Business Strategy readings PDF

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W. Chan Kim and Renée Mauborgne (2004) – Blue Ocean Strategy

Despite a long-term decline in the circus industry, Cirque du Soleil profitably increased revenue 22-fold over the last ten years by reinventing the circus. Rather than competing within the confines of the existing industry or trying to steal customers from rivals, Cirque developed uncontested market space that made the competition irrelevant. Cirque created what the authors call a blue ocean, a previously unknown market space. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In red oceans—that is, in all the industries already existing—companies compete by grabbing for a greater share of limited demand. As the market space gets more crowded, prospects for profits and growth decline. Products turn into commodities, and increasing competition turns the water bloody. There are two ways to create blue oceans. One is to launch completely new industries, as eBay did with online auctions. But it’s much more common for a blue ocean to be created from within a red ocean when a company expands the boundaries of an existing industry. In studying more than 150 blue ocean creations in over 30 industries, the authors observed that the traditional units of strategic analysis— company and industry—are of limited use in explaining how and why blue oceans are created. The most appropriate unit of analysis is the strategic move, the set of managerial actions and decisions involved in making a major market-creating business offering. Creating blue oceans builds brands. So powerful is blue ocean strategy, in fact, that a blue ocean strategic move can create brand equity that lasts for decades.

Mark W. Johnson, Clayton M. Christensen and Henning Kagermann (2008) – Reinventing your Business Model (HBR)

Effective Business Model Consists of: Customer Value Proposition (CVP) -

Target Customer

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Job to be done (solving of an important issue for a customer)

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Offering: How the product is sold to the customer (itunes / apple store)

Profit Formula -

Revenue Model: Price x Volume

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Cost Structure: Direct / indirect costs, economies of scale, cost of key assets.

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Margin Model: How much money do we need to make per transaction to achieve desired profit.

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Resource Velocity: How quickly do resources need to be flipped to support target volume. Includes lead time, inventory turns, asset utilization and so on.

Key Resources: needed to deliver the CVM. -

People

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Technology

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Info

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Channels

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Partnerships

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Brand

Key Processes: Required to draw profit while delivering CVM. -

Design, product development, sourcing, manufacturing, marketing, hiring and training, IT.

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Rules and Metrics: such as required margin to invest in X. Credit Terms, lead times etc.

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Norms: Opportunity size needed for investment, approach to customers and channels.

Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Here’s why: They don’t understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don’t know how to build a new model when they need it. Drawing on their vast knowledge of disruptive innovation and experience in helping established companies capture game-changing opportunities, consultant Johnson, Harvard Business School professor Christensen, and SAP co-CEO Kagermann set out the tools that executives need to do both. Successful companies already operate according to a business model that can be broken down into four elements: a customer value proposition that fulfills an important job for the customer in a better way than competitors’ offerings do; a profit formula that lays out how the company makes money delivering the value proposition; and the key resources and key processes needed to deliver that proposition. Game-changing opportunities deliver radically new customer value propositions: They fulfill a job to be done in a dramatically better way (as P&G did with its Swiffer mops), solve a problem that’s never been solved before (as Apple did with its iPod and iTunes electronic entertainment delivery system), or serve an entirely unaddressed customer base (as Tata Motors is doing with its Nano—the $2,500 car aimed at Indian families who use scooters to get around). Capitalizing on such opportunities doesn’t always require a new business model: P&G, for instance, didn’t need a new one to leverage its product innovation strengths to develop the Swiffer.

A new model is often needed when: 1. There is an opportunity to address through business model innovation the needs of large groups. 2. Opportunity to capitalize on brand new technology by wrapping a new bus model around it. Or to leverage tested technology by bringing it to a whole new market. (Iphone satellite capabilities) 3. Opportunity to bring a job to be done focus where one previously did not exist. 4. Need exists to fend off low end disruptors. 5. Need to respond to shifting basis for competition (similar to 4)

Porter (1996) – What is your strategy (HBR) Today’s dynamic markets and technologies have called into question the sustainability of competitive advantage. Under pressure to improve productivity, quality, and speed, managers have embraced tools such as TQM, benchmarking, and re-engineering. Dramatic operational improvements have resulted, but rarely have these gains translated into sustainable profitability. And gradually, the tools have taken the place of strategy. In his five-part article, Michael

Porter explores how that shift has led to the rise of mutually destructive competitive battles that damage the profitability of many companies. As managers push to improve on all fronts, they move further away from viable competitive positions. Porter argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match. Porter thus traces the economic basis of competitive advantage down to the level of the specific activities a company performs. Using cases such as Ikea and Vanguard, he shows how making trade-offs among activities is critical to the sustainability of a strategy. Whereas managers often focus on individual components of success such as core competencies or critical resources, Porter shows how managing fit across all of a company’s activities enhances both competitive advantage and sustainability. While stressing the role of leadership in making and enforcing clear strategic choices, Porter also offers advice on how companies can reconnect with strategies that have become blurred over time. ht t ps : / / www. s l i de s h a r e . n e t / d ma r t h e n/ wha t i s a s t r a t e gy mi c ha e l po r t e r h a r va r d b us i n e s s r e v i e w

