02whatisstrategy (1).pdf

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

What is Strategy?

Dr. Raymond Levitt


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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: Deal ing With Darwin innovat ing

over the techn olog y/category l i fecyc le

Techno logy & Categorymaturity life cycle

The four Strategic Value Discipl in es

Dealing with Darwin: Different strategic value disciplines

for each phase of the technology/category life cycle


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What is strategy?

Strategy is abou t add ing valuethrough

a mix of resou rces, capabi l i t iesand activ i t iesdi f ferent from those used by compet itors

in your indust ry .


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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


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The two elements of strategy:

1. First, pick the right industry to compete in

2. Then pick the right strategy for that industry


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Two complementary strategic frameworks

Michael Porters Five Forc es framework

Lays out five forces that make markets more competitiveLays out two generic strategies to address competitive forces

Asserts that an organization must choose one of these two strategies to defendagainst changing competitive forces

Use Porters Five Forcesframework to evaluate the attractiveness of yourindustry vs . other industries in which you could potentially compete

Geoff Moores Dealing with Darwin frameworkIdentifies four stages in the technology and category life cycle

Emphasizes four distinct kinds of strategic innovationfor each stage of the technology/category life cycle

Use Moores Deal ing with Darwinframework to pick the appropriatestrategy 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.


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Michael Porters strategic framework

An indust ryis 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, dependson the strength of five strategic forces.

Source: Porter, Michael. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York:Free Press, 1998.


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Porters five forces

1. Rivalry among

existing firms

2. Threat of

new entrants

Industry

dynamics

3.Threat of substitute

products/services


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Porters five forces

Supply

chain

power

1. Rivalry among

existing firms

2. Threat of

new entrants

Industry

dynamics

3.Threat of substitute

products/services

4. Bargaining

power of

suppliers

5. Bargaining

power of

buyers

1. Rivalry among

existing firms


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11/40 2010 Raymond E. Levitt and SAPM. All rights reserved.

Choose the right industry to compete in

Agile companies change industries whenthe 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 yourorganizations industry, and are they getting

stronger or weaker over time?

3. If the forces are already strong, or are gettingstronger, can you think of a way to migrate

your organizations resources, capabilities

and activities to another industry?



Choose the right innovation strategy

= 0 Multiple, uncoordinated innovation initiatives = bubble-up strategy

Zero net impact!

Remember your vector math!

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
http://www.dealingwithdarwin.com/http://www.dealingwithdarwin.com/



Two complementary strategic frameworks

Michael Porters Five Forc es framework

Lays out five forces that make markets more competitiveLays out two generic strategies to address competitive forces

Asserts that an organization must choose one of these two strategies to defendagainst changing competitive forces

Use Porters Five Forcesframework to evaluate the attractiveness of yourindustry vs . other industries in which you could potentially compete

Geoff Moores Dealing with Darwin frameworkIdentifies four stages in the technology and category life cycle

Emphasizes four distinct kinds of strategic innovationfor each stage of the technology/category life cycle

Use Moores Deal ing with Darwinframework to pick the appropriatestrategy 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




Porter: Five Forc es that make industries more

competitive


over the technolo gy/category l i fecycle


The four Strategic Value Discip l ines





Different kinds of buyers in the marketplace

Techies:Just try it!

Pragmatists:Stick with the herd!

Conservatives:

Stick with whats proven!

Skeptics:Just say No!

Visionaries:

Get ahead of the herd!



Moores technology adoption life cycle

Chasm

Earlymarket

Bowling alley

Tornado

Main Street

Technology adoption life cycle



Time

Marketsize

Technology adoption life cycle

Growth

market Mature

market

Declining

market

Indefinitely elasticmiddle period

End of

life

A

Fault

line!

E

DC

B

The category maturity life cycle

Category life cycle



Outline





competitive









Different

iation

C.L.

Geoffrey Moores four value disciplines

Disruptive innovationThink outside the box; imagineer; create new paradigms,

categories, standards

price;

profit

Product leadershipDifferentiate through superior design and engineeringyielding higher performance price; profit

Customer intimacyDifferentiate through superior matching of customerexpectation with offer fulfillment price; profit

Operational excellenceSuperior 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.



Source: Moore, Geoffrey A. Living on the Fault Line: Managing for Shareholder Value in Any Economy,

Rev. ed. New York: HarperBusiness, 2002.

Disruptive

innovation

Product

leadership

Customer

intimacy

Operational

excellence

FocusCategorical

differentiationOffer quality

Customer

experience

Process

efficiency

Orientat ion

to t imeTime to adoption

Competitive

response time

Customer

response time

Internal timing

(rhythm)

Key metr ic10X advantage

to user

Product

specifications

Customer

loyalty

Number of

misses

Culture fi tCultivation

culture

Competence

culture

Collaboration

culture

Control

culture

Organizational

leadership from :R&D

Sales,

engineering

Marketing,

customer

support

Operations,

finance

Defining differences among the four value disciplines



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 pursuingstrategies of:

Disruptive innovation?

