2 Strategy Strategy and Tactics differ mainly around time scale. In Foundation®, a 5-8 year Strategy is supported with annual tactical decisions.Strategic Plan should consist of:Vision and Mission StatementS.W.O.T. Analysis (or Environmental and Internal scans)Tactical and Functional Area Plans
3 Introduction A strategy is one of four organizational time drivers. Mission Statement (timeless)Strategy (3-5 years)Operational Intents (1 year)Tactics (Day to day)Time In Years
4 Strategy From where in the organization strategy should emerge? Michael Porter argues for a top-down view.Strategy is designed at the top of the organization, with the goal of positioning resources and building relationships in a unique way.
6 Cost Leadership Objective Characteristics: Create a sustainable cost advantage over competition to either:Under-price competitors to gain market shareEarn higher profit margin by selling at market priceCharacteristics:Uses knowledge gained from past production to lower production costsReduce costs versus competitors by efficiently performing value chain activitiesLow level of differentiation – standardized productAdd new product features only after the market demands themAim for average customerTight control of overhead and R&DState of the art facilities
7 Cost Leadership Advantages: Risks: Cost advantage protects from new entrants.Can reduce price to protect from competitionRisks:Overly aggressive in price cutting (reduced prices not offset by increased sales)Fixation on reducing costs at expense of responding to changing marketTechnological breakthroughs - competitors may leapfrog the technology, nullifying the firm's accumulated cost reductions.Competitors may imitate the technology
8 Differentiation Objective Characteristics: Incorporate differentiating features that influence buyers to prefer firm’s product or service:Create value for buyers that are not easily matched or cheaply copiedSpend less on differentiation than the price premium that can be chargedCharacteristics:Include unique featuresKey is perceived quality (whether real or not).Actual product qualityService after saleRapid innovation thru R&D
9 Differentiation Advantages: Risks: Perceived quality and brand loyalty insulate companyPrice increases from powerful suppliers can be passed on to customersBuyers have only one source of supply.Brand loyalty protects from substitutes.Brand loyalty is a barrier to new entrants.Risks:Charging a price premium that buyers won’t supportAdding features customers don’t value - customer tastes may changeImitations are a threat today because of production technologyHow long can the firm sustain a particular differentiation advantage?
10 Focus (Cost or Differentiation) ObjectiveConcentrate attention on a narrow segment of the total market:Choose niche where buyers have distinctive preferences or unique needsDevelop unique capabilities to service target segmentCharacteristics:Firm must build competitive advantage into specific, difficult to mass produce value chain segmentSuperior serviceGreater selection to specific niche
11 Focus (Cost or Differentiation) Advantages:Power over buyers since focuser may be only source of supply.Customer loyalty protects from new entrants and substitute products.Easier to stay close to customer and monitor his needs.Risks:The firm may be at mercy of powerful suppliers since focuser buys in small quantities.Small volume means higher production costsChange in consumer tastes or a technological change could cause a focuser's niche to disappear.Cost leaders or big differentiators may produce products that satisfy customers' needs - the focuser is subject to constant attack.
13 Porter Curve ROI Market Share High Low High Firms with High ROI / Low Overall Market Share would likely have a clearly defined focused strategyHigh Overall Market Share / High ROI firms would likely have a strong position in both market segments –risky, but effective when executed properlyPorter CurveHighROILowHighMarket Share
14 Porter Curve ROI Market Share High Low High Firms in the middle have a less definable identity, and a hard time competing. They might have a number of “sofa-bed” product lines: Not great sofas – not great beds.Porter CurveHighROILowHighMarket Share
15 BCG Growth/Share Matrix Market ShareHighLowThe Boston Consulting Group Growth-Share Matrix was developed in the 1960’s as a tool to assess a firm’s Strategic Business Unit (SBU) or productLong-term success is achieved by having a mix of high-growth potential products that require lots of cash, and low-growth products that generate the required $$Market GrowthLowHigh
16 BCG Growth/Share Matrix Market ShareHighLowStar products occupy strong positions in high growth marketsCash Cows occupy strong positions in low growth marketsQuestion Marks have low market share in segments with strong growthDogs are low market share products positioned in low potential marketsMarket GrowthLowHigh?
