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STRATEGY FOR GROWTH
Module Presentation
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Strategy for Growth
- 1. templateversion1.0 STRATEGY FOR GROWTH Module Presentation [Place], [Date]
- 2. TRAINING OBJECTIVES AND CONTENTS | 2 The SPIN-UP training in Strategy for Growth will help University Spin-Off’s managers to improve their abilities to plan for the business growth. Understanding the fundamentals of strategic management Identify strategic possibilities from business environment Manage the firm’s growth
- 3. TRAINING OBJECTIVES AND CONTENTS | 3 Understand the central strategy terminology and their implications Understand what strategy is and what it is not Recognize the importance of strategic management Understand different perspectives to firm’s competitiveness Understanding the fundamentals of strategic management
- 4. TRAINING OBJECTIVES AND CONTENTS | 4 Understand different perspectives to firm’s competitiveness Be able to analyze and select between different strategic options available for firm Identify strategic possibilities from business environment Know how generally manage firm’s growth process Understand the principles of discovery driven growth Manage the firm’s growth
- 5. TRAINING OBJECTIVES AND CONTENTS | 5 This module is not intended to prepare trainees to be experts in financial matters. Instead, it appeals to the trainee common sense and experience to deliver the basics of strategy planning for growth
- 6. TRAINING OBJECTIVES AND CONTENTS | 6 Defining Strategy Different perspectives to being competitive Growth and Competitiveness Learning Objectives Learning Contents Understanding the fundamentals of strategic management Identify strategic possibilities from business environment Manage the firm’s growth
- 7. Goals of this module • Understand the fundamentals of strategic management – Understand the central strategy terminology and their implications – Understand what strategy is and what it is not – Recognize the importance of strategic management – Understand different perspectives to firm’s competitiveness • Identify strategic possibilities from business environment – Understand different perspectives to firm’s competitiveness – Be able to analyze and select between different strategic options • Manage the firm’s growth – Know how generally manage firm’s growth process – Understand the principles of discovery driven growth 1. STRATEGY FOR GROWTH
- 8. What is strategy after all? • Possible definitions… – ”Strategy is the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a changing environment and to fulfil stakeholder expectations.” (Johnson and Scholes, 2002) – “..strategy is concerned with planning how an organization or an individual will achieve its goals.” (Grant, 2006) – “What business strategy is all about is, in a word, competitive advantage…” (Ohmae, 1983) 1. STRATEGY FOR GROWTH
- 9. Dimensions of Strategy 1. STRATEGY FOR GROWTH Organizational purpose Impetus for strategy activities (input) Strategy content Result of strategy activities (output) Strategy process Flow of strategy activities (throughput) Strategy Context Conditions surrounding strategy activities
- 10. Emergent vs Deliberate Strategy 1. STRATEGY FOR GROWTH Unrealized strategy
- 11. The 5 Ps of Strategy (Mintzberg) 1. STRATEGY FOR GROWTH 5PS DESCRIPTION EXAMPLE Plan Strategy as a plan defines what the firm will do next. As such, when strategy is seen a plan, the definition follows a relatively traditional approach to strategy making, which highlights the importance of deliberate strategy design and implementation. This is probably the most common way to perceive strategy and is the common approach taken e.g. at large firm’s websites. E.g. IBM strategy in the future is to strengthen its service offering to widen its product portfolio. Pattern Strategy as a pattern defines what the firm has done before – or the pattern the firm has taken. When comparing to plan, the accuracy of pattern is better than plan as it is the realized strategy. Some people might find it easiest to describe firm’s strategy as a story of firm’s past behaviour. E.g. IBM strategy has been to move from pure manufacturing to limited manufacturing and services by doing a significant realignment of its organization. Position Strategy as position answers to question what the company does. As such it describes the products or markets the firm operates on – defines the firm’s position. Firm’s products and markets are relatively easy to identify, thus position is easy way to perceive firm’s strategy. E.g. IBM offers B2B IT hardware and services. Perspective Strategy as a perspective answers to questions how and why the company does what it does. As such it does not describe what the company does, but how it operates on the markets it operates on. Many firms have ‘the company way of doing something’ which reflects the firm’s strategic perspective. This perspective can be tied to e.g. speed of services or quality. E.g. IBM offers reliable high quality services and products for its customers. Ploy Strategy as a ploy implies for a deliberate misinformation that the company can give to confuse or distract its competitors. A practical move that is not so clearly visible for outsiders.
