WORKING WITH A VISION 211 Good and bad strategy 184 ー 85 ■ Porter's five forces 212 ー 15 See a 0 : Leading the market 166 ー 69 ■ Porter's generic strategies 178 ー 83 ・ activities that businesses can use to better understand how to achieve these forms of differentiation. These interrelated activities ー dubbed the "value chain" by Porter - describe the flOW Of a product from its initial SUPPIY t0 the final customer. A firm can add value tO the product at each stage 0f the chain, through product-related activities ー the firm's inbound logistics (supply 0f parts or materials), manufacturing, and after-sales service ー and market-related activities: outbound logistics (the delivery 0f products tO the end user), and marketing and selling the product. TO ach ieve c omp etitive adva ntage , a firm cannot fOC11S on one activity alone, but needs to consider each of the activities in the chain. For example, Mercedes-Benz pursues a differentiation strategy, firstly through producing a high-end product, but also through providing outstanding after-sales service. Analysing the value chain can also help firms t0 identify what areas Of their business might be suitable for outsourcing, which can help the firm tO achieve a cost advantage. The primary value-chain activities in a firm are supported by a series Of secondary activities, which can also be used tO achieve competitive advantage. These activities vary by industry, but typically include: purchasing (procurement); human resource (HR) management; technology development, including research and development (R&D); and a firm's infrastructure functions, such as finance and legal. Although support activities may be viewed Gaining the advantage When you've got only single-digit market share ー and you're competing with the big b oys ー you either differentiate or die. M 記 a Dell US founder of DeII Computers ( 1965 as 'overheads", secondary value can be generated, for instance, through better use 0f technology. ln addition tO their horizontal products in a "virtual" value chain. ・ added tO online activities and suggesting that value could be the emerging world 0f the lnternet, John Sviokla drew parallels with executives Jeffrey Rayport and thinking 0f the "chain". ln 1995 , notion Of value beyond the linear required firms tO "reinvent" the market complexity 0f the 1990S Ramirez argued in 1993 that the scholars Richard Norman and RafaeI business theorists. Management and have been built upon by other advantage were highly influential, Porter's theories competitive Reinventing value system Of which it is a part. firm's value chain, but on the value advantage relies not only on the for distribution. Competitive from suppliers and uses Other firms example, a manufacturer buys parts system" Of vertical activities: for activities, firms operate in a "value Red, yellow, 0 ー purple? Fashion retailer Benetton, launched by the Benetton family in ltaly in the 1960S , pursues a differentiation strategy with its bOId brand image. TO achieve this, the firm has focused aspect Of its value chain, fror supply t0 satisfying the latest consumer fashions. TO ensure Benetton garments are up-to-the-minute, the firm ma11UfaCtUreS many Of itS clothes in grey, then dyes them to meet the demand for whatever colours fashion. Although this is costly in production, it minimizes stock, reduces wastage, and enables the firm t0 respond quickly tO changing consumer tastes. Benett011 stores are run by agents, and garments are shipped directly tO the stores and immediately placed on the shelves. This creates a strong value system, keeps costs lowe て , and allows each part Of the chain tO absorb fluctuations in demand. Benetton has more than 6 , 500 stores in more than 120 countries, and its turnover exceeds €2 billion a year. イ を Benetton's value chain boosts the firm's differentiation advantage. C10thes can be dyed in fashionable colours tO match customer taste.

