A sneak preview of strategy tools

Prof R.Venkatarman

Definition of Strategy
The roots of strategy lie firmly in the world of military combat. The term itself derives from the Greek word strategia meaning generalship, itself formed from stratos, meaning army.

- Sun Tzu

The concept of strategy is however much older than the word. In around 500BC Sun Tzu wrote The Art of War which is widely considered the first treatise written on what we now call strategy.

All men can see these tactics whereby I conquer but what none can see is the strategy out of which victory 2 evolves.

Corporate strategy
A strategy is a long term series of actions designed to take a company from its current state to its desired future state, and aims to provide a sustainable competitive advantage over other companies in the same market.
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 Consists of the combination of competitive moves and business approaches used by managers to run the company
Managements game plan

To
Stake out a market position Compete successfully Grow the business Achieve targeted objectives Attract customers
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Strategic thinking
Where are we now? Where do we want to go? Businesses to be in Market positions to stake out

Buyer needs and groups to serve

Outcomes to achieve

How will we get there?

A companys answer to how will we get there? is its strategy
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What are choices for company

Trial-and-error organizational learning about
What has worked and What has not worked

Managements appetite for taking risks

Managerial analysis and strategic thinking about how best to proceed, given prevailing circumstances 6

Strategic Inflection Points

There are times when companies come to a major fork in the road.
Market conditions are changing Strategy runs out of stream Actions of competitors block present strategy

Critical decisions have to be made about where do we go from here - major new strategy
may be needed
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The competitive advantage

Strategy is to gain sustainable competitive advantage In developing competitive capabilities rivals can not matchMercedes benz (technology), Chanel and rolex (top of the line) Or providing a distinctive product or service low cost- wall mart

The competitive advantage

Or focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers Lotus or porshe Or develop expertise, resource strengths, and capabilities not easily imitated by rivals- South west

THE INTER-RELATIONSHIP BETWEEN MARKETING AND CORPORATE STRATEGY

INFORMS DIRECTS GUIDES CONTROLS

Corporate Strategy Specifying the organisations mission Allocating resources Defining Organisational objectives

Marketing Strategy Identifying product market/s to compete in Selecting market segments to target Developing the marketing mix
ACHIEVES SUPPORTS OPERATIONALISE

OPERATIONAL vs STRATEGIC MARKETING

Operational Marketing Action-oriented Existing opportunities Non-product variables Stable environment Reactive behaviour Day-to-day management Marketing department
Strategic Marketing Analysis-oriented New opportunities Product market variables Dynamic environment Proactive behaviour Longer range management Cross-functional organisation

Strategic Marketing Management

o Crafting and executing strategy are core management functions o Among all things managers do, nothing affects a companys ultimate success or failure more fundamentally than how well its management team
Charts the companys direction, Develops competitively effective strategic moves and business approaches, and Pursues what needs to be done internally to produce good day-in/day-out strategy execution
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Levels of Strategic Management

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The six Qs for creating a dynamic strategy. Profitability rests on six solid answers to these question
profitability

Why are we Where will we be pursuing this active? objective? The customer The vision The market The mission When will we act What will and at what differentiate our speed? product? Timing Positioning Execution

How will we achieve our objective? Innovation Acquisitions With whom will we compete and cooperate? Competition 14 Alliances

Vision vs Mission
A strategic vision concerns a firms future business path where we are going The mission statement of most companies focuses on current business activities - who we are and what we do
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Vision Statement

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Defining the Business is very important for marketing strategy

Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.

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Beyond agri business

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Business redefined

Haulage

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Profitability is an important consideration

Maximizing returns to shareholders Importance of balancing short-term returns with long-term profitability Pressures to maximize short-term profitability may result in unethical behavior

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Strategy Implementation
After choosing strategies, managers must put them into action. The feedback loopstrategy is ongoing. Managers must monitor and reevaluate for the next round of strategy formulation and implementation.

