Strategic Management...

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Key Words...
Strategic Pyramid – Strategic Vision – Strategy
Alternatives – Five Forces Model – Competitive
Advantage – Generic Strategies – Growth Strategies –
Diversification Strategy – BCG Matrix – GE Business
Screen – Cost Strategies – Exit/Entry Barriers –
Resource Analysis – Core Competencies – Product-
Life-Cycle – Top-Down-Management – Industry
Analysis – International Strategies – SWOT Analysis –
Portfolio Analysis – McKinsey’s 7-S Framework – Five-
Phase Growth Model – Strategy Development –
Merger&Acquisitions – Technology Strategies – Value
Propositions – Ansoff Matrix – Experience Curve –
Strategic Options – Window of Opportunity
The Five Tasks of Strategic Management

Task 1 Task 2 Task 3 Task 4 Task 5

Evaluating
Developing a Crafting a performance,
Setting Implementing
strategic vision strategy to monitoring new
objectives and executing
and business achieve the developments,
the strategy
mission objectives and initiating
corrective
adjustments

Improve/ Improve/ Recycle to

Revise Revise change
change tasks 1, 2, 3 or
as needed as needed as needed
as needed 4 as needed
Strategic Approaches to Preparing for
Future
Market Conditions
COMPANY APPROACHES

Reactive/Follower Proactive/Leader

Rapid Rushing to catch Aggressively

Revolutionary up to keep from altering strategy to
Change being swamped by make waves and
the waves drive change
FUTURE
MARKET
CONDITIONS

Anticipating
Gradual Revising strategy change and
Evolutionary to catch the waves initiating strategic
Change
actions to ride the
crest of the waves
 The Strategic-Making Pyramid I
A DIVERSIFIED COMPANY

Responsibility of
corporate-level
managers
Corporate
Strategy
Two-Way Influence

Responsibility of
business-level Business Strategies
general managers

Two-Way Influence

Responsibility of heads of Functional Strategies

major functional activities (R & D, manufacturing, marketing,
within a business unit finance, human resources, etc.)
or division
Two-Way Influence
Responsibility of plant
managers, geographic
Operating Strategies
(regions and districts, plants,
unit managers, and lower-
departments within functional areas)
level supervisors
 The Strategic-Making Pyramid II

A SINGLE – BUSINESS COMPANY

Responsibility of
executive-level
managers Business
Strategy

Two-Way Influence
Responsibility of heads
of major functional Functional Strategies
activities within a
(R & D, manufacturing, marketing,
business
finance, human resources, etc.)

Responsibility of plant
managers, geographic
unit managers, and lower-
level supervisors
Two-Way Influence
Operating Strategies
(regions and districts, plants,
departments within functional areas)
Identifying Strategy for a Single Business
Moves to respond and react
to changing conditions in the
macroenvironment and in industry
and competitive conditions

Planned, proactive moves Scope of geographic

to outcompete rivals coverage

Collaborative
BUSINESS
Efforts to build competitive partnerships and
STRATEGY
advantage strategic alliances
with others

Key functional strategies to build competitively valuable

recource strengths and capabilities

R & D, Supply chain Manufacturing Sales, Human Financial

technology, management strategy marketing, resources strategy
engineering strategy promotion & strategy
strategy distribution
strategies
 The Networking of Strategic Visions,
Missions, Objectives, and Strategies
LEVEL 1
Overall Corporate
Responsibility of Corporate-Level Corporate-Level
Scope and
corporate-level Objectives Strategy
Strategic Vision
managers
Two-Way Influence Two-Way Influence Two-Way Influence
LEVEL 2
Responsibility of Business-Level
Business-Level Business-Level
business-level general Strategic Vision
Objectives Strategy
managers and Mission

Two-Way Influence Two-Way Influence Two-Way Influence

LEVEL 3
Responsibility of heads
Functional Functional Functional
of major functional
Area Missions Objectives Strategies
activities within a
business unit or division
Two-Way Influence Two-Way Influence Two-Way Influence
LEVEL 4
Responsibility of plant
managers, geographic Operating Unit Operating Unit Operating
unit managers, and Missions Objectives Strategies
managers of front-line
operating units
 Factors Shaping the Choice of Company
Strategy
STRATEGY-SHAPING FACTORS
EXTERNAL TO THE COMPANY
Economic
social, Competitive Company
political, conditions opportunities
regulatory and and overall and threats to
community industry the company‘s
citizenship attractiveness well-being
considerations
Conclusions
Identification Crafting a
concerning
The mix of considerations that determines and evaluation strategy
how internal &
a company‘s strategic situation of strategy that fits
external factors
alternatives the overall
stack up
situation
Company Personal
resource ambitions, Shared
strengths, business values
weaknesses, philosophies, and
competencies, ethical company
competitive principles of culture
capabilities key executives
STRATEGY-SHAPING FACTORS
INTERNAL TO THE COMPANY
 A Company‘s Macroenvironment

