THE

BUSINESS STRATEGY
TOOLBOOK
A quick guide on framework, concepts, techniques, tools and
models commonly deployed for analyzing, assessing, devising and
executing strategies in organizations.

Curated by Subject Matter Experts and the TSI-certified community

exclusively for the registrants of the Strategy Institute
WHAT IS BUSINESS
STRATEGY?
Businesses in different industries and geographic markets face widely divergent
strategic challenges, and executives continually search for the “right” strategy
denition as their markets evolve. Academics, consultants, and management
gurus offer a broad menu of strategy denitions to choose from. Ask 100 of these
so-called strategy experts to dene business strategy, and you may get 100 new
answers to add to your original list. At one level, this is to be expected; if managers
face a diverse set of strategic challenges, certainly the strategy experts should offer
a diverse set of potential prescriptions. At another level, however, this diversity
is confusing and potentially dangerous. The problem occurs when managers,
encouraged by overzealous “experts” trying to sell the universal applicability of
their approaches, get locked into an inappropriate denition.
Any one of these existing strategy denitions is useful to some executives some
of the time, but none is useful to all executives all of the time. Is it possible,
or even desirable, to develop a more universally applicable denition of business
strategy? Research by management consultant McKinsey & Company addressed
this question. The McKinsey research identied some common ground in existing
denitions: strategy involves making choices, and these choices matter. A business
cannot serve all customers in all markets with all products and services, just as it
cannot invest in every different form of physical or human resource, or implement
every possible management process. Clear and consistent resource development
and deployment decisions are at the heart of anyone’s denition of strategy. And
these choices matter because they largely determine who wins and loses business
games. Empirical research has shown time and again that strategy and execution
choices made at the level of the business unit largely explain performance
differentials across firms.
 The McKinsey research further identied four fundamental elements of any
business strategy: strategic posture, competitive advantage, business concept, and
value delivery system.

STRATEGIC POSTURE
Strategists must choose between three generic strategic postures: shaping,
adapting, and reserving the right to play. Shapers develop strategies designed
to drive industry structure and conduct in completely new directions. Their
strategies are about creating new opportunities in a market—either by shaking
up relatively stable industries or by trying to control the direction of the market
in industries with higher levels of uncertainty. As such, their strategies often
generate the highest rewards and risks. The steel and railroad barons of the 19th
century and more recent entrepreneurs like Bill Gates and Scott McNeally have
been successful shapers at times, but the sober reality is that most companies lack
the industry position, assets, or appetite for risk necessary to make such strategies
work. These companies might instead choose adapter strategies. Adapters take the
current industry structure and its future evolution as given, and they react to the
opportunities offered by the market. In low-uncertainty environments, adapting
involves making a strategic positioning choice—where and how to compete in the
existing industry. At higher levels of uncertainty, adapters build strategies that
facilitate recognition and quick response to evolving market opportunities. Most
telecommunication service resellers are adapters, for example, they react to entry,
exit, and regulatory rulings in rapidly changing North American telecommunication
markets.
The third possible strategic posture, reserving the right to play, is a special
form of adapting. Those that choose to reserve the right to play make incremental
investments today that will help them shape the future of the industry later
should they choose to do so. In essence, they are buying time, information, and
positions that will enable them to re-optimize in the future. For example, many
pharmaceutical companies are reserving the right to play in the market for gene
therapy applications by making small acquisitions or allying with biotech rms that
have already gained the relevant expertise. These investments provide privileged,
low-cost access to the latest industry developments at a fraction of the cost of
building a proprietary, internal gene therapy R&D program.
Be careful not to oversimplify strategic posture choices: many successful
strategies blend elements of all three postures, and a company’s dominant posture
may change as conditions evolve. The Microsoft Network strategy originally
focused on shaping a proprietary electronic commerce network as an alternative
to the Internet. As it became evident that this shaping strategy would not succeed,
Microsoft adapted its strategy to focus on winning in the Internet environment.

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COMPETITIVE ADVANTAGE
Strategists must also choose the source of sustainable competitive advantage
around which to build the strategy. There are three general sources of competitive
advantage: structural, front-line execution, and insight/foresight. Structural
advantages create entry barriers that make it difcult for competitors to copy your
strategy. Such entry barriers include economies of scale, proprietary technology,
regulations, brand strength, and privileged access to suppliers or distributors.
Front-line execution advantages result from superior performance in the execution
of day-to-day tasks. In commercial property/casualty insurance, for instance, a
few players have demonstrated that superior underwriting and claims handling
can overwhelm any structural advantages in the industry. Insight/foresight
advantages result from possessing knowledge or having insights that others lack.
The knowledge may lie in scientic or technical expertise (Hewlett-Packard’s
continuing superiority in printers), pattern recognition (the ability of some banks
to make consistent prots by taking short-term positions in foreign currency), or
sheer creativity (Disney’s unmatched success in animated lms).
Obviously, all three general sources of competitive advantage are important
drivers of wealth creation, and no strategist can afford to neglect any one of them
for too long. But it is important to set priorities. Rarely does a company have the
management talent and nancial resources necessary to simultaneously sustain
world-class innovation and operations.

BUSINESS CONCEPT
Business-concept choices begin translating strategic intent (as dened by strategic
posture and competitive advantage) into a set of actions. What products are you
going to develop and which customers are you going to target through which
channels? What investments are you going to make, and when are you going to
make them? In low-uncertainty environments, these business-concept choices
are equivalent to market-positioning choices. Under higher uncertainty, business
concepts are dened by portfolios of big bets, options, and no-regrets moves. Big
bets are large commitments, such as major capital investments or acquisitions,
that will result in large positive payoffs in some scenarios, and large losses in
others. Options, on the other hand, are actions designed to secure the big payoffs
of the best-case scenarios while minimizing losses in the worst-case scenarios.
Most options involve making modest initial commitments that allow companies to
easily ramp up or scale back the investment later as the market evolves. Examples
include conducting pilot trials before full-scale introduction of a new product,
and entering into limited joint ventures to minimize the risk of breaking into new
markets. No-regrets moves, as the name suggests, are actions with positive payoffs
in any scenario. Cost-reduction or quality-improvement programs are often

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examples, but even major capital investments can be no-regrets moves in some
circumstances.

VALUE DELIVERY SYSTEM

Strategists must also choose how to implement their business concepts, including
changes in procurement, manufacturing, sales, marketing and distribution. The key
to making sound implementation decisions is to ensure that all business activities
are aligned with company strategy choices. This alignment creates what McKinsey
calls a value delivery system—an integrated set of actions designed to create value
for the company and its target customers. Consider, for example, when Domino’s
introduced its 30-minute pizza-delivery strategy. Domino’s redesigned standard
ovens to accommodate higher-heat, shorter baking times; limited delivery menu
items to ensure efciency; and located its franchises in areas with population
densities that could support 30-minute delivery times. Domino’s strategy would
not have been feasible without these fundamental changes in store locations,
product denitions, and baking methods.

AN INTEGRATED SET OF CHOICES

Strategic posture, competitive advantage, business concept, and value delivery
system. These four fundamental sets of choices dene business strategy. Of
course, these choices are not independent of one another. Rather they must be
intricately linked. A shaper seeking to build structural advantages in the chemicals
industry might make a big acquisition bet to build economies of scale, and focus
his implementation plan on capturing synergies from the acquisition. On the other
hand, an adapter hoping to leverage front-line execution skills in the multimedia
industry might build a strategy around no-regrets skill acquisition and training
programs.
These four choices encompass the multitude of existing strategy denitions
currently confusing business executives and strategy gurus alike. Other denitions
are narrower, focusing on only a subset of the relevant questions and potential
answers, and can be misleading exactly because there is no one “right” answer
for all companies. Shapers can win, but so can adapters. Structural advantages
allow companies to capture value, but front-line execution advantages can also be
sustained. Big bets are sometimes called for, but an option sometimes maintains
just as much upside payoff while eliminating the downside risk. Strategists must
systematically address these four choices in their own company’s strategic con-
text, and develop an integrated set of answers that creates value for their company
and its customers. This may be easier said than done, especially under high
uncertainty, but tried and true techniques do exist. We will discuss some of these
techniques in future World Economic Affairs columns.

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 Typical scenarios where you could be asked to provide information and data for
your organization’s strategic decision making include:

❍ Analyzing the organization’s external environment.

❍ Assessing the organization’s internal capabilities and how well it can respond
to external forces.
❍ Assisting with the denition of the organization’s strategy.
❍ Aiding in the implementation of the organization’s strategy.
Being aware of the best tools, techniques and models enables you to take an
active and productive role when providing such information. Management plays a
key role in providing the background information and impact potential alterations
in both operations and strategy. As a manager it is essential that you understand
the best way to assess how effective each business process is in terms of its use of
resources.
In the chapters ahead, we present some of the most used tools, models and
frameworks of business strategy analysis and decision-making, which you can use
as rubrics while designing and executing business strategy in your organization.

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LAFLEY AND MARTIN’S
FIVE-STEP STRATEGY
MODEL
To succeed in business – no matter what business you are in – you are going to
need a great strategy. If you look around, you are certainly going to see that you
have competition in the market, but that’s okay. You don’t have to be the only
business in your market in order to succeed – you just have to be the best.

Where most people think that they need to have the best product or service in
the world in order to win, success in business is actually as much about strategy as
it is about the actual product that is being sold. Of course, it helps to have a great
product, but you need an excellent strategy to match.
Laey and Martin’s Five-Step Strategy model is a relatively new one, which
was published in a 2013 book, making it one of the most-modern strategy models
in business. By working through the ve steps that are included in this model, you
should emerge with a clear concept of how your business is going to be run from
this day forward.

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STEP 1 – DEFINE THE WINNING ASPIRATION CLEARLY
Quite simply, this is the goal of the organization. Of course, it should be a bit
more specic than just stating that you would like to ‘make money’. All for-prot
businesses want to make money, so that doesn’t really help you get anywhere.

What it is that you are going to do in order to make that money? Are
you trying to dominate a specic market? Are you just looking for a
piece of a big market?

It is important to be specic even at this top level, as your answers to this

question will inuence decisions you make later on. It may well be something like
“I want my brand to become a Walmart darling.”
The best way to think about this question is to picture what success would look
like in the future. If your organization is being successful ve years from now, what
would that look like? You should be optimistic, but realistic at the same time, and
most importantly, your success must be linked to pointers like revenues, prots,
market position, perception.
For instance, if you sell some form of technology, you likely aren’t going to
topple the major players in the tech game, but that doesn’t mean you can’t hit your
own marks for success.

STEP 2 – DECIDE YOUR TARGET CUSTOMERS

Once you know what it will look like to win, you then need to decide exactly where
you are going to ‘play’ in order to achieve that victory. This question demands that
you identify both the markets and the customers that you are going to pursue.
For some businesses, such as those that sell directly to consumers, the answers
to this question will be easy. For example,

If you produce a small product that is easy to ship, and you are selling
direct to consumers, you will likely set up a website in addition to sell-
ing on other established e-commerce sites.

However, for businesses that are going to sell to distributors or other

intermediaries, identifying specic markets may take a bit more time and effort.

STEP 3 – THINK HOW TO BE BETTER THAN RIVALS

Now that you know where you are going to be competing in the market, the next
step to deal with is the strategy that you are going to use to make sure you come
out on top.

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 You are going to face competition in whatever slice of the market you have
decided to enter, so you will need to think long and hard about how you can position
your product or service to stand out from the rest. If you take this step for granted,
you will likely nd that your competition remains a step ahead for years to come.
You don’t necessarily have to have a complex strategy in place at this level to
come out on top – but it does need to be a good strategy that has a real chance
to succeed. You could plan on winning the market based on lower cost, higher
quality, faster turnaround times, or some combination of those three.
Business is very simple when you boil it down to the basic level – consumers
want good products and services for fair prices. Focus on those tenets and you will
head in the right direction.

STEP 4 – IDENTIFY CAPABILITIES YOU NEED TO WIN

This is the infrastructure that supports the plans you have developed. In order to
enter the selected markets, and win in those markets, you will need a specic set
of capabilities in place within your organization. What are you going to need to do
in order to meet your goals at higher strategy levels?
For instance, if you have decided that you are going to win through offering
lower prices, what capabilities do you need in order to be able to sell your goods at
a low price point?

Without the capabilities necessary to meet your higher-level goals, the

organization is destined to fail.

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HAMBRICK &
FREDRICKSON’S
STRATEGY MODEL
(DIAMOND)
The strategy model produced by Hambrick and Fredrickson, also known as the
Strategy Diamond, is a useful model for managers and business owners in a wide
variety of markets.

One of the challenges that you are certain to face when trying to make strategic
decisions is how to make sure that you have all the information that you need to
generate your options and dene how you would want to select one.
It is easy to overlook bits and pieces of the overall picture, especially when you
are dealing with a large business that has many moving part
This is where the Strategy Diamond can come in handy. When you use
this model, you will be able to make sure that you are considering everything
that is relevant to your decisions before you nalize them and move forward.
There are ve total pieces that make up this ‘diamond’, and we will look at them
one by one below.

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STEP 5 –START FIXING THE MANAGEMENT SYSTEMS
People drive organizations forward, and technology and processes are mere
facilitators, though critical. Without good people working toward a common goal,
everything else that you have done to this point will be wasted. This nal step of the
strategy process demands that you take the time and effort to build management
teams, which will be able to support the organizational goals and strategies that
have been put into place.
There is a lot to learn from using this model within your own organization, as
it can help you to quickly create a top-down set of strategies that will keep your
business moving in the proper direction for months and (hopefully) years to come.
Businesses without specically outlined strategies tend to ‘oat around’ until
they are eventually knocked out by superior competition. Don’t let that happen
to you. Use this ve-step process to clearly dene all of your strategies and look
forward to a long and prosperous future.

KEY POINTS
❍ Laey and Martin’s Five-Step Strategy Model was published in a 2013 book,
making it one of the most-modern strategy models in business.
❍ What should be the winning aspiration? Organizations should dene exactly
what winning means to them.
❍ Where you are going to play? Organizations can choose where to play in
terms of services and product lines.
❍ How are you going to win? In order to make the above decisions work, they
have to be supported by the things that an organization can do better than
the competition.
❍ What capabilities you should build? The organization should look at its strong
points and core competencies and tailor them to support the rst three points.
❍ What management systems are needed? The organization must decide
whom they need, what they need, how they will deliver, and how they can tell
whether the strategy is succeeding or not.

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ARENAS
ARENA is where you are going to compete for market share.
This is the rst piece of the Hambrick and Fredrickson model. Of course, this is
a logical place to start, as all of the subsequent decisions that you make regarding
your strategy are going to relate to the markets where you have chosen to compete.
You have a number of options for ‘arenas’ that you can use to grow your business
today thanks to the ubiquity of the Internet and online shopping. Are you going to
be selling straight to consumers through a number of retail channels, or are you
building a business-to-business model instead? Whatever your plan, outline it in
detail here before moving on to the next portion of the diamond.

DIFFERENTIATORS
Being different helps stand out in a crowd of options, and customers nd it easier
to see you. And if the “differentiator” has value for the customer, you are going
right.

How are you different from the competition? What is it about the prod-
ucts and/or services that you offer that will allow you to win in the
market place?

The key question you will need to answer here is how are you going to compete
for customers – on quality, or on price? Find a way to differentiate yourself from
the rest of the market and you will have a shot to succeed in the short and long
term.

VEHICLES
Now that you have two huge questions out of the way – where you are going to
compete, and how you are going to stand out – you will need to move on to the
implementation side of the puzzle.

How are you going to develop the products and services that you plan
to sell? Is everything going to be done ‘in house’, or will you be part-
nering with other organizations to create goods that can be taken to
market?

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 This is another important point, because it will affect how fast you are able to
grow, and how quickly you can get to the market with your goods. There are pros
and cons to both sides of this debate, so there isn’t a ‘right or wrong’ answer – think
about your situation and the market as a whole before nalizing a strategy for
product development and launch.

STAGING AND PACING

The path from ‘here to there’ isn’t always clear in business. In other words, you
may have great plans for the future of your organization, but you need to have a
strategy for getting from where you are now to where you would like to be later on.
This is where the staging and pacing part of the diamond comes into play.
Working from one logical step to the next is the only way to grow your company,
as you will run the risk of going out of business if you get ahead of yourself along
the way.
Many organizations have been destroyed by rapid expansion that they were not
ready to handle – and that is a legacy that you do not want to follow with your own
business. Put a growth strategy into place and follow it closely on your way toward
the top.

ECONOMIC LOGIC
The nal portion of the diamond is meant to pull everything together in the name
of protability (for a for-prot business).

Are all of the decisions and strategy choices that have been made up
until this point going to work together to generate prot? If not, where
can you make adjustments to bring the business into the black?

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 Only when your strategy makes economic sense should you go ahead with the
plans that you have put into place during the previous steps. As long as it all ‘adds
up’ at the end and your strategies play nicely into one another, you should be able
to move forward with condence.

KEY POINTS
❍ It suggests that good strategies include answers to a series of related questions
spanning target markets, growth vehicles, speed and path of strategic change,
and nancial deliverables.
❍ Arenas encompass choices made about where to compete: the external
environment such as product or service markets, geographic markets or
channels. They also identify activities that are outsourced.
❍ Differentiators are those factors that are believed to allow the rm to compete
effectively in its targeted arenas, and include image, price, and reliability.
❍ Vehicles identify the degree to which the strategy relies on internal
development efforts relative to partnering with external parties.
❍ Staging and pacing refer to the sequence and speed of strategic moves,
helping identify decision points since strategic moves don’t have a single
possible pathway.
❍ Economic logic reects how all the pieces tie together in a way that satises
key stakeholders.

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THE BUSINESS MODEL
CANVAS
The Business Model Canvas has quickly become a popular tool for those planning
out a new business venture. While this model is frequently used as a strategy
planning model for startups, it can also be put to use by existing businesses wishing
to turn in a new direction as they look to the future.

The Business Model Canvas helps you to gain an overall perspective on the
business you are hoping to run and a well-rounded concept of what you are trying
to accomplish.
This business model is divided up into building blocks that can be used to
create an overall picture of the desired organization. While there are a variety of
iterations of this model that have been put into use, the model generically includes
nine unique building blocks as we brief them below.
KEY ACTIVITIES
What are the activities that the company will be engaged in? This should go a bit
deeper than just a listing of the products or services that you wish to sell.

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 How are you going to create value for your customers? Are you going
to sell your product at a lower price than your competitors? Or are you
going to create a better product overall?

By deciding how your business is going to compete on a day-to-day basis, you

will have the start of an overall business strategy.

KEY RESOURCES
These are the things that you must have to create for you an advantage over the
competition. For instance, do you have people with special skills, or perhaps a
proprietary piece of equipment, or technology for producing your goods? Everything
listed in this part of the canvas should be considered an asset to the business, in
whatever form it happens to come.

KEY PARTNERS
No business is an island – you are going to need strategic partnerships if you are
going to succeed. Often, these key partners will come in the form of suppliers
who play a role in the creation of your product. For instance, if you are building
a product from scratch, the companies who supply you with your raw materials
would certainly be considered key partners.

VALUE PROPOSITIONS
This is the core of your business. When someone asks you what it is that your
business does, your answer will likely mirror your value proposition. If you pride
yourself on quality over low prices, you may say that your value proposition is to
offer customers the ‘best widget on the market today’.

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 On the other hand, you could offer ‘the most affordable widget on the market’
if you are targeting the value market. Before you get too far down the road of
starting and running your business, you should have your value proposition rmly
dened.

CUSTOMER RELATIONSHIPS
Who are your targeted customers, and how are you going to build relationships
with those people that last for years to come? There are a number of ways to build
customer relationships:

From providing great customer service to offering unbeatable prices

and loyalty discounts.

Of course, as a new business you won’t have customers just yet, but you should
already have a clear picture of how you are going to try to build those all-important
customer relationships. In today’s digital world, connecting with your market via
social media and other online channels is a common strategy for developing a loyal
following.

CHANNELS
There needs to be a clear strategy in place for how you are going to deliver your
products to your targeted customers. Will you be opening up your own storefronts,
or will you be selling through distributors? Perhaps you will focus on online sales
instead, or you will use a combination of these options?

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 No matter what direction you decide is best for your distribution, make sure
you have a good idea of how the products you make will get to the customers you
target. Many businesses have failed because they didn’t properly develop their
channels, even though they had a great product to sell.

CUSTOMER SEGMENTS
Deciding on who specically will be buying your goods or services is another
important step in this process.

Are you going to sell to the market as a whole? Or is there a specic

niche that you will target?

This is all going to depend on exactly what you are selling. Some businesses are
well suited for targeting the whole market, while others would be better served to
identify and target a smaller niche that they can potentially dominate.

COST STRUCTURE
Money is the name of the game in business. If you fail to make decisions based on
money, you will fail to be in business for long.

How are you going to structure your business from a cost perspective?
Are you focused only on costs?
Or are you focused on producing the highest quality product possible
even if that means a higher cost?

There are successful businesses on both sides of that equation, so it is a matter

of preference and analyzing the market for opportunities.

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REVENUE STREAMS
Quite simply, how are you going to make money? You need to start bringing in
money as soon as possible in order to pay the bills and keep your business moving
forward. Are you simply going to make money by selling units of your ‘widget’, or
will there be other revenue streams built into the company (such as subscriptions,
licensing deals, ad fees, etc.). This is another point that is dependent on the
specic form and function of your business.
You could easily spend weeks or even months working on your business model
canvas, and that is exactly what you should do before jumping head rst into a new
venture. Using this model will allow you to work out any potential roadblocks that
are standing between you and a successful future. Once complete, you will have
a clear picture of the plan that is now in place, and you will be able to proceed
accordingly.

KEY POINTS
❍ The Business Model Canvas has quickly become a popular tool for those
planning out a new business venture.
❍ It takes the form of a visual chart with elements describing a rm’s or product’s
value proposition, infrastructure, customers, and nances.
❍ While there are a variety of iterations of this model that have been put into
use, you will commonly nd that the model includes nine unique building
blocks.
❍ Key Activities: What unique things does the business do to deliver its
proposition?
❍ Key Resources: What unique strategic assets must the business have to
compete?
❍ Key Partners: Who are your key partners/suppliers? What are the motivations
for the partnerships?
❍ Value Propositions: When someone asks you what it is that your business
does, what is your answer?
❍ Customer Relationships: What relationship is it that the target customer
expects you to establish?
❍ Channels: How are your value propositions promoted and delivered?
❍ Customer Segments: Who are the customers?
❍ Cost Structure: What are the business’s major costs?

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 ❍ Revenue Streams: How are you going to make money?
❍ The Business Model Canvas is an effective strategic management template for
developing a new or documenting an existing business model.

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PORTER’S GENERIC
STRATEGIES MODEL
Having a basic strategy at the heart of your business is a crucial part of both short-
and long-term success. It is easy enough to set out in business with a general idea of
what you want to accomplish, but the market will usually swallow up organizations
that lack a specic strategy.

Not all businesses are created equal, and there is a great deal of variation
in strategy even among businesses that are similarly successful. You can take a
variety of paths to reach your goals, but you have to know which path it is that you
wish to take if you are going to come out on top in the end.
Below, we will take a brief look at each of the four strategies you can choose
from within this model.

COST LEADERSHIP
This is a common business strategy, and it is probably one that you have considered
as you try to gain an edge on the competition. Cost leadership means you are

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going to lead the market in terms of cost. Within this strategy, however, there are
actually two ways you can go.

Option 1 - is to offer your products at a lower cost than your competition,

convincing consumers to pick your product simply because it is the least expensive
choice on the shelves.
Option 2 - you could opt to take a cost leadership strategy by producing your
units for the lowest cost while still charging average prices for the goods. In this
way, you will make a larger margin on each sale than will your competitors, so you
can win in the long run even if you don’t sell signicantly more units. In fact, you
might even be able to win by selling fewer units if your prot margins are large
enough.
While it might seem like an easy choice to simply sell your products for the
lowest possible price, you need to make sure that you can sustain that plan over
the long run.

