Dr.

Stefano Li Pira
Assistant Professor
November 9th, 2018

Corporate Strategy – Part A

IB3D80
Dynamic Strategies
Bio
◉ At WBS since May 2017
◉ Ph.D. in Management
◉ Research Interests:
Strategy and Innovation – Individual and
group behavior – Imitation and language
◉ Teaching:
Corporate Strategy (UG) – Strategic Advantage
(MBA)
◉ Office hours [until Dec 15th]:
Wednesday 14:30-16:30
Objectives

Shifting Focus: from the analysis of the environment and firm

position to the relationships with specific “rivals”.

◉ Why the shift may be important?

◉ Understand that there is a tension between exploring and

exploiting

◉ Understand how do blue ocean strategists see new

opportunities.

◉ What are the limitation of this approach?

Marvel

• Competition is irrelevant.

• Marvel’s turnarounds required cost

reduction, revenue growth and
strategic leap.

• Value innovation is more

profitable, sustainable that value
extraction.

• Aligning value, profit and people

require a change in culture.
Questions
Dynamic vs. static competition

STATIC
DYNAMIC

Environment Strategy
 Dynamic strategy & traditional framework

STRATEGY
ANALYSIS
Pestle; Porter 5F;
Competitor Analysis

ORGANIZATIONAL
ARRANGEMENT
STRATEGY
The central
MISSION OBJECTIVES concept of how
we will achieve
our objectives
 Dynamic strategy & traditional framework

STRATEGY
ANALYSIS
Pestle; Porter 5F;
Competitor Analysis
ARENAS

ECONOMIC
STAGING VEHICLES

ORGANIZATIONAL
ARRANGEMENT
LOGIC
STRATEGY
The central
concept of how
DIFFERENTIATIORS we will achieve
our objectives
The major elements of Strategy

BLUE OCEAN
STRATEGY
ARENAS

CORPORATE
STRATEGY
ECONOMIC
STAGING VEHICLES
LOGIC
CO-OPETITION

DIFFERENTIATIORS
The traditional paradigm

◉ Strategy is about being better than your competitors.

◉ Gaining and sustaining a competitive advantage: Firms

strategy should develop and exploit valuable, rare and
costly-to-imitate resources leading to sustained
competitive advantage and above-normal performance.
Sustained competitive advantage

Owning the survivors would

have yielded a 20% lower than
owning the S&P

74 firms

12 firms

S&P 500 in 1957 1997

Outperformed
Foster and Kaplan (2001) S&P 500
Challenge from Strategic Management

• What is the problem? What are our expectations?

• Sustained competitive advantage?

Competitive Competitive
advantage advantage

t t
Shift our energy and focus

• Identify sustained
competitive advantage

• Strategy: fundamentally
defensive

• Shield firm from

Competitive Forces
Current challenges for a strategist
◉ Technological change (see internet)

◉ Global competition (fare trade agreement)

◉ Industry convergence (see platforms)

◉ Aggressive competitive behavior

◉ Deregulation and privatization

◉ Pressure of short-term incentives for CEO

Shift our energy and focus on the challenge of
renewal
• Advantage is temporary
• Strategy: dynamic
maneuvering rather than
static positioning

• Focus on the challenge of

renewal:
• Identify new opportunities
• Exit existing commitments
that no longer merit the
opportunity cost
Who are the fittest one?
The evolutionary perspective

“It is not the strongest of the species

that survive, not the most intelligent,
but the one that is most responsive to
change.” Charles Darwin

The ability to learn faster than your competitors may

be the only sustainable competitive advantage.
The exploration/exploitation tension

• Fundamental tension for evolving firm

• Need to survive in the present and adapt in
ways that enhance survival in the future
• Why the need for adaptation in the
future?
• Strategy is a complex problem and there is
continuous opportunity to improve
• Red Queen Competition: our competitors are
getting better
• Context changes: regulatory changes, new
opportunities.
Leverage your competitive position and recognize that your
advantage is transitory
Echoes in managerial practies
Stages of the Industry Life Cycle
Industry Sales

MATURITY

DECLINE

GROWTH

INTRODUCTION

Time
Stages of the Industry Life Cycle
Industry Sales

MATURITY

DECLINE

GROWTH

INTRODUCTION

Time
 The evolution of industry structure over the Life Cycle
INTRODUCTION GROWTH MATURITY DECLINE

