P67 Innovation Hardball Case Study Three

Listen to the podcast: http://i2ge.com/podcast

  • This series of podcasts is inspired by case studies in a book titled Hardball, Are You Planning to Play or Playing to Win?, published by the Harvard Business School Press.
  • These case studies include a mix of innovation, strategy, tactics, and attitude. While I will focus on the innovation part, the other parts are also critical to the success of the examples in the case studies.
  • While some people may react positively or negatively to the word hardball, for the most part I like it. In many podcasts, I’ve told you how difficult it is for innovative ideas to succeed. The biggest challenge I’ve shared with you is that the innovative idea does not have a dramatic enough improvement of a critically imp ortant customers benefit. Even if you have this level of difference, execution plays a significant role in your success.
  • The authors articulate five principles that hardball players live by.
    • First, they focus relentlessly on competitive advantage.
    • Second, they strive to convert competitive advantage into decisive advantage.
    • Third, they employ the indirect attack.
    • Fourth, they exploit their employees’ will to win.
    • Fifth, they draw a bright line in the caution zone. The authors say, “before you enter the caution zone, you have to know where the unacceptable area is and draw a bright line for your company that marks the edge, the limit beyond which you will not venture. It is the leader’s responsibility to draw the line and make it very bright and clear.” This guards against the downside risk of some versions of hardball that are win at any cost and a willingness to do anything to win. This version of hardball can lead to wearing pinstripes behind bars.
  • Let’s start the third case study, which is about companies attacking the most profitable part of a competitor’s business. This truly is about hardball.
  • By attacking where competitors make the most money, you are doing something very different than was done in the previous podcast where the focus was on anomalies that often resulted in attacks on some of the least important parts of a competitor’s business.
  • There are a few options you have when attacking competitor profit centers. The first is that you can very aggressively compete on price against some, most, or all of a competitor’s product line. You can also decide to offer innovative new products that have benefits that are better than a competitor’s products – especially when the combination of benefits and the selling price create a value competitive advantage. You also have the option of competing on service. Interestingly, Hyundai did this when they extended their car warranties to 100,000 miles – about double what their competition had.
  • This case study is about Japanese automakers. When they first entered the United States market with cars they tended to be smaller, low-priced cars. Over time they added models that allowed them to compete with larger cars and at higher price points. While functionally their cars were similar to most American models, over time they developed a far better quality performance that was an important distinction for many American consumers of cars.
  • Automobiles had been an important source of American carmaker profits, but this eroded over about thirty years of competition with Japanese carmakers. American manufacturers gradually shifted their profit centers to trucks, especially light trucks and SUVs. By the late 1990s, American carmakers sold more light trucks than they did cars. In 2001 the only reason Ford made a profit that year was because of light truck profitability which wiped out the major losses on cars.
  • In the late 1990s Japanese automakers decided to enter the US market with full-size minivans, SUVs, and heftier light trucks than they had previously had. At first, American automakers were not worried. Especially in trucks they thought this was a male American business that would not turn to the Japanese for their trucks. Not surprisingly, there was a PR campaign suggesting that the Toyota tundra just wasn’t tough enough for Americans – and trucks in America are sold on a toughness. Prior to the major entry of Japanese light truck manufacturers, they had about a 10% share of the market from 1980 to 1995 – American manufacturers had a 90% share. In the early 2000’s the Japanese share rose to 25% – doubling their share in just a few years.
  • They doubled their share with value pricing on the initial purchase, higher resale value, and the same higher-quality data driven there car success.
  • As the Japanese did in cars, they gradually expanded their light truck line into the heavy truck line with stronger and more robust models. The Tundra became stronger. Nissan introduced the Titan which specifically targeted for its F150. Toyota introduced new models to go after the Ford F250 and Chevrolet Silverado models – these are models that Ford and Chevrolet reportedly made as much as a $15,000 profit per vehicle.
  • If you have been an observer of this market, you know that American truck makers have upped their game over the years. New models with new features. There’s a focus on horsepower and towing capacity. And their focus on toughness has never wavered.
  • If you step back and take a look at the entire Japanese car and truck story, you see a dramatic success story. Prior to their arrival in America, Ford Motor Company and Chevrolet essentially owned the business. When the Japanese first started arriving, one of the first offenses was to suggest it was not patriotic to buy a Japanese car.
  • The only reason that the Japanese succeeded is because they offered dramatically better value than American cars. American car quality had gotten sloppy and manufacturers showed little interest in making it better. There were even conspiracy theories suggesting that the sloppy quality was a part of American manufacturer’s efforts at planned obsolescence – your car would last only a set number of years when it would need to be scrapped and replaced by a new one.
  • If you fast-forward to today, you see American manufacturers have been forced to tremendously up their game. Quality measures like consumer reports magazine and JD Powers have captured consumer’s attention.
  • As I mentioned earlier, Hyundai is another example of a foreign manufacturer entering the US market well after the Japanese arrived. Hyundai has taken a page from the Japanese. They have a focus on quality and exceptional value. I found myself buying a Hyundai Genesis primarily because of the quality and the tremendous value. When I priced it against similar Lexis, Infiniti, and Acura models. The price was about $10,000 – $15,000 lower for comparable benefits. Interestingly many years before this experience, I bought the Infiniti Q forty-five in their first year in America for a very similar reason – feature for feature the car was at least $30,000 lower priced than comparable Mercedes models.
  • There are couple of insights from this case study that I think can help most of you listening to this podcast.
    • First, it’s the same old insight in a new context. If you want to switch customers from their current product to your product, you must offer dramatically better benefits than the products customers are currently using. For the segment of customers for whom quality is important, the ratings the Japanese vehicles received in Consumer Reports magazine were one of the key drivers of their success. Consumer Reports magazine was the reason to believe the quality of these vehicles. Remember from the Merwyn technology series the importance of providing a highly credible reason to believe to support your benefit claim, especially when you benefit claim is dramatically better than the competition. At that time I said that the stronger your dramatic difference the stronger your reason to believe needs to be.
    • Second, it is probably very difficult for a startup to do a direct competitive assault on the profit sanctuaries of existing competitors. It takes a certain level of resources to successfully execute the strategy because the strategy typically requires a long-term, expensive commitment. In this case, the Japanese could not have executed their direct attack on American carmaker profit centers without first having established a very strong and successful base of business in Japan and some other countries.
  • There will be more case studies since I think they can bring to life important business and innovation principles better than some other approaches. There will be more case studies coming from the Hardball book.

 

Leave a Reply

Your email address will not be published. Required fields are marked *