Strategic Management

Alexandre Perrin
Strategy Department
Audencia Nantes School of Management

Tel: 02 40 37 45 56
Mail: aperrin@audencia.com
 Let me introduce myself…

Alexandre Perrin
Strategy Department - Office 272 (ECE)

Tel: 02 40 37 45 56
Mail: aperrin@audencia.com

ACADEMIC BUSINESS
• Master in Management (2001) in Audencia
• Junior Consultant in Knowledge
• Specialized Master in Knowledge Management – Agilience a Boston
Management & Business Intelligence in Consulting Group/Siemens spin-off
CERAM Sophia Antipolis (2003) (Paris)
• Master in Research Methods in University
• Assistant of the Corporate Knowledge
of Nice Sophia Antipolis (2004) Manager – Lafarge (Paris)
• PhD in Management Science (2008) 
• Research projects for Lafarge,
Topic: Knowledge Management Manpower and Amadeus

Lived in Paris (22 years!), Cannes (3 years), Barcelona (1 year),

New York City (6 months) and Nantes…
Based on your experience…

… draw me a company !
The « organization chart » view
 The « organization chart »

• Hierarchy

• Clear division of labor

• Enable organizations to cope with all

expected situations

“Managers develop a science for each element

of a man's work, which replaces the old rule-
of-thumb method”. (Taylor 1911, p.39)
The « Process » view
 The « Process » view

• Company as a “black box”

• Precise rules, procedures and practices

• Relationships with the external

environment (competitors, stakeholders,
the State…)

 “In essence, the job of the strategist is to

understand and cope with competition”.
(Porter 2008, p.79)
The « Social » view
 The social view

• Collection of rights, privileges, obligations

and responsibilities

• Conflict resolution and stress

• Power and knowledge within an

organization (communities with different
interests)

”The central question is to understand the social

processes leading to the construction of the
competitive cooperation between a set of actors who
are mutually dependent for the solution of a common
problem, which they cannot solve by themselves”.
(Friedberg 1997, p.122)
…and the Oscar goes to…
 Implications of this exercise

• Companies can be depicted in various

ways:
 Rational  How to control?
 Systemic  How to organize?
 Social  How to implement?

• Different « images » of an organization

 ”Organizations are machines, organisms,

brains, cultures, political systems, psychic
prisons, flux and…instruments of domination”.
(Morgan 2006, p.10)
 Strategic Management

The manager needs to define the

positioning of a company
according to:
 Its external environment
 Its internal capacities
Part 1. Diagnosis
 Its stakeholders

Part 2. Choices Part 3. Deployment

Based on the diagnosis, the The manager needs to implement
manager determines the the strategy he has chosen
different options available at: according to:
 The Corporate level
 Levers
 The Business Unit level
 Levels in the implementation
 The Operational level
 Resistance to change
 The syllabus

1. Scanning the
environment
Part 1. Diagnosis 2. Exploring and exploiting
capabilities

1. Diversification or
Strategic Specialisation
Part 2. Choices
Management 2. Managing the
portfolio of activities

1. Implementing and
Part 3. Deployment controlling decisions
2. Managing change for
deploying strategy
 About the course

• 15 hours

• 50% of the credits  Continuous

assessment
 Questions & Answers
 Mini-case in class

• 50% of the credits  Quizz

 Bibliography

• Exploring Corporate Strategy

(8th Edition 2007)
by Gerry Johnson, Kevan Scholes and Richard
Whittington (Prentice Hall/Financial Time Editions)

 Available for free at the Mediathèque (POL40.1/02-04)

67€

• Contemporary Strategy Analysis

(6th Edition 2007)
by Robert Grant (Blackwell Publishers)

 Available for free at the Mediathèque (POL40.1/08-01)

40€
 Premium resources

• The Harvard Business Review

 The best articles in Strategic Management
 Available on Business Source Complete (Check
the Mediathèque website)

• DowJones Factiva
 An international press database in 22 languages
(eg. FT, Reuters, LesEchos…)
 Available on the Mediathèque Website

• Euromonitor - Global Market Information

Database (GMID)
 Country statistics, consumer lifestyle reports,
company profiles, industry profiles
 Available on the Mediathèque Website
Today : Introduction to Strategic Management

Part 1. Diagnosis

Strategic
Part 2. Choices
Management

Part 3. Deployment
 Introduction

A) What is Strategy ?
B) What is Strategic Management ?
C) Strategic Management as an object
of study
D) New contexts for Strategic
Management
 Introduction

A) What is Strategy ?
B) What is Strategic Management ?
C) Strategic Management as an object
of study
D) Contexts of Strategic Management
The Madonna
Mini-Case
 Question 1.

• External environment: popstars,

music industry, music tastes
• Internal capacities: strengths
(ability to anticipate, dancing)
and weaknesses (voice)
• Stakeholders: famous music Part 1. Diagnosis
producers, actors, Majors

Part 2. Choices Part 3. Deployment

• The Corporate level: • Ability to use all the media

specialisation into music biz 
diversification + Maverick
Records
• The Business Unit level: multi-
facets products
cover to promote its products
• A different image according to
the consumer (teens/adults)
• Using sexual references while
developping charity biz
 Question 2. Why Madonna is so successful ?

• One goal (INTENT)

 Become a superstar  strategy is about
“winning”
• Dynamic capabilities (ANALYSIS)
 Capable to anticipate music tastes and to
diversify into other range of products 
strategy is about “knowing your strengths and
your weaknesses” compared to others
• Key success factors (DECISION)
 To maintain key relationships with stakeholders
 strategy is about “knowing the industry
recipe”
• One best way (ACTION)
 To establish and renew its image  strategy is
about “evolving”
 What is Strategy ?

Strategy is a process which translates intent

into action.

Intent Analysis Decision Action

Strategy
 Four questions to guide the process

Analysis Decision
WHAT CAN WHAT MIGHT
WE DO? WE DO?
(strengths and (external opportunities
weaknesses) and threats)

Strategy

Intent Action
WHAT DO WE WHAT DO OTHERS
WANT TO DO? EXPECT US TO DO?
(organizational and (stakeholder
individual values) expectancies)
 First definitions of strategy

• A strategy is the general direction in

which an objective is to be thought.
King and Cleland in Strategic Planning and Policy,
(1978, p.51)

• Strategy is a major organizational plan

for action to reach a major
organizational objective.
Higgins and Wincze, Strategic Management, Text
and Cases (1989, p.166)
 What is Strategy? (according to Michael Porter)

1. Strategy is the creation

of a unique and valuable
position, involving a
different set of activities
Strategy is a race
to one ideal 2. Strategy is making
position tradeoffs in competing,
and choosing what not to
do

3. Strategy involves
creating fit among a
company’s activity
 Our definition of Strategy

Strategy is the direction and scope of an

organisation over the long term, which
achieves advantage in a changing
environment through its configuration
of resources and competences with
the aim of fulfilling stakeholder
expectations.

G. Johnson, K. Scholes & R. Whittington in

Exploring Corporate Strategy (p.34)
 Introduction

A) What is Strategy ?
B) What is Strategic Management ?
C) Strategic Management as an object
of study
D) New contexts for Strategic
Management
 Why studying strategic management ?

• The business environment has become more

uncertain, complex and globalized.

• Competencies you will get thanks to the course

(see the syllabus):
 Identify critical management issues in both internal
and external organizational environments.
 Assess industry and competitive conditions and
identify key factors for competitive success.
 Conduct and write a strategic audit of a corporation.
 What is Strategic Management ?

• Strategic Management theory deals

with how firms create competitive
advantage and superior market
performance in relation to other firms
(Barney and Westerley, 1996).

• Strategic Management includes

 Strategic diagnosis
 Strategic choices
 Strategic deployment
 Three levels of analysis in Strategic Management

1. Corporate Strategy
CORPORATE
 Choices of activities
 Diversification or specialisation
1. Strategic Business Unit Division A

 Choices of positiniong of each activity

R&D
 Price-based or differentiation Personnel
1. Operational Finance
Production
 Organization of the activity
Marketing
 Functions
 Introduction

A) What is Strategy ?
B) What is Strategic Management ?
C) Strategic Management as an object
of study
D) New contexts for Strategic
Management
 Who teaches Strategic Management ?

Practitioners
•
 Strategy as an art
 How to think about it ?

Economists
•
 Strategy as a science
 How to plan it ?

Management theorists
•
 Strategy as a tool box
 How to implement it ?
 Evolution of the theory

19th
Century

Military view of
Economic and industrial view Resources
Strategy
time

Sun Tzu; Clausewitz Harvard, LCAG, Ansoff, BCG, Porter Hamel & Prahalad
 The military view

• The word derives from the Greek strategos, which

referred to a “military commander” during the age of
Athenian Democracy.

• “Strategy is concerned with drafting the plan of war…

shaping the individual campaign and, within these,
deciding on the individual engagements” Von Clausewitz

• War can be organized according to:

 Resources: men, food, water, weapons and
 Use of resources: army, division and tactics
 Deployment: according to the battlefield
 Decisions: from the command line to the field
The Economic view versus the Resource Based view

Economic View Resource-Based View

Superior performance It is the resources

is an outcome of internal to the firm that
market positioning and constitute superior
first-mover performance in the
advantages. marketplace.

