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What is strategy new

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What is strategy new

  1. 1. What is strategy? By: Michael E. Porter Interpreted By: Nilesh Kumar 10BSP0148 IBS-B.
  2. 2. <ul><li>Your company is under severe loss due to competitor’s habit of imitating the same product with nearly same quality and extended warranty coverage but at a comparative lower price. </li></ul><ul><li>What will be your immediate step? </li></ul>Situation:
  3. 3. <ul><li>Do you think of: </li></ul><ul><ul><li>Launching a new product. You have the power. </li></ul></ul><ul><ul><li>Take operational advantage. Use 6 σ or JIT or Lean Manufacturing etc. Provide feature modifications. </li></ul></ul><ul><ul><li>Increased volume sales. Lower the price and (or) increase warranty. Intensified promotional activities. </li></ul></ul><ul><ul><li>Develop a “ STRATEGY” at the understanding of Strategic Positioning. You may use operational effectiveness for existing product or develop a new product all together. </li></ul></ul>Continued…
  4. 4. <ul><li>To sustain and thrive for excellence and avoid the need for 2 nd chance. </li></ul><ul><li>To define your VISION & MISSION and set achievable GOALS. </li></ul><ul><li>To understand your environment , within & out. </li></ul><ul><li>To create uniqueness in your activities and moves. </li></ul><ul><li>To lead the way and demonstrate . Core competencies. </li></ul><ul><li>To obtain best allocation and usage of your resources . </li></ul>Need of strategy.
  5. 5. <ul><li>To meet your objectives and align , if deviated. </li></ul><ul><li>To satisfy those who expect advancement and profits from you. It’s a 2 way process . Need fulfillment . </li></ul><ul><li>Remember, “STRATEGY” is understood and used by those who are foresighted . </li></ul><ul><ul><li>They have good assessment of “Right Time” , “Right Place” , “Right Resources” and hence develop “Right Strategy” w.r.t. requirements. </li></ul></ul><ul><li>To meet seen & unseen uncertainties and certainties . What to do and What not to do. </li></ul>Continued…
  6. 6. <ul><li>Operational Effectiveness vs. Strategy. </li></ul>Keep In Mind And We Shall Find Out In The End. Vs.
  7. 7. <ul><li>In the presence of competition you may: </li></ul><ul><ul><li>Ask for FLEXIBILITY. </li></ul></ul><ul><ul><li>Do the BENCHMARKING. </li></ul></ul><ul><ul><li>Opt for OUTSOURCING. </li></ul></ul><ul><ul><li>Nurture a few CORE COMPETENCIES. </li></ul></ul><ul><ul><li>Go for POSITIONING. </li></ul></ul>Operational Effectiveness Is Not Strategy:
  8. 8. <ul><li>Above beliefs are half-truths. What’s the consequence? </li></ul><ul><ul><ul><li>Self competition & hyper competition. </li></ul></ul></ul><ul><ul><ul><li>Nothing’s stable in this dynamic world of competition. Understand and realize the importance of flat world. </li></ul></ul></ul><ul><ul><ul><li>Strive for productivity, quality & speed. </li></ul></ul></ul><ul><li>Root cause is ability to differentiate between Operational effectiveness & Business strategy. </li></ul><ul><li>Current Belief: Management Tools = Operational Strategy. Result is FRUSTRATION & LOSS. Reason? </li></ul>Continued…
  9. 9. <ul><li>Your example is “NOKIA”. </li></ul><ul><ul><li>Very flexible organization. </li></ul></ul><ul><ul><li>Leveraging it’s employee for extra and extensive sales activities. </li></ul></ul><ul><ul><li>Benchmark it’s smart phone with Samsung. </li></ul></ul><ul><ul><li>Outsourced developers for handset design and applications. </li></ul></ul><ul><ul><li>Apart from durability, it has also chosen launch of a new handset very frequently. </li></ul></ul><ul><ul><li>Extensive media ad & promotions. </li></ul></ul>Example..??
