Strategy Development KeyConcepts

Sep2008

In peace prepare for war, in war prepare for peace. The art of war is of vital importance to the state.
512 BC

Thefollowingoverviewaimsatgivinganunderstandingof thenatureofstrategydevelopmentandtoguideandinspire thepracticalapplicationbypresentingkeyframeworks, conceptsandissuesthatareparticularrelevanttostartup companies.

BenjaminTeeuwsen

Structure
1. 2. 3. 4. WhatisStrategy? StrategicAnalysis StrategyDevelopment StrategyImplementation

1.WhatisStrategy?

CarlvonClausewitz

Tacticsistheartofusingtroopsinbattle; strategyistheartofusingbattlestowinwars.

HelmuthKarlBernhard GrafvonMoltke
Strategyisthepracticaladaptationofthe meansplacedatageneral'sdisposaltothe attainmentoftheobjectinview.

MichaelEPorter
Competitivestrategyisaboutbeingdifferent. Itmeansdeliberatelychoosingadifferentsetof activitiestodeliverauniquemixofvalue.
Porter(1996:64)

Subhash CJain
Strategyinafirmisapatternofmajorobjectives, purposes,orgoals ... ...andessentialpoliciesandplans for achievingthosegoals... ...,statedinsuchwayastodefine... ...whatbusinessthecompanyis inoristobein andthe kindofcompany itisoristobe.
(Jain2004p.9)

MarketingStrategy
Marketingstrategydealsessentiallywiththeinterplayofthreeforces:
thecustomer,thecompetition,andthecorporation(strategicthreeCs)

Characteristicsofgoodmarketingstrategy:
Aclearmarketdefinition Agoodmatchbetweencorporatestrengths andtheneeds ofthemarket; Superiorperformanceinthekeysuccessfactorsofthebusiness

BasedontheinterplayofthethreeCs,strategyrequiresthreedecisions:
Wheretocompete(market,segments,)? Howtocompete(meansforcompeting)? Whentocompete(timing)?

(Jain2004)

Putdifferently
Strategydevelopmentisaquestionbased process:

Wherearewenow? Wherewouldweliketogo? Howdowegetthere?

(PeterEdelmann,SeniorExecutivePresidentVoith Turbo)

2.StrategicAnalysis

PESTELAnalysis
What are the key issues we face in our business?
PoliticalEnvironment EconomicalEnvironment

SocialEnvironment

TechnologicalEnvironment

EnvironmentalEnvironment

LegalEnvironment

Exampleissues
Politicalenvironment
ecological/environmentalissues currentlegislationhomemarket futurelegislation European/internationallegislation regulatorybodiesandprocesses governmentpolicies governmenttermandchange tradingpolicies funding,grantsandinitiatives homemarketlobbying/pressuregroups internationalpressuregroups warsandconflict

Economicalenvironment
homeeconomysituation homeeconomytrends overseaseconomiesandtrends generaltaxationissues taxationspecifictoproduct/services seasonality/weatherissues marketandtradecycles specificindustryfactors marketroutesanddistributiontrends customer/enduserdrivers interestandexchangerates internationaltrade/monetaryissues

www.businessballs.com

SWOT
FITmatters:
Internalstrengthandweaknessesneedtomatch withexternalopportunitiesandrisks (KennethAndrews)

Weaknesses

Strength

Opportunities

Risks

Task: Keeping findings descriptive ; Investigating both internal AND external issues

Exampleissues
Strength
Advantagesofproposition? Capabilities? Competitiveadvantages? USP's(uniquesellingpoints)? Resources,Assets,People? Experience,knowledge,data? Financialreserves,likelyreturns? Marketing reach,distribution,awareness? Innovativeaspects? Locationandgeographical? Price,value,quality? Accreditations,qualifications,certifications? Processes,systems,IT,communications? Cultural,attitudinal,behavioural? Managementcover,succession?

