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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 APPROACH WORKSHOP 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
While OPERATIONAL Management focuses on RESULTS
PLAN
ACTION
RESULTS
Entrepreneurial management: A Balancing Act OPERATIONAL MANAGEMENT
STRATEGIC MANAGEMENT
QUALITY of
POOR
POOR ALMOST CERTAIN DISASTER GOOD
GOOD
GAME OF HAZARD
SUSTAINABLE CHANCE TO WIN
THEORY OF BUSINESS
“HOW TO DO” TOOLS VS “WHAT TO DO”
DIRECTION MATRIX:
WTW RTW
WTR RTR
Doing things fruitlessly!
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 INTERNAL ANALYSIS
OPERATIONAL PLAN OPERATIONAL PLAN OPERATIONAL PLAN
BUSINESS OBJECTIVES OPERATIONAL PLAN KEY ISSUES OPERATIONAL PLAN OVERALL STRATEGIC DIRECTION SUPPORTING CONDITIONS
FINANCIAL PROJECTION
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. 2. 3. 4. 5. 6. 7. 8.
Market Structure Market Size & Growth – Past 4 Years Market Size & Growth – Future 4 Years (with underlying assumption about growth) Product Life Cycle Distribution Structure in the Industry Company & Competitors Market Share Market Profitability Analysis: Porters’ Five Forces Driving Force / Key Success Factors
MARKET STRUCTURE 1. End user/application segments 2. Product application combinations 3. Distribution structure End user/applications Products
Channels
Channels
The Company
MARKET SIZE MARKET SEGMENT
1992
Volume (MLN RS) 1993
1994
1995
1996
1997
GROWTH P.A.
Value (MLN RS) MARKET SEGMENT
1992
1993
1995
1996
1997
GROWTH P.A.
PRODUCT LIFE CYCLE STAGES Product Segments
INTRODUCTION
GROWTH
MATURITY
DECLINE
COMPETITION / SEGMENT MATRIX One page analysis – The competitor / segment matrix for evaluating market attractiveness and competitive position Competition
Segments 1
1. 2. 3. Historical Growth Projected Growth Company Profitability
2
3
Overall 4
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
Segment 4
Total
2008
2012
2008
2012
2008
2012
100%
100%
100%
100%
100%
100%
WHOLESALES DISTRIBUTOR CONTRACTORS
DIRECT OEM PROJECT
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
Turnover Share = Co’s Sales per outlet/∑ Co’s Sales by all outlets Outlet Coverage = ∑ Co’s outlets / ∑ outlets
OUTLET COVERAGE
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.
TOP – 10 External Trends Taking Advantage Trend
Potential Impact
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
Remarks:
We
C1
C2
C3
INDUSTRY TRENDS PORTERS’ 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 WHAT
EMPLOYEES 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. 2.
3.
First, if you begin with “who” rather than “what” you can more easily adapt to a changing world. Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. 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 Collins Confront 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?
Key Indicators of How Well the Strategy Is Working
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.
SWOT - ANALYSIS Internal Analysis
External Analysis
Opportunities
Strengths
Threats
Weaknesses
Promising Opportunities Only opportunities after improvement
Ability to resist High Risks
Competitive Advantage(s)? Constraints to potential business objectives & strategic scenario’s
CONFRONTATION MATRICES Opportunities s t r e n g t h
1
2
3
4
5
1 2 3 4 5
Opportunities W e a k n e s s e s
1
2
3
1 1 2 3 4 5
2
3
4
5
5
1 2 3 4 5
Threats
s t r e n g t h
4
Threats W e a k n e s s e s
1 1 2 3 4 5
2
3
4
5
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 competitive capabilities 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 deficiencies are 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-performed internal activity central (not peripheral or incidental) to a company’s competitiveness and 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?
Do you really know that?
Most important aspects
How do we Score?
And our competitors?
Key strengths and weaknesses
Assignments for further knowledge improvement
Figure 1 – Relative Importance of Factors Factor Number
Absolutely Critical 5
Very Important 4
Quite Important 3
Nice to Have 2
Not significant 1
Don’t Want it 0
Suggested Definitions: Absolutely Crucial: Very Important: Quite Important: Nice to Have: Not Significant: Don’t Want it:
Overrides most other considerations, wouldn’t consider supplier who doesn’t perform on this factor. One of the first things we ask for, but we may be prepared to negotiate on it. A negotiable item, but one when we attach considerable weight to. It could make the difference in a division, but is normally taken into account last. Not normally taken into account at all. Would prefer a product without this feature
RATING AGAINST CUSTOMERS BUYING CRITERIA This Bus
Quality & Price Non-Price attributes Affecting Customer Choice
Product - Related
Comp Comp Comp A B C
Comp Comp D E
% Weight
%
1. 2.
Service - Related 1. 2.
