjoint Analysis: Reflections and Prospects,” Interfaces 31, 3 (May 2001): 56–73.
35. JetBlue’s use of conjoint analysis for configuring service elements based on communication with Marty St. George, executive vice president, commercial and planning, December 10, 2015.
36. Anders Gustafsson, Andreas Herrmann, and Frank Huber, “Conjoint Analysis as an Instrument of Market Research Practice,” in Conjoint Measurement: Methods and Applications, 3rd edition, ed. Gustafsson, Herrmann, and Huber, (Berlin: Springer, 2003), 5–46.
37. The logic—and indeed the imperative—of framing the expected market size of an entrepreneurial venture at a very early stage of product development is covered at length in two excellent books. The first, focused on startup ventures, is Steve Blank and Bob Dorf, The Startup Owner’s Manual: The Step-By-Step Guide for Building a Great Company (Pescadero, CA: K&S Ranch Consulting, 2012. Early-stage market sizing in the context of corporate entrepreneurship is covered in Rita Gunther McGrath and Ian C. MacMillan, Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity (Boston, MA: Harvard Business Review Press, 2009).
38. Paul Saffo, “Six Rules for Effective Forecasting,” Harvard Business Review, July-August 2007.
39. Joan Schneider and Julie Hall, “Why Most Product Launches Fail,” Harvard Business Review, April 2011.
40. Marc H. Meyer, “Perspective: How Honda Innovates,” Journal of Product Innovation Management 25, 3 (May 2008): 261–271.
41. Generation Y, also referred to as millennials, is generally defined as those born between 1980 and 2000. There have been three generations of population spurts since World War II: baby boomers, generation X, and millennials.
43. In user-centered design and marketing, personas are fictional characters created to represent the different user types that might react to a site, brand, or product in a similar way. For a critique of personas, see Hurst and Terry, Customers Included, 5–59.
44. Phil Patton, “Honda Element; Young Man, Would You Like That in a Box?” New York Times, December 15, 2002.
11. Strategies to Break Away from the Pack
1. The 4Ps refer to how products and services are brought to market in terms of product configuration, price, promotion, and place (i.e., sales channels).
2. Youngme Moon, “Rethinking Positioning,” Harvard Business School Module Note for Instructors, March 22, 2006. In her published work, Moon uses the term disruptive positioning. To distinguish her work from Christensen’s “disruptive technologies” terminology, I have renamed Moon’s concept to breakout positioning.
3. W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy (Boston, MA: Harvard Business School Press, 2005).
4. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston, MA: Harvard Business School Press, 1997).
5. Moon, “Rethinking Positioning” actually identified three forms of breakout positioning. In addition to reverse positioning and breakaway positioning covered in this chapter, Moon covers stealth positioning, wherein a company seeks to establish a product in an entirely different category than the one for which it was originally intended. The rationale behind stealth positioning is that under some circumstances, a product can achieve a better outcome by adopting the category image characterizing an entirely different type of product. For the sake of clarity, I have omitted stealth positioning in this chapter; such cases are relatively rare and fleeting, as they usually apply to situations where an immature product has yet to achieve adequate performance to serve its originally intended purpose.
6. Adapted from Moon, “Rethinking Positioning.”
9. The term “legacy carrier” refers to the large full-service airlines whose operations began prior to deregulation of the U.S. airline industry in 1978. These airlines include United, American, Delta, Continental, Northwest, US Airways, and TWA.
10. Tom Huddleston, Jr., “People Love These Airlines the Most,” Fortune, May 11, 2016, http://fortune.com/2016/05/11/alaska-airlines-jetblue-jd-power. It is important to note that JetBlue has continued to innovate over the past decade to ensure a meaningful differentiated product. Starting in 2014, JetBlue began introducing first-class service and the industry’s fastest Wi-Fi service on selected flights.
12. On a randomly chosen Tuesday night in October 2015, the lowest-priced room rates in midtown New York for the four referenced business hotel chains ranged from $634 to $1,350.
13. Youngme Moon, Different: Escaping the Competitive Herd (New York: Crown Business, 2010), 89.
14. Freek Vermeulen, “3 Steps to Break Out in a Tired Industry,” Harvard Business Review, May 1, 2015, and email correspondence with Rattan Chadha, CEO, and Robin Chadha, Chief Marketing Officer, citizenM Hotels, April and June 2016.
16. It is important to note that reverse positioning strategies are not intended to appeal to all consumers, but rather to a specific target segment of consumers identified as being poorly served by traditional competitors. As a case in point, IKEA generates a highly polarized reaction in the marketplace, with large numbers of both loyal brand proselytizers and viscerally opposed brand haters.
17. Moon, “Rethinking Positioning.”
18. Société de Microélectronique et d’Horlogerie changed its name to the Swatch Group in 1998.
19. Alice Pfeiffer, “Contemporary Design and the Pop Swatch,” New York Times, March 23, 2011. Limited-edition watches by famous designers, originally selling at retail for $40, later commanded resale values in excess of $20,000 at Christie’s auctions.
20. Hayek’s simple, transparent pricing strategy was later used by Apple in pricing all iTunes songs at ninety-nine cents, and Amazon’s original pricing of Kindle bestselling books at $9.99.
21. Youngme Moon, “The Birth of Swatch,” Harvard Business School Publishing, Case 9-504-096, November 22, 2004.
22. For wet mopping, the consumer buys a Procter & Gamble brand solvent in a special non-spill sealed bottle that clips into the Swiffer mop handle.
