MAKING STRATEGIES WORK

MODULE 1: INTRODUCTION

Strategy implementation has evolved over the recent years for a number of
reasons:
a) The shifting trend of companies from monopolies to oligopolies as a result of
the competitive markets as organizations move towards privatization.
b) Competitive tendering in the public sector
c) Deregulation of companies such as the banking industry, which caused increase
in competition.
d) Where oligopolies remained, government interventions increased rivalry rather
than disallowing it.
e) Globalization has increased communication across continents, and this has
made countries able to learn about markets in more depth than they previously
did.
f) Increased Competition given that companies can only develop advantages for a
short time before they are replicated.
g) Consumer now exert pressure on businesses & public service too. Customers
have got used to sales promotions and advanced product features.

Strategy implementation requires linking ideas with action & ironing out inevitable
misfits between expectations & reality. Planned strategy is the pattern of interaction
that an organization plans to have with its environment in order to achieve its
mission. Strategic implementation is the process of manipulating the pattern of
interaction that an organization has with its environment in order to achieve its
mission.

Strategy implementation is challenging due to the problem of success attribution,

given the difficulty in:

a) Clearly stating the desired future state in a way that enables planning.
b) Business environment changes constantly.
c) Managers and owners must rely on others to get activities done - Principal /
Agent problem
d) Success relies on effective feedback
e) Need for managers to make decisions
Planning & implementation are very interlocked & overlap one another.
Implementation is about creating organizational alignment.

Efficient & effective implementation is more important today than it was years ago
because of:
 Deregulations that has increased pressure on companies to reduce prices.
 An educated workforce, therefore the west no longer was a monopoly of highly
trained workers.
 There are only a few uncontested markets today - high market competition
 Internet has led to perfect information therefore, price reductions.
 The markets are unforgiving - put pressure to increase service levels and
quality.
 Technological advances are short-lived; therefore, pressure to invest in
continuous improvement.
 Capacity is in excess of demand, causing many organizations to review their
value chain.

As a result of the need for cost reduction, there is an increasing call for innovation &
creativity. Firms are seeking the true source of competitive advantage & the most
effective & efficient way of achieving their objectives; and this is the source of
competitive advantage.

Some organizations are slow to respond to changes in the environment due to

dominant paradigms. However, it is also important to determine which
characteristics of organizations are worth copying. Some firms, when developing a
new idea, may chose to apply the new innovation to a small pilot section before
rolling out to the rest of the organization such that when the pilot fails, the impact to
the organization is small.

There are many new theories that have recently been developed. However, these
new management fashions may fail due to:

 Poor understanding of the organizational context

 The new innovation could be unlinked with the challenges facing the
organization
 Lack of appropriate organizational structure e.g. a large span of control.
 Unclear responsibilities
 Silo mentality - whether the teams work together or each unit operates on its
own
  Hinge player / disjointed activities. People may end up not doing what their
manager tells them to do. This might be either by accidentally or by design, or
when the hinge player doesn't understand what is being requested of him/her
due to different understanding (bounded rationality)
 Empowerment - providing the workforce the tools and authority needed to
carry out their work & resolve any issue arising.
 Teamwork - is in 3 stages: 1) where the level of teamwork & integration of the
strategic territory is low, 2) where the level of teamwork & integration
increases the examination of issues that are common across the units, and this
can be observed, 3) where the level of teamwork & integration, common
standards & practices across units with little customization for local conditions.

MODULE 2: COMMON ISSUES IN IMPLEMENTING STRATEGY

Efficiency & Effectiveness

Efficiency:

This is the use of fewer resources for the same level of output. Here, cost cutting &
cost control is the dominant paradigm. This may at times kill innovation & creativity.
It is therefore, important to note that corporate health & competitive advantage
depend on making trade-offs between these conditions. Efficiency should therefore
look at the drivers of competitive advantage & how these are being improved.

Effectiveness:

Is about doing the right thing; those things that lead to sustainable success. It
involves seeking the direction & exerting effort to getting there. Managers faced with
the challenge of unclear direction due to the swiftly changing environment could
solve this by developing strategies that are flexible & responsive. They should make
the best informed judgment possible with the information available.

