Fiche Strategy

Strategy

Session 1

Strategy: a set of coordinated, sustainable, creative actions (a plan) designed to solve one or more core challenges, that create value.

Thinking strategically is the ability of making choices that will yield results that far outstrip the effort required.

The process:

1. Observation
2. Core challenge identification & setting the goals
3. Concept idea generation (define what are the key features and the assumptions behind their impact which needs to be validated): work out the core challenges
4. Lean testing & learning validation (minimum viable product): reduce uncertainty
5. Rollout to the entire organization if testing was successful, else pivot (start observation again): managing execution

Three levels:

• Corporate strategy
• Business Unit strategy
• Functional strategies (Marketing, HR, IT…)

The goal of strategy is value creation. Proxy: competitive advantage (measured thanks to ROCE). But external forces drive it down.

2 ways of renewing competitive advantage: continuous improvement or innovation.

Sources of competitive advantage, all linked to corporate culture:

• Structural (brand name, economies of scale, client database, access to resources…)
• Insight/foresight (unique knowledge, ability to recognise trends and patterns)
• Outperforming in execution of day-to-day business (organizational efficiency…)

This results either in a cost (leaning curve, economies of scale, improving supply chain, reducing labour costs) or a price advantage (differentiation strategy but same production costs: Geox for instance) relatively to the industry, or both simultaneously.

Session 2 – Corporate Culture, Governance and Aspirations as influencers of Strategy success

Understanding and managing organizational culture is the underlying of the 5 steps framework.

Strategic drift is the tendency for strategies to develop incrementally on the basis of historical and cultural influences but fail to keep pace with a changing environment.

A collective mindset refers to a set of assumption, methods or notions held by a group of people which is so established that it creates a powerful incentive within these people to continue to adopt or accept prior procedures, behaviours, choices or tools.

High performing organisations seem to have strong collective mindsets with common traits:

• Solidarity
• Goals, objectives and value alignments
• Execution and accountability
• Innovation (or renewal)

Strategy is influenced by:

• Different players (CSR, Governance structure, stakeholders)
• Vision (big goals, 10-30 years), Mission (raison d’être) and Values (guiding principles)

Session 3 – From Observation to Core Challenges and Strategic Objectives

CAES framework (Competitive Advantage Eco-System)

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PESTEL framework

Political, economic, social, technological, environmental, legal: it assesses Macro Environment.

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The Porter model

It assesses industry structure. But it does not consider nontraditional structure/ conduct (e.g., strong noncontract relation-ships) and nontraditional competitive advantages (e.g., superior insight into market evolution).

The 5 forces are:

• Intensity of rivalry (industry competitors)
• Bargaining power of suppliers
• Bargaining power of customers
• Threat of new entrants
• Threat of substitutes

Porter also identifies external forces: Macroeconomics, Technology, Demand and Regulation.

When you identified the level for each force (from low to high depending on your industry), you can assess three things (higher or lower):

• impact on industry profitability
• average price
• average cost

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4 level breakdown analysis of competitive advantage:

• ROIC (compare across industry)
• Net Operating Profit vs Net Invested Capital compared across companies
• Break Net Operating Profit into Revenue and Cost and compare
• Break Revenue into volume and average price (average price found thanks to Porter’s analysis)

Session 4 – Analysing the Internal Environment; The Core Competence of the Corporation

The situation has to be both internally and externally assessed.

A strategy matches a firm’s resources and capabilities with its environment.

Goal: identify the resources and capabilities that have the potential to establish a competitive advantage for the firm.

Use the industry key success factors (previously identified) and organizational capabilities to develop a strategy that will allow you to have a competitive advantage.

There are three types of organizational capabilities:

• Tangible resources

• Financial (resilience and capacity for investment)
• Physical (constrain the set of production possibilities and impact cost position)

• Intangible resources

• Technological (R&D, patents…)
• Reputation (with customers and other stakeholders) – indicators: brand equity, comparative product performance, surveys

• Human resources (skills, adaptability, collaboration, commitment, and loyalty) – employee qualification, compensation relative to industry, percentage days lost because of disputes, absentee and turnover rates

2 concepts of corporation:

• SBU: business by business concept, top management only optimizes capital allocation trade-offs between businesses
• Core competence: integrated firm, top management allocates capital and talent and enunciates strategy, builds competences to secure the future  

Your competitive advantage derives from your core competencies.

Core competencies are the collective learning in the organization, they include how to coordinate diverse production skills and integrate multiple streams of technologies. Core Competencies are about harmonizing streams of technology, and organizing work for the delivery of value.

Identify core competencies:

• Provide potential access to a wide variety of markets
• Make a significant contribution to the perceived customer benefits of the end product
• Should be difficult, if not impossible, for competitor to imitate

Every product should be the result of at least one core competence.

Evaluate core competencies:

• Extent of competitive advantage established

• Scarcity
• Relevance

• Sustainability of competitive advantage

• Durability
• Transferability
• Imitability

• Appropriation

• Property rights
• Bargaining power between firm and individual
• Embeddedness: weaker employee relative to the firm (depends on corporate systems and reputation)

3 steps to analyse resources and capabilities:

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