3. Position Audit Review & Control
Strategy
Mission & Corporate Strategic Option Strategy
Evaluation &
Objectives Appraisal Generation Implementation
Choice
Environmental
Analysis
Strategic Deciding which
Choice strategic options to implement.
The Johnson and Scholes model
of strategic management
Appreciating the
organisation’s
Strategic Strategic Putting the decision
Analysis Implementation into action.
strategic position.
12. 1. Conflicts with conventional product/market based views of
strategy
2. Finds it difficult to cope with a dynamic environment
3. Challenges the rational model of strategy
4. Leads to different conclusions
5. Has limited empirical evidence supporting it
Editor's Notes
Jeff Gell, Managing Director, BCG Chicago5 critical components of strategy:Vision – who you want to be, and where you want the company to headThe portfolio/business mix: which business do you want to be in versus exit, and how will that change over time? External analysis.For each business, what are the performance priorities? Growth, harvest, source of cash? The business lifecycle.Support capabilities and processes that will enable us to deliver on the portfolio vision. The value chain.Capital structure and financing aligned with portfolio priorities.A good corporate strategy requires a very aggressive change agenda. IMPLEMENT the results of the corporate strategy exercise. 4 keys to implementation:Laying out a clear roadmap, quarter by quarter: key activities, key milestones. Control & Measure.Clear set of KPIs to track progress: growth; margins; ROC, market shareLink executive compensation to drivers of value creation: which KPIs matter and are controllableManage the change process along the way – many stakeholders need to be brought along: management, board, investors, customers, suppliers…
We will follow the Rational Strategy Process Model as a guide for teaching the course. Doesn’t mean we believe this model works all the time in reality (it doesn’t). But it’s a good way of organizing the information and course content.You can see how this is really a linear expression of the Johnson & Scholes model of Strategic Management. The steps don’t happen linearly (which J&S recongnize), but it provides an organizing principle for us.
Position view: competitive advantage arises from the firm's position in relation to its competitors, customers and stakeholders. Resource-based view: focuses much more on the internal characteristics of the firm, claiming that competitive advantage arises from a unique asset or competence which the firm possesses.The aspects of the positioning approach taken into consideration so far are:Stakeholder theory;Porter's Five Forces theory;The BCG matrix;GE Business Screen;Ansoff product-market growth matrixWhile criticising the positioning approach, resource-based theorists argue that:the competitive advantage from a positioning approach is not sustainable due to being easily imitated.environments are too dynamic and unpredictable to analyse to allow positioning to be effective.it is easier to change the environment than it is to change the firm.The resources that can give a firm a competitive advantage can be considered under the following headings:Assets: Assets include things that a firm has, such as reputation, access to a particular raw material or a customer database. If these assets are rare and important they may qualify as strategic assets.Capabilities: Capabilities include things that a firm has learned to do with its assets, that is, a service orientation, or an ability to cut costs from an acquisition.Competences: Competences include a deeper-seated version of capabilities, represented by a routine that has been built up over time (e.g. a deep understanding of a particular specialised type of technology).
They should be valuable, making a significant difference to the firm’s efficiency and effectiveness:Cost or differentiation advantageCapacity to innovate or adaptResource should be rare in the industry. If a valuable resource resides within a large number of competitors, they cannot be a source of competitive advantage.They should be difficult to acquire, copy, or imitate—maybe due to limited supply, high tacit knowledge or high sunk costs. E.g., unique location, unique experiences/history, ambiguity about link between resources controlled and resulting competitive advantage, complex social interactions (organizations; culture and reputation).There must be no strategically equivalent valuable resource that a competitor can substitute.Capabilities and competences may be classified as dynamic if they are resources which will help an organisation develop or continue to maintain a significant advantage over their competitors. If they meet those criteria for being strategic resources, they will usually be referred to as core competences or capabilities.
