Strategic Management

An Introduction
Strategic Management and Strategic
Competitiveness
 Overview: Content areas
 Understanding Strategy
 Strategic Vision and Mission
 Stakeholders
 Strategic Leaders
 I/O Model of Above-Average Returns (AAR)
 Resource-Based Model of AAR
 The Strategic Management Process
Why Strategy?

http://www.lapiana.org/downloads/LaPianaConsulting_RTSP_CEN_Workshop.pdf
Why Strategy?
 Purpose of Strategy
 To create a competitive advantage that generates superior and
sustainable financial returns.
 Average Returns
 Returns equal to what investor expects in comparison to other investments
with similar risk.
 Risk
 Investor’s uncertainty about economic gains resulting from a particular
investment.
 Above Average/ Superior Returns
 Returns in excess of what investor expects in comparison to other
investments with similar risk.
 Strategic Competitiveness
 Achieved when a firm formulate & implements a value-creating strategy.
 Competitive Advantage (CA)
 Firm has CA when it implements strategy that competitors are unable to duplicate or
find too costly to imitate.
What is Strategy?
 What are the first three words that come to mind when
you hear the word 'strategy’?
What is Strategy?
 Corporate strategy literature boasts at least 10 separate
schools of thought and more than a dozen definitions that
focus on rather divergent perspectives:
 planning, resource allocation or satisfying stakeholders, stretching
unique competencies or adapting to the environment, programming
sophisticated management systems or muddling through emerging
ideas — even sticking to simple rules.
 Strategy is often confused with microeconomics (“Strategy is
building rent”), with finance (“Strategy is creating shareholder
value”), with marketing (“Strategy is finding optimal positioning
on the marketplace”) or with organizational design “Strategy is
enabling emergent processes”).
What is Strategy?
 There are even some bizarre hybrids, such as “strategic
finance” or “strategic marketing,” as if strategy were only
defined vis- à-vis other disciplines.
 Strategic innovation often consists of importing concepts
and methods from other disciplines, sometimes as distant
as physics (chaos theory) or biology (organizational
ecology).
 Scholars, executives and consultants alike know that it is
problematic to explain to their students, employees or
clients which decisions are strategic choices and which are
just operational options.
Strategic Safari- Schools of Thought
and Emergent Strategies
Henry Mintzberg
Strategy Revisited
 “We are the blind people and strategy formation is our elephant. Since no
one has the vision to see the entire beast, everyone has grabbed hold of
some part or other and railed on in utter ignorance about the rest.”
Henry Mintzberg, McGill University
in his book Strategy Safari
(written with Bruce Ahlstrand and Joseph Lampel)

 Environmental  Planning
 Cognitive  Learning
 Entrepreneurial  Design
 Power  Configuration
 Positioning
 Cultural

10
Strategy Schools- Henry Mintzberg
10 Schools of Strategy Keywords
Thought Formation As:
Design Conception Fit, Think
Planning Formal Formalize, Program
Positioning Analytical Analyze, Calculate
Entrepreneurial Visionary Envision, Centralize
Cognitive Mental Frame, Worry, Imagine
Learning Emergent Learn, Play
Power Negotiation Grab, Hoard
Cultural Collective Coalesce, Perpetuate
Environmental Reactive Cope, Capitulate
Configuration Selective Integrate, Transform
Adapted from Strategy Safari (Mintzberg, Ahlstrand, Lampel)
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Strategy Defined as 5 P’s
 Plan: A direction, guide, course of action.
 Pattern: Consistency in behavior over time.
 Position: Locating specific products in specific markets.
 Perspective: Way of doing things.
 Ploy: Specific maneuver to outwit.
From Strategy Safari (Mintzberg, Ahlstrand, Lampel)

 In today’s marketplace, it is the organizational capability to

adapt that is the only sustainable competitive advantage.
Willie Pietersen, Reinventing Strategy

12
Prescriptive Descriptive

Top-Down Bottom-Up

Planned Emergent

Stable Adaptive

Centralized Distributed

 In today’s marketplace, it is the organizational capability to

adapt that is the only sustainable competitive advantage.
Willie Pietersen, Reinventing Strategy
13
 Strategy as ‘post hoc’ rationalisation of
success?
The paradigm “ready, aim, fire” no longer applies;
it is now “ready, fire, steer.” Paul Saffo

10%
Strategic Planning Plans Executed Realized Strategy

90% 90%

Unrealized Emergent
Strategy Strategy

 Adapted from The Rise and Fall of Strategic Planning by Henry Mintzberg (1993)

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Strategy as ‘post hoc’ rationalisation of
success?
“Our plans miscarry
because they have no
aim. When a man
does not know what
harbor he is making
for, no wind is the
right wind.”
Seneca, circa 65 AD

16
Few Definitions
 According to Chandler (1962)
 Strategy is the determination of the basic long-term goals and
objectives of an enterprise and the adoption of courses of
action and the allocation of resources necessary to achieve
those goals ….

