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Business Strategy Tools

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


Over the years, Pocketblog has covered some important business strategy thinkers, so we will start by reviewing what we have.

Good Strategy/Bad Strategy

This is the name of Richard Rumelt’s book and it neatly frames any discussion of business strategy by defining what your outcome needs to look like. Take a look at ‘What makes good business strategy?

The Balanced Scorecard

In one of the all-time classic Harvard Business Review articles, Robert Kaplan and David Norton set out to ensure that our business strategies are balanced across a range of different areas of the business. The tool they introduced is nearly ubiquitous in the upper reaches of the management world, and no manager can get away without at least a passing familiarity with the Balanced Scorecard. Take a look at ’Balance is Everything’.

The McKinsey 7S Model

One of my own favourite tools is also about balance, but this time about ensuring all the elements of your business strategy and planning are all aligned. It was developed by consultants at top US firm, McKinsey: Tom Peters and Robert Waterman. The seven S model reminds us that shared values, style, skills, staff, structure, systems, and strategy must all be consistent with one another. Take a look at ‘On Competition: Internal Forces and the 7-S Model’.

The Awesome Michael Porter

Over the years, three blogs have featured the thinking of business strategy specialist, Michael Porter.

‘On Competition: Five Forces’ briefly introduced two of his principal ideas: the five forces model and his three generic business strategies that flow from them.

‘On Competition, again: Porter’s Five Forces’ took a deeper look at the five forces model.

‘On Competition – The Far End of the Value Chain’ focused on the three generic business strategies and his concept of the value chain. Here, I speculated that some businesses have found a fourth, very successful business strategy.

By the way, a recent entry in the Pocket Correspondence course returned to the idea of the value chain. Take a look at ‘The Value Chain’.

The Boston Consulting Group Matrix

Having finished reviewing the archives, let’s take a look at one business strategy tool. This is designed to help us answer a very simple question:

‘We have a number of products (or services) but limited resources to invest in their development and marketing. Which products (or services) should we focus our investment on?’

The folk at Boston Consulting Group who developed the tool suggested that two considerations are paramount in making our judgements:

  1. What is our market share?
    Do we have a dominant market position with this product/service, or a modest share. This dictates the base from which investment can grow or maintain our position.
  2. What is the growth potential of the market?
    Is this product in a growing, static or declining market? Clearly static and declining markets offer far less opportunity to recoup investments.

The result was a simple matrix that plots these two conditions against one-another and identifies four generic strategies. You can click on the image to enlarge it.

The Boston Consulting Group (BCG) Business Strategy Matrix

The Matrix gives us four strategies, three compelling labels for our products/services and one label that is, frankly, honest but lame.

Stars

Place your biggest investment bets on the products which dominate markets with high growth potential. If you are Samsung, you will be investing highly in mobile telephone products because the market continues to expand and you already have a dominant position.

Dogs

Do not invest – arguably, disinvest – in products which have a small share of a static or declining market. There is not much to win and you are not placed to take much of it.

Cash Cows

What do you do if you are a dominant player in a static or declining market? BCG suggested it is like having invested in a cow: you should look after it and milk it while it is healthy. This is how I read the men’s razor market. If you are one of the big players in your region (Gillette, Wilkinson Sword, Bic, for example, here in the UK), then you have a lot of investment in products and marketing, and a strong, valuable revenue stream. Over investment can gain little, as the market will never expand until men grow two heads or we need to shave more of ourselves. But if you don’t invest, you will lose the benefit of your position to your rivals. So, what do we see? Incremental investment in new – but hardly innovative – products. When I started shaving, two blades was new. Now we are up to five. By the time I no longer need to shave (about thirty years or so, I guess) I predict an eight bladed razor will be common.

Question Marks

What to call these pesky products… Does the label attach to the products or the challenge BCG found in labelling them with a cute title? Set aside that curious linguistic conundrum and we face the most difficult challenge of all. Your market is growing, so there is a big prize for the skilled/lucky investor. But your market position is weak, so you have a low chance of success against bigger rival products. Like many good tools, the BCG matrix does not give you all the answers. But it does bring your choices into stark relief.

Further Reading 

From the Management Pocketbooks series:

  1. The Strategy Pocketbook
  2. Business Planning Pocketbook
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12 Blogs for Christmas

Holly&Ivy

This has been a great year for the Pocketblog, seeing reading figures rise substantially and reaching the milestone of our 100th blog posting.