Deductive Strategy Constructive Strategy

 Introduction

A) What is Strategy ?
B) What is Strategic Management ?
C) Strategic Management as an object
of study
D) New contexts for Strategic
Management
 Driven forces

1. Globalisation + the (re)emergence of

China
 China = long-term strategy
 Impact on the energy costs
1. Public/Private relationships
 Regulation / Deregulation (eg. La Poste)
 Mergers between public and state-owned
companies
1. Information Technology
 The world is flat (Friedman 2007)
 Generation 2.0 (intangibles>tangibles)
1. Sustainable development
 Green Economy
 Different organizational contexts, different focuses

1. Small and Medium Businesses

 Focus on strategic positioning because of the
competition with bigger competitors

1. Multinational Companies (MNC)

 Focus on the coordination of complex
activities distributed around the globe

1. Public Services
 Focus on managing change

1. Non-profit Organizations
 Focus on stakeholders needs
 The syllabus

1. Scanning the
environment
Part 1. Diagnosis 2. Exploring and exploiting
capabilities

1. Diversification or
Strategic Specialisation
Part 2. Choices
Management 2. Managing the
portfolio of activities

1. Implementing and
Part 3. Deployment controlling decisions
2. Managing change for
deploying strategy
 Examples of
strategic thinking…

We don’t like their sound. Groups of guitars are

on the way out.
Decca Executives turning down The Beatles in 1962

There is no reason for any individual to have a

computer in their home.
Ken Olson, CEO of Digital (1977)

With other fifty foreign cars on sale here the

Japanese auto industry isn’t likely to carve out a
big share of the market for itself.
Business Week (1968)
 Scanning the
environment, a big
challenge…

“I used to think that the biggest challenge in

developing strategy was understanding the external
environment, properly gauging how industry structure
was changing, understanding the way competitors
were moving, and so on….”

A discussion with Michael Porter (1999),

Organizational Dynamics.
 The environment

Macro-
environment
Industry
Market

Company

Product 1 Product 3

Product 2
Competitor A

Competitor C

Competitor B
Competitor D
 Scanning the
environment

A) The macro-environment
B) The industry
C) The market
D) Opportunities and threats
 What affects a company?

Macro-
environment

?
? ?
Company

? ?
?
 Definition of the macro-environment

• The macro-environment consists of

broad environmental factors that
impact to a greater or lesser extent on
almost all organizations.

• Information about the macro-

environment:
 GMID Database
 Other sources: The World Economic
Forum, The United Nations, The WTO,
INSEE, CIA’s World Factbook, etc…
Tools to diagnose the macro-environment

Tool 1. / The PESTEL framework

Tool 2. / Scenarios planning

 The PESTEL framework

• An analysis of the external macro-

environment that affects all firms.
 Political (eg. Stability, Lobbying)
 Economic (eg. GDP, oil price 60% of
airlines costs)
 Social (eg. Working hours)
 Technological (eg. Internet diffusion)
 Ecological (eg. Tax)
 Legal (eg. Anti-trust laws)

It can be used as a checklist to

understand the different environmental
influences in the macro environment.
 The PESTEL Analysis

Macro-
environment

Economic

Political Social

Company

Ecological Technological

Legal
 Examples of reports from GMID Database

• World report (Consumer Electronics)

 Trends
 Competitive landscape
 Prospects
• Country factfile (Ireland)
 Population
 Political structure & risk
 Main industries
• Industry report in the country (Consumer
Electronics in Ireland)
 Consumption (size, growth, etc.)
 Segmentation
 Key players
 Another example: the UN Telecom Index

• This index comprises

indicators on diffusion
of PCs, Internet
connections, phone
lines, mobile
subscriptions and TV
sets, and share of
population online.

Source: United Nations,

Department of Economic and
Social Affairs (2007): World
Public Sector Report 2007.
New York.
Tools to diagnose the macro-environment

Tool 1. / The PESTEL framework

Tool 2. / Scenarios planning

 Definition of scenarios planning

• Scenarios planning consists in representing

plausible and detailed situations for a company
according to a combination of anticipitave
structural trends.

• The scenarios are purposeful stories about how

the contextual environment could unfold in time.

• It includes unexpectedly important situations

and problems that exist in some small form in
the present day.
 Example: the impact of oil price in the car
industry (eg. General Motors  hybrid)
 Mapping factors in scenarios

High
predictability Increase of
of outcome energy costs
Ecological
concerns
Health
concerns
Low impact High impact

Low
predictability
of outcome
 Steps in scenarios planning at Shell

Step 1. Decide on Driven by the activity

the key question of the company and
to be answered. PESTEL analysis

Step 2. Identify Brainstorming

people who will sessions
contribute.

Step 3. Map basic Use matrixes

trends and driving
forces.
Step 4. Find key Assess the
uncertainties. weigh of factors

Step 5. Produce
10 scenarios
and select 3.
Step 6. Impact
assessment
 Another example – “Horizon 2017” at UPS

• External Non-Customer Interview Questions

 What external factors will affect the transportation and logistics
industry over the next decade?
 What will deliver success (for transportation and logistics companies)
10-12 years out, and how will that differ from today?
 Paint me a picture of how transportation and logistics may look in
2017. Which current competitors will be strong players, and what kinds
of new entrants do you see emerging?
• External Customer Interview Questions
 What will make a company successful in your industry in the next
decade? (What's going to be different?)
 If we could answer one question about the future to help your
company succeed, what would that question be?
 What is going to stop being true in your industry over the next
decade?
• Management Internal Interview Questions
 How would you describe success for UPS over the next 10-12 years?
What would it look like for us? What would be the results?
 How would you like UPS to be viewed within the industry? Within the
financial community? Among customers? Among employees?
 If I could answer any question for you, what would you want to know?
What would you like to know that would give UPS a jump on the
competition?
Example of matrix use (source: Company Document)
Alter Eco & Fair Trade

Mini-Case
 Question 1.The growth of fair trade products

• Social, Legal and Political issues explain the

growth of faire trade products on a global scale.

• Fair trade is mainly a social phenomena : buyers

accept to pay a higher price for a differentiated
product.

• Demand for fair trade is growing quite fast:

 The French market is very far from maturity
 This growth takes place at the expense of traditional
trade, to which fair trade is obviously a substitute
 The growth perspective is therefore extremely
attractive
 In the future the substitution effect will remain
marginal or will become really significant.
 Question 2. Scenarios of development for Alter Eco

• SC1. A high growth rate of the demand (+20% per year)

 As the market develops and the costs decrease, retailers will
launch their own fair trade labels
 Cheaper “fair trade”: retailers will benefit from cheaper costs
than Alter Eco’s
 Solution: form partnerships with retailers and supply them

• SC2. A steady growth of the demand (+2% per year).

 Alter Eco needs to find another positioning such as organic
food
 Solution: find sources of differentiation for their products

• SC3. A declining demand

 Consumers are not willing to pay a price premium anymore…
 Solution: diversification, internationalization or lobbying
 Scanning the
environment

A) The macro-environment
B) The industry
C) The market
D) Opportunities and threats
 What affects a company ?

Macro- Partners
environment Suppliers

Industry

Company

Competitor A

Competitor C

Competitor B
Competitor D
 What is an « industry »?

• An industry encompasses a group of companies

offering the same products or services (Standard
Industrial Classification - SIC Codes)
 Example: Air Transport
 Code 3721  Aircraft
 Code 3724  Aircraft Engines & Engine Parts
 Code 4512  Air Transportation, Scheduled
 Code 4581  Airports

• According to Porter (2008), the boundaries of an

industry consist of two primary dimensions
 The scope of products or services
 The geographical scope
 If industry structure for two products/services is the
same (same buyers, suppliers, barriers, substitutes,
regulation) they belong to the same industry.
 Profitability of Selected Industries

Pharmaceuticals

Women's Clothing Stores

Building Materials Retail

Software

Drug Stores

Restaurants

Electronic Computers

Semiconductors

Trucking, Except Local

Dental Equipment & Supplies

Hotels and Motels

Engineering Services

Motor Vehicles & Car Bodies

Crude Petroleum & Natural Gas

Cable And Other Pay TV Svcs

Air Transport

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Operating Income / Total Assets, 1985 - 2001

Source: Compustat
 Tools to diagnose an industry

It helps to define the Key Success

Factors within the industry

Relative
Relative Position
Position
Industry
Industry Within
Within the
the
Structure
Structure Industry
Industry

- Rules of Competition - Sources of Competitive Advantage

 The 5 Forces model

Threat of Substitute
Products or Services

Bargaining Power Rivalry Among Bargaining Power

of Suppliers Existing of Buyers
Competitors

Threat of New
Entrants

 The framework is a means of identifying the forces which

affect the level of competition in an industry or sector
 The threat of substitute

• A substitute performs the same or a

similar function as an industry’s product
by a different mean
 Videoconferencing Vs Business travel
 DVD Vs VoD
 CD Vs MP3

• When the threat is high, industry

profitability suffers:
 A substitute offers attractive trade-off (ex.
Phone Vs Skype)
 A substitute creates a price ceiling if the Threat of Substitute
buyer’s cost of switching to the substitute is Products or Services
low (ex. Branded drugs Vs Generics)
 The threat of new entrants

• New entrants to an industry bring new

capacity and a desire to gain market
share that puts pressure on prices,
costs and the rate of investment
necessary to compete.
 Apple in the music distribution
 Microsoft in the video game industry

• When the threat is high, incumbents

must hold down their prices or boost
investment to deter new competitors.
 Starbucks in the specialty coffee
Threat of New
Entrants
 The threat of new entrants

• The threat of entry depends on the

height of entry barriers that are present
and on the reaction entrants can expect
from incumbents.

