Strategy Highlight 1.2
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The tasks of analyze, formulate, and implement are the pillars of research and knowl- edge about strategic management. Although we will study each of these tasks one at a time, they are highly interdependent and frequently happen simultaneously. Effective man- agers do not formulate strategy without thinking about how to implement it, for instance.
Likewise, while implementing strategy, managers are analyzing the need to adjust to chang- ing circumstances.
We’ve captured these interdependent relationships in the AFI strategy framework shown in Exhibit 1.5. This framework (1) explains and predicts differences in firm per- formance, and (2) helps managers formulate and implement a strategy that can result in superior performance. In each of the three broad management tasks, managers focus on specific questions, listed below. We address these questions in specific chapters, as indicated.
Strategy Analysis (A) Topics and Questions
■ Strategic leadership and the strategy process: What roles do strategic leaders play?
What are the firm’s vision, mission, and values? What is the firm’s process for creating strategy and how does strategy come about? (Chapter 2)
■ External analysis: What effects do forces in the external environment have on the firm’s potential to gain and sustain a competitive advantage? How should the firm deal with them? (Chapter 3)
AFI strategy framework A model that links three interdependent strategic management tasks—
analyze, formulate, and implement—that, together, help managers plan and implement a strategy that can improve performance and result in competitive advantage.
EXHIBIT 1.5 /
The AFI Strategy Framework
1. What Is Strategy?
3. External Analysis: Industry Structure, Competitive Forces, and Strategic Groups
4. Internal Analysis:
Resources, Capabilities, and Core Competencies 5. Competitive Advantage, Firm Performance, and Business Models
6. Business Strategy:
Differentiation, Cost Leadership, and Blue Oceans
7. Business Strategy: Innovation and Entrepreneurship 8. Corporate Strategy: Vertical
Integration and Diversification 9. Corporate Strategy: Strategic Alliances, Mergers and Acquisitions
10. Global Strategy: Competing Around the World 11. Organizational Design:
Structure, Culture, and Control Getting
Started
External and Internal Analysis
Formulation:
Business Strategy Formulation:
Corporate Strategy Implementation
Gaining &
Sustaining Competitive Advantage
12. Corporate Governance and Business Ethics
2. Strategic Leadership:
Managing the Strategy Process
Part 1:
A
nalysisPart 1:
A
nalysisPart 2:
F
ormulationPart 2:
F
ormulationPart 3:
I
mplementation■ Internal analysis: What effects do internal resources, capabilities, and core competen- cies have on the firm’s potential to gain and sustain a competitive advantage? How should the firm leverage them for competitive advantage? (Chapter 4)
■ Competitive advantage, firm performance, and business models: How does the firm make money? How can one assess and measure competitive advantage? What is the relationship between competitive advantage and firm performance? (Chapter 5) Strategy Formulation (F) Topics and Questions
■ Business strategy: How should the firm compete: cost leadership, differentiation, or value innovation (Chapters 6 and 7)
■ Corporate strategy: Where should the firm compete: industry, markets, and geography?
(Chapters 8 and 9)
■ Global strategy: How and where should the firm compete: local, regional, national, or international? (Chapter 10)
Strategy Implementation (I) Topics and Questions
■ Organizational design: How should the firm organize to turn the formulated strategy into action? (Chapter 11)
■ Corporate governance and business ethics: What type of corporate governance is most effective? How does the firm anchor strategic decisions in business ethics?
(Chapter 12)
The AFI strategy framework shown in Exhibit 1.5 will be repeated at the beginning of each part of this text to help contextualize where we are in our study of the firm’s quest to gain and sustain competitive advantage.
In addition, the strategy process map, presented at the end of Chapter 1, illustrates the steps in the AFI framework in more detail. The different background shades correspond to each step in the AFI framework. This strategy process map highlights the key strategy concepts and frameworks we’ll cover in each chapter. It also serves as a checklist when you conduct a strategic management analysis.
