1.1.

Welcome to the World of the General Manager

Welcome to the World of the General

Manager

Imagine you had to take over a new department tomorrow. Your first step might
be to hold a strategy workshop with your top management team. How do you
prepare for the workshop? What analyses need to be carried out beforehand?
What topics need to be discussed? How do you ensure that the workshop has an
influence on the day-to-day operations? How do you involve the entire department
in the strategy process?

This book describes strategy development and implementation as a nine-stage

process, and it assigns the most important management tools to each stage of the
process. However, our main emphasis is not on describing individual tools, but on
discussing the way in which they are integrated into the strategy process.

The strategy process is like a visit to the doctor. At the doctor’s office, the first
stage after an initial consultation is usually to take blood tests, check the patient’s
blood pressure and examine other factors. This might be equivalent to an analysis
of performance indicators in the business world. Then, based on the laboratory
report and other results, the doctor can start phase two: identifying problem areas.
In business terms, this phase two might be identification of strategic themes. If the
patient is overweight, has high cholesterol or suffers from high blood pressure, the
doctor will analyze how the risk of a heart attack can be minimized. An examination
of the patient’s eating habits and lifestyle are then required. In management terms,
this might be similar to the first analysis of the market, company resources and
company capabilities. Following the second phase, the doctor will then make a
diagnosis that clearly defines the causes of the present situation. A prognosis for
the future state of health is often made as well, such as “If you continue living in
this manner, you have a maximum of five years left to live”. In order to change this
situation, a vision of a healthier life is worked out in collaboration with the patient.
Goals might be established: quitting smoking, no liquor or fatty foods, a blood
pressure of 110/90, weight loss of 14kg, regular exercise and less stress. In order
to realize this vision, a strategy must be developed and a path mapped out. The
doctor describes this as treatment. Putting this proposed treatment into practice
demands a great deal of self-discipline. Suggestions for supporting the treatment

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strategy might include a stay at a health spa or a period of reduced working hours.
Regular checkups with the doctor and possible changes in treatment ensure that
the process continues and the patient’s health is maintained or even improved.

This analogy of a visit to the doctor – in which a process encompassing a number

of various stages, such as analysis, planning, prevention and response, is
launched and then repeated – can easily be applied to business. Companies can
permanently and systematically promote their development by following nine
carefully thought out stages from measurement to implementation. The figure
below shows the strategy process that forms the basis of the management
concept in this book.

For each phase in the strategic process, we offer a brief description and a list of
questions that can be used as guidelines for strategy discussions. We also
highlight the most important management tools in each individual phase. These
tools include not only classic “recipes” but also useful starting points. The refined
art of management requires application of the right tool in the right situation.

The schematic structure of this book and the presentation of the strategic process
in nine stages may give the impression that the authors are, for the most part,
following the arguments presented by Igor Ansoff. This is untrue. We are
convinced that strategy development and implementation are largely creative acts,
not purely analytical procedures. We are aware that in practice one will rarely find
analytical distinctions between the various stages in their pure forms. However,
the process scheme will help you to understand and manage strategic processes.
Just as artists first learn to depict objects in a recognizable way before beginning
to devote themselves to abstract art, managers must learn the tools of strategic
management before they can become “strategy virtuosi.”

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The strategy process

Performance monitoring. Experienced managers quickly develop a feel for the

“health” of their department – a feeling that is reinforced by performance
indicators. In addition to financial ratios, such as ROI (return on investment),
ROCE (return on capital employed) or ROA (return on assets), managers look at
customer satisfaction, the degree of innovation and organizational aspects, as
well as other factors. In this way, a “cockpit”, which supports departmental
managers in the running of their unit, is developed. The monitoring of performance
indicators is just as important as the identification of strategic themes in terms of
implementing strategic initiatives. Performance analysis is the catalyst that drives
the strategic process forward. In general, the strategy process can be begun at
any point – developing a vision, assessing current strategies or identifying
strategic themes. However, if a manager is taking over a new department or if a
company has not carried out a formal strategy process for some time, it may be
sensible to start with performance measurement.

