STRATEGIC MANAGEMENT / INTERNATIONAL STRATEGIC MANAGEMENT

Learning outcomes
Identify key issues for an organisations strategy according to the Exploring Strategy model Distinguish between corporate, business and operational strategies Understand how different people contribute to strategy at work Appreciate the contributions of different academic disciplines and theoretical lenses to practical strategy analysis

Definitions of Strategy
..the determination of the long-run goals and objectives of an
enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goals Alfred Chandler Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value Michael Porter ..a pattern in a stream of decisions Henry Mintzberg

WHAT IS STRATEGIC MANAGEMENT?

Strategic Management is trying to understand where you will fit in tomorrows world and deciding where you want to be - and getting there - Jack Welch

Where are you today? Where are you going? How do you get there?

What is Strategy?
Creating, Producing, Selling and Delivering a product or service are the basic units of competitive advantage Operational Effectiveness means performing these activities betterfaster or with fewer inputs and defects than rivals All companies adopt the Productivity Frontier the maximum value a company can deliver at a given cost, with the best available technology The more benchmarking that companies do, the more Competitive Convergence they have

Putting the Strategic Management Puzzle Together

Vision Mission Objectives External Environment Strategy Selection Organisational Alignment Implementation Control, Review, Adjustment Past Present Future Internal Environment Values

Strategies Come About in Many Ways

Deliberate purposeful action
From a formal process From entrepreneurial behaviour/gut-feel Inspiration, Invention

Emerge
By doing things experimentation, trial & error From culture, ideology, - how people work Internal resources/capabilities

Forced Reaction/Capitalisation on Opportunity

To a customer, competitor initiative, change in regulation etc.

From Luck etc. etc.

Identifying Key Success Factors

PRE-REQUISITES FOR SUCCESS

WHAT DO CUSTOMERS WANT?

HOW DOES THE FIRM SURVIVE COMPETITION?

ANALYSIS OF DEMAND
WHO ARE THE CUSTOMERS? WHAT DO THEY WANT? WHAT IS THEIR DECISION MAKING PROCESS?

ANALYSIS OF COMPETITION
WHAT ARE THE MAIN DIMENSIONS OF COMPETITION? HOW INTENSE IS COMPETITION? HOW CAN WE OBTAIN A SUPERIOR COMPETITIVE POSITION?

KEY SUCCESS FACTORS

Holistic Integration of Organisational Strategy is a Never Ending Process

Region Company Division

Competence

Corporate

Business

Operational

PART OF AN ECOSYSTEM

Capability

The Different Strategies

The Corporate Strategy The Business Strategy The Culture Strategy The HR Strategy The Organizational Strategy The Leadership Strategy The Blue Ocean Strategy The VRIO Framework Strategy (Value, Rareness, Imitability, Organization) Barney & Wright

Three Levels of Strategy

Corporate Strategy
(Business to be pursued looks at the whole range of business activities)

Business Strategy
(How to beat the competition tactics: competitive advantage, market dominance, price leadership, new product development, etc.)

Functional Strategy
(operational methods to implement tactics diversification, marketing, differentiation, technology, etc.)

Types of Business Strategies

The VRIO Framework

The Question of Value:
o Does a resource enable a firm to exploit an environmental opportunity and/or neutralize an environmental threat

The Question of Rarity:

o Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare?]

The Question of Imitability:

o Do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing is difficult to imitate?]

The Question of Organization(al) support:

o Are a firms other policies and procedures organized to support the exploitation of its valuable, rare and costly-to-imitate resources?

Porters Five-Forces
Developed by Michael Porter: forces that shape and influence the industry or market the organisation operates in. Strength of Barriers to Entry - how easy is it for new rivals to enter the industry? Extent of rivalry between firms how competitive is the existing market? Supplier power the greater the power, the less control the organisation has on the supply of its inputs Buyer power how much power do customers in the industry have? Threat from substitutes what alternative products and services are there and what is the extent of the threat they pose?

