What is strategy

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  • 1. What is Strategy?

2. Without a strategythe organization is like a ship without a rudder. 3. Strategy Defined Strategy, according to the definitionin Wikipedia is a plan of actiondesigned to achieve a particulargoal. My definition of strategy is three simplewords. Future Competitive Advantage. 4. Strategy Strategy is planning that allows you to get morethan your fair share. Strategy is about getting customers and keepingthem. Drucker: The purpose of a business is tocreate a customer. Build it and they will come. 5. What Is Strategy? Consists of the combination of competitivemoves and business approaches used bymanagers to run the company and reachspecified goals Managements game plan to Attract and please customers Stake out a market position Compete successfully Grow the business Achieve targeted objectives 6. Strategy The process of strategy includes: Analysis Formulation Implementation 7. Whats Strategy* Where is the business trying to get to in thelong-term (direction)* Which markets should a business compete inand what kind of activities are involved in suchmarkets? (markets; scope)* How can the business perform better than thecompetition in those markets? (advantage)?* What resources (skills, assets, finance,relationships, technical competence, facilities)are required in order to be able to compete?(resources)? 8. Strategy - Continued* What external, environmental factors affect thebusinesses ability to compete? (environment)?* What are the values and expectations of thosewho have power in and around the business?(stakeholders) 9. Flawed Concepts of Strategy Strategy as action Our strategy is to merge internationalize consolidate the industry outsource double our R&D budget 10. Strategy as aspiration Our strategy is to be #1 or #2 Our strategy is to grow Our strategy is to be the world leader Our strategy is to provide superior returns to our shareholders 11. Strategy as vision Our strategy is to best understand and satisfy our customers needs provide superior products and services provide superior products and services to advance technology for mankind 12. Strategy at Different Levels of aBusiness Corporate Strategy Business Unit Strategy Operational Strategy 13. Strategic Thinking Strategic thinking is the art of outdoing anadversary, knowing that the adversary is tryingto do the same to you. It is also the art of finding ways to cooperate,even when others are motivated by self-interest,not benevolence. It is the art of convincingothers, and even yourself, to do what you say.It is the art of interpreting and revealinginformation. It is the art of putting yourself inothers shoes so as to predict and influence whatthey will do. The Art of Strategy, Dixit and Nalebuff, W.W. Norton, 2008. 14. Thinking Strategically: The Three Big Strategic Questions1. Where are we now? Market and Competitive Position Financial and Operational Positions Customer and Stakeholder Perspective2. Where do we want to go? Business(es) to be in and market positions to stake out Buyer needs and groups to serve Outcomes to achieve3. How will we get there? A companys answer to how will we get there? is its strategy 15. Strategic Planning and Analysis Planning how to get more than your fair shareinvolves: Scanning the overall environment Scanning and researching the industry environment Researching direct competitors Researching a firms skills and resources Analyzing current strategy 16. The Five Competitive Forces That Shape Strategy, Michael Porter, Harvard Business Review, January 2008. 17. Before the Internet Michael Porter wrote the initial model for theFive Forces in 1979. He wrote What Is Strategy for HBR in 1996,his seminal book Competitive Strategy in 1981,and Competitive Advantage in1985. Before the Internet (BTI) Before Google Before Napster, iTunes, and the iPod Before craigslist.com He didnt consider how to compete with free. 18. Before Behavior Economics Porter made his major contributions to strategytheory before behavioral Economics research. BE research has shown that people do not makerational decisions (emotions dominate) and thatmarkets are not rational. That success is more often the result of luck(randomness) than carefully planned strategy. 19. Randomness People are not wired to understand randomness. We are wired to see patterns and causality; cantaccept randomness. Cant plan for luck. But can be nimble and take advantage of luckybreaks. 20. Operational Effectiveness Is Not Strategy Concentration on core competencies andcompetitive positioning via benchmarking canlead companies down the path toward mutuallydestructive competition. Companies must distinguish between operationaleffectiveness and strategy and not confusethem.What is Strategy, Michael Porter, Harvard Business Review, November 1996, Reprint # 96608 21. Operational Effectiveness Is Not Strategy Operational effectiveness is necessary tocompete but not sufficient to win. A company can outperform others and win only ifit can establish a difference that it can sustain a differential competitive advantage. In the past barriers to entry were the primarycompetitive advantage. Operational effectiveness means doing thingsbetter than competitors, strategic positioningmeans doing things different from competitors. 