PART I Article Analysis

Are you sure you have a strategy?

Article by Donald C. Hambrick and James W, Fredrickson
Discussion and Analysis by Group 2, Div-A Gaurav Agarwal | Tushar Bhayana | Khyati Katakia | Zoya Mehani | Bhavesh Nainani | Nirav Shah

What do these declarations have in common??

Theses are NOT strategies.

Our strategy is to be the low-cost provider." "We're pursuing a global strategy." "The company's strategy is to integrate a set of regional acquisitions." "Our strategy is to provide unrivaled customer service." "Our strategic intent is to always be the first mover."

Common Wrong Doings

Using Only Tools: Porters 5 Forces, Game Theory, Core-Competencies Considering Strategy a Catchall for every important decision an executive faces Not thinking of Strategy as a WHOLE: A central, integrated, externally oriented concept of how the business will achieve its objectives.

Putting Strategy in Place

STRATEGIC ANALYSIS Industry Analysis Customer/Marketplace Trends Environmental Forecast Competitor Analysis Assessment of nternal strengths, weaknesses, resources

MISSION Fundamental Purpose & Values

OBJECTIVES Specific Targets

Strategy

SUPPORTING ORGANIZATIONAL ARRANGEMENTS Structure, rewards, process, people, Symbols, activities, functional policies and profiles

The Elements of Strategy

Arenas

Staging

Economic Logic

Vehicles

Differentiators

Strategic Element#1: Arena

Where will we be active?
Which product categories? Which market segments? Which geographic areas? Which core technologies? Which value-creation stages?

Example: We will be the leader in information technology consulting A company intended to use T-cell receptor technology to develop both diagnostic and therapeutic products for battling a certain class of cancers; In North America & Europe

Women's high-end fashion accessories, in countries with per-capita GDP over $5,000

Strategic Element#2: Vehicle

How will we get there?
The means for attaining the needed presence in a particular product category, market segment, geographic area, or value-creation stage should be the result of deliberate strategic choice- i.e a Vehicle

Internal development? Joint ventures? Licensing/franchising? Acquisitions?

Example: For a company committed to international expansion, the primary modes, or vehicles could be either greenfield startups, local acquisitions, licensing, or joint ventures

Strategic Element#3: Differentiators

How will we win?
Image? Customization? Price? Styling? Product reliability?
Example:

Propriety product and process technology

Low cost Airfare Unparalleled Service

Strategic Element#4: Staging

What will be our speed and sequence of moves
Factors affecting staging decisions 1. Resources 2. Urgency 3. Achievement of credibility 4. Pursuit of early wins

Example:

Strategic Element#4: Economic Logic

How will we obtain our returns
Profits v/s Supernormal profits How does a firm generate supernormal profits? - By offering superior services for which they can charge a premium
- By reducing cost due to economies of scale and combat competition
Example:

Application of Strategy Diamond

IKEA Brake Products International

Strategy Diamond IKEA Home Furnishings

Revolutionizing an Industry

 Inexpensive Contemporary Furniture Young White Collar customers Worldwide

Rapid International Expansion by region Early footholds in each country

Staging

Arenas

Organic Expansion Wholly owned stores

Vehicles

Economic Logic

Economies of scale Efficiency from replication

Differentiators

Fun non threatening environment Very reliable quality Low price Instant fulfillment

Strategy Diamond Brake Products International

Charting a New Direction

 North American, European and Asia passenger cars and light truck motors Breaks and suspension system components Suspension system integration Braking systems for off road vehicles

Rapid International Expansion by region Early footholds in each country

Staging

Arenas

Economic Logic

Vehicles

Internal development of new, leading edge braking products Strategic alliances with suspension component manufacturers Joint ventures with brake companies in Asia

Economies of scale Efficiency from replication

Differentiators

ABS design technology Electric traction control technology Systems integration capabiity E business capability with suppliers and customers Global reach

Conclusion No strategy Better strategy

There is a misconception that strategy makes the business rigid A strategy need not be static There shouldnt be just a strategy, but a sound strategy

Horizons of strategy coming down to 2-3 years Depends on how well you execute the 5 set of choices that you combined with the right set of strategic tools

PART II Role of structure and its effect on Strategy Implementation

Structural Design
Describes the roles, responsibilities, and lines of reporting in an organization Deeply influences the sources of an organizations advantage, esp knowledge management Failure to adjust to structures can undermine strategy implementation

Structural Types:
Functional Multidivisional Matrix Transnational Holding Co Project-Based Team-Based

Type#1: Functional Structure

Divides responsibilities according to primary roles
CEO

Production Dept

Sales and Marketing Dept

Finance and Accounting Dept

Personnel Dept

Advantages CEO in touch with all operations Simplifies control mechanisms Clear definition of responsibilities Specialists at senior and middle management levels

Disadvantages Senior managers overburdened with routine matters Senior managers neglect strategic issues Difficult to cope with diversity Coordination between functions difficult Failure to adapt

Type#2: Multidivisional Structure

Built up of separate divisions based on products, services, areas
Head Office

Central Services (Eg: Finance)

Division A

Division B

Division C

Division D

Advantages Flexible (add or divest divisions) Control by performance Ownership of strategy Specialization of competences Training in strategic view

Disadvantages Additional costs of the centre Duplication at divisional level Fragmentation and non-cooperation

Type#3: Holding Co Structure

Investment company consisting of shareholdings in a variety of businesses
Advantages Extremely flexible (buy and sell subsidiaries) Subsidiaries can access talent and capital from holding company Disadvantages Hard to control because of hands-off management style Sharing knowledge is difficult Little scope of synergy

Type#4: Matrix Structure

Multinational Organization

Chief Executive
Merchandise Director MDs of Trading Companies
Trading Companies Europe Prod Gp A Prod Prod Division Gp B Prod Gp C Advantages Integrate Knowledge Flexible Allow Dual dimensions USA Far East The Operations

Finance director

Marketing Director

Board

Disadvantages Length of time to take decisions Unclear job and task responsibilities Unclear cost and profit responsibilities High degrees of conflict

Type#5:Transnational Structure
Low International Divisions Global Product Divisions

Local Independence and responsiveness

Local subsidiaries

Transnational Corporations

High Low Global Co-ordination High Disadvantages Very demanding of managers in terms of willingness to work for the good of whole organization Diffuse responsibilities also make for similar complexities

Advantages Each national unit is a source of ideas and capabilities for the whole organization National units achieve greater scale economies through specialization.

Type#6: Team Based Structure

Characteristics and Advantages: Combines both horizontal and vertical coordination through structuring people into cross functional teams- often built around business processes. Eg: Information system company might have development teams, product teams and application teams. Each of these teams has a mix of specialists within it. Bringing all these together has great benefit for knowledge sharing and development They also help organisations to respond flexibly to diverse customers. Disadvantages Complexities of organization leads to difficulties of control and raises problems of scaling up to a global scale.

Type#7: Project Based Structure

In this teams are created, undertake work and are then dissolved. Particularly appropriate for organizations that deliver large, expensive and durable goods and services (civil engineering, Information systems) or those delivering Time-limited events such as conferences, sporting events.

Advantages: Highly flexible with projects being setup and dissolved as required. Accountability and control good Effective at knowledge exchange Disadvantages: Organizations are prone to proliferate the project in an ill coordinated fashion. Constant breaking of teams hinder accumulation of knowledge.

Thank You!