Managing Strategy Course

7/29/2019 Managing Strategy Course

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Managing Strategy Course

Body of knowledge
http://www.gate.com.ro/


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IntroductionCourse Importance

Though change creates novel combinations of circumstances requiring

unstructured non-repetitive responses, strategic planning is critical to

creating sustainable competitive advantage in media.

By providing a guidepost for a company's ongoing evolution, strategy

provides the necessary information and direction for managers to definetheir workand help their organization remain competitive.

Strategy not operational effectivenessdistinguishes winners from losers. Strategy

hasnt changed, but change has. In todays corporate landscape, change occurs morequickly, so companies have to behave schizophrenically. On one hand, they have to

maintain continuity of strategy and on the other they have to remain focused on

continuous improvement, too.

John P. Owens


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IntroductionCourse Goals

After this course, students will be able to:

Perform situation analysis: company description, market research,competition analysis

Decide and orient strategic position of their companies

Make strategic choices for their company Understand the competitive environment in media industry

Understand how organizations shape constraints and opportunities for

strategy

Develop SWOT analysis Develop an explicit strategic plan, according to the companys vision

and mission, etc


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What is Strategy?

A long term plan of action designed to achieve aparticular goal

The essence of strategy is choosing what NOT todo.

Michael Porter

To do NOT to do


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Flawed Concepts of Strategy

Strategy as aspiration Our strategy is to be #1 or #2

Our strategy is to be the leading newspaper

Strategy as action

Our strategy is to merge Our strategy is to internationalize

Our strategy is to consolidate the industry

Strategy asvision

Strategy as learning

Our strategy is to learn and change


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Competitive Strategy

The worst ERRORin Strategy is to compete with rivals on the SAME

DIMENSIONS

Competitive Strategy aims to establish a profitable and sustainable

position against the forces that determine industry competition

Optimizing competition Strategic competition

Competition

to be

THE BEST

Competition

to be

UNIQUE


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Course Structure

Managing Strategy

II. Situation Analysis III. Value ChainI. Set and Revisit Companys

Aspirations

V. Strategic PositioningIV. Sustaining Competitive

Advantage

VI. Building a Strategy

VII. Implementing Strategy VIII. Growing Strategically IX. Conclusions


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Set and Revisit Companys

Aspirations

Chapter I


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Companys Aspirations

Companys Aspirations

Mission

statement about thecompanys reason for

existence

Vision

statement aboutwhat the companywants to become

1. Fundamental aim

2. Core strength

3. Focus

4. Envisioned future

Strategic

Objectives

measure how it isperforming in key

result areas


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Business Mission & Vision

MISSION VISIONProvides context for

major decisions within

the organization

Describes an enduring

reality

Is capable of infinite

fulfillment (not subject

to a time frame)

Useful for both internal

and external audiences

Guides development of

strategy and organization

Describes an inspiring

new reality

Is achievable within a

specific time period

Primarily useful

internally (also can beused externally)


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Strategic Objectives

Allow a company to measure how it is performing in key

result areasthose areas where the company must achievesuperior results to achieve its long-term strategy

Management must decide how it will measure success

in the key result areas and then set objectives for those

measures


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Measuring Performance

Key ResultArea

Measures Objectives

Cost Cost per unit By end of Year 1, cost per unit will be $0.4 By end of Year 2, cost per unit will be $0.3

Units peremployee peryear

By end of Year 1, units per employee per

year will be 10 million By end of Year 2, units per employee peryear will be 13 million

HR Work time lossper year (hours)

By end of Year 1, work time loss per yearwill be 25 hours

By end of Year 2, work time loss per year

will be 10 hours

Compensations By end of Year 1, compensations will

increase by 10% By end of Year 2, compensations will

increase by 15%


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SMART Objectives

SMART Objective Not-So-SMART Objective

Add 20 new sales agents in the nextthree years who are capable ofselling advertising in the 4 new

launched magazinesYear 1 add 2new people, Year 2 add 9 newpeople, Year 3 add 9 new people.

Add new sales agents who arecapable of selling advertising in the4 new launched magazines (not

specific, measurable, or timebound).

Raise sales 10% annually over thenext three years.

Improve sales over the next year(not specific or measurable).

Reduce average duration ofcustomer service phone calls by30% over the next two years.

Reduce average duration ofcustomer service phone calls by50% over the next year (not likelyachievable or realistic).


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Why Set Aspiration?

Aspirations force forward and discontinuousthinking

Innovative thinking

Growth-oriented thinking

Aspirations establish boundary conditions for strategy

decisions

Aspirations help drive high performance


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Aspiration must engage the entire

organization

Set

aspirations

Draw

implications

Build

momentum

Frontline

Change

agents

Top

management

HeadHeart

Hand

ORGANIZATION


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Step 1: Picture the future

and define aspirations

Step 3: Develop business

plan to create the futureand attain milestones

Step 2: Roll back the futureand define intermediate

milestones

Today

Aspiration Based Planning


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Are we on track toward interim

targets?

What new initiatives must we

take to achieve targets?

