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  • There are new interacting and reinforcing forces that are leading to dramatic changes: glob., dereg, digit. Thus industries are experiencing revolutionary technological changes - banking and finance merging, e-commerce, Digitization - Moore's law so computing power and communications bandwidth becoming cheap enough to treat as disposable. Globalization - world is a large network, global nw of suppliers and buyers, 24 hour operations, shop on a global basis Deregulation - free market better regulator than govt. Seen this in ariline and comm industry All 3 interact with each other. Digital techs mnake it possible to manage a wider vairety of rels with buyers an dsuppliers which ni turn feeds globalization. More global economy becomes, the more pressures there are for deregulation. Deregulation leads to opening of markets that had been underinvested in technology so start over again.
  • ONe of reasons why devd by practictioners is saw that market value was so much higher than book value. Traditional accounting could not make sense of this. So needed new way of accounting for this difference. became what is known as IC. One reason why more static than KM. Morgan Stanley's world index - companies on average are worth two times book value. In US two to ten times book value is makret value and in Sweden it is 3-8 times book value.
  • Increasing number of researchers claiming that knowledge is only true source of comp adv for fimr, Drucker, Spender, Grant. Anchored in resource based theory of firm in which firm creates its comp adv based on resources that are scarce, valuable, and reasonably durable (Barney 1991). Kn-based view builds on this and argues that comp adv lies in intangible firm-specific knowledge. Knowledge devd as firm increases specificity of its activities when deploying and combining inputs. As transforms inputs into higher value-added products and services, firm develops shared knowledge and routines (K&Z 1992) KNowledge holds firm together and not transaction costs. Would expect that as transaction costs decline, that firm would become markets or self-organizing inds, but knoweldge is glue that holds organization together.
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  • Day1TUMGMSeafax.ppt

    1. 1. Strategic Management and Implementation TMU Johannes M. Pennings June 2004
    2. 2. Strategy and Innovation <ul><li>Part I, Day 1 </li></ul><ul><ul><li>What is strategy? Frameworks </li></ul></ul><ul><ul><li>External vs Internal Focus: Customer & Knowledge </li></ul></ul><ul><ul><li>Strategy and Design </li></ul></ul><ul><li>Part II, Day 1 </li></ul><ul><ul><li>Strategic Management of Innovation </li></ul></ul><ul><ul><li>Market and Firm Interia </li></ul></ul><ul><ul><ul><li>Photography Industry </li></ul></ul></ul>
    3. 3. Dual Strategies Competing for the Future Activity Systems Capabilities-Based Competition Resource-Based View Vision Multimarket Competition Time-Based Competition Value Chain Core-Competence Eco-Systems Co-opetition Virtual Integration Collective Strategy Profit Pools Strategic Groups 5-Forces model 7-S Framework Value Disciplines Time/Event Pacing The (Institutionalized) Strategic Management Shopping Mall Value Migration Strategic Innovation Strategy as Revolution
    4. 4. <ul><li>Strategic Management … Confusion Reigns . </li></ul><ul><li>“ [W]aves of new approaches [have been] proposed. […] Each approach made its contribution in turn, yet how any of them built on or refuted the previously accepted wisdom was unclear . The result: Each compounded the confusion about strategy that now besets managers”. </li></ul><ul><li>Source : Collis & Montgomery (1995) “ Competing on Resources: Strategy in the 1990s”, Harvard Business Review . </li></ul>
    5. 5. <ul><li>“ People seem to disagree about almost every aspect of strategy making […] they disagree about which issues to address in developing strategy, they disagree about the process of developing strategy, and they even disagree as to whether one can think about strategy at all”. </li></ul><ul><li>C. Markides (2000) All the Right Moves: A Guide to Crafting Breakthrough Strategy </li></ul>
    6. 6. <ul><li>Strategic Management: </li></ul><ul><li>... deals with the formulation and implementation of a set of decisions, the purpose of which is the realization of a sustainable competitive advantage (manifested in long-term above average profitability ). </li></ul>
    7. 7. Many Frameworks of Strategy <ul><li>Porter and Five Forces </li></ul><ul><ul><li>Competitive advantage due to cost leadership or market differentiation </li></ul></ul><ul><li>Mintzberg and Stream of Decisions </li></ul><ul><ul><li>Not rational but emergent </li></ul></ul><ul><li>BCG and low to high growth markets </li></ul><ul><li>New ”School” and competencies that produces a platform fro strategizing </li></ul>
