BMAL-590 Foundations of Business Integration and Strategic Management

The types of organization explained:

1. Hierarchy 2. Flatarchy 3. Holacracy

Empowering, team-oriented cultures:

A clear shift towards self-managing teams can be seen in every industry. Adobe has teams that can work in any manner (at the workplace, at home, in a library, or anywhere they like) but have to come up with the desired product or solution within a specified time frame (typically three weeks). CISCO has cross-functional teams for every major project and has automated processes to such an extent that customers can solve most of their problems themselves.

Several scholars have interpreted the challenge for today's leaders:

Collins and Porras infer that great leaders have the ability and capabilities to bridge differences of preference, opinion, and interestsat a higher level. Trompenaars and Hampden-Turner argue that 21st century leadership goes beyond professional competence. It relates to the personal development objectives of everyone in the organization. De Wit and Meyer opine that strategic leaders apply leadership principles to strategic issues and tensions.

The Need for Change

Change is inevitable. The competitive and macro environments are in a constant state of flux. Unless organizations adapt and change, failure is certain. Technology: Technology drives markets. INTEL has consciously killed its products before they reach the maturity stage to force the industry to switch to its new generation of microprocessors. Can you imagine a PC manufacturer today that can offer you a PC with a 80386 or 80486 processor? Globalization: The process of globalization has blurred many traditional concepts in management. Apparel manufacturer United Colors of Benetton (UCB) sources its raw material from China and India, has different stages of the manufacturing process in Thailand, Taiwan, Philippines, Malaysia, and Singapore. The design team works in Italy and France. Where would you say a UCB apparel is "manufactured"? Changing market requirements: Customer requirements change. Demographics change. In the mobile telephone industry, customers routinely expect two cameras, access to the internet, network capabilities in their offices, audio, video, conferencing capabilities, data processing and storage, social media, and much more. Such major changes in expectations can be a challenge to even the large players. Intense domestic and international competition: Practically every country has some kind of competition law that discourages monopolies and large-scale mergers. Agreements under GATT and WTO ensure market access to every nook and corner of the world. Daimler Benz, BMW, Audi, and Volvo compete fiercely in the EUand also across the world. New Leadership Opportunities and Threats: With changes in leadership, the pace of change accelerates. GE under Jack Welchwent through a roller-coaster ride of divestitures and new ventures and in the process became a rather unwieldy conglomerate. Amazon under Jeff Bezos is no longer just an online retailer - it has entered the cloud services space, media, and aerospace industries. In each of these industries, Amazon has to compete with a set of formidable competitors. At the same time, Amazon has to compete with local players in each country where it wishes to have a significant presence.

The Ideal Customer

Describe - based on demographics, psychographics, and behavior. Locate - geographically and culturally - local, regional, national, or global. Understand - the purchase process, the problem to be solved, the "job to be done" from the customer's perspective, quantity, frequency, value, and decision-making process (impulse, limited search, or extensive search; individual, family, team, or organization). Connect - with current customers, gather insights, find out why they chose you, what do you have that others don't? Create - customer profiles. The top 20% who typically account for 80% or more of revenues, the next 30%, the next 30%, and the bottom 20%.

Goals vs. Objectives

Goals are generic or qualitative (Example: We want to make profits) while objectives are specific and measurable. (Example: We want to ensure a revenue growth of 10% per year and a net profit increase of 10% per year over the next 3 years).

Guide to improve the ability to anticipate:

Listen to customers, suppliers, and other value chain partners. Use scenario planning to figure out the changes that may happen in the industry. Use simulation to understand the consequences of different scenarios. Study a rapidly growing competitor to understand what you may be missing. List customers who have left you recently and try to find the reasons. Keep your organizational antenna open 24x7 to catch signals that might affect you.

a market segment should be:

Measurable, Accessible, Substantial, Differentiable, and Actionable. Measurable attributes include the size, purchasing power, and profiles of the segments. Accessible refers to the fact that you can effectively reach and serve the chosen market. Substantial refers to the fact that the markets are large and profitable enough to serve. Differentiable refers to the fact that the markets are conceptually distinguishable and respond differently to marketing mix programs and elements. Actionable refers to the fact that effective programs can be designed (product, price, promotion, and distribution) for attracting and serving the segments.

Leaders can mitigate people-oriented resistance by:

Showing relentless support and unwavering commitment to the change process. Communicating the need and urgency for change. Continuously communicating progress of the change process. Avoiding micromanaging. Empowering people. Helping others to deal with the trauma of change. Preparing people for change through counseling and training.

