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Master in International Trade Business

Madrid
Barcelona
Valencia
Strategic management
www.esic.edu

Sevilla
Zaragoza
Málaga
Galicia
Pamplona
Bilbao
Granada
D. Fernando Flores Bas AA: 2019-2020
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

2
Value chain analysis
● Value Chain: represents the internal activities develop by a firm when transforming inputs into outputs
● Value Chain analysis: a process to identify a firm´s primary and support activities that add value to a
final product. The analysis of the activities helps to identify the competitive advantages or
disadvantages of a firm

M. Porter value chain analysis

Infrastructure: corporate strategy, planning, finance, information systems, legal services


ACTIVITIES
SUPPORT

Technology, research and development, design

Human resources, operations management, general management

Warehouse and
ACTIVITIES

Procurement,
PRIMARY

Inventory mgment, distribution


Sales and Distribution support
Materials Operations
marketing and customer service
(Outbound
(Inbound logistics) logistics)

Analysis…. and conclusions….


3
Business model canvas

Business model generation


(Alexander Osterwalder y Yves Pigneur)

4
Basing the strategy on resources and capabilities
● The emphasis on resources an capabilities is the foundation of a firm´s strategy.
Essential competences or internal resources that are unique and exclusive to
the firm

● Several companies are good examples of how their strategy has been (almost
exclusively) based on the strengths of their internal resources; on what the firm
is capable to do

– Honda – design experience and engine development (motorbikes, cars, jets, hydraulic
pumps, lawnmowers)

– 3M – adhesive technology and film technology (sandpaper, adhesive tapes, audio an video
tapes, road signs, medical and household products)

– Canon – precision mechanics, microelectronics and fine optics (calculators, copy


machines, fax machines, scanners, printers, video cameras, camcorders, semiconductor
manufacturing equipment, etc.)

5
Basing the strategy on resources and capabilities
Interface between strategy and the firm

However, firms that bases their strategy on internal resources must permanently look
after the market environment in order to understand external opportunities and threatens

THE INDUSTRY
THE FIRM STRATEGY
ENVIRONMENT

• Mission, vision and values


• Competitors
• Resources and capabilities
• Customers
• Structure and systems • Suppliers

Firm-strategy Environment-strategy
interface interface

6
Resources, capabilities and competitive advantage
ORGANISATIONAL CAPABILITIES

Processes Organisation Motivation Organisational


structure alignment

TANGIBLE INTANGIBLE HUMAN


- Financial (cash, securities, borrowing - Technology (patents, copy-rights, trade - Skills/know-how, culture
capacity) secrets)
- Capacity for communication and
- Physical (plant equipment, land, - Reputation (brands, relationships) collaboration
mineral reserves)
- Motivation

RESOURCES

Resources: productive assets owned by the firm


Resources do not confer competitive advantages by themselves; they must work together to create
organisational capabilities
Capabilities: what the firm can do with resources

Organisation capabilities: firm´s capacity to deploy resources for a desired end result

7
Resources, capabilities and competitive advantage
Organisation capabilities

FUNCTIONAL AREA CAPABILITIES EXEMPLARY FIRMS

Systems for financial control, motivation and coordination of corporate General Electric, Shell, Google,
Corporate management and business units, strategic innovation, corporate Unilever, Bco. Santander,
Management leadership ability, corporate social responsibility Exxon, Luxottica, J&J, Danone

Management Information Integration of IT with managerial decision making Wal-Mart, Cemex

Research and Capabilities for basic research, ability to develop innovative products, Apple, Samsung, 3M, Merck,
development speed in the development of new products Inditex, Canon

High volume manufacturing efficiency, continuous improvement UPS, Toyota, Harley Davidson, Four
Operations Seasons Hotels, McDonald´s
capacity in production processes, flexibility and speed of response

Design Product design capability Apple, LVMH

Brand management, building reputation for quality, responding to P&G, LVMH, L´Oreal, Coca–Cola,
Marketing consumer requirements Amazon

