strategic management walter j. ferrier. page 2 strategy as process and perspective
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Strategic Management
Walter J. Ferrier
Page 2
Strategy as Process and Perspective
Page 3
1. Articulate Mission / Intent
• Sense of purpose, direction…• In which industries does firm compete?• How does firm compete?• Who are customers?• Who are competitors?
Strategic Management Process
Page 4
2. Set Objectives & Performance Targets
•Financial– Achieve 10% ROE and $1.55 EPS by YE08
– Increase stock price by $4.00-5.00/share• Strategic
– Become low price leader in industry by YE09
– Enter five new country markets by YE11
Page 5
3. Develop a Strategy
• Strategic themes/thrusts …How to compete:– International expansion– Increase brand name and reputation– Innovate by introducing new products– Aggressive behavior against rivals in old products
Page 6
4. Implement Strategy•Develop action plan at functional level
– Establish European distribution center•Buy warehouse facility near airport in Germany•Re-tool with robotic material handling system
– Create new ad campaign for 2008 Olympics•Get endorsement contract with Lance Armstrong,
Marylou Retton, Mia Hamm, and Michael Johnson•Develop TV ad with Spike Lee
– Launch new version of product•Create multifunctional design team•License Oracle’s newest technology•Increase R&D budget by 30%
– Cut prices on older version of product by 33%
Page 7
5. Evaluation and Adjustment
•Assess results relative to goals– Established price leadership in 2006– Achieved only 4% ROI in 2006
•Identify new opportunities / constraints– New technologies are coming– Rivals are merging
•Change strategy / implementation plan (as needed)
Page 8
DroppedStrategicActions
IntendedStrategy
StrategyCarried Out
EmergentStrategicActions
Strategic Planning vs. Strategizing
Page 9
Miles & Snow Strategy Types
Defenders Prospectors Analyzers Reactors (?)
Competitive advantage results from a clear and direct match between the firm’s:– Mission and values
• The firm’s definition of itself – Approach to business-level strategy
• New vs. existing markets, first-mover advantage, cost vs. innovation
– Characteristics and behaviors• Organizational structure, corporate culture,
command/control systems
Page 10
Defenders
Perspective• Defend current markets
• Narrow product domain
• Cautious growth strategies
• Emphasis on efficiency
Process• Intensive, systematic strategic planning
• Centralized control systems
• Leverage existing, proven technologies
• Performance based on efficiency
Page 11
Prospectors
Perspective• Open to experimentation
• Exploration of new markets
• Aware of external trends
• Open to growth spurts• Emphasis on innovation
Process• Strategy driven by innovation
•First-mover advantage
•Decentralized control systems
• Performance based on results
Page 12
Analyzers
Perspective• Keenly aware of external trends
•Balance between exploration and exploitation
•Purposeful growth building on proven capabilities, ideas
Process• Strategy driven by competitive intelligence, analysis
•“Fast-second” strategic maneuvering
• Performance based on results
Page 13
What Makes Shareholders Rich?
...Create New Wealth
– Vision looks beyond current boundaries– Strategy as continuous process– New perspectives, voices, conversations– Change rules of game– Experimentation, surprise
Page 14
New Strategy Glossary – Fresh Perspective
• Value migration: movement of growth and profit opportunities from one industry player to another
• Co-evolution: by working with direct competitors, customers, and suppliers, a company can create new businesses, markets, and industries
• White-space opportunity: overlooked areas of growth
possibilities that don't exactly match existing skills
• Strategic intent: corporate goal or destiny that represents a stretch for the organization, a point of view about the competitive position a company hopes to build over the coming decade
Page 15
Adidas-Reebok Merger
+
vs.
Page 16
+
Employees 26,100 24,600
U.S. Market Share 21.1% 36.3%
Global Market Share 25.0% 33.2%
Net Income $517.9 mil $1.2 bil
Hot ProductSmartShoe
+ Nelly’s shoe lineL. Armstrong apparel
+ iPod Sport Kit
Adidas-Reebok Merger
Page 17
Strategic Innovation
Page 18
Tower-building Competition
• Three teams build TinkerToy tower• 90 seconds each attempt• Tallest tower wins
– Competing teams may observe/scout, plan, organize, etc.
