strategy
DESCRIPTION
TRANSCRIPT
Business plan workshops
• Matching Products and Services with Markets – First one
• Competitive Analysis– Last week
• Business Model– Tonight
• Market and Sales – Monday, November 19, 2001 - 6:00 pm to 8:30pm
• Financial Projections– Monday, November 26, 2001 - 6:00 pm to 8:30pm
Feasibility plan outline
• Executive Summary • Product or Service • Technology/Core
Knowledge• Target Market• Competition • Industry • Strategy/Business
Model • Marketing and Sales
Functional Strategy
• Production/Operating Functional Strategy
• Intellectual Property Issues
• Regulation Issues • Critical Risk Factors • Timeline• Break-even Analysis
Strategy can mean many things
• Plan• Process• Position• Pattern• Perspective• Procedure• Play• Ploy
• Strategic Management
• Strategic Positioning
• Strategic Navigation
• Strategic Tactics
Strategic management
• Is a detailed pattern of decisions that describes in some detail what a company will do– in light of what it might do, – what it can do,– what its leaders want to do, and – what it should do.
– Kenneth Andrews
Strategic management
Environmental Scanning
Evaluation &Control
StrategyImplementat
ion
StrategyFormulationMission
• Disciplined iterative process…of pursuing a mission, while managing the relationship of the firm to its environment.
Strategic management starts with the situation
External Factors
Internal Factors
Social,political,
regulatory,& community
considerations
Industryattractiveness,
industry dynamics, &competitiveconditions
Other opportunitiesand threats --
like new technologies
Company’s Strategic SituationCompany’s Strategic Situation
Firm’s strengths,
weaknesses,& competitive
market position
Ambitions,philosophies,
& ethical principles
of key executives
Shared vision, values
and companyculture
But pushes beyond the situation
• Strategic management is all about chasing a dream
• In a disciplined but opportunistic way• By developing your assets • To take advantage of opportunities the
world (environment, industry, market) gives
• While shaping the world when you can.
Strategic management is about finding ways to grow...
Environmental Scanning
Evaluation &Control
StrategyImplementa
tion
StrategyFormulationMission
Vision
Two basic strategic options
• Position Strategy– Unique, valuable, defensible position in a market
or industry– Supported by a tightly integrated value chain /
activity system– Good for relatively stable industries/markets
• Resource/Navigation Strategy– Vision-driven nurturing and leveraging of core
resources– Supported by tight culture and explicit learning– Good for dynamic industries/markets
External Opportunities
& Threats
Niche
Internal Strengths & Weaknesses
I. Strategic positioning
• A niche is typically the market the firm is uniquely qualified to serve
Classic positional strategies
• Cost (price) leadership• Differentiation
– Quality, design, support/service, image – Always starts with the product
• Focus– Broad or narrow – Always starts with a specific market
segment
Examples of positional strategies
• Cost (price) leadership– Crown, Cork & Seal (pennies, plants). Wal-mart
(warehousing, negotiation). Motel 6 (location, services, salespeople). Cintas (plants, logistics).
• Differentiation– Mercedes (quality). Apple (design). Nordstrom
(service). Nike (image). G&K (clean rooms, radiation). Most entrepreneurs (Zitner’s, Prompt.)
• Focus– Wal-mart (broad - rural). Specialty bookshops (narrow -
Giovanni’s room, NSP). Some entrepreneurs (NRI - changing mix & services).
Elaborations of positional strategies
• Penetrate new markets– Insurance in India. IMS.
• Develop new markets– E-government. (Disruptive technologies.)
• Develop new products– Gillette. Intel.
• Become indispensable – Microsoft. Best subcontactors.
• Fortify– Borders wholesalers, B&N’s leases.
TOWS analysis
Strengths(S)
InternalFactors
ExternalFactors
Opportunities
(O)
SO Strategies-------------------------
WO Strategies------------------------
Threats(T)
ST Strategies--------------------------
WT Strategies-------------------------
Use strengths toavoid threats
Min. weaknesses to avoid threats
Use strengths to take advantage of opportunities
Offset weaknessesto take advantage of opportunities
Weaknesses (W)
TOWS analysis exercise
• List 2 opportunities & 2 threats• List 2 strengths & 2 weaknesses• Match ‘em up
– trying to use (or develop) strengths to take advantage of opportunities while offsetting weaknesses and defending against threats
– avoiding strategies that put weaknesses in way of threats
• Use classic strategies -- cost, differentiation, focus -- as prompts for ideas
Position strategies require fit
• Fit refers to the niche a firm serves and the way its products or services are positioned
• But fit also has to do with every other part of the internal structure of the firm.
