Big Ideas Simply Explained - The Business Book

DELIVERING THE GOODS 299 Dell computers were not sold by computer retailers; instead they were available directly from the manufacturer. Dell took the bold step of cutting out retailers to undercut the competition. Dell’s simplified business model a company’s survival. For example, Michael Dell delivered lower costs, enabling in the past, many independent food the company to gain market share venues offered meals produced in a Born in 1965 in Houston, by undercutting the prices charged traditional, labor-intensive manner, Texas, to an orthodontist by rival computer suppliers. cooked from scratch with fresh father and a stockbroker ingredients. Some business chains, mother, Michel Dell was a The success of Dell’s model of looking to capitalize on the growing natural entrepreneur. He made selling directly to consumers was demand for low-cost food, adopted his first $1,000 by dealing in adopted by companies in other a simpler approach. They began to stamps at 12-years-old, and industries. In 1996, Amazon, now serve food that had been bought in sold newspaper subscriptions the world’s biggest online store, a prepared state and simply heated for the now-defunct Houston began selling books online without in a microwave in response to a Post. Dell attended pre-medical the need—or costs—of running customer order. There was no need college in Texas in 1983, a bookstore. for trained cooks, and no time spent but soon left to focus on his preparing fresh ingredients. computer business, which However, since 2000 Dell has Removing these steps cuts costs he named PC’s Limited. Dell lost ground to a revitalized and enables the establishment to opened his first international competition. Some companies offer lower prices to consumers subsidiary in the UK two years copied Dell’s idea to sell computers without losing profit margins. later, and in 1998 changed directly to customers, while others, the business’s name to Dell such as Hewlett-Packard, were able However, innovations such as Computer Corporation, making to nullify Dell’s price advantage by these can be cyclical. A rising it a public company and raising making their production process market for freshly prepared food has $30 million. In 1992, Dell more efficient. The resurgence of led to new fast-food chains selling became the youngest-ever Apple has also dented Dell’s market meals prepared on the premises. In CEO of a Fortune 500 business share. Apple produces a range of the current climate, many companies at 27. By 2000, the company’s products to suit different budgets, are looking to cut costs by direct-sales website (launched and also allows its customers to streamlining processes. But the in 1996) was generating make some adjustments to the businesses most likely to survive revenue of $18 million per day. computer’s specifications. are those that can lower prices, but Dell resigned as CEO in 2004 not quality, for the consumer. ■ to focus on his charitable Simpler services work, but returned in 2007, Companies that sell services also Simplicity—the art of taking the business private work to improve efficiency by trying maximizing the amount of in 2013. to remove unnecessary steps from work not done—is essential. their production systems. Sometimes Key works these changes are needed to ensure Principles behind The Agile Manifesto (2001) 1999 Direct from Dell: Strategies That Revolutionized an Industry

300 EVERY GAIN THROUGH THE ELIMINATION OF WASTE IS GOLD IN THE MINE JURAN’S PRODUCTION IDEAL IN CONTEXT Reducing waste increases efficiency by improving the productivity of capital and labor. FOCUS Waste reduction Efficiency gains created from cutting waste cause average unit costs to fall. KEY DATES 1969 The Spittelau incineration Lower unit costs can help a company grow because plant in Vienna opens to burn lower costs can be used to either: trash collected from the city. The award-winning design Fund price cuts, Or improve profit means that the energy created which will hopefully margins, which can can be used to provide hot water to a local hospital. boost sales. be used to finance new product 1931 Walter Shewhart development. summarizes his work on process quality control at Every gain through the elimination Western Electric in his book of waste is gold in the mine. Economic Control of Quality of Manufactured Product. 1994 In The Empty Raincoat, Charles Handy predicts the rise of telecommuting, whereby employees work from home to reduce office space. 1999 Salesforce.com and Google develop cloud computing. This foregoes the need to run expensive servers on which to store their data.

DELIVERING THE GOODS 301 See also: How fast to grow 44–45 ■ The value chain 216–17 ■ Make your customers love you 264–67 ■ Lean production 290–93 ■ Simplify processes 296–99 ■ Kaizen 302–09 ■ Quality sells 318–23 I n business, waste is anything products that fail internal quality Reinvesting profits that adds to a company’s costs audits and are not good enough to Reduced unit costs can help a that does not create a higher be sold. If waste of this type can be company to enlarge its profit output level, or lead to improved reduced it should be possible to margins. If such savings are not customer satisfaction. Any money raise output without having to hire passed on to the consumer, they generated from a reduction in extra workers, spend more capital, could be used to increase the profit waste can help a business grow by or buy in additional raw materials earned from the company’s current improving its competitiveness. and components. sales volume. The additional profits made from reducing wastage could Joseph Juran (1904–2008) was According to Juran, lower costs be reinvested into the business— born in Romania and moved to can help a company grow in two the goal being to increase sales and the US when he was a child. He ways. First, if average costs can be to achieve growth. An efficient way became an expert in quality in decreased, the business could to make use of the cash saved by business after working at Western choose to pass on the reduction by reducing waste might be to fund Electric in the 1920s and being lowering prices to consumers. For a new advertising campaign. trained in statistical sampling and example, if an initiative to reduce quality control. Juran identified waste leads to a 10 percent fall in Alternatively, companies might waste as a factor that undermined average costs, the management reinvest a significant proportion profit. He urged businesses to could opt to cut its retail prices by of their profits into scientific constantly look out for opportunities the same magnitude, and still earn research and new product to reduce waste. For Juran, the best the same profit margin. Cutting development. Theories about the way to do this was to improve prices can help a business grow: life cycle of products, technological product quality and the reliability undercutting the competition on advances, and changing consumer of the production process. price is likely to attract market tastes suggest that most products share. Furthermore, even in have finite selling lives in the Reducing waste markets where there is little market. If these investments pay Waste in business ranges from competition, price cuts will make a off, the next generation of products investing in expensive machinery product more affordable. The lower will incorporate the latest must- that does not meet the required price will widen the brand’s appeal, have features and benefits that will output level because it breaks down and potentially create growth by appeal to consumers and translate regularly, to producing finished enlarging the target market. into high sales. ■ Paint robots at this Volkswagen Volkswagen used to produce each car by factory help reduce employee costs, investing in new cutting and can be programed to use the In 2012, Volkswagen announced machinery and by changing the minimum amount of paint required. its intention to become the world’s dimensions of the steel sheets to most environmentally friendly car reduce off-cut waste. In the paint manufacturer by 2018. To achieve shop, the amount of paint used this goal, the German company to produce a vehicle was halved set out to reduce waste during the by installing state-of-the-art production process. painting robots. When cars are produced, sheet These savings meant that steel is cut out to form parts of Volkswagen could reduce their the chassis. If this process if not prices. For example, the price of managed effectively, expensive a Golf Cabriolet was reduced by steel can end up being wasted approximately $10,600 in June as off-cuts. The management at 2013. Reductions like this Volkswagen achieved a 15 percent contributed to a 6 percent rise in reduction in the amount of steel global sales by May 2013.

MACHINES, FACILITIES, AND PEOPLE SHOULD WORK TOGETHER TO ADD VALUE KAIZEN



304 KAIZEN I n Japan, kaizen is an ancient Before you say you can’t idea that has become part of do something, try it. IN CONTEXT the culture. In its everyday Sakichi Toyoda usage, the word means an FOCUS enhancement or a change for the System (TPS). This system was Improving efficiency better. In a business context, designed to reduce muda—the kaizen is more of a philosophy; Japanese word for waste. One of KEY DATES according to the kaizen way of the forms of muda identified by 1882 Scottish shipbuilders thinking, companies should strive Toyota was wasted employee William Denny and Brothers to increase efficiency through a talent; Eiji Toyoda wanted more Ltd. becomes the first company process of continuous improvement. from his work force than just blind to use a suggestion box to obedience and hard work. At Toyota garner ideas from its work force. The majority of kaizen advances employees were valued and are built around people and their trusted—so much so that the 1859 English naturalist ideas, rather than investment in company expected their factory- Charles Darwin publishes On new machinery. Employees use floor workers to fix problems the Origin of the Species, and kaizen to produce hundreds of associated with quality, and come outlines his theory of evolution new ideas every year, aimed at up with ideas to improve efficiency. as a process of gradual changes. improving the efficiency of the According to the Kaizen Institute, business. In isolation, each kaizen founded by Masaaki Imai to 1990 In “Re-engineering work: idea might only have a marginal implement the philosophy, the goal don’t automate, obliterate” in effect on productivity and general of any kaizen plan should be to the Harvard Business Review, efficiency, but together these MIT professor Michael Hammer changes add up, creating a critical argues that to stay ahead, competitive advantage. Ideas for companies need to periodically continuous improvement should redesign production methods. come from all quarters—from managers and employees alike. 1997 Japanese founder of the Kaizen Institute, Masaaki Imai, The Toyota Way writes Gemba Kaizen, stressing Kaizen was first deployed on an that kaizen works best when industrial scale by car manufacturer factory-floor workers provide Toyota in the 1950s, as part of the ideas for ongoing improvement. now famous Toyota Production Toyota the principles of kaizen. This, along with its principles of The Toyota Motor Company “customer first” and “quality (TMC) was established in 1937. It first,” helped the company produced several models of sedan thrive, and they began exporting cars at its Honsha production plant their first cars to the US in 1957. following business precepts set down by founder Sakichi Toyoda, In 1962 management and which included, “Always strive to unions signed a joint declaration build a homelike atmosphere at stating that their relationship work that is warm and friendly.” should be based on “mutual trust and respect.” Following World War II, the company faced a financial crisis By 1999 production in Japan and, for the first time in its history, had reached 100 million had to layoff employees. In 1951, vehicles. Today the company Toyota implemented a creative continues to be guided by the ideas suggestion system based on twin pillars of continuous improvement and teamwork.

DELIVERING THE GOODS 305 See also: Take the second step 43 ■ Reinventing and adapting 52–57 ■ Beware the yes-men 74–75 ■ Make the most of your talent 86–87 ■ Is money the motivator? 90–91 ■ Lean production 290–93 persuade all workers that they have Efficiency is a process been hired for two jobs—doing of continuous improvement. their job, and then looking for ways to do it more efficiently. Hands-on employees can identify problems that need fixing. Gemba is a Japanese word meaning “the real place,” in a When management involves business context gemba refers to the its workers in the place where value-added is created. Kaizen is founded on the conviction decision-making process... that the production-line worker is the gemba expert who knows where the problems are. Therefore, most of the ideas for kaizen change should come from the factory-floor workers, rather than from management. This is because difficulties and abnormalities can only be analyzed and fixed at the gemba, not from the desk. Kaizen philosophy recognizes that a company’s greatest resource is its employees. Quality circles ...problems can be ...the workers’ bond with Kaizen is more likely to be effective if solved efficiently. the company is strengthened. workers are asked to work as teams, rather than as isolated individuals. Machines, facilities, The process of coming up with good and people should work ideas and solutions is often the product of the synergy created by together to add value. people that have different skill sets, qualifications, or ways of seeing the circles still meet regularly, at least kaizen ideas is the “fish-bone” world. Working as a team on kaizen once a week, to discuss any of the diagram. This is a graphic device projects is known as being part of a problems they have noticed on their that uses the outline of a fish “quality circle.” The quality circle section of the production line. Each skeleton to plot all the various consists of a group of people who morning employees are expected aspects of a problem and then usually work together—for example, to attend an asa-ichi (morning) explore a number of solutions. on the same part of an assembly meeting with a positive attitude, Quality circle members are asked line—as well as individuals from before the regular working day to identify possible causes for other parts of the business who can begins. At this meeting they the problem, and each suggestion bring different perspectives. For discuss quality problems and is classified into one of six example, an engineer could provide possible solutions to those problems. categories: Manpower, Methods, advice on technical matters, while One of the main tools used by Machines, Materials, Measurement sales-team members can give the Toyota’s quality circles to generate (inspection), and Mother Nature ❯❯ group an insight into the customer’s point of view. In 1964, Toyota established quality circles at its factory in Toyota City, Japan. The quality

306 KAIZEN MACHINES MATERIALS A fish-bone diagram has the problem to be solved on the MAN POWER Maintenance right-hand side. An arrow, like Motivation Software a spine, leads to it. The causes of Staffing Quality control the problem are split up Policies Accounting SuppliersPlanning between the six Programs categories. Training Specifications Raw materials PROBLEM Laws Site Standards Culture Time zone METHODS MEASUREMENT MOTHER NATURE (environmental factors). Solutions to in kaizen improvements and, loyalty, and mutual respect exists each of the possible causes of the consequently, financial bonuses between the management and the problem are evaluated by the circle should not be necessary. work force. This avoids a potential using the “five Ws,” which are the downside to the philosophy: the five questions: Why, When, Where, Empowerment fact that in a market where sales Who, and What. One way managers empower their are flat, employee ideas that lead to workers is giving them the authority an increase in productivity could Japanese companies do not to make decisions that affect their represent a threat to jobs. Workers tend to give cash bonuses to working lives. Empowerment is are hardly likely to discuss labor- workers in return for their ideas. In more far-reaching than delegation, saving or cost-cutting measures if order for kaizen to be truly effective, which merely involves giving they are talking themselves out of workers must feel a sense of pride permission for an employee to a job. In many Japanese companies and fulfillment when contributing perform a specific task. An the kaizen culture used to their suggestions. New employees employee who is empowered has incorporate a promise from the are told when they start working been given the freedom to decide with the company that kaizen is an what to do and how it should be A company will expectation: an everyday part of done. Empowerment is essential to get nowhere company life. In businesses that any kaizen program because it use kaizen successfully, employees’ enables good ideas from the if all the thinking is commitment to contributing ideas factory floor to be implemented left to management. is usually secured via programs of immediately. Once the kaizen job enrichment, which tend to philosophy is in place, good ideas Akio Morita produce high levels of employee and their subsequent motivation. According to improvements should keep on Japanese founder of Sony (1921–99) motivational theorists such as flowing through—the number of Frederick Herzberg, workers enjoy ideas made every week increases problem solving, decision making, because workers are able to observe and the opportunity to advance the effects of their own solutions. and grow psychologically while To work effectively, kaizen requires at work. Therefore, it follows that a business culture where trust, workers should enjoy taking part

