strategic thinking how to move your … move your organization forward ims ... to establish...

STRATEGIC THINKING – HOW

TO MOVE YOUR

ORGANIZATION FORWARD

Dr. Paul N. Friga ([email protected] and www.paulfriga.com ) IMS - 2013

mailto:[email protected]

http://www.paulfriga.com/

Dr. Paul N. Friga - 2013

Some humor to start the day?

2


Action Plan for Today

Understand

the overall

strategy

process

Analyze the

external

environment

Analyze the

internal

environment

Select and

implement

the

appropriate

strategy

Goal 1 Goal 2 Goal 3 Goal 4

Break Break Break

3


More insights from “The Far Side”

4



(what some participants hear)

Blah

Blah

Blah

Blah

Blah

Blah

Blah

Blah

Blah

Blah

Blah

Blah


Break Break Break

5



Understand

the overall

strategy

process

Analyze the

external

environment

Analyze the

internal

environment

Select and

implement

the

appropriate

strategy


Break Break Break

6


Wisdom from Dilbert?

7


The Strategy Content 1.

The Strategy Process 2.

Strategy Examples 3.

Understand the overall strategy process

8






9


What is strategy?

Strategy: Noun

An elaborate and systematic plan of action. 1.

Source: www.websters-online-dictionary.org

10


How do we measure success?

What controls should we implement?

How is our return vs. competitors’?

How much do we have to spend?

How should we allocate resources?

What budget process should we use?

What is critical for success?

What activities must we do (BHAGs)?

What should we not do?

Paul’s 4 Ps of Strategy

Priorities Key Actions

Performance Success Metrics

Payments Budget

Who are we?

What do we offer that is unique?

Where are we headed, exactly?

Position

Mission and Vision

Strategic

Leader

Source: From Theory to Action: The Story of One Strategy, Paul Friga 2010

11


Mission Statement

Statement which specifies a firm’s purpose or

“reason for being” and the primary objective

toward which the firm’s programs & plans

should be aimed. Statement specifying the

firm’s key constituents and how the firm will

serve them. It must be clear and understood.

Vision Statement

Statement describing what the firm strives to

be at some future time. It should be specific

and motivating.

Mission

Vision

Values

It is helpful to create core strategy

statements

Values

It is what we believe in, our guiding principles,

and how we interact.

Priorities

Objectives

Initiatives

Actions

12


A tool for evaluating strategy

1. Is it concise, clear and communicated?

2. Is it aligned with higher level strategies?

3. Does it address the 4 Ps?

Positioning (mission and vision)

Priorities (no more than 3 for an overall unit)

Payments (resource allocations)

Performance (clear metrics)

Does it guide daily decision making?

13






14


How Do Firms Create Strategies?

External Analysis Internal Analysis

Craft Strategy

(the Black Box)

Positioning

Priorities Paul’s 4 Ps

Payments

Performance

15


Strategic Management Process

Old Model – Sequential

New Model – Simultaneous

Strategy Formulation Strategy Implementation

16


X

Strategic Vision:

sustainable competitive

advantage

Strategic Planning

Strategic Thinking

Strategic Tactics

There are different tools in the strategy

process 17


X

Business

Strategy

How do we operate within the selected businesses? What products or services

should our firm offer? How should our firm create those products or services?

How should our firm take its products or services to the marketplace?

Functional Strategy How should our firm operate within specific functional areas

(e.g., marketing, R&D, production, finance, HR)?

Corporate Strategy

In what businesses or areas

should our firm compete? What

should our firm’s overall

portfolio of businesses look

like?

Strategy occurs on multiple levels

18






19


Our starting point is the mission statement

Mission Statement

Statement which specifies a firm’s purpose or “reason for

being” and the primary objective toward which the firm’s

programs & plans should be aimed. It must be clear and

understood.

We have fun. We cure cancer.

21


I CARE Integrity, Compassion, Accountability, Respect, Excellence

Values

It is what we believe in, our guiding principles, and how we

interact.

Next, we establish core values

22


To be #1 or #2 in

market share in each

sector we serve.

Before this decade is out,

this nation should land a

man on the moon and return

him safely to Earth.

Vision Statement

Statement describing what the firm strives to be at some

future time. It should be specific and motivating.

We draft a vision to drive us forward

23


Case example: Carolina Athletics

24


Mission

25


Values

Responsibility Do what is right.

Innovation Find a better way.

Service Put others first.

Excellence Work hard. Play smart. Win together.

