Defining the Playing Field: “What is Strategy” By Michael Porter “Can You Say What Your Strategy Is?” By David J. Collis and Michael G. Rukstad Not a complete “MBA” strategic situation analysis (Take Market Strategy & Marketing!) Porter is the seminal author on the topic. Still necessary to set the playing field to be able to meaningfully and specifically talk about how organizations make decisions to get things done. You will have to write three strategy statements: Pandora, Medysis, your final projects. A mini-MBA class on strategy Start your projects! We manage in the specific.

What is Strategy? Pair-square discussion – right off, get folks to talk with each other – start getting into project groups. Words matter! – writing fellow Is there only one right strategy? NO! See Porter p. 68. “Strategy is the creation of a unique and valuable position involving a different set of activities.” p. 68 “Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do. Without trade offs, there would be no need for choice and thus no need for strategy.” p. 70.

Why is Strategy critical for Management? How do we get people to work (hard) for a collective good? p. 2 – read from “Think of a major business as a mound of 10,000 iron filings…” Examples of specific decision: Should I propose this new initiative? Should I bid on this contract? Should I discount the price for this customer? Should I spend more time on servicing existing clients or finding new ones? “…a well-understood statement of strategy aligns behavior within the business. It allows everyone in the organization to make individual choices (decisions) that reinforce on another…” (C&R p. 2)

Different Strategies require different types of people… Boeing example p. 4 Other examples from Porter? May need entirely different people with different skills …different allocation of decision rights, different incentives and different measures of performance.

OPERATIONAL EFFECTIVENESS Why is OPERATIONAL EFFECTIVENESS NOT STRATEGY? Improvements in efficiency simply become the new cost of doing business.

So does this graph tell us anything about strategy? NO! What is the margin? What is the sustainable competitive advantage?

Porter’s “Generic Strategies” (see p. 67) Point: you can’t be in the mushy middle! – Sears, JC Penny There are really only two ways to make $ -- high margin, low volume vs low margin high volume.

What is an Objective? If you don’t know where you’re going any road will get you there. Avoid vague generalities “maximize shareholder wealth…” “provide opportunities for employees to lead fulfilling lives…” “provide superior customer service” Specific, measurable, time bound. Number – revenues, market cap, new customers, total customers, new products Rate – profit margin, growth rate, retention rate, on-time delivery rate NOTE: There is more than one path to profit! Porter’s generic strategies? – why not, that’s where I usually end up with them anyway…. The key is consistency: what is the firm going to do? Focus on profitability or discount to get new clients? Meet demand with increased fixed capacity or temporary variable costs (capital/labor mix)?

Scope: You can’t be everything to all people! Customer offering – every business solves someone’s problem What problem are you solving for who? Geographic scope Single or multiple locations? Urban or rural? Multi-national? Vertical integration – make or buy? Hire expertise or use a consultant? Own supplier or contract?

YOU CAN’T BE EVERYTHING TO ALL PEOPLE!

Advantage: What do you do better than anyone else? What do you deliver that your competitors can’t Where are you located that your competitors aren’t When can you deliver that your competitors can’t How can you deliver this and your competitors can’t? Organizational architecture, management & leadership can be a sustainable competitive advantage!

HOW do you develop a strategy statement? Step #1: Evaluate the industry landscape (apply your micro!!) a) What problem are you solving for who? (consumer theory) b) What does the market look like? (market models) c) How can you differentiate and/or set up barriers to entry? (producer theory) "It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them." -- BusinessWeek, May 25 1998 What is the most important thing that any business needs? CUSTOMERS! You can either make new ones or steal someone else’s Organizational architecture, management and leadership can differentiate a firm and establish a sustainable competitive advantage. It’s not just saying it…it’s getting it done, repeatedly, day after day, and then being able to change Step #2: Write! “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.”

Step #3: PRACTICE! NOW! Write YOUR personal strategy statement on Moodle and post for Project Speed Dating. Martin Blair Case Medysis Case Semester Projects