This teaching note was written by Mohit Srivastava, Indian Institute of Management Udiapur, Abhishek Raju, StartupAmigo, and Assistant-Professor Dr. Roger Moser, University of St. Gallen.
Switzerland Global Enterprise: Evaluating the Future FDI Attractiveness of India TEACHING NOTE
Case Synopsis
On December 12th 2013, Michael Enderle, Head of the Swiss Business Hub in India, had had a busy day already and still he had a long working day ahead. Tomorrow, a delegation of senior executives from Swiss companies would come to his office and he had to make some recommendations as to whether and how these companies could invest in India.
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Fortunately, he had recently conducted a study on the future FDI attractiveness of India in 2019 with more than 200 Indian managers and was able to present a balanced view on major aspects of doing business in India for foreign companies. He started reviewing the results of this study in his office to develop a few basic recommendations for the Swiss senior executives.
A sudden knock at the door of his office brought back Michael Enderle to the present. The group was expected to arrive tomorrow at 9am and Michael was still struggling to develop some specific recommendations for the Swiss senior executives. While it was relatively easy to come up with some high-level recommendations at the corporate level, the executives actually wanted to understand in detail how they might have to change their functional strategies to enter the Indian market.
Target Audience
The case study “Switzerland Global Enterprise: Evaluating the Future FDI Attractiveness of India” is particularly suitable for MSc and Executive Education students who focus on improving their “Doing Business in…” expertise. Why?
This case study allows students to build up in-depth knowledge in two areas. First, it provides students with the opportunity to improve their understanding of the business infrastructure of India in the context of Foreign Direct Investments (FDI). Second, the case study is designed to apply the Institutions-Resources Matrix (I-RM) that allows students to transform insights about future developments in the institutional context of companies into consequences for their strategies and activities on a functional level.
Learning Objectives
The case study provides information and data about the future FDI attractiveness of India in different areas including the political, legal and financial context as well as the power, telecom and logistics infrastructure. The case study provides the opinions and insights of more than 200 Indian managers as well as their assessment (probability, impact) of 16 projections that influence the future FDI attractiveness of India in 2019. This information serves as input for in-class discussions about the current status-quo of the FDI attractiveness of India and its future development.
Moreover, the students learn more about the importance of future outlooks in the context of market entry/expansion strategies in dynamic environments and how expert opinions can improve the decision making when “Doing Business in…”. Finally, the case study allows students to apply the Institutions-Resources Matrix (I-RM) in the context of market entry strategies.
Teaching Plan and Case Analysis
The faculty is requested to introduce students first into the basics of doing business in India and the specific challenges in the institutional context of India. The faculty can also train the students first on the basics of Delphi studies and the importance of the input of experts when looking into the future institutional environment of dynamic markets like India.
In addition, it seems also relevant to provide the students with the basic logic and major process steps of the Institutions-Resources Matrix (I-RM) so that they are able to apply it given the input of the case study.
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As first step, the faculty might ask the students to work on (and present) a short overview on the current FDI attractiveness of India along the different aspects or scenarios including FDI policy setting, legal context, financial aspects and infrastructure elements among others.
In a second step, the faculty then might discuss with the class about the input/assessment that the 200 Indian managers of the expert panel in the case study have provided. Alternatively, the faculty might assign the eight different perspectives to groups in the class to analyze in detail and then discuss their input in the class.
Depending on the pre-work (e.g. the analysis of the current FDI attractiveness of India), the case study discussion might require at least 8 x 15 minutes including the discussion of the current situation, the outlook on the future and the identification of a few key implications on the corporate strategy of a company/strategies of the companies of a specific industry segment.
In addition, the faculty can then choose a single functional focus or several functional foci to discuss the implications identified on the corporate level on the resources of a single function; i.e. the logic of the Institutions-Resources Matrix to turn future developments into consequences on the functional level of a company.
