Neil THE
STRATEGY
POCKETBOOK
By Russell-Jones
Drawings by Phil Hailstone
Published by:
Management Pocketbooks Ltd
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MANAGEMENT
POCKETBOOKS
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system
or transmitted in any form, or by any means, electronic, mechanical, photocopying, recording
or otherwise, without the prior permission of the publishers.
This edition published 2005.
Neil Russell-Jones 2005.
British Library Cataloguing-in-Publication Data A catalogue record for this book is available
from the British Library.
ISBN 1 903776 13 9
Design, typesetting and graphics by efex ltd. Printed in U.K.
CONTENTS
INTRODUCTION
Developing key skills, strategic
terminology, defining strategy,
corporate strategies, a summary
5
STRATEGIC COMPONENTS
17
Key elements, fundamental
objectives, vision vs mission,
considerations, questions, shaping
factors internal, corporate, external,
achieving strategy, patterns of
development, strategic drift
STAKEHOLDERS
Why consider stakeholders?,
stakeholder input, value added
model, major stakeholder groups,
measurement, phases
35
STRATEGIC STEPS
45
Concepts of analysis, development
process, know yourself: goals & targets,
markets, know your enemy: Sun Tzu
matrix, competitors, development
strategies, GAP analysis, implications,
details, functional policy making,
structure, Do it!
STRATEGIC TOOLS
79
Adjuncts to analysis, grids, strengths
& weaknesses, analysis of external
factors, Porters five forces, Ansoffs
five turbulence levels, scenario analysis
& planning, Boston matrix, core
competency analysis, trend analysis,
business impact assessment
TIPS
101
Risk analysis, CSFs, pitfalls, essentials
for success
FURTHER READING
108
4
I NTRODUCTION
5
INTRODUCTION
STRATEGY: DEVELOPING KEY SKILLS
Strategy has often come to be
synonymous with the quantitative breakthrough, the analytic
coup, market share numbers, learning curve, theory, positioning business
in a 4- or 9- or 24-box matrix and putting it all on a computer.
Peters and Waterman,
In Search of Excellence.
This book is about strategy. It will not make you a strategy expert, nor will it enable you
to be a strategic guru. It will, however, explain the basics of strategy so that you should
be able to understand the key components of a strategy, how to approach setting and
developing a strategy, and some of the strategic tools that can be used.
It will also help you:
G
Understand what strategy 'experts' might be saying
G
Assist you in challenging what others say
6
INTRODUCTION
STRATEGY: DEVELOPING KEY SKILLS
This book should be read by: people in business who need to
develop a more formalised strategy than perhaps hitherto; staff
partially or indirectly involved in strategy; and students and
others who wish an overview to serve as a framework on
which they can build. Stakeholders in an organisation will
also find it useful.
A lot is written about strategy some of it arcane and
some very complex. This book will cut through that.
The book considers some basic strategic terms,
explains the difference between competitive and
corporate strategy (a major cause of confusion at
some surprisingly senior executive levels) and sets
out a simple approach to strategic development.
7
INTRODUCTION
SOME STRATEGIC TERMS
Vision
The long-range idea that drives the organisation
Mission
The essence of the strategy
Stakeholders
Those entities and people who have an interest in
the success of a strategy
Critical Success Factors (CSFs)
Those things that are essential for success
Corporate strategy
The long-term goals for the organisation as a whole
Competitive strategy
The long-term goals for specific markets and offerings
Segment
A sub-set of a market
Customer Value Proposition (CVP) The offering for each specified market, or segment
Competitive edge
8
What sets you apart from the competition
INTRODUCTION
WHAT IS STRATEGY?
A dictionary definition is: Generalship or the art of conducting
a campaign or manoeuvring an army; artifice or finesse
generally. from Greek strategos (general) from stratos
(army) and agein (to lead). Chambers.
Leading business gurus define it as:
(Business) strategy
concerns major decisions
deliberately taken to establish what
sets of customers a business aims to
serve in the future and against what
competition, in order to meet its
financial objectives.
Mathur and Kenyon,
Creating Value.
The essence of
strategic thinking is
about creating a
sustainable competitive
advantage.
Porter, article in
The Economist,
1987.
Strategyis not enough
to optimally position a company within
existing markets; the challenge is to
develop great foresight into the
whereabouts of tomorrows markets.
Hamel and Prahalad,
Competing for the Future, 1996.
9
INTRODUCTION
WHAT IS STRATEGY?
DEFINITION
However, it is quite simply:
the development of a set of unique and irreproducible competencies and customer
value propositions that enable you to continue to generate value
Competencies in this case means those things that your organisation does in order to
carry out its business. It is a mixture of people, systems, structure and skills, culture,
distribution and operations etc.
If the competencies are reproducible then they will be copied by your competitors and
you will lose your competitive edge.
A strategy, therefore, is a statement that defines which markets you will be in and sets
out the organisational competencies that you will need (and what actions you need to
take to develop them) to enable you to gain and sustain your competitive edge ie to
persuade customers to buy from you rather than the competition.
10
INTRODUCTION
WHAT IS STRATEGY?
FOCUS
Organisations exist for different reasons and the reasons that cause them to come into
existence will drive their culture how they work (sometimes called ethos) etc.
Organisations that have as their vision worthy ideals such as
G
G
G
To end world poverty
To eradicate leprosy
To succour world hunger
will have vastly different approaches, stakeholders and measures than commercial
organisations whose objectives are, inter alia, to generate returns on capital.
A mutual organisation (eg building society, co-operative) will also differ from a
commercial bank or major quoted retailer in that its principal duties (theoretically) lie to
its members who are also its owners. Notwithstanding this, each will (should) have a
vision and therefore must have a strategy since that strategy is the means to achieve the
vision. It is the emphasis placed on different aspects and the relationships with
stakeholders that cause the differences.
11
INTRODUCTION
WHAT DOES A CORPORATE STRATEGY DO?
Strategy takes the vision and develops it into a framework and translates it into a
set of actions, ie steps for achieving the vision (or at least attempting that) see following
diagram. For a commercial organisation this will revolve around creating and then
sustaining/increasing value (equity). To this end strategy:
G
G
G
G
G
G
G
G
12
Sets long-term objectives
Drives actions
Gives resource allocation priorities
Defines the competency domain of the organisation
Leads to core competency development through
- competitive strategies
- functional policies
Is simple to grasp
Is flexible enough to respond to force majeure but changes must be defined,
discussed and definitely agreed not drifted into
Is viable
INTRODUCTION
WHAT A STRATEGY DOES
Translates gap analysis between vision and today into a series of
actions to get there. You must understand the key market
issues and what you are good at:
Market
Competition
Critical Success Factors
Capability
Tomorrow
Y
G
E
AT
R
ST
Today
Where you
are now
VISION
Where you
want to be
NEEDS
Capital
People
Systems
Operating Procedures
Assets
IMPLIES
Culture
Structure
Marketing
Products
Pricing
Distribution
13
INTRODUCTION
CORPORATE TIME HORIZONS
The diagram opposite shows the different time horizons that relate to each component
of strategy. The very top, and the most abstract, is the vision, which is very long term
and is supported by the corporate rules that govern how an organisation operates in a
general sense, eg:
G
G
G
The return rate on capital that is required (ROCE)
The Key Performance Indicators (KPIs, or measures)
Ethical considerations, etc
These things do not really change much or radically over time but will respond to
longer-term requirements.