Sales and Market trend response and sensibility, effective sales promotion and
PepsiCo, Pfizer, Dell, Amazon,
distribution execution, efficient, fast order processing, speed of distribution Telefónica

Service Customer service Singapore Airlines, CAT

8
Appraising the importance of resources and capabilities

THE POTENTIAL TO Scarcity For a resource or capability to establish a competitive


ESTABLISH advantage, two conditions must be present. i.e. in oil or
COMPETITIVE gas exploration; drilling and 3D seismic analysis are
ADVANTAGE needed but not enough to win. i.e. retail branch
Relevance networks of the banks is less relevant nowadays

Durability

SUSTAINABILITY
Once established, competitive advantage tends to
OF THE erode; three characteristics of resources and
Transferability capabilities determine the sustainability of the
COMPETITIVE
ADVANTAGE competitive advantage. i.e. branding, organisation
management system, superior inflight services
Replicability

Property rights
Ownership of resources and capabilities is key in
Bargaining
generating superior returns. But ownership may not be
APPROPRIABILTY power a clear cut. i.e. who is the owner of organisational
capabilities? Bargaining power of a football player…. or
an investment bank star…
Embeddedness

9
Core competences and competitive advantage

COMPETITIVE INDUSTRY KEY


STRATEGY
ADVANTAGE SUCCESS FACTORS

ORGANISATIONAL CAPABILITIES CAN LEAD TO CORE COMPETENCES

Processes Organisation Motivation Organisational


structure alignment

TANGIBLE INTANGIBLE HUMAN


- Financial (cash, securities, borrowing - Technology (patents, copy-rights, trade - Skills/know-how, culture
capacity) secrets)
- Capacity for communication and
- Physical (plant equipment, land, - Reputation (brands, relationships) collaboration
mineral reserves)
- Motivation

RESOURCES

Core competences: organisation capabilities that make a disproportionate contribution to add customer
value or provide efficiency to the value delivered
10
Industry key success factors
● Limited number of characteristics, variables or points (areas) in which is key the
accomplishment of satisfactory results to ensure a competitive business organisation

● Are those activities that must be performed at the highest possible level of
excellence to achieve and maintain the established objectives

● When in certain activities performance is better than competitors, then it becomes a


competitive advantage
– i.e.: purchasing pricing, product quality, product mix, number of customers, customer´s
loyalty, brand, delivery to customers, customer service, etc.

11
Industry key success factors
Pre-requisites for success

What do How does the firms


customers want? survive competition?

How to arrive
Analysis of demand Analysis of competition to key success
– Who are our customers? – What drives competition?
factors?
– What do they want? – What are the main dimensions
of competition?
– How intense is competition?
– How can we obtain a superior
competitive position?

Key success
factors

12
Industry key success factors

The retail of the food industry

Which are the key success factor?

13
Industry key success factors
Pre-requisites for success

Supermarkets

What do customers want? How the firms survive competition?

● Low prices
● Convenient location ● Intensity competition depends on number and
proximity of competitors
● Wide product range adapted to local preferences ● Bargaining power is a key determinant of cost of
● Fresh/quality produce, good service, easy of parking, bought-in goods
pleasant ambience

Key success factors

● Low cost requires operational efficiency, large scale purchases, low


wages
● Differentiation requires large stores (to allow wide product range),
convenient location, familiarity with local customer preferences

14
Core competences and competitive advantage

COMPETITIVE INDUSTRY KEY


STRATEGY
ADVANTAGE SUCCESS FACTORS

ORGANISATIONAL CAPABILITIES CAN LEAD TO CORE COMPETENCES

Processes Organisation Motivation Organisational


structure alignment

TANGIBLE INTANGIBLE HUMAN


- Financial (cash, securities, borrowing - Technology (patents, copy-rights, trade - Skills/know-how, culture
capacity) secrets)
- Capacity for communication and
- Physical (plant equipment, land, - Reputation (brands, relationships) collaboration
mineral reserves)
- Motivation

RESOURCES

Core competences: organisation capabilities that make a disproportionate contribution to add customer
value or provide efficiency to the value delivered
15
Resources, organisation capabilities and core competences
An industry……

Indicators Status

Growth Negative

Profitability Declining

Many competitors of medium and large


Competitors
size with similar type of services

Manufacturers With high negotiation power

Customers Interested in other options

Would you invest in this sector?

