Today I have been...
Thinking about mobility barriers and NFP organisations
Why?
Reflection
So What?
Depending on the sector, I guess there is a greater chance of there only being one NFP organisation in any determined strategic group, compared to for-profit.
Many of the mobility barriers may be insurmountable for an NFP, for example its geographic coverage. A charity looking after the homeless in London would have geographic coverage as a deliberately self-imposed mobility barrier, for example.
There may be additional barriers not listed in table 4.1 p50 unit2. For example regulatory limits.
How will I use it?
Tuesday 30 November 2010
Sunday 28 November 2010
Strategic Group analysis as a predictive tool
Today I have been...
Reading session 4.2 of unit 2 about strategic group analysis
Why?
Required
So What?
The concept is not unchallenged. Is there a relationship between group membership and performance? How valid are the methods used to identify the groups.
In the greek dairy example, the farmers may consider if they are in the strategic group that they wish to be, and use the concept of mobility barriers to determine if moving is feasible.
Remember though, strategic groups are not static!
A strategic group map can be used (p58) to indicate positioning of various groups and reflect the resources on which they are based.
There is a list of possible mobility barriers in table 4.1 on p50.
How will I use it?
Reading session 4.2 of unit 2 about strategic group analysis
Why?
Required
So What?
The concept is not unchallenged. Is there a relationship between group membership and performance? How valid are the methods used to identify the groups.
In the greek dairy example, the farmers may consider if they are in the strategic group that they wish to be, and use the concept of mobility barriers to determine if moving is feasible.
Remember though, strategic groups are not static!
A strategic group map can be used (p58) to indicate positioning of various groups and reflect the resources on which they are based.
There is a list of possible mobility barriers in table 4.1 on p50.
How will I use it?
Strategic Groups and Strategic Space (session 4, unit 2)
Today I have been...
Reading about Strategic Groups and Strategic Space (u2s4, p49)
Why?
Required Reading
So What?
Definition: Strategic Group - cluster of firms within an industry following the same or similar strategy.
EG. Porsche & Mazda - same industry but different strategic groups as they do not compete directly with each other. Members of the same group are not equally capable and so there will be differing levels of performance within those groups (Toyota vs Rover, for example).
Porter (1979) said firms in a strategic group have similar:-
Effectively, membership of the group rests on configuration of resources common to members. These configurations act as mobility barriers, similar to entry barriers, limiting entry into the group or movement between groups. They do this by retarding imitation.
Height of these barriers is determined by the extent in tangible and intangible assets, and ability to copy competitors.
How will I use it?
Bear in mind while I read case study.
Reading about Strategic Groups and Strategic Space (u2s4, p49)
Why?
Required Reading
So What?
Definition: Strategic Group - cluster of firms within an industry following the same or similar strategy.
EG. Porsche & Mazda - same industry but different strategic groups as they do not compete directly with each other. Members of the same group are not equally capable and so there will be differing levels of performance within those groups (Toyota vs Rover, for example).
Porter (1979) said firms in a strategic group have similar:-
- cost structures
- degrees of product diversification
- formal organisation
- resource profiles
Effectively, membership of the group rests on configuration of resources common to members. These configurations act as mobility barriers, similar to entry barriers, limiting entry into the group or movement between groups. They do this by retarding imitation.
Height of these barriers is determined by the extent in tangible and intangible assets, and ability to copy competitors.
How will I use it?
Bear in mind while I read case study.
Standards Wars
Today I have been...
Reading an article entitled "The Art of Standards Wars" by Carl Shapiro and Hal R Varian
Why?
Required reading
So What?
The article tells a few stories (AC vs DC, Betamax/VHS, CBS/RCA for N/America colo(u)r TV etc).
They state you need
Is your technology and your rivals' technology backwards compatible?
Is only yours backwards compatible?
Is only yours not backwards compatible?
Is neither backwards compatible?
Control over an installed base allows you to pursue an evolution strategy.
If you have strong copyrights/patents you have the intellectual property right advantage.
If you have the ability to innovate you can often out-engineer your competition.
If you have done lots of product development work and so are farther down the learning curve you have a first-mover advantage.
If you have good manufacturing capability you can use this to your advantage in a standards battle.
Strength in complements allows you to use your advantage in, eg. other products (sony ps3 and blu-ray, intel motherboards/interfaces and cpus).
A reputation and good brand name can give you instant credibility in your market.
Pre-emption - build an early lead so positive feedback works to your advantage. One way is to be first to market. Find pioneers and sign them up.
Expectation management - one way to do this is vapourware. Announce a great new product and watch your rival's sales dry up - even if your product is some way off. Assemble allies and make your claims about your product's current or future popularity.
Once you've won - stay on your guard. Technology marches forward. Offer customers a migration path as you move forward. Commoditise complementary products, whether yours or someone else's. And be careful about competing against your own installed base. Video games producers are not huge fans of the second hand games market. Protect your position. Leverage (ugh) your installed base. Stay a leader.
But if you don't win? Usually it's not possible to wrest leadership from another technology that is as good and more established. Why not position yourself to make a run at the next generation of technology. Be careful about damaging your reputation by stranding customers. Consider adapters and interconnection. But avoid survival pricing.
How will I use it?
To note:
The winner is likely to be the one who has the best strategy, not the best technology.
Not all standards battles are alike.
It can be worth building an alliance.
The focus is entirely on markets. Regulatory influences can also occur.
Reading an article entitled "The Art of Standards Wars" by Carl Shapiro and Hal R Varian
Why?
Required reading
So What?
The article tells a few stories (AC vs DC, Betamax/VHS, CBS/RCA for N/America colo(u)r TV etc).
They state you need
- Control over an installed base of users
- intellectual property rights
- ability to innovate
- first-mover advantages
- manufacturing capabilities
- strength in complements
- brand name and reputation
Is your technology and your rivals' technology backwards compatible?
- You have a Rival Evolutions war.
Is only yours backwards compatible?
- You are fighting an evolution vs revolution war
Is only yours not backwards compatible?
- You are fighting a revolution vs evolution war.
Is neither backwards compatible?
- You are fighting a Rival Revolutions war.
Control over an installed base allows you to pursue an evolution strategy.
If you have strong copyrights/patents you have the intellectual property right advantage.
If you have the ability to innovate you can often out-engineer your competition.
If you have done lots of product development work and so are farther down the learning curve you have a first-mover advantage.
If you have good manufacturing capability you can use this to your advantage in a standards battle.
Strength in complements allows you to use your advantage in, eg. other products (sony ps3 and blu-ray, intel motherboards/interfaces and cpus).
A reputation and good brand name can give you instant credibility in your market.
Pre-emption - build an early lead so positive feedback works to your advantage. One way is to be first to market. Find pioneers and sign them up.
Expectation management - one way to do this is vapourware. Announce a great new product and watch your rival's sales dry up - even if your product is some way off. Assemble allies and make your claims about your product's current or future popularity.
Once you've won - stay on your guard. Technology marches forward. Offer customers a migration path as you move forward. Commoditise complementary products, whether yours or someone else's. And be careful about competing against your own installed base. Video games producers are not huge fans of the second hand games market. Protect your position. Leverage (ugh) your installed base. Stay a leader.
But if you don't win? Usually it's not possible to wrest leadership from another technology that is as good and more established. Why not position yourself to make a run at the next generation of technology. Be careful about damaging your reputation by stranding customers. Consider adapters and interconnection. But avoid survival pricing.
How will I use it?
To note:
The winner is likely to be the one who has the best strategy, not the best technology.
Not all standards battles are alike.
It can be worth building an alliance.
The focus is entirely on markets. Regulatory influences can also occur.
A discussion on industry dynamics (unit 2 session 3.3)
Today I have been...
Reading about industry dynamics
Why?
Required reading
So What?
5F model can't distinguish all characteristics of competition in some industries. For example, industry standards in the tech sector means other factors need to be considered.
5F gives a snapshot. But what is the dynamic of the industry?
Examples:- network effects. This is particularly the case in tech sectors. The satisfaction that a user derives increases in line with the number of other consumers of that product. eg Telephone (more usable the more people have them) - a direct effect but also indirect eg ipod, iphone. Sometimes an early lead gained by one product can be self-reinforcing.
The more a product gains prevalence, the more likely it will become an industry standard. In industries subject to network effects, entry timing could be a key competitive advantage.
How will I use it?
Useful knowledge to bear in mind.
Reading about industry dynamics
Why?
Required reading
So What?
5F model can't distinguish all characteristics of competition in some industries. For example, industry standards in the tech sector means other factors need to be considered.
5F gives a snapshot. But what is the dynamic of the industry?
Examples:- network effects. This is particularly the case in tech sectors. The satisfaction that a user derives increases in line with the number of other consumers of that product. eg Telephone (more usable the more people have them) - a direct effect but also indirect eg ipod, iphone. Sometimes an early lead gained by one product can be self-reinforcing.
The more a product gains prevalence, the more likely it will become an industry standard. In industries subject to network effects, entry timing could be a key competitive advantage.
How will I use it?
Useful knowledge to bear in mind.
Friday 26 November 2010
Substitutes p34 u2s3 (part of porters 5f)
Today I have been...
Reading about the 5th force, the threat of substitutes
Why?
Required reading
So What?
Markets group together firms whose products can be substitutes for each other, from the buyer's p-o-v. Industries do the same from the supplier's p-o-v.
Cars & trucks are part of the auto industry, but not the same market. Whether something is a substitute is a matter of judgement.
Porter points out that the degree to which a substitute poses a thread depends on the price/performance trade-off from the buyer's p-o-v.
Reading about the 5th force, the threat of substitutes
Why?
Required reading
So What?
Markets group together firms whose products can be substitutes for each other, from the buyer's p-o-v. Industries do the same from the supplier's p-o-v.
Cars & trucks are part of the auto industry, but not the same market. Whether something is a substitute is a matter of judgement.
Porter points out that the degree to which a substitute poses a thread depends on the price/performance trade-off from the buyer's p-o-v.
Thursday 25 November 2010
The 4th Force - supplier power
Today I have been...
Reading about supplier power
Why?
Required reading in the section on porter's 5 forces. p33 u2s3
So What?
A large concentration of suppliers (eg a small number) relative to the concentration of the buyers (eg a larger number)
A small number of substitutes
A more differentiated product/service being supplied
The more credible the threat of forward integration (outsourcing?)
...all increase supplier power.
It's similar to the buyer relationship - between seller and buyer. There is increasing symbiosis between firms and their suppliers.
How will I use it?
All relevant!
Reading about supplier power
Why?
Required reading in the section on porter's 5 forces. p33 u2s3
So What?
A large concentration of suppliers (eg a small number) relative to the concentration of the buyers (eg a larger number)
A small number of substitutes
A more differentiated product/service being supplied
The more credible the threat of forward integration (outsourcing?)
...all increase supplier power.
It's similar to the buyer relationship - between seller and buyer. There is increasing symbiosis between firms and their suppliers.
How will I use it?
All relevant!
Buyer Power (the 3rd Force)
Today I have been...
Considering Buyer Power
Why?
Unit 2, section 3.2.3 required reading p32
So What?
Price sensitivity among buyers increases buyer power. The price sensitivity is higher the less differentiated the product/service being bought (is it a commodity?)
Price elasticity of demand revisited! It measures the change in the quantity demanded in response to a small change in price. If demand responds proportionately, it is price elastic.
Perfect competition unlikely to exist as information (one of the factors affecting buyer power) is not equally available to all. We end up with Information Asymmetry - when different parties to a transaction have different information. Taking advantage of Information Asymmetry can sometimes be illegal, ie Insider Trading.
Switching costs represent the difficulty for the buyer of using a substitute product or service. The better differentiated your product the higher the switching costs. Brands and learning curves contribute to switching costs.
How will I use it?
How about $Employer. Are switching costs high or low. Why. Have there been attempts to raise the switching costs of customers? What forms have these taken?
Considering Buyer Power
Why?
Unit 2, section 3.2.3 required reading p32
So What?
Price sensitivity among buyers increases buyer power. The price sensitivity is higher the less differentiated the product/service being bought (is it a commodity?)
Price elasticity of demand revisited! It measures the change in the quantity demanded in response to a small change in price. If demand responds proportionately, it is price elastic.
