principles for strategy process johan strümpfer © johan p strümpfer, 2006
TRANSCRIPT
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Principles for Strategy Process
Johan Strümpfer
© Johan P Strümpfer, 2006.
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Need:
<Your Organisation> has expressed a need to make the planning process followed in 2006 sustainable into the future. The need refers to the process of reflection on <Your Organisation>’s strategic positioning undertaken in <Your Organisation> in 2006, and the consequent decisions taken on positioning <Your Organisation> for the future.
The primary audiences in <Your Organisation> involved in the above process in 2006 were the Group Exco, cluster Excos, a strategy resource group, a group wide top 500, and several cluster related large groups.
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Purpose of the workshop:
To will assist a group within <Your Organisation> in putting a framework in place, that will enable them to develop a process to design their strategy for 2007 and beyond.
The workshop is aimed at a group of between 12 and 15 people who will play a role in determining the <Your Organisation> strategy process for 2007
We do anticipate a much deeper understanding of the principles to be pursued in such a process, i.e. on what is important.
We do anticipate greater clarity on how such a process could like in 2007, i.e. a rough outline. We do not anticipate a complete design of a strategy process to be available at the end of the workshop.
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Workshop Method:
We will cover a large number of guiding principles in detail. These are guidelines for how a meaningful strategy
development process should look like. We will spend time in the group discussing what these
guidelines mean, and specifically, how <Your Organisation> should be implementing them.
The outcome of these “how to implement this” discussions will collectively give <Your Organisation> a draft design for a practical strategy process for 2007.
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Opening: I am not trying to convince you of anything. These
principles are what I use. They are based on 25 years of exposure to planning and strategy, and much reflection on what is going on. These principles have helped me in practice. Pick and choose your way through this. This is not a contest of wills where I will try to convince you of what is right and how it should be done, vs. how you think things should be.
This is also not a review of strategy approaches or philosophies. This is simply what I have used in a large number of real situations.
Background on me: www.strumpfer.com
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Workshop priorities
Priority 1: What matters is what you take away, not what I bring in here.
Priority 2: Refer Priority 1
And this means?• Volume of material• Volume of input• Volume of design
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Here is Edward Bear, comingdownstairs now, bump,
bump, bump, on the backof his head, behind
Christopher Robin. It is,as far as he knows, the only way of coming downstairs,
but sometimes he feelsthat there really is another way, if only he could stop
bumping for a moment to thinkof it. And then he feels that
perhaps there isn’t. Anyhow,here he is at the bottom, and
ready to be introduced to you,Winnie-the-Pooh.
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The topics that would be covered include
• Principles for Planning – detailed coverage
• Planning processes overviews • Planning Methods – very brief review of
some, not in depth coverage of many• Design – outline for <Your
Organisation> for 2007
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Programme: Understanding principles Group A Principles: Building mental models
• Meaning and implications discussion. Group B Principles: Conversation Design
• Meaning and implications discussion. Group C Principles: Design of Inquiry
• Meaning and implications discussion. Group D Principles: Building Intellectual leadership
• Meaning and implications discussion. Group E Principles: Building the case for change
• Meaning and implications discussion. Group F Principles: Building competitive advantage
• Meaning and implications discussion. Putting it together: A picture for 2007.
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The Background on Principles.
“There is nothing as practical as a good theory” Robert Maxwell.
Why? Something is complex when we do not
understand it. The task of complexity management is managing the learning process through which we create the appropriately rich mental models to guide us in terms of what we must do in a particular situation.
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Problems with mental models(From John T Martin)
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Group A Principles: Building mental models
Principle 1: The strategy process is about building mental models
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Mental Models:
A mental model is a representation of some aspects of reality
Our actions are based on the mental models we hold of a situation
The confidence of our actions is based on our belief in our mental models
The effectiveness of our action is determined by the appropriateness of our mental models
TB Ryan
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What does management do?
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Systems Management:A perspective
Managers are faced with a system they need to manage. They have to intervene in such a way as to guide the system so that it moves from less to more desirable behaviour
To do this they need to have ....
TB Ryan
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Managing requires...
1. A representative mental model of the current less desirable behaviour;
2. A feasible and acceptable mental model of desirable behaviour;
3. An adequate mental model of how the world works in this particular situation;
4. A belief based on the above 3 models that the system can be improved by managing it.
TB Ryan
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Financial performance intwo product lines
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Solution process Group inquiry: Participation Used Immersion, Soft Systems
Methodology and Systems Dynamics Modelling (Systems Practice Process)
Questioned and shifted their ways of thinking and understanding the business.
