Strategic Management: Todays Most Important Business Challenge Liam Fahey Babson College and Cranfield School of Management Strategic management is the name given to the most important, difficult, and encompassing challenge that confronts any private or public organization: how to lay the foundation for tomorrows success while competing to win in todays marketplace. Winning today is never enough; unless the seeds of tomorrows success are planted and cultivated, the organization will not have a future. This challenge is difficult because, as we shall see throughout this book, the choices involved in exploiting the present and building for the future confront managers with complex tradeoffs. Managers must resolve conflicting demands from stakeholders; perennial tensions among different groups and levels within the organization must be fairly addressed. It is encompassing because it embraces all the decisions that any organization makes. The conflict between the demands of the present and the requirements of the future lies at the heart of strategic management for at least three reasons: 1. The environment in which tomorrows success will be earned is likely to be quite different from the environment that confronts the organization today. Products change as competitors introduce new variations, sometimes radically shifting the nature of the offering made to customers. New models of laptop computers that are smaller, lighter, and more powerful have changed many customers perceptions of what constitutes a The author would like to especially thank Robert M. Randall for his many comments on this chapter, and H. Kurt Christensen, Jeffrey Ellis, Samuel Felton, V. K. Narayanan, G. Richard Patten, and Daniel Simpson for their comments on an earlier draft of this chapter. page_3 Page 4 personal computer. New competitors enter longestablished markets with new concepts of how to serve and satisfy customers. For example, Saturn, at the low end of the automobile market, and Lexus, at the high end, have dramatically altered the dynamics of competition within their product categories. 1 Increasingly, the emergence of substitute products causes highly disruptive industry change. Customers tastes sometimes change in unexpected ways. Technological developments often alter not only the function of products but every facet of how business is conducted: procurement, logistics, manufacturing, marketing, sales, and service. Political, regulatory, social, and economic change often give rise, directly or indirectly, to shifts in industry or competitive conditions.2 To succeed in the new environment of tomorrow, the organization itself must undergo significant and sometimes radical change. Organizations as large, as diverse, and as historically successful as IBM, General Motors, Sears, Honda, Sony, Philips, and Rolls Royce have learned this painful lesson in the late 1980s and early 1990s. Old ways of thinking have had to be challenged and reconceived: longheld assumptions and beliefs ultimately have become incongruent with the changed environment. New operating processes or ways of doing things must be learned. Organizational structures, systems, and decision processes inherited from outmoded eras need to be redesigned. Adapting to (and, in many cases, driving) change in and around the marketplace during a time of significant internal change places an extremely heavy burden on the leaders of any organization. Yet, that is precisely the dual task that confronts strategic managers. They must: Exploit the present while sowing the seeds for a new and very different future and, simultaneously, Build bridges between change in the environment and change within their organizations.3 Change is the central concern and focus of strategic management: change in the environment, change inside the organization, and change in how the organization links strategy and the organization. Change means that organizations can never become satisfied with their accomplishments. Unless an organization changes its products over time, it falls behind competitors. Unless the organization changes its own understanding of the environment, it cannot keep abreast of, much less get ahead of, changes in customers, the industry, technology, and governmental policies. The importance and pervasiveness of change is evident in the strategic management principles noted in Table 11. From environmental change springs opportunities. Without change or the potential to affect change, organizations would neither confront nor be able to create opportunities.4 Without a managed flow of new opportunities, organizations cannot grow and prosper; they are destined to decline and die. Unfortunately, change is also the source of threats to the organizations current and page_4 Page 5 Table 11 Some strategic management (SM) principles. Strategic Management Involves the management of marketplace strategy, of the organization, and of the relationship between them. Has as a core assignment; management of the interface between the organization and its environment. Involves anticipating, adapting to, and creating change both in the environment and within the organization. Is driven by the relentless pursuit of opportunities. Recognizes that opportunities may arise in the external environment or they may be generated within the organization; in either case, they are realized in the marketplace. Necessitates risk taking; the organization commits to pursuing opportunities before they have fully materialized (in the environment). Is as much about inventing or creating the organizations competitive future as it is about adapting to some understanding of that future. Sees the marketplace purpose of an organization as residing outside its (legal) boundaries; it must find, serve, and satisfy customers as a prelude to other returns such as profits. Is the task of the whole organization; it cannot be delegated to any group within the organization. Necessitates the integration of the longdistance and shortdistance horizons; the future influences current decisions; current decisions are intended to lead toward some future state or goal. potential strategies. Thus, organizations must commit themselves to grappling with changeunderstanding it and transforming it into opportunity. Leveraging andor shaping change in the environment is, as we shall see in the next section, central to designing and executing strategy. Although organizations cannot control their environment, 5 they are not helpless in the face of persistent and sometimes unpredictable environmental change. By practicing strategic management, managers can lead more effectively. They can effect change in their strategies: they can introduce new products, enhance their existing products, withdraw from particular markets, compete more smartly against their competitors, and offer better value to customers. Managers can also reconfigure their organization: They can get more output out of existing resources, hone existing capabilities or competencies and develop new ones, and energize the organization through their leadership. As we shall see throughout this chapter, managing more effectively and reconfiguring organizations go handinhand. To cope with change successfully, strategic management must address three interrelated tasks (see Figure 11): 1. Managing strategy in the marketplace: designing, executing, and refining strategies that win in a changing marketplace.
