Ikea the japanese misadventure and successful re entry

Strategic Planning – Concluding Thoughts

Strategic Recommendations

In developing this assignment, you have an opportunity to synthesize and apply the concepts, principles, and theories. You will be writing a paper in response to the following hypothetical situation.

Scenario:

You work in strategy planning for a KSA organization. You’ve been in the organization in a variety of roles for five years. Recently, the senior leadership team determined that your organization needs a more effective strategy planning process, and you’ve gladly stepped into a role to help determine what the improved process or activities might be.

You’ve been asked by your manager to put together specific strategic recommendations to help the executive team better understand the concepts and principles of a well-designed strategy process. Further, these recommendations will include a set of examples of strategy planning activities specific to your organization.

Instructions:

Your well-written paper should include the following elements and meet the following requirements:

The choice of organization is up to you. Describe your organization in terms of its industry, type (private or public sector), headquarters and other locations, and size.
Present the strategy concepts, theories, and principles that you believe are important for the senior executive leadership team to understand. If there are contradicting opinions from strategy experts, you may want to present both sides in an objective discussion.
Present four examples of strategy planning activities from four different modules that are designed specifically for your hypothetical organization. For each of your strategy planning activities, include a clear and understandable title along with a brief overview description of one or two sentences for each.
Example: In Foundations of strategy , the focus of Chapter 2 is on Industry Analysis. One example of an activity that would be relevant to content from those modules is Analyzing Industry, Key Success Factors and Profitability.

Include the titles of the example activities, with more complete descriptions for each. Explain the benefits and value of each activity specific to your organization.
Your well-written paper should meet the following requirements:

Be 10 pages in length, which does not include the required title page or reference page, which are never a part of the content minimum requirements.
Use APA style guidelines.
Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles "recently published" unless the assignment calls for more.
Required

Grant, R. M. & Jordan J. (2015). Foundations of strategy (2nd ed.). Hoboken, NJ: John Wiley & Sons. ISBN- 13: 9781118914700
McGinnis, J. L. (2015). Women, work, and globalization: Challenges and opportunities. Personnel Psychology, 68(2), 456-458. doi:10.1111/peps.12102_5

Foundations oF stRateGy

Foundations of Strategy

Robert M. Grant

and Judith Jordan

Foundations of Strategy

John Wiley & Sons, Ltd

This edition first published 2012 by John Wiley & Sons Ltd © 2012 Robert M. Grant and Judith Jordan

Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom

For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com.

The right of Robert M. Grant and Judith Jordan to be identified as the authors of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.

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Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought.

Library of Congress Cataloging-in-Publication Data Grant, Robert M., 1948- Foundations of strategy / Robert M. Grant and Judith Jordan. p. cm. Includes bibliographical references and index. ISBN 978-0-470-97127-7 (pbk.) 1 . Strategic planning. 2. Industrial management—Technological innovations. I. Jordan,

Judith. II. Title. HD30.28.G7214 2012 658.4'012—dc23 2011046748

A catalogue record for this book is available from the British Library.

Set in 8.5/12 Myriad Pro by Thomson Digital, India Printed in Italy by Printer Trento Srl.

Photo credits� xi Preface� xiii Case list� xvi

The�concept�of�strategy� 1

Industry�analysis� 49

Resources�and�capabilities� 105

The�nature�and�sources�of�competitive�advantage� 169

Business�strategies�in�different�industry�� and�sectoral�contexts� 209

Technology-based�industries�and�the�� management�of�innovation� 253

Corporate�strategy� 307

Global�strategies�and�the�multinational�� corporation� 361

Brief contents

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Realising�strategy� 413

Current�trends�in�strategic�management� 457

Glossary� 488 Index� 493

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Contents

Photo credits xi Preface xiii Case list xvi

The concept of strategy 1 The role of strategy in success 10 A brief history of strategy 12 Strategy today 17 Strategy: whose interests should be prioritised? 28 The approach taken in this book 34

Industry analysis 49 From environmental analysis to industry analysis 53 The determinants of industry profit: demand and competition 56 Analysing industry attractiveness 57 Applying industry analysis 73 Key issues and challenges 78 From industry attractiveness to competitive advantage:

identifying key success factors 87

Resources and capabilities 105 The role of resources and capabilities in strategy formulation 111 Identifying the organisation’s resources 114 Identifying the organisation’s capabilities 120 Appraising resources and capabilities 130 Putting resource and capability analysis to work: a practical guide 136 Developing resources and capabilities 145 Approaches to capability development 150

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The nature and sources of competitive advantage 169 The emergence of competitive advantage 174 Sustaining competitive advantage 179 Types of competitive advantage: cost and differentiation 185 Strategy and cost advantage 186 Strategy and differentiation advantage 191

