The Tightrope Google Has to Walk in China

HBR Staff

With over 1.3 billion people, the Chinese consumer market is a tempting target for Western technology companies. Of course, it’s also a risky place to do business. The recent news that Google is considering a re-entry into China further highlights a troubling balancing act faced by technology companies looking to do business there. The company last entered China in 2006 with a censored search engine, but pulled the plug on the operation four years later after it discovered that human-rights activists’ Gmail accounts had been hacked. While the economic opportunity in re-entering China could be massive for the firm, there are very real dangers for Google or any internet firm in underestimating the threat posed by Chinese meddling.

Any internet platform company doing business in China has to negotiate a major business and ethical dilemma: The Chinese government enforces overbearing regulations that censor speech in the name

Continue reading "The Tightrope Google Has to Walk in China"

How Capitec Became South Africa’s Biggest Bank

ShutterWorx/Getty Images

The consumer banking industry is notoriously difficult to enter, not least because most customers rarely switch banks. In some countries, people change spouses more often than they change banks.

The banking industry in South Africa was no exception; for decades the industry was dominated by “the Big Four” (Standard, FNB, Nedbank, and Absa). However, in 2000 a new player entered the industry, called Capitec, which started establishing branches rapidly. By 2007 it broke through the barrier of 1 million active customers; 10 years later it had more than 10 million clients and about 800 branches. It has now become the largest bank in the country.

Importantly, profits kept pace. After breaking even in 2002, net profits continued to rise, to 3.8 billion rand in 2017 (about $260 million), while the company’s share price appreciated by a whopping 61,800% (from 117 to 72,500 rand). In 2016 The Lafferty Group

Continue reading "How Capitec Became South Africa’s Biggest Bank"

One Reason Mergers Fail: The Two Cultures Aren’t Compatible

Yongyuan Dai/Getty Images

Amazon’s 2017 acquisition of Whole Foods was met with a lot of fanfare. The deal would allow Amazon to grow beyond e-commerce and sell groceries in hundreds of stores while collecting significant shopper data. Meanwhile, Whole Foods could lower its prices (organic avocados for just $1.69!) and scale up after its recent declines in sales and market share. In the words of Whole Foods CEO John Mackey, the partnership was “love at first sight.”

A year later, such optimism seems hard to find at Whole Foods. Stories of employees literally crying on the job over Amazon’s changes have begun circulating. Scorecards measuring compliance with a new inventory system are used to punish and sometimes terminate workers. A group of Whole Foods employees have recently taken steps to explore unionizing. Even customers — the stakeholders that Amazon values the most — have been angry

Continue reading "One Reason Mergers Fail: The Two Cultures Aren’t Compatible"

How Alibaba Is Leading Digital Innovation in China

Ming Zeng, the chief strategy officer at Alibaba, talks about how the China-based e-commerce company was able to create the biggest online shopping site in the world. He credits Alibaba’s retail and distribution juggernaut to leveraging automation, algorithms, and networks to better serve customers. And he says in the future, successful digital companies will use technologies such as artificial intelligence, the mobile internet, and cloud computing to redefine how value is created. Zeng is the author of Smart Business: What Alibaba’s Success Reveals about the Future of Strategy.

Download this podcast

Understanding Digital Strategy

Sunil Gupta, a professor at Harvard Business School, argues that many companies are still doing digital strategy wrong. Their leaders think of “going digital” as either a way to cut costs or to attract customers with a flashy new app. Gupta says successful digital strategy is more complicated than that. He recommends emulating the multi-faceted strategies of leading digital companies. Gupta’s the author of Driving Digital Strategy: A Guide to Reimagining Your Business.

Download this podcast

How Some Companies Beat the Competition… For Centuries

Howard Yu, Lego Professor of Management and Innovation at IMD Business School in Switzerland, discusses how the industrial cluster in the Swiss city of Basel is a unique example of enduring competitive advantage. He explains how early dye makers were able to continually jump to new capabilities and thrive for generations. He says the story of those companies offers a counter-narrative to the pessimistic view that unless your company is Google or Apple, you can’t stay ahead of the competition for long. Yu is the author of LEAP: How to Thrive in a World Where Everything Can Be Copied.

