Again, one of the things we had to pump out quick for strategy class almost each week. This one I like a lot, I think it is one of my better ones. It is based on our class where we discuss how to choose the appropriate scope for your company, and ask the two most important questions: "Are we better off with this change in scope?" and if so, "are we better off owning (and not contracting for) this change in scope"
H.J. Heinz – Global Scope, Integrations, and Future Potentials
Recent History and Global Scope
Founded in 1869, The H.J Heinz Company has a long history in sauces and food products, with the curious distinction of holding the 293 spot on the fortune 500 list as the world leader in Ketchup. The recent history of Heinz begins with longtime CEO Tony O’Reilly’s reorganizations of the 1990’s. While Heinz’s global operations stretch to their founding days, including significant business in the UK, Europe, and Australia, it has only been recently, however, that they expanded their scope to become truly global. In the 1980’s they were one of the first foreign investors in Zimbabwe, they established joint ventures in China and Korea, and they purchased operations in Thailand. By the mid 1990’s, domestic operations made up only about 50% of their revenues. Still, according to one account, at that point CEO “O'Reilly pinned his expectations for future growth on overseas markets.” By 2008 they had over brands in 200 countries, including 15 major brands making up about 70% of their business. Today, they consider themselves, “the most global of all U.S.-based food companies.”
Vertical and Horizontal Moves
Heinz has tended to use a “related constrained” diversification strategy to support their larger corporate goals. Recently at least, they seem to have relied more on integrating horizontally rather than vertically in order to increase focus on their “ketchup, sauces, meals, snacks, and infant/nutrition” products themselves. It can be inferred that they believe their competitive advantage comes not from controlling the means of production throughout the value chain, so much as by having a broad base of products in their chosen market segments and tapping new global markets. Three core competencies they identify, “health & wellness, taste, and convenience”, are in fact product centric. This approach has resulted in many acquisitions and divestitures, as well as joint ventures, licensing agreements (such as with Weight Watchers, which they used to own) and long term contracts to market other companies products. Large acquisitions such as Lea & Perrins from the UK, Benedicta in France, and prominent Latin American sauce companies Productos Columbia, S.A. and Distribuidora Banquete have allowed them to expand their global revenues. Through these activities, Heinz has sought to achieve greater economies of scope, trying to found their corporate growth on increased efficiencies due to activity sharing, and improved capabilities through the dissemination of their core-competencies. In growing globally, they hope to take advantage of these same types of benefits, but also achieve lower production costs through location and scale, and offer existing successful their products into new international markets.
One notable vertical integration project is their “Heinzseed” program, which develops and sells seeds to their tomato growing suppliers. These seeds are not genetically modified (possibly due to their large presence in European markets), yet have high yields, produce tomatoes that are disease and pest resistant, and stay ripe on the vine. While not quite owning the tomato farms themselves, this aspect of vertical integration allows them to control the quality and reliability of one of their most important inputs. The end result is greater market power, as the total cost of these inputs is less expensive than those of their competitors, and they have a unique component that drives the distinctive taste of their products. This has been a particularly effective strategy in some of their emerging markets, notably China and Egypt, since quality supply is difficult to acquire, and the growers are actively looking to improve their capabilities.
Future Potential
In the future, Heinz will want to secure their place in the value chain through greater IT enabled virtual integration. Their current strategy involves building globally centralized customer and supplier relationships, and right now and they are rolling out SAP into every part of their business. This will allow them to get more out of these relationships. Wal-mart, who already constitutes 10% of the company’s revenues, is an early partner in this area. This is important since the food industry is a mature market, and corporate revenues seem to have been around 9-11 billion for some time.
They seem to be well positioned to take advantage of the current market landscape in regards to acquisitions. Their credit seems strong, there are many brands they would like to acquire, and according to CFO Art Winkleblack, “the acquisition pool is deep.” These acquisitions can help them build their market power, and expand their global scope. In addition to M&A, direct investment is a large part of their 2009-2010 global strategy, where they hope to “invest for double-digit sales & profit growth” and “leverage infrastructure/expand distribution.” Their presence in many countries gives them valuable market knowledge, and suggests an ability to establish new business units, or overcome cultural factors in the integration of their acquisitions. While there may be some short term opportunism in any acquisitions, it is likely they will consider the key questions advanced by the HBS note - are we better off by diversifying into this area, and if so, are we better off owning an interest?
