METO Revision Document – Strategy PDF

METO Revision Document -- Strategy ================================== Contents {#contents.TOCHeading} ======== [METO Revision Document -- Strategy 1](#meto-revision-document-strategy) [What is strategy? Definitions 1](#what-is-strategy-definitions) [Why strategy? 1](#why-strategy) [Traditional/...

METO Revision Document -- Strategy ================================== Contents {#contents.TOCHeading} ======== [METO Revision Document -- Strategy 1](#meto-revision-document-strategy) [What is strategy? Definitions 1](#what-is-strategy-definitions) [Why strategy? 1](#why-strategy) [Traditional/Classic Strategic Planning 1](#traditionalclassic-strategic-planning) [Realised Strategies 1](#realised-strategies) [Top Down/Bottom Up (or hybrid) 1](#top-downbottom-up-or-hybrid) [Traditional Planning vs Agile Strategic Planning 1](#traditional-planning-vs-agile-strategic-planning) [Tips 2](#tips) [The Exploring Strategy Model 2](#the-exploring-strategy-model) [Strategic Position 3](#strategic-position) [The Business Environment (linked to strategic position) 3](#the-business-environment-linked-to-strategic-position) [Capability (linked to strategic position) 5](#capability-linked-to-strategic-position) [Purpose (linked to strategic position) 7](#purpose-linked-to-strategic-position) [Culture (linked to strategic position) 7](#culture-linked-to-strategic-position) [Strategic Choices 7](#strategic-choices) [Business (linked to strategic choices) 7](#business-linked-to-strategic-choices) [Corporate Strategy (linked to strategic choices) 8](#corporate-strategy-linked-to-strategic-choices) [Innovation (linked to strategic choices) 10](#innovation-linked-to-strategic-choices) [Internalisation, Acquisitions and Alliances (linked to strategic choices) 10](#internalisation-acquisitions-and-alliances-linked-to-strategic-choices) [Strategy in Action 12](#strategy-in-action) [Process and Practice (linked to strategy in action) 12](#process-and-practice-linked-to-strategy-in-action) [Evaluating (linked to Strategy in Action) 13](#evaluating-linked-to-strategy-in-action) [Changing and Organising (linked to Strategy in Action) 14](#changing-and-organising-linked-to-strategy-in-action) [Strategic Objectives 15](#strategic-objectives) [Summary 15](#summary) What is strategy? Definitions ----------------------------- - Determination of the long-run goals and objectives of an enterprise and adoption of courses of action and the allocation of resources necessary for carrying out these goals. - A firm's theory on how to gain competitive advantages. - A pattern in a stream of decisions. - A long-term direction of an organisation. Why strategy? ------------- Provides directions, drives decision making & choices, provokes and steers action, aligns, engages, inspires. Traditional/Classic Strategic Planning -------------------------------------- 1. Identify the organisation's current mission, goals and strategies 2. SWOT Analysis (internal & external) 3. Formulate Strategies 4. Implement Strategies 5. Evaluate Results Realised Strategies ------------------- 1. Intended Strategies (as developed) 2. Emergent Strategy (pattern emerging from a series of decisions over time) 3. Realised Strategy (what is actually put in practice) 4. Unrealised Strategy (what was actually not put in practice) 5. Emergent StrategIES (retrospectively get incorporated into the intended strategy) Top Down/Bottom Up (or hybrid) ------------------------------ Strategic planning was traditionally a top management exercise, but both approaches co-exist. It provides feedback, flexibility and increases motivation amongst employees. Traditional Planning vs Agile Strategic Planning ------------------------------------------------ Area Traditional Approach Agile Approach -------------------- ------------------------- ------------------------------------------------------ Process Rigid, top down, formal Informal, leveraging agile methods Timeframe Intermittent Continuous Approval/Decisions Slow, Layered Remove layers, empowers, supported by vision/mission Content Timebound milestones Bite-sized chunks, based on thresholds/triggers Documentation Heavy, formal Less documentation, more reviews and interactions Communication Cascade (one-off) Continuous Flow Tips ---- Product development, innovation, technology and operations are often strategic capabilities & play a profound role in a company's long-term success. Understanding how strategies are developed will allow Engineering Business Managers to be better able to participate in the strategic dialogue and play an influencing role. Understanding the strategies in your