strategic management walter j. ferrier. page 2 strategy as process and perspective

Strategic Management

Walter J. Ferrier

Strategy as Process and Perspective

1. Articulate Mission / Intent

• Sense of purpose, direction…• In which industries does firm compete?• How does firm compete?• Who are customers?• Who are competitors?

Strategic Management Process

2. Set Objectives & Performance Targets

•Financial– Achieve 10% ROE and $1.55 EPS by YE08

– Increase stock price by $4.00-5.00/share• Strategic

– Become low price leader in industry by YE09

– Enter five new country markets by YE11

3. Develop a Strategy

• Strategic themes/thrusts …How to compete:– International expansion– Increase brand name and reputation– Innovate by introducing new products– Aggressive behavior against rivals in old products

4. Implement Strategy•Develop action plan at functional level

– Establish European distribution center•Buy warehouse facility near airport in Germany•Re-tool with robotic material handling system

– Create new ad campaign for 2008 Olympics•Get endorsement contract with Lance Armstrong,

Marylou Retton, Mia Hamm, and Michael Johnson•Develop TV ad with Spike Lee

– Launch new version of product•Create multifunctional design team•License Oracle’s newest technology•Increase R&D budget by 30%

– Cut prices on older version of product by 33%

5. Evaluation and Adjustment

•Assess results relative to goals– Established price leadership in 2006– Achieved only 4% ROI in 2006

•Identify new opportunities / constraints– New technologies are coming– Rivals are merging

•Change strategy / implementation plan (as needed)

DroppedStrategicActions

IntendedStrategy

StrategyCarried Out

EmergentStrategicActions

Strategic Planning vs. Strategizing

Miles & Snow Strategy Types

Defenders Prospectors Analyzers Reactors (?)

Competitive advantage results from a clear and direct match between the firm’s:– Mission and values

• The firm’s definition of itself – Approach to business-level strategy

• New vs. existing markets, first-mover advantage, cost vs. innovation

– Characteristics and behaviors• Organizational structure, corporate culture,

command/control systems

Defenders

Perspective• Defend current markets

• Narrow product domain

• Cautious growth strategies

• Emphasis on efficiency

Process• Intensive, systematic strategic planning

• Centralized control systems

• Leverage existing, proven technologies

• Performance based on efficiency

Prospectors

Perspective• Open to experimentation

• Exploration of new markets

• Aware of external trends

• Open to growth spurts• Emphasis on innovation

Process• Strategy driven by innovation

•First-mover advantage

•Decentralized control systems

• Performance based on results

Analyzers

Perspective• Keenly aware of external trends

•Balance between exploration and exploitation

•Purposeful growth building on proven capabilities, ideas

Process• Strategy driven by competitive intelligence, analysis

•“Fast-second” strategic maneuvering

• Performance based on results

What Makes Shareholders Rich?

...Create New Wealth

– Vision looks beyond current boundaries– Strategy as continuous process– New perspectives, voices, conversations– Change rules of game– Experimentation, surprise

New Strategy Glossary – Fresh Perspective

• Value migration: movement of growth and profit opportunities from one industry player to another

• Co-evolution: by working with direct competitors, customers, and suppliers, a company can create new businesses, markets, and industries

• White-space opportunity: overlooked areas of growth

possibilities that don't exactly match existing skills

• Strategic intent: corporate goal or destiny that represents a stretch for the organization, a point of view about the competitive position a company hopes to build over the coming decade

Adidas-Reebok Merger

+

vs.

+

Employees 26,100 24,600

U.S. Market Share 21.1% 36.3%

Global Market Share 25.0% 33.2%

Net Income $517.9 mil $1.2 bil

Hot ProductSmartShoe

+ Nelly’s shoe lineL. Armstrong apparel

+ iPod Sport Kit

Adidas-Reebok Merger

Strategic Innovation

Tower-building Competition

• Three teams build TinkerToy tower• 90 seconds each attempt• Tallest tower wins

– Competing teams may observe/scout, plan, organize, etc.

High Jump Innovation: Scissor Kick

1929: 6’8”

High Jump Innovation: Forward Roll

1960: 7’1”

High Jump Innovation: Fosbury Flop

1968-present: 7’7” to 8’1/2”

High Jump Innovation

1925 1950 1975 2000 2025

2.75m

2.50m

2.25m

2.00m

Scissor

Roll

Fosbury

High Jump Innovation

?