17 Capstone StrategiesThe Situation Analysis generated an overview of the forces at work within the Foundation® market place.Now you must decide how to use that information to gain a competitive advantage.There are many different approaches - all of which can be successful depending on how well they are implemented tactically.
18 Capstone StrategiesSTRATEGYMission StatementPERFORMANCEASSESSMENTSuccess MeasurementsAnalyst ReportRound Analysis - StarSummaryINDUSTRY AND MARKETANALYSISS.W.O.T AnalysisCompetitor AnalysisCompetitive AnalysisFUNCTIONAL PLANNINGR&DMarketingProductionHRFinanceTQMStrategies are declared in corporate mission statementsFoundation firms may develop and execute any strategy (or none at all - though that isn’t advisable). Basic strategies include:Overall Cost LeaderCost Leader with Focus (Low Tech or Product Life-Cycle)DifferentiatorDifferentiator with Focus (High-Tech or Product Life-Cycle)
19 Overall Cost LeaderAn overall cost leader will attempt to be the low-cost producer in both segments of the market. They will have good profit margins on all sales while keeping prices low.Firm Profile:More likely to re-position products than introduce new ones to the marketCapacity improvements are unlikely to be undertaken (may run overtime instead)Automation may be pursued to increase marginsInvestments will be financed with debt and/or stock issuesTend to spend less on promotion and salesFocus on Market Share, Profits, and Stock Price
20 Cost Leader With Low-tech Focus A low-tech focused cost leader seeks to dominate the low-tech market segment. Their aim is to set prices below all competitors - and still be profitable.Firm Profile:Multiple product lines in the low-tech segmentInvest heavily in automationSpend heavily on Promotion (less on Sales as staff has more than one product to pitch to prospects)Investments financed with debt and/or stock issuesFocus on ROS, ROE, and Profits
21 Cost Leader With Product Life-cycle Focus A product life-cycle focused cost leader will seek to minimize costs through efficiency and expertise. Products will be allowed to age and change in appeal from high-tech to low end buyers.Firm Profile:Low R&D spending (very little re-positioning, introduce new product every 2-3 years)Invest in automation early in the product’s life-cycleHigh spending on promotion and salesFocus on ROE, ROS, and Profits
22 DifferentiatorA Differentiator will seek to create maximum awareness and brand equity. They want to be well known as makers of high quality/highly desirable products.Firm Profile:High R&D spending to keep products freshMaintain a presence in both market segmentsSpend heavily on advertising and sales to create maximum awareness and accessibilityPrices tend to be higherFocus on Market Share, Profits, and Stock Price
23 Differentiator With High-tech Focus A high-tech differentiator seeks to be known far and wide as the top producer of the best performing state-of-the-art products.Firm Profile:Multiple product lines in high-tech segmentMinimum focus in low-tech segmentHigh promotion and sales investments to create maximum awareness and accessibilityHigh R&D expenditures to continually introduce new product lines and keep existing products freshUnlikely to invest in increased automation or production capacityFocus on ROA, Asset Turnover, and ROE
24 Differentiator With Product Life-cycle Focus A product life-cycle differentiator seeks to be well-known as a top producer of good performing products in each of the targeted segments.Firm Profile:Multiple product lines in both segmentsHigh promotion and sales investments to create maximum awareness and accessibilityHigh R&D expenditures to continually re-position product lines as they transition from high-tech to low-techUnlikely to invest in increased automation or production capacityFocus on ROA, Stock Price, and Asset Turnover
25 Today’s shift is tomorrow’s nightmare Strategies EvolveToday’s shift is tomorrow’s nightmarePoor tactics undermine a good strategyGood tactics can overcome a poor strategy
26 Summary Successful firms will focus on: Planning Strategic alignment There is no "magic bullet," guaranteed winning strategy. Each simulation has a unique competitive dynamic.Successful firms will focus on:PlanningStrategic alignmentTeamworkCompetitor analysisTactical adjustments.