DEMAND Early adopters Rapid increase in Replacement/ repeat Obsolescence

market penetration buying; price sensitive
customers
TECHNOLOGY Competing Standardization; Diffused know how; Little
technologies; rapid rapid process incremental innovation
product innovation innovation innovation
PRODUCTS Wide variety of Design & quality Commoditization; Differentiation
features and designs improve; dominant brand differentiation difficult
design emerges
MANUFACTURING Short-runs, skill Capacity shortage, Over-capacity Overcapacity
intensive mass-production emerges; deskilling

TRADE ------Production shifts from advanced to emerging countries------

COMPETITION Few companies Entry, mergers exit Shakeout & Price wars &
consolidation exit
Key success factors Product innovation Design for manu- Cost efficiency (scale Low overheads;
facture; Process economies, low cost rationalization
innovation inputs)
When should Blackberry have killed its cash
cow?
The technology S-curve

• Middle of the innovation curve

lures companies into thinking
that their mission is to protect
their existing audience and
market share — a fatal mistake.

• When should changes be

implemented?

• E.g. Disruptive innovation

[lecture 8]
Summing up

◉ Shifting Focus: from the analysis of the environment and

firm position to the relationships with specific “rivals”.
◉ e.g. Blue Ocean Strategy (L#4), Value Migration (L#6), Co-opetition (L#7)

◉ Exploit existing resources and capabilities and market

positions

◉ Explore new opportunities for the future

Blue Ocean Strategy

Blue Ocean Strategy (Kim & Mauborgne, 2005)

distinguishes

• Red oceans: Existing markets with ‘bloody’

competition
• Blue oceans: Expanding the markets into areas
where competition is irrelevant

Is there a pattern by which ‘blue oceans’ are

created?
Strategy canvas as a diagnostic tool

US wine industry –factors of competition

• price per bottle
• refined packaging (medals won, ...)
• marketing efforts
• aging quality
• vineyard’s prestige and legacy
• sophistication of taste
• diverse range of wines
Strategy canvas as a diagnostic tool
Metric

price per bottle refined marketing aging quality vineyard’s sophistication of diverse range of
packaging efforts prestige taste wines
Factors of competition

Premium Wines Budget Wines

• 1,600 wineries  Value curves: All are ‘different in the same way’
Plot your buyer utility map

• Is the current industry creating hidden pain points that limit demand
for its offerings and exclude potential buyers?

1. Identify the full range of stages in the buyer experience cycle of

your business/ offering.
2. Pose a question in each stage: What is the biggest blocks to [utility
lever] in this stage? What are the key reasons for this block?
3. Mark “O” where the industry currently focuses at core.
4. Put an “X” where a pain point was revealed and where the
industry is blocking customer utility.
 Plot the buyer utility map of wine industry
SEARCH PURCHASE CHILL OPENING/SHARI DRINKING DISPOSAL
(variety, food NG OF THE
pairing, BOTTLE
region, etc)
Customer
Anything to do with efficiency - less time effort, and/or money - in fulfilling buyers’ needs
Productivity
Simplicity Anything that eliminates or minimizes complexity or mental hassle

Convenience When and where I want something - like 24/7, 365

Risk Reduction Financial, physical, and emotional including reputation

Fun & Image Tangible and intangible aesthetic look, feel, attitude, and style an offering conveys

Environmental Is your offering environmentally friendly? Or do buyers prefer your offering

Friendliness because of your organisation’s strong reputation for environmental friendliness?

X = pain point that blocks buyer utility; O = utility space the industry currently focuses on
 Buyer utility map of wine industry

SEARCH PURCHASE CHILL OPENING/SHARI DRINKING DISPOSAL

(variety, food NG OF THE
pairing, BOTTLE
region, etc)
Customer
X
Productivity
Simplicity X

Convenience O

Risk Reduction O

Fun & Image X X

Environmental
Friendliness

X = pain point that blocks buyer utility; O = utility space the industry currently focuses on
Where could we be?
[who are noncustomers]
• Soon-to-be non-customers:
• Use the product or service minimally
• Would stop using it immediately, if there was a better
alternative

