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STRATEGIC MANAGEMENT –
A PRACTICAL APPROACH
BY
M. EKHLAQUE AHMED
Change is the essence of life. Be willing to surrender what you are for what you could
become
STRATEGIC MANAGEMENT – A PRACTICAL APPROACHWORKSHOP OUTLINE
DAY – 1
Strategic Management – Concept & Process Business Scope & External Analysis Structural Changes for Facing Brutal Facts Weird Ideas for Managing Creativity Case Study: Rebuilding Lego Brick by Brick – Group Presentation
DAY – 2 Evaluating Co. Resources & Competitive Capabilities Vision, Mission & Objective Case Study : IBM Strategic & Competitive Advantages Positioning A Company Case Study : PSO Strategic Implementation with BBSC.
CALL FOR URGENCY
Sudden, fierce, business-destroying competition
Current strategies aren’t working
One or more of some strategic initiatives currently underway are not delivering results or living up to expectations
Why aren’t we getting a better multiple?
How can we improve our poor performances?
Leaders, proactively, want to take new challenges
Employees too focused on executing day to day operations
“Growth Culture” in a already Profitable company
Session: 1
Strategic Management –
Concept & Process
STRATEGIC BUSINESS PLANNING
Besides good operational management a business needs high quality strategic management to ensure lasting success.
Strategic management focuses on strategic choices. Operational management focuses on actions and
results. The business planning process should be an intensive
group (management team) process, based on sharing of visions and facts, comparison of alternative scenario’s, agreeing on choices and translating all into consistent and interlinked action plans.
A qualified business plan is recognized by its: creative content and consistent structure implementation and deployment planning management ownership
STRATEGIC management focuses on DECISIONS
VALUES
INFO LOGIC DECISION
WhileOPERATIONAL Management focuses on RESULTS
PLAN ACTION RESULTS
Entrepreneurial management: A Balancing Act
QUALITYof
OPERATIONAL MANAGEMENT
POOR GOOD
POOR
GOOD
GAME OF HAZARD
SUSTAINABLE CHANCE TO WIN
ALMOSTCERTAINDISASTER
ST
RA
TE
GIC
MA
NA
GE
ME
NT
“HOW TO DO” TOOLS
VS “WHAT TO DO”
THEORY OF BUSINESS
DIRECTION MATRIX:
RTW
Doing things fruitlessly!
WTW WTR
RTR
RESPONSIVENESS TO CHANGE
“Plans are nothing, planning is everything”. (Dwight D. Eisenhower)
Neither dogmatic / rigid against change, nor drifting with the changes.
But a well considered standard / yardstick for reflection and a starting point for flexible response towards changes.
STRATEGY Strategy is not synonymous with long
term plan. It consists of an enterprise's attempts to
reach some preferred future state by adapting its competitive position as circumstances change.
MAKETING STRATEGY INTERFACE
BUDGETING, LONG-RANGE PLANNING, STRATEGIC PLANNING AND STRATEGIC MARKET
MANAGEMENT
Budget: (Control deviation and manage complexity) Long Range Planning: Past trend will continue, anticipate growth &
manage complexity Strategic Planning: Strategic adjustment Focuses on the market environment facing the firm Strategic Market Management: Cope with strategic surprises and fast developing threats and opportunities
Proactive and future oriented
MARKETING STRATEGY INTERFACE
Distinctive and farsighted view rather than a conventional and reactive view about the future
Senior Management focuses on regenerating core strategies rather than re-engineering core processes
Competitors view the company as a rule maker rather than a rule follower
The company’s strength is innovation and growth The company is mostly out in front rather than catching
up Try to influence the environment as well as respond to it
MARKETING STRATEGY INTERFACE
PROCESS OF STRATEGIC DECISION MAKING
1. STRATEGIC ANALYSIS: Environment (Change / Effects) Resources (To deal with the changes) Expectations, Objectives and Powers.
