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Mastering Business Strategy:

Simplifying the Complex

By Dr. Michael McDermott

[email protected]

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Perspectives on Strategy Perspective Author(s)

(Published) Key Concept Key Message

1. Henry Mintzberg (1978)

Emergent Strategy Executives use unpredictability is used as a justification to avoid tough choices – “go-with-the-flow”.

2. Michael Porter (1980)

Competitive Advantage

Choose industry & unique competitive position.

3. Prahalad & Hamel (1990)

Core Competences Capabilities with four traits determine competitive advantage.

4. Kim & Mauborgne (2005)

Blue Ocean Strategy Create new & larger market space where no rivals, & enjoy benefits of lowest cost & highly differentiated.

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Perspectives on Strategy Perspective Author(s)

(Published) Key Concept Key Message

5. Richard Rumelt (2011)

Good vs Bad Strategy

Focus all resources on the “big problem”.

6. Cynthia Montgomery (2013)

The Strategist Articulate distinctive purpose & communicate that.

7. Lafley and Martin (2013)

Playing to Win Make five integrated choices.

8. Rita McGrath (2013)

The End of Competitive Advantage

Forget sustainable advantage, and live with transient advantage

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1. MINTZBERG AND DELIBERATE VS EMERGENT STRATEGY

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Emergent Strategy

Mintzberg (1978) Deliberate vs Emergent Strategy

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Strategy

Deliberate

Recommendations

Monitor remote external environment

& make necessary adjustments.

Adjust also when major change sin

external competitive environment

Emergent

Delay making strategic choices until future is predictable.

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Companies develop intended strategy;

Some plans are “dropped” or “unrealized”;

Some unintended ideas emerge and are implemented

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2. MICHAEL PORTER: COMPETITIVE POSITION FOR COMPETITIVE ADVANTAGE

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Michael Porter and Strategy

• The Porter view stresses the importance of analysis

• Good analysis = good strategy

• Good strategy = sustainable competitive advantage

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• What industry do we compete in? – So perform industry analysis. – Determine the nature of the nature.

• How do we compete?

– Select a generic strategy.

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Strategic Analysis Strategic Choice Competitive Advantage

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Industry Analysis Choice of Generic Strategy

Competitive Advantage

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Industry Analysis and Five Forces

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Michael Porter and Strategy: Generic Strategy

• Finding a unique competitive position.

• But often in highly competitive industry.

• All seeking to grab a share of a defined market.

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3. PRAHALAD AND HAMEL: CORE COMPETENCE OF THE FIRM AND STRATEGIC INTENT

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Why are tribute bands not superstars

It’s obvious! We do not have all

the four traits of core competences

Core Competences and the Resource-Based View (RBV)of the Firm (Prahald and Hamel, 1990)

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Competitive advantage is determined by internal

considerations – the company’s capabilities

Capabilities must possess four key traits

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Core competences are of crucial importance (see above).

But what are the defining traits of core

competencies?

A Core Competence Passes three Tests

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Strategic Intent

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Strategic Intent

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Once tiny Japanese companies developed explicit strategic intent to beat their much larger US and

European rivals

Once tiny South Korean companies developed explicit strategic intent to beat their much larger Japanese

rivals

Once tiny Chinese companies developed explicit strategic intent

to beat their much larger Asian rivals

1960s

1980s

1990s/2000s

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Core competencies are increasingly based upon a company’s network

4. KIM AND MAUBORGNE: BLUE OCEAN STRATEGY

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Strategy

Michael Porter

Or how to survive with a

Red Ocean Strategy

Kim & Mauborgne

Developing a Blue Ocean

Strategy

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Mmmm….wonder Why this slide is here?

5. RICHARD RUMELT: WHAT’S THE PROBLEM?

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Grady: We're trying to solve the problem. Billy: Good. What's the problem? Grady: The problem is that we've lost 3 key players that we now have to replace. BILLY Not like this. You're not even looking at the problem. Okay, stop. The problem we're trying to solve is that this is an unfair game. There are rich teams, poor teams, 50 feet of crap and then there's us.

Recognize this star, the movie and the dialogue?

Grady = Bad Strategy Billy = Good Strategy

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The Key Message?

Progress requires candid admission

of the true problem

No problem = no strategy

Strategy = problem solving

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The Root Cause of Bad Strategy

Pre-requisite of Good Strategy

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The Problem How can an older, slower,

weaker, boxer who has lost his unique competences

beat the world champion in energy-sapping heat of

Africa?

The Solution

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Bad Strategy Good Strategy

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Good Strategy Bad Strategy

What’s the “Big problem” facing these companies?

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What’s the “Big issue/problem” facing these companies?

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The issue or problem may not be conspicuously obvious….but there is

one lurking within.

What’s the Problem?

• Most companies refuse to pose this basic question.

• Why?

