mastering business strategy simplifying the complex
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Mastering Business Strategy:
Simplifying the Complex
By Dr. Michael McDermott
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Perspectives on Strategy Perspective Author(s)
(Published) Key Concept Key Message
1. Henry Mintzberg (1978)
Emergent Strategy Executives use unpredictability is used as a justification to avoid tough choices – “go-with-the-flow”.
2. Michael Porter (1980)
Competitive Advantage
Choose industry & unique competitive position.
3. Prahalad & Hamel (1990)
Core Competences Capabilities with four traits determine competitive advantage.
4. Kim & Mauborgne (2005)
Blue Ocean Strategy Create new & larger market space where no rivals, & enjoy benefits of lowest cost & highly differentiated.
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Perspectives on Strategy Perspective Author(s)
(Published) Key Concept Key Message
5. Richard Rumelt (2011)
Good vs Bad Strategy
Focus all resources on the “big problem”.
6. Cynthia Montgomery (2013)
The Strategist Articulate distinctive purpose & communicate that.
7. Lafley and Martin (2013)
Playing to Win Make five integrated choices.
8. Rita McGrath (2013)
The End of Competitive Advantage
Forget sustainable advantage, and live with transient advantage
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1. MINTZBERG AND DELIBERATE VS EMERGENT STRATEGY
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Emergent Strategy
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Mintzberg (1978) Deliberate vs Emergent Strategy
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Strategy
Deliberate
Recommendations
Monitor remote external environment
& make necessary adjustments.
Adjust also when major change sin
external competitive environment
Emergent
Delay making strategic choices until future is predictable.
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Companies develop intended strategy;
Some plans are “dropped” or “unrealized”;
Some unintended ideas emerge and are implemented
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2. MICHAEL PORTER: COMPETITIVE POSITION FOR COMPETITIVE ADVANTAGE
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Michael Porter and Strategy
• The Porter view stresses the importance of analysis
• Good analysis = good strategy
• Good strategy = sustainable competitive advantage
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Michael Porter and Strategy
• What industry do we compete in? – So perform industry analysis. – Determine the nature of the nature.
• How do we compete?
– Select a generic strategy.
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Michael Porter and Strategy
Strategic Analysis Strategic Choice Competitive Advantage
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Industry Analysis Choice of Generic Strategy
Competitive Advantage
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Industry Analysis and Five Forces
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Michael Porter and Strategy: Generic Strategy
• Finding a unique competitive position.
• But often in highly competitive industry.
• All seeking to grab a share of a defined market.
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3. PRAHALAD AND HAMEL: CORE COMPETENCE OF THE FIRM AND STRATEGIC INTENT
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Why are tribute bands not superstars
It’s obvious! We do not have all
the four traits of core competences
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Core Competences and the Resource-Based View (RBV)of the Firm (Prahald and Hamel, 1990)
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Competitive advantage is determined by internal
considerations – the company’s capabilities
Capabilities must possess four key traits
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Core competences are of crucial importance (see above).
But what are the defining traits of core
competencies?
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A Core Competence Passes three Tests
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Strategic Intent
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Strategic Intent
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Once tiny Japanese companies developed explicit strategic intent to beat their much larger US and
European rivals
Once tiny South Korean companies developed explicit strategic intent to beat their much larger Japanese
rivals
Once tiny Chinese companies developed explicit strategic intent
to beat their much larger Asian rivals
1960s
1980s
1990s/2000s
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Core competencies are increasingly based upon a company’s network
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4. KIM AND MAUBORGNE: BLUE OCEAN STRATEGY
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Strategy
Michael Porter
Or how to survive with a
Red Ocean Strategy
Kim & Mauborgne
Developing a Blue Ocean
Strategy
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Mmmm….wonder Why this slide is here?
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5. RICHARD RUMELT: WHAT’S THE PROBLEM?
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Grady: We're trying to solve the problem. Billy: Good. What's the problem? Grady: The problem is that we've lost 3 key players that we now have to replace. BILLY Not like this. You're not even looking at the problem. Okay, stop. The problem we're trying to solve is that this is an unfair game. There are rich teams, poor teams, 50 feet of crap and then there's us.
Recognize this star, the movie and the dialogue?
Grady = Bad Strategy Billy = Good Strategy
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The Key Message?
Progress requires candid admission
of the true problem
No problem = no strategy
Strategy = problem solving
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The Root Cause of Bad Strategy
Pre-requisite of Good Strategy
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The Problem How can an older, slower,
weaker, boxer who has lost his unique competences
beat the world champion in energy-sapping heat of
Africa?
The Solution
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Bad Strategy Good Strategy
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Good Strategy Bad Strategy
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What’s the “Big problem” facing these companies?
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What’s the “Big issue/problem” facing these companies?
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The issue or problem may not be conspicuously obvious….but there is
one lurking within.
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What’s the Problem?
• Most companies refuse to pose this basic question.
• Why?