Continuous action• Refer: www.strumpfer.com/Publications • Article by Strumpfer & Brown
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Group A Principles: Building mental models
Principle 1: The strategy process is about building mental models
Principle 2: IKEA principle: Effective Action is build on appropriate Knowledge (mental models), which are produced by a good Inquiry process
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Effective Action
PragmatistPhilosophy !!
Desired outcome?
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Effective Action
PragmatistPhilosophy
AppropriateKnowledge(mental models)
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Effective Action
PragmatistPhilosophy
AppropriateKnowledge(mental models)
QualityInquiry
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Effective Action
PragmatistPhilosophy
AppropriateKnowledge(mental models)
Co-ordinatedAction
QualityInquiry
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Effective Action
PragmatistPhilosophy
AppropriateKnowledge(mental models)
Co-ordinatedAction
SharedMentalModels
QualityInquiry
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Effective Action
PragmatistPhilosophy
AppropriateKnowledge(mental models)
Co-ordinatedAction
SharedMentalModels
QualityInquiry
Joint/grouplearning
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Effective Action
PragmatistPhilosophy
AppropriateKnowledge(mental models)
Co-ordinatedAction
SharedMentalModels
QualityInquiry
Joint/grouplearning
SystemsThinking
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Effective Action
PragmatistPhilosophy
AppropriateKnowledge(mental models)
Co-ordinatedAction
SharedMentalModels
QualityInquiry
Joint/grouplearning
SystemsThinking
Principlesto increase
Principles to increaseeffectiveness
E.g.Multiple perspectivesConnectednessCausality
E.g.Shared workspaceConversation design
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Group A Principles: Building mental models
Principle 1: The strategy process is about building mental models
Principle 2: IKEA principle: Effective action is build on appropriate mental models, which are produced by a good Inquiry process
Principle 3: The strategy process is a learning process
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Single and Double loop learning(Based on Argyris)
ActionDecided Outcome
DesiredOutcome
Gap
Single Loop Learning
Double Loop Learning
Effective StrategyEffective Strategy ProcessProcess
Ineffective StrategyIneffective StrategyProcessProcess
Changes beliefs,World views,Paradigm,
Theory in Practice,Mental Models
ActionTaken
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Example
“Actually, nothing changed, …. except that I think differently.”
Don Brown.
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Effective Action
AppropriateKnowledge(mental models)
Co-ordinatedAction
SharedMentalModels
QualityInquiry
Joint/grouplearning
SystemsThinking
Individual Learning Process
Group Learning Process
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Solutions, Strategies & Experts
There is nothing as problematic as solutions(Argyris & Schön,1967)
The Berkeley experiments
Solutions
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The Strategy Process is a
“Learning Intervention”
“Planning is Learning”
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Meaning and implications discussion:
What do these principles mean? What are the implications of these
principles in practice? Measure of Performance? How does a group learn? What we should we do about this? What should your role be?
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Programme:
Understanding principles Group A Principles: Building mental models
• Meaning and implications discussion. Group B Principles: Conversation Design
• Meaning and implications discussion. Group C Principles: Design of Inquiry
• Meaning and implications discussion. Group D Principles: Building Intellectual leadership
• Meaning and implications discussion. Group E Principles: Building the case for change
• Meaning and implications discussion. Group F Principles: Building competitive advantage
• Meaning and implications discussion. Putting it together: A picture for 2007.
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Group B Principles: Conversation Design
Principle 4: Strategy development is a learning conversation
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Effective Action
AppropriateKnowledge(mental models)
Co-ordinatedAction
SharedMentalModels
QualityInquiry
Joint/grouplearning
SystemsThinking
CONVERSATION ! (Dialogue)
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Group B Principles: Conversation Design
Principle 4: Strategy development is a learning conversation
Principle 5: Keep the conversation alive
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Conversation Design considerations:
Keep the conversation alive Focus the conversation on the right things Keep the interest up Keep the topic and angle fresh Keep it meaningful Keep the conversation relevant to the
concerns of the day (Practical relevance)• Eh…, how?
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Basic conversation template
ContextSetting
Choice of Framework*
Question(s) To drive
Conversation
DebateConclusionsDecideImplications for
Action
Me/You
TheyThey
*More later
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Process Design
C F Q
DCAC F Q
DCA
C F Q
DCA
C F Q
DCAC F Q
DCA
C F Q
DCA
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Strategy: Things to strive to do
Why change?
CompetitivePositioning
EnterpriseDesign
Strategic Choices
Some actual frameworks driving strategic conversation design
Any number of frameworks possible
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Group B Principles: Conversation Design
Principle 4: Strategy development is a learning conversation
Principle 5: Keep the “Strategy Conversation” alive
Principle 6: An organisation is a “System of conversations”.
