What is Strategy? Chapter One Cornelis A. de Kluyver John A. Pearce II and John A. Pearce II Third Edition

It is a pattern in a stream of actions. What is Strategy? It is a pattern in a stream of actions.

Strategy is About… Positioning an organization for competitive advantage Deciding what to do and what NOT to do Which industries to participate in What products and services to offer How to allocate resources, add value Creating value for shareholders and other stakeholders by providing value to customers

Strategy… Differs from Tactics: Forces trade-offs and should focus on differentiation from rivals Focuses on value creation Allows for learning and adaptation Takes a long-term perspective Responds to the needs of all stakeholders

Strategy is About Making Choices… Who will you target as customers and who will you not? What will you offer these customers and what will you not offer them? How will you do all this? – What activities will you perform; which will you not?

Choosing is Not Enough; You Must Force Trade-offs and Create Fit Dell’s manufacture-to-order system forced competitors to make trade-offs (Key to Differentiation) Southwest Airlines has created fit (Key to competitive advantage through Operational excellence)

Southwest Airlines’ Activity System No meals No baggage transfers Limited passenger service No connections with other airlines No seat assignments Limited use of travel agents Short-hand point to point routes between midsize cities and secondary airports 15 minute gate turnaround Standardized fleet of 737 aircraft Frequent reliable departures Automatic ticketing machines Lean, highly productive ground and gate crews High compensation of employees Very low ticket prices “Southwest, the low-fare airline” High aircraft utilization Flexible union contract High level of employee stock ownership

Strategy Should Consider the Company’s Ecosystem The environment International law Governments Standards bodies Stakeholders Supplier’s suppliers Customer’s customers New entrants Customers Suppliers Competitors Substitutes Organisation I put this diagram together some years ago for a client. It isn’t rigorous but it doe indicate most of the areas which need attention. Students of strategy will recognise Michael Porter’s five forces amongst other influences.

What is an Ecosystem? Simply put, it's the idea that today's companies are embedded in multiple, complex relationships that make them interdependent on each other for success. But it's only recently that corporate leaders are realizing that an ecosystem is more than a concept. The ecosystem has intense implications for how companies plan for the future, and they ignore those implications at their own risk.

Sound Strategy Development Focuses On: Articulating strategic intent Creating and leveraging organizational capabilities Fostering innovation and learning Embedding strategic leadership

A Clear Strategic Intent Provides Focus… “Beat Xerox” “A Computer on Every Desktop” “Be #1 or #2 in every business…”

Matching Competitive Advantages of Rivals is No Longer Enough… Write the rules; Don’t copy someone else’s Toyota Canon Microsoft Google “Companies that have risen to global leadership invariably began with ambitions that were out of all proportion with their resources and capabilities...” (Hamel and Prahalad)

Organizational Capabilities are Increasingly Critical to Success

Competencies Must Be Nurtured Continuous innovation and learning are critical Core Competencies (CC’s) Customer benefit Cost benefit Competitive differentiation Basic Competitive Requirements Essential to all competitors No industry differentiation Latent Core Competencies Unexploited Insufficient breadth/ depth High potential Future Core Competencies Important in the future Agenda for competence building

The Competitive Advantage Cycle: Value, unless constantly nourished, erodes over time Rewards: Satisfaction Loyalty Profits Share Positional Advantages Realized Superior Customer Value Investments In Renewal Sources of Advantage Superior Assets Superior capabilities Competitive Dynamics Erode Advantages Key Success Factors Barriers to Imitation

Strong Leadership at All Levels of the Organization is Key Mission Documents the purpose of the organization’s existence, may guide conduct Vision Represents organization’s strategic intent Sets stretch targets Strategic Thinking Creates a vision for the organization Is primarily top-down (CEO/Senior management driven) Requires creativity, analysis and synthesis Strategic Planning Is both top down and bottom-up Plays supporting role focused on analysis, communication

A Clear Process Provides Structure… Evaluate Current Performance Mission Goals Objectives Strategies Environmental Analysis Economic Socio-cultural Technological Political Opportunities & Threats Company Structure Resources Processes Staffing Culture Strengths & Weaknesses Industry Evolution Competition Competitive Analysis & Positioning Evaluation Resource Requirements Risk/return Implementation Strategy Options Business Unit Corporate Where are we now? Where should we go? How do we get there?

Strategy as a Portfolio of Options… Strategy is not about creating a detailed, long-term plan Strategy should focus on a long-term strategic intent and flexible means for realizing that intent Learning and continuous renewal are essential parts of strategy

Not All Strategy Can Be Planned… Deliberate Strategy Intended Strategy Realized Strategy Unrealized Strategy Emergent Strategy

Strategic Choices Must Be Supported by Organizational Choices Culture Processes/ Incentives People Structure Strategy