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STRATEGY DEVELOPMENT Key Concepts and Frameworks Chiligum Strategies 2012
“In peace prepare for war, in war prepare for peace. The art of war is of vital importance to the state.” (512 BC)
1. what about strategy? 2. strategic analysis 3. strategy development 4. strategy implementation
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“If one does not know to which port one is sailing, no wind is favorable.” (Lucius Annaeus Seneca)
What about Strategy?
“Tactics is the art of using troops in battle; strategy is the art of using battles to win wars.”
Carl von Clausewitz (1780-1831)
“Strategy is the practical adaptation of the means placed at a general's disposal to the attainment of the object in view.”
Helmuth Karl Bernhard Graf von Moltke (1800 - 1891)
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“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” Michael Porter (1996:64)
photo: Allesandra Fratu
“the pattern of objectives, purposes or goals and major policies and plans for achieving these goals stated in such a way as to define what business the company is or is to be in and the kind of company it is or is to be.”
Kenneth R Andrews (1916-2005)
Kenichi Ohmae (* 1943)
Strategy essentially deals with the interplay of three forces: Customer, Corporation, Competition.
Good strategy is characterized through – Clear market definition
– Good match between corporate strengths and needs of the market
– Superior performance in the key success factors of the business
(in: Jain 2004)
„Strategy Development is a question-based process: Where are we now? Where do we like to go? How do we get there?“ Peter Edelmann, Senior Executive President Voith Turbo
Peter Edelmann
Strategic Analysis
Mental Models
“Mental Models are deeply ingrained assumptions, generalizations, or even pictures or images that influence how we understand the world and how we take action. Very often, we are not consciously aware of our mental models or the effects they have on our behaviour.”
Senge P (1992:8)
PESTEL Analysis
Economical Environment
Environmental Environment
Legal Environment
Social Environment
Technological Environment
What are the key issues, that impact your business?
Political Environment
SWOT Analysis (Andrews)
FIT matters! Task, to match internal strength and weaknesses with external opportunities and risks
Keep findings descriptive; Investigate both internal AND external issues
WEAKNESSES
RISKS
STRENGTH
OPPORTUNITIES
What factors and drivers are especially important to perform
superior in your industry?
Ohmahe - Key Success Drivers
Ohmahe (K 1982)
Market Orientation / Behavioral View
“Market orientation is the organizationwide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organizationwide responsiveness to it.”
Kohli, Jaworski (1990:6)
Market Orientation / Cultural View
“Market orientation it the organization culture that most effectively and efficient creates the necessary behaviours for the creation of superior value for buyers and, thus, continuous superior performance for the business.“
Narver, Slater (1990:21)
Competitor Intelligence
Who are your key competitors?
How do they perform?
What are there strengths and weaknesses?
What could be their strategy?
How could all of this impact your business?
Strategy Development
Purpose and Culture
Vision – long-term, encouraging, aspiration for the
future
Mission – purpose of the business
Values – attitudes, behaviours, character of
organization to guide actions like an internal compass
Purpose and Value
Strategy development requires to understand ‘the benefit of having a well-articulated, stable purpose, and the importance of discovering, understanding, documenting, and exploiting insights about how to create more value than other competitors do’
Campbell (1997 p 42)
Point of View
Universal objectives (profitability, costs, turnover, sales, quality, etc. ) define what a company must do to survive
However do not automatically suggest unique strategies nor provide any direction
The essence of why an organization exists does provide guidance to achieve these universal objectives
Campbell (1997 p 42)
Planning Processes
Processes of developing good strategies are‘much more messy, experimental, iterative; and driven from the bottom up’ than many planning processes suggest
Besides, if there were one best way, everyone would use it
However, processes and frameworks do provide structure, help to systematize the basis and context for decision taking and document results along the way
Campbell (1997 p 46)
Generic Strategies
Porter (1985)
Competitive Advantage
COST LEADERSHIP
DIFFEREN-TIATION
Differentiation Lower Cost N
arro
w T
arge
t B
road
Tar
get
Com
petit
ive
Sco
pe
Niche Market Efficiency FOCUS
Core Marketing Strategies
Tearcy, Wiersema (1995)
Operational Excellence
Product Leadership
Customer Intimacy
Strategic Direction
Sharpen distribution systems and provide no-hassle service
Nurture ideas, translate them into products, and market them skillfully
Provide solutions and help customers run their business
Organizational Arrangement
Has strong, central authority and a finite level of empowerment
Acts in an ad hoc, organic, loosely knit, and ever-changing way
Pushes empowerment close to customer contact
Systems Support
Maintain standard operating procedures
Reward individuals´ innovative capacity and new product success
Measure the cost of providing service and of maintaining customer loyalty
Corporate Culture
Acts predictably and believes „one size fits all“
Experiments and thinks „out-of-the-box“
Is flexible and thinks „have it your way“
Strategic Moves
Ansoff (1965)
Market Development
Market Penetration
Current Markets New Markets N
ew P
rodu
cts
Curr
ent P
rodu
cts
Diversification
Product Development
Strategic Business Units
“An SBU is composed of a product or product lines having identifiable independence from other products or product lines in terms of competition, prices, substitutability of product, style/quality and impact of product withdrawal.”
