STRATEGIC MANAGEMENT –

A PRACTICAL APPROACH

BY

M. EKHLAQUE AHMED

Change is the essence of life. Be willing to surrender what you are for what you could

become

STRATEGIC MANAGEMENT – A PRACTICAL APPROACHWORKSHOP OUTLINE

DAY – 1

Strategic Management – Concept & Process Business Scope & External Analysis Structural Changes for Facing Brutal Facts Weird Ideas for Managing Creativity Case Study: Rebuilding Lego Brick by Brick – Group Presentation

DAY – 2 Evaluating Co. Resources & Competitive Capabilities Vision, Mission & Objective Case Study : IBM Strategic & Competitive Advantages Positioning A Company Case Study : PSO Strategic Implementation with BBSC.

CALL FOR URGENCY

Sudden, fierce, business-destroying competition

Current strategies aren’t working

One or more of some strategic initiatives currently underway are not delivering results or living up to expectations

Why aren’t we getting a better multiple?

How can we improve our poor performances?

Leaders, proactively, want to take new challenges

Employees too focused on executing day to day operations

“Growth Culture” in a already Profitable company

Session: 1

Strategic Management –

Concept & Process

STRATEGIC BUSINESS PLANNING

Besides good operational management a business needs high quality strategic management to ensure lasting success.

Strategic management focuses on strategic choices. Operational management focuses on actions and

results. The business planning process should be an intensive

group (management team) process, based on sharing of visions and facts, comparison of alternative scenario’s, agreeing on choices and translating all into consistent and interlinked action plans.

A qualified business plan is recognized by its: creative content and consistent structure implementation and deployment planning management ownership

STRATEGIC management focuses on DECISIONS

VALUES

INFO LOGIC DECISION

WhileOPERATIONAL Management focuses on RESULTS

PLAN ACTION RESULTS

Entrepreneurial management: A Balancing Act

QUALITYof

OPERATIONAL MANAGEMENT

POOR GOOD

POOR

GOOD

GAME OF HAZARD

SUSTAINABLE CHANCE TO WIN

ALMOSTCERTAINDISASTER

ST

RA

TE

GIC

MA

NA

GE

ME

NT

“HOW TO DO” TOOLS

VS “WHAT TO DO”

THEORY OF BUSINESS

DIRECTION MATRIX:

RTW

Doing things fruitlessly!

WTW WTR

RTR

RESPONSIVENESS TO CHANGE

“Plans are nothing, planning is everything”. (Dwight D. Eisenhower)

Neither dogmatic / rigid against change, nor drifting with the changes.

But a well considered standard / yardstick for reflection and a starting point for flexible response towards changes.

STRATEGY Strategy is not synonymous with long

term plan. It consists of an enterprise's attempts to

reach some preferred future state by adapting its competitive position as circumstances change.

MAKETING STRATEGY INTERFACE

BUDGETING, LONG-RANGE PLANNING, STRATEGIC PLANNING AND STRATEGIC MARKET

MANAGEMENT

Budget: (Control deviation and manage complexity) Long Range Planning: Past trend will continue, anticipate growth &

manage complexity Strategic Planning: Strategic adjustment Focuses on the market environment facing the firm Strategic Market Management: Cope with strategic surprises and fast developing threats and opportunities

Proactive and future oriented

MARKETING STRATEGY INTERFACE

Distinctive and farsighted view rather than a conventional and reactive view about the future

Senior Management focuses on regenerating core strategies rather than re-engineering core processes

Competitors view the company as a rule maker rather than a rule follower

The company’s strength is innovation and growth The company is mostly out in front rather than catching

up Try to influence the environment as well as respond to it

MARKETING STRATEGY INTERFACE

PROCESS OF STRATEGIC DECISION MAKING

1. STRATEGIC ANALYSIS: Environment (Change / Effects) Resources (To deal with the changes) Expectations, Objectives and Powers.

