1 Brief timeline of Strategic Management (SM) | www.aelena.com

Intro to Strategic Management

There are some clear-cut differences between Strategic Management (SM) and Operations

Management (OPS)

When considering the strategy, the external factors and the environment need to be taken

into account. There are plenty of factors that need to be acknowledged.

Economic monetary control, lending rates, recession or boom

Environmental requirements and concerns

Demographic trends

Socio-cultural Changes in values, changes in lifestyles, ideologies and prevailing

political attitudes

Labour markets, industrial relations, trade union agreements.

Technological change and its pace (future disruptions)

Competitors, whether new or established (disruptions here too)

Government - current policies, legislative changes.

Suppliers - cost, changes in products and services.

Brief timeline of Strategic Management (SM)

1950’s GE starts training managers in Strategy

1960’s Toyota and Ford devise SM fundamentals

1970’s Michael Porter develops the Five Forces Model

See more in this link.

Strategic Manager Operations Manager

Operations No Yes Finance No Yes Time Frame Longer Short term Specific Projects No Yes Scope Wide scope – broad Task oriented Complexity High Checklists, standard processes, governance Looks outside Yes No Choices / Uncertainty Continuity

2 Steps of SM | www.aelena.com

Steps of SM

These steps are not uniquely defined, and depending on where you look, you might find

different steps and minor variations. I somewhat put them together here.

Goal Setting (scouting)

Analysis / Planning (in both this and the previous phase, it is vital that the market,

competitors, their future plans, etc. are reviewed and assessed, sometimes called

environmental scanning)

Formulation of Strategy (on the information gleaned from the analysis)

Implementing the Strategy

Reassess strategy - Evaluation and control (performance measurements, consistent

review of internal and external issues, identification o f suitable corrective actions)

Taken from here.

More.

3 Strategy Formulation | www.aelena.com

Naturally, this is an over-simplification and the steps are a bit more complex than this.

Strategy Formulation

Performing a situation analysis, self-evaluation and competitor analysis in the internal and external contexts, at both the micro-environmental and macro-environmental level.

Concurrent with this assessment, objectives are set (it’s vital to be realistic here). Objectives should be parallel to a timeline; some will be short-term and others long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.

These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.

This three-step strategy formulation process is sometimes referred to as determining where

you are now, determining where you want to go, and then determining how to get there.

These three questions are the essence of strategic planning.

SWOT analysis is performed here.

Strategy Implementation

Allocation and management of sufficient resources (financial, personnel, time, technology support)

Establishing a chain of command or some alternative structure (such as cross functional teams)

Assigning responsibility of specific tasks or processes to specific individuals or groups It also involves managing the process. This includes monitoring results, comparing to

benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary.

When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.

4 Business vs Strategic Planning | www.aelena.com

Business vs Strategic Planning

A business plans usually runs for 12 months, and in there we have financial planning, HR

planning, marketing and so on. This is the operational or business plan. The strategic plan

represents 5 of these business plans, since the SP runs for 5 years and leads the positioning for

the company for those next 5 years, with the target of moving the company to a new position,

new market, etc in that time frame, taking into account that many things can change in those 5

years, and the many ramifications.

Business Plans have to align to the direction of Strategic Planning.

The Strategic Manager has to have a clear view of the technical and financial resources

available.

Personal Note: Strategic Management looks similar to Enterprise Architecture in terms of the

long view, the target desired state, the steps in between (the year by year Business Plans), the

constant reassessing, etc.

Most common areas for SM Exporting (not just selling to other countries, but also opening new markets or offices

there)

M&A (a very large and complex area)

Resources Internal – easy to control, almost tangible resources and assets

External – things such as brand reputation, contracts the company has (that are also

worth a certain amount)

A good SM has the ability to analyze both types of resources and knows how to leverage also

the external resources, which is more difficult. Usage of resources is not random you need to

go thru a process of strategic design and decision making.

5 The Levels of Strategy | www.aelena.com

The Levels of Strategy

Under the wide umbrella of SM, there live functional and / or business units (BU) strategies.

Functional strategies include the strategies of each of the organizational capabilities, such as

marketing strategies, new product development strategies, human resource strategies,

financial strategies, legal strategies, supply-chain strategies, and information technology

management strategies. The emphasis is on short and medium term plans and is limited to the

domain of each department’s functional responsibility. Each functional department attempts

to do its part in meeting overall corporate objectives, and hence to some extent their

strategies are derived from broader corporate strategies.

Many companies feel that a functional organizational structure is not an efficient way to

organize activities so they have reengineered according to processes or strategic business units

(called SBUs). A strategic business unit is a semi-autonomous unit within an organization. It is

usually responsible for its own budgeting, new product decisions, hiring decisions, and price

setting. An SBU is treated as an internal profit centre by corporate headquarters. Each SBU is

responsible for developing its business strategies, strategies that must be in tune with broader

corporate strategies.

The “lowest” level of strategy is operational strategy. It is very narrow in focus and deals with

day-to-day operational activities such as scheduling criteria. It must operate within a budget

but is not at liberty to adjust or create that budget. Operational level strategy was encouraged

by Peter Drucker in his theory of management by objectives (MBO). Operational level

strategies are informed by business level strategies which, in turn, are informed by corporate

level strategies. Business strategy, which refers to the aggregated operational strategies of

single business firm or that of an SBU in a diversified corporation refers to the way in which a

firm competes in its chosen arenas.

Corporate strategy, then, refers to the overarching strategy of the diversified firm. Such

corporate strategy answers the questions of "in which businesses should we compete?" and

"how does being in one business add to the competitive advantage of another portfolio firm,

as well as the competitive advantage of the corporation as a whole?"