The mission is more tangible and shorter in time (35 years), supported by details of the
strategy and functional policies. These are in turn supported by plans (activities to be
carried out now) and budgets (looking at money needed to carry out those activities and the
revenues that they will generate) which tend to be short term (13 years) and very concrete.
14
INTRODUCTION
CORPORATE TIME HORIZONS
Abstract
Corporate
strategy
Corporate
rules
Competitive
strategies
Mission
Strategy
Plans
Functional
policies
Strategic
planning
VISION
What the company
is about:
virtually unattainable;
stretching
Long-term things
that form the
framework:
ROCE; KPls;
third party services;
ethics etc
Offering-specific
Budgets
Concrete
Time horizon
15
INTRODUCTION
STRATEGY: A SUMMARY
In general:
G
Strategy is deliberate not accidental
G
It is forward looking you cannot manage the past
G
It is about stakeholder satisfaction
G
It is all embracing
G
A strategy deals with the organisation as a whole not the whole organisation
G
It is the articulation of the vision, in so far as it is possible, in a way that can
be understood
G
It sets goals that can be measured
There can only be one corporate strategy, but there can be, and often are, several
competitive strategies, depending on the constituent parts of the organisation.
16
S T R AT E G I C
COMPONENTS
17
STRATEGIC COMPONENTS
KEY ELEMENTS
This chapter will explore the key components of strategy.
It will consider the difference between corporate and competitive strategy,
where much of the confusion that surrounds strategy arises, and the major
parts of each.
It will look at the factors that will affect and drive how strategy is shaped and
who has inputs into strategy.
The major groups of stakeholders are considered and why it is necessary to
understand them and have measures for each group in relation to the
fundamental strategic objectives
18
STRATEGIC COMPONENTS
FUNDAMENTAL STRATEGIC OBJECTIVES
For a commercial organisation the fundamental objective is to earn a return on capital
that is greater than the cost of that capital. Thus it can continue to have the right to use
that capital and, if necessary, have the right to raise more to meet its vision. All other
objectives are means objectives in support of that fundamental objective.
Corporate strategy* is, therefore, about managing the value of an organisation often
expressed in monetary or financial terms. Thus it is helpful to refer to this as financial value.
Competitive strategy* is about assembling the inputs (raw materials, assets, people,
technology, finance, distribution) which, when put together with reference to a defined
market as a Customer Value Proposition (CVP), enable the outputs (products/services)
to be delivered to the market for commercial value.
Support strategies are in fact components of the competitive strategy (or strategies) and
it is more helpful to refer to them as functional policies as they usually refer to a
particular organisational function such as HR, IT, Finance etc.
* NB: note the difference between these two!
19
STRATEGIC COMPONENTS
CORPORATE VS COMPETITIVE STRATEGY
There are key differences between the two types of strategies, as shown below:
Corporate Strategy
Competitive Strategy
Vision
Mission
Level
Top broadest view
Looks out, up, down and across
Sets general goals
Management level
Focuses on markets
Sets specific goals
Resources
Sets priorities
Allocates
Focus
Financial
Commercial
Products
Relates to them in a general sense
May own corporate brand
At the heart of the strategy
Owns specific product brands
Overarching
Statement
Most thinking and analysis focuses on competitive strategy as this delivers to the
corporate strategy. Functional policies support these.
20
STRATEGIC COMPONENTS
VISION VS MISSION
These terms are often used indiscriminately and confusingly, along with other terms such
as goals, objectives and targets. As a result they do not act as guides and frameworks
for organisations and often end up as trite, useless and generic statements.
To clarify things it is better to adopt separate and discrete meanings:
Vision (very few organisations really have this)
G
An initially almost unmeasurable idea that should provide unity of purpose and inspire
G
It should be uncluttered, eg Put a man on Mars (NASA); A PC on every desk
(Microsoft); Quality, service, cleanliness and value (McDonalds); A GI to buy soda
anywhere in the world (Coke)
G
It does not talk about markets or targets and it is durable, ie it does not change
unless there is catastrophic change in the world
21
STRATEGIC COMPONENTS
VISION VS MISSION
Mission
Relates to an entity or a service offering; sits within the vision ie is a step along the way.
Is market-focused and contains high-level goals and targets
Goals (= objectives)
The aims you must get right to satisfy your stakeholders/customers and to meet your
corporate requirements. By achieving your goals you know when you have arrived
(strategically speaking). They must be differentiated from
Targets
Through which you measure your achievement relative to goals and which drive
corporate behaviour. Targets can be cascaded down an organisation to ensure
unity of effort.
22
STRATEGIC COMPONENTS
STRATEGIC CONSIDERATIONS
A corporate strategy will consider:
G
G
G
G
G
G
G
G
G
G
Business segmentation
Branding at the corporate level
Capital strategy
Vertical integration (eg buying
suppliers/distributors)
Group HR policies
Corporate positioning
Corporate philosophy
Delegated autonomy
Portfolio management (internal)
Horizontal co-operation (across the
organisation)
Competitive strategy, however, looks at
different issues...
23
STRATEGIC COMPONENTS
STRATEGIC QUESTIONS
There are some basic questions that
a competitive strategy must answer:
24
market want?
hat does the
W
r?
going to offe
What are we
it?
ing to offer
ow are we go
H
l to succeed?
need to exce
e
At what do w
spond?
ompetition re
ow will the c
H
money?
Can we make
implications?
the internal
What are
ge?
need to chan
What do we
ers?
our stakehold
?
ill we satisfy
W
manage them
how shall we
risks and
What are the
STRATEGIC COMPONENTS
FACTORS SHAPING COMPETITIVE STRATEGY
There are three groups of factors that affect a competitive strategy:
Internal
Corporate
External
(What you are)
(The future as perceived
at corporate level)
(The market in which
you operate)
Vision
Leadership
History
Culture
Management
style
Competition
Market trends
COMPETITIVE
STRATEGY
Technology
Legal issues
Environmental
issues
Operations
Stakeholder
demands/
expectations
Economic trends
25
STRATEGIC COMPONENTS
FACTORS SHAPING COMPETITIVE STRATEGY
INTERNAL
The following factors shape the organisation and how it functions:
G
What you have done before the products and market in which you operate
G
Your existing customers and those that you have lost!
G
The history of the organisation and the path that led up to where it is
G
Culture how things are done the unwritten and implicit ways of working or behaving
G
Market perception what customers and competitors think of you and your offerings
G
Inherited assets legacy systems; people; processes; supplier relationships;
stakeholders; management style; structure and infrastructure
Any attempt to carry out strategy that is contrary to several of these factors is doomed
to failure unless the organisation changes to meet this.