Perfect competition unlikely to exist as information (one of the factors affecting buyer power) is not equally available to all. We end up with Information Asymmetry - when different parties to a transaction have different information. Taking advantage of Information Asymmetry can sometimes be illegal, ie Insider Trading.
Switching costs represent the difficulty for the buyer of using a substitute product or service. The better differentiated your product the higher the switching costs. Brands and learning curves contribute to switching costs.
How will I use it?
How about $Employer. Are switching costs high or low. Why. Have there been attempts to raise the switching costs of customers? What forms have these taken?
Industry structure in the context of Competitive rivalry (porter's 2nd Force)
Today I have been...
Reading more of Section 3 of unit 2. This section is about Industry Structure, and in particular this is about that in the context of Competitive Rivalry, the centre box in the 5f diagram.
Why?
Required reading
So What?
The Hirschmann-Herfindahl Index has shown up. This is the sum of the squared market shares for all firms in the industry:-
HH=SUM (mi^2) where mi is the market share of firm i
The lower the index the more competitive the market. Sometimes you don't always need a framework to figure this out - look at UK supermarkets for example, it's obvious there's a small number of high-share players.
Anyway, index values under 1000 indicate a high level of competition. A single firm with a 100% market share would score 10000.
Another important thing to consider when looking at industry internal competition is the Industry life-cycle (diagram p31).
The phases are Introduction, growth, maturity and decline.
Introduction:-
Early adopters etc, low competition
Growth:-
Demand is growing and price starts to fall, and demand exceeds supply
Maturity:-
Demand is mainly replacement demand. Product innovation gives way to process innovation. Cost efficiency becomes important
Decline:-
Industry is challenged by new industries with substitute products. Potential for profit is low and competition is high
eg Video vs DVD but betamax vhs price war during introduction
How will I use it?
Reading more of Section 3 of unit 2. This section is about Industry Structure, and in particular this is about that in the context of Competitive Rivalry, the centre box in the 5f diagram.
Why?
Required reading
So What?
The Hirschmann-Herfindahl Index has shown up. This is the sum of the squared market shares for all firms in the industry:-
HH=SUM (mi^2) where mi is the market share of firm i
The lower the index the more competitive the market. Sometimes you don't always need a framework to figure this out - look at UK supermarkets for example, it's obvious there's a small number of high-share players.
Anyway, index values under 1000 indicate a high level of competition. A single firm with a 100% market share would score 10000.
Another important thing to consider when looking at industry internal competition is the Industry life-cycle (diagram p31).
The phases are Introduction, growth, maturity and decline.
Introduction:-
Early adopters etc, low competition
Growth:-
Demand is growing and price starts to fall, and demand exceeds supply
Maturity:-
Demand is mainly replacement demand. Product innovation gives way to process innovation. Cost efficiency becomes important
Decline:-
Industry is challenged by new industries with substitute products. Potential for profit is low and competition is high
eg Video vs DVD but betamax vhs price war during introduction
How will I use it?
Monday 22 November 2010
Unit 2 Section 3 (p19) Industry Structure
Today I have been...
Reading about Industry Structure in Unit 2 (Analysing the external environment) Section 3
Why?
Par for the course?
So What?
Porter's 5 F model is a tool to assess industry attractiveness (p19). The structure of an industry can change, and non-structural features can affect the type and level of competition.
The 5F
Threat of New Entrants
Rivalry among existing firms
Bargaining Power of buyers
Bargaining Power of suppliers
Threat of substitute products or services.
(porter 1980)
Porter's Market Positioning view is industry structure is most important external factor.
Tends to correspond to operating model (suppliers, customers, current & potential competitors, products).
Very simple model to use. The greater the strength of the five forces, the less attractive the industry.
What is important is to be able to draw out the strategic implications for the organisation concerned. Industry profitability can be influenced by prices, costs and required investment and the 5f model is a way to visualise this.
See diagram p20 or powerpoint slide.
The force of the Threat of New Entrants:-
Factors affecting this include the level of capital requirements, economies of scale, absolute cost advantages, product differentiation, access to distribution channels, legal/regulatory issues and whether existing players will take a new entrant's arrival "lying down".
The force of Competitive rivalry:-
Influences here include product/service differentiation (again), ease/cost of exit (size of exit barriers), industry maturity, type and concentration of competition.
The force of Buyer Power:-
Factors here include price sensitivity (Price elasticity of demand), market size, concentration of buyers, level of information buyers posess, ability of buyers to self-substitute (backwards-integrate - do it themselves). Product/service differentiation arises again as low differentiation increases price sensitivity (commoditisation). It is also affected by price relative to income and where quality is not important.
The force of Supplier power:-
This is increased by a high concentration of suppliers (eg fewer of them spread thinly) relative to concentration of buyers that are sold to. The fewer options a buyer has the higher the supplier power. It's also affected by the number of possible substitutes, differentiation (again) and relative interdependence (symbiosis) of buyers and suppliers.
The force of potential substitutes:-
This is dependent on the number of identifiable options (the more there are the greater this force) as well as their relative price/quality to your own product/service.
How will I use it?
Take away useful info.
When considering new entrants, consider quality of product, patents, access to better resources or lower cost finance, and economies of scale. With economies of scale, new entrants have to enter either on a large scale or at a cost disadvantage. Product differentiation can include brand. Porter's 6 specific barriers to entry are:-
Economies of Scale
Product Differentiation
Capital Requirements
Cost disadvantages independent of size
Access to distribution channels
Government policy/regulation
Patents fall in the last category as does other IP.
A possible 7th is the reaction of existing competitor, eg predatory pricing, far-sighted new product announcements.
Threats from existing competitive rivalry include structure and concentration of the industry. Grant's industry structures table is useful.
Reading about Industry Structure in Unit 2 (Analysing the external environment) Section 3
Why?
Par for the course?
So What?
Porter's 5 F model is a tool to assess industry attractiveness (p19). The structure of an industry can change, and non-structural features can affect the type and level of competition.
The 5F
Threat of New Entrants
Rivalry among existing firms
Bargaining Power of buyers
Bargaining Power of suppliers
Threat of substitute products or services.
(porter 1980)
Porter's Market Positioning view is industry structure is most important external factor.
Tends to correspond to operating model (suppliers, customers, current & potential competitors, products).
Very simple model to use. The greater the strength of the five forces, the less attractive the industry.
What is important is to be able to draw out the strategic implications for the organisation concerned. Industry profitability can be influenced by prices, costs and required investment and the 5f model is a way to visualise this.
See diagram p20 or powerpoint slide.
The force of the Threat of New Entrants:-
Factors affecting this include the level of capital requirements, economies of scale, absolute cost advantages, product differentiation, access to distribution channels, legal/regulatory issues and whether existing players will take a new entrant's arrival "lying down".
The force of Competitive rivalry:-
Influences here include product/service differentiation (again), ease/cost of exit (size of exit barriers), industry maturity, type and concentration of competition.
The force of Buyer Power:-
Factors here include price sensitivity (Price elasticity of demand), market size, concentration of buyers, level of information buyers posess, ability of buyers to self-substitute (backwards-integrate - do it themselves). Product/service differentiation arises again as low differentiation increases price sensitivity (commoditisation). It is also affected by price relative to income and where quality is not important.
The force of Supplier power:-
This is increased by a high concentration of suppliers (eg fewer of them spread thinly) relative to concentration of buyers that are sold to. The fewer options a buyer has the higher the supplier power. It's also affected by the number of possible substitutes, differentiation (again) and relative interdependence (symbiosis) of buyers and suppliers.
The force of potential substitutes:-
This is dependent on the number of identifiable options (the more there are the greater this force) as well as their relative price/quality to your own product/service.
How will I use it?
Take away useful info.
When considering new entrants, consider quality of product, patents, access to better resources or lower cost finance, and economies of scale. With economies of scale, new entrants have to enter either on a large scale or at a cost disadvantage. Product differentiation can include brand. Porter's 6 specific barriers to entry are:-
Economies of Scale
Product Differentiation
Capital Requirements
Cost disadvantages independent of size
Access to distribution channels
Government policy/regulation
Patents fall in the last category as does other IP.
A possible 7th is the reaction of existing competitor, eg predatory pricing, far-sighted new product announcements.
Threats from existing competitive rivalry include structure and concentration of the industry. Grant's industry structures table is useful.
Sunday 21 November 2010
The Environment - A Macro Perspective (u2s2, p9)
Today I have been...
Reading about the Macro Environmental Perspective
Why?
Required Reading.
So What?
Definitions First:-
Fahey and Narayanan point out that the different factors interact, so that one factor could also drive change in others. Examples in education include Economic factors driving political change (attempts to cut the deficit through changes in educational funding policy).
STEP:-
Demand for goods/services is a function of income levels. Not only the total demand but also the products in demand.
Economic & Social policies affect eg the availability & cost of labour.
Milton Friedman's monetarism demonstrated the control of inflation through interest rate policies.
Classical Economists view markets as self-correcting and recommend a "leave it alone" stance.
John Maynard Keynes argued that during downturns governments should intervene.
In the 1970s double digit interest rates and high unemployment existed... monetarist policies failed in the 1980s, the argument being that interest rates work only if they are high enough for long enough to effect output and jobs. (p14)
In education, an increase in interest rates would have the effect of reducing the spending power of consumers who want to purchase the service (just as in any other industry). It could also raise the value of local currency making exports more expensive, reducing demand.
And that is the end of a 15 page primer on macro-economics! :o)
How will I use it?
Kept in mind during future study.
Reading about the Macro Environmental Perspective
Why?
Required Reading.
So What?
Definitions First:-
- Business Environment:- the prevailing economic conditions or the totality of conditions in which you operate.
- STEP analysis - socialogical, technological, economic and political factors.
- Macro-economy - the economy as a whole, aggregate of all economic activity across individuals, orgs and government (p11). Unit 2 focuses on the national economy.
Fahey and Narayanan point out that the different factors interact, so that one factor could also drive change in others. Examples in education include Economic factors driving political change (attempts to cut the deficit through changes in educational funding policy).
STEP:-
Demand for goods/services is a function of income levels. Not only the total demand but also the products in demand.
Economic & Social policies affect eg the availability & cost of labour.
Milton Friedman's monetarism demonstrated the control of inflation through interest rate policies.
Classical Economists view markets as self-correcting and recommend a "leave it alone" stance.
John Maynard Keynes argued that during downturns governments should intervene.
In the 1970s double digit interest rates and high unemployment existed... monetarist policies failed in the 1980s, the argument being that interest rates work only if they are high enough for long enough to effect output and jobs. (p14)
In education, an increase in interest rates would have the effect of reducing the spending power of consumers who want to purchase the service (just as in any other industry). It could also raise the value of local currency making exports more expensive, reducing demand.
And that is the end of a 15 page primer on macro-economics! :o)
How will I use it?
Kept in mind during future study.
Beginning Unit 2 - the External Environment
Today I have been...
Reflecting on Unit 2 - Analysing the external environment.
So What?
Organisations operate in a dynamic context.
Origins of Hypercompetition:-
How will I use it?
To be able to
Reflecting on Unit 2 - Analysing the external environment.
So What?
Organisations operate in a dynamic context.
Origins of Hypercompetition:-
- Lower barriers to market entry
- Redefinition of market boundaries
- Frequent Emergence of new technologies
- Shorter Product Lifecycles
- Aggressive action/reaction patterns from competitors
How will I use it?
To be able to
- undertake an analysis of the external environment, identifying/evaluating opportunities and threats.
- understand basic economic concepts, concepts linked to 5 forces and basic game theory
- appreciate the importance of industry dynamics
- understand scenario planning & its uses
Important things to learn from unit 1
1. Definitions
2. Johnson + Scholes Strategy process p6 + 37
3. Stretch (Hamel) vs fit p22
Fit - the relationship between the company and its environment. Stretch - a gap between you resources and aspirations. If you don't think big, you won't be big.
4. Mintzberg & Waters Deliberate vs Emergent p25
5. Levels/Hierarchy of strategy
- Strategy
a process of analysis which is designed to achieve the competitive advantage of one organisation over another in the long term (u1s3p15)
- Competitive Advantage
offering a unique value proposition using an appropriate mix of activities/resources.
- Strategic decisions are
- important
- involve significant resource commitments
- not easily reversible (Grant, 2002, p. 17).
