An Introduction to Strategy

Transcription

1 An Introduction to Strategy

2 What is strategy? According to Google there are 1,530,000,000 answers to this question! Rather than review them all, a good way of approaching the question is through studying what strategists actually do when they strategize.

3 Definitions of strategy..the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goals... strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value a grand narrative that local interests can seek to articulate to further whatever it is that they most desire to do a story that can be made to fit whatever the facts are represented as being can be used to legitimate how and where an organization has got to rather than showing it the way to get there...a pattern in a stream of decisions..the long-term direction of an organisation depends on the history of organisation where early events and decisions establish paths that determine current decisions.

4 Strategy development routes

5 Strategic decisions

6 Levels of strategy Corporatelevel strategy Business-level strategy Operational strategy News Corporation diversifying from print journalism into social networking. Website and marketing improvements at My Space to attract more users. MySpace engineers increasing processing Capacity.

7 Levels of strategy Corporate-Level Strategy is concerned with the overall purpose and scope of an organisation and how to add value to business units. Business-Level Strategy is concerned with the way a business seeks to compete successfully in its particular market. Operational Level Strategy is concerned with how different parts of the organisation deliver the strategy in terms of managing resources, processes and people.

8 Strategy s three key issues CONTEXT internal and external. Where are we now? CONTENT strategic options. What is we want to achieve? PROCESS formation and implementation. How do we want to make it realised?

9 Fundamental questions for Strategic Context What are the environmental opportunities and threats? What are the organisation s strengths and weaknesses? What is the basic purpose of the organisation? How does culture shape strategy?

10 Fundamental questions for Strategic Choice: How should business units compete? Which businesses to include in the portfolio? Where should the organisation compete internationally? Is the organisation innovating appropriately? Should the organisation buy other companies, form alliances or go it alone?

11 Fundamental questions for Strategy Formation & Implementation Which strategies are suitable, acceptable and feasible? What kind of strategy-making process is needed? What are the required organisation structures and systems? How should the organisation manage necessary changes? Who should do what in the strategy process?

12 Understanding External Context The PESTEL framework categorises environmental influences into six main types: political, social, environmental economic, technological, legal Thus PESTEL provides a comprehensive list of influences on the possible success or failure of particular strategies.

13 PESTL example

14 Using the PESTEL framework Apply selectively identify specific factors which impact on the industry, market and organisation in question. Identify factors which are important currently but also consider which will become more important in the next few years. Use data to support the points and analyse trends using up to date information Identify opportunities and threats the main point of the exercise!

15 Group Activity 1 For the following industries identify four macro factors that could have a significant impact and state why. Quote specific examples if you can. International long haul airlines UK food retailing Premier league football Car manufacturing Memory chip manufacturing

16 Scenarios Scenarios are detailed and plausible views of how the environment of an organisation might develop in the future based on key drivers of change about which there is a high level of uncertainty. Build on PESTEL analysis. Do not offer a single forecast of how the environment will change. An organisation should develop a few alternative scenarios (2 4) to analyse future strategic options.

17 Carrying out scenario analysis Identify the most relevant scope of the study the relevant product/market and time span. Identify key drivers of change PESTEL factors that have the most impact in the future but have uncertain outcomes. For each key driver select opposing outcomes where each leads to very different consequences.

18 Carrying out scenario analysis Develop scenario stories - That is, coherent and plausible descriptions of the environment that result from opposing outcomes Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios. Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.

19 Scenarios for the global financial system, 2020

20 Group Activity 2 For the industry you chose in Group Activity 1, develop a set of scenarios

21 Industries, markets and sectors An industry is a group of firms producing products and services that are essentially the same. For example, automobile industry and airline industry. A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany). A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector)

22 Porter s five forces framework Porter s five forces framework helps identify the attractiveness of an industry in terms of five competitive forces: the threat of entry, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the extent of rivalry between competitors. The five forces constitute an industry s structure.

23 The five forces framework (1)

24 Comparative industry structure analysis

25 The industry life cycle

26 Who are the strategic customers? A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased. Examples: For a food manufacturer it is the multiple retailers (e.g. Tesco) that are the strategic customers not the ultimate consumer. For a pharmaceutical manufacturer it is the health authorities and hospitals not the final patient.

27 Critical success factors (CSFs) Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost. Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them). Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be punctuality and value for money whereas in full service airlines it is all about quality of service).

28 Strategy canvas

29 Internal Context: Resources and competences Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers),that is, what we have. Competences are the ways those assets are used or deployed effectively, that is, what we do well.