DELIVERING THE GOODS 307 We will try to create the co-founder, Akio Morita, “The most Excellent companies don’t conditions where persons important mission for a Japanese believe in excellence—only could come together in a spirit manager is to develop a healthy in constant improvement of teamwork, and exercise to relationship with his employees, their heart’s desire their to create a familylike feeling within and constant change. the corporation, a feeling that Tom Peters technological capacity. employees and managers share the Akio Morita same fate.” During the boom years US management writer (1942–) Sony used the productivity increases made possible by kaizen to increase output, enabling the company to branch out into new markets. management that workers would Kaizen heads west minimizing the assembly hours per have a job for life with the company. In the fall of 1984, following car, the amount of stock held, and Throughout the 1980s and 1990s US concerns at the growing the assembly defects per 100 cars. this was the case at Sony. During dominance of the Japanese car The book attributed Japanese economic downturns, when sales industry, the Massachusetts success to a process called “lean fall, most companies try to protect Institute of Technology (MIT) production”—a vital component their profit margins by making undertook a five-year, $5 million of which was kaizen. layoffs that are designed to cut research program into the global costs. Sony rejected this approach car industry. The study produced a Managers that had read The because it felt that laying off its new way of looking at production, Machine That Changed the World own workers would break the bond a new buzzword, and a best-selling tried to incorporate the kaizen way of trust needed to make kaizen book—The Machine That Changed of thinking into their business work. According to Sony’s the World, authored by James model, and gradually the kaizen Womack, Dan Jones, and Dan Roos. philosophy spread to North The study confirmed the US car America and Europe. One of the industry’s worst fears; Japanese car early British adoptors was Rover. producers led the way in terms of Under the guidance of Honda, who at the time held a 20 percent stake in Rover, the company introduced gemba walks at its Longbridge factory in 1991. Under Rover’s gemba program, managers, supervisors, and assembly-line workers walked along the production line together, at least once a week, in order to look for inefficiencies, and to find solutions to the problems they had identified. Gemba walks were designed ❯❯ Discussing a problem with others is a more effective way to come up with solutions. Consulting people from other parts of the business brings different viewpoints and a wider range of options.

308 KAIZEN to remove the divide between for every $1.60 (£1) the business Investment in robots in the managers and workers, the spent on quality circles, workplace can be a large-scale, costly underlying philosophy being Wedgwood’s costs fell by $4.85 (£3). undertaking, which frequently results that managers, supervisors, and in job losses. This sort of BPR activity assembly-line workers should Another business that has can alienate the work force. learn, discover, teach, grow, and employed kaizen techniques to make improvements together. good effect is India-based Tata a period of stability follows, until Steel. The company made complacency sets in again, and the Kaizen in action improvements to the productivity of next crisis arrives, and prompts One of the first British companies its gear-cutting machinery, which another round of BPR. to adopt quality circles was the led to increased production. pottery company, Wedgwood. From Rather than approaching 1980 onward, 80 quality circles The antithesis of kaizen employees for ideas that lead to representing different parts of the A very different approach from improvements in efficiency, business met for an hour a week. kaizen is Business Process companies that use BPR only use Each quality circle was empowered Reengineering (BPR). This is based ideas that originate from managers to identify its own problem, which on infrequent—but very capital- and highly qualified consultants. it then spent up to six months heavy—investment programs that The work force is relatively passive: solving. The solution devised by are designed to create a great leap change is imposed from the top the circle was presented to the forward in terms of productivity, and often includes large-scale management and most were reductions in unit costs, or layoffs. This is because companies approved and then implemented. improvements in product quality. that use this approach often try to Employee motivation improved, Unlike kaizen, companies that use boost efficiency by investing in which increased productivity. In BPR do not endeavor to make automated production systems that addition, employee ideas reduced regular small changes. Instead the replace labor with capital. Those costs by cutting the amount of goal is to radically rethink the that favor kaizen argue that it is clay and paint wasted during the whole production process every five better to try to improve efficiency production process. According to years or so to make it more efficient. by making small but regular Dick Fletcher, the man who led Typically, this is in response to changes, rather than by instigating Wedgwood’s quality circle program, a crisis. Once the company using less frequent but more radical BPR BPR has caught up with its rivals, changes. In competitive markets, companies that rely on BPR OUTPUT PER WORKER (PRODUCTIVITY) The effects of kaizen and BPR on Kaizen struggle to match the less dramatic productivity are shown here over a BPR but steadier growth achieved by 30-year time span. Overall, kaizen kaizen. Companies using BPR can increases output with consistent steady improvements while BPR brings a series of sharper boosts to productivity followed by periods of flat growth. 0 5 10 15 20 25 30 YEARS

DELIVERING THE GOODS 309 be slow to catch up because during resistant to change. Individuals any new problems that are tackled the time it takes to develop, install, with this mind-set will not want to will be those previously considered and test new systems, companies delegate decision making to factory- less significant. using kaizen have moved on, floor workers. If their good ideas are boosting productivity to an even constantly ignored by managers, The rewards of risk higher level. This may be seen as employees will quickly become Technology and consumer tastes analagous to the fable by Aesop disillusioned and stop contributing. change. From time to time the in which the plodding tortoise A company’s industrial relations old product, and with it the old trumps the sprinting—then history can also affect the outcome methods of production, will need to delaying—hare. Increased of kaizen. In general, the chances of be discarded in favor of something productivity achieved by kaizen success with kaizen fall if there is a new and radical. Companies that tends to be cheaper to obtain than lack of trust between the favor kaizen may tend to eschew productivity growth achieved by management and the work force. radical overhauls in favor of less BPR. The source of kaizen Employees may see kaizen in a dramatic change. The danger here is improvement is people. Employee cynical way—feeling that the plan is that they can end up being left ideas are essentially free, unlike just another management ruse to behind by their bolder rivals. A good expensive new machinery for a get more out of the work force example of a company that suffered new production system. without offering anything in return. as a result of this approach is Nokia. For many years the Finnish Is kaizen always effective? Kaizen is built on the premise cell-phone company enjoyed great However, in some companies that no production method is perfect; success by sticking to its classic kaizen does not work. Middle systems can always be improved design of “Candybar” phones. managers and supervisors who are through employee suggestions. But However, in the meantime rival inclined toward an autocratic is this always true? Logically, companies such as Samsung and leadership style typically resent businesses will try to use kaizen to Apple took greater risks, and as kaizen: they enjoy making all the fix key problems first. It could be a result, out-innovated Nokia, decisions and are sometimes argued that, over time, the benefits taking away their market lead. ■ of kaizen are likely to fall steadily as Aesop’s fable tells how the tortoise wins a race against the hare by slowly advancing to the finish while the hare sprints and then riskily naps. Kaizen can be viewed as the tortoise, making minor adjustments daily, while the hare can be viewed as BPR, making rapid, dramatic changes. The tortoise The hare’s demonstrates that overconfidence steady progress, causes him to lose the race, much as the big, such as that bold changes wrought achieved using kaizen by BPR can prove methods, can be the less effective in better approach to the long run. winning the race.

310 LEARNING AND INNOVATION GO HAND IN HAND APPLYING AND TESTING IDEAS IN CONTEXT Scientific research leads to technological breakthroughs, which businesses use to... FOCUS Research and development ...create new ...improve ...update products. existing processes. KEY DATES products. 1790s In postrevolutionary France the government works To innovate for the future, companies must be willing to learn with scientist Claude Chappe about new technologies and how they can be harnessed. to develop a nationwide semaphore system. Learning and innovation go hand in hand. 1806 Isambard Kingdom R esearch and development technological breakthroughs and Brunel is born. The British (R&D) is any investigative keep themselves on the cutting scientist and engineer goes and creative work intended edge of their industry. Others apply on to design and build the first to lead to new discoveries or to R&D to improve existing products. propeller-powered ship and improvements in existing products the first tunnel under a river. or processes. Some companies, in Filling a gap areas such as computer software In some cases, the direction of 1939–45 During World and pharmaceuticals, depend on R&D is driven by market research War II, jet engines, the mass- scientific research to bring about findings that uncover a gap in the production of medicines such as penicillin, and blood transfusions are all developed. 1942 Austrian economist Joseph Schumpeter uses the term “creative destruction” to describe how innovation in industry creates new societies by destroying old ones.

DELIVERING THE GOODS 311 See also: Gaining an edge 32–39 ■ Kaizen 302–09 ■ Quality sells 318–23 ■ Planned obsolescence 324–25 ■ Time-based management 326–27 market, as it did for the cereal Innovate or die. It could be argued that managers manufacturer Kellogg’s. Market Damon Darlin who do not invest in R&D are research showed that there was setting up businesses to fail. a desire in the UK for a sweeter Business editor, The New York Times breakfast cereal made from nuts, (1956– ) Companies such as BMW which people perceived to be devote a sizable percentage of their healthy. To meet this need, work and ignore these findings. turnover to R&D for motives that Kellogg’s instructed its R&D The Walkman went on to be one of extend beyond self-preservation. department to design a new Sony’s most successful products. Those that launch a new product breakfast cereal; the result was first can charge premium prices Kellogg’s Crunchy Nut, which More products, more often and will benefit from monopoly profit has become the second most Intense competition resulting from until the competition arrives. In popular cereal in the UK. globalization, alongside rapid addition, consumers’ brand loyalties technological advances, has are usually established early on. There have been some cases shortened the selling lives of many Companies that underinvest in R&D, in which market research pointed products. To stay in business in fine to imitate rather than innovate, companies in the wrong direction. this tough trading environment, may have problems establishing a A prime example can be seen in companies need to launch new strong customer base. the creation of Sony’s Walkman. products more regularly; those that This portable audio cassette player are complacent and fail to innovate There is more to effective R&D was invented in 1978 by Nobutoshi will be overtaken by their rivals. than spending money on technical Kihara, an audio engineer working breakthroughs. According to Akio for Sony. According to market Morita, converting these advances research, the Soundabout (the into products that provide value and name for the prototype Walkman) benefits for consumers is more would never sell because focus important than the breakthrough groups declared that listening to itself. Therefore, it makes sense music was a social rather than a for R&D to be done by a multi- solitary activity. However, Akio disciplinary team that includes Morita, Sony’s co-founder, told his a representative from marketing, R&D department to continue its who understands the way the consumer’s mind works. ■ The global positioning system Satellites orbiting the Earth are Global positioning system (GPS) GPS is an excellent example of a able to provide data on time and technology was developed by the revolutionary, technology-driven location to a variety of GPS receivers US government during the 1960s innovation. However, in practice, based on or near the planet. and 1970s to enable the US Navy most new product innovations and Air Force to get an accurate are based on tweaking existing geographical fix on submarines products to make them better. and aircraft. Companies such as TomTom, who make GPSs, use R&D to In 1983, US President Reagan achieve evolutionary, rather decided to give businesses than revolutionary, product access to GPS so that they could development. The goal is to use it for commercial purposes. launch new products every A number of companies saw the year that are cheaper and better opportunities in this and began designed, and that have new designing GPS satellite navigation updated features. systems for motorists.

312 YOUR MOST UNHAPPY CUSTOMERS ARE YOUR GREATEST SOURCE OF LEARNING FEEDBACK AND INNOVATION IN CONTEXT A business asks Customers or the public its customers submit their feedback, FOCUS how it could improve a both positive and negative, Open innovation product or service. to the company. KEY DATES 1989 The Berlin Wall falls. Your customers Good ideas to improve Companies inside the former are your greatest processes or products Iron Curtain must now source of learning. respond to customer are incorporated complaints. into the business. 2000 The travel website Trip I n the past, companies required emerged. Open innovation is based Advisor, which enables users their own employees to design on the idea that companies should to rate hotels and restaurants, and develop new products. The be less private with their product- is founded by Stephen Kaufer. knowledge was developed internally development programs, reflecting by the in-house research and the view that its customers can 2003 Organizational theorist development (R&D) department, and make valuable contributions to the Professor Henry Chesbrough tended to be a closely guarded product-development process. publishes Open Innovation: the secret. This belief that a company new imperative for creating should be in sole control of the Internet feedback and profiting from technology, creation of its intellectual property is The Internet has kick-started a sea which urges businesses to be known as closed innovation. In more change in how businesses get open to learning from internal recent times, a new approach has feedback from customers. Online and external sources. 2009 US crowd-funding website Kickstarter is set up to encourage individual investment in small-scale business projects.