Product leadership?

Customer intimacy?

Operational excellence?



Outline





competitive









Four innovation zones

Disruptive

Innovation

Application

Innovation

Product

Innovation

Platform

Innovation

EnhancementInnovation

Integration

Innovation

ExperientialInnovation

Process

Innovation

MarketingInnovation

Business model

Innovation

Line extensionInnovation

Value engineering

Innovation

Harvest

& Exit

Renewal innovation

Product

leadership

zone



Disruptive

innovation

Application

innovation

Product

innovation

Platform

innovation

Innovation types for growth markets

The product leadership zone



Industry Maturation

Technologies and categories mature rapidly

Platforms emerge and system architecture becomesformalized

Buying decisions begin to emphasize low cost and

vendor responsiveness over product features

ResultsOngoing 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?




Disruptive

Innovation

Application

Innovation

Product

Innovation

Platform

Innovation

Enhancement

Innovation

Integration

Innovation

Experiential

Innovation

Process

Innovation

Marketing

Innovation

Business model

Innovation

Line extension

Innovation

Value engineering

Innovation

Harvest

& Exit

Renewal innovation

Operational

excellencezone

Customer

intimacy

zone

f



Innovation types for mature markets

Experiential

innovation

Marketing

innovation

Customer intimacy zone

Enhancement

innovation

Line extension

innovation

I i f k


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Innovation types for mature markets

Integration

innovation

Process

innovation

Value migration

innovation

Value engineering

innovation

Operational excellence zone

C t I ti i h k t f t l d t


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Customer Intimacy: niche markets, fractal products

1 2 3

4 5

E l f f t l d t f i h k t


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Example of fractal products for niche markets

Security

system

PDA

Kitchen

phone

Office

phoneBedroom

phone

Car

phone

Cordless

phone

Broadband

line

Cell

phone

Intercom

Babycam

Email

device

Game

phone

Speaker

phone

Fax

Emergency

phone

WiFi

phone

VoIP

phone

Video

phone

The example of telephones


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F i ti


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Disruptive

Innovation

Application

Innovation

Product

Innovation

Platform

Innovation

Enhancement

Innovation

Integration

Innovation

Experiential

Innovation

Process

Innovation

Marketing

Innovation

Business model

Innovation

Line extension

Innovation

Value engineering

Innovation

Harvest

& Exit

Renewal innovation

Category

renewal

zone

I ti t f d li i k t


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Innovation types for declining markets

Harvest

& exit

Category renewal

Organic

Acquisition

Leveraging category renewal

A b d i f i ti t


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Volume OperationsComplex Systems

A broad universe of innovation types

Disruptive

innovation

Application

innovation

Product

innovation

Platform

innovation

Enhancement

innovation

Experiential

innovation

Marketing

innovation

Line extension

innovation

Integration

innovation

Process

innovation

Value migration

innovation

Value engineering

innovation

Harvest

& exit

Renewal innovation

Organic

renewal

Acquisition

renewal

Diff ti ti E l T d C t L d hi


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Differentiation Evolves Toward Cost Leadership

Early handmade

automobilesCar 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-lineprocess

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


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Cycle: Complex Systems Volume Operations

Disruptive

Innovation

Application

Innovation

Product

Innovation

Platform

Innovation

Enhancement

Innovation

Integration

Innovation

Experiential

Innovation

Process

Innovation

Marketing

Innovation

Business model

Innovation

Line extension

Innovation

Value engineering

Innovation

Harvest

& Exit

Renewal innovation

Product

leadershipzone

Operational

excellence

zone

Customer

intimacy

zoneCategory

renewalzone

Strategy Lab 2


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Strategy Lab 2

1. Pick a product or service that your business unit is

currently providing or developing.2. 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 currentlybeing proposed or implemented for this product orservice?

4. Are these strategic innovations consistent withthose suggested by the Moore framework?5. If not, what different innovation strategies would you

propose in their place?

T T h E bl d B i T d t W t h*


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Ten Tech-Enabled Business Trends to Watch*

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.

1. Distributed co-creation

2. Networks as organizations

3. Deeper collaboration

4. The Internet of Things

5. Experimentation with big data

6. Wiring for a sustainable world7. Anything-as-a-service

8. Multi-sided business models

9. Innovation from the bottom of the pyramid

10. Using technology to improve communities andgenerate societal benefits by linking citizens

11. (Bonus Trend): Selling Bits, instead of Atoms

Recap


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Recap

What is strategy and why does an organizationneed one?


Pick the right industry & strategy for yourorganization/ project

Porter: Choose your industry based on the current andevolving strength of the Five Forc es that determine thecompetitiveness of industries

Geoffrey Moore: Base your strategy for the industry onthe right Strategic Value Discipline/s at eachphase of the technology/category life cycle

The only constant is change.

Adapt or die!

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