Blog #1: The Strategy of Strategy - There is no "best" strategy for all companies

Key Takeaways:

1.     If you want to create a strategy for your company, you should first recognize the environment surrounding your company.

2.     There are five basic situations for your company. Different industries should apply various kinds of strategies.

3.     There is no "best" strategy for all companies.

 

The consulting company has created the strategic concepts and frameworks in, Bruce Henderson's experience curve, Michael Porter's five-force model, McKinsey's 7S, etc. But how can a company pick up the best strategy for itself?

BCG's partners wrote an article called “your strategy needs a strategy”[1], providing a perfect framework to solve this problem. The strategic choice of an enterprise is to have a comparative competitive advantage over its involvement in the long term. Therefore, the company's current market environment, competitive landscape, surplus, and other factors are divided into the framework of strategic choice. BCG's research uses the idea of ​​segmentation, which is a common practice in consulting. It finds two dimensions of predictability and malleability to distinguish the prospects of enterprise selection strategies into five scenarios, divided into different single strategies and divided into each situation. To simplify the strategic choice of the enterprise.

 

According to the article,

• If the company is in a stable and malleable market, the company should adopt a classical strategy and obtain a sustainable competitive advantage by looking for the best positioning.

• If the enterprise is in an unpredictable and non-destructive market, the enterprise should adopt an adaptive strategy and take the lead through temporary and continuous adjustment of development. Formulating a strategy in an adaptive environment requires catching signals of environmental changes, managing various experimental programs, and gradually responding to changes in the background. The success of Zara's flexible supply chain is a good example.

• If the company is in a market with high predictability and the opportunity to reinvent it, the company should adopt a visionary strategy to find and apply major trends before other competitors. iPhone's shaping of the smartphone industry is a successful case.

• If the enterprise is in a market with low predictability but high malleability, the enterprise should adopt a shaping strategy and formulate industry rules to allow it to develop in a direction that is beneficial to itself. Modeling companies should attract the participation of other stakeholders. In the competition between Blu-ray and HD-DVD, Sony defeated Toshiba by obtaining the support of video content producers.

• If the company faces a harsh living environment due to previous mistakes, the company should adopt a renewal Strategy. After ensuring survival, turn to growth, and choose one of the other four strategies. Gerstner's reform in IBM fits this strategy.

 

All in all, the enterprise strategy should be selected with consideration of the external environment. Choosing the right strategy will get twice the result with half the effort; otherwise, it will get twice the result with half the effort. Imagine that if Jobs chose an adaptive strategy when he should adopt a strategy, he could not use such a functional iPhone.

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[1] Your Strategy Needs a Strategy. https://hbr.org/2012/09/your-strategy-needs-a-strategy

Blog #1: The Strategic Planning Process and Evaluating Current Performance

Blog Post #1 (for week 2 material) - The Strategic Planning Process and Evaluating Current Performance

            A few key takeaways from this week’s discussion is that creating strategy evolves with the maturity of a company and that strategy needs to be tied into how performance is measured. This topic made me think back to the experience of working on Tepper’s Management Game capstone and devising a strategy with my team members.

As part of that experience, me and my team took over as managers for a company that was competing in a world against seemingly similar companies and had been operating for 15 years already. We all sold two different types of watches and could make choices regarding where to produce the products, how much to produce as well as how to price them. To develop a strategy, we reviewed our company’s previous data alongside that of our competitors and gave thought to where the biggest markets were and how we expected our competitors to perform. Given that there were limitations to the game, we could not make changes like that available in the real world in order to differentiate ourselves in very obvious ways. We generally chose to price low for moderate quality products and realized that unless we stuck to what we intended, we would be relying too heavily on what our competitors were doing for our guidance on how to act.

Given the data we inherited, we had sufficient data such that the strategy analysis was classical in nature. Using an optimization model and regressions, we could forecast for several years out what our performance would look like and used those projections to identify our targeted performance while also reviewing how we performed against our projections. In one case, we realized that our review omitted an important metric so we incorporated that into our analysis and saw that it was an area in which we had weak performance. We used that additional metric to refine our strategy and ensure that we had target values for that particular metric going forward.

As we closed out the simulation, we offered a growth strategy for the business we were leaving behind. It was at that point that the strategy was more shaping and visionary. Based on business acumen, we projected the financial gains that could be made from adjusting our factories and entering new markets. We were no longer restricted by the rules of the simulation so we had the ability to be more creative in our approach. Presenting financial metrics was harder but we made our figures assumption filled in order to present clear numbers that were justified.

Management Game served as a great way to see strategy evolve as a company matures and enters a new phase of operation. The experience reinforced the idea from the articles and lectures that strategy needs to me top of mind and attended to as it should be a relevant part of day to day operations.

Blog #1: Technology as a Force, Not Factor: How Porter's Five Forces Can Apply Today

The fourth industrial revolution as outlined by McKinsey & Company (Dobbs et al 2015), brings a whole slew of considerations to industry giants as the benefits of digital transformation, innovation, and combinatorial technological expertise become less of a desire and more of a necessity to survive. In many ways the framework of Porter’s Five Competitive Forces that Shape Strategy have been weakened in its relevance to today’s market forces and must be reworked to understand the confluence of these forces as an interdependent woven fabric that places greater weight on technological innovation more than ever before. Yet, there exist counterweights for these market forces that can be used to slowed down or inhibit disruption, for better and for worse.

