Strategic management

AFI framework

Analysis Formulation Implementation

Analysis (AFI framework)

Diagnosis of competitive challenge

Formulation (AFI framework)

Drawing up a plan of action (where, how)

Implementation (AFI framework)

Implementation considerations

What is strategy?

A holistic and coherent plan determining where to compete and how te compete for a sustained competitive advantage

Competitive advantage

Better results than competitors active in the same sector and/or than the sector average

Sustainable competitive advantage

Can be sustained over a long period of time

Competitive parity

Matching competitors

Strategic objective

Maximize Value - Cost

Types of strategic positioning

Differentiation

Cost-leadership

Integration

Differentiation

Higher value

Cost-leadership

Lower cost

Integration

Both higher value and lower cost

Direct competitors

Same sector with same strategic positioning

Indirect competitors

Same sector with different strategic positioning

3 broad approaches of strategic management process

Strategic planning

Scenario planning

Strategy as planned emergence

Strategic planning

Top-down

Big design upfront

Based on vision and/or data analysis

Works well in fairly stable environments or those with a forseeable trajectory

Scenario planning

Greater flexibility

Largely top-down with input from lower levels especially in analysis phase

What-if scenarios incl black swan events

Main options are worked out in greater detail

Execute the dominant plan

Planned emergence

Maximizes flexibility

Combination of top-down and bottom-up emergence

Strategic inflextion points

when the fundamentals of a business sector are about to change

Human factor in strategic management process

Cognitive limitations

Cognitive biases

Cognitive limitations

We do not collect all relevant information

Limited capacity to analyze collected information

Coginitve biasis (6)

Illusion of control

Escalating commitment

Conformation bais

Reason by analogy

Representativeness

Groupthink

Illusion of control

Our tendency to overestimate our ability to control events

Escalating commitment

Continuing to support a project when it is showing signs that it may not succeed

Confirmation bias

Searching for information to support existing beliefs

Reason by analogy

The tendency to use simple analogies to make sense out of complex problems

Representativeness

Drawing conclusions based on small samples or anecdotes

Groupthink

When opinions coalesce around a leader without individuals critically evaluating and challenging that leader’s opinions and assumptions

How to overcome cognitive limitations and biases

Devil’s advocacy

Dialectiv inquiry

Vision

What are our main long-term goals?

Mission

How are we going to achieve our goals?

Values

Anchor our vision and serve as guardrails to act ethically in pursuing our mission

Product-oriented vision

Defenition in terms of product → more rigid

Customer-oriented vision

Definition in terms of customer need → more strategic flexibility

2 functions of values

Foundation of vision

Guardrails in pursuit of mission

What are stakeholders

Parties who have an impacT on or are impacted by the company in a meaningful way

Stakeholder impact analysis

1. Identify relevant stakeholders

2. Prioritize their interests based on power, legitimacy and urgency

3. Analyze opportunities & threats

4. Discuss responsibilities of company to stakeholders

5. Devise an appropriate stakeholder action plan

Corporate social responsibility

Core is still economic value creation but in a responsible manner

Creating shared value

Dual focus on economic and societal value creation in which the latter is also at the core

3 standard approaches multidimensional perspective

Economic value creation

Accounting metrics

Shareholder value creation

2 broader approaches multidimensional perspective

Balances scorecard

Tripple bottom line

Economic value creation

Value (customer) - cost (company)

Consumer and producer surplus

Accounting metrics

Easily available and comparable

Shareholder value creation

Benchmark on total return to shareholders or evolution of share price

Balanced scorecard

Multiple perspectives:

• Financial perspective

• Customer perspective

• Internal process perspective

• Learning & growth perspective

Triple bottom line

People - planet - profit

External analysis

Macro: PESTEL

Industry: 5 forces of porter

Intra-industry: strategic groups

PESTEL

Political

Economical

Sociocultural

Technological

Ecological

Legal

5 forces model (Porter)

Bargaining power of buyers

Bargaining power of suppliers

Threat of new entrants

Threat of substitute

Rivalry among firms

Strategic groups

Cost-leadership strategy

Differentiation strategy

Resource-based view

VRIN criteria: valuable, rare, imperfectly imitable and non-substitutable

The amidexterity challenge

Firms have to balance exploitation and exploration

Strategic activity system

Conceptualization of company as a “network of interconnected activities”

