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Last class
• Who & what influences strategic purpose
– mission & vision
• Identify the components of the governance chain of an
organisation.
• Understand differences in governance structures and the
advantages and disadvantages of these.
• Identify differences in the corporate responsibility stances taken
by organisations towards strategic purpose.
• Undertake stakeholder analysis as a means of identifying the
influence of different stakeholder groups in terms of their
power and interest.
Slide 5.3
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
The Strategic Position
5: Culture and Strategy
This class
• Strategic position constrained/enabled by history &
culture
• Understand why organizations tend to experience
strategic drift and the symptoms of strategic drift
– Strategic position has historical roots
• Analyse the influence of an organisation‟s culture on its
strategy using the cultural web. • Map taken-for-granted cultural paradigm
– Encapsulates historical experience of an organization
Bel20: importance history
6
Ackermans & van Haaren 1880
Ageas 1824
Anheuser–Busch InBev 1366
Bekaert 1880
Belgacom 1930
Colruyt 1925
Delhaize Group
Dexia
1867
1860
GBL 1902
GDF Suez (Electrabel) 1858 (1905)
KBC Group 1889
Solvay 1863
UCB 1928
Umicore 1906
Strategic drift
Strategic drift is
the tendency for strategies to develop incrementally on
the basis of historical and cultural influences but fail to
keep pace with a changing environment.
Environmental
Change
Amount
of
Change
TIME PHASE 1 Incremental
Change
PHASE 2 Strategic
Drift
PHASE 3 Flux
PHASE 4 Transformational Change or Death
Strategic Drift: 4 phases
1: Incremental change
• Aligned with environmental change
• Build on successes of the past
• Experimentation/growth based on same
historical theme
– Analogue innov, decentralized profit/cost
– hedonistic, liberating holiday villages
2: Tendency to strategic drift
• Don‟t fix what isn‟t broken
• Familiar answers first
– Bias toward what worked in the past
– E.g.
• Clung to belief they had loyal customers who
valued superior quality of GB
• = inferior
Important cause drift Core capabilities -> core rigidities
• Alfred Sloan (1923)
– “A car for every purse and purpose”
• Economy cars (relatively small for US)
– Governmental lobbying = core capability
• Internal network of anti-communist spies
• Buy off trade unions
– Provide high pension, health insurance benefits
– BUT…smaller, fuel-efficient Japanese cars (1970s)
• Core capability becomes Core Rigidity
– GM reacts by lobbying, not reinventing US “car for every purse & purpose”
» Japanese don‟t have to deal with trade unions
– 1970 GM market share
• 60% of the U.S. automobile market, less than 10% is foreign
– 2010 GM market share
• < 20%, foreign brands dominate
12
Other causes tendency to “drift”
• Relationships become shackles
– E.g. airlines cosy with flag relations, travel agencies
– : very cosy relations founders, GOs, GMs
• Lagged performance effects!
– the financial performance of the organisation may hold
up initially (e.g. due to loyal customers or cost cutting) /
masks the need for change
• Financial perfomance holds up a decade
– 1980s-1990s tourism environmental changes
» Families: no tolerance for loose morals
» villages are ghettos >< multi-cultural integration
Environmental
Change
Amount
of
Change
TIME PHASE 1 Incremental
Change
PHASE 2 Strategic
Drift
PHASE 3 Flux
Phase 3: Flux
3: Period of flux
• Downturn performance – end 1990s: dramatic deterioration results
• Top management may change – Bourguignon (1997) / Giscard D‟Estaing (2002)
• Internal rivalry as to which strategy
– Historic capabilities or start from scratch?
• Bourguignon: new marketing/finance focus
• May trigger further drop in confidence
– Drop in performance, customer loyalty
• Difficulty to recruit top quality mgt
Environmental
Change
Amount
of
Change
TIME PHASE 1 Incremental
Change
PHASE 2 Strategic
Drift
PHASE 3 Flux
PHASE 4 Transformational Change or Death
Phase 4: transformational change or death
4: Transformational change or death
• Organization may die
• May be split / taken over
• May go through prolonged period of
transformational change
• Learn lessons from the past
– Mac versus IBM pc
• Better, yet…
• more expensive, based on propietary OS, software
– iPhone versus Android phones?
