kacso szilard csaba - bachelor paper
DESCRIPTION
This is the bachelor paper of KACSO Szilard Csaba on "Business Strategies in Experience Economy", Babes-Bolyai University, Cluj-Napoca, ROMANIA.TRANSCRIPT
Business Strategies in Experience Economy KACSÓ Szilárd Csaba
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TABLE OF CONTENTS
Abbreviations ................................................................................................................. 3
Introduction .................................................................................................................... 4
Chapter 1 Strategic Management ................................................................................... 7
1.1 About Strategy ...................................................................................................... 7
1.1.1 Definition ...................................................................................................... 7
1.1.2 Importance .................................................................................................... 8
1.2 Generic Competitive Strategies .......................................................................... 10
1.2.1 Overall Cost Leadership Strategy ............................................................... 10
1.2.2 Differentiation Strategy .............................................................................. 14
1.2.3 Focus Strategies .......................................................................................... 17
1.3 Choosing Strategies ............................................................................................ 20
1.3.1 The process of choosing a strategy ............................................................. 20
1.3.2 Choosing from generic strategies ................................................................ 27
Chapter 2 Experience Economy ................................................................................... 30
2.1 The progression of economic value ................................................................... 30
2.2 The characteristics of experiences ...................................................................... 34
2.3 Designing memorable experiences ..................................................................... 36
Chapter 3 Case study: Strategic Management in AIESEC Cluj Napoca ..................... 39
3.1 About AIESEC ................................................................................................... 39
3.1.1 What is AIESEC? ....................................................................................... 39
3.1.2 AIESEC in numbers .................................................................................... 41
3.1.3 Vision .......................................................................................................... 41
3.1.4 Values ......................................................................................................... 42
3.1.5 Product ........................................................................................................ 43
3.2 About AIESEC Cluj Napoca .............................................................................. 48
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3.2.1 Objectives ................................................................................................... 49
3.2.2 Structure ...................................................................................................... 50
3.2.3 Management ................................................................................................ 51
3.3 Strategies ............................................................................................................ 52
Conclusion ................................................................................................................... 60
Bibliography ................................................................................................................ 63
ANNEXES ................................................................................................................... 67
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ABBREVIATIONS
DBA = Doctor of Business Administration
R&D = Research and Development
TN = trainee nominee
LCP = local committee president
VP = vice-president
OD = operational director
ICX = incoming exchange
OGX = outgoing exchange
ER = external relations
TM = talent management
HR = human resource
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INTRODUCTION
Strategic management theories are available to everyone. Since the creation of generic
strategies of Michael Porter, there were several companies that put his theories in
practice. Some of them had success and some of them failed.
There are companies that operate without following a certain or clear strategy and
they are (or were) doing well, because there was a high demand for what they were
offering and there was a low supply and weak competition.
Eusebiu Burcas, manager at DeKlausen, told me that they were conducting a research
before the crisis in Romania, trying to identify the status and development of
Romanian companies. The results showed that very few Romanian companies are
following a certain strategy, or have long term goals. Results also showed that there
are not using any strategic management tools to develop strategies or to evaluate their
performances. But they were generating profits (before the crisis). Their conclusion
was that this is possible because of increased demand and a lower supply.
With the technological advances and globalization, information businesses and their
offerings (commodities, products, services or experiences) became available to
everyone. We are experiencing the globalization of markets, transforming the world
into one single market with the help of the internet and social media. This increases
competition and makes it harder for companies to gain a competitive advantage and
maintain it sustainably.
More than that, people are striving for great, authentic, personal experiences.
Consumers are not buying from you because they have a need. They buy because they
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want to have what you can offer. They desire to have it. We go to amusement parks
because we desire to go on a roller-coaster not because we have a need for that. We
buy a car for the need of transportation from point A to point B, but we buy a BMW
M6 series because we want to have an “ultimate driving experience” or a social status.
This raises a series of questions. What to do now? What strategies to adopt? How to
construct and maintain a sustainable competitive advantage in our fast changing
environment?
In the following pages I will examine and present general concepts about strategy,
followed by the generic competitive strategies of Michael Porter: overall cost
leadership, differentiation and focus strategies. After that, I will present a flow to
choosing strategies.
In chapter 2 I will present the progression of economic value from commodities to
experiences, than we will discuss the characteristics of experiences and how we can
design memorable experiences for our customers.
In chapter 3 I will present a case study about AIESEC. I will demonstrate how a
differentiation strategy or a differentiation focus strategy can work for an NGO in
staging experiences. The methods, models used and implemented by AIESEC are
coming from the corporate sector, through the knowledge of partner companies and
the experience of 62 years of its existence. This demonstrates that a differentiation
strategy can offer a sustainable competitive advantage in the corporate sector as well.
My purpose with this work is to raise awareness on the changing rules in our economy
and on the need of strategic management and a well documented, thought,
implemented and evaluated strategy for every business to be successful on long term.
My motive is to present the new concepts of experience economy and to provide a
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proof that a differentiation strategy can offer a competitive advantage in our days even
in the non-governmental sector.
To present you this, I used a qualitative analysis. I started researching on different
business level strategies (generic strategies), then I started analyzing each option
available. After that I researched the concepts about experience economy and how this
influences competitive advantage and the perception of customers about companies.
In the end I presented a good case practice from the non-governmental sector,
regarding offering experiences and succession with a differentiation strategy.
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CHAPTER 1 STRATEGIC MANAGEMENT
1.1 ABOUT STRATEGY
In order to discuss business level strategies and strategic decisions in the experience
economy, we have to have a common understanding on the meaning of “strategy”,
“strategic management” and “business level strategy”.
1.1.1 Definition
Oxford English Dictionary defines strategy as “a plan of action designed to achieve a
particular goal. The word is of military origin, deriving from the Greek word
στρατηγός (stratēgos), which roughly translates as general”1. Michael Porter defines
strategy as “the creation of a unique and valuable position, involving a different set of
activities”2.
Strategic management is the conduct of drafting, implementing and evaluating cross-
functional decisions that will enable an organization to achieve its long-term
objectives3. Another approach is the process of managing in a way that is consistent
with the corporate strategy or in such a way as to capitalize on the opportunities that
present themselves4.
Strategies can be formulated at three different levels:
Corporate level: these strategies describe and formulate actions taken by the
firm (or corporation) in order to gain a competitive advantage by selecting and
managing different businesses that operate and compete in different markets
with different products and/or services (or staging experiences);
1 Oxford English Dictionary (2 ed.), Oxford, England: Oxford University Press, 1989
2 Michael Porter, What is Strategy, Harvard Business Review November-December, 1996
3 David F., Strategic Management, Columbus: Merrill Publishing Company, 1989
4 http://www.hainescentre.com/strategic-management, accessed at 06.04.2010
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Business level: these are actions taken by the firm in order to gain competitive
advantage in a specific market, with delivering products and/or services (or
staging experiences) based on its core competencies
Functional level: these are specific actions taken by each functional
area/department in the firm
Business-level strategy is an integrated and coordinated set of commitments and
actions the firm uses to gain a competitive advantage by exploiting core competencies
in specific product markets5.
1.1.2 Importance
Now that we understand the terms, we may discuss the importance of strategies at
different levels in the organization.
Corporate level strategies are essential for a firm (usually large corporation that
operates on different markets with different businesses) to decide where to invest, on
which markets to operate, in which type of businesses, what to produce or deliver, etc.
Practically at this level has to decide where to invest its resources in order to gain
competitive advantage and maximize the return on investment. These decisions (as all
types of decisions) require trade-offs, since we have limited resources. This is why a
corporate level strategy is so important in making critical, long term decisions that
will affect the performance of the firm on the long term. “Alfred Sloan, former
President of General Motors, defined the fundamental strategic problem as positioning
the firm in those markets in which maximum profits could be earned. In his great
biography, Sloan laid down the classical profit-oriented goal of strategy”6:
5 Robert E. Hoskisson, Michael A. Hitt, R. Duane Ireland, Competing for advantage (2 ed.), Newgen-
Austin, 2008 6 Richard Wittington, What is strategy, and does it matter? (2 ed.), London, Cengage Learning, 2001
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“The strategic aim of business is to earn a return on capital, and if in any particular
case the return in the long run is not satisfactory, the deficiency should be corrected or
the activity abandoned”7.
After a firm decides its corporate level strategies, it has to define the strategies for
each business it own. This is called the business level strategy. It is essential for every
management to know where the business is heading, how it will gain competitive
advantage on the market and how it will assure a constant grow for the business.
Business level strategies are intended to create differences between the firm‟s position
relative to those of its rivals. “Firms have long attempted to build competitive
advantage through an infinite number of strategies. Competitive strategies are
designed to help firms deploy their value chains and other strengths to build
competitive advantage. Thus, in practice, each company formulates its specific
competitive strategy according to its own analysis of internal strengths and
weaknesses, the value it can provide, the competitive environment, and the needs of
its customers”8.
After a firm has its business level strategy, it is very important to transform that
strategy in every action. This makes critical to define functional level strategies that
make sure that the business level strategy is followed by every functional area in the
business. These functional level strategies have to support business level strategies, so
it is essential that each functional level goes to the “same direction”. More than that,
“strategic fit among many activities is fundamental not only to competitive advantage
but also to the sustainability of that advantage. It is harder for a rival to match an array
of interlocked activities than it is merely to imitate a particular sales-force approach,
match a process technology, or replicate a set of product features. Positions built on
systems of activities are far more sustainable than those built on individual
activities”9.
7 Alfred Sloan, My years with General Motors, New York, Doubleday, 1963
8 Jeff Bordes, Strategic Management assignment - building and sustaining competitive advantage,
Atlantic International University, Honolulu, 2009 9 Michael Porter, What is Strategy, Harvard Business Review November-December, 1996
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1.2 GENERIC COMPETITIVE STRATEGIES
Firms choose business level strategies to establish and defend their desired strategic
position against rivals10
. According to Michael Porter, there are four potentially
successful generic strategic approaches to outperforming other firms in an industry11
:
Overall cost leadership;
Differentiation;
Focus;
Integrated cost leadership/differentiation;
These strategies are called generic, because they can be used in any business and in
any industry. Each business level strategy helps the firm to establish and exploit a
competitive advantage within a particular competitive scope12
.
