Making Strategy Work.docx

Making strategies Work Chapter 1 - Making Strategies Work MSW – establish clearly intended outcomes (effects) and plan actions (causes) that will bring them about. Strategic planning (content – what does it cover and does it hang together : process – did develop in logical way) deals with conceptual ideas: how organizations should interact within their environments in order to achieve their goals.   Strategy implementation (carry into effect or ideas into actions) deals with the translation of those conceptual ideas into concrete activities (converting into actions): fundamentally about manipulating the organizations interactions with its environment in order to achieve its objectives. MSW requires linking ideas with actions and necessitates ironing out the inevitable misfits between expectations and reality. The process of manipulating (directly or indirectly) the pattern of interactions that the organizations has wit its environment in order to achieve its objectives or mission.   Environmental pressures regulation; globalization and the era of management theory; new technologies (reduced barriers to entry) and new channels (enquiry; purchase; delivery); power of the consumer.   Need to effective implementation; investor pressures to increase profits; ceo tenure for now results (right things - execution, derisiveness, follow through and delivery on commitments.   The best strategy is a strategy that can be implemented!   Ceo make MSW harder by: over complicating strategic decision making; failing to make strategy clear to their staff and separating planning and execution.   Strategy (relates to future) determination of long term objectives and policies for achieving the objectives (allocation of resources, managing the interaction and direction with the environment and limitation of market and or product scope of business). Content – what are you trying to achieve; can that strategy get you their. Direction and scope of org.   Planned strategy interactions that the organization plans to have with its environment in order to achieve its mission.   Emergent strategy interactions that the organizations have been and are having with its environment.   Success attribution why did success happened or what caused a desired outcome. Analyzing and isolate the primary cause of past success. A company undertakes many activities and so therefore one activity on overall performance appears to be unquantifiable. Difficulties: the desired state is made very clear and it cannot be articulated; environments change very quickly and constantly; organizations are not simple in their construction and they therefore become difficult to manage (alignment of personal incentives with those of the company); effective feed back, need to measure the right variables, measure effectively, good communication and interpret the data accurately and then actually making decisions due to bounded rationality.   Aims of the course: clear headed thinking that is necessary to tackle management problems. Clear understanding of key concepts, and appreciation of what theory exists and simple tools to enable application to what is needed to implement strategy effectively.   Major theme is the challenge of creating organizational alignment. Multiple aspects of the organization are working together and towards achieving consistent outcomes. Strong alignment in the organizations creates a line of sight from the top to the bottom.   Management thinkers: consultants; magazines business schools etc.   To be useful management ideas must be: understandable; effective in producing desired outcomes and relevant and appropriate to specific outcomes.   Questions for theories: who developed them; what was their agenda; empirical observations (systemic, quality, and reliable); is product constrained by its context and can it be reasonable implemented, representative sampling.   Implications for managers: connecting the company’s interactions with the objectives is very difficult. Chapter 2 - Common Issues in Implementing Strategy   Importance of implementation 1945 to 1970: demand > than supply and no competition 1970 to 1990: copy Japanese production 1990 to current: deregulation pressure to reduce prices: educated workforces other countries have high educated standards at lower costs therefore a pressure to reduce costs; few uncontested markets, no free expansion opportunities; the internet increase in supply because of information; markets are unforgiving customers want low prices and available stock, no product they will go elsewhere; technology advances increases the pressure for continuous innovation; capacity greater than demand which causes pressure to reduce costs and therefore prices, companies look to fragmentation of value chain to reduce costs and they look to specialization. An important question is does the changes meet company objectives?   Management responses to challenges   Study other successful (and not successful) organizations; adopt new theories and tools; and seek innovation.   problems with learning from successful organizations: direction of cause and effect, identify characteristics of successful companies that are different form the not successful companies, success because of different character tics or do things differently because they are successful; luck or good judgment mostly because of luck, if they become successful they use dominate paradigm, which is therefore resistant to change, which reduces there competitive advantage; dominant paradigms are of past success BUT you compete in the future. Long term competitive advantage: study successful competitors > only play catch up use new management theories > each company has different /unique therefore need customization from standard theory. Bonuses do not create competitive advantage, you need innovation and creativity. Key issues (T – LC: theories – limitations; why choice the theories). (O – CBM SLT: organization – capability building; bias towards action; motivation; structure; leadership; team building; integration). (I – DCSCA: develop control systems; change sequence; setting right measures; changing attitudes; communicating objectives) Why new management theories and tools are risky: many companies do not recognize the limitations of the theories and tolls they are adopting (they have limited awareness of the risks involves)    Figure 2.1 classification of research                             Management fashions there are many reasons and failures for adopting new fashions (content of new fad or how new fad was chosen). Poor understanding of the organizational context (systems, processes and people issues) and how the new innovation was chosen. The new innovation requires resources but if you did not deal with the underlying problem less time would then be devoted to implementation and the workforce would perceive this as a reduced level of commitment.   Appropriate organizational structures The greater the number of managers with responsibility for success then the greater likelihood of failure. The same is true of accountability. Unclear responsibilities are also a recipe for failure. If you are making a change, know how that change impacts the solution. Managers underestimate the time to implement making the changes. How long should managers wait for success: the magnitude of the change; seriousness of the environmental changes. Need a system to track the developments.   Leadership from the whole team Leadership from ceo or leadership as a set characteristics required or desired and many different levels in the org. An example is people taking ownership for achieving results and being committed, that support the delivery of the organizations key strategic direction. Corporate and or business unit relationships: business units that do not seek corporate office for advice, some don’t because they perceive it to be a weakness, it slows down decision making, and it prevents learning. Should they make a decision for the business unit or corporately (this is related to principle agent problem). A hinge player (have hinge player align with business plan > line of sight) may act in accordance with either manager above or below them in different ways. The hinge player does not always achieve goals of their bosses because there was not a clear understanding of the objectives and or they interpret information from their own unique perspective. It is important to align the hinge players activities with the strategic activities as far as possible, this is termed line of sight of objectives to the individual. Empowerment is devolving accountability and decision making to the lowest level of the organization that is tractable, i.e. providing the workforce with the tools and authority needed to carry out their work and resolve any issues. Managerial blindness; senior management lack of relevant factual information (information and reporting) whether org is working or not.   