STRATEGIC MANAGEMENT A PRACTICAL APPROACH

BY M. EKHLAQUE AHMED

Change is the essence of life. Be willing to surrender what you are for what you could become

STRATEGIC MANAGEMENT A PRACTICAL APPROACH WORKSHOP OUTLINE

DAY 1

Strategic Management Concept & Process Business Scope & External Analysis Structural Changes for Facing Brutal Facts Weird Ideas for Managing Creativity Case Study: Rebuilding Lego Brick by Brick Group Presentation
DAY 2 Evaluating Co. Resources & Competitive Capabilities Vision, Mission & Objective Case Study : IBM Strategic & Competitive Advantages Positioning A Company Case Study : PSO Strategic Implementation with BBSC.

CALL FOR URGENCY

Sudden, fierce, business-destroying competition Current strategies arent working One or more of some strategic initiatives currently underway are not delivering results or living up to expectations Why arent we getting a better multiple? How can we improve our poor performances? Leaders, proactively, want to take new challenges Employees too focused on executing day to day operations Growth Culture in a already Profitable company

Session: 1
Strategic Management Concept & Process

STRATEGIC BUSINESS PLANNING

Besides good operational management a business needs high quality strategic management to ensure lasting success. Strategic management focuses on strategic choices. Operational management focuses on actions and results. The business planning process should be an intensive group (management team) process, based on sharing of visions and facts, comparison of alternative scenarios, agreeing on choices and translating all into consistent and interlinked action plans. A qualified business plan is recognized by its: creative content and consistent structure implementation and deployment planning management ownership

STRATEGIC management focuses on DECISIONS

VALUES INFO LOGIC

DECISION

While OPERATIONAL Management focuses on RESULTS

PLAN

ACTION

RESULTS

Entrepreneurial management: A Balancing Act OPERATIONAL MANAGEMENT

QUALITY of

POOR

GOOD

STRATEGIC MANAGEMENT

POOR ALMOST CERTAIN DISASTER GOOD

GAME OF HAZARD

SUSTAINABLE CHANCE TO WIN

THEORY OF BUSINESS

HOW TO DO TOOLS VS WHAT TO DO

DIRECTION MATRIX:

WTW RTW

WTR RTR

Doing things fruitlessly!

RESPONSIVENESS TO CHANGE

Plans are nothing, planning is everything. (Dwight D. Eisenhower) Neither dogmatic / rigid against change, nor drifting with the changes. But a well considered standard / yardstick for reflection and a starting point for flexible response towards changes.

STRATEGY Strategy is not synonymous with long term plan. It consists of an enterprise's attempts to reach some preferred future state by adapting its competitive position as circumstances change.

MAKETING STRATEGY INTERFACE

BUDGETING, LONG-RANGE PLANNING, STRATEGIC PLANNING AND STRATEGIC MARKET MANAGEMENT

Budget: (Control deviation and manage complexity) Long Range Planning: Past trend will continue, anticipate growth & manage complexity Strategic Planning: Strategic adjustment Focuses on the market environment facing the firm Strategic Market Management: Cope with strategic surprises and fast developing threats and opportunities Proactive and future oriented

MARKETING STRATEGY INTERFACE

Distinctive and farsighted view rather than a conventional and reactive view about the future Senior Management focuses on regenerating core strategies rather than re-engineering core processes Competitors view the company as a rule maker rather than a rule follower The companys strength is innovation and growth The company is mostly out in front rather than catching up Try to influence the environment as well as respond to it

MARKETING STRATEGY INTERFACE

PROCESS OF STRATEGIC DECISION MAKING 1. STRATEGIC ANALYSIS: Environment (Change / Effects) Resources (To deal with the changes) Expectations, Objectives and Powers. STRAGEGIC CHOICE: Strategic Option (Beyond Obvious) Evaluation (Exploit Strengths and Overcome Weaknesses) Selection of Strategy STRATEGIC IMPLEMENTATION: Resource Planning Organization Structure People and System

2.

3.

