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Mastering the Rules of Competitive Strategy A Resource Guide for Managers Contents Dedication............................................................................................................ xi Introduction...................................................................................................... xiii Defining Strategy for Business Applications ........................................ xvi Roots of Strategy................................................................................. xvii Organization of the Book...................................................................... xviii The Author............................................................................................................. xxi 1 Shift to the Offense: Turn a Risky Competitive Situation into a Fresh Market Opportunity...........................................................................1 Shift to the Offensive with Boldness......................................................... 3 Make Reliable Estimates and Calculations ............................................ 4 Internal and External Relationships................................................. 4 Seasonal Forces................................................................................... 6 Market Selection.................................................................................... 6 Policy............................................................................................................ 7 Prioritize Your Actions............................................................................8 Hold Reserves to Exploit Opportunities................................................. 10 Assess Levels of Creativity and Innovation............................................ 12 Evaluate the Ability of Personnel to Deal with Friction.......................... 14 Limit the Negative Effects of Friction....................................................... 15 Strategy Diagnostic Tool.......................................................................... 16 Strategy Rule 1: Shift to the Offensive.............................................. 16 2 Maneuver by Indirect Strategy: Apply Strength against Weakness.......... 19 The Power of Indirect Strategy................................................................. 20 Developing an Indirect Strategy............................................................. 22 Define the Strategic Goals................................................................. 22 What Are Our Organization's Distinctive Areas of Expertise?...... 22 What Should Be Our Organization's Business during the Next Three to Five Years?........................................................................ 23 What Segments or Categories of Customers Will We Serve?........ 23 What Additional Functions Are We Likely to Fulfill for Customers as We See the Market Evolve?................................... 24 What New Technologies Will Our Firm Require to Satisfy Future Customer Needs?............................................................ 24 What Changes Taking Place in Markets, Consumer Behavior, Competition, Environment, Culture, and the Economy Will Impact Our Company?.................................................................24 Determine the Resources Needed to Achieve the Strategic Goals....26 Gather Competitive Intelligence.........................................................28 Establish Security............................................................................ 30 Implement the Strategy.................................................................... 32 Develop a Poststrategy....................................................................... 33 Prolonging the Life of Existing Products and Creating New Product Opportunities................................................................ 34 Enhancing and Prolonging Customer Relationships....................35 Summary............................................................................................. 36 Strategy Diagnostic Tool......................................................................... 36 Strategy Rule 2: Maneuver by Indirect Strategy............................... 36 3 Act with Speed: The Essential Component to Secure a Competitive Lead...................................................................................... 39 Strategic Value of Speed........................................................................ 40 Barriers to Speed.................................................................................. 43 Lack of Reliable Market Intelligence................................................... 44 Mediocre Leadership Stifles Timely and Significant Progress.......... 45 A Manager's Low Self-Esteem and Indecisiveness as Deep-Rooted Personality Traits.............................................................................. 46 Lack of Courage to Go on the Offensive, Triggered by a Manager's Innate Fear of Failure....................................................................... 46 No Trust by the Manager in Employees' Discipline, Capabilities, or Skills.............................................................................................. 47 No Trust by Employees in Their Manager's Ability to Make Correct Decisions................................................................................47 Inadequate Support from Senior Management................................ 48 Disagreement and Open Confrontations among Line Managers about Objectives, Priorities, and Strategies..................................... 48 A Highly Conservative and Plodding Corporate Culture Places a Drag on Speed....................................................................................49 Lack of Urgency in Developing New Products to Deal with Short Product Life Cycles............................................................................... 49 Organizational Layers, Long Chains of Command, and Cumbersome Committees Prolong Deliberation and Foster Procrastination.................................................................................49 Aggressive Competitors Can Strike Fear among Employees, Damage Morale, and Result in Lost Momentum...............................50 Complacency or Arrogance as a Prevailing Cultural Mindset.......... 52 Speed: A Core Rule of Strategy.................................................................52 Summary...............................................................................................53 Strategy Diagnostic Tool...........................................................................53 Strategy Rule 3: Act with Speed.........................................................53 4 Grow by Concentration: Deploy, Target, Segment.....................................57 Select Your Segment and Shape Your Competition..............................64 Guidelines to Utilizing Grassroots Ethnography.................................. 67 Step 1: Map a Segment..................................................................... 67 Step 2: Create a Special Language................................................... 68 Step 3: Observe Body Language........................................................ 68 Step 4: Describe the Ritual.............................................................. 68 Eight Categories of Markets................................................................... 69 Natural Markets................................................................................69 Leading-Edge Markets.........................................................................72 Key Markets..........................................................................................73 Linked Markets.................................................................................. 73 Central Markets................................................................................75 Challenging Markets.......................................................................... 76 Difficult Markets.................................................................................. 76 Encircled Markets............................................................................. 77 Summary............................................................................................. 82 Strategy Diagnostic Tool......................................................................... 83 Strategy Rule 4: Grow by Concentration...........................................83 5 Prioritize Competitive Intelligence: The Underpinnings of Business Strategy................................................................................... 87 Competitive Intelligence: The Underpinnings of Business Strategy.....89 The Call to Action................................................................................ 90 Tools and Techniques of Competitive Intelligence................................ 92 Sales Force......................................................................................... 92 Customer Surveys............................................................................ 92 Published Data.................................................................................93 Government Agencies......................................................................... 