Business strategies in different industry and sectoral contexts 209 The industry life cycle 214 Strategy at different stages of the life cycle 221 Strategy in public-sector and not-for-profit contexts 228 Stakeholder analysis 236 Scenario planning 238

Technology-based industries and the management of innovation 253 Competitive advantage in technology-intensive industries 260 Strategies to exploit innovation: how and when to enter 269 Competing for standards 277 Creating the conditions for innovation 284

Corporate strategy 307 The scope of the firm 313 Key concepts for analysing firm scope 315 Diversification 324 Vertical integration 333 Managing the corporate portfolio 345

Global strategies and the multinational corporation 361 Patterns of internationalisation 369 Analysing competitive advantage in an international context 371 Applying the framework: international location of production 378 How should a firm enter foreign markets? 382

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Multinational strategies: global integration vs. national differentiation 387 Strategy and organisation within the multinational corporation 394

Realising strategy 413 The organisational challenge: reconciling specialisation

with coordination and cooperation 419 organisational design 426 Management systems 437 Corporate culture 442

Current trends in strategic management 457 The new external environment of business 459 Managing in the aftermath of the global financial crisis 465 new directions in strategic thinking 470 Redesigning the organisation 475

Glossary 488 Index 493

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The following images throughout the book have been sourced from Shutterstock images:

Page 1 © Jackiso, sourced from Shutterstock images Page 12 © Alexander A.Trofimov, sourced from Shutterstock images Page 22 © Novelo, sourced from Shutterstock images Page 26 © eddtoro, sourced from Shutterstock images Page 27 © tony740607, sourced from Shutterstock images Page 49 © Tom Wang, sourced from Shutterstock images Page 51 © fantazista, sourced from Shutterstock images Page 60 © lucadp, sourced from Shutterstock images Page 62 © David Steele, sourced from Shutterstock images Page 64 © mangostock, sourced from Shutterstock images Page 66 © Dmitriy Shironosov, sourced from Shutterstock images Page 71 © Kirill Kurashov, sourced from Shutterstock images Page 74 © Racheal Grazias, sourced from Shutterstock images Page 76 © Dmitry Naumov, sourced from Shutterstock images Page 80 © Rido, sourced from Shutterstock images Page 82 © Monkey Business Images, sourced from Shutterstock images Page 95 © iofoto, sourced from Shutterstock images Page 105 © dariusl, sourced from Shutterstock images Page 107 © anyaivanova, sourced from Shutterstock images Page 119 © Michael D Brown, sourced from Shutterstock images Page 120 © wavebreakmedia ltd, sourced from Shutterstock images Page 135 © Raisa Kanareva, sourced from Shutterstock images Page 142 © nikshor, sourced from Shutterstock images Page 146 © Emir Simsek, sourced from Shutterstock images Page 150 © weknow, sourced from Shutterstock images Page 157 © Kaspars Grinvalds, sourced from Shutterstock images Page 169 © aragami12345s, sourced from Shutterstock images Page 177 © WinMaster, sourced from Shutterstock images Page 180 © Nagy-Bagoly Arpad, sourced from Shutterstock images Page 183 © hifashion, sourced from Shutterstock images

Photo credits

Page 188 © James Thew, sourced from Shutterstock images Page 209 © EcoPrint, sourced from Shutterstock images Page 211 © Stephen Rudolph, sourced from Shutterstock images Page 213 © pressureUA, sourced from Shutterstock images Page 225 © Gemenacom, sourced from Shutterstock images Page 229 © Ryabitskaya Elena, sourced from Shutterstock images Page 253 © JonesHon, sourced from Shutterstock images Page 256 © Nadiia Ierokhina, sourced from Shutterstock images Page 258 © Adam Radosavljevic, sourced from Shutterstock images Page 262 © yuyangc, sourced from Shutterstock images Page 267 © alexskopje, sourced from Shutterstock images Page 273 © Christian Delbert, sourced from Shutterstock images Page 276 © R. Gino Santa Maria, sourced from Shutterstock images Page 281 © iQoncept, sourced from Shutterstock images Page 298 © algabafoto, sourced from Shutterstock images Page 301 © ricardomiguel.pt, sourced from Shutterstock images Page 307 © cozyta, sourced from Shutterstock images Page 310 © inxti, sourced from Shutterstock images Page 316 © Franco Deriu, sourced from Shutterstock images Page 319 © auremar, sourced from Shutterstock images Page 322 © Elena Efimova, sourced from Shutterstock images Page 330 © Denis Vrublevski, sourced from Shutterstock images Page 336 © alephcomo, sourced from Shutterstock images Page 361 © qushe, sourced from Shutterstock images Page 371 © dean bertoncelj, sourced from Shutterstock images Page 377 © Robert Gooch, sourced from Shutterstock images Page 387 © Toria, sourced from Shutterstock images Page 390 © Gabi Moisa, sourced from Shutterstock images Page 404 © cobalt88, sourced from Shutterstock images Page 413 © Onur ERSIN, sourced from Shutterstock images Page 416 © Danny E Hooks, sourced from Shutterstock images Page 420 © Quayside, sourced from Shutterstock images Page 422 © wavebreakmedia ltd, sourced from Shutterstock images Page 434 © Photosani, sourced from Shutterstock images Page 444 © Dmitriy Shironosov, sourced from Shutterstock images Page 450 © Afonso Duarte, sourced from Shutterstock images Page 457 © Patricia Marks, sourced from Shutterstock images Page 458 © JustASC, sourced from Shutterstock images Page 467 © Madlen, sourced from Shutterstock images Page 471 © Rich Carey, sourced from Shutterstock images Page 477 © Germanskydiver, sourced from Shutterstock images

