Strategy PDF

Introduction A strategy encompasses a plan and a series of goal-directed actions designed to establish and maintain a competitive advantage in selected markets, both international and national. At its essence, achieving a competitive advantage is contingent upon a firm's strategic positioning withi...

Introduction A strategy encompasses a plan and a series of goal-directed actions designed to establish and maintain a competitive advantage in selected markets, both international and national. At its essence, achieving a competitive advantage is contingent upon a firm's strategic positioning within the market. Multinational enterprises (MNEs) face unique challenges in international settings, driven by variations in cultural, political, legal, and technological factors. These challenges necessitate tailored strategic responses, either through local adaptation to meet specific market needs or by implementing standardized approaches to exploit economies of scale. The development and execution of such strategies are vital for firms aiming to sustain superior profitability and competitive positioning in global markets. Sustainable competitive advantage: resource based view. Schools of thought in strategy Planning (Ansoff) This framework establishes a connection between the firm and its environment through a systematic, analytical, and rational planning process. It adopts a prescriptive stance, advocating for specific strategies to be implemented. Strategy formulation within this school involves comprehensive analysis of both external and internal factors to appraise and select strategic alternatives. Positioning (Porter) This school posits that strategy entails creating a distinctive market position that differentiates a firm from its competitors. The process is characterized by analytical and rational deliberations, focusing on activities that can secure a defensible competitive advantage. Strategy formation is guided by the analysis of industry forces and internal capabilities to carve out a competitive niche. Resource-Based View (Barney) From this perspective, a sustainable competitive advantage derives from the possession of resources that are valuable, rare, inimitable, and non-substitutable.  The approach is formal and prescriptive, emphasizing the development and execution of strategies that leverage these unique resources. Learning, configuration (Mintzberg) This viewpoint suggests that strategy emerges organically and is concurrently planned, acknowledging the necessity for flexibility to navigate abrupt changes. This school is descriptive, concentrating on the actual dynamics within organizations rather than prescriptive directives. It posits that strategy formation is a blend of emergent and deliberate processes aimed at stabilizing and guiding the organization. Strategy-as-practice (Wittington) According to this school, strategy is shaped by the routine practices and actions of strategists within the organization. It adopts a descriptive approach, focusing on the day-to-day activities that collectively influence strategic outcomes. Strategy formation is perceived as the cumulative result of these continual practices and decisions made by individual strategists. Hierarchy of strategic statements Strategy statements This is the hierarchical structure of an organization's strategic framework, which is often used to guide its direction and operations. This structure is broken down into four main components: Mission This is the foundation of the pyramid and answers the question "Why we exist." It defines the primary purpose of the organization, focusing on its reason for being. It describes what the organization does, whom it serves, and how it adds value to the stakeholders. Values Positioned above the mission, this level describes "What we believe in and how we will behave." Values are the core principles and standards that guide the behavior of individuals within the organization. They influence organizational culture and ethical norms. Vision This component addresses "What we want to be." It is a forward-looking declaration that sets out the organization’s long-term goals and aspirations. The vision provides a picture of what the organization aims to achieve in the future, serving as a motivational and directional beacon for strategic planning. Strategy statement At the top of the pyramid, this includes "Objectives, scope, and advantages." It specifies the strategic objectives of the organization, outlines the scope of operations, and describes the competitive advantages it seeks to exploit. The strategy statement is actionable and detailed, offering a clear roadmap for how the organization will achieve its vision and mission. In strategic management, the core objective of a strategy statement is supported by specific, measurable, and time-bound subordinate goals. Changes in these goals can lead to significant organizational shifts. The development of a clear strategy statement is vital yet often overlooked in practice. The process involves analyzing the industry context, customer needs, competitor strategies, and the firm's capabilities, aiming to align the firm’s strengths with customer needs in ways competitors cannot match.  