• It makes them feel very uncomfortable…it demands admitting there is a problem
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6. CYNTHIA MONTGOMERY: THE STRATEGIST
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Strategy and Leadership
• The Porter view separates the role of the leader from strategy.
• It ignores the importance of the strategist (the CEO)
• This is a major error.
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The Roles of the
Strategist
Meaning-Maker
The Reasoner The Operator
“strategy has been narrowed to a competitive game plan, divorcing it from a firm's larger sense of purpose; the CEO's unique role as arbiter and steward of strategy has been eclipsed; and the exaggerated emphasis on sustainable competitive advantage has drawn attention away from the fact that strategy must be a dynamic tool for guiding the development of a company over time” (Montgomery, HBR, 2008)
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Develop Stated
Purpose Develop Strategy
Articulate Strategy in
Concise Statement
Sets Direction
Establishes Priorities
Guides all Activities
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The Buck Stops with the Strategist
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Develop Stated
Purpose
Develop Strategy
Articulate Strategy in
Concise Statement
Sets Direction
Establishes Priorities
Guides all Activities
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1. Defines firm’s unique value. 2. Explains its relevance – why it matters 3. Easy to understand & memorable
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Develop Stated
Purpose Develop Strategy
Articulate Strategy in
Concise Statement
Sets Direction
Establishes Priorities
Guides all Activities
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Strategy statement is important
The Buck Stops with the Strategist
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Strategies and Strategy Statements The Honed Strategy &
Strategy Statement • Sets direction; • Establish priorities; • Guides activity
The Weak Strategy & Strategy Statement
• Fails to provide direction; • Causes panic; • Creates confusion.
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Source of competitive advantage
Source of competitive disadvantage
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Strategy and Strategy Statements
Effective 1. Distinctive 2. Provides focus – the what 3. Specific – the how 4. Explanatory and transparent 5. Targeted – the who 6. Inspirational
Ineffective 1. Too Generic – could be anyone 2. Covers all bases 3. Clichés – meaningless 4. Baffling and opaque 5. Scattered 6. Dull
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7. A.G. LAFLEY AND ROGER L. MARTIN PLAYING TO WIN: STRATEGY IS FIVE INTEGRATED CHOICES
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"The most important thing in the Olympic Games is not winning but taking part; the essential thing in life is not conquering but fighting well.“
Baron Pierre de Coubertin, founder of the Olympics,
You play only where you can win
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You Play only where you can Win? Really
• Can US auto companies beat BMW, Mercedes? • Can Walmart win in China? • Can JC Penney beat Macy’s? • Can Google win in China? • Can Avon win anywhere? • Can RIM (Blackberry) win in enterprise solutions? • Can Dell win in B2C as opposed to B2B?
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Winning Demands Beating the Biggest and also the Best
US airlines need to compete only where they can win - beating the airlines below
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The Biggest The Best
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How to Win With a Low Cost Strategy • There can be only one winner!
• Whoever has the lowest costs
• Focus must be on cost-
reduction and standardization • And a willingness to lose
customers that do not settle for standardization
With Differentiation
• There can be several winners
• But the rewards rise with the level of differentiation achieved.
• Focus is customer-understanding & brand building
• High commitment to
innovation
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Both strategies require the pursuit of distinctiveness
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Strategy is Five Choices
Choice 1.
• What is your winning aspiration? • The purpose of your enterprise, its motivating aspiration.
Choice 2.
• Where will you play? • A playing field where you can achieve that aspiration.
Choice 3
• How will you win? • The way you will win on the chosen playing field.
Choice 4
• What capabilities must be in place? • The set and configuration of capabilities required to win in the chosen way.
Choice 5
• What management systems are required? • The systems and measures that enable the capabilities and support the choices.
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In an SME the above is sufficient. In a large multi-business company, apply this cascade at the following levels: • Corporate-level cascade (e.g. P&G) • Strategic group cascade (e.g. skin care, detergents, diapers) • Individual business cascade (e.g. Oil of Olay, Tide, Pampers)
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Notice how this is a dynamic system. Notice too the importance of feedback. Thus strategy is an iterative process
Iterative process
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In an SME the above is sufficient. In a large multi-business company, apply this cascade at the following levels: • Corporate-level cascade (e.g. P&G) • Strategic group cascade (e.g. skin care, detergents, diapers) • Individual business cascade (e.g. Oil of Olay, Tide, Pampers)
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Create fierce brand advocates; Make a difference in the world; Make money doing it
In its own retail stores; Athletic wear for women
Creating technically superior yoga wear that is also very cool Changes stock regularly to reinforce exclusivity & scarcity; Customers attracted to stores by knowledgeable staff
Product & store design; Customer service; Supply-chain expertise.
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Create fierce brand advocates; Make a difference in the world; Make money doing it
In its own retail stores;
Athletic wear for women
Creating technically superior yoga wear that is also very cool; Changes stock regularly to reinforce exclusivity & scarcity; Customers attracted to stores by knowledgeable staff
Product & store design; Customer service;
Supply-chain expertise. Expand to: • Accessories? • Menswear? • Online presence? • Different retail formats? • How does store employee serve
the customers
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2018 Global # 1
US sales of 1m vehicles
All actions at the model, brand, category, sector, and company
level driven by meeting the ideal.
