Lecture 1- What is Strategy- Dobbelsteen

8/6/2019 Lecture 1- What is Strategy- Dobbelsteen

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International Business and TradeWhat is Strategy?

E. van den Dobbelsteen

A034

[email protected]

Erikdobbel (skype)


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2Todays class

What is Strategy?

Book- Exploring Corporate Strategy


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3What is Strategy Gordon Ramsay


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4Introducing Strategy- The characteristics of Strategic Decision

ll


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5Introducing Strategy- Implications for strategic decision making

Complexity Geographical Scope, Vertical Scope, Product Scope

Uncertainty Future uncertainty, how to benefit from challenges

Operational DecisionsCoordinate Business Unites, Link between

strategy and operational aspects, operational level usually achieves the

advantage due to superior competence.

Integration Across functions and operational boundaries

Relationships and Networks suppliers, distributors and customers

Change heritage of resources and organizational culture

Product Scope

P1 P2 P3

GeographicalScope

C1 C2 C3

V1V2

V3

Vertical Scope

V1

V3

V2


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6Introducing Strategy- Levels of Strategy

CorporateStrategy

Business

Strategy

CorporateHead Office

Division A Division B

R&D

HR

Finance

Production

Marketing

/ Sales

R&D

HR

Finance

Production

Marketing

/ Sales

Functional/(Operational)

Strategy

Source: Grant

(2005)


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7Introducing Strategy- Strategic Managment

Innovation

Strate

gicChoic

es

Business-

Level

Corpo

rate-Level

International

Evaluation

Changing

Strate

gyIn

Action

Processes

Organizing Resourcing

Practise

Culture

TheStrate

gic

Posision

Environment

Capability

Purpose


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8Introducing Strategy- The strategy lenses

l

Strategy as design

Strategy as experience

Strategy as ideas

l

If you use differentperspectives you get a better

view and understanding


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9The three lenses strategy as Design

l

Strategy is formulated from the top (top management) through careful andobjective analysis and planning and implemented down through theorganisation

Strategic development is seen as a rational, analytic, structured anddirective process:

Analyse to identity the influences on the organizationl Systematic thinking and reasoning

Objectives are clear and explicitl Evaluated and provided with feedback

Organizational Control systemsl Output control, behavior control and cultural control

Budgets, variance analysis, management by objective


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10The three lenses strategy as Design

Two basic principles:

1. Managers are (or should be) rational decision makers

2. They should be taking decisions about how to optimise theeconomic performance of their organisations

3.

Rational aspect is relativel Managers defend theirposition or challenge to someone

elses position pol t sicl Limitations and constraints have to be taken in accountl

Rationality is set of procedures for making choicesl Rational choices are based on anticipations of the future

effects or current actions


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11The three lenses strategy as Experience

Strategies evolve and inform strategic decision, which in turn consolidate strategic direction

Product launch

Acquisition

Divestment

Overseasexpansion

Evolving

strategicdecisionS

tra

tegi

c

decis

ions


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l Individual experience : the mental orcognitive (knowledge) modelspeople build over time to help make sense of their situation (learningby doing, comparing with prior events)

People get subjective Interpret data/situations based on own

experience and viewing points

Experiences Marketing manager

vs.

Experiences ro u t on m n rc i a age

Risk, bias:


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Collective experience : organisational culture and strategy developmentl

Organisational culture: Basic assumptions and beliefs that are shared bymembers of an organisation, that operate unconsciously and define in a

basic taken-for-granted fashion an organisations view of itself and itsenvironment

l

Collective experience is rooted in:

l Collective taken-for-granted assumptions

l Routines of the organisationl

Effective because people whowork togetherdont have to

reinvent their world for differentcircumstances


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The paradigm in strategy formulationOpportunit

ies& threats

Strengths&

weaknesses

Environmental

forces

Organisational

capabilities

The Paradigm

Strategy

Performance

Paradigm = the set of assumptions held relatively in common and taken for granted in an organization

Organisational culture influences on development of innovative strategy in organisations n lso v n t v ta a ha e a ega i e effec

useca eInfluence is conservative (bad forinnovation)/ unable to adjust to environment (changes)

The three lenses strategy as Experience


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15The three lenses: strategy as Idea

l

New ideas and therefore innovation may come form anywhere in anorganisation or from stimuli in the world around it.

Innovation not from the top but very often from low down in an organisation

Out of the box


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16The three lenses: strategy as Idea

Ideas in an organization

l


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Potential Innovation

Manyindividuals

Variety ofinteraction and

cooperation

Lots of ideas

Potential innovation

Hierarchy andcontrol

Taken for grantedassumptions and

routines

Organisationalculture

PotentialVolatility

(short lasting )

Potentialinertia (slow)

The three lenses: strategy as Idea


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18What is Strategy- Michael Porter


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19What is Strategy- Michael Porter- Flawed Concepts of Strategy

Our strategy is to merge

internationalize

consolidate the industry

outsource

l

Our strategy is to be #1 or #2

Our strategy is to grow

Our strategy is to be the world leader

l

Our strategy is to meet our customers needs

offer superior products

to advance technology for mankind


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20What is Strategy- Michael Porter- Flawed Concepts of Strategy

Very tangible things, how are we going to be unique

COMPETING TO BE THECOMPETING TO BE THE

BESTBEST

COMPETING TO BE THECOMPETING TO BE THE

BESTBESTCOMPETING TO BECOMPETING TO BE

UNIQUEUNIQUE

COMPETING TO BECOMPETING TO BE

UNIQUEUNIQUE

The worst error in strategy is to compete with rivals on the same dimensions


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21What is Strategy- Michael Porter 2007

What Is a Strategy? What is Not a Strategy?