16
Appraising strengths of a firm´s resources and capabilities
Edward Jones has built
Retail branch networks
a successful contrarian
of the banks is less
strategy based on its
relevant nowadays….
network of local offices

High Superfluous strengths Key strengths


Relative strength

Key areas
to focus on

Zone of irrelevance Key weaknesses


Low

Low High
Strategic importance

17
Appraising strengths of a firm´s resources and capabilities
Resources and capabilities of Ducati Motor
10
• Design • Brand
• Location
• New product
• Engineering development

Superfluous strengths Key strengths


Relative strength

• Proprietary
technology

Zone of irrelevance Key weaknesses


• Customer • Distribution
service • Manufacturing
• Finance
0

0 10
Strategic importance
18
Summing up… how does competitive advantage emerge
How does competitive
advantage emerge?

External source of change; i.e.


- Changing customer demand
Internal source of change
- Changing prices
- Technological change

Resources heterogeneity Some firms are faster Some firms have


• New markets
among firms means and more effective in greater creative and • New customer segments
differential impact exploiting change innovative capability • New sources of competitive
advantage

Ability to anticipate Speed; quick response Strategic innovation;


changes in the external capability to creation of value for
environment external changes customers; i.e., Apple,
IKEA, Whatsapp, etc.

19
Classes outline

1. The concept of strategy


INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

20
What digital transformation means?

● Digital transformation
– Requires an integrated or global view of business and therefore must be linked and aligned with the strategy
of a firm; it is not about technology; it is about strategy
– Digital transformation is a customer – driven strategic business transformation that requires cross-cutting
organisational change as well as the implementation of digital technologies

● Digital strategy definition


– Digital strategy is the development plan of the digital initiatives (existing and new ones) towards the
accomplishment of the business strategy

21
Digital transformation definition

Digital transformation is the integration of digital technology into all areas of a business, fundamentally
changing how a firm operates and deliver value to customers. It's also a cultural change that requires
organisations to continually challenge the status quo, experiment, and get comfortable with failure

22
What things digital technologies are changing in the business?

● Change how we connect and create value with our customers


– Two way relationship: customers´ communications and reviews make them a bigger influencer than
advertisements or celebrities
– Customers´ dynamic participation has become a critical driver of business success

● Transform how we need to think about competition


– Rivals are competitors not just from our own industry but also from outside that are stealing customers
with their offerings
– Rivals might be also cooperating with a firm in some parts of the business while fiercely competing in other
areas

● Change our “world” in how we think about data


– If in the past data was expensive to obtain, store and use it in organisational silos…
– ….today the biggest challenge is turning the amount of data into valuable information

23
What things digital technologies are changing in the business?

● Transforming also the way that businesses innovate


– If in the past innovation was very expensive and testing new ideas was almost non-existent…
– …..today digital technologies enable continuous testing and experimentation, something unconceivable in
the past

● Force firms to think differently on how they understand and create value for the customers
– What customers value can change very quickly and competitors are always approaching our customers
with new proposals so complacency is not an option

24
What digitalisation is changing as an strategic stand point?

● Reconfiguring five key areas of the strategy

– Across these areas digital technologies are redefining many of the basic principles and changing the rules
by which firms must operate to succeed

Customers

Value Competitors

Innovation Data

25
What digitalisation is changing as an strategic stand point?
1. Customers

● In the digital age we are moving to a world of customer network


● Customers are constantly connecting with and influencing each other and impacting
business reputations and brands
● Customer usage of digital tools is changing how they discover, evaluate, purchase and
use products and how they share, interact and stay connected with brands

