Post on 28-Dec-2015
March 2010
WHAT IS STRATEGY
Stephanie McCoy
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
• Competitive Advantage:
How the Firm can achieve its strategic intent
Strategic Vision: Mission
Mission defines WHO the firm wants to be• Defines purpose• Timeless and visionary
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 Intent: WHAT the firm wants to achieve
Strategic Vision: Strategic Intent
“If there’s a fork in the road, take it”
-Yogi Berra
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
• 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
Six Hondas in a two-car garage
Maru-C (translation: Encircle Caterpillar)
1975: A computer on every desk and in every home 1999: Empowering people through great software anytime, anyplace, and on any device
To put a Coke within ‘arm’s reach’ of every consumer in the world
Competitive Advantage
Competitive Advantage is HOW the firm will achieve its strategic intent• Doing something unique and different that
customers value
Competitive Advantage
Value Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
Customer Segmentation
Strategic selection of a sub-segment of an addressable market to create or enhance a competitive advantage
Segment Definition
NONCONSUMERS
UNDERSHOT CONSUMERS
OVERSHOT CONSUMERS
Customers not consuming any product or consuming only in inconvenient settings
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
Customers who stop paying for further improvements in performance that historically had merited attractive price premiums
Customer Segmentation N
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UN
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Company Customer Segmentation
Nonconsumer: In creating a bazaar without borders, eBay allowed an exchange of goods without dependency on geography
OV
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Overshot: Frequent mid level business traveler (i.e. salesperson) who wants low prices and on time flights.
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
Undershot : Wealthy, health conscious consumer who values organic environmentally friendly products
Undershot : Uber wealthy urban females seeking unparallel shopping “experience”
AppleNonconsumer: Pioneered the creation of the MP3 with legal content in a revolutionary digital format
Competitive Advantage
Value Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
Value Proposition
Profitability benefit of Value Proposition
Industry Average
Competitor
Premium Differentiated Competitor
Low-Cost Competitor
Sales Price Costs
Neiman Marcus, Whole Foods,
Apple
Wal-Mart, Southwest
Airlines, IKEA
Competitive Advantage
Value Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
Value Chain & Core Competencies
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
Value Chain
FUNDRAISING INVESTMENT SOURCING
INVESTMENT SELECTION
VALUE CREATION
EXITING
Venture Capital Value Chain
Core Competencies
Core CompetencyA 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 Competencies
SALESMERCHANDISING and MARKETING
CUSTOMER SERVICE
PROCUREMENT
Premium Differentiated Core Competency Profile
Core Competency Description
MERCHANDISING & MARKETING
CUSTOMER SERVICE
•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
•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 Competencies
Low Cost Company Core Competency Profile
Core Competency Description
MERCHANDISING
DESIGN
•Furniture displayed in full room settings •In house daycare•Store locations near airports on huge real estate plots
•Modularly designed furniture•Easily warehoused•Easy assembly
DISTRIBUTIONMANUFACTURINGDESIGN CUSTOMER SERVICE
MERCHANDISING SALES
•Modern sleek look•Less expensively transported
Competitive Advantage
Value Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
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 Engine
Profit per CommentaryKey Economic Shift
CUSTOMER Shift from profit per DIVISION to profit per CUSTOMER
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.
Competitive Advantage Impact
Note exploiting core competency in blade technology to their advantage
CUSTOMER VISIT
Shift from profit per STORE to profit per CUSTOMER VISIT
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
Required Walgreens to create core competencies in real estate and product placement
EMPLOYEE Shift from profit per LOAN to profit per EMPLOYEE
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.
Did not change the low cost value proposition, but required new core competencies in technology to increase employee productivity and encourage online banking
Leveraging Core Competencies
When a Company is seeking growth and diversification, it must leverage existing core competencies:
Example: Honda
Business Opportunities that leverage core competencies
Honda Core Competencies
Small Engine Design
Moderate Scale Assembly with Outsourcing
Creative Distribution
Small
CarsMisc.
