strategy

NEXTflix Problem

Posted on by @nne322

Netflix is taking a bold move after spending over two years recovering their losses from their last big controversial pricing and programming change. The Netflix CEO Reed Hastings is doing everything possible to avoid another Qwikster disaster.

Since their lose of nearly 800,000 users and 75% of it’s value, Netflix has worked it’s way back to the top with over 29.1 million members, surpassing enterprises like HBO. [1] However, Netflix could not have done this without turning back the focus to their users wants and needs.

Netflix has done a great deal to reinvent their service, pricing and licensing deals. Recently, Netflix has utilized Facebook to create a Netflix Social , where users can link their facebook and Netflix account and view tabs of “what your friends are watching” or “friends favorite”. [2] Netflix also just made a deal with Dreamworks to begin producing another Children’s original animation series. [3]  Furthermore, Netflix’s production and release of 15 new episodes of the popular show Arrested Development  has also received a lot of praise by Netflix users..[4]

Despite their growth and efforts to reconstruct their service, Netflix has run into a new growing problem.

Their current problem is that over 10 million users are not paying for the streaming service Netflix’s CEO is trying to be very cautious about handling the shared user and password issue. Hastings does not want to lose or ban viewers, but instead he wants to keep people positive and excited about Netflix’s service.[5]

Analysts insist that Netflix’s profit would exponentially increase if Hasting’s cracked down on the issue. One analyst believes they could be making up to 5% more per subscriber if they fix their current pricing or offer different plans for users.[6]

Instead, Netflix’s CEO is celebrating the idea “that people love the service”. [7]

The new plan that will be unveiled will allow four streams for $11.99, while the current pricing of $7.99 for two streams per account will still be available. They expect less than 1% of customers to opt for the new plan, but they hope as their service becomes in bigger demand that users will begin to see the value.[8]

Other plans consist of adding a $3 increase for added users , adding extra fees for children programming or limiting the number of devices that can be attached to the account. [9]

Netflix users are vulnerable  since the last price and policy change, so Hastings needs to remain very sensitive to the issue in order to sustain their level of expansion and growth in the market. Therefore, Hastings is not interested in making any drastic changes, but slowly implementing different plans with added benefits.

 

Whether you are a current Netflix user or considering a subscription to Netflix, what plan or price increasewould drive you away? What added benefits or licensing deals would make you keep your subscription?

 

How Six Flags could learn from this class

Posted on by spr1322tgutheil

http://socal.catholic.org/images/local_ad/2010024016magic.jpg

Six Flags Entertainment Corporation filed for bankruptcy protection in 2009 after years of being in devastating amounts of debt, poor management and multiple changes in who owned the company. This initiates the first issue as there is no way there can be a good way to manage a large company like this with so many changes in leadership. By the time the people that work for Six Flags got used to the new style of leadership, the ownership changed again therefore messing up the whole system again. A long-term plan should have been established with somebody that would be there the whole time this be through the different stages of ownership.

The company started doing a little bit better again in mid-2010, and today in 2013 analysts say that the company can have a good season ahead of it as it has new attractions that can improve the attendance and therefore the revenue. Through finally having good management again the company has improved season pass sales, less discounting and more financial income through parts of the business such as dining. What the earlier owners and managers should have realized is that forecasting plays a huge role in how their business is doing. They should have realized that discounting is good but definitely can not be the end all be all as it may attract people, but there has to be a line draw to make sure it is still profitable for the company and therefore the employees.

The fact that there are a lot of new rides and attractions posts a lot of opportunity in terms of that a lot more people will start showing up. One of the reasons that Six Flags Corporation had been struggling is that old customers were getting saturated with the rides and attractions that were available to them because they had been to the parks so often. With the new rides a lot of the long-time goers will start going again and the season ticket sales will go up again.

Management also mentioned that this will not be the old Six Flags ever again as it will establish a new business plan and “has willingness to rethink its business model and track record of success.” It seems as if this new set of management knows how to promise the company future success, but the question is if it will actually be able to successfully implement all of these new strategies to guarantee they won’t slide into losses again. The keys to success for a company like Six Flags are good forecasting for what needs to be done in order to get a lot of tickets sold, good management of the employees and facilities, along with making sure the rides and attractions provide variety and do not get boring.

http://www.businessweek.com/ap/2013-04-19/credit-suisse-initiates-coverage-of-six-flags

Forecasting Failure?