2. STRAGEGIC CHOICE: Strategic Option (Beyond Obvious) Evaluation (Exploit Strengths and Overcome Weaknesses) Selection of Strategy

3. STRATEGIC IMPLEMENTATION: Resource Planning Organization Structure People and System

BUSINESS PLAN – BASIC FORMAT

BUSINESS SCOPE

BUSINESS ENVIRONMENT

BUSINESS OBJECTIVES

KEY ISSUES

OVERALL STRATEGIC DIRECTION

FINANCIAL PROJECTION

OPERATIONAL PLAN

OPERATIONAL PLAN

OPERATIONAL PLAN

OPERATIONAL PLAN

OPERATIONAL PLAN

SUPPORTING CONDITIONS

INTERNAL ANALYSIS

Session: 2

Business Scope & External Analysis

BUSINESS SCOPE

Describes “THE BUSINESS WE ARE / WANT TO BE IN” through the eyes of the customers

Regions = where Functions / applications = what needs Customers & users = whose needs Products, technologies & services = added value SO: how do we create customers?

CONSIDERATIONS: Not too narrow: present + intended (future) business. Indicates relations with other business. Clarifies also the business we are not in. In line with organizational and managerial responsibility & authority

areas. How do competitors define their business scope? Which do it the

same way and which do it different; why?

BUSINESS ENVIRONMENT

1. Market Structure2. Market Size & Growth – Past 4 Years3. Market Size & Growth – Future 4 Years (with underlying assumption about growth)4. Product Life Cycle5. Distribution Structure in the Industry6. Company & Competitors Market Share7. Market Profitability Analysis: Porters’ Five

Forces8. Driving Force / Key Success Factors

MARKET STRUCTURE

1. End user/application segments2. Product application combinations3. Distribution structure

End user/applications

Products

Channels

The Company

Channels

MARKET SEGMENT

1992 1993 1994 1995 1996 1997 GROWTH

P.A.

MARKET SEGMENT

1992 1993 1995 1996 1997 GROWTH P.A.

MARKET SIZEVolume (MLN RS)

Value (MLN RS)

Product Segments INTRODUCTION GROWTH MATURITY DECLINE

PRODUCT LIFE CYCLE STAGES

COMPETITION / SEGMENT MATRIX

One page analysis – The competitor / segment matrix for evaluating

market attractiveness and competitive position

Competition Segments Overall

1 2 3 4

1.2.3.

Historical Growth

Projected Growth

CompanyProfitability

COMPETITION / SEGMENT MATRIX

FINDINGS: Market is bigger than you thought

Company has more competitors than you thought

Your share is smaller than you thought

Company is trying to dominate different segments than you thought

You can not make money where you thought

Somebody you were not watching is gaining on you It can highlight for you where your base is threatened It can reveal unanticipated opportunities for growth within your existing business (higher market, lower MS, opportunity in current product line) A good teaching tool for managers to understand their existing business! (about market segmentation and competitive advantage)

DISTRIBUTION STRUCTURE: SHIFT FROM 2008 TO 2012

% OF RS MIL Segment 1

2008 2012

Segment 2

2008 2012

Segment 3

2008 2012

Segment 4

2008 2012

Total

2008 2012

WHOLESALES

DISTRIBUTOR

CONTRACTORS

DIRECT

OEM

PROJECT

100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

DISTRIBUTION SHARES AND COMPANY’S POSITIONS (2008)

% OF RS MLN ALL PAKISTAN DISTRIBUTION

COMPANY’S TURN - OVER SHARE

#1 COMPETITORS TURNOVER SHARE

WHOLESALES

DISTRIBUTOR

CONTRACTORS

DIRECT

OEM

PROJECTS

OUTLET

COVERAGE

Turnover Share = Co’s Sales per outlet/∑ Co’s Sales by all outletsOutlet Coverage = ∑ Co’s outlets / ∑ outlets

MARKET STRUCTURE, DATA & TRENDS

3. DRIVING FORCES AND TRENDS IN THE BUSINESS/INDUSTRY:

- Most dominant forces are called driving force, biggest influence

- Machine cost, new customer group, customer usage, product innovation, marketing innovation, technological change, cost factors etc.

- Economic climate; growth, currencies, inflation, investment levels, taxes.

- Governmental regulations (national/international) & economic blocks.

- Bargaining power and structure of the suppliers.

- Bargaining power and structure of the buyers (key players in the distribution?)

- Main entry barriers.

- New entrants (their origin and competence base).

- Key technologies and components.

- New technologies and/or substitute products.

- Environmental concern.

- Installed industrial capacities (surplus/shortages) in the business)

- General profitability margins in the business.

- User appreciations, loyalty and fashions.