    8. 8. Porter : Strategy, the Link between the Firm And its Environment THE FIRM Goals and Values Resources andCapabilities Structure and Systems THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY STRATEGY
    9. 9. Sources of Competitive Advantage COST ADVANTAGE DIFFERENTIATION ADVANTAGE COMPETITIVE ADVANTAGE Similar product at lower cost Price premium from unique product
    10. 10. Strategy and Innovation <ul><li>Part I, Day 1 </li></ul><ul><ul><li>What is strategy? Frameworks </li></ul></ul><ul><ul><li>External vs Internal Focus: Customer & Knowledge </li></ul></ul><ul><ul><li>Strategy and Design </li></ul></ul><ul><li>Part II, Day 1 </li></ul><ul><ul><li>Strategic Management of Innovation </li></ul></ul><ul><ul><li>Market and Firm Interia </li></ul></ul><ul><ul><ul><li>Photography Industry </li></ul></ul></ul>
    11. 11. Porter’s Framework Forces Driving Industry Competition Potential Entrants Substitutes Industry Competitors Suppliers Buyers Bargaining Power over Suppliers Threats of New Entrants Bargaining Power of Buyers Threat of Substitutes
    12. 12. Mintzberg on Strategy <ul><li>Plan ( Intended ) Also a Ploy (a Trick a Way to ? a Competitor) </li></ul><ul><li>Pattern ( Realized ) </li></ul><ul><li>Position </li></ul><ul><li>Perspective </li></ul>ع ع • • ع ع ع ع • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • ع ع • • • •
    13. 13. THE CONCEPT OF STRATEGY Cognitive Forces Intended Strategy Deliberate Strategy Process Realized Strategy Unrealized Strategy Organizational and/or Environmental Forces Emergent Strategy Process Inconsistent Behavior
    14. 14. Hi Growth Lo Growth Market Share BCG
    15. 15. Strategy and Innovation <ul><li>Part I, Day 1 </li></ul><ul><ul><li>What is strategy? Frameworks </li></ul></ul><ul><ul><li>External vs Internal Focus: Customer & Knowledge </li></ul></ul><ul><ul><li>Strategy and Design </li></ul></ul><ul><li>Part II, Day 1 </li></ul><ul><ul><li>Strategic Management of Innovation </li></ul></ul><ul><ul><li>Market and Firm Inertia </li></ul></ul><ul><ul><ul><li>Photography Industry </li></ul></ul></ul>
    16. 16. Shifting From an Industry Focus(Porter) to a Resource Focus STRATEGY STRATEGY THE FIRM Goals and Values Resources and Capabilities Structure and Systems The Firm-Strategy interface The Strategy-Environment Interface THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers
    17. 17. Shifting From an Industry Focus(Porter) to a Resource Focus THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY STRATEGY THE FIRM Goals and Values Resources and Capabilities Structure and Systems The Firm-Strategy interface The Strategy-Environment Interface
    18. 18. New School : Resources & Capabilities <ul><li>The role of resources and capabilities in strategy formulation. </li></ul><ul><li>The resources of the firm </li></ul><ul><li>Organizational capabilities </li></ul><ul><li>Appraising the profit potential of resources and capabilities (sustainability and appropiability). </li></ul><ul><li>Developing the firm’s resources and capabilities. </li></ul>
    19. 19. Value Migration <ul><li>“ We have to be willing to cannibalize what we’re doing today in order to ensure our leadership in the future. It’s counter to human nature but you have to kill your business while it is still working”. </li></ul><ul><li>Lewis Platt, Hewlett-Packard </li></ul>
    20. 20. Value Migration <ul><li>“ Financial accounting, balance sheets, profit-and-loss statements, allocating of costs, etc. are an x-ray of the enterprise’s skeleton. But much as the diseases we most die from - heart disease, cancer, Parkinson’s - do not show up in a skeletal x-ray, a loss of market standing or a failure to innovate do not register in the accountant’s figures until the damage is done”. </li></ul><ul><li>P. Drucker (1993) </li></ul>Developing (strategic) leading indicators
    21. 21. Rationale for the Resource-based Approach to Strategy <ul><li>When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus. </li></ul><ul><li>Resources and capabilities are the primary sources of profitability </li></ul><ul><li>But note that platform of capabilities can become a TRAP </li></ul>
    22. 22. Evolution of Honda: A Strategy Based Upon Resources and Capabilities 1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Founding of Honda motor company 50cc 2-cycle engine 4 cycle engines 405cc motor cycle Related products: ground tillers, marine engines, generators, pumps, chainsaws First product: clip-on engine for bicycles The 50cc super -cub N360 mini car 1000cc Goldwing touring motor cycle Acura Car division
