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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: The Pathfinder Series
- Sprache: Englisch
Real-world strategic management practice in an interactive micro-case format
The Strategy Pathfinder presents an innovative, dynamic guide to strategic thinking and practice. Using real-world case examples from companies like Apple, the BBC, Hyundai, LEGO, McDonalds, Nike and SpaceX to illustrate critical concepts, this book enables readers to actively participate in real-world strategy dilemmas and create their own solutions. Strategy Pathfinder’s ‘live’ micro-cases provoke discussion about business models, value creation, new ventures and more, while its complimentary instructional content introduces you to the best ‘classic’ and new tools of strategic management.
Rather than passively reproducing past and current ideas, Strategy Pathfinder encourages strategic thinkers to learn by doing. The book is designed to help the reader to develop a clear understanding of key concepts while shifting your thought processes towards real strategic action and innovation by enabling you to:
- Use strategy theories and frameworks to engage in analytical and creative discussions about key strategic issues facing real companies today
- Form strategic views for yourself, and test them against the views of others
- Effectively make and communicate recommendations based on solid strategic analysis that stand up to scrutiny from multiple stakeholders
- Become an active producer of new strategic ideas rather than a passive receiver of past wisdom
This third edition has been updated with new chapters and cases to reflect the latest, cutting-edge issues in strategic thinking and practice. And the updated companion website offers students, instructors and managers more resources to facilitate understanding, interaction and innovation.
As an active learning experience, The Strategy Pathfinder 3rd Edition engages the reader in the work of strategy practitioners. By arming you with the empirical research you need, and the best strategic management theories and frameworks to better analyse situations you're likely to encounter or already facing in your career, The Strategy Pathfinder teaches you how to improve your strategic thinking and practice, and develop your own strategic pathways for the future.
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Further praise for The Strategy Pathfinder
“Do we really need another book on strategy? Well The Strategy Pathfinder is one with an attitude! Its effective use of an impressively broad range of micro-cases that cover the main concepts of business strategy gives students a succinct and very practical approach to the subject.”
Peter Hagström, Stockholm School of Economics
“The unique micro-cases in this book will surely spark energetic discussion in the classroom. The diversity of international companies and strategic issues in the cases provides an unusually broad set of examples from which to draw.”
Constance E. Helfat, Dartmouth College
“The Strategy Pathfinder represents a refreshing and engaging method for teaching strategy. The processes and cases, which define the book, provide excellent learning materials that bring a real-life experience to students.”
Stuart Sanderson, Bradford University
“The concise presentation and critical reflection on strategy concepts and tools; the use of live cases; and the inclusion of rarely covered yet highly relevant topics, such as the role of power in strategic decision-making and the challenge of managing change, make The Strategy Pathfinder a welcome alternative to conventional strategy textbooks.”
Stefan Manning, University of Massachusetts
This edition first published 2017
© 2017 Duncan Angwin and Stephen Cummings
First edition published 2006, second edition published 2011, both by John Wiley & Sons, Ltd
Registered office
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Library of Congress Cataloging-in-Publication Data
Names: Angwin, Duncan, author. | Cummings, Stephen, author. Title: The strategy pathfinder : core concepts and live cases / by Duncan Angwin, Stephen Cummings.
Description: Third edition. | Hoboken : Wiley, 2017. | Revised edition of The strategy pathfinder, 2011. | Includes bibliographical references and index. | Identifiers: LCCN 2017036858 (print) | ISBN 9781119311843 (paperback)
Subjects: LCSH: Strategic planning. | Strategic planning–Case studies. | BISAC: BUSINESS & ECONOMICS / Decision-Making & Problem Solving.
Classification: LCC HD30.28 (ebook) | LCC HD30.28 .A5315 2017 (print) | DDC
658.4/012–dc23
LC record available at https://lccn.loc.gov/2017036858
A catalogue record for this book is available from the British Library.
ISBN 978-1-119-31184-3 (pbk) ISBN 978-1-119-31187-4 (ebk)
ISBN 978-1-119-31189-8 (ebk)
Cover Design: Wiley
Cover Image: © Toria/Shutterstock
Duncan: To Kay, Christopher, Katherine, William, Madeleine and my parents
Stephen: To Noelle, Cath, Oisín and my mum and dad
CONTENTS
The Strategy Pathfinder
Map
Pathways to Strategy
About the Creators
1: Strategic Purpose
It’s Not Just About the Money
Vehicles for Strategic Purpose
Where Does an Organisation’s Purpose Come From?
What Are the Constraints on CEO Power?
Who Are the Other Movers and Shakers that Influence Strategic Purpose?
How Can Different Stakeholder Interests Be Managed Strategically?
Who Determines Strategic Purpose?
Strategic Purpose Key Learnings Mind-Map
Part I The Strategic Environment
2: Macro-Shocks
The Impacts of Macro-Environmental Forces: The Role of Boundedness
Detecting Movements in the Macro-Environment
Analysing Macro-Environmental Forces
Identifying Key Macro-Environmental Forces
3: Industry Forces
Strategic Hell: Perfect Competition
The Industry Life Cycle
Industry Structure
Industry Forces
Cooperative Forces
Industry Forces Key Learnings Mind-Map
Part II Strategic Advantage
4: Competitive Advantage
Competitive Advantage
Competitive Strategy
Strategy as Positioning (or “Fit”)
Blue Ocean Strategies
Supporting Competitive Position
Competitive Advantage Key Learnings Mind-Map
5: Resource-Based Advantage
Culture
Resources and Capabilities
The Future of Culture, Resources and Capabilities as Sources of Strategic Advantage
Resource-Based Advantage Key Learnings Mind-Map
6: Business Model Advantage
What Are Business Models?
How to Do It?
Barriers to Business Model Innovation
Is a Business Model the Same as a Strategy?
Business Model Advantage Key Learnings Mind-Map
7: Corporate Advantage
Why Does the Multi-Business (M-form) Exist?
What Businesses Should They Be In?
Corporate Strategy in Practice
Corporate Advantage and the Role of the Centre
Corporate Advantage Key Learnings Mind-Map
Part III Strategic Growth
8: New Ventures
Innovation and Entrepreneurship
External New Ventures
The Best Approach to New Ventures? It’s About Strategic Choices …
New Ventures Key Learnings Mind-Map
9: Crossing Borders
Why Do Countries Specialise and Organisations Trade Across National Boundaries?