For instance, if there is a larger player in this market, they may decide
to undercut you for a period of time in order to run you out of business.
Are you going to be able to keep up on the cost front?

If not, you may need to pick a different strategy – or at least use a blend of
strategies to carve out part of the market for yourself.

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DIFFERENTIATION

In many ways, the differentiation strategy is exactly the opposite from the cost
leadership option. With this plan, you are going to try to take over the market from
a quality and functionality standpoint, rather than simply trying to sell the least
expensive item on the shelf. When you think about differentiation, you should be
thinking about luxury brands. For instance, how does a luxury brand sell a purse
for $500 or more when plenty of companies sell purses for $20?

They convince the market that the quality and style that is offered by
their product is worth the higher price.

They have differentiated themselves from the lower cost options successfully,
and they succeed as a result.
Of course, it isn’t exactly easy to differentiate yourself from a quality or
functionality standpoint. Not only do you need to have a great product to offer, you
also need to have a strong marketing plan to inform buyers about your item.
When in doubt, consumers are going to default to the most affordable choice,
so you need to be able to educate them about your product and everything that it
can do. Without a great marketing plan and team, you will probably be left with a
high-priced item that is stuck on the shelves.

COST FOCUS
The strategy in this part of the model is the same as the cost leadership concept,
except you are going to be focused on one specic niche of the market. Rather
than trying to sell to everyone, you are only going to be trying to sell to a small
portion of the market that is focused on buying a affordable product.

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 While this strategy might not have the growth potential that you will nd when
dealing with the broader market, you will have the opportunity to become the
major player within the niche – therefore securing your place for years to come. If
you can get into a small niche with a product that is sold for less than any other,
you will stand a great chance to succeed.

DIFFERENTIATION FOCUS
As you might imagine, the differentiation focus strategy is similar to cost focus,
except you are going to work within a niche market while trying to stand out on a
quality basis.

You might not be the least expensive product available – in fact, you might be
the most expensive product available – but that isn’t the point. As long as you can
present consumers with something they are looking for, and you can justify your
higher price, you may be able to grab a large share of the niche market.
Porter’s Generic Strategies are a great way to think about the overall positioning
of your business. You certainly don’t want to wander blindly into the market, hoping
to get lucky and nd a spot for your company to thrive. Use this model early on in
the planning process to pick out a strategy and let that strategy lead you out into
the market.

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KEY POINTS
❍ The two basic types of competitive advantages combined with the scope of
activities for which a rm seeks to achieve them, lead to four generic strategies
for achieving above average performance in an industry: cost leadership,
differentiation, cost focus and differentiation focus.
❍ A company chooses to pursue one of two types of competitive advantage,
either via lower costs than its competition or by differentiating itself along
dimensions valued by customers to command a higher price.
❍ A company also chooses one of two types of scope, either focus (offering its
products to selected segments of the market) or industry-wide, offering its
product across many market segments.
❍ The generic strategy reects the choices made regarding both the type of
competitive advantage and the scope.

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MINTZBERG’S 5 P’S OF
STRATEGY MODEL
Strategy is an extremely complicated and dynamic process. A great strategy one
day could be useless the next, depending on market forces and changes that
are outside your control. Great businesses are always adapting, and that means
changing strategy frequently to meet with your needs.
While it is great to develop an initial, overall strategy for your business when
rst getting started, it is unlikely that your chosen strategy is going to last very long.
In reality, you will likely need to make many changes along the way if you are going
to nd your way toward success.

With the understanding that strategy needs to change regularly in business, it

is a good idea to turn to a model such as Mintzberg’s 5 P’s of Strategy for assistance.
This model, as the name would indicate, includes ve different approaches to
strategy (each beginning with the letter ‘p’, which makes them easier to remember).
In the content below, we are going to take a quick look at each of the 5 P’s.

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PLAN
This is probably where you will naturally start out when thinking about strategy.
You will think about producing a plan for your company, which is going to take you
from where you are now to where you would like to be in the future. For instance,
your strategic plan could include such basics as:
The products you are going to sell,
How you are going to produce those products, and How much they will
cost at market?
Basic business planning can be thought of as the foundation of a good strategy
– it is a great platform to start from, but it is not going to get you all the way to the
‘promise land.’

PLOY
In this part of strategy, your thinking is going to turn to your competition. There is
no way to ignore competition in business – it is always going to be there, and it is
always going to have a profound effect in what you can do.

You can use a specic ploy to disrupt whatever it is that your competition might
be doing to seek out a competitive advantage over you in the market (only in a legal
manner, of course). By trying to think one step ahead of the competition, you may
be able to take control of your market segment for years to come.
You have to be careful with strategic ploys, however, as they have the potential
to distract you from mastering your own business. It would be a mistake to focus
so much on your competition that you fail to produce quality products or services
that you can take to market. Use a strategy ploy or two as a part of good business,
but make sure the focus remains on your own operation at the same time.

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PATTERN
The pattern part of this strategic model is all about noticing what is going on in
your business currently so that you can leverage those patterns into future success.

In other words, you are going to gure out exactly what has been working for
you by looking to the past, and then you are going to think of ways to continue (or
even enhance) those patterns. Often, this kind of strategy isn’t so much intentional
as it is accidental. You might be surprised by a pattern that develops in the market,
but you can do your best to take advantage of that pattern once it has revealed
itself.

It would be a serious mistake to interrupt a current pattern that is

benetting your business simply because it was not part of an original
strategy or plan.

This is a great example of why it is important to remain exible and to always

be willing to alter your strategy going forward. If a protable pattern comes to
the forefront through the course of regular business, you would be crazy to ght
it – rather, you should identify it and then leverage it as much as possible going
forward.

POSITION
All businesses have to ght for a position in the marketplace.
How are you going to carve out a piece of the market for yourself? Are
you going to play in a big market against the big names?
Are you going to ght for the top spot in a niche market?
There are pros and cons to each approach, and this is just one potential debate
as far as positioning is concerned. You can also think about positioning in terms of
your method of sales, the quality of product you are going to offer, the price point
you are going to compete at, and more.
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 Rather than falling into the market accidentally, your positioning should be
very much intentional and strategic in nature, and it should be based on careful
market research and projections.

PERSPECTIVE
Every business comes at the market from their own unique perspective. For
example, you might run a business that is focused on making a classic product
that has been for sale for many years – meaning rather than innovation, your
perspective on business is one of quality, execution, and cost control. On the other
hand, if you are trying to bring new ideas to the market, you will have a perspective
and culture that is geared in that direction instead.

A big part of a successful strategy is identifying exactly what your perspective

on the market is going to be so you can gear all of your decisions to match that
concept. There are many benets to using Mintzberg’s 5 P’s of Strategy. Not only
can this model help you get a good handle on your strategy right up front, but it can
also force you to think through a variety of different angles that you may not have
considered otherwise. Once you understand how each of the 5 P’s inuences your
strategic business decisions, you can use them to help you steer the organization
toward a prosperous future.

KEY POINTS
Mintzberg suggests there are ve ways in which the term ‘strategy’ is used. These
are called his ‘5Ps for Strategy’. Strategy can mean any of the following:

❍ Strategy as Plan: The strategy is made in advance of its implementation

and is followed up by actual implementation and development.
❍ Strategy as Ploy: This is a specic maneuver intended to outperform a
competitor.
❍ Strategy as Pattern: Strategy can sometimes be explained in terms of a
pattern that emerged rather than something that was preplanned.

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 ❍ Strategy as Position: This is represented by nding a niche, providing
distinctive product, or by exploiting existing competencies to deter competitors.
❍ Strategy as Perspective: This refers organizational culture, as strategy can
be a result of the way a company views itself.

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THE EPG MODEL
It can be difcult for any organization to maintain its focus and direction, but that
is especially true of rms that do business on an international level.
When an organization grows to the point of having operations in more than
one country, it will always run the risk of going off in too many different directions
to be successful.
Instead of moving in directions that are not going to allow the business to
ultimately reach its desired destination, it is important that the organization
remains focused on its core values and culture in order to thrive.

It is against that backdrop that the EPG model comes into focus. This is an
important business model which can be used to help organizations who compete
on an international level to ensure that they are working toward the right goals
and objectives. If the ‘strategic prole’ of the company is out of line with what they
are trying to accomplish, trouble will likely be soon to follow. Fortunately, using this
model can be a quick and easy way to bring things back into line.

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The ‘EPG’ in the title of this model stands for the following –
❍ Ethnocentrism
❍ Polycentrism
❍ Geocentrism

Knowing where your organization lies under these three headers is important,
whether you happen to nd your company under just one or perhaps a combination
of two or three. In the content below, we will take a quick look at each of the three to
determine how they inuence the way a company can compete in global markets.

ETHNOCENTRISM

The idea behind ethnocentrism is the concept that the organization is going to
default to the thinking, traditions, and more of its home country. For instance,
if a company is based in the United Kingdom and has leadership from the U.K.,
that background is going to shape its decision-making. Even if there are plenty of
branch ofces in locations around the world, the company will default back to the
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ways of doing business in the U.K. because that is what they know best. There
are both positives and negatives to running an organization in an ethnocentric
manner. On the plus side, running the business this way can keep things simple.
As noted earlier, it is not easy to run a business that is operating around the globe,
as there will always be the potential to get off-track in terms of goals and the overall
direction of the business. By sticking with an ethnocentric approach, you should be
able to keep everyone moving in the same direction – even if they don’t necessarily
always agree with the decision making or strategy coming from the home ofce.
On the downside, it can be hard to properly grow the business in other nations
when making decisions based on how things are done at home. Since most
decisions are based on the line of thinking that applies to the home market, those
choices might not be entirely relevant in other places. Also, if local branches are
not trusted to make decisions in a manner that they see t, those employees may
look for other opportunities where they will be more valued as an asset to the
business.

POLYCENTRISM
In contrast to ethnocentrism, polycentrism defaults to the strategies, methods,
and techniques of the host country when it comes to decision making for the
organization.

Instead of looking back to the country of origin for the business when making
choices, an organization working with a polycentric approach will put more trust
in the people working in the various countries in which they operate. Rather than
taking a ‘one-size-ts-all’ approach to decision-making and management, there
will be more diversity in the company based on how each individual country should
be handled.
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 As is usually the case, there are positives and negatives to be seen with this
pattern. On the plus side, the local ofces around the world tend to be more
engaged and more satised with their work since they are valued and trusted.
Sales are often boosted as a result, since the company remains in touch with local
trends, cultures, and more.
On the downside, however, there is a concern regarding duplication, which
can cause costs to rise. Putting more emphasis on the local ofces will create a
situation in which those ofces are doing the same work that is being done in other
parts of the world – causing costs to rise unnecessarily.
Also, the experience and knowledge that is possessed by the home country
ofce may go to waste, since the emphasis will be placed on locals in branch ofces.

GEOCENTRISM
The nal element within this model is geocentrism, which is the approach taken
by organizations trying to use a ‘world view’ in order to run their business. In many
ways, this is an approach that falls somewhere between the rst two that we have
covered.

A geocentric organization will not default to either, the customs and traditions
of their home country or the host country. Rather, this kind of organization will
focus only on what they think is best for the needs of the organization and its
customers.
To the greatest extent possible, nationalities are largely ignored in this system,
with the company being run as a global enterprise rather than a large corporation,
which is deeply rooted in one specic nation.

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 Unication is the ultimate goal of a geocentric operation. The company does
not want to have divisions within its ranks based on nationality. Instead, they want
to operate as a cohesive unit, just as a company would that is operating in just one
country.
While there can be drawbacks to this plan in terms of travel costs and
educational investments, there are also benets in the form of a better global
outlook and an elevated level of goods and services.
The right way to approach running a business on an international scale is going
to depend on the business at hand, the people involved, and plans for the future.
Each of the three options included in this model can be successful in the right
circumstance, and each can fail in the wrong situation. For your own organization,
it will be important to think through these options before moving in the direction
that best ts your needs.

KEY POINTS
❍ The EPG model is a framework for a rm to better pinpoint its strategic
prole in terms of international business strategy.
❍ The model states that a multinational organization holds one of three
orientations at any point in time.
❍ Ethnocentric orientation is where the organization’s senior management
believes that nationals from the organization’s home country are more capable
to drive international activities forward than non-native employees.
❍ Polycentric orientation assumes that host country cultures are different
making a centralized approach unfeasible.
❍ In Geocentric orientation nationalities are largely ignored, with the company
being run as a global enterprise rather than a large corporation, which is
deeply rooted in one specic nation.
❍ The model suggests that most multinationals start out with an ethnocentric
view, then evolve to polycentrism and nally adopt geocentrism.
❍ The EPG Model provides insights in how far an organization has
internationalized.

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THE GREINER CURVE
If a business does not grow, it is destined to disappear in the end. All businesses
start work each day with the goal of growing toward a better, and more protable,
tomorrow.

However, there are tons of challenges that come along with growth, meaning
that each company has to be ready to adapt as they grow if they are really going to
thrive.
The idea behind the Greiner Curve is that there are inevitably going to be
challenges, or ‘crises’, that arise over time as an organization grows. These crises
are likely to pop up between periods of steady growth, and each one will need to be
handled properly if the growth is going to continue. It is possible to be stopped in
your tracks at any one of the points along the growth curve, so none of these steps
should be taken lightly.

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 This curve model includes six total phases, and we have offered up a bit of
information about each phase in the content below.

PHASE ONE – GROWTH THROUGH CREATIVITY

Most businesses start out with creativity, so that is a natural place to begin. The
founders of the business – whether it is just a single person, or a group of people
– had a vision for the company and they are starting to bring that company to life.
The staff of the business is usually small at this point in time, so decision-making is
easy and fairly obvious. When phase one begins to draw to a close, the organization
will nd itself facing a crisis of leadership.

Who is going to make decisions?

Is anyone currently onboard qualied to make important decisions
about the future of the business?
Locating proper leadership is frequently the rst major crisis that is faced by a
growing company.

PHASE TWO – GROWTH THROUGH DIRECTION

Now that good leadership has been established, the company can continue to grow
– and the work that is done will usually become more formal in nature.

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 Rather than the chaos that exists at an entrepreneurial level, companies that
reach this stage will begin to lay out some dened systems that can be followed in
order to sustain growth going forward.
However, the company is likely now to reach a point where one person, or
even a team of people, cannot make all of the decisions that need to be made. So,
naturally, those decisions will have to be delegated out to various department heads
and other managers. The people who actually have product or service knowledge
will need to be given more control over their individual units.

PHASE THREE – GROWTH THROUGH DELEGATION

Growth again is spurred on now that the company has more decision makers in
place, but there is also risk at this point as well. The leadership that had grown
accustomed to making all of the decisions for the business will now need to step
back a bit to allow the managers at lower levels to do their jobs.

This can be tough for some to do, however, the result can be conict and
confusion as to who is really in charge. With that in mind, the crisis that usually
pops up at this point is one of bringing everyone together in a cohesive unit. The
various divisions within the business that have been created need to be on the
same page, and so too does the top-level management need to get together with
those at lower levels.

PHASE FOUR – GROWTH THROUGH COORDINATION

AND MONITORING
Successfully moving through phase three and into phase four is a big step, as
companies who reach this point now have a lot of advantages working for them.
With a well-organized structure in place and plenty of decision makers empowered
to make choices that positively affect the company, further growth is often close
at hand.

However, this is the point where some businesses go ‘over the top’ in
terms of structure and rules.
When there is too much red tape involved in getting anything done, growth
can be slowed. In the worst case, the company may even lose its way in terms of

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what it does best and how it thrived originally. Navigating past phase four is going
to require some ‘clean-up’ of the structure that has developed in earlier stages.

PHASE FIVE – GROWTH THROUGH COLLABORATION

Many organizations will never reach this stage – but those who do should be in line
for serious nancial rewards. At this point the company is working together nicely
from one department and manager to the next, and there are plenty of incentives
to keep everyone happy.
Of course, this success stage cannot continue to grow forever, as there are
limits to all businesses when they only stick with what it is they do in house.
Therefore, the last crisis on the curve is nding a way to grow through creating
partnerships.

PHASE SIX – GROWTH THROUGH EXTRA-

ORGANIZATIONAL SOLUTIONS
Working with companies that offer complimentary products and services is likely
the only growth left for a business that has arrived at phase six. Finding ways
to work with other organizations so that the core of the original business is not
affected will be challenging, but potentially very rewarding. Partnerships can have
explosive potential, so the company will need to be prepared for the possibility of
rapid growth if a successful partnership is established.

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 Growth has always been, and will continue to be, a great thing for businesses.
However, it is also a dangerous thing, as should be clear by reviewing the six phases
above and the crises that can come along with them.
If you would like to grow your organization over time, it is clear that there are
several hurdles, which will need to be cleared as that growth continues. Using
this model is a great way to understand the challenges that wait ahead, so those
challenges can be anticipated and safely navigated without slowing the growth of
the organization.

KEY POINTS
❍ The idea behind the Greiner Curve is that there are inevitably going to be
challenges, or ‘crises’, that arise over time as an organization grows.
❍ Greiner suggested that businesses underwent six distinct phases as they grew,
each precipitating a crisis at which a revolution in thinking and approach was
required to progress to the next stage.
❍ Growth through creativity. During this phase business owners will
communicate with customers and react to their demands. This phase is
brought into crisis by the need for professional management.
❍ Growth through direction. During this phase the new leadership team will
start to steer the business while a new tier of management is put in to deal
with specic functions of the business. This phase ends with lower level
management requiring more autonomy and involvement in decision-making.
❍ Growth through delegation. This phase comes into crisis as the executive
feels like it is losing control over the lower tiers of management.
❍ Growth through co-ordination. The necessary bureaucracy that this phase
entails leads to resentment from both higher and lower tier management as
procedure sties creativity and autonomous problem solving.
❍ Growth through collaboration. There are limits to all businesses when they
only stick with what it is they do in house. This phase ends with a crisis
of identity as further growth becomes possible only through alliances with
external organizations.
❍ Growth through Extra-Organizational Solutions. Finding ways to work with
other organizations so that the core of the original business is not affected will
be challenging, but potentially very rewarding.
❍ Developing an understanding of why periods of growth can quickly precipitate
a crisis can give you an appreciation of why businesses sometimes fail even
when seeming outwardly to be successful.

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ADIZES’ CORPORATE
LIFECYCLE

As dened by Dr. Ichak Adizes, the lifecycle of a corporation can be broken down
into 10 unique stages. One of these stages – called Prime – is the ideal stage, and
the one that every company should be striving to land on for as long as possible.
Below we have listed each of the 10 stages of the lifecycle, along with a quick
denition of what is seen at that stage.

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COURTSHIP
Just as with a budding relationship, the courtship stage occurs when an individual
or a group of people begin to toss around the idea of starting a business.

Nothing has happened to this point, other than some ideas being
weighed.

Many would-be businesses never even make it out of this rst stage, as the
potential owners decide that the idea is not worth pursuing.

INFANCY
Once some form of risk is taken on, the company is actually formed and it moves
into the infancy stage. Today, this is commonly known as a ‘start-up’, where
business owners are doing everything and anything they can to get the company
off the ground.

Often, the basics of paperwork and organization are neglected at this point,
as the company is all about making products and closing sales. It is a challenge to
make it out of the infancy stage at all, so long hours and high-stress are common.

GO-GO
When a company gets out of the very early stages of infancy but it still keyed on
sales above all else, it is said to be in the Go-Go stage. Usually the founders of
the business will still be making all of the decisions at this point, which is both a
positive and a negative.
Mistakes are common during the Go-Go stage, as the company is starting to
feel overcondent and continues to do everything possible to bring in revenue.

ADOLESCENCE
This can be a period of difcult growth for a business, just as it can be for an
individual going through her teenage years. In the adolescent stage, companies
begin to take on the shape of mature businesses, but there are still some of the
issues of immaturity to deal with.
Conict is common among the team, especially between those who have been
there from the beginning and those who are newly hired to make decisions.

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PRIME
This is the ideal spot for a business to land, and companies who are successfully
occupying the prime stage are going to ght to hold onto it for as long as possible.

STABILITY
At this point, many companies start to lose track of a little bit of what made them
so successful earlier on. Instead of striving to do more and more, complacency
is common at this point in the lifecycle. The company is still making money, but
it may have lost track of the ambition it once had, instead looking for short-term
ways to bring in cash.

ARISTOCRACY
Companies begin to be stuck in their ways and may start to fall behind the times
when they nd themselves in the aristocracy stage. Things other than running a
successful business start to become more important, such as image, and they may
look to buy businesses rather than continuing to innovate on their own.

Red tape abounds in an aristocracy, and the company may soon nd itself on
the decline if nothing changes in their culture and decision-making process.

RECRIMINATION
With this stage, many companies decide that they want to nd someone on which to
place blame for a problem, rather than simply looking for a solution to that problem.

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 The culture within the organization is extremely unhealthy at this
point, with many disagreements and arguments taking place on a
daily basis.

The focus has completely shifted away from the good of the company, as
individuals ght to maintain their spot in what is most certainly a declining
organization.

BUREAUCRACY
It is possible that a company may die off before it even reaches this stage. However,
if the organization has survived to this point, the bureaucratic nature of their
operations will only continue to compound.

This is the kind of organization which has lengthy manuals in place for all of
its systems, and employees are too busy trying to follow all of the rules to actually
innovate or deliver value to the business in some way.
Innovation is a thing of the past, and it is very unlikely that the business will
survive much longer.

DEATH
Some businesses will die off in a hurry, while others will drift away slowly until
they are no longer sustainable. Either way, this is the natural and obvious end of
the corporate lifecycle.

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 If a company can no longer bring in the cash it needs to sustain operations, the
organization will become extinct in one manner or another. It is unlikely that the
business will be acquired at this point, because there likely isn’t anything of value
left to sell.
The obvious goal of any organization, when looking at this lifecycle, is to remain
in the healthy middle stages for as long as possible. It isn’t easy to balance growth
and innovation with stability and protability, but that is the challenge that awaits
any business owner or manager as their company moves through its life.
Landing in the Prime stage of this cycle is the goal at the start, and then
holding steady at that point remains the objective moving forward. It is never easy
to sustain success in any business, but understanding how the lifecycle works can
help you to watch out for risks and hazards to your organization as time goes by.

KEY POINTS
❍ Corporate lifecycles are not perfectly predictable, although they do have
certain characteristics that are shared from company to company and
undergo predictable and repetitive patterns of behavior as they develop.
❍ How well management leads a healthy transition from one stage to the next
has an impact on the success or failure of the organization.
❍ Changes in leadership and management are required because methods that
produce success in one stage can create failure in subsequent stages.
❍ It is never easy to sustain success, but understanding how the lifecycle works
can help you to watch out for risks and hazards to your organization as it
moves from one stage to the next.

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DEMING’S FIVE
DISEASES OF
MANAGEMENT
Good management is at the heart of successful business. It is the management
team that is going to make the decisions, which will either allow the company to
thrive, or cause it to struggle, in the weeks, months, and years ahead.

While there is more that goes into a company’s success than just good
management, it is key to have this ingredient in place at the top of the organization.
Good choices will lead to positive outcomes more often than not, meaning the
company can continue to grow and develop moving forward.
Of course, it isn’t exactly easy to achieve successful management within an
organization. Even experienced and talented managers can make poor decisions
or run into problems based on a number of factors.
In Deming’s Five Diseases of Management, some of the most common problems
are identied and assessed.

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 Each of the ve ‘diseases’ is listed below, along with a quick explanation of how
they are a threat to any organization.

