1. The Strategy Design Process
Strategic Analysis
Strategic Choice
Strategy Implementation
and Evaluation
Identify
Sustainable
Competitive
Advantage
Select
Sustainable
Competitive
Advantage
Create
Sustainable
Competitive
Advantage
Understand Industry Context and Competition
Craft and
Communicate
Vision and Mission
Develop Action Plans, Programs, and Processes
Analyze Industry and External Environment
Develop Strategic Goals and Specific Long Term Objectives
Craft Changes in Structure and Processes
Implement the
Strategy
Evaluate
The Current
Situation
Evaluate and
Select Strategy
Analyze Resources and Internal Capabilities
Establish the Basis for Sustainable Competitive Advantage
Develop a Strategic Control System
Understand and Critique Current Strategy
Generate Feasible
Alternative
Strategies
Evaluate the
Strategies
Results
Feedback and Rethinking

2. Assess Industry & Competitive Conditions
Situation Analysis
1. Industry’s dominant economic traits
2. Nature of competition & strength of competitive forces
3. Drivers of industry change
4. Competitive position of rivals
5. Strategic moves of rivals
6. Key success factors
7. Conclusions about industry attractiveness
Assess Industry & Competitive Conditions
Identify
Strategic Options
for the
Company
Select the Best Strategy
for the
Company
1. Assessment of company’s present strategy
2. Resource strengths and weaknesses, market opportunities, and external threats
3. Company’s costs compared to rivals
4. Strength of company’s competitive position
5. Strategic issues that need to be addressed
Assess Company Situation

3. Question 4: Which Companies are in Strongest / Weakest Positions?
A strategic group is a group of firms in an industry following the same or similar strategy.
Identifying strategic groups:
Identify principal strategic variables that distinguish firms.
Position each firm in relation to these variables.
Identify clusters. 33

4. Strategic Groups Within the World Petroleum Industry
Statoil
INTEGRATED DOMESTIC
OIL COMPANIES
PRODUCTION
COMPANIES
INTEGRATED INTERNATIONAL
MAJORS
PDVSA
DIVERSIFIED MAJORS
Kuwait
Vertical Balance
Exxon
Amoco
Shell BP
Unocal
Arco
Chevron
Total
Indian Oil
Phillips
Texaco
Mobil
Petrobras
ENI
ENI
Elf
Elf
INTERNATIONAL
DOWNSTREAM
OIL COMPANIES
Repsol
Neste
Petrofina
Nippon
Sun
NATIONALLY-FOCUSED
DOWNSTREAM COMPANIES
Geographical Scope 4

5. How to Start a Revolution
Re-conceive your product or service
Radically improve the value equation
Separate form and function
Achieve joy of use
Re-define the market space
Push the bounds of universality
Strive for individuality
Increase accessibility to your products
Re-draw industry boundaries
Rescale the industry
Compress the supply chain
Drive convergence between industries

6. What is a competitive advantage?
How do you know if you have one (or not)?
How can you create one? 2

7. Sources of Competitive Advantage
COST
ADVANTAGE
Similar product
at lower cost
COMPETITIVE
ADVANTAGE
Price premium
from unique product
DIFFERENTIATION
ADVANTAGE 6

8. The Porter Value Chain FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT
SUPPORT
ACTIVITIES
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUND OPERATIONS OUTBOUND MARKETING SERVICE
LOGISTICS LOGISTICS & SALES
PRIMARY ACTIVITIES 6 6

9. Using the Value Chain to Identify Differentiation Potential on the Supply Side
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
INBOUND OPERATIONS OUTBOUND MARKETING SERVICE
LOGISTICS LOGISTICS & SALES
IS that supports fast response capabilities
Training to support customer service excellence
Unique product features. Fast new product development
Customer technical support. Consumer credit. Availability of spares
Quality of components & materials
Defect free products. Wide variety
Fast delivery. Efficient order processing
Building brand reputation 35

10. Creating Competitive Advantage
Industry structure matters, but success does not come just from industry attractiveness
Value = difference between buyer’s willingness to pay and seller’s opportunity cost
Added value = marginal value created by the firm (value that would be lost by its absence)
The larger the added value, the larger the potential profit for the seller
CA is achieved by driving a wedge between buyer willingness to pay and value added by the firm (scarcity)
Ghemawat & Rivkin, 2006

11. Activity Analysis of Value Creation
Catalog activities (along the value chain)
Use activities to analyze relative costs and cost drivers
Use activities to analyze relative willingness of customers to pay
Who is the real buyer?
What do buyers want and what are they willing to pay for?
What is the relative success of our firm and competitors in fulfilling customer needs
Relate success back to activities – are the activities customers need the ones we are good at?
Explore options and make choices
Understand competitors, their likely reactions, the bundle of benefits to customers, and the role of scope and scale
Ghemawat & Rivkin, 2006