Why Do Organisations Leave Their Home Countries?
What Are the Obstacles to Crossing Borders?
What Strategies Can Be Used for Competing Internationally?
Which Borders Should Be Crossed?
What Methods Can Be Used for Crossing Borders?
How Can Organisations Retreat and Retrench Back from New Markets?
How Can Organisations Structure Themselves for Competing Across Borders?
Crossing Borders Key Learnings Mind-Map
10: Leading Strategic Change
Conventional Intervention Models for Leading Change
Newer (and More Nuanced) Frameworks for Guiding Change
The Strategic Leadership Challenge: Blending Change and Continuity
Leading Change Key Learnings Mind-Map
11: Evaluating Strategic Performance
Accounting-Based Performance Measures
Stock Market Performance Measures
Strategy Assessment
Broader Views of Performance: Ethics and Sustainability
Business Ethics and Corporate Integrity
Sustainability and The Triple Bottom Line
Balance in All Things: The Balanced Scorecard and Risk Assessment Matrix
Strategic Evaluation Key Learnings Mind-Map
Part IV Maverick Strategies
12: The Maverick: Six Senses of Strategy
VISUAL Observations of Strategy
AUDIO Observations of Strategy
TASTE Observations of Strategy
OLFACTORY Observations of Strategy
KINETIC Observations of Strategy
The “SIXTH SENSE” of Strategy? The Keystone
Maverick Strategies Key Learnings Mind-Map
Apple: Sensography in Action
BIPA: More than skin deep?
Exercise Group
Appendices
Practice Cases for Job Interviews
Using
The Strategy Pathfinder
3rd Edition for Assessments and Examinations
References
Glossary of Core Strategic Management Concepts
Acknowledgements
Index
EULA
List of Tables
Chapter 2
Table 2.1
Chapter 3
Table 3.1
Chapter 4
Table 4.1
Chapter 5
Table 5.1
Table 5.2
Chapter 7
Table 7.1
Table 7.2
Table 7.3
Table 7.4
Table 7.5
Chapter 9
Table 9.1
Chapter 11
Table 11.1
Table 11.2
Table 11.3
List of Illustrations
Chapter 1
Figure 1.1
Company Core Values
Figure 1.2
LEGO’s “Vision Chain”
Figure 1.3
Principal–agent chain
Figure 1.4
New York & Erie Railroad Corporation Organisation
Figure 1.5
Stakeholder map
Figure 1.6
Consultancy Addiction Test
Figure 1.7
Power/Interest Matrix
Figure 1.8
Tesla revenue and income
Chapter 2
Figure 2.1
Some of the many interactions between organisations and their environment
Figure 2.2
Conceptual decomposition of the business and its environment to structure strategic analysis
Figure 2.3
Conceptual decomposition of the macro-environment using ESTEMPLE
Figure 2.4
Temporal Impact Matrix for the Moroccan Oil Industry
Figure 2.5
Dimensions of environmental turbulence
Figure 2.6
Identifying environmental forces for a car manufacturer to construct scenarios
Figure 2.7
Scenarios for a car manufacturer
Figure 2.8
Comparative Impact Matrix
Figure 2.9
Industry evolution
Chapter 3
Figure 3.1
Perfect competition
Figure 3.2
Imperfections
Figure 3.3
The industry life cycle (ILC)
Figure 3.4
Generic critical success factors across the industry life cycle
Figure 3.5
Dolphin curves for Apple “industries” )
Figure 3.6
The Five Forces of Industry structure
Figure 3.7
Strategic group analysis
Figure 3.8
The value net
Figure 3.9
The sports apparel supply chain
Chapter 4
Figure 4.1
Cost and differentiation advantages
Figure 4.2
Generic competitive strategies )
Figure 4.3
The strategic clock
Figure 4.4
Blue ocean strategies
Figure 4.5
The generic value chain
Figure 4.6
The value chimera as a way to link corporate and competitive strategy
Figure 4.7
London’s Cereal Brothers
Chapter 5
Figure 5.1
McKinsey’s 7-S framework
Figure 5.2
The Seven Ss applied to Barcelona FC
Figure 5.3
The cultural web
Figure 5.4
The Porter Diamond of International Competitiveness
Figure 5.5
VRIO as a resource-based advantage checklist
Figure 5.6
Three levels of capabilities
Figure 5.7
Three types of dynamic capabilities
Figure 5.8
Toyota’s three stage dynamic capabilities
Figure 5.9
Tower Records store in Los Angeles
Figure 5.10
Artists discussing their music at Tower Records’ Shibuya store in Tokyo
Chapter 6
Figure 6.1
Walt Disney’s drawing of the Disney “business model” in 1957
Figure 6.2
easyJet’s business model
Figure 6.3
Example of a business model template (Source: adapted from the Business Model Canvas, https://espriex.co/businessmodel-canvas)
Figure 6.4
IKEA’s activity system
Chapter 7
Figure 7.1
The U-form (left) and the M-form (right)
Figure 7.2
The growth-share matrix
Figure 7.3
The GE/McKinsey business screen
Figure 7.4
Value-adding approaches of the centre
Figure 7.5
Organisational structure of Z’s Corporate Management Board
Chapter 8
Figure 8.1
Spotify’s innovative organisation – tribes, chapters and guilds
Figure 8.2
The Innovation Radar
Figure 8.3
Six Degrees of Strategic Innovation
Figure 8.4
The Build, Measure, Learn approach for cost-effective innovation
Figure 8.5
Central assumptions of discovery and creation theories of entrepreneurial action
Figure 8.6
Five phases of entrepreneurship
Figure 8.7
Post-Acquisition Integration Matrix
Figure 8.8
A Strategic Innovation Investment, Risk and Return Matrix
Chapter 9
Figure 9.1
Global integration/local responsiveness grid
Figure 9.2
Strategic development options matrix
Figure 9.3
Cross border types of M&A
Figure 9.4
China dominates outward flows of M&A
Figure 9.5
Border crossing designs
Figure 9.6
Geert Hofstede’s 5D model comparing China and the USA
Figure 9.7
Tunisian banking industry: comparative data
Chapter 10
Figure 10.1
The incremental development of conventional change management frameworks since 1950
Figure 10.2
Unfreezing change as three steps – watch the video at https://www.youtube.com/watch?v=iJfdmT1UtBY.