From To
• Customers as a mass market • Customers as dynamic network

• Communications are broadcast to customers • Communications are two ways

• Marketing to persuade purchaser • Marketing to inspire purchase, loyalty, endorse

• Firm is the key influencer • Customers are the key influencer

• One – way value flows • Reciprocal value flows

• Economies of scale (one product to serve as • Economies of (customer) value


many customers)

26
What digitalisation is changing as an strategic stand point?
1. Customers
Area Core strategic theme Key concepts

• Reinvented marketing funnel


Tackle customer networks • Path to purchase
Customers • Core behaviours of customer network

Customer

Customer
Comments Blogs

Customer

Customer
Customer
Firm Firm
Forums

Yellow
pages
Craigslist Customer
Portals

Mass market model Customer network model


27
What digitalisation is changing as an strategic stand point?
1. Customers
Reinvented
marketing funnel
Mass market Customer networks

TV, radio, out – of - door Awareness Search, buzz, blogs

Consideration Online research, user


Direct mailing, brochure
reviews
Path to purchase

Path to purchase
Preference Social networks, YouTube,
Product test comparison
local search

Group discounts,
In – store purchase Action purchase,
online/in – store/ mobile
“Friendind”
Reward point Loyalty (Faceook, Twitter, mail)
Customised up – selling

Endorsement Reviews, links, “likes”,


social buzz

Multiple touch points and behaviours

28
What digitalisation is changing as an strategic stand point?
1. Customers
Five customer network behaviours
Behaviours Tactics
Seek to access digital data content and interactions as Be faster, be easier, be
Access quickly, easily and flexible as possible (i.e.; searchers,
everywhere, be always on
ecommerce, instant messaging apps)

Seek to engage with content that is sensory, interactive and


Become a source of valued
Engage relevant to their needs (i.e.; portals, on-line video, virtual
content
reality, etc.)

Seek to customise their experience by choosing and


Customise modifying a wide variety of information, products or services Make your offering adaptable
(i.e.; personalised radio streams, Google´s search bar to your customers´ needs
anticipating the search)

Seek to connect with one another by sharing experiences, Become a part of your
Connect ideas and opinions via text, images and social links (i.e.;
customers´ conversation
blogs, social networks, communities)

Seek to collaborate (working together) on projects and goals


Invite your customers to help
Collaborate through open platforms (i.e.; software, raising money, write-
ins and protests worldwide) build your firm

A day made of glass Thank you mom! Offer more than technology

29
What digitalisation is changing as an strategic stand point?
1. Customers
Five customer network behaviours
Behaviours Tactics Examples
Tesco posters in the underground station with a QR code to
Be faster, be easier, be
Access buy grocery; Starwoods with room doors that clients can
everywhere, be always on unlock with a swipe of their smartphones

Vichy Dermablend video with Rick Genest known as the


Become a source of valued
Engage “Zombie Boy”
content https://www.youtube.com/watch?v=UV8m_45mnig

Coke cans personalised names; Netflix personalised


Customise Make your offering adaptable
recommendations or Lancôme´s magic mirror
to your customers´ needs https://www.youtube.com/watch?v=Conf9Ccdhjo

Become a part of your GoPro asking customers to share their videos; Starbucks
Connect customers´ conversation
with IdeaStorm platfom to gather suggestions or P&G with
beingGirl.com for feminine hygiene products

Invite your customers to help Waze Navigation which is a collaborative tool; Wikipedia as
Collaborate a content digital collaboration; NGO´s crowdfunding
build your firm
initiatives; InnoCentive for R&D

30
What digitalisation is changing as an strategic stand point?
2. Competition

● The biggest challengers may be firms from other industries offering competing value to
our customers
● Need of cooperation with a direct rival due to interdependent business models
● Empowering of platform business models which allow one business to create and
capture value by facilitating interactions between other business or customers

