Strategy
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STRATEGIC THINKING
Jim Clawson University of Virginia
DARDEN
10/23/08
STRATEGIC ISSUES A Strategic Issue is any issue that significantly influences a person’s, a work group’s or an organization’s ability to develop and maintain a competitive advantage.
DARDEN
10/23/08
STRATEGIC DOMAINS Organizational ● Work Group or Function ● Individual ●
DARDEN
10/23/08
COMPETITIVE ADVANTAGE A competitive advantage has three key characteristics: 1. it provides superior value to customers 2. it is hard to imitate 3. it enhances one’s ability to respond to changes in the environment. Adapted from George Day (1994) DARDEN
10/23/08
SOURCES OF COMPETITIVE ADVANTAGE Government subsidy or support ● Established or monopolistic markets ● Product innovation ● Process innovation, Cost efficiencies ● Superior Service ● Human Resource Management ●
DARDEN
10/23/08
Every CEO has to spend an enormous amount of time shuffling papers. The question is, how much of your time can you leave free to think about ideas? To me the pursuit of ideas is the only thing that matters. You can always find capable people to do almost everything else.” Michael Eisner, Fortune, December 4, 1989, page 116.
DARDEN
10/23/08
Strategy is the art of creating value. It provides the intellectual frameworks, conceptual models, and governing ideas that allow a company’s managers to identify opportunities for bringing value to customers and for delivering that value at a profit. In this respect, strategy is the way a company defines its business and links together the only resources that really matter in today’s economy: knowledge and relationships or an organization’s competencies and customers. Normann, R. and Ramirez, R., “From Value Chain to Value Constellation: Designing Interactive Strategy,” Harvard Business Review, July-August 1993, p.65. DARDEN
10/23/08
“Ten short years.... the one thing that we have done consistently is to change .... It may seem easier for our life to remain constant, but change, really, is the only constant. We cannot stop it and we cannot escape it. We can let it destroy us or we can embrace it. We must embrace it.” Michael Eisner Disney 1994 Annual Report
DARDEN
10/23/08
WALT DISNEY Productions Burning vision ● Immediate flexibility ● Innovative service and technology ● Leading edge products ● Synergism between lines of business ● Learning from each experience ● Strong organizational culture ● Strong, complementary leadership ●
DARDEN
10/23/08
Strategic Mindsets STRATEGIC INTENT MODEL
STRATEGIC FIT MODEL Strategic thinking is driven by the match between current capabilities and existing opportunities Searching for sustainable advantages Finding protected niches
Strategic thinking is driven by bridging gap between today’s reality and tomorrow’s vision Finding ways to leverage resources Outpacing competitors in building new advantages Making new industry rules
Source, Hamel and Prahalad, Strategic Intent, HBR DARDEN
10/23/08
1
Four Questions that Guide Strategic Choices WHAT CAN WE DO? (strengths and weaknesses)
WHAT MIGHT WE DO? (external opportunities and threats) STRATEGY
WHAT DO WE WANT TO DO? (organizational and individual values) DARDEN
WHAT DO OTHERS EXPECT US TO DO? (stakeholder expectancies) 10/23/08
1
ur Related Questions that Guide Strategic Choi WHAT CAN WE DO?new What (strengths anddo we capabilities weaknesses) want to develop?
