MMVA ZG512 Manufacturing

Strategy
Rajiv Gupta
BITS Pilani
Session 13
 Session 13
• Module 1
– Recap of Session 12
• Module 2
– Traditional Strategy vs. Strategic Intent
• Module 3
– Strategic Intent
• Module 4
– Competitive Innovation
• Module 5
– Summary and Wrap-up

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 Session 13
• Begin Module 1
– Recap of Session 12

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 Recap of Session 12
• In the last class we saw that the traditional
approach to competitive positioning seemed to
be static
• The market and the competition is dynamic and
evolving and requires a responsive approach to
succeed
• We saw how focusing only on resources or their
organization is insufficient to overcome the
competition

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 Recap of Session 12
• The role of capabilities was also discussed
• Capabilities are built over a period of time and are
not necessarily visible on the surface
• Tacit knowledge can typically be acquired through
experience, and several people are unable to
articulate it
• We also saw an example of Wal-Mart using
capabilities to overthrow the market leader K-Mart
over a period of time

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 Session 13
• End of module 1

6
 Session 13
• Begin Module 2
– Traditional Strategy vs. Strategic Intent

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 Typical Approach to Strategy
• Traditional approach to strategy
– Evaluate current competition
– Based on current resources and capabilities
– No future view
– Snapshot of a moving projectile
– Cause of lack of long term strategic outlook
– Cause of failure to detect competitor’s
movements

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 Other Myopic Reactions to
Competition
• Keep a lookout for the current visible
moves of current competitors
• Imitate what the competition is doing, e.g.,
off-shoring, outsourcing.
• Sun-Tsu – “ All men can see the tactics
whereby I conquer, but what none can see
is the strategy out of which great victory is
evolved.”
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 Examples
• Japanese automakers were not perceived to be
threats by Detroit through the 60s and 70s when
they were building their capability
• Komatsu was under the radar to Caterpillar
during the 1970s
• Canon was considered too small to be
considered competition by Xerox
• Walmart was not considered a real threat to K-
Mart when it grew in the rural south

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Strategic Fit vs. Strategic Intent
• Some companies view strategic fit as a static stance
taken at one point in time
• Strategic intent is a long term plan to overtake the
competition by slowly building up capability in the
entire organization.
• Strategic intent starts with a desire to attain a
leadership position
• Management focus must follow toward that goal by
motivating, communicating, mentoring, and
sustaining momentum while allowing for creativity
and course correction, when required.
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Strategic Fit vs. Strategic Intent
• Strategic fit looks at the current capability and
resources of the organization and trims goals to
make them feasible
• Strategic intent considers avenues for leveraging
resources towards stretch goals that may be
considered currently infeasible
• In strategic fit current advantages are considered vis
a vis competitors
• In strategic intent the focus is on building
advantages and capabilities in the future as
required
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 Strategic Fit vs. Strategic Intent
• A company pursuing strategic fit will look for a niche to
specialize in, or avoid taking on a larger competitor
• A company pursuing strategic intent will look to change
the rules of the game to gain an advantage over a larger
competitor
• Using strategic fit a company achieves consistency by
following operational standards (SOPs) and industry
practices
• Companies following strategic intent achieve consistency
from allegiance to a long term goal with flexibility in how
those goals may be achieved

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 Strategic Fit vs. Strategic Intent
• Companies that pursue strategic fit disaggregate
businesses based on products and markets (SBUs).
Each business is expected to possess all skill needed for
its operational purposes
• Companies following strategic intent invest in the
development of core competencies in addition to skills
needed based on the products or markets served. Core
competencies are not restricted to any one business or
unit but can be exploited by the organization as its sees
fit.

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 Strategic Planning vs. Strategic
Intent
• Most companies develop strategic plans which are very
detailed and specific. Each activity is and how it is to be
achieved is well defined
• Strategic intent, being focused on what seems currently
infeasible from a resource or capability viewpoint, cannot
be specifically planned
• Strategic planning is concerned with eliminating current
problems and limited by current resources
• Companies with strategic intent are realistic about
current limitations but look for ways to overcome them in
pursuit of their goal.

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Strategic Planning vs. Strategic
Intent
• Most senior managers engaging in strategic planning
consider goals such as shareholder value, and return on
investment. But the planning horizon tends to be short.
• A company engaged in strategic intent will also look for
gains in shareholder value and returns on investment,
but the realization is over a long period of time.

