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Emerging technology is at hand and promises to be a viable, low cost, secure alternative to snail mail; in the form of digital mail. Digital mail is delivered to a nominated secure online mailbox and is expected to become an important new revenue stream for global posts.

Digital mailbox technology is already available in the U.S. providers include doxo, Manilla, Volly, and Zumbox. This is where it gets interesting in Australia; in offering a Digital Mail service Australia Post has recently been alerted to the arrival of competition in the form of a joint venture group made up of Computershare (40%) a share registry manager and corporate communications group; Salmat (40%) a listed business communications specialist, and; the previously mentioned US digital mail technology start-up, Zumbox (20%).

Clearly, as an organisation not used to competition in their area of specialisation – Australia Post will find the going extremely difficult, although as suggested; it is a unique core competency for them. On their web site the Australia Post Digital MailBox is described as being: “a free personal management application designed to help you stay on top of things. It brings together 3 powerful functions into one easy-to-use app:
• Receive: Your own digital mailbox to securely receive important mail
• Pay: Easy payment of your bills
• Store: Private and secure storage for your important documents

In an article appearing in The Age on April 5, 2012, Malcolm Maiden suggests: “It’s (Digital Mail) an intriguing business idea, and might be a category killer worth billions of dollars. But there’s probably only going to be one winner in a market as small as Australia’s, and after Australia Post’s announcement overnight that the large listed US group Pitney Bowes will be its digital mail technology partner, the battle lines are drawn”.

The concept of the digital mailbox is pretty simple according to Maiden. In place of numerous web site addresses and never ending array of passwords, consumers will be offered a single log-on that accesses the aforementioned digital mail box that is able to collect the same material that is now being received in emails as well as envelopes.

At this stage Australia Post is not going overboard with a commitment to benefits. What they do say (on their web site is) is aimed squarely at the consumer as opposed to business customers. They describe advantages as follows: “With Australia Post Digital MailBox, you’ll have a secure online mailbox that you can access anytime, anywhere, on your favourite device.”
Individuals will have the capability to “read and print your mail, set reminders, pay bills and store important documents such as tax records, a copy of your passport or anything else you would like to be able to securely access from anywhere”.

The Australia Post Digital MailBox will support multi-factor authentication to ensure it is secure. All communications will be encrypted so that only the intended recipient can view them.

According to Maiden again: “The business plan of both groups assumes two, related things. First, is that consumers will take on the new system if it is given away and if it proves itself to be a more secure and simple way of dealing with banks, utilities and other businesses. Second, that companies and governments will move in large numbers to adopt a new system that is more expensive than email but much cheaper than so-called snail mail.
There is a sort of circular critical mass equation involved in this, because the networks will not reach critical mass until companies and consumers both join it. Early momentum is going to be absolutely crucial, and the two groups each have strengths and weaknesses.

Speed to market, pricing and marketing will be important, and those skills have not been strengths of Australia Post in the past. The government-owned group has tended to see itself as a cost-plus supplier of services, for example. It may need to consider loss-leading to build early market share in this battle.

It promises to be an interesting battle, perhaps as interesting as the famous Beta vs VHS video technology battle of the 1980’s; there, VHS won for all the wrong reasons.

Watch this space: We will follow the unfolding of this story of the battle as it emerges in the following months. Timing is uncertain; Australia Post is inviting registrations of interest if you would like to register with them.
Early days; comments are now encouraged and invited on this blog or our LinkedIn discussion site.

In the early 1990’s Cadbury Dairy Milk was the leading brand in Hong Kong and throughout the 1980’s it sold products into greater China through a distributor. Assuming it would be successful in meeting its objective of 1 chocolate bar to every person, Cadbury sought to expand its presence with the establishment of a manufacturing facility in Beijing in 1993.

Cadbury reasoned they could best reach the individual consumer through the sale of chocolate bars (as opposed to gift boxes) the kind that is found in most supermarkets throughout the world. The challenge would not be easy; Chinese would need to be converted to the taste of chocolate. The fact that all consumer goods tended to be bought in individual packs, Cadbury felt that that the supply chain side of the equation could be squared away quite readily. Based on Cadbury experience in chocolate sales in Singapore and Hong Kong and some other factors Cadbury determined it would sell its 250g chocolate bars through supermarket outlets in greater China.

With little hard market data to go on, Cadbury recognised it was critical that accurate forecasts were developed as these would be the primary driver in the determination of the size of manufacturing capacity it should build. What happened was devastating for Cadbury. The 250 gram bar turned out to be inappropriate for the consumption habits and disposable incomes of emerging Chinese consumers. Instead, consumers who were mostly trying chocolate for the first time chose Mars Dove brand over Cadbury as Dove could be bought in smaller, 47 gram bars. Similarly, few retail stores and distributers who moved or stocked the Chocolate bars had air conditioned facilities. This resulted in significant problems and accentuated the ‘seasonal’ nature of the product, a problem which in most traditional markets had been resolved some time ago. Cadbury was forced to copy Mars into smaller packs (ultimately as small as bags of 12 gram, bite size bars), an outcome that had a large negative impact on cash flow (lower volumes of product per sale); and an ensuing downsizing of production volumes. As Cadbury had built a plant to accommodate much greater volumes (and bigger sized packs) than it expected, it would take years before it could recover from this problem.

