Foundations of Business Strategy

Consultant Bootcamp
Yi Gong
Strategy Consultant at Monitor Deloitte Amsterdam office
1
www.ic-impactconsulting.com
 Module Content

1) Welcome & introduction

2) What is strategy?

3) How to express a strategy: Strategy Cascade

4) Case exercise

5) Food for thought

2
 Welcome & introduction

Monitor Deloitte’s heritage: Michael Porter (Five Forces, Generic Strategies, Value Chain)

• The five forces, generic strategies and value chain are concepts of Michael Porter and were
developed in the 1980s

• Any industry is a field of forces determining competitor’s performance

• Success is achieved by choosing an industry with an attractive set of forces at play, and following
any one of the 3 generic strategies: cost leadership, differentiation, or focus

• Porter is one of the founders of Monitor

3
What is strategy?

4
What is strategy?
How to reach a
What ’choices’
’unique position’?
must be made?

Strategy is the formulation and execution of an integrated set of choices

leading to a unique position that gives a firm sustainable advantage over its
competitors and provides superior stakeholder returns over the long-term

What drives
’superior returns’? What makes a strategy ’sustainable’?

5
 What is strategy?
Strategy is about making tough choices…

To win, a company must choose to

do some things and not others

6
What is strategy?

7
Strategy cascade

What is our winning

aspiration?

Where will we play?

How will we win?

What capabilities
must we have?

What management
systems do we
need?

8
 Strategy cascade
What is our Winning Aspiration?
• Define the purpose and (financial) objective of the organization
What is our winning
aspiration?
• Craft aspirations that are truly meaningful and powerful to your customers and employees.
Connect to a deeper idea of what the organisation exists to do
Where will we play?
• Start with customers, rather than products, when thinking about what it means to win

• Play to win, rather than simply to compete. Define winning in your context, painting a picture of a
How will we win? brilliant, successful future for the organization.

• Think about winning relative to competition. Think about your traditional competitors, and look
What capabilities for unexpected competitors too.
must we have?
• ’In biology, if two species compete for one food source in the same biotope only one wins unless
What management there are fences’
systems do we
need?
9
 Strategy cascade
What is our Winning Aspiration? - Example

Aspiration

’Being the fastest, most reliable and cost-effective vertical drainage

and compaction specialist on earth’

Objective

’Double revenue and profit on the mid term (3-5 years)’

10
 Strategy cascade
Where will we play?
• Fundamentally answers the question: where do we compete? What set of customers, with what
What is our winning
aspiration? product, in what geography do you want to play and focus your resources? This requires a map to
consider size, growth and attractiveness of segments

Where will we play?

• Often requires re-thinking of existing segmentation schemes ’You can not win if you do not have
a good map’ (military strategy)

• Choose where you will play and where you will not play. Explicitly choose and prioritize
How will we win? segments. Don’t embark on a strategy without specific where choices. If everything is a priority,
nothing is

What capabilities • Look for places to play that will enable you to attack from unexpected directions, along the lines
must we have? of least resistance. Don’t take walled cities or take on your strongest competitors head-to-head

What management • Don’t start multiple fronts at once. Plan for competitors’ reactions and think multiple steps
systems do we ahead
need?
11
 Strategy cascade
Where will we play? - Example
Arctic basin
Current client ports Volume: 50 Mt, 7%
Baltic basin Ports: 17
Volume: 237 Mt, 33% CAGR2: 6%
Ports: 7 Small distinct market
CAGR: 3%
Primorsk
Large market, large ports
Baltiysk
Far East basin
Caspian basin
Azov-Black Sea basin Volume: 186 Mt, 26%
Novorossiysk Volume: 6 Mt, 1%
Volume: 244 Mt, 34% Ports: 19
Ports: 3
Ports: 19 CAGR2: 8%
CAGR: -10%
CAGR: 7% Large and growing
Small distinct market market
Large market, smaller
ports

12
 Strategy cascade
How will we win?
• Winning with customers; why do they choose us, core value proposition
What is our winning
aspiration?
• Winning economic model; low cost or differentiation

• Two fundamental ways to win:

Where will we play?