There're 4 types of businesses:

- Survivors: merely seek to survive
- Improvers: pursue financial objectives to the exclusion of other objectives
- Competitors: set to compete head-on with leading companies
- World Class: their objective is to be the best in the world in their chosen
markets
Setting the right measures:
Involves drawing a balance between long term & short term health of the
organization. i.e. short term financial health & long term competitive advantage.
The problem is that there is usually over emphasis on financial results, & therefore
ignoring other measures. Management is trying to overcome this by the adoption of
the Balanced Scorecard that seeks a more balanced set of measures by which to
manage the business. The balanced scorecard tries to link vision & strategy via
performance measures using 4 equally important dimensions:
- Financial
- Internal business processes
- Learning & growth
- Customers

In order to set right measures, they should be ambitious and realistic if the
organization has to succeed. What one organization might view as easy may be seen
as challenging to another organization.

Massive leaps are usually viewed as unachievable and better communicated in a series
of small steps. In addition, it's important for the goals to be communicated to and
shared with the people whose support is required to achieve them; only then will
there be goal alignment & the strategy met.

Should the Organization innovate through one large change or do a series of small
changes?

This depends on the organization:

1. Short-gun approach - Is where the required changes are pursued at the same time.
It can lead to the organization overstretching itself as it tries to do too many
things in too short a time. This could demoralize employees.
2. The Overcautious approach / Risk averse - Here there is hesitation in giving full
commitment just in case the initiatives don't work. They make small changes in
few areas, and wit for results before making further changes.
3. The Strategist Approach - seeks to figure out the changes required, prioritizes
them and introduces the change systematically. Continuous improvement is
important for the organization.
The ability to achieve the necessary changes in an organization depends on the
management style of the organization & the change sequence it chooses to bring
about the transformation.

Motivating people to change:

1. Managing the balancing dilemmas: Involves making a choice between 2 opposite

options e.g. consistency Vs flexibility, differentiation Vs low cost, short term Vs
long term financial results. To solve these dilemmas, managers look at what
competitors are doing, how the markets are developing, research & understanding
the world around them.
2. Bias towards action: Does the organization react fast or slowly? It requires
calculated risk & opportunities associated with the choice of action. Organizations
that are often not biased towards action tend to be unsuccessful with the change
management effort essential to implement strategy successfully.

Changing people's attitudes can be vital but is very difficult to achieve. Attitude
change is essential for new strategy to succeed. This can be achieved using a culture
change program. The changed attitude will lead to changes in the organization's
culture. Once the desired behaviors are achieved, it is suggested that these should be
reinforced by appropriate changes to the reward system e.g. promotions.

MODULE 3: THE MAKING STRATEGIES WORK PROCESS

Poor articulation of strategy leads to poor implementation of it. Lack of clarity about
the strategy can often lead to confusion between operational efficiency and
operational effectiveness.

Lack of use of this policy can often lead to:-

- Unclear mission
- Inadequate environmental scanning
- Poor strategy formulation
- No agreed critical success factors to prioritize development
- No critical activities to enable adequate resource allocation
- Organizational structures, systems & processes that are not functional

Harnessing knowledge & expertise:

The knowledge & expertise required by organizations to make their strategies work
most times lies in the people who work in the organization. They need to organize
this knowledge in a manner that one is able to:
 - easily retrieve
- analyze in an integrated manner
- apply to specific circumstances
- make clear decisions
- implement decisions by applying resources as appropriate

Causality Vs Criticality

Causality: - end goals & objectives are established

- activities are identified
- the chain of cause & effects / outcomes are linked
Criticality: - is about identifying the important issues and the individual goals
to be achieved without getting involved in the detail.

This theory is not a "one size fits all" or is not prescriptive. It can be tailored to any
structure such as the organization, division, function, department or team.