From To
• Competition within defined industries • Competition across fluid industries

• Clear distinctions between partners and rivals • Confused distinctions between partners and rivals

• Competition is a zero – sum game • Competitors cooperate in key areas

• Key assets are held inside the firm • Key assets are in outside networks

• Products with unique features and benefits • Platform with partners who exchange value

• A few dominant competitors per category • Winner takes all due to network effects

31
What digitalisation is changing as an strategic stand point?
2. Competition
Area Core strategic theme Key concepts

• Platform business model


Build platforms not just products
• (In)direct network effects
Competitors

● Airbnb is a an example of a platform; a business that rethought which competitive assets were
needed to be own by a firm and which ones could be managed through new types of relationship

● Platform businesses are everywhere


– Retail: eBay, Amazon
– Media: YouTube, Forbes
– Advertising: Google, Baidu, Craigslist
– Gaming: Xbox, Playstation
– Mobile computing: IOS, Android, Xiaomi
– Business software: SAP, Salesforce
– Hospitality: Airbnb, Tripadvisor
– Transportation: Uber, Cabify
– Finance, recruitment..
32
What digitalisation is changing as an strategic stand point?
2. Competition

What is platform business model?

A platform is a business that creates value by facilitating direct interactions between two or more distinct types
of customer (*)

● Distinct types of customers: to be a platform the business model must serve to two or more distinct type of
customers
– Is Skype a platform?

● Direct interaction: platforms must enable these two or more sides to interact directly
– Is a supermarket.com a platform?

● Facilitating: despite interactions are not dictated by the platform, those must take place through it and be
facilitated by it
– Is a franchise a platform?

(*) Andrew Hagiu and Julian Wright; Multisided Platforms; working paper HBS, March, 16th 2015
33
What digitalisation is changing as an strategic stand point?
2. Competition

Different platform business model?

Distinct customers, direct


Platforms interaction, facilitating

Host
Airbnb
Renters

Freelance drivers
Uber
Riders Forbes.com?

A platform is a business that Account holders


PayPal Merchants
creates value by facilitating Banks
direct interactions between
two or more distinct types of Viewers
Android/IOS?
YouTube Creators
customer
Advertisers

Search users
Google search Website creators
Search advertisers

Software users
Salesforce.com App developers creating
additional services

34
What digitalisation is changing as an strategic stand point?
2. Competition

Type of platforms

Type of platforms Pre-digital Digital


Product market places
Exchange (eBay, Amazon)
• Real state brokers
(bring together two distinct Service market places
group of customers for a direct
• Shopping malls
(Airbnb, Uber)
value exchange) • Nightclubs
Dating websites
Platform business models (eHarmony, meetic)
Transaction system Digital payment systems
are not new to the digital • Credit cards
(intermediation between different (Paypal)
age although digitalisation parties to facilitate payments and • Debit cards Digital currencies
financial transactions) (Bitcoin)
are boosting their spread
Ad-supported media Websites with ads
and dominance (plays a role of creating – or • News papers (Google, Yahoo, newspapers)
sourcing – media content • Broadcast TV Social networks with ads
attractive to consumers)
(Facebook, Twitter, Instagram)

Hard/soft standard Videogame consoles


(provides uniform standard for the
• Colour TV´s (Xbox, PlayStation)
design of subsequent products to • Videotapes Mobile operating systems
benefit end consumer) • Motor fuels (IOS, Android)

35
What digitalisation is changing as an strategic stand point?
2. Competition

Direct/indirect network effect

One of the key features of platforms is that their value increases


as more customers use them; this is the network effect

Direct network effect


(“same – side” network effect)

When the increasing number of customers or Facebook, Twitter,


users of a product drives an increase in Whatsapp, WeChat
value or utility for the same type of users

Indirect network effect


(“cross – side” network effect)

When an increase in the number and quality


of customers on one side of the platform VISA (cardholders and merchants)
drives increasing value for the customers on Airbnb (renters and hosts)
the other side of the platform

36
What digitalisation is changing as an strategic stand point?
2. Competition

Competitive benefits of platforms

Six (Apple, Amazon, Alphabet, Microsoft, Facebook and


Alibaba) of the ten most valuable companies in the world
have built their business on platform business models

What is the secret?