2. STRAGEGIC CHOICE: Strategic Option (Beyond Obvious) Evaluation (Exploit Strengths and Overcome Weaknesses) Selection of Strategy
3. STRATEGIC IMPLEMENTATION: Resource Planning Organization Structure People and System
BUSINESS PLAN – BASIC FORMAT
BUSINESS SCOPE
BUSINESS ENVIRONMENT
BUSINESS OBJECTIVES
KEY ISSUES
OVERALL STRATEGIC DIRECTION
FINANCIAL PROJECTION
OPERATIONAL PLAN
OPERATIONAL PLAN
OPERATIONAL PLAN
OPERATIONAL PLAN
OPERATIONAL PLAN
SUPPORTING CONDITIONS
INTERNAL ANALYSIS
Session: 2
Business Scope & External Analysis
BUSINESS SCOPE
Describes “THE BUSINESS WE ARE / WANT TO BE IN” through the eyes of the customers
Regions = where Functions / applications = what needs Customers & users = whose needs Products, technologies & services = added value SO: how do we create customers?
CONSIDERATIONS: Not too narrow: present + intended (future) business. Indicates relations with other business. Clarifies also the business we are not in. In line with organizational and managerial responsibility & authority
areas. How do competitors define their business scope? Which do it the
same way and which do it different; why?
BUSINESS ENVIRONMENT
1. Market Structure2. Market Size & Growth – Past 4 Years3. Market Size & Growth – Future 4 Years (with underlying assumption about growth)4. Product Life Cycle5. Distribution Structure in the Industry6. Company & Competitors Market Share7. Market Profitability Analysis: Porters’ Five
Forces8. Driving Force / Key Success Factors
MARKET STRUCTURE
1. End user/application segments2. Product application combinations3. Distribution structure
End user/applications
Products
Channels
The Company
Channels
MARKET SEGMENT
1992 1993 1994 1995 1996 1997 GROWTH
P.A.
MARKET SEGMENT
1992 1993 1995 1996 1997 GROWTH P.A.
MARKET SIZEVolume (MLN RS)
Value (MLN RS)
Product Segments INTRODUCTION GROWTH MATURITY DECLINE
PRODUCT LIFE CYCLE STAGES
COMPETITION / SEGMENT MATRIX
One page analysis – The competitor / segment matrix for evaluating
market attractiveness and competitive position
Competition Segments Overall
1 2 3 4
1.2.3.
Historical Growth
Projected Growth
CompanyProfitability
COMPETITION / SEGMENT MATRIX
FINDINGS: Market is bigger than you thought
Company has more competitors than you thought
Your share is smaller than you thought
Company is trying to dominate different segments than you thought
You can not make money where you thought
Somebody you were not watching is gaining on you It can highlight for you where your base is threatened It can reveal unanticipated opportunities for growth within your existing business (higher market, lower MS, opportunity in current product line) A good teaching tool for managers to understand their existing business! (about market segmentation and competitive advantage)
DISTRIBUTION STRUCTURE: SHIFT FROM 2008 TO 2012
% OF RS MIL Segment 1
2008 2012
Segment 2
2008 2012
Segment 3
2008 2012
Segment 4
2008 2012
Total
2008 2012
WHOLESALES
DISTRIBUTOR
CONTRACTORS
DIRECT
OEM
PROJECT
100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
DISTRIBUTION SHARES AND COMPANY’S POSITIONS (2008)
% OF RS MLN ALL PAKISTAN DISTRIBUTION
COMPANY’S TURN - OVER SHARE
#1 COMPETITORS TURNOVER SHARE
WHOLESALES
DISTRIBUTOR
CONTRACTORS
DIRECT
OEM
PROJECTS
OUTLET
COVERAGE
Turnover Share = Co’s Sales per outlet/∑ Co’s Sales by all outletsOutlet Coverage = ∑ Co’s outlets / ∑ outlets
MARKET STRUCTURE, DATA & TRENDS
3. DRIVING FORCES AND TRENDS IN THE BUSINESS/INDUSTRY:
- Most dominant forces are called driving force, biggest influence
- Machine cost, new customer group, customer usage, product innovation, marketing innovation, technological change, cost factors etc.
- Economic climate; growth, currencies, inflation, investment levels, taxes.
- Governmental regulations (national/international) & economic blocks.
- Bargaining power and structure of the suppliers.
- Bargaining power and structure of the buyers (key players in the distribution?)
- Main entry barriers.
- New entrants (their origin and competence base).
- Key technologies and components.
- New technologies and/or substitute products.
- Environmental concern.
- Installed industrial capacities (surplus/shortages) in the business)
- General profitability margins in the business.