Since the turn of the millennium, there has been a tendency in some firms to revert to a

simpler strategic structure. This is being driven by information technology. It is felt that

knowledge management systems should be used to share information and create common

goals. Strategic divisions are thought to hamper this process. Most recently, this notion of

strategy has been captured under the rubric of dynamic strategy

6 Porter’s 5 Forces | www.aelena.com

Porter’s 5 Forces The model was devised in 1979. It describes forces applying to the company at different level.

It probably is the most widely applied and influential model since its creation.

Threat of substitute products – can be a different product that also does what your

product does (for example mobile phones also have alarm clocks)

Bargaining power of buyers

Bargaining power of suppliers (the supply chain)

Rivalry among established players – can take a lot of the SM’s time

Threat of new entrants

Broadly seen as this

And in more detail

7 Porter’s 5 Forces | www.aelena.com

More detail from Wikipedia

Porter five forces analysis is a framework for industry analysis and business strategy

development. It draws upon industrial organization (IO) economics to derive five forces that determine

the competitive intensity and therefore attractiveness of a market. Attractiveness in this context

refers to the overall industry profitability. An "unattractive" industry is one in which the

combination of these five forces acts to drive down overall profitability. A very unattractive

industry would be one approaching "pure competition", in which available profits for all firms

are driven to normal profit.

Three of Porter's five forces refer to competition from external sources. The remainders are

internal threats.

Porter referred to these forces as the micro environment, to contrast it with the more general

term macro environment. They consist of those forces close to a company that affect its ability to serve

its customers and make a profit. A change in any of the forces normally requires a business unit

to re-assess the marketplace given the overall change in industry information. The overall industry

attractiveness does not imply that every firm in the industry will return the same profitability.

Firms are able to apply their core competencies, business model or network to achieve a profit above

the industry average. A clear example of this is the airline industry. As an industry, profitability is

low and yet individual companies, by applying unique business models, have been able to

make a return in excess of the industry average.

8 Rivalry among established players | www.aelena.com

Porter's five forces include - three forces from 'horizontal' competition: the threat of substitute

products or services, the threat of established rivals, and the threat of new entrants; and two

forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of

customers.

This five forces analysis, is just one part of the complete Porter strategic models. The other

elements are the value chain and the generic strategies.[citation needed]

Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he

found unrigorous and ad hoc.[1] Porter's five forces is based on the Structure-Conduct-

Performance paradigm in industrial organizational economics. It has been applied to a diverse

range of problems, from helping businesses become more profitable to helping governments

stabilize industries.[2]

Porter's framework has been challenged by other academics and strategists such as Stewart

Neill. Similarly, the likes of ABC, Kevin P. Coyne [1] and Somu Subramaniam have stated that

three dubious assumptions underlie the five forces:

That buyers, competitors, and suppliers are unrelated and do not interact and collude.

That the source of value is structural advantage (creating barriers to entry).

That uncertainty is low, allowing participants in a market to plan for and respond to

competitive behavior.[3]

An important extension to Porter was found in the work of Adam Brandenburger and Barry

Nalebuff of Yale School of Management in the mid-1990s. Using game theory, they added the

concept ofcomplementors (also called "the 6th force"), helping to explain the reasoning behind

strategic alliances. The idea that complementors are the sixth force has often been credited

to Andrew Grove, former CEO of Intel Corporation. According to most references, the sixth force

is government or the public. Martyn Richard Jones, whilst consulting at Groupe Bull, developed

an augmented 5 forces model in Scotland in 1993. It is based on Porter's model and includes

Government (national and regional) as well as Pressure Groups as the notional 6th force. This

model was the result of work carried out as part of Groupe Bull's Knowledge Asset Management

Organisation initiative.

Porter indirectly rebutted the assertions of other forces, by referring to innovation, government,

and complementary products and services as "factors" that affect the five forces.[4]

It is also perhaps not feasible to evaluate the attractiveness of an industry independent of the

resources a firm brings to that industry. It is thus argued (Werner 1984)[5]

that this theory be

coupled with the Resource-Based View (RBV) in order for the firm to develop a much more

sound strategy. It provides a simple perspective for accessing and analyzing the competitive

strength and position of a corporation, business or organization.

Rivalry among established players Rivalry among existing firms may manifest itself in a number of ways- price competition, new

products, increased levels of customer service, warranties and guarantees, advertising, better

9 Threat of new Entrants | www.aelena.com

networks of wholesale distributors, and so on. The degree of rivalry in and industry is a

function of a number of interacting structural features:

Rivalry tends to intensify as the number of competitors increases and as they firms

become more equal in size and capability.

Market rivalry is usually stronger when demand for the product is growing slowly.

Competition is more intense when rival firms are tempted to use price cuts or other

marketing tactics to boost unit volume.

Rivalry is stronger when the costs incurred by customers to switch their purchases

from one brand to another are low.

Market rivalry increases in proportion to the size of the payoff from a successful

strategic move.

Market rivalry tends to be more vigorous when it costs more to get out of a business

than to stay in and compete.

Rivalry becomes more volatile and unpredictable the more diverse competitors are in

terms of their strategies, their personalities, their corporate priorities, their resources,

and their countries of origin.

Rivalry increases when strong companies outside the industry acquire weak firms in

the industry and lunch aggressive, well-funded moves to transform their newly-

acquired firms into major market contenders.

Two principles of competitive rivalry are particularly important: (1) a powerful competitive

strategy used by one company intensifies competitive pressures on the other companies, and

(2) the manner in which rivals employ various competitive weapons to try to outmaneuver one

another shapes "the rules of competition" in the industry and determines the requirements for

competitive success.

Threat of new Entrants There are factors that affect new entrants, such as Barriers to entry to a marketplace (this is

the way some industries protect themselves, especially capital intensive industries like big oil,

airlines). Also, brand loyalty to existing brands can make it really hard for new entrants to gain

a foothold.

Another factor is cost advantages that established firms can have as opposed to new entrants

(licenses, etc). Another factor is economies of scale, where manufacturing is the classic

example.

