Managing Strategy Course

Body of knowledge

Introduction Course Importance

Though change creates novel combinations of circumstances requiring unstructured non-repetitive responses, strategic planning is critical to creating sustainable competitive advantage in media. By providing a guidepost for a company's ongoing evolution, strategy provides the necessary information and direction for managers to define their workand help their organization remain competitive. Strategy not operational effectiveness distinguishes winners from losers. Strategy hasnt changed, but change has. In todays corporate landscape, change occurs more quickly, so companies have to behave schizophrenically. On one hand, they have to maintain continuity of strategy and on the other they have to remain focused on continuous improvement, too. John P. Owens

Introduction Course Goals

After this course, students will be able to:

Perform situation analysis: company description, market research, competition analysis Decide and orient strategic position of their companies Make strategic choices for their company Understand the competitive environment in media industry Understand how organizations shape constraints and opportunities for strategy Develop SWOT analysis Develop an explicit strategic plan, according to the companys vision and mission, etc

What is Strategy?
A long term plan of action designed to achieve a particular goal
To do
NOT to do

The essence of strategy is choosing what NOT to

do.

Michael Porter

Flawed Concepts of Strategy

Strategy as aspiration Our strategy is to be #1 or #2 Our strategy is to be the leading newspaper Strategy as action Our strategy is to merge Our strategy is to internationalize Our strategy is to consolidate the industry Strategy as vision

Strategy as learning Our strategy is to learn and change

Competitive Strategy
Competitive Strategy aims to establish a profitable and sustainable position against the forces that determine industry competition Competition to be UNIQUE
Optimizing competition

Competition to be THE BEST

Strategic competition

The worst ERROR in Strategy is to compete with rivals on the SAME DIMENSIONS

Course Structure
Managing Strategy

I. Set and Revisit Companys Aspirations

II. Situation Analysis

III. Value Chain

IV. Sustaining Competitive Advantage

VII. Implementing Strategy

V. Strategic Positioning

VI. Building a Strategy

VIII. Growing Strategically

IX. Conclusions

Set and Revisit Companys Aspirations

Chapter I

Companys Aspirations
Companys Aspirations

Mission

Vision statement about what the company wants to become

Strategic Objectives

statement about the companys reason for existence

measure how it is performing in key result areas

1. 2. 3. 4.

Fundamental aim Core strength Focus Envisioned future

Business Mission & Vision

MISSION
Provides context for major decisions within the organization Describes an enduring reality Is capable of infinite fulfillment (not subject to a time frame) Useful for both internal and external audiences

VISION
Guides development of strategy and organization Describes an inspiring new reality

Is achievable within a specific time period

Primarily useful internally (also can be used externally)

Strategic Objectives
Allow a company to measure how it is performing in key result areasthose areas where the company must achieve
superior results to achieve its long-term strategy

Management must decide how it will measure success in the key result areas and then set objectives for those measures

Measuring Performance
Key Result Area Cost Measures Units per employee per year Work time loss per year (hours) HR Objectives By end of Year 1, cost per unit will be $0.4 By end of Year 2, cost per unit will be $0.3 By end of Year 1, units per employee per year will be 10 million By end of Year 2, units per employee per year will be 13 million By end of Year 1, work time loss per year will be 25 hours By end of Year 2, work time loss per year will be 10 hours By end of Year 1, compensations will increase by 10% By end of Year 2, compensations will increase by 15%

Cost per unit

Compensations

SMART Objectives
SMART Objective Not-So-SMART Objective Add 20 new sales agents in the next Add new sales agents who are three years who are capable of capable of selling advertising in the selling advertising in the 4 new 4 new launched magazines (not launched magazines Year 1 add 2 specific, measurable, or timebound). new people, Year 2 add 9 new people, Year 3 add 9 new people. Raise sales 10% annually over the next three years. Reduce average duration of customer service phone calls by 30% over the next two years. Improve sales over the next year (not specific or measurable). Reduce average duration of customer service phone calls by 50% over the next year (not likely achievable or realistic).

Why Set Aspiration?

Aspirations force forward and discontinuous thinking Innovative thinking Growth-oriented thinking

Aspirations establish boundary conditions for strategy decisions

Aspirations help drive high performance

Aspiration must engage the entire organization

Hand Heart Head Top management Change agents Frontline

ORGANIZATION
Set aspirations Draw Build implications momentum

Aspiration Based Planning

Step 1: Picture the future and define aspirations

Step 3: Develop business plan to create the future and attain milestones

Today
Step 2: Roll back the future and define intermediate milestones

Revisit the Aspirations

How has our understanding of the future changed? What new levels of performance What do changes suggest for our performance vis--vis our must we achieve? What new capabilities must we stakeholders? build?