company, and breaking down what this means for your team members is an excellent leadership tool to: - Increase motivation and engagement - Improve the performance of teams - Secure resources Many strategic tools can be applied in a variety of circumstances and at a unit, project or departmental level - Having these in your management toolbox is very useful The Exploring Strategy Model ---------------------------- 3 interlinked circles: - Strategic Position (what can we do and what do we seek to do?) - Environment - Capability - Culture - Purpose - Strategic Choices (what options are available) - Business - Corporate - International - Innovation - Acquisition & Alliances - Strategy in Action (what choices will we make and how will we implement) - Evaluating - Processes - Organising - Changing - Practice Strategic Position ------------------ ### The Business Environment (linked to strategic position) Made of multiple layers around the organisation - The macro-environment (most external) - PESTEL analysis - Industry (or sector) - Porter's five forces - Industry life cycle - Competitors & Markets - High/Breadth of Offerings model #### PESTEL Analysis **P**olitical Factors: - **Government Policies**: Regulations, trade tariffs, and tax policies can affect business operations. - **Political Stability**: Stability or instability in a country can influence business confidence and investment. - **Trade Agreements**: International trade agreements and relations can open up or restrict markets. **E**conomic Factors: - **Economic Growth**: The overall economic growth rate affects consumer spending and business investment. - **Inflation Rates**: High inflation can erode purchasing power and increase costs. - **Unemployment Rates**: High unemployment can reduce consumer spending, while low unemployment can increase labor costs. **S**ocial Factors: - **Demographics**: Age, gender, and population growth rates can influence market demand. - **Cultural Trends**: Social attitudes and cultural trends can affect consumer behavior and product demand. - **Health Consciousness**: Increasing awareness of health and wellness can drive demand for certain products. **T**echnological Factors: - **Innovation**: Technological advancements can create new opportunities and disrupt existing markets. - **Automation**: The rise of automation can improve efficiency but may also lead to job losses. - **Research and Development (R&D)**: Investment in R&D can lead to new products and competitive advantages. **E**nvironmental Factors: - **Sustainability**: Growing emphasis on sustainability can influence business practices and consumer preferences. - **Climate Change**: Climate change and environmental regulations can impact operations and costs. - **Resource Availability**: Availability of natural resources can affect production and supply chains. **L**egal Factors: - **Regulations**: Compliance with laws and regulations is essential to avoid legal issues and fines. - **Employment Laws**: Labor laws and regulations can affect hiring practices and labor costs. - **Consumer Protection**: Laws protecting consumers can influence product safety and marketing practices. #### Porter\'s Five Forces 1\. Threat of New Entrants: - **Barriers to Entry**: High barriers (e.g., capital requirements, brand loyalty, patents) reduce the threat of new entrants. - **Economies of Scale**: Established companies with cost advantages can deter new entrants. - **Access to Distribution Channels**: Difficulty in accessing distribution channels can limit new entrants. 2\. Bargaining Power of Suppliers: - **Number of Suppliers**: Few suppliers increase their bargaining power. - **Uniqueness of Service**: Suppliers providing unique or differentiated products have more power. - **Switching Costs**: High switching costs for companies increase supplier power. 3\. Bargaining Power of Buyers: - **Number of Buyers**: Few large buyers can exert more pressure on suppliers. - **Product Differentiation**: Standardized products increase buyer power as they can easily switch suppliers. - **Price Sensitivity**: Buyers sensitive to price changes have more bargaining power. 4\. Threat of Substitute Products or Services: - **Availability of Substitutes**: More substitutes increase the threat. - **Switching Costs**: Low switching costs make it easier for customers to switch to substitutes. - **Price-Performance Trade-off**: If substitutes offer a better price-performance ratio, the threat is higher. 