Contents How to Get the Most Out of 9 this Book Strategy: An Introduction 11 The 10 Schools of Strategy 12 The Economic Goals of 13 an Organization Strategic Planning 14 Operationalising the 15 Strategy Change Management 17 Strategic Control 18 Evaluating and Rewarding 20 Performance The Road Ahead 21 Ackoff, Russell L. 25 Activity Based Costing (ABC) 25 Adaptive Planning 26 Adjacencies 26 Adjusted Present Value (APV) 27 Agency Theory 27 Alignment 28 Ansoff, Igor H. 30 Anti-Takeover Strategy 32 Argyris, Chris 33 Backward Integration 34 Balanced Scorecard 34 Bargaining Power of Buyers 35 Bargaining Power of Suppliers 35 Barnard, Chester 36 Barriers to Entry 37 Barriers to Imitation 38 Bartlett, Christopher A. 39 BCG Growth-Share Matrix 39 Beachhead Market 40 Benchmarking 40 Best Practices 41 BHAG 41 Bias for Action 41 Big Hairy Audacious Goals 41 (BHAGs) Blue Ocean Strategy 42 Bottom of the Pyramid 44 Brainstorming 44 Brand Management 45 Breakeven Analysis 45 Bureaucracy 45 Business Ethics 45 Business Forecasting 46 Business Model 47 Business Process 47 Reengineering (BPR) Business Risk 47 Buy Back 48 Cadbury Committee Report 49 Capacity Expansion 49 Capital Structure 51 Cartel 51 Cash Cow 52 Chandler, Alfred DuPont 52 Change Management 53 Christensen, Clayton M. 54 Clusters 55 Coase, Ronald 56 Code of Ethics 56 Commoditization 56 Company Profile 57 Comparative Advantage 57 Competitive Advantage 58 Competitor Analysis 59 Competitive Strategy 62 Concentration Ratio 63 Concentric Diversification 64 Conglomerate Diversification 64 Contestability 64 Contingency Planning 64 Contract Manufacturing 64 Co-opetition 65
Core Competence 65 Core Ideology 67 Core Values 68 Corporate Governance 68 Corporate Image 69 Corporate Philanthropy 69 Corporate Purpose 70 Corporate Renewal 71 Corporate Restructuring 71 Corporate Social Responsibility 71 (CSR) Corporate Venturing 72 Cost Leadership 72 Cost of Capital 74 Counterparry 74 Country of Origin Effect 74 Country Risk 74 Critical Success Factor (CSF) 74 Cross Country Subsidization 75 Cross Holding 75 Customer Relationship 75 Management (CRM) Customer Switching Costs 76 Cusumano, Michael 76 Decision Making 77 Deming, William Edwards 78 Demographic Environment 80 Devil’s Advocacy 80 Diamond 80 Differentiation 83 Discovery Driven Planning 84 Diseconomies of Scale 84 Disruptive Technology 85 Diversification 85 Divestiture 88 Divisional Structure 89 Downsizing 89 Drucker, Peter F. 89 Due Diligence 90 Dynamic Capability Building 91 Dynamic Specialization 91 Earnings Before Interest and 93 Taxes (EBIT) Economic Value Added (EVA) 93 Economies of Scale 94 Economies of Scope 94 Emotional Intelligence 94 End-game Strategies 95 Enterprise Resource Planning 96 (ERP) Enterprise Risk Management 96 (ERM) Entrepreneurship 96 Environmental Scanning 97 Experience Curve 98 Fayol, Henri 99 First Mover Advantage 99 Five Forces Model 100 Flat Organization 101 Focus 101 Follett, Mary Parker 102 Force Field Analysis 102 Forward Integration 103 Franchise 103 Free Rider 104 Full Costing 104 Functional Strategy 104 Functional Structure 105 Game Theory 106 Garbage In, Garbage Out 106 Generic Strategy 106 Ghoshal, Sumantra 107 Global Corporations 108 Global Industry 108 Global Leverage 108 Global Value Chain 109 Configuration Globalization 109 Goals 111 Golden Handcuffs 111 Golden Handshake 111 Golden Hello 112 Golden Key 112 Golden Parachute 112 Govindarajan, Vijay 112 Handy, Charles 113 Hedgehog Principle 113 Herfindahl Index 113 Herzberg, Frederick 114 Hierarchical Organization 115
Hostile Bid 115 Human Capital 115 Hygiene Factors 115 Independent Director 116 Industry 116 Industry Shakeout 118 Innovation 120 Innovator’s Dilemma 122 Institutional Investor 123 Intrapreneurship 123 Japanese Style of 124 Management Joint Venture 124 Judo Strategy 124 Just–in-Time 125 Kaizen 126 Kanban 126 Kaplan and Norton 126 Keiretsu 127 Kepner-Tregoe Matrix 127 Khanna, Tarun 127 Knowing-Doing Gap 128 Knowledge Management (KM) 128 Lateral Thinking 130 Law of Conservation of Profits 130 Law of Unintended 130 Consequences Leadership 132 Lean Manufacturing 136 Lean Thinking 137 Licensing 137 Long Term Objectives 138 Loss Leader 138 MBO (Management By 139 Objectives) Managerial Grid Model 139 Market Defense 140 Market for Corporate