To coaches: • Responsibility – integrity; compliance; alignment; fiscal • Innovation – creativity; technology; experimentation • Service – community; team over individual; outreach • Excellence – academic performance; athletic performance;

standards

26


Vision

We will lead in all that we do… academics, athletics, & administration

To coaches: • Academics & Athletics goals by 2016: Top three in the

conference and top ten in the nation in every sport. • Administrative goals by 2016: Work with the administration

to identify the resources and structure necessary to ensure your program’s success.

27


Priorities

Priorities What we need to do to live our mission and values

and to accomplish our vision.

Alignment Align our operations to fulfill the mission of

the university.

Academic Achievement Achieve a top 3 academic finish in the

conference and a top 10 finish nationally in each sport.

Athletic Performance Perform to a top 3 athletic ranking in the

conference and a top 10 ranking nationally in each sport.

Administrative Engagement Engage internal and external constituents to

relentlessly pursue the resources and administrative structures necessary for success.

Carolina Athletics’

Strategic Plan

28

http://catalog.e-digitaleditions.com/i/101921

http://catalog.e-digitaleditions.com/i/101921


MISSION:

Help clients make distinctive, lasting, substantial improvements in

performance

Build a great firm that attracts, develops, excites, and retains

exceptional people

VALUES: SERVING CLIENTS:

Adhere to professional standards, Follow the top management approach, Assist the client in

implementation and capability building, and Perform consulting in a cost effective manner;

BUILDING THE FIRM:

Operate as One Firm, Maintain a meritocracy, Show a genuine concern for our people, Foster an

open and nonhierarchical working atmosphere, and Manage the Firm’s resources responsibly;

BEING A MEMBER OF THE PROFESSIONAL STAFF:

Demonstrate commitment to client service, Strive continuously for superior quality, Advance the state

of the art of management, Contribute a spirit of partnership through teamwork and collaboration,

Profit from the freedom and assume the responsibility associated with self-governance, and Uphold

the obligation to dissent

Example 1: McKinsey

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MISSION:

Only offer experiences of exceptional quality in hospitality industry and satisfy discriminating customers.

Our objective is to be recognized as the company that manages the finest hotels, resorts and residence

clubs wherever we locate.

VALUES:

What We Believe:

Our greatest asset, and the key to our success, is our people.

We believe that each of us needs a sense of dignity, pride and satisfaction in what we do. Because satisfying

our guests depends on the united efforts of many, we are most effective when we work together cooperatively,

respecting each other’s contribution and importance.

How We Behave:

We demonstrate our beliefs most meaningfully in the way we treat each other and by the example we set for

one another. In all our interactions with our guests, customers, business associates and colleagues, we seek to deal

with others as we would have them deal with us.

How We Succeed:

We succeed when every decision is based on a clear understanding of and belief in what we do and when we

couple this conviction with sound financial planning. We expect to achieve a fair and reasonable profit to ensure

the prosperity of the company, and to offer long-term benefits to our hotel owners, our shareholders, our

customers and our employees.

Example 2: Four Seasons

30


MISSION:

To establish Starbucks as the premier purveyor of the finest coffee in the

world while maintaining our uncompromising principles while we grow. The

following six guiding principles will help us measure the appropriateness of

our decisions:

Provide a great work environment and treat each other with respect

and dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting

and fresh delivery of our coffee.

Develop enthusiastically satisfied customers all of the time.

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success.

VISION: To be the world’s largest provider of high-quality coffee (specific

number of stores changes by planning cycle).

Example 3: Starbucks

31


MISSION:

Dedication to the highest quality of Customer Service delivered with a sense

of warmth, friendliness, individual pride, and Company Spirit.

To Our Employees: We are committed to provide our Employees a stable work

environment with equal opportunity for learning and personal growth.

Creativity and innovation are encouraged for improving the effectiveness of

Southwest Airlines. Above all, Employees will be provided the same concern,

respect, and caring attitude within the organization that they are expected to

share externally with every Southwest Customer.

VISION: To be the most profitable airline in the United States

Source: www.southwest.com

Example 4: Southwest Airlines

32


Case Analysis

The objective is to allow you to directly apply the course

material to a situation for which everyone in the room has

common context

You will be assigned to one of 4-6 groups and you may

want to be thinking of the perspective of your assigned

company as the concepts are presented (as you will be

asked to do analysis using the tools)

You will have an opportunity to re-read or skim the case

at the first break before the analysis begins

33


Case Analysis Groups

Number Industry Nationality

1 Beer China

2 Beer Non-China

3 Personal Computer (PC) China

4 Personal Computer (PC) Non-China

5 Television (TV) China

6 Television (TV_ Non-China

7 Steel China

8 Steel Non-China

34



Understand

the overall

strategy

process

Analyze the

external

environment

Analyze the

internal

environment

Select and

implement

the

appropriate

strategy


Break Break Break

35


You must be aware of the environment

36


Analysis Tools – External Environment

1. STEEP (or 6 Factor Model) – what is going on

outside of our organization?