title: author: publisher: isbn10 | asin: print isbn13: ebook isbn13: language: subject publication date: lcc: ddc: subject: The Portable MBA in Strategy Portable MBA Series Fahey, Liam John Wiley & Sons, Inc (US) 0471584983 9780471584988 9780585251196 English Strategic planning, Business planning 1994 HD30.28.P674 1994eb 658.4/012 Strategic planning, Business planning cover Page i The Portable MBA in Strategy page_i Page ii The Portable MBA Series The Portable MBA Series provides managers, executives, professionals, and students with a "hands-on," easy-to-access overview of the ideas and information covered in a typical Masters of Business Administration program The published and forthcoming books in the program are: Published The Portable MBA (0-471-61997-3, cloth; 0-471-54895-2, paper) Eliza G C Collins and Mary Anne Devanna The Portable MBA Desk Reference (0-471-57681-6) Paul A Argenti The Portable MBA in Finance and Accounting (0-471-53226-6) John Leslie Livingstone The Portable MBA in Management (0-471-57379-5) Allan R Cohen The Portable MBA in Marketing (0-471-54728-X) Alexander Hiam and Charles Schewe New Product Development: Managing and Forecasting for Strategic Success (0-471-57226-8) Robert J Thomas Real-Time Strategy: Improving Team-Based Planning for a Fast-Changing World (0-471-58564-5) Lee Tom Perry, Randall G Stott, and W Norman Smallwood The Portable MBA in Economics (0-471-59526-8) Philip K Y Young and John McCauley The Portable MBA in Entrepreneurship (0-471-57780-4) William Bygrave The Portable MBA in Strategy (0-471-58498-3) Liam Fahey and Robert M Randall The New Marketing Concept (0-471-59576-4) Frederick E Webster Total Quality Management: Strategies and Techniques Proven at Today's Most Successful Companies (0-471-54538-1) Arnold Weimerskirch and Stephen George Market-Driven Management: Using the New Market Concept to Create a Customer-Oriented Company (0-471-5976-4) Frederick E Webster Forthcoming 94-4475 The Portable MBA in Global Business Leadership (0-471-30410-7) Noel Tichy, Michael Brimm, and Hiro Takeuchi Analyzing the Balance Sheet (0-471-59191-2) John Leslie Livingstone Information Technology and Business Strategy (0-471-59659-0) N Venkatraman and James E Short Negotiating Strategically (0-471-1321-8) Roy Lewicki and Alexander Hiam Psychology for Leaders (0-471-59538-1) Dean Tjosvold and Mary Tjosvold page_ii Page iii The Portable MBA in Strategy Liam Fahey Robert M Randall page_iii Page iv This text is printed on acid-free paper Copyright â 1994 by John Wiley & Sons, Inc All rights reserved Published simultaneously in Canada Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without the permission of the copyright owner is unlawful Requests for permission or further information should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012 This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services If legal advice or other expert assistance is required, the services of a competent professional person should be sought Library of Congress Cataloging-in Publication Data: The Portable MBA in strategy / [edited by] Liam Fahey, Robert Randall p cm Includes index ISBN 0-471-58498-3 (alk paper) Strategic planning Corporate planning I Fahey, Liam, 1951 II Randall, Robert, 1940 HD30.28.P674 1994 658.4'012dc20 Printed in the United States of America 10 page_iv Page v PREFACE The design and development of The Portable MBA in Strategy was guided by one overarching goal: to bring the best in thought and practice in the field of strategic management (or business strategy) to a number of audiences: u4!"# +,-./01 89:; FGHIJK S TUVWX `ổabcdef mnopqrs {|}~ Ê ÔƠƯĐăâ àả ắ ậèẻẽéẹ ĩ íị ổỗố ộờởỡ ụừửữứựỳ ã Managers and others who possess an MBA degree and are interested in staying abreast of the field of strategic management u5!"# +,-./01 9:;? GHIJKLM TUVWXY Z abcdefg opqrstu }~ ƯĐăâêôơ àảãáạ ặầẩ ẽéẹềểễế íịòỏõ$ óằ ởỡớợùủ ựỳỷỹ ýỵ Any person working in an organizational setting who is interested in learning about the scope, substance, and processes of strategic management u6!"# +,-./01 89:; FGHIJK S TUVWX `ổabcdef mnopqrs {|}~ Ê ÔƠƯĐăâ àả ắ ậèẻẽéẹ ỉĩ íị ồổỗố ộờở úụ ừửữứự ã Students, at both the graduate and undergraduate levels, who need a compendium of material from the leading thinkers in the field This book could serve as a primary or supplementary text in any mainstream course related to strategic management To bring together the best in thought and practice in the strategic management field, we invited a select list of outstanding thought leaders to contribute to the book Sixteen contributors are leading professors at the most prestigious business schools Five contributors are innovative consultants Each contributor is an expert in his or her domain; each has extensive experience in "live" organizations, putting into practice the principles, precepts, and methodologies expounded in each chapter The work of many of the contributors is internationally known The Portable MBA in Strategy addresses the following questions: What is strategic management? What is it that managers when they engage in strategic management? How and why is strategic management different from other types of management, such as financial management or manufacturing management or human resource management? What is a strategy? How does one identify an organization's strategy? How strategies differ from one organization to another? page_v Page vi 23 What should an organization when it sets about formulating or changing its strategy? What kinds of analysis should it do? What kinds of analytical methodologies are available? 