30 Threshold and distinctive capabilities Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market qualifiers. Distinctive capabilities are those that critically underpin competitive advantage and that others cannot imitate or obtain winners.

31 Threshold and distinctive capabilities

32 Strategic capabilities and competitive advantage The four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: value, rarity, inimitability and non-substitutability

33 SWOT analysis SWOT summarises the strengths, weaknesses, opportunities and threats likely to impact on strategy development. INTERNAL ANAYSIS EXTERNAL ANALYSIS STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

34 Group Activity 3 Consider a company or organisation that you know of and list its unique resources and core competences. Explain how these underpin the company s sources of competitive advantage and whether they likely to be sustainable in the long-run.

35 Generic strategies Generic Strategy means basic types of competitive strategy that hold across many kinds of business situations. Competitive strategy is concerned with how a strategic business unit achieves competitive advantage in its domain of activity.

36 Three generic strategies

37 Cost-leadership Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity. Four key cost drivers that can help deliver cost leadership: Lower input costs. Economies of scale. Experience. Product process and design.

38 Differentiation strategies Differentiation involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium. Two key issues: The strategic customer on whose needs the differentiation is based. Key competitors who are the rivals and who may become a rival.

39 Differentiation in the US airline industry

40 Costs, prices and profits for generic strategies Figure 6.4 Costs, prices and profits for generic strategies

41 The SAFe criteria

42 Financial feasibility Need to consider: The funding required. Cash flow analysis and forecasting. Financial strategies needed for the different phases of the life cycle of a business.

43 People and skills (1) Three questions arise: Do people in the organisation currently have the competences to deliver a proposed strategy? Are the systems to support those people fit for the strategy? If not, can the competences be obtained or developed?

44 People and skills (2) Critical issues that need to be considered: Work organisation will this need to change? Rewards are the incentives appropriate? Relationships will people interact differently? Training and development are current systems appropriate? Staffing are the levels and skills of the staff appropriate?

45 Types of control systems

46 Types of control systems Direct supervision direct control of strategic decisions by one or a few individuals, typically focused on the effort of employees. Cultural systems aim to standardise norms of behaviour within an organisation in line with particular objectives. Performance targets focus on the outputs of an organisation (or its parts) such as product quality, revenues or profits. Internal market systems a formal system of a) contracting for resources or inputs and b) for supplying outputs to other parts of an organisation.

47 Balanced scorecards Balanced scorecards set performance targets according to a range of perspectives, not only financial. Typically combine four specific perspectives: financial, customer, internal and innovation and learning.

48 Strategy maps Strategy maps link different performance targets into a mutually supportive causal chain supporting strategic objectives.

49 A strategy map

50 Configurations Configurations are the set of organisational design elements that interlink together in order to support the intended strategy.

51 McKinsey 7-S framework

52 The strategists top managers and directors Chief Executive Officer Top management team Non-executive directors

53 Strategy skills Three qualities senior managers need to contribute to high-level strategy-making: Mastery of analytical concepts and techniques; Social and influencing skills; Group acceptance as a player respect.

54 Strategic issue-selling Strategic issue-selling is the process of gaining the attention and support of top management and other important stakeholders for strategic issues.

55 Who to include in strategy making?

56 Group Activity 4 Consider a company or organisation that you know of and list some of the key challenges which it has faced or the major mistakes it has made in the implementation of its most recent strategy.

57 THE QUESTION OF POLITICS? The biggest enemies of rationality of strategic decision making are the power and politics that are inscribed in every decision: different stakeholders with different interests will always try and influence a decision according to their own interests. Most strategic decision processes are ultimately political in that they involve decisions with uncertain outcomes, actors with conflicting views, and resolution through the exercise of power. Strategic decision making can be read as a game: different factions manoeuvre for influence. Let s see this short video clip about importance of politics:

58 Group Activity 5: STRATEGIC LEADERSHIP SKILLS Reflect on Schoemaker et al. s (2013) strategic leadership skills test you have done. In pairs, discuss your results in relation to your current or previous work experience and identify areas for development. Start drafting your self-assessment and action plan for the development of your strategic leadership qualities including the following: Which strategic leadership skills do I want to improve the most? Why? What will be my payoff? What potential obstacles stand in my way? What specific things will I do to improve? When will I do them? How and when will I measure my success?

59 Group Activity 6: SOME POINTS RELATED TO STRATEGIC LEADERSHIP Interview with Jack Welch, former Chairman and CEO of General Electric between 1981 and Analyse the video and identify at least 10 themes that emerged in relation to effective strategic leadership.