Figure 10.3
Strategic changes related to organisational changes
Figure 10.4
Levels of operational and strategic change
Figure 10.5
Different scales and styles of change
Figure 10.6
The locus of influence of leadership related to change versus continuity
Figure 10.7
Dealing with resistance to change
Figure 10.8
The strategic leadership keypad
Chapter 11
Figure 11.1
Strategic option grid for Jimmy Choo
Figure 11.2
The Balanced Scorecard framework
Figure 11.3
A Risk Management Matrix
Chapter 12
Figure 12.1
The Six Senses of Strategy Wheel
Guide
Cover
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The Strategy Pathfinder Map
The Strategy Pathfinder is arranged into 11 pathways and a final maverick strategy section. Each pathway focuses on a set of core concepts followed by five “live cases” that readers can use to test their ability to use those concepts. A dashed line around a live case's title square indicates that it focuses on a not-for-profit (NFP) organisation. In addition, efforts have been made to select cases that cover a broad geographic area – see The Strategy Pathfinder World Map on page xiii.
Introduction: Pathways to Strategy
Strategy is about winning → Many paths towards strategy → Why The Strategy Pathfinder is a different kind of strategy textbook
1. Strategic Purpose
Strategic purpose → vision → mission → core values → objectives → strategy statements → the CEO as strategist → principal/agent → agency problem → corporate governance → chain of ownership → external dependent stakeholders → internal dependent stakeholders → non-dependent stakeholders → social influencers → CSR → stakeholder analysis → using management consultants → government influences → power/interest matrix → lobbying
Part I: The Strategic Environment
2. Macro-Shocks
Open systems thinking → bounded rationality → Icarus paradox → determinism → scanning/monitoring/forecasting/assessing → scenarios → PEST/ESTEMPLE analysis → inflexion points → mega trends → Temporal Impact matrix → SWOT/TOWS analysis → strategic agility → fitness
3. Industry Forces
Industry performance (ROIC) → margins → perfect and imperfect competition → market imperfections → industry life cycle → critical success factors (CSFs) → S-curves/dolphin curves → industry structure → the Five Forces of industry → entry barriers → exit barriers → strategic groups → the value net → complementors → co-opetition
Part II: Strategic Advantage
4. Competitive Advantage
Strategic advantage → competitive advantage → sustainable competitive advantage → positioning → cost advantage → differentiation advantage → focus advantage → generic strategy matrix → scope strategies → competing in strategic groups → mobility barriers → strategy clock → differentiation strategies → game theory → red oceans → blue ocean strategy → value innovation → the value chain → outsourcing → value chimera
5. Resource-Based Advantage
Organisational culture → seven Ss → cultural web → national culture → regional culture → cultural dimensions → Porter Diamond → resource-based view of firm → resources → capabilities → VRIO analysis → dynamic capabilities → sensing/seizing/transforming
6. Business Model Advantage
Unicorns → disruptive innovation → business model definitions → one-sided business models → franchising → cutting out the middleman → bricks and clicks → low cost → just-in-time → razor-blade → freemium → sponsorship → pyramid scheme → multi-sided/platform models → network effect → social business models → collective business models → creating business models → effectuation → barriers to innovation → is it strategy?
7. Corporate Advantage
Strategic Business Units (SBUs) → the multi-business (M-form) organisation → corporate strategy → forms of diversification → portfolio management → growth-share (or BCG) matrix → synergy → dominant logic → parenting advantage → restructuring → sharing activities → transferring skills → centralisation versus decentralisation
Part III: Strategic Growth
8. New Ventures
Innovation→ accelerators → incubators → innovation radar → entrepreneurship → internal new ventures → skunk works → external new ventures → strategic alliances → equity alliances → non-equity alliances → joint ventures → strategic fit → capabilities fit → cultural fit → organisational fit → Mergers and Acquisitions (M&A) → M&A strategies → post-acquisition integration strategies → strategic innovation risk and return matrix
9. Crossing Borders
Internationalisation and globalisation → theories of absolute and comparative advantage → expansion strategies → M&A strategies → divestment and retrenchment → eclectic theory → country clusters → leveraging national advantage → international business structures → national culture and context → the Porter Diamond
10. Leading Strategic Change
Increasing pace of change → eight steps of change → different levels of change → evolutionary versus revolutionary change → different change needs → styles of managing change → instigators of change → communities of practice → barriers to change → managing resistance to change → leadership and strategic change → systems thinking-strategic stories → Strategy Directors (CSOs)
11. Evaluating Strategic Performance
Accounting-based measures of performance → stock market performance measures → strategy assessment → strategic option grid → ethics → deontic and aretaic → sustainability → triple bottom line → Balanced Score Card → risk assessment matrix
Part IV: Maverick Strategies
12. The Maverick: Six Senses of Strategy
New ways of detecting strategic coherence → sensography → sensographic strategic analysis → ‘visual' strategy → ‘audio' strategy → ‘taste' strategy → ‘olfactory' strategy → ‘kinetic' strategy → the ‘heart' of strategy
Appendix: Practice Cases for Job Interviews
Pathways to Strategy
Strategy Is About Winning
Alfred Chandler, writing in 1962, outlined what many regard as the “classical” definition of strategy: “a strategy is the determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals”.
However, many other cultures had developed earlier definitions related to military practice. The word strategy was coined to name a new military and political leadership position developed in the Greek city of Athens in the 6th century BC, as a combination of the words stratos, which meant “army” (or more correctly an army spread out over the ground), and agein, meaning “to lead”. In another continent at about the same time, the military philosopher Sun Tzu defined strategy as “. . . the great work of the organization. In situations of life or death, it is the Tao of survival or extinction”.
In the 1980s, writers sought to refine our views of what strategy was about. The Japanese-American scholar Kenichi Ohmae described strategy as “. . . the plan enabling a company to gain, as efficiently as possible, a sustainable edge over its competitors”. While the world's most highly regarded management guru, Peter Drucker, suggested that a strategy was “. . . a firm'stheoryabout how to gain competitive advantages” over its competition.