- User appreciations, loyalty and fashions.
Trend Potential Impact We C1 C2 C3
Growth of rural markets and focus of companies on this area
Increasing competition, Price Erosion
Price decrease Margins/sales under pressure
Application segmentation Customization
Premium product growth Opportunity (high-end)
World-wide (instant) communication Influence on Sales and Margin
Untapped market in Health Care Opportunity
Change in Environmental Legislation
Opportunity
Foreign loans / lack of Budget Sales down in Govt. Sector
Taking Advantage
Remarks:
TOP – 10 External Trends
INDUSTRY TRENDSPORTERS’ FIVE FORCES
1. COMPETITORS No of competitors Their relative size Similar product offerings / strategies Commitment of competitors Size and nature of exit barriers Rivalry heats up when competition seeks opportunity to better meet
customers needs or is under pressure to improve Actions and reactions How much pressure cross-company rivalry is going to put on the
profitability of the industry Diversity of the strategic vision of the competing firms
2. POTENTIAL COMPETITORS:
BARRIERS TO ENTRY
Capital investment
Economy of Scale
Inability to gain access to technical/specialized know-how
Access to distribution channel
Brand preference/customer loyalty
3. SUBSTITUTE PRODUCTS
Price Attractiveness
Switching cost
Can influence the profitability of the market.
4. CUSTOMER POWER: Customers with more power than sellers can force prices down
or demand more services affecting profitability Influencing factors – purchase size, availability of alternative
suppliers;
5. SUPPLIER POWER: Suppliers sells to a variety of customers in diverse market Switching cost of customers – of the suppliers are high Raw material crucial to the production process and affect quality Cost advantage to such supplier vs. industry who wants to go for
backward integration
Session: 3
Structural Change For Facing Brutal Facts
Advice from Jim Collins
FIRST WHO……THEN WHAT
WHO EMPLOYEES
WHAT STRATEGY
“First get the right people on the bus and the wrong people off the bus and then figure out where to drive it.”
Three Simple Truths
1. First, if you begin with “who” rather than “what” you can more easily adapt to a changing world.
2. Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away.
3. Third, if you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company.
“Great vision without great people is irrelevant.”
“It’s WHO you pay , not HOW you pay.”
How to be Rigorous
Practical Discipline 1:
When in doubt, don’t hire – keep looking
Practical Discipline 2 :
When you know you need to make a change, act
Practical Discipline 3:
Put your best people on your biggest opportunities, not you biggest problems
Advice from Jim CollinsConfront the Brutal Facts
(yet Never Lose Faith)
Facts are better than dreams
GTG companies displayed two distinctive forms of disciplined thought:-
They infused the entire process with brutal facts of reality They developed a simple, yet deeply insightful frame of reference for
all decisions Refine your path of greatness with brutal facts of reality.
How do you motivate people with brutal facts? (Leadership is about vision & equally about creating a climate where truth is
heard)
Lead with questions, not answers So, what’s in your mind? Can you tell me about that? Can you help me understand? What should we be worried about?)
Engage in dialogue and debate not coercion Refuse to begin with the answer.
Play the role of Socratic Moderator in a series of raging debates
Argue & debate then sell the nuclear business
A climate of debate, where Co’s strategy evolved through many agonizing arguments and fights.
Conduct Autopsies w/o blame ”I will take responsibility for the bad decision but we will all take responsibility for
extracting the maximum learning from the tuition we have paid”.
If we have the right people on the bus, we should never need to assign blame but
need only to search for understanding and learning.