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“Metaphor” = Analogy, model, lens
Lenses:• Mechanistic• Biological• Social Systems• People/Group Metaphor• Cultural Metaphor• Political Metaphor• Language system Metaphor
What does “strategy” mean when looked at through these lenses?
ORGANISATIONAL METAPHORS
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MODEL OF ORGANIZATIONMACHINE MODEL
Conceptualised as Mindless system
Example: Any Tool
Objective: Serve purpose of the owner (profit)
Attributes: Efficiency & reliability (predictability)
Effective in: Production environment
Deficiency & failure: Inability to deal with changing environment
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ORGANISATIONAL MODELSBIOLOGICAL MODEL
Conceptualised as Uni-minded system
Example: Human body
Objective: Serves itself (Survival & growth)
Attributes: Learning & adaptation
Effective in: Marketing environment
Deficiency & failure: Inability to deal with conflict in choice
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ORGANISATIONAL MODELSSOCIAL SYSTEMS MODEL
Conceptualised as Multi-minded system
Example: Association of purposeful members
Objective: Serve members & environment (Development)
Attributes: Competency (ability & desire)
Effective in: Systems era (Connectedness)
Deficiency & failure: Inability to deal with conflict in choice
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“Human Systems Are Different”
Freedom and Ability to ChooseENDS of Parts and Whole
Mental Model Parts (Groups,Individuals)
WholeOrganisation
MECHANISTIC
ORGANISMIC
SOCIALSYSTEM
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Purpose of PlanningSocial systems view
Organisational Control System Integration
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How is system controlled?Low
High
HighLow
CONTROL
AUTONOMY
Fear, Inaction Chaos
Authoritarian Empowerment
Alignment
SocialSocialSystemsSystems
ViewView
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Conversation Systems View
Multiple simultaneous interlinked conversations
Conversations give meaning to words “The words we use is the world we live in” Conversations build the agreement and
commitments required for action Conversations yield the alignment we
need Free-flowing conversations create space
for creative insights and ideas to surface
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Synthesis questions:-
1. What are key forces shaping the future <Your Organisation> Business Environment did you hear in the presentation & discussion?
2. What key strategic choices facing <Your Organisation> did you hear in the presentation & discussion?
3. What are some of the things <Your Organisation> needs to do as a consequence of this information?
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E.g. <Your Organisation> 2005 Strategy Conversation
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Exco Strategy Process
Env Scan
Env Scan
Env Scan
Strategy Task Group Environmental Scan
Future Shaping Forces & Strategic Choices
Future Shaping Forces & Strategic Choices: Tentative
W/s 1Strategic Choices
W/s 2Change Thrusts
StrategicChoices Identified
&Decided (some)
Key Strategic change thrusts
CEO conversation
W/s 3Implementation
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Exco Strategy Process
Env Scan
Env Scan
Env Scan
Strategy Group Environmental Scan
W/s 1Strategic Choices
W/s 2Change Thrusts
CEO conversation
W/s 3Implementation
Three Inter-linked & synchronised
Strategic Conversations
Additional ones: Cluster Strategy ConversationsStaff (Top 500)Cluster groups
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Process Design
Decision Support to MD
Decision Facilitation for Exco
<Your Organisation> Future DirectionConversation
Creates shared view of requirements
Improves quality of and confidence in vision
Interaction with Board
Builds shared map of future for successful transformation
Creates fundamental support for future direction with Board
They provide detailed input to map and share in map
Cluster Exco Input & Implementation
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<Your Organisation> Future DirectionConversation
Objective: Effective Action How:
1. Better & Shared metal models of the business and its future operating environment.
2. Improved inquiry process. I.e. Better questions to reflect on and discuss.
Milestone: Decision on core strategic change thrusts.
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Inq: Future & Future Bus Environement
•Trends
•FSF
•FBE
•Scenarios
Mang. Conf Engagement Events
InitiativesSuggestions
Interaction with Board & EXCO
•Videos
19-20 AprExco & Board Strat Session
4 - 15/45/3
Guardian Interact Sessions
Workplace Roll-Out* Theme Specific Roll-Out *
Apr - May May - Jun Jul - Sep
• Vision Confirmation
• Strategic Choices
• Initiatives List: Approved / Investigate / Rejects
• BU Planning
• Budget
• B. Score card
Project 2010 30/Jun
Apply CMF *
Change Governance & Support
Feedback & Progress
Monitoring
GoodCo 2010 (Drive Initiatives)
Interaction with wider GoodCo
Results Communication
Mar/Apr
Process Overview
ExcoExco
Session pre Strat Session
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EG 2006 <Your Organisation> Environmental scan
Three, ultimately four sessionsInput, discussion, conclusion structure
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“Listening” Questions for the Presentation:-
1. What a fundamental forces that will shape <Your Organisation>’s future business environment do you pick up?
2. What are key strategic choices that <Your Organisation> is face with from the presentation?
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Presentation Discussion question:-
What are the implications for <Your Organisation> in this presentation?
