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Strategic Analysis and Action. EIGHTH EDITION. Toronto. MARY M. CROSSAN MICHAEL J. ROUSE JOSEPH N. FRY J. PETER KILLING. Strategy: Analysis and Action 8th Ed - Ebook download as PDF File .pdf), Text File .txt) or read book online. Strategy textbook 8th edition. Thu, 25 Oct GMT strategic analysis and action 8th pdf - analysis and action 8th edition, strategic analysis and action 8th edition in this site is not.

FRY J. Vice-President, Editorial Director: Gary Bennett Editor-in-Chief: Nicole Lukach Acquisitions Editor: Nick Durie Marketing Manager: Jenna Wulff Supervising Developmental Editor: Madhu Ranadive Project Manager:

IDC Finds.. March John W. Gerald H. A Time To Take Stock. A Sense of Mission.

Strategy: Analysis and Action 8th Ed

Norman B. Hutchinson Books Limited. Thomas A. Built to Last: Successful Habits of Visionary Companies. Levers of Control. New York: Penguin Books. Vision Statements That Make Sense. Corporate Pathfinders.. Harper Business. Marion Devine. Harvard Business School Press. Donald R. A Perspective For Success. Harold J. De Geus. Most executives cannot articulate the objective. As such. We will begin by focusing on one model and conclude the chapter with other perspectives on strategy.

There are many views about what constitutes a strategy. In this chapter we present a practical model for developing the concept of strategy. The intention of strategy is to take the basic ideas of a business. Taken alone. Many organizations have no stated strategy. Your first step in trying to understand the strategy of a business.

After a short elaboration of this model and a discussion of its utility we will explore these building block components in some depth. Even in cases where an organization has a stated strategy. Chapter 2 Strategy Strategy is a concrete expression of how an organization intends to compete and win in its marketplace.

What does the business propose to achieve? What are its aims. Product Market Focus: We suggest that a useful way for you to visualize business strategy is to think of it in terms of four related components: A Hub for Analysis In a retrospective sense. Take for example. Core Activities: What are the primary value-adding activities that the business intends to perform and how does it intend to perform them? Remember as you pursue this process that every firm has a strategy.

As an understanding of each of the individual components starts to emerge. If you find a reasonably coherent picture. We lost it last year. Value Proposition: How does the business intend to attract customers?

Most businesses are more complex and subtle than they seem on first view. In this way strategy can and will be changed. In a prospective sense. What performance can you expect and at what level of risk? As you move forward. The concept of strategy will help you to sort out what a business is doing and what it is doing differently than its competitors. It puts your interpretation of vision. Much the same can be said for the value proposition.

An SBU sells a distinct set of products or services to an identifiable group of customers and it is accountable Strategy in a Single Business A Link to Action Strategy provides a vehicle for you to translate general ideas about direction and performance. Strategy also provides a touchstone for continuous improvement. This understanding supplies a needed basis for a further analysis of why a business has been a success or failure and what legacy of position and momentum is implicit in this success or failure.

Decisions to alter any or all of the components set up the requirements for achieving change. Virtually any decision that is hard to reverse needs to be considered in relation to the intended direction of the business. The choice of core activities highlights the key jobs that will have to be done and the capabilities that need most to be developed and reinforced. Goals set up the targets against which progress and performance can be assessed.

A great advantage of the strategy framework is that it helps you to highlight the ramifications of such spontaneous initiatives and to keep your subsequent analysis and decision focused on essential matters. Many of these emerge spontaneously as people sense an opportunity or move to deal with a specific problem.

Product market focus provides critical direction to people throughout the business so that they can focus their effort on targeted markets and products and. This business may be an independent entity or a strategic business unit SBU in a larger corporation. They focus on the intentions of the business with respect to its managers. Whereas business strategy focuses on how an organization will create value within a particular line of business.

If a vision or mission exists. Others have several business strategies and these strategies fall under the broader umbrella of corporate strategy.

It would be difficult for you to develop strategy in a family firm. Some organizations are distinct businesses with one overall business strategy. A hospital might focus on patient safety measures. A business. Soft goals may be overlooked in strategic analyses that focus too narrowly on a faceless economic conception of a business.

In describing business strategy there is no required starting point. In contrast to a vision. The soft goals of a business set out targets for the social conduct of the business. Regardless of where you start. Some examples of specific goals within these two categories are presented in Table 2. But measurability is essential in order to use goals to manage and influence the conduct of the business.

Occasionally one of the four elements may act as an anchor point. We discuss corporate strategy at the end of this chapter. In this classification. Soft goals are also more difficult to state in measurable terms. It is helpful to distinguish between two broad categories of goals. There is very little point in espousing 20 Chapter 2 Strategy.

More often than not. Table 2. In general. Goals Goal Structures Businesses typically pursue a variety of goals simultaneously. When this applies. This would be true. You are now well into the process of strategy formulation. Consider the challenge faced by our students as they address an assignment to describe the goal structure of the business in which they have worked.

Divest means to give priority to those actions that prepare and initiate the sale of the business. The essential nature of a goal structure can be caught. A harvest strategy implies a stingy approach to investment and spending as priority is given to milking cash and profits from a business.

Imagine the consternation of some students when they discover a gap between the professed and real goals of the business unit! If the goal structure of a business is obscure. A growth strategy implies a priority on market. To avoid this. External forces are represented. Consider a classic example of the need to adapt goal structures to a changing environment. It is reasonably easy for the students to assemble a list of goals from experience. But simple lists are not enough because one can usually anticipate that the coincident pursuit of the various goals will result in conflicts.

As you go about developing the goal structure of a business. From its start-up in to the stock market meltdown in The telling question at this point is what goal drives the resolution of the conflict: Determining goal priorities is a tough but critical job.

While such terms as these need to be developed with specifics in individual situations. These goal lists often range across a broad spectrum of desirable ends. Describing Goal Structures As goals proliferate. Think of your favourite radio station. By the end of Schwab had laid off over 6. Management hesitated. Many of the strategic decisions that firms face are product or market choices.

They may choose. A penetration strategy suggests that there is market share to be gained by focusing on the current products and markets. What is its emphasis in programming rock. Firms can choose to focus on existing products and markets through a penetration strategy. It did so by changing its focus from capital market products to addressing the needs of the individual investor and set a new goal.

This can be depicted in the classic two by two matrix with market choice on one axis and product choice on the other. Then the bottom fell out of the market.

Schwab needed not only to downsize. With this. Offering existing products to new markets using a market development strategy is typically the case when we consider geographic expansion of the strategy. Describing Product Market Focus If you are dealing with a business that encompasses multiple products and markets.

Do not let the notion of competition deter you if you are in the not-for-profit sector. The usual application of the product market focus concept is in looking downstream at choices of product line scope. In Encana further refined its focus by spinning out its oil business to make Encana a pure-play natural gas company. Although we often look downstream to customers in considering product market focus. Unlike many of its broadly based competitors.

They realized that having been at the forefront in the early stages of transplantation. By entering appropriate classification data into the cells of this matrix revenues. The important point here for your analytic process is to concentrate your product market definition on the markets—either upstream or downstream—in which the business is facing the keenest competition.

The example that follows illustrates the major steps in preparing such a matrix. This is where most businesses face competition and where. The classifications clearly involve a number of judgments. The retail segment represented sales through retailers to home owners. The commercial market consisted of sales for new or replacement carpeting to commercial real estate developers and their tenants.

Foam-backed carpet required special equipment and was suited to the lower-priced segments of the retail market. A wide style. The product line distinctions in Table 2. Additional information on product line contribution. In this matrix the product and market categories were chosen to represent aggregates that Olympia could do something about in a strategic sense—such as dropping a line. Multicolour carpet was produced from pre-dyed yarns and was particularly important for the commercial market.

This product type was particularly favoured by the residential contract market. The data chosen for the cells are indicative rather than complete. The market segment distinctions in the matrix were chosen to reflect differences in product requirements. It frequently involved custom design and specifications. The residential contract market comprised sales through builders to new-home buyers and required sharp pricing to match competition on large orders.

The carpets were sold throughout the northwest market area. Building a Product Market Matrix: An Example Olympia Mills produced a line of tufted carpets in its Spokane facilities. Why were the products not broken down into further quality and style classifications?

Why was the retail market Table 2. The share-ofmarket figures are based on the geographic market served. There are no issues of right or wrong in building a product market matrix.

It often requires a perception of exclusivity. Porter warns against being stuck in the middle between a low cost and differentiation value proposition.

Over a period of three decades the company moved from its Canadian base to England. The classifications can be further refined as emerging strategic questions and choices dictate. A low cost strategy endeavours to provide products and services at a lower cost than competitors.

