Strategy Formulation

The Strategic Management Process

Bateman, 135

Strategic Direction Mission Vision Values

Business Scorecard

SWOT Analysis

Budget

Updated Mission Statement

Enabling Key Processes

Strategic Thinking: Elements & Outputs

Strategies & Objectives

Culture

Business Model

Organization Structure

BSC Strategy Map

SWOT ANALYSIS Primary factors

Strengths

Weaknesses

Opportunities

Threats

TOWS Matrix
Strengths S

Leave Blank
Opportunities O
List Opportunities

Weaknesses W
List Weaknesses

List Strengths

SO Strategies
Use strengths to take advantage of opportunities

WO Strategies
Overcoming weaknesses by taking advantage of opportunities

Threats T
List Threats

ST Strategies
Use strengths to avoid threats

WT Strategies
Minimize weaknesses and avoid threats

TOWS Matrix
Strengths S Leave Blank List Strengths Weaknesses W List Weaknesses

Opportunities O List Opportunities

SO Strategies Match and determine strategy

WO Strategies Match and determine strategy

Threats T List Threats

ST Strategies Match and determine strategy

WT Strategies Match and determine strategy

Inset key strategies into correct box element of the Matrix

What business are we in? What is our business?

What do we stand for? How should we behave?

Can we manage ourselves as a group?

Strategic Thinking

Business Strategy?

Enterprise Strategy?

Corporate Culture Strategy?

Strategic Thinking

Four Levels of Strategy

Enterprise-level Strategy
What is the role and value of the organization to society? What do we stand for?

Corporate-level Strategy

What is our business? What business are we in? What business should we be in/not in?

Business-level Strategy

How should we compete in a given business or industry? How do we support the corporate strategy?

Functional/Operationallevel Strategy

Marketing/Sales/Production/HR/Finance/IT/Supply Chain Srategies? How do we maximize resource productivity? How do we achieve competitive advantage in our area?

Corporate-level Strategic Thinking

Strategic Direction Growth & Profitability Cash Flow Stability
What is our value and relevance to the consumer and to the marketplace? What is our value and relevance to society and to the country? What do we want to become? What do we stand for? How do we conduct our business?

What set of businesses should we be in? What do we maintain, divest, acquire, invest in? What new businesses can we create and venture in?

Do we have sufficient internal generation of cash flow? Do we have sufficient cash cows in our portfolio? Is the cash flow position in each business healthy?

Do we have countercyclical balance? Do we have product market lifecycle balance? Can we attain stability thru diversification?

Synergy

Do we have core competencies that can be shared portfolio-wide? What can we do to add extra strength to the business units? Low cost capital, outstanding managers, correct values and codes of conduct, training and development, R&D

Porters Five Forces

Potential Rivals Current Rivals Substitute Products

Upstream Sellers

Downstream Buyers

Value/supply
Chain

Competitive Environment

Related Diversification

Diversification Strategies

Unrelated Diversification

Retrenchment

Defensive Strategies

Divestiture

Liquidation

SBU-level Strategic Thinking

Business-level Strategy
Positional Component
Market Based View
Business Model

Performance Component

Resource Based View

Marketing 3.0

TQM & Value Chain

Culture

Key Relationships

Market Driven

Market Creating

Gen, Management, Finance, HRM, Technology, Procurement

Service Profit Chain

Values Brand Chain

Business Ethics

SegmentTargetPosition

Blue Ocean Strategy

Supply Chain

Operations

Distribution

Marketing & Sales

Service

Porters Three Generic Strategies

Forward Integration

Vertical Integration Strategies

Backward Integration

Horizontal Integration

Market Penetration

Intensive Strategies

Market Development

Product Development

Related Diversification

Diversification Strategies

Unrelated Diversification

Strategy: Market Based View

Kotler: What is Marketing?

Creating

Superior Customer Value for Target Markets

Communicating Delivering

Kotler: What is Marketing?