Posted on by spr1312shyzny

Analysts have forecasted Caterpillar, Inc. (CAT), the industry-leading construction equipment manufacturer, to decrease in production this year. The company has been relying in foreign markets such as Asia and in the Pacific to keep them afloat after the 2008 recession. Looking at the decline in spending and cut backs in these foreign markets, analysts are forecasting rough weather in the upcoming quarters for CAT.

One of the biggest hits for Caterpillar was in purchasing Bucyrus International Inc. for $8 billion in 2011. This Chinese mining company was overvalued by $580 million, due to what Caterpillar thinks, were inflated profits by managers. Since China, the world’s largest exporter, has slowed down in production, Caterpillar is suffering as well.

According to the Wall Street Journal, CAT has announced 11% decrease in sales from this past quarter. This slow down, however, was not what Caterpillar had expected. In January, Caterpillar gave an outlook report for 2013 where they forecasted an increase in revenue of $8 billion and a $2 earnings per share increase. On the other hand, analysts are predicting that they will decrease in revenue from $65.2 billion to $62.1 billion by end of 2013.

Halting demand for mining equipment in Australia and Indonesia have also taken a tole in Caterpillar’s forecasting plan. With all markets slowing down, except for in Latin America, Caterpillar’s opportunity will be in these upcoming quarter. Caterpillar and other companies in the same situation will all be keeping their fingers crossed for  the US economy to pick up and start new production of construction and mining equipment to get back on track.

Another threat to Caterpillar is the more favorable use of natural gas to produce electricity. This causes a decrease in use of mining equipment and slows down equipment production. The narrowing use of CAT products has forced them to lay off the workers in the assembly plants.

Competitors of Caterpillar, like Komatsu, (the world’s second-largest seller of construction equipment) has also been struggling in the same markets and has already decreased their sales and profit forecast for this upcoming year. If Komatsu seen this coming, why didn’t Caterpillar?

With all these factors coming into play, Caterpillar should be reconsidering their forecasting plan and cut back on production as well as profit expectations for 2013. Will they heed this information or continue with their plan?

Do you think Caterpillar should have planned for this pause in production? Maybe Caterpillar should start producing new equipment for a new kind of consumer.

source: http://www.foxbusiness.com/news/2013/04/21/caterpillar-expected-to-cut-2013-guidance-in-first-quarter-report/

Got Maps?

Posted on by w13lewis

I know, I know… Many of us in the Business world are sick of talking about, thinking about, and reviewing how good Apple is doing. My CEO says we need to be more like Apple, be the market leaders, innovators… like Steve Jobs. So it is to my pleasant surprise, when an opportunity comes up to talk about Apple’s mistakes, I don’t mind going into detail.

When the first iPhone premiered, it was not Apple’s strategy to make a GPS, nor an infinitely vast search engine. No, their goal was simple; make a phone that worked, was easy and intuitive to use, and make it look amazing. On every account Apple achieved what they set out to accomplish  When they opened the app store, they revolutionized mobile computing. They changed the way software companies could make money on mobile. Instead of tiny banner adds at the bottom of your mobile web browser, you could buy an app that was worth the dollar. One software publisher was there first, Google. Google brought directions and navigation to Apple’s iPhone. Apple liked it, so it was installed by default. It was simple, easy to use, and it worked wonderfully.

At some point in the last few years, Apple has started to control the App space more stringently. They’ve frequently cited security or legal reasons as to why they would deny a software publisher’s right to sell on the online mobile store. Strangely, with the release of the latest phone (iPhone 5) and the newest operating system (iOS 6) they denied Google the ability to publish the Google Maps App (which was free to download and install), and instead released their own version of the Maps App which was installed by default.

In an uncharacteristic move by Apple. The Apple Maps App was downright awful.  It was unpolished,  difficult to use, often sporting inaccurate or inefficient directions to your destination. If you were so lucky to use it on the new iPhone 5, you have turn-by-turn navigation with a friendly voice who would sometimes get you lost. In fact, the navigation of the new app  was so bad that caused a few incidents, even causing Australia to issue a Public Service Announcement to not obey Apple Maps directions as they could be dangerous.

