CHAPTER 1
Mastering Strategy: Art and Science
Managing in the Real World
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Creativity is just as important to
strategic management
Choices
Why some Firms and not Others?
Not Luck!!
o
Lots of Studies looking for Answer…
o
Part of the answer linked to Strategic
Choices and execution!
A Gallery of Disruptive Technologies (20142025, http://www.mckinsey.com)
(IMHO) there are only 2 key Leadership Tasks
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1 - Manage the People (Up, Down,
Sideways)
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‘People’ skills
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Listening is #1
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Thank you is #2
2 - Set the long-term strategic direction
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Where do you want to be in 5
years
On the Horizon…
Hint, this course focuses on the latter!!
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Climate Change
Many other skills are required of course, but
“when push comes to shove”, for everything
else you can hire off the street, delegate,
contract for…
o
Economic Booms & Busts
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Demographic Changes
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Energy
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Potable (drinkable) water shortage
What is Strategic Management?
Examines how actions and events involving top
executives (such as Steve Jobs), firms (Apple),
and industries (the tablet market) influence a
firm’s success or failure
o
Formal tools that exist for
understanding these
relationships are not enough
What do all these potential things have in
common? CHANGE…
Disruptive technologies can & will change the
game for businesses, creating entirely new
opportunities, costs & value propositions.
Business leaders must:
o
maintain a competitive strategy
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continuously scan for new opportunities
/ challenges to existing profits centers
o
adopt use technologies to improve
internal performance
o
o
➢ Strategy as Plan
o
A strategic plan is a carefully crafted set
of steps that a firm intends to follow to
be successful.
keep employees’ skills up-to-date, right
people on bus!
o
Virtually every organization creates a
strategic plan to guide its future
Balance potential benefits with
o
So should you….
It’s not all strategy…
But strategy (or lack of) explains a lot
If you’re not going to have a strategy, the only
interesting question is…
Will we be
going in circles
to the LEFT?
STRATEGY
o
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Strategic management helps answer
the key question: “why do some firms
outperform other firms?”
Examines how actions and events
involving top executives, firms, and
industries influence a firm’s success or
failure
Various tools exist to analyse and
understanding these relationships
But, creativity is central to strategic
management; mastering strategy is
therefore part art and part science.
‘Cause real
process is
pretty
unlikely!!
Or to the
RIGHT?
Business Model – Profit Plan!
“PIZZAS HAMBURGUESAS”
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Economies of Scale (lower costs)
•
Specialized Equipment (hotter ovens)
•
Expert pizza cooks (specilization)
➢ Strategy as Ploy
o
A strategic ploy is a specific move
designed to outwit or trick competitors.
o
Ploys often involve using creativity to
enhance success
o
Ploys can be especially beneficial in the
face of much stronger opponents.
o
Military history offers quite a few
illustrative examples
o
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Strategy as Pattern
Consistency of strategy over time
Kmart began straying from its
established strategic pattern, from
discount retailing and toward
diversification including sporting goods
(Sports Authority), building supplies
o
o
▪
o
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▪
o
o
o
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(Builders Square), office supplies
(OfficeMax), and books (Borders)
In the 1990s, Kmart’s strategy was again
adjusted to emphasize information
technology and supply chain
management
Then Kmart’s strategy was to compete
directly with its much-larger rival,
Walmart. The resulting price war left
Kmart crippled and eventually bankrupt
Strategy as Position
Strategy as position—considers a firm
and its competitors
Refers to a firm’s place in the industry
relative to its competitors, leader,
brand levels
Very hard to change position….
