Welcome back. strategy development is the sexy art in Management Science. The really great companies in the world the apples the IBM the Coca Cola, the Walmart's, the G's can attribute much of their lasting long term success to great strategy development. There have been no shortage of companies which no longer exist because their strategy was poorly formulated. Think of Corona typewriter company that was unable to adapt to changes in the word processing sector. Think of Kodak once dominant in the film industry, now bankrupt and defunct.

Well, brilliant strategy development is no guarantee of success. Poor strategy development can jeopardize your long term existence of the hundred largest companies 100 years ago, only 16 still exists today. Poor strategy development does that to you. And it's hard to recognize poor strategy in the context of only a couple of years. Another reason supporting what all organizations should spend Sometimes each year thinking about the long term viability and success of their organization. strategy development becomes the roadmap that bridges our current state to our future state.

Strategic Plans look out over several years at a time, whereas operational plans and budgets take one year of that strategic plan and operationalize it. That is to say validating the strategy and executing it. So in this lesson, we're gonna talk about ideas for developing strategy. Let's begin by looking at a model for thinking about corporate strategy. Now, back in the 1970s, the Boston Consulting Group determined that there were two primary determinants for the success of a business, first, the market growth of the industry and second, the organization's market share within that industry. In other words, the most successful businesses were companies with a dominant position in a growing market.

These businesses who Now infamously labeled as stars. The other three quadrants reflect less than ideal situations, which describe many of our businesses that exist today. Dogs are the opposite of stars, in other words, a business in a low growth market where it holds a low market share. The other two quadrants offered different strategic outlooks. cash cows are typically mature businesses with high market shares but weak growth prospects and question marks are those that have high growth potential, but for whatever reason, the company is not currently a significant player. Like the SWOT analysis, this tool provides you with more insight when you break down your businesses into logical components, which might include different customer segments, products or service lines, geographic regions or lines of business.

The more refined you make this analysis using tools like this, the more helpful and obvious strategy formulation will Become. Let's connect the tea leaves that we read in our current state assessment of our last lesson to our strategy formulation analysis. by plotting our strengths and weaknesses on the y axis, and our opportunities and threats on the x axis, we have created four new quadrants. Let's call this a positioning matrix. returned to your conceptual representation of the SWOT analysis. You can now plot your SWOT analysis on the positioning matrix using the profile you came up with.

There are four profiles that map to each one of the four quadrants. these quadrants are just another way to translate our SWOT analysis into an assessment of how well positioned we are. Let's layer on the Boston Consulting Group matrix to complete our integration of the various strategy tools. Now we can start talking about strategy formulation. In military terms, there are four generic strategies that translate well into the business world, attack, defend, reinforce, and retreat. Let's put those into the quadrants.

These labels give us the high level strategies with the highest probability of success. Our tactical strategies and execution will still vary considerably within each quadrant. Let's drill a layer deeper still and articulate some of these these tactical strategies within each of the four quadrants. Attack strategies imply opportunities for growth to capitalize on your strengths. The tactical choices for achieving growth are many and varied including organically growing the business, accelerating growth through mergers and acquisitions, growing through vertical or horizontal integration, diversifying the business franchising, licensing, even partnering with others. Each of these different approaches comes with their own pros and cons and potential implications on competitive positioning our dog lines of business call for retrenchment strategies.

Here, the choices are going to be fewer, which is typically the case when you have a business that resides in this quadrant. Now, you may hope to turn around the business but let me tell you as someone who is involved in a company that specializes in turning around underperforming businesses, it's a lot of work and there's no guarantee of a silver lining. Sometimes divesting of the business, if you can, or liquidating the business if you have to, or the better overall decisions in a long term context. In our Cash Flow Quadrant, we typically still have a strong profitable line of business that makes sense to defend. Sometimes this defense means doing nothing at all, even if we were just biding our time until one or more of those threats becomes more defined, sometimes by its nature. of a mature or declining market, it just makes sense to maximize the profits for as long as possible, such as the nature of pursuing a stability strategy.

And finally, the question marks, we label this a reinforcement strategy. But really, it's a lot more uncertain than that. Because Currently, we lack internal capabilities to capitalize on the market opportunity. So we could reinforce the line of business by attempting to acquire those capabilities and hope to move that question mark business toward the star quadrant. If the opportunity just happens to be large enough, and it's still profitable to do so, we could continue playing in a lucrative market just as a smaller player. And finally, you may want to exit this line of business, if it's something that you don't think you'll ever be able to become successful in.

