03
Value Disciplines
Haim Mendelson
Class 1: Intro and Course Overview
Case Summary by: Jon Kea
Companies’ ability to become and maintain themselves as market leaders focus on delivering superior customer value by concentrating superior efforts on 1 or more of the following attributes:
1.
Operational excellence minimize customers total cost by providing reliable products or services at competitive prices and delivering them with minimal difficulty or inconvenience.
2.
Customer intimacy delivering customer solutions by segmenting and targeting the market then tailoring the product or service to satisfy specific customer needs within each segment
3.
Product/ service leadership deliver the best product or service, pushing the envelope of performance. Striving to produce a continuous flow of state-of-the-art products or services with innovative features that are attractive to customers
Examples:
1.
Wal-Mart: Operational Excellence
A.
Demographic Statistics :

-worlds largest and most profitable retailer. 3,400 stores in the US and 1,288 international stores with $245 billion in sales

Went public in 1970 with 18 stores and $44 million in sales.

1980, 276 stores with $1.2 billion in sales
B.
“Everyday Low Price” strategy

Four store formats: 1. traditional discount store (Wal-Mart) 2. Sam’s club, 3. Wal-
Mart Supercenters (combo discount/grocery) and 4. Neighborhood markets
(groceries, Rx )

Ultimately increased market share, improved its negotiating power with suppliers, and took advantage of scale economies to reduce cost.
C.
Information Technology

1969, installed a computer to keep track of inventory at its Arkansas distribution facility

1970, installed a computer terminal network throughout the US to link its HQ with stores and distribution centers
 1983, Leader in Universal Product Codes (UPC’s)- enabled product scanning at checkouts (2 years ahead of K-Mart)

1985, used Electronic Data Interchange (EDI) to communicate electronically with its suppliers who received orders and sent invoices to Wal-Mart. EDI eventually supported demand forecasting, planning, and replenishment.

1986, satellite communications network allowed sales data to be collected and analyzed daily.
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03
Value Disciplines
Haim Mendelson
Class 1: Intro and Course Overview
Case Summary by: Jon Kea

1989, installed Teradata warehouse used to maintain transactional data by product and by store. Used for market analysis to understand shopping patterns and to analyze demographics.

1991, Wal-Mart introduced Unix computers in its stores to manage inventory and operations with the use of hand-held bar code scanning guns.

Scanners communicated with the stores SMART system, and provided information about ordering, estimated time of arrivals, on-hand stock.

Other systems included a tracking system for its fleet of trucks which gave dispatchers real time data on locations, loads, and routes. Another system tracked refunds, checked authorizations and helped identify items.

Implemented “Retail Link”- gave > 10,000 vendors computer access to its
Teradata warehouse so they could analyze trends and inventory positions.
D.
Results

Productivity growth in the retail sector jumped from 2% in the 1987-1995 period to 6.3% in the 1995-99 period. 2.3% of the 3.3% jump was directly or indirectly related to Wal-Mart (1/3 directly and 2/3 indirectly by competitors trying to catch up)
2.
Capital One: Customer Intimacy
A.
Demographic Statistics :
 During the 1980’s, credit card spending rose from <$100 billion to > $300 billion and debt grew from $50 billion to over $200 billion

1986, 4,000 banks issued credit cards, and top 10 banks handled 30% of total receivables
B.
Information based strategy

Traditional approach to obtaining subscribers- to mail the same credit card offer to a random cross section of customers, with a targeted approach that would reduce marketing costs and the inevitable acquisition of risky borrowers.

Step 1: generate set of products, each mailed to a random subset

Subsequent steps: the collection of results with all customer interactions stored in a data base

After analysis, the most promising product and population combinations received the mass mailings

Recorded information such as purchases made, bills sent, payments remitted customer service calls made, cross sells offered and purchased, collections efforts, and amount closings
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03
Value Disciplines
Haim Mendelson
Capital One’s information loop
Gather information and
Develop
Hypothesis
Class 1: Intro and Course Overview
Case Summary by: Jon Kea
Select and target customers and products
Roll-out winners
Conduct tests
Evaluate results

IBS had 3 distinct characteristics: 1. consumer data were viewed as a core asset: every interaction was recorded so the information could be leveraged later. 2. Mass customization: each product was customized, yet products were rolled out on a national scale at full speed without incurring large fixed costs.
3. Organization: business became a scientific laboratory, in which every decision was subject to systematic testing.
C.
IBS in action

Sought to use data to construct scientific models that would both predict the credit worthiness of potential cardholders and suggest custom offerings for existing ones.

