strategy formulation session 4 2009

8/2/2019 Strategy Formulation Session 4 2009

1/23

The Strategy Design ProcessStrategic Analysis Strategic Choice

Strategy Implementation

and Evaluation

Evaluate

The Current

Situation

Evaluate the

Strategies

Results

Implement the

Strategy

Craft Changes

in Structure

and Processes

Develop Action

Plans, Programs,

and Processes

Analyze Resources and

Internal Capabilities

Identify

Sustainable

Competitive

Advantage

Craft and

Communicate

Vision and Mission

Evaluate and

Select Strategy

Establish the Basis

for Sustainable

Competitive Advantage

Generate Feasible

Alternative

Strategies

Create

Sustainable

Competitive

Advantage

Feedback and Rethinking

Select

Sustainable

Competitive

Advantage

Develop a StrategicControl System

Understand and Critique

Current Strategy

Analyze Industry and

External Environment

Understand

Industry Context

and Competition

Develop Strategic Goals

and Specific Long

Term Objectives


2/23

Situation Analysis

1. Industrys dominant economic traits2. Nature of competition & strength of

competitive forces3. Drivers of industry change4. Competitive position of rivals5. Strategic moves of rivals6. Key success factors7. Conclusions about industry attractiveness

Assess Industry & Competitive Conditions

1. Assessment of companys present strategy2. Resource strengths and weaknesses,

market opportunities, and external threats3. Companys costs compared to rivals4. Strength of companys competitive position5. Strategic issues that need to be addressed

Assess Company Situation

IdentifyStrategicOptionsfor the

Company

Selectthe BestStrategyfor the

Company


3/23

A strategic group is a group of firms in an industryfollowing the same or similar strategy.

Identifying strategic groups: Identify principal strategic variables thatdistinguish firms.

Position each firm in relation to thesevariables. Identify clusters.

Question 4: Which Companies are inStrongest / Weakest Positions?


4/23

Strategic Groups Within the WorldPetroleum Industry

Geographical Scope

0 10 20 30 40 50 60 70 80

VerticalBalanc

e

0

0.5

1.0

1.5

2.0

INTERNATIONALDOWNSTREAMOIL COMPANIES

PRODUCTIONCOMPANIES

INTEGRATED INTERNATIONALMAJORS

NATIONALLY-FOCUSEDDOWNSTREAM COMPANIES

INTEGRATED DOMESTICOIL COMPANIES

Neste Petrofina

ChevronShell

TotalMobil

Exxon

Statoil

PDVSAKuwait

Unocal Arco

Petrobras ENI

Repsol

NipponSun

BP

Texaco

Elf

Phillips

Amoco

Indian Oil

Elf

ENI

DIVERSIFIEDMAJORS


5/23

How to Start a Revolution

Re-conceive your product or service Radically improve the value equation Separate form and function Achieve joy of use

Re-define the market space Push the bounds of universality Strive for individuality

Increase accessibility to your products

Re-draw industry boundaries Rescale the industry Compress the supply chain Drive convergence between industries


6/23

What is a competitive advantage?

How do you know if you have one (or not)?

How can you create one?


7/23

Sources of Competitive Advantage

COSTADVANTAGE

DIFFERENTIATIONADVANTAGE

COMPETITIVEADVANTAGE


8/23

The Porter Value Chain

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

PRIMARY ACTIVITIES

SUPPORTACTIVITIES


9/23

Using the Value Chain to IdentifyDifferentiation Potential on the Supply Side

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

IS that supports fastresponse capabilities

Training to supportcustomer service

excellence

Unique product features.Fast new product

development

Quality ofcomponents &

materials

Defect freeproducts.

Wide variety

Fast delivery.Efficient order

processing

Building brandreputation

Customer technicalsupport. Consumercredit. Availability of

spares


10/23

Creating Competitive Advantage

Industry structure matters, but success does notcome just from industry attractiveness

Value = difference between buyers willingness topay and sellers opportunity cost

Added value = marginal value created by the firm(value that would be lost by its absence)

The larger the added value, the larger the potentialprofit for the seller

CA is achieved by driving a wedge between buyerwillingness to pay and value added by the firm(scarcity)

Ghemawat & Rivkin, 2006


11/23

Activity Analysis of Value Creation

1.Catalog activities (along the value chain)

2. Use activities to analyze relative costs and costdrivers

3. Use activities to analyze relative willingness ofcustomers to pay

Who is the real buyer? What do buyers want and what are they willing to pay for?

What is the relative success of our firm and competitors infulfilling customer needs

Relate success back to activities are the activities

customers need the ones we are good at?4. Explore options and make choices

Understand competitors, their likely reactions, the bundleof benefits to customers, and the role of scope and scale

Ghemawat & Rivkin, 2006


12/23

Value NetworksA non-linear model of value creation


13/23

Porters Generic Strategies

SOURCE OF COMPETITIVE ADVANTAGE

Low cost Differentiation

Industry-wide COST DIFFERENTIATION

COMPETITIVE LEADERSHIP

SCOPE

Single Segment

FOCUS


14/23

The Evolution of Competitive Advantage

How does competitiveadvantage evolve?