Strategy as Perspective
Strategy as perspective refers to how
executives interpret the competitive
landscape around them
Because each person is unique, 2
different executives could look at the
same event—such as a new competitor
emerging—and attach different
meanings to it
One might just see a new threat to his
or her firm’s sales; the other sees
newcomer as potential ally
An old cliché “make lemons into
lemonade”
1.2 Intended, Emergent & Realized Strategies
▪
Intended strategies: Strategy that an
organization hopes to execute
▪
Emergent strategies: Unplanned
strategy that arises in response to
unexpected opportunities and
challenges
▪
Realized strategies: The strategy that
an organization actually follows. They
are a product of both intended and
realized strategies
▪
Deliberate strategy: The parts of the
intended strategy that an organization
continues to pursue over time
▪
Non-realized strategy: The parts of the
intended strategy that are abandoned
Strategies – Examples
A Model of Intended, Deliberate, and Realized
Strategy (Figure 1.3)
FED EX
The Modern History of Strategic Management
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Part Intended strategies: Packages sent
through central hubs (like passengers)
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Part Emergent strategies: ZapMail (Fax
service that failed)
o
Realized strategies: The strategy that
an organization actually follows, combo
of both intended & realized strategies
o
Deliberate strategy: The parts of the
intended strategy that an organization
continues to pursue over time
1.3 History of Strategic Management
Frederick Taylor, father of 'scientific
management', testifying before Congress a
hundred years ago:
'I can say, without the slightest hesitation, that
the science of handling pig-iron is so great that
the man who is ... physically able to handle pigiron and is sufficiently phlegmatic and stupid to
choose this for his occupation is rarely able to
comprehend the science of handling pig-iron.'
Frederick W Taylor
Taylor was a mechanical engineer & 1st person
to systemically study work. ‘Scientific
management’ is responsible for tremendous
surge of affluence in the last 75 years, lifting
working masses in developed countries well
above any level recorded before, even for the
well-to-do.
Taylor's scientific management consisted of four
principles:
o
Replace rule-of-thumb work methods
with methods based on a scientific
study of the tasks
o
Scientifically select, train, and develop
each employee rather than passively
leaving them to train themselves
o
Provide "Detailed instruction &
supervision of each worker in the
performance of that worker's discrete
task”
o
Divide work - managers apply scientific
management principles to planning
work & workers actually perform tasks
Frank & Lillian Gilbreth
Time & Motion Study in Bricklaying
Key Takeaways
1.4 Understanding the Strategic Management
Process
▪
Strategic management focuses on firms
& different strategies used to become &
remain successful
▪
Multiple views of strategy exist, and the
5 Ps (Mintzberg) enhance
understanding of the various ways in
which firms conceptualize strategy
▪
Most org create intended strategies
they hope will lead to success
▪
Over time, however, new opportunities
& challenges - emergent strategies
▪
Realized strategies are a product of
both intended and realized strategies
▪
Although strategic management as a
field of study has developed mostly
over the last century, the concept of
strategy is much older
▪
Understanding strategic management
can benefit greatly by learning the
lessons that ancient history and military
strategy provide
▪
Sometimes reducing size of firms
maximize chances of success or survival,
from modest steps such as
retrenchment or more profound
restructuring strategies
BOTH AN ART & SCIENCE!
Strategic management process: Building a
careful understanding of how the world is
changing & knowledge of how changes might
affect a particular firm
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Understanding strategy and
performance
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Environmental and Internal scanning
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Strategy formulation
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Strategy implementation
CHAPTER 2
Leading Strategically
BIG Social Changes
What big social changes have occurred in the
last 10-20 yrs (generally social changes take lot
of time to catch on…)
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Cel phones etiquette
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‘Sins’: Smoking, drinking, social drug use
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Marriage
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Internet
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Informality (no more ‘Mr’!)
Think Business Ops?
▪
MISSION STATEMENTS
Mission Statements Examples
▪
“We fulfill dreams through the experience of
motorcycling, by providing to motorcyclists and
to the general public an expanding line of
motorcycles and branded products and services
in selected market segments.”
▪
▪
Mission, with Vision statements, seek to
answer how and why organization
exists & what role it seeks to play in
society
▪
Declaration of Organization’s key
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▪
▪
▪
▪
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May include basis of competition
advantage
HBC… best serve the needs of Canadian
consumers through several highly
focused formats, linked by customer
bridges and enables by common and
integrated support services
Fender (Music) - Our mission to exceed
the expectations of music enthusiasts
worldwide.