 According to Whittington (2001)…

 … strategy should be treated as the contested and imperfect
practice it really is ….which means that strategy is elusive and
abstract as it is a very long-term development.
Few More Definitions
 Other definitions of strategy …
 The art or science of the planning and conduct of war –
Collins (1995)
 Strategy is supposed to lead an organisation through changes
and shifts to secure its future growth and sustainable success-
Cleggs (2005)
 The process of formulating and implementing of actions
derived from a competitive position which is based on
distinctive capabilities to have relationship with customers,
suppliers, employees etc. -- Kay 1993
Defining Strategy
 Full set of commitments, decisions and actions required for a
firm to achieve strategic competitiveness and earn above
average returns in the long run.

 Integrated and coordinated set of commitments and

actions designed to exploit core competencies and gain a
competitive advantage over the long run.

 Choosing among competing alternatives as the pathways

for deciding how to pursue strategic competitiveness.
The Origins of Strategy

“That general is skillful in attack

whose opponent does not know
what to defend;

and he is skillful in defense whose

opponent does not know what to
attack.”
circa 500 BC
Sun Tzu, The Art of War

20
What is Strategy?
 strat·e·gy
 The science and art of using all the forces of a nation to
execute approved plans as effectively as possible during peace
or war.
 The art or skill of using stratagems in endeavours such as
politics and business.

 strat·e·gem
 A clever, often underhand scheme for achieving an objective.

21
What is Strategy?

Michel Porter
OE Does Not Equal Strategy
 In recent years, Management tools (i.e. benchmarking,
best practices, outsourcing) have taken the place of
strategy.
 In many industries hyper-competition is a self-inflicted
wound, not the inevitable outcome of a changing
paradigm of competition.
 The root of the problem is the failure to distinguish
between operational effectiveness and strategy.
 Operational effectiveness (OE) – quest for
productivity, speed, quality - and strategy are both
necessary for superior performance.
The Basics
 Strategy: the creation of a unique and valuable position
involving a unique set of activities; being different
 Activities: the basic units of competitive advantage
 Competitive Advantage: grows out of the entire
system of activities; capacity to outperform rivals by
establishing a difference it can preserve over time
The Basics - 2
 Differentiation: created by the choice of activities and
how well performed
 Strategic Positioning: means performing different
activities from rivals’ or performing similar activities in
different ways
 Operational Effectiveness (OE): means performing
similar activities better than rivals
Superior Profitability
 Delivering greater value allows a company to charge
higher average unit prices; greater efficiency results in
lower average unit costs
 Differences in operational effectiveness (OE) are
important differentiators in profitability among rivals as
OE directly affects relative cost positions and levels of
differentiation.
Productivity Frontier

Imagine a productivity frontier

that constitutes the sum of all
existing best practices at any
given time.

Think of it as the maximum

value that a company delivering
a particular product or service
can create at a given cost, using
the best available technologies,
skills, management techniques,
and purchased inputs.
Productivity Frontier
 As OE improves within a firm, it moves closer to the
productivity frontier.
 OE is necessary for superior profitability but not solely
sufficient. Rapid diffusion of best practices reduces long-
term impact of OE on profitability.
Productivity Frontier - 2
 OE competition pushes the productivity frontier
outward
 OE competition produces absolute improvement in
firm performance yet no relative improvement
between surviving competitors.
 Leads to self-inflicted wounds i.e. hyper-competition,
zero-sum competition, static or declining prices and
lower profitability.
OE Programs
 TQM  Continuous
 Time-based Improvement
Competition  Virtual Organization
 Benchmarking Forms
 Learning Organization  Best Practices
 Outsourcing  SQC
 Empowerment  Change Management
Competitive Convergence
 The more rivals copy and imitate OE ‘best practices’ the
more they begin to look the same.
 Leads to imitation (consultants as seed sowers) and
homogeneity.
 OE imitation leads to strategy convergence and
competition becomes mutually destructive leading to
wars of attrition (lose-lose).
 Leads to M&A activity as end-game.
Competitive Strategy
 Being different in the marketplace from rivals
 Deliberately choosing a different set of activities to
deliver a unique mix of value
 The essence of strategy is in choosing to perform
activities differently, or to perform different activities (or
both), than rivals.

 Low cost airlines

 IKEA
Strategic Positions
 Strategic Positioning Emerge from three distinct
and overlapping sources:

 Variety-based: produces a subset of industry

products/services;
 based on the choice of product/service varieties rather
than customer segments;
 viable when a firm can best produce particular
products/services using a distinct set of activities.
 Serves a wide array of customers but only a subset of
their needs.
Strategic Positions - 2
 Needs-based: serves most or all of the needs of a
particular group of customers with a tailored set of
activities;
 differences in needs will not translate into meaningful
positions unless the best set of activities to satisfy them
also differs.
 IKEA customers
Strategic Positions - 3
 Access-based: segmenting customers who are accessible
in different ways;
 access can be a function of customer scale or geography -
anything that requires a different set of activities to reach
customers in the best way.
 Ex. Rural Vs. Urban
 Less common and less well understood than the other
two

