How to create sustainable CompetitiveAdvantage using Strategy Mechanism?

Petri Laulajainen, Sr PartnerPSL Consulting

Strategic dilemma

• Most companies and organizations know their businesses, and the strategies required for success. However many struggle to translate the theory into action that will enable the strategy to be successfully implemented and sustained

• Many companies repeatedly fail to transfer the strategic choices in operational actions, and to truly motivate their people to work with enthusiasm, all together, towards the corporate aims.

Gap between theory and reality

• A study of 200 companies in the Times 1000, 80% of directors said they had the right strategies but only 14% thought they were implementing them well. 86 % had problems in transferring their intension into reality!(Why do only one third of UK companies achieve strategic success? - I Cobbold & G Lawrie, 2GC Ltd., May 2001.)

Survival of the fittest?• Charles Darwin wrote a book on natural selection: Survival of

the fittest, it turns out, is all about adapting to a changing environment and new competitive realities.

• Business environments are changing faster than ever before, new technologies are emerging constantly at an increasing velocity, and industries are shaken by deregulations, mergers, and new entrants.

• Some companies are able to adapt to these changing environments, others are not.

Strategic Innovation

How to create CompetitiveAdvantage?

Strategic Innovation

• The question is, how a company can achieve ongoing strategic innovation, leading to competitive advantage and financial success?

• Besides the ability to sense shifts in their competitive environment, a crucial component of their success is their focus on strategy as well as a different view on strategic management

• Successful companies have recognized that in order to be successful in the long run in terms of creating financial value and survival, they will need to achieve competitive advantage.

Competitive Advantage

• Attaining competitive advantage is enabled through the creation of new markets, superior customer value, new business models and disruptive innovation.

• Competitive advantage is only sustainable for a limited period of time, doing this once is not enough; these companies know that their organization needs to build the capabilities necessary for ongoing strategic innovation

Defining Strategic innovation

“…those who live by the sword will be shot by those who don’t.” (Gary Hamel)

Strategy Mechanism

Only source for CompetitiveAdvantage

What is Strategy?

A gap between theory and reality.

Strategy of the Future?

Agile Strategy Mechanism is the only

sustainable Competitive Advantage

a company can have!

Short term vs. Long Term

• Without a central strategic management process in place, organisations have a tendency to rely mainly on financial tools (budgets) and risk being governed by short-term financial pressures with little or no focuson the requirements for longterm success

Strategic Success

• The most important factor determining the competitiveness and profitability of organizations is the extent to which they match their strategies and capabilities to the environment in which they operate.

(I. Ansoff/PSL Consulting)

Environmental turbulence, and Capability to react and create

competitive advantage

Turbulence level in Business Environment

Companys strategicalCapability to react

Organisationalcapability to renew

E1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

S

R

Mechanism

R

S

N N N

(Adapted from I. AnsoffP. Laulajainen)

Competitiveness Competitive Advantage

Closing the Gap betweentheory and reality

• In fast paced industries, companies shouldthink of strategy as an iterative loop.

1. Making sense of the situation:

• Analysing the Environment

• Analysing internal Resources

2. Making strategic choices,

3. Making things happen,

4. Making revisions, and

5. Creating Strategy Mechanism

• Business environments are changing faster than ever before, affecting every company. Some companies are able to adapt to these changing environments, others are not. The company that can re-organise resources accordingly, can achieve competitive advantage, not always the company with biggest resources.

• A Company, and its operating-mechanism is a dynamic model, which consists of 4 components; a subject (S), environment (E), resources (R), and mechanism (M), which integrates the 3 previous ones.

Strategy Mechanism

Strategy Mechanism

Environment

Resources

Subject

MECHANISM

StrategyMechanism is

only sustainableCompetitiveAdvantage

(D.S. Cho)

How to create a Strategy Mechanism?

Analysing current situation

• Through the analysis of resources, and by developing a working strategy mechanism, a company can focus its actions, and maintain or even increase the profitability, in a situation where slower reacting competitors are losing market shares.

Example of Strategy Mechanism

Analyse Strategy, set objectives

Developstrategy

Analyse yourResources

Analyse the Environment

Implementstrategies

CreateResources

CreateEnvironment

Sustaining CompetitiveAdvantage

Vision and Goals

Shareholders, Board. CEO

RecomposeEnvironment

RecomposeResources

E

S

R

(D.S. Cho)

1. To use resource (RA) to change resource (RO)ex) applying Innovative Management techniques to streamline

decision making processes within the firm

2. To use environment (EA) to change resource (RO)ex) utilizing alliance partners to develop new products

3. To use resource (RA) to change environment (EO)ex) using firm technologies to change consumer behaviors

(iPod, Sony Walkman)

4. To use environment (EA) to change environment (EO)ex) Influencing the government to change the rules of the game

Four Scenarios in Recomposing

(D.S. Cho)

1. Understanding 4 Basic Functions

(+) Additionex) acquisition of assets, unrelated diversification, seeking

alternatives

(-) Subtractionex) lay-off, closure of departments and factories, spin-off

(x) Multiplicationex) vertical integration, functional diversification

(/) Divisionex) disintegration of activities, decentralization

Mechanism of Recomposing - 1

(D.S. Cho)

2. Decomposing Firm Activities into Unitsex) merger: combination of assets, related and unrelated

activities, know-how, corporate culture, etc.

3. Recomposing the Units with various Functionsex) outsourcing = f (disintegration of activities, closure of

departments, lay-off, seeking alternatives, etc.)

4. Implementing Improvement Programs to Create New Environment

(such as reengineering, restructuring, downsizing, benchmarking,JIT, TQM, etc.)

Mechanism of Recomposing - 2

(D.S. Cho)

Success formula: Strategy Mechanism?

• The company operating in a turbulentenvironment needs a working strategy mechanism rather than a detailed road map for a road when the environment is fastchanging, and topography is unknown

• Ansoff’s strategic success formula states that for optimum return on investment, both the aggressiveness of the firm’s strategy and its capabilities must match the turbulence of the environment.

For more information contactPSL Consulting:

Mr. Petri Laulajainen

petri.laulajainen@pslc.fi