Corporate Strategy Development -- Key Concepts and Frameworks -- B. Teeuwsen 2010

Key Concepts & FrameworksBenjamin Teeuwsen 2010

“In peace prepare for war, in war preparefor peace. The art of war is of vitalimportance to the state.” (512 BC)

“The following overview aims at giving an understanding ofthe nature of strategy development and to guide and inspirethe practical application by presenting key frameworks,concepts and issues.” Benjamin Teeuwsen

“If one does not know to which port oneis sailing, no wind is favorable.”(Lucius Annaeus Seneca)

‫‏‬“Tactics is the art of using troops in battle; strategy is the art of using battles to win wars.”

‫‏‬“Strategy is the practical adaptation of the means placed at a generals disposal to the attainment of the object in view.”

‫‏‬“the pattern of objectives, purposes or goals and major policies and plans for achieving these goals stated in such a way as to define what business the company is or is to be in and the kind of company it is or is to be.”(in: Anthony 1965)

“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” Porter (1996:64) Photo: Allesandra Fratus

Strategy deals essentially with the interplay of three forces(strategic 3 Cs): – Customer, Corporation, CompetitionGood strategy characterized through – Clear market definition – Good match between corporate strengths and needs of the market – Superior performance in the key success factors of the business (in: Jain 2004)

„Strategy development is a question-based process: Where are we now? Where would we like to go? How do we get there?“Peter Edelmann, Senior Executive President Voith Turbo

“Mental Models are deeply ingrained assumptions,generalizations, or even pictures or images that influencehow we understand the world and how we take action.Very often, we are not consciously aware of our mentalmodels or the effects they have on our behaviour.”

What are the key issues we face in our business?Political EconomicalEnvironment EnvironmentSocial TechnologicalEnvironment EnvironmentEnvironmental LegalEnvironment Environment

FIT matters! Task, to match internal strength and weaknesses withexternal opportunities and risksSTRENGTH OPPORTUNITIESWEAKNESSES RISKSKeep findings descriptive;Investigate both internal AND external issues

What factors and drivers are especiallyimportant to perform superior in your industry?

“Market orientation is the organizationwide generation ofmarket intelligence pertaining to current and futurecustomer needs, dissemination of the intelligence acrossdepartments, and organizationwide responsiveness to it.”Kohli, Jaworski (1990:6)‫‏‬

“Market orientation it the organization culture that most effectively and efficient creates the necessary behaviours for the creation of superior value for buyers and, thus, continuous superior performance for the business.” Narver, Slater (1990:21)‫‏‬

Who are your key competitors?How do they perform?What are there strengths and weaknesses?What could be there strategy?How could all of this impact your business?

Think of all of your stakeholder groups:What do they expect from your company?

Vision – long-term, encouraging, aspiration for the futureMission – purpose of the businessValues – attitudes, behaviours, character of organization to guide actions like an internal compass

Strategy development requires managers to understand ‘thebenefit of having a well-articulated, stable purpose, and theimportance of discovering, understanding, documenting, andexploiting insights about how to create more value than othercompetitors do’Universal objectives (profitability, costs, turnover, sales,quality, etc. ) define what a company must do to survive, butdo not automatically suggest unique strategies nor providedirectionThe essence of why an organization exists does provideguidance to achieve these universal objectives

Processes of developing good strategies are‘much more messy, experimental, iterative; and driven fromthe bottom up’ than many planning processes suggestBesides, if there were one best way, everyone would use itHowever, processes and frameworks do provide structure, helpto systematize the basis and context for decision taking anddocument results along the way

Competitive Advantage Differentiation Lower Cost Broad TargetCompetitive Scope DIFFEREN- COST TIATION LEADERSHIP Narrow Target FOCUS Niche Market Efficiency