DELIVERING THE GOODS 313 See also: Finding a profitable niche 22–23 ■ Understanding the market 234–41 ■ Make your customers love you 264–67 ■ Why advertise? 272–73 ■ Applying and testing ideas 310–11 ■ Benefitting from “big data” 316–17 ratings and reviews allow companies types of crowdsourcing. For Ozzy Osbourne’s official website to see what their customers like example, some independent hosted a poll for fans to vote for the next and dislike about a product. filmmakers finance their movies as single from his 2007 album Black Rain. crowdsourcing projects. Carmakers They were offered three tracks to choose In the IT industry, companies such as Citroën and Nissan have from—the title song “Black Rain” won. such as Apple and Microsoft use used crowdsourcing to enable car beta testing to enhance the quality buyers to contribute ideas for the offer the information free of charge. of their new products. This process kind of product features that should If cash is offered in exchange for involves the software developer be built into new vehicles. Citroën feedback, the amounts tend to be prereleasing copies of new software ran its crowdsourcing project via a small. Those who use crowdsourcing via the Internet. Members of the Facebook app. Members of the as part of the product-development public who are interested in general public were free to join the process also recognize that there will software and programing have the Facebook group—called C1 be experts outside the company who opportunity to road test the new Connexion—and add their thoughts are not on the payroll, but who have product. They might point out bugs on six key aspects of the new car’s valuable ideas and knowledge that they encounter and offer possible design, including the number of should be harnessed. ■ solutions to the problems they have doors, the color of the interior, and identified. The developer has the the equipment specification. Citroën opportunity to improve the software kept its promise to build the car in before it is released, increasing the line with the preferences expressed probability of the new product via the Connexion Facebook app. succeeding in the marketplace. There are several advantages to Crowdsourcing incorporating positive and negative The belief that companies can, and feedback from members of the public should, learn from their customers is and customers into the product- growing. One example is the rise of development process. The most crowdsourcing—a practice where obvious is that it is very cheap. In companies get ideas, or even finance many cases companies do not pay for a new product (crowd funding), for the ideas and opinions of from the public. There are different crowdsourcers; interested volunteers The more you engage Wikipedia Wikipedia is an open-source with customers the project, meaning that everyone clearer things become The online encyclopedia, with access to the Internet is and the easier it is to Wikipedia, was set up in 2001 able to write or make changes to determine what you by Larry Sanger and Jimmy it. Wikipedia does not charge its Wales as a crowdsourcing customers for using its product. should be doing. project. Rather than hiring paid Instead, the project is financed John Russell writers and editors, the founders by donations from supporters. of Wikipedia asked members of Many of these supporters argue Harley Davidson president (1950–) the public to create the product that Wikipedia is superior to themselves by submitting their conventional encyclopedias articles electronically. because, unlike them, articles can be updated quickly and By July 2013 Wikipedia easily. Wikipedia has taken the comprised over 22 million concept of crowdsourcing to the articles, written in 285 limit—the entire product has languages by 77,000, largely been created by consumers. anonymous and unpaid, authors.

314 TECHNOLOGY IS THE GREAT GROWLING ENGINE OF CHANGE THE RIGHT TECHNOLOGY IN CONTEXT With clear objectives ...new IT systems can and a shared vision... increase revenue, improve FOCUS safety, and boost morale. Managing change Technology is the KEY DATES great growling engine 1822 English mathematician Charles Babbage designs of change. “the difference engine”—the world’s first mechanical, N o business today can Management System (CMS) that programmable, computer. survive without some form was designed to deploy pilots and of computer system, but cabin crew more effectively than a 1951 The British food continual investment in new IT manual system. Under the previous manufacturer J. Lyons & Co (information technology) can system, some crew worked longer starts using LEO (Lyons enhance a company in previously hours than others for the same Electronic Office), the first unimagined ways. IT can be used salary, which created friction computer designed specifically to boost productivity or increase between crew members. CMS has for a business use—in this reliability, or to decrease the risk enabled management to monitor case, to track sales figures. of human error. Air India set out crew deployment more closely. The to improve efficiency in 2013 hope is that by ensuring that staff 1981 US software company with a new computerized Crew are employed more equitably and Microsoft develops the MS-DOS operating system. 1998 Banks and hedge funds in the US design computer programs to buy and sell shares, bonds derivatives, and other financial assets. This is the origin of high- frequency trading.

DELIVERING THE GOODS 315 See also: Stand out in the market 28–31 ■ Gaining an edge 32–39 ■ The value chain 216–217 ■ Forecasting 278–79 ■ Kaizen 302–309 ■ Feedback and innovation 312–13 To err is human—and to when senior management is clear As a rule, software blame it on a computer is about what they hope to achieve systems do not work well from it. A clear set of objectives will until they have been used, even more so. help the IT designers to produce a and have failed repeatedly, Robert Orben system that effectively benefits the end user. Features that are not in real applications. Comedy writer (1927– ) needed add to the cost of the David Parnas project, and, in all probability, eliminating favoritism, the airline make the system less usable. Canadian software engineer (1947– ) will improve morale, which should have a positive effect on customer In Australia in 2005, a plan was know why the new IT system has service, and eventually boost introduced to improve productivity been introduced, have a clear vision revenues. Air India also anticipates of traffic police by getting them to of the benefits of the system, and that CMS will enhance safety by spend more time on the road, and receive adequate training. In some improving the company’s ability to less in the office. State governments organizations systems might fail meet strict international regulations equipped police cars with relatively because there is resistance to relating to working hours. inexpensive Automatic Number change—employees may fear Plate Recognition (ANPR) cameras. losing expertise, or even their jobs. However, not all new IT projects Real-time information collected by To overcome this, management are successful. US investment bank police cars was fed, on the road, into needs to communicate openly and JP Morgan lost $6 billion in 2012 the national database—CrimTrac. honestly about why the new IT because a new IT program, The system made policing more system is needed. ■ designed to help traders assess the efficient because officers could use risks of holding a range of financial CrimTrac to identify, and pull over derivatives, failed to work properly. immediately, stolen cars or vehicles that had not been taxed or insured. Factors for success A new IT project also needs to be a shared vision. Customer-facing and factory-floor employees should Managing change So, how can big IT projects be best managed in order to achieve progress, rather than disaster? In 2005, research carried out by Lancaster University in the UK established that the chances of successfully implementing a new large-scale IT project increase Police cars in many countries run Automatic Number Plate Recognition (ANPR) software. Suspicious vehicles are checked immediately and can be intercepted without delay.

316 WITHOUT “BIG DATA,” YOU ARE BLIND AND DEAF AND IN THE MIDDLE OF A HIGHWAY BENEFITTING FROM “BIG DATA” IN CONTEXT A huge amount of N owadays there is a huge information is gathered amount of information FOCUS that is routinely collected, Analyzing data whenever digital stored, and analyzed by businesses interactions take place. and government. This “big data” KEY DATES includes sales data collected from 1995 US company Netscape When this “big data” is credit or debit cards swiped at Communications Corporation organized and analyzed... checkouts; web-browsing histories develops Internet cookies. of actual and potential customers; ...it reveals the viewing information obtained from social 1997 NASA scientists Michael and shopping habits of media; and usage patterns Cox and David Ellsworth collected from smartphones, digital devise the term “big data” to millions of people. video recorders, games consoles, describe the challenge of and other personal devices that are processing and visualizing the Without “big data,” connected to the Internet. Due vast amounts of information you are blind and deaf to its size, “big data” can be generated by supercomputers. expensive to store and organize and in the middle on conventional databases. 2000 Francis X. Diebold, an of a highway. economist at the University of Using “big data” Pennsylvania, publishes his “Big data” can be used for market- paper Big data, dynamic factor research purposes to track and models for macroeconomic target consumers and identify measurement and forecasting. profitable gaps in the market. One company that has made use of “big 2012 Barack Obama’s team data” to increase revenue is uses “big data” to get him Progressive Corp. The US insurance reelected to the White House. company has tried to increase its market share by offering lower car 2013 US whistle-blower insurance premiums to drivers who Edward Snowden reveals that install a device into the car’s the National Security Agency diagnostic port. The device was authorized to use “big measures how the car is driven—its data” to spy on US citizens. speed, and the number of times the

DELIVERING THE GOODS 317 See also: Finding a profitable niche 22–23 ■ Study the competition 24–27 ■ Internet cookies Gaining an edge 32–39 ■ Forecasting 278–79 ■ The right technology 314–15 Sales figures are an excellent “Big data” comprises the Customer example of “big data.” huge amount of information transaction US online retailer Amazon consumers give away collects the browsing histories whenever they use their credit details and purchasing data of its 152 or debit cards, play games or million customers on a daily browse online, or stream TV. basis. Amazon uses “cookies,” This information is analyzed text files saved in a customer’s by companies to target their browser, which help to track products more specifically. what kind of items each of its customers are interested in. Web-browsing BIG Personal data This information is used to histories of actual DATA mined from TV- send recommendations that and potential viewing, video- are likely to appeal to the customers customer, and so are likely gaming, and to create additional sales for smartphones the company. Attitudes Cookies are used to create and values a unique ID that stores the revealed to customer’s name, address, companies and credit-card number on the via social hard drive of their computer. When a customer returns to media the website, the ID stored on the customer’s computer is car has braked suddenly or retailers can assess the effectiveness sent back to the business, accelerated rapidly. The collected of their TV advertising campaigns. which enables it to identify data is then sent, via a GPS signal, the customer and greet him or to the insurer for analysis. In theory, Product development her by name. The ID also Progressive’s use of “big data” will Netflix, the US media-streaming enables the online retailer to help them cherry-pick the most provider, has used “big data” to recall the customer’s address profitable customers in the market— drive product development. In 2011, and credit-card details quickly, those with safer driving habits, after evaluating the viewing habits speeding up the transaction who pay their premiums but are of its 33 million subscribers, the and increasing customer unlikely to make expensive claims. company decided to remake a BBC satisfaction with the site. series called House of Cards. TiVo, a US company that makes Netflix knew from its “big data” It is a capital digital video recorders, has used that it would be wise to spend $100 mistake to theorize “big data” to create a new revenue million on a US version of the show before one has data. stream. TiVo’s boxes are connected because the original had been Arthur Conan Doyle to the Internet. This enables the heavily downloaded. “Big data” was business to collect huge volumes also used to make production UK author and physician (1859–1930) of data on TV-viewing habits at decisions, including choosing a relatively low cost. The data is director David Fincher. Fans of subsequently sold by TiVo to House of Cards also enjoyed advertisers. By correlating this watching Kevin Spacey movies, so data with sales figures collected he was cast in the lead role. ■ from barcode readers at checkouts,

PUT THE PRODUCT INTO THE CUSTOMER’S HANDS IT WILL SPEAK FOR ITSELF QUALITY SELLS



320 QUALITY SELLS T here is an adage that is that it is usually expensive. In quality sells, and many the UK, for example, in 2013 a IN CONTEXT companies believe that the 30-second television commercial best way to attract buyers is to cost up to $80,000 (£50,000). FOCUS produce a superior product. Defining quality Businesses that put quality first Offering a quality product is believe that the other factors an alternative to these low-cost KEY DATES affecting demand, such as or high-volume approaches. This 1924 German pen maker promotion, distribution, and the strategy can achieve the same Montblanc launches its luxury price, are much less important than goal of boosting a company’s Meisterstück (“masterpiece”) the product itself. revenues, improving customer fountain pen, which is still an retention by offering clients a icon of superior quality today. At first this approach may seem product of a high standard that irrational. In some markets, after they will want to keep or to buy 1970 The Hamilton Watch all, low prices are critical. For again and again. Company develops the first example, Ryanair’s competitive digital watch. It succeeds advantage over its rivals is based What is quality? despite its $2,100 price tag. on its low-cost business model, To appreciate the role played by which enables the airline to charge quality, it is first necessary to 1985 Management guru Peter lower fares than its rivals. Yet some understand what is meant by this Drucker publishes Innovation low-cost goods or services can term. In a manufacturing context, and Entrepreneurship, which represent a false economy for quality is achieved when a states that quality is the most customers, especially if the goods company is able to supply reliable, important factor to affect are of poor quality, necessitating durable goods that meet or surpass sales. Drucker says that the extra costs for the customer to consumer expectations and are consumer is the ultimate repair or replace them. free of defects. arbiter of a product’s quality. Another possible way to boost High-quality products inspire 2005 Entrepreneur Richard revenue is to increase the volume trust. Take, for example, high- Branson announces that he of goods sold. Some companies quality car tires. They often have plans to offer the first trips into attempt to achieve this goal by deeper treads than poor-quality space. The price of $120,000 using advertising campaigns to tires, making cars that have them fails to deter rich and famous steal market share from their rivals. less likely to skid in emergencies or potential customers. However, the problem with trying bad conditions. In this case the to grow revenue through promotion quality of a car tire could be the High-quality ...plus added value ...results in a components and that the customer was product or service that will sell itself. design... not expecting...

DELIVERING THE GOODS 321 See also: Finding a profitable niche 22–23 ■ Gaining an edge 32–39 ■ The weightless start-up 62–63 ■ Leading the market 166–69 ■ The marketing model 232–33 ■ Creating a brand 258–63 ■ Fulfilling demand 294–95 difference between life and death. Profit in business comes from sun led to premature aging of the Superior-quality tires, made from repeat customers, customers skin. The young Lauder took note harder-wearing rubber compounds, …that bring friends with them. and began making her own skin also last longer than tires of lesser creams with her uncle, a chemist. quality, which means that the W. Edwards Deming Like many other successful driver will not have to face the cost entrepreneurs, Lauder genuinely and inconvenience of replacing prices. If in other aspects (such as believed that there was a need for them as frequently. function) the products are equal her product, and in 1935 she began to their competitors, adding price selling her first preparations: super- Great quality is not just about premiums to products that are rich, all-purpose crème; crème using the best components. Design especially valued by consumers pack; cleansing oil; and skin lotion. is also crucial to achieving a should lead to greater revenues superior-quality product, because and profits. In the beginning Estée Lauder design can offer the consumer new did not use any advertising; she benefits for which they are willing Quality wins out thought her products were so good to pay a price premium. In 2011 Estée Lauder adopted the “quality they would sell themselves. She the Japanese tire manufacturer sells” philosophy when she set up relied on her customers to promote Bridgestone launched its new range her cosmetics business in New the products. Customers would try of flat-run tires, based on an York in 1946. When she was a her preparations, like them, and innovative design that enabled child, her mother had lectured her continue buying them. Furthermore, motorists to run a car with a flat tire relentlessly on how exposure to the they would then recommend Estée for 50 miles (80 km) at a speed of Lauder’s products to their friends. 50mph (80kph). This feature enabled She gave this form of promotion a drivers to reach the closest garage to name: tell-a-woman marketing. change a flat tire, rather than having to change it on the side of the road. In more recent times, Samsung has also used the quality-led Businesses that have managed approach to great effect. The South to incorporate differentiating Korean electronics manufacturer features into their products can does not rely on glitzy advertising exploit the added value that these campaigns to create its competitive features provide by charging higher advantage. Instead, it appeals to a market segment who favors product quality over brand image. In April 2013 the Samsung Galaxy 4 was launched. Very quickly it gained market share over the market leader—Apple’s iPhone—because it was seen as a more technologically advanced product than Apple’s latest model, the iPhone 5. The display offered around 100 more pixels per inch than the iPhone 5, and its built-in ❯❯ Customers who are loyal purchasers of a specific brand are valuable even if that product is a low-cost one. Quality is one feature that can inspire trust in and generate repeat business.