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Initiating the strategy process. Initiating the strategy process means
recognizing relevant themes, setting priorities and persuading the company to
address these themes. Business or industry blindness, personal interests, market
complexity and operational time pressure make it difficult to identify and set
priorities for strategic themes. Many companies overburden their employees with
strategic projects, and fail to understand how to evaluate themes and relate them
to each other. A mission statement allows a company to differentiate between
what is important and what is not. The mission statement should contain a
description of the company’s purpose and its system of values. A good mission
statement also clearly describes the markets in which the company intends to be
active.

In addition to developing clear strategic themes in this phase, the rules of the
strategic process will be laid down. The discussions and experiences that occur
during the strategy process are usually more important than the actual output –
the strategic plan. “Plans are nothing – planning is everything”, as former US
President Eisenhower once said.

This does not mean that the strategy process has to degenerate into an esoteric
exchange of ideas. The development of a strategy can be viewed as a learning
process. What counts at the end of this process are the experiences acquired and
the discoveries made – strategy as “learning by doing” (Mintzberg 1999). In
contrast, a written record of the strategic plan often interferes with the learning
process. Some managers and academics describe the development of a strategy
as a planning process (Ansoff 1965) – not “learning by doing” but “learning before
doing.” In their view, strategy development is an objective, rational procedure.
These managers and academics are of the opinion that arbitrary experiments
should be avoided. Not surprisingly, experience shows that the optimum strategy
process has some aspects of three approaches: “learning before doing”, “learning
by doing” and “learning after doing”. Finding the right approach to the process,
one that will present managers with new experiences and make use of their
previous experience, is the main objective in this phase.

Market analysis. After the strategic themes have been identified and classified,
the company chooses an approach to strategic management. If the market is
analyzed first, the company has adopted a market-based approach to strategic
management. The company tries to gain the best possible understanding of the

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market in order to define its own position in a way that will maximize profit.
Management is clearly market-oriented, and it adapts its own resources and
capabilities as needed. This approach works best in relatively stable markets.
Therefore, the first stage in a market analysis is the clear segmentation of the
markets. Generalizing about markets that differ significantly creates a risk of
obtaining superficial or false results, as different strategies are recommended for
different market segments.

After completion of the market segmentation analysis, the general market

environment is analyzed. This step includes a description of the political,
economic, socio-cultural and technological trends. Thereafter, the structure of
each segment is examined. Despite its long history, the five-forces model (Porter
1980) is probably still the most commonly used tool in this respect. Once the
current market situation has been analyzed, the five-forces model is used to
examine the likely development of the market segment. Methods such as the
scenario technique, regression analysis, game theory or comparative analogies
can also be used in this step. At this point in the process, many companies find
themselves lost in an ocean of data and have difficulty structuring the information.
We therefore recommend that managers concentrate on one strategic question
when undertaking such an analysis and only collect data that can help improve
the quality of the answer to this question. In addition, managers should try to put
a market analysis summary together using just a few key statements, often known
as “key success factors”. These success factors should not contain any company-
specific features. In other words, the key success factors are the same for all
competitors. Sentences such as “Our strong brand name is a key success factor
in our market” should be avoided – customers may not attribute much value to
brand names and they may only want to buy the cheapest products. Only a
comparison of market requirements with a company’s current characteristics can
act as a basis for the vision and the strategy.

Company analysis. Unlike the market-based approach, the resource-based

approach starts with an assumption that the market is too dynamic to allow for
long-term prognoses. The optimum position is defined on this basis. In other
words, before a market-based strategy can be implemented, the market situation
will have changed so much that the strategies will no longer be effective.
Assistance with strategic orientation comes in the form of the company’s own
resources rather than from the market. Therefore, advantages in competition do

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not lie in the firm’s ability to quickly and flexibly exploit changes in the industry
structure, but in its unique resources and capabilities. The objective is to exploit
these resources and capabilities in such a way that the firm can be actively
involved in shaping the market or even in developing a new market.