Organizational structures could be:

- Functional structures
- Product line structures
- Strategic business unit structures

The disadvantage of this approach to strategy is:

- The scope of the organization may change in an undesirable way e.g. unrelated
diversification.
- Many different & contradicting directions being pursued
- Waste & duplication of resources
- Inability to make strategic trade-off decisions

It could therefore lead to chaos, ineffectiveness Y inefficiencies. However it could be

motivating to managers, therefore resulting to successful innovations by managers.

Who should be involved at each stage? This process takes the involvement of all
levels of management.
- Senior management: need to demonstrate commitment to the process if the
rest of the organization is to take it seriously.
- An executive Board member could be given responsibility.
- An executive oversight committee could be appointed.
At each stage, the experts & knowledge holders are brought together; this could be
from within or outside the organization. The risk of using only internal people is that:

- they may be infected with the dominant paradigm.

- it may also draw members from different levels of an organization and during
such meetings, the junior members may be reluctant to express their opinions
or disagree with the senior management. This therefore, makes the use of an
experienced facilitator important.

Role of the Facilitator is to:

a) manage the group dynamics of the team & guide them through the process of
forming, storming, norming & performing if they have never worked together.
b) get all members to contribute their views
c) challenge the team's thinking
d) ensure that a structural approach is followed
e) ensure that team sessions result into plans for future action

Project Manager
It is always advisable to have a Project Manager (PM) to take overall control and
responsibility for managing the process right from the beginning. Since it would not
often require a full time person, this is often delegated to one of the managers.

Team meetings could take place on-site or off-site. Off-site meetings get less
interferences & make the managers feel the exercise is taken seriously by the
organization.

Rewards & Strategic Planning

The reward system is the strongest factor in determining individual behavior in the
organization. People will strive to achieve goals that influence their future career
paths in the organization or other desired rewards.

Rewards are extrinsic or intrinsic.

Extrinsic - are the tangible rewards like salary, bonuses, a car e.t.c.
Intrinsic - are intangible like praise, challenges, job title e.t.c.
 Key Components of the Process

(1)
MISSION

(2) Environmental Analysis

KEY
INTERNAL EXTERNAL 7 ENVIRONMENTAL
ENVIRONMENT ENVIRONMENT INDICATORS
(KEIs)

(3) STRATEGY

CRITICAL SUCCESS (8) KEY PERFORMANCE

(4) FACTORS INDICATORS
(CSF) (KPIs)

CRITICAL ACTIVITIES ACTIVITIES

(5) (CA) (9) PERFORMANCE
INDICATORS
(APIs)

ORGANIZATIONAL DESIGN,
(6) PROCESS & SYSTEMS
(1) MISSION / HIGHEST LEVEL OBJECTIVES

It is important for the organization to know where it wants to go in order to get there
faster with minimal effort. All organizations have missions. Some are well
articulated while others are not (implicit) but can be inferred by studying how the
organization behaves through time.

Most organizations have mission statements hanging on the office walls, in documents
but are these internalized by the staff of the organization?
Some mission statements are:
- Too lengthy & thus confusing. There needs to be a balance between length of
explanation required for clarity, which if too long can have the opposite effect.
- Too short mission statements lack clarity that is required to guide decision
making. This allows everyone leeway in their interpretation therefore, reduces
focus on the organization's efforts.

Mission statements should become institutionalized. Repeated exposure to the same

stimulus for a long time gets one used to responding in a certain way, thus the
behavior becomes institutionalized.

- Mission statements are often written by a few such as by management. Only

those involved will have a significant understanding of what it is intended to
convey. As a result, there might also be lack of ownership by those who didn't
participate in its development.
- Mission statements also sometimes have big or fancy words but with little
meaning.
- Its purpose might be confusing

Some import questions to ask in developing a mission

1. What is the purpose of the organization

2. Where are we trying to go
3. What kind of organization do we want to see in future
4. What is the ultimate role of our function in the organization
5. If the department was closed down, what would be missed or failed to achieve
in future?

In developing a mission, some consultants use images and pictures to depict it,
however pictures tend to lack clarity and precision for aiding decision making as they
could have different interpretations by different people.
A mission statement should contain certain key terms & the first step is to identify
and define them clearly to eliminate any room for misinterpretation / confusion.