BUSINESS PLAN BASIC FORMAT

BUSINESS SCOPE BUSINESS ENVIRONMENT INTERNAL ANALYSIS BUSINESS OBJECTIVES OPERATIONAL PLAN KEY ISSUES OPERATIONAL PLAN OVERALL STRATEGIC DIRECTION
SUPPORTING CONDITIONS

OPERATIONAL PLAN OPERATIONAL PLAN OPERATIONAL PLAN

FINANCIAL PROJECTION

Session: 2 Business Scope & External Analysis

BUSINESS SCOPE

Describes THE BUSINESS WE ARE / WANT TO BE IN through the eyes of the customers Regions = where Functions / applications = what needs Customers & users = whose needs Products, technologies & services = added value SO: how do we create customers?

CONSIDERATIONS: Not too narrow: present + intended (future) business. Indicates relations with other business. Clarifies also the business we are not in. In line with organizational and managerial responsibility & authority areas. How do competitors define their business scope? Which do it the same way and which do it different; why?

BUSINESS ENVIRONMENT
1. 2. 3. 4. 5. 6. 7. 8.

Market Structure Market Size & Growth Past 4 Years Market Size & Growth Future 4 Years (with underlying assumption about growth) Product Life Cycle Distribution Structure in the Industry Company & Competitors Market Share Market Profitability Analysis: Porters Five Forces Driving Force / Key Success Factors

MARKET STRUCTURE
1. End user/application segments 2. Product application combinations 3. Distribution structure
End user/applications Products

Channels

Channels

The Company

MARKET SIZE
MARKET SEGMENT 1992 1993 1994 1995 1996

Volume (MLN RS)

1997 GROWTH P.A.

Value (MLN RS)

MARKET SEGMENT 1992 1993 1995 1996 1997 GROWTH P.A.

PRODUCT LIFE CYCLE STAGES

Product Segments INTRODUCTION GROWTH MATURITY DECLINE

COMPETITION / SEGMENT MATRIX

One page analysis The competitor / segment matrix for evaluating market attractiveness and competitive position Competition 1 Segments 2 3 4 Overall

1. 2. 3.
Historical Growth Projected Growth Company Profitability

COMPETITION / SEGMENT MATRIX

FINDINGS:

Market is bigger than you thought

Company has more competitors than you thought

Your share is smaller than you thought Company is trying to dominate different segments than you thought

You can not make money where you thought

Somebody you were not watching is gaining on you It can highlight for you where your base is threatened It can reveal unanticipated opportunities for growth within your existing business (higher market, lower MS, opportunity in current product line) A good teaching tool for managers to understand their existing business! (about market segmentation and competitive advantage)

DISTRIBUTION STRUCTURE: SHIFT FROM 2008 TO 2012

% OF RS MIL Segment 1
2008

Segment 2 2008 2012

Segment 3 2008 2012

Segment 4 2008 2012

Total 2008 2012

2012

WHOLESALES DISTRIBUTOR CONTRACTORS

DIRECT OEM PROJECT

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

DISTRIBUTION SHARES AND COMPANYS POSITIONS (2008)

% OF RS MLN ALL PAKISTAN DISTRIBUTION COMPANYS TURN OVER SHARE #1 COMPETITORS TURNOVER SHARE OUTLET COVERAGE

WHOLESALES DISTRIBUTOR

CONTRACTORS

DIRECT OEM PROJECTS

Turnover Share = Cos Sales per outlet/ Cos Sales by all outlets Outlet Coverage = Cos outlets / outlets

MARKET STRUCTURE, DATA & TRENDS

3. DRIVING FORCES AND TRENDS IN THE BUSINESS/INDUSTRY: Most dominant forces are called driving force, biggest influence Machine cost, new customer group, customer usage, product innovation, marketing innovation, technological change, cost factors etc. Economic climate; growth, currencies, inflation, investment levels, taxes. Governmental regulations (national/international) & economic blocks. Bargaining power and structure of the suppliers. Bargaining power and structure of the buyers (key players in the distribution?) Main entry barriers. New entrants (their origin and competence base). Key technologies and components. New technologies and/or substitute products. Environmental concern. Installed industrial capacities (surplus/shortages) in the business) General profitability margins in the business. User appreciations, loyalty and fashions.

