Chapter 9: Strategy
Building upon my strategic skills to find ways to change the status quo of the markets my company serves. Acquiring new skills to come up with new ideas and game changing solutions and approaches to new and existing problems is essential. The main market my group serves today is the data center market which has undergone unprecedented change in the last 5 years. This is a relevant topic for me because I am continuously asked by executive management to predict the future of this industry; i.e. are public cloud providers the next utility? I need to be able to answer questions surrounding our ability to stay relevant and how to use our technologies to diversify into adjacent markets. Based on my self-assessments I can build upon this strength to create a positive external image of my abilities.
In Michael Porters book Competitive Strategy, the author correctly states that more competition reduces the profitability a company can achieve unless it develops a strategy to out maneuver its competitors. This book is relevent to my aspirations because a General Managers job is to grow profitable business for a company. Understanding and being able to neutralize the forces in this book that negatively affect profitability is critical to success.
There are five factors, sometimes referred to as “Porters 5 Forces” that influence the environment of an industry.
1. The relative power of suppliers.
2. The level of threat from potential new industry participants.
3. The relative power of customers.
4. The level of threat from potential substitutes for the product or service.
5. The degree of competition among current industry participants.
There are three approaches a company can pursue to achieve an advantage in its market place
1. Establish superior efficiency and cost effectiveness to assure superior returns.
2. Achieve superior differentiation based on brand or design strength, service strength, dealership and distribution strength, or some other characteristics that marks your company as unique in its industry.
3. Concentrate on a particular product, market segment, geography or such. By focusing, a firm can develop expertise that its competitors lack.
Companies can be sure that its competitors will respond to it actions with counter measures. Understanding how a competitor responds to market maneuvers and perceived threats should be considered in advance. Answer these questions.
• Is the competitor complacent and content with its position in the industry?
• What will the competitor do if something threatens its position?
• What are the competitor's weaknesses?
• What would spur the competitor to aggressive countermeasures?
Luckily competitors will send out clues to it intentions and possible reactions. An analyst should learn to determine which of these moves should be taken seriously and which are merely warnings or chest pounding. Signals from could include actions such as:
• Public announcements in advance
• Explanation of events after they take place
• Points of view revealed at conferences
• Past reactions or non-reactions to events
• Seemingly strange moves that break with industry precedent
• Retaliation in kind
• Introducing a fighting brand against an up and comer
• Filing lawsuits
As mentioned above, direct competitors are not the only entities to worry about. Customers and suppliers can sometimes maneuver to wield power over a company. Organizations must work to commoditize their supplier base and be wary of customers who gain too much buying power.
A sound strategy considers all these possibilities.
When considering how to create new markets, W. Chan Kim and Renee Mauborgne book “Blue Ocean Strategy” and the California Business Review “Blue Ocean Strategy: From Theory to Practice” offer proposals on how to change the game in an industry. I am including both articles on a similar topic because I think the CBR article answers questions the book summary does not elaborate on. A study of 108 companies shows that only 14% of business launches were blue ocean types trying to create new markets. Even still they delivered 38% of revenues and 61% of profits.
These articles are relevant to my aspirations because it is easy to see that many markets are becoming over supplied with rising cost structures and stagnant or consolidating customer bases. A leader that is able to show his company how to offer a unique value to targeted customers with no real competition and avoid competing on price is highly sought after. Based on my self-assessments I know I can get creative in solving defined problems, this begins to provide me the extra tools I need to ideate out of the box market solutions.
There are six principles of the blue ocean strategy
· Reconstruct market boundaries. Re-evaluate the premises that form an industry’s assumptions by creating a strategy canvas which displays its key competitive drivers. To expand market boundaries look at the competitors’ limitations. Looks at the horizon for trends that pertain to the business that have momentum and cannot be reversed.
· Focus on the big picture not the numbers. Keep your eye on the overall view and do not get lost in the statistics. To see where you and the competition is headed use a strategy canvas – a graphic representation of competitors products, prices, and industry position.
