Crafting Strategy Processes PDF

CRAFTING STRATEGY PROCESSES Introduction Learning Objectives Illustration Observing strategy in action Reflection Reflecting upon the role of simplicity and complexity in strategy Preview Obtaining a sneak preview of all subsequent videos on the se...

CRAFTING STRATEGY PROCESSES Introduction Learning Objectives Illustration Observing strategy in action Reflection Reflecting upon the role of simplicity and complexity in strategy Preview Obtaining a sneak preview of all subsequent videos on the session theme 2 Tesla follows a three-step plan to move towards sustainable mobility 1 Build an expensive, low-volume car 2 Use that money to build a medium-priced, medium-volume car 3 Use that money to build a lower-priced, high-volume car 3 This three-step plan is reflected in Tesla’s product portfolio Model 3 (2017) Affordability Model Y (2020) Model S (2012) Roadster Model X (2008) (2015) Sales Volume CNBC (2019), Statista (2020), Tesla (2020) 4 Electrical vehicles gradually become accessible for the mass market 5 Tesla’s share price increased by ~14,700 % between 2010 and 2020 e.g. 10,000 USD +1,470,600 USD 6  Is strategy as simple as this? Is strategy a simple action plan that can be designed ex-ante? Three questions will guide this session What precisely is strategy and why does it matter? 1 What are the origins of the concept and how can we define it? What are the building blocks of strategy and how can they be arranged as 2 a process? What distinct conceptions of the strategy process co-exist and what are 3 their respective advantages and disadvantages? 8 This session focuses on the strategy concept and strategy process Competitive Competitive Market Resource View View (Session 2) (Session 3) Strategy Process Strategy Content (Session 1) Competitive Cooperative Positioning (Session 5) (Session 4) Strategy Context (Session 6) 9 These are the key themes of this session Strategy Concept Strategy Process Strategy Definitions 2 Strategy Models 4 Understand the etymological origins of Discuss the dominant perception of the concept and review key definitions strategy process and its limitations Strategy Evolution 3 Strategy Schools 5 Explore the evolution of strategy thinking Distinguish between a conception of strategy as design and of strategy as emergence 6 Understand the concept of strategy and craft strategy processes 10 Summary Illustration Observing strategy in action Reflection Reflecting upon the role of simplicity and complexity in strategy Preview Obtaining a sneak preview of all subsequent videos on the session theme 11 Sources Image Sources [Cover] Compass Elon Musk Tesla Roadster Tesla Model X Tesla Model S Tesla Model Y Tesla Model 3 Tesla Logo Yahoo Finance Content Sources CNBC Statista Statista Statista Tesla 12 CRAFTING STRATEGY PROCESSES Strategy Concept I: Strategy Definitions Learning Objectives Motivation Defining strategy Origins Understanding where the concept of strategy originated from Conception Discussing distinct conceptions of strategy 2 The concept of strategy is omnipresent Strategy as the most valuable contribution of top managers Dominates the attention of But what precisely is managers, consultants and management theorists ? strategy? Fundamental requirement for a working business Richardson (1994) 3 How would you describe the essence of strategy to a friend? The concept of strategy has its origins in the military Sun Tzu (500 BC) Carl Von Clausewitz (1832) Basil Liddell Hart (1941) “Strategy without tactics is “The art of the employment “The art of distributing and the slowest route to victory. of battles as a means to gain applying military means to Tactics without strategy is the object of war.” fulfil the ends of policy.“ the noise before defeat.“ Ctovision, Von Clausewitz (1989), Liddell Hart (1900) 5 In the economic realm, the concept of strategy is multifaceted Alfred Chandler (1962) Kenneth Andrews (1971) Michael Porter (1996) “The determination of basic long- “The pattern of objectives, “The creation of a unique and term goals and objectives of an purposes, or goals and the major valuable position involving a enterprise, and the adoption of policies for achieving these goals, different set of activities. [...] courses of action and the allocation stated in such a way as to define Strategy is making trade-offs in of resources necessary for carrying what business the company is in or competing. The essence of out these goals.” is to be in and the kind of company strategy is choosing what not to it is or is to be.” do. […] Strategy is creating fit among a company’s activities.” Reinhardt (2019), Bruner et al. (2003) 6 The multifaceted nature of strategy is reflected in four metaphors Plan Pattern in actions over time A means of getting from here to An implicit regularity in there (How?) organizational decision-making (What?) Strategy as a … Position Perspective A spot within the competitive A vision and direction for an landscape of selected markets organization (Why?) (Where?) Mintzberg et al. (2005) 7 At its core, strategy seeks to answer these questions Position Resources Where should we put out efforts? What do we bring to the table? What should be our business? What are we particularly good at? Who are our customers? How can we protect these capabilities? What do we not want to do? How can we access critical resources? 