Ultimately, this alignment should enhance the firm’s economic value added (EVA), which is the surplus value created over the cost, through either cost leadership or differentiation strategies. The "sweet spot" This represents the ideal position for a firm in the market, achieved by aligning the firm's capabilities, understanding of customer needs, and competitive context. Context Represents the broader environment in which the firm operates, including economic conditions, regulatory landscape, and technological advancements. It sets the external parameters within which the firm must operate. Competitor offering This circle encompasses the products and services offered by competitors in the market. Understanding what competitors provide helps a firm identify gaps in the market and areas where it can potentially differentiate itself. Customer needs This area focuses on the demands and preferences of the target market. A deep understanding of what customers need and value is crucial for developing offerings that are compelling and relevant. Firm capabilities  This represents the internal strengths and competencies of the firm—what it can do best. These could include technological expertise, skilled workforce, manufacturing capabilities, or strong distribution networks. The Sweet Spot is the intersection of these three areas, indicating a strategic position where the firm is effectively aligned with market needs while leveraging its unique capabilities in a way that competitors cannot match. The sweet spot is where the firm's needs meet customers need outside of what the competitors are offering. This position enables the firm to create distinctive value for its customers, resulting in a sustainable competitive advantage. The goal of strategic planning is to position the firm within this "Sweet Spot" to maximize its effectiveness and profitability in the market. Strategic analyses Porter's five forces Porter's Five Forces is a strategic tool that helps assess the competitive dynamics within an industry and its profitability potential. The five forces include: 1. Threat of Entry: New entrants can disrupt market conditions by adding capacity and competing on costs and prices, affecting the profit potential of existing firms. 1. Power of Suppliers: Powerful suppliers can capture more value by charging higher prices, limiting quality or services, and shifting costs to industry participants. 1. Power of Buyers: Influential buyers can negotiate lower prices and higher quality and service standards, which can compress industry profits. 1. Threat of Substitutes: Products or services from outside the industry that perform similar functions can threaten industry profitability if they offer a comparable or better value proposition. 1. Rivalry Among Existing Competitors: Intense competition, especially price-based competition, can erode profits. Competition based on differentiation (such as unique product features) tends to preserve value. Best Practices: 1. Clearly define their industry and its scope: It is the same/ similar for different product orregions Treat industries as distinct, if there are large differences in onle of the forces, or if the differences involve more than one force 1. Identify and understand the role of buyers, suppliers, competitors, substitutes, and potential entrants: 1. Conduct quantitative and rigorous analyses of these forces to assess their impact on profitability: Identify strong/weak forces Take a quantitive approach, engase in a rigorous analysis Take a 3 to 5 year time horizon Understand how the forces influence the financials 1. Evaluate potential future changes in these forces to anticipate shifts in competitive dynamics. Analyze whether there are forces that are impacted by your competitor developments, your own developments, entrants or if shifts in one of the forces trigger reactions in other forces in the future Porter's norm stratagies and EVA Resource-Based View (RBV) framework Developed by Barney in 1991, shifts the strategic focus from the industry's competitive landscape to the unique internal resources and capabilities of a firm. It outlines how firms can identify and leverage their core competencies to achieve a sustained competitive advantage. The key elements of this framework include: Types of Resources: Tangible resources are physical assets like land, buildings, and equipment.  Intangible resources include non-physical assets such as brand reputation, patents, and the skills and knowledge of employees. Capabilities: These are special firm-specific resources that enhance the productivity of other resources, often embedded in organizational routines and practices. VRIO Attributes: For a resource or capability to be considered a core competency, it must be: Valuable (V): It should add value to the firm’s products or services, making them more appealing to customers. Rare (R): It should be unique to the firm or possessed by only a few competitors. Costly to Imitate (I): It should be difficult or expensive for competitors to replicate. Organized to Capture Value (O): The firm must have the right structure and processes in place to fully leverage the resource. Resources that meet all four VRIO criteria can provide the firm with a sustained competitive advantage, enhancing its long-term profitability and performance. Research has shown that the VRIO framework is predictive of firm performance, yet it is underutilized in practice, partly due to challenges in identifying the most relevant resources. Best practices: Categorize their resources as either tangible or intangible Analyze them through the lens of the value chain, examining both primary and support activities.  This comprehensive analysis helps firms pinpoint which resources contribute most significantly to their competitive advantage. For example, a firm's brand image, R&D capabilities, and customer service network might be identified as key competitive assets that are both valuable and difficult to replicate. SWOT Analysis Strategic planning tool used to evaluate the internal and external factors impacting a firm. Identify Significant Factors: Strengths and Weaknesses These are internal factors. Strengths are what the firm does well, often identified through VRIO analysis (resources that are Valuable, Rare, costly to Imitate, and Organized to capture value). Weaknesses are areas where the firm lacks certain competencies relative to competitors. Opportunities and Threats These are external factors. Opportunities refer to favorable external trends that could enhance business prospects, while threats are unfavorable trends that could hinder performance. Develop Strategic Alternatives using the SWOT Matrix: SO (Strengths-Opportunities): Leverage strengths to capitalize on opportunities. WO (Weaknesses-Opportunities): Improve weaknesses to take advantage of opportunities. ST (Strengths-Threats): Use strengths to minimize the impact of threats. WT (Weaknesses-Threats): Address weaknesses to mitigate threats.  