Control 141 Marketing Mix 141 Market Power 141 Market Signals 142 Maslow, Abraham 143 Matrix Structure 143 Mayo, Elton and 144 Roethlisberger, Fritz McGregor, Douglas 145 McKinsey 7-S Framework 146 McNamara, Robert S. 147 Merger 147 Mintzberg, Henry 148 Mission 149 Motivation 150 Multi Domestic Industry 151 Murphy’s Law 152 Nearshoring 153 Net Present Value (NPV) 153 Nine-Cell Planning Grid 153 Not-Invented-Here 154 Offshoring 155 Ohmae, Kenichi 155 Oligopoly 156 Operating Strategies 157 Opportunity Cost 157 Optimizing Planning 157 Organic Growth 157 Organizational Behavior 157 Organizational Chart 158 Organizational Culture 158 Organizational Design 160 Organizational Development 161 (OD) Organizational Inertia 161 Organizational Learning 162 Organizational Mapping 162 Organizational Structure 163 Outsourcing 163 Overheads 163 Palepu, Krishna G. 164 Pareto’s Principle 164 Parkinson’s Law 165 Personal Effectiveness 165 PEST (Political, Economic, 166 Social and Technological Factors) Analysis Peter Principle 167 Platform Leadership 167 Poison Pill 169 Policies 169
Political Risk 169 Porter, Michael E. 169 Positioning 171 Price / Earnings Ratio (P / E) 172 Process Innovation 172 Process Life Cycle 174 Process Networks 175 Product Innovation 175 Product Life Cycle (PLC) 178 Product Platform 179 Prospect Theory 180 Purpose-Process-People 180 Doctrine Pygmalion Effect 181 q-theory 182 Quinn, James Brian 182 Real Options 183 Regulatory Capture 183 Resource-based Theories 183 Responsiveness Planning 184 Reverse Engineering 185 Risk 185 Rivalry 186 Satisficing 188 Scenario Planning 188 S-Curve 189 Senge, Peter 189 Service Level Agreement (SLA) 190 Shareholder Value 190 Simple Structure 190 Simon, Herbert A. 191 Six Sigma 191 Skimming 192 Skunk Work 192 Sloan, Alfred P. 192 Slywotzky, Adrian J. 193 Span of Control 193 Spender, J. C. 194 Stakeholders 194 Strategic Advantage 194 Strategic Alliance 195 Strategic Architecture 196 Strategic Business Unit (SBU) 196 Strategic Choice 196 Strategic Control 197 Strategic Cost Management 197 Strategic Fit 197 Strategic Groups 198 Strategic Inflection Point 198 Strategic Innovation 199 Strategic Intent 201 Strategic Management 202 Strategic Market 203 Strategic Options 203 Strategic Planning 205 Strategic Pricing 207 Strategy Evaluation 209 Strategy Implementation 210 Stretch 211 Stuck in the Middle 212 Succession Planning 212 Supply Chain Management 213 (SCM) Switching Costs 215 SWOT Analysis 215 Taylor, Frederick W. 217 Technology Risk 218 Threat of Substitutes 220 Tipping Point 221 Total Quality Management 222 (TQM) Utterback, James 223 Valuation 224 Value Chain 224 Value Migration 227 Value System 227 Values 227 Vertical Integration 228 Value Innovation 231 Vision 232 Whistle Blower 233 White Knight 233 Williamson, Oliver E. 233 Willpower 234 Winner’s curse 234 Zero Base Budgeting 235 Bibliography 236
see the environment as a factor, the environmental school sees it as an actor. Configuration School: This school views the organization as a and integrates the claims of other schools. A variation of this somewhat academic perspective is a more practitioner-oriented view which focuses on how an organization moves from one state to such as from start up to maturity. The approaches mentioned above need not be viewed as exclusive, watertight compartments. They can be combined in appropriate ways. The Economic Goals of an Organization Understanding the firm’s long term economic goals is the starting point in strategy formulation. As Pearce and Robinson rightly put it, three economic goals must drive the strategy of any organization — survival, profitability and growth. A firm has to first survive, if it is to serve the interests of its stakeholders. Survival is often taken for granted. But many companies do go bankrupt. Indeed, the average life of a Fortune 500 company is only 40 to 50 years, according to the research of a Shell executive Aries de Geus. Reckless or expedient short term oriented decision making, complacency and quick fixes to structural problems are some of the ways in which the survival of an organization is threatened. Profitability is the main goal of any business. Not only should a firm make profits but it must also ensure that these profits are sustainable in the long