StrategyProf

Fixed to Flexible – The Ebook

This is a festive and fun excerpt from a WSJ article published over a decade ago – still ties in well with strategy! Enjoy – mc

Lech Baczek’s life took a shift in 1992, when a villager returned from Germany with a piece of plastic kitsch later identified in legal briefs as “Gnome Fisherman.”

It was a garden statue of a type Mr. Baczek, a crystal artisan, had never seen. Lying in the dust at his feet, the garish object, with its leering gaze and tiny wooden fishing pole, yielded a vision for Mr. Baczek. He saw ranks of identical garden gnomes marching from Poland to the German border. He saw Polish gnomes welcomed by a hungry German populace. He saw an end to the hard life his tiny agricultural community offered its people.

“Sure, I would rather work with glass — it doesn’t smell as bad,” Mr. Baczek says. “But I could see this was my future.”

Indeed it was. Founded in a backyard shed a short time later, Mr. Baczek’s company, P.W. Westimex, has grown by leaps, producing about 140,000 gnomes annually — featuring 300 different designs — at four factories. And while Germans buy most of his output, Mr. Baczek is exporting gnomes to six countries, including, most recently, the U.S.

Other Poles shared Mr. Baczek’s vision. The German state of Bavaria may have a century of manufacturing tradition, a lively domestic market and a culture that glorifies garden gnomes in performance art and permanent exhibitions, but its days of primacy in the garden-gnome trade are numbered. As the Poles can easily undercut the Germans on price, Nowa Sol is now widely seen as the garden-gnome capital, where 40 factories help feed hundreds of thousands of cheesy dwarfs to throngs of German sentimentalists.

Accordingly, a fierce trade war has erupted in recent years along Germany’s border with Poland. The average trip across the Polish border from Germany entails an hours-long wait at the checkpoint. Judging by the sheer number of gnome-yards in Polish border towns, a fair number of those in line are coming to indulge their passion for plastic gewgaws. German officials estimate that several million Polish gnomes have taken up residence in their country. And more are crossing the border all the time.

While his son scours Europe for design ideas, Mr. Baczek has turned over sales and accounting duties to his daughter-in-law, Sylvie. Ms. Baczek is something of a mogul in this impoverished agricultural community, with her twin Mercedes-Benz sedans and snappy designer clothes.

Inside the factory, in an atmosphere made dim by the relentless spraying of lead-based paint, Ms. Baczek waves a hand at her latest achievement — ranks of polyester garden gnomes, done up in red Santa suits, each bearing a gold box inscribed “YEAR 2000.”

“The Millennium Gnome,” Ms. Baczek says with pride. “It’s my first copyrighted design.”

While many of the festive dwarfs will no doubt brighten countless German gardens, a good number are destined for department stores in France, Ms. Baczek says. Unfortunately, the Polish appetite for them remains undeveloped. “Polish people do not buy garden gnomes,” Ms. Baczek says with a sniff. “They prefer to spend their money on food.”

The profusion of Polish manufacturers has driven down the price of gnomes. While some German manufacturers continue to charge $100 or more for a handpainted one, a Polish version can be had for $10. “I have never seen a German gnome, so I can’t say which is better,” says Thomasz Barkas, a border merchant, as he stands knee-deep in little people. Referring to the fact that they are slathered in lead paint, he observes: “I can say that putting a Polish gnome in your living room could be bad for your health.”

Not that many Germans seem to care. At a market stall near the Polish border town of Trzebiel, Steffi and Ranier Thomas, a couple from Hamburg, argue quietly over a line of figurines. “She thinks they’re funny. I think they’re kitsch,” Mr. Thomas says. He relents, however, and agrees to a single purchase. “We’re not interested in German gnomes, they’re much too expensive,” Mrs. Thomas says. “It’s not like we’re buying a kitchen appliance.”

Not every German manufacturer has fiddled while the market melts down. Some companies have abandoned their own plastic items, aiming instead for the upscale with ceramic statues. Others have filed copyright lawsuits, some of which they have won, and have thereby persuaded German border guards to seize shipments of Polish knockoffs and to impose gnome quotas on tourists. When Mr. Baczek and his colleagues began producing identical copies of “Gnome Fisherman” by the truckload, many of them ended up in a German shredder at the border.

Spotting a copyright-infringing gnome can be tricky. Joseph Dieterle, a German customs official, says that while he never intends to own a gnome, he was forced to bone up on the subtleties of their design. “Our job is to spot counterfeits, so we became gnome experts,” Mr. Dieterle says. He has hired consultants, and helpful German gnome makers have provided the guards with full-color design dossiers, making the task easier.