Light in assets

Scaling fast
(increase revenue with slow employee growth)

Winner(s) takes all


(monopoly or oligopoly in the best case)

Economic efficiency
(phenomenon of mislabelled “sharing economy”)

37
What digitalisation is changing as an strategic stand point?
2. Competition

Users

social interaction,
social interaction,
$ for apps, audience $
content, apps
share for apps, data
(networking tools)

audience audience Facebook business model map


(viral distribution) (targeting tools)

Advertisers
Publishers (primary
(sweetener) payer)
Platform
Content $ for audience
(user stickiness)

$ for apps Apps


(viral distribution) (user stickiness)

App
developers
(payers)

39
What digitalisation is changing as an strategic stand point?
3. Data

● Generated in unprecedented quantities from every conversation, interaction or process


inside or outside businesses
● Social media, mobile devices, sensors, etc. every business has access to a river of
unstructured data without planning
● Big data can be utilised with new analytical tools and with these tools firms can make
predictions, discover new patterns and unlock new sources of value

From To

• Data is expensive to generate in firm • Data is continuously generated everywhere

• Challenge is storing and managing data • Challenge is turning data into valuable info

• Firms make use only structured data • Unstructured data is increasingly usable and
valuable

• Data is managed in operational silos • Value of data is connecting it across silos

• Data is a tool for optimizing processes • Data is key intangible asset for value creation

40
What digitalisation is changing as an strategic stand point?
3. Data
Area Core strategic theme Key concepts

• Templates of data value


Turn data into assets • Drivers of big data
Data • Data – driven decision making

● Data is an intangible asset and most of platform firm´s market capitalisation is based on the
information collected from users and its ability to exploit the data

● Data goes beyond…


– Cartographic data
– Photos, videos
– Shopping behaviour or traffic
– Consumer experience (RFID tags)

41
What digitalisation is changing as an strategic stand point?
3. Data

Type of data

Type of data Examples Utility


• Inventory and supply chain
Manage and optimise business
Business process • Sales
operations, risk management,
• Billing
external reporting
• Human resources

• Maps data (Google) Deliver the core value proposition of


Product/service data • Business data (Bloomberg) the business´ product or service
• Weather data (TWC)

• Purchases
• Behaviour and interaction Provide a complete picture of the
Customer data • Comments and reviews customer and allow for more relevant
• Demographics and valuable interactions
• Survey responses

Once we treat data as an asset, every business needs to develop a data strategy in its organisation

42
What digitalisation is changing as an strategic stand point?
3. Data

Principles in developing data strategy

● Gather data types

● Use data as a predictive layer in decision making

● Apply data to new product innovation

● Watch what customers do (not what they say they do..)

● Combine data across the organisation

43
What digitalisation is changing as an strategic stand point?
3. Data

What is big data?


A vast amount of unstructured data (social, location, sensors..) that can be converted in
valuable information with the usage of tools and appropriate organisation skills

● The three myths of big data

1. The algorithm will figure it out


– What do you believe making sense of data will require?

2. Correlation is all that matters


– If you are the P&G product manager of a shampoo brand for women, what would you do if your add agency
determines a correlation between your advertisements and married women?
– Spotting a pattern is not (always) enough

3. All the good data is big data


– Data not always need to be big in order to be useful to a business

44
What digitalisation is changing as an strategic stand point?
4. Innovation
● Digital technologies can enable a different approach to innovation based on continuous learning
through rapid experimentation
● Market feedback can be gained at the beginning of the innovation process, during the process up
to the launch and even afterwards
● Innovation assumptions are repeatedly tested and design decisions are based on validation by real
customers
● Products are developed iteratively, saving time and costs of failure