A quite typical choice. Product Market Focus and Competitive Advantage A business may select a particular product market focus as a way of achieving competitive differentiation and advantage. You might ask a host of other reasonable questions. A differentiation strategy is broadly defined to include anything such as service.

He argues that the core activities required to support a low cost strategy are significantly different than those supporting a differentiation strategy. Michael Porter presents two generic value propositions. More commonly.

Kim and Mauborgne present the example of Dubai as a country employing a strategy that provides a package for investors that is low cost and differentiated. The warning is that it is difficult. Here you need to press further to define the particulars of the proposed relationships between business and customer that lie behind the expression.

They do not particularly care. This is only important to the customer if the low costs get translated into low relative prices or other benefits. We see these two approaches as an artificial distinction since industry structure is not a given. Describing Value Propositions The key to a useful expression of the value proposition of a business is to work with variables that are important to customers and to simplify them to basic themes.

It is also important to stick to simple. Customers are interested in what a product or service does for them. The critical question is whether the value proposition. A value proposition based on price. From a strategic standpoint. The aim therefore should be to express value propositions in terms of fundamental customer benefits such as price.

The precise tactics for conveying these benefits are important. Table It is not uncommon for organizations to exist within a network of stakeholders that may be fruitfully considered as customers for which there must be alignment in the underlying value proposition. The same concepts apply.

Functions such as logistics. Often there are sub-groups within the organization that need to define a strategy relative to the overall business strategy. Another example is a residential real estate business that targets top-rate agents as its supply-side customers and addresses the value proposition by which it intends to secure and hold those resources.

In designing strategy to service an internal customer. It is sometimes helpful to broaden the notion of customer to one of key stakeholder.

It usually makes sense to start with a very basic theme and incorporate greater detail as necessary as the analysis proceeds. These are important features to some customers and when they are offered in depth and variety in large stores they become difficult for competitors to match in their conventionally merchandised facilities. What real estate company does not promise the best in personal attention and advice? To create a competitive advantage in such circumstances.

What major parcel service does not promise fast. Consider the following examples. Take the example of Core Activities Although many companies fall into the trap of just listing all the benefits to customers.

The Value Proposition and Competitive Advantage The choice of a value proposition is perhaps the most obvious way in which a business attempts to differentiate itself from competition. What differentiates such companies is not their claim to fast service or personal attention. To the extent that a proposed value proposition is important to customers. Over a decade ago. Since the boundaries of the organization have become more blurred with partnerships and joint ventures that can often deliver products and services in a seamless fashion.

From this broad perspective. The focus and detail utilized in identifying and analyzing core activities should vary accordingly. It controls the value chain from that point on with its own in-house proprietary roasting capability and a logistics operation that ensures timely delivery of product to its stores.

It 30 Chapter 2 Strategy. The description of core activities relates to the notion of cross-enterprise leadership. Starbucks has not opted for a franchise model because it seeks to maintain control over its retail outlets.

In pursuing issues of vertical integration. Kmart decided first to outsource its transportation activities and later. Losses mounted as Kmart attempted to remain competitive. Describing Core Activities The challenge in describing the core activities component of a business strategy is in determining the degree of scope and detail that suits the issues being considered.

The scope of issues may vary from the very broad perspective of a business dealing with fundamental matters of vertical integration to the very specific process perspective of a firm considering the best way in which to weave together internal and outside activities in building a sales and service system. In the examples below. Starbucks has a close relationship with its many suppliers to ensure a steady supply of high quality coffee beans. This is where you stop. In setting up its regional jet aircraft business.

Bombardier chose to focus on design. In the broad and intermediate levels of generality. As you proceed to more detailed descriptions. These core activity choices by Bombardier represented a strategic trade-off of potential value added and control.

Further detail can then be pursued as specific situations warrant. The broad. For the most part. That is not to say that the operational issues are not important.

All of these elements support that value proposition of low price and unique products. At the process level. Take for example the Shouldice Hospital.

If you are trying to determine how best to proceed in pursuing a particular product market opportunity. At some point your elaboration of the activities goes beyond major commitments that are hard to reverse and the analysis becomes more operational than strategic.

A process level comparison with other hospitals on how it performs its pre-surgery. The aim at this intermediate level of analysis is to identify where the business has material and realistic opportunities to perform or not to perform a function and the consequences of the choices that it might make on these matters. Porter maps the activity system of IKEA to illustrate how it supports major strategic elements such as self-selection by customers including inventory management and store layout.

Wal-Mart built up a significant cost leadership over its less integrated and rigorously managed competitors and has maintained this advantage for decades. Its focus on manufacturing extends to the production of many of its shoes in five U. As we have mentioned.

This system ranges from suppliers. A proposal for a business to compete on price. Vertical integration forward. In the athletic footwear market. A smaller competitor. As a pioneer of this approach. Marketing is critical: The enhanced offering to deliver the same content on multiple platforms.

Core Activities and Competitive Advantage In most industries there are many potential differences in the core activity sets that a business might choose to perform.

It emphasizes the fit and performance of its shoes. This provides an equivalently wide range of possibilities for competitive positioning and competitive advantage. This differentiation works for the company.

In the broadcasting industry. The pursuit of advantageous costs may be the critical driver behind the choice and structuring of core activities. The pursuit of differentiation may also be a critical factor behind the choice and structuring of core activities. New Balance. To illustrate. An overview like this is intended to help you to simultaneously grasp several dimensions of a very remarkable business.

The higher volumes give suppliers motivation to reduce prices further and also contribute to achieving a dominant position in a given market. You can better appreciate the power of the company in the marketplace as you observe the consistency of the strategy components. At the same time it invests heavily in technology and its supply management system to keep inventories low. Wal-Mart has stringent criteria for suppliers before it admits them into its network.

Putting the Strategy Components Together By keeping costs down. At some point. All these activities contribute to reducing product costs. This total view of strategy is a critical step in building an accurate understanding of a business and in evaluating its future development. Costs are further kept down through lower labour costs. By Gaps and inconsistencies among the elements of a business strategy are problem markers. The first is whether the components complement and reinforce each other.

No doubt there is more. How big a problem they represent depends on broader circumstances. They suggest that just about every one of the This system tracks. In India. Collis and Rukstad provide the example of Edward Jones. The second line of inquiry is a central theme of this book.

It is easy to underestimate the contribution of the linkages between the components to a successful strategy. Wal-Mart had challenges integrating local supply management and distribution. Monopolies and regulated businesses. In the case of Wal-Mart they do.

Given a strategy description. There are two lines of inquiry to follow as you assemble the components of strategy into one picture. It is possible to take the components and summarize them into a statement of strategy.

We turn to this pursuit in subsequent chapters of the book. Scope is a close approximation to Product Market Focus. Collis and Rukstad suggest three components of strategy: These two perspectives are the most common view of strategy. It is important to acknowledge these different perspectives on strategy so that you can better understand the conversations and initiatives undertaken around strategy.

Even with concepts of strategy that are close approximations to what we have presented here. This perspective sometimes approximates a vision or set of values about how the firm competes. Advantage is a close approximation to value proposition. Aspects of each are necessary but not sufficient to provide an advantage and it is by examining the four strategy components and their inter-relationship that you can begin to understand how the strategy provides competitive advantage.

One of the factors differentiating types of models is the concept of strategy on which the model is based. Notice that in the foregoing sections when we described each of the strategy components we also described how they support competitive advantage.

We like to refer to these tactics as strategic initiatives that should be based on an understanding of the four components of strategy. We acknowledge this may be the case. Mintzberg presents five different types of strategy. Closely associated with the view of strategy as a plan. The four components of strategy we have identified clearly provide a sense of the strategic position.

Other Strategy Perspectives We believe a strategy statement is well served by first describing the components. The term strategy is often used quite loosely and. The subtle but important difference is that differentiation and advantage arise from all four components. It is not our intent to describe all ten schools.

The management preference component of the Diamond-E acknowledges the individual elements that arise from the cognitive. We provide a broad and comprehensive view of strategy.

On the content side. The third. It is important to note that the field of strategy and strategic analysis in many organizations is strongly influenced by three of the schools design school.

Mintzberg describes the three dominant schools as follows: The foregoing represents some broad differences in the use of the term strategy. The design school model. Six schools cognitive. Our perspective of strategy is in line with what Mintzberg et al. On the process side. As well. The schools fit well with the definition of strategy as either a plan or a position and are based on a rational perspective of strategy: We develop these ideas further in Chapters 9, 10, and It is also helpful to define what strategy is not.

As Porter points out, operational effectiveness is not strategy. Although the resulting operational improvements have often been dramatic, many companies have been frustrated by their inability to translate those gains into sustainable profitability.

And bit by bit, almost imperceptibly, management tools have taken the place of strategy. As managers push to improve on all fronts, they move farther away from viable competitive positions.

