Maritime Strategy

MT 4003

Lecture 1
Fundamentals of Strategy

16 Aug 2018
 Learning Objectives

On completion of this course you should be able to:

– apply strategic thinking principles to solve a problem/issue;
– take a holistic approach to analysing strategic issues affecting an
organisation;
– conduct an internal and external situational analysis;
– develop strategic plans that make good use of strategic analysis
(assessing the internal and external environment) and strategic
choices (formulating the mission, goals/objectives and
strategies);
– evaluate different strategic options and decide on the best
course of action for an organisation;
– develop proper guidelines for strategic implementation of the
strategic plan, and;
– evaluate and control the strategic performance of any organisation
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 Good Strategy/Bad Strategy – The
Difference And Why It Matters
Is your strategy a mix of slogans and goals, or a set
of objectives that offer solutions to key problems?

“Bad strategy ignores the power of choice and focus, trying

instead to accommodate a multitude of conflicting demands
and interests. Like a quarterback whose only advice to his
teammates is ‘let’s win,’ bad strategy covers up its failure to
guide by embracing the language of broad goals, ambition,
vision, and values.” – Richard Rumelt

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 Bad Strategy

1 Failure to Face the Problem: A strategy is an approach to

overcoming obstacles. If you fail to identify and analyze the obstacles,
you don’t have a strategy.

2 Mistaking goals for strategy: Setting goals without a supporting

strategy can mislead the organization. Rumelt cites a military
general who may justly ask his troupes for “one last push,” but the
goal still needs to be supported by a clearly defined strategy. A good
strategy will create the conditions that will make the “push”
effective and worthy of the effort required.

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 Bad Strategy – (C )

3 Bad strategic objectives: A long list of goals and projects cobbled

together at a planning session, or a set of ideas that no one has a clue
about what to do or how to get there, are signs of bad strategic
objectives. Good strategic objectives, in contrast, focus energy on a
very few high impact objectives. And they build a bridge between the
obstacles being solved for by the strategy, and the needed action.

4 Fluff: A “restatement of the obvious, combined with generous

sprinkling of buzzwords that masquerade as expertise designed to mask
the absence of thought.”An example of “fluff” from a retail bank states:
“Our fundamental strategy is one of customer-centric intermediation.”

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 Good Strategy

3 Key Elements of Good Strategy

1 A diagnosis: an explanation of the nature of the challenge

2 A guiding policy: an overall approach chosen to cope

with or overcome the obstacles identified in the diagnosis.

3 Coherent action: steps that coordinate with one another to

support the accomplishment of the guiding policy.

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 Lecture 1 - Fundamentals of Strategy

• Historical perspectives of strategy

• Key definitions and the basics of strategy
• The vocabulary of strategy
• Strategy and competitive advantage
• Levels of strategy
• Strategies and business models
• Why do strategies evolve?
• Criteria of a winning strategy
• The nature of strategic management
• The strategic management model 7
 Learning Objectives

• On completion of this lecture you should be able

to:
– Understand the difference between strategy and
tactic, and various related definitions & vocabularies,
– Comprehend the link between strategy and a firm’s
competitive advantage,
– understand strategic approaches of building
competitive advantage,
– explain criteria of a winning strategy, and
– explain various steps of the strategic management
process 8
 Historical Perspective of Strategy

• 50s and 60s: investment planning

• 70s: internal growth opportunities

• 80s: outside investment and internal growth

• 90s: strategic advantage in the marketplace and

defending against competitors

• 2000s: development of effective, inter-firm

relationships that would create maximum value
for the firm’s products and/or services 9
 Key Definitions and the Basics of Strategy

• Strategy is what a company does, or doesn’t do, to fulfil its

vision in a competitive marketplace (Finkelstein 2005)
• “Without a strategy the organization is like a ship without a
rudder.”
• Art & science of formulating, implementing, and evaluating,
cross-functional decisions that enable an organization to achieve
its objectives (David 2005)

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 Key Definitions and the Basics of Strategy - C

• Strategy
– a course of action, a scheme, or a principal idea
through which an organization hopes to accomplish a
specific objective or goal
– Process of formulating plans to position the firm to
meet its objectives
– using one’s resources and using them with maximum
effectiveness to meet the business objectives
• Tactics
– refers to the operational aspects that are necessary to
support strategy 11
 Key Definitions and the Basics of Strategy - C

• Three questions in management: where are

we now, where we want to be, how do we get
there?
1. What’s the company’s present situation?
2. Where does the company need to go from
here?
3. How should it get there?