SYNERGYAND 0 田 LIES 186 IN CONTEXT FOCUS Mergers and takeovers KEY DATES 1890 ー 1905 The first "takeover wave" occurs in the USA and Europe , triggered by an e C onomic depression and new legislation. 1960S Abraham Maslow applies the idea 0f "synergy tO the way that employees ⅲ organiz ations work together. 2001 US firms AOL and Time Warner merge in a deal worth $ 182 billion. lt does not work out, and ⅲ 2009 the firms become separate entities. 2007 ln the USA alone, 144 takeover deals worth more than $ 1 billion take place. 2009 Only 35 takeover deals worth more than $ 1 billion take place ⅲ the USA. WHY TAKEOVERS S PO T irms have tO grow in order tO survive. One way tO make an organization bigger is t0 buy (acquire) another and make it part 0f the original firm. AlternativeIy, two businesses can agree tO merge, forming another organization With an entirely new identity. The purpose Of an acquisition or merger iS Often tO increase shareholder value beyond the sum Of the two firms. These benefits are known as synergy"; the concept being that one plus one equals three. The reasons for tWO businesses joining together might seem compelling. The new, combined firm increases sales, market share, and revenue. lt should also be a more efficient operation. Bigger firms alSO enjOY economies Of scale: expectations". short Of management's initiatives often fall that "synergy and Goold concluded academics Campbell in business circles joined. A HOIY Grail business units are iS created when t Ⅵ 70 additional value that Synergy is the overhead COStS are shared and money can be saved from increased buying power. Fixed costs can aISO be reduced because the combined business needs fewer staff in key functions, such as finance, human resources, and marketing, than the tWO separate entities. Firms also buy businesses tO acquire new technology, reach new markets, or increase distribution. ln practice, takeovers and mergers are rarely marriages made in heaven , a fact underlined by Har01d Geneen in the books he co-authored ⅲ 1997 and 1999 on the pretence of synergy. Mergers can fail t0 deliver the value promised, with one plus one Often equalling less than tW0. There are many reasons for failure. Hidden Corporate divorce

MAKING MONEY WORK 125 groupthink 114 ■ Play by the rules 120 ー 23 ・ Accountability and governance 130 ー 31 See a 0 : Beware the yes-men 74 ーー 75 ■ ls money the motivator? 90 ー 91 ・ OrganizationaI culture 104 ー 109 ・ Avoid governance mechanisms and executive pay. The shareholders Of Barclays Bank, for instance, were stirred intO taking action just before the bank's 2012 AGM. They had discovered that in the previous year, profits had fallen by 3 per cent, shares had dropped by 26 per cent, but chief executive BOb Diamond was due tO receive a bonus of E2.7 million and total pay ln excess 0f E6.3 million. Restricted ownership FABER-CASTELL 一ー 761 第′朝・を・・第′転・編朝・気、・、れⅸ” 0- れ朝れ Leadership is a privilege tO better the lives Of others. lt is not an opportunity tO satisfy personal greed. Mwai Kibaki Former President Of Kenya ( 1931 ー ) ドー N 、 T A R ーー 5 ー 5 ・ QUALIT•Y ln private limited companies, the situation iS simpler. Since share ownership is restricted (Often within a single family), the performances 0f family- and directors and the shareholders are publicly-owned firms in Spain usually the same people. ln any found that family-owned firms German mittelstand firms ー such as Faber-CastelI, a world-leading producer case, it is unusual for people tO performed better, in terms Of Of pencils ー are usually family-owned. take advantage financially 0f those financial equity, than non-family Directors Of such firms are more likely within their own circle Of family firms Of the same Size in the same tO focus on long-term performance. and friends. For example, the industry. Countries such as the UK problem 0f perks before profits is and USA, however, have a larger rarely an issue in Germany, Where with the creation Of large, public proportion 0f plcs than many Other the mittelstand (medium-sized) firms limited companies (plcs) that countries. After decades of non- - which are mainly family firms ー interference, shareholders are once allowed senior management more are the dominant business model. freedom tO operate beyond effective again becoming interested in A recent study of the different shareholder scrutiny. AS long as the corporate governance and gain. ・ firm's profits were satisfactory, directors were free tO conduct their Fewer perks,more profits business functions as they saw fit. However, if a business enterprise Several firms have taken were told that the choice was comes tO reflect the aims Of its positive steps tO eliminate reduction in travel managers, will the business be perks as part Of a cost-cutting expenses, or a Ct1t in their strategy. At the German firm bonuses. focused on profit maximization T-systems lnternational, an ICT (forits owners , the shareholders) or Since the 2008 financial subsidiary 0f Deutsche Telekom downturn, there has been an on increasing the status, financial AG, all workers must now fly increase in the trend Of rewards, and power Of itS managers? in economy class, regardless organizations tightening their Of the traveller's position within purse strings. Even the mighty the firm, or the distance and entertainment firm alt Disney duration 0f their journey. The iS phasing out executive car change from business- tO allowances. Cost-cutting and economy-class travel is thought eliminating perks puts greater t0 have saved T-systems $ 1.5 pressure on managers tO bOOSt million annually. Executives their firm's profitability. Personal interests S ome dire ctors act opp ortunistic ally ー they seem tO be more interested in personal gain than in the firm's financial wellbeing. The banking crisis of 2008 led the shareholders Of many firms tO question corporate