As switching costs (changing technology) increase, the threat of new entrants lower.

Regulation is another factor that behaves exactly the same.

10 Rivalry among established firms | www.aelena.com

Rivalry among established firms There are 6 elements to this rivalry

- the extent of competition - where will a company go to compete

- industry growth - related to profit or related to overall in sales - if an industry has high profit

and high sales, the competition increases and more entrants will be lured to enter

- product differentiation - that can be based on price or on quality - the higher the level of

differentiation the higher the competition.

- Fixed versus Variable costs - the higher the level of fixed costs and the lower the level of

variable costs, the higher the competition. a manager, if he could, would do away completely

with fixed costs

- the higher the exit barrier, the higher the level of competition - stay and fight

- Reputation, Brand Image, Financial resources can affect rivalry, depending also on the culture

of the firm.

The threat of new entrants is a function of both barriers to entry and the reaction from

existing competitors. There are several types of entry barriers:

Economies of scale. Economies of scale act as barrier to entry by requiring the entrant to come

on large scale, risking strong reaction from existing competitors, or alternatively to come in on

a small scale accepting a cost disadvantage. Economies of scale refer to the decline in unit

costs of a product or service (or an operation, or a function that goes into producing a product

or service).

Product differentiation. Product differentiation creates a barrier to entry by forcing entrants

to incur expenditure to overcome existing customer loyalties. New entrants must spend a

great deal of money and time to overcome this barrier.

Capital requirements. The capital costs of getting established in an industry can be so large as

to discourage all but the largest companies.

Cost advantages independent of scale. Existing firms may have cost advantages not available

to potential entrants regardless of the entrant's size. These advantages can include access to

the best and cheapest raw materials, possession of patents and proprietary technological

know-how, the benefits of learning and experience curve effects, having built and equipped

plants years earlier at lower costs, favourable locations, and lower borrowing costs.

Switching costs. Switching costs refer to the one-time costs that buyers of the industry's

outputs incur if they switch from one company's products to another's. To overcome the

switching cost barrier, new entrants may have to offer buyers a bigger price cut or extra

quality or service. All this can mean lower profit margins for new entrants.

Access to distribution channels. Access to distribution channels can be a barrier to entry

because of the new entrants' need to obtain distribution for its product. A new entrant may

11 Bargaining power of Buyers | www.aelena.com

have to persuade the distribution channels to accept its product by providing extra incentives

which reduce profits.

Governmental and legal barriers. Government agencies can limit or even bar entry by

requiring licenses and permits. National governments commonly use tariffs and trade

restrictions (antidumping rules, local content requirements, and quotas) to raise entry barriers

for foreign firms.

The effectiveness of all these barriers to entry in excluding potential entrants depends upon

the entrants' expectation as to possible retaliation by established firms. Retaliation against a

new entrant may take the form of aggressive price-cutting, increased advertising, or a variety

of legal maneuvers.

Bargaining power of Buyers

If we could only know and quantify it! If it's high, power is then taken from the supplier, the

firm. Several factors affect this bargaining power of buyers.

- number of buyers, obviously

- number of suppliers ( sellers ) affects their individual bargaining power - refers also to the

supply chain, whether a company sells to the customer directly or to other firms only which in

turn sell to direct customers

- degree of product standardization - based also on product differentiation - ex: there are

many suppliers for pencils but very few for satellites, which require high specialization, so in

that case I have very little bargaining power, whereas I have much more bargaining power in

the pencil case due to much lower product differentiation

- backwards integration in the industry - meaning something like buying a games console and

then buying the games for the platform - a large degree of BI gives more power to the supplier

- are there multiple sources of supply? - silicon / rare earths are a good example of scarce

valued resource with very few or hardly one source, China.

Porter's Five Forces of buyer bargaining power refers to the pressure consumers can exert on

businesses to get them to provide higher quality products, better customer service, and lower

prices. When analyzing the bargaining power of buyers, the industry analysis is being

conducted from the perspective of the seller. According to Porter’s 5 forces industry analysis

framework, buyer power is one of the forces that shape the competitive structure of an

industry.

12 Bargaining power of Buyers | www.aelena.com

The idea is that the bargaining power of buyers in an industry affects the competitive

environment for the seller and influences the seller’s ability to achieve profitability. Strong

buyers can pressure sellers to lower prices, improve product quality, and offer more and

better services. All of these things represent costs to the seller. A strong buyer can make an

industry more competitive and decrease profit potential for the seller. On the other hand, a

weak buyer, one who is at the mercy of the seller in terms of quality and price, makes an

industry less competitive and increases profit potential for the seller. The concept of buyer

power Porter created has had a lasting effect in market theory.

Several factors determine Porter's Five Forces buyer bargaining power. If buyers are

concentrated compared to sellers – if there are few buyers and many sellers – buyer power is

high. If switching costs – the cost of switching from one seller’s product to another seller’s

product – are low, the bargain power of buyers is high. If buyers can easily backward integrate

– or begin to produce the seller’s product themselves – the bargain power of customers is high.

If the consumer is price sensitive and well-educated regarding the product, buyer power is

high. If the customer purchases large volumes of standardized products from the seller, buyer

bargaining power is high. If substitute products are available on the market, buyer power is

high.

And of course, if the opposite is true for any of these factors, buyer bargaining power is low.

For example, low buyer concentration, high switching costs, no threat of backward integration,

less price sensitivity, uneducated consumers, consumers that purchase specialized products,

and the absence of substitute products all indicate that buyer power is low.

çWhen analyzing a given industry, all of the aforementioned factors regarding Porter's 5 Forces

buyers power may not apply. But some, if not many, certainly will. And of the factors that do

apply, some may indicate high buyer bargaining power and some may indicate low buyer

bargaining power. The results will not always be straightforward. Therefore, it is necessary to

consider the nuances of the analysis and the particular circumstances of the given firm and

industry when using these data to evaluate the competitive structure and profit potential of a

market.