Alignment of markets to an uncertain supply chain has bedevilled the FMCG industry in emerging markets for years. Other examples are single serve shampoos, bought and consumed in the same hour, along with pharmaceuticals and other goods.

What is your experience? Do you have any other lesson that companies contemplating establishment of operations in emerging markets can learn from your experience?

(*Case based on Lawrence, L. Allen, “Chocolate Fortunes; the Battle for the Hearts and Minds, and Wallets of China’s Consumers”, AMACOM, 2010)

Intrigued by Rumelt’s observation the SMI reviewed the published strategies of two of Australia’s major retailing companies to use as a basis for discussion. An adaptation of these are summarised as follows:

In our upcoming Breakfast Briefings (Melbourne: 21st February 2012, Sydney: 22nd March 2012 – you are invited) we will be presenting and discussing good strategy, bad strategy and are seeking your views as input to that discussion on what you think good strategy, bad strategy is; as well as any experiences or examples you may have that serve to illustrate your views.

You may wish to comment on the above two strategies above; are they good or bad?

For the record, good strategy according to Rumelt “has an essential logical structure. Most importantly, it provides a clear statement of the nature of the challenge. Secondly, it offers a guiding policy for overcoming the challenge. Thirdly, it coordinates actions and resources on key points of leverage”.

I am sure you have experiences in this area. We look forward to hearing from you.

Read ‘The Seven Inconvenient Truths of Strategy’

Read ‘Reinventing Management; Transforming the Way We Manage Communicate Structure Organisations’

Read ‘Skills in Strategy Creation and Execution The first step towards management greatness final’

One of the first things Welch did when he was appointed as CEO was to close the strategy and planning departments, and justifiably so. They had become cumbersome an unwieldley. Such departments are only now being re-established in major corporations. What do you think? We would appreciate your views:
• is a revolution in management required?
• are our current skills in strategy sufficiently strong to support that revolution?

“The product the new Virgin Australia unveiled yesterday is impressive. Virgin’s (new) aircraft looks fresh and comfortable on the inside, both in business and economy, and is spacious enough to satisfy the corporate traveler. For the Virgin shareholders, the numbers should stack up. Virgin Australia’s boss, John Borghetti, has spent the $35 million capital expenditure wisely to pull his product out of the middle-ground dead zone – with a cost base that could not compete with the no-frills market and a product that could not capture the more discerning business traveler – and into the full service market”

Knight goes on to observe:

“Once the fleet is introduced, the business traveler will have an alternative in quality – but perhaps not in frequency. Over time all new Virgin aircraft will be equipped with the same quality interiors seen on display yesterday. The airline will also beef up its frequent flyer program and overhaul its business class lounges. If Qantas and Virgin were starting out fresh tomorrow as competitors on an equal footing in the Australian domestic market, they would probably split the market 50/50. But Qantas, as the airline with a near monopoly on the business market, has the advantage of inertia and, more importantly, a well-established frequent flyer customer base. It also has the huge advantage of more flights.
Virgin does not aspire for a moment to catch half of the business share – it just wants to take an additional 10 per cent, which on its numbers is $150 million in revenue. And it doesn’t expect to get this overnight. It will take a few years”.

We invite comments on your perspectives of the Virgin move. Will it succeed and if so, how fast and how big? Critical to this will be the establishment of performance measures that we should follow to measure success. When available we will be on the lookout for data providing us with information on: occupancy (seating utilisation), market share, profitability. Any other information we can glean; e.g. route expansion, number of new planes, capital expenditure announcements, number of employees, comparative fares, and perceptions of quality.

Under current conditions we would envisage Virgin getting a strong foot holding, but as suggested by Elizabeth Knight, they have a tough challenge ahead. Is anyone brave enough to take a guess at a market share position by the end of the year?

We will post a survey through our LinkedIn discussion group and post results in this blog. If you would like to participate in the group, email us at hcandp@hcandp.com. We look forward to your email and participation in our discussions.

For further insight into airline competitiveness and associated performance measures, check out this case study: Whitestone, D., Schlesinger, L., People Express: Harvard Business School Case #483-103, Oct 2000.

