Slides99 Strategy & Organization

Young ExecutiveYoung Executive Programme 99Programme 99

IINTRODUCTIONNTRODUCTION TOTO

SSTRATEGYTRATEGYpresented by

Julien PITTON

2nd November

THINKING vs PLANNING

STRATEGY & MANAGEMENT

LEADERSHIP & INTENT

BUSINESS STRATEGY

TO COMPETETO ORGANISE

ADVANTAGE & CHANGEGLOBALISATION

WHY STRATEGY ?

WHY STRATEGY ?

4 YESYES19991999

INVESTMENT BANKING: THE INVESTOR POINT OF VIEW

BANKERS are Investors:

Corporate Banking

Equity Capital Markets hard underwriting

Asset Management

BANKERS are “SELLERS”:

Fund Managers: Loans secondary markets

Fund Managers: IPO/Convertibles/Brokerage Fund Managers: Mergers & Acquisitions

BANKERS

INVESTORS

5 YESYES19991999

THE FUND MANAGERSTHE FUND MANAGERS : What are there looking at !?!

What does the business do and what is the vision (including mission statement)?

What are the main profit drivers in the business?

How is the business doing. What is the recent track record?

What is the strategy in terms of technologies, products, markets and the delivery of shareholder value?

How will the product and market strategies be realised?

What is the financial strategy and according to what financial criteria is the business managed and controlled?

FUND MANAGERS

(1)

6 YESYES19991999

THE FUND MANAGERSTHE FUND MANAGERS : What are there looking at !?!

What are the key management and reporting structures?

How does the company compare against its domestic and international peer groups, in terms of products and market penetration as well as financial structure and performance?

What is the outlook and what are the key internal and external factors that might effect the business in the future?

Why should an investor buy this company’s shares?

FUND MANAGERS

(2)

7 YESYES19991999

THE FUND MANAGERSTHE FUND MANAGERS : What are there looking at !?!

FUND MANAGERS

(3)

VERY Important

Fairly Important

Quality of Management

Track Record and EPS Growth

Quality of Earnings

Corporate Strategy

Relative Price

Product/Brand Strengths

Quality of Accounting and Disclosure Practices

Communication with Investors

Balance Sheet

Market Share

Industry Prospects

Net Asset Backing

Level of Borrowing

Relative Yield

Research Coverage

Dividend Record

0 10 20 30 40 50 60 70 80 90 100

93

91

93

86

63

96

79

79

76

74

77

37

37

21

32

21

STRATEGY&

MANAGEMENT

9 YESYES19991999

Strategy & Management

SUCCEEDING

VALUE

COMPETITION

Strategy is about finding a wayStrategy is about finding a wayto succeed and then doing it.to succeed and then doing it.

10 YESYES19991999

INTENT

COMPETITIVE ADVANTAGE

SCOPE

Strategy & Management

What we will What we will notnot do” do” is at least as important as “what we will do” “what we will do”

11 YESYES19991999

“Frontier”

Lower Cost

Differentiate

Moving [A] to the

frontier

(“operational

excellence”)

vs taking[B] a position

(“strategic choice”)

[A]

[B]

You cannot be all things to all peopleYou cannot be all things to all peopleStrategy & Management

12 YESYES19991999

RESOURCES

CAPABILITIES

POSITION

Strategy & Management

CapabilitiesCapabilities: Ability to acquire and deploy resources to solve classes Ability to acquire and deploy resources to solve classes of problems and create valueof problems and create value !!

13 YESYES19991999

CHOOSING

CREATING

KEEPING

Strategy & Management

You succeed only if you get to You succeed only if you get to keep some of the value createdkeep some of the value created

14 YESYES19991999

DEMAND

GROWTH

COST OF INPUTS

TECHNOLOGY - P&D

Ingredientsin the PIE

Strategy & Management

In trying for a bigger piece, you In trying for a bigger piece, you could reduce the size of the total piecould reduce the size of the total pie!

15 YESYES19991999

ISSUES

INSTITUTIONS

INTERESTS

INFORMATION

Non-Market Issues:

The 4 I’s

Strategy & Management

Affect the size of the PIE and/or Affect the size of the PIE and/or Affect its division?Affect its division?

16 YESYES19991999

PEOPLEFEATURES

ARCHITECTURE PROCESSES & PROCEDURES CULTURE, VALUES AND ASSUMPTIONS

Strategy & Management

Culture:Culture:Set of beliefs that we share about why we are Set of beliefs that we share about why we are doing this!doing this!