By the end of the 1980s, new types of strategy scholar, more schooled in human and organisational behaviour than warfare or industrial economics, were challenging the idea that strategy was about great ideas, long-term plans and rational theories. They believed that instead of focusing on what strategy is, it would be more realistic and useful to examine how strategy develops. And they believed that strategy happened as collections of small activities, some rational some not, that created trajectories followed by organisations. Henry Mintzberg thus claimed that strategy was “. . . a pattern of behavior that emerges over time”, and then embarked on a series of debates with Igor Ansoff about whether strategy was about rational design from the top of an organisation (Ansoff) or patterns that emerged from the bottom (Mintzberg). In keeping with Mintzberg's view, proponents of the increasingly influential “resource-based view of the firm”, such as Jay Barney, defined strategy as “. . . a pattern of resource allocation that enables firms to maintain or improve their performance”.
By focusing on the processes that led to the development of a strategy, rather than the content of what a strategy is, writers like Mintzberg and Barney discovered that there were many schools of thought about where strategy came from. In a book called Strategy Safari, Mintzberg and his co-authors outlined 13 different strategy “schools”. These ranged from the classical Design School (strategy is the result of senior managers using conscious rational analysis) to the Power School (where strategising is influenced by politics and focuses on bargaining, persuasion and confrontation) to the Entrepreneurial School (which represents a move away from precise designs or plans, toward looser notions such as “visions” and “perspectives”).
But there is a danger that this definition proliferation can lead to greater confusion rather than greater clarity. Hence, in our experience it is useful to work with a unifying view of what strategy is about by focusing on the desired outcomes of a strategy, any strategy, rather than the process that led to a strategy's development, or a definition of what a strategy should contain. In this respect, we believe that Robert Grant's idea that “strategy is about winning” is particularly helpful.
Following this definition, a good strategy may take many different forms (a detailed plan, a list of bullet points, a set of cultural beliefs or a diagram) and be arrived at through different processes, but it always aims to outline how an organisation is going to “win”. Winning can mean different things to different organisations (for a start-up it might be earning a particular revenue target in the first year, for a not-for-profit it might be helping people in their community lead better lives), but defining what winning means, and communicating the things we are going to do to get there, are the two essential components of a good strategy.
Strategy Pathfinder is organised so that all of it chapters or “pathways” point toward this aim.
Many Paths Toward One Aim
If the aim of a strategy is to outline how an organisation will seek to win, Strategy Pathfinder is organised around 11 pathways that contain related frameworks and ideas that can help thinking toward this aim. The final twelfth chapter is about new ideas that may influence strategic thinking in the future.
Our first chapter is about purpose. This is the first requirement of any strategy: what are you trying to achieve? What does winning look like? What is your Strategic Purpose and how can this be developed?
The next two chapters are on the strategic environment, the ecosystem within which an organisation's strategy seeks to fulfil its purpose. These chapters examine how to explore and determine the pressures and forces that act upon the industry or sector in which an organisation operates: the opportunities and threats presented by external environmental conditions. Chapter 2, Macro-Shocks, outlines the importance of scanning for and understanding small and major environmental shifts that may impact on an organisation's ability to win and indeed survive. Chapter 3, Industry Forces, looks more specifically at the pressures that act upon an industry to influence its profitability and so create opportunities or threats for competitors operating in that environment.
The next four chapters focus on ideas and frameworks relating to how to determine an organisation's Strategic Advantage. Specifically, how can an organisation exploit its position drawing upon key organisational strengths and reduce weaknesses in order to achieve its purpose. Chapter 4, Competitive Advantage, presents classic strategic positioning frameworks in order to determine how an organisation may be positioned relative to competitors and the strategic choices that may be available to them in order to achieve their purpose. Chapter 5, Resource-Based Advantage, examines the resources and capabilities available to organisations that they may draw upon to win in their markets. This chapter takes a more organic approach to understanding organisational capabilities. Chapter 6, Business Model Advantage, shows how organisations are able to win today with different types of business model. It also shows that a business model is the outcome of strategy and gives few clues about how an organisation will achieve its purpose in the future. And Chapter 7, Corporate Advantage, examines how the corporate parent, or HQ, may add value to different businesses or departments through careful choice of countries, industries and sectors for them to compete in, the constitution of its portfolio and the choices it makes about the deployment of resources across the group. Through coordination and control the corporate parent can help an organisation to win and achieve its overall purpose.
The four chapters that follow on from Strategic Advantage focus on how to achieve STRATEGIC GROWTH, how to develop and implement strategies that seek to explore opportunities and avoid threats by exploiting strengths and mitigating weaknesses. Chapter 8, New Ventures, investigates innovation and entrepreneurship, frameworks for assessing and managing start-ups, ways in which existing organisations can innovate internally through organic development and capture and create new capabilities externally through joint ventures and mergers and acquisitions. The ninth chapter, Crossing Borders, looks at why organisations may expand across national boundaries, the strategies they may use to enter these new territories and how they may organise themselves to achieve their strategic purpose. Leading Strategic Change, Chapter 10, recognises that organisations often need to adjust in the face of changing contexts. The chapter explains the types of change that an organisation may need to embark upon and how this may be managed successfully in order to move it from its present state toward one that will allow it to achieve its future strategic aims. Chapter 11, Evaluating Strategic Performance, examines how growth strategies can be assessed. It examines classic approaches to understanding risk and financial performance and recognises that there are other important environmental and social goals that organisations need to consider in order to win.
The three main sections of Strategy Pathfinder – Strategic Environment, Strategic Advantage, Strategic Growth – provide insights into the quality of an organisation's strategy. Our companion book, Strategy Builder, takes a more explicitly analytical approach and, with the associated app, StrategyBlocks,allows an organisation's strategy to be audited, and future strategic options determined. It is also based around the following elements: (1) identifying key opportunities and threats; (2) determining key strengths and weaknesses; and (3) exploring strategic options that may best allow an organisation to achieve its strategic purpose. StrategyBuilder also focuses on the critical task of how an organisation's strategy can be communicated effectively through drawings and diagrams.
Strategy Pathfinder builds on the analytic frameworks and techniques of Strategy Builder by discussing the key ideas that underpin them, placing them in a broader context and presenting a range of other concepts and insights. Strategy Pathfindercan be used independently to learn the essentials of strategy development and it can also be used effectively in combination with Strategy Builder on how to present strategies effectively.
The organisation of chapters in Strategy Pathfinder is not accidental, but underpinned by a philosophical tension – about whether the organisation can only best manoeuvre in order to adjust to a changing context – a “deterministic” perspective (the environmental context “determines” the arena within which managers struggle to adjust to survive) and a “voluntarist” perspective (the strategist can shape his/her context for advantage). In examining strategy going forwards, Pathfinder focuses upon environmental pressures as determinants of organisational strategy before turning its attention to how strategists may influence organisational strategy in order to shape context.