· Reach beyond the existing demand. Most business focus efforts on their current customers, for blue ocean strategy, focus on non-customers that are potential future customers.
· Get the strategic sequence right. Execute sequentially to achieve value innovation. Chart the experience you want buyers to have at several stages of the ownership lifecycle. Ask these questions in order
1. Why should anyone buy your product? Does it have “exceptional utility”?
2. Is it fairly priced to appeal to a large audience?
3. Can you create it at the right cost to earn a profit?
4. Are there any impediments to discourage the market from accepting your product?
· Overcome key organizational hurdles. In order to be successful the company must resolve internal departmental differences and trepidations. Here it is appropriate to use some of the lessons learned in chapter 7 of this book, Change Management.
· Build execution into strategy. Incorporate blue ocean implementation into the company’s yearly process.
The strategy canvas mentioned above is a useful diagnostic and action framework for building a blue ocean strategy. It captures the current state of an industry and shows where the competition is currently investing. The horizontal axis captures the range of factors the industry competes on and invests in, the vertical axis measures the offering level from the buyers perspective. As the strategy canvas is plotted a value curve is created showing a company’s relative performance. The next step in the process is to shift focus away from competitors and to alternatives and away from customers to non-customers.
In order to create a new value curve use the four actions framework this asks four key questions to challenge an industry’s logic and business model.
· Which factors should be reduced well below the industry's standard?
· Which of the factors that the industry takes for granted should be eliminated?
· Which factors should be raised well above the industry's standard?
· Which factors should be created that the industry has never offered?
The third tool in creating a blue ocean strategy is called the eliminate-reduce-raise-create grid. This grid companies to act on all four of the questions in the four actions framework. In this grid a company will fill in the activities and tactics that will create the new value curve.
When a company’s value curve, meets the three criteria that define a good blue ocean strategy—focus, divergence, and a compelling tagline that speaks to the market—the company is on the right track. These three criteria serve as an initial litmus test of the commercial viability of blue ocean ideas.
The McKinsey Quarterly article “Mastering the building blocks of strategy”, by Chris Bradley, Angus Dawson, and Antoine Montard demonstrates many companies leave essential stages out of their strategy planning process or fail to execute robustly on the stages that are included. Typically this is due to hurried efforts or it is just considered box checking exercise and filling out a template.
This article is relevant to me and my aspirations because I see some of the leaders in my company making the mistakes the author’s illustrate in their examples. By taking care to integrate some of the practices of this article into the strategy development for my group I expect two outcomes. Based on my self-assessments I know I am recognition driven so by applying this content, I will be recognized within the broader organization for my strategic prowess and my division will outperform others over time which will lead to other benefits, bonus and promotion.
There are seven building blocks of strategy to help companies make strategic choices and carry them through to operational reality.
1. Frame ensures that the team properly identifies and agrees to both the questions asked and the decisions made as the strategy is developed.
2. Diagnose creates insight into the starting position of the company: where and why it creates—or destroys—value
3. Forecast establishes a point of view on how the future may unfold
4. Search activities combine awareness into a company’s starting position with a perspective on the future, the company can develop and explore alternative ways to win
5. Choose is the decision on which alternative to choose.
6. Commit creates the action plan to reallocate resources to deliver on the selected strategy
7. Evolve monitors and refreshes the strategy as conditions change and new information becomes available.
All of these building blocks are important to the creation of a sound strategy. Executives should be aware not to mindlessly follow this or any other framework. Depending on the situtioan some blocks become more critical than others. This is why the first step of Framing is so important and unfortunately it is usually neglected or rushed. Three strategic options are to re-create a strategy which should be done every 3-5 years or in the event of a major market shift. On the other end of the spectrum companies might recommit which would simply be evolving an existing strategy. In between these two options is refreshing the strategy. Here dialogue is encouraged to recheck old assumptions, long term trends, and the relevance of previous thinking.