1 2 4 3 Purpose Fit What is our unique contribution? Do our capabilities suit our position? How do we make this a better world? Are our capabilities valued? Who would care if we ceased to exist? Are they in line with value proposition? Do they provide a competitive advantage? 8 Strategy is a multi-layered concept Corporate Strategy Which business(es) should we be in? How do the distinct businesses we are in fit together? Business Strategy How can we outperform our competitors? What is our game plan to succeed in a particular business? (Cross-)Functional Strategy How should we allocate resources to the distinct business functions? How do we succeed at R&D, production, sales, innovation etc.? Wheelen & Hunger (2008) 9 Summary Motivation Defining strategy Origins Understanding where the concept of strategy originated from Conceptions Discussing distinct conceptions of strategy 10 Sources Image Sources [Cover] Compass Sun Tzu Carl von Clausewitz Basil Liddel Hart Alfred D. Chandler Kenneth Richmond Andrews Michael Porter 11 Sources Content Sources Richardson, B. (1994). Comprehensive Approach to Strategic Management: Leading across the Strategic Management Domain. Management Decision. Volume 32 Issue 8. Sun Tzu Quote Von Clausewitz, C. (1989). On War, Indexed Edition. Princeton University Press. Liddell Hart, B. (1900). Strategy: The Indirect Approach. Pentagon Press. Reinhardt, I. (2019). Eine neutrale Theorie der Wettbewerbsdominanz. Springer-Verlag. Bruner, F. et al. (2003). The Portable MBA. John Wiley & Sons. Mintzberg, H., Lampel, J. & Ahlstrand, A. (2005). Strategy Safari: A Guided Tour Through The Wilds of Strategic Management. Free Press. Hunger, D. J., & Wheelen, T. L. (2008). Concepts in Strategic Management and Business Policy. Prentice Hall. 12 CRAFTING STRATEGY PROCESSES Strategy Concept II: Strategy Evolution Learning Objectives Research Objectives Becoming familiar with the key objectives of strategy research Research Landscape Getting to know the international research landscape in strategy Research Themes Tracing the thematic evolution of strategy research over time 2 Strategy research pursues three overarching objectives Explain Superior Performance 1 Explain performance differences between industries & strategic groups Explain performance differences between firms within one industry Evaluate Strategic Moves Main 2 Assess performance effect of specific strategic moves Objectives Identify success factors and boundary conditions of Strategy Explain Strategic Behavior Research 3 Understand decision-making processes Identify driving forces of strategic change 3 Which countries are particularly active in strategy research? Strategy research as a strong Anglo-Saxon influence Number of Peer-Reviewed Journal Articles by Country [1950 - 2020] USA ENGLAND CHINA CANADA GERMANY AUSTRALIA SPAIN FRANCE NETHERLANDS ITALY 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 Web of Knowledge (2020) 5 Strategy research is a rapidly expanding field of inquiry Number of Peer-Reviewed Journal Articles by Year [1950 - 2020] 25000 Budgeting Planning Positioning Outcompeting Cooperating 20000 15000 10000 5000 0 Year 1959 1969 1979 1989 1999 2009 2019 strateg* strategy Web of Knowledge (2020) 6 The nature of strategy research has evolved over time … 1950 - 1960 1960 - 1975 1975 - 1985 1985 - 2000 2000 - now Dominant Theme Budgeting Planning Positioning Outcompeting Cooperating Prevailing Logic Firms in isolation Firms in isolation Firms in competition Firms in competition Firms in cooperation Public Administration Manufacturing, High-tech High-Tech and Service Industry Focus Large Industrial Firms Manufacturing Firms Large Industrial Firms and Service Firms Firms Research Develop effective Design optimal business Occupy optimal market Possess most valuable set Orchestrate effective Objectives planning processes portfolios position of resources innovation ecosystems Firm (Planning Unit of Analysis Firm (Portfolio) Industry (Structure) Firm (Resources) Networks (Interaction) Processes) Strategy