17 YESYES19991999

Determinants

of Performance

StrategyResources

Capabilities

Position

EnvironmentPIE

CompetitorsCustomersSuppliers

ComplementorsGovernment

Social...

OrganisationPeople

FeaturesActivities

PERFORMANCEPERFORMANCE

Strategy & Management

18 YESYES19991999

General Management

UNDERSTAND the basis for current performance

IDENTIFY threats & opportunities

DEVELOP/SELECT a strategy to meet these goals

IMPLEMENT IT

Strategy & Management

19 YESYES19991999

General Management

ADAPT to changes

DEVELOP new capabilities

SHAPE the environments

Performance is the result of the fit between Performance is the result of the fit between the actions and the strategic context in which the actions and the strategic context in which they are taken.they are taken.

Strategy & Management

20 YESYES19991999

CHOICES S.C.A. RENEWAL GOALS

General ManagementStrategy & Management

The choices a firm makes about how it acquires The choices a firm makes about how it acquires and deploys its assets are the main way in which and deploys its assets are the main way in which it influences its performance.it influences its performance.

This is what the firm ultimately controls!This is what the firm ultimately controls!

21 YESYES19991999

STYLE “Captain of the ship” to which extent strategy is “top down” is strategy within organisations is really

planned at all,

Strategy & Management

In small firms, the ultimate responsibility for strategy In small firms, the ultimate responsibility for strategy typically rests with the senior general management.typically rests with the senior general management.

The “top down” view can be of only limited The “top down” view can be of only limited applicability to a multi-business enterprise. applicability to a multi-business enterprise.

General Management

22 YESYES19991999

Perspectives

STRATEGY PROCESS IS COMPLEX

“LOWER” MANAGEMENT MATTERS!

LUCK MATTERS!

Strategy & Management

A declaration by top management that the firm A declaration by top management that the firm will change does not make change happen.will change does not make change happen.

23 YESYES19991999

Conclusion

An exceptional rate of return cannot An exceptional rate of return cannot be earned by the average firmbe earned by the average firm.

The competitive interaction quickly dissipates any profits.

In final analysis, people make the In final analysis, people make the difference.difference.

Strategy & Management

THINKINGvs

PLANNING

25 YESYES19991999

Strategic planning strategic thinking.

Strategic thinking is about synthesis.

Planning represents a calculating style of management, not a committing style

Thinking vs Planning

Life is larger than our categories. Life is larger than our categories. Real strategic change requires inventing new Real strategic change requires inventing new categories, not rearranging old ones.categories, not rearranging old ones.

26 YESYES19991999

For strategic planning, the grand fallacy is this:

because analysis encompasses synthesis, because analysis encompasses synthesis, strategic planning is strategy making.strategic planning is strategy making.

This rests on 3 fallacious assumptions:

prediction is possibleprediction is possiblestrategist can be detached from the subjects strategist can be detached from the subjects

of their analysisof their analysisstrategy making process can be formalisedstrategy making process can be formalised

Thinking vs Planning

27 YESYES19991999

OPERATIONAL EFFECTIVENESS Performing similar activities Performing similar activities betterbetter than than

rivals perform them. rivals perform them. It includes but is not limited to efficiencyIt includes but is not limited to efficiency.

STRATEGIC POSITIONING Performing Performing differentdifferent activities from activities from

rivals or performing similar activities in rivals or performing similar activities in different ways.different ways.

Thinking vs Planning

28 YESYES19991999

TRADEOFFS

MORE IMPLIES LESS

No tradeoffs means no need for choice, no need for No tradeoffs means no need for choice, no need for strategy. strategy. Any good idea could and would be quickly imitated. Any good idea could and would be quickly imitated. Performance would once again depend wholly on Performance would once again depend wholly on operational effectiveness.operational effectiveness.

Thinking vs Planning

LEADERSHIP&

INTENT

30 YESYES19991999

Leadership & Intent

Leardership is the ability Leardership is the ability to elicite extraordinary to elicite extraordinary performance from performance from ordinary peopleordinary people

31 YESYES19991999

STRATEGIC INTENTFOCUS

MOTIVATION

ROOM

SUSTAINING ENTHUSIASM

CONSISTENTCY

Leadership & Intent

32 YESYES19991999

STRATEGIC FIT

LEVERAGING RESOURCES

FORESEEABLE PATTERN

The essence of strategy lies in creating The essence of strategy lies in creating tomorrow’s competitive advantages faster than tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.competitors mimic the ones you possess today.

