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Chapter 8 Generating Alternative Strategies through the Use of Recent Models

Chapter 8 Generating Alternative Strategies through the Use of Recent Models. LEARNING OBJECTIVES. After reading the whole chapter, the student is expected to be able to Understand the various aspects of strategy formulation through the various schools of thoughts

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Chapter 8 Generating Alternative Strategies through the Use of Recent Models

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  1. Chapter 8Generating Alternative Strategies through the Use of Recent Models

  2. LEARNING OBJECTIVES After reading the whole chapter, the student is expected to be able to Understand the various aspects of strategy formulation through the various schools of thoughts Understand the principles behind the Blue Ocean Strategy model Apply the four actions framework and construct the strategic canvas Understand the premise where Big Think Strategy can be applied Apply the Big Think Strategy Model in a situation where a Big Think approach is strategically relevant

  3. STRATEGY SAFARY • Ten different schools of thought on strategic planning models • These ten can be grouped into three: • 1. Prescriptive • 2. Descriptive • 3. Integrative schools of thought

  4. GROUPING THE 10 SCHOOLS OF THOUGHT 1. PRESCRIPTIVE GROUP A. Design school: Strategy is a deliberate process of conscious thought. Examples: SWOT model, competitive advantage and distinctive competence B. Planning school: A formal planning process, step-by-step with special techniques. Examples: Scenarios, scheduling and budgeting C. Positioning school: After an analytical process, a company decides where its current position is and where it wants to be in the environment. Examples: Experience curve, portfolio models, Porter’s five factor model and its differentiation, cost leadership and focus business strategies

  5. GROUPING THE 10 SCHOOLS OF THOUGHT (cont.) 2. DESCRIPTIVE GROUP D. Entrepreneurial school: Schumpeter (50) was the earliest to suggest that strategy formulation is the prerogative of the leader’s visionary process. Examples: Visionary leadership, big think would probably fit here E. Cognitive school: This recognises the interplay between the various influential factors and finally come up with a strategy. Examples: Strategic mapping, bounded rationality F. Learning school: Strategy is an emergent process where it is formulated in an incremental process, improves as it progresses. Examples: Emergent strategy, incremental improvement, step-by-step and core competence

  6. GROUPING THE 10 SCHOOLS OF THOUGHT (cont.) 2. DESCRIPTIVE GROUP (cont.) G. Power school: Strategy is shaped by power and politics, and to position the organization as ploys rather than some strategic perspective. Examples: Networking, alliance, bargaining, collective strategy H. Cultural school: As a collective process resulting in the development of an organization culture. Examples: Resource based view looks at resources availability to give that strategic advantage I. Environmental school: Treat the factors as actors that react amongst them and influence the strategists to analyse and make the appropriate decisions. Examples: The contingency theory. Strategies such as adaptation, contingency and niche marketing

  7. GROUPING THE 10 SCHOOLS OF THOUGHT (cont.) 3. INTERGRATIVE GROUP J. Configuration school: The tenth school treats strategy as a transformation process and integrates all the nine schools of thought Examples: Product life cycle, transformation, turnaround and revitalization. Chandler (62), Mintzberg (60s) and Miles and Snow (78) were some of the proponents for this school

  8. THE BLUE OCEAN STRATEGY MODEL

  9. VALUE INNOVATION OF THE BOS MODEL • One of the main ingredient of the BOS model is IS “VALUE INNOVATION” • It creates powerful leaps in value for both the firm and its buyers • It renders rivals obsolete • It unleashes new demand • It is not technology innovation • Innovation is based on real buyer utility at a lower price and lower cost for the seller • BOS is the simultaneous pursuit of differentiation and low cost

  10. AIM OF THE BOS MODEL • Not to outperform the competition in the existing industry • BUT to create new market space thereby making the competition irrelevant • There are two ways to create blue oceans: • 1. To launch completely new industry as eBay did with online auctions • 2. To create a blue ocean from within an industry (red ocean) when it expands the boundaries of an existing industry

  11. THE BOS MODEL PRINCIPLES Six principles 1. Reconstruct market boundaries 2. Focus on the big picture 3. Reach beyond existing demand 4. Get the strategic sequence right 5. Overcome organizational hurdles 6. Build execution into strategy

  12. The BOS Model Framework and Tools • And the framework and tools include: • Strategy canvas: Diagnostic and action framework • Four actions framework: Value innovation analysis • Eliminate-reduce-raise-create Grid • Six paths framework: Market reconstruction analysis • Four steps visual strategies: Big picture analysis • Tier of non customers: Demand expansion framework • Buyer utility map • Buyer experience cycle

