Ansoff Lecture Short

8/12/2019 Ansoff Lecture Short

1/33

Igor Ansoff

Corporate StrategyRobert Thavenius


2/33

Three important books

! Chandler, A.D. (1962) Strategy and Structure: Chapters inthe history of the American Industrial Enterprise.

! Igor Ansoff (1965) Corporate Strategy. Business policyfor growth and expansion.

! Learned, E.P., Christensen, C.R., Andrews, K.R. & Guth, W.D.,(1965) Business Policy. Text and cases. Harvard University


3/33

Igor Ansoff

! Igor Ansoff (1918-2002) was born in Vladivostok, Russia and emigratedwith his parents to the United States at the age of 17.

! Despite limited knowledge of English, he graduated at the top of hisclass at New York's elite Stuyvesant High School in 1937. He earned aMaster's degree in Math, Physics and Engineering at Stevens Instituteof Technology in New Jersey.

! In 1948 he received a doctorate in Applied Mathematics at BrownUniversity. He also was awarded five honorary doctorates over theyears.

! After moving to California he joined the Senior Executive Programat UCLA and in 1956 started to work at Lockheed Aircraft Corporationas Vice President of Planning and Director of Diversification.

! In 1963 he started his academic career at The Carnegie Institute ofTechnology in Pittsburgh where he completed the first of five books,the ground-breaking "Corporate Strategy.


4/33

More Ansoff

! Consulted with many multinationals including Philips, GeneralElectric, Gulf, IBM, Sterling Europa, Westinghouse, and KBB(Koninklijke Bijenkorf Beheer) in the Netherlands.

! His written works include:Corporate Strategy 1965Business Strategy 1969Strategic Management 1984The Firm: Meeting the Legacy Challenge 1986The New Corporate Strategy 1989

more than 120 published papers and articles translated intoeight languages.


5/33

Chandlers perspective on American Business Administration

! Before 1900 - the founder of the company led the daily work ofthe organisation, a minimum of administration, one product lineand ad hoc strategy decisions.

! By the 1920s most large industrial companies were administeredthrough a centralized and functionally departmentalized structure.The Chief Executive Officer (CEO) was involved in all majorshort- and long term decisions.

! Focus was on technical issues, cost of production, assembly lineand conveyor belt. The black T-Ford.

! When this way of production became norm, the focus shiftedtowards marketing - General Motors started to compete with Ford

! Later for example: Philip Kotler Strategic Marketing Management


6/33

How to move forward after 1945! The production capacity in US and Sweden was not harmed

by the war and its industries were therefore able to meet the enormousneed articulated on the post-war markets.

! Ansoff, for one, showed that after the war companies concentrated ontheir internal strengths and their development and strategic plans werefocused on expansion only.

! When production capacity in US and Europe grew faster than the existingmarket growth, signs of saturation and profit squeeze appeared.

! Therefore large companies in US and Sweden began choosing either to

expand within existing markets or to diversify.! The need to analyse factors outside the company grow: trends of all sort,

growth rates, political development, competitors, new markets etc


7/33

Forced-growth strategies

! Horizontal - Acquisition of competitors Larger market share.

! Vertical integration Backwards or forwards in the chain of production.

! Geographical expansion Establishing production- or sales organisations in new countries.

! Diversification Diversify into new products and/or branches.

Kenneth Andrews 1987


8/33

Diversification throughMergers and Acquisitions

By the late 1960s growth through the acquisition of enterprises

in distant or unrelated businesses had become almost a mania.

Where in 1965 there were just over 2 000 mergers, by 1969 there

were over 6 000. The number dropped back to 2 861 by 1973.During the period 1963-1972 close to three-fourths of the assets

acquired through merger and acquisition were for product

diversification, and one-half of these were unrelated products.

For the period 1973-1977 one-half of all assets acquired throughmerger and acquisition were in unrelated industries.