Are we on track toward interim targets? What new initiatives must we take to achieve targets?

What new barriers to achieving our aspirations exist?

Learning in the present

Next Year

3 years

5 years

10 years

20+ years

Setting the Right Goals

Superior long-term return on investment

Superiority in Return on Invested Capital must be achieved and sustained

Profitability must be measured realistically, capturing the actual profits on the full investment

Unrealistic profitability or growth targets can led to

failed strategies

Situation Analysis
Chapter II

Purpose of Situation Analysis

Creates a shared understanding of the company and the environment in which it operates, including:
1. 2. 3. 4. 5. Industry structure Basic facts about competitors Basic facts about customers Assess Companys core capabilities Forces shaping the industry

FOUNDATION for STRATEGY DEVELOPMENT

1. Industry structure
The fundamental unit of strategic analysis is the industry
Relative Position Within the Industry

Industry Structure

STRATEGY

Company economic performance

Industry Structure Porters five forces

THREAT OF NEW ENTRANTS

BARGAINING POWER OF SUPPLIERS

RIVALRY AMONG EXISTING COMPETITORS

BARGAINING POWER OF CUSTOMERS

THREAT OF SUBSTITUTES

Industry Structure Porters Six Forces

AVAILABILITY OF COMPLEMENTS

BARGAINING POWER OF SUPPLIERS

THREAT OF NEW ENTRANTS

RIVALRY AMONG EXISTING COMPETITORS

BARGAINING POWER OF CUSTOMERS

THREAT OF SUBSTITUTES

Rivalry Determinants
Industry growth Fixed costs/value added Intermittent overcapacity Product differences Brand identity Switching costs Concentration and balance Informational complexity Diversity of competitors Corporate stakes Exit barriers

RIVALRY AMONG EXISTING COMPETITORS

Entry Barriers
Economies of scale Proprietary product differences Brand identity Switching costs Capital requirement Access to distribution Absolute cost advantages Government policy Expected retaliation
THREAT OF NEW ENTRANTS

Determinants of Supplier Power

Differentiation of inputs Switching costs of suppliers and firms in the industry Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchases in the industry Impact of inputs on cost or differentiation Threat of forward integration relative to threat of backward integration by firms in the industry
BARGAINING POWER OF SUPPLIERS

Determinants of Substitution Threat

Relative price performance of substitutes

Switching costs
Buyer propensity to substitute

THREAT OF SUBSTITUTES

Determinants of Buyer Power

Bargaining Leverage
Buyer concentration vs. firm concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products Pull-through

Price sensitivity
Price/total purchases Product differences Brand identity Impact on quality/performance Buyer profits Decision makers incentives

BARGAINING POWER OF CUSTOMERS

A Sixth Force - Complements

Your Complementor
With respect to clients
pay more for your two products together than for your product alone plus the other firms product alone

With respect to suppliers

accept less to serve both of you together than they would if supplying you alone plus the other firm alone

Crucial for a successful strategy is to establish: Who are your complementors What is your strategy with respect to them

2. Basic facts about Competitors

Develop the competitors profile including: Economic performance Current market position such as share Core capabilities Strengths and weaknesses Aspirations Strategies going forward

Determine the relative value proposition of the clients and competitors products and services as perceived by the customer

Basic facts about Competitors - Example

Strengths Strong Weak TVR 1 Weakness Awareness Investments

Overall share
20%

Profitability (ROIC)
20%

Growth (CAGR 2005-2003)

15%

Coverage

Strength of relation-ships

PRO TV

16%

13%

9%

Antena 1

14%

11%

7%

Acasa TV

8%

14%

6%

Prima TV

5%

10%

5%

Realitatea TV

3.4%

8%

3%

Defining Value Proposition

clear, simple statement of the perceived benefits a product or service will provide to its target customers and the perceived price (cost) of those benefits

What Customers?
What end users? What channels?

Which Needs?
Which products? Which features? Which services?

What Relative Price

3. Basic facts about Customers

A. Understand customer behavior Focus Groups Industry quantitative studies (e.g. SNA for Media) B. Segment the customer Base Is important especially for your business clients (advertisers) C. Assess attractiveness of different segments

A. Understand Customer behavior

Personal spending on press in the last month (000 persons) % of total urban population

More than RON 50

20.1-50 RON 10.1-20 RON 6.1-10 RON 2.1-6 RON 0.1-2 RON 0 RON

324
1164 1912 1974 1560 678 1292

3.6
12.9 21.1 21.8 17.3 7.5 14.3

B. Segment the Customer Base

How does the customer respond to different situations?