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Preface

Robert Grant’s Contemporary Strategy Analysis is one of the market leading text books used on MBA and advanced undergraduate courses around the world. During the continuing development of that text, now in its 7th edition, it has become apparent that there is also considerable demand for a more accessible and concise version of the text. In response to this demand, we have developed Foundations of Strategy as a brand new textbook. While maintaining the accessible writing style, clear approach and sound theoretical depth, this new text is better suited to the needs of both undergraduate students and Masters students requiring a more concise treatment of the subject.

As all those with an interest recognise, the way in which business and management education is delivered continues to evolve and change over time. Strategy modules remain a key part of business and management programmes but are now delivered in a wide variety of different formats, to a diverse range of students using a variety of different technologies. Strategy educators frequently find themselves with the challenge of having to deliver strategy modules in relatively short time frames to students with limited prior knowledge and experience of business and management practice. This text is designed to assist educators and students meet this challenge. Our aim has been to cover the key areas of strategy as concisely as possible without sacrificing intellectual rigour. To that end we have:

MM Made clear the learning objectives and provided summary tables against these objectives at the start and end of each chapter.

MM Organised the book on the basis of ten chapters

MM Provided a range of short cases that students can read and digest quickly and that can be used as an alternative to, or in conjunction, with longer cases available on the web

MM Included worked examples relating to the opening case of each chapter demonstrating how theory can be applied to practice in order to gain insight into strategic decision-making.

MM Highlighted key concepts in the margin

MM Provided a glossary of key terms

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The challenge has been to find a way of balancing brevity and comprehension. We have endeavoured to do this by focusing on selective key topics but explaining them in sufficient depth for students to be stretched intellectually. To assist in achieving this aim we have:

MM Included a range of up-to-date examples relating to products and firms with which most students will be familiar in order to capture their interest and enthusiasm

MM Included new sections on not-for-profit and public sector strategy to reflect the interests and experience of many students and staff

MM Provided suggestions for further reading at the end of each chapter.

Online teaching and learning resources

Visit www.foundationsofstrategy.com to access all the teaching and learning materials that accompany this text.

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including Case Teaching notes, a Test Bank and PowerPoint slides. The website also features extra, longer Case Studies written by Robert M. Grant as well as Case Video Clips with accompanying questions to use in class.

Resources for students include an interactive eBook of the text with embedded media including Self-Test Quizzes, Video Clips and Glossary Flashcards.

The authors have chosen to partner with an Online Simulation built by Kim Warren. If an instructor adopts this text for class use they can access a special rate per student. For more information follow the link from the Foundations of Strategy website at www.foundationsofstrategy.com

The White Label Restaurant business game gives students the opportunity to implement strategy within a ‘real world’ situation, repeatedly and in differing circumstances. Set in an industry familiar to all, students can easily understand how the business works and engage in running it within a short period of time. The game comes with a short case description and teacher material including information on the business’s positioning, tying it back to the standard strategy frameworks you may already have covered. The supporting slides set out solid underlying theory, which builds strongly on the resource-based view of the strategy.

Teams can be offered a range of challenges, such as early start-up, fighting off a new competitor, turning round a business in trouble and managing market maturity. They must also deal with investor expectations in the form of head office targets and rewards that adapt as they move forward. The game can be run as many times as is needed, allowing students to test and save alternative strategies which can form the basis of student assessment.