MACROENVIRONMENT

Le
g
IMMEDIATE INDUSTRY &

i sl
gy

COMPETITVE ENVIRONMENT

at
lo

io
no

n
ch

an
Te

d
Suppliers Substitute

re
g ul
at
io
ns
So COMPANY
cia
lV i cs
al
ue Rival Firms Buyers ph
ra
sa
nd og
e m
Li d
fe New Entrants n
sty tio
les la
o pu
P
The Economy at large
The Five-Forces Model of Competition

Firms in other
industries
offering
Substitute
Products

Suppliers of
raw materials,
RIVALRY
parts,
AMONG Buyers
components or
COMPETING
other resource
SELLERS
inputs

Potential
New Entrants
Mobilizing Company Resources to
Produce Competitive Advantage

Competitive
Advantage
Strategic
Assets and
Market Achievements

Core and Distinctive

Competencies

Competitive
Capabilities

Company Resources
 Representative Company Value Chain

Purchased Distribution
Primary Supplies and Sales and Profit
and Operations Service
Activities Outbound Marketing Margin
and Costs Inbound Logistics
Logistics

Product R & D, Technology and Systems Development

Support
Activities Human Resources Management
and Costs
General Administration
Representative Value Chain for an Entire
Industry

Supplier-Related Company Distribution Related Customer Related

Value Chains Value Chain Value Chains Value Chains

Activities,
Costs
Activities, Internally and Margins of
Costs, and Performed Buyer/End User
Forward Channel
Margins of Activities, Costs Value Chains
Allies and
Suppliers and Margins Strategic
Partners
The Five Generic Competitive Strategies

TYPE OF COMPETITVE
ADVANTAGE BEING PURSUED

Lower Cost Differentiation

A Broad Overall Broad

Cross-Section Low-Cost Differentiation
of Buyers Leadership Strategy
Strategy

MARKET Best-Cost
TARGET Provider
Strategy

A Narrow Focused Focused

Buyer-Segment Low-Cost Differentiation
(or Market Niche) Strategy Strategy
The Building and Eroding of Competitive
Advantage

Buildup Period Benefit Period Erosion Period

Size of
Competitive
Advantage

Size of
advantage
achieved
Strategic
moves Imitation,
are successful duplication,
in producing and „attacks“
a competitive by rivals erode
advantage the advantage

Time
Strategy Options for Local Companies in
Competing against Global Challengers

RESOURCES AND COMPETITIVE

CAPABILITIES

Tailored for Transferable to

home Market other Countries

Dodge Rivals
by shifting to
High a new Contend on a
Business Model Global Level
or Market Niche
INDUSTRY
PRESSURES
TO GLOBALIZE
Transfer
Defend by
Company
using
Low Expertise to
„Home-Field“
Cross-Border
Advantages
Markets
 The Three Strategy Horizons for
Sustaining Rapid Growth

Strategy
Horizon 3
Portfolio of Strategy
Horizon 2  „Long-Jump“
Strategy initiatives to sow the
Initiatives seeds for growth in
 „Medium-Jump“in businesses of
initiatives to leverage the future
existing resources
and capabilities to  Minimal revenue
Strategy pursue growth in gains now and likely
Horizon 1 new businesses losses, but potential
for significant
 Moderate revenue
contribution to
„Short-Jump“
and profit gains now, revenues and profits
initiative to fortify
but foundation laid in 5-10 years
and extend current
for sizable gains
businesses
over next 2-5 years
 Immediate gains in
revenues and profits

Time
 Value Chains for Related Businesses

Representative Value Chain Activities

Support Activities

Supply Sales
Chain Customer
Business A Technology Operations and Distribution
Activities Service
Marketing

Competitively valuable opportunities for technology or skills transfer, cost

reduction, common brand name usage, and cross-business collaboration
exist at one or more points along the value chains of A and B.

Supply Sales
Business B Chain Customer
Technology Operations and Distribution
Activities Service
Marketing

Support Activities
 Value Chains for Unrelated Businesses

Representative Value Chain Activities

Support Activities

Supply Sales
Chain Customer
Business A Technology Operations and Distribution
Activities Service
Marketing

An absence of competitively valuable strategic fits between the value

chain for Business A and the value chain for Business B

Supply Sales
Customer
Business B Chain Technology Operations and Distribution Service
Activities Marketing

Support Activities
 Strategy Options for a Company that is
Already Diversified
Make New Acquisitions and/or Enter Divest Some of the Company‘s
into Additional Strategic Partnerships Existing Business

 To build positions in new related/  To narrow the company‘s business

unrelated industries base and scope of operations
 To strengthen the position of business  To eliminate weak-performing
units in industries where the firm businesses from portfolio
already has a stake  To eliminate businesses that no
longer fit
Strategy
Options
for a
Diversified
Company