STAKEHOLDERS
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Purpose, Business, Values
Sense of direction
Starbucks
Our mission: to inspire and nurture the human
spirit – one person, one cup and one
neighborhood at a time.
Serves as a ‘strategic compass’
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CRA
To administer tax, benefits, and related
programs, and to ensure compliance on behalf
of governments across Canada, thereby
contributing to the ongoing economic and social
well-being of Canadians
Mission: captures basic purpose of company –
What business are we in?
Should be motivating, stimulating, shared, and
consistent with the Vision Statement
Harley Davidson
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Organizations also need support from
their key stakeholders, such as
employees, owners, suppliers, &
customers, if they are to prosper
A mission statement should explain to
stakeholders why they should support
the organization by making clear what
important role or purpose the
organization plays in society
Mission Statements Might Consider
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o
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Customers: Who are organization’s
customers?
Products or services: What are the org’s
major products or services?
Markets: Where does org. compete
geographically?
Technology: How technologically
current is org?
Concern for survival growth, &
profitability: Is the org committed to
growth & financial stability?
Philosophy: What are the org’s basic
beliefs, values, aspirations, & ethical
priorities?
Self-concept: What is the org’s major
competitive advantage & core
competencies?
Concern for public image: How
responsive is the org to societal &
environmental concerns?
Concern for employees: Does the org
consider employees a valuable asset?
Food for Thought…
The Importance of Vision
▪
A Mission statement tends to focus on
what the organization is, what it is
currently doing / being
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▪
Sometime with a goal of doing
it better
Vision Statements focus on what the
organization aspires to become in the
future
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A key tool for inspiring the
people in an organization
o
Well-constructed visions clearly
articulate an organization’s
aspirations and can give an
organization an edge over its
rivals
▪
VISION STATEMENTS
▪
In an ideal world, what is your vision for
(your) future
▪
Focus everyone’s attention on same
target, as well as inspiring them to
reach it.
▪
Dr. King -‘I have a dream’
▪
Expression of what the org aspirations,
beliefs & values
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A clearly defined vision:
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Provides direction
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Determines decisions
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Motivates people
Vision Statements Examples
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Alcoa
(Aluminum) to be the best company in the world, in
the eyes of our customers, stakeholders,
communities and people.
▪
Petro Canada
To be the leader in the development of some of the
purest base oils and innovative, superior products
that customers trust for productivity improvements
around the world.
▪
o
To be the happiest place on earth
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We build Gr-r-reat brands and make the
world a little happier by bringing our
best to you
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The world on time
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To be the number one athletic company
in the world
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A computer on every desk and in every
home; all running Microsoft software
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The world’s best quick service
restaurant
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…exists to share the love of Jesus Christ,
meet human needs and be a
transforming influence in the
communities of our world
Microsoft
Create experiences that combine the magic of
software with the power of Internet services across a
world of devices
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Vision Statements – Whose?
Pepsi
PepsiCo’s responsibility is to continually improve all
aspects of the world in which we operate –
environment, social, economic – creating a better
tomorrow than today
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Google
To develop a perfect search engine
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Amazon
to be earth's most customer centric company; to
build a place where people can come to find and
discover anything they might want to buy online.
▪
FedEx
Leading the way
▪
CHARACTERISTICS OF STRATEGIC VISION
A roadmap of a company’s future
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Future technology-product-customer
focus
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Geographic and product markets to
pursue
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Capabilities to be developed
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Kind of company management is trying
to create
Walt Disney
We create happiness by providing the finest in
entertainment for people of all ages, everywhere.
