Business Strategy Development: Key Concepts and Frameworks. Chiligum Strategies 2013

STRATEGYDEVELOPMENTKey Concepts and FrameworksChiligum Strategies2012

Strategies,that Make a Difference.Chiligum Strategies2012

1. What about Strategy?2. Strategic Analysis3. Strategy Development4. Strategy Implementation

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

What aboutStrategy?

Carl von Clausewitz (1780-1831)“Tactics is the art of using troopsin battle; strategy is the art ofusing battles to win wars.”

Helmuth Karl BernhardGraf von Moltke (1800 - 1891)“Strategy is the practical adaptationof the means placed at a generalsdisposal to the attainment of theobject in view.”

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

Kenneth R Andrews (1916-2005)“the pattern of objectives, purposesor goals and major policies and plansfor achieving these goals stated insuch a way as to define what businessthe company is or is to be in and thekind of company it is or is to be.”

Kenichi Ohmae (* 1943) Strategy essentially deals with the interplay of three forces: Customer, Corporation, Competition. Good strategy is 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 do we like to go? How do we get there?“ Peter Edelmann, Senior Executive President Voith Turbo Foto:

StrategicAnalysis

Mental Models“Mental Models are deeply ingrainedassumptions, generalizations, or evenpictures or images that influence howwe understand the world and how wetake action. Very often, we are notconsciously aware of our mentalmodels or the effects they have onour behaviour.” Senge P (1992:8)

PESTEL AnalysisWhat are the key issues, that impact your business?Political EconomicalEnvironment EnvironmentSocial TechnologicalEnvironment EnvironmentEnvironmental LegalEnvironment Environment

SWOT Analysis (Andrews)FIT matters! Task, to match internal strength and weaknesseswith external opportunities and risksSTRENGTH OPPORTUNITIESWEAKNESSES RISKSKeep findings descriptive; Investigate both internal AND external issues

Ohmahe - Key Success Drivers What factors and drivers are especially important to perform superior in your industry? Ohmahe (K 1982)

Market Orientation / Behavioral View“Market orientation is theorganizationwide generation of marketintelligence pertaining to currentand future customer needs,dissemination of the intelligenceacross departments, andorganizationwide responsiveness toit.” Kohli, Jaworski (1990:6)

Market Orientation / Cultural View“Market orientation it theorganization culture that mosteffectively and efficient creates thenecessary behaviours for the creationof superior value for buyers and,thus, continuous superior performancefor the business.“ Narver, Slater (1990:21)

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

“The secret to getting ahead is getting started.” (Mark Twain) Foto:

StrategyDevelopment

Purpose and Culture Vision – long-term, encouraging, aspiration for the future Mission – purpose of the business Values – attitudes, behaviours, character of organization to guide actions like an internal compass

Purpose and ValueStrategy development requires tounderstand ‘the benefit of having awell-articulated, stable purpose, andthe importance of discovering,understanding, documenting, andexploiting insights about how tocreate more value than othercompetitors do’ Campbell (1997 p 42)

Point of View Universal objectives (profitability, costs, turnover, sales, quality, etc. ) define what a company must do to survive However do not automatically suggest unique strategies nor provide any direction The essence of why an organization exists does provide guidance to achieve these universal objectives Campbell (1997 p 42)

Planning Processes Processes of developing good strategies are‘much more messy, experimental, iterative; and driven from the bottom up’ than many planning processes suggest Besides, if there were one best way, everyone would use it However, processes and frameworks do provide structure, help to systematize the basis and context for decision taking and document results along the way Campbell (1997 p 46)

Generic Strategies Competitive Advantage Differentiation Lower Cost Narrow Target Broad Target Competitive Scope DIFFEREN- COST TIATION LEADERSHIP FOCUS Niche Market Efficiency Porter (1985)

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

Strategic Moves Current Markets New Markets Current Products Market Market Penetration Development New Products Product Diversification Development Ansoff (1965)

Strategic Business Units“An SBU is composed of a product orproduct lines having identifiableindependence from other products orproduct lines in terms ofcompetition, prices, substitutabilityof product, style/quality and impactof product withdrawal.” Jain (2004 p. 18)

SBU Characteristics Unique business mission, independent of other SBUs Clearly definable set of competitors Able to carry out integrative planning relatively independently of other SBUs Large enough to justify senior management attention, but small enough to serve a useful focus for resource allocation Jain (2004)

