Are there too many retail shops in Singapore?

During the last couple of years it has been harder for lower skilled foreigners to get work permits in Singapore. A lot of small and medium sized firms are complaining about the difficulty of finding staff. The government is not changing the new policy. Is it doing the right thing?

Does the stock market put pressure on companies to reduce R&D?

The field of finance used to be very dogmatic regarding the efficiency of financial markets. Kuhn (The Structure of Scientific Revolutions) said that new paradigms only surface when the older generation of researchers die. The generation of arrogant, efficient-market fundamentalists in finance is now largely gone. Younger researchers document many interesting phenomena. There is not yet a new paradigm, though. This post looks at how companies' R&D effort change when they are subject to stock market pressure.

What is an entry barrier?

New entry into an industry will increase the number of competitors, which in turn will increase rivalry in subsequent time periods. It is possible to estimate the likelihood that new entry will happen by assessing the size of the barriers to entry.

This is post nine in a series on industry analysis.

JC Penney share price back on 1986 levels

JC Penney just fired Ron Johnson, its less than competent CEO (good article here). His tenure is a classic example of how to destroy a company by bad strategy and bad management. None of this analysis is based on hindsight, but on a student report from March 2012. Since the student report, the company has underperformed index with 74%.

Will Facebook Home increase Facebook's revenue?

Facebook has just introduced the Facebook Home application for a selected set of Android smartphones from Samsung and HTC. Is this a good idea?

Book review: "Good strategy bad strategy"

Dick Rumelt was my prof in Strategy when I did my MBA at INSEAD. I was quite impressed by him, but always wondered why he did not write a book. Now he has written that book. It is a good, but only for a niche audience.

Corporate government advice from Singapore

Can the government of Singapore have something to teach the world of corporate governance in large listed companies? I think so. It used to be the case that the retiring Prime Minister became Senior Minister.

In defense of "Built to Last"

Jim Collins and Jerry Porras wrote Built to last: successful habits of visionary companies back in 1994. The book has sold millions of copies. It identified 18 great companies and compared them to 18 merely good companies. Based on this research, the authors identified a number of management principles. I would not recommend reading the book today, but I want to defend the book in this posting.

Bargaining power of suppliers

Each supplying industry has to be evaluated separately. The first focus should be on supplying industries that represent a large portion of total cost for the focal industry. This posting will highlight the main drivers of supplier power.

This is post eight in a series on industry analysis.

Bargaining power of buyers

A pre-condition for bargaining power is that the buyers are price-sensitive. This post will look into the structural factors that make a buyer price sensitive. As a result, corporate buyers can have low to high bargaining power, while consumers can only have low and medium bargaining power.

This is post seven in a series on industry analysis.

US bailouts of companies during 2008-09

This post will only look at the direct costs related to the USD 606B bailout during 2008-09 financial crisis. So far 40% of this amount has been paid back. Propublica is tracking the repayment of the bailouts (here). Here is a summary of all the bailouts and how much has been repaid.

Book review: "The lords of strategy"

Kiechel published The Lords of Strategy in 2010. This is a fun reading if you would like to know more about the history of management consulting. My last book review was about a book published in 1994 (here). I argued that one should consider that book as management consulting history too. The current book is actually taking a historical focus and roughly covers the formative years from 1965 to 1985.

The book is well-written and I give it four out of five stars.

Restore the role of owners in the capitalist system

A quite interesting article about corporate governance in Sweden from Financial Times (here, probably behind pay wall). The article has this to say about the Anglo-Saxon model:

[T]he Anglo-American model where dispersed ownership among thousands of investors means shareholders usually have little power, with votes at annual meetings often resembling Soviet-era elections

License to print money through bargaining power

I am reading in Straits Times how Visa is putting pressure on the taxi operator ComfortDelgro to stop charging a 10% surplus for Visa payments (here). I am impressed by Visa's public relations department. They make Comfort look like the bad guy and Visa seems to be on the consumer's side.

Vietnam and Sweden

I recently visited Vietnam and growing up in Sweden I was aware that Sweden was very generous in economic help to the Socialist Republic of Vietnam in the 1970s and 1980s. At least that is what I was proudly told by my school teachers. Investigating the question a bit further I found a long self-congratulatory report written by SIDA, the Swedish Government Foreign Aid Agency, which administers all foreign aid.