5. Align:

Stakeholders have widely differing expectations. Strategic leaders consciously balance the expectations and find common ground. Success is a function of proactive communication, trust, and engagement.

Transformational Leadership:

There is a compelling need for transformational leaders - people who can affect others by positively impacting their goals and beliefs through vision and values, and intellectual stimulation. Herb Kelleher of Southwestand Ken Iverson of Nucor transformed their organizations through personal example.

Mission

a statement that provides the rationale for an organization's existence. Organizations tend to define their business in terms of products or services. This is a narrow view and precludes an examination of alternatives and goals. Abell provided an excellent framework for defining a business in 1980. It is still valid and is reproduced in the next slide.

holacratic organization

allows for distributed decision making while giving employees the opportunity to work on what they do best. There is still some form of structure and hierarchy but it's not based on people as much as it based on functional areas or departments. Information is openly accessible and issues are processed within the organization during special and ongoing meetings.

hierarchical organization

an organizational structure where every entity in the organization, except one, is subordinate to a single other entity.

Strategic Objectives

facilitate the achievement of a competitive position and superior performance. Example: Over the next two years, we aim to increase operational efficiency (ratio of output to input) by 10%, reduce transaction costs by 5%, improve our market share by 12%, enhance economic value added by 20%, and improve customer satisfaction from the current 78% to 85%.

Strategic Groups

firms in an industry that follow similar strategiessuch as low cost and acceptable quality. Firms within a group compete among each other but not with other strategic groups. At the other extreme, a strategic group may comprise a few firms following a high price, high perceived value strategy. Again, firms within the group compete among each other but not with other strategic groups. A firm may be present in different strategic groups by offering products with different value propositions and distinctive brand names.

Checkers Drive In and Redbox are examples of a ______ strategy

focus cost leadership

flatter organization

ooks more like a squashed triangle than a steep pyramid, with fewer boxes for C-suite or Executive level VPs near the top and more boxes for salaried staff and hourly employees down below.

Abell's framework

shifts the focus from the company to customers. In other words, customer focus is the critical factor in organizational success (this will further be explored in the customer focus section). Examples: Amazon.com: "To be Earth's most customer-centric company, where customers can find and discover anything they may want to buy online, and to offer its customers the lowest possible prices." Sony: "To be the company that inspires and fulfills your curiosity."

Linking the Budget to Strategy

Adequate resources to support the strategy. Fair and transparent screening of requests for new capital projects and larger operating budgets. Shifting resources based on strategic priorities - downsizing some processes, upsizing some, and eliminating the unnecessary ones.

Opportunity

Undeserved markets for specific products Few competitors in your area Emerging need for your products or services Press/media coverage of your company

Leaders can mitigate task-oriented resistance by:

Assembling a coalition of supporters. Aligning organizational structure with new strategy for consistency. Assessing the organizational landscape for likely enthusiasts, supporters, fence-sitters, and opponents. Recruiting and filling key positions with people who enjoy and embrace change easily. Knowing when to use ad-hoc teams and task forces to speed up implementation. Understanding when prototyping is desirable and when full-scale deployment is possible.

Guidelines to improve your ability to align:

Communicate early and combat the two most common complaints in organizations - "No one asked me" and "No one told me." Identify key stakeholders and map expectations. Look for lack of alignment, hidden agendas, and coalitions. Use constructive dialogue to expose areas of misunderstanding and resistance. Reach out directly to those who oppose change and address their concerns. Monitor stakeholders' positions during implementation and look for signs that trouble may be around the corner. Recognize (and where possible reward) colleagues who work toward alignment.

Situation Analysis - Five Forces

Competitive rivalry is high in small, fragmented industries (automobile components, fast food) and low in large, consolidated industries (financial services, insurance). Threat of new entrants is high when barriers to entry are low (mobile apps, software) and low when barriers to entry are high (aircraft, ship building, refineries). Threat of substitutes is high in commoditized products (bread, milk, cheese) and low in specialized or patented products (life saving medicines, space shuttle). Bargaining power of buyers is high when a large number of suppliers are dependent on a single or a small number of buyers (Walmart, Amazon) and low when many buyers depend on one or two suppliers (Boeing, Airbus). Bargaining power of suppliers is the mirror image of the bargaining power of buyers - high with one or a few suppliers and a large number of buyers (convenience products) and low with a large number of suppliers and few buyers (automobile parts, electronic components).

