Description
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.
The Strategy Formulation Process
Strategic Assessment Analysis of Resources, Capabilities and Competence
1
Some commonly used techniques for internal analysis Single Businesses
Resource Audit Analysis of cost and profit) Benchmarking, Value Chain Analysis, (Supply Chain Analysis)
Both Single and Multiple Businesses
Core Competencies Shareholder Value Analysis Distinctive Organisational Capabilities
Multiple Businesses
Assessing Parenting Advantage, Portfolio Analysis)
2
Resource Audit
?
Resources
? ? ? ?
Physical Human Financial Other
? ? ?
Quality and Quantity Unique resources A good initial analysis
3
Analysis of Costs and Profit
? ?
?
?
Current sources of profits and trends Recast standard reporting to give new insights Pragmatic approach to get value from time and effort spent A good initial analysis
4
Benchmarking
? ? ? ?
?
Objective comparison with best in class Benchmarking clubs common Simple in theory - Hard in practice Observed differences in performance may be due to differences in parameters Qualitative observations may be more valuable than quantitative
5
Value Chain Analysis
? ? ? ?
Basic Value chain in Elegant in theory Time-consuming in practice Revised value chain to reflect power of people and knowledge
6
Value Chain Analysis
? The term value chain describes a way of looking at a
business as a chain of activities that transform inputs into outputs that customers value. ? Customer value derives from three basic sources: ?activities that differentiate the product ?activities that lower its cost ?activities that meet the customer’s need quickly. ? Value chain analysis views the organization as a sequential process of value-creating activities, and attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value.
7
The Value Chain
Secondary Activities
General administration Human resource management Research, technology, and systems development Procurement Inbound Operations logistics Outbound Marketing logistics and sales Service
Primary Activities
8
Conducting a Value Chain Analysis
?
Step 1. Divide the firm’s operations into specific activities or business
processes, usually grouping them according to primary and support activities. Within each category, a firm typically performs a number of discrete activities that may represent key strengths or weaknesses. Step 2. Next, attach costs to each discrete activity. Step 3. Recognize the difficulty in activity-based accounting. Step 4. Identify the activities that differentiate the firm from their competitors.
? ? ?
9
Conducting a Value Chain Analysis
?
Step 5. After documenting the value chain, managers need to
identify the activities that are critical to buyer satisfaction and market success. These are the activities that deserve major scrutiny in an internal analysis.
? ?
?
?
Step 6. Compare to competitors.
The mission should influence managers’ choice of the activities they examine in detail. The nature of value chains and the relative importance of the activities within them vary by industry. The relative importance of value activities can vary by a company’s position in a broader value system that includes the value chains of its upstream suppliers and downstream customers or partners involved in providing products or services.
10
Figure Revised Value Chain
Firm’s infrastructure
SUPPORT Technology trapping and commercialisation ACTIVITIES Strategic Management INFORMATION SYSTEMS & KNOWLEDGE MANAGEMENT technical, price, basic skills, customer PRIMARY core management, place, know-how, ACTIVITIES technologiescompetence marketing, promotion satisfaction, loyalty sales, product strategic assets production service revenue, profit, market share,
HUMAN RESOURCE MANAGEMENT
PROCUREMENT AND SUPPLIER MANAGEMENT
Source: adapted from Porter, M (1985), Martin (1995) to reflect recent developments
11
Why talking “competencies”?
?
Ten years, what a difference make!
? ?
80s: restructure, declutter, delayer the corporation 90s: identify, cultivate and exploit the core competencies that make growth possible Why? Market boundaries changer quickly, targets are elusive and value capture is at the best temporary Need: Invent new markets, enter emerging markets, shift customer choice in established markets All these, require radical change in the management of major companies: focus on a portfolio of competencies (instead of a portfolio of business)
?
Rethinking the Corporation
?
?
?
12
The Core Competence Perspective
Traditional Perspective Market share of present markets Strategic Business Unit Focus Stand-alone Core Competence Perspective Share of future opportunities Corporate Competence Pattern of alliances
Speed to Market term vision
Perseverance towards long-
Adapted from Hamel, G & Prahalad, C.K. (1994) Competing for the Future
13
Beyond price/performance
?
