Table of contents:
1. What is strategy (Porter, 1996)
2. Business strategy, financial reporting irregularities and audit effort (Bentley, Omer, Sharp,
2013)
3. Core capabilities and core rigidities: paradox in managing product development (Barton,
1992)
4. The five competitive forces that shape strategy (Porter, 2008)
5. The resource-based theory of competitive advantage: implications for strategy formulation
(Grant, 1991)
6. Blue Ocean Strategy (Kim, Mauborgne, 2004)
7. Reinventing your business model (Johnson, Christensen, Kagermann, 2008)
8. Greenfield vs Acquisition: The strategy of Japanese Investors in the United States (Hennart,
Park, 1993)
9. Synergies and post-acquisition performance: Differences versus Similarities in Resource
Allocations (Harrison, Hitt, Hoskisson, Ireland, 1991)
10. You need an innovation strategy (Pisano, 2015)
11. The Stage-Gate Model: An Overview (Edgett)
12. Deciding how to decide (Courtney, Lovallo, Clarke, 2013)
13. Six ways companies mismanage risk (Stulz, 2009)
14. Balancing the dual responsibilities of business unit controllers: field and survey evidence
(Maas, Matejka, 2009)
15. The Controller’s Role in Management (Sathe, 1983)
,1. What is strategy (Porter, 1996)
Companies must be flexible to respond to changes, benchmark for achieving best practices,
outsource to gain efficiencies and nurture few core competencies. Positioning is too static for current
dynamics. New insights; market positions can be copied and competitive advantage is temporary
half-truth mutually destructive competition. Root of problem failure to distinguish operational
effectiveness and strategy, both needed for superior performance while completely different.
- Outperforming can only be accomplished by establishing a difference that can be preserved.
- Operational effectiveness is performing activities better than rivals. Strategic positioning is
performing different activities or the same in different ways.
Performing better is due to less wasted effort, better technology, better motivation. Reasons that
operational effectiveness alone is insufficient:
- The productivity frontier is the sum of all existing best practices at
any given time maximum value a company can deliver using the
best technology, skills and inputs. Managers want to be as close to
the frontier as possible and implement changes all the time. If
every company does this, the frontier will move, making it more
difficult/expensive to reach the frontier. The competition is
making it harder for themselves to be operational effective.
- The more benchmarking is done, the more companies look alike.
The more companies outsource, the more generic activities
become. Competition based operational effectiveness alone is
mutually destructive.
Result; mergers driven by performance pressure, lacking strategic vision
buying rivals.
Competitive strategy being different. Southwest short-haul, low-cost point-to-point service
not waiting long at gate to fly more with fewer aircraft, no meals, no premium classes, automated
ticketing unique and valuable strategic position compared to others.
Strategic positions come from 3 sources (not mutually exclusive and often overlap);
- Variety-based positioning; meeting just part of the customers’ needs. Just doing a small part
of work really good to reduce cost superior value chain for that service (Jiffy Lube only
doing lubricants, no car repairs to be faster and cheaper).
- Needs-based positioning; different customers have different needs (information, price,
support), you can’t help all (private bank > $5 mln, dedicated account officer; Citibank >
$250k, more about lenders, less personal (1:125 per manager)).
- Access-based positioning; geographically or customer scale (cinema in a small town; less
access to superior movies, but more locals that will only come for that theatre)
Positioning is not only about niche; from any of the sources it can be broad and narrow. Whatever
source positioning requires tailored set of activities because it’s always a function of differences in
activities. Variety and access don’t require customer differences need differences.
Strategy is the creation of a unique and valuable position, involving a different set of activities.
Unique positions are no guarantee for sustainable advantages, will be imitated;
- Competitors can reposition to match superior performers
- Competitors can straddle (more often): match benefits of a successful position while
maintaining existing position; be aware: you can’t copy any market position
Example: copying South-west airlines by straddling (fast turnovers, no meals and first-class service on
short flights, but keeping long flight with all services) effect in longer term was termination of CEO
and losing millions of dollars and clients. You can’t be in two positions at the same time.
