MBS608 From Strategy

to Operations
Week 1a
Presented by Mr Venkat SN
Introduction to Strategy
and Strategic Management
Purpose, Priorities and Choice
 CORE CONCEPT (1 of 4)

A company’s strategy is the set of

actions that its managers take to
outperform the company’s competitors
and achieve superior profitability.

© McGraw-Hill
 WHAT DO WE MEAN BY STRATEGY?
What is our present situation?
 Business environment and industry conditions
 Firm’s financial and competitive capabilities
Where do we want to go from here?
 Creating a vision for the firm’s future direction
How are we going to get there?
 By crafting an action plan that heads the firm in the
direction of its intended market position, attracts
customers, achieves financial and market performance
targets, and gets it where it wants to go—that is, its
strategy
© McGraw-Hill
 WHAT IS STRATEGY ABOUT?

Strategy is all about How:

● How to position the firm in the marketplace
● How to attract customers
● How to compete against rivals
● How to achieve the firm’s performance targets
● How to capitalize on opportunities to grow the business
● How to respond to changing economic and market
conditions

© McGraw-Hill
STRATEGIC MANAGEMENT PRINCIPLE
(1 of 3)

Strategy as a choice – Where to Play

 Is
about deciding to compete differently from rivals—
doing what competitors do not do or, even better,
doing what they cannot do!
 Islikely to be successful when its actions, business
approaches, and competitive moves appeal to buyers
in ways that
Set a company apart from its rivals
Stake out a market position that is not crowded with
strong competitors

© McGraw-Hill
 STRATEGY AND COMPETITORS
How to Win
Strategy is about competing differently from rivals.
 Doing what they do not do or doing it better (iTunes)
 Doing what they cannot do (TetraPak)
 Doing things that attract customers and set a firm apart
from its rivals
 Doing things calculated to produce a competitive edge
over rivals
 Doingwhat the firm must do and also knowing what it
must not do

© McGraw-Hill
 WHY BOTHER WITH STRATEGY?

A firm needs a strategy to specify what

actions will be taken.
 To improve its financial performance
 To strengthen its competitive position
 Togain a sustainable competitive advantage
over its market rivals
A creative, distinctive strategy
 Helps produce above-average profits
 Increases competitive pressures on rivals

© McGraw-Hill
 Starbucks’s Strategy in the Coffeehouse
Market

Key elements of Starbucks’ strategy:

 Train baristas to serve a wide variety of specialty coffee drinks
that satisfy individual customer preferences in a customized way
 Emphasize store ambience and elevation of the customer
experience at Starbucks stores
 Purchase and roast only top-quality coffee beans
 Foster commitment to corporate responsibility
 Expand the number of Starbucks stores domestically and
internationally
 Broaden and periodically refresh in-store product offerings
 Fully exploit the growing power of the Starbucks name and brand
image with out-of-store sales

© McGraw-Hill
 STRATEGY AND THE QUEST FOR
COMPETITIVE ADVANTAGE

Competitive advantage
 Requires meeting customer needs either more
effectively (with products or services that customers
value more highly) or more efficiently (by providing
products or services at a lower cost to customers)
Sustainable competitive advantage
 Requiresgiving buyers lasting reasons to prefer a firm’s
products or services over those of its competitors

© McGraw-Hill
Mystic Monk Coffee Case -1

 What are Father Daniel Mary’s definite objectives

and performance targets?
 What is Father Daniel Mary’s strategy for achieving
his vision?
 Identify the elements of MMC’s focused
differentiation strategy
Mystic Monk Coffee Case -2

 What competitive advantage might Mystic Monk

Coffee’s strategy produce?
 What’s MMC doing that attracts customers and
sets them apart from rival coffee sellers?
 Does that give a sustainable competitive
advantage?
 BASIC STRATEGIC APPROACHES

Strategies
Strategies for
for Building
Building
Competitive
Competitive Advantage
Advantage

Low-cost
Low-cost Broad
Broad
provider
provider differentiation
differentiation

Focused
Focused Focused
Focused
low-cost
low-cost Best-cost
Best-cost differentiation
differentiation
provider
provider

Jump to Appendix 2 long image description

© McGraw-Hill
 STRATEGIC APPROACHES

Building a competitive advantage by:

 Striving to become the industry’s low-cost provider
Efficiency in controlling provider costs
 Outcompeting rivals on differentiating features
Effectiveness in delivering value to customers
 Offering customers the lowest prices for differentiated
goods
Best-cost provider
 Focusing on better serving a niche market’s needs
Efficiency and effectiveness

© McGraw-Hill
 GAINING SUSTAINABLE
COMPETITIVE ADVANTAGE

How to create a sustainable competitive

advantage:
 Develop valuable expertise and competitive
capabilities over the long-term that rivals cannot
readily copy, match, or best
 Put
the constant quest for sustainable competitive
advantage at center stage in crafting your strategy

© McGraw-Hill
 A FIRM’S STRATEGY
AND ITS BUSINESS
MODEL
How the firm will make money:
 By providing customers with value
The firm’s customer value proposition
 Bygenerating revenues sufficient to cover
costs and produce attractive profits
The firm’s profit formula
It takes a proven business model—one that
yields appealing profitability—to demonstrate
viability of a firm’s strategy.

© McGraw-Hill
THE RELATIONSHIP BETWEEN A FIRM’S
STRATEGY AND ITS BUSINESS MODEL

Realized Business
$$$?
Strategy Model
Competitive Value
Initiatives Proposition
Business Profit
Approaches Formula

© McGraw-Hill
Mystic Monk Coffee Case -3

 What is MMC’s business model?

 What is your assessment of Mystic Monk Coffee’s
customer value proposition?
 Its profit formula? Its resources that enable it to
create and deliver value to customers?
 Is Mystic Monk Coffee’s strategy a money-maker?
 CORE CONCEPT (4 of 4)

A firm’s business model sets forth the logic for

how its strategy will create value for customers,
while at the same time generate revenues
sufficient to cover costs and realize a profit.

© McGraw-Hill
 BUSINESS MODEL ELEMENTS:
The Customer Value Proposition

The customer value proposition

 Satisfyingbuyer wants and needs at a price customers
will consider a good value
The greater the value provided (V) and the lower the
price (P), the more attractive the value proposition is to
customers

© McGraw-Hill
 BUSINESS MODEL ELEMENTS:
The Profit Formula

The profit formula

 Creating a cost structure that allows for acceptable
profits, given that pricing is tied to the customer value
proposition
V – the value provided to customers
P – the price charged to customers
C – the firm’s costs
 Thelower the costs (C) for a given customer value
proposition (V–P), the greater the ability of the business
model to be a moneymaker.

© McGraw-Hill
 The Business Model and the
Value-Price-Cost Framework

Jump to Appendix 4 long image description

© McGraw-Hill
The Business Model and the
Value-Price-Cost Framework

Customer value (V) is the customer's share

(customer value proposition). This value may affect
or be affected by product price (P) which is the firm's
share (profit formula). These values in turn affect and
are affected by the per-unit cost (C).
 THINKING STRATEGICALLY (2 of 2)

Amazon has begun to acquire its own fleet of cargo

planes to deliver packages to customers.
 What internal and external factors are contributing to
this change in its strategy?
 How could the move be explained in terms of changes
in the value, price, and cost factors associated with
Amazon's business model?
 How does the forward integration entry of Amazon into
the freight delivery markets in which FedEx and United
Parcel Service compete affect the sustainability of their
business models over the long term?

© McGraw-Hill
IS OUR STRATEGY A WINNER?

The Fit Test

Three
The Competitive Tests of a The Performance
Advantage Test Winning Test
Strategy

© McGraw-Hill
 WHAT MAKES A STRATEGY
A WINNER?
A winning strategy must pass three tests:
 The fit test
Does it exhibit fit with the external and
internal aspects of the firm’s dynamic
situation?
 The competitive advantage test
Does it help the firm achieve a sustainable
competitive advantage?
 The performance test
Will it produce superior performance as
indicated by the firm’s profitability, financial
and competitive strengths, and market share?
© McGraw-Hill
Mystic Monk Coffee Case - 4

 Does the strategy qualify as a winning strategy?

Why or why not?
 Does the strategy fit the company’s situation?
(External and Internal)
 Has the strategy yielded a sustainable competitive
advantage? In the future?
 Has the strategy produced good financial
performance?
 Cascade of Choices

Map this
framework
on MMC
case.