The SIXTH FORCE:

How the wider environment shapes the other 5 Forces How Complements interact to create value

Assessing Threat of New Entrants

Significant entry barriers include: Major economies of scale and scope Large capital investment required Access to distribution channels Brand loyalty/differentiation Regulatory barriers High switching costs Proprietary technology/know-how Favourable location/access Expected retaliation Lack of growth/profitability incentive

Assessing Supplier Power

Nature of relationship with suppliers Number of suppliers Viable substitute suppliers Ease of switching supplier Threat of forward integration Supplier utilisation Supplier loyalty and commitment Customer importance to supplier Supplier importance to customer Level of differentiation

Assessing Competitive Intensity:

Factors to consider include: Level of industry growth Number of competitors Differentiation of offer Ease of switching High fixed or storage costs Level of capacity utilisation Size of capacity addition Significance of exit barriers Commitment to industry-high stakes Uniformity of business approaches

Assessing Buyer (Customer) Power

Nature of relationship with buyers Number of buyers Purchase amount, purchase frequency Level of differentiation Importance to buyers operation/quality Availability of substitutes Ease of switching Customer has full information Threat of backward integration Ease/convenience of doing business Incentives for squeezing

Assessing Substitution Threat

Need to track price/performance curve - value for money of alternative offers Customer need How well substitute offers satisfy need Calculate relative attractiveness Consider price/performance trade-off

THE CAGE DISTANCE FRAMEWORK:

Distance Still Matters: The Hard Reality of Global Expansion
Pankaj Ghemawat, HBS

The CAGE Distance Framework in practice

McKinseys 7-S Model

Terminology
Business Strategy addresses the WHO and the WHAT now and going forward Business Strategic Management also considers the HOW the operating model The Business Model outlines the components of the realised WHO, WHAT, HOW When the existing and future Business Model are considered it is the same thing as Business Strategic Management

The Business Unit - Strategic Business Unit, Natural Business Unit

Can be defined broadly (group of related business areas) or more narrowly A business unit normally: Has a manager responsible for its operation Controls most of the internal resources that impact on its performance Can develop specific Business Strategies Targets a clearly identifiable set of customers, with a product/service offer, against given competitors, within a certain geographic area Internal 'business units'/departments may not have competitors

The Business Unit Remit is a Key Building Block in Larger Organisations

Should outline the role of the business within the company Specific objectives to be attained Clearly outlining managements: Authority, Decision Rights Responsibility Resources Accountability Reporting lines Assessment/monitoring procedures Co-ordinating mechansims

A Business Strategy has 4 Key Questions

Who to serve

WHO

What to offer

WHAT

How to serve

HOW

Who should serve

BY WHOM

Strategy statements
Strategy statements should have three main themes: the fundamental goals that the organisation seeks, which draw on the stated mission, vision and objectives the scope or domain of the organisations activities and the particular advantages or capabilities it has to deliver all these.

Strategic decisions

Three horizons for strategy

Source: M. Baghai, S. Coley and D. While, The Alchemy of Growth, 2000, Texere Publishers: Figure 1.1, p. 5

Levels of strategy
Corporate-Level Strategy is concerned with the overall purpose and scope of an organisation and how to add value to business units. Business-Level Strategy is concerned with the way a business seeks to compete successfully in its particular market. Operational (Functional) Level Strategy is concerned with how different parts of the organisation deliver the strategy in terms of managing resources, processes and people.

Working with strategy (1)

All managers are concerned with strategy: Top managers frequently formulate and control strategy but may also involve others in the process. Middle and lower level managers have to meet strategic objectives and deal with constraints. All managers have to communicate strategy to their teams. All managers can contribute to the formation of strategy through ideas and feedback.

Working with strategy (2)

Organisations may also use strategy specialists: Many large organisations have in-house strategic planning or analyst roles. Strategy consultants can be engaged from one of many general management consulting firms (e.g. Accenture, IBM Consulting, PwC) There are a growing number of specialist strategy consulting firms (e.g. McKinsey &Co, The BCG, ADL, Hay Group, etc.)

Three branches of Strategy

The Exploring Strategy Model

The Fourteen Fundamental Questions

STRATEGIC POSITION
What are the environmental opportunities & threats? What are the organizations strengths & weaknesses? What is the basic purpose of the organization? How does culture shape strategy?