A unique aspect of Strategy Pathfinder is contained in the final section of the book and this has a different format. Maverick Strategies is a collection of the latest thinking, new ideas and trends in strategy. In particular, it focuses upon the work of strategists, what they actually do in creating, communicating and implementing strategy, psychological and cognitive influences on their actions and the contextual influences of time and space. These issues will be of particular interest for those curious to explore what the future may hold for strategy.
Why Pathfinder Is a Different Kind of Textbook
Strategy texts are often rather sterile products that view the reader as a consumer: “read this then replicate it”. We think that business today is too complex, too varied and too interesting for this approach to work anymore. We wrote The StrategyPathfinder to put strategy making into the hands of the reader, to make you a “producer” of strategic thinking and to subsequently breathe life back into the subject again. Hence, Pathfinder is founded on five new learning principles, based on our experience working with executives, MBAs and undergraduates in classrooms and businesses across dozens of countries.
1. Strategy cases should not just be academic exercises, they should strike you like strategy problems in real life
The Strategy Pathfinder is built around real life strategy situations. Like life, these “live cases” hit you with a problem, and then you have to form a case in response – using your wits and research to gather more information, forming opinions and testing these against the opinions of others – before deciding upon recommendations about how best to proceed.
This is why Pathfinder cases are more engaging than conventional strategy cases. Conventional cases tend to hand students the “case on a plate”, suggesting that all they need is contained in the same 20 pages of charts, tables and text that are placed, fully formed before them and their peers. Pathfinder cases require you to think about past experiences, do more research, and form your own opinions. In other words, they make you a producer of strategic ideas and insights, rather than a consumer. Also, because Pathfinder cases are designed to be brief, you can be interacting with them in minutes.
2. Strategy teaching should draw on how we use technology now
Some strategy texts attempt to keep up with technology by providing more information in bulky appendices or password-protected websites. But, in a world where the degree of information available on an organisation or an issue cannot be contained, and where students may be just as adept at searching for new information as a professor, this exacerbates the problem. What puts The Strategy Pathfinder at the cutting edge is that our cases are “open-source”. This is why our cases are “live” cases. Readers are empowered to use technology to uncover the latest information on which to base their arguments.
Searching on the companies or the issues that arise in the live cases using tools like Google, YouTube and Wikipedia, in combination with more conventional forms of library research and readings, can provide the basis for lively debates about what you would do if you were advising the managers or other stakeholders in the cases.
3. Strategic issues don't cease when the case writer finishes writing
A problem that often crops up when using cases is “should we answer the questions as if we were at the point when the case ends, or how things are today?” We believe that the former approach is unrealistic and confusing. By contrast, Pathfinder cases should be viewed as living documents and hence can be done in real time. If you find in your investigations that one of the companies in a particular case has failed or been acquired by another company, this is not a problem: such is life. Changes in circumstance are a further interesting development, and a strategic reality, that should inform your strategic analysis. You should ask: why did the company fail? Why was it acquired? You should not try to imagine that you don't know that these things have happened because the case doesn't describe them.
4. Less means more
Unlike conventional strategy texts, Pathfinder isn't a 1,200-page tome of theories and concepts. By synthesising and presenting essential pathways through the complexities of strategy, Pathfinder's contents can be covered in a strategy module, an intensive executive course or in a weekend, enabling you to build momentum and stay enthused. We view Pathfinder as the beginning of a journey, to give you multiple insights into a rich and exciting subject that you may then explore further. To this end we offer you extensive references and bibliography at the end of the book that will provide you with the necessary concepts tools and theories should you wish to delve deeper down a particular strategy path.
5. Interactive enquiry
At the end of the book Pathfinder has a unique assessment approach that was pioneered in the first edition and has proved very popular (see pages 385–390). The assessment is in two parts: (1) students are asked to create their own “micro” cases on organisations focusing on a strategic question of interest to them, and (2) using concepts and frameworks from Pathfinder, debrief the question (as if they were the professor). We find this assessment method has huge benefits as students are enthused by researching a company they are interested in; it develops their ability to identify strategic issues and demonstrates to them the value of Pathfinder's concepts and techniques as they add value to understanding their case organisations' situations.
6. More space means better learning
Reducing the bulk included in Pathfinderis not about saving on paper and reducing production costs. Reducing the content means we can increase the space available for you to jot notes and draw mind-maps and diagrams to help you recall key concepts and apply and customise key frameworks. The point is for you to interact with the book and personalise it to your learning style.
At the end of each chapter you will find a jotting space in the form of a blank mind map, which you can use to take notes, create lists, summaries and draw important linkages that you can share with others later or return to in your revision. An example of how this mind map may be used is given at the end of Chapter 1. At the end of each case you'll find case notes paper that you can use to make jottings as you further research the case online, in your reading and with your colleagues.
Our research indicates that this kind of kinetic note-taking and drawing has positive benefits in terms of retaining ideas and seeing how key aspects interrelate. Consequently,Strategy Pathfinder is designed to be used in this active manner and readers are encouraged to customise the book to enhance their understanding of strategy.
About the Creators
Duncan Angwin is the Sir Roland Smith Professor of Strategic Management at Lancaster University, UK. He is Head of the Entrepreneurship, Strategy and Innovation Department and Head of the Strategic Management Research Group. He has authored over 50 refereed journal articles on strategy and mergers and acquisitions and eight books. Recent books include The Strategy Builder (2015) with Stephen Cummings and Mergers and Acquisitions (2007). He is co-author of Europe's best-selling strategy text, Exploring Strategy (11th edn, 2017) and the first textbook on the practices of strategy, Practicing Strategy (2nd edn, 2016).
For further information, see http://www.duncanangwin.com.
Stephen Cummings is Professor of Strategy at Victoria Business School in Wellington, an Academic Fellow at the Institute of Management Consultants and a Research Fellow at the New Zealand Centre at Peking University in Beijing. He has authored over 50 refereed journal articles on strategy, innovation and management history. Recent books include The Strategy Builder (2015) with Duncan Angwin, Creative Strategy: Reconnecting Business and Innovation (2010), The Handbook of Management and Creativity (2015) and A New History of Management (2017).
For further information, see http://www.victoria.ac.nz/som/about/staff/stephen-cummings.