Occasions

Firmographics

How is the customer's organization characterized?

Which limitations are impacting the customer's actions?

Constraints Segmentatio n approaches

Behaviors

What does the customer do in the marketplace?

Perceptions
What does the customer believe about the marketplace?

Relationship

Which key aspects have defined the customer's lifecycle?

What underlying beliefs are shaping the customer's mindset?

Attitudes Needs
What value does the customer require or want?

Profitability

How financially sound is the relationship with the customer?

Segmentation Techniques (1)

Approach When to use Key insights

Data source

As a first cut to understand relative penetration across business Firmographics categories During sales process

Data easy to obtain Third party databases Companies with similar firmographics Industry trade assoc. can have very different needs and Customer information relationship profitability files Customer information files Custom market research

Behaviors

As a first-level segmentation in One of the best methods for business-to-business markets segmentation in business-to-business As a quick proxy to test range of Do not place too much emphasis on customer needs internal client behavioral information As a test of marketing effectiveness Accurate data can be hard to find To identify likely cross-selling targets As a broad tool for classifying opportunities with customers To anticipate needs across life-cycle To pinpoint retention problems across tenure groups

Relationship

Key drivers of customer profitability are loyalty and retention Customer information Account relationship segmentation can files yield quick insights that can boost sales Custom market research force productivity Customer information files Custom market research

Profitability

As a key tool to target a more Back-of-the-envelope profitability can profitable mix of customers be wrong or misleading To upgrade the profitability of Building solid customer economics customer accounts takes time To quantify the impact of marketing Data can be hard to find programs over time

Segmentation Techniques (2)

Approach Needs

When to use
As a primary input into the development of the value required or wanted As a supplement to needs-based segmentation As a means to uncover latent needs that the customer cannot articulate

Key insights Must consider needs of multiple decisionmakers and influencers Most useful when high emotional components are present (consulting)

Data source Custom market research

Attitudes

Custom market research

To identify customers who are at Perceptions different satisfaction levels To generate key insights into brand strategy In combination with behavioral and needs-based segmentation approaches Constraints to fully understand factors which may be limiting a customers market actions When customers are likely to behave differently in different situations When the marketer is interested in creating multi-mode marketing programs

A customers perception is their reality Can provide useful insights into market opportunities, but should not provide the basis of segmentation Some constraints are more evident than others defining constraints is a powerful tool for business expansion Popular in consumer marketing Can surface insights for product development/marketing communications

Custom market research

Custom market research Team brainstorming Account rep interviews Historical account data Custom market research

Occasions

C. Assess attractiveness of different segments

How large are the segments?
Size of addressable customer base Volume usage Price

Segment attractiveness

What are the growth expectations?

Customer demographics Unit volume growth Price trends

How profitable are the segments?

Relative price points ROICs per segment Cost to serve

4. Assess Companys Core Capabilities

CORE CAPABILITIES
Operational skills

Privileged assets

Special relationships

Growth-enabling skills

Operational Skills
STEP 1
Generate an initial list of specific skills and knowledge needed to drive the business system

Validate each item against three measures: Drives value

STEP 2

Superiority Sustainability

Privileged Assets - Examples

Example Distribution network Conferred advantage Increase sales of existing products and services Reduce the cost of new product launches Extend brand to launch products without threatening credibility of current business

Brands and reputations

Customer information

Maximize sales

Growth-enabling Skills
Example Acquisition and postmerger management Financing and risk management Conferred advantage Save costs Accelerate growth Advance along promising growth paths that are too costly or risky for competitors to follow Enables managers to make a commercial success of projects that other companies might reject because of poor returns Consistently develop managers who build new businesses

Capital management People development

Special Relationships

Right to win Degree of privilege

Right to match

Right to bid

Access

Efficiency

Influence/ power

Source of privilege

5. Forces Shaping the Industry

INDUSTRY

REGULATION

Demand
Demand Future demand

Latent demand

Existing demand

Today

Time

Regulation
be aware of your industry governmental regulation
State commissions set rates, approve investments, and affect number and size of competitors Government licenses delivery channel and regulates content

Technology
technological change implies Costs Likely time of INNOVATION Earliest time
of introduction
introduction Abandonment of old technology

