Prof. Dr. Christoph Lechner 1 - wiki.aalto.fi

Alliance & Network Strategy Session 1: 06th of April 2005

Prof. Dr. Christoph Lechner 1

Mastering Strategy Processes

Prof. Dr. Steven Floyd &

Prof. Dr. Christoph Lechner

© Christoph Lechner

Slide 2

Agenda

� What are strategy processes? Why do they matter?

� Which strategy processes do we know?

� What are levers for shaping Strategy Processes?

� Life cycles in the development of strategic initiatives

� Participants and entrepreneurial roles in inititiative development

� Approaches to the control of strategic initiatives

� Reasons initiatives fail – knowledge, politics, values/norms, systems and

processes

� Summary


Slide 3

average~10%**

Performance Heterogeneity in the Global Chemical Industry

Measuring performance on a relative ROIC basis

* Adjusted for pension liabilities

** Average excludes Clariant as well as top

and bottom performers

Notes: - Peers defined from capital market perspective, under present market conditions

- ROIC – before exceptionals, including net goodwill

Source: annual reports

Clariant

Percent, 2007

0

Chemtura

Lanxess

Rhodia

Ciba

Huntsman

DSM

R&H

BASF

Dow

ICI*

5 10 15 20


Slide 4

Let us start with the following case ...

� Two corporations in the food industry (soups, sauces, sweet deserts, etc.

based on dehydrated technology) experience slightly decreasing margins

due to soaring raw material prices such as fat, wheet or rice. The overall

financial situation for both of them is still okay with ROIC (return of

invested capital) values of about 10%.

� What would you do?


Slide 5

Definition

� "Strategy processes are activities and routines that govern the formation of strategies on the business, corporate and network level.

� From “ad hoc problem solving” to “fully patterned, repeatable and reliable” routines.

� Strategy processes have an impact on performance differences across firms. Thus, they matter!


Slide 6

Which strategy processes do we know?




Slide 7

Strategy Process of “Strategic Planning”

1. Corporate VisionBusiness Goals

2. External analysis 3. Internal analysis

4. Formulating strategic alternativesCorporate strategy

Business strategyFunctional strategy

5. Evaluation and Selection

6. Implementation

Changes in structure and people

Changes in functional activity and coordinationChanges in Budgeting

7. Strategic ControlMeasures and accountability


Slide 8

Strategic Planning at Sulzer

E F G H

Understand Industry

dynamics

A B C D

Assess key factors for success

Target attractive segments

Determine competitive advantage

Develop measures for competitive advantage

Develop strategy alternatives

Financially assess the alternatives

Choose &Implement a strategy


Slide 9

“Structured dialog” is a process throughout the year(It involves all 105 business units)

February July November/ December

Annual analysis

Allianz Group

planning (Corporate Center)

Strategic dialog with

operating business units

Planning with business units

Communication of

targets and preparation

of strategic dialog

Medium- term planning

and budgeting for the

following year

Top down indication

Key figuresplanning

Targetsetting

(strat. survey, s-charts) (plan, p-charts)

Quarterly meetings of the International Executive Committee to discuss Group issues


Slide 10

What are benefits and drawbacks of strategic planning?

� Systematic approach

� Rational process based on evidence and facts

� Allows for Coordination and Control of activities toward common goals

� Fits well in stable, predictable industries

� Separates thinking from acting (smart people think, the others should act

accordingly) - Problem of detachment

� Problem of unpredictability

� Often very bureaucratic - more strategic programming and budgeting than serious

discussions about strategy

� Slow to react, as it is a yearly process following a pre-defined timetable


Slide 11

Example

� Through a hard turnaround exercise, the unit decreased its combined ratio

from more than 115 to about 90

� The next challenge was growth

� First, there were problems ...