• Refusing non-customers:
• Consciously thought about the product or service, but reject it
• E.g., it doesn’t meet their needs, is too expensive, or is
unethical

• Unexplored non-customers:
• Have never seriously considered using the product or service
How do we get there?
Tools
• Strategic Canvas – ERRC

Casella Wines redefined the problem

• Beating competitors on existing factors of competition: “Even more
premium”; “Even more budget”
• “How to make a fun and easy-to-enjoy wine for every day”

Because non-customers
• considered wine ‘intimidating and pretentious’
• were more attracted to beer, spirits, cocktails, ...
Strategy canvas as action framework
Metric

price per refined marketing aging quality vineyard’s sophistication diverse range Easy-drinking Easy of Fun and
bottle packaging efforts prestige of taste of wines selection adventure

Factors of competition

Premium Wines Budget Wines Yellow Tales

How to expand industry boundaries (ERRC)
ELIMINATE
Eliminate factors that are
taken from granted
for granted
• Complicated terminology
• Aging quality
• Extra marketing efforts
REDUCE
Reduce factors that are
overdesigned
• Complexity of taste
• Vineyard’s prestige
• Range of wines
RAISE
Raise factors that have
upward potential
• Price (versus Budget wines)
• Retail store involvement:
Australian outback clothing
CREATE
Create new factors
• Easy drinking: ‘up-front’ flavors
• Ease of selection: 1 white and 1
red wine
• Fun and adventure: vibrant
colors
Summing up

Casella transcended industry boundaries

• Attracting non-customers

Casella made a “value innovation”

• Differentiation: less intimidation, lower complexity, less ‘agony of
choice’
• Lower cost: production, warehousing, marketing

Sooner or later, competitors will imitate the blue ocean “move”

Other examples: breaking the rules in BOS

Blue ocean strategy is also possible for services

Cirque du Soleil
• Which industries did they transcend?
• Which key factors did they eliminate? Why?
• Which non-customers did they attract?
The alignment of Three Strategy Proposition
Implementing a coherent system (rather than focusing on
individual elements of the value curve) is difficult.
Value Proposition
Utility - Price

Blue
Ocean
Strategy

Profit Proposition People Proposition

Revenue - Cost Employee, Partners
Alignment Leads to a different result

NAPSTER ITUNES
Value Proposition + +
Profit Proposition - +
People Proposition - +
Results Could not sustain for Created a Blue
long Ocean
The Online Encyclopedia Industry

Digitization of printed encyclopedia

• In the 1980s Microsoft approached Encyclopedia Britannica to develop the
multimedia based encyclopedia. However, Britannica rejected the proposal
worrying that it might cannibalize the existing printed encyclopedia
business
• 1993 Microsoft launched Encarta in CDROM and online based on Funk &
Wagnalls Encyclopedia. Microsoft later incorporated Collier Encyclopedia
and New Merit Scholar’s Encyclopedia into Encarta, making it the largest
and most successful online encyclopedia.
• 1994 Britannica launched the online version for the institutional users; in
1999 for the general public.
• 1994 Britannica sold the CDROM encyclopedia for 1200$ while Encarta was
bundled with sales of the Wintel computers.
• Both offered complex pricing schemes for fees, advertisment-supported to
premium services
Wikipedia.org

◉ Free online encyclopedia

◉ Launched in 2001

◉ Used the Wiki platform: anyone has access to

create and edit the contents

◉ Supported by non-profit organization Wikimedia

Foundation
Wikipedia.org vs Britannica.com
Value Proposition

Red Ocean approach by conventional encyclopedias

• Digitized the existing printed versions with adds (img, mov, sound)
• Target the traditional customers: educational institutions and family
homes
• Used an expert-only approach

Blue Ocean approach - Wikipedia

• Use of the Wiki platform and invited anonymous contributors to
collaborate in real time
• Expanded entries to nonacademic topics
• Free – No advertisements
ERRC Grid for the Value Proposition

ELIMINATE RAISE
Subscription fees
Diversity of topics
Distracting advertisements
Ease of finding relevant info
Copyright restrictios on re-
Real-time knowledge
use of information
REDUCE CREATE
User interaction and
participation
Data accuracy and reliability
Accessibility in one’s own
language
Strategy Canvas
Profit Proposition