WE WOULD LIKE TO THANK OUR COURSE PARTICIPANTS AT THE FOLLOWING UNIVERSITIES WHO HAVE HELPED TO DEVELOP, CRITIQUE AND TEST THE LIVE CASES AND PATHWAYS IN THIS BOOK:
ADELAIDE UNIVERSITY, AUSTRALIA CHINESE UNIVERSITY OF HONG KONG, CHINA DANUBE UNIVERSITY KREMS, AUSTRIA ECOLE HASSANIA, CASABLANCA, MOROCCO ECOLE NATIONALE DES PONTS ET CHAUSSéES, PARIS, FRANCE HEC, PARIS, FRANCE IMPERIAL COLLEGE, LONDON, UK LUMS, LANCASTER UNIVERSITY, UK MEDITERRANEAN SCHOOL OF BUSINESS (MSB), TUNIS, TUNISIA MELBOURNE BUSINESS SCHOOL, AUSTRALIA OTAGO UNIVERSITY, NEW ZEALAND OXFORD BROOKES UNIVERSITY, UK PEKING UNIVERSITY, BEIJING, CHINA SAïD BUSINESS SCHOOL, OXFORD UNIVERSITY, UK UNIVERSITY OF TOULOUSE CAPITOLE 1, FRANCE TSINGHUA UNIVERSITY, BEIJING, CHINA UNIVERSITY OF GEORGETOWN, WASHINGTON, USA VICTORIA UNIVERSITY OF WELLINGTON, NEW ZEALAND VLERICK BUSINESS SCHOOL, BELGIUM WARWICK BUSINESS SCHOOL, UNIVERSITY OF WARWICK, UK
1Strategic Purpose
I have a dream ...
Martin Luther King
The most widely used Strategy Tool in the world is the SWOT analysis, which stands for Strengths, Weaknesses, Opportunities and Threats – and it has been so for 60 years. And yet many using it are disappointed with their results.
Why?
The problem is often that the SWOT analysis isn’t aimed at anything. It only works if you know where you are trying to go. As Lewis Carroll’s Alice asks the Cheshire Cat: “Would you please tell me which way to go from here?” To which the Cat replies: “That depends on where you want to get to.” Opportunities only have meaning if you know where you are going. Weaknesses are only strategic weaknesses if they make it difficult to achieve what you are striving for. Defining elements of SWOT without articulating your purpose is a pointless exercise. So without first articulating what your aim is, what purpose you are trying to achieve, or what winning looks like, a SWOT analysis can be time consuming, frustrating and ultimately unfruitful.
Knowing where to go is the point of Martin Luther King Jnr’s famous “I Have a Dream” speech, which painted an aspirational picture of the aim of the American Civil Rights movement: a picture of a country living up to the creed of its founders (that all humans are created equal) and a nation enacting its better nature. It greatly helped his followers and his organisation, and inspired others around the world concentrating on civil rights to stay focused, see the big picture when times were tough and develop strategies that would lead toward the achievement of this aim.
King’s example of the importance of clarity of strategic purpose is supported by other inspirational characters such as Yogi Berra who said, in his distinctive style, “You’ve got to be careful if you don’t know where you’re going, because you might not get there”, and Abraham Lincoln: “If we could first know where we are, and whither we are tending, we could then better judge what to do, and how to do it” – an excellent synopsis of an effective strategy process.
All of these quotes indicate that any really effective strategy development process starts with a dream, a purpose. Without this, any discussion about what strategies should be followed can lead, as it did for Alice, to a lot of energy being expended for the sake of going around in circles. Indeed a loss of purpose can also lead to organisational decline and failure – a situation LEGO found itself in, after years of strong growth, with huge losses in 2004.
In this, our first chapter, we discuss what an organisation’s strategic purpose might be, the vehicles (such as vision or mission statements, corporate philosophies etc.) that organisations can use to articulate what winning looks like for them in this sense, the key stakeholders and advisors who can influence and determine an organisation’s purpose and the constraints upon their power, and how such stakeholder interests can best be managed.
It’s Not Just About the Money
While the majority of strategy research has been focused upon determining the key variables that lead to positive financial outcomes in the short term (with limited success, it has to be said), organisations in practice are more complex with a plurality of purposes. Organisations may have loftier aims than just short-term performance, aiming to help a community, improve the environment and advance sustainability, increase human knowledge and/or create new ideas and products. And indeed, focusing exclusively on short-term financial goals can be detrimental to the creation of long-term value in these other respects.
For example, world famous ice-cream maker Ben and Jerry’s website says, “If you’ve ever enjoyed our Chocolate Fudge Brownie or Half-Baked™ ice cream flavours, then you’ve already had a taste of Greyston’s greatness. We first tried their incredible brownies back in the late 1980s, and we’ve been ordering tons of them ever since.” Best known for producing the brownies in the famous Ben and Jerry’s ice creams, the Greyston Bakery is a New York-based for-profit business that has been running profitably for over 30 years.
What is the purpose of the Greyston Bakery business?
In our experience of teaching business students around the world over the past 30 years, the majority will have responded that it is “to maximise profit for shareholders” – a classic response derived from the famous economist Milton Friedman’s work at the Chicago School of Economics in the 1970s. Some in the class may look slightly perturbed and only a few may disagree, although they would be right to question the assumption. But we do sense that things are starting to change, and we would like to advance a broader perspective as exemplified by Greyston Bakery.
The Greyston Bakery is located in the poor neighbourhood of Yonkers, New York, where there is a need to create jobs for “hard to employ” people – the homeless, those with poor employment histories, prison records and past substance-abuse problems. Radically, they use an “open hiring” practice that continues today, in which anybody who applies for a job has an opportunity to work, on a first-come, first-hired basis. According to CEO Julius Walls, “The company provides opportunities and resources to its employees so they can be successful not only in the workplace but in their personal lives. We don’t hire people to bake brownies; we bake brownies to hire people.” Success is when an employee moves on to a new job using their new skills. With expansion, the bakery has realised that providing jobs to the community is not enough and so now provides permanent housing for homeless people, after-school care, health services and community-run gardens. As CEO Steven Brown said: “Really, we were a benefit corporation long before the term was coined. You’re in business for a much larger community that has a stake in what you are doing. Creating value and opportunity is the path out of distress for communities.”
The Greyston Bakery example shows that organisations can have purposes broader than just making a profit for shareholders and that to assess any organisation it is important at the outset to establish what its purpose is.