Identify and classify the organization’s resources. Appraise strengths and weaknesses relative to those of your competitors. Identify opportunities for better resource utilization.Identify the organization’s capabilities. i.e., what it can do better than its rivals. Identify the resource input into each capability, and the complexity of the inputs.Appraise the profit-generating potential of resources and capabilities by (a) their potential for sustainable competitive advantage, and (b) the ability of the firm to capture those returns.Select a strategy which best exploits the organization’s resources and capabilities relative to the opportunities that exist in the external environment.Identify whether any resource gaps exist which need to be filled. Invest in improving the organization’s resource base.There are 2 fundamental reasons for making the resources and capabilities of the firm the foundation of its strategy:Internal resources and capabilities provide the basic direction for a firm’s strategyResources and capabilities are the primary source of profits for the firm.
1. The notion of core competences spreads beyond the ability of the firm to compete in just particular markets and industries. Yet many of the models we have used, such as the Porter models and the product life cycle, tend to discuss particular products and markets and develop strategic prescriptions for them. This leads to two possibilities:By using techniques which focus on products and markets individually, we may develop strategies which deplete the firm's wider core competences. Even where a firm is involved in a range of industries and has a unique core competence across them all, it is no guarantee of competitive advantage against more focused players in each market 2. The types of competitive advantage claimed by Barney (1991) and others can only be valid while there is no dramatic change in the environment of the firm.3. Rather than deciding on product/market mission, and competing in markets based on customers needs and competitor weaknesses, RBT suggests that strategy involves deciding what makes the firm unique and building strategy on that, extending into any products or markets where it will work. Impacts are:RBT strategy starts with the corporate appraisal, not with the mission of the business. Indeed the mission must adapt to fit the most recent extension of core competence.There is a much higher emphasis on finding an environment to match the firm rather than vice versaInvestors cannot be clear what industry they are investing in. 4. The basis of RBT is the suggestion that the firm should retain any unique strategic assets it has, outsource the remainder, and focus on building up relationships with internal and external stakeholders to develop its internal knowledge to improve performance and innovation —teamwork, collaboration, flexible working practices, participative culture. However, an alternative conclusion might be that unique knowledge is too valuable to risk losing in networks that could easily be 'burgled' by rivals through enticing contract staff and suppliers/customers to defect.5.The resource-based view is based upon economic reasoning. However, there is limited empirical evidence to support it. McGahan and Porter (1997) found that, overall, the choice of industry sector was more important than the firms' strategic resources in terms of the firms' profits by a factor of 19% compared to 8%.
For Citibank CEO John Reed, 1991 was a very tough year. Citi's stock had plummeted, in no small part because of its trouble-ridden global corporate bank. Some problems, such as non-performing Latin American loans, were shared by competitors. However, Citi was especially hobbled. Paradoxically, although it had banks in over 100 countries, many of these were weak. Local rivals with better ties to customers and government were strangling Citi's revenues and eroding its margins.Citi would always be at a disadvantage vis-a-vis local rivals, who had better government and industry contacts. A more feasible strategy would be to offer new services and try to become more efficient. However, there was nothing to stop competitors from following suit and neutralizing Citi's efforts. Reed, like so many of today's CEOs, was facing a quandary.‘By 1980, Citi had developed a system of banks in 100 countries. Its nearest rival. Hong Kong Shanghai Bank Corp., had offices in 40 countries. However, many of Citi's banks were weak, and margins were being squeezed in developed countries by competing local banks with better ties to customers and government. Meanwhile in developing countries, market volatility and political instability were real and costly hazards. Despite these problems, then-CEO John Reed realized that the international network could potentially put it in a unique position to do business with far-flung multinationals that desired further globalization. Also, it was unlikely that rivals could easily imitate this resource.As long as Citi was organized as a set of geographically based profit centers, local managers refused to give good service to multinationals that demanded bargain interest rates and service fees. The redesign incorporated a group of very powerful key account managers and the multifunctional, multi-product teams needed to serve them. A flexible resource allocation system was set up to provide human, product, and knowledge resources to each multinational client—to serve that client in a globally coordinated and integrated way anywhere in the world, for a vast array of products and on demand.
