Thursday, September 08, 2005

hindsight from foresight

It seems I have a lot of divergent thoughts in the Strategic analysis of IT course. Today we had discussion in class on two subjects by study groups. One was on value appropriation in the IT industry and the other on competing with Dell. The group presentations were very good and insightful. After these presentations our prof. talked about various issues including the destruction of value for players in the computer sector and value appropriation by Intel and Microsoft. His whole analysis was that had IBM not made it’s standards of microprocessor and operating system open by giving them out to INTEL and MICROSOFT then perhaps the computer industry might have been more profitable for all players. He went on to explain that, in some sense the reason for IBM to open up it’s standards was that it wanted to win the battle of standards in the PC industry against Apple which was the preferred brand at that point in time. Using it’s tactics in three years IBM was able to gain 42% of the market share in this industry. The reason for IBM to come into this industry , even though the overall market size was extremely small as compared to it’s forte the mainframes was that Apple was very profitable and any rapid growth of the market would make it strong to compete with it in it’s domain. The question raised by the professor was that was it inevitable or was it because of IBM that the industry overall is less profitable today. The base being the figures of low margins for assemblers and component manufacturers and huge profits for chip makers and software makers.

His view was that It was because of IBM. My take on this is different.

Looking forward into the future, I see the scenario somewhat like this. The computers possessed by businesses and general public would evolve to be just a thin client making do with very little processor power. The major computing power will lie on the internet servers. So the cost of computers as we see them today would drop like no bottom. Intel stands to loose most as people would no longer be willing to shell out more money, more often for upgrades. Secondly, with the growing concept of software rentals, we would probably be renting only the software we need for the time we need. This would hit Microsoft extremely hard, since people would have much more choice in what they buy and how the buy and at what frequency without worrying about the switching costs involved.

Now on integrating these scenarios we see a whole new structure of the PC or the computing industry. Lots and lots of competitors in the chip industry as the complexity of the chips required for mass market would be low enough to enable lots more companies to enter the space. More competition would lead to lower margins and benefiting customers more. Secondly the hegemony of Microsoft would come under serious threat as once the customer has a choice the market will become fragmented and competitive lowering prices and benefiting consumers. If Microsoft has to make money at all it will have to share it’s source code, or be left behind. If it does share it’s source code it will loose the monopoly it has today over the desktop and loose pricing power. Overall the profitability of this exponential growth industry would go down.

So do we say it is inevitable or is it because of some actions of INTEL and MICROSOFT today. Tieing this very notion into the argument I am of the opinion that what happened was inevitable and not because of some actions of IBM.

Wednesday, September 07, 2005

Building sustainable competitive advantage

We have an interesting subject this term called strategic analysis of IT. This subject is probably unique to ISB in India. The subject is interesting to me because it helps us to get the basics of applying IT in business right. The evidence over last few years of IT revolution in business has been eye-opening and holds a lot of lessons for business going forward.

As part of our reading assignments before the first class we had related articles by Nicholas Carr and Michael Porter ( of 5 forces fame) . The crux of their articles is that a “business model “ based solely on IT like pure play internet driven businesses are not of sustainable models of business over long term. They say this because : one the technology is easily replicable . Two it has benefited the customers more than the companies themselves, since because of easy imitation the pioneering companies have been unable to “appropriate the value” created by this model. Once the competitors are able to replicate the original model the only differentiator is the price. We all know price competition is most beneficial to the customers.

Here I will try and use some fundas learnt in the courses of Micro-economics and competitive strategy. The way I see it is . Any business is able to make money/ profits only if there exist inefficiencies in the market place. For example there could be inefficiency in the market in transporting goods from one place to another and hence the trucking business exists. What IT and internet have done in some sense through new business models has been to remove completely these in-efficiencies like selling music directly to end consumer etc. Now since the entry barriers are low theoretically there may be ‘n’ no. of competitors who come in. We learnt in our eco- course that in a perfectly competitive market the price the consumer is willing to pay is equal exactly to what it costs to produce the goods. In essence marginal cost = price or MC=P. In this type of scenario none of the players make any money and hence destroy the value created through eliminating inefficiencies for the industry as a whole. And hence the longer term unsustainibility of such a business model.