2. Johnson + Scholes Strategy process p6 + 37
3. Stretch (Hamel) vs fit p22
Fit - the relationship between the company and its environment. Stretch - a gap between you resources and aspirations. If you don't think big, you won't be big.
4. Mintzberg & Waters Deliberate vs Emergent p25
5. Levels/Hierarchy of strategy
Friday 19 November 2010
First Tutorial
Today I have been...
Reading a case study on AXA non-life insurance.
Why?
Preparation for first B820 tutorial!
So What?
Time period: 2000
Axa had grown big through mergers & acquisitions (like many other similar firms at the time)
Non-life sector was being affected by its environment (deregulation) plus other pressures (overcapacity, entrenched competitors).
Industry in two segments: life 62% and non-life 38%
EU second biggest market in the world. UK biggest in Europe. EU non life 6 largest markets DE,GB,F,I,E,NL was 87% of the EU market.
Growth rate modest (1.6% vs life 9.5%)
Nonlife market in UK actually shrank.
Value chain in Nonlife ins - claims payment (procurement), servicing, product mfring, distro. Procurement was 60-90% of costs.
Fraud added around 4% to cost of motor ins. for example.
Manufacturing - product development, underwriting etc
Distribution - attracting clients, processing apps
Methods of distribution varied by country/culture eg broker, tied agents, direct selling.
Profitability of a non-life co determined by the result of its primary activities (underwriting) and its investment activities. Underwriting result was paid in - paid out. Claims expressed as percentage of net premiums earned, likewise expenses. Expense ratio and claims ratio added together are the combined ratio.
Time lag between premiums paid in and claims out resulted in technical reserves carried as liability on balance sheet. But they were estimates. Reserve ratio indicated level of technical reserves to premiums. Technical reserves were an estimate. Insurers could increase claims estimates - raising reserves and lowering taxable net income, or lower reserves and increase profits.
Tail of the business - time lag between premium in and claim out.
High Reserve Ratio - Long tail - preferable situation as high combined ratio can be afforded.
Low Reserve Ratio - Short tail - not preferable as high combined ratio may not be affordable.Eg, motor insurance. Annual expiry and short period between damage occurring and money paid out.
During the intervening time, money is invested. Asset management important. Insurance companies held 21% of all UK shares.
EU requires inscos to have capital funds of 17% of premiums
Motor ins largest segment.
Expectation that internet price comparison will result in commoditisation
Some companies regarded motor ins as an entry level product to capture clients at a young age.
Expense ratio static. Claims ratio increasing.
Cost per claim risen substantially. Higher labour costs, manufacturer controlled spare parts markets, personal injury settlements,
Almost 3000 nonlife co's. Mergers and acquisitions had led to concentration gain (biggest players owning more of the market).
A small number of ins giants. New players emerge eg Directline, Tesco, car companies + banks selling over counter.
Giants, mutuals, Direct sellers, customer portals, manufacturers, non-financial retailers (eg tesco), banks.
Core of value proposition was service with direct sellers, eg. scrapping cover notes, delivering a policy within 24 hours.
Axa predecessor began 1816 Paris. By 2001 AXA was 2nd biggest European insurer behind allianz.Claude Bebear built it up with many many acquisitions. Demutualised in 1992. Bebear retired in 2000 after 42 years. Successor was Henri de Castries who inherited the results of aggressive international acquisitions.
de Castries decided to shore up existing operation rather than continue acquiring. de Castries moved focus from e-commerce to traditional distribution channels. He wanted to increase average products per customer from 1.8 to 3. CRM became key. Non value-add activities were to be centralised.
Routine transactions moved to call centres/internet and traditional channels would be more advice driven.
By spring 2002 there were problems.
How will I use it?
Reading a case study on AXA non-life insurance.
Why?
Preparation for first B820 tutorial!
So What?
Time period: 2000
Axa had grown big through mergers & acquisitions (like many other similar firms at the time)
Non-life sector was being affected by its environment (deregulation) plus other pressures (overcapacity, entrenched competitors).
Industry in two segments: life 62% and non-life 38%
EU second biggest market in the world. UK biggest in Europe. EU non life 6 largest markets DE,GB,F,I,E,NL was 87% of the EU market.
Growth rate modest (1.6% vs life 9.5%)
Nonlife market in UK actually shrank.
Value chain in Nonlife ins - claims payment (procurement), servicing, product mfring, distro. Procurement was 60-90% of costs.
Fraud added around 4% to cost of motor ins. for example.
Manufacturing - product development, underwriting etc
Distribution - attracting clients, processing apps
Methods of distribution varied by country/culture eg broker, tied agents, direct selling.
Profitability of a non-life co determined by the result of its primary activities (underwriting) and its investment activities. Underwriting result was paid in - paid out. Claims expressed as percentage of net premiums earned, likewise expenses. Expense ratio and claims ratio added together are the combined ratio.
Time lag between premiums paid in and claims out resulted in technical reserves carried as liability on balance sheet. But they were estimates. Reserve ratio indicated level of technical reserves to premiums. Technical reserves were an estimate. Insurers could increase claims estimates - raising reserves and lowering taxable net income, or lower reserves and increase profits.
Tail of the business - time lag between premium in and claim out.
High Reserve Ratio - Long tail - preferable situation as high combined ratio can be afforded.
Low Reserve Ratio - Short tail - not preferable as high combined ratio may not be affordable.Eg, motor insurance. Annual expiry and short period between damage occurring and money paid out.
During the intervening time, money is invested. Asset management important. Insurance companies held 21% of all UK shares.
EU requires inscos to have capital funds of 17% of premiums
Motor ins largest segment.
Expectation that internet price comparison will result in commoditisation
Some companies regarded motor ins as an entry level product to capture clients at a young age.
Expense ratio static. Claims ratio increasing.
Cost per claim risen substantially. Higher labour costs, manufacturer controlled spare parts markets, personal injury settlements,
Almost 3000 nonlife co's. Mergers and acquisitions had led to concentration gain (biggest players owning more of the market).
A small number of ins giants. New players emerge eg Directline, Tesco, car companies + banks selling over counter.
Giants, mutuals, Direct sellers, customer portals, manufacturers, non-financial retailers (eg tesco), banks.
Core of value proposition was service with direct sellers, eg. scrapping cover notes, delivering a policy within 24 hours.
Axa predecessor began 1816 Paris. By 2001 AXA was 2nd biggest European insurer behind allianz.Claude Bebear built it up with many many acquisitions. Demutualised in 1992. Bebear retired in 2000 after 42 years. Successor was Henri de Castries who inherited the results of aggressive international acquisitions.
de Castries decided to shore up existing operation rather than continue acquiring. de Castries moved focus from e-commerce to traditional distribution channels. He wanted to increase average products per customer from 1.8 to 3. CRM became key. Non value-add activities were to be centralised.
Routine transactions moved to call centres/internet and traditional channels would be more advice driven.
By spring 2002 there were problems.
How will I use it?
Sunday 14 November 2010
B820 is organised around the "strategy process"
Today I have been...
Reading the tail-end of unit 1 (p34 on, s4.2)
Why?
Required reading
So What?
The remainder of B820 is organised around the strategy process. So, Units 2,3 and 4 focus on the Analysing stage. Unit 5 focuses on the Choose stage. Unit 6 focuses on implementing, and Units 7 and 8 focus on Context, Content and Process (bringing it all together).
Interconnectedness is important. The diagram on p34 (4.3) shows interconnected circles and arrows to reinforce.
Thinking back to the classical/planning approaches as mentioned in the Intro to the reader, diagrams are usually linear. B820 emphatically rejects any implication of linearity (beginning-middle-end). Strategy is continuous and iterative, it is not fire and forget.
The only usual specific "starting point" is that of an external environmental analysis (STEEP) followed by an internal analysis of resources/capabilities.
How will I use it?
Thinking again about the learning outcomes for unit 1.
Choice - Identifying options, Evaluating options, Selecting a strategy
Implementation - Culture and managing change, Structure and Management Systems
Linearity is rejected in favour of continuous & iterative concept
Reading the tail-end of unit 1 (p34 on, s4.2)
Why?
Required reading
So What?
The remainder of B820 is organised around the strategy process. So, Units 2,3 and 4 focus on the Analysing stage. Unit 5 focuses on the Choose stage. Unit 6 focuses on implementing, and Units 7 and 8 focus on Context, Content and Process (bringing it all together).
Interconnectedness is important. The diagram on p34 (4.3) shows interconnected circles and arrows to reinforce.
Thinking back to the classical/planning approaches as mentioned in the Intro to the reader, diagrams are usually linear. B820 emphatically rejects any implication of linearity (beginning-middle-end). Strategy is continuous and iterative, it is not fire and forget.
The only usual specific "starting point" is that of an external environmental analysis (STEEP) followed by an internal analysis of resources/capabilities.
How will I use it?
Thinking again about the learning outcomes for unit 1.
- Identify the role strategy can play in the performance of your organisation.
- Describe the origins and developments of strategic thinking
- Distinguish between different approaches to strategy making
- Recognise the different levels at which strategy operates
- Appreciate the various stages of strategy analysis, choice and implementation
Choice - Identifying options, Evaluating options, Selecting a strategy
Implementation - Culture and managing change, Structure and Management Systems
- Be aware of the philosophy, organisation and content that encompass the scope of this course
Linearity is rejected in favour of continuous & iterative concept
The Strategy Process - what is it?
Today I have been...
Reading u1s4p29 - 4.1 What is the strategy process.
Why?
Required reading
So What?
We already mentioned the analyse-choose-implement cycle.
Analysis is assessment of the organisation and its environment.
Choosing is where you design and select a pattern of activities that maximises your chance of successfully meeting your objectives (activity fit is important here according to Porter)
Implementing is where you, er, implement your activities (easiest to describe, but hardest to do?)
It is very important however to revisit and reassess analysis and choice as you implement, to ensure that you deal with any changing situations, as assumptions prove/disprove themselves and to ensure you have an emergent approach (organisational learning).
We are reminded of the B820 definition of strategy
You also need to think about the skills required to analyse, choose, implement. In particular, they need to be logical and disciplined as well as imaginative and creative. I guess this may be where you think carefully about who is on your strategy team. These skill sets tend to be polarised in people, so you may need more than one person to perform the "strategy" role. The logic and discipline are required skills for applying the relevant analytical frameworks, and the imagination and creativity are needed for "thinking outside the box" and coming up with new and original ideas. If you as a manager can be logical and creative you have significant and valuable skills. Strategy requires the maanger to apply both logical and creative thinking and skills... - the ability to make fast, widely supported, and high-quality strategic decisions on a frequent basis...is the fundamental dynamic capability in excellent firms. (So says Eisenhardt, cited on p31 u1s4).
You need to know what layer you're working at. Strategy in most firms is layered. Corporate strategy is at the top, Business strategy in the middle and Functional Strategy at the bottom.
The world is always changing. Is your firm in a static context; that is - is its environment stable or controllable? Unlikely, there are changes all around, regulatory, technological, resource supply and demand etc. etc. So strategy occurs in a dynamic context.
Your strategy would be different if you were based in the Middle East or Africa rather than Europe, right? In fact, your strategy may well be different if you were based in rural north Scotland, rather than London. Record companies have had to adopt different strategies to cope with and try and exploit the arrival of the "soft" record - ie the digital download. So strategy is highly dependent on context.
How will I use it?
Remember Strategy:-
requires clarity in defining what is a strategic issue.
requires the manger to apply both logical and creative thinking and skills
operates at different levels within an organisation (corporate, business, functional)
occurs in a dynamic context
is highly dependent on context.
Reading u1s4p29 - 4.1 What is the strategy process.
Why?
Required reading
So What?
We already mentioned the analyse-choose-implement cycle.
Analysis is assessment of the organisation and its environment.
Choosing is where you design and select a pattern of activities that maximises your chance of successfully meeting your objectives (activity fit is important here according to Porter)
Implementing is where you, er, implement your activities (easiest to describe, but hardest to do?)
It is very important however to revisit and reassess analysis and choice as you implement, to ensure that you deal with any changing situations, as assumptions prove/disprove themselves and to ensure you have an emergent approach (organisational learning).