  10. 10. <ul><li>What else can be done? </li></ul><ul><ul><li>They can make use of their strategic positioning, i.e. Environment, Expectation & Purpose and Resources & Competitors. </li></ul></ul><ul><ul><li>May be launching a fewer but high quality and defect free usage smart phones and reap profits on them. </li></ul></ul><ul><ul><li>May be acquisitions. May be collaborations with Google & Android. </li></ul></ul><ul><li>Industrial talk: Nokia may be acquired. </li></ul>Continued…
  11. 11. <ul><li>Difference with preservation. </li></ul><ul><li>Greater value at lower cost. </li></ul><ul><li>Cost & price. Slashing one slashes another. </li></ul><ul><li>Develop “Operational effectiveness” and also “Operational strategy” if necessary. </li></ul>Operational Effectiveness: Necessary But Not Sufficient.
  12. 12. <ul><li>Whom are you going to benefit when you overtake your benchmark? Think... </li></ul><ul><li>Remember: operational effectiveness is necessary to compete but insufficient to win. </li></ul><ul><li>Reason: Imitation & competition end. </li></ul><ul><li>Japan: Toyota: Luxury cars vs. Prius. Use of strategic positioning. </li></ul>Continued…
  13. 13. <ul><li>Concept of Productivity Frontier. </li></ul><ul><li>E.g. Maruti. </li></ul><ul><ul><li>800 </li></ul></ul><ul><ul><li>Zen </li></ul></ul><ul><ul><li>Esteem </li></ul></ul><ul><ul><li>Baleno </li></ul></ul><ul><ul><li>. </li></ul></ul><ul><ul><li>. </li></ul></ul><ul><ul><li>. </li></ul></ul><ul><ul><li>Vitara </li></ul></ul><ul><ul><li>Swift </li></ul></ul><ul><ul><li>Dzire </li></ul></ul><ul><ul><li>SX4 </li></ul></ul><ul><ul><li>Kizashi </li></ul></ul>Continued… High Relative Cost Position Low High Low Productivity Frontier
  14. 14. <ul><li>Productivity frontier vs. technology  Outwards. E.g. Companies that produced carburetors. </li></ul><ul><li>New system: Order processing & after sales service. E.g. Forbes. </li></ul><ul><li>Productivity frontier + continuous improvement + empowerment + change management + learning organization = Healthy organization. </li></ul>Continued…
  15. 15. <ul><li>Race of productivity factor races parallel between companies and this becomes endless such that no one wins. E.g. P&G and HUL. </li></ul><ul><li>Recent trend: Merger & acquisition. E.g. Infosys. </li></ul><ul><li>The companies with strategic vision stand still and stand apart. E.g. Bosch. </li></ul>Continued…
  16. 16. <ul><li>What is strategic positioning & how does it helps? </li></ul><ul><ul><li>Environment, Expectation & purpose and Resources & competencies. </li></ul></ul><ul><ul><li>Perform different activities from “rivals” and/or perform similar activities in a different way. </li></ul></ul><ul><ul><li>It helps in preserving “Distinctiveness” of the company. </li></ul></ul>Strategic Positioning & It’s 3 Principles: The Idea In Practice.
  17. 17. <ul><li>The 3 Principles: </li></ul><ul><ul><li>Strategy is the creation of a unique and valuable position involving a different set of activities. </li></ul></ul><ul><ul><li>Strategy requires you to trade-offs in competing- to choose what not to do. E.g. </li></ul></ul><ul><ul><li>Strategy involves creating “fit” among a company’s activities. </li></ul></ul>Continued…
  18. 18. <ul><ul><li>Strategy is the creation of a unique and valuable position involving a different set of activities. </li></ul></ul><ul><ul><ul><li>The 3 distinct sources: </li></ul></ul></ul><ul><ul><ul><ul><li>Few needs, many customers a.k.a. variety based positioning. E.g. Internet service providers like Tata Photon. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Broad needs, few customers a.k.a. need based positioning. E.g. Wealth management services like Bessemer. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Broad needs, many customers a.k.a. access based positioning. E.g. Telecom services like Tata Docomo. </li></ul></ul></ul></ul>Continued…
  19. 19. <ul><li>Tata Photon (+): ISP </li></ul><ul><li>Market: New and developing at rapid pace. </li></ul><ul><li>Uniqueness: USB Modem with high speed. Convenient packages – Post/pre paid. </li></ul><ul><li>Strategy: Partially Blue Ocean in ISP and Blue Ocean in USB modems. </li></ul><ul><li>Observation: 1.Tata Photon  2.Tata Photon+  3.Tata Photon TV </li></ul><ul><ul><li>Testing and shaping the market. </li></ul></ul><ul><ul><li>Capturing the market. </li></ul></ul><ul><ul><li>Extending the market. </li></ul></ul>Strategic Positioning Game Played By Tata Photon: Logical Increment. New Service Launch.