One of the lessons we learnt in competitive strategy course is that for businesses to be able to appropriate value through strategy is to build a unique model of integrated systems in which you cater to only some specific customer needs and deliberately leave out some inefficiencies. In some sense the right understanding of business should come from “ you cannot please all the people all the time”. Our strategy prof. said the simplest form of strategy is to manage trade-offs well in order to appropriate value created by discovering markets.

Discovering markets ? well, there is a market for different types of goods and services with their constituents giving more weightage to some aspects and lesser to others. The way to manage these markets would be to deliberately leave out some aspect of their needs and concentrate your energies on satisfying the critical demands. This way you make sure that you discover and keep a market to yourself. Your potential competitors in their quest to out do you would have to improve on overall delivery, that is your system and that something extra, they will automatically be destroying the value they look to appropriate. And viola you have a long-term success strategy.

Companies who have adapted and integrated the internet and IT in their basic strategy have benefited more than companies which were a result of the emergence of this technology.

I have personally found this model robust enough to explain success and failures of organizations through time. It is imperative that a longer time frame is used to evaluate this frame-work.

Comments and criticisms invited whole-heartedly !!!

Sunday, July 10, 2005

The final decision

Yesterday night our group submitted the final decision to our marketing simulation game " MARKSTRAT". It was the last decision in the game of 7 periods each representing 1 year in real world. Other fellow bloggers have written about the actual mechanics of the game.
This game was a learning to all of us real world marketing background guys. Almost 100 % of us did badly in our first 2 decisions as we tended to rely more on our real world experiences. Alas! this was a different ball game altogether. We had started with a contribution net of all expences of M$ 34 million. In the 2 following periods our group went all the way down to 12 million. But then I took over the whole analysis portion and were happy to note our results, we went from 12 million in 2nd period to 22mill. in the next to 48 million to 69 million . We made a strong come back. Industry wide from being the last we climbed to 2nd position. However we had lost a lot of ground initially in the firm wide rankings.We had gone all the way to 10 position out of 12 and at the end of 6th period were placed 5th or 6th. We hope to improve our rankings to 4-5th place overall. We cannot hope to catch up the leading firms as they have been way way ahead from the begining.
Some important lessons I learnt were
Natural intuition and facts might not complement.
Learn the rules of any new game and them compete within the rules of the game.
Strategies that work elsewhere may or may not work in a changed environment.
It is exteremly important to keep tabs of competitor action and startegies to maximize own profits.
Learn to adapt to changing environment.
Think ahead like chess by taking into considerations the various scenarios that might emerge.
Apart from all this we were able to use our theoritical learnings in action.

The whole experience has been very very good. It had become an addiction for me as i felt very competitive. I felt passionate about the success of the virtual firm. In the end it was not about marks but about competeing and winning.

I feel these learnings will go a loong way in helping me become a better marketing person in the real world.
Ziv : “But how do you make your skill transferable”
This made me think a lot and has had a profound impact of my understanding of an MBA education. I had been cribbing for the last few months that there is too much focus on quantitative skills in an MBA and it does not necessarily help in real life situations. How wrong I was.