Trend Potential Impact We C1 C2 C3

Growth of rural markets and focus of companies on this area

Increasing competition, Price Erosion

Price decrease Margins/sales under pressure

Application segmentation Customization

Premium product growth Opportunity (high-end)

World-wide (instant) communication Influence on Sales and Margin

Untapped market in Health Care Opportunity

Change in Environmental Legislation

Opportunity

Foreign loans / lack of Budget Sales down in Govt. Sector

Taking Advantage

Remarks:

TOP – 10 External Trends

INDUSTRY TRENDSPORTERS’ FIVE FORCES

1. COMPETITORS No of competitors Their relative size Similar product offerings / strategies Commitment of competitors Size and nature of exit barriers Rivalry heats up when competition seeks opportunity to better meet

customers needs or is under pressure to improve Actions and reactions How much pressure cross-company rivalry is going to put on the

profitability of the industry Diversity of the strategic vision of the competing firms

2. POTENTIAL COMPETITORS:

BARRIERS TO ENTRY

Capital investment

Economy of Scale

Inability to gain access to technical/specialized know-how

Access to distribution channel

Brand preference/customer loyalty

3. SUBSTITUTE PRODUCTS

Price Attractiveness

Switching cost

Can influence the profitability of the market.

4. CUSTOMER POWER: Customers with more power than sellers can force prices down

or demand more services affecting profitability Influencing factors – purchase size, availability of alternative

suppliers;

5. SUPPLIER POWER: Suppliers sells to a variety of customers in diverse market Switching cost of customers – of the suppliers are high Raw material crucial to the production process and affect quality Cost advantage to such supplier vs. industry who wants to go for

backward integration

Session: 3

Structural Change For Facing Brutal Facts

Advice from Jim Collins

FIRST WHO……THEN WHAT

WHO EMPLOYEES

WHAT STRATEGY

“First get the right people on the bus and the wrong people off the bus and then figure out where to drive it.”

Three Simple Truths

1. First, if you begin with “who” rather than “what” you can more easily adapt to a changing world.

2. Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away.

3. Third, if you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company.

“Great vision without great people is irrelevant.”

“It’s WHO you pay , not HOW you pay.”

How to be Rigorous

Practical Discipline 1:

When in doubt, don’t hire – keep looking

Practical Discipline 2 :

When you know you need to make a change, act

Practical Discipline 3:

Put your best people on your biggest opportunities, not you biggest problems

Advice from Jim CollinsConfront the Brutal Facts

(yet Never Lose Faith)

Facts are better than dreams

GTG companies displayed two distinctive forms of disciplined thought:-

They infused the entire process with brutal facts of reality They developed a simple, yet deeply insightful frame of reference for

all decisions Refine your path of greatness with brutal facts of reality.

How do you motivate people with brutal facts? (Leadership is about vision & equally about creating a climate where truth is

heard)

Lead with questions, not answers So, what’s in your mind? Can you tell me about that? Can you help me understand? What should we be worried about?)

Engage in dialogue and debate not coercion Refuse to begin with the answer.

Play the role of Socratic Moderator in a series of raging debates

Argue & debate then sell the nuclear business

A climate of debate, where Co’s strategy evolved through many agonizing arguments and fights.

Conduct Autopsies w/o blame ”I will take responsibility for the bad decision but we will all take responsibility for

extracting the maximum learning from the tuition we have paid”.

If we have the right people on the bus, we should never need to assign blame but

need only to search for understanding and learning.

WEIRD

IDEAS FOR

MANAGING

CREATIVITY

DECIDE TO DO SOMETHING

THAT WILL PROBABLY…

Succeed, then convince yourself and

everyone else that success is certain

Fail, then convince your-self and

everyone else that success is certain

TAKE YOUR PAST SUCCESSES…

And replicate them And forget them

REWARD…

Success; punish failure and inaction

Success and failure; punish inaction

USE JOB INTERVIEWS…

To screen candidates and especially to

recruit new employees

To get new ideas, not to screen candidates

THINK OF SOME…

Sound or practical things to do, and plan

to do them

Ridiculous or impractical things to do, and plan to

do them

IGNORE PEOPLE…

Who have never solved the exact problem you

face

Who have solved the exact problem you

face

FIND SOME HAPPY PEOPLE…

And make sure they don’t fight

And get them to fight

ENCOURAGE PEOPLE…

To pay attention to and obey their bosses and

peers

To ignore and defy their bosses and

peers

HIRE…

“fast learners” (of the organizational code)

