Business Strategy for a Digital World PDF

Business Strategy for a Digital World Unit 1 BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 1  Course Overview Setting the Scene...

Business Strategy for a Digital World Unit 1 BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 1  Course Overview Setting the Scene “Traditional Strategy” “Digital Strategy” “Practical Strategy” Strategy as a Deliberate Introduction Process Emerging Theories and Session 1 Models Market Based Session Views of Strategy 2 Technological Organisational Disruption & ideology & Strategy Session Strategy Resource-based 4 Other Aspects Session Views of Strategy 3 Abundance (and Strategy and Scarcity) growth Driving execution Session 6 Strategy as an Unconscious Process Session Dimensions and Platforms 5 layers of Strategy Emergent Strategy Leadership & Session Exponential Session 4 Governance Organisations 6 Entrepreneurial Strategy BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 2  Strategy is.... Strategy is a multi-layered, multi- Ultimately has to be Almost always includes dimensional concept practical and actionable a) survival b) growth h igh -level d escription of the = “organisational ideology” the means by which an organization delivers its purpose, vision and goals in the presence of a changing environment, Primarily external – “market-based” intense, dynamic competition perspective and constraints Primarily internal – “resource- based” perspective BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 3  Why did Roger Federer make so much money? BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 4  And if he’d played Badminton? BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 5  It Comes down to Two factors…… 1 14 57 All racquet sports Tennis Roger Federer “Where to play” “How to compete” SOURCE: McKinsey Strategy Practice BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 6  The Strategy Development and Execution Process Environment analysis Segmentation & market definition Industry structure Emergent strategy Participant behaviours and insight Dashboards, measures Continuous External Context Appraisal Market-based view of Strategy Organisational Strategy Analysis Execution Plans & Ideology & Choices Delivery Resource-based view Why we exist – organisational of Strategy Portfolio / participation strategy Executive leadership purpose Differentiation and cost strategy Change management Non-negotiables – Values Competency strategy Stakeholder management Vision How we see ourselves in the future (macro-level) Internal Context SWOT & TOWS Balanced scorecards “BHAGs” Business model (esp. Platforms) SMART goals and objectives Strategic “Ploys” Culture & environment Leadership ∩ strategy Sources of cost & differentiation advantage Organisational learning Digital transformation and maturity Governance Resources & capabilities Scenario & contingency analysis IDEAS & SCALE Citizenship Core competences Organisational structure Dynamic capabilities BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 7  Organisational Ideology & Strategy BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 8  If Medicine is to Health Law is to Justice then Business is to …? Prosperity* * = inclusive, fair, not just money, … BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 9  The purpose of business…. The Shareholder approach The goal of the firm is to: maximize profits return a portion to shareholders reward for risk of investing Shareholders then decide for themselves what social initiatives to support… Rather than having the executive, who they appointed for business reasons, decide for them Source: Milton Friedman: The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine, September 13, 1970 BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 10  Evolving views of the purpose of business…. The Stakeholder approach Main responsibilities of the firm: Economic Legal Ethical Discretionary Source: Archie Carroll, “A Three-Dimensional Conceptual Model of Corporate Social Performance,” Academy of Management Review, 4 (1979), pp. 497-505. See also: R.E. Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984). BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 11  New frontiers of the purpose of business…. Stewardship theory Social capital theory Managers, left on their own, will act as responsible Focuses on stewards of the assets they control Trust Goodwill Assumes that place higher value on cooperation Even good karma, than defection. Challenges economists’ traditional, pessimistic Stewards are assumed to be collectivists, pro- vision of human nature. organizational, and trustworthy. From “vicious cycles” to virtuous cycles “ Examples: Google, Reuters…. Further Reading: Further Reading: J.H. Davis, F.D. Schoorman, F.D., and Lex Donaldson, “Toward a S. Ghoshal, “Bad management