Five Perspectives of Business Strategy?

By

Dr. Michael McDermott

mcdermottm1@nku.edu

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Perspectives on Strategy: Five Schools of thought

Author Published Key Concept Comments

Michael Porter 1980s Competitive Positioning The Dominant view

Kim & Maubergne Early 2000s Blue Ocean Strategy

Richard Rumelt 2011 Good vs Bad Strategy

Cynthia Montgomery

2008 Leadership and Strategy

Brian Solis, others 2011 Social Business Evolving

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Perspectives on Strategy: Five Schools of thought

Author Key Concept Objective

Michael Porter Competitive Positioning (i.e. Generic Strategy)

Establish a clear competitive position

Kim & Maubergne Blue Ocean Strategy Create a new market with no competition

Richard Rumelt Good vs Bad Strategy Focus on the “big problem”

Cynthia Montgomery

Leadership and Strategy

Strategy and leadership must be interconnected

Solis and others Social Business Engagement to create value

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Michael Porter and Strategy

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Michael Porter & Competitive Position

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Operational Effectiveness Explains Initial Success of Asian Companies (i.e. a low cost generic strategy)

1960s-80s Japanese companies are winners

1990s-2010s South Korean companies are winners

2020s- Chinese companies are winners

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Where we place a company depends upon the definition of the industry that it competes in.

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Porter’s value chain – this has to focus on achieving cost minimization or differentiation.

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Generic Strategy and Porter’s Five Forces

The Five Forces of Industry analysis

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Competitive Position – Strategy Clock

The “greenish” area is non-viable

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2. Blue Ocean Strategy

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This looks at the Strategy Canvass for traditional circuses (i.e. red) vs Cirque du Soleil

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Wii

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Rumelt on Strategy

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Survival mode, mid 1990s

Turnaround

Flourishing, 2001-present

Apple’s Strategy Journey

Consider what the company did at each stage

Company defines its problem at each stage

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1990s: BMW and Mercedes

BMW’s Decision to Invest in the USA

Push Factors

Strength of DM vs US$

High Labor Costs

Strong unions

Remote from key market

Low labor costs

Weak unions in South

Largest international

market

Overcome 10% import tax

Opportunity to introduce manufacturing processes

Pull Factors

Figure 1: BMW’s Decision to invest in the U.S.A. in the 1990s

Response to competitive threat

from Japan

What’s the “Big problem” facing these companies?

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Moneyball (2011)

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4. Strategy and Leadership

No matter how accomplished the strategy, can it “work” in the absence of effective leadership?

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The Role of the Strategist

• To find and examine all the evidence to determine the problem

– It’s vital to be able to ask the right questions

– If you do not ask the right questions, then you cannot find the right answer

• To design a solution

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The Strategist is both

Detective and Designer

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Strategy at the Corporate Level

• A blurring of competitive position is clearly a problem

• This causes rampant confusion internally and externally

• So establish an unambiguous competitive position

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Strategy at the Corporate Level

• Sources of problems can be found when examining:

1. The remote external environment

2. The broad competitive environment

3. Rivals

4. The market

5. The company

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The Strategy Detective’s Tools: The External Environment

• PEST or PESTEL analysis

• Political, Economic, Social, Technological

The External Remote

Environment

• Porter’s Industry Analysis Five Forces Model

• Industry Life Cycle

• Company analysis (see section on internal analysis)

The Broad Competitive Environment

• Market Segmentation

• Customer Relationships

• Product Life Cycle The Market

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The Strategy Detective’s Tools: The Internal Environment

•Core competencies;

•Porter’s Value Chain; Functional Analysis; BCG Matrix; Ansoff’s Matrix

The Internal Environment

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Strategy is all about choice and saying ‘no’

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What is a Strategist?

• A decision-maker?

– Look at options and pick ‘the best’

• Or a designer?

• Yes, he/she designs a novel response

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The Strategy Designer

• You are allowed only one objective and it must be feasible

• What one single feasible objective, when accomplished, would make the biggest difference?

• Now design a strategy and make it happen.

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Leadership Casualties in 2012

• How many CEOs of US Fortune 500 companies were fired in 2012?

• How many coaches/managers in the NBA, NFL, English Premier League were sacked?

• How many incumbent politicians were defeated in the polls?