• Entry barriers are advantages that

incumbents have relative to new
entrants:
 Financial barriers (economies of scale
supply/demand & capital requirements)
 Commercial barriers (customers switching
costs & distribution channels)
 Knowledge barriers (know-how & specific Threat of New
technology or standards) Entrants
 The suppliers

• Powerful suppliers capture more of the

value for themselves by charging higher
prices, limitating quality or services, or
shifting costs to industry participants.
 Microsoft in the PC industry

• The bargaining power is high if:

 The product/service provided is essential or
unique  no substitute (ex. luxury goods)
 The reputation is strong (ex. Intel)
 The transfer costs are high (ex. SAP)
 Suppliers are concentrated
Bargaining Power
of Suppliers
 The buyers/consumers (B2B or B2C)

• Powerful buyers can capture more value

by forcing down prices, demanding better
quality or more service and generally
playing industry participants off against
one another.

• Their bargaining power is high if:

 There are few buyers in the market
 They have many suppliers to choose from
 They purchase in large volume
 The products/services are undifferentiated
 The volume they buy accounts for a large
percentage of their suppliers’ sales
Bargaining Power
of Buyers
 Rivalry

• Competitive rivals are companies with similar

products and services aimed at the same
customer group:
 Price discounting
 New product introduction or service improvement
 Advertising campaigns

• High rivalry limits the profitability of an industry

and the degree depends from:
 Intensity of the rivalry:
 Industry growth rate
 Number of players
 High exit barriers
 The basis on which they compete Rivalry Among
 Price Existing
 Quality Competitors
 Rivalry in the US Automotive Industry 1895-1961

250

200

150
No. of firms

100

50

0 1895 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960

Source: S. Klepper, Industrial & Corporate Change (2002, p. 654)

 Implications of the model

• Non attractive industry when :

 High rivalry
 Low barriers of entry
 Strong competition between substitutes
 Strong bargaining power of suppliers and
buyers

• Attractive industry when :

 Moderated rivalry
 High barriers of entry
 No substitutes
 Weak bargaining power of suppliers and
buyers
Voyages-sncf.com

Mini-Case
The website
 Travel agencies before e-commerce

« Do it Yourself » -Syndicate (SNAV)

Substitute -Travel agencies are

important outputs
-But their role is
questionned by the
emergence of the Internet

Strong rivalry based

Suppliers on price competition Buyers
and reputation

- Airlines (concentrated)
- Hotels (fragmented)
- Car rentals (concentrated)
- Easy to set up its own
- Trains (monopoly)
New entrants activity with suppliers
- Size matters (network)
 Travel agencies now

Brick-and-mortar travel
agencies
Substitute

- Advertising agencies
- Customers

Strong rivalry based

Suppliers on traffic on the Buyers
website and
partnerships
- Airlines (concentrated)
- Hotels (fragmented)
- Car rentals (concentrated)
- Size still matters (network
- Trains (monopoly)
New entrants effects)
 How voyages-sncf.com makes a positive margin

• The train ticketing activity has reached a

maximum.

• Additional revenues are:

 fees they ask to the different suppliers
 price they ask to advertising agency to put an
add on the platform

• The challenge is to transform this « natural »

and captive market into a more profitable one
 Confusion between train tickets sellers and
travel agency
 Aggressive and “creative” communication
campaign (Doit-on vraiment en arriver là?)
What are the main opportunities and threats ?

Opportunities Threats

• Turn high level of • Confusion with train

traffic into regular tickets remains
shoppers (because of the name
of the travel agency)

• International reach
• Connection with
GDS remains difficult
• Consumer habits for trains
 Pros & cons for using the 5 Forces model

Pros Cons

- Useful to identify industry - Not dynamic

stakeholders
- Some forces are
- Useful to structure an interrelated
industry analysis
- State regulation has to be
included
- Identification of key
success factors
- Focus on an industry (and
not a company !)

 Key success factors can be derived from the 5 forces

analysis. It consists of 3-5 really major determinants (or
recipes) of competitive success in one industry.
 Scanning the
environment

A) The macro-environment
B) The industry
C) The market
D) Opportunities and threats
 Definition of a market segment

• Compared to the industry-level, markets refer

to specific products or services.

• A market segment is a group of customers

who have similar needs that are different from
customer needs in other parts of the market.
 Car: City / Family / Sports / Luxury
 Watch: Swatch / Lotus / Rolex

• Market segments:
 are defined by customers expectations
 are served by strategic business units (SBU)
 may change the key success factors (eg. Low-
price car VS Luxury car)
 Definition of a Strategic Business Unit (SBU)

• A strategic business unit is a part of an

organisation for which there is a distinct
external market for goods or services that
is different from another SBU.

• According to similarity of buyers needs

 Geographical
 Europe / Middle East / Africa / Asia

 Product-line
 Personal & Beauty / House & Home / Health &
Wellness
 Tools to scan competitors business units

Tool 1. / The strategic groups mapping

Tool 2. / Profits pools: the industry value chain

 Competitors and markets

• An industry may be a too-general level

to provide for a detailed understanding
of competition.
 Renault & Ferrari are in the same industry…
but they compete on different basis.

• Strategic groups are companies within

an industry with similar strategic
characteristics, following similar
strategies or competing on similar basis.
 How to select strategic groups?

Scope of Resource commitment

activities

• Level of service or
• Geographical quality
coverage • Product range
• Number of market • Marketing effort
segments served • Size of the company
• Distribution channel
used

 Let’s try to define some strategic groups in the car

manufacturing industry
 Example 1. The car manufacturing industry

Broad REGIONALLY- GLOBAL, BROAD-LINE

FOCUSED BROAD- PRODUCERS
LINE PRODUCERS e.g., GM, Ford, Toyota,
RenaultNissan, Honda, VW,
e.g. Fiat, PSA, Kia
DaimlerChrysler

PRODUCT
RANGE

NATIONALLY- FOCUSED, PERFORMANCE CAR

SMALL, SPECIALIST PRODUCERS e.g.,
PRODUCERS e.g., Bristol Porsche, Ferrari (owned by
(U.K.), Classic Roadsters Fiat) Maserati, Lotus
(U.S.), Morgan (U.K.)
Narrow

National GEOGRAPHICAL SCOPE Global

 Example 2. Airlines industry in the USA
Laker
Pan International
International TWA Am

World
United
North American
Braniff
west

Conti- Northwest
nental Delta
Eastern
TWA
United

USAir
Geographic

Delta
National National
American
Scope

Continental

South-
Western
RepublicOzark west

USAir Piedmont
America
AirCal West
South- Frontier Kiwi
west
Texas PSA Reno Others
Regional Int’l The Late 1970s Regional Air The Early 1990s
No Frills Full Service No Frills Full Service
Quality of Service Quality of Service
 Tools to scan competitors business units

Tool 1. / The strategic groups mapping

Tool 2. / Profits pools: the industry value chain

 Profit pools: the industry value-chain

• A profit pool can be defined as the

total profits earned in an industry at all
points along the value-chain.
 It shows the structure of
profitability

• Two main indicators to calculate profit

pools
 Share of industry revenue of the player
 Operating margin of the player
 Example 1. The car industry:

35

30

25
Here’s the profit pool
20
Operating margin
Share of Industry Revenue
15

10

ty

s
s

ir
s

ce

al
g

e
ng
s
er

rt
r

an

in
in

pa

nt
n
le

n
si

pa
al

ol
ur

ra

ra
lo
a

re

re
a
de

as
de

ar
t

Le

su

t
ac

ke

o
G
W
t

t
in
r

Au
uf

Au
ca

vi
ca

ar
an

m
Se
t
ew

Au
m

er
se
N

t
U
o

Af
t
Au

Car loaners
Insurance Repair
Auto Makers Leasing
Warranty Parts
 Downstream activities are more Car dealers
profitable than upstream activities
 Example 2. The VoD

Description Price charged to

the consumer

Rental VoD The consumer rents the 3,99 €

video for 24h to 72h

Permanent Download The consumer buys the 9,99 €

video permanently

Subscription VoD The consumer pays an 4,99 €  9,99 € per

access to IPTV channels month

Ad VoD The consumer enjoys the None

video with ads on the
screen
 Example 2. The VoD value chain

Here’s the profit pool

IPTV Commission
(30%)

Production

Distribution
Aggregation with IPTV

Publishing

ut hors VOD
A
Taxes on author Editor Royalties Distribution
rights (4,3%)
Distribution costs
(30cts per movie)
Equipment
Payment costs (7%)
 Example 2. Calculation of the margin for Arte

VoD Rental VoD Rental

through IPTV
PRICE 3,99 € 3,99 €
- Tax on Added Value (19,6%) 0,65 € 0,65 €
- Tax on VoD (2%) 0,07 € 0,07 €
Free Tax Price 3,27 € 3,27 €
- Taxes on author rights (4,3%) 0,14 € 0,14 €
- IPTV Commission (30%) 0,98 €
Editor Net Price 3,13 € 2,15 €
- VoD Payment costs (7%) 0,23 €
- VoD Distribution costs (30 cts per movie 0,30 €
on its website)
- Editor Royalties (50% of free tax price – 1,57 € 1,57 €
taxes on author rights)
Margin 1,04 € 0,58 €
 Example 2. Calculation of the margin for Arte

VoD VoD Downlaod

Download with IPTV

PRICE 9,99 € 9,99 €

- Tax on Added Value (19,6%) 1,64 € 1,64 €
- Tax on VoD (2%) 0,16 € 0,16 €

Free Tax Price 8,19 € 8,19 €

- Taxes on author rights (4,3%) 0,35 € 0,35 €
- IPTV Commission (30%) 2,46 €

Editor Net Price 7,84 € 5,38 €

- Editors costs (7%) 0,57 €
- Editors distribution costs on VoD (30 cts per movie 0,30 €
distributed on its website) 3,92 € 3,92 €
- Editor Royalties (50%)
Margin 3,05 € 1,46 €
 Scanning the
environment

A) The macro-environment
B) The industry
C) The market
D) Opportunities and threats
 Opportunities and threats

Opportunity Threat

An element in the
environment that can be An element in the
exploited by the company. environment that can
affect the performance
of a company

 It derived from the external analysis of the company:

1. Auditing macro environmental influences
2. Identifying key competitive forces
3. Identifying competitive position
The video game industry

Mini-Case

Interview of the CEO

 Is the industry attractive?