Product Management

Target Markets
Customer Management Brand Management

Five Basic Markets

Consumer Markets

Resource Markets

Intermediary Markets

Manufacturer Markets

Government Markets

Market Segmentation

Target Marketing

Segmentation -Targeting - Positioning

Patterns of Target Market Selection: Product x Market Matrices

Product Positioning

Positioning Map
15-27

Product Positioning
Simple Preparation
Hot Dogs Tuna Bacon Chicken Healthy Unhealthy

Positioning Map

Turkey
Fresh Fish

Beef
Pork

Involved Preparation

Positioning Example
To (target segment and need) our (brand) is a (concept) that (point-of-difference).
To busy mobile professionals who need to always be in the loop, Blackberry is a wireless connectivity solution that allows you to stay connected to people and resources while on the go more easily and reliably than the competing technologies.

Blue Ocean vs. Red Ocean Strategy

Blue Ocean Strategy Break the value- cost trade off Align the whole system of a firms activities with its strategic choice of differentiation and low Red Ocean Strategy Make the value-cost trade off Align the whole system of a firms activities with its strategic choice of differentiation or low

cost

cost

Reconstruct Market Boundaries

Head-to-Head Strategy

Blue Ocean Strategy

Focuses on maximizing the value of product or service offerings within the bounds of its industry

Looks across to complementary product and service offerings

Participates in shaping external trends over time

Focuses on adapting to external trends as they occur

Get The Strategic Sequence Right

The Sequence of Blue Ocean Strategy
Buyer utility Is there exceptional buyer utility in your business idea?

Price Is your price easily accessible to the mass of buyers?

Cost Can you attain your cost target to profit at your strategic price?

Adoption What are the adoption hurdles in actualizing your business idea?

A commercially viable blue ocean idea

W. Chan Kim and Rene Mauborgne, Blue Ocean Strategy, HBS Publication

Opportunities = Supply and Demand Gaps

Needs

Target Markets

Wants

Demands

Business Opportunities
Producer
Product

Costumer
Customer Value

Promotion

Superior Offering

Needs,
Price Communi cation

Wants & Demands

Cost

Place

Convenience

What is Value?
Service Image

Brand
Product
Relationships

The Power of the Brand

Awareness

Insistence

Recognition

Brand
Equity/Value Preference

Relationship

Loyalty

http://www.edelman.com/speak_up/blog /archives/2011/03/marketing_30_an.html

Marketing 1.0
Marketing 2.0

Marketing 3.0

Kotler et al: The Brand & Marketing 3.0

Mind
Heart Spirit

It works It is true to its promise It makes me happy

It is good; it is bad

Kotler et al: Marketing 3.0

Marketing 3.0

Philip Kotler on Marketing 3.0 and S. C. JOHNSON VALUE-BASED MATRIX

MIND Mission
Contributing to the community well being as well as sustaining and protecting the environment

HEART

SPIRIT

Promoting reusable shopping bags

For SC Johnson, creating sustainable economic value means helping communities prosper while achieving profitable growth for the company.

Base of the Pyramid

Vision
To be a world leader in delivering innovative solutions to meet human needs through sustainability principles

Sustaining Values: SC Johnson Public Report

Values
Sustainability
We create economic value We strive for environmental health We advance social progress

We believe our fundamental strength lies in our people.

Building A Strong

Marketing 3.0 Brand Management

Differentiation

3i
Brand Positioning

Brand Identity

Philip Kotler: Think ASEAN

Philip Kotler & Marketing 3.0: Your Brand Needs to Own a Word
Mercedes - engineering BMW - driving Disney - family fun entertainment Saturn - no hassle car buying FedEx - overnight Wal-Mart - low prices/good values Hallmark - caring Nike - performance 3M - innovation Volvo - safety Starbuck - best coffee experience

A unique identity that sets you apart and makes you stand out.

Positive Associations

Perceived Quality

Name Awareness

Brand Equity

Strong Brand Loyalty

Shimp, 5

Marketing Mix Component Factors

Product Quality Features Style Brand name Packaging Product line Warranty Place Distribution channels Distribution coverage Outlet location Sales territories Inventory levels/locations Transportation carriers Promotion Advertising Personal selling Sales promotion Publicity Price Level Discounts & allowances Payment terms

Service level
Fred R. David, Strategic Management: Concepts and Cases, Prentice Hall

Integrated Marketing Communications

IMC
Speaking with one voice Using all forms and sources of brand contact To affect customer behavior
To build a long-term relationship between the brand and customer
Shimp, 12-15