Evaluate and Select Strategies: Management assesses the pros and cons of each strategic alternative based on its potential impact on the firm’s sales, profits, and positioning. Common pitfalls and recommendations: Professionalism and precision SWOT analyses often suffer from a lack of depth, with overly long and unfocused lists of factors. It’s recommended to focus on four or five key factors per category that substantially impact the firm. Avoid redundancy Ensure factors are uniquely classified without overlap across categories. Actionability Factors included should be actionable or lead to actionable strategies. Clear Distinction Maintain a clear distinction between internal (strengths and weaknesses) and external (opportunities and threats) factors. Best practices: Concentrate on 4 to 5 key items per S, W, O, T. Identify these by evaluating which factors have the potential to substantially impact the firm’s sales, profits and long-term positioning. Eliminate redundancy and irrelevant aspects and identify potential underlying cause-effect relationships(e.g. to identify core problems that underly several weaknesses). Refer to items that are actionable or at least allow the definition of actionable strategic alternatives. Be as precise as possible in defining or listing the factors and avoid vagueness. Remember that it is a tool to develop strategy, hence it should not stop at listing S, W, O, and T. Developing a global or local positioning  Identifying customer needs and viable segments There are steps to develop market positioning and a value proposition: 1. Define the market This step involves defining the boundaries and characteristics of the market where the firm intends to operate. It uses the market definition from an analysis like Porter's Five Forces to understand the competitive landscape and the overall market environment. 1. Indentifying customer needs a) Segment the market based on varying customer needs, which are identified through market research. This step determines what different groups of customers are looking for in terms of benefits and solutions. b) Further refine the segmentation by identifying specific 'Jobs' (tasks customers need to perform), 'Gains' (benefits customers desire), and 'Pains' (challenges or issues customers want to solve) for each segment. This detailed understanding helps in tailoring offerings more closely to customer requirements. Jobs to be done: customers have certain pains and gains when consuming the product, and the product has a certain job to do. Products can fulfil certain jobs, a single product can do different jobs to each customer. 1. Targeting This step involves selecting the market segments that the firm will actively target. The decision is based on which segments align best with the firm’s capabilities and strategic goals. Segments that are less attractive in terms of profitability, market size, or strategic fit are not targeted. The more specific(strict) the firm is in defining their target, that is, their customers, the more conservative they are. 1. Develop a positioning and value proposition For the chosen target segments, develop a clear positioning statement that differentiates the firm’s offerings from competitors. This includes specifying what  unique value the product or service provides, focusing on how it addresses the Jobs, alleviates Pains, and enhances Gains for the customer. The outcome is a value proposition that communicates the distinct benefits of the product or service, tailored to meet the needs and expectations of the targeted customer segment. Segmentation plays a crucial role in this process as it allows firms to understand and cater to the varying needs of different customer groups. Segmentation can be based on various criteria, including demographics, psychographics, and needs-based factors. A deeper understanding of customer jobs (tasks or needs customers are trying to fulfill) is essential for effective segmentation. This approach includes identifying not just the functional aspects of a product but also its social and emotional benefits, which can help in crafting a value proposition that resonates strongly with customers. The concept of "jobs to be done" frames customer needs in terms of tasks they are trying to accomplish, problems they are solving, or desires they are fulfilling. This method emphasizes understanding the specific jobs customers are looking to complete, along with the associated pains (risks or annoyances) and gains (benefits or positive outcomes), which can guide the development of products and services that directly address these factors. There is also a structured process for targeting market segments, which is crucial for developing effective marketing strategies: 1. Differentiable? The first step is to determine whether the segment is distinct from other segments. This means assessing if there is a clear differentiation factor that sets this segment apart from others in the market. If the segment is not distinct, the process loops back to identifying new segments. 1. Large and Profitable? Once a segment is identified as distinct, the next question is whether it is large and profitable enough to warrant targeting, both currently and in the foreseeable future. This involves evaluating the segment's size and its potential to generate profits. If the segment is too small or not profitable, the process again loops back to the search for other segments. 1. Accessible? This step checks if the segment is accessible. That means considering whether the company can effectively reach and serve this segment through its existing channels, technologies, and marketing strategies. If the segment is deemed inaccessible due to logistical, regulatory, or other barriers, the search restarts. 