We are reminded of the B820 definition of strategy
the pattern of activities followed by an organisation in pursuit of its long-term objectivesWhat factors could affect your ability to conceive and implement the activities? Well you need an ability to be able to understand which internal and external issues are relevant and important, and which are not. Making sense of madness! I wonder if this is why strategy consultants are popular. They can arrive with no pre-conceived ideas and take a holistic view. And of course, you must know which are strategic issues, and which are operational issues, and how they relate. This is clarity in defining what is a strategic issue.
You also need to think about the skills required to analyse, choose, implement. In particular, they need to be logical and disciplined as well as imaginative and creative. I guess this may be where you think carefully about who is on your strategy team. These skill sets tend to be polarised in people, so you may need more than one person to perform the "strategy" role. The logic and discipline are required skills for applying the relevant analytical frameworks, and the imagination and creativity are needed for "thinking outside the box" and coming up with new and original ideas. If you as a manager can be logical and creative you have significant and valuable skills. Strategy requires the maanger to apply both logical and creative thinking and skills... - the ability to make fast, widely supported, and high-quality strategic decisions on a frequent basis...is the fundamental dynamic capability in excellent firms. (So says Eisenhardt, cited on p31 u1s4).
You need to know what layer you're working at. Strategy in most firms is layered. Corporate strategy is at the top, Business strategy in the middle and Functional Strategy at the bottom.
- Corporate Strategy - defines the industries and markets in which the business competes, including investments, diversifications, mergers etc. I think this would sit with the definitions of objectives at the top of the pyramid of purposes.
- Business strategy - defines how the organisation (eg a single business unit) should compete within the industry/market chosen by the corporate strategy. The answer may be, for example, to be internally or externally focused. External - market position relative to customers/competitors/suppliers. Internal - market position related to core capabilities and resources.
- Functional strategy - relates to the internal areas within a business unit, eg HR strategy, R&D strategy, IT strategy etc.
The world is always changing. Is your firm in a static context; that is - is its environment stable or controllable? Unlikely, there are changes all around, regulatory, technological, resource supply and demand etc. etc. So strategy occurs in a dynamic context.
Your strategy would be different if you were based in the Middle East or Africa rather than Europe, right? In fact, your strategy may well be different if you were based in rural north Scotland, rather than London. Record companies have had to adopt different strategies to cope with and try and exploit the arrival of the "soft" record - ie the digital download. So strategy is highly dependent on context.
How will I use it?
Remember Strategy:-
requires clarity in defining what is a strategic issue.
requires the manger to apply both logical and creative thinking and skills
operates at different levels within an organisation (corporate, business, functional)
occurs in a dynamic context
is highly dependent on context.
Section 3 summary
To summarise section 3.
There is no one best way to define, design or implement strategy. Internal and external pressures vary from country to country, industry to industry and from public to private, and accordingly must be interpreted differently for different types of organisation.
There is a generic process of strategic analysis, choice and implementation which can be applied in all contexts.
Analysing:-
There is no one best way to define, design or implement strategy. Internal and external pressures vary from country to country, industry to industry and from public to private, and accordingly must be interpreted differently for different types of organisation.
There is a generic process of strategic analysis, choice and implementation which can be applied in all contexts.
Analysing:-
- Assessing stakeholder expectations
- Environmental analysis
- Examining Resources and Strategic Capability
- Identifying options
- Evaluating options
- Selecting a strategy
- Culture and the managing of change
- Organisational Structure
- Management systems
Reflection on Mintzber & Waters article "Of strategies, deliberate and emergent"
Today I have been...
Reflecting
Why?
Build on knowledge from reading
So What?
M&W's distinction between deliberate and emergent strategy is important for managers. The concepts became known as the "process" approach to strategy.
It is easier for a small company to use a deliberate, planned, or even entrepreneurial strategy than for a large company. But this isn't a bad thing, as emergent strategy "opens up the notion of strategic learning". Managers need to use the best of both.
Reflecting
Why?
Build on knowledge from reading
So What?
M&W's distinction between deliberate and emergent strategy is important for managers. The concepts became known as the "process" approach to strategy.
It is easier for a small company to use a deliberate, planned, or even entrepreneurial strategy than for a large company. But this isn't a bad thing, as emergent strategy "opens up the notion of strategic learning". Managers need to use the best of both.
Saturday 13 November 2010
The Umbrella Strategy, etc. - Mintzberg & Waters "Of strategies, deliberate and emergent" part 3
Today I have been...
Reading about The umbrella Strategy (Reader, p22), the process strategy, the unconnected strategy(p23), the consensus strategy(p24), and the imposed strategy.
Why?
Required Reading.
So What?
Unlike Ideological, Planned or Entrepreneurial strategies, some strategies imply looser control over the organisation or even the environment.
Here we have behavioural guidelines - defined boundaries within which actors can move. An example of an umbrella strategy is "all products should be designed for the high-priced end of the market". Where there is a complex and uncontrollable environment, the strategy cannot demand central control. Strategies are allowed to emerge, within boundaries. The umbrella strategy can therefore be considered both deliberate and emergent - deliberately emergent.
The unconnected strategy is very simple to understand. You'll see them in organisations of experts, where sometimes a group or individual is allowed to create and follow its own strategy independent of others. This may be planned, tolerated or simply "lost in the system.
The consensus strategy evolves through the results of individual actions. Almost like a de-facto strategy. It totally ignores any prior intention and is a totally emergent strategy.
The imposed strategy is the first one which ignores entirely the will or the intentions of the actors within it. Imposed strategies can come from internal sources or from outside as well (eg government).
Sometimes it is the environment that imposes strategy, eg the way markets head.
There is a summary of the strategy types and their features on p26.
I ask myself the question, is there a relationship between deliberate strategies and the drive for operational effectiveness. And likewise a relationship between emergent strategies and innovation?
Fundamentally, deliberate strategy focuses on direction and control, whereas emergent strategy opens up strategic learning.
How will I use it?
It has opened up my thinking about strategy formation. Thinking about the EMI case in TMA1, I am considering how the changing market conditions for music companies (the shift from CD to download, hard to soft) may be considered as a way that their strategy was imposed on them by the environment to some extent.
I am also mindful that the strategic learning that emergent strategy opens up is a key to becoming a learning organisation. With deliberate strategy, once you set your intentions in stone, you are unable to adapt them and so no feedback loop operates.
Emergent strategies necessitate that management is willing to learn. This is especially important in complex or turbulent environments. It allows you to act on reality rather than try and deliver some ideal world. However it may sometimes be appropriate to pause the feedback loop and focus on delivery of that ideal world. Managers need to be agile and able to attend to deliberate and emergent strategy.
Reading about The umbrella Strategy (Reader, p22), the process strategy, the unconnected strategy(p23), the consensus strategy(p24), and the imposed strategy.
Why?
Required Reading.
So What?
Unlike Ideological, Planned or Entrepreneurial strategies, some strategies imply looser control over the organisation or even the environment.
Here we have behavioural guidelines - defined boundaries within which actors can move. An example of an umbrella strategy is "all products should be designed for the high-priced end of the market". Where there is a complex and uncontrollable environment, the strategy cannot demand central control. Strategies are allowed to emerge, within boundaries. The umbrella strategy can therefore be considered both deliberate and emergent - deliberately emergent.
Virtually all real-world strategies have umbrella characteristicsThe process strategy is similar to the umbrella strategy, but instead of controlling strategy at a general level, it tries to influence indirectly. It controls the process of strategy making, but leaves the actual implementation, the content, to everyone else. Again this is deliberately convergent. This strategy is often used in divisionalised organisations.
The unconnected strategy is very simple to understand. You'll see them in organisations of experts, where sometimes a group or individual is allowed to create and follow its own strategy independent of others. This may be planned, tolerated or simply "lost in the system.
The consensus strategy evolves through the results of individual actions. Almost like a de-facto strategy. It totally ignores any prior intention and is a totally emergent strategy.
The imposed strategy is the first one which ignores entirely the will or the intentions of the actors within it. Imposed strategies can come from internal sources or from outside as well (eg government).
Sometimes it is the environment that imposes strategy, eg the way markets head.
There is a summary of the strategy types and their features on p26.
I ask myself the question, is there a relationship between deliberate strategies and the drive for operational effectiveness. And likewise a relationship between emergent strategies and innovation?
Fundamentally, deliberate strategy focuses on direction and control, whereas emergent strategy opens up strategic learning.
How will I use it?
It has opened up my thinking about strategy formation. Thinking about the EMI case in TMA1, I am considering how the changing market conditions for music companies (the shift from CD to download, hard to soft) may be considered as a way that their strategy was imposed on them by the environment to some extent.
I am also mindful that the strategic learning that emergent strategy opens up is a key to becoming a learning organisation. With deliberate strategy, once you set your intentions in stone, you are unable to adapt them and so no feedback loop operates.
Emergent strategies necessitate that management is willing to learn. This is especially important in complex or turbulent environments. It allows you to act on reality rather than try and deliver some ideal world. However it may sometimes be appropriate to pause the feedback loop and focus on delivery of that ideal world. Managers need to be agile and able to attend to deliberate and emergent strategy.
The Planned Strategy (Mintzberg & Waters "Of strategies, deliberate and emergent" part2.)
Today I have been... Reading about "The Planned" strategy, the Entrepreneurial strategy, and the ideological strategy.
Why?
Part of the article.
So What?
With planned strategy (p 19), you basically have the perfectly deliberate strategy. There is a suggestion in the article that planned strategies may exist where there has only been an assumption that environments will remain stable.
They argue that strategies are copied or elaborated (from "standard industry recipies") rather than conceived.
With entrepreneurial strategy (p19) , one individual imposes their own vision and the rest of the organisation independently acts on the vision. It tends to occur in young/small organisations, but can occur in larger organisations, usually in turbulent times where everyone is willing to follow the direction of a leader who has vision and will.
It's not usually a deliberate strategy, however. Intentions do exist, but the strategy may never have been articulated or stated. The entrepreneur may not want to do so. But it can be thought of as deliberate as long as the organisation responds to the personal will of the visionary.
The key difference between planned and entrepreneurial strategies is that with an entrepreneurial strategy the vision can change "en route". The formulater is the implementer. Separating implementation from formulation adds a bureaucratic layer which impedes willingness to change the strategy.
The ideological strategy (p21) is similar to the entrepeneurial strategy, but instead of being driven by an individual's vision, it is driven by a collective vision (an ideology).
realised strategy = intended strategy-unrealised strategy+emergent strategy
So ideological strategy is usually intended. And the intent is organisational as the vision is embraced by everyone and not just an entrepreneur. But the likelihood of realisation is reduced somewhat, as a collective vision is by its nature more immutable than an individual vision. Ideology is also often rooted in history. So ideological strategy is resistant to change, and is therefore more deliberate than entrepreneurial strategy.
cont...
Why?
Part of the article.
So What?
With planned strategy (p 19), you basically have the perfectly deliberate strategy. There is a suggestion in the article that planned strategies may exist where there has only been an assumption that environments will remain stable.
They argue that strategies are copied or elaborated (from "standard industry recipies") rather than conceived.
With entrepreneurial strategy (p19) , one individual imposes their own vision and the rest of the organisation independently acts on the vision. It tends to occur in young/small organisations, but can occur in larger organisations, usually in turbulent times where everyone is willing to follow the direction of a leader who has vision and will.
It's not usually a deliberate strategy, however. Intentions do exist, but the strategy may never have been articulated or stated. The entrepreneur may not want to do so. But it can be thought of as deliberate as long as the organisation responds to the personal will of the visionary.
The key difference between planned and entrepreneurial strategies is that with an entrepreneurial strategy the vision can change "en route". The formulater is the implementer. Separating implementation from formulation adds a bureaucratic layer which impedes willingness to change the strategy.
The ideological strategy (p21) is similar to the entrepeneurial strategy, but instead of being driven by an individual's vision, it is driven by a collective vision (an ideology).
realised strategy = intended strategy-unrealised strategy+emergent strategy
So ideological strategy is usually intended. And the intent is organisational as the vision is embraced by everyone and not just an entrepreneur. But the likelihood of realisation is reduced somewhat, as a collective vision is by its nature more immutable than an individual vision. Ideology is also often rooted in history. So ideological strategy is resistant to change, and is therefore more deliberate than entrepreneurial strategy.
cont...