• Two overlapping activities:

 Video game producers (software):
 Most console manufacturers make money on
games (10 euros/unit), not on consoles

 Console makers (hardware):

 Console makers are all game publishers
 Exclusive partnerships exist between console
makers and video game makers

• A brain intensive industry where

innovation is a competitive advantage ?
 Convergence of two activities

Hardware

Software
 Diagram of the video game industry (software)

Rivalry
Threat of new
entrants
10 10

5 5

10 5 5 10
Power of
Power of buyers
suppliers
0

5 5

10 10

Regulation Threat of substitutes

from the State
 Diagram of the video game industry (software)

Rivalry
Threat of new
entrants
10 10

5 5

10 5 5 10
Power of
Power of buyers
suppliers
0

5 5

10 10

Regulation Threat of substitutes

from the State
 Key Success Factors for videogame makers

1. Threat of new entrants:

• use of sports games that transform customers
into subscribers (a stable source of revenues)
• acquisition of small software developers

1. Power of suppliers:
 use of licences (ie. Harry Potter or FIFA) that
boost sales volumes

1. Power of buyers:
• choice of the dominant hardware (ie. Sony
Playstation / Nintendo Wii)
 Diagram of the console industry

Rivalry
Threat of new
entrants
10 10

5 5

10 5 5 10
Power of
Power of buyers
suppliers
0

5 5

10 10

Regulation Threat of substitutes

from the State
 Diagram of the console industry

Rivalry
Threat of new
entrants
10 10

5 5

10 5 5 10
Power of
Power of buyers
suppliers
0

5 5

10 10

Regulation Threat of substitutes

from the State
 Key Success Factors for the console makers

• Rivalry: the size of the installed base and

the network externalities
 Players want to play on the same console as
their friends in order to swap games
 Technology cycles

• Power of suppliers: exclusive partnerships

with video game producers
 Players prefer the console with the largest
game catalogue

• Power of buyers: the distribution network

 Technology cycles

Number of units
sold (millions)
100

50

1980 1990 2000

 Profit pools for the video game publishers

Operating
margin

20%

10% Profit Console

per Games
Consoles game Publishers
Makers Fees sold 47%
Retailer
20% 33%

Share of industry revenue 100%

Source: Game IDATE

 Why the industry is going to concentrate?

> Calculation of the per unit profit made by game publisher

Current generation Next generation

Unit price including tax 60 Unit price including tax 50
Unit price without tax 50 Unit price without tax 42
Unit price after 6 months 25 Unit price after 6 months 21
Average unit price (80% at full & 20% at half) Average unit price (80% at full & 20% at half)
45 38
- Retailer margin (33%) - Retailer margin
15 13
Publisher selling price 30 Publisher selling price 25
- Fee paid to console makers 10 - Fee paid to console makers
10
Gross Profit Gross Profit
- Mkt/Dist costs (35%) 20 - Mkt/Dist costs (35%) 15
10 9
Profit per unit Profit per unit
10 6
 Break even point

Current generation Next generation

10 euros of profit per 6 euros of profit per

game game

Investment between 5 Investment between 15

and 10 millions euros and 20 millions euros

Result = 500 000 to 1 Result= 2,6 to 3,3

million of units millions of units

Only AAA pay off Only blockbusters pay

CONCETRATION off
OF THE INDUSTRY
 Conclusion : market segmentation in the video game industry

Mass Market Pure Player

Target Regular players Very frequent players

Buying Frequency 1 or 2 games per year 1 to 5 games per month

Marketing & licensing High Weak

impact

Distribution channel Supermarket Specialized retailer

 The syllabus

1. Scanning the
environment
Part 1. Diagnosis 2. Exploring and exploiting
capabilities

1. Diversification or
Strategic Specialisation
Part 2. Choices
Management 2. Managing the
portfolio of activities

1. Implementing and
Part 3. Deployment controlling decisions
2. Managing change for
deploying strategy
 The environment

Macro-
environment
Industry
Market

What do you need to

create your own Company
company?
Product 1 Product 3

Product 2
Competitor A

Competitor C

Competitor B
Competitor D
 Strategic capability

Strategic capability is the adequacy and

suitability of the resources and competences of
an organisation for it to survive and prosper.

Resources are inputs into the

production process.
 Tangibles: physical (equipment and
raw materials), financial and human
resources.
 Intangibles: intellectual capital
(patents, brand names, databases,
information).
But, few resources are productive…
Competences
Activities and processes
through which a company
deploys its resources
effectively.
 How to obtain a competitive advantage ?

Resources Competences

Minimal Threshold Threshold

capabilities resources competences
Easy to copy Easy to copy

Capabilities for Unique Core

competitive resources competences
advantage Hard to imitate Hard to imitate
 Example: athletics

Resources Competences

Minimal Mandatory: Needed:

capabilities for -Health body -Training
doing sport -Training equipments -Diet planning

Capabilities for Unique: Core:

becoming a -Exceptional heart -Dedication
champion -Height or weight -Tenacity
-Will
 How to measure capabilities?

Tangible Financial Operating Profit/Cash Flow/Credit Rating

Resources Physical Book value/Vintage of capital equipment
Human Turnover rate/Training days/Diploma

Intangible Intellectual Number of patents/copyrights/licences

Resources Innovation R&D expenses/R&D staff as % of total
Reputation Brand equity/Name recognition/Surveys
Core Individual Number of experts or reputed managers
competence Collective Years of experience of a specific team
 Strengths and Weaknesses

Strengths and Weaknesses are internal

factors such as assets, competences or
resources a company has at its disposal
relatively to its competitors.

Examples of strengths Examples of weaknesses

 Patents
 Innovative product
 Marketing expertise
 Strong brand or reputation
 Exclusive access to natural
resources
 Lack of marketing expertise
 Undifferentiated products
 Competitors have superior
access to distribution channels
 Lack of resources (size)
 Damaged reputation
 Tools to map strategic capabilities

Tool 1. The company value chain

Tool 2. The activity system mapping

Tool 3. Benchmarking
 Tool 1. The value chain

• The value chain describes the activities

within and around an organisation which
together create a product or service.

• A value chain encompasses:

 Primary activities: directly concerned with the
creation or the delivery.
 Support activities: help to improve the
effectiveness or efficiency of primary activities.

 The value chain raises the question of what value creating

activities a company should be focusing on and what
activities it has which do not create a value.
 The value chain

Firm Infrastructure
(e.g. Financing, Planning, Investor Relations)

Human Resource Management

Support (e.g. Recruiting, Training, Compensation System)
Activities
Technology Development Value
(e.g. Product Design, Testing, Process Design, Material Research, Market Research) M

Procurement a What
(e.g. Components, Machinery, Advertising, Services) r buyers
g
After- are
Inbound Operations Outbound Marketing Sales i
Logistics Logistics & Sales n
willing
Service
to pay
(e.g. Incoming (e.g. Assembly,
Component (e.g. Order (e.g. Sales
Material (e.g. Installation,
Fabrication, Processing, Force,
Storage, Data Customer
Branch Warehousing, Promotion,
Collection, Support,
Operations) Report Advertising,
Service, Complaint
Preparation) Proposal
Customer Resolution,
Writing, Web
Access) Repair)
site)

Primary Activities
 Example 1. Starbuck’s value chain

Firm Infrastructure

Human Resource Management

Technology Development
M
a
Procurement
r
g
Consumer
Sourcing Roasting Distribution Marketing Service i
& Sales - Atmosphere n
- Diversified -New - Transportatio -Owning - Wi-fi
- High quality roasting n rates outlets - Healthy
- Commitment techniques - Very accurate - Use of real product
from forecasting estate - Lifestyle
-Proprietary
suppliers - Strong brokers brand
processes - Real estate
inventory - Exclusive
turns division products
 Why do people buy Starbuck’s coffee ?

People are buying a People are buying an

high quality cup of experience
coffee

 Consistent, upscale
 Consistent cup of retail image
coffee  A community
 High quality coffee gathering spot
 Different and  A coffee-related
interesting blends experience

Core competence:
Product-driven  Service-driven
Prêt à Manger

Mini-Case
 Example 2. Prêt à Manger value chain

Firm Infrastructure 4% 3%

Human Resource Management 3% 1%

Technology Development 3% 3%
M
a
Procurement 3% 1%
r
g 7%
Inbound Operations Outbound Marketing After-Sales i
Logistics Logistics & Sales Service n

1% 65% 1% 13% 0%
8% 18% 2% 64% 0%

Operating Costs
Assets
 The value chain of Prêt à Manger

• Question 1.
 Operations costs are high: managing its purchased inputs is
critical
 Marketing & Sales assets are important: the retail locations
are expensive
 Half the floor area of a typical Prêt A Manger outlet is kitchen
and half is shop.
 Sandwich making could take place in a low-cost factory unit,
but selling needs high-value retail locations.

• Question 2.
 Local market research that enables a site's sandwich revenue
potential to be closely predicted is extremely valuable
 Finding high value retail locations is a core competence
 Tools to map strategic capabilities

Tool 1. The company value chain

Tool 2. The activity system mapping

Tool 3. Benchmarking
 Tool 2. The activity mapping

• An activity map tries to show how the

different activities of an organisation
are linked together.

