What is Strategy?

● “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

● Strategy is planning that allows you to delight your

customers.
● Strategy is about getting customers and keeping
them.
– Drucker: “The purpose of a business is to create a
customer.”
● Product first, not profits
 Strategy

● The process of strategy includes:

– Analysis
– Formulation
– Implementation
 Strategic Planning and Analysis

● Planning how to delight customers requires these

steps:
– 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
● 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)
– 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

● 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

● 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

● 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

● 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.
– 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

● 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.
● Remember, “structure follows strategy”
 Generic Strategies

● There are three generic (primary) strategies:

– Differentiation
– Focus (niche marketing)
– Cost leadership
● These definitions characterize strategic positions at
the simplest and broadest levels.
 Secondary Strategies
● Within the three basic strategies, there are several
secondary strategies:
– 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
● Measurable, sizable, reachable
● Niche strategy advantages:
– Flexible, can adapt to new needs, small range of needs.
– Efficient for promotion, distribution.
– Reduces competitive pressure.
– With few competitors, can be highly profitable.
● Niche strategy disadvantages:
– Few economies of scale
– Success breeds competition. When new competitors enter
the niche, strategy must change.
● To thrive in most businesses, must be #1, #2, or get
out (find a new niche).
– Get out in the long tail.
● Innovate with new products.
 Differentiate By Benefits Sought By
Consumers
● Grocery buying segments
1 Location - 39.0%
2 Price - 30.2%
3 Service - 12.1%
4 Selection - 9.5%
5 Quality - 4.4%
 A Sustainable Strategic Position Requires Trade-
offs
● Tradeoffs are essential to strategy. They create the
need for choice and purposefully limit what a
company offers.
– Remembering that a valuable position will attract copycats.
● Can’t be all things to all people. Be best at doing a
few things.
– Then expand on those core competencies.
● Apple
● Google
● Amazon
 Determining Strategy

● To determine strategy, answer the following questions:

– 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

● 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

● Meaningless differentiation
● Getting greedy
● Groupthink
– Alfred Sloan
● Throwing money at a problem
● Lack of commitment
● Innovation stagnation
 Perceptual Problems

● “All the kids are above average…”

● Jim Collins lists five basic management perceptual
mistakes that lead to five stages of decline:
– Stage 1: Hubris Born of Success
– Stage 2: Undisciplined pursuit of more
– Stage 3: Denial of risk and peril
– Stage 4: Grasping for Salvation
– Stage 5: Capitulation to Irrelevance or Death

Jim Collins, How the Mighty Fall, Harper Collins, NY 2009.

 The Role of Top Management

● The role of top management in an organization is:

– 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
● 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”

OUTCOME
S
Satisfied Delighted Effective Motivated and
Shareholders Customers Process Prepared
Workforce
* The Strategy Focused Organization, Robert Kaplan, David Notron, Harvard Business School Press, 2001