While necessary, operational excellence is insufficient, since a sound competitive strategy rests on unique activities. Rather, it is the unique configuration of goals, product market focus, value proposition, and core activities that provides a sustainable competitive advantage.

Given the many configurations of the four strategy components, we are inclined to suggest that there are many different options for creating different configurations. We agree with Porter that strategy dictates trade-offs. This same process remains essential as we look at the corporate strategy of multibusiness enterprises, because the strategy of the constituent businesses in a multibusiness firm is a fundamental building block for describing and understanding its corporate strategy.

We proceed here with some explanatory background on the distinction between corporate and business strategy and then we turn to the tangible tasks of identifying and evaluating corporate strategy. Traditional views of strategy have assumed fairly distinct boundaries between the firm and its industry, as well as between industries. As a result there has been a clear. Corporate strategy has traditionally looked at decisions about the management of businesses across industries.

Business-level strategy deals with creating competitive advantage within an industry, while functional or product strategies are the means of executing the business strategy as shown in Figure 2. The typical multibusiness corporation consists of a management hierarchy, which passes from a corporate entity to the business groups and thence to individual business units that the corporation encompasses.

In this hierarchy, the corporate office establishes a corporate strategy and from this a set of strategic guidelines for the groups. The groups, in turn, develop group strategies and set up guidelines for their individual units.

In general, as you move down this hierarchy from the corporate level to the unit level, the emphasis passes from broad positions to increasingly specific initiatives. Andrews, looking at the hierarchy from the bottom up, sets out the distinctions very clearly: As we ascend from a specific strategy to a corporate strategy, we pass from specific economic objectives to broader organization goals. More weight is given to such characteristics as unity, coherence, consistency, purpose, and concern for the future.

The corporate level of the multibusiness organization is an intermediary—it stands between the individual businesses and the capital markets. As such, it has to address three critical questions: Overall, what is it that the corporate office does that results in the businesses under its umbrella being worth more standing together than they would be standing independently, or held by another more effective corporate group?

From a shareholder perspective, what is the economic. Corporate strategy, in this perspective, is an explanation of the way in which the corporate entity intends to compete and to provide superior shareholder value relative to these alternatives. Describing Corporate Strategy You can develop a practical description of corporate strategy by focusing, as suggested by Collis and Montgomery,21 on three observable aspects of a multibusiness operation: The first step in the descriptive process is to identify the businesses that the corporation encompasses, which is not difficult, and the essential similarities and differences among these businesses, which is more of a challenge.

By comparing, in particular, the product market focuses and value propositions of the businesses, you can develop a good understanding of the ways and the degree to which the businesses are, or are not, related. Newell Rubbermaid encompasses a wide range of businesses from window blinds to office stationery to plastic household items.

While they look diverse in nature, the commonalities of the businesses are substantial; they are all prosaic, low technology, long lifecycle products and their target market is the mass merchandiser operators such as Wal-Mart. They share a common value proposition of exceptional service as defined by the merchandiser. Brascan Corporation, in contrast, encompasses such businesses as forest products, commercial real estate, and financial services.

There are no common elements across their business strategies; this is what is called a conglomerate enterprise. The second step in describing corporate strategy is to identify the resources financial, technical, personnel, etc. In Newell Rubbermaid, for example, the information technology requirements of all the businesses are handled at the corporate level and the corporate office is actively engaged in developing and transferring management personnel.

A common mode of managing the customer interface, a key corporate advantage, is reinforced through employee development and transfers across businesses. At Brascan the corporate office manages financial resources for the firm, but the office is very small and the businesses must stand, for the most part, on their own feet.

One can see pretty clearly from the above examples that the more related the businesses, the greater the potential role for the corporate office.

The third step of description is to identify the ways and the degree to which corporate management is engaged in the business-level decisions about strategy, operations, and performance. In Newell Rubbermaid, corporate management operates hand in glove with the businesses through frequent strategic and operating reviews and detailed performance assessment.

The pursuit of these three aspects of corporate activity provides a reasonably comprehensive picture of the role of the corporate level in the business. We can readily see the. These understandings set up the more critical pursuit of whether the corporate level makes a contribution to the businesses that is greater than its costs. By understanding these elements of corporate strategy, it is possible to identify the type of corporate strategy being employed. Corporate strategy can range from a situation where there may be a dominant business unit between 70 and 95 percent of revenue comes from a single business to unrelated diversification, often called conglomerates, where less than 70 percent of revenue comes from a dominant business and there are no common links between the businesses such as found in Brascan.

Corporate controls could be strategic and financial, or simply financial in cases where unrelated diversification precludes any standardized or in-depth comparison with respect to strategy.

Finally, rewards could be based on a combination of corporate and business unit performance or simply the business unit. Corporate Strategy and Competitive Advantage The purpose of corporate level management and thus, ultimately its justification is to add competitive advantage to its constituent business units.

If it does, then the businesses will be worth more under the corporate umbrella than operating separately; if it does not, then the opposite applies. Given our understanding of corporate strategy as described above, we can investigate this issue.

In a related business corporation, such as Newell Rubbermaid, there are numerous ways in which corporate management can add value by providing the businesses, for example, with the opportunity to achieve cost synergies through the sharing of corporate resources , revenue synergies through scale in pursuing market relationships , resilience through access to a management pool , and discipline through rigorous business reviews.

These potential advantages can be highlighted by pulling a specific business out of the corporate context and asking what additional challenges it would have to meet if it were standing alone. In Newell Rubbermaid, for example, the window blind business would face major costs if, on its own, it had to set up and support a vendor system to satisfy Wal-Mart, to say nothing of having to negotiate all alone in the marketplace.

The logic. In a conglomerate, such as Brascan, it is much harder to make a logical case for the corporate structure—so much so, in fact, that conglomerates routinely trade at a discount to the sum of estimated value of their individual holdings. While the conglomerate format is often defended as providing diversification, in efficient markets the individual investor can achieve the equivalent without paying for corporate management.

The question then is just what can corporate management do to add value? Given the differences in the businesses, the possibilities are limited. Given the range of businesses it would take truly remarkable managers to add substantively to strategy and operations.

In fact, however sincere their intentions, it is quite possible that corporate managers who become involved in businesses they cannot really know will have a negative impact on those businesses. So the justification for the conglomerate format usually falls back on: General Electric GE , has often been viewed as an outlier and exemplar in how the corporate office can create value. Corporate Strategy and Corporate General Management The central challenge to corporate general management is to create a coherent corporate strategy that adds value to its individual business units.

Campbell, Goold, and Alexander have noted how difficult it is for the corporate office to do this. The proof of the pudding as to whether a corporate strategy makes sense, and whether corporate management is doing a worthwhile job, is in performance. But performance in the case of multibusiness enterprises can be a tricky measure to pin down, because of the inherent complexity of the situation and the fact that the most relevant criterion—the potential performance of the businesses on a separate basis or with another parent—is Corporate Strategy.

While both companies have seen initial improvement in financial performance. We have suggested some general approaches to this task. In Motorola divested its semiconductor business and over the next few years its financial performance improved significantly with net income jumping fourfold between and Losses once again mounted during and after the recession..

Over the previous years. We are now ready to proceed with the next steps of strategic analysis. SUMMARY This chapter has concentrated on the task of identifying the strategy of a business in terms that are easy to communicate and open to logical tests.

An important counter in these circumstances of performance ambiguity is for corporate managers to be particularly careful that they define and work to a strategy.

We have defined strategy in terms of four related components: Many shareholders and analysts felt that the two separate companies would be more nimble and responsive to market needs. Each of these components represents a distinct facet of strategy and each needs to be individually described and understood. The spin-off was completed in January and on the first day of trading the stock price of both the companies closed higher.

Motorola Solutions. This gives corporate general managers considerable license. Motorola Mobility Holdings. Just the threat of a takeover bid can stimulate dramatic action as it did in the case of Novell Inc.

On the day of the announcement Motorola shares jumped 7. David J. Michael E. Five Ps for Strategy. Competitive Strategy: Techniques for Analyzing Industries and Competitors. James A. These terms are consistent. The Free Press. The Discipline of Market Leaders. AddisonWesley Publishing Company. A guided tour through the wilds of strategic management. Free Press, Mintzberg, Henry. The Rise and Fall of Strategic Planning. Porter, Michael E.

Andrews, Kenneth R. The Concept of Corporate Strategy. Homewood, Illinois: Richard D. Irwin, Inc. Collis, David J. Hitt, Michael, et al. Strategic Management: Competitiveness and Globalization — Concepts.

Nelson Education, Rowe, W. Glenn, et al. Goold, Michael, and Andrew Campbell. The Quest for Parenting Advantage. Donaldson, Gordon, and Jay W. Decision Making at the Top: The Shaping of Strategic Direction.