Link Vision-Values & Brand

Strong Values & Strong Brand

On Leading for Competitive Advantage

Strong Values

Strong Processes

Strong Relationships

Enhancing Corporate Value

The Lord of the Rings

Accounting & Finance

General Management

Government

Legal Office
Marketing Research

Key Stakeholders
Marketing

Suppliers

Service

Administration

Distribution

Target Market Segments: Customers

Product Development

HRD/HRM/ Corporate Culture

Sales

Supply Chain Management

Production

Quality Management Distributors Ethics Office

Corporate IT

Competitors

Strategy: Resource Based View

The Internal Environment

Accounting & Finance

General Management

Legal Office
Marketing Research

Service

Marketing

Administration

Distribution

Business Model: Revenue & Profit Streams

Product Development

HRD/HRM/ Corporate Culture

Sales

Supply Chain Management

Production

Quality Management Ethics Office

Corporate IT

Delivering Customer Value

Benefits Received

Cost Paid
External Customers => the Lifeblood of the Business

Delivering Customer Value & Total Quality Management

Offer Customer Value Continually improve systems & processes Manage processes, not just people

Empower employees and provide training and education

Make decisions based on data and scientific analysis

Look for root causes to solve and prevent problems

Create teams to execute processes effectively and efficiently

The Deming PDCA Cycle: For Continuous Improvement

Act

Plan

Check

Do

SBU-level Strategic Thinking

Business-level Strategy
Positional Component
Market Based View
Business Model

Performance Component

Resource Based View

Marketing 3.0

TQM & Value Chain

Culture

Key Relationships

Market Driven

Market Creating

Gen, Management, Finance, HRM, Technology, Procurement

Service Profit Chain

Values Brand Chain

Business Ethics

SegmentTargetPosition

Blue Ocean Strategy

Supply Chain

Operations

Distribution

Marketing & Sales

Service

Resources:
Inputs and Sources of Capability

Tangible
Physical Resources

Intangible
Brand(s) Reputation Culture Knowledge

Human Resources

Financial Resources

Technological
Patents/Copyrights

What is a Strategic Resource?

Nonsubstitutable Inimitable

Enables customer value creation

Valuable

Developed internally

Rare

Strategic Resource

Relevant to the marketplace

Barney, 1991

Kay (1993) on Distinctive Capability

Key Relationships
Employees Suppliers Customers Shareholders Networks

Reputation
Market Reputation

Innovation
Product Design Distribution Processes Technology

Social Reputation
Employer Reputation

Kay, Jay. Foundations of Corporate Success. 1993. Oxford University Press

Strategy: Resource Based View

Resources

Comparative Strengths Comparative Weaknesses

Distinctive Capabilities

Key Relationships Reputation Value Creation Innovation

Strategy

Resources and Capabilities Market Needs and Opportunities

David J. Collis and Cynthia A. Montgomery

http://hbr.org/2008/07/competing-on-resources/ar/pr

Differentiation and Cost Structure: Roots of Competitive Advantage

Porters Value Chain

Where Distinctive Capabilities and Competitive Advantages Can Come From

Barney (1991): Sustained Competitive Advantage

Value creating strategy Sustained Competitive Advantage Not being done by competitors

Difficult to copy

Sustainable Competitive Advantage

Low Cost Provider
Walmart

Differentiated Rolex Product Offering Amazon.com

Focused Market Starbucks premium coffee and coffee drinks Niche

Superior Capabilities
Walt Disney theme park management and entertainment

Thompson, Strickland, Gamble, 7-9

Harrison & John: Resources Leading to Sustainable Competitive Advantage

Organizational Resources and Capabilities Financial Physical

VALUABLE? DIFFICULT OR COSTLY TO IMITATE? UNIQUE?

Sustainable Competitive Advantage

APPLIED TO MULTIPLE BUSINESSES?

Core Competency or Capability

Human Organizational

Competitive Advantage

Foundations in Strategic Management, 3rd Edition by Jeffrey S. Harrison and Caron H. St. John

Resource Based Strategy

Core Competency

Sustained Competitive Advantage

Competitive Advantage

Resources

Business Model & Business Canvass Sheet Tool

The Internal Environment

Accounting & Finance

General Management

Legal Office
Marketing Research

Service

Marketing

Administration

Distribution

Business Model: Revenue & Profit Streams

Product Development

HRD/HRM/ Corporate Culture

Sales

Supply Chain Management

Production

Quality Management Ethics Office

Corporate IT

Film: Business Canvass Sheet

Osterwalders Business Model Canvas

Balanced Score Card

What is a Balanced Score Card?