LACK OF CONSTANCY OF PURPOSE

One of the common mistakes made by management is not clearly understanding
exactly what it is they are in business for in the rst place. Without a clear purpose
and goal for the future, short-term thinking tends to get in the way of long-term
planning.
Many organizations never make it to the long term because they have lacked
the vision to plan for what that future would hold. Every organization needs to
have a very clear understanding of what it is trying to do and how it is trying to do
it in order to succeed over time.

When management is guided by the vision that is in place, they can make wise
decisions, which will benet both in the short- and long-term sufciently.

EMPHASIS ON SHORT TERM PROFITS

This point ts nicely in with the previous point. When choices are made only
based on how to maximize short-term prots – perhaps with the goal of satisfying
shareholders – the long-term health of the company is compromised.

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 Doing things like improving the quality of products, or offering better service,
don’t always show up in the quarterly reports on prot and loss. Therefore, those
investments that would be likely to help the company in the long run, are frequently
neglected, and the books are made to look as good as they can look right now.
The temporary prots might be nice, but they are no way to build a powerful
and long-lasting organization. In the end, the emphasis on short-term prots is
sure to become a drag on the business, and the prots that were once realized will
likely be lost.

ANNUAL RATING OF PERFORMANCE

Annual ratings of the staff that works underneath the upper management tend to
have a devastating effect on an organization. For one thing, the employees within
the company come to fear these reviews, and that fear can negatively impact their
work throughout the year.

Instead of making decisions and taking actions that are best for the company,
employees are forced to look out for their own self-interests by doing things that
will review well when the time comes.
Perhaps the biggest negative affect of the annual rating system is the loss of
teamwork that is experienced. People are rarely encouraged to work together

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under this kind of system, for fear that someone else is going to get credit for the
work that they have done.
Motivation through fear of the annual review is a lousy way to get people to
work hard, and they will rarely work for the common good as a result. Again, this is
another management mistake that values short-term thinking over the long-term
benet of the organization. Short-term actions might look good on a review, but
they likely aren’t going to take the company to new heights moving forward.

MOBILITY OF MANAGEMENT
Consistency among the management team is something that is highly desirable,
but sadly, is frequently hard to nd. For companies that have trouble with
management, it is very likely that the management team has not been working
within the company for long.
Making smart decisions requires a deep understanding of the business that
cannot be gained through textbooks or case studies. The organizations who receive
the best results from their management team tend to be those who keep managers
around for as long as possible, and those who don’t reward those managers only for
short-term progress.

Again, this is another place where annual reviews and other similar systems can
create trouble. A poor review may cause an otherwise talented and experienced
manager to look for another job – meaning the company will lose all of their
knowledge when they walk out the door.

USE OF VISIBLE FIGURES ONLY

The last ‘disease’ on the list relates to basing the decisions within the company
only on measurable statistics. If it can’t be seen on a balance sheet, or in a stock
price, it is often ignored – and this is a mistake.
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 Avoiding the ve diseases listed above is not going to be easy, but it is important
for the health and success of the organization in the long term. An experienced
management team will understand the need to keep an eye on the long-term
future rather than simply the short-term results that show up on things like
quarterly reports.

With a combination of a steady management team and an eye for the future of
the business, it is possible to steer clear of these pitfalls on the way to a prosperous
outcome.

KEY POINTS
❍ In Deming’s Five Diseases of Management, some of the most common
problems are identied and assessed.
❍ Lack of Constancy of Purpose – One of the common mistakes made by
management is not clearly understanding exactly what it is they are in
business for in the rst place.
❍ Emphasis on Short Term Prots – When choices are made only based on
how to maximize short-term prots the long-term health of the company is
compromised.

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 ❍ Annual Rating of Performance – Instead of making decisions and taking
actions that are best for the company, employees are forced to look out for
their own self-interests by doing things that will review well when the time
comes.
❍ Mobility of Management – The organizations who receive the best results
from their management team tend to be those who keep managers around
for as long as possible, and those who don’t reward those managers only for
short-term progress.
❍ Use of Visible Figures Only – Some things that aren’t measurable, such as
positive customer service, can create long-term benets that might not be
seen in the here and now.
❍ An experienced management team will understand the need to keep an eye
on the long-term future rather than simply the short-term results that show
up on things like quarterly reports.

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THE PYRAMID OF
ORGANIZATIONAL
DEVELOPMENT
Developing an organization is no easy task. It is necessary to construct your
company in a way that facilitates growth and development.

Many companies start out with a poor structure that is unable to take them
where they want to go – and they never manage to develop that structure into
something that will work for a growing business. With the help of the Pyramid of
Organizational Development, you just may be able to avoid that fate.
There are six factors included within this pyramid model, each building on
the one below. Before we get into those six factors, we should touch briey on the
‘foundation’ which has been identied for the pyramid, which is the mission and
core strategy of the company.

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 Without starting from a point of a specic mission and set of goals, it will be
difcult to make decisions that further the organization moving forward. Once a
solid foundation is in place, the company can then begin to work on creating a
stable and long-lasting pyramid.
The content below will take a quick look at each of the six factors that are going
to come together to form this important pyramid model.

MARKET
Before an organization can really set about doing business, it has to identify the
existence of a market, which it can serve. In business, everything starts with a
market. There has to be a market of willing buyers that not only exists, but exists
in a large enough quantity to sustain the underlying business.
You can make a great product, or offer a great service, but it isn’t going to
matter if the market is insufcient. Before getting too far into its operation, all
businesses need to do careful market research or they will only be wasting time
and money.

PRODUCTS AND SERVICES

With that market located and dened, it will then be time to design and create the
products and/or services that are going to be sold to the market in question.
It is important that the process works in this order, and not the other way
around. If the products and services are developed fully before the market is
identied, those products may not match what the market is demanding.
While there will certainly be some ideas for products or services that exist right
from the start, it is important to wait to develop those ideas until market research
is complete.

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 Often, an organization will develop by rst offering just one or two products
to a market to test the waters. If success is experienced, that product or service
line may begin to quickly expand, now that the market has proven it is receptive
to what is being offered.
Of course, success with one or two products doesn’t guarantee success with
future ventures, so it is important that the organization continues to monitor the
market and offer only goods that are likely to be well received. Gains achieved in an
early period of success can quickly be lost if future ventures are not as lucrative.

RESOURCES MANAGEMENT
As an organization grows, it is going to develop a collection of resources that it has
at its disposal. One of the keys to continuing to succeed is using these resources in
a way that maximizes their benet in both the short- and long-term.
These resources can come in a variety of different forms, including nancial,
physical, and human. A good management team will understand how to best put
all of these resources to use in order to maximize the success of the organization.

OPERATIONAL SYSTEMS
Systems are important for any business, but they become especially important
as an organization grows. In a small organization, the same group of people may
handle most of the basic systems and functions.
However, as a company grows, that simply won’t be possible anymore. There
needs to be a dened set of processes in place in order to allow a company to
function properly on a day to day basis. These operational systems show up
throughout the company, from accounting and shipping to marketing, hiring, and
much more. When systems are well dened and monitored, they can keep the
business running smoothly from day to day without interruption.

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MANAGEMENT SYSTEMS
Every organization needs a strong management team. Management is something
that grows along with an organization, as bigger companies have more decisions that
need to be made than do smaller businesses. It is imperative that an organization
has a management team in place who is capable of making smart decisions in a
number of areas.
Specically, the four crucial areas of management systems are planning,
structure, management development, and performance management. If any of
these four areas are left behind, there could be trouble waiting down the road.

CORPORATE CULTURE
At the top of the pyramid is corporate culture, which is what the company is ‘all
about’.
What does the company believe in? What does it stand for?
What is it trying to achieve?

Obviously, all businesses want to make money, so this point is about more than
that. The actions of the people who work within the company are going to be
inuenced by the overall corporate culture as a whole, so this point is crucial and
it should be dened early on in the lifecycle of an organization.
No company can afford to skip over any of the levels of this pyramid while
building their operations. It is important to pay close attention to each level to
ensure that the organization has all of the systems and functions it needs to
continue operating smoothly day after day, year after year. It is not easy to build a
quality organization from the ground up, but the rewards can be immense when
one is successful in doing so.

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KEY POINTS
❍ The Pyramid of Organizational Development consists of six factors that
research has shown to be the key drivers of nancial performance and long-
term organizational success.
❍ Market: There has to be a market of willing buyers that not only exists, but
also exists in a large enough quantity to sustain the underlying business.
❍ Products and Services: These are appropriate to the organization’s chosen
market.
❍ Resource Management: This includes the acquisition and development
of people, equipment, facilities, and nancial resources required for current
and future operations.
❍ Operational Systems: These are necessary for the organization to function
on a day-to-day basis.
❍ Management Systems: These include strategic planning, organizational
structure, leadership development, and performance management systems.
❍ Corporate Culture: The organization’s values, beliefs, and norms that
inuence the behavior of people in the company.
❍ The Pyramid of Organizational Development can be used to identify an
organization’s strengths and opportunities to improve.

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STRUCTURING THE
PROCESS OF STRATEGY
FORMULATION

William Jennings Bryan once said, ‘‘Destiny is no matter of chance. It is a matter

of choice.’’ An organization’s ability to make effective choices and control its
destiny is dependent upon its ability to formulate effective strategies. But many
organizations struggle to overcome the barriers that have long stood in the way of
creating breakthrough strategies and solutions.
We have established that organizations often lack the structure, information
and the processing power that is required to formulate breakthrough strategies
and solutions. We have demonstrated that the inherent use of Solution-Based
Logic undermines the effective execution of most strategy formulation processes.
We have introduced an alternative high-level thinking strategy called Outcome-
Based Logic that transforms the way organizations approach the process of strategy
formulation. The discovery of Outcome-Based Logic was an important step in the
evolution of strategy formulation, but many other discoveries were required before
the use of this new thinking strategy could be made practical.
Once this high-level thinking strategy was discovered, we still needed to create
the structure, gather the information and harness the processing power that
would be required to effectively apply Outcome-Based Logic. More specically, we
recognized that we needed to:

1. Find or create a structure in which this logic could be organized.

2. Determine what types of information would be needed to apply this logic and
then determine how to capture that information.
3. Decide how that information should be processed within the structure to
effectively create, evaluate and optimize a strategy or solution.

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 We started by asking ourselves: Does a structure for strategy formulation exist?
How have others created breakthrough strategies? What steps have they taken?
Why do some succeed in creating successful strategies while others fail? We
recognized that it was important to rst dene a structure for strategy formulation
before we could focus on what information would be required and determine how
that information should be processed.
We will describe the efforts that were undertaken to uncover a structure
for strategy formulation—a structure that enables the effective execution of
Outcome-Based Logic. We will explain how those efforts resulted in the discovery
of a universal structure for strategy formulation. This universal structure is being
used today as part of our advanced strategy formulation process to enable the
formulation of breakthrough strategies and solutions.

A UNIVERSAL STRUCTURE
Strategist Gary Hamel stated in ‘‘Killer Strategies’’ (1997) that ‘‘the dirty little
secret of the strategy industry is that it doesn’t have any theory of strategy
creation.’’ The complexities associated with the process of strategy formulation are
generally thought to be overwhelming, and, as a result, many people believe the
process of strategy formulation cannot be structured or formalized. As we looked
for a structure, we too realized that a structure did not exist. So we set out to
create a structure that would support the effective application of Outcome-Based
Logic—a structure that would enable the formulation of breakthrough strategies
and solutions in every instance in which an organization sought to formulate a
company, product, service or operating strategy.
The rst step in this effort was to understand why certain organizations
managed to formulate breakthrough strategies while others failed altogether in
their attempts at strategy formulation. The objective was to model the behaviors
and actions that were taken by organizations capable of successfully formulating
breakthrough strategies and solutions. To accomplish this task, we applied pattern
detection techniques that are often used in physics, Neuro Linguistic Programming
or NLP and other behavioral sciences. Pattern detection is often used as a means
to uncover similarities that exist between seemingly unrelated activities. In the
eld of physics, for example, an idea known as topological quantum eld theory
allows physicists to nd connections between seemingly unrelated equations.
This pattern detection idea has earned Edward Witten, a renowned physicist, the
Fields Medal, the mathematical equivalent of the Nobel Prize. In the eld of NLP,
pattern detection has been used to discover the cognitive patterns that are used
by geniuses such as Albert Einstein, Wolfgang Amadeus Mozart and others. As
stated by Robert Dilts in his book titled Strategies of Genius: Volume II (1994),
‘‘this gives us a way to look past the behavioral content of what people do to the
more invisible forces behind those behaviors to the structures of thought that

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allow these geniuses to accomplish what they have accomplished.’’ It is recognized
across many disciplines that the detection of patterns often results in new insights,
ideas, theories, models and concepts.
We applied pattern detection techniques to the eld of strategy formulation
in an attempt to nd a pattern that offered insight into the formulation of
breakthrough strategies. Literally hundreds of situations were studied across
dozens of industries. After years of observation, we detected a pattern that proved
to be the impetus for the creation of a universal structure for strategy formulation.
Through ongoing testing, it was veried that this pattern existed in every situation
in which an organization successfully formulated a breakthrough strategy. This
pattern, in essence, denes the process of strategy formulation.
The discovery of this pattern has led to the creation of a universal structure
for strategy formulation. In turn, this structure has made it possible to dene the
essential elements of strategy formulation—the types of information that must be
available to formulate breakthrough strategies or solutions in any situation. This
pattern denes what organizations are attempting to accomplish when formulating
strategies and solutions. The pattern that was identied can be described as
follows:

In every situation in which an organization was successful at formu-

lating a breakthrough strategy or solution, it had searched through the
universe of possible solutions in an attempt to nd the one solution
that would best satisfy the largest number of important desired out-
comes, given the constraints that had been imposed on the solution and
the competitive position that was desired.

This pattern indicates that when an organization is contemplating any

strategy, plan or decision, it is attempting to achieve three major objectives. As the
organization searches through the thousands of potential solutions in the universe
of possible solutions, it is looking for the solution that will enable it to:

1. Satisfy the largest number of important desired outcomes. This ensures

that the solution creates the maximum amount of value for those involved
in or affected by the strategy, plan or decision. This, in turn, enables the
organization to achieve high levels of customer satisfaction and obtain a
reputation as a creator of value.
2. Honor any constraints that have been imposed on the solution. This ensures
that the chosen strategy or solution is practical and can be implemented.
Constraints result from a xed or limited set of resources. If a solution was
chosen that does not honor the constraints, its successful implementation
would be unlikely.

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 3. Achieve their desired competitive position. This ensures that the chosen
solution strengthens the organization’s strategic position. It ensures the
solution delivers more or different value than competing solutions and
enables the organization to achieve a distinctive and sustainable competitive
advantage.

The one solution from the universe of possible solutions that will best meet
all three objectives is called the optimal solution. Finding that solution is the
challenge that all organizations face as they attempt to formulate their business,
product, service and operating strategies.
Upon discovering this pattern, the elements were embodied into what we
call the Universal Strategy Formulation Model, or USFM. This model, shown in
describes the role that desired outcomes, constraints, the desired competitive
position and the universe of possible solutions play in the formulation of optimal
strategies and solutions. It illustrates how the optimal solution is the one solution
from the universe of possible solutions that will best satisfy the largest number of
important desired outcomes given the constraints imposed on the solution and the
competitive position that is desired.
Although organizations may not be aware of it, they are attempting to exercise
the USFM when they formulate a strategy or plan. This, of course, is assuming
that they want to formulate a breakthrough strategy. They may not know about
the model, or its elements, but when they are formulating a strategy, they are
attempting to nd the optimal solution. And the optimal solution can always be
dened as the one that will satisfy the largest number of important desired outcomes
given the imposed constraints and the competitive position that is desired. The
attempted execution of this model reects a universal pattern; a pattern that is
common to every situation in which an organization has successfully formulated
a breakthrough strategy.

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 Think back to the last several occasions in which you were involved in
formulating a strategy. What were you attempting to accomplish? What information
did you use? What steps did you take? Did you attempt to nd out what desired
outcomes were important to the affected internal and external customers? Did
you consider the company’s limitations or constraints? Did you spend time and
effort analyzing the competition, benchmarking and deciding what it would take to
make your organization more competitive? To gain a better understanding of the
model, take the time to mentally apply it to several situations in which a strategy
or plan was formulated in the past. Notice that regardless of the methods that may
have been used, the overall objective was always the same.
Organizations are attempting to execute this model when they dene their
overall company strategies and new product and service offerings. They are
attempting to execute this model when they evaluate which markets to enter,
which investments to make and which activities to pursue. The methods used to
attempt the discovery of the optimal solution may vary, but the overall objective
remains the same in every situation.
When formulating breakthrough strategies and solutions, organizations are
attempting to nd the one solution that will best satisfy the largest number of
important desired outcomes given the constraints imposed on the solution and the
competitive position that is desired.
The USFM describes a structure that addresses the complexity of strategy
formulation, planning and decision making without generalization, deletions or
oversimplication. The structure allows an organization to:

1. Determine what information is needed to create a breakthrough solution.

2. Organize information in a meaningful way so that its role and purpose is
understood.
3. Properly consider and process information brought forth by any individual.
4. Filter out information that is not required.
5. Organize the information into a format that is suitable for processing.
6. Use all pertinent information to reach a conclusion.
7. Agree on the criteria to be used to create and evaluate potential strategies
and solutions.
8. Reach consensus using facts as the basis for agreement.

Successful business leaders often have an inherent ability to exercise this

model: they often possess keen insight into the outcomes they are trying to achieve;
they know the constraints they face; and they have extensive knowledge of their

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competition. Steve Jobs and Steve Wozniak possessed great insight in these areas
when they created the rst Apple computers. Jan Carlzon possessed similar insights
when he transformed Scandinavian Airlines (SAS) into a world class airline.
Anita Roddick had a clear understanding of the elements in this model when she
founded The Body Shop. Nicolas Hayek successfully worked the elements in this
model when creating the Swatch. Applying pattern detection techniques to the
strategy formulation processes used by these and other successful businesses is
what led to the discovery of this model.
The USFM forms the foundation for a new approach to structured thinking.
Each element plays a critical role in the strategy formulation process and in the
creation of breakthrough solutions. The model is very powerful in that it applies
to every situation in which individuals and businesses contemplate strategies,
plans and decisions. It essentially denes the process of strategy formulation.
Its applicability cuts across the boundaries that often limit the use of a strategy
formulation process to a specic situation. It contains the essential elements of
strategy formulation. As stated by Kenichi Ohmae in his book titled The Mind of
the Strategist (1982), ‘‘In the construction of any business strategy, three main
players must be taken into account: the corporation itself, the customer and the
competition.’’ This model integrates these main players into a systematic process
for strategy formulation.
It has been established that in any situation in which a strategy is required,
the optimal strategy or solution must satisfy important desired outcomes, honor
constraints and enable an organization to achieve its desired competitive position.
This implies that before the optimal solution can be discovered, an organization
must have access to certain types of information. More specically they must
know:

1. Their customers’ and potential customers’ prioritized desired outcomes.

2. Any constraints imposed on the solution.
3. The competitive position that is desired.
4. The potential solutions that are available.

This information is critical to the success of any strategy formulation process.

They are what we call the essential elements of strategy formulation. What follows
is a description of each of these elements.

DESIRED OUTCOMES
Organizations have long recognized that it is important to understand their
customers’ requirements. When formulating strategies, many organizations
spend considerable effort attempting to nd out what their customers value

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only to conclude that customers do not know what they want and that customer
requirements change quickly over time. Desired outcomes are different from
requirements—or at least how most people think of requirements. A desired
outcome is a statement, made by an individual involved in or affected by a strategy
or plan, that describes an important benet they would like to receive from the
strategy or plan that is being contemplated. Desired outcomes are unique in
that they are free from solutions and specications and are free from vague or
ambiguous words. As we will demonstrate in the next chapter, desired outcomes
are also unique in that they are stable over time.
When executing the USFM, desired outcomes exist for each customer type
that is involved in, or affected by, the strategy or plan that is being contemplated.
Multiple customers typically exist. For example, the customers involved in
formulating a company strategy may include the users of the company’s products
or services, suppliers, distributors, employees and stakeholders. As a second
example, the customers involved in the development of a surgical system may
include surgeons, nurses and support staff, the hospital administrators, internal
company stakeholders and the manufacturer of the system. Whatever the situation,
each customer type has its own unique set of desired outcomes.
Desired outcomes often include cost, time, quality and other performance
or functional benets. For example, each of the statements below are examples
of desired outcomes on a surgical system—a system that enables surgeons to
effectively perform surgical procedures. They represent a subset of all the desired
outcomes on systems that are used to perform the process of surgery. Assume that
there are only three customer types in this situation—doctors, stakeholders and
the manufacturer—and that each customer type has only ve desired outcomes.
Of course, in a real world situation, there would be several more customer types,
and each customer type would have dozens of desired outcomes.
In this example, doctors who use a surgical system desire certain outcomes
from the system. They may want the system to:

1. Prevent the injury of healthy tissue.

2. Enable continuous, unobstructed vision of the eld.
3. Minimize the amount of patient bleeding.
4. Ensure the complete destruction of unwanted tissue.
5. Prevent the formation of undesirable scaring.

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 Hospital administrators, who often make the actual purchase decision, have a
different set of desired outcomes. They may want the surgical system to:

1. Require minimal effort to set up for different operations.

2. Experience minimal unexpected down time due to failure.
3. Reduce the frequency with which the device requires planned servicing.
4. Require a minimal amount of space.
5. Minimize the cost of upgrading to future levels of performance.

The manufacturer of the surgical system has yet another set of desired
outcomes. The manufacturer may want the system to:

1. Require minimal test time.

2. Employ manufacturing processes that can be statistically controlled.
3. Minimize the dependence on skill-intensive manufacturing processes.
4. Reduce the manufacturing space required for production.
5. Minimize sensitivity to variations in the manufacturing process.

In this simplied example, the three customer types form what is called the
customer set. Based on the experience of many consulting projects, we have
established that between two to six customer types are typically included in a
customer set when formulating a strategy or plan. It is common to obtain between
25 and 50 desired outcomes for each customer type, and, as a result, 50 to 300
desired outcomes can be expected in total.
Desired outcomes are one of the essential elements of strategy formulation.
Without them an organization cannot expect to formulate a breakthrough strategy
or solution. They must be captured and prioritized to understand what the various
customer types value in a specic situation. When formulating a strategy, dening
a plan or making a complex decision, the objective then becomes nding the
solution that will satisfy the largest number of important desired outcomes. The
concept of desired outcomes is described in detail in the next chapter. It will be
demonstrated that most organizations fail to capture their customers’ desired
outcomes when they set out to capture customer requirements. We will further
demonstrate that organizations rarely recognize that they have failed to capture
what their customers truly value. We have discovered that this is the root cause of
failure in most strategy formulation and planning processes today.

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CONSTRAINTS
Many organizations recognize that when formulating a strategy, it is not unusual
to have constraints imposed on the solution. Constraints are typically imposed
by individuals within the organization or by a third party. Constraints may be
imposed by managers, employees, suppliers, customers, regulatory agencies or
others. A constraint is a boundary condition that restricts or limits the number of
options that are available for consideration when formulating a strategy or solution.
A constraint restricts the number of solutions from which an organization may
choose. Organizations must honor the constraints that are imposed on a solution.
It is important to note that a constraint cannot be prioritized; it simply must be
met. Constraints are imposed for a variety of reasons. When applying pattern
detection techniques to the process of strategy formulation, we recognized that
constraints are often imposed as a result of:

1. Schedule, resource availability or nancial limitations.

2. Cost, material or contractual issues.
3. Legal obligations or regulatory issues.

We also found that constraints exist in almost every situation in which a

strategy is being contemplated. For example, when formulating a strategy to create
a new surgical system or some other new product or service, an organization may
impose constraints that denote that the solution must:

1. Be achievable by a certain date.

2. Meet a specic cost target.
3. Utilize a specic technology.
4. Be implemented using existing labor resources.
5. Honor patents that have been registered by competitors.
6. Limit development expenditures to a specied amount.
7. Meet a specic government regulation.