New technology Old technology

Total costs Variable costs Total costs

Blitzkrieg with new technology

Variable costs

Time

Value Chain
Chapter III

Value Chain
Role: disaggregates a firm into its strategically relevant activities in order to identify and understand sources of competitive advantages The value chain is unique to each business

Competing in a business involves performing a set of discrete activities, in which competitive advantage resides

Identifying the Value Chain

Value

Support Activities

What buyers are willing to pay

Primary Activities

Value Chain Primary Activities

1. Inbound logistics 2. Operations 3. Outbound logistics 4. Marketing and sales

5. After-Sales Service

Value Chain Support Activities

1. Procurement 2. Technology Development 3. Human Resource Management 4. Firm Infrastructure

Linkages within the Value Chain

Linkages are relationships between the way one value activity is performed and the cost or performance on another
Why do linkages occur? The same function can be performed in different ways The cost or performance of direct activities is improved by greater efforts in indirect activities Activities performed inside a firm reduce the need to demonstrate, explain or service a product in the field Quality assurance functions can be performed in different ways.

Important: Linkages exist not only within firms value chain but between firms chain and the chains of firms suppliers, customers, competitors, etc

Configuring Internal Activities for Advantage Example - Dell

Value Chain & Linkages

Value Chain - Application

Configure your own company Internal Activities for Advantage and identify linkages among value activities!

Sustaining Competitive Advantage

Chapter IV

Competitive Advantage
Generating a new source of competitive advantage is the ultimate act of creativity in business Creating advantage is an art, not a science But not a black art

As in all arts, the process matters a great deal Respond to and act on the outside world Build in internal consistency from the start Personal traits and habits also matter Balance between creativity and analysis Courage to do something different

Sources of Competitive Advantage

Structural Advantage Frontline Execution Insight / Foresight

Porters Sources of Competitive Advantage

Cost Advantage

Differentiation

Structural Advantage
Economies of scale Vertical Market Failure
Output increases and average costs fall Company size increases and risk is diversified Transaction costs and risks are very high Frequency of transactions is recurrent and asset specificity is high Limited access to: Privileged locations Intellectual property Regulatory rights Distribution networks Brands and reputations Customer information

Privileged Assets

Frontline Execution
Product/service Characteristics Range Complexity Life cycle Process Requirements Product/service development Logistics Sales/marketing requirements Environmental Requirements Seasonality Service expectations Market share stability
Complex order management and scheduling systems Skilled management of inbound flows Flexible operations and supply chain/service factory design Unique skills and expertise requirements for service operations

Skilled project management Flexible capacity utilization Customer satisfaction measurement and feedback mechanisms Sales force coverage, talent and training requirements Information systems to assess profitability of segment customers

Build-in-advance requirements Delivery and inventory requirements Distribution configuration Capacity planning and utilization

Insight/Foresight
High degree of uncertainty
Allows business units to identify ways to eliminate, reduce or manage the uncertainty company faces, e.g., high tech, telecommunications, electric utilities Helps companies understand the real drivers of value for customers, which allows them to identify and launch successful new products and services, e.g., software, new technologies, fashion helps to understand relationships among different variables and draw out key implications, e.g., industries which make complex marketing and pricing decisions

Large value placed on innovation

Significant advantage to see new relationships among sets of variables

Difficult/impossible to develop or sustain In todays faster-moving environments, these elements structural or are less and less to be relied on executional advantage

Cost Advantage Analysis (1)

1. Identify the appropriate value chain and assign costs and assets to it 2. Diagnose the cost drivers of each value activity and how they interact 3. Identify competitor value chains, and determine the relative cost of competitors and the sources of cost differences

Cost Advantage Analysis (2)

4. Develop a strategy to lower relative cost position through controlling cost drivers or reconfiguring the value chain
Gain cost advantage by: Controlling cost drivers Reconfiguring the value chain

5. Ensure that cost reduction efforts do not erode differentiation

6. Test the cost reduction strategy for sustainability

Distribution of Operating Costs

OPERATING COSTS
HR Management (2%) Procurement (1%) Firm Infrastructure (9%) Technology Development (9%)
1%

40%

Margin (5%)

27% Inbound logistics (3%) Operations (67%) Outbound Service (1%) logistics (1%) Marketing & Sales (6%)

Purchased operating inputs Human Resource costs

Distribution Assets
ASSETS
Firm Infrastructure HR Management (1%) Technology Development (2%) Procurement (1%)

(16%) (8%)
(6%)

(15%)
(38%)

(2%) Inbound logistics (8%) Liquid Assets Fixed Assets Operations (46%)

(5%)
Outbound Service (2%) logistics (20%) Marketing & Sales (6%)

Differentiation Drivers of Uniqueness

Policy choices Linkages within value chain, with suppliers, customers, competitors, etc Timing Location Interrelationships Learning Integration Scale Institutional Factors

Routes of Differentiation
Proliferate the sources of differentiation in the value chain Make actual product use consistent intended use (understand buyers needs and modify product accordingly) Employ signals of value to reinforce differentiation on use criteria (advertising) Exploit all sources of differentiation that are not costly
Reduce cost in activities that do not affect buyer value Shift the decision maker to make a firms uniqueness more valuable, etc

Steps in Differentiation (1)

1.
2. 3.

