Business Strategy Development: Key Concepts and Frameworks. Chiligum Strategies 2013

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Business & Mgmt

Published on August 16, 2008

Author: StrategyAndMarketing

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The following slides explore the nature of strategy development to guide and inspire the practical application by presenting key frameworks, concepts and issues.

STRATEGY DEVELOPMENT Key Concepts and Frameworks Chiligum Strategies 2012

“In peace prepare for war, in war prepare for peace. The art of war is of vital importance to the state.” (512 BC)

strategies, that make a difference. www.chiligum.com

1. 2. 3. 4. what about strategy? strategic analysis strategy development strategy implementation

“If one does not know to which port one is sailing, no wind is favorable.” (Lucius Annaeus Seneca) Foto:

What about Strategy?

Carl von Clausewitz (1780-1831) “Tactics is the art of using troops in battle; strategy is the art of using battles to win wars.”

Helmuth Karl Bernhard Graf von Moltke (1800 - 1891) “Strategy is the practical adaptation of the means placed at a general's disposal to the attainment of the object in view.”

“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” Michael Porter (1996:64) Foto: photo: Allesandra Fratu

Kenneth R Andrews (1916-2005) “the pattern of objectives, purposes or goals and major policies and plans for achieving these goals stated in such a way as to define what business the company is or is to be in and the kind of company it is or is to be.”

Kenichi Ohmae (* 1943) Strategy essentially deals with the interplay of three forces: Customer, Corporation, Competition. Good strategy is characterized through – – – Clear market definition Good match between corporate strengths and needs of the market Superior performance in the key success factors of the business (in: Jain 2004)

Peter Edelmann „Strategy Development is a questionbased process: Where are we now? Where do we like to go? How do we get there?“ Peter Edelmann, Senior Executive President Voith Turbo

Strategic Analysis

Mental Models “Mental Models are deeply ingrained assumptions, generalizations, or even pictures or images that influence how we understand the world and how we take action. Very often, we are not consciously aware of our mental models or the effects they have on our behaviour.” Senge P (1992:8)

PESTEL Analysis What are the key issues, that impact your business? Political Environment Economical Environment Social Environment Technological Environment Environmental Environment Legal Environment

SWOT Analysis (Andrews) FIT matters! Task, to match internal strength and weaknesses with external opportunities and risks STRENGTH OPPORTUNITIES WEAKNESSES RISKS Keep findings descriptive; Investigate both internal AND external issues

Ohmahe - Key Success Drivers What factors and drivers are especially important to perform superior in your industry? Ohmahe (K 1982)

Market Orientation / Behavioral View “Market orientation is the organizationwide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organizationwide responsiveness to it.” Kohli, Jaworski (1990:6)

Market Orientation / Cultural View “Market orientation it the organization culture that most effectively and efficient creates the necessary behaviours for the creation of superior value for buyers and, thus, continuous superior performance for the business.“ Narver, Slater (1990:21)

Competitor Intelligence Who are your key competitors? How do they perform? What are there strengths and weaknesses? What could be their strategy? How could all of this impact your business?

Strategy Development

Purpose and Culture Vision – long-term, encouraging, aspiration for the future Mission – purpose of the business Values – attitudes, behaviours, character of organization to guide actions like an internal compass

Purpose and Value Strategy development requires to understand ‘the benefit of having a well-articulated, stable purpose, and the importance of discovering, understanding, documenting, and exploiting insights about how to create more value than other competitors do’ Campbell (1997 p 42)

Point of View Universal objectives (profitability, costs, turnover, sales, quality, etc. ) define what a company must do to survive However do not automatically suggest unique strategies nor provide any direction The essence of why an organization exists does provide guidance to achieve these universal objectives Campbell (1997 p 42)

Planning Processes Processes of developing good strategies are‘much more messy, experimental, iterative; and driven from the bottom up’ than many planning processes suggest Besides, if there were one best way, everyone would use it However, processes and frameworks do provide structure, help to systematize the basis and context for decision taking and document results along the way Campbell (1997 p 46)

Generic Strategies Competitive Advantage Narrow Target Broad Target Competitive Scope Differentiation Lower Cost DIFFERENTIATION COST LEADERSHIP Niche Market FOCUS Porter (1985) Efficiency