Basic Books Inc. Grant, Robert M. Contemporary Strategy Analysis. Blackwell Publishers, Hamel, Gary. Hamel, Gary, and C. Ohmae, Kenichi. Wrapp, Edward H. This chapter describes the basic steps involved in creating, revising, and evaluating strategies. We present a comprehensive model, which we call the Diamond-E framework, to help you identify and relate the broad forces that must be considered in building and testing strategies, and we suggest a sequence of steps for you to follow to put the model to work.

In later chapters we will elaborate on the variables in the Diamond-E framework and on our suggestions for incorporating them into the creative and analytic process.

It identifies the key variables that need to be considered in the analysis and it structures the critical relationships among them. Strategy is the critical linking variable in the model. Strategy tells you what opportunities the business is pursuing in the environment and, by inference, what resources, organizational capabilities, and management preferences are required for effective execution.

The double-headed arrows in the diagram indicate that any of the variables can either drive strategy in the sense, for example, that an environment change forces a strategy change, or that a new strategic initiative is launched to exploit a unique resource or constrain strategy as, for example, when resources are insufficient to support a contemplated strategic change.

Each variable in the Diamond-E relates directly or indirectly to each of the others. Within the business, for example, management preferences will directly influence strategic choices and organizational factors, and these in turn will influence resource development. The precise nature of the relationships will vary in different situations, but it is vitally important to appreciate the dynamic consequences of the linkages; changes in any one variable will likely affect all the other variables.

The idea is that high consistency among the component variables in the Diamond-E will lead to successful performance, while conflict or inconsistencies will. It follows that a viable strategy needs to be in alignment with the opportunities and challenges of the environment on the one hand, and with the internal capabilities, drives, and constraints of the business on the other hand.

To persist with a course of action in the face of serious inconsistencies is to court disaster. There are simply more and better bonds between the carbon atoms in diamonds.

Likewise, the Diamond-E can be either a shining example of cogence, or a brittle substance relegated to the interior of pencils. It all comes down to the strength of the linkages. Quite the contrary. In a dynamic environment with shifting customer preferences and competition the strategy needs to be nimble, as does the organization. Similarly, there could be dramatic changes in resources that may dictate strategic change.

The Diamond-E model and the criterion of consistency may seem disarmingly simple. The rub is that a strategy must satisfy both the external and internal circumstances simultaneously.

For example, a strategic initiative that addresses a major challenge or opportunity will be doomed to failure if it makes unrealistic demands on resources and organization.

Consider the situation facing A. His predecessor, Durk Jager, had resigned suddenly after a month tenure in which he had pressed the company into a near frenzy of new product and brand launches. Failures mounted, costs escalated, and morale tumbled. The first was on its core and largest brands that could provide access to the largest and strongest retailers and win in the most important markets. The second was to shift focus to beauty and personal care products.

Finally, it focused on extending the affordability of its products to low-income consumers in emerging markets. A strategy that is in alignment for some time will eventually fall into inconsistency, just as inevitably as environments change, if it, and all the other internal variables in the business, are not kept up to date. Something significant needed to be done to revitalize the company by bringing the linkages of the Diamond-E back into a productive balance.

In reality, total consistency and perfect alignment are elusive. The variables in play are too complex and too dynamic to expect this. The principle of alignment remains the driving concern in strategic analysis, however, and it becomes a matter of management judgment to decide which inconsistencies the firm can live with, which can be resolved or mitigated within the existing strategic approach, and which are so significant and difficult to address that major strategic changes are required.

Consistency, Opportunity, and Risk Since the principle of consistency is an ideal, virtually every strategy will be associated with some current and future inconsistencies.

A critical aspect of strategic analysis, therefore, is to identify these inconsistencies and to assess the degree of risk associated with them. The risks can then be weighed against the opportunity that the initiative offers. A broad classification of the risks arising from inconsistencies is given in Figure 3. With respect to competition. Zook points out that Apple exploited its capability in userfriendly design and imaginative marketing to build a business that accounts for 50 percent of its revenues and 40 percent of its profits3.

Be conscious of risks. Bear in mind that risk is unavoidable—do not trap yourself in a fruitless quest for a risk-free strategy. The demands of the strategy notch up as the environment evolves. Apple and its venture into music is a classic example. Opportunities may lie in untapped insights into customers. In the long run. In the short run. In summary. To address the viability of your strategy.

Zook suggests looking at the core capabilities and also the organization and its associated culture to determine any stress points arising from undesired attrition. Environmental risks arise from potential inconsistencies between strategy and environment. In many firms this takes the form of a slow. The underlying analysis required to write a strong business plan is the focus of this text.

How that analysis is communicated in the form of a business plan must be customized to the particular situation. Yet there are some standard elements that are typically required in any business plan, which we set out in detail in Chapter 9. But the realities of general management—which call, among other things, for judgments about the precise viability of ideas in a competitive market, the resolution of often conflicting interests, and the achievement of change in the face of inertia and resistance—demand a more flexible tool than planning and a more precise tool than vision to deal with ends and means.

This is what we attempt to capture in the idea of strategy, the topic of the next chapter. We suggest that your performance assessment focus on both operating performance and organizational health. Both need to be understood before you turn to strategy. In terms of direction setting, we have concentrated on vision, mission, and values. These things do not need to be formalized into a written document, but they do need to be agreed upon, and shared within the organization.

Without them, you will be creating strategy in a vacuum. The concepts utilized in the book have wide applicability to organizations generally— not just to for-profit business organizations. Kaplan, Robert S. Ittner, Christopher D. Schlender, B. IDC Aug 4, Collins, James C. Daniels, Cora. Ignatius, Adi. Additional Readings 1. Alexander, John W. Bartlett, Christopher, and Sumantra Ghoshal. Beyond Strategy to Purpose. Summary 15 3. A Sense of Mission. Hutchinson Books Limited, Built to Last: Successful Habits of Visionary Companies.

New York: Harper Business, De Geus, Arie. Fry, N. Langeler, Gerald H. Leavitt, Harold J. Corporate Pathfinders. Penguin Books, Schmincke, Donald R. A Perspective For Success. Simons, Robert. Levers of Control. Harvard Business School Press, Smith, Bryan. A Time To Take Stock. Stewart, Thomas A. Vision Statements That Make Sense. Thornberry, Neal. Wright, Norman B. As such, strategy is the definitive tool for building, communicating, and maintaining the direction of a business.

The intention of strategy is to take the basic ideas of a business, such as those reflected in the vision, mission, and values, and to express them in operational terms—in terms that are directly useful for analysis and action. Many organizations have no stated strategy. Even in cases where an organization has a stated strategy, the strategy needs to be closely examined.

Often, the stated strategy is really more like a vision given the high level of abstraction. Conversely, a stated strategy may actually be a set of tactics given the detailed set of actions. There are many views about what constitutes a strategy. We will begin by focusing on one model and conclude the chapter with other perspectives on strategy.

In this chapter we present a practical model for developing the concept of strategy. We suggest that a useful way for you to visualize business strategy is to think of it in terms of four related components: After a short elaboration of this model and a discussion of its utility we will explore these building block components in some depth, one by one and then together, first in the relatively simple context of a single business, and later in multibusiness applications.

Taken alone, each component in this model refers to a distinct aspect of a strategy. Your first step in trying to understand the strategy of a business, or to describe its strategic intentions, is to focus on these separate components and to address such questions as the following: What does the business propose to achieve? What are its aims, for example, with respect to growth, profitability and risk?

Product Market Focus: Value Proposition: How does the business intend to attract customers? Core Activities: What are the primary value-adding activities that the business intends to perform and how does it intend to perform them?

Remember as you pursue this process that every firm has a strategy; but you will often have to look beyond formal statements to the decision behaviour of management over time to figure out what that strategy is. As an understanding of each of the individual components starts to emerge, your second step is to bring these findings together, as reflected in the schematic presentation, and to study the overall picture for clarity and consistency. If you find a reasonably coherent picture, you have the necessary base point from which to probe the past success or failure of the business, or to analyze its future prospects.

However, if you are saddled with ambiguity you will have to start your work from scratch and deal with questions about why such a situation exists, what its consequences have been, and what needs to be done to resolve it.

In fact, the absence of strategy can cause considerable frustration. Take for example, some typical complaints identified by Collis and Rukstad: We lost it last year, and I thought we agreed then not to waste our time chasing the contract! A Hub for Analysis In a retrospective sense, the concept of strategy provides a base point for organizing and discussing your understanding of what a business is all about. The concept of strategy will help you to sort out what a business is doing and what it is doing differently than its competitors, and to communicate and discuss your views on these points.

