Strategy

1, 2, 3!!
2011, Eugene Chang

Some say strategy is

2011, Eugene Chang

big & scary

[Too complex to get ones head around]!

Picture from Monsters, Inc, Disney / Pixar!

2011, Eugene Chang

Others!

soft & u!y

[Too nebulous to get ones hands around]!

Picture from Monsters, Inc, Disney / Pixar!

2011, Eugene Chang

But the reality is

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Nobody really knows what strategy is.

- The Economist!

2011, Eugene Chang

1!
2011, Eugene Chang

Why is Strategy Important?

Because our natural reaction to

challenges are inappropriate.
Business Strategy & Negotiation Consultant!

-Osama El-Kadi!

Without a strategy, time and resources are easily wasted on piecemeal, disparate activities
-Donald C. Hambrick and James W. Fredrickson!
Are you sure you have a strategy?, Academy of Management Services 2001, Vol. 15, No. 4! 2011, Eugene Chang

Strategy provides a rm advantage over its competitors.

What strategy does: it helps a firm!
Define its market and systematically pursue its goals! Figure out the best course of action to advance its position relative to the competition! unify the organization behind shared objectives! coordinate the various activities in a coherent manner! stay focused and on-target! (what not to do as much as what to do)! Keep the Big Picture in mind!

2011, Eugene Chang

We hear these statements from CEOs all the time

2011, Eugene Chang

Our strategy is to be the low-cost provider.! Were pursuing a global strategy.! The companys strategy is to integrate a set of! regional acquisitions.! Our strategy is to provide unrivaled ! customer service.! Our strategic intent is to always be the firstmover.! Our strategy is to move from defense! to industrial applications.!

Are you sure you have a strategy?, Academy of Management Services 2001, Vol. 15, No. 4!

-Donald C. Hambrick and James W. Fredrickson!

2011, Eugene Chang

None of these declarations is a!

STRATEGY!

Smart CEOs know not to reveal their real strategy with the public! (keeping the language vague and completely useless!)!
2011, Eugene Chang

Myth Busted: Best-Practice is actually!

ANTI-STRATEGY
Operational Effectiveness is not strategy! Constant improvement in operational effectiveness is necessary, but not sufficient! OE Competition raises the bar for everyone but leads to relative improvement for no one! Strategic positioning means performing different activities from rivals or performing similar activities in a different way! A company can only outperform rivals only if it can establish a difference that it can preserve!
Michael E. Potter, What Is Strategy?, HBR 1996!
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2!
2011, Eugene Chang

So what is!

STRATEGY?

BRAND!

BUSINESS UNIT!

MILITARY!

MARKET ENTRY!

different uses of the word!

STRATEGY
OPERATIONAL! CORPORATE!

More!

MARKETING!

Which one?!

PRODUCT!
2011, Eugene Chang

Business Strategy
By Hierachy!
Corporate HQ! (Diversified)! Corporate Planning! Legal + M&A! IT!

Corporate Strategy! Which businesses should we be in? How does being in these businesses create synergy and/or add competitive advantage to the corporation as a whole?! Business Unit Strategy! How can we compete successfully in a particular marketplace? (e.g. pizza, safety boots, dental services) Functional Strategy! How can each functional department in the BU do its part to meet the companys objectives? Includes marketing strategies, HR strategies, supply-chain strategies, new product development strategies SBU* Strategy! How can the SBU help the organization achieve its objectives? (may include dimensions beyond the scope of a single BU e.g. IT Strategy)

BUSINSS! UNIT #1!

BUSINSS! UNIT #2!

Finance! HR! Operations! R&D! Marketing! SALES! IT!

Finance! HR! Operations! R&D! Marketing! SALES! IT!

* Strategic Business Unit Many companies feel that a functional organizational structure is not an e"cient way to organize activities so they have reengineered according to processes of SBUs. SBUs are treated as an internal prot center by corporate HQ, usually responsible for its own budgeting, hiring decisions, price setting, etc.
2011, Eugene Chang

What unique Advantage can we get and sustain over time.!

- Michael Porter!

A framework within which decisions are made which establish the nature and direction of the business.!
- Tregoe and Zimmerman!

Good Definitions Describing!

STRATEGY
A systematic process for achieving longterm goals.! the direction and scope of an organization over the long-term: which achieves advantage through its configuration of resources to meet the needs of markets and to fulfill stakeholder expectations.!
- Johnson and Scholes! - Osama El-Kadi!

2011, Eugene Chang

You can think of Strategy as being made up of!