Download this podcast

Who Killed the GE Model?

afp/stringer/Getty Images

Who killed GE?

Of course, GE is not dead, and it may well revive and flourish as a company. After all, IBM came back from the dead in the 1990s. But the GE model is dead — and there’s a long list of possible suspects.

The GE conglomerate combined a wide range of industrial businesses under one roof. Unlike a pure holding company or a modern hedge fund, the GE model intended to create value by actively sharing capabilities among its disparate businesses, which, with one important exception, were all rooted in manufacturing.

The GE model dates back at least to the reign of Reginald Jones as CEO in the 1970s. He introduced a strategic planning process directed from the center. The model was honed by Jack Welch in the 1980s and 1990s, with new portfolio restructuring strategies and a headlong expansion into finance. Jeff Immelt tried to keep

Continue reading "Who Killed the GE Model?"

Why Network Effects Matter Less Than They Used To

Nisian Hughes/Getty Images

When we teach strategy to MBA students, they want magic bullets, things they can do to make their companies thrive forever. For a long time we emphasized “network effects” as a potential secret sauce for business models. Economists use “network effects” to describe contexts where a good or service offers increasing benefits the more users it has. Network effects can be direct: for example, Slack becomes more useful as other people also use Slack. Network effects can also be indirect, meaning that one set of users benefits as more of another type of users joins a platform. For example, AirBnB would not be useful for travelers if there were no apartment-owners using the platform. Similarly, home-owners would not want to use AirBnB if travelers weren’t using it to find a place to stay.

We have long taught that network effects can provide market power and sustained or even

Continue reading "Why Network Effects Matter Less Than They Used To"

Do Most Hospitals Benefit from Directly Employing Physicians?

Peter Dazeley/Getty Images

How can hospitals and health systems generate a return on their investment in their physician enterprises? According to the most recent figures, from the American Medical Association, over 25% of U.S. physicians practiced in groups wholly or partly owned by hospitals in 2016 and another 7% were direct hospital employees. Yet, according to the Medical Group Management Association, hospitals’ multi-specialty physician groups lost almost $196,000 per employed physician.

As a result, some larger health systems’ physician operations are generating nine-figure operating losses, which are major contributors to the deterioration in hospital earnings.  It is time for hospitals or health systems to rethink their strategy for their physician enterprises.

Let’s first revisit why independent physicians were receptive to becoming employees and why hospitals and health systems felt the need to hire them.

The surge in hospital employment of physicians predated Obamacare by at least six

Continue reading "Do Most Hospitals Benefit from Directly Employing Physicians?"

How Ford Is Thinking About the Future

Bloomberg/Contributor/Getty Images

Everyone’s talking about a future in which vehicles are shared rather than owned, autonomous rather than driven, and where car companies make large shares of their profits on digital “mobility services.” But if you are the Ford Motor Company and face the prospect of investing billions in new technology while your century-old business model is overturned, you might first have a few questions. How are consumers going to react to all of this? What do they really want? How can you tell which opportunities are real and which are science fiction?

Insight Center

To help test drive the future, in 2016 Ford paid about $50 million to acquire Chariot, a startup mobility service. Incubated at Y Combinator, the venture was aimed squarely at the most important, most reliable, most consistent

Continue reading "How Ford Is Thinking About the Future"

How Nokia Embraced the Emotional Side of Strategy

/Getty Images

How do emotions shape strategy making? We investigated this topic when we studied how Nokia executives dealt with the company’s severe strategic challenges between 2007 and 2013. As part of this research, we conducted 120 interviews, including nine with board members and 19 with top managers.