Page 19
High Jump Innovation: Scissor Kick
1929: 6’8”
Page 20
High Jump Innovation: Forward Roll
1960: 7’1”
Page 21
High Jump Innovation: Fosbury Flop
1968-present: 7’7” to 8’1/2”
Page 22
High Jump Innovation
1925 1950 1975 2000 2025
2.75m
2.50m
2.25m
2.00m
Scissor
Roll
Fosbury
Page 23
High Jump Innovation
?
1925 1950 1975 2000 2025
2.75m
2.50m
2.25m
2.00m
Scissor
Roll
Fosbury
The Ferrier Flight
Page 24
Innovation and Organic Growth
• Emphasis on:– Top-line revenue– Customer-centric, customer value– Internal and external social interactions– Cross-functional and cross-experiential teams– Empathetic, high EI people– Experimentation, learning– Entrepreneurial culture, boldness, audacity
• Value-creating strategy vs. Value-enhancing strategy
Page 25
Product1
New ProductIntroduction
ProfitPlateau
CompetitionErodesProfits
Product2
Profit
Product3 Product4
time
Value-creating vs. Value-enhancing Strategy
Page 26
Apple iPod
Page 27
Product1
New ProductIntroduction
ProfitPlateau
CompetitionErodesProfits
Product2
Profit
Profit
IntroduceiPod
iPodMini
iPodPhoto
BMWiPod
Adaptor
iPodWirelessRemote
WiFiiPod
iPodVideo
iPod +Timex Watch
iPod +Nike Shoe
Value-enhancing Innovation
Product1 Product2
Product3 Product4
time
Windows compatible
Value-creating vs. Value-enhancing Strategy
Price Cut
Value-creating Innovation
Page 28
Apple’s iPod Innovation Network
10 parts create 85% of the iPod’s cost
GM Ford
Apple
Unknown Battery Pack
Renesas (Japan) Display Driver
Inventec (Taiwan)-Assembly, Testing
Toshiba (China) – Hard Drive
Broadcom (Singapore)-Multimedia Processor
Toshiba-Matsushita (Japan)- Display Module
iPodPortalPlayer (US) Portal Player CPU
Unknown Back Enclosure
Unknown Mainboard PCB
Disney Timex
Digital Music Group
Delta Airlines
Nike
Samsung (Korea) – Mobile SDRAM memory
400 additional inputs with values from $2 to fractions of a penny, with an average value of $.05
Source: Portelligent, Inc. and Linden, Kraemer & Dedrick, 2007.
Alliance Network and Innovation
Page 29
Apple – alliance network in 1995 Apple – alliance network from 1995-1997
Apple ComputuerHigh Level of VC + VE
Alliance Network and Innovation
Page 30
Introducing the iPod Commode-dore…
Page 31
Innovation (good intentions)……………..……………….flop
Page 32
Unique Perspective
Page 33
How do you define the coffee industry?
Leisure,Enjoyment,
Social Interaction
Food &Beverage
Item
Coffee• Packaged• Convenience coffee• Café/restaurant drinking
Fashion
Caffeine Source
Page 34
How does Starbuck’s define coffee industry?
Page 35
Red vs. Blue Oceans
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Align organization towards strategic choice between low cost or differentiation
Align organization towards pursuit of low cost and differentiation
Coffee’s Next Blue Ocean?
Strategic Dimension 1
?S
trate
gic
Dim
en
sion 2
Page 37
Early U.S. Auto Industry
Page 38
Blue Oceans and The Auto Industry
Company / Product New/Incumbent Industry Char.
