Class Notes [Dec 24, 2008] Session 1. Strategic Leadership The Wisdom of the Mountain -- what was the last lesson and its relevance for management? Pictorial illustration of strategic thinking (baby pictures, with and without environment) Nature of strategy (managing uncertainties, managing change -- continuous steering and continuous learning) Characteristics of strategic decisions: 1. affect long-term direction; 2. achieve some advantage; 3. alter the scope of organisation's activities; 4. match the activities to the changing environment; 5. stretch resources or competences to create or capitalise on an opportunity; 6. have major resource implications; 7. affect operational decisions; and 8. are affected by values and expectations of stakeholders. [Link] [Exercise] Select a few decisions reported in the business press. Which of these might be viewed as "strategic decisions" and why? [Jan 2, 2009] Session 2. Strategic Leadership; Managing Uncertainty "The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function" -- F. Scott Fitzgerald, Irish-American writer (1896-1940) Tasks of strategic leadership: (a) take strategic decisions, (b) create a strategic position, and (c) develop future leaders Strategic leaders must remain enthused about the organisation's long-term direction while, at the same time, entertaining a degree of doubt about its relevance in a changing environment. Conviction and scepticism -- contradictory requirements of strategic leadership. CEOs successful in one phase of an organisation's life may become ineffective in a different phase (example: Compaq 1982-2002); leaders are expected to have the ability to relate to both "splitters" and "lumpers." Managing uncertainty is an important task of senior managers. Degrees of uncertainty: Level 1 (clear-enough future), Level 2 (alternative futures), Level 3 (range of futures), and Level 4 (true ambiguity) Different kinds of future: probable, possible, preferred The process of dealing with uncertainties is called planning. Planning involves determining ends/means and clarifying their interrelationship (see example below):  Planning ought to support a continuous and cyclic process of organisational learning. [Jan 9, 2009] Session 3. Competitive Advantage Sources of competitive advantage: are they durable? sustainable? Concept of strategic positioning: variety-based (choice of product/service) needs-based (choice of customer needs) and access-based (choice of how to reach customers) Also positioning along the industry value chain Four generic strategies: cost leadership, differentiation (value leadership), cost focus, differentiation focus (or value focus) Each of these requires a suitable business model (to be discussed in future) and continuous management attention Strategy Clock: 3 failure strategies and 5 success strategies [Link] [Jan 16, 2009] Session 4. Strategic Failure Lessons from the hard-disk drive industry (14 inch, 8 inch, 5.25 inch, 3.5 inch, 2.5 inch, 1.8 inch): The very same companies which spotted an opportunity arising from an innovative technology and exploited it successfully once, could not repeat the same feat again when yet another innovative technology appeared on the horizon. They seemed to lose that entrepreneurial drive for taking the plunge and starting all over again. They were held captive by their customers. Other failure processes that can arise in organisations: (a) S-curve pattern of growth-maturity-decline (the role of positive "self-reinforcing" loops and negative "self-balancing" loops); (b) organisational arteriosclerosis [Jan 23, 2009] Session 5. Strategic Analysis What is "structure"? It is a general notion, i.e., it applies to many different domains. It refers to the relatively more stable parts of a system which produce (or, shape) the patterns of the events observed in that system. Example of traffic jam: Exploring the structural aspects (e.g., the underlying stable connections) using an "influence diagram." Structural analysis: study of events, patterns, and the underlying generative mechanisms. Discussion on India's software services industry: relatively stable factors producing the whole range of events and trends we can observe in India's software industry; factors that explain the phenomenal growth of the industry in the last 2 decades; discussion on a "step-like" structure guiding the entry of new firms in the software industry and their gradual movement into greater product/market complexity, through the processes of competitors' "push" and the customers' "pull." Two methods of strategic analysis were discussed: (a) forces that shape the nature of the competitive environment (Porter's 5-forces model), (b) scenario analysis (British Airways example) .gif){kind=small} The five forces determine the attractiveness of an industry (the most attractive being the case where all the forces are low). Each of the forces is influenced in turn by a number of factors. Each factor is also subject to change due to new developments in technology, economic policy, socio-cultural norms, etc. Therefore, strategic analysis ought to be a continuous process. In the British Airways case, two scenarios were created ("Wild Garden" and "New Structures"). Subsequently, the organisation's current and future strategic initiatives were assessed under both the possible futures indicated by the two scenarios. Finally, a set of "robust" strategies were identified which would benefit the organisation irrespective of the type of future that actually unfolds. [Feb 4, 2009] Session 6. Strategic Capabilities Started with a "preparatory quiz," discussing various True/False statements. (It is uploaded in AIS, under "Resources.") Resources and capabilities: Capabilities arise in the effective use of