Transcript No Slide Title

Are You Sure You Have a
Strategy?
Donald C. Hambrick
Columbia University
Graduate School of Business
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Consider these statements of strategy drawn
from actual documents and announcements
of several companies:
“Our strategy is to be the low-cost provider.”
“We’re pursuing a global strategy.”
“The company’s strategy is to integrate a set of
regional acquisitions.”
“Our strategy is to provide unrivaled customer
service.”
“Our strategic intent is to always be the firstmover.”
“Our strategy is to move from defense to industrial
applications.”
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What Is Strategy?
 Our central concept of how we will
achieve our objectives
 Our recognition of an opportunity
and plan for seizing it
What should it do for us?
 Guide our resource allocation and
daily actions
 Guide our design of organizational
arrangements
 Provide a catalyzing “shorthand” of
what we are all trying to do
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Putting Strategy In Its Place
Mission
 fundamental purpose
 values
Objectives
 specific targets
Strategic Analysis: C3E
 Customer analysis
Strategy
 Competitor analysis
 Company capability analysis
Our central
concept of how we
will achieve our
objectives
 Environmental analysis
Supporting Organizational
Arrangements
 structure
 rewards
 processes
 people
 symbols
 activities
 functional policies and profiles
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The Five Major Elements
of Strategy
Where will we be active?
(and with how much emphasis?)
Arenas
What will be our speed and sequence
of moves?
 Which product categories?
 Which market segments?
 Which geographic areas?
 Which core technologies?
 Which value-creation stages?
 Speed of expansion?
 Sequence of initiatives?
Vehicles
Staging
Economic
Logic
Differentiators
How will we get there?
 Internal development?
 Joint ventures?
 Licensing/franchising?
 Acquisitions?
How will we win in the marketplace?
How will we obtain our returns?
 Lowest costs through scale advantages?
 Lowest costs through scope and replication advantages?
 Premium prices due to unmatchable service?
 Premium prices due to proprietary product features?
 Etc.?
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 Image?
 Customization?
 Price?
 Styling?
 Product Reliability?
 Etc.?
Value-Creation Stages
Stages Outsourced
Stages Done In-house
A biotech company
Basic
Research
Product
Development
Clinical
Regulatory
Trials/Approvals
Manufacturing
Marketing/
Sales
Distribution
A toy company
Product
Development
Market
Research
Manufacturing
Marketing/
Advertising
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Sales
Distribution/
Logistics
Examples of Strategic
Staging
a: printing equipment manufacturer with plans
to expand internationally and broaden the product line
Wide

Target
Geographic
Scope
Narrow
Stage 1
•
Currently
Narrow
Wide
Product line
breadth
b: regional title insurance company with plans to
expand nationally by acquisition and build a
superior, prestigious brand
 Target
National
Geographic
Scope
Regional
Stage 2
•
Currently
Weak
Strong
Brand
power
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Economic Logic:
How will we obtain returns above our cost of
capital?
 Pricing Leverage:
a) Premium prices,
b) from price-insensitive buyers,
c) for product features they deem very
appealing,
d) and which competitors can’t
readily match.
 Cost Leverage:
through scale
through scope
through replication and experience
through advantageous endowments
 Asset Leverage:
extraordinary asset turns
extraordinary asset longevity
brand leverage
 Combinations are possible!
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IKEA’s Strategy
Arenas
 Inexpensive contemporary
furniture
 Young, white-collar
customers
 Worldwide
Arenas
Staging
 Rapid international
expansion, by region
 Early footholds in each
country; fill-in later
Vehicles
Staging
Economic
Logic
Vehicles
 Organic expansion
 Wholly-owned stores
Differentiators
Differentiators
 Very reliable quality
 Low price
 Fun, “non-threatening”
shopping expreience
Economic Logic
 Economies of scale (global, regional,
and individual store scale)
 Efficiencies from replication
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Another Example:
GE Transportation Systems -Locomotives
Arenas
 Diesel
 Emphasize long and heavy hauls
(including industrial and mining)
 Americas, Asia, Middle East, Africa
 Limited defensive position in Europe
Staging
1:  New Model X by Year 2
 Push very aggressively in Latin
America and Asia
 Sign Eastern Europe JVs
Arenas
2:  New Model XX by Year 4
 Push aggressively in Africa
Throughout:  5% annual
productivity
gains
 Wait-and-see in
Western Europe
Vehicles
Staging
Economic
Logic
Vehicles
Differentiators
 Wholly-owned subs
with extensive service sites
 Selective JVs in Europe
(including Eastern/Central)
Differentiators
 Service
 Mileage/operating efficiency
 Safety
 Operator comfort/ergonomics
Economic Logic
 Premium prices for superior product and service
 Lowest diesel manufacturing costs (Erie factory)
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Testing the Quality of Your
Strategy
Key Evaluation Criteria
1. Does your strategy fit with what’s going on in the environment?
Is there healthy profit potential where you’re headed? Does your strategy align with
the key success factors of your chosen environment (s)?
2. Does your strategy exploit your key resources?
With your particular mix of resources, does this strategy give you a good “head start”
on competitors? Can you pursue this strategy more economically than competitors?
3. Will your envisioned differentiators be sustainable?
Will competitors have difficulty matching you? If not, does your strategy explicitly
include a ceaseless regimen of innovation and opportunity creation?
4. Are the elements of your strategy internally consistent?
Have you made choices of arenas, vehicles, differentiators, and staging, and
economic logic? Do they all fit and mutually reinforce each other?
5. Do you have enough resources to pursue this strategy?
Do you have the money, managerial time and talent, and other capabilities to do all
you envision? Are you sure you’re not spreading your resources too thinly, only to
be left with a collection of feeble positions?
6. Is your strategy implementable?
Will your key constituencies allow you to pursue this strategy? Can your
organization make it through the transition? Are you and your management team
able and willing to lead the required changes?
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