“slow learners” (of the organizational code)

People who make you feel comfortable,

whom you like

People who make you uncomfortable, even

those you dislike

People you (probably) do need

People you (probably) don’t need

Session: 4

Case Study: Rebuilding Lego

Brick by Brick End of Day 1

Session: 5

“Evaluating Company Resources & Competitive Capabilities

Day 2

The Hedgehog Concept

THREE circles of the Hedgehog concept

What you are deeply passionate about

What you can be the best in the world at What drives your economic engine

WHAT YOU CAN BE THE BEST AT?

WHAT YOU CANNOT BE THE BEST AT?

If you cannot be best in the world at your core business then your core business Cannot be the basis of your hedgehog concept

Core competence at something doesn’t mean that you can be the best at that thing

Hedgehog concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best.

“It is the understanding of what you can be best at”

What drives your economic engine

What is your Economic denominator?

Search for the one denominator “x” that has the single greatest impact

Examples;

Abbott: shift from profit per product line to profit per employee

Walgreen: shift from profit per store to profit per customer visit

Gillette: shift from profit per division to profit per customer

UNDERSTANDING YOUR PASSION

“Lets get passionate about what we do”

or

“We should only do things that we can get passionate

about”

Key Questions for Situation Analysis

How well is the company’s present strategy is working?

What are the company’s resource, strengths and weaknesses and its external opportunities and threats?

Are the company’s price and cost competitive? How strong is the company’s prices and cost

competitive position relative to its rivals? What strategic issue does the company face?

Trend in sales and market share

Acquiring and/or retaining customers

Trend in profit margins

Overall financial strength and credit ranking

Efforts at continuous improvement activities

Trend in stock price and stockholder value

Image and reputation with customers

Leadership role(s) – Technology, quality, innovation, e-commerce, etc.

Key Indicators of How Well the Strategy Is Working

SWOT - ANALYSIS

OpportunitiesThreats Strengths

Weaknesses

External Analysis Internal Analysis

Promising Opportunities

Only opportunities after improvement

Ability to resist

High Risks

Competitive Advantage(s)?

Constraints to potential business objectives & strategic scenario’s

CONFRONTATION MATRICES

1 2 3 4 5

1 2 3 4 5

strength

Opportunities

1 2 3 4 5

1 2 3 4 5

Weaknesses

Opportunities

1 2 3 4 5

1 2 3 4 5

strength

Threats

1 2 3 4 5

1 2 3 4 5

Weaknesses

Threats

Identifying Company Strengths & Resource Capabilities.

A strength is something a company is good at doing or a characteristic that gives it enhanced competitiveness.

Valuable skills, expertise, or capabilities Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Important competitive capabilities An attribute placing a company in a position of market

advantage Alliances or cooperative ventures with partners

Resource strengths and competitivecapabilities are competitive assets!

Identifying Company weaknesses & Resource Deficiencies

A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage

Resource weaknesses relate to

Deficiencies in competitively important skills or expertise or intellectual capital of one kind or another.

Lack of competitively important physical, organizational or Intangible assets.

Missing capabilities in key areas. Internal weaknesses are thus shortcomings in a company’s complement of resources.

Resource weaknesses and deficienciesare competitive liabilities!

Competencies vs. Core Competencies vs. Distinctive Competencies

A competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity

A core competence is a well-performedinternal activity central (not peripheral or incidental) to a company’s competitivenessand profitability

A distinctive competence is a competitively valuable activity a company performs better than its rivals

Questions 3. Are The Company’s Price & Cost Competitive?

Assessing whether a company’s costs are competitive with those of its close rivals is a necessary part of company situation analysis.

The higher a company’s costs are above those of its rivals, the more competitively vulnerable it becomes.

A Representative Company Value Chain

REASONS FOR COST DISPARITIES

Difference in price paid for raw material component, energy etc.

Difference in basis technology / age of plants and equipment

Difference in product cost (plant efficiency, learning and experience curve effects, different wage rate, productivity levels)

Difference in marketing and distribution cost

COST COMPETITIVENESS

INTERNAL:

Eliminate some cost producing activities by revamping the value chain

Relocate high cost activities to geographic area where they can be performed more eco.