Determine who the real buyer is

Identify the buyers value chain and firms impact on it Determine ranked buyer purchasing criteria

Steps in Differentiation (2)

4. Assess the existing and potential sources of uniqueness in a firms value chain Identify cost of existing and potential sources of differentiation Choose the configuration of activities that creates the most valuable differentiation for the buyer relative to cost of differentiation Test the differentiation strategy for sustainability

5.

6.

7.

Ranked Buyer Purchase Criteria - Example

Use Criteria Content Format Layout Price Subscription Frequency Speed of distribution Online version Promotional support Reliability Signaling Criteria Advertising Distribution Market position Display in stores Availability Audience Sales per issue Online community

End User

Channels

Activities that Influence Buyer purchase criteria

USER CRITERIA
Conformance to specifications
Delivery time Features Sales force quality

x x
x

x x

x
x

x x

x
x

x
x x x

SIGNALING CRITERIA

Sales aids Attractiveness of facilities

Sustaining Competitive Advantage

1. Micro level: Analyzing and anticipating individual players, especially competitors 2. Macro level: Understanding and responding to generic threats to advantage

Imitation

Slack
Holdup

Substitution

3. Overarching: Designing strategy for robustness and organization for ability to learn and to make tradeoffs

Hints to Sustaining Competitive Advantage

Attacked competitors indirectly, placed them on the horns of a dilemma Vision the future and the industry shape Fly below the radar screen until will be too late for competitors Made clear tradeoffs (it will make your strategy sustainable against imitation)

Be always a second faster than your competition Be unique

Learn from your and competitors success and failure

Key tests to Effective Competitive Strategies

1. External consistency: Does the strategy tap the opportunities and neutralize the threats posed by the outside world in a unique manner?
Driven by outside opportunities and threats Systemic change possible Explicit recognition of what company is not doing

2.

Internal consistency: Do the parts of the strategy fit together to form a whole that is greater than the sum of the parts? Dynamic consistency: Does the strategy call on the company to do today what is necessary to succeed tomorrow?
Responsive to discontinuous changes in outside world

3.

Example Internal Consistency at Dell

Strategic Positioning
Chapter V

What is Strategic Posture?

Strategic Posture is a choice a company makes about how the company will interact with its industry environment

Choices for Strategic Postures

Shape the future Adapt the fastest

Play a leadership role in establishing how the industry operates

Win through speed, agility, and flexibility in recognizing and capturing opportunities Decide not to participate in the business going forward

Reserve the Invest sufficiently to stay in right to play the game, but avoid
premature commitments

Exit

Examples
Shaping Strategy
Intel, Microsoft, Nike, Oracle, McDonalds

Adapter Strategy
Conair, Compaq, Hutchinson Technology, British Airways

Reserve the right to play

Flexor (Chemicals)

Exit strategy
Monsanto (Chemicals)

Why Choose a Strategic Posture?

Captures unrealized strategic headroom
Explicit consideration of all possibilities, not only adapter strategies Encouragement for outside-the-box thinking

Enables consistency of strategy conduct

Setting the stage for selecting specific strategy building blocks Making it simple to move decisively and consistently

Strengthens organizational commitment to action

Making aspirations actionable Alignment of individual mindsets throughout company

How to Choose a Strategic Posture?

Expand the Solution Space
Identify opportunities/ levers for change both in the industry structure and business system. Consider all the possibilities

Uncertainty
It is critical to evaluate the impact of uncertainty on the choice of posture

Analyze Feasibility and Fit with Aspirations

The chosen posture should fit both internal capabilities and a companys overall aspirations

Strategic Position on the market has to be in accordance with business scope and value proposition!

Expand the Solution Space

Change the industry structure Change industry structure through: combination of previously distinct pieces of the value chain separation of previously linked pieces of the value chain breakup of a portfolio of related businesses Molding industry evolution to create value for web and for themselves

Rethink the business system

Un-bundle the business into 3 distinct businesses: Customer relationship management Product/service innovation Infrastructure management

Uncertainty When Shape?

