Introduction to Strategy

Learn various facets of strategy

Grasp the concept of sustainable competitive advantage
Perceive the linkages between environment, strategy and
superior performance
Understand why customer value creation is paramount in
strategy

Strategy is about ..

About Situation (What, Who, Where) than about How..

Its about ideal exploitation of firms strengths with the
market's needs
Its about exploring the best possible combination
It is about what you can do in future
Choices one can make given the limitation of resources

Choices may involve trade-offs

Delivering value to customer and building competitive

advantage
Bringing the firm in the best possible position in the
given environment to address the customer demands
Recognizing the role of individual cognition and biases in
decision making

5-Ps of Strategy

Strategy is a Plan, Pattern, Position, Ploy, Perspective

- Henry Mintzberg
Strategy as a plan made in advance of actions, developed consciously
and purposefully.
Strategy as a Ploy to deter or maneuver competitors
Strategy as a Pattern of actions or behaviors when there is no initial clear
cut plan or ploy
Strategy as a Position how organization is located with respect to
environment
Strategy as a Perspective how a company perceives the world

Strategy is a framework which guides choices that

determine the nature and direction of an organization
Benjamin B. Tregoe &John W. Zimmerman
Top Management Strategy

In terms of three key players - competitors, customers, company

Strategy is defined as the way in which a corporation endeavors to
differentiate itself positively from its competitors, using its relative
corporate strengths to better satisfy customer needs.
-Kenichi Ohmae
The Mind of the Strategist

What is Strategy?
An integrated and coordinated set of commitments & actions
designed to exploit FIRMs competencies to create value for the
customer and gain competitive advantage for the firm in the
marketplace.

Strategic Management
Art and science of analyzing, formulating, implementing, and
evaluating cross-functional decisions & actions that organization
can take to create, achieve and sustain competitive advantages.

Strategy is 1627th most common word as per google adwords

Wars have seen a spike in usage of strategy and then the usage tapers
down. Post 1950 is the era of expansion MBA academia and with it strategy.
1900 to 1960
1960 to 2000

60 years to move 400% from 5 to 20, about 9% CAGR

40 years and 4 times again 20 to 80, 16% CAGR
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Strategy can be seen as consisting of several threads

Strategy as a Leaders Statement

Strategy as a Communitys Statement
Strategy as a Guiding Track
Strategy as Creating the Competitive Advantage
Strategy as a Practice
Strategy as a Relationship to the Environment

Strategy as a Leaders Statement

Strategy is often an expression of
the leaders will, beliefs and values, obsessions, inner life
His demographic characteristics (age, training, experience,
social origins)
His emotions, cognitive maturity
Attitude towards change
Therefore, understanding an organizations strategy starts with a
better understanding of who are its leaders.

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Strategy as a Communitys Statement

Strategy is expression of a communitys norms, values and

beliefs.
Strategy involves trials and errors which can not produce
results unless members are willing to collaborate and contribute
to an organizations survival and growth.
Strategy helps build the coalitions that will allow the pursuit of
common goals when individuals have differing goals and
interests

Sex, ethnic support, education, professional skills, capital, outside

recognition, structure, etc., contribute to achieving consensus

Organization culture is a source of success in implementing

strategy

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Strategy as a Guiding Track

Strategy is a beacon and guide when things get difficult, when

the road ahead is hard to assess.
It provides a lasting set of rules and norms by which reality is
translated and dealt with.

For Example:
To be number 1 or number 2 in all our business, be better than the
best, while remaining in three areas of activities: traditional,
high technology and services - Jack Welch, General Electric

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Strategy as Building Competitive Advantage

Strategy is a quest for competitive advantage.

Building unique resources to match environmental opportunities

Understanding the firms functional characteristics, and
of their inter-relationships (value chain configuration)
Integrating various functions to position the organization
among competitors
Integrating activities within a function for better productivity and
effectiveness.