During one of our classes in decision models and optimization(DMO) with ZIV KATALAN from Wharton, he was telling us about the application of Monte-Carlo simulation in the retail trade. He had built a small simulated program where we were supposed to optimize the revenues through management of discounts and inventory in a store. We had a class competition where various groups reported their scores and winners were decided by the maximum contribution from the simulation.
Our group came on top of the class. The objective was to use ( DMO) processes to be able to take a decision. Since our group came out on top. I was asked what strategy I had used. What I had done was to play a few practice games and then developed an intuition guided model through which I maximized the earnings. This is exactly what I told him. Other groups had built mathematical models for the same.
And guess what, he commented as above.
This comment which might seem to be innocuous changed my whole view of an MBA program.
Rather than making you indispensable, a special skill of yours could make your growth prospects limited. If over a period of time you are unable to pass on your job skill to someone else you might be stuck at that place and limiting your chances of growth.
MBA is all about quantitative methods of decision making and I feel I can do a much better job left to my qualitative skills. This is what I used to believe. But now things are making much more sense. By reducing everything around us a set of numbers what researchers have done is to make these personality dependent intangibles into tangible equations with precise relationships, to enable knowledge transfer. I always though some of the best managers need not be necessarily be comfortable number crunchers. But I guess if you have crunched no.s long enough you will develop an intuition for the outcomes. This is as natural as knowing what is going to happen next in the market through experience even though we are not capable of defining the reasons for the outcome.
There have been several instances of ‘ Déjà vu’ during my first and second terms where I understood why some communities do better in business than others. One such case is the concept of ‘sunk costs’. All through my life it has intrigued me how the marwari business men are able to work with such low margins in trade and business. It turns out they are excellent economists. Once they have incurred the costs of setting up a business, they do not consider the start up costs for decision making. The economic term for the same is "sunk costs" and should not cloud your business decisions going forward.
After the 1st term and almost ¾ of the second term, I am able to relate much better between real life business scenarios and MBA education. Looking back I realize that it was extremely useful to have come here after spending 7 years in business, I can now relate to the reasons of my various failures, successes and successes of competitors to the underlying reasons and decisions that might have effected the various outcomes.
I feel that now I am able to attach much more value to the way MBA is designed, to impart business education.

Sunday, June 12, 2005

Back in action

HUge apologies to my reagular readers for being out of action for soooo long. Actually it was all unintentional. After lightning and showers one night my network card just stopped working and I was cutoof from the network for good, for past about 20 days. There have been numerous times that I felt like blogging about this and that but was constrained by circumstances. Anywayz I have not got my laptop problem rectified and will be blogging regularly from now on.In fact the Compaq guys had to change the complete motherboard for this problem of mine, seems to be working fine for now. Even though Saturday was an off day for their service centre, understanding the importance of my Laptop at ISB they especially opened the service centre for me and finished their job. Kudos to HP India service centre... and it definately helped that one of their engineers had been at ISB for 2 and 1/2 years before he joined there.
Lots of us ( bloggers ) have written loads and loads about our exams and term 1 and term 2 etc. so just thinking how and what I would like to put down. Will be back with some ideas soon.

Sunday, May 15, 2005

The week end that was.....

Didn't have much to do this weekend and had decided to pursue other interests here. The student club activities are getting organized attended a few.
The EVC - club ( entrepreneural and venture capitalist club). This club meeting had organized an intenal speaker session for the entrepreneurs and wud be entrepreneurs amongst us. There were two who talked about their ventures and what they were doing in them. The third was interesting a guy who already has a business plan ready and is eagerly waiting to meet up the VC's ( through our WCED) in the VC conclave in JUNE. Wanted to speak but then my attendence was not planned so it didn't push the matter. Had insights about entrepreneural ventures and pitfalls by Prof. Scott Ward.He goaded us to make solid business plans and work more on writing and presenting and then participate in international level competitions. Turns out he had guided a winning team from Thailand last time around.
My impression ...... well no major take-aways for me.
Consulting club.
This club meeting also had angenda similar to EVC with internal speakers giving us general gyaan about the segement as such. Lots of good presentations ( hall marks of consultants). This was a well atttended meeting with the lecture hall overflowing with enthsiatic people. Around 150 is my guess.Students got to know about the various types and segements in the consultancy domain.I guess this club will keep up it's high turn out in future too. As I guess ISB wants to known for giving a big chunk of students as consultants. Makes sense to me at least.
My take..... not a bad start by no take aways for me.
The media and entertainment club.
This is a new club which a few of us are trying to get official recognition for...
We met to discuss vision and mission statement and how to harness the potential of job opportunities in the media sector.Strategy,ad sales,programming etc.. and where MBA's might fit in etc.
We decided on a plan of action and were working on it. However officials here want us to be a part of the more mature and all encompassing marketing club. Let's see....
My opinion...... good start and good co-ordination since it was just 11 of us (potentially 20). Let's hope for the best.
Marketing club;
I missed this one. But i guess i might attend the next one.
Then there is this club called business and lifestyle club. Here people are planning to learn about the finer things in life like golf, snooker, handling 11 course meals, art appreciation,wine tasting etc.. Interesting agenda, hope they find time to indulge in such things. will wait for some time b4 deciding to become a part of it.
Toastmaster's club: Basically for people who want to learn art of public speaking , presentations etc. affiliated to a worldwide organization.Intrestd here too, but it comes at a price, so yet to take a final call on it...
Business technology club:
Did not attend coz i guess it's for more of the techie types( read IT-Junta)
Operations and engineering club:
Basically for people interested in joining the operations part of business.They had elections I guess for the office bearers. Most got elected unopposed is what i heard.
Emerging markets club: Attended the first meeting. Trying to decide the way forward.Looks a little unclear what it was set up to do and what it wants to do. So finally just decided to do and share our reaserch for markets in BRIC( Brazil, Russia, India, China) countries.
My take .....ummmmmmmm.... need good mission and viosn statements.
Finance club:
It is there i know but i guess is a closed user group. will try to get some dope on their activities.
Guess I have covered most clubs, but there might a few more lurking round the corner
will write about them as and when i get newz abt them.
This week-end I was feeling a little low, so decided to go to the city, decided to go alone. Did some shopping and had a solitary PIzza at pizza hut.
Sunday brought anxiousness, I had not started working on my assignment.However at the end of the day finished it and submitted it by 10 p.m. looks OK to me. don't know abt grades. Had a volleyball match today, was hopeing to play but i guess ... anywayz to cut the long story short, we sec A lost. This was the second drubbing in 3 days after the football match on Friday.
My study group mates and the general population is studying hard, and I am falling behind.But I have decided to have a holistic development of personality view, so am taking it a little easy. Don't know what will pay off more whenit actually counts most. Keepingmy fingers crossed.