Mintzberg & Waters "Of strategies, deliberate and emergent" part1
Today I have been...
Reading this post's titular article (p17 reader)
Why?
Required reading.
So What?
In their introduction, the authors talk about how strategies form in organisations. Formation of strategy tended to be thought of as an analytic process for establishing long-range tools & action plans. Formulation->Implementation. They argue that this is a limited view and a wider perspective is needed.
Early articles by Mintzberg consider strategy as
So looking at the diagram you can see that for an intended strategy to be realised exactly as unintended, then the intentions must be precise, collective across organisation (because it is a collective as defined above) and realised collectively. This means that the environment must have either been perfectly predictable or totally controllable. The chances of all these factors being in place are low so perfectly deliberate strategies are almost non-existent.
So depending on the relationship between intended strategy and realised strategy, different forms of strategy can develop.
cont...
Reading this post's titular article (p17 reader)
Why?
Required reading.
So What?
In their introduction, the authors talk about how strategies form in organisations. Formation of strategy tended to be thought of as an analytic process for establishing long-range tools & action plans. Formulation->Implementation. They argue that this is a limited view and a wider perspective is needed.
Early articles by Mintzberg consider strategy as
a pattern in a stream of decisionsThis was a way of treating the concept of strategy as an operation, to make it tangible. This makes it possible to consider the origins of strategies, looking at the relationship between what was planned and what actually happened. One was "intended" strategy, the other was "realised" strategy.
- Deliberate strategies - realised as intended
- Emergent strategies - realised despite of or in the absence of intention
- Organisation - a collection of people joined together to pursue some mission in common
- What does it mean for an organisation to act deliberately?
- What does it mean for a strategy to emerge in an organisation not guided by intentions?
OK, so it's not really nowhere as a concept, but rather outside of the "intended strategy to realised strategy" system (if we consider the move from intended strategy to realised strategy as a system).
So looking at the diagram you can see that for an intended strategy to be realised exactly as unintended, then the intentions must be precise, collective across organisation (because it is a collective as defined above) and realised collectively. This means that the environment must have either been perfectly predictable or totally controllable. The chances of all these factors being in place are low so perfectly deliberate strategies are almost non-existent.
So depending on the relationship between intended strategy and realised strategy, different forms of strategy can develop.
cont...
Stretch or fit? (unit1s3.2.3 p22)
Today I have been...
Comparing Strategy Stretch and Strategy Fit.
Why?
Worthwhile reflection based on unit 1s3
So What?
In the reader p29 there's an interesting article from Hamel and Prahalad "Strategy as Stretch and Leverage". It's an optional article but I have skim-read it.
Their conclusions are similar to Porter in that they recommend strategic thinking should be "stretched", meaning more ambitious objectives, as this will yield new opportunities. "Leveraging..." (yuck, I hate that word) "...resources is as important as allocating them".
Why do some companies redefine the industries in which they compete? H&P suggest that existing managerial frames of reference can only deliver existing types of strategies. They talk about "breaking the managerial frame". Managerial aspirations should drive resources, not vice versa. Competition between rivals is viewed by them as "mindset-vs-mindset"
How will I use it?
Thinking about the OU, probably the biggest change faced by the them in recent years has been technological, and that is the development of digital media and delivery methods. Prior to the developments, they made little use of IT in teaching, and most adults in the UK can remember the old OU programming on late at night on the BBC.
Those programmes are no more. The OU uses broadcasting as a means of attracting customers now (Bang Goes the Theory, Coast) and teaching, while it continues to use print media heavily, has moved onto digital media. The OU has a virtual learning environment which it uses to deliver teaching and interaction between students over the internet. Most printed material is also available electronically to students. Lots of interactive material is delivered via DVD rather than broadcast. Some material has even been made available FoC (google for openlearn). The OU has definitely embraced this technology.
The technology itself has made it easier for competitors to enter the OU's marketplace, however. Many other institutions are also able to use it in a very similar way. At the moment, no-one has the OU's expertise at distance teaching even if they do have the ability for distance delivery. Uploaded lectures are not the same thing as uploaded teaching.
The OU is having to adapt to cope with the new threats brought about by the technology as well as the advantages it brings. The hypercompetition has not yet arrived for the OU, but it may be any day now...
Comparing Strategy Stretch and Strategy Fit.
Why?
Worthwhile reflection based on unit 1s3
So What?
In the reader p29 there's an interesting article from Hamel and Prahalad "Strategy as Stretch and Leverage". It's an optional article but I have skim-read it.
Their conclusions are similar to Porter in that they recommend strategic thinking should be "stretched", meaning more ambitious objectives, as this will yield new opportunities. "Leveraging..." (yuck, I hate that word) "...resources is as important as allocating them".
Why do some companies redefine the industries in which they compete? H&P suggest that existing managerial frames of reference can only deliver existing types of strategies. They talk about "breaking the managerial frame". Managerial aspirations should drive resources, not vice versa. Competition between rivals is viewed by them as "mindset-vs-mindset"
How will I use it?
Thinking about the OU, probably the biggest change faced by the them in recent years has been technological, and that is the development of digital media and delivery methods. Prior to the developments, they made little use of IT in teaching, and most adults in the UK can remember the old OU programming on late at night on the BBC.
Those programmes are no more. The OU uses broadcasting as a means of attracting customers now (Bang Goes the Theory, Coast) and teaching, while it continues to use print media heavily, has moved onto digital media. The OU has a virtual learning environment which it uses to deliver teaching and interaction between students over the internet. Most printed material is also available electronically to students. Lots of interactive material is delivered via DVD rather than broadcast. Some material has even been made available FoC (google for openlearn). The OU has definitely embraced this technology.
The technology itself has made it easier for competitors to enter the OU's marketplace, however. Many other institutions are also able to use it in a very similar way. At the moment, no-one has the OU's expertise at distance teaching even if they do have the ability for distance delivery. Uploaded lectures are not the same thing as uploaded teaching.
The OU is having to adapt to cope with the new threats brought about by the technology as well as the advantages it brings. The hypercompetition has not yet arrived for the OU, but it may be any day now...
Today I have been...
Reading more of unit 1 (p19 on)
Why?
Required Reading.
So What?
Porter defines:-
The text asks how this is relevant to a not-for-profit (NFP) organisation.
Do NFPs operate in a competitive environment with rivals? Do they operate in an "industry" at all?
Thinking more about an industry as a set of producers of a particular product or service it becomes a little easier to see how voluntary, educational, medial, religions, government etc organisations are also part of industries.
Markets - clusters of consumers. NFP and "FP" organisations provide products and services in those markets. The term "customer" is becoming more common in NFP, although many are uncomfortable with the term and its implications. The gradual inclusion of the term "customer" is becoming obvious at $EMPLOYER.
Remember too that all organisations (FP or NFP) are competing for the same resources, eg. staff, money, physical location and materials, suppliers etc.
Early on, Porter's developed his Five Forces model for use as a framework to help understand the key competitive forces in a given industry. Understanding the nature of an industry's structure helps understand the "rules of competition". You can use this in building your competitive strategy to "cope with and ideally to change those rules in the organisation's favour".
So to summarise, to sustain and defend your competitive position, you need to be able to ensure your activities, their fit and your resources are used to differentiate in a unique, profitable way.
Previous authors have argued that the main goal of any business is profitability. So the fundamental strategic challenge is to ensure you are correctly positioned in profitable markets. Top managers develop strategy and middle managers implement it.
But you can't manage your external environment, can you? Well you maybe can influence the near environment but you can't even influence the far environment. The example of how Japanese business in the 70s, 80s and 90s marched all over many other international industries by changing the rules of competition is cited.
As porter mentioned in his article, the "be operationally efficient" strategy only worked for the Japanese for so long. Once the competition caught up, these firms have had to look at other sources of competitive advantage.
Another big change in the 1990s has been a technological factor. The 1990s saw technological developments reach the mass market at an amazing rate. Many large firms have had to cope and in some cases build on this change.
There's also been deregulation and privatisation everywhere. We are now in a global economy and contemporary strategic thinking additionally needs to take account of this.
This "hypercompetition", according to Porter, is a self-inflicted wound (see previous entries).
Reading more of unit 1 (p19 on)
Why?
Required Reading.
So What?
Porter defines:-
- Industry: The fundamental arena in which competition occurs
- Competitive strategy: The search for a favourable position in an industry
The text asks how this is relevant to a not-for-profit (NFP) organisation.
Do NFPs operate in a competitive environment with rivals? Do they operate in an "industry" at all?
Thinking more about an industry as a set of producers of a particular product or service it becomes a little easier to see how voluntary, educational, medial, religions, government etc organisations are also part of industries.
Markets - clusters of consumers. NFP and "FP" organisations provide products and services in those markets. The term "customer" is becoming more common in NFP, although many are uncomfortable with the term and its implications. The gradual inclusion of the term "customer" is becoming obvious at $EMPLOYER.
Remember too that all organisations (FP or NFP) are competing for the same resources, eg. staff, money, physical location and materials, suppliers etc.
Early on, Porter's developed his Five Forces model for use as a framework to help understand the key competitive forces in a given industry. Understanding the nature of an industry's structure helps understand the "rules of competition". You can use this in building your competitive strategy to "cope with and ideally to change those rules in the organisation's favour".
So to summarise, to sustain and defend your competitive position, you need to be able to ensure your activities, their fit and your resources are used to differentiate in a unique, profitable way.
Previous authors have argued that the main goal of any business is profitability. So the fundamental strategic challenge is to ensure you are correctly positioned in profitable markets. Top managers develop strategy and middle managers implement it.
But you can't manage your external environment, can you? Well you maybe can influence the near environment but you can't even influence the far environment. The example of how Japanese business in the 70s, 80s and 90s marched all over many other international industries by changing the rules of competition is cited.
As porter mentioned in his article, the "be operationally efficient" strategy only worked for the Japanese for so long. Once the competition caught up, these firms have had to look at other sources of competitive advantage.
Another big change in the 1990s has been a technological factor. The 1990s saw technological developments reach the mass market at an amazing rate. Many large firms have had to cope and in some cases build on this change.
There's also been deregulation and privatisation everywhere. We are now in a global economy and contemporary strategic thinking additionally needs to take account of this.
This "hypercompetition", according to Porter, is a self-inflicted wound (see previous entries).
Why define a competitive position? And why does competition matter?
A well defined competitive position will help to motivate your workforce and provide differentiation.Competition is an essential part of a free market. It drives value and innovation.
Operational Effectiveness vs Strategy final part 8
Today I have been...
Reading the final part of Porter's article Operational Effectiveness vs Strategy. (Reader p61-62)
Why?
Required reading
So What?
Operational Agenda:-
How will I use it?
So Porter has helped us see the difference between operational and strategic thinking. Operational thinking relates to the activities that you are carrying out. By improving operational effectiveness you are reducing costs in these areas or improving productivity, reducing risk etc. You are doing the things you do better. But so can your competitors.
Strategic thinking is more holistic. It looks at what the activities are, and how they fit, and whether you should or should not be doing them. It allows you to reflect on how the different activities help deliver the organisational mission through delivering your product or service which has a distinct, differentiating value to the market.
Operational effectiveness allows you to implement your strategy better, but on its own it is normally not enough. You will be imitated.
Porter says it is not even enough to integrate operational and strategic thinking. They work in different ways. He points out that trying to achieve operational effectiveness can actually cause a distraction from your strategy, and end up with the eventual homogenisation of your industry where it becomes hard for a customer to distinguish from all the players. Distinctiveness is at the heart of competitive strategy.
As a manager, striving for operational effectiveness should be automatic. You need this just to remain on a par with your competition. But what is important for sustained competitive advantage is to 'deliberately choose a set of activities to deliver a unique mix of value'.
(This reminds me a little of the diagrams that show Herzberg's two factor theory. Operational effectiveness is your Hygiene factors equivalent. Strategy is your motivation factors equivalent)
Reading the final part of Porter's article Operational Effectiveness vs Strategy. (Reader p61-62)
Why?
Required reading
So What?
Operational Agenda:-
- Continuous Improvement Everywhere that no tradeoffs exist
- Fail at this and you're vulnerable irrespective of strategy
- Shifts the productivity frontier
- Defining a unique position
- Make Clear Tradeoffs
- Tighten fit
- Reinforce and extend the company's position
- Demands discipline and continuity
- Must avoid distraction and compromise
How will I use it?
