Cambridge Judge Business School Engineering 4E11 Strategic Management 2 Dr Chris Coleridge 24 Jan 2023 Welcome! Yesterday: What is Strategy All About? Analysis, Formulation and Execution. Today: Outside In or Inside Out? 31 Jan: The Ecosystem Perspective. 1 Feb: Disruption and Continuous Renewal. 7 Feb: Strategy Formulation. 8 Feb: Strategy Execution. 14 Feb: Industry Evolution and Strategic Change. 15 Feb: Corporate Strategy and Wrap up. 2 Assessment 2500 word essay. Due 20 March. You will prepare a strategic analysis of the current situation and prospects for a company of your choice. The paper should contain a comprehensive industry and market analysis, including a detailed analysis of relevant competitors, and conclude with strategic recommendations for top management. The selection of a company for strategic analysis is entirely up to each student; however, firms in industries that are in transition or firms that are undergoing major strategic changes are potentially more interesting. 3 “Highlights” from yesterday • Strategy/Strategic Management, like any other field, evolves. Be thoughtful about considering any text or idea to be timeless. • “Success” is multivalent. What does the organisation itself (leadership, culture) value? What do stakeholders and the outside world value? • “Success” is multicausal. Exogenous influences (competitor action, stakeholder action, politics, “events”, luck!) all have a role to play. • Porter has a powerful set of ideas about outside – in, “generic” differentiation, strategic position, focus through tradeoffs, building fit over time. Famously, he advises against getting stuck in the middle. These ideas have been hugely influential on MBA-trained managers for decades. 4 Four tough questions • Supermarkets • https://on.ft.com/3Z2n8AC – what can supermarkets do to push back against inflation? • https://on.ft.com/3DJMwmo – could Aldi catch Sainsburys? How? • Energy • https://on.ft.com/3XnAUN2 -- should Tesla spend $350mn to launch a lithium refinery? • Consumer electronics • https://on.ft.com/3XyQIMt -- will dependence on China sink Apple? In relation to these articles, think about Porter’s key concepts: unique activities, strategic position, trade-offs, fit; we will also discuss and apply Miller et al’s concepts: capabilities and asymmetries 5 Supermarket Inflation 6 Supermarket Inflation Porter says: Don’t focus on operational efficiency Choose your (differentiated) strategic position and commit to it Tradeoffs are essential to retaining focus Over time, you can build fit 7 Does this help generate some options? 8 Pushing back against the forces Against rivals? Differentiate (what can’t they/don’t they want to do?) Against suppliers (inc distributors/employees)? Orchestrate, build a network Find alternatives! Against customers? Create more value Raise switching costs, build a network Against new entrants? Tie up distribution channels Make alliances not available to unknown players Against substitutes? If you can’t beat them, work with them! 9 How to use the five forces Strategies (or tactics) that “mute” the force’s effect on your firm compared to others help you win Weak forces = “headroom”/opportunities to increase profits Strong forces = pain points for someone– which in turn gives rise to innovations (by you, or to be used against you…) Adjacent spaces to yours where the forces are collectively weaker might be good “moves” Adjacent spaces where the forces are stronger might be value destroying… 10 Can Aldi catch Sainsburys? 11 Should Tesla get into lithium refining? 13 + Addressing the Five Forces 1. Collusion 2. Consolidation 3. Integration 4. Retaliation 5. Market segments 6. Value chain steps 7. Cost advantage The new way of competing 8. Differentiation advantage 9. Ecosystem advantage 10. Or....Exit The oldfashioned way of competing Will Apple’s dependence on China prove insurmountable? 15 We now live in a post-Porter world • Many of his ideas came from a starting point of relatively static “industries”; in a given industry, the more firms that follow/have followed his advice, the less useful/helpful the ideas are as a guide to action. • Porter has little to say about innovation. Arguably he advises against many forms of it! The discipline of “embrace tradeoffs” may not lead to bold enough moves. The path of increasing fit-based efficiency around the existing strategic position may also be the path of least resistance. 16 Strategic Intent The direction of travel… and often a Big Hairy Audacious Goal What “core capabilities” need to be built upon, which ones need to be renewed or rebuilt? What are the “loose bricks” in the walls that surround us? Avoiding complacency and the “tyranny of fit” https://hbr.org/2005/07/strategic-intent 17 Barney and the Resource Based View 18 Examples of “VRI” Resources Brand • As the world sees it, not as the marketer sees it Enforceable IP which is generating profits Relationships • Especially when unusual combinations of stakeholders • It’s the flow not the stock Effective culture of execution Location location location • Physical Location • Platforms/Lock in Capabilities to do things that very few others can do Miller et al’s Three Imperatives Discover Discover Asymmetries and their Potential • What’s already different about us? Design Design new configurations of capabilities based on these asymmetries Pursue Pursue market opportunities that build on/leverage capabilities https://journals.sagepub.com/doi/pdf/10.2307/41166131 20 Defining Competitive Advantage Porter (1980): a unique configuration of activities allowing differentiated meeting of customer needs and defensible position vis a vis competitors Adner (2012): the ability to orchestrate a unique set of stakeholder relationships to achieve superior information flow • Decision principle: reinforce uniqueness, maintain differentiation • Decision principle: build a unique ecosystem and leverage it 1980 2012 1991 Barney (1991): a rare and hard-to-imitate resource or capability underlying the firm’s ability to compete 2013 McGrath (2013): the ability to spot and execute a series of temporary advantages • Decision principle: be fast to enter, be ready to exit • Decision principle: protect/reinforce the core and spin it into growth opportunities 21 Strategy School Advantage Comes From Sustainable Advantage Comes From Positional Industry Structure and mitigating Forces Trade-offs, Focus on singlecompetitors and mindedness, fit ‘winning’ not value creation Core Competence Capabilities Ability to repeatedly repurpose capability Possible negative effect Lock-in to dominant capability Agility Creating Capability to Options/Ability to adapt, create options rapidly experiment and exit Diffuse efforts Cooperative Ecosystem Collaboration/Pattern Superior flow of relationships of information You don’t “own” your advantage, relies on trust Keystone Ecosystem Locking everyone in Getting too greedy Switching costs To chew on… Every wicked problem is essentially unique https://hbr.org/2008/05/strategy-as-a-wicked-problem 23