So, with Christmas coming at the end of the week, let’s do a round-up of some personal favourites from among this year’s Pocketblogs.

Here is something for each of the twelve days.  Enjoy!

1. Start as you mean to go on: Happiness

After some New Year’s Resolutions to start the year off, we dived into the subject of Happiness, with ‘Happiness – as simple as ABC?’ about Albert Ellis’s Rational Emotive Behavior Therapy – the fore-runner of CBT.

2. … and Start Topical

We then moved into a subject that was much in the news in February; and still is.  With ‘Bankers’ Bonuses and Brain Biology’, we looked at recent neuroscience and how that relates to Adams’ Equity Theory.

3. Generations

In February too, I wrote two blogs about sociological ‘Generations X, Y & Z’ and ‘Generation Y at work’.  I followed this up by another about what comes ‘After Generation Y?’.

4. The Gemba

In May, inspiration waned for a week, so where did I go to find it?  ‘The Gemba’.  I got it back, and later that month, got idealistic in ‘Reciprocity and Expectation’ looking at the Pay it Forward ideal and the realities of Game Theory.

5. Why do we do what we do?

In the first of two blogs on how to predict human behaviour, I looked at ‘How to Understand your Toddler’ (mine actually) and Icek Ajzen’s Theory of Planned Behaviour.  Later in the year, in ‘Predicting Behaviour’, I looked at whether a simple equation (hypothesised by Kurt Lewin) could predict all behaviour.

6. One of the Best Business Books of the Year

… according to the Journal Strategy & Business is Richard Rumelt’s Good Strategy/Bad Strategy: The difference and why it matters.  In ‘What Makes a Good Business Strategy’ we looked at some of his ideas.

7. The Apprentice

This year, I have been a big fan of both series and have written my own episode by episode analysis of both The Apprentice and Young Apprentice.  I also did one blog on each for Pocketblog: ‘The Apprentice and Five Levels of Leadership’ and, for Young Apprentice, ‘Decision Failure’.

8. Drucker Triptych

Has any one individual been as influential in establishing management as a pragmatic academic discipline as Peter Drucker?  To recognise his various achievements, I wrote a triptych of blogs over the summer:

  1. The Man who Invented Management
  2. Management by Objectives
  3. R.I.P. Corporate Clone: Arise Insightful Executive

And one of Drucker’s direct contemporaries was W Edwards Deming, so I also took a look at ‘Demings’ System of Profound Knowledge’.

9. Crazy Times

Will history look on Tom Peters with the respect that it holds for Drucker and Deming?  Who knows?  But without a doubt, Peters has been influential, insightful and provocative for thirty years or more, and I am sure many of his ideas will survive.  In ‘Crazy Times Again’, I drew a line from FW Taylor (father of ‘Scientific Management’) to Peters.

10. The Circle Chart

In ‘Going Round in Circles’ I returned to management models and one of my all time favourites: Fisher and Ury’s Circle Chart. I applied it to problem solving rather than, as they did, to negotiation.

Fisher and Ury are experts on conflict resolution, as is Morton Deutsch. In ‘Conflict: As simple as AEIOU’, I looked at a fabulously simple conflict resolution model that originated in Deutsch’s International Centre for Cooperation and Conflict Resolution.

11. Two Notable Events

Two notable events made the autumn memorable for Pocketblog: one sad and one happy.

  1. In ‘A Bigger Bite’ we marked Steve Jobs’ passing
  2. With ‘Three ways to get it wrong’, we marked our hundredth blog, by looking at one of the towering social psychologists of today, Daniel Kahneman

12. And finally, our most popular topic

Tuckman’s model for group formation has proved to be our most popular topic by far this year.  We have returned to it three times, each time looking at a particular facet:

  1. ‘Swift Trust: Why some teams don’t Storm’
  2. ‘Team Performance Beyond Tuckman’
  3. ‘Tuckman Plus’ is the first of two posts.  It is the last topic post of 2011 and its companion (‘Part 2: Transforming’) will be the first of 2012

So here’s the deal

  • Have a very merry and peaceful Christmas.
  • Have a very happy and healthy New Year.
  • Be good, have fun, stay safe, and prosper.

From all at Management Pocketbooks,
our colleagues at Teacher’s Pocketbooks too,
and from me particularly.

