Big Winners and Big Losers : The 4 Secrets of Long-Term Business Success and Failure by Alfie Marcus

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Big Winners and Big Losers The 4 Secrets of
Long-Term Business Success and Failureby Alfie
Marcus

• Presented by David Keenan
• to the Minnesota Futurists
• 27 May 2005

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ISBN 0131451324 Hardcover Wharton School
Publishing Oct 2005, 400 pages
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• Author Alfred A. Marcus
• BS, MS at Univ. of Chicago. Ph.D at Harvard
• Edson Spencer Chair of Strategic Management
  and Technological Leadership at the
  U of M, Carlson School of
  Management
• On Faculty since 1984.
• Teaches and conducts research in strategic
  management, macroeconomics, business ethics, and
  business and the natural environment.
• Visiting Professor at MIT's Sloan School of
  Management. Marcus is author or coeditor of 11
  books
• Consulted and worked with many companies
  including 3M, Corning, Excel Energy, General
  Mills, and IBM.

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Criteria

• 10, 3, 1-year ave. annual market return
• Winners exceed industry average
• Losers below industry average
• 5-year ave. annual return
• Winners more than double the ind. ave.
• Losers less than half the ind. ave.

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The Population Studied

• Wall Street Journal Shareholder scorecard
• 1000 companies from 1992 2002
• 41 of 78 industry groups had winners or
  losers
• 32 winners
• 3.5 bil revenues, 14,500 employees ave.
• 64 losers
• 10.5 bil revenues, 48,000 employees ave.

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1992 2002 Winners Losers

• Winners
• Southwest
• Johnson Controls
• Harley Davidson
• Best Buy
• Alliant Tech
• Amphenol
• Ball
• Brown Brown
• Forest Labs
• SPX
• Cabot
• Donaldson

• Losers
• Goodrich
• Delta
• Disney
• Conagra
• ADM
• Merck
• Readers Digest
• Kodak
• McDonalds
• Nordstrom
• Halliburton
• Kmart

• Losers
• Mattel
• Honeywell
• Pharmacia
• Saks
• Snap On
• Parametric
• LSI Logic

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Another Cut - Criteria

• Companies analyzed had to
  outperform or under perform their industries in
  the 6 months following Jan 1, 2002
• About half the winners and losers dropped out

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9 Comparisons
Sector Winner 5 yr ave annual
Loser 5 yr ave annual
mkt return mkt return
Technology Amphenol 34.0 LSI Logic
3.4 Mfg/Appliance SPX 28.8 Snap-On
1.7 Software FIServ 31.2 Parametric -21.2 Food
Dreyers 22.4 Campbell Soup -1.8 Drugs/Chem Fo
rest Labs 58.5 IMC Global -18.7 Mfg/Industrial Ba
ll 23.9 Goodyear -11.5 Finl/Insurance BrownBro
wn 48.7 Safeco -1.0 Retail Family
Dollar 36.1 Gap 9.8 Ent./Toys Activision 24.1
Hasbro -0.1
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Analysis Methodology

• 45 analyses
• 5 replicates per company pair
• Groups of 6 managers compiled reports
• More than 500 managers contributed
• Asked to explain reasons for sustained advantage
  or disadvantage

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Report Outline

• Executive Summary
• why is one so much better
• Brief Description of the companies
• Relevant Performance
• Critical competitive challenges
• Key internal strengths and weaknesses
• Main moves response to challenges
• Why one performed better
• References