Are there
challenges
that you can
foresee?
Playing to Win, How Strategy Really Works. A.G Lafley and Roger
Martin. HBR Press, 2013
Key Questions for Strategy
Making and Strategy Execution

1. What’s the Organisations Vision, Mission and

Purpose?
2. Where is Organisation now?
3. Where does it want to go based on 1 & 2
4. What choices does it have and it will make?
5. How it will create sustainable Competitive
Advantage?
6. How it will ensure that the organisation
implements them?
FIGUREClick to Strategy-Making,
2.1 The edit Master title style
Strategy-Executing Process

© McGraw-Hill
 The Strategy-Making, Strategy-
Executing Process
 The five stages of the process are:
1. Developing a strategic vision, mission, and core values
2. Setting objectives
3. Crafting a strategy to achieve the objectives and the firm’s
vision
4. Executing the strategy
5. Monitoring developments, evaluating performance, and
initiating corrective adjustments
 Stages 1, 2 and 3 are considered strategy making.
 Stages 4 and 5 are where strategy execution occurs.
 Additionally, stages 1 through 4 must be revised as needed in
light of the firm's actual performance, changing conditions, new
opportunities, and new ideas.
Strategic Action-Planning Flowchart
The ultimate criterion for success

Goal
Focus Benchmarks The logic of the value-creation model

Strategy

The specifics of the market offering Target Value

market proposition
Tactics
Product Service Brand
Incentives Price The logistics of developing the offering

Communication Distribution Implementation

Organizational Business processes
infrastructure
The process of evaluating goal progress

Control Implementation schedule

Evaluate Monitor the

performance environment

© 2014 Alexander Chernev

Mission and Vision

Mission –
 Concise, internally focussed statement
 Reason for organisation’s existence
 Basic purpose towards which its activities are directed
Vision –
 Concise, external, market oriented statement
 How the organisation wants to be perceived by the world
 Defines mid to long-term goals of the organisation

Adapted from Strategy Maps Kaplan & Norton

The short and sweet Vision and
Mission
 J&J Vision: To bring healthy vision to everyone,
everywhere, every day
 J&J Mission: To lead the world in quality, customer
experience, innovation and growth

 Kellogg’s Vision: To enrich and delight the world

through foods and brands that matter.
 Kellogg’s Purpose: Nourishing families so they can
flourish and thrive.
 Murdoch University Vision: Murdoch University will be
a leading international research-led university pursuing
excellence in select areas of knowledge production and
dissemination.
Examples of Strategic Visions—How Well Do They
Click to edit Master title style
Measure Up? (2 of 2)

Effective
Vision Statement Elements Shortcomings

Keurig • Focused • Not graphic

Become the world’s leading • Flexible • Lacks specifics
personal beverage systems • Makes good • Not forward-
company. business sense looking
Nike • Forward-looking • Vague and lacks
NIKE, Inc. fosters a culture of • Flexible detail
invention. We create products, • Not focused
services and experiences for • Generic
today’s athlete* while solving • Not necessarily
feasible
problems for the next generation.
*If you have a body, you are an
athlete.

© McGraw-Hill
Mystic Monk Coffee Case - 5

 What is Father Daniel Mary’s vision for Mystic

Monk Coffee?
 Compare Father Prior’s vision to Howard Schultz’s
vision for Starbucks.
 What is the mission of the Carmelite Monks of
Wyoming?
 Where does the role of the monastery’s coffee
operations fit in pursuit of this mission?
 And if the coffee operations are scaled up … how
would it impact the ultimate vision of the monks?
Discuss the Mission of Your
Organisation

 What is the product market mission of

your organisation?
 Is there a clear statement of: “who our
customers’ are, and why they buy?”
 Speculate/hypothesise on the factors that
have determined this product market
mission of the organisation.
Where is Organisation now?
 5C Framework

 Customers
 Collaborators
 Company
Customers
 Competitors
 Context Competitors

Context

The Marketing Plan Handbook,

Alexander Chernev
 Situation Analysis – 5 C
Framework

Company overview
Outline the company’s core competencies and strategic
assets, its current product line, and market position.

Market overview – Competitors, Context, Collaborators

Provide an overview of the markets in which the company
operates and identify relevant opportunities/threats.

Target customers
Identify customers targeted by the company’s offerings.
Highlight any proposed changes to the target customers.
Mega Trends - What is a mega trend?
 Large transformative global force that
impact everyone on the planet
 A large scale change in circumstances
or fashion
 A major trend or movement
 Once in place, megatrends influence a
wide range of activities, processes and
perceptions, both in government and in
society, possibly for decades. They are
the underlying forces that drive trends
Mega Trends

 Global Market Place

 Changing Demographics
 Rise of the middle class:
Urbanization
 Enabling Technology
 Rise of the individual
 Economic Power Shift
Where is Organisation now?