110 IN CONTEXT FOCUS Business strategy KEY DATES 1900s ー 1950S Growth of large, vertically integrated corporations that control and own their assets, requiring complex and multi-layered management structures. 1950S ー 1990S Organizations begin tO expand by acquiring unrelated businesses. 1990 Business experts C K PrahaIad and Gary HameI introduc e the idea Of "core competencies" in their H 砒レä祠 Business Review article "The Core Competence Of the Corporation". 1995 US firms start to outsource functions tO firms "offshore", such as businesses located ⅲ lndia. 2000s Firms begin to sell Off unrelated businesses tO refocus on their core. THE MAIN G 加 REMEMBER THE MAIN G THE MAIN G 町印 T THE CO 催 BUSINESS Businesses are usually very good at one thing such as making computer chips. . the core business may begin tO fail This skill gives the firm a competitive advantage diversifies intO If the firm non-core businesses or outsources some functions to unr eliable third parties. The main thing tO remember is, the main thing is the main t i 9. he expression "Jack 0f all trades ” refers tO someone whO can turn their hand tO anything, but is not particularly good at any one thing. Unless a firm iS able tO maximize itS competitive advantage over its competitors, the same can also be true in the world Of business. Success usually relies on using that advantage rather than branching out with something new. The core business iS therefore the "main thing" at the heart Of a firm's operation, and organizations must remember that "the main thing is the main thing", according t0 Brigadier General Gary Huffman 0f the US Army. When a firm is

WH W 榊 , BUT WITH A GREEN BRUSH 268 夏 CONTEXT FOCUS Business ethics KEY DATES 1985 Scientists announce that they have discovered a hole in the ozone layer. 1986 First use of the term greenwash" ⅲ an essay by US environmental activist Jay Westerveld. 1990 By the 20th annniversary Of Earth Day, a quarter of all new hous ehold products coming on tO the US market are advertised as "recyclable" "biodegradable", "ozone friendly", or "compostable" 1992 The Federal Trade Commission, in association with the US Environmental Protection Agency, publishe s "Guidelines for Environmental Marketing CIaims". 1999 The word "greenwash" enters the 〇 x. て d 〕ノ s. カ D. た〇月 a て必 public knowledge, many consumers want to help When an environmental issue or disaster becomes GREENWASH TO attract these customers. by shopping responsibly . Firm A implements fundamental issues seriously take environmental Some firms reforms environmental . Firm B makes 1 in ⅱ al changes in order tO claim green credentials . Firm C misleads the public on its environmental policies Some firms environmental issues as a marketing t00 ーー whitewashing, but with

342 GLOSSARY lnterest rate The amount Of interest - the charge for borrowing a sum Of money ー paid annually by a borrower, measured as a percentage Of the total amount borrowed. lnventory Goods and materials held in stock in a warehouse or similar premises. Can alSO refer tO the total value Of a firm's assets including raw materials, and unfinished and finished products. lnvestment ln business terms, the activity Of purchasing bonds or shares in a firm. Can alSO refer tO a firm's expenditure on items intended tO yield an increase in operational performance, such as new tOOlS. Kaizen Japanese for "good change"; in business, the term refers tO continuous improvement tO enhance productivity. The extent to which Leverage people or firms fund their activities with borrowed money. When high leverage is widespread in the economy, the degree 0f debt can create a short-term boom; but this is often followed by a crash. Leveraged buy-out (LBO) The acquisition Of a business by a firm or group 0f individuals using a large proportion Of borrowed money. Liability The financial obligations Of a firm tO outsiders or claims against its assets by outsiders. Liquidity The ease with which an asset can be bought or sold, without adversely affecting the asset's value. Cash is the most liquid asset, since itS value remains constant. Long tail A term coined by UK writer and entrepreneur ChriS Anderson tO describe how the overall sales Of niche products at the thin "tail" Of a demand curve may be greater than sales Of the most popular products at the "head" Market The consumers whO buy a product or service. AISO, any place where buyers and