1. Principles for Strategy Process Johan Strümpfer © Johan P Strümpfer, 2006.

2. Need: n has expressed a need to make the planning process followed in 2006 sustainable into the future. The need refers to the process of reflection on ’s strategic positioning undertaken in in 2006, and the consequent decisions taken on positioning for the future. n The primary audiences in involved in the above process in 2006 were the Group Exco, cluster Excos, a strategy resource group, a group wide top 500, and several cluster related large groups.

3. Purpose of the workshop: n To will assist a group within in putting a framework in place, that will enable them to develop a process to design their strategy for 2007 and beyond. n The workshop is aimed at a group of between 12 and 15 people who will play a role in determining the strategy process for 2007 n We do anticipate a much deeper understanding of the principles to be pursued in such a process, i.e. on what is important. n We do anticipate greater clarity on how such a process could like in 2007, i.e. a rough outline. We do not anticipate a complete design of a strategy process to be available at the end of the workshop.

4. Workshop Method: n We will cover a large number of guiding principles in detail. n These are guidelines for how a meaningful strategy development process should look like. n We will spend time in the group discussing what these guidelines mean, and specifically, how should be implementing them. n The outcome of these “how to implement this” discussions will collectively give a draft design for a practical strategy process for 2007.

5. Opening: n I am not trying to convince you of anything. These principles are what I use. They are based on 25 years of exposure to planning and strategy, and much reflection on what is going on. These principles have helped me in practice. Pick and choose your way through this. This is not a contest of wills where I will try to convince you of what is right and how it should be done, vs. how you think things should be. n This is also not a review of strategy approaches or philosophies. This is simply what I have used in a large number of real situations. n Background on me: www.strumpfer.com

6. Workshop priorities n Priority 1: What matters is what you take away, not what I bring in here. n Priority 2: Refer Priority 1 n And this means? Volume of material Volume of input Volume of design

7. Here is Edward Bear, coming downstairs now, bump, bump, bump, on the back of his head, behind Christopher Robin. It is, as far as he knows, the only way of coming downstairs, but sometimes he feels that there really is another way, if only he could stop bumping for a moment to think of it. And then he feels that perhaps there isn’t. Anyhow, here he is at the bottom, and ready to be introduced to you, Winnie-the-Pooh.

8. The topics that would be covered include Principles for Planning – detailed coverage Planning processes overviews Planning Methods – very brief review of some, not in depth coverage of many Design – outline for for 2007

9. Programme: n Understanding principles n Group A Principles: Building mental models Meaning and implications discussion. n Group B Principles: Conversation Design Meaning and implications discussion. n Group C Principles: Design of Inquiry Meaning and implications discussion. n Group D Principles: Building Intellectual leadership Meaning and implications discussion. n Group E Principles: Building the case for change Meaning and implications discussion. n Group F Principles: Building competitive advantage Meaning and implications discussion. n Putting it together: A picture for 2007.

10. The Background on Principles. “There is nothing as practical as a good theory” Robert Maxwell. n Why? n Something is complex when we do not understand it. The task of complexity management is managing the learning process through which we create the appropriately rich mental models to guide us in terms of what we must do in a particular situation.

11. Problems with mental models (From John T Martin)

12. Group A Principles: Building mental models n Principle 1: The strategy process is about building mental models

13. Mental Models: n A mental model is a representation of some aspects of reality n Our actions are based on the mental models we hold of a situation n The confidence of our actions is based on our belief in our mental models n The effectiveness of our action is determined by the appropriateness of our mental models TB Ryan

14. What does management do?

15. Systems Management: A perspective Managers are faced with a system they need to manage. They have to intervene in such a way as to guide the system so that it moves from less to more desirable behaviour To do this they need to have.... TB Ryan

16. Managing requires... 1. A representative mental model of the current less desirable behaviour; 2. A feasible and acceptable mental model of desirable behaviour; 3. An adequate mental model of how the world works in this particular situation; 4. A belief based on the above 3 models that the system can be improved by managing it. TB Ryan

