Mastering business strategy simplifying the complex

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  • 1. Mastering Business Strategy: Simplifying the Complex By Dr. Michael McDermott mcdermottm1@nku.edu 25/01/2014 © McDermott, 2014 1
  • 2. Perspectives on Strategy Author(s) Perspective (Published) 1. Emergent Strategy Executives use unpredictability is used as a justification to avoid tough choices – “go-with-theflow”. Michael Porter Competitive Advantage Choose industry & unique competitive position. Prahalad & Hamel Core Competences Capabilities with four traits determine competitive advantage. Kim & Mauborgne Blue Ocean Strategy Create new & larger market space where no rivals, & enjoy benefits of lowest cost & highly differentiated. (1980) 3. (1990) 4. (2005) 25/01/2014 Key Message Henry Mintzberg (1978) 2. Key Concept © McDermott, 2014 2
  • 3. Perspectives on Strategy Author(s) Perspective (Published) Key Concept Key Message 5. Richard Rumelt 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 Playing to Win Make five integrated choices. 8. Rita McGrath The End of Competitive Advantage Forget sustainable advantage, and live with transient advantage 25/01/2014 (2011) (2013) (2013) © McDermott, 2014 3
  • 4. 1. MINTZBERG AND DELIBERATE VS EMERGENT STRATEGY 25/01/2014 © McDermott, 2014 4
  • 5. Emergent Strategy 25/01/2014 © McDermott, 2014 5
  • 6. Mintzberg (1978) Deliberate vs Emergent Strategy Strategy Deliberate Emergent Recommendations Delay making strategic choices until future is predictable. Monitor remote external environment & make necessary adjustments. 25/01/2014 Adjust also when major change sin external competitive environment © McDermott, 2014 6
  • 7. Companies develop intended strategy; Some plans are “dropped” or “unrealized”; 25/01/2014 Some unintended ideas emerge and are implemented © McDermott, 2014 7
  • 8. 25/01/2014 © McDermott, 2014 8
  • 9. 2. MICHAEL PORTER: COMPETITIVE POSITION FOR COMPETITIVE ADVANTAGE 25/01/2014 © McDermott, 2014 9
  • 10. Michael Porter and Strategy • The Porter view stresses the importance of analysis • Good analysis = good strategy • Good strategy = sustainable competitive advantage 25/01/2014 © McDermott, 2014 10
  • 11. Michael Porter and Strategy • What industry do we compete in? – So perform industry analysis. – Determine the nature of the nature. • How do we compete? – Select a generic strategy. 25/01/2014 © McDermott, 2014 11
  • 12. Michael Porter and Strategy Strategic Analysis Strategic Choice Competitive Advantage Industry Analysis Choice of Generic Strategy Competitive Advantage 25/01/2014 © McDermott, 2014 12
  • 13. Industry Analysis and Five Forces 25/01/2014 © McDermott, 2014 13
  • 14. 25/01/2014 © McDermott, 2014 14
  • 15. 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. 25/01/2014 © McDermott, 2014 15
  • 16. 3. PRAHALAD AND HAMEL: CORE COMPETENCE OF THE FIRM AND STRATEGIC INTENT 25/01/2014 © McDermott, 2014 16
  • 17. Why are tribute bands not superstars 25/01/2014 It’s obvious! We do not have all the four traits of core competences © McDermott, 2014 17
  • 18. Core Competences and the Resource-Based View (RBV)of the Firm (Prahald and Hamel, 1990) Competitive advantage is determined by internal considerations – the company’s capabilities Capabilities must possess four key traits 25/01/2014 © McDermott, 2014 18
  • 19. Core competences are of crucial importance (see above). But what are the defining traits of core competencies? 25/01/2014 © McDermott, 2014 19
  • 20. A Core Competence Passes three Tests 25/01/2014 © McDermott, 2014 20
  • 21. 25/01/2014 © McDermott, 2014 21
  • 22. 25/01/2014 © McDermott, 2014 22
  • 23. Strategic Intent 25/01/2014 © McDermott, 2014 23
  • 24. Strategic Intent Once tiny Japanese companies developed explicit strategic intent to beat their much larger US and European rivals 1960s Once tiny South Korean companies developed explicit strategic intent to beat their much larger Japanese rivals 1980s Once tiny Chinese companies developed explicit strategic intent to beat their much larger Asian rivals 1990s/2000s 25/01/2014 © McDermott, 2014 24
  • 25. Core competencies are increasingly based upon a company’s network 25/01/2014 © McDermott, 2014 25
  • 26. 4. KIM AND MAUBORGNE: BLUE OCEAN STRATEGY 25/01/2014 © McDermott, 2014 26
  • 27. Strategy Michael Porter Kim & Mauborgne Or how to survive with a Red Ocean Strategy 25/01/2014 Developing a Blue Ocean Strategy © McDermott, 2014 27
  • 28. 25/01/2014 © McDermott, 2014 28
  • 29. 25/01/2014 © McDermott, 2014 29
  • 30. Mmmm….wonder Why this slide is here? 25/01/2014 © McDermott, 2014 30
  • 31. 5. RICHARD RUMELT: WHAT’S THE PROBLEM? 25/01/2014 © McDermott, 2014 31
  • 32. Recognize this star, the movie and the dialogue? 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. Billy = Good Strategy 25/01/2014 Grady = Bad Strategy © McDermott, 2014 32