Team working and integration how do you observe team working and leadership, have nits that are closely related from a strategic perspective or in the same strategic territory? There are synergies and an exploitation of synergies requires strong teamwork. Synergies have a competitive advantage because they are acting in an integrated unity. Three broad stages of team working: stage one - low level of integration and few exchanges of ideas, products, processes and technologies; stage two - systematic examination of common issues across the units can be observed and they start to use common languages for things which helps the flow of information and exchanges; stage three - common standards and practices are adopted across the units, they have centers of excellence and they motivate the workforce. They have corporate yellow pages (facilitate within org), which helps in problem solving in similar problem. There are regular data flows of information across the organization for new initiatives, projects and practices. In stage three there is no hesitation to call on any staff for assistance. In order to make team working, integration of the strategic territory effective it is necessary to communicate it across the organization.   Setting the right measures (E/E > leads to competitive advantage) efficiency, fewer resources for same output or same resources for more output. Need to consider the drivers of competitive advantage and how they are improved. Problems with corporate efficiency are corporate anorexia. The need to always cut costs so that profits can increase, cutting cost will only go so far. Innovation and creativity is important. The measurement of long term success is far more difficult than short term efficiency. Effectiveness is about doing the right things that leads to sustainable success. Where do you want to go then apply energy going in the right direction? The drive towards effectiveness is about attempting to create some form of competitive advantage over time.          Figure 2.3 classification of businesses    SICW         Survivors: seek to survive. Improvers: pursing financial objectives to the exclusion of all others. Competitors: being able to compete head on. World class: being the best in the world.   Setting the right measures They balance the short term (financial) and long term (competitive advantage) health of the organizations. Financial health is important but is shows the past results which do not indicate future needs. Balance scorecards: financial; internal business process; learning and growth and customers. Setting ambitious and realistic goals: setting the right measures requires ambitious and realist tic goals. BHAG are goals that are within the capability which places the people firmly concentrated on actions to achieve the goals at all times. If there is a large goal, break it up into smaller measurable pieces.   Communicating the objectives figure out how to close the gaps then communicate that across the organization, which usually requires recognizing the resources.   Figure 2.4 map of confidence levels Creating a continuous and prioritize capability building program shotgun approach -  pursue all changes at once, leads to demoralization with lack of commitment an cooperation: overcautious approach making small incremental changes in a few areas  and waiting to see results (ad hoc non systematic an uncoordinated manner). strategic approach - prioritize the changes and introduce changes systemically in order to focus achieving objectives) and channel organizations energies (process more efficient), by the end the company will have build an integrated set of capabilities that re difficult for competitors to copy.   Figure 2.5 capability building staircase Correct Sequence success is measured by - long term objectives have been clarified, resources will have worked towards desired point; studied current situation in detail and developed sequential action plans to close the gap. Continuous improvement increases efficiency.   Motivating resources to change managing and balancing dilemmas - must be aware and good at resolving them in ways that work for organizations. Typical dilemmas: consistency verses flexibility - consistency of direction allows efficiencies to be developed into routine actives. For a fast paced environment flexibility is critical. Differentiation verses low cost: differentiation is adding features for customers but customers also want low prices. Short term verses long term results - short term is financial in nature but long term repositions the organization for ongoing competitive advantage. Generally people that address the resources are more forward looking.   Bias towards action depends on how managers respond to the unexpected. If positive it will encourage communication and swift resolution. Bias involves risk taking and managers must be empowered to calculate the opportunities and associated risks facing their part of the decisions. Empowerment is critical for bias towards action. Two views on change: change the people or train the people. Companies that do not exhibit bias towards action tend to be unsuccessful with their change management with is essentials for implementing strategy successfully. In being successful companies are: connecting economic and organization al change; challenging norms and constantly looking for new ways of doing things.   Changing the correct attitude change sequence by cultural change – behavioral changing attitudes changes performance. Capture the hearts and souls will lead them in a new direction. Should reinforce the changes by rewards. Important in linking the rewards to the desired performance levels once it has been achieved. Rewards and accountability change - changing the incentives and accountabilities will gain the performance desired and ultimately attitudes will change. Change the organization structure in order to align it with the desired goals and provide incentives (inducements to change). This is more direct and a straightforward, less expensive and less time consuming than cultural change. Behavioral changes > cultural changes > performance increases   Developing appropriate control systems track progress towards organizations desired outcomes and instigate action when deviations occur. Use the carrot or stick approach. Chapter 3 - Making Strategies Work Process   MSW: drives from strategy through to day to day activities; at each stage of the msw process tests for implementability by testing the feasibility at each stage and establishing measures at each stage; msw is process oriented.   two key ideas causality - end goals and objective are established and activities that will cause the goals and objectives to be achieved are identified; and the chain of causes and effects linking the prime cause of the end outcomes is established. And criticality is about identifying the important or critical issues and the individual goals to be achieved.   Application of the process In order to achieve their goals and objectives effectively and efficiently organizations face the challenge of integrating the segments necessarily created by structure.   'strategy is the direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a changing environment and to fulfill stakeholder expectations'   top down planning does not work because the environment changes to quickly, while emergent planning is unsuccessful due to planning going in direction that usually does not meet with corporate goals or mission statement. the process approach deals with first order issues first and then second order issues next and so on.   Culture is a problem of dominate paradigms or the need to realign the systems and processes.   Facilitator can eliminate the dominate paradigm; encourage dialogue; challenge thinking; have a structured approach; ensure actions have timelines. How best to apply process   Senior management should be involved at each stage to be the sponsor, so that the process is taken seriously.  At each stage the necessary levels of knowledge and expertise are brought together.  Using only internal staff could associate activities with the dominate paradigm and expertise could be spread over several levels of hierarchy (this causes junior people mixing with senior people who are reluctant to express their opinions or disagreements).  A facilitator can overcome problems because they can manage group dynamic (storming, forming, norming and performing); will encourage team members to contribute views and opinions; challenge team thinking; ensure a structured approach is followed and ensure that actions, timelines and responsibilities are attached to each action item.  In large organizations people will be changing in the team, a good facilitator will help new people transition.  When the process involves more groups - a project manager is required  to co-ordination and transfer of information so that the project manager will control and manage the process.  Current management techniques: environmental scanning; value chain analysis; porters external forces; pest; swot and stakeholder analysis.  A shared vision is when an understanding of the organizations objectives at all levels of the organizations and the willingness to participate in pursuing these.  A constant reinforcement will cumulative shared vision. Workshops are where csf and ca (related to kpi and api) are developed and are ideal places for shared vision and where management takes ownership of the ideas and process.  It is there where they understand were the csf are underpinned by the ca.  