Total
100%
Has quality gone up/down (+/-) In past 4 years
Relative Price today Relative Price 4 years ago
100 100
Market choice of suppler specified by Price ………… % and Quality ………………. %
(Total 100%)
Comp Comp F G
CUSTOMERS BUYING CRITERIA: PRICE ..%, QUALITY ATTRIBUTES ..% Question its Cost
Keep it UP
Better
Relative Performance Same Rating Worse
Do Not Sweat
Least
10%
20%
Most
Attributes Important to customers
Improve fast
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 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
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 Name
Money People Informaiton Raw Materials, Energy Organization Structure Procedures
Culture
Remarks
+ = high impact ++ = very high impact
Issue 1
Issue 2
Issue 3
Issue 4
Issue 5
High-end Type1
High-end Type 2
Growing of Appl.
Coherent A.P. Policy
Address Key Gap
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
Competitive Innovation
In Support of
Changing the rules, Accumulating strengths
Strategic Intent Focusing energies, Sustaining thrust
Winning “impossible” bets Fighting 20 year battles
Competence is Different From Technology
Technology Stand Alone Explicit Knowledge Narrowly held Easily copied / Acquired Discontinuous Process Inventive Capability
Competence
=
Competence System Embodied Tacit Knowledge Deeply Embedded Difficult to Un bundle Aggregative Process Integrative Capability (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 COMPETITIVE ADVANTAGE Any competitive advantage currently held will eventually be reversed by the actions of competent & 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
Market Target
Lower Cost
Broad Range of Buyers
Narrow Buyer Segment or Niche
Differentiation
Overall Low-Cost Broad Provider Differentiation Strategy Strategy Best-Cost Provider Strategy Focused Focused Low-Cost Differentiation Strategy Strategy
Low-Cost Leadership
Keys to Success Make achievement of low-cost relative to rivals the theme of firm’s business strategy Find ways to drive costs out of business year-after-year
Low-cost leadership means low overall costs, not just low manufacturing or production costs!
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
Objective
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Keys to Success
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
Activities, Costs, & Margins of Suppliers
Internally Performed Activities, Costs, & Margins
Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners
Buyer/User Value Chains
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
Objective Serve niche buyers better than rivals
Keys to Success
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment
Positioning a Company The 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 “fast food”
owns “computers”
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 renta-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 Leadership Product Differentiation – DuPont’s Nylon
Profits are for People – Allied Chemicals Business Leadership “Faith in Free-enterprise system”
Chemical Facts of Life Monsanto Industry Leadership “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 ontime 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.
Balanced Scorecard Development Board Level Scorecard Overall Vision Objectives Measure & Initiatives Targets H
Subordinate Scorecard Local Vision Objectives Measure & Initiatives Targets
Team/Individual Scorecard Team/Ind Vision Objectives Measure & Initiatives Targets
Change is the essence of life. Be willing to surrender what you are for what you could become
STRATEGIC MANAGEMENT – A PRACTICAL APPROACH WORKSHOP 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
While OPERATIONAL Management focuses on RESULTS
PLAN
ACTION
RESULTS
Entrepreneurial management: A Balancing Act OPERATIONAL MANAGEMENT
STRATEGIC MANAGEMENT
QUALITY of
POOR
POOR ALMOST CERTAIN DISASTER GOOD
GOOD
GAME OF HAZARD
SUSTAINABLE CHANCE TO WIN
THEORY OF BUSINESS
“HOW TO DO” TOOLS VS “WHAT TO DO”
DIRECTION MATRIX:
WTW RTW
WTR RTR
Doing things fruitlessly!
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 INTERNAL ANALYSIS
OPERATIONAL PLAN OPERATIONAL PLAN OPERATIONAL PLAN
BUSINESS OBJECTIVES OPERATIONAL PLAN KEY ISSUES OPERATIONAL PLAN OVERALL STRATEGIC DIRECTION SUPPORTING CONDITIONS
FINANCIAL PROJECTION
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. 2. 3. 4. 5. 6. 7. 8.
Market Structure Market Size & Growth – Past 4 Years Market Size & Growth – Future 4 Years (with underlying assumption about growth) Product Life Cycle Distribution Structure in the Industry Company & Competitors Market Share Market Profitability Analysis: Porters’ Five Forces Driving Force / Key Success Factors
MARKET STRUCTURE 1. End user/application segments 2. Product application combinations 3. Distribution structure End user/applications Products
Channels
Channels
The Company
MARKET SIZE MARKET SEGMENT
1992
Volume (MLN RS) 1993
1994
1995
1996
1997
GROWTH P.A.
Value (MLN RS) MARKET SEGMENT
1992
1993
1995
1996
1997
GROWTH P.A.
PRODUCT LIFE CYCLE STAGES Product Segments
INTRODUCTION
GROWTH
MATURITY
DECLINE
COMPETITION / SEGMENT MATRIX One page analysis – The competitor / segment matrix for evaluating market attractiveness and competitive position Competition
Segments 1
1. 2. 3. Historical Growth Projected Growth Company Profitability
2
3
Overall 4
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
Segment 4
Total
2008
2012
2008
2012
2008
2012
100%
100%
100%
100%
100%
100%
WHOLESALES DISTRIBUTOR CONTRACTORS
DIRECT OEM PROJECT
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
Turnover Share = Co’s Sales per outlet/∑ Co’s Sales by all outlets Outlet Coverage = ∑ Co’s outlets / ∑ outlets
OUTLET COVERAGE
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.
