Strategic Management
Walter J. Ferrier
Strategy as Process and Perspective
Page 2
Strategic Management Process
1. Articulate Mission / Intent
• Sense of purpose, direction…
•
•
•
•
In which industries does firm compete?
How does firm compete?
Who are customers?
Who are competitors?
Page 3
2. Set Objectives & Performance Targets
• Financial
– Achieve 10% ROE and $1.55 EPS by YE08
– Increase stock price by $4.00-5.00/share
• Strategic
– Become low price leader in industry by YE09
– Enter five new country markets by YE11
Page 4
3. Develop a Strategy
• Strategic themes/thrusts …How to compete:
– International expansion
– Increase brand name and reputation
– Innovate by introducing new products
– Aggressive behavior against rivals in old
products
Page 5
4. Implement Strategy
• Develop action plan at functional level
– Establish European distribution center
• Buy warehouse facility near airport in Germany
• Re-tool with robotic material handling system
– Create new ad campaign for 2008 Olympics
• Get endorsement contract with Lance Armstrong, Marylou
Retton, Mia Hamm, and Michael Johnson
• Develop TV ad with Spike Lee
– Launch new version of product
• Create multifunctional design team
• License Oracle’s newest technology
• Increase R&D budget by 30%
– Cut prices on older version of product by 33%
Page 6
5. Evaluation and Adjustment
• Assess results relative to goals
– Established price leadership in 2006
– Achieved only 4% ROI in 2006
• Identify new opportunities / constraints
– New technologies are coming
– Rivals are merging
• Change strategy / implementation plan (as needed)
Page 7
Strategic Planning vs. Strategizing
Intended
Strategy
Strategy
Carried Out
Dropped
Strategic
Actions
Emergent
Strategic
Actions
Page 8
Miles & Snow Strategy Types
Defenders
Prospectors
Analyzers
Reactors
(?)
Competitive advantage results from a clear and direct
match between the firm’s:
– Mission and values
• The firm’s definition of itself
– Approach to business-level strategy
• New vs. existing markets, first-mover advantage, cost vs.
innovation
– Characteristics and behaviors
• Organizational structure, corporate culture, command/control
systems
Page 9
Defenders
Perspective
• Defend current markets
• Narrow product domain
• Cautious growth
strategies
• Emphasis on efficiency
Process
• Intensive, systematic
strategic planning
• Centralized control
systems
• Leverage existing,
proven technologies
• Performance based on
efficiency
Page 10
Prospectors
Perspective
• Open to experimentation
• Exploration of new
markets
• Aware of external trends
• Open to growth spurts
• Emphasis on innovation
Process
• Strategy driven by
innovation
• First-mover advantage
• Decentralized control
systems
• Performance based on
results
Page 11
Analyzers
Perspective
• Keenly aware of external
trends
• Balance between
exploration and
exploitation
• Purposeful growth
building on proven
capabilities, ideas
Process
• Strategy driven by
competitive intelligence,
analysis
• “Fast-second” strategic
maneuvering
• Performance based on
results
Page 12
What Makes Shareholders Rich?
...Create New Wealth
– Vision looks beyond current boundaries
–
–
–
–
Strategy as continuous process
New perspectives, voices, conversations
Change rules of game
Experimentation, surprise
Page 13
New Strategy Glossary – Fresh Perspective
• Value migration: movement of growth and profit opportunities from
one industry player to another
• Co-evolution: by working with direct competitors, customers, and
suppliers, a company can create new businesses, markets, and industries
• White-space opportunity: overlooked areas of growth
possibilities that don't exactly match existing skills
• Strategic intent: corporate goal or destiny that represents a stretch
for the organization, a point of view about the competitive position a
company hopes to build over the coming decade
Page 14
Adidas-Reebok Merger
+
vs.
Page 15
Adidas-Reebok Merger
+
Employees
26,100
24,600
U.S. Market Share
21.1%
36.3%
Global Market
Share
25.0%
33.2%
Net Income
$517.9 mil
$1.2 bil
Hot Product
SmartShoe
+ Nelly’s shoe line
L. Armstrong apparel
+ iPod Sport Kit
Page 16
Strategic Innovation
Page 17
Tower-building Competition
• Three teams build TinkerToy tower
• 90 seconds each attempt
• Tallest tower wins
– Competing teams may observe/scout, plan, organize, etc.