But wily Nowa Sol manufacturers became expert at altering German designs just enough to pass muster with customs. In the case of “Gnome Fisherman,” for example, Mr. Baczek simply exchanged the statue’s face with that of another. Other manufacturers substituted a wheelbarrow for the fishing pole.

Ultimately, all of the designs got confused. Knockoffs became amalgams, German in their parts but Polish in their whole. And it wasn’t too long before German manufacturers began to have trouble. This year, the venerable German Gnome house of Zeho, a Bavarian concern, bit the dust after Polish upstarts appropriated more than 20 of its designs.

It is in this cold world that Wilfried Messner operates. His Bavarian factory produces 400,000 gnomes annually — about 20% fewer than it used to, thanks to the Poles. He has no love for the imports.

“Polish gnomes are inferior,” he observes acidly. “They dissolve in the rain.”

Poles, he says, continue to steal his designs. At a trade fair in Cologne, a gaggle of foreign manufacturers approached his booth to request catalogs. “They were very cheeky,” he says. “Instead of buying our gnomes to steal the design, now they just take the catalog.”

But if a war is won by inches, Mr. Messner thinks he may have gained a foot or so recently. He has discovered a factory in Taiwan that makes tiny transistorized gizmos, electric eyes, coupled with dime-size speakers. Some of Mr. Messner’s gnomes now bark like dogs. They whistle. They sing “Happy Birthday” when they sense movement.

Perhaps one day soon, the Poles will co-opt this technology themselves, Mr. Messner says. But perhaps one day soon, Poland will join the European Union and be forced to use proper materials and pay its workers what they would make in Germany. “For now, they can’t copy my technology,” Mr. Messner says. “An earthquake shut the Taiwan factory down.”

Credit: Staff Reporter of The Wall Street Journal. The Gnome Invasion: Cheap Polish Plastic Makes Odd Inroads — Unreasonable Facsimiles Flood Germany’s Big Market For Kitschy Garden Statues
By Christopher Cooper. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 9, 1999. pg. A.1

This excerpt comes from Heath and Heath’s Talking Strategy PowerPoint and does a great job reinforcing the benefit so a clear strategy (and the strategy diamond):

“Whit Alexander, a co-founder of Cranium—the company that manufactures the hit Cranium board game (sold to Hasbro in 2008) —recalls a time that he called a Chinese manufacturing partner to discuss a concept for a new plastic game piece. The piece would be purple and made of multiple parts that would need to be glued together. The Chinese manufacturer balked. “It’s not CHIFF,” he said. Alexander was astonished. His supplier, halfway across the globe, had just corrected him using Cranium’s own strategic language. And the supplier was absolutely right.

CHIFF is an acronym that stands for “Clever, High-quality, Innovative, Friendly, Fun.” The CHIFF concept defines Cranium’s strategic differentiation in the extremely competitive board-game market. CHIFF informs decisions across the organization—from branding to package design to the content of individual questions. (Example: A suggested question for the game asked how many justices were on the Supreme Court. It was too much like a standard trivia question, insufficiently Clever or Fun to be CHIFF, so it was rewritten: “In which of these sports could the members of the U.S. Supreme Court field a regulation
team, with no justices left on the ‘bench’?”)

The Chinese manufacturer had chastised Alexander for his kludgy idea for a game piece. Glued-together? That’s not particularly “innovative” or “high-quality”; the feel of the piece would be all wrong. The manufacturer came back with a design so smooth and novel that players during a game would hold spare pieces in their hand, turning them over and over just for tactile pleasure. Not only had the manufacturer improved the quality, he had also made a game piece “Fun.” Alexander was impressed.

This is a game-board manufacturing success story. More importantly, though, it is a strategy success story. It’s a strategy success story because the executives of Cranium developed a way to communicate a crucial element of the company’s strategy—its differentiation— in a useful, comprehensible way. “CHIFF” is simply a very clear, very actionable statement of strategic differentiation. Cranium employees, suppliers, and channel partners all use CHIFF to make hundreds of on-the-ground decisions that defend Cranium’s competitive differentiation.

Let’s face it: there is no clearer proof that a strategy has been communicated properly than when a manufacturing supplier, in another country, with a different native language, uses it to correct (rightly) the founder of the company.

The site is maintained by me, Mason Carpenter, for the practical strategy professor — those of you who want to take your strategy course to the next level.  Gerry Sanders and I authored a new Prentice-Hall strategy textbook with that objective, Strategic Management: A Dynamic Perspective, and this blog is aimed to provide teaching resources to help you be a star teacher in the strategy classroom, undergrad, MBA, and Exec!  Best wishes with your teaching! 