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What is Winning?
What is your winning
aspiration*?
What is your stated
purpose?
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What is your
winning aspiration?
Your Strategy
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What is Winning?
What is your
winning aspiration?
What is your
stated purpose*?
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This should focus upon framing
ambitions around the customer
Thus your winning aspiration should
reveal your identity
* Note the similar starting point between Montgomery and The Strategist
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What is Winning?
What is your
winning aspiration?
What is your
stated purpose*?
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This should focus upon framing
ambitions around the customer
Thus your winning aspiration should
reveal your identity
* Note the similar starting point between Montgomery and The Strategist
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Examples of Winning Aspirations
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• to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.
our customers' favorite place and way to eat and drink.
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Examples of Winning Aspirations: Who am I?
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to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.
“To bring inspiration and innovation to every athlete* in the world.” “* If you have a body, you are an athlete.”
to be our customers' favorite place and way to eat and drink.
We will be the easiest pharmacy retailer for customers to use.
For Our Customers A compelling place to shop. . . by providing convenience and low prices For Our Associates A compelling place to work. . . by providing exceptional opportunities and rewards for achievement For Our Investors A compelling place to invest. . . by providing outstanding returns
We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments.
Undisputed Marketplace Leadership
People love our clothes and trust our company. We will market the most appealing and widely worn casual clothing in the world. We will clothe the world.
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Examples of Winning Aspirations: Who am I?
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to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.
“To bring inspiration and innovation to every athlete* in the world.” “* If you have a body, you are an athlete.”
to be our customers' favorite place and way to eat and drink.
We will be the easiest pharmacy retailer for customers to use.
For Our Customers A compelling place to shop. . . by providing convenience and low prices For Our Associates A compelling place to work. . . by providing exceptional opportunities and rewards for achievement For Our Investors A compelling place to invest. . . by providing outstanding returns
We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments.
Undisputed Marketplace Leadership
People love our clothes and trust our company. We will market the most appealing and widely worn casual clothing
in the world. We will clothe the world.
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• Our Strategy 2018 focuses on positioning the Volkswagen Group as a global economic and environmental leader among automobile manufacturers. We have defined four goals that are intended to make Volkswagen the best automaker in the world by 2018:
• • Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality.
• • The goal is to increase unit sales to more than 10 million vehicles a year; in particular, Volkswagen intends to capture an above-average share of growth in the major growth markets.
• • Volkswagen’s aim is a sustainable return on sales before tax of at least 8% so as to ensure that the Group’s solid financial position and ability to act are guaranteed even in difficult market periods. • Volkswagen aims to become the top employer across all brands, in all companies and regions; this is necessary in order to build a first-class team.
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Strategy
Where to play?
How to Win?
Two Questions are at the Heart of Strategy
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• Defines the scope of the firm’s activities Winning
Aspiration
• Defines: • What the firm will do; • Where; and • How
Where & How to Play
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1. Where to Play?
Which markets?
Which customers and/or
consumers?
Which Channels?
Which Product Categories?
Which parts of the industry value chain
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The answers capture the strategic playing field for the firm
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2. How to Win?
Which markets?
Which customers and/or
consumers?
Which Channels?
Which Product Categories?
Which parts of the industry value chain
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The recipe for success in each chosen area
Competitive advantage
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Strategy
What capabilities must be in place to win?
What management systems are required to support the strategic
choices?
The range & qualities of activities necessary to win
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Strategy
What capabilities must be in place to win?
What management systems are required to support the strategic
choices?
Internal Capabilities (e.g. Innovation, Brand
building, merchandising
External Capabilities (form partnerships with key parties such as
designers, advertising & PR agencies, key influencers
Deepening existing capabilities Building new capabilities
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The Core Capabilities of P&G
But this could also be Adidas or Nike?
These five core capabilities
support & reinforce each other
It is the combination of
these advantages that confers competitive advantage
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Strategy
Where to play?
How to Win?
Two Questions are at the Heart of Strategy
What capabilities must be in place to win?
What management systems are required to support the strategic
choices?
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8. RITA GUNTHER MCGRATH: THE END OF COMPETITIVE ADVANTAGE
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Strategy the “old” way was a fight to the death
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Think surfing, think strategy Ride the waves – knowing when to jump “off” and stay on.
Even “good waves” are short-lived.
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Conclusions Strategy demands: 1. Making explicit your sense of purpose ( or statement of
mission); 2. Defining your winning aspiration; 3. Acknowledging your big problem; 4. Recognizing that new games are always emerging; 5. Choosing where to play; 6. Determining your competitive position and how you will
play. 7. Deepening and developing core competences or
capabilities; 8. Creating the systems that enable you to play successfully
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