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Inq: Future & Future Bus Environement
•Trends
•FSF
•FBE
•Scenarios
Mang. Conf
• Introduce & share possible futures
• Open the debate on the need for change
• Open debate on prefered course of action
Engagement Events
• 5 Large group sessions targetting 750 people (+/- 30%) representative groups
• Present & communicate a vision
• Participatively identify strategic initiatives for GoodCo success(vision)
• ID Specific required actions
InitiativesSuggestions
Interaction with Board & EXCO
19-20 AprExco & Board Strat Session
4 - 15/45/3
Guardian Interact Sessions
• All staff / countrywide
• Exco Driven, TG 2010 support
• Vision communication
• Future Process communication *
Workplace Roll-Out*
• For identified BU’s and work gourps *
• Leadership preparation and support on initiative roll-out / planning
• Initiative specific implpementation planning using 7S model to explore impact
• More detailed actions per initiatives
• BU plan input /content
Theme Specific Roll-Out *
• For 7S themes: Roll-out / paticipative sessions
• For theme: Intergration & coordination
• Theme task ops representative work groups
• Output: Company wide Theme action plans
Apr - May May - Jun Jul - Sep
• Vision Confirmation
• Strategic Choices against Balanced Scorecard
• Initiatives List: Approved / Investigate / Rejects
Budgetting
Project 2010 30/Jun
Apply CMF *
Change Governance & Support
Feedback & Progress
Monitoring of BU Plans
GoodCo 2010 (Drive Initiatives)
Interaction with wider GoodCo
•Videos
Exco
Exco Session pre strat session
Results Communication
•Exco & HR Driven
•Line Management involvement
•Video Based Feedback
New Initiatives
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Conversation Design:
Novelty requirement: Keep the interest by varying the technique (framework)
Use different angles (frameworks & questions) to get to essentially the same topic• Who decides when the topic is
exhausted? You. See later.
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Conversation Management… is about….
Targeting multiple conversation audiences;
Having synchronised conversations
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Strategy Planning is having a “Strategic Conversation”
Design a
“Strategic Conversation”
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Meaning and implications discussion:
What do these principles mean? What are the implications of these
principles in practice? Measure of Performance? How does one structure a strategic
conversation? What we should we do about this? What should your role be?
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Programme:
Understanding principles Group A Principles: Building mental models
• Meaning and implications discussion. Group B Principles: Conversation Design
• Meaning and implications discussion. Group C Principles: Design of Inquiry
• Meaning and implications discussion. Group D Principles: Building Intellectual leadership
• Meaning and implications discussion. Group E Principles: Building the case for change
• Meaning and implications discussion. Group F Principles: Building competitive advantage
• Meaning and implications discussion. Putting it together: A picture for 2007.
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Section omitted due to technical nature
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Programme:
Understanding principles Group A Principles: Building mental models
• Meaning and implications discussion. Group B Principles: Conversation Design
• Meaning and implications discussion. Group C Principles: Design of Inquiry
• Meaning and implications discussion. Group D Principles: Building Intellectual leadership
• Meaning and implications discussion. Group E Principles: Building the case for change
• Meaning and implications discussion. Group F Principles: Building competitive advantage
• Meaning and implications discussion. Putting it together: A picture for 2007.
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Refer separate diagram
Diagram to be developed Concept to be discussed
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Shifting the burden structure
SymptomaticSolution
Problem symptom
FundamentalSolution
Side Effect
+
+
+
+
+
-
-
-
+
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Shifting the burden structure in soft
problem situations
+
+
+
+
+
-
-
-
+
Deal with issue(make decision)
Current problem,“crisis” or issuerequires decision
Clarify thinking,decision criteria(Vision; Long termpositioning)
Time spent onfundamental re-thinking of assumptions
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Thinking Ladder to Action
Choice of Action is based on Beliefs held of the situation, Which are based on Assumptions you
make regarding real situation, Which are formed from Observations
you make in the situation.
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Meaning and implications discussion:
What do these principles mean? What are the implications of these
principles in practice? Measure of Performance? To what extend do we need to build
intellectual leadership? What we should we do about this? What should your role be?
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Programme:
Understanding principles Group A Principles: Building mental models
• Meaning and implications discussion. Group B Principles: Conversation Design
• Meaning and implications discussion. Group C Principles: Design of Inquiry
• Meaning and implications discussion. Group D Principles: Building Intellectual leadership
• Meaning and implications discussion. Group E Principles: Building the case for change
• Meaning and implications discussion. Group F Principles: Building competitive advantage
• Meaning and implications discussion. Putting it together: A picture for 2007.