Sources of competitive pressure are:

Competitive rivalry within an industry. Threat of new entrants. Threat of substitutes. Bargaining power of buyers (customers). Bargaining power of suppliers. First, rate the strength of each force (low, moderate, high). Next, understand how each force is likely to impact your firm and what you should and can do about it.

Cost leadership examples:

Cost leadership is the ability of an organization to improve operational efficiency and reduce unit cost to a level that is lower than that of competitors. Assuming that the organization can charge the same price or even a lower price than competitors, cost leadership provides above-industry-average returns and is a valuable strategy to follow. Example: Southwest Airlines, founded by Herb Kelleher and Rollin King, has consistently followed the cost leadership strategy since 1971. The airline uses only one type of aircraft, the Boeing 737, reducing maintenance costs, provides courteous but "no-frills" service, has done away with intermediaries, operates on select routes within the USA and has not attempted to go international, has the quickest turnaround time for aircraft (thus enabling more flights per aircraft), and offers some of the lowest fares in the industry. Yet, the airline has outperformed its rivals even during times of economic recession.

4. Decide:

Decision-making is tricky in the best of times. When you have incomplete information, or when you have to make time-constrained decisions, the process becomes even more difficult. The important aspect of decision-making (that many leaders miss) is never to make it a binary choice (yes/no, go/no-go). Instead, look at the trade-offs, understand the implications for the short-term and the long-term, and examine whether you can combine only the best of two conflicting solutions and come up with a creative, new solution.

External customers can broadly be viewed from three perspectives:

Demographics - what is your typical customer profile as regards age, gender, ethnicity, geographic location, and economic status? Demographic factors are easy to define and relatively easy to collect. But they rarely convey buying behavior by themselves. Psychographics - how do customers feel about products and services? Do they prefer quality irrespective of price? Do they support products and services based on how the organization is committed to protecting and preserving the eco-system? What drives customers? Behavioral - past actions that may enable you to predict the future. Today, marketers typically track customers' social media activities to (or "intending to") understand behavioral patterns.

Cost leadership: differentiation

Differentiation is the ability of a firm to provide unique features, characteristics, service, brand image, and exclusivity, all of which combine to enable the firm to charge a premium price and thus earn above-industry-average returns. The important aspect of differentiation is the perceived uniqueness of the product or service. Example: Apple in the computer and mobile phone industry; Mercedes Benz, BMW, and Tesla in automobiles; Rolex and Omega in watches; Givenchy in fashion and apparel; Four Seasons in hotels, and Mont Blanc in writing instruments.

Ken Olsen of DEC failed to ________ the change occurring in the industry, focused too much on engineering precision, and brought about the downfall of the company.

anticipate

Threat

Emerging competitors Changing regulatory environment Negative press/media coverage Changing customer attitudes toward your company

The Change Process - Eight Stage Model

Establish a sense of urgency - agile teams in the software industry have just three weeks to complete a project. Form a powerful guiding coalition - based on trust, respect, integrity, purpose, and values. Develop a compelling vision - when Walt Disney says their overarching goal is "to make people happy" it creates an environment of cheer and optimism. Communicate the vision widely - does everyone in the organization perceive it the way you do? Empower employees to act on the vision - at SAS Airlines, the first employee you interact with is empowered to solve your problem. Generate and celebrate short-term wins - to maintain momentum. Consolidate gains, create opportunities for greater change. Evolve change in organizational culture to reflect values and principles while encouraging performance and providing psychological safety.

Guidelines to improve your ability to challenge:

Focus on the cause, not the symptom. For example, if revenues fall by 5%, ask why. Don't give up till you find out the cause and come up with a solution. Ask yourself about the long-standing assumptions about yourself, your organization, your processes, and your people. Don't be afraid of modifying or even giving up some assumptions when you find they are no longer valid. Develop a culture of psychological safety - create a time and a place where people can express their views openly without the fear of ridicule. Examine the feasibility of creating a rotating position with the specific mandate to challenge the status-quo. Ensure that a team has diversity in thought - having a group of like-minded people may sound great, but is a sure recipe for mediocrity. Get inputs from people not directly connected with a decision to receive an objective perspective.