sellers trade goods, such as a shop or a website. Marketing Promoting the sale 0f products or services tO consumers or other businesses. Effective marketing identifies, anticipates, and responds tO customers' needs. Market leader A product or firm that has the largest market share Market share A business's percentage Of sales in a specific industry or sector. Merger The combining Of two or more businesses tO form a separate organization with a new identity. The aim Of a merger is Often tO increase shareholder value beyond the sum Of the tWO ()r more) firms. Micro loan A small loan made to entrepreneurs or small businesses. Micropreneur An entrepreneur who starts and builds a small business Of their own, Often alongside s alar ie d employment. M-commerce An abbreviation Of "mobile commerce", the use Of portable devices such as laptops and smartphones tO conduct business transactions online. Monop01y A market in which only one firm is active. Monopoly firms generally have low product diversity, which they can sell at a high pric e due t0 lack 0f c ompetition. Niche market A small group of people with an interest in a product or service that is not addressed by mainstream providers. Off-balance-sheet finance Accounting methods whereby some liabilities or assets are not recorded on a firm's balance sheet Open innovation The idea that a business's talent-base, and consequently its insight intO new products and servlces, can be expanded by drawing on expertise from outside the firm, Often via social media and the lnternet. Operating margin A measure Of profitability ー the ratio 0f a firm's operating profit tO its revenue Outsourcing The contracting out Of specific taskS or functions in a business tO outside firms. Overhead Any ongoing expense of a business, Sl-1Ch as rent Of premises; alSO known as operating expense . Positioning A marketing strategy that establishes a distinct position for a brand in the market Private equity A type of investment in which private assets or borrowed funds are used tO finance private firms (those not listed on a public stock exchange). Private limited company (Ltd) A company in which the liability of members is limited tO the value Of their investment in the firm. The firm's shares cannot be bought and sold by the public. Product portfolio A strategy that i11VOl\.reS assembling a diverse range Of products or business units.

222 M 乢灯 Y 損 BUSINESS he US author Mark ftvain pose additional temptations. ln 夏 CONTEXT said we should "always do the 1980S , for instance, the price what is right", but this has Of Guinness shares was inflated in FOCUS not always been the case in order tO assist the firm's takeover Business ethics business. High-pr0file scandals bid for drinks firm Distillers. such as Enron and Lehman Businesses worldwide are under BEFORE Brothers in the 2000s have led to greater scrutiny tO be ethical in their 1265 ltalian philosopher and a collapse Of public trust in firms. undertakings. ln 2011 一 13 several theologian Thomas Aquinas lndividuals are Often tempted tO multinational firms came under fire states: "no man should sell use ⅱ 1 oral means tO further their for shifting profits between countries a thing tO another man for aims. J D Rockefeller controlled the tO avoid large tax liabilities. This is more than it is worth. ' US oil industry in the 19th century not illegal, but many regard it as 1807 The UK and USA outlaw largely because he used underhand il 1 咀 oral , and consumer perception the Atlantic slave trade. methods tO put competitors out Of can affect a firm's profits. ・ business. Today, some corporate 1948 The United Nations firms are, in essence, a collection Of (UN) adopts the Univers al individuals whO want their firm tO Declaration Of Human Rights. get ahead 0f the competition, but 1970 US economist Milton are alSO alert tO opportunities for Friedman claims: "the social personal gain. They may even go responsibility Of business is as far as illegal phone hacking or tO increase its profits. " price collusion. For example, in 2013 Dow Chemicals was ordered 1970S The term "business t0 pay $ 1.2 billion for price-fixing. ethics" comes intO common Executives may be tempted to use ⅲ the USA. break the law because Of pressure ln 2013 , several 0i1 firms came 2011 The UN Human Rights from shareholders for results or for under investigation by the EU antitrust performance-related bonuses. Gains Council endorses Guiding authority for preventing Other firms from share-price movements and Principles て Business and entering the price assessment process, the value Of the business overall thereby distorting oil prices. Human 召カ亡 s , which sets global standards for human rights and business activity. Creating an ethical culture 224-27 ■ The appeal of ethics 270 See a 0 : Play by the rules 120 ー 23 ■ Profit before perks 124 ー 25 ・ CoIIusion 223 ー