 All positioning is a function of differences on the supply

(activity) side but not necessarily on the demand
(customer) side.
Strategy

 Strategy is the creation of unique and valuable position,

involving a different set of activities.
Sustainable Competitive Advantage
 Unique position does not guarantee a sustainable
competitive advantage

 Valuable position attracts imitators based on:

 matching superior performance factors.
 straddling: match the benefits of a successful position while
maintaining its existing position;
 grafting new features, services, or technologies onto current activity
set.
A Sustainable Position Requires Trade-offs
 Sustainability of position requires trade-offs
 Trade-offs occur when activities are incompatible; more
of one thing requires less of another
 Trade-offs create the need for choice and protect against
repositioners and straddlers.
 Trade-offs arise for 3 reasons:
 Inconsistencies in image or reputation (Credibility)
 Different positions require different activity sets
 Limits on internal coordination and control:
 Internal focus requires priority setting - can’t be all things to all
customers successfully
Sustainable Competitive Advantage - 2
 Positioning trade-offs are essential in effective strategy:
 creates need to choose and purposefully limit what a company
offers
 deters straddling or repositioning of rivals as competitors that
engage in these activities undermine current strategies, degrade
value of existing activities, and spread resources too thin
(trying to be all things to all customers)
Sustainable Competitive Advantage - 3
 The essence of strategy is choosing what not to do.
 Without trade-offs, a sustainable competitive advantage
cannot be achieved.
 Strategy is about combining activities whereas OE is
about excellence in individual activities or functions.
Strategy & Systems Thinking
 Strategy involves a whole system of activities, not a
collection of parts.
 Competitive advantage comes from the way activities fit
and reinforce one another (think horizontal & process
management here!).
 Strategic fit among activity sets locks out rivals; synergy
creates competitive advantage & superior profitability.
Strategic Fit
 Fit = seeing the company as a system not just a collection
of core competencies, critical resources, and key success
factors. (the whole matters more than any individual part)
 far more central component of competitive advantage than
most realize.
 3 types of strategic fit:
 Simple consistency between each activity and the overall
strategy
 Consistency ensures that the competitive advantages of activities
cumulate and do not erode or cancel themselves out.
 It makes the strategy easier to communicate to customers, employees,
and shareholders, and improves implementation through single-
mindedness in the corporation.
 Activities are reinforcing
Strategic Fit
 3 types of strategic fit:
 Optimization of effort
 Coordination and information exchange across activities to eliminate
redundancy and minimize wasted effort are the most basic types of
effort optimization.
 But there are higher levels as well. Product design choices, for
example, can eliminate the need for after-sale service or make it
possible for customers to perform service activities themselves.
 Similarly, coordination with suppliers or distribution channels can
eliminate the need for some in-house activities, such as end-user
training.
Fit & Sustainability
 Positions based on systems of activities are far more
sustainable than those built on individual activities.
 As fit becomes more complex (multiple
interrelationships), the more difficult imitation is.
 Strategic positioning sets the trade-off rules that define
how individual activities will be configured and integrated.
 Organizational structure, systems, and processes need to
be strategy specific.
What is Strategy?

 Operational effectiveness is not strategy.

 Strategy rests on positioning based on unique activities.
 A sustainable strategic position requires trade-offs.
 Strategy is creating fit among a company’s activities. Fit
derives both competitive advantage and sustainability.
Role of Leadership
 Focus on creating distinctiveness
 Make tough decisions on trade-offs
 Define the company’s position
 Manage the entire system to create fit
 Focus on the long term
 Stewardship of corporate strategy
The Fundamental Dimensions of
Strategy- Strategy Mix
Frédéric Fréry
The Fundamental Dimensions of Strategy

A truly strategic decision occurs only at the nexus of three

organizational considerations — where it adds value, how it
handles and employs imitation and how it defines its perimeter.
Frédéric Fréry
 The Why of Strategy
 The How of Strategy Trade-offs
 The What of Strategy
The trade-offs companies make are what distinguish them strategically
from other firms.
The Why of Strategy: Value
 The ability to sustain value creation, whether from the customer’s
or the shareholder’s perspective, is the ultimate goal of any strategy.
 The essential challenge consists of defining the type of value we
expect and the way we intend to share it.
 Focusing corporate strategy on value creation relates to key debates
on managerial ethics, agency theory and corporate social
responsibility.
 How do you distinguish between pure financial maximization and long-term sustainability?
 How do you reconcile the conflicting demands of different stakeholders? Eg. Customer Vs.
Shareholders
 What types of corporate governance structures can efficiently and fairly monitor value
sharing?
 Must we include environmental or social externalities in our mission statement?
 Depending on how executives define and measure value, strategic options
fall along a broad spectrum of ethical stances.

 Strategy must never be confused with operational efficiency.

