Strategic Thinking

STRATEGIC THINKING Jim Clawson University of Virginia

STRATEGIC ISSUES A Strategic Issue is any issue that significantly influences a person’s, a work group’s or an organization’s ability to develop and maintain a competitive advantage.

STRATEGIC DOMAINS Organizational Work Group or Function Individual

COMPETITIVE ADVANTAGE A competitive advantage has three key characteristics: 1. it provides superior value to customers 2. it is hard to imitate 3. it enhances one’s ability to respond to changes in the environment. Adapted from George Day (1994)

SOURCES OF COMPETITIVE ADVANTAGE Government subsidy or support Established or monopolistic markets Product innovation Process innovation, Cost efficiencies Superior Service Human Resource Management

Every CEO has to spend an enormous amount of time shuffling papers. The question is, how much of your time can you leave free to think about ideas? To me the pursuit of ideas is the only thing that matters. You can always find capable people to do almost everything else.” Michael Eisner, Fortune , December 4, 1989, page 116.

Strategy is the art of creating value. It provides the intellectual frameworks, conceptual models, and governing ideas that allow a company’s managers to identify opportunities for bringing value to customers and for delivering that value at a profit. In this respect, strategy is the way a company defines its business and links together the only resources that really matter in today’s economy: knowledge and relationships or an organization’s competencies and customers . Normann, R. and Ramirez, R., “From Value Chain to Value Constellation: Designing Interactive Strategy,” Harvard Business Review, July-August 1993, p.65.

“ Ten short years.... the one thing that we have done consistently is to change .... It may seem easier for our life to remain constant, but change, really, is the only constant. We cannot stop it and we cannot escape it. We can let it destroy us or we can embrace it. We must embrace it.” Michael Eisner Disney 1994 Annual Report

WALT DISNEY Productions Burning vision Immediate flexibility Innovative service and technology Leading edge products Synergism between lines of business Learning from each experience Strong organizational culture Strong, complementary leadership

STRATEGIC FIT MODEL Strategic Mindsets STRATEGIC INTENT MODEL Source, Hamel and Prahalad, Strategic Intent , HBR Strategic thinking is driven by the match between current capabilities and existing opportunities Searching for sustainable advantages Finding protected niches Strategic thinking is driven by bridging gap between today’s reality and tomorrow’s vision Finding ways to leverage resources Outpacing competitors in building new advantages Making new industry rules

WHAT MIGHT WE DO? (external opportunities and threats) WHAT CAN WE DO? (strengths and weaknesses) WHAT DO WE WANT TO DO? (organizational and individual values) WHAT DO OTHERS EXPECT US TO DO? (stakeholder expectancies) Four Questions that Guide Strategic Choices STRATEGY

WHAT MIGHT WE DO? (external opportunities and threat) WHAT CAN WE DO? (strengths and weaknesses) WHAT DO WE WANT TO DO? (organizational and individual values) WHAT DO OTHERS EXPECT US TO DO? (stakeholder expectancies) Four Related Questions that Guide Strategic Choices STRATEGY What do we need to learn to care about? What new capabilities do we want to develop? How do we create new possibilities ? How do we partner to build shared expectancies ?

Porter’s Five Forces Model NEW ENTRANTS BUYERS SUBSTITUTES INDUSTRY COMPETITORS SUPPLIERS

Porter’s Generic Value Chain Inbound Logistics Oper- ations Out- bound Logistics Market- ing & Sales Service Adapted from Michael Porter, Competitive Advantage , Free Press, New York, 1985, p. 46 FIRM INFRASTRUCTURE TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT PROCUREMENT MARGIN MARGIN

GENERAL VALUE CHAIN Raw Materials Transport Processing Forming Assembly Distribution Sales Service What’s your value chain? What are the margins in each link? Where are your competitive strengths? Where is your strategic intent?

Creating Core Capabilities The building blocks of corporate strategy are not products and markets but business processes . Competitive success depends upon transforming a company’s key processes into strategic capabilities that consistently provide superior value to customers Companies create these capabilities by making strategic investments in a support infrastructure that links together and transcends traditional functions. Capability-based strategies, because they cross functions, must be championed by senior leadership . Stalk, Evans, and Shulmand (1992)

Broadening the Pond Every Business is a Growth Business , Ram Charan and Noel Tichy, Random House, NY, 1998

Defining Growth Trajectories NEEDS CUSTOMERS Existing New Existing New Charan and Tichy A B C D

Defining Growth Trajectories NEEDS CUSTOMERS Existing New Existing New Charan and Tichy A B C D Push Past Response Quantum Leap $XB Global Your Share

Organization Charters Mission Statement Vision Statement Values Statement Strategy Operating Goals Leadership

ORGANIZATION CHARTERS Mission Vision Values Goals LEADERSHIP 1. Mission Statement 2. Vision Statement 3. Values Statement 4. Strategy 5. Operating Goals and Milestones 6. Leadership Strategy

PROBLEM LEADERSHIP LEADERSHIP ACTIVITY Questions Answers Problem Solving Old New Problem Finding New Old Problem Creating New New Adapted from Pathfinding by Harold Leavitt, 1995

SECOM, KK Technological innovation Fast customer response Leading edge synergies Investing in core capabilities BUT reinventing the future?