- 12. Distinctions in terms of time horizon 1. STRATEGY FOR GROWTH • Wide high level views of the goals of the companyStrategy • Short term plans how to react to rapid changes in firm's business environment Tactical • The aim is to achieve targets efficiently on daily basis Operational
- 13. Strategy Terminology 1. STRATEGY FOR GROWTH TERM DEFINITION EXAMPLE Mission The central goal of the organization, which is also in line with the expectation of the owners Be healthy and fit Vision, Strategic intent The commonly shared desired future state. To run the London Marathon Goal More common target for the company Lose weight and gain muscles Objective Preferably a numeric clear target that can be used to practical management. Lose X kg by January 31st Unique resource, Core competence A resource or a skill that provides the company competitiveness Gym nearby Support of the family Strategy Long term direction Practice regularly Join sporting club Control Operations management to ensure: - that they go to right direction - corrections if needed Weight and sporting activity measurement
- 14. Questions • Do you have a deliberate strategy in your company? • How much of it gets actually executed? • Do you use any of this strategy termionology in your company? 1. STRATEGY FOR GROWTH
- 15. • Objectives usually flow top-down and the measures bottom-up • Three main challenges for measures – Selecting the right measures – Defining objectives – Implementing the measurement 1. STRATEGY FOR GROWTH Delivery Cycle time Market Customer satisfaction Quality Financial Productivity Waste Flexibility Strategic visio External efficiency Internal efficiency Objectives Measures The Performance Pyamid = objectives and measures
- 16. Questions • Which measures do you use to evaluate strategy execution in your company? • Which challenges do you face in measuring performance? 1. STRATEGY FOR GROWTH
- 18. Three main approaches towards competitive advantage • Market approach (Market Based View, MBV) • Resource approach (Resource Based View, RBV) – Static (traditional, RBV) – Dynamic (”modern”, DRBV) • Network-based approach (Relational view) 1. STRATEGY FOR GROWTH
- 19. MBV: Market approach • Based on the argument that the company's output can be explained best by the industry and the competition • Assumes that firm’s internal capabilities are similar and market position defines the performance differences between firms • The company's strategy sets out two main aspects: – Market choice – Actions to “manipulate” the market favorably 1. STRATEGY FOR GROWTH
- 20. MBV: Understanding the internal market forces (5-Forces framework) 1. STRATEGY FOR GROWTH Suppliers Look at customers Competition Number of competitors Diversity of competitors Diversity of products Amount of excess capacity and cost of market exit Cost structure of products Substitutes Customer lock-in to current solution The relative performance and price of substitute products New Entrants Mass-production efficiencies Financial intensity Product differentiation Access to distribution channels Legal and governance The likely reaction from current competitors Customers Product price vs. total costs Product differentiation Competition among buyers The relative size of customers The concentration of customers Lock-in effect for customers Buyers quality of information
- 21. MBV: The Value Chain model 1. STRATEGY FOR GROWTH Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing & sales Service M arginM argin Supporting activities Primary activities
- 22. MBV: Market based approach strategies • Gives general strategy options • Investment decision-making is broadly based on the company's markets and market manipulation 1. STRATEGY FOR GROWTH Suppliers Look at customers Competition Number of competitors Diversity of competitors Diversity of products Amount of excess capacity and cost of market exit Cost structure of products Substitutes Customer lock-in to current solution The relative performance and price of substitute products New Entrants Mass-production efficiencies Financial intensity Product differentiation Access to distribution channels Legal and governance The likely reaction from current competitors Customers Product price vs. total costs Product differentiation Competition among buyers The relative size of customers The concentration of customers Lock-in effect for customers Buyers quality of information Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing & sales Service M arginM argin Supporting activities Primary activities Cost leadership Cost focus Differentation Differentation focus Cost Differentation Source of competitive advantage NarrowBroad Scope
- 23. RBV: Basic assumptions • Companies are internally heterogeneous: different resources, processes, know-how, etc. • These internal factors determine the competitiveness of the company • Resources must be used "correctly" and protected against unauthorized copying 1. STRATEGY FOR GROWTH
- 24. RBV: VRIN resources 1. STRATEGY FOR GROWTH Value Rareness Inimitability Non-substitutability Sustained competitive advantage
- 25. RBV: Expansion of the core capabilities/competencies of the firm 1. STRATEGY FOR GROWTH 1 32 4 65 7 98 10 1211 Business 1 Business 2 Business 3 Business 4 Core product 2 Core product 2 Competence 1 Competence 2 Competence 3 Competence 4