1925 1950 1975 2000 2025

2.75m

2.50m

2.25m

2.00m

Scissor

Roll

Fosbury

The Ferrier Flight

Innovation and Organic Growth

• Emphasis on:– Top-line revenue– Customer-centric, customer value– Internal and external social interactions– Cross-functional and cross-experiential teams– Empathetic, high EI people– Experimentation, learning– Entrepreneurial culture, boldness, audacity

• Value-creating strategy vs. Value-enhancing strategy

Product1

New ProductIntroduction

ProfitPlateau

CompetitionErodesProfits

Product2

Profit

Product3 Product4

time

Value-creating vs. Value-enhancing Strategy

Apple iPod

Product1

New ProductIntroduction

ProfitPlateau

CompetitionErodesProfits

Product2

Profit

Profit

IntroduceiPod

iPodMini

iPodPhoto

BMWiPod

Adaptor

iPodWirelessRemote

WiFiiPod

iPodVideo

iPod +Timex Watch

iPod +Nike Shoe

Value-enhancing Innovation

Product1 Product2

Product3 Product4

time

Windows compatible

Value-creating vs. Value-enhancing Strategy

Price Cut

Value-creating Innovation

Apple’s iPod Innovation Network

10 parts create 85% of the iPod’s cost

GM Ford

Apple

Unknown Battery Pack

Renesas (Japan) Display Driver

Inventec (Taiwan)-Assembly, Testing

Toshiba (China) – Hard Drive

Broadcom (Singapore)-Multimedia Processor

Toshiba-Matsushita (Japan)- Display Module

iPodPortalPlayer (US) Portal Player CPU

Unknown Back Enclosure

Unknown Mainboard PCB

Disney Timex

Digital Music Group

Delta Airlines

Nike

Samsung (Korea) – Mobile SDRAM memory

400 additional inputs with values from $2 to fractions of a penny, with an average value of $.05

Source: Portelligent, Inc. and Linden, Kraemer & Dedrick, 2007.

Alliance Network and Innovation

Apple – alliance network in 1995 Apple – alliance network from 1995-1997

Apple ComputuerHigh Level of VC + VE

Alliance Network and Innovation

Introducing the iPod Commode-dore…

Innovation (good intentions)……………..……………….flop

Unique Perspective

How do you define the coffee industry?

Leisure,Enjoyment,

Social Interaction

Food &Beverage

Item

Coffee• Packaged• Convenience coffee• Café/restaurant drinking

Fashion

Caffeine Source

How does Starbuck’s define coffee industry?

Red vs. Blue Oceans

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create uncontested market space

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Align organization towards strategic choice between low cost or differentiation

Align organization towards pursuit of low cost and differentiation

Coffee’s Next Blue Ocean?

Strategic Dimension 1

?S

trate

gic

Dim

en

sion 2

Early U.S. Auto Industry

Blue Oceans and The Auto Industry

Company / Product New/Incumbent Industry Char.

Ford Model-T New Entrant Unattractive

Toyota Corolla Incumbent Unattractive

Chrysler Minivan Incumbent Unattractive

Toyota Prius Hybrid Incumbent Unattractive

Blue Oceans and Computer Industry

Company/Product New/Incumbent Industry Char.

IBM System 360 mainframe New Entrant Attractive

Apple PC (Apple II) New Entrant Attractive

Apple PC (MacIntosh) Incumbent Unattractive

Compaq Portable New Entrant Unattractive

Dell Build-to-order/JIT New Entrant Unattractive

Strategic Map: PC Industry (Pre-MacIntosh)

Fast/High Capacity

Low Price High Price

Apple II

Wang

IBM

Slow/Low Capacity

Strategic Map: PC Industry (Post-McIntosh; Pre-Dell)

User Friendliness• GUI • Drop & Drag • Mouse• WYSIWYG

Low Margin High Margin

Wang IBMDOS-based Operating System >copy *.doc A:\

AppleMacIntosh

Strategic Map: PC Industry (After Dell Enters)

High Quality &Dependability

“Regular” SupplyChain Management

LenovoAdequate

Quality

Apple

“Efficient” SupplyChain Management

High Price

Dell

Low Price

H-P

Personal Computers …what’s the next big thing?


?Str

ate

gic

Dim

en

sion 2

IBM Mainframe

Apple II

IBM PC Apple MacIntosh

Compaq Portable

Tablet PC

Compaq Laptop

IBM Wearable PC

Wearable PC

http://images.google.com/imgres?imgurl=http://www.granneman.com/images/ibm_pc_5150.jpg&imgrefurl=http://www.granneman.com/techinfo/background/history/&h=758&w=800&sz=72&hl=en&start=4&tbnid=Xb5ZsibkJ6QGTM:&tbnh=135&tbnw=143&prev=/images%3Fq%3Dibm%2Bpc%26svnum%3D10%26hl%3Den%26lr%3D

Innovation in Shaving Razors

Try the razorsCompareEvaluate

What’s the next big thing?