What new barriers to

achieving our aspirations

exist?

What new levels of performance

must we achieve?

What new capabilities must webuild?

How has our understanding of

the future changed?

What do changes suggest for

our performance vis--visour

stakeholders?

Revisit the Aspirations

Learning in

the present

Next

Year

3

years

5

years

10

years

20+

years


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Setting the Right Goals

Superior long-term return on investment

Superiority in Return on Invested Capital must be

achieved and sustained

Profitability must be measured realistically, capturing

the actual profits on the full investment

Unrealistic profitability or growth targets can led to

failed strategies


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Situation Analysis

Chapter II


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Purpose of Situation Analysis

Creates a shared understanding of the company andthe environment in which it operates, including:

1. Industry structure

2. Basic facts about competitors

3. Basic facts about customers

4. Assess Companys core capabilities

5. Forces shaping the industry

FOUNDATION for STRATEGY DEVELOPMENT


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1. Industry structure

The fundamental unit of strategic analysis is the industry

Industry Structure Relative Position

Within the Industry

STRATEGY

Company economic

performance


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Industry StructurePorters five forces

BARGAININGPOWER OF

SUPPLIERS

BARGAININGPOWER OF

CUSTOMERS

THREAT OF

SUBSTITUTES

THREAT OF

NEW ENTRANTS

RIVALRY AMONGEXISTING

COMPETITORS


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Industry StructurePorters Six Forces

BARGAININGPOWER OF

SUPPLIERS

BARGAININGPOWER OF

CUSTOMERS

THREAT OF

SUBSTITUTES

AVAILABILITY OF

COMPLEMENTS

RIVALRY AMONG

EXISTING

COMPETITORS

THREAT OFNEW ENTRANTS


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Rivalry Determinants

Industry growth

Fixed costs/value added Intermittent overcapacity

Product differences

Brand identity

Switching costs

Concentration and balance

Informational complexity

Diversity of competitors

Corporate stakes

Exit barriers

RIVALRY AMONG

EXISTING

COMPETITORS


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Entry Barriers

Economies of scale

Proprietary product differences

Brand identity

Switching costs

Capital requirement

Access to distribution

Absolute cost advantages

Government policy

Expected retaliation

THREAT OFNEW ENTRANTS


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Determinants of Supplier Power

Differentiation of inputs

Switching costs of suppliers and firms in the industry

Presence of substitute inputs

Supplier concentration

Importance of volume to supplier Cost relative to total purchases in the industry

Impact of inputs on cost or differentiation

Threat of forward integration relative to threat of backwardintegration by firms in the industry

BARGAINING

POWER OF

SUPPLIERS


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Determinants of Substitution Threat

Relative price performance of substitutes

Switching costs

Buyer propensity to substitute

THREAT OF

SUBSTITUTES


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Determinants of Buyer Power

Bargaining Leverage

Buyer concentration vs. firmconcentration

Buyer volume

Buyer switching costs

relative to firm switchingcosts

Buyer information

Ability to backward integrate

Substitute products

Pull-through

Price sensitivity

Price/total purchases

Product differences

Brand identity

Impact on quality/performance

Buyer profits Decision makers incentives

BARGAINING

POWER OF

CUSTOMERS


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A Sixth Force - Complements

Crucial for a successful strategy is to establish:

Who are your complementors

What is your strategy with respect to them

pay more for your

two products together

than for your productalone plus the otherfirms product alone

Your Complementor

accept less to serve

both of you together

than they would ifsupplying you aloneplus the other firmalone

With respect to clients With respect to suppliers


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2. Basic facts about Competitors

Develop the competitors profile including: Economic performance

Current market positionsuch as share

Core capabilities

Strengths and weaknesses Aspirations

Strategies going forward

Determine the relative value propositionof the clients andcompetitors products and services as perceived by thecustomer


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Basic facts about Competitors - Example

TVR 1

PRO TV

Antena 1

Acasa TV

Prima TV

Realitatea TV

Overall

shareInvestmentsAwareness

Strength ofrelation-ships

Coverage

20%

16%

14%

8%

5%

3.4%

Strong

Weak

Growth

(CAGR 2005-2003)

15%

9%

7%

6%

5%

3%

Profitability

(ROIC)

20%

13%

11%

14%

10%

8%

Strengths Weakness


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Defining Value Proposition

clear, simple statement of the perceived benefits aproduct or service will provide to its target customersand the perceived price (cost) of those benefits

WhatCustomers?

WhichNeeds?

What Relative

Price

Which products?

Which features?

Which services?

What end users?

What channels?


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3. Basic facts about Customers

A. Understand customer behavior

Focus Groups

Industry quantitative studies (e.g. SNA for Media)

B. Segment the customer Base Is important especially for your business clients (advertisers)

C. Assess attractiveness of different segments


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A. Understand Customer behavior

Personal spending on press

in the last month

(000 persons)

% of total urban

population

More than RON 50 324 3.6

20.1-50 RON 1164 12.9

10.1-20 RON 1912 21.1

6.1-10 RON 1974 21.8

2.1-6 RON 1560 17.3

0.1-2 RON 678 7.5

0 RON 1292 14.3


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B. Segment the Customer Base

Segmentatio

n approaches

Constraints

Perceptions

Needs

Behaviors

Relationship

Occasions Firmographics

ProfitabilityAttitudes

How is the customer'sorganization

characterized?

