Foundations of Strategy
Overview
Elizabeth Allen
Mike Mullin
Michael Johnson
Joshua Zamarron
James Stariha
Chapter 1: The Concept of
Strategy
The role of strategy in success
Strategy today
The approach taken in this book
The Role of Strategy in Success
Goals that are simple, consistent, and long term
Single-minded commitment to clear goal
Profound understanding of competitive environment
Objective appraisal of resources
Exploit internal strengths and protect areas of weakness
Effective implementation
Emergence of organizations and responding to changes in the
environment
The Role of Strategy in Success
Successful Strategy
Effective
Implementation
Profound
understanding of
Simple, consistent, the competitive
environment
long-term goals
Objective appraisal
of resources
Strategy Today
Strategy Definitions
The means by which individuals or organizations achieve their
objectives (FS Book)
A plan, method, or series of actions designed to achieve a specific
goal or effect (Wordsmyth Dictionary)
The determination of the long-run goals and objectives of an
enterprise and the adoption of courses of action and the allocation
of resources necessary for carrying out these goals (Alfred
Chandler, Strategy & Structure)
The pattern of objectives, purposes, or goals and the major policies
and plans for achieving these goals, stated in such a way as to
define what business the company is in or is to be in and the kind
of company it is or is to be (Kenneth Andrews, The Concept of
Corporate Strategy)
Strategy Today
Corporate strategy
Defines the scope of the firm in terms of the industries and
markets in which it competes
Business strategy
Concerned with how the firm competes within a particular
industry or market
The Approach Taken in this
Book
Companies operate in the interests of their owners by
seeking to maximize profits over the long term by pointing to
four key considerations
Competition
The market for corporate control
Convergence of stakeholder interests
Simplicity
The Approach Taken in this
Book
Competition
Erodes profitability
As competition increases, the interests of different stakeholders
converge around the goal of survival
The Market for Corporate Control
Management teams that fail to maximize the profits of their
companies will be replaced by teams that do
The Approach Taken in this
Book
Convergence of Stakeholder Interests
There is likely to be more community of interests than conflict
of interests among different stakeholders
Simplicity
A key problem of the stakeholder approach is that
considering multiple goals and specifying trade-offs between
them vastly increases the complexity of decision making.
Chapter 3: Resources and
capabilities
The role of resources and capabilities in strategy formulation
Identifying the organization’s resources and capabilities
Developing resources and capabilities
Resources and Capabilities
Firms industry environments have become
more unstable, so internal resources and
capabilities have become more secure base for
formulating strategy
It has become increasingly apparent tha
competitive advantage rather than industry
attractiveness is the primary sources of superior
profitability
Resources and Capabilities
Resources are the productive assets owned by the firm
Capabilities are what the firm can do
Resources must work together to create organizational
capability
Capability is the essence of superior performance
Identifying Resources
Tangible Resources
Easiest to identify and evaluate
Financial resources, Physical resources
Intangible Resources
Technology
Reputation
Culture
Human Resources
Skills/know-how
Capacity for communication and collaboration
Motivation
Identifying Capabilities
Organizational Capability – a firm’s capacity to deploy
resources for a desired end result
To perform a task, a team of resources must work together.
i.e. a brain surgeon with a radiologist, anesthetist, nurses, etc.
Distinctive Competence – those things that an organization
does particularly well relative to its competitors
Developing Resources and
Capabilities
Having managers with knowledge for capability building
Acquiring capabilities through mergers, acquisitions, and
alliances
Internal development(focus and sequencing): Capability
development needs to be systematic and a step by step
process of design and implementation through several stages
and in order.
Chapter 5: Business strategies in
different industry and sectoral
contexts
The industry life cycle
Strategy at different stages of the life cycle
Scenario planning
The Industry Life Cycle
Is the supply-side equivalent of the product life cycle, occurs
over a much longer time span
Comprised of four phases
Introduction
Growth
Maturity
Decline
Two main factors that are fundamental:
Demand growth
Production and diffusion of knowledge
Demand Growth
In the introduction stage, sales are small and the rate of market
penetration is low because the industry’s products are little known
and customers are few. Customers tend to be innovative oriented
and risk-tolerant.
