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Strategy Formulation
The Strategic Management Process
Bateman, 135
Strategic Direction
• Mission
• Vision
• Values SWOT Analysis
Updated Mission
Statement
Strategies
& Objectives
Business Model
BSC Strategy Map
Organization Structure
Culture
Enabling Key Processes
Budget
Business Scorecard
Strategic Thinking: Elements & Outputs
Strengths
Opportunities
Threats
Weaknesses
S W
T O
Primary factors SWOT ANALYSIS
TOWS Matrix
Leave Blank
Strengths – S
List Strengths
Weaknesses –
W
List Weaknesses
Opportunities –
O
List Opportunities
SO Strategies
Use strengths to take
advantage of
opportunities
WO Strategies
Overcoming
weaknesses by taking
advantage of
opportunities
Threats – T
List Threats
ST Strategies
Use strengths to avoid
threats
WT Strategies
Minimize weaknesses
and avoid threats
TOWS Matrix
Leave Blank
Strengths – S
List Strengths
Weaknesses – W
List Weaknesses
Opportunities – O
List Opportunities
SO Strategies
Match and determine
strategy
WO Strategies
Match and determine
strategy
Threats – T
List Threats
ST Strategies
Match and determine
strategy
WT Strategies
Match and determine
strategy
Inset key strategies into correct box element of the Matrix
What business are we in?
What is our business?
What do we stand for? How
should we behave?
Can we manage
ourselves as a group?
Strategic Thinking
Business Strategy?
Enterprise Strategy?
Corporate Culture
Strategy?
Strategic Thinking
Four Levels of Strategy
• What is the role and value of the organization to society?
• What do we stand for? Enterprise-level Strategy
• What is our business? What business are we in?
• What business should we be in/not in? Corporate-level Strategy
• How should we compete in a given business or industry?
• How do we support the corporate strategy? Business-level Strategy
• Marketing/Sales/Production/HR/Finance/IT/Supply Chain Srategies?
• How do we maximize resource productivity?
• How do we achieve competitive advantage in our area?
Functional/Operational-level Strategy
Corporate-level Strategic Thinking
•What is our value and relevance to the consumer and to the marketplace?
•What is our value and relevance to society and to the country?
•What do we want to become? What do we stand for? How do we conduct our business? Strategic Direction
•What set of businesses should we be in?
•What do we maintain, divest, acquire, invest in?
•What new businesses can we create and venture in?
Growth & Profitability
•Do we have sufficient internal generation of cash flow?
•Do we have sufficient cash cows in our portfolio?
•Is the cash flow position in each business healthy? Cash Flow
•Do we have countercyclical balance?
•Do we have product market lifecycle balance?
•Can we attain stability thru diversification? Stability
•Do we have core competencies that can be shared portfolio-wide?
•What can we do to add extra strength to the business units? Low cost capital, outstanding managers, correct values and codes of conduct, training and development, R&D
Synergy
Porter’s Five Forces
Potential
Rivals
Current
Rivals
Substitute
Products
Buyers Sellers
Value/supply Chain
Competitive Environment
Upstream Downstream
Diversification Strategies
Related Diversification
Unrelated Diversification
Defensive Strategies
Retrenchment
Divestiture
Liquidation
SBU-level Strategic Thinking
Business-level Strategy
Positional Component
Market Based View
Marketing 3.0
Market Driven
Segment-Target-Position
Market Creating
Blue Ocean Strategy
Performance Component
Resource Based View
Business Model
TQM & Value Chain
Gen, Management, Finance, HRM, Technology, Procurement
Supply Chain Operations Distribution Marketing &
Sales Service
Culture
Service Profit Chain
Values Brand Chain
Business Ethics
Key Relationships
Porter’s Three Generic Strategies
Vertical
Integration Strategies
Forward Integration
Backward Integration
Horizontal Integration
Intensive Strategies
Market Penetration
Market Development
Product Development
Diversification Strategies
Related Diversification
Unrelated Diversification
Strategy: Market Based View
Kotler: What is Marketing?
Superior Customer Value for
Target Markets
Creating
Delivering Communicating
Kotler: What is Marketing?
Target Markets
Product Management
Brand Management
Customer Management
Five Basic Markets
Resource Markets
Manufacturer Markets
Government Markets
Intermediary Markets
Consumer Markets
Market Segmentation
Target Marketing
Segmentation -Targeting - Positioning
Patterns of Target Market Selection: Product x Market Matrices
15-27
Product Positioning
Positioning Map
Product Positioning
• Positioning Map
Simple Preparation
Involved Preparation
Healthy Unhealthy
Beef
Pork
Tuna
Chicken
Turkey
Fresh Fish
Bacon
Hot Dogs
To (target segment and need) our (brand) is a (concept) that (point-of-difference).
