Market Driven Strategy

Market Driven Strategy

STARTING WITH AN EXAMPLE…

[The Apple] Macintosh computer is regarded as a machine that launched a

revolution. At its birth in 1984, industry analysts received it

with praise and acclaim.

But in retrospect, one in aware that the first Macintosh had many weaknesses: it had limited, non-expandable memory, virtually no applications software, and a black-and-white screen. For all those deficiencies, however, the Mac had two strengths to more than compensate: it was incredibly easy to use, and it had a user group that was prepared to praise Mac publicly at its launch and to advise Apple privately on how to improve it.

It was this feedback loop that brought about change in the Mac, which ultimately became an open, adaptable, and colorful computer. And it was changing the Mac that saved it.

1. Information Acquisition

2. Cross-Functional Analysis of Information

3. Shared Diagnosis & Coordinated Action

4. Delivery of Superior Customer Value

Four Steps towards becoming market

oriented

1. Information AcquisitionGathering & analyzing relevant information about customers, competition, & the market;

“Data-mining” of company records & information system;

Using company resources (in Sales, Marketing, & other functions) to obtain information on competition, market norms, regulations etc.);

Learning from experience: open-minded enquiry, broad-based information sharing in the company.

Four Steps towards becoming market oriented

2.Cross-functional Analysis of Information: Sharing of information across functions for deeper understanding of customer needs & more rapid product development.

Four Steps…

At Zara, the Spanish apparel retailer, 40,000 apparel styles are created every year, each taking no more that 4 weeks from designing to arrival in store. This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chain

3. Shared diagnosis and action: Input from cross functional teams goes towards agreement on “essentials” and “trade-offs” in meeting customer needs;

Teamwork a positive driving force for companies;

Generates commitment towards “action plans” as they are “mutually agreed”.

Four Steps…

Four Steps…

4. Delivering superior customer value: Superior customer value a key competitive advantage;Superior customer value = Trade off between benefits and cost;Benefits include the product quality, support services, purchase experience & more.

Many Companies are Market-Oriented

1. Make customer the focal point;

2. Commit systems to creating continuous “superior customer value”;

3. Use superior skills understand & satisfy customers;

4. Involving entire workforce in the process – cross-functional coordination!

5. Constantly monitor changing customer needs & wants;

6. Measure impact of changes on customer satisfaction;

7. Pursue product innovation; 8. Gather competitor intelligence – make

it a priority;9. Design & implement strategies for

competitive advantage.

Many Companies are Market-Oriented

In Zara stores, customers can always find new products – but in limited supply. There is a sense of tantalizing exclusivity - a few items on display even though stores are spacious . A customer thinks, "This green shirt fits me. If I don't buy it now, I'll lose my chance."

How ZARA achieved success…

Zara’s retail concept depends on the regular creation and rapid replenishment of small batches of new goods.

Zara's designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations.


But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices.


This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chain - from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on.


Most companies insert layers of bureaucracy that bogs down communication between departments.

But Zara's organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy.

Zara is “market driven”!


Market orientation is Key:YET: The same recipes do not apply

everywher!

Starbucks: By creating a new customer experience, along with drinking of fine coffee, Starbucks dominated a new dimension of customer value, while charging a high price.

Market orientation is Key:YET: The same recipes do not apply

everywher!

WalMart’s “TEN-FOOT-RULE” of greeting customers (by greeters), & collective singing of the store’s anthem, upset customers at the stores established in Germany & forced them to stop the practice.

What makes a company Market Driven?

Question…

Understanding markets/ customers - the starting point for any business strategy.

Understanding of markets - companywide!

Integrating all company activities to deliver Customer Value is the challenge...

…that can ONLY be met through “Market-driven strategies”.

How are Market driven strategies developed?

Development of market-driven strategy is not a short-term exercise. Requires investment in:

1. Market-driven organizational culture & processes;

2. Measurement systems, beyond the short-term financial performance.

Market driven strategy:Short-term or Long-term?

Developing market driven strategy: “a cyclical process”

Achieving Superior

Performance

LeveragingDistinctiveCapabilities

Matching Customer Value &

Capabilities

Becoming Market-Driven

Distinctive Capabilities

Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.


Organization's capabilities are not a particular business function, asset, or individual, but comprise major processes as well.

E.g. Dell Computer’s direct-to-customer, built-to-order process.

Distinctive Capabilities: Process Flow

Skills (cross functional teams)Accumulated knowledge(new product experience)

Organizational processes

(New Product experience)

Assets (brand image)Coordination of activities (communication)

Superior customer

value

How does Southwest Airline’s do it?

Organizational Processes1. Point-to-point route system (not hub-and-

spoke!). 2. Service to 57 cities in 29 states - average trip

about 500 miles. 3. Value proposition: low fares & limited service

(no meals). 4. Major emphasis on building loyal customer

base. 5. Operating costs low - Boeing 737 aircraft.

