Strategizing for NASA, Part 6: Walmart in China and CAGE Distance

With saturation in the United States market achieved in the 1990’s, Walmart began an aggressive international expansion, targeting China as one of its top priorities to fuel continued growth in the company. Due to its past success, Walmart brought its same Every Day Low Prices strategy to the Chinese market. Yet Walmart has discovered the hard way that its EDLP strategy does not align with the typical Chinese consumer – the flaw was in thinking that the Chinese consumer would be similar to an American consumer in the pursuit of low prices and larger bulk items1. After opening only about 400 stores in China over 20 years, Walmart continues to struggle with its China strategy today2.

Because a future strategy for human spaceflight likely will entail some degree of international cooperation, there is a lesson to be learned from Walmart’s struggles in China. The key lesson is that in any successful strategy involving international partnerships, the strategy must address the following four CAGE dimensions and the degree of difference (“distance”) in the partner pair3:

  • Cultural – Differences in languages, ethnicities, religions, and social norms
  • Administrative – Absence of colonial ties and shared monetary or political associations; political hostility; and differences in government policies
  • Geographic – Physical remoteness; lack of a common border; size of country; differences in transportation and communication networks; differences in climate
  • Economic – Differences in consumer incomes, and differences in cost and quality of resources, infrastructure, and information

Understanding the existence of CAGE distance leads to the insight as to why Walmart is struggling in China. It also leads to the insight as to why most of the United States’ partnerships in space have gravitated towards Canada and European countries – the CAGE distance is small due to common languages, similar government policies, common sizes, close proximity, and similar qualities of resources and economic outcomes. It doesn’t mean that one should only target those countries that are “most like us” for partnerships.  It does mean that strategy must take CAGE distance into account, or else the strategy will end up facing a dire situation similar to Walmart in China.

It is noteworthy to talk about Russia separately. In many respects, Russia is quite far from the United States from a CAGE standpoint – different languages, no colonial ties or shared monetary associations, political associations ranging from hostility to lukewarm, physical remoteness, and large differences in consumer incomes. Clearly, CAGE distance posed a challenge when Russia joined the International Space Station Program in the 1990’s.

To help close the cultural and geographic distance, NASA pursued various techniques. For example, NASA personnel learned the Russian language and spent extended periods of time in Russia, permitting the building of personal relationships that help to close the cultural gap – both of which continue today.  (Similarly, English is pretty universal with the younger generation on the Russian side.)  NASA invested in infrastructure in Moscow for its personnel – toll-free calling lines and dedicated high-speed internet lines – which help to close the geographic distance gap, both by putting NASA personnel in proximity with their Russian counterparts, as well as to keep the ties to home quite close. (And vice versa – Russia has a presence in the control centers here.)  These techniques have helped to reduce the distance in two of the four CAGE dimensions.

As for the other two dimensions, the results are more of a mixed bag. Economic advancement in Russia over the last 20 years has made some improvement in the economic gap, but not enough to achieve parity. Russia is today where the United States was in 1950 from a GDP per capita standpoint4. Mounting tensions in Ukraine are driving a further wedge in administrative distance, as the two countries posture around politically motivated sanctions. Administrative and economic distance remain the biggest hurdles to overcome in the current United States-Russian partnership in human spaceflight.

An ambitious future human spaceflight strategy that seeks to expand international partnerships even further, such as with China, needs to be carefully formulated and adjusted with the four drivers of distance – cultural, administrative, geographic, and economic – for it to be successful. Although there are some successful examples to follow from the United States and Russia experience, any other potential partnership must take into account the unique differences inherent in each partner pair. To fail to heed those differences in formulating strategy will be to repeat the mistakes of Walmart in China, perhaps with much more dire results to the future of human spaceflight.

Next time: Apple and counteracting the forces of technological obsolescence.