In sum, the case study might require at least 90-120 minutes for the analysis of the implications for the corporate strategy level given the future developments in the institutional context and another 30-90 minutes to analyze implications from the corporate level on the functional level depending on the number of functions analyzed and level of in-depth discussions.
In the context of market entry/expansion strategies, it is often especially interesting to look at marketing, branding and especially after-sales but also production and local R&D respectively product/service adaption. However, the study can also be assessed from a sourcing/procurement perspective.
Case Analysis: A Primer for the Application of the Institutions-Resources Matrix (I-RM)
This PRIMER in APPLYING the INSTITUTIONS-RESOURCES MATRIX (I-RM) provides managers and consultants as well as students with an introduction into “how to apply the I-RM” when developing or assessing a strategy. We believe that the I-RM as a framework fills a gap that supports practitioners to systematically turn insights about the future institutional environment1 of a company (i.e. the competitive environment) into consequences on the corporate/business unit but especially the functional level2 (i.e. the resources/capabilities of functions such as marketing, production or procurement). The I-RM is part of the of strategy formula3 concept based on respectively inspired by McKinsey’s 10 Strategy Tests (see Appendix of this Teaching Note).
The strategy formula allows students to better understand what matters for superior strategies (i.e. the creation of competitive advantages) and how the three major elements of strategic management (i.e.
1 The institutional environment is broadly understood as all major “forces” that can influence the competitive environment of a company.
This includes all aspects that belong to the PESTEL environment – the political, macro-economic, social and technological, ecological or legal environment – or the value chain activities of competitors – the sourcing, R&D, HR, finance, manufacturing, marketing, sales or after-sales activities etc. of competitors – or the behaviour of other important stakeholders such as customers, suppliers or NGOs.
2 The I-RM focuses in its application primarily on the identification of potential consequences of future developments in the institutional environment on the functional strategies of a company. However, in order to identify consequences on a functional level.
3 The strategy formula has been developed by Prof. Dr. Roger Moser, Assistant-Professor of International Management at the University of St.Gallen, for the Competitive & Corporate Strategies course in the MBA program of the University of St.Gallen. The strategy formula structures McKinsey’s 10 Strategy Tests in a different way to better highlight the interdependence between the different strategy tests.
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strategic analysis, strategy development and strategy implementation) complement each other. Within the strategy formula respectively McKinsey’s 10 Strategy Tests the I-RM basically represents a tool to process insights about future developments within a company as required in the tests #3 to #5.
For a more detailed overview on the strategy formula and its different components, please refer to the PRIMER in STRATEGIC MANAGEMENT available upon request from Prof. Dr. Roger Moser ([email protected]).
STRATEGIC ANALYSIS: TURNING FUTURE INSTITUIONAL INSIGHTS INTO FUNCTIONAL CONSEQUENCES TODAY
Creating a more accurate picture of the future is essential for students and executives to improve their decision making in general and their strategies in particular. This is also true for market entry/expansion strategies in dynamic environments such as India. About 50% of the challenges that executives face include a structured analysis of more than one alternative that needs to be considered (Exhibit 1). However, many companies do not have well-structured processes in their companies that enable an appropriate information management in their companies during rising complexity respectively information requirements.
The information management capabilities of companies can be separated into information gathering and information processing activities (Exhibit 2). Information gathering can either happen through advanced BIG Data analyses (e.g. advanced analytics) or through smart SMALL Data collection approaches (e.g. expert-panels). While there are many external service providers to help with big or small data collection efforts, companies also need structured approaches that support their information processing efforts. The “Institutions-Resources-Matrix” supports executives to transfer their insights about future developments in the institutional environment into functional consequences for their companies.
Exhibit 1: Four Levels of Uncertainty
Source: Courtney et al.: Strategy Under Uncertainty, Harvard Business Review (5), 1997.