How does Southwest Airline’s do it?

Skills and Accumulated Knowledge Skilled at operating business model at very low cost levels. Accumulated knowledge guides management decision making.

Coordination of Activities Coordination across business functions facilitated by point-to-point model, high aircraft utilization, simple functions, limited services.

Assets Low operating costs, loyal customer base, high employee motivation.

Identifying distinctive capabilities

Understanding a firm’s distinctive capabilities and relating them to customer value requirements is important;

Capabilities enable organizations to compete in new markets, provide value to customers, and create market entry barriers;

Singapore airlines performs many commercial air transportation functions, but is well recognized as the industry leader in customer service delivery;

‘Selecting’ distinctive capabilities

Deciding on which capability to pursue a is crucial for a company’s long-term success;

Honda’s engine and drive-train technology has various product applications, and is widely respected.

Three desirable capabilities:1. Superior to competition;2. Applicable to multiple

competitive situations,3. Difficult to duplicate.

Types of Distinctive Capabilities

Three types of distinctive capabilities have been identified, based on how processes operate:1. “Outside-in” processes: connect

organization to the external environment, providing market feedback and forging external relations;

2. “Inside-out” processes: designed to satisfy customer requirements;

3. “Spanning” processes: respond to customer needs and requirements identified by outside in processes.

Activities under each process type

Spanning Processes

Outside-In Processes

Inside-Out Processes

EXTERNAL EMPHASIS

INTERNAL EMPHASIS

Market sensing

Customer linking

Channel bonding

Technology monitoring

Customer order fulfillment

Pricing Purchasing Customer service

delivery New product/

service development

Strategy development

Financial management

Cost control Technology

development Integrated

logistics Manufacturing/

transformation processes

Human resources management

Environment health and safety


Achieving Superior

Performance



Capabilities


C. Creating Customer ValueWhat is “Customer Value”? The outcome of a process…that begins

with a business strategy… and is anchored in a deep understanding of customer needs. Customers form value expectations & decide to purchase goods and services based on the perception of product benefits versus cost;

Customer satisfaction indicates how the product experience compares to buyers’ value expectations.

Creating Value for Customers at Hewlett-Packard

Hewlett-Packard was about to introduce an “inkjet

printer” in the market. The question was whether to

pitch it against high cost, high profit “laser printers”,

the kind H-P were known for.H-P management decided against targeting

laser printers, and instead, positioned “ink-jet”

as “better Value” compared to low-cost “dot-matrix”

printers.H-P’s timely decision opened up a large

market segment for the company, as “dot-matrix”

users were getting increasingly dissatisfied with the

quality and capabilities of “dot-matrix” printer. “Ink-jet” fitted in as the perfect

alternative!


Achieving Superior

Performance



Capabilities



Matching customer’s desired value and the firm’s distinctive capabilities

D) Achieving Superior Performance

Value DesiredTHE SWEET SPOT

From Market-Oriented to Market

Driven Research suggests that many “market-oriented” companies are not “market driven”.

Market-driven companies are ones that: Identify which capabilities to develop;

Decide on investment commitments to be made, &

Put the plan into action. Q: What capabilities are required to become market-driven?

Market-driven strategies begin with understanding of market & customers;

Developing market orientation, leveraging distinctive capabilities, matching customer value with organizational capabilities, & delivering superior customer value at key;

Creation of superior customer value is a continuing competitive challenge.

In essence…

1. Market Sensing Capabilities

a) Having effective processes in place, to keep learning about market;

b) Sensing market changes by collecting and sharing information across functions – to collectively arrive at “action plan”.

Capabilities for becoming Market Driven :A) Market sensing & Customer linking

2. Customer Linking Capabilities: the ability to create & maintain close customer relationships. Customer linking reduces “churn” - the possibility of their moving to other vendors/suppliers.

Capabilities for becoming Market Driven :A) Market sensing & Customer linking

Royal Doulton, manufacturer of fine china, to recognize the consumer trend towards informal eating, that reduced the market size for formal dinnerware.

Becoming “market driven” often requires change in organizational design, either:◦To improve existing processes OR

◦For “process redesign”.

Capabilities for becoming Market Driven:

B) Aligning Structure & Processes

Objectives: ◦Improve product quality, ◦Reduce cost, ◦Improve service delivery.

Primary targets for reengineering:◦Sales & Marketing, ◦Customer Relations, ◦Order Processing/ Fulfillment, and ◦Distribution

Capabilities for becoming Market Driven: B) Aligning Structure & Processes

Market-driven strategies begin with understanding of market & customers;

Developing market orientation, leveraging distinctive capabilities, matching customer value with organizational capabilities, & delivering superior customer value make a company market driven.

Creation of superior customer value is a continuing competitive challenge.

In summary…

Market Driven Strategy

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