The How of Strategy: Imitation
 The dynamics of strategy are tightly linked to the notion
of imitation.
 What makes the firm distinctive? = Customer
value proposition + Unique activities or complex
combination of activities
 Concepts such as benchmarking, differentiation, core
competencies, unique resources, institutionalism and
competitive rivalry, or even game theory, organizational
ecology and dynamic capabilities are all connected with
the ability to prevent, implement or leverage imitation.
 Imitation is a central theme in strategy. (New Business
Model, value)
The How of Strategy: Imitation
 It also plays a key role in learning processes. Innovation
can be defined either as the opposite of imitation or as
the unexpected result of imperfect copying.
 Just like organisms, languages, the arts or fashion, business
models primarily mutate and evolve because of imperfect
copying of existing patterns. (Imperfect imitation)
 Self-imitation also is a major cause of strategic success or
failure. (Strategic drift- limits the scope of firm’s portfolio
of resources and capabilities and truncates its ability to
adapt to new circumstances.)
 Imitation can also shape entire industries because
competitors mimic successful strategies.
The What of Strategy: Perimeter
 The overarching mission of the strategist is shaping the
perimeter of the organization — or setting the limits
of— its scope.
 Three dimensions: customer or offering, geographic
location, and vertical integration (may vary in relevance)
 Decisions about diversification, outsourcing, vertical
integration, internationalization and positioning, as well as
defining new markets untainted by competition, are all
linked with the search for a profitable perimeter.
The What of Strategy: Perimeter
 The notion of perimeter addresses two fundamental
questions in strategy:
 What business are we in, and
 where do we position ourselves along the value network of
our industry?
 The first implies a clear definition of the overall mission
or purpose of the organization. (in terms of benefits
customer seeks) the second addresses a firm’s positioning
inside the overall value chain of its industry.

 Value migration- Organizational perimeter must move

towards the locus of value
The Dynamics of Strategy
Strategic Development

Any of the three

dimensions of strategy
— value, imitation or
perimeter — can be the
starting point of a
strategic initiative.

• Several sequences of value, imitation and perimeter are possible, and each
typifies a strategic development.
• some strategic issues can be described as trade-offs or overlaps among value,
imitation and perimeter.
The Fundamental Dimensions of
Strategy (Strategy as VIP)
 V stands for value: What is your value proposal? How are you
going to create value beyond costs in order to make profits? What is
your business model?
 I stands for imitation: Can your value proposal resist imitation
from competitors? How do you differentiate? What is your
competitive advantage?
 And P stands for perimeter: On which market are you going to
implement your value proposal? What are going to be the scope and
the positioning of your company? What are you going to in-source
and out-source?

 VIP are the three fundamental dimensions of strategy.

 In essence, a strategy class consists in exploring these three

dimensions.
 Are you a Strategist?
Business Model with Clear Purpose

Cynthia Montgomery
Leading strategy (Added Value)
 Leading strategy requires confronting four questions:
 What does my organization bring to the world?
 Does that difference matter?
 Is something about it scarce and difficult to imitate?
 Are we doing today what we need to do in order to
matter tomorrow?
 Being a strategist means living with these questions.
Leading strategy (Added Value)
 For a leader, becoming a strategist starts with getting
clear on why, whether, and to whom your company
matters.
 While that may sound obvious at face value, it's
something that regularly stymies the veteran leaders.
 Nike or Apple, are praised for the authenticity of the
company and the clarity of its strategy.

 Do you have that clarity in your company?

Importance of Clear Purpose
 Swedish home goods retailer IKEA, founded in 1943 by Ingvar
Kamprad-when he was 17 years old is appreciated by
strategists.
 From its early days IKEA set out to create "a better everyday
life for the many.
 The retailer did this by addressing an unmet market need,
offering customers an extensive range of practical, well-
designed furnishings at low prices. This driving purpose steered
IKEA to succeed not just on low prices but also with a singular
customer experience that no other retailer has yet managed
to duplicate.
 "IKEA has made very clear choices about who they will be and
to whom they will matter, and why,".
Importance of Clear Purpose
 Clarity of purpose behooves corporations and nonprofits
alike.
 "Look at Doctors Without Borders. They have incredible
clarity about what they do and why they do it. They won
the Nobel Peace Prize in 1999, and they didn't get it for
being murky about who they are and why they matter."
Importance of Clear Purpose
 A compelling purpose is just the beginning of a strategy.
"It gives you the right to play, and puts you in the game,".
But at the root it's only an idea.
 Strategists also must lead the charge in creating
organizations that can deliver on their intentions.
That means building business models with mutually
reinforcing parts.
 Rich in organizational detail, and anchored on purpose,
such systems of value creation "make strategy the
animating force in a company”.
 They're the crucial link between lofty ideas and action.
Strategy Wheel Showing Gucci’s system of
value creation backs up the firms purpose