In short, the organizational information processing theory (OIPT) claims that companies need to adapt their information management capacities (e.g. processes, structures, systems) to the information requirements a company faces. For example, a company operating in the Swiss fresh food retail sector faces a different information requirement challenge (i.e. magnitude of uncertainty and ambiguity in
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the institutional environment of the company) than if it would operate in the Indian retail market. Accordingly, the company needs to have different information management capacities (i.e. industry intelligence gathering and processing). Theoretical considerations and an empirical study4 confirm that a fit between the level of information requirements and the level of information management capacities actually leads to superior strategies which finally positively influence a company’s performance.
Exhibit 2: Information Gathering & Processing (Organizational Information Processing Theory)
Source: Moser, MBA-HSG, 2013.
Although the strategy test (i.e. Test #4 – Does your strategy rest on privileged insights?) among McKinsey’s 10 Strategy Tests that was neglected most among more than 2000 executives around the globe focuses directly on the value of insights into the institutional environment that (almost) nobody else has it is not the only decisive element when trying to create competitive advantages.5 Therefore, companies do not per se have to invest into their own intelligence gathering efforts although privileged insights (i.e. Test #4) along with having an in-depth understanding of trends (i.e. Test #3) and proactively embracing uncertainty (i.e. Test #5) are often useful to identify future opportunities and create competitive advantages.
Instead, it matters as much for the creation of competitive advantages that companies have intelligence processing processes and structures that actually allow the relevant decision makers (not only at the top) to access, discuss, interpret and finally base their decisions upon. Especially any kind of report about more long-term futures developments in the less-industry specific institutional environment (e.g. trends in the society, general technological advancements, major changes of policies in governments etc.) are often not easy to transform into consequences for a company that go beyond basic analyses at the corporate or BU level. However, most strategies are finally implemented (i.e. turned into action) on the functional level. This means that there is only little value for a company
4 Kuklinski, Moser and Callarman have empirically confirmed in a study the existence of ideal profiles of information management
capacities (i.e. different intelligence gathering and processing activities) for different information requirement levels (i.e. different levels of uncertainty and ambiguity ) in the context of foreign Strategic Business Units in China. The transfer of these insights into other contexts seems at least reasonable. The conference paper of Kuklisnki et al. about the study won one of five best paper awards of the European Decision Sciences Conference in 2013.
5 Bradley et al., McKinsey Quarterly, 2011 talk about an Insight Deficit in many companies as more than 50% of the more than 2000 executives in study confirmed that they do not specifically invest in intelligence gathering activities that create insights that other companies do not have access to.
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as such if (non-) privileged insights about the future institutional environment are not only analyzed and discussed but have a real impact on the resource (re-) allocation (e.g. budgets, time/attention of executives, capabilities of employees) in all affected functions.
The Institutions-Resources Matrix (I-RM) focuses specifically on the structuring of insights about the future and their transformation into consequences for companies – not only on the corporate or business unit level but even the functional level where most strategies are finally implemented (Exhibit 3).
Exhibit 3: The Institutions-Resources Matrix (I-RM)
Source: Moser, MBA-HSG, 2013.
In fact, the I-RM is basically a tool for any interested party to turn rather long-term future insights into functional consequences today resp. tomorrow. In short, the I-RM involves three major steps.
First, step Ia requires to choose a specific scenario or single projection about the future developments in the institutional environment and identify in step Ib the implications of this specific scenario or single projection on the focal company’s corporate resp. BU strategy.6
Next, step 2a requires choosing a specific functional focus7 for the company resp. the BU as well as identifying those elements of the corporate resp. BU strategy that matter for the chosen functional focus. Step 2b then transforms the implications of the corporate resp. BU strategy identified as relevant for the functional strategy (i.e. insights from step 1b) into consequences for the specific resources of the chosen function. The I-RM includes the following resources in its basic model
6 In general we speak in this context about the corporate strategy of a company if the company has only a limited market/activity focus that
is integrated into a single organizational unit (i.e. business unit strategies). If a company comprises of several BUs (business units) it is recommended to analyse the implications for each BU separately.