FIVE ELEMENTS
(And you need all 5 for a comprehensive strategy)

Donald C. Hambrick and James W. Fredrickson, Are you sure you have a strategy?, ! Academy of Management Services 2001, Vol. 15, No. 4! 2011, Eugene Chang

The Five Major Elements of Strategy!

Staging!
Resource constraints! Urgency (window of opp)! Credibility (to attract other stakeholders)! Need for early wins!

A peek inside the strategy black box!

Arena!
The most fundamental of choices - A result of deep analysis and should not be one of broad generalities!

Vehicles!
The means by which arenas are entered matters greatly and should not be viewed as a mere implementation detail or done in afterthought!

A clear idea of how profits above the cost of capital will be generated!

Economic Logic!

Differentiators!
Best combination of differentiating dimensions from competitors to attract customers (and suppliers) to support your business!

The key is in achieving a robust, reinforced consistency among the elements of the strategy itself.!
Donald C. Hambrick and James W. Fredrickson, Are you sure you have a strategy?, ! Academy of Management Services 2001, Vol. 15, No. 4! 2011, Eugene Chang

ensure these 5 elements are!

COHERENT and REINFORCING

The strength is in the whole and not individual choices !

Donald C. Hambrick and James W. Fredrickson, Are you sure you have a strategy?, ! Academy of Management Services 2001, Vol. 15, No. 4! 2011, Eugene Chang

Putting in place the input & output of the strategy sequence!

Tools

Provide diff perspectives!

Strategy!
"! #! $! %!

Figure 1 leaves out feedback arrows and other indications that great strategists are iterative, loop thinkers. The key is not in following a sequential process, but rather in achieving a robust, reinforced consistency among the elements of the strategy itself.

Branding questions like who we are and why do we exist!

Goal Setting!

Donald C. Hambrick and James W. Fredrickson, Are you sure you have a strategy?, ! Academy of Management Services 2001, Vol. 15, No. 4! 2011, Eugene Chang

Strategy is an iterative process!

Mission & Values!

Goal! Setting!

Industry! Analysis!

Testing the strategy!

STRATEGY PROCESS!
Strategy!

Company! Analysis!

Diagram Adapted from Javier Gimeno and Fares Boulos, INSEAD STRATEGY Notes! 2011, Eugene Chang

Strategic plans can easily be undermined!

Experience will corroborate that even a rational, well-constructed strategic plan rarely is realized exactly as laid out on paper. Many factors can derail the plan from competitors undermining what was envisioned to poor execution. Mintzberg summarized his ndings in the powerful diagram above, a reminder that real life requires strategy to be continually worked on and interacts in real-time with the operating environment.

Mintzberg, H. (1987, JulyAugust). Crafting strategy. Harvard Business Review, pp. 6675.! Diagram from Principles of Management by Carpenter, Bauer and Erdogan, Mar 2009.! 2011, Eugene Chang

3!
2011, Eugene Chang

What then is!

GOOD STRATEGY?

Dont forget the political dimension!!

Donald C. Hambrick and James W. Fredrickson, Are you sure you have a strategy?, ! Academy of Management Services 2001, Vol. 15, No. 4! 2011, Eugene Chang

A simply way to view Strategy

It answers the questions why, what, who, how!

A Strategy Tree Example (HBR)!

important! Reminder!

HBR Blog Article Strategy on One Page by Anthony Tjan, Jun 1, 2011. The Strategy Tree introduced to the author by Mats Lederhausen, formerly worldwide head of strategy for McDonaldss! 2011, Eugene Chang

Uniqueness alone is insufficient; good strategy!

has to provide a sustainable advantage.

The business environment is constantly changing so Good Strategy !

has to be exible, but not reactive.

Reiterating: All it five elements!

has to be cohesive and reinforcing.

Designed to meet some objectives, it should

be inherently measurable.
And for ease of communication!

be clear to describe.
2011, Eugene Chang

the

continuous and ongoing managing of all !

dynamic and changing needs of the business ! environment in which it operates.!

Good strategy [should also incorporate]!

phases of the strategic process [including execution], which ensures that the organization is responding to the

- Adapted from Stuart Sugar! VP of Planning and Strategy at Maritz Canada Inc.!

2011, Eugene Chang

4!
2011, Eugene Chang

Who then is!

Responsible for Strategy?

The traditional view of strategy planning & execution!

Current State of organization!

Strategy Formulation!
By Executive Team or Strategy Planning Unit!

TOP-DOWN APPROACH! The view that strategy is formulated by the Executive Team (or the planning department) in a top-down fashion is generally recognized as obsolete but still widely in practice.! Benefits:! trained strategic thinkers at the top! Able to see/exploit inter-unit synergies!

