WHAT IS STRATEGY

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WHAT IS STRATEGY ?

• Article overview
• Kodak Case Study
• Pillsbury Case Review
• Strengths and Weaknesses

Middat Yildiz
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What is Strategy ?Michael Porter, Harvard
Business Review, Nov/Dec., 1996

• Strategy is not operational effectiveness
• Operational effectiveness (OE) is performing
  activities better than rivals perform them.
• OE is achieved by reengineering, TQM,
  Benchmarking, and outsourcing.
• That is simply a strategic necessity that needs
  to be performed on a regular basis to survive.
• Positioning which is too static
• However, OE can create sustainable advantages

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Foundation for Strategy

• Unique set of activities - OE
• Southwest Airlines has a set of activities that
  it excels in such as,
• Low cost and minimal food
• Point-to-point service and frequent departures
• No inter-line baggage checking, no assigned seats
• Continental tried to imitate ... butit failed.

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Foundation for Strategy

• Strategic positioning
• Variety based Producing subset of industry
  products
• Example Vanguards low cost fund management
  approach
• Needs based Satisfying all the needs of the
  customer
• Example Bessemer Trust banking for 5M
  customers
• Trade-offs are needed to create sustainability
• In consistency in image / reputation
• Lack of uniform activity requirements
• Limits on internal coordination and control

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Strategy

• Strategy is the creation of a unique and valuable
  position, involving a different set of
  activities.
• Strategy is making trade-offs in competing.
• Strategy is about combining activities and
  achieving a fit in terms of
• consistency of activities overall strategy
• reinforcing of activities
• optimization of effort

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Where do you get this?

• By reconsidering the basics
• Identifying new emerging businesses
• Environmental / economic change
• By finding overlooked opportunities in existing
  industries

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Pitfalls

• Managers fail to choose
• Organizational realities
• dealing with the hard questions
• The Growth Trap
• A lack of business discipline and poor
  communication

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Summary
CUSTOMER BASE

• Trade offs
• Strategic Fit

STRATEGICALLY POSITIONED PRODUCTS
UNIQUE SET OF OPTIMIZED ACTIVITIES
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Eastman Kodak

• A case of restructuring unfinished!

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Late 80s / Early 90s

• Running scared of new digital technology
• 5 separate restructurings
• 40,000 jobs cut
• USD10Bn spent on diversification
• Debt/Equity ratio at historic high levels
• New Chairman/CEO (G Fisher) appointed

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What was said...
Turning the company around would require one of
the greatest feats in business annals
Glazer
Fisher has no interest in implementing a cut,
slash and burn operation. He is going to take his
time to think, reconfigure, readapt, reposition
and grow the company
Prahalad
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The new vision strategy
The Vision
To be the world leader in one business - IMAGING
The Strategy

• Rededicate Kodak to historic core strength -
  taking making pictures
• Broadened focus to take advantage of new digital
  technology
• Divest of all non-core businesses
• Develop new markets for growth

Plus
Improve quality through adoption of six-sigma
standard
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The good news..

• Reconnected to strategy by going back-to-basics
• Repositioning of company took advantage of new
  technology
• Sought needs based positioning
• Sought competitive advantage sustainability
  through fit
• consistency between activities strategy
• activities are reinforcing
• Long term view

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The bad news...

• Fell into growth trap - took eye off key home
  market
• Suffered organisational failure
• corporate culture not realigned to new strategy
• mind-set of previous generation remained in place
• New strategy not supported by given of OE
• excessive costs remained imbedded in Kodak

The result

• Major losses in 2nd half of 1997
• Lost 5 percentage points in market share in US

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The reaction..
Cut, slash burn

• USD1.2Bn restructuring charge in FY 1997
• USD1Bn overhead cost cut
• 16,000 workers cut
• 200 senior middle management positions
  eliminated

The result

• Profits up 39 in first half of 1998 versus 1997

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Conclusion

• Got the strategy right
• Positioned itself for sustainable competitive
  advantage
• BUT
• Failed to take the HARD decisions
• Took OE as a given when it did not exist

Porters proposal will not work in parts but only
as a whole
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PillsburyCustomer Driven Reengineering

• We entered our Customer Driven Reengineering
  initiative expecting to achieve levels of cost
  reduction and efficiency. To our delight, we also
  discovered a new way to compete.
• Paul S Walsh
• CEO, The Pillsbury Company

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Pillsbury in the late 1980s

• Divest unrelated activities

• Focus on core businesses - food and beverages

Strong brands
Directly marketed products
Loose relationship with retailers
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Pillsbury Changing Environment

• Competition
• Consumer preferences
• Brand Awareness
• Purchasing decisions Shelf Availability Price
• Technology
• Ads
• Partnership with retailers

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New Strategy

• HOW to create a new and sustainable competitive
  advantage? HOW to be the best in providing the
  freshest product and the lowest cost?

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Pillsbury No New Strategy

• Porter
• Trade-offs
• Fit and reinforcement
• Unique positioning

• Pillsbury
• No trade-offs
• Poor reinforcement
• Focus on OE

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Conclusion Pillsbury

• Mind-set
• Cost reduction story
• Focus on OE
• No uniqueness
• Not sustainable

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Critique

• Strengths
• This is a good model to envision the leap in
  mature businesses and restructuring situations
• It offers an integrated solution because it has
  an strategic and implementation orientation
• It makes common sense

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Critique

• Weaknesses
• This model is not universal (not applicable for
  growth industries)
• Porter makes the effort sound too easy
• Not everybody can do this - leadership question

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Challenge

• Everyone knows the words of the new song but few
  can hold the tune.