Out sourcing

Cost-saving technological improvements

Innovate around the troublesome cost components when new investment is made

Simplify product design to reduce cost

Make-up with alternatives in some other areas

STRATEGIC OPTINS TO COST ADVANTAGES

SUPPLIERS:

Negotiate favorable prices

Work with supplier to reduce their cost

Integrate backward

Use lower priced substitute inputs

Manage linkage between suppliers value chain and company’s own

value chain e.g., JIT to reduce inventory costs

Benchmarking Benchmarking the costs of company activities against rivals

provides hard evidence of a company’s cost competitiveness.

Benchmarking is a tool that allows a company to determine the manner in which it performs particular functions& activities represent industry’s “Best Practices” when both cost & effectiveness are taken into account.

To benchmark the firm’s cost position against rivals, costs for the same activities for each rival must be estimated.

The most important application of value chain analysis is to expose how particular firm’s cost position compares with the cost position of its rivals.

All is needed is competitor vs. competitor cost estimate for supplying a product or service to a well defined customer group or market segment.

Competitive Strength Assessments

Most effective way to determine how strongly a company holds is competitive position is to “Qualitatively assess” whether the company is stronger or weaker then close rivals.

Much of the information for competitive position comes from previous analysis.

Important factors in competitive strength assessments are: Cost. Product Quality. Customer Service. Financial Strengths. Image & reputation. Technological Skills. Speed to market. Distribution Capability etc.

THE CUSTOMER: basis of our business

WHAT DO CUSTOMERS

WANT?

Most important aspects

Do you really know that?

Assignments for further

knowledge improvement

Assignments for further

knowledge improvement

How do we Score? And our competitors?

Key strengths and weaknesses

Figure 1 – Relative Importance of Factors

Suggested Definitions:

Absolutely Crucial: Overrides most other considerations, wouldn’t consider supplier who doesn’t perform on this factor.

Very Important: One of the first things we ask for, but we may be prepared to negotiate on it.

Quite Important: A negotiable item, but one when we attach considerable weight to.

Nice to Have: It could make the difference in a division, but is normally taken into account last.

Not Significant: Not normally taken into account at all.

Don’t Want it: Would prefer a product without this feature

Factor Number Absolutely Critical

5

Very Important

4

Quite Important

3

Nice to Have

2

Not significant

1

Don’t Want it

0

RATING AGAINST CUSTOMERS BUYING CRITERIA

This Bus

CompG

CompF

CompB

CompE

CompD

CompC

CompAQuality & Price

Non-Price attributes Affecting Customer

Choice

% Weight

Product - Related %

1.2.

Service - Related1.2.

Total 100%

Has quality gone up/down (+/-)In past 4 years

Relative Price todayRelative Price 4 years

ago

100

100

Market choice of suppler specified byPrice ………… % and Quality ………………. % (Total 100%)

CUSTOMERS BUYING CRITERIA: PRICE ..%, QUALITY ATTRIBUTES ..%

Keep it UP

Improvefast

Do Not Sweat

Question its Cost

Least 10% 20% Most

Better

Same

Worse

Attributes Important to customers

RelativePerformanceRating

Question 5: What Strategic Issue Does the Company Face?

Identifying the strategic issues a company faces is a prerequisite to effective strategy making. It involves developing a “worry list” of strategic challenges concerning:

How to meet the challenges posed by global competition. How to combat the product innovation of rivals. How to reduce the company’s high costs. How to sustain the company’s present rate of growth or

grow the business at a faster rate. How to gain better market visibility for the company’s

product. How to capture the e-commerce opportunities.

A company need to put more emphasis on the

New product R & D. Add more production capacity. Cut prices in response to the action of competitors. Add new features that will boost the performance of

company’s product. Or go forward with investments in foreign markets. Managers need to draw on all the prior analysis. And lock in what challenges have to be overcome and

what issues have to be resolve in order for the company to be financially and competitively successful in the years ahead.

KEY ISSUES

Are related to the SWOT-analysis and the Business objectives: They determine to a large extend the feasibility of the objectives. Are the main hurdles to overcome in order to reach these

objectives.