26
STRATEGIC COMPONENTS
FACTORS SHAPING COMPETITIVE STRATEGY
CORPORATE
The future as perceived by the executive:
G
The vision that pertains what drives the organisation
G
The style and effectiveness of leadership dictatorial; cohesive and open; or new
and therefore sweeping clean
G
The stakeholder demands that drive the organisation the different and sometimes
conflicting demands that are made by inter alia: staff; management; shareholders;
the board; local communities; governments; pressure groups; unions; members if a
co-op or mutual
G
The philosophy of the organisation whether it is a conglomerate (Hanson; BET);
whether it is fairly acquisitive (GE, KKR) whether it sticks with one thing (Southwest
Airlines, McDonalds); and whether it integrates horizontally, vertically forward or
vertically backwards, or both
G
The relative brand strength eg Nestl has a portfolio of very strong product brands
such as Maggi or Kit-Kat under the Nestl umbrella, whereas generally Ford vehicles are
Fords with a name: Ford Ka or Ford Capri (but not Jaguar which is branded separately)
27
STRATEGIC COMPONENTS
FACTORS SHAPING COMPETITIVE STRATEGY
EXTERNAL
No organisation is an island and strategy must take cognisance of the trends and the
outside players and how they will react:
G
G
28
Changing market demands which must be recognised and a response developed
Competitive actions and responses what competitors are doing and also how
they will react to what you might do. If you cut your prices, a large competitor
might respond by slashing theirs and, with deeper pockets than yours, force you
out of business
STRATEGIC COMPONENTS
FACTORS SHAPING COMPETITIVE STRATEGY
EXTERNAL
G
Legal issues which will affect what you can and cannot do: eg compliance in
financial services, Health and Safety
G
Environmental trends which will force changes in what you can do, even if there
is no legal requirement (eg BPs change of logo and colour to green to reflect a
greater perceived environmental awareness)
G
Economic and demographic trends eg changes in disposable income, altering
age profiles, increasing tendency for single-parent families, increase in private
pensions in some markets
G
Technological trends internet, faster pace of development and therefore
technological obsolescence, centralising of processing to regional/global hubs with
consequent decrease in costs and increase in service
29
STRATEGIC COMPONENTS
ACHIEVING STRATEGY
It is not always possible to achieve strategy, or you may only be partially successful,
because many factors operate against this:
G
The markets may change (demand, regulation)
G
The implementation may take too long
G
Competitors change their game plan
G
New technology makes old operations obsolescent
These factors push the strategy off course known as strategic drift (see later).
In addition there are several different ways (some more successful than others) in which
strategy becomes fact, as the following diagram shows.
30
STRATEGIC COMPONENTS
PATTERNS OF STRATEGIC DEVELOPMENT
There are various ways that strategy develops depending on several factors:
Straight line continuum
Unco-ordinated
Step changes
Fundamental transformation
31
STRATEGIC COMPONENTS
STRATEGIC DRIFT
When reviewing a strategy commentators frequently imply that it was a deliberate act of
management. This is, in reality, very rarely 100% the case. Typically there is a difference
in the desired strategy and that which is actually realised.
This is, of course, due to the fact that a strategy is largely a theoretical long-term plan
for getting to some point based on assumptions (supported by robust analysis and
clear conclusions).
In the real world, however, competitors, customers and other entities (eg governments)
tend not to conform to your predictions about behaviours. As a result actions in response
to this and the resulting impacts cause the realised strategy to differ from the desired one.
In addition, failure to implement fully or properly will tend to cause differences to emerge
ie the strategy drifts. The following diagram shows this.
32
STRATEGIC COMPONENTS
STRATEGIC DRIFT
Strategic drift occurs where factors combine to stop an organisation from attaining its
intended strategic position.
Political and
legal impacts
ath
Competitor
responses
Current
position
Poor
management
actions
Unrealised strategy
(strategic drift)
gic p
trate
S
Intended
strategy
Realised
strategy
33
NOTES
34
S TA K E H O L D E R S
35
STAKEHOLDERS
WHY CONSIDER STAKEHOLDERS?
In essence a strategy is an articulation of the path to a vision one that is consciously
accepted by stakeholders (or else they will not support it). Stakeholders can have one
or more of the following roles...
Legislator
Government/EU
Regulatory body
Influencer
Community
Government
Pressure group
Union
Consumer Customers
Distributors
Enabler
Staff
Equity providers
Distributors
Suppliers
Third party suppliers
... and they often have different (sometimes conflicting) demands.
36
STAKEHOLDERS
CORPORATE STRATEGY
STAKEHOLDER INPUTS
Involvement
Ability to Influence
Detail
CEO
High
Highest
Full
Top Team
High
High
Full
Management
Low
Low
Most
Employees
Low
Lowest
Part
Low/Medium
Medium/High
Low
Stakeholders
Different players will have greater or lesser inputs depending on their ability to influence.
Key issues how, what and when to communicate.
37
STAKEHOLDERS
WHO ARE THE STAKEHOLDERS?
Primary:
Others:
G
Customers
G
Bondholders and lenders
G
Employees
G
Market analysts
G
Investors
G
Regulators and government bodies
G
Competitors
G
Suppliers
G
Pressure groups
What keeps stakeholders committed to working with an organisation?...
38
STAKEHOLDERS
STAKEHOLDER VALUE DRIVES BEHAVIOUR
Customers
SVo
SVi
SVi
Others
SVo
SVo
ORGANISATION
SVi
Shareholders
SVi
SVo
Employees
Stakeholders stay committed to the relationship when they receive more Stakeholder
Value Output (SVo) however they define it than the Stakeholder Value Input that they
deliver (SVi): ie SVo > SVi. For some this output will be financial, for others a combination
of things (service, benefits, convenience etc). Your strategy must take this into account.
39
STAKEHOLDERS
VALUE ADDED MODEL
Customer
satisfaction
Empowerment
Customer value
Return on
assets
Market
share
Shareholder
value
Productivity
Employee
satisfaction
Motivation
This model, as developed and used by Rank Xerox, demonstrates the linkages between
key sets of stakeholders employees, customers and shareholders in generating
value. It exemplifies that it is important to consider all stakeholders (although not
necessarily in the same proportion) when formulating strategies.
40
STAKEHOLDERS
MAJOR STAKEHOLDER GROUPS
An organisation must generate
value that meets the
requirements of all
major stakeholders.
The benefit that
management
and staff receive
which encourages
them to create value
People
Value
Added
Return to investors
to encourage them
to maintain their
investment
Economic
Value
Added
Customer
Value
Added
How the interactions
with customers
yield benefits
processes and
systems aligned only
to deliver this
To demonstrate how you are meeting stakeholder requirements it is necessary to
develop a suite of measures that do this.
41
STAKEHOLDERS
MEASUREMENT
If the corporate strategy sets the overall goals and the competitive strategy sets them in
relation to offerings, it is important to know whether or not you are achieving them and
thus delivering value. To this end, therefore, some degree of measurement is needed.