Become a Multinational, Restructuring the Company‘s

Multi-Industry Enterprise Portfolio of Businesses
 To succeed in globally competitive core  By selling poorly performing or noncore
businesses against international rivals business units
 To capture strategic fit benefits and win  By using cash from divestitures plus
a competitive advantage via unused debt capacity to make new
multinational diversification acquisitions
Identifying a Diversified Company‘s
Strategy – What to Look for
Whether
diversification is
based narrowly in a
Approach to Whether the
few industries or
allocating businesses the
broadly in many
investment capital company has diversified
industries
and resources into are related,
across business unrelated, or a
units mixture of both

A Whether the
Efforts to capture Diversified scope of company
cross-business Company‘s operations is mostly
strategic fits domestic, increasingly
Strategy multinational or
global

Moves to
Moves to divest
strengthen
weak or
Moves to build positions in existing
unattractive
positions in new businesses via new
businesses
industries via acquisitions
acquisitions, merger,
internal start-up, or
alliances
 A Representative Nine-Cell Industry
Attractiveness-Competitive Strength
Matrix
COMPETITIVE STRENGTHS/BUSINESS POSITION
Strong Average Weak

High Business F
Business A

LONG-TERM
INDUSTRY Medium
ATTRACTIVENESS
Business C Business B

High priority for investment

Low
Medium priority for investment
Business E Business D
Low priority for investment
The Eight Big Managerial Components of
Implementing Strategy
Building an
organisation
with competencies,
Exercising the capabilities, Allocating ample
strategic leadership and resource resources to
needed to drive strengths strategy-critical
implementation
activities
forward

The Strategy implementer‘s

action agenda
Shaping the Establishing
work environment
 What to do now vs.
strategy-
and corporate culture later supportive
to fit the strategy  What requires much time policies
and personal attention
 What can be delegated

to others

Tyring rewards Instituting best

and incentives practices and
to the achievement Installing pushing for
of key strategic information, continuous
targets communication, and improvement
operating systems
The Components of Building a Capable
Organization

Staffing the Organization

 Putting together a strong management team
 Recruiting and retaining talented employees

AN
Building Core Competencies and Competitive Capabilities
ORGANIZATION
 Developing a competence/capability portfolio suited CAPABLE
to current strategy OF GOOD
 Updating and reshaping the portfolio as external STRATEGY
conditions and strategy change EXECUTION

Structuring the Organization and Work Effort

 Organizing business functions and processes, value
chain activities, and decision making
 Value Chain
(as a Percent of Total Price to the Consumer)

31 100
Value added
related to
6 31% distribution
18 and marketing

45
Value added
related to
69% supply and
assembly

Purchasing R&D Price to

Consumer
Production Sales &
Marketing
 Why do Mergers Fail?
FINISH

START Length of the integration

process
Excessive competition (86% of companies admitted
for leading positions having inadequate
communication channels)

Focusing on the old

organizational chart rather Concepts for integration are
Disregard for the needs
than new business processes not detailed enough.
of employees
The acquired company is
(61% of the companies
supposed to accept the
surveyed defined reduction in
company culture of the
headcount as the main goal
purchaser
to produce quick success)
Conflicting goals among
newly merged departments
(76% of surveyed companies
only focused on cost reductions) Disregard for change
in the process of integrating
in new partner
(only 32% had an active risk
management in place)
 The Value Chain

Single-Industry Firm

Supplier Supplier Channel Buyer

Value Chains Value Chains Value Chains Value Chains

Diversified Firm
Firm Value Chain

Business Unit
Value Chain

Supplier Business Unit Channel Buyer

Value Chains Value Chain Value Chains Value Chains

Business Unit
Value Chain
 The Generic Value Chain

FIRM INFRASTRUCTURE
HUMAN RESOURCES MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
MARGIN

INBOUND OUTBOUND MARKETING

OPERATIONS SERVICE
LOGISTICS LOGISTICS & SALES

Marketing Sales Force Sales Force Technical

Management Advertising Administration Operations Literature Promotion
 Risks of the Generic Strategies

Risks of Cost Leadership Risks of Cost Differentiation Risks of Cost Focus

Cost leadership is not sustained Differentiation is not sustained The focus strategy is imitated
 competitors imitate  competitors imitate The target segment becomes
 technology changes  bases for differentiation become
structurally unattractive
 other bases for costs leadership
less important to buyers  structure erodes
erode  demand disappears

Proximity in differentiation Cost proximity is lost Broadly targeted competitors

is lost overwhelm the segment
 the segment‘s differences
from other segments narrow
 the advantages of a broad
line increase

Cost focuses achieve even Differentiation focuses New focuses subsegment the
lower cost in segments achieve even greater industry
differentiation in segments
 Three Generic Strategies

COMPETITIVE ADVANTAGE

Lower Cost Differentiation

Broad
1. Cost Leadership 2. Differentiation
Target

COMPETITIVE
SCOPE

Narrow
3A. Cost Focus 3B. Differentiation Focus
Target
Operational Effectiveness Versus
Strategic Positioning