322 QUALITY SELLS camera also surpassed the iPhone 5 and breakfast cereal, that are Quality means fitness in terms of functionality and pixels. bought frequently by households for use. Fitness is defined In addition, according to research and consumed immediately. Since by the UK consumer magazine FMCGs are purchased regularly by the customer. Which?, the Samsung processor throughout the year, the sales Joseph Juran was nearly twice as fast as that in volumes achieved by a successful the iPhone. product can be immense. US expert on quality management (1904–2008) Samsung’s prices were slightly A good example of an FMCG lower than Apple’s, but there were market is the one for toilet paper. and again if the product is softer other producers of Android mobile According to research by US and stronger than the brands sold phones that substantially undercut toilet paper manufacturer Charmin, by its rivals, generating higher Samsung’s prices without taking 126 billion rolls of toilet paper volumes of sales and greater any of its market share. The key to are bought every year in the US. revenues. This means the business Samsung’s Galaxy 4 success was In a market this large, even a has increased its revenues without its superior quality. small share will translate into having to pay any of the marketing multimillion-dollar revenues. If costs usually associated with Brand loyalty consumers habitually purchase acquiring customers. Quality can be an important selling the same brand of a particular point even for low-cost products, product over and over, rather Service and quality since it helps build brand loyalty than switching between rival Another indicator of good quality and thus ensures repeat customers. brands, their brand loyalty will is providing a service in a manner In markets for fast-moving consumer be invaluable. that exceeds customer expectations. goods (FMCGs), manufacturers use This might manifest as efficiency, superior product quality to preserve High-quality brands are more or rapid response to customer and extend their customer base. likely to win brand loyalty than concerns. The Zurich Insurance FMCGs are nondurable products, brands of an inferior quality. For Group operates in over 170 such as beer, toothpaste, chocolate, example, households are more likely countries and each month handles to buy Charmin toilet paper again over 600,000 customer interactions via phone, mail, and the Internet. Even a small Its ambition is to be the best global market share of these insurer as measured by customers, repeat-buy, low-cost employees, and shareholders, and it items will represent actively pursues quality assurance. Its iQuality program sets out how vast profits. employees can pay more attention to customers, and find out more Consumers tend to Household items such as toothpaste, toilet about their changing needs and stick with their paper, and laundry detergent represent low-cost, expectations. It performs regular favorite brands of high-volume items that are bought regularly and checks on the quality of employees’ fast-moving consumer generate huge revenues for manufacturers. work and uses extensive market goods (FMCGs), which research to gain feedback on are bought regularly. customer experience.

DELIVERING THE GOODS 323 Hotel guests are pleasantly surprised to discover luxury extras that they were not expecting. These could be complimentary services or products. Zurich also has protocols for Other hotels have been even bolder W. Edwards Deming reacting to unhappy customers; in pursuing value added. In the when several customers complained premium segment of the market, William Edwards Deming was that payment was too slow when hotels create additional value by born in 1900 in Sioux City, IA. their policies matured, Zurich used redefining their core function. He studied physics at the the “five whys” to discover that the These hotels do not just sell a University of Wyoming before problem lay in a delay in sending comfortable place to sleep; they sell going on to receive a PhD from out claim forms. The company put an “experience,” in which guests Yale. After leaving full-time in an automatic system to send out are offered a range of “delighters”— education he worked for Bell the forms 10 days before policies aspects of the hotel’s service that Telephones, where he was matured, resulting in a 78 percent delight the guest, but which are not part of a team working to drop in complaints. Zurich has won usually expected. Examples include improve quality control. many service awards, including two HD televisions; branded, high-end “Five-star Service Awards” based shower gel and shampoo; free One of his key ideas was on 25,000 completed questionnaires. champagne; and free slippers that that the quality of bought-in guests can take home with them. raw materials and components Added value matters more than their price Businesses can also create high- Adding value is a constant because their quality will be a quality products by adding value. battle because a “delighter” can major factor in determining Value added is the difference soon become an expectation. If a the quality of the finished between a product’s price and the hotel fails to meet the constantly product. Consequently, he raw material cost of making the rising requirements of its guests, argued, manufacturers should product. Companies can add value it will lose customers to its rivals. not choose their suppliers to their products with new features, Successful hotels are constantly on solely on the basis of the price innovative functions, or add-ons the lookout for new “delighters” that charged. Ideally, companies designed to benefit, and appeal will surprise their guests without should try to develop a to, actual and potential buyers. becoming too expensive. Low-cost long-running relationship with delighters are the ideal way to a single supplier, which is In the hotel business, Ibis adds create value added, generate repeat based on trust. This approach value by promising customers that purchases, and ultimately produce would be more likely to lead to their specially designed beds, healthy profits. ■ better-quality materials. mattresses, comforter, and pillows will give them a better night’s Quality ... is not what the In addition, Deming also sleep. The cost of these items is supplier puts in. It is what the believed that quality came balanced against improvement in from a production process that retention of customers, or by higher customer gets out and is was stable and consistent. prices that create extra revenue. willing to pay for. Peter Drucker Key works US management guru (1909–2005) 1982 Out of the Crisis 1993 The New Economics

324 THE DESIRE TO OWN SOMETHING A LITTLE BETTER, A LITTLE SOONER THAN NECESSARY PLANNED OBSOLESCENCE IN CONTEXT Products are more To maintain profits, durable than they were companies have to find ways FOCUS to encourage replacement Maintaining sales in the past. purchasing. KEY DATES ...to create products 1924–39 Lightbulb makers that existing owners New versions of Osram, Phillips, and General existing products are Electric form a cartel, working will want to buy. regularly restyled and together to prevent any product given added features... development that would B uilt to last may sound like produce lightbulbs that could an essential in any form In the past, items such as burn for more than 1,000 hours. of production, yet some lightbulbs or stockings were made manufacturers produce items that to fail sooner rather than later. 1932 Bernard London writes they know will become obsolete Nowadays, items such as printer a leaflet titled Ending the in just a few years. This policy ink cartridges, batteries, and Depression through Planned ensures that customers continue components for appliances can Obsolescence, urging the to buy new goods. Products are be difficult or expensive to replace, UK government to pass laws replaced either because their making it tempting to buy a new to limit the useful lives of components wear out or because version of the product instead. products to increase demand. they are surpassed by products Many goods, such as pens or with new features. razors, have become disposable— 1959 Volkswagen uses the cheap to make and easy to replace. tagline: “We do not believe in planned obsolescence, we don’t change a car for the sake of change,” to criticize rival car manufacturers who allegedly did not build cars to last. 2013 Apple declares that the original iPhone, launched in 2007, is now obsolete.

DELIVERING THE GOODS 325 See also: How fast to grow 44–45 ■ Thinking outside the box 88–89 ■ Protect the core business 170–71 ■ Morality in business 222 ■ Greenwash 268–69 Updated styling Obsolescence never meant South Korean company posted US industrial designer Brooke the end of anything, record profits of $8.9 billion, up 47 Stevens defined the term “planned it’s just the beginning. percent from the year before. Over obsolescence” as instilling in the same period, Apple’s share of consumers “the desire to own Marshall McLuhan the smartphone market in Europe something a little better, a little dropped from 30.5 to 25 percent. sooner than necessary.” The Canadian media theorist (1911–80) This was no doubt partially due to strategy of planned obsolescence the popularity of Samsung’s Galaxy was originally developed by General speed up replacement purchase, by S4, whose new features included Motors, who realized that advancing giving cars regular face-lifts. The the S-Translator, which enables the technology would adversely affect redesigns are intended to encourage user to translate nine languages its future business. During the status-conscious motorists to ditch either from speech to text, or from 1950s, it began updating the their still perfectly good vehicles for text to speech. styling of radiator grills, taillights, the latest body shape. and bodywork every few years to Status anxiety encourage drivers to replace their New features Soccer teams also take advantage cars more often. Car manufacturers also employ of planned obsolescence. At the various other tactics to persuade beginning of each season, most Over the last 30 years, as consumers to update their vehicles. teams release at least two replica technology has advanced, cars have New car models incorporate uniforms for fans to buy. The home become even more durable and cutting-edge features such as and away shirts are restyled to be reliable. Today, new cars are built touch-screen multimedia control noticeably different from last to last. With regular servicing the systems for in-car entertainment, or year’s uniform. This type of engine and transmission of a new additional safety systems, such as planned obsolescence is based on car will still provide reliable service technology that warns about lane status anxiety. Many fans will for over 250,000 miles (402,000 km). departure and potential collisions. choose to buy the new shirt to keep Typically, with average usage, this up with other fans, or to show equates to an expected useful life Phone manufacturers, such as loyalty to their team, even though of more than a decade. If drivers Samsung and Apple, use planned the shirt that they bought a year only replace their vehicle once obsolescence to increase revenue ago may still look as good as new. ■ every ten years, this would lead to by persuading consumers to replace low sales for car manufacturers. still-usable cell phones or tablets Children in Zimbabwe wear soccer with something newer and better. shirts donated by English soccer To generate higher sales levels, In this highly competitive market, teams. Soccer fans in Europe will not many carmakers now set out to the rewards go to the company that buy last season’s shirts because the create planned obsolescence to creates planned obsolescence styling is updated each season. soonest, which gives them the I believe in status symbols. fastest rates of replacement Brooks Stevens purchase. Samsung has used this strategy to great effect to US industrial designer (1911–95) boost profits. In July 2013 the

326 TIME IS MONEY TIME-BASED MANAGEMENT IN CONTEXT Traditionally, new products have been developed in a linear FOCUS sequence, moving from one stage Product development of design to the next. KEY DATES 5th century BCE The ancient By forming multidisciplinary Greeks use discounted cash teams, all elements of product design flow to take into account the amount that money devalues can be completed simultaneously. during lengthy investment appraisal decisions. This reduces This allows for design costs. faster development. 1764 English inventor James Hargreaves invents the T ime has a monetary value. way that other models focus on raw “spinning jenny”—a device For example, if employees materials and overheads. A time- that enables textile workers to spend an afternoon in an based approach allows companies to spin eight spools of cotton at unproductive meeting, their time manage labor effectively across the once, rather than just one. costs the company money. There is company, to gather true-cost data, also an “opportunity cost,” since the and to cut costs by reducing the 1994 Nissan executive meeting prevents them from doing amount of time to develop and Chris Baylis claims that other tasks that are potentially more launch new products. “simultaneous engineering” productive. This is a typical concern is the quickest and most of time-based management, which One way to reduce time costs on effective way of achieving appraises the use of time in the same a project is to use a process called “optimum design solution.” “simultaneous engineering.” This 2001 Software developers in Utah, US, produce a manifesto for the agile software development approach.

DELIVERING THE GOODS 327 See also: Creativity and invention 72–73 ■ Profit versus cash flow 152–53 ■ Leading the market 166–69 ■ The value chain 216–17 ■ Lean production 290–93 ■ Simplify processes 296–99 ■ Critical path analysis 328–29 strategy involves working on all the Design Design design processes required to launch Engineering a new product at the same time, New product rather than in a linear sequence, and developmeEnntgineeringProduction can reduce new product development time by months or even years. Approval Comparing approaches Production In a simultaneous engineering Traditionally, companies have approach, all departments are pushed new products through a Approval represented in one multidisciplinary linear sequence of development, team, working together to solve new where each department involved In a linear process of new product problems, and saving time and money. in the design works in isolation, development, the evolving prototype completing their task before or individual parts move separately, beginning. Project managers play a passing the product to the next back and forth, between departments. key role, since they must ensure department. In this way, the part- This is time-consuming and costly. that the multidisciplinary team made product might move between members agree to the necessary design, engineering, and beautiful seat creating visibility design trade-offs at a very early production departments. problems once in position—parts stage in the development process. may have to bounce back through Design integrity is achieved the first However, this approach can lead several departments. time around without any reworking, to time-consuming mistakes. For slashing the amount of time taken example, when new cars are being The alternative approach, chosen to launch the new product. designed, different departments by time-based manufacturers, is to might work on various parts in use a team of people from different Time-based management only isolation and in a certain sequence. departments, all working together works effectively in companies that When the various subassemblies on a new product from the employ flexible, multiskilled staff, are finally put together at the who, in turn, respects each another’s prototype stage, the result is often skills and value each other’s input. unsatisfactory. And in order to A nonlinear process means that correct one thing—such as a managers must be willing to work with a less rigid structure, and Agile software development (ASD) encourage a culture of trust. Within the software industry, changing requirements (even at This management approach changes in components and late stages of development) in forms the basis of many technology customer demands happen order to give the customer the companies today, since it allows rapidly and repeatedly. This greatest competitive advantage. them to respond more quickly to means that developers have had However, the founders note that changes in the market and customer to find ever-faster and better this can only be achieved when needs, while providing employees ways of managing projects. “business people” take a flexible with a more autonomous, creative, and trusting approach, hold daily and productive work environment. ■ In 2001, a group of software face-to-face conversations with developers met in Utah, to developers, and provide all the discuss how this might be done, support they need. Coupled and their conclusions form the with regular reflection on team basis of the agile software practice, these conditions will development approach. This allow self-organizing teams to recognizes the customer as the produce fast, brilliant designs. highest priority, and embraces

328 A PROJECT WITHOUT A CRITICAL PATH IS LIKE A SHIP WITHOUT A RUDDER CRITICAL PATH ANALYSIS IN CONTEXT In a good strategy plan, all the activities that must be completed in order to finish a project are identified. FOCUS Planning procedures These activities are ordered in a logical sequence. KEY DATES When possible, activities are planned to run 1814 Napoleon’s invasion of simultaneously to save time. Russia fails because the Grande Armée is not equipped Critical activities that, if delayed, will stop the project from with the type of clothing being completed on time are highlighted. needed to survive the winter. A project without a critical path is like 1910 US mechanical engineer a ship without a rudder. Henry Gantt invents the Gantt chart, which shows start and T o minimize the amount of Morgan Walker and James Kelley, finish dates for all activities time needed to complete a and was first used in 1957 by the that need to be completed in complex project, managers chemical manufacturer, DuPont, to order to finish a project. frequently use a process known as schedule a program of factory critical path analysis (CPA). CPA closures in the most cost-effective 1959 Morgan Walker and was developed by mathematicians way. By following Walker’s and James Kelley publish their groundbreaking paper “Critical Path Planning and Scheduling.” 1997 In his book Golden Chain, Israeli physicist Eliyahu Goldratt advises managers to plan for uncertainties by creating “resource buffers,” which can be deployed to solve problems when they arise.