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Ing Direct’s Advice
(now Tangerine Bank)
eBay
to provide a global online marketplace where
practically anyone can trade practically anything,
enabling economic opportunity around the world
When creating Mission and Vision statements:
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Advocate for somebody
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Make it next to impossible, but with
milestones to note progress
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Music to hear & read, sticky &
difficult to walk away from
Bring it down from the mountain
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It’s Leadership…
Takes Quality Time to develop
The walk doesn’t match the talk
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Irrelevance - created in a vacuum
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Not the Holy Grail - ‘Flavour of the
month’
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Everything to Everybody
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An ideal future not ground in present
realities
▪
Or just poorly written…
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Volvo - By creating value for our
customers, we create value for
our shareholders. We use our
expertise to create transportrelated products and services of
superior quality, safety and
environmental care for
demanding customers in
selected segments
V & M - Nuts & Bolts
If you are tasked with creating:
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Hold the Pen (firmly!)
Who are we? Who do we want
to be? BHAGs
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2nd step – Consult, consult, consult…
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3rd step – Write
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4th step – Repeat steps 3 & 4
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Finally – put it everywhere!!
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PS [No Risk, No ‘Stickiness’, no use...]
Statements (V&M) Fail when…
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1st step – Know yourself & your key
strategies…
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Make it poetry
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It’s the journey that inspires;
the horizon should always be
just out of reach
A personal V/M statement
What would your own personal vision/mission
statement look like?
▪
Try and draft up a couple of bullets or
sentences that capture your own goals
and aspirations
▪
Remember – the stronger your selfknowledge and the clearer your goals,
the more likely you are to achieve
them!
Key Takeaways
Organizations need 3 types of aims:
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A vision states what the organization
aspires to become in the future.
o
A mission reflects the organization’s
past and present by stating why the
organization exists and what role it
plays in society.
o
Goals are the more specific aims that
orgs pursue to reach their visions &
missions
Best goals are SMART: specific, measurable,
aggressive, realistic, & time-bound.
Media exposure can give CEO celebrity status,
positive benefits but CEO must manage
potential for increased public scrutiny
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Specific – Vague goals lead no where. I
should go on vacation… I should loose
some weight…. Happy procrastination!
Building an entrepreneurial orientation can be
valuable to orgs & individuals alike in identifying
and seizing new opportunities.
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Measurable – A number… in any
relevant unit such as cost, quantity, age,
etc.
EO - 5 dimensions: (1) autonomy, (2)
competitive aggressiveness, (3) innovativeness,
(4) proactive-ness, and (5) risk taking.
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Achievable - It's OK to have "stretch"
goals, but must believe goals are
achievable. No belief, no action. BTW,
control and resources (including time)
important!
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Relevant - Making sure goal is linked to
corporate, work or personal goals –
The big picture
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Time-Bound - Due when? or never?
(But, Don’t worry, we’ll talk about it
lots…)
GOALS
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A goal is specific if it is explicit rather
than vague
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specific goals make it clear how
efforts should be directed,
vague goals such as “do your
best” leave individuals unsure
of how to proceed
A goal is measurable to the extent that
whether the goal is achieved can be
quantified
A goal is aggressive if achieving it
presents a significant challenge to the
organization (or you!)
o
easily achievable goals tend to
undermine motivation and
effort
2.2 Assessing Organizational Perf.
Organizational performance: How well an
organization is doing at reaching its vision,
mission, and goals
▪
A multidimensional concept
▪
Vital aspect of strategic management
▪
Assists executives in knowing how well
their organizations are performing
Too late….
SMART Goals
Implicit Future Orientation….
Performance Metrics
▪
A performance measure is a metric
along which organizations can be
gauged.
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Examines - profits, stock price,
and sales
▪
Performance referents or benchmarks
enable us to assess how well org. is
doing compared to others or itself over
time
•
Suppose, for example, that a
firm has a profit margin of 20
percent in 2012. This sounds
great on the surface, until you
find out the firm’s profit margin
was 35% in 2011, or that
industry average profit margin
was 40%.
Financial Ratio Analysis
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▪
Five types of financial ratios
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Short-term solvency or liquidity
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Long-term solvency measures
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Asset management (or
turnover)
The Balanced Scorecard (BSC)
An approach to assessing performance that
targets managers’ attention on four areas:
1. Financial – “How do we look to
shareholders?”
2. Customer – “How do customers see
us?”
3. Internal business process – “What must
we excel at?”
4. Learning and growth – “Are we
continuing to improve and create
value?”