24. Kim and Mauborgne, Blue Ocean Strategy.
25. Ibid., 18. Adapted from figure 1.3.
26. The assumption that winning strategies must inherently choose between best product or low cost derives from Porter’s Five Forces framework, reviewed in chapter 1.
27. Kim and Mauborgne, Blue Ocean Strategy, 29.
29. As it turned out, Curves faced management challenges in managing its extraordinarily rapid growth and has reduced its number of locations over the past decade. Nonetheless, its early success validates the potential of a properly executed Blue Ocean strategy to unlock new demand. See Karsten Krauss, “Crash Diet: After Shedding Thousands Of Locations, Can Curves Get Back in Shape?” Forbes, May 27, 2014.
30. Adapted from Kim and Mauborgne, Blue Ocean Strategy, 38. Note that the ratings of each airline could be determined from consumer surveys or from actual data measuring airline industry performance (e.g., average fare level, number of scheduled departures per day).
31. Michael E. Raynor, “Disruptive Innovation: The Southwest Airlines Case Revisited,” Strategy & Leadership 39, no. 4 (2011): 31–34.
34. Mike Ozanian, “How CrossFit Became a $4 Billion Brand,” Forbes, February 25, 2015.
36. Kim and Mauborgne, Blue Ocean Strategy, 79.
37. Rolfe Winkler and Douglas MacMillan, “The Secret Math of Airbnb’s $24 Billion Valuation,” Wall Street Journal, June 17, 2015.
38. While this example traces product development in the technology sector, the same dynamics play out in virtually any product category.
40. Clayton M. Christensen and Michael E. Raynor, The Innovator’s Solution: Creating and Sustaining Successful Growth (Boston, MA: Harvard Business Review Press, 2003), 152.
41. Kim and Mauborgne, Blue Ocean Strategy.
42. Moon, “Rethinking Positioning.”
43. Martha Hamilton, “Why Walk-In Health Care Is a Fast-Growing Profit Center for Retail Chains,” Washington Post, April 4, 2014.
46. Larry Downes and Paul Nunes, Big Bang Disruption: Strategy in the Age of Devastating Innovation (New York: Portfolio, 2014).
48. No one doubts the extraordinary success of Apple over the past fifteen years. Apple has repeatedly disrupted itself, with the iPhone launch cannibalizing iPod sales, the iPad cannibalizing laptop sales, and larger iPhones eating into iPad sales. But overall high rates of profitable growth have helped Apple become the highest-valued public corporation in the world, with a market cap topping $700 million in 2015. Amazon has also amassed an admirable record of disruptive technology launches, from Internet retailing to e-book ecosystems to cloud computing. Amazon has chosen to aggressively reinvest its cash from operations in new growth initiatives, propelling the company to become the fastest ever to achieve $100 billion in revenues. Despite its lack of profitability, at the end of 2014, Amazon’s stock had achieved a total shareholder return of over 20,000 percent since its IPO in 1997.
49. Christensen and Raynor, The Innovator’s Solution, 56–65.
50. James Estrin, “Kodak’s First Digital Moment,” Lens (blog), New York Times, August 12, 2015.
51. Bill Gates, The Road Ahead (New York: Viking, 1995).
52. Rita Gunther McGrath, “The Pace of Technology Adoption is Speeding Up,” Harvard Business Review, November 25, 2013.
12. Hitting the Bull’s-Eye
1. The Corporate Executive Board (CEB) studied the long-term revenue growth of about five hundred Fortune 100 and comparable international companies over the past half-century. The study defined a revenue “stall” as being a point in time when a company could no longer sustain a real annual revenue growth rate of as little as 2 percent over a ten-year period (and in many cases, stalled companies actually experienced a decade or longer of declines in revenue). The CEB study found that 87 percent of the companies hit a stall point at least once over the past half-century. Some, like Apple and 3M, were able to recover, but the majority (e.g., RCA, Motorola, and Kodak) continued to struggle in ensuing decades, usually ending in bankruptcy or forced sale at extremely low valuations relative to their historical peak. See Matthew S. Olson, Derek van Bever, and Seth Verry, “When Growth Stalls,” Harvard Business Review, March 2008.
3. Bob de Wit and Ron Meyer, Strategy: Process, Content, Context, 4th ed. (Andover, UK: Cengage Learning, 2010), 629.
4. David Packard, The HP Way: How Bill Hewlett and I Built Our Company (New York: HarperBusiness, 1995).
5. Laura Lorenzetti, “This Is How HP Lost Its Way,” Fortune, September 16, 2015. Note that on November 2, 2015, Hewlett-Packard split into two companies. HP Inc. contained the PC and printing business and continued trading on the New York Stock Exchange under the ticker symbol HPQ. A new company, HP Enterprises, is now devoted to networking and enterprise solutions and services.
7. William Boston and Sarah Sloat, “Volkswagen Emissions Scandal Relates to 11 Million Cars,” Wall Street Journal, September 22, 2015.
13. Harvard Business Review Staff, “Best-Performing CEOs.” The rankings reflect an average of each company’s performance on industry-adjusted TSR, country-adjusted TSR, and growth in market capitalization over the CEO’s tenure.
20. Malcolm Gladwell, David and Goliath: Underdogs, Misfits and the Art of Battling Giants (Boston, MA: Little, Brown, 2013).
24. Stock values, revenues, and profit figures in the U.S. airline industry were compared as of November 16, 2015.
30. Wayne F. Cascio, “The High Cost of Low Wages,” Harvard Business Review, December 2006.