on February 17, 2011
There are plenty of books available on strategy, but most business leaders do not have a lot of time to read them. Where can you go to get a reasonably-priced introduction to the ideas of some of the leading experts on business strategy? This book provides one possible answer. It includes essays on strategy and the five competitive forces by Michael Porter, building a vision by Collins and Porras, blue ocean strategy by Kim and Mauborgne, and the balanced scorecard by Kaplan and Norton.
Although I found the essays by each of the above-mentioned authors less inspiring and enlightening than their books on the same subjects, this compilation does give a good introduction to their ideas, and will help the reader discern whether to take the next step and read the authors' books. Each essay contains sidebars including an "Idea in Brief" sidebar which will help the busy reader further; however, in the Kindle version the sidebars simply appear in the main text, which interrupts the flow and can lead to confusion.
Not all strategic advice is good advice. In my view the advice given in the essay "Transforming Corner-Office Strategy into Frontline Action" leaves something to be desired. The idea of distilling a company's entire strategy into "one pithy, memorable and descriptive phrase" may appeal to some, but I really struggle to see its value. Examples include AOL ("Consumer Connectivity first - anytime, anywhere"), GE ("Be number one or number two in every industry in which we compete, or get out"), Dell ("Be direct"), and eBay ("Focus on trading communities"). Do any of these actually communicate useful strategies, or are they meaningless mantras?
On the other hand, I found the other essays on essentially the same topic (turning strategy into action) quite useful. "The Secrets to Successful Strategy Execution" by Neilson, Martin and Powers and "Turning Great Strategy into Great Performance" by Mankins and Steele gave some very practical steps which a leadership team can take to make a strategy actually happen. All up, I recommend this book as a valuable introduction to strategy.
This volume is one of several in a new series of anthologies of articles that initially appeared in the Harvard Business Review, in this instance from 1960 until 2006. Remarkably, none seems dated; on the contrary, if anything, all seem more relevant now than ever before as their authors discuss what are (literally) essential dimensions of formulating and then executing an effective strategy.
My own opinion is that strategies are "hammers" that drive tactics ("nails) and the key is to get a strategy in proper alignment with the ultimate objectives as well as with an organization's various activities. That said, what we have in this volume is a variety of thoughtful perspectives on strategy provide by those who are among the world's most highly-regarded authorities on the subject.
More specifically, the reader learns how to understand what strategy is and isn't as well as what it does and (doesn't) do, and, how to manage/leverage the five competitive forces that shape strategy (Michael E. Porter); also, how to build a company's vision (James C. Collins and Jerry I. Porras), how to reinvent a business model (Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann), how to formulate and then execute a "blue ocean strategy" (W. Chan Kim and Renée Mauborgne), how to take full advantage of the "secrets" of effective strategy execution (Gary L. Neilson, Karla L. Martin, and Elizabeth Powers), how to use the Balanced Scorecard as a strategic management system (Robert S. Kaplan and David P. Norton), how to transform corner-office strategy into frontline action (Orit Gadiesh and James L. Gilbert), how to turn great strategy into great performance (Michael C. Mankins and Richard Steele), and gain a much better understanding of how clear decision roles enhance organizational performance (Paul Rogers and Marcia Blenko).
Each article includes two invaluable reader-friendly devices, "Idea in Brief" and "Idea in Practice" sections, that facilitate, indeed expedite review of key points. Some articles also include what I characterize as "business nuggets" in which their authors focus on even more specific subjects such as "Finding New Positions: The Entrepreneurial Edge" (Porter, Page 10), "Big Hairy, Audacious Goals Aid Long-Term Vision" (Collins and Porras, 96), "A snapshot of blue ocean creation" (Kim and Mauborgne, 130-132), "Translation vision and strategy: four perspectives" and "Managing strategy: four processes" (Kaplan and Norton, 172 & 173), and "A Decision-Making Primer" (Rogers and Blenko, 236-237).
These ten articles do not - because they obviously cannot - explain everything that one knows to know and understand about the formulation and execution of an effective strategy. However, I do not know of another single source at this price (currently $14.23 from Amazon) that provides more and better information, insights, and advice that will help leaders to achieve success in the business dimensions explained so well by the authors of the articles in this volume.
The first article, appropriately, is by Michael Porter ('What is Strategy?'). He, in turn, leads off by asserting that 'operational effectiveness is not strategy.' There goes benchmarking, TQM, Kaizen, outsourcing, core competencies, and even positioning (too static - think of Groupon or Starbucks). Actually, not quite - they're necessary, but not sufficient. Few companies have competed successfully on the basis of operational effectiveness over an extended period - thanks to rapid diffusion of best practices. Porter claims that the resulting productivity gains are captured by customers and equipment suppliers, not retained in superior profitability (Amazon?). Put simply, the more benchmarking companies do, the more they look alike and the more they all end up with diminishing returns, and the more an industry tends towards consolidation via buying up rivals.
Competitive strategy is about being operationally and positionally different - eg. SWA, Carmike Cinemas, Bessemer Trust. Trade-offs are involved that choose what NOT to do. Fit is a central component - eg. a sophisticated sales force confers greater advantage when the product embodies premium technology and its marketing approach emphasizes customer assistance and support, a production line with high levels of model variety is more valuable combined with an minimal JIT inventory system. Thus, it can be misleading to explain success by specifying individual strengths or core competencies. It is also harder for a rival to match an array of interlocked activities than merely imitate a specific technology or sales-force approach. Finding a new strategic position is often preferable to being the 2nd or 3rd imitator of an occupied position. On the other hand, frequent positioning shifts are costly - entire systems must be realigned.
Sound strategy is especially undermined by the desire to grow (other than globally), as well as chasing every new technology for its own sake and mistaking 'customer focus' to mean serving all customer needs.