1.2.1 Overall Cost Leadership Strategy
Cost leadership strategy is based on a firm‟s ability to provide a product or service at
a lower cost than its rivals. The basic operating assumption behind a cost leadership
strategy is to acquire a substantial cost advantage over other competitors that can be
passed on to consumers to gain a large market share. A cost leadership strategy
produces competitive advantage when the firm can earn a higher profit margin than
results from selling products at current market prices. In many cases, firms attempting
to execute cost leadership strategies aim to sell a product to “average” customers in a
broad target market.
“A central premise of the low-cost leadership strategy is the following: by making
products with as few modifications as possible, the firm can exploit the cost reduction
benefits that accrue from economies of scale and experience effects”13
.
10
Robert E. Hoskisson, Michael A. Hitt, R. Duane Ireland, Competing for Advantage (2 ed.), Newgen-
Austin, 2008 11
Michael Porter, Competitive strategy, The Free Press, New York, 1980 12
Robert E. Hoskisson, Michael A. Hitt, R. Duane Ireland, Competing for Advantage (2 ed.), Newgen-
Austin, 2008
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Having a low-cost position results in higher revenues for the firm, even in very
competitive markets. Its reduced costs gives the firm a defense against its competitors,
because reduced costs means that can have higher profit margins or offer the same
products or services at a lower price that its competitors. A low-cost position also
defends the firm from powerful buyers because buyers can use their power to reduce
prices only to the level of the next most efficient competitor. This strategy can also be
used by a firm to defend itself from powerful suppliers, by providing more flexibility
if input costs increase14
. This strategy also results in entry barriers for competitors: in
terms of scale economies or cost advantages. At the end, a low cost strategy helps a
firm to maintain its advantage against substitutes as well.
Cost leadership strategy is possible if a firm has a great efficiency. Recall that
efficiency is defined as output divided by input. Therefore, such a firm often strives to
produce at large volumes to take advantage of economies of scale. It does this by
targeting the average consumer knowing that while the product may not be exactly
what each consumer wants, it has broad enough appeal to create demand for a large
volume production. Efficiency is commonly obtained from each of the functional
areas, economies of scale, and learning effects. Each functional area of the firm (e.g.
marketing, production, etc.) is a potential source of efficiency. If economies of scale,
unit cost reductions as output expands, are present then there are opportunities for cost
leadership to be especially effective. Similarly with learning effects, which represent
cost savings from learning by doing15
.
This strategy often requires a high relative market share or other advantages, such as
favorable access to raw materials. It may well require designing products for ease in
manufacturing, maintaining a wide line of related products to spread costs, and
serving all major customer groups in order to build volume. For this reason, low-cost
13
Jeff Bordes, Strategic Management assignment - building and sustaining competitive advantage,
Atlantic International University, Honolulu, 2009 14
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 15
Scott Gallagher, Why does firm performance differ? - Business level strategies, Course support
material, 2004, James Madison University, Internet: http://falcon.jmu.edu/~gallagsr/ , accessed at
06.04.2010
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producers usually produce and sell standard products and put emphasis on “reaping
scale or absolute cost advantages from all sources16
.
“In turn, implementing the low-cost strategy may require heavy up-front capital
investment in state-of-the art equipment, aggressive pricing, and start-up losses to
build market share. High market share may in turn allow economies in purchasing
which lower costs even further. Once achieved, the low-cost position provides high
margins which can be reinvested in new equipment and modern facilities in order to
maintain cost leadership. Such reinvestment may well be a prerequisite to sustaining a
low-cost position”17
.
If a firm can build up a successful cot leadership strategy and maintain its position
over time, it will be an above-average performer in its industry provided it can
command prices at or near the industry average. If the firm has equivalent or lower
prices than its competitors, the cost-leader‟s position translates into higher profits18
.
Until now, we may say that cost leadership is a powerful and frequently used business
level strategy. However, it is undermined by technological change, loss of focus on
customers, and imitation of a cost advantage some other way. We may consider that
technology and how work is done determines the slope of an economy of scale curve.
Therefore, economies of scale may increase or decrease with technological change
rendering earlier cost advantages obsolete. Even worse, radical technological change
might occur that totally changes how the product or service is currently produced (ex:
machine made ice versus natural ice). Another issue is not paying attention to
customers. This can also undermine a cost leadership strategy. While focusing on
efficiency, it is very easy to ignore customer demands and supply. While this can
work when demand is very high (ex: Henry Ford's famous dictum about "any color
you want as long as it's black”), it can lead to a firm's downfall if competitors have
16
Michael Porter, Competitive advantage, The Free Press, New York, 1985 17
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 18
Michael Porter, Competitive advantage, The Free Press, New York, 1985
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nearly matched a cost advantage and can offer more product diversity. It is also
possible for competitors to imitate another firm‟s cost advantage somehow. The most
commonly used strategy in this case is the use of low cost foreign labor coupled with
low trade barriers19
.
This is why a cost leader can never ignore the bases of differentiation. If a firm‟s is
not perceived as comparable or acceptable by buyers, a cost leader will always be
forced to discount prices below competitors‟ to be able to sell its products and gain
market share. This is a very serious risk in nullifying the benefits of its favorable cost
position. Northwest Airlines is a low-cost firm that fell into this trap, but “recognized
its problem in time, and has instituted efforts to improve marketing, passenger service,
and service to travel agents to make its product more comparable to those of its
competitors”20
.
Therefore, “in pursuing a cost-based advantage, no firm can obviously ignore such
product attributes as quality, service, and reliability. If it does, its offering may
become so unacceptable that consumers will refuse to buy it or will buy it only if the
price is reduced to a level below what is needed to sustain profitability. A firm
pursuing a cost-based advantage must therefore strive to achieve some degree of
quality parity or proximity with other firms that have defined the standards of product
quality valued by customers”21
.
“Parity in the bases of differentiation allows a cost leader to translate its cost
advantage directly into higher profits than competitors‟.” Parity implies either an
identical product offering to competitors, or a different product combination of
product attributes and qualities that are equally important and preferred by customers.
“Proximity in differentiation mans that the price discount necessary to achieve an
19
Scott Gallagher, Why does firm performance differ? - Business level strategies, Course support
material, 2004, James Madison University, Internet: http://falcon.jmu.edu/~gallagsr/ , accessed at
06.04.2010 20
Michael Porter, Competitive advantage, The Free Press, New York, 1985 21
Jeff Bordes, Strategic Management assignment - building and sustaining competitive advantage,
Atlantic International University, Honolulu, 2009
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acceptable market share does not offset a cost leader‟s cost advantage and hence the
cost leader earn above-average returns22
.
“A cost leadership strategy can sometimes revolutionize an industry in which the
historical bases of competition have been otherwise and competitors are ill-prepared
either perceptually or economically to take the steps necessary for cost
minimization”23
.
Willis Fischer, general manager of Harnischfeger‟s Hydraulic Equipment Division
said:
“We didn‟t set out to develop a machine significantly better than anyone else but we
did want do develop one that was truly simple to manufacture and was priced,
intentionally, as a low cost machine”24
.
1.2.2 Differentiation Strategy
The second generic strategy is differentiation strategy. In a differentiation strategy
firms attempt to have their products be perceived as unique in order to obtain a
premium price. Brand loyal customers are often a sign that this strategy is working.
While the underlying foundation of differentiation is not as well understood as cost
leadership, generally any aspect of the product or service a customer is willing to pay
a premium for is the foundation of this strategy. Therefore, firms seeking to
implement this strategy should focus on quality, innovation, and/or customer
responsiveness. Innovation is especially common and useful to differentiators and
firms should take special efforts to not punish failure since most innovations, e.g. new
products, fail25
.
22
Michael Porter, Competitive advantage, The Free Press, New York, 1985 23
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 24
Harnischfeger’s Dramatic Pickup in Cranes, Business Week, August 13, 1979 25
Scott Gallagher, Why does firm performance differ? - Business level strategies, Course support
material, 2004, James Madison University, Internet: http://falcon.jmu.edu/~gallagsr/ , accessed at
06.04.2010
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According to Tom Peters, if you want to adopt differentiation strategy, “figure out the
one or two things that you can do better than anybody else… and keep doing the hell
out of them.”26
The means for differentiation can vary from industry to industry. It can be based on
several factors: the characteristics of the product or service, the design of the product,
the quality of the product/service, advanced raw materials, the delivery system by
which is sold, the marketing approach, the after sales services, guarantees, etc. “In
construction equipment, for example, Caterpillar Tractor‟s differentiation is based on
product durability, service, spare parts availability, and an excellent dealer network. In
cosmetics, differentiation tends to be based more on product image and the
positioning of counters in the stores”27
.
Differentiation strategies are based on providing buyers with something that is
different or unique, that makes the company‟s product or service distinct from that of
its rivals. The key assumption behind a differentiation strategy is that customers are
willing to pay a higher price for a product that is distinct (or at least perceived as
such) in some important way. Superior value is created because the product is of
higher quality, is technically superior in some way, comes with superior service, or
has a special appeal in some perceived way. In effect differentiation builds
competitive advantage by making customers more loyal-and less price-sensitive-to a
given firm‟s product. Additionally, consumers are less likely to search for other
alternative products once they are satisfied28
.
Therefore, this strategy is a viable strategy for earning above-average returns in an
industry because defends the firm against the five competitive forces (potential entry
of new competitors, rivalry among competing firms, potential development of
26
Top Peters, Re-Imagine! Business Excellence In a Disruptive Age, Dorling Kindersley Limited,
London, 2004 27
Michael Porter, Competitive advantage, The Free Press, New York, 1985 28
Jeff Bordes, Strategic Management assignment - building and sustaining competitive advantage,
Atlantic International University, Honolulu, 2009
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substitute products, bargaining power of consumers, bargaining power of suppliers),
but in a different way than cost leadership strategy29
.
“Differentiation provides insulation against competitive rivalry because of brand
loyalty by customers and resulting lower sensitivity to price. It also increases margins,
which avoids the need for a low-cost position. The resulting customer loyalty and the
need for a competitor to overcome uniqueness provide entry barriers. Differentiation
yields higher margins with which to deal with supplier power, and it clearly mitigates
buyer power, since buyers lack comparable alternatives and are thereby less price
sensitive. Finally, the firm that has differentiated itself to achieve customer loyalty
should be better positioned vis-à-vis substitutes than its competitors”30
.