  • 33. The Key Message? Progress requires candid admission of the true problem No problem = no strategy Strategy = problem solving 25/01/2014 © McDermott, 2014 33
  • 34. Pre-requisite of Good Strategy The Root Cause of Bad Strategy 25/01/2014 © McDermott, 2014 34
  • 35. The Problem The Solution How can an older, slower, weaker, boxer who has lost his unique competences beat the world champion in energy-sapping heat of Africa? 25/01/2014 © McDermott, 2014 35
  • 36. Bad Strategy 25/01/2014 Good Strategy © McDermott, 2014 36
  • 37. Bad Strategy 25/01/2014 Good Strategy © McDermott, 2014 37
  • 38. What’s the “Big problem” facing these companies? 25/01/2014 © McDermott, 2014 38
  • 39. What’s the “Big issue/problem” facing these companies? The issue or problem may not be conspicuously obvious….but there is one lurking within. 25/01/2014 © McDermott, 2014 39
  • 40. 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 25/01/2014 © McDermott, 2014 40
  • 41. 6. CYNTHIA MONTGOMERY: THE STRATEGIST 25/01/2014 © McDermott, 2014 41
  • 42. 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. 25/01/2014 © McDermott, 2014 42
  • 43. Meaning-Maker “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; The Roles of the Strategist The Reasoner 25/01/2014 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) The Operator © McDermott, 2014 43
  • 44. The Buck Stops with the Strategist Develop Stated Purpose 25/01/2014 Develop Strategy Articulate Strategy in Concise Statement Sets Direction © McDermott, 2014 Establishes Priorities Guides all Activities 44
  • 45. 1. Defines firm’s unique value. 2. Explains its relevance – why it matters 3. Easy to understand & memorable Develop Stated Purpose Develop Strategy 25/01/2014 Articulate Strategy in Concise Statement Sets Direction © McDermott, 2014 Establishes Priorities Guides all Activities 45
  • 46. The Buck Stops with the Strategist Develop Stated Purpose Develop Strategy Sets Direction Establishes Priorities Guides all Activities Articulate Strategy in Concise Statement Strategy statement is important 25/01/2014 © McDermott, 2014 46
  • 47. 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. Source of competitive advantage 25/01/2014 Source of competitive disadvantage © McDermott, 2014 47
  • 48. Strategy and Strategy Statements Effective Ineffective 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5. 6. Distinctive Provides focus – the what Specific – the how Explanatory and transparent Targeted – the who Inspirational 25/01/2014 Too Generic – could be anyone Covers all bases Clichés – meaningless Baffling and opaque Scattered Dull © McDermott, 2014 48
  • 49. 7. A.G. LAFLEY AND ROGER L. MARTIN PLAYING TO WIN: STRATEGY IS FIVE INTEGRATED CHOICES 25/01/2014 © McDermott, 2014 49
  • 50. "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 25/01/2014 © McDermott, 2014 50
  • 51. 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? 25/01/2014 © McDermott, 2014 51
  • 52. Winning Demands Beating the Biggest and also the Best US airlines need to compete only where they can win - beating the airlines below The Biggest 25/01/2014 The Best © McDermott, 2014 52
  • 53. How to Win With a Low Cost Strategy With Differentiation • There can be only one winner! • There can be several winners • Whoever has the lowest costs • But the rewards rise with the level of differentiation achieved. • Focus must be on costreduction and standardization • And a willingness to lose customers that do not settle for standardization • Focus is customerunderstanding & brand building • High commitment to innovation Both strategies require the pursuit of distinctiveness 25/01/2014 © McDermott, 2014 53
  • 54. Strategy is Five Choices • What is your winning aspiration? • The purpose of your enterprise, its motivating aspiration. Choice 1. • Where will you play? • A playing field where you can achieve that aspiration. Choice 2. • How will you win? • The way you will win on the chosen playing field. Choice 3 • What capabilities must be in place? • The set and configuration of capabilities required to win in the chosen way. Choice 4 • What management systems are required? Choice 5 • The systems and measures that enable the capabilities and support the choices. 25/01/2014 © McDermott, 2014 54
  • 55. 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) 25/01/2014 © McDermott, 2014 55
  • 56. Notice how this is a dynamic system. Notice too the importance of feedback. Thus strategy is an iterative process Iterative process 25/01/2014 © McDermott, 2014 56
  • 57. 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) 25/01/2014 © McDermott, 2014 57
  • 58. 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. 25/01/2014 © McDermott, 2014 58
  • 59. Create fierce brand advocates; Make a difference in the world; Make money doing it In its own retail stores; Athletic wear for women Product & store design; Customer service; Supply-chain expertise. 25/01/2014 Creating technically superior yoga wear that is also very cool; Changes stock regularly to reinforce exclusivity & scarcity; Customers attracted to stores by knowledgeable staff © McDermott, 2014 Expand to: • Accessories? • Menswear? • Online presence? • Different retail formats? • How does store employee serve 59 the customers
