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How making efficient strategic decisions!
1!2013/07/01! Written by Maxime CROS!
My PERFormance!Freelance Consulting and Facilitation in Strategic
Management and Managerial Relationships/Processes!
Introduction!
2!2013/07/01! Written by Maxime CROS!
The presentation objective!• For a long time, specialists have developed several models or theories in
order to analyse the strategic environment of a company and make the good decisions in this context.!
• These theories are often based on common principles, as for example the types of criteria used to assess the company position in its environment.!
• Plenty of consulting companies specialized in strategy have used these models, or others derived from, in order to support their clients for making the good decisions.!
• For what result? Success for some companies but also huge failure for others.!
• Through this presentation, we certainly don’t want to criticize these models considered as references in the matter. Indeed, our ambition is more:!– to understand the philosophy of these theories,!– to show their advantages but humbly also their limits,!– to complete them in proposing a complementary view on the strategic decision-
making in a company.!
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The presentation summary!
!Part 1: Presentation of the Michael Porter thought!
Part 2: Analysis of the Michael Porter thought!
Part 3: Presentation of a new framework for a strategic decision making!
4!2013/07/01! Written by Maxime CROS!
Part 1:"Presentation of the
Michael Porter thought!
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• Among the several publications concerning methods and tools of strategic analysis, we have chosen to focus our attention on the Michael Porter works, still considered as a reference.!
• 2 Michael Porter models have especially held our attention:!– the 5 competitive forces,!– the value chain.!
• These ones will be briefly described in the 1st part.!
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Presentation of the Michael Porter thought!
A first Porter model:"The 5 competitive forces (1/3)!
• For Michael Porter, the performance of a company depends on its capability to face up, to influence and to resist the pressures from its competitive environment.!
• Besides, Michael Porter explains that the main objective of a company must be to keep a competitive advantage on its market, which is assessable by its capability to grow its profit.!
• The Porter model named “ The 5 competitive forces” is a tool of strategic analysis that aims at understanding the competitive environment of a company, assessing the power of every character in this environment, and therefore defining the company position and adapting its strategy in order to develop a competitive advantage. Then the company may develop a bigger profit than the market average.!
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Threat of substitute products or services!
Threats of new entrants!
Bargaining power of suppliers!
Bargaining power of buyers!
Competitive rivalry within an
industry!
A first Porter model:"The 5 competitive forces (2/3)!
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• Threat of new entrants: level of difficulty to enter a market, depending on the barriers at the entrance (ex: search and development costs, marketing costs, regulation,…)!
• Threat of substitute products or services: propensity of consumers to switch to alternatives (ex: computer vs tablet, monospace vehicle vs SUV)!
• Bargaining power of suppliers: suppliers capability to influence the industry, concerning the prices or the quality of the products/services (ex: balance of power between Apple and its distributors)!
• Bargaining power of buyers: customers capability to negotiate the price, the level of quality, the services associated (ex: balance of power between the major retailers and their suppliers)!
• The rivalry within an industry: all the global decisions that influence the profit of all the characters of an industry (ex: the communication following the entrance of Free on mobile market in France)!
A first Porter model:"The 5 competitive forces (3/3)!
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A second Porter model:"The value chain (1/2)!
• After a company has identified its competitive advantage and its best position on the market in analysing its external environment, then Porter suggests to identify the contribution of every internal process to this competitive advantage.!
• So, the analysis of the value chain is based on the idea that an organization is composed of a chain of internal relationships customers/suppliers; every intersection aiming at adding some value to the product /service.!
• We can define this value as the best ratio between the satisfaction of the customer needs and the costs relating to the service. So, the value mainly is at the intersection of the connection customer/service.!
• The value analysis is used to identify the vital activities (the most valuable activities), and therefore to focus all the resources on these ones until having an activity chain more efficient than the competitors.!
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A second Porter model:"The value chain (2/2)!
Firm infrastructures!
HR Management!
Technology Development!
Procurement!
Inbound logistics!
Operations! Outbound logistics!
Marketing and Sales!
Service!
Support activities!
Primary activities!
• In analysing the value chain, it is possible to classify the organization processes in 9 categories of processes, divided in:!– 5 macro primary processes,!– 4 macro support processes.!
Part 2:"Analysis of the Michael
Porter thought!
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Analysis of the Porter thought (1/3)!
Why the Porter thought is interesting:!
• The Porter tools are a precious help in order to have a detailed analysis of a company environment and assess the risks connected to this environment.!