Page 18
High Jump Innovation: Scissor Kick
1929: 6’8”
Page 19
High Jump Innovation: Forward Roll
1960: 7’1”
Page 20
High Jump Innovation: Fosbury Flop
1968-present: 7’7” to 8’1/2”
Page 21
High Jump Innovation
2.75m
2.50m
Fosbury
Roll
2.25m
Scissor
2.00m
1925
1950
1975
2000
2025
Page 22
High Jump Innovation
2.75m
The
Ferrier
Flight
2.50m
?
Fosbury
Roll
2.25m
Scissor
2.00m
1925
1950
1975
2000
2025
Page 23
Innovation and Organic Growth
• Emphasis on:
–
–
–
–
–
–
–
Top-line revenue
Customer-centric, customer value
Internal and external social interactions
Cross-functional and cross-experiential teams
Empathetic, high EI people
Experimentation, learning
Entrepreneurial culture, boldness, audacity
• Value-creating strategy vs. Value-enhancing strategy
Page 24
Value-creating vs. Value-enhancing Strategy
Profit
New Product
Introduction
Profit
Plateau
Product1
Competition
Erodes
Profits
Product2
Product3
Product4
time
Page 25
Apple iPod
Page 26
Value-creating vs. Value-enhancing Strategy
Profit
New Product
Introduction
Profit
Plateau
Competition
Erodes Value-creating
Profits
Product1
Product2
Innovation
Product3
Product4
time
Value-enhancing Innovation
Profit
Product1
Introduce
iPod
Windows
compatible
iPod
Mini
Product2
iPod
Photo
WiFi
iPod
BMW
iPod
Adaptor
Price
Cut
iPod
Wireless
Remote
iPod
Video
iPod +
Nike Shoe
iPod +
Timex Watch
Page 27
Alliance Network and Innovation
Apple’s iPod Innovation Network
10 parts create 85%
of the iPod’s cost
Samsung (Korea) – Mobile
SDRAM memory
Toshiba (China) – Hard Drive
Toshiba-Matsushita (Japan)Display Module
Nike Disney Timex
Broadcom (Singapore)Multimedia Processor
PortalPlayer (US)
Portal Player CPU
Apple
iPod
Inventec (Taiwan)Assembly, Testing
Renesas (Japan)
Display Driver
Digital
Music
Group
Unknown
Battery Pack
GM Ford Delta
Airlines
Unknown
Mainboard PCB
Unknown
Back Enclosure
400 additional inputs with values from $2 to fractions
of a penny, with an average value of $.05
Source: Portelligent, Inc. and
Linden, Kraemer & Dedrick, 2007.
Page 28
Alliance Network and Innovation
Apple Computuer
High Level of VC + VE
Apple – alliance network in 1995
Apple – alliance network from 1995-1997
Page 29
Introducing the iPod Commode-dore…
Page 30
Innovation
(good intentions)……………..……………….flop
Page 31
Unique Perspective
Page 32
How do you define the coffee industry?
Leisure,
Enjoyment,
Social Interaction
Coffee
• Packaged
• Convenience coffee
• Café/restaurant drinking
Caffeine Source
Fashion
Food &
Beverage
Item
Page 33
How does Starbuck’s define coffee industry?
Page 34
Red vs. Blue Oceans
Red Ocean Strategy
Blue Ocean Strategy
Compete in existing market space
Create uncontested market space
Beat the competition
Make the competition irrelevant
Exploit existing demand
Create and capture new demand
Align organization towards strategic
choice between low cost or
differentiation
Align organization towards pursuit of
low cost and differentiation
Page 35
Strategic Dimension 2
Coffee’s Next Blue Ocean?
?
Strategic Dimension 1
Early U.S. Auto Industry
Page 37
Blue Oceans and The Auto Industry
Company / Product
New/Incumbent
Industry Char.