WOR 灯 WITH A VISION 211 P ARE USELESS, み、、 BUT P 引 S ⑨ SP S 夏 CONTEXT FOCUS Business planning KEY DATES EarIy 19th century Prussian military strategist Carl von Clausewitz formulates the principles Of strategic planning. 1940S The US Air Force considers opponents' possible actions in order tO prep are alternative strategies. 1950S US futurist and military strategist Herman Kahn encourages governments and individuals to “ think the unthinkable" by imagining possible future scenarios. 1967 French philosopher Bertrand de Jouvenel coins the term ん亡 u わノ e tO mean "a fan Of possible futures". 21st century Firms and governments use scenario planning for wide -ranging issues including fOOd, water, and energy SUPPIY, and population growth. SCENARIO PLANNING n addition tO contingency planning, which involves preparing for sudden disaster, firms alSO need tO prepare for the many alternative futures they face. ThiS iS krlOW11 scenario planning. lt has its roots in military planning, and firms start the process by What is likely to happen in the next tWO, five, or ten years? Firms have tO consider local, national, and international events, and must try tO identify underlying trends. They have t0 determine the probability Of future scenarios, hOW the firm might be affected, and how they can prepare themselves tO mitigate the effects, or even tO reap the benefits. Scenario planning does not remove uncertainty, but it can help a firm t0 adapt tO change. Prepared for change OiI firm RoyaI Dutch Shell has used scenario planning for nearly half a century. lts early work was based on intuition, but it has now developed sophlsticated techniques tO create scenarios, which it shares publicly. However, the firm never comments on the scenarios it discloses, as this might guide other firms or governments' decisions. SheII's scenario planning allowed it tO minimize the impact Of an Oil embargo on Western countries in Oct0ber 1973. Within weeks, the price 0f crude Oil had soared and stock markets tumbled. Although Shell was hit by these events, it had already begun tO diversify into other energy sources, allowing it tO recover more quickly than competitors. ・ its executives tO act fast and effectively. dO in the case Of price rises, allowing it had already decided what it would 1973 , Shell's scenario planning meant During the OPEC OiI embargo of See a 0 : Managing risk 40 ー 41 第 Learning from failure 164 ー 65 ・ Avoiding complacency 194 ー 201 ・ Contingency planning 210 ■ Coping with chaos 220-21

WOR 灯冊 WITH A VISION 191 See a 0 : Reinventing and adapting 52 ー 57 ・ Changing the game 92 ー 99 ・ Hubris and nemesis 100—03 ・ Learning from failure 164 ー 65 ・ Porter's five forces 212 ー 15 ■ Coping with chaos 220 ー 21 ・ Forecasting 278 ー 79 ■ Feedback and innovation 312 ー 13 A strategic inflection point is the point at which a major change (such as the arrival Of the lnternet) takes place in the competitive environment. If the firm recognizes it and adjusts, the firm may soar; if it ignores the change, the firm will decline. Grove calls such a moment a 'strategic inflection point". This iS not necessarily a single point in time, but it is usually accompanied by a noticeable peri0d 0f unrest within the organization. lt may be initiated by changes in the external environment , or by new competition, and senior managers are Often among the last tO notice what is happening. lntel's first strategic inflection point came When Japanese firms began tO produce better-quality, lower-cost memory chips than US firms during the 1980S. lt t00k Grove three years and huge losses tO realize that only through rethinking and repositioning could lntel once again become a leader in its field. Business goes on tO new heights lnnection point The arrival of new technology, new industry regulations, or a change in customer values or preferences Business declines or service that complement a firm's tO be alert tO such major change ー a "IOX" change ー because it requires own product or service by adding a fundamental change in strategy. value tO mutual customers; for ln the 1970S , US professor Michael Depending on the actions leaders example, software products porter summarized five competitive complement those Of computer take at this point, the change can forces that face firms: competition, either take the organization tO new hardware manufacturers. substitute products, new entrants, heights or send it spiralling down Grove describes all these forces suppliers, and buyers. Grove added as "a steady wind", but if one force intO oblivion. The important thing a sixth force: complementary for leaders iS tO discern products. This is the impact 0f becomes ten times stronger it acts expected change and profound more like a typhoon. Leaders have Other businesses that sell a product change, when the balance 0f forces shifts from old to new. ln his book, Grove uses the example 0f the growth 0f the lnternet. The lnternet was a "IOX" change for every firm, but some failed tO recognize the lnternet's force or were complacent and did not take action tO exploit it. Many firms in the bOOk industry were guilty 0f these failures ー even firms that had previously been extremely 》》 10X change ミ ~ ) ヾをに一 、 0 PHOTOS 2200 M i00 日 eg 。 B00 、 2 The lntel Corporation in CaIifornia, USA, became the world's largest computer-chip maker under Andy Grove's leadership. He encouraged employees tO bring him bad news.