Case discussion

Toyota Corolla, Porsche 911
In addressing various aspects of the 7 Inconvenient Truths, it is useful to compare and contrast the differing strategies adopted by Toyota and Porsche in their quest to build a global presence through the success of their iconic products; the Toyota Corolla and Porsche 911. Both models have achieved iconic levels of success based on strategies that on the surface appear to be very similar, but underneath, are worlds apart.

Toyota Corolla: The Toyota Corporation was built out of Toyota’s founding father’s (Sakichi Toyoda) passion for excellence and an associated culture that prescribed the relentless pursuit of continual improvement in operational efficiency and effectiveness, combined with a strong focus on customer satisfaction. Corolla is recognised as the forbear of Toyota’s global branding strategy. Released in Japan in November 1966, Corollas global sales figures now exceeded 30 million a year.
The secrets of the success of the Corolla can be attributed to its high appeal to consumers who were (and still are) attracted to the appeal of its simplicity, quality, durability and competitive pricing. With Corolla and many of its subsequent products, Toyota succeeded through its ability to leverage its unique competences in manufacturing, to the extent that it became the global market leader (by volume) across the board.
The name Corolla has its origins in a Latin term; “crown of flowers”. It is interesting to note however that rather than marketing or sales, the group charged with the decision of the choice of name was Toyota’s Product Planning Division. We should not be surprised by this though. The responsibility afforded this group is representative of the fundamental strategy followed by Toyota, i.e. the building and leveraging of inimitable competences in the combined design, development and delivery of a product offering that offers the same standard of quality and value to consumers located anywhere in the world; supported and enabled by Toyota’s relentless pursuit of ‘evolutionary’ year on year improvements in efficiency and effectiveness.

Porsche 911: This story is grounded in a similar passion for excellence demonstrated by Sakichi Toyoda. Ferrie Porsche, son of Porsche founder, Ferdinand Porsche reflected this passion in a bold statement; “in the beginning I looked around and could not find the car I dreamed of, so I decided to build it myself”. Based on the principle of achieving maximum output from minimum input, Ferrie Porsche’s race-inspired philosophy became integral to the design and production of each and every Porsche car. Porsche state that as a matter of policy they don’t simply build (premium) sports cars, but rather: “We work with a range of companies that share our values, creating successful partnerships by integrating our suppliers”.
Illustrative of a successful formula for over forty years, the Porsche 911 benefits from continual renewal and regeneration of its design that literally ‘evolves’ over time in concert with the demands of a long list of satisfied, but highly discerning buyers. Whereas most cars (Toyota included) are ‘updated’ through annual facelifts and periodic renewal of their overall design, every new generation 911 according to Porsche “brings innovation (that) allows our cars to be timeless and unique”. In maintaining a balanced approach to its car designs, Porsche suggest that the 911 styling evolves with sensitivity and restraint, but in a way that remains committed to its overall character.

Strategies compared

Although subject to occasional ups and downs, Toyota and Porsche have essentially enjoyed a long period of success. Although corporate strategy for both appears to be the same, there is a significant difference in their makeup, content and philosophy. Grounded in a passion to build, maintain and leverage operational standards of the highest degree, Toyota’s approach to market positioning is one of; build it and they will come. Although potentially risky in nature, Toyota has excelled as a manufacturer and seller of family oriented cars; commercial vehicles, and; four wheel drives.

Porsche exhibit a similar passion for excellence, but their approach has been the opposite of Toyota, preferring instead to identify a unique market position as the basis for competitiveness, coupled with the manufacture of low volumes of high performance sports cars and all wheel drives in niche markets where others find it difficult – if not impossible – to compete. In stark contrast to Toyota, Porsche did not initially own its own manufacturing facility. They were forced to acquire it when the plant owners of the day decided to sell. Porsche were the only buyers. While Toyota’s story of competence leveraging can be described as being one of an ‘Inside Out’ strategy, Porsche’s market positioning strategy can be described as one of an ‘Outside In’ strategy.