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The Inflection Curve
Inflection point
10x force
Decline
Growth
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Seven Forces Model(adapted from Grove)
Business
Power, vigour,competence ofexisting competitors
Power, vigour and competence ofpotential competitors
Power, vigour andcompetence ofcustomers
Power, vigour andcompetence of suppliers
Power, vigour andcompetence ofcomplementers
Possibility of that what your business is doing can be donein a different way
Socio-political
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GoodCo Really
Succesful
GoodCo
Fail
Then Now “Short” Term FUTURE
FAIL
2010
Realistic & very credible failure scenarios for GoodCo.
“High”
Celebrating this at Management Conference.
Realistic & very credible high achievement scenarios for GoodCo.
MUCH better performance.
Management Conference – GoodCo’s Performance
CEO: Current Performance & how we got here.
Go
od
Co
’s P
er f
or m
an
ce
GoodCo
New
Current Situation
What we did / did not do?
What we did do to get here?
Possible Future
Environments
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Practical Gap
Action results
Individual Expectations
Rethink action within existing
mentalframework
Level of surpriseSize of gap,
Magnitude of negative impact
Determine action
Rethink Mental
Framework
Limitation on extent
of frameworkchange
Current corporate
culture
Number and extent ofsurprises
corporate mindregisters
Opennessto change of
corporatemind
Corporate mind shift
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How ready is this organisation for change?*
CEO/MD?Board?Executive management?Senior staff/middle management?
* What kind of change? See later
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If you need to:-
Scenario planning
Refer tables
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Arie De Geus: Change Management
“Memory of the future” Alternate time paths into the future One-track mind vs environmental
sensitivity Planning as learning
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Scenario Planning
Building alternate future time paths Rich “memory of the future”
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SCENARIODEFINITION
A COHERENT STORY ABOUT THE UNFOLDING OF FUTURE EVENTS.
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Scenario Planning
Context for decision making Understanding more possibilities Develops mental model of the future Does not tell you what to do
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Competitive Advantage
A sustainable competitive advantage is very rare
Knowing when to change is crucial
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Alternate scenario approaches
Present
Futureshapingfactors
Different plausible future outcomes
Concerns
Key uncertaintiesRules of the game
Alternate futurescenarios
Events (influenceable)Trends (notinfluenceable)
End states
RequiredDirection
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Scenario Planning
Present
Futureshapingfactors
Different plausible future outcomes
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Scenario Development Technique: Consider a major issue, concern, question
or decision What could happen from a ...
• pessimistic (things get worse) viewpoint?• optimistic (things get better) viewpoint?• no-change (things neither worse nor better)
viewpoint?Describe a sequence of events unfolding.
What are the pitfalls and opportunities in each of these three outcomes?
How should I/you/we act on this issue if each of these three cases occur?
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Steps in scenario development
Identify 3-5 major uncertainties in each of the windows on reality.
Combine to form 9-11 key uncertainties. Interpret to form sequence of unfolding events ,
using scenario technique (optimistic, pessimistic, no-change).
Describe logic of scenario using systems dymanic model
Identify pittfalls and opportunities in each scenario Itentify broad strategies.
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Case Study: Telkom Scenarios
(Footnote: Race car driver training)
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Participation
Appreciate Current Situation
Current Future Scenarios
Desired Future Scenario
Enterprise Design
Strategies & Action Plans
Planning Process
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Srategy Conversation BUILDS:
Shared understanding of problematique (“mess”)
Alignment w.r.t. ends Agreement on action (see later) Continuous action (see later)
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Effective Strategic conversation
“An effective strategic conversation requires a balance between integration of mental models, to enable the organisation to come to a shared conclusion and move forward, and differentiation of mental models, to ensure that a wide range of weak signals in the environment are perceived, understood and brought into the system to enter
the conversation and be acted upon.” (Van Der Heijden)
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ENVIRONMENTAL SCANNING
POLITICAL ENVIRONMENT
ECONOMIC ENVIRONMENT
SOCIAL ENVIRONMENT
TECHNOLOGY ENVIRONMENT
INSTITUTIONAL/ORGANISATIONALENVIRONMENT
NATURAL/PHYSICAL ENVIRONMENT
WINDOWS ON REALITY
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ENVIRONMENTAL SCANNINGKey Questions
WHAT CHANGES & TRENDS, IMPORTANTTO <your business and its industry>,DO YOU OBSERVE?
WHAT DRIVE THESE CHANGES? WHATFACTORS INTERACT TO PRODUCETHESE CHANGES?