93 Industry Studies............................................................................. 94 On-Site Observations........................................................................ 94 Competitive Benchmarking............................................................... 94 Internal Competitive Intelligence........................................................... 95 Reverse Engineering........................................................................... 96 Market Signals.................................................................................. 97 Employing Agents.................................................................................... 98 Native Agents........................................................................................ 98 Inside Agents...................................................................................... 99 Double Agents..................................................................................... 100 Expendable Agents............................................................................ 100 Living Agents.......................................................................................... 100 Competitive Intelligence Applications.................................................... 101 Market Selection................................................................................. 101 Maneuvering....................................................................................... 102 Positioning.......................................................................................... 103 Summary............................................................................................. 104 Strategy Diagnostic Tool......................................................................... 105 Strategy Rule 5: Prioritize Competitive Intelligence.......................... 105 6 Align Competitive Strategy with Your Corporate Culture: The Lifeline to Your Organization's Future................................................... 107 Characteristics of High-Performing Business Cultures........................ 110 Decoding Competitors ........................................................................... 117 Beliefs....................................................................................................... 119 Symbols and Rituals.........................................................................122 Energize Your Company's Culture........................................................ 124 Summary............................................................................................. 126 Strategy Diagnostic Tool......................................................................... 127 Strategy Rule 6: Align Competitive Strategy with Your Corporate Culture............................................................................................ 127 7 Develop Leadership Skills: The Moral Fiber Underlying Business Strategy.................................................................................................... 129 Self-Confidence......................................................................................... 134 Qualities of Successful Leaders.............................................................135 Levels of Leadership............................................................................ 135 Leadership in the Competitive Arena.................................................... 140 Leadership and Implementing Strategy............................................ 142 Power Up Your Business Strategy......................................................... 143 Strategy Diagnostic Tool......................................................................... 145 Strategy Rule 7: Develop Leadership Skills....................................... 145 8 Create a Morale Advantage: Engage Heart, Mind, and Spirit When All Else Fails.....................................................................................149 Motivational Behavior.............................................................................. 152 Herzberg's Motivation-Hygiene Theory...............................................152 McGregor's X and Y Theories............................................................... 152 Maslow's Hierarchy of Needs............................................................. 152 Ouchi's Theory Z............................................................................... 154 Morale Meets Technology......................................................................... 155 Morale Faces the Human Heart........................................................... 157 Morale Connects with the Power of Unity............................................. 158 Activating High Morale and Maintaining Momentum........................... 159 Barriers to Building Morale................................................................... 161 Action Steps to Build Morale................................................................. 163 Morale Interfaces with Innovation.........................................................164 Morale Links with Trust........................................................................ 166 Summary............................................................................................. 166 Strategy Diagnostic Tool......................................................................... 166 Strategy Rule 8: Create a Morale Advantage....................................166 9 Strengthen Your Decision-Making Capabilities: Fortify Intuition, Enhance Business Experience, Expand Knowledge............................. 171 Valuing Business History......................................................................176 Managing Knowledge................................................................................178 Activating Intuition.................................................................................179 The Human Element............................................................................ 184 Strategy Diagnostic Tool......................................................................... 186 Strategy Rule 9: Strengthen Your Decision-Making Capabilities .. 186 Appendix The Strategic Business Plan: Forms and Guidelines.................. 189 Overview of the Strategic Business Plan Strategic Section.................. 190 Section 1: Strategic Direction................................................................ 190 Planning Guidelines......................................................................... 191 Section 2: Objectives and Goals............................................................ 192 Planning Guidelines......................................................................... 192 Quantitative Objectives................................................................ 193 Nonquantitative Objectives........................................................... 193 Section 3: Growth Strategies................................................................ 193 Planning Guidelines......................................................................... 193 Section 4: Business Portfolio Plan.........................................................194 Planning Guidelines......................................................................... 194 Overview of the Strategic Business Plan Tactical Section....................196 Section 5: Situation Analysis................................................................ 197 Planning Guidelines......................................................................... 197 Level A: Marketing Mix--Product.................................................. 197 Level A: Marketing Mix--Pricing.................................................... 199 Level A: Marketing Mix--Supply Chain and Methods................ 199 Level A: Marketing Mix--Advertising, Sales Promotion, Internet, and Publicity............................................................. 200 Level B: Competitive Analysis.......................................................201 Level C: Market Background.......................................................204 Section 6: Marketing Opportunities....................................................206 Planning Guidelines........................................................................ 206 Section 7: Tactical Objectives.............................................................. 208 Planning Guidelines...................................................................... 208 Assumptions..............................................................................208 Primary Objectives.......................................................................209 Targets of Opportunity Objectives..............................................210 Section 8: Strategies and Tactics....................................................... 214 Planning Guidelines........................................................................ 214 Summary Strategy..........................................................................215 Section 9: Financial Controls and Budgets........................................215 Planning Guidelines........................................................................ 215 Index................................................................................................................... 217