TOP 10 External Trends

Taking Advantage
Trend Growth of rural markets and focus of companies on this area Price decrease Application segmentation Premium product growth World-wide (instant) communication Untapped market in Health Care Change in Environmental Legislation Foreign loans / lack of Budget Potential Impact Increasing competition, Price Erosion Margins/sales under pressure Customization Opportunity (high-end) Influence on Sales and Margin Opportunity Opportunity Sales down in Govt. Sector We C1 C2 C3

Remarks:

INDUSTRY TRENDS PORTERS FIVE FORCES

1. COMPETITORS No of competitors Their relative size Similar product offerings / strategies Commitment of competitors Size and nature of exit barriers Rivalry heats up when competition seeks opportunity to better meet customers needs or is under pressure to improve Actions and reactions How much pressure cross-company rivalry is going to put on the profitability of the industry Diversity of the strategic vision of the competing firms

2. POTENTIAL COMPETITORS: BARRIERS TO ENTRY Capital investment Economy of Scale Inability to gain access to technical/specialized know-how Access to distribution channel Brand preference/customer loyalty 3. SUBSTITUTE PRODUCTS Price Attractiveness Switching cost Can influence the profitability of the market.

4. CUSTOMER POWER: Customers with more power than sellers can force prices down or demand more services affecting profitability Influencing factors purchase size, availability of alternative suppliers; 5. SUPPLIER POWER: Suppliers sells to a variety of customers in diverse market Switching cost of customers of the suppliers are high Raw material crucial to the production process and affect quality Cost advantage to such supplier vs. industry who wants to go for backward integration

Session: 3
Structural Change For Facing Brutal Facts

Advice from Jim Collins

FIRST WHOTHEN WHAT

WHO
WHAT

EMPLOYEES
STRATEGY

First get the right people on the bus and the wrong people off the bus and then figure out where to drive it.

Three Simple Truths

1. 2.

3.

First, if you begin with who rather than what you can more easily adapt to a changing world. Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. Third, if you have the wrong people, it doesnt matter whether you discover the right direction; you still wont have a great company.

Great vision without great people is irrelevant.

Its WHO you pay , not HOW you pay.

How to be Rigorous

Practical Discipline 1:

When in doubt, dont hire keep looking

Practical Discipline 2 :

When you know you need to make a change, act

Practical Discipline 3:

Put your best people on your biggest opportunities, not you biggest problems

Advice from Jim Collins Confront the Brutal Facts (yet Never Lose Faith)

Facts are better than dreams GTG companies displayed two distinctive forms of disciplined thought: They infused the entire process with brutal facts of reality They developed a simple, yet deeply insightful frame of reference for all decisions Refine your path of greatness with brutal facts of reality.

How do you motivate people with brutal facts?

(Leadership is about vision & equally about creating a climate where truth is

heard) Lead with questions, not answers So, whats in your mind? Can you tell me about that? Can you help me understand? What should we be worried about?)

 Engage

in dialogue and debate not coercion

Refuse to begin with the answer. Play the role of Socratic Moderator in a series of raging debates Argue & debate then sell the nuclear business A climate of debate, where Cos strategy evolved through many agonizing arguments and fights.

 Conduct

Autopsies w/o blame

I will take responsibility for the bad decision but we will all take responsibility for extracting the maximum learning from the tuition we have paid. If we have the right people on the bus, we should never need to assign blame but need only to search for understanding and learning.