Wow a pretty looooong post i guess, thanks to all the readers dropping by..

Monday, May 09, 2005

The week end that never was

I had never felt so good on a Monday and looking forward to classes. Over the week-end we had loads and loads of work to do. We had a case-write-up to submit for Marketing one of the first assignments in a group. Over the week-end we have all literally spent 20hrs a day together working out strategies and plans and learning new aspects of our group mates’ natures. The whole thing would be a very interesting study in group dynamics. …
Anywayz we had another individual in Economics to be done over the weekend and submitted online.
After just one week into the course you really feel like u have been doing for much longer. It is just amazing to note the amount of ground we have covered in terms of studies.
I am starting to enjoy the classes, baring statistics as I am not a “quantitative” guy, but a “qualitative” guy. Very soon into the course I realized MBA is a good way to build all round perspectives in business scenario. For example what would typically be an “asset“ in accounting class would turn out to be a sunk “cost” in the economics class. And since these subjects are being taught at the same time , you need to be very very careful about not mixing the fundas being bombarded at you .
Promise a saner post sometime soon ...

Friday, April 29, 2005

MBTI rejoinder

I have done my own small research on MBTI profile and uses. The research has been very very limited to I guess my conclusions may be wrong. One thing I clearly noticed was that entrepreneurs as such have their scores placed very close by or equal for that matter on atleast three of the four parameters. This set me thinking about entrepreneurs and myself. I guess as a breed entrepreneurs are much more adaptable in terms of their attitudes and behaviour,their thought process is more of situation based and dependent on frame of mind. However good managers or dedicated and comitted people of organizations have a distinct profile either way. Guess they are in an organization and/or position due to thier "FIT" with the MBTI of the organization.
Yes! organizations also display MBTI preferences and so do various groups of people. In our group dynamics class today we indentified MBTI profile of our group which turned out, not to be a factor of collective individual MBTI preferences, but different.That was a surprise for the moderator as well as all of us .
As a corollary to my earlier observation about MBTI preferences of entrepreneurs , I feel people who have their scores placed near each other would make good entrepreneurs. I hope to test this hypothesis some time in future.

Attended another party today hosted for farewell of alums who have comedown for our orientation. The music was good and the party took a lot of time to get off as I guess, people were fatigued with 3 parties in one week. Anywayz I took it lightly and danced just a little was generally on the sidelines.
The ghost of studies has started troubling "Junta" and people are seen making effort with their study groups. Guess all want to start on the right footing in the first classes. Although CP( class participation) marks are out, they might still face cold calls.
Waiting for the term classes to start on Monday........