“Strategy wheel," in which purpose is the hub and the supporting factors are
the spokes.
Who Is A Strategist?
 Incorporating the role of the strategist into one's identity is
important because leading strategy is not so much a task as it
is a never-ending quest. For most companies, a long-run
sustainable competitive advantage-the holy grail of strategy-is a
dangerous mirage. The longer you can keep an advantage
vibrant, the better. But any advantage is better thought of as
part of a bigger story, one frame in a motion picture.
 Although a company may change what it makes, the services it
provides, the markets it serves, and even its core
competencies, its continued existence depends on finding and
continuing to find a compelling reason for it to exist. Shepherding
this never-ending process, being the steward of a living strategy,
is the defining responsibility of a leader.
Who Is A Strategist?
 It's important for employees at all levels of an
organization to start thinking like strategists, too.
 What [people] do, and why they do it, should be driven
by strategy.
 Learning to be a strategist doesn't happen overnight. It's
like a muscle that you have to flex.
 Don't wait to see if you might someday get the chance to
drive strategy. It's a skill and a disposition that take time
to hone.
Can you say what your strategy is?
Strategy Statements
Collis and Rukstad
Advantages of a Clear Definition
 Porter’s article does not answer the more basic question
of how to describe a particular firm’s strategy.
 With a clear definition two things happen:
 First, formulation becomes infinitely easier because executives
know what they are trying to create.
 Second, implementation becomes much simpler because the
strategy’s essence can be readily communicated and easily
internalized by everyone in the organization.
Strategy Statements
 Three critical components of a good strategy statement –
 objective,
 scope, and
 advantage.
 Executives should be forced to be crystal clear about
them.
 These elements are a simple yet sufficient list for any
strategy that addresses competitive interaction over
unbounded terrain.
Strategy Statement Elements (1)
 Any strategy statement must begin with a definition of
the ends that the strategy is designed to achieve.
 The definition of the objective should include not only an
end point but also a time frame for reaching it.
(Objective).
 Firms in the same business often have the same mission.
They may also have the same values. They might even
share a vision. However, it is unlikely that even two
companies in the same business will have the same
strategic objective.
 Indeed, if your firm’s strategy can be applied to any other
firm, you don’t have a very good one.
Strategy Statement Elements (2)
 Since most firms compete in a more or less unbounded
landscape, it is also crucial to define the scope, or
domain, of the business: the part of the landscape in
which the firm will operate. (Scope).
 A firm’s scope encompasses three dimensions: customer
or offering, geographic location, and vertical integration.
 Clearly defined boundaries in those areas should make it
obvious to managers which activities they should
concentrate on.
 The three dimensions may vary in relevance.
Strategy Statement- Components (3)
 Alone, these two aspects of strategy are insufficient.
 Last important component is to explain how you are going to
reach your objective?
 Your competitive advantage is the essence of strategy:
What your business will do differently from or better than
others defines the all-important means by which you will
achieve your stated objective.
 That advantage has complementary external and internal
components:
 a value proposition that explains why the targeted customer should
buy your product above all the alternatives, and
 a description of how internal activities must be aligned so that only
your firm can deliver that value proposition. (Advantage)
Strategy Statement- Components (3)
 The complete definition of a firm’s competitive advantage
consists of two parts.
 The first is a statement of the customer value
proposition.
 Any strategy statement that cannot explain why customers
should buy your product or service is doomed to failure.
 A simple graphic that maps your value proposition against
those of rivals can be an extremely easy and useful way of
identifying what makes yours distinctive. (Activity System Map)
 The second part of the statement of advantage captures
the unique activities or the complex combination of
activities allowing that firm alone to deliver the customer
value proposition.
Strategy Statement- Components
 Defining the objective, scope, and advantage requires trade-
offs, which Porter identified as fundamental to strategy.
 If a firm chooses to pursue growth or size, it must accept that
profitability will take a back seat.
 If it chooses to serve institutional clients, it may ignore retail
customers.
 If the value proposition is lower prices, the company will not
be able to compete on, for example, fashion or fit.
 Finally, if the advantage comes from scale economies, the firm
will not be able to accommodate idiosyncratic customer
needs. Such trade-offs are what distinguish individual
companies strategically.
A Hierarchy of Company Statements
That drives business
Organizational direction comes in several forms. The mission statement is
your loftiest guiding light – and your least specific. As you work your way
down the hierarchy, the statements become more concrete, practical, and
ultimately unique. No other company will have the same strategy statement,
which defines your competitive advantage, or balanced scorecard, which
tracks how you implement your particular strategy.

 MISSION
 Why we exist- the contribution to society
 VALUES
 What we believe in
 and how we will behave (doing things right)
 Vision
 What we want to be (indeterminate future goal)  The BASIC ELEMENTS of a
Strategy Statement
 STRATEGY
 OBJECTIVE = Ends (SMART)
 What our competitive game plan will be
 SCOPE = Domain
 BALANCED SCORECARD  ADVANTAGE = Means
 How we will monitor and implement that plan
Value Proposition: Wal-Mart
 Wal-Mart’s value proposition can be
summed up as “everyday low prices for
a broad range of goods that are always
in stock in convenient geographic
locations.”
 It is those aspects of the customer
experience that the company overdelivers
relative to competitors. Under-
performance on other dimensions, such as
ambience and sales help, is a strategic
choice that generates cost savings, which
fuel the company’s price advantage.
 If the local mom-and-pop hardware store
has survived, it also has a value proposition:
convenience, proprietors who have known
you for years, free coffee and doughnuts on
Saturday mornings, and so on.
 Sears falls in the middle on many criteria. As
a result, customers lack a lot of
compelling reasons to shop there, which
goes a long way toward explaining why the
company is struggling to remain profitable.
A careful description of the unique
activities a firm performs to generate a
distinctive customer value proposition
effectively captures its strategy.
Developing a Strategy Statement:
The strategic sweet spot

The strategic sweet spot

of a company is where it
meets customers’ needs
in a way that rivals can’t,
given the context in
which it competes.