What does the customer

do in the marketplace?

Which key aspects have

defined the customer's

lifecycle?

How financially sound isthe relationship with the

customer?

How does thecustomer respond to

different situations?

Which limitations are

impacting the

customer's actions?

What does the customer

believe about the

marketplace?

What underlying beliefsare shaping the

customer's mindset?

What value does thecustomer require or want?


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Segmentation Techniques (1)Approach

Firmographics

Behaviors

Relationship

Profitability

As a first cut to understand

relative penetration across businesscategories

During sales process

As a first-level segmentation inbusiness-to-business markets

As a quick proxy to test range of

customer needs

As a test of marketing effectivenessTo identify likely cross-selling targets

As a broad tool for classifyingopportunities with customers

To anticipate needs across life-cycleTo pinpoint retention problems

across tenure groups

As a key tool to target a moreprofitable mix of customers

To upgrade the profitability ofcustomer accounts

To quantify the impact of marketingprograms over time

When to use Key insights

Data easy to obtain Companies with similar firmographics

can have very different needs andrelationship profitability

One of the best methods forsegmentation in business-to-business

Do not place too much emphasis oninternal client behavioral information

Accurate data can be hard to find

Key drivers of customer profitabilityare loyalty and retention

Account relationship segmentation canyield quick insights that can boost salesforce productivity

Back-of-the-envelope profitability canbe wrong or misleading

Building solid customer economicstakes time

Data can be hard to find

Data source

Third party databases Industry trade assoc. Customer information

files

Customer informationfiles

Custom market research






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Segmentation Techniques (2)Approach

Needs

Attitudes

Perceptions

Constraints

Occasions

As a primary input into the

development of the value required orwanted

As a supplement to needs-based

segmentation

As a means to uncover latent needs that

the customer cannot articulate

To identify customers who are atdifferent satisfaction levels

To generate key insights into brand

strategy

In combination with behavioral and

needs-based segmentation approaches

to fully understand factors which may

be limiting a customers market actions

When customers are likely to behave

differently in different situations

When the marketer is interested in

creating multi-mode marketing

programs

Key insights

Must consider needs of multiple decision-

makers and influencers

Most useful when high emotional

components are present (consulting)

A customers perception is their reality Can provide useful insights into market

opportunities, but should not provide the

basis of segmentation

Some constraints are more evident than

othersdefining constraints is a powerful

tool for business expansion

Popular in consumer marketing

Can surface insights for productdevelopment/marketing communications





Team brainstorming

Account rep interviews

Historical account data


Data sourceWhen to use


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C. Assess attractiveness of different segments

Relative price points

ROICs per segment

Cost to serve

Size of addressable customer base

Volume usage

Price

Customer demographics

Unit volume growthPrice trends

Segmentattractiveness

How large are thesegments?

What are the

growthexpectations?

How profitableare the segments?


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4. Assess Companys Core Capabilities

Operational skills

Privileged assets

Growth-enabling

skills

Special

relationships

CORE

CAPABILITIES


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Operational Skills

STEP 1Generate an initial list of specific skills and

knowledge needed to drive the business system

STEP 2

Validate each item against three measures:

Drives value

Superiority

Sustainability


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Privileged Assets - Examples

Example

Distribution network

Brands and

reputations

Customer information

Conferred advantage

Increase sales of existing productsand services

Reduce the cost of new productlaunches

Extend brand to launch productswithout threatening credibility ofcurrent business

Maximize sales


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Growth-enabling Skills

Example

Acquisition and post-

merger management

Financing and riskmanagement

Capital management

People

development

Conferred advantage

Save costsAccelerate growth

Advance along promising growth pathsthat are too costly or risky for competitorsto follow

Enables managers to make a commercial

success of projects that other companiesmight reject because of poor returns

Consistently develop managers who buildnew businesses


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Special Relationships

Right to bid

Access

Right to match

Right to win

Efficiency Influence/ power

Source of privilege

Degreeofprivilege


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5. Forces Shaping the Industry

INDUSTRY

REGULATION

d


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Demand

Demand

Latent demand

Existing demand

Future demand

TimeToday

l i


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Regulation

be aware of your industry governmental regulation

State commissions set rates, approve investments, and

affect number and size of competitors

Government licenses delivery channel and regulates

content

T h l


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Technology

technological change implies

INNOVATIONCosts

Total costs

Variable costs

Total costs

Variable costs

Time

New technology

Old technology

Abandonment

of old

technology

Likely time of

introduction

Blitzkrieg

with new

technology

Earliest time

of

introduction
http://www.gate.com.ro/http://www.gate.com.ro/


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Value Chain

Chapter III

V l Ch i


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Value Chain

Role: disaggregates a firm into its strategically relevant

activities in order to identify and understand sources of

competitive advantages

The value chain is unique to each business

Competing in a business involves performing a set of discreteactivities, in

whichcompetitive advantage resides


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Identifying the Value Chain

Value

What buyers

are willing to

paySupport

Activities

Primary Activities

V l Ch i P i A i i i


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Value Chain Primary Activities