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Intended and Emergent Strategies

Intended strategies
Strategies an organization plans to put into action

Emergent strategies
Unplanned strategies

Realized strategy
The product of whatever intended strategies are actually put into action and of any emergent strategies

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Strategic Intent
Strategic Intent: A long-term goal that is ambitious, builds upon and stretches firms core competencies, and draws from all levels of the organization.

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WHO? How to manage relationships with customers, satisfy them and generate revenues to be on the winning side? Product innovation WHAT? What is the scope of products and services, its value (its benefits) for the customer, the capabilties to deliver them in an innovating way?

Strategy ultimatley leads to the appropriate business model

Customer Relationship
HOW? How to organize the infrastructure, its resources, the knowledge and the structure of resulting costs, manage the value chain and processes, build alliances to achieve performance?

Infrastructure

Financial aspects

HOW MUCH? What is the revenue model? the profit model? designed to last?

e-business 24

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The business plan

SCM , ops resources

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Creativity -> Ideas -> Innovations -> Success -> Profits

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Offering Level

0.5 1 2

1.5

2.5

0
Co st Im ag e Us er I nt er fa ce at io ns Ap In t eg ra te d Ca pa bil it ies pli c

Strategy Canvas: Cell Devices

Feature
Ce ll C ar ri In n Cu st om er ov er ati Se r on vic e

iPhone

Blackberry Other Cell

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The value chain

Supply chain Operation Distribution Sales and Marketing Service

China Shenzhen Assembly Facility

Taiwan
Facilities of camera, circuitry, connectors, stainless casings

US
Facilities of touch screen, specific parts

Singapore
Facilities of CPU, processing chips

Source: http://www.shmula.com

Product success
PROFIT MARGIN
Apple has recently doubled its net income
8000%

7000%

6000%

5000%

4000%

3000%

2000%

1000%

0% 2008 2007 2006 2005 2004 2003

Profit margin

Net income

Net sales Data: Standard & Poors

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Core Competence
Users experience

Source: http://blog.wired.com

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 Cognitive biases
Prior hypothesis bias Escalating commitment Representativeness Illusion of Control Hubris hypothesis

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Tools used for crafting strategy to gain competitive advantage

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The various models on strategy

The following are the most commonly used models: Competitive Advantage PESTL analysis SWOT Value Chain Porters Five Forces Product Lifecycle Value Innovation & Blue Ocean Theory

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Supplementary models for enhancement

Supplementary models for enhancement Gap analysis Ansoffs Matrix B C G Matrix

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Approaches to Assess How Well the Present Strategy Is Working

Qualitative assessment What is the strategy?
Completeness Internal consistency

Quantitative assessment What are the results?

Is company achieving its financial and strategic objectives?
Is company an above-average industry performer?
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Rationale
Relevance

Key Indicators of How Well the Strategy Is Working

Trend in sales and market share Acquiring and/or retaining customers Trend in profit margins Trend in net profits, ROI Overall financial strength and credit ranking Efforts at continuous improvement activities Trend in stock price and stockholder value

Image and reputation with customers Leadership role(s) Technology, quality, innovation, e-commerce, etc.
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The Generic Building Blocks of Competitive Advantage

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Cost advantage
This exists when a company can deliver the same product or service as competitors but at a lower cost, enabling it to offer this product or service at a lower price and/or with a higher profit margin. Travel industry is an example when low cost airlines first cut out the agents (and their associated commissions) by selling directly to their customers on line, combined with low operating costs..
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Differentiation advantage
This exists when a company can deliver a product or service that is perceived to be superior to their competitors. In this instance the consumer may be less sensitive to price, allowing the company to charge more and hopefully generate a better margin. This can be particularly strong where the product is nonstandard.
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Any Strategy is a direction-driven organizational change

Realized direction

Unintended consequences Realized strategy Emergent strategy

Organizational change

Desired direction

Behavioral responses

Articulated direction
(Targets)

Mission / vision

Objectives Unanticipated events

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Deliberate strategy

Performance measures
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OBrien, Frances & Dyson, Robert (2007) Supporting Strategy, John Wiley & Sons, West Sussex

The strategic planning process in an organization

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