Recall that Nokia dominated the mobile and smartphone markets in 2007-2008 when Apple launched the iPhone and Google the Android operating system. The new rivals revolutionized customer expectations, causing Nokia’s Symbian operating system to become outdated. However, Nokia held on to Symbian until 2011, when it eventually switched to Windows operating system, which also underperformed. Ultimately, Nokia initiated a radical strategic renewal in 2013 by divesting its mobile phone business and focusing on manufacturing network equipment and software, patent licensing, and opportunities in wearable technology and the internet of things. This bold strategic leap was, we found, in part facilitated

Continue reading "How Nokia Embraced the Emotional Side of Strategy"

How to Fix MoviePass

PeopleImages/Getty Images

MoviePass, an upstart movie theater subscription service, has been a controversial topic lately. One Wall Street analyst called MoviePass a joke that would be out of business in 18 months. It lost nearly $100 million in its most recent quarter, its parent company’s stock has plummeted, and its auditor recently voiced skepticism over its ability to stay in business.

The company suffers from three fundamental problems. The first is a flawed business model. Its average subscriber sees three movies a month; for every ticket a subscriber uses, MoviePass pays the full retail price to the theater. The problem is that MoviePass collects only $9.95 per month per subscriber, and three movie tickets costs nearly $30, on average, meaning it’s losing nearly $20 per month per subscriber on a variable cost basis. This is a problem that scale (meaning more subscribers) cannot solve.

The second problem: Movie theater operators don’t

Continue reading "How to Fix MoviePass"

10 Promising AI Applications in Health Care

Peter Dazeley/Getty Images

There’s a lot of excitement right now about how artificial intelligence (AI) is going to change health care. And many AI technologies are cropping up to help people streamline administrative and clinical health care processes. According to venture capital firm Rock Health, 121 health AI and machine learning companies raised $2.7 billion in 206 deals between 2011 and 2017.

The field of health AI is seemingly wide—covering wellness to diagnostics to operational technologies—but it is also narrow in that health AI applications typically perform just a single task. We investigated the value of 10 promising AI applications and found that they could create up to $150 billion in annual savings for U.S. health care by 2026.

We identified these specific AI applications based on how likely adoption was and what potential exists for annual savings. We found AI currently creates the most value in

Continue reading "10 Promising AI Applications in Health Care"

A 40-Year Debate Over Corporate Strategy Gets Revived by Elon Musk and Warren Buffett

Neasden Control Centre for hbr

When Tesla CEO Elon Musk said that “moats are lame” during the company’s earnings call last week, he was calling out Warren Buffett, the chair of Berkshire Hathaway, who uses “moat” to describe barriers to imitation that stave off competition. “If your only defense against invading armies is a moat, you will not last long,” Musk continued. “What matters is the pace of innovation — that is the fundamental determinant of competitiveness.” In response, Buffett defended the idea of moats at Berkshire Hathaway’s shareholder meeting, which prompted satirical tweets from Musk.

Nothing about this debate is new, except maybe the tweeting. As entertaining as it is to watch these two billionaires argue in public, their different perspectives are near-perfect expressions of the two most influential strategy ideas of the past half-century.

Buffett’s notion of moats that prevent competition is nearly as old as the field of

Continue reading "A 40-Year Debate Over Corporate Strategy Gets Revived by Elon Musk and Warren Buffett"

Choosing a Strategy for Your Startup

Joshua Gans, a professor at the University of Toronto’s Rotman School of Management, advises against trying to commercialize a new technology or product before considering all the strategic options. He talks through some questions entrepreneurs should ask themselves — like, collaborate or compete? — and outlines a framework he and his fellow researchers have found to work best for startups. Gans is the coauthor of the article “Do Entrepreneurs Need a Strategy?

Download this podcast

Continuous Development Will Change Organizations as Much as Agile Did

aleksandarvelasevic/Getty Images

In 2001, a new approach to technology development was created by a daring group of developers. Called Agile, the process put customers at the center of product development, encouraged rapid prototyping, and dramatically increased corporate speed and agility.