  20. 20. <ul><ul><li>Strategy requires you to trade-offs in competing- to choose what not to do. </li></ul></ul><ul><ul><ul><li>Incompatibility of competitive activities. E.g. Maruti vs. Toyota. </li></ul></ul></ul><ul><ul><ul><li>Trade-offs are necessary. E.g. Blackberry mobiles. </li></ul></ul></ul>Continued…
  21. 21. <ul><ul><li>Strategy involves creating “fit” among a company’s activities. </li></ul></ul><ul><ul><ul><li>To examine whether the practice applied fits into the organization. E.g. Design excellence fits Apple but may not fit with Samsung or Nokia. </li></ul></ul></ul><ul><ul><ul><li>Design uniqueness has given Apple the competitive advantage as well as core competency with sustainability. </li></ul></ul></ul>Continued…
  22. 22. <ul><li>How do you feel you are different from the one sitting next to you? </li></ul><ul><ul><li>It’s your uniqueness and that turns out to be your competitive strategy. </li></ul></ul><ul><ul><li>It may be your knowledge, skill set, leadership, hard work & smart work etc. </li></ul></ul><ul><ul><li>The placement which you will acquire through college will be based on this unique competitive strategy, but you may not acknowledge it with the term “strategy” now. </li></ul></ul>Situation:
  23. 23. <ul><li>How do you tailor your activities? </li></ul><ul><li>Understanding the need: </li></ul><ul><ul><li>Environment </li></ul></ul><ul><ul><li>Customer’s requirement </li></ul></ul><ul><ul><li>Affordability & accessibility </li></ul></ul><ul><li>May be then you can develop a suitable uniqueness that can be your competitive advantage and hence strategic positioning. </li></ul><ul><li>Differentiation strategy: Deliberate selection of set of activities to deliver unique mix of values. May be price or product features. </li></ul><ul><li>Alleviates strategic positioning. </li></ul>Strategy Rests On Unique Activities:
  24. 24. <ul><li>Dell: Customization along with online ordering along with high responsiveness along with JIT inventory and affordable prices . </li></ul><ul><li>Southwest Airlines: Uniqueness of connectivity service, price, small airports and frequency of flights. This uniqueness became their strategy. </li></ul>Continued…
  25. 25. <ul><li>Continental Lite vs. Southwest Airlines. </li></ul><ul><li>Points of parity: Low cost on some routes & full service on others. </li></ul><ul><li>Tradeoffs are essential to strategy. They create the need for choice and purposefully limit what a company offers. </li></ul><ul><ul><li>Remembering that a valuable position will attract copycats . </li></ul></ul>A Sustainable Strategic Position Requires Trade-Offs:
  26. 26. <ul><li>Can’t be all things to all people. Be best at doing a few things. </li></ul><ul><ul><li>Then expand on those core competencies. E.g. Apple, Google. </li></ul></ul><ul><li>Competitors follow either “repositioning” or “straddling” method to overtake. </li></ul><ul><li>Positioning not only selects but highlights the interdependencies between them. </li></ul>Continued…
  27. 27. <ul><li>3 reasons support this. Let’s see how. </li></ul><ul><ul><li>Mark the trade-off: Service industry to OEM. </li></ul></ul><ul><ul><li>A confusion to customers and danger of brand reputation. </li></ul></ul><ul><ul><li>So they need to trade-off to avoid inconsistencies in image or reputation. First reason. </li></ul></ul>Why Does Trade-Offs Arises? +
  28. 28. <ul><li>Difference in activity. Here R&D will have to be kept aside then. </li></ul><ul><li>Different positioning requires a different set of management, control, employee, market etc. Second reason. </li></ul>Continued… Designer and unique + = + = ?
