02WhatIsStrategy PDF

What is Strategy?
Dr. Raymond Levitt
2010 Raymond E. Levitt and SAPM. All rights reserved.
Outline
What is strategy and why does your
organization need one?
Two frameworks for understanding strategy

Porter: Five Forces that make industries more
competitive
Geoffrey Moore: Dealing With Darwin innovating
over the technology/category lifecycle
Technology & Category maturity life cycle
The four Strategic Value Disciplines
Dealing with Darwin: Different strategic value disciplines

for each phase of the technology/category life cycle
What is strategy?
Strategy is about adding value through
a mix of resources, capabilities and activities
different from those used by competitors
in your industry.
Why have a strategy?
A well-designed and
well-executed strategy
allows a firm to earn
above-average profits
in its industry
over the long term
The two elements of strategy:

1. First, pick the right industry to compete in
2. Then pick the right strategy for that industry
Two complementary strategic frameworks

Michael Porters Five Forces framework
Lays out five forces that make markets more competitive
Lays out two generic strategies to address competitive forces
Asserts that an organization must choose one of these two strategies to defend
against changing competitive forces
Use Porters Five Forces framework to evaluate the attractiveness of your
industry vs. other industries in which you could potentially compete
Geoff Moores Dealing with Darwin framework

Identifies four stages in the technology and category life cycle
Emphasizes four distinct kinds of strategic innovation
for each stage of the technology/category life cycle
Use Moores Dealing with Darwin framework to pick the appropriate
strategy for earning above average profits in a selected industry,
based on industrys current technology/category maturity level
Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Simon & Schuster, Inc., N.Y., 1980.
Geoffrey A. Moore, Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. NY: Penguin Books, 2004.
Michael Porters strategic framework

An industry is a group of firms producing
products that are close substitutes for each
other.
The level of competition in an industry
and, hence, its long-run profitability, depends
on the strength of five strategic forces.
Source: Porter, Michael. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York:
Free Press, 1998.
Porters five forces

Industry
dynamics
2. Threat of
new entrants
1. Rivalry among
existing firms
3.Threat of substitute
products/services
Porters five forces

Industry
dynamics
2. Threat of
new entrants
Supply
chain
power
4. Bargaining
power of
suppliers
1. Rivalry among
existing firms
products/services
5. Bargaining
power of
buyers
Porters five forces

Industry
dynamics
Buyer at each stage can
force sellers to engage
in a reverse auction!
Supply
chain
power
4. Bargaining
power of
suppliers
Global sourcing and

economic recession
further depress prices
2. Threat of
new entrants
1. Rivalry among
existing firms
5. Bargaining
power of
buyers
products/services
Strategy of bundling customized, high-value services for global clients,

based on own & others products, becomes attractive for many firms!
Choose the right industry to compete in

Agile companies change industries when
the industry they are in becomes hyper-competitive
and, hence, no longer very profitable!
+
Strategy Lab 1
1. What industry is your program, business unit,

or company in?
2. How strong is each of the five forces for your

organizations industry, and are they getting
stronger or weaker over time?
3. If the forces are already strong, or are getting

stronger, can you think of a way to migrate
your organizations resources, capabilities
and activities to another industry?
Choose the right innovation strategy

Remember your vector math!
= 0
Multiple, uncoordinated innovation initiatives = bubble-up strategy
Zero net impact!
Source: Moore, Geoffrey A. Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. New York:
Penguin Books, 2004.
Diagrams downloaded from www.dealingwithdarwin.com
Two complementary strategic frameworks

Michael Porters Five Forces framework
Lays out five forces that make markets more competitive
Lays out two generic strategies to address competitive forces
Asserts that an organization must choose one of these two strategies to defend
against changing competitive forces
Use Porters Five Forces framework to evaluate the attractiveness of your
industry vs. other industries in which you could potentially compete
Geoff Moores Dealing with Darwin framework

Identifies four stages in the technology and category life cycle
Emphasizes four distinct kinds of strategic innovation
for each stage of the technology/category life cycle
Use Moores Dealing with Darwin framework to pick the appropriate
strategy for earning above average profits in a selected industry,
based on industrys current technology/category maturity level
Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Simon & Schuster, Inc., N.Y., 1980.
Geoffrey A. Moore, Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. NY: Penguin Books, 2004.
Outline

competitive

Different kinds of buyers in the marketplace
Pragmatists:
Stick with the herd!
Visionaries:
Get ahead of the herd!
Techies:
Just try it!
Conservatives:
Stick with whats proven!
Skeptics:
Just say No!
Moores technology adoption life cycle
Main Street
Tornado
Early
market
Chasm
Bowling alley
Technology adoption life cycle
The category maturity life cycle
Market size
Indefinitely elastic
middle period
C
Growth
market
Mature
market
D
Declining
market
E
End of
life
Technology adoption life cycle