One of the best ways to do

this is to develop two or
three plausible but very
different strategic options.
Strategy as a Wicked Problem

Camillus (2008)
Strategy as a Wicked Problem
 In the past, many companies saw strategic planning as an
exercise in modelling and predicting the future. They
crunched through data and enjoyed lengthy planning
sessions. PowerPoint presentations charted the path to
the future, followed by Excel spreadsheets that translated
the opportunities along the way into numbers.
 Camillus (2008) argues that the old-fashioned approach
works as long as we are dealing with simple or trivial
problems. In a world of increased complexity and wicked
problems , however, strategy needs to change.
Strategy as a Wicked Problem
 Defining the problem is as hard, if not harder, than finding
potential solutions.
 There are no ‘correct’ solutions to wicked problems, only
better or worse.
 There is no ultimate test of a solution to a wicked
problem; unexpected consequences of solutions make
evaluation a tricky task.
 You can only evaluate whether a solution is working after
you have started to do it, after which turning back and
trying something else is no longer an option.
 Moreover, any attempt to ‘solve’ a wicked problem tends
to create more unexpected problems along the way.
Strategy as a Wicked Problem
 Every solution to a wicked problem is a ‘one-shot operation’
because there is no opportunity to learn by trial and error.
 Trying out a solution also changes the situation and therefore
changes the nature of the problem, sending you right back to
the beginning again.
 Every wicked problem is essentially unique even if it looks
familiar: this means past experience does not help you to
identify prime causal factors or candidate solutions.
 How you try to explain the problem determines the nature of
the problem’s resolution – change the definition and the
candidate solution also changes.
 In organizations, most issues that are truly strategic show
strong elements of ‘wickedness’.
Wicked Problem
A Company’s Strategy is A Blend of Proactive
Initiatives and Reactive Adjustments
Identifying a Company’s Strategy –
What to Look For
Developing a Strategy Statement
 The first step is to create a great strategy, which requires
careful evaluation of the industry landscape.
 This includes developing a detailed understanding of customer
needs, segmenting customers, and then identifying unique ways
of creating value for the ones the firm chooses to serve.
 It also calls for an analysis of competitors’ current strategies
and a prediction of how they might change in the future.
 The process must involve a rigorous, objective assessment
of the firm’s capabilities and resources and those of
competitors to identify core competencies.
Developing and Crafting Strategy
 The creative part of developing strategy is finding the
sweet spot that aligns the firm’s capabilities with
customer needs in a way that competitors cannot match
given the changing external context – factors such as
technology, industry demographics, and regulation.
 One of the best ways to do this is to develop two or
three plausible but very different strategic options.
 Crafting the statement that captures its essence in a
readily communicable manner should involve employees
in all parts of the company and at all levels of the
hierarchy.
Developing and Crafting Strategy
 The wording of the strategy statement should be worked
through in painstaking detail.
 In fact, that can be the most powerful part of the strategy
development process.
 It is usually in heated discussions over the choice of a single word
that a strategy is crystallized and executives truly understand what it
will involve.
 The end result should be a brief statement that reflects the
three elements of an effective strategy.
 It should be accompanied by detailed annotations that
elucidate the strategy’s nuances (to pre-empt any possible
misreading) and spell out its implications.
Developing and Crafting Strategy
 When the strategy statement is circulated throughout the
company, the value proposition chart and activity-system map
should be attached.
 They serve as simple reminders of the twin aspects of
competitive advantage that underpin the strategy.
 Cascading the statement throughout the organization, so that
each level of management will be the teacher for the level
below, becomes the starting point for incorporating strategy
into everyone’s behaviour.
 The strategy will really have traction only when executives can
be confident that the actions of empowered frontline
employees will be guided by the same principles that they
themselves follow.
Developing and Crafting Strategy
 The value of rhetoric should not be underestimated.
 A 35- word statement can have a substantial impact on a
company’s success. Words do lead to action.
 Spending the time to develop the few words that truly
capture your strategy and that will energize and empower
your people will raise the long-term financial
performance of your organization
Strategy Making as A Collaborative
Process
 In most companies, crafting and executing strategy is a
collaborative team effort in which every manager has
a role for the area he or she heads;
 it is rarely something that only high-level managers do.
Strategy Making Involves Managers at All
Levels
 Chief Executive Officer (CEO)
 Has ultimate responsibility for leading the strategy-making process as
strategic visionary and as chief architect of strategy.
 Senior Executives
 Fashion the major strategy components involving their areas of
responsibility.
 Managers of subsidiaries, divisions, geographic regions, plants, and
other operating units (and key employees with specialized
expertise)
 Utilize on-the-scene familiarity with their business units to orchestrate
their specific pieces of the strategy.
Why Is Strategy-making Often a Collaborative
Process?
 The many complex strategic issues involved and
multiple areas of expertise required can make the
strategy-making task too large for one person or a
small executive group.
 When operations involve different products, industries
and geographic areas, strategy-making authority must
be delegated to functional and operating unit managers
such that all managers have a strategy-making role—
ranging from major to minor—for the area they head!
A Firm’s Strategy-making Hierarchy
Multibusiness Strategy—how to gain synergies from managing a
Corporate
portfolio of businesses together rather than as separate
Strategy
businesses