Weaknesses
Disadvantagesofproposition? Gapsincapabilities? Lackofcompetitivestrength? Reputation,presenceandreach? Financials? Ownknownvulnerabilities? Timescales,deadlinesandpressures? Cashflow,startupcashdrain? Continuity,supplychainrobustness? Effectsoncoreactivities,distraction? Reliabilityofdata,planpredictability? Morale,commitment,leadership? Accreditations,etc? Processesandsystems,etc? Managementcover,succession?

www.businessballs.com

Exampleissues
Opportunities
Marketdevelopments? Competitors'vulnerabilities? Industryorlifestyletrends? Technologydevelopmentandinnovation? Globalinfluences? Newmarkets,vertical,horizontal? Nichetargetmarkets? Geographical,export,import? NewUSP's? Tactics surprise,majorcontracts,etc? Businessandproductdevelopment? Informationandresearch? Partnerships,agencies,distribution? Volumes,production,economies? Seasonal,weather,fashioninfluences?

Threats
Politicaleffects? Legislativeeffects? Environmentaleffects? ITdevelopments? Competitorintentions various? Marketdemand? Newtechnologies,services,ideas? Vitalcontractsandpartners? Sustaininginternalcapabilities? Obstaclesfaced? Insurmountableweaknesses? Lossofkeystaff? Sustainablefinancialbacking? Economy home,abroad? Seasonality,weathereffects?

www.businessballs.com

CompetitorIntelligence
Whoareyourkeycompetitors? Howdotheyperform? Whataretherestrengthsandweaknesses? Whatcouldbetherestrategy? Howcouldallofthisimpactyourbusiness?

StakeholderAnalysis

Thinkofallofyourstakeholdergroups:
Whatdotheyexpectfromyourcompany?

3.Strategy Development

Pointofview
Developinggoodstrategies:
Havingmanagersunderstandingthebenefitofhavingawell articulated,stablepurpose,andtheimportanceofdiscovering, understanding,documenting,andexploitinginsightsabouthowto createmorevaluethanothercompetitorsdo Universalobjectives(profitability,costs,turnover,sales,quality,etc.) definewhatacompanymustdotosurvive butdonotautomaticallysuggestuniquestrategiesnorprovide direction Theessenceofwhyanorganizationexistsdoes provideguidanceto achieve theseuniversalobjectives
(Campbell 1997 p 42)

Whatbusinessareweinandwhy?
Vision
longterm,encouraging,aspirationforthefuture

Mission
purposeofthebusiness

Values
attitudes,behaviours,characteroforganization toguideactionslikeaninternalcompass

PlanningProcesses
Processesofdevelopinggoodstrategiesaremuchmoremessy, experimental,iterative;anddrivenfromthebottomup than manyplanningprocessessuggest Besides,iftherewereonebestway everyonecoulduseit Howeverprocessesandframeworksdoprovidestructure,help tosystematizethebasisandcontextfordecisiontakingand documentresultsalongtheway
(Campbell 1997 p 46)
A good plan is not a neat document put in a folder after print a good plan that is a piece of paper, which has been crumpled up a hundred times, thrown into the corner, but taken again to get changed, modified, extended (Robert Grant, Lecturer UOW)

GenericStrategies
CompetitiveAdvantage
Differentiation Broad Target LowerCost

CompetitiveScope

Differentiation Differentiation

Cost Leadership Cost Leadership

Narrow Target

Focus
Niche Market Efficiency

(Porter 1985)

CoreMarketingStrategies
Operational Excellence Strategic Direction Organizational Arrangement Systems Support Corporate Culture
Sharpendistribution systemsandprovide nohassleservice Hasstrong,central authorityandafinite levelofempowerment Maintainstandard operatingprocedures

Product Leadership
Nurtureideas,translate themintoproducts,and marketthemskillfully Actsinanadhoc, organic,looselyknit,and everchangingway Rewardindividuals innovativecapacityand newproductsuccess Experimentsandthinks outofthebox