Used information from the credit bureau to give individuals a credit score

Customized every conceivable feature of its cards with results being a series of mass customized products and services delivered to customers based on their individual needs.
D.
Results

Became one of the top 6 card issuers in the US with 50 million customers and loans totaling $60 billion

Consistently maintained its equity above 20% and grew its EPS more than
25% a year

From 1989-2002, customer accounts grew from 1.2 million to 47.4 million, a
33% compound annual growth rate
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03
Value Disciplines
Haim Mendelson
Class 1: Intro and Course Overview
Case Summary by: Jon Kea
3.
Nokia: Product Leadership
A.
Demographic Statistics :
 One of Europe’s largest companies and the worlds number one maker of mobile phones
 1970’s-80’s, diversified from soft tissue manufacturing to telecommunications, data processing, and consumer electronics
 1988, Scandinavia’s largest telecommunications company and Europe’s third largest TV manufacturer
B.
Mobile phones

Scandinavia is one of the first areas to in the world to establish a cellular phone service.

Nokia's 1 st
phone (1982) Mobira Senator was not mobile and weighed > 20lbs.
1984, Mobira talkman weighed 10lbs and was theoretically mobile. 1987, Mobira
Cityman weighed less than 2 lbs. Company realized importance of weight in performance.

1987, network operators from 13 European countries agree to deploy GSM in lieu of the old analog system which reduced noise, increased spectrum utilization and enabled the efficient transmission of data files.

1990 Ollila takes over as the CEO of Nokia and pushes to be the first company to produce a GSM phone. 1991 first call was placed on a Nokia GSM phone.
C.
Implementing the strategy
 1992, Nokia’s strategy = telecom-oriented, global, focus, and value added
 sold off non-telecom oriented segments of business and focused R&D efforts on developing handsets and infrastructure
 sales in the telecom area increased from 38% of total sales in 1992 to 98% by
2001
D.
Electronic fashion
 Emphasis on phones was placed on user friendliness, including size, weight, “look and feel”, and style. Used designer Frank Nuovo to design the first digital handset
2100.

Features of the 2100 phone included a screen with a scrollable text menu, a smooth elliptical top and a rounded keypad. Forecasted sales of 40,000 units but actually sold 20 million units resulting in a billion dollar profit in 1995
E.
Growing Pains

1995, Supply chain management problems due to Nokia not being able to cope with its growth

1996, lost $84 million as a result of logistics issues: not ordering enough chips to build phones while inventories of other components were piling up

Ollila responds by implementing an SAP Enterprise Resource Planning system that enabled the managers to track component flows and inventories in real time.

New system was put to the test when lightning caused a power outage at the
Phillips Semiconductor plant in Albuquerque which supplied the chips. Nokia
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03
Value Disciplines
Haim Mendelson
Class 1: Intro and Course Overview
Case Summary by: Jon Kea discovered the supply shortage before being notified of the problem and quickly found supply alternatives in Asia and the US.
F.
The Future

Nokia wanted to be a leader in the mobile information society. It created a new generation of open networks which supported multimedia messaging and content.

Nokia wanted to maintain leadership in handsets by focusing on segments based on consumer lifestyles. Consumers were mapped on: 1. an emotion scale ranging between ‘rational’ and ‘emotional’ 2. the value placed on mobility and 3. geography

Shifted from a product focus to a service focus i.e. www.club.nokia.com
which was a full service portal that offered access to personalized content including screen savers, ring tones, games, images, and personal information management.

2002, Club Nokia had over 10 million members and is estimated to generate a billion Euros by 2004.
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