• It helps to identify:
 Core competencies
 Trade-offs
 No
No meals baggage
transfers
Limited No
No seat Passenger connections
assignments Service with other
airlines

Limited use
of travel
agents
Short-haul, point-
Frequent, 15-Minute to-point routes
Standardized
Reliable Gate Turns fleet of 737
between medium-
Departures sized cities and
aircraft
secondary
airports
Automatic
Ticketing
Machines
Lean, Highly
Flexible Productive Very Low
union Ticket Prices
Ground and Gate
contracts
Crews
“Southwest,
High the low-fare
High Aircraft airline”
employee Utilization
stock
ownership
 Zara

Mini-Case
 Cutting-
Word-of- edge fashion
mouth at moderate
marketing Customer price and
Widely
popular
s chic but quality
cost-
styles
conscious
Global
team of
trend-
Encourage spotters Extensive
repeat use of
buyers store
sales data
Very
frequent
product Advanced
No media changes productio
advertising n
machiner
y

JIT
delivery

Prime store Production Ownership Very

locations in in Spain and of flexible
Portugal,
high traffic production production
close to sites
areas markets system
 Cutting-
Word-of- edge fashion
mouth at moderate
marketing price and
Customer
Widely
s chic but
quality
popular
cost-
styles
conscious
Global
team of
trend-
Encourage spotters Extensive
repeat use of
buyers store
sales data
Very
frequent
product Advanced
No media changes productio
advertising n
machiner
y

JIT
delivery

Prime store Production Ownership Very

locations in in Spain and of flexible
Portugal,
high traffic production production
close to sites
areas markets system

Source: Draws on research by Jorge Lopez Ramon (IESE) at the Institute for Strategy and Competitiveness, HBS
 Tools to map strategic capabilities

Tool 1. The company value chain

Tool 2. The activity system mapping

Tool 3. Benchmarking
 Tool 3. Benchmarking

• Benchmarking is the search for best practices that

lead to superior performance.
 Historical benchmarking (evolution of ratios)
 Industry benchmarking (practices in a specific domain)
 Best-in-class benchmarking (outside the industry; ie.
Call centers)

 Thanks to a comparison, one can define and compare

the value of the internal capabilities

• Limits:
 Myopia: « You get what you measure »
 Disclosure of sensitive information
 Imitation…not differentiation
 Mini-Case

“Tech companies that are dominant have

trouble from within, not from competitors…”

Eric Schmidt, CEO

The Economist (2007, p.57)
 What is a business model?

• A business model is a description of the value a

company offers to one or several segments of
customers and of the architecture of the firm and its
network of partners for creating, marketing, and
delivering this value and relationship capital, to
generate profitable and sustainable revenue streams.

Question 1. How come a late-mover such as Google

dominates its industry?

Question 2. What is Google’s business model?

Question 3. What are Google’s resources and

competences?
 Google’s success

1. Google has dramatically enhanced the relevancy of web

search results (search was a commodity outsourced by AOL,
Yahoo! Or MSN).

2. Google has monetized search traffic by copying and

improving Overture’s paid listings model (cost-per-click).

 A late-mover can become a leader thanks to a high-

innovative service outsourced by key players…
 Diagram of the search engine industry

Rivalry
Threat of new
entrants
10 10

5 5

10 5 5 10
Power of
Power of
suppliers
0 customers

5 5

10 10

Regulation Threat of substitutes

from the State
 Key success factors in the search engine industry

• Power of customers is very high

 Transfer cost is null for the user (one click)
 Relevance of queries + Privacy issues
 Network effects (customer trust and loyalty) are keys

• Rivalry is high
 Race for innovation (over quality)
 Branding the service
 Provide innovative services under the same brand is key

• Threat of substitutes is medium

 Exclusive partnerships can protect the competitive position (ie.
Libraries for Google Library)
 Earn money with contextual and sponsored ads is key
 Google’s resources & competences

Resources Competences

Minimal capabilities Mandatory: Needed:

for launching a -Servers & computers -Relationships with soft
editors & universities
search engine -Engineers
-Algorithm + Ads -Talented mathematicians

Capabilities for Unique: Core:

becoming the -PageRank -Culture (« Don’t be evil »)
leader in search -World’s largest supercomputer -Team management
engine -Googleplex
 Google’s distinctive skills

• Original organization of human

resources
 70% of time  Core business
 20% of time  Related projects
 10% of time  New

• It permits ideas to emerge from the

ground
 To transfer the culture of innovation to
“nooglers”
 To increase the innovation rate
 Google’s business model and capability

Business Model Organizational Capability

•Referencer (‘Search’) •Recruit and develop superior people

 Unique algorithm to rank web
pages
•Prescriber (‘Ad’)
 Focus on paid-listing
 Aggregation of information
•Innovator (‘Aps’)
 Services (Google Earth…)
(10 000 ‘Nooglers’ in three years)
•Self-governance (culture of
innovation)
•Strong embedded policies and culture
(unconventional)

Demand Offer

Prescription
 Conclusion on
Part 1. Diagnosis
 Tools to make a strategic diagnosis

Tool Level of analysis Helps with understanding

PESTEL Macro-environment - Changes that affect an industry

- Opportunities for growth or
decline

5 Forces Industry - Structure and profitability

- Threats from stakeholders
Strategic groups Market - Mobility of competitors
- Repositioning to another group

Value chain Industry/Company - Opportunities for vertical /

horizontal integration/ outsource
Core Company - Exploiting strengths
competences - Eliminating weaknesses
 Strategic Diagnosis = SWOT

External Internal
Evaluation Evaluation

Opportunities and Strengths and

Threats SWOT Weakness

Key success
Distinctive skills
factors

Strategy
Creation

Evaluation and
Strategic
choice

Strategies
implementation

Learned, E., Christiansen, C., Andrews, K., and Guth, W. (1969). Business policy:Text and cases. Homewood, IL: Irwin.
 The syllabus

1. Scanning the
environment
Part 1. Diagnosis 2. Exploring and exploiting
capabilities

1. Diversification or
Strategic Specialisation (Corporate)
Part 2. Choices
Management 2. Managing the
portfolio of activities (SBU)

1. Implementing and
Part 3. Deployment controlling decisions
2. Managing change for
deploying strategy
 A critical challenge

• The average US-based Fortune 500 company

operates in four distinct industries…

• …and derives 35% of its revenues from

overseas operations.

• Every year, the average large

American/European corporation undertakes:
 Three acquisitions
 Divests two business
 Enters into six alliances

 When companies should or should not

enter into new industries or new
geographies ?
 Corporate Choices vs Business Unit’s Choices

• Based on the diagnosis, the manager determines

the different options available at:
 The Corporate level
 The Business Unit level

1. Choices at the Corporate level (where do we

compete?)  CORPORATE STRATEGY
 What business are we in?
 How to extend our activities?

2. Choices at the Business Unit level (how do we

compete?)  COMPETITIVE STRATEGY
 How to differentiate our products/services?
 How to manage our portfolio of activities nationally
and internationally?
 Danone

Interview of the CEO

 Analysis of the speech

• The Group’s performance is the result of a

balanced strategy that builds on:
 international expansion
 a growing commitment to innovation
 strengthening health-oriented brands.

• Diagnosis:
 Macro: health issues, increase of commodity
prices, cool summer!
 Industry: non-attractive industry Vs attractive
(baby food industry)  logic of the industry

• Choices:
 Corporate: divest of the biscuit line, growth,
acquisition of Numico, price paid
 Business unit: difference in positioning, ties
between business units (=synergies)
 Choices at the Corporate
Level

A) What business are we in?

B) How to extend our activities?
C) Tools to support choices
 Firm’s business scope

For a company that has taken its main business

as far as it can go, diversification may should
certainly be considered…

For the company that has not yet developed its

main business to the full potential, however,
diversification is probably one of the riskiest
strategic choices that can be made…

Kenichi Ohmae
Head of McKinsey Japan
 What business are we in?

• Shell’s mission is:

 “to engage efficiently, responsibly and
profitably in oil, oil products, gas,
chemicals, and other selected businesses”

• McDonald’s mission is:

 “to be the world’s best quick-service
restaurant chain”

• Caterpillar’s mission is:

 “be leader in providing the best value in
machines, engines, and support services
for companies dedicated to building the
world’s infrastructure”
 Diversification or Specialization

• Specialization consists in being in one single

activity (or industry)
 Learning curve and division of labor have led to
scale economies  specialized workforce
 Limits: flexibility of smaller companies, risky in a
mature/declining industry…

• Diversification consists in extending its

resources and competences into new scope of
activities
 Related activities (ex. Pepsi: drink –> food)
 Unrelated activities (ex. Philip Morris: tobacco 
beer, food)
 Forms of diversification

• Related
 Vertical integration: adjacent activities backward
(suppliers or manufacturers) and forward
(distributors or salers)
 Horizontal integration:
integration activities which are
complementary (ex. byproducts, licencies)

• Unrelated
 Development of products or services beyond the
current capabilities or value network.
 National conglomerates in Asia (ex. KIA /
Daewoo / LG / Tata / Sime Darby)
 Motives for diversification

Motive 1. Growth
 Without diversification, firms are prisoners of their
industry  attractive industries

Motive 2. Risk reduction

 The desire to spread risks  cash flows in different
activities (a diversified portfolio)
 Costs of acquisition Vs costs of transactions 
control of strategic resources (ex. raw materials)

Motive 3. Size
 Bargaining power over suppliers or distributors

Motive 4. Synergies
 Benefits that might be gained where two SBUs
complement each other. Their combined effect is
greater than the sum of the parts
 Technologies
 Markets
 The era of diversification…

USA Europe

50’s 60’s 70’s 50’s 60’s 70’s

Single
42% 22% 14% 24% 6% 5%
business
Dominant
27% 32% 23% 50% 32% 10%
business
Related
26% 37% 42% 27% 57% 62%
business
Unrelated
5% 9% 21% 0% 6% 24%
business

Source: Rumelt (1982) & Whittington & al. (1999)

 …and the era of specialization

• After 80’s “noncore” businesses were

increasingly divested
 The average index of diversification declined
from 1.00 to 0.67 for the Fortune 500

• Three factors for specialization:

1. Emphasis on shareholder value (short-term
profitability Vs long-term growth)
2. Transaction costs (turbulent external
environment  higher costs)
3. Trends in management thinking (focus on core
competencies)
The diversification of
Virgin Group

Mini-Case
 Why such a diversification?