• A well positioned firm crafts itself to serve a niche better than anyone else
• Starting a new firm offers the exciting, seductive, often advantageous opportunity to craft a perfect fit between specific opportunities and internal capabilities.
Value chain
• A strong value chain is a cross-linked net of activities that affects the cost or performance of the whole.
• Supporting a strategy by optimizing both individual functions and the links between them to support a strategy yields a powerful, durable, hard-to-duplicate advantage.
MarginTechnology
InboundLogistics
Operations Outbound
Logistics
Marketing/Sales
After SalesService
Infrastructure
Procurement
Human Resources
Value chain for NSP
Small but
steadyDesk-top, enterprise, email
Editorial
Trade pbGalleys - review &
hc
Library rateUPS
Direct mailDistributor
Prepay vs
ReturnsGreen
tax
Land trust, warehouse, 501(c)3, friendly capital
Prompt press, newsprint
Cooperative: multiple skills, networks, low-cost, apprenticeship
Activity system
• Is a less linear way of thinking about the kind of internal fit that supports a strategy.
• Map crucially interrelated features and functions that define a firm’s unique skills and strategy.
• Supports competitive advantage with reinforcing patterns or systems.
Ikea’s Activity System
LimitedCustomer
Service
ModularDesigns Low Mfg
Cost
Self-service
Selection
Self-transport
Limitedsales staff
Customer loyalty
Self -assembly
Suburban Location
Most items in
stock
Design focused on
low cost
Explanatory labeling
Easy transport
Flat packing
kits
Wide variety
Long-term suppliers
Year-round
stocking
On-site inventory
Impulse buying
High-traffic store
layout
Easy to make
Experience curve
• For positional strategies, experience is the ultimate source of advantage.
• Experience fuels the tacit knowledge that drives productivity improvements, innovations, elaborations of strategy, etc
• Successful firms are especially good at creating the social and institutional structures that support the shared development of such tacit knowledge
Value chain or activity chart exercise
• Draw the value chain for your firm• Note reinforcing (and jarring) pieces • Try to create more reinforcements
OR• Jot down functions and features• Look for patterns and connections• Try to crystallize patterns
II. Strategic navigation
• In a hypercompetitive world, all advantages are very temporary
• Competition escalates rapidly along certain dimensions– Cost/Qualty, Timing/Know-how, Barriers to
entry, Deep pockets
• Leading to sudden shifts in the rules– as competition jumps to new arenas, along
new ladders
Strategic navigation depends on timing
CompetitiveEdge
Launch
Exploitation Counterattack
Strategic Window
Time
• Rapid change erodes positions…leading totemporaryopportunities
Strategic navigation requires vision
• Vision pulls firms forward• Strategic intent is vision manifest as focused
ambition:– Lengthens organizational horizon– Promotes focus on ends– Encourages creative means– Promotes consistency between evolving short-term
goals and more stable long-term ones– Promotes focused resource allocation– Tends to motivate
Strategic navigation builds on core assets
• Flexible strategies require core assets – plus a commitment to developing them
• Assets are sources of future value– Tangible, intangible– Owned or not (but available)– Often with a useful life– Often people: customers, employees,
organizational knowledge– Especially core competencies: special knowledge
and skills embedded in employees and systems
Four arena analysis
• Trace escalating competition along ladders– Trying to predict shifts to new areas
• Cost/Quality – Cintas: Ever better plants and routes
• Timing/Know-how– Aramark: Bought into corporate uniforms
• Barriers to entry– New plants, sophisticated logistics, global reach
• Deep pockets– Slugging it out -- and sometimes buying out small fry
Navigational strategies
• Find loose bricks– Stake out undefended territory, fly low, cherry
pick…looking for a beachhead, not a niche (Honda)
• Change the terms of engagement – Sidestep barriers to entry (Canon)
• Collaborate– License, outsource, joint venture to gain
information and knowledge and advantage as go (lamp shades to ceiling fans)
Navigational strategy exercise
• What is the rate of change in your industry or market?