1. Inbound logistics

2. Operations

3. Outbound logistics

4. Marketing and sales

5.After-Sales Service

V l Ch i S A i i i


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Value Chain Support Activities

1. Procurement

2.Technology Development

3. Human Resource Management

4. Firm Infrastructure

Li k i hi h V l Ch i


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Linkages within the Value Chain

Linkages are relationships between the way one value activity is

performed and the cost or performance on another

Why do linkages occur?

The same function can be performed in different ways

The cost or performance of direct activities is improved by greater efforts inindirect activitiesActivities performed inside a firm reduce the need to demonstrate, explain or

service a product in the field

Quality assurance functions can be performed in different ways.

Important: Linkages exist not only within firms value chain but between

firms chain and the chains of firms suppliers, customers, competitors, etc

Configuring Internal Activities for Advantage


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Configuring Internal Activities for Advantage

Example - Dell

V l Ch i & Li k


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Value Chain & Linkages

V l Ch i A li ti


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Value Chain - Application

Configure your own company Internal Activities for

Advantage and identify linkages among value

activities!


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Sustaining Competitive Advantage

Chapter IV

C p titi Ad t


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Competitive Advantage

Generating a new source of competitive advantage is the ultimate

act of creativity in business

Creating advantage is an art, not a science

But not a black art

As in all arts, the process matters a great deal

Respond to and act on the outside world

Build in internal consistency from the start

Personal traits and habits also matter

Balance between creativity and analysis

Courage to do something different

S r f C mp titi Ad nt


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Sources of Competitive Advantage

Structural

Advantage

Frontline

Execution

Insight /

Foresight

Cost

AdvantageDifferentiationPorters Sources of

Competitive Advantage

Str ct ral Ad antage


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Structural Advantage

Output increases and average costs fall

Company size increases and risk is diversified

Transaction costs and risks are very high

Frequency of transactions is recurrent and asset

specificity is high

Limited access to:

Privileged locations

Intellectual property

Regulatory rights

Distribution networks

Brands and reputations

Customer information

Economies of

scale

Vertical Market

Failure

Privileged Assets

Frontline Execution


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Frontline ExecutionProduct/service

Characteristics

RangeComplexityLife cycle

Process

Requirements

Product/servicedevelopmentLogisticsSales/marketingrequirements

Environmental

Requirements

SeasonalityService expectationsMarket share stability

Complex order management and scheduling systems

Skilled management of inbound flows

Flexible operations and supply chain/service factory design Unique skills and expertise requirements for service

operations

Skilled project management

Flexible capacity utilization

Customer satisfaction measurement and feedback

mechanisms

Sales force coverage, talent and training requirements

Information systems to assess profitability of segment

customers

Build-in-advance requirements

Delivery and inventory requirements

Distribution configuration

Capacity planning and utilization

Insight/Foresight
http://www.gate.com.ro/http://www.gate.com.ro/http://www.gate.com.ro/


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Insight/Foresight

High degree of

uncertainty

Large value placed on

innovation

Difficult/impossible to

develop or sustain

structural or

executional advantage

Allows business units to identify ways to eliminate,

reduce or manage the uncertainty company faces, e.g.,

high tech, telecommunications, electric utilities

Helps companies understand the real drivers of value for

customers, which allows them to identify and launch

successful new products and services, e.g., software, new

technologies, fashion

helps to understand relationships among different

variables and draw out key implications, e.g., industries

which make complex marketing and pricing decisions

In todays faster-moving environments, these elements

are less and less to be relied on

Significant advantage

to see new

relationships among

sets of variables

Cost Advantage Analysis (1)


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1. Identify the appropriate value chain and assign costs and assets

to it

2. Diagnose the cost drivers of each value activity and how they

interact

3. Identify competitor value chains, and determine the relative cost

of competitors and the sources of cost differences



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4. Develop a strategy to lower relative cost position through

controlling cost drivers or reconfiguring the value chain

5. Ensure that cost reduction efforts do not erode differentiation

6.Test the cost reduction strategy for sustainability

Gain cost advantage by:

Controlling cost drivers

Reconfiguring the value chain

Distribution of Operating Costs


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Distribution of Operating Costs

OPERATING COSTS

HR Management (2%)

Procurement (1%)

Firm Infrastructure (9%)

Technology Development (9%)

1%

Inbound

logistics

(3%)

Operations (67%) Outbound

logistics

(1%)Marketing

& Sales

(6%)

Service (1%)

Margin(5%)

Purchased operating inputs

Human Resource costs

27%

40%

Distribution Assets


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Distribution Assets

ASSETS

Firm Infrastructure

HR Management

(1%)

(16%)

(2%)

