2 posts tagged “ontario”

One of the key goals of management is to position the company so it can compete effectively. No one has articulated this better than Michael Porter. Michael porter is a business strategy professor at Harvard.

One of the textbook examples of how to position a company is Dell. Dell’s strategy of uniquely serving its customers directly and customizing computers to users needs had been effective since its launch. Dell was able to carve out significant market share that allowed it to grow to a $50 billion dollar company.

But last year Dell was having a hard time competing. HP had come back strong and started taking back some market share. This had forced Michael Dell back to the position of CEO in Jan 31st of this year.

So what does Dell do? They come up with a retail strategy. They start selling computers through Walmart and so far it has been successful. They have plans to expand by selling in other retail outlets.

What does this say about sustainable competitive strategy? This says that there is no such thing as sustainable. A strategy has a finite life. You constantly have to be in touch with the market and customers to satisfy their needs. Your strategy will eventually need tweaking due to market forces, forces such as those that Porter talks about in his five-force analysis of industry. One of those key forces is technology.

Last week was not a good week for Canadian investors. The TSX took a 4.5% hit, from mid July where the S&P/TSX composite index was at 14,500 to closing on Friday July 27th at 13, 884. The primary reason for the sell off was the fear of the sub-prime worries in the U.S.A. Ultimately it will a have a negative ripple effect on the Canadian economy.

But if you analyze the market more closely you’ll realize that since 2003 the TSX has grown from 6,100 to Friday’s close of 13,884. More than doubling in the last five years. So many investors who stayed invested should be still way ahead. Selling now is a mistake. Instead, investors should be buying more, obviously very hard to do. But if you are a prudent investor and not a fly by night trader you don’t really have anything to worry about.

Most entrepreneurs understand the fundamentals of business. By starting and operating a business entrepreneurs realize that companies do not disappear over night. If the fundamentals are there along with a solid management team to weather any storm then you don’t have anything to worry about. A great company always knows what to do in good times and in bad times.

If you think you still should sell your stocks, then read this article first.