knowledge and strategy - cii

Booz & Company

This document is confidential and is intended solely for

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Knowledge and Strategy: Using Capabilities to Earn the Right to Win—and Grow

Thomas A. Stewart

Mumbai: March 8, 2013

Booz & Company

March 8, 2013 0

Prepared for Confederation of Indian Industry

Do you have what it takes to make your company a growth machine?

Booz & Company

March 8, 2013 1

Prepared for Confederation of Indian Industry Booz & Company

March 8, 2013 2

1. The state of competition: extreme

2. The state of strategy: confused

3. Earning the right to win

NASA Goddard

Prepared for Confederation of Indian Industry 3

For most companies, competition is intensifying for all of Porter’s five forces

Su

pp

lie

rs

Global race for

raw materials

Suppliers

moving up to

become rivals

Supply-chain

transparency

New entrants

Substitutes

Low cost

global rivals

Rivalry

Regulatory and

other barriers

continue to fall

Consolidation

provides little relief

Trading down

New media vs. old media

Cu

sto

me

rs

Customers’

wallets are flat

“Super-

empowered”

customers know

more than ever

Radical new

business models

“The Internet

changes

everything”

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March 8, 2013


Speed heightens competitive pressure

Product innovation

Customer expectations

Communications

Capital

Speed to scale

Industry structure

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March 8, 2013

The competitive landscape has become broader and more complex

http://wallpapers-diq.org/wallpapers/63/Midtown_Skyline%2C_New_York_City.jpg


Hot industries cool

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TOP QUARTILE

Q 3

Q 4

Q 2

8%

25%

50%

17%

Industries in the top

TSR Quartile 1991-2001 Where they ended up

2001-2011


Traditional organizations are ill-equipped for this 24 / 7 / 365 world

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Plus, in a funky economic environment, companies struggle to cope simultaneously with cost and growth

vs.


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3. Earning the right to win


Executives, pulled in too many directions, say strategies are not clearly defined or likely to succeed

64%

33%

48%

21%

Percentage of executives who believe

their strategy will

lead to success

their capabilities fully

support their strategy

their company has a right

to win in all its markets

they have too many

conflicting priorities

Source: Booz & Company “Coherence Profiler” survey, 2011

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March 8, 2013


Take innovation: Of the companies that spend the most on R&D, 20% report having NO innovation strategy …

11

19.7%10.3%

19.7%27.2%

100%

Market Readers

72.8%

Tech Drivers

80.3%

Need seekers

89.7%

Overall

80.3%

Innovation Strategy present We do not have a clear innovation strategy

Presence of Innovation Strategy by Strategy Model

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March 8, 2013


Innovation Strategy and Cultural Alignment Matrix(C)

Alignment of Business Strategy to Innovation Strategy(A)

Cu

ltu

ral

Su

pp

ort

fo

r In

no

vati

on

Str

ate

gy

(B)

H

L

Note: (A) Q.5. For your company, how closely aligned are the 4 dimensions above with your overall business strategy? (B) Q.8 How well does your company culture support your innovation strategy? (C) Concordance categories were created by combining Q.5 and Q.8. “Low alignment = respondents having responses below 4 in both the questions Q.5 and Q.8”, “Innovation alignment only = respondents having responses above 3

for Q.5 but below 4 for Q.8”, “Cultural alignment only = respondents having responses below 4 for Q.5 but above 3 for Q.8” and “High alignment = respondents having responses above 3 for both Q.5 and Q.8”

… and over half report inadequate strategic alignment and cultural support for their innovation strategies

9%

20% 27%

44%

L H

12 Booz & Company

March 8, 2013


Only a small percentage of companies is fully ready to grow—in terms of strategy, capabilities, and organization

Strategically

Adrift

Distracted

Capability

Constrained

Organizationally

Hampered

Ready For

Growth

Strategy and priorities are not clear, or are not broadly understood

There is little clarity on what capabilities are key to winning

Predominantly reacting to external events or competitors moves

Not in control of their future; susceptible to being cornered / outflanked

Strategy is somewhat clear but not uniformly understood or interpreted across the organization

Capabilities, products and markets are not well prioritized – too many priorities compete for limited resources

Some differentiating capabilities are moderately robust – however functional objectives are not consciously aligned to strategy, and oscillate between cost-minimization and performance maximization focus

Strategy is clear, but “right-to-win” capabilities are not best-in-class

Disproportionate time and resources are spent on “non-core” activities

Excessive spend in non-core functions often crowds out investment in differentiating capabilities

Cost-cutting initiatives are episodic and follow the “peanut-butter” approach

Strategy is clear and capabilities are well developed, but the organization poses a risk to continued success

Critical investment decisions and execution of key initiatives are encumbered by ineffective governance

The right kind of talent is not available in the right quantities

Strategic agility is compromised on account of misalignment of stakeholder influence, interests or incentives

Strategic capabilities are well understood and well developed

Resources are spent on initiatives with the highest strategic and financial return

Organization has the right structure and talent to efficiently make and execute decisions