?

Str

ate

gic

Dim

ens

ion

2

Gillette: More is Better…?

12 Blade

Razors•Design features of razors and shaving performance

– Do they make a difference?– Do they create [real or perceived] value?

•What are relevant “strategic dimensions” of razor industry?

– What needs [real or perceived] do these dimensions fulfill?


?Str

ate

gic

Dim

ensi

on

2

MBA 606 New Restaurant Concepts

0

1

2

3

4

5

6

7

8

9

Theme FoodQuality

Location PricePoint

Food vs.Liquor

MenuBreadth

Chesterfield's

Kaleidoscope

Truman's

Rhythm Afrique

Crosshairs

Quarter Pole

5-Alarm Firehouse

Commonwealth

MBA 606 New Restaurant Concepts

0

1

2

3

4

5

6

7

8

9

Them

e

Food

Quality

Loca

tion

Price

Point

Food

vs. L

iquor

Men

u Bre

adth

Patio

Mus

ic Art

Chesterfield's

Kaleidoscope

Truman's

Rhythm Afrique

Crosshairs

Quarter Pole

5-Alarm Firehouse

Commonwealth

LG Internet Refrigerator

Airbus A380

Segway Personal Transporter

Tooth Tunes

Converging Industry Advantage

PalmtopComputing

Entertainment

WirelessTelephony

Competitive Interaction

Hardball?

CompetitiveOutcomes

IndustryCharacteristics

OrganizationalCharacteristics

Dethronement of the Leader

Market ShareShare

1950 1960 1970 1980 1990 20001950 1960 1970 1980 1990 2000

Wal-MartSears

JC Penney


Market Share

1950 1960 1970 1980 1990 20001950 1960 1970 1980 1990 2000

McDonnell-Douglass

Boeing

Airbus


Market Share(U.S.)

1980 1990 20051980 1990 2005

Adidas

Nike

Reebok

King of the Hill – Fizzy Beverages

Market Share

1970 1980 1990 2000 2010 2020

Other ?Coke

PepsiPepsi

Simple Rivalry: Prisoner’s Dilemma

What to say to police?

Criminal 1

Criminal 2

Confess

Confess

Keep Quiet

Keep Quiet

Both Serve 1 Year in Jail

Both Serve 5 Years in Jail

#2 Serves 10 Years in jail

#1 Goes Free

#1 Serves 10 Years in Jail

#2 Goes Free

Three Stooges

Larry, Moe, and Curley are in a 3-way duel and agree to take turns shooting each other, in that order

Accuracy statistics:

– Larry hits target 20% of the time

– Moe hits target 80% of the time

– Curley hits target 100% of the time

When the duel starts, what should Larry do?

Competitive Intelligence

A systematic and ethical program forgathering information about competitorsand general business trends to further yourown company’s goals

Why CI?

Play the Game Differently•New market opportunity•New customers•Develop/leverage new value

chain strengths•New strategies/tactics•New “flow” of the game

Figuring out what drives behavior•Environment/industry drivers•Organizational drivers•Managerial drivers

Playing the Game Better•Focus on existing

competitors/strategic position•Leverage value chain strengths•Incrementally improve existing

strategies/tactics

Competitor Intelligence Pyramid

s

z

aSources of Data

Analysis of Data

Recommendations

Recommendations

Analysis of Data

Sources of Data


•Industry experts/analysts•Industry publications•Trade shows/conferences•Advertisements/PR•University research centers•Financial•Court documents/patents•Suppliers/customers•Newspapers/business wire•Help wanted ads•Reverse engineering labs

Your Rival’s Competitive Actions September 2006 to February 2007

• Contract with Spike Lee for TV ad

• Increase R&D budget by 30%

• Buy warehouse facility near airport in Germany, Re-tool with robotic material handling system

• License Oracle’s newest technology

• Cut prices on older version of product by 33%

• Endorsement contract with famous U.S. Olympic athletes

• Create multifunctional new product design team

Recommendations

Analysis of Data

Sources of Data


•Value chain analysis

•Ratio analysis

•Benchmarking

•Cost analysis

•Trend analysis

•Personality profiling

•Wargaming or scenario planning

•Competitive behavior analysisCompetitive behavior analysis

Recommendations

Analysis of Data

Sources of Data


•Track Existing Rivals•Anticipate New Rivals•Inform Strategy:

– Identify own/competitor’s strengths/weaknesses

– Early warning system– Plan of attack/retaliation

The Cola Wars

Co

ke’

s M

ark

et S

ha

re

MKT MKTPRICE PRODMKTCAP SIG PROD

Competitive Action RepertoireThe set of competitive actions carried out in a given time period

