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WHAT IS STRATEGY. Stephanie McCoy. March 2010. What is Strategy?. What is Strategy? “Strategy is about being different” --Michael Porter. What is Strategy?. Elements of Strategy: Mission : Who the Firm wants to be Strategic Intent : What the Firm wants to achieve

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what is strategy
What is Strategy?
  • What is Strategy?

“Strategy is about being different”

--Michael Porter

what is strategy3
What is Strategy?
  • Elements of Strategy:
    • Mission:

Who the Firm wants to be

    • Strategic Intent:

What the Firm wants to achieve

    • Competitive Advantage:

How the Firm can achieve its strategic intent

strategic vision mission
Strategic Vision: Mission
  • Mission defines WHOthe firm wants to be
    • Defines purpose
    • Timeless and visionary
strategic vision mission examples
Strategic Vision: Mission Examples

Whole Foods, Whole People, Whole Planet

Nike brings inspiration and innovation to every athlete* in the world

*If you have a body, you are an athlete

Meritage delivers superior investment returns by combining equity and expertise to build successful communications businesses

strategic vision strategic intent
Strategic Vision: Strategic Intent
  • Strategic Intent: WHAT the firm wants to achieve
strategic vision strategic intent7
Strategic Vision: Strategic Intent

“If there’s a fork in the road, take it”

-Yogi Berra

strategic vision strategic intent8
Strategic Vision: Strategic Intent

THE APOLLO PROGRAM:

“I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to Earth.”

--President John F. Kennedy, 1962

Why did the Country get so excited?

strategic intent characteristics
Strategic Intent Characteristics
  • Defines the “what” not the “how”
  • Very Long Term
  • Captures the essence of winning
  • Implies “stretch” not “fit”
  • Motivational and directional
  • Tool for empowerment, not a tool for centralization
  • Think the unthinkable
strategic intent examples
Strategic Intent Examples

Six Hondas in a two-car garage

Maru-C (translation: Encircle Caterpillar)

To put a Coke within ‘arm’s reach’ of every consumer in the world

1975: A computer on every desk and in every home

1999: Empowering people through great software anytime, anyplace, and on any device

competitive advantage
Competitive Advantage
  • Competitive Advantage is HOW the firm will achieve its strategic intent
    • Doing something unique and different that customers value
competitive advantage12
Competitive Advantage

Economic Engine

COMPETITIVE ADVANTAGE

Core Competencies

Customer Segmentation

Value Proposition

customer segmentation
Customer Segmentation
  • Strategic selection of a sub-segment of an addressable market to create or enhance a competitive advantage

Segment

Definition

Customers not consuming any product or consuming only in inconvenient settings

NONCONSUMERS

Customers who consume a product but are frustrated with its limitations; they display willingness to pay more for enhancements along dimensions most important to them

UNDERSHOT CONSUMERS

Customers who stop paying for further improvements in performance that historically had merited attractive price premiums

OVERSHOT CONSUMERS

customer segmentation14
Customer Segmentation

Company

Customer Segmentation

Nonconsumer: In creating a bazaar without borders, eBay allowed an exchange of goods without dependency on geography

NONCONSUMRERS

Nonconsumer: Pioneered the creation of the MP3 with legal content in a revolutionary digital format

Apple

Undershot : Wealthy, health conscious consumer who values organic environmentally friendly products

UNDERSHOT CONSUMERS

Undershot : Uber wealthy urban females seeking unparallel shopping “experience”

Overshot: Frequent mid level business traveler (i.e. salesperson) who wants low prices and on time flights.

OVERSHOT CONSUMERS

Overshot: Initially rural customers and later inclusive of price sensitive urban shoppers. Value low prices, will tolerate sub par customer service, quality and store amenities

competitive advantage15
Competitive Advantage

Economic Engine

COMPETITIVE ADVANTAGE

Core Competencies

Customer Segmentation

Value Proposition

value proposition

Neiman Marcus, Whole Foods, Apple

Wal-Mart, Southwest Airlines, IKEA

Value Proposition
  • Profitability benefit of Value Proposition

Industry Average Competitor

Premium Differentiated Competitor

Low-Cost Competitor

Sales Price

Costs

competitive advantage17
Competitive Advantage

Economic Engine

COMPETITIVE ADVANTAGE

Core Competencies

Customer Segmentation

Value Proposition

value chain core competencies

Venture Capital Value Chain

VALUE

CREATION

INVESTMENT SELECTION

INVESTMENT SOURCING

EXITING

FUNDRAISING

Value Chain & Core Competencies

Value Chain

  • A value chain is a template that breaks down a company’s entire activity set
  • Represents steps that must be taken to deliver and support a product/service to end user
core competencies
Core Competencies

Core Competency

  • A core competency is a business activity in which a firm can be BEST IN WORLD
  • Three tests of a core competency
    • Provides potential access to a wide variety of markets
    • Makes significant contribution to perceived customer value and benefits
    • Difficult for competitors to imitate
  • Must support the value proposition
  • Consider outsourcing activities that aren’t core competencies
core competencies20
Core Competencies
  • Premium Differentiated Core Competency Profile

MERCHANDISING and MARKETING

CUSTOMER SERVICE

PROCUREMENT

SALES

Core Competency

Description

MERCHANDISING & MARKETING

•High quality products displayed in unrivaled storefronts to create a luxurious shopping environment