Category life cycle
Time
Fault
line!
Outline

competitive

Geoffrey Moores four value disciplines

Think outside the box; imagineer; create new paradigms,
categories, standards
price;
profit
Product leadership
Differentiate through superior design and engineering
yielding higher performance price;
profit
Customer intimacy
Differentiate through superior matching of customer
expectation with offer fulfillment price;
profit
Operational excellence
Superior execution, as measured by higher productivity,
cost;
~= price
profit
Source: Moore, Geoffrey A. Living on the Fault Line: Managing for Shareholder Value in Any Economy. Rev. ed.,
New York: HarperBusiness, 2002.
Differentiation C.L.
Disruptive innovation
Defining differences among the four value disciplines

Disruptive
innovation
Product
leadership
Customer
intimacy
Operational
excellence
Focus
Categorical
differentiation
Offer quality
Customer
experience
Process
efficiency
Orientation
to time
Time to adoption
Competitive
response time
Customer
response time
Internal timing
(rhythm)
Key metric
10X advantage
to user
Product
specifications
Customer
loyalty
Number of
misses
Culture fit
Cultivation
culture
Competence
culture
Collaboration
culture
Control
culture
R&D
Sales,
engineering
Marketing,
customer
support
Operations,
finance
Organizational
leadership from:
Source: Moore, Geoffrey A. Living on the Fault Line: Managing for Shareholder Value in Any Economy,
Rev. ed. New York: HarperBusiness, 2002.
Translating strategy to the project level

A company can simultaneously be pursuing
different strategies in different business units,
functional groups, or even projects.
What are some examples of programs or
projects in your organization that are pursuing
strategies of:
Disruptive innovation?
Product leadership?
Customer intimacy?
Operational excellence?
Outline

competitive

Four innovation zones
Line extension
Innovation
Enhancement
Innovation
Marketing
Innovation
Experiential
Innovation
Platform
Innovation
Product
leadership
zone
Product
Innovation
Disruptive
Innovation
Application
Innovation
Renewal innovation
Harvest
& Exit
Value engineering
Innovation
Integration
Innovation
Process
Innovation
Business model
Innovation
Innovation types for growth markets

The product leadership zone
Platform
innovation
Product
innovation
Disruptive
innovation
Application
innovation
Industry Maturation
Technologies and categories mature rapidly
Platforms emerge and system architecture becomes
formalized
Buying decisions begin to emphasize low cost and
vendor responsiveness over product features
Results
Ongoing production, supply and refinement of components
gets outsourced by system integrator
Individual components become faster, better, cheaper
Major product innovation becomes increasingly difficult
Can you think of recently introduced products

that were initially feature-driven, and are now
maturing?
Line extension
Innovation
Enhancement
Innovation
Marketing
Innovation
Customer
intimacy
zone
Platform
Innovation
Experiential
Innovation
Product
Innovation
Renewal innovation
Harvest
& Exit
Operational
excellence
zone
Disruptive
Innovation
Application
Innovation
Value engineering
Innovation
Integration
Innovation
Process
Innovation
Business model
Innovation
Innovation types for mature markets
Line extension
innovation
Enhancement
innovation
Marketing
innovation
Customer intimacy zone
Experiential
innovation
Innovation types for mature markets
Operational excellence zone
Value engineering
innovation
Integration
innovation
Process
innovation
Value migration
innovation
Customer Intimacy: niche markets, fractal products
Example of fractal products for niche markets

The example of telephones
VoIP
phone
Fax
Video
phone
Broadband
line
Office
phone
Speaker
phone
Security
system
Bedroom
phone
Babycam
Kitchen
phone
Cell
phone
Email
device
Cordless
phone
Car
phone
WiFi
phone
PDA
Emergency
phone
Game
phone
Intercom
Operational excellence: cut costs out of platform
PC
4
Line extension
Innovation
Enhancement
Innovation
Marketing
Innovation
Experiential
Innovation
Platform
Innovation
Product
Innovation
Renewal innovation
Disruptive
Innovation
Application
Innovation
Value engineering
Innovation
Integration
Innovation
Category
renewal
zone
Process
Innovation
Harvest
& Exit
Business model
Innovation
Innovation types for declining markets

Leveraging category renewal
Organic
Acquisition
Category renewal
Harvest
& exit
A broad universe of innovation types

Complex Systems
Volume Operations
Line extension
innovation
Enhancement
innovation
Marketing
innovation
Experiential
innovation
Platform
innovation
Organic
renewal
Product
innovation
Acquisition
renewal
Renewal innovation
Harvest
& exit
Disruptive
innovation
Application
innovation
Value engineering
innovation
Integration
innovation
Process
innovation
Value migration
innovation
Differentiation Evolves Toward Cost Leadership

Early handmade
automobiles
Car is custom product;
unique parts made by single
firm, put together by fitters
Early PCs/Cell Phones

Custom parts, including
software, made and sold
by single vendor
Traditional pharma
Drugs developed, tested,
marketed, sold by pharma
until patent runs out
Henry Fords assembly-line

process
Car is platform: Standardized
parts, manufactured by vendors,
assembled by unskilled workers
Current PCs or Mobile Phones