Referenced Sources:
www.heinz.com
http://www.heinz.com/data/pdf/GrowthStrategy.pdf
http://www.heinz.com/data/pdf/2008HeinzAR.pdf
http://en.wikipedia.org/wiki/Heinz
http://industry.bnet.com/food/1000243/243/?tag=content;col1
http://www.fundinguniverse.com/company-histories/HJ-Heinz-Company-Company-History.html
Showing posts with label analysis. Show all posts
Showing posts with label analysis. Show all posts
Monday, December 15, 2008
CapSim Materials
In strategy class, we did a whole bunch with CapSim simulations. Pretty fun!! We made some great excel tools for analysis. Email me if you want some. I'll get em posted here before too long.
Sunday, October 26, 2008
Business and Brunelleschi’s Dome: A Modern Management Analysis of Renaissance Competition
This is a paper I wrote last year for my "Creating and Managing an Enterprise" class. It's really good I think, but it only includes some aspects of all the things we learned up to that point in the semester. The focus is on Porter's Five Forces which are well represented though. The book that this is based on though is very very interesting I think. Lot's of business related content and lots of cool history. Did you know that sometimes it could take a century or more to build a cathedral?
Ross King’s Brunelleschi’s Dome paints a picture of Renaissance Italy, in a time when technology and knowledge were developing rapidly, the world was changing, and many scientific and artistic minds were coming to prominence. It specifically focuses on the life story of Renaissance Man Filippo Brunelleschi - scientist, artist, architect, and inventor - and on the construction of the Dome of Santa Maria Del Fiore, in which he had such a dramatic influence. We can find in these stories many common situations, challenges, and principles which are just as relevant to our current realities of business, innovation, and accomplishment, as they were when Brunelleschi’s dome was rising over the busy streets of Florence. Throughout the stories, we see dramatic cases of jealous competition, spectacular successes and failures, creative utilization of resources, innovative solutions to business and technical problems, and carefully crafted strategic maneuvers designed to at once outpace the competition, and prove one’s principles true. In this paper, these aspects will be considered through the lens of competition and rivalry, and explored with modern management concepts in order to both show the drama and complexity of business, and to reflect upon how timeless and universal these situations, challenges, and principles may be.
Communication and Competition
Differences in communication and personality, together with similar interests and skills often lead to competition and rivalry. This can be readily observed from early in the book as the rivalry between Brunelleschi and Lorenzo Ghiberti began to take shape. When discussing the contest for the Baptistery doors, the book notes that they both went about preparing their entries differently – Lorenzo choosing a very social method, soliciting feedback from potential judges, while Filippo proceeded in solitude and secrecy. This difference in approach and personality likely came between them, causing mutual disrespect for each other’s methods and products. One may note that they were asked to collaborate on what would have been the first big commission for both of them. It’s realistic to consider that, rival or not, it might be worthwhile to get this big commission in any case. Faced with that prospect, however, Fillipo instead opted to move away to Rome. This could suggest on one hand a self-confident and stubborn personality, unwilling to cooperate, though on the other he may have simply deemed the extrinsic rewards not worthy of the intrinsic costs.
Some years later after Brunelleschi returned from Rome, both he and Ghiberti were again competing, this time for the design of the dome of Santa Maria Del Fiore, when they were presented with the same crucial decision by the sponsoring body. On this occasion, however, Brunelleschi chose differently and accepted collaboration with Ghiberti. While we may concede that he has grown older and wiser, his personality doesn’t seem to have changed much, and if anything, the rivalry has only grown greater.
Understanding the Context: Porter’s 5 Forces
To get a better sense of what might have driven his decision to accept the commission this time, we can use Porter’s 5 Forces to consider the competitive environment he faced, and perhaps see why pursuing this particular opportunity might now be worthwhile.