This understanding supplies a needed basis for a further analysis of why a business has been a success or failure and what legacy of position and momentum is implicit in this success or failure.

In a prospective sense, the concept of strategy provides you with a starting point for analyzing and debating choices that affect the future direction of the business. What performance can you expect and at what level of risk? As you move forward, new strategic initiatives are likely to be more complex and subtle. Virtually any decision that is hard to reverse needs to be considered in relation to the intended direction of the business.

Many of these emerge spontaneously as people sense an opportunity or move to deal with a specific problem. A great advantage of the strategy framework is that it helps you to highlight the ramifications of such spontaneous initiatives and to keep your subsequent analysis and decision focused on essential matters. A Link to Action Strategy provides a vehicle for you to translate general ideas about direction and performance, for example, into more explicit, actionable terms.

Goals set up the targets against which progress and performance can be assessed. Product market focus provides critical direction to people throughout the business so that they can focus their effort on targeted markets and products and, just as importantly, avoid wasting their time on tangential opportunities.

Much the same can be said for the value proposition; this strategy component provides a beacon for employees everywhere, illuminating specifically what the business is trying to do for its customers and, by inference, the requirements of their particular role.

The choice of core activities highlights the key jobs that will have to be done and the capabilities that need most to be developed and reinforced. Decisions to alter any or all of the components set up the requirements for achieving change. Strategy also provides a touchstone for continuous improvement.

It puts your interpretation of vision, mission, and values into a testable framework that can be used to reinforce continuity where appropriate and to drive change where necessary.

In this way strategy can and will be changed, usually incrementally, to adapt to changing circumstances. As such, it provides general managers with an everyday tool to help keep their organizations on track and to put their effort where it really counts.

This business may be an independent entity or a strategic business unit SBU in a larger corporation. An SBU sells a distinct set of products or services to an identifiable group of customers and it is accountable Strategy in a Single Business 19 for distinct revenues, costs, and investments, directly or by reasonable allocation. Some organizations are distinct businesses with one overall business strategy. Others have several business strategies and these strategies fall under the broader umbrella of corporate strategy.

Whereas business strategy focuses on how an organization will create value within a particular line of business, corporate strategy deals with the portfolio of business strategies and how they relate to each other.

We discuss corporate strategy at the end of this chapter. In describing business strategy there is no required starting point. However, two of the four elements tend to be easier entry points into the strategy. If a vision or mission exists, it is quite possible that the goals will develop as a natural extension. Alternatively, the value proposition is often easier to articulate when you focus on how value is created in the eyes of the customer.

Regardless of where you start, it is often necessary to iterate through the various components to ensure they are aligned. Occasionally one of the four elements may act as an anchor point, but more typically, all are in some degree of flux and insight is required to determine how changes in one might affect the other.

GOALS Strategic goals are an expression, in measurable terms, of what a business intends to achieve—absolutely and relative to competition. In contrast to a vision, which may include very long-term goals, strategic goals are more immediate. It is helpful to distinguish between two broad categories of goals, which we call hard goals and soft goals.

Some examples of specific goals within these two categories are presented in Table 2. In this classification, the hard goals focus on the aims and performance of the business as a classic economic entity whether it be for profit or not for profit, revealing measurable targets and time frames. A business, for example, may intend to grow revenues at a rate of 10 percent, be first or second in sales in the market it serves, and earn a 15 percent return on shareholder equity by year five.

A hospital might focus on patient safety measures, while a food bank might target the growth in food donations year over year. The soft goals of a business set out targets for the social conduct of the business. They focus on the intentions of the business with respect to its managers, employees, and in the community at large.

Soft goals may be overlooked in strategic analyses that focus too narrowly on a faceless economic conception of a business; and unfortunately so, for soft goals can be compelling elements for shaping the direction of a business.

It would be difficult for you to develop strategy in a family firm, for example, if you did not understand the critical roles played by soft goals with respect to such matters as family status and employment.

Soft goals are also more difficult to state in measurable terms, which may be another reason why they are often overlooked. But measurability is essential in order to use goals to manage and influence the conduct of the business. There is very little point in espousing 20 Chapter 2 Strategy Table 2. Goal Structures Businesses typically pursue a variety of goals simultaneously, so it is useful to think in terms of a business goal structure. In general, a goal structure should represent, in scope and balance, the important aims of the business.

Strategy: Analysis and Action 8th Ed | Black Berry Limited | Strategic Management

When this applies, as we pointed out in Chapter 1, there is a natural and easy tie to performance measurement. More often than not, however, the construction of a coherent goal structure is a tough job that calls for some very serious decisions. Goals 21 Describing Goal Structures As goals proliferate, so too do the opportunities for conflict and confusion.

To avoid this, the several goals of a business must be placed in some order of priority or what we call a goal structure. Consider the challenge faced by our students as they address an assignment to describe the goal structure of the business in which they have worked.

It is reasonably easy for the students to assemble a list of goals from experience, from talking to colleagues, and from reviewing business documents. These goal lists often range across a broad spectrum of desirable ends, from high growth, to increasing profitability, to employee morale.

But simple lists are not enough because one can usually anticipate that the coincident pursuit of the various goals will result in conflicts, for example, between spending to build market share and current profitability.

The telling question at this point is what goal drives the resolution of the conflict: Determining goal priorities is a tough but critical job; tough because in many businesses goal priorities are not well spelled out and must often be derived from informal understandings and behaviour; critical because, without a sense of priorities, a simple list of goals can be meaningless, even misleading.

Imagine the consternation of some students when they discover a gap between the professed and real goals of the business unit! If the goal structure of a business is obscure, or inconsistent, people will be truly confused and the business cannot be said to have a coherent strategy. The essential nature of a goal structure can be caught, for example, in the use of the shorthand terms growth, harvest, and divest to describe different generic goal structures. A growth strategy implies a priority on market, plant and personnel investments to grow the business, if necessary at the expense of current profitability.

A harvest strategy implies a stingy approach to investment and spending as priority is given to milking cash and profits from a business. Divest means to give priority to those actions that prepare and initiate the sale of the business.

While such terms as these need to be developed with specifics in individual situations, they do capture the overall notion of a coherent set of priorities in the goals of a business. As you go about developing the goal structure of a business, you may have to resolve some difficult conflicts between the external forces on the business and its internal interests and capabilities.

External forces are represented, for example, by competitive challenges or shareholder demands. You are now well into the process of strategy formulation. Further, as circumstances change, so too, must the goal structure.

Consider a classic example of the need to adapt goal structures to a changing environment. From its start-up in to the stock market meltdown in , the brokerage firm Charles Schwab Corp. Then the bottom fell out of the market, and as it did it became clear that there were new competitive issues in the industry that had been disguised by rapid growth.

Schwab needed not only to downsize, but to change the way it did business. Management hesitated, understandably, but acted as the cumulative impact of the environmental changes took their toll.

By the end of Schwab had laid off over 6, employees and the company was working by way of internal transition and acquisition to become a broad-based financial services firm. It did so by changing its focus from capital market products to addressing the needs of the individual investor and set a new goal; to help everyone be financially fit.

They may choose, for example, to take greater risks, or to be more aggressive, or to be more patient than others in their industry. Think of your favourite radio station. What is its emphasis in programming rock, rap, country, easy listening, etc. Many of the strategic decisions that firms face are product or market choices. This can be depicted in the classic two by two matrix with market choice on one axis and product choice on the other.

Firms can choose to focus on existing products and markets through a penetration strategy. A penetration strategy suggests that there is market share to be gained by focusing on the current products and markets, or perhaps there is growth in the market that Product Market Focus 23 would provide for growth even if market share were to remain the same.

Alternatively, they can choose to develop new products for existing markets with a new product development strategy. Offering existing products to new markets using a market development strategy is typically the case when we consider geographic expansion of the strategy. Finally, firms may choose to diversify both products and markets. The usual application of the product market focus concept is in looking downstream at choices of product line scope, customer groups, geographic areas, and so on.

This is where most businesses face competition and where, as a consequence, the strategically most important distinctions need to be made. Do not let the notion of competition deter you if you are in the not-for-profit sector. Simply put, there are scarce resources in the organization and the environment, and the notion of competition is intended to capture the view that everyone must make choices about how they allocate scarce resources such as time and money.

For example, we observed hospital administrators and physicians grapple with the notion of their market share for various services and come to the realization that in the area of transplantation they should be focusing their attention on the more complicated multi-organ transplants rather than single organ. They realized that having been at the forefront in the early stages of transplantation, they continued to do surgeries that had become fairly routine, when their distinctiveness and expertise was in more complex areas.

Although we often look downstream to customers in considering product market focus, in resource industries, downstream markets are usually commodity markets and the critical competition occurs on the upstream side, where businesses must compete for access and continuity of supply for oil, timber, minerals, and like reserves.