Segmentation Examples

Geographic segmentation - many multi-national corporations segment global markets according to geography. IBM, Accenture, Oracle, Cisco, and Adobe have North America, Europe, Middle East, South Asia, Asia Pacific, and Latin American segments. Apparel manufacturers typically segment markets based on gender and age. It is also possible to segment based on income - Nordstrom, Saks, and Burberry aim to attract customers who don't mind high prices. Insurance providers tailor their offerings based on family life cycles. PC manufacturers segment markets based on use - students, executives, home makers, gaming enthusiasts, and professionals (accountants, lawyers, and physicians). Personal care products and fashion accessories most commonly use psychographic segmentation. L'Oréal, P & G, Unilever, Estee Lauder, Neutrogena, Nivea, Lancôme, and Avon use psychographic segmentation. Segmentation based on usage and loyalty is the most common method in airlines, hotels, credit cards, and retailing.

Flat and agile organizational structures:

Hierarchies are being dismantled, reporting mechanisms are being simplified, and the emphasis is at which the organizations can adapt. Zappos has eliminated the hierarchy and introduced a concept called holacracy.

Strategic Challenges

How do we satisfy our customers? How do we measure customer satisfaction? How to we improve it constantly? How do we grow - in the same industry and in other industries? Do we start from scratch or do we acquire an existing business? How do we adapt to rapidly changing industry and economic environments? How do we spot or create new opportunities and be the first to exploit them? How do we achieve strategic and financial objectives? How do we create synergy (the whole being greater than the sum of the parts) between functions, departments, divisions, and geographies?

Step 4: Implementing a Strategy

Implementing a strategy involves creating a fit between the way things are done and the way things ought to be done. Thus, fit can go astray along several dimensions. Resources and Capabilities: Some of the well-publicized PR nightmares faced by United, Wells Fargo, Uber, Yahoo, and Equifax have nothing to do with resources. Each one of them has to do with the lack of some capability. Invariably, fit or the lack of it boils down to leadership and culture. Leadership that is based on integrity and ethics never compromises on customer information even if it hurts the bottom line. Similarly, an organization that fosters a "performance at any cost" culture faces the danger of getting into a hole from which there is no escape. Internal and External factors: Many firms suffer from internal strife, petty politics, favoritism, and nepotism. Unless these are addressed through a combination of support structures and reward mechanisms, no strategy will work. Similarly, the external environment is beyond any firm's control. Political, Economic, Social, and Technological changes take a heavy toll on what a firm can do. Rapid adaptation without compromising the core values is the key success factor.

Step 3: Crafting a Strategy

In his work on competitive strategy, Michael Porter suggested two approaches to achieving competitive advantage - cost leadership and differentiation. In subsequent work, Michael Porter has added a second dimension - the size of the target market - large or small (focused or niche or micro market) yielding four strategy alternatives - cost leadership, differentiation (that address large markets), focused cost leadershipand focused differentiation (that address small markets or a market segment or a part of a segment called a niche). Porter's generic strategies are depicted graphically in the next slide. The horizontal axis shows the source of competitive advantage. The vertical axis shows the scope (market size) of competitive advantage.

Guidelines to improve your ability to decide:

Reframe binary decisions by looking at alternatives. Break down complex decisions into components and look for unintended consequences at each stage. Have a set of criteria for short-term decisions and another set for long-term decisions. Take others into confidence when you about to make a choice - one or more members could still be looking for information. Be clear about who to include in the decision process and who can influence the decision. Try pilot runs before rolling out any major project or making any commitment.

Consider an industry with multiple players and intense competition. Let us assume that all the players have great leaders. The leaders can spot opportunities and exploit them to their advantage. What happens in this scenario?

In theory, the industry should reach an impasse because no opportunities exist. In practice, however, not all leaders are omniscient. Therefore, superior opportunities are still available. The problem is that they are not visible. Most leaders fail to spot these "hidden" gems. The ability to spot hidden opportunities is difficult due to many reasons: They require a mental leap that few leaders can make. Often, they require a change in the firm's identity and employees resist such change. A change in identity distorts the perception that investors haveand can have negative consequences. Strategic leadership is therefore as much about managing conflicting expectations of people (stakeholders) as it is about spotting and exploiting opportunities.

Guidelines to improve your ability to learn:

Institute after-action reviews, document lessons learned, and communicate insights. Create opportunities for everyone to learn. Recognize (and even reward) honest failure. Conduct annual learning audits - these may be more important than financial audits. Identify initiatives that do not produce the intended results and examine the cause without bias. Create a culture in which inquiry is valued and respected, and mistakes are learning opportunities.

