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© 2010 Raymond E. Levitt and SAPM. All rights reserved.
What is Strategy?
Dr. Raymond Levitt
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Outline
What is “strategy” and why does your
organization need one?
Two frameworks for understanding strategy
Porter: Five Forces that make industries more
competitive
Geoffrey Moore: Dealing With Darwin — innovating
over the technology/category lifecycle
Technology & Category maturity life cycle
The four Strategic Value Disciplines
“Dealing with Darwin”: Different strategic value disciplines
for each phase of the technology/category life cycle
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
What is strategy?
Strategy is about adding value through
a mix of resources, capabilities and activities
different from those used by competitors
in your industry.
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Why have a strategy?
A well-designed and
well-executed strategy
allows a firm to earn
above-average profits
in its industry
over the long term
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
The two elements of strategy:
1. First, pick the right industry to compete in
2. Then pick the right strategy for that industry
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Two complementary strategic frameworks
Michael Porter’s Five Forces frameworkLays out five forces that make markets more competitive
Lays out two generic strategies to address competitive forces
Asserts that an organization must choose one of these two strategies to defend against changing competitive forces
Use Porter’s Five Forces framework to evaluate the attractiveness of your industry vs. other industries in which you could potentially compete
Geoff Moore’s Dealing with Darwin frameworkIdentifies four stages in the technology and category life cycle
Emphasizes four distinct kinds of strategic innovationfor each stage of the technology/category life cycle
Use Moore’s Dealing with Darwin framework to pick the appropriate strategy for earning above average profits in a selected industry, based on industry’s current technology/category maturity level
• Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Simon & Schuster, Inc., N.Y., 1980.
•Geoffrey A. Moore, Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. NY: Penguin Books, 2004.
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Michael Porter’s strategic framework
An industry is “a group of firms producing
products that are close substitutes for each
other.”
The level of competition in an industry
and, hence, its long-run profitability, depends
on the strength of “five strategic forces.”
Source: Porter, Michael. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press, 1998.
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Porter’s “five forces”
1. Rivalry among
existing firms
2. Threat of
new entrants
Industry
dynamics
3.Threat of substitute
products/services
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Porter’s “five forces”
Supply
chain
power
1. Rivalry among
existing firms
2. Threat of
new entrants
Industry
dynamics
3.Threat of substitute
products/services
4. Bargaining
power of
suppliers
5. Bargaining
power of
buyers
1. Rivalry among
existing firms
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Porter’s “five forces”
Supply
chain
power
1. Rivalry among
existing firms
2. Threat of
new entrants
Industry
dynamics
3.Threat of substitute
products/services
4. Bargaining
power of
suppliers
5. Bargaining
power of
buyers
• Buyer at each stage can force sellers to engage in a “reverse auction”!
• Global sourcing and economic recession further depress prices
• Strategy of bundling customized, high-value services for global clients,
based on own & others’ products, becomes attractive for many firms!
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Choose the right industry to compete in
Agile companies change industries when the industry they are in becomes hyper-competitive and, hence, no longer very profitable!
+
+
+
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Strategy Lab 1
1. What industry is your program, business unit,
or company in?
2. How strong is each of the five forces for your
organization’s industry, and are they getting
stronger or weaker over time?
3. If the forces are already strong, or are getting
stronger, can you think of a way to migrate
your organization’s resources, capabilities
and activities to another industry?
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Choose the right innovation strategy
= 0• Multiple, uncoordinated innovation initiatives = “bubble-up strategy ”
• Zero net impact!
Remember your vector math!
Source: Moore, Geoffrey A. Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. New York:
Penguin Books, 2004.
Diagrams downloaded from www.dealingwithdarwin.com
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Two complementary strategic frameworks
Michael Porter’s Five Forces frameworkLays out five forces that make markets more competitive
Lays out two generic strategies to address competitive forces
Asserts that an organization must choose one of these two strategies to defend against changing competitive forces
Use Porter’s Five Forces framework to evaluate the attractiveness of your industry vs. other industries in which you could potentially compete
Geoff Moore’s Dealing with Darwin frameworkIdentifies four stages in the technology and category life cycle
Emphasizes four distinct kinds of strategic innovationfor each stage of the technology/category life cycle
Use Moore’s Dealing with Darwin framework to pick the appropriate strategy for earning above average profits in a selected industry, based on industry’s current technology/category maturity level
• Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Simon & Schuster, Inc., N.Y., 1980.
•Geoffrey A. Moore, Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. NY: Penguin Books, 2004.
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Outline
What is “strategy” and why does your
organization need one?