Industry rivalry

The most destructive kind of competition for an industry is price competition. Several structural factors influence the likelihood that the industry will be characterised by price competition.

This is post six in a series on industry analysis.

Social entrepreneurship is good for society

My blog is really about business strategy, but I have given my view on corporate social responsibility so I thought I should also balance the discussion by commenting on social entrepreneurship, which is something totally different.

Corporate social responsibility is bad for society

One of the most trendy topics in management research is corporate social responsibility. Trendy topics attract a lot of muddled thinking and muddled thinking can be dangerous. I think the focus on corporate social responsibility is outright bad.

Threat of substitutes

Substitutes to the products and services offered by the focal industry can be a serious threat to profitability or, in some cases, even the survival of the focal industry. Customers buy products to fulfil their needs. A product can satisfy a need, but so can the substitutes to the product. It is important to understand the needs a product fulfils before the full range of substitutes can be identified. This was first noted by Ted Levitt in a classic article:

The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented. (Harvard Business Review, 1960)

This is post five in a series on industry analysis.

Groupon - find another company like this and you will be rich

Groupon's CEO Andrew Mason has finally resigned after one of many terrible quarterly reports (here).

After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding - I was fired.  

The stock market did not like Mason, so the share price might get a boost in the coming weeks. Longer term, the company has already lost almost everything, and it is possible that a new CEO will create a successful new strategy for the company. This post will look at the old strategy of Groupon.

Two groups of student in my Strategy class picked Groupon as a future big loser back in March 2012. After the students' analysis the company is down 77%. My analysis below presents a synthesis of the students' arguments of one year ago.

Yahoo is getting innovative - no more telecommuting

Melissa Mayer took over as CEO of Yahoo in July 2012. At the time, I was sceptical when the board picked the third new CEO in just two years. The fact that the previous two CEOs had been fired reflected badly on the board's ability to select a new CEO. However, the stock market has been quite positive concerning Mayer's ability to turn around Yahoo (share price up 23% more than index during her tenure).

The five forces framework

The most known framework in strategic management is the five forces framework. The five forces are: bargaining power of suppliers, bargaining power of buyers, industry rivalry, threat of entry, and threat of substitutes. I will discuss these forces in more detail in later postings. In the current posting I will provide a broader perspective. It is useful to consider the five forces as five evil forces that are after the profit generated in the industry. If all the five evil forces are strong then most of the profit generated in the industry will be taken away by these evil forces.

This is post four in a series on industry analysis.

Microsoft has a long way to go

Steve Ballmer, CEO of Microsoft, is being interviewed in MIT's Technology Review. The interviewer summarises his impression of Google's vision as "indexing the world's information" and Apple's as making "insanely great devices for consumers". Ballmer responded with Microsoft's vision:

We empower people and businesses to realize their potential. And to expand, I would simply say we’re about defining the future of productivity, entertainment, and communication.

I am reminded of an old, failed Sony vision about providing the networked home. Companies do not make money by formulating nice or catchy vision statements. Companies make money by having clear corporate and business-unit strategies and then executing well. However, Ballmer's statement is simply too general to be a good vision, and I hope Microsoft's strategies are much sharper.

In defence of planned strategy

A long-standing tension among academic management thinkers has been between proponents of planned strategy and proponents of emergent strategy. In the caricature version, the planned strategy is determined on the top executive floor by a cadre of analytical, numbers-driven, MBA-holding employees in their 30s. They produce fancy reports full of tables, graphs, boxes and arrows. In the caricature version, the emergent strategy just happens when middle managers in their 40s and 50s, with lots of practical experience in the industry, decide to do something novel. These middle managers are free from the shackles of analytical thinking, instead they succeed through honorable trial and error learning. Often the debate between the two perspectives is held on a sandbox level.

Industry vs industry segment

In an earlier posting I noted that "the industry definition should capture a set of related companies selling similar kind of products". In this posting I would like to develop the idea of an industry consisting of several industry segments. I would also like to describe how an industry segment is related to terminology used in marketing (e.g. product category, product type, product version).

This is post three in a series on industry analysis.