It is necessary to quantify all goals by setting the targets that must be measured. These
quantified targets are known as the Key Performance Indicators (KPIs) and must be set
for all aspects of the organisation to enable you to measure success (or failure!). They
must measure all aspects of operations and should focus on:
G
G
G
42
Measures for customer excellence that demonstrate how you are delivering
your goods in terms of value
Measures for stakeholders, with the principal classes being management and
staff and suppliers of capital
Internal measures for excellence which tell executives how well the organisation
is performing
STAKEHOLDERS
STRATEGIC PHASES
The key phases that must be undertaken whichever philosophy you or your
organisation follow are:
G
Develop the vision
G
Understand what that means for stakeholders
G
Set the corporate strategy
G
Formulate competitive strategies
G
Develop the functional policies
G
Prepare five-year plan
G
Crystallise current plan
The next chapter will explore these.
43
NOTES
44
S T R AT E G I C
STEPS
45
STRATEGIC STEPS
CONCEPTS OF ANALYSIS
Although there are many proprietary approaches to strategic analysis they can be
reduced down to the same simple concepts. It is the emphasis or method of supporting
analysis that differs. The basic steps are:
G
Primary analysis (of you, your competition, the market)
G
Secondary analysis (of your offering and what it means for you to offer it)
G
Planning
G
Implementing
This can be broken down as per the diagram opposite.
(Strategic tools referred to are explained in the next chapter. The templates used here
are examples. There are many variations you may wish to derive your own.)
46
STRATEGIC STEPS
DEVELOPMENT PROCESS
COMPETITIVE STRATEGY
PRIMARY
ANALYSIS
SECONDARY ANALYSIS
PLANNING
IMPLEMENTATION
2 Know
your
market
3 Know
your
enemy
1 Know
yourself
4a Pick
your
playing
field
4b CSFs
5 Gap
analysis
6 Implications
7 Develop
strategic
details
9 Do it!
8 Functional
policies
47
STRATEGIC STEPS
1 KNOW YOURSELF
Key points You cannot manage those things that are outside of your control
(customers, competition) but you might, however, be able to influence those external
factors. Understanding this will be a powerful force in shaping your strategy.
enemy
Conversely, internal factors can (should) be more easily managed, but they also
constrain what you can do. For example, you cannot mine gold unless you
1 Know
have access to a mine and you cannot programme software if you have no
yourself
developers. Implicit in this are the changes that must be made to facilitate
delivery of the strategy.
Key questions What are we good at? Where are we weak? Why is that the case?
What are our key goals? What is our vision?
Actions Analyse your company, critically and objectively. This involves qualitative
(SWOT see page 82) and quantitative (numbers) analysis. Agree/revisit goals and
formulate/review vision.
48
Tools SWOT, Business Impact Analysis and Scenario Analysis to see how things might
change and whether your SWOT items remain the same (hold strategic workshops).
STRATEGIC STEPS
1 KNOW YOURSELF
VISION AND GOALS
The first thing that must be achieved if your organisation doesnt have it
already is the vision and the supporting goals.
enemy
The vision, as discussed, is the statement that is the essence of what
you are about and which should inspire your staff, customers and
stakeholders. The goals are the things that you need to achieve to hit
the vision and are imperatives for the business. They fall into three areas:
G
G
G
1 Know
yourself
Customer goals what are the things that we must do to ensure that
we are our customers preferred choice?
Stakeholder goals what must we do to delight our stakeholders (management,
staff, shareholders/members, board, regulators, communities etc)?
Excellence goals what must we excel at to gain and maintain competitive advantage?
Goals should be exciting, challenging and described in the present tense...
49
STRATEGIC STEPS
1 KNOW YOURSELF
GOALS FOR CUSTOMERS
Customer goals express, in simple language, why customers prefer to do business
with you.
G
G
Have 14 goals
Include a superlative or qualifier
enemy
Examples:
Customers believe that our products are the
best value for money
Our customers receive an efficient and friendly
service
Our products are flexible and meet our
customers needs
50
1 Know
yourself
STRATEGIC STEPS
1 KNOW YOURSELF
GOALS FOR STAKEHOLDERS
What you must do to delight your stakeholders.
Stakeholders include shareholders/members, staff, management, board, regulators and,
possibly, local communities (difficult to measure).
G
G
G
G
G
Have 26 goals
Include something about being a great company to work for
Include staff development
Include solvency/liquidity if appropriate
Include financial goals eg return on mean assets
enemy
1 Know
yourself
Examples:
Market share is 20% or better in our chosen markets
Our expense ratio is in the top three of our peer group
Our staff turnover is half that of the industry
Return on capital in top ten percentile for industry
51
STRATEGIC STEPS
1 KNOW YOURSELF
GOALS FOR EXCELLENCE
These goals should focus on the core competencies of the organisation. At what must
you excel?
G
Have between 68 goals which should include:
product development
distribution/delivery
information
operations
Examples:
We understand our markets better than our competitors
Managers receive the right management information to enable
them to manage the resources at their disposal
52
enemy
1 Know
yourself
STRATEGIC STEPS
1 KNOW YOURSELF
TARGETS
enemy
Have 13 targets per goal.
G
G
G
G
Consider how you will measure attainment of your goals
Quantify targets in some way
If necessary, develop new measures
Ensure targets form an essential input to board meetings going forward
1 Know
yourself
Examples:
Market share is 20% or better in our
chosen markets, eg:
- compound growth of 12% pa
- improved profitability to 17% pre-tax
Customers believe that our products
are the best value for money, eg:
- consistently in the top five in
independent surveys
- increased retention rates to 85%
We understand our markets better than
our competitors, eg:
- we carry out two annual surveys into
potential clients
- we focus on our target customers who
make up 80% of our client base
defined by monetary value
Our expense ratio is in the top three of
our peers, eg:
- expenses ratio is 0.9% or better
53
STRATEGIC STEPS
1 KNOW YOURSELF
GOALS AND TARGETS
You can use this template to draw up the goals and targets to quantify or measure
progress with your customer (or stakeholder or excellence) goals. Then you can
start your analysis.
Goal for Customers
enemy
1 Know
yourself
1
2
54
3
STRATEGIC STEPS
2 KNOW YOUR MARKET
Key points This is about understanding the market dynamics, ie the shape
and progress of your market, the trends now and in the future. For example:
How is technology affecting it? What are customers demanding? What
regulations are emerging? What products or services are coming onto the
map? How is distribution changing (clicks vs bricks)? How is the competition
structured? You must look forward as you will be competing in the future.
ANALYSIS
2 Know
your
market
Key questions Who buys what, where and how (branch vs internet vs sales force,
etc)? What are government views? Who are our customers? How have they changed?
Actions Understand why customers buy from you (and why some dont). Analyse why
disaffected customers left. Analyse the trends and changes.
Tools PESTLE (see page 83), market research, analysis of customer base, exit interviews,
scenario analysis, segmentation.