    23. 23. Resources as the Basis for Superior Profitability Rate of Profit in Excess of the Competitive Level Industry Attractiveness Competitive Advantage Differentation Advantage Cost Advantage Vertical Power Monopoly Barriers to Entry Brands Product technology Marketing capabilities Process technology Plant size Low-cost inputs Firm size Financial resources Market share Patents Brands Retaliatory capability
    24. 24. The Relationships Between Resources, Capabilities and Competitive Advantage STRATEGY INDUSTRY KEY SUCCESS FACTORS COMPETITIVE ADVANTAGE ORGANIZATIONAL CAPABILITIES <ul><li>RESOURCES </li></ul><ul><li>TANGIBLE INTANGIBLE HUMAN </li></ul><ul><li>Financial </li></ul><ul><li>Physical </li></ul><ul><li>Technology </li></ul><ul><li>Reputation </li></ul><ul><li>Culture </li></ul><ul><li>Structure </li></ul><ul><li>Specialized skills </li></ul><ul><li>and knowledge </li></ul><ul><li>Communication & </li></ul><ul><li>interactive abilities </li></ul><ul><li>Motivation </li></ul>
    25. 25. The Rent-Earning Potential of Resources and Capabilities Scarcity Relevance Durability Mobility Replicability Property rights Relative bargaining power Embeddedness of resources THE EXTENT OF THE COMPETITIVE ADVANTAGE ESTABLISHED SUSTAINABILITY OF THE COMPETITIVE ADVANTAGE APPROPRIABILITY THE PROFIT EARNING POTENTIAL OF A RESOURCE OR CAPABILITY
    26. 26. Growth of service sector partly explains increase in Strategy as Firm Knowledge Source: World Bank, 1998
    27. 27. Growth of service sector in Sweden, similar to other EU countries Source: IUI Agriculture Employment Percent Service Industry
    28. 28. The new forces Traditional sources of competitive leverage Deregulation Globalization Digitization Source: Unleashing the Killer App
    29. 29. Revolutionary changes <ul><li>Digitization - Computing power and communications bandwidth becoming cheap enough to treat as disposable (Moore’s law) </li></ul><ul><ul><li>Compare doubling grains of dirt on a chess board </li></ul></ul><ul><li>Globalization – China, World is a large network, global network of suppliers and buyers, 24 hour operations, shop on a global basis </li></ul><ul><li>Deregulation - Free market better regulator than government, e.g., airlines, communications, banking </li></ul>
    30. 30. Business Week 1998
    31. 31. Business week and US Companies….Where is Haider, Bank of China, etc. ? Source: Business Week
    32. 32. Valuation Ratios <ul><li>Coca-cola 19 Beverages </li></ul><ul><li>Oracle 15 Computer software/services </li></ul><ul><li>Cisco Systems 14 Computer software/services </li></ul><ul><li>Computer Associated International 14 Computer software/services </li></ul><ul><li>Schering Plough 12 Health care </li></ul><ul><li>Amgen 10 Health care </li></ul><ul><li>Gillette 10 Consumer Products </li></ul><ul><li>Metronic 9 Health care </li></ul><ul><li>Kellog 9 Food </li></ul><ul><li>Microsoft 9 Computer software/services </li></ul><ul><li>Pharmacia & UpJohn 9 Health care </li></ul><ul><li>First Date 9 Computer software/services </li></ul><ul><li>Pfizer 8 Health care </li></ul><ul><li>Abbot Laboratories 8 Health care </li></ul><ul><li>Mereck 7 Health care </li></ul><ul><li>Johnson & Johnson 7 Health care </li></ul><ul><li>Bristol-Myers-Squibb 7 Health care </li></ul><ul><li>Pepsico 7 Beverages </li></ul><ul><li>Phillip Morris 6 Tobacco </li></ul><ul><li>Eds 6 Computer software/services </li></ul>
    33. 33. Competitive advantage is becoming increasingly dependent on firm’s ability to create and leverage knowledge Firm knowledge Internal codification Dissemination Transfer External leakage and imitation Competitive advantage (if resources & capabilities are hard to replicate or imitate) Key idea: Firms are good at transferring tacit knowledge (Kogut & Zander, 1992)
    34. 34. Identifying Organizational capabilities : Functional Approach FUNCTION CAPABILITY EXEMPLARS Corporate Financial management Exxon, Coca Cola Management General Electric, Strategic Control Emerson Electric, GE Coordinating decentralized ABB, Shell business units Managing Acquisitions ING, ConAgra MIS Speed and responsiveness through American Airlines rapid information transfer Benneton R&D Research capability Mereck, AT&T Development of innovative new products Sony, 3M Manufacturing Efficient volume manufacturing Electrolux Continuous Improvement Nucor, Motorola Flexibility Benetton Design Marketing Design Capability Apple, Swatch, Brand Management Proctor & Gamble, PepsiCo Sales & Distribution Promoting reputation American Express Responsiveness to market trends The Gap Sales Responsiveness Microsoft, Glaxo Efficiency and speed of distribution DHL Customer Service KLM
    35. 35. The Framework for Analyzing Knowledge, Capabilities and other Resources 5. Identify resource gaps that need to be filled. 4. Select a strategy 3. Appraise the rent-earning potential of resources/ capabilities 2. Identify capabilities 1. Identify the firm’s resources. Appraise strengths and weaknesses STRATEGY CAPABILITIES RESOURCES POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE
    36. 36. Summary <ul><li>We are moving into a knowledge-based economy as new forces are changing the face of business </li></ul><ul><li>A company’s market value is increasingly dependent upon the value of its intellectual capital or intangible assets </li></ul><ul><li>A company’s competitive advantage is based on a firm’s ability to create and leverage its knowledge </li></ul><ul><li>Thus, knowledge sharing across divisions, countries, functions is emerging as a major business priority </li></ul>
    37. 37. Strategy and Innovation <ul><li>Part I, Day 1 </li></ul><ul><ul><li>What is strategy? Frameworks </li></ul></ul><ul><ul><li>External vs Internal Focus: Customer & Knowledge </li></ul></ul><ul><ul><li>Strategy and Design </li></ul></ul><ul><li>Part II, Day 1 </li></ul><ul><ul><li>Strategic Management of Innovation </li></ul></ul><ul><ul><li>Market and Firm Inertia </li></ul></ul><ul><ul><ul><li>Photography Industry </li></ul></ul></ul>
    38. 38. Internal and External Design: Strategy and Innovation <ul><li>Brief Review of Organizational Design and and External Relationships </li></ul><ul><li>Structure, Culture, Networking of Internal Organization Design </li></ul><ul><li>Brief Review of External Design </li></ul>
    39. 39. Internal and External Design: Strategy and Innovation <ul><li>Brief Review of Organizational Design and and External Relationships </li></ul><ul><li>Structure, Culture, Networking of Internal Organization Design </li></ul><ul><li>Brief Review of External Design </li></ul>
    40. 40. Internal Design Aspects <ul><li>Specialization ( grouping by skills, process, customers, products, etc.) </li></ul><ul><li>Coordination </li></ul><ul><li>Hierarchy </li></ul><ul><li>Functional and Divisional Structure </li></ul>
    41. 41. The Basic Tasks of Organization <ul><li>ORGANIZATIONAL CHALLENGE : design structure & systems that: </li></ul><ul><ul><ul><li>Permit specialization of knowledge </li></ul></ul></ul><ul><ul><ul><li>Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control </li></ul></ul></ul><ul><ul><ul><li>Deploy incentives to align individual & firm goals and share knowledge among them </li></ul></ul></ul>Achieving high levels of productivity requires SPECIALIZATION Specialization by individuals necessitates COORDINATION For coordination to be effective requires COOPERATION But goals of employees = goals of owners THE AGENCY PROBLEM
    42. 42. General Motors Organization Structure, 1997 Board of Directors President’s Council Corporate Functions North American Operations Delphi Automotive Systems International Operations GM Acceptance Corporation Hughes Electronics Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group GM Europe Asian & Pacific Operations Latin American, African, & Middle East Operation
    43. 43. General Electric’s Organization Structure, 1995 Board of Directors Corporate Executive Office Lighting NBC Motors Transportation Systems Aircraft Engines Industrial Power Systems Medical Systems Appliances Capital Services Information Services Electrical Distribution & Control Plastics Corporate Staff Functions: Tax, Treasury, Audit. M&A, Legal, Business Public Relations, Government Development Relations, Leadership Development Service Divisions Aerospace Environmental GE Licensing/ Marketing Technology Programs Supply Trading &Sales
    44. 44. Organization design <ul><li>By FUNCTION (sales, production, customer service, etc.) </li></ul><ul><li>By PURPOSE (market, product, segment, region, etc.) </li></ul>Sales Finance Service And Parts New Cars Used Cars Service And Parts
    45. 45. Functional Structure R&D Manufacturing Marketing Finance Accounting HR CEO
    46. 46. Multidivisional Structure (By Region, Product, or Customer) R&D Manufacturing Marketing Finance Accounting HR Division 1 R&D Manufacturing Marketing Finance Accounting HR Division 2 R&D Manufacturing Marketing Finance Accounting HR Division 3 R&D Manufacturing Marketing Finance Accounting HR Division 4 CEO
    47. 47. Multidivisional Structure at Proctor & Gamble Food & Beverage Products Other Prod. Groups Chloraseptic (1957) Cough Drops (1931) DayQuil (1992) Formula 44 (1959) Inhaler (1939) NyQuil (1968) Sinex (1959) VapoRub (1905) VapoSteam (1959) Vitamin C Drops (1986) California (1989) Giorgio (1994) Hugo Boss (1985) Incognito (1992) Laura Biagiotti-Roma (1988) le Jardin (1983) NaVy (1990) Old Spice (1938) Red (1994) Toujours Moi (1921) Venezia (1993) Wings (1994) Camay (1926) Coast (1974) Ivory (1879) Kirk’s (1885) Lava (1893) Oil of Olay (1993) Safeguard (1963) Zest (1952) Crisco Shortening (1911) Crisco Oil (1960) Folger’s Coffee (1850) Duncan Hines Baking Mix (1956) Jif Peanut Butter (1956) Fisher Nuts (1920) Hawaiian Punch (1937) Pringles Potato Chips (1968) Sunny Delight Citrus Punch (1964) Tender Leaf Tea (1982) Amines Fatty Acids Fatty Alcohols Methyl Esters Glycerine Respiratory Care Products Fragrances Bar Soaps Personal Care Products Cascade (1955) Dawn (1972) Ivory Liquid (1957) Joy (1949) Bold (1965) Cheer (1950) Dash (1950) Dreft (1933) Era (1972) Ivory Snow (1930) Oxydol (1914) Tide (1946) Comet (1956) Lestoil (1936) Mr. Clean (1958) Spic and Span (1926) Dishwashing Detergents Detergents/Soaps Cleaners and Cleansers Laundry and Cleaning Products Brand manager