External sources ofchange e.g.:Changing customer demandChanging pricesTechnological change

Internal sourcesof change

Resource heterogeneityamong firms meansdifferential impact

Some firms fasterand more effectivein exploiting change

Some firmshave greater creative

and innovativecapability


15/23

Drivers of Cost Advantage

PRODUCTION TECHNIQUES

PRODUCT DESIGN

INPUT COSTS

CAPACITY UTILIZATION

MANAGERIAL/ ORGANIZATIONALEFFICIENCY

ECONOMIES OF LEARNING

ECONOMIES OF SCALE

Organizational slack

Ratio of fixed to variable costs Costs of installing and closing capacity

Location advantages Ownership of low-cost inputs

Bargaining power Supplier cooperation

Design for automation Designs to economize on materials

Mechanization and automation Efficient utilization of materials

Increased precision

Increased dexterity Improved coordination/ organization

Indivisibilities Specialization and division of labor


16/23

Identifying Differentiation Potential: The Demand Side

THE PRODUCT

THECUSTOMER

What needsdoes it satisfy?

By what

criteria dothey choose?

Whatmotivates

them?

What are keyattributes?

Relate patterns ofcustomer

preferences toproduct

attributes

What pricepremiums do

product attributescommand?

What aredemographic,sociological,

psychologicalcorrelates of

customer behavior?

FORMULATEDIFFERENTIATIONSTRATEGY

Select productpositioning in

relation to productattributes

Select targetcustomer group

Ensure customer /productcompatibility

Evaluate costsand benefits ofdifferentiation


17/23

The Evolution of Honda:A Strategy Based on Resources and

Capabilities

1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2005

Founding ofHonda motorcompany

50cc 2-cycle engine

4 cycleengines

405ccmotorcycle

Related products:ground tillers, marine

engines, generators,pumps, chainsaws

First product:clip-on engine

for bicycles

The 50ccsuper-cub

N360 minicar

1000ccGoldwing

touringmotor cycle

Acura Cardivision

InsightHybrid


18/23

Core Competence Three Tests

Provides potential access to a wide variety ofmarkets and products

Makes a significant contribution to perceivedcustomer benefits of the end product

Is difficult for competitors to imitate


19/23

Strategic Intent

Global leadership over a long time horizon An obsession with winning at all levels of the firm

A sustained, challenging, focused BHAG

Stable over time

Attracts personal effort and commitment Guide for resource development and allocation

Avoiding recipes for imitation

Creating competitive advantages faster than

competitors can imitate them, creating newspace

Layers of competitive advantage

Changing the terms of engagement


20/23

The Relationships Between Resources,Capabilities and Competitive Advantage

STRATEGY

INDUSTRY KEYSUCCESS FACTORS

COMPETITIVEADVANTAGE

ORGANIZATIONALCAPABILITIES

RESOURCES

TANGIBLE INTANGIBLE HUMAN

FinancialPhysical

TechnologyReputationCulture

Specialized skillsand knowledgeCommunication &interactive abilitiesMotivation


21/23

The Profit Potential of Resources and Capabilities

Scarcity

Relevance

Durability

Transferability

Replicability

Property rights

Relative bargainingpower

Embeddednessof resources

THE EXTENT OF THECOMPETITIVE ADVANTAGE

ESTABLISHED

SUSTAINABILITY OF THECOMPETITIVEADVANTAGE

APPROPRIABILITYOF RETURNS

THE PROFITEARNING POTENTIALOF A RESOURCE OR

CAPABILITY


22/23

Preparing for the Future: The Role of Scenario Analysi

Stages in undertaking multiple Scenario Analyses:

Identify major forces driving industry change

Predict possible impacts of each force on the industryenvironment

Identify interactions between different external forces Among range of outcomes, identify 2-4 most likely/ most

interesting scenarios: configurations of change forces andoutcomes

Consider implications of each scenario for the company

Identify key signposts pointing toward the emergence ofeach scenario

Prepare contingency plan


23/23

Perspectives on Strategic Planning

The essence of strategic planning is the systematicidentification of opportunities and threats that like in thefuture [to] provide a basis for making better currentdecisions (George Steiner)

There are significant benefits to gain through an explicit

process of formulating strategy to insure that at least thepolicies (if not the actions of functional departments) arecoordinated and directed at some common set of goals

(Michael Porter)

Planning is the substitution of error for chaos(Anonymous)

Most corporate planning is like a ritual rain dance: It has

no effect on the weather that follows, but it makes thosewho engage in it feel they are in control (Russell Ackoff)

strategy formulation session 4 2009

Documents