55
STRATEGIC STEPS
2 KNOW YOUR MARKET
FACTORS FOR ANALYSIS
ANALYSIS
Products
Competitor
structure/
stability
Growth rate
Barriers
entry/exit
Customer
analysis
Market
dynamics
56
2 Know
your
market
STRATEGIC STEPS
2 KNOW YOUR MARKET
THE IMPACT OF BARRIERS ON PROFIT
Barriers have an impact on a firms operations. Entry barriers (copyrights, patents,
investment requirements, knowledge, legislation) keep competition out and can lead to
higher profits. Exit barriers (disinvestment, legislation, redundancy costs etc) can stop
players exiting when they should and, therefore, cause instability. Understanding these
is a key component of strategic formulation.
ANALYSIS
Entrance Barriers
H
L
High profit
High profit
Stable profit
Low profit
2 Know
your
market
Unstable profit
Low profit
Stable profit
Exit Barriers
Unstable profit
H
57
STRATEGIC STEPS
2 KNOW YOUR MARKET
SEGMENTATION
Although you may have a competitive advantage, it is not possible to achieve this in
every aspect of the market. Consequently, it is important to split the market into segments
and decide on those where you will do best.
A segment can be defined as one in which:
Members will
respond in a similar
manner (more or marketing less)
to stimuli
ANALYSIS
Or, it can be described as:
Distinct groups
of buyers with similar
needs, characteristics or
behaviour who might
require separate products
or marketing mixes
2 Know
your
market
58
You must therefore
STRATEGIC STEPS
2 KNOW YOUR MARKET
SEGMENTATION
Decide on what bases you will segment, ie:
G
G
G
G
Analyse the attractiveness of those segments for you
Decide in which segments you will make money and prioritise them
Choose the position of your offerings in those segments
Develop your Customer Value Propositions (CVPs) for each
Segments chosen should be those where you can make money. This implies that you must:
G
G
G
G
Understand the market better
Have a better offering than your competitors
Tailor it more specifically to wants and needs or
Be able to deliver it at a lower cost
Example segments are shown on the next page.
ANALYSIS
2 Know
your
market
59
STRATEGIC STEPS
2 KNOW YOUR MARKET
SEGMENTATION GENERAL STRATEGIES
Based on the segment attractiveness (whether you can make money) and the strength of
your CVP (how much better your offering is than the competition) there are a number of
generic competitive strategic initiatives that can be followed.
Segment attractiveness
H
60
L
Specialised, find niche
Aim for No1, build on
strength, eliminate
weakness
Go for it!
Minimal investment
Look for growth
Invest
No-go or Exit
Move out
Milk for cash
CVP strength
2 Know
your
market
H
STRATEGIC STEPS
3 KNOW YOUR ENEMY
Key points This is about finding out who your major competitors are now and who
they will be in the future (they may not be the same as in the past, they may not even be
from the same industry) and establishing your competitive position (see later).
Key questions Who does our customer base go to? If not to us, why not?
To whom might they go in the future? What product/service differences are
there, now and in the future? Who might enter, who might withdraw and
why? What are the barriers to entry or exit?
3 Know
your
enemy
Actions Analyse the competition now/future. Understand why you
succeeded (or failed!). Establish what will be important in the future. Carry
out product comparisons.
Tools Porters five forces, competitive research (databases, internet etc), competitive
feature/benefit comparison.
61
STRATEGIC STEPS
3 KNOW YOUR ENEMY
SUN TZU MATRIX
By understanding yourself vis--vis the competition you have a greater chance of success.
Clarity of your
understanding of yourself
H
Win (4)
2
3 Know
your
enemy
Lose (1)
Equal chance
of losing (2)
1
L
62
Equal chance
of losing (2)
1
2
Clarity of your understanding of the enemy
H
STRATEGIC STEPS
3 KNOW YOUR ENEMY
ESTABLISH COMPETITIVE POSITION
Having understood past position (A) and analysed the requirements for
future success (B) it will be possible to establish your future competitive
position (C) in your chosen segments.
A
3 Know
your
enemy
Past strengths and
weaknesses
Market share and
position
Past competitive
behaviour
Future
competitive
position
B
Future strengths and
weaknesses
C
Position on CSFs
Future basis of
competition and CSFs
63
STRATEGIC STEPS
3 KNOW YOUR ENEMY
UNDERSTAND YOUR COMPETITORS
By comparing major players market share and looking at the trends, you can get a view
as to how the market is moving.
Brand strength
Market leader 100%
Player with share
expressed as % market
leader and direction
player is moving
Market share
64
3 Know
your
enemy
STRATEGIC STEPS
4a PICK YOUR PLAYING FIELD
Key points This is about understanding exactly where you have the competitive edge
and then focusing on those areas (known as segments) where you can exploit your
advantages.
Key questions Who buys what, where and how (branch vs internet vs sales force etc)?
Where do we have the advantage? How do we keep it? In which segments can we
maximise money?
Actions Decide on which segments you will focus. Develop a unique Customer Value
Proposition (that sets out a clear message to the
customers of the benefits to them from
choosing you).
Tools Segment analysis, market research,
trend analysis.
4a Pick
your
playing
field
65
STRATEGIC STEPS
4b CSFs
COMPETING
In understanding the market you must know how players compete and what Critical
Success Factors (CSFs) you must be good at in order to compete (win).
Basis of competition
Ranking
Implied Critical Success Factor
Price
1
Low-cost operations
Distribution
5
Multi channels
Service
4
Superb training
etc
2
etc
etc
3
etc
4b CSFs
66
STRATEGIC STEPS
5 GAP ANALYSIS
Key points This is about understanding what you need to be successful in
your chosen segments and where you need to improve your capabilities
(see following diagram).
5 Gap
analysis
Key questions Where are we weak? Where is our competition strong
or changing? What does this imply?
Actions Contrast your success and failures with those of the current and
future competition. Determine the CSFs in those chosen markets (see previous page).
Tools Porters five forces, competitive research (databases, internet etc), competitive
feature/benefit comparison, CSF analysis.
67
STRATEGIC STEPS
5 GAP ANALYSIS
Value for money
Service
100%
100%
YO
U
Compare yourself
with your competition
(best in class) and
then identify the gaps
in performance.
IT
HR
5 Gap
analysis
G
AP
100%
Innovation
68
100%
Distribution
Your competition
in each case best
in class
STRATEGIC STEPS
Organisational
competencies
Example for retail financial
services
1
2
1. Ancient history
B
A. Personal contacts
and experiences
2. History
3
3. Physical presence in high street
(big four/building societies)
B. Bricks and mortar
networks
C
Competency
match
4. Your organisational
competencies here
4
Market
demands
A
TIME
TIME
5 GAP ANALYSIS
C. Telesales
D
D. Market demands here
5. Remote personal handling
(DirectLine/Churchill)
E. e-commerce
5
6. Remote impersonal handling;
first class delivery (Smile,
Egg, Cahoot)
6
7. Long-term future
7
E
Leads to
competitive
edge
F. Voice-commerce?/
Wireless products?
G. Virtual banks/ no
networks whatsoever?
F
G
As long as your organisation has the competency demanded by the market then you
can achieve competitive edge. If they go out of sync, however
69
STRATEGIC STEPS
Organisational
competencies
Market
demands
3. Physical presence
C. Telesales
in high street
4. Your organisational
3
competencies here
D. Market demands here
Competency
mis-match
Markets are not static,
and not only is the
amount of change
increasing but also the
rate of change. This
leads to instability, flux
and real need to
respond to changing
market demands.