WEIRD
IDEAS FOR
MANAGING
CREATIVITY
DECIDE TO DO SOMETHING
THAT WILL PROBABLY…
Succeed, then convince yourself and
everyone else that success is certain
Fail, then convince your-self and
everyone else that success is certain
TAKE YOUR PAST SUCCESSES…
And replicate them And forget them
REWARD…
Success; punish failure and inaction
Success and failure; punish inaction
USE JOB INTERVIEWS…
To screen candidates and especially to
recruit new employees
To get new ideas, not to screen candidates
THINK OF SOME…
Sound or practical things to do, and plan
to do them
Ridiculous or impractical things to do, and plan to
do them
IGNORE PEOPLE…
Who have never solved the exact problem you
face
Who have solved the exact problem you
face
FIND SOME HAPPY PEOPLE…
And make sure they don’t fight
And get them to fight
ENCOURAGE PEOPLE…
To pay attention to and obey their bosses and
peers
To ignore and defy their bosses and
peers
HIRE…
“fast learners” (of the organizational code)
“slow learners” (of the organizational code)
People who make you feel comfortable,
whom you like
People who make you uncomfortable, even
those you dislike
People you (probably) do need
People you (probably) don’t need
Session: 4
Case Study: Rebuilding Lego
Brick by Brick End of Day 1
Session: 5
“Evaluating Company Resources & Competitive Capabilities
Day 2
The Hedgehog Concept
THREE circles of the Hedgehog concept
What you are deeply passionate about
What you can be the best in the world at What drives your economic engine
WHAT YOU CAN BE THE BEST AT?
WHAT YOU CANNOT BE THE BEST AT?
If you cannot be best in the world at your core business then your core business Cannot be the basis of your hedgehog concept
Core competence at something doesn’t mean that you can be the best at that thing
Hedgehog concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best.
“It is the understanding of what you can be best at”
What drives your economic engine
What is your Economic denominator?
Search for the one denominator “x” that has the single greatest impact
Examples;
Abbott: shift from profit per product line to profit per employee
Walgreen: shift from profit per store to profit per customer visit
Gillette: shift from profit per division to profit per customer
UNDERSTANDING YOUR PASSION
“Lets get passionate about what we do”
or
“We should only do things that we can get passionate
about”
Key Questions for Situation Analysis
How well is the company’s present strategy is working?
What are the company’s resource, strengths and weaknesses and its external opportunities and threats?
Are the company’s price and cost competitive? How strong is the company’s prices and cost
competitive position relative to its rivals? What strategic issue does the company face?
Trend in sales and market share
Acquiring and/or retaining customers
Trend in profit margins
Overall financial strength and credit ranking
Efforts at continuous improvement activities
Trend in stock price and stockholder value
Image and reputation with customers
Leadership role(s) – Technology, quality, innovation, e-commerce, etc.
Key Indicators of How Well the Strategy Is Working
SWOT - ANALYSIS
OpportunitiesThreats Strengths
Weaknesses
External Analysis Internal Analysis
Promising Opportunities
Only opportunities after improvement
Ability to resist
High Risks
Competitive Advantage(s)?
Constraints to potential business objectives & strategic scenario’s
CONFRONTATION MATRICES
1 2 3 4 5
1 2 3 4 5
strength
Opportunities
1 2 3 4 5
1 2 3 4 5
Weaknesses
Opportunities
1 2 3 4 5
1 2 3 4 5
strength
Threats
1 2 3 4 5
1 2 3 4 5
Weaknesses
Threats
Identifying Company Strengths & Resource Capabilities.
A strength is something a company is good at doing or a characteristic that gives it enhanced competitiveness.
Valuable skills, expertise, or capabilities Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Important competitive capabilities An attribute placing a company in a position of market
advantage Alliances or cooperative ventures with partners
Resource strengths and competitivecapabilities are competitive assets!
Identifying Company weaknesses & Resource Deficiencies
A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage
Resource weaknesses relate to
Deficiencies in competitively important skills or expertise or intellectual capital of one kind or another.
Lack of competitively important physical, organizational or Intangible assets.
Missing capabilities in key areas. Internal weaknesses are thus shortcomings in a company’s complement of resources.
Resource weaknesses and deficienciesare competitive liabilities!
Competencies vs. Core Competencies vs. Distinctive Competencies
A competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity
A core competence is a well-performedinternal activity central (not peripheral or incidental) to a company’s competitivenessand profitability
A distinctive competence is a competitively valuable activity a company performs better than its rivals
Questions 3. Are The Company’s Price & Cost Competitive?
Assessing whether a company’s costs are competitive with those of its close rivals is a necessary part of company situation analysis.
The higher a company’s costs are above those of its rivals, the more competitively vulnerable it becomes.
A Representative Company Value Chain
REASONS FOR COST DISPARITIES
Difference in price paid for raw material component, energy etc.