Developing a vision and long-term objectives. The next stage is to develop a

vision and long-term objectives. Even though such objectives tend to be complex
and change quickly, it is possible and necessary for most companies to develop
them. The challenge is to formulate a vision that stimulates performance and is
supported by the majority of the workforce. Executives should command employee
loyalty because those executives have a clear idea of a better future, not because
they have a higher position in the hierarchy. An effective vision should not be
overly complex but should describe a “better” future in simple terms so that it can
be efficiently communicated.

Unfortunately, the development of “vision statements” is often a compulsory

exercise devoid of any real influence on daily management decisions. The vision
constitutes the endpoint – the objective – of each individual strategy project and,
at the same time, the starting point for the definition of medium-term objectives
and annual budgets. Therefore, a good vision has a powerful influence on target-
setting discussions for each individual employee. In addition, the vision represents
the basis for the selection of strategic alternatives. The selection criteria for the
evaluation of a strategic option are determined before strategies are developed.
This creates a “fair process”. In other words, the decision makers agree with the
selection procedures, even though they may not be happy with the content of the
decision.

Developing a corporate strategy. The central question on the corporate level is

“Which market segments should the company work on in the long term, and by
what means?”. The core tasks of company headquarters are to allocate resources,
make decisions about diversification, monitor and run the company units, and
coordinate the activities of various business units (synergy development). The
objective of any company headquarters should be to increase the competitiveness
of the various units, an objective that should be recognized by the units’
management. A successful company headquarters has competences and
resources available that complement those available in the units, and it
understands the business logic of these units. It is only possible to walk the

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tightrope between the necessary autonomy of the units and the equally essential
coordination and control of the whole if the role of the company headquarters is
clearly defined and its interventions are selective

Developing a business strategy. On the business unit level, the question is how
a market segment can be worked on successfully or, in other words, “How can the
business unit stand out in contrast to the competition and provide a unique, value-
added output (product or service)?”. Business units are directly exposed to the
competition. The main objective of a business is to develop competitive
advantages that will last as long as possible. The nature of these competitive
advantages will be determined by the capabilities and resources of the company,
and by customer requirements and market structures. When a lower price
influences customers in a company’s favor, cost-leadership strategies are most
relevant. When customers are prepared to pay a price premium, differentiation
strategies are most relevant.

The competitive advantages of cost-leadership strategies arise mainly from an

ability to produce large numbers of items. A business unit opts for differentiation
if the product on offer is distinguished from the competition in terms of special
features such as design, image, quality or functionality. Once this basic strategy
has been determined, unique selling propositions are developed, to explain the
differentiated product’s added value. In addition to the general decision regarding
cost leadership or differentiation, a company may also chose to define the market
more precisely and specialize in particular segments. This strategy is known as a
focus or niche strategy. The trick is to find a homogeneous group of customers
that is big enough for production of specific product. If such a group is located, it
is not necessary to decide between the basic strategies of cost leadership and
differentiation, as there will be no direct competitors, at least in the beginning.
However, other firms will eventually try to break into these monopolies and
produce specific products and services for this sub-segment as well. As a result,
the company will need to once again position itself clearly and decide on a new
basic strategy.

Developing functional strategies. On the functional level, the guidelines – which

match the business strategy – are set for the various business activities, such as
marketing, finance, personnel, procurement, production, logistics, sales and
information technology. Functional strategies are mainly targeted at raising the

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productivity of available resources. The focus is moved from effectiveness (doing
the right things) to efficiency (doing things right). Therefore, functional strategies
are concrete plans for business strategies.

Strategy implementation. If a vision is available and a strategy for achieving

objectives has been developed, it is time to move on to active implementation.
Surveys show that approximately 80% of strategic initiatives are either not carried
through or only a small part of the original initiatives are realized. Resistance to
change may have many causes. Often the need to act is not seen (“…but we have
always been successful!”), the vision is not shared by everyone, the strategy is
too complex and is not understood, or the change is not supported in terms of
modifications to agreements on objectives, including incentive systems. Efficient
implementation does not begin after a strategy has been developed, but much
earlier – when the strategic themes are defined. Active communication and the
involvement of the most important decision makers are also crucial for a fast
turnaround.

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