The mission statement may need to be modified from time to time. It however could
remain relevant for 5 - 10 years if well constructed. However, since the environment
the organization operates in changes from time to time, the strategy used to achieve
this mission could change accordingly.

(2) ENVIRONMENTAL ANALYSIS

Identify barriers and enablers

Within the environment there are always barriers and enablers. The environmental
analysis looks at both current environment and how it’s expected to change in the
future. An organizations strategy should look at the future not the present. Managers,
therefore, need to make informed judgment about the future where uncertainty is
very high. It is for this reason that scenario planning becomes necessary in order to
help managers judge which scenario is more likely to occur and therefore plan
accordingly.

External and internal environments

Barriers and enablers can exist in both external and internal environments. It’s
generally more difficult to control the external environment that a company has no
control over than it is to control the internal environment.

External environment

Corporate level environment scanning/analysis look at;

 Changes in trends - laws & government regulations
 Technology
 Politics
 Economies
 Social climate

These factors will have an impact on the organization as a whole.

External factors that are important to the organization are regularly tracked and using
key environment indicators. It can however be extended to cover internal factors too.

External barriers can manifest themselves through things like:

 Strong price competition within the industry
 Reduced demand from customers
 Restrictive laws from government
 and many more

Internal environment

Internal environmental factors lie within the organization's boundaries. Use of

government core competencies and Kaplan’s Balance score are some of the tools that
some companies use.

Porter’s value chain analysis is very useful too. It looks at;

 the production process - considering inputs and transforming them to
outputs/goods and services, selling the final products and providing the
necessary after sale services.
 the organization's infrastructure.

Some internal barriers and enablers could include:-

 employee behavior
 problems with the information systems
 a flawed reward system
 poor communication
 restrictive organization structures
 decision making processes.

When developing strategy, tools like SWOT, PEST & Porter's 5 forces could be used to
analyze the environment. The definition of the mission can be used to help focus the
analysis of the environment.

Identifying barriers and enablers

Good questioning is critical for identifying barriers, some examples could include
questions like:-
 What got in the way of achieving the mission
 Why hasn’t the organization already achieved this mission?
Questions for identifying enablers:-
 What could help to achieve the mission?
 What is your department particularly good at?
 How can your department help to achieve the mission?

After identifying the barriers and enablers, it is important to rate them according to
their importance in achieving the mission and by their perceived strength. Measures
will then be determined in order to track changes in these over time; through
activities like workshops & brainstorming.

The final list of measures – internal and external is what is called key environmental
indicators KEIs.

A good facilitator or management consultant can be very useful during environmental

analysis; who also helps to overcome the unarticulated document paradigms.

(3) STRATEGY

Next step is to develop the strategy

This is the organizations response to the environment in order to achieve its mission
i.e. how the organization intends to overcome the barriers and harness the enablers
in the environment in order to realize its overall goal. Poor articulation of strategy
leads to its poor implementation. Lack of clarity about the strategy can often lead to
confusion between operational efficiency & operational effectiveness.

Strategy statement
Should be aligned with the environmental analysis that preceded their development.
One should be able to relate the key elements of the mission and environmental
issues to specific elements of the strategy statement.
An example:

We will achieve our mission by:-

- Positions and influencing stakeholders ...
- Prospecting potential work ...

A strategy should be a conceptual articulation of how an organization intends to

achieve its mission; but it is important to go beyond conceptual ideas to concrete
action.
Linking the strategy to operations used to be a problem, but it’s possible to overcome
it through the use of CSFs.

(4) CRITICAL SUCCESS FACTORS (CSFS)

The identification of CSFs is one of the major of the strategy tasks implements of the
strategy implementation approach.

Key executives in organizations get involved in workshops to identify these CSFs.

Some examples could be:-
 Hiring more sales people
 Training sales force
 Reducing delivery costs, production costs
 Increasing the quantity of goods

There are many success factors but only a few will be critical.
 The necessary rule states that something is a critical success factor if it is
critical to achieving the strategy.
 The sufficiency rule states that the full set of CSFs are required, but no more
than that must be identified for the strategy to succeed to the desired extent.
 They should also be means rather than ends.