Japanese firms provided a good example
?
they have been able to generate a blizzard of features and functional enhancements that bring technological sophistication to everyday products In the short run, a company’s competitiveness derives from the price/performance attributes of current projects In the long run, competitiveness derives from an ability to build, at lower cost and quickly, the core competencies that spawn unanticipated products
?
The return of “long run”
?
?
14
End products support products? How competencies
1
2
3
4
5
6
7
8
9
10
Business 1
Business 2
Business 3
Business 4
Core product 1
Core product 2
Core Competence 1
Core Competence 2 Core Competence 3
15
--- is a cross-organizational boundaries culture
?
Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies
? ?
Sony capacity to… Philips expertise in…
?
Competence is about
? ? ?
Harmonizing streams of technology Organization of work Delivery of value
16
How to think of competence
?
? ?
? ?
Successful companies seem to preside over portfolios of unrelated business in terms of customers, distribution channels, and merchandising strategy… … because they are able to integrate skills In that context, core competencies provide strategic flexibility (possibility to enter more markets) … and of course, is difficult to be imitated How many: not more than five, six…
17
From core competences to core products
?
The tangible link between core competencies and end products is what we call the core products
?
?
?
The physical embodiments of one or more core competencies Core products are the components or subassemblies that actually contribute that contribute to the value of the end products Attention to the difference between core competence – core product – end product
18
Layers of competition
?
?
?
At the level of core competence, the goal should be to build leadership in in the design and the development of a particular class of product functionality To sustain leadership in their core competence areas, companies seek to maximize their share in core products They also need to define a strategic architecture
?
A tree of the corporation organized around core products and core competencies
19
Competition for competence
?
?
?
?
Competition to develop and acquire constituent skills and technologies Competition to synthesize core competencies Competition to maximize core product share Competition to maximize end product share
20
Processes, positions and paths
?
Processes
? ? ?
Integration Learning Reconfiguration and transformation Technological assets Complementary assets Financial assets Path-dependencies Technological opportunities
21
?
Positions
? ? ?
?
Paths
? ?
The Tests for Core Competence
? ? ? ? ? ? ? ? ? ?
?
?
Essential to corporate survival in short and long term Invisible to competitors Difficult to imitate Unique to the enterprise Result from a mix of skills, resources and processes A capability which the organization can sustain over time Greater than the competence of an individual Essential to the development of core products Essential to the implementation of strategic intent Essential to the strategic choices of the enterprise Marketable and commercially viable Few in number
22
Figure 10.5 The roots of core competence for a typical manufacturing business
Product or Service (as chosen by the cus
Different products, parts, sub-assemblies
Rule or process based Knowledge based, provision, of knowledge person specific & functionality professional service
CORE COMPETENCE
Basic technologies, bodies of knowledge, corporate or individual learning, relationship culture, strategic assets, parts, processes, raw materials, supply chain management
(C) Mahen Tampoe February 6, 1996
23
Figure 10.6 The roots of core competence for typical professional services firms
Mindset
Personality
Collective knowledge of the organisation
Interpersonal Skills
Staff Skills
Embodied as Core Competence
Products & Services
Task Skills
Professional knowledge
(C) Mahen Tampoe February 6, 1996
24
Figure 10.7 Applying Shareholder Value Analysis
Corporate Objective Valuation Components Value Drivers
Creating Shareholder Value Shareholder Return Dividends Capital Growth
Cash from Operations
Discount Rate
Debt
Duration of Value growth
Sales Growth Op. Profit Margin
Fixed & Working Capital investment
Cost of Capital
Management Decisions
Operating
Investment
Financing
Adapted from Rappaport (1986)
25
Assessing Parenting Advantage
? ? ? ?
Stand-alone influence Linkage influence Central functions and service Corporate development
26
Figure 10.9 Portfolio Analysis
Market Share
High Low
High
Market Growth Rate
Low
?
Source: Originally Boston Consulting Group. In Widespread use
27
Choosing the right tools for internal analysis
? ? ? ? ? ? ? ?
Start with simple techniques Consider all tools and identify those likely to be useful Define the competitive capabilities the enterprise needs Identify the subsystems which support these capabilities Identify core competence relative to competitive capabilities Determine changes to enhance/improve core competence Take a systemic view Adjust the methods of analysis in the light of what is found
28
doc_783470676.ppt
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.