Buyer Power is High/Strong if:

• Buyers are more concentrated than sellers

• Buyer switching costs are low

• Threat of backward integration is high

• Buyer is price sensitive

• Buyer is well-educated regarding the product

• Buyer purchases product in high volume

13 Bargaining power of Suppliers (BPS) | www.aelena.com

• Buyer purchases comprise large portion of seller sales

• Product is undifferentiated

• Substitutes are available

Buyer Power is Low/Weak if:

• Buyers are less concentrated than sellers

• Buyer switching costs are high

• Threat of backward integration is low

• Buyer is not price sensitive

• Buyer is uneducated regarding the product

• Buyer purchases product in low volume

• Buyer purchases comprise small portion of seller sales

• Product is highly differentiated

• Substitutes are unavailable

Buyer Bargaining Power Interpretation

When conducting Porter’s 5 forces buyer power industry analysis, low buyer bargaining power

makes an industry more attractive and increases profit potential for the seller, while high

buyer bargaining power makes an industry less attractive and decreases profit potential for the

seller. Buyer power is one of the factors to consider when analyzing the structural

environment of an industry using Porter’s 5 forces framework. The buyer power Porter's five

forces laid out is well respected even to this day.

Bargaining power of Suppliers (BPS) Suppliers are a very important part of how a company can do business. Performance of SC

actors cascade into one another affecting the next suppliers performance and the global

performance of the whole process, and thus also the performance of the final seller, often the

only visible piece of the process to the public.

14 Competitive Positioning | www.aelena.com

A highly dependent / coupled SC is bad, not nimble, prone to bottleneck. The higher degree of

integration the higher the power of individual suppliers to affect the whole chain (forward

integration)

Branded goods have the highest level of forward integration (the differences between all the

different cleaning products / detergents is minimal from a technical point of view - it's the

branding that matters).

Supplier power refers to the ability of providers of inputs to determine the price and terms of

supply. Suppliers can exert power over firms in an industry by raising prices or reducing the

quality of purchased goods and services, so reducing profitability. The extent to which this

potential impact is realized depends upon a number of factors; in general, a group of suppliers

is more powerful if the following apply:

It is dominated by a few firms and is more concentrated than the industry its sells to.

When suppliers' products are differentiated to such an extent that it is difficult or

costly for buyers to switch from one supplier to another.

When the buying firms are not important customers of the suppliers group.

When the suppliers of an input do not have to compete with the substitute inputs of

suppliers in other industries.

When one or more suppliers pose a credible threat of forward integration into the

business of the buyer industry.

When the buying firms display no inclination toward backward integration into the

suppliers' business.

It is important to recognize that labor is a supplier, and may exert a considerable degree of

power in some situation. The power of suppliers can be an important economic factor in the

marketplace because of the impact they can have on customer profits.

Competitive Positioning The move from the tactical sphere to strategy means we need to broaden our view of what’s

outside the firm, acquiring a long term view. In a certain way, it’s also a job of creative thinking

and futures thinking. What will happen in tech in the next 5 years? What will consumers want

in the next 5 years?

15 Competitive Positioning | www.aelena.com

Minor change, major change from 1 to 10. The closer to major changes the more SM we’re

doing. Some of the best SMs I know, seldom go to the office, they don’t need to get entangled

on the day-to-day tactical issues.

We can have aggressive or defensive planning approach. Aggressive means using all resources,

doing things as fast as possible. Not all companies can afford a defensive approach, only those

in privileged positions (look at Porsche vs. Honda, as examples of defensive vs. aggressive

approaches). Aggressive firms look at the outside to see define their actions. The defensive

tend to look inwards.

(the following paragraphs taken from http://www.marketingmo.com/strategic-

planning/competitive-positioning/)

Competitive positioning is about defining how you’ll “differentiate” your offering and create

value for your market. It’s about carving out a spot in the competitive landscape, putting your

stake in the ground, and winning mindshare in the marketplace – being known for a certain

“something.”

A good positioning strategy is influenced by:

Market profile: Size, competitors, stage of growth

Customer segments: Groups of prospects with similar wants & needs

Competitive analysis: Strengths, weaknesses, opportunities and threats in the

landscape

Method for delivering value: How you deliver value to your market at the highest level

When your market clearly sees how your offering is different from that of your competition,

it’s easier to influence the market and win mindshare. Without differentiation, it takes more

16 Competitive Positioning | www.aelena.com

time and budget to entice the market to engage with you; as a result, many companies end up

competing on price – a tough position to sustain over the long term.

One of the key elements that many small to mid-size companies overlook is how they provide

value at the highest level. There are three essential methods for delivering value: operational

excellence, product leadership and customer intimacy.

Here is a hypothetical example of each type of value.

OPERATIONAL EXCELLENCE PRODUCT LEADERSHIP CUSTOMER INTIMACY

Herringer customers don’t want bells and whistles;

they just want a good product at the lowest possible

price.

Herringer focuses on operational excellence so they can continually offer the lowest price in the market. For example, they just patented a new machine that

dramatically lowers their manufacturing costs. They’re not trying to create new or better products; they just want to produce more volume at a lower

cost. Herringer’s method for delivering value is operational

excellence; it’s a key driver of their long-term strategy, and their positioning reflects it.

Orange Technology’s

customers care most about

quality – they want the best

product.

Orange is completely dedicated to innovation and quality. They’re constantly

working on product improvements and new ideas

to bring to market. They know what their

competitors are doing and are completely focused on staying

one step ahead in order to capture a greater share of their

market. Orange’s brand and culture is all about product leadership; their market recognizes it and

is willing to pay for it.

Starboard’s market is flooded with

products at all points of the price

spectrum.

