11: Operational Advantage - The How
The author examines the case of Live Nation, a company that sought to compete with the industry giant TicketMaster by taking a different operational approach: whereas TicketMaster partnered with venues, Live Nation sought to partner with the entertainment industry - on the notion that a concert event is driven by the performer (when people choose to go to a concert, they do not choose a venue and settle for whoever happens to be performing, but generally seek a specific act, and go to whatever venue happens to offer it).
Because its rival had locked down contracts with the venues, Live Nation was unable to compete on those terms - but by taking the alternate approach, they changed the rules of engagement in their favor - in effect, allying with entertainers against TicketMaster (which had received widespread criticism for gouging customers and short-changing the performers) and leveraging the considerable power of the performer to negotiate ticket sales rights.
The author notes that this was a "gut punch" to TicketMaster, and that it put the company's key business revenue at risk. (EN: in the end, Live Nation killed and ate TicketMaster, in a nearly literal sense: LN acquired TM in 2010, probably after the manuscript for this book was locked down.)
This case study underscores the value of operations to competitive advantage: Live Nation didn't offer an innovative new product, seek out a new market, or even use aggressive marketing: it chose a different mode of operations than its opponent, attacking from a direction TM was ill-prepared to defend itself, and scored a resounding victory.
Social Media
The author mentions a few ways in which social media is a new battlefield, and the companies that do it right will gain an operational advantage over the competitors. It's noted that social media has surpassed porn on the Internet (which seems a bit odd, but its' really quite a feat, given that nothing else has done so previously).
Most obviously, social media is a marketing phenomenon that breaks the traditional communication model. A company cannot simply throw money at the problem, produce more commercials than their competitors, buy more air-time, to blast a message in a one-way fashion at a large number of people who passively. Those that cling to the old ways of doing business will find them less effective, and will be outmaneuvered by firms that are more successful in leveraging social media.
Through a narrative, the author mentions a PR professional who has had significant successes in social media marketing, largely because social media is more akin to PR: in which individuals must work cooperatively with the media to communicate information through others over whom they have no direct authority or control - which is analogous to the skills one needs to succeed in social media, where the customers carry the message, and choose whether to demonize you or evangelize in your favor.
Another area in which social media is transformative is in human relations, primarily the recruitment of talent. The majority of HR functions (payroll management, benefits, employee handbooks) are all commodities and do no lead to competitive advantage - but recruiting is a critical role. Firms that use social media to seek out talent (rather than job boards that solicit resumes from the masses) are said to find qualified people for their companies with much greater accuracy and much less effort: you can cherry-pick the best candidates rather than scanning resumes to weed out the duds, and can communicate interactively to reduce the need for at least one round of interviews.
He asserts that most companies cling to the ways of doing business that they are accustomed to, and that (presumably) worked of them in the past - but again, competitive advantage does not go to the firm that does things the same as always, and the same as everyone else in the pack, but to the one that recognizes the value of doing things differently, and moves promptly to an advantageous position.
Multi-Objective Value Analysis
The author attempts to use a case-study (a company's decision to purchase a firm to acquire its capabilities rather than develop the capabilities itself) as a method of presenting the value of muilti-objective value analysis - which basically compares two or more courses of action to determine which is the better one (in instances where there are multiple factors and no clear across-the-board "winner" among the alternatives).
Another example is taken from the mergers among computer hardware companies. A company that was doing well and had significant cash reserves could consider a wide range of options of smaller companies to buy. But in this instance, it's more complex than the previous make-or-buy evaluation, because there are many options, and each option provides a different "benefit" to the company (as well as some level of liability, if only the opportunity costs of not buying someone else), so it becomes difficult to assess the alternatives.
(EN: the case studies get in the way here - and seem to be focused more on describing the complexity of the decision rather than the value of the solution. Better explanations of MOVA are available in statistics and managerial accounting texts.)
A Step Ahead
The author refers to Apple Computer, which has had quite a run in the past decade or so, selling innovative products that, frankly, are high-ticket novelties. Of note, the industry and economy have been struggling during the same time period, and conventional wisdom would seem to indicate a company such as Apple would have a very difficult time merely staying in business.
Apple is known for being a step ahead - but just barely. Each new release of their products, from their computer operating system to their iPhone, is quickly copied by its competitors. However, being just a step ahead has been a considerable operational advantage.
Competing firms are perpetually struggling to keep up - which, in effect, means that their resources are being expended on imitation rather than innovation. It is unlikely another firm will be able to leapfrog Apple to make a better product, but will perpetually lag behind. By timing its releases, Apple sustains a competitive advantage of being a first mover. Meanwhile, the company also maintains a high level of brand loyalty from customers who do not consider switching to another brand of smart-phone whose "newest" features seem outdated by comparison.
If Apple had leapt forward on a single good idea, it might be a happy accident. If innovation happened at irregular intervals, it might be a fortunate series of "eureka" moments. But the fact that Apple has had a steady and well-paced stream of innovations over a long period of time is evidence of a high level of coordination in market research, product development, and operations management that is intended to keep the firm in the lead.
Flexibility
The author mentions (in a later chapter - moved here because it's more germane) the flexibility of Japanese auto manufacturers. Specifically, Mazda can build up to five different models of car on a single production line, with minor modifications, whereas GM can produce only one.
While it can be argued that GM's approach produces a single line of car with the greatest efficiency (because everything is designed to the needs of that one product), Mazda is better able to shift production to more profitable models when there is a change in consumer demand, to discontinue or introduce models with relative ease, and to better manage its production capacity across the board.
This is a key reason that foreign auto firms were better able to adapt to changing market conditions than General Motors, which went into bankruptcy protection during the recent recession, and which must face the tremendous expense of retooling a product line or close a facility each time the company sees the need to discontinue a model.