- 26. RBV: Linking resources to markets • The resource does not work in itself… products will generate revenue • The links should be explicitly recognized, so that resources can be derived correctly 1. STRATEGY FOR GROWTH R1 Firm’s resources Firm’s products P1 PnP2 C1 C2 Firm’s capabilities Customers’ requirements CuR1 CuR2 CuRn R2 R3 R4 Rn C3 Cn
- 27. RBV: construction of strategy • Identification of critical resources (VRIN criteria) • Optimization of the use of critical resources • Protection of critical resources 1. STRATEGY FOR GROWTH
- 28. DRBV: starting point • Resource protection in the long run is almost impossible to ensure… current industry trends are to shorten protection periods even further • Is protecting a key factor, or the ability to produce new resources? • DRBV captures the idea of corporate internal dynamics… RBV is built in because protecting resources remains important 1. STRATEGY FOR GROWTH
- 29. DRBV: The basic of idea can be summarized in a bathtub 1. STRATEGY FOR GROWTH Tap (Accumulation of resources) Bathtub (Resource stock) Drain (Resource erosion)
- 30. DRBV and the extended enterprise 1. STRATEGY FOR GROWTH Resource accumulation Asset erosion Outdated competences Capability accumulation Changing customer requirements Creating New markets Old customer requirements New product development Obsolete products R1 Firm’s resources Firm’s products P1 PnP2 C1 C2 Firm’s capabilities Customers’ requirements CuR1 CuR2 CuRn R2 R3 R4 Rn C3 Cn
- 31. DRBV: Stock-flow business phenomena 1. STRATEGY FOR GROWTH PHENOMENA DESCRIPTION Changing resource stock is slow The stocks are hard or impossible to change rapidly due to inertia. Flows can usually be changed rapidly. E.g. it is hard to change the water from a full bathtub in a second, but tap can be opened or closed easily within second. The water needs to be changed by letting current water flow out and then replace water from the tap. Time compression diseconomies Some processes take and require time to implement. By using extra resources you might be able to increase the implementation speed, but the cost can grow exponentially or even have no effect on the implementation speed. E.g. it is hard to speed up the draining of a full bathtub without breaking it. Asset mass efficiencies Sometimes the current level of a stock can be connected to the ease of resource accumulation. In such cases ‘success breeds success’. The bathtub example is too simple to cover these phenomena, but it is covered in the knowledge management literature as ‘absorptive capacity’, which states that an entities ability to learn new is dependent on its current level of knowledge. If the level is too low, learning will not occur. Accumulation process is stochastic In reality the inflow of resources is not stable, but can be highly stochastic. In such situations the connection between flow output, firm’s stock, and performance can be hard to see implying for causal ambiguity. Causal ambiguity is a more common.
- 32. DRBV: construction of strategy • Identification of key processes – Process evaluation as a source of competitiveness – For example, R&D does not play a key role in all industries • Change Process development activities – Maximize efficiency and effectiveness – Total use of resources in the most efficient way – Effectiveness does not mean necessarily cheap, but refers to the balance between proceeds and costs • Balancing between the different processes – If a company focuses too much on a single process it may impair the operation of other processes 1. STRATEGY FOR GROWTH
- 33. Relational view: basics • Companies today operate as part of business networks • Do I need to own a resource… or is it sufficient to use the resource? • External resources accelerate the company's adaptability • Do I have the skills to use external resources? • Transaction costs are an important factor… Should I buy or make myself? 1. STRATEGY FOR GROWTH
- 34. Relational view: Expanding the RBV approach • Expanding strategic options = more management complexity • Requires new networking skills 1. STRATEGY FOR GROWTH R1 Firm’s resources Firm’s products P1 PnP2 C1 C2Firm’s capabilities Customers’ requirements CuR1 CuR2 CuRn R2 R3 R4 Rn C3 Cn Networked resources Networked capabilities Networked products NeR1 NeRn NeCn NePn NeP1 NeC1
- 35. Relational view: Establishing a strategy • Identify the resource needs of the company (the RBV way) • Further questions from a relational point of view… – Will you do it yourself or buy externally? – Who can buy? – Who is the best supplier? – What is the right price? • Strategy into practice – Contract negotiations – Monitoring of activities / repair / quality control – Re-evaluation of decisions • Related risks – External is always more uncertain than internal – Perceived quality – Dependency of suppliers 1. STRATEGY FOR GROWTH
- 36. Summary • Four different/complementary views of competitiveness • They give a different explanation for competitiveness and thus different starting points for strategy formation • In practice, they allow expanding the company's direction and number of strategic opportunities • You should think about your own challenges from these different angles 1. STRATEGY FOR GROWTH
- 37. Group Discussion... Questions so far?
