What is Strategy?

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What is Strategy?
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• Strategic thinking is the art of outdoing an
  adversary, knowing that the adversary is trying
  to do the same to you.
• It is also the art of finding ways to cooperate,
  even when others are motivated by self-interest,
  not benevolence. It is the art of convincing
  others, and even yourself, to do what you say.
  It is the art of interpreting and revealing
  information. It is the art of putting yourself
  in others shoes so as to predict and influence
  what they will do.

The Art of Strategy, Dixit and Nalebuff, W.W.
Norton, 2008.
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Strategy

• Strategy is planning that allows you to delight
  your customers.
• Strategy is about getting customers and keeping
  them.
• Drucker The purpose of a business is to create
  a customer.
• Product first, not profits

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Strategy

• The process of strategy includes
• Analysis
• Formulation
• Implementation

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Strategic Planning and Analysis

• Planning how to delight customers requires these
  steps
• Scanning the overall environment
• Scanning and researching the industry environment
• Researching direct competitors
• Researching your organization's skills and
  resources
• Analyzing current strategy
• And, most important, knowing what will delight
  your customers before they know it

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The Five Competitive Forces That Shape
Strategy, Michael Porter, Harvard Business
Review, January 2008.
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Before the Internet

• Michael Porter wrote the initial model for the
  Five Forces in 1979.
• He wrote What Is Strategy for HBR in 1996, his
  seminal book Competitive Strategy in 1981, and
  Competitive Advantage in1985.
• Before the Internet (BTI)
• Before Google
• Before Napster, iTunes, and the iPod, iPhone, and
  iPad
• Before craigslist.com
• He didnt consider how to compete with free.

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Before Behavior Economics

• Porter made his major contributions to strategy
  theory before behavioral economics research.
• BE research has shown that people do not make
  rational decisions (emotions dominate) and that
  markets are not rational.
• That success is more often the result of luck
  (randomness) than carefully planned strategy.
• Delighting customers with awesome products is the
  key now, not having barriers to entry.

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Randomness

• People are not wired to understand randomness.
• We are wired to see patterns and causality cant
  accept randomness.
• Cant plan for luck.
• But can be nimble and take advantage of lucky
  breaks.

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Operational Effectiveness Is Not Strategy

• Concentration on core competencies and
  competitive positioning via benchmarking can lead
  companies down the path toward mutually
  destructive competition.
• Companies must distinguish between operational
  effectiveness and strategy and not confuse them.

What is Strategy, Michael Porter, Harvard
Business Review, November 1996, Reprint 96608
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Operational Effectiveness Is Not Strategy

• Operational effectiveness is necessary to compete
  but not sufficient to win.
• A company can outperform others and win only if
  it can establish a difference that it can sustain
  a differential competitive advantage.
• In the past barriers to entry were the primary
  competitive advantage.
• Now, it's better products and service.
• Operational effectiveness means doing things
  better than competitors, strategic positioning
  means doing things different from competitors and
  having better products and service.

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Strategy Rests On Unique Activities

• The essence of strategy is choosing to perform
  activities differently than rivals do.
• Strategic positions can be based on customers
  needs, customers accessibility, or the variety
  of a companys products or services.
• Porters concept of fit is no longer valid.
• Change is happening too fast.
• Remember, structure follows strategy

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Generic Strategies

• There are three generic (primary) strategies
• Differentiation
• Focus (niche marketing)
• Cost leadership
• These definitions characterize strategic
  positions at the simplest and broadest levels.

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Secondary Strategies

• Within the three basic strategies, there are
  several secondary strategies
• Defense Block competition to avoid losing market
  share.
• Offense Attack competition head on.
• Flanker Brand Establish new position.
• Fighting Brand Create a new brand to compete
  with competitive new brand.
• Guerrilla Marketing Force competition to respond
  with small resources.
• Ambush Marketing

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Profitable Niche

• Measurable, sizable, reachable
• Niche strategy advantages
• Flexible, can adapt to new needs, small range of
  needs.
• Efficient for promotion, distribution.
• Reduces competitive pressure.
• With few competitors, can be highly profitable.

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• Niche strategy disadvantages
• Few economies of scale
• Success breeds competition. When new competitors
  enter the niche, strategy must change.
• To thrive in most businesses, must be 1, 2, or
  get out (find a new niche).
• Get out in the long tail.
• Innovate with new products.

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Differentiate By Benefits Sought By Consumers

• Grocery buying segments
• Location - 39.0
• Price - 30.2
• Service - 12.1
• Selection - 9.5
• Quality - 4.4

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A Sustainable Strategic Position Requires
Trade-offs

• Tradeoffs are essential to strategy. They create
  the need for choice and purposefully limit what a
  company offers.
• Remembering that a valuable position will attract
  copycats.
• Cant be all things to all people. Be best at
  doing a few things.
• Then expand on those core competencies.
• Apple
• Google
• Amazon

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Determining Strategy

• To determine strategy, answer the following
  questions
• Which of our products/services are the most
  distinctive?
• Which of our products/services are the most
  profitable?
• Which of our customers are the most satisfied?
• Which customers, channels, or purchase occasions
  are most profitable?
• Which of the activities in our value chain are
  the most different and effective.
• How can we make everything better? Now!

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Profit is Important

• Profit is the key to a successful strategy, not
  growth.
• Compromises and inconsistencies in the pursuit of
  growth will erode the competitive advantage a
  company.
• Keep an eye on profitable growth.

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Potential Traps

• Meaningless differentiation
• Getting greedy
• Groupthink
• Alfred Sloan
• Throwing money at a problem
• Lack of commitment
• Innovation stagnation

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Perceptual Problems

• All the kids are above average
• Jim Collins lists five basic management
  perceptual mistakes that lead to five stages of
  decline
• Stage 1 Hubris Born of Success
• Stage 2 Undisciplined pursuit of more
• Stage 3 Denial of risk and peril
• Stage 4 Grasping for Salvation
• Stage 5 Capitulation to Irrelevance or Death

Jim Collins, How the Mighty Fall, Harper Collins,
NY 2009.
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The Role of Top Management

• The role of top management in an organization is
• Defining an organizations position and strategy
• Making trade-offs
• Forging fit among activities
• Building an innovation machine
• And strategy may have to change along with major
  structural changes in an industry -- flexibility
  is vitally important.

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Organizations

• Must have a visionary, meaningful mission
  statement.
• Must have a clear and simple strategy.
• Must define how to delight customers.
• Must be committed to strategic moves and signal
  commitment to competitors.
• Must continually innovate.

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The Strategy Focused Organization
Mission Why we exist
Core Values What we believe in
Vision What we want to be
Strategy Our game plan (how to win)
Goals For Implementing Strategy (Metrics) What
we need to do
OUTCOMES
Satisfied Shareholders
Delighted Customers
Effective Process
Motivated and Prepared Workforce
The Strategy Focused Organization, Robert
Kaplan, David Notron, Harvard Business School
Press, 2001