Indirect Influence on Outcomes Culture Environ- ment Leader- ship Design Decisions Results

Competitive Advantage Through People Employment Security Selectivity in Recruiting High Wages Incentive Pay Employee Ownership Information Sharing Participation and Empowerment Jeffrey Pfeffer, Producing sustainable competitive advantage through the effective management of people , Competitive Advantage through People , HBS Press, 1994, (AME, 1995, V. 9. N. 1 Self-Managed Teams Training and Skill Development Cross Utilization and Training Symbolic Egalitarianism Wage Compression Promotion from Within

FMC ABERDEEN Leadership’s indirect influence on outcomes Importance of interaction of all design elements Human Resource Management as a competitive weapon Importance of strong, consistent leadership in culture building

Leading Strategic Change is choosing to influence others to alter their long-term competitive capabilities willingly.

There are always two parties, the party of the past and the party of the future; the establishment and the movement. Ralph Waldo Emerson.

In the traditional planning process, outcomes are likely to cluster around senior managers’ prejudices; the gap between recommendations and pre-existing predilections is likely to be low. Hamel

Khrushchev, once criticizing Stalin, was asked, “You were there. Why didn’t you stop it?” Khrushchev angrily asked, “Who said that?” And then he ordered the man shot. As they were taking him out, he said, “Wait! Now you know!”

Strategy as Revolution Rule Makers Rule Takers Rule Breakers Strategy as Revolution , Gary Hamel, HBR July-August, 1996, 96405, p. 69

Strategy as Revolution Planning isn’t strategic. Strategy making must be subversive. The Bottleneck is at the top of the bottle. Revolutionaries exist in every company. Strategy making must be democratic. Change is not the problem, engagement is. Anyone can be a strategy activist. Perspective is worth 50 IQ points. Top down and Bottom up are not alternatives. You can’t see the end from the beginning.

Revolutionizing Strategy Radically improving the value equation Separating form and function Achieving Joy of Use Pushing the bounds of universality Striving for individuality Increasing accessibility Re-scaling Industries Compressing the Supply Chain Driving Convergence Strategy as Revolution , Gary Hamel, HBR July-August, 1996, 96405, p. 69

Strategy is revolution; everything else is tactics. In industry after industry the terrain is changing so fast that experience is irrelevant and even dangerous. The objective is not to get people to support change but to give them responsibility for engendering change, some control over their destiny. Hamel

Who Should Be Involved in Democratic Strategy Making? People geographically on the periphery Newcomers Young people

Change the Rules The future is not the result of choices among alternative paths offered in the present -- it is a place that is created -- created first in the mind and will; created next in the activity.

One must care more for one’s community than for one’s position in the hierarchy. Top down process achieves unity of purpose, Bottom’s up can achieve diversity, but we need to balance the two so we need deep diagonal slices in the strategy making process. Hamel

To invite new voices into the strategy making process, to encourage new perspectives, to start new conversations that span organizational boundaries, and then to help synthesize unconventional options into a point of view about corporate direction, those are the challenges for senior executives who believe that strategy must be a revolution. Hamel

Democratic Strategy Making Look for potential discontinuities Define and elaborate core competencies Ferret out corporate orthodoxies Search for unconventional options

CHICAGO PARK DISTRICT Immense historical momentum Big Bang Approach Consistency of mission and strategy New, strong leadership Value of Information Technology Decentralizing the process Responding to the End User

STRATEGIC THINKING Systems Perspective (Interconnections) Focus on Intent (Vision and Capabilities) Intelligent Opportunism (What’s there?) Thinking in Time (Past, present, future) Hypothesis driven (If A, then B?) Adapted from Jeanne Liedtka, Elements of Strategic Thinking

CONCLUSION What’s your charter? What competitive advantage will achieve your charter? Are you internally consistent? Nurture your revolutionaries. Create problems that build the future.

THANK YOU www.powerpoint4u.blogspot.com www.bookfiesta4u.blogspot.com

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