24 What is involved in implementing strategy? How are strategies translated into action? How can the organization be better managed, with a view to more efficient and effective strategy execution? How can strategy development and execution be more tightly linked? The book is divided into five parts Part One An Introduction to Strategic Management Chapter 1, Strategic Management: Today's Most Important Business Challenge, by Liam Fahey, provides an overview of strategic management It argues that strategic management's central challenge is the need to lay the foundation for success in tomorrow's marketplace while competing to win in today's marketplace This challenge lies at the heart of strategic management because the environment confronting every organization is in a constant state of change Chapter l segments strategic management into three components: (1) managing marketplace strategy, (2) managing the organization, and (3) managing the interface between strategy and the organization Marketplace strategy incorporates three elements: (1) scope, (2) posture, and (3) goals Managing the organization incorporates five elements: (1) analytics, (2) mindset, (3) operating processes, (4) infrastructure, and (5) leadership Managing the linkages between marketplace strategy and organization is the focus of much of the activity that must be accomplished by strategic management Part Two Strategy: Winning in the Marketplace Strategy, above all else, is about winning in the marketplaceattracting, winning, and retaining customers, and outperforming competitors To so requires that the organization create or leverage change in the environment by continually adapting its product offerings and by modifying and enhancing how it competes It must anticipate changes in competitive conditionsthe entry of new types of competitors, the introduction of new products, technology developments, and changes in customers' tastes Chapters through address strategy from four distinct vantage points: (1) corporate strategy, (2) business-unit strategy, (3) global strategy, and (4) political strategy Chapter 2, Corporate Strategy: Managing a Set of Businesses, by H Kurt Christensen, begins by considering the rationale or logic for corporate diversification, a central thrust in many firms' corporate strategy It then details the principal elements in corporate strategy and examines the most frequently page_vi Page vii used means by which a corporation can change its scope (internal development, strategic alliances, and divestment) Chapter 3, Business-Unit Strategy: Managing the Single Business, by Anil K Gupta, examines strategy at the level of a stand-alone organization, that is, a business unit in a multibusiness corporation or single business organization The author addresses five issues central to strategy development and execution in any single business entity: (1) defining the scope of the business unit, (2) setting business-unit goals, (3) defining the intended bases for competitive advantage, (4) designing the value constellation (what the business unit will versus what it will rely on its partners to do), and (5) managing the business unit's internal value chain Chapter 4, Global Strategy: Winning in the World-Wide Marketplace, by Michael E Porter, considers corporate and business-unit strategy from a global perspective Porter provides a framework for understanding the nature of competition between rivals in an international arena and the development of a new conception of global strategy Chapter 5, Political Strategy: Managing the Social and Political Environment, by John F Mahon, Barbara Bigelow, and Liam Fahey, extends the notion of strategy to incorporate an organization's efforts to deal with the social and political environment Political strategy is defined as the set of activities undertaken by an organization in the political, regulatory, judicial, or social domain to secure a position of advantage and influence over other actors in the process Although political strategy is frequently accorded little prominence in strategic management textbooks, this chapter demonstrates how political strategy is sometimes critical to the success of strategy in the marketplace, that is, the corporate, business-unit, and global strategies discussed in the three prior chapters Part Three Strategy Inputs: Analyzing the External and Internal Environments Strategy, as an intentional organizational choice, is always driven by some understanding of the organization's external and internal environment Unfortunately, in too many organizations, this understanding is, at best, only partially explicated, challenged, and refined The four chapters in Part Three are intended to show readers what is involved in analyzing organizations' external and internal environments (and many of the connections between these environments) In Chapter 6, Industry Analysis: Understanding Industry and Dynamics, David Collis and Pankaj Ghemawat show how to analyze an industry using two distinct but related frameworks Industry analysis constitutes the core of the environmental analysis conducted by most firms In Chapter 7, Macroenvironmental Analysis: Understanding the Environment Outside the Industry, V K Narayanan and Liam Fahey show how to analyze the macroenvironmentthe political, economic, social, and technological page_vii Page viii environment external to an industry In particular, they show how to scan, monitor, and forecast change in each of the four domains within the macroenvironment Yet, it is not enough to understand what macroenvironmental change is occurring or may occur: the implications of such change for the development and execution of corporate and business-unit strategy are detailed and discussed in the final section of the chapter Chapter 8, Building the Intelligent Enterprise: Leveraging Resources, Services, and Technology, by James Brian Quinn, focuses on the organization itself as a source of distinctive competitive advantage In particular, this chapter demonstrates how (and why) intellectual resources rather than physical resources contain the seeds of marketplace success The core challenge for organizations is to develop knowledge-based service activitieswhich are, increasingly, the source of value and benefits that are important to customers Recognition of the need to continually upgrade and enhance intellectual resources is leading many firms to create new organizational configurations involving multiple linkages to suppliers, distributors, end customers, and technology sources Chapter 9, A Strategy for Growth: The Role of Core Competencies in the Corporation, by C K Prahalad, with Liam Fahey and Robert M Randall also addresses how the organization itself can be a source of marketplace success, with particular reference to multibusiness corporations The chapter argues that corporations need to develop a strategic intent and strategic architecture as a prelude to the determination of which core competencies need to be developed and refined Core competencies assume strategic importance because they underlie products provided by a number of business units As an example, Honda's engine competence is reflected in a range of products Part Four Strategy Making: Identifying and Evaluating Strategic Alternatives An understanding of strategy and of an