    48. 48. <ul><li>Functional Structure </li></ul><ul><li>Pros : fosters group identity, permits greater specialization and so increases skill levels, facilitates supervision. </li></ul><ul><li>Cons : creates strong contrasts and thus conflict between functional units, makes it harder to trace responsibility for performance (no unit is a profit centre), fails to develop well-rounded general managers. </li></ul>Pros & Cons of Basic Organizational Designs <ul><li>Multidivisional Structure </li></ul><ul><li>Pros : simplifies co-ordination across functions within units, can be very large and still maintain control, facilitates idiosyncratic treatment of customers when they differ greatly. </li></ul><ul><li>Cons : reduces collegiality, duplicates staff functions and foregoes opportunities to share them, reduces chances for skill specialization. </li></ul>
    49. 49. Dilbert on cross-functional conflict
    50. 50. The Fundamental Law of Organizational Design <ul><li>To the extent that you differentiate, </li></ul><ul><li>you must integrate. </li></ul>
    51. 51. Task Interdependence <ul><li>Pooled interdependence </li></ul><ul><ul><li>Units share a common resource. </li></ul></ul><ul><li>Sequential interdependence </li></ul><ul><ul><li>One unit’s output is another unit’s input. </li></ul></ul><ul><li>Reciprocal interdependence </li></ul><ul><ul><li>Units must work with each other to produce common output. </li></ul></ul>high Cost of Managing low low Priority for Linking high
    52. 52. Forms of Task Interdependence Needs Assessment Regional HQ Product Development 1. Pooled Interdependence 2. Sequential Interdependence Customer Contact Service Development Hotel A Hotel B Hotel C Manufacturing Sales/Mktng Need for Integration Low Medium High Coordinating Mechanism Standardize Plan Mutually Adjust 3. Reciprocal Interdependence
    53. 53. An Information-Processing Model of Organizational Design (Wheel vs Circle) Unpredictability of the Task Environmental Effects on the Task Interdependence of Task Elements Task Uncertainty Fit Information-Processing Capacity of the Structure Information-Processing Requirements to do the Task Grouping Linking Management Processes
    54. 54. Linking Mechanisms <ul><li>Hierarchy ( i.e. , a boss) </li></ul><ul><li>Rules and procedures (formal or informal) </li></ul><ul><li>Liaison roles </li></ul><ul><li>Task forces, cross-unit teams </li></ul><ul><li>Integrator roles/departments </li></ul><ul><li>Matrix structures </li></ul>Information Processing Capacity high low Costs of Managing the Linkage low high
    55. 55. Liaison Roles & Cross-Unit Groups Liaison A B Manager Manager A B Cross-Unit Group
    56. 56. Integrators (Project, Brand, Program, & Account Managers) General Manager Marketing Manufacturing Engineering Project Manager Program Program
    57. 57. Matrix Structures General Manager Marketing Manufacturing Engineering Project Manager Program Program
    58. 58. New Organizational Forms Process-based organizations Organizing around business processes Recognizing corporate processes - entrepreneurial process - competence building process - renewal process Parallel structures separate structures of separate management processes e.g. 3M, TQM, change management process Project-based organization, engineering cos., consulting also Firm’s “Formulas” cos., also manufacturing cos. e.g. Oticon Network and Virtual Organization the boundaryless corporation e.g. Sun Microsystems, Cisco Systems, Italian clothing manufacturers
    59. 59. Firm as a bunch of silos or interconnected departments
    60. 60. Strategy and Innovation <ul><li>Part I, Day 1 </li></ul><ul><ul><li>What is strategy? Frameworks </li></ul></ul><ul><ul><li>External vs Internal Focus: Customer & Knowledge </li></ul></ul><ul><ul><li>Strategy and Design </li></ul></ul><ul><li>Part II, Day 1 </li></ul><ul><ul><li>Strategic Management of Innovation </li></ul></ul><ul><ul><li>Market and Firm Interia </li></ul></ul><ul><ul><ul><li>Photography Industry </li></ul></ul></ul>
    61. 61. External Design <ul><li>Contracting </li></ul><ul><li>Licensing </li></ul><ul><li>Consortia </li></ul><ul><li>Partnerships </li></ul><ul><li>Alliances </li></ul><ul><li>Joint Ventures </li></ul><ul><li>Acquisitions </li></ul>Relationship with Us?