Jain (2004 p. 18)
SBU Characteristics
Jain (2004)
Unique business mission, independent of other SBUs
Clearly definable set of competitors
Able to carry out integrative planning relatively independently of other SBUs
Large enough to justify senior management attention, but small enough to serve a useful focus for resource allocation
Defining SBUs
Customer Groups
Technologies Customer Functions
Good Segmentation
Schiffman et al. (2005)
Identifiability – Ability to identify + measure relevant
characteristics
Size and Stability – Sufficient number of buyers
– Needs or factors do not change too rapidly
Accessibility – Ability to reach target segment in
economical way
Responsiveness – Segment responds homogeneously to
a specific marketing mix
Ultimate Check
Meaningful
Actionable
Financially attractive
Business Model
Hamel G (2002)
Customer Interface
Fulfilment & Support
Information & Insight
Relationship Dynamics
Pricing Structure
Strategic Resources
Core Competencies
Strategic Assets
Core Processes
Value Network
Suppliers
Partners
Coalitions
Core Strategy
Business Mission
Product/Market Scope
Basis for Differentiation
Customer Benefits Company Boundaries Configuration
Efficient / Fit / Profit Boosters
Strategy As Simple Rules
Eisenhardt (2001 pp. 108-115)
To allow quick moves in dynamic markets
Focus on pursue of opportunities by increasing flexibility in decision taking
Just enough guidance and structure by a limited set (<10) of simple and unique rules regarding key processes
Rules mainly experience-based, important to neither set rules too broad nor too vague
Challenge to balance long-term perspective and to adapt rules to changing conditions
Types of Rules
Eisenhardt (2001 p. 111)
How-to rules, guiding execution of key processes
Boundary rules, limiting range of opportunities (company scope)
Priority rules, setting priorities for resource allocation
Timing rules, adapting internal schedules to the pace of markets
Exit rules, defining criteria to exit opportunities in the light of unpredictable developments
Innovation and Change
Understanding mental models – Mindsets that influence decision making
– Task to make the implicit explicit and to constantly question and challenge those long-held believes
Thinking beyond best-practice – necessary but not sufficient, while
leading towards performance barrier
– ‚Dream, create, explore, invent, pioneer, imagine …‘ (Hamel G 2002 p. 28)
Changing the rules of the game! – From market driven to market driving by
value proposition AND business system
Bickhoff N 2008, Hamel G 2002, Kumar N 2000, Porter 1996
Strategy Evaluation
Jain (2004)
Suitability: Is there a sustainable competitive advantage?
Feasibility: Does firm have the skills, resources, and commitments?
Internal consistency: Does strategy hang together?
Vulnerability: What are the risks and contingencies?
Workability: Can we retain our flexibility?