theories are destroying good stewardship theory of management,” Academy of Management Review, management practices,” Academy of Learning & Education, 4 22 (1997), pp. 20-47. (2005), pp. 75-91. BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 12  A more sustainable view of Purpose From: Creating Shared Value: how to reinvent capitalism—and unleash a wave of innovation and growth by Michael E. Porter and Mark R. Kramer Harvard Business Review, Jan-Feb 2011 http://www.nuovavista.com/SharedValu ePorterHarvardBusinessReview.PDF Further reading: Bockstette, V., & Stamp, M. (2011). Creating shared value: A how-to guide for the new corporate (r)evolution. FSG. BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 13  More on Shared Value From: Creating Shared Value: how to reinvent capitalism—and unleash a wave of innovation and growth by Michael E. Porter and Mark R. Kramer Harvard Business Review, Jan-Feb 2011 http://www.nuovavista.com/SharedValuePorterHarvardBusinessReview.P DF Further reading: Bockstette, V., & Stamp, M. (2011). Creating shared value: A how-to guide Bockstette, V., & Stamp, M. (2011). Creating shared value: A how-to guide for the new corporate (r)evolution. FSG. for the new corporate (r)evolution. FSG. BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 14  The purpose of Strategy: Primary purpose: To deliver the purpose of the organisation Supplementary views: To deliver sustainable competitive advantage To ensure the survival of the organisation BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 15  Clarity of Purpose Core Ideology q Core Values q Core Purpose Envisioned Future q 10 – 30 year BHAGs (Big, Hairy, Audacious Goals) q Vivid Description Source: James C. Collins and Jerry I. Porras. Adapted From Chapter 11 of the Paperback Version of “Built To Last” (Harper Business, 1996) BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 16  Purpose, Vision, Mission, Strategy Purpose Why do we exist? Vision What does our future look like? Mission What is the manifestation of our purpose? Strategy How do we achieve our purpose? BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 17  Figure 5-2 Mission The tangible manifestation of purpose Strategy Purpose Values How to deliver the purpose Why the organisation exists Behavioral non-negotiables and vision within the mission and values Vision What does the future look like? BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 18  Strategy and Growth Industry lifecycles The Ansoff Matrix Horizons of Growth The Boston Consulting grid BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 19  Technological change over the ages Western 4th Industrial Revolution narrative The 1st Industrial Revolution The 3rd Industrial The 4th Industrial Revolution Revolution The 2nd Industrial Revolution Japanese Society 5.0 narrative Society 1.0 Society 2.0 Society 3.0 Society 4.0 Society 5.0 Hunting Agricultural Industrial Information “Cyber-physical” Society Society Society Society Society ~ 250 000 BC ~ 1 600 AD ~ 8 000 BC ~ 2020 ~ 1980 ± 240 000 years ± 10 000 years ± 400 years ± 40years BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 20  Technology adoption rates are accelerating Percentage of households in the US Technology adoption in US households, 1860 to 2019 using a particular technology % 0% 0% to 90 0% to 9 9 to 10% % 10 s from 1 from rom f rs ars ~10 year ea ye 0y ~30 ~5 Source: OurWorldinData.org OurWorldInData.org/technology-adoption BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 21  Some of the Technologies of the 3rd and 4th Industrial Revolution 3rd Industrial Revolution 4th Industrial Revolution Adoption / Impact* ce ting ligen y e h on on ompu rnet ata h ics s intel elep lep ter ile d on ata PCs Inte 2.0 te u tum C ctr ile t mp e icial Big d Th Web Mob Ele The Co IoT Mob Artif Quan 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 * Note: illustrative adoption levels Time BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 22  The Industry Lifecycle Maturity Limited or no growth Decline Late majority Negative growth Stable prices Laggards Low profitability Intense price competition Intense competition Low profitability Fully consolidated Fewer competitors Demand Lower risk Exits Growth Shakeout “Exponential” Slowing growth High risk demand growth Early majority Early adopters Falling prices Falling prices Declining profitability Introduction High profitability Several competitors Innovators Few competitors Some consolidation High prices Fragmentation Lower risk Uncertain profitability Medium risk Very few competitors High risk 0 10 20 30 40 Time BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 23  Accelerating Industry Lifecycles Demand 0 10 20 30 40 Time BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 24  Accelerating Industry Lifecycles Demand 0 10 20 30 40 Time BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 25  The New Markets Market Development Diversification Ansoff Matrix Existing Market Product Markets Penetration Development Existing New Products Products BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 26  The (Expanded) New Medium Higher Highest Ansoff Markets risk risk risk Matrix Adjacent Markets Lower risk Medium risk Higher risk and Execution Existing Markets Lowest risk Lower risk Medium risk Risk Existing Products Adjacent Products New Products BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 27  Contributions to Growth The Primary source 10.0% of growth is choosing 9.0% 0.1% the correct portfolio 8.0% 8.6% 3.0% of segments to play Contribution to Growth 7.0% in 6.0% 5.0% 5.5% Growth contributions of 200 leading US & European 4.0% companies, 1999 - 2005 3.0% SOURCE: McKinsey: ”The Granularity of Growth” 2.0% 1.0% 0.0% Overall Segment M&A Market Top-line Growth Share Growth Growth Slide 28 | BSDW 2024 Session 1 | © Brian Armstrong 2024  Three horizons for strategy Horizon 3: Create viable options Potential Profit1 Horizon 2: Build emerging business2 Horizon 1: Extend and defend core business2 Notes: 1) ‘profit’ on the vertical axis can be replaced by non-profit objectives; 2) ‘business’ can refer to any set of activities Time (years) Source: M. Baghai, S. Coley and D. White, The Alchemy of Growth, Texere Publishers, 2000. Figure 1.1, p. 5. BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 29  The BCG Growth-Share Matrix High Invest – high invest in or discard future potential Stars Question depending on the chances of becoming stars. Marks Growth “milk” cash cows Liquidate, divest, or for cash to reinvest reposition Cash Cows Low Dogs High Low Relative Market Share BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 30  Naspers 2015 2008 Acquires majority in Avito 2017 1985 1994 1997 2007 Acquires Allegro Showmax introduced Acquires Delivery Hero MNet launched Listed on JSE Mweb founded Invests in mail.ru Khalahari.com formed Invests in Takealot Invests in Swiggy 1995 2001 2010 2012 2016 Multichoice formed Invests in Tencent Acquires majority Invests in Flipkart Early stage Extends to Africa share in OLX investments in Launches DSTV Acquires DST Brainly Codecademy and Udemy BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 32  Strategy as a multi-layered concept BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 33  Corporate Strategy and Business Strategy Corporate Business strategy strategy Portfolio strategy Market positioning International strategy Competitive strategy Vertical Integration strategy Product strategy Diversification strategy Diversification strategy BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 34  Levels of strategy Corporate-level Portfolio design, diversification, vertical integration, geographical strategy Market positioning, achieving cost and differentiation advantage, resource strategy, Business-level product portfolio, ”learning” strategy strategy operating model, diversification Marketing Functional Pricing Sales and channel strategies Service R&D Technology Support functions, etc. BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 35  The Strategy Development and Execution Process Environment analysis Segmentation & market definition Industry structure Emergent strategy Participant behaviours and insight Dashboards, measures Continuous External Context Appraisal Organisational Strategy Analysis, Execution & Ideology Choices & Plans Delivery Why we exist – organisational Portfolio / participation strategy Executive leadership purpose Differentiation and cost strategy Change management Non-negotiables – Values Competency strategy Stakeholder management Vision How we see ourselves in the future (macro-level) Internal Context SWOT & TOWS SMART goals and objectives “BHAGs” Business model (esp. Platforms) Culture & environment Strategic “Ploys” Digital transformation and maturity Leadership ∩ strategy Sources of cost & differentiation advantage Organisational learning IDEAS & SCALE Governance Resources & capabilities Scenario & contingency analysis Citizenship Core competences Organisational structure Dynamic capabilities Balanced scorecards BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 36  The Strategy Development and Execution Process Organisational Ideology External Context Internal Context Strategy Analysis, Choices & Plans Execution & Continuous Delivery Appraisal BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 37  The Strategy Development and Execution Process L0 Purpose, Values, Objectives Organisational Ideology L0 strategy External Context Internal Context process L-1 Purpose, Strategy Analysis, Values, Objectives, Choices & Plans L-2 Purpose, External Context Internal Context Values, L-1 strategy Execution & Continuous