1.4 Implications for the Strategist
The difference between success and failure lies in a firm’s strategy. Applying the tools and frameworks developed in this text will allow you to help your firm be more success- ful. Moreover, you can also apply the strategic management toolkit to your own career to pursue your professional and other goals (see the myStrategy modules at the end of each chapter). Basically, strategy is the art and science of success and failure.
The strategist appreciates the fact that competition is everywhere. The strategist knows that the principles of strategic management can be applied universally to all organizations. Strategists work in organizations from small startups to large, multina- tional Fortune 100 companies, from for-profit to nonprofit organizations, in the private as well as public sector, and in developed as well as emerging economies. The strate- gist also knows that firm performance is determined by a set of interdependent factors, including firm and industry effects. The strategist is empowered by the fact that the actions he or she creates have more influence on firm performance than the external environment.
The excitement was high when Twitter went public in the fall of 2013. Twitter’s share price soared from $26 at its initial public offering (IPO) to over $73 within a few short weeks. But a year and a half later, after ups and downs, Twitter was trading well under the IPO price. To add insult to injury, Twitter’s debt was rated “junk,” reflecting the higher risk of default in relation to investment-grade bonds. At the same time, Twitter’s market capitalization was about $25 billion (share price × outstanding shares) with annual revenues of $1.4 billion, while losing roughly
$1 billion a year.
By the summer of 2015, Dick Costolo was coming under increasing pressure because of Twitter’s lack of user and revenue growth. As a consequence, he was forced to resign July 1. A former improv comedian, Costolo’s leader- ship style involved not only frequent but also often unex- pected and rapid shifts in strategy. This may have worked well in Twitter’s early days when he turned the rough-and- tumble startup into a highly sought-after candidate by Wall Street for an initial public offering (IPO). Costolo strug- gled to define a clear and consistent strategy for a business that continued to lose money despite a tremendous cul- tural impact. This led to frustration and confusion among Twitter employees and other stakeholders. What Twitter needs, they argued, is a leader who takes a more proac- tive and strategic stance, as Mark Zuckerberg did when he declared that services on mobile devices is the future of Facebook and backed up this commitment with a high level of investments. In July 2015, Twitter co-founder Jack Dorsey returned as CEO; Dick Costolo tweeted “Welcome
back, @jack!!” The question remains whether Jack Dorsey, who serverd as Twitter’s CEO from 2008 to 2010, can turn the company around. He is quite busy, because he is also the CEO of Square, a mobile payment services company.47
Questions
1. Why is Twitter struggling? What role do industry and firm effects play here?
2. What grade would you give Dick Costolo, Twitter’s CEO from 2010 to 2015? Support your
decision with specifics. Also, list some of his leader- ship strengths and weaknesses. What recommenda- tions would you have for the new Twitter CEO to be a more effective strategic leader?
3. Why is a good strategy so important, especially at high- tech startups like Twitter? Why is crafting a good strat- egy at Twitter so difficult? What are some of the pitfalls that a CEO of a company such as Twitter needs to watch out for when crafting and implementing a strategy?
4. Apply the three-step process for developing a good strategy outlined above (diagnose the competitive challenge, derive a guiding policy, and implement a set of coherent actions) to Twitter’s situation today.
Which recommendations would you have for Twitter to outperform its competitors in the future?
CHAPTERCASE 1 Consider This . . .
To be more effective, the strategist follows a three-step process:
1. Analyze the external and internal environments.
2. Formulate an appropriate business and corporate strategy.
3. Implement the formulated strategy through structure, culture, and controls.
Keep in mind that the strategist is making decisions under conditions of uncertainty and complexity. As the strategist is following the AFI steps, he or she maintains an awareness of key stakeholders and how they can affect or be affected by the decisions that are made.
The strategist then monitors and evaluates the progress toward key strategic objectives and makes adjustments by fine-tuning the strategy as necessary. We discuss how this is done in the next chapter where we focus on strategic leaders and the strategic management process.
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