Positioning Example
“To busy mobile professionals who need to always be in the loop, Blackberry is a wireless connectivity solution that allows you to stay connected to people and resources while on the go more easily and reliably than the competing technologies.”
Blue Ocean vs. Red Ocean Strategy
• Break the value- cost
trade off
• Align the whole system
of a firm’s activities with
its strategic choice of
differentiation and low
cost
• Make the value-cost
trade off
• Align the whole system
of a firm’s activities with
its strategic choice of
differentiation or low
cost
Blue Ocean Strategy Red Ocean Strategy
Reconstruct Market Boundaries
• Focuses on
maximizing the value
of product or service
offerings within the
bounds of its industry
• Focuses on adapting
to external trends as
they occur
Head-to-Head Strategy Blue Ocean Strategy
• Looks across to
complementary product
and service offerings
• Participates in shaping
external trends over
time
Get The Strategic Sequence Right
The Sequence of Blue Ocean Strategy
Buyer utility
Is there exceptional buyer
utility in your business idea?
Price
Is your price easily
accessible to the mass of
buyers?
Cost
Can you attain your cost
target to profit at your
strategic price?
Adoption
What are the adoption
hurdles in actualizing your
business idea?
A commercially viable blue
ocean idea
• W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy, HBS Publication
Needs
Wants
Target Markets
Demands
Opportunities = Supply and Demand Gaps
Business Opportunities
Producer
Superior Offering
Product
Price
Place
Promotion
Costumer
Needs,
Wants & Demands
Customer
Value
Cost
Convenience
Communication
What is Value?
Product
Service
Image
Brand
Relationships
The Power of the Brand
Brand
Awareness
Recognition
Preference
Loyalty Relationship
Equity/Value
Insistence
Marketing 1.0
Marketing 2.0
Marketing 3.0
http://www.edelman.com/speak_up/blog/archives/2011/03/marketing_30_an.html
Kotler et al: The Brand & Marketing 3.0
• It works
• It is true to its promise Mind
• It makes me happy
Heart
• It is good; it is bad
Spirit
Marketing 3.0
Kotler et al: Marketing 3.0
For SC Johnson, creating
sustainable economic
value means helping
communities prosper while
achieving profitable growth
for the company.
Sustaining Values:
SC Johnson Public
Report
We believe our
fundamental
strength lies in our
people.
MIND HEART SPIRIT
Promoting
reusable shopping
bags
Base of the Pyramid
Mission Contributing to the community
well –being as well as
sustaining and protecting the
environment
Vision To be a world leader in
delivering innovative solutions
to meet human needs through
sustainability principles
Values Sustainability
We create economic value
We strive for environmental
health
We advance social progress
Philip Kotler on Marketing 3.0 and S. C. JOHNSON VALUE-BASED MATRIX
Building A Strong
Marketing 3.0 Brand Management
Differentiation
Brand
3i
Positioning
Brand Identity
Philip Kotler: Think ASEAN
Philip Kotler & Marketing 3.0: Your Brand Needs to Own a Word • Mercedes - engineering
• BMW - driving
• Disney - family fun entertainment
• Saturn - no hassle car buying
• FedEx - overnight
• Wal-Mart - low prices/good values
• Hallmark - caring
• Nike - performance
• 3M - innovation
• Volvo - safety
• Starbuck - best coffee experience
A unique identity that sets you apart and
makes you stand out.
