B39C5 Strategic Management

Architecture of the PGEMP Strategy Course
C3/C4 : Business Strategy : Mainly about how to take decisions
C5/C6 : Strategic Management : Mainly about how to implement strategic decisions
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2 Classes on February 1
First class was a review of C3 and C4 

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Question to the class: 
What are the visible signs of a strategy
Question : what are the visible signs of a company being strategic which you can find from observation - or by going through the existing records of a company? 

Answer : All of the following are signs of a company having a strategy in place :

1. Above average rate of return on investment
2. Clear focus / investments in well defines areas ( avoidance of waste )
3. Avoiding neglect or over-servicing of only a few stakeholders
4. Adaptation to changes in the environment (PESTEL)
5. Adaptation to the changes in the positions and strategies of various existing and potential "players who matter" : customers, competitors, collaborators, investors, government
6. Alignment of all activities 
7. Active allocation of resources and planning of significant changes
8. Budgets and KPI/KRAs are linked to strategy and not developed incrementally

Exercise : Which of these exist in your company and division ?

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Question to the class : 
what goes into strategy and what come out of it?
Question : what is the input and output in strategy?

ANSWER

The "inputs" are the resources and assets of the company, the "strategy" is in allocating these to various applications so that the "output" as per previous question is produced
 

The "applications areas" are customers, needs, uses, geographies, activities, competitors and collaborators.. The resources are  what get used up and can be tangible (financial, Physical) as well as intangible (human, structural, relational).

Exercise : What are the important inputs for your business? How are you "applying" these currently ?

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Question to the class: 
visible signs of implementation
Question : what consists of strategy implementation?

ANSWER

The heart of strategy is setting of clear purpose in the light of what is happening externally and internally and then allocate resources accordingly. 
 While almost everyone in business tries to do it, many times things are wrongly done because: 

• formulation is done only by the owner or the top few
• formulation is only informally and it is in the mind
• strategy is not shared and hence fails to guide and inspire others
• strategy is not consistent with long term vision and mission
• strategy is not converted into operational initiatives & individual KPIs
• no implementation arrangements are made
• monitoring, review and correction is not carried out
• budgets, plans and operations are not linked to strategy
• strategy is formulted "here onwards" and not "future backwards"

By defining what goes wrong in strategy implementation, we have automatically defined what is the meaning of right implementation

Exercise : How well is the strategy implemented in your company and division ?
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Question to the class:
Which are the 2 ways (schools) of approaching?
Question : what are the two basic things needed for a sustainable and strategic success?

• "YOU NEED TO BE IN RIGHT BUSINESSES SCHOOL" believes that you need to be in search of the right businesses (green pastures) and strive to have the right portfolio of  businesses. Example : if your goal is to grow by 15%pa, it is clear that you must choose to operate in those markets which are growing at least at 15%pa.  The tool to do this is to identify attractive markets. These markets are such that you can make a difference to them with your resources and competence and they also should be able to make sense for you due to their size, growth rate, competitiveness, and ease of locating and accessing them
• "YOU NEED TO HAVE THE RIGHT RESOURCES AND CAPABILITIES" SCHOOL believes that just identifying the right businesses and entering them is not sufficient. You must have inbuilt competitive advantages in order to compete on a sustainable basis in that business. Otherwise your success will be short lived. The concept is the resources-competencies framework. Click here to know more

Exercise : Are you reviewing your portfolio of businesses often enough to decide whether you should increase / maintain / decrease your investment of money and management attention to each of these? Do you act on them? 


Exercise : Are you reviewing whether your portfolio of resources / capabilities / competencies is keeping pace with your decisions regarding your investment stance vis-a-vis your principal businesses? Do you know which competencies will be needed for which generic position.

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Question to the class : 
Signs of external , marketing, alignment 
Question : are we aligned well to the external environment ? Who are all these "players" that we see around us : are they here to help us or harm us? 