Issues are: Not the solution, but are the problem. Have to be dealt with in the strategic direction. Have to be solved by the subsequent operational actions.

Therefore issues have to be: Clearly described; I.e. specific and as problems. Prioritized to their urgency / impact.

Impact of Issues on Strategic ProfileIssue Number Issue 1 Issue 2 Issue 3 Issue 4 Issue 5

Issue Name High-end Type1

High-end

Type 2

Growing of Appl.

Coherent

A.P. Policy

Address

Key Gap

Customers ++ ++

Regions

Market segments ++

Needs/wants/applications

Products (prices)/services ++ ++ ++ ++

Strategic Management ++

Product Creation Process + +

Sales Acquisition Process ++

Operations (Production/Logistics

Customer base Management ++

Technology + +

Plant & Equipment

Distribution Channels +

Impact of Issues on Strategic Profile

Issue Number Issue 1 Issue 2 Issue 3 Issue 4 Issue 5

Issue Name High-end Type1

High-end

Type 2

Growing of Appl.

Coherent

A.P. Policy

Address

Key Gap

Money

People

Informaiton

Raw Materials, Energy

Organization Structure

Procedures

Culture

Remarks

+ = high impact++ = very high impact

Session: 6

Vision, Mission & Objectives

TWO UNDERLYING THEMES EMERGED IN RESEARCH

Strategic Intent: Creating an obsession with winning that encompasses

an entire company and sustaining that thirst for winning over the 20 year quest for global leadership.

Competitive Innovation: An ability to change existing industry rules to provide

competitive openings against larger, richer competitors.

STRATEGIC INTENT IS NOT STRATEGIC PLANNING

Strategic intent is fundamentally different from strategic planning.

Strategic planning begins with the notion of “FIT”. A company looks at its resources, its strengths and weaknesses and then chooses a strategy of best fit.

As a starting point, this logic can lead to a company short changing itself.

Strategic intent, on the other hand, starts with a “MISMATCH”. You begin by deciding where you want to be, or in some cases where you need to be to survive. The next step is to identify the “GAP” not the “FIT” and then set about removing the gap.

BUILDING GLOBALY CAPABLE COMPANIES

CompetitiveInnovation

CompetitiveInnovation

Strategic Intent

Strategic Intent

Changing the rules,Accumulating strengths

Changing the rules,Accumulating strengths

Focusing energies,Sustaining thrust

Focusing energies,Sustaining thrust

Winning “impossible” betsFighting 20 year battles

Winning “impossible” betsFighting 20 year battles

In Supportof

Competence is Different From Technology

Technology Competence Stand Alone System Embodied Explicit Knowledge Tacit Knowledge Narrowly held Deeply Embedded Easily copied / Acquired Difficult to Un bundle Discontinuous Process Aggregative Process Inventive Capability Integrative Capability

Competence = (Technologies + Social Organization + Collective Learning)

VISION / MISSION STATEMENT

INCLUDES THE PRIMARY BUSINESS FOCUS IDEAL/INTENDED BUSINESS POSITION QUALITATIVE & GENERAL OFFERS AN INSPIRING PERSPECTIVE LONG TERM / FUTURE PROOF SETS THE ORGANISATION APART FROM ITS

COMPETITORS CREDENTIALS TO THE OUTSIDE WORLD SHORT, CLEAR & SIMPLE FORMULATED SHARED VALUES & REASON FOR EXISTENCE DEPLOYED / WELL KNOWN BY ALL

BUSINESS OBJECTIVES

RELATED TOS THE EXISTANCE & CONTINUITY OF THE COMPANY:

MARKET SHARE VOLUME / TURNOVER PROFITABILITY

WHAT HAS TO BE ACHIEVED BY WHEN

SPECIFIC & MEASURABLE

FEASIBLE & ACCEPTED

DIFFERENTIATED

MID TERM

DEPLOYABLE & WELL KNOWN

Session: 7

Case Study: IBM

Session: 8

STRATEGY AND STRATEGY AND COMPETITIVE COMPETITIVE ADVANTAGEADVANTAGE

Any competitive advantage currently held will Any competitive advantage currently held will eventually be reversed by the actions of eventually be reversed by the actions of

competent & resourceful competitorcompetent & resourceful competitor

“The essence of strategy lies in creating

tomorrow’s competitive advantages faster

than competitors mimic the ones you

possess today“Quote”

“Strategies for taking the hill won’t necessarily hold it.”