From To
• Decisions made based on intuition and seniority • Decisions made based on testing and validating

• Testing ideas is expensive, slow and difficult • Testing ideas is cheap, fast and easy

• Experiments conducted infrequently by experts • Experiments conducted constantly by everyone

• Challenge of innovation is to find the right solution • Challenge of innovation is to solve the right problem

• Failure is avoided at all cost • Failures are learned from early and cheaply

• Focus is on finished products • Focus is on minimum viable prototypes and iteration after launch

45
What digitalisation is changing as an strategic stand point?
4. Innovation
Area Core strategic theme Key concepts

• Divergent experimentation
Innovate by fast experimentation
• Convergent experimentation
Innovation

● Innovation can be define as any change to a business product, service or process that adds value to a
customer
– For Google, innovation may be.. Gmail or Google maps, but also for Google innovation includes... the continuous
process of refining, adding and eliminating features and evolving the user interface and experience

● In the digital age firms need to innovate in a radical different way based on fast experimentation and
continuous learning; in fact experimentation is a process of learning of what does work and what does
not work

46
What digitalisation is changing as an strategic stand point?
Type of experiment
● Convergent experiments are best for learning that eliminate options and converges on a specific answer
to a defined question; i.e. which of these three designs is preferred by the customer?
● Divergent experiments are best for learning that explore options, generate insights, ask multiple questions
and at the same time and when done right, generate new questions to explore next iterative stage; i.e.
putting a prototype in the hands of customers

Convergent experiments Divergent experiments


• Formal (scientific/causal) experimental design • Informal (qualitative) experimental design
• Ask a precise question or specific set of questions • Posses an unknown set of questions
• Seek to provide an answer • May provide an answer or rise more questions
• Needs a representative customer sample to test • Needs the right customer (might not the average)
• Needs a statistically valid example • Sample size may vary
• Goal is to test the thing itself • Goal is to test a rough prototype (good enough)
• Confirmatory • Exploratory
• Useful for optimisation • Useful for idea generation
• Common in late stages of an innovation • Common in early stages of an innovation

In common: increase knowledge, test assumptions, look


outside for answers, willingness to learn versus decide
47
What digitalisation is changing as an strategic stand point?
4. Innovation

Principles of experimentation

● Learn early
● Be fast and iterative
● Fall in love with the problem, not the solution
● Get credible feedback
● Measure what matters
● Test your assumptions
● Fail smart

48
What digitalisation is changing as an strategic stand point?
4. Innovation

Exercise

Think about the two types of experiments and prepare three examples for each

Convergent experiments Divergent experiments


• An ecommerce site might run A/B tests in which • A design of a finance app for Indian farmers through a
two sets of customers see the same webpage project team in order to increase the revenue of their
with one difference in design, measuring perishable products in their negotiations with their
customer behaviour agents
• •

• •

• •

• •

49
What digitalisation is changing as an strategic stand point?
5. Value
● Value proposition is permanently changing to avoid disruption by new competitors
● Businesses need to focus on exploring emerging opportunities, divesting from declining
sources of advantage and adapting early to stay ahead of the curve of change
● Firms have to be in permanent evolution, looking to every technology as a way to extend and
improve the value proposition to customers

From To
• Value proposition defined by industry • Value proposition defined by changing customer needs

• Execute your current value proposition • Uncover the next opportunity for customer value

• Optimise your business model as long as possible • Change before you must, to stay ahead of the curve

• Evaluate change by how it impacts your current business • Evaluate change by how it could create your next business

• Market success allows for complacency • Permanent evolution of the customers´ value proposition

50
What digitalisation is changing as an strategic stand point?
5. Value

Area Core strategic theme Key concepts

• Concepts of market value


Adapt your value proposition • Paths out of a declining market
• Steps to value prop evolution
Value

● Every firm should focus on how each new technology might help in creating a new business model
rather than evaluating the impact in the existing business model

● For instance, what changes faced real state brokers?