organization's external and internal environment in and of itself does not generate strategy Managers need to transform knowledge about their industry, about the environment outside the industry, and about their own organization's resources and competencies into opportunities Thus, they must develop a range of strategy alternativessome of which may take the organization in a direction that is radically different from its current strategyand choose their preferred options among those alternatives Chapter 10, Identifying and Developing Strategic Alternatives, by Marjorie A Lyles, illustrates why it is so important for any organization to invest considerable time and effort in generating obvious, creative, and unthinkable alternatives Unless opportunities are detected and developed, they cannot be considered or exploited This chapter offers various analytical methodologies and organizational processes to capture and develop alternatives in the hope page_viii Page ix that, by so doing, the organization will never become complacent because of its marketplace success, nor succumb to being a victim of its own historic mindset and way of doing business Chapter 11, Evaluating Strategic Alternatives, by George S Day, discusses how to evaluate the strategic alternatives an organization may generate Poor choices of strategic direction cost organizations dearly This chapter provides a framework of analysisa set of tests in the form of questionsthat is intended to provide organizations with a comprehensive means of evaluating and testing strategic alternatives before managers commit to a specific strategic direction Part Five Managing Strategic Change: Linking Strategy and Action However elegant and grand their design, strategies that not get executed cannot enhance organizational performance By the same token, how the organization is managed affects significantly the quality of the strategies developed and the commitment and willingness of the organization's members to execute them In other words, managing strategyhow the organization seeks to win in the marketplaceand managing the organization are intimately interrelated In Chapter 12, Strategic Change: Realigning the Organization to Implement Strategy, Russell A Eisenstat and Michael Beer tackle a challenge that has bedeviled so many organizations' efforts to achieve strategic changerealigning the organization with the intended change in strategic direction Part of the problem is that it appears so deceptively easy; yet, any manager who has tried to instill new attitudes, new skills, and new behaviors in his or her organization knows how difficult the task is This chapter lays out a systematic approach to achieving such alignment Chapter 13, Strategic Change: Reconfiguring Operational Processes to Implement Strategy, by Ellen R Hart, emphasizes the crucial need to reconfigure organizational processesto redefine the work organizations and how they it Redesigning core business processeshow products are designed and developed, how products are manufactured, and how products or services are delivered to customersis central to delivering value to targeted customers Strategic change increasingly involves reconfiguring multiple core processes This chapter provides a detailed methodology on how to so In Chapter 14, Strategic Change: Managing Strategy Making through Planning and Administrative Systems, John H Grant argues that strategy making must be coordinated throughout the organization If left to their own devices, individual unitsbusiness units, product groups, and functional departments, among otherswill push and pull the organization in conflicting directions Thus, the role of planning and of related administrative systems is to provide mechanisms for coordinating strategy development and execution This chapter details a variety of organizational processes to achieve integrated and coordinated strategy making page_ix Page x Chapter 15, Strategic Change: Managing Cultural Processes, by Gerry Johnson, explicates the linkages between organizational culture and strategy Although these connections often receive minimal attention from managers, strategic change is always either inhibited or fostered by the organization's culture After delineating the elements that constitute an organization's cultural web, this chapter shows how strategic change can be achieved through managing cultural processes and the closely related political processes Chapter 16, Re-Inventing Strategy and the Organization: Managing the Present from the Future, by Tracy Goss, Richard Pascale, and Anthony Athos, makes the case that many organizations need to reinvent both their strategy and their entire organizationperhaps many times in the course of a manager's careerif their intent is to get ahead of and stay ahead of competitors The organizationespecially its key executivesmust make a complete break with the past and embrace a future that, by definition, will remain murky Using many different corporate examples, this chapter documents what is involved in reinvention and the steps that an organization must undertake in order to achieve strategic change of this magnitude LIAM FAHEY ROBERT M RANDALL BABSON PARK, MASSACHUSETTS NEW YORK, NEW YORK FEBRUARY 1994 page_x Page xi CONTENTS Part One An Introduction to Strategic Management Strategic Management: Today's Most Important Business Challenge Part Two Strategy: Winning in the Marketplace Corporate Strategy: Managing a Set of Businesses 53 Business-Unit Strategy: Managing the Single Business 84 Global Strategy: Winning in the World-Wide Market Place 108 Political Strategy: Managing the Social and Political Environment 142 Part Three Strategy Inputs: Analyzing the External and Internal Environments Industry Analysis: Understanding Industry Structure and Dynamics 171 page_xi Page xii Macroenvironmental Analysis: Understanding the Environment Outside the Industry 195 Building the Intelligent Enterprise: Leveraging Resources, Services, and Technology 224 A Strategy for Growth: The Role of Core Competencies in the Corporation 249 Part Four Strategy Making: Identifying and Evaluating Strategic Alternatives 10 Identifying and Developing Strategic Alternatives 273 11 Evaluating Strategic Alternatives 297 Part Five Managing Strategic Change: Linking Strategy and Action 12 Strategic Change: Realigning the Organization to Implement Strategy 13 Strategic Change: Reconfiguring Operational Processes to Implement Strategy 321 358 14 Strategic Change: Managing Strategy Making through Planning and Administrative Systems 15 Strategic Change: Managing Cultural Processes 389 410 16 Re-Inventing Strategy and the Organization: Managing the Present from the Future 439 About the Authors 470 Index 475 page_xii Page PART ONE AN INTRODUCTION TO STRATEGIC