(Tearcy, Wiersema 1995) Operational Product Customer Excellence Leadership Intimacy Sharpen distribution Nurture ideas, translate Provide solutions and Strategic systems and provide them into products, and help customers run Direction no-hassle service market them skillfully their business Has strong, central Acts in an ad hoc, Pushes empowerment Organizational authority and a finite organic, loosely knit, close to customer Arrangement level of empowerment and ever-changing way contact Maintain standard Reward individuals´ Measure the cost of Systems operating procedures innovative capacity and providing service and of Support new product success maintaining custome loyalty Acts predictably and Experiments and thinks Is flexible and thinks Corporate believes „one size fits „out-of-the-box“ „have it your way“ Culture all“

Current Markets New MarketsCurrent Products Market Market Penetration DevelopmentNew Products Product Diversi- Development fication

“An SBU is composed of a product or product lines havingidentifiable independence from other products or productlines in terms of competition, prices, substitutability ofproduct, style/quality and impact of product withdrawal.”

Unique business mission, independent of other SBUsClearly definable set of competitorsAble to carry out integrative planning relatively independentlyof other SBUsLarge enough to justify senior management attention, butsmall enough to serve a useful focus for resource allocation

Customer Groups 4. Dimension: Level of Distribution TechnologiesCustomer Functions

Identifiability – Ability to identify + measure relevant characteristicsSize – Sufficient number of buyersStability – Needs or factors do not change too rapidlyAccessibility – Ability to reach target segment in economical wayResponsiveness – Segment responds homogeneously to a specific marketing mix

-> Meaningful -> Actionable -> Financially attractive

Customer Benefits Configuration Company BoundariesCutomer Core Strategic ValueInterface Strategy Resources NetworkFulfilment & Support Business Mission Core Competencies SuppliersInformation & Insight Product/Market Strategic Assets Partners ScopeRelationship Core Processes CoalitionsDynamics Basis for DifferentiationPricing Structure Efficient / Fit / Profit Boosters (1)‫‏‬ (1) Increasing Returns, Competitor Lock-Out, Strategic Economies, Strategic Flexibility

Approach to allow quick moves in dynamic markets byincreasing managers´ flexibility in decision takingPuts focus on growth and pursue of opportunitiesProvides just enough guidance and structure by a limited set(<10) of simple and unique rules regarding key processesRules mainly based on experience (first-hand or second-hand)Important to not set rules too broad (no specific focus) orvague (not easy to follow)Challenge to balance strategy consistency (long-termperspective) and need to adapt rules to changing conditions

How-to rules – guiding execution of key processesBoundary rules – limiting range of opportunities (company scope)Priority rules – setting priorities for resource allocationTiming rules – adapting internal schedules to the pace of marketsExit rules – defining criteria to exit opportunities in the light of unpredictable developments

Understanding mental models – Managers´ mindsets (industry dogmas) that influence decision making – Task to make the implicit explicit and to constantly question and challenge those long-held believesThinking beyond best-practice – process-reengineering, TQM, etc. necessary but not sufficient and lead towards performance barrier – ‚Dream, create, explore, invent, pioneer, imagine …‘ (Hamel G 2002 p. 28)Changing the rules of the game! – From market driven to market driving by value proposition AND business system

Suitability: Is there a sustainable competitive advantage?Validity: Are assumptions realistic?Feasibility: Does firm have the skills, resources, andcommitments?Internal consistency: Does strategy hang together?Vulnerability: What are the risks and contingencies?Workability: Can we retain our flexibility?Timing: What is the appropriate time horizon?

To visualize cause-effect relationships among strategicobjectivesTo support strategy alignmentBest applied at various levels (corporate, SBU)Each perspective helps to execute the one aboveVisual representation of the linked components facilitatesstrategy communicationMaps link to Balanced Score CardGeneric maps provide guidance to develop unique mapstailored to company

Which customers and markets to target?What is the value proposition that distinguishes us?What key processes give us competitive advantage?What are the human capital capabilities required to excelthese key processes?What are the technology enablers requiredfor the strategy?