• Porter connects the analysis of the external environment and the internal environment of a company, which is a good mean to have an exhaustive and efficient view on the situation.!
• His analytic tools are based on rational and analytical types of criteria, which limits the risks for decisions made on the basis of emotion (for example, because of a stressful situation).!
• Porter stresses the importance of the connection customer/supplier inside companies. Indeed, if all the members of a company are focused on the satisfaction of their direct customers, there is a strong probability that the final customer is efficiently served and therefore satisfied.!
• Porter stresses the importance to focus on the added value of a system in order to develop its performance, which is the basis of the prioritization theory (in management, we can use this theory from the Pareto law).!
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Analysis of the Porter thought (2/3)!
Why the Porter thought has some limits:!!• In his theory, Porter glosses over the corporate coherence in the
definition of a corporate position or strategy, especially:!– the alignment of the strategy with the corporate mission, which is the reason
why the company exists (its finality),!– the alignment of the strategy with the cultural strengths of the company (its
cultural success keys as the main corporate job pillar and the corporate values), which concretize the corporate mission in the field and are the reasons why the company is recognized and appreciated by its customers.!
Therefore, in glossing over these points of its analysis, a company may:!– decide to give up a product or a business of its portfolio because of an
intensive competition, instead of thinking how strengthen even more the main corporate job pillar in the customers mind for this product or business,!
– start a new business or launch a new product only because the level of the market competition is very low, but in risking to be unaligned with the corporate mission.!
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Analysis of the Porter thought (3/3)!
• Furthermore, we could imagine that a Senior Manager can basically decide to internalise the primary processes but to outsource the support processes, because of his will to focus on the corporate core business. In making such a decision, he can gloss over the corporate mission and the strongest corporate job pillar, which results in a risk for the company. Indeed, we could imagine that a process identified as a support process by Porter may be a primary process including a great added value depending on the corporate mission (ex: IT department for a mobile phone operator). Therefore, outsourcing this activity would be probably a strategic mistake.!
• Finally, Porter considers the notion of performance through the notion of profit or margin, which is very restrictive. Indeed the notion of enduring performance is more complex than the simple economic factors.!
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Part 3:"Presentation of a new
framework for a strategic decision
making!
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Presentation of a new framework for a strategic decision making!
• As mentioned in the introduction of this presentation, the part 3 aims at proposing a new framework for making a strategic decision, in order to grow the performances of companies.!
• This new framework is not in opposition to the classical strategic models, but a complement in order to use them more efficiently.!
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The notion of performance (1/2)!
• First of all, let’s define the notion of performance. Performance is the capability of an individual or a system to achieve his objectives thanks to the mobilization of the appropriate means.!
• We make the distinction between performance and exploit. Performance is enduring whereas exploit is occasional. For example, we can associate the notion of exploit to the picture of comet: it comes very fast, it’s impressive when it’s coming, it leaves us as faster as it came, and sometimes it comes back. !
• We don’t only consider the notion of performance in term of result but also in term of capability to apply an efficient method. If an individual or a system has the capability to use the good method every time, he increases his chances to achieve his objectives every time. !
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The notion of performance (2/2)!
• The enduring performance depends on the company capability to satisfy 4 conflicting interests at the same time, as a win-win relationship:!
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• Making a decision that consists to favor consciously or unconsciously one interest to the detriment to the others, as for example the economic profit, often involves good results at short term (exploit) but bad results at long term (lack of performance). !
Enduring(Performance(
Shareholders and investors!(those who invest their own money to
finance the company development)!
Clients and consumers!(those who buy and use the products
and services of the company)!
Staff!(those who work for the company,
and concretize the corporate dreams in manufacturing and selling its
products, and serving the customers!
Global environment!(government, environment,
anybody)!
2 key processes for assessing the relevance of a strategic decision!
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To assess the impact of the strategic decision
on the corporate coherence!
To assess the impact of the strategic decision
on the corporate environment!
Relevance of the strategic
decision!
2 key processes for assessing the relevance of a strategic decision!
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To assess the impact of the strategic decision
on the corporate coherence!
To assess the impact of the strategic decision
on the corporate environment!
Relevance of the strategic
decision!
Mission((Long&Term)&
Vision((Middle&Term)&
Strategy((Short&Term)&
DNA((Long&Term)&
The genes defining our company as unique since its creation and for all its existence: our job strengths, our
values.!
The unrealizable founder dream when he created our company, which motivated him and will
motivate our staff for ever.!
