Strategy and Strategic Analysis GEST-S-468docshare01.docshare.tips/files/8347/83478100.pdf · •...

Strategy and Strategic Analysis

GEST-S-468

Pr Manuel Hensmans

Last class

• Who & what influences strategic purpose

– mission & vision

• Identify the components of the governance chain of an

organisation.

• Understand differences in governance structures and the

advantages and disadvantages of these.

• Identify differences in the corporate responsibility stances taken

by organisations towards strategic purpose.

• Undertake stakeholder analysis as a means of identifying the

influence of different stakeholder groups in terms of their

power and interest.

3

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

The Strategic Position

5: Culture and Strategy

This class

• Strategic position constrained/enabled by history &

culture

• Understand why organizations tend to experience

strategic drift and the symptoms of strategic drift

– Strategic position has historical roots

• Analyse the influence of an organisation‟s culture on its

strategy using the cultural web. • Map taken-for-granted cultural paradigm

– Encapsulates historical experience of an organization

Culture, history and strategic drift

Bel20: importance history

6

Ackermans & van Haaren 1880

Ageas 1824

Anheuser–Busch InBev 1366

Bekaert 1880

Belgacom 1930

Colruyt 1925

Delhaize Group

Dexia

1867

1860

GBL 1902

GDF Suez (Electrabel) 1858 (1905)

KBC Group 1889

Solvay 1863

UCB 1928

Umicore 1906

Strategic drift

Strategic drift is

the tendency for strategies to develop incrementally on

the basis of historical and cultural influences but fail to

keep pace with a changing environment.

Environmental

Change

Amount

of

Change

TIME PHASE 1 Incremental

Change

PHASE 2 Strategic

Drift

PHASE 3 Flux

PHASE 4 Transformational Change or Death

Strategic Drift: 4 phases

1: Incremental change

• Aligned with environmental change

• Build on successes of the past

• Experimentation/growth based on same

historical theme

– Analogue innov, decentralized profit/cost

– hedonistic, liberating holiday villages

Environmental

Change

Amount

of

Change


Change

PHASE 2 Drift

Phase 2: Drift

2: Tendency to strategic drift

• Don‟t fix what isn‟t broken

• Familiar answers first

– Bias toward what worked in the past

– E.g.

• Clung to belief they had loyal customers who

valued superior quality of GB

• = inferior

Important cause drift Core capabilities -> core rigidities

• Alfred Sloan (1923)

– “A car for every purse and purpose”

• Economy cars (relatively small for US)

– Governmental lobbying = core capability

• Internal network of anti-communist spies

• Buy off trade unions

– Provide high pension, health insurance benefits

– BUT…smaller, fuel-efficient Japanese cars (1970s)

• Core capability becomes Core Rigidity

– GM reacts by lobbying, not reinventing US “car for every purse & purpose”

» Japanese don‟t have to deal with trade unions

– 1970 GM market share

• 60% of the U.S. automobile market, less than 10% is foreign

– 2010 GM market share

• < 20%, foreign brands dominate

12

Other causes tendency to “drift”

• Relationships become shackles

– E.g. airlines cosy with flag relations, travel agencies

– : very cosy relations founders, GOs, GMs

• Lagged performance effects!

– the financial performance of the organisation may hold

up initially (e.g. due to loyal customers or cost cutting) /

masks the need for change

• Financial perfomance holds up a decade

– 1980s-1990s tourism environmental changes

» Families: no tolerance for loose morals

» villages are ghettos >< multi-cultural integration

Environmental

Change

Amount

of

Change


Change

PHASE 2 Strategic

Drift

PHASE 3 Flux

Phase 3: Flux

3: Period of flux

• Downturn performance – end 1990s: dramatic deterioration results

• Top management may change – Bourguignon (1997) / Giscard D‟Estaing (2002)

• Internal rivalry as to which strategy

– Historic capabilities or start from scratch?