Yet, Starboard’s customers want more than a product off the shelf; they want customized solutions. So Starboard’s

strategy is to know as much as possible about their customers’ businesses so

they can deliver the correct solutions over time.

Starboard knows that they can’t just say “We offer great service.” Starboard delivers on their strategy in every

interaction with their market.

These companies have a complete understanding of how they deliver value to their market.

It’s part of their strategy, which makes it easier for them to win a position in their respective

markets.

Here’s another way to think of it:

You can provide the best offering, the cheapest offering, or the most comprehensive offering,

but you can’t provide all three.

Another key factor in your positioning is your competition. Sure, you need to put your stake in

the ground and claim your turf. But is it turf that you can own? Can you realistically beat your

competition to own it?

Rather than leaving your market positioning to chance, establish a strategy. What you’re

ultimately striving for is to be known for something – to own mindshare of the market. This is

typically easier for consumer product lines than for B2B companies, because positioning a

single product against three to five competitors is a simpler task than positioning a mid-size

B2B company with numerous offerings in numerous markets.

Owning a strong position in the market is challenging for most small- to mid-size companies,

but you have a better chance of achieving it if you clearly define a strategy and build your

brand around it.

17 Competitive Positioning Key Concepts & Steps | www.aelena.com

Do you see your company in any of these scenarios?

Best Case Neutral Case Worst Case

You provide a one-of-a-kind offering that

your market needs and wants; you have

strong differentiation from your

competitors.

Your market knows your name and associates it with that “one thing” that

you’re known for. And you continually deliver on it –

perception is reality – so you continue to win mindshare in your market, defending

your turf and influencing your market.

Your offering is somewhat different from –

and better than – those of your

competitors, and you communicate that

difference (though probably not as

consistently as you should).

Some of your market knows your name, but they describe you in different ways;

you’re not yet known for that “one thing,” but at least you’re occasionally recognized.

You know that you could make a greater impact on your market with stronger

positioning.

Your market sees little difference

between you and your competitors, and

your name is not recognized.

Because of this, you have to spend precious budget and time educating the

market at each touch point. You often end up competing solely on

price, though your business isn’t optimized to continue profitably with

falling prices. You have to fight long and hard for

every sale. It’s very difficult to meet your revenue and profit goals.

The concept of positioning is entirely strategic. It’s the first element to address in strategic

marketing, and everything else is aligned to it. Jack Trout and Al Ries defined the concept years

ago in their landmark book Positioning: The Battle for Your Mind.

While the concept is simple – to be known for a single thing in the mind of the customer – the

road to achieve it can be complex. It’s best to have a clear understanding of your market –

demographics, segments, their pains, how well you and your competitors provide solutions,

how you truly provide value, and your strengths and weaknesses – before making this decision.

An fully-informed decision is vital, because you’ll allocate a significant amount of resources in

your journey to achieve it.

Competitive Positioning Key Concepts & Steps Before you begin

Your competitive positioning strategy is the foundation of your entire business – it’s the first

thing you should pin down if you’re launching a new company or product. It’s also important

when you’re expanding or looking for a new edge.

Profile your market

Document the size of your market, and identify your major competitors and how they’re

positioned.

Determine whether your market is in the introductory, growth, mature, or declining stage of

its life. This “lifecycle stage” affects your entire marketing strategy.

Segment your market

Understand the problems that your market faces. Talk with prospects and customers, or

conduct research if you have the time, budget and opportunity. Uncover their true wants and

needs – you’ll learn a great deal about what you can deliver to solve their problems and beat

your competitors.

18 Competitive Positioning Key Concepts & Steps | www.aelena.com

Group your prospects into “segments” or “personas” that have similar problems and can use

your offering in similar ways. By grouping prospects into segments or personas, you can

efficiently market to each group.

Define how you deliver value

At the highest level, there are three core types of value that a company can deliver:

operational efficiency (the lowest price), product leadership (the best product), or customer

intimacy (the best solution & service). Determine which one you’re best equipped to deliver;

your decision is your method for delivering value.

Evaluate your competition

List your competitors. Include any that can solve your customers’ problems, even if the

competitors’ solutions are much different from yours – they’re still your competition.

Rate yourself and your direct competitors based on operational efficiency (price), product

leadership and customer intimacy. It’s easy to think you’re the best, so be as impartial as you

can be.

Stake a position

Identify areas where your competition is vulnerable.

Determine whether you can focus on those vulnerable areas – they’re major opportunities.

Make a decision on how to position your offering or company.

Select the mindshare you want to own, and record your strategy

Review the components of your market and evaluate what you want to be known for in the

future. Condense all your research and analysis into the “one thing” that you want to be

known for, and design your long-term strategy to achieve it.

Once you have a competitive positioning strategy, develop a brand strategy to help

you communicate your positioning and solidify your value every time you touch your market.

Together, these two strategies are the essential building blocks for your business.

19 Supply and value Chains | www.aelena.com

Supply and value Chains

Every firms has 2 clearly distinguished sides, the supply side and the value side, better

exemplified by the Value Chain and the Supply Chain

A good article on the distinction between Supply and Value Chains, can be found here.

The Value Chain concept was developed and popularized in 1985 by Michael Porter, in

“Competitive Advantage,” (1) a seminal work on the implementation of competitive strategy

to achieve superior business performance. Porter defined value as the amount buyers are

willing to pay for what a firm provides, and he conceived the “value chain” as the combination

of nine generic value added activities operating within a firm provide value to customers. the

primary focus in value chains is on the benefits that accrue to customers, the interdependent

processes that generate value, and the resulting demand and funds flows that are created.

Effective value chains generate profits.

It has to be taken into account that value is a subjective experience that greatly depends on

context (the classic example of the person stranded in the desert that will find water to be

extremely valuable, much more so than in other contexts).

