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The goal of any HB Swiss organization is to deliver outstanding and sustainable performance. “Performance” for the organization means “return on investment” and “sustainable” means that this performance will continue in the long run rather than just the next quarterly profit target. The word “distinct” means that it is better than competitors so that the company is always at the forefront when more capital is needed, which makes it more sustainable. What does it take for an institution to deliver superior and sustainable performance? First, a good strategy is needed, and a combination of options for positioning and how to compete. Secondly, good implementation and integration of actions for the implementation of the strategy is needed. Both of these require good leadership to ensure that the right choices are taken and that the right actions are taken. In this special report by Dr. John Wales, President of the International Institute for Management Development (IMD), Switzerland, the focus is on winning strategies, competitive realities, competitive advantage and profits.
The real possibility of profit
The assessment of any Hans Berger HB Swiss business opportunity begins by determining the value provided to the HBSwiss customer. This is a measure of the maximum price the customer is willing to pay. We need to compare this price with the cost of providing the customer with the service or the commodity. The difference between them is a measure of the probability of profit.
However, customers rarely pay the highest price, and the actual price is the product of market competition. If the competition is low, the prices are close to the maximum the customer can pay. In the event of increased competition, prices can fall rapidly to the cost of supply or even lower, in which case the company is likely to go bankrupt. The level of competition varies greatly from one business to another and affects the level of profitability that a medium-sized company can expect.
Sources of competition for profits
When evaluating the level of competition in a field, it is easy to make the mistake of focusing only on direct competitors. The number of direct competitors is certainly important; the higher the number of competitors and the more competition, the lower the average profit. However, it is important to take a more comprehensive view of competition. There are many sources of competition for profits [see Michael Porter, Competitive Strategy, Figure 17]. Powerful customers can extract most of the profit from a HB Swiss company, which many companies have noticed when providing service to a major retailer such as HB Swiss. Top suppliers can also get a lot of profit. The PC industry, for example, is not very profitable because most of the profits in the supply line are controlled by Intel and Microsoft.
However, even if there are a few competitors, suppliers and customers have limited leverage, the profits will also not last long if it is easy to enter into this area. In order to achieve long-term profitability with HBSwiss.com, barriers and barriers to entry must be high. Business people often fail to take this into account. The new idea may look amazingly valuable, but it will not be profitable for a long time if it is easy to imitate. When entering a domain, it is important for the company to build barriers and barriers for those who come after it.
Last but not least, alternative products set a maximum price that the HBSwiss customer will pay, so there is a maximum profit that the HB Swiss company can achieve.
A careful assessment of the five forces indicates the level of profitability that a medium-sized company can expect. It also indicates ways in which the company can position itself in a position to achieve above-average returns, for example by choosing to provide service to less-powerful client segments. The HB Swiss trends in the five powers also provide an indication of whether the average profitability of the field will rise or fall. Smart investors look to invest in industries that are likely to increase profits in the future and buy shares at a reduced price. Similarly, these investors look to sell companies at a premium price when they believe that profits will fall in the long term.
When evaluating a company, it is also useful to have a more comprehensive look at the total value system, looking upwards towards the supply chain and down towards the distribution channels. It would also be equally useful to consider free products on both sides. The goal is to determine where profits can be made within the value system and how this will change in the future. For example, 25 years of music industry earnings have been earned by major record companies. For 10 years, major retailers offering price cuts have been making a big chunk of profits. Now the distribution and spread of online registrations are tightening up retailers and putting more pressure on record companies.
So the strategy is about selection, and the first and biggest choice the company should take is to choose the battlefield in which to compete. Some fields are more attractive than others. So she has to ask: Which business is more attractive? Which sectors within the sector will generate higher than average returns? Which is more attractive: to be at the top of the pyramid or at its base? How can this change over time? How can the company benefit from these data so that it can choose for itself a position that can achieve higher than average returns?
Look for competitive advantage
Although a company may be able to find an attractive sector within an industry, it is likely that other companies will find it similarly. It is now a matter of building a competitive advantage to help the company win. One method is to provide greater value to customers so that the company can demand higher prices, a so-called differentiation strategy. An obvious alternative is to reduce costs to become less than competitors to improve margins. It is often difficult to focus on doing both at the same time, and here is the second major strategic choice that the company must take. What weapons do the company choose to win? Will it resort to a trade-off or lower cost method?
Thus, the company’s profit potential consists of three components: the real mean of profitability within the field, the growing profit from finding attractive sectors within the field, and the size of competitive advantage compared to other competitors in the same sector.