CSFs help management to quickly identify which factor is not being achieved and to
see if they are being executed correctly.

- It’s easy to see who is or is not performing.

- CSFs also sometimes highlight poor skills and the need for further development.

Value of CSFs
- Help indentify organizational issues
- Provide common language for parties involved
- Provide structured approach to planning
- Help keep planning discussions at the high level
- Doesn’t require significant commitment of organizational rules

CSFs can be identified through:- brainstorming, informed debate, ranking technique

or reference to higher authority.
Some questions to ask could include:-
 Must we do this activity to achieve the strategy?
 Id we don’t do this, can we still achieve our strategy?

Some CSFs might be outside of the organization control e.g. a rise in oil prices. A CSF
to support this would be to prepare a contingency plans against changes in oil prices.

Characteristics of CSFs
1. Should be action oriented. e.g. “We must prepare a contingency plan for …”
avoid statements like “understand”, “explore options”, “agree issues”.
2. Should be meaningful. Avoid statements like “best practice”, “world class” as
they are woolly and meaningless and gives a wide range of interpretation.
3. Should be creative. Avoid similar solution like “restructuring”, “performance
development plan”
A wide range of solutions can be got through brainstorming.

Key performance indicators

- These can be developed for each CSF. It gives a performance measurement

indicator to help track the achievement of the strategic objectives.
- They contain both financial and non financial indicators, many of which
monitor the outside world. Often times they also outnumber the financial
ones.

Critical success factors should receive constant and careful attention from
management and the performance of each should be measured.

Key performance measures should be;

- Diagnostic – should signal when unusual events are occurring.
- Strategic – define a strategy for competitive excellence.

Measures are developed at the same workshops and CSFs.

(5) CRITICAL ACTIVITIES (CAS)

CSFs are underpinned by a set of activities necessary to make them successful. These
are called critical activities. They link operational activities on the day to day to meet
the strategic plan.
The process is strengthened by Activity Performance Indicators (APIs) for each CA.
APIs will also contain financial and non-financial measures.

CAs will often have cross-functional boundaries. The mistake most people make is to
look at CAs narrowly as part of the daily operations of the organization, yet they
actually have a wider strategic importance. This makes them to be viewed with a
financial emphasis for cost control purposes, and for day–to–day management on a
departmental basis. Activity based costing is more in the right direction.

(6) ORGANIZATIONAL DESIGN, PROCESSES and SYSTEMS

Resource allocation and Division of Labor

Once CAs have been established, it's important to decide when these will be
accomplished within the organization, therefore, calling for need to divide activities
between the different functions and allocation of sufficient resources against each
activity to ensure they are delivered.

Organizational structures

These group activities together into segments in order to deliver organizational goals
and objectives in the most effective and efficient way, taking advantages of
economies of scale.

RACIS Matrix

Is a way to determine, agree and communicate the activities of different parties

within an organization. It stands for:

Responsible
Approval
Consulted
Informed
Support

RACIS attempts to identify the person in the organization who is responsible for an
activity, the person whose approval is required within the organization, who is
consulted, who needs to be informed and who can be reached out to for support.
Where possible, only one person should be responsible for ensuring an activity is
completed, otherwise it becomes difficult to determine who is accountable thus the
danger of the activity not being completed. Responsibility should be pushed as far
down the organization as possible to avoid senior management being overwhelmed
with too much on their plate.

At least one party must provide the support to ensure the activity is actually
completed.

RACIS – Is useful for project-based work.

- Can also help identify the most appropriate project manager, steering
Committee etc.

Budget and other systems

Once structures and resource allocation have been done, then there’s need to budget.
Sometimes budgets aren't adjusted in line with the change made in activities. It is
important to follow this sequence lest there will be a mismatch between money
available and work that needs to be done.

Reward systems

These can have a big impact on the motivation of staff to deliver the desired
outcome.