Inbound

logistics

(8%)

Operations (46%) Outbound

logistics

(20%)Marketing

& Sales

(6%)

Service (2%)

Liquid Assets

Fixed Assets

(38%)

Technology Development

(2%)

Procurement (1%)

(8%)

(6%) (15%)

(5%)

Differentiation Drivers of Uniqueness


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DifferentiationDrivers of Uniqueness

Policy choices

Linkages within value chain, with suppliers, customers,

competitors, etc

Timing

Location

Interrelationships

Learning

Integration

Scale Institutional Factors

Routes of Differentiation


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Routes of Differentiation

Proliferate the sources of differentiation in the value chain

Make actual product use consistent intended use (understand

buyers needs and modify product accordingly)

Employ signals of value to reinforce differentiation on use criteria

(advertising) Exploit all sources of differentiation that are not costly

Reduce cost in activities that do not affect buyer value

Shift the decision maker to make a firms uniqueness morevaluable, etc

Steps in Differentiation (1)


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1. Determine who the real buyer is

2. Identify the buyers value chain and firms impact on it

3. Determine ranked buyer purchasing criteria



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4. Assess the existing and potential sources of uniqueness in a

firms value chain

5. Identify cost of existing and potential sources of

differentiation

6. Choose the configuration of activities that creates the most

valuable differentiation for the buyer relative to cost of

differentiation

7. Test the differentiation strategy for sustainability

Ranked Buyer Purchase Criteria - Example


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Ranked Buyer Purchase Criteria - Example

Content

Format

Layout

Price

SubscriptionFrequency

Advertising

Distribution

Market position

Display in stores

Availability

Speed of

distribution

Online version

Promotionalsupport

Reliability

Audience

Sales per issue

Online

community

Signaling CriteriaUse Criteria

End User

Channels

Activities that Influence Buyer purchase


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criteria

USERC

RITERIA

SIGNALING

CRITER

IA

Conformance to

specifications

Delivery

time

Features

Sales force

quality

Sales aids

Attractiveness

of facilities

x

x

x

x

x

x

x x

x

x

x x

x

x x

x

x

x

x



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1. Micro level: Analyzing and anticipating individual players,

especially competitors

2. Macro level: Understanding and responding to generic threats to

advantage

3. Overarching: Designing strategy for robustness and organization

for ability to learn and to make tradeoffs

Slack

Imitation

Holdup

Substitution

Hints to Sustaining Competitive Advantage


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Hints to Sustaining Competitive Advantage

Attacked competitors indirectly, placed them on the horns of a

dilemma Vision the future and the industry shape

Fly below the radar screen until will be too late for

competitors

Made clear tradeoffs (it will make your strategy sustainableagainst imitation)

Be always a second faster than your competition

Be unique

Learn from your and competitors success and failure

Key tests to Effective Competitive Strategies
http://www.gate.com.ro/http://www.gate.com.ro/http://www.gate.com.ro/


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Key tests to Effective Competitive Strategies

1. External consistency: Does the strategy tap the opportunities

and neutralize the threats posed by the outside world in a uniquemanner? Driven by outside opportunities and threats

Systemic change possible

Explicit recognition of what company is not doing

2. Internal consistency: Do the parts of the strategy fit togetherto form a whole that is greater than the sum of the parts?

3. Dynamic consistency: Does the strategy call on the companyto do today what is necessary to succeed tomorrow? Responsive to discontinuous changes in outside world

Example Internal Consistency at Dell


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Example Internal Consistency at Dell


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Strategic Positioning

Chapter V

What is Strategic Posture?


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What is Strategic Posture?

Strategic Posture is a choice a company makesabout how the company will interact with its industry

environment

Choices for Strategic Postures
http://onegoodmove.org/1gm/images/choice.jpghttp://www.gate.com.ro/


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Choices for Strategic PosturesShape the future

Reserve the

right to play

?

Adapt the fastest

Exit

Play a leadership role inestablishing how the industry

operates

Win through speed, agility, andflexibility in recognizing andcapturing opportunities

Decide not to participate inthe business going forward

Invest sufficiently to stay inthe game, but avoidpremature commitments

Examples


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Examples

Shaping Strategy Intel, Microsoft, Nike, Oracle, McDonalds

Adapter Strategy

Conair, Compaq, Hutchinson Technology, BritishAirways

Reserve the right to play Flexor (Chemicals)

Exit strategy Monsanto (Chemicals)

Why Choose a Strategic Posture?


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Why Choose a Strategic Posture?

Captures unrealized strategic headroom Explicit consideration of all possibilities, not only adapter strategies

Encouragement for outside-the-box thinking

Enables consistency of strategy conduct Setting the stage for selecting specific strategy building blocks

Making it simple to move decisively and consistently

Strengthens organizational commitment to action Making aspirations actionable

Alignment of individual mindsets throughout company

How to Choose a Strategic Posture?


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How to Choose a Strategic Posture?

