1. Suresh Kotha University of Washington Business School Seattle, WA

2. Copyright © Suresh Kotha, 1999-2001
Steinway’s Strategy
Pursuing a niche (focus) strategy (high-end, high price)
Technical Innovations (shaping design of the piano)
Craft Manufacturing
Distinctive Products (one-of-a-kind)
Extensive Marketing and Advertising (shaping preferences)
Artist Endorsements (shaping preferences)
Cultivating the Arts (shaping preferences)
International Competitions (gaining a reputation via design)
Status Symbol (original art)
Leadership through high quality products, technical innovations, winning competitions, craft manufacturing, and astute shaping of the markets
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3. Copyright © Suresh Kotha, 1999-2001
Dimensions of Quality
Features – Secondary characteristics (bells and whistles)
Reliability – Consistency of performance overtime
Conformance – Meet specifications
Durability – Life cycle characteristics
Serviceability – Speed, courtesy, or competence of repair
Response – Characteristics of human to human interface
Aesthetics – Sensory characteristics (sound, feel, look)
Perceived Quality – Reputation and intangibles
Source: Chase & Aquilano, 1998.
Copyright © Suresh Kotha,

4. Steinway’s Reputation
Leadership Position
Benefits to Stakeholders
Marketing
Relationship building
Artists and Artist endorsements - Piano Bank to support artists - Relationship with music Schools - Shaping the elite with Steinway Hall - Commitment to cultural enrichment - Steinways as a White House fixture
Self-Promotion
Identity as a high-quality producer - Steinway as “Art” - Advertising - Promoting Artists and the piano - Emphasize class and status - Piano as investment - High price
Competitive Signaling
- Competitions - Unique design (Steinway system) - Innovations and patents - Price signaling - International expansion
Steinway’s Reputation
Copyright © Suresh Kotha,

5. Copyright © Suresh Kotha, 1999-2001
Meaning of quality
Performance vs Conformance
Unique (Original Art) Numbered Art
Stress Individuality Stress Uniformity
  Tone, voicing, feel Same sound and feel
  Craft Production Assembly Line
  Flexible work force Less flexible
  Artisans Less skilled workers
Design Performance Consistency of output
Each one is different Each one is identical
(Crafted “Rolls Royce”) (“Honda” or a “Toyota”)
What do customers want?
Professional segment (Knowledgeable /Sophisticated)
Affluent segment (Status conscious and uncertain )
Less Affluent buyers
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6. Strategy Formulation Internal to the organization
Can Do
Should do
Strengths and
Weaknesses
Industry Opportunities and Threats
Competitive Strategy
Wheel
Internal to the organization
External to the organization
Personal Values of the Key Implementers
Broader Societal Expectations
Want to do
Right thing to do
Strengths and
Weaknesses

7. Strategy Formulation: Competitive Strategy Wheel
Product
Line
Target
Market
Marketing
Finance
And Control
Goals
Definition of how the business is going to compete
Objectives for profitability, growth market share, social responsiveness, etc.
Research
And Development
Sales
Distribution
Purchasing
Labor
Manufacturing
Source: Porter, 1980

8. Firms Effects Concept of Competencies
Strategic actions build resources and capabilities
Capabilities
Resources
(Tangible and
Intangible) +
Competencies
Firms compete on competencies as much as they do on products
Visible level of competition - product market competition
Invisible level of competition - competency development

9. External
Internal
Industry Structure
(IO Economics)
Firm as a bundle of
resources
and capabilities
Resource based view of the firm (Resources and capabilities set)
Industry context and opportunity set
Institutional
Arena
Music Critics/Journalists
Schools of Music
Professional Artists
Sophisticated Social Elite
Social embeddedness perspective
Where does Steinway & Sons Competitive Advantage Lie?
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10. Options Regarding China
Do Nothing
Marketing Campaign in Mainland China
Start Manufacturing In China
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11. Start Manufacturing In China
Pros
The primary benefit of manufacturing in China appears to be lower cost.
Cons
Risk of negatively impacting our reputation by focusing cost efficiencies.
Risk of demand not developing to warrant a plant.
Lack of trained labor to produce our hand-crafted pianos.
Many competitors (local and foreign) and growing available capacity.
Focus is on price competition and entry-level pianos
Copyright © Suresh Kotha,

12. Copyright © Suresh Kotha, 1999-2001
Key Points
Technical innovations
Commitment and consistency in strategy
Focus, Quality, and Workers
Building Reputation
Shaping customer preferences
Establishing Steinway as the “BEST”
Interactions between markets, capabilities, and institutions
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13. Applicability to Boeing
Shaping customer preferences overtime
Notion of best in your class
Notion and definition of quality
Manufacturing as a source of competitive advantage
Advantages and limitations
Learning – know-how, know-why, and know-what. Where does the knowledge reside and how does one capture it?
Copyright © Suresh Kotha,