Communicating regularly helps organization learning.  There are rewards for getting it right: extrinsic - money and intrinsic - praise status.  The benefits of the process are: capabilities for strategies thinking and implementation; development training; identification in gaps in management team; and enhancement of existing of managerial skills. MSW is effective in identifying and sustaining competitive advantage. overview of the process Mission: highest level objectives.  Environmental analysis: systemic identification of barriers to achieving the mission or enablers that assist in its achievement.  Strategy; how to harness the enablers to overcome the barriers in order to achieve the mission. CSF: the limited number of things that must go well in order for the strategy to work. Critical activities: the activities that must be carried out well in order to achieve the csf.  organizational design, process and systems: grouping of activities into an organizational structure to support the effective and efficient execution of the CA.   Mission (stated with a clear and unambiguous mission statement and then linked the strategy and the business day to day activities, greater clarity and less confusion would result): It describes the highest level objectives to be achieved. Common problems: (FRIILC) mission statements are a reference point; it can be explicit (articulated and written down) or implicit one that can be inferred by studying how the organization behaves through time (being implicit is hat it cannot be articulated); lengthy and confusing can be difficult to comprehend;  short mission statements lack clarity and allows some leeway in their interpretation;  some mission statements become institutionalized or their are the dominant paradigm;  some mission statements are written by a few people, so only a few people really understand them and the rest of the organization that was not involved demonstrate that they do not take ownership. Tackling the mission statement needs asking the right questions such as (PWS): purpose of the organization; where is the organization trying to go; what organization would you like to see at the end: what is the ultimate role of our function in the organization; if your department did not exist what important things would be missing or fail to be achieved in the future. structuring the mission it should be defined sufficiently well in words ensuring unambiguous and clear meaning and ease of reference when required. Defining the mission the intended meaning and shared rationale it is well worth defining the key terms in the mission (which is an important first step).   EA barriers are elements that make it difficult to achieve the mission and enablers are elements that could help to achieve the mission. EA analysis considers the current and also the future (the organization strategy will be played out in the future); were the level of uncertainty is high you can use scenarios planning; you can control the internal environmental but it is difficult to control the external environment; external, use environmental scanning (helps managers to be watchful of changes and their likely effects) to access the situation with respect to changes and trends for the whole organization (also use the - structural analysis - PEST, stakeholder analysis and SWOT) and the industry (external and internal factors that are important to the org are tracked on a regular basis are reffered to as KEI);  internal, use the value chain (IOOMS PHTA); identification of barriers (use structural analysis) use good questions such as what gets in the way, why has the org NOT achieved the mission, why can the mission not be achieved immediately; identification of enablers, what would help to achieve the mission, what are you or other department good at, how can you help achieve the mission or assit other achieve the mission; be specific about WHY the issues form the barriers or enablers; prioritize barriers or enablers, rate them according to their importance in achieving the mission and their perceived strength; KEI must track changes through time (this can be accomplish through brainstorming techniques); and a consultant will challenge the dominant paradigm.   Strategy "strategy is the direction and scope or an org over the long term which achieves advantage for the organization through its configuration of resources within a changing environment and to fulfill stakeholder expectations". Is the org response to the environment in order to achieve the mission, how the org purposes to overcome the barriers and make use of the enablers in the environment in order to realize its overall goal; a strategy statement ought to be conceptual; when the strategy is broken down you can develop timescales, budgets, structures, roles, performance indicators, org processes and systems for the strategy.   CSF " the limited number of areas in which results, if they are satisfactory, will ensure the competitive performance for the org. There are few key areas where things must go right for a business to flourish." The identification of CSFs is one of the MAJOR tasks of the strategy implementation approach, identification of CSF requires significant industry and business knowledge combined high intelligence and experience; there are tow types of csf - industry based and specific to org. the nature of csf csf depend on specific environmental factors to be overcome. Necessary and Sufficient rule: There are any potential success factors but only a few will be critical. the “necessary rule” states that something is a csf only if it is critical to achieving the strategy. The sufficiency rule states that the full set of csf required, but no more than that, must be identified for the strategy to succeed to the desired extent. If the full set of csf are not identified the pace of learning will be slower, and you will get bogged down in a dominant paradigm. Note: if things do not turn out i can ask which csf are not being achieved and then check the ca are then being executed correctly. That lets you initiate a response quickly to get things back on coarse quickly. Values of csf: intuitively understand and accept the concept; identity operational issues; provide a common language; provide a structured approach; planning discussion at the highest level and does not require significant commitment. Therefore csf are flexible. Identify csf: the use of workshops with a facilitator to brainstorm for ideas which can be prioritized and ranked. Useful questions: what things have to happen to achieve the strategy; do we have to do this and if we don’t do this can we still achieve the strategy. Characteristics of a good csf: csf should be action oriented (we must); should be meaningful and should be creative. KPI: is an indicator to track the achievement towards strategic objectives (KPI are developed for each csf). How to measure KPI: diagnostic measures, those that monitor whether the business remains in control and can signal when unusual events are occurring) and strategic measures (those that define a strategy designed for competitive excellence). Measures can also be developed through workshops by a facilitator.   "CSF are the areas of activity that should receive constant and careful attention from management. The current status of performance in each area should be continually measured and that information should be made available."   Critical Activities – necessary and sufficient rule applies apply to ca also. CSF are underpinned by a set of activities necessary to make them successful. CA provide a strong link between org activities on a day to day basis and the requirement to meet the strategic plan (CA are achieved through a facilitated lead workshop). The process is strengthened by the development of API for EACH CA. Then there is a direct link and api can be both financial and non financial measures. API associated with the CA can provide a line of sight from the board to the shop floor.  Identifying which CA service which CSF is a crucial step towards understanding how business as a whole or a sub unit operates and is VITAL in the strategy implementation process ... this is the difference between success and failure. CA will cross functional boundaries, due to ABC accounting and the performance drivers. CA from CSF are where the rubber meets the road.  Identify CA: devise measures of success for each activity; allocate responsibilities and accountabilities for each activity; timescales; milestones for tracking; have resource allocation and cost plan; establish a project plan and a reporting system.  API are measures that should be identified for all CA.   Organizational designs process and systems   Once the ca have been determined it is necessary to decide where these will be accomplished with the org. Then there is the need to allocate sufficient resources against beach of the activities to ensure they can be delivered.  Org structure: functional; divisional; geography, matrix > need to be grouped so that the org goals and objectives can be delivered in an efficient and effective way. They should be grouped to take advantage of EOS and by specialization.  