22. Strategy Rests On Unique Activities The essence of strategy is choosing to performactivities differently than rivals do. Strategic positions can be based on customersneeds, customers accessibility, or the variety ofa companys products or services. Porters concept of fit is no longer valid. Change is happening too fast. Remember, structure follows strategy 23. Generic Strategies There are three generic (primary) strategies: Differentiation Focus (niche marketing) Cost leadership These definitions characterize strategic positionsat the simplest and broadest levels. 24. Secondary Strategies Within the three basic strategies, there areseveral secondary strategies: Defense: Block competition to avoid losing marketshare. Offense: Attack competition head on. Flanker Brand: Establish new position. Fighting Brand: Create a new brand to compete withcompetitive new brand. Guerrilla Marketing: Force competition to respondwith small resources. Ambush Marketing 25. Profitable Niche Measurable, sizable, reachable Niche strategy advantages: Flexible, can adapt to new needs, small range ofneeds. Efficient for promotion, distribution. Reduces competitive pressure. With few competitors, can be highly profitable. 26. Niche strategy disadvantages: Few economies of scale Success breeds competition. When new competitorsenter the niche, strategy must change. To thrive in most businesses, must be #1, #2, orget out (find a new niche). Get out in the long tail. 27. Differentiate By Benefits Sought By Consumers Grocery buying segments1 Location - 39.0%2 Price- 30.2%3 Service - 12.1%4 Selection - 9.5%5 Quality - 4.4% 28. A Sustainable Strategic Position Requires Trade-offs Tradeoffs are essential to strategy. They createthe need for choice and purposefully limit what acompany offers. Remembering that a valuable position will attractcopycats. Cant be all things to all people. Be best at doinga few things. Then expand on those core competencies. Apple Google 29. Sustainable Competitive Advantage Unique competitive position for a company Activities tailored to strategy Clear trade-offs and choices vis--vis competitors Competitive advantage arises from fit across activities. And sustainable barriers to entry Sustainability comes from the activity system, not theparts. Operational effectiveness a given Constant innovation a must 30. Determining Strategy To determine strategy, answer the followingquestions: Which of our products/services are the most distinctive? Which of our products/services are the most profitable? Which of our customers are the most satisfied? Which customers, channels, or purchase occasions aremost profitable? Which of the activities in our value chain are the mostdifferent and effective. How can we make everything better? Now! 31. Profit is Important Profit is the key to a successful strategy, notgrowth. Compromises and inconsistencies in the pursuitof growth will erode the competitive advantagea company. Keep an eye on profitable growth. 32. Potential Traps Meaningless differentiation Getting greedy Groupthink Alfred Sloan Throwing money at a problem Lack of commitment Innovation stagnation 33. Whom To Attack Weak management Weak financial resources Weak execution Weak corporate commitment Weak/old technology, design, and/orfunctionality Weak innovation 34. Perceptual Problems All the kids are above average Jim Collins lists five basic managementperceptual mistakes that lead to five stages ofdecline: Stage 1: Hubris Born of Success Stage 2: Undisciplined pursuit of more Stage 3: Denial of risk and peril Stage 4: Grasping for Salvation Stage 5: Capitulation to Irrelevance or DeathJim Collins, How the Mighty Fall, Harper Collins, NY 2009. 35. The Role of Top Management The role of top management in an organizationis: Defining an organizations position and strategy Making trade-offs Forging fit among activities Building an innovation machine And strategy may have to change along withmajor structural changes in an industry --flexibility is vitally important. 36. Organizations Must have a visionary, meaningful missionstatement. Must have a clear and simple strategy. Must define how to get more than a fair share. Must be committed to strategic moves andsignal commitment to competitors. Must follow through on commitments continuallyand retaliate quickly and aggressively to countermoves. Must continually innovate. 37. The Strategy Focused Organization *Mission:Why we existCore Values:What we believe in Vision: What we want to beStrategy: Our game plan (how to win) Goals For Implementing Strategy (Metrics): What we need to do OUTCOMESSatisfiedDelightedEffectiveMotivated andShareholder