4. Strategy Defined
Strategy, according to the definition
in Wikipedia is a plan of action
designed to achieve a particular
goal.
My definition of strategy is three simple
words. Future Competitive Advantage.
5. 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.”
6. What Is Strategy?
Consists of the combination of competitive
moves and business approaches used by
managers to run the company and reach
specified goals
Management’s “game plan” to
– Attract and please customers
– Stake out a market position
– Compete successfully
– Grow the business
– Achieve targeted objectives
7. Strategy
The process of strategy includes:
– Analysis
– Formulation
– Implementation
8. What’s Strategy
* Where is the business trying to get to in the
long-term (direction)
* Which markets should a business compete in
and what kind of activities are involved in such
markets? (markets; scope)
* How can the business perform better than the
competition in those markets? (advantage)?
* What resources (skills, assets, finance,
relationships, technical competence, facilities)
are required in order to be able to compete?
(resources)?
9. Strategy - Continued
* What external, environmental factors affect the
businesses' ability to compete? (environment)?
* What are the values and expectations of those
who have power in and around the business?
(stakeholders)
10.
11. Flawed Concepts of Strategy
Strategy as action
– “Our strategy is to merge…”
– “… internationalize…”
– “… consolidate the industry…”
– “… outsource…”
– “…double our R&D budget…”
12. Strategy as aspiration
– “Our strategy is to be #1 or #2…”
– “Our strategy is to grow…”
– “Our strategy is to be the world leader…”
– “Our strategy is to provide superior returns to
our shareholders…”
13. Strategy as vision
– “Our strategy is to best understand and
satisfy our customers’ needs…”
– “ provide superior products and services ”
… provide superior products and services…
– “…to advance technology for mankind…”
14. Strategy at Different Levels of a
Business
Corporate Strategy
Business Unit Strategy
Operational Strategy
15. Strategic Thinking
“Strategic thinking is the art of outdoing an
adversary, knowing that the adversary is trying
to do the same to you.”
“It is also the art of finding ways to cooperate,
even when others are motivated by self-interest,
not benevolence. It is the art of convincing
others, and even yourself, to do what you say.
It is the art of interpreting and revealing
information. It is the art of putting yourself in
others shoes so as to predict and influence what
they will do.”
The Art of Strategy, Dixit and Nalebuff, W.W. Norton, 2008.
16. Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
Market and Competitive Position
Financial and Operational Positions
Customer and Stakeholder Perspective
2. Where do we want to go?
– Business(es) to be in and market positions to stake out
– Buyer needs and groups to serve
– Outcomes to achieve
3. How will we get there?
– A company’s answer to “how
will we get there?” is its strategy
17. Strategic Planning and Analysis
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 strategy
18. “The Five Competitive Forces That Shape Strategy,” Michael Porter, Harvard Business Review, January 2008.
19. Before the Internet
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.
20. Before Behavior Economics
Porter made his major contributions to strategy
theory before behavioral Economics research.
BE research has shown that people do not make
rational decisions (emotions dominate) and that
markets are not rational.
That success is more often the result of luck
(randomness) than carefully planned strategy.
21. 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.
22. 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.
“What is Strategy,” Michael Porter, Harvard Business Review, November 1996, Reprint # 96608
23. 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 sustain –
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.
24. 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”
25. 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.
26. 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 Marketing
27. 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.
28. 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.
30. 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
Google
31. 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 must
32. 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!
33. 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.
34. Potential Traps
Meaningless differentiation
Getting greedy
Groupthink
– Alfred Sloan
Throwing money at a problem
Lack of commitment
Innovation stagnation
36. 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 Death
Jim Collins, How the Mighty Fall, Harper Collins, NY 2009.
37. 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.
38. Organizations
Must have a visionary, meaningful mission
statement.
Must have a clear and simple strategy.
Must define how to get more than a fair share.
Must be committed to strategic moves and
signal commitment to competitors.
Must follow through on commitments continually
and retaliate quickly and aggressively to counter
moves.
Must continually innovate.
39. 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
Satisfied Delighted Effective Motivated and
Shareholders Customers Process Prepared
Workforce
* The Strategy Focused Organization, Robert Kaplan, David Notron, Harvard Business School Press, 2001