17. 17 Financial performance in two product lines

19. 19 Solution process n Group inquiry: Participation n Used Immersion, Soft Systems Methodology and Systems Dynamics Modelling (Systems Practice Process) n Questioned and shifted their ways of thinking and understanding the business. n Continuous action Refer: www.strumpfer.com/Publicationswww.strumpfer.com/Publications Article by Strumpfer & Brown

20. Group A Principles: Building mental models n Principle 1: The strategy process is about building mental models n Principle 2: IKEA principle: Effective Action is build on appropriate Knowledge (mental models), which are produced by a good Inquiry process

21. Effective Action Pragmatist Philosophy !! Desired outcome?

22. Effective Action Pragmatist Philosophy Appropriate Knowledge (mental models)

23. Effective Action Pragmatist Philosophy Appropriate Knowledge (mental models) Quality Inquiry

24. Effective Action Pragmatist Philosophy Appropriate Knowledge (mental models) Co-ordinated Action Quality Inquiry

25. Effective Action Pragmatist Philosophy Appropriate Knowledge (mental models) Co-ordinated Action Shared Mental Models Quality Inquiry

26. Effective Action Pragmatist Philosophy Appropriate Knowledge (mental models) Co-ordinated Action Shared Mental Models Quality Inquiry Joint/group learning

27. Effective Action Pragmatist Philosophy Appropriate Knowledge (mental models) Co-ordinated Action Shared Mental Models Quality Inquiry Joint/group learning Systems Thinking

28. Effective Action Pragmatist Philosophy Appropriate Knowledge (mental models) Co-ordinated Action Shared Mental Models Quality Inquiry Joint/group learning Systems Thinking Principles to increase Principles to increase effectiveness E.g. Multiple perspectives Connectedness Causality E.g. Shared workspace Conversation design

29. Group A Principles: Building mental models n Principle 1: The strategy process is about building mental models n Principle 2: IKEA principle: Effective action is build on appropriate mental models, which are produced by a good Inquiry process n Principle 3: The strategy process is a learning process

30. Learning Processes: Question Reflection Theory/Answer Test Concern Expectation Adapted form Handy’s Learning Wheel

31. Single and Double loop learning (Based on Argyris) Action Decided Outcome Desired Outcome Gap Single Loop Learning Double Loop Learning Effective Strategy Process Process Ineffective Strategy Process Changes beliefs, World views, Paradigm, Theory in Practice, Mental Models Action Taken

32. Example n “Actually, nothing changed, …. except that I think differently.” Don Brown.

33. Effective Action Appropriate Knowledge (mental models) Co-ordinated Action Shared Mental Models Quality Inquiry Joint/group learning Systems Thinking Individual Learning Process Group Learning Process

34. Solutions, Strategies & Experts n There is nothing as problematic as solutions (Argyris & Schön,1967) n The Berkeley experiments Solutions

35. The Strategy Process is a “Learning Intervention” “Planning is Learning”

36. Meaning and implications discussion: n What do these principles mean? n What are the implications of these principles in practice? n Measure of Performance? n How does a group learn? n What we should we do about this? n What should your role be?

37. Programme: n Understanding principles n Group A Principles: Building mental models Meaning and implications discussion. n Group B Principles: Conversation Design Meaning and implications discussion. n Group C Principles: Design of Inquiry Meaning and implications discussion. n Group D Principles: Building Intellectual leadership Meaning and implications discussion. n Group E Principles: Building the case for change Meaning and implications discussion. n Group F Principles: Building competitive advantage Meaning and implications discussion. n Putting it together: A picture for 2007.

38. Group B Principles: Conversation Design n Principle 4: Strategy development is a learning conversation

39. Effective Action Appropriate Knowledge (mental models) Co-ordinated Action Shared Mental Models Quality Inquiry Joint/group learning Systems Thinking CONVERSATION ! (Dialogue)

40. Group B Principles: Conversation Design n Principle 4: Strategy development is a learning conversation n Principle 5: Keep the conversation alive

41. Conversation Design considerations: n Keep the conversation alive n Focus the conversation on the right things n Keep the interest up n Keep the topic and angle fresh n Keep it meaningful n Keep the conversation relevant to the concerns of the day (Practical relevance) Eh…, how?