1) A strategic management system 2) A measurement system 3) A communication tool of priority strategies and objectives

A Gap Exists Between Mission-Vision-Strategy and Employees Everyday Actions

MISSION Why we exist VALUES Whats important to us VISION What we want to be STRATEGY Our game plan

TOTAL QUALITY MANAGEMENT What we must improve EMPOWERMENT / PERSONAL OBJECTIVES What I need to do

The Balanced Scorecard Links Vision and Strategy to Employees Everyday Actions
MISSION Why we exist VALUES Whats important to us VISION What we want to be STRATEGY Our game plan BALANCED SCORECARD Translate, Focus and Align STRATEGIC INITIATIVES What are the priorities TOTAL QUALITY MANAGEMENT What we must improve EMPOWERMENT / PERSONAL OBJECTIVES What I need to do

STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE

The Complete Balanced Scorecard Strategy Map

Improve Shareholder Value Financial Perspective: the drivers of shareholder value
Productivity Strategy
Shareholder Value ROCE

Revenue Growth Strategy

Improve Cost Structure Cost per Unit Market and Account Share

Increase Asset Utilization Asset Turnover

Enhance Customer Value Customer Profitability Customer Retention Customer Satisfaction Product Leader Customer Solutions

Create Value from New Products & Services New Revenue Sources

Customer Acquisition

Customer Perspective: the differentiating value proposition

Customer Value Proposition

Product/Service Attributes Price Quality Time Function Relationship Service Relations

Low Total Cost Image Brand

Internal Perspective: how value is created and sustained

Operations Theme

Customer Management Theme (Processes that Enhance Customer Value)

Innovation Theme (Processes that Create New Products and Services)

(Processes that Produce and Deliver Products & Services)

Regulatory and Society Theme (Processes that Improve the Environment and Communities)

Learning & Growth Perspective: role for intangible assets people, systems, climate and culture

Human, Information, and Organizational Capital

Strategic Competencies Strategic Technologies Climate for Action

Kaplan & Norton: Translating Vision and Strategy - Four Perspectives

FINANCIAL Objectives To succeed financially, how should we appear to our shareholders? Measures Targets Initiatives

CUSTOMER To achieve our Objectives vision, how should we appear to our customers? Measures Targets Initiatives

INTERNAL BUSINESS PROCESS

Vision and Strategy

To satisfy our shareholders and customers, what business processes must we excel at?

Objectives

Measures

Targets

Initiatives

LEARNING AND GROWTH To achieve our Objectives vision, how will we sustain our ability to change and improve? Measures Targets Initiatives

Film: Balanced Score Card

Key Performance Indicators

Source: Robert Kaplan and David Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business School Press, 2004), Figure 3-2, p. 67

Copyright 2006 John Wiley & Sons, Inc.

Mobil NAM&R Strategy Map

Increase ROCE to 12%

Financial Perspective

Revenue Growth Strategy

New Sources of NonGasoline Revenue

ROCE Net Margin (vs. industry)

Productivity Strategy
Become Industry Cost Leader Cash Expense (cpg) vs. Industry Maximize Use of Existing Assets Cash Flow

Increase Customer Profitability Through Premium Brands Volume vs. Industry Premium Ratio

Customer Perspective
Share of Targeted Segment Mystery Shopper Score

Non-Gasoline Revenue & Margin

Delight the Consumer Basic

Clean Safe Quality Product Trusted Brand Speedy Purchase

Win-Win Dealer Relations Differentiators

Friendly Helpful Employees Recognize Loyalty More Consumer Products Help Develop Business Skills Dealer Profit Growth Dealer Satisfaction

Build the Franchise Create NonGasoline Products & Services

New Product Acceptance Rate

Increase Customer Value Understand Consumer Segments

Achieve Operational Excellence

Improve Hardware Performance Yield Gap Unplanned Downtime On-Spec On-Time Improve Inventory Management Inventory Levels Run-Out Rate Industry Cost Leader Activity Cost vs. Competition

Be a Good Neighbor

Internal Perspective

Improve Environmental, Health and Safety

Environment Incidents Safety Incidents

Best-In-Class Franchise Teams

Dealer Quality Rating

A Motivated and Prepared Workforce

Climate for Action Competencies Functional Excellence Leadership Skills Integrated View
Strategic Skill Coverage Ratio

Technology Process Improvement

Learning & Growth Perspective

Aligned Personal Growth

Personal BSC Employee Feedback

Systems Milestones

Matt H. Evans: Alignment of Scorecard Components

Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy.

