What is Strategy? - Stanford University

© 2010 Raymond E. Levitt and SAPM. All rights reserved.

What is Strategy?

Dr. Raymond Levitt


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


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.


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


The two elements of strategy:

1. First, pick the right industry to compete in

2. Then pick the right strategy for that industry


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.


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.


Porter’s “five forces”

1. Rivalry among

existing firms

2. Threat of

new entrants

Industry

dynamics

3.Threat of substitute

products/services



Supply

chain

power

1. Rivalry among

existing firms

2. Threat of

new entrants

Industry

dynamics


products/services

4. Bargaining

power of

suppliers

5. Bargaining

power of

buyers

1. Rivalry among

existing firms



Supply

chain

power

1. Rivalry among

existing firms

2. Threat of

new entrants

Industry

dynamics


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!


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!

+

+

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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?


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

http://www.dealingwithdarwin.com/


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.


Outline





competitive








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!


Moore’s technology adoption life cycle

Chasm

Early

market

Bowling alley

Tornado

Main Street

Technology adoption life cycle


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


Outline





competitive








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.


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


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?


Outline





competitive








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


Disruptive

innovation

Application

innovation

Product

innovation

Platform

innovation

Innovation types for growth markets

The product leadership zone


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?



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


Innovation types for mature markets

Experiential

innovation

Marketing

innovation

Customer intimacy zone

Enhancement

innovation

Line extension

innovation


Innovation types for mature markets

Integration

innovation

Process

innovation

Value migration

innovation

Value engineering

innovation

Operational excellence zone


Customer Intimacy: niche markets, fractal products

1 2 3

4 5


Example of fractal products for niche markets

Security

system

PDA

Kitchen

phone

Office

phoneBedroom

phone

Car

phone

Cordless

phone

Broadband

line

Cell

phoneIntercom

Babycam

Email

device

Game

phone

Speaker

phone

Fax

Emergency

phone

WiFi

phone

VoIP

phone

Video

phone

The example of telephones


Operational excellence: cut costs out of platform

1 2 3

4

PC

65



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


Innovation types for declining markets

Harvest

& exit

Category renewal

Organic

Acquisition

Leveraging category renewal


“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


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


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


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?


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


Recap

What is “strategy” and why does an organization need one?


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!

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What is Strategy? - Stanford University