SWOT analysis

Internal analysis: Strengths & Weaknesses

External analysis: Opportunities & Threats

Business-level strategy

How to compete within a particular product market

Scope of cometition

Competitive scope - strategic position

Broad competitive scope, cost-leader

Cost leadership

Narrow competitive scope, cost-leader

Focused cost leadership

Broad competitive scope, differentiator

Differentiation

Narrow competitive scope, differentiator

Focused differentiation

Differentiation

Higher value for customer, higher profit margin

Cost-leadership

Lower cost for company, higher sold quantity

Value drivers (5)

Product features

Customization

Complements

Network effects

Customer service

Cost drivers (5)

Lower cost of input factors

Economies of scale

Economies of scope

Economies of learning

Economies of experience

Blue ocean strategy

Succesful combination of differentiation and cost-leadership through value innovation to reconcile the value vs cost trade-off

Value innovation

Eliminating taken-for-granted cost elements and reducing others

Creating unconventional value elements and raising others

Strategic questions for value innovation

1. Eliminate: Which taken-for-granted factors can be eliminated?

2. Reduce: Which factors can be reduced below the industry standard?

3. Raise: Which factors should be raised above the industry standard?

4. Create: Which factors that have never been offered in the industry need to be created?

The innovation process

1. Idea

2. Invention

3. Innovation

4. Imitation

Idea (innovation process)

Conceptual and rather abstract in nature, regularly results from research

Invention (innovation process)

Transformation of idea into concrete new or impoved product or process

Innovation (innovation process)

Commercialization or application of invention

Imitation (innovation process)

If successful, competitors will attempt to copy

Life cycle

1. introduction

2. Growth

3. Shake-out

4. Maturity

5. Decline

Introduction (Life cycle) (market size, market growth, type of buyers, competitors)

Market size: Small

Market growth: Slow

Type of buyers: Tech enthusiasts

Competitors: Few

Growth (Life cycle) (market size, market growth, type of buyers, competitors)

Market size: Moderate

Market growth: High

Type of buyers: Early adopters

Competitors: Many

Shake-out (Life cycle) (market size, market growth, type of buyers, competitors)

Market size: Large

Market growth: Moderate

Type of buyers: Early majority

Competitors: Fewer

Maturity (Life cycle) (market size, market growth, type of buyers, competitors)

Market size: Largest

Market growth: Moderate to none

Type of buyers: Late majority

Competitors: Moderate

Decline (Life cycle) (market size, market growth, type of buyers, competitors)

Market size: Moderate/small

Market growth: Negative

Type of buyers: Laggards

Competitors: Few

5 strategic options in decline phase

Exit

Harvest

Maintain

Consolidate

Innovation that boosts demand

Market-and-technology framework

Markets (new, existing) - Technologies (new, existing)

New market, existing technology

Architectural innovation

New market, new technology

Radical innovation

Existing market, existing technology

Incremental innovation

Existing market, new technology

Disruptive innovation

Types of network effects

Direct: one-sided effects

Indirect: network effects across sides

Both

Transaction costs

Costs that would not exist in an economy where1 agent is producer and consumer

External transactioncosts

Searching for partners, negotiating agreements, resolving conflicts

Internal transaction costs

Recruiting employees, internal coordination

Transaction cost economics decisions

Make option

Buy option

Hybrid option

Continuum

Starting point Transaction cost economics

The market is most efficient for organizing economic activity unless certain transaction attributes give rise to nontrivial callenges (specificity, uncertainty, frequency)

Specificity

Value difference between best use en next best use

Uncertainty

Incidence and size of unforseen disturbances

Frequency

How frequent the transaction occurs

2 human factors that make the open market less efficient

Bounded rationality

Bounded reliability

Nonspecific products

Always buy

Semi-specific, intermediate unceartainty

Ally

Semi-specific, high uncertainty, low frequency

Ally

Semi-specific, high uncertainty, high frequency

Make

Specific, low frequency

Ally