WHAT IS STRATEGY? Assignments

Transcription

1 WHAT IS STRATEGY? Assignments PAGE 2 1

2 PAGE 3 EXPLORATION AND EXPLOITATION What if Exploration - New thoughts - Question the present - Discover new possibilities - Entrepreneurship - Long time horizon - Make a little, sell a little à Revolution A company needs to be good at BOTH Exploration AND Exploitation What is Exploitation - Incremental improvements - Measure performance - Cost control - Short time horizon à Evolution 2

3 STRATEGY IS " Choice " Priorities " Pattern " Direction " Differentiation " Position PAGE 5 3

4 High Debt/Equity Ratio Financial strategy: Low Debt/Equity Ratio Slow pace of growth Growth strategy: Aggressive growth Low cost location Place: Prime location In-house manufacturing Production: Suppliers SCANIA S CHOICES Type of vehicles Position Pricing Key in Development and Production Make or buy? Home base / heritage Geographical markets Growth through acquisitions Forward integration Scania s choice Only heavy vehicles Premium brand Always go for profitability, never for market share (on the expense of profitability) Always built upon Scania s modularization If the labor cost is less than X % - Make! All R&D in Södertälje, all production methods are developed in Södertälje, corporate language is Swedish Not North America, not the first to enter a new market (e.g. China and India) No! Big emphasis on Service and Finance 8 4

5 DGC One Atlas Copco ICA Volvo PEAB We only sell B2B We don t sell consumables We sell private brands Safety is our hallmark We concentrate on the Nordic region PAGE 9 CEO Steve Jobs said that strategy is: "saying no to 1000 things" so as to concentrate on the really important creations! " 5

6 DILBERT ON STRATEGY PAGE 11 MINTZBERG: EMERGENT STRATEGY PAGE 12 6

7 PATTERNS OVER TIME: STRATEGIC HERITAGE PAGE

8 WHAT IS A COMPETITIVE ADVANTAGE? 1. Important for the customer 2. Actually perceived by the customer and 3. Sustainable / difficult to copy SOME CHALLENGES WITH STRATEGY " Senior managers rarely have a consistent way of describing strategy " Two thirds of work in HR- and IS/IT-departments are not aligned with strategy " 60% of the companies don t align budget to strategy " 70% of middle managers don t have rewards tied to strategy " Very few management teams discuss strategy more than one hour per month " 95% of workforce don t know the strategy (HBR, Norton och Kaplan. Oct. 2005) 16 8

9 THE STRATEGY PROCESS The formal / traditional way to see it: Analysis Formulation The pragmatic way to see it: Find your aspiration based on rational analysis AND your energy / vision Find the GAP (dissatisfaction with status quo) What is standing in our way? Implementation What should we focus on? Do it! Give voice when we are off track! PAGE 17 THE THREE BASIC QUESTIONS 1. What is our present situation? Evaluate industry conditions, the organization s current financial performace, and market standing, its resources and capabilities, its competetive strengths and weaknesses and changes taking place in the business environment that might affect the organization. 2. Where do we want to go from here? Management s vision of the organization s future direction what new customers/clients or stakeholder needs to endeavour to satisfy and what new capabilities to build or acquire. We can see this as the content of the organization s strategy. 3. How are we going to get there? Challenges managers to craft and execute a strategy capable of moving the organization in the intended direction. This is the process of putting the strategy into action and is the most difficult element of strategy to control as the reality is that planned strategies are rarely, if ever, fully realized. PAGE 18 9

10 INPUT TO THE PROCESS WHERE DOES IT COME FROM? 1. Mission, vision and values 2. Guidance from the top 3. Your ambitions 4. Information and knowledge around you: Find (explore) Find out (invent) PAGE 19 10

11 STRATEGY AS A PART OF A SYSTEM Mission (our role in society) - what are we supposed to accomplish? Values / Culture - what are our core beliefs / core values? Vision - what is the ultimate future? (that we are getting energized by) Goals / Wanted position - where are we going? Strategy - how are we going to achieve our goals / wanted position? Resources / Competencies - which resources / competencies will support the strategy? PAGE 21 PAGE 22 11