High
Productivity Frontier

NONPRICE
BUYER
VALUE
DELIVERED

Low

High Low

RELATIV COST POSITION

 Competitor Configuration and Industry
Stability

EXTENT OF DIFFERENTIATION/SEGMENTATION

Low High

Modest share
Good difference
Competitions needed for
stability
COMPETITORS

Large share
Bad difference
Competitions needed for
stability
Shared Value Activities and Cost Position

High Potentially
important if Strategic
cost behavior interrelationships
changes
PERCENTAGE
OF OPERATING
COSTS OR ASSETS
REPRESENTED
BY THE VALUE
ACTIVITY
Potentially
Unimportant important if
interrelationships cost structure
changes
Low

Low High

SENSITIVITY TO SCALE,
LEARNING, OR UTILIZATION
IN THE VALUE ACTIVITY
 Alternative Scope of Leader and
Challenger Strategies I

GEOGRAPHIC SCOPE

Local Regional National Global

Segment

INDUSTRY Industry
SCOPE

Related Leader Scope

Industries
Possible
Challenger Scope
 Alternative Scope of Leader and
Challenger Strategies II
VERTICAL SCOPE

More Extensive More Extensive

Backward Average Forward
Integration Integration Integration

Segment

INDUSTRY
SCOPE Industry

Related Leader Scope

Industries
Possible
Challenger Scope
The Wheel of Competitive Strategy

Product Line Target Market

Finance Marketing
and Control
GOALS

Definition of Objectives for

how the profitability,
business is growth, market Sales
R&D share, social
going to
compete responsiveness
etc.

Purchasing Distribution

Labor Manufacturing
 Barriers and Profitability

EXIT BARRIERS

Low High

Low, stable Low, risky

Low
returns returns

ENTRY
BARRIERS

High, stable High, risky

High
returns returns
Generic Competitive Strategies

Return on
Investment

Market Share
Firm‘s Strategic Needs to Remain in the
Business

Has Strengths Relative Lacks Strengths

to Competitors for Relative to Competitors
Remaining Pockets for Remaining Pockets

Favorable
Leadership Harvest
Industry
Structure or or
for Decline Niche Divest Quickly

Unfavorable
Industry Niche
Structure or Divest Quickly
for Decline Harvest
 Five Forces Determining Segment
Structural Attractiveness
Criteria
• Size
• Market Growth, Pricing
• Market Diversity
• Competitive Structure
Industry Attractiveness • Industry Profitability
High Medium Low • Technical Role
• Social
• Environmental
• Legal
High • Human
Criteria
Business Unit Position

• Size
• Growth
• Share
• Position
• Profitability Medium
• Margins
• Technical Position
• Strengths/Weaknesses
• Image
• Pollution Build
• People
Low Hold

Harvest
The Quest for Competitiveness

The Quest for

Competitiveness

Restructuring Reengineering Reinventing

the Portfolio and Process and Industries and
Downsizing Continuous Regenerating
Headcount Improvement Strategies

Smaller Better Different

 Finding the Limits of the Current
Economic Engine

Concept of What customers and needs

„Served Market“ aren‘t we serving?

Revenue and Could profits be extracted at a

Margin Structure different point in the value chain?

Might customers‘ needs be better

Configuration of
served by an alternate configuration
Skills and Assets
of skills and assets?

Flexibility and What is our vulnerability to

Adaptiveness „new rules of the game?“
 Beyond „Customer-Led“

CUSTOMER TYPES

Served Unserved

Articulated

NEEDS

Unexploited
Unarticulated
Opportunities
Why do Great Companies Fail?

Unparalleled Accumulation Optimized Success

track record of abundant business confirms
of success resources system strategy

No gap between A view that Deeply Momentum

expectations resources etched is mistaken
and performance will win out recipes for leadership

Contentment Resources Vulnerability Failure to

with current substitute to new „reinvent
performance for creativity rules leadership“

INABILITY TO ESCAPE THE PAST! INABILITY TO INVENT THE FUTURE!

Categories of Resource Leverage

Concentrating

Accumulating Conserving Complementing

Recovering
 Managing Migration Paths

Creating
and Managing
Coalitions

Learning
Investing and
in Core Experimentation
Competencies in the Market

Setting
Standards
and Building Global
Influencing Brand and
Regulation Distribution
 Establishing the Core Competence
Agenda
MARKET

Existing New

Fill in the blanks White spaces

What is the opportunity What new products

to improve our position or services could we
Existing in existing markets by create by creatively
better leveraging redeploying or
our existing core recombining our
competencies? current core
competencies?
CORE
COMPETENCIES Premier plus 10 Mega-opportunities

What new core What new core

competencies will we competencies would
New need to build to we need to build to
protect and extend participate in the most
our franchise in exciting markets of the
current markets? future?
An Alternate Conception of the Diversified
Firm