Case list

Chapter Opening Case Closing Case

1. The Concept of Strategy Strategy and Success: Lady Gaga, James Dyson, Alex Ferguson

The King of Shaves

2. Industry Analysis The Mobile Phone Industry Fitness First and the UK Health and Fitness Clubs

3. Resources and Capabilities Hyundai Motor Company Harley-Davidson, Inc.

4. The Nature and Sources of Competitive Advantage

Singapore Airlines The Rise and Fall of Starbucks

5. Business Strategies in Different Industry and Sectoral Contexts

The Evolution of Personal Computers

The World Wide Fund for Nature

6. Technology-based Industries and the Management of Innovation

eBook readers Nespresso

7. Corporate Strategy Tesco Bank: From food to finance

Diversification at Disney

8. Global Strategies and the Multinational Corporation

IKEA’s International Strategy Sharp and the Production of Liquid Crystal Displays (LCDs)

9. Realizing Strategy BP and the Deepwater Horizon Oil Spill

Designing and Redesigning Cisco

10. Contemporary issues in Strategic Management

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Introduction and objectives 2

Opening case: Strategy and Success 3

The role of strategy in success 10

A brief history of strategy 12 Origins 12 The evolution of business strategy 13

Strategy today 17 What is strategy? 17 How do we describe a fi rm’s strategy? 19 How do we identify a fi rm’s strategy? 20 How is strategy made? Design versus

emergence 22 What roles does strategy perform? 24

Strategy: in whose interest? Shareholders versus stakeholders 26

Strategy: whose interests should be prioritised? 28 Profi t and purpose 31 The debate over corporate social responsibility 33

The approach taken in this book 34 Narrowing the focus 34 The basic framework for strategy analysis 35

Summary 36 Further reading 38 Self-study questions 39

Closing case: The King of Shaves 40 Notes 44

The concept of strategy

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Introduction and objectives

Strategy is about success. This chapter explains what strategy is and why it is important to individuals and organisations in achieving their goals. We will distinguish strategy from planning. Strategy is not a detailed plan or programme of instructions; it is a unifying theme that gives coherence and direction to the actions and decisions of an individual or an organisation.

The principal task of this chapter is to introduce the notion of strategy, to make you aware of some of the key debates in strategy and to present the basic framework for strategy analysis that underlies this book. By the time you have completed this chapter, you will:

MM appreciate the contribution that strategy can make to successful performance, both for individuals and for organisations;

MM be aware of the origins of strategy and how views on strategy have changed over time;

MM be familiar with some of the key questions and terminology in strategy;

MM understand the debates that surround corporate values and social responsibility;

MM comprehend the basic approach to strategy that underlies this book.

Since the purpose of strategy is to help us to understand success, we start by looking at the role that strategy has played in enabling individuals to achieve their goals. The Opening case provides a brief outline of three individuals’ paths to success. While each made his or her name in different fields – Lady Gaga in the music business, James Dyson in design and manufacturing and Alex Ferguson as manager of the football club, Manchester United – their experiences provide us with some important insights into strategy.

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s Opening case Strategy and Success: Lady Gaga, James Dyson and Alex Ferguson

Lady Gaga Stefani Joanne Angelina Germanotta is now better known by her stage name Lady Gaga. Since 2008 she has sold more than 15 million albums, 40 million singles and countless downloads worldwide. In 2010 she became the first living person to achieve 10 million fans on Facebook and her following is still growing. At the same time she has more than 5 million fans on Twitter and is the first, currently performing artist to reach a billion views on YouTube.

As the eldest daughter of an Italian American family based in New York, she had an interest in music from a relatively early age, taking piano lessons and participating in school musical productions, but accounts of her early life suggest she was a normal student rather than an exceptional talent. Contrary to her current image as a fashion icon, she described her early look as ‘a refugee from Jersey Shore, with big black hair, heavy eye makeup and tight revealing clothes’.1

She gained early admission to New York University’s Tisch School of the Arts but dropped out within a year in order to pursue her music career. It is reported that her father only agreed to pay her rent during this period on the condition that she would re-enrol for Tisch if unsuccessful. She managed, at age 19, to gain a recording contract with the record label Def Jam Recordings but was dropped after just three months. Despite this setback, she continued to write songs and formed a band with her friends, playing in small venues in the Lower East Side of New York. In 2007 she adopted the stage name Lady Gaga (derived from a reference to the song ‘Radio Ga Ga’ by the band Queen) and with the help of music producer, Rob Fusari and record executive, Vincent Herbert, began to achieve success as a songwriter and vocalist, releasing her debut album, The Fame, in 2008.