WHAT MIGHT WEdo DO? How we (external opportunities create new and threat)? possibilities STRATEGY
What do we WHAT DO WE need to WANT TO DO? learn to and care (organizational individualabout? values)
DARDEN
How do we partner WHAT DO OTHERS to build shared EXPECT US TO DO? expectancies? (stakeholder expectancies) 10/23/08
1
Porter’s Five Forces Model NEW ENTRANTS
SUPPLIERS
INDUSTRY COMPETITORS
BUYERS
SUBSTITUTES DARDEN
10/23/08
1
Porter’s Generic Value Chain
IN G
TECHNOLOGY DEVELOPMENT
AR M
FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT PROCUREMENT Outbound Logistics
Marketing & Sales
Service
M AR
Operations
G IN
Inbound Logistics
Adapted from Michael Porter, Competitive Advantage, Free Press, New York, 1985, p. 46
DARDEN
10/23/08
1
GENERAL VALUE CHAIN Raw Transport Processing Materials What’s your value chain? What are the margins in each link? Where are your competitive strengths? Where is your strategic intent? Service
DARDEN
10/23/08
Forming Assembly Distribution
Sales
1
Creating Core Capabilities ●
●
●
●
The building blocks of corporate strategy are not products and markets but business processes. Competitive success depends upon transforming a company’s key processes into strategic capabilities that consistently provide superior value to customers Companies create these capabilities by making strategic investments in a support infrastructure that links together and transcends traditional functions. Capability-based strategies, because they cross functions, must be championed by senior leadership. Stalk, Evans, and Shulmand (1992)
DARDEN
10/23/08
1
Broadening the Pond
Every Business is a Growth Business, Ram Charan and Noel Tichy, Random House, NY, 1998
DARDEN
10/23/08
1
Defining Growth Trajectories C
A
B
Existing
NEEDS
New
D
Charan and Tichy
DARDEN
Existing New CUSTOMERS 10/23/08
1
Defining Growth Trajectories
Existing
Charan and Tichy
DARDEN
A
C Response
NEEDS
New
D
$XB Global
p a e
um
t n a
u
Q
L
B
Push Past Your Share
Existing New CUSTOMERS 10/23/08
1
Organization Charters ● ● ● ● ● ●
DARDEN
Mission Statement Vision Statement Values Statement Strategy Operating Goals Leadership 10/23/08
2
ORGANIZATION CHARTERS LEADERSHIP Strategy Mission
Goals
Vision
Values
DARDEN
1. Mission Statement
4. Strategy
2. Vision Statement
5. Operating Goals and Milestones
3. Values Statement
6. Leadership
10/23/08
2
PROBLEM LEADERSHIP LEADERSHIP ACTIVITY
Questions
Answers
Problem Solving
Old
New
Problem Finding
New
Old
Problem Creating
New
New
Adapted from Pathfinding by Harold Leavitt, 1995 DARDEN
10/23/08
2
SECOM, KK Technological innovation ● Fast customer response ● Leading edge synergies ● Investing in core capabilities ● BUT reinventing the future? ●
DARDEN
10/23/08
2
Indirect Influence on Outcomes
Environ- Leaderment ship
DARDEN
Design Decisions
10/23/08
Culture
Results
2
Competitive Advantage Through People ● ● ● ● ● ● ●
Employment Security Selectivity in Recruiting High Wages Incentive Pay Employee Ownership Information Sharing Participation and Empowerment
● ● ● ● ● ●
Self-Managed Teams Training and Skill Development Cross Utilization and Training Symbolic Egalitarianism Wage Compression Promotion from Within
Jeffrey Pfeffer, Producing sustainable competitive advantage through the effective management of people, Competitive Advantage through People, HBS Press, 1994, (AME, 1995, V. 9. N. 1
DARDEN
10/23/08
2
FMC ABERDEEN Leadership’s indirect influence on outcomes ● Importance of interaction of all design elements ● Human Resource Management as a competitive weapon ● Importance of strong, consistent leadership in culture building ●
DARDEN
10/23/08
2
Leading Strategic Change is choosing to influence others to alter their long-term competitive capabilities willingly.
DARDEN
10/23/08
2
There are always two parties, the party of the past and the party of the future; the establishment and the movement. Ralph Waldo Emerson.
DARDEN
10/23/08
2
In the traditional planning process, outcomes are likely to cluster around senior managers’ prejudices; the gap between recommendations and preexisting predilections is likely to be low. Hamel
DARDEN
10/23/08
2
Khrushchev, once criticizing Stalin, was asked, “You were there. Why didn’t you stop it?” Khrushchev angrily asked, “Who said that?” And then he ordered the man shot. As they were taking him out, he said, “Wait! Now you know!”
DARDEN
10/23/08
3
Strategy as Revolution ● Rule
Makers ● Rule Takers ● Rule Breakers
Strategy as Revolution, Gary Hamel, HBR July-August, 1996, 96405, p. 69 DARDEN
10/23/08
3
Strategy as Revolution ● ● ● ● ● ● ● ● ● ●
DARDEN
Planning isn’t strategic. Strategy making must be subversive. The Bottleneck is at the top of the bottle. Revolutionaries exist in every company. Strategy making must be democratic. Change is not the problem, engagement is. Anyone can be a strategy activist. Perspective is worth 50 IQ points. Top down and Bottom up are not alternatives. You can’t see the end from the beginning. 10/23/08
3
Revolutionizing Strategy ● ● ● ● ● ● ● ● ●
Radically improving the value equation Separating form and function Achieving Joy of Use Pushing the bounds of universality Striving for individuality Increasing accessibility Re-scaling Industries Compressing the Supply Chain Driving Convergence
Strategy as Revolution, Gary Hamel, HBR July-August, 1996, 96405, p. 69 DARDEN
10/23/08
3
Strategy is revolution; everything else is tactics. In industry after industry the terrain is changing so fast that experience is irrelevant and even dangerous. The objective is not to get people to support change but to give them responsibility for engendering change, some control over their destiny. Hamel
DARDEN
10/23/08
3
Who Should Be Involved in Democratic Strategy Making? People geographically on the periphery ● Newcomers ● Young people ●
DARDEN
10/23/08
3
Change the Rules The future is not the result of choices among alternative paths offered in the present -- it is a place that is created -created first in the mind and will; created next in the activity.