2. Porter’s 5 Forces – how does this industry look?

3. The Industry Value Chain and Profit Pools – where

can we make money?

4. Customer Analysis – whom do we serve?

5. Competitor Assessment – what are others doing?

37


STEEP – Macro Environmental Analysis

Political/legal/government factors

Social/demographic factors

Technological factors

Economic factors

Environmental/geographic factors

Source: Strategic and Competitive Analysis – Fleisher and Bensoussan

38


Economic Political/Legal/ Governmental

Market/Competitive Technological

Environmental/ Geographic

Domestic & int’l growth cycle

(e.g., recession)

Inflation rates

Unemployment rates

Interest rates

Currency fluctuations

Domestic & Int’l wage rates

Trade deficits

Int’l legislation (e.g.,

import/export laws)

Domestic legislation (e.g.,

labor laws)

Federal agencies (e.g., OSHA,

EEOC, Trade agencies)

Government involvement

Advances in consumer

electronics technology

Advances in computer

technology

Advances in automotive

technology

R&D and new product

introductions

Domestic & int’l population

shifts

Speed of technology adoption

among consumers

Workforce demographics

(e.g., diversity)

Income distribution

International competitor

locations

Transportation costs

Ecological issues – pollution,

recycling, energy use,

air/water quality, natural

resources, & power sources

Social/ Demographic

Identify the top 5

Issues - Implications

Importance: Overall, how important is

each factor?

( H M L )

Impact: Overall, does each factor have

a positive, negative or neutral

impact?

( + - 0 )

The STEEP framework measures importance

and impact of external environment 39


Time

Pro

du

ct/

Se

rvic

e F

ea

ture

s

A

A B

New Market

Entrant

C B A

New

Market

Entrant

C

Market

Share

Expansion

B A

D

New Market

Entrant

B/C

Consolidation/

M&A

First

Mover

Market exit

Innovation-Imitation Cycle

Players increase efforts to grow market share by product differentiation

Customer expectations rise

Competitors meet new service/feature levels to satisfy rising customer expectations & survive

Repeat of cycle

40

Rising customer expectations


Intensity of

Rivalry

Threat of

New Entrants

Threat of

Substitutes

Buyer

Power

Supplier

Power

Source: COMPETITIVE STRATEGY, M.E. PORTER, 1980; COMPETITIVE

ADVANTAGE, M.E. PORTER, 1985.

41

How attractive

is this industry?

Where is the power

in this industry?

Porter’s Five Forces Model


Organizational Structure and the

Value Chain

Inbound

Logistics Operations Outbound

Logistics

Marketing &

Sales Service

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Source: COMPETITIVE ADVANTAGE, M.E. PORTER, 1985.

42


Mapping an Industry’s Value Chain: Profit Pools and Profit Mapping

Profit Pool

The total profits earned in an industry at all points along the industry’s value chain

Profit Pool Map

Answers the question: “Where and how is money being made?”

Maps industry segments on two dimensions: (1) share of industry revenue & (2) operating margin

43

Source: “Profit Pools: A Fresh Look at Strategy,” & “How to Map Your Industry’s Profit Pool,” BY

O. Gadiesh & J.L. Gilbert, Harvard Business Review, May-June, 1998.


Profit Mapping and Profit Pools

LEASING WARRANTY

AUTO

MANUFACUTRING

NEW CAR DEALERS

USED CAR DEALERS

AUTO LOANS GASOLINE

AUTO INSURANCE SERVICE

REPAIR

AFTER

MARKET

PARTS AUTO

RENTAL

100%

Share of Industry Revenue

Op

era

tin

g M

arg

in

U.S. AUTO INDUSTRY

Source: “Profit Pools: A Fresh Look at Strategy,” & “How to Map Your Industry’s Profit Pool,” BY

O. Gadiesh & J.L. Gilbert, Harvard Business Review, May-June, 1998.

44


Customer Value Analysis – apply the 80/20

rule

Meaningful

Segments (e.g.):

Demographic

Preferences

Purchase History

Profitability:

Annual profit per customer

Segment 2

Low High

Segment 1

Customer Data:

Who are they?

Current needs?

Future needs?

Willingness to pay?

45


3 I’s Competitor Radar Screen

Immediate Competitors

Impending Competitors

Invisible Competitors

Immediate

Competitors

Already a major player in your particular

industrial segment (s); Publicly admits

competitive position and market share; High

knowledge base

Impending

Competitors

Small players making a move for growth and

market share capture; Major players from

other industrial segments (related) announcing

entry into your market; Medium knowledge

base

Invisible

Competitors

Large players considering an unanticipated

move from other industrial segments

(unrelated) into your market – in secret; Low

knowledge base

Competitor Data:

Who are they?