Ford Model-T New Entrant Unattractive
Toyota Corolla Incumbent Unattractive
Chrysler Minivan Incumbent Unattractive
Toyota Prius Hybrid Incumbent Unattractive
Page 39
Blue Oceans and Computer Industry
Company/Product New/Incumbent Industry Char.
IBM System 360 mainframe New Entrant Attractive
Apple PC (Apple II) New Entrant Attractive
Apple PC (MacIntosh) Incumbent Unattractive
Compaq Portable New Entrant Unattractive
Dell Build-to-order/JIT New Entrant Unattractive
Strategic Map: PC Industry (Pre-MacIntosh)
Fast/High Capacity
Low Price High Price
Apple II
Wang
IBM
Slow/Low Capacity
Strategic Map: PC Industry (Post-McIntosh; Pre-Dell)
User Friendliness• GUI • Drop & Drag • Mouse• WYSIWYG
Low Margin High Margin
Wang IBMDOS-based Operating System >copy *.doc A:\
AppleMacIntosh
Strategic Map: PC Industry (After Dell Enters)
High Quality &Dependability
“Regular” SupplyChain Management
LenovoAdequate
Quality
Apple
“Efficient” SupplyChain Management
High Price
Dell
Low Price
H-P
Personal Computers …what’s the next big thing?
Strategic Dimension 1
?Str
ate
gic
Dim
en
sion 2
Page 44
IBM Mainframe
Apple II
IBM PC Apple MacIntosh
Compaq Portable
Tablet PC
Compaq Laptop
IBM Wearable PC
Wearable PC
Page 45
Innovation in Shaving Razors
Try the razorsCompareEvaluate
What’s the next big thing?
Strategic Dimension 1
?
Str
ate
gic
Dim
ens
ion
2
Page 47
Gillette: More is Better…?
12 Blade
Page 48
Razors•Design features of razors and shaving performance
– Do they make a difference?– Do they create [real or perceived] value?
•What are relevant “strategic dimensions” of razor industry?
– What needs [real or perceived] do these dimensions fulfill?
Strategic Dimension 1
?Str
ate
gic
Dim
ensi
on
2
Page 49
MBA 606 New Restaurant Concepts
0
1
2
3
4
5
6
7
8
9
Theme FoodQuality
Location PricePoint
Food vs.Liquor
MenuBreadth
Chesterfield's
Kaleidoscope
Truman's
Rhythm Afrique
Crosshairs
Quarter Pole
5-Alarm Firehouse
Commonwealth
Page 50
MBA 606 New Restaurant Concepts
0
1
2
3
4
5
6
7
8
9
Theme FoodQuality
Location PricePoint
Food vs.Liquor
MenuBreadth
Chesterfield's
Kaleidoscope
Truman's
Rhythm Afrique
Crosshairs
Quarter Pole
5-Alarm Firehouse
Commonwealth
Page 51
MBA 606 New Restaurant Concepts
0
1
2
3
4
5
6
7
8
9
Them
e
Food
Quality
Loca
tion
Price
Point
Food
vs. L
iquor
Men
u Bre
adth
Patio
Mus
ic Art
Chesterfield's
Kaleidoscope
Truman's
Rhythm Afrique
Crosshairs
Quarter Pole
5-Alarm Firehouse
Commonwealth
Page 52
LG Internet Refrigerator
Page 53
Airbus A380
Page 54
Segway Personal Transporter
Page 55
Tooth Tunes
Page 56
Converging Industry Advantage
PalmtopComputing
Entertainment
WirelessTelephony
Page 57
Competitive Interaction
Hardball?
CompetitiveOutcomes
IndustryCharacteristics
OrganizationalCharacteristics
Page 59
Dethronement of the Leader
Market ShareShare
1950 1960 1970 1980 1990 20001950 1960 1970 1980 1990 2000
Wal-MartSears
JC Penney
Page 60
Dethronement of the Leader
Market Share
1950 1960 1970 1980 1990 20001950 1960 1970 1980 1990 2000
McDonnell-Douglass
Boeing
Airbus
Page 61
Dethronement of the Leader
Market Share(U.S.)