− Non-unique product: low cost (not necessarily low price)

How will we win? − Unique product: differentiation, earns a premium, creates a mini-monopoly

• To be successful, how-to-win choices should be suited to the specific context of the firm in
What capabilities question and highly difficult for competitors to copy
must we have?
• Where-to-play and how-to-win choices do not function independently; a strong where-to-play
What management
choice is only valuable if it is supported by a robust and actionable how-to-win choice
systems do we
need?
13
 Strategy cascade
Unique product: differentiation

A
D
C
C

B D
B

A
Unique offering
= mini monopoly Overlap
 price premium vs standard product possible = same product
 lowest cost wins
14
 Strategy cascade
Two ways to win and their economics Unique product
Opportunity to realize a higher profit because
140 customers are willing to pay extra for better
Similar product functional or emotional benefits
Lowest cost supplier is
120 the most profitable
Profit margin
100

80
€m
60

Full Costs
40

20

0
Average Player Low Cost Player Differentiated Player
(Non-Price Value)
15
 Strategy cascade
What capabilities must we have?
• The capabilities choice, relates to the range and quality of activities that will enable a company to
What is our winning
aspiration? win where it chooses to play. Capabilities are the map of activities and competencies that
critically underpin specific where-to-play and how-to-win choices

Where will we play?

• Many capabilities are required to compete (table stakes, hygiene), few capabilities (<5) allow you
to win. A company needs to invest disproportionately in building the core capabilities that
together produce competitive advantage
How will we win? • Play to your own, unique strengths. Reverse engineer the activity systems (and where-to-play and
how-to-win choices) of your best competitors, and overlay them with yours. Ask how to make
yours truly distinctive and value creating
What capabilities
must we have? • Be honest about the state of your capabilities, asking what will be required to keep and attain the
capabilities you require
What management
systems do we
need?
16
 Strategy cascade
Categories of capabilities

Capabilities

Limited Capacity Assets Knowledge Assets Know-How Enablers

Physical Information Business-specific Brands

⚫ E.g., equipment, infrastructure, real ⚫ E.g., customer information, scientific ⚫ E.g., putting a system in place quickly,
Reputations
Examples

estate, mineral rights knowledge designing clinical trials

Human Intellectual Property Corporate Relationships

⚫ E.g., sales force, management time ⚫ E.g., technology, patents, licenses, ⚫ E.g., negotiating with acquisition ⚫ E.g., customer relationships, employee
frameworks, processes candidates, strategic plan reviews, satisfaction
leadership
People

⚫ Cannot be used by multiple users ⚫ Can be used by multiple users ⚫ Driven by economies of learning / ⚫ Fragile -- appropriate usage can increase
simultaneously simultaneously experience so: value but misuse can destroy it
⚫ Sharing driven by economies of scale or ⚫ Easy to transfer – Transferring takes time as ⚫ Built up over time following a unique
Characteristics

utilization patterns
⚫ The capacity is easy to transfer, though
the associated capabilities may not be
⚫ Usage depreciates many physical assets
⚫ Can be difficult to imitate / replicate if
protected or if creation is dependent
upon a unique or lengthy development
path
⚫ Usage neither increases nor decreases
value
recipient gets up to speed
– Often increase in value with usage
⚫ Processes can be documented as
knowledge assets, but real capability
resides in people
development path, so are difficult to
imitate / replicate
⚫ Can be difficult to transfer because may
be associated with particular individuals

17
 Strategy cascade
What management systems do we need?

• Manage what matters: without enabling management systems, the strategy remains a wish list
What is our winning
aspiration?
• Management systems include

− Organization structure
Where will we play?
− Operational and support processes and procedures

− Enabling technology (ERP, IT tools, systems, outsourcing)

How will we win?
− Decision rights (Input, Make, Notify, Ratify, Approve)

What capabilities − Metrics and incentives

must we have?
• To be truly effective, they must be purposefully designed to support the choices and capabilities
What management
systems do we need?
18
 Strategy cascade
Strategy cascade best practice

The most robust strategies are those in which the how to win reinforces the where to
play and vice versa

The most satisfying strategies are those in which the where to play and how to win choices have
the potential to meet the desired goals and aspirations

The most sustainable strategies are those in which the where to play and how to win choices
are buttressed by appropriate, distinct, and reinforcing capabilities, management systems and
initiative programs

19
 Strategy cascade
Strategy cascade leads to roadmap of initiatives
OK, but what do I need to do to
Current strategic choices get going? Future strategic choices

Client CEO

Delta

Strategic Agenda
Roadmap of Initiatives
• Vision and Purpose
• Strategic objectives
• Targets
• Key initiatives Financial Plan

20
Strategy cascade

Exercise

21
 Case exercise

• Picnic is a pure app-only grocery player that offers customers lowest price and free delivery for all their grocery
items. The A-brand and private label products that Picnic markets are vegetables, fruits, meat, fish, sweets, snacks,
drinks, dairy, bread, but also non-food items that you can find in any supermarket

• Picnic offers delivery services in more than 100 cities in The Netherlands and Germany

• Picnic is the most sustainable supermarket with 100% electrical delivery vans and no food waste. It is the milkman
2.0 with lowest prices in the market and free delivery

• Picnic was founded in 2015 by Joris Beckers, Michiel Muller and Frederik Nieuwenhuys

• https://www.youtube.com/watch?v=urss5lzvZ8I

22
 Case exercise
Strategy choice cascade (Picnic)

What is our winning

aspiration?