Leadership & Intent

33 YESYES19991999

COMPETITIVE INTELLIGENCE

CREDIBILITY

MILESTONES

Leadership & Intent

Competitive suicide - pursuing both differentiation Competitive suicide - pursuing both differentiation and cost - is exactly what many competitors strive for.and cost - is exactly what many competitors strive for.

34 YESYES19991999

Strategic intent assures consistency in resource allocation over the long term.

Clearly articulated corporate challenges focus the efforts of individuals in the medium term.

Competitive innovation helps reduce competitive risk

Leadership & Intent

BUSINESSSTRATEGY

36 YESYES19991999

RELATIONSHIPS

CHOICE OF ACTIONS

VISIONMISSION

VALUESPURPOSE

Business Strategy

Useful complements to strategy but Useful complements to strategy but generally different from and very generally different from and very imperfect substitutes for strategy.imperfect substitutes for strategy.

37 YESYES19991999

GOALS

SCOPE

COMPETITIVE ADVANTAGE

LOGIC

Business Strategy

Strategy contains the core argument Strategy contains the core argument for why and how the firm will succeed.for why and how the firm will succeed.

38 YESYES19991999

CONSISTENCY

CONSONANCE

ADVANTAGE

FEASIBILITY

Four broad criteria for evaluating strategy are:

Business Strategy

A strategy that fails to meet one or more of these A strategy that fails to meet one or more of these criteria is strongly suspect.criteria is strongly suspect.

39 YESYES19991999

COMMUNICATING CLARITY CO-ORDINATION INCENTIVES EFFICIENCY

Business Strategy

Top management may believe that its strategy is Top management may believe that its strategy is so “unique” that every competitor would copy it, so “unique” that every competitor would copy it, if only they knew it!if only they knew it!

40 YESYES19991999

MISSION

VISION

VALUES

Business Strategy

A vision is not always necessary for strategy A vision is not always necessary for strategy It is never sufficientIt is never sufficient

41 YESYES19991999

Business Strategy

TO COMPETE!

43 YESYES19991999

OPERATIONAL EXCELLENCE

CUSTOMER INTIMACY

PRODUCT LEADERSHIP

OPERATIONAL FLEXIBILITY

To Compete !

Less focused companies must do far more than simply Less focused companies must do far more than simply tweak existing processes to gain this advantage.tweak existing processes to gain this advantage.

44 YESYES19991999

`

BUSINESS PROCESSES.

OPERATIONAL EFFECTIVENESS COMPETITIVE ADVANTAGE

THE CEO

Competing on Capabilities

To Compete !

Strategic advantages built on capabilities are Strategic advantages built on capabilities are easier to transfer geographically than more easier to transfer geographically than more

traditional competitive advantages.traditional competitive advantages.

45 YESYES19991999

`

SPEEDCONSISTENCYACUITYAGILITYINNOVATIVENESS

Competing on Capabilities

To Compete !

Capabilities-driven companies conceive the organisation as Capabilities-driven companies conceive the organisation as a gigantic loop that begins with identifying the needs of the a gigantic loop that begins with identifying the needs of the

customer and ends with satisfying them.customer and ends with satisfying them.

TO ORGANISE

47 YESYES19991999

PEOPLE

ARCHITECTURE

PROCESSES

CULTURE

To Organise

The boundaries of the firm and the nature and intensity of incentives The boundaries of the firm and the nature and intensity of incentives (explicit and implicit, objective and subjective, financial and intrinsic) are (explicit and implicit, objective and subjective, financial and intrinsic) are

major determinants of the location on the frontier.major determinants of the location on the frontier.

48 YESYES19991999

Trade-off

Initiative

Co-operation

More entrepreneurial

More co-operative

To Organise

49 YESYES19991999

Disaggregated Firm

Initiative

Co-operation

Market/entrepreneurialFirm

Classic Bureaucracy

To Organise

50 YESYES19991999

Organisational Learning

VARIATION

SELECTION

RETENTION

To Organise

There exists a trade-off between devoting There exists a trade-off between devoting resources to long term learning benefits and resources to long term learning benefits and

short-term operating efficiency benefitsshort-term operating efficiency benefits

51 YESYES19991999

Behavioural Objectives of Design

Architecture

Processes/Routines

Culture

(Capability-based)Sustainable

Competitive Advantage

Initiative

Co-operation

Learning

To Organise

52 YESYES19991999

DynamicsIDENTIFY THE STRATEGY

Scope

(Capability- based) Sustainable Competitive Advantage

Goals & Basis for Profitability

IMPLEMENT A STRATEGY

Architecture

Processes / Routines

Culture

IINITIATIVENITIATIVE

CCO-OPERATIONO-OPERATION

LLEARNINGEARNING

DRIVES

DRIVES

Implies&

Drives

Implies&

Drives

RRESOURCESESOURCES

CCAPABILITIESAPABILITIES

PPOSITIONOSITION

To Organise

ADVANTAGE&

CHANGE

54 YESYES19991999

Strategic Dissonance Aligning corporate strategy and strategic action

is a key top management responsibility.