1980 1990 20051980 1990 2005
Adidas
Nike
Reebok
Page 62
King of the Hill – Fizzy Beverages
Market Share
1970 1980 1990 2000 2010 2020
Other ?Coke
PepsiPepsi
Page 63
Simple Rivalry: Prisoner’s Dilemma
What to say to police?
Criminal 1
Criminal 2
Confess
Confess
Keep Quiet
Keep Quiet
Both Serve 1 Year in Jail
Both Serve 5 Years in Jail
#2 Serves 10 Years in jail
#1 Goes Free
#1 Serves 10 Years in Jail
#2 Goes Free
Page 64
Three Stooges
Larry, Moe, and Curley are in a 3-way duel and agree to take turns shooting each other, in that order
Accuracy statistics:
– Larry hits target 20% of the time
– Moe hits target 80% of the time
– Curley hits target 100% of the time
When the duel starts, what should Larry do?
Page 65
Competitive Intelligence
A systematic and ethical program forgathering information about competitorsand general business trends to further yourown company’s goals
Page 66
Why CI?
Play the Game Differently•New market opportunity•New customers•Develop/leverage new value
chain strengths•New strategies/tactics•New “flow” of the game
Figuring out what drives behavior•Environment/industry drivers•Organizational drivers•Managerial drivers
Playing the Game Better•Focus on existing
competitors/strategic position•Leverage value chain strengths•Incrementally improve existing
strategies/tactics
Page 67
Competitor Intelligence Pyramid
s
z
aSources of Data
Analysis of Data
Recommendations
Page 68
Recommendations
Analysis of Data
Sources of Data
Competitor Intelligence Pyramid
•Industry experts/analysts•Industry publications•Trade shows/conferences•Advertisements/PR•University research centers•Financial•Court documents/patents•Suppliers/customers•Newspapers/business wire•Help wanted ads•Reverse engineering labs
Page 69
Your Rival’s Competitive Actions September 2006 to February 2007
• Contract with Spike Lee for TV ad
• Increase R&D budget by 30%
• Buy warehouse facility near airport in Germany, Re-tool with robotic material handling system
• License Oracle’s newest technology
• Cut prices on older version of product by 33%
• Endorsement contract with famous U.S. Olympic athletes
• Create multifunctional new product design team
Page 70
Recommendations
Analysis of Data
Sources of Data
Competitor Intelligence Pyramid
•Value chain analysis
•Ratio analysis
•Benchmarking
•Cost analysis
•Trend analysis
•Personality profiling
•Wargaming or scenario planning
•Competitive behavior analysisCompetitive behavior analysis
Page 71
Recommendations
Analysis of Data
Sources of Data
Competitor Intelligence Pyramid
•Track Existing Rivals•Anticipate New Rivals•Inform Strategy:
– Identify own/competitor’s strengths/weaknesses
– Early warning system– Plan of attack/retaliation
Page 72
The Cola Wars
Page 73
Co
ke’
s M
ark
et S
ha
re
MKT MKTPRICE PRODMKTCAP SIG PROD
Competitive Action RepertoireThe set of competitive actions carried out in a given time period
Repertoire
Page 74
Your Rival’s Competitive Actions January-July 2008
• Contract with famous movie director, Spike Lee, for TV ad
• Increase R&D budget by 30%
• Buy warehouse facility near airport in Germany, Re-tool with robotic material handling system
• License Oracle’s newest technology
• Cut prices on older version of product by 33%
• Endorsement contract with famous U.S. Olympic athletes
• Create multifunctional new product design teama b c d e
Page 75
Competitive Dynamics Analysis
• Observe competitive moves• Organize competitive moves
–Action/response pairs–Action repertoires (year-end tallies)–Competitive attacks/sequences
• Measurement/Analysis of Characteristics– Action pattern characteristics that improve:
•Market share•Stock price•Profitability
ActionPair 1
ActionPair 2
ActionPair 3
ActionPair 4
Coca-Cola
Pepsi
Action-Reaction “Pairs”
timeAction ResponsRespons
ee
•ProfitsProfits•GrowthGrowth•Mkt. ShareMkt. Share
a
cd
e
d d
a c
Action “Repertoires”
time
•Profits•Growth•Mkt. Share
Year-EndTallies
•Total Actions•Complexity
Coca-Cola
Pepsi
a
c
e
cc
a
a c
d
a b c d e f g h
Strategy and Adaptive Maneuvering
8
7
6
5
4
3
2
1
Chess:• Epaulette’s Mate• Sicilian Defense
Sequence Applications...