Increase return on capitalFinancial Increase revenues in Grow revenues in newPerspective Improve productivity existing segments products and services and markets Improve Operating Grow High-Value Accelerate Product Quality and Efficiency Customer Relationships Innovation Provide valued service, Introduce innovative, Customer Be a leader in quality applications expertise, high-performance Perspective and reliability and support products and solutions Optimize customer Excel at technology, Improve supply chainProcess profitability product development efficiency and effectivenessPerspective and life cycle Expand channels management Improve quality, cost, offerings, and markets and flexibility of Identify next-generation Build and maintain strong operating processes market opportunities customer relationshipsLearning Create a high-Performance Cultureand Growth Expand and build Enable and require Develop leadership andPerspective strategic skills, capabilities, continuous learning and execution-driven culture and expertise sharing of knowledge

Performance measuring system to quantify also intangibleassetsCustomer perspective, internal processes and learning asbuilding blocksFinancial performance as ultimate indicatorCompanies vision and mission stand above providing overalldirection„You cannot manage, what you cannot measure.“

Set global goals – What do you generally aim at?Define measures – How will you measure your results?Set targets – Specific goals related to your measures you like to achieve in a certain time framePlan initiatives – What actions will take place to meet your goals?

“There are three kind of companies, those that make things happen, those that watch things happen – and those that wonder what happened.” (anonymous)

“Predicting rain does not count – building arks does.” (anonymous)

Many thx to my readers, a thousand thx to my teachers!Any question or suggestion?!Please feel free to drop me a line!Benjamin Teeuwsenbenjamin@chiligum.comwww.chiligum.com

www.chiligum.com

Andrews K R (1987) ‘The Concepts of Corporate Strategy’ Richard D Unwin, HomewoodBickhoff N (2008) ‚Quintessenz des strategischen Managements – Was Sie wirklich wissenmüssen, um im Wettbewerb zu überleben‘ Springer-Verlag, BerlinCampbell A, Alexander M (1997) ‚What’s Wrong with Strategy?’ HBR Nov-Dec, pp. 42-51Eisenhardt K M, Sull D N (2001) ‚Strategy as Simple Rules‘ HBR Jan-Mar, pp. 107-116Hamel G (2002) ‘Leading the Revolution’ Harvard Business School Press, Boston USAJain S C (2004 7th ed.) ‘Marketing: Planning and Strategy’ Thomson, Ohio USAKaplan R S, Norton D P (2008) ‘Mastering the Management System’ HBR, Jan, pp. 63-77Kaplan R S, Norton D P (2004) ‘Strategy Maps’ BostonKaplan R S, Norton D P (1996) ‘The Balanced Scorecard’ BostonKohli A K, Jaworski B J (1990) ‘Market Orientation: The Construct, Research Propositions, andManagerial Implications’ Journal of Marketing, Vol. 54, No. 2, pp. 1-18

Kumar N, Scheer L, Kotler P (2000) ‚From Market Drive to Market Driving‘ EuropeanManagement Journal Vol. 18 No. 2, pp. 129-142Narver J C, Slater S. F. (1990) ‘The effect of a market orientation on business profitability’Journal of Marketing, Vol. 54, No. 4, pp. 20-36Porter M E (1996) ‘What is Strategy?’ Harvard Business Review, No. 6, Nov-Dec, pp. 61-78Porter M E (1985) ‘Competitive Advantage’ Free Press, New YorkSchiffman L et al. (2005) ‘Consumer Behaviour’ Pearson Education Australia, Frenchs ForestNSWSenge P M (1990) ‘The Fifth Discipline: The Art and Practice of the learning Organization‘Currency DoubledayTreacy M, Weirsema F (1995) ‘The Discipline of Market Leaders: Choose Your Customers,Narrow Your Focus, Dominate Your Market’ Perseus Books, Cambridge

Blue Ocean Strategies (Kim, Mauborgne )Core Competencies (Hamel, Prahalad);Distinctive Capabilities (Day)Five Forces (Porter)Portfolio Analysis (BCG, McKinsey, etc.)Product Lifecycle, Industry LifecycleResource-based view (Barney, Clark)Six Sigma (Pande, Neuman, Cavanagh)Strategic Intent (Hamel, Prahalad)Sustainable Competive AdvantageTotal Quality ManagementValue Chain (Porter)

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Corporate Strategy Development -- Key Concepts and Frameworks -- B. Teeuwsen 2010

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