WEIRD IDEAS FOR MANAGING CREATIVITY

DECIDE TO DO SOMETHING THAT WILL PROBABLY

Succeed, then convince yourself and everyone else that success is certain

Fail, then convince your-self and everyone else that success is certain

TAKE YOUR PAST SUCCESSES

And replicate them

And forget them

REWARD

Success; punish failure and inaction

Success and failure; punish inaction

USE JOB INTERVIEWS

To screen candidates and especially to recruit new employees

To get new ideas, not to screen candidates

THINK OF SOME

Sound or practical things to do, and plan to do them

Ridiculous or impractical things to do, and plan to do them

IGNORE PEOPLE

Who have never solved the exact problem you face

Who have solved the exact problem you face

FIND SOME HAPPY PEOPLE

And make sure they dont fight

And get them to fight

ENCOURAGE PEOPLE

To pay attention to and obey their bosses and peers

To ignore and defy their bosses and peers

HIRE
fast learners (of the organizational code) slow learners (of the organizational code)

People who make you feel comfortable, whom you like

People who make you uncomfortable, even those you dislike

People you (probably) do need

People you (probably) dont need

Session: 4
Case Study: Rebuilding Lego Brick by Brick End of Day 1

Session: 5
Evaluating Company Resources & Competitive Capabilities

Day 2

The Hedgehog Concept

THREE circles of the Hedgehog concept

What you are deeply passionate about

What you can be the best in the world at

What drives your economic engine

WHAT YOU CAN BE THE BEST AT?

WHAT YOU CANNOT BE THE BEST AT?

If you cannot be best in the world at your core business then your core business Cannot be the basis of your hedgehog concept Core competence at something doesnt mean that you can be the best at that thing

Hedgehog concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best.
It is the understanding of what you can be best at

What drives your economic engine

What is your Economic denominator?

Search for the one denominator x that has the single greatest impact

Examples;

Abbott: shift from profit per product line to profit per employee Walgreen: shift from profit per store to profit per customer visit Gillette: shift from profit per division to profit per customer

UNDERSTANDING YOUR PASSION

Lets get passionate about what we do

or
We should only do things that we can get passionate
about

Key Questions for Situation Analysis

How well is the companys present strategy is working? What are the companys resource, strengths and weaknesses and its external opportunities and threats? Are the companys price and cost competitive? How strong is the companys prices and cost competitive position relative to its rivals? What strategic issue does the company face?

Key Indicators of How Well the Strategy Is Working

Trend in sales and market share

Acquiring and/or retaining customers

Trend in profit margins Overall financial strength and credit ranking

Efforts at continuous improvement activities

Trend in stock price and stockholder value Image and reputation with customers

Leadership role(s) Technology, quality, innovation, e-commerce, etc.

SWOT - ANALYSIS
External Analysis
Threats

Internal Analysis
Strengths

Opportunities

Weaknesses

Promising Opportunities Only opportunities after improvement

Ability to resist High Risks

Competitive Advantage(s)?
Constraints to potential business objectives & strategic scenarios

CONFRONTATION MATRICES
Opportunities s t r e n g t h 1 1 2 3 4 5 2 3 4 5
W e a k n e s s e s

Opportunities 1 1 2 3 4 5 Threats
W e a k n e s s e s

Threats

s t r e n g t h

1
1 2 3 4 5

1 1 2 3 4 5

Identifying Company Strengths & Resource Capabilities.

A strength is something a company is good at doing or a characteristic that gives it enhanced competitiveness.

Valuable skills, expertise, or capabilities Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Important competitive capabilities An attribute placing a company in a position of market advantage Alliances or cooperative ventures with partners

Resource strengths and competitive capabilities are competitive assets!

Identifying Company weaknesses & Resource Deficiencies

A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage Resource weaknesses relate to

Deficiencies in competitively important skills or expertise or intellectual capital of one kind or another. Lack of competitively important physical, organizational or Intangible assets. Missing capabilities in key areas. Internal weaknesses are thus shortcomings in a companys complement of resources.

Resource weaknesses and deficiencies are competitive liabilities!

Competencies vs. Core Competencies vs. Distinctive Competencies

A competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity A core competence is a well-performed internal activity central (not peripheral or incidental) to a companys competitiveness and profitability A distinctive competence is a competitively valuable activity a company performs better than its rivals

Questions 3. Are The Companys Price & Cost Competitive?

Assessing whether a companys costs are competitive with those of its close rivals is a necessary part of company situation analysis. The higher a companys costs are above those of its rivals, the more competitively vulnerable it becomes.