LANGUAGE:
BOXING: DNA:
qcheaTiueissesne. hsiT si a cesneueq.
This is a sequence.
Jab...Jab…Uppercut
CA
GT
AC
AT
AG
TA
CG
AT
AC
GA
MUSIC:
COMPUTER PROGRAM:
data actions2; subj = _n_; do i = 1 to max; output = matrix; end;run;
Page 80
a
b
c
d
e
ca bec a b de ca bd
Coke Pepsi
d
aa
b
e
c
e
b
a
d
b
c c
Observed Sequence Observed Sequence
Competitive Actions Over Time
Page 81
a
b
c
d
e
ca bec a b de ca bd
Coke Industry Norm
d
aa
b
e
c
e
b
a
d
b
c c
Observed SequenceObserved Sequence Observed SequenceObserved Sequence
Coke Strategic Non-Conformity
Page 82
a
b
c
d
e
ca beca b de cab d
Pepsi
d
aa
b
e
c
e
b
a
d
b
c c
Observed SequenceObserved Sequence Observed SequenceObserved Sequence
Pepsi Strategic Conformity
Industry Norm
Page 83
a
b
c
d
e
c ab eca bde ca bd
Coke in time1
d
e
b
aa a
d
bb
e
c cc
Coke in time2
Observed SequenceObserved Sequence Observed SequenceObserved Sequence
Coke Strategic Unpredictability
Page 84
a
b
c
d
e
ca beca bde ca bd
d
e
aa a
d
bb
e
c cc
Pepsi in time1 Pepsi in time2
b
Observed SequenceObserved Sequence Observed SequenceObserved Sequence
Pepsi Strategic Predictability
Page 85
King of the Hill – Fizzy Beverages
Market Market ShareShare
1950 1960 1970 1980 1990 20001950 1960 1970 1980 1990 2000
Other ?Coke
Pepsi
Page 86
“Hardball” Competition
• Total Actions–More actions are better
• Average Response Time–Faster response time is better
• Repertoire Complexity–Complex repertoire is better
• Attack [Un-]Predictability–Unpredictability is better
Page 87
Group Exercise: Coke vs. Pepsi
• Total Actions–Count of total actions
• Average Response Time–Avg. number of time units between last competitive move in Coke’s attack and Pepsi’s first competitive response, etc.
• Repertoire Complexity–Extent to which entire pattern/repertoire is skewed/simple vs. balanced/complex
• Attack [Un-]Predictability–Recognizable repetition or action combinations in the sequence of actions?
Page 88
Scoring the Fight
Total Actions
Faster Responses
More Complex Repertoire
Unpredictable Attacks
Coke Pepsi
Who will win?
Page 89
Implications for CI:
Predict Future Behavior of Rivals
Rivals’ prior behavior
•Patterns
•Tendencies
•Type & order of moves
•Proactiveness
•Reactiveness
Drivers of Behavior
•Management orientation
•Decision-making
•Financial constraints
•Industry characteristics
Page 90
Implications for CI:
Monitor Your Own Behavior
•Objectively measures of competitive behavior
•Safeguard against complacency, predictability, simplicity of your own company
•Keep rivals off balance / disruption / guessing
•What combinations of moves are effective? …which are ineffective? …smoke signals or bluffs?
Strategic Management
…Questions?
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