RACIS responsible; approval; consulted; informed and supported by. Some rules: someone should be responsible for each activity (push the responsibility down the ladder) and there must be one party to ensure support for each activity (sponsor). Budgets: once all the CSF and CA have been identified and resources allocated > budgets can then be set. Rewards systems can have a major impact on the level of peoples motivation towards delivering the desired outcomes. Org must support delivery of ca’s. if imped > change: reward system is a powerful influence on change Chapter 4 Causality and Strategy Implementation The notion of cause and effect is highly useful for diagnosing existing situations and planning for the future. causality defines why alignment is a key concept for MSW, they can link operations to strategy. CE is good for both current situations and planning for future actions.   Notion of cause and effect MSW is a deterministic planning tool, derived around cause and effect. CE is embedded in our everyday learning, learning conditioning. Learning human errors: missing information or leap to conclusions (fail to recognize when we are short of information. construction or assume facts(filling in information that doesn’t exist); assuming causality from association of variables (assume because a second event closely follows a first that the first event caused the second one - association between events not causation - co-variables - bidirectional causality, a simple example of a system - REMEMBER never to assume causality from association); ignoring time lag, there could be significant time lag bt cause and effect. Bounded rationality, human can never account for all relevant factors into making a decision. Problems with BR; blurred objectives; outcomes in distant future; indirect causality and interdependence. IMPORTANT to acknowledge BR and cut through information to reach decision. Therefore you need to break problems into manageable chunks, which the MSW relies heavily upon.   Application of MSW MSW is an integrated process series of CE hypotheses. Good CE chains are look obvious and their purpose is to make very clear why an org should invest time and money undertaking activity. The CE chain should be reviewed in one direction then another. Alignment is causally related, is also essential in order to ensure that the resources are allocated optimally in order to achieve objectives.  MSW process crates alignment bt objectives and the activities undertaken by org and the org that has a superior alignment will outperform others or have CA. Structured thinking about cause and effect: avoid closed thinking (selection of specific options before or without consideration alternatives; avoiding leaps of logic ( which is to skip through many casual links in one step) - not skipping allows for greater precision, planning, assessment and review, and leaps could mean alternatives are ignored; confusion bt critical paths and causal chains (critical paths put activities into correct sequence but causality is event, in essence the critical activities would not contribute to achievement of objectives; avoiding wooley casual chains ( need to be clear and have unambiguous language. Also need to be linked so that causality bt them is clear). useful questions about causal chain: what do variables used really mean; casual links bt the variables and can each be measured (if you can measure then they are NOT unambiguous also if the language is clear then also less ambiguous). The more precise relationships it is easier to test CE.   The value of strategies hierarchies: represents how the key activities undertaken by org achieve the objectives and also the direction in which major change efforts are moving the org in the intended direction.   Working with causal chains   deterministic strategy (is a MSW process) or top down process that seeks to determine the future of the org through deliberate modification of its activities to reach future state. Emergent strategy is a bottom up process bc of bounded rationality issues. Emergent strategy is needed bc unexpected edict; unanticipated problems and an issue arising from diagnosis work. In each case it is important to tie the resulting work back to the objectives.   benefits of casual chains: identification of possible methods to achieve objectives by breaking down into small pieces; provide frameworks to make assumptions about CE explicit (due to ore effective discussions and sophisticated comparison); you can have a ready assessment and logical testing of intended objectives achievement; articulate intended strategy very clearly (through communication of strategy and creating a clear line of sight); help orient projects towards a positive impact; identify risks; identify measures of successes through leading an lagging indicators; enables for cost benefit analysis (to determine if project is worth undertaking; prioritize projects and which ones are most critical to objectives.   risk identification: identify; assess their probability and impact; and determine how to avoid or manage. The two types of risk; implementation risks (threat on TCQ) and post implementation (threat to the positive outcome). Examining each link in the causal chain makes it easier to identify and show impacts on the success of project.   causal chains: measure leading indicators. Are valuable for identifying relevant variables in a change program and then determining how these are to be tracked. Difficult to determine what to measure and how to do it. Using both leading and lagging indicators enables for easier identification of why problem occurs.   Feedback or system thinking CE are not always linear and can be looped thus creating a feedback (or reinforcing) system. Feedback systems are usually missing bc they do not become clear until problems occur and they occur bc of the excellent systems in place to track the measurements. Chapter 5 – Competitive Advantage and Strategy Implementation CA is created through the interlinked process of strategy development and implementation. Orgs that implement strategy more effectively than their competitors in order to undertake unique activities can create sustainable CA. CA is the ability to out perform org operating in the same industry. Three essentials of CA: industry choice; strategic positioning and fit of value creating activities. Industry Choice Industry definition: can be products and also functions; international and domestic pressures; existing and future pressures and pressures from important stakeholders. Profitability: industry choice affects profitability (banks vs telecommunications). Structural analysis: attractiveness can be determined through structural analysis: new entrants; substitutes; suppliers; buyers and rivalry. Strategic Positioning – interaction with customers SP are ways in which firms interact with customers in a marketplace: variety based; needs based and access based. Variety based: perceived differentiation of product vs perceived differentiation on price. Objective assessment of products: identify the determinants; allocate a weighting and rate competing products. When choosing determinants it is important to use factors that are important to prospective customers. Next use determinants for price (also use determinates that are important to customers. Needs based positioning: offering to a specific group of customers who needs are matched well by your offering. Access based positioning: access by geography; access by internet and access by direct selling. Generic strategies (one characteristics of clever strategies is that they are heavily interdependent , most casual hierarchies have several cause and several outcomes): cost leadership (low price and low value); differentiation (high price and high value); focus (cost leadership or differentiation but aims at narrow market segment and stuck in the middle (no real strategy). Cost leadership: sell for less than competitors; need low price and high volume to gain market share; need economies of scale (batch to continuous production. Increase market share; increase market share (steal from others) or increase market share (Mobile phones use pay a you go rather than expensive three year contract). Products are standardized or no customization. Differentiation: higher price for higher value (quality, functionality, variety or customization). The challenge is to maintain the differentiation perceived gap bt their and others products. Generate profits through premium pricing. Companies need to know “what is their perceived value”, which will lead to how to create perceived value. Focus is to avoid direct confrontation with competition. Need to target specific customers: either over served by broad products or under served by broad products. Stuck in the middle: no distinct strategy but average perceived products and average perceived differentiation. SITM confuse customers bc there products are like lots of others (who may be cheaper dell vs apple). Fit of value creating activities Resource based view of strategy encourages deeper consideration of internal strengths, in particular strengths that are unique to the industry. Needed is flexibility and responsiveness. Distinctive resources or capabilities can be used to outplay the competitors through unique positioning (flexibility enough to exploit opportunities (but companies need the resources to execute the