5 & 6. Competitors with
organisational
competencies that
match the market
erode your share
4
5
6
70
C
Leads to lack of
competitive edge,
loss of market share,
profit erosion
D
5 Gap
analysis
TIME
TIME
5 GAP ANALYSIS: MIS-MATCH
STRATEGIC STEPS
6 IMPLICATIONS
Key points From the analysis, what are the key issues that impact on your organisation?
What do you need to do to improve them? (See following diagram.)
Key questions What do we need to change? How do we change it? By when should
we change, and how much? Can we do it alone, or do we need help?
Actions Develop plans to attack the key issues and think through
the implications. Cost vs revenue is it worth it? What disruption
might be caused? When would it pay back? Is it sustainable?
6 Implications
Tools Planning, scenario planning, change management,
business case development/quantification, budgeting.
71
STRATEGIC STEPS
6 IMPLICATIONS
Implications for the organisation:
CSFs
Your current
position
Can we do this?
What must we change?
What should we buy-in/outsource?
What skills do we need?
Can our systems/processes cope?
Is our structure right?
Do we have the right
distribution channels?
Are our costs in sync?
Can we deliver?
Can we make money?
6 Implications
72
STRATEGIC STEPS
7 DEVELOP THE STRATEGIC DETAILS
Key points These are the tactics and actions that you must put in hand to achieve your
objectives. Too often these are overlooked and therefore organisations fail to achieve the
strategic goals.
Key questions Which parts of our organisation do we need to change? What
budgets do we need? What plans?
Actions Cascade strategic goals down to all parts of the organisation:
G
G
Allocate responsibilities, milestones, deadlines
Quantify outcomes impact on B/S, P&L, cashflow
7 Develop
strategic
details
Tools Budgets, planning, RACI analysis, core competency analysis.
73
STRATEGIC STEPS
7 DEVELOP THE STRATEGIC DETAILS
DEFINING THE DETAILS
The
offering
G
G
G
Size the
prize
G
G
G
Getting
ready
G
G
G
Winning
G
G
G
Distribution
G
G
G
74
What do customers need?
Are customers interested?
Do they see value in the proposition?
Who are the target customers?
What revenues are there?
How sustainable are they?
What is the long-term game?
What assets and strengths do we have already to exploit this opportunity?
What additional technical/content capabilities are needed?
Who are, or will be, our competitors?
How will we beat them?
What are the risks and how do we manage them?
How do we get into this market/improve current position?
Who might we ally with?
Who might we acquire?
7 Develop
strategic
details
STRATEGIC STEPS
8 FUNCTIONAL POLICIES
Key points This is about developing the policies for the support
functions (HR, IT, Marketing, Finance etc) that will underpin the strategy.
8 Functional
policies
Key questions Where must we strengthen our support areas?
What skills/systems do we need? Is our structure correct to carry out
the strategy?
Actions Review training, analyse financing, review IT strategy, set marketing goals
as sub-set of competitive strategies.
Tools Iterative challenges, budgetary analysis and development, planning.
75
STRATEGIC STEPS
8 FUNCTIONAL POLICIES
COMPETITIVE STRATEGY AND SUPPORTING, FUNCTIONAL POLICIES
The competitive strategy, whilst unique to each offering, is of course a blend of the
offering and the supporting functional policies.
Competitive strategy
Offering
Operational/HR
Technology
Organisation
8 Functional
policies
76
STRATEGIC STEPS
8 FUNCTIONAL POLICIES
STRUCTURE
Structure is an extremely important issue. The wrong structure can lead to
difficulties with chosen strategies, sending mixed messages and, in some
cases, militating against efficiencies. Often it is given a geographical focus
that may be inappropriate or irrelevant depending on the business you are in.
8 Functional
policies
Structure follows strategy was a maxim coined by Alfred Chandler in 1962
(Strategy and Structure) by which he meant, that if the strategy is right, the structure
would pop out (form follows function).
It is now generally recognised that, in most cases, this is untrue and structure needs to
be pro-actively managed to optimise strategy delivery. Whilst a better structure will not
necessarily lead to a better organisation, a bad structure will be harmful. It is always right
therefore to improve the structure.
Types of structure include: geographical, markets, products, functional and distribution.
You should have the right structure to support the strategy. Often this resolves into a
matrix for complex organisations.
77
STRATEGIC STEPS
9 DO IT!
Key points This is about making it happen.
Key questions Who will take responsibility for it?
What is the critical path? What resources are
required, initially and thereafter?
Actions Allocate responsibilities to staff. May
require new product/solution development.
Communicate to stakeholders. Cascade
responsibility down as appropriate.
Tools RACI analysis, critical path
(PERT) analysis, programme
management, variance analysis,
change management,
communication media.
78
9 Do it!
S T R AT E G I C
TO O L S
79
STRATEGIC TOOLS
ADJUNCTS TO ANALYSIS
Tools are just that they are a means of carrying out analysis in a structured manner.
They are not the answers in themselves and should be used carefully, precisely and
where appropriate. Using them for their own sake is a waste of time. Some of the more
common tools include:
G
SWOT analysis
G
PEST analysis
G
Scenario analysis
G
Core competency analysis
G
Critical Success Factor analysis
There are others, and most strategy books will either refer to these or contain variations
on these and others. Many organisations have developed their own portfolio of tools and
techniques, often portraying the results in a series of tables or 2 x 2 matrices
80
STRATEGIC TOOLS
GRIDS
Generally, 2 x 2 or 3 x 3 grids are frequently used in strategic analysis (Boston matrix,
Ansoff matrix, Scenarios). Psychologically the brain can cope easily with the two
dimensions that are represented in such a manner and it is a good medium for getting
concepts across.
It must be remembered, however, that these grids are merely simplified pictures of
outputs. They are not a means in themselves, but a method of presenting the findings
or options that emerge from complex analysis.
They must not be taken at face value, instead the supporting data must be considered.
Too often the grids are filled out superficially, rather than as a result of analysis, and the
assumptions underpinning them are insufficiently challenged and probed.
Deciding to sell a subsidiary just because it appears as a dog in a Boston matrix (see
page 93) may be a costly error if the analysis is sketchy, data poor or incomplete and the
industry cycle not considered (eg many start-ups appear as dogs or problem children).
81
STRATEGIC TOOLS
SWOT
SWOT stands for Strengths, Weaknesses, Opportunities and Threats and can be a helpful
way of classifying key issues. It is only a list and action must be taken to achieve lasting
beneficial results:
Strengths What you are good at, not in your opinion but in the objectively and empirically
proven view of external third parties (eg many banks mistakenly assumed their
customers were loyal because they mistook inertia for loyalty and were then surprised when
many deserted to other institutions). A strength is where you have a recognised advantage
that you can exploit.
Weaknesses Those aspects which your customers tell you your competitors do better
than you (eg why they bought Xs product as a replacement for yours). Also, aspects that
your customers/staff tell you need development.
