How KFC is now N°2 in the country of the Michelin’s Guide?

France is mainly known for its gastronomy. The best “Chefs” go abroad in the best restaurants from New York to Tokyo. In Paris, you have a huge concentration of 3 Michelin’s stars restaurants  where you can eat the best meals ever prepared.

Otherwise, you have more and more McDonalds! For few years now, you also find more and more KFC.  Why France could be a paradise for American Fast Foods? A Paradox? Some factors allow us to understand :

§                    - Fast-Food sales have increased of 4% in 2012 and 73% since 2005. 

           - A place where you can eat for less than 10 euros is enjoyable in a country in crisis.

                       -  Only 4 fast-foods companies: McDonald, KFC, Quick _ a Belgium firm and Subway in the big cities.

The main reason why Burger King or Quick are failing in developing themselves on the market is that McDonald was the first to enter the market (more than 20 years ago) and is now very strong and well implanted. Basically, they sell sandwiches made with beef.

One company tried to enter this market successfully. It’s KFC. They just opened their 150° restaurant and want to open 150 more for 2017. Their strategy is quite simple:

                          - Using the decrease of Quick to buy strategic emplacement_ quite rare and expansive in the biggest cities

                         - Not doing a low-cost strategy : France is where they do their best margins

            - Selling something different : chicken and not beef

            - Communicate on the “home-made” and fresh chicken

They wanted to be completely different from their main competitor. Results: 3 millions of revenues for Quick and 3,4 million for McDo.

Which company will be the next KFC in France?

Do you motivate your employees with money?

      Of course yes! You pay your employees to do the work and to do it well. You also give rewards when the work has been done perfectly. It means that money is a way to motivate people. But does that mean that you can continuously motivate people with money? Or worst, does that mean that you maybe pay too much your employees? A recent article in the HBR made me think again about this question.

      In this article, Ray Fisman _ The Org : The Underlying Logic of the Office_ deals with an experiment that did some searchers in Germany and Switzerland. He says that the study is “suggesting that economists' focus on cash might often be misplaced”.

The study was very simple: a work for which it’s easy to measure productivity and for which no specific skills are required. They chose "cataloguers in the library". Students were paid 12 euros an hour. They created three groups of students:

-          Group 1 : 12 euros/hour + 7 euros of bonus if they do 3 hours

-          Group 2 : 12 euros/hour and instead of cash, they offer a bottle of water

-          Group 3 : baseline, just paid 12euros/hour

Check the results on this graph:

      Productivity can be increased not only with money but also with gifts. And we can understand that if we think about the margin utility. The labor supply curve slope upwards to the right as it does between the point A and B for example. The margin utility is increasing because for each more hours worked, the employee increases his wage _ money used to enjoy the time he doesn’t work. This will continue until one point (M like Maximum). Beyond this point, he will start to reduce the amount of labor hours he supplies even if the wage is still increasing (point C).

     At one point, the company is losing money and productivity at the same time! How can you still motivate your employees to increase their productivity?

There are many books about it and many specialists who work  for companies  as consultants to motivate people. I will just give some categories of reward/gifts that you can give to your employees to increase their motivation:

-         -  Recognition: A person needs to be part of something. Just some time with croissants in the morning for example or some flowers or whatever on the desk for special occasions

-         -  Responsibilities and Power: Some searchers argue that you can give more power and responsibilities to someone. Even if on the long-term he will ask for more money…

-          - Training : it means that you are taking care about the future of your employee and you want to see him evolving in the company

-          - Gadjets : it can be a cell-phone, a car, an house cleaner, etc…

      But you can do with less money. I know a manager who worked very hard with his team to finish a project. Everyone worked during the weekends and until really late in the evening. The problem: the company did not have any more money to give as reward, or maybe 20 Euros per person. Ridiculous. So, he decided to organize a visit in a beautiful castle around Paris. He managed to do it for free and took all his team to the castle with an Art History’s professor who did the visit. Results: the loved it and were reallu gratefull.

      To conclude, every company should ask themselves if they pay correctly their employees. By “correctly” I mean: Are our employee motivate to work for us?  If not, ask if a wage-increase is the solution. If it’s already higher than the market, try to motivate them using other levers.

PS : Check this very famous video about motivation. More that intersting, it's also very funny and very well done : 

Resource Management: the Next Key Strategy Discipline?