Two-Way Influence
• How to strengthen market position and gain competitive
Business advantage
Strategy • Actions to build competitive capabilities of single businesses
• Monitoring and aligning lower-level strategies
Two-Way Influence

Functional • Add relevant detail to the how’s of the business strategy

Area • Provide a game plan for managing a particular activity in ways
Strategies that support the business strategy

Two-Way Influence
• Add detail and completeness to business and functional
Operating strategies
Strategies • Provide a game plan for managing specific operating activities
with strategic significance
 Uniting the Strategy Making Hierarchy
A company’s strategy is
at full power only when
Corporate-level its many pieces are
united. Anything less
than a unified collection
of strategies weakens
Business-level the overall strategy and
is likely to impair
company performance.
Functional-level

Operational-
level
A
Company’s
Strategy-
Making
Hierarchy
Corporate and Business Strategy
 Corporate strategy is strategy at the multi-business level,
concerning how to improve company performance or
gain competitive advantage by managing a set of
businesses simultaneously.
 Business strategy is strategy at the single-business level,
concerning how to improve the performance or gain a
competitive advantage in a particular line of business.
A STRATEGIC VISION + OBJECTIVES + STRATEGY =
A STRATEGIC PLAN

Elements of a Firm’s
Strategic Plan

Its strategic vision, business

mission, and core values

Its strategic and financial

objectives

Its chosen strategy

 Is Your Strategy a Winner?
Does it exhibit dynamic fit
with the external and
internal aspects of the
firm’s overall situation?
The Strategic
Fit Test

The Competitive Winning The Performance

Advantage Test
Strategy Test

Can it help the firm achieve a Can it produce good performance

significant and sustainable as measured by the firm’s
competitive advantage? profitability, financial and
competitive strengths, and market
standing?
 Strategic Management Process

 Rational approach used by firms to achieve strategic

competitiveness and earn above average returns.
 Strategic Management Process
 Strategic Management Inputs
 Strategic Actions: Strategy Formulation
 Strategic Actions: Strategy Implementation

102
Strategic Management Process
Macro
Environmental
Analysis (O&Ts)
• PESTE

Evaluate Current Evaluation

Performance Industry Strategy • Resource
• Mission, Values, Analysis (O&Ts) Options Requirements
Vision • Structure • Business Unit • Risk/return
• Goals & Objectives • Evolution • Corporate Implementation
• Strategies • Competition • Making it happen
Analysis & Position

Company
Analysis (S&Ws)
• Structure
• Resources
How do we get there?
• Processes
• Staffing
Where should we go?
• Culture

Where are we now?

Source of Competitive Advantage

Industry or Firm
Average Return on Invested Capital in
U.S. Industries, 1992–2006
Profitability of
Selected
U.S. Industries
What matters more?

 Wide variations in profitability among different industries.

 Similar variations in profitability among firms in many
industries.

 Prominent Researches:
 Richard Schmalensee, 1985
 Richard Rumelt, 1991
 Anita McGahab and Michael Porter, 1997

 Profitability depends only in part on a firm’s industry. The

firm’s decisions have a larger impact on profitability than its
industry.

 “Strategy is the act of aligning a company and its

environment.”--- Porter
107
I/O Model of Above Average Returns

 Explains the external environment’s dominant influence

on a firm's strategic actions and performance.
 Industry or segment of industry in which a company
chooses to compete has a stronger influence on
performance than do the choices managers make inside
their organization.
 The firm’s performance is believed to be determined
primarily by a range of industry properties.

108
 I/O Model of Above Average Returns

 Underlying Assumptions
 External environment imposes pressures and constraints that
determine the strategies resulting in AAR
 Most firms compete within a particular industry/segment
Control similar strategically relevant resources
 Pursue similar strategies in light of those resources
 Resources for implementing strategies are highly mobile across
firms
 Therefore any resource differences between firms will be short-lived
 Organizational decision makers are rational and committed to
acting in the firm's best interests, as shown by their profit-
maximizing behaviors

109
110

Industrial
Organizational
(I/O) Model of
Above-Average
Returns (AAR)
I/O Model of Above Average Returns

 Five-Forces Model (Michael Porter)

 Analytical tool previously lacking in the field of strategy
 Reinforces the importance of economic theory
 The 5 Forces includes
 Suppliers, buyers, competitive rivalry, product substitutes and
potential entrants
 Suggests an industry’s profitability is an interaction
between these 5 forces
 Firms can use the model to identify the attractiveness of an industry
(measured by profit potential) as well as the most advantageous
position for the firm to take in that industry, given the
industry’s structural characteristics.

