how to think strategically - wpyl - 3-4-16
TRANSCRIPT
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How to Think Strategically
Embrace Change.
Create Value.
Greg Hopper
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How many of you have an iPhone?
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How many of you still have the box?
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Today Is Your One-Hour MBA*!
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*Completely unaccredited.
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Strategy, for many people:
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Notforus!
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My Strategy Mentor
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My Real Strategy Mentor
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William S. “Ozzie” Osborne
VP, GM, and CTO – IBM Personal Computer Company
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My functional resumé
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Resources (partial)
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This imag
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Strategy defined
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Strategy 101
Sell more stuff.
Make the stuff cheaper.
Get more stuff to sell.
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Strategy
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Drive revenues up
Drive costs down
New productsNew marketsNew value
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Fundamental challenge of strategy in technology-based companies
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1. You start selling a successful product.
2. You continue to improve the product and sell a lot more.
3. You’re selling product faster than ever just as you saturate the market.
4a. These people find your product to be “too much”.
4b. These people find your product to be “too old”.
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You’ve heard this…
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But in today’s business world…
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Doing the same thing over and over
and expecting the SAME results
is insanity!
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Market Dominators
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Market Dominators Were Insane
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Profits appear more and more as a lagging indicator of yesterday’s innovations. Around three-quarters of Microsoft’s profits come from two extremely successful products that the company introduced in the 1980s and 1990s: the Windows operating system and Office productivity suite.
As Paul Graham, co-founder of Y Combinator wrote, “Microsoft cast a shadow over the software world for almost 20 years starting in the late 80s … But it’s gone now. I can sense that. No one is even afraid of Microsoft anymore. They still make a lot of money … But they’re not dangerous.”
That was in 2007.Source: “Too Much Profit Can Doom Your Company,” Brad Power and Ric Merrifield, 6/1/2015, HBR.com
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Market Dominators Were Insane
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Return to Relevance
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HBR: March 2008
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Impact is severe
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Stalling
“Once a company suffers a significant downturn in revenue growth, it has only a 7% chance of ever recovering to see moderate or high growth.”
- Olson and Van Bever, Stall Points
Further, 2/3 of stalled companies were acquired, declared bankruptcy, or were taken
private.
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Why does a company exist?
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There is only one valid definition of a business purpose:
to create a customer.
Peter Drucker, The Practice of Management (1954) pg. 37)30
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Theodore Levitt (1925—1996)
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• Escaped Nazi Germany; PhD in Economics from OSU
• Taught at HBS from 1959 – 1990
• Editor of HBR from 1985 – 1990
• Wrote eight books; had 25 articles in HBR
• Created the term “globalization” as a strategic phenomenon
• Vaulted marketing to primary role in business
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Theodore Levitt (1925—1996)
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Very Smart Guy
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Levitt on Business
The purpose of a business is to create and keep a customer.
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Levitt on Business
• The purpose of a business is to create and keep a customer.
To do that you have to produce and deliver goods and services that people want and value
at prices and under conditions that are reasonably attractive to those offered by others to a
proportion of customers large enough to make those prices and conditions possible.
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Levitt on Business
• The purpose of a business is to create and keep a customer.
• Produce and deliver goods and services that people want and value.
To continue to do that, the enterprise must produce revenue in excess of costs in sufficient quantity and with sufficient regularity to attract
and hold investors in the enterprise, and must keep at least abreast and sometimes ahead of
competitive offerings.
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Levitt on Business
• The purpose of a business is to create and keep a customer.
• Produce and deliver goods and services that people want and value.
• Produce revenue in excess of costs.
No enterprise, no matter how small, can do any of this by mere instinct or accident. It has to clarify its purposes, strategies, and plans, and the larger
the enterprise the greater the necessity that these be clearly written down, clearly communicated,
and frequently reviewed by the senior members of the enterprise.
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Levitt on Business
• The purpose of a business is to create and keep a customer.
• Produce and deliver goods and services that people want and value.
• Produce revenue in excess of costs.
• No enterprise can do any of this by mere instinct or accident.
In all cases there must be an appropriate system of rewards, audits, and controls to assure that what’s intended gets properly done and, when not, that
it gets quickly rectified.
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Levitt on Business
• The purpose of a business is to create and keep a customer.
• Produce and deliver goods and services that people want and value.
• Produce revenue in excess of costs.
• No enterprise can do any of this by mere instinct or accident.
• Assure that what’s intended gets properly done.
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Elements of Strategy
• Mission: Why are you in business?
• Vision: What is your desired “future state”?