•Full-time art curator and custom designed chairs in the cosmetics department

•Intentionally limits expansion to maintain elite image

•Best in class marketing through luxurious catalogs, interactive website and customer loyalty programs

CUSTOMER SERVICE

•Career track for sales associates: full time employment with 200 hours of new hire training and 160 hours of annual recurring training

•Commission-based compensation

•InCircle frequent shopper program provides luxurious gifts for consumers spending in excess of $5,000 annually

core competencies21
Core Competencies
  • Low Cost Company Core Competency Profile

CUSTOMER SERVICE

DESIGN

MANUFACTURING

DISTRIBUTION

MERCHANDISING

SALES

Core Competency

Description

DESIGN

  • Modularly designed furniture
  • Easily warehoused
  • Easy assembly
  • Modern sleek look
  • Less expensively transported

MERCHANDISING

  • •Furniture displayed in full room settings
  • •In house daycare
  • Store locations near airports on huge real estate plots
competitive advantage22
Competitive Advantage

Economic Engine

COMPETITIVE ADVANTAGE

Core Competencies

Customer Segmentation

Value Proposition

economic engine
Economic Engine
  • Economic Engine is a single financial measure of the competitive advantage
  • Profit per X
  • If you could pick one and only one ratio – profit per X – to systematically increase over time, what X would have the greatest and most sustainable impact on your business?
economic engine24
Economic Engine

Key Economic Shift

Competitive Advantage Impact

Profit per

Commentary

CUSTOMER

Shift from profit per DIVISION to profit per CUSTOMER

Note exploiting core competency in blade technology to their advantage

Analyzing profit per customer enabled the ‘razors and razor blade’ model whereby Gillette sells razors at a loss to lock-in customers to its highly profitable recurring revenue stream from disposable razor blades.

CUSTOMER VISIT

Shift from profit per STORE to profit per CUSTOMERVISIT

Required Walgreens to create core competencies in real estate and product placement

After initially avoiding high real estate costs, Walgreens shift to profit per customer visit led to the strategic insight to pay a premium for high profile store locations with multiple entry ways

EMPLOYEE

Shift from profit per LOAN to profit per EMPLOYEE

Did not change the low cost value proposition, but required new core competencies in technology to increase employee productivity and encourage online banking

Wells Fargo’s profit per employee engine created a lean cost structure well-equipped to face the economic reality of banking commoditization in the face of deregulation.

leveraging core competencies
Leveraging Core Competencies
  • When a Company is seeking growth and diversification, it must leverage existing core competencies:
  • Example: Honda

Honda Core Competencies

Small Engine Design

Moderate Scale Assembly with Outsourcing

Creative Distribution

Business Opportunities that leverage core competencies

Compact Business Jets

Motor-cycles

Misc. Pumps

Gener-ators

Out-boards

Lawn Mowers

Snow Blowers

Small

Cars

strategic analysis
Strategic Analysis
  • Industry Analysis
  • Competitor Analysis
  • Company Analysis
  • Critical Issues
industry analysis five forces
Industry Analysis – Five Forces
  • Michael Porter’s Five Forces framework analyzes an industry’s attractiveness based upon five elements
  • Enables a company to devise appropriate plan of action
    • Position the company to provide the best defense against the most threatening competitive force(s)
    • Influence the balance of forces through strategic moves
    • Anticipate changes in underlying forces and choose strategy before others recognize change
industry analysis five forces29
Industry Analysis – Five Forces

THREAT OF ENTRY

Intense Rivalry Exists when:

Sources of Barrier to Entry

  • Numerous competitors with equal size/power
  • Slow industry growth
  • Lack product differentiation
  • Low switching costs
  • High exit barriers
  • Rivals are diverse in strategies, origins and personalities
  • Economies of Scale
  • Product differentiation
  • Capital requirements
  • Cost disadvantages independent of size’
  • Access to distribution channels
  • Government policy

COMPETITIVE RIVALRY

POWER OF SUPPLIERS

POWER OF BUYERS

  • Supplier group powerful if:
  • Dominated by a few companies
  • More concentrated than industry it sells to
  • Limited competition in supplier products
  • Credible threat of forward integration
  • Industry is not important to supplier group
  • Buyer group is powerful if:
  • Concentrated or purchases in volume
  • Purchases standard/non-differentiated products
  • Earns low profits
  • Industry’s product unimportant to quality of buyer’s product/service
  • Credible threat of backward integration

SUBSTITUTES

Products that a buyer can choose in place of your offering

industry analysis five forces30
Industry Analysis – Five Forces
  • Five Forces Analyses -- Airlines

Airline industry highly unattractive

Neutral

Positive

Negative

industry analysis five forces31
Industry Analysis – Five Forces
  • Five Forces Analyses – Pharmaceutical Industry

Pharmaceutical industry highly attractive

Neutral

Positive

Negative

competitor analysis smart bombing
Competitor Analysis – Smart Bombing
  • Process of identifying all significant current and future competitive threats
  • How could the competition crush you? How can you crush the competition?
  • Example: Starbucks Smart Bomb Analysis

Competitor: McDonald’s

competitor analysis smart bombing33
Competitor Analysis – Smart Bombing

Competitor: Specialty Coffee Houses

company analysis swot
Company Analysis - SWOT

Minimize

Maintain

Overcome

Take Advantage Of

critical issues
Critical Issues
  • What Can Make the Company Widely Successful?
  • What Can Put the Company Out of Business?
    • Typically limited to 5-7 items