DELIVERING THE GOODS 329 See also: Gaining an edge 32–39 ■ The value chain 216–17 ■ Lean production Sydney Opera House 290–93 ■ Simplify processes 296–99 ■ Time-based management 326–27 One of the modern world’s On this critical path network for a 20-day project, architectural wonders, the Sydney Opera House is a the nodes (circles) record finish times. The time the dramatic example of what can go wrong when projects task should take is recorded at the top, while the time are not properly planned and managed. When the world- it must be completed by to keep the project on track famous performing arts center was opened in 1973, is recorded at the bottom. Tasks B, D, and G form it was ten years late, and had cost 14 times more than the critical path since they must be completed 14 its original budget. 16 promptly; the other tasks all have more 4 In an attempt to open the 5 16 building to the public as soon time than they need. 8 Ta6sdkaCys 6 16 as possible, the government ordered building work to 12 4 Task F commence in 1959, before the days Danish architect, Jørn Utzon, 2 had finalized his drawings. 0 Ta8sdkaAys 10 Task G 20 The decision to start 1 10TdaasyksB 10 Ta6sdkaDys construction work early led 4 days 7 to a series of problems. For 0 example, the podium columns 20 that were initially used proved to be too weak to support the 3 Task E Ta2skdaHys roof. As a result, time and 10 2 days money were wasted replacing these columns. Unfortunately 18 for Utzon, it was initially his design that was unfairly Kelley’s advice, DuPont saved activities where there is no float blamed for the delays and 25 percent in the shutdowns. In (spare) time. If a critical activity cost overruns, rather than the early 1960s, NASA used critical looks like it could be delayed, poor project management. path analysis to defeat Soviet Russia management will need to act, in the Space Race. Through careful probably by employing extra people project scheduling, NASA was able and machinery. These resources to advance its spacecraft and can be moved from noncritical rocket-development programs. activities that have float time. Planning tool Saving time and money Architectural icon The Sydney CPA is a planning tool that plots a Manufacturers might use CPA to Opera House is a feat of engineering project’s stages in a logical plan the launch of a new product. and design, despite the difficulties sequence, indicating which of the By identifying jobs that can be encountered during its construction. component activities need to be performed simultaneously, the finished before others can start. It manufacturer should be able to allows for activities to be scheduled reduce the amount of time needed simultaneously to save time. for development, allowing it to Activities that are critical to the launch onto the market sooner. project are identified—these are Completing projects earlier also steps, which if delayed, will hold up reduces costs. For example, a the completion of the whole project. company might use CPA to reduce the amount of money spent on Project managers illustrate this hiring expensive machinery. By information visually, using a step- studying the network the manager by-step network diagram. The most can predict when to rent a piece of important part of the diagram is machinery and for how long. ■ the critical path, which shows the

330 TAKING THE BEST FROM THE BEST BENCHMARKING IN CONTEXT To become an I f the performance of a industry leader... company is adequate but FOCUS unspectacular, it may seek to Competitive advantage ...a company must identify identify areas that would help it its most-successful rise above the competition. The KEY DATES competitor... process of benchmarking allows a 240 BCE The Romans capture business to improve efficiency by a Carthaginian ship during a ...and adopt the best comparing its performance against storm. They build new boats practices of its rival. other organizations. The goal is to based on this design and identify, and then learn from, best defeat the Carthaginians Take the practice in the industry. Best at the Battle of Aegus. best from practice might come, for example, the best. from a competitor who achieves the 1819 Scottish industrialist lowest unit costs, the best customer James Finlayson sets up a satisfaction ratings, or the shortest textile factory in Tampere, lead times. The rival’s approach is Finland. His production then carefully evaluated, including methods are modeled on such factors as the equipment, those used by Lancashire’s training, and production methods world-class cotton mills. used. Once understood, best practice can be adopted in the 1972 Ajax, the Dutch soccer hope that it will raise the team, wins the European Cup performance of the company to playing “total soccer,” which the level of the industry leader. allows outfield players to take any position on the field. Cost effective Spanish team FC Barcelona Some companies try to become more subsequently adopts the same efficient via simple trial and error, strategy and goes on to but this can be slow and costly. One achieve great success. of the advantages of benchmarking is that it is a relatively cheap way to improve performance, because there is no need to replicate the expensive mistakes made by other

DELIVERING THE GOODS 331 See also: Study the competition 24–27 ■ Keep evolving business practice 48–51 ■ Avoid groupthink 114 ■ Ignoring the herd 146–49 ■ Avoiding complacency 194–201 ■ Simplify processes 296–99 ■ Applying and testing ideas 310–11 businesses. Improvements can come Benchmarking provides production methods. Upon their quickly so that once the process an inventory of creative return, the team members adopted of benchmarking has identified many of the production methods effective practices, these methods changes that other they had seen. Benchmarking can be adopted. The changes should companies have enacted. also enabled Xerox to improve lift performance to the level achieved the reliability of its products. From by the industry leader, so that any John Langley 1981 to 1990, customer complaints competitiveness gap is eliminated fell by 60 percent. Over the same quickly. In the future, benchmarking UK Barclays Bank executive period Xerox’s manufacturing can be repeated on a regular basis. costs fell by more than 50 percent, simplicity enabled the competition which enabled the company to Benchmarking in practice to benefit from economies of scale; match the prices charged by the In the 1980s, the US photocopier bulk-buying components reduced Japanese, while maintaining its manufacturer Xerox used operating costs, making it possible profit margins. benchmarking to restore its market for Canon and Ricoh to offer share. For ten years, it had been consumers lower prices. Xerox Raising standards losing customers to its Japanese responded by simplifying its Governments have also used rivals Canon and Ricoh. These designs, so that the commonality benchmarking to improve companies had been gaining of components across Xerox models performance. For example, from ground because they were able to rose from 20 to 70 percent. 2000 to 2009, the Organization undercut the prices charged by for Economic Cooperation and Xerox, without compromising on Xerox’s US management team Development (OECD) surveyed product quality. To identify what also visited Japanese photocopier education standards in 65 countries they were doing wrong, Xerox factories to learn more about their and identified that Finland bought their rivals’ products and achieved the highest rankings in took them apart. They discovered reading, mathematics, and science. that Canon and Ricoh designed their Teachers from around the world machines so that they were made now visit Finland every year to from a relatively small number of learn more about the Finnish common components. Design educational success. ■ Benchmarking across industries Ferrari’s pit-stop crew has a clear Some companies learn from specialized in one task, which chain of command, allowing them to another organization that operates they practiced over and over, refuel the car and change all four in a completely different market. until it was perfect. tires in less than seven seconds. For example, in 2005, two doctors from London’s Great Ormond Goldman and Elliot changed Street children’s hospital were working arrangements at Great struck by the efficiency of the Ormond Street by applying Ferrari pit crew during a Formula Ferrari best practice: clear job 1 race. descriptions meant that each member of staff knew what Alan Goldman and Martin their role was, and a leadership Elliot observed that only one position was assigned for each person in the crew gave orders, shift. As a result, patient avoiding time lost in discussion, handover errors between the and pit-stop routines were operating room and intensive standardized. Crew members care unit unit fell by 70 percent.

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334 DIRECTORY B usiness is all about succeeding, often against considerable odds, and to do so its practitioners have drawn on a range of insights from a number of related disciplines. It requires an understanding of people, numbers, and systems, so it is perhaps not surprising that a large proportion of its key thinkers come from the fields of psychology, mathematics, and engineering. Some of them have proved adept at turning theory into practice, building large businesses that continue to evolve and grow over the long term. The main part of this book has examined the work of some of those key thinkers in detail; here we look at others whose impact on the business environment is marked, from industrial designers and theorists to inspirational leaders and management gurus. RICHARD BRANSON studying industrial management business administration at Harvard at Central Michigan University, MI. Business School, Christensen has 1950– His consulting work within diverse published widely; his first book, industries led him to develop the The Innovator’s Dilemma, is an Founder of the Virgin Group of LEO (Listen, Enrich, Optimize) international best seller. businesses, Richard Branson was solution, popularized in his book, See also: Changing the game born in 1950 in Surrey, UK. In 1969 The Ice Cream Maker. This approach 92–99 ■ Crisis management 188–89 he started a mail-order record says that by making “quality” the ■ Avoiding complacency 194–201 company called Virgin, which then responsibility of every employee, expanded into retail stores. In 1972 individual quality leads to process ROBERTO CIVITA he built a recording studio, and quality and organizational success. began his own record label. The See also: Quality sells 318–23 1936–2013 Virgin brand expanded into diverse areas, and the Virgin Group today CLAYTON CHRISTENSEN Brazilian media baron Roberto consists of more than 200 companies Civita was born in Milan, Italy, in in more than 30 countries, 1952– 1936. His family moved to the US including Virgin Atlantic airlines, shortly after his birth, then to Brazil Virgin Radio, and Virgin Galactic. Clayton Christensen is considered around 10 years later, where his See also: Beating the odds at one of the world’s top management father founded the Abril publishing start-up 20–21 ■ Creating a brand thinkers. Born in Utah in 1952, he company. Civita studied for several 260–65 ■ Generating buzz 276–78 worked as a missionary for the degrees at various US universities, Church of Jesus Christ of Latter-day in subjects as diverse as nuclear SUBIR CHOWDHURY Saints in South Korea from 1971 to and particle physics, journalism, 1973. On his return to the US, he economics, and sociology. After 1967– studied economics at Brigham stints working at Time and Abril, Young University, Utah, and Oxford in 1968 he started Veja, Brazil’s An expert on quality management, University, UK, before earning an best-selling weekly magazine. His Subir Chowdhury was born in MBA and doctorate at Harvard successful media and educational Chittagong, Bangladesh in 1967. Business School. While working enterprises led Forbes magazine He earned a degree in aeronautical as a management consultant he to estimate his net worth as engineering at the Indian Institute helped found Innosight, a public $4.9 billion at his death in 2013. of Technology, Kharagpur, before policy think tank. Now a professor of See also: Rupert Murdoch 337

DIRECTORY 335 KATHLEEN EISENHARDT computers at 13 with his friend management. He wrote 12 books, Paul Allen, with whom he later co- two of which revolutionized 1947– founded Microsoft. Gates studied corporate management: Managing law at Harvard University for two Across Borders and The Stanford University professor years before pulling out to set up Individualised Corporation. Kathleen Eisenhardt is a leading Microsoft with Allen in 1975. As See also: Organizational Culture expert in strategy within high- CEO, Gates built Microsoft into one 104–09 velocity markets and industries, of the world’s largest companies. In such as Silicon Valley. Originally 1994 he set up the William H. Gates GARY HAMEL trained in mechanical engineering charitable foundation, with an (studying at Brown University, RI), initial contribution of $28 billion. 1954– Eisenhardt then earned an MSc in See also: Leading the market 166– computer science and a PhD in 69 ■ The right technology 314–15 Strategist Gary Hamel got his PhD business at Stanford. Her 1998 book at the University of Michigan, MI, Competing on the Edge (co-written PANKAJ GHEMAWAT before joining the faculty of the with Shona Brown) is a classic text. London Business School in 1983. See also: Avoiding complacency 1959– Ten years later he founded a 194–201 ■ Coping with chaos consulting business in Silicon 220–21 Born in Jodhpur, India, Pankaj Valley, CA, to gain experience Ghemawat lived in the US for 30 at the cutting edge of high-tech HENRI FAYOL years before moving to Spain. He companies. Today he also works demonstrated academic excellence as a visiting professor at Harvard 1841–1925 at any early age; he was accepted and Oxford universities. In 1995 for a PhD at Harvard Business he co-authored a best-selling Born in Istanbul, Turkey, in 1841, School at 19, finishing it in just three book with C. K. Prahalad called Henri Fayol studied engineering years. After working for a short time Competing for the Future, which at the Ecole des Mines de Saint at consulting company McKinsey & introduced the concepts of “core Etienne in France before becoming Company, he returned to Harvard to competence” to the business world. a mining engineer. His innovative become its youngest-ever professor. See also: Protect the core business approach to technical problems and An expert on global strategy, he 170–71 ■ C. K. Prahalad 338 management led him to develop controversially questioned the idea organizational theories that altered of globalization, claiming that JOHN H. JOHNSON contemporary thinking. He was companies need to find a balance the first person to conceptualize between “local” and “global.” 1918–2005 the organization of an industrial See also: Understanding the company, and conducted market 234–41 Media magnate John Harold groundbreaking work on Johnson was born in Arkansas City, operational excellence. SUMANTRA GHOSHAL AR. The grandson of slaves, he was See also: Simplify processes 296– unable to further his education 99 ■ Critical path analysis 328–29 1948–2004 because local high schools would not accept black students, but BILL GATES Organizational expert Sumantra shone academically after his family Ghoshal was born in Kolkata, moved to Chicago. After winning 1955– India. He studied physics at Delhi a scholarship to the University of University and worked as a manager Chicago, he became the editor of a William Henry Gates was born in at Indian Oil before completing corporate magazine. In 1942, using Seattle, WA, in 1955. His father was PhDs at MIT and Harvard Business a loan secured against his mother’s a lawyer and his mother was active School in the US. In 1994 he joined furniture, he began a black-oriented in the civic and corporate world. London Business School, where he magazine that later became known Gates began programming became professor of strategic as Ebony. In 1951 he started Jet