5\. Industry Rivalry: - **Number of Competitors**: More competitors increase rivalry. - **Industry Growth**: Slow growth leads to more intense competition for market share. - **Product Differentiation**: Low differentiation increases rivalry as companies compete on price. #### Industry Life Cycle Market Size Typical five forces ------------- ------------------------------------------------------------------------------------------------------------ Development Low Rivalry: High Differentiation, Innovation is key Growth Low Rivalry: High Growth and weak buyers, but low entry barriers. Growth ability key Shake-out Increasing rivalry: Slower growth and some exits. Managerial and financial strength is key Maturity Stronger Buyers: Low growth and standard products, but higher entry barriers. Market share and cost is key Decline Extreme rivalry: typically many exits and price competition. Cost and commitment is key. #### Competitors and Strategic Groups Strategic groups bundle together companies following similar strategies or competing on a similar basis. Competitors can be compared on a price/scope diagram (breadth of offering), or any other criteria. Can then reflect on how these competitors are evolving, creating a dynamic view which helps to look at strategic shifts. ### Capability (linked to strategic position) Resource based view: resources and capabilities are different among different firms. The competitive advantage and superior performance of an organisation is explained by the distinctiveness of its capabilities. Resources: what we have Capabilities: what we do Competitive advantage: a unique advantage an organisation has over its competitors. VRIO Model (Value, Rarity, Imitability, Organisation) helps identify capabilities that offer sustained competitive advantage. A diagram of a company\'s company\'s company Description automatically generated Value - **Definition**: Does the resource or capability enable the firm to exploit opportunities or neutralize threats? - **Key Questions**: - Does it increase efficiency or effectiveness? - Does it help the firm meet customer needs better than competitors? - **Example**: A patented technology that reduces production costs. Rarity - **Definition**: Is the resource or capability controlled by a small number of firms? - **Key Questions**: - Is it unique or scarce? - How many competitors possess this resource or capability? - **Example**: A brand with strong customer loyalty that competitors cannot easily replicate. Imitability - **Definition**: Is the resource or capability costly for other firms to imitate? - **Key Questions**: - Can competitors easily duplicate it? - Are there significant barriers to imitation (e.g., legal protections, unique historical conditions)? - **Example**: A company\'s culture that has developed over many years and is deeply embedded. Organised - **Definition**: Is the firm organized to capture the value of the resource or capability? - **Key Questions**: - Does the firm have the right processes, policies, and culture in place? - Are there complementary resources that enhance the value of the resource or capability? - **Example**: Effective management systems and processes that leverage a firm\'s human capital. ### Purpose (linked to strategic position) Organisational purpose is defined by values, vision and mission. These are expressed in vision and mission statements. Vision statement is concerned with the desired future state of the organisation Mission statement provides employees and stakeholders with clarity about the over-riding purpose of the organisation. ### Culture (linked to strategic position) May be different than stated organisational values Cultural paradigms and behaviours can have serious impact on the ability of a company to change its strategy The paradigm: - Stories (eg founding stories) - Symbols (eg logo, dresscode, office layout) - Power structures (eg decision power for employees, start-up) - Routines and rituals (eg regular meetings/weekly catch-up) - Control systems (eg how do you monitor performance?) - Organisational structures (eg layers, matrix,..) Strategic Choices ----------------- ### Business (linked to strategic choices) Regarding generic business strategies, Porter argues there are two fundamental means of gaining competitive advantage.  **Cost Leadership:** - **Definition**: Achieving the lowest cost of operation in the industry. - **Scope**: Broad - **Key Characteristics**: - **Economies of Scale**: Producing large volumes to reduce costs. - **Cost Control**: Tight control over production and overhead costs. - **Efficiency**: Streamlined operations and supply chain management. - **Example**: Walmart, which focuses on offering low prices through efficient supply chain management and large-scale operations. **Differentiation:** - **Definition**: Offering unique products or services that are valued by customers. - **Scope**: Broad - **Key Characteristics**: - **Innovation**: Developing new and unique products. - **Quality**: High-quality products or services that justify a premium price. - **Branding**: Strong brand identity and customer loyalty. - **Example**: Apple, which differentiates its products through innovative design, technology, and a strong brand. **Cost Focus:** - **Definition**: Achieving cost leadership in a narrow market segment. - **Scope**: Narrow - **Key Characteristics**: - **Specialization**: Focusing on a specific niche market. - **Cost Control**: Maintaining low costs within the niche. - **Efficiency**: Tailoring operations to the needs of the niche market. - **Example**: Ryanair, which focuses on being the lowest-cost airline in the European budget travel market. **Differentiation Focus:** - **Definition**: Offering unique products or services in a narrow market segment. - **Scope**: Narrow - **Key Characteristics**: - **Customization**: Tailoring products or services to the specific needs of the niche market. - **Quality**: High-quality, specialized products or services. - **Customer Relationships**: Building strong relationships with niche market customers. - **Example**: Rolls-Royce, which focuses on luxury and customization in the high-end automobile market. ### Corporate Strategy (linked to strategic choices) Applies to multi sub business units corporations. Corporate strategy deals answers the question "which business should we be in? Ansloff's Matrix A diagram of a market Description automatically generated **Market Penetration:** - **Definition**: Increasing market share within existing markets using existing products. - **Key Strategies**: - **Increase Usage**: Encourage existing customers to use more of the product. - **Attract Competitors\' Customers**: Win over customers from competitors. - **Increase Market Share**: Use marketing and promotional activities to boost sales. - **Example**: Coca-Cola increasing its advertising efforts to boost sales of its existing soft drinks in current markets. **Market Development:** - **Definition**: Entering new markets with existing products. - **Key Strategies**: - **Geographical Expansion**: Entering new regions or countries. - **Targeting New Segments**: Identifying and targeting new customer segments. - **New Distribution Channels**: Using different distribution channels to reach new markets. - **Example**: Starbucks expanding its coffee shops into new international markets. **Product Development:** - **Definition**: Developing new products for existing markets. - **Key Strategies**: - **Innovation**: Creating new products to meet the needs of existing customers. - **Product Improvements**: Enhancing or modifying existing products. - **Product Line Extensions**: Adding new products to an existing product line. - **Example**: Apple introducing new versions of the iPhone to its existing customer base. **Diversification:** - **Definition**: Entering new markets with new products. - **Key Strategies**: - **Related Diversification**: Expanding into new markets with products related to the existing business. - **Unrelated Diversification**: Expanding into new markets with products unrelated to the existing business. - **Risk Management**: Spreading risk by diversifying into different markets and products. - **Example**: Amazon expanding from an online bookstore to offering cloud computing services (Amazon Web Services). ### Innovation (linked to strategic choices) Strategic Masterplan for new product development: - Goals and objectives for total product innovation efforts. - The role of new product development - Definition of strategic arenas -- prioritised markets, technologies or categories to focus efforts - Attack plans, how to attack each area including technology, platform and product line roadmaps - Deployment, spending allocations across the arenas, including the use of strategic buckets. ### Internalisation, Acquisitions and Alliances (linked to strategic choices) Drivers of internalisation are: - Government drivers: trade policies, technical standards, local policies - Market drivers: similar customer needs, global customers, transferable marketing - Cost drivers: scale economics, country-specific differences, favourable logistics - Competitive drivers: interdependence, competitors' global strategies Internal Development Characteristics: - Organic Growth: Growth achieved through the company\'s own resources and capabilities. - Control: Full control over the development process and outcomes. - Pace: Typically slower compared to M&A and