While Agile began as a product development innovation, it sparked a corporate strategy and process revolution. Agile development laid the intellectual groundwork for the Lean movement in entrepreneurship, which further pushed business leaders to organize their business model and product development work around a series of experiments, testing critical hypothesis along the way. Agile and Lean initially grew popular in the startup world, but soon were embraced by mainstream business leaders around the globe. GE famously implemented Lean methodologies throughout all of their divisions, helping reduce cycle time and better aligning their work with the customers’ needs, leading to then-CEO Jeff Immelt’s declaration that GE had transformed from a “classic

Continue reading "Continuous Development Will Change Organizations as Much as Agile Did"

What Retail Can Teach Health Care About Digital Strategy

Fanatic Studio/Getty Images

Retailers know they have to find the right blend of digital convenience and in-person service. Consider Walmart’s latest advertising campaign in which customers gleefully place orders online and through its app, selecting to receive smart-looking blue boxes on their doorsteps or seamlessly pick up their orders at the closest store.

Imagining the same ad for a healthcare provider in 2018, even an innovative provider, is a stretch.

Like banks, airlines, and retailers, health care providers will need to offer an easy, digital front-end experience to their customers. This isn’t just about building fancy new websites, but undertaking true care redesign: becoming adept at delivering high-quality, cost-effective virtual care through telehealth and digital tools. To this end, they will need to move from pilot programs to large-scale efforts routinely offered across

Continue reading "What Retail Can Teach Health Care About Digital Strategy"

How the World’s Oldest Company Reinvented Itself

Matt Lyon/Getty Images

The decline in demand for paper hit Stora Enso hard. By 2011 the pulp and paper giant — the world’s oldest corporation, dating back to 1288 — had laid off over one-third of its 30,000 employees. Though profitable again, the company needed to transform itself into a global renewable materials company.

Jouko Karvinen, the CEO at the time, and his team decided not to depend on consultants, which would have been the typical way to go. Instead, they sought to reenergize and leverage their own people, but, Karvinen explained, “We also did not just want to handpick the usual senior managers we had always worked with before, because we knew that, in order to drive the transformation of the company, we needed new and fresh perspectives.”

Among a number of initiatives to kindle the transformation, Stora Enso took a novel approach to change management. Rather than handpick the

Continue reading "How the World’s Oldest Company Reinvented Itself"

How Likely Is Your Industry to Be Disrupted? This 2×2 Matrix Will Tell You

Jorg Greuel/Getty Images

The topic of industry disruption — “a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses” — is rife with misconceptions. One of the biggest is that it is a mysterious, random, and unpredictable event. Another is that it happens to you in ways that are beyond your control. Those views may have been valid at one time, but they no longer apply. Industry disruption, as Accenture research has found, is reasonably predictable. And with wisdom about its predictability comes opportunity.

To help business leaders better understand industry disruption, we developed an index that measures an industry’s current level of disruption as well as its susceptibility to future disruption. For the former, we examined the presence and market penetration of disruptor companies; we also considered incumbents’ financial performance. For the latter, we measured incumbents’ operational efficiency, commitment to innovation, and defenses against

Continue reading "How Likely Is Your Industry to Be Disrupted? This 2×2 Matrix Will Tell You"

The Art of Strategy Is About Knowing When to Say No

Hayon Thapaliya

When HubSpot was in its earliest stages, I used to say yes to almost anything: new features, new initiatives, new ideas. It empowered my team to move fast and get things done. I prided myself on being a “yes” man. We were working hard on getting product-market fit right, so anything we could do to get more customers and to find the right feature mix was a critical learning opportunity.

A popular, core feature of our product was our website grader. Looking to expand our reach and impact, I was quick to say “yes” to a Twitter grader… and to a Foursquare grader (yes, that was hot at the time)… and to a press release grader. If someone had a marketing grader idea, chances are I would say “yes” to it.

I said “yes” to a highly fun and creative video series.

I said “yes” to a

Continue reading "The Art of Strategy Is About Knowing When to Say No"