42. Basic conversation template Context Setting Choice of Framework* Question(s) To drive Conversation Debate Conclusions Decide Implications for Action Me/YouThey *More later

43. Process Design C F Q D C A C F Q D C A C F Q D C A C F Q D C A C F Q D C A C F Q D C A

44. Strategy: Things to strive to do Why change? Competitive Positioning Enterprise Design Strategic Choices Some actual frameworks driving strategic conversation design Any number of frameworks possible

45. Group B Principles: Conversation Design n Principle 4: Strategy development is a learning conversation n Principle 5: Keep the “Strategy Conversation” alive n Principle 6: An organisation is a “System of conversations”.

46. 46 n “Metaphor” = Analogy, model, lens n Lenses: Mechanistic Biological Social Systems People/Group Metaphor Cultural Metaphor Political Metaphor Language system Metaphor n What does “strategy” mean when looked at through these lenses? ORGANISATIONAL METAPHORS

47. 47 MODEL OF ORGANIZATION MACHINE MODEL Conceptualised asMindless system Example:Any Tool Objective:Serve purpose of the owner (profit) Attributes:Efficiency & reliability (predictability) Effective in:Production environment Deficiency & failure:Inability to deal with changing environment

48. 48 ORGANISATIONAL MODELS BIOLOGICAL MODEL Conceptualised asUni-minded system Example:Human body Objective:Serves itself (Survival & growth) Attributes:Learning & adaptation Effective in:Marketing environment Deficiency & failure:Inability to deal with conflict in choice

49. 49 ORGANISATIONAL MODELS SOCIAL SYSTEMS MODEL Conceptualised asMulti-minded system Example:Association of purposeful members Objective:Serve members & environment (Development) Attributes:Competency (ability & desire) Effective in:Systems era (Connectedness) Deficiency & failure:Inability to deal with conflict in choice

50. 50 “Human Systems Are Different”

51. 51 Purpose of Planning Social systems view n Organisational Control n System Integration

52. 52 How is system controlled? Low High Low CONTROL AUTONOMY Fear, InactionChaos Authoritarian Empowerment AlignmentSocialSystemsView

53. Conversation Systems View n Multiple simultaneous interlinked conversations n Conversations give meaning to words n “The words we use is the world we live in” n Conversations build the agreement and commitments required for action n Conversations yield the alignment we need n Free-flowing conversations create space for creative insights and ideas to surface

54. Synthesis questions:- 1. What are key forces shaping the future Business Environment did you hear in the presentation & discussion? 2. What key strategic choices facing did you hear in the presentation & discussion? 3. What are some of the things needs to do as a consequence of this information?

55. E.g. 2005 Strategy Conversation

56. Exco Strategy Process Env Scan Env Scan Env Scan Strategy Task Group Environmental Scan Future Shaping Forces & Strategic Choices Future Shaping Forces & Strategic Choices: Tentative W/s 1 Strategic Choices W/s 2 Change Thrusts Strategic Choices Identified & Decided (some) Key Strategic change thrusts CEO conversation W/s 3 Implemen tation

57. Exco Strategy Process Env Scan Env Scan Env Scan Strategy Group Environmental Scan W/s 1 Strategic Choices W/s 2 Change Thrusts CEO conversation W/s 3 Implemen tation Three Inter-linked & synchronised Strategic Conversations Additional ones: Cluster Strategy Conversations Staff (Top 500) Cluster groups

58. Process Design Decision Support to MD Decision Facilitation for Exco Future Direction Conversation Creates shared view of requirements Improves quality of and confidence in vision Interaction with Board Builds shared map of future for successful transformation Creates fundamental support for future direction with Board They provide detailed input to map and share in map Cluster Exco Input & Implementation

59. Future Direction Conversation n Objective: Effective Action n How: 1.Better & Shared metal models of the business and its future operating environment. 2.Improved inquiry process. I.e. Better questions to reflect on and discuss. n Milestone: Decision on core strategic change thrusts.