Where will we play?

How will we win?

What capabilities
must we have?

What management
systems do we need?
23
 Case exercise
Strategy choice cascade (Picnic)
What is our winning
• Be a profitable technology company and Europe’s fastest growing online supermarket
aspiration?

• Products: Free next day, fixed 20 minute timeslot, delivery with live tracking of a wide but shallow range of online groceries for
orders over € 20
Where will we play? • Markets: Large medium income households in dense areas that accept a fixed delivery timeslot
• Geographies: Netherlands, Germany and the UK
• Stages in value chain: warehousing and last mile distribution

• Customer proposition: Lowest online price, convenient app, green, few delivery days, narrow windows
How will we win?
• Cost advantage: Dense routing, small vans, young staff, high volume/customer, high purchasing scale per product and supplier

• Assets: Custom made electric delivery vans, distribution centres, own software (routing, apps, AI), customer consumption data
What capabilities
• Know-how: Data science, online delivery logistics
must we have?
• Enablers: Sympathetic brand, partnership with Superunie buying group
• Processes: Unique warehousing and distribution, agility, area waiting list, A/B testing
What management
• Technologies: Drivers and consumer apps, AI tools
systems do we need?
• Culture: Start-up that attracts young tech talent

24
 Food for thought
Nested strategic choice cascade

Corporate What is our winning

aspiration?

Where will
we play?

What is our winning

Division aspiration?
How will we win?

Where will What capabilities must

we play? we have?

What is our winning What management systems

Business aspiration?
How will we win?
do we need?

Where will What capabilities must

we play? we have?

Product
What management systems
How will we win?
do we need?

What capabilities must

we have?
..
What management systems
do we need?

25
 Food for thought
Business strategy vs. corporate strategy
Business strategy Corporate strategy

What aspiration? Winning aspiration, vision, purpose, values, objectives

Products and markets

Portfolio of businesses
Where to play? Geographies
Relative weight of investment
Stages in value chain

Customer proposition Benefits to business units

How to win?
Cost or differentiation advantage Parenting advantage

Assets
What capabilities? Know-how
Enablers
Structure, processes,
What management
decision rights, culture, P.I.L.O.T.S.
systems?
technology
26
 Food for thought
Ahold strategic choices cascade
⚫ Aspiration: Leading together
⚫ Purpose: Eat well. Save time. Live better
⚫ Values: Courage. Integrity. Teamwork. Care. Humour
⚫ Objectives: Outgrow the market. Stable margins. Free Cash Flow (FCF) of ~€ 20bn. 5-10%
What are our goals and growth in Earnings Per Share (EPS)
aspirations?

⚫ Management oversight: appointment and development of managers

⚫ Horizontal benefits: best practice sharing (operate smarter, waste less), some
Where will we play? purchasing (buy better), shared services
⚫ Portfolio system benefits: investments in new platforms

⚫ Full service supermarkets and meal solutions in NL, BE, US, CZ,
SK, RO, GR, TH, SI and ID How will we win in chosen
⚫ Convenience stores in NL and BE markets?
⚫ E-commerce and omnichannel in NL and BE
⚫ Etos drugstores in NL and BE
⚫ Gall & Gall liquor stores in NL ⚫ Investor
⚫ Grocery delivery in NL, BE and US (Peapod) What capabilities must be ⚫ Leader
⚫ Addition of Picnic in NL, DE, UK and beyond in place? ⚫ Operator

⚫ Stock-market listing/access to What management

capital systems are required?
⚫ Retail and corporate management
expertise

27
 Summary

• Winning Aspiration = purpose and objective of organization

• Where-to-Play = where to compete: customers-, products-, geography-, & activities to focus resources on

• How-to-Win = winning with customers (why do they choose us, core value proposition), winning economic model (low cost vs.
differentiation)

• Capabilities = map of activities & competencies critically underpinning specific Where-to-Play & How-to-Win choices

• Management Systems = system that supports the capabilities + measures strategic performance

28