Brand Equity
Name Awareness
Positive Associations
Perceived Quality
Strong Brand
Loyalty
Shimp, 5
Fred R. David, Strategic Management: Concepts and Cases, Prentice Hall
Marketing Mix – Component Factors
Service level
Warranty
Transportation carriers
Product line
Inventory levels/locations
Packaging
Publicity Sales territories Brand name
Payment terms Sales promotion Outlet location Style
Discounts & allowances
Personal selling Distribution coverage Features
Level Advertising Distribution channels Quality
Price Promotion Place Product
Integrated Marketing Communications
IMC
Speaking with one
voice
Using all forms and sources of
brand contact
To affect customer behavior
To build a long-term
relationship between the brand
and customer
Shimp, 12-15
Link Vision-Values & Brand
Strong Values & Strong Brand
On Leading for Competitive Advantage
Strong
Processes
Strong
Values
Strong Relationships
Enhancing Corporate Value
Target Market
Segments: Customers
Marketing Research
Marketing
Product Development
Supply Chain Management
Production
Sales
Distribution
Service
General Management
Legal Office Accounting &
Finance
HRD/HRM/ Corporate
Culture Administration
Quality Management
Corporate IT
Ethics Office
The Lord of the Rings
Suppliers
Competitors Distributors
Government
Key Stakeholders
Strategy: Resource Based View
Business Model:
Revenue & Profit Streams
Marketing Research
Marketing
Product Development
Supply Chain Management
Production
Sales
Distribution
Service
General Management
Legal Office Accounting &
Finance
HRD/HRM/ Corporate
Culture Administration
Quality Management
Corporate IT
Ethics Office
The Internal Environment
Delivering Customer Value
Benefits Received
Cost Paid
External Customers => the Lifeblood of the Business
Delivering Customer Value & Total Quality Management
Offer Customer Value
Continually improve systems &
processes
Manage processes, not just people
Look for root causes to solve and prevent problems
Make decisions based on data and scientific analysis
Empower employees and provide training and education
Create teams to execute processes
effectively and efficiently
The Deming PDCA Cycle: For Continuous Improvement
Plan
Do Check
Act
SBU-level Strategic Thinking
Business-level Strategy
Positional Component
Market Based View
Marketing 3.0
Market Driven
Segment-Target-Position
Market Creating
Blue Ocean Strategy
Performance Component
Resource Based View
Business Model
TQM & Value Chain
Gen, Management, Finance, HRM, Technology, Procurement
Supply Chain Operations Distribution Marketing &
Sales Service
Culture
Service Profit Chain
Values Brand Chain
Business Ethics
Key Relationships
Resources: Inputs and Sources of Capability
Tangible Physical Resources
Human Resources
Financial Resources
Intangible Brand(s)
Reputation
Culture
Knowledge
Technological
Patents/Copyrights
What is a Strategic Resource?
Strategic Resource
Rare
Valuable
Inimitable
Non-substitutable Enables
customer value creation
Developed internally
Relevant to the
marketplace
Barney, 1991
Kay (1993) on Distinctive Capability
Key Relationships
Employees
Suppliers
Customers
Shareholders
Networks
Reputation
Market Reputation
Social Reputation
Employer Reputation
Innovation
Product
Design
Distribution
Processes
Technology
Kay, Jay. Foundations of Corporate Success. 1993. Oxford University Press
Strategy: Resource Based View
• Comparative Strengths
• Comparative Weaknesses
Resources
• Key Relationships
• Reputation
• Value Creation
• Innovation
Distinctive Capabilities
• Resources and Capabilities
• Market Needs and Opportunities
Strategy
David J. Collis and Cynthia A. Montgomery
http://hbr.org/2008/07/competing-on-resources/ar/pr
Differentiation and Cost Structure: Roots of Competitive Advantage
Porter’s Value Chain
Where Distinctive Capabilities and Competitive Advantages Can Come From
Barney (1991): Sustained Competitive Advantage
Value creating strategy
Difficult to copy
Sustained Competitive Advantage
Not being done by
competitors
Sustainable Competitive Advantage
• Walmart Low Cost Provider
• Rolex
• Amazon.com Differentiated
Product Offering
• Starbucks – premium coffee and coffee drinks
Focused Market Niche
• Walt Disney – theme park management and entertainment
Superior Capabilities
Thompson, Strickland, Gamble, 7-9
Harrison & John: Resources Leading to
Sustainable Competitive Advantage
Organizational
Resources and
Capabilities
Financial
Physical
Human
Organizational
VALUABLE?
UNIQUE?
Competitive
Advantage
DIFFICULT
OR COSTLY
TO IMITATE?
Sustainable
Competitive
Advantage
APPLIED
TO MULTIPLE
BUSINESSES?
Core
Competency
or Capability
Foundations in Strategic Management, 3rd Edition
by Jeffrey S. Harrison and Caron H. St. John
Resource Based Strategy
Core Competency
Sustained Competitive Advantage
Competitive Advantage
Resources
Business Model & Business Canvass Sheet Tool
Business Model:
Revenue & Profit Streams
Marketing Research
Marketing
Product Development
Supply Chain Management
Production
Sales
Distribution
Service
General Management
Legal Office Accounting &
Finance
HRD/HRM/ Corporate
Culture Administration
Quality Management
Corporate IT
Ethics Office
The Internal Environment
Film: Business Canvass Sheet
Osterwalder’s Business Model Canvas
Balanced Score Card
What is a Balanced Score Card?