A Representative Company Value Chain

REASONS FOR COST DISPARITIES

Difference in price paid for raw material component, energy etc. Difference in basis technology / age of plants and equipment Difference in product cost (plant efficiency, learning and experience curve effects, different wage rate, productivity levels) Difference in marketing and distribution cost

COST COMPETITIVENESS
INTERNAL:

Eliminate some cost producing activities by revamping the value chain

Relocate high cost activities to geographic area where they can be performed more eco. Out sourcing Cost-saving technological improvements Innovate around the troublesome cost components when new investment is made Simplify product design to reduce cost Make-up with alternatives in some other areas

STRATEGIC OPTINS TO COST ADVANTAGES

SUPPLIERS:

Negotiate favorable prices Work with supplier to reduce their cost

Integrate backward
Use lower priced substitute inputs Manage linkage between suppliers value chain and companys own value chain e.g., JIT to reduce inventory costs

Benchmarking

Benchmarking the costs of company activities against rivals provides hard evidence of a companys cost competitiveness.

Benchmarking is a tool that allows a company to determine the manner in which it performs particular functions& activities represent industrys Best Practices when both cost & effectiveness are taken into account.
To benchmark the firms cost position against rivals, costs for the same activities for each rival must be estimated. The most important application of value chain analysis is to expose how particular firms cost position compares with the cost position of its rivals. All is needed is competitor vs. competitor cost estimate for supplying a product or service to a well defined customer group or market segment.

Competitive Strength Assessments

Most effective way to determine how strongly a company holds is competitive position is to Qualitatively assess whether the company is stronger or weaker then close rivals. Much of the information for competitive position comes from previous analysis. Important factors in competitive strength assessments are: Cost. Product Quality. Customer Service. Financial Strengths. Image & reputation. Technological Skills. Speed to market. Distribution Capability etc.

THE CUSTOMER: basis of our business

WHAT DO CUSTOMERS WANT?

Most important aspects

Do you really know that?

Assignments for further knowledge improvement

How do we Score?

And our competitors?

Key strengths and weaknesses

Figure 1 Relative Importance of Factors

Factor Number

Absolutely Critical 5

Very Important 4

Quite Important 3

Nice to Have 2

Not significant 1

Dont Want it 0

Suggested Definitions: Absolutely Crucial: Very Important: Quite Important: Nice to Have: Not Significant: Dont Want it: Overrides most other considerations, wouldnt consider supplier who doesnt perform on this factor. One of the first things we ask for, but we may be prepared to negotiate on it. A negotiable item, but one when we attach considerable weight to. It could make the difference in a division, but is normally taken into account last. Not normally taken into account at all. Would prefer a product without this feature

RATING AGAINST CUSTOMERS BUYING CRITERIA

Quality & Price
Non-Price attributes Affecting Customer Choice % Weight This Bus Comp Comp Comp A B C Comp Comp D E Comp Comp F G

Product - Related
1. 2.

Service - Related
1. 2.

Total

100%

Has quality gone up/down (+/-) In past 4 years

Relative Price today Relative Price 4 years ago

100 100
(Total 100%)

Market choice of suppler specified by Price % and Quality . %

CUSTOMERS BUYING CRITERIA: PRICE ..%, QUALITY ATTRIBUTES ..%

Question its Cost Better

Keep it UP

Relative Performance Same Rating

Worse

Do Not Sweat

Least

10%

20%

Most

Improve fast

Attributes Important to customers

Question 5: What Strategic Issue Does the Company Face?

Identifying the strategic issues a company faces is a prerequisite to effective strategy making. It involves developing a worry list of strategic challenges concerning:

How to meet the challenges posed by global competition. How to combat the product innovation of rivals. How to reduce the companys high costs. How to sustain the companys present rate of growth or grow the business at a faster rate. How to gain better market visibility for the companys product. How to capture the e-commerce opportunities.

A company need to put more emphasis on the

New

product R & D. Add more production capacity. Cut prices in response to the action of competitors. Add new features that will boost the performance of companys product. Or go forward with investments in foreign markets. Managers need to draw on all the prior analysis. And lock in what challenges have to be overcome and what issues have to be resolve in order for the company to be financially and competitively successful in the years ahead.