• What is driving change?• In what arenas is competition
focused? Cost/Quality, Timing/Know-how, Barriers to Entry, Deep Pockets?
• How might you take advantage of flux in your field?
• A business model describes what a firm will do, and how, to build and capture wealth for stakeholders
• Effective business models operationalize good strategies -- turning position, fit, etc (or vision and resources) into wealth
• Start-ups offer the opportunity to craft a perfect fit between specific opportunities and internal capabilities.
III. Business models
• Build Wealth– Through an alchemical transformation of inputs into
something that customers value enough to pay for at more than cost
– Or through developing enough potential to be bought: valuable positions, know-how, customers…
• Capture Wealth– Private or public sale– Profit: Revenues plus cost control – Plus: The good life, a rich family life,
entrepreneurial success, social impact
Business models build & capture wealth for stakeholders
1.Describe the landscape:– Porter + OT. – Environment, industry, and relevant trends.
2. Paint in competitors:– Competitor table. Perceptual maps.– What do you need to play? How do competitors
compete? What opportunities exist?
3. Identify strengths & weaknesses– Vision, skills, core technologies
4. Choose a position/strategy
Business models start with strategy
4. Identify stakeholders you must serve– Owners, family, workers, community
5. Identify the wealth you will capture– Capital, good life, family life, fame
entrepreneurial effectiveness, social value
6. Sketch a structure that will operationalize the strategy – Value chain or activity system
Business models enclose wealth
6. Work out the implications– Functional strategies– Timelines: Ie., the path to profitability,
sale or other realization of value– Financial projections & capital needs
Business models define structure
Build a business model exercise
• Strategy • Stakeholders• Wealth• Model• Structural implications• Revise model
IV. Functional implications of the business model
• Marketing and sales • People, management,
governance• Operations • Finances
Marketing and SalesFinance
• Next week: Marketing & Sales • Two weeks: Things Financial• Now: Miscellaneous thoughts
on people, management, governance and operations
People
• Employees, managers, stakeholders • More important even than cash
– Effectiveness, pleasantness
• Most difficult resource to find, to keep and to manage
Business systems
OwnershipPressures
ManagerialPressures
Family/StakeholderPressures
Business systems dynamics
• Each system has its own logic, its own bottom line– Ownership: Wealth creation & maintenance– Family & Stakeholders: Relationships– Management: Efficiency & replicability
• Each has its own time horizon– Ownership: Ten years or one working life– Family & Stakeholders: Reproduction of
generations– Management: Quarterly or annual results
Governance defines the circles and the relationships
• Who decides what– Owners, key employees, key customers, family
members, professional advisors
• The decision makers for each circle– Owners (board of directors)– Managers (management team)– Family/stakeholders (council)
• The scope of their decisions• Their responsibility to each other• Conflict resolution
Governance example
• Company with strong family ties & 3 sons• Owner’s retirement needs drive succession
– Two sons buy business (not land) from father– CEO-in-training - 50.+%; Sales manager 50-%– Board advisors
• Family needs led to side business:– Graphic artist, co-owned by CEO-in-training and
serving main business
• Management needs turn alliance into new web-based business
Governance structures
• Direction– Vision, values, culture– Formal visioning– Cultural maintenance
• Agreements– Contracts, bylaws
• Support– Facilitators, advisors, models
Sharing the vision
• Vision provides both energy and stability.
• Core Ideology anchors the team• Dynamic Envisioned Future draws
the team forward– Long-term, audacious goals– Concrete, vivid description of the
future
Value driver analysis
Probability of Success
Impact
[Time Frame]
L
H
H
InterventionB
InterventionZ
InterventionA
InterventionX
InterventionCIntervention
Y
Value driver analysis
• Work with teams (management, boards, stakeholders) to– List possible projects or initiatives– Rank each by magnitude of impact– Rank each by probability of success
• Place them on the matrix• Concentrate on high value/high
probability options
Value of the analysis
• Focus – No low hanging fruit, no wild gambles
• Process– Generates commitment– Builds trust
• Brings data and analysis – To what is for most entrepreneurs,
intuitive• Models a useful tool
Legal structures
• Corporations are liability and task entities– With governance implications
• Sole proprietorships – S corporation
• Partnerships • C Corporations
– LLC
• Stakeholder Corporations– ESOPs, cooperatives, joint ventures, community
corporations
Support structures
• Boards of advisors– Next size up, pay
• Professional team– Accountant, lawyer, coach, tie-breaker,
insurance?