60. Inq: Future & Future Bus Environement Trends FSF FBE Scenarios Mang. Conf Engagement Events Initiatives Suggestions Inter action with Board & EXCO Videos 19-20 Apr Exco & Board Strat Session 4 - 15/4 5/3 Guardian Interact Sessions Workplace Roll-Out* Theme Specific Roll-Out * Apr - MayMay - JunJul - Sep Vision Confirmation Strategic Choices Initiatives List: Approved / Investigate / Rejects BU Planning Budget B. Score card Project 2010 30/Jun Apply CMF * Change Governance & Support Feedback & Progress Monitoring GoodCo 2010 (Drive Initiatives) Inter action with wider GoodCo Results Communication Mar/Apr Process Overview Exco Exco Session pre Strat Session

61. EG 2006 Environmental scan n Three, ultimately four sessions n Input, discussion, conclusion structure

62. “Listening” Questions for the Presentation:- 1. What a fundamental forces that will shape ’s future business environment do you pick up? 2. What are key strategic choices that is face with from the presentation?

63. Presentation Discussion question:- n What are the implications for in this presentation?

64. Inq: Future & Future Bus Environement Trends FSF FBE Scenarios Mang. Conf Introduce & share possible futures Open the debate on the need for change Open debate on prefered course of action Engagement Events 5 Large group sessions targetting 750 people (+/- 30%) representative groups Present & communicate a vision Participatively identify strategic initiatives for GoodCo success(vision) ID Specific required actions Initiatives Suggestions Inter action with Board & EXCO 19-20 Apr Exco & Board Strat Session 4 - 15/4 5/3 Guardian Interact Sessions All staff / countrywide Exco Driven, TG 2010 support Vision communication Future Process communication * Workplace Roll-Out* For identified BU’s and work gourps * Leadership preparation and support on initiative roll-out / planning Initiative specific implpementation planning using 7S model to explore impact More detailed actions per initiatives BU plan input /content Theme Specific Roll-Out * For 7S themes: Roll-out / paticipative sessions For theme: Intergration & coordination Theme task ops representative work groups Output: Company wide Theme action plans Apr - MayMay - JunJul - Sep Vision Confirmation Strategic Choices against Balanced Scorecard Initiatives List: Approved / Investigate / Rejects Budgetting Project 2010 30/Jun Apply CMF * Change Governance & Support Feedback & Progress Monitoring of BU Plans GoodCo 2010 (Drive Initiatives) Inter action with wider GoodCo Videos Exco Exco Session pre strat session Results Communication Exco & HR Driven Line Management involvement Video Based Feedback New Initiatives

65. Conversation Design: n Novelty requirement: Keep the interest by varying the technique (framework) n Use different angles (frameworks & questions) to get to essentially the same topic Who decides when the topic is exhausted? You. See later.

66. Conversation Management … is about…. n Targeting multiple conversation audiences; n Having synchronised conversations

67. Strategy Planning is having a “Strategic Conversation” Design a “Strategic Conversation”

68. Meaning and implications discussion: n What do these principles mean? n What are the implications of these principles in practice? n Measure of Performance? n How does one structure a strategic conversation? n What we should we do about this? n What should your role be?

69. Programme: n Understanding principles n Group A Principles: Building mental models Meaning and implications discussion. n Group B Principles: Conversation Design Meaning and implications discussion. n Group C Principles: Design of Inquiry Meaning and implications discussion. n Group D Principles: Building Intellectual leadership Meaning and implications discussion. n Group E Principles: Building the case for change Meaning and implications discussion. n Group F Principles: Building competitive advantage Meaning and implications discussion. n Putting it together: A picture for 2007.

70. Section omitted due to technical nature

71. Programme: n Understanding principles n Group A Principles: Building mental models Meaning and implications discussion. n Group B Principles: Conversation Design Meaning and implications discussion. n Group C Principles: Design of Inquiry Meaning and implications discussion. n Group D Principles: Building Intellectual leadership Meaning and implications discussion. n Group E Principles: Building the case for change Meaning and implications discussion. n Group F Principles: Building competitive advantage Meaning and implications discussion. n Putting it together: A picture for 2007.