  13. STRATEGIC CANVAS OF BOS MODEL • Principles used: • It uses the same external and internal factors (as in other models: SWOT, BCG, SPACE) • But is presented in a chart form termed as strategic canvas • This chart or canvas is made up of: • An x-axis which has the various factors (both external and internal) that are considered as significant for the company • And a y-axis that indicates the values of the customers on the factors identified in the x-axis

  14. THE FOUR ACTION FRAMEWORK OF BOS MODEL (ERRC) BOS have only four basic strategies. They are: 1. Eliminate (those that are considered as of very low value and can do without to the eyes of the consumers and which the company would also love to get rid of) 2. Reduce (those that are of relatively low value too but which the consumers would still want them or difficult to get rid of) 3. Raise (existing factors that are valued by the customers and expect more) 4. Create (new factors that are given high value by customers if offered but which are non existent at the moment; the latter is supposed to be the blue ocean factor)

  15. COMPARING BOS MODEL’S STRATEGIC NOMENCLATURE (ERRC) • Eliminate: Similar to liquidate, sell off, divest • Reduce: Retrenchment, cut costs, integrate • Raise: Grow, expand, add product, increase new shift, improve, add value, modify • Create: Conglomerate diversification, innovation, develop new product

  16. THE FOUR ACTION FRAMEWORK OF BOS MODEL (ERRC) • Case of Air Asia; • To illustrate:

  17. EXAMPLE OF A STRATEGIC CANVAS CHART • Seven factors are considered important. They are: • 1. Price • 2. Quality • 3. Packaging advertising • 4. High tech science • 5. Glamorous image • 6. Halal ingredient • Halal status

  18. BOS GUIDELINES • To pursue a “blue ocean” character: • 1. Determine characteristics valued by customer • 2. Get feedback from diverse sources • 3. Give score for each factor considered • Low value and costly factors are candidates for elimination • High value, not yet available and yet affordable (benefit–cost concept) are potentials for creation • 4. Small sampling enough to get some pattern and a meaningful and rational deduction • 5. Further consolidation by top management will narrow down the candidates for the ERRC • 6. The bottom line is fulfilling the buyer utility

  19. BOS CANVAS OF THREE TELCOS [Red chart of the figure represents the company under study and the factors to be introduced (created)]

  20. PRIVATE HOSPITALS [A represents company under study and shows the factors to be created]

  21. TWO COMMERCIAL BANKS [A represents the bank under study and shows the factors to be created; research done in 2002]

  22. THE BIG THINK STRATEGY MODEL • The process and the phases that need to be done are probably quite similar namely: • The need to generate ideas • Evaluation • Selection • Implementation • It is the idea generation part that is claimed to be unique

  23. THE BIG THINK STRATEGY MODEL (cont.) • A. Idea Generation • Needs to be coached: four different guides: • To combine the seemingly incompatibles • To go for innovative benchmarking (comparing across industries) • Be “willing to kill the sacred cow” • To step out of the time frame and stripping the current strategy to its core

  24. THE BIG THINK STRATEGY MODEL (cont.) • Meeting the “WOW” Criteria • Ideas being: • Transcendence • Going against the current trend (Nintendo) • New discovery or the prototypes, (aqua hydrate source of energy) • Integrating current thinking with ideas brought from outside (cockpit management which combines neural concept and aeroplanes cockpit control system to the corporation)

  25. THE BIG THINK STRATEGY MODEL (cont.) • B. Evaluating the Ideas • Ideas could be classified into three groups namely: • Those that are of “good to have” • That will differentiate the organization • That are very innovative and “wow”

  26. THE BIG THINK STRATEGY MODEL (cont.) • Examples • Dubai’s: • Buruj Hotel • Man-made palm island • The world on an island • Skiing in the desert • It need not be physical in nature but mega engineering (as in cable television channel) structures seem to qualify • Others could be in the form of slogan “Malaysia truly Asia” • Dell’s delivery system for computers • Even Malaysia’s Twin Tower can still be considered as ‘wow’

  27. THE BIG THINK STRATEGY MODEL (cont.) • C. Selection • Refinement: Using certain agreed upon criteria • Four methods complementary to one another are: • Have needed resources • Good collaboration and networking with others that can participate • Project add value to some others directly or indirectly • Able to get assistance from other parties • Prioritisation will Follow

  28. THE BIG THINK STRATEGY MODEL (cont.) • D. Implementation • Executing the Big Think is quite straight forward, making sure of the resources and the kinds of actions needed to be carried out sometimes with high impact (because of its “wowness”) together with a significant launching event meant to be publicised • The monitoring of the progress will then become a routine exercise, re-evaluating and sustainability

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