Ansoff's Model

Market penetration: Colgate increased its toothpaste sales by merely increasing the size of the nozzle. Market development: McDonald's expanded into a global enterprise with little or no product modification - burgers, fries, and colas. Product development: Innovation is a key driver for success. Applereleases its new products first in the US and other industrialized countries, and only later into other markets. Diversification: ALCON has integrated vertically backwards by acquiring bauxite mines in the Caribbean. Levi's has integrated vertically forward by having its own retail stores. Walmart integrated horizontally in India by acquiring an existing retailer Flipkart. GE is a diversified company offering aircraft engines, medical equipment, financial services and many other unrelated things.

Core Competencies

Resources and capabilities are not enough to achieve a competitive advantage. Capabilities must turn into core competencies. Example: Intel's dominance in the microprocessor is based on its core competencies of innovations in design, manufacturing, and integration. For over 40 years, Intel has defied Moore's Law and expanded the processing ability and speed of its processors while reducing costs. The INTEL Inside Logo has become an integral part of the computer industry. Intel's competitive advantage is such that its net profits are more than the revenues of its nearest competitor. Thus, a core competence is like the roots of a tree - supporting and nourishing the tree.

The key strategic leadership skills:

anticipation, challenging the status-quo, interpretation of conflicting scenarios, decision-making, alignment, and constant learning.

Organizational change

any transition that requires a change in human performance.

Leadership is the ability to:

Set and achieve challenging goals, Make timely and clear decisions, Outperform the competition, and Inspire others to perform welland reach their potential. Leaders walk the talk (set the right example to others) and practice the precept (what they say and what they do converge).

6. Learn:

Strategic leaders are great learners. They lead organizational learning. They promote a culture of constructive inquiry, a fearless analysis of failures, and a celebration of success.

Organizational change

any transition that requires a change in human performance. Change involves activities related to planning, designing, implementing, and internalizing tools, resources, procedures, routines, processes, or systems that will require people to perform their jobs differently. Organizations spend significant resources on change efforts.

2. Challenge:

Strategic leaders challenge the status-quo. Strategic leaders are not afraid to question assumptions - their own as well as those of others. Strategic leaders almost never make decisions in a hurry. They are open-minded, accept divergent views without their bias interfering in the process, and above all, listen.

Step 5: Evaluating Performance

Strategic management is not a one-off exercise. Continuous evaluation and changing direction, if required, are necessary because: The business environment changes - on political, economic, social, or technological dimensions. Customer expectations change - customer satisfaction may no longer be sufficient; customer delight and an occasional (positive) surprise may be necessary. Changes in key positions bring in new ideas and never-before-tested solutions. Given that change is the only constant, organizations should develop agility, adaptability, and flexibility. Also, they need to reduce complexity and ambiguity, enhance simplicity and transparency, measure performance, compare with expectations, alter direction as necessary, and in extreme cases, re-visit strategy and question assumptions made.

Growth Strategies

Strategy requires organizations to grow. Without growth, firms cannot survive. Growth can be along several dimensions. As a model, we can look at growth in four stages. Single business serves a local or regional market. Geographic expansion. Vertical integration - backward or forward. Diversification - growth slows and the firm enters new industries - related or unrelated.

Closing the Loop: Feedback and Control

The five tasks represent a systems approach to strategy. Thus, the mission and vision are the inputs to generate objectives. Objectives determine the strategy to be followed. Once chosen, the strategy has to be implemented. Measuring performance and taking corrective action is critical to success. At every stage, revisions and changes are possible based on internal and external factors. Thus, strategic management is a dynamic process that goes on 24x7 as long as the firm lasts. Example: The Boeing 787 (Dreamliner) is one of the most efficient aircraft designed and built by the company. Every major airline has ordered the aircraft and the company's order books are full for a few years. Yet, behind the brilliant design and construction, there is a tale of constant discovery and re-set. To date, over 100 changes have been made since the aircraft was approved for civil aviation. Some of these involve major changes to engine design, hydraulics, and electronics. This is what continuous improvement is all about, which will be examined in detail in a later section.

1. Anticipate:

The key to being a successful strategic leader is the ability to anticipate change. We have seen in the previous section that anticipation requires a thorough understanding of economic (market) factors as well as psychological (people) factors. Anticipation is the skill that most leaders find difficult to master.