• It makes them feel very uncomfortable…it demands admitting there is a problem

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6. CYNTHIA MONTGOMERY: THE STRATEGIST

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Strategy and Leadership

• The Porter view separates the role of the leader from strategy.

• It ignores the importance of the strategist (the CEO)

• This is a major error.

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The Roles of the

Strategist

Meaning-Maker

The Reasoner The Operator

“strategy has been narrowed to a competitive game plan, divorcing it from a firm's larger sense of purpose; the CEO's unique role as arbiter and steward of strategy has been eclipsed; and the exaggerated emphasis on sustainable competitive advantage has drawn attention away from the fact that strategy must be a dynamic tool for guiding the development of a company over time” (Montgomery, HBR, 2008)

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Develop Stated

Purpose Develop Strategy

Articulate Strategy in

Concise Statement

Sets Direction

Establishes Priorities

Guides all Activities

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The Buck Stops with the Strategist

Develop Stated

Purpose

Develop Strategy


Concise Statement

Sets Direction



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1. Defines firm’s unique value. 2. Explains its relevance – why it matters 3. Easy to understand & memorable

Develop Stated

Purpose Develop Strategy


Concise Statement

Sets Direction



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Strategy statement is important

The Buck Stops with the Strategist

Strategies and Strategy Statements The Honed Strategy &

Strategy Statement • Sets direction; • Establish priorities; • Guides activity

The Weak Strategy & Strategy Statement

• Fails to provide direction; • Causes panic; • Creates confusion.

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Source of competitive advantage

Source of competitive disadvantage

Strategy and Strategy Statements

Effective 1. Distinctive 2. Provides focus – the what 3. Specific – the how 4. Explanatory and transparent 5. Targeted – the who 6. Inspirational

Ineffective 1. Too Generic – could be anyone 2. Covers all bases 3. Clichés – meaningless 4. Baffling and opaque 5. Scattered 6. Dull

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7. A.G. LAFLEY AND ROGER L. MARTIN PLAYING TO WIN: STRATEGY IS FIVE INTEGRATED CHOICES

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"The most important thing in the Olympic Games is not winning but taking part; the essential thing in life is not conquering but fighting well.“

Baron Pierre de Coubertin, founder of the Olympics,

You play only where you can win

You Play only where you can Win? Really

• Can US auto companies beat BMW, Mercedes? • Can Walmart win in China? • Can JC Penney beat Macy’s? • Can Google win in China? • Can Avon win anywhere? • Can RIM (Blackberry) win in enterprise solutions? • Can Dell win in B2C as opposed to B2B?

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Winning Demands Beating the Biggest and also the Best

US airlines need to compete only where they can win - beating the airlines below

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The Biggest The Best

How to Win With a Low Cost Strategy • There can be only one winner!

• Whoever has the lowest costs

• Focus must be on cost-

reduction and standardization • And a willingness to lose

customers that do not settle for standardization

With Differentiation

• There can be several winners

• But the rewards rise with the level of differentiation achieved.

• Focus is customer-understanding & brand building

• High commitment to

innovation

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Both strategies require the pursuit of distinctiveness

Strategy is Five Choices

Choice 1.

• What is your winning aspiration? • The purpose of your enterprise, its motivating aspiration.

Choice 2.

• Where will you play? • A playing field where you can achieve that aspiration.

Choice 3

• How will you win? • The way you will win on the chosen playing field.

Choice 4

• What capabilities must be in place? • The set and configuration of capabilities required to win in the chosen way.

Choice 5

• What management systems are required? • The systems and measures that enable the capabilities and support the choices.

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In an SME the above is sufficient. In a large multi-business company, apply this cascade at the following levels: • Corporate-level cascade (e.g. P&G) • Strategic group cascade (e.g. skin care, detergents, diapers) • Individual business cascade (e.g. Oil of Olay, Tide, Pampers)

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Notice how this is a dynamic system. Notice too the importance of feedback. Thus strategy is an iterative process

Iterative process

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In an SME the above is sufficient. In a large multi-business company, apply this cascade at the following levels: • Corporate-level cascade (e.g. P&G) • Strategic group cascade (e.g. skin care, detergents, diapers) • Individual business cascade (e.g. Oil of Olay, Tide, Pampers)

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Create fierce brand advocates; Make a difference in the world; Make money doing it

In its own retail stores; Athletic wear for women

Creating technically superior yoga wear that is also very cool Changes stock regularly to reinforce exclusivity & scarcity; Customers attracted to stores by knowledgeable staff

Product & store design; Customer service; Supply-chain expertise.

