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Strategy

“If you don’t have a strategy


you will be . . . part of somebody
else’s strategy.”
- Alvin Toffler
Expectations
“All men can see these
tactics whereby I
conquer, but what none
can see is the strategy
out of which victory is
evolved”.
Sun Tzu
What is Strategy?

“What is Strategy?”, Michael Porter, Harvard


Business Review (1996) Nov-Dec

Professor at Harvard Business School, USA


It’s a fan!
It’s a wall!

It’s a pipe!

It’s a rope!

It’s a
spear!

It’s a tree!
Why do some organizations succeed
while others fail?
Strategy is a set of related actions that managers
take to increase their company’s performance.
v  Strategic Leadership
•  Task of most effectively managing a
company’s strategy-making process
v  Strategy Formulation
•  Task of determining and selecting strategies
v  Strategy Implementation
•  Task of putting strategies into action to improve a
company’s efficiency and effectiveness

Competitive Advantage
Results when a company’s strategies lead to
superior performance compared to competitors
Superior Performance and
Sustainable Competitive Advantage
v  Superior Performance
•  One company’s profitability relative to that of other companies in
the same or similar business or industry
•  Maximizing shareholder value is the ultimate goal of profit making
companies
  ROIC (Profitability) = Return On Invested Capital
•  Net profit Net income after tax
ROIC = Capital invested = Equity + Debt to creditors
v  Competitive Advantage
•  When a company’s profitability is greater than the average of all
other companies in the same industry & competing for the same
customers
Sustainable Competitive Advantage
When a company’s strategies enable it to maintain
above average profitability for a number of years
Determinants of Shareholder Value

To increase shareholder value, managers must


pursue strategies that increase the profitability
of the company and grow the profits.
Company’s Business Model
Management’s model of how strategy will allow
the company to gain competitive advantage
and achieve superior profitability
A business model encompasses how the company will:
•  Select its customers •  Deliver those goods and
•  Define and differentiate services to the market
its product offerings •  Organize activities within
•  Create value for its the company
customers •  Configure its resources
•  Acquire and keep •  Achieve and sustain a
customers high level of profitability
•  Produce goods or •  Grow the business over
services time
Differences in Industry
and Company Performance
A Company’s Profitability and
Profit Growth are determined
by two main factors:
Œ The overall performance
of its industry relative
to other industries

 Its relative success in its


industry as compared to the
competitors
Return on Invested Capital in
Selected Industries, 1997–2003

Data Source: Value Line Investment Survey


Performance in Nonprofit
Enterprises
Nonprofit entities such as government
agencies, universities, and charities:
•  Are not in business to make a profit
•  Should use their resources efficiently
and effectively
•  Set performance goals unique to the
organization
•  Set strategies to achieve goals and compete
with other nonprofits for scarce resources
A successful strategy gives potential
donors a compelling message as to
why they should contribute.
Strategic Managers

v  Corporate Level Managers


•  Oversee the development of strategies for the
whole organization
•  The CEO is the principle general manager who
consults with other senior executives
v  General Managers
•  Responsible for overall company, business
unit, or divisional performance
v  Functional Managers
•  Responsible for supervising a particular task
or operation
e.g. marketing, operations, accounting, human resources
Levels of Strategic Management
The Five Steps of the Strategy
Making Process
1  Select the corporate vision, mission, and values
and the major corporate goals and objectives.
2  Analyze the external competitive environment to
identify opportunities and threats.
3  Analyze the organization’s internal environment
to identify its strengths and weaknesses.
„  Select strategies that:
•  Build on the organization’s strengths and correct its
weaknesses – in order to take advantage of external
opportunities and counter external threats
•  Are consistent with organization’s vision, mission, and
values and major goals and objectives
•  Are congruent and constitute a viable business model
…  Implement the strategies.
What is Vision?
At a fork in the road, Alice
asked the Cheshire cat
which road to take?
The cat asked where do
you want to go?
Alice said I don’t know?
The cat answered “then
any road will take you
there”!