Step 2: Setting Objectives

The vision, mission, and value proposition are made operational by setting out specific objectives. Both short-term and long-term strategic and financial objectives are set and communicated across the organization. While we have to be realistic in what is achievable and what is not, the strategy scholar Gary Hamel suggests that objectives must "stretch" every individual, function, department, and division. Example: In 1990, Sam Walton (WalMart) announced that the firm's objective was to be a $125 billion company by revenues by the year 2000. When he said this, the company's revenues were yet to touch $50 billion. Everyone (and most notably, the competition) thought the idea was a joke. WalMart silenced its critics by achieving the target in 1996, 4 years ahead of schedule. This example illustrates the concept of stretch- motivating and inspiring everyone to do better than their best

Strengths

Things your company does well Qualities that separate you from your competitors Internal resources such as skilled, knowledgeable staff Tangible assets such as intellectual property, capital, proprietary technologies etc. Examples: Strengths: Toyota's Production System. Google's Search Engine Algorithms. CISCO's Network Architecture. FedEx and UPS' Logistics Capabilities. Weaknesses: US Steel's inability to adapt to arc furnace systems. Sears' foray into areas in which it had no expertise leading to failure. Enron and Bear Stearns' leadership failure leading to bankruptcy. Nokia losing market leadership position due to lack of innovation.

Weaknesses

Things your company lacks Things your competitors do better than you Resource limitations Unclear unique selling proposition Opportunities: Depleting oil resources and environmental concerns driving movement toward electric vehicles (Tesla and Volvo). Rapid adoption of mobile technologies opening the doors for thousands of applications (apps). Mobility made possible by globalization providing new opportunities to the tourism and hospitality industries. Threats: Escalating tensions in the Middle East and other parts driving crude oil prices to record high levels. Proliferation of nuclear weapons and political rhetoric laying the ground for a war with no winners. Disruptive business models such as Airbnb and Uber posing a threat to the traditional hotel and transportation (taxi) services.

Why Do People Resist Change?

Threat of self-interest - each one of us brings a baggage of values based on a variety of factors - it is not easy to change them. Uncertainty and loss of comfort zone - change can be fun or it can be painful - many of us are content with the status quo. Lack of faith in the change process - Is it required? Will it succeed? Lack or deficit of trust in the leadership - authentic leadership is about legitimacy and stands on a three-legged foundation: trust, respect, and fairness. Threat to values - personal or organizational - morality and ethics cannot be understood and practiced in the same way as exact sciences like mathematics or physics. Fear of the unknown and the fear of being manipulated.

A capability becomes a core competency if it satisfies four criteria called VRIN:

V - Valuable - helps to exploit opportunities and neutralize threats. R - Rare - a capability not possessed by many others. I - Inimitable - difficult to imitate - such as culture, ambiguous processes, or complex technology. N - Non-substitutable - when a process cannot be performed any other way

Step 1: Developing a Vision and Mission

Vision is usually the overarching goal that the founder or entrepreneur has for the business. It is embedded in the values, beliefs, and aspiration of the promoter. Mission, in contrast, is a team exercise carried out by executives from different functions. The idea is to provide a road map to realize the vision. Sometimes, vision and mission are combined to form a single statement - this might well translate into the organization's value proposition - what do we have to offer to different stakeholders - customers, suppliers, employees, society, and even competitors, and how do we preserve and protect the environment?

Guidelines to improve your ability to interpret:

When you analyze ambiguous data, look for at least three explanations. Involve different stakeholders in the process of analyzing the data. Start with the details and enlarge out to the big picture view (most leaders do the opposite). Search for missing information and evidence that challenges your assumptions. Combine qualitative information with quantitative analysis. Take a step back - allow the idea to stay away for a day or two - indulge in your favorite hobby, and re-visit the idea with an open mind.

3. Interpret:

When you challenge the status-quo, you should expect conflicting information. Synthesizing the conflicting viewpoints without bringing emotion into play and interpreting the outcome is a key step in strategic leadership.

Strategy

a business approach to frame a set of competitive choices that lead to a desired outcome. Specifically, strategy is an organization's game plan to: Create satisfied customers (Peter Drucker) Be ahead of competition (Michael Porter) Achieve performance targets (ROI, RONA) Develop an eco-system that satisfies all stakeholders (Shared Value, Shared Purpose)(Porter and Kramer)

agile organization

a company whose structure, policies, and capabilities allow employees to respond quickly to customer needs and changes in the business environment provides employees a higher level of autonomy to present and implement new ideas.

"job to be done" construct

a powerful metaphor to understand customer expectations. The learning from this example is that companies need to understand everything from the customers' perspective. The typical organization invariably comes up with a product or service and then tries to find customers. If only organizations started with customers, the journey might be much easier and more satisfying to everyone.