Bonuses below 10% of base salary won’t disrupt teamwork and cooperation while
bonuses greater than 15% are more likely to cause managers to focus on achieving
associated measures at all costs. Long term bonuses or incentives could lead to
achievement of the complete strategy.

MODULE 4: CASUALTY and STRATEGY IMPLEMENTATION

The MSW model is a deterministic planning tool. It’s intended to help managers
decide what to do now so that they will create desired future outcomes i.e. cause and
effect.
Fundamental human errors include:

i. Missing information: Humans can only process the data they have and will
fail to recognize when there’s a shortage of information. The department of
Customer Relations Management (CRM) is a direct response to this. It tries to
track the behavior of customers to support better management decision
making.

ii. Construction: Humans fill in information where it doesn’t exist in order to

complete the apparent pattern, thereby causing incorrect perceptions or
understanding. It leads to construction of information which may be
incorrect; causing incorrect perceptions known as transference. e.g.
managers may leave a meeting assuming that colleagues agree with a course
of action which may not the case.

iii. Assuming casualty: Because a second event closely follows a first, one
assumes that the 1st event caused the 2nd. Researchers therefore check
these correlations. There may be a number of company variables that may
be in existence, e.g. car ownership may be associated with dining from out,
yet the 3rd variable could be the level of income of the people owning cars.

Where casualty exists, it may be in one direction or the other, or both; and
this is bidirectional casualty. This is very common yet often undetected.

iv. Ignoring time lag: There might be a significant time lag between the cause
and effect; ignoring this time lag can cause severe problems to the
organization e.g. management intervention could take time to show fruits,
yet the process could be abandoned before the fruits show assuming that it
didn’t work.

Bounded rationality

States that humans can never properly take into account all the relevant factors that
could go into making any given decision. There’s so much information that no one
could possibly gather all the data required. Furthermore is the problem of:-
 Blurred objectives
 Desired outcomes could only occur in the distant future
 Indirect casualty
 Independence
Management decisions also go through these challenges, analysis paralysis – failure to
make decision. A framework is therefore required to help managers identify and
through the most important issues.

Bounded rationality can be dealt with by breaking problems into smaller more
manageable chunks of strategy development and implementation.

Overcoming bounded rationality

 Clearly articulate the mission and focus on limited outcomes

 Analyze the internal and external environment
 From the issues identified, prioritize first-order issues to be dealt with first
 The strategy represents future choice about direction and scope to match
rules to the changing environment
 Use the necessary and sufficient rule to identify CFSs and CAs and focus rules
accordingly

Developing cause and effect hypothesis

The MSW creates alignment between objectives and the activities undertaken in an
organization - the causal relationship.

It’s hard for any organization to perfectly align objectives with resource allocation
because of bounded rationality and the changing environment the organization
operate in, which makes resource allocated a moving target. Good alignment however
leads to better organizational performance.

The upturned pyramid

Cause

Organization rules
and activities

Primary objectives
Effect _______________________________________
Structured thinking about cause and effect:

- Avoid closed thinking

Be open-minded and consider other alternative ways of achieving the
objectives.
- Avoid leaps of logic
Ignores alternative choices: Superior investment opportunities could be
ignored in favour of obvious or conventional tactics.
- Confusion between critical path and causal chain: one might instead establish
a critical path of activities.
- Avoid woolly causal chains
Ensure clear, unambiguous language and specific variables linked together.

Application of the casual chain

 Allows the identification of possible methods of achieving stated objectives.

 Provides a framework to make assumptions about cause and effect explicit.
 Enables ready assessment and logical testing of intended means of objective
achievement.
 They are excellent mechanism for
- Communication of strategy and how it will be implemented.
- Creating a clear line of sight between those responsible for organization
objectives and those implementing activities.
 Helps to orient projects to having a positive impact rather than simply success
delivery.
 Helps ready identifies of risk.
 Help identify measures of success.

Identify risk using causal chain

Risks are negative outcomes that have the probability of occurrence. It’s important
for any project to identify risk where possible, assess them in terms of probability of
occurrence and impact if they occur. It’s then important to determine how to avoid or
manage key risks.

Projects have 2 types of risks:-

- Implement risk – which threatens actual delivery of activities.