Best practice improvement

Execution

Aspirations

A vision

LearningAgility

Flexibility

Innovation

The Internet (or any technology)

DownsizingRestructuring

Mergers / Consolidation

Alliances / Partnering

Outsourcing

Internationalizing

Best practice improvement

Execution

Aspirations

A vision

Learning

Agility

Flexibility

Innovation

The Internet (or any technology)

DownsizingRestructuring

Mergers / Consolidation

Alliances / Partnering

Outsourcing

Internationalizing

lA unique value propositionversus competitors

lA different, tailored value chain

lClear tradeoffs, and choosing whatnot to do

lActivities that fit together and

reinforce each other

lContinuity of strategy withcontinual improvement in realizingthe strategy

lA unique value propositionversus competitors

lA different, tailored value chain

lClear tradeoffs, and choosing whatnot to do

lActivities that fit together and

reinforce each other

lContinuity of strategy withcontinual improvement in realizingthe strategy


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22What is Strategy- M. Porter- Defining the Value Proposition

What RelativeWhat Relative

Price?Price?

What RelativeWhat Relative

Price?Price?

WhatWhat

Customers?Customers?

WhatWhat

Customers?Customers? Which Needs?Which Needs?Which Needs?Which Needs?

What end users?

What channels?

Which products?Which features?

Which services?

A novel value proposition can also grow the pie/expand the industry


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23What is Strategy- M. Porter- IKEA (Sweden) Value Proposition

Young, first time, orprice-sensitivebuyers who want stylish, space efficientand scalable furniture and accessories atvery low price points.

Modular, ready-to-assemble, easy to packagedesigns

In-house design of all products

Wide range of styles in huge warehouse stores with

large on-site inventoriesSelf-selection

Extensive customer information in the form ofcatalogs, explanatory ticketing, do-it-yourselfvideos, and assembly instructions

Use Ikea designer names on products to informcoordinated purchases

Child careprovided in the store

On-site, low-cost, restaurants

Long hours of operation

Suburban locations with large parking lots

Principally self-delivery by customers

Value PropositionValue Proposition Distinct ActivitiesDistinct Activities


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24What is Strategy- Michael Porter- Competitive Advantage

DifferentiationDifferentiation

(Higher Price)(Higher Price)

Low CostLow Cost

(Lower Cost)(Lower Cost)

CompetitiveCompetitive

AdvantageAdvantage

DifferentiationValue for customer, unique performance in meeting needsCare about cost where buyers dont care about themBetter progress against needs

Competitive AdvantageCreating superior value to customer

Value is what buyers are willing to pay

Superior value stems from offering lower prices thancompetitors forequivalent benefits or providing uniquebenefits that more than offset a higher price

Lower CostStructural, enduring efficiency versus on timeDraw an advantage from many sourcesStudy competitionCompany culture, managing cost downGive up frill and features


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25What is Strategy- Michael Porter- Differentiation


(Higher Price)(Higher Price)

DifferentiationWhen a firm can be unique at offering something that isvaluable to buyers(Communicating this value is critical in success)

Justify a premium price

Lowing buyer costRaising buyer performance

Different vs. Differentiated

Not valued vs. Valued

by buyers

AverageCompetitor

DifferentiatorDifferentiator

Cost

Price

Cost

PriceProfit

Profit


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26What is Strategy- Michael Porter- Low Cost

Low CostLow Cost

(Lower Price)(Lower Price)

Low CostWhen cumulative cost of performing all value activity arelower than competitors

3 types of value activities:Direct, indirect and quality assurance

2 waysControl cost driversReconfigure the value chain

Cost Drivers:Economies of scale TimingLearning Discretionary Policies

Pattern of capacity utilization

Linkages Location

Interrelationships Institutional factors

Integration

AverageCompetitor Low CostLow Cost

Cost

Price

Cost

PriceProfit

ProfitProfit


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27What is Strategy- Low Cost

EasyJets No frill Strategy (simple proposition, )

It is an online brand, all is easy to book and to do business with them

Ticket-less travel (email)

All the best prices are available online (book early, not by phone)


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28What is strategy?- Strategic Clock

Strategic Clock :

overview of competitive strategy options

1.Likely to be segment specific

2.Risk of price war and low margins; need tobe cost leader

3.Low cost base and reinvestment in lowprice and differentiation

4.Differentiation:

a)Without price premium :

perceived added valueby user, yielding marketshare benefits

b)With price premium:Perceived added valuesufficient to bear pricepremium

5.Perceived added value to a particular

segment, warranting price premium6.Increased price/standard value: higher

margins if competitors do not follow;risk of losing market share

7.Increase price, low value: only feasible in amonopoly situation

8.Low value/standard price: Loss of marketshare

Perceivedproduct/service

benefits6.

5. Focussed

differentiation

Pricelow high

low

high

1. Nofrills 8.

7.

4. Differentiation

3. Hybrid

2. Lowprice

Strategies lead tofailure


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29What is Strategy- M. Porter- Generic Strategies

Cost LeaderCost Leader

FocusFocus

Cost LeaderCost LeaderFocusFocus



Stuck in the Middle (hybrid)

Differentiation is usually costly

Cost leadership requires a firm to forego some differentiation by standardizing its product,

reducing marketing overhead and the like

ParticularSegment

only

Industrywide

Low costposition

Uniqueness Perceived bythe Customer

Strategi c

Ta

rget

Strategic

Ta

rge

t

Strategic AdvantageStrategic Advantage

Lecture 1- What is Strategy- Dobbelsteen

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