MANAGEMENT page_1 Page Strategic Management: Today's Most Important Business Challenge* Liam Fahey Babson College and Cranfield School of Management Strategic management is the name given to the most important, difficult, and encompassing challenge that confronts any private or public organization: how to lay the foundation for tomorrow's success while competing to win in today's marketplace Winning today is never enough; unless the seeds of tomorrow's success are planted and cultivated, the organization will not have a future This challenge is difficult because, as we shall see throughout this book, the choices involved in exploiting the present and building for the future confront managers with complex trade-offs Managers must resolve conflicting demands from stakeholders; perennial tensions among different groups and levels within the organization must be fairly addressed It is encompassing because it embraces all the decisions that any organization makes The conflict between the demands of the present and the requirements of the future lies at the heart of strategic management for at least three reasons: The environment in which tomorrow's success will be earned is likely to be quite different from the environment that confronts the organization today Products change as competitors introduce new variations, sometimes radically shifting the nature of the offering made to customers New models of laptop computers that are smaller, lighter, and more powerful have changed many customers' perceptions of what constitutes a * The author would like to especially thank Robert M Randall for his many comments on this chapter, and H Kurt Christensen, Jeffrey Ellis, Samuel Felton, V K Narayanan, G Richard Patten, and Daniel Simpson for their comments on an earlier draft of this chapter page_3 Page personal computer New competitors enter long-established markets with new concepts of how to serve and satisfy customers For example, Saturn, at the low end of the automobile market, and Lexus, at the high end, have dramatically altered the dynamics of competition within their product categories Increasingly, the emergence of substitute products causes highly disruptive industry change Customers' tastes sometimes change in unexpected ways Technological developments often alter not only the function of products but every facet of how business is conducted: procurement, logistics, manufacturing, marketing, sales, and service Political, regulatory, social, and economic change often give rise, directly or indirectly, to shifts in industry or competitive conditions To succeed in the new environment of tomorrow, the organization itself must undergo significant and sometimes radical change Organizations as large, as diverse, and as historically successful as IBM, General Motors, Sears, Honda, Sony, Philips, and Rolls Royce have learned this painful lesson in the late 1980s and early 1990s Old ways of thinking have had to be challenged and reconceived: long-held assumptions and beliefs ultimately have become incongruent with the changed environment New operating processes or ways of doing things must be learned Organizational structures, systems, and decision processes inherited from outmoded eras need to be redesigned Adapting to (and, in many cases, driving) change in and around the marketplace during a time of significant internal change places an extremely heavy burden on the leaders of any organization Yet, that is precisely the dual task that confronts strategic managers They must: Exploit the present while sowing the seeds for a new and very different future and, simultaneously, Build bridges between change in the environment and change within their organizations.3 Change is the central concern and focus of strategic management: change in the environment, change inside the organization, and change in how the organization links strategy and the organization Change means that organizations can never become satisfied with their accomplishments Unless an organization changes its products over time, it falls behind competitors Unless the organization changes its own understanding of the environment, it cannot keep abreast of, much less get ahead of, changes in customers, the industry, technology, and governmental policies The importance and pervasiveness of change is evident in the strategic management principles noted in Table 1-1 From environmental change springs opportunities Without change or the potential to affect change, organizations would neither confront nor be able to create opportunities.4 Without a managed flow of new opportunities, organizations cannot grow and prosper; they are destined to decline and die Unfortunately, change is also the source of threats to the organization's current and page_4 Page Table 1-1 Some strategic management (SM) principles Strategic Management Involves the management of marketplace strategy, of the organization, and of the relationship between them Has as a core assignment; management of the interface between the organization and its environment Involves anticipating, adapting to, and creating change both in the environment and within the organization Is driven by the relentless pursuit of opportunities Recognizes that opportunities may arise in the external environment or they may be generated within the organization; in either case, they are realized in the marketplace Necessitates risk taking; the organization commits to pursuing opportunities before they have fully materialized (in the environment) Is as much about inventing or creating the organization's competitive future as it is about adapting to some understanding of that future Sees the marketplace purpose of an organization as residing outside its (legal) boundaries; it must find, serve, and satisfy customers as a prelude to other returns such as profits Is the task of the whole organization; it cannot be delegated to any group within the organization Necessitates the integration of the long-distance and short-distance horizons; the future influences current decisions; current decisions are intended to lead toward some future state or goal potential strategies Thus, organizations must commit themselves to grappling with changeunderstanding it and transforming it into opportunity Leveraging and/or shaping change in the environment is, as we shall see in the next section, central to designing and executing strategy Although organizations cannot control their environment, they are not helpless in the face of persistent and sometimes unpredictable environmental change By practicing strategic management, managers can lead more effectively They can effect change in their strategies: they can introduce new products, enhance their existing products, withdraw from particular markets, compete more smartly