Vision

an aspirational future state that an organization desires to be in. Vision represents an ideal that an organization commits to in the long run. Examples: IKEA: "To create a better everyday for the many people." Nordstrom: "To give customers the most compelling shopping experience possible." Life is Good: "To spread the power of optimism."

Diversification

can be related or unrelated, and involves vertical and horizontal integration, as well as greenfield ventures, acquisitions, and mergers.

An adaptive strategic leader:

combines resoluteness with flexibility. An adaptive strategic leader is persistent and views errors as opportunities to learn and can anticipate change and embrace change before competitors.

The two generic strategies:

cost leadership and differentiation Based on the target market, two additional strategies emerge - focus cost leadership and focus differentiation. A hybrid strategy is possible but a "stuck-in-the-middle" strategy must be avoided.

External Customers

dealers, who buy products to sell to others, and ultimate customers (or end users), who buy products for their own personal use

Michael Porter

developed the Five Forces model as a tool to understand the presence and strength of competitive forces.

The five-step approach to strategy

developing a mission, setting objectives, formulating a strategy, implementing the strategy, and evaluating performance. Constant feedback and corrective action completes the system.

The difference between goals and objectives is that goals are _____ and objectives are ________

qualitative; quantitative

Strategic leaders can mitigate people-oriented resistance to change by

empowering people

Cinnabon and Kopi Luwak are examples of a _________ strategy.

focus differentiation

Financial Objectives

focus on financial performance. Example: We project an increase in ROI of 3% this year compared to the last year.

Strategic groups

help firms to determine where and how to compete with other firms.

Strategy is not a static process

it needs constant review and change when necessary.

Strategic leadership is about _______ in the process of exploiting opportunities.

managing conflicting expectations of people

growth can be through:

market penetration, market development, product development, and diversification

Focused differentiation:

offer products that are of unique and superior value compared to those of competitors and to target a narrow market Build-a-Bear Workshop - premium pricing for the interactive process of designing and building a teddy bear. Cinnabon's pricey pastries. Specialty stores that sell only organic, pesticide-free, chemical-free fruits, vegetables, nuts, and other farm products. Kopi Luwak coffee beans that sell up to $300 per pound compared with $15 for ordinary coffee beans.

Hybrid Strategy

or best-cost-provider strategy Some scholars have argued that cost leadership and differentiation are not mutually exclusive However, this is easier said than done. A few companies have successfully managed a hybrid strategy. Examples: Toyota in automobiles; IKEA in furniture; Bose in audio equipment (most components are sourced from low-cost countries but the design, assembly, and testing is in the USA). Many companies fail in their attempt to implement a hybrid strategy. In the process, they lose both positions - cost leadership and differentiation. Such a company is said to be "stuck-in-the-middle." Example: Holiday Inn had to go through a very difficult period due to the advent of Motels at the lower end and star hotels at the higher end.

Differentiated Strategy (multiple segments)

or multi-segment strategy is the most widely used segmentation approach. Most products and services today use multiple segments to cater to different classes of customers. Laptops range from $100 to $3000 based on function, speed, display, and other characteristics. Mobile phones range from a low of $50 to a high of $1000 based on features. You can have food for $10 in a fast food outlet or spend $250 in a fancy restaurant. Airlines have configurations such as first class, business class, premium economy, and economy. Automobiles range from $12000 to a few million dollars. Apparel ranges from a few dollars to a few thousand dollars. Sometimes the same product is packaged differently to cater to different segments

flat organization

refers to an organization structure with few or no levels of management between management and staff level employees.

Objectives

represent the transition from the mission (purpose of business) into objectives. Objectives need tracking over time and must be achievable. At the same time, they should not be so easy to achieve that the organization becomes complacent. While we should not have impossible objectives, we must strive toward stretch objectives - those that need the organization to be on the lookout for new opportunities and higher performance than normal.

Objectives are of two types:

strategic and financial

The five stage strategic management process is comprised of mission and vision, objectives, strategy formulation, ______ and ________

strategy implementation; performance evaluation

Focused cost leadership:

strategy seeks the lowest costs of operations within a special market segment Redbox rental DVD vending machines placed outside grocery stores. Papa Murphy's inexpensive take-and-bake pizzas aimed at budget-conscious families. Claire's inexpensive jewelry aimed at young women. Checkers Drive In that cuts costs by not offering indoor seating.