This week, Apple effectively conceded defeat and allowed Google to once again publish Google Maps to the App Store. Within days, Google Maps became the most downloaded App in App Store history. Indicating both that Apple’s Map application was rubbish and that Google’s Map App did not represent a major threat to Apple’s primary business strategy.

So here’s the key question, if Google and Apple are direct competitors, why would they let Google bring their Map App back? If they’re not directly competing against each other, why ever remove Google Maps in the first place? It is possible that Apple thought they could push Google out, and gain market share. Instead, they upset a huge core of their customers who are now delighted that Apple brought back the real Maps App.

 

http://www.guardian.co.uk/technology/2012/dec/10/apple-maps-life-threatening-australian-police?utm_source=twitter&utm_medium=socialmedia&utm_campaign=gadgetlabclickthru

http://www.guardian.co.uk/technology/2012/dec/13/google-maps-iphone-app-downloaded

You made need a rope before jumping off the Fiscal Cliff

Posted on by w13lewis

The economy is still not doing that well, the Fiscal Cliff is looming, and large companies still continue to pinch their pennies. So why are many publicly traded companies ready and willing to give their extra cash away? Good question…

In the recent weeks, in the light of the looming Fiscal Cliff where many believe Congress will not be able to reach a resolution and the dividend tax rate will jump (among other things), people are starting to get a bit greedy…or cautious, or weird…and some publicly traded companies are declaring large special dividends to their shareholders, which in some cases also means the CEO pads his pocket too along with all other employee-owners.

The most recent case in the 68 cases known so far is that of Costco. The big-discount, warehouse style retailer just recently announced $3 Billion in Special Dividends to be paid in December bringing the payout to $7/share versus the regular dividend rate of just $1.10/share. This will of course make for many happy shareholders as it will prevent them from paying a higher tax on their dividend returns should the tax rate increase next year. It will also have the effect of reducing Costco’s $5 Billion in cash before any fiscal uncertainty of next year. Experts suspect the likes of Bed Bath & Beyond, Staples, and Williams Sonoma to soon join the ranks (WSJ).

We are also likely to see companies move up their dividend distribution date from 2013 to 2012 to ensure payout to shareholders with the current discounted tax rate instead of risking uncertainty of next year. Wal-Mart is a big proponent of this strategy, and we are sure to see similar stories before the end of the year.

In addition, some market analysts are calling for a bullish market no matter what the outcome of the Fiscal Cliff is. Since Government spending will no-doubt decrease, the bond rates remain flat; the only chance of a strong return on investment is to go with stock. This is playing right into the hands of many mature companies looking to excel in the near-term.

Again, looking at Costco; they borrowed $2 of the $3 Billion used to pay the special dividend, but they also have plans to expand their stores and distribution centers. They are looking to expand business, not decrease it despite taking on some additional debt and decreasing their credit rating from A+ to AA-. The outcome looks the same for other large retailers like Wal-Mart and Home Depot. As investment options narrow, new business strategy takes hold. (Barrons)

As we near next year and the uncertainty of our fiscal policies seem no better defined, these trends will continue for companies that are cash heavy with stable growth. We will continue to see special dividends distributed to aid those favored with stock options, distribution dates moved forward, and stocks preferred over many other short-term investments. Only time will tell how they all fair. (Yahoo)

Other Sources:

http://www.bloomberg.com/news/2012-11-19/special-dividends-surge-fourfold-as-tax-increase-looms-in-u-s-.html 

http://on.wsj.com/TtLxai

 

 

 

CAPSIM and Chinese Government Infrastructure Spending?

Posted on by w13richard

While it might seem that a business simulation website and government infrastructure spending in China might be worlds apart, the underlying strategy theories and challenges between the two are very much the same.  Capsim is a web learning application that challenges users to attempt to duke it out with other real teams and computer opponents.  The essential challenge that is presented is to attempt to out maneuver your opponents in an effort to gain additional market share and subsequent profits. The Chinese government’s efforts to invest in infrastructure to stay ahead of the curve of its growing middle class needs present the same problems my team faces but with significantly greater consequences. One need not look farther than Detroit or Las Vegas to see what happens when exuberance and poor forecasting meeting economic decision making.

