Forums

Here's the writeup I promised. My goal was just to establish a basic level of what strategy is. It seems that every post in this folder is asking how to do strategy. I wouldn't propose that this thought process is the only way to go, but this is the way I've learned it and the way I go through it.

I’m not 100% satisfied with this write up, but I’m going to post it anyway in the interest of moving forward. The information is correct, but I don’t think it flows very well and it’s very dense in information. Nevertheless, please read it through and let me know any questions.

Brian

Two initial points:
- Efficiency is not strategy. Efficiency is a measure of how effectively you are able to carry out the strategy. It can be an element of strategy; a certain strategy might require that you become more efficient. Efficiency can be strength. But efficiency is about operations, not strategy.
- Acquisition isn't a strategy. It’s a way to get larger, but if you take a small company with a bad strategy and acquire another company...you wind up with a larger company with a strategy that looks worse. Bad strategies are more flagrantly apparent in bigger firms.

The basic idea of strategy is to go through a thought process about the internal and external forces affecting your company. The result of this process is recognition of the main strengths and weaknesses of the company and the opportunity and threats affecting them. Once these are recognized, the strategy is the plan that charts the course to align the company's strengths to exploit the opportunities, to minimize the weaknesses and threats.

Michael Porter proposes a structure for thinking about strategy that I've found to be very useful in the past. There are four groups of forces acting on a company:

Threat of Entry - the threat that new firms will enter the markets. If its easy for new firms to enter the market, an existing firm has to be vigilant about what new firms are doing and stay flexible enough to react. There are six main barriers to entry
- Economies of scale - in certain industries, you have to be big or accept a cost disadvantage. The cost disadvantage is a barrier to the new firm.
- Product differentiation - How does a new entry differentiate itself?
- Capital requirements - There are some firms that are expensive to start, a new steel mill for example.
- Cost disadvantages independent of size - entrenched companies have advantages of knowledge, processes and relationships. New companies have to spend money to establish these.
- Access to distribution channels - This is tied to the previous one, but also includes the significant outlay required for distribution.
- Government policy - in a regulated industry, it may be very difficult to enter.

Power of Suppliers - how much leverage do suppliers have to raise prices? Suppliers are considered powerful if they:
- Are dominated by a few companies
- Sell a unique product or one with high switching costs
- Is not obligated to contend with competition in another sector
- Poses a credible threat of forward integration
- The firm is not a significant customer.

Power of Buyers - how much leverage do your customers have to demand lower prices? Buyers are powerful if they:
- Purchase in large volumes
- Are purchasing a standard product
- Are purchasing a product as a component of a larger product and the component is not a significant cost in the larger product
- The buyer has low profits
- The firm's product isn't important to the customer's service quality
- The firm's product does not save the customer money
- The buyer poses a threat of backward integration.

Threat of substitutes: If another product can be easily substituted for yours, you need to monitor the comparison products.
- Over time the price/performance measure will change.
- Is there a rapidly developing industry?
- What are the switching costs?
- customer satisfaction and loyalty are very relevant.

All these create a fifth force, Rivalry between firms. I think of Rivalry as the measure of chaos in the industry. There is higher rivalry when
- There are lots of competitors
- The growth of the industry is low
- Poorly differentiated product
- Low switching cost products
- High fixed costs
- Perishable products
- Capacity has to be added in large increments (you can't start 1/10th of a factory)
- There are high costs to get out of the business.

Decide each of these factors for the business. The answers tell you the Strengths, Weaknesses, Opportunities and Threats (SWOT) for the business. The next sounds like a leap of faith until you do it: you create a plan that leverages the Strengths to exploit the Opportunities. The plan should minimize exposure to Threats and mitigate the weaknesses.

That's really it. You normally want data to back up your conclusions, but an informal purpose, your industry understanding will suffice. Please post any questions.

sfsales's picture

[quote="bflynn"]
The basic idea of strategy is to go through a thought process about the internal and external forces affecting your company. The result of this process is recognition of the main strengths and weaknesses of the company and the opportunity and threats affecting them. Once these are recognized, the strategy is the plan that charts the course to align the company's strengths to exploit the opportunities, to minimize the weaknesses and threats. [/quote]

I couldn't agree with you more on this point. Many companies move through business with no idea of their 'true' strengths and weaknesses. Many business think that if they call out their weaknesses that just makes them weaker, but the exact opposite is true. Only a company that knows it's position in the market in real terms can have the foundation to make decisions that will grow their company exponentially instead of wasting money and resources on goals that are not within reach yet and it costs them a lot.

magnus's picture

Good post bflynn.