1. Virgin is a “branded venture capital”

organization.

2. Richard Branson and the Virgin’s brand are

the common resources and capabilities.

3. Branson diversifies its company into

activities where an unconventional
approach can differentiate its products or
services (David VS Goliath).

 Companies can extend their activities in very

different ways…
 Choices at the Corporate
Level

A) What business are we in?

B) How to extend our activities?
C) Tools to support choices
 How to extend our activities?

BUY
Mergers &
nal Acquisitions
r
te
ex

Strategic Choices ALLY

EXTERNALIZE hybrid
How to develop Strategic
Non-strategic
my activities? Alliances
int
er
na
l
MAKE
Organic
Growth
 How to extend our activities ?

1. Make: Internal development

2. Buy: External development

3. Externalize: Outsourcing

4. Ally: Collaboration
 1. Make: Internal development

• Built on the resources and the

competences of the company.

• This choice can be explained by

 A specific technology
 The difficulties of acquiring another
company
 The cost of ownership
 2. Buy: External development

• Acquisition of a competitor by taking

over ownership of another
organisation.

• Reasons to merge:
 Speed to enter the market
 Critical size (growth)
 Deregulation
 Financial synergies
 Acquire competencies
 3. Externalize: outsourcing

• When the costs of producing a product

or a service is lower than the company
is capable to obtain
 Outside supplier can provide better value
for money than in-house provision
 Maintain core competence inside the
internal value chain

• Ex. cleaning services, IT services,

logistics
 4. Strategic alliances

• Strategic alliances are where two or more organisations

share resources and activities to pursue a strategy.

• Forms:
 Partnership (no competition)
 Alliance (competition)

• Motives
 Critical mass (cost reduction)
 Co-specialisation (ex. R&D)
 Learning
 Increase loyalty (OneWorld/SkyTeam)
 The era of strategic alliances

Number of alliance

The number of corporate alliances Year

increases by some 25% a year
 Some good news about alliances...

• The number of corporate alliances has

increased by some 25% a year.

• Alliances account for nearly a third of many

companies’ revenue and value.

• Firms most active in forging alliances produce

returns 50% higher than those of other large
companies.

Source: Simple Rules for Making Alliances Work (2007)

 …and some bad news

• Yet the failure rate for alliances is between 60% to

70% !

• About half of all alliances terminate within 7 years

and 78% of international partnerships ended with
the acquisition of the joint-venture by one partner.

• In April 1998, American Airlines announced it was

entering into a strategic alliance with US
Airways…
 a year later, US Airways was acquired by United !

• In June 2004, Dong Feng formed a Joint-Venture

with Renault to produce 300 000 cars in China…
 …after having signed a similar agreement with
Nissan…and with Peugeot / Citroen!
 Four types of strategic alliances

A. Joint venture

B. Equity strategic alliance

C. Nonequity strategic alliances

D. Strategic cooperative network

 1. Joint venture

• Definition: two or more firms create a legally independent

company by combining parts of their assets.
 Long-term relationship
 Helps to transfer knowledge
 Some countries, such as China require foreign companies to
form joint ventures
 Combine both capabilities to create a new one

50%

50%
 B. Equity strategic alliance

• Definition: two ore more firms own different

percentages of equity by combining some of
their resources and capabilities to create a
competitive advantage.

buys 5%
- Citibank offers technical support to launch
credit cards
- Citibank takes a seat on SPDB board
 C. Nonequity strategic alliance

• Definition: contractual agreements given to a company to

supply, produce, or distribute a firm’s goods or services
without equity sharing.
 Licensing agreements
 Supply contracts
 Franchising
 The franchisor provides the best practices and bargaining power. He
should strengthen the brand.
 The franchisee pays fees and manages locally the inventory. He should
provide feedbacks.
 D. Strategic cooperative network

• Definition: multiple firms agree to form

partnerships to achieve shared objectives:
 Develop customers loyalty
 Exploitation of a pool of customers
 Co-branding
 Pixar vs Disney

Production costs Distribution fees Revenue

distribution

Disney Pixar Disney Disney Pixar

1991 Agreement 100% 0 12,5% 85% 15%

1997 Agreement 50% 50% 12,5% 50% 50%

2003 Pixar Offer 0 100% 7% 0 100%

2003 Disney 50% 50% 10% 30% 70%

counter-offer

2004 Pixar last 0 100% >7% 0 100%

offer (after Cars)
 A complementary alliance?

• 1991-2003: Pixar needs Disney…

 Pixar has core competences in 3D animation (software RenderMan) and
skills in creating characters but no distribution network.
 Disney has core competences in exploiting characters (licenses) and a
broad distribution network for movies (Buena Vista).

• 2003-2006: …Disney needs Pixar

 Pixar provides 1/3 of the revenue of Disney!

• On January 24, 2006, Pixar entered into an agreement with Disney to

merge the two companies.
 $7.4 billion  Steve Jobs  Disney Board of Directors
 Pixar is now a wholly-owned subsidiary of The Walt Disney Company.
 Tools to analyze corporate choices

Tool 1. Ansoff’s Growth Matrix

Tool 2. Porter’s tests for diversification

 Ansoff’s growth matrix
- Reusing existing
- Volume discounts channels for
- Customer accessories, add-ons,
Product
relationship or completely new
existing products (eg. Halo
management
new effect).

existiProtect/Build Product
ng Development
Marke
t
Market
new Diversification
Development
- New geographies
- New segments
 Example with Zodiac

Product

Existing New

Lifejackets
Existi Inflatable
(acquisition of
ng boat
Aerazur)
Mark
Technologic
et Commercial
Maintenance Emergency
New
services evacuation
 Tools to analyze corporate choices

Tool 1. Ansoff’s Growth Matrix

Tool 2. Porter’s tests for diversification

 Porter’s tests for diversification

• The attractiveness test

 The industry chosen for diversification must be structurally attractive or
capable of being attractive.
 Use the 5 Forces model

• The cost-of-entry test

 Does the entry cost in the new business eat up expected returns ?
 Legal form of diversification (franchise, joint-venture, etc.)

• The better-off test

 Does the new unit bring an advantage to the corporation?
 Calculate economies of scope. Economies exist if the total cost of
producing two goods jointly is less than the combined cost of
producing each separately.
 Calculate cross-selling benefits. Benefits exist if the reputation helps
the company to sell more through the same channel (eg. Halo effect)
 Conclusion on the Choices at Corporate Level

• Corporate Strategy is concerned with

the scope of the firm’s activity:
 Product scope  how specialized should
the firm be in terms of the range of products
it supplies?
 Coke (soft drinks) Vs Pepsi (soft  fast food)

 Geographical scope  what is the optimal

geographical spread of activities for the
firm?
 McDonalds Vs Quick

 Vertical scope  what range of vertically

linked activities should the firm encompass?
 Walt Disney Vs Pixar
 The syllabus

1. Scanning the
environment
Part 1. Diagnosis 2. Exploring and exploiting
capabilities

1. Diversification or
Strategic Specialisation (Corporate)
Part 2. Choices
Management 2. Managing the
portfolio of activities (SBU)

1. Implementing and
Part 3. Deployment controlling decisions
2. Managing change for
deploying strategy
 Choices at the Business
Unit Level

A) How to differentiate our

products/services?
B) How to coordinate our portfolio of
activities nationally and internationally?
C) Tools to manage the portfolio
 The dilemma

Return Differentiatio Volume 

on n cost
Investm leadership
ent

Market Share
 3 Generic Strategies for SBU

1. Cost leadership

2. Differentiation

3. Focus
 Strategies at different levels

Nature of the competitive

advantage
Cost Differentiation

Industry
Cost Differentiation
Leadership
Level

Segment
Focus
 3 generic strategies for SBU

1. Cost leadership

2. Differentiation

3. Focus
 The strategy clock: competitive strategy options

high

Perceived
Benefits low price2

“no frills”
low
low Price high
 Price-based strategies (1 & 2)

1. « No-frills » strategy
 Low price and low perceived benefits focused on
a price sensitive market segment:
 Commodity-like (mass product)
 Price-sensitive customers
 Customers can switch easily (difficult to establish loyalty)

2. Low price strategy

 A low price strategy seeks to achieve a lower price
than competitors whilst trying to maintain similar
perceived product or service benefits to those
offered by competitors.
 Risks are: margin reductions and inability to reinvest
 3 generic strategies for SBU

1. Cost leadership

2. Differentiation

3. Focus
 Differentiation

high differentiation focused

differentiati
4
5
on

Perceived
Benefits low price2

“no frills”
low
low Price high
 Differentiation (4)

• It seeks to provide products or

services benefits that are different
from those of competitors and that are
widely valued by buyers.

• The price is equal. The differentiation

is built on the perception of the
customer and on the level of
competition.(ex. Voyage-SNCF.Com)
 Focused differentiation (5)

• It seeks to provide high perceived product or

services benefits justifying a substantial price
premium.

• The aim is to offer better products or services

at a slightly higher price
 Product innovation
 Brand

• Dangers:
 If the price is too high, sales will go down
 If the level of quality is too low, reputation is lost
 The hybrid strategy

high hybrid differentiation focused

differentiati
4
3 5
on

Perceived
Benefits low price2

“no frills”
low
low Price high
 Hybrid strategy (3)

• A hybrid strategy seeks

simultaneously to achieve
differentiation and a price lower than
that of competitors.