What is the common challenge between these two situations? Well, in a word, uncertainty. Uncertainty is the lack of true knowledge of the future environment as well as the actions of other players in the global or virtual world. While in both situations, one could attempt to forecast probabilities of what would be required to support future business ventures or population transitions or growth, no one can know for sure.  This uncertainty can doom a seemingly smart and well planned out investment today to become a nightmare tomorrow.  The Chinese policy of building 20 cities a year for the next 20 years is a perfect example of poor planning to models that don’t properly predict changes in an economy. The absolute waste of resources that that is going into these ghost cities within China reminds me of the comparison between the cost of bombs and schools made by Eisenhower at the end of this term.

I was reading a Financial Times article today about perceived overinvestment by the Chinese government  that really got me thinking about the strategy to be played in our virtual competition being fought on the web.  While moves that my team makes are truly inconsequential to my existence, investments and the forecasts that fuel them are being made in one of the largest emerging economies in the world and they may be proving to be the wrong decisions. While there are opinions and models that show both sides of the argument, the fact remains that models can be wrong.  To this end, the study mentioned in the article notes an effect of this investment on 4 percent of potential GDP as well as 10 percent of actual GDP. Considering the complete poverty that is experienced within many areas of Chinese society, one is forced to consider how this value can be better directed to ventures that would help those individuals improve their economic situations.  Added on top of this, no one can completely account for the human cost of misallocated resources. Just imagine if Albert Einstein was not given the opportunity to receive any education in his lifetime…

While this may prove out to be utter hogwash criticism of long term planning and development by Beijing, one has to recognize the reality that all of these decisions and really all of life’s decisions in general, are based on uncertainty and essentially game theory. After reading this article, I sat back and thought of other examples of terrible investments made in ventures that at the time seemed to be the greatest thing since sliced bread. Of course, each decision varies significantly in financial value; the point that really can be driven home is the absolute uncertainty of operating in a dynamic world.

What sorts of decisions have you seen or made in your personal or work life that proved to be terrible even though everything pointed to a great outcome at the time you made the decision?

 

China’s over-investment problem

http://ftalphaville.ft.com/2012/11/29/1288653/chinas-over-investment-problem/

 

The Google Ceiling

Posted on by w13michael

Google has a problem.  Google’s problem is that for all their variety of products, their only revenue stream of consequence is advertising.  And for all of the fancy ideas and products they throw at the market, it appears that unless they can take back the mobile handset market with their Motorola purchase (which they do not appear to be positioning themselves to do), advertising is going to be the primary revenue stream for Google for a long time to come.

Google has a business model problem, and the cornerstone of this problem is the fact that while Google is in the advertising market, it has outgrown the market.  In the early years, their growth was fueled by the rapid growth in electronic commerce, and the fact that traditional advertising was not able to drive electronic commerce.  Since then the market has stabilized and Google is the established leader in electronic advertising, with the traditional channels still maintaining print, outdoor, television and other media channels.  If it can be reasonably assumed that the largest growth in electronic commerce is behind us and that the current landscape will be increasingly more mobile where Google has lower market share, Google has limited potential for continued growth in advertising.

Google’s revenue is almost entirely in advertising, and they don’t appear to be branching out any time soon.

For all its searching (and finding) adjacent markets, it appears they only make halfhearted attempts at monetizing these markets.  Take for example the ability to perform mathematics and graphing functions through their search engine.  Before Google entered, WolframAlpha provided this capability through free trials followed by premium memberships which have additional flexibility and capabilities.  However, Google appears to have entered only for the purpose of  limiting the revenue potential of a minor competitor, if WolframAlpha can even be called this.

Meanwhile, Apple and Amazon have established themselves with business models that, while very different from Google, flank and de-position the Google business model.  Apple has built a successful model of obtaining revenue from software, hardware, services, as well as content which Google has not been able to replicate quickly enough.  Not only this, but Apple has clearly been moving away from Google in all elements of their operations, recently even taking Google Maps from their mobile devices – clearly in an effort to eliminate the potential for advertising revenue through popular Apple devices.  Likewise, Amazon has built a successful model entirely based on selling products and online content; if Amazon is the premier internet source for products and content, they also control the advertising of the content and Google is again left out of the picture.

