What is Strategy?

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A presentation for developing a good understanding of the concept of strategy drawn from many academic sources as well as executive teaching experience over several years. The author Ganesh N Prabhu is Professor of Strategy at the Indian Institute of Management Bangalore. http://www.iimb.ac.in/~gprabhu

What is Strategy?

  1. 1. What is Strategy? Ganesh N Prabhu Indian Institute of Management Bangalore Revised March 2013
  2. 2. Presentation Overview This presentation aims to: 1. Enable you to understand what the concept of strategy is. 2. Enable you to make sense of the many terms used for it. 3. Enable you to recognize a good strategy when you see it. 4. Help you identify data required to design a good strategy. 5. Enable you to use data effectively to design good strategy. 6. Enable you to identify and make good strategic choices. 7. Enable you to develop and write an effective strategic plan. 8. Show you how to identify bad strategy and actively avoid it.October 2012 Ganesh N Prabhu@IIM Bangalore 2
  3. 3. Vision, Mission, Strategy, Decisions, Tactics Many of these terms are used to talk about strategy:  Vision is what you want to BE – may never happen!  Mission is what you want to ACHIEVE – major goals.  Strategy is HOW you will do what you want achieved.  Decisions are called strategic decisions if they are likely to be of high impact and of long term impact.  Tactics are immediate ways to address contingencies.  Both strategic and tactical decisions can lead to Learning and Insight that helps in taking better strategic decisions.October 2012 Ganesh N Prabhu@IIM Bangalore 3
  4. 4. Mission Statement vs Vision Statement How will you get where  Where you want to be? you want to be?  Purpose and Values Purpose and Objectives.  Why are we here? What do we do?  Talks about future From the present towards  Where you see yourself in the future future? Broad goals  Inspires to give best Internal audience  Audience is self and others Key success measures  Understanding of why we May change but remains work here within core values and  Usually the same even with vision major market changes It is about what you DO  It is what you ARE not just and will do in future what you do. Oct 2012 Ganesh N Prabhu@IIM Bangalore 4
  5. 5. Role of Vision and Values Vision enables stakeholders to see if they are aligned with it or they may decide to disassociate themselves from the firm. Values may force you to drop product or market options that go against your values or may destroy values built over time. Vision and Values will guide and funnel down what you will consider doing and more importantly will not consider doing. Vision and Values when clearly communicated will enable the firm to attract valuable stakeholders such as investors, lenders, partners, employees and volunteers over time. Vision and Values grow inclusively and get refined over time.October 2012 Ganesh N Prabhu@IIM Bangalore 5
  6. 6. Role of Goals and Strategic Planning Goals are to be set in line with the vision, values and strategy. Goals have to be SMART – Specific, Measurable, Attainable, Relevant, Time-bound. If any of these are missing, goals will be seen as irrelevant or meaningless and not worth pursuing. Strategic Planning enables stakeholders to plan on how to attain their goals. Typically it is an annual exercise with a three year horizon – with the first year more detailed than the rest. Strategic Planning includes adding people, adding to their competencies, adding resources, adding locations/businesses. Strategic Planning also includes deleting products etc. 6
  7. 7. Three Player Chess!October 2012 Ganesh N Prabhu@IIM Bangalore 7
  8. 8. Rules of Three Player Chess 1. All pieces are same – move just like in normal chess. 2. Each move is to improve your position over the others. 3. As moves are made the resources (pieces) gain in value with resources in center of higher value than in corners. 4. As in chess, players may have different competence levels but all three players start with equal resources. However: 1. Objective is to stay on till both others get checkmated. 2. The king of the first player checkmated is removed but the rest of that player’s pieces remain as mercenaries. 3. Play continues between the remaining two players who can capture and convert the mercenaries into their pieces.October 2012 Ganesh N Prabhu@IIM Bangalore 8
