© Strategy Dynamics Ltd. All rights reserved.
www.strategydynamics.com
Strategy Dynamics Essentials
© Strategy Dynamics Ltd. All rights reserved.
www.strategydynamics.com
What does Strategy Dynamics do?
E.g. product replacement for a medical device
Problem:• License for current product will be lost – new, better product has zero brand awareness
• TOTAL loss of old product sales will drop approx €25 million turnover
• Current strategy unlikely to be financially justified Solution:
• Intense demonstrations of new product to specialists (KOLs) to build awareness quickly
• Benefits disseminated to 10,000 doctors in training events, run by specialists over 9 months
• Training + 50 sales-force campaign shifts doctor preference quickly
Blockbuster Inc.’s Performance History
Contrasting questions for strategy to answer
Industry-based strategy question:
‘How do we get a good profit “position”?’
Firm-centred strategy question:
How do we drive sustained
profit growth?
“How can Starbucks achieve margins of 11.5% vs
9.5% … and keep them at 8% in tough times?” growth of 15% p.a. … and not fall back in tough “How can Starbucks deliver sustained profit times?” [strictly ‘free cash flow’]
Michael Porter, 1996, What is Strategy?, Harvard Business Review, Nov/Dec, 61-78.
True, and useful, but …
• unchanged in >30 years • replicated by numerous rivals Analysis of the company’s value chain would also prove distinct from that of full-service airlines – also true and useful, but also unchanged and replicated.
So what has ‘strategic management’ been doing since 1975?
[CEO Herb Kelleher was winner of the 2003 life-time achievement award by the Strategic
Management Society.]
Strategic ‘positioning’: e.g. the Southwest Airlines
W Chan Kim & Renée Mauborgne, 2005, Blue Ocean Strategy, Harvard Business School Press: Boston MA.
True, and useful, but …
• unchanged in >30 years • replicated by numerous
rivals
Strategic ‘positioning’: e.g. the Southwest Airlines’
The industry value-chain, e.g. an airline
Businesses at each stage try constantly to ...
1. cut costs (their own, or from upstream suppliers)
2. persuade those downstream to buy more, or pay more
8
How does all this affect the profitability of airlines generally? ... and how can we do better than others?
The “five forces” that affect industry profitability ...
What effect do these forces have?
9
Profitability of the industry
Threat of new entrants
Availability of substitutes Power of suppliers Power of customers Rivalry between competitors
Amazon.com operating profits and cash flow, 1997–
2008
Generalized strategy life cycle, illustrating extensions
and strategic-change events
Illustrative profitability distribution among firms in an
industry
Starbucks’ profit history and alternative futures
Figure 1.6
Starbucks—Hypothetical profit history and alternative
futures
Added 530 too many stores : cost >$300m Pushed prices up +2% margin = $200m/yr
WHY? … investor [analyst?] pressure for unsustainable performance.
NOTE: there is no requirement in the professional training for investment analysts to learn about the link from strategy to performance.
Starbucks: 2011 update
Would investors have preferred this trajectory + saving $300m?
Growth in users and call traffic for Skype’s VoIP service
History and alternative futures for the number of cases
of poliomyelitis worldwide
Functional, business-unit, and corporate levels of
strategy
Five-year history and plausible objectives for low-fare
airline Ryanair
Class 1: Try it yourself
Each class applies the same tasks to both the restaurant case, and a case
chosen by your group …
Use Worksheet 1 for the restaurant case to choose Principal and
Supporting Objectives for the early start-up period
Choose an appropriate time-scale
Set a numerical scale, and draw out the time-chart(s)
Use Worksheet 1 for a case you know or can find out about
An organisation you have worked for, or a well-known company (Pick a simple organisation, focused on one main activity)
Specify a Principal Objective for this organisation and (optionally) a Supporting Objective essential to achieving the Principal Objective Be sure to set an appropriate time-scale, including history
Using the
Sysdea
software
You must be registered with
Sysdea
to do this, then log in to
Sysdea
at
https://app.sysdea.com/
Watch the Tour on how to use the software (button at top-right)
To set strategic objectives for the restaurant case:
click here to get the Sysdea Worksheet 1 template model when the model opens, click “Shared Simulation” at top-left give the model a name, such as “Joe’s restaurant, Worksheet 1” click the two Principal Objective variable, set a Min and Max value-scale, and sketch a time-chart to reflect your chosen aims
repeat for your choice of a suitable Supporting Objective
Save the model !