Expandthe Solution

Space

UncertaintyAnalyze Feasibility

and Fit with

Aspirations

The chosen posture should

fit both internal capabilitiesand a companys overall

aspirations

Identify opportunities/

levers for change both inthe industry structure andbusiness system. Considerall the possibilities

It is critical to evaluate the

impact of uncertainty onthe choice of posture

Strategic Position on the market has to be in accordance with

business scope and value proposition!

Expand the Solution Space


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Expand the Solution Space

Change the

industry

structure

Change industry structure through:

combination of previously distinct pieces of the valuechainseparation of previously linked pieces of the value chainbreakup of a portfolio of related businessesMolding industry evolution to create value for web and

for themselves

Un-bundle the business into 3 distinct businesses:

Customer relationship management

Product/service innovationInfrastructure management

Rethink the

businesssystem

UncertaintyWhen Shape?


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y W p

Shape based on insights about impact of actions in the future,sometimes increasing uncertainty

Shape based on insights about how to increase prospects of

an attractive scenario

Shape based on insights about how to influence industry infavorable direction

Shape based on insight about how to lead others who areparalyzed by uncertainty

Clear future

Alternative

futures

Range of

futures

True

ambiguity

UncertaintyWhen to Adapt?


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y p

Clear future

Alternative

futures

Range of

futures

True

ambiguity

Traditional gamemodest upside and risk; limitedreturns

Possible, but often not an optimal strategy

Key is building organizational capabilities to recognizeand capture opportunities

UncertaintyWhen to Reserve the Right


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to play?

Clear future

Alternative

futures

Range of

futures

True

ambiguity

Unlikely to make sense (because there is little to learn

about the future)

Often a good approach (because there is a lot to learnabout the future), if you can gain an edge on others or

gain better insight

Easy to decide to do, but others likely to do the same,

leaving little chance to gain advantage

Analyze Feasibility and fit with Aspirations


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y y pAdaptShape Reserve the right to play

?

Whatintern

al

capabilitiesdowe

need?

Doesposture

matchwith

aspirations?

Operational excellence

along shaping dimensions

High risk tolerance

Potentially deep pockets

Strong project/option

management skills

Broad market/competitive intelligence

Very flexible and fast

organization

High comfort withambiguity

Large risk appetite Top management

commitment to ambitiousaspirations

Preparation for posturecommitment onceuncertainty is resolved

Top managementcommitment to right to playvs. right to lose?

Achievability of stretchtargets

Top managementcommitment toadaptability

Strategic Positioning - Application


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g g pp

What STRATEGIC POSTURE is suitable foryour company?

Motivate the answer


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Building a Strategy

Chapter VI

Strategic Planning


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g g

... Is primary vehicle for achieving strategic alignment acrossan organization and ensuring the effective implementation

of a company's strategy

Strategic planning is an iterative process that takes time andrequires a series of back-and-forth communications betweensenior management and units, whereby all parties examine,discuss, and refine the plan

Strategic Planning Process


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g g

1. SituationAnalysis

2. SWOT 3. PriorityIssues

4. High-levelAction Plans

Industry structure Competitors

Customers Company Forces shaping the

industry

StrengthsWeaknesses

OpportunitiesThreats

Broad areasto focus on

Detail theobjectives, tasks, and

requirements neededto carry out astrategic initiative

5. Finalizing

Strategic Plan

2. Performing SWOT Analysis


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g y

Strengths

Weaknesses

Opportunities Threats COMPANY

Performing SWOT Analysis


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g y

1. Brainstorm a company or unit's strengths

2. Consolidate ideas

3. Clarify ideas

4. Identify the top three strengths

5. Repeat Steps 1-4 for Weaknesses, Opportunities, and

Threats

3. Determining Priority Issues


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g y

1. Review the results of the SWOT analysis and

identified Competitive Advantages

2. Identify priority issues (aiming at gaining or sustaining

Competitive Advantage)

3. Elicit discussionto ensure that each proposed

priority issue is clear

4. Vote on priority issues

4. High-level Action Plan Structure


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g

1. A description of the priority issue and why it's important

2. Objectives expressed in specific metrics and time frames

3. Key steps involved in achieving the priority issue

4. Resources required

5. Interlocking requirements involving other units

6. Anticipated cost and gain

High-level Action Plan - Resources


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g

How will the strategic initiative impact the group's ongoing day-to-day

work?

Can the existing resources cover strategic initiative action plans in

addition to business-as-usual?

If not, what additional resources will the unit need? With what expertise

and skills?

What new skills will people need to carry out a strategic initiative?

What training will be required? At what cost?

What new systems or technology will be required to support the initiative?

At what cost?

High-level Action Plan - Interlocks


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g

Most units don't work in isolation to accomplish their objectives.They need to collaborate with othersboth inside as well asoutside the company

When cross-functional teams are created, it must be developed acharter that outlines the roles, responsibilities, key milestones,deliverables, and decision-making processes of the group

High-level Action PlanCost & Gain


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g

Present a concrete value of investment

Estimate all costs involved

Present the revenue plan, as a result of this

strategic scheme

High-level Action PlanExample (1)


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1. Unit: Printing

2. Priority issue: Long-range capacity plan

Description: Build new facilities and purchase modern technology that willincrease printing capacity to produce higher unit volume at lower cost.