Value is also an experience, or that value is to be found in experiences cherished by the

consumer. Price is greatly affected by the perceived value that the consumer finds in the

experience.

The Supply Side and the Value Side. A retailer is part of the value chain, since they help us sell

or add value to our products. An optimum supply chain enables us to get products to market

quicker. (look for more examples of value chain)

The longer the value chain the more money we are making for every step of the process,

where as you must strive to reduce the extra costs you incur in having a large supply chain,

therefore you need to make your supply chain as short as possible. This is one of the most

important jobs for the Strategic Manager, reduce the supply chain and enlarge the value chain.

20 Pricing Strategies | www.aelena.com

A not very competitive business has a Supply chain like this (5 steps) and a value chain like this

(one by one retailers)

A classic representation of a value chain (source)

Pricing Strategies

This is a complex topic and we are just oversimplifying here. Many factors influence price

formation. Strategic management is about deciding where our product lives in the continuum

21 Pricing Strategies | www.aelena.com

between the customer position and the supplier position (where the first wants the highest

possible quality ant the lower possible price, and the second the other way around). Neither

can get the perfect position, so a compromise must be reached. Price, more than quality, often

dictates where in the continuum our products will be (agreement between customer and

supplier).

The strategic positioning on price is important because it sends certain messages to the

marketplace.

Three strategies

High pricing strategy

Low price position – compete on price

Flexible on market conditions

Some diagrams showing the forces influencing pricing strategies (source)

(source)

22 Pricing Strategies | www.aelena.com

Each pricing strategies has pros and cons, obviously (source)

Read more about different strategies here, and here.

23 Differentiation Strategies | www.aelena.com

Differentiation Strategies The pricing roles that we saw before are reversed when it comes to quality. From the point of

view of SM you can only launch of there is a minimal quality regardless of price position.

Otherwise you risk losing market share and brand equity.

Obviously the best position for a company is this sweet spot

Overlap between tactics and strategy, because to implement and develop high quality goods

you also need to have very good internal processes, resourcing etc, and that is the realm of

operational excellence. Otherwise most companies suffer in quality when expanding scope of

operations, because their processes do not get up to scratch, and because quality requires

more cost.

To reach a position of blend of quality and quantity is very challenging. The most profitable car

company in the world is Porsche (and it makes a very interesting case study in that sense). The

SM is the person responsible to lead the company to that sweet spot. That is the person that

ultimately is responsible for pricing and differentiation strategies.

(source)

24 Addressing Competitors | www.aelena.com

http://freepptslide.blogspot.com.es/2012/08/business-strategy-chapter-5-where-to.html

Addressing Competitors Sometimes the most threatening competitors are not visible. As SM you need to analyze

competition in smart ways, thinking outside of the box.

Competitive analysis, requires a lot of resources, that’s why MNCs (multinationals) can devote

more resources and actually do a lot more of competitive analysis that SMEs, which tend to

react more tactically or operationally.

Competition can be

Aggressive – firms respond to one another in quick measures, price adjustments, etc

sometimes out of pride or political reasons, egos…

Defensive – firms decide to wait and see, monitoring for opportunities, this is the

realm of medium to large companies

Universal – all out war, use all resources. Very risky and high potential for rewards –

occurs a lot in banking and finance – lots of M&A also

25 Addressing Competitors | www.aelena.com

Knowing who your competitors are, and what they are offering, can help you to make your

products, services and marketing stand out. It will enable you to set your prices competitively

and help you to respond to rival marketing campaigns with your own initiatives.

You can use this knowledge to create marketing strategies that take advantage of your

competitors' weaknesses, and improve your own business performance. You can also asses

any threats posed by both new entrants to your market and current competitors. This

knowledge will help you to be realistic about how successful you can be.

This guide explains how to analyze who your competitors are, how to research what they're

doing and how to act on the information you gain.

Find out who your competitors are. There are many ways to get hold of this information.

Internet (search engines, blogs, twitter, etc.)

local business directories

your local Chamber of Commerce

advertising

press reports

exhibitions and trade fairs

questionnaires

information provided by customers

flyers and marketing literature searching for existing patented products similar to yours

planning applications and building work in progress Research your competitors. Specifically, their

products and services

prices they charge and if possible glean their pricing strategy so that you, ideally, could foresee changes and leverage it

brand and design values

degree of innovation

media presence

public reports (especially if listed companies)

customer engagement strategies

distribution and delivery

value chains

usage of IT as a core enabler And their customers

26 Vision, Mission and External Direction | www.aelena.com

Demographics

Customers perceptions of your competitors’ strengths and weaknesses

Fidelity (in time)

Variations in customers’ numbers and/or demographics

Vision, Mission and External Direction Use competitor behavior to create the appropriate vision for the firm. The one thing that does

not change with time is the culture and values of the firm, even after an M&A, although

sometimes a really exceptional CEO can introduce new values and model a new culture, but

only to a certain extent.

The values of a firm are affected by

The vision – what the company wants to be

The Mission – roadmap that defines where the firm wants to be in the future – how

we get to that ideal state

Direction – the strength or drive with which you apply your mission

The combination of these three elements tells us what we’re doing in the company. As an SM

your job is to turn vision into mission, into something people can understand so that the

operational managers can actually implement the direction, and without SM they are must

empty words with no meaning.

External stakeholders Management and translating the vision into a mission understood and appreciated by

stakeholders (internal, that is, employees at all levels, or external, shareholders, product

stakeholders – companies who interact with the firm being for example part of the supply

chain –, industry stakeholders (competing firms from the same industry, national bodies,

regulators, associations, etc) companies, firms, etc. the external ecosystem, the capital market,

banks and their financing decisions affect the firms). Vision and mission affect the external

stakeholders.