Vehicles for Strategic Purpose
The strategic purpose of an organisation matters. Indeed when the toy maker LEGO was facing a crisis after years of expansion and poor financial results, the CEO realised that the company had lost its direction. The key to turning around LEGO was to rediscover what its purpose was. If the purpose of an organisation is not clear to stakeholders, whether inside or outside, then they will form their own views – and these may cause confusion and may even lead to negative interpretations. In stock market terms this can lead to share prices being downgraded and for employees and other stakeholders this can have a demotivating effect. However, a clearly defined and expressed purpose can be highly motivating to all stakeholders. Purpose can be captured in an organisation’s vision, mission, core values and objectives.
Vision
A vision articulates a view of what the organisation wants to achieve or the future it is aiming for. Vision is “big picture” thinking that helps people feel what the organisation is trying to do. It tends to be enduring and often is short. For instance, the Ford Motor Company’s vision when established by Henry Ford was “To make the automobile accessible to every American” and Starbucks successfully drove its strategy with the vision: “2000 stores by the year 2000”.
Good visions generally adhere to five principles. They are:
Brief
(not long-winded “hero sandwiches of good intentions”, as Peter Drucker said)
True to the particular organisation’s identity and focus
Easily
understandable
to all employees
Inspirational
, and
Verifiable
so that progress and ultimately success can be determined.
Mission
Mission statements should also adhere to the tenets above but there is a subtle but important difference between a mission and a vision. The root of the word vision is the Latin vide (to see) whereas mission’s root means “to send”. Consequently, a mission is not so much a goal or a picture of where you want to get to in the future, but rather a philosophy, or way of moving towards the vision in the present. Organisations can therefore have both a vision and a mission. For example, LEGO’s vision is “Inventing the future of play”, while its mission is to “Inspire and develop the builders of tomorrow”. Other classic missions include: Walt Disney’s “To make people happy” and Tesco’s “Every little helps”.
Core values
Organisations often list a number of core values, beliefs or principles that guide their decision-making. Previously derided for being bland and generic, organisations are now striving to make these more specific, more interesting and hence more useful from the point of view of encapsulating a corporate identity that can drive a strategy (see Figure 1.1).
Figure 1.1 Company Core Values
Organisational values need to be enduring and so a question should always be asked: would these values change if external situations changed? If the answer is “yes” then they are not core values.
Objectives
Strategic objectives are precise measurable outcomes of a strategy. They might be sales, profits, share price, consumer satisfaction scores and so on, depending on what is central to the organisation’s purpose. In the case of Greyston Bakery, objectives would be broader based than the ones mentioned and would probably include social and environmental objectives as well.
Strategy statements
An increasing number of organisations now publish strategy statements that seek to capture what the organisation is, what it seeks to accomplish and who it seeks to serve. These statements will contain the elements listed above and also mention the scope of the organisation’s activities and the particular advantage it offers. Strategy statements should be concise in nature, some suggest less than 35 words, so that they are memorable. It is a good test of a strategy statement to count how long it is and whether it contains all the elements mentioned so far: vision, mission, core values and objectives. It may also contain an indication of the scope of the organisation and why it has, or will have, a clear advantage over competitors in achieving its aims. For instance, Coke’s scope is clear in its vision “To refresh the world” and its advantage is its scale of operations. Done well, a strategy statement can provide a useful guide to managers in their decision-making, and give confidence to employees and external stakeholders, such as investors. Done badly, a poor strategy statement might cause questions to be asked of top management competence.
Organisations may choose to articulate their purpose through one of these vehicles, or in a multiplicity of interlocking ways, like LEGO (see Figure 1.2), whose vision, mission and values clearly influence recent strategic decisions.
Figure 1.2 LEGO’s “Vision Chain”
(Source: The Strategy Builder, Cummings and Angwin (2015))
Where Does an Organisation’s Purpose Come From?
It is generally assumed that CEOs are the prime source for an organisation’s purpose and there is no doubt they can have a major influence, particularly if they are a founder or part of a family dynasty. For instance, Elon Musk of Tesla Motors and Space X, Anita Roddick of Body Shop, Steve Jobs of Apple, Steve Ells of Chipotle and Richard Branson of the Virgin group are all iconic visionary CEOs who have created successful organisations with a strong driving purpose. However, there are also examples of CEOs who have damaged their organisation through subverting its purpose to their own whims. For instance, Vijay Mallya, CEO of UB Group, an Indian conglomerate involved in alcoholic beverages, aviation infrastructure, real estate and fertiliser, diversified into Kingfisher Airlines and international markets. This seemed to onlookers as more in keeping with his extravagant lifestyle and pursuit of glamour, fitting his reputation as “King of the Good Times”, than with any obvious organisational benefits. The airline business was not competitive, leading to its collapse, and he had overpaid for international expansion leading to heavy debts and the breakup of the UB group. Other examples of “Imperial CEOs”, those that run their companies for their own purposes, include Bernie Ebbers, CEO of the telecoms giant WorldCom, who was convicted of nine criminal counts for an $11bn (£5.7bn) accounting fraud in 2005 that led to the largest bankruptcy in US history (Financial Times, 19 March 2005); Jeffrey Skilling and Kenneth Lay (Enron), Dennis Kozlowski (Tyco) and Richard Scrushy (HealthSouth) were all tried for corporate wrongdoing. Even the most fêted of US CEOs, the legendary Jack Welch, came under scrutiny, accused of excessive expenses, with a Manhattan apartment, limousine services, security guards, corporate jet and the best seats at sporting and artistic events, to name but a few. These incidents show an increasing concern for understanding and appraising the role and responsibilities of Imperial CEOs and their influence on the purpose of their organisations. It also shows that all CEOs are beholden in some degree to an organisation’s stakeholders and regulators. Therefore, fundamental questions concerning the relationship between top management and stakeholders need to be addressed.
In an Anglo-American context, the conventional wisdom is that a company should be run for its owners, the shareholders, as ultimate beneficiaries. The shareholders should then be central to forming the purpose of the organisation. However, as the opening examples show, there is suspicion that Imperial CEOs run their organisations more for themselves than for shareholders. How has this come about?