Strategic Implementation! By Management Team!

Easier to define and meet corporate objectives! Faster to develop, easier to coordinate!

Desired Future State of organization!

Diagram Adapted from Gavriel Shaw! 2011, Eugene Chang

Other views of strategy planning & execution!

BOTTOM-UP APPROACH! The organic method allows a company to get the entire organization involved in the strategy process. but it is time consuming and could cause difficulty when assembling all views into one coherent strategy as it bubbles up to the corporate level. May risk getting stuck with tactical issues.! Creates individual ownership and buyin from employees doing the implementation! Accountability and trust at all levels! People in the front-lines are closest to the customer and in touch with the business! Hybrid / Iterative Approach! More effective to allow strategy to be initiated and coordinated by the top with ample feedback loops for every level to participate. Engagement and good communication are key to ensuring fair process.!
2011, Eugene Chang

Planning!

Execution! strategy!

Blue Ocean Strategy! Perspective (Ch8):! Build execution into strategy using fair process to mobilize the organization.!

5!
2011, Eugene Chang

So how do we make Strategy

Implementable?

Strategy formulation is easy. Its the execution that is the challenge.

- Lawrence A. Bossidy Former CEO, Allied Signal/Honeywell

[Weve got to build execution into strategy!]!

2011, Eugene Chang

It doesnt happen by itself.!

soft structures (like culture) and formal structures (like HR Policies and performance rewards) are ! used as guides and signposts to help people ! execute the strategy effectively!
Enablers!
"#$%! &'%(! &'(! )*+,-,%#! .,/01-! &)(!

76/! 2%3451%6-! 8169+196*! *+(! *&(!

Enablers Diagram Adapted from The Secrets To Successful Strategy Execution by Gary L. Nielson, Karla L. Martin and Elizabeth Powers, HBR 2008.! 2011, Eugene Chang

The best results occur when mgt acknowledges!

that the organization itself needs to change.

[at least ! a little]!

Organizational change is often necessary to support a change in strategy. If a company is responsive to its environment and takes a continuous improvement outlook to the strategy process, these changes will be more manageable and less drastic. Nevertheless, if the organization is not willing to adapt to realize the strategy, it should not waste resources trying to switch strategy.!
2011, Eugene Chang

It doesnt make sense to

Dumb down a new strategy for an organization designed to execute the old strategy, expecting no organizational change [often disguised as a clients request to have a strategy tailored to their resource constraints or made implementable] ! get an organization to implement a brilliant strategy that has insufficient political/financial support from key stakeholders to make the required changes for the strategy to succeed [often the work of an inexperienced strategist concerned more with the elegance of the plan than the implementation of it] ! To Force-fit or copy a strategy designed for another organization and adopting it wholesale as the outcome will likely differ or even be detrimental [often the work of a lazy
executive concerned more the competition than building the underlying capabilities to transform the companys future] !

In the case of unavoidable large shifts in strategy!

2011, Eugene Chang

Who & Why! Objectives, Purpose)!

STRATEGY - TACTICS
Linkage?!
Where & Which Unique Direction! (Position, Resource Allocation)! How we get there! (Process, Actions, Skill)!

What about the!

When, What for & For How Long! (What Timing, What returns, What Next)!
Dr. Eliyahu M. Goldratt in his book the Theory of Constraints defines Strategy as the answer to what for objectives and Tactics an answer to the question How! 2011, Eugene Chang

Cascading strategy objectives down level by level!

ORGANIZATIONAL STRUCTURE
(FORMAL & INFORMAL) Strategic Plan Business Review

PLAN

EXECUTE

EVALUATE

Organization

Department / Team

Implementation Plan

Department / Team Review

3
Individual

Performance Plan

Performance Review

Each level of the organization supporting the strategic objectives of the one above in the hierarchy. Feedback/engagement is key.!
2011, Eugene Chang

Gaining granularity wins the war.!

On how the Allies Forces achieved the impossible in WWII:! Despite all of the complex planning that went into the invasion of Normandy, it was the small unit tactics and the buddies fighting side by side on the beaches [that made the difference], ! and that is consistent throughout history. !
-Angelo Caravaggio, ! Military Historian, CFC!

I am a big part of strategy!

Organizational Structure, Culture, Policies

PLAN

EXECUTE

EVALUATE

Individual

Performance Plan

Performance Review

Translating strategic initiatives into actionable items, monitoring performance and rewarding individual behaviors!
[assuming you have the right people in place to work with. A particular strategy may require one to shed or bring on specific skills req.]!
2011, Eugene Chang

From passive document to marching orders.

