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Business Strategy
22
BUSINESS STRATEGY
Prof. Marcus Salusse
22 April 2019
Building Your Company´s Vision
From Harvard Business Review article
“Building Your Company’s Vision”
James C. Collins and Jerry I. Porras
September-October 1996
Building Your Company´s Vision
The companies that enjoy enduring success have core values and a core purpose that remain fixed, while their business strategies and practices endlessly adapt to a changing world.
Vision
Vision
Truly great companies understand the difference between what should never change and what should be open to change, between what is genuinely sacred and what is not
This rare ability to manage continuity and change is closely linked to the ability to develop a vision
- Vision provides guidance about what core to preserve and what future to stimulate progress toward
- It requires a consciously practiced discipline
Vision
/mission
A well-conceived vision
consists of two major
components: core ideology
and envisioned future
Core
Ideology
Core Ideology
Core ideology defines the timeless and enduring character of the organization, and comprises core values and core purpose/mission
- Defines what the company stands for and why the company exists
- It is the most important element of a company´s vision and source of guidance and inspiration
- It is more important to know who you are (core ideology) than where you are going (envisioned future)
/mission
Core Values
Core values are a system of guiding principles and tenets by which a company navigates
- Core values require no external justification
- They have intrinsic value and importance to those inside the organization
- Is unique for each organization, so there is no universally right set of core values
/mission
Core Values
To identify the core values of your own organization, push with relentless honesty to define what values are truly central?
- If you articulate more than five or six, chances are you are confusing core values (which do not change) with operating practice, business strategies, or cultural norms (which should be open to change)
/mission
Core Values
Core ideology can also play a role in determining who is inside the organization and who is not!
- You cannot impose core values or purposes, so people are predisposed to share the firm´s, or it is better to let them go elsewhere...
Upon evaluation, if circumstances changed and penalized us for holding a core value (competitive disadvantage), would we still keep it?
- If we can’t honestly answer yes, then the value is not core and should not be used...
/mission
Core Values
Merck
- Corporate social responsibility
- Unequivocal excellence in all aspects of the company
- Science-based innovation
- Honesty and integrity
- Profit, but profit from work that benefits humanity
Walt Disney
- No cynicism
- Nurturing and promulgation of "wholesome American cultures"
- Creativity, dreams, and imagination
- Fanatical attention to consistency and detail
- Preservation and control of the Disney magic
Core Values
Sony
- Elevation of the Japanese culture and national status
- Being a pioneer - not following others; doing the impossible
- Encouraging individual ability and creativity
Nordstrom
- Service to the customer above all else
- Hard work and individual productivity
- Never being satisfied
- Excellence in reputation; being part of something special
Core Purpose / Mission
/mission
Core purpose or Mission is the organization´s most fundamental reason for existence
It is the idealistic motivation for doing the company’s work (this can only be reached by asking “why”)
Not to be confused with a goal or strategy
Core Purpose / Mission
Core Purpose / Mission
/mission
Core competencies should be well-aligned
with a company’s core ideology and are often
rooted it in; but they are not the same thing.
Core competence is a strategic concept that
defines your organization’s capabilities –
what you are particularly good at – whereas
core ideology captures what you stand for
and why you exist.
Core Purpose / Mission
David Packard
speech (1960)
"The HP Way"
1:40
Core Purpose / Mission
3M Purpose
To solve unsolved problems innovatively
3:03
Core Purpose / Mission
/mission
https://about.google/
Sony (2019)
https://www.sony.net/SonyInfo/CorporateInfo/purpose_and_values/
Envisioned future
Vision
Vision
Core purpose / Mission
Core values
Envisioned future
The envisioned future defines the company Vision, what the company aspire to become and requires significant change and progress to attain
The organization´s Vision consists of two parts:
- A 10 to 30 year audacious goal; plus
- Vivid descriptions of what it will be like to achieve the goal
/mission
10-to-30 BHAG
A company must have a BHAG (pronounced Bee-hag), a “big, hairy audacious goal” , which stablishes the company plans for the future
The Vision gives a clear and compelling unifying focal point of effort and a catalyst for team spirit
It has a finish line, 10-to-30 years, so organization can know when it has achieved the goal
/mission
10-to-30 BHAG
The Vision should not be a sure bet:
- It will have perhaps only a 50% to 70% probability of success
- Organizations must believe that it can reach the goal anyway
- In the 90s, BHAG focused in 10 – 30 years to complete
- Nowadays organizaion´s Vision is expected to be achieved in 5-to-10 years time
/mission
Vivid descriptions
Vivid descriptions are vibrant, engaging and specific descriptions of what it will be like to achieve the BHAG
It is the translation of the organization´s Vision from words to pictures...
