1. Are You Sure You Have a Strategy? 1 Donald C. Hambrick Columbia University Graduate School of Business

2. Consider these statements of strategy drawn from actual documents and announcements of several companies: “Our strategy is to be the low-cost provider.” “We’re pursuing a global strategy.” “The company’s strategy is to integrate a set of regional acquisitions.” “Our strategy is to provide unrivaled customer service.” “Our strategic intent is to always be the first- mover.” “Our strategy is to move from defense to industrial applications.” 2

3. Our central concept of how we will achieve our objectives Our recognition of an opportunity and plan for seizing it What should it do for us? Guide our resource allocation and daily actions Guide our design of organizational arrangements Provide a catalyzing “shorthand” of what we are all trying to do What Is Strategy? 2a

4. Strategy Our central concept of how we will achieve our objectives Objectives  specific targets Supporting Organizational Arrangements  structure  rewards  processes  people  symbols  activities  functional policies and profiles Strategic Analysis: C 3 E  Customer analysis  Competitor analysis  Company capability analysis  Environmental analysis Mission  fundamental purpose  values Putting Strategy In Its Place 3

5. What will be our speed and sequence of moves?  Speed of expansion?  Sequence of initiatives? Where will we be active? (and with how much emphasis?)  Which product categories?  Which market segments?  Which geographic areas?  Which core technologies?  Which value-creation stages? How will we get there?  Internal development?  Joint ventures?  Licensing/franchising?  Acquisitions? How will we win in the marketplace?  Image?  Customization?  Price?  Styling?  Product Reliability?  Etc.? Arenas Differentiators Vehicles Staging Economic Logic How will we obtain our returns?  Lowest costs through scale advantages?  Lowest costs through scope and replication advantages?  Premium prices due to unmatchable service?  Premium prices due to proprietary product features?  Etc.? The Five Major Elements of Strategy 4

6. Value-Creation Stages A biotech company Basic Research Product Development Clinical Regulatory Trials/Approvals ManufacturingMarketing/ Sales Distribution A toy company Product Development Market Research Marketing/ Advertising SalesDistribution/ Logistics Manufacturing 5 Stages Done In-house Stages Outsourced 5

7. Wide Geographic Scope Narrow Wide Narrow Product line breadth Stage 1 Stage 2  Target National Geographic Scope Regional WeakStrong Brand power Stage 1 Stage 2 Target  Currently Examples of Strategic Staging a: printing equipment manufacturer with plans to expand internationally and broaden the product line b: regional title insurance company with plans to expand nationally by acquisition and build a superior, prestigious brand Stage 3 Currently 6

8. Economic Logic: How will we obtain returns above our cost of capital? Pricing Leverage: a) Premium prices, b) from price-insensitive buyers, c) for product features they deem very appealing, d) and which competitors can’t readily match. Cost Leverage:through scale through scope through replication and experience through advantageous endowments Asset Leverage: extraordinary asset turns extraordinary asset longevity brand leverage Combinations are possible! 7

9. Arenas Differentiators Vehicles Staging Economic Logic IKEA’s Strategy Arenas  Inexpensive contemporary furniture  Young, white-collar customers  Worldwide Vehicles  Organic expansion  Wholly-owned stores Differentiators  Very reliable quality  Low price  Fun, “non-threatening” shopping expreience Economic Logic  Economies of scale (global, regional, and individual store scale)  Efficiencies from replication Staging  Rapid international expansion, by region  Early footholds in each country; fill-in later 8

10. Another Example: GE Transportation Systems -- Locomotives Arenas Differentiators Vehicles Staging Economic Logic Arenas  Diesel  Emphasize long and heavy hauls (including industrial and mining)  Americas, Asia, Middle East, Africa  Limited defensive position in Europe Vehicles  Wholly-owned subs with extensive service sites  Selective JVs in Europe (including Eastern/Central) Differentiators  Service  Mileage/operating efficiency  Safety  Operator comfort/ergonomics Economic Logic  Premium prices for superior product and service  Lowest diesel manufacturing costs (Erie factory) Staging 1:  New Model X by Year 2  Push very aggressively in Latin America and Asia  Sign Eastern Europe JVs 2:  New Model XX by Year 4  Push aggressively in Africa Throughout:  5% annual productivity gains  Wait-and-see in Western Europe 9

11. Testing the Quality of Your Strategy Key Evaluation Criteria 1. Does your strategy fit with what’s going on in the environment? Is there healthy profit potential where you’re headed? Does your strategy align with the key success factors of your chosen environment (s)? 2. Does your strategy exploit your key resources? With your particular mix of resources, does this strategy give you a good “head start” on competitors? Can you pursue this strategy more economically than competitors? 3. Will your envisioned differentiators be sustainable? Will competitors have difficulty matching you? If not, does your strategy explicitly include a ceaseless regimen of innovation and opportunity creation? 4. Are the elements of your strategy internally consistent? Have you made choices of arenas, vehicles, differentiators, and staging, and economic logic? Do they all fit and mutually reinforce each other? 5. Do you have enough resources to pursue this strategy? Do you have the money, managerial time and talent, and other capabilities to do all you envision? Are you sure you’re not spreading your resources too thinly, only to be left with a collection of feeble positions? 6. Is your strategy implementable? Will your key constituencies allow you to pursue this strategy? Can your organization make it through the transition? Are you and your management team able and willing to lead the required changes? 11