 It can be answered at two distinct

organisational levels:
 The corporate level or multi-strategic
business unit (SBU) level.
 The single business or SBU level
Where does it want to go?
The need for short-term and
long-term objectives

 Short-Term Objectives:
 Focus attention on quarterly and annual performance improvements
to satisfy near-term shareholder expectations.
 Long-Term Objectives:
 Force consideration of what to do now to achieve optimal long-term
performance.
 Stand as a barrier to an undue focus on short-term results.
 What kinds of objectives to set

 Financial Objectives  Strategic Objectives

 Communicate top
management’s goals for
financial performance.
 Are focused internally on
the firm’s operations and
activities.
 Are the firm's goals
related to marketing
standing and
competitive position.
 Are focused externally
on competition vis-à-vis
the firm’s rivals.
Setting financial objectives
 An x percent increase in annual revenues
 Annual increases in after-tax profits of x percent
 Annual increases in earnings per share of x percent
 Annual dividend increases of x percent
 Profit margins of x percent
 An x percent return on capital employed (ROCE) or
return on shareholders’ equity investment (ROE)
 Increased shareholder value—in the form of an
upward-trending stock price
 Bond and credit ratings of x
 Internal cash flows of x dollars to fund new capital
investment
Setting strategic objectives
 Winning an x percent market share
 Achieving lower overall costs than rivals
 Overtaking key competitors on product performance or quality
or customer service
 Deriving x percent of revenues from the sale of new products
introduced within the past five years
 Having broader or deeper technological capabilities than rivals
 Having a wider product line than rivals
 Having a better-known or more powerful brand name than
rivals
 Having stronger national or global sales and distribution
capabilities than rivals
 Consistently getting new or improved products to market ahead
of rivals
What choices does it have and
make?

How it will create sustainable

Competitive Advantage?
Crafting a strategy

 Strategy making:
 Addresses a series of strategic how’s.
 Requires choosing among strategic alternatives.
 Promotes actions to do things differently from
competitors rather than running with the herd.
 Is a collaborative team effort that involves
managers in various positions at all
organizational levels.
A firm’s strategy-making hierarchy
(1 of 2)

 Corporate strategy
 Multi-business strategy—how to gain synergies from
managing a portfolio of businesses together rather
than as separate businesses
 Business strategy
 How to strengthen market position and gain
competitive advantage
 Actions to build competitive capabilities of single
businesses
 Monitoring and aligning lower-level strategies
A firm’s strategy-making hierarchy
(2 of 2)

 Functional area strategies

 Add relevant detail to the “hows” of business strategy
 Provide a game plan for managing a particular activity in
ways that support the business strategy
 Operational strategies
 Add detail and completeness to business and functional
strategies
 Provide a game plan for managing specific operating
activities with strategic significance
NOTE: These four strategies all impact each other.
 Uniting the strategy-making
hierarchy

Corporate-
level

Business-
level

Functional-
level

Operational-
level
 Cascade of Choices

Playing to Win, How Strategy Really Works. A.G Lafley and Roger
Martin. HBR Press, 2013
 Cascade of Choices at 3 levels

Playing to Win, How Strategy Really Works. A.G Lafley and Roger
Martin. HBR Press, 2013
 Masstige –
Mass +
Prestige

“mass-
produced,
relatively
inexpensive
goods which
are
marketed
as luxurious
or
prestigious.
”

Playing to Win, How Strategy Really Works. A.G Lafley and Roger
Martin. HBR Press, 2013
 How it will ensure that the
organisation implements them?
Executing the Strategy

 Converting strategic plans into actions

requires:
 Directing organizational action
 Motivating people
 Building and strengthening the firm’s
competencies and competitive capabilities
 Creating and nurturing a strategy-supportive
work climate
 Meeting or beating performance targets
Evaluating performance and
initiating corrective adjustments

 Evaluating performance
 Deciding whether the enterprise is passing the three tests of
a winning strategy—good fit, competitive advantage, strong
performance.
 Initiating corrective adjustment
 Deciding whether to continue or change the firm’s vision
and mission, objectives, strategy, and strategy execution
methods
 Applying lessons based on organizational learning
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