72. Refer separate diagram n Diagram to be developed n Concept to be discussed

73. Shifting the burden structure Symptomatic Solution Problem symptom Fundamental Solution Side Effect + + + + + - - - +

74. Shifting the burden structure in soft problem situations + + + + + - - - + Deal with issue (make decision) Current problem, “crisis” or issue requires decision Clarify thinking, decision criteria (Vision; Long term positioning) Time spent on fundamental re-thinking of assumptions

75. 75 Thinking Ladder to Action n Choice of Action is based on n Beliefs held of the situation, n Which are based on Assumptions you make regarding real situation, n Which are formed from Observations you make in the situation.

76. Meaning and implications discussion: n What do these principles mean? n What are the implications of these principles in practice? n Measure of Performance? n To what extend do we need to build intellectual leadership? n What we should we do about this? n What should your role be?

77. Programme: n Understanding principles n Group A Principles: Building mental models Meaning and implications discussion. n Group B Principles: Conversation Design Meaning and implications discussion. n Group C Principles: Design of Inquiry Meaning and implications discussion. n Group D Principles: Building Intellectual leadership Meaning and implications discussion. n Group E Principles: Building the case for change Meaning and implications discussion. n Group F Principles: Building competitive advantage Meaning and implications discussion. n Putting it together: A picture for 2007.

78. The Inflection Curve Inflection point 10x force Decline Growth

79. Seven Forces Model (adapted from Grove) Business Power, vigour, competence of existing competitors Power, vigour and competence of potential competitors Power, vigour and competence of customers Power, vigour and competence of suppliers Power, vigour and competence of complementers Possibility of that what your business is doing can be done in a different way Socio-political

80. GoodCo Really Succesful GoodCo Fail Then Now “Short” Term FUTURE FAIL 2010 Realistic & very credible failure scenarios for GoodCo. “High” Celebrating this at Management Conference. Realistic & very credible high achievement scenarios for GoodCo. MUCH better performance. Management Conference – GoodCo’s Performance CEO: Current Performance & how we got here. GoodCo’s Performance GoodCo New Current Situation What we did / did not do? What we did do to get here? Possible Future Environments

81. Practical Gap Action results Individual Expectations Rethink action within existing mental framework Level of surprise Size of gap, Magnitude of negative impact Determine action Rethink Mental Framework Limitation on extent of framework change Current corporate culture Number and extent of surprises corporate mind registers Openness to change of corporate mind Corporate mind shift

82. How ready is this organisation for change?* n CEO/MD? n Board? n Executive management? n Senior staff/middle management? * What kind of change? See later

83. If you need to:- Scenario planning Refer tables

84. 84 Arie De Geus: Change Management n “Memory of the future” n Alternate time paths into the future n One-track mind vs environmental sensitivity n Planning as learning

85. 85 Scenario Planning n Building alternate future time paths n Rich “memory of the future”

86. 86 SCENARIO DEFINITION A COHERENT STORY ABOUT THE UNFOLDING OF FUTURE EVENTS.

87. 87 Scenario Planning n Context for decision making n Understanding more possibilities n Develops mental model of the future n Does not tell you what to do

88. 88 Competitive Advantage n A sustainable competitive advantage is very rare n Knowing when to change is crucial

89. 89 Alternate scenario approaches Present Future shaping factors Different plausible future outcomes Concerns Key uncertainties Rules of the game Alternate future scenarios Events (influenceable) Trends (not influenceable) End states Required Direction

90. 90 Scenario Planning Present Future shaping factors Different plausible future outcomes

91. 91 Scenario Development Technique: n Consider a major issue, concern, question or decision n What could happen from a... pessimistic (things get worse) viewpoint? optimistic (things get better) viewpoint? no-change (things neither worse nor better) viewpoint? Describe a sequence of events unfolding. n What are the pitfalls and opportunities in each of these three outcomes? n How should I/you/we act on this issue if each of these three cases occur?

92. 92 Steps in scenario development n Identify 3-5 major uncertainties in each of the windows on reality. n Combine to form 9-11 key uncertainties. n Interpret to form sequence of unfolding events, using scenario technique (optimistic, pessimistic, no-change). n Describe logic of scenario using systems dymanic model n Identify pittfalls and opportunities in each scenario n Itentify broad strategies.