Whilst Stefani, like many other children, enjoyed performing from an early age, her talents as a songwriter, musician, vocalist and fashion designer cannot

Credit: Getty Images

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be described as exceptional. The visual images she projects are always unusual and her public appearance is always striking but few would consider her a great beauty. The extent of her innovation has also been questioned: she has been criticised by artists such as Grace Jones as being ‘imitative’ rather than ‘original’ and, although she has courted controversy to make her name, not everyone considers her a trailblazer. Camille Paglia, writing in the Sunday Times,2 asserts that Gaga ‘is more an identity thief than an erotic taboo breaker, a mainstream manufactured product who claims to be singing for the freaks, the rebellious and the dispossessed when she is none of those’. Her journey to worldwide fame has often been compared to that of Madonna. Like Madonna, Lady Gaga recognises herself as a brand. Both trademarked their names early on in their careers and have promoted their brand image relentlessly. Both have maintained control over their image, music and management (Lady Gaga, for example, heads her own creative production team, the Haus of Gaga). Both are exponents of continual reinvention: changing their stage personae and public images frequently as a means of maintaining the interest and involvement of fans and media alike. Lady Gaga is particularly known for the enticing and immersive story worlds she creates for each of her videos and for her extraordinary costumes, including those made from raw meat and plastic bubble wrap. Finally, both have attracted attention – and controversy – through their use of religious, sexual and violent iconography.

Despite the seeming chaos and unpredictability of her rise to fame, Lady Gaga’s product development and marketing have been well adapted to the wrenching changes that have transformed, and almost destroyed, the music business over the past decade. Digital technologies and the ease of internet file sharing have drastically reduced the revenues from recorded music, elevating live performances as the dominant revenue source in the music business. Such performances are multimedia events where visual imagery and the overall theatrical experience are at least as important as the music. Most of the money Gaga and her record label earn does not come from video and record sales but from concert tickets. Lady Gaga and her team have also been quick to recognise the opportunities that the internet and social media offer. Her songs are simple to sing in any language and her videos, which also raise revenue through product placements, appeal to any age, gender or nationality. She makes extensive use of social media, such as Facebook and Twitter, to build her fan base and by personally generating the majority of her own online content, she constantly engages with fans and engenders feelings of friendship and loyalty. This loyalty is further reinforced by giving fans the pet name of ‘monsters’ and releasing video extracts

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to them prior to more general release. Gaga’s second album, Fame Monster, was dedicated specifically to her fan base.

Lady Gaga argues that, unlike some other celebrities, she doesn’t spend her money on ‘mansions’ but ploughs it back into her shows. She is reported as favouring what is known as 360 deals, namely contracts in which music labels invest a higher than average amount of money up front, for example in marketing and promotion, but in return keep a percentage of merchandise sales, touring revenue and other earnings that artists traditionally have kept for themselves. It remains to be seen whether Lady Gaga’s success will be as enduring as that of individuals like Madonna, Donatella Versace and Grace Jones, who she cites as her muses.

James Dyson James Dyson, the founder of Dyson Appliances Ltd, is best known as the inventor of the bagless vacuum cleaner, which he invented in the mid-1980s. In March 2011 he ranked as the 420th richest person3

in the world. His bagless vacuum cleaner is now sold in more than 45 countries worldwide. Together with other innovative products, these produced an annual revenue of £770 million and profits of £190 million.

Dyson’s journey in building his multi-million dollar business was by no means a smooth one. He initially trained as a designer, studying furniture, interior and theatre design at the Royal College of Art in London and was set to pursue a career in architecture even though whilst at college he ‘accidentally discovered the joys of making things’.4 His aspirations changed after meeting and working with an inventor and entrepreneur, Jeremy Fry. Dyson says of Fry, ‘I was very lucky that the first person I worked for was Jeremy Fry . . . Luckily for me he was an engineer and a manufacturing entrepreneur and definitely a mentor to me. He was key to my success at Dyson. I came from a family of schoolteachers – we knew nothing about business. He taught me what was possible and what wasn’t.’5

Dyson came up with the idea of creating a bagless vacuum cleaner in 1978 because of being frustrated by the performance of the products that were on the market at that time. He initially came across the ‘cyclone’ technology, which later formed the basis of his innovative vacuum cleaner design, when he saw sawdust being collected up in a timber yard by giant cyclones. Nonetheless it took him five years from 1979 to 1984 to develop his cleaner and he produced more than 5000 prototypes before his ‘dual cyclone’ vacuum cleaner met with any success. Dyson patented his product in 1980 even though it took many more years for the bagless

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vacuum cleaner to finally reach the market. Dyson’s next step was to look for a company in the UK or Europe to distribute his product, but he did not find any takers. His innovation was seen as too risky and potentially highly disruptive, particularly given that at this time the bag replacement market was worth over £100 million in the UK alone.

Dyson found funding very hard to obtain and in the early years was supported almost entirely by the income of his wife who was an art teacher. Dyson says of those times ‘of course there were moments of doubt. I had a young family and I wasn’t exactly bringing in a regular income. It wasn’t 9 to 5. It was a big risk’.6 Eventually, in 1985, Dyson entered into a partnership with a Japanese company and his new vacuum cleaner was finally launched in Japan in 1986. It soon became a status symbol in Japanese households, winning design awards. Dyson used the royalties from his sales in Japan to manufacture a new model in his own name in the UK. He borrowed money against his house and worked with four engineers in a shed in his back garden to get his UK business off the ground. He marketed the product on the basis of its features, emphasising the fact that it worked better than competitors’ products. He constantly adjusted his product to refine his offering and sales grew.