Some resources are increasingly rare. It means that their cost will continuously increase. Have companies taken account of the fact resources will always cost more? Some of them are already thinking about it, like Total awarded about the fact that there will be not more oil in 2050. Other resources like gold, tin and copper will continuously price increased. How companies should dealing with it?

At first, resources need to be considered as an essential production factor. Usually when we read economics books and researchers, the two most important inputs are Capital and Labor. Of course they take in account the others such as Laws and Raw of Material but most of theories considered they are equivalent for every companies of a country. If it’s true for laws, it’s not true anymore for resources. Adam Smith and the early economics considered theses resources as inexhaustible. Nowadays, many economics such as Solow and Stiglitz developed a natural resource economics.

             Resources considered as continuously increasing cost means that production costs will ever-increasing even if some solutions are found to decrease others' costs. On the long term, continuous increasing resource cost will have an impact on the company structure and can be the occasion for companies to take competitive advantages on their competitors.

             We have already seen this situation in our contemporary history. Michel Thiry _ author of Value Management Practice_ gives us the example of industries during the World War II. Shortages of critical resources, such as steel and aluminum, forced manufacturers to use available, seemingly inferior materials and alternate design. He says that “creativity became key”. When the inexpensive products performed better than the originals, value engineering was born.

              So, Innovation can do two simple things:

              1)      Doing more with less

              2)      Doing better with another resource: technology and creativity can be a way to find substitution resources for a company.

        In any case, resource management becomes a key strategy discipline. Focusing on how creating value and risk management is not enough. On this model, we see that basically, the business model is based on these two dimensions.

Resource management will be for many companies the way to create value (profit) or at least to minimize the lost of value.

How dealing with this ever-increasing resource cost? Companies should think about it on two levels:

1)      Short term: doing a serious and rigorous resource audit to avoid any resources wastes.

2)      Long term: re-thinking the product and changing their resources need using R&D and technology.

              Obviously, resource management will become a key strategy discipline and will be considered as important as risk management or supply chain. 

What could managers learn from soccer?

Karl Stark _ co-founders and director of strategic advisory firm focused on growing companies_ have made a very true statement. You don’t learn only about soccer when you watch more and more games but you learn about business as well! Why?

What is the difference between the England’s team and the Brazil’s one? Or we can ask: Which one do you prefer watching? Many of you _except English people of course_ will probably answer “Brazil”. England can be very successful in its achievement by doing the minimum: marking a goal and then defend. But it’s quite boring to watch!

On the other side, you have the Brazil’s team. They want to do the show and not only winning the game. Their style is much more acrobatic than any other team and people love watching them. This difference is called by Stark: “Win _ Win beautifully”. He says that “Winning is not good enough; aim to win beautifully!”

These two team illustrate two different management models. The first one is a team with many good individual players but not playing in team while the second one has maybe not better players on the field but they know how to play together. The team is better that the sum of all the individuals.

How achieving this pragmatically speaking? Stark told us some tips to achieve it:

          - Trust and mutual respect are key to achieving it

          - Find pairs to work together. It also means that it’s maybe better to hire someone with less qualification but who will enjoy working with his team

          - Recognize and reward the team first and not individuals

These ideas are not new and many companies theoretically share these thoughts. Who would disagree? But don’t you remember this game between North Korea and Brazil during the 2010’s World Cup. It was so insane! North Korea marked the first goal and then had perfectly defended against Brazil. It was very difficult for the Brazilians even if at the end of the game they won  2-1 during the last few minutes. It’s another example of how a team can be stronger than individuals even if at the end they lose. Nowadays, we remember how North Korea defended and how it was hard for the Brazilians to win. It means that your management model is not good in itself. To be better at one moment than the others doesn't mean you are better forever. Companies should keep an eye on what do other companies and re-think their model before it's too late.

Watching soccer can be interesting to re-think a management model. Of course there is no perfect model but you can find the model that can match for your organization. Of course, if you prefer rugby or basketball, it also works.

You can follow Karl Stark on twitter : @karlstark

Augmented Reality: Which Business Opportunities ?

Everybody have heard this term and knows that it is a new technology. But few people know what exactly it is or what is its potentiality. Too bad, because plenty of new businesses are possible with it. Actually, almost everything that we do today can be “improved” with the augmented reality (AR). But first, what is augmented reality? The basic definition, according to wikiepdia, is a “live view of physical, real-world environment whose elements are augmented by computer-generated sensory input such as sound, video or graphics”. Like on the picture, you see your real hand with a false toy on it.

