Strategic tools for the practising manager

KIT

THIS WEEK: THE INDIAN CRYSTAL WARE MARKET

The Crystal ware market in India is estimated at Rs 1,101 crore. About 50 per cent of the population typically buys crystal ware around a social/cultural function.

Eighty-three per cent of crystal ware consumers belong to affluent sections, and they buy crystal for both events/functions and decorative purposes.

Consumers in the 35- to 50-year age bracket are seen to be the crystal-collecting enthusiasts.

Almost all crystal ware purchases by the non-metro consumers are made domestically. Among metro purchasers, 25 per cent of crystal purchases are made while travelling abroad.

The average spend per occasion on designer crystal ware by Indian affluent consumers is approximately Rs 9,800.

Affluent consumers from the North, South and West spend approximately the same amount of money on crystal ware purchases "" between Rs 10,000 and Rs 11,000. Consumers in East India spend about half that amount on a single purchase.

Majority of crystal ware purchases are made domestically, with exclusive brand outlets such as Swarovski boutiques being the most preferred retail format to shop for them.

Selections from management journals
NUGGETS

In recent decades, an infusion of economics has lent the study of strategy much needed theory and empirical evidence. Strategy consultants, armed with frameworks and techniques, have stepped forward to help managers analyse their industries and position their companies for strategic advantage. Strategy has come to be seen as an analytical problem to be solved.

But, says Cynthia Montgomery, the Timken Professor of Business Administration at Harvard Business School, the benefits of this rigorous approach have attendant costs: strategy has become a competitive game plan, separate from the company's larger sense of purpose.

The CEO's unique role as arbiter and steward of strategy has been eclipsed. And an overemphasis on sustainable competitive advantage has obscured the importance of making strategy a dynamic tool for guiding the company's development over time.

For any company, intelligent guidance requires a clear sense of purpose, of what makes the organisation truly distinctive. Purpose, Montgomery says, serves as both a constraint on activity and a guide to behaviour. Creativity and insight are key to forging a compelling organisational purpose; analysis alone will never suffice.

Putting leadership back into strategy
By Cynthia A Montgomery
Harvard Business Review,
January 2008
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Most companies aren't half as innovative as their senior executives want them to be. What's stifling innovation? There are plenty of usual suspects, but the authors finger three financial tools as key accomplices.

Discounted cash flow and net present value, as commonly used, underestimate the real returns and benefits of proceeding with an investment.

Most executives compare the cash flows from innovation against the default scenario of doing nothing, assuming "" incorrectly "" that the present health of the company will persist indefinitely if the investment is not made. In most situations, however, competitors' sustaining and disruptive investments over time result in deterioration of financial performance.

Fixed- and sunk-cost conventional wisdom confers an unfair advantage on challengers and shackles incumbent firms that attempt to respond to an attack. Executives in established companies, bemoaning the expense of building new brands and developing new sales and distribution channels, seek instead to leverage their existing brands and structures. Entrants simply create new ones.

The problem for the incumbent isn't that the challenger can spend more; it's that the challenger is spared the dilemma of having to choose between full-cost and marginal-cost options.

These are not bad tools and concepts in and of themselves, but the way they are used to evaluate investments creates a systematic bias against successful innovation. The authors recommend alternative methods that can help managers innovate with a much more astute eye for future value.

Innovation killers: How financial tools destroy your capacity to do new things
By Clayton M Christensen, Stephen P Kaufman and Willy C Shih
Harvard Business Review,
January 2008
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