Optimizing Competitive Advantage Through Strategic Change

Abstract

Diagnosis, Formulation, and Implementation of Strategic Change The objectives of this final stage of our strategic management ‘project’ are: Identify the primary underlying cause of the most important performance issue that needs to be corrected (i.e. root cause analysis and prioritization) Identify the most appropriate change to make to remedy that causal factor and improve performance (i.e. selection and specification of a solution) Step 1 – clarify the OUTCOME target Our aim is always to achieve, sustain, and improve competitive advantage. Recall that is defined as long-term, superior performance. What this basically means for this course/phase is that we are seeking to identify the optimum way we can improve long-term performance in a way that is most sustainable. That means a strategic change, not just a quick tactical move like cutting costs or have a sales promotion. So, narrow the scope of what ‘improve performance’ as a target means for the company you are analyzing. That is, use your performance assessment work to conclude if the most important improvement to target is improved value creation (growth rate) or value capture (profitability). Which dimension of performance most needs attention? Keep it simple here…just pick one of these two targets. Do not try to solve anything yet! Write a short statement that states your conclusion. Example statements for Step 1: XYZ’s revenue growth rate is declining and is below industry average. To improve strategic performance, their ability to create value must be improved. XYZ’s growth is acceptable but their profitability is below industry average. Specifically, their operating efficiency is inferior as indicated by their below average Operating Margin over the last three years. Their ability to capture value, specifically in operating profitability, is the primary area to focus on toward improving long-term performance. Step 2 – Summarize the variables in the strategic alignment model Recall the fundamental model of strategic alignment in which performance is largely a function of the quality of overall alignment. PERFORMANCEPERFORMANCE PERFORMANCE PERFORMANCE STRATEGYSTRATEGYRES & CAPsRES & CAPsEXTERNALEXTERNAL STRATEGY STRATEGY RES & CAPs RES & CAPs EXTERNAL EXTERNAL As you have already learned, a thorough analysis of each of the three aspects of alignment results in a set of primary conclusions. You’ve learned to prioritize the firm’s strengths/most valuable resources and capabilities, to specify the strategic choices that describe their competitive strategy, and to identify the key success factors and most significant change issues that shape the firm’s competitive environment. Now, get all those conclusions organized for analyzing cause-effect issues. Create an ‘all-in-one-place’ summary of your prior analysis steps. Summarize your conclusions from the previous templates about the firm’s internal strengths, their key strategic choices, and the key success factors in their external environment. A hypothetical example: Most valuable Res/Caps Competitive Strategy Industry Key Success Factors CEO Leadership Product Focus = Differentiate from substitutes Top engineers in industry Target Customers = Create switching costs Well respected brands Geographic Scope = Deliver exceptional service Well trained service staff Value Proposition = Multi-channel retailing Proprietary supply chain IT Business Model = Must be able to adjust capacity ….. (fill in to define each element for the firm) Must become experts with social media customer contact (There is no defined number of items to put in each column, just summarize your prior conclusions.) Step 3 – Analyze the quality of the firm’s strategic choices Think of this as “Strategy-Environment (S-E) alignment”. The questions here - Does the firm’s competitive strategy align with the competitive demands of the competitive environment? Can they achieve and sustain competitive advantage with the current choices? Effective competitive strategy needs to align with the realities of the external environment. So, examine the two right columns to determine how well the set of strategic choices align with the key success factors. Here you are assessing the quality of their strategy, broken down into the clear and most critical component parts of their approach, with respect to the most critical requirements of the environment. List all the relationships that you deem not well aligned – remember to think ahead over the next 3-5 years based on your Drivers of Change. A complementary way to approach this is to ask the question: What changes to the current strategy would improve the alignment of strategy to key success factors and major changes coming in the next few years? Your statements on the misalignments should clearly specify what aspect of strategy is not well aligned with what specific KSF or DOC. That is, think of this step as identifying how specific variables are not aligned as they should be. Examples (not related to the table above): XYZ’s value proposition of trendy, fashionable designs does not fit well with the key success factor of durable, long-lasting products. XYZ’s market focus on households with high levels of discretionary income does not fit well with the trend of declining household incomes. XYZ’s product focus on a broad range of quality, styles, and price points does not align well with the KSF for producers to significantly differentiate their products. DON’T: …get sidetracked and bring up anything about resources and capabilities here …address tactical issues – focus on strategic choices/intentions …address outcomes/performance issues …try to solve the problem; don’t say what they should do here…stay focused on identifying misalignments only. You might identify several strategic misalignments. If so, describe and define them all. *You might also find that the strategy is okay and that nothing should change. If so, just recheck your thinking and keep in mind how things might change over the next 3-5 years. Still, it is okay and sometime appropriate to conclude that there are no changes needed to the firm’s current strategy. Outstanding firms may be in such a position – a great competitive strategy, clear preparation and adaptation toward major drivers of change…and probably strong performance. If this is the case (it won’t be for cases in this course), then your target for improving performance lies inside the firm – next. If you identify more than one S-E misalignment, evaluate if there is one that seems to stand out. That is, if you could only change ONE of the identified misalignments, which one – if resolved – do you believe would have the greatest positive impact on competitive advantage? This kind of prioritization is an essential aspect of good strategic management. What should we do first! Where do we get the greatest improvement and/or ‘bang for the buck (or effort)? In reality, plans are usually developed to address multiple issue somewhat as a set, but for this CLASS – I need to your focus down and make an argument for the ONE strategic variable (one of your misalignment statements) that you think most explains why their strategy is not working as well as it should. Next, take that misalignment statement and describe the remedy. Following the examples above: XYZ needs to change their value proposition to focus on offering durable, long-lasting product designs and functional performance XYZ needs to broaden their market focus to include more budget-conscious households XYZ needs to narrow the range of their product line and build a differentiated brand presence. The end result of this stage of one statement like the above examples that specifies what change to the firm’s competitive strategy is most vital to improving S-E alignment in a way that will improve the aspect of performance you specified in Step 1 as most critical. It is important that you be sure you are staying on the same, coherent track such that your diagnosis and formulations clearly and directly ties back through your analysis. Step 4 – Analyze the appropriateness of the firm’s resources and capabilities Strategic choices are just words…the firm must have a set of resources and capabilities that will enable them to execute a well-aligned strategy in a way to achieve competitive advantage. In Step 3, you either confirmed that the firm’s competitive strategy is good or you identified the most significant thin that needs to change, and how, to describe a revised competitive strategy. In this step, you now evaluate if the firm has the necessary internal abilities to exploit that competitive strategy. We can think of this as “Resources/Capabilities – Strategy (R/C – S) alignment”. So, examine the two left columns of the table you made in step 2 (*and revise the middle column based on any change conclusion from Step 3*). Think about each aspect of their strategy and what resources and capabilities would be required for that aspect to be executed effectively. For example, if the value proposition is to be a leading-edge fashion brand the firm better show a...