• Values: What is important to the company?
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Mission Statement
“A long, awkward sentence
that demonstrates
management's inability
to think clearly.”
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Mission Statement
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Inform, educate, and entertain.
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Vision
• 5 year+ time horizon
• Aspirational
• Inspirational
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Create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.
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Values
• Important characteristics (personal or corporate) that determine how you will act in executing your strategy
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“Character is not made in a crisis, only exhibited.”
- Robert Freeman
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VW Values?
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Three Layer Model of Competition
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Benefits
Reputation
Commodity
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Basic
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Commodity
Benefits
Reputation
Price
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Bare Minimum Expectations
Courtesy Roshan Bhoj
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Typical Offering
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Benefits
Reputation
Price
Compare features
Commodity
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Features That Matter
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“It’s a war of better products and convenience and features for riders,” Amit Jain, president of Uber in India, said of the competition with local Indian ride-hailing apps.
“The dwell times in [traffic in] India are one of the longest in the world and making constructive use of that time by people able to access emails, communicate with friends and family is a feature that is very beneficial to consumers,” he added.
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Marketing Nirvana
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Benefits
Reputation
Price
Compare features
Brand-driven
Commodity
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Extended Reputation
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More representative
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Benefits
Reputation
Commodity
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This is where the battles are usually fought.
Extreme loyalty J
Price wars L
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Definition
A business model describes the rationale of how an
organization creates, delivers, and captures
VALUE.
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Dimensions of Business Design
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Dimension Key IssueKey
Questions
Customer SelectionWhich customers do I want to serve?
To which customers can I add real value? Which customers will allow me to profit?
Value CaptureHow do I make a profit?
How do I capture a portion of the value I created for customers?
Differentiation/
Strategic ControlHow do I protect my profit stream?
How do I resist customer or competitor power?
ScopeWhat activities do I perform?
Make, buy, or partner?
From “The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits” by Slywotsky and Morrison© 2016 Strategic Edge Executive Resources, LLC
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Christensen Definition
“Four interdependent elements that create and deliver value”
1. Customer Value Proposition
2. Profit Formula3. Resources4. Processes
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Business Model Generation
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Canvas Components
Nine building blocks1. Customer Segments
2. Value Proposition
3.Channels
4.Customer Relationships
5. Revenue Streams
6.Key Resources
7. Key Activities
8.Key Partnerships
9.Cost Structure
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4
3
2 1
9 5
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BASIC TEST: Does revenue exceed cost?
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Two Sides
CSVP
Ch
R$
KP
C$
CR
KR
KA
VALUEEFFICIENCY
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Focus on Segmentation
Nine building blocks1. Customer Segments
2. Value Proposition
3.Channels
4.Customer Relationships
5. Revenue Streams
6.Key Resources
7. Key Activities
8.Key Partnerships
9.Cost Structure
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3
2 1
9 5
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The question segmentation(tries to) answer
What will customers want to buy?
• What should we develop?• On whom should we focus?• What will they value (and what won’t they)?• How should we communicate with them?
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Usual Approaches to Segmentation
• Demographics• Age• Gender• Income• Home ownership status
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• Profession
• Education
• Location
• Etc.
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Breakout
Are traditional segmentation strategies successful?
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Things no one said, ever.
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Hey! Why did you buy that cool
thing?Because I’m between
the ages of 18 and 34.
Artwork R. Hopper
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Traditional Segmentation
• Defined by attributes of product and/or customer
• Based upon a correlation between attribute and outcomes (i.e. purchase and use)
Is this enough to base a strategy on?
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Short Answer: No.
When your marketing theory offers a plausible statement of causality
AND
is based on circumstance-based categorizations (i.e. segmentation)
THEN
you can predict what features, functions and positioning will CAUSE customers to
buy a product.
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Key Insight: Customers Hire Products
Customers have “jobs” to be done.
They “hire” products and services – and people – to do those jobs.
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Job-to-be-
done
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Three Fundamental Questions
• Who is it for?
• Why will they buy it?
• Why will they buy it from you?
Note: “What does it do?” and “How does it work?” are not fundamental questions. No one cares.
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Three Fundamental Answers
1. Who is it for?
2. Why will they buy it?
3. Why will they buy it from you?
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1. Target market
2. Value proposition
3. Source of competitive advantage
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Competitive Advantage Over Time
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DistinguishingFeatures
Reputation
Commodity
No good idea goes uncopied.
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Breakout
How do you respond to this?
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DistinguishingFeatures
Reputation
Commodity
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Example: 1978
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These two companies were the world’s largest consumers of silver.