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 Key Definitions and the Basics of Strategy - C

• Strategy consists of business approaches used by

managers to run the company

• It is management’s “action plan”

– Grow the business
– Attract and please customers
– Compete successfully
– Conduct operations
– Achieve the targeted levels of performance
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 Key Definitions and the Basics of Strategy - C

• The ‘How’ questions:

– How to grow the business

– How to please customers
– How to outcompete rivals
– How to manage each functional
piece of the business (R&D, operations, logistics,
marketing, HR, finance, and so on)
– How to respond to changing market conditions
– How to achieve targeted levels of performance
– Etc.
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 The Vocabulary of Strategy

• Vision or strategic intent: desired future state; the

aspiration of the organization
– Ex: to be the best container terminal in the world
• Mission: overriding purpose in line with the
values or expectations of stakeholders
– Ex: to attain best performance standards
• Goal: general statement of aim or purpose
– Ex: to achieve highest cargo handling productivity
• Objective: quantification (if possible) or more
precise statement of the goal
– Ex: to handle on average 50 containers/crane/hour
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 The Vocabulary of Strategy - C

• Strategic capability: resources, activities &

processes
– Ex: skilled workforce & good work coordination
• Strategies: long-term direction
– Ex: investment in R & D of port technology and
training
• Business model: how product, service &
information ‘flow’ between participating parties
– Ex: collaborate with manufacturers & training
institutions
• Control: monitoring actions to assess
effectiveness of strategies & actions, and modify
as necessary strategies and/or actions
– Ex: establish, practice, control & improve KPIs 16
 The Vocabulary of Strategy - C

• Opportunities and threats:

– factors beyond the control of a single organization
• Strengths and weaknesses (internal scanning):
– Controllable activities performed especially well or
poorly
• Environmental scanning (industry analysis):
– Process of conducting research and gathering and
assimilating external information
• Policy:
– Means by which objectives will be achieved

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 Strategy and Competitive Advantage

• The heart and soul of any strategy are actions a

company makes to
– Improve its financial performance,
– Strengthen its competitive position, and
– Gain a competitive advantage over rivals

• A creative, distinctive strategy that sets a

company apart from rivals and yields a
competitive advantage is a company’s most
reliable ticket to above average profitability
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 Strategy and Competitive Advantage - C

• When does a company achieve sustainable

competitive advantage?

• It is nice when a strategy produces

– A temporary competitive edge, but
– A sustainable edge over rivals is more desired
What separates a powerful strategy from an ordinary
strategy is management’s ability to forge a series of
moves, both in the marketplace and internally, that
produces sustainable competitive advantage!

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 Strategic Approaches to Building Sustainable
Competitive Advantage
• Be the industry’s low-cost provider
– Achieve a cost-based competitive advantage
• Incorporate differentiating features
– Superior product/service keyed to higher quality,
better performance, wider selection, value-added
services, or some other attribute
• Focus on a narrow market niche
– Win a competitive edge by doing a
better job than rivals of serving the
needs and preferences of buyers in the niche
• Develop expertise and resource strengths
not easily imitated or matched by rivals
– Achieve a capabilities-based competitive advantage 20
 Strategic Approaches to Building Sustainable
Competitive Advantage - C

Cell 2 Cell 4
High
Service Cost and service
leadership leadership
Added value

Cell 1 Cell 3
Uncompetitive Cost leadership
Low

High Low
Cost level

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Source: Porter (1985)
 What is a Business Model?

