In this session, the speaker basically outlined a wide range of tools/approaches to aid strategic management. It was pretty packed, and my notes got pretty sketchy in places. I’ve tried to put my comments in Italics.
The speaker started by outlining six areas to cover:
How are your markets segmented?
Sources of Competitive advantage (either as IT service, or as University)
[ This was discussed in a breakout session]
Portfolio analysis
Strategies
Stakeholder analysis
Product market matrices
But before looking at that, the speaker took an overview of strategic managment – looking at three main factors:
- Vision
- Strategic Intent
- Mission
These were summarised as follows (quoting of paraphrasing):
Vision – your picture of a future state for the enterprise; a mental image of a possible and desirable future that is realistic, credible, and attractive
Mission – a sense of mission is an emotional response to questions to do with what people are doing, why they are doing them, what they are proud of, what they are enthusiastic about, what they believe in
Mission statements ought to capture this emotional response (though often they do not)
Strategic Intent – Is the leveraging of an enterprise’s internal resources, capabilities, and core competencies to accomplish what may at first appear to be unattainable goals in the competitive environment
e.g. Canon’s successful challenge to Xerox in the p/c industry
Knowing the environment of the ‘business’ is crucial – often our knowledge is much more limited than it should be. It is easy to make stupid decisions out of ignorance
So now onto some tools which can help us think about strategic management
PEST analysis
Political changes
Economic changes
Social/Cultural changes
Technological changes
The speaker identified what he saw as 4 key trends in the business environment (4 Ds, to compete with the 4 Ps of Marketing). These are Disaggregation, Differentiation, Disintermediation and Dematerialisation.
Some examples might be:
Disaggregation (or Globalization)
- of products (e.g. Coca Cola)
- production processes – global supply chains
- of research and development e.g. s/w developed in Seattle, chip design in California, plastics technology in London etc
- of corporations (any examples yet?)
A question for the HE sector – are universities aggregated or disaggregated?
Differentiation (really micro-segmentation)
- Designer beers
- proliferating range of cars
- different types of holiday (Club med to Saga)
- number of lines of goods in supermarkets and DIY stores
In education – PG vs UG needs – ‘tailor made courses’?
Don’t think about ‘students’ as a homogenous body. PG taught/PG Research/Overseas students/resident students
Examples of possible segments in HE:
Market:
Local
National level
International
Segment of services offered:
Commodity (offered everywhere)
Scarce/regulated (e.g. Nursing, pharmacology, …) – offered elsewhere, but regulated and supplying to a specific market
Niche (e.g. Peace studies)
Disintermediation
- Intermediaries, such as insurance brokers, travel agents, and retailers are being strongly affected by IT developments
- direct banking and insurance, airline call centers, e-commerce and the rise of .com firms
Dematerialization
- Knowledge is increasingly more important than materials in the value of what we produce and consumer – e.g. the capital value of MS is less than 5% of its share value.
- An increasing proposition of the value of a product is in the service rather than the physical object
I don’t entirely buy all this. Surely the growth of the Internet has increased mediated services? Examples might be Last Minute, Direct Line, Expedia, etc. The micro-segmentation definitely chimes with me though.
The speaker then went onto outline ‘Ways of Doing Strategic Management’
Porter’s 5 forces model:
This is a device to analyze the competitive forces in an ‘industry’ and on an enterprise
It is meant to create a better understanding of why an ‘industry’ may be a good one to be in (or not)
It should also identify possible strategic moves for the enterprise to position itself better
The 5 forces are:
- Potential Entrants (new organizations doing the same thing)
- Suppliers
- Customers (still the Government really, not individual students)
- Substitutes (different offering but consumers switch due to change in taste/attitude)
- Competitive Rivalry
The speakers analysis was that HE suffers from strong Customer’s, high level of Competitive Rivalry, with reasonable level of potential entrants (other universities offering the same courses).
I was a bit puzzled that the speaker seemed to move between talking about ‘Government’ and ‘Students’ as customers, depending on what he felt held up his argument best. I can see that we have two sets of customers, but I wasn’t convinced by the ‘mix and match’ approach. I suspect that this complicates the interaction considerably
Power of customers is high if:
Customer is price sensitive, as when:
- cost of product is high relative to total costs
- it is hard to differentiate products
- customers are facing stiff competition for their products
And/or has Bargaining power, as when:
- size and concentration of customers is high relative to suppliers
- customers have low switching costs
- customers are well-informed
- customers have the ability to integrate backwards
Power of suppliers is high if:
This is where my typing couldn’t keep up I’m afraid… perhaps the slides are available at the UCISA website
Threat of entry is increased if:
- Few economies of scale
- Not a strong learning curve effect (for every doubling of cumulative experience, costs should drop by 20-30 percent) – but it doesn’t get easier to turn out good students
- Low capital requirements for entry
- Difficult to differentiate the product
- Easy access to distribution channels
- No legislation preventing entry
- Little retaliation
Industry Rivalry is high if:
- Many players, none dominant
- Diversity of competitors
- Market is in slow growth
- Fixed costs are high
- Extra capacity comes in large increments
- Low differentiation of competing products
- High exit barriers
Threat of substitutes is high if:
- Customer propensity to substitute is high
…
Again – I couldn’t keep up
So the question is, can we adopt a strategy which reduces these forces. We can approach this in the following ways:
- Analysis of Strategic Capability
- Analyzing your Distinctive Capabilities
- Distinctive Capabilities
- Routines
- Relationships
- Reputation
- Strategic Resources
Routines (core competencies)
Much of what is done at work is based on tacit (hidden) skills shared by groups of workers, managers, or directors.