Red Ocean approach by conventional encyclopedias

• Conventional revenue streams: subscription fee and advertising

Blue Ocean approach - Wikipedia

• Major revenue source is donations
• Unique value proposition create users who are willing to donate money
• Varieties of available languages generate worldwide user base
• Donation is simple (various payments methods)
• Low cost structure: Top placement on search engines eliminates the
cost of branding, marketing and advertisements
• Volunteers reduce overhead costs
• Contributions: creation/editing, translation, support (tech/admin)
• Employees: ~300 (Aug 8th, 2018) - #5 most visited website
ERRC Grid for the Profit Proposition
ELIMINATE RAISE
Subscription revenues
Expensive fleet of editors and
writers Placement amond popular
Traditional advertising search engines
Top-down branding & product
marketing
REDUCE CREATE
Dedicated volunteers
Cost of administration
worldwide
overhead
Worldwide donations
Strategy Canvas
People Proposition

Blue Ocean approach - Wikipedia

“The mission of the Wikimedia Foundation is to empower and engage
people around the world to collect and develop educational content
under a free license or in the public domain, and to disseminate it
effectively and globally.”
ERRC Grid for the Profit Proposition
ELIMINATE RAISE
Traditional copyright
Pride and ownership of
restrictions that prevent viral
contributors
creativity
REDUCE CREATE
Fun, free, neutral forum for
Technical barriers to personal expression in one’s
contributors own language
Self-imposed barriers to Community building and
contributors social order
Noble mission
Strategy Canvas
The alignment of Three Strategy Proposition

Value Proposition
Utility - Price

Blue
Ocean
Strategy

Profit Proposition People Proposition

Revenue - Cost Employee, Partners
BOS: four barriers to imitation

• Alignment barriers: implementing a coherent system (rather than

focusing on individual elements of the value curve) is difficult.

• Cognitive barriers: value innovation does not make sense to a

company’s conventional logic (e.g. CNN)

• Brand barriers: the innovator’s name can become synonimous with

the innovation

• Economic & Legal barriers: the first innovator enjoy a cost advantage
or a legal protection (e.g. economies of scale, learning curve,
patents, network effects)
 Is there a way to see blue ocean opportunities
in a systematic manner?
Path 1: Look across
alternative industries
Path 2: Look across strategic
groups
Path 3: Look across chain
of buyers and redefine the
buyer group
Path 4: Look across
complementary products
and service offerings
Path 5: Rethink your
functional-emotional
orientation of the industry
Path 6: Participate in
shaping external trends
over time
Most organizations focus on beating competition within their existing industries. Buyers
often weigh alternative industries and make trade-offs, implicitly or explicitly. Why do
people choose for and against your industry or the alternatives?
Most companies focus on outperforming their rivals within their strategic group or
market segment. Understand what factors determine buyers’ decision to trade up or
down from one strategic group to another.
Most industry has common definition of their target customers. In reality, the purchasing
decision usually involves, directly or indirectly, a chain of buyers who have different value
preferences. Uncover hidden sources of utility from the buyer groups that the industry
traditionally ignored.
Most products and services define their industry boundaries and focus their efforts solely
on maximizing its value within the boundary. Define the total solution buyers seek to
understand the complementary products and services that enhance or detract from the
existing offering.
Most organisations in a given industry competes around the same bases of its appeal -
either on functionality or emotion. Shift the industry’s principal appeal from one basis to
another; or blend the sources of its appeal.
Instead of projecting external trends and trying to pace actions to keep up with the
trends, find how a trend will change what customers value and how it might impact a
company’s business model.
Summing up
◉ Leverage your competitive position and
recognize that your advantage is transitory

◉ Blue Ocean Strategy may help transcending

industry boundaries

◉ Real-world application requires a lot of time

◉ Measure the dimensions; Access relevant data sources.

◉ Fundamental tension for firms that evolve

◉ Implementing a coherent system in ways that enhance
survival in the future is difficult
Next week’s seminar

Read the case “General Electric’s Corporate Strategy”

• General Electric guide questions:

1. Describe GE’s corporate strategy. Is there a
strategic logic in the diverse set of businesses?
2. How does GE’s headquarter add value to the
portfolio of businesses?
3. In your opinion, what is the future of GE as a
conglomerate?