Strategic Thinking

Thinking
Learning Planning Charlottesville

Venture Group
Doing
May 18, 2004
A Framework for Strategic Thinking
The Art of Business
Business is more an Art than Science.

Market competition demonstrates characteristics of both
art and science. Owing to the vagaries of human
behavior and the countless other intangible factors
which contribute to it, there is far more to the conduct of
market competition than can be explained by science…
We thus conclude that the conduct of it is ultimately an
art, an activity of human creativity and intuition powered
by the human will.
Strategic Thinking 2
The Art of Business
We call the artist an entrepreneur

Crafting Strategy is an exercise in Entrepreneurship
A Definition of an Entrepreneur
“The art of business requires the intuitive ability to grasp the
essence of a unique market situation, the creative ability
to devise a practical solution, and the strength of purpose
and skill to execute the act.”
Warfighting.
The Art of Business
Seeking
Seekingnew
newstrategic
strategicopportunities
opportunities
Collection of hard data Collection of soft data

(the scientific skills) (the perceptual skills)
The Intuitive
The Rational
Accumulation of facts and Accumulation of uncertainties

evaluation of probabilities and ambiguities
Use of analytical models to Use of intuition to define

define the opportunities the opportunities
Unique interpretation
of the strategic opportunity
Making choices about the future
on inadequate information Strategic Thinking 4
The Art of Business
 Strategic Management is a complex
process, much like putting together a
jigsaw puzzle
 But with missing pieces

 And with extra, irrelevant pieces
 Involves many people
 The situation is very dynamic
The Role of Strategy
 Sustained superior performances should be

the goal of every business
 How is sustained superior performance

attained?
A combination of effective strategies
and excellent execution
Strategy
Effectiv Ineffective
e
Success
Excellent Long Term Success
Unlikely
Execution
Maybe successful
Failure
Poor For a while
 Behind every successful company, there is a

strategy – A Business Concept
 There is an underlying logic, even if clear only in
retrospect.
 Can be developed by formal analysis, trial and
error, intuition or pure luck.
Industry Dominant Traditional Strategic

Competitor Competitor Innovator
US Airlines American Delta, United, Northwest Southwest
Car Rental Hertz Avis, Europcar, National Enterprise
TV Networks NBC CBS, ABC CNN
Earth Moving Caterpillar John Deere, Case Komatsu
Steel US Steel Bethlehem, Inland Nucor
Coffee Maxwell House Folger’s, Nescafe Starbucks
Photocopier Xerox IBM, Kodak Canon
Computer IBM DEC, NCR Microsoft
Sloan Mgmt Review Spring 1999
35.00%
30.00%
25.00%
ROI %
20.00%
15.00%
10.00%
5.00%
0.00%
#5 #4 #3 #2 #1
Market Share Rank
The Hedgehog ConceptFrom Good to Great,
By Jim Collins
What are you deeply

passionate about?
BHAG
What can you What drives
be the best in your economic
the world at? engine?
The Hedgehog Concept
 Passion
1. Pick a good business for your organization
2. Select an appropriate direction (Vision)
3. Develop a Competitive Advantage
 Excellence
1. Become excellent in the skills that are critical for
success
 Economic Engine
1. Have a valid Economic Model
2. Have an appropriate capital structure
Pick a Good Business
Industry Mean Median Low High
Construction 24.9% 23.1% 11.1% 29.0%
Services 24.1% 11.0% -12.9% 101.5%
Manufacturing 16.0% 15.4% -8.4% 33.7%
Wholesale Trade 15.2% 14.5% 4.5% 28.1%
Retail Trade 14.0% 14.9% 4.1% 20.9%
Transportation & Utilities 12.7% 10.7% 0.7% 29.0%
Agriculture, Forestry 10.1% 10.6% 6.5% 14.7%
Mining 8.7% 4.1% -0.3% 16.3%
Finance, Ins. & Real Est. 7.9% 8.8% -2.2% 20.2%
Total Average 14.3% -12.9% 101.5%
2001 BizStats.com
Good to Great Cumulative Stock Returns
1926-1999 1965-2000
73 years 35 years
General Market: $415 $56
Comparison $955 $93

Companies: +130% +66%
Visionary $6,356 $471

Companies: + 1,432% +741%
Built to Last Good to Great
Have Clarity of Purpose
 Be clear about.
 who the customers are.
 What their needs are.
 What value you add in meeting those
needs.
 What skills are required to add that value.
 Articulated in the Mission Statement.
How do you apply these steps to your situation?
 Confront the brutal facts of your situation
 Ask yourself the tough questions
 Be willing to make major changes
Change
“It may be hard for an egg
To turn into a bird:
it would be a jolly sight harder
for it to learn to fly
while remaining an egg.
We are like eggs at present.
and you cannot go on indefinitely
Being just an ordinary decent egg.
We must be hatched or go bad.”
--C.S. Lewis
Soaring
In The
Box
Of
Mediocrity
Poor trying
to become Faltering
good
Finding the Starting Point
 Is the business meeting your revenue goals?
 Are revenues growing, flat or declining?
 Is the business profitable?
 Is the business adequately capitalized?
What is the story

behind the financials
Finding the Starting Point
 Is there clarity of purpose?
 Is the direction realistic?
 Does the business have a competitive
advantage?
 Does the business have distinctive
competency in the skills critical for success?

 The four wheels must all be pumped up

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Thinking

Learning Planning Charlottesville

Business is more an Art than Science.

We call the artist an entrepreneur

Collection of hard data Collection of soft data

Accumulation of facts and Accumulation of uncertainties

Use of analytical models to Use of intuition to define

 But with missing pieces

 Sustained superior performances should be

 How is sustained superior performance

 Behind every successful company, there is a

Industry Dominant Traditional Strategic

Sloan Mgmt Review Spring 1999

What are you deeply

Comparison $955 $93

Visionary $6,356 $471

 What their needs are.

 What value you add in meeting those

 Articulated in the Mission Statement.

 Confront the brutal facts of your situation

 Ask yourself the tough questions

 Be willing to make major changes

What is the story

 Is the direction realistic?

 Does the business have a competitive

competency in the skills critical for success?

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