  9. 9. Strategy in Three Player Chess!  Though you may have a broad plan, no specific or detailed action plan can be decided at the start of the three player chess game.  Strategy gets formed and it changes as the game progresses.  At every move all the three players will have to strategize.  At every move you have to think what two others will do!  Any two players can combine efforts to defeat the third one.  The environment suddenly changes when one player loses!  Mercenaries captured by either player can create new options.  So at times it is better to avoid or delay a clear checkmate.  It is extremely challenging compared to two player chess!  Yet continual efforts by any player to retain pieces and get into better positions while probing defenses can yield positive results.October 2012 Ganesh N Prabhu@IIM Bangalore 9
  10. 10. Strategy in Business is Like Three Player Chess! Chess grandmasters can think many more moves ahead. But even grandmasters will have trouble on this board! Most businesses are in similar multi-competitor arenas. Every business requires thinking many moves ahead but no strategy can be fully decided at the initial start stage. Decisions must anticipate all multi-competitor actions. Strategy gets formed and changes as businesses progress. At every stage all business players will need to strategize. Yet continual efforts to build better resources and better market positions can yield positive results over time.October 2012 Ganesh N Prabhu@IIM Bangalore 10
  11. 11. Strategic Thinking is more than Strategic Planning Kenichi Ohmae (1982) identified three types of thinking: Linear thinking – thinking step by step as in planning. Intuitive thinking – unconscious process to reach solutions. Strategic thinking – involves problem dissection, analysis, weighing constituents, scenario development or options and creative reintegration using a fluidic iterative process. Pisapia et.al (2005) – the three strategic thinking components: 1.System thinking – seeing patterns in complex situations. 2.Reflection – building on experience – what may work? 3.Reframing – generating innovative insights and options.March 2013 Ganesh N Prabhu@IIM Bangalore 11
  12. 12. So What is a GOOD Strategy? Strategy is in HOW to advance the firm’s key interests. 1. Good strategy lies in identifying all the critical factors affecting an organization’s performance and survival. 2. Good strategy is in making important choices on what factors to address and focusing sharp thinking on them. 3. Good strategy is in design of a specific & coherent way to coordinate and focus actions on all critical factors. Competitive superiority and high coherence in design of economic tasks may lead to good economic return. Good economic return does not imply good strategy! It may possibly imply good strategy existed in the past.October 2012 Ganesh N Prabhu@IIM Bangalore 12
  13. 13. Recognizing a Good StrategyGood strategy will typically emerge from a deep analysis of data & trends - what works, what does not work & why.1. Good strategy will have a clear-cut situation diagnoses.2. Good strategy will identify a clear-cut approach to fix it.3. Good strategy will focus on it with new/fresh insight.4. Good strategy will identify all the significant tradeoffs.5. Good strategy will therefore result in coherent actions.6. Good strategy will evolve by trial and error learning.7. Good strategy will require multiple types of feedback.October Good strategy will require only minor fixing at times.8. 2012 Ganesh N Prabhu@IIM Bangalore 13
  14. 14. Data Required to Design a Good Strategy1. Data on major industry trends that can be leveraged.2. Data on threats/opportunities in the industry to do an industry analysis from an incumbent’s point of view.3. Data on strengths/weaknesses of all your competitors.4. Data on strengths/weaknesses of your strategic group – competitors who operate in similar ways as you do.5. Data on your firm’s major strengths/weaknesses as compared to your significant/immediate competitors.6. Data on all your firm’s resources that can be leveraged.7. Data on all your firm’s slack resources that can be used.8. Data on unique resources & capabilities to be leveraged.October 2012 Ganesh N Prabhu@IIM Bangalore 14
  15. 15. Designing Effective Competitive Strategy Diagnose your key strengths and weaknesses. Diagnose strengths and weaknesses of others. Apply your strengths on the promising options. Apply your strengths on others’ weaknesses. Protect your weaknesses from attack by others. Create new strengths using new opportunities. Implement with concerted and coherent action. Craft a process that others cannot easily counter Be consistent yet use feedback to course correctOctober 2012 Ganesh N Prabhu@IIM Bangalore 15