So Porter has helped us see the difference between operational and strategic thinking. Operational thinking relates to the activities that you are carrying out. By improving operational effectiveness you are reducing costs in these areas or improving productivity, reducing risk etc. You are doing the things you do better. But so can your competitors.
Strategic thinking is more holistic. It looks at what the activities are, and how they fit, and whether you should or should not be doing them. It allows you to reflect on how the different activities help deliver the organisational mission through delivering your product or service which has a distinct, differentiating value to the market.
Operational effectiveness allows you to implement your strategy better, but on its own it is normally not enough. You will be imitated.
Porter says it is not even enough to integrate operational and strategic thinking. They work in different ways. He points out that trying to achieve operational effectiveness can actually cause a distraction from your strategy, and end up with the eventual homogenisation of your industry where it becomes hard for a customer to distinguish from all the players. Distinctiveness is at the heart of competitive strategy.
As a manager, striving for operational effectiveness should be automatic. You need this just to remain on a par with your competition. But what is important for sustained competitive advantage is to 'deliberately choose a set of activities to deliver a unique mix of value'.
(This reminds me a little of the diagrams that show Herzberg's two factor theory. Operational effectiveness is your Hygiene factors equivalent. Strategy is your motivation factors equivalent)
Operational Effectiveness vs Strategy part 6
Today I have been...
Reading about reconnecting with strategy (reader, p60)
Why?
Compulsory part of the course
So What?
Porter lists a number of approaches which can help a company reconnect with strategy. If you're at the productivity frontier and don't have a clear strategy consider the following:-
Porter argues that the challenges above require a clear intellectual framework and strong leaders willing to make choices. He argues that the core of management is strategy. Finding fit and making tradeoffs is more important than work to improve operations. Leaders teach others about strategy and be able to say no. Clear communication is required, as is constant discipline.
Improving OE is necessary, undoubtedly, but it is not strategy. Avoid confusing the two! Driving yourself to competitive convergence with your rivals is in no-one's best interest!
Reading about reconnecting with strategy (reader, p60)
Why?
Compulsory part of the course
So What?
Porter lists a number of approaches which can help a company reconnect with strategy. If you're at the productivity frontier and don't have a clear strategy consider the following:-
- Which product/service is more distinctive?
- Which are most profitable?
- Who are our most satisfied customers?
- Which customers, channels or purchase occasions are most profitable?
- Think of the value chain? Which activities are most different or effective?
Porter argues that the challenges above require a clear intellectual framework and strong leaders willing to make choices. He argues that the core of management is strategy. Finding fit and making tradeoffs is more important than work to improve operations. Leaders teach others about strategy and be able to say no. Clear communication is required, as is constant discipline.
Improving OE is necessary, undoubtedly, but it is not strategy. Avoid confusing the two! Driving yourself to competitive convergence with your rivals is in no-one's best interest!
Thursday 11 November 2010
FAIL (or part 5?)
Today I have been...
Reading about why so many companies fail at strategy
Why?
Final part of Porter's Article "what is strategy".
So What?
Porter asserts that many companies either fail to have a strategy, have managers who fail to make strategic choices, or allow their strategy to decay.
He says there's a view that threats to strategy are seen to come from outside, eg from technological factors or strengthened competitors, but that this ignores the greater threat to strategy from within.
If you're a long way from the productivity frontier, you're comfortable. If you're well run you can beat ineffective rivals without making any trade-offs. Indeed, the suggestion is that to trade-off is to lose face.
If you're worried about hypercompetition, what do you think will happen if you imitate your competitors? It may become a self-fulfilling prophecy! We've all seen technology chased for its own sake.
You probably see operational effectiveness as a tangible, achievable thing. By putting in place the right actions you can get there.
There's a link to contingency theory as best-practice is shoved down your throat by consultants and magazines, telling you all about what other companies are doing. If you're focused on achieving OE, how much thought are you giving strategy?
How important is preservation of flexibility?
Making tradeoffs is daunting. Porter says companies imitate each other in a herd-like fashion. Newly empowered employees often lack a holistic view and are unable to recognise tradeoffs. Would you want to disappoint your colleagues? You may feel that no choice is better than a possible wrong choice.
You would have thought that the concept of trade-offs and limits are bad. If you explicitly include certain groups of customers to focus on one group, surely you are limiting your potential? If you differentiate on quality won't you lose your price-focused customers?
Porter argues that if you end up being influenced by these issues and trying to address them you end up blurring your strategic position. You end up being pressured to extend product lines, imitate competitors and even make acquisitions. This is an interesting point as I hear the OU is currently considering entering the UCAS system to try and steal some of the post-A-level student market.
By trying to compete in multiple ways, original target customers may be alienated. The message to employees becomes confused and this will affect motivation. You end up seeking greater revenues to compensate for decreased margin.
Your activities should become more destinctive and you should strengthen their fit.
Your strategy should be communicated to customers (those who value it).
Don't succumb to the easy growth temptation! Make sure that growth options you explore fit to and preferably enhance your strategy (or adapt them to do so).
Porter suggests that Globalisation is one possibility to consider.
One way to grow through broadening without diluting or blurring strategy is to create standalone units with their own brands and distinct activities. But be careful not to end up creating an umbrella company just for the brands, with shared technology and resources. You end up with homogenisation (and I would add you may end up competing with yourself). I note that this may well apply to companies such as BSH (Bosch-Siemens Hausegeraete) which manufacture many of the same products under the Bosch, Siemens and Neff badges.
Reading about why so many companies fail at strategy
Why?
Final part of Porter's Article "what is strategy".
So What?
Porter asserts that many companies either fail to have a strategy, have managers who fail to make strategic choices, or allow their strategy to decay.
He says there's a view that threats to strategy are seen to come from outside, eg from technological factors or strengthened competitors, but that this ignores the greater threat to strategy from within.
If you're a long way from the productivity frontier, you're comfortable. If you're well run you can beat ineffective rivals without making any trade-offs. Indeed, the suggestion is that to trade-off is to lose face.
If you're worried about hypercompetition, what do you think will happen if you imitate your competitors? It may become a self-fulfilling prophecy! We've all seen technology chased for its own sake.
You probably see operational effectiveness as a tangible, achievable thing. By putting in place the right actions you can get there.
There's a link to contingency theory as best-practice is shoved down your throat by consultants and magazines, telling you all about what other companies are doing. If you're focused on achieving OE, how much thought are you giving strategy?
Conventional Wisdom Homogenises CompetitionDoes "Customer Focus" mean serving all customer needs or responding to every request?
How important is preservation of flexibility?
Making tradeoffs is daunting. Porter says companies imitate each other in a herd-like fashion. Newly empowered employees often lack a holistic view and are unable to recognise tradeoffs. Would you want to disappoint your colleagues? You may feel that no choice is better than a possible wrong choice.
You would have thought that the concept of trade-offs and limits are bad. If you explicitly include certain groups of customers to focus on one group, surely you are limiting your potential? If you differentiate on quality won't you lose your price-focused customers?
Porter argues that if you end up being influenced by these issues and trying to address them you end up blurring your strategic position. You end up being pressured to extend product lines, imitate competitors and even make acquisitions. This is an interesting point as I hear the OU is currently considering entering the UCAS system to try and steal some of the post-A-level student market.
By trying to compete in multiple ways, original target customers may be alienated. The message to employees becomes confused and this will affect motivation. You end up seeking greater revenues to compensate for decreased margin.
Often, rivals continue to match each other until desperation breaks the cycle, resulting in a merger or downsizing to the original positioning (Porter in the Reader p59)Porter suggests that the basic premise is that you should be focusing on deepening your strategic position. This should preserve and reinforce strategy while still providing growth. Broadening and compromising strategy will only introduce weaknesses. Look at ways to extend your existing strategy. This allows you to take advantage of the fit of your existing activities to provide goods/services/uniqueness/differentiation that rivals would be unable to match on a standalone basis. This means working out which activities, features, services etc are less costly or more feasible for you to perform than one of your competitors because of your activity mix.
Your activities should become more destinctive and you should strengthen their fit.
Your strategy should be communicated to customers (those who value it).
Don't succumb to the easy growth temptation! Make sure that growth options you explore fit to and preferably enhance your strategy (or adapt them to do so).
Porter suggests that Globalisation is one possibility to consider.
One way to grow through broadening without diluting or blurring strategy is to create standalone units with their own brands and distinct activities. But be careful not to end up creating an umbrella company just for the brands, with shared technology and resources. You end up with homogenisation (and I would add you may end up competing with yourself). I note that this may well apply to companies such as BSH (Bosch-Siemens Hausegeraete) which manufacture many of the same products under the Bosch, Siemens and Neff badges.
Tuesday 9 November 2010
Wow, FIT! (or part 4)
Today I have been...
Reading about fit, part of Porter's article What is Strategy.
Why?
Reader, p51, required reading.
So What?
How do individual activities relate to each other? Well, when you are deciding which activities to do, you also need to think about how you'll do them and how they relate to each other. Strategy is all about this.
Porter quotes Southwest airlines again to highlight that everything matters. There's no one thing they do that highlights their core competence. It gains competitive advantage thanks to the way its activities fit and reinforce one another.
If everything fits, the activities all build on and complement each other. He cites an example of one activity's cost being lowered thanks to the way other activities are performed.
Of course if fit is strategy specific it enhances uniqueness of the strategic position and amplifies trade-offs.
Types of fit:-
It is much harder for one of your rivals to match you when you have good fit. If you have an array of complementary, interlocked, well-thought-out activities, it is much harder for one of your rivals to mimic it.
Thinking mathematically, if your strategic position is x and it is reached by having a combination of activities (a to g) which "fit", then that position could be said to be a x b x c x d x e x f x g (a multiplication as opposed to a simple summation, because the activities reinforce each other). If the probability of a competitor mimicing any one of those activities is 0.9, then the probability of the mimicing that particular set is 0.9 x 0.9 x 0.9 x 0.9 x 0.9 x 0.9 x 0.9 - under 50%
For a competitor to try and reposition or straddle to match your strategic position they will have to redesign many of their own activities which will take time, have repercussions for them, and may not be successful.
New entrants will face formidable barriers to competition.
So make sure your positioning is using a mix of second and third order fit, as this path will lead you to greater sustainability of your competitive advantage. Put yourself in the position of a potential competitor and you can imagine how hard their task would be, just to see the interconnections, let alone untangle them, between your activities.
The fit itself will create pressure and incentives to improve operational effectiveness. If activities are mutually reinforcing, then poor performance in one activity will also drag down others making it easier to spot and correct. And excellent performance in one activity will drag others with it.
Activity system maps can be used to show activities, their links and strengths (p 54-56, reader).
So thinking back to tradeoffs, the most viable position to be in is one where your activity systems are incompatible with your competitors because of tradeoffs.
Strategic positioning sets the rules that define how individual activities will be configured and integrated. Thinking of strategy in terms of activity systems shows why structure, systems and processes need to be strategy-specific. Make your organisation suit the delivery of your strategy, rather than your strategy suit your organisation.
Remember again this is for the long term. It is expensive to regularly shift positioning.
So strategy is creating fit among a your activities.
Reading about fit, part of Porter's article What is Strategy.
Why?
Reader, p51, required reading.
So What?
How do individual activities relate to each other? Well, when you are deciding which activities to do, you also need to think about how you'll do them and how they relate to each other. Strategy is all about this.
Porter quotes Southwest airlines again to highlight that everything matters. There's no one thing they do that highlights their core competence. It gains competitive advantage thanks to the way its activities fit and reinforce one another.
If everything fits, the activities all build on and complement each other. He cites an example of one activity's cost being lowered thanks to the way other activities are performed.
Core competencies. Critical resources. Key success factors. Sound familiar? Are managers really seeing the company as a whole if focus is on core, critical, key anything?
Strategic fit creates competitive advantage and superior profitability.
Of course if fit is strategy specific it enhances uniqueness of the strategic position and amplifies trade-offs.
Types of fit:-
- simple consistency - 1st order fit between each activity and strategy. This helps make strategy easier to communicate to all stakeholders. Ensures cumulative effect of competitive advantage of activities
- activities reinforcing each other - 2nd order fit. Should be self explanatory!