Two frameworks for understanding strategy
Porter: Five Forces that make industries more
competitive
Geoffrey Moore: Dealing With Darwin — innovating
over the technology/category lifecycle
Technology & Category maturity life cycle
The four Strategic Value Disciplines
“Dealing with Darwin”: Different strategic value disciplines
for each phase of the technology/category life cycle
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Different kinds of buyers in the marketplace
Techies:
Just try it!
Pragmatists:
Stick with the herd!
Conservatives:
Stick with what’s proven!
Skeptics:
Just say No!
Visionaries:
Get ahead of the herd!
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Moore’s technology adoption life cycle
Chasm
Early
market
Bowling alley
Tornado
Main Street
Technology adoption life cycle
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Time
Mark
et
siz
e
Technology adoption life cycle
Growth
market Mature
market
Declining
market
Indefinitely elastic
middle period
End of
life
A
Fault
line!
E
DC
B
The category maturity life cycle
Category life cycle
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Outline
What is “strategy” and why does your
organization need one?
Two frameworks for understanding strategy
Porter: Five Forces that make industries more
competitive
Geoffrey Moore: Dealing With Darwin — innovating
over the technology/category lifecycle
Technology & Category maturity life cycle
The four Strategic Value Disciplines
“Dealing with Darwin”: Different strategic value disciplines
for each phase of the technology/category life cycle
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Diffe
ren
tiatio
nC
.L.
Geoffrey Moore’s four “value disciplines”
Disruptive innovation Think outside the box; “imagineer”; create new paradigms, categories, standards price; profit
Product leadershipDifferentiate through superior design and engineering yielding higher performance price; profit
Customer intimacyDifferentiate through superior matching of customer expectation with offer fulfillment price; profit
Operational excellenceSuperior execution, as measured by higher productivity,
cost; ~= price profit
Source: Moore, Geoffrey A. Living on the Fault Line: Managing for Shareholder Value in Any Economy. Rev. ed.,
New York: HarperBusiness, 2002.
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Source: Moore, Geoffrey A. Living on the Fault Line: Managing for Shareholder Value in Any Economy,
Rev. ed. New York: HarperBusiness, 2002.
Disruptive
innovation
Product
leadership
Customer
intimacy
Operational
excellence
FocusCategorical
differentiationOffer quality
Customer
experience
Process
efficiency
Orientation
to timeTime to adoption
Competitive
response time
Customer
response time
Internal timing
(rhythm)
Key metric10X advantage
to user
Product
specifications
Customer
loyalty
Number of
misses
Culture fitCultivation
culture
Competence
culture
Collaboration
culture
Control
culture
Organizational
leadership from:R&D
Sales,
engineering
Marketing,
customer
support
Operations,
finance
Defining differences among the four value disciplines
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Translating strategy to the project level
A company can simultaneously be pursuing
different strategies in different business units,
functional groups, or even projects.
What are some examples of programs or
projects in your organization that are pursuing
strategies of:
Disruptive innovation?
Product leadership?
Customer intimacy?
Operational excellence?
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Outline
What is “strategy” and why does your
organization need one?
Two frameworks for understanding strategy
Porter: Five Forces that make industries more
competitive
Geoffrey Moore: Dealing With Darwin — innovating
over the technology/category lifecycle
Technology & Category maturity life cycle
The four Strategic Value Disciplines
“Dealing with Darwin”: Different strategic value disciplines
for each phase of the technology/category life cycle
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Four innovation zones
Disruptive
Innovation
Application
Innovation
Product
Innovation
Platform
Innovation
Enhancement
Innovation
Integration
Innovation
Experiential
Innovation
Process
Innovation
Marketing
Innovation
Business model
Innovation
Line extension
Innovation
Value engineering
Innovation
Harvest
& Exit
Renewal innovation
Product
leadership
zone
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Disruptive
innovation
Application
innovation
Product
innovation
Platform
innovation
Innovation types for growth markets
The product leadership zone
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Industry Maturation
Technologies and categories mature rapidly
Platforms emerge and “system architecture” becomes
formalized
Buying decisions begin to emphasize low cost and
vendor responsiveness over product features
Results
Ongoing production, supply and refinement of components
gets outsourced by “system integrator”
Individual components become “faster, better, cheaper”
Major product innovation becomes increasingly difficult
Can you think of recently introduced products
that were initially feature-driven, and are now
maturing?