It seems to me that you have covered the basics, and that is what Strategy 101 i s all about. This is the way Porter would have done it, and he is a great business thinker, no doubt.

I only have two points to make, since this post only going to cover the basics of Strategy.

1. Start the process by setting a goal (preferably SMART goals). This comes before all the analysis. Strategy is choice, and you choose which path is most likely to let you reach an already stated goal.

2. Consider internal factors as well, such as Core Competance and The Value Chain
I will be a little vague, since they might be a little more advanced than Basic Strategy 101

KASmithy's picture

It looks like your post is well thought-out, bflynn. I would say that efficiency is a RESULT of an effective strategy. This could just be a matter of semantics, anyway.

Perhaps, your write-up could be further refined? Here is a good online resource for [url=http://www.coursework4you.co.uk/porter.htm]Porter's Five Forces[/url] to which you were referring.

Also, I agree with magnus in that formulating a goal [i]before [/i]performing analyses is KEY in developing an effective strategy. For anyone wanting to take it a step further, here's a resource on writing a [url=http://www.coursework4you.co.uk/valuechain.htm]value chain analysis[/url].

karaikudy's picture

bflynn
Brilliantly covered. Thanks.

I remember using the 7s model to evolve fundamentals of strategy in a broader implementation aspects. Here is the link.

[url]http://www.chimaeraconsulting.com/7s_model.htm[/url]
Karthik.

bflynn's picture

To be fair, this isn't really my work. Its just how it was taught to me.

I have to throw out efficiency because I presume that good managers [i]already[/i] run their businesses in an efficient manner. Efficiency is a measure of how good the people are doing. Think of it as a big canoe - stroking the oars efficiently drives the boat forward and has some small impact on the business's ability to move in the right direction, but the strategy of picking the destination, balancing the people to row on the left and right sides evenly and steering the boat correctly are far bigger factors in reaching the right destination.

Magnus - in the interest of completeness, could you summarize SMART for us?

Brian

karaikudy's picture

Found an interesting link for SMART goals.
Specific
Measurable
Attainable
Realistic
Timely

[url]http://www.topachievement.com/smart.html[/url]

KASmithy's picture

Thanks for that link. I was actually looking for a good resource on SMART Goals.

rwwh's picture

Any project management text should explain SMART. Some even do SMARTER, but the problem is that they all define the E and the extra R in different ways....

bflynn's picture

[quote="magnus"]1. Start the process by setting a goal (preferably SMART goals). This comes before all the analysis. Strategy is choice, and you choose which path is most likely to let you reach an already stated goal.[/quote]

When I get new ideas like this, I tend to turn them over for a while.

Is a goal an input to strategy or an output from strategy? You could set a goal and determine that it is unrealistic to pursue given your strategic situation. There is certainly some control over internal forces, but you are not in complete control of your strategic position. Remember that there are two parts to strategy - analysis and plan.

My thought is that having a goal is not necessary before you do the analysis. The goal is something you form after you've done the analysis, but before you finish the strategic plan. When I've done this in the past, there is usually a Blinding Flash of the Obvious moment where the plan and the goal become clear at the same time.

Brian

Mark's picture

We have a cast coming up on SMART goals... we don't care for them terribly much, though they clearly are better than nothing.

We like "MT Goals", and I promise you it is sheer luck it worked out that way.

Mark

terrih's picture

[quote="KASmithy"]Here is a good online resource for [url=http://www.coursework4you.co.uk/porter.htm]Porter's Five Forces[/url] to which you were referring.[/quote]
Weird... the company web filter blocked that website as being in the "tasteless & offensive category." A business page???

I'm in the middle of my first "Strategic Planning" session per the latest 'cast, and Kasparov I ain't. So I'm searching on the term "strategy" here on the M-T website, and it brings me to this thread. It seems like as good a place as any to ask the question:

What does "strategic planning" look like at the line supervisor level? :?:

Thanks in advance,

tomas's picture

terrih,

That Coursework4U.co.uk link looks like a site where student can download papers, so it might be flagged as inappropriate for that reason.

An alternative link is [url]http://www.quickmba.com/strategy/porter.shtml[/url]

There's not much to a Porter's 5 forces analysis, and it really only looks at the overall attractiveness of an industry. Industries with high barriers to entry, for example, would tend to be more profitable and therefore more attractive to be in than industries with low barriers, all else being equal.