336 DIRECTORY magazine, and by 1982 his holdings products that are both stylish JOHN KOTTER in book and magazine publishers, and inexpensive, IKEA has grown TV, radio, and cosmetic companies to encompass 284 stores in 26 1947– were large enough to make him the countries by aiming to “allow people first African-American to appear on with limited means to furnish their Harvard professor John Kotter is the Forbes 400 Rich List. houses like rich people.” an expert on leadership and See also: Gaining an edge 32–39 See also: Changing the game 92–99 change. He initially trained in ■ Changing the game 92–99 ■ Anticipating demand 290–91 electrical engineering and computer science, but followed JOSEPH JURAN ROSABETH MOSS KANTER his first degree with a doctorate in business administration from 1904–2008 1943– Harvard Business School. Ranked number one “leadership guru” by Born in Romania, Juran emigrated Harvard professor of business BusinessWeek magazine in 2001, with his family to the US at eight studies Rosabeth Moss Kanter was Kotter has written 17 books, years old. Academically brilliant, he born in Cleveland, OH. She studied including the best-selling Leading skipped four grades at school, then sociology to PhD level before Change (1996). completed a BSc in electrical pursuing a career in business See also: Leading well 68–69 ■ engineering. By 1937 he was chief research. Kanter has taught at Changing the game 92–99 of Industrial Engineering at Western Harvard and Yale universities, and Electric but he was seconded to published many books on business ESTEE LAUDER Washington, DC, to improve the management techniques, including efficiency of the lend-lease program Men and Women of the Corporation, 1908–2004 (by which the US lent funds to the which is regarded as a classic Allied Forces). He then returned to in critical management studies. Estée Lauder was born to a family academia; in 1951 he published The See also: Organizational culture of Jewish immigrants in Queens, Quality Control Handbook, which 104–09 ■ The value of diversity 115 NY, in 1908. She was taught how to became a management classic. make beauty products by her uncle, See also: Lean production 294–95 PHILIP KOTLER a chemist. Beginning by selling her ■ Quality sells 318–23 own products at local beauty 1931– salons, Lauder built a business that INGVAR KAMPRAD was valued at approximately $3.2 Generally regarded as the founder billion in 1995. 1926– of modern marketing management, See also: Quality sells 318–23 Kotler was born in Chicago in 1931. Swedish businessman Ingvar He earned his PhD in economics KONOSUKE MATSUSHITA Kamprad is the founder of furniture at MIT, and did postdoctoral work retailer IKEA. Born in Pjätteryd, at Harvard University. Kotler was 1894–1989 Småland, he started trading for responsible for repositioning fun as a boy, selling matches then marketing within companies, The founder of Panasonic, Konosuke stationery in his neighborhood. moving it from a peripheral to a more Matsushita was born in Wakayama, When he was 17, he was rewarded central position. He also shifted Japan. Following family financial by his parents with money for good emphasis away from price and misfortunes, Matsushita was sent school grades, and the teenager toward meeting customer needs. to Osaka at nine to become an used this to start his own business. Kotler is the author of more than apprentice. In 1917, at 22, he set up Kamprad began by selling door-to- 50 books, including the classic his own business making electrical door, then started a mail-order Marketing Management (1967). sockets, and in 1918 started a new service. In 1948 he began selling See also: The marketing model company, which was later renamed locally made furniture and the 232–33 ■ Understanding the market “National” and then “Panasonic.” company expanded. Renowned for 234–41 ■ Marketing mix 280–83 His leadership style was extolled by

DIRECTORY 337 John Kotter in his book Matsushita AKIO MORITA business—News Corp—reported Leadership (1997). revenues of $34 billion in 2012. See also: John Kotter 336 ■ 1921–99 See also: Stand out in the market Leading well 68–69 28–31 ■ Roberto Civita 334 The founder of Sony was born in ELTON MAYO Kosugaya, Japan. He showed a love VINEET NAYAR of mathematics from an early age, 1880–1949 and studied physics at Osaka 1962– Imperial University. While in the Australian management guru and navy in World War II, he met Masaru Indian businessman Vineet Nayar industrial psychologist Elton Mayo Ibuka, with whom he later set up was born in Pantnagar, in the was born in Adelaide. At the city’s the Tokyo Telecommunications foothills of the Himalayas. He university he studied medicine, Engineering Corporation. Renamed studied mechanical engineering, philosophy, and psychology, and “Sony” in 1958, the company earned a MBA, then entered his research into the psychological produced the first transistor TV and business. In 2007 he became CEO causes of industrial unrest led the game-changing Sony Walkman. of HCL Technologies, where he to an invitation to join Harvard Morita was an early champion of practiced his controversial approach Business School, where he was building an international business; to management of “employees first,” part of the team that performed It was the first Japanese company inverting the standard operational the celebrated Hawthorne to build factories in the US and to pyramid. Using this approach, experiments. These demonstrated have US members on the board. detailed in a book of the same that the perfomance of employees See also: Gaining an edge 32–39 ■ name, Nayar has transformed HCL is influenced as much by their Keep evolving business practice into a $4.6-billion company with surroundings as by their skills. 48–51 ■ Changing the game 92–99 offices in 31 countries. See also: The value of teams See also: Organizing teams and 70–71 ■ Is money the motivator? RUPERT MURDOCH talent 80–85 ■ Is money the 90–91 ■ Kaizen 302–09 motivator? 90–91 1931– ROSALIA MERA HENRI NESTLE Media baron Keith Rupert Murdoch 1944–2013 was born in Melbourne, Australia. 1814–90 He went to boarding school in Co-founder of Zara clothing retailer, Geelong, Australia, then traveled to Heinrich “Henri” Nestlé was born Rosalía Mera was born in La Oxford, UK, to study economics. in Frankfurt-am-Main, Germany. Coruña, Spain, to a working-class When his father died in 1952, He trained as a pharmacist, but in family. She dropped out of school at Rupert was bequeathed a regional 1833 fled local riots to settle in 11 to work as a seamstress. At 13, newspaper, the Adelaide News. Vevey, Switzerland. He continued she went to work in a clothing store Murdoch learned the trade through to experiment, and in the mid-1860s where she met Amancio Ortega, an apprenticeship at the Daily began to produce a baby food that who was to become her husband. Express in London, then returned combined milk with wheat flour. Nine years after their marriage in to Australia to take control of his The popularity of his “farine lactee” 1966, they opened the first Zara paper. He drove circulation higher (the first formula for babies) allowed store, selling inexpensive clothes by delivering a more dramatic mix him to open sales offices and based on couture designs. By 2013 of crime and scandal; the increased factories in the UK, France, there were 1,700 Zara stores around revenues allowed him to begin Germany, and the US, while also the world, and Forbes magazine buying more papers. Between 1968 acquiring local companies. Nestlé named her “the wealthiest self- and 2000 he created a global went on to invent the first form of made woman on the planet.” empire of mass media. Despite milk chocolate and soluble coffee. See also: Gaining an edge 32–39 being involved in the newspaper See also: Creativity and invention ■ Reinventing and adapting 52–57 “hacking scandal” of 2011–12, his 72–73 ■ Ignoring the herd 146–49

338 DIRECTORY INDRA NOOYI geniuses of the 20th century. C. K. PRAHALAD See also: Anticipating demand 1955– 290–93 ■ Lean production 294–95 1941–2010 Indra Krishnamurthy Nooyi was PIERRE OMIDYAR Coimbatore Krishnarao Prahalad born in Madras (now Chennai), was born in Tamil Nadu, India. India. After graduating with a 1967– After completing a degree in masters in finance and marketing physics at the University of Madras, from the Indian Institute of Founder of eBay Pierre Omidyar was Prahalad joined Union Carbide, Management, Nooyi completed born in Paris, France, to Iranian and worked there for four years (he a masters at Yale Management parents. He moved to the US with described this as a major “inflection School, funded by working as a his family as a child, where he point” in his life). He then studied nighttime receptionist. She then studied computer science at Tufts for an MBA at the Indian Institute spent six years as an international University. After graduating, he of Management followed by a PhD strategy consultant, before joining worked in software development for at Harvard Business School. En the telecommunications company Apple before co-founding a company route to becoming a professor of Motorola as a director of strategy. that developed business-to-business business administration, he became In 1994 she became the chief e-commerce software in 1991. renowned as a consultant, after strategy officer at PepsiCo, and Omidyar left to work for a mobile his advice invigorated the failing was instrumental in positioning communication business in 1994, Philips electronics business. He the company for growth in China, but continued to explore the has published many best-selling the Middle East, and India. She possibilities of e-commerce for books, including Competing for became the company’s CEO in consumers in his spare time. In the Future, co-authored with Gary 2006, and chairperson in 2007. 1995 he launched Auction Web, Hamel. He is considered one of the See also: Balancing long- versus which later became eBay. In 2012 world’s top management thinkers. short-termism 190–91 it reported revenues of $22.6 billion. See also: Protect the core business See also: The weightless start-up 170–71 ■ The learning organization TAIICHI OHNO 62–63 ■ Changing the game 92–99 202–07 ■ Gary Hamel 335 1912–90 TOM PETERS CARLOS SLIM HELU Taiichi Ohno was a self-taught 1942– 1940– engineer whose insights and methods helped Toyota become US management authority Tom Mexican business magnate Carlos one of the largest motor companies Peters was born in Baltimore, MD. Slim Helú was born in Mexico City. in the world. Born in Dalian, China, He studied civil engineering at After studying civil engineering at in 1912, Ohno started work at Cornell University at a masters the Universidad Nacional Autónoma, Toyota when he left school, and level, then earned an MBA and Mexico, he founded his own spent the rest of his working life PhD in business at Stanford business, Inmobiliaria Carso, at 25. there. He is best known for Business School. From 1966 to Through acquisition and shrewd devising the “just-in-time” 1970 he served in Vietnam for the management, he built on this to production system, where parts or US Navy, then worked for the US establish a large group of products are not ordered until just government. From 1974–81 he businesses—Grupo Carso—which before they are needed, rather than was a consultant for McKinsey included companies in the food, having large stock holdings on and Company, before leaving to retail, construction, mining, and hand. He also advocated flexible work independently after the tobacco industries. International manufacturing methods to allow publication of his book In Search acquisitions and mergers followed, tailoring for different international of Excellence, the business classic with partnerships with companies markets and to reduce waste. He is he wrote with Robert Waterman. such as Microsoft, with whom Slim regarded as one of the production See also: Coping with chaos 220–21 Helú joined forces in 2000 to launch

DIRECTORY 339 the Spanish portal, T1msn (now “planned obsolescence” was the An avid philanthropist, Wang is ProdigyMSN.com). In March 2013, mission of industrial design, and renowned for her remarkable Forbes magazine stated that Helú that design should make consumers insights into technology trends. was the world’s richest person, want something “a litte newer, a See also: Creativity and invention with a net worth of $73 billion. little better, a little sooner than is 72–73 ■ The right technology 314–15 See also: Effective leadership necessary.” Stevens was one of the 78–79 ■ Bill Gates 335 most influential industrial YANG YUANQING designers of the 20th century. ALFRED SLOAN See also: Planned obsolescence 1964– 324–25 1875–1966 Yang Yuanqing was born in Anhui ALVIN TOFFLER province, China. While studying for Alfred Sloan was a groundbreaking a masters in computer science, he industrialist who radically changed 1928– took a sales job at technology the ways that companies were company Legend (now Lenovo). organized in the early 20th century. American futurologist and writer By 29 years old he headed up the He was born in New Haven, CT, Alvin Toffler was born in New York company’s personal computer and studied electrical engineering City, where he grew up and went to business, and in 2009 he became at MIT before joining a small university. He and his wife, Heidi, CEO. Yang transformed the company that manufactured ball embarked on many collaborative traditional company into a bearings. By the age of 24 he was research projects, identifying performance-oriented business with its president, and within another current and future societal shifts. In a diverse staff, supplier network, and four years had led it from near- Toffler’s best-known book, Future customer base. In 2012 and 2013 he bankruptcy to an annual profit of Shock (1970), he envisaged a post- famously redistributed his bonus $60 million. The company was industrial future in which companies among the company’s employees. bought by General Motors, which outsource labor, technology See also: Effective leadership went on to make Sloan its president displaces the worker, and change 78–79 ■ Changing the game 92–99 in 1923. He famously reorganized takes place so fast that people GM into separate, autonomous cannot adapt fast enough to thrive. ZHANG XIN divisions, in a decentralizing process See also: Reinventing and adapting that was much copied. He was also 52–57 ■ Focus on the future market 1965– the first to introduce a systematic 244–49 ■ Forecasting 278–79 approach to strategic planning. A Businesswoman Zhang Xin was renowned philanthropist, he died CHER WANG raised in Hong Kong, and took on aged 90 of a heart attack. factory work as a teenager to save See also: Simplify processes 296– 1958– for an education in the UK. She 99 ■ Critical path analysis 328–29 received an MA from the University Entrepreneurial thinker Cher Wang of Cambridge in 1992, then worked BROOKS STEVENS was born in Taiwan and sent to the in investment banking. In 1995 she US for school. She studied economics and her husband co-founded SOHO 1911–95 at University of California, Berkeley. China, a property development After graduating, she worked for a company, offering prime properties Industrial designer Brooks Stevens computer company, where the to Beijing’s new super-rich class. was born in Milwaukee, WI. He heavy computer cases inspired her Success was not immediate, but had polio as a child, and occupied to wonder if computing could be SOHO China is now the country’s himself during long stays in bed made “smaller.” In 1997 she largest and most profitable property by drawing. He later studied co-founded technology company company. In 2013 Zhang’s net architecture at Cornell University, HTC based on this idea. By 2013 worth was $3.6 billion. NY, before opening his own the company was making one in six See also: Beating the odds at furnishings business. He said that of all smartphones used in the US. start-up 20–21