Customer Intimacy
Providesolutionsand helpcustomersruntheir business Pushesempowerment closetocustomer contact Measurethecostof providingserviceandof maintainingcustome loyalty Isflexibleandthinks haveityourway

Actspredictablyand believesonesizefits all

(Pearcy,Wiersema 1995)

MarketStrategies
Current Markets Current Products NewMarkets

MarketPenetration

MarketDevelopment

New Products

Product Development

Diversification

(Ansoff)

Howcanwebestcompete?
Whichcustomersandmarketswillwetarget? Whatisthevaluepropositionthatdistinguishesus? Whatkeyprocessesgiveuscompetitiveadvantage? Whatarethehumancapitalcapabilitiesrequiredto excelatthesekeyprocesses? Whatarethetechnologyenablersrequiredforthe strategy?
(Kaplan 2008)

KeySuccess Drivers

What factors are especially important to perform superior inour industry?

Defining StrategicBusinessUnits
AnSBUiscomposedofaproductorproductlineshaving identifiableindependencefromotherproductsorproductlines intermsofcompetition,prices,substitutabilityofproduct, style/qualityandimpactofproductwithdrawal.
(Jain2004p.18)

- unique business mission, independent of other SBUs - clearly definable set of competitors - able to carry out integrative planning relatively independently of other SBUs -large enough to justify senior management attention but small enough to serve a useful focus for resource allocation (Jain 2004)

DefiningSBUs TargetingMarketSegments
CustomerGroups 4.Dimension: LevelofDistribution

Technologies CustomerFunctions

Targeting:Whichsegmentstogofor?
Identifiability
Abilitytoidentifyandmeasuretherelevantcharacteristics

Size
Sufficientnumberofbuyers

Stability
Needsorfactorsdonotchangetoorapidly

Accessibility
Abilitytoreachtargetsegmentineconomicalway

Responsiveness
Segmentrespondshomogeneouslytoaspecificmarketingmix

>Meaningful>Actionable>Financiallyattractive
(Schiffman et al. 2005)

BusinessModel
CustomerBenefits Configuration CompanyBoundaries

CutomerInterface
Fulfillment&Support Information&Insight RelashionshipDynamics PricingStructure

CoreStrategy
BusinessMission Product/MarketScope BasisforDifferentiation

StrategicResources
CoreCompetencies StrategicAssets CoreProcesses

ValueNetwork
Suppliers Partners Coalitions

Efficient/Fit/ProfitBoosters(1)
(1)IncreasingReturns,CompetitorLockOut,StrategicEconomies,StrategicFlexibility

(Gary Hamel 2002)

StrategyasSimpleRules
Approachtoallowquickmovesindynamicmarketsby increasingmanagersflexibilityindecisiontaking Putsfocusongrowthandpursueofopportunities Providesjustenoughguidanceandstructurebyalimitedset (<10)ofsimpleand uniquerulesregardingkeyprocesses Rulesmainlybasedonexperience(firsthandorsecondhand) Importanttonot setrulestoobroad(nospecificfocus)or vague(noteasytofollow) Challengetobalancestrategyconsistency(longterm perspective)andneedtoadaptrulestochangingconditions
(Eisenhardt 2001 pp. 108-115)

TypesofRules
Howtorules
guidingexecutionofkeyprocesses

Boundaryrules
limitingrangeofopportunities(companyscope)

Priorityrules
settingprioritiesforresourceallocation(rankingopportunities)

Timingrules
adaptinginternalschedules(e.g.NPD)tothepaceofmarkets

Exitrules
definingcriteriatoexitopportunitiesinthelightofunpredictable developments
(Eisenhardt 2001 p. 111)

Innovation&Change
Understandingmentalmodels
Managersmindsets(industrydogmas)thatinfluencetheinterpretation ofsituations(sensemaking)andassuchdecisionmaking Tasktomaketheimplicitexplicitandtoconstantlyquestionand challengethoselongheldbelieves