� Then, about 400 managers were asked for ideas for growth initiatives

� More than 200 ideas were generated, about 40 business plans were

written, and 14 initiatives were finally pursued (e.g. on-shore insurance for

oil producers in South-east Asia


Slide 12

Strategy Process of “Guided Evolution”

Variation:

Generatingstr. Initiatives

Selection:

Funding & Monitoring Initiatives

Retention:

Embeddingstr. Initiatives

On-going business operations (Run the Business)

Change the Business




Slide 13

Selecting initiatives

Source: Wells Fargo

- Competitive edge - First to market

Strategic - Value to customer - Gain market share Very Low Low Moderate High Very High40% - Window of opportunity - Match competition 80 points 160 points 240 points 320 points 400 points

Importance - Sustainable differentia- - Value to OEStion/ease of replication

- Cost of implementing Function formula: Very High High Moderate Low Very Lowthe initiative (from 200 - Cost (in K)*. 171 > $1M Use formula Use formula Use formula < $300KInitiative

Cost 15% conception to Max Points: 150 30 points 150 pointsdeployment) Min Points: 30

Very Low Low Moderate High Very High

NPV 15% NPV < $1M $1M - $3M $3M - $6M $6M - $15M > $15M30 points 60 points 90 points 120 points 150 points

- Implementation time period (from the time Very long Long Moderate Short Very ShortElapsed Time

10% an initiative is conceived and acted upon > 16 months 12 - 16 m 8 - 12 m 4 - 8 m < 4 monthsto deployment) 20 points 40 points 60 points 80 points 100 points

- Degree to which the Dependency: Very Relatively Moderately Relatively Stand-

Interde-pendencies

initiative is dependent - WF: Wells Fargo Interdependent Interdependent Interdependent Standalone alone

10% upon other initiatives party > 1 external or 4 1 external or 3 2 WFs 1 WF OFS Only

or other parties - External: Non-WF 20 points 40 points 60 points 80 points 100 pointsparty (e.g. CheckFree)

Dimensions: Very Large Significant Moderate Not Significant Very Small

Risk/Complexityto implement

- Operational risk - Technology to WF New New New New Not New10% - Technology risk - Technology to Industry New New New Not Now Not New

- Technology Alpha Beta Not New Not New Not New20 points 40 points 60 points 80 points 100 points

Total 100%

- Present value of net benefits (three year time horizon)

Busin

ess C

ase

Range for Initiative Total Scores: 200-1000 Points

Imple

me

nta

tion

Criteria Weight Definition/Sub-CategoriesScores


Slide 14

Semiconductor firm: 11 ACT Initiatives have been set up ...... to execute the objectives set in the Agenda 5-to-1

Program Management Office (PMO)Business Planning SupportChange Management &

Communication

Solutions & Software

Flexibility & Networks

Business Innovation System

Financing the Agenda 5-to-1

Internal Service Provider

Investor Key Account Management

Program sponsor

CEO

ACT PMOInitiative Leader Initiative Leader

Initiative Leader Initiative Leader Initiative Leader Initiative Leader Initiative Leader Initiative Leader

Manufacturing –Sup. Chain Networks

Portfolio Optimization Innovation in R&D Consumer Orientation Regional Strategies

Initiative Leader Initiative Leader Initiative Leader Initiative Leader Initiative Leader

CEO COO CMO CFO COO CEO

COO CEO COO CMO CMO


Slide 15

What are benefits and drawbacks of Guided Evolution?

� Continuous synchronization to the environment

� Increased consideration of uncertainty and faster adaptation

� Leverages the knowledge of a whole organization

� Higher involvement across the organization

� Diluting resources on too many initiatives (focus)

– potentially only incremental adaptations

� Conveying too many expectations that cannot be met

� Being more / difficult to mange

� Being incompatible with hierarchy and established "chain-of-command"


Slide 16

Strategy Processes: more than just one approach!

Involvement of Organizational Members

Deliberateness of Vision

High

High

Low

LowCommand

Generative

Str. Planning

Guided Evolution


Slide 17

Levers for shaping strategy processes


Slide 18

Strategy Process Framework: Main levers for shaping strategy processes

� Participants

� Expertise

� Timing

� Methods

� Approach

� Governance

� Transparency

narrow

homogeneous

scheduled

few

analytical

autocratic

low

broad involvement

heterogeneous

event-oriented

many

intuitive

democratic

high




Slide 19

Phases of Innovation Jam at IBM

Idea GenerationPhase

Duration

Input

Participation

Approach

Output

� 150,000 people from 104 countries� Including IBM employees, family members,

universities, business partners, and clients from 67 companies

� 46,000 new ideas for innovation posted and worked to build them into robust proposals

� They explored IBM’s most advanced Research technologies and considered their application to real-world problems and emerging business opportunities

� Mainly free discussion to create new ideas constrained only by given overall topics

� Examination of key dimensions of business and society along with emerging technologies to spark and build ideas for product, service, business process and model innovation

� Discussion moderated by experts� Working to test and refine the ideas by asking

simple questions such as: � Who might be likely to buy such a product

or service? � Through what channels might it be offered? � Would existing technologies be combined

to make it possible, or would new inventions be required?