Situation Analysis - SWOT

strengths, weaknesses, opportunities, threats

Leaders can mitigate task-oriented resistance to change by aligning

structure and strategy

Strategic Leadership

the ability to think, act, and influence others in ways that ensure the enduring success of the organization. Strategic leadership is the ability to think, act, and influence others in ways that ensure the enduring success of the organization. Michael Porter has looked at strategic leadership primarily from an economics perspective. An economic approach involves tradeoffs. Through this lens, the outcome will be less than the potential since potential opportunities may be missed altogether. An alternative view is to look at strategic leadership from an engineeringperspective. Engineering techniques such as linear programming, transportation, and assignment models try to optimize a system. Herber Simon has demonstrated that optimization is not a realistic goal. He suggests a "satisficing" approach that may not be optimal but factors the concerns of all stakeholders. In many cases, strategic leadership becomes a "political" tool - every situation is looked upon through a binary lens - either/or - and the leader or a person who can influence the leader may make the choice, often leading to less-than-desirable results. The ideal view is to treat strategic leadership as a process of developing multiple solutions to a given problem or situation, and to choose alternatives that best fit the industry and macroeconomic environment, while being open to change course when circumstances warrant a change. This approach leads to enduring success. Today's competitive landscape is full of rapid change, complexity, and ambiguity. More importantly, companies do not have an existence of their own (other than from a legal perspective). The key drivers of organizational performance are people. Strategic leaders must, therefore, be practicing psychologists who can analyze and manage their thought processes. Additionally, they must be able to analyze and manage the thought processes of their people. At the competitive level, strategic leaders must search for opportunities to create value all along the value chain. Successful strategies are unique, different, and constantly challenge the status quo. Counter-intuitive as it may sound, the best strategic opportunities are those that are the hardest to spot and execute.

Defining your customers

the first step in running a successful business. Providing your customers with what they expect is the key to sustained success.

Segmentation

the process of dividing a large heterogenous marketinto relatively homogeneous parts or segments that you can reach efficiently and effectively with products and services that match their unique needs.

Situation analysis

the process of identifying strategic opportunitiesand choices. Situation analysis involves: External factors - the macroenvironment (industry and competitive conditions)Internal factors - the organization's resources, capabilities, and distinctive competencies. Tools that are useful in carrying out a situation analysis are: SWOT (Strengths, Weaknesses, Opportunities, and Threats). Porter's Five Forces Model.

strategic leaders need six skills to navigate through uncharted territory:

the six skills are interdependent and complementary. An adaptive strategic leader combines resoluteness with flexibility. An adaptive strategic leader is persistent and views errors (as distinct from catastrophic failures) as opportunities to learn and can anticipate change and embrace change before competitors.

Internal customers

those within an organization that your work impacts. As an example, the customer service function is the internal customer of the sales function which, in turn, is the internal customer of the marketing function. Unless you satisfy your internal customers, it is unlikely that you will satisfy your external customers. Satisfying internal customers is an organization's ability to facilitate teamwork across the organization. The critical first step in this is to instill in every individual the perpetual awareness, understanding, and appreciation that customer service is everyone's business. EXAMPLE: The IT Company HCL Technologies took the concept of the internal customer to an unprecedented level. The company declared: "Employees first, Customers next." Anyone could log into an internal portal and log concerns or complaints about an individual, team, or department. Even the top executives and the CEO were part of the system. Within two years, the company forged ahead of the competition on customer service. The company also scored very low on employee attrition. Inculcating a sense of service within an organization is not an easy task. It requires developing a culture of trust, openness, empathy, and helpfulness - being ready to help and being ready to seek help.

The purpose of strategy

to create and sustain competitive advantage - the ability to do better than competition. At the heart of achieving competitive advantage is the development of one or more core competencies.

The role of the strategic leader

to facilitate change that results in better performance. Change oriented leaders initiate new strategies or modify existing strategies to match the requirements of the turbulent environment in which organizations exist.

Organizational change is any ________ that requires a change in __________.

transition; human performance

Undifferentiated Strategy (mass marketing)

treats entire markets as one and tries to address the market with one offering, one price, one type of promotion, and one type of distribution. Traditionally, commodities such as salt and sugar belong to this category. Changing lifestyles and customer expectations have meant that even with commodities some differentiation is sought. For example, low-sodium salt and packaged goods containing lower levels of salt, brown sugar, and sugar cubes are meant to create a kind of artificial differentiation.

A firm has many goals and a set of _______ that shape the achievement of the goals.

values