The Five Generic Competitive Strategies

Type of Advantage Sought

Overall Low-CostProviderStrategy

BroadDifferentiation

Strategy

FocusedLow-CostStrategy

FocusedDifferentiation

Strategy

Best-CostProviderStrategy

Lower Cost Differentiation

BroadRange of Buyers

Narrow Buyer

Segmentor Niche

Ma

rke

t T

arg

et

Low-Cost Leadership

Low-cost leadership means lowoverall costs, not just low

manufacturing or production costs!

Keys to Success

Make achievement of low-cost relative to rivals the theme of firm’s business strategyFind ways to drive costs out of business year-after-year

Approach 1: Controlling the Cost Drivers

Capture scale economies; avoid scale diseconomies

Capture learning and experience curve effects

Manage costs of key resource inputs

Find sharing opportunities with other business units

Compare vertical integration vs. outsourcing

Control percentage of capacity utilization

Make prudent strategic choices related to operations

Approach 2: Revamping the Value Chain

Abandon traditional business methods and shift to e-business technologies and use of Internet

Use direct-to-end-user sales/marketing methods

Simplify product design

Shift to a simpler, less capital-intensive, or more flexible technological process

Find ways to bypass use of high-cost raw materials

Relocate facilities closer to suppliers or customers

Drop “something for everyone” approach and focus on a limited product/service

Differentiation Strategies

Keys to Success

Objective Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals

Find ways to differentiate that create value for buyers and that are not easily matched or cheaply copied by rivals

Where to Find Differentiation Opportunities in the Value Chain

Purchasing and procurement activities Product R&D and product design activities Production process / technology-related activities Manufacturing / production activities Distribution-related activities Marketing, sales, and customer service activities

InternallyPerformedActivities, Costs, &Margins

Activities, Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

Activities, Costs,& Margins of

Forward ChannelAllies &

Strategic Partners

Risk of a Best-Cost Provider Strategy

Risk – A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies

Low-cost leaders may be able to siphon customers away with a lower price

High-end differentiators may be able to steal customers away with better product attributes

Focus / Niche Strategies

Involve concentrated attention on a narrow piece of the total market

Serve niche buyers better than rivals

Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs

Develop unique capabilities to serve needs of target buyer segment

Objective

Keys to Success

Positioning a CompanyThe law of perception - marketing is not a

battle of products, it's a battle of perceptions.

- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

Positioning a Company

The law of focus - the most powerful concept in

marketing is owning a word in the prospect's mind - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

Owning in this context means that if people hear or see

this word they usually connect it with a company that

"owns" this word.

owns “mobile phones”

owns “computers”

owns “fast food”

Positioning a Company

STANDING FOR SOMETHING

Your company name ought to stand for something within your industry.

Ford can’t build corporate position on a specific kind of car, because it builds them in all types and sizes.

So in 1993 Ford “Quality is Job 1” Ad positioned it’s automobiles around “Quality” as key attribute in a vehicle from Ford.

Who owns the quality position in automobiles today ?

Our guess would be Mercedes-Benz.

It never pays to take somebody else’s position away from them .

Positioning a Company

The law of exclusivity - two companies cannot own the

same word in the prospect's mind. - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

It's fruitless to try to take over a word that is already owned

by a competitor. FedEx tried to take over "worldwide" from

DHL and did not succeed.

Owns “overnight”

Owns “worldwide”

Owns “safety”

Owns “performance”

Positioning a Company

The law of the ladder - the strategy to use depends on which rung you occupy on the ladder - each category has its own ladder or hierarchy, and where your product or service is in this hierarchy will determine your strategic options.- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

- Marketing strategy depends on your position in the market. If you're No. 2 you use different strategy than when you're No. 1 or 3. Avis was No. 2 in car rental and when they advertised as "finest in rent- a-cars" they had losses because their marketing wasn't credible (you can't be "finest" being No. 2). That had profit when they switched to "Avis is only No. 2 in rent-a-cars. So why go with us? We try harder". Then they had another disastrous campaign when they started claiming "Avis is going to be No. 1".

Positioning a Company

The law of line extension - there's an irresistible pressure to extend the equity of the brand: - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing One day a company is tightly focused on a single product that is highly profitable. The next day the same company is spread thin over many products and is losing money.