Goal
Achieve Agency operational efficiencies with best practices in the private sector

Objective
Reduce Operational Service Costs by 50% over the next 5 years

Measurement
Cost per Outlet Office, Cost per Region, Cost per FTE

Target
5% - Year 1 10% - Year 2 15% - Year 3

Initiative
Activity Based Costing / Management

Reduce identified re-activities within primary processes by 80% over the next 3 years

Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions)

Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75%

Lean / Six Sigma

Film: Strategic Objectives

The Balanced Scorecard Matrix

Internal Business Process Learning & Growth

Financial
Objectives Measures Targets Initiatives

Customer

Film: KPIs

Balanced Score Card: A Modified Perspective

Service Profit Chain Perspective
Employee Productivity Employee Satisfaction & Retention Mission-Vision-ValuesBrand focused Employees Ethical Performance: Ethical Employees

Business Model & Value Chain Perspective

Core Competency/ Comparative Advantage Improvement Cost Structure Improvement: FC/VC/CM/OPM Quality Improvement/Process Efficiency Key Relationships: Suppliers, Distributors, Networks Ethical Performance: Ethical Operations , Supply & Distribution Chain Product /Market /Brand Initiatives Market Share Size/ Market Share Growth Contribution Margin Customer Service Ethical Performance: Creating a Better World Cash Flow ROTA ROIC & ROE Ethical Performance: Corporate Governance

Marketing 3.0 Perspective

Financial Perspective

The Service-Profit Chain

What is Service-Profit Chain?

The service-profit chain is a powerful phenomenon that stresses the importance of people both employees and customers and how linking them can leverage corporate performance.

Competitive Advantage of Companies with Adaptive Strong Cultures

1990s: Harvard 11-year Study
Revenue Growth: 682% vs. 166% Stock Appreciation: 901% vs. 74%

2001 UCLA study: Prof. Eric Flamholtz 2009-2010: Towers Watson global study of 700 companies

Within a 20-division industrial firm

Divisions consistent w/ companys culture:

Had much better financial performance

Business results of Companies with high employee engagement

2X to 3X higher than Companies with low engagement

Adrian Gostick and Chester Elton, All In, pp. 11-13

"It's People, Service, Profit, not Profit, Service, People." Fred Smith Founder, Federal Express

In able to make leaders follow, you must not hold your money tightly, know how to delight your people and get their heart. -Li Ka Shing Born in China, richest person in East Asia, eleventh richest person in the world

The Balanced Scorecard Matrix: Priority Strategic Initiatives

Financial Perspective Marketing 3.0 Perspective Business Model & Value Chain Perspective Service Profit Chain Perspective

Objectives Measures

Targets
Initiatives

Action Plan
Project Title Objective:

Action Steps

Accountability Primary Others

Start

Schedule Complete

Resources Dollars Time

Feedback Mechanism

External Adaptation & Internal Integration: By Aligning Environment-Strategy -StructurePeople-Processes Culture-Brand

Align & Organize Recruit, Lead & Motivate Manage & Shape & Improve Strengthen

Communicate & Deliver

Define

Formulate

Mission
- Mission - Vision - Values - Stakeholder Philosophy - Corporate Citizenship

Strategy
- Enterprise Strategy - Corporate /SBU/ Functional Strategies - Corporate Culture Strategy - Business Model - BSC Strategic Map

Structure
- Structural Design - Empowered Teams - Organization Networks

People
- Talent Attraction - Talent Retention - Human Capital Development - Knowledge Management - Ethical Behavior - ServiceProfit Chain People Philosophy

Systems & Processes

- TQM: PDCA & Continuous Improvement - Value Creation: Benefit & Cost - Balanced Scorecards - Control Systems - Enabling Technologies

Culture
- Shared M-V-V - Leadership Behavior - Reinforcing HRM Systems - Core Valuesdriven Brand Delivery - Culture of Believers - Key Relationships oriented

Brand
- Values-driven Marketing 3.0 - Product/ Service Brand - Societal Brand - Employer Brand