JVs. - Investment: Requires significant investment in R&D, marketing, and infrastructure. Advantages: - Control: Full control over the strategy, processes, and outcomes. - Cultural Consistency: Maintains the company\'s culture and values. - Sustainable Growth: Can lead to sustainable, long-term growth. Disadvantages: - Time-Consuming: Slower growth compared to other methods. - Resource Intensive: Requires significant investment and resources. - Risk of Failure: High risk if the new development does not succeed. Mergers and Acquisitions (M&A) Characteristics: - Inorganic Growth: Growth achieved by acquiring or merging with other companies. - Control: High level of control over the acquired company. - Pace: Faster growth compared to internal development. - Integration: Requires integration of different cultures, systems, and processes. Advantages: - Speed: Rapid market entry and growth. - Market Access: Immediate access to new markets, customers, and technologies. - Synergies: Potential for cost savings and increased efficiencies. Disadvantages: - Integration Challenges: Difficulties in integrating different cultures and systems. - High Costs: Significant financial investment and potential for overpayment. - Regulatory Hurdles: Possible regulatory challenges and approval processes. Joint Ventures (JVs) / Alliances Characteristics: - Collaborative Growth: Growth achieved through partnerships with other companies. - Shared Control: Shared control and decision-making with partners. - Flexibility: Can be more flexible and less risky than M&A. - Resource Sharing: Sharing of resources, knowledge, and capabilities. Advantages: - Risk Sharing: Shared risk and investment with partners. - Access to Resources: Access to partners\' resources, expertise, and markets. - Flexibility: Can be more flexible and easier to dissolve than M&A. Disadvantages: - Shared Control: Potential conflicts and disagreements with partners. - Complexity: Complex management and coordination of the partnership. - Limited Control: Less control compared to internal development and M&A. Comparison **Aspect** **Internal Development** **Mergers and Acquisitions (M&A)** **Joint Ventures (JVs) / Alliances** --------------------- -------------------------- ------------------------------------ -------------------------------------- **Growth Type** Organic Inorganic Collaborative **Control** Full High Shared **Pace** Slow Fast Moderate **Investment** High High Moderate **Risk** High (development risk) High (integration risk) Moderate (partnership risk) **Cultural Impact** Consistent Integration challenges Potential conflicts Strategy in Action ------------------ ### Process and Practice (linked to strategy in action) Traditional Strategy Development Approaches Characteristics: - Top-Down Planning: Strategies are formulated by top management and then communicated down the hierarchy. - Long-Term Focus: Emphasis on long-term goals and detailed planning over several years. - Predictability: Assumes a relatively stable and predictable environment. - Sequential Process: Strategy development follows a linear, step-by-step process (e.g., analysis, formulation, implementation). - Comprehensive Analysis: Extensive analysis of internal and external environments before strategy formulation. Advantages: - Clear Direction: Provides a clear and structured direction for the organization. - Consistency: Ensures consistency and alignment across the organization. - Thorough Analysis: Allows for comprehensive analysis and consideration of various factors. Disadvantages: - Inflexibility: Can be rigid and slow to adapt to changes in the environment. - Time-Consuming: The process can be lengthy and resource-intensive. - Risk of Obsolescence: Long-term plans may become obsolete due to rapid changes in the market. Agile Strategy Development Approaches Characteristics: - Iterative and Incremental: Strategies are developed through iterative cycles and incremental improvements. - Short-Term Focus: Emphasis on short-term goals and flexibility to adapt to changes. - Adaptability: Assumes a dynamic and unpredictable environment, requiring quick responses. - Collaborative Process: Involves collaboration across different levels and functions within the organization. - Continuous Feedback: Regular feedback and adjustments based on real-time information and performance. Advantages: - Flexibility: Allows for quick adaptation to changes in the environment. - Speed: Faster decision-making and implementation of strategies. - Customer-Centric: Focuses on delivering value to customers through continuous improvement. Disadvantages: - Lack of Long-Term Vision: May lack