Each of these constraints will affect, shape and guide which solution is chosen.
As constraints are imposed, the number of potential solutions that the organization
is able to consider declines. Conversely, as constraints are removed, a wider range
of potential solutions becomes available. Picture the universe of possible solutions
contracting and expanding as constraints are added and deleted. The chosen
concept, strategy or solution must honor any and all constraints. Therefore, if a
proposed solution does not honor the stated constraints, it must be modied or
dropped from consideration.

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 It is not unusual to have between 5 and 30 constraints imposed on a solution,
but it is important to minimize the number of constraints that are imposed to
increase the number of potential solutions that are available. All breakthrough ideas
may be eliminated from consideration if a solution is over-constrained. In addition,
an unnecessary or poorly conceived constraint may prevent an organization from
achieving its growth and protability objectives.
For example, an organization may constrain a solution by stating that the
chosen company strategy must not require more than a $10 million capital
investment and must produce a 15% return on investment in two years. Based on
these constraints, if the organization came up with a strategy that could produce a
25% ROI in 18 months, but required an $11 million capital investment, it would be
rejected. This may result in the loss of opportunity. For this reason, each constraint
should be closely scrutinized. It is important to ask what would happen if a stated
constraint is not honored. If the result is not debilitating, devastating or nancially
incapacitating, then the perceived constraint may not be a real constraint after all.
It is also important to note that as constraints are imposed on a solution, they may
inhibit an organization’s ability to satisfy one or more desired outcomes and may also
make it difcult for an organization to achieve its desired competitive position. The
organization may be forced to decide if it is more important to honor a particular
constraint, satisfy a particular customer desired outcome or achieve the desired
competitive position. This is a critical and expected part of strategy formulation.
After all, as Michael Porter states in his article ‘‘What Is Strategy?’’ (1996), ‘‘strategy
is making trade-offs in competing.’’ Constraints are one of the essential elements
of strategy formulation. To effectively formulate a strategy, they must be dened
and documented by those involved in the strategy formulation process. Once a
constraint is imposed, it must be honored. Therefore, it is important to ensure that
each constraint is necessary and justiable.
Ask yourself, when formulating a strategy, does your organization identify the
constraints that must be honored? When are constraints dened? Are they dened
before the rst solution is evaluated or after the solution is selected? Although
the concept of constraints is rather simple, it is amazing how often constraints
are uncovered after a strategy or solution has already been selected, sometimes
well after implementation has begun. This often forces an organization to make
changes to the strategy and, if it is too late to make changes, it may simply degrade
the amount of value that can be delivered by the chosen solution. Uncovering
constraints before the strategy is chosen is consistent with the effective application
of the USFM and Outcome-Based Logic. It is an essential step in the formulation
of breakthrough strategies.

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THE DESIRED COMPETITIVE POSITION
Organizations want to choose and implement strategies and solutions that will
continually move them or keep them at the forefront of the competition. When
formulating strategies, the solution that is chosen is usually worth developing or
implementing only if it places the organization in a favorable strategic position. Why
would an organization intentionally and knowingly pursue a strategy or solution if
a competitor was following a comparable or better strategy, and the strategy did not
enable the achievement of a distinctive and sustainable competitive advantage?
Clearly, it would not.
So, how does an organization determine the competitive position it wants
to achieve? The determination must be made as an integral part of the strategy
formulation process, and it must not be treated as an afterthought. To achieve
a desired competitive position, an organization must rst dene the desired
competitive position it wants to achieve. A well-dened competitive position will
be both unique and valued. It will be unique in that it will enable the organization
to satisfy select customer desired outcomes better than any other competing
solution. It will be valued in that it will ensure the chosen solution satises desired
outcomes that are important to the customer. The competitive position that is
desired should also strengthen the organization’s strategic position, enable it to
deliver more or different value than its competitors and enable it to achieve a
distinctive and sustainable competitive advantage.
When dening the desired competitive position, it is better to focus on
achieving perfection over the long term than it is to focus on making incremental
improvements over the short-term. This often requires an organization to think
differently about the concept of competitive analysis. Simply stated:

In order to effectively dene the competitive position that is desired, an

organization must decide to what degree it wishes to satisfy the cus-
tomers’ valued desired outcomes.

This degree of satisfaction may be established relative to competing solutions

or relative to perfection. Once the organization decides on the degree to which it
wants to satisfy the customers’ desired outcomes, it must pursue the creation of
the strategies and solutions that will enable the level of satisfaction to be achieved.
Only certain solutions will enable it to achieve its desired competitive position, and
very few, if any solutions will enable the achievement of perfection.
Expanding on the surgical system example, let’s assume that we only want to
consider the hospital administrator’s desired outcomes and that the ve desired
outcomes obtained from the administrators are their most important desired
outcomes as quantied through statistically valid research. In reality, of course,

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all customer types and many other desired outcomes would be considered. In this
simplied illustration, the ve most important desired outcomes are listed below.
To dene the desired competitive position, an organization must set the target
values that dene the level of satisfaction that they would like the chosen solution
to deliver. The organization can set these target values relative to its competitor
or relative to perfection. In the example the organization is stating that it wants
the chosen solution to satisfy the desired outcomes to the degree indicated by the
target values found in the column on the right.

The values in the column on the right dene the desired competitive position.
If a strategy or solution is created that will enable these target values to be attained,
then the organization will achieve its desired competitive position. The values
stated should, at a minimum, place the organization in front of its competitors for
the most highly valued outcomes. The idea then is to search out, create, innovate
and discover the solutions that will make it possible for the organization to achieve
this desired level of satisfaction. This is the essence of a unique approach to
competitive positioning. Once an organization knows what denes the creation of
value in a given situation—or in other words, which desired outcomes are most
important—it can decide the degree to which to satisfy the outcomes based on its
knowledge of the competition, its capabilities and its ability to achieve perfection.
This approach to competitive positioning leads to the consistent creation of
breakthrough strategies and solutions.

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 It is important to emphasize that the desired competitive position is something
that is planned. When using Outcome-Based Logic, the desired competitive
position is dened prior to the creation of the solution. It shapes, leads and guides
the creation of the strategy or solution. The desired competitive position, once
dened, dictates which desired outcomes the solution must satisfy and the degree
to which they must be satised. It determines the level of satisfaction that the
solution must deliver relative to competing solutions. The target values that are set
establish the amount of value that the chosen solution must deliver.
The ability to dene the desired competitive position is dependent on
knowing the desired outcomes of the customers in the customer set. Without
this knowledge, it is unlikely that a unique and valued position will be dened.
Like desired outcomes, the achievement of the desired competitive position is also
inhibited by constraints imposed on the solution. It may be necessary to remove or
rene a constraint to achieve the competitive position that is desired.

THE UNIVERSE OF POSSIBLE SOLUTIONS

When formulating a plan or strategy or making a complex decision, hundreds,
thousands or even millions of potential solutions often exist. As demonstrated
earlier, it is not uncommon to have as many as 40 million possible solutions from
which to choose when formulating a company strategy. A large but nite number
of potential solutions exist in every situation.
Solutions are the mechanism or means by which desired outcomes can be
achieved or satised. A fundamental characteristic of a solution is that it must
dene how desired outcomes, constraints and the desired competitive position
will be achieved. The solutions that are considered when formulating strategies
and plans are often comprised of a combination of features, and those features
can often be combined in various ways to form other solutions. These potential
solutions form the universe of possible solutions.
The universe of possible solutions often contains millions of potential
combinations of solutions that exist for a given situation at a specic point in time.
The universe of possible solutions expands over time as new ideas and innovations
are made practical and as new technologies become available. The advent of
microprocessors, for example, expanded the number of potential solutions that
were available to organizations that manufacture products for communications,
data processing, scientic research and other markets. Technologies such as
electronic books, DVD, digital imaging, neural networks, fuzzy logic, at panel
displays, anti-noise capability and others are expanding the universe of possible
solutions for many other product and service industries. New ideas about

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management, organization, product development, manufacturing, marketing,
positioning, competitive analysis and employee development are expanding the
number of possible solutions an organization must consider when formulating a
company strategy.
Organizations typically live in a Solution-Based world, so it is rarely difcult
for them to dene or uncover a variety of potential solutions. The difculty often
lies in sorting through all the potential solutions to determine which will deliver
the most value in a given situation. It isn’t always the solution that includes the
latest and greatest technology that works best, it is often the solution that uses
technology wisely that accelerates the creation of value.

THE OPTIMAL SOLUTION

The optimal solution is the solution, from the universe of possible solutions, that:
satises the largest number of important desired outcomes; honors the constraints
that have been imposed on the solution; and enables the achievement of the
desired competitive position. The optimal solution is the result of a well-executed
strategy formulation process.
When contemplating a strategy, plan or decision, the principle objective is
to create or discover the optimal solution. The optimal solution will deliver the
greatest value to all those involved in, or affected by, the strategy or plan that is
being contemplated.

IMPOSING A MATHEMATICAL FRAMEWORK

We have dened the essential elements of strategy formulation as customer
desired outcomes, constraints, competitive positioning data and the solutions
that make up the universe of possible solutions. To simplify the understanding
and execution of the USFM—especially among engineers, scientists and others
with a background in mathematics—we often describe the essential elements of
strategy formulation as constants and variables in a mathematical equation. This
explanation implies the use of an imposed mathematical structure. This structure
is only imposed to assist in the understanding and the execution of this advanced
strategy formulation process.
Given that we impose this articial structure, the elements of the equation
must comply with the principles of mathematical problem solving—they must be
dened and treated as either constants or variables. So, when formulating a strategy
using the structure dened within the USFM, we treat the desired outcomes,
constraints and competitive positioning data as constants in the equation. Each
constant is assumed to be stable at the point in time at which the equation is
being solved. The constants dene the criteria that describe the optimal solution.

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 We treat the solutions in the universe of possible solutions as variables in the
equation. The solutions are numerous and ever-changing. The objective,
when solving this equation, is to determine which solution, from the universe of
possible solutions, will enable the equation to close given the constants that
have been dened in the equation. As you might guess, this requires some
serious processing power.
When formulating a strategy, dening a plan or making a complex decision,
an organization is attempting to solve what can only be described as a very
complex equation. The organization is searching through the universe of possible
solutions in an attempt to nd the one solution that will satisfy the largest
number of important desired outcomes given the internal and external
constraints imposed on the solution and the competitive position that is desired.
It is searching through the millions of variables—solutions—to nd the one that
will close the equation given the constants—outcomes, constraints and
competitive position—that have been dened as important in a given situation.
The essential elements of strategy formulation, and the role they play as
constants and variables in an imposed mathematical equation, are shown in the
gure below.
This equation is far more complex than a simultaneous equation found in
most algebra classes. When contemplating a strategy, plan or decision, it is not
unusual to consider between 50 and 300 constants and often as many as 40 million
variables. Again, the constants include the desired outcomes, constraints and the
values dening the desired competitive position. The variables include a large
but nite number of possible solutions. To solve the equation, the information
entered into the equation must be processed simultaneously.
When looking at this model from a mathematical perspective, once
the constants in the equation have been established, the variables in the
equation can be tested until the combination of variables that best t the
stated criteria is uncovered. In this case, that combination of variables
represents the optimal solution. This analogy often helps in understanding how
the USFM is used as a structure for strategy formulation. The desired
outcomes, constraints and desired competitive position are treated as constants
for the point in time at which the equation is being solved. They are xed;
frozen at a point in time. The potential solutions that are, or will be, available at
that point in time are then systematically tested within that framework until the
solution that best solves the equation is discovered. That solution will be the
optimal solution.

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 Based on research that we have conducted while executing dozens of consulting
projects, we have concluded that between 8,000 and 40,000 decisions are typically
required when attempting to uncover the optimal solution. Keep in mind that the
human mind can effectively process only ve to nine pieces of information at one
time. Imagine attempting to solve such a complex equation in your head!
Ask yourself, how does your organization structure and process the information
that is required to formulate an effective strategy? To what degree does it
incorporate the essential elements of strategy formulation? What percent of the
desired outcomes, constraints, possible solutions and positioning data are available
when strategies, plans and decisions are typically contemplated? What percent of
this information is used? How is it structured? What information is missing? What
percent of the time is the optimal solution uncovered?
It should be mentioned again that although organizations may not always be
aware of it, they are attempting to exercise the elements in the USFM when they
contemplate strategies, plans and decisions. This model embodies a universal
pattern, a pattern that describes how organizations are attempting to nd the
solution that will satisfy the largest number of important desired outcomes given
the constraints imposed on the solution and the competitive position that is desired.
You may be wondering, to what degree would the quality of my strategies
and solutions improve if I used the structure dened within the USFM when
formulating strategies and solutions? To answer that question, we conducted
studies with organizations that have used both a traditional strategy formulation
method and our advanced strategy formulation process. These studies were
conducted with mostly Fortune 100 companies.

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 Quantitative methods integral to our process were used to evaluate hundreds
of concepts proposed by dozens of organizations. We tested concepts derived from
traditional methods that were proposed or implemented prior to the execution
of our process. We also tested concepts that resulted from the execution of our
process. The results of that research indicate that the best strategies and solutions
resulting from the execution of traditional methods typically satised only between
5% and 15% of the targeted customer desired outcomes better than they were
satised by the existing solution. It was also found that in some cases, the strategies
chosen for implementation did not even satisfy the desired outcomes as well as the
strategies and solutions that were already in place.
In contrast, when using our strategy formulation process, the same organizations
often chose solutions that satised as many as 80% of the targeted desired outcomes
better than the existing solution. On average, this process produced strategies and
solutions that satised between 50% and 60% of the targeted desired outcomes
better than existing solutions. This is a ten-fold improvement over what most
organizations experienced when using their traditional methods. As a result, the
uncovered solutions are often thought to be breakthrough solutions.

A VISUAL INTERPRETATION OF THE MODEL

For those of you who are more visual, we like to describe the execution of the USFM
using a series of lters that lter out all other solutions until only the optimal
solution remains. Using this analogy, assume that we start with the universe of
possible solutions. As we search through all the solutions, we lter out or eliminate
the solutions that do not satisfy the customers’ desired outcomes. This, of course,
dramatically decreases the number of possible solutions that remain. We then
lter out the solutions that do not honor the stated constraints, eliminating many
of the remaining solutions. Lastly, we lter out the solutions that do not enable the
organization to achieve its desired competitive position. This often results in just a
handful of remaining solutions. They are the only solutions that will t through all
the lters. From there, it is quite simple to select the optimal solution.

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 Notice how the universe of possible solutions is reduced to the optimal solution
through this ltering process. This analogy often brings additional insight into how
the USFM is executed to produce a breakthrough strategy.

SUMMARY
We have discovered a universal structure for strategy formulation; a structure
that any organization can use to effectively formulate a breakthrough strategy or
solution in every situation. This structure resulted from years of research in which
we applied pattern detection and modeling techniques that are often limited
to physics, behavioral sciences and other non-business related disciplines. The
application of these techniques led to the discovery of a pattern that was observed
in every situation in which a breakthrough strategy was created.
This pattern dened how organizations were able to successfully formulate
breakthrough strategies and solutions. The pattern that was identied is described
as follows:
In every situation in which an organization was successful at formulating a
breakthrough strategy or solution, it had searched through the universe of possible
solutions in an attempt to nd the one solution that would best satisfy the largest
number of important desired outcomes, given the constraints that had been
imposed on the solution and the competitive position that was desired.
The discovery of this pattern led to the creation of a universal structure for
strategy formulation called the USFM. This model describes a structure that

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addresses the complexity of strategy formulation, planning and decision making
without generalization, deletions or oversimplication. The structure allows an
organization to:

1. Determine what information is needed to create a breakthrough solution.

2. Organize information in a meaningful way, so that its role and purpose is
understood.
3. Properly consider and process information brought forth by any individual.
4. Filter out information that is not required.
5. Organize the information into a format that is suitable for processing.
6. Use all pertinent information to reach a conclusion.
7. Agree on the criteria to be used to create and evaluate potential strategies
and solutions.
8. Reach consensus using facts as the basis for agreement.

This structure also made it possible to dene the essential elements of strategy
formulation — desired outcomes, constraints, competitive positioning data and
the universe of possible solutions. Each of these elements must be considered
when formulating a breakthrough strategy or solution.
We imposed a mathematical framework on the USFM to explain how the
model is executed. This mathematical analogy gives order to the elements in the
equation as they are treated as either constants or variables. When using this
mathematical framework, the overall objective becomes nding the solution —
the variable — that will best solve the equation given the constants — desired
outcomes, constraints and competitive information — that have been dened in
the equation.
The USFM brings structure to the world of strategy formulation. The discovery
of this structure provides a framework from which an organization can successfully
formulate breakthrough strategies and solutions using Outcome-Based Logic. This
structure also denes the essential elements of strategy formulation.
Once this discovery was made, we knew that we had to create and master
the methods that would enable us to collect the information that is essential to
the formulation of breakthrough strategies — desired outcomes, constraints and
competitive data. We set out to create and master these methods. These efforts, as
you will see, led to several other very important discoveries.

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USING BUSINESS STRATEGY
TOOLS

INTRODUCTION
This chapter briefs for you ve essential business strategy tools that are used
by organizations to align their activities, resources, relationships and processes
to ensure their future strategy is protable. These tools will help your decision-
making and involvement in the business strategy process. These tools are detailed
separately in the next few chapters.

1. MOST Analysis: The MOST Analysis is used to keep the alignment of day-
to-day activities and the organization’s long-term vision on track. By reviewing
each of its components – Mission, Objectives, Strategy and Tactics – from
the top down gaining more detail as it progresses activities can be allocated
so that they support the long-term goals. The MOST Analysis tool allows
management a better understanding of how to ensure daily activities drive
the organization towards its desired goal.
2. Resource Audit: Every organization wants to maximize their opportunities
and conducting a resources audit allows management to make effective
choices when allocating its resources. It will be unique to your organization
and requires up-to-date gures on all the resources at its disposal. As an aid
to decision making it is invaluable and well worth investing the time needed
to perform a resource audit.
3. The McKinsey 7-S Model: The McKinsey 7-S Model is a tool designed
specically to aid organizations in how they align its different aspects and
identify areas of potential improvement. As the model name suggests it
consists of seven areas. These are split into what it refers to as hard elements
- strategy, structure and systems – and soft elements - shared values, skills,
style, and staff.

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 The purpose of this investigation is to assess how well each of these seven
elements work with the others. When they all work in harmony, performance
is able to meet stakeholder expectations.

4. The Four View Model:This model uses different viewpoints to give

management insight into how well an organization is performing both now
and in the future. By considering business operations from several views
management open up their minds to other possibilities and opportunities.
The four views of this model are the Logical, Process, Development and
Physical View.
5. Balanced Business Scorecard: This method of making sure activities are
aligned to organizational goals is one of the most popular tools. The Balanced
Business Scorecard enables you to gain a top-level view of everything that
occurs within the organization. Its ndings allow management to make
decisions that improve operations and performance. It has four sections -
Financial, Customer, Internal Processes, and Learning and Growth. Each
must be allocated sufcient time and attention to ensure it is fully understood
and utilized.

CONTRIBUTING TO ORGANIZATIONAL SUCCESS

The most successful organizations are continually reviewing their strategic and
operational processes to ensure they stay top of their eld. This includes deciding
how its resources are used to produce their end products or services.
Each of the tools discussed in this eBook serve to provide the data and
information managers require as part of the business strategy decision-making
process.
Many of these decisions will be discussed in terms of their merit in aiding
the organization to achieve its long-term strategic goals. Business strategy can be
described as:

‘Strategy is the direction and scope of an organization over the long

term, which achieves advantage in a changing environment through
its conguration of resources and competencies’ Johnson et al. (2008).

Management plays a key role in providing the background information and

impact potential alterations in both operations and strategy. As a manager it is
essential that you understand the best way to assess how effective each business
process is in terms of its use of resources.
Working relationships both internal and external play a signicant role in how
such resources are allocated and used. They may also have implications on the

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actual business process because of how their own procedures impact your own
processes. For example,
A manager of a user department is unable to sign of the purchase of
an essential resource because it exceeds his or her approved limit. The
purchase requires their boss’s signature.
Without the purchase of this item the product is delayed and potential
sales lost as a result.
By raising the managers purchase limit for this item this delay can be
removed.

Typical scenarios where you could be asked to provide information and data for
your organization’s strategic decision making include:

❍ Analyzing the organization’s external environment.

❍ Assessing the organization’s internal capabilities and how well it can respond
to external forces.
❍ Assisting with the denition of the organization’s strategy.
❍ Aiding in the implementation of the organization’s strategy.

Being aware of the best tools, techniques and models enables you to take an
active and productive role when providing such information. We will learn about
these tools in a greater detail in the next few chapters.

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KEY POINTS
❍ Understanding how the resources, processes and relationships t into the
effective operation of an organization is essential.
❍ Knowledge of the most effective technique to use to provide the data to support
strategic and operational decision-making is vital for managers.
❍ These tools and methodologies can be used by any sized organization.

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MOST ANALYSIS

Often, the biggest difference between a company that is successful and one that
falls short is the quality of the business plan they start out with right from the
beginning. A good business plan can go a long way toward success down the road.

However, once the business is up and running, it is easy to lose track of that
plan or purpose for the business. There is so much to do on a daily basis that it is
easy to forget about the plan and get lost in the details of the daily routine. This
is a dangerous mistake for any business or organization to make. When the daily
activities that take up most of your time are no longer aligned with the vision that
you have for the future of the business, you are going to have a hard time reaching
your goals. Staying on track requires a close connection between long-term goals
and short-term activities.
This is where the MOST Analysis tool comes in handy. The idea behind MOST
is that it will help you to organize your activities in support of each other so they
are all heading in the same direction. Without this kind of cohesion between your
activities, the future can suddenly look bleak.
MOST Analysis is made up for four elements –
❍ M – Mission
❍ O – Objectives
❍ S – Strategy
❍ T – Tactics
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 The tool is meant to work from the top down, with each successful point
becoming a little more specic as it goes. Let’s take a quick look at each of the four
elements of the MOST Analysis tool to better understand how they can drive your
organization forward.

MISSION
Basically, this is the main purpose of the business plan that we discussed above.
It should be the top-level, overall reason for being in business in terms of what
you want to accomplish. The more specic that you can be when dening your
mission, the more success you will have later on trying to dene the remaining
points within the tool. For example,

Imagine that you own a dry cleaning business. You could state that
your mission is to be the best possible dry cleaning business that you
can be and impress each customer that comes through the door.
That might sound good, but what does it mean?

Those kinds of goals won’t really give you any direction to go on. Instead,
something like being the top dry cleaning business within your city is far more
attainable and tangible. If you are bringing in the most business and getting the
best reviews in your city for dry cleaning companies, you will know you have
reached your goal. Then, you can frame the rest of your thinking around trying to
make this happen.

OBJECTIVES
Your objectives are one step down from your mission. Think of these are a collection
of individual goals that will add up to reaching your overall mission. Just like with
the mission, objectives should be specic enough to guide your decision making
and planning for the future. With your mission in place, it should be relatively easy

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to develop a list of a few objectives. To continue the previous example, you need
to highlight objectives that will outline how you can become the best dry cleaner
in the city. Some possibilities might be to grow sales by 5% each month, attract
‘x’ number of customers to switch from your competition, or receive a certain
number of reviews online.

Your objectives should be measurable so you can evaluate the methods you
used to try and reach them and determine whether you have succeeded or not.

