• Two sources of Strategy
    • Emergent
    • Deliberate
  • Strategy is process, not an event. Understanding the process is a key to success. Understand the difference between "good money" and "bad money."
  • By the end of this module you will be able to:
    • Understand the strategy development process within your own company
    • More effectively manage the strategy development process
    • Determine which "type" of money will be optimal to grow your business
  • Resource allocation: Everyday the team has to decide what to focus on, and what not to focus on. We need to look at what the company needs to prioritize financially, then determines what get’s implemented and what does not, this becomes the strategy. The allocation of resources is not an event, followed by implementation. It is actively happening.
  • The resource allocation process will determine which deliberate and emergent initiatives get funded and implemented, and which are denied resources.
  • If you want to see the real strategy of a company. Don’t listen to what they say, watch what they do.
  • Below is the entire resource allocation process. A useful exercise would be to diagram this out for your own organization
  • As companies grow, it makes it hard to see small opportunities. DO not become a monolithic company. Have small business units that add up to a large company, then small opportunities look bigger to the smaller business units.
  • The resource allocation process will automatically prioritize initiatives based on the profit formula for the company, whether good or bad.
  • Intel had a deliberate strategy that was to be the leaders in smart phone processors, however the profit formula/resource allocation process just wouldn’t let it happen.
  • Need to set a new criteria (profit formula) for the resource allocation process.
  • Profit formula controls the resource allocation process.
    • process can prevent innovation. Thus we need a new business model to go after the new business.
    • good, emergent ideas often come from lower-level employees. Thus, implementing processes to surface these ideas is critical.
  • The HR process that promotes based on individual $$ contribution, is based on an ideal that will reward showing value every 18 to 24 months. If an innovation will take longer than 18 to 24 months, they will will probably be passed up.
  • There are three phases of business growth. Here are a few bullet points to crystalize these stages in your mind:
    • Market Creating Phase (job creation) – A deliberate strategy, but know that innovation will come about via an Emergent Strategy, as well.
      • The early stages of a new product or service when a company is focused on the development of the product or service to meet the customer’s job to be done.
    • Sustaining Phase (no net new job growth) – Deliberate strategy, top down approach to grow the business.
      • After the product or service has been defined and deployed into the market place, the company tries to evolve the product or service to meet the needs of the best customers in the market in order to beat the competition.
    • Efficiency Phase (job loss)
      • When companies sell mature products or services to the same customers at lower prices. Companies accomplish this by developing a business model that can still make money at lower prices-per-unit sold in order to increase profitability.
  • IBM/Sears introduced Prodigy
    • Invested $500m each ($1b)
    • started with a focus on shopping.
    • saw people emailing, and decided to charge them.
      • Instead of seeing email as an emergent opportunity, leaders at Prodigy focused on their deliberate strategy to facilitate an online portal where users could access information and shop.
    • AOL focused on email, and a purpose brand "You’ve got mail"
  • It’s hard to get a customer to "change the job", but if you help them do their job , but better, you win.
  • You can;t beat the resource allocation process, you need to manage it.
  • Lesson from AOL
    • Never believe that the strategy that helped us to be successful, will not always be the strategy that keeps us successful.
    • Change in the strategy is not an event, it’s a process
    • Continue to pursue the existing strategy, but build a new BU to be the next business.
    • Blockbuster: Acquire movies for all 5000 locations, rent as many as possible in 3 wks, then clear. This required late fees as a tax for not being able to rent again.
    • Netflix went after the DVD market, at a flat rate.
      • as DVD became more and more available. they switch to rental and late fees.
      • then moved to unlimited rentals for a flat fee.
      • Implemented a recommendation system, this spread out demand. The movie had to be in stock to be recommended.
    • Blockbuster tried to add an online business, but the resources, processes, and profit formula were deployed differently not allow for them to work together long term. The business was built to support stores.
      • Blockbuster merge what was the best in their traditional business with their online business.
    • Netflix created a separate business around streaming.
    • Now they continue to move up to content.
    • "Plans are useless, but planning is indispensable." Dwight D. Eisenhower
  • Good Money and Bad Money
    • The basic idea of good money and bad money is that the type of money a manager accepts carries specific expectations that must be met. These expectations heavily influence the types of markets and channels that a venture can and cannot target. The very process of securing funding forces many potentially disruptive ideas to get shaped instead as sustaining innovations that target large and obvious markets. Thus, the funding received can send great ideas on a march towards failure.As emergent ideas are being nurtured during nascent years, money must be patient for growth but impatient for profits.When winning strategies become clear and deliberate ideas need to be carried out then money should be impatient for growth but patient for profit.
    • Company good money, bad money lifecycle.
      1. Successful companies
      2. company faces growth gap (shareholder expectations must be exceeded)
      3. Good money becomes impatient for growth
      4. executive temporarily tolerate losses
      5. mounting losses precipitate retrenchment.
      6. End up back where you started, with a growth gap.
    • Again, focus on the "Jobs to be done." If you focus on this, then the chances of good money and bad money tripping you up is minimized.
  • OnStar
    • Project Beacon, leveraging car deployments, Hughes electronics, and EDS
    • Very emergent strategy
    • Approaching the market with a broad strategy is actually consistent with the emergent strategy process. During the market creating phase, OnStar didn’t know what services would resonate most with customer jobs to be done. Chet was effective at allowing new ideas to surface and be tested in the marketplace. However, as Chet pointed out, the "swiss army knife" approach isn’t viable long-term. Chet needed to find the winning strategy that would allow OnStar to rally around a deliberate strategy.
    • safety and security emerged as the key value proposition.
    • Gen 2 hardware was 1/3 the cost of Gen 1.
    • GM was focused on RONA (return on net assets) as the profit formula
    • OnStar settled on the broad job to be done of "help me have safety, security, and peace of mind"
    • "The purpose brand gives you license."
    • Advice:
      • The company (GM) was patient with results.
      • Active engagement of most senior people in the company. Would have been great to have split RPP (Resource, Processes, and profit formula.)
  • Managing Your Strategy Development Process
    • Senior management must simultaneously, yet separately manage the strategy development process.
    • Leaders must seek Good Money based on your current situation.

Managing the Strategy Development Process.pdf

Works Cited Managing the Strategy Development Process.pdf