• 50% gross margin against 20% Android phones
– Android phones bit less quality, yet much cheaper and « open innovation »!
• Android phones overtaken iPhone‟s market share
– iPad versus competing tablets
• 20-25% gross margin
• Very good quality
– Harder to beat!
18 |
What can managers do?
• Go against “we know better than customer”
– E.g. (° 1928)
• At forefront digitial technology for mobiles
• Customers told managers repeatedly!!
“We‟re telling them we need digital, we need digital, we need digital. They come out with analog
Star-TAC. They were thumbing their nose at us. The sales folks – they knew. But everyone knew.
We went to Shaumburg [Motorola head office in Illinois] in 1993, 1994, but they didn‟t do anything.
They told us we didn‟t know what we were talking about. Even in 1996, after they missed the first
wave of digital, we told them we needed a dual band, dual mode phone, that this was all we would
be selling. These were not friendly conversations. But Motorola didn‟t do it; instead we launched with
Ericsson, then Nokia”
• Digital technology patents licensed to Nokia, Ericsson
• Stuck to analogue technology push
– more interference, no encryption, lesser subscriber cap
• 60% -> 34% market share in 3 years, 20,000 people laid off
19
What can managers do?
What can managers do?
• Don’t take halfway positions!
– E.g.
• From chemical-based to digital photography
• New chairman Fisher (ex-Motorola) knew about digital possibilities
• Yet, faced with stubborn cultural mindset Kodak execs
– « silver halide is so wonderful! »
– Took awkward halfway position
» Film will co-exist with digital!
• 2011: Kodak is near bankrupt
– Why?
» Today people take pictures with mobile phones
» Cameras are being swept away
20 |
History is encapsulated in cultural paradigm
The paradigm is
the set of assumptions held in common and taken for granted in an
organisation
• is built on collective historical experience of “what works for us”
• influences how organisation responds to change
History is encapsulated in cultural paradigm
video 60th anniversary
Analyse
Paradigm
using
CULTURAL
WEB
23 |
STORIES SYMBOLS
PARADIGM RITUALS &
ROUTINES
POWER
STRUCTURES
ORGANISATIONAL
STRUCTURES
CONTROL
SYSTEMS
Antidote to civilization
A bubble of conviviality,
isolated from modern
civilisation and violence
Profit is not a primary
purpose
BEFORE
1990s
The cultural web of an
organisation – stories
• Tend to be about heroes, villains, mavericks, successes and disasters.
• What stories are commonly told e.g. to newcomers
• How do these stories reflect core assumptions and beliefs?
• What norms do the mavericks deviate from?
Paradigm
Stories
25 |
STORIES SYMBOLS
PARADIGM RITUALS &
ROUTINES
POWER
STRUCTURES
ORGANISATIONAL
STRUCTURES
CONTROL
SYSTEMS
- post-WWII pioneers
(Blitz & Trigano)
- Villain = war, violence
- Pychological
liberation inner self
- « Sea, sex and sun »
(Serge Gainsbourg)
Antidote to civilization
A bubble of conviviality,
isolated from modern
civilisation and violence
Profit is not a primary
purpose
BEFORE
1990s
The cultural web of an
organisation – symbols
• Symbols are objects, events, acts or people that convey,
maintain or create meaning beyond functional purpose.
• What objects, people or events do people in the
organisation particularly identify with?
• What are these related to in the
history of the organisation?
• What aspects of strategy are
highlighted in publicity? Symbols
Paradigm
27 |
STORIES SYMBOLS
PARADIGM RITUALS &
ROUTINES
POWER
STRUCTURES
ORGANISATIONAL
STRUCTURES
CONTROL
SYSTEMS
Antidote to civilization
A bubble of conviviality,
isolated from modern
civilisation and violence
Profit is not a primary
purpose
- Trident,
„GO‟, „GM‟, the
Mediterranean Sea,
“Sun sea and sex”
publicity
BEFORE
1990s
???
The cultural web of an
organisation – power structures
• What kind of power relations?