Unlike many of its broadly based competitors, the oil and gas company Encana Corporation, for example, has built a strong position by focusing on deep natural gas plays in the Rocky Mountains, where its accumulated experience gives it an advantage. In Encana further refined its focus by spinning out its oil business to make Encana a pure-play natural gas company.

The important point here for your analytic process is to concentrate your product market definition on the markets—either upstream or downstream—in which the business is facing the keenest competition. Describing Product Market Focus If you are dealing with a business that encompasses multiple products and markets, you will find it helpful to visualize the product market focus using a cross-reference format, or matrix, that arranges product entries against market segments.

By entering appropriate classification data into the cells of this matrix revenues, assets employed, profits, etc. The example that follows illustrates the major steps in preparing such a matrix. An Example Olympia Mills produced a line of tufted carpets in its Spokane facilities.

The carpets were sold throughout the northwest market area.

In this matrix the product and market categories were chosen to represent aggregates that Olympia could do something about in a strategic sense—such as dropping a line, or changing segment emphasis. The product line distinctions in Table 2. This product type was particularly favoured by the residential contract market. Multicolour carpet was produced from pre-dyed yarns and was particularly important for the commercial market.

Foam-backed carpet required special equipment and was suited to the lower-priced segments of the retail market. The market segment distinctions in the matrix were chosen to reflect differences in product requirements, buying processes, and competition. The retail segment represented sales through retailers to home owners, largely for replacement.

A wide style, colour, and quality range was required together with fast, reliable delivery. The residential contract market comprised sales through builders to new-home buyers and required sharp pricing to match competition on large orders. The commercial market consisted of sales for new or replacement carpeting to commercial real estate developers and their tenants. It frequently involved custom design and specifications.

The data chosen for the cells are indicative rather than complete. The share-ofmarket figures are based on the geographic market served. Additional information on product line contribution, assets employed, total market potential, etc.

The classifications clearly involve a number of judgments. Why were the products not broken down into further quality and style classifications? Why was the retail market Table 2.

You might ask a host of other reasonable questions, for which the answer is essentially that the classifications are a matter of judgment based on an understanding of the purpose at hand. The classifications can be further refined as emerging strategic questions and choices dictate. There are no issues of right or wrong in building a product market matrix, only those of utility. Product Market Focus and Competitive Advantage A business may select a particular product market focus as a way of achieving competitive differentiation and advantage.

A quite typical choice, for example, is to concentrate on product market niches where competitors are relatively weak or simply uninterested. McCain, for example, used this approach to build its worldwide french-fried potato business. Over a period of three decades the company moved from its Canadian base to England, Australia, continental Europe, and so on, while taking advantage of weaker competitors and avoiding the strong and entrenched competitors in the U.

Then, in the mid s, the company, which was now well armed in scale and technology, was ready to make a serious commitment to the U. A low cost strategy endeavours to provide products and services at a lower cost than competitors, and therefore enables firms to compete on price. A differentiation strategy is broadly defined to include anything such as service, quality, or features that sets a product or service apart from competitors. Porter warns against being stuck in the middle between a low cost and differentiation value proposition.

He argues that the core activities required to support a low cost strategy are significantly different than those supporting a differentiation strategy.

It often requires a perception of exclusivity, which is incompatible with high market share. More commonly, however, achieving differentiation will imply a trade-off with 26 Chapter 2 Strategy cost position if the activities required in creating it are inherently costly, such as extensive research, product design, high quality materials, or intensive customer support.

Kim and Mauborgne present the example of Dubai as a country employing a strategy that provides a package for investors that is low cost and differentiated. We see these two approaches as an artificial distinction since industry structure is not a given, nor is there anything that prevents a firm from achieving low cost and differentiation if the other components of the strategy can support it.

The warning is that it is difficult, but not impossible to achieve the alignment. Describing Value Propositions The key to a useful expression of the value proposition of a business is to work with variables that are important to customers and to simplify them to basic themes.

Customers are interested in what a product or service does for them. This is only important to the customer if the low costs get translated into low relative prices or other benefits. The aim therefore should be to express value propositions in terms of fundamental customer benefits such as price, features, service, and execution.

It is also important to stick to simple, fundamental themes, which may be quite a task since there are a variety of ways in which a basic value proposition may be presented in a market, as illustrated in Table 2. A value proposition based on price, for example, might be delivered by any of a combination of dozens of direct price or indirect economic benefits. The precise tactics for conveying these benefits are important, of course, but only after the fundamental approach has been established.

Ultimately, the scope and detail required in expressing a value proposition rests on the utility of the result. The critical question is whether the value proposition, as described, is sufficiently developed to provide a meaningful sense of direction and to support subsequent tests for effectiveness, feasibility, and sustainability.

Here you need to press further to define the particulars of the proposed relationships between business and customer that lie behind the expression.

On the other hand, pushing for detail, particularly in the early steps of evaluating or building a strategy, might bog Value Proposition 27 Table 2. It usually makes sense to start with a very basic theme and incorporate greater detail as necessary as the analysis proceeds.

Thus, a junior oil company might define the private or governmental holders of mineral rights in a particular area as its customers and address the question of the value proposition it intends to put forward to secure those rights. Another example is a residential real estate business that targets top-rate agents as its supply-side customers and addresses the value proposition by which it intends to secure and hold those resources.

It is sometimes helpful to broaden the notion of customer to one of key stakeholder. For example, business schools typically need to consider the value proposition for students, recruiters, and alumni.

It is not uncommon for organizations to exist within a network of stakeholders that may be fruitfully considered as customers for which there must be alignment in the underlying value proposition. Often there are sub-groups within the organization that need to define a strategy relative to the overall business strategy. The same concepts apply, yet the value proposition relates to how the group will provide value to its internal customers. Functions such as logistics, human resource management, legal services, etc.

In designing strategy to service an internal customer, it is helpful to consider the value proposition you provide to the organization relative to the value proposition should it be outsourced.

To the extent that a proposed value proposition is important to customers, different from competitors, and hard for competitors to match, it will constitute a competitive advantage. Consider the following examples. These are important features to some customers and when they are offered in depth and variety in large stores they become difficult for competitors to match in their conventionally merchandised facilities.

Although many companies fall into the trap of just listing all the benefits to customers, the key is to understand those benefits that provide differentiation and are particularly resonant with the customer.

What major parcel service does not promise fast, reliable delivery? What real estate company does not promise the best in personal attention and advice? To create a competitive advantage in such circumstances, a business may put a more subtle value proposition to work—the fact that it will actually deliver on its promise, that it will be superior in execution.

What differentiates such companies is not their claim to fast service or personal attention, for example, but the credibility of their claims, and behind this the building of businesses that can actually execute the promises better than their competitors. Further, among the activities that it decides to perform, there will be some that are critical to the effective operation of the business; these are called core activities.

Take the example of Core Activities 29 Kmart. Over a decade ago, before it started its slide into bankruptcy, Kmart decided first to outsource its transportation activities and later, to outsource its information technology.

Here, WalMart, which saw itself as a logistics and merchandising business, was investing heavily in distribution and information technology. The description of core activities relates to the notion of cross-enterprise leadership.

Since the boundaries of the organization have become more blurred with partnerships and joint ventures that can often deliver products and services in a seamless fashion, the description of core activities need not be bounded by those that are delivered solely by your organization. Clearly, as in the case of Kmart, when a firm has outsourced an activity and has little control over it, the activity can no longer be considered core.

However, a critical activity over which the organization has some degree of control or influence may be considered a core activity.

Describing Core Activities The challenge in describing the core activities component of a business strategy is in determining the degree of scope and detail that suits the issues being considered.

The scope of issues may vary from the very broad perspective of a business dealing with fundamental matters of vertical integration to the very specific process perspective of a firm considering the best way in which to weave together internal and outside activities in building a sales and service system. The focus and detail utilized in identifying and analyzing core activities should vary accordingly.

In the examples below, we have illustrated this principle for what we might call broad, intermediate, and process levels of generality. In pursuing issues of vertical integration, for example, you will have to decide on what basic building blocks in the industry value chain you intend to perform and those you will access through a market. From this broad perspective, your core activities would be best described in terms of the building blocks that represent fundamental aspects of the industry such as raw material supply, manufacturing, distribution and so on.

For example, Starbucks has a close relationship with its many suppliers to ensure a steady supply of high quality coffee beans. It controls the value chain from that point on with its own in-house proprietary roasting capability and a logistics operation that ensures timely delivery of product to its stores. Starbucks has not opted for a franchise model because it seeks to maintain control over its retail outlets.