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Strategy as Practice
Strategy can be used to extend the range of outcomes, instead of
concentrating only on economic outcomes. These involve

Practices these have enabling & constraining effects on

knowledge production, getting newer insights, influencing
decisions, enabling iterations to improve upon

Praxis Understanding what goes in the practice of strategy

making, how managers interact, interpret (sensemaking)

Workshops, meeting for bracketing of issues, turn-taking, voting and stagemanaging

Strategy artefacts - planning documents, Power points, flipcharts or other
visual representations of tools and frameworks

Rhetoric using emotions, metaphors

Informal interaction

Practitioners managers their socio-political and rhetorical

skills, national culture and gender, can make a difference to
how they work and what they can achieve
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Strategy as a Relationship to the Environment

Environment is a critical factor for survival. It helps in conceptualizing
threats and opportunities.

Firm faces various external environments General, Industry, Institutional, Regulatory, technological, Ecological

Environment generates most of the uncertainty for organization.

Uncertainty can be dealt with structural and strategic alignments.

(Environment, strategy and organization design are related)
At the micro level, organizational routines provide ability to adapt

Environment analysis depends on the perception (cognitive

influences) of the beholder. Same environment may be seen as a
source of opportunity by some managers and a source of threats
by others

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Organization-Environment Fit
Fit of the organization with environmental demands is a precursor of
firm performance. Better fit yields higher performance. To achieve
fitment, organization response variables should match environmental
variables.
Environment variables: Speed of changes (turbulence), rate of technological
innovation, level of uncertainty, Complexity
Organizational response variables: Organization Structure, Culture,
Technology, Decision Style

Two types of Fit

Contingency fit Analyze task environment and adapt
organizational structure and style to match the environment
Institutional fit conformation of organization with other
organizations in terms of structure, culture, technology as
prescribed by institutions surrounding that firm. This fit increases
organizational legitimacy.
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Predictability (how far and how accurately can you forecast demand,
performance, competitive dynamics, and market expectations)
Malleability (how much influence firms have on environmental factors)

Identify the Predictability and Malleability of following industry

Oil & Gas, Power

Automobiles
Software
Real Estate
Biotechnology

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The Strategy-Environment Matching

Based on Predictability and Malleability, there can be four ways to match

business environment

Classical - works well for companies operating in predictable and

immutable environments.
Visionary - appropriate in predictable environments that one has the
power to change.
Adaptive more flexible, experimental and works better in immutable
environments that are unpredictable.
Shaping - best in unpredictable environments where one has the power
to change

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Creating external and internal fit

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Markides, C. (1999). Six Principles of Breakthrough Strategy. Business Strategy Review, 10(2), 1-10.

Origin of Strategy

Gause's Principle of Competitive Exclusion (1932)

Competition existed long before strategy

To maintain equilibrium, nature provided counter-balancing forces that

gave every species an advantage.
Richer the environment, greater is the number of potential variables
that can give each species a unique advantage

Natural competition involved no strategy at all, it used chance

No two species that make their living in the identical way can co-exist.
One having slight edge will dominate in the long run.

By chance/ luck, competing species found resources that matched

their characteristics
At times, physical & structural characteristics evolved and adapted,
albeit slowly, to match competition.

Business competition & dynamics: Manager uses imagination and

logic to shift the competition and rate of change. It is a deliberate act.
Awareness Motivation Capability framework
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Competitive Dynamics

Rivalry

Competitive &
cooperative

Relational

Mode

Attack,
retaliate, avoid
attack

Cooperate or co-opt

Manage (Compete
and cooperate
simultaneously)

Actors

Competitors

Also alliance
partners

Stakeholders
e.g., clients, public,
suppliers, government

Time
Horizon

Short term

Intermediate

Short term to build for

long term

Tools

Economic

Political &
Economics

Social, ideological
Chen & Miller (2015)

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Strategic Management Framework

A strategy must take account of the organizations

stakeholders & environment if it has to succeed

Key elements of Strategy

Processes (Analyses, Decisions, Actions) to achieve goals

and objectives or addressing or solving a problem
Involvement of multiple stakeholders in the decision
making
Recognition of long term and short term perspectives
Strategies create coherent sets of actions taking a holistic
view of the company
Trade-off among given choices

