Performance Management Systems

Framework: Performance Management Systems (e.g., Balanced Scorecard and Strategy Maps)

Core Question: How can I gauge the success of a strategy and decide how to modify it?

Key Application Steps: 

• Translate the strategy into ‘strategic themes’ driving performance
• Develop Balanced Scorecards for each theme
• Link to unit and individual performance through Personal Scorecards
• Use the maps and scorecards for feedback and learning

Comparisons with other concepts and frameworks:

• Many of the strategy tools we have covered have focused on the formulation of strategy and making corporate investment decisions. This tool, like the merger process model, is about strategy execution

Illustrative Decision Contexts:

• How can I make sure executives are focused on the right objectives?

• How can I ensure balance between long-term and short-term, internal and external?

• How can I ensure coherence, or fit with strategy, in how strategy is operationalized?

Scenario Analysis (PESTLE Factors)

Framework: Scenario Analysis

Core Question: How can I make investment decisions when faced with multiple external uncertainties ?

Key Application Steps: 

1. Identify key focal issue or decision
2. Enumerate external uncertainties (PESTLE) and pick critical ones
3. Use 2x2 scenario framework to develop scenarios and construct narratives
4. For each scenario, develop implications and options for robust strategies
5. For each scenario, identify early warning signals

Comparisons with other concepts and frameworks:

• Compared to forecasting techniques, focus is on identifying a range of futures

• Compared to quantitative tools (game theory, contingency planning, etc.), emphasis is given to multiple uncertainties

• Compared to other risk management tools that handle internal risks (risk event cards), the focus is on external uncertainties

Illustrative Decision Contexts:

• This tool is useful for strategy formulation for longer term decision- making

• It can also be useful for more focused problems (e.g., projects and individual investments in business units rather than at the corporate level)

• Companies are beginning to integrate it with financial numbers

Outsourcing and Vertical Integration

Framework: Transaction Cost Analysis (Outsourcing)

Core Question: How should I govern vertical exchanges (e.g., make versus buy)?

Key Application Steps: 

• Examine the magnitude of sources of opportunism that elevate the transaction costs of market exchange (writing and implementing contracts)

• Examine the bureaucratic costs of organization

• Determine if production or strategic benefits offset the above two considerations

Comparisons with other concepts and frameworks:

• Transaction cost analysis deals with how to structure exchanges and deals with the appropriate boundaries of the firm

• May challenge the prescriptions of real options for these types of decisions

Illustrative Decision Contexts:

• Should I internalize a certain value chain activity (e.g., R&D)

• Should I outsource manufacturing, back office functions, etc.?

Real world example/HBR Case:

• Nucleon, Inc. Case

Merger Process Model

Framework: Merger Process Model - Diversification Strategy and M&A

Core Question: What should I plan for and carry out all of the steps involved in merging companies

Key Application Steps: 

• Approach (M&A strategy, target screening, and due diligence) to ensure value creation and analyze bid premium to minimize “transaction gap”

• Execution (transaction execution, integration, and potential divestiture) to handle post- merger structural integration, culture, communications, HR retention, etc. to minimize “transition gap”

Comparisons with other concepts and frameworks:

• This tool uniquely applies to M&A, but other tools go into assessment of value creation potential (e.g., resource and capability analysis, competitive positioning, etc.)

• Transaction and transition gaps reduce value capture, so the “value stick” applies to M&A

Illustrative Decision Contexts:

• All acquisitions

Real world example/HBR Case:

• Comcast & AT&T Broadband
• Deloitte and Accenture on PMI 

Value Innovation

Framework: Value Innovation (also called Blue Ocean Strategy (BOS))

Core Question: How can I recreate the industry by enhancing buyer value at low cost?

Key Application Steps: 

• During the strategic planning process, use the six paths to brainstorm new value curves

• Ensure that the prospective value curve has focus, divergence, and a compelling tag line

• Consider adoption hurdles for non-customers and the price points of alternatives

Comparisons with other concepts and frameworks:

• 5 Forces – BOS is a demand side framework geared toward making the competition irrelevant

  Competitive positioning

• BOS suggests you can have both differentiation and low cost simultaneously

Illustrative Decision Contexts:

• How can I create a brand new market?