PumpsGener-ators
Out-boards
Lawn Mowers
Snow Blowers
Motor-cycles
Compact Business
Jets
Appendix
Strategic Analysis
Industry Analysis
Competitor Analysis
Company Analysis
Critical Issues
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 Forces
THREAT OF ENTRY
POWER OF SUPPLIERS
POWER OF BUYERS
SUBSTITUTES
COMPETITIVE RIVALRY
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
•Economies of Scale
•Product differentiation
•Capital requirements
•Cost disadvantages independent of size’
•Access to distribution channels
•Government policy
Products that a buyer can choose in place of your offering
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
Intense Rivalry Exists when:
Industry Analysis – Five Forces
Five Forces Analyses -- Airlines
Force Description RatingImplication for Entrant
THREAT OF ENTRY
Capital intensive, but with leases and route-specific entry options
Low – Medium
POWER OF SUPPLIERS
Concentrated supplier base, long-term leases, significant switching costs
High
POWER OF BUYERS
Buyers have multiple options on most routesHigh
THREAT OF SUBSTITUTES
Personal aircraft, automobiles, trains and buses all serve as substitutes. Advanced communication technology reduces business travel demand
Medium – High
COMPETITIVE RIVALRY
Low growth prospects, many players, cutthroat pricing
High
Neutral
Positive
Negative
Airline industry highly unattractive
Industry Analysis – Five Forces
Five Forces Analyses – Pharmaceutical Industry
Force Description RatingImplication for Entrant
THREAT OF ENTRY
Capital required for research and development can be significant, but with potential for high payout
Medium
POWER OF SUPPLIERS
Many suppliers with commoditized inputs (e.g. chemicals); low threat of forward integration
Low
POWER OF BUYERS
Buyers often completely price inelastic; patents limit substitutes; near zero threat of backward integration
Low
THREAT OF SUBSTITUTES
Patent protection for multiple years enable monopoly rents
Low
COMPETITIVE RIVALRY
First-to-market competition is intense, but abundant growth opportunities as new diseases/cures are discovered
Medium
Pharmaceutical industry highly attractiveNeutral
Positive
Negative
Competitor Analysis – Smart BombingProcess 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
Competitive Threat to Starbucks: How Starbucks could respond?
McDonalds develops ‘premium’ coffee blend at lower prices than Starbucks coffee
•Continue to advertise best-in-class product quality•Re-emphasize customer service•Continue to secure convenient real estate access where McDonalds and other food chains cannot locate•Emphasize environmental initiatives and ‘good world citizen’
McDonalds markets one-stop shopping of coffee/breakfast offering
•Develop high quality health-oriented breakfast offerings and/or even hot breakfast to create premium one-stop shopping experience
McDonalds promotes convenience of speedy order and drive thru service; markets towards parents who prefer drive thru
•Expand store locations with drive through optionsIncrease barista (server) to customer ratios during high traffic periods to maximize customer throughput
Competitor: McDonald’s
Competitor Analysis – Smart Bombing
Competitive Threat to Starbucks:
How Starbucks could respond?
Specialty coffee shops aggressively penetrate Starbuck’s premium coffee niche
•Utilize scale economies in purchasing to remain price competitive (at a premium level) while generating unmatched margins•Increase menu variety to appeal to wide ranging customer tastes •Market national penetration to appeal to customers desiring a high quality experience across all locations•Acquire competitors that make significant inroads into consumer base (e.g. Seattle’s Best)
Specialty shops explore new store builds in desirable locations
•Continue to grow new stores to saturate desirable markets
Specialty shops market against perception of poor customer service at Starbucks; claim more intimate customer experience
•Continue to improve customer service training programs•Staff higher percentage of baristas/consumers, particularly during high traffic periods•Create capital expenditure program that ensures stores receive regular improvements; customize store design to particular locations•Develop a ‘coffee only’ sales register during peak periods to increase customer throughput
Competitor: Specialty Coffee Houses
Company Analysis - SWOT
Strengths Weaknesses
Opportunities Threats
Maintain Minimize
Take Advantage Of
Overcome
Critical Issues
What Can Make the Company Widely Successful?
What Can Put the Company Out of Business?
• Typically limited to 5-7 items
March 2010
WHAT IS STRATEGY
Stephanie McCoy