Apart from owner-managed organisations and small businesses, shareholders do not have the expertise to run the organisations in which they have ownership and so require a professional executive to manage the business for them. This means that ownership of the organisation is separated from control of wealth and results in a principal–agent relationship.1 The Chief Executive is an agent for the principal (shareholders) and is responsible for maximising the value of the principal’s investment.
The quality of the principal–agent relationship depends on the agent receiving sufficient incentive to work diligently in the principal’s best interests. For this reason, Chief Executives are highly incentivised through salary and benefits to maximise organisational performance. In this light, perhaps the benefits attributed to Jack Welch earlier are justifiable as being a small price to pay for winning the services of an outstanding Chief Executive?
Particularly noteworthy in incentivising top executives is the granting of large numbers of shares and the use of share options to align their interests with those of shareholders. The logic is that if top executives stand to benefit personally and substantially by being able to exercise their options, then they will work to improve the share price to enable this to take place and, in so doing, benefit shareholders. Of course, this method is not without problems – beneficiaries of these options may be incentivised to maximise short-term profits at the expense of the long-term future of the organisation.2
Where a problem can occur is when agents have the opportunity to benefit at the expense of shareholders. For instance, while some consumption of benefits by CEOs is likely to be beneficial to the organisation, as it may assist in attracting and retaining good managers, excessive consumption can destroy shareholder value. Former Tyco CEO, Kozlowski, was sent to prison by the Securities and Exchange Commission for failing to disclose multimillion-dollar low-interest loans (US SEC, 2002). This divergence of interests is known as an agency problem.3 Evidence can be seen in the enthusiasm for CEOs to grow their organisations, such as Vijay Mallya’s expansion into airlines. It is well known that their personal reward and prestige is positively related to the size of their organisation and so they have an incentive to increase it beyond the optimal level. The potential for overinvestment by CEOs occurs when they have access to cash flow in excess of what is needed to fund all available projects that would generate a positive return. Rather than the cash being paid out to investors4 it may be invested in projects that destroy shareholder value. To avoid the worst excesses of the agency problem there are various constraints on CEO power.
What Are the Constraints on CEO Power?
Many court cases against high-profile Chief Executives make the issue of controls on top management, or corporate governance, a very topical issue. Corporate governance focuses on whom the organisation should serve, the distribution of power and relationships among different stakeholders, and the selection and conduct of senior management. It recognises that the CEO is embedded in a hierarchy of power relationships, consisting of many different groups each with claims and influence upon the organisation. The most immediate influence on the CEO is through the chain of ownership.
In small private companies, the owners may be a small number of family members who may or may not have a role in the running of the organisation itself. While the number of shareholders may be small, the tensions and struggles between family members over the direction of the business can be extraordinary and involve issues far removed from just the maximisation of shareholder value. For larger public organisations, ownership is far more complex. Just by looking at the share register, one may well find the number of direct share-owners running into thousands of individuals dispersed around the globe. For the majority of these owners, their shares will represent only a fraction of the total issued share capital and so their individual ability to influence the organisation will be very low. Individuals may also buy into the organisation indirectly (through investment funds, for example) and may not even be aware of the companies in which they have a stake. The same applies for funds placed with pension funds under the management of trustees.
In most share registers of public companies the largest shareholders will be institutions rather than private shareholders. The investment managers of pension funds as well as investment trusts therefore have substantial influence over the organisation’s management. However other institutions, such as insurance companies, also build sizable stakes. Investment banks, for instance, may have substantial holdings in their own right, and in countries such as Germany and Japan, commercial banks are major holders of equity in leading companies.5 In these countries cross-shareholding is common, unlike the Anglo-American system, and this leads to illiquidity in dealing. It has been argued that this structural difference affects the extent to which shareholders push for shorter- or longer-term results.
Often, substantial owners of shares may be other companies, either as a pure investment or as competitors keeping themselves informed of a rival’s activities and using share ownership as a hedging strategy. It is worth noting that all of these shareholders have their own agendas and time frames. For instance, in the short term, an organisation may well have a significant portion of its shares controlled by arbitrageurs whereas pension funds may be committed for the longer term.
One type of ownership is that of the non-equity principal. These are generally banks, which, through the provision of loans and other forms of finance, such as bonds, have ownership rights over the organisation’s assets. Generally speaking, these non-equity principals become influential when there may be material changes to the nature of the organisation, in its ownership, such as when an organisation is subject to a takeover bid, or in its financing, when the organisation may be trying to raise funds. Debt holders become very significant in influencing CEOs and top management when the organisation is in poor financial health. Indeed, there can come a point where the value of the equity is virtually nil and debt holders control the organisation, wielding more power than equity holders.
The parties described above can be thought of as a chain of principal–agent relationships, with the CEO being the agent of the Board of Directors, which in turn is the agent of institutional managers and long-term investors, who are agents for trustees, who are agents for the ultimate principal, the beneficiaries (see Figure 1.3).
Figure 1.3 Principal–agent chain
Between each of these links, information is passed to safeguard the interests of the principal. In the Anglo-American system, the law states that certain information needs to be disclosed to all shareholders. This is done by sending out the annual report and accounts together with notification of any material changes to the organisation. However, the richness of information obtained, over and above this legally specified minimum, is broadly proportional to the size of the shareholding and the resources available for making this collection. For instance, pension fund managers are likely to meet personally with top management, attend all meetings scheduled by the organisation and speak fairly regularly on the telephone. Individual shareholders, however, may just receive the annual report and accounts if direct shareholders, and, if holding shares through an investment fund, may not even receive this information, but simply a performance report for the fund as a whole.
Mechanisms internal to the organisation, to align the CEO’s interests with those of the owners, are financial incentive schemes. The logic is that if the shareholders become rich, then so should the CEO. These schemes may include increasing share ownership and compensation arrangements based on accounts, markets and contingencies (such as long-term incentive plans, LTIPs). While they reward CEO focus on improving selected performance measures, these techniques can be counterproductive. For instance, if a CEO’s remuneration is tied to organisation profitability, actions may be taken to boost that profitability by starving the organisation of investment for future growth. Other internal mechanisms include improving internal controls and monitoring, through (1) the performance and pay review process and (2) corporate governance (The Cadbury Report 2003). Corporate governance generally insists on the separation of Chairman and Chief Executive roles to avoid undue concentration of executive power. The Chairman is primarily responsible for managing external relations while the Chief Executive is responsible for day-to-day operations and relationships within the organisation. All Executive Directors report to the Chief Executive (but not Non-executive Directors).
