ISM Group 3:

Francis, Jitu,
Ridge & Tina
June 15, 2010
Strategy is the art of creating
value.
It is the way a company links together
Knowledge & relationships
Competencies & customers
... to bring value to customers at a profit
 Value Chain:
The traditional model
Value Value Value Value

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Marketin
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Inbound Marketin
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Productio Marketin
g Distributi Product
Logistics Marketin
n g on or
Marketin
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Marketin Service

Value
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Sales
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Marketin
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Customer
of
traditiona Value
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thinking…
Inbound Marketin
Logistics g

Supplie Compan Service

Custome
r r
Productio
n
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Distributi
on

Value
The right business, the right products and market segments,
the right value-adding activities
 Strategy is the art of creating
 Today...
value.
 Strategy is no longer a matter of positioning a
fixed set of activities along a value chain
 Successful companies don’t just add value, they
reinvent
 Focus it value-creating system itself
is on the
 Different economic actors (suppliers, bu
partners, allies, customers) work together to co-
produce value
 Key strategic task: reconfiguration of roles &
relationships among these constellation of actors
 mobilize the creation of value in new forms and
by new players
 goal: create an improved fit between
competencies & customers
 Successful companies co-produce,
reinvent value through Value
Constellations

Constellations:
Services
Goods
Design
Management
Support
Entertainment
http://www.google.com/imgres?imgurl=http://jeremyfain.files.wordpress.com/2007/07/value-chain.jpg&imgref
 A more simplified
perspective…

From: Trends To:

http://www.talentfirstnetwork.org/wiki/images/8/8f/Tanev1
.png
 From a small Swedish mail order furniture operation into
the world’s largest retailer of home furnishings
 (2009) Revenue Euro 22.71 B; (2008) Employees 127,800 
 (Aug 2009) 301 stores in 37 countries, 12,000
 (Sept 2007-2008) 470 million website visitors

 Winning business formula:

 Simple, high quality Scandinavian design
 Global sourcing of components
 Knock-down furniture kits (customers transport/assemble themselves)
 Huge suburban stores with plenty parking space
 Amenities: coffee shops, restaurants, day-care facilities
Welcome to IKEA!
!
 Lower prices 25%-50% below , passed on to customers:
Low-cost components
Efficient warehousing
Customer self-service

But MORE THAN THE LOW PRICES…

IKEA redefined roles, relationships and organizational
practices of the furniture business
Result: INTEGRATED business system
 Matches competencies of participants efficiently & effectively
 Value reinvented (Family outing destination!)
 Customers: customers not only consume value but they also
create value
More than co-produced furniture, co-produced improvements in
family living
Mobilize them to easily do certain things never done before

 Suppliers: IKEA gets low cost but good quality supplies

worldwide, disperse sourcing (specialization), purchase them in
high volumes, providing technical assistance, leased equipment
towards world quality standards
 Internal: Network of strategically-located huge warehouses (as
logistical control points, consolidation centers, and transit hubs),
efficient product planning & forecasting
 Result: work-sharing, co-producing in creating MORE VALUE per
person
Customers as suppliers (time, labor, info, transport)
Suppliers as customers (of IKEAs business and tech services)
IKEA no longer a retailer but the central star in a CONSTELLATION of
services, goods, design, management, support, entertainment
LOGIC OF VALUE as guiding principle: more than products &
services, companies compete based on “offerings” (e.g. not just
shopping but entertainment)
French Concessions:

Strategy as the way a company links

together
Knowledge & relationships
Competencies & customers
... Use assets and relationships to deliver value
using core competencies
... Keep fit current (enlarge knowledge base
continuously)
... If so large, new knowledge propel
companies into new businesses
... New relationships with new customers
“blossom”
French Concessions:
Compagnie Generale des Eaux
(“Generale”)
(1992) $27B revenue
6th largest French company
Lyonnaise des Eaux Dumez (“Lyonnaise”)
(1992) $18B revenue
11th largest; the biggest private water
company in the world serving 40M
customers in 6 continents
Technologically dynamic and successful
global players
In the water business serving 37M French
French Concessions:
Both have subsidiaries providing cities and
towns with EVERYTHING: heating systems,
sewers, utilities to hazardous waste
treatment, municipal construction, nursing
homes, golf courses, AND funeral services 
Generale: local recreation center (Aqualand)
and cable TV
Lyonnaise: manages the city’s monuments,
art museums, gardens and parks
All these grew organically, but how?
 French understanding of the business
French Concessions:
Unique public service set-up (rooted to 19th century
history)
Production of public infrastructure is private
sector responsibility while the government has
the political responsibility (governance)
Private companies act as concessionaires (e.g. 30
years renewable):
 Project design & specifications
 Capital
 Build the infrastructure
 Manage the assets
 Bear the risks (spare the govt from spiraling debt and
operational waste)
French Concessions:
Effect: Both successfully developed how they
view their COMPETENCIES and their business
strategies
Elevated to: “Urban-systems designer &
outfitter”
Core competency: More than water or
utilities, it’s financial, social, legal,
managerial and technical engineering
“constellations” that ensure SMOOTH
OPERATION of PUBLIC SERVICE
INFRASTRUCTURES.
Their formula:
French Concessions:
Result: customers’ continuously evolving
VALUE CREATION
 Generale’s 2,000 subsidiaries and Lyonnaise’s
720, grouped according to specialization or
metier, richly connected to:
• help services build on each other
• open the door to new services (ad hoc flowering of co-
productive relationships among & between
subsidiaries)
• Now investing on a broader range of
technologies and expertise (going green, going
global, p.214-215)
• LOGIC of PUBLIC RESPONSIBILITY as
guiding principle: continue providing cities &
 Privatization of a State-
Owned Enterprise in the
Philippines
 Feb 1997: (Water crisis) MWSS awarded concession contract to
Manila Water Company (along with Maynilad Water Services, Inc.)
 Manila Water provides water services to more than 1 million
households in the East Concession area through more than 680,000
water service connections and 51,000 sewer service connections.
 More significantly, of the more than five million people connected to the
water network, 1.5 million people or about 230,000 households belong
to the low-income communities.
 With its solid track record of efficiency and financial viability, it is
recognized as one of the most successful public-private partnerships in
the world.
 A listed company in the Philippine Stock Exchange
 Privatization of a State-
Owned Enterprise in the
Philippines
 Privatization of public services = complex changes
in the social, economic, social, regulatory and even
political structures
 Internally: transformation in ownership &
organizational structure, and operations
management
 Key to Manila Water’s success: how transformations
were managed
 Key Challenges
 Regulatory Framework:
 Boracay Island Water: Joint venture with Phil Tourism
Authority (20%); Laguna Water: partnered with Laguna
LGU
 conflict of interest for local politicians, political sensitivities
 Over time, it built its “legitimacy” through its “water for
the community” program (went beyond the 1997
concession contract)
 Managing shareholder/stakeholder expectations
 Greater good vs. selective good
 Quick vs. long-term return
 Future vs. present generation

 Lessons Learned
Lesson #1: It’s not the People (it’s the Process)
Retained 90% of MWSS employees; dispelled
notion that public sector EEs are slow in
response to customer demands
Invested on training & motivation
Corporate Transformation: Empowered &
decentralized
Introduced territory management
Integrity & Performance-based culture
 Execution-Oriented (People, Process and
Structure) Customer Service
 Lessons Learned
Lesson #2 Customer-Focus
Greater understanding of consumer
behaviour & consumption patterns
Addressed Health and Safety needs (schools,
orphanages, hospitals, city jails, markets)
Customer Complaints acknowledged 24
hours, resolved in 2 days
Number of Households Served (in thousands)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

382 418 457 543 634 717 809 909 986 1,032 1,086
Lessons Learned

Lesson #3: Process

Use of Business Systems like SAP (business
management software), CRM, Computer &
Internet Business Systems (CIBS), Business
Process Management (BPM) for process
engineering
Efficiency & ease of use
 Lessons Learned
Lesson #4: Reducing Non-Revenue Water
Not just an engineering solution, but also has
its socio-political dimension
Non-Revenue Water (%)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

53.0% 51.0% 52.0% 54.0% 50.7% 43.4% 35.5% 30.3% 23.9% 19.6% 15.8%

http://www.manilawater.com/section.php?section_id=2&category_id=9&article_id=47
Why is Manila Water as a
value constellation story?
The company’s core competence is not water or
even utilities but rather the financial, social, legal,
managerial, and technical engineering that ensures
the smooth operation of public infrastructures.
The secret of value creation is building a better and
better fit between relationships and knowledge. In
other words, an ever-improving fit between
competency and consumers.
 Thank you!

ISM Group 3:
Francis, Jitu,
Ridge & Tina
June 15, 2010