- optimisation of effort - 3rd order fit. This is where, for example, decisions about your product can reduce or eliminate costs in post-sales support.
It is much harder for one of your rivals to match you when you have good fit. If you have an array of complementary, interlocked, well-thought-out activities, it is much harder for one of your rivals to mimic it.
Thinking mathematically, if your strategic position is x and it is reached by having a combination of activities (a to g) which "fit", then that position could be said to be a x b x c x d x e x f x g (a multiplication as opposed to a simple summation, because the activities reinforce each other). If the probability of a competitor mimicing any one of those activities is 0.9, then the probability of the mimicing that particular set is 0.9 x 0.9 x 0.9 x 0.9 x 0.9 x 0.9 x 0.9 - under 50%
For a competitor to try and reposition or straddle to match your strategic position they will have to redesign many of their own activities which will take time, have repercussions for them, and may not be successful.
New entrants will face formidable barriers to competition.
So make sure your positioning is using a mix of second and third order fit, as this path will lead you to greater sustainability of your competitive advantage. Put yourself in the position of a potential competitor and you can imagine how hard their task would be, just to see the interconnections, let alone untangle them, between your activities.
The fit itself will create pressure and incentives to improve operational effectiveness. If activities are mutually reinforcing, then poor performance in one activity will also drag down others making it easier to spot and correct. And excellent performance in one activity will drag others with it.
Activity system maps can be used to show activities, their links and strengths (p 54-56, reader).
So thinking back to tradeoffs, the most viable position to be in is one where your activity systems are incompatible with your competitors because of tradeoffs.
Strategic positioning sets the rules that define how individual activities will be configured and integrated. Thinking of strategy in terms of activity systems shows why structure, systems and processes need to be strategy-specific. Make your organisation suit the delivery of your strategy, rather than your strategy suit your organisation.
Remember again this is for the long term. It is expensive to regularly shift positioning.
So strategy is creating fit among a your activities.
Saturday 6 November 2010
Operational Effectiveness vs Strategy part3
a sustainable strategic position requires tradeoffs
If you have a valuable strategic position, you will attract incumbent competitors! The incumbent will then either try to reinvent itself to position itself in the same place, or "straddle" where it tries to match your position as well as maintain its existing position.
Continental Airlines tried straddling to compete with SouthWest. And they're not the only one - Ted (from United), Go from BA (although they tried to compete with Easyjet).
Sustainable strategic positioning requires tradeoffs. Tradeoffs in your strategy can actually help protect you from repositioners or straddlers as they create customer choice.
Tradeoffs arise from image/reputation inconsistency (full service airline or low cost?), as well as from activities themselves, from needing to design activities appropriately, and from practical limits on co-ordination and control.
Companies that try to be all things to all men end up confusing their customers with image and staff with mission.
So thinking back to Porters assertion about quality vs cost tradeoffs, he says that these are false where they occur because there is redundant effort, poor control or weak co-ordination. Once a company is nearing the productivity frontier, trade-off between cost and differentiation is very real.
Porter says that strategy is knowing the right tradeoffs to make - knowing what not to do.
cont...
If you have a valuable strategic position, you will attract incumbent competitors! The incumbent will then either try to reinvent itself to position itself in the same place, or "straddle" where it tries to match your position as well as maintain its existing position.
Continental Airlines tried straddling to compete with SouthWest. And they're not the only one - Ted (from United), Go from BA (although they tried to compete with Easyjet).
Sustainable strategic positioning requires tradeoffs. Tradeoffs in your strategy can actually help protect you from repositioners or straddlers as they create customer choice.
Tradeoffs arise from image/reputation inconsistency (full service airline or low cost?), as well as from activities themselves, from needing to design activities appropriately, and from practical limits on co-ordination and control.
Companies that try to be all things to all men end up confusing their customers with image and staff with mission.
So thinking back to Porters assertion about quality vs cost tradeoffs, he says that these are false where they occur because there is redundant effort, poor control or weak co-ordination. Once a company is nearing the productivity frontier, trade-off between cost and differentiation is very real.
Porter says that strategy is knowing the right tradeoffs to make - knowing what not to do.
cont...
Operational Effectiveness vs Strategy part2
The Origins of Strategic Positions
Variety-based positioning.
Producing a subset of the industry's product/service and doing it well - a superior value chain eg a furniture retailer that only sells sofas.
Needs-based positioning.
Similar to traditional segment targeting, serve most or all of the needs of a group of customers, eg price sensitive furniture buyers (Ikea). Customers may have different needs on different occasions. Differences in needs require that the best set of activities to satisfy them also differs.
Access-based positioning
Your strategy here is focused around how people actually obtain your product or service. Porter gives the example of a cinema chain that focuses only on rural communities in the US. I can think of the example of a satellite broadband provider, for people who can't get this service via other means. This allows them to be the dominant player in their market.
However positioning is not just about being the dominant player in a niche.
Your strategic position may be based on a combination of these factors.
So What is Strategy? The creation of a unique and valuable position, involving a different set of activities.
But... (cont...)
Variety-based positioning.
Producing a subset of the industry's product/service and doing it well - a superior value chain eg a furniture retailer that only sells sofas.
Needs-based positioning.
Similar to traditional segment targeting, serve most or all of the needs of a group of customers, eg price sensitive furniture buyers (Ikea). Customers may have different needs on different occasions. Differences in needs require that the best set of activities to satisfy them also differs.
Access-based positioning
Your strategy here is focused around how people actually obtain your product or service. Porter gives the example of a cinema chain that focuses only on rural communities in the US. I can think of the example of a satellite broadband provider, for people who can't get this service via other means. This allows them to be the dominant player in their market.
However positioning is not just about being the dominant player in a niche.
Your strategic position may be based on a combination of these factors.
So What is Strategy? The creation of a unique and valuable position, involving a different set of activities.
But... (cont...)
Operational Effectiveness vs Strategy part1
Today I have been...
Reading Michael Porter's article "What is strategy" in the reader
Why?
It's required reading, and the course text u1s3.2p18 asks questions about it.
So What?
First a summary of the article.
Operational effectiveness and Strategy are not the same thing.
Operational effectiveness (OE) is doing the same thing better than your competitors. Strategic positioning is doing different things to competitors, or similar things in different ways.
To outperform rivals requires either delivering more value (allowing you to charge more) or deliver the same value at lower cost, both allowing better profitability.
The cost or price of what you produce is governed by the many activities required to bring the product to market. Costs are incurred while performing activities and cost advantage comes from performing them more efficiently than competitors. This is operational effectiveness.
Differentiation is obtained through the choice of activities and how they are performed.
Japanese companies became hugely successful in the 1980s thanks to operational effectiveness. They fought off rivals by being able to offer comparable or better quality at lower or comparable prices, through huge cost efficiency.
The productivity frontier? The sum of all existing best practices at a given point in time. The theoretical "best you can possibly do". The maximum value you can create using the best of everything. When you improve operational effectiveness you get nearer this frontier.
This frontier moves outward as new technologies, approaches and inputs are available (eg software, production techniques etc).
There's not always a tradeoff between cost and quality (defects) as they can be illusions created by poor OE.
OE alone is not a sustainable way to stay ahead. Most ways to achieve OE can be imitated by competitors.
Competition through OE moves the frontier further away in itself. As an example of this, if a company is able to cut costs through OE, competitors will follow suit sooner or later. When this happens any brief cost advantage is eroded as price competition heats up and superior profitability vanishes. Any money made is likely re-invested in eg better machinery etc which demonstrates a great RoI. The improved machinery increases the maximum value you can create using the best of everything, the frontier moves and the cycle repeats itself. Profits margins are seen to slowly decline over time; this has been seen in many industries.
There is another reason OE alone is insufficient. The more benchmarking, outsourcing etc that is done, the more those particular activities become generic. Companies end up with fewer areas they can achieve OE and "competition becomes a series of races down identical paths that no-one can win". Competing using OE alone is mutually destructive!
Porter argues that mergers and consolidation happen because of OE. Performance pressures lead companies to buy out their rivals to reduce competition as that ends up being the only idea or option. Those remaining didn't necessarily have real advantage, they just outlasted the others. Eating the competition was the only way out and the phrase dog-eat-dog seems very appropriate!
Strategy is achieved through being different, rather than better at the same thing. Southwest airlines pioneered the low-cost airline model and no other airline could compete not just because their cost base was lower but because they offered a different proposition. Likewise with Ikea compared to traditional furniture stores.
...continued
Reading Michael Porter's article "What is strategy" in the reader
Why?
It's required reading, and the course text u1s3.2p18 asks questions about it.
So What?
First a summary of the article.
Operational effectiveness and Strategy are not the same thing.
Operational effectiveness (OE) is doing the same thing better than your competitors. Strategic positioning is doing different things to competitors, or similar things in different ways.
To outperform rivals requires either delivering more value (allowing you to charge more) or deliver the same value at lower cost, both allowing better profitability.
The cost or price of what you produce is governed by the many activities required to bring the product to market. Costs are incurred while performing activities and cost advantage comes from performing them more efficiently than competitors. This is operational effectiveness.
Differentiation is obtained through the choice of activities and how they are performed.
Japanese companies became hugely successful in the 1980s thanks to operational effectiveness. They fought off rivals by being able to offer comparable or better quality at lower or comparable prices, through huge cost efficiency.
The productivity frontier? The sum of all existing best practices at a given point in time. The theoretical "best you can possibly do". The maximum value you can create using the best of everything. When you improve operational effectiveness you get nearer this frontier.
This frontier moves outward as new technologies, approaches and inputs are available (eg software, production techniques etc).
There's not always a tradeoff between cost and quality (defects) as they can be illusions created by poor OE.
OE alone is not a sustainable way to stay ahead. Most ways to achieve OE can be imitated by competitors.
Competition through OE moves the frontier further away in itself. As an example of this, if a company is able to cut costs through OE, competitors will follow suit sooner or later. When this happens any brief cost advantage is eroded as price competition heats up and superior profitability vanishes. Any money made is likely re-invested in eg better machinery etc which demonstrates a great RoI. The improved machinery increases the maximum value you can create using the best of everything, the frontier moves and the cycle repeats itself. Profits margins are seen to slowly decline over time; this has been seen in many industries.
There is another reason OE alone is insufficient. The more benchmarking, outsourcing etc that is done, the more those particular activities become generic. Companies end up with fewer areas they can achieve OE and "competition becomes a series of races down identical paths that no-one can win". Competing using OE alone is mutually destructive!
Porter argues that mergers and consolidation happen because of OE. Performance pressures lead companies to buy out their rivals to reduce competition as that ends up being the only idea or option. Those remaining didn't necessarily have real advantage, they just outlasted the others. Eating the competition was the only way out and the phrase dog-eat-dog seems very appropriate!
Strategy is achieved through being different, rather than better at the same thing. Southwest airlines pioneered the low-cost airline model and no other airline could compete not just because their cost base was lower but because they offered a different proposition. Likewise with Ikea compared to traditional furniture stores.
...continued
Defining Strategy (u1s3p15)
Today I have been...
Thinking about the definition of strategy, particularly the following questions:-
Required Reading.
So What?
Definitions
Chandler's "planning" definition of strategy (see http://mbastudier.blogspot.com/2010/10/planning-approach-to-strategy-reader-p1.html ) is
Common themes:
Strategic Issues
u1s3p16-17
What is the relative potential of an organisation's business units, considering them as areas for future investment?
How can we achieve necessary levels of economies of scale? Organisational Learning? Innovation? if we wish to exceed the levels of rival organisations
Which of the organisation's resources & capabilities are likely to need to change over time as environmental factors dictate? What about strategies themselves?
How are we to build and manage complex resource clusters?
How do we determine appropriate shape, size, purpose of the organisation over time? What changes in structure and processes may be necessary?
Where are the opportunities for co-operation and outsourcing?
The three common themes here are that they are all
How will I use it?
By remembering that strategic management helps managers to identify and co-ordinate internal resources, structure, culture and operating procedures within the context of the external environment over time, to help the organisation achieve its objectives.
Strategic thinkers are able to holistically consider these components and create their own integrated perspective. Henderson says they 'have the imagination to forsee alternative actions and the logic to analyse their consequences'.
u1s3p17
Thinking about the definition of strategy, particularly the following questions:-
- What are some definitions of strategy?
