2. Corporate Strategy
Todd Zenger

3. The Challenge of Growth
Why is growth strategically important?

4. Classic view of strategy
How do firms position themselves to capture and maintain profit streams?
Profit
Time
A “successful” strategy yields a recurring profit stream.
Strategy 4

5. Searching for a valuable position
Choosing a desired position and configuring a strategy to attain it.

6. Southwest Airlines’ Activity System
Limited
passenger
amenities
Short-haul,
point-to-point
routes between
midsize cities
and secondary
airports
High
aircraft
utilization
Frequent,
reliable
departures
Lean, highly
productive
ground and
gate crews
Very low
ticket prices
No meals
No seat
assignments
No baggage
transfers No
connections
with other
airlines
15-minute
gate
turnarounds
Limited use
of travel
agents
Automatic
ticketing
machines
Standardized
fleet of 737
Flexible
union
contracts
High level
of employee
stock
ownership
“Southwest,
the low-fare
airline”
compensation
of employees
Source: Michael E. Porter “What is Strategy” Harvard Business Review, Nov-Dec 1996

7. Searching a complex landscape

8. Competitive Advantage and Value Creation
To create an advantage a firm must configure itself to do something both valuable and unique
Test: were the firm to disappear, could a competitor, supplier, or customer replace it perfectly?

9. Occupying/defending a valuable position

10. Source of Competitive Advantage
Generic Positions
Source of Competitive Advantage
Cost Leader
Differentiation
Broad Segment
Cost Leadership
Differentiation
Competitive Scope
Narrow Segment
F o c u s

11. Strategy’s Real Goal…
Market
Value
Time

12. The Reality Competitive advantage ≠ Sustained value creation Market
Time
Competitive advantage ≠ Sustained value creation
Intel, WalMart, Microsoft

13. Common Examples of Successful Strategy
Wal-mart
Southwest Airlines
Dell Computer
Microsoft
Intel
However…..

14. Reality of Southwest Airlines

16. Dell Computer

17. Learning this Very Difficult Lesson
Asked what to do with Apple Computer in 1997, in front of several thousand IT executives, Michael Dell responded:
"What would I do? I'd shut it down and give the money back to the shareholders.“
October 6, 1997

18. Apple vs. Dell
Apple’s market cap in 2007 nearly
3 times that of Dell.

19. Sustaining growth is hard to do
Source: HBR, Laurie, Doz, & Sheer (May 2006)
Average Annual Growth Rate, GNP Deflated (%)
Years before entering Fortune 50
Years after entering Fortune 50 19

20. The Problem of Growth Strategy
Successful companies relentlessly discover new profit streams.
Profit
Time
A “successful” strategy yields increasing profit streams.
Strategy 20

21. What is Value?
Concept 1: Discounted present value of future returns

22. Growth, Cash Flows, and Value Creation
time

23. Growth, Cash Flows, and Value Creation
Increase in growth rate
time

24. What is Value? Concept 1: Discounted present value of future returns
Concept 2: Market’s perception of the discounted present value of future returns

25. The tyranny of being valued on expectations
Student X
Student Y
95%
80%
75%
65%
Actual
Score
Actual
Score
Expected
Score
Expected
Score
From Richard Rumelt, McKinsey Quarterly 25

26. Dead on Arrival
“Efforts to grow blur uniqueness, create compromises, reduce fit, and ultimately undermine competitive advantage. In fact, the growth imperative is hazardous to strategy” – Michael Porter
Firms require something more than a position to sustain value creation!

27. Value creation demands constantly finding new sources of value
Strategy 5
Strategy 4
Strategy 3
Strategy 2
Strategy 1
Time 27

28. The options: 1. 2. 3. Lunch time conversation.
$1bill; 20% shareholder return for a decade, reflective of a tremendous strategic position
However, apparent that the position had run out of gas. It could no longer support this growth in value.
They sought options for a growth platform.
Same business -- Global Expansion
Expand offerings to same customers
Entirely new business
They wanted my advice! What I told them is the essence of my message.
The firm had a great strategy. They had a competitive advantage. What they lacked was a theory to guide the ongoing selection of strategies that could further value creation.
The options: 1. 2. 3.

29. Constant search for new positions and markets

30. The Goal Craft an organization constantly in search of new value.
The goal is not growth per se, as some growth is value destroying.
Create an organization that is effective in relentlessly sustaining profitable growth and in discovering new sources of such growth.
Create an organization that is effective in sustaining value creation (through means other than pure Wall Street marketing).

31. Reflection Exercise
What growth options has your organization considered?
What has guided its choices?
Share with the group.
Be prepared to present answers to these questions for your organization?