• Who makes things happen?
• Indicators include:
– status
– claim on resources
– symbols of power Paradigm Power
structures
29 |
STORIES SYMBOLS
PARADIGM RITUALS &
ROUTINES
POWER
STRUCTURES
ORGANISATIONAL
STRUCTURES
CONTROL
SYSTEMS
Antidote to civilization
A bubble of conviviality,
isolated from modern
civilisation and violence
Profit is not a primary
purpose
BEFORE
1990s
Egalitarian! (communist
background Trigano)
- highly autonomous
village general
managers & GOs
- GOs have lots of
resources & status
The cultural web of an organisation
– organisation structure
• How formal/informal are the structures?
• Do structures encourage collaboration or competition?
• What types of power structure do they support?
Paradigm
Organisation
Structure
31 |
STORIES SYMBOLS
PARADIGM RITUALS &
ROUTINES
POWER
STRUCTURES
ORGANISATION
STRUCTURE
CONTROL
SYSTEMS
Antidote to civilization
A bubble of conviviality,
isolated from modern
civilisation and violence
Profit is not a primary
purpose
BEFORE
1990s
- Very informal,
collaborative
- based on trust of
Blitz & his wife
- Good GOs get
administrative
position regardless
of adm ability
The cultural web of an organisation
– control systems
• What is most closely monitored/controlled?
• Is emphasis on reward or punishment?
• Are controls rooted in history or current strategies?
• Are there many/few controls?
Paradigm
Control
systems
33 |
STORIES SYMBOLS
PARADIGM RITUALS &
ROUTINES
POWER
STRUCTURES
ORGANISATIONAL
STRUCTURES
CONTROL
SYSTEMS
Antidote to civilization
A bubble of conviviality,
isolated from modern
civilisation and violence
Profit is not a primary
purpose
BEFORE
1990s
- Very loose control
- Manual procedures
- Reward = intrinsic ???
The cultural web of an organisation
– routines and rituals
• Which routines are emphasised?
• Which are embedded in history?
• What behaviour do routines encourage?
• What are the key rituals?
• What assumptions and core beliefs do they reflect?
• What do training programmes emphasise?
• How easy are routines/rituals
to change?
Paradigm Rituals/
routines
35 |
STORIES SYMBOLS
PARADIGM RITUALS &
ROUTINES
POWER
STRUCTURES
ORGANISATIONAL
STRUCTURES
CONTROL
SYSTEMS
Antidote to civilization
A bubble of conviviality,
isolated from modern
civilisation and violence
Profit is not a primary
purpose
BEFORE
1990s
- Lots of jargon
- Wife Blitz hires
- No money
- Songs and dances
- Close relations GOs
& GMs
???
Work with cultural web to change strategy Case Club Med (p. 187-189)
• Bourguignon (1997)
– focused on marketing & management control
– But neglected cultural issues
• Employees do not buy in strategic changes
• Reject authoritarian mgt style
– Too far from Club Med‟s historical culture
– On top of that, 9/11 causes decrease in revenues
• Giscard D’Estaing (2002)
– Focuses on cultural aspects
• Works with Serge Trigano to understand Club Med‟s culture
– Launches massive cultural training plan
• Combines old and new
– targets an upscale repositioning (new)
– But with a convicial touch (old)
36 |
37 |
Changes in cultural web to facilitate strategic
change in period 1997-2010?
Bourguignon/Giscard D‟Estaing
Slide 2.38
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 6.38
Part II: Strategic Choices
The focus of part II: what choices for the future?
• How organisations relate to competitors in terms of their
competitive business strategies.
• How broad and diverse organisations should be in terms of
their corporate portfolios.
• How far organisations should extend themselves
internationally.
• How organisations are creative and innovative.
• How organisations pursue strategies through organic
development, acquisitions or strategic alliances.