ANSWER

It is important to identify not only the trends and the insights but also specific parties, companies, types of people 

1. who will give us money for what we sell ?
   (Customers)
2. whom we need to fight in order to get the revenue?
   (Competitors)
3. who will help to reach these customers and fight these competitors
   (collaborators)

In fact finding the right customers to serve, right competitors to fight and the right collaborators is a critical task of strategy. It is important to realize that you should 

• not aim to extract revenue from all types of customers
• not compete with all of them who are out there
• use carefully selected collaborators

Exercise : Conduct a thorough environmental analysis and also do a thorough introspection to decide which customers, competitors and collaborators you will engage. Tools ( 5Cs, PESTEL )

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Question to the class : 
Signs of alignment with stakeholders
Question : signs of having a balanced approach to what the various stakeholders like employees, vendors, partners, governments and communities expect from the business so that we earn their support to run our business properly? 

ANSWER

Stakeholders are those external and internal parties who prosper when we prosper. They are interested in our doing well. The main stakeholders are direct employees, indirect employees, vendors, distributors, retailers, investors, lenders, governments and communities. The problem is that the expectations of many of these stakeholders conflict with each other because the resources available with the company are the same. Therefore a balanced approach is taken. No stakeholder shall be excessively rewarded or unserviced. 

Click here to know more about stakeholders analysis

Stakeholder conflict examples



One problem with analysing stakeholders is that they tend to belong to more than one group and will change their groupings depending on the issue in hand, e.g. marketing and production departments could be united against dropping a certain product but be in opposition regarding plans to buy a new product for the range.

Resolving conflict 
There are a number of ways of resolving stakeholder conflict, including the following:

•  Satisficing involves negotiations between key stakeholders to arrive at an acceptable compromise.
• Sequential attention is when management focus on stakeholder needs in turn. For example, staff may receive a pay rise with the clear implication that it will not be their ‘turn’ again for a few years and so they should not expect any further increases.
• Side payments are where a stakeholder’s primary objectives cannot be met so they are compensated in some other way. For example, a local community may object to a new factory being built on a site that will cause pollution, noise and extra traffic. The firm concerned may continue to build the factory but try to appease the community by also building local sports facilities.
• Exercise of power is when a deadlock is resolved by a senior figure forcing through a decision simply based on the power they possess.

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Question to the class : 
What are the generic strategies 

ANSWER

Each company tries to achieve a competitive advantage in a crowded marketplace. In the airlines business there are 3 types of companies (1) No-frills airlines cut costs and pass savings to “budget conscious  customers” (2) Luxury airlines give wonderful service to attracts premium customers (3) Small capacity planes on short routes which cannot be operated by a big plane

These three approaches are examples of "generic strategies", because they can be applied to products or services in all industries, and to organizations of all sizes. 

The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be interpreted as meaning "A focus on cost" or "A focus on differentiation". Remember that Cost Focus means emphasizing cost-minimization within a focused market, and Differentiation Focus means pursuing strategic differentiation within a focused market.

The Cost Leadership Strategy : Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!  You  need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have (1) Access to the capital needed to invest in technology that will bring costs down (2) Very efficient logistics (3)  A low cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.

The Differentiation Strategy : Differentiation involves making your products or services different from and more attractive those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support and also brand image that your customers value. To make a success of a Differentiation strategy, organizations need (1) Good research, development and innovation (2) The ability to deliver high-quality products or services (3) Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

The Focus Strategy : Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.

Whether Cost Focus or Differentiation Focus, the key is to ensure you are adding something extra as a result of serving only that market niche. That "something extra" can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs).
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Second class was on execution / implemeentation  

You need to use top-down as well as  bottom-up processes so that everyone  is involved in executing the strategy; although from different roles.  The execution is a cyclical process and not a one-off exercise. With each cycle, you improve your execution capability and get a better performance  from your strategy. 

The organizational perspective and the individual perspective must meet in order to realize your strategy  There are two systems presented here to ensure that this happens :

Click here to understand the Scheme of "8" 
Click here to understand the Hoshin system

Irrespective of which system you follow, you will realize that you need to change not only the strategy but also the other 6S from the 7S model :

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DO NOT READ BEYOND THIS POINT (THESE ARE MY OWN NOTES )

Brett Knowles explains the frequent characteristics of bad strategy maps:
- No Clear Cause-and-Effect Explanation (lack of arrows)
- No Clear Strategic Priorities (no weightings, too many objectives)
- No Communication of Strategic Themes

The results then are:
- There is no clear direction for the organization
- BSC is a poor communication tool (everybody has his own story)
- No leadership accountability
- No alignment
- No way to analyze processes and projects for strategic capabilities.