The growth stage is characterized by accelerating market
penetration as technical improvements and increased efficiency
open up the mass market
Increasing market saturation causes the onset of the maturity stage.
Once saturation is reached, demand is wholly for replacement
As the industry becomes challenged by new industries that produce
technologically superior substitute products, the industry enters its
decline stage
Production and Diffusion of
Knowledge
New knowledge in the form of product innovation is
responsible for an industry’s birth
Dual processes of knowledge creation and knowledge
diffusion exert a major influence on industry evolution
Over the course of the industry life cycle people become
more knowledgeable about the performance attributes so
they are better able to judge value for the price
Change focus from product innovation towards process
innovation
Strategy at Different Stages in
the Life Cycle: Introduction
Stage
The introduction stage typically features a wide variety of
product types that reflect the diversity of technologies and
designs and the lack of consensus over customer requirments
The basis of entry is product innovation
Success comes from winning the battle for technological
leadership
Gross margins can be high, but heavy investments in
innovation and market development tend to depress return
on investment
Strategy at Different Stages in
the Life Cycle: Growth Stage
One of the key challenges becomes scaling up, as the market
expands the firms needs to adapt its product design and
manufacturing capabilities to large-scale production
More sophisticated financial, administrative, and strategic
skills become necessary
Need to reduce cost and less need for sophisticated labor as
production processes eliminates the need, leads to a shift in
production and assembly to newly industrialized countries
Strategy at Different Stages in
the Life Cycle: Maturity Stage
Competitive advantage increasingly becomes a quest for efficiency
Key Success factors
Cost efficiency through scale economies
Low wages and low overheads
The number of firms begins to fall as product standardization and
excess capacity stimulate price competition
Often industries go through one or more “shake out” phases during
which the rate of failure increases rapidly
Further un-skilled labor required, shifts almost entirely to
developing countries where the costs are low
Strategy at Different Stages in
the Life Cycle: Decline Stage
Transition can result from technological substitutes, changes in
consumer preference, demographic shifts, or foreign competition
Key features of decline
Excess capacity
Lack of technical change
Aggressive price competition
Declining number of competitors
Two determinants of whether or not a declining industry becomes
a competitive bloodbath
Balance between capacity and output
Nature of the demand for the product
Scenario Planning
Scenario analysis: systematic way of thinking about how the
future might unfold that builds on what we know about the
current trends an signals
Scenarios are stories that describe how the world might look
in the future; these stories are used to review and test
strategic options
Approach is to construct several distinct, internally consistent
narratives of how the future may look 5-25 years ahead
Scenario Planning Key Steps
Define the purpose of the analysis
Decide on the time horizon
Indentify key trends
Identify key uncertainties
Create the scenario and check that they are internally consistent
Identify indicators that might signal which scenario is unfolding
Assessing the strategic implications of each scenario
Chapter 6: Technology-based
industries and the management of
innovation
Competitive advantage in technology-intensive industries
Strategies to exploit innovation: how & when to enter
Creating the conditions for innovation
Competitive advantage in
technology-intensive industries
The innovation process
Basic Knowledge
Innovation
Supply side – Imitation
Demand side – Adoption
Invention
Diffusion
The Profitability of Innovation
Property rights in Innovation
Intellectual property: Patents, Copyrights, Trademarks, and Trade
Secrets
Codifiable Knowledge
“That which can be written down”
Coca-Cola, Intel’s Design
Lead-Time
Lead-Time advantages
Microsoft, Intel, and Cisco Systems
Complementary Resources
Biotech firms ally with large pharmaceutical compaines for clinical
testing
Strategies to exploit innovation:
how & when to enter
Alternative Strategies to exploit innovation
Licensing, Outsourcing certain functions, Strategic Alliance, Joint Venture, and Internal
Commercialization (Risk and Return and Resources requirements)
Characteristics of the Innovation
Establishment of Property rights critically determines the choice of strategy options.