• How can I achieve profitable growth in an unattractive industry by looking across industries, strategic groups, buyers, etc.?

Real world example/HBR Case:

• Cirque du Soleil
• Yellow Tail

Disruptive Innovation

Framework: Disruptive innovation (Innovator's Dilema)

Core Question: How should firms consider innovation within industry analysis and their technology strategies?

Key Application Steps: 

• Determine which technologies are disruptive and their strategic significance

• Locate the initial markets for these technologies

• Perhaps most important to pursue disruptive ideas is an organizational context that is: (1) separate (2) allows for experimentation in small markets, and (3) has sufficiently low overhead

Comparisons with other concepts and frameworks:

• Many strategy frameworks do not systematically treat innovation; rather, they treat innovation as some random variable

• The model explains why the most serious technological threats often come from new entrants to an industry

Illustrative Decision Contexts:

• How can I analyze markets that are only emerging and are threatening my firm?

• Should I pursue a disruptive innovation or sustaining innovation as an incumbent? As a new entrant?

• How should I manage sustaining vs. disruptive innovations properly?

Real world example/HBR Case:

• HP Kittyhawk Disk Memory Division (vs. Seagate and IBM)

Resource and capability analysis

Framework: Resource and capability analysis (RBV)

Core Question: How can I leverage my resources to achieve a competitive advantage?

Key Application Steps: 

• For each resource you possess, examine its effect on the firms’ value drivers and profit and loss statement

• Consider whether each resource satisfies the key conditions (e.g., valuable, rare, inimitable, non-substitutable)

• Ensure that your basis for competition exploits the resources that satisfy these criteria

• Ensure that you are upgrading your capabilities for future competitive battles (balance exploration and exploitation)

Comparisons with other concepts and frameworks:

• 5 Forces – Rather than chasing opportunities, perhaps in unrelated businesses, be the “best you that you can be!” Exploit your core competence and avoid competing on the basis of weaknesses.

Illustrative Decision Contexts:

• Should I venture into a new industry X or country Y?

• Should I internalize manufacturing, R&D, or some other activity, or outsource it?

• What makes for a good acquisition target or alliance partner?

Real world example/HBR Case:

• Marks and Spencer

Competitive Positioning

Framework: Competitive Positioning (low cost or differentiation)

Core Question: How can I stake out a viable position within an industry?

Key Application Steps: 

• Divide the firm into various activities (e.g., the value chain).

• Examine potential sources for differentiation or cost reduction in these various activities.

• Make an overall choice on whether to follow the low cost or differentiated approach.

• Decide on the scope of competitive activities (broad versus narrow)

Comparisons with other concepts and frameworks:

• Challenge to 5 Forces – It is possible to earn profits in an industry that is structurally unattractive!

Illustrative Decision Contexts:

• How to enter a given industry (e.g., low end, mass market, etc.)?

• How can I benchmark rivals?

• How broad or narrow should be my competitive aspirations?

• Should I reposition the firm within an industry?

Real world example/HBR Case:

• Patagonia

Porter's Five Forces Model

Framework: Five Forces Model

Core Question: Is an industry attractive (i.e. yields profit for incumbents)?

Key Application Steps: 

• Examine the various fundamental "subforces" in the five forces
• Examine the various fundamental “subforces” in the five forces
• For a particular industry, determine which subforces are particularly important in understanding industry profitability
• Identify the subforces that are amenable to change by your firm and consider the costs and benefits of changing them

Comparisons with other concepts and frameworks:

• SWOT – 5 forces focuses our attention on the most important opportunities and threats in an industry (OT)

Illustrative Decision Contexts:

• Should I enter into this industry?
• Should I start a new business in this industry? -Is it appropriate to exit this industry?