Porter’s exploration of market forces deems technology and innovation as a factor and not a force. In many respects, Porter’s assertion is correct as technology alone does not sell; it requires strategy and a need for mobilization of other resources—capital, labor, skill, and networks—to be able to create profit and capture dominance. However, the shortcoming here is that within recent years and much after the publishing of his book, Porter was unable to predict the exponential growth of technological innovation and use that underrides the very foundations of present markets.To put this in perspective:

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Within 12 years alone, from 2000 to 2012, we have seen global online traffic increase 500-fold. That is why five of the ten largest US companies by market cap are horizontal platforms, who cut across value chains due to our shift to an online world and an age of connectivity. When companies take advantage of this, they can disrupt even the most traditional and restrictive markets. Take for example, Noble Iron, started by Stanford Business School alum Nabil Kassem, took advantage of the platform capability and the any-to-any business model, and disrupted the construction industry by renting and selling heavy construction equipment. As the “Netflix of Construction Equipment,” Kassem impressively built a $20 million business in the midst of a 2008 recession. His strategy was enabled by the advent of new technology, the shift of consumers to online platforms, and the ability to bypass distribution channels. We should not underestimate how capable new entrants are of bypassing distribution channels as we know that “technology allows businesses such as WhatsApp to start and gain scale with stunning speed while using little capital” (Dobbs et al 2015).

Evidently technology is a force and the only way to take full advantage of its force is through “combinatorial effect”—combining various technological tools to aid in your strategy to disrupt markets. Yet, there are “factors”, according to Porter, which I believe can inhibit these disruption. Government policy will catch up with any-to-any models to limit disruption, as was the case with TLC and Uber (TheVerge). Additionally, the platform players like Google, Facebook, and Amazon will continue to dominate due to their ability to put large resources toward R&D. And ultimately, as technological innovation effects on productivity plateau and our population ages, more importance will be placed on retaining, capturing, and keeping talent as way to stay on top of technological disruptions. The race to digitize has never been more important, and companies will face the decision to digitize or flop.

Responding to Technological Trends to Sustain Market Leadership

Companies need to be aware of technological trends and advancements that can secure their positions in the market or to push them ahead in the competition. Losing sight of advancements in related fields that can eventually affect their industry can be costly to established firms. Also, the incumbent firms, however big they are, are susceptible to losing to a competition unless they pace themselves in the right direction.

Until 2000, there was no cloud-based solution in the market for ERP for CRM. This was a time when Oracle and SAP were the leaders in the CRM segment with their on-premise solutions. However, Salesforce, a new entrant in this segment disrupted the market with its “24/7 available- SaaS” ideology. It gained consumer-side force by advertising its advantages over the existing on-premise solutions. They also planned to make cloud-based applications customizable, to gain competitive advantage over the current leaders at the time. In 2007, Salesforce introduced its cloud-based CRM. They identified that they should target “Sales” teams that focus on immediate results, and since their tool did not require any set up, they could offer their product for free for first five customers at a firm without loss. They used this as their distribution channel, encouraging other people who heard about this product t use it as well, thus spreading the tool. By 2015, Salesforce has 19.7% market share in CRM.

Oracle and SAP realized how cloud is taking over their positions in the market, while they were fighting each other with their on-premise solutions. These competitors also quickly followed the trend, as SAP is now the biggest competitor for Salesforce CRM.

However, SAP recognized that cloud-disruption is not limited to CRM, and swiftly turned its eye on cloud-based ERP solution. This strategy can be seen as the company’s plan to defend its market position in the ERP segment by anticipating changes in the ERP industry. This follows trends in CRM that was established by Salesforce. Currently, SAP hold 25% of ERP market share, followed by Oracle with 13%.

These developments in CRM and ERP segments are an indication of how technology changes are disrupting major players in the industry and how these organizations can ward off newcomers by anticipating such changes. The market leaders need to watch out for disruptions in other related fields that can possibly encroach their market segments. To stay relevant for many years to come, the leaders need to be aware of long-term changes that might have to happen based off the current trends. Being prepared for uncertainties and change, while encouraging R&D to stay ahead in quality of service, and continuous market analysis and forecast are most vital for sustainability of market leaders.

References:

Michael E. Porter, “How Competitive Forces Shape Strategy”, Harvard Business Review, March-April 1979

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-global-forces-inspiring-a-new-narrative-of-progress

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-four-global-forces-breaking-all-the-trends

https://producthabits.com/salesforce-built-10-billion-empire-crm/

https://smallbusiness.chron.com/examples-successful-strategy-changes-15634.html

https://www.crmswitch.com/crm-industry/crm-industry-history/

https://www.itworld.com/article/3269585/sap-puts-salesforce-in-its-sights-with-major-crm-play.html

https://www.forbes.com/sites/louiscolumbus/2016/05/28/2015-gartner-crm-market-share-analysis-shows-salesforce-in-the-lead-growing-faster-than-market/#13eec7351051

https://chiefexecutive.net/anticipate-trends-ensure-business-success/