STRATEGY
These are the things you are going to do in order to reach your objectives. What
actions should be taken in order to accomplish your objectives, and in turn, your
mission? Keeping up with the example we have been using, the following are a few
sample strategies that could be used –

Run a promotion to entice new customers to switch from your competi-

tion, such as offering to beat any rate by 10%.
Invest in new advertising channels such as paid online advertisements
or local radio.
Offer benets to customers who take the time to leave a review about
your business.
The strategies that will work for your business are going to vary wildly depending
on your market and target demographic. However, the idea is the same for any
organization – build a list of strategies that further your pursuit of the objectives
you have already highlighted. This is not a time to be vague. Your strategies should
be specic and actionable.

TACTICS
The nal element of the MOST tool is ‘tactics. These are what you will use and do to
enact your strategies. Your tactics should be the specic details that will guide your

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daily activities. So, if you are going to run radio ads as mentioned in the previous
example, some tactics would include writing a script, hiring a voice over artist,
contacting radio stations, etc. Using your tactics to dictate your daily activities is the
best way to make sure what you are doing today will guide you in the right direction
toward your overall mission.
There is a cohesion between each step along the MOST Analysis that is
important and should be considered carefully. One step builds on the next, and
that consistency is what makes this a valuable tool. Many organizations get lost
somewhere between the mission and the tactics, so do a careful review of your
processes to make sure that you don’t fall into that trap. As long as you are able to
outline a logical progression for your business from one step to the next, the end
result should keep you pointing in the right direction.

KEY POINTS
❍ MOST Analysis is a simple framework tool for analyzing or planning the detail
of what an organization does.
❍ It helps you frame questions, starting from the high-level mission of the
organization and digging right down to the detail of individual tactics.
❍ MOST stands for: Mission, Objectives, Strategy and Tactics.
❍ The mission of an organization should be the answer to the question ‘What do you
do?’
❍ Objectives start with the translation of the mission into overall intent that
drives the strategy process.
❍ Strategy includes the high-level decisions that shape what is done and how.
❍ Tactical planning takes strategic decisions and gures out how to implement
them in practice.

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RESOURCE AUDIT

Understanding what you have available to you as a business owner or manager is

a crucial part of the overall puzzle of running a business successfully. If you don’t
know what resources you have at your disposal, you have no way of making good
decisions that maximize your opportunities while minimizing your risks.

A resource audit is the process of going through everything that your business
or organization has available to it. These resources can take on many forms, and
are not limited to just obvious items like cash and inventory.
The resource audit for your organization is likely to be unique to you because
it will take into consideration specic needs that your industry has for things like
experience and knowledge in a particular eld. While it might take some time and
effort to perform a proper resource audit on your organization, the information
that this process will reveal to you can be invaluable.
Let’s take a look at some of the categories of resources that could relate to your
business. Some of the following will be obvious to you, but some of these items you
might not have thought about as obvious resources up until this point.

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PHYSICAL RESOURCES
This is probably the rst thing you think about when considering the resources that
you have on hand. These are things like equipment, inventory, and even buildings
that allow you to do what it is you do. Most likely, you are already making the most
of these resources since they are the ones that get the most time and attention.
However, it is always worth taking a fresh look at your physical resources to see
if you could be getting more value from them than you currently are.

Is some of the space in your buildings going unused, or being wasted

on an unnecessary purpose?
Are your machines being used to their fullest capacity as frequently as
possible?

When you take the time to review everything that you do and how you use
what you have, you might be surprised to notice inefciencies where you didn’t
think any existed.

FINANCIAL RESOURCES
Unless your organization is hopelessly disorganized, you certainly already know
what kind of nancial resources you have available to you. Accurate nancial
records are one of the essentials for any organization, so this is an area that you
hopefully have under control already.
As with your physical resources, a review of nancial resources is something
that should be happening on an ongoing basis. You should always be nding ways
to be more efcient with your money, so that the organization squeezes every last
cent out of each dollar. In the competitive business environment that exists today,
no company can afford to just give away money due to poor decision-making or
laziness among management.
If you aren’t going to be smart with your nancial resources, you can assume
that your competitors will be.

HUMAN RESOURCES
This is where it starts to get interesting from a management perspective, and
where you can start to make real improvements in your organization. Each person
that works within your company has a specic set of skills and experiences that is
unique to them.
If you want to get the best possible performance from your business as a whole,
it starts by getting the most out of each individual person that you have available

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to you. Wages make up a huge part of any organizations budget, so make sure you
get getting the best possible return from the investment you have made in these
people.

One of the most commonly made mistakes in terms of using human resources
is putting people ‘into a box’ in terms of what they can do. Just because someone
has been hired into your organization for a specic purpose doesn’t mean that
they don’t have more to offer. Instead of trying to keep all of your employees or
team members stuck in the same role that they are currently lling, encourage
exploration and collaboration so you can uncover skills that you didn’t know existed
within the work force.
In doing this, you might nd that you don’t need to hire as many new people
when new projects come up – because the skills and experience are already found
within your team. Give your employees the benet of the doubt and provide them
with opportunities to impress you by going outside of their usual routine.

THE INTANGIBLES
What else does your organization have going for it beyond what you can see within
the building? Intangible resources can include things like a great reputation within
the community, many years in business, or a presence in a niche market that lacks
signicant competition.
Take a look at the advantages that you have from an intangible perspective and
think about ways you can make those advantages work for you. For example, if your
organization has been in business for a long time, you should leverage that point
in advertising and marketing efforts to make sure potential customers understand
how trustworthy you really are. It takes time to build up many of the intangibles in
business, so don’t waste them once you have successfully put them in place.

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 When you think about it, business is all about resources. Taking what you have
available to you, and making it work in a way that gets you closer to your goals, is
really the name of the game. The companies and organizations that play this game
the best – and get the most possible production from their resources – are usually
the ones that are going to come out on top.
Don’t take anything that you have for granted. Instead, look at each of your
resources closely and try to devise new ways to gain more and more benet
from them over time. An ongoing approach to improving resource utilization is
something that any successful business will embrace and make a top priority.

KEY POINTS
❍ The resource audit identies the resources available to a business.
❍ Some of these may be owned (e.g. plant and machinery, trademarks, retail
outlets) whereas others can be obtained through partnerships, joint ventures
or suppliers.
❍ Financial resources include the organization's nancial assets including the
ability to raise nance via credit.
❍ Physical resources include buildings and equipment, which may be either
owned or leased.
❍ Human resources include both permanent and temporary staff.
❍ Reputation is a reection of how the organization is perceived in the
marketplace.
❍ Know-how is the intellectual property that enables the organization to
function.

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THE MCKINSEY 7-S MODEL

An organization can quickly and easily become a hard cluster to control. Even
within small companies the scope of everything that needs to get done, and all the
people who need to be managed, can overwhelm the most organized of managers.

The McKinsey 7-S Model is a tool designed to help business owners and
managers understand how aligned their organization is, and where it can
be improved. There are seven elements which make up this model – strategy,
structure, systems, shared values, skills, style, and staff. Each of these elements is
vital to your success, yet each need its own time and attention to function properly.
Only when these separate parts of your organization are able to come together can
you be condent that you are on the right path. To help you better understand this
model, it is divided into two categories – hard elements, and soft elements. Three
of the factors are categorized on the hard elements side, with four on the soft
elements side. Let’s take a look at each of these separately to better understand
how the McKinsey 7-S Model can inuence your organization.

THE HARD ELEMENTS

The three factors that are considered as ‘hard’ elements under this model are
strategy, structure, and systems. For most managers, these are going to be the

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elements that are easier to understand and quantify. In fact, these are probably
the areas that you are currently spending most of your time, even if you don’t think
about them as such.

These are the classic elements of business operations and your work on a daily
basis very likely relates to one or more of these areas.

❍ Strategy: This is a high-level perspective on the business and how you plan
to rise above your competitors over time. Most likely, you will be able to draw
most of your strategy from the business plan that should have been drafted
when you were rst getting started. In some cases, your strategy could be
dened by the sub-section of the business in which you work. For example,
if you are the accounting manager within a larger organization, your strategy
may relate to how you can best provide the accurate data that is required by
those above you – as opposed to having it relate the business operations as a
whole.
❍ Structure: The structure element is another one that you probably have a
handle on already. Structure is often visualized in the form of an organizational
chart or other document that outlines who reports to whom. This structure
could deal in terms of the whole organization, or simply a department within
the company, such as the accounting department from our previous example.
❍ Systems: How the job gets done. This is the work that is taking place on a
regular basis to keep the business operating and moving forward. Most likely,
systems is where you spend the vast majority of your time as a manager.
Making sure all of your employees are working on the right projects, and
getting them done in time, is the life of a leader within any business. Without
systems that function properly, none of the rest of the model will get you
anywhere.

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 It should be pretty easy to get a handle on these hard elements of the model.
However, just by thinking of them in this way and making sure each is aligned to
the other, your management style could be improved or rened.

THE SOFT ELEMENTS

These elements are somewhat harder to dene, and denitely more difcult to
quantify. They are no less important, however, and the good leader will give them
just as much time and attention as the previous group.

❍ Shared Values: Think of this point as the overall culture of the company,
and the purpose behind everything that is done. The shared values of an
organization should stretch to all employees, to create a feeling of cohesiveness
and camaraderie.
❍ Style: How are you going to lead your team? The style of leadership that
you use should fall in line with both the culture of the organization, and the
needs of your team. There are many different leadership styles employed
by managers depending on the situation, so you will need to craft your own
approach to the job as you see best t based on the circumstances around
you.
❍ Staff: Understanding the strengths and weaknesses of your team is a classic
leadership responsibility – but you also need to know how to then get the most
from them while also developing their skills along the way. A good leader will
constantly be improving their team so they are stronger tomorrow than they
were today.
❍ Skills: In many ways, this point goes along with staff in terms of knowing
what you can get done in-house with the skills you have available to you.
You never want to ask someone on your team to do something they aren’t
capable of; so having a strong understanding of the skills within your staff is
something that you should prioritize.

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 Within these seven elements is essentially everything that a good manager
need to pay attention to on a regular basis. You probably already have a good feel
for many of these points, but some of them may be new to you – or you may have
let them slide recently.
Organizational alignment is an important quality within any business, and
following the McKinsey 7-S Model is a good way to get started working toward that
goal. Take the time to review the model carefully and then apply it to the existing
condition of your company.

KEY POINTS
❍ The McKinsey 7-S Model is a tool designed to help business owners and
managers understand how aligned their organization is, and where it can be
approved.
❍ The model is most often used as an organizational analysis tool to assess and
monitor changes in the internal situation of an organization.
❍ It is based on the theory that for an organization to perform well, these seven
elements need to be aligned and mutually reinforcing.
❍ The model can be used to help identify what needs to be realigned to improve
performance, or to maintain performance during other types of change.

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 THE FOUR-VIEW MODEL

THE FOUR-VIEW MODEL

There is an old expression that says there are two sides to every story. Additionally,
there is more than one way to look at every story – different viewpoints to be taken.
This is the idea behind the Four-View model – that there are many ways to look at
something, each with a different perspective and insight than the other.
It is a mistake to look at something from only one view, as you are bound to
miss aspects of it that you would have seen from other angles. If you are a manager
or leader within your business, you owe it to yourself and to your team to take as
many views as possible throughout the course of a project.

As the name gives away, there are four views that are covered in this model
for you to consider. While the model is often used as a guideline for computer
programmers and others in the IT world, it has applications in management and
leadership as well. The four views are as follows –

❍ Logical View
❍ Process View
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 ❍ Development View
❍ Physical View
By understanding each of these views and how they play together, you can
improve your own performance as a leader and get the most out of your team.
Let’s take a closer look at each of these four views.

LOGICAL VIEW
Taking a logical view of any system within your business is to step back and see it
from a higher perspective than you normally take. The logical view can be highly
benecial to a manager who spends most of their time right in the middle of the
action and rarely steps back to see how the overall picture is coming together. It
is very easy to become so absorbed within the daily activities of your business that
you never really think logically about what is going on. It is also helpful, to the
extent that it is possible, to put away your technical knowledge within the eld and
try to look at the situation from a layman’s perspective.

What would you think about the operations of the business if you had
no training whatsoever?
How would you feel about the way the organization is being run?

Technical knowledge is usually required for success, but it can also be a serious
roadblock along the way. Try removing yourself from what you know and just think
about the situation logically as if it were a eld you knew nothing about. This can be
a powerful perspective to take, and could lead you to making some serious changes.

PROCESS VIEW
This is basically the other side of the coin from the logical view. With the process
view, you want to get in ‘deep’ to the day-to-day operations and think critically about
how they work and if they work. What could be changed to improve performance,
or is the system already running optimally?
Process view has a lot to do with how employees work together, and what those
interactions say about the organization as a whole. Depending on how you choose
to manage your employees, this view could be the most revealing of them all.

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 THE FOUR-VIEW MODEL

It is important not to take shortcuts when trying to get a clear picture of the
organization through the process view. You really need to understand every last
detail and how all of the various inputs connect with one another.
Knowing the daily operation of the business as closely as possible is a great
advantage when it comes to decision making because you will be better able to
predict problems and challenges that could arise from changes that are made.

DEVELOPMENT VIEW
Business is all about developing new ideas and making sure that you don’t become
stuck in a rut doing the same old thing. Taking a developmental view of your
business is helpful in order to generate new ideas and maybe shed light on old
ideas that never quite made it to market.
The development of your business or organization is not going to happen on
its own – you are going to need to make it happen through critical thinking and
constant analysis. Also, it likely won’t be good enough to have only one or two people
taking a developmental view. Rather, everyone within the organization should be
tasked with thinking this way, and they should have the freedom to express new
ideas and point toward opportunities.

Getting the most from your employees’ means empowering them to think for
themselves and offer up new ideas and directions that could potentially power the
organization into the future.

PHYSICAL VIEW
It might be best to think of this view as a ‘state of the union’ analysis. You will want
to look at the organization as a whole, as it is right now. Not in relation to future
goals or opportunities that may come along – but what it is at this point in time.
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 This realistic view of the organization should give you a reality check in terms
of what your strengths and weaknesses really are, and what you can do to improve
on them or take advantage of them. Many businesses choose to not see the bad
things for fear of what they might nd. If you want to win over your competition,
you have to be willing to look at things that might not be so pretty in order to
correct them.
While the Four-View Model is more commonly referenced when it comes to
software development and engineering, the principles certainly apply nicely to the
operation of any organization. It is always healthy to take a fresh perspective and
see what you can nd out about your company when you look at it from as many
different angles as possible.
Work your way through the four views on this list to make sure that you are not
missing threats or opportunities that might be right under your nose. Make sure
that you and the rest of your team are using this model to drive the way you think
about business.

KEY POINTS
❍ The four-view model has its origins in software engineering, but it can also be
used outside of that discipline.
❍ The logical view is where the overall structure of the application is conveyed.
Another way to characterize the logical view is to think of it as the interfaces
to the environment in the most general of contexts.
❍ The process view is used to paint a picture describing the underlying processes
and tasks, which are occurring within the system, as well as the channels
of communication between them. The interrelationships amongst processes
should be visible as well as the synchronization mechanisms.
❍ The development view provides perspective on the software’s organization.
The components of the system as well as their inter-dependencies are
outlined within this view.
❍ The physical view is used to describe the hardware and software setup that
is required by the system. In this view we gain an appreciation of how the
hardware and software components are combined to form the deployed
product.

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THE BALANCED BUSINESS
SCORECARD

The Balanced Business Scorecard, or the Balanced Scorecard, is a management

tool used by many organizations in order to align their activities with their goals.
There are a number of tools and models that seek to achieve the same result, but
the Balanced Scorecard is one of the most popular and most successful.
By using this tool, you can gain a top-level view of everything that is going on
within an organization so decisions can be made in terms of improving weaknesses
and tightening up performance.

This scorecard diagram is divided up into four sections, each of which requires
its own time and attention to understand and utilize. The four sections are Financial,
Customer, Internal Processes, and Learning and Growth. Obviously, those areas
cover a range of different departments and employees within any business, so you
can quickly see how this scorecard is able to relate to any organization and help it
be better aligned for the long run. Let’s take a moment to look a little closer at each
of these four sections of the scorecard.

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FINANCIAL
What kind of nancial situation is the organization in currently?
What opportunities exist for better use for the nancial resources avail-
able?
What risks are present in terms of nances?

These are just some of the questions that can be asked in order to ll in this
portion of the scorecard. Obviously, the nancial condition of an organization is
one of the most-important elements to review at any time. Without a solid nancial
base, the long-term goals of the company – whatever they may be – are unlikely to
be reached.
Once the nancial situation has been reviewed and considered, decisions
can be made to make sure that nancial management is in line with the overall
target of the organization. Ideally, the choices that are made with nances are
going to work directly toward helping the company as a whole hit its goals. If that
isn’t happening, the scorecard should be able to highlight the problem areas so
improvements can be made.

CUSTOMER
Business is all about customers. If you don’t have customers, you don’t have a
business – plain and simple. This section of the scorecard encourages you to take a
look at the business from the perspective of the customer and analyze what could
be done better, and what is working well.

Are your customers impressed with your products and your services?
Is there any part of your business where a customer would be better off
choosing one of your competitors?

There are a number of statistics and metrics that can be used to evaluate the
relationship that you have with your customers. Things like the percentage of
sales which are made up of new products, and how many customers make up the
majority of your sales, are good ways to analyze the state of the business and make
any adjustments that might be necessary going forward. Without a healthy and
growing customer base to serve, all of your other efforts can go wasted in time. The
business that learns to value their customer relationships is usually the one who
will succeed in the long run.

INTERNAL PROCESSES
The actual day-to-day operations of your business, or your department within a
business, need to be as effective and efcient as possible to compete. You can’t

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afford to be wasting resources along the way and still expect to win out over your
competition. If you aren’t doing it as well as it can be done, someone else surely will.

There are a number of ways in which you can use your internal processes to
gain an advantage over your competition. Those include –

❍ Producing for less: If you can make the same product as your competition,
but make it for less, you have an obvious advantage. This will allow you to sell
your product for less, meaning it is easier to win the market share from your
competitor, and still make the same prot margin. Controlling, and reducing,
unit cost over time is a valuable skill.
❍ Producing faster: Whether you want to make sure your product is the rst
to the market, or just be able to ll orders as quickly as they come in, the
speed of your production is another important facet of operations as a whole.
Through using this scorecard to study your processes, you may discover that
time is being wasted at one point or another along the way.
❍ Setting the market: Within your industry, if you are able to bring a new
product to the market that offers a better solution to the problems of your
customers, you are sure to grow your business. Setting the market is always
difcult, but it is something that every organization strives to achieve.
It is easy to let your internal processes just continue to run as they have
because you are so busy managing them from day to day. Stepping back, however,
and reviewing what you do is vital to the growth of the company.

LEARNING AND GROWTH

Speaking of growth, this last section of the scorecard relates to just that – nding
new ways to improve, expand, and add value for customers. Also included in
learning and growth is the development of the employees within your organization.
When you give them power and opportunity beyond just their normal daily
routine, you open up possibilities that may not have existed before. A culture of
growth within an organization is one that helps people with ideas express them to
those who can put them into action.

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 Using the Balanced Business Scorecard is a decision that countless
organizations have used over the years to review how they are functioning, and
where they could improve. Taking time to analyze each of the four sections of the
scorecard honestly and objectively could reveal things about your business that
you did not know were true.
Every organization has goals, but it is working toward those goals on a daily
basis that gets tricky – using the Balanced Business Scorecard can help you work
through the details and stay on track.

KEY POINTS
❍ The Balanced Scorecard (BSC) is a semi-standard structured report that
can be used by managers to keep track of the execution of activities by the
staff within their control and to monitor the consequences arising from these
actions.
❍ It focuses on the strategic agenda of the organization, the selection of a small
number of data items to monitor and a mix of nancial and non-nancial
data items.
❍ Using the Balanced Business Scorecard is a decision that countless
organizations have used over the years to review how they are functioning,
and where they could improve.

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LEVELS OF BUSINESS
STRATEGY

INTRODUCTION
One useful idea is to look at strategy as a guide to the direction and scope
of an organization over the long term, which achieves advantage in a
changing environment through its conguration of resources and compe-
tences.

Formal strategy formulation requires information, and management of an

organization plays a key role in providing it. As a manager it is essential that you
understand the best way to assess how effective each business process is in terms
of its use of resources. That is exactly where knowing the levels of strategy comes
in extremely handy if you wish to create a fabric that works in an integrated fashion
across the organization.
Successful strategies consist of three levels, which combined put your organization
on the path to better-informed thoughts and action steps.
The three strategy levels are Corporate, Business and Functional. Together they
ensure that your daily operations and your long-term goals are addressed.

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 Only when all three of these levels are carefully considered will your business be
able to get on the right path toward a prosperous future.

CORPORATE STRATEGY
The rst level of strategy in the business world is corporate strategy, which sits at
the ‘top of the heap’. Before you dive deeper into more specic strategy, you need to
outline a general strategy that is going to oversee everything else that you do. At the
most basic level, corporate strategy will outline exactly what businesses you are going
to engage in, and how you plan to enter and win in those markets.

It is easy to overlook this planning stage when getting started with a new business,
but you will pay the price in the long run for skipping this step. It is crucially important
that you have an overall corporate strategy in place, as that strategy is going to direct
all of the smaller decisions that you make.
For some companies, outlining a corporate strategy will be a quick and easy process.
For example, smaller businesses who are only going to enter one or two specic markets
with their products or services are going to have an easy time identifying what it is that
makes up the overall corporate strategy.

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 If you are running an organization that bakes and sells cookies, for in-
stance, you already know exactly what the corporate strategy is going to
look like – you are going to sell as many cookies as possible.

However, for a larger business, things quickly become more complicated. Carrying
that example forward to a larger company, imagine you run an organization that is
going to sell cookies but is also going to sell equipment that is used while making
cookies.
Entering into the kitchen equipment market is a completely different challenge
from selling the cookies themselves, so the complexity of your corporate strategy will
need to rapidly increase.
Before you get any farther into the strategic planning of your business, be sure you
have your corporate strategy clearly dened.

BUSINESS STRATEGY
It is best to think of this level of strategy as a ‘step down’ from the corporate strategy
level. In other words, the strategies that you outline at this level are slightly more
specic and they usually relate to the smaller businesses within the larger organization.
Carrying over our previous example, you would be outlining separate strategies for
selling cookies and selling cookie-making equipment at this level.

You may be going after convenience stores and grocery stores to sell your
cookies
While you may be looking at department stores and the Internet to sell
your equipment.

Those are dramatically different strategies, so they will be broken out at this level.
Even in smaller businesses, it is a good idea to pay attention to the business strategy
level so you can decide on how you are going to handle each various part of your
operation. The strategy that you highlighted at the corporate level should be broad in
scope, so now is the time to boil it down into smaller parts, which will enable you to
take action.
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FUNCTIONAL STRATEGY
This is the day-to-day strategy that is going to keep your organization moving in the
right direction. Just as some businesses fail to plan from a top-level perspective, other
businesses fail to plan at this bottom-level. This level of strategy is perhaps the most
important of all, as without a daily plan you are going to be stuck in neutral while your
competition continues to drive forward.

As you work on putting together your functional strategies, remember to keep in

mind your higher-level goals so that everything is coordinated and working toward
the same end. It is at this bottom-level of strategy where you should start to think
about the various departments within your business and how they will work together
to reach goals.

Your marketing, nance, operations, IT and other departments will all

have responsibilities to handle, and it is your job as an owner or manager
to oversee them all to ensure satisfactory results in the end.

Again, the success or failure of the entire organization will likely rest on the ability
of your business to hit on its functional strategy goals regularly. As the saying goes, a
journey of a million miles starts with a single step – take small steps in strategy on a
daily basis and your overall corporate strategy will quickly become successful.
Good strategy alone isn’t going to automatically lead you to success in business, but
it certainly is a good place to start. Once you have sound strategies in place, the focus
of the organization will shift toward executing those strategies properly day after day.
Of course, your strategies will need to be continually monitored and adjusted as
you move forward to ensure you are staying on a path that is consistent with the goals
of the business, so always keep the three levels of strategy near the front of your mind
as your guide your company.