Clear future Shape based on insights about impact of actions in the future, sometimes increasing uncertainty

Alternative futures

Shape based on insights about how to increase prospects of an attractive scenario

Range of futures

Shape based on insights about how to influence industry in favorable direction

True ambiguity

Shape based on insight about how to lead others who are paralyzed by uncertainty

Uncertainty When to Adapt?

Clear future

Traditional game modest upside and risk; limited returns Possible, but often not an optimal strategy

Alternative futures

Range of futures

Key is building organizational capabilities to recognize and capture opportunities

True ambiguity

Uncertainty When to Reserve the Right to play?

Clear future

Unlikely to make sense (because there is little to learn about the future)

Alternative futures

Range of futures

Often a good approach (because there is a lot to learn about the future), if you can gain an edge on others or gain better insight

True ambiguity

Easy to decide to do, but others likely to do the same, leaving little chance to gain advantage

Analyze Feasibility and fit with Aspirations

Shape Adapt Reserve the right to play ?

What internal capabilities do we need?

Operational excellence Strong project/option along shaping dimensions management skills High risk tolerance Broad market/ competitive intelligence Potentially deep pockets

Very flexible and fast organization High comfort with ambiguity

Preparation for posture Large risk appetite commitment once Top management uncertainty is resolved commitment to ambitious Top management aspirations commitment to right to play vs. right to lose?

Does posture match with aspirations?

Achievability of stretch targets Top management commitment to adaptability

Strategic Positioning - Application

What STRATEGIC POSTURE is suitable for your company? Motivate the answer

Building a Strategy
Chapter VI

Strategic Planning
... Is primary vehicle for achieving strategic alignment across an organization and ensuring the effective implementation of a company's strategy
Strategic planning is an iterative process that takes time and requires a series of back-and-forth communications between senior management and units, whereby all parties examine, discuss, and refine the plan

Strategic Planning Process

1. Situation Analysis
Industry structure Competitors Customers Company Forces shaping the industry

2. SWOT
Strengths Weaknesses Opportunities Threats

3. Priority Issues
Broad areas to focus on

4. High-level Action Plans

Detail the objectives, tasks, and requirements needed to carry out a strategic initiative

5. Finalizing Strategic Plan

2. Performing SWOT Analysis

Strengths
Opportunities Threats

COMPANY

Weaknesses

Performing SWOT Analysis

1. Brainstorm a company or unit's strengths

2. Consolidate ideas
3. Clarify ideas 4. Identify the top three strengths 5. Repeat Steps 1-4 for Weaknesses, Opportunities, and Threats

3. Determining Priority Issues

1. Review the results of the SWOT analysis and identified Competitive Advantages 2. Identify priority issues (aiming at gaining or sustaining Competitive Advantage) 3. Elicit discussion to ensure that each proposed priority issue is clear 4. Vote on priority issues

4. High-level Action Plan Structure

1. A description of the priority issue and why it's important

2.
3. 4. 5. 6.

Objectives expressed in specific metrics and time frames

Key steps involved in achieving the priority issue Resources required Interlocking requirements involving other units Anticipated cost and gain

High-level Action Plan - Resources

How will the strategic initiative impact the group's ongoing day-to-day work? Can the existing resources cover strategic initiative action plans in addition to business-as-usual? If not, what additional resources will the unit need? With what expertise and skills? What new skills will people need to carry out a strategic initiative?

What training will be required? At what cost?

What new systems or technology will be required to support the initiative? At what cost?

High-level Action Plan - Interlocks

Most units don't work in isolation to accomplish their objectives. They need to collaborate with othersboth inside as well as outside the company
When cross-functional teams are created, it must be developed a charter that outlines the roles, responsibilities, key milestones, deliverables, and decision-making processes of the group

High-level Action Plan Cost & Gain

Present a concrete value of investment Estimate all costs involved Present the revenue plan, as a result of this strategic scheme

High-level Action Plan Example (1)

1. 2. Unit: Printing Priority issue: Long-range capacity plan
Description: Build new facilities and purchase modern technology that will increase printing capacity to produce higher unit volume at lower cost. Strategic Importance: Our current capacity will not allow us to meet market demand or achieve our strategic objective of increasing market share.

3.