You may have recently received an email inviting you and your students to participate in a live webcast featuring Rusty Rueff, CEO of SNOCAP—a major new player in the rapidly evolving world of digital music (from the founder of Napster). We hope that you and/or your students were able to view the live broadcast, and that it provided you with a fascinating look inside the mind of a leader in one of the most dynamic industries of this generation—the music industry. If you were unable to watch the live interview, or would like access to it for future use in the classroom, we are pleased to announce that the recorded webcast is now available for viewing at your convenience.Click on the URL below to access the archived interview: SNOCAP

WHAT CAN YOU EXPECT? *A nationally broadcasted, 60-minute interview where students are immersed into the strategic thinking of an innovative and entrepreneurial leader in an industry they know and love—digital music. *Moderated by Ingrid Vanderveldt, host of CNBC’s “American Made,” SNOCAP CEO Rusty Rueff shares insights and answers real students’ questions about SNOCAP’s management strategies and their impact on the digital music marketplace.Inspire your students with a whole new way of looking at dynamic strategy! Please contact me should you have questions or need any additional information.

[The original article is found on Economist.com, but it is a great tie to dynamic strategy] 

Google has agreed to buy YouTube, a popular website where users provide the content, for $1.65 billion. Now the world’s leading search engine needs to work out how to make it pay

INTERNET years, like dog years, act to speed up the ageing process. Google, founded in 1998, is now considered to be something of an elder statesman. Perhaps the firm hopes to enliven itself by its decision on Monday October 9th to use a whopping $1.65 billion of its own shares to buy YouTube, a website that lets users post home-made video clips for others to share and watch. The latter has been in business for a mere 19 months.

The world’s biggest web-search engine has probably splashed out on something worthwhile. The website is young, but it matters more that its user are mostly young people, who increasingly neglect television and other traditional media channels and instead seek entertainment online. Advertisers are hoping to reach this audience now and secure it for the future. And ads are the means by which Google hopes to rake in big revenues.

YouTube is big for a baby. It serves up 100m videos every day, making it one of the world’s most visited websites. The firm, which employs some 65 people, has not made a profit to date. But the growing popularity of social-networking sites, where users can exchange videos and photos and make connections with other people, has already convinced some old media firms to grab a share of the online crowds. Rupert Murdoch’s News Corporation paid $580m for MySpace in 2005. The media mogul stole a march on many of his competitors by recognising early on that a website with user-generated content is valuable for reaching young consumers. Mr Murdoch even roped in Google, already an expert in the field, in a lucrative deal to sell ad space. And rumours abound of bids for Bebo, Facebook and others, which offer similar services. Yahoo!, one of Google’s biggest rivals, apparently thwarted in its own ambition to acquire YouTube, reportedly wants the latter.

But it is unclear how the business will mature. Most agree that there is plenty of money to be made from YouTube, but no one is quite sure how. Putting advertising alongside video clips or other content provided by users may pose problems. YouTube has refused to insert adverts that cannot be skipped at the beginning of clips as that risks annoying or driving away users. And the content of sites like YouTube varies. Advertisers would not want their products flagged alongside anything off-colour or embarrassing. YouTube and its rivals have cast around for more sophisticated ways to present advertising for some time but without finding an answer.

What users may like about YouTube is that it breaks the rules. Google has promised that YouTube will continue to operate as a separate business. But it may chose not to continue carrying the huge number of music and television clips that breach copyright, as wealthy Google would make a tempting target for the litigious. But if YouTube removes the illegally-copied material its appeal may drop.

Google has made simultaneous deals with big entertainment firms to distribute their content. But, just as with music downloading, the lure of the illicit may be what draws some users. That may explain why the big internet firms have made little headway in this business so far. Google, along with Yahoo! and AOL, have tried to provide sites for user-generated material but those efforts have largely failed. That Google has bought a firm that competes with Google Video, one of its own services, is an unusual admission of weakness by the web giant.

The deal may put Google in a position to satisfy a growing demand for the delivery of television, film and music over the internet rather than through traditional channels. However, YouTube’s rapid flowering is a reminder that something newer and a little different that appeals to a young audience is never far away. Barriers to entry are low: rivals can emerge with just a good idea and a little money. Google itself, born in a university dorm and funded on its founders’ credit cards a few years ago, serves as a reminder of that.

SOURCE: ECONOMIST.COM

We open Chapter 6 with a chronicle of the Cola Wars (the market battle between Coke and Pepsi, primarily — by the way there is a nice update on Coke’s strategy getting a new jolt from CEO Neville Isdell in the May 15, 2006, issue of Fortune, pp. 77-78).  However, we have also noticed that our students like to study the dynamics of the beer industry as well. 