KEY ISSUES

Are related to the SWOT-analysis and the Business objectives: They determine to a large extend the feasibility of the objectives. Are the main hurdles to overcome in order to reach these objectives. Issues are: Not the solution, but are the problem. Have to be dealt with in the strategic direction. Have to be solved by the subsequent operational actions. Therefore issues have to be: Clearly described; I.e. specific and as problems. Prioritized to their urgency / impact.

Impact of Issues on Strategic Profile

Issue Number Issue Name Issue 1 High-end Type1 ++ Issue 2 High-end Type 2 ++ Issue 3 Growing of Appl. Issue 4 Coherent A.P. Policy Issue 5 Address Key Gap

Customers

Regions
Market segments Needs/wants/applications Products (prices)/services Strategic Management ++ ++ ++ ++ ++ ++

Product Creation Process

Sales Acquisition Process

+
++

Operations (Production/Logistics
Customer base Management Technology Plant & Equipment Distribution Channels + + + ++

Impact of Issues on Strategic Profile

Issue Number Issue Name Issue 1 High-end Type1 Issue 2 High-end Type 2 Issue 3 Growing of Appl. Issue 4 Coherent A.P. Policy Issue 5 Address Key Gap

Money People Informaiton Raw Materials, Energy Organization Structure Procedures

Culture

Remarks

+ = high impact ++ = very high impact

Session: 6
Vision, Mission & Objectives

TWO UNDERLYING THEMES EMERGED IN RESEARCH

Strategic Intent: Creating an obsession with winning that encompasses an entire company and sustaining that thirst for winning over the 20 year quest for global leadership. Competitive Innovation: An ability to change existing industry rules to provide competitive openings against larger, richer competitors.

STRATEGIC INTENT IS NOT STRATEGIC PLANNING

Strategic intent is fundamentally different from strategic planning.

Strategic planning begins with the notion of FIT. A company looks at its resources, its strengths and weaknesses and then chooses a strategy of best fit. As a starting point, this logic can lead to a company short changing itself. Strategic intent, on the other hand, starts with a MISMATCH. You begin by deciding where you want to be, or in some cases where you need to be to survive. The next step is to identify the GAP not the FIT and then set about removing the gap.

BUILDING GLOBALY CAPABLE COMPANIES

Competitive Innovation

In Support of

Strategic Intent Focusing energies, Sustaining thrust

Changing the rules, Accumulating strengths

Winning impossible bets Fighting 20 year battles

Competence is Different From Technology

Technology Stand Alone Explicit Knowledge Narrowly held Easily copied / Acquired Discontinuous Process Inventive Capability
Competence =

Competence System Embodied Tacit Knowledge Deeply Embedded Difficult to Un bundle Aggregative Process Integrative Capability
(Technologies + Social Organization + Collective Learning)

VISION / MISSION STATEMENT

INCLUDES THE PRIMARY BUSINESS FOCUS IDEAL/INTENDED BUSINESS POSITION QUALITATIVE & GENERAL OFFERS AN INSPIRING PERSPECTIVE LONG TERM / FUTURE PROOF SETS THE ORGANISATION APART FROM ITS COMPETITORS CREDENTIALS TO THE OUTSIDE WORLD SHORT, CLEAR & SIMPLE FORMULATED SHARED VALUES & REASON FOR EXISTENCE DEPLOYED / WELL KNOWN BY ALL

BUSINESS OBJECTIVES

RELATED TOS THE EXISTANCE & CONTINUITY OF THE COMPANY: MARKET SHARE VOLUME / TURNOVER PROFITABILITY

WHAT HAS TO BE ACHIEVED BY WHEN

SPECIFIC & MEASURABLE

FEASIBLE & ACCEPTED DIFFERENTIATED MID TERM DEPLOYABLE & WELL KNOWN

Session: 7
Case Study: IBM

Session: 8

STRATEGY AND COMPETITIVE ADVANTAGE

Any competitive advantage currently held will eventually be reversed by the actions of competent & resourceful competitor

The essence of strategy lies in creating tomorrows competitive advantages faster than competitors mimic the ones you possess today Quote

Strategies for taking the hill wont necessarily hold it.