  29. 29. <ul><li>Limit on internal co-ordination and control, i.e. make organizational priorities clear, transparent and visible. Third reason. E.g. Aston Martin for James Bond & car fans. Competency is robust design & engine efficiency. </li></ul><ul><li>Aston Martin will not go down to produce small segment vehicles, not at least in near future. </li></ul><ul><li>So with all the 3 reasons in mind, the creation of need for choices is purposefully limited to what a company offers. </li></ul>Continued… &
  30. 30. <ul><li>Fit locks out imitators by creating a chain that is as strong as it’s strongest link. What if “ FIT ” becomes “ UNFIT ?” </li></ul><ul><li>Many strategies fit into an organization. It’s how do we combine them with relevance. E.g. Southwest Airlines. </li></ul>Fit Drives Both: Competitive Advantage & Sustainability.
  31. 31. <ul><li>Types of fit: </li></ul><ul><ul><li>First order fit – simple consistency. </li></ul></ul><ul><ul><ul><li>MakeMYTrip – No brick models till now to book tickets. </li></ul></ul></ul><ul><ul><li>Second order fit – activities are reinforcing. </li></ul></ul><ul><ul><ul><li>MakeMytrip – Extensive promotions and internet ads. </li></ul></ul></ul><ul><ul><li>Third order fit – optimization of effort. </li></ul></ul><ul><ul><ul><li>MakeMytrip – With tie up among various airlines and real time data. </li></ul></ul></ul><ul><li>The 3 fits collectively help in strategy formulation. </li></ul>Continued…
  32. 32. <ul><li>Fit & sustainability. </li></ul><ul><ul><li>It is harder to imitate greater set of activities performed strategically and uniquely. </li></ul></ul><ul><ul><li>The more you account for 2 nd and 3 rd fit, better sustainability of advantages is achieved. A simple game of probability multiplication. </li></ul></ul><ul><ul><li>Fit creates pressure which ultimately induces operational effectiveness. Hence imitation is harder. </li></ul></ul>Continued…
  33. 33. <ul><li>The role of top management in an organization is: </li></ul><ul><ul><li>Leadership. </li></ul></ul><ul><ul><li>Defining an organization’s position, activities and strategy. </li></ul></ul><ul><ul><li>Making trade-offs between activities and positioning. </li></ul></ul><ul><ul><li>Innovation. </li></ul></ul><ul><li>This is what we learnt in Chinese Toy industry case but at a macro level. </li></ul>Continued…
  34. 34. <ul><li>Inefficient managers fail to distinguish between operational effectiveness and strategy. </li></ul><ul><li>Strategy is affected by external competition & environment and within the organization. Deviation from actual strategy. </li></ul><ul><li>Desire to grow (growth trap) leads to rapid change of strategies without watching or realizing their post implementation effects. </li></ul><ul><li>Inability to recognize appropriate strategy and hence misguided activities and irrelevant trade-offs. </li></ul>Rediscovering Strategy:
  35. 35. <ul><li>In order to grow rapidly, focus on deepening the strategic positioning, i.e. Environment, Expectation & purpose and Resource & competency. </li></ul><ul><li>Deepening position helps in – Distinctiveness, Strengthening fit and Communicating the strategy to customers. </li></ul><ul><li>Globalizing often helps in consistency with strategy but at a wider level. </li></ul>Continued…
  36. 36. <ul><li>Strategy is leaded by a leader. </li></ul><ul><ul><li>Leader – </li></ul></ul><ul><ul><ul><ul><li>Defines and communicates company’s position. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Makes trade-offs. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Forges fit among activities. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Maintains company’s distinctiveness. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Setting limits so as what to do and what not to do. </li></ul></ul></ul></ul><ul><li>A company have to change it’s strategy if there’s major industrial change. </li></ul>Continued…
  37. 37. <ul><li>Need of alignment with: </li></ul><ul><ul><li>New practice </li></ul></ul><ul><ul><li>Set appropriate activity & trade-offs </li></ul></ul><ul><ul><li>Understand the requirement - Customer’s & stakeholder’s perspective </li></ul></ul><ul><ul><li>Best usage of it’s available resources </li></ul></ul><ul><ul><li>Coordinate among organizing structure. </li></ul></ul>Continued…
  38. 38. <ul><li>Creation of unique and valuable position. </li></ul><ul><li>Involve a different set of activities. </li></ul><ul><li>Positioning of strategic positioning in a company. </li></ul><ul><li>Essence of trade-offs, in other words “What not to do.” </li></ul><ul><li>About integrating and coordinating activities and creating a fit among them. </li></ul>Now we can answer “What is strategy?”
  39. 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 Shareholders Delighted Customers Effective Process Motivated and Prepared Workforce

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