Helps managers resist temptation to fixate on
financial measures, & instead monitor a diverse
set of important measures.
BSC Sample Metrics
Customer Perspective
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Time
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Profitability
o
Quality
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Market value
o
Performance and service
o
Cost
Meaningful ratio analysis must include
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Analysis of how ratios change
over time
Internal Business Perspective
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How ratios are interrelated
Processes
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Cycle time
•
Quality
•
Employee skills
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Productivity
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Decisions
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Actions
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Coordination
o
Resources and capabilities
Innovation & Learning Perspective
o
Introduction of new products and
services
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Greater value for customers
o
Increased operating efficiencies
2.3 The CEO as Celebrity
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Financial Perspective
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Profitability
o
Growth
o
Shareholder value
o
Increased market share
o
Reduced operating expenses
o
Higher asset turnover
▪
Advantages
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Serves as an intangible asset for
the CEO’s firm - may increase
opportunities available to the
firm
•
Hiring or developing a celebrity
CEO may increase stock price,
enhance a firm’s image, and
improve the morale of
employees and other
stakeholders
Disadvantages
•
Magnifies any gaps between
actual and expected firm
performance
•
Faces larger and more lasting
reputation erosion if their
performance and behavior is
inconsistent with their celebrity
image
Types of CEOs
2.4 Entrepreneurial Orientation
▪
Processes, practices, & decision-making
styles of organizations that act
entrepreneurially
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An organization’s level of EO - five
dimensions:
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Autonomy
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Competitive aggressiveness
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Innovativeness
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Pro-activeness
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Risk taking
The tendency to pursue novel ideas, creative
processes and experimentation.
Either way, innovativeness is aimed at
developing new products, services, & processes.
Those organizations that are successful in their
innovation efforts tend to enjoy stronger
performance than those that do not.
➢ EO – Proactiveness
➢ EO – Autonomy
The degree that individuals or teams have
freedom to develop entrepreneurial ideas & see
it to completion.
In high autonomy, people have independence
required to bring a new idea to fruition,
unfettered by the shackles of corporate
bureaucracy.
The tendency to bring forth ideas and see them
through to completion.
➢ EO – Competitive Aggressiveness
Competitive aggressiveness is the tendency to
intensely and directly challenge competitors
rather than trying to avoid them.
Aggressive moves can include price-cutting &
increasing spending on marketing, quality, &
production capacity.
➢ EO – Innovativeness
Proactiveness is the focus on anticipating and
acting on future needs rather than only reacting
Proactive org. adopts an opportunity-seeking
perspective. Such organizations act in advance
of shifting market demand and are often either
the first to enter new markets or “fast
followers” that improve on the initial efforts of
first movers.
➢ EO – Risk Taking
Risk taking refers to the tendency to engage in
bold rather than cautious actions.
Starbucks, for example, made a risky move in
2009 when it introduced a new instant coffee
called VIA Ready Brew.
Increasing Entrepreneurial Orientation
▪
Org systems & policies must reflect 5
dimensions of EO.
o
Org’s compensation systems
will encourage or discourage
taking sensible risks, which
must be rewarded, regardless
of whether the risks pay off
o
Corporate debt levels will
influence EO
Innovativeness is the level of org. creativity and
experimentation.
Some innovations build on existing skills to
create incremental improvements, while radical
innovations require brand-new skills and may
make existing skills obsolete.
o
Performance measures
implicitly signal what is
important
o
Higher levels of autonomy tend
to increase employee
satisfaction & reduce turnover.
o
Innovativeness can be gauged
by tracking # of new products
or services developed in the last
year, & # of patents the firm
has obtained
Key Takeaways
Organizational performance is a
multidimensional concept, and wise managers
rely on multiple measures of performance when
gauging the success or failure of their
organizations.
The balanced scorecard helps executives
understand, monitor & manage org. across 4
dimensions –
The triple bottom line provides another tool to
help executives focus on performance targets
beyond profits alone; this approach stresses the
importance of social & environmental
outcomes.