Slide 6.40
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 6.40
Strategic Choices 6: Business Strategy
Two Generic options:
Cost Leadership:
• generate economic value by having lower costs
than competitors
Product/service Differentiation:
• generate economic value by offering a product
that customers prefer over competitors‟ product
Examples: Ikea, Ryanair, Lidl, Netto
Examples: Apple, Victoria Secret
Competitive business strategy
41
Achieving Cost Advantage
Operate with lower
gross margins
Develop a unique
cost structure
Create efficiency in
organisational
capabilities
Focus on market
segments with
low expectations
42
Sells more than competition
3rd most trusted branded Germany
But higher operating margins (due to lower fixed costs)
95% own store brands
Only 700 products
Small shops / low start-up costs
Cheap retail estate (location)
Super efficient operations
Focus on providing one type of
customer benefit better
Agile supply chain
Customers bring own shopping bags
Products on pallets not shelves
Bases of Differentiation
In theory, anything can differentiate:
• image
• status
• comfort
• taste
• beauty
• style
• furthering a cause
• reliability in use
• safety
• nostalgia
• cleanliness
• service
• quality
• accuracy
• hunger
• belonging
In practice, a differentiated product fills one or more
customer needs better than the products of competitors
43
Strategy clock – low price
Low price combined with:
low perceived product benefits focusing on price sensitive
commodity segments – a ‘no frills’ focus strategy (route 1)
to avoid major competitors (Aldi, Ryanair, Easyjet)
lower price than competitors (route 2) while offering similar
product benefits – aimed at increasing market share (typified
by Asda / Amazon)
Route 2: Low-Price Strategy
• Lower price / similar product benefits
– Pitfalls?
• Margin reductions / Inability to reinvest
• Supported by deep corporate pockets
(owned by Wal-Mart)
• Or new low-cost base
versus
Strategy clock - differentiation
differentiation without price premium (route 3 Hybrid) – used to increase market share (McDonalds, Colruyt, IKEA…)
differentiation with price premium (route 4 Differentation) – used to increase profit margins (Club Med, …)
focused differentiation (route 5 Focused differentiation) – used for customers that demand top quality and will pay a big premium (Victoria‟s Secret)
Route 3 : hybrid
• Seeks to simultaneously achieve differentiation and low
price relative to competitors.
– Hybrid strategies can be used to:
to enter markets and build position quickly
as an aggressive attempt to win market share.
to build volume sales and gain from mass production.
Case : low-cost or differentiation?
• Successful service differentiation
– Cleanliness, consistency, and fun in fast-food outlets
• Because attractive to many
– Led to increase in sales volume
– Over time became market share leader in fast-food
• Enabled it to cut costs, became cost leader as well
• Differentiation and cost advantage
– Together very costly to imitate
50
Cost Leadership and Product Differentiation
Can a firm pursue both simultaneously?
Difficult Easier
• culture, history,
management control,
and compensation
policies are nearly
opposites
• firms can do both
because some bases
of differentiation also
lend themselves to
low cost
• culture, history, control
not opposites
Case
• - 10%, + 10%, + 1% (Jo Colruyt)
• Customer prices 10% below competition
• Pay employees 10% above industry rates
• Realise only a 1% return on sales
• Also differentiation!
– Product, content, support
• Unique package sizes
• Substantial amount of useful information
• shorter customer waiting times / stockouts are rare
• Sober image
• Fewer but mainly full-time employees
52
Case
• Differentiation? – Selling a lifestyle and not just products off a shelf
• Contemporary designed products with a connecting „theme‟
– Corporate branding in store colours / Consistent store layout.
– Range of products is extensive (unusual in low price stores)
– Use of the catalogue
– Committed staff with better knowledge, providing better service
• Low price? – Cost management better than competitors with differentiated products
• Systematicaly from idea to product dvpt, supply, distribution, retail, to
home
– Choice of materials and designs that are cheap to manufacture.
– Scale of operation (many more stores)
– Flat pack reduces transport costs for both the company and the customer
– Low cost behaviour by senior managers (e.g. economy class air travel)
– An (almost obsessive?) culture of frugality
focused differentiation
• World’s leading speciality retailer (° 1977)
– Women's wear, lingerie and beauty products
• Set up by man!
• Partially to meet men‟s coyness about buying lingerie as a
gift
– Annual Victoria's Secret Fashion Show, catalogs
• All of which feature top fashion models
– Large price premium!
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