The Strategy Focused Organization Wali Memon1 Wali Memon
“Strategic thinking is the art ofoutdoing an adversary, knowingthat the adversary is trying todo the same to you.”“It is also the art of findingways to cooperate, even whenothers are motivated by self-interest, not benevolence. It isthe art of convincing others,and even yourself, to do whatyou say. It is the art ofinterpreting and revealinginformation. It is the art ofputting yourself in others shoesso as to predict and influencewhat they will do.” 2 Wali Memon The Art of Strategy, Dixit and Nalebuff, W.W. Norton, 2008.
Strategy Strategy is planning that allows you to get more than your fair share. Strategy is about getting customers and keeping them. Drucker: “The purpose of a business is to create a customer.” “Build it and they will come.”3 Wali Memon
Strategic Planning Planning how to get more than your fair share involves: Scanning the overall environment Scanning and researching the industry environment Researching direct competitors Researching a firm’s skills and resources Analyzing current strategy4 Wali Memon
5 Wali Memon“The Five Competitive Forces That Shape Strategy,” Michael Porter, Harvard Business Review, January 2008.
BTI Michael Porter wrote the initial model for the Five Forces in 1979. He wrote “What Is Strategy” for HBR in 1996, his seminal book Competitive Strategy in 1981, and Competitive Advantage in1985. Before the Internet (BTI) Before Google Before Napster, iTunes, and the iPod Before craigslist.com He didn’t consider how to compete with free.6 Wali Memon
BBE Porter made his major contributions to strategy theory Before Behavioral Economics (BBE) research. BE research has shown that people do not make rational decisions and that markets are not rational. That success is more often the result of luck (randomness) than carefully planned strategy.7 Wali Memon
Randomness People are not wired to understand randomness. We are wired to see patterns and causality; can’t accept randomness. Can’t plan for luck. But can be nimble and take advantage of lucky breaks.8 Wali Memon
Operational Effectiveness Is Not Strategy Concentration on core competencies and competitive positioning via benchmarking can lead companies down the path toward mutually destructive competition. Companies must distinguish between operational effectiveness and strategy and not confuse them. 9 Wali Memon“What is Strategy,” Michael Porter, Harvard Business Review, November 1996, Reprint # 96608
Operational Effectiveness Is Not Strategy Operational effectiveness is necessary to compete but not sufficient to win. A company can outperform others and win only if it can establish a difference that it can preserve – a differential competitive advantage. In the past barriers to entry were the primary competitive advantage. Operational effectiveness means doing things better than competitors, strategic positioning means doing things different from competitors.10 Wali Memon
Strategy Rests On Unique Activities The essence of strategy is choosing to perform activities differently than rivals do. Strategic positions can be based on customers’ needs, customers’ accessibility, or the variety of a company’s products or services. Porter’s concept of fit is no longer valid. Change is happening too fast. Remember, “structure follows strategy”11 Wali Memon
Generic Strategies There are three generic (primary) strategies: Differentiation Focus (niche marketing) Cost leadership These definitions characterize strategic positions at the simplest and broadest levels.12 Wali Memon
Secondary Strategies Within the three basic strategies, there are several secondary strategies: Defense: Block competition to avoid losing market share. Offense: Attack competition head on. Flanker Brand: Establish new position. Fighting Brand: Create a new brand to compete with competitive new brand. Guerrilla Marketing: Force competition to respond with small resources. Ambush Marketing13 Wali Memon
Profitable Niche Measurable, sizable, reachable Niche strategy advantages: – Flexible, can adapt to new needs, small range of needs. – Efficient for promotion, distribution. – Reduces competitive pressure. – With few competitors, can be highly profitable.14 Wali Memon
Niche strategy disadvantages: Few economies of scale Success breeds competition. When new competitors enter the niche, strategy must change. To thrive in most businesses, must be #1, #2, or get out (find a new niche). Get out in the long tail.15 Wali Memon
A Sustainable Strategic Position Requires Trade-offs Tradeoffs are essential to strategy. They create the need for choice and purposefully limit what a company offers. Remembering that a valuable position will attract copycats. Can’t be all things to all people. Be best at doing a few things. Then expand on those core competencies. Apple Google17 Wali Memon
Sustainable Competitive Advantage Unique competitive position for a company Activities tailored to strategy Clear trade-offs and choices vis-à-vis competitors Competitive advantage arises from fit across activities. And sustainable barriers to entry Sustainability comes from the activity system, not the parts. Operational effectiveness a given Constant innovation a must18 Wali Memon
Determining Strategy To determine strategy, answer the following questions: Which of our products/services are the most distinctive? Which of our products/services are the most profitable? Which of our customers are the most satisfied? Which customers, channels, or purchase occasions are most profitable? Which of the activities in our value chain are the most different and effective. How can we make everything better? Now!19 Wali Memon
Profit is Important Profit is the key to a successful strategy, not growth. Compromises and inconsistencies in the pursuit of growth will erode the competitive advantage a company. Keep an eye on profitable growth.20 Wali Memon
Potential Traps Meaningless differentiation Getting greedy Groupthink Alfred Sloan Throwing money at a problem Lack of commitment Innovation stagnation21 Wali Memon
Perceptual Problems “All the kids are above average…” Jim Collins lists five basic management perceptual mistakes that lead to five stages of decline: Stage 1: Hubris Born of Success Stage 2: Undisciplined pursuit of more Stage 3: Denial of risk and peril Stage 4: Grasping for Salvation Stage 5: Capitulation to Irrelevance or Death23 Wali Memon Jim Collins, How the Mighty Fall, Harper Collins, NY 2009.
The Role of Top Management The role of top management in an organization is: Defining an organization’s position and strategy Making trade-offs Forging fit among activities Building an innovation machine And strategy may have to change along with major structural changes in an industry -- flexibility is vitally important.24 Wali Memon
Successful Strategies Must be clear and simple. Must define how to get more than a fair share. Companies must be committed to its strategic moves and signal that commitment to competitors. Companies must follow through on commitments continually and retaliate quickly and aggressively to counter moves. Innovate25 Wali Memon
The Strategy Focused Organization * Mission: “Why we exist” Core Values: “What we believe in” Vision: “What we want to be” Strategy: “Our game plan (how to win)” Goals For Implementing Strategy (Metrics): “What we need to do” OUTCOMES Memon Wali Satisfied Delighted Effective Motivated and Shareholders Customers Process Prepared 26 Workforce* The Strategy Focused Organization, Robert Kaplan, David Notron, Harvard Business School Press, 2001