The Five Generic Competitive Strategies

Type of Advantage Sought
Lower Cost Differentiation

Broad Range of Buyers

Narrow Buyer Segment or Niche

Overall Low-Cost Broad Provider Differentiation Strategy Strategy Best-Cost Provider Strategy Focused Focused Low-Cost Differentiation Strategy Strategy

Market Target

Low-Cost Leadership

Keys to Success
Make achievement of low-cost relative to rivals the theme of firms business strategy Find ways to drive costs out of business year-after-year

Low-cost leadership means low overall costs, not just low manufacturing or production costs!

Approach 1: Controlling the Cost Drivers

Capture scale economies; avoid scale diseconomies

Capture learning and experience curve effects

Manage costs of key resource inputs Find sharing opportunities with other business units Compare vertical integration vs. outsourcing Control percentage of capacity utilization Make prudent strategic choices related to operations

Approach 2: Revamping the Value Chain

Abandon traditional business methods and shift to e-business technologies and use of Internet

Use direct-to-end-user sales/marketing methods

Simplify product design Shift to a simpler, less capital-intensive, or more flexible technological process Find ways to bypass use of high-cost raw materials Relocate facilities closer to suppliers or customers Drop something for everyone approach and focus on a limited product/service

Differentiation Strategies

Objective

Incorporate differentiating features that cause buyers to prefer firms product or service over brands of rivals

Keys to Success

Find ways to differentiate that create value for buyers and that are not easily matched or cheaply copied by rivals

Where to Find Differentiation Opportunities in the Value Chain

Purchasing and procurement activities Product R&D and product design activities Production process / technology-related activities Manufacturing / production activities Distribution-related activities Marketing, sales, and customer service activities

Activities, Costs, & Margins of Suppliers

Internally Performed Activities, Costs, & Margins

Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners

Buyer/User Value Chains

Risk of a Best-Cost Provider Strategy

Risk A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost

leaders may be able to siphon customers away with a lower price differentiators may be able to steal customers away with better product attributes

High-end

Focus / Niche Strategies

Involve concentrated attention on a narrow piece of the total market

Objective
Serve niche buyers better than rivals

Keys to Success

Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment

Positioning a Company
The law of perception - marketing is not a battle of products, it's a battle of perceptions.

- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

Positioning a Company
The law of focus - the most powerful concept in marketing is owning a word in the prospect's mind - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing
Owning in this context means that if people hear or see this word they usually connect it with a company that "owns" this word.

owns mobile phones

owns fast food

owns computers

Positioning a Company
STANDING FOR SOMETHING Your company name ought to stand for something within your industry. Ford cant build corporate position on a specific kind of car, because it builds them in all types and sizes.

So in 1993 Ford Quality is Job 1 Ad positioned its automobiles around Quality as key attribute in a vehicle from Ford.
Who owns the quality position in automobiles today ? Our guess would be Mercedes-Benz. It never pays to take somebody elses position away from them .

Positioning a Company
The law of exclusivity - two companies cannot own the same word in the prospect's mind.
- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

It's fruitless to try to take over a word that is already owned by a competitor. FedEx tried to take over "worldwide" from DHL and did not succeed.

Owns overnight

Owns worldwide

Owns safety

Owns performance

Positioning a Company

The law of the ladder - the strategy to use depends on which rung you occupy on the ladder - each category has its own ladder or hierarchy, and where your product or service is in this hierarchy will determine your strategic options. - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing - Marketing strategy depends on your position in the market. If you're
No. 2 you use different strategy than when you're No. 1 or 3. Avis was No. 2 in car rental and when they advertised as "finest in renta-cars" they had losses because their marketing wasn't credible (you can't be "finest" being No. 2). That had profit when they switched to "Avis is only No. 2 in rent-a-cars. So why go with us? We try harder". Then they had another disastrous campaign when they started claiming "Avis is going to be No. 1".

Positioning a Company

The law of line extension - there's an irresistible pressure to extend the equity of the brand: - Al Ries & Jack Trout in The 22 Immutable Laws of Marketing One day a company is tightly focused on a single product that is highly profitable. The next day the same company is spread thin over many products and is losing money.