TOP – 10 External Trends Taking Advantage Trend
Potential Impact
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
Remarks:
We
C1
C2
C3
INDUSTRY TRENDS PORTERS’ 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 WHAT
EMPLOYEES 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. 2.
3.
First, if you begin with “who” rather than “what” you can more easily adapt to a changing world. Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. 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 Collins Confront 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?
Key Indicators of How Well the Strategy Is Working
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.
SWOT - ANALYSIS Internal Analysis
External Analysis
Opportunities
Strengths
Threats
Weaknesses
Promising Opportunities Only opportunities after improvement
Ability to resist High Risks
Competitive Advantage(s)? Constraints to potential business objectives & strategic scenario’s
CONFRONTATION MATRICES Opportunities s t r e n g t h
1
2
3
4
5
1 2 3 4 5
Opportunities W e a k n e s s e s
1
2
3
1 1 2 3 4 5
2
3
4
5
5
1 2 3 4 5
Threats
s t r e n g t h
4
Threats W e a k n e s s e s
1 1 2 3 4 5
2
3
4
5
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 competitive capabilities 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 deficiencies are 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-performed internal activity central (not peripheral or incidental) to a company’s competitiveness and 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?
Do you really know that?
Most important aspects
How do we Score?
And our competitors?
Key strengths and weaknesses
Assignments for further knowledge improvement
Figure 1 – Relative Importance of Factors Factor Number
Absolutely Critical 5
Very Important 4
Quite Important 3
Nice to Have 2
Not significant 1
Don’t Want it 0
Suggested Definitions: Absolutely Crucial: Very Important: Quite Important: Nice to Have: Not Significant: Don’t Want it:
Overrides most other considerations, wouldn’t consider supplier who doesn’t perform on this factor. One of the first things we ask for, but we may be prepared to negotiate on it. A negotiable item, but one when we attach considerable weight to. It could make the difference in a division, but is normally taken into account last. Not normally taken into account at all. Would prefer a product without this feature
RATING AGAINST CUSTOMERS BUYING CRITERIA This Bus
Quality & Price Non-Price attributes Affecting Customer Choice
Product - Related
Comp Comp Comp A B C
Comp Comp D E
% Weight
%
1. 2.
Service - Related 1. 2.
Total
100%
Has quality gone up/down (+/-) In past 4 years
Relative Price today Relative Price 4 years ago
100 100
Market choice of suppler specified by Price ………… % and Quality ………………. %
(Total 100%)
Comp Comp F G
CUSTOMERS BUYING CRITERIA: PRICE ..%, QUALITY ATTRIBUTES ..% Question its Cost
Keep it UP
Better
Relative Performance Same Rating Worse
Do Not Sweat
Least
10%
20%
Most
Attributes Important to customers
Improve fast
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 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
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 Name
Money People Informaiton Raw Materials, Energy Organization Structure Procedures
Culture
Remarks
+ = high impact ++ = very high impact
Issue 1
Issue 2
Issue 3
Issue 4
Issue 5
High-end Type1
High-end Type 2
Growing of Appl.
Coherent A.P. Policy
Address Key Gap
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
Competitive Innovation
In Support of
Changing the rules, Accumulating strengths
Strategic Intent Focusing energies, Sustaining thrust
Winning “impossible” bets Fighting 20 year battles
Competence is Different From Technology
Technology Stand Alone Explicit Knowledge Narrowly held Easily copied / Acquired Discontinuous Process Inventive Capability
Competence
=
Competence System Embodied Tacit Knowledge Deeply Embedded Difficult to Un bundle Aggregative Process Integrative Capability (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 COMPETITIVE ADVANTAGE Any competitive advantage currently held will eventually be reversed by the actions of competent & 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
Market Target
Lower Cost
Broad Range of Buyers
Narrow Buyer Segment or Niche
Differentiation
Overall Low-Cost Broad Provider Differentiation Strategy Strategy Best-Cost Provider Strategy Focused Focused Low-Cost Differentiation Strategy Strategy
Low-Cost Leadership
Keys to Success Make achievement of low-cost relative to rivals the theme of firm’s business strategy Find ways to drive costs out of business year-after-year
Low-cost leadership means low overall costs, not just low manufacturing or production costs!
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
Objective
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Keys to Success
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
Activities, Costs, & Margins of Suppliers
Internally Performed Activities, Costs, & Margins
Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners
Buyer/User Value Chains
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
Objective Serve niche buyers better than rivals
Keys to Success
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment
Positioning a Company The 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 “fast food”
owns “computers”
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 renta-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 Leadership Product Differentiation – DuPont’s Nylon
Profits are for People – Allied Chemicals Business Leadership “Faith in Free-enterprise system”
Chemical Facts of Life Monsanto Industry Leadership “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 ontime 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.
Balanced Scorecard Development Board Level Scorecard Overall Vision Objectives Measure & Initiatives Targets H
Subordinate Scorecard Local Vision Objectives Measure & Initiatives Targets
Team/Individual Scorecard Team/Ind Vision Objectives Measure & Initiatives Targets
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