Market share?

Positioning?

Reactions?

46

Competitor Assessment


1. Macro environment – what big picture issues (no

more than 6 – 3 negative/threats and 3

positive/opportunities) are impacting your

particular company’s situation (identify the issue

and the implications for strategy)? (hint – use

STEEP)

47

Case Analysis



Understand

the overall

strategy

process

Analyze the

external

environment

Analyze the

internal

environment

Select and

implement

the

appropriate

strategy


Break Break Break

48


We all have certain “competencies”

49


More insights from “The Far Side”

50


Analysis Tools: Internal Environment

1. SWOT – what is our staring point?

2. Core Competencies (Resource Based View) – what

is special about our organization?

3. Value Dynamics – where can we stand out?

51


52

SWOT Analysis Process

External Analysis

+

+

= Strengths

Internal Analysis (benchmark)

Weaknesses

Threats & Opportunities

Summary Analysis

Threats Opportunities

Economic Political/Legal/Governmental

Technological Market/ Competitive

Social/ Demographic

Geographic/ Environmental

Opportunities

Industry


SWOT Analysis Content

53

Strengths Weaknesses

Opportunities Threats

Internal Analysis

External Analysis

Elements outside of our organization of which we have no control but that could (and should) affect our strategy

Traits within our organization that we could leverage in the future or mitigate through strategic actions


Core Competencies

“A core competence is a combination of complementary

skills and knowledge bases embedded in a group or

team that results in the ability to execute one or more

critical processes to a world-class standard.”

Source: “Is Your Core Competence a Mirage?,” K.P. Coyne, S.J.D. Hall, & P.G.

Clifford, McKinsey Quarterly, #1, 1990, pp. 40-54.

54


Skills or knowledge sets, not products or functions

Flexible, long-term platforms embedded in the organization’s systems and capable

of adaptation or evolution

Unique sources of leverage in the value chain, which provide potential access to a

wide variety of markets

Capabilities that are difficult for competitors to imitate (typically because they are

a complex harmonization of elements)

Significant contributors to the perceived, long run benefits customers derive from

end products

Areas where the company can dominate

55



Core Competencies


Evolution

Building a skill at the same time as the individuals involved perform their usual jobs

Incubation

Forming a separate group to focus exclusively on the chosen competence

Acquisition

Purchasing another company to obtain desired skills

Routes to Developing Core Competencies

58




Financial

Physical Customer

Land

Buildings

Equipment

Inventory

Customers

Channels

Affiliates

Employees

Suppliers

Partners

Cash

Receivables

Debt

Investments

Equity

Organization

Leadership

Strategy

Structure

Culture

Brand

Innovation

Knowledge

Systems

Processes

Intellectual

Property

Walt Disney

Southwest

Airlines

Dell Computer

Microsoft

Dell Computer

Lucent Tech.

Amazon.com

Cisco Systems

USAA Ins.

Daimler-

Chrysler

Virgin

Group Ltd.

Gap

Duracell

Autobytel.com

J&J IBM P&G Pfizer Starbucks

Employee

& Supplier

Source: Cracking the Value Code, By: Richard E.S. Boulton, Barry D. Libert & Steve M. Samek, Harper

Business Publishing, 2000.

59

Value Dynamics Framework


Case Analysis

What are the strengths and weaknesses of your

company in the case study?

Use data for comparison to competitors

Make assumptions where data are unavailable

List the top 3 strengths and top 3 weaknesses

60



Understand

the overall

strategy

process

Analyze the

external

environment

Analyze the

internal

environment

Select and

implement

the

appropriate

strategy


Break Break Break

61


Examples of Strategic Options/Issues

1. Mergers and Acquisitions

2. Major Cost Cutting Initiatives

3. New Product/Market Pursuit

4. Existing Product/Market Exit

5. Organizational Realignment

6. Major Funding/Budgeting Decisions

7. Capacity Expansion

8. Strategic Planning Process

9. Joint Venture/Alliance

10. Cross-Functional Incentive or KM Programs

62


Option analysis

63

Key

Question

Option /

Hypothesis

Decision

Criteria

Pros Cons


Strategic Communication Makes Cents

Companies that communicate effectively have a 19.4 percent higher market premium than companies that do not.

Shareholder returns for organizations with the most effective communication were over 57 percent higher over the last five years (2000-2004) than were returns for firms with less effective communication.

Firms that communicate effectively are 4.5 times more likely to report high levels of employee engagement versus firms that communicate less effectively.