  16. 16. What is Required in Building a Good Strategy?Greater the challenge greater the need for good strategy.Good strategy combines in-depth analysis with intuition.Good strategy combines good design with specific action.Good strategy enables businesses to survive and perform.Even good strategy may need to be changed over time.Good strategy leverages on Tactical actions that worked.Good strategies that worked are repeated as Programs.Good strategy also requires Policies to enable delegation.Good strategy is typically far easier to see in other firms!Good strategy is very rare and good strategists are rarer.Octiober 2012 Ganesh N Prabhu@IIM Bangalore 16
  17. 17. Steps for Adding a New Product/Business1. Critically examine your resource base and identify resources that are of value in business over time.2. Critically examine internal competencies to locate competencies that are of potential business value.3. Carefully identify business areas where you have competitive advantages – where your resources and competencies are superior to existing players.4. Within these identified business areas shortlist those businesses with positive industry forces.5. Within those businesses with positive industry forces identify ones you can enter by leveraging your unique resources and competencies.October 2012 Ganesh N Prabhu@IIM Bangalore
  18. 18. How to Choose New Business Options 1. First leverage existing/slack resources to create new value for existing users – low cost + low risk. 2. Next add new resources to create new value for existing users – higher cost + low risk. 3. Next leverage existing/slack resources to create new value for new users – low cost + higher risk. 4. Lastly add new resources to create new value for new users – higher cost + higher risk.  Avoid any conflicts with your existing business.  Avoid prematurely moving to the fourth option.October 2012 Ganesh N Prabhu@IIM Bangalore
  19. 19. How to Choose a Business Level Strategy If resources are valuable, rare, inimitable and non- substitutable they create competitive advantage. 1. If your VRIN resources apply to the entire market then go for Broad Differentiation strategy. 2. If your VRIN resources apply to a part of the market then go for Focus Differentiation strategy. 3. If your resources are not VRIN then by default go for Cost Leadership strategy – broad or focus. This assumes that industry forces are positive and firm has competencies to utilize the resources.October 2012 Ganesh N Prabhu@IIM Bangalore
  20. 20. Arenas for Creating New Value Stage Purchase Delivery Use Supple- Maint- Disposal Utility ments enance /Closure User Productivity User Convenience Reduction of User’s Risk Aesthetics Fun & Image Reducing Cost of Ownership Environmental CompatibilityOctober 2012 Ganesh N Prabhu@IIM Bangalore 20
  21. 21. New Business Options in Emerging Markets1. First go for users with high intent to buy but many users cannot find it or cannot afford it due to high unit prices. 2. Next go for users with high intent to buy but many users cannot afford it due to higher prices and higher features. 3. Next go for markets with high demand but you can easily move users to products designed appropriately for them. 4. Next go for markets with latent demand but many do not consider it as it is high priced and appears inappropriate. 5. Next go for markets with latent demand but many do not consider it as it is too cheap and so appears inappropriate. 6. Next go for markets with high demand but you have to aggressively get customers to consider a better product. 7. Last for markets with no demand as you need to create it.October 2012 Ganesh N Prabhu@IIM Bangalore
  22. 22. Creating New Strategy is Like Creating New Products1. We acquire all publicly available knowledge in area.2. We build some proprietary insights from experience.3. We then combine both the public and proprietary knowledge to create new insightful configurations.4. We intuitively/mentally test such new configurations.5. We then prototype the promising new configurations.6. If prototype works then we launch it with a punch.7. If prototype/launch fails, we modify it and test it again.8. If a product works, we should NOT fix it until it fails!9. If a strategy works, we should NOT fix it until it fails! Failures are often due to firms fixing a good strategy or prematurely testing the growth limits of a good strategy!October 2012 Ganesh N Prabhu@IIM Bangalore 22