WHAT IMPACT IS THIS LIKELY TO HAVEIN THE FUTURE? WHY ARE THEYIMPORTANT?
...MORE
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ENVIRONMENTAL SCANNINGKey Questions
WHICH HIGH IMPACT DEVELOPMENTSMAY UNFOLD IN FUNDAMENTALLYDIFFERENT DIRECTIONS, DEPENDINGON OUTCOME OF FUTURE EVENTS?(KEY UNCERTAINTIES)
WHICH OF THESE DEVELOPMENTS ARE: -UNDER CONTROL OF <your business>? -MAY BE INFLUENCED BY <your business>? -NOT INFLUENCABLE NOR CONTROLLABLE? (RULES OF THE GAME)
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Linking Environmental Scan & Scenario Development
Env Scan front-end to Scenario Development – eg Telkom
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Meaning and implications discussion:
What do these principles mean? What are the implications of these
principles in practice? Measure of Performance? To what extend do we need to build
the case for change? What we should we do about this? What should your role be?
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Programme:
Understanding principles Group A Principles: Building mental models
• Meaning and implications discussion. Group B Principles: Conversation Design
• Meaning and implications discussion. Group C Principles: Design of Inquiry
• Meaning and implications discussion. Group D Principles: Building Intellectual leadership
• Meaning and implications discussion. Group E Principles: Building the case for change
• Meaning and implications discussion. Group F Principles: Building competitive advantage
• Meaning and implications discussion. Putting it together: A picture for 2007.
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Strategy is Acting to SurviveStrategy is the conscious
behaviour manifested in the behaviour of individuals and groups for the purpose of continued survival.
Why? A little diversion…later
Johan Strümpfer, 1997Johan Strümpfer, 1997
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“What is strategy?”
Strategy is the creation of a unique and valued position, involving a set of activities. If there were only one ideal position, there would be no need for strategy. Companies would face a simple imperative -- win the race to discover and preempt it. The essence of strategic positioning is to choose activities that are different from rivals’. If the same set of activities were best to produce all varieties, meet all needs, and access all customers, companies could easily shift among them and and operational effectiveness would determine performance.
(Porter)
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Views on Strategy
Prahalad: … a strategic architecture is the link between present and the future. I tells you what you should be doing now, …, in order to create a winning position for yourself in a new opportunity arena.
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Views on Strategy Porter: … getting ahead--then staying ahead- is
the basis of strategy: creating a competitive advantage. Strategy is about setting yourself apart from the competition. It’s not a matter of being better at what you do -- it’s a matter of being different at what you do. … A good strategy is concerned with the structural evolvement of the industry as well as with the firm’s own unique position within that industry. … Increasingly, ... companies ... don’t just optimise within an industry, but actually reshape and redefine their industry.
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Views on Strategy
Seymour: …there’s not another market extant that shows as well as the [Personal Computer] business how irrelevant zero-sum thinking has become: Successful companies expand the entire marketplace, not just their own revenues.
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The strategy logic
Business success
Available resources
OrganisationalMaintenance andDevelopment Effort
DistinctiveCompetencies
ProfitPotential
CustomerValue
CustomerChoices
Competitive advantage
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The strategy logic: te essence of strategy
Choose a position, with respect to the overall operating context, that is different.
The positions the set of activiest the business underatakes.
What is different about this position? Why is it valued, by whom?
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The Strategic Business Model
A rational articulation of business success, past and future
A shared mental model of what makes the business succeed
Successful organisations concentrate on one strategic business model (not business, not core business)
A shared framework for ensuring focus
SBM work adapted from Van Der Hijden
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The strategy logic
Business success
Available resources
OrganisationalMaintenance andDevelopment Effort
DistinctiveCompetencies
ProfitPotential
CustomerValue
Competitive advantage
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Business success
Available resources
OrganisationalMaintenance andDevelopment Effort
DistinctiveCompetencies
ProfitPotential
CustomerValue
Competitive advantage
Operational& OrganisationalEffectiveness
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Strategy Development and Strategic Business Model
SBM structures a joint rational consideration of the business focus
Evaluation of current strengths and weaknesses of distinctive competencies and their interaction
The future outlook for maintaining business success in changing conditions.
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Profit Potential
Profit
Operational Effectiveness
Quality of strategyImplementation
ProfitPotential
StrategyAppropriateness
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Profit Potential
Current value creation Perceived future value creation
Buyers value system
Seller’sDistinctive Competencies
The offer
VALUE
“Fit”
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Profit Potential results from
Discovering new ways of doing something for customers for which they will pay (creating value)
Bringing together a combination of factors & competencies to do this (create this value)
Creating uniqueness in this formula (difficult to emulate) in order to lay claim to this created value
Maximising the difference between customer value and supplier cost
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Distinctive Competencies
Competency: Ability to do something Distinctive: created in the organisation over
time and uniquely part of the organisation• Cannot be sold or traded
• Not company “strengths”
• Barriers to entry for competition
What is unique about this particular Strategic Business Model, and why are others unable to emulate it?