Objectives, Strategy Analysis, process Delivery Choices & Plans Appraisal External Context Internal Context L-2 strategy Strategy Analysis, Execution & Choices & Plans process Continuous Delivery External Context Execution & Strategy Analysis, Internal Context L-3 strategy Continuous Appraisal Choices & Plans Delivery Appraisal Execution & Delivery Continuous Appraisal process BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 38  A way to think about layers of strategy Corporate Strategy Business Strategy IT Strategy Operating Model IT Architecture & Strategy Product Strategy Business & Group Strategy Process IT Systems design Architecture Portfolio strategy Channel Strategy International strategy Vertical Integration strategy BU-level Process Diversification strategy design Service Strategy Source: Brian Armstrong Digital Strategy BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 39  Strategy and ESG Stakeholders, Governance and Sustainability BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 40  Keeping stakeholders aligned Stakeholders Who are the stakeholders? Stakeholders are those Governance Ethics individuals or groups that depend on an organisation to fulfil their own goals and on Purpose, Mission, Vision, whom, in turn, the Values organisation depends Source: Exploring Strategy, 11th edition Text and Cases (2017), Johnson et. al., Pearson Strategy BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 41  Who are the stakeholders Economic Social / Political Technological Community Internal Shareholders Regulators Key adopters Local communities Employees Banks Government and Standards agencies Lobbyists, activists & governmental NGOs Customers agencies Complementors Suppliers Local authorities Distributors Labour organisations Source: Exploring Strategy, 11th edition Text and Cases (2017), Johnson et. al., Pearson BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 42  Stakeholder mapping Level of Attention Criticality Low High Communication channel quality Hierarchical power Cognitive capacity Influence/informal power High Control of key resources Control of key knowledge Keep Satisfied Key Players Power Minimal Effort Keep Informed Low Source: Exploring Strategy, 11th edition Text and Cases (2017), Johnson et. al., Pearson BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 43  Corporate governance What it is It’s growing importance Corporate governance is The separation of ownership and concerned with the structures management control – defining different roles in governance. and systems of control by which managers are held Corporate failures and scandals (e.g. Steinhoff) – focusing attention on accountable to those who governance issues. have a legitimate stake in an Increased accountability to wider organisation. stakeholder interests and the need for corporate social responsibility (e.g. green issues). BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 44  The Role of the Board of the Firm The King IV Report on Corporate Governance for South Africa™ prescribes that the governing board should appreciate that an organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process. King IV clearly articulates the responsibilities of the governing board, which is to steer an organisation strategically in line with its core purpose and values by approving as well as monitoring an informed short, medium and long-term strategy whilst taking into account risk and opportunities. Source: Melanie TeBrugge — Senior Board Consultant, Kilgetty Statutory Services BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 45  Corporate social responsibility stances Stance towards Corporate Social Responsibility Laissez-Faire Enlightened Self-Interest Forum for Shareholder Shaper of Society Action Legal compliance, make a Sound business sense – Sustainability, delivering Drive social and market Rationale profit, pay taxes, provide ultimately make more the triple bottom-line change jobs profit etc. Leadership Required Peripheral Supportive Championing Visionary Top management Board-level issue; Individual responsibility Delegated to middle Who Manages It oversees systems to organizational-wide throughout the management ensure good practice monitoring organization Defensive to external Reactive to external Defining. Shaping external Organizational Stance Proactive pressure pressure positions Nature of Multi-stakeholder Stakeholder Unilateral Interactive Partnerships alliances Relationships Source: Adapted from Exploring Strategy, Johnson et. Al, Adapted from David Pitt-Watson, Hermes Fund Management. BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 46  An over-arching framework BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 47  Before you begin Strategic Analysis and Strategy Development Execution BSDW 2024 Session 1 | © Brian Armstrong 2024 | Slide 48