These routines may be unique to a particular enterprise and a major source of competitive advantage
e.g. the pattern of play of a particular football team that has trained and played together over a long time.
Relationships
The ‘prisoner’s dilemma’ is a very widespread problem within and between enterprises. Long term high-trust relationships reduce the prisoner’s dilemma and are another source of competitive advantage.
Strategic Resources
Certain resources may be hard for competitors to acquire – e.g. particular location, expensive and specialized equipment proprietary knowledge
These may give competitive advantage.
Strengths and weaknesses should be analyzed
Critical Success Factors (CSFs)
CSFs are areas of business activity in which a company must excel in order to out-perform the competition, e.g.
- customer service and support
- product performance and quality
- costs and efficiency
- innovation, technical/market leadership
- management and control
Questions for us are what are our (RHUL’s and/or Information Services’) CSFs?
What follows is an attempt to capture as much as I could of the rest of the presentation. It is all in very sketchy note form.
Looking at further tools to help analysis, the speaker outlined how looking at Relative Market Share (your market share, divided by that of your biggest competitor), and Market Growth Rate (which varies depending on where you are in the product development cycle), can help you understand what kind of product you have, and how it can be exploited.
You can see the diagram in the slides, but effectively he argued that where you have a large market share, and a mature product, you have a ‘cash cow’ – a product which will generate income. One point he made about this is that you shouldn’t plough the income generated back into your cash cow (which should continue to do fine without any extra investment), but rather into products which either have a small market share, or are early in their development cycle (so that they too can become ‘cash cows’).
What you want to avoid are products where you have a small market share, with a mature product (due to the difficulties of growing market share in a mature market)
Jumping to another area, the speaker touched upon the concept of ‘stakeholders’ – which he defined as "Those who depend on the organization to fulfill their own goals and on whom, in turn, the organization depends."
So far, so standard. What I found more interesting was his division of stakeholders into several groups (depending on their level of interest and their power).
He listed the following groups, which reflect how you need to treat them:
Minimal Effort (low interest, little power)
Keep informed (high interest, little power)
Keep satisfied (low interest, more power)
Key players (high interest, more power)
You can probably start to see a pattern here – almost every tool outlined involved two variable interacting to form 4 ‘types’. These obviously must be simplifications of the real world – so the question is, are they helpful in practice? In the example above, it is far more likely that the majority of stakeholders fall into some middle section (some power over some part of the project, some interest in the result)
Anyway, onto another concept:
The ‘Cultural web’ of an organization. Interestingly (given my comments above), this seemed to me to be an attempt to recognise ‘real world’ factors. It considers the fact that culture can have a huge impact on strategy (e.g. can completely skew a SWOT analysis)
The ‘cultural web’ consists of:
- Symbols
- Stories
- Rituals and routines
- Control systems
- Organizational structures
- Power structures
This is about the existing evironment which leads to the "we’ve always done it that way", and "but that’s X’s job" attitude. You probably can’t overcome these factors completely (not quickly anyway), but there are probably things that can help. Bringing in new staff, or external consultants is definitely one way (the former probably more effective in terms of changing culture, but maybe not always possible). However, there may be other ways of doing this. For example, what about having a ‘heretical’ forum, where the unthinkable can be thought? There are some examples of this in the IT Industry.
Towards the end of the ‘masterclass’, the speaker moved onto Development Strategies.
Apparently Michael Porter said that you have to develop strategy based on cost or on differentiation. i.e. either make your product at low cost, or be different enough that people are prepared to spend more.
However, the speaker suggested that perhaps you could in fact, aim at both of these – operate at a low cost with a highly differentiated product (e.g. Tesco, Benetton, Toyota, Morrisons)
This seems questionable to me. I’m not quite sure how the speaker thought Morrisons or Tesco differentiated themselves from other supermarkets (Morrisions seems to me to be in the ‘cheap and cheerful’ model, Tesco and Sainsbury’s I see as occupying exactly the same market).
However, again, the idea seems like an oversimplification. I guess that Stella Artois is the most obvious example of a product differentiating itself on the basis of being expensive (which is a strategy based on both cost and differentiation). The intention (I guess) is to exploit a natural instinct on the part of the consumer (if it costs a lot, it must be good).
Finally, there is a question about whether this works in UK HE? Here the criteria for decisions are definitely a lot more complex (the school you went to, your expected grades, various league tables, subject areas etc). Also, the criteria will be different depending on which type of course you are applying for (postgraduates are more likely to be interested in the actual staff at the instution, whereas undergraduates are more likely to be interested in the night life)
One of the most important questions is how you decide where to invest – that is, which direction should you go. Once again, a handy four-way tool comes to the rescue, this one is Product vs Market.
Present Product and Present Market = go for market penetration
Present Product and New Market = try to extend the market
New Product and Present Market = go for Product development
New Product and New Market = Diversification
Diversification is more difficult than it seems. It is easy to spot opportunities, but not necessarily to take advantage of them.
So – how do we move forward? Again, the speaker outlined severla alternative methods: Internal development, acquisitions, joint development
Presumably RHUL wants to do this by Internal development?
In summing up, the speaker said that Strategic Management is a process. We have to recognise both deliberate and emergent strategies. That is to say, there is what you plan to do, and what really happens!