 

Previous entries in this series:
Part 1: The United States Postal Service and the Porter Five Forces
Part 2: Disney and the Resources Based View
Part 3: DARPA, Kodak, and Wiring Innovation
Part 4: The FBI and Transformational Change
Part 5: Veridian and the Role of Reputation and Culture

 


1Farhoomand, A. (2006). Walmart Stores: “Every Day Low Prices” in China.  Reprint 06/297. Hong Kong: The Asia Case Research Centre, The University of Hong Kong.

2Trefis Team. (April 2, 2014). Challenges Wal-Mart Faces In Mexico And China. Forbes. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/04/02/challenges-wal-mart-faces-in-mexico-and-china/

3Ghemawat, P. (September 2001). Distance Still Matters: The Hard Reality of Global Expansion. Reprint ROIO8K. Boston, MA: Harvard Business School.

4Adomanis, M. (April 26, 2013). Economically, Russia Is Roughly Where the United States Was In The 1950’s. Forbes. Retrieved from http://www.forbes.com/sites/markadomanis/2013/04/26/economically-russia-is-roughly-where-the-united-states-was-in-the-1950s/

 

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Strategizing for NASA, Part 6: Walmart in China and CAGE Distance

Strategizing for NASA, Part 5: Veridian and the Role of Reputation and Culture

A case study1 of a former company called Veridian shows that reputation and culture when treated as strategic resources can be critical for developing and maintaining a competitive edge. Yet culture can have its darker side, as we in the space business know all too well: culture was a contributing factor to both the Challenger2 and Columbia3 accidents. How is it that reputation and culture can be regarded as strategic resources, rather than as obstacles to overcome in strategy?

Veridian points the way. According to the CEO of Veridian, David Langstaff, the leadership team built a culture on values, promoting “why we choose to do the things we do.” By emphasizing values-based leadership, this strategy brought to the forefront the longer-term interests of Veridian’s customers, employees, suppliers, and shareholders. Such an approach does not arrive overnight or by decree. In the case of Veridian, it required time, nurturing and conscious cultivation by its leaders as the company evolved in pursuit of new business opportunities. From its roots as a company of former rocket scientists to a solutions business, Veridian’s leadership placed a premium on its value proposition and held true to it throughout its existence, even after numerous acquisitions and mergers. As a result, reputation and culture became a competitive advantage for Veridian.

Looking inside NASA, I’ll talk about one human spaceflight organization with a reputation and culture that is familiar to many: the Flight Operations Directorate (FOD), home of the astronaut corps, Mission Control, and the men and women who plan, train, and fly in NASA’s human spaceflight vehicles. FOD’s reputation is as a can-do organization, built upon the legacy of its Apollo forbearers such as Gene Kranz of Apollo 13 fame, and through the astronaut corps who are the rock stars of human spaceflight. The culture of FOD was built over fifty years, where the “steely-eyed” men and women of FOD dealt and lived daily with “numbers that can kill people.” To this day, each person in FOD recognizes that decisions – or lack thereof – can have ultimate consequences.

The Veridian example shows that such a reputation and culture developed over time and with careful nurturing by leadership can become a strategic resource that provides a competitive advantage, when it is built upon the foundation of “why we choose to do the things we do.” Likewise, any strategy for human spaceflight to be successful must recognize that reputation and culture can be a powerful strategic resource if treated properly. Such a treatment must resist the temptation to use reputation and culture as a justification to pursue business as usual, under the premise that “we’ve always been successful doing things the way we do.” Our own experiences in human spaceflight show the fallacy of that argument. The example of Veridian shows that the “why’s” rather than the “what’s” are critical to overcoming organizational inertia and providing a competitive advantage. A future human spaceflight strategy would be wise to heed that.

Next time: Walmart in China and the strategic impacts of cultural, administrative, geographic, and economic differences.

Previous entries in this series:
Part 1: The United States Postal Service and the Porter Five Forces
Part 2: Disney and the Resources Based View
Part 3: DARPA, Kodak, and Wiring Innovation
Part 4: The FBI and Transformational Change

 


1Elias, J., Khurana, R., & Poldony, J. (October 16, 2006). Veridian: Putting a Value on Values. HBS 9-406-028. Boston, MA: Harvard Business School.