93. Case Study: Telkom Scenarios (Footnote: Race car driver training)

94. 94 Participation Appreciate Current Situation Current Future Scenarios Desired Future Scenario Enterprise Design Strategies & Action Plans Planning Process

95. Srategy Conversation BUILDS: n Shared understanding of problematique (“mess”) n Alignment w.r.t. ends n Agreement on action (see later) n Continuous action (see later)

96. 96 Effective Strategic conversation n “ An effective strategic conversation requires a balance between integration of mental models, to enable the organisation to come to a shared conclusion and move forward, and differentiation of mental models, to ensure that a wide range of weak signals in the environment are perceived, understood and brought into the system to enter the conversation and be acted upon.” (Van Der Heijden)

97. 97 ENVIRONMENTAL SCANNING è POLITICAL ENVIRONMENT è ECONOMIC ENVIRONMENT è SOCIAL ENVIRONMENT è TECHNOLOGY ENVIRONMENT è INSTITUTIONAL/ORGANISATIONAL ENVIRONMENT è NATURAL/PHYSICAL ENVIRONMENT WINDOWS ON REALITY

98. 98 ENVIRONMENTAL SCANNING Key Questions s WHAT CHANGES & TRENDS, IMPORTANT TO, DO YOU OBSERVE? s WHAT DRIVE THESE CHANGES? WHAT FACTORS INTERACT TO PRODUCE THESE CHANGES? s WHAT IMPACT IS THIS LIKELY TO HAVE IN THE FUTURE? WHY ARE THEY IMPORTANT? s...MORE

99. 99 ENVIRONMENTAL SCANNING Key Questions s WHICH HIGH IMPACT DEVELOPMENTS MAY UNFOLD IN FUNDAMENTALLY DIFFERENT DIRECTIONS, DEPENDING ON OUTCOME OF FUTURE EVENTS? (KEY UNCERTAINTIES) s WHICH OF THESE DEVELOPMENTS ARE: -UNDER CONTROL OF ? -MAY BE INFLUENCED BY ? -NOT INFLUENCABLE NOR CONTROLLABLE? (RULES OF THE GAME)

100. Linking Environmental Scan & Scenario Development n Env Scan front-end to Scenario Development – eg Telkom

101. Meaning and implications discussion: n What do these principles mean? n What are the implications of these principles in practice? n Measure of Performance? n To what extend do we need to build the case for change? n What we should we do about this? n What should your role be?

102. Programme: n Understanding principles n Group A Principles: Building mental models Meaning and implications discussion. n Group B Principles: Conversation Design Meaning and implications discussion. n Group C Principles: Design of Inquiry Meaning and implications discussion. n Group D Principles: Building Intellectual leadership Meaning and implications discussion. n Group E Principles: Building the case for change Meaning and implications discussion. n Group F Principles: Building competitive advantage Meaning and implications discussion. n Putting it together: A picture for 2007.

103. 103 Strategy is Acting to Survive Strategy is the conscious behaviour manifested in the behaviour of individuals and groups for the purpose of continued survival. Why? A little diversion…later Johan Strümpfer, 1997

104. 104 “What is strategy?” n Strategy is the creation of a unique and valued position, involving a set of activities. If there were only one ideal position, there would be no need for strategy. Companies would face a simple imperative -- win the race to discover and preempt it. The essence of strategic positioning is to choose activities that are different from rivals’. If the same set of activities were best to produce all varieties, meet all needs, and access all customers, companies could easily shift among them and and operational effectiveness would determine performance. (Porter)

105. 105 Views on Strategy n Prahalad: … a strategic architecture is the link between present and the future. I tells you what you should be doing now, …, in order to create a winning position for yourself in a new opportunity arena.

106. 106 Views on Strategy n Porter: … getting ahead--then staying ahead- is the basis of strategy: creating a competitive advantage. Strategy is about setting yourself apart from the competition. It’s not a matter of being better at what you do -- it’s a matter of being different at what you do. … A good strategy is concerned with the structural evolvement of the industry as well as with the firm’s own unique position within that industry. … Increasingly,... companies... don’t just optimise within an industry, but actually reshape and redefine their industry.