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Fundamental Sources Of Distinctiveness
Uncodified institutional knowledge• Uniqueness is not enough; must be embedded• Sits in networked people• Sits embedded in processes• Does not sit in individuals (Not personal
knowledge) Sunk costs/irreversible investments
• Investments in reputation• Sits in legal protection• Sit in specialised assets
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Examples of Distinctive Competencies
Institutional Knowledge:• Institutional R&D capability• Company know-how• Functional knowledge pools• Knowledge of customer value systems• Shared assumptions and values
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Examples of Distinctive Competencies-2
Embedded processes:• Leadership style and commitment• Links into the world of the consumer• Access to distribution channels• Institutional relationships with government• Internal communication, business systems,
and culture• Staff identification and commitment• …...
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Examples of Distinctive Competencies-3
Reputation and trust:• Brand• Installed base• Dominant size and presence• Financial clout
Legal protection• Concession agreements• Patents• Ownership of prime sites
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Examples of Distinctive Competencies-4
Activity specific assets:• Investments in size, market share and
image• Sunk investments in sites, exploration,
experimentation, specialised equipment, …• Investments in economies of scale,
distribution systems• First mover in production capacity
investment
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Systemic Distinctive Competencies
Distinctive competencies may occur singly• Easier to emulate
Synergy in distinctive competencies obtained by systemically integrating distinctive competencies• Yields potent Strategic Business Model• Very difficult to emulate
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Distinctive Competencies Depreciate and perish over time:
Eventually competitors finds ways to emulate the essence of the competency
The overlap between the competency and the customer value system reduces because of evolving customer values.• Distinctive Competencies must be maintained
and renewed through creation of new ones out of value generated with existing ones.
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Characteristics of Good Distinctive Competencies
Investments are largely irreversible Distinctive Competencies cannot be sold or transferred to
other firms There is a limit to which development thereof can be
speed up by increasing investments Development thereof is a gradual evolution through
collective learning and information sharing Strong Strategic Business Models exploit multiple
distinctive competencies re-inforcing each other in a synergistic way
Distinctive Competencies create competitive advantage in the eyes of customers.
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Competitive Advantage Derives from:-
A Profit potential, derived from premium price: • Distinctive Competencies are used to create a
differentiated product, the characteristics of which the customer is prepared to pay a superior price compared to competitive products
A Profit potential derived form cost leadership:• The distinctive competencies are used to create unique
low-cost ways of creating or making available a non-differentiated product. This allows the supplier to make available a competitively priced alternative for the customer.
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Sources of Differentiation
Intrinsic to product:• Unique features and attributes, of quality,
design, availability, and support Intrinsic to relationship:
• Dynamic capability to produce uniquely fitting product, based on superior relationship between supplier and customer, based on image, access, effective communication and understanding.
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Differentiation
Requires deep understanding of what creates value for the customer• Customer research is not enough• Customers do not know needs they
have not experienced Can only be created out of the
optimisation of the total customer/supplier system
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Cost leadership
Works with standardised and clearly defined products with a continuing market
Customers have many alternative sources of supply
Operates in commodity markets
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Summary: Competitive Advantage derive from
Cost leadership Differentiation in terms of unique & valued
qualities in the offering.
Both depend on distinctive competencies• Increasing complexity to build
BOTH have a limited shelf life• Decreasing shelf life duration
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The diversion:- Why?