Governance section
• Key stakeholders and how and why they count
• Legal structure• Key agreements that distribute
power and responsibility
Management responsibilities
• Vision– Blends personal & organizational visions– Fosters common culture
• Strategy– Environmental scanning – Strategy – Measurable objectives
• Resources – Tools, systems, education
Management responsibilities
• Systems– Efficient, effective processes– Fit between systems
• Relationships • Staff development
Responsibility charting
• Provides a language and forum for discussing decision making -- at governance, management or staff level.
• Creates greater clarity about how decisions are to be made and who will be accountable for those decisions.
• Allows for a discussion of the difficult issues of power and authority.
DECISION:
Roles Involved
CEO Oper. Sales Fin.
Approve
Responsible
Consult
Informed
Typ
es o
f P
arti
cip
atio
n
Responsibility chart
Responsibility chart details
• Approve– Sign off on decisions– Veto power– Final responsibility to commit resources– Shares accountability
• Responsible– Takes the initiative, develops alternatives,
recommends, implements. – Accountable for results
Responsibility chart details
• Consult– Input but no veto power
• Inform– Notify
Management team section
• Names & Experience– Resumes
• Missing members– Recruiting plan
• Advisors & roles– Recruiting plan
Operations
• What you do• How you do it• Cost implications
Operations Examples
• Arbill– computerized information, pay
incentives, training, culture, evidence
• Anderson– architected solution simplifies training
and control and resource management
– ties in with knowledge management
Operations section
• Key processes & strategy• Efficiency / cost control• Recruiting, training, evaluating
strategy• Fit with overall strategy• Continuous improvement
Operations exercise
• Sketch out basic operational steps• Note cost assumptions• Create research list to confirm
assumptions, fill in gaps, collect numbers
Bibliography
• Verna Allee, “Reconfiguring the Value Network,” The Journal of Business Strategy, 21 (4), PP 36-39.
• R Boulton, B Libert, S Samek, “A Business Model for the New Economy,” The Journal of Business Strategy, 21 (4), July-August 2000, pp 29-35.
• James Collins & Jerry Porras, Built to Last (HarperBusiness, 1994).• Richard D’Aveni, Hypercompetition (Free Press: 1994).• Kathleen Eisenhardt & Donald Sull, “Strategy as Simple Rules,” Harvard Business
Review, January 2001.• Mark Feldman & Michael Spratt, PWC, Five Frogs on a Log: A CEO’s Guide to
Accelerating the Transition in Mergers, Acquisitions and Gut Wrenching Change, (HarperBusiness 1999).
• Pankaj Ghemawat, Strategy and the Business Landscape (Prentice Hall, 2001).• G. Hamel & C. K. Prahalad, “Strategic Intent,” Harvard Business Review, May-June
1989.• Robert Hamilton lecture notes, 1998.• Robert Hamilton, E. Eskin, M. Michael, "Assessing Competitors: The Gap between
Strategic Intent and Core Capability", International Journal of Strategic Management-Long Range Planning, Vol. 31, No. 3, pp. 406-417, 1998
Bibliography, cont.
• TL Hill lecture notes, 1999, 2001.• J. D. Hunger & T.L. Wheelan, Essentials of Strategic Management (Prentice Hall,
2001).• Ivan Lansberg, Succeeding Generations (Harvard Business School Press, 2000).• B. Mahadevan, “Business Models for Internet-based E-Commerce,” California
Management Review, 42 (4), Summer 2000, pp 55-69.• Henry Mintzberg & James Brian Quinn, Readings in the Strategy Process, 3rd
Edition (Prentice Hall, 1998).• Alex Moss, Praxis Consulting presentation on worker ownership, 1999 • Sharon Oster, Modern Competitive Analysis, 2nd Edition (Oxford University Press,
1994).• Michael Porter, Competitive Advantage (Free Press, 1985).• Michael Porter, “What is Strategy?”, Harvard Business Review, November-
December 1996.• Jim Portwood lecture notes, 1998. • C.K, Prahalad & G. Hamel, “The Core Competence of Corporations,” Harvard
Business Review, May-June, 1990.• Pamela Tudor, Notes on responsibility charting, 1999
Evaluation
• What was the most useful part of today’s workshop?
• Least useful?• What should I definitely keep the
same?• What should I change -- and how?