1. Actionable? The final consideration before committing to a segment is whether the company has the necessary resources to serve this segment effectively. This includes having the right capabilities, technologies, personnel, and financial resources. If the segment is actionable, the firm can proceed to target it. 1. Selection or Scoring of Remaining Segments: If the segment passes all the above criteria, it is selected for targeting. If there are multiple segments that qualify, further scoring may be conducted to prioritize or rank these segments based on potential return on investment, strategic fit, or other relevant criteria. This targeting process is iterative, meaning that if at any stage a segment does not meet the criteria, the process loops back to finding new segments, continually refining the focus until a suitable target segment is identified. This approach helps ensure that marketing resources are allocated efficiently and effectively, maximizing the chances of success in the chosen market segments.  To develop an effective customer profile and target the right market segments, follow a systematic approach that blends traditional market research with immersive, customer-oriented techniques. Here’s a step-by-step guide: 1. Select a Customer Segment: Initially, choose a segment intuitively or based on less progressive criteria such as basic demographics or geographic data. 1. Identify Customer Jobs: Determine the tasks or objectives that customers in this segment are trying to accomplish with your product or service. 1. Identify Pains and Gains: Pains: Understand the challenges, frustrations, or obstacles these customers face in achieving their jobs. Gains: Recognize the benefits, outcomes, or advantages customers desire or value. 1. Prioritize Jobs, Pains, and Gains: Distinguish between essential needs and those that are 'nice-to-have'. This prioritization helps in focusing on what truly matters to the customer. 1. Develop Customer Profiles: Create detailed profiles for each segment by using 'jobs to be done' analysis to identify unique needs. You can also create fictional personas (like "Jane Moviegoer") that represent typical customers within a segment, which help in visualizing and understanding customer behaviors and needs. 1. Direct Customer Interaction Engage directly with potential customers to gather insights about their needs and expectations. 1. Segment Evaluation Use a decision tree to filter and select viable segments based on differentiability, size, profitability, accessibility, and actionability.  For remaining segments, apply a scoring model based on criteria like segment size, growth potential, competitive intensity, synergy with organizational capabilities, and strategic fit. 1. Positioning development Before finalizing targeting, consider potential market positioning strategies for each segment to ensure alignment with your business's capabilities and market needs. Developing value propositions To effectively target market segments, a firm needs to develop a compelling value proposition that outlines how it positions itself in the market to meet the needs of its ideal customers or "sweet-spot" customers. This involves crafting an offering that appeals directly to the targeted segments. Successful market positioning should adhere to six key criteria: 1. Relevance: The value proposition must be meaningful and valuable to customers, addressing their specific needs and desires. 1. Uniqueness: The offering should be distinct from competitors, providing something unique that is not readily available elsewhere. 1. Attainability: The firm must be capable of delivering on its value proposition, ensuring that organizational capabilities align with the promises made to customers. 1. Sustainability: The value must be maintainable over the long term, demonstrating that the firm can continue to meet customer needs consistently. 1. Clarity: The positioning should be easily understood by customers and other stakeholders, clearly communicating the main message or essence of the offering. 1. Credibility: Customers and stakeholders should find the value proposition believable and trust that the firm can deliver as promised. The development of a positioning statement is a critical step in this process. This statement typically includes the target customer group, the market frame of reference (defining the market or category within which the firm operates), the point of difference (what makes the offering unique), the key benefit (the primary customer benefit), and the reason to believe (evidence or features supporting the claim). This structured approach ensures that a firm’s product offerings are strategically positioned to meet customer needs effectively and stand out in the competitive landscape.  To develop an effective value proposition, firms can utilize the "jobs to be done" analysis, a method that helps articulate how products and services can relieve customer pains and create gains: 1. List Products and Services: Start by enumerating all offerings, both tangible and intangible, such as digital benefits or copyrights. 1. Identify Pain-Relievers: Determine how these products and services help customers by reducing or removing negative outcomes and risks. 1. Specify Gain-Creators: Understand and describe how your offerings produce desirable outcomes and benefits for customers. 