strategies or strategies that they can execute). Distinguish bt operational effectiveness and strategy: the need to link generic strategies to resources configurations by looking at the way the activities do or don’t fit. Operational effectiveness is: greater productivity, quality, efficiency and speed. Problems with operational effectiveness: can be copied by competitors; companies are more homogeneous therefore more alike each other and less room for CA; have already focused on operational effectiveness and are now cutting to the bone; short term thinking vs long term thinking. You can think of operational efficiency by running the same race faster. Strategy is choosing to perform the same activities in na different manner. You need to find activities that are difficult to replicate or choosing to run a different race. Strategic positioning depends on internally managed activities. Need to perform activities differently or different activities from competitors. Making trade offs is important for a good strategy to be better. Trade offs arise for: avoid unacceptable or confusing inconsistencies in their identities; activities that don’t fit together effectively; and excessively complex or varied activities. The value of clear trade offs: ensures maximum extraction value; makes it difficult to copy by competitors; and makes it far easier to ensure effective speedy and efficient implementation. If competitors want to replicate it would be difficult bc they need to reconfigure their own activities and or match prices with competitor (which is not wise bc they are not lower in costs and therefore would have lower profits). Another reaction is to have alliances and partnerships. Fit: an array of interlocking activities. First order; simple consistency. Second order: activities are reinforcing. And third order: activities re reinforcing and effort is optimized. Strategy Implementation Effective implementation of any of the three strategies (cost, differentiation and focus) usual requires total commitment and support from the org. Companies need to choose an implementing strategy and then develop a superior strategy implementation ability. Choosing a implementable strategy: is a long term objective for a company is sustainable profitability and therefore revenue growth. They have four options: market penetration ( sell more to existing markets) if it is yet to become a saturated market then seek to increase market penetration – need alignment and fit of activities; market development (enter new markets with existing products) this does have risk through PEST but porters 5 can be used to identify differences, company can maintain system configuration in this strategy vs product development; product development (new products into existing markets) involves new activities where knowledge and expertise are likely to be limited, significant product development usually does not draw on operational alignment and fit and uniqueness to maintain CA; and diversification (new markets for new products) involves changes in activity sets of a firm A few simple rules for strategy implementation: keep strategy simple, focused, and orientated towards securing sustainable CA; and ensure your org can implementation new strategy! Developing a ability has a greater success if: more effective; at lower cost; more quickly and with fewer negative or unintended effects. Focus on the most important elements to change and move an org from its current position to a future desired state. 1- Introduction Introduction Difference between planning (deciding) and implementing (translation) The Strategy Implementation Age 1/3 Often vague and academic exercise Markets were highly imperfect in the past Environmental pressures Regulation (CCT and misuse of dominant market power) Globalization and era of management theory Businesses share info unintentionally. Growth of management theory New technology and new channels Power or the customer; more aware and more discerning Need for effective implementation Investor pressure CEO Tenure and strategy implementation Execution is problem, not the planning Aversion against implementation Seen as tactical exercise for middle management Strategy decision making often made over complex Not making strategy implementation clear to staff Separating planning an execution; not involving the right people Nature and history of implementation The origins of strategic management. Mintzberg: emergent strategy Porter: competitive advantage Quinn: Logical incementalism Defining strategy Mission = what , strategy = how Distinction with strategic planning Planned: the pattern of interactions that an organization plans to have with it’s environment in order to achieve its mission Emergent strategy: the pattern of interactions that a firms has been and is having with its environment Defining strategy implementation The process of manipulating (directly or indirectly) the pattern of interactions that an organization has with its environment, in order to achieve its mission Porter says that strategy is the solution to the agency problem where senior management does not have the time to participate/monitor all individual actions that make up the firm’s ongoing activities Strategy implementation theory Originally Choose organizational form Allocate resources Does not say anything on actual implementation; relatively unaddressed issue Problems with success attribution The challenge of activity: individual actions have unquantifiable impact Implications for managers when making success attribution in pursuing objectives: Desired future must be clear and articulable to enable planning. Changing business environments: cause improper success allocation Principal Agent problem demands that incentives are aligned with corporate objectives Effective attribution requires effective feedback! Bounded rationality causes incorrect success attribution Common Issues in Implementing Strategy Why Effective and Efficient Implementation Is More Important Today Often strategy implementation has failed. History showed: Phase I (1945-1970) life in the west was easy Goods oriented Heavily regulated Capital shortage Phase II (1970-1990) the others are catching up Goods? services transformation More capital Less regulation Far east appearance Phase III (1990-and ongoing) There is a war Deregulation Educated workforces globally – pressure to reduce prices Few uncontested marked places- no free expansion The internet – Pressures on price Markets are forgiving – Pressure to increase service level and quality Low fault tolerance] Right first time Plug and play Technological advances short lived Capacity greater than demand ? Pressure to reduce prices Fat is almost out of the organizations. Call for creativity and innovators Some Management Responses to the Challenges 2/7 Learning from successful organizations Problems: Determination of cause and effect relation Success b/c different or different b/c success Luck or good judgment? Business model drivers depend on rate of environmental change Highly influenced by dominant paradigm Dominant paradigms and the future Dominant paradigm resistant to change Treat winning formulas with caution Learning from other organizations and MSW Look for strategies and tools. Learn about the context How are new management theories developed? Issue surrounding implementation The Key Issues 2/10 80% of new management theories fail. So why choose for new management fashion? Why management fashions are so risky Draw graph Subject sample size (single/small, Large) and Research mode (Exploratory/Hypothesis testing) Stage A: First research (exploratory testing) is often promising BUT does not give full picture. People are ‘forced’ to use theory because waiting will prove to be costly. Depends on the perceived risk Stage B: more is known about context Management fashions Never use blindly ? ALWAYS know the context Often tools are abandoned some while after introduction and adoption Hard to attribute success to a management fashion. Often attention to management fashion by managers deteriorates over time when sr. management is becoming less and less involved Appropriate organizational structures Change tools or change structures? Changing structure The greater the number of managers, the less change for success Responsibilities must be clear Managerial blindness You need a measurement system ? must be part of a process model Leadership from the whole team CEO leadership is important (although diminishing last decade) Second type of leadership: people should take ownership Corporate business unit relationship SBU managers will hide problems as long as possible Slows down response times in case of serious errors Prevents learning as communication on problems is restricted Silo mentality Reward system often does not incentivise going outside of functional area SBS performance vs. company performance Hinge player activity Doesn’t understand or doesn’t obey Behavior occurs by accident (bounded rationality) or by design (pa problem) Needs to be aligned or checked By creating line of sight with corporate strategy Empowerment Accountability and decision making at lower levels. Must receive right information Must receive true genuine signals Team working and integration of the