• Bourguignon: new marketing/finance focus

• May trigger further drop in confidence

– Drop in performance, customer loyalty

• Difficulty to recruit top quality mgt

Environmental

Change

Amount

of

Change


Change

PHASE 2 Strategic

Drift

PHASE 3 Flux

PHASE 4 Transformational Change or Death

Phase 4: transformational change or death

4: Transformational change or death

• Organization may die

• May be split / taken over

• May go through prolonged period of

transformational change

• Learn lessons from the past

– Mac versus IBM pc

• Better, yet…

• more expensive, based on propietary OS, software

– iPhone versus Android phones?

• 50% gross margin against 20% Android phones

– Android phones bit less quality, yet much cheaper and « open innovation »!

• Android phones overtaken iPhone‟s market share

– iPad versus competing tablets

• 20-25% gross margin

• Very good quality

– Harder to beat!

18 |

What can managers do?

• Go against “we know better than customer”

– E.g. (° 1928)

• At forefront digitial technology for mobiles

• Customers told managers repeatedly!!

“We‟re telling them we need digital, we need digital, we need digital. They come out with analog

Star-TAC. They were thumbing their nose at us. The sales folks – they knew. But everyone knew.

We went to Shaumburg [Motorola head office in Illinois] in 1993, 1994, but they didn‟t do anything.

They told us we didn‟t know what we were talking about. Even in 1996, after they missed the first

wave of digital, we told them we needed a dual band, dual mode phone, that this was all we would

be selling. These were not friendly conversations. But Motorola didn‟t do it; instead we launched with

Ericsson, then Nokia”

• Digital technology patents licensed to Nokia, Ericsson

• Stuck to analogue technology push

– more interference, no encryption, lesser subscriber cap

• 60% -> 34% market share in 3 years, 20,000 people laid off

19



• Don’t take halfway positions!

– E.g.

• From chemical-based to digital photography

• New chairman Fisher (ex-Motorola) knew about digital possibilities

• Yet, faced with stubborn cultural mindset Kodak execs

– « silver halide is so wonderful! »

– Took awkward halfway position

» Film will co-exist with digital!

• 2011: Kodak is near bankrupt

– Why?

» Today people take pictures with mobile phones

» Cameras are being swept away

20 |

History is encapsulated in cultural paradigm

The paradigm is

the set of assumptions held in common and taken for granted in an

organisation

• is built on collective historical experience of “what works for us”

• influences how organisation responds to change

History is encapsulated in cultural paradigm

video 60th anniversary

Analyse

Paradigm

using

CULTURAL

WEB

23 |

STORIES SYMBOLS

PARADIGM RITUALS &

ROUTINES

POWER

STRUCTURES

ORGANISATIONAL

STRUCTURES

CONTROL

SYSTEMS

Antidote to civilization

A bubble of conviviality,

isolated from modern

civilisation and violence

Profit is not a primary

purpose

BEFORE

1990s

The cultural web of an

organisation – stories

• Tend to be about heroes, villains, mavericks, successes and disasters.

• What stories are commonly told e.g. to newcomers

• How do these stories reflect core assumptions and beliefs?

• What norms do the mavericks deviate from?

Paradigm

Stories

25 |

STORIES SYMBOLS

PARADIGM RITUALS &

ROUTINES

POWER

STRUCTURES

ORGANISATIONAL

STRUCTURES

CONTROL

SYSTEMS

- post-WWII pioneers

(Blitz & Trigano)

- Villain = war, violence

- Pychological

liberation inner self

- « Sea, sex and sun »

(Serge Gainsbourg)






purpose

BEFORE

1990s


organisation – symbols

• Symbols are objects, events, acts or people that convey,

maintain or create meaning beyond functional purpose.

• What objects, people or events do people in the

organisation particularly identify with?

• What are these related to in the

history of the organisation?

• What aspects of strategy are

highlighted in publicity? Symbols

Paradigm

27 |

STORIES SYMBOLS

PARADIGM RITUALS &

ROUTINES

POWER

STRUCTURES

ORGANISATIONAL

STRUCTURES

CONTROL

SYSTEMS






purpose

- Trident,

„GO‟, „GM‟, the

Mediterranean Sea,

“Sun sea and sex”

publicity

BEFORE

1990s

???


organisation – power structures

• What kind of power relations?