Core Marketing Strategies Operational Excellence Product Leadership Customer Intimacy Strategic Direction Sharpen distribution systems and provide no-hassle service Nurture ideas, translate them into products, and market them skillfully Provide solutions and help customers run their business Organizational Arrangement Has strong, central authority and a finite level of empowerment Acts in an ad hoc, organic, loosely knit, and ever-changing way Pushes empowerment close to customer contact Systems Support Maintain standard operating procedures Reward individuals´ innovative capacity and new product success Measure the cost of providing service and of maintaining customer loyalty Corporate Culture Acts predictably and believes „one size fits all“ Experiments and thinks „out-of-the-box“ Is flexible and thinks „have it your way“ Tearcy, Wiersema (1995)

Current Markets New Markets Current Products Market Penetration Market Development New Products Strategic Moves Product Development Diversification Ansoff (1965)

Strategic Business Units “An SBU is composed of a product or product lines having identifiable independence from other products or product lines in terms of competition, prices, substitutability of product, style/quality and impact of product withdrawal.” Jain (2004 p. 18)

SBU Characteristics Unique business mission, independent of other SBUs Clearly definable set of competitors Able to carry out integrative planning relatively independently of other SBUs Large enough to justify senior management attention, but small enough to serve a useful focus for resource allocation Jain (2004)

Defining SBUs Customer Groups Technologies Customer Functions

Good Segmentation Identifiability – Ability to identify + measure relevant characteristics Size and Stability – – Sufficient number of buyers Needs or factors do not change too rapidly Accessibility – Ability to reach target segment in economical way Responsiveness – Segment responds homogeneously to a specific marketing mix Schiffman et al. (2005)

Ultimate Check  Meaningful  Actionable  Financially attractive

Business Model Customer Benefits Configuration Company Boundaries Customer Interface Core Strategy Strategic Resources Value Network Fulfilment & Support Business Mission Core Competencies Suppliers Information & Insight Product/Market Scope Strategic Assets Partners Relationship Dynamics Basis for Differentiation Core Processes Coalitions Pricing Structure Efficient / Fit / Profit Boosters Hamel G (2002)

Strategy As Simple Rules To allow quick moves in dynamic markets Focus on pursue of opportunities by increasing flexibility in decision taking Just enough guidance and structure by a limited set (<10) of simple and unique rules regarding key processes Rules mainly experience-based, important to neither set rules too broad nor too vague Challenge to balance long-term perspective and to adapt rules to changing conditions Eisenhardt (2001 pp. 108-115)

Types of Rules How-to rules, guiding execution of key processes Boundary rules, limiting range of opportunities (company scope) Priority rules, setting priorities for resource allocation Timing rules, adapting internal schedules to the pace of markets Exit rules, defining criteria to exit opportunities in the light of unpredictable developments Eisenhardt (2001 p. 111)

Innovation and Change Understanding mental models – – Mindsets that influence decision making Task to make the implicit explicit and to constantly question and challenge those long-held believes Thinking beyond best-practice – – necessary but not sufficient, while leading towards performance barrier ‚Dream, create, explore, invent, pioneer, imagine …‘ (Hamel G 2002 p. 28) Changing the rules of the game! – From market driven to market driving by value proposition AND business system Bickhoff N 2008, Hamel G 2002, Kumar N 2000, Porter 1996

Strategy Evaluation Suitability: Is there a sustainable competitive advantage? Feasibility: Does firm have the skills, resources, and commitments? Internal consistency: Does strategy hang together? Vulnerability: What are the risks and contingencies? Workability: Can we retain our flexibility? Jain (2004)

Strategy Implementation

“Predicting rain does not count – building arks does.” (anonymous)

Strategy Maps To visualize cause-effect relationships among key drivers To support strategy alignment and to facilitate strategy communication Each perspective supports the execution on the next level Strategy Maps link to Balanced Score Card Generic maps provide guidance to develop unique maps tailored to company Best applied at various levels (corporate, SBU, department) Kaplan, Norton (1996, 2004, 2008)