strategic territory Units must share the same strategic territory Stage 1 ? Low team working, exchanges few on case by case basis State 2 ? Increased team working, systematic examination of issues. Common nomenclature, standardization State 3 ? total standardization, local customizations, centers of excellence (yellow pages approach), total co-operability. Setting the right measures Efficiency Can be related to the dominant paradigm (e.g. corporate anorexia or obesity) Effectiveness Doing the right things. Things that create competitive advantage. Efficiency Improvement/ CA Improvement graph Survivors Improvers Competitors World class Setting the right measures Balance ST and LT Non financial measures are more important Balanced scorecard links strategy to actions Setting Ambitious and realistic goals Set goals high, but not too high ? Improves performance (BHAG) Communicating the objectives Research shows that this is not always done right ? impressions b/w managers differ Create continuous and prioritized Capacity building programmes * Shotgun approach * Overcautious approach * Strategist’s approach ?Capacity building staircase The correct sequence This is where upper management brings it’s value! Continuous improvement How to get the workforce to focus on new priorities Motivating people to change Convincing Bribing Penalizing Approach: Managing and balancing dilemmas Common dilemmas Consistency vs. flexibility Differentiation vs. low cost Short term vs. Long term Bias towards Action Managers need to be consistent. Non-consistency will be punished by the non-willing-to-change. When sr. management is biased for action, people lookout for unexpected Micro management demotivates line management and staff. Therefore, sr. management has illusion of control. Organizations biased for actions are better in teaching old dogs new tricks. They do this by Connecting economic and organizational change Challenging norms Constantly looking for new ways to do things Choosing the correct Attitude change sequence By cultural change. By Cultural Change Programme: Cultural ? Attitude ? Performance ? Reward Lengthy and costly Temporary: you need reward system as backup Rewards and accountability led change By measurement Can lead to rigidity when doing new things <10% bonus: little motivating >15% too much focus personal gain Many managers prefer reward over cultural Reward system might look cheap but introduce politicking. Developing appropriate control systems Strategize? act ? control ? adjust Control system to justify performance (carrot) Penalize (stick) 90% of times, “cultural” problems trace back to company’s systems/processed. Change the system from within (by creating procedures) Control systems are wider than just monitoring. The success of the implementation is in it’s control system!!! Are the Issues Too Overpowering? Summary of the challenges The making strategies work process Clear Mission Thorough review of the internal and external environments; identify blockers and enablers. Strategy (elements that must go well) Critical Success Factors (activities that must go well ) Responsibilities and accountabilities for delivery of critical activities Organization structures, systems and processes The Making Strategies Work Process Introduction Background to the Process 3/3 Development of the process Genesis for MSW lies in Research at LBS 1990s. Lack of clarity in strategy implementation leads to confusion between Operational efficiency Operational effectiveness Typical symptoms include, Unclear mission Inadequate environmental scanning Poor strategy formulation No agreed Critical Success Factors No Critical Activities for prioritization organizational structures, systems and processed developed from a functional perspective. Addressing the challenges Harnessing knowledge and expertise It already exists w/i company Whether you are able to apply it depends on how retrieval is organized it being able to be analyzed integrally being applicable only in specific circumstances making clear decisions ability to apply resources where appropriate Good management consultants can help facilitating this process b/c of company’s involvement in day to day operations Building on established theory MSW drives from strategy to day to day operations At each stage it tests for implement ability by testing against internal and external environment providing measures at each stage MSW is process oriented and not content oriented (so no checklists and wider applicability) Two critical ideas causality and criticality Causality: End goals and objectives are established Identified activities that will cause the goals to be achieved A chain of cause and effect linkages is established Criticality Identifying only the critical parts Avoiding too much detail or trivia Avoiding common pitfalls Not a deterministic approach YOU have to think Application of the process Unit of analysis Can be applied to organizations, divisions, functions, departments, teams and individuals Working together Strategy must be developed overall and within structure elements. Solo mentality can not exist. You start from where you are Lot is published about strategy forming. A lot is result of ‘publish or perish’ disease. Johnson and Scholes: Strategy is the direction and scope of an organization over the long term, which achieves an advantage for the organization through the configuration of resources within a changing environment and to fulfill stakeholder expectations. Types of planning Top down planning strategy (deterministic of explicit planning) Emergent strategy Will lead to: Undesirable scope change Different and contradictory Waste and duplication Overlap in markets and customers Inability to make trade-off decisions How to best apply the process Who should be involved in each stage? Sr. Management should participate at the right time in the right way (demonstrate commitment) Management support is vital because it is as new way of thinking with different perceptions and emotions Knowledge and expertise The necessary levels must be present Internal (dominant paradigm) External (At several time points) Role of the facilitator Guide positively Encourage to contribute ? take contribution seriously Challenge the paradigm Structured approach Results are plans, responsibilities and timelines Passing the baton to other people CSF of one level is other level’s mission statement Continues until organization has enough control This again depends on the risk attitude The trick: Each level checks the validity of the preceding level Project Manager When cascading downwards, project manager must supply necessary info on previous steps. How quickly can the process be implemented? done badly very quick Intuition is expertise in disguise? this is new area, expertise not present, intuition is misleading. If decision making takes place in personal comfort zone, can be done quicker Building comfort zone takes time Success of timely execution lies in Number of times meetings take place Effectiveness of the meeting Should team meetings take place on site of off site? Do not disturb factor is important Off site is therefore preferred Level of commitment required Strong commitment is needed if budget and project approvals will be the result The process, more potential benefits and Making Use of it MSW is for creating roadmap for strategic change Can also be used for creating/ changing strategy as MSW indicates downstream problems Synthesizing Current Management Techniques A number of traditional stand alone techniques provides much more power if combined: Porter’s five forces Rockart’s CSF (ID CA) Value Chain Analysis PEST Performance indicators based on human factors not financial ones Hidden forces Often called ‘culture’ (dominant paradigm) Reason for failure Can not be fixed by cultural change programme. Should be fixed buy fixing key drivers in organizational systems/processes Motivating Top Management to Meet Multiple Time Goals Pay management based on CSF Shared Vision Main objective: Shareholder value All levels of management should know objectives willing to cooperate Arises by accumulation, by consistent communication over time Grow during workshops for CSF(KPI), CA(API) where all learn about different perspectives Based on organizational learning ? needed for implementation Putting the manage into management Should take ownership Is not an administrative job Should not consider strategic planning as academic exercise Rewards for strategic performance Strongest factor in determining individual behavior Further enhanced by Superior rationalism Communication of strategic formulation Types Intrinsic (salary/bonus) Extrinsic (praise, status) Enhancing management Development en competencies At all levels ID managers with strategic thinking ability ID of certain management training needs ID of gaps in management team Enhancement of existing skills Sustaining competitive advantage The competitive strength lies in cohesion and understanding of top management. This is very hard to copy Requires considerable time, effort and consistency Validating and reviewing the MSW process Language Often confusing different words meaning the same. ”best practice” is used when there is a lack of guidance Overview of the process The Key