Companies that are highly effective communicators are 20 percent more likely to report lower turnover rates than their peers.

Source: 2003/2004 Watson Wyatt Communication ROI Study

Effective communication is a leading indicator of an organization’s financial performance.

64


Critical Success Factors for “Strategic

Communication” 65

• All key constituents

• Document assumptions

Identify

• A clean message

• High level and supporting levels

Craft • Determine multiple

media tools

• Do as much as possible in person

Speak

• Track effectiveness

• Use only a few key metrics

Measure


Coca-Cola successfully integrates its communication with internal

and external stakeholders, via its mission.

66

To refresh the world

in body, mind, and spirit

To inspire moments of optimism through our brand and our

actions

To create value and make a difference everywhere we engage

Strategic Communication Example Mission

http://www.thecoca-colacompany.com/index.html


Sometimes simple communication is the most effective.

67

Welcome to Nordstrom Our number one goal is to provide outstanding customer service. Nordstrom Rules: Rule #1 Use your good judgment in all situations. There will be no additional rules.

Strategic Communication Example Employee Handbook

http://shop.nordstrom.com/?origin=tab-logo

MBA Consulting

STAR Projects

BSBA Consulting

2009 2010

2011 Goals

Formalize

Grow Enhance

• Organize team • Develop methodologies • Engage faculty

• Raise funds • Market externally • Consolidate other project based work

• Increase # projects • More programs • Include more faculty

Redesign

Recruit

Engage

• Streamline concentration • Revamp courses • Host consultants

• Raise funds •Market externally • Visit firms

•Add consulting faculty •Conduct research • Assist admissions

•Launch consulting concentration • Offer new courses • Institute open consulting club

• Create “Consulting Corps” • Market externally • Visit firms

•Support STAR programs • Hold Consulting Day •Host alumni

Create

Connect Establish

75% of students

participate 4/5

satisfaction ratings

40 students in consulting

concentration 30

placements/yr

40 students in

concentration 30

placements/yr

STAR Program and Consulting Strategies at Kenan-Flagler DRAFT – For Discussion Purposes – Paul Friga – 2.20.08

Mission: Provide students with real-world opportunities to help N.C. companies with major business issues

Mission: Teach MBA students about the consulting industry, train in consulting skills, and connect with top consulting firms

Mission: Teach BSBA students about the consulting industry, train in consulting skills, and connect with top consulting firms

Mission Statement: Our purpose is to continue to differentiate the KFBS through innovative and experiential learning opportunities.


UNC KFBS Consulting Program Strategy Mission Values Vision

Develop outstanding curriculum offerings in all programs

Create unique experiential learning programs

Grow internal/external relationships and financial support

Satisfaction (goal of 4.5/5.0 on course evaluations and satisfaction surveys)

Placements (goal of 30 MBAs and 30 BSBAs per year by 2011)

Fund raising ($500,000 annual budget by 2011)

Prepare Students

Promote Students

Excellence in

Leadership Teamwork

Community with

Integrity

Become the most innovative, intensive,

and individualized consulting program

Dr. Friga - DRAFT – for discussion only; 5.6.09

POSITION:

PRIORITIES:

PERFORMANCE:

Strategic initiatives and budget (base programs and new programs)

Faculty and Staff assignments

Financial and non-financial incentives PAYMENTS:


Placements are trending upward

Source: CMC; UCC

70

Train

Recruit

Place

2013 2014 2015 2015 Goals

Design Grow Enhance

• Create offerings • Communicate to candidates • Launch bootcamp

• Raise funds • Market externally • Offer consulting scholarships

• Increase # offerings • Partnerships with firms •Virtual bootcamps

Redesign Partner Grow

• Expand concentration • Meet with firms • Advanced coaching program

• Raise funds •Market externally • Visit more firms •Increase coaching

•Add consulting faculty •Alumni mentor program • Certification

•Build database of contacts • Virtual boutique outreach • Marketing media

• Visit more firms • Expand virtual recruiting program • Alumni advocates

•Expand international visits • Offer STAR for consulting firms •Hire new staff

Target Connect Grow

50% of incoming

class interested 20

scholarships

100 students in

concentration 3 advanced

coaching sessions/ student

60 placements/yr

UNC KFBS Consulting Program

Mission: Recruit top consulting candidates to UNC Kenan-Flagler

Mission: Provide advanced consulting interview preparation to all students interested in consulting

Mission: Expand relationships with top consulting firms – including new boutiques and international offices

Mission Statement: Our purpose is to recruit, train and place students in consulting.