Difference in basis technology / age of plants and equipment
Difference in product cost (plant efficiency, learning and experience curve effects, different wage rate, productivity levels)
Difference in marketing and distribution cost
COST COMPETITIVENESS
INTERNAL:
Eliminate some cost producing activities by revamping the value chain
Relocate high cost activities to geographic area where they can be performed more eco.
Out sourcing
Cost-saving technological improvements
Innovate around the troublesome cost components when new investment is made
Simplify product design to reduce cost
Make-up with alternatives in some other areas
STRATEGIC OPTINS TO COST ADVANTAGES
SUPPLIERS:
Negotiate favorable prices
Work with supplier to reduce their cost
Integrate backward
Use lower priced substitute inputs
Manage linkage between suppliers value chain and company’s own
value chain e.g., JIT to reduce inventory costs
Benchmarking Benchmarking the costs of company activities against rivals
provides hard evidence of a company’s cost competitiveness.
Benchmarking is a tool that allows a company to determine the manner in which it performs particular functions& activities represent industry’s “Best Practices” when both cost & effectiveness are taken into account.
To benchmark the firm’s cost position against rivals, costs for the same activities for each rival must be estimated.
The most important application of value chain analysis is to expose how particular firm’s cost position compares with the cost position of its rivals.
All is needed is competitor vs. competitor cost estimate for supplying a product or service to a well defined customer group or market segment.
Competitive Strength Assessments
Most effective way to determine how strongly a company holds is competitive position is to “Qualitatively assess” whether the company is stronger or weaker then close rivals.
Much of the information for competitive position comes from previous analysis.
Important factors in competitive strength assessments are: Cost. Product Quality. Customer Service. Financial Strengths. Image & reputation. Technological Skills. Speed to market. Distribution Capability etc.
THE CUSTOMER: basis of our business
WHAT DO CUSTOMERS
WANT?
Most important aspects
Do you really know that?
Assignments for further
knowledge improvement
Assignments for further
knowledge improvement
How do we Score? And our competitors?
Key strengths and weaknesses
Figure 1 – Relative Importance of Factors
Suggested Definitions:
Absolutely Crucial: Overrides most other considerations, wouldn’t consider supplier who doesn’t perform on this factor.
Very Important: One of the first things we ask for, but we may be prepared to negotiate on it.
Quite Important: A negotiable item, but one when we attach considerable weight to.
Nice to Have: It could make the difference in a division, but is normally taken into account last.
Not Significant: Not normally taken into account at all.
Don’t Want it: Would prefer a product without this feature
Factor Number Absolutely Critical
5
Very Important
4
Quite Important
3
Nice to Have
2
Not significant
1
Don’t Want it
0
RATING AGAINST CUSTOMERS BUYING CRITERIA
This Bus
CompG
CompF
CompB
CompE
CompD
CompC
CompAQuality & Price
Non-Price attributes Affecting Customer
Choice
% Weight
Product - Related %
1.2.
Service - Related1.2.
Total 100%
Has quality gone up/down (+/-)In past 4 years
Relative Price todayRelative Price 4 years
ago
100
100
Market choice of suppler specified byPrice ………… % and Quality ………………. % (Total 100%)
CUSTOMERS BUYING CRITERIA: PRICE ..%, QUALITY ATTRIBUTES ..%
Keep it UP
Improvefast
Do Not Sweat
Question its Cost
Least 10% 20% Most
Better
Same
Worse
Attributes Important to customers
RelativePerformanceRating
Question 5: What Strategic Issue Does the Company Face?
Identifying the strategic issues a company faces is a prerequisite to effective strategy making. It involves developing a “worry list” of strategic challenges concerning:
How to meet the challenges posed by global competition. How to combat the product innovation of rivals. How to reduce the company’s high costs. How to sustain the company’s present rate of growth or
grow the business at a faster rate. How to gain better market visibility for the company’s
product. How to capture the e-commerce opportunities.
A company need to put more emphasis on the
New product R & D. Add more production capacity. Cut prices in response to the action of competitors. Add new features that will boost the performance of
company’s product. Or go forward with investments in foreign markets. Managers need to draw on all the prior analysis. And lock in what challenges have to be overcome and
what issues have to be resolve in order for the company to be financially and competitively successful in the years ahead.
KEY ISSUES
Are related to the SWOT-analysis and the Business objectives: They determine to a large extend the feasibility of the objectives. Are the main hurdles to overcome in order to reach these
objectives.