  23. 23. When Does a Good Strategy Start to Fail? Good strategy will create a business model that works. A business model defines who is the customer, what they value and why they pay the price that covers costs. A business model makes specific assumptions about customer behavior. If these assumptions become faulty over time then the business returns will not materialize. Business models also have limits in which they work. If these limits (e.g. willingness to pay premium) can be stretched then a business may survive corrective actions. If the business model is very sensitive to variations in customer behavior and/or limits cannot be stretched then even corrective actions may not save that business.October 2012 Ganesh N Prabhu@IIM Bangalore
  24. 24. Designing a Good Strategic Plan 1. Diagnose the major and critical factors and the inter-relationships between all these factors. 2. Identify a powerful approach to deal with all the identified major/critical factors effectively. 3. Build a business model on the identified approach. 4. Plan and take coherent action with appropriate resources that focus well on the critical factors. 5. Track changes in all critical factors over time. 6. Follow up on the actions by examining the response/feedback and take corrective action. 7. Identify when a new strategy may be required.October 2012 Ganesh N Prabhu@IIM Bangalore 24
  25. 25. Effective Written Strategic Plans Have a clear and fact based executive summary. Present and justify their new business model. Show how you will reach buyers and convert. Identify those who will implement the plan. Cover all risks & show how they are covered. Show how plans fits their firm’s business goals. Show few and only the most critical numbers. Show homework – answer obvious questions.October 2012 Ganesh N Prabhu@IIM Bangalore
  26. 26. What Strategy is NOT!Not the same as vision – what you want to be!Not a slogan – what you want to be in catchy words!Not an exhortation – what you want to be said loudly!Not the same as high goals – what you want to achieve!Not the same as ambition – how much you will achieve!Not a listing of all past successes – what is already done.Not in making fluffy general statements about success.Not about charismatic leaders with willing followers.Not a list of your competitors that reduce your profits!Not just a listing of things to do without knowing why!In all the above – HOW & WHY of strategy is missing!October 2012 Ganesh N Prabhu@IIM Bangalore 26
  27. 27. Recognizing Bad Strategy  Bad strategy must be recognized before it causes failure. 1. Bad strategy will lack coherence in thought and action. 2. Bad strategy substitutes fluff for clear concerted action. 3. Bad strategy is usually built on mistaken objectives. 4. Bad strategy usually mistakes goal setting for strategy. 5. Bad strategy will not recognize contradictory demands. 6. Bad strategy avoids identifying why, what, when and how. 7. Bad strategy avoids identifying critical issues/challenges. 8. Bad strategy avoids prioritizing/making critical choices. 9. Bad strategy avoids showing a clear way to reach set goals. 10.Bad strategy avoids or ignores implementation of plans.  Bad strategy is expensive in both human and monetary terms.October 2012 Ganesh N Prabhu@IIM Bangalore 27
  28. 28. Presentation Summary This presentation covered: 1. What is the concept of strategy and the terms used for it. 2. Recognizing a good strategy and designing good strategy. 3. Identifying data and using data to design a good strategy. 4. Identifying and making good strategic choices over time. 5. The steps to be taken for adding a new product/business. 6. Identifying and choosing between new business options. 7. Designing and writing an effective strategic business plan. 8. Recognizing bad strategy and ensuring that it is avoided.October 2012 Ganesh N Prabhu@IIM Bangalore 28
  29. 29. References1. The Mind of the Strategist – Kenichi Ohmae (1982)2. So What is Strategy? – Roger Evered (1983)3. The Strategy Concept: Five Ps of Strategy – Henry Mintzberg (1987)4. What is Strategy? – Michael E. Porter (1996)5. The Search for Strategy – Gary Hamel (1997)6. Knowing a Winning Business Idea When You See One - Chan Kim / Renée Mauborgne (2000)7. What is Strategy and does it Matter? – Richard Wittington (2001)8. Strategy as Simple Rules – Kathryn Eisenhardt (2001)9. The Oxford Handbook of Strategy – Faulkner/Cambell (2003)10. What is Strategy? – Deepak K Sinha (2003)11. What is Strategy and How do You Know if You Have One? – Costas Markdes (2004)12. Developing the Leader’s Strategic Mindset – Pisapia et.al. (2005)13. Can You Say What your Strategy is? – Collis/Rukstad (2008)14. Good Strategy/Bad Strategy – Richard Rumelt (2011)15. How to Identify New Business Models – Sinfield et.al (2012)March 2013 Ganesh N Prabhu@IIM Bangalore 29

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