It 30 Chapter 2 Strategy has its own real estate group to ensure growth is achieved in the best locations. The broad, building block approach described above is usually sufficient for industry studies and basic corporate decisions on vertical integration. If you are trying to determine how best to proceed in pursuing a particular product market opportunity, however, the focus and detail of the core activity description will probably have to move to a functional base and deal with such categories as product and process research and development, component supply, assembly, marketing, distribution, sales and service, and so on.

The aim at this intermediate level of analysis is to identify where the business has material and realistic opportunities to perform or not to perform a function and the consequences of the choices that it might make on these matters. These core activity choices by Bombardier represented a strategic trade-off of potential value added and control, particularly in wing manufacturing technology, for greater financial and manufacturing capacity and possible market access.

In the broad and intermediate levels of generality, the emphasis is on describing the basic activities that a business has chosen to perform and less so on how it intends to link and perform them. At the process level, the focus turns to mapping activity systems in sufficient detail to support operations planning and coordination, systems development, and quite detailed comparisons with competitors. Here, of course, it is possible to elaborate the description into dozens and even hundreds of different, but still reasonably significant, activities.

Take for example the Shouldice Hospital, located just outside Toronto, that focuses on hernia surgeries. A process level comparison with other hospitals on how it performs its pre-surgery, surgery, and the multiple day post-surgery processes will help you understand how Shouldice has successfully competed with hospitals that have significantly more resources at their disposal.

As you proceed to more detailed descriptions, moreover, you will be faced with the question of how far to take the analysis. At some point your elaboration of the activities goes beyond major commitments that are hard to reverse and the analysis becomes more operational than strategic.

This is where you stop. That is not to say that the operational issues are not important, just different, and subject to prior decisions on strategic position. For the most part, for strategic analysis and action the intermediate levels of scope and detail will usually be sufficient and should certainly be the starting point. Further detail can then be pursued as specific situations warrant. Porter maps the activity system of IKEA to illustrate how it supports major strategic elements such as self-selection by customers including inventory management and store layout , limited customer service including in-store displays, knock-down packaging, and ease of transport , low manufacturing costs including design and long-term supplier relationships and modular furniture design including in-house design and knock-down packaging.

All of these elements support that value proposition of low price and unique products. This provides an equivalently wide range of possibilities for competitive positioning and competitive advantage. To illustrate, consider the choices with respect to vertical integration that are open to a business as it seeks advantages in market or supply control, cost, focus, and flexibility.

Vertical integration forward, for market control, or backward, for supply control, may provide a business with an advantage over its rivals. In the broadcasting industry, for example, Bell Canada Enterprises BCE , a provider of infrastructure for broadcasting media content and programming, among other services, recently acquired CTV, a producer of media content and programming. The pursuit of advantageous costs may be the critical driver behind the choice and structuring of core activities.

As a pioneer of this approach, Wal-Mart built up a significant cost leadership over its less integrated and rigorously managed competitors and has maintained this advantage for decades. The pursuit of differentiation may also be a critical factor behind the choice and structuring of core activities.

In the athletic footwear market, for example, the big brands like Nike, Reebok, and Adidas have built formidable capabilities in design, sourcing, and marketing, but they rely on overseas contract manufacturers for supply. Marketing is critical: A smaller competitor, New Balance, differentiates itself from the giants by stressing function over fashion, manufacturing over marketing.

It emphasizes the fit and performance of its shoes; there is less glitz. Its focus on manufacturing extends to the production of many of its shoes in five U. This differentiation works for the company; it is growing rapidly outpacing the industry and it fully intends to sustain its unique approach. At some point, however, you will have to pull all of the strategic components together to see if they present an internally consistent and comprehensive picture of the direction of the business.

This total view of strategy is a critical step in building an accurate understanding of a business and in evaluating its future development. An overview like this is intended to help you to simultaneously grasp several dimensions of a very remarkable business. For example, Wal-Mart has stringent criteria for suppliers before it admits them into its network, negotiates aggressively with them to keep prices low, and insists suppliers innovate continuously to lower prices.

At the same time it invests heavily in technology and its supply management system to keep inventories low, and links suppliers electronically to ensure that they have current information on product sales and inventories. All these activities contribute to reducing product costs.

Costs are further kept down through lower labour costs, a non-unionized work force, and a highly flexible work scheduling system. By keeping costs down, customers are offered lower prices, which in turn generate higher volumes. The higher volumes give suppliers motivation to reduce prices further and also contribute to achieving a dominant position in a given market. This system tracks, among other things, the increase in same-store sales to measure the performance of existing stores, and operating income growth versus net sales growth and inventory growth versus net sales growth to track improvements in efficiency, It is easy to underestimate the contribution of the linkages between the components to a successful strategy.

In India, Wal-Mart had challenges integrating local supply management and distribution. There are two lines of inquiry to follow as you assemble the components of strategy into one picture. The first is whether the components complement and reinforce each other.

In the case of Wal-Mart they do. Gaps and inconsistencies among the elements of a business strategy are problem markers. How big a problem they represent depends on broader circumstances, such as industry competitiveness. Monopolies and regulated businesses, for example, may get away for some time with serious internal logical flaws in their strategies.

The second line of inquiry is a central theme of this book. Given a strategy description, one that reflects the reality of your business, in nature, in clarity or ambiguity, in logical consistency or conflict, how does the strategy stand up as you test it against the other elements of the Diamond-E framework? We turn to this pursuit in subsequent chapters of the book. It is possible to take the components and summarize them into a statement of strategy, but this can be tricky and takes substantial work on each of the four elements to develop an overall statement that is coherent.

No doubt there is more, such as financial targets and core activities; however, such a statement could serve is a driving force in the organization. One of the factors differentiating types of models is the concept of strategy on which the model is based.

Mintzberg presents five different types of strategy, which he called the 5Ps for obvious reasons plan, position, ploy, perspective, pattern. The four components of strategy we have identified clearly provide a sense of the strategic position, but could also be construed as a plan. These two perspectives are the most common view of strategy. We like to refer to these tactics as strategic initiatives that should be based on an understanding of the four components of strategy.

Unfortunately, many organizations embark on strategic initiatives with no coherent sense of the underlying strategy. For example, it is not uncommon to hear declarations of strategic investments in employees, new technology, or perhaps an acquisition without any sense of how such investments relate to the overall business strategy.

This perspective sometimes approximates a vision or set of values about how the firm competes. As a result, the strategy is inferred from the actions taken. We acknowledge this may be the case, but suggest that it is possible to identify the components of strategy from the pattern of actions.

It is important to acknowledge these different perspectives on strategy so that you can better understand the conversations and initiatives undertaken around strategy. Even with concepts of strategy that are close approximations to what we have presented here, different terms are used, so it is important not to get stuck on the terms but instead focus on the intent.

For example, Collis and Rukstad suggest three components of strategy: Scope is a close approximation to Product Market Focus. Advantage is a close approximation to value proposition; however, it encompasses elements of core activities as well.

The subtle but important difference is that differentiation and advantage arise from all four components. Notice that in the foregoing sections when we described each of the strategy components we also described how they support competitive advantage.

We believe a strategy statement is well served by first describing the components. Aspects of each are necessary but not sufficient to provide an advantage and it is by examining the four strategy components and their inter-relationship that you can begin to understand how the strategy provides competitive advantage.

Other Strategy Perspectives 35 The foregoing represents some broad differences in the use of the term strategy. It is not our intent to describe all ten schools, but rather to introduce the notion that perspectives on strategy can be quite different. For example, three of the schools, the design, planning, and positioning schools, take a very rational orientation to strategy as creating a fit between the internal and external environment.

The schools fit well with the definition of strategy as either a plan or a position and are based on a rational perspective of strategy: Six schools cognitive, entrepreneurial, learning, political, cultural, environmental take more of a behavioural and process view to explain how strategy arises and is enacted. Our perspective of strategy is in line with what Mintzberg et al. However, we also draw on other perspectives of strategy to augment the traditional rational view of strategy.

The management preference component of the Diamond-E acknowledges the individual elements that arise from the cognitive, political, entrepreneurial and cultural perspectives. As well, we delve more deeply into the cognitive and learning schools in Chapter 9 as we transition from formulation to execution.

It is important to note that the field of strategy and strategic analysis in many organizations is strongly influenced by three of the schools design school, planning school, positioning school. Mintzberg describes the three dominant schools as follows: We provide a broad and comprehensive view of strategy. On the content side, we incorporate both the external and internal approaches, and on the process side we 36 Chapter 2 Strategy acknowledge the analytical building blocks of strategy, but recognize the dynamic nature of strategy, which includes emergent and chaotic components.

We develop these ideas further in Chapters 9, 10, and It is also helpful to define what strategy is not. As Porter points out, operational effectiveness is not strategy. Although the resulting operational improvements have often been dramatic, many companies have been frustrated by their inability to translate those gains into sustainable profitability.