resources. Types of resource: tangible/intangible, owned/not owned The issue of linkage and balance among resources "Strategic capabilities" are those capabilities which help the organisation pursue a strategic direction (or a set of long-term objectives). "Core capabilities" are those strategic capabilities which help the organisation deliver a unique value to the ultimate customers in such a way that cannot be easily duplicated, transferred, or otherwise nullified by a competitor. [Core capabilities are a subset of strategic capabilities, which are a subset of all the capabilities an organisation has.] [Learning Exercise] Identify about 20 capabilities of your organisation. Classify them into the above three categories. Do you find any core capabilities? Discuss your findings and their implications. [Feb 6, 2009] Session 7. Strategic Choice Three levels of strategic choice: corporate level, business level, functional level; we shall focus on business level alone. At that level, there are several important areas of choice: (a) choice of generic strategy, (b) choice of products and markets, (c) choice of business model, and (d) choice of method to implement the above choices. (a) Choice of generic strategy: In addition to Porter's four generic strategies, other strategic options may be possible. Hax and Wilde suggest three distinct strategic options for high-technology firms: (i) best product, (ii) total customer solutions, and (iii) system lock-in.  The Delta Model: Three Distinct Strategic Options (Image by Prof. Arnoldo Hax)Source: http://ocw.mit.edu/OcwWeb/Sloan-School-of-Management/15-902Fall-2006/CourseHome/ (b) Choice of products and markets: Ansoff's matrix gives a number of specific directions for implementing a generic strategy. See the diagram below:  Ansoff's MatrixSource: http://www.tutor2u.net/business/presentations/strategy/ansoff/default.html (c) Choice of business model (to be discussed in Session 8) (d) Choice of method to implement the above choices: internal (or organic) development, merger/acquisition, joint venture, strategic alliance, and co-operative network. Gramophone Company Case: Long monopoly, sudden competition from cassettes, issue of smaller and unethical competitors, issue of technologically superior competitors, problems of the hybrid strategy (reduce cost and increase value), change of management, focus on operational efficiency and "music company" identity, uncertain future (vis-a-vis market and technology), what strategic choices are possible? -- Quiz 1 on Feb 8, 2009 (Sunday) Duration 1 hour; Open during 1-5 p.m. -- [Feb 13, 2009] Session 8. Business Models Example of Yahoo!'s free e-mail service. Teasing out the logic of Yahoo!'s business and representing it in the form of an influence diagram; it shows a self-reinforcing cycle capable of driving Yahoo!'s business towards survival and growth. RoI --> PROVISON OF FREE WEB SERVICES --> NO. OF USERS --> POTENTIAL "REACH" FOR ADVERTISERS --> ATTRACTIVENESS OF YAHOO! AS AN ADVERTISING MEDIUM --> ADVERTISEMENTS RECEIVED --> RoI Dangers of not having a clearly self-reinforcing business model: example of dot-com companies, such as webvan.com, the online grocery business that went bankrupt. Of course, while a business model is necessary, it is not sufficient for long-term success. It must be implemented through appropriate business systems and business processes. Relationship with generic strategy: Any generic strategy can be realised through different business models. Examples discussed: cost leadership strategy implemented through investments in capacity expansion; cost leadership strategy implemented through investments in process improvement; product leadership (i.e., differentiation) strategy implemented through investments in market research and product development; etc. FIGURE: Cost Leadership Through Process Improvements Risks associated with any business model: "limits to growth," conditions under which the logic operates, question marks on each element of the logical structure; therefore, the need for continuous managerial attention on each element of the business model to make it work. Occasionally, the business model may have to be revised, for example when the limits have been reached or when the conditions have changed making the logic inadequate. In the logic depicted in the above diagram, there might be a saturation point beyond which no further process improvement would occur despite additional investments in R&D. [Feb 16, 2009] Session 9. New Logic of Value "Creating value for buyers that exceeds the cost of doing so is the goal of any generic strategy" (Michael E. Porter). This is the old logic of value, depicted schematically in the Value Chain diagram used by Porter. .jpg){kind=small} Value Chain diagramNotion of "value": The value offered by the manufacturer and the value derived by the customers can be different. Example: bicycles in use (Link1, Link2, Link3), washing machines in use (Link1, Link2) A distinction can be made between delivering value to customers and allowing the customers (and other business partners) to create whatever value is relevant to them. This is the new logic of value. The old logic would highlight the importance of positioning a business correctly within the industry value chain and delivering the chosen part of the industry value at the optimum level of profitability. The new logic would, however, highlight the importance of designing and coordinating the entire business system, mobilising the participants to create value for themselves. Three cases (based on the article by Normann and Ramirez, "From Value Chain to Value Constellation"); concept of second-order capability. -- Quiz 2 on Feb 22, 2009 (Sunday) Duration 1 hour; Open during 1-5 p.m. -- |