1. Prioritize Based on Importance: Focus on the pains and gains that are most critical and impactful to your customers, recognizing that not all can be addressed simultaneously. This should be tailored to different customer groups based on market segmentation. This analysis assists in refining how existing products and services may need to be adapted to better meet the needs of relevant customer groups. Translating Strategy into Action: The firm's business model plays a crucial role in implementing strategy. It outlines how the company interacts with its customers, suppliers, and partners and includes a blueprint of actions and initiatives that detail structures, processes, cultures, and procedures. Business Model Canvas: Developed by Osterwalder et al., this tool helps visualize key business elements including customer segments, value propositions, communication and distribution channels, customer relationships, key resources, activities, partnerships, revenue streams, cost structures, and profits. It emphasizes understanding the VRIO framework to ensure that resources are valuable, rare, costly to imitate, and organized to capture value. This canvas aids in understanding how a company operates its business model, targeting specific customer groups, and managing financial outcomes effectively. Key Partners: These are the external companies, agencies, or individuals who help your business function. They can include suppliers, partners, and stakeholders who contribute resources or activities essential to your business. Key Activities: These are the most important actions your company must take to operate successfully. For example, if you are a manufacturing company, your key activities might include production, quality control, and logistics. Key Resources: These are the assets that are critical to the success of your business. They can be physical, financial, intellectual, or human. Key resources allow your company to create and offer a value proposition, reach markets, maintain relationships with customer segments, and earn revenue. Value Propositions: This is the collection of products and services that create value for a specific customer segment. It is the reason why customers choose one company over another, which could be due to a unique feature, price, design, or brand association. Customer Relationships:  This describes the type of relationship the company establishes with its customers. The relationship could be personal, automated, clinical, or formal, depending on the customer need and the nature of the business. Channels: These are the ways your company communicates with and reaches its customer segments to deliver a value proposition. Channels can be sales forces, websites, social media, retail locations, or partner stores. Customer Segments: These are the different groups of people or organizations your enterprise aims to reach and serve. Customers can be segmented into distinct groups based on needs, behaviors, and other traits they share. Cost Structure: This outlines the major costs involved in operating the business. Understanding the cost structure is vital to ensure that your business model is sustainable. It includes fixed and variable costs, economies of scale, and economies of scope. Revenue Streams: These are the ways your company makes money through each customer segment. Revenue streams can be through direct sales, membership fees, leasing, subscription fees, advertising, and others. The business model canvas is also a valuable educational resource, with additional explanations and resources recommended, such as video tutorials by Alexander Osterwalder. Overall, these tools and methodologies guide firms in crafting targeted offerings that meet specific customer needs and integrating these into a coherent business strategy that is actionable and measurable. Integrating value propositions or not The main difference between international and domestic strategy for multinational enterprises (MNEs) lies in the complexity of operating across diverse markets with varying customer needs, cultural, legal, and economic environments. MNEs face the strategic choice between adopting a uniform global positioning or customizing their positioning to fit local or regional markets. Strategic Options for MNEs:  Global Uniform Positioning: If customer needs are homogeneous across borders, MNEs might opt for a uniform strategy to leverage global scale benefits. This approach simplifies operations and emphasizes global brand consistency. Localized Positioning: More commonly, MNEs need to adapt their offerings to meet local preferences and regulatory requirements. This might involve customizing products, marketing strategies, and operational processes to align with local cultural practices, legal standards, and commercial norms. Forces Influencing International Strategy: Localization Forces: Demand adaptation to specific local factors such as consumer preferences which can vary widely based on cultural, social, and economic conditions. Regionalization Forces: Some regions may share cultural and economic similarities that allow for a regional strategy, benefiting from reduced barriers due to regional trade agreements and similar regulatory landscapes. Globalization Forces: At a global level, common customer preferences and technological advances support a more uniform approach across markets. This is  facilitated by global trends such as market liberalization, advancements in logistics and communication, and international brand awareness. Implications for MNEs: MNEs must carefully evaluate the extent to which they adapt their strategies based on a balance of localization, regionalization, and globalization forces. Decisions on product design, branding, distribution, pricing, and after-sales service are crucial and must consider these diverse forces to effectively compete in international markets. Overall, international strategy requires MNEs to navigate a complex environment of varying regional characteristics while deciding on the degree of standardization versus customization of their operations and offerings. Integrating value propositions Positioning a business on the IR framework  Monitoring strategic success Key performance indicators (KPIs) Best practices: KPI management Select KPIs that measure goals formulated in the strategy statement. Remember that this may be non-financial KPIs (e.g., if the strategic focus is on maximizing customer experience, customer metrics may offer a more direct measurement of success). Remember that KPIs are depending on the industry, e.g. a retailer may be interested in sales per square foot and customer satisfaction as KPIs. Consulting experience demonstrates that between 4 and 10 KPIs offer a good picture. In designing a list of KPIs or a balanced scorecard, explain why you believe that a certain indicator is of relevance.