Banner
Brand

Business
Units

Core
Products
(Platforms)

Core
Competencies
Criteria for Integration Decisions

Transaction Coordination
Setup Costs Risk
Costs Effectiveness

Capital Information Possibility for Run lengths,

(e.g., equipment, collection and unreasonable inventory levels
acquisitions) processing price changes

Systems Legal Supply or Capacity

development outlet utilization
foreclosure

Training Sales and Insulation from Delivery

purchasing market (e.g., from performance
technical changes,
new products)

Quality
 Vertical Market Structures

NUMBER OF BUYERS

One Few Many

Buyers No one
Many
dominate dominates

NUMBER
OF Few
SELLERS High
trading Sellers
risk dominate

One
 Transaction-Asset Matrix

ASSET SPECIFICITY, DURABILITY, AND INDENSITY

Low High

Detailed, standardized Detailed, probably

Seldom contracts (e.g., office unique contract
lease, credit sale (e.g., major public
arrangements) construction projects)

TRANSACTION
FREQUENCY

Vertical integration
Standardized
(e.g., bauxite,
Often transactions
specialized auto
(e.g., groceries)
components)
 Primary Influence Processes
BROAD ENVIRONMENT
Global Global
Economic Political/Legal
Forces Forces

Competitors Customers

Suppliers Financial
Intermediaries
The
Organization
Government
Activist
Agencies and
Groups
Administrators

Local
Unions
Communities

OPERATING ENVIRONMENT
Sociocultural Technological
Forces Change
 The Product Life Cycle

Introduction Growth
Unit
Sales A
Volume
B

Maturity Commodity or Decline

Time
Note: A = Moderate Growth, B = Commodity, C = Decline
 Internal Venturing Alternatives

STRATEGIC IMPORTANCE

Important Not important

High Control/
No Control/
No Operational
No Operational
Coupling
Unrelated Coupling
Special Business
Complete Spinoff
Units
OPERATIONAL
IMPORTANCE No Control/
High Control/ Strong Operational
Strong Operational Coupling
Related Coupling
Nurturing and
Direct Integration Contracting
The Boston Consulting Group Matrix

18%

16% Stars Question Marks

14%

12%
BUSINESS
GROWTH 10%
RATE
8%
Cash Cows Dogs
6%

4%

2%
10X 4X 2X1.5X 1X .5X .2X .1X

RELATIVE COMPETITIVE POSITION

(RELATIVE MARKET SHARE)
 The General Electric Business Screen

COMPETITIVE POSITION

Strong Average Weak

Low

INDUSTRY Medium
ATTRACTIVENESS

High
The Top-Down Control Cycle

Ownership of Accounting Information

Read
down empowers
from
here Top Management

to plan, analyze, and transmit

instructions to the
Feedback
Workforce

who manipulate processes

and cajole customers
to achieve accounting

Results
The Bottom-Up Empowerment Cycle

Satisfying Customers
to learn and make changes that
continuously improve processes Feedback
capable of
Workforce
to be responsive (listen) and
flexible (change quickly) by
empowering the
Companies
to choose among global
opportunities and requires
Read Customers
up
from empowers
here Ownership of Information
The Internal Diversification Process

Diversification
Decision
Search and Idea
Desire to expand into a Generation
Selection, Review,
broad area acceptable
to key stakeholders Development of and Development
Institutionalization
specific new business
proposals based on Ongoing selection of
Test marketing and
existing knowledge new products for
commercialization
fused with newly funding
developing
knowledge
 Designs for Organizational
Entrepreneurship
STRATEGIC IMPORTANCE
Very Important Uncertain Not Important
3. 6. 9.
High Control/ Moderate Control/ No Control/
No Operational No Operational No Operational
Unrelated Coupling Coupling Coupling

Special business Independent Complete spin-off

units business units
2. 5. 8.
High Control/ Moderate Control/ No Control/
Some Operational Some Operational Some Operational
OPERATIONAL Partly
Coupling Coupling Coupling
RELATEDNESS Related
New product New venture Contracting
business department division
1. 4. 7.
High Control/ Moderate Control/ No Control/
Strongly Strong Operational Strong Operational Strong Operational
Related Coupling Coupling Coupling

Direct Integration Micro new ventures Nurturing and

department contracting
The Firm‘s External Environment

Remote Environment
(Global and Domestic)
• Economic
• Social
• Political
• Technological
• Ecological

Industry Environment
(Global and Domestic)
• Entry barriers
• Supplier power
• Buyer power
• Substitute availability
• Competitive rivalry

Operating Environment
(Global and Domestic)
• Competitors
• Creditors
• Customers
• Labor
• Suppliers

THE FIRM
Forces Driving Industry Competition

Potential Entrants

Threat of
new entrants

Industry
Bargaining power Bargaining power
competitors
of suppliers of buyers
Suppliers Buyers