- What are the nature of strategic issues?
Required Reading.
So What?
Definitions
Chandler's "planning" definition of strategy (see http://mbastudier.blogspot.com/2010/10/planning-approach-to-strategy-reader-p1.html ) is
the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for those goals (1962:13) - Chandler on Strategy. Reader p2.Andrews said
every business organisation, every sub-unit of organisation, and even every individual ought to have a clearly defined set of purposes or goals which keeps it moving in a deliberately chosen direction and prevents it drifting in undesired directions. (1971:23) Andrews, Reader p3..which as I pointed out in that blog post leads me to think of the Pyramid of Purpose as a way of achieving that. Henderson's definition is similar (u1s3p16)
a process of analysis which is designed to achieve the competitive advantage of one organisation over another.I really like Porter's definition, which mentions competitive advantage:-
a process of analysis which is designed to achieve the competitive advantage of one organisation over another in the long termThe very notion of competitive advantage is different, it is about offering a unique value proposition using an appropriate mix of activities/resources.
Common themes:
- long-termism
- goals and objectives
- directing resources to some activities rather than others based around an analysis of which are likely to help achieve those long term goals and objectives
- Analysis also includes determination of the objectives themselves
- Ways to allocate resources
- Some orgs do this better or worse than others
Strategic Issues
u1s3p16-17
What is the relative potential of an organisation's business units, considering them as areas for future investment?
How can we achieve necessary levels of economies of scale? Organisational Learning? Innovation? if we wish to exceed the levels of rival organisations
Which of the organisation's resources & capabilities are likely to need to change over time as environmental factors dictate? What about strategies themselves?
How are we to build and manage complex resource clusters?
How do we determine appropriate shape, size, purpose of the organisation over time? What changes in structure and processes may be necessary?
Where are the opportunities for co-operation and outsourcing?
The three common themes here are that they are all
- important
- involve significant resource commitments
- not easily reversible
How will I use it?
By remembering that strategic management helps managers to identify and co-ordinate internal resources, structure, culture and operating procedures within the context of the external environment over time, to help the organisation achieve its objectives.
Strategic thinkers are able to holistically consider these components and create their own integrated perspective. Henderson says they 'have the imagination to forsee alternative actions and the logic to analyse their consequences'.
u1s3p17
Success through strategy and the importance of strategy u1s2p9
Today I have been... considering
It's required reading!
So What?
Vodafone and TCL are cited as examples of successful companies, and mini cases are given. Author argues that they were successful in the cases because
How will I use it?
I wonder, do these apply to EMI (subject of the first TMA).
The essence of strategy lies in how it enables an organisation to succeed.Why?
It's required reading!
So What?
Vodafone and TCL are cited as examples of successful companies, and mini cases are given. Author argues that they were successful in the cases because
- They both had simple and consistent vision and goals
- They appreciated and understood their external environments
- They had acute awareness of their available resources
- They were very effective at implementing their strategies
How will I use it?
I wonder, do these apply to EMI (subject of the first TMA).
Today I have been...
Thinking about the learning outcomes of the first unit.
Why?
By the end of this unit I should be able to
So What?
I will revisit these at the end of the unit to ensure I've gained the relevant outcomes.
Thinking about the learning outcomes of the first unit.
Why?
By the end of this unit I should be able to
- identify the role strategy can play in the performance of the organisation
- describe the origins and development of strategic thinking
- distinguish between different approaches to strategy making
- recognise the different levels at which strategy operates
- appreciate the various stages of strategy analysis, choice and implementation
- be aware of the philosophy, organisation and content that encompass the course scope
So What?
I will revisit these at the end of the unit to ensure I've gained the relevant outcomes.
Friday 5 November 2010
Course learning outcomes
Today I have been... Considering the learning outcomes of the B820 course.
Why?
Because I've finished reading the introduction in the reader and I want to re-read the learning outcomes and first parts of the course material intro, and blog a little about them.
So What?
The materials state that by the end of the course I should be able to
How will I use it?
I am trying to improve my chances of achieving the last point here through this blog. Hopefully this will also help me achieve the other three as well.
As a strategic review is underway in my own department, and a "strategy refresh" has just happened at an organisational level, my learning on these subjects seems well-timed.
Why?
Because I've finished reading the introduction in the reader and I want to re-read the learning outcomes and first parts of the course material intro, and blog a little about them.
So What?
The materials state that by the end of the course I should be able to
- think strategically - have an awareness of what analysis, choice and implementation of strategy each require
- understand the concepts ideas and research which underpin...strategy
- evaluate and apply these...to develop my own views on strategic decision making
- develop my own strategic thinking through reflection on organisational practice and my own experience. (p7-8u1)
How will I use it?
I am trying to improve my chances of achieving the last point here through this blog. Hopefully this will also help me achieve the other three as well.
As a strategic review is underway in my own department, and a "strategy refresh" has just happened at an organisational level, my learning on these subjects seems well-timed.
Competitive Advantage as Porter puts it
Competitive advantage grows fundamentally out of the value a firm is able to create for its buyers that exceeds the firm's cost of creating it
The Strategy Process
Context, Content and Process encircle the Analysing, Choosing and Implementing components.
Johnson and Scholes 1993; Pettigrew 1998
Analyse: Objectively assess org and its environment
Choose: Construct a set of activities based on the assessment which will maximise chances of success
Implement: Taking into account context and environment, put selected activities into place.
p6u1
Johnson and Scholes 1993; Pettigrew 1998
Analyse: Objectively assess org and its environment
Choose: Construct a set of activities based on the assessment which will maximise chances of success
Implement: Taking into account context and environment, put selected activities into place.
p6u1
Monday 1 November 2010
What is strategy for?
Today I have been...
Reading the reader about what strategy is for (p8)
Why?
So What?
This strikes me as the sole reason that managers and organisations need to learn. Learn to develop and learn how to develop, but importantly learn in which direction to develop. Hamel and Prahalad (1989) indicated that a clear strategy in place can lead to drive and strategic intent.We need to be able to state where the organisation wants to be in the future. Porter (1996) points out that if operations are focused on separately from strategy then you can only win if you're the only one in the game.
I notice that our new CIO has put an "IT Programmes" person in-place. I wonder if this is an attempt to link strategy with operational issues.
Strategy as an academic subject exists because there is a need to better understand making and implementing strategies. Because strategy in our society is closely associated with business, commerce and economics, the impact of good and bad strategy can be felt in society as a whole. Was the last government's bank bailout strategy the right one? Is the current deficit reduction strategy the right one? Was the strategy with respect to risky lending in the US prior to the credit crunch the right one? We're all seeing the consequences of these playing out in our daily lives.
Rumeld (1994):-
Rationale for strategic management: identification, build and deployment of resources most effectively towards attainment of objectives.
Henderson(1994) said this needs:-
The important thing to take from this is that this is about the analytical part of strategic thinking, not about the actual making of strategy. Strategic Analysis is a way to help understand the issues, it does not provide the answers, just like systems analysis in the IT world. The important thing to remember is that there are numerous frameworks that can be relied on but no recipes for strategy! Analysis is a necessary but not standalone part of the process.
Judgements -> Decisions
^^ The strategic thinking process. All is contextual (contingency theory).
So how do management consultants do it? If judgements and decisions need to be made with a deep understanding of the firm and its context, how can they do that when it's not something they necessarily posess?
Maybe this could help explain the failure of many IT projects; a lack of understanding of the organisation at the analysis stage.
How will I use it?
This is more valuable background information but helps to put in context the importance of strategy, including how you develop it and how you use it.
Reading the reader about what strategy is for (p8)
Why?
At some time in the life-cycle of virtually every organisation, its ability to succeed in spite of itself runs out. (Brier's First Law).
So What?
This strikes me as the sole reason that managers and organisations need to learn. Learn to develop and learn how to develop, but importantly learn in which direction to develop. Hamel and Prahalad (1989) indicated that a clear strategy in place can lead to drive and strategic intent.We need to be able to state where the organisation wants to be in the future. Porter (1996) points out that if operations are focused on separately from strategy then you can only win if you're the only one in the game.
I notice that our new CIO has put an "IT Programmes" person in-place. I wonder if this is an attempt to link strategy with operational issues.
Strategy as an academic subject exists because there is a need to better understand making and implementing strategies. Because strategy in our society is closely associated with business, commerce and economics, the impact of good and bad strategy can be felt in society as a whole. Was the last government's bank bailout strategy the right one? Is the current deficit reduction strategy the right one? Was the strategy with respect to risky lending in the US prior to the credit crunch the right one? We're all seeing the consequences of these playing out in our daily lives.
Rumeld (1994):-
Strategic management as a field of enquiry is firmly grounded in practice and exists because of the importance of its subjectOutcomes are affected by the strategic choices made. I can think of organisations that have at times plodded along quite happily during stable periods, with low environmental turbulance and little competition. But this scenario is rare, and at the time of writing is certainly not the case.
Rationale for strategic management: identification, build and deployment of resources most effectively towards attainment of objectives.
Henderson(1994) said this needs:-
- a critical mass of knowledge concerning the competitive process
- the ability to integrate this knowledge and understand cause and effect
- imagination to forsee alternative actions and logic to analyse their consequences
- availability of resources beyond current needs in order to invest in future potential
The important thing to take from this is that this is about the analytical part of strategic thinking, not about the actual making of strategy. Strategic Analysis is a way to help understand the issues, it does not provide the answers, just like systems analysis in the IT world. The important thing to remember is that there are numerous frameworks that can be relied on but no recipes for strategy! Analysis is a necessary but not standalone part of the process.
Judgements -> Decisions
^^ The strategic thinking process. All is contextual (contingency theory).
So how do management consultants do it? If judgements and decisions need to be made with a deep understanding of the firm and its context, how can they do that when it's not something they necessarily posess?
Maybe this could help explain the failure of many IT projects; a lack of understanding of the organisation at the analysis stage.
How will I use it?
This is more valuable background information but helps to put in context the importance of strategy, including how you develop it and how you use it.
Current Developments (reader p7)
Today I have been...
Reading more of the reader.
Why?
Compulsory reading
So What?
Recently strategic management has seen many more developments, including strategy dynamics.
D'Aveni(1994)'s "hypercompetition".
The theory and practice of balancing long-term strategy and short term needs includes:-
Ghematat (2002:64):-
Zero-sum games: one winner, and winners gaines = sum of other players losses
non-Zero-sum games: allows opportunity for co-operation as well as competition
Non-zero-sum games are what are relevant for strategy. Many firms rely on being able to work with other firms in various capacities. A kind of symbiotic relationship exists.
Chaos theory (Stacey, 1993), complexity theory (Brown & Eisenhardt, 1998), the strategic use of knowledge (von Krogh et al, 2000), evolutionary biology, cognitive psychology and real options theory (Schwartz and Trigeorgis, 2001) are new strategic analysis approaches. (Reader, p7-8)
Experimentation and learning must take place within organisations.
How will I use it?
This is all relevant background info.
Reading more of the reader.
Why?
Compulsory reading
So What?
Recently strategic management has seen many more developments, including strategy dynamics.
D'Aveni(1994)'s "hypercompetition".
The theory and practice of balancing long-term strategy and short term needs includes:-
- Competitive dynamics
- Dynamic Capabilities
- Systems Dynamics
- Change management
Ghematat (2002:64):-
the dynamic question of how businesses might create and sustain competitive advantage in the presence of competitors who could not be counted on to remain inert all the timeGame Theory. Is a study of the decisions and interactions of players where the payback for the decisions depends on each other's choices as well as their own.
Zero-sum games: one winner, and winners gaines = sum of other players losses
non-Zero-sum games: allows opportunity for co-operation as well as competition
Non-zero-sum games are what are relevant for strategy. Many firms rely on being able to work with other firms in various capacities. A kind of symbiotic relationship exists.
Chaos theory (Stacey, 1993), complexity theory (Brown & Eisenhardt, 1998), the strategic use of knowledge (von Krogh et al, 2000), evolutionary biology, cognitive psychology and real options theory (Schwartz and Trigeorgis, 2001) are new strategic analysis approaches. (Reader, p7-8)
Experimentation and learning must take place within organisations.
How will I use it?
This is all relevant background info.
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