as Dominant Schools Strategy as Planning Strategy as Design Strategy as Positioning Strategy as Learning Entrepreneurship Market-Based View Transaction Cost Theoretical Industrial Organization Resource-Based View Relational View Strategic planning Economics Perspectives Population Ecology Organizational Learning Dynamic Capabilities Industrial Organization Strategic Inertia Grant (2015) 7 … and shaped management practice in important ways 1950 - 1960 1960 - 1975 1975 - 1985 1985 - 2000 2000 - now Dominant Theme Budgeting Planning Positioning Outcompeting Cooperating Prevailing Logic Firms in isolation Firms in isolation Firms in competition Firms in competition Firms in cooperation Achieving financial Achieving competitive Growing the firm by Selecting the industry Fostering org. flexibility Main Issues control through advantage in core means of diversification and positioning the firm and responsiveness budgeting segments Five Forces VRIO Framework Value Curve Analysis Scenario-Planning PEST(EL) Analysis Value Chain Analysis Open Innovation Popular Tools Budgeting BCG-Matrix Generic Strategies Benchmarking Crowdsourcing Experience Curve Strategic Groups Balanced Scorecard Industry analysis Shareholder Value Cooperation Financial Budgeting Forecasting Segmentation Outsourcing Innovation Principal Concepts Investment planning Corporate planning Strategic Business Units E-Business Alliances Project Appraisal Portfolio Planning Restructuring CSR & ethics Introduction of budgeting Creation of units for Creation of competitive Organizational Introduction of Formation of networks and other control corporate planning intelligence and M&A Implications multidivisional structures and informal governance mechanisms departments departments Grant (2015) 8 Summary Research Objectives Becoming familiar with the key objectives of strategy research Research Landscape Getting to know the international research landscape in strategy Research Themes Tracing the thematic evolution of strategy research over time 9 Sources Image Sources [Cover] Compass Content Sources Grant, R. M. (2015). Contemporary Strategy Analysis. John Wiley and Sons. Web of knowledge 10 CRAFTING STRATEGY PROCESSES Strategy Process I: Strategy Models Learning Objectives Motivation Beginning to conceptualize the strategy process Dominant Model Understanding the dominant model of the strategy process Reflection Uncovering some of the fallacies of the dominant model 2 Imagine you are an entrepreneur in need of a strategy. How would you proceed? Strategy is typically conceived of as a linear process External Analysis Mission Mission && Long-term Long-term Strategic Strategy Strategy Strategy Vision Vision objectives objectives Analysis Formulation Implementation Evaluation Internal Analysis 4 It all starts with a mission … Key Characteristics “To accelerate the world's transition to Question electric mobility with a full range of Why? What is our unique contribution? increasingly affordable electric cars for all consumers.” Purpose Define the fundamental purpose of the organization “To organize the world's information and Components make it universally accessible and useful.” Nature of value created Group of beneficiaries Means for value creation “To educate leaders who make a difference in the world.” Kaplan & Norton (2008) 5 … and a vision Key Characteristics “Our vision is to create the most compelling Question car company of the 21st century by driving Where are we heading? What do we want the world's transition to electric vehicles.” to become? Purpose Describe the way in which the organization wants to be perceived by the world and to “To provide access to the world's postulate a clear strategic objective information in one click.” Components Success Indicator Niche Definition “To be a world leader in business education, Timeline research and engagement, helping to create a better global society.” Kaplan & Norton (2008) 6 This is followed by long-term strategic objectives Key Characteristics Question What do we want to achieve? AGENDA 5-to-1 Purpose Objectives for the next 5 years... Formulate precise performance targets (financial and/or strategic) against which Become part of the top 4 semiconductor firms the success of a strategy can be worldwide in terms of firm size evaluated Become part of the top 3 on the market in each Attributes segment served Measurable Achieve top 2 financial performance in all Realistic business units Challenging Become top 1 semiconductor firm in the solution business 7 Each process step has a clear focus Step Objective Key Activities Time Frame To reaffirm the highest-level guidelines about Mission analysis Mission & Vision