Thinkingbeyondbestpractice
processreengineering,TQM,etc.necessarybutnotsufficientandlead towardsperformancebarrier Dream,create,explore,invent,pioneer,imagine(HamelG2002p.28)

Changingtherulesofthegame!
Frommarketdriventomarketdrivingbyinnovatingregardingvalue propositionANDbusinesssystem
(Bickhoff N 2008, Hamel G 2002, Kumar N 2000, Porter 1996)

StrategyEvaluation
Suitability: Isthereasustainablecompetitiveadvantage? Validity:Areassumptionsrealistic? Feasibility: Doesfirmhavetheskills,resources,and commitments? Internalconsistency:Doesstrategyhangtogether? Vulnerability:Whataretherisksandcontingencies? Workability: Canweretainourflexibility? Timing:Whatistheappropriatetimehorizon?
(Jain 2004)

4.Strategy Implementation

Strategy Maps
Tovisualizestrategyandcauseeffectrelationshipsamong strategicobjectives Eachperspectivehelpstoexecutetheoneabove Bestappliedatvariouslevels(corporate,SBU,) StrategyMapssupportstrategyalignment Visualrepresentationofthelinkedcomponentsfacilitates strategycommunication MapslinktoBalancedScoreCard(performancemetrics) Genericmapsprovideguidancetodevelopuniquemaps tailoredtocompany
(Kaplan, Norton 1996, 2004, 2008)

Generic Strategy Map (reduced)

Increasereturnoncapital
Increaserevenuesin existingsegments andmarkets GrowHighValue CustomerRelationships Providevaluedservice, applicationsexpertise, andsupport Optimizecustomer profitability Expandchannels offerings,andmarkets Buildandmaintainstrong customerrelationships Growrevenuesinnew productsandservices AccelerateProduct Innovation Introduceinnovative, highperformance productsandsolutions Excelattechnology, productdevelopment andlifecycle management Identifynextgeneration marketopportunities

Financial Perspective

Improveproductivity

ImproveOperating QualityandEfficiency Customer Perspective Bealeaderinquality andreliability

Process Perspective

Improvesupplychain efficiencyandeffectiveness Improvequality,cost, andflexibilityof operatingprocesses

Learning andGrowth Perspective

CreateahighPerformanceCulture
Expandandbuild strategicskills,capabilities, andexpertise Developleadershipand executiondrivenculture Enableandrequire continuouslearningand sharingofknowledge

(Kaplan, Norton 2008)

Generic Strategy Map (detailled)

(Kaplan,Norton2004)
ProductivityStrategy Financial Perspective ImproveCost Structure IncreaseAsset Utilization LongTerm ShareholderValue GrowthStrategy ExpandRevenue Opportunities Enhance CustomerValue

CustomerValueProposition
Price Customer Perspective Quality Availability Selection Functionality Service Partnership Brand

Product/ServiceAttributes
OperationsManagement Processes CustomerManagement Processes

Relationship
InnovationProcesses

Image

RegulatoryandSocial Processes

Internal Perspective

Supply Production Distribution RiskManagement

Selection Acquisition Retention Growth

Opportunity R&DPortfolio Design/Develop Launch

Environment SafetyandHealth Employment Community

HumanCapital Learningand Growth Perspective Culture Leadership InformationCapital OrganizationCapital Alignment Leadership

Balanced ScoreCard
Performancemeasuring system to quantify alsointangible assets Customerperspective,internal processes and learning as building blocks Financialperformance as ultimate indicator Companiesvision and mission standabove providing overall direction You cannot manage,what you cannot measure.

Balanced ScoreCard
Visionand Mission Objectives Financial Perspective Customer Perspective Process Perspective Learningand Growth Perspective Measures Targets Initiatives

Balanced ScoreCard
1) Setglobalgoals Whatdoyougenerallyaimat? 2) Definemeasures Howwillyoumeasureyourresults? 3) Settargets Specificgoalsrelatedtoyourmeasuresyouliketoachieve inacertaintimeframe 4) Planinitiatives Whatactionswilltakeplacetomeetyourgoals?