Strategic Importance: Our current capacity will not allow us to meetmarket demand or achieve our strategic objective of increasing market share.

3. Objectives and metrics: Develop long-range printing facilities that will:meet forecast demand from 2008-2013 and achieve dramatic

improvement in quality, cost, and customer service Year 1: Complete design phase and begin construction by year-end

Year 2: Complete construction, purchase modern technology and start-upproduction by year-end

Year 3: Achieve initial running rate of 525 million units a year at a cost of$.270 per unit



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4. StepsYear 1

What Who When

Establish design specifications Printing team; Engineering leads January 2008

Approve specifications Senior management February 2008

Flow-chart and system design;costing

Printing team; Engineering and Financelead

June 2008

Detailed drawings for bidpurposes; costing

Printing team; Engineering and Financelead

August 2008

Approval Senior management August 2008

Bids Purchasing and construction October 2008

Construction starts Construction team November 2008


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7. Impact estimate:

Cost: Expense capital = $125 millionCapital = $125 millionEquipment = $250 million

Total investment = $500 million

Revenue:

(new printing

house)

Yr 1 Yr 3 Yr 5

Price/unit $.425 $.400 $.350

Cost/unit $.325 $.270 $.180

Units 177M 525M 700M

Revenue $75M $210M $500M

High-Level Action Plan - Review


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1. Check in informally

2. Report regularly

3. Conduct quarterly reviews

5. Strategic Plan


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NOW, PUT IT ALL TOGETHER!

The Elements of a Strategic Plan


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1. Direction statement (Mission, Vision, Business

definition, Competitive Advantages, Core competencies)

2. Strategic objectives

3. Priority issues (Achieving and Sustaining CompetitiveAdvantage)

4. Action plans (briefly describe the specific steps thecompany needs to take in order to achieve its objectives)

Porters Five Tests of a Sound Strategy


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1. Aunique value proposition compared to competitors

2. Adifferent, tailored value chain

3. Clear tradeoffs, and choosing what not to do

4. Activities that fit together and reinforce each other

5. Continuity of position with continual improvement

Continuity of Strategy


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Continuity of strategy is fundamental to sustainablecompetitive advantage

Reinvention and frequent shifts in direction are costlyand confuse the customer, the industry and theorganization

Continuity is required invalue proposition

Successful companies continuously improve in how theyrealize their strategy

Continuity of strategy allows learning and change to befaster and more effective


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Implementing Strategy

Chapter VII

Action Plans Execution - Example


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Year 1What Who When

Conduct market research to assesscustomer needs

Marketing team January 2009

Synthesize market research, create report Outside consulting March 2009

Create product concept (content, design) Marketing and ProductDevelopment teams

April 2009

Design product Product Development team May 2009

Test the product prototype on targetedmarket

Marketing teams July 2009

Action Plans Execution


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Get input from people in the Action PlanExecution!

Communication is the key of successful execution.

Evaluating Performance Criteria


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1. Quantifiable criteria of evaluation(sales, units, etc)

2. Qualitative criteria evaluation

Going the extra mile

Creativity Teamwork

Presentation skills

Planning

Knowledge and learning

Attitudes and values, etc

Rewarding Performance Criteria


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Financial reward (salaries, bonuses, stock options) Recognition

Intellectual challenge

Power and influence

Affiliation

Managing people

Positioning

Lifestyle Autonomy

Variety

Key Secret of a Successful Strategy


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Build Competitive Advantage!

Execution Challenges Categories


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Build strategic-thinking advantage

Build operations-based advantage Pursue multi-year, programmatic change

STRATEGIC INTENSITYLow High

High

Low

Nature and level of uncertaintyStrategic posture, Customer/channel, competitive and

regulatory issues

Product/servicecharacteristics

Processrequirements

Environmentalrequirements

OPERATIONAL

INTENSITY

Simple operational requirements Single, simple product/service with stable life

cycle Minimal supply chain challenges Easy service expectations

Low strategic intensity

Predictable environmentAdapting strategic posture Minimal customer acceptance and

competitive challenges

Simple operational requirements Single, simple product/service with stable life

cycle Minimal supply chain challenges Easy service expectations

High strategic intensity

Highly unpredictable environment Shaping strategic posture Significant customer acceptance and

competitive challenges

Significant operational requirements Multiple and complex product/service offering

Highly responsive, efficient and flexible supplychain Demanding service expectations

Low strategic intensity Predictable environmentAdapting strategic posture Minimal customer acceptance and competitive

challenges

Significant operational requirements Multiple and complex product/service offering

Highly responsive, efficient and flexible supplychain Demanding service expectations