- Post-implementation risk – threaten the positive impact of the project.
 Failure to achieve intended outcome
  Unintended negative effect

Failure to achieve could be because cause and effect assumptions were wrong. It
could also result if the environmental factors change.

A casual chain explains how an activity might contribute to an objective being

achieved. Cause and effect are not always aligned. It’s important to have a feedback
mechanism.

MODULE 5: COMPETITIVE ADVANTAGE and STRATEGY IMPLEMENTATION

Firms need to compete effectively with industry rivals to survive and prosper.
Competitive advantage is a key concept for commercial organizations and is created
through the interlinked processes of strategy development and implementation.

Competitive advantage is the ability to outperform organizations operating in the

same industry.

The 3 sources of competitive advantage are:-

a) Industry choice
b) Strategic positioning
c) ‘fit’ of value – creating activities

a) Industry choice
In defining an industry for analysis, one should consider:
- Both the product and its function
- International as well as domestic pressures
- Potential future pressures as well as existing ones
- Pressures upon important stakeholders e.g. suppliers, buyers etc

The industries boundaries can usually be drawn somewhere between existing rivals
and firms that could offer substitutes to the market.

Profitability

Industry choice greatly affects profitability. Industry choice is about the most
important decision in an organization before one considers the choice regarding
security resources, developing expertise, building brands etc.
Structural analysis (Porter’s 5 forces)

The attractiveness of an industry can be determined through a structural analysis of

the industry’s long-term i.e.
- Threat of new market entrants
- Threat of substitutes
- Bargaining power of suppliers
- Bargaining power of buyers
- Existing competitive rivalry in the industry

b) Strategic positioning

Is how firms interact with customers in a market place through offering products and
services.

There are three sources of strategic positions (Porter)

- Variety based positioning
- Needs based positioning
- Access based positioning

Variety based looks at decision regarding which products and services to offer
customers.

Customers’ decision to pay for a product is determined by the price and their
perceived value.

Successfully positioned products are fairly consistently perceived as being a specific

position using these dimensions. It’s therefore important to identify those factors
deemed important by customers or prospective customers.

Needs based positioning

The question asked here is how we can make what the customer wants/needs.

Access based positioning

Involves targeting customers who can be accessed in a particular way that may be
attractive to the firm e.g. accessing customers who use internet a lot via the net. Also
door to door sales is another way of accessing customers.
 The generic strategies (Porter)

a) Cost leadership – usually low price, low value

b) Differentiation – usually high price, high value
c) Focus – cost leadership and differentiation aimed at a narrow market segment.

Low cost Differentiation

Cost leadership Differentiation

Competitive scope

Cost focus Differentiation focus

Generic strategies

Success likely

Success highly
Perceived
uncertain
differentiatio
n Failure likely

Perceived price

Cost leadership – thrives from selling high volumes which will lead to economies of
scale. The organization can increase its customer base by increasing market share e.g.
through price competition or increasing the size of the entire market. Companies play
the ‘zero sum game’ and struggle to win share from others. Their products are not
usually customized given the low price. They often strive to learn how to produce the
same output for less. They can use price as a weapon to drive other firms out of the
business.
Differentiation – here the target is that the market is prepared to pay higher for a
superior product i.e. in terms if quality, functionality, customization etc
The challenge of differentiators is to maintain the perceived gap between the value
of their products and those of competitors with low cost offering. It’s common in the
fashion industry.

It takes long to achieve high perceived value but it is also slow to decay.
Differentiation required heavier investment than low cost, which therefore eats up
the additional profit got from the high prices.

Focus – tries to avoid direct competition by seeking out small market segments –
niches which targets customers with highly specific needs.

They don’t expect to sell high volumes, but given the less competition, then main
stream services can have flexible prices.

May focus on underserved or over served customers.

Struck in the middle - are companies with no distinctive strategy but rather have an
‘average’ perceived price and ‘average’ perceived differentiation offering. They may
also have a confusing set of products in different position.

These will therefore not exploit the same economies of scale as cost leaders, yet not
reap benefits of customer loyalty that differentiators enjoy.