7 The most appropriate functional focus depends on the organizational structure of the company as well as the background resp. objectives of the executives applying the I-RM. In most cases it makes sense to focus on the critical sets of activities that are most important for the strategy implementation of a company. Besides the primary value chain activities such as logistics/distribution, R&D, production/operations or marketing/sales it also makes to run separate analyses for the HR or IT function.
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although executives can add or replace or even delete the suggested resource categories8 according to their specific needs:
Ø Physical Resources
Ø Human Resources
Ø Technological Resources
Ø Organizational Resources
Ø Relational Resources
Finally, the optional step 3 allows executives to assess the potential financial consequences of any identified implication for a function and thus provide a first outlook on future budgets of the focal function.
In practice, executives have to repeat especially step 1a/b and step 2a/b for any chosen function for all selected specific scenarios resp. single projections that potentially have a strong impact on the company resp. the function and their set of activities. If such an analysis is done for a single function across major future developments that matter for the company, executives often realize that some consequences for the resources of a function have been repeatedly identified across various scenarios or projections. These consequences are often the most interesting ones as they matter across different scenarios and/or single projections. It is especially these consequences where executives want to spend some more time to assess what this means for the future budget of the function and other aspects of strategy implementation including communication, motivation, qualification and organization.
CASE EXAMPLE: THE FUTURE OF THE PREMIUM AUTO SECTOR IN CHINA
In the following, an example of how to apply the I-RM is described. It uses insights from an online, real-time expert-panel (Delphi) study with more than 80 participants about the future institutional environment of the premium automotive industry in China in 20229. This study is part of the overall efforts of a number of German automotive companies to create additional, more privileged insights about the future institutional environment of the premium sector in China10. The study includes in total 11 different projections evaluating the probability and impact of future developments in the political, macro- and microeconomic, social and infrastructure environment as well as 8 projections incorporating issues regarding future changes in R&D, sourcing, production and distribution/after-sales in China.
8 The five resource categories have been selected as the basic model because they represent a set of resources that virtually and function in a
company has to rely on in one way or another. For example, even the human resources department of a company needs some office space (i.e. physical resources), the production/operations function requires the adaption of the skills of its blue-collar workers (i.e. human resources) over time, and even the marketing function has to integrate new technologies such as analytics and social media into its strategy implementation activities. Moreover, all functions need to adapt their organizational resources to the developments in the institutional environment. For example, the integration of TV, internet access the provision of games as a technological trend requires many R&D departments to reorganize their organizational resources to make sure they are close to the consumer market as well as new display technologies at the same time. Finally, relational resources are especially important when the company looks into institutional environments where it has traditionally not been active or when a company has several BUs that do not share many functional activities.
9 The study is a joint venture between the Automotive Institute for Management (AIM) at EBS Business School and the China-Europe International Business School (CEIBS) Center for Automotive Research where Prof. Dr. Roger Moser served as the responsible project manager.
10 In this context, the study can be perceived as an example of the intelligence gathering activities that a limited number of companies can share in order to efficiently create additional insights about a relevant market and improve their strategic analysis outcomes.
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Different scenarios consisting of two different projections that are not correlated with each other have been developed and consequences for the major industry players11 have been identified during an additional workshop on the campus of China-Europe International Business School (CEIBS) in Shanghai with approx. 30 industry experts. In this case example, a selected scenario from the social environment scenario matrix serves as primary input. However, please remember that any structured insights about future developments in institutional environment of an industry might serve as input for the I-RM.
The social environment scenario matrix as in our study on the future premium automotive sector in China is normally determined by a projection primarily focusing on a trend in the society at large as well as by a projection integrating more directly a potential future change among the buyers of premium cars in China.
Transforming Future Insights into Functional Consequences Today: The I-RM Process
For our case example, we choose a specific scenario from the social environment analysis of the future of premium automotive sector in China in 2022 for the exemplary application of the I-RM. The scenario matrix itself consists of four distinctive scenarios (Exhibit 4). As requested in step 1a of the I-RM we chose one of them for our further analysis as each of the four scenarios in the matrix has different implications for the strategy on the corporate resp. BU level and subsequently for the functions under analysis. In the case example, we chose scenario #3 (i.e. Shanghai) as the specific scenario for the further analysis because the experts have assessed it with the highest probability to be true in 2022.