2Vaughan, D. (1996). The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. Chicago: University of Chicago Press.

3Columbia Accident Investigation Board. (August 2003). Report Volume I. Washington, DC: Government Printing Office.

 

Strategizing for NASA, Part 5: Veridian and the Role of Reputation and Culture

Strategizing for NASA, Part 4: The FBI and Transformational Change

In response to the terrorist attacks on the World Trade Center on September 11, 2001, the Federal Bureau of Investigation (FBI) began a strategic transformation from a law-enforcement to a threat-focused intelligence agency. A case study1 of the progress in the transformation at the FBI shows how strategic resources propelled by inertia, along with the psychology of loss, can get in the way of executing a transformational strategy. The FBI is still coping with the transformation a decade later, struggling with a shift in emphasis from reactive response by field agents to predictive threat assessments by analysts.

In some sense, the transformation at the FBI loosely resembles the strategic change in human spaceflight at NASA. Under the new strategy for NASA proposed as part of the fiscal year 2011 President’s budget, NASA was directed to discontinue development of the Constellation program (an in-house led program consisting of rockets, capsules, and landers to return humans to the moon) and instead focus its energies on the development of “game-changing technologies” for deep space exploration with no need for a firm destination or mission. This strategy would transform NASA from a destination and mission agency to a technological development agency. This is as big of a shift in strategy and strategic resources as that faced by the FBI over a decade ago.

Drawing parallels from the FBI case, it is clear why human spaceflight is struggling with a transformative change in strategy. Inertia in strategic resources within NASA and Congress, amplified by the sense of loss with the cancellation of the Constellation program, worked as a resistive force to the new strategic direction for human spaceflight. The result of the resistance is clear: the Congress adjusted the strategy and directed NASA to develop a next generation heavy lift rocket called the Space Launch System and a crew capsule called Orion, and the Executive Office shifted policy to direct NASA towards its next deep space human spaceflight mission – an asteroid by 2025. This strategic line still relies upon old business models built around large programs and large operations infrastructures with high fixed costs and low flight rates. To say that this approach is continuing the status quo is putting it lightly, and one could reasonably conclude that this is an outright counteraction to the attempted transformative change in strategy for human spaceflight.

Yet on the flip side, one could point at the commercial cargo and crew programs, where NASA is investing in several commercial companies to provide US domestic space transportation services as examples of transformative change that is actually happening in human spaceflight. Although these are not complete replacements for the activities that a technological development agency would undertake, they are aspects of completely new business models that have the potential to alter how the US accesses space. Recalling from Transactional, Transitional, and Transformative Change that transformative change is complex in number and unpredictable in outcomes, the commercial crew and cargo programs are examples of steps for enacting transformative change in human spaceflight.

Therefore, we have a “glass is half empty / glass is half full” situation, depending on the narrative you wish to support. One could conclude that the new strategic direction for NASA was counteracted due to the inertial forces and sense of loss within the strategic resources, which the leadership failed to account for. One could also rightfully conclude the opposite – that the strategic change in human spaceflight is actually underway and will require a lot more time, perhaps several decades if the FBI example is any indicator. It will be messy, frustrating and expensive to overcome the inertial forces and sense of loss when the status quo is challenged. It may result in something different than the “technological development agency” outcome originally envisioned in 2011.

The lesson here is that inertial effects and the sense of loss with strategic change are powerful resistive forces. A successful strategic direction must take these into account and realize that a lengthy, concerted, and continuous effort by the leadership, rather than “change by proclamation”, is vital to success.

Next time: Veridian and the role of reputation and culture in strategy

Previous entries in this series:
Part 1: The United States Postal Service and the Porter Five Forces
Part 2: Disney and the Resources Based View
Part 3: DARPA, Kodak, and Wiring Innovation


1Gulati, R., Rivkin, J., & Roberto, M. (March 9, 2010). Federal Bureau of Investigation, 2007. HBS 9-710-451. Boston, MA: Harvard Business School.

 

Strategizing for NASA, Part 4: The FBI and Transformational Change