Repertoire

Your Rival’s Competitive Actions January-July 2008

• Contract with famous movie director, Spike Lee, for TV ad

• Increase R&D budget by 30%

• Buy warehouse facility near airport in Germany, Re-tool with robotic material handling system

• License Oracle’s newest technology

• Cut prices on older version of product by 33%

• Endorsement contract with famous U.S. Olympic athletes

• Create multifunctional new product design teama b c d e

Competitive Dynamics Analysis

• Observe competitive moves• Organize competitive moves

–Action/response pairs–Action repertoires (year-end tallies)–Competitive attacks/sequences

• Measurement/Analysis of Characteristics– Action pattern characteristics that improve:

•Market share•Stock price•Profitability

ActionPair 1

ActionPair 2

ActionPair 3

ActionPair 4

Coca-Cola

Pepsi

Action-Reaction “Pairs”

timeAction ResponsRespons

ee

•ProfitsProfits•GrowthGrowth•Mkt. ShareMkt. Share

a

cd

e

d d

a c

Action “Repertoires”

time

•Profits•Growth•Mkt. Share

Year-EndTallies

•Total Actions•Complexity

Coca-Cola

Pepsi

a

c

e

cc

a

a c

d

a b c d e f g h

Strategy and Adaptive Maneuvering

8

7

6

5

4

3

2

1

Chess:• Epaulette’s Mate• Sicilian Defense

Sequence Applications...

LANGUAGE:

BOXING: DNA:

qcheaTiueissesne. hsiT si a cesneueq.

This is a sequence.

Jab...Jab…Uppercut

CA

GT

AC

AT

AG

TA

CG

AT

AC

GA

MUSIC:

COMPUTER PROGRAM:

data actions2; subj = _n_; do i = 1 to max; output = matrix; end;run;

a

b

c

d

e

ca bec a b de ca bd

Coke Pepsi

d

aa

b

e

c

e

b

a

d

b

c c

Observed Sequence Observed Sequence

Competitive Actions Over Time

a

b

c

d

e

ca bec a b de ca bd

Coke Industry Norm

d

aa

b

e

c

e

b

a

d

b

c c

Observed SequenceObserved Sequence Observed SequenceObserved Sequence

Coke Strategic Non-Conformity

a

b

c

d

e

ca beca b de cab d

Pepsi

d

aa

b

e

c

e

b

a

d

b

c c


Pepsi Strategic Conformity

Industry Norm

a

b

c

d

e

c ab eca bde ca bd

Coke in time1

d

e

b

aa a

d

bb

e

c cc

Coke in time2


Coke Strategic Unpredictability

a

b

c

d

e

ca beca bde ca bd

d

e

aa a

d

bb

e

c cc

Pepsi in time1 Pepsi in time2

b


Pepsi Strategic Predictability

King of the Hill – Fizzy Beverages

Market Market ShareShare

1950 1960 1970 1980 1990 20001950 1960 1970 1980 1990 2000

Other ?Coke

Pepsi

“Hardball” Competition

• Total Actions–More actions are better

• Average Response Time–Faster response time is better

• Repertoire Complexity–Complex repertoire is better

• Attack [Un-]Predictability–Unpredictability is better

Group Exercise: Coke vs. Pepsi

• Total Actions–Count of total actions

• Average Response Time–Avg. number of time units between last competitive move in Coke’s attack and Pepsi’s first competitive response, etc.

• Repertoire Complexity–Extent to which entire pattern/repertoire is skewed/simple vs. balanced/complex

• Attack [Un-]Predictability–Recognizable repetition or action combinations in the sequence of actions?

Scoring the Fight

Total Actions

Faster Responses

More Complex Repertoire

Unpredictable Attacks

Coke Pepsi

Who will win?

Implications for CI:

Predict Future Behavior of Rivals

Rivals’ prior behavior

•Patterns

•Tendencies

•Type & order of moves

•Proactiveness

•Reactiveness

Drivers of Behavior

•Management orientation

•Decision-making

•Financial constraints

•Industry characteristics

Implications for CI:

Monitor Your Own Behavior

•Objectively measures of competitive behavior

•Safeguard against complacency, predictability, simplicity of your own company

•Keep rivals off balance / disruption / guessing

•What combinations of moves are effective? …which are ineffective? …smoke signals or bluffs?

Strategic Management

…Questions?

strategic management walter j. ferrier. page 2 strategy as process and perspective

Documents

perspective slide

efficiency slide

strategizing slide

needed slide

ferrier slide

ye11 slide

innovation process strategy

businesslevel strategy