Some best practices surrounding strategic activities include myth busting, active dialogue, ending with tactical goals. Myth busting is the act of taking a critical look at both success and failures to find the real root causes. Avoid the halo effect – if things are going well there still may be underlying problems in the business that are being masked. Active dialogue creates true insight for the company. Healthy conflict and debate is necessary to avoid rubber stamping and produce a product that is better than an individual or a small team from one department. Finally no strategy is finished without a tactical plan with measurable goals, timeline, and people that will be held accountable. Be aware that individual reward systems and performance measurements may need to be adapted in order to align workers with the new strategy.
Exercises and practice routines
Exercise #1 Create a strategy canvas.
Objective: The objective of this exercise is to increase skill at creating a strategy canvas that can be used to develop a blue ocean strategy
Break the group into teams of two. Explain the principle of the strategy canvas. Each team will need to decide the factors that company’s in its industry compete on. Each team will create a rating for their own company, each of their two biggest competitors, and the rest of the industry as a whole if applicable. End the exercise by having each team present their results and the entire group settle on a strategy canvas that represents their industry.
Exercise #2 Create a 5 Forces model.
Objective: The objective of this exercise is to increase the skill using Michael Porter’s 5 forces model during strategy planning.
Break the group into teams of five. Each person will be assigned one of the five factors in the model to complete on their own company in 5 minutes. After 5 minutes, each person will take 5 minutes to share their thoughts with the group and receive feedback and additional inputs. If there is more than one group, have the groups converge and create a single model as an output.
In Michael Porters book Competitive Strategy, the author correctly states that more competition reduces the profitability a company can achieve unless it develops a strategy to out maneuver its competitors. This book is relevent to my aspirations because a General Managers job is to grow profitable business for a company. Understanding and being able to neutralize the forces in this book that negatively affect profitability is critical to success.
There are five factors, sometimes referred to as “Porters 5 Forces” that influence the environment of an industry.
1. The relative power of suppliers.
2. The level of threat from potential new industry participants.
3. The relative power of customers.
4. The level of threat from potential substitutes for the product or service.
5. The degree of competition among current industry participants.
There are three approaches a company can pursue to achieve an advantage in its market place
1. Establish superior efficiency and cost effectiveness to assure superior returns.
2. Achieve superior differentiation based on brand or design strength, service strength, dealership and distribution strength, or some other characteristics that marks your company as unique in its industry.
3. Concentrate on a particular product, market segment, geography or such. By focusing, a firm can develop expertise that its competitors lack.
Companies can be sure that its competitors will respond to it actions with counter measures. Understanding how a competitor responds to market maneuvers and perceived threats should be considered in advance. Answer these questions.
• Is the competitor complacent and content with its position in the industry?
• What will the competitor do if something threatens its position?
• What are the competitor's weaknesses?
• What would spur the competitor to aggressive countermeasures?
Luckily competitors will send out clues to it intentions and possible reactions. An analyst should learn to determine which of these moves should be taken seriously and which are merely warnings or chest pounding. Signals from could include actions such as:
• Public announcements in advance
• Explanation of events after they take place
• Points of view revealed at conferences
• Past reactions or non-reactions to events
• Seemingly strange moves that break with industry precedent
• Retaliation in kind
• Introducing a fighting brand against an up and comer
• Filing lawsuits
As mentioned above, direct competitors are not the only entities to worry about. Customers and suppliers can sometimes maneuver to wield power over a company. Organizations must work to commoditize their supplier base and be wary of customers who gain too much buying power.
A sound strategy considers all these possibilities.
When considering how to create new markets, W. Chan Kim and Renee Mauborgne book “Blue Ocean Strategy” and the California Business Review “Blue Ocean Strategy: From Theory to Practice” offer proposals on how to change the game in an industry. I am including both articles on a similar topic because I think the CBR article answers questions the book summary does not elaborate on. A study of 108 companies shows that only 14% of business launches were blue ocean types trying to create new markets. Even still they delivered 38% of revenues and 61% of profits.