Ford Model-T
New Entrant
Unattractive
Toyota Corolla
Incumbent
Unattractive
Chrysler Minivan
Incumbent
Unattractive
Toyota Prius Hybrid
Incumbent
Unattractive
Page 38
Blue Oceans and Computer Industry
Company/Product
New/Incumbent
Industry Char.
IBM System 360 mainframe
New Entrant
Attractive
Apple PC (Apple II)
New Entrant
Attractive
Apple PC (MacIntosh)
Incumbent
Unattractive
Compaq Portable
New Entrant
Unattractive
Dell Build-to-order/JIT
New Entrant
Unattractive
Page 39
Strategic Map: PC Industry
(Pre-MacIntosh)
Fast/
High Capacity
IBM
Apple II
Wang
Slow/
Low Capacity
Low Price
High Price
Strategic Map: PC Industry
(Post-McIntosh; Pre-Dell)
User Friendliness
•
•
•
•
Apple
MacIntosh
GUI
Drop & Drag
Mouse
WYSIWYG
Wang
DOS-based
Operating System
IBM
>copy *.doc A:\
Low Margin
High Margin
Strategic Map: PC Industry
(After Dell Enters)
Dell
High Quality &
Dependability
Apple
H-P
Lenovo
Low Price
Adequate
Quality
High Price
“Regular” Supply
Chain Management
“Efficient” Supply
Chain Management
Strategic Dimension 2
Personal Computers …what’s the next big thing?
?
Strategic Dimension 1
IBM Mainframe
Wearable PC
Tablet PC
Compaq Laptop
Apple II
IBM Wearable PC
Apple MacIntosh
IBM PC
Compaq Portable
Page 44
Innovation in Shaving Razors
Try the razors
Compare
Evaluate
Page 45
Strategic Dimension 2
What’s the next big thing?
?
Strategic Dimension 1
Gillette: More is Better…?
12 Blade
Page 47
Razors
• Design features of razors and shaving performance
– Do they make a difference?
– Do they create [real or perceived] value?
• What are relevant “strategic dimensions” of razor industry?
Strategic Dimension 2
– What needs [real or perceived] do these dimensions fulfill?
?
Strategic Dimension 1
Page 48
MBA 606 New Restaurant Concepts
9
8
7
Chesterfield's
Kaleidoscope
Truman's
Rhythm Afrique
Crosshairs
Quarter Pole
5-Alarm Firehouse
Commonwealth
6
5
4
3
2
1
0
Theme
Food
Quality
Location
Price
Point
Food vs.
Liquor
Menu
Breadth
Page 49
MBA 606 New Restaurant Concepts
9
8
7
Chesterfield's
Kaleidoscope
Truman's
Rhythm Afrique
Crosshairs
Quarter Pole
5-Alarm Firehouse
Commonwealth
6
5
4
3
2
1
0
Theme
Food
Quality
Location
Price
Point
Food vs.
Liquor
Menu
Breadth
Page 50
MBA 606 New Restaurant Concepts
9
8
7
Chesterfield's
Kaleidoscope
Truman's
Rhythm Afrique
Crosshairs
Quarter Pole
5-Alarm Firehouse
Commonwealth
6
5
4
3
2
1
t
Ar
tio
us
ic
M
ea
Br
en
u
Pa
dt
h
r
qu
o
Li
vs
.
od
Fo
M
Po
in
t
n
ic
e
Lo
ca
tio
Pr
Fo
od
Th
em
Q
ua
lit
y
e
0
Page 51
LG Internet Refrigerator
Page 52
Airbus A380
Page 53
Segway Personal Transporter
Page 54
Tooth Tunes
Page 55
Converging Industry Advantage
Entertainment
Palmtop
Computing
Wireless
Telephony
Page 56
Competitive Interaction
Page 57
Competitive
Outcomes
Hardball?
Organizational
Characteristics
Industry
Characteristics
Dethronement of the Leader
Market
Share
Wal-Mart
Sears
JC Penney
1950
1960
1970
1980
1990
2000
Page 59
Dethronement of the Leader
Market
Share
Boeing
McDonnellDouglass
Airbus
1950
1960
1970
1980
1990
2000
Page 60
Dethronement of the Leader
Market
Share
(U.S.)