Resources and Capabilities of the Firm
Timing Innovation: To Lead or to Follow?
Leaders don’t always grab the prize. Risks and cost of pioneering
Protection of property rights or lead-time advantage
Importance of Complementary resources
The potential to establish a standard
Creating the conditions for
innovation
Managing Creativity
Creativity is stimulated by human interaction
Amgen and Google
Organizing for Creativity
Quite different from efficiency
Google: Engineers have considerable discretion at to which project
to join
From Invention to Innovation: The Challenge of integration
Must be directed and harnessed to create value for both company
and society
Cross functional development teams, product champions, buying
innovation, and open innovation
Chapter 7: Corporate Strategy
The scope of the firm
Key concepts for analyzing firm scope
Diversification
Scope of The Firm
Product Scope– How specialized the firm is in terms of the
range of products it supplies.
E.g. Coca-Cola, Gap, SAP
Vertical Scope– The range of vertically linked activities the
firm encompasses.
Geographical Scope– The geographical spread of activities
for the firm.
Key concepts for analyzing firm
scope
Firm’s extend or reduce their scope because they perceive
this to be in the firm’s best interest
Economies of scale
Reduction in average costs that result from an increase in the
output of a single product
Economies of scope
Cost economies from increasing the output of multiple products
Creates potential for multi-business firms to gain cost
advantages over more specialized business
Key concepts for analyzing firm
scope
Tangible resources
Distribution networks, info technology systems, sales force, labs
Offer economies of scope by eliminating duplication between
businesses through creating a single shared facility
Ex: cable TV companies and telephone companies
Shared services organizations
Intangible resources
Brands, reputation, technology
Offer economies of scope from the ability to extend them to
additional businesses at low marginal cost
Ex: Starbucks
Brand extension
Diversification
The expansion of an existing firm into another product line
or field of operation
The Benefits and Costs of Diversification: Why do
companies strive to diversify?
Growth
Risk reduction
Value creation
Our Company Amgen
On January 26, 2012 Amgen released a statement about their
most recent a successful acquisition, Micromet, for 1.16
Billion dollars.
Micromet is a biotechnology company that’s main capability
is oncology development
This is an example of diversification, due to the expansion of
Amgen’s current field of operation into the field of operation
of Micromet.
Chapter 9: Realizing Strategy
The organizational challenge: reconciling specialization with
coordination and cooperation
Management systems
Corporate cultures
The Organizational Challenge
Reconciling specialization with coordination and cooperation
The fundamental source of efficiency in production is
specialization through the division of labor into separate tasks.
Henry Ford found huge productivity gains with his assembly line.
Cutting the time to assemble the Model T from 106 hours to 6
hours in only two years.
Costs of specialization
More divided the process, the more complex the challenge of
integrating the efforts of individual specialists
Leads to cooperation problem and coordination problem
Management Systems
Provide the mechanisms of communication, decision making
and control that allow companies to coordinate and integrate
activities
The Four Management Systems
Information Systems: Collect, organize and communicate
financial information to top management and other parts of
the organization
Strategic Planning Systems: important method for achieving
coordination within a company. The strategic plan is often
made up of the following
Statement of goals
Set of assumptions or forecasts
Qualitative statement
Specific action steps
Financial projections
The Four Management Systems
Financial Planning and Control Systems: primary
mechanism through which top management seeks to control
the company
Human Resource Management Systems: an incentive
system that promotes the implementation of plans and
targets by aligning employee and company goals and
ensuring employees have the skills necessary for his or her
job
Corporate Culture
Corporate Culture: refers to the values and ways of thinking
that managers wish to encourage in their organization
Studies that have been attempted do suggest that
organizations with strong corporate cultures do have better
long term financial performance than those who do not,
although the tests used to find this may not have been totally
reliable
THANK YOU
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