107. 107 Views on Strategy n Seymour: …there’s not another market extant that shows as well as the [Personal Computer] business how irrelevant zero-sum thinking has become: Successful companies expand the entire marketplace, not just their own revenues.

108. 108 The strategy logic Business success Available resources Organisational Maintenance and Development Effort Distinctive Competencies Profit Potential Customer Value Customer Choices Competitive advantage

109. 109 The strategy logic: te essence of strategy n Choose a position, with respect to the overall operating context, that is different. n The positions the set of activiest the business underatakes. n What is different about this position? n Why is it valued, by whom?

110. 110 The Strategic Business Model n A rational articulation of business success, past and future n A shared mental model of what makes the business succeed n Successful organisations concentrate on one strategic business model (not business, not core business) n A shared framework for ensuring focus SBM work adapted from Van Der Hijden

111. 111 The strategy logic Business success Available resources Organisational Maintenance and Development Effort Distinctive Competencies Profit Potential Customer Value Competitive advantage

112. 112 Business success Available resources Organisational Maintenance and Development Effort Distinctive Competencies Profit Potential Customer Value Competitive advantage Operational & Organisational Effectiveness

113. 113 Strategy Development and Strategic Business Model n SBM structures a joint rational consideration of the business focus n Evaluation of current strengths and weaknesses of distinctive competencies and their interaction n The future outlook for maintaining business success in changing conditions.

114. 114 Profit Potential Profit Operational Effectiveness Quality of strategy Implementation Profit Potential Strategy Appropriateness

115. 115 Profit Potential n Current value creation n Perceived future value creation Buyers value system Seller’s Distinctive Competencies The offer VALUE “Fit”

116. 116 Profit Potential results from n Discovering new ways of doing something for customers for which they will pay (creating value) n Bringing together a combination of factors & competencies to do this (create this value) n Creating uniqueness in this formula (difficult to emulate) in order to lay claim to this created value n Maximising the difference between customer value and supplier cost

117. 117 Distinctive Competencies n Competency: Ability to do something n Distinctive: created in the organisation over time and uniquely part of the organisation Cannot be sold or traded Not company “strengths” Barriers to entry for competition n What is unique about this particular Strategic Business Model, and why are others unable to emulate it?

118. 118 Fundamental Sources Of Distinctiveness n Uncodified institutional knowledge Uniqueness is not enough; must be embedded Sits in networked people Sits embedded in processes Does not sit in individuals (Not personal knowledge) n Sunk costs/irreversible investments Investments in reputation Sits in legal protection Sit in specialised assets

119. 119 Examples of Distinctive Competencies n Institutional Knowledge: Institutional R&D capability Company know-how Functional knowledge pools Knowledge of customer value systems Shared assumptions and values

120. 120 Examples of Distinctive Competencies-2 n Embedded processes: Leadership style and commitment Links into the world of the consumer Access to distribution channels Institutional relationships with government Internal communication, business systems, and culture Staff identification and commitment …...

121. 121 Examples of Distinctive Competencies-3 n Reputation and trust: Brand Installed base Dominant size and presence Financial clout n Legal protection Concession agreements Patents Ownership of prime sites

122. 122 Examples of Distinctive Competencies-4 n Activity specific assets: Investments in size, market share and image Sunk investments in sites, exploration, experimentation, specialised equipment, … Investments in economies of scale, distribution systems First mover in production capacity investment

123. 123 Systemic Distinctive Competencies n Distinctive competencies may occur singly Easier to emulate n Synergy in distinctive competencies obtained by systemically integrating distinctive competencies Yields potent Strategic Business Model Very difficult to emulate

124. 124 Distinctive Competencies Depreciate and perish over time : n Eventually competitors finds ways to emulate the essence of the competency n The overlap between the competency and the customer value system reduces because of evolving customer values. Distinctive Competencies must be maintained and renewed through creation of new ones out of value generated with existing ones.

125. 125 Characteristics of Good Distinctive Competencies n Investments are largely irreversible n Distinctive Competencies cannot be sold or transferred to other firms n There is a limit to which development thereof can be speed up by increasing investments n Development thereof is a gradual evolution through collective learning and information sharing n Strong Strategic Business Models exploit multiple distinctive competencies re-inforcing each other in a synergistic way n Distinctive Competencies create competitive advantage in the eyes of customers.