These articles are relevant to my aspirations because it is easy to see that many markets are becoming over supplied with rising cost structures and stagnant or consolidating customer bases. A leader that is able to show his company how to offer a unique value to targeted customers with no real competition and avoid competing on price is highly sought after. Based on my self-assessments I know I can get creative in solving defined problems, this begins to provide me the extra tools I need to ideate out of the box market solutions.
There are six principles of the blue ocean strategy
· Reconstruct market boundaries. Re-evaluate the premises that form an industry’s assumptions by creating a strategy canvas which displays its key competitive drivers. To expand market boundaries look at the competitors’ limitations. Looks at the horizon for trends that pertain to the business that have momentum and cannot be reversed.
· Focus on the big picture not the numbers. Keep your eye on the overall view and do not get lost in the statistics. To see where you and the competition is headed use a strategy canvas – a graphic representation of competitors products, prices, and industry position.
· Reach beyond the existing demand. Most business focus efforts on their current customers, for blue ocean strategy, focus on non-customers that are potential future customers.
· Get the strategic sequence right. Execute sequentially to achieve value innovation. Chart the experience you want buyers to have at several stages of the ownership lifecycle. Ask these questions in order
1. Why should anyone buy your product? Does it have “exceptional utility”?
2. Is it fairly priced to appeal to a large audience?
3. Can you create it at the right cost to earn a profit?
4. Are there any impediments to discourage the market from accepting your product?
· Overcome key organizational hurdles. In order to be successful the company must resolve internal departmental differences and trepidations. Here it is appropriate to use some of the lessons learned in chapter 7 of this book, Change Management.
· Build execution into strategy. Incorporate blue ocean implementation into the company’s yearly process.
The strategy canvas mentioned above is a useful diagnostic and action framework for building a blue ocean strategy. It captures the current state of an industry and shows where the competition is currently investing. The horizontal axis captures the range of factors the industry competes on and invests in, the vertical axis measures the offering level from the buyers perspective. As the strategy canvas is plotted a value curve is created showing a company’s relative performance. The next step in the process is to shift focus away from competitors and to alternatives and away from customers to non-customers.
In order to create a new value curve use the four actions framework this asks four key questions to challenge an industry’s logic and business model.
· Which factors should be reduced well below the industry's standard?
· Which of the factors that the industry takes for granted should be eliminated?
· Which factors should be raised well above the industry's standard?
· Which factors should be created that the industry has never offered?
The third tool in creating a blue ocean strategy is called the eliminate-reduce-raise-create grid. This grid companies to act on all four of the questions in the four actions framework. In this grid a company will fill in the activities and tactics that will create the new value curve.
When a company’s value curve, meets the three criteria that define a good blue ocean strategy—focus, divergence, and a compelling tagline that speaks to the market—the company is on the right track. These three criteria serve as an initial litmus test of the commercial viability of blue ocean ideas.
The McKinsey Quarterly article “Mastering the building blocks of strategy”, by Chris Bradley, Angus Dawson, and Antoine Montard demonstrates many companies leave essential stages out of their strategy planning process or fail to execute robustly on the stages that are included. Typically this is due to hurried efforts or it is just considered box checking exercise and filling out a template.
This article is relevant to me and my aspirations because I see some of the leaders in my company making the mistakes the author’s illustrate in their examples. By taking care to integrate some of the practices of this article into the strategy development for my group I expect two outcomes. Based on my self-assessments I know I am recognition driven so by applying this content, I will be recognized within the broader organization for my strategic prowess and my division will outperform others over time which will lead to other benefits, bonus and promotion.
There are seven building blocks of strategy to help companies make strategic choices and carry them through to operational reality.
1. Frame ensures that the team properly identifies and agrees to both the questions asked and the decisions made as the strategy is developed.