• A business model addresses “How do we make

money in this business?”
– Is the company’s strategy capable of delivering
good bottom-line results?
• Do the revenue-cost-profit economics
of the strategy make good business sense?
– Look at revenue streams the
strategy is expected to produce
– Look at associated cost structure
and potential profit margins
– Do resulting earnings streams and ROI indicate the
strategy has good potential to deliver acceptable
profitability? 22
 Strategy and Business Model

Strategy . . . Business Model . . .

Deals with a company’s Concerns whether revenues
competitive initiatives and and costs flowing from the
business approaches strategy demonstrate a
business can be profitable
and viable

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 Levels of Strategy

• Corporate level:
– what businesses a company should or wants to be in

• Business level:
– How to compete in each of generic strategy

• Functional level
– How functional areas can support business-level
strategy

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 Levels of Strategy - C

Corporate Corporate level

strategy

Business 1 Business 2 Business 3 Business

strategy strategy strategy
level

Operations Financial/
Management
R&D
Accounting
Marketing HRM Functional
strategy Strategy strategy level
strategy strategy

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 Why do Strategies Evolve?

• A company’s strategy is a work in progress

• Changes may be necessary to react to

– Financial crisis
– Fresh moves of competitors
– Evolving customer preferences
– Technological breakthroughs
– Emerging market opportunities
– Changing political or economic climate
– Etc.

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 A Company’s Strategy Is a Blend of
Proactive Initiatives and Reactive Adjustments

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 Why do Strategies Evolve?: HONDA Case Study

• Honda’s penetration of the US motorcycle

market had been based on a deliberate strategy to
target the high end of the US market

• When they went to the USA in 1959, they set

themselves a target of exporting 6000 machines
per year

• They concentrated first on selling the larger

bikes, as they thought they were more suitable
for the US market, where everything was bigger
and luxurious 28
 Why do Strategies Evolve?: HONDA Case Study
(C)
• Honda executives used the 50cc to ride around Los
Angeles on errands
 They attracted attention, including a call from a Sears
buyer
 Surprisingly, the retailers buying the Honda 50cc
were not motorcycle dealers, but sporting goods
stores

• Honda decided to turn its initial design advantage in

Japan and its unplanned success in the US into world
domination, which it still enjoys 30 years later

• Honda’s success demonstrates that successful

strategy may emerge, rather than be the result of
deliberate planning 29
 Why do Strategies Evolve?: Lessons from the
HONDA Case Study
• An organisation needs to be flexible for
recognising opportunities and for implementing
emergent strategies
• Strategy is a combination of intended and
unintended
– Some intended strategy may not be realized
– The intended part that is realized is deliberate
strategy
• Much realized strategy emerges from events
that were not part of the intended strategy
– This is emergent strategy
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Why do Strategies Evolve? (C)

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 Criteria of a Winning Strategy

• How well does the strategy fit the company’s external

and internal situation?

• Is the strategy helping the company achieve a

sustainable competitive advantage?

• Is the strategy resulting in better company

performance?

• Degree of risk the strategy poses as compared to

alternative strategies

• Degree to which the strategy is flexible and adaptable

to changing circumstances 32
 The Nature of Strategic Management

• Key strategic management questions:

– What kind of business should we become?

– Are we in the right fields?

– Should we reshape our business?

– What new competitors are entering our industry?

– What strategies should we pursue?

– How are our customers changing? Etc. 33

 Strategic Management Models

External
assessment

Generate, Measure &

Vision Evaluate, Evaluate
& Long-Term Select Implement Performance
Mission Objectives Strategies Strategies

Internal
assessment

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Source: David (2005)
Good Strategy + Good Strategy Execution =
Good Management
• Crafting and executing strategy are core management
functions
• Among all things managers do, nothing affects a
company’s ultimate success or failure more
fundamentally than how well its management team
– Charts a company’s direction,
– Develops competitively effective strategic moves
and business approaches, and
– Pursues what needs to be done internally to produce
good day-in/day-out strategy execution
Excellent execution of an excellent strategy is the
best test of managerial excellence – and the
most reliable recipe for winning in the marketplace!
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