organizational purpose and conduct Vision statement > 10 years Core Values Strategic Objectives To clearly define the highest-level goals that will Strategic themes > 3-5 years drive strategy Specific goals To identify through structured analysis the Strategic issues Strategic Analysis events, forces and experiences that impact the External analysis ongoing strategy Internal analysis To define where and how the organization will Business scoping Strategy Formulation compete Alternative generation ongoing Alternative selection To specify and perform the activities and choices Action programs Strategy Implementation required to put a particular strategy into actual Resource allocation ongoing practice Strategic monitoring To examine whether strategic objectives have Strategic controlling Strategy Evaluation been achieved and to identify key lessons for the Formal project reviews ongoing future Lessons learned Kaplan & Norton (2008) 8 How can this dominant conception of the strategy process be challenged? What are its shortcomings? The dominant process model is facing growing criticism Fallacy of Prediction Future remains unknown and cannot be predicted Three Main Fallacies Fallacy of Fallacy of Detachment Formalization Strategy formulation and Formalization inhibits learning, implementation are interconnected experimentation and adaptation Mintzberg et al. (2005) 10 Summary Motivation Beginning to conceptualize the strategy process Dominant Model Understanding the dominant model of the strategy process Reflection Uncovering some of the fallacies of the dominant model 11 Sources Image Sources [Cover] Compass Tesla Logo Google-Logo Harvard University Logo < https://commons.wikimedia.org/wiki/File:Blason_Harvard.svg> Logo der Warwick Business School Infineon Logo Content Sources Kaplan, R. S., & Norton, D. P. (2008). The Execution Premium: Linking Strategy to Operations for Competitive Advantage. Harvard Business Press. Mintzberg, H., Lampel, J. & Ahlstrand, A. (2005). Strategy Safari: A Guided Tour Through The Wilds of Strategic Management. Free Press. 12 CRAFTING STRATEGY PROCESSES Strategy Process II: Strategy Schools Learning Objectives Overview Surveying distinct conceptions of the strategy process Design School Introducing and discussing a view of strategy as design Learning School Introducing and discussing a view of strategy as emergence 2 Distinct conceptions of strategy have emerged over time 1950 - 1960 1960 - 1975 1975 - 1985 1985 - 2000 2000 - now Dominant Theme Budgeting Planning Positioning Outcompeting Cooperating Prevailing Logic Firms in isolation Firms in isolation Firms in competition Firms in competition Firms in cooperation Public Administration Manufacturing, High-tech High-Tech and Service Industry Focus Large Industrial Firms Manufacturing Firms Large Industrial Firms and Service Firms Firms Research Develop effective Design optimal business Occupy optimal market Possess most valuable set Orchestrate effective Objectives planning processes portfolios position of resources innovation ecosystems Firm (Planning Unit of Analysis Firm (Portfolio) Industry (Structure) Firm (Resources) Networks (Interaction) Processes) Strategy as Dominant Schools Strategy as Planning Strategy as Design Strategy as Positioning Strategy as Learning Entrepreneurship Market-Based View Transaction Cost Theoretical Industrial Organization Resource-Based View Relational View Strategic planning Economics Perspectives Population Ecology Organizational Learning Dynamic Capabilities Industrial Organization Strategic Inertia Grant (2015) 3 They can be arranged on a continuum from design to emergence Design School Planning School Positioning School Entrepreneurship School Learning School Design Emergence Other Schools Environmental School Cognitive School Power School Cultural School Configuration School Mintzberg et al. (2005) 4 The design school understands strategy as a conceptual process Key Characteristics Visualization Model External appraisal Internal appraisal Strategy making as systematic and highly Threats and Strengths and analytical process of conception opportunities in weaknesses of environment organization Assumptions External Internal Requirements Competences Environmental stability Senior management focus Organizational plasticity Creation of strategy Approach Strategy as achieving fit between external Evaluation and choice of strategy requirements and internal competences Metaphor Implementation of strategy Strategist as architect Mintzberg et al. (2005) 5 The design school contributes valuable terms and tools … Contributions Limitations Strategy Research Environment Introduces vocabulary Underestimates dynamism Highlights importance