Components Core MSW Process Mission Environmental Analysis Strategy Critical Success Factors Critical Activities (CAs) Organizational designs, processes and systems Measurements Key Environmental Indicators (KEIs) Key Performance indicators (KPI) Activity Performance Indicator (API) The Roadmap 45720010541000 Mission Overview When you don’t know where you want to go, you can only hunt down the value chain for efficiency? not a CA. Highest level Objective Can have different names in different organizations. Doesn’t matter. As long as it’s the highest level goal. Common problems with Missions Mission are useful when dealing with problems as it gives a reference or guidance. Can be implicit (written down) or explicit. Realign mission throughout organization to prevent misperceptions Common problems Too lengthy or too confusing Lacking clarity. Short mission statement: Wider buy-in Allows lee-way But: not sufficient; should be clear enough Becomes institutionalized People get used to it and don’t notice Written only by the chosen few or one Often only by sr. management Has to link back to day to day ops. Confused purposed Do not worry about all the stakeholder groups defining intent of the organization To serve them all means losing focus and clarity Tackling the mission By asking the right questions like What is the purpose o/t organization Where are we trying to go What kind of organization would we like to see in the future Structuring the mission Form Pictures tend to lack clarity and lead to differences in interpretation. Use only supportive Example Defining the mission Chosen words are less important than the intended meaning Most mission statements use key words Key elements should be explained Refreshing the Mission Mission might get revised after a while Also during constructing in MSW process, mission might get changed Environmental Analysis Identifying barriers and enables Barrier: element that makes it difficult the achieve the mission Enabler: element that help achieving the mission Also looks at future enablers and barriers Build in contingencies and develop scenarios Control over the environment Calibrate the level of control over the events External and internal environments External environment Environmental scanning (PEST) Somewhat like an art Use KEY to monitor Internal environment Within reach to an organization Value chain analysis a useful starting tool Balanced scorecard also helpful Leads to identification of internal barriers and enablers Using the mission definition for environmental analysis Mission provides framework for focus of analysis (could prove mission is flawed) Identification of enablers and barriers Use PEST and SWOT to start then ask question Some example questions on barriers What gets in the way… Why have we not… Some example questions on enables What could help… What are we good at… Framing barriers and enables Don’t use single words; describe Example Prioritizing enables and barriers Key Environmental Indicators (KEI) Obtained through workshop by brainstorming Could be split into separate lists for internal an external Use of facilitator or management consultant Can make fundamental difference as internal facilitator would be complacent about range of environmental factors to consider. Strategy Overview Strategy is the answer/response to the mission Crafting the strategy Conceptually simple Implementable hard Strategy statements Should: reflect the environmental scanning relate to mission not be too concrete Example A strategy consists of a number of statements!! The next challenge Linking to actions (=implementation) Critical Success Factors Origins First by Daniel (1961) later by John Rockart (MIT) Major task; if they can not be successfully identified, follow up processed will fail Requires strong intelligence and experience Good facilitator will prove it’s value Nature of CSFs There are no generic CSFs. They are based on content (THINK!) Example ? hiring of more salespeople. Necessary and sufficient ruler Only CSFs without which strategy would be unattainable If you miss one, it will be clear further down the stream, this will promote organizational learning Value of CSFs They provide common language, structure, identification, and are easy to understand by sr. management. Do not require significant resources or commitment Identifying CSFs brainstorming prioritizing Characteristics of good CSFs Action oriented (start with ‘We must’) Meaningful (clear, understandable) Creative Example Key Performance Indicators do not blindly follow the indicators (give priority to non-financial indicators). Figure out the how and why, might give insights Kaplan distinguishes between Diagnostic measures; if business is in control and if unusual events occur Strategic measures; is strategy is designed for competitive excellence. If it can’t be measured, it can’t be done You need creativity You need time Critical Activities Nature of CA Underpins CSF Strengthened by API CA must relate to and support strategy Consequences of unlinked CA reporting systems with emphasis on financials and cost control Day to day management on departmental level Emphasis on efficiency Functional emphasis w/o understanding role w/i organization One CA may support multiple CSFs This is where the rubber meets the road Hygiene factors and motivators are important Identifying CAs use the necessary and sufficient rule allocate responsibilities and accountabilities for each activity allocate time scales devise milestone to track progress Establish resource allocation Establish project plan for prioritizing, coordination and delivery Establish reporting systems for monitoring Activity performance Indicators Assign measures to CAs Organizational Designs, Processes and Systems Overarching systems: division of labor. Where are CAs going to take place in firm? Organizational structure Way of grouping, Optimize for EOS RACIS Matrix Can help ID stakeholders. Plots CAs versus: Responsibility with … (always one) Approval by … Consulted by … Informed by … Supported by … (always at least one) Budgets and other systems not only budget but all systems should deal with the CAs Reward systems Impact motivation Bonuses less than 10% no effect on team building More than 15% will disrupt No conclusions from research that financial incentives lead to better performance Normally bonuses are tied to revenue Causality and Strategy Implementation Introduction The basic notion of cause and effect Learning about cause and effect Complexity is merely a number of cause and effect relations We don’t actively view complexity as such We learn automatically with very little though: conditioning The scientific approach Why … How… prediction is ultimate goal Fundamental human errors Problems with human cognition Excessive importance given to Primary data Vivid information Senior people Ignore statistical constraints or implications Discard or neglect of non-supporting evidence Leap to conclusions Assume facts Assume causality Ignore time lags Missing information CRM is a solution where it deals with customer info Construction Blanks will be filled in Transference: Incorrect application of mental models created based on earlier experience “Witness experience”, brain recreates events based on stimuli Assuming causality Fairly common Normally by hypothesis testing and correlations however: This can only asses association and not causation You need to eliminate confounding (co-)variables by sampling and controlled experiments Bi-directional causality could occur may lead to vicious/virtuous circles This is an example of a system System parts can not be examined in isolation You need systems thinking Never assume causality from association Ignoring time lag Often cause problems as people don’t want to wait too long Bounded rationality Makes decisions hard when there are a lot of options Can be made even more problematic by blurred objectives (multiple contradictory endpoints) time lags Indirect causality Interdependence May turn into analysis paralysis Factoring problems using Intended Rationality Break problems up in chunks to better understand them There is always a dominant direction in doing so Application to the Making Strategies Work process Overcoming bounded rationality Must be done in all stages of the process (mission, environment etc) Developing cause-and-effect hypotheses Ask why, give answer, ask why… etc Example Example The power of alignment w/i organization means causally related MSW is valuable creating it Alignment is not perfect due to bounded rationality It should be better than competitor’s MSW is upside down pyramid. Base must be very strong and laid with care, misalignment would topple pyramid, weak blocks would crumble Structured thinking about cause and effect Avoiding closed thinking Approach matters from different angles Avoid leaps of logic Thing about the intermediate steps Confusion about critical path and Causal chain Critical path are certain causal chains that have to be sequenced and achieved When creating causal chain, don’t map a critical path Avoid wooly causal chains Clear unambiguous language If you can measure a causal chain, it’s probably unambiguous Be critical of every term If you can’t explain it; it’s wrong The lowest level of detail Not always