Rivalry among
existing firms

Threat of
substitute products
or services

Substitutes
 International Strategy Options I

LOCATION OF ACTIVITIES

Geographically Geographically
dispersed concentrated

High foreign investment

High with extensive coordination Global strategy
among subsidiaries

COORDINATION
OF ACTIVITIES
Country-centered strategy
by multinationals with Export-based strategy
Low a number of domestic firms with decentralized
operating only one marketing
country
International Strategy Options II

High
Joint Foreign Foreign
venture branch subsidiary

PRODUCT Joint Foreign

Licensing/ venture branch
DIVERSITY

Joint
Export Licensing/ venture
Low

Low High
MARKET COMPLEXITY
 SWOT Analysis Diagram
Numerous
environmental
opportunities

Cell 3: Cell 1:
Supports a turnaround- Supports an
oriented strategy aggressive strategy

Critical Substantial
internal internal
weaknesses strengths

Cell 4: Cell 2:
Supports a Supports an
defensive strategy diversification strategy

Major
environmental
threats
 Decay of New Product Ideas

60
Screening

55

Business analysis
Commercialization
NUMBER OF 20 Development
IDEAS
One successful
15
new product
Testing
10

10 20 30 40 50 60 70 80 90 100

CUMULATIVE TIME (PERCENT)

Grand Strategy Selection Matrix

Overcome
weaknesses

Turnaround or Vertical integration

retrenchment Conglomerate
Divestiture diversification
Liquidation
Internal External
(redirected (acquisition
II I
resources or merger for
within the III IV resource
firm) capability)

Concentrated growth Horizontal integration

Market development Concentric diversification
Product development Joint venture
Innovation

Maximize
strengths
 BCG‘s Growth/Share Matrix I

RELATIVE MARKET SHARE

High Low

Star Question Mark

A

High
E Divest
B
D
MARKET GROWTH RATE

Low C
G Divest

Cash Cows Dog

Targeted Present position
future position in the corporate
in the corporate portfolio
portfolio
 BCG’s Growth/Share Matrix II

RELATIVE MARKET SHARE

10x High 1.0x Low 0.1x

Low Star businesses Question marks

REAL
MARKET 10%
GROWTH

Cash generating
High Dog businesses
businesses
 Underlying Relationship between ROI
and Market Share in the New BCG Matrix

SIZE OF THE ADVANTAGE

Small Large
Stalemate Volume
ROI ROI
Few

NUMBER OF WAYS Market share Market share

TO ACHIEVE
COMPETITVE
Fragmented Specialization
ADVANTAGE
ROI ROI

Many

Market share Market share

 The Life-Cycle Portfolio Matrix
THE BUSINESS UNIT‘S COMPETITIVE
POSITION
Strong Average Weak

Development
A

C
Growth B

D
THE INDUSTRY‘S STAGE Competitive
shakeout F
IN THE EVOLUTIONARY
LIFE CYCLE
E
Maturity

Saturation
G
H
Decline
McKinsey 7-S Framework

Strategy

Structure Systems

Shared Values
(culture)

Skills Style
(management) (leadership)

Staff
(management)
 Managing the Strategy-Culture
Relationship

POTENTIAL COMPATIBILITY OF CHANGES

WITH EXISTING CULTURE

High Low

Synergistic – focus on Manage around

Few reinforcing culture the culture
CHANGES IN KEY
ORGANIZATIONAL 2 3
FACTORS THAT ARE
NECESSARY TO 1 4
IMPLEMENT THE Link changes to Reformulate strategy or
NEW STRATEGY basic mission and prepare carefully for
Many fundamental long-term, difficult
organizational norms change
 A Typical Budgeting System for
Controlling Strategy Implementation
Long-term objectives Grand strategy

Annual objectives Operating strategy

Capital-
Capital
investment
budget
requirement

With which management develops

MONITOR,
Sales/revenue
EVALUATE, Sales forecasts Income goals
budgets
AND ADJUST
Which are broken down into overall expense and cost goals

Expenditure budgets
and schedules
Budgets and schedules in

Manufacturing Marketing R&D Administration Financial

Production Advertising Research Overhead Cash flow Capital
Materials Selling
Personnel Personnel
Capital
Budgeted financial statements
Which are consolidated into 1. Cash flows
2. Income statement
3. Balance sheet
Strategy is the Primary Determinant of
Success or Failure

Success

Mission,
Window Strategy goals, and
of objectives
opportunity s
ra tion cy)
pe en
an d o effici
tics and
Tac veness
ecti
(eff Competitive
advantage
Distinctive
competence,
comparative
advantage
Failure
Strategic, Tactical, and Operational Views
at Various Organizational Levels

Strategic
Upper Tacti
cal
management Ope
ra
tio
na
l

Middle Strategic
management Tacti
Op cal
er
at
io
na
l
First-line suppervisory
employees
Strategic
O T actic
pe al
ra
tio
t0 na t+1 t+2+5
l

PLANNING HORIZON
 Greiner‘s Five-Phase Growth Model

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Large
5. Crisis of ?