of “fit” Underestimates ambiguity Continues to be most influential and enduring school Strategy Practice Ignores simultaneity of strategy formulation and Strategy Practice implementation Focuses attention on grand designs Overstates firm plasticity Provides an alternative to trial-and-error learning Strategy Practitioners Overlooks cognitive limitations Ignores decision making biases Mintzberg et al. (2005) 6 … but also faces fundamental critique, such as by Henry Mintzberg Strategy is a long, complex and Encourages to oversimplify strategy challenging learning process Strategy is created in exchange with Encourages to detach thinking from customers and employees and through acting implementation attempts Design School may be a root cause of some of the serious problems faced by so many of today's organizations Mintzberg et al. (2005) 7 Is Mintzberg’s radical critique of the design school justified? The learning school was developed as antithesis of the design school Key Characteristics Visualization Model Strategy making as emergent process Inter-Organizational Learning Assumptions Organizational Learning Environmental dynamism Group Learning Collective focus Organizational adaptation Individual Learning Approach Strategy as emerging over time as organization learns and adapts to feedback Metaphor Strategist as students Mintzberg et al. (2005) 9 However, the learning school has its own limitations Contributions Limitations Strategy Research Environment Highlights importance of organizational learning Incrementalism insufficient in times of disruption Yields more realistic description of strategy processes Strategy Practice Maneuvering instead of strategy Strategy Practice Risk of strategic drift Highlights need to develop strong learning Cost of trial-an-error learning capabilities Highlights importance of experimentation and Strategy Practitioners performance feedback Downplays strategic foresight Downplays strategic leadership Mintzberg et al. (2005) 10 Summary Overview Surveying distinct conceptions of the strategy process Design School Introducing and discussing a view of strategy as design Learning School Introducing and discussing a view of strategy as emergence 11 Sources Image Sources [Cover] Compass Strategy Safari Logo Content Sources Grant, R. M. (2015). Contemporary Strategy Analysis. John Wiley and Sons. Mintzberg, H., Lampel, J. & Ahlstrand, A. (2005). Strategy Safari: A Guided Tour Through The Wilds of Strategic Management. Free Press. 12 CRAFTING STRATEGY PROCESSES Conclusion Learning Objectives Syntheses Reconciling the tension between strategy as design and emergence Summary Summarizing the key insights of this session 2 The two conceptions of strategy seem to be opposing poles Attribute Design vs Emergence Nature of Formation Intentionally designed Gradually shaped View of Future Figuring out Finding out Posture towards the Future Forecast and anticipate Partially unknown Formation Process Make commitments, prepare Postpone commitments Formation Process Steps Structured & comprehensive Unstructured & fragmented Decision-Making Hierarchical Dispersed Decision-Making Focus Optimal resource allocation Experimentation Implementation Focused on Programming Learning Strategic Change Implemented top-down Implemented bottom-up De Wit & Meyer (2014) 3 Which of the two schools, if any, provides a more accurate account of Tesla's strategy? Tesla’s strategy illustrates the multifaceted nature of strategy 5 Strategy can reconcile the tension between design and emergence Strategy as Design Strategy as Emergence Strategist as Strategist as Architect Pattern Recognizer Planning and rational choice Response to emerging external and internal events Intended Realized Emergent Strategy Strategy Strategy Deliberate Strategy Unrealized Strategy Mintzberg et al. (2005) 6 These are the key insights of this session Strategy Concept Strategy Process Strategy Definitions 2 Strategy Models 4 Understand the etymological origins of Discuss the dominant perception of the concept and review key definitions strategy process and its limitations Strategy Evolution 3 Strategy Schools 5 Explore the evolution of strategy thinking Distinguish between a conception of strategy as design and of strategy as emergence 6 Understand the concept of strategy and craft strategy processes 7 Sources Image Sources [Cover] Compass Elon Musk Tesla Roadster Tesla Model X Tesla Model S Tesla Model Y Tesla Model 3 Tesla Logo Content Sources De Wit, B. & Meyer, R. (2014). Strategy: An International Perspective. Cengage Learning. Mintzberg, H., Lampel, J. & Ahlstrand, A. (2005). Strategy Safari: A Guided Tour Through The Wilds of Strategic Management. Free Press. 8