The Strategy Formulation Process
Strategic Assessment Analysis of Resources, Capabilities and Competence
1
Some commonly used techniques for internal analysis Single Businesses
Resource Audit Analysis of cost and profit) Benchmarking, Value Chain Analysis, (Supply Chain Analysis)
Both Single and Multiple Businesses
Core Competencies Shareholder Value Analysis Distinctive Organisational Capabilities
Multiple Businesses
Assessing Parenting Advantage, Portfolio Analysis)
2
Resource Audit
?
Resources
? ? ? ?
Physical Human Financial Other
? ? ?
Quality and Quantity Unique resources A good initial analysis
3
Analysis of Costs and Profit
? ?
?
?
Current sources of profits and trends Recast standard reporting to give new insights Pragmatic approach to get value from time and effort spent A good initial analysis
4
Benchmarking
? ? ? ?
?
Objective comparison with best in class Benchmarking clubs common Simple in theory - Hard in practice Observed differences in performance may be due to differences in parameters Qualitative observations may be more valuable than quantitative
5
Value Chain Analysis
? ? ? ?
Basic Value chain in Elegant in theory Time-consuming in practice Revised value chain to reflect power of people and knowledge
6
Value Chain Analysis
? The term value chain describes a way of looking at a
business as a chain of activities that transform inputs into outputs that customers value. ? Customer value derives from three basic sources: ?activities that differentiate the product ?activities that lower its cost ?activities that meet the customer’s need quickly. ? Value chain analysis views the organization as a sequential process of value-creating activities, and attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value.
7
The Value Chain
Secondary Activities
General administration Human resource management Research, technology, and systems development Procurement Inbound Operations logistics Outbound Marketing logistics and sales Service
Primary Activities
8
Conducting a Value Chain Analysis
?
Step 1. Divide the firm’s operations into specific activities or business
processes, usually grouping them according to primary and support activities. Within each category, a firm typically performs a number of discrete activities that may represent key strengths or weaknesses. Step 2. Next, attach costs to each discrete activity. Step 3. Recognize the difficulty in activity-based accounting. Step 4. Identify the activities that differentiate the firm from their competitors.
? ? ?
9
Conducting a Value Chain Analysis
?
Step 5. After documenting the value chain, managers need to
identify the activities that are critical to buyer satisfaction and market success. These are the activities that deserve major scrutiny in an internal analysis.
? ?
?
?
Step 6. Compare to competitors.
The mission should influence managers’ choice of the activities they examine in detail. The nature of value chains and the relative importance of the activities within them vary by industry. The relative importance of value activities can vary by a company’s position in a broader value system that includes the value chains of its upstream suppliers and downstream customers or partners involved in providing products or services.
10
Figure Revised Value Chain
Firm’s infrastructure
SUPPORT Technology trapping and commercialisation ACTIVITIES Strategic Management INFORMATION SYSTEMS & KNOWLEDGE MANAGEMENT technical, price, basic skills, customer PRIMARY core management, place, know-how, ACTIVITIES technologiescompetence marketing, promotion satisfaction, loyalty sales, product strategic assets production service revenue, profit, market share,
HUMAN RESOURCE MANAGEMENT
PROCUREMENT AND SUPPLIER MANAGEMENT
Source: adapted from Porter, M (1985), Martin (1995) to reflect recent developments
11
Why talking “competencies”?
?
Ten years, what a difference make!
? ?
80s: restructure, declutter, delayer the corporation 90s: identify, cultivate and exploit the core competencies that make growth possible Why? Market boundaries changer quickly, targets are elusive and value capture is at the best temporary Need: Invent new markets, enter emerging markets, shift customer choice in established markets All these, require radical change in the management of major companies: focus on a portfolio of competencies (instead of a portfolio of business)
?
Rethinking the Corporation
?
?
?
12
The Core Competence Perspective
Traditional Perspective Market share of present markets Strategic Business Unit Focus Stand-alone Core Competence Perspective Share of future opportunities Corporate Competence Pattern of alliances
Speed to Market term vision
Perseverance towards long-
Adapted from Hamel, G & Prahalad, C.K. (1994) Competing for the Future
13
Beyond price/performance
?