Better to fail early than to have a question mark that transitions into a dog. This is the nature of question mark lines of business. So in fact, when you You sit down to discuss strategy, what often comes out is a list of ideas. So take, for example, my hotel that we talked about earlier, the executive team dug into this particular hotel and did a deep dive into some of the potential strategic improvement ideas for the property. A long list of items emerged from this discussion. Are all of these items strategic should these be categorized prioritize screen somehow?

The long list of strategic issues like this can be classified into four different levels. Corporate Strategy issues are those that we were just discussing that is deciding what we should do with the line of businesses we are in. Because this particular hotel was classified in the dog quadrant. The choices were to sell it, turn it around or close it. Because of the location there were plenty of buyers interested in the property. As such, we were able to eliminate closing the property as a strategic option.

The next layer down is business strategy which largely addresses how We compete in the marketplace. So Michael Porter would describe this as the essence of strategy. Are we a low cost provider? Do we have a unique product or service offering? Do we offer exceptional customer intimacy. But in the case of our Dog Hotel, perhaps there isn't even a viable business strategy for this property, which is why business strategy comes below the corporate strategy in this hierarchy.

The layer below that is functional strategy, and that is how do we fulfill and deliver upon our value proposition. every department and function inside the business has some degree of functional strategy, from finance to HR to manufacturing to sales and marketing. And at the lowest level, we have tools for strategy implementation, including our employees, our policies and procedures, which aren't strategy per se, but without them, strategy doesn't happen. So now let's return to our list and classify all of our issues into one of these four categories. We need to work from the top downward in the strategic high hierarchy. In other words, corporate strategy issues prevail over business strategy which prevail over functional strategy.

So, the key strategic issues is the ones that fall highest in the hierarchy for which there are competing alternatives. In this case, it's to determine whether we should sell or turn around this particular hotel, we can now state our strategic issue, stating the strategic issue helps us focus and sequence the discussions. divesting of the hotel is a fairly straightforward alternative to evaluate. We can go talk to a few brokers and put the property on the market to see what we can get for the turnaround alternative is a little bit more complex because there's a few different ways we could accomplish this. The risk and phrasing a narrow strategic issue is that it presupposes the ideal solution has already been identified. So here are a few ideas for ensuring that you think broadly about develop Strategic alternatives.

First, don't fall into the trap of allowing yourself to frame a strategic decision as we either have to do something or we don't. This is a clear indication that little thought has been given to developing true strategic alternatives. Secondly, consider the opportunity cost of a decision that is to say, by pursuing this option, what are we not doing? This is another wonderful open ended discussion aimed at broadening the thinking. Third, if those don't work, eliminate the proposed solution as an option for the time being and force consideration of other alternatives. Decision Making has been studied, and it's found to be six times more effective when there are multiple alternatives considered.

And finally, ask yourself and your team the question, what would have to be true for this option to be the best option? This question forces managers to gather evidence to develop a factual based business case for each option and avoids talking about all the options simultaneously. This question is specifically designed to give people even those with a vested interest and opportunity to back away from their beliefs and give them the freedom to explore other alternatives. Back to my hotels, there was a variety of business strategies that the company could pursue to maximize value including repositioning the hotel itself, converting it to apartments, or converting it to a senior living facility. So some additional strategic analysis and forecasting will be required to determine which of these which is the most viable. Having a list of strategic criteria can help distinguish the different alternatives.

At a minimum, each alternative must be suitable to the situation feasible in terms of resourcing and consistent with the vision before the ultimate Should be a candidate for more detailed strategic and financial analysis. Many organizations will develop other criteria such as a return threshold or synergies with existing lines of business or a thresholds of execution risk. For us the key criteria we use to evaluate the turnaround plan hinged on the factors listed on the left of this table. There's no magic formula forcing you to select strategy. Often instinct plays a significant role. But by probing instinct, the CFO can develop a matrix like this to support and facilitate consensus around the most optimal alternative.

One strategy is set. It's time to begin execution. And in our next lesson, we're going to tackle implementing strategy. Hey, keeping it on track.