DARDEN
10/23/08
3
One must care more for one’s community than for one’s position in the hierarchy. Top down process achieves unity of purpose, Bottom’s up can achieve diversity, but we need to balance the two so we need deep diagonal slices in the strategy making process. Hamel
DARDEN
10/23/08
3
To invite new voices into the strategy making process, to encourage new perspectives, to start new conversations that span organizational boundaries, and then to help synthesize unconventional options into a point of view about corporate direction, those are the challenges for senior executives who believe that strategy must be a revolution. Hamel
DARDEN
10/23/08
3
Democratic Strategy Making ● Look
for potential discontinuities ● Define and elaborate core competencies ● Ferret out corporate orthodoxies ● Search for unconventional options
DARDEN
10/23/08
3
CHICAGO PARK DISTRICT Immense historical momentum ● Big Bang Approach ● Consistency of mission and strategy ● New, strong leadership ● Value of Information Technology ● Decentralizing the process ● Responding to the End User ●
DARDEN
10/23/08
4
STRATEGIC THINKING ● ● ● ● ●
Systems Perspective (Interconnections) Focus on Intent (Vision and Capabilities) Intelligent Opportunism (What’s there?) Thinking in Time (Past, present, future) Hypothesis driven (If A, then B?)
Adapted from Jeanne Liedtka, Elements of Strategic Thinking
DARDEN
10/23/08
4
CONCLUSION What’s your charter? ● What competitive advantage will achieve your charter? ● Are you internally consistent? ● Nurture your revolutionaries. ● Create problems that build the future. ●
DARDEN
10/23/08
4
DARDEN
10/23/08
4
Jim Clawson University of Virginia
DARDEN
10/23/08
STRATEGIC ISSUES A Strategic Issue is any issue that significantly influences a person’s, a work group’s or an organization’s ability to develop and maintain a competitive advantage.
DARDEN
10/23/08
STRATEGIC DOMAINS Organizational ● Work Group or Function ● Individual ●
DARDEN
10/23/08
COMPETITIVE ADVANTAGE A competitive advantage has three key characteristics: 1. it provides superior value to customers 2. it is hard to imitate 3. it enhances one’s ability to respond to changes in the environment. Adapted from George Day (1994) DARDEN
10/23/08
SOURCES OF COMPETITIVE ADVANTAGE Government subsidy or support ● Established or monopolistic markets ● Product innovation ● Process innovation, Cost efficiencies ● Superior Service ● Human Resource Management ●
DARDEN
10/23/08
Every CEO has to spend an enormous amount of time shuffling papers. The question is, how much of your time can you leave free to think about ideas? To me the pursuit of ideas is the only thing that matters. You can always find capable people to do almost everything else.” Michael Eisner, Fortune, December 4, 1989, page 116.
DARDEN
10/23/08
Strategy is the art of creating value. It provides the intellectual frameworks, conceptual models, and governing ideas that allow a company’s managers to identify opportunities for bringing value to customers and for delivering that value at a profit. In this respect, strategy is the way a company defines its business and links together the only resources that really matter in today’s economy: knowledge and relationships or an organization’s competencies and customers. Normann, R. and Ramirez, R., “From Value Chain to Value Constellation: Designing Interactive Strategy,” Harvard Business Review, July-August 1993, p.65. DARDEN
10/23/08
“Ten short years.... the one thing that we have done consistently is to change .... It may seem easier for our life to remain constant, but change, really, is the only constant. We cannot stop it and we cannot escape it. We can let it destroy us or we can embrace it. We must embrace it.” Michael Eisner Disney 1994 Annual Report
DARDEN
10/23/08
WALT DISNEY Productions Burning vision ● Immediate flexibility ● Innovative service and technology ● Leading edge products ● Synergism between lines of business ● Learning from each experience ● Strong organizational culture ● Strong, complementary leadership ●
DARDEN
10/23/08
Strategic Mindsets STRATEGIC INTENT MODEL
STRATEGIC FIT MODEL Strategic thinking is driven by the match between current capabilities and existing opportunities Searching for sustainable advantages Finding protected niches
Strategic thinking is driven by bridging gap between today’s reality and tomorrow’s vision Finding ways to leverage resources Outpacing competitors in building new advantages Making new industry rules
Source, Hamel and Prahalad, Strategic Intent, HBR DARDEN
10/23/08
1
Four Questions that Guide Strategic Choices WHAT CAN WE DO? (strengths and weaknesses)
WHAT MIGHT WE DO? (external opportunities and threats) STRATEGY
WHAT DO WE WANT TO DO? (organizational and individual values) DARDEN
WHAT DO OTHERS EXPECT US TO DO? (stakeholder expectancies) 10/23/08
1
ur Related Questions that Guide Strategic Choi WHAT CAN WE DO?new What (strengths anddo we capabilities weaknesses) want to develop?