possible Not always necessary Example Comments: Clear trade off decisions MUST be made This is characteristic of good strategy You have to know how end value is created to the end users The value of developing strategy hierarchies Strategy hierarchy is of tremendous value Working with causal chains Developing causal chains Top-Down and Bottom-Up Deterministic strategy Starts top and breaks down into manageable packages of work. Line of sight will remain Emergent strategy Also called local incrementalism Also called evolutionary strategy Argues that top down approach is not realistic b/c of bounded rationality Resolving the debate problem with top down: Never comprehensive Not always implementable Issues might frustrate unexpected sr. management edicts unanticipated problem issue arisen after diagnoses Maintaining alignment Whatever the change, always tie it back to higher objectives When disrupting edicts are given, try to build them into the causal chain. Might make additional step necessary. Application of causal chains The benefits of working with causal chains: Identification of possible methods Provide framework for discussion and comparison Enable assessment and logical testing Excellent mechanism for Communication strategy Creating line of sight Orient projects towards being really successful (i.e. achieving strategic objective (vs. being on-time/budget) Identify risk Can measure success or failure Leading indicators (indirect, measures factors) Lagging indicators (direct, measuring objectives) Sophisticated cost-benefit analysis Identifying risks Using Causal Chains Risk: negative outcome with probability of occurrence. Should be Identified Assessed in terms of probability Impact analyzed how to avoid or managed Types of risk Implementation risks Relatively easy to assess Time Budget Quality Post-implementation risks Failure to achieve intended outcome Links were wrong or weak There were neutralizing factors Unintended negative effects Not anticipated Causal chain should have been better analyzed Developing measures using causal chains Traditionally lagging indicators where used Because of time lags, use leading indicators for time lags By nature causal chains are suited to identify leading indicators, give early warning signals Can be qualitative and quantitative Cost benefit analysis using causal chains Compares cost of implementation with anticipated outcome (value). Indicates if project is worthwhile Prioritizes projects Highlights most critical activities It’s the anticipated outcome that is hard to assess Don’t be too perfect measures will be imperfect Numerous assumptions will be wrong There will be unanticipated figures Just gave a reasonable anticipated monetary value Causal chains provide context specific framework to develop cost-benefit models Systems thinking Feedback When cause and effect relations are not linear but circular we have a feedback system Feedback can be reinforcing Balancing As in humans feedback systems are needed in organizations as well often this will become clear when problems become severe It needs excellent measures Feed forward Expectations on future outcomes causes the outcome to occur Implications Can only be done after the linear cause and effect relationships have been mapped out Best strategies use this concept Competitive Advantage and Strategy Implementation Introduction Nature of competitive advantage Ability to outperform competitor in same industry Michael Porter; best known exponent of this concept Three essential choices Industry choice Strategic positioning ‘fit’ for value-creating activities Industry choice Industry definition How to define an industry? Not just products but functions Internal and external pressures (incl. competitors) Existing and future pressures (incl. competitors) Pressures upon stakeholders Industry and business the firm is in is not necessarily the same compete in more than one industry may compete in subset of industry Profitability A priory it is hard to tell which industry makes money Profitability may lie in short, medium or long term Industry choice perhaps most fundamental decision Structural Analysis Porters five forces Strategic positioning Variety based. Based on which products to offer by changing features or product determinants consumers perception of price consumers perception of value This can be mapped through systematic product calibration tool Identify differentiation determinants Weigh each determinant Rate each determinant Map the product in the price/differentiation matrix Manufacturers can try to change perceptions in general by marketing Needs based Look for untapped segments Access based By selecting certain sales channels Generic strategies Porter identifies Cost leadership Lower unit costs Lower price More demand Only one cost leader Differentiation Based on needs Perceived value is different for everyone Lots of ways to differentiate Focus By targeting customers that have special needs not met by broadly targeted firms Can not make real use of EOS Do not have huge investments Stuck in the middle Recipe for failure LT according to Porter Can be legitimate in fast growing markets Fast changing markets When other firms are stuck as well Fit for value-creating Activities Resource based view of strategy In fast moving industries, seeking optimal strategy becomes much harder, hence an internal approach: research based approach which considers internal (unique) strengths Optimum is based on a combination of resource and market based planning Distinguishing between operational Effectiveness and strategy Operational Effectiveness Operational effectiveness objective behind numerous management tools and techniques(JIT/TQM) Problems with managements obsession with operational effectiveness Innovations that improve OI can be copied relatively quickly Companies will become more alike ? less CA Because of cost effectiveness margins went down as cuts were made in activities which appeared to be CA related Because of pressures to produce returns, short term thinking is preferred over long term thinking Operational effectiveness is not enough Strategy It is all about doing different things a different way Different markets Different activity configuration Making tradeoffs The needs for trade offs Firms need to avoid unacceptable and confusing inconsistencies in their identities for marketing reasons. Activity configuration is not optimal w/o trade offs Implementation and control become unmanageable Using cause and effect to understand trade-offs the value of clear trade-offs Ensures maximum value is extracted from each activity makes it very hard to copy for competitors who have broader or different strategic positions makes it easier to implement Making Replication by competitors difficult Competitor’s reaction Replicating the activity configuration (which is very hard) or match the market offer while still offering broader range of existing offers, rather than making same trade-offs; straddling Alliances and partnerships between competitors If you can’t beat them join them. All depends on the similarity of the activity configuration systems Fit Porter’s three levels of fit First order fit Simple consistency when activities are aligned with strategic objectives Second order fit Activities are reinforcing cause and effect is extended to systems Third order fit Everything reinforces something else A theoretical ideal Strategy Implementation Choosing an implementable strategy If external pressures are not sufficient, you can get away with a lot (meaning not having the make trade-offs) The problem with different product segments is differently organized activity systems You can’t optimize individual products that way There are however common explanations for not making tradeoffs ignorance Incentive to grow; if you need the extra revenue from targeting different segments because of growing profits, your share price increases. Often incentive systems are based on these growth factors To reduce costs, quick wins might be made at the expense of LT success) There are four true LT revenue growth sources Market penetration Innovation + cost reduction Market development Risky different PEST markets Maintains integrity of activity configuration system Retains uniqueness Product development Somewhat risky Can’t/Partially use existing activity configuration You have to identify new markets with respect to the activity configuration (is a constraint) Profitable subsidiaries are often integrated for the wrong reasons Diversification Dysfunctional rationale Again, new markets can lead to misalignment of the activity configuration Avoid confusion complexity Few firms are good at implementing one strategy, let alone multiple Keep strategy simple and focused towards obtaining competitive advantage make sure that organization is able to handle Challenge for leadership Leaders must take trade-offs into account By screening opportunities and show creativity in designing truly valuable activity systems Developing Superior Strategy Implementation Ability Sources of competitive advantage In addition to Porter’s three mentioned earlier, Strategy implementation ability is now a fourth source of competitive advantage Strategic Change Will continue to happen Look at Strategic Focus Wheel