a clear long-term direction and focus. - Resource Intensive: Requires continuous monitoring and adjustment, which can be resource-intensive. - Potential for Chaos: Without proper coordination, the iterative process can lead to confusion and lack of alignment. Comparison **Aspect** **Traditional Strategy Development** **Agile Strategy Development** ------------------------ -------------------------------------- -------------------------------- Planning Approach Top-Down Iterative and Incremental Focus Long-Term Short-Term Environment Assumption Stable and Predictable Dynamic and Unpredictable Process Sequential Collaborative and Iterative Flexibility Low High Speed Slow Fast Customer Focus Indirect Direct and Continuous ### Evaluating (linked to Strategy in Action) SAFe framework Suitability: - Definition: Evaluates whether a strategy aligns with the organization\'s objectives and external environment. - Key Questions: - Does the strategy address the key opportunities and threats identified in the external environment? - Is the strategy consistent with the organization\'s mission, vision, and values? - Does it leverage the organization\'s strengths and mitigate its weaknesses? - Example: A company considering entering a new market should assess if this move aligns with its long-term goals and market conditions. Acceptability: - Definition: Assesses the expected outcomes of a strategy in terms of risk, return, and stakeholder reactions. - Key Questions: - What are the expected financial returns and risks associated with the strategy? - How will stakeholders (e.g., shareholders, employees, customers) react to the strategy? - Are the potential benefits worth the associated risks and costs? - Example: Evaluating whether a proposed merger will deliver acceptable financial returns and be supported by key stakeholders. Feasibility: - Definition: Determines whether the organization has the resources and capabilities to implement the strategy. - Key Questions: - Does the organization have the necessary financial resources, skills, and technology? - Are there any operational or logistical barriers to implementation? - Can the organization manage the change effectively? - Example: Assessing if a company has the technical expertise and financial capacity to develop a new product line. ### Changing and Organising (linked to Strategy in Action) Management of strategic change: the extent and nature of the change drive the approach to be taken. The nature of the change can be incremental or big bang, the extent of the change can be a realignment or a transformation. Incremental Realignment = Adaptation (within the current culture, incremental) Incremental Transformation = Evolution (requires cultural change, but over time) Big bang Realignment = Reconstruction (rapid and disruptive but does not fundamentally change culture) Big Bang Transformation = Revolution (rapid, major strategic and cultural change) McKinsey 7S framework highlights the importance of all elements in an organisation to deliver on the shared vision. The 7S are: 1. Structure 2. Systems 3. Style 4. Staff 5. Skills 6. Strategy 7. AND ALL INTERLINK TO Share Vision Strategic Objectives -------------------- Typical objectives are: - Financial: increase revenue, grow shareholder value,... - Customer: increase market share, enhance customer satisfaction,... - Internal: most innovative, acquire new customers,... - Operational: reduce waste, improve reliability,... - Environmental: increase recycling, reduce CO2,... - CSR: engagement with local communities, spending on CSR programs,... - Learning and growth: improve skills, employee satisfaction,... Why Strategic Planning can fail: - Strategic Planning focuses more on budgeting than strategic decisions - They don't lead to re-allocation of resources - They don't sufficiently differentiate between leading businesses and followers - They don't connect strategy to front-line resources of behaviours - They assume a common cadence across different businesses - They don't link strategy to talent plans and capability discussions - They end up becoming primarily numbers-driven exercises - They are boring Summary ------- - Strategy is ultimately about making the right choices to win in business - Strategy in practice exists at different levels - Within a company and considering different time frames - Strategy is both an analytical and creative process - Importance of a robust fact base and analysis - Developing strategic alternatives - Making the right choices - Developing and leveraging strategic capabilities is key - Technology, R&D & Operations are often a great source of competitive advantage