Issues are: Not the solution, but are the problem. Have to be dealt with in the strategic direction. Have to be solved by the subsequent operational actions.
Therefore issues have to be: Clearly described; I.e. specific and as problems. Prioritized to their urgency / impact.
Impact of Issues on Strategic ProfileIssue Number Issue 1 Issue 2 Issue 3 Issue 4 Issue 5
Issue Name High-end Type1
High-end
Type 2
Growing of Appl.
Coherent
A.P. Policy
Address
Key Gap
Customers ++ ++
Regions
Market segments ++
Needs/wants/applications
Products (prices)/services ++ ++ ++ ++
Strategic Management ++
Product Creation Process + +
Sales Acquisition Process ++
Operations (Production/Logistics
Customer base Management ++
Technology + +
Plant & Equipment
Distribution Channels +
Impact of Issues on Strategic Profile
Issue Number Issue 1 Issue 2 Issue 3 Issue 4 Issue 5
Issue Name High-end Type1
High-end
Type 2
Growing of Appl.
Coherent
A.P. Policy
Address
Key Gap
Money
People
Informaiton
Raw Materials, Energy
Organization Structure
Procedures
Culture
Remarks
+ = high impact++ = very high impact
Session: 6
Vision, Mission & Objectives
TWO UNDERLYING THEMES EMERGED IN RESEARCH
Strategic Intent: Creating an obsession with winning that encompasses
an entire company and sustaining that thirst for winning over the 20 year quest for global leadership.
Competitive Innovation: An ability to change existing industry rules to provide
competitive openings against larger, richer competitors.
STRATEGIC INTENT IS NOT STRATEGIC PLANNING
Strategic intent is fundamentally different from strategic planning.
Strategic planning begins with the notion of “FIT”. A company looks at its resources, its strengths and weaknesses and then chooses a strategy of best fit.
As a starting point, this logic can lead to a company short changing itself.
Strategic intent, on the other hand, starts with a “MISMATCH”. You begin by deciding where you want to be, or in some cases where you need to be to survive. The next step is to identify the “GAP” not the “FIT” and then set about removing the gap.
BUILDING GLOBALY CAPABLE COMPANIES
CompetitiveInnovation
CompetitiveInnovation
Strategic Intent
Strategic Intent
Changing the rules,Accumulating strengths
Changing the rules,Accumulating strengths
Focusing energies,Sustaining thrust
Focusing energies,Sustaining thrust
Winning “impossible” betsFighting 20 year battles
Winning “impossible” betsFighting 20 year battles
In Supportof
Competence is Different From Technology
Technology Competence Stand Alone System Embodied Explicit Knowledge Tacit Knowledge Narrowly held Deeply Embedded Easily copied / Acquired Difficult to Un bundle Discontinuous Process Aggregative Process Inventive Capability Integrative Capability
Competence = (Technologies + Social Organization + Collective Learning)
VISION / MISSION STATEMENT
INCLUDES THE PRIMARY BUSINESS FOCUS IDEAL/INTENDED BUSINESS POSITION QUALITATIVE & GENERAL OFFERS AN INSPIRING PERSPECTIVE LONG TERM / FUTURE PROOF SETS THE ORGANISATION APART FROM ITS
COMPETITORS CREDENTIALS TO THE OUTSIDE WORLD SHORT, CLEAR & SIMPLE FORMULATED SHARED VALUES & REASON FOR EXISTENCE DEPLOYED / WELL KNOWN BY ALL
BUSINESS OBJECTIVES
RELATED TOS THE EXISTANCE & CONTINUITY OF THE COMPANY:
MARKET SHARE VOLUME / TURNOVER PROFITABILITY
WHAT HAS TO BE ACHIEVED BY WHEN
SPECIFIC & MEASURABLE
FEASIBLE & ACCEPTED
DIFFERENTIATED
MID TERM
DEPLOYABLE & WELL KNOWN
Session: 7
Case Study: IBM
Session: 8
STRATEGY AND STRATEGY AND COMPETITIVE COMPETITIVE ADVANTAGEADVANTAGE
Any competitive advantage currently held will Any competitive advantage currently held will eventually be reversed by the actions of eventually be reversed by the actions of
competent & resourceful competitorcompetent & resourceful competitor
“The essence of strategy lies in creating
tomorrow’s competitive advantages faster
than competitors mimic the ones you
possess today“Quote”
“Strategies for taking the hill won’t necessarily hold it.”