In differentiation strategies is very important for firms to pay attention to product
quality and service in order to build a sustainable competitive advantage. “For
example, firms may improve a product‟s quality or performance characteristics to
make it more distinctive in the customers‟ eyes, as Lexus does with its sleek line of
automobiles. The product or service can also embody a distinctive design or offering
that is hard to delicately, thus conveying an image of unique quality; as with Krups
coffee and espresso makers or with American Express in travel services and charge
cards. After-sales service, convenience, and quality are important means to achieve
differentiation for numerous firms, such as for IBM in computer and electronic
commerce technology or Hewlett-Packard in desktop printers and digital imaging
technologies”31
.
A firm that can differentiate itself from its competitors and maintains that position
will be an above-average performer in its industry if its price premiums exceed the
costs that occur in order to build and maintain its uniqueness. Therefore, a
differentiator (or product leader) must always seek ways of differentiating that result
29
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 30
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 31
Jeff Bordes, Strategic Management assignment - building and sustaining competitive advantage,
Atlantic International University, Honolulu, 2009
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in a greater price premium than the cost of differentiating. “A differentiator cannot
ignore its cost position, because its premium its premium prices will be nullified by a
markedly inferior cost position. A differentiator thus aims at cost parity or proximity
relative to its competitors, by reducing cost in all areas that do not affect
differentiation”32
.
Achieving differentiation may sometimes be a barrier to gain high market share. It
often requires a perception of exclusivity, which is incompatible with high market
share. “More commonly, however, achieving differentiation will imply a trade-off
with cost position if the activities required in creating it are inherently costly, such as
extensive research, product design, high quality materials, or intensive customer
support. Whereas customers industry -wide acknowledge the superiority of the firm,
not all customers will be willing or able to pay the required higher prices”33
.
“The logic of differentiation strategy requires that a firm choose attributes in which to
differentiate itself that are different from its rivals‟. A firm must truly be unique at
something or be perceived as unique if it is to expect a premium price. In contrast to
cost leadership, however, there can be more than one successful differentiation
strategy in an industry if there are a number of attributes that are widely valued by
customers”34
.
1.2.3 Focus Strategies
Te third generic strategy is focus strategy. Focus strategies are used to help a firm
focus on a specific niche within an industry. Both differentiation and cost leadership
strategies target a wide range market, strive to get a high market share, but focus
strategies aim at specific and typically small niche of the market. These niches could
be selected considering different criteria: a particular buyer group, a narrow segment
of a given product line, a geographic or regional market, or a niche with distinctive,
32
Michael Porter, Competitive advantage, The Free Press, New York, 1985 33
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 34
Michael Porter, Competitive advantage, The Free Press, New York, 1985
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special tastes and preference. “The basic idea behind a focus strategy is to specialize
the firm‟s activities in ways that other broader-line (low-cost or differentiation) firms
cannot perform as well. Superior values, and thus higher profitability, are generated
when other broader-line firms cannot specialize or conduct their activities as well as a
focused firm. If a niche or segment has characteristics that are distinctive and lasting,
then a firm can develop its own set of barriers to entry in much the same way that
large established firms do in broader markets”35
.
The focus strategy has two variants: cost focus and differentiation focus. In cost focus
strategy, a firm seeks a cost advantage in its niche market segment, while in
differentiation focus a firm seeks differentiation in its niche market segment. In both
cases, the focus strategy is based on differences between a firms niche market
segment and other segments in the whole industry where is activating. The target
segments must either have buyers with specific needs or the production and delivery
system must be different from that of the other industry segments. Cost focus strategy
exploits differences in cost behavior in some segments of the market, while
differentiation focus exploits the special needs of buyers in certain market segments.
Such differences imply that the segments are poorly served and their needs are not
satisfied by broadly targeted competitors who serve them at the same time as they
serve others. The focuser thus can achieve competitive advantage by dedicating itself
to the segments exclusively. The essence of focus is the exploitation of a narrow
target‟s differences from the balance of the industry36
.
As is stated above, this strategy rests on the premise that focusing on a niche market.
A firm is able to serve its narrow strategic market more efficiently or more effectively
than its competitors who are competing for a wider range of the market. In this way, a
firm may differentiate itself by meeting the needs (more specific needs) of a particular
segment of the market, or by having lower costs by serving a niche market, or by
both. Even though the focus strategy does not achieve low cost or differentiation from
35
Jeff Bordes, Strategic Management assignment - building and sustaining competitive advantage,
Atlantic International University, Honolulu, 2009 36
Michael Porter, Competitive advantage, The Free Press, New York, 1985
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the perspective of the market as a whole, it does achieve one or both of these positions
vis-à-vis its narrow market target37
.
A focuser can take advantage of the incapability of its competitors to serve very
specific needs of niche segments. Competitors may underperform in meeting the
needs of a particular segment in the market, which opens the possibility for a
differentiation focus strategy. On the other hand, if a competitor is overperforming in
meeting the needs of a specific segment (they deliver things that are not essential for a
specific niche segment), a cost focus strategy can assure the satisfaction of that
specific niche with lower costs.
“Focus may also be used to select targets least vulnerable to substitutes or where
competitors are the weakest”38
.
“If a firm can achieve sustainable cost leadership (cost focus) or differentiation
(differentiation focus) in its segment and the segment is structurally attractive, then
the focuser will be an above-average performer in the industry. Segment structural
attractiveness is a necessary condition because some segments in an industry are
much less profitable than others”39
.
Generally in an industry there are very different customers and segments that require
different products and services and different delivery and after-sales systems and
services. This makes the focus strategies a very viable and opportune one for most
industries.
37
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 38
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 39
Michael Porter, Competitive advantage, The Free Press, New York, 1985
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1.3 CHOOSING STRATEGIES
Choosing strategies is not an easy job to do. There should be a lot of information
available and management should be able to analyze and cross-reference those data.
More than that, management should be able to make predictions concerning:
economies, markets, competitors, politics, technological advances, social changes,
consumer behavior, cultures, etc.
We stated in chapter 1 that strategies basically are means or concrete actions by which
an organization is trying to gain competitive advantage and thus reach its objectives.
This means that strategies are future oriented and affect an organization‟s long-term
performance: strategies may make the difference between success and failure on the
long run.
1.3.1 The process of choosing a strategy
Strategy formulation on a business-level should start with developing a vision and
mission for the organization that is communicated to all members of that organization,
than identifying internal strengths and weaknesses of the organization, establishing
long-term (strategic) objectives, generating multiple strategies than finally choosing a
strategy to be implemented.
Strategy formulation issues include deciding:
What new business to enter
What business to abandon
What markets to enter
How to reach the customers
How to allocate resources
Whether to expand operations or diversify
Whether to enter international markets
Whether to merge or form a joint venture
Whether to expand on a franchise model
How to avoid a hostile takeover
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A firm and any other organization is born from two major reasons: either there is a
problem that can be solved by the establishment of that organization or there is an
unsatisfied need which can be satisfied with the activities of a new organization. At
the birth there should be a vision, a future state where the organization wants to arrive
(or the management of that organization).
If this vision does not exist, or it is not clear to everyone, the first step in strategy
formulation is the development of a vision statement. Vision statement should answer
the following questions: “What do we want to become?” “Where do we want to
arrive?” The vision statement should be short, preferably one sentence and as many
managers as possible should have input into developing the statement.
After having a vision, a future state where our organization wants to be, we may
develop a mission statement which describes our core business: “What is our
business?” “What are we doing?” A clear mission statement is essential for effectively
establishing objectives and formulating strategies. It is important to develop as many
managers as possible in the process of developing a mission statement, because
through involvement, people become committed to an organization.
The next step in the strategic formulation process is the establishments of a core set of
values. These values have to be accepted by every single member of the organization
and the actions of every individual and the actions of the organization as a whole has
to be correlated with those values. Values may offer a constraint in the actions and
decision of the organization and also help connect with stakeholders.
After the construction of the identity of the organization (vision, mission and values),
it is important to establish long term objectives (that refer to a period longer than 1
year) that allow to set a direction, a desired state in the future that can be measured,
and to reveal priorities. Long term objectives also provide a basis for effective
planning, organizing, motivating and controlling activities. It is essential to be able to
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measure the progress in time, the performance of the organization and also to identify
the state when objectives are reached. Therefore, those objectives should be SMART:
Specific
Measurable
Achievable
Realistic
Time-framed
After having an identity and a desired state in the future that also can be measured, the
organization has to develop certain possibilities to reach its objectives and then
choose one strategy that will be implemented. We call this process strategic planning.
There are ten different schools that see strategic management and strategic planning in
different ways40
:
The Design School: strategy formation as a process of conception
The Planning School: strategy formation as a formal process
The Positioning School: strategy formation as an analytical process
The Entrepreneurial School: strategy formation as a visionary process
The Cognitive School: strategy formation as a mental process
The Learning School: strategy formation as an emergent process
The Power School: strategy formation as a process of negotiation
The Cultural School: strategy formation as a collective process
The Environmental School: strategy formation as a reactive process
The Configuration School: strategy formation as process of transformation
From these ten different schools, The Design School is the most often used in the
strategy-formulation process. Basically, this school proposes a model of strategy
making that tries to match or fit internal capabilities of the firm and external
40
Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel, Strategy safari, The Free Press, New York, 1998
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possibilities. In the words of this school‟s best-known proponents, “economic strategy
will be seen as the match between qualifications and opportunity that positions a firm
in its environment”41
. The Basic Deign School, model is illustrated on the figure
above.
This model places emphasis on the appraisal of the external and internal situations,
firstly indentifying the internal strengths and weaknesses of the organization, than the
external opportunities and threats that may occur (SWOT analysis).