340 GLOSSARY Acquisition The purchase of the competition. This can include Closed innovation The idea, whole or part of a business by many things, from name, design, popular in the 20th century, that another business. logo, and packaging to broader, innovation in a company should take external affiliations that may set place strictly within its own walls, by Activity-based costing (ABC) it apart from its rivals (such as its own employees, rather than A method of business accounting ethical trading standards and drawing on knowledge, ideas, and that analyzes overhead costs to production initiatives). expertise from outside. determine which activities create which costs. This results in a more BRIC economies An acronym Collusion An agreement between accurate analysis of costs than for the four emerging economies of two or more companies not to traditional cost accounting, which Brazil, Russia, India, and China. compete, so that they can fix prices. measures direct costs and then adds They are considered by some to an estimate of overheads. pose a challenge to Western Commodity A term for any item, economic supremacy. product, or service that can be freely Asset Any economic resource bought, sold, and traded. that is owned by a company that Budget A financial plan that lists all can be used to generate value for planned expenses and incomes of Comparative advantage The the business. business unit, project, or venture. ability to produce goods or services at a lower opportunity cost than rivals. Balance sheet A summary of a Bull market A financial term company’s financial value, describing a period in which share Competitive advantage A strategy incorporating its assets, liabilities, values increase, leading to optimism whereby companies position and equity of the owners, which and economic growth. themselves ahead of competitors is usually published at the end either by charging less or by of its financial year. Buy out Taking control of a company differentiating their services or by purchasing a controlling interest products from those of their rivals. Bankruptcy A legal declaration of its stock. that an individual or a company Conglomerate A corporation that is insolvent, meaning that they Capital The money and physical is made up of two or more businesses cannot repay their debts. assets (such as machinery and that may operate across different infrastructure) used by a company to fields and sectors. Benchmarking A method of produce an income. evaluating a company by comparing Corporation An independent legal its perfomance and practices with Cartel A group of businesses that entity, owned by shareholders, that those of the market-leading agrees to cooperate in such a way is authorized to conduct business. business or businesses. that the output of their goods or Corporations exist separately and services is restricted, and prices are apart from their employees and Board In business, a term that refers driven up. shareholders and have their own to the board of directors of a rights and liabilities: they can company or organization. Board Cash flow The incomings and borrow money, own assets, and sue members are either elected or outgoings of cash in a business, or be sued. appointed to oversee the company’s representing its operating activities. activities and performance. Cost accounting A method of CEO An acronym for Chief Executive business accounting that aims to Brand The perceived “identity” Officer, the highest executive in a determine costs by measuring direct of a company or product that company. Appointed by and costs and then adding an estimate distinguishes it from the reporting to the board. of overheads.

GLOSSARY 341 Cost leadership A strategy Distribution The movement “equity” also denotes part or whereby companies aim to offer the of goods and services from the full ownership in a company. In cheapest product(s) or service(s) in producer or manufacturer through accounting, the net worth of a their industry or market and thereby a distribution channel (such as a company or individual, calculated gain a competitive advantage over vendor or agent) to the end consumer, by subtracting total liabilities their rivals. customer, or user. from total assets. Creative accounting Accounting Diversification A strategy to First-mover advantage The practices that seek to portray a minimize risk and raise revenue by benefits resulting from being the first company’s finances in either a distributing expenditure across a business to enter a market. positive or negative light through a number of different business units or range of accounting techniques. products, and across a range of Fixed cost A cost, such as rent or Although unconventional, and often different markets and even salaries, that does not change used to depict artificial profit levels, geographical areas. according to the number of goods or such practices are generally legal. services produced. Dividend An annual payment made Credit crunch A sudden reduction by a company to its shareholders, Forecasting The use of past data in the availability of credit in a usually as a portion of its profits. to predict future trends and assess banking system. A credit crunch Dividend payouts are made at the the likely demand for a business’s often occurs after a period in which discretion of a company’s directors. goods and services. credit is widely available. Early adopter A business or a Free market An economy in which Crowdsourcing Tapping into customer who uses a new product or decisions about production are made collective online knowledge by new technology before others. by private individuals and inviting large numbers of people, businesses on the basis of supply via the Internet, to contribute ideas E-commerce Abbreviated from and demand, and in which prices on different aspects of a business’s “electronic commerce,” the buying are determined by the market. operations. A related concept is and selling of products and services “crowdfunding,” which involves by businesses and consumers via the Groupthink A quirk of group funding a project or venture by Internet and electronic systems. dynamics, in which individuals in a raising capital from individual group place higher priority on investors via the Internet. Emotional intelligence (EQ) achieving a consensus with one The ability to perceive, control, and another than on effective and Default The failure to repay a evaluate emotions in oneself and rational decision-making. loan under the terms agreed. in others. US psychologist Daniel Goleman noted that high EQ is Hygiene factors A series of Deficit A financial situation in which common in business leaders and workplace factors identified by US a business’s expenditure exceeds facilitates other leadership traits. psychologist Frederick Herzberg that, its revenue. if poorly managed, contribute to job Emotional Selling Proposition dissatisfaction. A separate set of Demand The desire, willingness, (ESP) A marketing strategy that factors—motivators—encourage and ability of consumers to purchase creates an emotional connection job satisfaction. a product or service. (such as pride, humor, or desire) between the customer and the Inflation The steady increase in the Differentiation A strategy whereby brand, impelling them to purchase. overall prices of goods and services companies distinguish their products in an economy. or services from the offerings of Entrepreneur A person who rival companies through cost, takes commercial risk in the hope Interest rate The amount of improved features, or marketing of making a profit. interest—the charge for borrowing a and promotion in order to achieve sum of money—paid annually by a a competitive advantage in a Equity In investment, the value of borrower, measured as a percentage crowded market sector. shares issued by a company; of the total amount borrowed.

342 GLOSSARY Inventory Goods and materials that Market The consumers who buy a Off-balance-sheet finance are held in stock in a warehouse or product or service. Also refers to any Accounting methods whereby some in any other similar premises. The physical or virtual location where liabilities or assets are not recorded term can also refer to the total value buyers and sellers trade goods, such on a company’s balance sheet. of a company’s assets, including raw as a store or a website. materials, and unfinished and Open innovation The idea that finished products. Marketing Promoting the sale of a business’s talent base, and products or services to consumers or consequently its insight into new Investment In business terms, the other businesses. Effective marketing products and services, can be activity of purchasing bonds or identifies, anticipates, and responds expanded by drawing on expertise shares in a company. Can also refer to customers’ needs. from outside the company, often via to a company’s expenditure on items social media and the Internet. intended to yield an increase in Market leader A product or operational performance, such as company that has the largest Operating margin A measure of new tools. market share. profitability—the ratio of a company’s operating profit to its revenue. Kaizen The Japanese term for Market share A business’s “good change,” in business. It refers percentage of sales in a specific Outsourcing The contracting out of to continuous improvement to industry or sector. specific tasks or functions in a enhance productivity. business to outside companies. Merger The combining of two or Leverage The extent to which more businesses to form a separate Overhead Any ongoing expense of a people or companies fund their organization with a new identity. The business, such as rent of premises; activities with borrowed money. goal of a merger is often to increase also known as “operating expense.” When high leverage is widespread in shareholder value beyond the sum the economy, the degree of debt can of the two (or more) companies. Positioning A marketing strategy create a short-term boom; but this is that establishes a distinct position often followed by a crash. Micro loan A small loan made to for a brand in the market. entrepreneurs or small businesses. Leveraged buy-out (LBO) Private equity A type of The acquisition of a business by Micropreneur An entrepreneur investment in which private assets a company or group of individuals who starts and builds a small or borrowed funds are used to using a large proportion of business of their own, often while finance private companies (those not borrowed money. on salaried employment. listed on a public stock exchange). Liability The financial obligations of M-commerce An abbreviation Private limited company (Ltd) a company to outsiders or claims of “mobile commerce,” the use of A company in which the liability of against its assets by outsiders. portable devices such as laptops and members is limited to the value of smartphones to conduct business their investment in the company. Liquidity The ease with which an transactions online. The company’s shares cannot be asset can be bought or sold, without bought and sold by the public. Private adversely affecting the asset’s value. Monopoly A market in which limited company is a term used Cash is the most liquid asset, since only one company is active. primarily in the UK. The closest US its value remains constant. Monopoly companies generally equivalent is limited liability company. have low product diversity, which Long tail A term coined by UK they can sell at a high price due to Product portfolio A strategy that writer and entrepreneur Chris lack of competition. involves assembling a diverse range Anderson to describe how the overall of products or business units. sales of niche products at the thin Niche market A small group of “tail” of a demand curve may be people with an interest in a product Profit The surplus of a company’s greater than sales of the most popular or service that is not addressed by revenue after all expenses, taxes, products at the “head.” mainstream providers. and operating costs have been met.

GLOSSARY 343 Publicly traded company banks, but are not subject to when two companies or units of a In a publicly traded company the supervisory and regulatory burdens. business are joined together. liability of members is limited to the value of their investment in Share A unit of ownership in a Takeover The purchase of one the company. A publicly trated company, signifying ownership business by another. company’s shares are traded on the of stock. stock market and can be bought Treasury function Using a and sold by the general public. Shareholder An individual or company’s treasury (its financial organization that holds shares in operations department) to achieve Recession The period of time in a company. A shareholder is also the optimum balance between which the total output of an known as a stockholder. liquidity and income from the economic area decreases. company’s cash flows. Other Speculating Making high-risk activities can include profit Reserves In business, profits investments that could yield generation, risk management, retained by a company for future use large returns, but bear a high risk planning and operations, and and not distributed to shareholders. of resulting in loss. shareholder relations. Return on Equity (ROE) A Start-up A business that has—or is Unique Selling Proposition (USP) measure of a company’s financial being—launched from scratch. A marketing strategy whereby performance, based on profit and the companies distinguish their products equity of shareholders. Stock The equity stake of the from their rivals by offering shareholders in a business. The customers something that their Return on Investment (ROI) The term also describes goods owned competitors do not or cannot offer. ratio of money gained to the amount by a business that are held on its invested in the company. premises or in a warehouse, and are Value chain The theory of US available for sale or distribution. professor Michael Porter that the Revenue Also known as sales and chain of a company’s interrelated turnover, the income earned by a Stock market A place where bonds activities can be exploited to add business over a period of time. The and stocks or shares in a company value to its products or services. revenue earned depends on the price are bought and sold. These activities relate to the flow of a and number of items sold. product from production to purchase Supply The amount of a product by the customer. Risk In investment terms, risk or service that is available for is the uncertainty associated with consumers to buy. Venture capital Funds invested in an investment or asset. A high-risk a start-up at its earliest phase. investment, for example, may yield a Supply chain The people and high return; but if unsuccessful, processes involved in the production Viral marketing The launching of a it could cause the investor to lose and distribution of goods or services. product or service via the Internet or everything. Operational risk is the social media to attract rapid and risk of failure due to shortcomings in Surplus An excess in supply over widespread consumer interest. procedures, people, or systems. demand—when the production of goods, services, or resources Working capital The capital Securities An umbrella term for a exceeds their consumption. available for use in the day-to-day range of investment instruments operations of a business, calculated that are traded on stock markets, Sustainability A strategy in as the difference between current such as bonds, options, and shares. which the business ensures that assets and current liabilities. the resources it uses will be Shadow bank A nonbank financial replaced, such as a paper institution—such as the treasury manufacturer planting trees. function of a business—that lends money to businesses. Shadow banks Synergy The supposed additional offer similar services as traditional performance benefit that is achieved

344 INDEX Numbers in bold refer B business adaptation and growth (cont) to main entries Greiner curve 47, 58–61 Barnes & Noble 198 growth rate, deciding on 44–45 A Barratt, Thomas 273 growth-share matrix and product Barton, Bruce 272–73 portfolio 253–55 accountancy and playing by the rules Bass, Frank 233 learning organization 204–07 120–23 Belbin, Meredith 82, 84 long-term survival 57 Ben & Jerry’s ice cream 183 overexpansion dangers 45 see also business ethics; financial Bench 283 process adaptation 55–57 strategy Benetton 217 recession and adaptation 56–57 Bennis, Warren 69, 86, 87 self-financeable growth rate (SFG) adaptation see business adaptation Bernays, Edward 273 44–45 and growth Berners-Lee, Tim 174, 177 shareholders see shareholders Bezos, Jeff 39, 63, 99, 174, 267 sustainability 31, 45, 50–51, 57 advertising 272–73 black swan events and future technological change 54–55 big data analysis 316–17 vision broadening and realization 43, and brand creation 260–61 forecasting 198 50 see also marketing The Body Shop 262, 263 see also leadership; management; Borden, Neil 281, 283 marketing; strategic planning agile software development (ASD) Bose Systems 181 327 Boston Consulting Group 252–55 business ethics 222, 224–27 BP 41, 200–01 accountability and governance AIDA marketing model 242–43 brand creation 130–31 Air India 314–15 accountancy and playing by the rules Amazon 34–36, 39, 174, 175, 209, and advertising 260–61 120–23 differentiation and focus strategies 182 appeal of 270 240, 267, 317 and ethics 263 and brand creation 263 Anderson, Chris 208–09 and social media 263 “creative accountancy” practices Ansoff’s matrix 256–57 “third place” concept 262–63 122–23 translatable brands 261 greenwashing 268–69 see also strategic planning unique selling proposition (USP) leadership 226–27 Apple 37, 96–99, 127, 191 legal standards 226 261–62 “mark to market” accounting iPad 97–98, 149, 241 brand loyalty 35–36, 98, 322 122–23 iPhone 29, 38, 97, 148–49, 168, 196, Branson, Richard 60, 320, 334 price-fixing and collusion 223 Brin, Sergey 174 249, 266, 325 British Aerospace (BAe) 148 C iPod and iTunes 29–30, 55, 96–97, British Airways 223, 248–49 Buffet, Warren 49, 129, 144, 147, 149, Cadbury 171, 193 168 Carnegie, Andrew 40–41, 213 Aquinas, Thomas 224–25 155 Caterpillar 123 Aracruz 129 business adaptation and growth chaos theory, and financial crises Argyris, Chris 206–07 Arkwright, Richard 166–67 business practice, evolution of 48–51 220–21 ASOS 275 capability maturity model 218–19 Australia enablers and enterprise capabilities CrimTrac system 315 49–50 Sydney Opera House 329 Avis 248