STRATEGIC CHOICES
How should business units compete? Which businesses to include in the portfolio? Where should the organization compete internationally? Is the organization innovating appropriately? Should the organization buy other companies, ally or go it alone?

STRATEGY IN ACTION
Which strategies are suitable, acceptable and feasible? What kind of strategymaking process is needed? What are the required organization structures and systems? How should the organization manage necessary changes? Who should do what in the strategy process?

Exploring strategy in different contexts

The Exploring Strategy Model can be applied in many contexts. In each context, the balance of strategic issues differs: Small Businesses (purpose and growth issues) Multinational Corporations (geographical scope and structure/control issues) Public Sector Organisations (service/quality and managing change issues) Not-For-Profit Organisations (purpose and funding issues)

The strategy lenses (1)

The strategy lenses are ways of looking at strategy issues differently in order to generate many insights Looking at problems in different ways will raise new issues and new solutions

The strategy lenses (2)

Strategy can be seen as: Design Experience Variety (Ideas) Discourse

The strategy lenses summary

What is a Business Model?

The functions of a Business Model are to: Identify the market segment Articulate the value proposition Define the structure of the Value Chain Describe the position of the firm in the value network Formulate the competitive strategy Estimate the cost structure and profit potential All the functions are inter-related Creating a value proposition is a part of business strategy. Kaplan and Norton: "Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation

The value Chain net

What Market Leaders do?

best product

Product/Brand

Leadership
Product differentiation

Zone of Mediocrity
Operational competence

Customer responsive

Operational Excellence
best total cost

Customer Intimacy
best total solution

Resources & Capabilities & Activities underpin the Delivery of the Disciplines

Resources & Capabilities & Activities

Product/Brand

Operational Excellence

Customer Intimacy

Reflection For Your Business The Discipline of Market Leaders

When you select a Discipline you also select a type of customer Once selected, a Discipline needs to be focused in on with resources, capabilities and activities aligned The key question, should you focus on one, two or three of the Disciplines? If more than one Discipline chosen, how do you align the organisation?
An additional complication: you need to manage for today and build for tomorrow

Quality/Differentiation

There Are Many Drivers of Differentiation - the Marketing Ps are Usefully Considered
Product/Service/Place/Promotion/People/Presence/Processes Quality of inputs, skill/experience of staff Technology employed in design/production Product quality/features/performance offered Ability to customise Product range/new products innovation Brand/reputation/image Services offered, relationships built Location Linkages Management processes adopted (i.e. TQM) Functional/activity fit and reinforcement Partners (suppliers, alliances etc.)

Positioning - Definition of Market Perceived Quality*

The customers judgment not yours
Both the product and the associated services

Product/Brand Leadership and Customer Intimacy

Not absolute, but relative to competitors Does not include price

* Source Adapted from the : Profit Impact of Market Strategy Business Unit database

"The Customers Judgement Not Yours"

When you have not got information on the 'customer's judgment'
We do not want you to spend time and expense to get it 'guesstimate', get informed input 'painlessly' and move on

But feel uncomfortable, research shows that on average:

We think we are better at satisfying customer needs than customers do We think competitors are worse at satisfying customer needs than customers do

Where You Have Customers With Very Varied Needs

Focus in on a segment of similar customers for the Assignment or even one customer

This applies to both external and internal customer Assignments

When there are different stakeholders in the Decision Making Unit/Decision Making Process (Marketing Course:

Initiator, Influencer, Decider, Buyer, User) Select one of the following approaches: - Focus in on one stakeholder noting the influence of other stakeholders - List needs of each stakeholder in your evaluation noting their relative importance

If I had asked customers what they wanted they would have told me a faster horse Henry Ford
Customers may be unable to articulate their product/service needs or the attributes/features they are willing to pay for (despite discrete choice analysis) In many situations we have to lead rather than respond The focus is on understanding the job to be done Observe get inside customers head
Ethnographic research with anthropologists, sociologists etc. is used by many companies