People need to think out of the box to get all the potential of it. It’s the case of Oren Jacob who gave an interview to the Stanford University to present his new app on tablet_ ToyPlay. Basically, the app allows a kid to play in live with a character. More than playing, it’s a live conversation that is possible. Oren Jacob says that we need to use all the capabilities of the tablet device to think about new apps. The tablet gets the microphone and a camera and you can touch it. So, you can program a character to interact with you. Here is the video:

There are plenty of business opportunities for using augmented reality. Some sounds not really interesting or maybe dangerous such as the facial recognition in the street. But others seem promising:

1.       Shopping

In front of your computer, you can try all the clothes you want, change the color, etc. We know that the online shopping is still growing. This is definitely the new step in online shopping. You can also imagine how will fix a new furniture in your living room. You just select the product and put your tablet in your living room to see how it looks.

Check this cicso's advertisement : 

2.       Entertainment

It’s quite frustrating to check on our smartphone all the time to get information about something we are seeing . With AR, you just have to put your device in front of the thing you want to learn more about. For example, you can targeting a player on a soccer field and instantly see his performance during the season. In museums, audio guides will not be useful anymore. You can have on your tablet someone explaining to you all the paintings of the museum.

3.       Marketing

The AR can work by using cards that you put in front of a camera. You can imagine giving these cards in the street or a mall or even sending them by mail like catalogues and then people can check on a screen how the product looks like and moving it in all direction to see every angles. 

4.       Training

Airplane pilots already train in a simulator. But these machines are very expensive. With the AR, you can manipulate for example mechanical pieces in a motor again and again before doing it for real.

5.       Advertising

After the “classic” advertisement in the subway with posters, you can see now some videoscreen. The next generation is the AR. Imagine looking at a wall with the advertisement for traveling in the Pacific islands. With AR, you can see the trees moving and the dolphins jumping in the sea.

However, this technology needs a device between our eyes and the real world. The next step is to avoid this device or at least not feeling it anymore. This is the google glasses project. Your screen and your camera are fixed in the glasses. You can see all around you without touching anything. Check this video and after think about all the business opportunities it offers.

Some company should be focused to be successful?

Two professors from the INESAD school in Fontainbleau _ Karan Girotra and Serguei Netessine _ just released an article on the Harvard Business Review. They argue on the fact that the really successful companies are not the ones who try to growth by expansion but the one who focus on what thing that they can do almost perfectly.

We have seen some big companies trying to expand as much as possible following the Keiretsus’ model. Maybe one of the best example is Virgin which try to enter many different kind of markets. We can mention Virgin Atlantic (transatlantic airlines company), Virgin Megastore, Virgin Drinks, Virgin Galactic (space travelling), Virgin Oceanic (scientific ocean exploration), Virgin Books (publishing company) and we could go on. However, even if Virgin is a huge company, it also has to deal with major financial issues. What is characterizing Virgin except the fact that they do almost everything?

There are some companies who have chosen a totally different business model. As the two authors point it out, we can take the example of southern airlines which has only one type of class (economic) and only one type of aircraft (boeing 737). They know how to fix and maintain it. You also have Belron, a Belgium company who is specialized in vehicle glass repair _ now present in 30 countries and hiring more than 25,000 people_ or RedBull who is only making one enerydrink.

Thanks to this focus, these three companies control all their process and they avoid expensive underutilized equipment. However, the best examples still are the Mittelstand companies. It’s the name given to the small and medium-sized companies in Germany which are specialized in one field and which are export-oriented. They employ 70% of Germany’s workforce in private business and contribute 50% of Germany’s gross domestic product (GDP : $3.3 trillion).

Have a look at this  two minutes video that shows an example of Mittelstand company that is making print pincode:

Karan Girotra and Serguei Netessine give us 4 common features:

            1)      “Most Hidden Champions are extremely focused in what they do”.

            2)      “They do one thing but they do it extremely well by achieving tremendous efficiencies”. They can do really cost-competitive and avoid a real new competitor arrival on the market.

            3)      “Lean Management Hierarchy”. As their processes are simplified, their organization is too.

            4)      “International diversified”. Be specialized allow them to export everywhere in the world and to make great economies of scale.