1) A strategic management system
2) A measurement system
3) A communication tool of priority strategies and objectives
A Gap Exists Between Mission-Vision-Strategy and Employees’ Everyday Actions
MISSION Why we exist
VALUES What’s important to us
VISION What we want to be
STRATEGY Our game plan
EMPOWERMENT / PERSONAL OBJECTIVES What I need to do
TOTAL QUALITY MANAGEMENT What we must improve
The Balanced Scorecard Links Vision and Strategy to Employees’ Everyday Actions
BALANCED SCORECARD Translate, Focus and Align
STRATEGIC INITIATIVES What are the priorities
MISSION Why we exist
VALUES What’s important to us
VISION What we want to be
STRATEGY Our game plan
STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS
Delighted CUSTOMERS
Efficient and Effective PROCESSES
Motivated & Prepared WORKFORCE
EMPOWERMENT / PERSONAL OBJECTIVES What I need to do
TOTAL QUALITY MANAGEMENT What we must improve
The Complete Balanced Scorecard Strategy Map
Improve Shareholder Value
Productivity Strategy Revenue Growth Strategy
Improve Cost Structure
Increase Asset Utilization
Enhance Customer Value
Create Value from New Products &
Services
Human, Information, and Organizational Capital
Shareholder Value ROCE
Cost per Unit Asset Turnover Customer Profitability
New Revenue Sources
Price
Financial
Perspective:
the drivers of
shareholder
value
Product/Service Attributes
Strategic Competencies
Strategic Technologies
Climate for Action
(Processes that Produce and Deliver Products
& Services)
(Processes that Enhance Customer
Value)
Operations Theme Customer
Management Theme
Innovation Theme Regulatory and Society Theme
Customer Value Proposition
Quality
Low Total Cost
Customer Solutions
Product Leader
Customer Satisfaction Customer Acquisition Customer Retention
Time Function Service Relations Brand
Relationship Image
• Market and Account Share
Customer
Perspective:
the
differentiating
value
proposition
Internal
Perspective:
how value is
created and
sustained
Learning & Growth
Perspective: role for
intangible assets –
people, systems,
climate and culture
(Processes that Create New
Products and Services)
(Processes that Improve the Environment
and Communities)
Kaplan & Norton: Translating Vision and Strategy - Four Perspectives
Vision and Strategy
Objectives Measures Targets Initiatives
FINANCIAL
“To succeed financially, how should we appear to our shareholders?”
Objectives Measures Targets Initiatives
LEARNING AND GROWTH
“To achieve our vision, how will we sustain our ability to change and improve?”
Objectives Measures Targets Initiatives
CUSTOMER
“To achieve our vision, how should we appear to our customers?”
Objectives Measures Targets Initiatives
INTERNAL BUSINESS PROCESS
“To satisfy our shareholders and customers, what business processes must we excel at?”
Film: Balanced Score Card
Copyright 2006 John Wiley & Sons, Inc.
Key Performance
Indicators
Source: Robert Kaplan and David Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business School Press, 2004), Figure 3-2, p. 67
Increase ROCE to 12%
Revenue Growth Strategy Productivity Strategy
New Sources of Non-Gasoline Revenue
Increase Customer Profitability Through
Premium Brands
Become Industry Cost Leader
Maximize Use of Existing Assets
ROCE Net Margin (vs. industry)
Non-Gasoline Revenue & Margin
Volume vs. Industry Premium Ratio
Cash Expense (cpg) vs. Industry
Cash Flow
Speedy Purchase
Clean Safe Quality Product Trusted Brand
Friendly Helpful Employees
Financial
Perspective
Customer
Perspective
Help Develop Business
Skills
More Consumer Products
Recognize Loyalty
Share of Targeted Segment
Mystery Shopper Score
Dealer Profit Growth
Dealer Satisfaction
Differentiators
“Delight the Consumer” “Win-Win Dealer Relations”
Basic
Create Non-Gasoline
Products & Services
“Build the Franchise” “Increase Customer Value” “Achieve Operational Excellence” “Be a Good Neighbor”
Improve Environmental,
Health and Safety
Understand Consumer Segments
Best-In-Class Franchise
Teams
Improve Hardware
Performance
Improve Inventory
Management
On-Spec On-Time
Industry Cost Leader
New Product Acceptance Rate Environment
Incidents Safety Incidents Dealer Quality
Rating
Yield Gap Unplanned
Downtime
Inventory Levels
Run-Out Rate
Activity Cost vs. Competition
Internal
Perspective
A Motivated and Prepared Workforce
• Aligned • Personal Growth
Climate for Action
• Functional Excellence • Leadership Skills • Integrated View
Competencies
• Process Improvement
Technology
Personal BSC Employee Feedback
Strategic Skill Coverage Ratio
Systems Milestones
Learning &
Growth
Perspective
Mobil NAM&R Strategy Map
Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy.