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KEY POINTS
❍ All organizations have competition, and it is strategy that allows one business to
rise above the others to become successful.
❍ There are three levels of strategy that are typically used by organizations. Corporate
level strategy covers actions dealing with the objective of the organization,
including acquisitions and the coordination of strategies of individual business
units for optimal performance.
❍ Business level strategies detail actions taken to provide value to customers
and gain a competitive advantage by exploiting core competencies in specic,
individual product or service markets.
❍ Functional strategy involves providing objectives for specic functions, allocation
of resources among different operations within that functional area and
coordination between them.
❍ Strategic decisions tend to be value-oriented, conceptual and less concrete than
decisions at the business or functional level. It is concerned mainly with growth
and renewal rather than in market execution.

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BOWMAN’S STRATEGY
CLOCK

Many business owners and managers fall into the trap of thinking that they can
just roll out a great product or service and instantly have a successful business.

While it helps to have something great to sell, you also need an overall strategy
for your business to ensure that you are able to execute all parts of the operation
efciently. If you fail to create a good strategy, there is a chance that your business
will fall short despite your best efforts.

One tool that you can use to nd your place in the market is Bowman’s Strategy
Clock. This is a method of strategy thinking that breaks down your potential
strategy options into eight segments.
Most businesses should be able to nd the right strategy for their operation
within one of these eight options. All eight are listed below, along with a short
description.

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LOW PRICE - LOW VALUE
This is the ‘cheap’ end of the market. Goods do not cost very much in this segment
of the market, and they aren’t of a very high quality, either. Most likely, you aren’t
going to select this part of the strategy clock as your ideal starting point for a
business.
Instead, you might nd that you have to try to compete at this level because
you don’t have another option. If the product or products that you are selling don’t
stand out from the rest of the market in any way, this is where you will be forced
to ght for sales.

LOW PRICE
When a company wants to sell a high volume of a product for a low margin, this is
the area of the market where they choose to compete.

Low cost leaders are often some of the biggest names in a particular market.
This is because it requires tremendous volume to turn a prot when selling
your goods for a very low price. Smaller and medium sized businesses are unable
to take this approach because the volumes they achieve simply will not sustain the
business over the long term without a high retail price.

HYBRID
It isn’t necessarily easy to slot yourself into the ‘hybrid’ segment of the market, but
it can be a good place to land if you are able to do so successfully. When a company
takes a hybrid approach, it means that:

They are competing both on the quality of their products as well as the price.

If you can manage to build a reputation for selling quality goods while also
being among the low-cost leaders in the segment, you will have a chance to grow
customer loyalty and gain market share.

DIFFERENTIATION
This part of the market is all about standing out from the crowd despite selling
something that plenty of other businesses have to offer.

The key to being differentiated in your market is branding.

You have to make an impression with your target audience, to the point that they
will choose your product over other options even if you are selling at a higher price.

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FOCUSED DIFFERENTIATION
The luxury brands that exist throughout many markets are said to use a focused
differentiation strategy. The high price that these items sell for comes along with a
higher perceived value in the minds of the consumers.
Margins are extremely high in this part of the market, but volume tends to
be rather low. If you attempt to position your business in this market segment,
you are going to need a strong marketing team to give your brand the image and
recognition that it needs to move product at such a high price point.

INCREASED PRICE – STANDARD PRODUCT

Most businesses will nd this to be perhaps the most difcult position on the wheel
to occupy. With this strategy, you are simply going to raise prices without changing
anything about the quality of your product. Obviously risky, you could nd a payoff
in the form of larger prot margins – or you could nd your sales numbers quickly
slipping while you rush to lower prices once again.

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 This might be effective as a short-term strategy if your company is enjoying
positive feedback from customers currently, but raising prices is a sure way to force
the market to look elsewhere in the long term.

HIGH PRICE – LOW VALUE

This strategy is really only an option for those who have a monopoly in their market.
If you have entered a market niche that is light on competition, you may be able to
charge high prices while offering a relatively low quality product. Of course, in the
long run, other competitors are sure to enter the market at a lower price and you
will be forced to adjust. Monopolies are very rare in today’s global economy, and
when they do arise, they never last for long before the competition arrives.

LOW VALUE – STANDARD PRICE

The nal strategy on the wheel is a losing one. If you are going to provide the
market with a poor quality product, yet you are going to try to sell it for the same
price at higher quality products, you are going to lose in the end. Many businesses
have tried to ‘cheat’ this law of business by sneaking into the market with a poor
product, but they never last long and they almost always lose money in the process.

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 Using Bowman’s Strategy Clock is a great way to get an idea of how various
businesses are competing in the market, and where you can t into that market to
carve out revenue for yourself. One good technique to use with the assistance of
this tool is to look at your competition and try to place each business appropriately
on the clock.
Once you decide how it is that your competitors are trying to succeed in the
market, you can look for opportunities and make your move.

KEY POINTS
❍ Bowman’s Strategy Clock is used to analyze the competitive position of a
company’s offerings in comparison to those of its competitors.
❍ There are 8 possible options, three of which (6, 7 and 8) are uncompetitive
because the price is greater than the perceived value.
1) Low Price and Low Value Added: The product is not differentiated and the
customer perceives very little value, despite a low price.
2) Low Price: Businesses positioning themselves here look to be the low-cost
leaders in a market. Margins on each product are low, but the high volume
of output can still generate high overall prots.
3) Hybrid: This involves an element of low price and some product differentiation.
It can be a very effective strategy if the added value is offered consistently.
4) Differentiation: This requires high quality product with strong brand
awareness and loyalty.
5) Focused Differentiation: This is the strategy adopted by luxury brands, which
aim to achieve premium prices by highly targeted segmentation, promotion
and distribution.
6) Increased Price-Standard Product: This is a very short-term strategy as the
opportunity to sell for a high price without justication seldom lasts long.
7) High Price-Low Value: This is only sustainable where the organization has a
monopoly.
8) Low Value-Standard Price: Setting a standard price for a product with low
perceived value is likely to lead to an ongoing loss of market share.
❍ As with Porter’s Generic Strategies, Bowman’s Strategy Clock considers
competitive advantage in relation to cost advantage or differentiation
advantage.

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SIMONSON AND ROSEN’S
INFLUENCE MIX

The world has changed thanks to technology, and specically, the Internet. These
changes have inuenced consumers buying decisions. in more ways than most of us
can often imagine.

There is more information available now than ever before, meaning buyers have
plenty of resources at their ngertips to consult before they make a purchase. As a
business owner or manager trying to sell a product or service, that can be both a good
and bad thing. While you have plenty of opportunities to present your target market
with information, you have to make sure they are seeing the right information at
the right time. In Simonson and Rosen’s Inuence Mix, you can look at a variety
of important elements that frequently come together in a buying decision. Different
markets will feature a different blend of the various factors, and it is up to you to decide
which ones are going to play the biggest role in your specic market. The content below
is going to look at each of the three main factors involved in the inuence mix.

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PRIOR PREFERENCES, BELIEFS, AND
EXPERIENCES
This is where the decision-making process for most purchases can be found. The
things that you buy on a regular basis – think groceries, gas, household supplies,
etc. – are going to live in this part of the mix. You don’t need to do extensive market
research when you are going to buy a beverage, for instance, because you already
know what kind of beverages you like. It won’t be necessary to access online reviews
or check social media to contemplate your purchase – you simply pick up the brand
that you know you like, and you get on with your day.

Price obviously plays an important role in this equation as well. The things that
you buy on a regular basis tend to be low-cost items, so you aren’t as worried about
taking the time to do research. If you purchase a beverage for a dollar or two and
you don’t end up liking that drink, you simply won’t buy it again. There isn’t a big loss
experienced by spending a small amount of money on this purchase, even if you are
disappointed in the product you receive.
Thinking about this from the perspective of your business, you will likely nd
your own products in this part of the mix if you sell low-cost, commonly purchased
items. From a positive perspective, living in this part of the mix means you may not
have to do as much work to convince buyers to try your products. Since you will be
offering an item that isn’t very expensive, buyers may be more willing to give you
a try. On the other hand, buyers in this area usually have established preferences
already in place, so they may pick up the products they are familiar with before they
even consider your offering.

INFORMATION FROM MARKETERS

Products that are affected by this part of the Simonson and Rosen Inuence Mix
are those that can be sold through a great marketing campaign. These usually aren’t
the cheapest products on the shelves, but rarely are they the most expensive either.
Most likely, the products you nd that are being sold effectively by great marketing
campaigns are those which are somewhat more expensive than a product already

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being purchased. For example, if you produce a high-end product in a market that
has plenty of low-cost options, you may be able to gain market share through effective
marketing.

It is usually the job of the marketing department to infer a reputation of quality

onto a product that is being taken to market. If you are going to hit the shelves with
an item that will be higher priced than the products of your competitors, you have to
do a great job of promoting your item as being superior in some way. What is it that
makes yours the best around? By conveying that message to your audience, you just
might be able to draw their eyes to your product – even at a higher price.
The information that you deliver to your audience can be presented in a number
of ways, from content on the packaging to advertising that you run in print or on
TV. The method that is used to deliver the message will depend on the product in
question, the prot margin available for a sale, and the target market that you are
attempting to reach.

INPUT FROM OTHER PEOPLE

In days gone by, the input you received from other people prior to making a purchase
would have involved ‘word of mouth’ from friends, family members, co-workers, etc.
Of course, that has all changed in the 21st century. Today, it is frequently social media
outlets that provide the opportunity to gain information from others on products or
services.

Usually, it is the higher-priced, ‘big’ purchases that will be determined

largely through the endorsements of others.

Products such as computers, cell phones, tablets, vehicles, and more can all be
helped or harmed by input from others.

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 Understanding that social media has a major impact on large buying decisions,
it is a good idea for businesses to track social media interactions and use the open
design of those platforms to get involved when necessary. An active social media
presence from your organization will not only help to inform buyers about your
product, but it can also be an opportunity to demonstrate your commitment to
customer service.
The inuence mix that has been presented by Simonson and Rosen is helpful
for many organizations to understand how their potential customers are going to
be thinking about their purchases. It is always desirable to ‘get in the mind of the
customer’, and this inuence mix is a great way to do just that.
Once your company has a good idea of how consumers will be making buying
decisions, it will be much easier to make marketing and pricing choices for all of
your products.

KEY POINTS
❍ There is more information available now than ever before, meaning buyers
have plenty of resources to consult before they make a purchase.
❍ While you have plenty of opportunities to present your target market with
information, you have to make sure they are seeing the right information at
the right time.
❍ Different markets will feature a different blend of the various factors, and it is
up to you to decide which ones are going to play the biggest role in your specic
market.

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 ❍ Prior preferences and experiences inuence most low-cost everyday purchases
and buyers will usually stick with their established preference unless they see
a good reason to try something new.
❍ Traditional forms of marketing (pricing, packaging, positioning, etc.) still have
a part to play in persuading customers to try something new.
❍ Many one-off purchases are decided on the basis of information from review
sites and social media rather than ‘word of mouth’ from friends, family
members, and co-workers.
❍ Products such as computers, cell phones, tablets, vehicles, and more can all be
helped or harmed by input from others.

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BLUE OCEAN STRATEGY

Most businesses are focused on their competitors as they try to take control of a
large slice of the market.
While that is certainly a logical and time-tested method, the relatively new Blue
Ocean Strategy is an innovative way to think about business. Professors W. Chan
Kim and Renée Mauborgne describe this strategy in their book titled ‘Blue Ocean
Strategy’. They are co-directors of the INSEAD Blue Ocean Strategy Institute.

Rather than ghting toe-to-toe with your competitors for market share, this
strategy instead encourages businesses to seek out uncontested market space that
they can have all to their own. When successful in this pursuit, it is possible to
dramatically increase the value of a company while simultaneously making the
previously identied competition irrelevant.

A ‘blue ocean’, as used in the title of their book and strategy, is basi-
cally an uncharted territory in the business world. You can think of
Blue Ocean as:

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 A market space that has yet to have been explored by any other business –
meaning it is a land full of opportunity. If you can manage to get your company into
a blue ocean in the market, you will have all the opportunity in the world to make
large amounts of money in a potentially short period of time.
While that blue ocean might not remain open forever (in fact, it certainly
won’t remain open forever), you can make huge gains in both revenue and brand
recognition while you are the only player in the game. Even as other competitors
begin to work their way in, turning that ‘blue’ ocean ‘red’ (with competition), you
should still have the advantage as you were the innovator in this space.

WHY YOU SHOULD AVOID RED OCEANS

The Blue Ocean Strategy book denes ‘red oceans’ as those which already contain
a high level of competition.

Red oceans’ as those that already have high levels of competition.

Although there is an inevitability to having to compete in crowded markets,
there are too many advantages to avoiding this situation to ignore the possibility
of looking for blue space. In an already contested market, there is a natural cap
in place on the potential of your business. You won’t be able to ‘hit the jackpot’ in
terms of business growth or sales gures, because the market is already set.
Even if you are able to carve out a respectable share of business for yourself, it
is highly unlikely that you will rocket to the top of the business world in an already
competitive space. The prices and prot margins are largely set before you even
arrive, meaning your ceiling is relatively low.
You can’t afford to completely stay away from red oceans because that is where
the majority of business takes place, but continuing to look for blue oceans is a
great way to take the limit off of what you can accomplish.

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CREATING NEW DEMAND
Most businesses start with the idea of lling a demand in the market, but the Blue
Ocean Strategy holds that it is far better to create a new demand that doesn’t even
exist at the moment.
While doing so is obviously a great challenge, the rewards can be many. There
are new markets being created all the time by the innovation of new products and
services, and the businesses that are on the cutting edge of these markets tend
to be some of the largest in the world. Organizations willing to go into untested
territories are taking a big gamble, but that gamble sometimes pays off in a huge
way.

FINDING OPEN SPACE

Of course, locating the opportunity to create a blue ocean for your business is going
to be the biggest challenge of all. It is easy to sit back and think that ‘everything has
already been done’, even though that is clearly not the case.

There are four points that are presented within this book that will help you
look for blue oceans around the edges of your business market.

❍ Raise: The rst point has to do with raising the quality of one factor or
another as compared to industry standard. In other words, you could create
a blue ocean by offering a product that is of a signicantly higher quality than
anything else currently offered within the industry. Perhaps you will use more
advanced technology, or better materials, to develop an amazing product that
grabs the attention of consumers. By rising above and establishing a new
level, you will be playing in a market all your own.
❍ Eliminate: Many industries have barriers or characteristics that simply do
not need to be in place. Often, these are issues that were once relevant, but

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 are no longer a problem thanks to developments in technology. If you can
eliminate unnecessary parts of the business tool within your organization,
you could nd a way into an open space that leaves you competing at a low
price or on a faster timeline.
❍ Reduce: This is the opposite of the idea of raising the level of a product or
service within the industry that you compete. Instead, you can choose to
reduce the standard on a point that isn’t necessary in order to leave your
customers with a quality item. You might be over-engineering a certain
element of your product, or you may be using an expensive material where a
cheaper alternative would do the same thing.

❍ Create: The last point on the list is where innovation comes into the picture.
This point has you and your company creating something that has simply
never before been seen in the industry. This is probably the most difcult
point to be successful with, as it takes incredible creativity and a willingness
to go out on a limb, but it also holds the biggest potential for success if your
product is a hit.

The Blue Ocean Strategy allows business owners to ‘think big’. You aren’t just
trying to scrape by when you use this kind of strategy in your business. Instead,
you are trying to achieve great things on a large scale.
It can be intimidating to approach your business from this big picture
perspective, but it is exciting at the same time. If you do manage to nd a section
of blue ocean that you can claim as your own, it just might go down as the leading
accomplishment of your professional career.

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KEY POINTS
❍ Blue Ocean Strategy is a book published in 2005 and written by W. Chan
Kim and Renée Mauborgne, professors at INSEAD and co-directors of the
INSEAD Blue Ocean Strategy Institute.
❍ The premise of the book is that companies can succeed by creating blue
oceans of uncontested market space rather than by battling entrenched
competitors.
❍ They produce evidence that these strategic moves create a leap in value for
the company, its buyers, and its employees while unlocking new demand and
making the competition irrelevant.
❍ They dene ‘red oceans’ as those which already contain a high level of
competition where there is a natural cap in place on the potential of your
business.
❍ You won’t be able to ‘hit the jackpot’ in terms of business growth or sales
gures, because the market is already set.
❍ Finding open space is difcult but there are four points that are presented
in the book that will help you look for blue oceans around the edges of your
business market.
❍ The four principles are: create uncontested market space by reconstructing
market boundaries, focus on the big picture, reach beyond existing demand
and get the strategic sequence right.

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SCENARIO ANALYSIS

If you knew what the market was going to look like in a few months or a few years,
you could place your company in the perfect spot to reap great nancial rewards.
The Scenario Analysis tool may help us make the best guess possible about the
future of our markets and customers.

There are ve steps build in the scenario analysis process. In the content below,
we will take a closer look at each of these ve steps.

STEP ONE – DEFINING THE PROBLEM

This seems to always be where things get started in business. Before you can make
plans and devise strategies to move forward, you need to know exactly what the
problem is that you are trying to solve.

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 Business is really just a string of problems and solutions, and the companies
who can come to the solutions in the shortest amount of time will usually come
out on top in the end.
What problem is it that you can solve with your product or service? Is this a
problem faced by a large number of people, or only a small group?
Once you have a clear denition of the problem that you are setting out to
solve, you will have a much better idea of how you can best locate, attract, and
serve your customers.

STEP TWO – GATHERING DATA

Information is the key to good decision-making. If you don’t have data to back up
the choices you are making, you are actually just guessing at what the market will
hold for you and your business.

Take the time and effort to do detailed analysis of the current state of the market
and any threats or opportunities that will affect that market moving forward. With
a better picture of how the market as a whole is going to move, you can then decide
how your product or service will t within that market in the years to come.
The past tends to be the best predictor of the future, so looking back at the
way your specic market has developed previously – or, looking at other, similar
markets – is one of the best tools you will have available for data collection.

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 Understanding how long products tend to remain in the market, and how long
they are able to hold on to a top position, will be a great help toward the goal of
projecting future developments in this business space.

STEP THREE – SEPARATE CERTAINTIES FROM

UNCERTAINTIES
Not all of your projections are going to come with the same degree of condence.
You will have some points that you identify as things that you feel are certain to
happen, while other predictions will be based on facts but also based somewhat on
‘gut’ instinct.
In this step of the scenario analysis, you are going to separate out the points
that you feel are certain from those that seem uncertain in nature.
Once you have separated out your projections into these two categories, step
back and take a big picture look at your lists. Are the predictions in the ‘certain’
category the most important ones to your business, or are they most incidental?
In this way, you can evaluate how condent you are in the choices that you
are making for your business. If most of the important predictions you are making
about the future fall into the uncertain category, you will have to proceed with care
and plenty of caution.

STEP FOUR – DEVELOP SCENARIOS

In this step, you are going to take the uncertainties from the list you created in the
previous step and put them to the test. Since you are uncertain of these outcomes,
you are going to create multiple scenarios that will allow you to think about what
your business would look like if each were to come true. For example,

If the market as a whole is in good health, what will that likely mean
for your business?
If the market is struggling, how will that affect your company?

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 Play out a variety of different scenarios and you will start to get a good idea of
the risk you may be taking on should you choose to proceed with your plans.
Take some time to work through a number of scenarios, but only follow this
process on the points that you would consider important. If there are some
incidental points on your list that won’t have much of an effect on business as a
whole, you don’t need to bother with the scenario process.

STEP FIVE – USE THE SCENARIOS IN YOUR PLANNING

This is where you put to use the information and ideas that you have developed
while using this technique. Now that you have some scenarios created based on
your various predictions and projections, you can alter your business planning as
necessary.

For instance, you can adjust your planning to avoid the parts of the business
that would seem to be the riskiest, while increasing your commitment to the parts
of the company that seem like more of a ‘sure thing’. There is always going to be
risk in business, of course, but tweaking your planning based on the scenarios you
envision will hopefully limit your exposure to that risk.
No business owner or manager can perfectly see into the future – that is a
goal that simply isn’t attainable. However, if you are willing to sit down and spend
some time developing a number of scenarios that relate to how your business will
perform under a number of market conditions, you can make choices that reduce
the risks you are taking.
In the end, it is all about positioning your organization for the best possible
chance at success, and scenario analysis can help you do just that.

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THE STRATEGY PROCESS CHECKLIST

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EXECUTING CONCEPTS
OF STRATEGY
Organizations that deploy advanced strategy formulation methods have the
capability to effectively accelerate the creation and delivery of customer value.
They are able to anticipate future opportunities, ensure their investments deliver
value, occupy a competitive position that is both unique and valued and conduct
other activities that determine an organization’s strength as a creator of value.
They are able to formulate strategies, dene plans and make complex decisions
that deliver more value than the strategies and solutions created by organizations
that continue to use traditional business management methods.
This process enables organizations to think and act strategically. It enables
motivated individuals to use the power of strategic thinking to overcome the
challenges faced by their organizations and customers. It takes the mystery out
of strategy and enables organizations to put into practice the theories that are
supported by well-respected strategists, consultants and academics.
This chapter describes how to address the important elements of strategy
formulation by adopting a perspective of creating value for every part and person
connected to the organization and its business.

SPECIFIC EXPECTATIONS OF STRATEGY

One insightful denition of strategy comes from Michael E. Porter, the C. Roland
Christensen Professor of Business Administration at the Harvard Business School.
In his article titled ‘‘What Is Strategy?’’ (1996), he describes what an effective
strategy must deliver. He states that, ‘‘an effective strategy must enable an
organization to:

1. Uncover a unique and valued position that involves a set of activities that are
different than those taken by competitors.

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 2. Make all the required trade-offs, vis-a`-vis competitors, to determine
what activities should be pursued, and what actions should be taken.
3. Ensure the activities that are taken to execute the strategy t together to create
a distinctive and sustainable competitive advantage for the organization.’’

It follows that a strategy formulation process used to create such a strategy

must enable an organization to achieve these objectives. Using strategy formulation
processes that apply Solution-Based Logic make it difcult to achieve these
objectives for all the reasons that have been presented. For example, when using
Solution-Based Logic, desired outcomes often go uncovered; predictive metrics are
rarely used; the desired competitive position is often considered after the strategy
or solution has been devised; and the process itself is often driven by politics, gut
feeling and intuition rather than facts.
The ability to apply Outcome-Based Logic, use the structure of the Universal
Strategy Formulation Model (USFM) and obtain information in the form of
desired outcomes and predictive metrics enable an organization to achieve these
and other expectations of strategy.
In this chapter, we will demonstrate how this advanced strategy formulation
process could be used to enable an organization to achieve these strategic objectives.
To demonstrate how they could be achieved, we will focus on a company that
Michael Porter cites in his article ‘‘What Is Strategy?’’ as an organization that has
been able to effectively achieve the three stated strategic objectives—Southwest
Airlines. To make this demonstration effective, we have used the Southwest Airlines
example in his chapter as the basis for our demonstration. But, we have fabricated
a set of desired outcomes and predictive metrics and have assumed a set of values
that dene their importance. Although this demonstration does not reect the
completeness that accompanies the awless execution of the USFM, it does offer
some insight as to how this process can be applied to proactively formulate a
breakthrough strategy. Please note that each time Michael Porter is referenced in
this chapter, the reference is related to his article, ‘‘What Is Strategy?’’ (1996)
unless stated otherwise.

