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Chapter 12 Sustaining The Lead


While Continental is trying to replicate Southwest Airlines Operating Model... Does that work? ... In the end, they couldn't compete against Southwest Airlines. ... – PowerPoint PPT presentation

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Title: Chapter 12 Sustaining The Lead

Chapter 12 Sustaining The Lead
  • HDCS 4393/4394 Internship Dr. Shirley Ezell

Cases Scenarios
  • Picture Kenneth Olsen (Founder Digital Equipment
  • Moment 1 In the cover of Fortune Magazine
  • Moment 2 Out/retirement
  • Picture Manager Folk Wisdom
  • Moment 1 CEOs Face appears in leading magazine.
    Moment 2 Decline.
  • What is wrong with this picture?
  • Questions you might ask Was Fortune magazine
    publicity the kiss of death?
  • Over over companies slip after a few
    years of rave reviews.

So What Happened?
  • Research suggests companies/CEOs once
    praised fall into decline and fail to keep
    advancing strategically.
  • They attain market leadership and rest on their
  • Critical Rule Dominate your market
  • by improving value year after year.

What Should We Remember?
  • When you lead, every competitor is waiting to
    knock you off.
  • Another rule of business People emulate.
  • If they dont actually duplicate what wins, that
    means you now have to change.

What About the Continental Airlines Case?
  • While Continental is trying to replicate
    Southwest Airlines Operating Model...
    Does that work?
  • Microsoft is roughly matching Apple Computers
    easy to use operating system.
  • Question So how do market leaders of different
    disciplines become product leaders with Customer
    Intimacy and Operating Excellence and then stay

What Lessons Have Co.s Learned?
  • a. Maintain the focus on their chosen discipline
    intensely compete with their own success.
  • b. Work to improve their operating model and then
    make it obsolete.
  • c. Become Operation Excellence firms striving to
    reach benchmarks of price and hassle-free
  • d. Customer Intimate firms are trying to make
    their own total solutions obsolete.

Additional Lessons Learned
  • e. Product leaders are trying to destroy demand
    for their current products with brand new ones
    and better these products ahead of their
  • f. For all market leaders, advances in value to
    customers are gained by
  • - Tightening Performance Standards
  • - Re-engineering Work Processes
  • - Up-grading Competencies

What Are The Future Challenges?
  • Operationally excellent companies have to shift
    to the next generation of no frills standardized
    assets to achieve the next level of efficiency.
  • Product leadership companies have to see the next
    technology (the next concept) which may be beyond
    their current expertise.
  • Customer Intimate companies have to let go of
    their current solutions and move themselves and
    their clients to the next paradigm.

So What Are The Mistakes To Avoid?
  • Do not over invest in efficiency (enhancing
    assets by acquiring new fangled machines).
  • What is an example of this? Look at American
    Express. In 1980s, they feel into this trap by
    launching a 1 billion dollars genesis program to
    boast operating efficiencies through information
  • What did they do? They collected large amounts of
    data on cardholders buying patterns and this
    effort distracted them from their customer
    concerns. Result They
    forget the increasing price sensitivity of their
    merchants and consumer clients and the heavy
    investment in efficiency only added to AEs cost
    structure (Bad move!).

Other Examples... American Airlines
  • Developed a high tech Sabre division and made a
    science out of streamlining standard operating
    procedures including systematizing reservations
    and filling planes.
  • What happened? The heavy investment in core
    assets (planes, gates, and hub structure) have
    now blocked further improvements. In the end,
    they couldnt compete against Southwest Airlines.
    Americans major hubs at Dallas/Ft. Worth and
    Chicagos OHare were high cost facilities
    compared to Southwest facilities at smaller
    airports in the same cites (Love Field Midway).

What Else Complicated The Case?
  • American had a wide span of different models of
    airplanes. This added complexity and killed
  • The American Sabre system was a high cost asset
    with large annual investments in maintenance.
    This was a good system for the domestic
    airline business but not the right asset for
    a hyper-efficient operating
    model used by Southwest Airlines.

What Can We Learn From
  • They have streamlined their operations and
    mastered the operational skills for running
    warehouse stores. What are there assets?
  • a. Stores, Distribution Centers, Long-haul
  • b. Good Inventory Systems
  • But what will happen if customers
    move to home shopping?

What Happened To MCI Telecommunications?
  • Main asset is its telephone network that enables
    it to offer customers low prices on long
  • What if cable TV companies offer telephone
    service through their coaxial or fiber-optic
  • MCI will face grave competition from Time-Warner
    Telecommunication, Inc. and Microsoft, so they
    will need to restructure their assets to compete.
    Why? These other companies are investing in the
    future, and so must MCI.

What Have We Learned About Sustaining Product
  • Product leadership companies often become
    fascinated with great products. With each new
    idea or complaint, they rush back to labs and
    maybe they perceive shortcomings that are not so
  • Product leadership companies may get too close
    to customers. User groups can critique current
    products but they dont produce the breakthrough
  • These companies may invest improvements in
    current products and miss the next great product.

So What lessons Have We learned?
  • Products leaders often fumble with the future.
  • Examples Lord Kevin (President of Britains
    Royal Society) declared that heavier than air
    flying machines were impossible.
  • Jack Warner (cofounder of Warner Brothers
    Studio) produced the first talking picture
    was skeptical and remarked Who the hell wants
    to hears actors talk?
  • A company can develop blind spots that
    impair its skill at sensing the potential of
    new technologies concepts.

What Are Some More Examples Of Company Blind
  • GM didnt understand or act on the changing
    tastes of young car buyers who wanted lighter,
    faster, nimbler cars with a European feel. They
    thought the Chevy buyer would upgrade to bigger
    Buick's and then to Cadillac's.

What Are Some More Examples Of Company Blind
Spots? (Cont.)
  • a. Who knows what will happen to cars next?
  • Will it be fully recyclable cars, battery cars,
    computer-guided transportation?
  • b. Take this example to other firms.
  • What will pharmaceutical companies do when
    genetic research prevents the disease and we
    dont need to cure it?
  • c. Is the Microsoft example part of the answer?
  • Invest heavily to accelerate innovation through
    close ties with faster-moving start-up companies?

How Do We Sustain Customer Intimacy?
  • Customer intimacy companies are susceptible to
    illusions that they can do absolutely anything to
    give customers the total solutions promised.
  • This leads them to take on tasks they should
  • When your competition has copied you, you need to
    move on.

What Are Some Cases Of Customer Intimacy
  • IBM had a dedicated a base of information systems
    professionals and their clients replaced their
    counterparts with financial executives and line
    managers. IBM professionals needed to learn new
    ways to speak to their new clients.
  • Customer intimate companies have to stay 2 steps
    ahead of customers they must assimilate
    experience from multiple clients and acquire
    fresh insights from new people. They must stay

So… What Did CEOs Learn?
  • Companies must also periodically improve
    secondary disciplines.
  • They must always focus on strengthening the
    companys value position.
  • They must maintain operational focus. They often
    grow shortsighted about short-term rewards and
    they may expand too rapidly.
  • The greatest temptation is greediness, milking
    their success instead or moving forward. They
    need to watch myopia, temptation and the loss of