Specific position therefore enables specific targeting of promotions to relevant

customers who are likely to develop high levels of brand recognition loyalty.

Fit of value-creating activities

Resource based view of strategy

This view looks at the internal strengths of the organization and particularly strengths
that are unique to the industry to help shape strategy. It looks at the capabilities a
firm possesses as these can potentially be used to outplay competitors through unique
positioning. Firms therefore have to develop strategies that they actually have
capability to execute. To do this, they require a deep understanding of the resources
available in the organization.
Operational Effectiveness Vs Strategy

Operational Effectiveness

Is the quest for greater productivity, quality, efficiency and speed. It’s the objective
behind many management tools e.g. TQN, JIT, outsourcing etc. as management tries
to put in place all these tools for effectiveness.

- Innovation to improve operational effectiveness is often copied very quickly by

competitors therefore becoming homogeneous.
- The more homogeneous companies become the less room for competitive
advantage.
- Over emphasis on operational effectiveness has led companies to “cut into
muscle” and destroy activities that create value.
- The pressure to produce satisfactory returns has led companies to compromise
with willingness to invest in long-term success of the company.

Operational effectiveness should therefore only be pursued up to a certain point. It’s

equated to running the same race faster.

Strategy

It’s not about performing the same activities better than competitors, but choosing to
perform different activities or the same activities in a different way.

It involves producing an offer attractive to customers that is either distinctive from

that or competition or supported by a superior activity configuration. For
sustainability, one has to be different. Strategy is like running a different race,
performing activities differently or perform different activities from rivals. Strategic
positioning depends on internally managed activities.

Making trade-offs

Good strategy depends on making good trade-off decisions. Trade-off is giving up one
strategy so that another is pursued given limitation in resources, as an organization
cannot pursue all viable options. To be able to trade off properly, one needs to have
analyzed the industry completely.

Once an organization is able to have its activities interdependent, then it will:

 - Ensure that maximum value is extracted from any given activity – optimum
resource allocation.
- Make it hard for competition to copy
- Make it easier to ensure effective, speedy and efficient implementation of its
strategy.

This therefore makes it hard for competitors to steal a ‘slice of the cake”

Alliances and partnerships occur when one organization fails to beat another and
therefore decides to join their competitors, such alliances are rare.

Fit of value – creating activities – It’s hard for compensators to match a set of
interlocked activities than it is to match a particular sales force approach or
technology.

Types of fit:

 1st – order fit – where simple consistency is achieved when all activities are
aligned to strategic positioning.

 2nd order fit – here activities are reinforced. The cause and effect thinking can
be extended to systems.

 3rd order fit – activities are reinforced, efforts optimized i.e. minimal wastage.

Strategy implementation involves

i) Choosing an implementable strategy

ii) Developing superior strategy implementation abilities
Choosing the implementable strategy:

If the Strategy is profit increase, this can be achieved only through increasing revenue
or reducing costs. Reducing costs takes improving operational effectiveness.

To increase revenue is done through;

a) Market penetration
b) Market development
c) Producer development
d) Diversification
Whereas market penetration maintains ‘alignment’ and ‘fit’, market development is
inherently risky as it involves selling into new market segments with different
political, economic, legal etc pressures.

Production department is also risky because it involves developing a new product

where knowledge, expertise and economies of scale limited initially and heavy capital
required.

Diversification is also risky as it involves changes in the activity sets of a firm.

Additional risk is created through potential misalignment and loss of uniqueness.

- It’s important to keep strategy simple and focused.

- Ensure that your organization will be able to handle the implementation.

The role of management is to shape strategy, and good strategy requires clear trade-
off decisions to be made. Only leaders have the power and influence to shape a
disciplined approach to screening opportunities and generate the creativity needed to
design truly valuable activity systems.

The 4th source of competitive advantage is the capability to implement strategy. An

organization should be able to produce its goods more effectively, at lower cost, more
quickly and with fewer defects.

The strategic focus wheel comprises of:

Strategic risk Strategic planning

management

Project Making strategies

management work