41
Christensen, Andrews, Bower, Hamermesh, Porter, Harvard policy textbook, 1982
External appraisal Internal appraisal
Threats and opportunities in the
environment
Strengths and weaknesses in
the organization
Key success factors Distinctive competencies
Creation of STRATEGY
Evaluation and choice of
STRATEGY
Implementation of
STRATEGY
Social
responsibility
Managerial values
Basic Design School Model
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External opportunities and external threats refer to economic, competitive, social,
political, cultural, demographic, legal, governmental, environmental and technological
trends and events that could be a possible harm (threat) or benefit (opportunity) to the
organization. These trends and events are external, which means that the organization
have no influence or control over them. The organization should capitalize on external
opportunities and eliminate or reduce the hard of external threats (risk management).
In annex number 1 you may find an environmental variables checklist.
Internal strengths and weaknesses refer to an organization‟s processes or activities
that are performed good or bad. These can be controlled by the organization.
Strengths and weaknesses refer to: management, human resources, structure,
subsystems, other resources, marketing, finance, production or operations,
information systems, research and development, etc. Identifying these strengths and
weaknesses should be made at the organization level, but most importantly on each
functional area (or subsystems) of the organization. In annex number 2 you can find a
strengths and weaknesses checklist.
Internal strengths than can be very useful in the strategy-formulation process because
the strategy has to be formulated in a way to capitalize on these strengths. These may
be differentiate the organization from its competitors or may be the bases to create
unique selling points. Internal weaknesses should be eliminated.
After making the SWOT analysis, comes the creation of possible strategies or
analyzing several possibilities. In this phase all the data are used: the identity of the
organization (vision and mission statements, values), objectives that has to be reached
and data coming from SWOT analysis. “Richard Rumelt (1997), a DBA from the
Harvard General Management group, has perhaps provided the best framework for
making this evaluation, in terms of a series of tests42
:
42
Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel, Strategy safari, The Free Press, New York, 1998
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Consistency: the strategy must not present mutually inconsistent goals and
policies.
Consonance: the strategy must present an adaptive response to the external
environment and to the critical changes occurring within it.
Advantage: the strategy must provide for the creation and/or maintenance of a
competitive advantage in the selected area of activity.
Feasibility: the strategy must neither overtax available resources nor create
unsolvable subproblems.
After evaluating multiple possible strategies, the organization (more specifically the
management) chooses the strategy that will be used and implemented. This means that
the organization has to establish its annual and quarter objectives, mobilize and
motivate managers and employees to put the strategy in action, and also allocate
resources that allow the implementation of the strategy.
The implementation stage is considered to be the most difficult stage of strategic
management, because includes a number of difficult issues: developing a strategy-
supportive culture and mindset, creating an effective organizational structure,
redirecting marketing efforts, preparing budgets, developing and utilizing information
systems, offering the necessary toolset for employees, preparing employees, linking
employee compensation to organizational performance, etc.
There are number of premises presented by the design school. List of seven of seven
of those premises is presented in the following list43
:
1. “Strategy formation should be a deliberate process of conscious thought.” In
other words, strategist needs to know as much as possible of the variables
involved in the strategy making process and then calculatingly implement that
knowledge to the strategy.
43
Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel, Strategy safari, The Free Press, New York, 1998
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2. “Responsibility for that control and consciousness must rest with the chief
executive officer: that person is the strategist.” There is no room for team or
multiple individuals in the strategy formation in the eyes the design school.
3. To fit in to the mind of single strategist strategy must be kept simple.
4. “Strategies should be one of a kind: the best ones result from a process of
individualized design.” The strategy formation should be tied to the outcomes
of the analysis.
5. “The design process is complete when strategies appear fully formulated as a
perspective.” There is no room for strategy enhancement after its initial
implementation.
6. The strategy needs to be articulated to the organization so it can‟t be too
complex.
7. Strategy is a two part play where on the first part the strategy is conceived and
on the second part it is implemented. There is no room for parallel processes.
Strategy evaluation is the final process in strategic management. This stage is
increasingly important because internal and external factors are constantly changing.
It offers the possibility to adopt strategies or change them, if necessary. Strategy
evaluation activities include:
Reviewing internal and external factors that are the basis for current strategies
Measuring performance (a balanced scorecard may also be used as a tool)
Taking corrective actions
According to Michael, three key principles underline strategic positioning44
:
1. “Strategy is the creation of a unique and valuable position, involving a
different set of activities. Strategic position emerges from three distinct
sources”:
Serving few needs of many customers
Serving broad needs of few customers
44
Michael Porter, What is Strategy, Harvard Business Review November-December, 1996
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Serving broad needs of many customers in a narrow market
2. “Strategy requires you to make trade-offs in competing - to choose what not to
do.” There are competitive activities that are incompatible with each other. In
every situation, a gain or advantage in one area can be achieved only at the
expense of another area.
3. “Strategy involves creating <<fit>> among a company‟s activities.” “Fit” has
to do with ways a company‟s activities interact, reinforce and support each
other; they have to go in the same direction (strategy).
1.3.2 Choosing from generic strategies
Each generic strategy has a different
approach to creating and maintaining a
competitive advantage in a market.
“Usually a firm must make a choice
among them, or it will become stuck in
the middle”45
.
The benefits of choosing a focus strategy are based on the fact that the organization
will be able to serve specific needs of its customers or stakeholders. This cannot
happen if an organization is simultaneously serving a broad range of segments. For
broader segments there should be implemented a cost leadership or differentiation
strategy. In some cases, an organization may be able to create two or more different
business units (with focus strategies) that have different strategies that operate on
different segments.
Achieving cost leadership and differentiation usually are inconsistent because
differentiation is usually costly. On the other hand, cost leadership often requires an
organization to forego some differentiation in order to be able to sustainably maintain
its competitive advantage.
45
Michael Porter, Competitive advantage, The Free Press, New York, 1985
Generic Strategies Matrix
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Differentiation does not mean that firms are not allowed to reduce costs.
Organizations are more than welcome to reduce their cost by cost reduction, but not
by cost cutting. The difference is that cost cutting eliminates the biggest cost drivers
(which may be supporting differentiation), but cost reduction reduces costs that are
not supporting differentiation and the core of the business (or organization), without
affecting its differentiators.
In order to have success on the long run, an organization must commit itself to one of
the generic strategies and implement it sustainably.
From the point of view of required skills and resources, we can identify some
essentials for every strategy46
:
a) Cost Leadership:
Sustained capital investment and access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease in manufacture
Low-cost distribution system
b) Differentiation:
Strong marketing abilities
Product engineering
Creative flair
Strong capability in basic research
Corporate reputation for quality or technological leadership
Long tradition in the industry or unique combination of skills drawn
from other businesses
Strong cooperation from channels
c) Focus:
Combination of the above policies directed at the particular strategic
target
46
Michael Porter, Competitive Strategy, The Free Press, New York, 1980
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Implementing one of the three generic strategies also need some organizational
requirements47
:
a) Cost Leadership:
Tight cost control
Frequent, detailed control reports
Structured organization and responsibilities
Incentives based on meeting strict quantitative targets
b) Differentiation:
Strong coordination among functions in R&D, product development,
and marketing
Subjective measurement and incentives instead of quantitative
measures
Amenities to attract highly skilled labor, scientists, or creative people
c) Focus:
Combination of the above policies directed at the particular strategic
target
In order to implement different generic strategies, besides different skills, resources
and organizational requirements, there may be the need for a different leadership style
that can build up the required organizational culture, atmosphere and to attract
required profile people into the organization.
There are 2 major risks also in using generic strategies that must not be ignored:
failing to attain or sustain the strategy and losing the competitive advantage provided
by the strategy, in case the industry is evaluating. According to Michael Porter, “the
three strategies are predicated on erecting different kinds of defenses against the
competitive forces, and not surprisingly they involve differing types of risks. It is
important to make these risks explicit in order to improve the firm‟s choice among the
three alternatives”48
.
47
Michael Porter, Competitive Strategy, The Free Press, New York, 1980 48
Michael Porter, Competitive Strategy, The Free Press, New York, 1980
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CHAPTER 2 EXPERIENCE ECONOMY
2.1 THE PROGRESSION OF ECONOMIC VALUE
Over the last two
hundred years, we
have seen a shift
from an agrarian
economy based on
extracting
commodities, to an
industrial economy
based on
manufacturing
goods, to a service
economy based on delivering services, and now to an experience economy based on
staging experiences49
. You can find a table in annex number 3 about economic
distinctions between commodities, gods, services and experiences.
Commodities are materials/resources extracted from the natural world. These include
animals, minerals and vegetables. People raise them on the ground, or dig for them
(mine) under the ground, or grow them in the ground. After extraction, companies
usually process or refine them in order to yield certain characteristics.
By definition, commodities are fungible (they are what they are). Because
commodities can hardly be differentiated, companies sell them largely into nameless
markets where some other company purchases them on the price determined by
supply and demand. Because of this, every company on a commodity market is a
price taker. When demand exceeds supply, there is the possibility to price increase,
which assures increased profits for suppliers. On the other hand, when supply is
49
James H. Gilmore, Frontiers of the experience economy, Batten Briefings, Darden Graduate School
of Business Administration, 2003 autumn, available at
http://www.darden.virginia.edu/batten/pdf/bf_gilmore.pdf , accessed at 18.05.2010
The Progression of Economic Value
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greater than demand, prices and profits will decrease for suppliers. This means, that
on the long run, price is determined by the invisible hand of the market as it
encourages companies to move in or out of commodity businesses50
.
With the industrial revolution, we shifted from agrarian economy to an industrial
economy. This implies using commodities as row materials, processing them and
transforming them into goods. These tangible items respond to a need of customers by
using them as they are, without transforming them into something else. This is why
consumers value them more than commodities and are determined to pay a price
premium for them.
There was low or no differentiation between goods. Mass production allowed the
standardization of processes and products, resulting in layoffs of factory workers.
Service economy was on the way: in the second part of the 20th
century, in most
developing and developed countries, services overtook more than 50% of the
economy.
“Services are intangible activities customized to the individual request of known
clients”51
. Service providers usually use different products to perform operations
(deliver services) on a particular client. In this way, every single client is part of the
service delivery process; every client passes through a change. It is a participant and
not only a consumer. Services accomplish specific tasks that customers want done,
but don‟t want to do themselves. In this sense, goods only supply the means of
delivering services.