304 KAIZEN IN CONTEXT FOCUS lmproving efficiency KEY DATES 1882 S cottish shipbuilders WiIIiam Denny and Brothers Ltd becomes the first firm to use a suggestion bOX tO garner ideas from itS workforce. 1859 English naturalist CharIes Darwin publishes 〇月 the 〇ⅱ g 加 e Species, and outlines his theory Of evolution as a process Of gradual changes. 1990 ln "Re-engineering work: don't automate, obliterate" in the Harvard Business Review, MIT professor MichaeI Hammer argues that tO stay ahead, firms need tO periodically redesign production methods. 1997 Japanese founder of the Kaizen lnstitute, Masaaki lmai, writes Gemba Kaizen, stressing that kaizen works best when shop-floor workers provide ideas for continuous improvement. idea that has become part 0f the culture. ln its everyday usage, the word means an enhancement or a change for the better. ln a business context, kaizen is more Of a philosophy; according tO the kaizen way Of thinking, firms should strive t0 increase efficiency through a process Of continuous improvement. The majority of kaizen advances are built around people and their ideas, rather than investment in nevv machinery. Employees use kaizen tO produce hundreds Of new ideas every year, aimed at improving the efficiency 0f the business. ln isolation, each kaizen idea might only have a marginal effect on productivity and general efficiency, but together these changes add up, creating a critical competitive advantage. ldeas for continuous improvement should come from all quarters ー from managers and employees alike. Before you say you can't dO something, try it. Sakichi Toyoda System (TPS). This system was designed t0 reduce muda ー the Japanese word for waste. One Of the forms 0f muda identified by Toyota wa s wasted employee talent; Eiji Toyoda wanted more from his workforce than just blind obedience and hard work. At Toyota employees were valued and trusted ー SO much SO that the firm expected their shop -floor workers tO fix problems associated with quality, and come up with ideas tO improve efficiency. According t0 the Kaizen lnstitute, founded by Masaaki lmai t0 implement the philosophy, the aim Of any kaizen plan should be tO persuade all workers that they have The Toyota Way Kaizen was first deployed on an industrial scale by car manufacturer Toyota in the 1950S , as part 0f the now famous Toyota Pro duction 0 Toyota the principles Of kaizen. This, along with its principles Of The Toyota Motor Company "customer first" and "quality (TMC) was established ⅲ 1937. lt first", helped the firm to thrive, and they began exporting their produced several models 0f saloon first cars to the USA ⅲ 1957. cars at its Honsha production plant ln 1962 management and f0Ⅱ0ーⅣ・ ing business precepts set down by founder Sakichi Toyoda, Uni011S signed a jOint declaration which included, "Always strive t0 stating that their relationship should be based on "mutual build a homelike atmosphere at work that is warm and friendly' trust and respect' By 1999 production in Japan FoIIowing ル AJO て ld War Ⅱ , the had reached 100 million firm faced a financial criSlS and, 丿 vehicles. Today the firm for the first time in its history, had continues tO be guided by the to make staff redundant. ln 1951 , twin pillars Of continuous Toyota implemented a creative improvement and teamvvork. ideas suggestion system based 0 Ⅱ