Objectives and metrics: Develop long-range printing facilities that will: meet forecast demand from 2008-2013 and achieve dramatic improvement in quality, cost, and customer service
Year 1: Complete design phase and begin construction by year-end Year 2: Complete construction, purchase modern technology and start-up production by year-end Year 3: Achieve initial running rate of 525 million units a year at a cost of $.270 per unit

High-level Action Plan Example (2)

4. Steps
Year 1
What Establish design specifications Approve specifications Flow-chart and system design; costing Detailed drawings for bid purposes; costing Approval Bids Construction starts Who Printing team; Engineering leads Senior management When January 2008 February 2008

Printing team; Engineering and Finance June 2008 lead Printing team; Engineering and Finance August 2008 lead Senior management Purchasing and construction Construction team August 2008 October 2008 November 2008

High-level Action Plan Example (3)

5. Resources: Need to hire one full-time construction manager, two plant managers and three assistants to support these managers. Interlocks:
To Manage entire construction process Handle all licenses, liability assessment, and insurance When Start January 1, 2008 Start March 1, 2003

6.

Printing unit works with Construction unit Legal

Customers

Form customer service committee to design orderentry shipment systems

Start May 1, 2003

High-level Action Plan Example (4)

7. Impact estimate:
Cost: Expense capital = $125 million Capital = $125 million Equipment = $250 million Total investment = $500 million
Yr 1 Price/unit Cost/unit Units Revenue $.425 $.325 177M $75M Yr 3 $.400 $.270 525M $210M Yr 5 $.350 $.180 700M $500M

Revenue: (new printing house)

High-Level Action Plan - Review

1. Check in informally
2. Report regularly 3. Conduct quarterly reviews

5. Strategic Plan
NOW, PUT IT ALL TOGETHER!

The Elements of a Strategic Plan

1. Direction statement (Mission, Vision, Business definition, Competitive Advantages, Core competencies) 2. Strategic objectives

3. Priority issues (Achieving and Sustaining Competitive Advantage) 4. Action plans (briefly describe the specific steps the company needs to take in order to achieve its objectives)

Porters Five Tests of a Sound Strategy

1. A unique value proposition compared to competitors 2. A different, tailored value chain

3. Clear tradeoffs, and choosing what not to do

4. Activities that fit together and reinforce each other 5. Continuity of position with continual improvement

Continuity of Strategy
Continuity of strategy is fundamental to sustainable competitive advantage Reinvention and frequent shifts in direction are costly and confuse the customer, the industry and the organization

Continuity is required in value proposition Successful companies continuously improve in how they realize their strategy Continuity of strategy allows learning and change to be faster and more effective

Implementing Strategy
Chapter VII

Action Plans Execution - Example

Year 1 What Conduct market research to assess customer needs Synthesize market research, create report Who Marketing team Outside consulting When January 2009 March 2009

Create product concept (content, design) Design product Test the product prototype on targeted market

Marketing and Product Development teams Product Development team Marketing teams

April 2009 May 2009 July 2009

Action Plans Execution

Get input from people in the Action Plan Execution!

Communication is the key of successful execution.

Evaluating Performance Criteria

1. Quantifiable criteria of evaluation (sales, units, etc)

2. Qualitative criteria evaluation

Going the extra mile Creativity Teamwork Presentation skills Planning Knowledge and learning Attitudes and values, etc

Rewarding Performance Criteria

Financial reward (salaries, bonuses, stock options) Recognition Intellectual challenge Power and influence Affiliation Managing people Positioning Lifestyle Autonomy Variety

Key Secret of a Successful Strategy

Build Competitive Advantage!

Execution Challenges Categories

High Significant operational requirements Build operations-based advantage Pursue multi-year, programmatic change
Significant operational requirements Multiple and complex product/service offering Multiple and complex product/service offering Highly responsive, efficient and flexible supply Highly responsive, efficient and flexible supply chain chain Demanding service expectations Demanding service expectations High strategic intensity Low strategic intensity Highly unpredictable environment Predictable environment Shaping strategic posture Adapting strategic posture Minimal customer acceptance and competitive Significant customer acceptance and competitive challenges challenges

OPERATIONAL INTENSITY
Product/service characteristics Process requirements Environmental requirements

Observe core implementation best practices Build strategic-thinking advantage

Simple operational requirements Single, simple product/service with stable life cycle Minimal supply chain challenges Easy service expectations High strategic intensity Highly unpredictable environment Shaping strategic posture Significant customer acceptance and competitive challenges

Simple operational requirements Single, simple product/service with stable life cycle Minimal supply chain challenges Easy service expectations Low strategic intensity Predictable environment Adapting strategic posture Low Minimal customer acceptance and competitive challenges