Finally,askyourself

Therearethreekindofcompanies,thosethat makethingshappen,thosethatwatchthings happen andthosethatwonderwhathappened.

(anonymous)

Andconsider

Predictingraindoesnotcount buildingarksdoes.
(anonymous)

Literature
AndrewsKR(1987)TheConceptsofCorporateStrategyRichardDUnwin,Homewood

Bickhoff N(2008)QuintessenzdesstrategischenManagements WasSiewirklich wissenmssen,umimWettbewerbzuberlebenSpringerVerlag,Berlin CampbellA,AlexanderM(1997)WhatsWrongwithStrategy?HBRNovDec,pp.4251 Eisenhardt KM,Sull DN(2001)StrategyasSimpleRulesHBRJanMar,pp.107116

HamelG(2002)LeadingtheRevolutionHarvardBusinessSchoolPress,BostonUSA JainSC(20047thed.)Marketing:PlanningandStrategyThomson,OhioUSA KaplanRS,NortonDP(2008)MasteringtheManagementSystemHBR,Jan,pp.6377 KaplanRS,NortonDP(2004)StrategyMapsBoston KaplanRS,NortonDP(1996)TheBalancedScorecardBoston

KumarN,Scheer L,Kotler P(2000)FromMarketDrivetoMarketDrivingEuropean ManagementJournalVol.18No.2,pp.129142

PorterME(1996)WhatisStrategy?HarvardBusinessReview,No.6,NovDec,pp.6178

Literature
PorterME(1985)CompetitiveAdvantageFreePress,NewYork Schiffman Letal.(2005)ConsumerBehaviourPearsonEducationAustralia,FrenchsForest NSW Treacy M,Weirsema F(1995)TheDisciplineofMarketLeaders:ChooseYourCustomers, NarrowYourFocus,DominateYourMarketPerseus Books,Cambridge

FurtherConcepts
BlueOcean Strategies (Kim,Mauborgne ) CoreCompetencies (Hamel,Prahalad); Resourcebased view (Barney,Clark) Five Forces (Porter) MarktetOrientation(Kohli,Jaworski,Narver,Slater,Day) OperationalExcellence PortfolioAnalysis Product Lifecycle,Industry Lifecycle Six Sigma(Pande,Neuman,Cavanagh) StrategicIntent (Hamel,Prahalad) Sustainable Competive Advantage TotalQualityManagement ValueChain(Porter)

Further Readings
BarneyJB,ClarkDN(2007)ResourceBasedTheory:CreatingandSustainingCompetitive AdvantageOxfordUniversityPress DayGS(1994)ThecapabilitiesofmarketdrivenorganizationsJournalofMarketing,Vol.58, No.4,pp.3752 KimWC,Mauborgne R(2005)BlueOceanStrategy:HowtoCreateUncontestedMarket SpaceandMakeCompetitionIrrelevantHarvardBusinessSchoolPress Kohli AK,Jaworski BJ(1990)MarketOrientation:TheConstruct,ResearchPropositions,and ManagerialImplicationsJournalofMarketing,Vol.54,No.2,pp.118 Narver JC,SlaterS.F.(1990)Theeffectofamarketorientationonbusinessprofitability JournalofMarketing,Vol.54,No.4,pp.2036 Senge PM(1990)TheFifth Discipline:TheArtand Practiceof the learning Organization CurrencyDoubleday

FurtherQuestions?
Ifyoucouldneedsomeadviceonhowtoapplytheconceptsto yourcase,pleasefeelfreetodropmealine.
BenjaminTeeuwsen
benjamin@chiligum.com www.chiligum.com

Bytheway,Iappreciateprettymuchanyfeedback,e.g.ifthiswashelpfulandwhy orwhynot soIknowbetterhowtoimprovethispresentationaswellasIdoenjoy hearing,whenthisledtonewinsightsforuniversitystudies: )

www.chiligum.com