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 Session 13
• End of module 2

17
 Session 13
• Begin Module 3
– Strategic Intent

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 Strategic Intent
• Strategic Intent starts with a long term goal
of capturing a leadership position
• Strategic Intent remains stable over time
• Strategic intent requires personal effort
and commitment

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 Long Term Leadership
• Most companies pursuing strategic intent will target
a leadership position in a market.
• Examples are the US intent to beat the Soviets in
landing a man on the moon, Canon looking to
become a leader in copiers, etc.
• Having a long term goal provides for clarity to the
employees, the customers and the shareholders
with regard to the direction of the company.
• Sometimes a company may not pick a specific
competitor to overtake, but define an area or
technology to be a leader in
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 Stable Over Time
• In a broad sense the long term goal of leadership
does not change
• However, the means to achieve the goal can
change depending on the market conditions and
circumstances
• Stability in the long term intent gives confidence to
employees to explore different ways to achieve the
long term goal
• Developing capabilities takes years and if there is
stability, the organization can develop appropriate
advantages
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 Personal Effort and
Commitment
• Achieving stretch goals requires more than
resources, it requires full commitment to a purpose.
This takes motivation.
• A lofty target helps motivate people and energizes
them as compared to a target of maximizing
shareholder value
• Being a market leader will also yield wealth to the
company
• Top management needs to provide personal
commitment that can be infectious.

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What Should A Company Do To
Engage The Organization
• Create a sense of urgency
• Develop a competitor focus throughout the
organization
• Ensure that all employees have the necessary
knowledge, skills and tools to achieve their best
toward the long term goal
• Set a practical, sustainable pace of movement
toward the end goal
• Establish clear metrics and review processes to
measure progress
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 Create A Sense of Urgency
• One of the biggest motivators for an organization
is a crisis or an urgency.
• A sense of urgency tends to bring the attention
of all employees to a common goal.
• Sometimes management may need to create a
feeling of a crisis to bring a sense of urgency,
e.g. Komatsu budgeted on a very pessimistic
estimate of Yen/Dollar exchange rate.
• A sense of urgency can result in proactive steps
and could prevent a real crisis from occurring
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 Create A Competitor Focus
• Each employee in the organization must
understand his/her role in overtaking the
competition
• Benchmarks should be set so each person can
evaluate his current standing and what he needs
to do to move toward the goal
• The challenge has to be perceived as personal
• It is essential to energize the entire organization
to achieve market leadership

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 Knowledge Skills and Tools
• If management only waves the flags and
employees do not have the tools, the
organization is not going to move.
• Training and the opportunity to apply it is very
essential
• Training must cover hard and soft skills,
including equipment usage, statistical analysis,
teamwork, problem solving, etc.

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 Practical Sustainable Pace
• Companies often overwhelm the employees by
attempting to do everything all at once.
• When the pace of progress lags, management
starts to juggle priorities, confusing middle
management and shop floor workers
• A clear path with priorities well defined is
essential for focus and achievement of results

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How Komatsu Built Competitive
Advantage
• In the early 1960s, Komatsu did not have the
products, the technology, or the quality to be
internationally competitive
• Step 1 was to engage in licensing deals to gain
technology from Cummins, International Harvester,
etc.
• By the mid 1960s, Komatsu began its focus on cost
control by instituting a Cost Down program
companywide
• At the same time it began to test its products in the
Eastern European countries
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How Komatsu Built Competitive
Advantage
• By the late 1960s, it had established its European
marketing subsidiary
• By 1970 it established Komatsu America
• Through the 1970s it began to expand its product
offerings to meet international market needs
• During this period parallel efforts to improve reliability
and reduce costs further to be competitive
• During the oil crisis, efforts in quality and cost reduction
were stepped up
• By late 1970s, further push to expand line and improve
production efficiencies
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 Metrics and Review
• Without regular reviews, employees do not
know if progress is being made
• Recognition and rewards can go a long
way in sustaining the motivation and
enthusiasm of the organization
• With clear, transparent, metrics, there is
reduced possibility of disappointment and
frustration
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 Session 13
• End of module 3

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 Session 13
• Begin Module 4
– Competitive Innovation