Opportunities Exploitable areas where you can use your strengths or where you can
improve one of your weaknesses in order to make money.
Threats Those things that might happen to your disadvantage in the market place
82
(eg goods substitution, new low-cost competitor, new trend that changes consumer
behaviour, legal changes, technological obsolescence, etc).
STRATEGIC TOOLS
PEST
PEST stands for Political/legal, Economic, Sociocultural and Technological. (PESTLE is
a variant with Legal and Environmental issues separated out.) It is essentially an analysis
of the external environment within which you must operate and which might influence
your offerings. It enables a categorisation of the key factors that you believe will have an
influence in the future. (Note that analysis of past impacts is only useful as a means of
predicting or understanding future impacts.) The key factors can then be prioritised and
the magnitude taken into account. PEST analysis is a vital input into such things as
Scenario analysis:
Political
Economic
Sociocultural
Technological
Anti-trust laws
Green laws
Tax
Employment law
Government
Behaviour
Economic cycles
GNP
Inflation
Interest rates
Unemployment
Energy prices
Demography
Income trends
Education
Lifestyles
Fashions
Mobility
R&D spend
Rate of change
Communications
Speed of transfer
83
STRATEGIC TOOLS
PORTER FIVE FORCES
Michael Porter (Harvard professor) has, arguably, been one of the most influential strategic
thinkers and writers this century. With the publication of his book Competitive Strategy in
1980 he became the definitive strategist of the twentieth century, with the book being
required reading on all MBA courses and for business students generally.
The book focuses on a series of techniques for analysing industries and competitors and
is still regarded as a seminal work. In it he argues that there are five forces shaping
strategy within industries:
1. Rivalry amongst firms
2. Threat of substitute products
3. Threat of new entrants
4. Bargaining power of suppliers
5. Bargaining power of buyers
The relative strengths of these forces determine the profit of an industry which is, of
course, different in each industry. The thrust of his book is that an organisation needs
to understand these forces and then adopt a position from which to defend itself against
them and influence the factors in its favour.
84
STRATEGIC TOOLS
COMPETITIVE INTENSITY (AFTER PORTER)
Example analysis (output):
Level of competition
Five forces
LOW
MEDIUM
HIGH
Rivalry amongst firms
Threat of new entrants
Bargaining power
of buyers
Overall
da
ta
Ill
us
tra
tiv
e
Threat of substitute
products
on
ly
Bargaining power
of suppliers
85
STRATEGIC TOOLS
PORTER STRATEGIC OPTIONS
Porter then goes on to state that there are only three types of strategic options which
organisations can use:
Differentiation make your offering such that it is perceived as being unique and
different from the rest.
Cost leadership basically sell on price but with such tight cost controls that you
are profitable.
Focus deal only in a specific market or geographical location.
According to Porter, failure to follow one of these three options leaves you floundering
somewhere in the middle.
86
STRATEGIC TOOLS
ANSOFFS FIVE TURBULENCE LEVELS
Igor Ansoff, a long respected strategic thinker, has carried out much research into
organisations strategies. He has concluded that a major factor is that of turbulence
ie the changes through which a market is going which can invalidate strategies.
Understanding turbulence is of critical importance and may demand new approaches.
He categorises markets by the change through five states from repetitive (with little
or no change) through to surpriseful where any planning may be totally invalidated
(see over).
Each state will require a different type of strategic approach to meet the market trends
and deliver value. This may differ for different units/offerings of the organisation, as will
the rate of change. It is therefore important that the relative state of turbulence is
understood for each offering.
Organisational analysis where offerings are positioned in different markets is pointless.
87
STRATEGIC TOOLS
ANSOFFS FIVE TURBULENCE LEVELS
STATE
APPROACH
1
Repetitive
Stable procedural
2
Expanding
Reactive control, budgets
3
Changing
Anticipatory extrapolating long-term planning based
on past
4
Discontinuous
Entrepreneurial not based on past, strategic planning
5
Surpriseful
Creative issue management, surprise management
(contingency), hunch, gut feel, visionary leadership
Increasing turbulence
88
Each state requires a different approach to strategy and the state of your firm and its
offerings must be known to enable you to develop the correct strategy.
STRATEGIC TOOLS
SCENARIO ANALYSIS
This is a technique that can help you address and understand the uncertainty
that is implicit in future analysis.
G
Scenarios are only as good as the
information that supports them which,
therefore, needs to be high quality
G
They are not a forecast
G
They seek to identify long-term forces
and events and assess the likely impacts
G
They help to focus limited internal resources
to meet potentially unlimited challenges, but
G
You need to choose carefully the factors that
create the scenario/s.
Predictions are
very difficult to make, especially
as regards the future.
Chinese saying.
89
STRATEGIC TOOLS
SCENARIO ANALYSIS
A scenario is defined as, an outline of future development which shows the
operation of causes.
G
It challenges current business
model and thinking
G
It must be engaging, interesting
challenging and credible
G
It must be logically consistent
G
90
It describes a possible future
but is not a prediction
It is broader in scope and
considers longer time horizons
than a mere forecast
Scope
G
Scenario
snalysis
Forecast
Timescale
STRATEGIC TOOLS
SCENARIO ANALYSIS
CRITICALITY VS UNCERTAINTY
In scenario analysis you develop a list of probable impacts on the business and then
categorise them by the degree of impact versus the likelihood that they will impact.
This allows you to parcel the impacts
up into:
Inevitable they will happen
anyway so just be prepared to
negate or exploit
G
Critically uncertain you need
to develop action plans to
address these within your defined
scenarios
H
Insignificant do not worry
about these
G
Critically uncertain
Impact
G
Inevitable
Insignificant
L
Uncertainty
H
91
STRATEGIC TOOLS
SCENARIO ANALYSIS
FACTORS AND DETERMINANTS
The four key factors that form a framework for scenario planning are:
1. Social dynamics including quantitative demographics, lifestyle changes and
political nuances
2. Economic issues macroeconomic trends and forces shaping the economy
3. Technological issues changes in technology/software, growing awareness
of that change, greater enablers (internet etc), penetration by PCs of market
4. Regulatory issues where and how and when will government (national/EU)
intervene, taxation, controls
You must decide which are the key issues in
each of the four factors and then, by
contrasting one against another, a range of
different scenarios can be developed.
Eg Social dynamics V Economic, or
Economic V Technology.
92
1
2
3
4
STRATEGIC TOOLS
BOSTON MATRIX
One of the most famous tools was developed by the Boston Consulting Group (BCG).
It looks at market growth and market share.
four quadrants are:
Low growth Low market share
Low growth High market share
High growth Low market share
High growth High market share
Emotive icons are allocated to the quadrants:
A Is usually a dog
B Is a cash cow
C Is a question mark (problem child)
D Is allocated a star
High
The Boston Matrix
Star
Problem Child
Dog
Low
Market Growth
The
A
B
C
D
Cash Cow
High
Market Share
Low
93
STRATEGIC TOOLS
BOSTON MATRIX
The matrix is, of course, simplistic and inherently flawed. It is usually impossible to
compare strategic business units from different organisations and assess the market
share of each. For example, the retail unit of one bank will be competing against many
different firms (such as building societies, utilities, life companies, retailers etc) each of
which will have different product ranges and operate in different regional, national and,
possibly, global markets.