Force: Suppliers
First, we can consider the power of the buyers. In this case, it is the Opera Del Duomo, the body in charge of constructing the cathedral that represents the buyers. Their power is very high, suggesting initially that one might not want to pursue an opportunity subject to such tight regulation and close scrutiny. Over time, however, Brunelleschi managed to win them over with his innovative plan for the dome. It is likely that his confident personality expected this from the very beginning. This confidence in one’s own technology is common among entrepreneurs today, and an important driver of entrance into the market, sometimes with dramatic success or failure. The same successes and failures can be seen in many of Brunelleschi’s projects throughout the book. In his most prominent project, the design and construction of the dome itself (as with many projects in the modern day) this struggle to introduce and gain acceptance for a new technology was long and arduous. Despite the initial skepticism of the buyers however, the benefits that his design could provide won its acceptance.
Force: Rivals
Next, we can examine the power of rivals. There was limited expertise in the area of dome building on this scale, so Brunelleschi had only a small number of direct and indirect competitors in the contest. Direct competition again came from Ghiberti, who himself had little architecture experience. Though the strength of each of their characters to the Opera was essentially equal in this contest, it is certain that Brunelleschi regarded Ghiberti as inferior in skill. Paradoxically, it is for this reason that Filippo would be willing to share the commission, since he was confident that he would be able to outpace his rival, and in fact he did so early on. This time instead of walking away from his rival, he took a look at his resources, and decided to face him head on.
The choice of the Opera, like the choice of many venture capital firms today, was not based solely, nor perhaps even primarily on the technology or design itself, as much as on the people involved in the project. Ghiberti was seen to be more established, but Brunelleschi seemed to be more innovative, thus the Opera split the commission between them.
Force: Substitutes
After considering rivals, we examine the power of substitutes. In this case, substitutes might be considered a change in design, for example, eliminating the dome altogether. Alternatively, different dome building techniques could be considered substitutes. A change in design was not a strong possibility, since the Opera Del Duomo pledged their allegiance to the original model on New Year’s Day each year. Firm in this understanding Brunelleschi could feel comfortable that the problem could only be solved through the construction of a dome. The other substitute possibility, a different construction method for the dome, was a very real one, but in Brunelleschi’s eyes, not as viable as his own. Since design and construction using existing methods had so far proved exceedingly difficult, his design looked to address those challenges in an innovative way that was not being utilized at the time. If his design could work, as Brunelleschi must have believed it would, it would have a distinct advantage over all the substitutes presented. This again is a similar assessment that many new companies make when looking to solve a certain problem, and a risk they take when they assess their offering to be superior to any of the substitutes.
Force: Suppliers
After this, we consider the power of suppliers. This was not an issue that played into Brunelleschi’s own decision strongly since it was clear that his success was not primarily dependent on suppliers – he only needed standard materials, and most of the responsibilities for acquiring those were borne by the Opera itself. Interestingly enough, it may have been the power of suppliers that gave Brunelleschi’s design for the dome such an advantage. Traditional dome and arch building called for the creation of wooden support frameworks known as centering. The availability of lumber in the enormous sizes and quantities needed was very limited, so there were problems designing a centering system that could realistically be built given the resources. Since Brunelleschi’s design did not require centering it sidestepped this challenge and solved a problem that was holding back the construction of the dome. Often, a radical innovation, as presented here, will arise from a situation of necessity.
Force: Potential Entrants
Finally, we examine the power of other potential entrants. Since this was a competition, the possibility of potential entrants after the fact was low and once the project began, the cost of getting involved became higher and higher. Of course there was always the possibility for others to get involved, and sometimes they did, especially as new problems needed to be solved, and new contests were released by the Opera. Take the case of Giovanni, whose designs were not chosen, but maintained a role in the process by constantly criticizing and submitting designs. He did not secure too much influence in the process, but in other situations it is conceivable to think that new challenges may arise. For example, if an unknown competitor were to come up with a design that was even more innovative than Brunelleschi’s, the new design could take over. This possibility was certainly a concern for Brunelleschi, and despite his confidence, likely was cause for his strategy of obfuscating tactics, and secrecy.