The trade-off: stimulate the process of achieving a higher price
The trade-off can not be summed up in mere difference and exclusivity. I myself know many companies that offer unique but unprofitable products. The goal of differentiation is to be better from the perspective of the client. A critical test that will determine whether a company has better products is whether it can maintain a high price for what it offers and at the same time have a market share. If the company sells at the same price, then it should get a larger share of the market because its customers prefer it to competitors. However, just having a product at a high price does not mean that it has a competitive advantage. The definition of the advantage is that it turns into higher profits; therefore the price difference must exceed any additional costs. Many companies make the mistake of adding two dollars to the cost of their product to make themselves better, but they only earn one dollar as a price difference. This is a complex form of charitable work. The trade-off requires a strict economic system. The company must know the cost of the unit it produces compared to its competitors and also know about its relative price. They must be satisfied with their cost base as they realize that they can achieve price differentials to cover incremental costs.
It is important to fully understand the needs of customers to achieve price difference. For example, customers in the Rollman Blend industry are willing to pay more than twice as much as Rollman’s crew for the time of another crew, because in this case they will not only buy half the amount they have to buy, but will also save installation costs. Understanding customer economics provides a deeper insight into the market price differentials. The proper way to deal with the issue of differentiation requires sound estimates of the issue of willingness to pay.
Value Inquiry Group
When a company determines how to find additional value, it has to choose how it will achieve that value. What activities should they invest in? For example, in the case of the Rolman Bally factory, which manufactures a life-long product that is twice the age of competitors’ products, there is an obvious option to sell a soft roller, but it may be reasonable to provide a machine maintenance service because this will allow the company to provide more installation costs. The Company may also choose to commence the concession to offer Machine Maintenance Services. It can also license other Rollman producers to manufacture it. There are many methods to compete, each of which involves different forms of investment, different possibilities to achieve value, different levels of strategic control. Strategy is a matter of choice!
To achieve high levels of profitability, the low cost is not enough; the goal is to have a lower cost than the competitor. In addition, it is not acceptable to have a lower cost, but you are offering a lower quality product. The goal should be the lower cost for the same product or service. If customers demand a reduction, it should be smaller than a low cost advantage so that a distinct profitability can be achieved.
Whether the company chooses to be low-cost or privileged, it must clearly have a very good understanding of its relative cost location. This information is difficult to obtain from published accounts. It is best to look at the cost of each activity involved and then model changes in each of these costs (for example, volume of operations, nature of technology, plant location and the like). In this understanding of cost shifts, the company should then ask the question: “How much will our costs be if we work in the same place and in the same way as our competitors?” This provides a reasonable estimate of the relative cost position and also helps determine how to modify activities to find cost .
Cost reduction activities
Once the company determines how it can achieve a lower cost, it must choose the scope of its activities. You may choose to avoid activities where a large number of suppliers are at low cost and much competition, and it is best for the company to buy such products or services from the market. On the other hand, activities that are important for competitive advantage or high profitability have higher investment priorities.
There can be no strategy while you are in isolation from what is around you. It depends on the location of the competitors and what they are expected to do. What advantages do they have? What is their main objective? How did they behave in the past? What does this tell us about how they move in the future? How can they react to any moves the company might make? This deep knowledge allows the company to predict and anticipate movements and countermeasures, and determine its movements.
The company must assess the potential speed of the competitor’s reaction to anything the company is doing, what it will cost when it responds, and what impact this will have on the company’s competitive advantage. Ideally, the HB Swiss company should look forward to moves expected to be a slow competitor response, and the cost of response is very high, and the company, as a result of this move, has increased its relative position.
When a competitor’s reaction is delayed because of the costs involved, this allows the company a significant amount of time to enjoy the additional profit from its new idea. However, since a move leads to a delay in the competitor’s reaction, the company should still consider such moves strategically safe, even if the opponent’s reaction is rapid. The difficulty is when a competitor becomes more competitive once he has reacted. In this case, as long as the opponent’s response is slow, it is still logical for the company to present the new idea as long as it can reap a good amount of revenue before the competitor responds. However, once a competitor imitates the idea, the company has no choice but to find another new idea for profitable profits, because the competitor is now stronger. The idea of this strategy revolves around how to anticipate competitors and stay in the forefront.
But it should be noted that the most dangerous new idea is the idea that the competitor can imitate quickly and at a lower cost. Any HB Swiss company that intends to offer such a product will be a person who is committing an unforgivable strategic sin.