    62. 62. Firms Sharing Assets <ul><li>Governance or Control (Who is in Charge?) </li></ul><ul><li>Ownership </li></ul>
    63. 63. Internal or External Hybrid Firm A Firm B
    64. 64. Strategy and Structure <ul><li>Internal and external Strategic Perspective </li></ul><ul><ul><li>Porter, BCG and Knowledge Based View </li></ul></ul><ul><li>Internal: Functional to Divisional and Network Design </li></ul><ul><li>External: Licensing to Equity Joint Ventures and Acquisitions </li></ul><ul><li>…… Strategic management of Innovation: </li></ul><ul><ul><li>Knowledge as Platform for Strategizing </li></ul></ul><ul><ul><li>Design inside and outside the firm for Strategizing </li></ul></ul>
    65. 65. Strategy and Innovation <ul><li>Part I, Day 1 </li></ul><ul><ul><li>What is strategy? Frameworks </li></ul></ul><ul><ul><li>External vs Internal Focus: Customer & Knowledge </li></ul></ul><ul><ul><li>Strategy and Design </li></ul></ul><ul><li>Part II, Day 1 </li></ul><ul><ul><li>Strategic Management of Innovation </li></ul></ul><ul><ul><li>Market and Firm Inertia </li></ul></ul><ul><ul><ul><li>Photography Industry </li></ul></ul></ul>
    66. 66. Strategy and Innovation <ul><li>Resources and capabilities provide a basis for firms to stay in the market, but also to exit early (too early) </li></ul><ul><ul><li>Stay: Nokia, IBM, </li></ul></ul><ul><ul><li>Exit: Mannesmann, Polaroid, Swissair, Marconi </li></ul></ul><ul><li>Sink or swim depends on??? </li></ul>
    67. 67. Innovation and Strategy <ul><li>1. Death of “Dominant Design” </li></ul><ul><ul><li>Firm versus its environment </li></ul></ul><ul><ul><li>Some examples </li></ul></ul><ul><ul><li>What watch do you wear? </li></ul></ul><ul><li>2. Unlocking the Firm from “Old” </li></ul><ul><li>3. Locking into the “New”Design </li></ul>
    68. 68. Dominant Design <ul><li>A product or service with a clear identity, a standard that we take for granted and has become widely diffused </li></ul><ul><ul><li>Car </li></ul></ul><ul><ul><li>Windows </li></ul></ul><ul><ul><li>Pizza </li></ul></ul><ul><ul><li>Endoscopy </li></ul></ul><ul><ul><li>Mobile Phone </li></ul></ul>
    69. 69. Patterns of Technological/Market Evolution time performance/cost
    70. 70. Strategic Focus Evolves with the S-curve <ul><li>Compare “product life cycle” </li></ul><ul><li>Emergence of dominant design </li></ul><ul><li>From product to process innovation </li></ul><ul><li>From functionality to volume and standardization </li></ul>
    71. 71. Technological Substitution time performance/cost
    72. 72. E.g., Cash Machine E.g. ICT
    73. 73. Innovation: a matter of life and death <ul><li>Think of a product that got pushed out of existence? </li></ul><ul><li>Why did substitution occur? </li></ul><ul><li>What happened to the “Owners” of that dominant design? </li></ul><ul><li>Examples in your Industry, Sector </li></ul>
    74. 74. Sail-ship built around 1910, capsized on maiden voyage, off Southampton
    75. 75. Wooden Tennis Rackets
    76. 76. A 1998 racket that is now the dominant design
    77. 77. Ergonomic Designs (which never made it!)
    78. 78. Evolution of Tennis Racket as Dominant Designs wooden Graphite (plastic)
    79. 79. Tennis Racket Manufacturers <ul><li>Outside Firms often Major Innovators </li></ul><ul><ul><li>Prince with Metal and Titanium Racket </li></ul></ul><ul><ul><li>Star Players Play Big Role in Acceptance of New Paradigms </li></ul></ul><ul><ul><li>Best Ideas Need not be Winners! </li></ul></ul>
    80. 80. Substitution <ul><li>Old products languish, but hang on , long after new technology emerges </li></ul><ul><li>New products often launched by firms outside traditional industry </li></ul><ul><li>New technology creates new markets </li></ul><ul><li>Penetration of new technology typically begins with tiny sub-markets </li></ul>
    81. 81. Example of Mechanical Watches dying paradigm <ul><li>Mechanical engineering </li></ul><ul><li>Swiss </li></ul><ul><li>Guild-like handicraft </li></ul><ul><li>Jewelry-like </li></ul>
    82. 84. Watch as a Closed Assembly System
    83. 85. Watch as a Closed Assembly System <ul><li>Note that a watch is more than time keeping device: </li></ul><ul><ul><li>Marketing - expensive to cheap; “push” to “ pull” </li></ul></ul><ul><ul><li>Distribution -jewelry stores to drugstores </li></ul></ul><ul><ul><li>Production - craft, mass to automated </li></ul></ul><ul><ul><li>State - cartel protection to global openness </li></ul></ul><ul><li>so changes in dominant design not only in product but also institutions, practices, competencies, distribution and regulation-protectionism </li></ul>
    84. 86. Watch’s Dominant Design: take-aways <ul><li>S-curve for both product & process innovation. </li></ul><ul><li>Global watch industry went to three significant technology-market discontinuities: </li></ul><ul><li>Dominant design switches with three outcomes: </li></ul><ul><ul><li>bankruptcy </li></ul></ul><ul><ul><li>entrepreneurship </li></ul></ul><ul><ul><li>weathering the storm </li></ul></ul>