A good strategy has coherence - coordinating actions, policies

and resources so as to accomplish an important end.
Richard Rumelt ("Good strategy, bad strategy, 2011)

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Strategic Management Process

Strategic Analysis

Strategic Formulation

Strategic
Implementation

The above three processes strategic analyses, strategic formulation

and strategic implementation are highly inter-dependent and do not
take place sequentially because of ;

Unpredictability of environment,
Availability of information,
Limitation of rationality, and
Political processes within the organizations.
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Outcomes of Strategy
Strategic Competitiveness
Achieved when a firm successfully formulates and implements a
value-creating strategy not simultaneously being implemented by
current or potential competitors.

Sustained Competitive Advantage

Occurs when a firm develops a value creating strategy that competitors
are not simultaneously implementing, and other firms are unable to
duplicate the benefits of this strategy.

Above Average Returns

Returns in excess of what an investor expects to earn from other
investments with similar risk.

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So, the basic principles to remember are

Earn above the cost of capital (if you want to create value) i.e. you must get a
higher return on your efforts than the average competitor.
To get a higher return than the average competitor, you must have an
advantage or you must compete in an unusually attractive sector.
There are only two ways to get an advantage prices must be higher or
costs, including the cost of balance sheet and taxes, must be lower.
Unusually attractive sectors are those where competition is muted i.e.
few competitors, little legislation, demand growing faster than supply.

These principles have remained constant over last three decades

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Some categories of sustainable advantages

Size of firm in the market through scale & scope economies,

experience curve benefits

Access to inputs, resources, markets, knowhow

Options available (denied) to competitors

Two conditions affect access - availability of better terms than

competition & enforceability
Input access restricted through contracts and vertical integration
Market access through non-pricing mechanisms like switching
costs, reputation, relationships, complementary products
Govt. policy, lock-in created by past investments, response lags

Capability development and innovations

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Schools of Strategy crafting

Positioning / Design/ Planning school
Learning school

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Design School of Strategic Formulation

Proponents: Porter, Andrew, Markides

FIRM

INDUSTRY
ENVIRONMENT

Goals and
Values
Resources and
Capabilities
Structure and
Systems

STRATEGY
STRATEGY

Firm-Strategy
Interface
(Internal Consistency)

Competitors,
Complementors,
Customers
Suppliers

Environment-Strategy
Interface
(External Consistency)

Perform careful analysis of external & internal environment so as achieve best fit;
Identify unique strategic position for the company after generating as many choices as
possible; Choices will reflect a mosaic that need to be implemented

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Positioning in a 3D Landscape

Firm look for market segments where they can maximize

difference between their opportunity cost and customers WTP
(willingness to pay).
Be consistent internally and externally

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Ramon Casadesus-Masanell (2014)

Firms strategy evolves over time

Managers modify strategy in response to:

Changing market conditions

Policy, regulations
Political context
Fresh moves of competitors
Shifting buyer preferences & needs
Emerging opportunities because of demographics
Advancing technology
Pressure to improve organizational efficiency & effectiveness

In a turbulent world, strategy making must reflect the biological

principles of variety, selection, and retention.

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Evolving Nature of a Firms Strategy (Learning School)

Mintzberg & Waters, 1985

Realized (current) strategy is a blend of:

Proactive (deliberate) strategy elements that have continued

from past.

Reactive (emergent) strategy elements that are required due to

unanticipated competitive developments and fresh market
conditions. These actions may result from unplanned shift by
TMT, autonomous actions by lower-end managers, serendipity
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Example: Deliberate and Emergent Strategies of Apple & Nokia

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http://bits.blogs.nytimes.com/2013/09/04/with-microsoft-nokia-deal-competing-in-the-smartphone-market/?_r=0

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How does Strategy become Emergent?

Mirabeau & Maguire, 2014

Where & how does emergent strategy emerge?

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Role of Middle Managers in Emergent Strategy

Middle managers span the boundary between organization and environment;
Implementing the plans given by executive management;
Synthesize information about the environment and give to top management;
Champion alternatives which modify executive managements original
strategic intentions in the light of actual environmental realities.