  • 60. 2018 Global # 1 US sales of 1m vehicles All actions at the model, brand, category, sector, and company level driven by meeting the ideal. 25/01/2014 © McDermott, 2014 60
  • 61. What is Winning? What is your winning aspiration*? What is your stated purpose? What is your winning aspiration? 25/01/2014 Your Strategy © McDermott, 2014 61 * Note the similar starting point between Montgomery and The Strategist
  • 62. What is Winning? What is your winning aspiration? What is your stated purpose*? Thus your winning aspiration should reveal your identity This should focus upon framing ambitions around the customer 25/01/2014 © McDermott, 2014 62 * Note the similar starting point between Montgomery and The Strategist
  • 63. What is Winning? What is your winning aspiration? What is your stated purpose*? Thus your winning aspiration should reveal your identity This should focus upon framing ambitions around the customer 25/01/2014 © McDermott, 2014 63 * Note the similar starting point between Montgomery and The Strategist
  • 64. Examples of Winning Aspirations • 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. 25/01/2014 © McDermott, 2014 64
  • 65. Examples of Winning Aspirations: Who am I? to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time. We will be the easiest pharmacy retailer for customers to use. Undisputed Marketplace Leadership 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 25/01/2014 to be our customers' favorite place and way to eat and drink. “To bring inspiration and innovation to every athlete* in the world.” “* If you have a body, you are an athlete.” 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. 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. © McDermott, 2014 65
  • 66. Examples of Winning Aspirations: Who am I? to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time. to be our customers' favorite place and way to eat and drink. We will be the easiest pharmacy retailer for customers to use. “To bring inspiration and innovation to every athlete* in the world.” “* If you have a body, you are an athlete.” Undisputed Marketplace Leadership 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. 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 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. 25/01/2014 © McDermott, 2014 66
  • 67. • • • • 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. 25/01/2014 © McDermott, 2014 67
  • 68. 25/01/2014 © McDermott, 2014 68
  • 69. Two Questions are at the Heart of Strategy Where to play? How to Win? Strategy 25/01/2014 © McDermott, 2014 69
  • 70. Winning Aspiration Where & How to Play 25/01/2014 • Defines the scope of the firm’s activities • Defines: • What the firm will do; • Where; and • How © McDermott, 2014 70
  • 71. 1. Where to Play? Which markets? Which customers and/or consumers? Which Channels? Which Product Categories? Which parts of the industry value chain The answers capture the strategic playing field for the firm 25/01/2014 © McDermott, 2014 71
  • 72. 2. How to Win? Which markets? Which customers and/or consumers? Which Channels? Which Product Categories? Which parts of the industry value chain The recipe for success in each chosen area 25/01/2014 Competitive advantage © McDermott, 2014 72
  • 73. 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 25/01/2014 © McDermott, 2014 73
  • 74. Strategy What capabilities must be in place to win? Internal Capabilities (e.g. Innovation, Brand building, merchandising What management systems are required to support the strategic choices? External Capabilities (form partnerships with key parties such as designers, advertising & PR agencies, key influencers Deepening existing capabilities Building new capabilities 25/01/2014 © McDermott, 2014 74
  • 75. The Core Capabilities of P&G These five core capabilities support & reinforce each other It is the combination of these advantages that confers competitive advantage But this could also be Adidas or Nike? 25/01/2014 © McDermott, 2014 75
  • 76. Two Questions are at the Heart of Strategy How to Win? Where to play? Strategy What capabilities must be in place to win? 25/01/2014 What management systems are required to support the strategic choices? © McDermott, 2014 76
  • 77. 8. RITA GUNTHER MCGRATH: THE END OF COMPETITIVE ADVANTAGE 25/01/2014 © McDermott, 2014 77
  • 78. 25/01/2014 © McDermott, 2014 78
  • 79. Strategy the “old” way was a fight to the death 25/01/2014 © McDermott, 2014 79
  • 80. Think surfing, think strategy Ride the waves – knowing when to jump “off” and stay on. Even “good waves” are short-lived. 25/01/2014 © McDermott, 2014 80
  • 81. 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 25/01/2014 © McDermott, 2014 81