Defining SBUs Customer Groups Technologies Customer Functions

Good Segmentation Identifiability – Ability to identify + measure relevant characteristics Size and Stability – Sufficient number of buyers – Needs or factors do not change too rapidly Accessibility – Ability to reach target segment in economical way Responsiveness – Segment responds homogeneously to a specific marketing mix Schiffman et al. (2005)

Ultimate Check Meaningful Actionable Financially attractive

Business Model Customer Benefits Configuration Company BoundariesCustomer Core Strategic ValueInterface Strategy Resources NetworkFulfilment & Support Business Mission Core Competencies SuppliersInformation & Product/Market Strategic Assets PartnersInsight Scope Core Processes CoalitionsRelationship Basis forDynamics DifferentiationPricing Structure Efficient / Fit / Profit Boosters Hamel G (2002)

Strategy As Simple Rules To allow quick moves in dynamic markets Focus on pursue of opportunities by increasing flexibility in decision taking Just enough guidance and structure by a limited set (<10) of simple and unique rules regarding key processes Rules mainly experience-based, important to neither set rules too broad nor too vague Challenge to balance long-term perspective and to adapt rules to changing conditions Eisenhardt (2001 pp. 108-115)

Types of Rules How-to rules, guiding execution of key processes Boundary rules, limiting range of opportunities (company scope) Priority rules, setting priorities for resource allocation Timing rules, adapting internal schedules to the pace of markets Exit rules, defining criteria to exit opportunities in the light of unpredictable developments Eisenhardt (2001 p. 111)

Innovation and Change Understanding mental models – Mindsets that influence decision making – Task to make the implicit explicit and to constantly question and challenge those long-held believes Thinking beyond best-practice – necessary but not sufficient, while leading 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 Bickhoff N 2008, Hamel G 2002, Kumar N 2000, Porter 1996

Strategy Evaluation Suitability: Is there a sustainable competitive advantage? Feasibility: Does firm have the skills, resources, and commitments? Internal consistency: Does strategy hang together? Vulnerability: What are the risks and contingencies? Workability: Can we retain our flexibility? Jain (2004)

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

StrategyImplementation

Strategy Maps To visualize cause-effect relationships among key drivers To support strategy alignment and to facilitate strategy communication Each perspective supports the execution on the next level Strategy Maps link to Balanced Score Card Generic maps provide guidance to develop unique maps tailored to company Best applied at various levels (corporate, SBU, department) Kaplan, Norton (1996, 2004, 2008)

Strategy Map Increase ROI Increase revenues inFinancial Grow revenues in new Improve productivity existing segmentsPerspective 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-performancePerspective 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 Kaplan, Norton (2008)

Balanced Score Card Performance measuring system to include and quantify intangible assets Customer perspective, internal processes and learning as building blocks Financial performance as ultimate indicator Companies vision and mission stand above providing overall direction „You cannot manage, what you cannot measure.“

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

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

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

Many thx to my readers,a thousand thx to my teachers!Any question or suggestion?!Looking forward!Benjamin Teeuwsenbenjamin@chiligum.comwww.chiligum.com

Management Readinglist: Check here!

Andrews K R (1987) ‘The Concepts of Corporate Strategy’ Richard D Unwin, HomewoodBickhoff N (2008) ‚Quintessenz des strategischen Managements – Was Sie wirklich wissen müssen, 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’ Boston References

Kohli A K, Jaworski B J (1990) ‘Market Orientation: The Construct, Research Propositions, and Managerial Implications’ Journal of Marketing, Vol. 54, No. 2, pp. 1-18Kumar N, Scheer L, Kotler P (2000) ‚From Market Drive to Market Driving‘ European Management 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 Forest NSWSenge 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 References

Further Concepts Blue Ocean Strategies (Kim, Mauborgne ) Sustainable Competive Advantage Systems Thinking Core Competencies (Hamel, Prahalad) Strategic Intent (Hamel, Prahalad) Distinctive Capabilities (Day) Five Forces (Porter) Value Chain (Porter) Resource-based view (Barney, Clark) Portfolio Analysis (BCG, McKinsey, etc.) Product Lifecycle, Industry Lifecycle Six Sigma (Pande, Neuman, Cavanagh) Total Quality Management

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