The ambition of our current company leader.!
The objectives, the projects and action plans that we have to
implement in order to achieve our ambition.!
WHO are we?!
WHY do we exist?!
WHAT do we dream to reach?!
HOW can we work in order to achieve our vision?!
Inputs from environment!
Inputs from!environment!
A mature management team who guarantees the coherence in a changing environment!
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The corporate coherence!
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Alignment of the strategic decision with the key global
elements structuring the
company!
1
2
3
4
5
Structural coherence!(alignment of the strategic decision with the
corporate DNA)!
Cyclical coherence!(alignment of the strategic decision with the current
context)!
Aspirational coherence!(alignment of the
strategic decision with the corporate vision)!
So, first of all, the relevance and the efficiency of a strategic decision depends on its level of alignment with some key corporate elements:!– The corporate history, which includes
the corporate DNA / the corporate foundations,!
– The corporate aspirational future, which is the ambition of the current Senior Manager at middle or long term,!
– The corporate present, which is the corporate aims at very short term depending on the current context.!
It involves:!– to identify clearly and write these key
structural elements,!– to use a list of objective criteria through
quantitative and qualitative surveys in order to assess the level of alignment for the strategic decision on each axis of coherence.!
What is a strategic decision guaranteeing the corporate coherence? (1/3)!
Assessment of the coherence for a strategic decision (example)!
What is a strategic decision guaranteeing the corporate coherence? (2/3)!
Example of structural coherence assessment:!• These are few informations about the company and its context:!
– The company is a service provider (for companies and also consumers) in the African energy industry.!
– The company would like to develop a service offering the opportunity to every South African consumer to purchase their electricity invoice anywhere / any time and also to reduce their electricity consumption.!
– So, the company expects to launch a mobile application including different functions: purchasing prepaid electricity on line, reporting the electricity consumption, estimation of the future consumption depending some personal and seasonal parameters, tailored advices in order to optimize the electricity consumption,…).!
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What is a strategic decision guaranteeing the corporate coherence? (3/3)!
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Corporate DNA! Criteria of assessment! Observations! Average rate!
Global average
rate!
Corporate mission:!!
To make the energy accessible anywhere, any
time, for anybody, with the greatest respect for our
Planet!
!!• Consumers can use our service regardless their revenue!• Consumers can use our service regardless their location!• Consumers can use our service anytime!• Consumers can reduce their energy foot-print in using our service!• ETC…..!
1 2 3 4 5The app is free
and developed for all the kind of
devices. Its using depends only on
the internet network location.!
4,1!
3,8!
!x!x
x!X!!
Strongest corporate job pillar:!
!Customer intimacy!
!
• Our service is friendly to use!• Our service is easy to use!• Our service is customized for each consumer!• Our consumers can reduce their electricity expenses !• The fidelity of our consumers is rewarded!• ETC…!
1 2 3 4 5
There is an incentive
program for the recurrent users of
our service.!
3,9!
X!!!x
!xxx
Corporate values:!!
Proximity!Opening!
Adaptability!
!
• Our service is aligned with the consumer suggestions from the last survey!
• Our service is aligned with the new technologies used by our consumers!
• ETC…!
1 2 3 4 5
…! 3,5!
X!x
Example of structural coherence assessment:!
2 key processes for assessing the relevance of a strategic decision!
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To assess the impact of the strategic decision
on the corporate coherence!
To assess the impact of the strategic decision
on the corporate environment!
Relevance of the strategic
decision!
The combination decision / concretization of the decision… (1/2)!
• Our customers buy us nor for our products or services (ex: a mobile app for purchasing prepaid electricity on line in Africa, including a reporting of our consumption and tailored advices based on this reporting in order to master it), neither for the decisions, ideas or concepts at the origin of our products or services (ex: to develop a service for purchasing our electricity anywhere / any time and also reducing our electricity consumption).!
• Indeed, what makes our offer unique (or differentiating on the market) and valuable for our customers, and therefore the main reason why our customers buy us, depends on the following combination:!– A decision/concept/idea in line with our corporate mission (ex: the project:
to develop a service for purchasing our electricity invoice anywhere / any time and also reducing our electricity consumption; the corporate mission: to make the energy accessible anywhere, any time, for anybody, with the greatest respect for our Planet),!
– And the concretization of the decision including our recognised and recognisable knowledge , know-how (the operational concretization of our strongest corporate job pillar), and skills (the operational concretization of our corporate values).!