against their competitors, and offer better value to customers Managers can also reconfigure their organization: They can get more output out of existing resources, hone existing capabilities or competencies and develop new ones, and energize the organization through their leadership As we shall see throughout this chapter, managing more effectively and reconfiguring organizations go hand-in-hand To cope with change successfully, strategic management must address three interrelated tasks (see Figure 1-1): Managing strategy in the marketplace: designing, executing, and refining strategies that ''win" in a changing marketplace Strategy is the means by page_5 Page Figure 1-1 An integrated model of strategic management page_6 Page which the organization creates and leverages change in and around the marketplace Managing the organization: continually reconfiguring the organizationhow it thinks, how it operates Without such internal change, the organization cannot hope to hone its capacity to identify, adapt to, and leverage environmental change Practicing strategic management: continually enhancing the linkages or "interface" between strategy (what the organization does in the marketplace) and organization (what takes place within the organization) Throughout this book, we shall see that how these linkages are managed determines whether the organization wins today and positions itself for tomorrow Each of these three core strategic management tasks will now be discussed in detail Managing Strategy in the Marketplace Few words are as abused in the lexicon of organizations, as ill-defined in the management literature, and as open to multiple meanings as strategy Throughout this book, strategy is a synonym for choices The sum of the choices determines whether the organization has a chance to win in the marketplacewhether it can get and keep customers and outperform competitors Success in getting and keeping customers allows organizations to achieve their financial, technological, and other stakeholder-related goals A number of core strategy principles are indicated in Table 1-2 If a strategy is to successfully create or leverage change, it must manifest an "entrepreneurial content" in the marketplace Strategies that not anticipate changes in competitive conditions, such as technological developments, new entrants with distinctly different product offerings, or changes in customers' tastes, will lag behind what is happening in the marketplace and will eventually fail Strategies that not create or leverage change to the organization's advantage cannot drive the marketplace; that is, they cannot provide, faster and better than competitors, the offerings that customers want How organizations create or leverage change in the marketplace? What levers can they manipulate to effect changes that are to their advantage? How is change exploited for superior performance? In brief, strategy creates or leverages change in three related ways: Through the choice of products the firm offers and the customers it seeks to servecommonly referred to as the "scope" issue For example, should Apple Computer Inc add more powerful computers to its product line? Should General Motors eliminate its Oldsmobile product line or significantly overhaul it by introducing a new set of models? page_7 Page Table 1-2 Some strategy principles Strategy addresses the interface between the organization and its marketplace environment Strategy involves three elements: (1) scope, (2) posture, and (3) goals Strategy is the means by which the organization creates and/or leverages environmental change Strategy is always conditional; the choice of strategy depends on the conditions in the environment and within the organization Strategy is in part an intellectual activity; strategies exist in managers' minds Strategy is about outwitting and outmaneuvering competitors by anticipating change faster and better and taking actions accordingly Strategy's marketplace intent is to be better than competitors at attracting, winning, and retaining customers Strategy is not likely to win unless it possesses some degree of entrepreneurial content: its approach is different from competitors' Strategy must be continually renovated; scope, posture, and goals are adjusted to enhance the chances of winning in the marketplace Strategy often needs to be (re)invented if it is to achieve "breakthrough" success A strategy that is new to the marketplace and significantly outdistances rivals needs to be created Through how the firm competes in its chosen businesses or product customer segments to attract, win, and retain customers We shall refer to this as the "posture" issue For example, should Apple add functionalitymore speed and more featuresto its Macintosh line? Should the price on some Cadillac models be lowered to make them more attractive to new customer segments? Through the choice of goals the firm wishes to pursue Should Apple try to be a major participant in every segment of the personal computer business or aim to be the leader in certain software segments? Should General Motors set out to penetrate the Japanese market? Scope, posture, and goals will be recurring themes throughout this book Because of their importance to any understanding of strategy, each will now be briefly discussed Business Scope Central to any consideration of strategy are questions concerning business scope Scope compels choices because it cannot be unlimited No organization can market an unlimited array of products, and frequently (even with the assistance of partners) it will not be able to reach all potential customers Indeed, few firms are able to compete or "be a player" in all product-customer segments of their industry page_8 Page Scope determination revolves around three general questions: Hitachi, 251, 252 Hofer, Charles W., 82 Home base, and global strategy, 128-130, 132-133, 133-135, 136-137 Home Shopping Network, 163 Honda, 4, 17, 37, 43, 44, 93, 95, 227, 250, 251, 267, 446, 454, 455, 460, 462 leveraging core competencies (example), 263-264 re-invention project (example), 465 success story (case study), 115, 116, 118, 122, 126, 128, 129, 131-132, 135, 139 Honda, Soichiro, 126, 455 Honeypot lesson, 461-462 page_478 Page 479 Honeywell, 321-328, 330, 331, 335, 336, 338, 339, 341, 343, 344, 345, 349, 354-355 Horizontal scope, see Scope, horizontal Housel, Thomas J., 49 Hurst, D K., 437 Hvidore Diabetes Hospital, 133 Hyundai, 137 I IBM, 17, 18, 20, 32, 46, 101, 102, 181, 232, 241, 260, 280 and Apple, 288, 370 in copier industry, 58 global network (diagram), 243 initial success, 227, 250, 251 and Microsoft, 78, 99 recent difficulties, 4, 29, 43, 44, 72, 119, 439, 441, 442 reshaping strategy, 37, 39, 69, 254 IKEA, 306 Importance-urgency framework, 404-405 Inc., 226 