INDEX 345 China, economic development 134– complacency avoidance (cont) Dell 149, 295, 298 36, 154, 279 black swan events and future demand forecasting 198 Chowdhury, Subir 334 catastrophe, averting 200–01 lean production 290–93, 307–08 Christensen, Clayton 94–95, 96, 99, complementary products 197 stock management 294–95 front line, importance of listening to Deming, W. Edwards 49, 51, 323 334 198–99 Dr. Martens shoes 56 Cisco Systems 71 thinking outside the box 199–200 Drucker, Peter 69, 109, 126, 130, 199, Citroën 313 see also risk management; strategic Civita, Roberto 334 planning 237, 240–41, 252–53, 279, 323 Coca-Cola 165, 260, 265, 271, 272, DuPont 328–29 corporate culture see organizational Dunkerton, Julian 122 276 culture Dutch East India Company 127 Collins, Jim 101–03 Dyson 38, 164, 261 competitive advantage Covey, Stephen 131, 225, 226 crisis management 59–60, 102, 188–89 E benchmarking 330–31 and brand loyalty 35–36, 98, 322 see also leadership; management e-commerce see Internet business and copycat products 148–49 customer loyalty 264–67 easyJet 47, 261, 263 creativity and invention 72–73 eBay 63, 98, 174–75, 338 customer needs, understanding Likert scale 266 Eisenhardt, Kathleen 335 loyalty programs 267 emotional intelligence 110–11 38–39 offering more for less 288–89 Emotional Selling Propositions (ESP) and customer service 249 online challenges 267 failure, dealing with 98–99 product quality, importance of 29–30, 31 first-mover advantage 34–36 see also marketing first-mover advantage, and disruptive 265–67 employees customer service company failures and risk innovation 94–96 first-mover advantage, timing agile software development (ASD) management 142–43 327 developing countries, labor considerations 37–39 first-mover mistakes, learning from choice, and business strategy 180, migration 205 181 front line, importance of listening to 36–37 Five Strategic Forces model 212–15 and competitive advantage 249 198–99 Internet business 34–36, 176 customer relationship marketing involvement, and chaos management MABA (market attractiveness/ (CRM) 240 220–21 business attractiveness) framework feedback and Internet business involvement, and participative 192–93 market mapping 26–27 176–77, 312–13 management 137, 304–06 and secondary activities 217 fragmentation and micromarkets job satisfaction and “hygiene factors” start-up phase 24–27 substitutes, threat of 214 238–39 90–91 SWOT analysis 25–27, 184 needs, understanding 38–39, 136–37 job satisfaction and organizational technical and product superiority and quality provision 322–23 36–37 culture 108 value chain 216–19 D kaizen and efficiency improvement see also innovation; marketing; strategic planning Daewoo Group 153 304–09 competitiveness DaimlerChrysler 115, 187 learning organization 204–07 and organizational culture 108 Dawkins, Richard 275 satisfaction, and productivity 136–37, and price-fixing 222–23, 239 debt levels and waste reduction 301 206 complacency avoidance borrowing and lending 128–29 staff empowerment 79, 86–87, 306–07 “5-why” technique 199 and leverage 150–51 staff turnover and learning and 10X (major) change, awareness of see also financial crises; financial 197–98 development motivation 205–06 strategy wage levels and turnover 134–35

346 INDEX Enron 142, 150, 154, 227 financial strategy (cont) Ghoshal, Sumantra 335 entrepreneurship 20, 21, 43, 46–47 activity-based accounting 159 Ghosn, Carlos 79 borrowing and lending 128–29 Gillette 35, 36, 168, 171 micropreneurism, start-up phase capital management, MABA (market GlowCap 95 63 attractiveness/ business Goleman, Daniel 110–11 attractiveness) framework 192–93 Google 34, 36–37, 72–73, 87, 174, see also start-ups cost accounting 158–59 equity and performance employee wage levels and employee 249, 276, 300 turnover 134–35 Gores, Alec 157 cost-cutting measures 125 gain as motivation 90–91 GPS technology 311 opportunistic behavior by directors hedge betting 128–29 Greiner, Larry 47, 58–61 International Financial Reporting Grove, Andy 102, 196–99, 200, 125 Standards (IFRS) 121–22, 123 ownership, control and personal gain investment and dividends 126–27 201 and marketing 134–37 growth see business adaptation and 124–27 price-fixing and competitiveness return on equity (ROE), maximizing 222–23, 239 growth risk, and other people’s money 140–45 155 shadow banks 129 H risk assessment 142–43, 156–57 see also profit levels; shareholders; see also organizational culture; strategic planning Hamel, Gary 171, 256, 335 Hammer, Michael 49–50, 51 shareholders first-mover advantage see under Handy, Charles 76–77, 143, 300 Estée Lauder 321 competitive advantage hedge betting 128–29 ethics see business ethics executive officers Five Strategic Forces model 212–15 see also financial strategy “5-why” technique, and complacency Herzberg, Frederick 87, 90–91, 306 accountability and governance Hess, Edward 45 130–31 avoidance 199 Hill, Emma 73 Ford, Henry 78, 99, 136, 166–67, 246, Hofstede, Geert 106–08, 109 customers and employees, awareness Honda 120–21, 127, 206, 307–08 of needs 136–37 290–91 Hoover 38, 271 Ford Motors 134–35, 247, 288–89, Hornby 295 and perks 124–27 Humphrey, Albert 25, 27 risk management 143–44 297–98 Humphrey, Watts S. 218–19 travel expenses and cost-cutting Four Ps and marketing mix concept Hyundai 289 measures 125 280–83 I see also leadership; management see also marketing Fuld, Richard 102, 143, 145 IBM 107, 109, 253 F future forecasting, and black swan IKEA 30, 262, 336 India, economic growth 135–36 Facebook 37, 72–73, 89 events 198 Innocent 108, 262 Fayol, Henri 78, 112, 335 innovation Ferguson, Sir Alex 84–85 G Fernandes, “Tony” 21 collaboration and creativity, Ferrari 182, 331 Gates, Bill 238, 335 encouragement of 71, 206–07 financial crises Geneen, Harold 186, 187 General Electric (GE) 129, 190, 191 and differentiation strategy 181–82, and chaos theory 220–21 183 contingency planning 210 GE-McKinsey matrix 192–93, 255 global credit crisis 102, 125, 129 General Motors (GM) 144, 155, 247, 325 Japan 144–45 Gerber 189 leverage and debt 150–51 Getty, Jean Paul 75 oil crises and scenario planning 211 Ghemawat, Pankaj 335 and risk management 151, 154 financial strategy accountancy and playing by the rules 120–23

INDEX 347 innovation (cont) Japan (cont) leadership (cont) and diversity management 115 economic crisis 144–45 skills, and business growth 46–47 and invention 72–73 kaizen, and efficiency improvement staff empowerment 79, 86–87, kaizen and efficiency improvement 304–09 306–07 304–09 successor training 69 learning from failure 164–65 JCB 191 yes-men, dangers of 74–75 nine-dots puzzle 88–89 Jobs, Steve 73, 94, 95, 97, 99, 103, 127, see also executive officers; open 312–13 management; organizational culture, patent wars and first-mover 149, 168, 241, 298 business adaptation and growth; advantage 36 Johnson, John H. 99, 335–36 teamwork production improvement 296–99 Johnson & Johnson 38–39, 189 solutions and knowing what the Jupiter Shopping Channel 157 learning organization 204–07 customer wants 241 Juran, Joseph 300–01, 336 Lee Kun-Hee 51, 56, 57 thinking outside the box 88–89 Lehman Brothers 102, 143, 145, 154 see also competitive advantage; K Levitt, Theodore 29, 180, 246–48, market leaders; R&D kaizen, and efficiency improvement 249 Instagram 41 304–09 Likert scale, customer loyalty 266 Intel 102, 196–97, 201 “Long Tail” theory 208–09 International Financial Reporting Kamprad, Ingvar 336 loyalty see brand loyalty; customer Kanter, Rosabeth Moss 336 Standards (IFRS) 121–22, 123 Kay, John 127 loyalty Internet business Kellogg’s 311 lysine cartel 223 Kidston, Cath 50, 51 as 10X (major) change 197–98 Kodak 184, 185 M big data analysis 316–17 Kotler, Philip 29, 243, 248, 249, 283, brand creation see brand creation MABA (market attractiveness/ competitive advantage 34–36, 176 336 business attractiveness) framework customer loyalty challenges 267 Kotter, John 46, 69, 336 192–93 customer relationship marketing Kraft Foods 193 McCarthy, Edmund Jerome 281–82 (CRM) 240 L McDonald’s 24–25, 30–31, 56, 91, 171, e-commerce 34–36, 174–76 e-commerce and AIDA marketing Lauder, Estée 336 295 leadership McKinsey matrix (General Electric) model 243 and feedback 176–77, 312–13 behavioral management 74–75 192–93, 255 “Long Tail” theory 208–09 chaos management 220–21 Made-by 227 mobile commerce 276–77 charismatic 78–79 Madoff, Bernard 153 niche marketing 177 cost-leadership strategy 180–83 management personal service, importance of 177 credibility, importance of 79 small is beautiful 174–77 crisis management 59–60, 102, accountability and governance supply barriers, removal of 209 130–31 see also social media; technological 188–89 effective 78–79 arrogance leading to indiscipline 102 change egotism, dangers of 100–03 change management and information investment see financial strategy emotional intelligence 110–11 ethical 226–27 technology (IT) 314–15 J personality traits 111 chaos management 220–21 qualities 68, 69 club culture 76, 77 Japan complacency avoidance see earthquakes and contingency planning 210 complacency avoidance consultants, and innovation 88–89 crisis management 59–60, 102, 188–89 effective 68–69, 112–13

348 INDEX management (cont) marketing (cont) N egotism, dangers of 100–03 focused 236–41 experience, and business practice four Ps and marketing mix concept Nayar, Vineet 47, 337 48–49 280–83 Nestlé 62, 254–55, 273 failure, learning from 164–65 functional uniqueness, elusive nature Nestlé, Heinrich 337 groupthink, avoiding 114 of 29 Netflix 55–56, 209, 317 kaizen and efficiency improvement market gaps 22–23 new entrants see start-ups 304–09 market leaders 166–69 Nike 29, 108, 275 long- versus short-termism market mapping 26–27 nine-dots puzzle 88–89 190–91 market research 239–40 middle management 49–50, 51 Measurement Models 233 see also innovation Mintzberg’s management roles 47, myopia 246–48 Nintendo 89 112–13 neuromarketing 240–41 Nissan 79, 313, 326 participative management niche markets 22–23, 177, 180, Nokia 148–49, 184, 276, 309 137 182 Nooyi, Indra 338 project management, critical path promotions and incentives 271 Nordstrom 267 analysis 328–29 psychographic profiling 239 Not on the High Street 177 public and private companies, sales forecasting 278–79 contrast between 191 stand-out 28–31 O qualities 69 strategies 232–33 risk management see risk technological advantage Ohno, Taiichi 292–93, 338 management 167–68 Oliver, Jamie 59 staff empowerment 79, 86–87, uniqueness, maintaining 30, Olympus cameras 131, 154 306–07 31 Omidyar, Pierre 98, 174–75, 338 stylistic typologies 76, 77 word-of-mouth 274–75 organizational culture time-based 326–27 see also advertising; business see also business adaptation and adaptation and growth; competitive arrogance problems 108 growth; executive officers; advantage benefits of 108 leadership; organizational culture; capability maturity model (CMM) teamwork Marks & Spencer (M&S) 201 Maslow, Abraham 70–71, 73 218–19 Manchester United 143 Matsushita, Konosuke 336–37 collectivist and individualist cultures, marketing Mayo, Elton 70, 112, 337 Mera, Rosalie 337 differences between 75, 107 AIDA model 242–43 mergers and takeovers 60–61, competitiveness see competitiveness Bass Model 233 corporate governance and big data analysis 316–17 186–87 brand champions 275 Merrill Lynch 110 accountability 130–31 customer experience management Microsoft 215 cultural dimensions 106–08 Mintzberg, Henry 47, 112–13 groupthink problems 108 (CEM) 240 mobile commerce 276–77 hierarchy and power 106–07 customer perception and market and job satisfaction 108 see also Internet business learning organization 204–07 leaders 169 morality see business ethics long- versus short-term orientation customer relationship marketing Morita, Akio 311, 337 Motorola 50, 51 107–08 (CRM) 240 Mourinho, José 69 masculinity and femininity, and customer service 246–49 Muji 263 customers’ needs and preferences, Mulberry 73 differences between 107 multinationals and profit shifting non-static nature of 109 understanding 236–39 organizational dynamics 76–77 Emotional Selling Propositions (ESP) 222 Murdoch, Rupert 337 29–30, 31 MySpace 89 familiarity as source of differentiation 30–31 financial strategy 134–37