Nike
Reebok
Adidas
1980
1990
2005
Page 61
King of the Hill – Fizzy Beverages
Market
Share
Other ?
Coke
Pepsi
1970
1980
1990
2000
2010
2020
Page 62
Simple Rivalry: Prisoner’s Dilemma
What to say to police?
Criminal 2
Confess
Confess
Both Serve
5 Years in Jail
Keep Quiet
#2 Serves
10 Years in jail
#1 Goes Free
Criminal 1
Keep Quiet
#1 Serves
10 Years in Jail
Both Serve
1 Year in Jail
#2 Goes Free
Page 63
Three Stooges
Larry, Moe, and Curley are in a 3-way duel and
agree to take turns shooting each other, in that
order
Accuracy statistics:
– Larry hits target 20% of the time
– Moe hits target 80% of the time
– Curley hits target 100% of the time
When the duel starts, what should Larry do?
Page 64
Competitive Intelligence
A systematic and ethical program for
gathering information about competitors
and general business trends to further your
own company’s goals
Page 65
Why CI?
Playing the Game Better
Play the Game Differently
• Focus on existing
competitors/strategic position
• Leverage value chain strengths
• Incrementally improve existing
strategies/tactics
• New market opportunity
• New customers
• Develop/leverage new value chain
strengths
• New strategies/tactics
• New “flow” of the game
Figuring out what drives behavior
• Environment/industry drivers
• Organizational drivers
• Managerial drivers
Page 66
Competitor Intelligence Pyramid
s
Recommendations
z
Analysis of Data
Sourcesaof Data
Page 67
Competitor Intelligence Pyramid
Recommendations
Analysis of Data
Sources of Data
• Industry experts/analysts
• Industry publications
• Trade shows/conferences
• Advertisements/PR
• University research centers
• Financial
• Court documents/patents
• Suppliers/customers
• Newspapers/business wire
• Help wanted ads
• Reverse engineering labs
Page 68
Your Rival’s Competitive Actions
September 2006 to February 2007
•
Contract with Spike Lee for TV ad
•
Increase R&D budget by 30%
•
Buy warehouse facility near airport in Germany, Re-tool
with robotic material handling system
•
License Oracle’s newest technology
•
Cut prices on older version of product by 33%
•
Endorsement contract with famous U.S. Olympic athletes
•
Create multifunctional new product design team
Page 69
Competitor Intelligence Pyramid
• Value chain analysis
• Ratio analysis
Recommendations
• Benchmarking
• Cost analysis
• Trend analysis
Analysis of Data
• Personality profiling
• Wargaming or scenario planning
• Competitive behavior analysis
Sources of Data
Page 70
Competitor Intelligence Pyramid
Recommendations
Analysis of Data
• Track Existing Rivals
• Anticipate New Rivals
• Inform Strategy:
– Identify own/competitor’s
strengths/weaknesses
– Early warning system
– Plan of attack/retaliation
Sources of Data
Page 71
The Cola Wars
Page 72
Coke’s Market Share
Competitive Action Repertoire
The set of competitive actions carried out in a given time period
MKT
CAP
SIG
PROD
PRICE
MKT
MKT
PROD
Repertoire
Page 73
Your Rival’s Competitive Actions
January-July 2008
•
Contract with famous movie director, Spike Lee, for TV ad
•
Increase R&D budget by 30%
•
Buy warehouse facility near airport in Germany, Re-tool
with robotic material handling system
•
License Oracle’s newest technology
•
Cut prices on older version of product by 33%
•
Endorsement contract with famous U.S. Olympic athletes
•
Create multifunctional new product design team
a
b
c
d
e
Page 74
Competitive Dynamics Analysis
• Observe competitive moves
• Organize competitive moves
–Action/response pairs
–Action repertoires (year-end tallies)
–Competitive attacks/sequences
• Measurement/Analysis of Characteristics
– Action pattern characteristics that improve:
• Market share
• Stock price
• Profitability
Page 75
Action-Reaction “Pairs”
Action
Pair 1
Coca-Cola
d
Pepsi
Action
Action
Pair 2
Action
Pair 3
d
a
d
c
a
Response
Action
Pair 4
c
e
• Profits
• Growth
time
• Mkt. Share
Action “Repertoires”
c
Coca-Cola
Pepsi
Year-End
Tallies
c
c
a
a
a
c
d
e
time
• Total Actions
• Complexity
• Profits
• Growth
• Mkt. Share
Strategy and Adaptive Maneuvering
8
7
6
5
4
3
2
Chess:
• Epaulette’s Mate
• Sicilian Defense
1
a
b
c
d
e
f
g
h
Sequence Applications...