Lafley and Martin (2017) – Where customer loyalty is overrated (HBR)

Why do companies routinely succumb to the lure of rebranding? The answer, say A.G. Lafley and Roger L. Martin, the authors of “Customer Loyalty Is Overrated,” is rooted in serious misperceptions about the

nature of competitive advantage—namely, that companies need to continually update their business models, strategies, and communications to respond to the explosion of options that sophisticated consumers face. Research suggests that what makes competitive advantage truly sustainable is helping consumers avoid having to make a choice. They choose the leading product in the market primarily because that is the easiest thing to do. And each time they select it, its advantage increases over that of the products or services they didn’t choose, creating what the authors call cumulative advantage. Lafley and Martin offer guidance for building cumulative advantage: Become popular early. Back in 1946, Procter & Gamble gave away a box of Tide with every washing machine sold in America. Design for habit. When P&G introduced Febreze, consumers liked it but didn’t use it much. The problem, it turned out, was that the product came in what looked like a glass-cleaner bottle, so users kept it under the sink. When the company redesigned the bottle so that customers would keep it in a more visible spot, they ended up using it more often. Innovate inside the brand. Efforts to “relaunch” brands can lead people to break their habits. Changes in product features should be introduced in a way that retains cumulative advantage. For customers, “improved” is much more comfortable than “new.” Keep communication simple. A clever ad may win awards, but if its message is too complex, it will backfire.

A Counterpoint Rita Gunther McGrath takes issue with some of this thinking. In “Old Habits Die Hard, but They Do Die,” she argues that although the theory of cumulative advantage makes sense in industries that are predictable, that condition no longer applies for many companies. Habits, like other elements of the environment, can shift. Consider how Dollar Shave Club’s subscription model snatched market share from Gillette. Executives, McGrath says, must balance the power of cumulative advantage with the need to refresh their approach. One tactic is to leverage an organization’s core skills or capabilities, but in a new format—as Dayton Hudson did when it became Target. The better executives become at understanding the motivations behind

unconscious choices, the more likely they are to succeed at building habitual behavior among their customers—and, just as important, the more likely they are to see how those habits might change.

Two Company Strategies How does the theory of cumulative advantage play out for companies other than Procter & Gamble? Jørgen Vig Knudstorp, cochairman of the LEGO Brand Group, built his company’s cumulative advantage by mining the emotional connection that so many people have with the colorful blocks. “If you can make your brand a value—a part of someone’s identity—you have a really powerful competitive advantage,” he says. “But it all begins with making your brand a habit.” Intuit chairman Scott Cook attributes much of his company’s success to an early decision to design Quicken, Intuit’s personal-finance software, to look and operate like a checkbook. As Cook puts it, Quicken is “a product that lets people hold on to their habits.”

Your strategy needs a strategy (HBR), 2012 Many executives rely on a process for devising strategy suited to

stable, predictable environments even when they know conditions are highly volatile and mutable. Why? Because, the authors contend, they lack a systematic way to match their strategy-making style to the particular circumstances of their industry, business function, or geographic market. These three BCG consultants offer a framework to do just that. It identifies four “strategic styles”: classical, adaptive, shaping, and visionary. Which of these is best suited to your situation depends on how far and accurately you can confidently forecast demand, corporate performance, competitive dynamics, and market expectations (predictability) and to what extent you or your competitors can influence those factors (malleability).

A classical style, familiar to most managers and business school graduates, is well suited to an industry whose environment is predictable but hard for your company to change. Oil is a good example of this. An adaptive style suits an unpredictable industry, such as fashion, that players can’t alter.

A shaping style is best when the industry is unpredictable but your company or another has the power to transform it. And a visionary style fits a predictable industry that is nevertheless amenable to change. Too often strategists focus only on how predictable their environment is and not on the opportunities they—or others—may have to change it.

Marshal W. Van Alstyne, Geoffrey G. Parker ad Sangeet Paul Choudary (2016) – Pipelines, Platforms, and the New Rules of Strategy (HBR) http://www.marketingjournal.org/the-platform-revolution-an-interview-with-geoffreyparker-and-marshall-van-alstyne/ https://www.linkedin.com/pulse/recommending-reading-pipelines-platforms-new-rulesstrategy-stewart For decades, the five-forces model of competition has dominated the thinking about strategy. But it describes competition among traditional “pipeline” businesses, which succeed by optimizing the activities in their value chains—most of which they own or control. “Platform” businesses that bring together consumers and producers, as Uber, Alibaba, and Airbnb do, require a different approach to strategy. The critical asset of a platform is external—the community of members. The focus shifts from controlling resources to orchestrating them, and firms win by facilitating more external interactions and creating “network effects” that increase the value provided to all participants. In this new world, competition can emerge from seemingly unrelated industries and even from within the platform itself. The authors, three platform strategists, walk executives through the choices they must make when building platforms, outlining the different metrics needed to manage them. Businesses that fail to learn the new rules will struggle, they argue. When a platform enters the marketplace of a pure pipeline business, the platform nearly always wins. That’s exactly what happened when the iPhone came on the scene in 2007. By 2015, it accounted for 92% of global profits in mobile phones, while most of the giants that once ruled the industry made no profit at all.