The last point is maybe the most important because if you can produce the best product at the best price, you technically avoid the entrance of any other competitors on your market. We can take the example of Jungbunzlauer. You don’t know them but you already consume them. They are making the acid citric for Coca Cola Worldwide! They are alone and ultra-specialized.

The authors ask: “why don't we see more of these firms?”.  Maybe it’s cultural as they think but there is something in this kind of business model that is very dangerous: to be the best one without any risk of new technology revolution. Any inefficiency in your process let the opportunity to another competitor to enter as says the laws of economics.

So, be focused can be very successful but it also very hard and every company cannot think their business model in that way. However, that doesn’t mean not taking the risk.

Should Women Emailing Like Guys?

The title sounds weird? Isn’t it? You probably asking you : what does it mean emailing like guys? Maria Bartiromo_ a television journalist at CNBC for the Closing Bell program_ thinks having the answer. Indeed, she said that one of her New Year's resolutions was to "start emailing like a guy”.

She explained herself, saying that women tend to write emails with phrases such as “how are you” and “hope all is well, blah, blah, blah before they make their point”. In contrary, men will just give one-word response as “yup”. Emailing like a guy means going straight to the point.

Here is the video. The conversation starts at 6.30.

        But she is not the only one to think this. Deborah Tannen _ American linguist and professor at the Georgetown University_ wrote a book which has been a bestseller in the early 90’s You Just Don’t Understand: Women and Men in Conversation.

In this book, she says for example that “In general, women tend to write longer emails and are more likely to use expression or I am inclined to say emotion” or “Women tend to mix personal talk with work talk”. She says that the hierarchy can be interpreted this as a frivolous behavior. That means she also says that the hierarchy is hold by men. Concerning men, she says that they tend to use sarcasm more frequently than women to make jokes or teasing colleagues. On the other hand, women use it in a negative way.

Her explanation is quite simple and according to me, a little bit naive. If men and women have different communication, it’s because they don’t have the same sociological background. It’s true that most of the kids are raised according to their gender. It’s not a big discovery!

        The problem is that we often do a parallelism between “feminine and woman” and “masculine and men”. These two figures _ “feminine” and “masculine” _ always existed in our culture. The feminine one is taking care of the home and  kids while the masculine one goes hunting and protects the family. And it’s true that during the Neanderthals’ era, it was the case. But nowadays, we should be able to disconnect these conceptual figures with gender! Both men and women are able to take of their kids and earn money.

Otherwise, we will still hear comments such as these in the video below. It’s apparently a class project on the book of Deborah Tannen and they clearly make no differences between these concepts. Results: men have no emotion and women are stupid.

        These kinds of stereotypes are not progress. When Maria Bartiromo says she will write emails like a guy, it’s not the good attitude but it means that there is a real issue that everyone should take in account and not only women. Answering just by some word such as “yup” is not better that asking how the holidays of your colleagues were before asking a professional related question! I do believe that we need both but more importantly, we need to stop judging. I know it sounds very naïve but hearing “Whoa, she is a woman but she talks like a guy” sounds much more stupid to me. Don't you think?

After the « Start-Ups », the « Start-up Cities ».

If you think “Silicon Valley” when you read Star-up Cities”, I’m afraid to say that you should look forward. The journalist who named it in 1971 is now probably retiring! However the first thing I thought when I’ve read “Start-up Cities” was “yes of course Silicon Valley! This is not new!” Of course I was wrong! We still think about our innovative centers such as the Silicon Valley or Sophia-Antipolis in France. But you don't check the new ones.We could find some very good ideas in these new projects. 

Let’s have a look at 4 new huge projects for research and innovation. These are locales that specifically promote and foster entrepreneurial ideas and networking and they look quite impressive!

          1)      The National University of Singapore (NUS)

Singapore _ with its 5.2 millions of inhabitants_ has spent more than $7.5 billion in research and development in 2011. This corresponds to a 2.5% of its GDP. The goal is to reach the 3% to reach the best countries in this field: Japan, Finland, Sweden, Taiwan, and South Korea. The Island grew its software industry to $28 billion last year, according to Bloomberg, and its accolades are stacking up: it came in No.2 in the Forum’s 2012-2013 Global Competitiveness Index, behind Switzerland.

The University now has more than 34,000 students. They just build a hotel on the campus which looks quite good.