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Findings
Attributes Success Failure
Position Sweet spot Being in an uncontested space Sour spot Being in a contested space
2. Movement Agility Getting into uncontested space Rigidity Not getting to uncontested space
3. Hard to imitate capabilities Discipline Protecting uncontested space Ineptness Inability to protect an uncontested space
4. Concentration Focus Exploiting uncontested space Diffuseness Inability to exploit an uncontested space
Exploration
Necessary but not sufficient
Exploitation
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Position Examples
Winner / Sweet Spot Loser / Sour Spot
Amphenol Co-create Close to mkts Hi perf mil specs Harsh env Error free Design w/cust Shares RD Forecast need Single source Snap-on Too costly Commodities Tools to sophisticated Little room to differentiate Fixated on patents, premium brand, tech. leader
Dreyers Embed Low margin Private label Substitutes Runs local freezers Unique intimacy Safeco Too cheap Little loyalty to cust. Generic policies Missed actuarial risks, disasters WS tanked
Activision Broker 12-28 yr old males Sequels Outsource development License brands Own distribution Gap Too complex 3 niches Fashion mistakes Too trendy Too many kinds of cust Design / timing
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Movement Examples
Winner / Agile Loser / Rigid
Fiserv Consolidate financial services Large data processing needs Outsource From smaller banks Infrastructure, software, hardware, service on or offsite Enhancements, seamless 110 acquisitions best of breed LSI Logic Custom chips for mil Slow to move to generic chips for consumer electronics Found hard to compete on price Bought into storage area network bus. but ended up competing with customers
Forest Labs From vitamin/candy to proprietary delivery system Celexa for Lunbeck, Zoloft/Paxil/Prozac for Pfizer/Lilly/Glaxo Lexapro patent Pipeline incl. hypertension, alcohol, Alzheimers Generics to hedge risk Campbells Many brands from V8 Franco-Am, Swanson, Pep Farm, Godiva Failed to win w/ V8Splash 66 earning from soup Missed Progresso challenge Slow to chunky and cold blending
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Capabilities Examples
Winner / Discipline Loser / Inept
Ball Mfg process control Exits antiquate plants Reduce material/retain integrity Specialty containers Monitors acqs and divests No union training, particip, very selective, loyal Recycling leader Goodyear Failed turnarounds Revolving door CEOs Alienated dealers took away access to deals to sell through WalMart Failed to win post Firestone Poor relationship with union, aging workforce, pension laiabilities
Family Dollar Low overhead, open all time No credit, self service Expansion financed by cash flow, no debt No sales Brand names Hard goods Supply chain, IT efficiencies Accurate forecasting Hasbro Repeated restructurings, layoffs, plant closings, streamlining fails to deliver British price fixing scandal Failed against computer game growth
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Concentration Example
Winner / Focused Loser / Diffuse
Brown Brown (DO insurance) No underwriting just broker Distribution only, low ohead Specific profitable niches Mid size businesses Professionals and Prof Associations Auto dealers, dentists, lawyers, top level company officers Parametric (Pro E CAD software) Numerous indirect distributors, 3rd parties, resellers Indirect sales alliances, not completely loyal as sell competitor products Out of touch with cust. Customers complain (globally) about need to invest own time and money to train and integrate W/out customer contact unable to do good RD or product updates
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Best Selling Business Books Divided

• Discipline Focus
• Execution
• Bossidy Charan
• Good to Great
• Collins
• Balanced Scorecard
• Kaplan Norton
• What Really Works
• Nohria Joyce
• Discipline of Market Leaders
• Treacy Wiersman
• Profits from the Core
• Zook

• Agility
• Innovators Dilemma
• Christensen
• Why Smart Executives Fail
• Finkelstein
• Creative Destruction
• Foster Kaplan
• Transform Your Business
• Godin
• Value Migration
• Slywotzky
• Revival of the Fitest
• Sull

Alfie says Winners do both well
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Implications Manage the Tension
Sweet spot Agility (Move) Discipline (Protect) Focus (Extend)
Goal Achieve Growth Enhance Profits Profits and Growth
Innovation Efficiency Reform and Refinement
Reinvention Operational Excellence Fine-tuning
Actions Explore Exploit Explore and Exploit
Prospect Defend Analyze
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Implications Manage the Tension
Sweet spot Agility (Move) Discipline (Protect) Focus (Extend)
Strategies Vision Mission Mission-vision
Conditions Disequilibrium Equilibrium Equilibrium-disequilibrium
Technologies Disruptive Sustaining Sustaining-disruptive
Industries Dynamic Static Dynamic-static
Image of the future Unpredictable Like today Gradually evolving
People Revolutionaries (break the rules) Controllers (enforce the rules) Improvers (Fix the rules)
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Summary

• Big winners 1. Occupied sweet spots. 2.
  Possessed the ability to move into these spots.
  3. Disciplined themselves to defend their spots.
  4. Exploited and extended their positions.
• Big losers 1. Occupied sour spots. 2. Were
  rigid. 3. Could not defend their positions. 4.
  Could take advantage of their positions.

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Discussion

• Understanding the critical importance of
  unleashing creativity with Bill Peter
• Excerpts from The Change
  Makers From Carnegie to Gates, How the Great
  Entrepreneurs Transformed Ideas into Industries
  by Maury Klein 2003