Ina a service economy, individuals desire service. Whether personal consumers or
businesses, they always try to save on purchasing goods (purchasing in cheap outlets
or big retail centers, or negotiate with suppliers) in order to save money for
50
Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (5 ed.), Methuen and
Co. Ltd., London, ed. Edwin Cannan, 1904 51
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press, Boston,
1999
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purchasing services (eating at a restaurant, travelling, etc) they value more highly.
This is the reason for many manufacturers to finding their goods commoditized.
“In a service economy, the lack of differentiation in customers‟ minds causes goods to
face the constant price pressure indelibly associated with commodities”52
. This result
in customers making their purchasing decisions related goods based solely on price
and availability.
To escape this commoditization trap, manufacturers often deliver additional services
to their core products. This offers better and more complex services to customers and
their desires can be matched more easily.
Experiences are a distinct economic offering, as distinct from services as services are
from goods. When someone buys a good, he receives a tangible thing; when he buys a
service, he purchases a set of intangible activities carried out on his behalf. But when
he buys an experience, he pays for a memorable event that a company stages to
engage him in an inherently personal way.
“An experience occurs when a company intentionally uses services as the stage, and
goods as props, to engage individual customers in a way that creates a memorable
event. Commodities are fungible, goods tangible, services intangible, and experiences
memorable”53
.
Prior economic offerings (commodities, goods, and services) are external to the buyer,
experiences are very personal and subjective. Experiences are only in the mind of an
individual who has been engaged on an emotional, physical, intellectual or even
52
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press, Boston,
1999 53
Joseph Pine II, James H. Gilmore, Welcome to the experience economy, Harvard Business Review
July-August, 1998
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spiritual level. Considering this, we can state that no two people can have the same
experiences, because each experience results from the interaction between the staged
event (ex: theater, driving a BMW) and the individual‟s state of mind.
Experiences have always been at the heart of entertainment business, but today the
concept of staging and selling an experience is appearing also in businesses that are
far from theatres or amusement parks. “New technologies, in particular, encourage
whole new genres of experience, such as interactive games, internet chat rooms and
multiplayer games, motion-based simulators, and virtual reality”54
. This can happen
because of the growing technological advances and the increasing processing power
of computers and other electronic devices.
In a speech made at the November 1996 COMDEX computer trade show, Intel
chairman Andrew Grove declared: “We need to look at our business as more than
simply the building and selling of personal computers. Our business is the delivery of
information and lifelike interactive experiences”.
Experiences are not exclusively about entertainment. We can speak about staging
experiences whenever an organization engages customers in a personal, memorable
way.
What British Airways does, according to former chairman Sir Colin Marshall, is “to
go beyond performing a function and to compete on the basis of providing an
experience”55
.
54
Joseph Pine II, James H. Gilmore, Welcome to the experience economy, Harvard Business Review
July-August, 1998 55
Competing on Customer Service: An Interview with British Airway’s Sir Collin Marshall, Harvard
Business Review November-December, 1996
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2.2 THE CHARACTERISTICS OF EXPERIENCES
In order for a company to charge admission fees, it must design and stage an
experience that customers worth paying for. Marketing, design and delivery will be
crucial for experiences as well, as they are for goods and services. Innovation and
excellence will always drive and increase in revenues for companies, but experiences,
like goods and services, have their own distinct characteristics and qualities and their
own challenges as well.
We can think about experiences across two dimensions: customer participation and
connection.
When we speak about customer participation, we can imagine a spectrum with two
ends. “At one end of the spectrum lies passive participation, in which customers don‟t
affect the performance at all. Such participants include symphony-goers, for example,
who experience the event as observers or listeners. At the other end of the spectrum
lies active participation, in which customers play key roles in creating the
performance or event that yields the experience”56
. But even people, who just observe
a performance, contribute to the visual and aural event that others experience.
The second dimension of experience describes connection that unites customers with
the event or performance. “At one end of the connection spectrum lies absorption, at
the other hand, immersion. People viewing the Kentucky Derby from the grandstand
can absorb the event taking place beneath and in front of them; meanwhile, people
standing in the infield are immersed in the sights, sounds, and smells that surround
them”57
. Another example would be watching a film in a cinema, on a large screen,
with Dolby Surround sound, which is more immersing than watching a film at home.
56
Joseph Pine II, James H. Gilmore, Welcome to the experience economy, Harvard Business Review
July-August, 1998 57
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press, Boston,
1999
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We can sort experiences in four
different categories, considering
the spectrums of these two
dimensions58
.
The usual understanding of
experiences is entertainment (ex:
attending a concert, going to
theater, watching television). In
these cases customers participate more passively than actively and their connection
with the event is more likely one of absorption than of immersion.
Educational events (ex: attending a class, taking a swimming lesson, participating at
trainings) tend to involve more active participation, but participants (or students) are
more outside the event than immersed in the action (they tend to listen to the professor
or speaker).
Escapist experiences can offer the same educational experiences as educational events
can and offer entertainment as well, but they involve greater customer immersion.
Acting in a play or playing in a rock band involves both active participation and
immersion in the experience.
In cases where customers‟ participation is minimized and they are immersed in an
activity or environment, but have no or little effect on it, we can speak of esthetic
experiences. A tourist who views the Grand Canyon from the distance or a visitor at
an art gallery participates in esthetic experiences.
58
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press, Boston,
1999
The Four Realms of an Experince
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Generally, we can find the richest and most memorable experiences around the
middle, where the spectrums meet. These experiences usually encompass aspects of
all four realms of an experience. But the most important question that has to be
answered by managers is “What specific experience will my organization offer?”59
Like in every case, organizations have to respond to needs or desires of their
customers or create those desires by educating the market. From this point of view,
“experiences, like goods and services, have to meet a customer need; they have to
work; and they have to be deliverable. Just as goods and services, result from an
interactive process of research, design, and development, experiences derive from an
interactive process of exploration, scripting, and staging - capabilities that aspiring
experience merchants will need to master.”60
2.3 DESIGNING MEMORABLE EXPERIENCES
Creating meaning can be described as a process, starting as perception through the
senses (see, hear, smell, touch, taste) to emotions. Experiences occur in a process in
which interactions take place in a certain setting – whether or not a physical one –
between the individual and other people, including perhaps the offering party, which
can be an economic party. This makes experiences, just like services, intangible.
The European Centre for the Experience Economy describes the characteristics of an
experience based on an extensive literature study from the perspective of the
individual61
:
“There is a heightened concentration and focus, involving all one‟s senses.”
“One‟s sense of time is altered.”
“One is touched emotionally.”
“The process is unique for the individual and has intrinsic value.”
59
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press, Boston,
1999 60
Joseph Pine II, James H. Gilmore, Welcome to the experience economy, Harvard Business Review
July-August, 1998 61
Albert Boswijk, Thomas Thijssen, Ed Peelen, A new perspective on the experience economy, The
European Centre for the Experience Economy, The Netherlands, Internet:
http://freeforone.com/zakelijk/artikelen/New%20perspective.pdf , accessed at 18.05.2010
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“There is contact with the „raw stuff‟, the real thing.”
“One does something and undergoes something.”
“There is a sense of playfulness.”
“One has a feeling of having control of the situation.”
“There is a balance between the challenge and one‟s own capacities.”
“There is a clear goal.”
Every meaningful experience must satisfy these characteristics. There has to be an
experience setting, where an individual (or group of individuals) and the organization
that stages the experience meet. “That is the environment in which the interaction can
take place between the individual and the offering party (or parties).”62
There should be expected that experience design will become as much a business art
as product design as process design. From this perspective, there are five key
experience-design principles63
:
“Theme the experience”: build every detail of the experience around a specific
theme.
“Harmonize impressions with positive cues”: to create the desired
impressions, companies must introduce cues that affirm the nature of the
experience to the guest; each cue must support the theme.
“Eliminate negative cues”: companies must eliminate anything that
diminishes, contradicts, or distracts from the theme.
“Mix in memorabilia”: offer goods to be purchased for the memories they
convey (ex: T-shirts, hats).
“Engage all five senses”: stimulate all five senses in order to enhance and
support the theme.
62
Albert Boswijk, Thomas Thijssen, Ed Peelen, A new perspective on the experience economy, The
European Centre for the Experience Economy, The Netherlands, Internet:
http://freeforone.com/zakelijk/artikelen/New%20perspective.pdf , accessed at 18.05.2010 63
Joseph Pine II, James H. Gilmore, Welcome to the experience economy, Harvard Business Review
July-August, 1998
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To design a rich, engaging and memorable experience, organizations have to use an
experiential framework, not just one realm, as a set of prompts that help them to
creatively explore the aspects of each realm.
According to Joseph Pine II and James H. Gilmore, “when designing your experience,
you should consider the following questions64
:
“What can be done to improve the esthetics of the experience?” Esthetics is
what determines the customers to take a look at the stage. Organizations have
to make environment more inviting, interesting, or comfortable; an atmosphere
where is a pleasure to be.
“Once there, what should your guests do?” The escapist aspect of an
experience draws the guest further, immersing them in activities.
“What do you want your guest to learn from the experience?” The educational
aspect of the experience requires the full participation of the learner.
“What can you do by way of entertainment to get your guests to stay?”
Entertainment is a passive aspect of experience where guest respond to the
experience (ex: laugh).
If an organization manages to address successfully to these issues, it can start
competing on the basis of an experience:
“No, your ultimate goal is not to sell T-shirts (if your company sells T-shirts). No, it‟s
not to check out books (if you‟re a library). It‟s to enchant and captivate your users.
Why? Because if you can figure out how to enchant and captivate your users, then the
other parts (buying and checking out) will be easy. You will have turned those
customers into evangelists, and your evangelists will do much of your marketing for
you”65
.
64
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press, Boston,
1999 65
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press,
Boston, 1999
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CHAPTER 3 CASE STUDY: STRATEGIC MANAGEMENT IN
AIESEC CLUJ NAPOCA
3.1 ABOUT AIESEC
3.1.1 What is AIESEC?
AIESEC (originally “association internationale des étudiants en sciences économiques
et commerciales”, but now it is a proper name) is the world‟s largest student-run
organization. It is a global, non-political, independent, not-for-profit organization run
by students and recent graduates of institutions of higher education. Its members are
interested in world issues, leadership and management. AIESEC does not discriminate
on the basis of race, color, gender, sexual orientation, creed, religion, national, ethnic
or social origin.