Chandler 1962


9/33

From divisions to conglomerate in Sweden 1960 1990

! Volvo (Trucks, Cars, Busses, Penta, IT etc etc)

! Per G. Gyllenhammar (19711993)! Procordia and Pharmacia! Statoil, SAAB and Renault

! New global stragegy focus on your key competences! 1995 Procordia Food AB sold to Norwegian company Orkla! 1999 Volvo Cars sold to Ford! 2000 Volvo Trucks buys Mac Trucks and Renault Trucks


10/33

The managerial revolutionin American business

By the 1950s the managerial firm had becomethe standard form of modern business enterprisein major sectors of the American economy.

In 1963, 169 or 84.5% of the 200 largest nonfinancialcompanies were management controlled.

Chandler 1977


11/33

Structural problems within thefunctionally departmentalised hierarchies

Top managers, company directors and their staff, monitored the activitiesand performance of the middle managers who were responsible for theday-to-day operations of the functional departments.

The top managers supervised and were responsible for all major decisions

relating to optimising the flow of goods to, through and from the enterprise.

However, the more the companies grew the more complicated and complexit became to monitor and lead these processes within existing hierarchicalstructure. Top managers were drowning in a flood of information and

decision-making.

It became necessary to construct a new administrative structure.


12/33

Structural changes

! Publicly owned companies

Shares traded on a national andinternational stock exchange

! Managerial revolution Full-time salaried top managers

Steering the divisions by general roles Strategy decisions

! Multidivisional structure Delegated responsibility Each division steered as a company Profit and loss centre

! Conglomerate


13/33

The dynamic change in world market structure

The post-World War II deluge of technology, the dynamism ofthe world-wide changes in market structure, and the saturationof demand in many major United States industries all havecontributed to a drastic shortening of the strategy-operations-strategy cycle which management used to follow according toChandler !

Strategic change is so rapid that firms must continually surveythe product-market environment in search for diversificationopportunities.

Ansoff 1965 Deluge=Strtflod


14/33

Corporate StrategyBusiness policy for growth and expansion

This interest (for strategy) grew out of a realization that a firm

needs a well-defined scope and growth direction, that objectives

alone do not meet this need, and that additional decision rulesare required if the firm is to have orderly and profitable growth.

Such decision rules and guidelines have been broadly defined

as strategy or, sometimes, as the concept of the firms business.

Ansoff 1965

Ansoffs book from 1965 is full of detailed advice about how tocreate and implement a strategy.


15/33

Time

I n t r o d u c t i o n

G r o w t h

M a t u r i t y

S a t u r a t i o n

D e c l i n e

Sales

Product life cycle


16/33

Time

Prot


17/33

Product Market matrixAnsoff-matrix


18/33

The portfolio of products and services # Market growth and market share #

The Boston Box

Relative Market Share

M a r

k e t G r o w

t h

Low

High

10 1.0 0.1

Wild Cats

Cash Cows Dogs

? Stars


19/33

Market growth and market share

! All wildcats a business with a promising future, if only it had #

income to invest today.

! All stars requires huge investment to keep pace with marketgrowth. For how long will they be stars? #

! All cash cows a business with plenty of cash, but what aboutthe future? #

! All dogs a business that will soon be out of business.


20/33

From divisions to conglomerate in Sweden 1960 1990

! Volvo (Trucks, Cars, Busses, Penta, IT etc etc)! Per G. Gyllenhammar (19711993)! Procordia and Pharmacia! Statoil, SAAB and Renault

! 1995 Procordia Food AB sold to Norwegian company Orkla! 1999 Volvo Cars sold to Ford! 2000 Volvo Trucks buys Mac Trucks and Renault Trucks

New global strategyFocus on your key competences/key success factors


21/33

Key Success Factors orCritical Success Factors

In the process building a new strategy you needto identify a number of critical factors for yourorganisation's success in the time period youhave selected.

Identify the key success factors that yourorganisation must get right in order to secureits vital goal(s).

Although many of these factors are not easilyseparated from their dependency on externalconditions, we shall call them "internal" in thesense that they can be affected by managementdecisions.