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Telephony
Telegram
PABXFacsimile
Telex
TelevisionRadio
Telegraphy
1850TelegraphyTelegraphy
Telegram
Telephony
1880
1930
TelephonyTelephony
TelephonyTelephony
RemoteComputing
RemoteComputing
RemoteComputing
Stereo Radio
Stereo Radio
Stereo Radio
1880
1850
1930
1970
1980
1990
2000
2000
1990
1980
1970
Telex
Telex
Telegram
Telegram
Telegram
PagingMobile
telephony
Mobiletelephony
Mobiletelephony
Satelliteservices
Satelliteservices
Satelliteservices
Navigation
Visualisation
Telemetry
CCTVPrivate circuit
Private circuit
Private circuit
Private circuit
PABX
999Service
PABX Interconnect
PABX Interconnect
Facsimile
Fax
999Service
EDI
EDI
EDI
EmailEmail
Low speeddataMedium
speeddata
High speeddata
Linkline
CallstreamCallstream
DistributedComputing
PacketSwitched Data
Image transmission
TeletexGraphics Database
Videotex
Multimedia Video LibraryCable TV
Satellite TV
NICAM TVVideo ConferenceVoice Conference
Quadrophony
MIDI
Alpha-numericpaging
Mobiledata
Skyphone
Remotesensing
Remotesensing
TelepresenceTelemetry
Telemetry
Surveillance
SurveillanceSecurity services
LANDECNET
TCP/IPSNA
Token ring
CSMA/CDToken bus
ISDN
MegastreamStar services
FaxColour fax
DDSN
999Service
Credit cardverification
File transferCircuit switched
dataTelexEFTPOS
Voice messaging
Network servicesDDSNCentrex
Intelligent network
999 Services
Fast fax
Speech fax
Text fax
Transactionprocessing
File transfer
Smart card comms
Credit cardverification
Circuit switcheddata Cashless
services
TelexArchiving
EFTPOS
Home bankingX.400
Voice messaging
TranslationVoice
recognitionHi-fi Telephony
Video Telephony
Multi-mediaTelephony
Linkline
Broadband data
Telemarketing
DistributedComputing Packet
Switched Data
Broadband image transmission
ID verification
Multi-media iInteractive video
Video Library
Teletex
Videotex
Multi-mediadatabase
Cable TVSatellite TV
NICAM TVHDTV
Video narrowcast
EQTVHome shopping
Video ConferenceVoice Conference
Shareware services
Quadrophony
MIDI
Alpha-numericpaging
Mobile alarmsVoice paging
Mobile faxMobile videotext
Telewriting
Personal numberingMobile data
PCN
Mobilevideophone Worldwide
mobility
Skyphone
Tracking
Navigation
Transportservices
Mobile VANS
Teleworking
Video games
Visualisation
Virtual reality
OSICSMA/CD
LANToken ring
LAN InterconnectSONET
DQDBSMDS
BISDN
FDDIATM
Frame relayKilostream
ISDN
Megastream
SDH
Wireless LANSecurity services
Source: Ericsson, quoted by Acton, Telkom.
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Why industries change:Why industries change:
increase in competitiveness technology globalisation consumerism
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Why industries change:Why industries change:
increase in competitiveness• globalisation• technology• consumerism
simple survival pressure form an exploding population of individuals and organisations
more people, more educated peopleWere are only in the early stages of this dynamic
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<Your Organisation> Future Road Map:Key questions
1. To what extent does <Your Organisation> have to change/innovate to regain a dominant competitive position? (How much change is needed?)
2. What should <Your Organisation>’s future strategic competitive position be? (How will we compete?)
3. What are we striving to achieve? Where is <Your Organisation> going to? What are the key choices we face?
4. How will we get there? What are the main things <Your Organisation> has to do?
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To what extent does <Your Organisation> have to change/innovate to regain a dominant competitive position?
(How much change is needed?)
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“Strategic Bankruptcy”
Refer to separate article
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Meaning and implications discussion:
What do these principles mean? What are the implications of these
principles in practice? Measure of Performance? To what extend do we need to (re-)
build our competitive advantage? What we should we do about this? What should your role be?
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Programme:
Understanding principles Group A Principles: Building mental models
• Meaning and implications discussion. Group B Principles: Conversation Design
• Meaning and implications discussion. Group C Principles: Design of Inquiry
• Meaning and implications discussion. Group D Principles: Building Intellectual leadership
• Meaning and implications discussion. Group E Principles: Building the case for change
• Meaning and implications discussion. Group F Principles: Building competitive advantage
• Meaning and implications discussion. Putting it together: A picture for 2007.
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A template process framework:
Refer next slide Develop a set of pictures depicting
your views on a desirable strategy process for <Your Organisation> in 2007.
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Strategy: Things to strive to do
Why change?
CompetitivePositioning
EnterpriseDesign
Strategic Choices
Tools:•SBM•SDM•Bus Idea
Outcomes:•DistinctiveCompetencies•(Core Competence)•Expire by date•New Trajectories
Tools:•Env Scan•Scenarios•7 Forces
Tool:•StrategicChoiceMaking
Tools:•MED•NetworkDesign
Tools:•NGT•Brainstrom•Clustering
Outcomes:•Differentiation
Outcomes:•OperatingModel•BusinessStructure
Outcome:•SharedPerceptionof doom
Outcomes:•Directionlist(3-5 items)
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Additional Material for Reference
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Multiple Perspective Exploration
Viewpoints Viewpoint definitions Prioritisation of outcomes ( with
causal logic) Activity models Build consensus on action
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Problems and solutions
There is nothing as problematic as solutions(Argyris & Schön,1967)
The Berkeley experiments
Solutions