It soon became evident that to survive the intense competition that existed in the electrical appliance industry Dyson needed to reduce his costs. His factory in the UK was close to his home and he was very much the ‘hands-on’ type of manager and on first-name terms with most of his employees. He needed to move his production base from the UK to a location with lower labour costs and after a detailed review chose to move manufacturing to Malaysia. Talking about this decision he says ‘It really hurt. It was devastating to have to stand up in front of a workforce and tell them that they would be made redundant. It hurt to admit that I couldn’t manufacture in Britain . . . But it was the right thing to do if we wanted to stick around’.7 His steely determination was also evident when Dyson Appliances Ltd entered the US market. In 1999 Hoover, faced with a loss of market share to

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Dyson Appliances, launched its Vortex V2500 vacuum cleaner with the tagline ‘No bag. No filter replacement. No problems’. Dyson filed a patent infringement lawsuit against Hoover for copying his technology. Hoover filed a countersuit seeking removal of Dyson’s patents because his products lacked design and originality. After a long and, at times, bitter battle, the courts found in favour of Dyson and Hoover agreed to pay Dyson damages of around £4 million.8

Talking about his vision for the company Dyson says it is ‘to become a verb’, to transform the language so that people talk about ‘Dysoning’ rather than ‘Hoovering’ their homes. Through his leadership the company has continued to innovate bringing out new products such as his Airblade hand dryer and digital slim vacuum, and spends significant sums on R&D. Talking about his approach he says, ‘I don’t think we have ever thought that we’re sustaining something here in the sense that every day we come in is an entrepreneurial day because we’re investing more and more in new projects and taking bigger and bigger risks. When we come in it’s just as we came in right at the beginning’.9

Alex Ferguson In May 2011, Manchester United Football Club won the English Premier League for the 12th time under their veteran manager, Alex Ferguson. Despite losing to Barcelona in the final of the Champions League, Manchester United retained its position as the second most successful European club of the past decade. Ferguson’s relentless pursuit of excellence and painstaking approach to teambuilding is a testament to the power of dedication to systematic, long-term development in business dominated by celebrity, money and the quest for short-term results.

Like many of Britain’s leading soccer coaches, Alex Ferguson is a product of the football passion and tradition of Glasgow’s Clydeside. After many years as a professional player, his coaching abilities became apparent when, as manager of Aberdeen, he broke the Celtic–Rangers duopoly of Scottish football by winning the Scottish Cup, Scottish League Cup and European Cup Winners Cup.

Credit: Getty Images.

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Appointed manager to Manchester United in 1986, Ferguson systematically rebuilt scouting and youth development and instituted a rigorously disciplined approach to team training. Scouting was extended from its traditional focus in local schools to a global quest for outstanding potential. At the heart of teambuilding was a group of young players – Giggs, Beckham, Scholes, Butt and the Neville brothers – who graduated together from the youth team and provided a nucleus for the first team to which Ferguson added expensive signings from other clubs.

Central themes of Ferguson’s approach were:

MM Insistence on the highest levels of commitment from team members. Ferguson provided unflinching support for his players while subjecting them to withering criticism if he deemed their efforts were substandard.

MM Insisting on the primacy of the team over individual players. ‘The best teams stand out because they are teams . . . the individual members have become so fully integrated that the team functions with a single spirit . . . The manager should create a bond among his players that raises their performance to heights that were unimaginable’.10 This emphasis meant that Ferguson would sell some of his most outstanding players (Beckham, Ronaldo) if he believed that their celebrity created an impediment to team unity.

MM Building flexible coordination within the team. Ferguson was a master of team rotation – fielding teams with different configurations of players in order to vary tactics and rest key players.

MM Meticulous planning for individual games involving visits to watch opponents play and analysis of videoed games to identify the strengths and weaknesses of opponents.

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Case Insight 1.1 Routes to success

Our opening case outlines examples of success in three very different arenas – Lady Gaga in popular entertainment, James Dyson in business and Alex Ferguson in football.

For none of these three examples can success be attributed to overwhelmingly superior resources:

MM Lady Gaga possesses vitality, intelligence and imagination, but lacks outstanding talents as a vocalist, songwriter or fashion artist.

MM James Dyson had to depend on his wife’s salary as an art teacher when he was developing his vacuum cleaner.

MM Alex Ferguson built the Manchester United team with comparatively modest expenditures on star players. Manchester United’s net expenditures on new players over the past decade are tiny compared to the massive spending of Chelsea, Real Madrid, Inter Milan and Manchester City.