/mission
Building Your Company´s Vision
Building Your Company´s Vision
A direct link to the fundamental dynamic of visionary companies: preserve the core and stimulate progress
The Vision provides the context...
Building a visionary organization is 1% vision and 99% alignment!
Environmental Analysis
Environmental Analysis
With core values, mission and vision established, managers undertake a strategic analysis of the company’s external environment using the
PESTEL analysis
PESTEL Analysis
PESTEL Analysis
PESTEL analysis, encompasses political, economic, social, technological, environmental, and legal factors that relates to the organization´s external environment
It relates to the assessment of the external macroeconomic environment of growth, interest rates, currency movements, input prices, regulations, and general expectations of the corporation’s role in society (Kaplan & Norton, 2008)
PESTEL Analysis
POLITICAL
ECONOMIC
FIRM
SOCIAL
LEGAL
ENVIRONMENTAL
TECHNOLOGICAL
Political factors
PESTEL Analysis
- Government term and elections - The Bolsonaro effect
- Internal "conflict" - Supreme Court vs Legislative
- Pressure groups & Lobbying
- International wars
- International relationship - The case of Israel Embassy
Economic factors
PESTEL Analysis
- Levels of disposable income
- Business cycles
- Drivers of economy
- Level of unemployment
- Interest rate
- Exchange rate
- Taxation
- Availability of credit
- International trade
- Fiscal and monetary policies
- Per capta income
Social factors
PESTEL Analysis
- Work-Week
- Social Events & Influences
- Religious beliefs
- Roles
- Tradition and Values
- Norms
- Attitudes & Opinions
- Cultural aspects
- Lifestyle
- Media views
Social factors
PESTEL Analysis
Demographics
- Age distribution
- Household patterns - DINK families and more diversity
- Net inward migration
Cultural aspects
- Diversity in general
- Access to information
- More radical ideological positioning (alt-right / left)
- Healthy food
- Simple life?!?
Technological factors
PESTEL Analysis
Some trends...
- Netflix and Spotify (streaming)
- Apps in general
- WhatsApp for communication
- Robots and drones
- Self driving cars
- Artificial intelligence
- Technology maturity
- Intellectual property system
- Innovation potential
- Research & development
- Information systems
- Communication systems
- Manufacturing capacity
http://www.valor.com.br/empresas/4939134/falta-informacao-sobre-impacto-da-robotica
Environmental factors
PESTEL Analysis
- Environmental Impact
- Pollution vs clean energy
- Green branding issues
- Waste disposal & recycling
- Sustainable development & Triple bottom line
- Circular economy
Legal factors
PESTEL Analysis
- Employment law (CLT)
- Competition law (CADE)
- Regional legislation - Federal, state and city laws
- Investment law - Crowdfunding (CVM)
- Market regulation
(2018) http://www.valor.com.br/brasil/5357219/bens-de-capital-informatica-e-telecom-tem-tarifa-de-importacao-zerada
Scenario Analysis
Scenario Analysis
Scenario analysis involves the assessment of future events through development of probable outcomes and evaluating them
It relates to the external macroeconomic environment of growth, interest rates, currency movements, input prices, regulations, and general expectations of the corporation’s role in society (Norton & Kaplan, 2008)
Scenario Analysis
Scenario analysis process
• Set up questions
• Make-out environmental factors
• Identify key driving forces
• Execute ranking on the basis of uncertainty and importance
• Develop probable outcomes = scenarios!