• IKEA’s success is built on:

 « Do it yourself »
 « Choose it yourself »
 Product innovation (design)
 The strategy clock: competitive strategy options

high hybrid differentiation focused

differentiati
4
3 5
on

Perceived
Benefits low price2 6

1
7 Strategies
8
destined for
“no frills” ultimate
low failure
low Price high
 3 generic strategies for SBU

1. Cost leadership

2. Differentiation

3. Focus
 Focus strategy is segment specific

• Focus means stretching a strategy on

one specific segment (very few
customers = « niche »).
 Based on quality: focused differentiation
 Luxury products or services

 Based on price: no-frills

 Hard discounters
 How to maintain the advantage ?

Standards

1. Price-based strategies 3. Lock in

• Accept a reduced margin • Achieve market dominance
• Win a price war • First-mover advantage
• Reduce costs • Reinforcement
• Focus on specific segments • Rigorous enforcement

Sustaining
Advantage
Wal Mart

2. Differentiation
Branding
• Create difficulties of imitation
• Achieve imperfect mobility
• Reinvest margin
 Choices at the Business
Unit Level

A) How to differentiate our

products/services?
B) How to coordinate our portfolio of
activities nationally and internationally?
C) Tools to manage the portfolio
 Criteria for managing the portfolio of activities

• The balance of the portfolio of business units

• The attractiveness of the business units

• The degree of « fit » that the business units

have with each other (synergies)

• The glocal dilemma

The extent to which products and services may
be standardized across national boundaries or
need to be adapted to meet the requirements
of specific national markets.
 International growth: key foreign market entry modes

1. Make: Exporting

2. Buy: Foreign direct investment

3. Ally: Joint ventures/alliances

4. Externalize: Contractual
arrangements through licensing
 Make: Exporting

Advantages Disadvantages

 No operational  No benefit from the

facilities needed in the locational advantages
host country
 Economies of scale  Limits opportunities
to know the local market
 By using Internet =  Dependence on
access to a market
export intermediaries
 Exposure to trade
barriers
 Transportation costs
 Limit the ability to
respond quickly to
customers demands
 Buy: Foreign direct investment

Advantages Disadvantages

 Full control of  Substantial

resources investment in and
 Facilitates commitment to host
integration and country (high
coordination exposure)
 Rapid market entry  Acquisition may
lead to problems of
 Can attract financial collaboraiton
support from the State
 Hard to predict
costs
 Ally: Joint venture and alliances

Advantages Disadvantages

 Investment risk  Difficulty of

shared with partners identifying appropriate
 Combining of partner
complementary  Managing
resources relationships with the
 May be a foreign partner
governemental  Loss of competitive
condition for market advantage trhough
entry imitation
 Hard to coordinate
 Externalize: Licensing

Advantages Disadvantages

 Contractually  Difficulty of
agreed income through identifying appropriate
sale of production and partner and agreeing
marketing rights terms
 Limits economics  Imitation
and financial exposure  Limits benefits from
the locational
advantages of host
nation
 Domino’s Pizza

Global expansion and local dilemmas

 The global-local dilemma

Loca Glob
l al
 Specific  Standardized
demand
 Locally determined products
 Scale
costs
 Local brands economies
 Global brands
 Local  Global competitors
competitors
 Rent, importance of  Standard size
location
 Local promotion  Global sourcing
 Local tastes  Standardized
 Local pizza chains preparation
 Global presence
 The franchisee system of Domino’s Pizza

SUPPLIERS
Vendors
negotiate deliver
DOMINO’S PIZZA DISTRIBUTION CENTERS
INTERNATIONAL INC. « COMMISSARIES »
Owns &
Brand, operate
tools, deliver deliver
royalty
guidelines

FRANCHISEES DOMINO’S PIZZA STORES

Costs:
MASTER FRANCHISEE
- 5 000€ for the access to the franchisee
Owns & + 3,5% per year of royalty
operate royalty
- 10 000€ for the information system
INDIVIDUAL STORES
-150 000€ to establish the store
 Key success factors

• Appraisal of local environment

 Select the most appropriate locations for stores.
 Advertising must be designed taking into account local
culture.
 Products (toppings in particular) must be adapted to
suit local tastes.

• Respect of Domino’s procedures

 The price of ingredients and supplies is negotiated on a
worldwide basis, and takes advantage of the bargaining
power of Domino's as a whole.
 The pizza making process is standardized in order to
reduce time, to optimize the use of ingredients while
conforming to very strict quality requirements.
 Key Success Factors for international expansion

Appraisal of local environment

High Low
Variable costs : low Variable costs : low
Fix costs : low
High Fix costs : high
Quality : high Quality : high
Sales : high Sales : low
Respect Success Failure
of the
« DominVariable costs : highVariable costs : high
o’s Fix costs : low Fix costs : high
Quality : low Quality : low
system 
LowSales : low Sales : very low
»
Failure Catastrophy
 Lessons from the case

• Pizza delivery is neither a totally global industry

nor a purely local one.

• International success is determined by:

 the company's ability to transfer its standardized
processes and procedures to the target countries…
 …while at the same time adapting to local
conditions and tastes.

• Analysis of the data shows that:

 Domino's was successful in those countries where
it managed to combine these two aspects
 Domino’s was unsuccessful where it focused too
exclusively on either of these two dimensions.
 Choices at the Business
Unit Level

A) How to differentiate our

products/services?
B) How to coordinate our portfolio of
activities nationally and internationally?
C) Tools to manage the portfolio
 Tools to manage the portfolio of activities

Tool 1. The “Strategy Clock”

Tool 2. The BCG Matrix

 The strategy clock: competitive strategy options

high hybrid differentiation focused

differentiati
4
3 5
on

Perceived
Benefits low price2 6

1
7 Strategies
8
destined for
“no frills” ultimate
low failure
low Price high
 Tools to manage the portfolio of activities

Tool 1. The “Strategy Clock”

Tool 2. The BCG Matrix

 The BCG Matrix

High Market Share Low

High

Question
Stars
marks
Market
Growth

Cash Dogs
cows
Low
 Explanation

• A star is a business unit which has a high market share in a

growing market
 Earnings are stable or growing and cash flow is neutral

• A question mark is a business unit in a growing market, but

without a high market share
 Earnings are unstable or growing but cash flow but cash flow is
negative

• A cash cow is a business unit with a high market share in a

mature market
 Earnings and cash flow are high

• Dogs are business units with a low share in static or declining

markets
 Low or instable earnings and negative cash flow
 A good management of the portfolio should be…

 The cash cows financially support the question marks

which can become stars while divesting the dogs.

• Advantages of the BCG Matrix

 Analysis can be prepared easily and quickly
 Helps to cut through vast quantities of data
 Useful point of departure for a more detailed analysis
• Disadvantages of the BCG Matrix
 Oversimplifications of the factors (two variables)
 Measurement choice (scale)
 Business Units are not independent (synergies)
 Example 1. BCG Matrix applied to Virgin Group

High Market Share Low

+10
12
High 4
5

7
+5

Market
1
Growth
11
8 13

6 3
Low 10
9
0

20 10 1
 Conclusion on strategic choices

• Corporate-level strategy is concerned with

decisions about the range of activity and the
international scope.
 Key decisions are:
 Do we diversify or not?
 Do we “ally”, “make”, “externalize” and “buy” ?

• Business-level strategy is about competing better:

 Good management of portfolio of activities and
good market positioning of each of them.
 Sustaining the position is possible if the
product/service is
 difficult to imitate (brand, innovation)
 becoming the industry standard
 globally imposed through franchisees
 The syllabus

1. Scanning the
environment
Part 1. Diagnosis 2. Exploring and exploiting
capabilities

1. Diversification or
Strategic Specialisation (Corporate)
Part 2. Choices
Management 2. Managing the
portfolio of activities (SBU)

1. Implementing and
Part 3. Deployment controlling decisions
2. Managing change for
deploying strategy
 Implementing and
controlling decisions

A) Decisions and structures

B) Informal control of decisions
C) Formal control of decisions
 Decisions and structures

• ‘Structure follows strategy’ (Chandler 1962)

 Adapt the organisation according to the strategy

• ‘Strategy follows structure’ (Hall & Saias 1980)

 Existing organisational structure determines
strategic opportunities

• ‘Structure follows strategy as the left foot

follows the right’ (Minzberg 1990)
 Reciprocal relationship
 Organizational structure

• Organizational structure describes:

 Who is responsible for what
 Patterns of communication and knowledge
exchange
 Skills required to move up the organisation
 Nature of organizational structures

1. Formal structures
 Functional
 Multidivisional
 Matrix
 Multinational

2. Temporary structures
 Team
 Projects

3. Informal structures
 Social networks
 Communities of practice
Functional structure
Multidivisional structure
A matrix structure
A multinational structure
 Comparison of structures

Criteria Functional Divisional Matrix Transnational

Control XXX XX X XX

Change X XX XXX XXX

Knowledge XX X XXX X

Globalisation X XX XX XXX
 Nature of organizational structures

1. Formal structures
 Functional
 Multidivisional
 Matrix
 Multinational

2. Temporary structures
 Team
 Projects

3. Informal structures
 Social networks
 Communities of practice
 Project-based structure

• Teams created, undertake the work, then dissolved

 For large expensive projects or limited time events
 Constantly changing organisational structure
 Contains mixture of specialists
MKT
FIN
SAL
Project
QUA
COM