4. Crisis of
RED TAPE 5. Growth through
COLLABORATION
3. Crisis of
CONTROL 4. Growth through
SIZE OF
ORGANIZATION COORDINATION
2. Crisis of
AUTONOMY
3. Growth through
1. Crisis of DELEGATION
LEADERSHIP
2. Growth through
DIRECTION Evolution stages

Small 1. Growth through Revolution stages

CREATVITY
Young Mature
AGE OF ORGANIZATION
 Firms Compete for Customers and
Resources; Two Cases

Case 1

Little Business A
competition Resource K Intense
Customer X
for Resource L competition
Customer Y for
resources Resource M Customer Z
Business B customers

Case 2

Customer X
Intense b A
Business Customer Y
competition Resource M Customer Z Little
for Resource N competition
resources Resource O Customer J for
Business B Customer K customers
Customer L
 Intensity of Competition

COMPETITION FOR CUSTOMERS

Intense competitive Moderate pressure

Intense (purchasing)
pressure
Case 2

COMPETITION
FOR Moderate pressure
RESOURCES (marketing) Little competitive
Minimal
Case 1 pressure

Intense Minimal
Value and the Price-Performance Curve

High

Lesser value
Premium
Loser

Good

RELATIVE
Average
PRICE

Commodity Greater value

Economy Winner

Low

Low High

RELATIVE QUALITY
 Functional Strategy Areas

Design strategies
• Product/service research
• Product/service development

Delivery strategies
• Pricing
Processing strategies • Promotion
Sourcing strategies • Process development
• Procurement • Channels
• Operations and productivity • Sales
• Resources • Fabrication • Distribution
• Assembly • Service

Supporting strategies
• Planning and control
• Training and development
• Maintenance
• Legal
• Etc.
Basic Organizational Forms for
Multinational Operations
Degree of
parent company Organizational Form Main Characteristics
control

Minimum capital commitment

Licensing Minimum long-term profits
Risk of loss of license
Minimum control over operations
Minimum

Low capital commitment

Branch operations Easy entry
Risk of loss of franchise
Long-term profitability is tentative

Low
Flexible capital commitment
Relatively easy entry
Joint ventures Local commitment
Good opportunity for long-term profits
Acquisition of local knowhow and
management skills
Substantial
Risk of expropriation or discriminatory
action
Subsidiary operations Large capital commitment
Long-term profit potential is high but
so is risk
Close control over operations
Almost complete
 Types of Acquisitions

Vertical
integration

Concentric
diversification Mining Horizontal
diversification

Steel Steel
Aluminium ingot ingot
ingot producer producer
producer A B

Steel Electronics
frabricator company

Unrelated
diversification
 Strategic Options and the Life Cycle

PRODUCT/MARKET STAGE

Embryonic Aging
or or
introduction Growth Maturity decline

Dominant

Strong
Wide range of
strategic
COMPETITIVE Favorable options
POSITION
ment
p
elo
e dev
Tenable
le ctiv
se
ti on, Danger zone,
u
Ca Retreat to niche,
Weak withdraw, or liquidate
 Attractiveness/Competitive Position
Strategies
COMPETITIVE POSITION

Strong Average Weak

• Evaluate
potential for
•Grow • Specialize
leadership via
•Seek dominance • Seek niches
High Segmentation
•Maximize • Consider
• Identify
investment acquisitions
weaknesses
• Build strengths
• Identify
growth • Identify growth
INDUSTRY segments segments • Specialize
ATTRACTIVENESS Medium • Invest strongly • Specialize • Seek niches
• Maintain • Invest • Consider exit
position selectively
elsewhere
• Maintain • Trust leader‘s
overall • Prune lines statesmanship
position • Minimize • Sic on
Low • Seek cash flow investment competitor‘s
• Invest at • Position to cash generators
maintenance divest • Time exit and
levels divest
Technology Strategies for a Sustainable
Competitive Advantage

Technology change

Political/legal National endowments

Block

• Firm capabilities
• Technology
• Structure, systems
and people

Run Team-up

Customer Competition
preferences and
expectations Globalization
Macro-economic
Value Propositions Across Four
Quadrants

Collaborate
Capability
• Focuses on developing abilities
• Creates a sustainable advantage
Create
Innovation
• Focuses on innovation in products,
processes and services
• Creates growth and industry leadership

Market awareness
Efficiency • Focuses on competitive advantage through
• Focuses on improving process efficiency agility and market awareness and speed
• Creates better products more cheaply • Creates asset productivity and shareholder value