Inevitably, strategic actions will begin to lead or lag strategic intent.

Dissonance is strategic when it signals impending industry or corporate transformation.

Advantage & Change

The most fundamental and least readily visible source of strategic The most fundamental and least readily visible source of strategic dissonance derives from the divergence between the changing basis of dissonance derives from the divergence between the changing basis of

competition in the industry and the firm’s distinctive competencies, the competition in the industry and the firm’s distinctive competencies, the latter becoming less relevant for competitive advantage.latter becoming less relevant for competitive advantage.

55 YESYES19991999

Strategic dissonance signals a strategic inflection point.

These changes create a “valley of death” for the incumbents because they materially affect their profitable growth trajectories.

How to tell signal from noise?

Strategic Dissonance

Advantage & Change

When spring comes, snow melts first at the periphery!When spring comes, snow melts first at the periphery!

56 YESYES19991999

Strategic Dissonance

Advantage & Change

GROWTH

TIME

STRATEGIC INFLEXION POINT“SIP”

COMPETITIVE ADVANTAGE PERIOD“CAP”

57 YESYES19991999

DENIAL

ESCAPE OR DIVERSION

ACCEPTANCE

PERTINENT ACTION

Strategic Dissonance: Don’t dismiss it Don’t dismiss it

Advantage & Change

Diversion often involves major acquisitions Diversion often involves major acquisitions unrelated to the core business that faces a SIP.unrelated to the core business that faces a SIP.

GLOBALISATION

59 YESYES19991999

Being able to develop and implement Being able to develop and implement an effective global strategy is the acid an effective global strategy is the acid test of a well managed company.test of a well managed company.

GLOBAL STRATEGY or

“MULTILOCAL STRATEGY”

Globalisation

How global is their industry and how global How global is their industry and how global should their business strategy be?should their business strategy be?

60 YESYES19991999

Global strategy levers

Market participation Products/services Location of value adding activities Marketing Competitive moves

Globalisation

A business that has a fully globalised strategy A business that has a fully globalised strategy would make maximum use of each of the five would make maximum use of each of the five

global strategy levers.global strategy levers.

61 YESYES19991999

THE CORE STRATEGY

DEVELOPING

INTERNATIONALISING

GLOBALISING

Globalisation

Briefly, a multilocal strategy treats competition in each country Briefly, a multilocal strategy treats competition in each country or region on a stand alone basis, while a global strategy takes an or region on a stand alone basis, while a global strategy takes an

integrated approach across countries and regions.integrated approach across countries and regions.

62 YESYES19991999

Benefits andCosts of

Globalisation

GlobalOrganisation

Factors

IndustryGlobalisation

Drivers

GlobalStrategyLevers

The Globalisation TriangleThe Globalisation Triangle

Globalisation

63 YESYES19991999

The Globalisation Forces

GOVERNMENT

DRIVERS

INDUSTRYINDUSTRYGLOBALISATIONGLOBALISATION

POTENTIALPOTENTIAL

Globalisation

MARKET

DRIVERS

COMPETITIVE

DRIVERS

COST DRIVERS

64 YESYES19991999

Countries need to be selected in terms of their potential contribution to globalisation benefits also.

The ideal is a standardised core product that requires a minimum of local adaptation.

The value chain is broken up, and each activity may be conducted in a different country.

MarketMarketparticipationparticipation

Products Products & services& services

ActivityActivitylocationlocation

In multilocal In a global

Countries are selected on the basis of their stand-alone potential in terms of revenues and profits.

The products and services offered in each country are tailored to local needs.

All or most of the value chain is reproduced in every country.

Globalisation

65 YESYES19991999

ABILITY TO DEVELOP

AND IMPLEMENTGLOBAL

STRATEGY

ORGANISATIONSTRUCTURE

PEOPLEMANAGEMENTPROCESSES

Management and Organisation Factors Affecting Global Strategy

CULTURE

Globalisation

STRATEGYSTRATEGY