AIESEC‟s innovative development process consists of unmatched leadership
experiences, international opportunities and a global learning environment.
Global – AIESEC has a global scope and is represented in all continents of the world.
One of the most valuable and unique aspects that our organization has is its global
network. AIESEC should make the best use of this global network to enhance the
understanding between cultures by running activities that foster participation and co-
operation among different countries in the network. Without any doubt our exchange
programs create the best conditions for this.
Non-political - AIESEC does not have a pre-defined or officially accepted political
tendency or subscription.
Independent - AIESEC is not a subsidiary or dependent entity of any other bodies in
its work, sustainability or decisions.
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Not-for-profit - AIESEC is not an organization that exists to generate profit for
shareholders. The bottom-line for AIESEC is not money but people that are
developing themselves as leaders. It is important of course to have enough resources
and be sustainable to ensure we are having the desired impact in society and invest in
further improvements for the organization. However, we are guided by the ways to
generate more impact and have maximum financial sustainability rather than to
simply generate more money.
Run by students and recent graduates of institutions of higher education – Students of
higher education students and recent graduates manage and run all the activities of the
organization. The members of AIESEC are current (includes the ones who have given
a break to their studies to dedicate themselves to AIESEC work) or recently graduated
students of institutions of higher education.
Its members are interested in world issues, leadership and management – Today
AIESEC has expanded its reach to a wide range of student backgrounds. Our
membership base has expanded to university students that are interested in more than
just economics.
AIESEC does not discriminate on the basis of race, color, gender, sexual orientation,
creed, religion, national, ethnic or social origin - AIESEC is an organization that
enjoys and lives diversity, and will not reject participation or contact with people for
any of the reasons mentioned above.
Its international platform enables young people to discover and develop their potential
to provide leadership for a positive impact in society.
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AIESEC provides its members with an integrated development experience comprised
of leadership opportunities, international internships and participation in a global
learning environment.
3.1.2 AIESEC in numbers
Global network run by more than 40000 students and recent graduates
Active in 1 700 universities across 110 countries and territories
7 700 leadership opportunities annually
5 500 global internships annually in business, technical, education and
development sectors
Has more than 4000 partners/sponsors globally
Organizes 470 conferences annually
Has more than 1 million alumni
Has 62 years of existence
3.1.3 Vision
“Peace and Fulfillment of Humankind‟s Potential”. In today‟s context, „peace‟ should
not be interpreted necessarily as absence of a major war. „Peace‟ symbolizes a world
that does not have conflicts that arise from cultural, religious, or other aspects of
differences in humanity.
AIESEC envisions a world where its inhabitants are working together for common
goals to ensure prosperity for all. AIESEC wishes to see the world as a community
where its people respect, enjoy, and understand each other. Through “Fulfillment of
Humankind‟s potential” AIESEC expresses its aim to develop individuals who have
the knowledge, skills and determination to develop their communities.
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AIESEC‟s aim is to offer as many opportunities as possible for young people to
develop their potential; people who are responsible, entrepreneurial, culturally
sensitive and thirsty for learning more! Furthermore, AIESEC wants young people to
learn and contribute to the learning of others so that it helps the development of their
communities.
3.1.4 Values
“Activating Leadership”: we lead by example and inspire leadership through our
activities. We take full responsibility for developing the leadership potential of our
members.
“Demonstrating Integrity”: we are consistent and transparent in our decisions and
actions. We fulfill our commitments and conduct ourselves in a way that is true to our
ideals.
“Living Diversity”: we seek to learn from the different ways of life and opinions
represented in our multicultural environment. We respect and actively encourage the
contribution of every individual.
“Enjoying Participation”: we create a dynamic environment created by active and
enthusiastic participation of individuals. We enjoy being involved in AIESEC.
“Striving for Excellence”: we aim to deliver the highest quality performance in
everything we do. Through creativity and innovation we seek to continuously
improve.
“Acting Sustainably”: we act in a way that is sustainable for our organization and
society. Our decisions take into account the needs of future generations.
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The shareholders of AIESEC are:
Members
Enablers: mentors, TN takers, learning and content partners
Supporters: sponsors (financial and in-kind), boards (advisory and
governance), support groups, university, government
Impact: the community, alumni
3.1.5 Product
AIESEC Experience is the core product
of AIESEC. Different facets of AIESEC
Experience are sold to different
stakeholders who customize their own
experience.
In “Intro to AIESEC” stage, students get knowledge about the organization, about its
vision, values and how it works and also get some preparation on soft skills.
At the “Taking Responsibility” stage they participate actively in departments and
projects, so they take some responsibilities. At this stage they can try themselves and
develop on personal and professional sides, which contribute to the “fulfillment of
humankind‟s potential” part of the vision.
Then they have the possibility to take a “Leadership” opportunity and to become team
leaders (middle management), organizing committee presidents (middle management)
or executive board members (top management). At this stage they will learn about
leadership, management and will have the possibility to coordinate different teams
which have specific task and objectives. They can try themselves on how to be a
leader and develop their leadership skills, which also contributes to the “fulfillment of
humankind‟s potential” part of the vision.
The AIESEC Experience
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Another option is to participate in the international “Exchange” program and go
abroad to do an internship. This will take participants away from their comfort zone,
and offer them multicultural experiences, the possibility to learn about other cultures
and civilizations, to live cultural shocks and also to gain professional experience. This
stage contributes to “peace” because participants become more tolerant towards
different cultures, religions or ways of thinking, and to “fulfillment on humankind‟s
potential” through their professional experience.
There are 4 different types of internships:
MT - management traineeship at companies, which includes marketing,
business administration, public relations, human resources, project
management, etc
TT - technical traineeship at companies, for informational technology and
computer science students
DT - development traineeship in NGOs or other institutions, which helps their
development with the help of international volunteers
ET - educational traineeship, which offers the possibility to teach foreign
languages or other subjects in organizations institutions (ex: kindergarten,
schools, universities)
In annex number 4 you can find more details about the exchange program.
The “Heading for the Future” stage is a transition stage, where members finish their
activities in AIESEC, and learn how to use their experience in their lives.
After completing all the stages, members will become change agents, who will make a
positive impact in society, contributing to the vision of the organization.
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In order to make this experience more qualitative, the concept of learning
environment was created. This learning environment has 6 elements through which
every member can learn about a specific issue or functional area. These elements are:
There are the five principles which should guide people through the AIESEC
Experience. Everybody who joins should have them in mind before joining AIESEC
and also during the actual AIESEC experience:
1. Take an active role in your learning and the learning of others
What – you are in charge of your own learning and also to help others learn
Why is it important to the outcome of the Learning Process?
o Our education system teaches us to be passive towards learning (take
what is given)
o The world is dynamic and one must always be proactively learning
o It is the only way people will be really committed to the process
Where this principle shows up in the process
o Become more involved with organization prior to going on the
traineeship and you help out with one of the functional areas
Individual discovery
and reflection
Mentoring
Learning Circles
T
Team Experiences
Conferences and
Seminars
Virtual Spaces; forums,
blogs, resource sharing
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o People are informed before entering of what it takes to do an exchange
and then have time to get needed skills and resources
o Encouraging reflection on goals and persional vision
o Joining a learning network
2. Challenge your worldview
What – All new information is interpreted through the worldview of the
person, including emotions, attitudes, values, passed experiences, and as a
result, motivation and action. It affects a lot how and to what we direct our
attention and action in different situations. We want to create situations that
broaden and challenge how a person thinks and helps them to see the
connection between these elements, their actions, and results.
Why is it important to the outcome of Learning Process?
o It is not sufficient to be aware of the problems of the world to achieve
change, you must also understand the causes and possible solutions and
this requires thinking about and understanding many different points of
view. It requires skills, confidence and “shaking” experiences to build
a worldview oriented towards positive changes.
Where does this principle show up in the process?
o Certain experiences, such as doing an exchange, have the intensity to
“shake up” the worldview. Other experiences include:
Having a positive impact on a person
Experiences of failure and success
Forming and exchange ideas with people from different
backgrounds
Intense teamwork experience
3. Meta-cognition and personal reflection skills
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What is it? – refers to the capacity to recognize and evaluate your own
thoughts, values, emotions, motives, goals and actions.
Why is it important to the process?
o These skills allow someone to really take advantage of the AIESEC
experience, since it allows them to analize their actions and those of
others.
o Facilitates the creation and completion of goals
o Facilitates the creation of values and the will to follow them
Where does this principle show up in the process?
o Giving space to reflect on what one has learned or wants to learn
o Giving space to share visions and learning experiences with others
o Through the role of a mentor
4. Increasing Practical and Theoretical Knowledge
What is it? – the opportunity to gain professional and personal skills and to
apply them
Why is it important to the outcome of the learning process?
o With more skills, one increases the capacity to have an impact in the
world
o Fills a flaw in our education system in which most students to know
have the opportunity to gain practical experience
o Learning increases when there is an opportunity to apply and put into
practice what you have learned in theory
Where does this principle show up in the learning process?
o Experience working as a member in the area of public-speaking, sales,
planning, marketing, team management, leadership, budgeting, etc.
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o During the traineeship
o On a theoretical level during conferences or learning activities
5. Creating a network of contacts
What is it – a group of like-minded people who are interested in seeing you make
the change you want to see in the world
Why is it important to the outcome of the AIESEC Learning Process?
o Because it helps to have contacts and support from all of the world
when trying to change it
Where does this principle show up in the AIESEC Learning Process?
o Through running the exchange program and attending conferences you
are put into contact with people from all over the world
o The ability to be in contact with people of similar interest through
learning networks
3.2 ABOUT AIESEC CLUJ NAPOCA
AIESEC Cluj Napoca was established as an initiative of 5 students in 1994. It was
recognized as a legal entity in 1997. Since then it developed, reaching more than 150
members in present, offering more than 70 leadership and 60 exchange opportunities a
year.