Vision: Become the most innovative, intensive ,and individualized consulting program in the country



Key Consulting Initiatives – 2012-13

Category Event Description Owner(s) Timing

Recruit New Advanced Consulting Track

(targeting sponsored consulting

candidates)

PF, Admissions and CMC Aug 2012

Recruit Consulting Bootcamp for UNC Kenan-

Flagler candidates

PF and Admissions Feb 2013

Recruit Marketing material - candidates Admissions Sep 2012

Train Concentration revamp MS July 2012

Train Visit all firms who recruit here CMC and PF By June 2013

Train Advanced coaching program PF and CMC Sep 2012 (ongoing)

Place Database of recruiting firms CMC and PF (and Club) Dec 2012

Place Virtual recruiting program CMC and Club Sep – Dec 2012

Place Marketing material - firms CMC Sept 2012

Ongoing activities: workshops with firms, CMC training activities, consulting classes, and consulting club events.

72


Case Analysis

What high level strategy options could your

“company” take (Position)?

If you had to develop an early hypothesis as to

which way to go in terms of market position, what

would you recommend (Position)?

Clearly develop a 3 year vision statement and set

of no more than 3 top priorities to make it happen

(with some supporting details and facts) – be

ready to creatively report out your strategies!

73


Insights from “The Far Side”

74


Case Discussion

Each company presents its vision and priority actions

(i.e. “strategy”).

The group discusses the “so what” of the exercise.

75



Understand

the overall

strategy

process

Analyze the

external

environment

Analyze the

internal

environment

Select and

implement

the

appropriate

strategy


Break Break Break

76


Insights from “The Far Side”

77


Bonus Section – Implementing strategy in

your organization going forward

Debunking Myths for Strategy in Tough Times

McKinsey 7S

Balanced Scorecard

78


Modern Myths for Strategy in Tough Times

Myth 1: “Our work goal should be to just survive”

Myth 2: “We should implement across-the-board

cuts”

Myth 3: “Layoffs are a great way to cut costs”

Myth 4: “Cutting R&D is a good idea”

Myth 5: “Cutting IT investment is a good idea”

79

Com

mon B

elie

fs

Rea

lity


Myth 1: “Our work goal should be to just

survive” 80

Wait until clear signs of recovery before engaging in M&A activity or other growth

Competitors can be assumed to face similar economic threats

Companies who increased M&A during a

recession increased market-to-book value

38% over former competitors (Oracle-Sun

acquisition)

Economic recovery will look different across

the globe and will bring out unforeseen

competitors and opportunities

Source: “The Crisis: Timing Strategic Moves.” The McKinsey Quarterly. April 2009.; “Learning to Love

Recessions.” The McKinsey Quarterly. Special Edition 2002.; “Strategic Planning: Three tips for 2009.” The

McKinsey Quarterly. April 2009; “Companies get into deal mode.” USA TODAY. April 21 2009.

Companies who increased M&A during a

recession increased market-to-book value

38% over former competitors (Oracle-Sun

acquisition)

Economic recovery will look different across

the globe and will bring out unforeseen

competitors and opportunities

Com

mon B

elie

fs

Rea

lity

Myth 2: “We should implement across-the-

board cuts” 81

The same 10% indiscriminate cost reduction to all functional areas is equal

to 10% total cost savings (and is more equitable)

Financial metrics rather than milestones and business unit performance

should be used to determine cost cuts

The need for new direction and strategy will vary across business units and

should be prioritized accordingly

Some businesses may be well-suited to recession consumers’ needs and

require additional investment (e.g. P&G launches more value-conscious

products and Starbucks launches value meal)

Source: “How to Market in a Downturn.” Harvard Business Review. April 2009.; “Managing IT in a

downturn: Beyond cost cutting.” The McKinsey Quarterly. September 2008.; “R&D in the downturn:

McKinsey Global Survey Results.” The McKinsey Quarterly. April 2009.

Com

mon B

elie

fs

Rea

lity

Myth 3: “Layoffs are a great way to cut

costs” 82

Human capital cuts are the quickest and easiest cost-cutting

method

Cutting from the bottom based on performance reviews

provides valid decision criteria

High-performing companies are likely to aggressively hire from the top

during recessions

In 2001, it took anywhere from 6-18 months to realize savings from job cuts

Most companies are not effective at conducting meaningful and consistent

performance reviews

Source: “The Layoff.” Harvard Business Review. March

2009.; “R&D in the downturn: McKinsey Global Survey

Results.” The McKinsey Quarterly. April 2009.

Com

mon B

elie

fs

Rea

lity


Myth 4: “Cutting R&D is a good idea”

83

Delaying spending is easiest

way to cut costs

Spending focus should shift to

low-risk, short-term projects

High-performing innovative leaders optimize

and upgrade R&D during recession

Potential adverse effects include: new products

delays, lagging competitors’ technology, loss of

R&D talent, loss of core knowledge, low morale,

overall damage to reputation, low customer

service (only 4% report no adverse effects)

Source: “R&D in the downturn: McKinsey Global

Survey Results.” The McKinsey Quarterly. April

2009.