Google needs a 2.0 strategy in order to continue their growth.  This strategy must appreciate, but not limit itself to their advertising market strengths.  This strategy must not simply copy the strategy of Apple, but must provide differentiated value in order to become a significant source of revenue.

How Corporate Strategy May Ruin Your Holidays

Posted on by w13jeff

In a book I have recently read, Strategy is defined as positioning an organization for competitive advantage.  It involves making choices about which industries to participate in, what products and services to offer and how to allocate corporate resources. 1  As with any good strategy, there is a need for flexibility to react to a market and / or the competitors.  A corporation is constantly learning about their position and adjusting to maintain a competitive advantage.  This is never more apparent than in the retail industry today.

Black Friday has become almost a holiday in its own right.  It is the day after Thanksgiving, which is thought to be the busiest shopping day of the year and the beginning of the holiday shopping season.  There are several theories about why it’s called ‘Black Friday’, but the most common in the retail industry is due to retailers running at a loss (red) until Thanksgiving when they start taking in a profit (black).  Traditionally, retail has strictly been brick and mortar stores.  In 2005 companies started becoming a little more aggressive with their deals hitting the market place the day after Thanksgiving.  The past few years a new channel has opened competition even more where people are shopping online.

Last year we started seeing a couple different strategies with retailers offering door buster deals and opening earlier on Thanksgiving.  However, this year there is definitely more strategy involved with companies taking different approaches.  For example, Foot Locker is not discounting goods.  It is releasing a hot new shoe at the regular price and keeping their other products at regular price as well.  Target is not discounting goods but is offering a line of luxury items no other retailer is carrying.  Wal-Mart opened its stores 2 hours earlier this year and is trying to balance its promotions between the store and its online customers.  They are trying to drive more customers to Walmart.com without affecting the stores.  Lastly, Amazon is offering free shipping for any goods bought on their website.2  These are all examples of companies changing their strategy and combating their competitors.

I just read an article stating top online retailers have sales up 28.4% over last year.  Last year’s holiday online retail sales were approximately $67 billion and this year they may reach $79 billion.4  Not only is this huge growth, but it shows that retailers need to change with the times or they will find themselves out of business.  The other amazing stat is PayPal had almost a 200% volume increase in mobile payments. 4  This is telling me people are in the stores with their mobile devices and purchasing online.  Brick and mortar operations cannot survive this consumer behavior.  What does it mean to retail, as we know it?  I am not sure.  However, I am certain it is changing and companies will have to change with it.

I found these articles interesting for a couple of different reasons.  First, we are identifying a strategy as part of a project in class.  It makes you realize we need flexibility within that strategy to be successful.  What we are experiencing with our shopping habits proves this extremely vital to success and survival.  The second reason I find these articles interesting is because at work, I deal with payment methods and there is a lot of talk about mobile payments.  Some believe it is the future while others believe it is not.  There is a very interesting article below regarding PayPal discussing this very topic.  We have not made a decision at work yet, but it is good to have some options ready in the event we have to change our strategy.

References

  1. Cornelis A. de Kluyver & John A. Pearce II “Strategy: A view From the Top” Pearson Education 2012
  2. Will Retailers’ Black Friday Strategies Work?
    http://professional.wsj.com/article/SB10001424127887323622904578129544038176924.html?KEYWORDS=youtube+strategy&mg=reno64-wsj
  3. If You Want to Beat ‘Em. Learn From ‘Em First
    http://professional.wsj.com/article/SB10001424052702303734204577464503619605954.html?mod=WSJ_SmallBusiness_LEFTTopStories&mg=reno-wsj
  4. Sales soar on Cyber Monday ; Business at top retailers up 26.6%
    http://professional.wsj.com/article/TPUSAT000020121127e8br0000c.html
  5. PayPal Works to Take Its Business Offline
    http://professional.wsj.com/article/SB10001424127887324595904578117212801486972.html?KEYWORDS=paypal&mg=reno64-wsj

“What about this? Experts 2 cents”

Posted on by f1233rpfeil

Companies are competing significantly more on supply chain management. There are many technologies that aid COOs and managers to gain a competitive edge to make their business more efficient, cost-conscious, and enhancing strategic operations. Modern businesses must transform the way suppliers, manufacturers, distributors, and customers interact globally. The developments of technology compensate for these challenges to help maximize operational efficiency to satisfy consumer expectations in immediate (‘want it now’) delivery. Before this course, I did not realize the big picture and that company’s survival depends significantly on supply chains. I thought competition was primarily based on their strategy (low-cost, response, differentiation) and how desirable their products are in the market.