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Four innovation zones
Disruptive
Innovation
Application
Innovation
Product
Innovation
Platform
Innovation
Enhancement
Innovation
Integration
Innovation
Experiential
Innovation
Process
Innovation
Marketing
Innovation
Business model
Innovation
Line extension
Innovation
Value engineering
Innovation
Harvest
& Exit
Renewal innovation
Operational
excellence
zone
Customer
intimacy
zone
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Innovation types for mature markets
Experiential
innovation
Marketing
innovation
Customer intimacy zone
Enhancement
innovation
Line extension
innovation
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Innovation types for mature markets
Integration
innovation
Process
innovation
Value migration
innovation
Value engineering
innovation
Operational excellence zone
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Customer Intimacy: niche markets, fractal products
1 2 3
4 5
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Example of fractal products for niche markets
Security
system
PDA
Kitchen
phone
Office
phoneBedroom
phone
Car
phone
Cordless
phone
Broadband
line
Cell
phoneIntercom
Babycam
device
Game
phone
Speaker
phone
Fax
Emergency
phone
WiFi
phone
VoIP
phone
Video
phone
The example of telephones
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Operational excellence: cut costs out of platform
1 2 3
4
PC
65
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Four innovation zones
Disruptive
Innovation
Application
Innovation
Product
Innovation
Platform
Innovation
Enhancement
Innovation
Integration
Innovation
Experiential
Innovation
Process
Innovation
Marketing
Innovation
Business model
Innovation
Line extension
Innovation
Value engineering
Innovation
Harvest
& Exit
Renewal innovation
Category
renewal
zone
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Innovation types for declining markets
Harvest
& exit
Category renewal
Organic
Acquisition
Leveraging category renewal
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
“Volume Operations”“Complex Systems”
A broad universe of innovation types
Disruptive
innovation
Application
innovation
Product
innovation
Platform
innovation
Enhancement
innovation
Experiential
innovation
Marketing
innovation
Line extension
innovation
Integration
innovation
Process
innovation
Value migration
innovation
Value engineering
innovation
Harvest
& exit
Renewal innovation
Organic
renewal
Acquisition
renewal
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Differentiation Evolves Toward Cost Leadership
Early handmade
automobiles
Car is custom product;
unique parts made by single
firm, put together by “fitters”
Early PCs/Cell Phones
Custom parts, including
software, made and sold
by single vendor
Traditional pharma
Drugs developed, tested,
marketed, sold by pharma
until patent runs out
Henry Ford’s assembly-line process
Car is platform: Standardized
parts, manufactured by vendors,
assembled by unskilled workers
Current PCs or Mobile Phones
PC/Handset is a “platform”: Many
standardized parts, including
software, are outsourced,
assembled, sold through channels
Modern bio-pharma
Drugs invented by biotechs, testing
outsourced, licensed for
manufacturing & distribution to,
or acquired by, big pharma
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Cycle: Complex Systems Volume Operations
Disruptive
Innovation
Application
Innovation
Product
Innovation
Platform
Innovation
Enhancement
Innovation
Integration
Innovation
Experiential
Innovation
Process
Innovation
Marketing
Innovation
Business model
Innovation
Line extension
Innovation
Value engineering
Innovation
Harvest
& Exit
Renewal innovation
Product
leadership
zoneOperational
excellence
zone
Customer
intimacy
zoneCategory
renewal
zone
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Strategy Lab 2
1. Pick a product or service that your business unit is currently providing or developing.
2. What phase in the product/category life cycle is this product or service currently in?
Growing?
Mature/fractal?
Declining?
3. What kinds of strategic innovations are currently being proposed or implemented for this product or service?
4. Are these strategic innovations consistent with those suggested by the Moore framework?
5. If not, what different innovation strategies would you propose in their place?
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Ten Tech-Enabled Business Trends to Watch*
Source: Jacques Bughin, Michael Chui, and James Manyika (2010). “Clouds, big data, and smart assets: Ten tech-enabled business trends to
watch” McKinsey Quarterly, August 2010. McKinsey Global Institute.
1. Distributed co-creation
2. Networks as organizations
3. Deeper collaboration
4. The Internet of Things
5. Experimentation with big data
6. Wiring for a sustainable world
7. Anything-as-a-service
8. Multi-sided business models
9. Innovation from the bottom of the pyramid
10. Using technology to improve communities and
generate societal benefits by linking citizens
11. (Bonus Trend): Selling Bits, instead of Atoms
© 2010 Raymond E. Levitt and SAPM. All rights reserved.
Recap
What is “strategy” and why does an organization need one?
Two frameworks for understanding strategy
Pick the right industry & strategy for your organization/ project
Porter: Choose your industry based on the current and evolving strength of the Five Forces that determine the competitiveness of industries
Geoffrey Moore: Base your strategy for the industry on the right Strategic Value Discipline/s at each phase of the technology/category life cycle
The only constant is change.
Adapt or die!