Low STRATEGIC INTENSITY Nature and level of uncertainty

High

Strategic posture, Customer/channel, competitive and regulatory issues

Build Operations-Based Competitive Advantage Demanding goals setting

Nature of top management leadership Frontline execution Implementat ion planning Performance management
Shared vision of business Commitment to success Strong team work Commitment to success Understanding role in driving success Knowledge and application of key drivers of success Operational "penetration" and follow through Ability to de-bottleneck Involvement at key operational leverage points Productivity passion Demanding performance culture Obsessive commitment and accountability

Rapid translation into high-impact action Linkage between strategy and implementation targets/milestones steps Identification of pivotal positions Very sharp role and accountability definition Sound information systems Empowerment of key decision makers Consistency of organization controls with strategy requirements Robust and balanced score card including sharply defined financial, customer, and operational metrics Performance appraisal with visible and explicit consequences

Build Strategic-Thinking Advantage

Nature of top management leadership Shared vision of business Commitment to success Strong team work Insight/foresight about industry evolution and competitive dynamics Knack for identifying new ways to compete Ability to manage uncertainty Appetite for shaping

Frontline execution

Commitment to success Competitive intelligence Understanding role in driving success Issue analysis Knowledge and application of key Powerful problem solving drivers of success Linkage between strategy and implementation targets/ milestones Identification of pivotal positions Creative provisions for adjusting to industry and competitive environment

Implementation planning

Performance management

Environmental and competitive Sound information systems Empowerment of key decision makers tracking Consistency of organization controls Strategic decision-making rules linked to industry and competitive insights with strategy requirements Greater emphasis on risk management

Barriers to Strategy (1)

Flawed Concepts
Misunderstanding of Strategy itself Poor industry definition

Industry pressures

Industry conventional wisdom leads all companies to follow common practices Labor agreements limit ways of configuring activities Regulation constrains price, product, service or process alternatives Customers ask for incompatible features or request new products or services that do not fit the strategy

Barriers to Strategy (2)

Capital market biases
Strong pressures to emulate the currently successful peers Pressure to grow faster than the industry

Internal Practices
Inappropriate goals and performance metrics (e.g. short time horizon) Rapid turnover of leadership undermines the strategic direction to achieve short-term performance benefits A desire for consensus undermines tradeoffs Inappropriate cost allocation lead to too many products, services or customers Outsourcing makes activities homogenous and less distinctive

Growing Strategically
Chapter VIII

Growing Strategically

Make strategy even more distinctive

Introduce new technologies, products and services that are tailored to strategy and which leverage other distinctive activities within the value chain

Deepen the strategic position (rather than broaden it)

Raise the penetration of chosen customers/needs

Expand geographically to tap new regions or countries using the same positioning

Expand the market for what the company can uniquely deliver
Find other customers and segments that would most value the strategy

Conclusions
Chapter IX

Strategy
What IS?
A unique value proposition vs. competitors A different, tailored value chain Choosing what NOT to do Activities that fit together and reinforce each other Continuity of position with continual improvement in realizing it

What IS NOT?
Best practice improvement Execution Aspirations A vision Learning Agility Flexibility Innovation Technology Restructuring

Consolidation Partnering, etc

Strategy Formulation
1. Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental Crafting vision statements, mission statements, overall corporate objectives, strategic business unit objectives (both financial and strategic), and tactical objectives These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives and highlights companies competitive advantage Establishing companys strategic position on the market Create a different, tailored value chain Unique value proposition

2.

3.

4. 5. 6.

Strategy Implementation
Allocation of sufficient resources (financial, personnel, time, technology support) Establishing a chain of command or some alternative structure Assigning responsibility of specific tasks or processes to specific individuals or groups Monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary

Strategy secrets
It is an illusion that growth (and especially profitability) are easier to achieve in untapped or growth segments. It is difficult, and often dangerous, to try to grow faster than the underlying market for an extended period Industry leaders should concentrate as much, or more, on growing the category as on growing share In many cases the appropriate goal is to earn a high return and pay dividends

The Role of Leaders in Strategy

Lead the process of choosing the companys unique position Clearly distinguish strategy from operational effectiveness Communicate the strategy relentlessly to all constituencies Maintain discipline around the strategy, in the face of many distractions Decide which industry changes, technologies and customer needs to respond to, and how the response can be tailored to the companys strategy

Measure progress against the strategy using metrics that capture the implications of the strategy on multiple levels

Commitment to strategy is tested every day!

Sound Strategy the shortest road to Success!