Strategic Thinking

Shayne Gary

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Levels of Strategy

CORPORATE HEAD OFFICE

Division A Division B Division C

R&DHRFinanceOperationsMarketing

R&DHRFinanceOperationsMarketing

R&DHRFinanceOperationsMarketing

Corporate Strategy

Business Strategy

Functional Strategy

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What is Strategy?

• Integrated plan of how to achieve objectives– Guides actions & functional policies to develop or enhance

a firm’s competitive advantage

• Evolves over time as the external environment or internal resources & capabilities change

• Involves commitment of significant resources (not easily changed)

• Must be viewed in the context of inter-firm competition

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• Fundamentalpurpose

• Values

• Specifictargets

• Integrated planof how to achievestated objectives

Strategy as an Integrated Plan

OrganizationalArrangementsStrategyMission Objectives

• Structure• Systems • Process• Culture• People• Rewards

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Connecting Actions with Performance Outcomes

Source: Saloner, Shepard, Podolny: Strategic Management (2001)

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Strategic Thinking

• Ability to develop & maintain a conceptual map (mental model) of the overall business– Understanding of the key relationships among

actions, context, & performance• Ability to conceptualize an integrated plan

that guides actions & functional policies to achieve objectives– Capacity to diagnose problems & to think

through the impact of changes in external & internal contexts

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Linking the Internal &External Contexts

FIRMGoals & valuesResourcesCapabilitiesOrganisation

• Structure• Systems• Style

STRATEGYthat ‘fits’

ENVIRONMENTIndustry• Suppliers• Customers• Competitors• Substitutes

TechnologyGovernmentEconomyNature

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Strategy Formulation Process

Industryanalysis

Step 3

Define objectives &

key issues

Generate

hypotheses

Step 1

Internal analysis

Generate& evaluateoptions

Synthesizefindings

& Recs

Step 4Step 2 Step 5

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Generating Strategic Options

• The strategic analysis should provide a comprehensive overview of the current situation, which is a precursor to generating strategies that can meet objectives and targets

• Generate multiple strategic options for evaluation– At least two alternative options but more if time permits

• Evaluate & test strategic options by cross-checking the analyses & performing further analyses if needed

• Anticipate competitive response & test strategic options against moves available to the competition

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Components of a Strategy

• Long-term goals and objectives• Scope of business activities

– Products, markets, geographies, technologies, and broad areas of activity

• Competitive advantage over rivals– Cost or differentiation advantages

• Logical, coherent case for firm success– Articulation of how the goals, scope, &

competitive advantage come together into an integrated plan

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Strategy Diamond:Five Elements of a Strategy

2. Vehicles• Internal development?• JVs? Alliances?• Licensing/franchising?• Acquisitions?

3. Differentiators• Image/Brand?• Customization?• Price?• Styling?• Product reliability?

1. Arenas• Products or services?• Market segments?• Geographies?• Distribution channels?• Technologies?• Stages of the value chain?

4. Staging• Sequence of moves? • When (how fast)?• Pace of innovation?

5. Logic for success• Low cost leader through

scale, scope, learning curve,capacity utilization, etc?

• Premium prices due to differentiation strategy?

• Lock-up scarce resources,de facto standard, increasingreturns, etc.

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Hambrick and Fredrickson (2001) Are you sure you have a strategy?

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Southwest Airlines’ Strategy

2. Vehicles• Internal development to maintain Southwest culture

3. Differentiators• Very low ticket prices• Convenience• Reliability• “Fun, friendly” experience

1. Arenas• Short-haul, point-to-point service• Midsize cities and secondary airports in

large cities• Frequent departures on these routes• Price- and convenience-sensitive travelers• Boeing 737s exclusively

5. Economic logic• Low cost through high aircraft utilization (15 minute turn-around), limited use of travel agents, lean & highly productive staff, limited passenger service

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4. Staging• Incremental origin-destination pair expansion from original stronghold in Southwest U.S.• Build out presence at existing airports rather than spreading “too thin, too fast”

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Evaluating Southwest’s Strategy

Likely to create & capture valueFit with external environmentFit with company resources, capabilities & objectivesSustainable differentiatorsDesigned to grow the pie, not just take a larger slice (create & capture value)Performs different activities and/or performs activities differently (unique strategic position)

Comprehensive, integrated strategyComprehensive (covers all five elements)Clarity on what to do and what not to do (trade-offs)Activities are internally consistent & reinforcing (strategic fit)Adequate resources to pursue strategy (can be implemented)

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Group Exercise:Strategy of the SSO

For the next 30-45 minutes…

1. Identify a few overall long term strategic goals & objectives of the SSO

2. Identify the elements of the SSO’s current strategy to achieve those goals and start to think about evaluating the strategy

3. Be prepared to present one slide summarizing the SSO’s current strategy to your classmates

Strategy Formulation Process

Define objectives &

key issues

Industryanalysis

Internal analysis

Generate& evaluateoptions

Synthesizefindings

& Recs

Generate

hypotheses

Industry value chain5 ForcesStructure-Conduct-PerformanceValue netOT in SWOTIndustry demand & cost curvesPositioning mapsKey success factors

Firm value chainResources & capabilities auditSW in SWOTActivity systemsCost structureDuPont analysis (profit trees)Analysis of historical performance (financial & operational)

Create &/or capture value (5Cs)• Differentiation drivers• Cost drivers• Positioning options• Superior R&C’s

Components of a strategy• Scope, competitive

advantage, & logic • Strategy diamond• Where, how, when

Evaluation criteriaMobility barriersCompetitive responseCash flow analysis

Develop specific recommendations (actions)Support recs by integrating analyses

Step 3

Step 1 Step 2 Step 4 Step 5

Generate hypotheses about root causes & solutions

• Brainstorming• Fish bone

diagrams• Issue trees

Plan analyses

Categories of objectives• Economic value• Stakeholder surplus• Other

Identify problems or key issues faced in meeting targets

• 5 W’s• Root cause analysis

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Strategy in Term 3

• Objectives are to learn core theory & models– What is the logic of the model? What manager

actions lead to superior performance and why?– Practice applying models to support decision

making• Integrative course that will bring together

material you have learned in all of the core courses