� Overall topics in which innovation should be pursued (going places, finance & commerce, staying healthy, a better planet)

� Focus on a subset of 30 top ideas from the first phase

� still numerous and diverse (internal and external) participants

� fewer active number of participants compared to phase 1

� 10 ideas for new businesses receiving $100 million over the next 2 years

Idea Refinement

� 72 hours: July 24-27, 2006 � 72 hours: September 12-15, 2006


Slide 20

IBM - $100 million for 10 new strategic initiatives over 2 years

1. Smart Healthcare Payment Systems

2. Simplified Business Engines

3. Real-time Translation Services

4. Intelligent Utility Networks

5. 3D Internet

6. „Digital Me“

7. Branchless Banking for the Masses

8. Integrated Mass Transit Information System

9. Electronic Health Record System

10. „Big Green“ Innovations


Slide 21

Timing

TIMING Advantages Disadvantages

scheduled

process

+ Greater awareness of goals and

strategies throughout the

organization

+ Planning results are effective and

time-efficient due to greater

awareness

- Too much routine can lead to mental passivity and delayed response times towards new trends

event-oriented

process

+ New trends are detected more easily making things tougher for competitors+ Specialized capabilities and techniques speed up response times

- Reactive behavior is reinforced instead of proactive behavior- Initiation can become a tedious, time-consuming task


Slide 22

Management concepts: Use and Satisfaction

Source: Bain & Company

0% 20% 40% 80% 100%60%3,4

4.0

3,5

3,6

3,7

3,8

3,9

Ave

rag

e O

ve

rall

Sa

tis

fac

tio

n

Percent Who Used the Tool

Market Migration

Knowledge Management

Value Chain

Competitive GamingMass Customization

Agile StrategiesScenario Planning

Strategic Planning

BenchmarkingCustomer SatisfactionMeasurment

Mission &Vision

Core Competencies

Pay-for-PerformanceStrategic Alliances

Total Quality Management

Reengineering

Growth StrategiesActivity-Based CostingPortfolio Analysis

Balanced Scorecard

Shareholder Value

Groupware Customer Retention

Cycle Time Reduction


Slide 23

Lego Serious Play

� Very broad integration of many different ideas

and view points

� Team-building through shared experience

� strengthening commitment and sense of

responsibility

� talking about shared interpretation of

constructions develops a clearer perception

throughout the team

Constructing

Giving meaning

Making the story

Source: http://www.seriousplay.com/© Christoph Lechner

Slide 24

Governance

GOVERNANCE Advantages Disadvantages

autocratic + Saves time+ Reduces decision-making complexity + Increases organizational stability

- The strategy does not benefit from the input or knowledge of others- Acceptance of decisions depends largely on the credibility of the decision-maker

democratic + More knowledge is integrated resulting in:+ More realistic strategies+ Higher employee motivation+ Lower resistance to initiatives

- Too many participants can create inefficiency and confusion- Decision-making can be slowed or blocked




Slide 25

ASE Accelerated Solutions Environment (I)

Large Group Sessions

• Key Decision Makers, Stakeholders, Subject Matter Experts

• External Industry Experts

• Customers, Partners

• SuppliersTeam Breakouts

• Identify patterns & trends

• Project tracking

• Preparation

• Creative work

“Behind The Scenes” Infrastructure Support

Printed Materials &Realtime Text Capture

Knowledge Kiosks

Outside World

Research

ProjectManagementLibrary

Knowledge Management

Solution Objects Video & Audio Taping

Graphics Support

Music

Prof. Dr. Christoph Lechner 1 - wiki.aalto.fi

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