    85. 87. Other Examples: New paradigm often results in displacement of incumbents by new entrants <ul><li>Mechanical to electronic to auto-kinetic watches </li></ul><ul><li>Wired to wireless telecom </li></ul><ul><li>Bank branches to ATMs </li></ul><ul><li>Vacuum tubes to transistors </li></ul><ul><li>Propulsion to jet engines </li></ul><ul><li>Typewriters to word processors </li></ul><ul><li>35MM Camera to Digital Photos </li></ul><ul><li>Disk drives for desktop to laptop PCs </li></ul><ul><li>Brick&mortar bookstores to e-book retail </li></ul>
    86. 88. Strategy and Innovation <ul><li>Part I, Day 1 </li></ul><ul><ul><li>What is strategy? Frameworks </li></ul></ul><ul><ul><li>External vs Internal Focus: Customer & Knowledge </li></ul></ul><ul><ul><li>Strategy and Design </li></ul></ul><ul><li>Part II, Day 1 </li></ul><ul><ul><li>Strategic Management of Innovation </li></ul></ul><ul><ul><li>Market and Firm Inertia </li></ul></ul><ul><ul><ul><li>Photography Industry </li></ul></ul></ul>
    87. 89. Technological Substitution 35MM Digital time performance/cost
    88. 90. From 35MM to Digital Cameras 35MM with FILM Digital with FLASH CARD
    89. 91. Paradigm <ul><li>35MM </li></ul><ul><li>Digital </li></ul>
    90. 92. Key Players, Value Chain <ul><li>Players: </li></ul><ul><ul><li>Kodak, Canon, Minolta, Fuji, Agfa-Gevaert, Sony, Zeiss Ikon, Polaroid (bankrupt in 2002), Casio </li></ul></ul><ul><li>Value Chain : </li></ul><ul><ul><li>(1) Housing, (2)Shutter mechanism, (3) Optics, (4) Flash and Power source, (5) Development, (6) Printing, (7) Wholesale and (8) Retail </li></ul></ul>
    91. 93. Evolution in this “ecology” <ul><li>!: 80-85 ….2: 86-90 ….3: 91-95 ….. 4: 96-03 </li></ul><ul><li>Photography Group </li></ul><ul><li>Adjacent Groups (Computer HW and SW) </li></ul><ul><li>Development Infrastructure </li></ul>
    92. 94. Evolution of Photography 35MM Cameras And Early DI (Sony MAVICA No Substitution Paradigm and its Trajectory Very “Obvious” PC Revolution Internet and Email limited to Universities Photo CD with CD Player 1. Complementary technologies And 2. Firms with NE Strategies, hugging Aging Paradigms 80-85 86-90 91-95 96-2003 Polaroid Bankrupt Price-adjusted Quality full Match Digital sales Exceeds Conventional Sales ‘ Counter’ Innovations APS Convergence In Full Swing
    93. 95. Paradigm <ul><li>35MM : </li></ul><ul><ul><li>Complements are development, paper </li></ul></ul><ul><ul><li>50Mn plus pixels </li></ul></ul><ul><ul><li>Limited duplication, transmission </li></ul></ul><ul><ul><li>Analog </li></ul></ul><ul><ul><li>Hard, Real </li></ul></ul><ul><ul><li>Key Players Kodak, Agfa, Fuji, also Canon </li></ul></ul><ul><ul><li>Companion Paradigms: Film and film reels, Movie Production, Projection </li></ul></ul><ul><li>Digital: </li></ul><ul><ul><li>Complements are PC, WWW, Email </li></ul></ul><ul><ul><li>Number of pixels growing </li></ul></ul><ul><ul><li>Duplication </li></ul></ul><ul><ul><li>Digital </li></ul></ul><ul><ul><li>Soft, Virtual </li></ul></ul><ul><ul><li>Key Players Canon, Sony, Minolta, and perhaps Kodak </li></ul></ul><ul><ul><li>Companion Paradigms: Editing, Visual arts, Movie Production </li></ul></ul>
    94. 96. Key photography elements of product/service/delivery Relative Value Price Resolution Features Immediate Viewing Image Sharing Digital
    95. 97. Camera Film Image Taken Slides Developing Negatives Prints Slide Album Photo Album Consumer Re - purchase Cycle Traditional Film Image Lifecycle Frequent re - purchases Photographic Process – Digital vs. Film Paradigm
    96. 98. Imaging Equipment Imaging Media Imaging Transfer Imaging Storage Imaging Display <ul><li>Canon </li></ul><ul><li>Nikon </li></ul><ul><li>Kodak </li></ul><ul><li>Olympus </li></ul><ul><li>Minolta </li></ul><ul><li>Polaroid </li></ul>Traditional Industry Players Digital Industry New Players <ul><li>Sony </li></ul><ul><li>H-P </li></ul><ul><li>Kodak film </li></ul><ul><li>Fuji film </li></ul><ul><li>Agfa film </li></ul><ul><li>Kodak Chemicals </li></ul><ul><li>Kodak Paper </li></ul><ul><li>Fuji Paper </li></ul><ul><li>Various Album Manufacturers </li></ul><ul><li>SanDisk </li></ul><ul><li>Sony </li></ul><ul><li>Intel </li></ul><ul><li>Toshiba </li></ul><ul><li>Microsoft Software </li></ul><ul><li>Adobe Software </li></ul><ul><li>Kodak Software </li></ul><ul><li>Dell Software </li></ul><ul><li>H-P Printers / Ink </li></ul><ul><li>Epson Printers / Ink </li></ul><ul><li>Lexmark Printers / Ink </li></ul><ul><li>Ofoto online </li></ul><ul><li>H-P paper </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li>CD-ROMs </li></ul><ul><li>PC Manufacturers </li></ul><ul><li>Mobile Phones </li></ul><ul><li>Palm Pilots / PDAs </li></ul>Imaging Equipment Imaging Media Imaging Transfer Imaging Storage Imaging Display Imaging / Photography Value Chain
    97. 99. …….