Strategy Map Increase ROI Financial Perspective Increase revenues in existing segments and markets Grow revenues in new products and services Grow High-Value Customer Relationships Accelerate Product Innovation Be a leader in quality and reliability Provide valued service, applications expertise, and support Introduce innovative, high-performance products and solutions Improve supply chain efficiency and effectiveness Optimize customer profitability Excel at technology, product development and life cycle management Improve productivity Improve Operating Quality and Efficiency Customer Perspective Process Perspective Improve quality, cost, and flexibility of operating processes Learning and Growth Perspective Expand channels offerings, and markets Build and maintain strong customer relationships Identify next-generation market opportunities Create a high-Performance Culture Expand and build Enable and require Develop leadership and strategic skills, capabilities, continuous learning and execution-driven culture and expertise sharing of knowledge Kaplan, Norton (2008)

Balanced Score Card Performance measuring system to include and quantify intangible assets Customer perspective, internal processes and learning as building blocks Financial performance as ultimate indicator Companies vision and mission stand above providing overall direction „You cannot manage, what you cannot measure.“

Balanced Score Card Set global goals – What do you generally aim at? Define measures – How will you measure your results? Set targets – What specific goals related to your measures you like to achieve in a certain time frame? Plan initiatives – What actions will take place to meet your goals?

“There are three kind of companies, those that make things happen, those that watch things happen – and those that wonder what happened.” (anonymous)

Many thx to my readers, a thousand thx to my teachers! Any question or suggestion?! Looking forward! Benjamin Teeuwsen benjamin@chiligum.com www.chiligum.com

must reads - click here!

Andrews K R (1987) ‘The Concepts of Corporate Strategy’ Richard D Unwin, Homewood Bickhoff N (2008) ‚Quintessenz des strategischen Managements – Was Sie wirklich wissen müssen, um im Wettbewerb zu überleben‘ Springer-Verlag, Berlin Campbell A, Alexander M (1997) ‚What’s Wrong with Strategy?’ HBR Nov-Dec, pp. 42-51 Eisenhardt K M, Sull D N (2001) ‚Strategy as Simple Rules‘ HBR Jan-Mar, pp. 107-116 Hamel G (2002) ‘Leading the Revolution’ Harvard Business School Press, Boston USA Jain S C (2004 7th ed.) ‘Marketing: Planning and Strategy’ Thomson, Ohio USA Kaplan R S, Norton D P (2008) ‘Mastering the Management System’ HBR, Jan, pp. 63-77 Kaplan R S, Norton D P (2004) ‘Strategy Maps’ Boston Kaplan R S, Norton D P (1996) ‘The Balanced Scorecard’ Boston References

Kohli A K, Jaworski B J (1990) ‘Market Orientation: The Construct, Research Propositions, and Managerial Implications’ Journal of Marketing, Vol. 54, No. 2, pp. 1-18 Kumar N, Scheer L, Kotler P (2000) ‚From Market Drive to Market Driving‘ European Management Journal Vol. 18 No. 2, pp. 129142 Narver J C, Slater S. F. (1990) ‘The effect of a market orientation on business profitability’ Journal of Marketing, Vol. 54, No. 4, pp. 20-36 Porter M E (1996) ‘What is Strategy?’ Harvard Business Review, No. 6, Nov-Dec, pp. 61-78 Porter M E (1985) ‘Competitive Advantage’ Free Press, New York Schiffman L et al. (2005) ‘Consumer Behaviour’ Pearson Education Australia, Frenchs Forest NSW Senge P M (1990) ‘The Fifth Discipline: The Art and Practice of the learning Organization‘ Currency Doubleday Treacy M, Weirsema F (1995) ‘The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market’ Perseus Books, Cambridge References

Further Concepts Blue Ocean Strategies (Kim, Mauborgne ) Sustainable Competive Advantage Systems Thinking Core Competencies (Hamel, Prahalad) Strategic Intent (Hamel, Prahalad) Distinctive Capabilities (Day) Five Forces (Porter) Value Chain (Porter) Resource-based view (Barney, Clark) Portfolio Analysis (BCG, McKinsey, etc.) Product Lifecycle, Industry Lifecycle Six Sigma (Pande, Neuman, Cavanagh) Total Quality Management

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