For a line manager, strategic planning might start off with something like a SWOT, and go on from there.

Mark's picture

It looks like getting guidance from your boss after it's been done, frankly.

I don't mean that to be snarky...it's just true. Supervisors are rarely involved in strategic planning, because by definition supervisory roles are rarely strategic.

I would have to know more about the structure of your firm.

Mark

terrih's picture

:lol: No worries, Mark... I kinda thought that might be the case.

As for the structure of my firm--I manage Technical Publications, which is very much a support department. My boss is the VP of Flight Operations. As a VP, he must surely be involved in strategy discussions, but Flight Ops is pretty much about the day-to-day of flying airplanes. Tech Pubs is about maintaining the giant stacks of paper that keep planes aloft. (What, you thought it was that mythical concept of "lift"? :twisted: )

I found a book at the library last night called "Supervising"--a college textbook--with a chapter on planning. It says that line supervisors generally do operational planning rather than strategic planning.

So I could use those time blocks for operational planning, yes?

ccleveland's picture

I’m getting confused by some of the semantics and terms used here.

[u]Organizational[/u] Strategic planning: I was under the impression that strategic planning can be done at any level of the organization. Of course, there’s strategic planning for the company; however, can’t there be strategic planning for the Technical Publications organization? What’s the difference between that an operational planning? Shouldn’t the leader of the “Technical Publications organization” be involved in its future planning, whatever it’s called? Wouldn’t the SWOT tool still help Terri?

Supervisor vs. Manager – It seems from this thread and others that Terri is more than a supervisor alone. That is, she does more than making sure her team is following the directives set by your superiors. It seems to me that she also defines [u]how[/u] to meet those directives using her expertise.

I remember reading something from Drucker that said that some supervisors are not knowledge workers because they only act on orders from above without using their own knowledge and experiences; however, I do not think that this applies in Terri’s case or most of the folks here.

CC

terrih's picture

I remember listening to the SWOT podcast and thinking, this doesn't really apply to my department. External market conditions, customers, competitors, market performance, profit analysis... not my bailiwick. My department's customers are internal, and its reason for being is regulatory compliance.

The way we function within the company has some characteristics in common with an IT department, and some in common with HR.

I do have responsibility to be aware of what the FAA requires with respect to documentation, and to implement processes that will satisfy those requirements. That's about as high-level as it gets. And I don't think that requires strategic planning... it requires operational planning.

I think. :wink:

bflynn's picture

[quote="ccleveland"][u]Organizational[/u] Strategic planning: I was under the impression that strategic planning can be done at any level of the organization. Of course, there’s strategic planning for the company; however, can’t there be strategic planning for the Technical Publications organization? What’s the difference between that an operational planning? Shouldn’t the leader of the “Technical Publications organization” be involved in its future planning, whatever it’s called? Wouldn’t the SWOT tool still help Terri?[/quote]

Strategy absolutely can be done at any level, with any size organization. You can even use this to develop a personal strategy.

However, it may not be worth doing for the purpose of developing a plan. Certain organizations just do not have the autonomy to implement a strategic plan if they develop one. No matter what comes out of the strategy analysis, they can't act on it.

I believe the SWOT and Porter analysis is still very useful to help develop awareness of what drives your slice of the business. Even when you can't make large course corrections, knowing what influence you have in your market is very useful.

Brian

tomas's picture

Strategic planning is only really useful if you can execute on the plan you come up with. At the corporate level strategic planning might involve deciding what industries you want to be in, and what businesses you might want to acquire or divest yourself of.

If you are a manager in, say, the HR department of a business unit that makes widgets, there may not be a lot of point in you forming a strategic plan for your business unit to enter an entirely new industry, because that sort of planning happens at a much higher level. Therefore, tools like Porters 5 Forces might help you identify interesting characteristics of your industry, but you may not be able to do much about it.

If you've got lots of spare time, or want to be entrepreneurial in your company then sure, feel free, but in terms of actionable strategy you need to identify at what level you need to be strategising and focus your efforts there. This should be informed by the higher level strategy that your boss hopefully tells you about.

jhack's picture

Strategy can operate on many levels. If you're in HR, you might look at your industry and competitors in terms of recruiting and retention. How can you win the war for talent in your industry by understanding market and internal forces? Your product here isn't widgets, it's talent.

All strategy, at any level, has to deal with constraints. So no, it's not your role to figure out what industry to enter, but it is your role to figure out how to compete effectively within that industry.

John