WHAT MIGHT WEdo DO? How we (external opportunities create new and threat)? possibilities STRATEGY
What do we WHAT DO WE need to WANT TO DO? learn to and care (organizational individualabout? values)
DARDEN
How do we partner WHAT DO OTHERS to build shared EXPECT US TO DO? expectancies? (stakeholder expectancies) 10/23/08
1
Porter’s Five Forces Model NEW ENTRANTS
SUPPLIERS
INDUSTRY COMPETITORS
BUYERS
SUBSTITUTES DARDEN
10/23/08
1
Porter’s Generic Value Chain
IN G
TECHNOLOGY DEVELOPMENT
AR M
FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT PROCUREMENT Outbound Logistics
Marketing & Sales
Service
M AR
Operations
G IN
Inbound Logistics
Adapted from Michael Porter, Competitive Advantage, Free Press, New York, 1985, p. 46
DARDEN
10/23/08
1
GENERAL VALUE CHAIN Raw Transport Processing Materials What’s your value chain? What are the margins in each link? Where are your competitive strengths? Where is your strategic intent? Service
DARDEN
10/23/08
Forming Assembly Distribution
Sales
1
Creating Core Capabilities ●
●
●
●
The building blocks of corporate strategy are not products and markets but business processes. Competitive success depends upon transforming a company’s key processes into strategic capabilities that consistently provide superior value to customers Companies create these capabilities by making strategic investments in a support infrastructure that links together and transcends traditional functions. Capability-based strategies, because they cross functions, must be championed by senior leadership. Stalk, Evans, and Shulmand (1992)
DARDEN
10/23/08
1
Broadening the Pond
Every Business is a Growth Business, Ram Charan and Noel Tichy, Random House, NY, 1998
DARDEN
10/23/08
1
Defining Growth Trajectories C
A
B
Existing
NEEDS
New
D
Charan and Tichy
DARDEN
Existing New CUSTOMERS 10/23/08
1
Defining Growth Trajectories
Existing
Charan and Tichy
DARDEN
A
C Response
NEEDS
New
D
$XB Global
p a e
um
t n a
u
Q
L
B
Push Past Your Share
Existing New CUSTOMERS 10/23/08
1
Organization Charters ● ● ● ● ● ●
DARDEN
Mission Statement Vision Statement Values Statement Strategy Operating Goals Leadership 10/23/08
2
ORGANIZATION CHARTERS LEADERSHIP Strategy Mission
Goals
Vision
Values
DARDEN
1. Mission Statement
4. Strategy
2. Vision Statement
5. Operating Goals and Milestones
3. Values Statement
6. Leadership
10/23/08
2
PROBLEM LEADERSHIP LEADERSHIP ACTIVITY
Questions
Answers
Problem Solving
Old
New
Problem Finding
New
Old
Problem Creating
New
New
Adapted from Pathfinding by Harold Leavitt, 1995 DARDEN
10/23/08
2
SECOM, KK Technological innovation ● Fast customer response ● Leading edge synergies ● Investing in core capabilities ● BUT reinventing the future? ●
DARDEN
10/23/08
2
Indirect Influence on Outcomes
Environ- Leaderment ship
DARDEN
Design Decisions
10/23/08
Culture
Results
2
Competitive Advantage Through People ● ● ● ● ● ● ●
Employment Security Selectivity in Recruiting High Wages Incentive Pay Employee Ownership Information Sharing Participation and Empowerment
● ● ● ● ● ●
Self-Managed Teams Training and Skill Development Cross Utilization and Training Symbolic Egalitarianism Wage Compression Promotion from Within
Jeffrey Pfeffer, Producing sustainable competitive advantage through the effective management of people, Competitive Advantage through People, HBS Press, 1994, (AME, 1995, V. 9. N. 1
DARDEN
10/23/08
2
FMC ABERDEEN Leadership’s indirect influence on outcomes ● Importance of interaction of all design elements ● Human Resource Management as a competitive weapon ● Importance of strong, consistent leadership in culture building ●
DARDEN
10/23/08
2
Leading Strategic Change is choosing to influence others to alter their long-term competitive capabilities willingly.