2. Diagnose creates insight into the starting position of the company: where and why it creates—or destroys—value
3. Forecast establishes a point of view on how the future may unfold
4. Search activities combine awareness into a company’s starting position with a perspective on the future, the company can develop and explore alternative ways to win
5. Choose is the decision on which alternative to choose.
6. Commit creates the action plan to reallocate resources to deliver on the selected strategy
7. Evolve monitors and refreshes the strategy as conditions change and new information becomes available.
All of these building blocks are important to the creation of a sound strategy. Executives should be aware not to mindlessly follow this or any other framework. Depending on the situtioan some blocks become more critical than others. This is why the first step of Framing is so important and unfortunately it is usually neglected or rushed. Three strategic options are to re-create a strategy which should be done every 3-5 years or in the event of a major market shift. On the other end of the spectrum companies might recommit which would simply be evolving an existing strategy. In between these two options is refreshing the strategy. Here dialogue is encouraged to recheck old assumptions, long term trends, and the relevance of previous thinking.
Some best practices surrounding strategic activities include myth busting, active dialogue, ending with tactical goals. Myth busting is the act of taking a critical look at both success and failures to find the real root causes. Avoid the halo effect – if things are going well there still may be underlying problems in the business that are being masked. Active dialogue creates true insight for the company. Healthy conflict and debate is necessary to avoid rubber stamping and produce a product that is better than an individual or a small team from one department. Finally no strategy is finished without a tactical plan with measurable goals, timeline, and people that will be held accountable. Be aware that individual reward systems and performance measurements may need to be adapted in order to align workers with the new strategy.
Exercises and practice routines
Exercise #1 Create a strategy canvas.
Objective: The objective of this exercise is to increase skill at creating a strategy canvas that can be used to develop a blue ocean strategy
Break the group into teams of two. Explain the principle of the strategy canvas. Each team will need to decide the factors that company’s in its industry compete on. Each team will create a rating for their own company, each of their two biggest competitors, and the rest of the industry as a whole if applicable. End the exercise by having each team present their results and the entire group settle on a strategy canvas that represents their industry.
Exercise #2 Create a 5 Forces model.
Objective: The objective of this exercise is to increase the skill using Michael Porter’s 5 forces model during strategy planning.
Break the group into teams of five. Each person will be assigned one of the five factors in the model to complete on their own company in 5 minutes. After 5 minutes, each person will take 5 minutes to share their thoughts with the group and receive feedback and additional inputs. If there is more than one group, have the groups converge and create a single model as an output.
hbr_the_five_competitive_forces_that_shape_strategy_jan_2008.pdf | |
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cbr_blue_ocean_strategy_spring_2005.pdf | |
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blue-ocean-strategy-kim-en-47731.pdf | |
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mastering_the_building_blocks_of_strategy1.pdf | |
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chapter_9_strategy.pptx | |
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Bibliography
Porter, Michael. "Competitive strategy: Techniques for analyzing industries and competitors." Free Press / Simon & Schuster (1980).
Kim, W. Chan, and Renée Mauborgne. "Blue ocean strategy: from theory to practice." California Management Review 47, no. 3 (2005): 105-121.
Chan, W., and Renee Mauborgne. “Blue ocean strategy: how to create uncontested market space and make competition irrelevant”. Harvard Business Press, 2005.
Bradley, Chris, Dawson, Angus, and Montard, Antoine. “Mastering the building blocks of strategy.” McKinsey Quarterly (October 2013)
Porter, Michael. "Competitive strategy: Techniques for analyzing industries and competitors." Free Press / Simon & Schuster (1980).
Kim, W. Chan, and Renée Mauborgne. "Blue ocean strategy: from theory to practice." California Management Review 47, no. 3 (2005): 105-121.
Chan, W., and Renee Mauborgne. “Blue ocean strategy: how to create uncontested market space and make competition irrelevant”. Harvard Business Press, 2005.
Bradley, Chris, Dawson, Angus, and Montard, Antoine. “Mastering the building blocks of strategy.” McKinsey Quarterly (October 2013)