• Ascertain implication
• Identify the chief indicators
Scenario Analysis
Scenarios are built by assessing trends along with counter trends, conducting comparisons and extrapolation in the simple form of narratives or complex techniques of statistical modeling
Industry Analysis
Industry Analysis
In essence, the job of the strategist is to understand and cope with competition.
Understanding the forces that shape industry competition is the starting point for developing strategy
Industry Analysis
Industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech, regulated or unregulated
Industry Analysis
Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers
Using the five forces framework, creative strategists may be able to spot an industry with a good future before this good future is reflected in the prices of acquisition candidates
Industry Analysis
Understanding the competitive forces, and their underlying causes, reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition (and profitability) over time
Treat of ENTRY
New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete
The threat of entry in an industry depends on:
- Entry barriers that are present
- The reaction entrants can expect from incumbents
Treat of ENTRY
Barriers to entry are advantages that incumbents have relative to new entrants:
1. Supply-side economies of scale
2. Demand-side benefits of scale (network effects)
3. Customer switching costs
4. Capital requirements
5. Incumbency advantages independent of size
6. Unequal access to distribution channels
7. Restrictive government policy
Treat of ENTRY
Expected retaliation relates to how potential entrants believe incumbents may react and also influences the decision to enter or stay out of an industry
Newcomers are likely to fear expected retaliation when:
- Incumbents have previously responded vigorously
- Incumbents possess substantial resources to fight back
- Incumbents seem likely to cut prices
- Industry growth is slow
The Threat of SUBSTITUTES
A substitute performs the same or a similar function as an industry’s product by a different means
Substitutes are always present, but they are easy to overlook because they may appear to be very different from the industry’s product
The threat of a substitute is high if:
- It offers an attractive price-performance trade-off
- The buyer’s cost of switching to the substitute is low
The Power of SUPPLIERS
Powerful suppliers capture more of the value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants
A supplier group is powerful if:
- It is more concentrated than the industry it sells to
- It does not depend heavily on the industry for its revenues
- Industry participants face switching costs
- It offers products that are differentiated / no substitutes
- It can credibly threaten to integrate forward into the industry
The Power of BUYERS
Powerful customers can capture more value by forcing down prices, demanding better quality or more service (driving up costs), and generally playing industry participants off against one another
A customer group has negotiating leverage if:
- There are few buyers, or each one purchases in volumes that are large relative to the size of a single vendor
- The industry’s products are standardized or undifferentiated
- Buyers face few switching costs in changing vendors
- Buyers can credibly threaten to integrate backward
RIVALRY among Existing Competitors
Rivalry among existing competitors takes many familiar forms, including
price discounting, new product introductions, advertising campaigns, and service improvements
The intensity and basis of the competition drives industry profitability
Non intense competition based on dimensions other than price is less likely to erode profitability because it improves customer value and can support higher prices
RIVALRY among Existing Competitors
The intensity of rivalry is greatest if:
- Competitors are numerous or equal in size and power
- Industry growth is slow
- Exit barriers are high
Price competition is most liable to occur if:
- Offers are similar and there are few switching costs for buyers
- Fixed costs are high and marginal costs are low
- Capacity must be expanded in large increments to be efficient
- The product or service is perishable
Industry Analysis
Industry structure, as manifested in the strength of the five competitive forces, determines the industry’s long-run profit potential because it determines how the economic value created by the industry is divided
Industry Analysis
It is especially important to avoid the common pitfall of mistaking certain visible attributes of an industry for its underlying structure.
Consider the following:
1. Industry growth rate. Fast-growing industries are not always attractive
2. Technology and innovation. Not by themselves enough to make an industry structurally attractive (or unattractive)
3. Government. How government policies affect the competitive forces
4. Complementary products and services. Benefit of two products combined is greater than the sum of each product’s value in isolation
SWOT
Business Strategy Development
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