,Strategic positions aren’t sustainable unless trade-offs with other positions when activities are
incompatible (more of something, means less of something). You can’t serve meals and not serve
meals, have to choose. Trade-offs protect for straddlers and repositioners. Reasoning for trade-offs;
- Inconsistencies in image or reputation (company is known for one thing, doing something
else as well is inconsistent and confusing)
- Trade-offs arise from activities themselves, different positions means different product
configurations, equipment and skills. Can also be between activities (sales person actively
selling to one person and doing nothing to another), resources can be wasted in this way by
overdesign or underdesign. By providing the same every time, efficiency will be highest.
- Trade-offs arise from limits on internal coordination and control; choosing a way makes
organizational priorities clear
False trade-offs between cost and quality occur when there is redundant or wasted effort, poor
control or accuracy or weak coordination. Simultaneous improvement of cost and differentiation is
possible when a company begins far behind the productivity frontier or when the frontier shifts
outward. At the frontier, where companies have achieved current best practice, the
trade-off between cost and differentiation is very real indeed.
Strategy is making trade-offs in competing, it’s about what not to do. Without trade-offs, there would
be no need for choice and thus no need for strategy.
While operational effectiveness is about achieving excellence in activities or functions; strategy is
about combining activities.
Example; South-west has well-paid employees with high productivity because of flexible union rules.
Because of the no-meal-policy/seat-assignments, there is no slowing down at airports. South-west’s
strategy involves a whole system of activities, not a collection of parts; competitive advantage is the
fit and reinforcement between activities.
Fit locks out imitators; the chain is as strong as its strongest link; i.e. activity cost is lower because of
the way other activities are performed (production with high product variety is more valuable when
linked to order and inventory systems to reduce stocking finished goods) complementary. Types;
- First order; Simple consistency between activities and strategy (all activities focus low cost)
- Second order; Activities are reinforcing (putting soap at hotels so recognize and buy later)
- Third order; Optimization of effort (keeping store stocked by having large warehouses and
minimum stock, but high turnarounds by regularly restocking); coordination and information
exchange to eliminate redundancy and wasted effort are basic types
The whole matters more than any individual part. Fit is not only fundamental for competitive
advantage but also for sustainability of that advantage; harder to match when activities are
interlocked more links more difficult. Fit between activities creates pressures and incentive to
improve operational effectiveness even harder to imitate. Meaning one activity goes poorly
all of them will suffer and vice versa.
Tailoring organization to strategy makes complementarities more achievable and contributes to
sustainability strategic positions should have a horizon for a decade or more, not one planning
cycle, continuity fosters improvements of single activities and reinforces companies identities.
Frequent shifts are costly not one activity but the entire system.
Strategy is creating fit among a company’s activities. The success will depend on doing many things
well and integrating them. No fit means no distinctive strategy and sustainability.
, Failure to choose - Threats to strategy appear externally, but the problem is internally. Sound
strategy is undermined by misguided views of competition, by organizational failures or desire to
grow. If many companies are far from the frontier, trade-offs appear unnecessary, it can look fine.
Pursuit to operational effectiveness (by imitating and therefore enforcing hypercompetition) is
seductive because it’s concrete. Failure to choose (wisely, with knowledge) sometimes comes down
to reluctance to disappoint valued managers or employees.
Growth trap - The desire to grow might have the worst effect on strategy trade-offs and limits
appear to constrain growth (serving one group and not another), managers want to surpass these
limits (extending product lines, adding features) because of conventional wisdom (making washers
and expanding to other household products because it seems logic, consequently losing all value).
Compromises and inconsistencies in pursuit of growth will erode competitive advantage, competing
in several ways will create confusion and loss of focus.
Profitable growth - After cost-cutting managers turn to growth reduce fit, compromises, blur
uniqueness need for growth is hazardous to strategy. For reinforcing and preserving strategy with
growth is to concentrate on deepening strategic positions rather than broadening (finding something
that’s costly for rivals, but because of your expertise is easy doable); deepening means better fit and
communicating strategy to customers who should value it. Companies grow faster by better
penetrating needs and varieties where it’s distinctive.
Role of leadership – Challenge of clear strategy is primarily an organizational one depending on
leadership. Strong leaders willing to make choices are essential. Core of managers is strategy
(defining and communicating, trade-offs, forging fit), not operational improvements. Leaders teach
others about strategy and are willing to say no (what to do and what not), it’s about setting limits.