Industry analysis, 171-194, 217-219, 269, 391 five forces framework, 176-185 industry definition, 173-176 and macroenvironmental analysis, 217219 objectives of, 172-173 commitment opportunities, 186187 profitability, 176-185 profit differences within industries, 185-192 scope: horizontal/vertical/geographic, 175-176 typology, resource based, 187-192 Industry restructuring, 235-237 Industry selection, and global strategy, 127-128 Influence, 343-345 Infrastructure, 31-32, 40, 42, 45 Inland Steel, 174 Integration, 103-106 Intel, 37, 88-89, 99, 181, 228, 243, 254, 444, 460-462, 463 Intelligent enterprise, 224-248 and broad product lines, 227-238 and core competencies, 227-238 focus, strategic, 242-246 global financing and manufacturing strategies, 238-242 intellectual capital, 225-227 Intent, strategic, 257-258 Internal development, 7576 Iris Associates, 53 Isabella, L A., 438 ITT, 60, 250 Izutsu, Toshihiko, 467 J Jackson, Jesse, 143 Jackson, S E., 409 Jaikumar, R., 138 JCPenney, 142 Jick, T., 356 Johnson, G., 437, 438 Johnson, Gerry, 410, 472 Johnson & Johnson, 37, 77, 158-159 Just-in-time (JIT), 262, 442 JVC, 265 K Kabi, 227 Kahn, Alfred, 186 Kaizen, 386 Kaltenmark, Max, 467 Kaplan, Robert B., 49 Kaplan, Robert S., 90, 107 Kearns, David, 376 Keats, John, 468 Keiretsu, 138, 242 Keller, J J., 165 Kennedy, C., 392 Kennedy, John F., 455 Kennedy, Paul, 223 Kennedy Administration, 331 Kettell, B., 248 Khandawalla, Pradip N., 189 Kierkegaard, 468 King, W R., 409 Kmart, 234, 365 Knowledge core, 247 See also Intelligent enterprise Kobayashi, Koji, 259, 269 Kodak, 9, 58, 185, 251, 258, 259, 339, 439, 441 Kogut, B., 138 Koku-Kire beer, 433 Komatsu, 27, 28, 48 Kono, T., 438 Kotter, John P., 388 Kovac, E J., 409 Kriger, Mark P., 467 Kusters, 100 L Lanning, Michael, 387 Law of Nemesis, 304, 305, 307 Law of Requisite Variety, 459, 460 Leadership, 33, 35-37, 269, 348-349, 383-384 Lee, C A., 418 Leverage/ing, 71, 80, 256-257, 268, 311 core competencies (Honda example), 263264 Lever Brothers, 57 Levers, organizational, 340349 influence, 343-345 information, rewards, measurement systems, 346-348 leadership, 348-349 personnel flows, 345-348 work organization, 340-343 Levi, 17 Lewin, Kurt, 380 page_479 Page 480 Lewin, Tom, 473 Lexmark, 32 Lexus, 4, 93-94, 267 See also Toyota Liberty Media Corporation, 162 Lindaman, Edward, 454-455, 468 Lippitt, Robert, 468 Lippitt, Ronald, 454-455 Liquidation, 80 Liz Claiborne, 227 Location, 119-123, 124-126 Loews, 61 L'Orộal, 67 Lotus, 53, 254, 304 Lucky Gold Star (Korea), 243 Lyles, Marjorie A., 273, 472 M Maastricht Treaty, 143 McCaw Cellular Communications, 56 McCracken, Ed, 240 McDonald's, 113 McGahan, Anita, 171 McGrath, Tony, 454 Macintosh, Macroenvironmental analysis, 195-223, 391 assessment, 212-214 and business unit strategy, 217-221 and corporate strategy, 216-217 defining the macroenvironment, 197-199 forecasting, 208-212 and industry analysis, 217219 monitoring, 207-212 scanning, 202-206 segments, 199-202 stages, 202-215 the strategic organization, 221-222 and strategy development/execution, 215221 Macy's, 450 Magnavox, 446 Mahon, John F., 142, 165, 472 Management, top, 294, 301 Market-driven strategy, 244-246 Marks & Spencer, 410, 415 Marriott Corporation, 97, 98 Mars (candy), 450, 453 Marshall, Sir Colin, 450, 452 Martin, J., 438 Mason, R O., 290, 296 Masoneilan, 94 Matsushita, 9, 54, 227, 228, 240, 251, 252, 261, 262, 265, 444 Maucher, Helmut, 67 May Department Stores, 286 MCA, 241 MCI, 162, 243, 273 Measurement systems, 346348 Mercedes-Benz, 9, 44 Merck, 37, 77, 174, 190, 228 Merrill Lynch, 306 Meyerson, Mort, 447 Michelin, 251 Microsoft, 23-24, 37, 41, 78, 99, 181, 240, 254, 304 Miller, D., 421, 437, 437 Miller Brewing, 70 Millet, Stephen M., 211 Mindset, 27-29, 40, 45, 223, 267, 295, 415 Miniaturization, 262 Mintzberg, H., 437 Mitroff, Ian I., 290, 296, 409 Mitsubishi, 9, 235 Monitoring, 207-208, 214-215 Montgomery, C A., 82 Morgan, G., 438 Morris, Chris J., 49 Motorola, 47, 104, 228, 250, 251, 254, 443, 444-446, 460, 463 University, 446 Moulinex, 228 Multimedia industry, 254 Murdock, Laura, 49 Musashi, Miyomoto, 469 N Nabisco, 79 NAFTA, 145, 156, 158, 222 Nakajo, T., 438 Narayanan, V K., 3, 195, 223, 409, 473 NASA, 258, 455, 473 National Coal Policy Project, 149, 156 National Semiconductor, 104, 372 NCR Corporation, 243, 287 NEC, 18, 251, 252, 258, 259, 260-261, 444 Neles-Jamesbury, 94 Nestlộ, 66, 67, 136, 450, 453 Network Equipment Technologies (NET), 243 Networks, 239-240, 242 Nike, 46, 53, 227, 228, 232, 384 Nippon, 231, 243 Nissan, 9, 93, 251 Nixdorf, 243 Nonaka, Ikujiro, 465, 469 Nordisk Gentofte, 116 See also Novo-Nordisk Nordstrom, 444, 446, 450, 451-452, 463 Northern Telecom, 136, 139 Northgate Computer, 20 Norton, David P., 90, 107 Novellus Systems, Inc., 227 Novo-Nordisk, 115, 116, 118, 121, 122, 126, 128-129, 131, 132, 133 NTL (National Training Labs), 454 Nucor, 46, 174, 188 Nummi, 234 Nutrasweet, 179 O Objective vs strategy, 361 Offifi, A E., 467 Ohmae, K., 108, 133, 248 page_480 Page 481 Oldham, Greg, 340, 357 Olivetti, 243 Open Look, 243 Operating processes, 29-31 Operational processes, reconfiguring, 358-388 assess current processes, 373-375 business process improvement vs core business process reconfiguration, 367-368 core processes: a framework (7 steps), 368382 design new process, 375-378 envision the future, 369-371 implementation, 381-382 industry processes, 363-365 intracompany processes, 363 process-based approach, 362365 production only, 359-361 transition management/planning, 379-381, 382385, 386 value chain as framework, 365-368 Operation PUSH, 143, 150 Oracle, 243 Oregon Steel Mills, 174 Organizational realignment, see Realigning the organization Organizational structure (cultural artifact), 418 Organization chart, 371, 429 Organization design, 221-222 Oryx Energy, 365 Ovitz, Michael, 53 Ownership form, 63-64 P Pacelle, M., 295 Pan Am, 455 Paradigm, 415, 416, 417, 419, 420, 421, 422, 427 Paradyne, 243 Paramount Pictures, 469 Parity, competitive, 95-96 Partnership, 327-332 two models, 328-329 PAS, see Planning and administrative systems (PAS) Pascale, Richard, 439, 448, 451, 453, 467, 468, 469, 471, 473 Pasta and Cheese, Inc., 67 PCO, 243 Pepsi, 17, 53, 179, 192, 453 Perot Systems, 447, 448 Perrier, 67 Personnel flows, 345 PERT (Program Evaluation and Review Technique), 404 PEST (political, economic, social, technological forces), 302 See also SEPT Peteraf, Margaret A., 83, 193 Peters, T J., 432, 437, 438 Pettigrew, A M., 436, 438 Pfizer, 174 Pharmaceutical industry, 174, 182, 190, 304, 400, 402 Philco, 446, 463 Philip Morris, 70, 83 Philips, 4, 9, 119, 250, 251, 252 Philips N V., 63 Phillips, Lynn, 387 Photography, 251 Pilkington Brothers, 228, 230-231 Pine, B Joseph II, 48 Pittsburgh Plate Glass, 231 Pizza Hut, 97 Planned