Five Forces Assessment
In the end we can see that since Brunelleschi ultimately accepted the commission to work together with his chief rival, and since it is doubtful that he wanted to share the responsibilities and limelight, he must have felt it possible to overtake Ghiberti in the process of designing and constructing the dome. Admittedly, Brunelleschi probably relied more on his gut instincts, and his own self-confidence in his designs and strategies, than any type of formal analysis, though it is certain that in his own ways he took these factors into consideration.
The Five Forces are a convenient way to organize and assess his competitive environment though. We can see how given his talents and ideas, it was a good opportunity for him to pursue. In the areas of buyers, rivals, and potential entrants, his position was neutral. While he did not hold a distinct advantage in these areas, he was not at a disadvantage since he could, to some extent at least, charm the buyers in the opera; outdesign, outplan, and outposition himself in relation to his competition of Ghiberti and the others; and since the process itself kept the threat of new entrants low. At the same time, however, there were two distinct areas in which he held a competitive advantage: the area of substitutes, and the area of suppliers. Mostly due to his innovative design, and the way it solved the important problem of centering, the substitute designs were rendered inferior, and oppressive downward force of wood supply was removed from his equation.
Based on this analysis (and admittedly with somewhat of a hindsight bias) we come to the conclusion that it was a worthwhile opportunity to pursue, since he would have a strong chance of his design being realized, and of reaping the intrinsic and extrinsic rewards associated. In fact, in the end he did manage to overtake Ghiberti and assume primary control of the project based on his innovative design, together with some delicate strategy, together with the influential position in the eyes of the Opera that he succeeded in earning through this innovation and strategy.
Conclusions
Looking at the stories surrounding the construction of Brunelleschi’s Dome through the lens of competition, and utilizing modern business concepts and tools, we have seen numerous examples of how the same issues of rivalry, technological change, and strategy have played out for years, and continue to play out today. Further, we have gained a conception of these common situations outside of our normal understanding of business, allowing us to draw conclusions that might not be evident if we were trying to pull them from the pages of the Wall Street Journal or elsewhere. It is through this synthesis of history together with modern concepts and knowledge that we can continue to advance our own learning, and the study of business.
Ross King’s Brunelleschi’s Dome paints a picture of Renaissance Italy, in a time when technology and knowledge were developing rapidly, the world was changing, and many scientific and artistic minds were coming to prominence. It specifically focuses on the life story of Renaissance Man Filippo Brunelleschi - scientist, artist, architect, and inventor - and on the construction of the Dome of Santa Maria Del Fiore, in which he had such a dramatic influence. We can find in these stories many common situations, challenges, and principles which are just as relevant to our current realities of business, innovation, and accomplishment, as they were when Brunelleschi’s dome was rising over the busy streets of Florence. Throughout the stories, we see dramatic cases of jealous competition, spectacular successes and failures, creative utilization of resources, innovative solutions to business and technical problems, and carefully crafted strategic maneuvers designed to at once outpace the competition, and prove one’s principles true. In this paper, these aspects will be considered through the lens of competition and rivalry, and explored with modern management concepts in order to both show the drama and complexity of business, and to reflect upon how timeless and universal these situations, challenges, and principles may be.
Communication and Competition
Differences in communication and personality, together with similar interests and skills often lead to competition and rivalry. This can be readily observed from early in the book as the rivalry between Brunelleschi and Lorenzo Ghiberti began to take shape. When discussing the contest for the Baptistery doors, the book notes that they both went about preparing their entries differently – Lorenzo choosing a very social method, soliciting feedback from potential judges, while Filippo proceeded in solitude and secrecy. This difference in approach and personality likely came between them, causing mutual disrespect for each other’s methods and products. One may note that they were asked to collaborate on what would have been the first big commission for both of them. It’s realistic to consider that, rival or not, it might be worthwhile to get this big commission in any case. Faced with that prospect, however, Fillipo instead opted to move away to Rome. This could suggest on one hand a self-confident and stubborn personality, unwilling to cooperate, though on the other he may have simply deemed the extrinsic rewards not worthy of the intrinsic costs.