Positioning a Company

The law of the category - if you can't be first in a category, set up a new category you can be first in.
- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

Positioning Monsanto
Best Product
Product Leadership Product Differentiation DuPonts Nylon

Profits are for People Allied Chemicals Business Leadership Faith in Free-enterprise system

Chemical Facts of Life Monsanto Industry Leadership Lead Industry Perception

Positioning a Company The law of the mind - it's better to be first in the mind than to be first in the marketplace:

- Al Ries & Jack Trout in The 22 Immutable Laws of Marketing

Being first in the mind is everything in marketing. Being first into the marketplace is important only to the extent that it allows you to get into the mind first.

Session: 09
Case Study: Pakistan State Oil

Session 10

Strategic Implementation with

Business Balanced Scorecard

The Balanced Score Card Measures that Drive Performance

What you measure is what you get done Organizations measurement system strongly affects the behavior of managers and employees

Balanced Scorecard:
A set of measures that gives top managers a fast but comprehensive view of the business. It includes financial measures (that tell the results of actions already taken) It complements the financial measures with operational measures on Customer Satisfaction Internal Processes Organizations innovation & improvement activities

(Operational measures that are the drivers of future financial performance)

The Balanced Scorecard Links Performance Measures

Customer Perspective:

BSC demands that managers translate their general mission statement into specific measures / factors that matter to customers Customer Concerns: Time, Quality, Performance, Service, Cost

To put BSC work, companies should articulate goals for time, quality, performance, cost into specific measures.
Benchmarking: Internal, Best in Industry, Best in class.

Measures of Customers Concern:

(Creating value to customer)

Lead Time Time to Market Quality: Defect Levels Accuracy of Delivery Forecasts Becoming Customers Preferred Supplier Percent of sales from New Products Cost Effectiveness: Supplier driven costs Re-work Efficiency of Machine Back-Process Efficiency Workers Skill Level Defect Rate

What Must We Excel At ?

Excellent customer performance derives from processes, decision & actions Focus on critical internal operations Factors that affect: cycle time, quality, employee skills, productivity Identify core competencies, the critical technologies to ensure continued market leadership Decompose overall cycle time, quality, product & cost measures to local levels The linkage to local levels ensures that employees at all levels have clear targets for actions, decisions & improvement activities that will contribute to the overall mission.

Can we continue to Improve and Create Value?

Targets for success keep changing

Intense global competition requires that companies make continual improvements to their existing products & processes Expansion of capabilities, ability to launch new products, create more value for customers, improve operating efficiencies
Specific and time bound improvement goals for existing processes on continuous basis e.g. improvement for ontime delivery, cycle time, defect rate, yield etc.

How Do We Look to Shareholders?

Indicates whether the Companys strategy & its implementation are contributing to bottom-line improvement

Survive: Cash Flow

Success: Sales & Income Growth Prosper: Increased MS by segment, return on equity

Disappointed financial results (separate & integrated both) should send managers to revisit their strategy or its execution
Periodical financial statements remind that improved quality, response time, productivity or new products benefit the company where translated into improved sales, MS, reduced operating expense or higher assets turn. Linkage of operations & finance (Excess Capacity due to improved quality & response time)

Measures that Move Companies Forward

BBSC puts strategy & vision, brutal facts, changes needed (and not control) at the center. It establishes goals but assumes that people will adopt right behavior & actions necessary to arrive at those goals. It pulls people towards the change Senior managers may know what the end results should be, but they cannot tell employees exactly how to achieve that result as conditions in which employees operate are constantly changing BBSC helps implement HPWS, Change Management, Cross functional integration, customer-supplier partnership team management, continuous improvement and such other organizational initiatives to excel.

Balanced Scorecard Development

Board Level Scorecard Overall Vision Objectives Measure & Initiatives Targets H Subordinate Scorecard Local Vision Objectives Measure & Initiatives Targets

Team/Individual Scorecard Team/Ind Vision Objectives Measure & Initiatives Targets