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The combination decision / concretization of the decision… (2/2)!
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Decision! Concretization of the decision!
Idea/concept/project!
Know-how!
This is the operational concretization of the
strongest corporate job pillar (between
customer intimacy, product superiority,
excellence of implementation)!
In the field, these are all the job basics applied
and the means associated in order to satisfy the customers!
Skills!This is the operational concretization of the
corporate values!
In the field, these are all the behaviours aligned
with the values for a better customer service!
Aligned with the corporate mission !
The implementation of the corporate DNA in the field!
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…creates some value for the key characters in our environment…!• We consider that the value created because of a strategic decision can’t be only assess economically (please see the part
about the enduring performance). Indeed, as mentioned previously, the enduring performance depends on our capability to satisfy the conflicting interests of some characters in our environment at the same time.!
• For this reason, we consider that we could assess the value created through a strategic decision with the level of satisfaction for all the key characters of our environment impacted by the implementation of the decision (qualitative and quantitative indicators). The level of satisfaction of these ones finally represents the value created by the strategic decision for each key character.!
• Our capability to satisfy all of them at the same time could indicate the enduring efficiency of the strategic decision.!
Value durably
created for each
character!
Shareholder! Government!
Clients!(distributors)!
Consumer!
Staff!
Supplier!Written by Maxime CROS!
Assessment of the value created because of a strategic decision
(example)!
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…and therefore our competitive advantage!
Value durably created for each
character!
Shareholder! Government!
Clients!(distributors)!
Consumer!
Staff!
Supplier!
Value durably created for each
character!
Shareholder! Government!
Clients!(distributors)!
Consumer!
Staff!
Supplier!
Assessment of the value created because of a
strategic decision (example)!
Our company! Our competitor!
Written by Maxime CROS!
The value created because of our strategic decision is globally higher than this one of our
competitor. It means that this decision develops our competitive advantage in our environment.!
• We could define the competitive advantage of a company as a higher value created because of a strategic decision than the competitors, for all the key characters in its environment.!
Conclusion!
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To sum up: 5 key ideas!1st key idea:!• First of all, a successful strategic decision has to guarantee or
even strengthen the global corporate coherence.!
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Alignment of the strategic
decision with the key global elements
structuring the company!
1!
2!
3!
4!
5!
Structural coherence!(alignment of the strategic decision with the
corporate DNA)!
Cyclical coherence!(alignment of the strategic decision with the current
context)!
Aspirational coherence!
(alignment of the strategic decision with the corporate vision)!
To sum up: 5 key ideas!2nd key idea:!• The value durably created through a strategic decision is
assessable with the level of satisfaction for each key character of the corporate environment impacted by the making and the implementation of the decision.!
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Value durably created for each
character!
Shareholder! Government!
Clients!(distributors)!
Consumer!
Staff!
Supplier!
To sum up: 5 key ideas!3rd key idea:!• The value generated by a strategic decision depends on the
combination decision/concretization of the decision, which means the capability:!– to make the strategic decision pragmatic in the field with its implementation into
tactical and operational action plans,!– to keep the alignment with the corporate DNA in the implementation of the
decision, with an application of the best practices in the field (job basics, behaviours) strongly impregnated with the corporate mission, the strongest job pillar, and the values.!
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Idea/concept/project!
Know-how!
Skills!
Decision!Concretization of the
decision!
Aligned with the corporate mission !
The implementation of the corporate DNA in the
field!
To sum up: 5 key ideas!4th key idea:!• For implementing efficiently a strategic decision, a company
has to organize its primary and support processes, that is to say the structure of its value chain, taking into account the corporate DNA.!
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The organization of the primary and support processes is determined taking into
account the corporate mission, the strongest corporate job pillar, and the
corporate values.!
To sum up: 5 key ideas!5th key idea:!• A corporate competitive advantage is a higher value created
because of a strategic decision than the competitors, for all the key characters in its environment.!
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Value durably created for each
character!
Shareholder! Government!
Clients!(distributors)!
Consumer!
Staff!
Supplier!
Value durably created for each
character!
Shareholder! Government!
Clients!(distributors)!
Consumer!
Staff!
Supplier!
Assessment of the value created because of a
strategic decision (example)!
Our company! Our competitor!
Contact us!
I want to enhance!
Contact details!• Senior Consultant: Maxime CROS!• Email: [email protected]!• Location: Cape Town (South Africa)!
My PERFormance!
2013/07/01! Written by Maxime CROS! 37!