Nor can their success be attributed either exclusively or primarily to luck. All benefited from lucky breaks at critical junctures. More important was the ability to recognise opportunities when they appeared and to have the clarity of direction and the flexibility necessary to exploit these chances.

The key common ingredient in all three success stories was the presence of a soundly formulated and effectively implemented strategy. These strategies did not exist as a plan; in most instances the strategy was not even made explicit. Yet, in all three, we can observe a consistency of direction based on a clear understanding of the ‘game’ being played and a keen awareness of how to manoeuvre into a position of advantage.

MM Underpinning Lady Gaga’s rise to fame has been a strategy built on commitment, opportunism and a deep understanding of the role that live performances and social media play in developing and sustaining a loyal fan base.

MM When James Dyson couldn’t find any manufacturers or distributors who would launch his product in the UK he launched it in Japan through catalogue sales and eventually set up his own manufacturing company.

MM Alex Ferguson combined old-fashioned virtues of commitment and team spirit with critical insights into the sources of sustained success in top-flight European soccer of the modern era.

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The role of strategy in success

What do these examples tell us about the characteristics of a strategy that are conducive to success? In all three stories, four common factors stand out (see Figure 1.1):

1 Goals that are simple, consistent and long term. All three examples displayed a single-minded commitment to a clearly recognised goal that was pursued steadfastly over a substantial period of time.

MM Lady Gaga relinquished the opportunity offered to her by the prestigious Tisch School of Arts to pursue her quest for stardom.

MM James Dyson persisted for more than five years developing his cleaner, making more than 5000 prototypes.

MM Alex Ferguson’s life appears to be dominated by football and the success of the teams he manages. Although an extremely rich man with a supportive family, other aspects of his life seem to occupy subsidiary roles.

2 Profound understanding of the competitive environment. All three cases illustrate strategies around a deep and insightful appreciation of the context in which they were operating.

MM Fundamental to Lady Gaga’s success has been a shrewd understanding of the ingredients of stardom and the basis of popular appeal. This extends from her recognition that she is a ‘brand’ through to her awareness of the need to manage personally critical elements of media distribution channels. Her focus on live shows, merchandising and social media reflect an acute awareness of the changing nature of the music industry as well as the changing attitudes, styles and social norms of her audiences.

Profound

understanding of the

competitive environment

Objective

appraisal

of resources

EFFECTIVE IMPLEMENTATION

Simple, consistent,

long-term

goals

Successful

strategy

Figure 1.1 Common elements in successful strategies

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MM James Dyson realised the significance of television advertising to sell his product and emphasised the fact that his cleaner, unlike most rival products, did not require the continuing purchase of replacement dust bags. He also moved his manufacturing base from the UK to Malaysia to achieve cost savings.

MM Alex Ferguson recognised the new realities of European soccer: the need to look worldwide for talent; the importance of varying teams and tactics in response to complexities of playing in different competitions; the potential for strength through diversity – especially in blending youth with experience; and the merits of psychological warfare both in upsetting opponents and intimidating referees.

3 Objective appraisal of resources. All three strategies were effective in exploiting internal strengths, while protecting areas of weakness.

MM By positioning herself as a ‘performance artist’, Lady Gaga exploited her abilities to develop and project her image, to self-promote and to exploit emerging trends, while avoiding being judged simply as a singer or songwriter. Her live performances rely heavily on a large team of highly qualified designers, musicians, vocalists, choreographers and technicians, thus compensating for any weaknesses in her own performing capabilities.

MM Dyson realised early on that his product was likely to be imitated by rivals. He battled to achieve patent protection for his inventions and sued Hoover UK for patent infringement, winning significant damages.

MM Ferguson is masterful in apprising the talents of both his teams and individual players – including the psychological factors that are so critical to individual performance and team effectiveness.

4 Effective implementation. Without effective implementation, the best-laid strategies are of little use. Critical to the success in all three stories is effective leadership in terms of capacity to reach decisions, energy in implementing them and ability to foster loyalty and commitment among subordinates. Each story illustrates the emergence of organisations that allowed effective marshalling of resources and capabilities and quick responses to changes in the competitive environment.

These observations about the role of strategy in success can be made in relation to most fields of human endeavour. Whether we look at warfare, chess, politics, sport or business, the success of individuals and organisations is seldom the outcome of a purely random process. Nor is superiority in initial endowments of skills and resources typically the determining factor. Strategies that build on the basic four elements almost always play an influential role.

Without effective implementation, the best-laid strategies are of little use.