● Every firm should explore permanently the core value your business offers to customers
– Why does my business exist?
– What needs does it serve?
– Are they still relevant?
– What business am I really in?

51
What digitalisation is changing as an strategic stand point?
5. Value
What to do in a stagnant or declining market

Adapt your value proposition before you must

Both
New
Value proposition

New value (new value and


new customers)
Same

Current position New customers

Same New
Customers/use case
52
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Both
Value proposition
New

New value (new value and


Paper manufacturers
new customers) or photo retailers

https://www.shutterfly.com/
https://www.moo.com/us/
Same

Current position New customers

Same New
Customers/use case

53
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Encyclopaedias or Both

Value proposition
New
newspapers New value (new value and
https://www.nytimes.com/ new customers)
https://www.britannica.com/

Same
Current position New customers

Same New
Customers/use case

54
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Pin ball machines,


Both comics, casinos
Value proposition
New
New value (new value and https://www.scientificgames.com/
new customers) https://www.marvel.com
Same

Current position New customers

Same New
Customers/use case

55
What digitalisation is changing as an strategic stand point?
5. Value

What to do in a stagnant or declining market

Adapt your value proposition before you must

Can you let me know what Facebook did to


adapt their value proposition in 2012?

What they did to cope with the shift of


consumers to mobile devices?

Acquisition of Instagram and WhatsApp

56
Organisation challenges
Area The journey…

• Enabling the network inside


Customers • Adding new skills and removing old habits
• Eliminating silos and cultural barriers

• Shifting roles midstream (sales channel conflicts)


Building platforms • Warfare mentality (my competitor is the enemy..)
• Openness (platform and the organisation)

• Changes in your business processes


• Embedding data skills sets (adopt a mindset towards using data;
embrace analytical thinking)
Data • Eliminating silos (“this is my data”) and cultural barriers
• Sharing data with partners (vendors, distributors, retailers…)
• Cybersecurity, privacy and consumer attitudes

• Building a test and learn organisation


• Leading without deciding
Innovation • Involving everyone (teams, camps, incentives on recognition
rather than compensation)
• Planning to fail and celebrating it

• Leadership (who is in charge of making the change?)


• Allocate resources (talented people and financials)
Adapt your value
• Change (most than probably) the organisation and reporting
proposition • Avoid myopia (looking beyond the conventional of your current
business like… “this is not the way we do things here”)

57
What is business disruption?

● Innovation and business disruption


– Business disruption is not innovation but innovation might lead in certain cases to business disruption…
– …and disrupters do not necessarily introduces new fundamental technology to the market

– Some examples
o A drug against cancer (once it is discovered) will be a society disruption but is not a business disruption
o Self – driving cars is a technology incorporation that for sure will have a major impact in driving and drivers, but probably will not
disrupt the business of car manufacturers

● Business disruption definition


– The business impact faced by an existing industry with the entry of a challenger capable to offer a superb value
proposition to customers in a way that existing incumbents cannot compete with directly

58
Why these companies disrupted industries?

● Apple
● Google
● Facebook
● Airbnb
● eBay
● Amazon
● Netflix
● Hawkers

59
The two diferential of business model disruption

In order to disrupt an existing business, a challenger must posses a significant


differential on each side of the business model

– A difference in value proposition that dramatically transfers the value provided by the
incumbent/s at least for some customers

– A difference in value network that creates a barrier to imitation by incumbent/s

60
The two diferential of business model disruption
Value proposition Network proposition
differential differential
● Price ● Customers
● Free or “freemium” offer ● Channels
● Access ● Partners
● Simplicity/frictionless ● Complementary
products or services
● Personalisation
● Brand
● Aggregation/disaggregation
● Revenue model
● Integration
● Cost structure
● Social/sharing
● Skills and processes
● Physical assets
● Intellectual properties
assets
● Data assets

61
Thank you very much
for your attention
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