STRATEGY AS POSITIONING
As stated by Michael Porter, ‘‘an effective strategy will enable an organization
to uncover a unique and valued competitive position; one that involves a set of
activities that are different than those taken by its competitors.’’ To formulate a
strategy that enables an organization to achieve this objective, the organization
must be able to effectively determine:

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 1. What potential target markets exist, and which segments to target?
2. What activities are valued by that set of target customers?
3. How well each activity is currently performed by competitors?
4. What level of satisfaction must be achieved for each activity to occupy a
unique and valued competitive position?

*I = Importance of each desired outcome; S = Satisfaction

The demonstration that follows shows how to obtain this information and how
an organization such as Southwest Airlines could have used this information to
dene the unique and valued competitive position they occupy today.

CHOOSING THE TARGET SEGMENT

Historically, one of the most difcult aspects of occupying a unique and valued
competitive position has been choosing which segment of customers to target.
When selecting a target segment, organizations traditionally have a product or
service in mind and then try to nd the segment of the population that values
that product or service. This approach is reactive and consistent with Solution-
Based Logic. The organization has a solution and then determines whom to
target with that solution. When using Outcome-Based Logic, the approach to
choosing a target segment is different. An organization must be able to answer the
following questions. What are we attempting to achieve as an organization? What
segment of customers will allow us to get there? We will demonstrate how the use
of Outcome-Based Segmentation, as we call it, enables an organization to select
the target customers who will ensure the organization achieves its nancial and
strategic objectives.
The segmentation process begins by capturing the desired outcomes of a diverse
set of airline passengers. The interviewed passengers represent business travelers,
families, students and retirees. Individuals representing a variety of age groups
and income levels are interviewed. We use our outcome gathering techniques to
uncover between 25 and 50 desired outcomes from the 30 to 40 individuals that
are interviewed. Once the desired outcomes are captured, their corresponding
importance and satisfaction values are quantied across all potential segments
using the market research methods. In addition, Outcome-Based Segmentation

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is conducted to determine what segments exist. The organization then sets out to
determine which segments are most attractive.
An attractive market segment often contains a homogeneous set of individuals
whose most important desired outcomes are unsatised. By denition, such a
segment would offer an organization a high degree of opportunity. Other criteria
that are used to evaluate the attractiveness of a segment will vary from company to
company and from situation to situation. Southwest, for example, may have been
searching for a segment that:

1. Represents a sizable portion of the overall population.

2. Plays to the strengths of the organization.
3. Complements the organization’s existing culture.
4. Lacks a strong competitor, or
5. Perceives the organization in a positive light.

An attractive market segment may also be required to satisfy other criteria that
are important to the organization. When executing this process, these criteria are
typically captured, prioritized and used to effectively choose which segment or
segments to target. The segments that are chosen are the ones that best satisfy the
segment selection criteria.
Because desired outcomes are used as the basis for Outcome-Based
Segmentation, many segments are uncovered in which passengers value a unique
set of desired outcomes. The segments are dened and proled so the organization
knows the makeup of each segment, its size and many other important factors that
will help evaluate each segment against the stated attractiveness criteria.
As a result of the segmentation analysis, Southwest likely found a segment that
met its attractiveness criteria. The passengers in this segment possessed a unique
set of important, yet unsatised, desired outcomes. As documented in table above,
the data resulting from the segmentation analysis showed that passengers in the
target segment valued an airline that could minimize the passengers cost of ying,
minimize the time required to go between cities and ensure on-time departures.
The results also indicated that individuals in this segment are nancially
constrained. The importance and satisfaction values for each desired outcome
were quantied in the segmentation study. The top three desired outcomes and
their corresponding importance, satisfaction and opportunity values are shown
table above Keep in mind, in a real-world study up to 50 desired outcomes may be
considered in the segmentation analysis. Much more information would be known
about the target market than this example suggests.

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 It is shown that the passengers in Southwest’s target segment nd the desired
outcomes stated above to be both important and unsatised. The fact that each
passenger in this segment nds these desired outcomes both important and
unsatised is the reason why they form a segment. It is this commonality that
statistically brings them together. It is the discovery of this opportunity that
enables an organization, such as Southwest, to create a strategy yielding a strong
strategic position. Using this approach, an organization not only has the distinct
advantage of knowing that this segment exists, but as a result of the research, they
also know the size of the segment and what desired outcomes are valued by the
individuals that are in it. Outcome-Based Segmentation enables organizations to
uncover unique segments that are not constrained by articial classications or
titles such as industry, business size or demographics. The organization can then
evaluate each segment against the attractiveness criteria that has been dened as
important by the organization and select the segment or segments that best meet
the stated criteria.

DETERMINING ACTIVITIES VALUED BY TARGETED

CUSTOMERS
Once the target segment is chosen and the customers’ desired outcomes are
known and prioritized, the other customers in the customer set are considered.
In the Southwest Airlines example, the other customers would likely include
internal company stakeholders and company employees. The desired outcomes
of these customer groups would also be captured and prioritized. Between 25 and
50 desired outcomes would likely be captured from each customer group, and the
required research would be conducted to quantify which desired outcomes are
most important and least satised.
When quantifying the importance of the stakeholders’ desired outcomes, the
stakeholders must take into consideration the segment the organization has cho-
sen to target. Again, in a real-world study up to 50 desired outcomes may have
been included in the study. Let’s assume that the stakeholders’ top ve desired
outcomes and their corresponding importance, satisfaction and opportunity values
have been uncovered. They are shown in table below.
The stakeholders’ most important desired outcomes involve various aspects
of reducing costs and increasing company prots. The research also enables the
organization to uncover key areas of opportunity. The organization now knows what
criteria a strategy must meet to create value for the internal company stakeholders.
Research would also be conducted with potential employees to uncover their
desired outcomes. Once they are captured, a representative sample of potential
employees would be interviewed to quantify which desired outcomes are most
important and least satised. Again, up to 50 desired outcomes would likely be

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considered. Let’s assume that upon completion of the research, the potential
employees’ top two desired outcomes and their corresponding importance and
satisfaction values were uncovered. They are shown in the second table below.
The research shows that the potential employees want high levels of
compensation and also want a share in company prots.

*I = Importance of each desired outcome; S = Satisfaction.

At this point in the process, a market segment with important and unsatised
desired outcomes has been uncovered and targeted. The passengers’ most
important desired outcomes are known. In addition, the desired outcomes of
internal company stakeholders and potential employees have been captured and
prioritized. We know what is valued by each of the customer groups that would be
affected by the strategy that is being devised. This information is required before
an organization can determine which activities are valued by the targeted set of
customers.
As the process continues, predictive metrics are dened for each desired out-
come and are then prioritized. As a result of this analysis, the metrics with the
most synergy are identied. For example, increasing the percent of departures that
leave on time predicts that more ights will leave on time, and if this activity were
performed well, it also predicts that the amount of prot obtained daily will be
maximized and the daily use of the eet will be optimized. This metric has synergy
with other desired outcomes and, therefore, receives a higher priority. The metrics
that predict the satisfaction of the important desired outcomes stated by the

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passengers, stakeholders and employees are stated in priority order in table below.
The value that is shown in the column on the right is the normalized importance
value associated with each predictive metric.
Notice that the predictive metrics dene activities that must be performed to
create value for the target customers in this situation. ‘‘Increasing the percent of
departures that leave on time’’ is an activity. The airline performing this activity
in a way that enables it to always achieve on-time departures will undoubtedly
enjoy a competitive advantage. Predictive metrics, by denition, are descriptive of
activities that must be addressed to create value. In order for Southwest Airlines
to create value for its targeted set of passengers, they must be able to:

1. Increase the percent of departures that leave on time.

2. Increase the number of hours per day each plane is in ight.
3. Reduce the cost of interacting with other airlines.
4. Reduce the cost of airplane maintenance, and so on.

It is this set of prioritized activities that must be pursued to create value

for the customers in the target segment. They are the activities valued by the
customers in the target market. They represent the array of interlocked activities
that complement and reinforce each other. They predict the creation and delivery
of value.

DETERMINING HOW WELL EACH ACTIVITY IS

PERFORMED
Once an organization determines which activities are valued by its target
customers, it can set out to determine how well each activity is being performed by
its competitors. Because the predictive metrics are dened as measurements, an
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organization can accomplish this task by benchmarking the competitors of interest.
For example, through the mock benchmarking activity that is documented in table
below, it can be determined how well Southwest’s top two hypothetical competitors
performed each of the important activities. The relative strengths and weaknesses
of the competitors can also be determined through this analysis.

Let’s assume the data shown in table above is correct. The data shows the
strength of Competitor 1 lies in its ability to reduce the costs associated with
ticketing. The strength of Competitor 2 lies in its ability to reduce the time required
to go between mid-size cities and large cities. The data indicates the competitors
are not involved in performing many other activities in a way that is unique to
their organization. The data also suggests that neither organization occupies what
would be considered a unique and valued competitive position.
At this point in the process, the organization knows what activities its target
customers value. It also knows how well each valued activity is being performed
by its competitors. This information is critical to the formulation of an effective
strategy and offers a basis for making strategic choices and decisions.

DETERMINING WHICH LEVEL OF PERFORMANCE TO

ACHIEVE
Once an organization knows what activities its target customers value and the
strengths and weaknesses of its competitors, it may objectively decide how well
each activity must be performed to achieve a unique and valued competitive
position.
This is accomplished by rst analyzing the passengers’ perceived level of
satisfaction with the solutions currently offered by Southwest’s two hypothetical

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competitors. The satisfaction values would be obtained through the same market
study that is conducted to quantify the importance and satisfaction values of the
passengers’ desired outcomes and to complete the Outcome-Based Segmentation
study. Let’s assume that the satisfaction values for the two competitors are
accurately represented in table below

Southwest Airlines is now able to use this satisfaction data and the benchmarking
data to determine how well each activity must be performed to increase the level
of customer satisfaction to the degree that is required to secure a unique and
valued competitive position. They may ask, ‘‘What target values must we set and
achieve before we believe a unique and valued competitive position is secured?’’
As they dene their desired competitive position, assume they set the target
values stated in table below. The values indicate the levels of performance that
Southwest believes must be achieved before the satisfaction levels are increased to
the point where a unique and valued competitive position is attained.
It should be emphasized that in a real world situation, there are hundreds
of activities that are associated with the operation of an airline. Southwest could
have determined which activities were most important to its target customers and
chosen to excel at those activities—capturing its desired competitive position.
Let’s assume that the target values shown in table below for Southwest represent
the competitive position they set out to achieve. Notice the levels of improvement
that were desired for each of the valued activities. Many of the activities required
performance improvements of between 50% to 100% for them to obtain the
competitive position they wanted to occupy. It is this degree of improvement that
is often required to obtain a unique and valued competitive position.
Based on the target values stated, it could be concluded that Southwest Airlines
decided to create a leadership position in each of the activities that were highly
valued by its passengers, stakeholders and employees. They uncovered a unique
and valued competitive position and chose to excel in a set of activities that are
different than those aggressively pursued by their competitors.
When formulating a strategy, once the target values are set, the objective is
to discover or create the strategy or solution which will enable the organization
to achieve the target values that dene the desired competitive position. If such

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a strategy can be formulated, its successful implementation often enables an
organization to attain a unique and valued competitive position. The target values
dene the level of performance that must be achieved to occupy that position.
To consistently occupy a unique and valued competitive position, an organization
must be able to successfully determine:

1. What potential target markets exist and which segments to target?

2. What activities are valued by that set of target customers?
3. How well each activity is currently performed by competitors?
4. What level of satisfaction must be achieved for each activity to occupy a
unique and valued competitive position?
This process enables an organization to successfully achieve each of these
objectives. A unique and valued competitive position is a prerequisite to an effective
company strategy, and achieving such a position is undoubtedly an objective
of most organizations. As stated by Michael Porter, ‘‘The essence of strategy is
choosing to perform activities differently than rivals do.’’ This demonstration was
intended to show how this process can be used to choose these activities and
determine the degree to which they must be performed to achieve a unique and
valued competitive position.

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STRATEGY AS MAKING TRADE-OFFS IN COMPETING
Michael Porter also states that ‘‘the creation of an effective strategy requires that
an organization be able to make all the required trade-offs, vis-a`-vis competitors,
to determine what activities should be pursued, and what actions should be taken.’’
To achieve this objective, an organization must have the structure, information
and processing power that is required to make a series of complex, interrelated
trade-off decisions.
This advanced strategy formulation process is specically designed to assist
an organization in making these difcult trade-off decisions. We will rst describe
the methods that are used to assist an organization in determining what activities
to pursue. The activities to pursue are directly related to the predictive metrics
that are dened for each desired outcome. By denition, a predictive metric is
descriptive of a valued activity.
We will then describe the methods embodied in this process that enable an
organization to determine what actions to take. The actions that are taken by an
organization constitute the plan of action or strategy that has been formulated.

CHOOSING WHAT ACTIVITIES TO PURSUE

It was shown in the last section how this process could be used to determine
what activities to pursue. In making that determination, many trade-off decisions
were required. As stated by Michael Porter, ‘‘a trade-off, by denition, means
that choosing more of one thing will necessitate less of another. An airline can
choose to serve meals—adding cost and slowing turnaround time at the gate—or
it can choose not to, but it cannot do both without bearing major inefciencies.’’
Making the right trade-off decisions in a specic situation often determines an
organization’s ultimate success or failure. As demonstrated in the last section,
to make effective trade-off decisions, an organization must know what desired
outcomes are valued, which desired outcomes are not valued and how well each
desired outcome is currently satised. It must also know the interrelationships that
exist between desired outcomes and predictive metrics, and which metrics predict
the satisfaction of the most important desired outcomes. Once all the required
information is available, making the right trade-off decisions become academic.
The logic associated with choosing the best activities to pursue must be
employed throughout the execution of an effective strategy formulation process.
The logic and algorithms embedded into the execution of this process are designed
specically to enable an organization to identify which activities to pursue. Three
examples of the trade-off logic that is employed in this process to ensure the most
appropriate activities are identied and described as follows:

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 1. Trade-off logic is used to ensure that the chosen strategies and solutions
drive the satisfaction of important and unsatised desired outcomes at the
expense of satisfying less important or already satised desired outcomes.
More specically, when using this process, desired outcomes are prioritized
using what we have dened as the Opportunity Calculation. This ensures
the desired outcomes that are most important and least satised receive the
highest priority. Conversely, the desired outcomes that are less important or
already satised receive a lower priority. This leads to the identication of the
high priority activities.
2. Trade-off logic is used to drive the pursuit of activities that satisfy many
important desired outcomes at the expense of pursuing activities that satisfy
only one important, or several relatively unimportant, desired outcomes.
This logic is employed when the predictive metrics are prioritized. The
high priority metrics, those with synergy, typically predict the satisfaction of
multiple desired outcomes. The metrics that do not have synergy obtain a low
priority. This leads to the direct identication of the high priority activities.
3. Trade-off logic is used also to drive the performance levels required to
obtain a competitive advantage at the expense of achieving target values
that produce a me-too competitive position. This trade-off logic is employed
when target values that dene the desired competitive position are set for
the top predictive metrics. The target values are designed to specically
prevent an organization from formulating a strategy or solution that will leave
them in a me-too or otherwise unfavorable competitive position. Knowing
which activities to pursue and the degree of performance required drives the
creation of strategies and solutions that yield a competitive advantage.
This is an example of the trade-off logic that is embodied in this strategy
formulation process to ensure an organization selects the best activities to pursue.
It is automatically applied as the process is executed. Its application requires an
organization to dene the relationships that exist between the predictive metrics
and the desired outcomes and to prioritize the predictive metrics.
This trade-off logic ensures the activities that deliver the most value are un-
covered in priority order. The application of this logic ensures an organization will
make the right trade-off decisions when choosing which activities to pursue.

CHOOSING WHAT ACTIONS TO TAKE

How did Southwest Airlines know they should eliminate baggage transfers,
connections to other airlines and meals? Why did they decide to have a standardized
eet of 737 aircraft? What trade-off logic did they use? Could it be that they were
attempting to formulate an overall strategy that would enable them to achieve the
target values they set for each of the high priority predictive metrics?

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 Before an organization can determine what actions to take, or which strategy
to pursue, it must know:

1. Which segments to target?

2. What activities are valued by that set of target customers?
3. How well each activity is currently performed by its competitors?
4. To what level of satisfaction each activity must be performed to achieve a
unique and valued competitive position.
It has been demonstrated how this process can be used to obtain this information.
Once this information is obtained, it can be used as the basis from which to make
the trade-off decisions that are required to determine which actions to pursue.
The logic and algorithms embedded into the execution of this process are designed
specically to enable an organization to identify which actions to pursue. After all,
this is a strategy formulation process, and the actions to pursue dene the chosen
strategy. A strategy is a plan that describes the actions an organization will take to
create value for the organization and its customers. This process is designed to
uncover those actions.
Three different examples of the trade-off logic, which is employed in this
process to ensure the best actions are chosen, are described as follows:

1. Trade-off logic is used to drive the pursuit of actions that enable valued
activities to be performed at the expense of less valued activities. This is
made possible because the actions have a numerical value associated with
them and can be prioritized using that value. That value is tied back to the
normalized importance value associated with the metric for which the action
was dened.
2. Trade-off logic is used to drive the pursuit of actions that enable the
achievement of the target values set for many highly valued activities at
the expense of achieving the target value set for only one valued, or several
relatively unvalued, activities. This logic is employed when the actions are
prioritized. The high priority actions, those with synergy, typically drive
multiple metrics toward their stated target values. The actions that do not
have synergy obtain a low priority. This leads to the direct identication of the
high priority actions.
3. Trade-off logic is used to drive the pursuit of actions that honor the stated
constraints at the expense of all other criteria. This is accomplished by
eliminating from consideration the actions that do not honor the stated
constraints.

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 These are examples of the trade-off logic that is embodied in this strategy
formulation process to ensure the efcient selection of what actions to pursue.
It is applied automatically as the process is executed. The same methods that
are used to prioritize the predictive metrics are used to prioritize the actions or
features that are uncovered.

Let’s look at how this trade-off logic could have helped Southwest choose
which actions it should take to create value for its stakeholders, employees and
customers. Let’s assume that Southwest chose to take the actions that are stated
in table above. Assume they were chosen because Southwest believed that by

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taking those actions they would be able to achieve the mock target values that
dened a unique and valued competitive position.
Notice that several of the actions chosen helped them achieve the target values
that were set for more than one activity. These actions have synergy with multiple
activities. For example, the elimination of baggage transfers reduces the cost of
interacting with other airlines, and it also increases the percent of departures that
leave on time. It is important to notice how the actions stated in the column on
the right drive the corresponding activities, or predictive metrics, to their stated
target values.
Determining which actions are required to drive the corresponding predictive
metrics to their stated target values is the essence of strategy formulation. The
collective set of actions form the chosen strategy. The actions describe the features
or the elements of the chosen strategy. Southwest’s overall strategy is to offer
short-haul, low-cost, point-to-point service between mid-size cities and secondary
airports in large cities. They avoid large airports and do not y great distances.
Making these choices enabled them to achieve the target values that dened what
they believed to be a unique and valued competitive position.
Dening the fewest number of actions that will enable an organization to satisfy
its customers’ most important desired outcomes is the prime objective of strategy
formulation. Dening these actions requires hundreds of trade-off decisions.
These trade-off decisions can be made effectively using the trade-off logic that is
integrated into this strategy formulation process.
As stated by Michael Porter, ‘‘Strategy is making trade-offs in competing. Trade-
offs are essential to strategy. They create the need for choice and purposefully limit
what a company offers.’’ This advanced approach to strategy formulation enables
an organization to effectively make the trade-offs that are required to determine
what activities they should pursue and what actions they should take. It assists
organizations in making the trade-off decisions that are required to achieve a
sustainable strategic position.

STRATEGY AS CREATING FIT AMONG A COMPANY’S

ACTIVITIES
Michael Porter states, ‘‘The creation of an effective strategy requires that an
organization be able to ensure its selected strategic activities t together to create
a distinctive and sustainable competitive advantage for the organization.’’ In other
words, the activities that an organization chooses to take must t together such that
they complement, reinforce and optimize one another, and the synergy between
them must yield a sustainable competitive advantage.

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 Executing a system of interlocked activities is more likely to result in a
sustainable competitive advantage than specializing in the execution of a single
activity. The activities pursued by Southwest Airlines, for example, complement,
reinforce and optimize one another. Their choice to eliminate meals, interline
baggage transfers and seat assignments complement each other in ensuring on
time departures are achieved. These same choices reinforce Southwest’s low
cost positioning and optimize its ability to increase the number of hours per day
each aircraft is in ight. As stated by Michael Porter, ‘‘Positions built on systems
of activities are far more sustainable than those built on individual activities.’’
To create a t among a company’s activities, an organization must be able to
effectively determine which activities complement, reinforce and optimize the
value delivered by other activities.
When using this advanced strategy formulation process, this set of relationships
is determined when uncovering the synergy that exists between each predictive
metric and each desired outcome. This is accomplished through the use of matrix

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analysis. When using this process, an organization can effectively determine
which activities have a synergy with each desired outcome. The questions are
asked, ‘‘Which activities predict the satisfaction of each desired outcome? To what
degree will these activities predict the satisfaction of each desired outcome?’’ The
predictive metrics with the most synergy are those that predict the satisfaction
of several important desired outcomes. They constitute the activities that most
effectively drive the creation of value. In other words, the high priority predictive
metrics represent activities that, when executed, will partially or completely assist
in the execution of other activities. One activity may assist in the execution of
several other activities. The top activities may assist in the execution of up to 70%
of the other activities. This is what is meant by synergy.
In essence, the high priority predictive metrics represent a complex array of
interlocked activities that complement, reinforce and optimize the other activities.
The high priority metrics dene the activities that, if action is taken, will result in
a sustainable competitive advantage.
Figure given above can help to explain how matrix analysis is used to prioritize
the predictive metrics that have been dened in the Southwest example. The
predictive metrics are shown along the top, and the desired outcomes are shown
in the column on the left. The symbols in the matrix indicate where relationships
exist and the strength of the relationship. The values in the right-hand column are
associated with each desired outcome. They represent the weighted importance of
each desired outcome. The values in the bottom row, the normalized importance
row, reect the percent of value contributed by each activity. The activities with the
highest normalized importance values contribute most to the creation of customer
value. They partially or completely assist in the execution of multiple activities.
They are the metrics or activities with synergy.
Notice that the high priority predictive metrics dene the activities that com-
plement, reinforce and optimize the satisfaction of the most important desired
outcomes. The high priority metrics predict, to some degree, the satisfaction of
multiple desired outcomes. Up to 300 predictive metrics are typically prioritized
when applying this process to real world situations. Knowing which of those 300
predictive metrics have the most synergy with the desired outcomes enables an
organization to determine which activities, if pursued, will complement, reinforce
and optimize one another. The high priority predictive metrics dene the system
of interlocked activities that can be pursued to create a distinctive and sustainable
competitive advantage. As stated by Michael Porter, ‘‘The success of a strategy
depends on doing many things well—not just a few—and integrating among them. If
there is no t among activities, there is no distinctive strategy and little sustainability.’’
This advanced strategy formulation process is designed to enable an organization to
dene the activities that have t and attain a strong strategic position.

