What is Strategy?

What is Strategy?
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“Strategic thinking is the art of outdoing an
adversary, knowing that the adversary is trying
to do the same to you.”
“It is also the art of finding ways to cooperate,
even when others are motivated by self-interest,
not benevolence. It is the art of convincing
others, and even yourself, to do what you say.
It is the art of interpreting and revealing
information. It is the art of putting yourself in
others shoes so as to predict and influence what
they will do.”
The Art of Strategy, Dixit and Nalebuff, W.W. Norton, 2008.
Strategy
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Strategy is planning that allows you to delight
your customers.
Strategy is about getting customers and keeping
them.
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Drucker: “The purpose of a business is to create a
customer.”
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Product first, not profits
Strategy
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The process of strategy includes:
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Analysis
Formulation
Implementation
Strategic Planning and Analysis
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Planning how to delight customers requires
these steps:
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Scanning the overall environment
Scanning and researching the industry environment
Researching direct competitors
Researching your organization's skills and resources
Analyzing current strategy
And, most important, knowing what will delight your
customers before they know it
“The Five Competitive Forces That Shape Strategy,” Michael Porter, Harvard Business Review, January 2008.
Before the Internet
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Michael Porter wrote the initial model for the
Five Forces in 1979.
He wrote “What Is Strategy” for HBR in 1996,
his seminal book Competitive Strategy in 1981,
and Competitive Advantage in1985.
Before the Internet (BTI)
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Before Google
Before Napster, iTunes, and the iPod, iPhone, and
iPad
Before craigslist.com
He didn’t consider how to compete with free.
Before Behavior Economics
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Porter made his major contributions to strategy
theory before behavioral economics research.
BE research has shown that people do not make
rational decisions (emotions dominate) and that
markets are not rational.
That success is more often the result of luck
(randomness) than carefully planned strategy.
Delighting customers with awesome products is
the key now, not having barriers to entry.
Randomness
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People are not wired to understand randomness.
We are wired to see patterns and causality;
can’t accept randomness.
Can’t plan for luck.
But can be nimble and take advantage of lucky
breaks.
Operational Effectiveness Is Not Strategy
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Concentration on core competencies and
competitive positioning via benchmarking can
lead companies down the path toward mutually
destructive competition.
Companies must distinguish between operational
effectiveness and strategy and not confuse
them.
“What is Strategy,” Michael Porter, Harvard Business Review, November 1996, Reprint # 96608
Operational Effectiveness Is Not Strategy
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Operational effectiveness is necessary to
compete but not sufficient to win.
A company can outperform others and win only if
it can establish a difference that it can sustain –
a differential competitive advantage.
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In the past barriers to entry were the primary
competitive advantage.
Now, it's better products and service.
Operational effectiveness means doing things
better than competitors, strategic positioning
means doing things different from competitors
and having better products and service.
Strategy Rests On Unique Activities
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The essence of strategy is choosing to perform
activities differently than rivals do.
Strategic positions can be based on customers’
needs, customers’ accessibility, or the variety of
a company’s products or services.
Porter’s concept of fit is no longer valid.
Change is happening too fast.
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Remember, “structure follows strategy”
Generic Strategies
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There are three generic (primary) strategies:
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Differentiation
Focus (niche marketing)
Cost leadership
These definitions characterize strategic positions
at the simplest and broadest levels.
Secondary Strategies
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Within the three basic strategies, there are
several secondary strategies:
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Defense: Block competition to avoid losing market
share.
Offense: Attack competition head on.
Flanker Brand: Establish new position.
Fighting Brand: Create a new brand to compete with
competitive new brand.
Guerrilla Marketing: Force competition to respond
with small resources.
Ambush Marketing
Profitable Niche
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Measurable, sizable, reachable
Niche strategy advantages:
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Flexible, can adapt to new needs, small range of
needs.
Efficient for promotion, distribution.
Reduces competitive pressure.
With few competitors, can be highly profitable.
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Niche strategy disadvantages:
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To thrive in most businesses, must be #1, #2, or
get out (find a new niche).
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Few economies of scale
Success breeds competition. When new competitors
enter the niche, strategy must change.
Get out in the long tail.
Innovate with new products.
Differentiate By Benefits Sought By
Consumers
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Grocery buying segments
1
2
3
4
5
Location
Price
Service
Selection
Quality
- 39.0%
- 30.2%
- 12.1%
- 9.5%
- 4.4%
A Sustainable Strategic Position Requires
Trade-offs
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Tradeoffs are essential to strategy. They create
the need for choice and purposefully limit what a
company offers.
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Remembering that a valuable position will attract
copycats.
Can’t be all things to all people. Be best at
doing a few things.
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Then expand on those core competencies.
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Apple
Google
Amazon
Determining Strategy
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To determine strategy, answer the following
questions:
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Which of our products/services are the most distinctive?
Which of our products/services are the most profitable?
Which of our customers are the most satisfied?
Which customers, channels, or purchase occasions are
most profitable?
Which of the activities in our value chain are the most
different and effective.
How can we make everything better? Now!
Profit is Important
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Profit is the key to a successful strategy, not
growth.
Compromises and inconsistencies in the pursuit
of growth will erode the competitive advantage
a company.
Keep an eye on profitable growth.
Potential Traps
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Meaningless differentiation
Getting greedy
Groupthink
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Alfred Sloan
Throwing money at a problem
Lack of commitment
Innovation stagnation
Perceptual Problems
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“All the kids are above average…”
Jim Collins lists five basic management
perceptual mistakes that lead to five stages of
decline:
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Stage
Stage
Stage
Stage
Stage
1:
2:
3:
4:
5:
Hubris Born of Success
Undisciplined pursuit of more
Denial of risk and peril
Grasping for Salvation
Capitulation to Irrelevance or Death
Jim Collins, How the Mighty Fall, Harper Collins, NY 2009.
The Role of Top Management
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The role of top management in an organization
is:
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Defining an organization’s position and strategy
Making trade-offs
Forging fit among activities
Building an innovation machine
And strategy may have to change along with
major structural changes in an industry -flexibility is vitally important.
Organizations
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Must have a visionary, meaningful mission
statement.
Must have a clear and simple strategy.
Must define how to delight customers.
Must be committed to strategic moves and
signal commitment to competitors.
Must continually innovate.
The Strategy Focused Organization *
Mission:
“Why we exist”
Core Values:
“What we believe in”
Vision: “What we want to be”
Strategy: “Our game plan (how to win)”
Goals For Implementing Strategy (Metrics):
“What we need to do”
OUTCOMES
Satisfied
Shareholders
Delighted
Customers
Effective
Process
Motivated and
Prepared
Workforce
* The Strategy Focused Organization, Robert Kaplan, David Notron, Harvard Business School Press, 2001