COMPUTER PROGRAM:
Jab...Jab…Uppercut
LANGUAGE:
qcheaTiueissesne.
hsiT si a cesneueq.
This is a sequence.
MUSIC:
DNA:
CAGTACATAGTACGATACGA
BOXING:
data actions2;
subj = _n_;
do i = 1 to max;
output = matrix;
end;
run;
Competitive Actions Over Time
Coke
a
a
Pepsi
a
b
b
c
d
a
b
b
c
c
c
d
d
e
e
d
c
e
e
a
a
b
Observed Sequence
a
b
c
d
e
c
b
Observed Sequence
Page 80
Coke Strategic Non-Conformity
Coke
a
a
Industry Norm
a
b
b
c
d
a
b
b
c
c
c
d
d
e
e
d
c
e
e
a
a
b
Observed Sequence
a
b
c
d
e
c
b
Observed Sequence
Page 81
Pepsi Strategic Conformity
Pepsi
a
Industry Norm
a
b
a
a
b
c
c
d
b
b
c
d
d
e
c
e
e
a
b
d
e
c
Observed Sequence
a
a
b
c
d
e
c
b
Observed Sequence
Page 82
Coke Strategic Unpredictability
Coke in time1
a
a
Coke in time2
a
b
a
b
c
b
b
c
d
c
d
c
d
e
e
a
d
a
b
c
Observed Sequence
e
e
d
b
b
c
c
e
a
Observed Sequence
Page 83
Pepsi Strategic Predictability
Pepsi in time1
a
a
Pepsi in time2
a
b
a
b
c
c
c
d
b
b
c
d
d
e
e
a
d
a
b
c
Observed Sequence
e
e
a
d
b
c
c
e
b
Observed Sequence
Page 84
King of the Hill – Fizzy Beverages
Market
Share
Other ?
Coke
Pepsi
1950
1960
1970
1980
1990
2000
Page 85
“Hardball” Competition
• Total Actions
–More actions are better
• Average Response Time
–Faster response time is better
• Repertoire Complexity
–Complex repertoire is better
• Attack [Un-]Predictability
–Unpredictability is better
Page 86
Group Exercise: Coke vs. Pepsi
• Total Actions
–Count of total actions
• Average Response Time
–Avg. number of time units between last competitive
move in Coke’s attack and Pepsi’s first competitive
response, etc.
• Repertoire Complexity
–Extent to which entire pattern/repertoire is
skewed/simple vs. balanced/complex
• Attack [Un-]Predictability
–Recognizable repetition or action combinations in
the sequence of actions?
Page 87
Scoring the Fight
Coke
Total Actions
Pepsi
Faster Responses
More Complex Repertoire
Unpredictable Attacks
Who will win?
Page 88
Implications for CI:
Predict Future Behavior of Rivals
Rivals’ prior behavior
Drivers of Behavior
• Patterns
• Management orientation
• Tendencies
• Decision-making
• Type & order of moves
• Financial constraints
• Proactiveness
• Industry characteristics
• Reactiveness
Page 89
Implications for CI:
Monitor Your Own Behavior
• Objectively measures of competitive behavior
• Safeguard against complacency, predictability, simplicity
of your own company
• Keep rivals off balance / disruption / guessing
• What combinations of moves are effective? …which are
ineffective? …smoke signals or bluffs?
Page 90
Strategic Management
…Questions?