Parenthood Foundation, 142 Planning and administrative systems (PAS), 389-409 building, 406-408 an illustration, 398 information systems, 400-402 linkage mechanisms/performance criteria, 402-405 measurement/evaluation processes, 405-408 strategic issues subsystem, 398-400 systems for integrating strategic processes, 394-398 Polaroid, 227 Political processes for change, 435436 Political strategy, 142-167 arenas, 155-156 corporate, 142-144, 162-164 elements and foci of, 149-153 issues, 149-153, 158-162 elimination, 161-162 evolution, managing, 158159 redefinition, 159-160 stakeholders, 153-156 types of, 157-162 Politics of strategy, 424-425 Pondy, L R., 438 Porter, Michael E., 83, 101, 107, 108, 115, 119, 138, 171, 176, 184, 193, 473 five forces model, 171, 176-177, 178, 183 Posture, competitive, 15-19, 20, 23-24, 44, 46, 107, 295 Power (cultural artifact), 418 Prahalad, C K., 48, 50, 106, 249, 269, 387, 467, 473 Pratt Hotel Corporation, 393 Prescott, J E., 396 Price Waterhouse, 238 Primerica, 53 Processes, operational, see Operational processes, reconfiguring Procter & Gamble, 37, 57, 61, 62, 85, 102, 146, 216, 364-365 Profit skimming, 98-99 Prototyping, 377 Push/pull, 381 page_481 Page 482 Q QPSX Communications, 243 Quaker Oats, 286 Quinn, James Brian, 224, 473 R Ralston Purina, 79 Randall, Robert, 3, 249 Rangan, Srinivasa, 171 Rappaport, Alfred, 82 RCA, 19, 251, 252, 286, 399, 446, 455, 463 Reagan, Ronald, 216 Rees-Mogg, Lord William, 223 Realigning the organization, 321-357 corporate context, 349-350 diagnosing capability, 332-333 organizational capabilities, 338-339 organizational levers, 340-343 partnership, developing a, 327-332 problem of sequencing interventions, 350-355 stakeholder outcomes, 333-335 strategic tasks, 335-338 systematic approach, 322-326 Reich, R B., 108, 125, 133, 138 Re-inventing strategy, 45-47, 439-469 audit, organizational, 464 breakdowns-on-purpose, 464-466 executive re-invention, 456-457 harnessing contention, 459-463 managing present from the future, 457-466 roller coaster, 466 Relatedness, 56-57, 66-68 Renovating strategy, 44-45 Reporting relationship, 64 Resource allocation, 217 Responsibility matrix, 343 Restructure of whole industries, 235237 Rhodes, Richard, 467 Ricarti i Costa, Joan, 171 Riccitiello, John, 453 RISC, 241 Risk(s), 301, 309-313 of elimination, 99-100 of nonperformance, 98 of profit skimming, 98-99 risk-return trade-offs, 217 of strategic drift, 419-422 Rituals (cultural artifact), 418, 430432 of degradation, 431 of enhancement, 431 of integration, 431 of renewal, 431 Rivalry, degree of, 178 R.J Reynolds, 58 Robinson, James, 59 Roethlisberger, Fritz, 454, 468 Rolls Royce, 4, Rolm, 243 Roosevelt, Franklin D., 388 Roosevelt, Theodore, 388 Rosenbloom, Richard, 171 Ross, Lou, 459 Routines (cultural artifact), 418, 429 Rover, 132 Rowntree Mackintosh, 67, 136 Royal Dutch Shell, 365 Rumelt, Richard P., 82, 83, 189, 193 Rush, J C., 437 S Saab, 44 Saberwahl, R., 409 St Augustine, 468 St Gobain, 231 Saks, 450 Sands Hotel and Casino (SHC), 391, 392-393, 402 Sara Lee, 287 Satellite television industry, 184 Saturn, 4, 46, 84, 370, 375 Sauvant, K., 248 Scanning, 202-206, 214-215 Scenario generation, 223, 289290 Schein, E H., 437, 438 Schendel, Dan, 82 Schering-Plough, 174 Scherr, Allan L., 469 Schneck, R E., 418 Schwartz, Peter, 223 Schwenk, C., 296 Schwinn, 242 Scope, 44, 46 business, 8-15 business-unit, 85-90 combining dimensions, 6566 contraction, 56, 74-75, 79-81 corporate, 61-66 expansion, 56, 75-79 geographic, 14, 62, 175176 horizontal, 175 and posture/goals, 23-24 product-market, 9-12, 6162 and relatedness, 56-57, 66-68 stakeholder, 14-25 vertical, 64-65, 175 Scorecard for global competitiveness, 250-255 Sears, 4, 82, 243, 254 Seiko, 462 Selective perception, 313 SEPT (social, economic, political, technological), 201 See also PEST Sequencing interventions, 350-355 Serendipity, 465 Seven S Framework, 469 Shadow/collateral structure, 384-385, 388 Shapiro, Eileen C., 49 page_482 Page 483 Shareholder value, 301, 313-315 Sharfinan, Mark P., 193 Sharp, 228, 259, 264 Sheed, F J., 468 Shelp, R., 248 Sherman, Stratford, 387, 388 Shrivastava, P., 409 SHRM (strategic human resource management), 329 Siehl, C., 438 Siemens, 9, 241, 243, 250, 251 Silicon Graphics, 240 Simpson, Daniel, Siomkos, G., 409 Six-sigma quality, 442 Sky Television, 184 Smith, Jack, 33, 49 Smith, Ray, 163 Smith-Barney, 53 Snapple Beverage Corporation, 53 Snow, Charles C., 193 Sửlvell, ệrjan, 108, 138 Sony, 4, 54, 227, 228, 240, 244, 250, 251, 252, 261, 262, 264, 265, 304, 455, 462, 463 Southland, 365 Spector, Bert, 471 Spender, J C., 420 Spielberg Productions, 241 Spin-off, 80 Stacey, R D., 296 Stakeholders, 14-25, 333-335, 458459 Steel industry, 174, 182-183, 192 Steering group, 384 Steffan, Chris, 339 Steno Memorial Hospital, 133 Stoehr, Achim A., 82 Stokely-Van Camp, 286 Storehouse Group, 410 Stories (cultural artifact), 418 Strategic alternatives: evaluating, 39-40, 297-317 identifying/developing, 37-38, 273-296 Strategic architecture, 258-261, 268 Strategic drift, 419-424 Strategic intent, 257-258, 268 Strategic management, 3-50 alternatives: evaluating, 297-317 identifying/developing, 273-296 change: cultural processes, managing, 410-438 PAS (planning and administrative systems), 389-409 realigning the organization, 321-357 reconfiguring operational processes, 358-388 re-inventing strategy/organization, 439-469 inputs: core competencies, 249-269 industry analysis, 171-194 intelligent enterprise, 224-248 macroenvironmental analysis, 195223 textbook definition, 419 winning: business-unit strategy, 84107 corporate strategy, 5383 global strategy, 108-141 political strategy, 142-167 Strategic tasks, 335338 Stretch, 268, 442 Stroh, 190 Sturdivant, Frederick D., 386 Substitutes, threat of, 179-180 Sunds Defibrator Group, 85, 87, 89-90, 91, 92, 95, 96, 99-100, 105, 106 Sun Microsystems, 243 Superfund legislation, 159160 Supplier power, 181182 Supportability, 307, 308 Sustainability, 304-307 Sutton, John, 189 Swatch watches, 94 SWOT (strengths-weaknesses-opportunities-threats), 172-173, 192 Symbols/symbolic activity, 418, 428, 432-436 Synergies, 59 Systems (cultural artifact), 418 T Taligent, 241 Tandem Computers, 243 Tandy, 18 Task-driven approach, 353355 Taylor, Frederick, 359 TCI, 162-164 Tercel, 93-94 Texaco, 66 Texas Instruments, 65, 228, 250, 251 The Limited, 234 Thomas, L G., 138 Thorelli, Hans, 108 3M Corporation, 43, 61, 62, 66, 82, 228, 229, 230231 Tichy, Noel, 387, 388, 392 TIP, see Total Involvement Program (TIP) Tires, 251 Tochigi Research Center, 130 Toshiba, 18, 251 Total Involvement Program (TIP), 325-326 Total quality management (TQM), 126, 360, 441, 442 Toyota, 77-78, 93, 234-235, 250, 251 TQM, see Total quality management (TQM) Tracy, Michael, 189 page_483