DARDEN
10/23/08
2
There are always two parties, the party of the past and the party of the future; the establishment and the movement. Ralph Waldo Emerson.
DARDEN
10/23/08
2
In the traditional planning process, outcomes are likely to cluster around senior managers’ prejudices; the gap between recommendations and preexisting predilections is likely to be low. Hamel
DARDEN
10/23/08
2
Khrushchev, once criticizing Stalin, was asked, “You were there. Why didn’t you stop it?” Khrushchev angrily asked, “Who said that?” And then he ordered the man shot. As they were taking him out, he said, “Wait! Now you know!”
DARDEN
10/23/08
3
Strategy as Revolution ● Rule
Makers ● Rule Takers ● Rule Breakers
Strategy as Revolution, Gary Hamel, HBR July-August, 1996, 96405, p. 69 DARDEN
10/23/08
3
Strategy as Revolution ● ● ● ● ● ● ● ● ● ●
DARDEN
Planning isn’t strategic. Strategy making must be subversive. The Bottleneck is at the top of the bottle. Revolutionaries exist in every company. Strategy making must be democratic. Change is not the problem, engagement is. Anyone can be a strategy activist. Perspective is worth 50 IQ points. Top down and Bottom up are not alternatives. You can’t see the end from the beginning. 10/23/08
3
Revolutionizing Strategy ● ● ● ● ● ● ● ● ●
Radically improving the value equation Separating form and function Achieving Joy of Use Pushing the bounds of universality Striving for individuality Increasing accessibility Re-scaling Industries Compressing the Supply Chain Driving Convergence
Strategy as Revolution, Gary Hamel, HBR July-August, 1996, 96405, p. 69 DARDEN
10/23/08
3
Strategy is revolution; everything else is tactics. In industry after industry the terrain is changing so fast that experience is irrelevant and even dangerous. The objective is not to get people to support change but to give them responsibility for engendering change, some control over their destiny. Hamel
DARDEN
10/23/08
3
Who Should Be Involved in Democratic Strategy Making? People geographically on the periphery ● Newcomers ● Young people ●
DARDEN
10/23/08
3
Change the Rules The future is not the result of choices among alternative paths offered in the present -- it is a place that is created -created first in the mind and will; created next in the activity.
DARDEN
10/23/08
3
One must care more for one’s community than for one’s position in the hierarchy. Top down process achieves unity of purpose, Bottom’s up can achieve diversity, but we need to balance the two so we need deep diagonal slices in the strategy making process. Hamel
DARDEN
10/23/08
3
To invite new voices into the strategy making process, to encourage new perspectives, to start new conversations that span organizational boundaries, and then to help synthesize unconventional options into a point of view about corporate direction, those are the challenges for senior executives who believe that strategy must be a revolution. Hamel
DARDEN
10/23/08
3
Democratic Strategy Making ● Look
for potential discontinuities ● Define and elaborate core competencies ● Ferret out corporate orthodoxies ● Search for unconventional options
DARDEN
10/23/08
3
CHICAGO PARK DISTRICT Immense historical momentum ● Big Bang Approach ● Consistency of mission and strategy ● New, strong leadership ● Value of Information Technology ● Decentralizing the process ● Responding to the End User ●
DARDEN
10/23/08
4
STRATEGIC THINKING ● ● ● ● ●
Systems Perspective (Interconnections) Focus on Intent (Vision and Capabilities) Intelligent Opportunism (What’s there?) Thinking in Time (Past, present, future) Hypothesis driven (If A, then B?)
Adapted from Jeanne Liedtka, Elements of Strategic Thinking
DARDEN
10/23/08
4
CONCLUSION What’s your charter? ● What competitive advantage will achieve your charter? ● Are you internally consistent? ● Nurture your revolutionaries. ● Create problems that build the future. ●
DARDEN
10/23/08
4
DARDEN
10/23/08
4
