foundations of strategy overview elizabeth allen mike mullin michael johnson joshua zamarron james...
TRANSCRIPT
Foundations of Strategy Overview
Elizabeth AllenMike Mullin
Michael JohnsonJoshua Zamarron
James Stariha
Chapter 1: The Concept of Strategy
The role of strategy in success
Strategy today
The approach taken in this book
The Role of Strategy in Success
Goals that are simple, consistent, and long termSingle-minded commitment to clear goal
Profound understanding of competitive environment
Objective appraisal of resourcesExploit internal strengths and protect areas of weakness
Effective implementationEmergence of organizations and responding to changes in the environment
The Role of Strategy in Success
Simple, consistent, long-term goals
Successful Strategy
Effective Implementation
Profound understanding
of the competitive environment
Objective appraisal of resources
Strategy Today
Strategy DefinitionsThe means by which individuals or organizations achieve their objectives (FS Book)
A plan, method, or series of actions designed to achieve a specific goal or effect (Wordsmyth Dictionary)
The determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals (Alfred Chandler, Strategy & Structure)
The pattern of objectives, purposes, or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be (Kenneth Andrews, The Concept of Corporate Strategy)
Strategy Today
Corporate strategyDefines the scope of the firm in terms of the industries and markets in which it competes
Business strategyConcerned with how the firm competes within a particular industry or market
The Approach Taken in this Book
Companies operate in the interests of their owners by seeking to maximize profits over the long term by pointing to four key considerations
Competition
The market for corporate control
Convergence of stakeholder interests
Simplicity
The Approach Taken in this Book
CompetitionErodes profitability
As competition increases, the interests of different stakeholders converge around the goal of survival
The Market for Corporate ControlManagement teams that fail to maximize the profits of their companies will be replaced by teams that do
The Approach Taken in this Book
Convergence of Stakeholder InterestsThere is likely to be more community of interests than conflict of interests among different stakeholders
SimplicityA key problem of the stakeholder approach is that considering multiple goals and specifying trade-offs between them vastly increases the complexity of decision making.
Chapter 3: Resources and capabilities
The role of resources and capabilities in strategy formulation
Identifying the organization’s resources and capabilities
Developing resources and capabilities
Resources and Capabilities
Firms industry environments have become more unstable, so internal resources and capabilities have become more secure base for formulating strategy
It has become increasingly apparent tha competitive advantage rather than industry attractiveness is the primary sources of superior profitability
Resources and Capabilities
Resources are the productive assets owned by the firm
Capabilities are what the firm can do
Resources must work together to create organizational capability
Capability is the essence of superior performance
Identifying ResourcesTangible Resources
Easiest to identify and evaluate
Financial resources, Physical resources
Intangible ResourcesTechnology
Reputation
Culture
Human ResourcesSkills/know-how
Capacity for communication and collaboration
Motivation
Identifying Capabilities
Organizational Capability – a firm’s capacity to deploy resources for a desired end result
To perform a task, a team of resources must work together.
i.e. a brain surgeon with a radiologist, anesthetist, nurses, etc.
Distinctive Competence – those things that an organization does particularly well relative to its competitors
Developing Resources and Capabilities
Having managers with knowledge for capability building
Acquiring capabilities through mergers, acquisitions, and alliances
Internal development(focus and sequencing): Capability development needs to be systematic and a step by step process of design and implementation through several stages and in order.
Chapter 5: Business strategies in different industry and sectoral contexts
The industry life cycle
Strategy at different stages of the life cycle
Scenario planning
The Industry Life Cycle
Is the supply-side equivalent of the product life cycle, occurs over a much longer time span
Comprised of four phasesIntroduction
Growth
Maturity
Decline
Two main factors that are fundamental:Demand growth
Production and diffusion of knowledge
Demand Growth
In the introduction stage, sales are small and the rate of market penetration is low because the industry’s products are little known and customers are few. Customers tend to be innovative oriented and risk-tolerant.
The growth stage is characterized by accelerating market penetration as technical improvements and increased efficiency open up the mass market
Increasing market saturation causes the onset of the maturity stage. Once saturation is reached, demand is wholly for replacement
As the industry becomes challenged by new industries that produce technologically superior substitute products, the industry enters its decline stage
Production and Diffusion of Knowledge
New knowledge in the form of product innovation is responsible for an industry’s birth
Dual processes of knowledge creation and knowledge diffusion exert a major influence on industry evolution
Over the course of the industry life cycle people become more knowledgeable about the performance attributes so they are better able to judge value for the price
Change focus from product innovation towards process innovation
Strategy at Different Stages in the Life Cycle: Introduction Stage
The introduction stage typically features a wide variety of product types that reflect the diversity of technologies and designs and the lack of consensus over customer requirments
The basis of entry is product innovation
Success comes from winning the battle for technological leadership
Gross margins can be high, but heavy investments in innovation and market development tend to depress return on investment
Strategy at Different Stages in the Life Cycle: Growth Stage
One of the key challenges becomes scaling up, as the market expands the firms needs to adapt its product design and manufacturing capabilities to large-scale production
More sophisticated financial, administrative, and strategic skills become necessary
Need to reduce cost and less need for sophisticated labor as production processes eliminates the need, leads to a shift in production and assembly to newly industrialized countries
Strategy at Different Stages in the Life Cycle: Maturity Stage
Competitive advantage increasingly becomes a quest for efficiency
Key Success factorsCost efficiency through scale economies
Low wages and low overheads
The number of firms begins to fall as product standardization and excess capacity stimulate price competition
Often industries go through one or more “shake out” phases during which the rate of failure increases rapidly