Advantages Disadvantages
 Flexible  Possible lack of
 Good accountability and control coordination
(clear tasks/defined time)  Proliferation of projects
 Real-time knowledge exchange  Breaking up teams hinders
 Attract complementary members knowledge accumulation (lost
due to short project times knowledge)
 Example. Direction de la Recherche

Directeur

Adjoint au directeur
CKO

Directeur d’objectifs Réseaux Directeur d’objectifs Utilisation Directeur d’objectifs des Générales

Programme Programme Programme Etudes Programme Programme Programme Programme

Gaz naturel liquéfié Clients éco. et générales Transport Distribution Clients industriels Nouveaux marchés

Appuis :
Projets de Recherche
- Cabinet de Direction
- Relation institutionnelles France
- Relations institutionnelles Europe Chef Projet 1
- Relations institutionnelles Partenariat
Pole Techniques de Pôle Cogénération – Gaz Pôle combustion, catalyse
industriels Transport Naturel pour Véhicules et mécanique des fluides
- Mission valorisation Chef Projet 2
- Propriété intellectuelle
Pôle Techniques de Pôle Gaz pour l’Habitat Pôle téléservice
- Mission connaissance, information,
Distribution et le tertiaire Domotique
veille
- Département achat contrôle de gestion Chef Projet 3
- Service achat Pôle Métrologie et Pôle Bâtiment Pôle procédés atomiques
- Mission QHSE – Normalisation Matériels Réseaux et systèmes
- Equipe prévention sécurité Chef Projet 4
- Département informatique Pôle Qualité et Gaz Pôle Génie climatique Pôle SI gaziers,
- Service infrastructure Informatique optimisation et simulation
- Service Informatique métier
Chef Projet N
- Service Intranet Groupware Pôle Environnement Pôle industrie Pôle économie,
- Ressources humaines statistiques et sociologie
- Développement des RH
- Contrat de travail Pôle Etudes cryogéniques Pôle Moyens d’Essais Laboratoire Prototype
- Recrutement mobilité pour l’Industrie
- Solidarité
- Service logistique Site Knowlegde coordinator
- Service comptable et financier Service Certification
 Nature of organizational structures

1. Formal structures
 Functional
 Multidivisional
 Matrix
 Multinational

2. Temporary structures
 Team
 Projects

3. Informal structures
 Social networks
 Organization as knowledge transfer

• We live and work with static, rational ideas about our

organizations…
 What would an organization be like if it mirrored
reality?
The Silicon Systems organization chart Silicon Systems at work

These diagrams are taken from: Krackhardt, David. “The Strength of Strong Ties: The Importance of Philos in Organizations.” In Nohria & Eccles (Eds), Networks and Organizations. Boston: Harvard Business School Press. 1992, pp.. 216-239.
 Social networks

• The informal network is not official, however,

it has a very important function in a company
to understand:
 Who knows who
 Givers and takers of information
 Strong ties and weak ties

• 4 key roles in this informal network have been

identified:
 The Central Connector
 The Boundary Spanner
 The Information Broker
 The Peripheral Specialist
 The central connector

The person everyone in

the group talks the most.

Difficulty:
> finding a way to reward
these central connectors
> some central
connectors, if ineffective,
can create bottlenecks.
 The boundary spanner

Group’s eyes and ears

in the wider world =
connection with people
outside the informal
network.

Useful when people

need to share different
kinds of expertise but
very rare people…
 The information broker

He/She connects the

various sub-networks in
the company

He/She knows a lot of

people but not very well
(weak ties)

> A departure of the

information broker could
be a severe blow
 The peripheral specialist

Serves as an expert

He is not well socialized

and not tightly
integrated in the
informal network

Often new hires

 What is networking ?

• It means building social structures for

people who share common interests:
 social networking (making friends)
 business networking (selling things and
building business relationships)
 job networking (finding a job)
 ex. Corporate alumnis (McKinsey)

• Knowledge networking is building

relationships in order to share
knowledge and learn from each other in
order to work more effectively.
 Implementing and
controlling decisions

A) Decisions and structures

B) Informal control of decisions
C) Formal control of decisions
 How to coordinate tasks ?

• Formal control (Top-down)

 Coercitive
 Standardisation of practices
 Organization chart

• Informal control (Bottom-up)

 Participative
 Multiplicity of practices
 Social networks
 How to control deployment?

Input Output
(use of resources) (results)

Informal
control Routines Political

Formal
control Rules Ratios
 Informal - Social control by middle managers

• Social control relies on indirect supervision

by:
 Middle managers
 Routines

• Middle managers :
 interpret and adjust strategy as events unfold in
the organization
 are responsible for implementing plans
determined at the top
 are bridge between senior executives and lower
levels in the organization help change occur
 advise top management about change.
 Informal - Social control by routines

• Organizational routines are the “way we do

things around here”
 Persist over time (accumulation of knowledge)
 Guide people’s behaviour
 Can become core rigidities

• Organizational culture is the basic

assumptions and beliefs that are shared by
members of an organization, that operate
unconsciously and define an organisation’s
view of itself and its environment.
 Informal - Political & Power

• Power is the ability of individuals or groups to

persuade, induce or coerce others into following
certains courses of action.

• Power is related to
 Formal aspects
 Hierarchy
 Competences
 Control of strategic resources
 Decision ability

 Informal aspects
 Possession of information & knowledge
 Social capital
 Implementing and
controlling decisions

A) Decisions and structures

B) Informal control of decisions
C) Formal control of decisions
 Formal – Rules & Processes

• A process is a collection of steps that use

people to create a service or a product.

• It is a description of tasks and outcomes

associated with a business activity:
 Are often expressed with a verb
 It explains how people are working in the
structure
 Formal – Ratios

• Ratios are selected values on financial

statements or objectives completion
 Financial ratios allow for comparisons:
 between companies
 between industries
 between different time periods for one company
 between a single company and its industry average
 Profitability ratios
 Gross margin  Companies
= (Revenue - Cost of sales) / Revenue
= (Net sales - Cost of goods sold) / Net sales
= Operating earnings / Net sales
 Economic Value Added  Companies
= (Return on Capital - Cost of Capital) (Capital
Invested in Project)
 Return on capital employed (ROCE)  Industry
= Profit After Tax (Net Profit) / Capital
Employed * 100
 Example of formal control : the Balanced Scorecard

• A performance management tool:

 for measuring whether the smaller-scale operational
activities (SBU) are aligned with its larger-scale
objectives in terms of vision and strategy.
 focusing not only on financial outcomes but also on
the operational, marketing and intangibles inputs.

• Four general perspectives have been proposed by

the Balanced Scorecard:
 Financial Perspective
 Customer Perspective
 Internal process Perspective
 Innovation & Learning Perspective
The Balanced Scorecard by Kaplan & Norton
 Managing change for
deploying strategy

A) Why managing change?

B) Tools for mapping change
 Why change management?

1. The environment is changing…

 Tendency towards organisational inertia and
resistance to change

1. People have difficulty to adapt…

 Top and middle managers are responsible for
strategic change

1. Companies need to implement changes…

 Evolution of resources

 Change is successful if it is internalised and owned

by those who will implement it
Types of change
 Examples of change management for deploying strategy

• Adaptation is change that can be accommodated

with the current culture
 Example: Name/logo changing

• Reconstruction is change that may be rapid and

involve a deep evolution of the organization
 Example: Divestment / cost cutting program

• Evolution is change in the strategy that requires

cultural change but in a long term
 Example: Ethics / Sustainable Dvlpt / Customer
orientation

• Revolution is change that requires rapid and major

strategic but also culture change
 Example: General Motors in 2008
 Managing change for
deploying strategy

A) Why managing change?

B) Tools for mapping change
 Tools to manage change

Tool 1. The “cultural web mapping”

 Mapping the cultural web

• The cultural web:

 a representation of the taken-for-granted
assumptions, or paradigm, of an
organisation and the physical
manifestations of organizational culture.

• Can be used to:

 map current and required culture
 analyse changes needed for strategic
success
 Compagnie des Services
Pétroliers (CSP)

Mapping the cultural web in a medium

size company
 1. The cultural web of CSP

Symbols

- « Impossible
Missions »
- French vs US

Routines Power
Paradigm
- Dominated by
- Onsite integration Engineers
- Engineers clan
- If successful career -Acquired on
- Pragmatism
is guaranteed the field
- Prospector spirit

Structure
- Procedures not well
formalized
-Decentralized
- Direct relations
 Results of the analysis

• CSP is an engineer clan where power is obtained

thanks to a rite of passage in the field.

• But the core business evolves from oil exploration &

onsite measurement to data analysis.
 What was a peripheral activity becomes core activity
 Necessity to hire top-level computer analysts
 Former prospectors not as competitive as external hires

 These specialists have a different paradigm:

 Lower commitment than prospectors
 Lower loyalty

 Listed on the the stock exchange

 Need for high-level competence in finance, tax and law
 2. The future cultural web of CSP

Symbols

« Impossible
Missions »
Change of the
name

Routines Paradigm Power

Dominated by
Onsite integration - Engineers clan
Engineers +
Training - Pragmatism managers

Structure

Formalized chart
 Pros & Cons of consultants & general manager programs

• For the consultants

 Too radical  the change may be rejected by
those who are in charge (executive committee)
 Some good ideas for evolution: CFO, Change
the name
• For the general manager
 Seems to be more applicable

 This company needs evolution not

revolution…
…even if the real issue is “how the managers
of this company can evolve themselves?”
 Conclusion on strategy implementation

• Controlling strategic decisions is based on

formal and informal aspects
 Formal structure: organization charts +
processes + rules
 Informal structure: social networks + local
practices + culture

• Managing informal structure is much more

difficult than managing formal one
 Cultural web
 Leadership from managers