PC/Handset is a platform: Many
standardized parts, including
software, are outsourced,
assembled, sold through channels
Modern bio-pharma
Drugs invented by biotechs, testing
outsourced, licensed for
manufacturing & distribution to,
or acquired by, big pharma
Cycle: Complex Systems Volume Operations
Line extension
Innovation
Enhancement
Innovation
Customer
intimacy
zone
Platform
Innovation
Product
Product
Innovation
leadership
zone
Disruptive
Innovation
Application
Innovation
Marketing
Innovation
Experiential
Innovation
Category
renewal
zone
Renewal innovation
Operational
excellence
zone
Value engineering
Innovation
Integration
Innovation
Harvest
& Exit
Process
Innovation
Business model
Innovation
Strategy Lab 2
1. Pick a product or service that your business unit is
2.
currently providing or developing.

What phase in the product/category life cycle is this
product or service currently in?
Growing?
Mature/fractal?
Declining?
3. What kinds of strategic innovations are currently
4.
5.
being proposed or implemented for this product or

service?
Are these strategic innovations consistent with
those suggested by the Moore framework?
If not, what different innovation strategies would you
propose in their place?
Ten Tech-Enabled Business Trends to Watch*

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Distributed co-creation
Networks as organizations
Deeper collaboration
The Internet of Things
Experimentation with big data
Wiring for a sustainable world
Anything-as-a-service
Multi-sided business models
Innovation from the bottom of the pyramid
Using technology to improve communities and
generate societal benefits by linking citizens
11. (Bonus Trend): Selling Bits, instead of Atoms
Source: Jacques Bughin, Michael Chui, and James Manyika (2010). Clouds, big data, and smart assets: Ten tech-enabled business trends to
watch McKinsey Quarterly, August 2010. McKinsey Global Institute.
Recap
What is strategy and why does an organization
need one?
Pick the right industry & strategy for your
organization/ project
Porter: Choose your industry based on the current and
evolving strength of the Five Forces that determine the
competitiveness of industries
Geoffrey Moore: Base your strategy for the industry on
the right Strategic Value Discipline/s at each
phase of the technology/category life cycle
The only constant is change.

Adapt or die!

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What is Strategy?

Dr. Raymond Levitt

2010 Raymond E. Levitt and SAPM. All rights reserved.

Two frameworks for understanding strategy

Dealing with Darwin: Different strategic value disciplines

2010 Raymond E. Levitt and SAPM. All rights reserved.

2010 Raymond E. Levitt and SAPM. All rights reserved.

Why have a strategy?

2010 Raymond E. Levitt and SAPM. All rights reserved.

The two elements of strategy:

2. Then pick the right strategy for that industry

2010 Raymond E. Levitt and SAPM. All rights reserved.

Two complementary strategic frameworks

Geoff Moores Dealing with Darwin framework

Michael Porters strategic framework

Porters five forces

2010 Raymond E. Levitt and SAPM. All rights reserved.

Porters five forces

2010 Raymond E. Levitt and SAPM. All rights reserved.

Porters five forces

Global sourcing and

Strategy of bundling customized, high-value services for global clients,

Choose the right industry to compete in

1. What industry is your program, business unit,

2. How strong is each of the five forces for your

3. If the forces are already strong, or are getting

2010 Raymond E. Levitt and SAPM. All rights reserved.

Choose the right innovation strategy

2010 Raymond E. Levitt and SAPM. All rights reserved.

Two complementary strategic frameworks

Geoff Moores Dealing with Darwin framework

Two frameworks for understanding strategy

Dealing with Darwin: Different strategic value disciplines

2010 Raymond E. Levitt and SAPM. All rights reserved.

Different kinds of buyers in the marketplace

2010 Raymond E. Levitt and SAPM. All rights reserved.

Moores technology adoption life cycle

2010 Raymond E. Levitt and SAPM. All rights reserved.

The category maturity life cycle

Technology adoption life cycle

Two frameworks for understanding strategy

Dealing with Darwin: Different strategic value disciplines

2010 Raymond E. Levitt and SAPM. All rights reserved.

Geoffrey Moores four value disciplines

Defining differences among the four value disciplines

Translating strategy to the project level

2010 Raymond E. Levitt and SAPM. All rights reserved.

Two frameworks for understanding strategy

Dealing with Darwin: Different strategic value disciplines

2010 Raymond E. Levitt and SAPM. All rights reserved.

Four innovation zones

2010 Raymond E. Levitt and SAPM. All rights reserved.

Innovation types for growth markets

2010 Raymond E. Levitt and SAPM. All rights reserved.

Can you think of recently introduced products

2010 Raymond E. Levitt and SAPM. All rights reserved.

Four innovation zones

2010 Raymond E. Levitt and SAPM. All rights reserved.

Innovation types for mature markets

Customer intimacy zone

2010 Raymond E. Levitt and SAPM. All rights reserved.

Innovation types for mature markets

Operational excellence zone