StrategyA View From

The Top

Prentice Hall

1-1Copyright © 2009 Pearson Education, Inc.Copyright © 2009 Pearson Education, Inc.Publishing as Prentice HallPublishing as Prentice Hall

Chapter One

What is Strategy?Cornelis A. de Kluyver

and

John A. Pearce II

Third Edition

What is Strategy?What is Strategy?

It is a pattern in a stream of actions.

Strategy is About…

Positioning an organization for competitive advantage

Deciding what to do and what NOT to do Which industries to participate inWhat products and services to offerHow to allocate resources, add value

Creating value for shareholders and other stakeholders by providing value to customers

Strategy…

Differs from Tactics: Forces trade-offs and should focus on

differentiation from rivals Focuses on value creation Allows for learning and adaptation Takes a long-term perspective Responds to the needs of all stakeholders

Strategy is About Making Choices…

Who will you target as customers and who will you not?

What will you offer these customers and what will you not offer them?

How will you do all this? – What activities will you perform; which will you not?

Choosing is Not Enough; You Must Force Trade-offs and Create Fit

Dell’s manufacture-to-order system forced competitors to make trade-offs (Key to Differentiation)

Southwest Airlines has created fit (Key to competitive advantage through Operational excellence)

Lean, highlyproductive ground

and gate crews

Southwest Airlines’ Activity System

No seatassignments

15 minutegate

turnaround

Highcompensationof employees

Flexible unioncontract

High levelof employee

stockownership

“Southwest,the low-fare

airline”

Short-handpoint to point

routes betweenmidsize citiesand secondary

airports

No meals

Noconnections

with otherairlines

Standardizedfleet of 737

aircraft

Limited use oftravel agents

Automaticticketing

machines

No baggagetransfers

Limited passenger

service

High aircraft utilization

Very low ticket prices

Frequent reliable

departures

The environmentThe environment

International lawInternational lawInternational lawInternational law

GovernmentsGovernmentsGovernmentsGovernments

Standards bodiesStandards bodiesStandards bodiesStandards bodies

StakeholdersStakeholdersStakeholdersStakeholders

Supplier’s suppliersSupplier’s suppliersSupplier’s suppliersSupplier’s suppliers Customer’s customersCustomer’s customersCustomer’s customersCustomer’s customers

New entrantsNew entrantsNew entrantsNew entrants

CustomersCustomersCustomersCustomersSuppliersSuppliersSuppliersSuppliers

CompetitorsCompetitorsCompetitorsCompetitors

SubstitutesSubstitutesSubstitutesSubstitutes

OrganisationOrganisationOrganisationOrganisation

Strategy Should Consider the Company’s Ecosystem

What is an Ecosystem?

Simply put, it's the idea that today's companies are embedded in multiple, complex relationships that make them interdependent on each other for success.

But it's only recently that corporate leaders are realizing that an ecosystem is more than a concept.

The ecosystem has intense implications for how companies plan for the future, and they ignore those implications at their own risk.

Sound Strategy Development Focuses On:

Articulating strategic intent

Creating and leveraging organizational capabilities

Fostering innovation and learning

Embedding strategic leadership

A Clear Strategic Intent Provides Focus…

“Beat Xerox”

“A Computer on Every Desktop”

“Be #1 or #2 in every business…”

Matching Competitive Advantages of Rivals is No Longer Enough…

Write the rules; Don’t copy someone else’s

Toyota Canon Microsoft Google

“Companies that have risen to global leadership invariably began with ambitions that were out of all proportion with their resources and capabilities...” (Hamel and Prahalad)

Organizational Capabilities are Increasingly Critical to Success

3M Core competencies in abrasives, adhesives, and thick film coatings, supported by a corporate culture and processes that foster innovation have successfully been leveraged into over 60,000 end products

Honda Core competencies (in internal combustion engine/ power train and product realization) and core products (small engines) have successfully been leveraged across multiple markets

Canon Core competencies in fine optics, microelectronics controls, precision mechanics, imaging and other core products (laser engines, cartridge-based imaging systems, lens systems) have provided a new strategic focus

Competencies Must Be Nurtured Continuous innovation and learning are critical

Core Competencies(CC’s)

Customer benefit Cost benefit

Competitive differentiation

Basic Competitive Requirements

Essential to all competitors

No industry differentiation

Latent Core Competencies

UnexploitedInsufficient

breadth/ depthHigh potential

Future Core Competencies

Important in the futureAgenda for competence

building

The Competitive Advantage Cycle: Value, unless constantly nourished, erodes over time

Rewards:• Satisfaction

• Loyalty• Profits• Share

Positional Advantages Realized

•Superior Customer Value

InvestmentsIn Renewal

Sources of Advantage•Superior Assets

•Superior capabilities

Competitive Dynamics

ErodeAdvantages

KeySuccessFactors

Barriers toImitation

Strong Leadership at All Levels of the Organization is Key

MissionDocuments the

purpose of the organization’s existence, may guide conduct

VisionRepresents

organization’s strategic intent

Sets stretch targets

Strategic ThinkingCreates a vision for the

organization Is primarily top-down

(CEO/Senior management driven)

Requires creativity, analysis and synthesis

Strategic Planning Is both top down and

bottom-up Plays supporting role

focused on analysis, communication

A Clear Process Provides Structure…

Evaluate CurrentPerformance•Mission•Goals•Objectives•Strategies

EnvironmentalAnalysis•Economic•Socio-cultural•Technological•PoliticalOpportunities & Threats

Company Analysis•Structure•Resources•Processes•Staffing•CultureStrengths & Weaknesses

Industry Analysis•Structure•Evolution•CompetitionCompetitiveAnalysis &Positioning

Evaluation•Resource Requirements•Risk/return

Implementation

StrategyOptions•Business Unit•Corporate

Where are we now?

Where should we go?

How do we get there?

Strategy as a Portfolio of Options…

Strategy is not about creating a detailed, long-term plan

Strategy should focus on a long-term strategic intent and flexible means for realizing that intent

Learning and continuous renewal are essential parts of strategy

Not All Strategy Can Be Planned…

Intended Strategy

Emergent

Strategy

UnrealizedStrategy

Deliberate Strategy

Realized Strategy

Strategic Choices Must Be Supported by Organizational

Choices

Culture

Processes/Incentives

People StructureStrategy