    98. 100. Photography Industry - Milestones Digital Sales Exceeds 35 mm Sales 2003 Kodak Stops making 35 mm camera 2004 Kodak introduces ‘Brownie’ camera 1900 Compact Flash (from SanDisk) introduced 1994 Kodak’s Photo CD introduced 1992 Kodak’s Ofoto Online service founded 1999 Advanced Photo System (APS) introduced 1996 Canon’s first all-digital camera introduced 1986 Sony’s MAVICA digital video camera introduced 1981 Kodak roll film introduced 1882 Kodak founded by George Eastman 1880 First photographic picture (Daguerre Type) 1827 Event Year
    99. 101. Cameras <ul><li>Old versus New Paradigm </li></ul><ul><ul><li>“ Razor Blade” </li></ul></ul><ul><ul><li>Polaroid Dead and Kodak out of the Dow (DJIA) </li></ul></ul><ul><ul><li>Movie Theaters and Hollywood next? </li></ul></ul><ul><ul><li>Film, Paper and Album replaced by Digital </li></ul></ul><ul><ul><li>… ..and WWW and Email </li></ul></ul><ul><ul><li>What is Next ? </li></ul></ul>
    100. 102. Kodak Options <ul><ul><li>Majority of Kodak’s revenues come from sales of films not cameras, and digital cameras do not use any film. How difficult for Kodak to give up its cash cow product. </li></ul></ul><ul><ul><li>The economics of traditional photography are much more attractive for producers than those of digital. A constraint on Kodak? </li></ul></ul><ul><ul><li>Finally, given that Kodak supports a vast organization on the basis of film sales, and that digital won’t yield profits for some time to come, how will this organization be supported in lieu of film sales. </li></ul></ul>
    101. 103. Patents, Strategic Alliances, Joint Ventures…..
    102. 104. <ul><li>Approached digital photography as a threat to its core business </li></ul><ul><ul><li>Saw cannibalization of existing film-based business </li></ul></ul><ul><ul><li>Focused on current consumer behavior vs. emergent technologies (Paradigm Hugging) </li></ul></ul><ul><ul><li>Focused on traditional film competitors (e.g. Fuji) </li></ul></ul>Kodak’s Response to Digital Disruption
    103. 105. Kodak’s Response to Digital Disruption <ul><li>Before December 2001: </li></ul><ul><ul><li>Kodak’s organization was organized by end-user market </li></ul></ul><ul><ul><li>The work of digital champions had to be divided among the various segments rather than as a unified strategy </li></ul></ul><ul><ul><li>Besides having the difficulty of charging one group with the responsibility to develop Kodak’s digital strategy, simple funding for R&D efforts would be d ivided among the existing segments </li></ul></ul><ul><ul><li>Given this structure, digital imaging was a threat to the established paradigm and its “owners” </li></ul></ul>
    104. 106. Kodak Refocuses <ul><li>Kodak restructured in 2002 to better integrate digital technology into its product line </li></ul><ul><ul><ul><li>Photography </li></ul></ul></ul><ul><ul><ul><li>Health Imaging </li></ul></ul></ul><ul><ul><ul><li>Commercial Imaging </li></ul></ul></ul><ul><li>Refocused on the business of “Photography” </li></ul><ul><ul><li>Recognized the need to meet multiple market segments: </li></ul></ul><ul><ul><ul><li>Consumers with differing needs, shopping habits, Internet usage, technical sophistication </li></ul></ul></ul><ul><ul><ul><li>Partnering with other firms </li></ul></ul></ul>
    105. 107. Kodak’s Prospects <ul><li>Kodak is not the leader it once was; its core competencies in paper and film have become core rigidities </li></ul><ul><li>The photography market is likely to be much more fragmented </li></ul><ul><li>As we will see on June 13, we need a dedicated integrated business unit for new paradigm to overcome core rigidities </li></ul>
    106. 108. So far… lessons: <ul><li>1. Death of “Dominant Design” </li></ul><ul><ul><li>Firm versus its environment </li></ul></ul><ul><ul><li>Innovations </li></ul></ul><ul><ul><li>Inertia and Paradigm Huggers </li></ul></ul><ul><li>2. Unlocking the Firm or Industry from “Old” Paradigm </li></ul><ul><li>Photography Industry </li></ul>
    107. 109. First Day <ul><li>Concept of Strategy </li></ul><ul><li>External (Customer, market) and Internal (Knowledge) View </li></ul><ul><li>Tools for Strategizing (Internal Structure and External Structures) </li></ul><ul><li>The Strategic Challenge for Players in their Industry in overcoming Inertia </li></ul>