To sum up, there are

Capital and market stakeholders

Product stakeholders - companies who interact with the firm being for example part of

the supply chain

Industry stakeholders - competing firms from the same industry, national bodies,

regulators, associations, etc

27 Profit Pools (PP) | www.aelena.com

Profit Pools (PP)

It’s simply a combination of all possible sources of sales and revenues in a business. Companies

have golden products, which contribute the most to the profit pool. The role of the SM is to try

and increase the size of the profit pool, and for that

The need to locate the sources and define the size of the profit pool, how large it is

Estimate the contribution of each product and each range to the pool

Analyze the value of the PP – how much particular profit pools contribute to the

company profitability

Reconcile PPs, by checking if numbers make sense and see if forecasts are adequate

Example, mapping a Profit Pool (source)

28 Profit Pools (PP) | www.aelena.com

29 Types of External Strategies | www.aelena.com

Types of External Strategies Intended – often in response to events in the market/industry

Emergent – half and half

Coincidental – serendipity – coincidence of all factors of luck, time, planning etc.

Components of the External Environment

Demographic factors (ages, social status…)

Economic conditions (interest rates, inflation, unemployment…)

Political Environment

Socio-cultural considerations (established social interactions, religions, consumer

habits, political leanings…)

Technology – telecommunication system, infrastructure

The Global Element – openness to globalization, protectionism

Supply Chains (SC’s) and Competitive Behavior How to maximize your SC’s competitiveness?

If actors in SC are competitive that is good for the firm, of course. You can also do like Siemens

and negotiate in advance next year’s supply in order to obtain better conditions with lower

costs, better quality and more streamlined and integrated, because that increases Siemens

competitiveness

In Porter's five forces, supplier power refers to the pressure suppliers can exert on businesses

by raising prices, lowering quality, or reducing availability of their products. When analyzing

supplier power, the industry analysis is being conducted from the perspective of the industry

firms, in this case referred to as the buyers. According to Porter’s 5 forces industry analysis

framework, supplier power, or the bargaining power of suppliers, is one of the forces that

shape the competitive structure of an industry. The idea is that the bargaining power of the

supplier in an industry affects the competitive environment for the buyer and influences the

buyer’s ability to achieve profitability. Strong suppliers can pressure buyers by raising prices,

lowering product quality, and reducing product availability. All of these things represent costs

to the buyer. A strong supplier can make an industry more competitive and decrease profit

potential for the buyer. On the other hand, a weak supplier, one who is at the mercy of the

buyer in terms of quality and price, makes an industry less competitive and increases profit

potential for the buyer.

30 Competitor Analysis | www.aelena.com

There are several determining factors. If suppliers are concentrated compared to buyers – if

there are few suppliers and many buyers – supplier bargaining power is high. If buyer

switching costs – the cost of switching from one supplier’s product to another supplier’s

product – are high, the bargaining power of suppliers is high. If suppliers can easily forward

integrate – or begin to produce the buyer’s product themselves – supplier power is high. If the

buyer is not price sensitive and uneducated regarding the product, supplier power is high. If

the supplier’s product is highly differentiated, supplier bargaining power is high. If the buyer

does not represent a large portion of the supplier’s sales, the bargaining power of suppliers is

high. If substitute products are unavailable in the marketplace, supplier power is high.

And of course, if the opposite is true for any of these factors, supplier power is low. For

example, low supplier concentration, low switching costs, no threat of forward integration,

more buyer price sensitivity, well-educated buyers, buyers that purchase large volumes of

standardized products, and the availability of substitute products. Each of the fore mentioned

factors indicate that the supplier power Porter's five forces emphasize is low.

Competitor Analysis A lot of Asian companies have streamlined and stabilized strategies for competition so they

don't often compete in one market … they choose their markets carefully (but what is the role

played here by zaibatsus and chaebols, who are involved in many different markets)

A competitive analysis involves looking at our technical and financial resources and the market

/ industry itself and decide whether to

- get involved (compete)

- wait (observe)

Also consider what are the objectives that the company has in the decision to whether act or

wait (is the target to increase market share?)

So the elements that as SM we need to analyze are

- Company objectives (involve board of directors)

- Current strategies adopted by the company - if a decision is taken at the board of directors

and the SM is not aware of it, it's very difficult that the SM will make a good call on

competition . the SM and the board have to communicate all the time for the decision making

structure to work correctly

- Assumptions - about the other competitors and the firm's own about its capabilities -

financial resources are relatively easy to gauge, but other capabilities are much more difficult,

such as flexibility, technology, decision making, agility, business process speed… capacity to

respond to change in market conditions… capabilities in relation to time… for how long can

you compete? what is the depth of your resource pool? and your know-how? actual

capabilities in regards to the stakeholders have to be taken into account too.

31 Why do strategic plans fail? | www.aelena.com

Why do strategic plans fail?

There are as many reasons for failure as there are plans out there. But a list could be like this:

Failure to understand the customer o Why do they buy? o Is there a real need for the product? o inadequate or incorrect marketing research (knowledge of market) o Oversight of niches and opportunities (unsatisfied demands)

Inability to predict evolution of environment o What will competitors do?

Fighting brands Price wars

o State intervention Over-estimation of resources and / or competences

o Can the staff, equipment, and processes handle the new strategy? Was this question answer in a honest way? Or even asked at all?

o Failure to develop new employee and management skills, or to hire them o Outsourced vital capabilities to save costs?

Failure to coordinate o Reporting and control relationships not adequate o Organizational structure not flexible enough (business agility, bureaucracy,

slow business process, low degree of automation, etc) o Is your governance good enough?