Further un-skilled labor required, shifts almost entirely to developing countries where the costs are low
Strategy at Different Stages in the Life Cycle: Decline Stage
Transition can result from technological substitutes, changes in consumer preference, demographic shifts, or foreign competition
Key features of declineExcess capacity
Lack of technical change
Aggressive price competition
Declining number of competitors
Two determinants of whether or not a declining industry becomes a competitive bloodbath
Balance between capacity and output
Nature of the demand for the product
Scenario Planning
Scenario analysis: systematic way of thinking about how the future might unfold that builds on what we know about the current trends an signals
Scenarios are stories that describe how the world might look in the future; these stories are used to review and test strategic options
Approach is to construct several distinct, internally consistent narratives of how the future may look 5-25 years ahead
Scenario Planning Key Steps
Define the purpose of the analysis
Decide on the time horizon
Indentify key trends
Identify key uncertainties
Create the scenario and check that they are internally consistent
Identify indicators that might signal which scenario is unfolding
Assessing the strategic implications of each scenario
Chapter 6: Technology-based industries and the management of innovation
Competitive advantage in technology-intensive industries
Strategies to exploit innovation: how & when to enter
Creating the conditions for innovation
Competitive advantage in technology-intensive industries
The innovation process Basic Knowledge Invention
Innovation Diffusion
Supply side – Imitation
Demand side – Adoption
The Profitability of Innovation
Property rights in InnovationIntellectual property: Patents, Copyrights, Trademarks, and Trade Secrets
Codifiable Knowledge“That which can be written down”
Coca-Cola, Intel’s Design
Lead-TimeLead-Time advantages
Microsoft, Intel, and Cisco Systems
Complementary ResourcesBiotech firms ally with large pharmaceutical compaines for clinical testing
Strategies to exploit innovation: how & when to enter
Alternative Strategies to exploit innovationLicensing, Outsourcing certain functions, Strategic Alliance, Joint Venture, and Internal Commercialization (Risk and Return and Resources requirements)
Characteristics of the InnovationEstablishment of Property rights critically determines the choice of strategy options.
Resources and Capabilities of the Firm
Timing Innovation: To Lead or to Follow?Leaders don’t always grab the prize. Risks and cost of pioneering
Protection of property rights or lead-time advantage
Importance of Complementary resources
The potential to establish a standard
Creating the conditions for innovation
Managing CreativityCreativity is stimulated by human interaction
Amgen and Google
Organizing for CreativityQuite different from efficiency
Google: Engineers have considerable discretion at to which project to join
From Invention to Innovation: The Challenge of integrationMust be directed and harnessed to create value for both company and society
Cross functional development teams, product champions, buying innovation, and open innovation
Chapter 7: Corporate Strategy
The scope of the firm
Key concepts for analyzing firm scope
Diversification
Scope of The Firm
Product Scope– How specialized the firm is in terms of the range of products it supplies.
E.g. Coca-Cola, Gap, SAP
Vertical Scope– The range of vertically linked activities the firm encompasses.
Geographical Scope– The geographical spread of activities for the firm.
Key concepts for analyzing firm scope
Firm’s extend or reduce their scope because they perceive this to be in the firm’s best interest
Economies of scaleReduction in average costs that result from an increase in the output of a single product
Economies of scopeCost economies from increasing the output of multiple products
Creates potential for multi-business firms to gain cost advantages over more specialized business
Key concepts for analyzing firm scope
Tangible resourcesDistribution networks, info technology systems, sales force, labs
Offer economies of scope by eliminating duplication between businesses through creating a single shared facility
Ex: cable TV companies and telephone companiesShared services organizations
Intangible resourcesBrands, reputation, technology
Offer economies of scope from the ability to extend them to additional businesses at low marginal cost
Ex: StarbucksBrand extension
Diversification
The expansion of an existing firm into another product line or field of operation
The Benefits and Costs of Diversification: Why do companies strive to diversify?
Growth
Risk reduction
Value creation
Our Company Amgen
On January 26, 2012 Amgen released a statement about their most recent a successful acquisition, Micromet, for 1.16 Billion dollars.
Micromet is a biotechnology company that’s main capability is oncology development
This is an example of diversification, due to the expansion of Amgen’s current field of operation into the field of operation of Micromet.
Chapter 9: Realizing Strategy
The organizational challenge: reconciling specialization with coordination and cooperation
Management systems
Corporate cultures
The Organizational Challenge
Reconciling specialization with coordination and cooperation
The fundamental source of efficiency in production is specialization through the division of labor into separate tasks.
Henry Ford found huge productivity gains with his assembly line. Cutting the time to assemble the Model T from 106 hours to 6 hours in only two years.
Costs of specializationMore divided the process, the more complex the challenge of integrating the efforts of individual specialists
Leads to cooperation problem and coordination problem
Management Systems
Provide the mechanisms of communication, decision making and control that allow companies to coordinate and integrate activities
The Four Management Systems
Information Systems: Collect, organize and communicate financial information to top management and other parts of the organization
Strategic Planning Systems: important method for achieving coordination within a company. The strategic plan is often made up of the following
Statement of goals
Set of assumptions or forecasts
Qualitative statement
Specific action steps
Financial projections
The Four Management Systems
Financial Planning and Control Systems: primary mechanism through which top management seeks to control the company
Human Resource Management Systems: an incentive system that promotes the implementation of plans and targets by aligning employee and company goals and ensuring employees have the skills necessary for his or her job
Corporate Culture
Corporate Culture: refers to the values and ways of thinking that managers wish to encourage in their organization
Studies that have been attempted do suggest that organizations with strong corporate cultures do have better long term financial performance than those who do not, although the tests used to find this may not have been totally reliable
THANK YOUANY QUESTIONS?