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3. Earning the right to win:

Prepared for Confederation of Indian Industry 15 15

Strategy in a single slide

Evolution of Strategy

Source: The Right to Win, by Cesare Mainardi and Art Kleiner, published in strategy+business (issue 61)

Differentiation

Execution

Centralized Decentralized

Adaptation Act quickly and creatively in response to events (organizational warning)

Position Exploit the high ground: create and hold a distinctive position

(market-back strategy)

Concentration Focus on your current

core business (private equity)

Execution Align people and processes for operational excellence (the quality movement)

W. Edwards Deming Out of the Crisis

1986

Henry Mintzberg The Rise and Fall of Strategic Planning

1994

Chris Zook Profit from the Core

2001

Gary Hamel & C.K. Prahalad

Competing for the Future 1994

Tom Peters & Robert Waterman

In Search of Excellence 1982

Michael Hammer & James Champy

Reengineering the Corporation 1993

Ram Charan & Larry Bossidy

Execution 2002

William Abernathy & Robert Hayes

“Managing Our way to Economic Decline”

1980

Michael Porter Competitive Strategy

1980

Bruce Henderson Essays 1966 Kenneth Andrews

The Concept of Corporate Strategy

1971

W. Chan Kim & Renée Mauborgne Blue Ocean Strategy

2005

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March 8, 2013


With so many available strategy frameworks, why do companies still struggle with sustained value creation?

Future

Present

Emergent Directive

First and foremost,

DIFFERENTIATE First and foremost,

CHANGE

First and foremost,

STICK WITH WHAT

YOU KNOW

First and foremost,

EXECUTE

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March 8, 2013


The essential strategic choice is about the identity of a company... not these second-order debates

From struggling with push-me,

pull-me tensions …

Strategic thinking often centers on tensions

between long term vs. short term, and

many vs. few

Leaders tend to "yin and yang" between

these tensions over time in a point/counter-

point fashion

The inescapable truth is that (a) advantage

is transient but (b) companies are sticky

There is no “winner” between these

tensions, only a resolution of them at a

higher level

To seeking the answers to three sets

of questions

Positioning questions: – How are we going to create value for our

customers? – How do we position ourselves vis a vis

competitors? – Where will we play and where not?

Resource questions: – What intellectual, financial, tangible, and

tangible capabilities and assets can or should we deploy?

– Do we build, buy, or rent them? – Which matter most?

Market questions: – What do we sell, and to whom? – What’s our portfolio of offerings--what

business lines, what products, what services?

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March 8, 2013


In this view, strategy is about coherence—who we are—not about where we want to go

The Power Of Coherence

Essential

Advantage

A coherent

company strikes

a balance where

the right product

and service

portfolio naturally

thrives within a

capabilities

system

consciously

chosen and

implemented to

support a

deliberate way to

play

HOW WILL WE

CREATE VALUE FOR

OUR CUSTOMERS?

WHAT MUST WE DO

WELL TO DELIVER

THAT VALUE

PROPOSTION?

WHAT ARE WE

GOING TO SELL TO

WHOM?

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19 19

At the heart of value creation is a small set of mutually reinforcing capabilities

Example: The Apple Capabilities System

Design and develop

own operating

systems, hardware,

application software,

and services

Focus on superior ease-

of-use, seamless

integration, and

innovative industrial

design

Build and host a robust

platform for third-party digital

content and applications

Way to Play The Company is committed to bringing the best user experience to its customers through

innovative hardware, software, peripherals, services, and Internet offerings

Support a community for development of

complementary third-party software,

hardware, and content

Provide high-quality

sales and post-sales

support experience.

Deliver continual

investment in research

and development


Coherence Continuum Less

Coherent

More

Coherent

Coherence …

Financial Coherence and Relevant Scale

Familiar “Good”

Portfolio assembled for

financial compatibility

Businesses linked by

capabilities or common assets

Industry or market based know-how and management

practices presumed

similar

Strong brands or other

performance characteristics

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March 8, 2013


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…pays

32%

EBIT Margin

2003-2007

28%

24%

20%

16%

12%

Capabilities Coherence Score

80 60 40 20 100 0

P&G

8%

Nestle

Campbell’s

ConAgra

General Mills

Kraft

Unilever

PepsiCo

Clorox

Sara Lee

Heinz

Kimberly Clark

Wrigley’s

The Coca Cola Company

4%

Sources: Booz & Company; Capital IQ, Bloomberg, 2007 NVES Survey

Degree to which a company leverages a common set of capabilities across its different businesses

Size of bubble: Revenue


ALIGNMENT

EFFICIENCY

INVESTMENT FOCUS

EFFECTIVENESS

Why the Coherence Premium works

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March 8, 2013


Do you have what it takes to make your company a growth machine?

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March 8, 2013 23

Funding Engine

Growth Culture

Organic Growth

Inorganic Growth

STRATEGIC COHERENCE

A Growth Machine Needs Intelligent Direction, Four-Wheel Drive—and Fuel

Aligned Organization

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