What Makes A Firm Successful?
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What Makes A Firm Successful?
• On an average each year 7% of all US firms are
new and 1% go under.
• Why do some firms succeed and why do some
fail?
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What Makes A Firm Successful?
Plain Luck?
• Kellogg wheat flakes
• Pharmacist Hires’ Herb Tea as non-alcoholic
alternative to beer and whiskey for miners“root beer”
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What Makes A Firm Successful?
Quality?
According to a study of 450 firms in late 1980s: “
single most important factor in influencing a
business unit’s profitability”
But
Costs can escalate to make it uncompetitive
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What Makes A Firm Successful?
First Mover Advantage?
IBM, Coca-cola, Xerox, Kodak, Bayer
But
First mover takes the risk, others have the lessons
One study indicates that on an average the current
leaders in 50 markets entered the market 13
years after the first mover!
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What Makes A Firm Successful?
Size/ Market share?
• Weak relationship
• Profit rate does not rise as fast as market share:
Market share of about 10% yields a profit rate of
about 10%; market share of about 60% yields a
profit rate of about 38%.
• Movement away from size: Average size of firms
is shrinking since 1970s
• Acer in initial years concentrated so much on
market share that it went nearly bankrupt- since
re-organised into about 20 separate companies
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What Makes A Firm Successful?
M &A or Core Competency?
Trend of Mergers since 1990sExxon & Mobil
Price club and Costco Wholesale
American Airlines and TWA
Trend of Acquisitions:
Quaker Oats acquired Snapple
Sony acquired Columbia Pictures to access latter’s
library;
HP acquired Compaq in 2002
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What Makes A Firm Successful?
Study by Mercer Management Consulting of
New York:
In 3 years following transaction, 57% of merged
firms lagged behind their industries in terms
of returns to shareholders
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What Makes A Firm Successful?
Divesting unrelated business to focus on a single
line of business:
Some have achieved success by combining the
entire production line or “ value chain” in one
firm but others have done it differently
Nike: Outsourcing production and focusing
mainly on marketing
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What Makes A Firm Successful?
Globalisaion?
While goods and services may flow more freely
among nations than ever before, markets are
not homogeneous.
McDonald’s- size of outlets, burger meat,
sauce…
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What Makes A Firm Successful?
• No single formula for success
• No quick fixes
• Trade-off: “ There are no free lunches”
• Choice
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BUILT TO LAST
James C. Collins and Jerry I. Porras
• The authors, James C. Collins and Jerry I. Porras, spent
six years in research, and they freely admit that their
own preconceptions about business success were
devastated by their actual findings--along with the
preconceptions of virtually everyone else.
• Built to Last identifies 18 "visionary" companies and
sets out to determine what's special about them. To
get on the list, a company had to be world famous,
have a stellar brand image, and be at least 50 years
old: Disney, Wal-Mart, Merck.
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BUILT TO LAST
James C. Collins and Jerry I. Porras
Twelve myths the Book Talks of:
1. It takes a great idea to start a company - Few
visionary companies started with a great idea.
Many companies started without any specific
ideas (HP and Sony) and others were outright
failures (3M). In fact a great idea may lead to
road of not being able to adapt.
2. Visionary companies require great and
charismatic visionary leaders A charismatic leader
in not required and, in fact, can be detrimental to
a company's long-term prospects.
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BUILT TO LAST
James C. Collins and Jerry I. Porras
3. The most successful companies exist first and
foremost to maximize profits Not true. Profit
counts, but is usually not at the top of the list.
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BUILT TO LAST
James C. Collins and Jerry I. Porras
4. Visionary companies share a common subset
of "correct" core values They all have core
values, but each is unique to a company and
its culture.
5. The only constant is change The core values
can and often do last more then 100 years.
6. Blue-chip companies play it safe. No, though
they appear conservative to outsiders, they
take significant risks.
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BUILT TO LAST
James C. Collins and Jerry I. Porras
7. Visionary companies are great places to work, for
everyone. No. These companies are only great
places to work if you fit the vision, culture and
exacting standards.
8. Highly successful companies make some of their
best moves by brilliant and complex strategic
planning. They actually try a bunch of stuff and
keep what works.
9. Companies should hire outside CEOs to stimulate
fundamental change Most have had their change
agents come from within the system.
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BUILT TO LAST
James C. Collins and Jerry I. Porras
10. The most successful companies focus
primarily on beating the competition. They
focus on beating themselves.
11. You can't have your cake and eat it too.
(Tyranny of OR) Decisions don't have to be
‘either A or B‘ but ‘A AND B”
12. Companies become visionary primarily
through "vision statements". Vision is not a
statement; it is the way you do business.
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