Positioning a Company

The law of the category - if you can't be

first in a category, set up a new

category you can be first in. - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

Positioning Monsanto

“Best Product”

Product LeadershipProduct Leadership

Profits are for People – Allied

Chemicals

Chemical Facts of Life -

Monsanto

Product Differentiation –DuPont’s Nylon

Business LeadershipBusiness Leadership Industry LeadershipIndustry Leadership

“Faith in Free-enterprise system” “Lead Industry Perception”

Positioning a Company

The law of the mind - it's better to be first in the mind than to be first in the marketplace: - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

Being first in the mind is everything in marketing. Being first into the marketplace is important only to the extent that it allows you to get into the mind first.

Session: 09

Case Study: Pakistan State Oil

Session 10

Strategic Implementation

with

Business Balanced Scorecard

The Balanced Score Card – Measures that Drive Performance

What you measure is what you get done

Organization’s measurement system strongly affects the behavior of managers and employees

Balanced Scorecard: A set of measures that gives top managers a fast but

comprehensive view of the business. It includes financial measures (that tell the results of

actions already taken) It complements the financial measures with operational

measures on Customer Satisfaction Internal Processes Organization’s innovation & improvement activities

(Operational measures that are the drivers of future financial performance)

The Balanced Scorecard Links Performance Measures

Customer Perspective: BSC demands that managers translate their general

mission statement into specific measures / factors that matter to customers

Customer Concerns: Time, Quality, Performance, Service, Cost

To put BSC work, companies should articulate goals for time, quality, performance, cost into specific measures.

Benchmarking: Internal, Best in Industry, Best in class.

Measures of Customers’ Concern:(Creating value to customer) Lead Time Time to Market Quality: Defect Levels Accuracy of Delivery Forecasts Becoming Customer’s Preferred Supplier Percent of sales from New Products Cost Effectiveness: Supplier driven costs Re-work Efficiency of Machine Back-Process Efficiency Workers’ Skill Level Defect Rate

What Must We Excel At ? Excellent customer performance derives from processes, decision

& actions

Focus on critical internal operations

Factors that affect: cycle time, quality, employee skills, productivity

Identify core competencies, the critical technologies to ensure continued market leadership

Decompose overall cycle time, quality, product & cost measures to local levels

The linkage to local levels ensures that employees at all levels have clear targets for actions, decisions & improvement activities that will contribute to the overall mission.

Can we continue to Improve and Create Value?

Targets for success keep changing

Intense global competition requires that companies make continual improvements to their existing products & processes

Expansion of capabilities, ability to launch new products, create more value for customers, improve operating efficiencies

Specific and time bound improvement goals for existing processes on continuous basis e.g. improvement for on-time delivery, cycle time, defect rate, yield etc.

How Do We Look to Shareholders?

Indicates whether the Company’s strategy & its implementation are contributing to bottom-line improvement

Survive: Cash Flow

Success: Sales & Income Growth

Prosper: Increased MS by segment, return on equity

Disappointed financial results (separate & integrated both) should send managers to revisit their strategy or its execution

Periodical financial statements remind that improved quality, response time, productivity or new products benefit the company where translated into improved sales, MS, reduced operating expense or higher assets turn.

Linkage of operations & finance (Excess Capacity due to improved quality & response time)

Measures that Move Companies Forward BBSC puts strategy & vision, brutal facts, changes needed (and not

control) at the center.

It establishes goals but assumes that people will adopt right behavior & actions necessary to arrive at those goals.

It pulls people towards the change

Senior managers may know what the end results should be, but they cannot tell employees exactly how to achieve that result as conditions in which employees operate are constantly changing

BBSC helps implement HPWS, Change Management, Cross functional integration, customer-supplier partnership team management, continuous improvement and such other organizational initiatives to excel.

H

Board Level ScorecardOverall Vision

ObjectivesMeasure &

TargetsInitiatives

Subordinate ScorecardLocal Vision

ObjectivesMeasure &

TargetsInitiatives

Team/Individual ScorecardTeam/Ind Vision

ObjectivesMeasure &

TargetsInitiatives

WHAT

WHAT

HOW

HOW

Strategic Implementation

Strategic Direction

Balanced Scorecard Development