11 The major players of an industry are structured following an adaptation of the classic stakeholder concept. Similar to the stakeholder
perspective of a company we have customers, suppliers, the government and the society at large as major stakeholders. In contrast to the company level perspective we do not include the employees as a stakeholder group but rather replace them through the companies operating in the relevant industry segment themselves. From industry perspective they represent the most affected group similar to employees from a single company perspective.
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Exhibit 4: Scenario Matrix for the Social Environment of the Premium Automotive Sector in China in 2022
Source: Moser et al., China Automotive Industry - Scenario 2022 Report, Focus: Premium Car Segment12
However, before we analyze the implications of scenario #3 (Shanghai) on the corporate resp. BU strategy level (i.e. step 1b of the I-RM) we shortly look at the two projections that actually build the social environment scenario matrix (Exhibit 4). The social scenario matrix consists of two projections. The vertical projection (i.e. SP2: Interior Design) represents a projection that tries to evaluate how important interior design elements will be for premium car buyers (SP2: Interior Design: In 2022, the brand perception of premium cars is significantly more driven by a car’s interior design and features (e.g. cockpit ambience, rear space, center console) than a car’s exterior design (e.g. front/rear lights, radiator grill)). The horizontal projection (i.e. SP1: National Pride) represents a projection that focuses primarily on an overall trend in the Chinese society (SP1: National Pride: In 2022, China’s young generation is strongly driven by national pride considerations in their lifestyle and consumption behavior including premium car purchases). If we look at scenario #3 (Shanghai) in the scenario matrix for the social environment of the automotive premium sector in China we see that this specific scenario implies low probabilities for both the Interior Design projection as well as for the National Pride projection.
In the study, the workshop participants have identified consequences for the five major industry stakeholders in case that each combination of the two projections would be true in 2022. The implications for each industry stakeholder group in scenario #3 are listed in Exhibit 5.
12 If you are interested in the full report, please contact the Automotive Institute for Management at EBS Business School: www.ebs.edu/aim
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Exhibit 5: Implications for the 5 Industry Stakeholders in Case that Scenario #3 is true in 2022.
Source: Moser et al., China Automotive Industry - Scenario 2022 Report, Focus: Premium Car Segment
With these insights on the consequences for the industry stakeholders in case scenario #3 (i.e. the specific scenario that we chose in step 1a) is true in 2022 we actually start with step 1b (i.e. the identification of the implications for the corporate resp. BU strategy of the company under analysis) (Exhibit 6).
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Exhibit 6: Step 1b as simplified Visualization in the Context of the Social Environment
Source: Moser, MBA-HSG, 2013.
In this case example, we look at scenario #3 from a German premium OEM and simply pick the following consequence for OEMs in case that scenario #3 is true in 2022 from Exhibit 5: “In 2022, customers have comparable preferences in their style and design taste to the triad-markets regarding a car’s visual appearance”.
An example of the application of the I-RM is shown in Exhibit 7. It basically shows the process of how to transform insights about future developments (i.e. “In 2022, customers have comparable preferences in their style and design taste to the triad-markets regarding a car’s visual appearance”) into consequences for a company’s functional strategies.
Exhibit 7: Template for the Application of the I-RM
The template of the I-RM includes some basic information about the selected scenario under analysis, the company under analysis, the time frame as well as the analysts involved. It also makes sense to summarize the results of each scenario analysis in the strategy summary.
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In step 1a and step 1b executives select an institutional environment perspective (e.g. society). Within the chosen institutional environment perspective a specific scenario has to be selected (e.g. Scenario #3, Shanghai as shown in Exhibit 5). The consequences of a specific scenario for the different stakeholders (e.g. customers) are then evaluated and those that are relevant are further analyzed with respect to their impact on the company’s corporate resp. BU strategy.