High strategic intensity Highly unpredictable environment Shaping strategic posture Significant customer acceptance and competitive

challenges

Observe core implementation best practices

Build Operations-Based CompetitiveAdvantage


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AdvantageNature of

topmanagement

leadership

Frontline

execution

Implementat

ion planning

Performance

management

Shared vision of business

Commitment to successStrong team work

Commitment to successUnderstanding role in driving

successKnowledge and application of

key drivers of success

Linkage between strategy andimplementation targets/milestones

Identification of pivotal positions

Sound information systemsEmpowerment of key decision

makersConsistency of organization

controls with strategy requirements

Demanding goals settingOperational "penetration" and follow

throughAbility to de-bottleneckInvolvement at key operational leverage

points

Productivity passion

Demanding performance cultureObsessive commitment and accountability

Rapid translation into high-impact actionsteps

Very sharp role and accountability definitio

Robust and balanced score card includingsharply defined financial, customer, andoperational metrics

Performance appraisal with visible andexplicit consequences

Build Strategic-Thinking AdvantageI i h /f i h b i d


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Nature of top

management

leadership

Frontline

execution

Implementation

planning

Performance

management

Shared vision of business

Commitment to successStrong team work

Commitment to successUnderstanding role in driving success

Knowledge and application of keydrivers of success

Linkage between strategy andimplementation targets/ milestones

Identification of pivotal positions

Sound information systemsEmpowerment of key decision makersConsistency of organization controls

with strategy requirements

Insight/foresight about industryevolution and competitive dynamics

Knack for identifying new ways to

competeAbility to manage uncertaintyAppetite for shaping

Competitive intelligenceIssue analysis

Powerful problem solving

Creative provisions for adjusting toindustry and competitive environment

Environmental and competitivetracking

Strategic decision-making rules linkedto industry and competitive insights

Greater emphasis on risk management

Barriers to Strategy (1)


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Flawed Concepts

Misunderstanding of Strategy itself Poor industry definition

Industry pressures Industry conventional wisdom leads all companies to follow

common practices

Labor agreements limit ways of configuring activities

Regulation constrains price, product, service or process

alternatives Customers ask for incompatible features or request new

products or services that do not fit the strategy

Barriers to Strategy (2)


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Capital market biases

Strong pressures to emulate the currently successful peers Pressure to grow faster than the industry

Internal Practices

Inappropriate goals and performance metrics (e.g. short timehorizon)

Rapid turnover of leadership undermines the strategic directionto achieve short-term performance benefits

A desire for consensus undermines tradeoffs

Inappropriate cost allocation lead to too many products,services or customers

Outsourcing makes activities homogenous and less distinctive


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Growing Strategically

Chapter VIII

Growing Strategically


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Make strategy even more distinctive

Introduce new technologies, products and services that aretailored to strategy and which leverage other distinctiveactivities within the value chain

Deepen the strategic position (rather than broaden it) Raise the penetration of chosen customers/needs

Expand geographically to tap new regions or countriesusing the same positioning

Expand the market for what the company can uniquelydeliver

Find other customers and segments that would most value thestrategy


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Conclusions

Chapter IX

Strategy


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What IS? What IS NOT?

Aunique valueproposition vs. competitors

Adifferent, tailored value

chain

Choosing what NOT todo

Activities that fit together

and reinforce each other

Continuity of position

with continualimprovement in realizing it

Best practice improvement

Execution

Aspirations

A vision

Learning

AgilityFlexibility

Innovation

Technology

Restructuring

ConsolidationPartnering, etc

Strategy Formulation


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1. Performing a situation analysis, self-evaluation and competitor analysis: bothinternal and external; both micro-environmental and macro-environmental

2. Crafting vision statements, mission statements, overall corporate objectives,strategic business unit objectives (both financial and strategic), and tacticalobjectives

3. These objectives should, in the light of the situation analysis, suggest astrategic plan. The plan provides the details of how to achieve theseobjectives and highlights companies competitive advantage

4. Establishing companys strategic position on the market

5. Create a different, tailored value chain

6. Unique value proposition

Strategy Implementation


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Allocation of sufficient resources (financial, personnel, time,

technology support)

Establishing a chain of command or some alternative structure

Assigning responsibility of specific tasks or processes to specificindividuals or groups

Monitoring results, comparing to benchmarks and best

practices, evaluating the efficacy and efficiency of the process,controlling for variances, and making adjustments to theprocess as necessary

Strategy secrets


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It is an illusion that growth (and especially profitability)

are easier to achieve in untapped or growth segments.

It is difficult, and often dangerous, to try to grow fasterthan the underlying market for an extended period

Industry leaders should concentrate as much, or more, ongrowing the category as on growing share

In many cases the appropriate goal is to earn a high returnand pay dividends

The Role of Leaders in Strategy


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Lead theprocess of choosingthe companys unique position

Clearly distinguish strategy from operational effectiveness

Communicate the strategy relentlessly to all constituencies

Maintain discipline around the strategy, in the face of manydistractions

Decide which industry changes, technologies and customer needs torespond to, and how the response can be tailoredto the companysstrategy

Measure progress against the strategy using metrics that capture theimplications of the strategy on multiple levels

Commitment to strategy is tested every day!

Sound Strategythe shortest road to Success!


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Documents

Managing Strategy Course