Introduction, definition, approaches to strategy

Ing. Ladislav Tyll, MBA., Ph.D.

Prague University of Economics and Business
LL Strategy
What is strategy

From ancient greek στρατηγία = «war craft» = generalship

Strategy = long term plan of action

Michael Porter
„Competitive strategy is about being different. It means consciously choose
a different set of activities and using them to create a unique combination
of values.“

Good strategy demands both creativity and courage. KSG

LL Corporate strategy

„Strategy is a pattern of decisions in a company, that determines and reveals

its objectives, purposes, or goals, produces the principal policies and plans for
achieving these goals, and defines a range of business the company is to
pursue, the kind of economic and human organization it is or intents to be,
and the nature of the economic and non economic contribution it intends to
make to its shareholders, employees, customers, and communities.“

Kenneth R. Andrews, The concept of corporate strategy, Richard D. Irwin, Homewood. 1971

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LL Strategy
Henry Mintzberg definition –5P Method

„ The strategy represents a model of behaviour in decision-making process “

• Plan
• Ploy
• Pattern of behaviour
• Position in respect to others
• Perspective

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LL Why do we need a strategy???

1995 2008 2020

Strategy as decision support (coherence in decision making)

Strategy as a coordinating device to achieve goals, share values…
Strategy as target (setting future aspirations)

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LL From winners to losers

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LL Strategy execution

Analysis

Implementation Formulation

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 LL Evolution of strategic management
Financial budgeting
Operational budgeting
DCF capital budgeting

Corporate planning
Corporate plans based on medium-term
economics forecast

demand Emergence of Strategic Management

sales Industry analysis and competitive positioning
market
share costs The quest for competitive advantage
Emphasise on resources and capabilities
Shareholder value maximization
Corporate Refocusing, outsourcing, delayering, cost cutting
diversification
Adapting to turbulence
Exploiting ICT
The quest for flexibility and strategic innovation
Strategic alliances
Social and environmental responsibility

1950 1960 1970 1980 1990 2000 2010 2020

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LL Increasing diversity of environments

*Standard deviation over ten years of annual growth in market capitalization (log scale)
+ Absolute percent revenue growth averaged over the decade (log scale)
Source: Compusat (US public companies)

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LL Proliferation of strategy frameworks

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LL Strategy palette
Five environments and approaches to strategy

Renewal
HI
Adaptive Shaping
Unpredictability

Classical Visionary

HI

LO
LO
LO Malleability HI

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LL Strategy palette

Vary Engage

Scale up Evolve React

Select (or anticipate)
Orchestrate
- Volatile growth - Fragmentation Economize
- Limited concentration - No dominant player,
- Young industry platform Grow
- High technol. change - Shapable regulation
- Low growth, decline
Envisage - Crisis
Analyze
- Restricted financing
Build - Negative CashFlows
Plan

Execute Persist

- Low growth - High growth potential

- High concentration - No direct competition
- Mature industry - Limited regulation
- Stable regulation KSG
LL Classical approach
 Stable industry
Analyze
 Only accosional changes in market shares of market leaders
Plan  Homogenous business models
 Low frequency of changes of key technologies
Execute
 Strong brands
 Low CAGRs
 High industry entry and exit barriers

to play

to play (size, differentation or suerior capabilities)

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LL Classical approach - implementation

Detailed market information

Linear and incremental progress
Performance measures
ROI guides decisions

Information
Innovation
Leadership

TOP
DOWN
Organization
Culture
Minimal process variance
Attention to detail
High degree of specialization

Goal oriented, disciplined, analytically minded

Stick to the plan

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LL Adaptive approach
„Big will not beat small anymore. It will be the fast beating the slow.“
Rupert Murdoch

Simultanious thinking and doing vs. 1. Analysis and planning, 2. execution

Unlike classical strategy, adaptive strategy does not have predefined ends, because
these are unknowable in an unpredictable environment.

Leaders define a domain of focus, a rough direction or an aspiration.

But the specific strategies are emergent and dynamic.