AIESEC Cluj Napoca has its own set of values also (SIGPE DACIM):
Sharing Development
Inspiring Action
Getting Connected
Performing Intelligence
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Exploring the Mind
3.2.1 Objectives
AIESEC measures its performance by the following organizational objectives:
Number of Exchanges: Incoming and Outgoing
Number of members that complete a Leadership experience
Number of students that had a Leadership and an Exchange experience as well
Number of Members
In 2005 AIESEC International, together with representatives from each member
country, made a planning for the 2005-2010 period regarding its objectives as follows:
Objective Number
X 8000
Members 40000
Leadership 9600
Exchange and Leadership 5000
Countries and Territories 110
For AIESEC Cluj Napoca, the objectives and some performance indicators are:
Objective/Year 2005 2006 2007 2008 2009 2010
X 36 42 37 51 66 81
Outgoing 29 32 25 35 46 55
Incoming 7 10 12 16 20 26
Members 61 82 74 100 132 162
Member / Exchange 1.69 1.95 2.00 1.96 2.00 2.00
Leadership 35 33 25 34 44 54
Member / Leadership 1.74 2.48 2.96 2.94 3.00 3.00
Exchange and Leadership 5 10 10 17 27 39
% Exchange and Leadership 17.24% 31.25% 40.00% 48.57% 58.70% 70.91%
Growth Ratio 2005 2006 2007 2008 2009 2010
Exchange
16.67% -11.90% 37.84% 29.41% 22.73%
Incoming
10.34% -21.88% 40.00% 31.43% 19.57%
Outgoing
42.86% 20.00% 33.33% 25.00% 30.00%
Members
34.43% -9.76% 35.14% 32.00% 22.73%
Leadership
-5.71% -24.24% 36.00% 29.41% 22.73%
Exchange and Leadership
100.00% 0.00% 70.00% 58.82% 44.44%
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The new Executive Board (the top management) reviewed these objectives,
considering the external reality and the organizational health, and modified them for
their term (15.04.2009 - 15.04.2010) as follows:
Objective Number
Exchange 109
Outgoing 63
Incoming 46
Members 184
Member / Exchange 1.69
Leadership 68
Member / Leadership 2.7
Exchange and Leadership 15
% Exchange and Leadership 23.8%
Financial Reserve €2000
3.2.2 Structure
AIESEC Cluj Napoca has an Executive Board (top management) which has a Local
Committee President, 7 Vice Presidents and an Operational Director. Each vice
president is responsible for one department (area) and the operational director is
responsible for all the projects. The departments are:
Outgoing Exchange
Incoming Exchange Corporate
Incoming Exchange Non-Corporate
Talent Management
External Relations
Communication
Finance
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In some departments there are different teams, coordinated by team leaders. These
teams are responsible for different processes in the department. This structure
supports the core of AIESEC, which differentiates it from other organizations:
integrated leadership, international and learning environment experiences.
3.2.3 Management
In order to manage all the processes and every stage of the AIESEC Experience (the
product), there are some tools and principles which are used.
First of all, in order to offer high quality experiences, the Talent Management
department makes an analysis of the human resource needs, taking into consideration
the objectives, activities and projects. As a result, they create the profile of the
members and the number of students who should be recruited. This is very important
in order to offer relevant opportunities for members who are willing to consume some
parts of the AIESEC Experience.
Another step is to make training and development planning for every quarter, and
standardize development packages for each stage of the AIESEC Experience.
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In order to measure the quality of the experiences on each stage and the satisfaction of
the members (customers), there are some surveys which have to be completed on the
online international platform (www.myaiesec.net) in order to pass from one stage to
the other. This is the same for companies and NGOs who take interns (exchange from
the incoming side) into their organization.
Another tool which measures the activity of each member on each department and
project is used to ensure that everyone has qualitative experiences on their stage:
Member tracking
Member Position Member
Activity Objective Deadline for objective Result
Besides these tools, there are specific tools for planning the activities of each
department and project, in order to assure that everyone, every time has a relevant
experience (product to consume). These include general planning of the organization,
planning of processes on each department, project management tools for projects, etc.
3.3 STRATEGIES
In order to achieve its goals until 2010, AIESEC adopted a differentiation strategy.
This strategy usually implies: strong innovation and marketing, to operate on dynamic
markets, focus on development, innovation and design, high margins, educating the
market and risk taking.
Because every local committee has its own authority, we can speak about focus
differentiation strategy at every local level.
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One aspect of this strategy is that AIESEC Cluj Napoca needs to be always sure about
its product portfolio and the value that products offer. This implies constant evolution
and development of the portfolio and training its members on marketing and sales.
Because of its focus differentiation strategy, AIESEC is aware that the product
(experience) it offers is not desired by everyone.
Another important aspect is the brand. AIESEC needs to have an extremely strong
and reputed brand which transmits the core of AIESEC and the quality of experiences
that offers. This is very important because a strong brand attract talented people and
other organizations towards consuming the AIESEC experience.
In order to support the implementation of
strategy, AIESEC structured its activities in
subsystems. The AIESEC sub-systems model
outlines the core activity & process structure of
the organization. Each of the sub-system is
separate but they are all interdependent on each
other.
The heart of the organization is the vision, nature, role, core-work and values, which
form the organizational identity. The identity gives the organization reason to exist
and defines the unique role that it is playing – “creating impact on society through
development of Change Agents”. The strategy puts the vision into practice.
AIESEC Experience is a unique leadership development experience, which enables
the development of individuals into Change Agents. It is the core-work, the core
deliverable of the organization and defines what happens in the sub-systems.
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The 5 sub-systems of AIESEC create a logical internal system, which is the
mechanism to deliver core-work – The AIESEC Experience. All the 5 sub-systems are
required for AIESEC to be able to respond to the needs of our environment and create
more & more of AIESEC Experiences.
Exchange Management System:
Promotion (Messages & Campaign)
Market Research & Segmentation (& external input)
Product Development
Delivery Process
Marketing/Selling
Internship Preparation
Reception
Adaptation & Integration
Customer Relationship Management (AIESEC involvement & on-going
support during the internship)
Quality Measurement
Re-integration
People System:
Recruitment & Marketing Messages/Campaign
HR planning & allocation (AIESEC‟s Talent Management System)
Selection Criteria & System
Defined Induction Process
Competency Model – defined profile for each position
Member Education Cycle (training & education)
Individual Goal Setting
Capturing personal learning/experience
Member Performance Appraisal
Mentoring
Individual Reward & Recognition
Alumni – H4TF Opportunities
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Transition Tools & Systems
Structure System:
Compendium
Membership Criteria (Local Committee/Members)
Organizational Structure (Local Committee/National Committee/Support
Bodies etc.)
Role & responsibilities of different bodies
Governance – accountability to external bodies
Organizational Planning & Review (Goal setting & planning for the entire
organization – all the different sub-systems)
System of review & assessment (all kinds of performance, health & strategic
indicators)
Organizational Reward & Recognition
Conference Cycle (fitting the Member Education Cycle & the Planning
Process)
Legal Administration
Expansion of the AIESEC network
Information System:
IS Infrastructure
Online Collaboration & Networking
Communication
Membership Management
Business Intelligence (for business management & review)
Aiding individual experience
Education & competence development (e-learning aspect)
Exchange Management
Relationship Management
External Interfaces
Knowledge Management
Help Desk – user support & education
Revenue Generation
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Financial System:
Budgeting & Review
Cash Flow Management
Book-keeping
Diversification of Revenue
Financial Reporting Structure – Audits (internal & external)
Fund-raising
ER products
ER Principles – sharing companies, territories
Financial Reserves Management
Restricted Funds Management
Investments Management
Infrastructure
The visual representation of the strategy, how is going the organization to achieve its
vision, is presented in the strategy map:
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You can also find the destination statement of AIESEC Cluj-Napoca in annex number
5.
The logical flow of all these is that through differentiation, AIESEC will grow and
attract more customers to consume the AIESEC Experience, more companies and
students will join the organization, who will experience different stages of the
AIESEC Experience.
AIESEC is also measuring its performance on the strategy with some Critical Success
Factors and Key Performance Indicators:
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After changing the strategy and the concept in 2005, there appeared changes in the
product packaging and selling methods as well. The differences between the “old
way” and the “experience way” are shown in the table below:
Question Old way of selling The experience way
What is AIESEC?
AIESEC is the world‟s
largest student-run
organization. We are based in
110 countries and our main
focus is to do bi-lateral
exchanges between these
countries.
We provide youth a platform to
discover and develop their potential
to have a positive impact on society.
This platform includes exchange,
leadership opportunities,
conferences, and learning networks.
What does AIESEC
do?
We facilitate a bi-lateral
exchange program between
our 110 countries, these
internships can be in
management, economics,
engineering, social issues etc.
We have a huge base of 5000
students with varied skills
and interest.
AIESEC provides an integrated
development experience which
includes a variety of forms of
learning such as team experiences,
mentorship, personal reflection,
seminars and conferences, and other
ways in which we can grow our own
leadership and connect to a diverse
array of partners.
We also integrate management and
leadership roles in the organization
itself with international internships
which is the key role our 3500
corporate partners around the world
provide as an experience.
Why does AIESEC
do this? To develop leaders.
We believe that this process has
been designed in way, that if a
student goes through this process, he
would have had experience to be a
change agent who provides positive
change in society.
What are the
Benefits you can
offer us?
AIESEC provides you
• Cost-effective
• International perspective
There are 2 types of benefits:
1. Why take an intern?
2. What is the advantage of taking
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• AIESEC takes care of
logistics
an intern through AIESEC?
Why take an intern?
- We offer individuals who are
currently going through a leadership
development experience and thus
their motivation and commitment
would be of the highest quality.
- This would be your opportunity to
connect with students in this city
and work with them in the future.
- An international intern adds a
different perspective in the office
place and thus a more international
culture/work-ethic is formed for the
organization.
(Diversity rather than just
international)
What is the advantage of taking an
intern through AIESEC?
- AIESEC takes care of all the
logistics of bringing the intern.
- Adapting the intern in the
city/culture.
- You choose the kind of intern you
need based on your organizations
requirement/need.
- You also select when and for how
long you need the intern.
- You are the end decision-maker on
selecting the intern you want.
- Our main objective for doing this –
is the opportunity of self
development of the individual and
thus you might perceive these
internships as cost-effective.