Goal Objective Measurement Target Initiative
Achieve
Agency
operational
efficiencies
with best
practices in
the private
sector
Reduce
Operational
Service Costs by
50% over the
next 5 years
Cost per Outlet
Office, Cost per
Region, Cost
per FTE
5% - Year 1
10% - Year 2
15% - Year 3
Activity
Based
Costing /
Management
Reduce identified
re-activities
within primary
processes by
80% over the
next 3 years
Waste Volume
Charts, Rework
Tracking, Cycle
Time End to End
in S-LX (5 of 7
Regions)
Waste stream
reductions of
5% each year,
Reworks cut in
half for next 3
years, cycle
time cut by 75%
Lean / Six
Sigma
Matt H. Evans: Alignment of Scorecard Components
Film: Strategic Objectives
The Balanced Scorecard Matrix
Financial
Customer
Internal
Business
Process
Learning
& Growth
Objectives
Measures
Targets
Initiatives
Film: KPIs
Balanced Score Card: A Modified Perspective
Service Profit Chain
Perspective
• Employee Productivity
• Employee Satisfaction & Retention
• Mission-Vision-Values–Brand focused Employees
• Ethical Performance: Ethical Employees
Business Model & Value Chain
Perspective
• Core Competency/ Comparative Advantage Improvement
• Cost Structure Improvement: FC/VC/CM/OPM
• Quality Improvement/Process Efficiency
• Key Relationships: Suppliers, Distributors, Networks
• Ethical Performance: Ethical Operations , Supply & Distribution Chain
Marketing 3.0 Perspective
• Product /Market /Brand Initiatives
• Market Share Size/ Market Share Growth
• Contribution Margin
• Customer Service
• Ethical Performance: Creating a Better World
Financial Perspective
• Cash Flow
• ROTA
• ROIC & ROE
• Ethical Performance: Corporate Governance
The Service-Profit Chain
What is Service-Profit Chain?
The service-profit chain is a powerful
phenomenon that stresses the importance of
people – both employees and customers –
and how linking them can leverage
corporate performance.
Competitive Advantage of Companies with Adaptive Strong Cultures
1990s: Harvard 11-year Study
Revenue Growth: 682% vs. 166%
Stock Appreciation:
901% vs. 74%
2001 UCLA study: Prof. Eric Flamholtz
Within a 20-division industrial firm
Divisions consistent w/ company’s culture:
Had much better financial performance
2009-2010:
Towers Watson global study of 700 companies
Business results of
Companies with high employee
engagement
2X to 3X higher than Companies with low
engagement
Adrian Gostick and Chester Elton, All In, pp. 11-13
"It's People, Service, Profit, not Profit,
Service, People."
– Fred Smith
Founder, Federal Express
“In able to make leaders follow, you must not hold your money tightly, know how to delight your people and get their heart.”
-Li Ka Shing
Born in China, richest person in East Asia, eleventh richest person in the world
The Balanced Scorecard Matrix: Priority Strategic Initiatives
Financial
Perspective
Marketing 3.0
Perspective
Business
Model &
Value Chain
Perspective
Service
Profit Chain
Perspective
Objectives
Measures
Targets
Initiatives
Action Plan
Project Title
Objective:
Action Steps Accountability Schedule Resources Feedback Mechanism
Primary Others Start Complete Dollars Time
- Values-driven Marketing 3.0
- Product/ Service Brand
- Societal Brand
- Employer Brand
Brand
- Shared M-V-V
- Leadership Behavior
- Reinforcing HRM Systems
- Core Values- driven Brand Delivery
- Culture of Believers
- Key Relationships oriented
Culture
- TQM: PDCA & Continuous Improvement
- Value Creation: Benefit & Cost
- Balanced Scorecards - Control Systems
- Enabling Technologies
Systems & Processes
- Talent Attraction - Talent Retention - Human Capital Development
- Knowledge Management - Ethical Behavior
- Service- Profit Chain People Philosophy
People
- Structural Design
- Empowered Teams
- Organization Networks
Structure
- Enterprise Strategy
- Corporate /SBU/ Functional Strategies
- Corporate Culture Strategy
- Business Model - BSC Strategic Map
Strategy
- Mission
- Vision
- Values
- Stakeholder Philosophy
- Corporate Citizenship
Mission
External Adaptation & Internal Integration:
By Aligning Environment-Strategy -Structure-
People-Processes –Culture-Brand
Define Formulate
Align & Organize
Recruit, Lead &
Motivate
Manage & Improve
Shape & Strengthen
Communicate & Deliver