In step 2a, a specific functional focus is then chosen and for each insight about potential implications on the corporate or BU level that matter for the functional focus, the consequences for the functional strategy are evaluated.
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In step 2b, the consequences for the functional strategy are then analyzed with respect to implications on the different resource categories. Finally, the investment requirements for those adaptations in each resource category are assessed that are expected to be implemented.
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APPENDIX
THE STRATEGY FORMULA: MCKINSEY’S 10 STRATEGY TESTS
In 2011, Bradley et al. presented the results of a large study on strategic management in the McKinsey Quarterly journal. They list 10 different questions that managers might ask to create superior strategies resp. competitive advantages (Exhibit 1). In the original list of Bradley et al., question #10 – “will your strategy beat the market” – is actually the first question but even the authors highlight that this question is more of a kind of summary. Therefore, we list this question last where is serves as the summary that it actually represents. The use of these 10 resp. 9 detailed questions has proven to be useful when talking about the major elements and parts of strategic management with students and executives.
Exhibit A: McKinsey’s 10 Strategy Tests
Source: Bradley et al.: McKinsey Quarterly, January 2011.
We use the questions #1 to #9 of McKinsey’s 10 Strategy Tests and transform them into what I label as the strategy formula covering the three major elements13 of strategic management (Exhibit 2):
• Strategic Analysis à understanding the strategic situation of a company from a resource-based view (i.e. what resources does a company have access to and how it combines them?), market-based view (i.e. what market power does a company have in its industry towards competitors, suppliers, customers etc.?), and the institutional view (i.e. what institutions can be leveraged resp. which institutional voids can be overcome?) to create competitive advantages. Moreover, this includes the understanding where (i.e. in which customer segment) to compete and how to understand future changes in the company as well as its environment.
• Strategy Development à creating a strategy of how to change a company’s current business model into its future business model primarily based on the insights of the strategic analysis.
13 You might wonder why we don’t talk about three “phases” of strategic management. The major reason is that the word “phases” implies
that strategic analysis, strategy development and strategy implementation come one after another. However, in reality it is often very difficult to differentiate between strategic analysis and strategy development and even more so between strategy development and implementation.
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• Strategy Implementation à turning the plan of how to change a company’s business model into reality focusing on communication, motivation, qualification and organization activities.
Each of these three elements and their parts play an important role in creating superior strategies resp. competitive advantages. The specific weightage of each part of the strategy formula is always to be discussed and might even be subject to change depending on the company-, industry- or institutionally specific context. Therefore, it does not make much sense to try to add a specific weightage to each part or element of the strategy formula but rather focus on the correct calculation methods used to combine the different parts. In short, the strategy formula looks as follows:
With respect to our 9 questions from McKinsey’s 10 Strategy Test this means:
Strategic Analysis
(Questions #1, #2, #3-5)
Strategy Development
(Questions #6-8)
Strategy Implementation
(Question #9)
Source: Moser, MBA-HSG, 2013, inspired by Bradley et al.: McKinsey Quarterly, January 2011.
This combination of the three elements of strategic management is supposed to lead to the successful creation of competitive advantages (i.e. Question #10: “will your strategy beat the market?”). The first element, STRATEGIC ANALYSIS, consists of three parts. Part 1 (i.e. Question #1: “understanding the true source of competitive advantage?”) might be the most important of all. Without a true understanding of how and where a company has or can develop a competitive advantage any strategic management activity seems rather useless. Part 2 (i.e. Question #2: “is your strategy granular enough?”) highlights the importance for companies to clearly define the customer segments they want
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to serve. Part 1 and part 2 of the strategy formula are added together because they basically serve as the status quo analysis of the strategic position of a company in the industries it is active in. Part 3 (i.e. Questions #3 to #5: “are you ahead of trends?”; “do you have access to privileged insights?”; “do you embrace uncertainty?”) can be summarized as the challenge in strategic management to create insights about future developments. Part 1 and 2 of the strategic analysis (i.e. “status quo analysis”) is the multiplied with part 3 (i.e. “future insights”).