Sharing your
Sysdea
models
Setting a model to be shared
lick the tool icon
under Sharing click ‘Share Model’ copy the link that appears
send the link to others
save your model !
Receiving a shared model
log in to Sysdea
click the link sent by the person sharing their model with you the model opens in ‘Run’ mode (you can’t edit it)
to save an editable copy to your own account, click ‘Shared Simulation’ and accept the invitation to save your own version
© Strategy Dynamics Ltd. All rights reserved.
www.strategydynamics.com
Ryanair: plausible objectives, from 2009
Causal Structure of Ryanair Profits for Year Ended March
2009
Explanation of Ryanair Profits, 2005–2009, and plausible
future to 2014
How customers drive sales for Ryanair
How resources drive Ryanair’s costs, e.g., routes
Resources driving service performance in a voluntary
organization
Standard categories of tangible resources
Table 2.1
Tangible
resource makerChip- Law firm Airline Consumer brand Charities Demand-side Final customers PC buyers Clients Customers Consumers Beneficiaries
Intermediaries
Computer-makers Resellers
Retailers
Supply-side Capacity Stores Professional
staff Aircraft
Production plant
(Physical assets)
Staff (examples) Production
staff Service staff Sales force Volunteers
Suppliers Airports
Product range Chip-types Legal services Routes
offered
Brands offered
Services offered
Class 2: Try it yourself
For the restaurant case
identify and define tangible resources (fewer than the airline case!) use Worksheet 2 to link your Principal Objective back to these
Resources – you may need to include your Supporting Objective in this causal structure
sketch time-charts in each Variable or Resource in this structure, setting appropriate Min and Max values
try to set up a Formula in each variable, giving a definition of how its value depends on the items linked into it
For the case you chose for class 1
define the resources that drive performance
use Worksheet 2 to draw out the connections from the Principal Objective for this organisation, back to the Resources driving that performance (identified in your Table)
optionally, try to define a Formula for each item to make the model work
Tangible resources for the restaurant
(
not all may be needed,
or significant
)
Tangible
resource Define these resources in your case Scale today Target by …… (date)
Demand-side Final customers
Intermediaries (optional) Supply-side Capacity Staff (examples) Suppliers (optional) Product range Cash Other (define)
Tangible resources for your case
(
not all may be needed, or
significant, or you may need 1-2 more
)
Tangible
resource Define these resources in your case Scale today Target by …… (date)
Demand-side Final customers
Intermediaries (optional) Supply-side Capacity Staff (examples) Suppliers (optional) Product range Cash Other (define)
Using the
Sysdea
software for either the restaurant or
your own case
Add your performance objectives into Worksheet 2:
click here to get the Sysdea Worksheet 2 template model when the model opens, click “Shared Simulation” at top-left
give the model a name of your own, such as “My Restaurant Worksheet 2” or “My Company Worksheet 2”
open your previous model of Worksheet 1
select your Principal and Supporting Objectives and Copy them (Ctrl-C) in Worksheet 2, check the time-scale matches Worksheet 1
delete the Principal and Supporting Objectives, and paste in those you copied from Worksheet 1 (Ctrl-C),
To draw out the links from performance back to resources:
follow the steps in this class to complete the causal links between the Objectives you pasted in and the resources that drive them
delete, add, or re-arrange items as necessary to do this
Worksheet 2
Stick to the discipline in your model
Make sure your definitions of resources and all other variables are
specific and measurable
Put numbers on everything, even if you have to estimate (but say so if
this is the case!)
Make sure all links are rigorous – if B and C link to A, then it must be
possible to calculate or estimate A, given values for B and C
Tasks: Day 1
A.
Carry out steps 1 and 2 for the restaurant case
1. sketch out realistic objectives for the first 20 weeks of the business
2. lay out the causal relationships from resources to performance, including
how those resources might grow over time … and try to add equations for those relationships
B.
Carry out steps 1 and 2 for your own case
1. sketch out realistic objectives for an appropriate time-scale, including
history
2. lay out the causal relationships from resources to performance