• Who makes things happen?

• Indicators include:

– status

– claim on resources

– symbols of power Paradigm Power

structures

29 |

STORIES SYMBOLS

PARADIGM RITUALS &

ROUTINES

POWER

STRUCTURES

ORGANISATIONAL

STRUCTURES

CONTROL

SYSTEMS






purpose

BEFORE

1990s

Egalitarian! (communist

background Trigano)

- highly autonomous

village general

managers & GOs

- GOs have lots of

resources & status

The cultural web of an organisation

– organisation structure

• How formal/informal are the structures?

• Do structures encourage collaboration or competition?

• What types of power structure do they support?

Paradigm

Organisation

Structure

31 |

STORIES SYMBOLS

PARADIGM RITUALS &

ROUTINES

POWER

STRUCTURES

ORGANISATION

STRUCTURE

CONTROL

SYSTEMS






purpose

BEFORE

1990s

- Very informal,

collaborative

- based on trust of

Blitz & his wife

- Good GOs get

administrative

position regardless

of adm ability


– control systems

• What is most closely monitored/controlled?

• Is emphasis on reward or punishment?

• Are controls rooted in history or current strategies?

• Are there many/few controls?

Paradigm

Control

systems

33 |

STORIES SYMBOLS

PARADIGM RITUALS &

ROUTINES

POWER

STRUCTURES

ORGANISATIONAL

STRUCTURES

CONTROL

SYSTEMS






purpose

BEFORE

1990s

- Very loose control

- Manual procedures

- Reward = intrinsic ???


– routines and rituals

• Which routines are emphasised?

• Which are embedded in history?

• What behaviour do routines encourage?

• What are the key rituals?

• What assumptions and core beliefs do they reflect?

• What do training programmes emphasise?

• How easy are routines/rituals

to change?

Paradigm Rituals/

routines

35 |

STORIES SYMBOLS

PARADIGM RITUALS &

ROUTINES

POWER

STRUCTURES

ORGANISATIONAL

STRUCTURES

CONTROL

SYSTEMS






purpose

BEFORE

1990s

- Lots of jargon

- Wife Blitz hires

- No money

- Songs and dances

- Close relations GOs

& GMs

???

Work with cultural web to change strategy Case Club Med (p. 187-189)

• Bourguignon (1997)

– focused on marketing & management control

– But neglected cultural issues

• Employees do not buy in strategic changes

• Reject authoritarian mgt style

– Too far from Club Med‟s historical culture

– On top of that, 9/11 causes decrease in revenues

• Giscard D’Estaing (2002)

– Focuses on cultural aspects

• Works with Serge Trigano to understand Club Med‟s culture

– Launches massive cultural training plan

• Combines old and new

– targets an upscale repositioning (new)

– But with a convicial touch (old)

36 |

37 |

Changes in cultural web to facilitate strategic

change in period 1997-2010?

Bourguignon/Giscard D‟Estaing

38


Slide 6.38

Part II: Strategic Choices

The focus of part II: what choices for the future?

• How organisations relate to competitors in terms of their

competitive business strategies.

• How broad and diverse organisations should be in terms of

their corporate portfolios.

• How far organisations should extend themselves

internationally.

• How organisations are creative and innovative.

• How organisations pursue strategies through organic

development, acquisitions or strategic alliances.

40


Slide 6.40

Strategic Choices 6: Business Strategy

Two Generic options:

Cost Leadership:

• generate economic value by having lower costs

than competitors

Product/service Differentiation:

• generate economic value by offering a product

that customers prefer over competitors‟ product

Examples: Ikea, Ryanair, Lidl, Netto

Examples: Apple, Victoria Secret

Competitive business strategy

41

Achieving Cost Advantage

Operate with lower

gross margins

Develop a unique

cost structure

Create efficiency in

organisational

capabilities

Focus on market

segments with

low expectations

42

Sells more than competition

3rd most trusted branded Germany

But higher operating margins (due to lower fixed costs)