The Hotel on the Campus

The General Electric Innovation Center

Inside the University

Outside of the University

With these results, Singapore’s government has a five-year plan to support technological growth and give to Singapore a statue of entrepreneurial hub.

           2)      Startup Canada

Startup Canada is different because it’s not a huge building plan but an non-profit organization. The idea is to create start-up communities dispersed across the North American country. They try to convince people to become entrepreneurs and help them to do so with for example some training events where all the future entrepreneurs can network. According to what we can see on the picture below, there were 25,000 entrepreneurs involved on the project.

           3)      Skolkovo in Russia

Also called the “New Silicon Valley”, this small town has been chosen to become the technological and innovation center of Russia. It will include a research university, a “technopark” to accommodate 1,000 start-ups and 40 research and development centers for corporations. The total planned investment is closed to $1000 million!

Here is one picture showing the future Business School and another one showing some facts and numbers about this impressive project.

The future Business School at Skolkovo

           4)      Aalto University in Helsinki

The last project is maybe more classic but also quite impressive. It’s the fusion of three major schools in Finland: Helsinki School of Economics (Business School), The University School of Science and Technology and the University of Design and Architecture.

In an old warehouse next to the school, students created the Start-Up Sauna, a business accelerator with partial funding from the government where students can network, receive coaching, and plan field trips to Silicon Valley.

This project already gave birth to some very successful company such as Skype and Rovio Entertainment, the company that created Angry Birds!

All these projects are different. We have investment projects with the Singapore University and the Skolkovo technological center, association project to support and help entrepreneurs in Canada and merging project with the University of Aalto. However, it’s absolutely not sure that all these projects will be successful. But still, there are some good ideas that South Europe and the US should think about. Better : thinking about new ideas!

Why doing Good-Better-Best Prices Instead of Finding the Perfect Price?

SeaWorld Orlando Dine with Shamu

I have just learned that what is considered as the best restaurant in the world _el Bulli_ was actually unprofitable. Why? Because the restaurant was only open from June to December for a total of 8000 clients a year. Each client used to pay the same price -$250- for a 25 dishes meal. It means that one dish cost approximately 10 euros! It’s less than a pizza in Madrid! But the restaurant was booked one year in advance (in fact it was booked the before its closure period).

Technically, it means that they didn’t find the equilibrium price. The demand was much more superior that the supply for this price. But the question is : Is finding this price the better solution for a company?

I do believe that Rafi Mohammed is right when he says that “even if you can determine your product's perfect price, you end up in what I call a "Pricing Catch-22": no matter what price you set, you'll inevitably create missed profit opportunities. Some people would have paid more, while others would have purchased if only the price had been lower”.

 

On a graph, it means that you try not to find the perfect price, but you try to do the integral of the demand curve. In that way, you can fix all the demand of your customers.

 

But what does that mean? We can take two examples to illustrate that. Usually, it works quite well for entertaining companies. We can take theme parks such as Sea World Orlando or Disneyland Paris in France. Both of them have an equilibrium price which is about $60 a day and per person. The idea is to find a new offer without changing the product. For Sea World for example, you can choose amongst an array of extra options (more than 17!) such as “animal interactions”, “exclusive tours”, “exclusive dining” and ”quick queue”. The normal admission is $80. With these options you can pay more than $500, just for one ticket!

 

Here is a graph I made showing what is happening. You target all your customers with different offers and different price. Ideally, the park can propose an offer per customer_ which is of course now impossible.

 

Another example is Disneyland Paris. The normal admission is 74 euros. At this price, you have people who buy them without problem (usually foreigners). But you also have the “francilien ticket” at 30 euros. At this price, you have to say which day you are coming at the park. You cannot change the date or the name on it. Doing this, both parks don’t really change their original offer _ they are still theme parks with attractions_ but they find a price for everyone interested by spending a day in the park.

 

With a good-better-best price strategy, you reach some people would have paid more that your original price, while others would have purchased if only the price had been lower. Moreover, customers are more comfortable with this pricing strategy. There is no more this kind of ultimatum: “you take it or you leave”. 

 

With a perfect price strategy, companies are missing significant profit opportunities. Customers are better served and profits are enhanced by serving new customers as well as reaping higher margins with a good-better-best price strategy.

You can read all the theory of Rafi Mohammed, pricing strategy consultant in his bookThe 1% Windfall : How Successful Companies Use Price to Profit and Grow256 pagesHarperBusiness; 1 edition (March 16, 2010)