Organizational strategy is the subject which was discussed for a long time already and is currently a hot subject targeted by many famous managerial scientists and managers themselves. There’re different schools of definition of strategy, of the ways of its creation and operation. Let me please focus on one of famous articles of Michael E. Porter «What is Strategy?» from Harvard Business Review of November-December 1996’s release. You can buy it, or I found it here available for reading.

I would like to graphically present how I see the theory Porter is describing.

Figure 1. The components of The Strategy

I have composed all the matters Michael Porter is talking about on this slide. Excellent, however question «how do I start?» remains open. And how you start and how you come to this «integrated cloud» is another source of your competitive advantage. Porter is talking of parts and required components of the strategy, thus we assume all them should be considered.

Way 1: Using pyramid of purposes, or market-based approach. You state the (core) mission, fixing starting point in the dimensions of products or services you will be producing, of needs your products will be serving and the way (channels) you will be providing these products and services to the users. Then you go to define the cloud – the vision, how your organizations should be ideally shaped to be profitable around the mission defined. Then you go to rational planning to see which tasks or functions are primary ones, which are supporting ones (using value chain analysis), and create a web. As web starts functioning, you focus on excelling performance and increasing of value produced by primary and secondary activities.

What is an advantage? Community understanding of what it can expect from the organization. Product or service variety is predefined, customer segments are predefined and needs to satisfy of these segmented customers are predefined. Quality is on acceptable level.

What is a disadvantage? If organization is to go for differentiation – how to get new direction consistent with existing mission and vision? How to communicate to customers and employees on what is expected from them now and what is going to be produced and for whom?

What can be a problem here? The order used. Mission and Vision are fundamental at “low-level” and everything is a function of them. And it is possible that it will be hard to change them without revision of all “higher-level” components, without re-structuring of the web, re-evaluating points of value-adding (distinctive features).

Example: At the beginning HP (Hewlett-Packard Co) was producing oscilloscopes; then calculators; then printers and computers. HP states it is an IT company, because all this stuff can form IT infrastructure. Then HP is making digital cameras, and even TVs. Who will vote that TVs are IT equipment? This is better called an element of communication technology. But at present time we see that these technologies converge. Can we consider that HP is setting new meaning for «Information Technology» – as positive process, or HP is doing wrongly differentiating from innate technologies? The answer is that organization should keep pace of the development of sociological mindset, or set new mindsets and standards. HP wants to be the leader in IT, then why it starts making televisions? The exercise of revision of all the parts of The Strategy is essential, but communication of changes is even more critical. HP should overtly state that it is to re-define the term of «Information Technology»!

Way 2: Starting with distinctive features, or resource-based approach. If you know your organizational strengths and weaknesses, you can build value chain in reversionary way. Create a web adding supporting activities, fit activities to each other and define links of communication between them. Then see which clouds are flying around the system (vision), and identify where this cloud may possibly move in long-term (mission). It is worth noting that the system may fit in multiple clouds, and as you may not be able to operate in all the clouds, this situation requires trade-off decision of choosing which cloud you target (at least initially).

What is advantage? Organization can achieve superior quality in their area of expertise, or within the domain of its distinctive features. All will benefit: organization itself and its customers.

What is disadvantage? Focusing on primary activities of value chain organization may strategically choose to outsource supporting functions, and become a kind of «virtual organization». In this case organization will require strong partner management and collaboration skills not to lose effectiveness in performing supporting functions of value chain.

What is a problem here? Cloud drift. It may easily appear that cloud will drift away, and there will be no need in this superior quality any more. And whole value chain will be useless...

Example: Yamaha Musical Instruments (Nippon Gakki Co). It is an expert in music, and makes all the stuff starting from non-electric string instruments to the electronic audio micro-chips and musical processors of superior quality. They are innate experts in music for many-many years, and this is their competitive advantage. They, as all other Japanese corporations, work in the environment of close relationships and cooperation with «peer» corporations, belonging to one conglomerate organization. It is hard to imagine, but think of the situation if people will stop loving music... What Yamaha Musical Instruments will be doing then?

Way 3: Strategy change or extension. You may argue that Way 2 I described here is not viable and hard to apply to the practice. However this way can be applied to the strategy changes and extensions. Before opting to strategic change, check current fit between activities and identify where strategic competitive advantages lie. Then do the same, using resource-based approach, for new layout. How can we ensure that we do not lose our current advantages by compromising our focus and abandoning them? How can we leverage them for new extended area? How well new extended area fits into current space, and how new activities and competencies from this area can improve current competitive advantages?

I am sure you will see another ways how to create a strategy and then find a way how to improve operational effectiveness of «The Web».

Post of Nov 2, 2007