When applied to products, however, this approach can be useful even with its flaws.
Products are more genuinely comparative across organisations, as are their markets.
94
STRATEGIC TOOLS
CORE COMPETENCY ANALYSIS
This is about understanding the things that your organisation does well, and not so well,
in the context of your offerings. You may well have a different profile for each offering
and, if you wish to continue with them, you will need to ensure that your competencies
support each.
The diagrams on the next page show two offerings with different competency profiles,
indicating where action needs to be taken.
95
STRATEGIC TOOLS
CORE COMPETENCY ANALYSIS
Value for money
HR
Upgrades
100%
100%
Value for money
100%
100%
Innovation
100%
Sales support
Distribution
IT
50%
100%
Innovation
(100% = delight, 50 75% = satisfy, <50% = dissatisfy).
96
100%
Packaging and
documentation
30%
Upgrades
100%
Packaging and
documentation
IT
HR
100%
100%
Sales support
Distribution
STRATEGIC TOOLS
CORE COMPETENCIES RELATED
TO OFFERINGS
Key issues with core competencies are: how flexible they are (How easy is it for you to
respond to market change?) and how difficult it is for competitors to replicate them (Do
you have strategic advantage?).
Flexibility across offerings
H
L
Possibly unique competencies
therefore exploit to full
Compete by constantly changing and
try to increase difficulty of replication
Offerings
4
1
5
Exit
3
Limited but not easily
replicable niche
2
6
Not flexible and easily replicable
either exit or develop uniqueness
Replicability by competitors
H
97
STRATEGIC TOOLS
TREND ANALYSIS
Understanding the major trends in your sector and the forces causing them (see examples
below) enables you to develop plans for countering/exploiting them.
Key sector trends
Forces pushing trends
Demography (greying)
Legislation
Privatisation of pension provision
Focus on pensions
Wealth accumulation
Demography (greying)
Category killers
Cheap imports
Clothing retail
Price reduction
Brand re-building
Costs rising
Quality demand increasing
Cheap imports
98
Financial services
Car manufacturing
Small-scale
mass-manufacturing no
longer viable
STRATEGIC TOOLS
BUSINESS IMPACT ASSESSMENT
Scenario
analysis
Market analysis
by line of business
Customer and
Competitor analysis
Strategic opportunities,
threats and responses
Revenue impact
by line of business
New Customer Value
Propositions (CVPs)
Strategic, functional
and operational plans
99
NOTES
100
T IPS
101
TIPS
RISK
Risk is an ever present issue whenever strategy is developed. You must understand your
potential risks. Too often risk is considered as adequately compensated for by reward
but too often it slips down the risk/reward line.
H
Reward
Decision: High
reward - Low risk
Outcome: Low
reward - High risk
102
L
Risk
H
TIPS
ACCEPTABLE RISKS VS ACCEPTED RISKS
It is important to understand which risks you are taking and those risks that you should
be taking.
Risks we should accept
Risks we should not accept
Risks
we do
accept
Good decision
risk within tolerances
Unknown/unwanted risk
probable losses
Risks we
dont
accept
Lost opportunity
Good decision
avoiding the right risk
Adapted from Croft et al, Management and Organisation in Financial Services, IFS.
Opportunities
103
TIPS
CRITICAL SUCCESS FACTORS (CSFs)
It is important to compare your strategy with the CSFs. Does it hit all or most of them?
If not, you are likely to fail.
Business objectives
C
D
E
l
B
al
A
CSFs
er
Ov
Strategic
action
1
2
3
4
on
ly
5
7
8
104
Supports partially
Fully aligned
No impact
Ill
us
tra
tiv
e
da
ta
6
TIPS
PITFALLS
Bureaucratisation Too many organisations leave strategy to bureaucratic planning
departments. Reams of paper produced but no action!
Complexity Often too much focus on trying to plan and manage the whole organisation
rather than the organisation as a whole.
Paralysis of analysis Follows too much refinement and iteration. Usually reflects an
inability to make decisions or lack of clarity over vision, goals and targets.
Too much involvement at wrong levels Allocated to junior staff or departments rather
than having senior executive involvement in formulation.
Planning by numbers OK as far as it goes, but strategy requires more vision and
inspiration, supported by perspiration to prove the concept.
105
TIPS
PITFALLS
Outsourcing your strategic development Many organisations hand over strategy lock,
stock and barrel to strategy firms. As a result they never develop the proper understanding
of development and implementation, and are dependent time and time again on the
outsiders doing their strategy for them.
Forecasting too far into the future The further out you go, the less accurate forecasts
are. Better to carry out scenario analysis rather than long-term forecasts.
Confusing fundamental objectives and means objectives Dont confuse the things
that you really want to achieve (fundamental) and those things you need to achieve on
the way.
Lack of clarity Know the difference between corporate strategy and competitive strategies.
106
TIPS
TO SUCCEED YOU MUST...
G
Be totally clear as to the vision
G
Understand your markets and
offering, as well as the
competition and trends
G
Be clear about your offering and
draw up your competitive
strategy for chosen segments.
Do not compete where you cant
make money!
G
Ensure that the support functions
have clear goals that are aligned
to strategic goals, and resources
and management necessary to
achieve them
G
Put in place clear targets to
measure progress towards goals
G
Be flexible to changes in markets
G
Add value to all groups of
stakeholders relative to their
importance
Achievement of strategic goals and targets
107
FURTHER READING
BOOKS
There are literally hundreds of books on strategy. Some of the more helpful are listed below:
Strategic Safari
Henry Mintzberg
Published by FT Prentice Hall (1998)
Strategic Planning
Igor Ansoff
Published by John Wiley & Sons (1976)
Competitive Advantage
Michael E. Porter
Published by The Free Press (2004)
Mastering Strategy Series
Financial Times editors et al
Published by FT Prentice Hall
It may also be helpful to contact the Strategic Planning Society www.sps.org.uk who also
publish a quarterly magazine through Elsevier, LRP long range planning.
108
About the Author
Neil Russell-Jones BSc (Hons), MBA, ACIB is an author
and a management consultant and is a member of the Strategic
Planning Society.
He works internationally with many organisations in many
countries assisting them in developing or testing strategy, in
improving their performance, change/programme management
and in market analysis/research.
He has written many books and papers on business topics.
His other titles include for Management Pocketbooks: Business
Planning, Decision-making, Managing Change, and Marketing; and for the Institute of
Financial Services: Customer Relationship Management, Risk Evaluation, Customers and
Their Needs and Marketing, Sales and Customer Service.
He has been a lecturer on the CASS EMBA course, and a special advisor for the Princes
Youth Business Trust (patron HRH the Prince of Wales) in the areas of strategy and
marketing. Neil is a regular speaker in many countries and has often appeared on radio
and TV in the UK and elsewhere.
You can contact him at [e-mail].
All trademarks acknowledged.
109
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