Some years later after Brunelleschi returned from Rome, both he and Ghiberti were again competing, this time for the design of the dome of Santa Maria Del Fiore, when they were presented with the same crucial decision by the sponsoring body. On this occasion, however, Brunelleschi chose differently and accepted collaboration with Ghiberti. While we may concede that he has grown older and wiser, his personality doesn’t seem to have changed much, and if anything, the rivalry has only grown greater.
Understanding the Context: Porter’s 5 Forces
To get a better sense of what might have driven his decision to accept the commission this time, we can use Porter’s 5 Forces to consider the competitive environment he faced, and perhaps see why pursuing this particular opportunity might now be worthwhile.
Force: Suppliers
First, we can consider the power of the buyers. In this case, it is the Opera Del Duomo, the body in charge of constructing the cathedral that represents the buyers. Their power is very high, suggesting initially that one might not want to pursue an opportunity subject to such tight regulation and close scrutiny. Over time, however, Brunelleschi managed to win them over with his innovative plan for the dome. It is likely that his confident personality expected this from the very beginning. This confidence in one’s own technology is common among entrepreneurs today, and an important driver of entrance into the market, sometimes with dramatic success or failure. The same successes and failures can be seen in many of Brunelleschi’s projects throughout the book. In his most prominent project, the design and construction of the dome itself (as with many projects in the modern day) this struggle to introduce and gain acceptance for a new technology was long and arduous. Despite the initial skepticism of the buyers however, the benefits that his design could provide won its acceptance.
Force: Rivals
Next, we can examine the power of rivals. There was limited expertise in the area of dome building on this scale, so Brunelleschi had only a small number of direct and indirect competitors in the contest. Direct competition again came from Ghiberti, who himself had little architecture experience. Though the strength of each of their characters to the Opera was essentially equal in this contest, it is certain that Brunelleschi regarded Ghiberti as inferior in skill. Paradoxically, it is for this reason that Filippo would be willing to share the commission, since he was confident that he would be able to outpace his rival, and in fact he did so early on. This time instead of walking away from his rival, he took a look at his resources, and decided to face him head on.
The choice of the Opera, like the choice of many venture capital firms today, was not based solely, nor perhaps even primarily on the technology or design itself, as much as on the people involved in the project. Ghiberti was seen to be more established, but Brunelleschi seemed to be more innovative, thus the Opera split the commission between them.
Force: Substitutes
After considering rivals, we examine the power of substitutes. In this case, substitutes might be considered a change in design, for example, eliminating the dome altogether. Alternatively, different dome building techniques could be considered substitutes. A change in design was not a strong possibility, since the Opera Del Duomo pledged their allegiance to the original model on New Year’s Day each year. Firm in this understanding Brunelleschi could feel comfortable that the problem could only be solved through the construction of a dome. The other substitute possibility, a different construction method for the dome, was a very real one, but in Brunelleschi’s eyes, not as viable as his own. Since design and construction using existing methods had so far proved exceedingly difficult, his design looked to address those challenges in an innovative way that was not being utilized at the time. If his design could work, as Brunelleschi must have believed it would, it would have a distinct advantage over all the substitutes presented. This again is a similar assessment that many new companies make when looking to solve a certain problem, and a risk they take when they assess their offering to be superior to any of the substitutes.
Force: Suppliers
After this, we consider the power of suppliers. This was not an issue that played into Brunelleschi’s own decision strongly since it was clear that his success was not primarily dependent on suppliers – he only needed standard materials, and most of the responsibilities for acquiring those were borne by the Opera itself. Interestingly enough, it may have been the power of suppliers that gave Brunelleschi’s design for the dome such an advantage. Traditional dome and arch building called for the creation of wooden support frameworks known as centering. The availability of lumber in the enormous sizes and quantities needed was very limited, so there were problems designing a centering system that could realistically be built given the resources. Since Brunelleschi’s design did not require centering it sidestepped this challenge and solved a problem that was holding back the construction of the dome. Often, a radical innovation, as presented here, will arise from a situation of necessity.