Why is part 3 of the strategic analysis element of our strategy formula” multiplied with the other two parts and not simply added to part 1 and part 2? Well, from a strategic analysis perspective in our strategy formula I propose that a strategic analysis only has a value larger than zero if the status quo analysis (i.e. part 1 and part 2) is further developed through a clear picture about how the institutional environment and the industry will look like in the future to identify future threats to the current business model and opportunities for new business models. Similarly, there is no value in detailed insights about future developments if there is no understanding why a company is currently successful or which consumers is serves best. A simple addition of part 3 with part 1 and part 2 would therefore basically imply that the three parts have a value independently of each other.
The second element of the strategy formula, STRATEGY DEVELOPMENT, consists of three parts as well. The first element (i.e. strategic analysis) and the second element (i.e. strategy development) of the strategy formula are added to each other and not multiplied with each other.
Why? Although I propose that a thorough strategic analysis is very important to create competitive advantages there exist enough examples of strategy development efforts in companies where an in-depth strategic analysis is missing but senior executives still develop promising strategies.
Part 1 of the strategy development element (i.e. Question #6: do you balance commitment and flexibility?” highlights the importance to make sure that companies increase their strategic flexibility wherever possible. However, they also have to decide sometimes to bet big on a single technology or market in order to beat their competitors. Part 2 of the strategy development element (i.e. Question #7: “is your strategy protected from bias”) emphasizes the danger during the strategy development that executives rather follow their preferences, increase their personal (career) advantages etc. than building the strategy rationally based on the insights of the strategic analysis. Part 3 of the strategy development element (i.e. Question #8: “is there conviction to act?”) finally shows how relevant the commitment of the whole senior executive team is.
The third element of the strategy formula, STRATEGY IMPLEMENTATION, represents a very broad activity area and good practices often depend on the context-specific circumstances of a company. However, the challenges during the implementation of a strategy development primarily consist of organizational behavior challenges which are highly company-specific. The single strategy implementation element (i.e. Question #9: “have you translated your strategy into an action plan”) might be structured in more detail along 4 questions that always have to be addressed when adapting or even developing a new business model:
• Communication – Do the executives and staff need to know what to change?
• Qualification – How do the employees need to be/feel qualified to make the change happen?
• Motivation – Do the executives and staff have the right incentives to change their behavior?
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• Organization – Can the employees work in the most appropriate structures that support the change?
Why are the first element (i.e. strategic analysis) and the second element (i.e. strategy development) of the strategy formula multiplied with (and not added to) the third element (i.e. strategy implementation)? While a thorough strategic analysis and a properly managed strategy development process are each pivotal from a strategic management perspective they can also partially compensate a low performance in the other element. For example, if an executive team has a poor strategic analysis performance but a reasonable strategy development process the sum of it is not zero. The same is true for the opposite case. However, it does not matter for the creation of competitive advantages whether an executive team actually shows a strong or weak performance in the strategic analysis and strategy development elements as long as there is no proper strategy implementation.
Such a mathematical interpretation of the interdependence of three elements and their parts in the form of a strategy formula can definitely be questioned. However, the idea of a mathematical formula for successful strategic management might help students and executives alike to feel less lost in this broad management area and support their ability to focus on the key factors of strategic management as well as understanding the contribution of each element of the strategy formula on the desired outcome (i.e. the creation of competitive advantages). One might add that there exist all kinds of arguments that would allow justifying the multiplication of each element and even each part of an element with the others. However, the strategy formula concept in its current form encourages and enables students and executives to more intensively evaluate and discuss with their peers the role of the different elements in strategic management. The current equation ensures that that each part of the strategy formula needs to have a value larger than zero to create competitive advantages and that the result (i.e. the creation of competitive advantages) is a direct result of the value that each element and each part finally achieves. A complete weakness in any part of the strategy formula results in the missed opportunity to create competitive advantages.