76

55

26

44

27

24

3

60

49

32

24

24

17

4

Create new products/services tomeet changing customer needs

Modify existing products/services tomeet changing customer needs

Reduce costs/improve margins inexisting products/services

Create new products/services totake advantage of competitors'

weaknesses

Reduce costs/improve margins innew products/services

Modify existing products/services totake advantage of competitors'

weaknesses

None of these

Company’s goals for current R&D projects, % of respondents

High performers Others

“High performers” defined as companies with high relative

organic growth over past 5 years from mostly new in-

house products.

Com

mon B

elie

fs

Rea

lity


Myth 5: “Cutting IT investment is a good

idea” 84

Cutting IT investments will

maximize cost-savings

IT investments may improve

profitability by up to ten times

the impact of traditional IT

cost reductions

Source: “Managing IT in a downturn: Beyond cost cutting.” The

McKinsey Quarterly. September 2008.

0.5

1.5

3.5

4.0

Traditional IT costreduction (15%)

Merchandising investments

Supply chain investments

Better pricing

IT Target Strategies Impact on run-rate EBIT1, %

1Earnings before interest and taxes; assumes run rate of 6-18 months

(timing to achieve run-rate impact varies across examples).


Shared Values Structure

Skills

Staff

Style

Systems

Strategy

Source: “Structure is NOT Organization,” R.H. Waterman,

T.J. Peters, & J.R. Phillips, Business Horizons, June 1980.

McKinsey 7S Model

85


7S – Strategy

Definition Sample Questions

The ways in which

competitive

advantage will be

achieved.

•What are the company’s sources of

sustainable competitive advantage?

(e.g., cost, quality, service, technical

leadership)

•What are the company’s key strategic

priorities? (e.g., penetrating new

markets, new product development,

speed-to-market, improving customer

service)

Source: “Organizational Alignment: The 7-S Model” Harvard Business

School, by J. Bradach, Nov. 19, 1996. Source: Idie Kesner, 2004

86


7S – Structure

The way in which tasks

and people are specialized

and divided, and authority

is distributed. The basic

grouping of activities and

reporting relationships into

organizational sub-units.

The mechanisms by which

the activities of the

members of the

organization are

coordinated.

•What is the basic structural form?

•How centralized versus decentralized

is the organization?

•What is the relative status and power

of the organizational sub-units?



School, by J. Bradach, Nov. 19, 1996.

Source: Idie Kesner, 2004

87


7S – Systems

The formal processes and

procedures used to

manage the organization,

including the management

control systems,

performance measurement

and reward systems,

planning, budgeting, and

resource allocation

systems, information

systems, and distribution

systems.

•Does the organization have the

systems it needs to run its business?

(e.g., does it have a system for

monitoring customer satisfaction)

•What are the management systems

that top management uses to run the

company? Which ones do they pay the

closest attention to?


88





The people, their

backgrounds, and

competencies. The

organization’s approaches

to recruitment, selection,

and socialization. How

people are developed; how

recruits are trained,

socialized, and integrated;

and how their careers are

managed.

•How does the organization recruit and

develop its people? (e.g., formal training,

mentoring programs, stretch assignments)

•What are the demographic characteristics

of the management team? (e.g.,

background, education, age, gender,

nationality, professional identity, experience

outside the company)

•Where are the strongest leaders found in

the organization (e.g., in which functions)?

The weakest?


7S – Staffing

89





The distinctive

competencies that reside in

the organization. Typically

the distinctive

competencies of people,

but can also include

management practices,

systems, and/or

technology.

•What business activities is the

company distinctively good at

performing?

•What new capabilities does the

organization need to develop, and

which ones does it need to “unlearn,”

to compete in the future?


7S – Skills

90





The leadership style of top

management and the

overall operating style of

the organization. Style

impacts the norms people

follow and how they work

and interact with each

other and with customers.

•How does top management make

decisions? (e.g., participatory versus

top-down, analytic versus “arm-chair”)

•How do managers spend their time?

(e.g., in formal meetings, informal

conversations, in the field, with

customers in the lab)


91

Source: “Organizational Alignment: The 7-S Model” Harvard

Business School, by J. Bradach, Nov. 19, 1996.


7S- Style


7S – Shared Values

The core or fundamental set of

values that are widely shared

in the organization and serve

as guiding principles of what

is important. Usually these

values are communicated in

simple ways, and may even

seem trivial from the outside.