Force: Potential Entrants
Finally, we examine the power of other potential entrants. Since this was a competition, the possibility of potential entrants after the fact was low and once the project began, the cost of getting involved became higher and higher. Of course there was always the possibility for others to get involved, and sometimes they did, especially as new problems needed to be solved, and new contests were released by the Opera. Take the case of Giovanni, whose designs were not chosen, but maintained a role in the process by constantly criticizing and submitting designs. He did not secure too much influence in the process, but in other situations it is conceivable to think that new challenges may arise. For example, if an unknown competitor were to come up with a design that was even more innovative than Brunelleschi’s, the new design could take over. This possibility was certainly a concern for Brunelleschi, and despite his confidence, likely was cause for his strategy of obfuscating tactics, and secrecy.
Five Forces Assessment
In the end we can see that since Brunelleschi ultimately accepted the commission to work together with his chief rival, and since it is doubtful that he wanted to share the responsibilities and limelight, he must have felt it possible to overtake Ghiberti in the process of designing and constructing the dome. Admittedly, Brunelleschi probably relied more on his gut instincts, and his own self-confidence in his designs and strategies, than any type of formal analysis, though it is certain that in his own ways he took these factors into consideration.
The Five Forces are a convenient way to organize and assess his competitive environment though. We can see how given his talents and ideas, it was a good opportunity for him to pursue. In the areas of buyers, rivals, and potential entrants, his position was neutral. While he did not hold a distinct advantage in these areas, he was not at a disadvantage since he could, to some extent at least, charm the buyers in the opera; outdesign, outplan, and outposition himself in relation to his competition of Ghiberti and the others; and since the process itself kept the threat of new entrants low. At the same time, however, there were two distinct areas in which he held a competitive advantage: the area of substitutes, and the area of suppliers. Mostly due to his innovative design, and the way it solved the important problem of centering, the substitute designs were rendered inferior, and oppressive downward force of wood supply was removed from his equation.
Based on this analysis (and admittedly with somewhat of a hindsight bias) we come to the conclusion that it was a worthwhile opportunity to pursue, since he would have a strong chance of his design being realized, and of reaping the intrinsic and extrinsic rewards associated. In fact, in the end he did manage to overtake Ghiberti and assume primary control of the project based on his innovative design, together with some delicate strategy, together with the influential position in the eyes of the Opera that he succeeded in earning through this innovation and strategy.
Conclusions
Looking at the stories surrounding the construction of Brunelleschi’s Dome through the lens of competition, and utilizing modern business concepts and tools, we have seen numerous examples of how the same issues of rivalry, technological change, and strategy have played out for years, and continue to play out today. Further, we have gained a conception of these common situations outside of our normal understanding of business, allowing us to draw conclusions that might not be evident if we were trying to pull them from the pages of the Wall Street Journal or elsewhere. It is through this synthesis of history together with modern concepts and knowledge that we can continue to advance our own learning, and the study of business.
Monday, September 29, 2008
Setting the tone...
Greetings, as you can glean from my profile I'm an MBA student at Rensselaer Polytechnic Institute. This is in upstate NY, specifically the beautiful Capital Region, near Albany. Pretty dern good school too, check it out in the rankings, and with all the engineers, its a great place for tech business. I've got lots of ideas, I've got thoughts about the future, I've had some wonderful fun promoting this NY region around the US, these things you can glean from my other blogs (check em out!!). This Blog, however, is all about my MBA program, and the writing that it is compelling me to produce. Here you may find some thoughts about being an MBA student, views on the the business world, how it is changing, and other enterprise related meditations. Most of all though, it will contain lots and lots of the writing that I have been doing for my program, including case analyses, overviews of companies and industries, descriptions of new business phenomenon, thoughts on globalization, exercises in creativity and product development, along with a whole bunch of stuff about innovation.
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