95% own store brands

Only 700 products

Small shops / low start-up costs

Cheap retail estate (location)

Super efficient operations

Focus on providing one type of

customer benefit better

Agile supply chain

Customers bring own shopping bags

Products on pallets not shelves

Bases of Differentiation

In theory, anything can differentiate:

• image

• status

• comfort

• taste

• beauty

• style

• furthering a cause

• reliability in use

• safety

• nostalgia

• cleanliness

• service

• quality

• accuracy

• hunger

• belonging

In practice, a differentiated product fills one or more

customer needs better than the products of competitors

43

The Price/Benefit Strategy Clock

Strategy clock – low price

Low price combined with:

low perceived product benefits focusing on price sensitive

commodity segments – a ‘no frills’ focus strategy (route 1)

to avoid major competitors (Aldi, Ryanair, Easyjet)

lower price than competitors (route 2) while offering similar

product benefits – aimed at increasing market share (typified

by Asda / Amazon)

Ryanair’s No Frills Strategy leading European short-haul airline

Route 2: Low-Price Strategy

• Lower price / similar product benefits

– Pitfalls?

• Margin reductions / Inability to reinvest

• Supported by deep corporate pockets

(owned by Wal-Mart)

• Or new low-cost base

versus

Strategy clock - differentiation

differentiation without price premium (route 3 Hybrid) – used to increase market share (McDonalds, Colruyt, IKEA…)

differentiation with price premium (route 4 Differentation) – used to increase profit margins (Club Med, …)

focused differentiation (route 5 Focused differentiation) – used for customers that demand top quality and will pay a big premium (Victoria‟s Secret)

Route 3 : hybrid

• Seeks to simultaneously achieve differentiation and low

price relative to competitors.

– Hybrid strategies can be used to:

to enter markets and build position quickly

as an aggressive attempt to win market share.

to build volume sales and gain from mass production.

Case : low-cost or differentiation?

• Successful service differentiation

– Cleanliness, consistency, and fun in fast-food outlets

• Because attractive to many

– Led to increase in sales volume

– Over time became market share leader in fast-food

• Enabled it to cut costs, became cost leader as well

• Differentiation and cost advantage

– Together very costly to imitate

50

Cost Leadership and Product Differentiation

Can a firm pursue both simultaneously?

Difficult Easier

• culture, history,

management control,

and compensation

policies are nearly

opposites

• firms can do both

because some bases

of differentiation also

lend themselves to

low cost

• culture, history, control

not opposites

Case

• - 10%, + 10%, + 1% (Jo Colruyt)

• Customer prices 10% below competition

• Pay employees 10% above industry rates

• Realise only a 1% return on sales

• Also differentiation!

– Product, content, support

• Unique package sizes

• Substantial amount of useful information

• shorter customer waiting times / stockouts are rare

• Sober image

• Fewer but mainly full-time employees

52

Case

• Differentiation? – Selling a lifestyle and not just products off a shelf

• Contemporary designed products with a connecting „theme‟

– Corporate branding in store colours / Consistent store layout.

– Range of products is extensive (unusual in low price stores)

– Use of the catalogue

– Committed staff with better knowledge, providing better service

• Low price? – Cost management better than competitors with differentiated products

• Systematicaly from idea to product dvpt, supply, distribution, retail, to

home

– Choice of materials and designs that are cheap to manufacture.

– Scale of operation (many more stores)

– Flat pack reduces transport costs for both the company and the customer

– Low cost behaviour by senior managers (e.g. economy class air travel)

– An (almost obsessive?) culture of frugality

focused differentiation

• World’s leading speciality retailer (° 1977)

– Women's wear, lingerie and beauty products

• Set up by man!

• Partially to meet men‟s coyness about buying lingerie as a

gift

– Annual Victoria's Secret Fashion Show, catalogs

• All of which feature top fashion models

– Large price premium!

Strategy clock – non-competitive

Increase prices without increasing service/product benefits (route 6) In competitive markets such strategies will be doomed to failure.

Only feasible where there is strategic „lock-in‟ or a monopoly

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