Failure to obtain senior management commitment o Failure to get management involved right from the start (no buy-out is almost

sure sign of failure for any strategic initiative) o Failure to obtain sufficient company resources to accomplish task (a

consequence of the previous) Failure to obtain employee commitment

o New strategy not well explained to employees (top-down is not enough) o No incentives given to workers to embrace the new strategy o Management may have no credibility or the workforce is disenchanted with

previous initiatives or management performance Under-estimation of time requirements

o No critical path analysis done Failure to follow the plan

o No follow through after initial planning o No tracking of progress against plan o No consequences for above

Failure to manage change o Inadequate understanding of the internal resistance to change o Lack of vision on the relationships between processes, technology and

organization o Wrong or poor change management o Low organizational memory

Poor communications o Insufficient information sharing among stakeholders o Exclusion of stakeholders and delegates o Excess of communications (slow and swamped)

32 Management errors | www.aelena.com

Management errors From the POV of SM, they need to ignore the operational day by day stuff (Breadth of vision,

being outside of the tactical cloud). Identify not only where the problem lies but also how it

could be solved with company resources

Types of management errors

Ivory tower planning is the most common -> start planning without consultation with

lower level people - long distances between the higher hierarchies and the lower levels.

This leads to non-buy from employees and to impractical decisions that just happen to

be very hard to implement.

Procedural justice - basically means that managers make decisions thinking that they

are being fair. This tends to happen in firms that are a bit more socially focused, such

as publishing houses, toys, games. This often leaves a legacy to live with afterwards.

More likely to happen in operations management (fairness in the resourcing process)

the Fit Model - even for small business - the firm limits its expansion because it thinks

it’s too small or belongs in a certain box - a big mistake today given the borderless

world of the internet

Management Biases Barriers in decision making process

Group think - some barriers are inside the firm (the mood of the firm, the culture,

group think is a big barrier to good decision making, makes the SM feel isolated and

unsupported - group thinking is very dangerous for risk aversion and international

business) and some outside

Second barrier is Cognitive Biases - making decisions with not all the information

available.

Third barrier is Prior Hypothesis Theory - a manager makes a decision about a market

before seeing it, understanding it…. happens a lot - its not a mistake to use old

information but it is to just limit ourselves to older information and not update it

Commitment Errors

33 Reasoning and Representation Errors | www.aelena.com

Commitment not only means putting resources it also means putting your reputation on the

line, so it is rather useless to follow a strategy if your full commitment is not behind it.

The first is Escalating Commitment, which happens when the company commits to a market,

product, tech or supplier and it fails, but then you stick to it regardless and put pressure on the

SM to implement it no matter what (save face and political reasons), so the company invests

more and more on a failed idea, decimating resources… etc (throw good money after bad -

occurs a lot in manufacturing)

Reasoning and Representation Errors When the manager looks at operational decisions and financial decisions and they have to

choose in a compatible way and the error occurs when all other factors are not regarded

because the manager knows one process better that the other one (so it is a form of bias). This

is serious if it becomes representative of the whole firm

One of the most common problems is reasoning by analogy - make decisions by simple

analogies from past experiences.

Improving Strategic Decision Making Suppose that a company with multiple business divisions around the world finds itself in a

situation where division A (for example NA) wants to use 40% of the company’s resources (that

could be financial, technical, human resources, whatever) and division B (for example in a high

growth cluster) wants to use 75% of those resources. Now there is a conflict obviously. How to

solve this situation?

One way is Devil's Advocacy - when areas compete for resources a third party makes

questions and researches into each competing party to see which one is worthier, making the

whole process more democratic and reduces the incidence of ivory tower planning because

things are discussed and brought into the open (this also creates synergies between business

divisions)

The second is Dialectic Enquiry - inquire competing business divisions. Ask, do we really need

all those resources? Maybe another result can be achieved with different people allocated to

discuss the problem (not only the interested party of course)

Both procedures go hand in hand. They are common sense. Strategic Management is basically

about common sense but with fancy words.

34 Corporate Duties | www.aelena.com

Corporate Duties Annual general meetings of listed companies (shareholders, stakeholders… how people

outside the company look at the company, questions about the firm’s strategy).

The shareholder is an important part of the equation, and it is both an external and internal

player, especially those who hold a lot of stock. The primary target of the business is to create

value for the shareholder (the ethics of this or its convenience and short-termism is left out

here because it is a different debate).

Corporate duty of senior management is to create ROI and value to the shareholders and to

preserve it afterwards.

There are also stakeholders, a broad umbrella term which designates an individual, firm,

enterprise, government and the general public who are affected by the firm (they can also be

shareholders, but do not confuse the terms). The role of the SM includes not forgetting about

all the stakeholders.

Corporate governance is the key concept here, being concerned with the mechanism used to

determine its strategic direction and ensure it is in line with its stakeholder's interests. And it is

a thing that leads and is very much tied to ethics.

Ethics in Strategic Management Factors that affects ethics are

The ethos of the company itself (values and vision, how the company thinks, their

belief system)

The firm’s business culture, different from company culture (how marketing, pricing,

competition are approached). It’s important for that culture to be fair and balanced as

consumer sensitivity towards this issue has greatly increased.

The business model, which greatly influences and controls the scope for ethics.

The role of governments and regulations (externally)

Conditions affecting Decision Making Primarily these relate to internal factors

Political factors

Organizational factors (including complexity, bureaucracy…)

Resources available

The location of the SM inside the firm’s org chart is very important and conditions the work of

the SM. Politics can steer the direction of the SM in one specific direction.

35 Creating Sustainable Competitive Advantage | www.aelena.com

Creating Sustainable Competitive Advantage Sustainability – a stable strategy that gets the ball rolling year after year, makes no sense to

have a very good year and then three bad years, you need to have an advantage that sustains

in time. Creating sustainable competitive advantage is the holy grail of the strategic manager.

Further reading Strategic Management: Competitiveness and Globalisation, a comprehensive text by Hanson, Hitt, Ireland and Hoskisson (2011).

http://www.strategy-formulation.24xls.com/en114

http://www.marsdd.com/articles/bargaining-power-of-suppliers/

http://www.wikicfo.com/Search.aspx

http://www.economicswebinstitute.org/glossary/product.htm