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 Competitive Innovation
• Any competitive advantage is temporary
• Companies need to work on developing new
advantages as competitors close in on them
• Developing new advantages requires innovation and
creativity
• Mere imitation will only get a company parity with
the competition
• Innovation is necessary to conserve resources
• Companies must change the rules of the game to
their advantage
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Four Approaches to Competitive
Innovation
• Building Layers of Advantage
• Attacking Loose Bricks
• Changing the Terms of Engagement
• Competing through Collaboration

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 Building Layers of Advantage
• A simple advantage such as low cost may be easy
to emulate, but a collection of advantages can be a
formidable obstacle
• For example, any company can cut labor costs by
offshoring, or outsourcing. However, brand equity
requires effort and time to build as well as to
overcome
• As a competitor zeroes in on one advantage, a
company with several areas of leadership can
leverage another and still maintain market
leadership
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 Building Layers of Advantage
• The Japanese TV industry began by being the largest
black and white TV manufacturers
• They then began to move into color TVs by capitalizing
on low labor costs.
• They built world scale plants and focused on quality and
reliability – another layer of advantage
• They made process improvements to further reduce
costs to increase market share
• In the 1970s they invested heavily in building channels
and brands followed by regional manufacturing to meet
local requirements
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 Attacking Loose Bricks
• This approach involves the new competitor to attack
the incumbent by staying below the radar.
• The attacker works in territories or product ranges
that are not of interest to the market leader, hence
goes unnoticed.
• The competitor chooses an area that could be a
“loose brick” of the market leader.
• In the case of global operations, there may be
different “loose bricks” in each region
• Loose bricks may be different markets, regions, etc.
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 Attacking Loose Bricks
• As an example, Honda started by producing and
selling 50 cc bikes in the US while it was selling
larger bikes in Europe
• The experience in the “loose brick” area gives the
opportunity to develop the skills required for a full
assault on the entire product range
• Honda developed excellence in engine design,
which went unnoticed by competitors in industries
like automobiles, diesel generators, lawn equipment,
as well as motorcycles, until it was too late

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 Changing The Terms of
Engagement
• Innovation can be translated into restatement of the
way in which traditional industry is defined
• Companies often make the mistake of fighting a
market leader on the leader’s terms and turf
• An example is in the copier business. Xerox was the
leader in copiers and sold its products directly
through a large and aggressive sales force
• IBM tried to enter the market by taking on Xerox
head-on, but had to exit because Xerox could read
IBM’s moves clearly

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 Changing The Terms of
Engagement
• Canon, however, chose not to compete on Xerox’s terms
• While Xerox had a wide range of products, Canon chose
to standardize its products to a few models
• Canon chose to distribute through office product dealers
to reduce costs
• It also built reliability into its products and delegated the
service function to the dealerships
• Canon sold rather than leased its copiers, freeing up
capital
• Xerox was unable to retaliate quickly and lost market
share
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 Collaborating
• Companies often find alliances by way of licensing,
outsourcing agreements, and joint ventures
• Fujitsu formed alliances with Siemens and STC in
Europe and Amdahl in the US to gain access to
markets and volumes
• Collaborating with the rivals of the market leader is
another way to disrupt the leadership
• Matsushita had joint ventures with Telefunken in
Germany, and Thomson in France to develop its
strength against Philips

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 Collaborating
• Collaboration can also involve hijacking the
development efforts of potential rivals
• Japanese electronics firms offered to make VCRs,
camcorders and CD players for Western companies
hoping that the Western companies would stop their
own development efforts
• Once a competitor drops its development plans for
one set of products, it usually finds it difficult to
reenter the race for the next generation of products,
e.g., HDTVs

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 Session 13
• End of module 4

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 Session 13
• Begin Module 5
– Summary and wrap up

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 Summary
• In this class we discussed the topic of Strategic
Intent
• Strategic Intent sets a long term strategic goal of
market leadership that helps guide a company
and its employees
• Companies pursuing Strategic Intent do not limit
themselves by current resources and
capabilities, but have a goal of attaining these in
the pursuit of the long term goal

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 Summary
• Strategic Intent differs markedly from Strategic
Fit and Strategic Planning
• Various attributes of Strategic Intent were
discussed highlighting the need for long term
vision and commitment
• Different methods of competitive innovation were
discussed including building layers of
advantage, attacking loose bricks, changing
terms of engagement and collaborating

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 Summary
• Reference for today’s lecture:
– “Competing For The Future” by Gary Hamel and C.K.
Prahlad

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 Session 13
• End Module 5
– Summary and wrap up

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