Mike

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On Competition: Five Forces

On a high shelf in my study are the books I rarely refer to.  Some turned out to be a disappointment after I bought them, but some, however, are old friends.  It’s just that I no longer need to refer to them much.

Years ago, when I was asked to develop a seminar on business strategy, three of them were my constant companion as as I thought through and planned the session.  And the first model I thought of back then features at the start of Chapter 1 of one of those books, Michael Porter’s ‘On Competition’.  This is, by the way, a hefty hardback (lovely to use).

I’ve been re-reading parts of it in preparation for a new seminar: ‘the Three Hour MBA’.

Michael Porter

Michael PorterThe same model appears in the delightfully neat ‘Strategy Pocketbook’ by Neil Russell-Jones.  In it, Jones describes Porter as ‘one of the most influential strategic thinkers and writers’ and his classic book ‘Competitive Strategy’ is required reading on just about every MBA course.

 

Porter’s Five Forces

Not surprisingly, Michael Porter starts his book (which collects a dozen or so of his best articles) with the model that bears his name: Porter’s Five Forces.

Porter's Five Forces that govern competition

Porter analyses the basis of the power behind each of these five forces, and the barriers to entry of new players or substitute products.  The model forms a basis for developing a strategy that positions your company and influences the forces around it.

Three Strategies

Porter suggests three generic business strategies to position your company to take advantage of your competitive environment.

Porter's Three Generic Business Strategies

Systems Thinking

Perhaps Porter’s model is showing its age.  In the 1980s, the world seemed a simpler place.  Now, we understand far better, how inter-connected things are.  Suppliers are dealing directly with customers and business are making ever-more complex alliances.  How does access to capital (the last couple of years worth of headline news) affect competitive forces, and what about other resources, like people and energy?  And what are the affects the forces of social responsibility and regulation?

So here’s the deal

Porter’s Five Forces is an entry level strategy tool.  It is a valuable insight into the workings of a competitive market and a great starting place.  But do consider the lessons of Richard Rumelt, who argues that a good strategy starts from a robust understanding of the situation, with which this model can help, but needs much more in addition.

Some Management Pocketbooks you might like.

The Strategy Pocketbook

Neil Russell-Jones’ Strategy Pocketbook is stuffed full of handy tips and strategy planning tools, including Porter’s Five Forces and a ‘competitive intensity’ tool that is based on it.  It also has lots of other valuable tools and models.

 

Also take a look at:

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What makes good business strategy?

The world of company strategy development is fertile ground for those of us who like management models.  The options range from simple – nay simplistic, to byzantine complexity.

However, I would argue that few of these strategic tools can ever determine a strategy for your business – what the best tools can do is give you insights into the strategic context, or help you explore the potential consequences of a possible strategic decision.

Good Strategy / Bad Strategy

In a new book, Professor Richard Rumelt of the UCLA Anderson School of Management, describes what he terms ‘bad strategy’.  He has been articulating his ideas for several years now, and you can get a five minute introduction to his ideas from the short video interview from 2008, below.

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Professor Rumelt’s ideas are simple and compelling – indeed, one of his key points is that a good strategy is, itself, simple and compelling.

A Good Strategy

In Good Strategy/Bad Strategy: The difference and why it matters, Rumelt argues that a good strategy:

  • is based on a robust diagnosis of the situation and the problem to be solved
  • offers a simple solution to a problem – ‘simple’ meaning no more complex than it needs to be: not simplistic
  • follows a clear policy framework that provides constraints for the strategy
  • allows participants to co-ordinate their actions and to create a focused outcome

A Bad Strategy

A bad strategy, on the other hand,

  • fails to address the real problem
  • sets goals but makes no attempt to articulate how to achieve them
  • has a vast array of objectives with little prioritisation
  • hides poor analysis inside jargon, buzzwords and superficial analysis

You can hear Professor Rumelt for yourself or read his article ‘The Perils of Bad Strategy’.

[youtube=http://www.youtube.com/watch?v=o4QICxDvTjw]

Good Tools

With Professor Rumelt’s warnings ringing in our ears, we need to understand some of the tools we can use to inform our robust diagnosis and clear solutions.  We’ll start taking a look at these next week…

In the meantime,

Some Management Pocketbooks you might like.

The Strategy Pocketbook

Neil Russell-Jones’ Strategy Pocketbook is stuffed full of handy tips and strategy planning tools.

Also take a look at:

The Business Planning Pocketbook

The Nurturing Innovation Pocketbook

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