The Five Generic Competitive Strategies
Type of Advantage Sought
Overall Low-CostProviderStrategy
BroadDifferentiation
Strategy
FocusedLow-CostStrategy
FocusedDifferentiation
Strategy
Best-CostProviderStrategy
Lower Cost Differentiation
BroadRange of Buyers
Narrow Buyer
Segmentor Niche
Ma
rke
t T
arg
et
Low-Cost Leadership
Low-cost leadership means lowoverall costs, not just low
manufacturing or production costs!
Keys to Success
Make achievement of low-cost relative to rivals the theme of firm’s business strategyFind ways to drive costs out of business year-after-year
Approach 1: Controlling the Cost Drivers
Capture scale economies; avoid scale diseconomies
Capture learning and experience curve effects
Manage costs of key resource inputs
Find sharing opportunities with other business units
Compare vertical integration vs. outsourcing
Control percentage of capacity utilization
Make prudent strategic choices related to operations
Approach 2: Revamping the Value Chain
Abandon traditional business methods and shift to e-business technologies and use of Internet
Use direct-to-end-user sales/marketing methods
Simplify product design
Shift to a simpler, less capital-intensive, or more flexible technological process
Find ways to bypass use of high-cost raw materials
Relocate facilities closer to suppliers or customers
Drop “something for everyone” approach and focus on a limited product/service
Differentiation Strategies
Keys to Success
Objective Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Find ways to differentiate that create value for buyers and that are not easily matched or cheaply copied by rivals
Where to Find Differentiation Opportunities in the Value Chain
Purchasing and procurement activities Product R&D and product design activities Production process / technology-related activities Manufacturing / production activities Distribution-related activities Marketing, sales, and customer service activities
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
Activities, Costs,& Margins of
Forward ChannelAllies &
Strategic Partners
Risk of a Best-Cost Provider Strategy
Risk – A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost leaders may be able to siphon customers away with a lower price
High-end differentiators may be able to steal customers away with better product attributes
Focus / Niche Strategies
Involve concentrated attention on a narrow piece of the total market
Serve niche buyers better than rivals
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment
Objective
Keys to Success
Positioning a CompanyThe law of perception - marketing is not a
battle of products, it's a battle of perceptions.
- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing
Positioning a Company
The law of focus - the most powerful concept in
marketing is owning a word in the prospect's mind - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing
Owning in this context means that if people hear or see
this word they usually connect it with a company that
"owns" this word.
owns “mobile phones”
owns “computers”
owns “fast food”
Positioning a Company
STANDING FOR SOMETHING
Your company name ought to stand for something within your industry.
Ford can’t build corporate position on a specific kind of car, because it builds them in all types and sizes.
So in 1993 Ford “Quality is Job 1” Ad positioned it’s automobiles around “Quality” as key attribute in a vehicle from Ford.
Who owns the quality position in automobiles today ?
Our guess would be Mercedes-Benz.
It never pays to take somebody else’s position away from them .
Positioning a Company
The law of exclusivity - two companies cannot own the
same word in the prospect's mind. - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing
It's fruitless to try to take over a word that is already owned
by a competitor. FedEx tried to take over "worldwide" from
DHL and did not succeed.
Owns “overnight”
Owns “worldwide”
Owns “safety”
Owns “performance”
Positioning a Company
The law of the ladder - the strategy to use depends on which rung you occupy on the ladder - each category has its own ladder or hierarchy, and where your product or service is in this hierarchy will determine your strategic options.- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing
- Marketing strategy depends on your position in the market. If you're No. 2 you use different strategy than when you're No. 1 or 3. Avis was No. 2 in car rental and when they advertised as "finest in rent- a-cars" they had losses because their marketing wasn't credible (you can't be "finest" being No. 2). That had profit when they switched to "Avis is only No. 2 in rent-a-cars. So why go with us? We try harder". Then they had another disastrous campaign when they started claiming "Avis is going to be No. 1".
Positioning a Company
The law of line extension - there's an irresistible pressure to extend the equity of the brand: - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing One day a company is tightly focused on a single product that is highly profitable. The next day the same company is spread thin over many products and is losing money.