126. 126 Competitive Advantage Derives from:- n A Profit potential, derived from premium price: Distinctive Competencies are used to create a differentiated product, the characteristics of which the customer is prepared to pay a superior price compared to competitive products n A Profit potential derived form cost leadership: The distinctive competencies are used to create unique low-cost ways of creating or making available a non- differentiated product. This allows the supplier to make available a competitively priced alternative for the customer.

127. 127 Sources of Differentiation n Intrinsic to product: Unique features and attributes, of quality, design, availability, and support n Intrinsic to relationship: Dynamic capability to produce uniquely fitting product, based on superior relationship between supplier and customer, based on image, access, effective communication and understanding.

128. 128 Differentiation n Requires deep understanding of what creates value for the customer Customer research is not enough Customers do not know needs they have not experienced n Can only be created out of the optimisation of the total customer/supplier system

129. 129 Cost leadership n Works with standardised and clearly defined products with a continuing market n Customers have many alternative sources of supply n Operates in commodity markets

130. Summary: Competitive Advantage derive from n Cost leadership n Differentiation in terms of unique & valued qualities in the offering. n Both depend on distinctive competencies Increasing complexity to build n BOTH have a limited shelf life Decreasing shelf life duration

131. The diversion:- Why?

132. Source: Ericsson, quoted by Acton, Telkom.

133. 133 Why industries change: n increase in competitiveness n technology n globalisation n consumerism

135. 135 Why industries change: n increase in competitiveness globalisation technology consumerism n simple survival pressure form an exploding population of individuals and organisations n more people, more educated people Were are only in the early stages of this dynamic

136. Future Road Map:Key questions 1. To what extent does have to change/innovate to regain a dominant competitive position? (How much change is needed?) 2. What should ’s future strategic competitive position be? (How will we compete?) 3. What are we striving to achieve? Where is going to? What are the key choices we face? 4. How will we get there? What are the main things has to do?

137. To what extent does have to change/innovate to regain a dominant competitive position? (How much change is needed?)

138. “Strategic Bankruptcy” Refer to separate article

139. Meaning and implications discussion: n What do these principles mean? n What are the implications of these principles in practice? n Measure of Performance? n To what extend do we need to (re-) build our competitive advantage? n What we should we do about this? n What should your role be?

140. Programme: n Understanding principles n Group A Principles: Building mental models Meaning and implications discussion. n Group B Principles: Conversation Design Meaning and implications discussion. n Group C Principles: Design of Inquiry Meaning and implications discussion. n Group D Principles: Building Intellectual leadership Meaning and implications discussion. n Group E Principles: Building the case for change Meaning and implications discussion. n Group F Principles: Building competitive advantage Meaning and implications discussion. n Putting it together: A picture for 2007.

141. A template process framework: n Refer next slide n Develop a set of pictures depicting your views on a desirable strategy process for in 2007.

142. Strategy: Things to strive to do Why change? Competitive Positioning Enterprise Design Strategic Choices Tools: SBM SDM Bus Idea Outcomes: Distinctive Competencies (Core Competence) Expire by date New Trajectories Tools: Env Scan Scenarios 7 Forces Tool: Strategic Choice Making Tools: MED Network Design Tools: NGT Brainstrom Clustering Outcomes: Differentiation Outcomes: Operating Model Business Structure Outcome: Shared Perception of doom Outcomes: Direction list(3-5 items)

143. Additional Material for Reference

144. Multiple Perspective Exploration n Viewpoints n Viewpoint definitions n Prioritisation of outcomes ( with causal logic) n Activity models n Build consensus on action

145. 145 WHAT IS THIS? With thanks to G de Wet

146. 146 WHAT IS THIS?

147. 147 WHAT IS THIS?

148. 148 WHAT IS THIS?

149. 149 WHAT ARE THESE? IMAGES MODELS

150. Problems and solutions n There is nothing as problematic as solutions (Argyris & Schön,1967) n The Berkeley experiments Solutions