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Thinking

Learning Planning Charlottesville


Venture Group
Doing
May 18, 2004
A Framework for Strategic
Thinking
The Art of Business
Business is more an Art than Science.
Market competition demonstrates characteristics of both
art and science. Owing to the vagaries of human
behavior and the countless other intangible factors
which contribute to it, there is far more to the conduct of
market competition than can be explained by science…
We thus conclude that the conduct of it is ultimately an
art, an activity of human creativity and intuition powered
by the human will.

Strategic Thinking 2
A Framework for Strategic
Thinking
The Art of Business
We call the artist an entrepreneur
Crafting Strategy is an exercise in Entrepreneurship
A Definition of an Entrepreneur
“The art of business requires the intuitive ability to grasp the
essence of a unique market situation, the creative ability
to devise a practical solution, and the strength of purpose
and skill to execute the act.”
Warfighting.

Strategic Thinking 3
A Framework for Strategic
Thinking
The Art of Business
Seeking new strategic opportunities

Collection of hard data Collection of soft data


(the scientific skills) (the perceptual skills)

The Intuitive
The Rational

Accumulation of facts and Accumulation of uncertainties


evaluation of probabilities and ambiguities

Use of analytical models to Use of intuition to define


define the opportunities the opportunities

Unique interpretation
of the strategic opportunity
Making choices about the future
on inadequate information Strategic Thinking 4
A Framework for Strategic
Thinking
The Art of Business
Strategic Management is a complex
process, much like putting together a
jigsaw puzzle

 But with missing pieces


 And with extra, irrelevant pieces
 Involves many people
 The situation is very dynamic

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A Framework for Strategic
Thinking
The Role of Strategy

 Sustained superior performances should be


the goal of every business

 How is sustained superior performance


attained?

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A Framework for Strategic
Thinking
The Role of Strategy
A combination of effective strategies
and excellent execution
Strategy
Effective Ineffective
Success
Excellent Long Term Success
Unlikely

Execution
Maybe successful
Failure
Poor For a while

Strategic Thinking 7
A Framework for Strategic
Thinking
The Role of Strategy
 Behind every successful company, there is a
strategy – A Business Concept
 There is an underlying logic, even if clear only in
retrospect.
 Can be developed by formal analysis, trial and
error, intuition or pure luck.

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A Framework for Strategic
Thinking
The Role of Strategy
Industry Dominant Traditional Strategic
Competitor Competitor Innovator
US Airlines American Delta, United, Northwest Southwest
Car Rental Hertz Avis, Europcar, National Enterprise
TV Networks NBC CBS, ABC CNN
Earth Moving Caterpillar John Deere, Case Komatsu
Steel US Steel Bethlehem, Inland Nucor
Coffee Maxwell House Folger’s, Nescafe Starbucks
Photocopier Xerox IBM, Kodak Canon
Computer IBM DEC, NCR Microsoft

Sloan Mgmt Review Spring 1999

Strategic Thinking 9
A Framework for Strategic
Thinking
The Role of Strategy
35.00%
30.00%
25.00%
ROI %
20.00%
15.00%
10.00%
5.00%
0.00%
#5 #4 #3 #2 #1
Market Share Rank
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A Framework for Strategic
Thinking
The Hedgehog Concept
From Good to Great,
By Jim Collins

What are you deeply


passionate about?

BHAG
What can you What drives
be the best in your economic
the world at? engine?

Strategic Thinking 11
A Framework for Strategic
Thinking

The Hedgehog Concept
Passion
1. Pick a good business for your organization
2. Select an appropriate direction (Vision)
3. Develop a Competitive Advantage
 Excellence
1. Become excellent in the skills that are critical for
success
 Economic Engine
1. Have a valid Economic Model
2. Have an appropriate capital structure
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A Framework for Strategic
Thinking
Pick
Industry
a Good Business
Mean Median Low High
Construction 24.9% 23.1% 11.1% 29.0%
Services 24.1% 11.0% -12.9% 101.5%
Manufacturing 16.0% 15.4% -8.4% 33.7%
Wholesale Trade 15.2% 14.5% 4.5% 28.1%
Retail Trade 14.0% 14.9% 4.1% 20.9%
Transportation & Utilities 12.7% 10.7% 0.7% 29.0%
Agriculture, Forestry 10.1% 10.6% 6.5% 14.7%
Mining 8.7% 4.1% -0.3% 16.3%
Finance, Ins. & Real Est. 7.9% 8.8% -2.2% 20.2%
Total Average 14.3% -12.9% 101.5%

2001 BizStats.com
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A Framework for Strategic
Thinking
Pick a Good 1926-1999
Business 1965-2000
Good to Great Cumulative
73 years Stock
35 years Returns
General Market: $415 $56

Comparison $955 $93


Companies: +130% +66%

Visionary $6,356 $471


Companies: + 1,432% +741%
Built to Last Good to Great

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A Framework for Strategic
Thinking
Pick a Good Business
Be clear
Have about.
Clarity of Purpose
 who the customers are.
 What their needs are.
 What value you add in meeting those
needs.
 What skills are required to add that value.

 Articulated in the Mission Statement.

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A Framework for Strategic
Thinking
How do you apply these steps to
your situation?
 Confront the brutal facts of your situation

 Ask yourself the tough questions

 Be willing to make major changes

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A Framework for Strategic
Thinking
How do you apply these steps to
“It may be hard for an egg
your situation?
To turn into a bird:
Change
it would be a jolly sight harder
for it to learn to fly
while remaining an egg.
We are like eggs at present.
and you cannot go on indefinitely
Being just an ordinary decent egg.
We must be hatched or go bad.”
--C.S. Lewis

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A Framework for Strategic
Thinking
How do you apply these steps to
your situation? Soaring

In The
Box
Of
Mediocrity

Poor trying
to become Faltering
good

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A Framework for Strategic
Thinking
H ow do
Finding theyou apply
Starting these steps to
Point
your situation?
 Is the business meeting your revenue goals?

 Are revenues growing, flat or declining?


 Is the business profitable?
 Is the business adequately capitalized?

What is the story


behind the financials

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A Framework for Strategic
Thinking
H ow do
Finding theyou apply
Starting these steps to
Point
your situation?
 Is there clarity of purpose?

 Is the direction realistic?

 Does the business have a competitive

advantage?
 Does the business have distinctive

competency in the skills critical for success?


 The four wheels must all be pumped up

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