• Clearly employers believe that strategy and leadership are interconnected

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The Strategist

Meaning-Maker

The Reasoner The Operator

“strategy has been narrowed to a competitive game plan, divorcing it from a firm's larger sense of purpose; the CEO's unique role as arbiter and steward of strategy has been eclipsed; and the exaggerated emphasis on sustainable competitive advantage has drawn attention away from the fact that strategy must be a dynamic tool for guiding the development of a company over time” (Montgomery, HBR, 2008)

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• If you ask young men what they want to accomplish by the time they are 40, the answers you get fall into two distinct categories. There are those - the great majority - who will respond in terms of what they want to have. This is especially true of graduate students of business administration. There are some men, however, who will answer in terms of the kind of men they hope to be. These are the only ones who have a clear idea of where they are going. The same is true of companies. For far too many companies, what little thinking goes on about the future is done primarily in money terms. There is nothing wrong with financial planning. Most companies should do more of it. But there is a basic fallacy in confusing a financial plan with thinking about the kind of company you want yours to become. It is like saying, "When I'm 40, I'm going to be rich." It leaves too many basic questions unanswered. Rich in what way? Rich doing what?

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• Strategy and the Strategist In most popular portrayals the strategist's job would seem to be finished once a carefully articulated strategy has been made ready for implementation. The idea has been formed, the next steps specified, the problem solved. But don't be fooled. The job of the strategist never ends. No matter how compelling a strategy is, or how clearly defined, it is unlikely to be a sufficient guide for a firm that aspires to a long and prosperous life

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The Prevailing Approach: Strategy as a Set Solution

• Goal A long-term sustainable competitive advantage

• Leadership The CEO and strategy consultants

• Form Unchanging plan that derives from an analytical, left-brain exercise

• Time Frame Intense period of formulation followed by prolonged period of implementation

• Ongoing Activity Defending an established strategy through time

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What Is Missing: Strategy as a Dynamic Process

• Goal Creation of value

• Leadership CEO as chief strategist; the job cannot be outsourced

• Form Organic process that is adaptive, holistic, and open-ended

• Time Frame Everyday, continuous, unending

• Ongoing Activity Fostering competitive advantages and developing the company through time

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5. THE SOCIAL BUSINESS

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http://www.amazon.com/gp/mpd/permalink/m2RUMCDP83GAAX/ref=ent_fb_link

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Social CRM

• “The underlying principle for Social CRM’s success is very different from its predecessor….traditional CRM is based on an internal operational approach to manage customer relationships effectively. But Social CRM is based on the ability of a company to meet the personal agendas of [its] customers while, at the same time, meeting the objectives of [its] own business plan. It is aimed at customer engagement rather than customer management.”

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Where is my company along the Social Business Journey?

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GENUINE STRATEGY AND OPERATIONAL EFFECTIVENESS: THE UNBEATABLE COMBINATION

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Genuine

Strategy Operational

Effectiveness

Sustainable

Competitive Advantage

Genuine Strategy and Operational Effectiveness Deliver

Enduring Competitive Advantage

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Genuine Strategy and OE

Both are essential for superior performance

Excellence in one is not enough for enduring success or competitive advantage

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Establishing Organizational Competitive Advantage

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1 • Deliver greater value to customers; or

2

• Create comparable value at lower prices; or

3 • Do both

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Creating Competitive Advantage: Effectiveness vs Efficient

• Leads to greater value

• Higher unit prices

• Apple, BMW

More Effective

• Leads to Lower unit costs

• Can offer lowest prices

• Costco, Lenovo

More Efficient

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OE and Buyers

• Continuous improvements in OE proves of enormous benefits to buyers; – Today we can buy a USB stick at Walmart for less than

$5 that has more memory than a computer that cost $000s in the 1980s;

• But this is a nightmare scenario for companies that are sucked into damaging price wars; – Who makes a profit selling only PCs today?

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Examples of Strategically Smart

The Smarts

• Tend to be ‘different’

• Are innovative

The Laggards

• Imitate and emulate their national rivals

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OE and Competition

• Companies converge

• They all follow the exact same strategic path

– From made-in-China to sold-in-Walmart

• And this is a race that no producer wins

– So let’s reduce the number of ‘runners’ – and acquire our rivals

• In a ‘buy or be bought’ world, no one enjoys true competitive advantage

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It does not have to be this way!

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