Next is Porter's 'The Five Competitive Forces That Shape Strategy.' In this article he synthesizes the strategist's job as understanding and coping with competition. However, he immediately expands that apparent scope by pointing out the competition for profits goes beyond current direct competitors to also include customers, suppliers, potential entrants (eg. Pepsi entering the bottled water industry, Apple entering the music distribution business), and substitute products (movies vs. TVs, local recreation/entertainment venues; photographic film vs. digital cameras) - in any industry. If the forces are intense (airlines, textiles, hotels), almost no company earns attractive an ROI; if benign (software, soft drinks, and toiletries), many are profitable. Thus, health industry structure should be as much a competitive concern to strategists as positioning within that industry.
Barriers to new entrants are advantages that incumbents have relative to new entrants. These include supply-side economies of scale, demand-side benefits of scale (no one ever got fired for buying from IBM; Facebook's 'network effect'), customer switching costs, capital requirements, proprietary technology, incumbent advantages independent of size (eg. preferential access to raw material, preemption of the most favorable locations, established brand identifies), unequal access to distribution channels, and restrictive government policy. Another - expected retaliation, such as price-cutting, especially when industry growth is slow.
Powerful suppliers (including labor) can capture more of one's potential profits by charging higher prices. Example, per Porter - Microsoft has eroded PC-makers' profitability by raising prices on operating systems (until Google began offering a far cheaper alternative). Supplier groups are more powerful if they're more concentrated than the industry being sold to, the supplier group does not heavily depend on the industry for its revenues, their buyers face switching costs in changing suppliers, or the supplier group can credibly threaten to integrate forward into the industry (eg. Asian manufacturers of U.S.-designed products).
Similarly, powerful customers can capture more value by forcing down prices, demanding better quality/service, and/or playing suppliers off against one another. They are especially likely to be powerful if there are few large buyers, the industry's products are undifferentiated, buyers face few switching costs, or buyers can credibly threaten to integrate backward and produce the product themselves. Continuing, a buyer group is price sensitive if the product it purchases represents a significant fraction of its costs, the buyer group earns low profits, the quality of the buyers' products/services is little affected by the industry's product.
Price competition is most likely to occur if products/services of rivals are nearly identical and there a few switching costs for buyers, fixed costs are high and marginal costs are low, the product is perishable, or capacity must be expanded in large increments to be efficient.
'Blue Ocean Strategy' is another especially useful article within the booklet. The material focuses on Cirque du Soleil and how it quickly became a major player in a world heretofore dominated by Ringling Bros./Barnum & Bailey took over a century to reach - despite the circus business being in long-term decline. PlayStations, sporting events, TV were taking market share away, and animal rights groups attacking from another perspective. Cirque did this, not by stealing customers from Ringling etc., but by creating uncontested market space that made the competition irrelevant.
The authors describe this as a 'blue ocean strategy' in which demand is created rather than fought over. Sometimes companies do so via creating a new industry (eBay); usually, however, it is accomplished when a company alters the boundaries of an existing industry. Recent examples include mutual funds, cell phones, biotechnology, discount retailing, and home videos. They, while less frequently represented among new ventures (most are line extensions), have proven more profitable on average.
Leading-edge technology is sometimes involved in the creation of blue oceans, but is not a defining feature - even Ford's revolutionary assembly line can be traced to the meatpacking industry. Perhaps the most important feature of blue ocean strategy is that it rejects the fundamental tenet of conventional strategy - that trade-offs exists between value and cost. Cirque offered people both the fun and thrill of the circus and the intellectual sophistication of the theater. It concluded that the appetite for animal shows was rapidly diminishing because of concerns about the treatment of circus animals, while the costs of training and caring for them were quite high. Cirque also realized that the public no longer thought of circus artists as stars, and did away with three-ring shows as well (expensive, confusing). Cirque focused on clowns (became more sophisticated), the tent, and classic acrobatic acts (added artistic flair). Each show has an original musical score and theme.
Companies that create blue oceans usually reap the benefits without credible challenges for 10 - 15 years - Cirque du Soleil, Home Depot, Federal Express, SWA, and CNN are examples. Body Shop is another - it shuns top models and makes no promises of eternal youth and beauty - for established brands this made imitation difficult because it would invalidate their current images. Finally, the authors also present the Model T as a blue-ocean innovation - there were lots of expensive, hand-crafted, and (unfortunately) hard-to-repair automobiles already in the marketplace. Ford's contribution was bringing standardization, ease of repair, and low costs. Thus, 'blue-ocean strategy' resembles Christensen's industry disruption by low-cost innovators entering the market from the bottom - eg. Toyota.
on January 2, 2014
First of all HBRs 10 Must Read Series is a wonderful way to immerse yourself and to learn the relevant topics within a specific area of study. Students or practitioners will find books in this series useful and practical simply because the legwork of identifying 10 key thoughts/trends are provided in a condensed volume from which you can get an overview, identify key authors, and then do further reading. Strategy topics included:
Definition (what is strategy, Porter)
Competitive forces (Collins & Porras) - this is a good intro to thinking about external scenarios and factors influencing your business
Business Models and uncontested market spaces (Johnson, Cristensen, & Kagermann and Kim & Mauborgne)
Strategy Execution and Performance (Neilson, Martin, & Powers and Mankins & Steele)
Performance Measurement - Balanced Scorecard (Kaplan & Norton)
Linking strategy with daily sensibility, communication, and clear decision roles (Gadiesh & Gilbert and Rogers and Blenko)
Ultimately this is a book about leadership and understanding various facets of strategic thinking, decision making, planning and implementation. Each chapter provides examples, a section entitled Idea in Practice, good summary tables/graphics. A rich resource.