Discussion
excellence in strategy content and strategic outcomes

Is the foregoing important? An understanding of causality in strategy structure and strategic influences in general, contributes not only to better strategy and strategic outcomes, but also to an avoidance of poor strategy and potentially sub-optimal strategic outcomes. As an example, Fosters shareholders are lamenting its unsuccessful bid to integrate its wine and beverage business following the bold Southcorp Wines acquisition that was undertaken only a few years ago. The subtlety of the differences between an Inside Out and Outside In strategy immediately comes to the fore. Whereas Foster’s are undisputed specialists in brand management and market positioning (Outside In strategy), businesses competing in the wine industry by definition, compete through an inherent Inside Out strategy, one that requires skills in the production of a technically oriented and delicate product that is matured over time and made from a range of raw materials that are subject to varying degrees of texture, taste and quality – qualities that are difficult to replicate (as demonstrated by Penfolds ; a bottle of Grange is quoted at $12,500 for a 1952 Shiraz). To this day, the spun off Treasury Wine Estate is still being valued for its portfolio of brands over its skills in wine production capabilities, global reach and quality of product. There is of course nothing wrong with acknowledging the value of a portfolio of brands; it is important to understand this is not the only way to value the business.
Ultimately a balance between an Inside Out and Outside In strategy is the most desirable position. Both Toyota and Porsche have reached the stage where competence leveraging is just as important as market positioning. We suspect however that Toyota could benefit by moving further towards market positioning capabilities whilst maintaining its roots in operational excellence, enough to understand and pre-empt the still emerging needs of the markets in which they operate. Porsche started life with a clear market positioning strategy and through alliances and partnerships is now diversifying into broader market segments, but not diversified industries.
Honda is an example of a company that has managed both, and in doing so, has realised a high level of diversification. With its roots grounded in competences in engine and drive train manufacture, Honda operates in well defined market segments in the automotive industry, as well as in other industries including motor bikes, powered garden tools, marine engines and personal water craft. The benefit from their strategy is an ability to competently operate a diversified portfolio of businesses, allowing it to spread its exposure to risk; a feat not readily available to many of the world’s corporations.

Addressing the 7 Inconvenient Truths, Where to Start?
A Look at A look at 3 Inconvenient Truths

• Relevance: Both Porsche and Toyota strategy originated in the mid 1960’s, a time of high certainty and predictability; do we know if they are using the right tools in what is now a highly uncertain and unpredictable environment? Could they be using more sophisticated tools and if so, which ones? Will their reliance on agile and lean manufacturing be sufficient to maintain a sustainable competitive advantage in the future?
• Strategy structure: given the extent of diversity in a global automotive strategy, do Toyota and Porsche exhibit a balance between deliberate vs. emerging strategy, evolutionary (continuous improvement) vs. revolutionary change and differences between business unit and corporate level strategy?
• Strategy Process: Are Toyota and Porsche sufficiently responsive to changes in their markets and industries? Should they be more aggressive in their approach to change? Have they achieved balance between Inside Out and Outside In strategy?

• Only 45% expressed satisfaction with their strategic planning process, and
• Only 23% indicated that the process is key to making their most important decisions.

In particular, they noted that:

“…executives harbor significant concerns about the way their company executes, communicates, aligns the organisation with, and measures performance against its strategy”

Similarly, the Economist Intelligence Unit (EIU) Research into Strategy Outcomes found that:

“Only 11% of executives surveyed are highly satisfied that strategic planning is worth the effort”.

What is strategy and does it matter? Text books are awash with definitions of strategy, few are consistent. Members of the Strategic Management Institute (SMI) address the issue, suggesting it really doesn’t matter. What does matter are the benefits of strategy which, apart from being the development of the management control device in the form of the strategic plan, have been identified as starting with problem solving. In the context of strategy however, strategic problems are ‘wicked’ problems that are characterised as; having innumerable causes; are tough to describe, and; often don’t have a right answer. ‘Wicked’ strategic problems are:

“like the head of a hydra, an ensnarled web of tentacles; the more you attempt to tame them, the more complicated they become” (Camillus, J. C., “Strategy as a Wicked Problem”, Harvard Business Review May, 2008).

So, what are the benefits of strategy?
Learning: Time to focus on; the future, competitors, positioning, core competancies, transformation
Leadership:getting everyone ALIGNED around a common sense of purpose and direction
Structure:“structure follows strategy, systems and processes follow structure”
Transformation and Renewal: Pre-empting the future, making the existing business OBSOLETE

Examples of effectiveness observations: members of the HCP management consulting team have reviewed the content of numerous business strategies. In many cases we find gaps in strategy (and as a result, organisation structure) more so than errors. As an example, a market oriented (Outside In) business that relies on its brand portfolio as a foundation for its sustainable competitive advantage was observed to have not only omitted an articulation of its market positioning strategy (the fundamental component of its ‘being’), it had also eliminated its entire marketing function (key strategic driver), following a recent downsizing activity.

In other instances we have observed that when long term Strategy is confused with a short term Annual Strategic Plan, Strategy content tends to over focus on the here and now and under focus on the future. In more than one business, this has meant that a restructuring exercise for example, becomes the strategy for the business. With a vision on ‘being the most efficient’ as opposed to ‘being the best’, we have witnessed clients embark upon a prolonged and arduous restructuring exercise, rather than a short term program that acts as a stepping stone to future greatness. General Motors in the US for example recently undertook aggressive restructuring. The objective was to regain market share through the offer of fresh, reliable, clean, efficient cars, not to simply cut costs and continue as before.

Poor articulation of long term strategy is another problem that can result in missed opportunities to strengthen leadership. In the face of a poorly articulated strategy, leaders risk projecting an appearance of uncertainty and doubt. Conversely, the opportunity to inspire, motivate and grow may also be lost.