12 SAAB S FINANCIAL STRATEGY PAGE 23 STRATEGY HIERARCHY Financial strategy Which capital structure are we going to work with? Which level of financial risk are we prepared to take? Is it a goal to free up capital? Is cash flow crucial to us? Growth strategy Group strategy How shall we grow? In which areas? Acquisitions? Top-line growth (at the expense of bottom-line?) Strategies that are common on a group level and tie the group together Business strategy At a generic level: What is required to be a player in our business? (Porter: Generic strategy ) Competitive strategy Functional strategy Product strategy How do we stay ahead of the competitors? Can we leave them behind by raising some barriers? How shall this function be organized? (For efficiency and in order to support the business/competitive strategy) Product lines? Categories? Platforms Pricing? Modularization? Services? Productified services? PAGE 24 12

13 THE CORE OF GOOD STRATEGY " Good strategies have a basic underlying structure: 1. A diagnosis: an explanation of the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as being the critical ones. 2. A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. 3. Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy. Richard Rumelt Good Strategy/Bad Strategy: The Difference and Why It Matters PAGE 25 THE HALLMARKS OF BAD STRATEGY 1. The failure to face the challenge 2. Mistaking goals for strategy 3. Bad strategic objectives 4. Fluff Richard Rumelt Good Strategy/Bad Strategy: The Difference and Why It Matters PAGE 26 13

14 STRATEGY à CONSEQUENCES A strategic choice will have consequences on: " Risk / Profitability " Resources / Competencies " Management / Leadership / Communication " Reward systems " Organization / Structures " Production / Distribution " Etc. " for a long time If a new strategy doesn t lead to a change in any way, it is not really a strategy 27 WHAT IS STRATEGY? (Michael Porter) à Operational effectiveness is not strategy! Necessary, but not sufficient! (Basically a zero-sum game) A company can outperform rivals only if it can establish a difference that it can preserve. 1. Strategy rests on unique activities The essence of strategy is choosing to perform activities differently than rivals do. 2. Defining the company s position Strategic positions should have a horizon of a decade or more, not a single planning cycle. 3. Making trade-offs Trade-offs are essential to strategy. They create the need for choice and purposefully limit what a company offers. 4. Forging fit among activities Fit locks out imitators by creating a chain that is as strong as the weakest link. Differentiation Position Trade-offs Strategic Fit Source: M. Porter What is strategy? Harvard Business Review, Nov-Dec

15 PAGE 29 Michael E. Porter: INDUSTRY STRUCTURE & COMPETITIVE STRATEGY Industry structure Relative position within the industry KEYS TO PROFITABILITY: 1. The first step in structural analysis is an assessment of the competitive environment in which the company operates the basic competitive forces and the strength of each in shaping industry structure. 2. The second is an assessment of the company's own strategy of how well it has positioned itself to prosper in this environment. Overall Rules of Competition Sources of Competitive Advantage " Taken together, these steps are the key to forecasting a company's earning power. 15

16 Key concepts Larger vola?lity upstream Porter s 5 forces differ in the different parts of the value chain Role in the value chain (Unique? Complex?) Posi?on in the value chain? Push or Pull? Acquire (Insourcing) Backward integra-on * (ver-cal integra-on) Forward integra-on * (ver-cal integra-on) Acquire Forward move Channels Place Disintegra?on (Outsourcing) Organizing Processes Disintegra?on (Outsourcing) Disintermedia?on * Ver?cal integra?on = market transac?ons are replaced by internal transac?ons maths.lundgren@stratheo.se INDUSTRY ANALYSIS: THE FIVE FORCES THAT SHAPE INDUSTRY COMPETITION PAGE 32 The Five Competitive Forces That Shape Strategy, Michael Porter, Harvard Business Review, January

17 In terms of culture, a huge difference! THE FIVE FORCES 1. Threat of New Entrants - The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. 2. Power of Suppliers - This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company's margins and volumes, then it holds substantial power. 3. Power of Buyers - This is how much pressure customers can place on a business. If one customer has a large enough impact to affect a company's margins and volumes, then the customer hold substantial power. 4. Availability of Substitutes - What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses a serious threat. 5. Competitive Rivalry - This describes the intensity of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high PAGE 33 PORTER S GENERIC STRATEGIES ROI Differention Cost leadership The traditional view: the bigger, the more Profitable! Stuck in the middle! RMS (relative market share) 17

18 Porter s three generic strategies " PAGE 36 18

19 SaabAnnualReports/Annual-report-2012/The-operation/Strategic-goals/ PAGE 37 PAGE 38 19

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