run. Moves aimed merely at improving short term profitability must be avoided. Equally important, profits should come from the core business, not through non operating income (such as sale of assets) or accounting manipulation. The third goal is growth or, more precisely, profitable growth. A profitable organization which is not growing is a cause for alarm. Lack of growth means the company is not able to identify opportunities to expand its market, compete with other players, develop new products, attract new customers, etc. Lack of growth also implies that competitors are probably moving ahead, thereby marginalizing the company’s position. other,
Deficiencies in a Process That are Taken for Granted If a process is inefficient or suffers from a big gap, there is scope to Sometimes a process that is widely used may have certain By thinking out of the box, an innovator may come up with a new idea that removes this deficiency. Pilkington’s float glass process, for example, paved the way for the development of glass with a smooth finish. Changes in Industry or Market Structure That Catch Everyone by Surprise The emergence of new, fast-growing segments provides scope for to serve their needs. The success of the small floppy disk drive manufacturers had much to do with the emergence of new customer segments who wanted smaller and lighter disk drives. According to Drucker, “New opportunities rarely fit the way the industry has always approached the market, defined it, or organized to serve it. Innovators therefore have a good chance of being left alone for a long time.” Demographic Changes Demographic changes result in new wants and new lifestyles that call for new products. The Japanese pioneered robotics because they anticipated the rising levels of education and the consequent shortage of blue-collar workers. In recent years, the ageing of Japan and Europe has put on governments there to control health care expenses. This has fuelled the rise of generic drugs. Demographic changes provide opportunities that are the most rewarding and the least risky, as such trends are easier to predict. Changes in Perception New needs can be created by changing the common perception of For example, a booming industry has emerged for exercise and equipment by capitalizing on people’s concern for health and Changes Brought About by New Knowledge New knowledge can be used to develop innovative products. of this sort usually combine many sorts of knowledge. The
Workers have no wish or ability to help make decisions. The Theory Y manager assumes the following: Workers seek job satisfaction no less than managers. If trusted, workers will behave responsibly. Low performance is due to dull work or poor management. People have the desire and right to take part in decision making. McGegor was also against the traditional pay-for-performance He was convinced that money could not substitute an environment that was conducive to motivation. McGregor recognized the tremendous improvements in working conditions since the turn of the century at all levels of the corporation. Drawing on Maslow’s hierarchy of needs, he argued that by satisfying the safety and security needs of its employees, companies had created higher-order needs. The focus had to shift to those higher needs. McGregor’s work is not completely original. Theory X is derived from the work of F. W. Taylor and from Adam Smith’s notion of man”. Theory Y stems clearly from Mayo’s human relations and Maslow’s work on human needs. (See also: Motivation, Mayo, Elton and Roethlisberger, Fritz) McKinsey 7-S Framework An analytical framework developed by Mckinsey consultants, Richard Tanner Pascale and Anthony G Athos based on their study of well Japanese companies, which looks at seven key aspects of an Strategy: The path chosen by a company to achieve its goals. How the organization allocates its resources to achieve its aims. Structure: Describes the hierarchy of authority and accountability in an organization. These relationships are frequently indicated in charts and include organization structure, level of authority and responsibility arrangements. Skills: The core competences and capabilities of the firms that allow them to compete in the market.
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