22/33

SWOT

Strengths

Weaknesses

Opportunities

Threats

Internal

factors

External

factors


23/33

ndrews SWOT


24/33

Internalappraisal

Strengths and weaknessesof organization

Distinctivecompetences

Externalappraisal

Threats and opportunitiesin environment

Key successfactors

Creation

of strategySocialresponsibility

Ma na ge ria lva lue s

Educationand choiceof strategy

Implementationof strategy

Andrews 1965


25/33

To develop a strategic plan

Objectives (1)Internal

appraisal (2)External

appraisal (3)

Synergystructure (4)

Strategicbudget

Financestrategy (8)

Administrativestrategy (7)

Objectives

Diversificationstrategy (5)

Expansionstrategy (6)

Outsidetrigger

Review trigger

Strategic plan

Source: Ansoff 1965, s. 209.


26/33

Develop your new strategy

Develop new

scenarios

External analysis

Opportunities

Threats

Internal analysisStrengths

Weaknesses

Compare currentstrategy, key

success factorsand goals withnew scenarios

Strategic

gap

Monitor pastperformance

Key success

factors + Goals

Developoptions

Strategicchoice

Implement newstrategy


27/33

Structure follows strategyAlfred Chandler

! True?

! Yes or No?

! Yes and No?


28/33

Interdependence offormulation and implementation

It is convenient from the point of view of orderly study to dividea consideration of corporate strategy, as we have divided it,into aspects of formulation and implementation and to note,for example, the requirement of the former for analytical andconceptual ability and of the latter for administrative skill.

But in real life the processes of formulation and implementationare intertwined.

Feedback from operations gives notice of changing

environmental factors to which strategy should be adjusted.

The formulation of strategy is not finished when implementationbegins.

Learned et al 1965


29/33

Forecasting

In the early days of strategic planning, it was discoveredthat the extrapolative accounting-based informationsystem, typically found in firms, was inadequate andmisleading for forecasting performance in turbulentenvironments. As a result numerous forecasting andenvironmental analysis techniques were developed,designed to capture nonlinearities, complexity, andunpredictability of future environments.

Ansoff 1990, Implanting Strategic Management


30/33

Forecasting OR Scenarios

You can try predictions or forecasts - in fact you must use them forone-year operating plans and budgets. But apart from the fact thatmany of these (on interest rates for example) can be wrong evenshort term, for longer term business strategy if you use forecasts you

will find that almost all of them are wrong. At the time forecasts areannounced they carry an air of definitiveness and clarity: but thatusually turns out to be an illusion.Scenarios, especially when projected long term, say 5-10 years,are not predictions - they are possible pictures of tomorrow. But they

attempt to capture alternative futures, which serves to expand ourstate of mental readiness and flexibility.

Bill Weinstein 2008


31/33

Scenarios External conditions

We need to create pictures, scenarios of the futureto be able to make our choices today, in terms ofinvestments, risk management, when to buy or sell !

The scenarios help us to pinpoint external changesthat will have a vital influence on our business or partof it.

In other words, changes that will have an importantimpact on our key success factors during a certaintime span, and that is out of our reach to control orinfluence.


32/33

Scenario planning

! Schwartz, P. (2007) The art of the long view. Planning for the futurein an uncertain world. Norfolk:John Wiley & Sons.

! Wack, P. (1985a) Scenarios: Uncharted Waters Ahead.

Harvard Business Review, No. 5. www.harvardbusinessreview.com

! Wack, P. (1985b) Scenarios: Shooting the Rapids. HarvardBusiness Review, No. 6. www.harvardbusinessreview.com


33/33

Seminar assignment

Theme: How to formulate a winning strategy for 2013-201X

Questions to answer:

1. Find and analyse the core strategic value of Volvo Trucks and SKFas presented on the companies websites.

2. On the basis of the formulated strategy, give me three good reasonswhy I should invest MSEK100 in one of them.

You choose!

Assignment material:

Material from todays lectureVolvo Trucks & SKF websitesNational and international media, e.g. newspapersOther sources, e.g. investor relations information

Documents

Ansoff Lecture Short