Khanna (2014) – Contextual intelligence (HBR)

The author, a strategy and international-business professor at Harvard Business School, has come to a conclusion that may surprise you: Trying to apply management practices uniformly across geographies is a fool’s errand. Best practices simply don’t travel well across borders. That’s because conditions not just of economic development but of institutional maturity, educational norms, language, and culture vary enormously from place to place. Students of managerial practice once thought that their technical knowledge of best manufacturing practices (to take one example) was sufficiently developed that processes simply needed to be tweaked to fit local conditions. More often, it turns out, they have to be reworked quite radically—not because the technology is wrong but because everything around it changes how it will work. There’s nothing wrong with the tools we have at our disposal, but their application requires contextual intelligence: the ability to understand the limits of our knowledge and to adapt that knowledge to a context different from the one in which it was acquired. Until we can better develop and apply contextual intelligence, failure rates for cross-border businesses will remain high, what we learn from experiments unfolding around the world will remain limited, and the promise of healthy growth in all parts of the world will remain unfulfilled. So managerial knowledge is universal and some is specific to a market or culture

Donald Sull, Rebecca Homkes and Charles Sull – Why strategy execution unravels, and what to do about it (2015) Two-thirds to three-quarters of large organizations struggle with execution. And it’s no wonder: Research reveals that several common beliefs about implementing strategy are just plain wrong. This article debunks five of the most pernicious myths. Execution equals alignment. Processes to align activities with strategy up and down the hierarchy are generally sound. The real problem is coordination: People in other units can’t be counted on. Execution means sticking to the plan. Changing market conditions demand agility. Communication equals understanding. E-mails and meetings about strategy are relentless—but executives change and dilute their messages. Only half of middle managers can name any of their company’s top five priorities. A performance culture drives execution. Companies need to reward other things, too, including agility, teamwork, and ambition.

Execution should be driven from the top. It lives and dies with managers in the middle—but they are hamstrung by the poor communication from above. Redefining execution as the ability to seize opportunities aligned with strategy while coordinating with other parts of the organization can help managers pinpoint why execution is stalling and focus on the factors that matter most for translating strategy into results.

Michael Lewis (Author of “The new, new thing”) w/ Andrea Ovans (HBR, 2015) – What is a business model Lewis, for example, offers up the simplest of definitions — “All it really meant was how you planned to make money” — to make a simple point about the dot.com bubble, obvious now, but fairly prescient when he was writing at its height, in the fall of 1999. The term, he says dismissively, was “central to the Internet boom; it glorified all manner of half-baked plans … The “business model” for Microsoft, for instance, was to sell software for 120 bucks a pop that cost fifty cents to manufacture … The business model of most Internet companies was to attract huge crowds of people to a Web site, and then sell others the chance to advertise products to the crowds. It was still not clear that the model made sense.” Well, maybe not then. That’s a concept Drucker introduced in a 1994 HBR article that in fact never mentions the term business model. Drucker’s theory of the business was a set of assumptions about what a business will and won’t do, closer to Michael Porter’s definition of strategy. In addition to what a company is paid for, “these assumptions are about markets. They are about identifying customers and competitors, their values and behavior. They are about technology and its dynamics, about a company’s strengths and weaknesses.” Joan Magretta, too, cites Drucker when she defines what a business model is in “Why Business Models Matter,” partly as a corrective to

Lewis. Writing in 2002, the depths of the dot.com bust, she says that business models are “at heart, stories — stories that explain how enterprises work. A good business model answers Peter Drucker’s ageold questions, ‘Who is the customer? And what does the customer value?’ It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?” Magretta, like Drucker, is focused more on the assumptions than on the money, pointing out that the term business model first came into widespread use with the advent of the personal computer and the spreadsheet, which let various components be tested and, well, modeled. Link: https://hbr.org/2015/01/what-is-a-business-model

Paul J. H. Schoemaker, Steve Krupp, Samantha Howland (2013) – Strategic Leadership, the essential skills The more uncertain your environment, the greater the opportunity—if you have the leadership skills to capitalize on it. Research at the Wharton School and at the authors’ consulting firm, involving more than 20,000 executives to date, has identified six skills that, when mastered and used in concert, allow leaders to think strategically and navigate the unknown effectively. They are the abilities to anticipate, challenge, interpret, decide, align, and learn. This article describes the six skills in detail and includes a self-assessment that will enable you to identify the ones that most need your attention. The authors have found that strength in one skill cannot easily compensate for a deficit in another. An adaptive strategic leader has learned to apply all si...