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A brief history of strategy

Origins Enterprises need business strategies for much the same reasons that armies need

military strategies – to give direction and purpose, to deploy resources in the most effective manner and to coordinate the decisions made by different individuals. Many of the concepts and theories of business strategy have their antecedents in military strategy. The term strategy derives from the Greek word strategia, meaning ‘generalship’. However, the concept of

Many people who have reached the pinnacles of their careers have led lives scarred by poor relationships with friends and families and stunted personal development. These include Howard Hughes and Jean Paul Getty in business, Richard Nixon and Joseph Stalin in politics, Marilyn Monroe and Elvis Presley in entertainment, Joe Louis and O. J. Simpson in sport and Bobby Fischer in chess. Fulfilment in our personal lives is likely to require broad-based lifetime strategies.12

Look at the ‘high achievers’ in any competitive area. Whether we review the world’s political leaders, the CEOs of the Fortune 500 or our own circles of friends and acquaintances, those who have achieved outstanding success in their careers are seldom those who possessed the greatest innate abilities. Success has gone to those who managed their careers most effectively – typically by combining the four strategic factors mentioned above. They are goal focused; their career goals have taken primacy over the multitude of life’s other goals – friendship, love, leisure, knowledge, spiritual fulfilment – which the majority of us spend most of our lives juggling and reconciling. They know the environments within which they play and tend to be fast learners in terms of understanding the keys to advancement. They know themselves in terms of both strengths and weaknesses. And they implement their career strategies with commitment, consistency and determination. As the late Peter Drucker observed: ‘we must learn how to be the CEO of our own careers’.11

There is a downside, however. Focusing on a single goal may lead to outstanding success, but may be matched by dismal failure in other areas of life.

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strategy did not originate with the Greeks. Sun Tzu’s classic The Art of War, written in about 500 bc, is regarded as the first treatise on strategy.13

Military strategy and business strategy share a number of common concepts and principles, the most basic being the distinction between strategy and tactics. Strategy is the overall plan for deploying resources to establish a favourable position; a tactic is a scheme for a specific action. Whereas tactics are concerned with the manoeuvres necessary to win battles, strategy is concerned with winning the war. Strategic decisions, whether in military or business spheres, share three common characteristics:

MM they are important;

MM they involve a significant commitment of resources;

MM they are not easily reversible.

The evolution of business strategy The evolution of business strategy has been driven more by the practical needs of business than by the development of theory. During the 1950s and 1960s, senior executives were experiencing increasing difficulty in coordinating decisions and maintaining

Case Insight 1.2 Strategy versus tactics

James Dyson’s decision to move production of his bagless vacuum cleaner to Malaysia is clearly strategic whereas his decision to launch a patent infringement suit against Hoover is less clear cut. The latter decision might be considered tactical in the sense that it was easily reversible, indeed Dyson could have dropped the suit at any time. The outcome of the case, however, was very important to the company with regard to the sustainability of its competitive advantage and fighting the case required a significant commitment of resources. If Dyson had lost his battle with Hoover, this may have opened the floodgates to imitative products that could have challenged the company’s market position. We could similarly debate whether Alex Ferguson’s decision to sell David Beckham or Lady Gaga’s decision to establish Haus of Gaga were tactical or strategic moves. What do you think? In your opinion, does this distinction matter?

The evolution of business strategy has been driven more by the practical needs of business than by the development of theory.

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control in companies that were growing in size and complexity. Financial budgeting, in the form of annual financial planning and investment appraisal, provided short-term control and project selection but did little to guide the long-term development of the firm. Corporate planning (also known as long-term planning) was developed during the late 1950s to serve this purpose. Macroeconomic forecasts provided the foundation for the new corporate planning. The typical format was a five-year corporate planning document that set goals and objectives, forecast key economic trends (including market demand, market share, revenue, costs and margins), established priorities for different products and business areas of the firm and allocated capital expenditures. The diffusion of corporate planning was accelerated by a flood of articles and books addressing this new science.14 The new techniques of corporate planning proved particularly useful for developing and guiding the diversification strategies that many large companies were pursuing during the 1960s. By the mid-1960s, most large US and European companies had set up corporate planning departments.

During the 1970s and early 1980s, confidence in corporate planning and infatuation with scientific approaches to management were severely shaken. Not only did diversification fail to deliver the anticipated synergies, but the oil shocks of 1974 and 1979 ushered in a new era of macroeconomic instability, combined with increased international competition from resurgent Japanese, European and Southeast Asian firms. Faced with a more turbulent business environment, firms could no longer plan their investments, new product introductions and personnel requirements three to five years ahead, simply because they couldn’t forecast that far into the future.

The result was a shift in emphasis from planning to strategy making, where the focus was less on the detailed management of companies’ growth paths than on positioning the company in markets and in relation to competitors in order to maximise the potential for profit. This transition from corporate planning to what became termed strategic management was associated with increasing focus on competition as the central characteristic of the business environment and competitive advantage as the primary goal of strategy.