111
I/O Model of Above Average Returns

 Limitations
 Only two strategies are suggested:
 Cost Leadership
 The low-cost leader
 Differentiation
 Customer willing to pay the premium price for ‘being different’
 Internal resources & capabilities not considered

112
The Resource Based Model of Above Average
Returns

 Each firm is a collection of unique [internal] resources &

capabilities.The uniqueness of its resources and capabilities, in
combination, is the basis for firm strategy and AAR
 Combined uniqueness should define the firms’ strategic
actions
 Resources are both tangible and intangible

113
The Resource Based Model of Above Average
Returns

 Resources
 Inputs into a firm's production process
 Includes capital equipment, employee skills, patents, high-quality
managers, financial condition, etc.
 Basis for competitive advantage: When resources are valuable,
rare, costly to imitate and non-subsitutable
 Internal/firm-specific resources (N=3)
 Physical - Things you can touch/feel = tangible
 Human - People / employees
 Organizational capital - Relative to the firm itself

114
The Resource Based Model of Above Average
Returns

 Capability
 Capacity for a set of resources to perform a task or activity in
an integrative manner
 Core Competency
 A firm’s resources and capabilities that serve as sources of
competitive advantage over its rival
 Often visible in the form of organizational functions
 Summary
 A firm has superior performance because of
 Unique resources and capabilities, and the combination makes
them different, and better, than their competition – driving the
competitive advantage
 Each firm’s performance difference across time emerges because of
unique resource and capabilities (vs. industry’s structural characteristics)
115
116

The
Resource-
Based
Model of
AAR
The Stakeholder Management
 Basic Premise – a firm can effectively manage stakeholder
relationships to create a competitive advantage and
outperform its competitors
 Stakeholders are individuals and groups
 They can affect, and are affected by, the strategic
outcomes/performance a firm achieves and have enforceable
claims on the firm’s performance.
 Claims on a firm’s performance are enforced through the
Stakeholder’s ability to withhold participation essential to the
firm’s survival, competitiveness and profitability.

117
The Stakeholder Management

118
The Stakeholder Management
 Classifications of Stakeholders
 Capital Market
 Expect returns commiserate with risk accepted by investments
 Higher the dependency relationship, the more direct and
significant firm’s response
 Product Market
 Interest maximized when the quality and reliability of firm’s
products are improved, but without a price increase.
 Organizational
 The employees- expect the firm to provide a dynamic, stimulating
and rewarding work environment.

119
Strategic Leaders
 Strategic leaders are people located in different parts of the firm using
the strategic management process to help the firm reach its vision and
mission
 Strategic Leadership is the ability to influence others in your
organization to voluntarily make day-to-day decisions that lead to the
organization’s long-term growth and survival, and maintain its short-
term financial health.
 The most important aspects of strategic leadership are shared values
and a clear vision, both of which will enable and allow employees to
make decisions with minimal formal monitoring or control
mechanisms. With this accomplished, a leader will have more time and
a greater capacity to focus on other, ad hoc issues, such as adapting
the vision to a changing business environment. In addition, strategic
leadership will incorporate visionary and managerial leadership by
simultaneously allowing for risk-taking and rationality.

120
Strategic Leaders

 The Work of Effective Strategic Leaders

 Must be able to “think seriously and deeply…about the purposes of the
organizations they head or functions they perform, about strategies,
tactics,…..and people…and about the important questions … they need
to ask.”
 Decisive and committed to nurturing those around them
 Create and sustain organizational culture which emerges from & sustained
by leaders
 Complex set of ideologies, symbols and core values shared throughout the firm
 Affects leaders/their work which in-turn shapes culture
 Influences how the firm conducts business (Social Energy that derives or fails to
drive organization)
 Predicting Outcomes: Profit Pools (PP)
 Anticipates their decisions relative to the PP
 Entails the total profits earned in an industry at all points along the value
chain

121
Leadership Styles
Managerial Vs. Visionary Leaders
 Managerial leaders need order and stability, and to be able to
control the details of the work being performed. Mostly, these
leaders have no personal attachment towards setting and using
goals as motivational tools, and they may have difficulty
showing empathy when dealing with employees. They will
attempt to gain control through systems of rewards,
punishment, and other forms of coercion. These
leader/managers will be focused on the cost-benefit analysis of
everyday actions and will therefore be mostly linked to the
short-term financial health of the organization, as reflected in
its day-to-day stock price. It is important to note that short-
term gains are often a result of a least-cost approach, which
might not be good for long-term viability.
Managerial Vs. Visionary Leaders
 Visionary leaders are oriented to the future. Their main
tool for achieving goals is their ability to influence
followers, influence they use to create a shared vision and
an understanding of what is to be achieved. These leaders
rely heavily on their own values, and they invest in people
and their network of relationships in order to ensure the
viability of the organization. They articulate a compelling
vision, and then empower and energize followers to move
towards it. The formal structures of the organization will
create few constraints for these leaders, as they make
decisions and shape their vision based on their values,
beliefs, and sense of identity.