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ADDRESSING THE EXPECTATIONS OF STRATEGY
In addition to enabling the achievement of the three important strategic objectives
stated above, the process also enables organizations to:

1. Evolve their strategy formulation, planning and decision-making capabilities.

2. Understand their customers’ perception of value.
3. Develop strategies and solutions that deliver many times more value than
those previously created.
4. Systematically evolve the processes, products, services and strategies that
affect their organization.
5. Increase the rate at which they create value for themselves and others.
As stated by Gary Hamel and C. K. Prahalad in Competing for the Future
(1994), organizations ‘‘need a new process for strategy-making, one that is more
exploratory and less ritualistic. They need to apply new and different resources to
the task of strategy-making, relying on the creativity of hundreds of managers and
not just on the wisdom of a few planners.’’
The CD-MAP process provides the structure, information and processing power
that is required to formulate breakthrough strategies and solutions. It enables top
management to communicate the customers’ desired outcomes and the metrics
that predict the delivery of value to employees throughout the organization.
It enables hundreds of managers and other individuals to participate in and
contribute to the formulation of breakthrough strategies. It enables individuals to
focus on the achievement of the organization’s strategic objectives.
This process can be integrated into an organization in many ways. Internal
consultants can be trained, external consultants can be used and advanced
technology can be used to make this process an integral part of the organization.
For example, the tools that have been developed to support the application of this
process can be used to create an integrated knowledge network. Such a network
is capable of enabling an organization to dene and organize the universe of
possible solutions from which individuals throughout the organization can invent
and discover. Individuals from across the organization can use this information to
nd the best strategies and solutions for a given situation. The tools are designed
to enable users to quickly formulate the strategies and solutions that will satisfy
the largest number of important desired outcomes while honoring any imposed
constraints and enabling the achievement of the desired competitive position.
This process is driving an Intellectual Revolution in business—a revolution
in which all organizations are empowered (have the power) to anticipate future
opportunities, make value-generating investment decisions and determine which

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products and services to develop, which core competencies to obtain, which
technologies to pioneer, which activities to pursue and which trade-offs to make.
In short, the process driving the Intellectual Revolution provides all organizations
with the power to systematically accelerate the creation and delivery of customer
value.

SUMMARY
This process enables organizations to think and act strategically. It takes the
mystery out of strategy and enables organizations to put into practice the theories
that are supported by well-respected strategists, consultants and academics. As an
example, it can be shown how this process is often used to address the important
elements of strategy formulation as they are dened by one of today’s leading
strategists—Michael Porter.
In his article titled ‘‘What Is Strategy?’’ (1996), Michael Porter describes what
an effective strategy must deliver. He states that ‘‘an effective strategy must enable
an organization to:

1. Uncover a unique and valued position that involves a set of activities that are
different than those taken by competitors.
2. Make all the required trade-offs, vis-a`-vis competitors, to determine
what activities should be pursued and what actions should be taken.
3. Ensure the activities that are taken to execute the strategy t together to create
a distinctive and sustainable competitive advantage for the organization.’’

To achieve the rst strategic objective, an organization must be able to

successfully determine:

1. What potential target markets exist and which segments to target?

2. What activities are valued by that set of target customers?
3. How well each activity is currently performed by competitors?
4. What level of satisfaction must be achieved for each activity to occupy a
unique and valued competitive position?
This advanced strategy formulation process is often used to obtain the answers
to each of these complex questions. Once the information is obtained, it is organized
within the structure of the USFM. The information is then used to systematically
formulate a strategy that places the organization in a unique and valued position.
In addition, through the use of this process, an organization can be assured that
its chosen strategy will involve a set of activities that are different than those taken
by competitors.

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 The second strategic objective involves making the trade-off decisions that will
enable an organization to determine what activities to pursue and what actions to
take. Advanced trade-off logic is integrated into this strategy formulation process
to enable an organization to determine what activities to pursue. The trade-off
logic that is employed is used to:

1. Ensure that the chosen strategies and solutions drive the satisfaction of
important and unsatised desired outcomes at the expense of satisfying less
important or already satised desired outcomes.
2. Drive the pursuit of activities that satisfy many important desired outcomes
at the expense of pursuing activities that satisfy only one important, or several
relatively unimportant, desired outcomes.
3. Drive the performance levels required to obtain a competitive advantage at
the expense of achieving target values that produce a me-too competitive
position.
Advanced trade-off logic is also integrated into this process to enable an
organization to determine what actions to pursue. The trade-off logic employed
for this purpose is used to drive the pursuit of actions that:

1. Enable valued activities to be performed at the expense of less valued

activities.
2. Enable the achievement of the target values that have been set for many
highly valued activities at the expense of achieving the target value set for
only one valued, or several relatively unvalued, activities.
3. Honor the stated constraints at the expense of all other criteria.

The third strategic objective involves choosing to execute activities that t

together to create a distinctive and sustainable competitive advantage for the
organization. When executing this advanced strategy formulation process, the
prioritized set of predictive metrics effectively denes the array of interlocked
activities that complement, reinforce and optimize one another as they predict the
creation and delivery of customer value. Prioritized predictive metrics drive the
creation of a distinctive and sustainable competitive advantage.
This advanced strategy formulation process can be used to put into practice
the theories that are supported by many well-respected strategists, consultants and
academics. Although Michael Porter’s view of strategy dominates much of today’s
thinking, many other theories exist. We have found that many of those theories,
if sound, can be employed through the use of this process. It is the catalyst that is
driving an Intellectual Revolution in business.

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CASE STUDIES AND
EVALUATIONS

The case study method has been seen to aid the strategy formulation process
and may provide organizations with the capability to consistently formulate
breakthrough strategies and solutions. It integrates the structure, information and
processing power that is required to uncover the optimal solution in any situation.
It is based on the application of Outcome-Based Logic. It considers the essential
elements of strategy formulation and is supported by the structure of the Universal
Strategy Formulation Model (USFM).
This process is being used by organizations around the world to effectively
choose which markets, products, technologies, investments and activities to
pursue. It is being used to formulate company strategies, product and services
strategies and strategies that drive an organization’s operating, support and
management processes.
The nancial benets of using this process have been documented by
several organizations. In many cases, dramatic nancial improvements were
obtained. For example, when using this process to improve the development of
composite materials, a Fortune 100 company gured out how to reduce the cost
of development by over 80% while reducing development time by nearly 75%. A
cardiac pacing system company used this process to create a product that offered
the same function as a highly valued competitive product, but at 40% of the cost.
A manufacturer of industrial packaging used this process to create a strategy that
increased their market share by 10% in an environment in which the top ten
players had less than 50% market share. A medical device manufacturer used this
process to create a line of angioplasty balloons that took them from less than 1%
market share to a market leadership position in just two years.
Many organizations have used this process to formulate overall company
strategies and product and service strategies that they believe will revolutionize
their business. Many product and service concepts have been created as a
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result of using this process. Some are already on the market and others will be
introduced by various organizations in the near future. The application of this
process, regardless of the industry or company in which it has been applied, has
consistently resulted in strategies and solutions that deliver up to 10 times more
value than those created using traditional strategy formulation methods. In most
cases in which this process has been applied, organizations have recognized gains
in market share, revenue and prot while reducing their costs and cycle times.
Three organizations have given their permission to discuss the results of
specic projects. The case studies describe the results that were achieved when
using this advanced strategy formulation process to devise an overall company
strategy, a product strategy and a strategy that was focused on the improvement of
an internal company process.
The rst case study describes how this process was used to formulate an overall
business strategy for Southcorp, formerly a division of Gadsden Rheem. The second
case study describes how this process was used to assist Cordis Corporation, now
a division of Johnson & Johnson, in dening a strategy to develop and market
a new line of angioplasty balloon products. The third case study describes how
this process was used by Pratt & Whitney, a division of United Technologies, to
formulate a strategy that was aimed at improving its manufacturing operation. In
addition, this process has undergone evaluations at several organizations using
various evaluation methods. The results of two of those evaluations, one made at
Motorola and the other made at Hewlett-Packard, are also included in this chapter.

CASE I: FORMULATING A DIVISION STRATEGY AT

SOUTHCORP
In 1993, The Total Quality Group facilitated a consulting project for the Rigid
Packaging Division of Southcorp, formerly Gadsden Rheem, in New South Wales,
Australia. The general manager of the division was the sponsor of the project.
The project mission was to develop and deploy a strategy aimed at improving the
division’s overall market share by 2%. It was believed that a 2% increase in market
share was an aggressive goal in a market where the top 10 manufacturers controlled
only 50% of the total market. A cross-functional team was formed representing all
key areas of the business. They were responsible for participating in the process
and implementing the resulting strategy.
The customers were dened as the users of the products and the stakeholders in
the Southcorp organization. The facilitators and the team performed the activities
required to dene the constants in the USFM. Desired outcomes were captured
from each customer type in the customer set. The team dened predictive metrics
for each desired outcome and established the relationships between the metrics
and the desired outcomes. At the same time, a questionnaire was developed and

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used to enable the quantication of the importance and satisfaction values for each
desired outcome. Once the data collection was completed, cluster analysis was
performed on the data using the desired outcomes as the basis for segmentation.
Several uniquely dened segments were uncovered and subsequently targeted.
Once all the data was available and analyzed, the team used the data as the
basis for formulating an overall division strategy. At this point in the project, the
constants were dened and the ‘‘equation’’ was ready to be solved. The team
worked diligently to create a strategy that would address the metrics predicting the
delivery of value. After several days, a strategy was chosen. The chosen strategy
satised over 50% of the desired outcomes better than their existing strategy. An
implementation plan was dened using the predictive metrics as a guide. This
enabled the systematic tracking of progress and the management of the strategy.
The strategy was implemented in late 1993. By 1996 Southcorp’s market share
had increased by 10% in a highly competitive market. Southcorp’s management
estimates that 7% of that increase was directly attributed to the implementation of
the strategy resulting from this process.
This result was achieved by effectively enabling Southcorp to dene a unique
and valued competitive position and to determine which activities to pursue to
achieve that position. Activities that complement, reinforce and optimize one
another were uncovered; segment specic strategies were created; and their
measurement system was tied directly to the creation of customer value.

CASE II: FORMULATING A PRODUCT STRATEGY AT

CORDIS CORPORATION
In early 1993, we were asked by Cordis Corporation, a medical device company
located in South Florida, to help them devise a portfolio of products that would
enable them to successfully enter a new market. At the time the project began,
Cordis was a $223 million-a-year company, and their stock was valued around
$20 per share. The vice presidents of operations and marketing cosponsored the
project. The project mission was to develop and deploy a product strategy aimed
at making Cordis Corporation a major player in the angioplasty balloon market. At
that time, Cordis had less than a 1% share of the angioplasty balloon market. The
objective was to formulate a product strategy that would enable Cordis to achieve
at least a 5% gain of market share as a result of this effort.
The cross-functional team involved in the project included individuals from
engineering, marketing, regulatory, clinical, quality and manufacturing. The
customers were dened as the cardiologists who use the products, the technical
staff who assist and prepare the products during the procedure and the stakeholders
within the Cordis organization.

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 The facilitator and team performed the activities required to dene the
constants in the USFM. Desired outcomes were captured from cardiologists, the
technical staff and stakeholders. The team dened predictive metrics for each
desired outcome and established the relationships between the metrics and
the desired outcomes. Questionnaires were developed and used to collect the
importance and satisfaction values for each desired outcome from a statistically
valid number of individuals representing the target market.
Once all the data was available and analyzed, the team used the data as a guide
in the formulation of an overall product strategy. At this point, the information
required to create and evaluate potential concepts was dened. The team created
a series of product concepts that addressed the metrics predicting the delivery
of value. Many concepts were evaluated. Several initially favored concepts were
shown to deliver little incremental value and were dropped from consideration.
Each of the chosen product concepts satised at least 40% of the customers’
desired outcomes better than the products they were benchmarked against.
An implementation plan was dened using predictive metrics as the basis for
deployment. Over the next year, Cordis introduced 12 angioplasty catheters and
saw its market share in interventional cardiology grow from less than 1% to nearly
10% in the United States. Its market share approached 20% in Europe, 30% in
Canada and 18% in Japan. Net sales were up 30%, and the company’s $50 million
cash position enabled Cordis to expand into new markets. As stated by one Cordis
team member:

This process provided benets beyond those typically measured in

nancial statements. As a team development tool, this process provided
a platform to agree and disagree in a manner that enabled the selection
of the best overall solution. This process drove the team to focus on real
requirements rather than solutions, use unbiased measures and formu-
late product concepts that all could support. It also changed the views
of project team members who were emotionally locked into a solution.
They went on to create the products that the customer wanted and the
team could deliver.
By mid-1995, Cordis gained a market leadership position. Their revenues for
scal year ending June 1995 grew to $443 million. In February 1996, Johnson
& Johnson acquired them for $109 per share. Through the use of this process,
Cordis Corporation was able to successfully anticipate future opportunities and
make the trade-off and investment decisions that were required to accelerate the
creation and delivery of customer value. They were able to identify the product
features that delivered customer value and to deliver a series of products that
placed them in a unique and valued competitive position.

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CASE III: FORMULATING AN OPERATING STRATEGY AT
UNITED TECHNOLOGIES
In 1994, we were asked by Pratt & Whitney Aircraft, a division of United
Technologies, to help them formulate a strategy to improve their manufacturing
operation. The vice president of manufacturing sponsored the project. The project
mission was to determine whether or not a proposed investment should be made to
improve the manufacturing operation. Several individuals within the organization
supported the investment that had been proposed. They were prepared to move
forward with the investment. It should be noted top management proposed the
investment that was to be evaluated, and many within the organization viewed our
role as one of validating that management had made a good choice. It was known
that this investment would cost the organization approximately $7 million.
Management wanted to be certain that any investment made in the
manufacturing operation would deliver value to its customers. As a challenge to
the team, they were not only asked to evaluate the potential of the investment
under consideration, but to also come up with any other investment options that
would deliver greater levels of value.
The cross-functional team involved in the project included individuals from all
areas of the manufacturing organization. The customers were dened as the users
of the manufacturing facility, the manufacturing personnel and the stakeholders
in the manufacturing organization.
The facilitator and team performed the activities required to execute the pro-
cess. Desired outcomes were captured from each customer type in the customer
set. The team dened predictive metrics for each desired outcome and established
the relationships between the metrics and the desired outcomes. A questionnaire
was developed and used to collect the data needed to quantify the importance and
satisfaction of each desired outcome.
Once all the data was available and analyzed, the team used the data as a guide
to evaluate the investment decision. In the nal analysis, the team concluded
that the investment under consideration would enable the organization to better
satisfy approximately 8% of the customers’ desired outcomes. It was clear to the
team that the proposed investment failed to address many of the customers’ most
important and unsatised desired outcomes. Taking on the challenge of coming
up with a better investment strategy, the team went on to uncover a series of
smaller investments that would enable the organization to satisfy over 70% of the
customers’ desired outcomes better than they were currently being satised.
The ability of the team to redirect its attention to the areas of opportunity led
them to an investment strategy that delivered over 10 times more value than the

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investment strategy initially under consideration. As an added bonus, the cost
of the chosen investment strategy was less than the cost of the initially proposed
strategy. As a result of the project, management did not pursue the investment
that was initially proposed. Instead, it made many of the investments proposed by
the team.
By the end of 1996, the investments made by Pratt & Whitney management
were shown to deliver a major increase, estimated around 35%, in overall customer
satisfaction. In addition, the information resulting from the project has been used
on numerous occasions to evaluate other investment opportunities. This has given
management condence in its ability to make investment decisions that deliver
value to the organization and its customers.
This process enabled Pratt & Whitney to formulate a strategy that vastly
improved its manufacturing operation. This result was achieved by effectively
enabling the organization to make the trade-off decisions required to optimize
their investment decisions.

A QUANTIFICATION OF PROCESS BENEFITS AT

MOTOROLA
In early 1995, a group of approximately 30 individuals involved in formulating a
product strategy within Motorola were asked to evaluate the use of this process.
They were rst asked to state the desired outcomes they wanted to achieve from
an advanced strategy formulation process. Approximately 25 desired outcomes
were captured in total. Prior to executing this process with the team, they were
asked to rate the degree to which their desired outcomes were satised with the
methods they typically use for strategy formulation. They used a 5-point scale
where 5 meant completely satised and 1 meant very unsatised. The results of
that survey are documented in table below.
After the project was completed, they were again asked to rate their level
of satisfaction, this time with our advanced strategy formulation process. They
completed the evaluation using the same 5-point scale. The results for the top
desired outcomes are documented in table below. The percent improvement is
calculated in the column on the right.
The satisfaction levels of the desired outcomes shown here were improved
between 150% and 293%. The team considered them to be dramatic improvements
in satisfaction. Improvements such as these are possible as this strategy formulation
process provides the structure, information and processing power required to
overcome the traditional barriers that organizations face when formulating
strategies and solutions.

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A QUANTIFICATION OF PROCESS BENEFITS AT
HEWLETT-PACKARD
In another evaluation of this process, which was conducted in 1997, individuals
involved in the formulation of a product strategy for a group within Hewlett-
Packard compared the results obtained from their traditional strategy formulation
methods with those produced by this advanced strategy formulation process. It
should be noted that this particular HP division, like other divisions, is focused on
continuous improvement and strives to release product enhancements every six
months.
Upon conducting the evaluation, it was found that the product enhancements
created using their traditional strategy formulation methods typically satised
about 6% of their customers’ desired outcomes better than the previous product.
At this rate of improvement, it took them approximately 30 months, or ve product
enhancements, to better satisfy 30% of the customers’ desired outcomes. In
contrast, the use of this advanced strategy formulation process enabled them to
formulate a product concept that could be delivered within six months and satised
over 45% of the customers’ desired outcomes better than the previous concept. It
also enabled them to formulate a product concept that could be delivered within 12

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months and satised over 70% of the customers’ desired outcomes better than the
previous concept. This is more than a ve-fold improvement in the rate at which
value is created. The contrasting rates of value creation are shown in Figure 25.1.
The comparison shows that the use of this process dramatically accelerates
the rate at which customer value is created. As a result, the application of this
process is enabling HP to leapfrog several generations of products that would
deliver incremental value, and create product concepts that deliver breakthrough
results. Their objective now is to achieve continuous breakthrough improvement.

ADVANTAGES AND DISADVANTAGES OF USING THIS

PROCESS
Some of the more general benets of using this process were captured over time
from a cross section of individuals representing Fortune 100 companies and other
smaller organizations that have used this process to achieve a variety of objectives.
In their own words, users have stated that this process enabled their organization to:

1. Improve its ability to create value for the organization and its customers.
2. Increase customer satisfaction.
3. Consistently create breakthrough strategies and solutions.
4. Share knowledge and information company-wide.
5. Harness knowledge from across the organization and focus it on the creation
of value.

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 6. Enhance its ability to reach a conclusion or consensus.
7. Develop a valuable core competency.
8. Incorporate new thinking into the organization.
9. Dene the actions that enable the organization to achieve its objectives.
10. Decide how to allocate time and company resources.
11. Improve company policy.
12. Determine what the priorities of the organization should be.

As Peter Senge states in his book titled The Fifth Discipline (1990), ‘‘In the
simplest sense, a learning organization is a group of people who are continually
enhancing their capability to create their own future.’’ This process provides an
organization with the structure, information and processing power it requires to
create its own future. It enables the organization to focus on the metrics that
predict the creation and delivery of customer value, and systematically use that
information to accelerate the creation of value with breakthrough solutions. The
execution of this process is designed to assist in the construction of a learning
organization.
In addition to uncovering the recognized benets of this process, we have also
taken the time to understand why some organizations have been reluctant to use
this advanced approach to strategy formulation.
First, the effective use of this process requires thought and discipline. This
process provides everything that is required to create breakthrough strategies and
solutions, but individuals or teams still have to put in the effort to create, evaluate,
re-create and re-evaluate solutions until the optimal solution is discovered. This
may take time, coordination and team effort. It also requires thought, discipline
and creativity. Some organizations say they simply cannot nd the time it will
take to participate in this type of process. In reality, many organizations are often
spending much more time and effort formulating their strategies and solutions
than they would if they were to use this process. But because their activities are
completed over longer periods of time, and often consist of uncoordinated activities
that go untracked, they do not notice how much time they are actually spending
on formulating their strategies and solutions. It is difcult for some organizations
to recognize that this process will actually save them time and effort. In addition, it
will deliver them a breakthrough strategy or solution, something that rarely results
from the use of traditional strategy formulation methods.
Second, there are many steps associated with this process. They may not all be
easy to understand and internalize. One objective of this book is to provide enough

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detail about each aspect of this process to make individuals feel comfortable with
the concepts. If individuals are uncomfortable with any aspect of this process, they
may be less willing to use it.
Third, this process often challenges well-established paradigms and often re-
quires that individuals think differently about customer requirements, positioning
and other elements of strategy formulation. Many individuals simply do not want to
think differently about strategy formulation or learn a new process. This adversity
to change is common and expected. Individuals who are averse to change may not
be overly interested in using this process.
Lastly, this process may be perceived to shift the balance of power within
an organization as it provides workers and low-level management with a rst-
hand knowledge of the customers’ desired outcomes and the ability to use that
information to formulate breakthrough strategies and solutions. Not everyone views
this in a positive light. Since the decisions and recommendations of workers and
low-level managers using this process are based on fact, they may threaten others
in the organization who use politically or personally motivated criteria to drive
company activities. Others may perceive their span of control to be threatened. As
stated by C. Dan McArthur and Larry Womack in Outcome Management (1995),
‘‘The organization’s structure, infrastructure and activities must be driven by the
needs of the customer and the business of the company, not by personal needs
and ambition.’’ Not everyone, however, prefers to act in accordance with this
philosophy.

SUMMARY
We have shown that this process is being used by organizations around the world
to effectively formulate company strategies, product and services strategies
and strategies that drive an organization’s operating, support and management
processes. We have documented several cases in which this process has produced
breakthrough strategies and solutions. For example, when using this process to
improve the development of composite materials, a Fortune 100 company gured
out how to reduce the cost of development by over 80% while reducing development
time by nearly 75%. A cardiac pacing system company used this process to create a
product that offered the same function as a highly valued competitive product, but at
40% of the cost. A manufacturer of industrial packaging used this process to create
a strategy that increased their market share by 10% in an environment in which the
top ten players had less than 50% market share. A medical device manufacturer
used this process to create a line of angioplasty balloons that took them from less
than 1% market share to a market leadership position in just two years.
In addition to documenting several case studies that demonstrate the
successful execution of this process, we have also documented process evaluations

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that describe the amount of value this process has generated for two well-known
companies.
One evaluation of this process, completed at Motorola in 1995, showed that
many of the important desired outcomes they wanted to achieve from a strategy
formulation process were far better satised through the use of this process than
they were through the use of their traditional strategy formulation methods. This
process was documented to deliver dramatic increases in the satisfaction of many
of Motorola’s most important desired outcomes relating to the process of strategy
formulation. The satisfaction levels of many desired outcomes were improved by
over 150%. Some satisfaction levels were increased by 293%, nearly a three-fold
improvement.
In 1997, a process evaluation was completed at Hewlett-Packard. The
evaluation showed that the use of this strategy formulation process accelerated
the rate at which they could create value for their customers by a factor of 5.
Dramatic improvements such as these are possible, because strategy formulation
process provides the means by which to formulate breakthrough strategies and
solutions. It enables organizations to overcome the traditional barriers they often
face when executing the process of strategy formulation. It provides the structure,
information and processing power that is required to accelerate the creation and
delivery of customer value.

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THE
BUSINESS STRATEGY
TOOLBOOK
The Toolbook is the compilation of key business organizations. The fact is that
models, frameworks, concepts, techniques professionals across spectrums deploy
and tools deployed in developing and business strategy to proact and react to
executing strategies formally in increasingly complex, volatile and
organizations. These are sourced from unpredictable environmental forces.
popular strategy and business books,
research papers and white papers of The Toolbook aims to share standard ware
leading business consulting firms. that aid in logical, informed and structured
application of the body of strategic
For students and practitioners of business, management knowledge in arriving at
management and leadership, decisions that will have higher probability
understanding how to systematically of succeeding in resolving threats and
comprehend problems, analyze causes and opportunities arising in the life and times
devise solutions is critical. of organizations and their managers.

The use of the frameworks and tools

presented in this book is limited only to

Curated by Subject Matter Experts and the TSI-certified community

exclusively for the registrants of the Strategy Institute

[Link]