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)

strategies, that make a difference. www.chiligum.com

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

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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