They dominated the photographic industry.
They had “sustainable competitive advantage.”
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Enter the Hunt Brothers
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Breakout
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You’re the strategy consultant.
What do you advise these two companies to do?
Why?
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(some of) The rest of the story
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Move forward a couple years, and…
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You’re the strategy consultant.
Now what do you advise these two companies to do?
Why?
Breakout
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Context: The Old Way had two fundamental assumptions
Assumption 1: Industry mattered most.
• Relatively stable and enduring forces• Understand the forces• Keep them under control• Premium on analysis and long-term planning• The next five years were “continuously
predictable”
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Context: The Old Way had two fundamental assumptions
Assumption 2: Once achieved, advantages are sustainable.• Management becomes supreme (vs.
entrepreneurs)• Not so in most industries: music, technology,
communications, travel, consumer electronics, publishing, automobiles, razors, everything-as-a-service, taxis, food, etc.
• Advantages are copied quickly, technology changes, or customers just move on
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Lesson
“The assumption of sustainable advantage
creates a bias toward stability
that can be deadly.”
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Lesson
“A preference for equilibrium and stabilitymeans that many shifts in the marketplace
are met by business leaders denying that these shifts mean anything
negative for them.”
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Problems that stability creates
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http://javaiscoool.blogspot.com/2013/01/benefits-of-avoiding-software-silos.html http://www.biomedcentral.com/bmcmed/series/Autoimmunity
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How not to embrace change!
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Source of problem
Industries are the wrong thing to study
• Not granular enough to provide leaders enough information to make decisions on
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New unit of analysis: The “Arena”
• An arena reflects the connection between the customer, the offer, and the geographic location
• Characterized by the particular connections between customers and solutions
• NOT by conventional description of offerings that are near substitutes for one another
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Driver of categorization
The customer’s desired outcome - the “job to be done”
• The customer will evaluate all the alternative ways to get that job done, whether or not a particular vendor feels that the alternatives are “competitors”
• “The most substantial threats to a given advantage are likely to arise from a peripheral or non-obvious location.”
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“…peripheral or non-obvious location”
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Implications
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The source of competitive advantage is changing
• Old way: features, incremental changes --“better mousetraps”
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JTBD: Dead mice
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Implications
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The source of competitive advantage is changing
• Old way: features, incremental changes --“better mousetraps”
• New way: deep customer relationships, “ability to design irreplaceable customer experiences across multiple arenas”
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“Core competency…is a dangerously inward-looking notion.
“Competitiveness is far more about doing what customers value than doing what you think you’re good at.
“And staying competitive as the basis of competition shifts necessarily requires a willingness and ability to learn new things rather than clinging hopefully to the sources of past glory.”
- Clayton Christensen
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Example: Today
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• Embraced digital• Disengaged from film• Got out of comfort
zone• 2015 Revenue of $22B
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New strategy playbook
Based on “transient competitive advantage”
• Advantage evolves with time, changing customer preferences, and context
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Deliberate strategy (every play part of a
“game plan”)
Emergent strategy (adjusting constantly
to game on field)
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How to compete
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“The Wave of Transient Advantage"
Launch Ramp up Exploit DisengageReconfigure
Returns
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Other views of the “wave”
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Remember this?
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1. You start selling a successful product.
2. You continue to improve the product and sell a lot more.
3. You’re selling product faster than ever just as you saturate the market.
4a. These people find your product to be “too much”.
4b. These people find your product to be “too old”.
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Breakout
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Launch Ramp up Exploit DisengageReconfigure
Returns
This makes sense.
Why don’t more companies follow this advice???
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Problem
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Launch Ramp up Exploit DisengageReconfigure
Returns
This is where companies live!
Investors know how to value them, metrics are readily available, and companies can be compared. Managers are rewarded for maximizing the metrics and discouraged from investing in non-core activities.
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Edges require different skills than exploitation phase
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Launch Ramp up Exploit DisengageReconfigure
Returns
Needed:Innovators and experimenters comfortable with ambiguity and prepared to learn (from
failure, if necessary).
Needed:People with analytic skills to detect early signs of decline
and not afraid to make divestment decisions.
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Your One-Hour MBA* is Over!
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*Completely unaccredited.
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How to think strategically
• Think BIG
• Think WIDE
• Think FORWARD but learn from the past
• Use FRAMEWORKS
• Embrace change, and create VALUE.
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Source: Pricing-Hub.com
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Thank you!
Contact information: Greg Hopper
Facebook.com/CompStrat
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