Positioning a Company
The law of the category - if you can't be
first in a category, set up a new
category you can be first in. - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing
Positioning Monsanto
“Best Product”
Product LeadershipProduct Leadership
Profits are for People – Allied
Chemicals
Chemical Facts of Life -
Monsanto
Product Differentiation –DuPont’s Nylon
Business LeadershipBusiness Leadership Industry LeadershipIndustry Leadership
“Faith in Free-enterprise system” “Lead Industry Perception”
Positioning a Company
The law of the mind - it's better to be first in the mind than to be first in the marketplace: - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing
Being first in the mind is everything in marketing. Being first into the marketplace is important only to the extent that it allows you to get into the mind first.
Session: 09
Case Study: Pakistan State Oil
Session 10
Strategic Implementation
with
Business Balanced Scorecard
The Balanced Score Card – Measures that Drive Performance
What you measure is what you get done
Organization’s measurement system strongly affects the behavior of managers and employees
Balanced Scorecard: A set of measures that gives top managers a fast but
comprehensive view of the business. It includes financial measures (that tell the results of
actions already taken) It complements the financial measures with operational
measures on Customer Satisfaction Internal Processes Organization’s innovation & improvement activities
(Operational measures that are the drivers of future financial performance)
The Balanced Scorecard Links Performance Measures
Customer Perspective: BSC demands that managers translate their general
mission statement into specific measures / factors that matter to customers
Customer Concerns: Time, Quality, Performance, Service, Cost
To put BSC work, companies should articulate goals for time, quality, performance, cost into specific measures.
Benchmarking: Internal, Best in Industry, Best in class.
Measures of Customers’ Concern:(Creating value to customer) Lead Time Time to Market Quality: Defect Levels Accuracy of Delivery Forecasts Becoming Customer’s Preferred Supplier Percent of sales from New Products Cost Effectiveness: Supplier driven costs Re-work Efficiency of Machine Back-Process Efficiency Workers’ Skill Level Defect Rate
What Must We Excel At ? Excellent customer performance derives from processes, decision
& actions
Focus on critical internal operations
Factors that affect: cycle time, quality, employee skills, productivity
Identify core competencies, the critical technologies to ensure continued market leadership
Decompose overall cycle time, quality, product & cost measures to local levels
The linkage to local levels ensures that employees at all levels have clear targets for actions, decisions & improvement activities that will contribute to the overall mission.
Can we continue to Improve and Create Value?
Targets for success keep changing
Intense global competition requires that companies make continual improvements to their existing products & processes
Expansion of capabilities, ability to launch new products, create more value for customers, improve operating efficiencies
Specific and time bound improvement goals for existing processes on continuous basis e.g. improvement for on-time delivery, cycle time, defect rate, yield etc.
How Do We Look to Shareholders?
Indicates whether the Company’s strategy & its implementation are contributing to bottom-line improvement
Survive: Cash Flow
Success: Sales & Income Growth
Prosper: Increased MS by segment, return on equity
Disappointed financial results (separate & integrated both) should send managers to revisit their strategy or its execution
Periodical financial statements remind that improved quality, response time, productivity or new products benefit the company where translated into improved sales, MS, reduced operating expense or higher assets turn.
Linkage of operations & finance (Excess Capacity due to improved quality & response time)
Measures that Move Companies Forward BBSC puts strategy & vision, brutal facts, changes needed (and not
control) at the center.
It establishes goals but assumes that people will adopt right behavior & actions necessary to arrive at those goals.
It pulls people towards the change
Senior managers may know what the end results should be, but they cannot tell employees exactly how to achieve that result as conditions in which employees operate are constantly changing
BBSC helps implement HPWS, Change Management, Cross functional integration, customer-supplier partnership team management, continuous improvement and such other organizational initiatives to excel.
H
Board Level ScorecardOverall Vision
ObjectivesMeasure &
TargetsInitiatives
Subordinate ScorecardLocal Vision
ObjectivesMeasure &
TargetsInitiatives
Team/Individual ScorecardTeam/Ind Vision
ObjectivesMeasure &
TargetsInitiatives
WHAT
WHAT
HOW
HOW
Strategic Implementation
Strategic Direction
Balanced Scorecard Development