Strategy Implementation
“Predicting rain does not count – building arks does.” (anonymous)
Strategy Maps
To visualize cause-effect relationships among key drivers
To support strategy alignment and to facilitate strategy communication
Each perspective supports the execution on the next level
Strategy Maps link to Balanced Score Card
Generic maps provide guidance to develop unique maps tailored to company
Best applied at various levels (corporate, SBU, department)
Kaplan, Norton (1996, 2004, 2008)
Strategy Map
Kaplan, Norton (2008)
Expand and build strategic skills, capabilities,
and expertise
Develop leadership and execution-driven culture
Enable and require continuous learning and sharing of knowledge
Improve Operating Quality and Efficiency
Grow High-Value Customer Relationships
Accelerate Product Innovation
Financial Perspective
Learning and Growth Perspective
Process Perspective
Customer Perspective
Increase ROI
Increase revenues in existing segments
and markets
Grow revenues in new products and services
Improve productivity
Be a leader in quality
and reliability
Provide valued service, applications expertise,
and support
Introduce innovative,
high-performance products and solutions
Improve quality, cost, and flexibility of
operating processes
Improve supply chain efficiency and effectiveness
Optimize customer profitability
Expand channels offerings, and markets
Build and maintain strong customer relationships
Excel at technology, product development
and life cycle management
Identify next-generation
market opportunities
Create a high-Performance Culture
Balanced Score Card
Performance measuring system to include and quantify intangible assets
Customer perspective, internal processes and learning as building blocks
Financial performance as ultimate indicator
Companies vision and mission stand above providing overall direction
„You cannot manage, what you cannot measure.“
Balanced Score Card
Set global goals – What do you generally aim at?
Define measures – How will you measure your results?
Set targets – What specific goals related to your
measures you like to achieve in a certain time frame?
Plan initiatives – What actions will take place to meet your
goals?
“There are three kind of companies, those that make things happen, those that watch things happen – and those that wonder what happened.” (anonymous)
Many thx to my readers, a thousand thx to my teachers!
Any question or suggestion?! Looking forward!
Benjamin Teeuwsen benjamin@chiligum.com www.chiligum.com
must reads - click here!
References
Andrews K R (1987) ‘The Concepts of Corporate Strategy’ Richard D Unwin, Homewood
Bickhoff N (2008) ‚Quintessenz des strategischen Managements – Was Sie wirklich wissen müssen, um im Wettbewerb zu überleben‘ Springer-Verlag, Berlin
Campbell A, Alexander M (1997) ‚What’s Wrong with Strategy?’ HBR Nov-Dec, pp. 42-51
Eisenhardt K M, Sull D N (2001) ‚Strategy as Simple Rules‘ HBR Jan-Mar, pp. 107-116
Hamel G (2002) ‘Leading the Revolution’ Harvard Business School Press, Boston USA
Jain S C (2004 7th ed.) ‘Marketing: Planning and Strategy’ Thomson, Ohio USA
Kaplan R S, Norton D P (2008) ‘Mastering the Management System’ HBR, Jan, pp. 63-77
Kaplan R S, Norton D P (2004) ‘Strategy Maps’ Boston
Kaplan R S, Norton D P (1996) ‘The Balanced Scorecard’ Boston
References
Kohli A K, Jaworski B J (1990) ‘Market Orientation: The Construct, Research Propositions, and Managerial Implications’ Journal of Marketing, Vol. 54, No. 2, pp. 1-18
Kumar N, Scheer L, Kotler P (2000) ‚From Market Drive to Market Driving‘ European Management Journal Vol. 18 No. 2, pp. 129-142
Narver J C, Slater S. F. (1990) ‘The effect of a market orientation on business profitability’ Journal of Marketing, Vol. 54, No. 4, pp. 20-36
Porter M E (1996) ‘What is Strategy?’ Harvard Business Review, No. 6, Nov-Dec, pp. 61-78
Porter M E (1985) ‘Competitive Advantage’ Free Press, New York
Schiffman L et al. (2005) ‘Consumer Behaviour’ Pearson Education Australia, Frenchs Forest NSW
Senge P M (1990) ‘The Fifth Discipline: The Art and Practice of the learning Organization‘ Currency Doubleday
Treacy M, Weirsema F (1995) ‘The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market’ Perseus Books, Cambridge
Further Concepts
Blue Ocean Strategies (Kim, Mauborgne )
Sustainable Competive Advantage
Systems Thinking
Core Competencies (Hamel, Prahalad)
Strategic Intent (Hamel, Prahalad)
Distinctive Capabilities (Day)
Five Forces (Porter)
Value Chain (Porter)
Resource-based view (Barney, Clark)
Portfolio Analysis (BCG, McKinsey, etc.)
Product Lifecycle, Industry Lifecycle
Six Sigma (Pande, Neuman, Cavanagh)
Total Quality Management