Control Compete
 The Ansoff Matrix

PRODUCTS AND/OR SERVICES

Existing New

New
Market product
Existing penetration development

MARKETS

Market
New development Diversification
 The Customer Growth Matrix

PRODUCTS AND/OR SERVICES

Existing New

Customer Customer
Existing loyalty extension

CUSTOMERS

Customer Customer
New acquisition diversification
Combining Elements of the Customer
Growth Matrix

PRODUCTS AND/OR SERVICES

Existing New

Loyalty
Customer through Customer
Existing loyalty extension
extension

Acquisition
CUSTOMERS through
referral

Customer Customer
New acquisition diversification
Conceptual Model for the Evaluation of
Product Innovation Projects

PROJECT ENVIRONMENT

parent holding
organization subcontractors organization

market client competitor

formulate specify organize realize

PROJECT
Alternative Aims in Various Stadia of
Product Development

KNOWLEDGE STRATEGIC BUSINESS

BUILDING POSITIONING INVESTMENT

is it attractive? do we want it?

CONCEPT

What is how we gonna

possible? can we do it?
do it?

hope create the future: making profit

and fear • alternatives
• analyses
UNCERTAINTY • choice

Cost Option Investment

MARKET

COMMITMENT OF RESOURCES
Core Competence Management Model

Distinctive
assets

Raw materials

Country-specific
Co-specialized
assets
Company-specific
Product positioning with
Internal learning intended competitive advantages

Internal alignment
Learning from Competitive dynamics Learning from
resource markets External interpretation output markets

The „intelligent enterprise“

Core Competencies: The Link between the
Economics of the Firm & Management
Cognition
Interpreting the external environment

Flexible
recipes and
routines

CORE
COMPETENCES

Shared values Tacit knowledge

and and
Understanding beliefs understandings Understanding
internal dynamics competitive dynamics
Technical Risk/Business Risk Model

High Business Very

safe risky
(Moderate (Maximum
Management Management
Involvement) Involvement)

TECHNICAL
RISK
Very Technically
safe safe
(Minimal (Moderate
Management Management
Involvement) Involvement)
Low

Low High
BUSINESS RISK
Typical Industry Experience Curve
Strategies

On-Line Inventory On-Line Teller

Terminals
Bar Code ATM, Customer
Point-of-Sale Terminals Information Database
People Systems People Systems
Home Computers Home Computers

Retail Banking

Shop Floor Systems On-Line Inventory

Just-in-Time Manufacturing
Personal Computers
CAD/CAM, CIM for Customers
Robotics
Distribution through Interorganizational
People Systems Systems

Manufacturing Distribution
 The Cycle of Timing/Know-How
Competition
The Firm builds a Technological Escalating Costs
Resource Base and Risks on
to Create Advantage Each Cycle

Then Moves into a New

Market First

Followers Imitate Products and Overcome Switching Costs and Brand Loyalties

First Mover Throws Up Impediments to

Imitation of Subsequent Products First Mover
Moves
Followers Overcome the Downstream
Impediments and Replicate the into Higher
Resource Base of the First Mover Value-added
Products

First Mover Uses a First Mover Uses a

Transformation Strategy Leapfrog Strategy
and Abandons Product Design/ to a New Resouce Base
Technology-based Approach

Builds Resources to Match

the Follower‘s
Manufacuring Skills

Price War
 Disruption and the New 7-S’s
VISION PLANNING

Vision for Disruption

Identifying and creating
opportunities for
temporary advantage
through understanding
• Stakeholder Satisfaction
• Strategic Soothsaying
directed at identifying new ways to serve
existing customers better or new
customers that no one else
serves now.

Market Tactics for Disruption

Capability for Disruption Disruption Seizing the initiative to gain
advantage by
Sustaining for momentum by
developing flexible capacities for • Shifiting the Rules
• Speed • Signaling
• Simultaneous and
• Surprise
Sequential Strategic
that can be applied across Thrusts
many actions to build a series
with actions that shape, mold, or
of temporary advantages
influence the direction or nature of
the competitors‘ responses.

RESOURCE PLANNING PUNCH-COUNTERPUNCH PLANNING

The Cycle Price-Quality Competition –
Moving up an Escalation Ladder I

METHODS/TECHNOLOGIES USED TO SERVE CUSTOMERS

Frequent Incremental Radically New

Improvements Method

Rapid
Evolutionary Revolutionary
Existing
Competition Competition

CUSTOMER
NEEDS
SERVED
Niche Market
New Creation Creation
The Cycle Price-Quality Competition –
Moving up an Escalation Ladder II

Beliefs System Boundary Systems

Core Risk to
Values be avoided

Business
Strategy

Strategic Critical
Uncertainties Performance
Variables

Interactive Control Systems Diagnostic Control Systems

The Cycle Price-Quality Competition –
Moving up an Escalation Ladder III

High Laissez-Faire Professional

Management Management

DELEGATION OF
RESPONSIBILITY

Entrepreneurial Bureaucratic
Low Management Management

Low High

USE OF FORMAL CONTROL

MECHANISMS
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