If you don’t know where to go, any


road will take you there!
What is Core Ideology?
- What are Core Values?
- What is Core Purpose?
What is Vision?
Core Ideology
- Core Values
Core Values

v  Companies often develop a statement of values to guide a


company’s pursuit of its vision and strategy and paint the white
lines for how the company’s business is to be conducted
•  Company values statements typically
contain four to eight beliefs, traits, and
behaviors relating to such things as
»  Integrity, doing the right thing, product quality,
customer satisfaction, treatment of people,
teamwork, operating excellence,
giving back to the community
v  But values statements remain a bunch of nice words until
the espoused beliefs, traits, and behaviors
•  Are incorporated into company’s operations and work practices
•  Are used as the benchmark for job appraisal, promotions, and rewards

If company personnel are not held accountable


for displaying company values in doing their jobs, then the
company values statement is an empty box!
Merck

v Corporate social responsibility


v Unequivocal excellence in all aspects of the
company
v Science based innovation
v Honesty and integrity
v Profit, but profit from work that benefits
humanity
Du Pont

Safety Ethics

Respect for Environmental


people stewardship
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Core purpose
Core Purpose
To solve unsolved problems innovatively 3M

To improve the standard of living around the Cargill


world

To make technical contributions for the HP


advancement and welfare of humanity

To give unlimited opportunity to women Mary Kay Cosmetics

To preserve and improve human life Merck

To give ordinary folk the chance to buy the same Wal-Mart


things as rich people

To make people happy Walt-Disney


The 5 Whys
Vision
“Leaders establish the vision for the
future and set the strategy for getting
there; they cause change. They
motivate and inspire others to go in the
right direction and they, along with
everyone else, sacrifice to get there”
John Kotter
Ken Blanchard

v Vision is the starting point of leadership.


v Vision determines direction. Leadership is about
going somewhere. If you aren’t going somewhere,
your leadership style doesn’t matter.
v Vision is something to serve. Without vision, the only
thing left to serve is yourself. Visionless
organizations will eventually be led by self-serving
leaders.
v Vision overcomes the power of criticism. Without
vision squeaky wheels control organizations.
v Vision creates unity. Without vision you can’t get on
the same team
Vision charts the path an
organization chooses

Today: Journey of Visioning Future:


Known 1.  What do we stand for? Unknown
2.  What do we aspire to become?

“Visioning is the ability to see beyond our present reality, to


create, to invent, what does not yet exist, to become what we not
yet are.”

Stephen Covey, ‘First Things First’


It provides a goal to the firm and ensures
effective communication to all stakeholders

Customers

Society Shareholders

Vision
Company
goals and
performance
Regulators Employees

Strategic
Suppliers
Partners
Overall, vision is a powerful tool to manage
change, communicate and execute on
strategy

•  Provides common goals


1 •  Provides a tangible symbol
3
Create •  Motivates people
•  Clarifies purpose of Commun-
actions and decisions to common •  Ensures strategy can be easily
icate to vision communicated
investors, analysts and
regulators
external and
stake- culture
holders

2 •  Sets criteria for strategic decisions


•  Defines and communicates priorities
Guide strategic
•  Helps co-ordinate actions of different
management decisions
people in a fast and efficient way
What drives some of the most world’s most successful
companies?
“We will crush Yamaha” Honda, 80s

“Man is the creator of change in this world. As such Apple, 90s


he should be above systems and structures, and not
subordinate to them”

“Let’s fight off Adidas!” Nike, 80s

“To be earth's most customer centric company” Amazon


What about time?
Vision statements are not static; they evolve with the
organization and its environment

“Create seamless
“A personal “Empower people experiences that
computer on through great combine the
every desk and in software - power of the
every home, anytime, anyplace, internet with the
running Microsoft and on any magic of software
software.” device.” across a world of
devices.”

1975 1999 2008


Effective vision statements have eight
characteristics …

1. Imaginable 2. Future-oriented 3. Desirable 4. Feasible

Describes the goal; serves Expresses long-term Appeals to long-term Lays out realistic yet
as a clear guideline for goals or aspirations for interests of internal, ambitious goals
strategic decisions the organization and its external stakeholders
stakeholders

8. Easy
5. Specific 6. Flexible 7. Unique to associate &
communicate
Clearly guides decisions; Allows firm to Provides a differentiated Every employee can
helps decide what firm proactively cope with identity & strategic relate to it
can and cannot do changes in the direction Is simple enough to be
environment communicated within 5
minutes
Is there a Strategic Time
Horizon?
The Strategy Time Horizon
Purpose & Values
(Timeless)
Vision
(10-20-30 years)
Strategic Position
(10 years)
Long term goals
(5-10 years)
Operating Plan (1
year)
Individual
Plans (Q’ly)
Now
Raise the bar!
Questions?