Floyd and Woolridge, 1992

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Bottoms up approach for Emergent Strategy Formation

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Mirabeau & Maguire, 2014

Managerial Cognition & Strategy

Transitioning to new areas; adjustment to changed marketplace;
identifying potential areas to apply resources; interpretation of business
environment {Examples of Cognition}
What is Cognition:

Mental activities pertaining to acquiring, organizing, and processing

information e.g. attention, perception, problem solving. These can be
automatic or controlled.
Memory performance improves through practice and training
Reading improves attention
In domain specific activities (e.g. medical diagnostics, games).
development of expertise is a controlled process initially but becomes
automatic with practice.
Mental structures (a.k.a. representations, knowledge structures, mental maps,
frame, schema)

Mental models result in superior performance as managers retrieve,

generate or modify previous mental models (developed relying upon
beliefs, values, motivations)

Language, Communication & Strategy

As companies undergo strategic adaptation in response to an
environmental stimuli, managers have to inspire workers,
encourage initiative, persuade others to undertake new initiatives
Managerial skill in using language - impromptu talks, flow of
words, and articulation in conversation, facial expressions and
gestures may affect worker response to initiatives.
Story telling is a means of motivating and mobilizing an organization
around a new strategic plan.

Gaining cooperation and influencing others depend upon social

skills - perceiving, attending to, remembering them, thinking
about, and making sense of the people in our social world;
understanding others perspective

The Strategy-Making Hierarchy

Corporate
Strategy

Realizing synergies from managing a portfolio of businesses

- Multi-business Strategy; establishing investment priorities
and steering corporate resources
Two-Way Influence

Business
Strategy

Actions to strengthen market position, competitive

capabilities or achieve profitable performance of a business
Two-Way Influence

Functional
Strategies

Managing a particular function/ activity in a way that support

the business strategy
Two-Way Influence

Operating
Strategies

Provides a game plan for managing specific operating

activities with strategic significance; delegation of
responsibility

Tasks of Corporate Strategy

Actions to boost performance of individual businesses

Capturing valuable cross-business synergies
1 + 1 = 3 effects
Establishing investment priorities and steering corporate
resources into attractive businesses
Choices about products, markets, and firm boundaries

Product Related

Market Related

Boundary Related

Building portfolio
around platforms

Globalization

Technology - Developing
internally or externally

Mergers &
Acquisitions

Entering new
markets

OEMs

Divestments
Focused Investments

Offshoring

Tasks of Business Strategy

Initiating approaches to produce successful performance in a

specific business
Crafting competitive moves to build sustainable competitive
advantage
Developing competitively valuable competencies and capabilities
related to business
Integrating strategic activities of functional areas
Aligning business strategies with corporate strategy

Business Strategy Decisions

Product Quality
Product Design
Product Support
New features

Tasks of Functional/ Operating Strategies

Game plan for a strategically-relevant function, activity, or

business process

Details on how key activities will be managed

Functional strategy provides support for business strategy

Narrow strategic approaches to manage key operating units

and strategically-relevant operating activities
Delegation of responsibility to frontline managers

Examples:
Customer Satisfaction, Employee Satisfaction
Cost Containment & Recovery
Workforce Reductions, Deploying support resources on
profitable projects
Service Standardization, Process &Tools Standardization,
Six Sigma, Service Quality Standards

How do we understand strategy of a companies ?

Articulations by chief executive and senior managers in

speeches, written documents

Vision & Mission statement

Values statements
statements that highlight intent, objectives, scope and action

Interpretation of actions taken to implement a series of

decisions

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Interpreting Strategy from Actions

Actions:
These are observable, externally oriented activities carried out
of firms to enhance their competitive standing
Actions can be tactical or strategic. Strategic actions are less
frequent, resource intensive and more consequential in the long
run.
Internally directed actions to keep alignment in goals, structure and
systems (planning, performance measurement and control,
rewards and punishments, training, resource allocation,
management information and communication)
Repertoire of actions: action volume, action magnitude, action
heterogeneity, action inertia

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Identifying a companys strategy What actions to look for?