If you happen to have similarly-minded students, then you might open up a class discussion of — Change is brewing at Heinekin (Financial Times, May 9, 2006, p. 10 — www.ft.com ).  This article does a great job of laying out the five facets of the strategy diamond, showing the interdependence between formulation and implementation, and reinforcing the role that strategic leadership plays in effective strategy.  The beer story is a relatively easy one for students to get their arms around, since it is a global industry dominated by InBev, SABMiller, Anheuser-Busch, and Heineken. 

The inputs too are basic commodities like water, sugar, etc., and customers are segmented both by the channels (retail, bars and restaurants, and consumer), geography, and perceived beer quality.  Thus, students can talk to the arenas in value chain, geographic, and brand quality terms, the cost versus uniqueness differentiators, vehicles ranging from organic, to acquisition, to alliance-based growth, and different staging approaches (i.e., many brands in a market then moving to another geographic market, or taking the same brand across geographies).  It is interesting too to talk through the overarching economic logic of Heineken and other competitors as students can see how some players are going for a GE strategy — having 1st or 2nd brand in a market — or an overall market share strategy — or both (like Anheuser-Busch in the U.S.).

When we have taught about the beer industry, we have sometimes started with the Beer Indusry in China case by Eugene Salorio (see discussion of it at the BPS Teachign Toolkit). Again, this lets you get at the interesting interaction among the players, and then you can update a particular player like Heinekin using this FT article.  We have also found a nice complement in the A/V resources at www.cantos.com.  This site (must register but it’s free) has streaming video interviews from the beer industry executives at SABMiller, and a couple other beer biggies.  A really intriguing one is on SAB’s expansion strategy in Poland (SABMILLER in Poland: brand driven organic growth”), where it organically launches a new brand using a great resource-based logic.  You can help students see this logic in the staging of this move, show them how it is an example of a corporate resource that SAB seems to be able to leverage across markets, then ask the students to identify other ways they think that competing in Poland helps with SABMiller’s overall economic logic.  You can then again return to the Heineken example as a way to show them how they might think about connecting all the dots. 

As you are probably well aware, Hambrick and Fredrickson’s (2001) strategy diamond  has quickly established itself as a highly potent strategic decision making tool in both classrooms and executive suites around the globe.  Winner of the coveted Academy of Management Executive (AME) Best Paper Award in 2001, and recently christened an AME “classic” by that journal in the Fall 2005 reprint of their “Are you sure you have a strategy?,” this facile framework’s effectiveness is a function of its simplicity and comprehensiveness.  This framework is also integrated throughout our new strategic management text, Strategic Management: A Dynamic Perspective.

We have employed the framework in our teaching since it was first published and are consistently pleased with how well undergrad and graduate students alike can learn to apply it quickly and adeptly.  Just as rewarding is the fact that our students return to us long after completing our courses to tell us how they continue to use the diamond model in their actual work. 
As Hambrick and Fredrickson describe it, “If a business must have a single, unified strategy, then it must necessarily have parts.  What are those parts?  We present a framework for strategy design, arguing that a strategy has five elements, providing answers to five questions – arenas: where will we be active?  vehicles: how will we get there? differentiators: how will we win in the marketplace? staging: what will be our speed and sequence of moves? economic logic: how will we obtain our returns?”
 

Since our text is concerned with dynamic strategy and the strategic leadership challenges of creating and responding to changes, the staging element of the diamond model perfectly signals to students that change is inherent – by design – in all good strategies. 

As we talk with faculty about teaching undergrads and MBA about dynamics (beyond simply rivalry), one of the challenges is to bring up examples that are relevant to rapid or gradual changes in the landscape, yet have not been covered in every other prior course (like Dell, Southwest, etc).   Some of our students also have read Christensen’s  Innovator’s Dilemma and Solution series, so we were looking for examples that were complementary yet not redundant.  I wanted to share one such novel example – called “Inside the Box” – in the hopes that you will share other examples in return that we all can use in our courses.   

We came across “Inside the Box” in the April 25^th, 2006 (p. 17), issue of the Financial Times (www.ft.com).  The actual article is called “Unforeseen consequence: How a box transformed the world”, authored by Marc Levinson, as a thumbnail sketch of his book (The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, Princeton University Press, 2006).  A related article is found in the March 18, 2006, issue of the Economist.  

This little gem of a book chronicles how the container transport industry emerged and evolved, and how containerization (i.e., that big cargo box that goes from truck, to rail, to ship, to truck, to store) dramatically altered the competitive landscape of industries and even national economies (through strategic choices about investment in ports or ground infrastructure).  Chapter 7 of the book walks you through how the container became the standard in the late 1950s, and the rivalry that took place among container companies.  The story is a great example of strategic choices made by leaders, industry myopia, and how strategy formulation and implementation are inextricably linked.  We have found, that since the context is so well known by our students, and practically taken for granted, that the story of the box is one that they can readily relate to the challenges and opportunities presented by dynamic strategy.