But to the organization’s

members, they have great

meaning because they help

focus attention and provide a

broader sense of purpose.

•Do people have a shared understanding

of why the company exists?

•Do people have a shared understanding of

the vision of the company?

•What types of issues receive the most and

least top-management attention? (e.g., short

run versus long run, internal versus

external)

•How do people describe the ways in which

the company is distinctive (e.g., focus on

quality, emphasis on people)


92





Balanced Scorecard (Implementation)

Balanced

Scorecard

Customer

Perspective

How do customers

see us?

Translation of

general mission

statement on

customer service to

specific measures

that reflect the

factors that really

matter to customers.

Examples:

New products

% sales from new

products

% sales from

proprietary products

Responsive service

On-time delivery

defined by the customer

Preferred supplier

Share of accounts’

purchases

Ranking by key accounts

Customer relationships

Number of cooperative

relationships

93

Source: R.S. Kaplan & D.P. Norton: “The Balanced Scorecard -- Measures That Drive Performance” (Jan-Feb

1992), “Putting the Balanced Scorecard to Work” (Sep-Oct 1993), & “Using the Balanced Scorecard as a

Strategic Management System” (Jan-Feb 1996) Harvard Business Review.



Balanced

Scorecard

Customer

Perspective

At what must we

excel?

Translation of

measures of what the

company must do

internally to meet

customers’

expectations.

Examples:

Technological

Capability

Mfg. capability

vs. competition

Manufacturing

Excellence

Cycle time, unit

cost, yield

New product

introductions

Actual product

introduction

schedule vs. plan

94

Source: R.S. KAPLAN & D.P. NORTON: “THE BALANCED SCORECARD -- MEASURES THAT DRIVE

PERFORMANCE” (JAN-FEB 1992), “PUTTING THE BALANCED SCORECARD TO WORK” (SEP-OCT 1993),

& “USING THE BALANCED SCORECARD AS A STRATEGIC MANAGEMENT SYSTEM” (JAN-FEB 1996)

HARVARD BUSINESS REVIEW.

Internal

Perspective



Balanced

Scorecard

Customer

Perspective

Internal

Perspective

Financial

Business

Perspective

How do we look to

shareholders?

Are the company’s

strategy,

implementation, and

execution

contributing to

bottom-line

improvements?

Examples:

Survive

Cash flow

Succeed

Sales growth

Operating

income by division

Prosper

Increased

market share

ROE

95











Balanced

Scorecard

Customer

Perspective

Internal

Perspective

Financial

Business

Perspective

How do we

continue to improve

and add value?

Measuring the

company’s ability to

innovate, improve

and learn

Examples:

Technical leadership

Time to

develop next

generation

Manufacturing

Learning

Process time to

maturity

Product focus

% of products

that = 80% of

sales

Time to market

Time from new

product

introduction to

completion

Innovation

& Learning

Perspective

96


Statement of Vision

Statement of Vision: Definition of SBU

Mission Statement

Vision Statement

If my vision succeeds,

how will I differ?

97

To my shareholders

Financial Perspective

To my customers

Customer Perspective

With my internal

mgmt. process Internal Perspective

With my ability to

innovate and grow Innovation & Learning






Statement of Vision


Mission Statement

Vision Statement

What are the critical

success factors?

98

To my shareholders


To my customers


With my internal


With my ability to


__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________










Statement of Vision


Mission Statement

Vision Statement

What are the critical

measurements?

To my shareholders


To my customers


With my internal


With my ability to


__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

__________________

THE BALANCED SCORECARD

99


Statement of Vision

To succeed financially, how should we appear to our share-holders?

Financial

To satisfy our share-holders & cust., what business processes must we excel at?

Internal Business Process

To achieve our vision, how will we sustain our ability to change and improve?

Learning & Growth

Objectives Measures Targets Initiatives

Objectives Measures Targets Initiatives

VISION & STRATEGY

To achieve our vision, how should we appear to our customers?

Customer

100


Statement of Vision

TRANSLATING THE VISION •Clarifying the vision •Gaining consensus

COMMUNICATING & LINKING •Communicating & educating •Setting goals •Linking rewards to performance measurements

FEEDBACK & LEARNING •Articulating the shared vision •Supplying strategic feedback •Facilitating strategy review and learning

BUSINESS PLANNING •Setting targets •Aligning strategic initiatives •Allocating resources •Establishing milestones

BALANCED SCORECARD

101

STRATEGIC THINKING – HOW

TO MOVE YOUR

ORGANIZATION FORWARD

Dr. Paul N. Friga ([email protected] and www.paulfriga.com ) IMS - 2009

mailto:[email protected]

http://www.paulfriga.com/

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