- 39. Conventional vs Discovery Driven Growth (DDG)... Sensemaking Training TU Delft 1. STRATEGY FOR GROWTH CONVENTIONAL DISCOVERY-DRIVEN Success Means making tour numbers and hitting projections Means learning as much as you can for the least possible cost Management focus Day-to-day and operational Top of agenda; top of mind Timing Dictated by the budget or planning cycle Dictated by key learning checkpoints Revision Indicates a mistake Indicates learning Project redirection Seen as negative; seldom done Seen as necessary; can be frequent Funding Often allocated all at once or not linked to milestone accomplishment Limited to the amount needed to achieve next milestone; no guarantee of continuation Assumptions Sometimes listed; seldom checked; checking seldom integrated to whole plan Often listed; checked frequently as part of planning process; forced integration to whole plan Downside Seldom explicitly managed Acknowledged and managed before you even start Termination decision Delayed, avoided, and reluctantly pursued Occurs as part of the planning process; disciplined dis-engagement
- 40. Components of a successful growth strategy • Strategy must be clear: clear growth targets • A company has to address lucrative markets, where it has a strong know-how: combine both internal and external views (RBV and MBV) • Top management must be committed to growth 1. STRATEGY FOR GROWTH
- 41. The framework for growth 1. STRATEGY FOR GROWTH Create the corporate growth framework Establish the growth strategy Drive an opportunity portfolio Scope specific initiatives Implement discovery- driven growth Lead sustained growth Create the business model architecture Benchmarking and key metrics analysis Develop reverse financials Develop deliverables specification Develop assumption checklist Identify key checkpoints Develop checkpoint/ assumption links Lead checkpoint reviews Assess continuing viability of project Evaluate redirection/ disengagement Create a disengagement plan in needed Constructively manage disengagement Corporate leadership Planning initiatives Leading initiatives
- 42. Corporate leadership is to a great extent Risk Management • Portfolio approach can be used to manage risks 1. STRATEGY FOR GROWTH Low Medium High Low Medium High Core- enhancement launches Platform launches Positioning options Stepping- stones Scouting- options Market and organizational uncertainty Technicalandexecution uncertainty
- 43. Planning initiatives... general aspects: • Define clear goals • Specify and critically evaluate assumptions • Identify key checkpoints (to re-evaluate goals and assumptions) 1. STRATEGY FOR GROWTH
- 44. Planning initiatives • Business Model Design: the story of how the company creates value for the customer and how / why it is able to capture value for itself • Benchmark competitors: products, business plans, etc. • Reverse financials: Look into future targets and reverse them into the necessary prices and costs to sustain them (think critically about your initial assumptions) 1. STRATEGY FOR GROWTH
- 45. Leading initiatives…. do not fall in love with your projects • Management must be prepared to suspend projects • Plan a change of direction… have a plan B • If the project is suspended, it is important to prepare for stakeholder reactions • Implement the project's end in a constructive way: minimize damage and stimulate learning 1. STRATEGY FOR GROWTH
- 46. The critical factors for sustainable DDG 1. STRATEGY FOR GROWTH Agree on appropriate fundamental approach to innovation There are several different approaches to innovation: - ‘Marketplace’ for ideas, where all levels of organization try to make innovations and the management is more in supporting role - ‘Visionary leader’, where the firm relies on superb individual visionary skill - ‘Systematic innovation’, where few employees are encouraged to undertake discrete venturing tasks and management focuses on resource allocation. - ‘Collaborative innovation’, where the firm tries to leverage from its connections to external player, partners, and ecosystem members to innovate. Decide on corporate growth objectives It is important to establish clear growth objectives among the senior management team. The objectives should be measurable and set differently between different growth categories (connection to Figure 15.) Specify the growth framework Defining where the firm seeks and where the firm does not seek growth is important so that the strategic logic is clear for the whole firm. The clearer the logic the better the execution will likely be. Make appropriate resource allocations Senior management is ultimately responsible for resource allocation between different projects and balancing resources to different kinds of development projects makes sustained growth possible. Appoint, authorize, and set expectations for those executing Senior management will have to select and authorize personnel who are responsible for each development project. One significant part of this is the definition of objectives and responsibilities. Navigate the program Although CEO is not necessary always who executes each development project, the CEO is responsible for creating the right kind of mind set to the company that supports growth.
- 47. Exercise 1 • Analyze the strategy of a publicly traded firm (SME) • Consider the following questions: – What is the Mission and/or Vision of the company? – What goals has the company set for itself? – How will the company try to achieve its goals? – What are the main strategic approaches that you observe? • Check companies at alternext: https://europeanequities.nyx.com/en/markets/nyse- alternext/product-directory EXERCISES
- 48. Exercise 2 • In this group discussion we will discuss the growth strategies of your companies. • Please use 5 minutes to think independently of strategic growth challenges that your firm has faced/ is facing/ or is likely to face in the future. • After independent thinking, we will list the challenges on the whiteboard and select a topic for discussion. EXERCISES