Japanese firms provided a good example
?
they have been able to generate a blizzard of features and functional enhancements that bring technological sophistication to everyday products In the short run, a company’s competitiveness derives from the price/performance attributes of current projects In the long run, competitiveness derives from an ability to build, at lower cost and quickly, the core competencies that spawn unanticipated products
?
The return of “long run”
?
?
14
End products support products? How competencies
1
2
3
4
5
6
7
8
9
10
Business 1
Business 2
Business 3
Business 4
Core product 1
Core product 2
Core Competence 1
Core Competence 2 Core Competence 3
15
--- is a cross-organizational boundaries culture
?
Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies
? ?
Sony capacity to… Philips expertise in…
?
Competence is about
? ? ?
Harmonizing streams of technology Organization of work Delivery of value
16
How to think of competence
?
? ?
? ?
Successful companies seem to preside over portfolios of unrelated business in terms of customers, distribution channels, and merchandising strategy… … because they are able to integrate skills In that context, core competencies provide strategic flexibility (possibility to enter more markets) … and of course, is difficult to be imitated How many: not more than five, six…
17
From core competences to core products
?
The tangible link between core competencies and end products is what we call the core products
?
?
?
The physical embodiments of one or more core competencies Core products are the components or subassemblies that actually contribute that contribute to the value of the end products Attention to the difference between core competence – core product – end product
18
Layers of competition
?
?
?
At the level of core competence, the goal should be to build leadership in in the design and the development of a particular class of product functionality To sustain leadership in their core competence areas, companies seek to maximize their share in core products They also need to define a strategic architecture
?
A tree of the corporation organized around core products and core competencies
19
Competition for competence
?
?
?
?
Competition to develop and acquire constituent skills and technologies Competition to synthesize core competencies Competition to maximize core product share Competition to maximize end product share
20
Processes, positions and paths
?
Processes
? ? ?
Integration Learning Reconfiguration and transformation Technological assets Complementary assets Financial assets Path-dependencies Technological opportunities
21
?
Positions
? ? ?
?
Paths
? ?
The Tests for Core Competence
? ? ? ? ? ? ? ? ? ?
?
?
Essential to corporate survival in short and long term Invisible to competitors Difficult to imitate Unique to the enterprise Result from a mix of skills, resources and processes A capability which the organization can sustain over time Greater than the competence of an individual Essential to the development of core products Essential to the implementation of strategic intent Essential to the strategic choices of the enterprise Marketable and commercially viable Few in number
22
Figure 10.5 The roots of core competence for a typical manufacturing business
Product or Service (as chosen by the cus
Different products, parts, sub-assemblies
Rule or process based Knowledge based, provision, of knowledge person specific & functionality professional service
CORE COMPETENCE
Basic technologies, bodies of knowledge, corporate or individual learning, relationship culture, strategic assets, parts, processes, raw materials, supply chain management
(C) Mahen Tampoe February 6, 1996
23
Figure 10.6 The roots of core competence for typical professional services firms
Mindset
Personality
Collective knowledge of the organisation
Interpersonal Skills
Staff Skills
Embodied as Core Competence
Products & Services
Task Skills
Professional knowledge
(C) Mahen Tampoe February 6, 1996
24
Figure 10.7 Applying Shareholder Value Analysis
Corporate Objective Valuation Components Value Drivers
Creating Shareholder Value Shareholder Return Dividends Capital Growth
Cash from Operations
Discount Rate
Debt
Duration of Value growth
Sales Growth Op. Profit Margin
Fixed & Working Capital investment
Cost of Capital
Management Decisions
Operating
Investment
Financing
Adapted from Rappaport (1986)
25
Assessing Parenting Advantage
? ? ? ?
Stand-alone influence Linkage influence Central functions and service Corporate development
26
Figure 10.9 Portfolio Analysis
Market Share
High Low
High
Market Growth Rate
Low
?
Source: Originally Boston Consulting Group. In Widespread use
27
Choosing the right tools for internal analysis
? ? ? ? ? ? ? ?
Start with simple techniques Consider all tools and identify those likely to be useful Define the competitive capabilities the enterprise needs Identify the subsystems which support these capabilities Identify core competence relative to competitive capabilities Determine changes to enhance/improve core competence Take a systemic view Adjust the methods of analysis in the light of what is found
28
doc_783470676.ppt