Essential => reading change signals => capturing the right data

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LL Change the perspective and experiment

Unexploited knowns False knowns

??
Unknown unknowns
High Execute a resource Get the facts and Change perspective
Trends appropriately realign strategy
Predictability

Shift Challange Increase

experimentation assumptions, experimentation,
Uncertainties resources, develop monitor closely flexibility
Low options

Knowledge
Extensive Limited

Firms often underleverage Firms often fail to question

new information to them firm´s dominant logic

Firms often neglect to

challange a false known

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LL Implementation of Adaptive approach

Information
Innovation
Leadership

Organization Bottom
Culture up

 Don´t bet the firm

 Choose speed over accuracy
 Iterate frequently
 Select with discipline
 Learn from failures
 Be organizationally flexible
 Be bottom up
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LL Visionary approach

Signals that help identify the pivotal moment in the industry:

 Emerging megatrends (structural schifts)
 Emergence of the new technology
 Consumer dissatisfaction or numet needs with the status quo offering

Inhibitors Initial skepticism

Organizational inertia

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LL Visionary approach - strategizing

1. Formulate your vision

2. Set a fixed goal but with flexible means
to overcome hurdles to achieve it

Visionary approach does not rely on the kind of elaborate

documentation of detailed financial and operational milestones.

3. Communicate your vision broadly (also to customers and investors)

Practice:
Create the idea by yourself OR observe mavericks on the fringes of your industry
Wait to gain more information | Ignore | Replicate |Neutralize | Buy

Innovation must be revolutionary (usually one-off bet)

Application of a new technology
Innovation of a business model
Application of existing capabilities from one industry to another

Organization TOP (Big Corp. – sometimes need to separate

DOWN
visionary units from the core) KSG
LL Shaping approach

1. Identify stakeholders and understand their interests

2. Engage stakeholders
3. Develop a shaping shared vision
4. Cooperation over competition
5. Orchestrate vs. Participate

6. Develop a platform (not necessarily the digital one)

7. Operate a platform (win-win approach for participants)
8. Evolve the ecosystem (keep it flexible) KSG
LL Shaping approach - implementation

1. Good information management

2. Innovation (often external)
3. Organization (both internal and external)
4. Culture (inclusive attitude towards external parties)
5. Leadership (influences rather than commands)

Make everyone happy

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LL Renewal approach
 Protracted mismatch between strategy and environment
 External shock
 Internal shock

Transformation | Turnaround | Cost cutting

There must be always two phases: 1. Defensive measures – economize

2. Pivoting to the new strategy approach

You cannot cut your way to greatness !!!

Adaptive Shaping

Classical Visionary

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LL Renewal approach - implementation

Reducing discretionary costs in phase 1

Detecting warning signals
Innovate strategically in phase 2
Communicating the saving plan
=> Focusing on cost cutting and profit generation

Balance the contradiction

Information between naturel of phase 1
Innovation and phase 2.

Leadership
Ambidexterity

Organization
Process reengineering
Culture
TOP
DOWN

Create small and immediate wins to fight pessimistic mood

Create new cultural identity to enter phase 2

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LL Industry environment examples
ADAPTIVE SHAPING
If your industry is unpredictable If your industry is unpredictable
and you cannot change it but you can change it

CLASSICAL VISIONARY
If your industry is predictable If your industry is predictable
but you cannot change it and you can change it KSG
Source: BCG analysis
LL What is not a strategy

1. Strategy is not a set of tricks and techniques

2. Strategy is not a prediction of the future
3. Strategy does not deal with future decisions
4. Strategy is not an attempt to eliminate risks
5. STRATGY IS NOT A PLAN

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LL Strategy is not a plan
Convenience trap 1: Strategic planning
All the strategic plans look more or less the same:
• Goals, mission, vision
• Potential initiatives (geographical expansion, new products….)
• Conversion of these initiatives into the financial plan

Convenience trap 2: Cost based thinking

Managers are used to plan their revenues the same way as their costs

What more I could have done???

Cost are company related – revenues customer related

Convenience trap 3: Self reference strategic frameworks

• Managers often overestimate their ability to predict the future and try to plan it
in a technocritical and precise manner
• The future is uncertain and therefore an emergence is needed, and thus we
should be ready to react on changes
• The most advantageous will be concentrating on our core competenciesKSG
LL Great opportunities support bad strategies

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LL Escape from the trap of convenience
... do not try to get the maximum profit from the current sales,
but rather let's see how we can generate additional sales

Rule No. 1.: Try to have your strategy defined simply

• Focus on the key factors that affect those who decide on your revenue = customers

Where? How?
Who?
Rule No. 2.: Be aware that the strategy is not about perfection
• Perfection is an impossible standard
• Strategy always includes a certain amount of uncertainty

Rule No. 3.: Be explicit

Test the logic of your thinking in the area:
• Customer intimacy
• Industry evolution
• Competitors´ behaviour
• Your capabilities KSG
LL Strategy is about creating value

Valuable
competitive
position Values

Opportunities Capabilities

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LL Strategy levels
Industry
attractiveness
Which businesses should
• Corporate level strategy
we be in?
How do we
make money? Competitive
advantage • Business level strategy

How should we compete?

• Operational strategies

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