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Create fierce brand advocates; Make a difference in the world; Make money doing it

In its own retail stores;

Athletic wear for women

Creating technically superior yoga wear that is also very cool; Changes stock regularly to reinforce exclusivity & scarcity; Customers attracted to stores by knowledgeable staff

Product & store design; Customer service;

Supply-chain expertise. Expand to: • Accessories? • Menswear? • Online presence? • Different retail formats? • How does store employee serve

the customers

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2018 Global # 1

US sales of 1m vehicles

All actions at the model, brand, category, sector, and company

level driven by meeting the ideal.

What is Winning?

What is your winning

aspiration*?

What is your stated

purpose?

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What is your

winning aspiration?

Your Strategy

What is Winning?

What is your

winning aspiration?

What is your

stated purpose*?

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This should focus upon framing

ambitions around the customer

Thus your winning aspiration should

reveal your identity

* Note the similar starting point between Montgomery and The Strategist

What is Winning?

What is your

winning aspiration?

What is your

stated purpose*?

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This should focus upon framing

ambitions around the customer

Thus your winning aspiration should

reveal your identity

* Note the similar starting point between Montgomery and The Strategist

Examples of Winning Aspirations

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• to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.

our customers' favorite place and way to eat and drink.

Examples of Winning Aspirations: Who am I?

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to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.

“To bring inspiration and innovation to every athlete* in the world.” “* If you have a body, you are an athlete.”

to be our customers' favorite place and way to eat and drink.

We will be the easiest pharmacy retailer for customers to use.

For Our Customers A compelling place to shop. . . by providing convenience and low prices For Our Associates A compelling place to work. . . by providing exceptional opportunities and rewards for achievement For Our Investors A compelling place to invest. . . by providing outstanding returns

We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments.

Undisputed Marketplace Leadership

People love our clothes and trust our company. We will market the most appealing and widely worn casual clothing in the world. We will clothe the world.

Examples of Winning Aspirations: Who am I?

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to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.

“To bring inspiration and innovation to every athlete* in the world.” “* If you have a body, you are an athlete.”

to be our customers' favorite place and way to eat and drink.

We will be the easiest pharmacy retailer for customers to use.

For Our Customers A compelling place to shop. . . by providing convenience and low prices For Our Associates A compelling place to work. . . by providing exceptional opportunities and rewards for achievement For Our Investors A compelling place to invest. . . by providing outstanding returns

We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments.

Undisputed Marketplace Leadership

People love our clothes and trust our company. We will market the most appealing and widely worn casual clothing

in the world. We will clothe the world.

• Our Strategy 2018 focuses on positioning the Volkswagen Group as a global economic and environmental leader among automobile manufacturers. We have defined four goals that are intended to make Volkswagen the best automaker in the world by 2018:

• • Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality.

• • The goal is to increase unit sales to more than 10 million vehicles a year; in particular, Volkswagen intends to capture an above-average share of growth in the major growth markets.

• • Volkswagen’s aim is a sustainable return on sales before tax of at least 8% so as to ensure that the Group’s solid financial position and ability to act are guaranteed even in difficult market periods. • Volkswagen aims to become the top employer across all brands, in all companies and regions; this is necessary in order to build a first-class team.

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Strategy

Where to play?

How to Win?

Two Questions are at the Heart of Strategy

• Defines the scope of the firm’s activities Winning

Aspiration

• Defines: • What the firm will do; • Where; and • How

Where & How to Play

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1. Where to Play?

Which markets?

Which customers and/or

consumers?

Which Channels?

Which Product Categories?

Which parts of the industry value chain

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The answers capture the strategic playing field for the firm

2. How to Win?

Which markets?

Which customers and/or

consumers?

Which Channels?

Which Product Categories?

Which parts of the industry value chain

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The recipe for success in each chosen area

Competitive advantage

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Strategy

What capabilities must be in place to win?

What management systems are required to support the strategic

choices?

The range & qualities of activities necessary to win

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Strategy



choices?

Internal Capabilities (e.g. Innovation, Brand

building, merchandising

External Capabilities (form partnerships with key parties such as

designers, advertising & PR agencies, key influencers

Deepening existing capabilities Building new capabilities

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The Core Capabilities of P&G

But this could also be Adidas or Nike?

These five core capabilities

support & reinforce each other

It is the combination of

these advantages that confers competitive advantage

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Strategy

Where to play?

How to Win?

Two Questions are at the Heart of Strategy



choices?

8. RITA GUNTHER MCGRATH: THE END OF COMPETITIVE ADVANTAGE

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Strategy the “old” way was a fight to the death

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Think surfing, think strategy Ride the waves – knowing when to jump “off” and stay on.

Even “good waves” are short-lived.

Conclusions Strategy demands: 1. Making explicit your sense of purpose ( or statement of

mission); 2. Defining your winning aspiration; 3. Acknowledging your big problem; 4. Recognizing that new games are always emerging; 5. Choosing where to play; 6. Determining your competitive position and how you will

play. 7. Deepening and developing core competences or

capabilities; 8. Creating the systems that enable you to play successfully

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