And bit by bit, almost imperceptibly, management tools have taken the place of strategy.

As managers push to improve on all fronts, they move farther away from viable competitive positions. While necessary, operational excellence is insufficient, since a sound competitive strategy rests on unique activities. Rather, it is the unique configuration of goals, product market focus, value proposition, and core activities that provides a sustainable competitive advantage.

Given the many configurations of the four strategy components, we are inclined to suggest that there are many different options for creating different configurations. We agree with Porter that strategy dictates trade-offs. This same process remains essential as we look at the corporate strategy of multibusiness enterprises, because the strategy of the constituent businesses in a multibusiness firm is a fundamental building block for describing and understanding its corporate strategy.

We proceed here with some explanatory background on the distinction between corporate and business strategy and then we turn to the tangible tasks of identifying and evaluating corporate strategy. Traditional views of strategy have assumed fairly distinct boundaries between the firm and its industry, as well as between industries. Corporate strategy has traditionally looked at decisions about the management of businesses across industries.

Business-level strategy deals with creating competitive advantage within an industry, while functional or product strategies are the means of executing the business strategy as shown in Figure 2. The typical multibusiness corporation consists of a management hierarchy, which passes from a corporate entity to the business groups and thence to individual business units that the corporation encompasses. In this hierarchy, the corporate office establishes a corporate strategy and from this a set of strategic guidelines for the groups.

The groups, in turn, develop group strategies and set up guidelines for their individual units. In general, as you move down this hierarchy from the corporate level to the unit level, the emphasis passes from broad positions to increasingly specific initiatives.

Andrews, looking at the hierarchy from the bottom up, sets out the distinctions very clearly: As we ascend from a specific strategy to a corporate strategy, we pass from specific economic objectives to broader organization goals. More weight is given to such characteristics as unity, coherence, consistency, purpose, and concern for the future.

As such, it has to address three critical questions: Overall, what is it that the corporate office does that results in the businesses under its umbrella being worth more standing together than they would be standing independently, or held by another more effective corporate group? From a shareholder perspective, what is the economic 38 Chapter 2 Strategy justification of the multibusiness structure?

Corporate strategy, in this perspective, is an explanation of the way in which the corporate entity intends to compete and to provide superior shareholder value relative to these alternatives. Describing Corporate Strategy You can develop a practical description of corporate strategy by focusing, as suggested by Collis and Montgomery,21 on three observable aspects of a multibusiness operation: The first step in the descriptive process is to identify the businesses that the corporation encompasses, which is not difficult, and the essential similarities and differences among these businesses, which is more of a challenge.

By comparing, in particular, the product market focuses and value propositions of the businesses, you can develop a good understanding of the ways and the degree to which the businesses are, or are not, related. Newell Rubbermaid encompasses a wide range of businesses from window blinds to office stationery to plastic household items. While they look diverse in nature, the commonalities of the businesses are substantial; they are all prosaic, low technology, long lifecycle products and their target market is the mass merchandiser operators such as Wal-Mart.

They share a common value proposition of exceptional service as defined by the merchandiser. Brascan Corporation, in contrast, encompasses such businesses as forest products, commercial real estate, and financial services. There are no common elements across their business strategies; this is what is called a conglomerate enterprise. The second step in describing corporate strategy is to identify the resources financial, technical, personnel, etc.

In Newell Rubbermaid, for example, the information technology requirements of all the businesses are handled at the corporate level and the corporate office is actively engaged in developing and transferring management personnel.

A common mode of managing the customer interface, a key corporate advantage, is reinforced through employee development and transfers across businesses. At Brascan the corporate office manages financial resources for the firm, but the office is very small and the businesses must stand, for the most part, on their own feet. One can see pretty clearly from the above examples that the more related the businesses, the greater the potential role for the corporate office.

The third step of description is to identify the ways and the degree to which corporate management is engaged in the business-level decisions about strategy, operations, and performance.

In Newell Rubbermaid, corporate management operates hand in glove with the businesses through frequent strategic and operating reviews and detailed performance assessment. The pursuit of these three aspects of corporate activity provides a reasonably comprehensive picture of the role of the corporate level in the business.

We can readily see the Corporate Strategy 39 differences in corporate strategy at Newell Rubbermaid and Brascan. These understandings set up the more critical pursuit of whether the corporate level makes a contribution to the businesses that is greater than its costs. By understanding these elements of corporate strategy, it is possible to identify the type of corporate strategy being employed.

Corporate strategy can range from a situation where there may be a dominant business unit between 70 and 95 percent of revenue comes from a single business to unrelated diversification, often called conglomerates, where less than 70 percent of revenue comes from a dominant business and there are no common links between the businesses such as found in Brascan.

Corporate controls could be strategic and financial, or simply financial in cases where unrelated diversification precludes any standardized or in-depth comparison with respect to strategy. Finally, rewards could be based on a combination of corporate and business unit performance or simply the business unit.

If it does, then the businesses will be worth more under the corporate umbrella than operating separately; if it does not, then the opposite applies. Given our understanding of corporate strategy as described above, we can investigate this issue. In a related business corporation, such as Newell Rubbermaid, there are numerous ways in which corporate management can add value by providing the businesses, for example, with the opportunity to achieve cost synergies through the sharing of corporate resources , revenue synergies through scale in pursuing market relationships , resilience through access to a management pool , and discipline through rigorous business reviews.

These potential advantages can be highlighted by pulling a specific business out of the corporate context and asking what additional challenges it would have to meet if it were standing alone.

In Newell Rubbermaid, for example, the window blind business would face major costs if, on its own, it had to set up and support a vendor system to satisfy Wal-Mart, to say nothing of having to negotiate all alone in the marketplace. The logic 40 Chapter 2 Strategy is there; the remaining question is whether corporate management is doing a good job of execution, something that has to be pursued through a case-by-case study of the performance of the corporation and its businesses.

In a conglomerate, such as Brascan, it is much harder to make a logical case for the corporate structure—so much so, in fact, that conglomerates routinely trade at a discount to the sum of estimated value of their individual holdings. While the conglomerate format is often defended as providing diversification, in efficient markets the individual investor can achieve the equivalent without paying for corporate management. The question then is just what can corporate management do to add value?

Given the differences in the businesses, the possibilities are limited. Given the range of businesses it would take truly remarkable managers to add substantively to strategy and operations.

In fact, however sincere their intentions, it is quite possible that corporate managers who become involved in businesses they cannot really know will have a negative impact on those businesses. So the justification for the conglomerate format usually falls back on: General Electric GE , has often been viewed as an outlier and exemplar in how the corporate office can create value.

Campbell, Goold, and Alexander have noted how difficult it is for the corporate office to do this. The proof of the pudding as to whether a corporate strategy makes sense, and whether corporate management is doing a worthwhile job, is in performance.

But performance in the case of multibusiness enterprises can be a tricky measure to pin down, because of the inherent complexity of the situation and the fact that the most relevant criterion—the potential performance of the businesses on a separate basis or with another parent—is Corporate Strategy 41 inevitably a hypothetical estimate.

This gives corporate general managers considerable license, particularly in the short term, to fool themselves and their shareholders. An important counter in these circumstances of performance ambiguity is for corporate managers to be particularly careful that they define and work to a strategy, adjusting it as circumstances suggest, and for shareholders to insist on the same.

In Motorola divested its semiconductor business and over the next few years its financial performance improved significantly with net income jumping fourfold between and Losses once again mounted during and after the recession. Finally, in Motorola announced that it would split its remaining business into two separate companies: Many shareholders and analysts felt that the two separate companies would be more nimble and responsive to market needs.

On the day of the announcement Motorola shares jumped 7. The spin-off was completed in January and on the first day of trading the stock price of both the companies closed higher.

While both companies have seen initial improvement in financial performance, it will be interesting to see if they can sustain their growth as independent companies and deliver superior returns to shareholders. However, in the case where corporate management remains obstinate in the face of poor performance, the ultimate remedy is a takeover bid. Just the threat of a takeover bid can stimulate dramatic action as it did in the case of Novell Inc.

SUMMARY This chapter has concentrated on the task of identifying the strategy of a business in terms that are easy to communicate and open to logical tests. We have defined strategy in terms of four related components: Each of these components represents a distinct facet of strategy and each needs to be individually described and understood. We have suggested some general approaches to this task, all of which emphasize the ultimate utility of the interpretation for the strategic decisions at hand.

Finally, we have emphasized the need to draw the components together to see how they relate and co-determine the direction of the business.

We are now ready to proceed with the next steps of strategic analysis. Collis, David J. Morris, Betsy. Porter, Michael, Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press, , p. Porter, Michael. Competitive Strategy: Kim, W.

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