The balanced score card is a useful tool to help organizations link strategy to performance measurement !
The original BSC design (1992) moved from the simple 4-quadrant representation to a strategy-mapping concept with a hierarchy of perspectives each informing the next level.!

Financial Perspective! The drivers of shareholder value!

Customer Perspective! the differentiating value proposition! Internal processes how value is created and sustained!

Learning and growth perspective! Role and status of intangible assets defined!

Diagram attributed to the Book Strategy Maps by Kaplan & Norton!

2011, Eugene Chang

Connecting with the Scorecard.

The Underlying Philosophy: ! "you cannot manage what you cannot measure, and you cannot measure what you cannot describe.!

Diagram attributed to Shree Phadnis, Master Blackbelt at KPMG (India)! 2011, Eugene Chang

Back to the Big Picture.

Strategy is just one important piece in achieving ! superior performance in the marketplace!

PERFORMANCE!

head!

heart!

hands!

Strategy!
Planning + Execution!

Culture!
Conviction + Motivation

Operational Excellence!

WHERE! & WHO!

WHY!

Beyond Best Practice! HOW!

People are the super glue behind the crucial Strategy-Tactics link!
2011, Eugene Chang

Today, companies are required to compete as a ! total supply chain and/or ecosystem!
Unlike a business model (a closed system), A business ecosystem is a network of companies the set of positive sum relationships (symbiosis) between actors who work together.! Once you build an ecosystem, it is extremely difficult for someone to disrupt it.! Examples of powerful ecosystems:! Amazon! Apple! Nespresso! Nintendo! Microsoft!
- Nathalie Magniez !

Your strategy therefore has to build on the strengths of your ecosystem partners as well to strengthen the platform!
Diagram attributed to Nathalie Magniez! 2011, Eugene Chang

6!
2011, Eugene Chang

So are there

ANY LIMITS?

Dont just play the game, it is an invitation to!

Change the Rules.!

Successful business strategy is about ! actively shaping the game you play, not ! just playing the game you find.!
-Adam Brandenburger and Barry Nalebuff, ! Authors of Co-opertition!
2011, Eugene Chang

BOS: Challenge the norms!

Go where profits and growth are and where the competition isnt!

Blue Ocean Strategy is the simultaneous pursuit of differentiation and low cost.!
Value Innovate!

,$"%"!

:"!
-./01!
Kim and Mauborgne, www.blueoceanstrategy.com! 2011, Eugene Chang

Duo-Objective Strategy!

Case Example: Singapore Airlines (SIA) !

Singapore Airlines (SIA) successfully executes a dual strategy of offering premium service and is a cost leader.!
its service is better than rivals and its costs are lower: The airline invests heavily in areas of the business that touch the customer in order to enhance its premium positioning. Everything behind the scenes is subject to rigorous cost control.! SIA fosters both centralized and decentralized innovation! SIA is both a technology leader and follower!

Executing a Duo Objective Strategy is difficult and this is what makes it so valuable. It has so far proved to be a sustainable advantage for SIA. !
Loizos Heracleous and Jochen Wirtz, Singapore Airlines Balancing Act, HBR July-August 2010!

A Tough Balancing Act!

2011, Eugene Chang

I hope this Presentation has been Useful!

Thank you.

2011, Eugene Chang

This presentation was put together to summarize some of the work floating out there to help others who are looking for a practical way to go about thinking and communicating strategy. As I myself have benefitted from the cranium generosity of others, I believe sharing is the best way to learn.

Disclaimers and such: I stumbled upon a great presentation What is Strategy? by Marc Sniukas on Slideshare and was inspired to extend his ideas with some of my own learning. In my research, I also liberally borrowed from the Internet (from contributors on Wiki to LinkedIn) to supplement the gaps in my own knowledge and experience as a practicing consultant dealing with the occasional strategy engagement. Where I could, I provided references to acknowledge the source. My apologies if something here sounds like what youve come up with but were not acknowledged for it; we either came up with the same idea independently, or I screwed up and couldnt figure out where that thought penetrating my head originated from all unintentional. It was a rushed job but it did take some time. Not making any money from this so there are no guarantees extended !!although I have made every reasonable effort to be as accurate as possible. Feel free to drop me a line on LinkedIn. Would love to receive feedback or enter a discussion on this topic.

2011, Eugene Chang, eugene.chang@alumni.insead.edu

Version 1.0., June 2011