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Source: Thompson et al, 2014e (Figure 1.1)

Evolution of products & capabilities over lifetime

Sandpaper
Carborundum
mining

Magnetic Tape

Road signs
Scotchtape

PRODUCTS

Acetate film
Surgical tapes
& dressings

Floppy disks &

data storage
products
Housewares/
kitchen products

Pharmaceuticals
Materials sciences
Health sciences

CAPABILITIES
Abrasives
1902

1920

Solar Film

Post-it notes
Flexible
circuitry

Ultra-compact
LED projector

Microreplication

Adhesives
1940

Thin-film
technologies
1960

New-product
development &
introduction
1980

2008

http://solutions.3m.com/wps/portal/3M/en_US/3M-Company/Information/Resources/History/

2012

Evolution of Products & Technologies

From candles to fats-oils to surfactants
Crushing seed for oil to absorbent fibers
Working with hard-water detergents gave
expertise on Calcium for toothpaste

Annual Report 1999

Floppy Disc maker enters CD-R in

1998 because it was growing @
300%; captures 16% of world market
of optical media.
From 1999 to 2004, Revenues
rose from $24 Mn to $364 Mn;
profits by 15 times, to $75 Mn
Sudden glut in optical disc
market, rise in raw material prices
& competition from Taiwanese.
Market shifts to new formats DVD,
Blu-ray discs, USB drives
By capitalizing on the strengths in
thin-film coating, company enters
solar power business in 2007 after
PE investment by Warburg Pincus

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But, after five years, profitability is still a mirage, stability and

growth threatened - a periodic existential crisis for the company

Vikram Akula, 37 yr old, former McKinsey

consultant, born in India, grew up in USA
founded SKS Microfinance in 1997

Mission to provide financial services to the

economically weaker sections [financial
inclusion]

His goal: to model a business on

McDonald's Corp. or Starbucks Corp.,
using technology and standardized systems
to wring out efficiency from each transaction
to keep cost lower

He raised $52K from more than 300 friends

and family, IPO of $350 Million
oversubscribed by 14 times in 2010.
Attracted foreign capital.

SKS launched operations with a single

employee in Hyderabad in 1998.

Company keeps it simple ..

Simple rules. Borrowers have to meet at a certain

time. Repay each week, same amounts

Akula convinced friends from McKinsey and KPMG to

volunteer time to create simple loan-management
software to be used by loan managers without
computer experience.

Software helped SKS diversify its risk

A few years ago when it found excess exposure to buffaloes, it

started emphasizing other areas like tractor repair, brick making,
tire re-treading and tea shops.

Bottom line: Fast turnaround meant a loan officer

visits three villages each morning instead of one meets average of 50 borrowers in each meeting
instead of 20.

No Philanthropy : It was a profitable company

Foreign banks in India face

limits on opening of local branches

32% of loans to priority sectors

including agriculture and rural industry

Director of Microfinance, Citigroup.

SKS proposition to these banks

"I may have the smallest business

(within Citigroup) but I have the
largest potential client group in
the world." Robert Annibale, Global

Pay us to find micro-borrowers and

manage loans for you, and you'll get
backdoor access to the Indian consumer
market

200,000 borrowers with a default rate of

less than 2% by 2006

Between 1996 - 2009, SKS grew its

borrowers by over 200% p.a., making it
the largest micro-lender in Asia-Pacific.

Promoter makes to the list of 100

men and women, whose power,
talent or moral example is
transforming world The Time,
May, 2006

Various awards on the way

http://www.sksindia.com/our_journey.php

Emergent challenges

Changes in the regulatory environment in 2010

Andhra Pradesh Govt. passes an ordinance to regulate microfinance sector because of farmers suicides.

Political accusations of charging hefty interest rates from illiterate, poor

Corporate governance issues surfaces. Founder & senior management

sells all their holding.

Sept 2011 - CEO is fired, founder, Mr Akula, resigns from board

Should SKS be run as a typical moneylender or social enterprise?

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