 

In class, we learned how different supply chain decisions impact strategy—such as low-cost, response, and differentiation. It is imperative for companies to adjust their approach on how they mitigate risk and react to disruptions of the factors in Process, Controls, and Environment appropriately. With technology and analytic tools, managers have the capability to plan, monitor, and forecast more concisely than ever before.

 

There was a featured panel discussion of supply chain Industry Experts that shared their opinion on the ‘Trends and Insights’ in SupplyChainDigest website article. The VP of Marketing at Logility, Karin Bursa, mentioned that companies want to improve their forecast accuracy. She said analysts discussed how a “5% improvement in forecast accuracy can drive double digit improvements in service levels virtually for free.”

 

Building value throughout the supply chain is vital to sustain successful relationships between suppliers, manufacturers, and consumers. Companies are now adopting a more complex and detailed supply chain by creating “multiple virtual supply chains to develop tailored end-to-end processes to support distinctly different segments of the business.”

 

This reminds me of when we discussed how supply chain decisions impact strategy. If the two concepts compliment each other, it can avoid setbacks and expedite the process activities to maximize strategic operations. The four basic process strategies we covered were process focus, repetitive focus, product focus, and mass customization. The type of product, volume produced, and variety of products must be taken into consideration when deciding which process to implement and how it will affect the strategic operations of the company.

 

Process and supply chain activities affect the main strategies, low-cost, response, and differentiation. For example, operating a differentiation strategy, process characteristics are modular—process that lend themselves to mass customization. Or operating a low-cost strategy, the process characteristics will be to maintain high average utilization. It is evident from our class discussions that the interaction between supply chain management and strategy can determine how competitive a company is in the market.

http://www.scdigest.com/assets/on_target/12-11-06-1.php?cid=6406&ctype=content

Helping yourself to the top spot by helping others

Posted on by f1224drogala

We have learned a lot of different strategies that firms can use in order to be competitive in the marketplace. They varied from having a quick response to offering the cheapest product. However, companies these days are trying to do everything in their power to stay competitive. There is no reason that they shouldn’t do anything in their power to be known as a great company and thus get better sales. A big new aspect for businesses is volunteering.

IBM is one of the biggest companies that has been volunteering and helping out communities since its inception five years ago. Just last year, IBM’s 430,000 employees spent 3.2 million hours volunteering. In her article Volunteerism as a Core Competency, Diana Brady said, “The company (IBM) makes sure its philanthropic efforts align with its business objectives”. They are incorporating their employees into helping out the community and those that are less fortunate. This is fantastic for a number of reasons. For starters, people who need help get reached out to and their lives are improved. There are also reasons that benefit the company. By working on these small projects together, the employees are building relationships with one another. A task force that knows each other and cares about each other can work as a well oiled machine and get things done faster than just a bunch of employees who barely know each others names. Lastly, there is also the benefit of goodwill. Goodwill is when a company is in the positive eye of the public because of the actions that it has taken. Customers want to purchase from companies that are helping the environment and the communities in which they are located. Purchasing from those companies makes the customer feel like part of their money is going into these causes that the company is helping.

As the article states, a lot of Wall Street firms need to rebuild their credibility in the wake of the financial crisis. Volunteering and getting involved is a perfect way of getting that done. But what kind of projects should they start? Regarding what to do, Diana Brady said, “Projects have more impact when they draw on a company’s strength”. That means that companies should try to get involved in a way that is similar to their business objectives just like IBM. An example is FedEx delivering emergency medicine to disaster areas. In that example, FedEx is able to help out using delivery which is something that they excel at. They get to show off their strengths to the public and possibly attract a lot of new business for themselves.

One aspect of this is that people would believe that a company is truly good and has good morals. With all the recent popularity of volunteering, more and more companies are doing what they can to help out. This is fantastic. However, are these companies helping out solely based on trying to get more sales? Either way people are receiving aid but should companies only volunteer in order to stay competitive?

http://www.businessweek.com/articles/2012-11-08/volunteerism-as-a-core-competency