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Considering all, we can state that AIESEC differentiates itself from other student
organizations through having good systems, tools, processes and structures
implemented in the organization, which makes it more alike to a corporation, rather
than a student organization. More than that, what differentiates AIESEC from its
competitors is the experience that it offers: leadership experience, international
professional and personal experiences and a global learning environment, all in one
place. AIESEC experience offers a complex frame for development, making contacts,
and gaining professional experience on different functional areas, all in one with
enjoyment of participation.
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CONCLUSION
Today we are facing a lot of challenges. From environmental, through social, to
economical challenges. These challenges force us to be creative, to generate solutions
and to change things.
One strategy that is still very popular (in Romania is the most popular strategy that is
used, if any), is the cost leadership strategy. Being cheap, offering discounts, offering
one more for free, being the cheapest is still popular. The problem with this strategy is
that commodities a firm‟s offerings, and decreases their value.
Another problem with this strategy is that makes customers loyal to the price. Not to
the company, brand, product/service or experience; to the price. This means that if
someone comes tomorrow (and it will!) and offers the same for less money or even
something better for less money, our customers will disappear. The only solution is to
decrease prices more…but where is the limit? Where can we operate on profit? How
can we increase our businesses in terms of customers and profits if we are always
forced to operate at the lowest profit margin possible?
I presented all generic strategies of Michael Porter and the appearance or
transformation of our economy into an experience economy.
The study case demonstrated that a differentiation or differentiation focus strategy can
work. It can work in an NGO that is constantly changing, evaluating and growing for
62 years now. You may think that managing an NGO is different from managing a
business, and it is much easier. The fact is, that every single concept and model that is
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adopted and used in AIESEC, came from the corporate sector. Partners of AIESEC
helped the development and implementation of those business models and strategies.
It makes no difference where we implement strategies. It can be any kind of
organization. The difference between AIESEC and companies is that they are working
for different kind of objectives and they use different motivators.
AIESEC measures its performance in number of members, number of leadership
positions and experiences that are realized, number of exchanges that are realized
(both incoming and outgoing) and number of whole experiences realized (leadership
and exchange by the same person). AIESEC uses mostly non-financial motivators,
because it is a voluntary work.
Companies usually measure their performance in number of clients, number of
products or services sold or experiences staged, return on investment and profits that
were generated. Companies can use all kinds of non-financial motivators and financial
motivators as well.
I am not saying that an overall cost leadership strategy cannot work. There are
examples where companies have success. But I truly believe that we have to start
thinking strategically, on the long term. We have to maintain our competitive
advantages, and for this reason, staging experiences is the answer. Swift from offering
only products and services and transform into “stagers of experiences”. Figure out a
couple of things that we can do better, that differentiates us from our competitors, and
keep doing them better and better every day.
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http://freeforone.com/zakelijk/artikelen/New%20perspective.pdf , accessed at
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https://publications.theseus.fi/bitstream/handle/10024/15751/Kirsi_Eetu.pdf?s
equence=1 , accessed at 18.05.2010
Harnischfeger’s Dramatic Pickup in Cranes, Business Week, August 13, 1979
James H. Gilmore, Frontiers of the experience economy, Batten Briefings,
Darden Graduate School of Business Administration, 2003 autumn, available
at http://www.darden.virginia.edu/batten/pdf/bf_gilmore.pdf , accessed at
18.05.2010
Jeff Bordes, Strategic Management assignment - building and sustaining
competitive advantage, Atlantic International University, Honolulu, 2009
Michael Porter, What is Strategy, Harvard Business Review November-
December, 1996
Joseph Pine II, James H. Gilmore, Welcome to the experience economy,
Harvard Business Review July-August, 1998
Mark van Doorn, An inside story on the experience economy, Philips
Research, 2006 February, Internet: http://www.experience-economy.com/wp-
content/UserFiles/File/InsideStoryOnExperienceEconomy.pdf , accessed at
18.05.2010
Scott Gallagher, Why does firm performance differ? - Business level
strategies, Course support material, James Madison University, 2004, Internet:
http://falcon.jmu.edu/~gallagsr/ , accessed at 06.04.2010
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Simon Clatworthy, Bridging the gap between brand strategy and customer
experience in services: the target experience tool, Oslo School of Architecture
and Design, Oslo, Norway, 2009, Internet:
http://www.aho.no/PageFiles/6819/New/Clatworthy%20Target%20experience
%20final.pdf , accessed at 18.05.2010
Trine Bille, The nordic approach to the experience economy - does it make
sense, Copenhagen Business School, 2010, Internet:
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Approach_to_Experience_Economy_-
_Does_it_make_Sense_Final.pdf?sequence=1 , accessed at 18.05.2010
Videos
Chris Anderson of WIRED on tech's Long Tail
(http://www.ted.com/talks/chris_anderson_of_wired_on_tech_s_long_tail.html
)
Jacek Utko designs to save newspapers
(http://www.ted.com/talks/jacek_utko_asks_can_design_save_the_newspaper.
html)
Jay Walker's library of human imagination
(http://www.ted.com/talks/jay_walker_s_library_of_human_imagination.html)
Jesse Schell: When games invade real life
(http://www.ted.com/talks/jesse_schell_when_games_invade_real_life.html)
Joseph Pine on what consumers want
(http://www.ted.com/talks/lang/eng/joseph_pine_on_what_consumers_want.ht
ml )
Malcolm Gladwell on spaghetti sauce
(http://www.ted.com/talks/malcolm_gladwell_on_spaghetti_sauce.html)
Philip Rosedale on Second Life
(http://www.ted.com/talks/lang/eng/the_inspiration_of_second_life.html)
Seth Godin on standing out
(http://www.ted.com/talks/seth_godin_on_sliced_bread.html)
Seth Godin on the tribes we lead
(http://www.ted.com/talks/seth_godin_on_the_tribes_we_lead.html)
Business Strategies in Experience Economy KACSÓ Szilárd Csaba
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Simon Sinek: How great leaders inspire action
(http://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action.ht
ml)
Sir Ken Robinson: Bring on the learning revolution!
(http://www.ted.com/talks/sir_ken_robinson_bring_on_the_revolution.html)
Viktor Frankl: Why to believe in others
(http://www.ted.com/talks/lang/eng/viktor_frankl_youth_in_search_of_meani
ng.html)
Zach Kaplan and Keith Schacht demo toys from the future
(http://www.ted.com/talks/toys_from_the_future.html)
Internet
http://www.hainescentre.com/strategic-management, accessed at 06.04.2010
http://www.quantifiedmarketing.com/ , accessed at 18.05.2010
http://www.experience-economy.com/ , accessed at 18.05.2010
Online dictionaries and encyclopedias:
http://www.wikiquote.org/
http://www.wikipedia.org/
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ANNEXES
Annex Number 1.
Environmental Variables Checklist66
1. Societal Changes
Changing customer preferences - Impacting product demand or design
Population trends - Impacting distribution, product demand or design
2. Governmental Changes
New legislation - Impacting product costs
New enforcement priorities - Impacting investments, products, demand
3. Economic Changes
Interest rates - Impacting expansion, debt costs
Exchange rates - Impacting domestic and overseas demand, profits
Real personal income changes - Impacting demand
4. Competitive Changes
Adoption of new technologies - Impacting cost position, products quality
New competitors - Impacting prices, market share, contribution margin
Price changes - Impacting market share, contribution margin
New products - Impacting demand, advertising expenditures
5. Supplier Changes
Changes in input costs - Impacting prices, demand, contribution margin
Supply changes - Impacting production processes, investment requirements
66
Power at al., 1986 in Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel, Strategy safari, The Free
Press, New York, 1998
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Changes in number of suppliers - Impacting costs, availability
6. Market Changes
New users of products - Impacting demand, capacity utilization
New markets - Impacting distribution channels, demand, capacity utilization
Product obsolescence - Impacting prices, demand, capacity utilization
Annex number 2
Strengths and Weaknesses Checklist67
1. Marketing
Product quality
Number of product lines
Product differentiation
Market share
Pricing policies
Distribution channels
Promotional programs
Customer service
Marketing research
Advertising
Sales force
2. Research and development
Product R&D capabilities
Process R&D capabilities
67
Power at al., 1986 in Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel, Strategy safari, The Free
Press, New York, 1998
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Pilot plant capabilities
3. Management information systems
Speed and responsiveness
Quality of current information
Expandability
User-oriented system
4. Management team
Skills
Value congruence
Team spirit
Experience
Coordination of effort
5. Operations
Control of raw materials
Production capacity
Production cost structure
Facilities and equipment
Inventory control
Quality control
Energy efficiency
6. Finance
Financial leverage
Operating leverage
Balance sheet ratios
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Stockholder relations
Tax situation
7. Human resources
Employee capabilities
Personnel systems
Employee turnover
Employee morale
Employee development
Annex number 3
Economic Distinctions68
Economic
offering
Commodities Goods Services Experiences
Economy Agrarian Industrial Service Experience
Economic
function
Extract Make Deliver Stage
Nature of
offering
Fungible Tangible Intangible Memorable
Key attribute Natural Standardized Customized Personal
Method of
supply
Stored in bulk Inventoried
after
production
Delivered on
demand
Revealed over
a duration
Seller Trader Manufacturer Provider Stager
Buyer Market User Client Guest
Factors of
demand
Characteristics Features Benefits senstaions
68
Joseph Pine II, James H. Gilmore, The Experience Economy, Harvard Business School Press, Boston,
1999
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Annex number 4
The exchange flow and duration in AIESEC
Action
Optimistic case Pesimistic case
1 AIESEC contacts the company
The company agrees to participate in the program
and fills in a form and makes the job description for
the trainee.
START
2
AIESEC selects possible candidates from its
international database, based on the criteria
established by the company.
3 weeks 8 weeks
3
AIESEC presents 2-3 candidates for the company
(CV, other information), based on the profile
provided by them.
The company selects an intern after finishing the
selection process (usually interview).
1 week 4 weeks
4
AIESEC deals with legal issues (preparing and
sending documentation for visa). After arrival, the
trainee signs a collaboration contract with the
company.
- The company assures all living costs for the trainee
- The company pays all administrative costs for
AIESEC
6 weeks 12 weeks
STARTING the internship
Total 10 weeks 24 weeks
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Annex number 5
Destinations statement of AIESEC Cluj-Napoca