12. Value Networks A non-linear model of value creation

13. Porter’s Generic Strategies
SOURCE OF COMPETITIVE ADVANTAGE
Low cost Differentiation
Industry-wide COST DIFFERENTIATION
COMPETITIVE LEADERSHIP
SCOPE
Single Segment
FOCUS 8

14. The Evolution of Competitive Advantage
How does competitive
advantage evolve?
External sources of
change e.g.:
Changing customer demand
Changing prices
Technological change
Internal sources
of change
Some firms
have greater creative
and innovative
capability
Resource heterogeneity
among firms means
differential impact
Some firms faster
and more effective
in exploiting change 2

15. Drivers of Cost Advantage
Indivisibilities
Specialization and division of labor
ECONOMIES OF SCALE
Increased dexterity
Improved coordination/ organization
ECONOMIES OF LEARNING
Mechanization and automation
Efficient utilization of materials
Increased precision
PRODUCTION TECHNIQUES
Design for automation
Designs to economize on materials
PRODUCT DESIGN
Location advantages
Ownership of low-cost inputs
Bargaining power
Supplier cooperation
INPUT COSTS
CAPACITY UTILIZATION
Ratio of fixed to variable costs
Costs of installing and closing capacity
MANAGERIAL/ ORGANIZATIONAL
EFFICIENCY
Organizational slack 13

16. Identifying Differentiation Potential: The Demand Side
What needs does it satisfy?
THE PRODUCT
What are key attributes?
FORMULATE DIFFERENTIATION STRATEGY
Select product positioning in relation to product attributes
Select target customer group
Ensure customer / product compatibility
Evaluate costs and benefits of differentiation
Relate patterns of customer preferences to product attributes
By what criteria do they choose?
THE CUSTOMER
What price premiums do product attributes command?
What motivates them?
What are demographic, sociological, psychological correlates of customer behavior? 29

17. The Evolution of Honda: A Strategy Based on Resources and Capabilities
50cc 2-cycle engine
Related products:
ground tillers, marine
engines, generators,
pumps, chainsaws
Founding of
Honda motor
company
405cc
motor
cycle
Insight
Hybrid
4 cycle
engines
First product:
clip-on engine
for bicycles
The 50cc
super
-cub
N360 mini
car
1000cc
Goldwing
touring
motor cycle
Acura Car
division 2 2

18. “Core” Competence – Three Tests
Provides potential access to a wide variety of markets and products
Makes a significant contribution to perceived customer benefits of the end product
Is difficult for competitors to imitate

19. Strategic Intent Global leadership over a long time horizon
An obsession with winning at all levels of the firm
A sustained, challenging, focused BHAG
Stable over time
Attracts personal effort and commitment
Guide for resource development and allocation
Avoiding “recipes” for imitation
Creating competitive advantages faster than competitors can imitate them, creating “new space”
Layers of competitive advantage
Changing the terms of engagement

20. The Relationships Between Resources, Capabilities and Competitive Advantage
INDUSTRY KEY
SUCCESS FACTORS
COMPETITIVE
ADVANTAGE
STRATEGY
ORGANIZATIONAL
CAPABILITIES
RESOURCES
TANGIBLE INTANGIBLE HUMAN
Financial
Physical
Technology
Reputation
Culture
Specialized skills
and knowledge
Communication &
interactive abilities
Motivation 3 3

21. The Profit Potential of Resources and Capabilities
THE EXTENT OF THE
COMPETITIVE ADVANTAGE
ESTABLISHED
Scarcity
Relevance
Durability
THE PROFIT
EARNING POTENTIAL
OF A RESOURCE OR
CAPABILITY
SUSTAINABILITY OF THE
COMPETITIVE ADVANTAGE
Transferability
Replicability
Property rights
APPROPRIABILITY OF RETURNS
Relative bargaining
power
Embeddedness of resources 8 8

22. Preparing for the Future: The Role of Scenario Analysis
Stages in undertaking multiple Scenario Analyses:
Identify major forces driving industry change
Predict possible impacts of each force on the industry environment
Identify interactions between different external forces
Among range of outcomes, identify 2-4 most likely/ most interesting scenarios: configurations of change forces and outcomes
Consider implications of each scenario for the company
Identify key signposts pointing toward the emergence of each scenario
Prepare contingency plan

23. Perspectives on Strategic Planning
“The essence of strategic planning is the systematic identification of opportunities and threats that like in the future [to] provide a basis for making better current decisions” (George Steiner)
“There are significant benefits to gain through an explicit process of formulating strategy to insure that at least the policies (if not the actions of functional departments) are coordinated and directed at some common set of goals” (Michael Porter)
“Planning is the substitution of error for chaos” (Anonymous)
“Most corporate planning is like a ritual rain dance: It has no effect on the weather that follows, but it makes those who engage in it feel they are in control” (Russell Ackoff)