Choice and application of strategic management methods
1 like590 views
Gints Turlajs presented several enterprise strategy management tools including the balanced scorecard, six sigma, blue ocean strategy, BCG matrix, SWOT analysis, and Bowman's strategy clock. He provided concise descriptions of the core features and most effective applications of each tool. He then proposed an algorithm for selecting and applying these tools that involves using Deming's cycle of plan-do-check-act. He focused particularly on explaining blue ocean strategy and how to practically apply it, including using game theory and developing new demand and supply curves through creating an uncontested market space.
Choice and application of strategic management methods
- 1. Stratēģijas vadības rīku izvēle un pielietojums Junior Achievement - Young Enterprise Latvija ekonomikas skolotāju apmācības 23. augusts, 2012, Rīga, Latvija Gints Turlajs MSc Econ, doktora grāda pretendents Accounting & Consulting Institute (www.aci.lv), Vadītājs Epasts: gints@aci.lv, Telefons: +371 29409509
- 2. In short about me • Studied economics and business management in 4 universities: Stockholm School of Economics in Riga, University of Southern Denmark, University of Latvia, Riga Technical University. • Managing director of Accounting & Consulting Institute (www.aci.lv).
- 3. In short about me • Have worked for European Commission, SEB banka, Latvijas Banka, Ministry of Economics, newspaper Diena, have lead own businesses. • Board member of Latvian Young Scientist Association (www.ljza.lv), chairman of economics workgroup, ex-president. • Ex-President of Riga Ridzene Rotary club.
- 4. In short about me • Have initiated founding and managed AEGEE Riga, ESN Riga, etc. • Co-founder of Internation Insitute of Business Analysis Latvia chapter, member of Latvian Economists Association, European Movement, and many other associations. • Auditor of Alumni Association of Stockholm School of Economics in Riga.
- 5. Problem in JAL • Students do not know how to position their product and avoid competition. • Hard work, and very many similar products, for example, making soap. • Strategy selection skills will be very useful to them in life.
- 6. Enterprise strategy management tools • Many enterprise strategy management tools exist, used for increasing effectiveness. • These tools are at times glorified and mistified, however none are universal and their application has to be correctly managed. • New tools are constantly being created. • An algorithm of application is needed for correct selection and use of those tools.
- 7. Enterprise strategy management tools I have developed new very brief and precise descriptions of the methods together with descriptions of circumstances in which they are most effective. This is followed by a new algorithm for the application of these tools. The list of the tools is non-exhaustive.
- 8. Core features and application of tools Tool Core features Most effective application Balanced A tool for determining strategic Large enterprises and institutions scorecard objectives and measuring their with complex ethical dilemmas and achievement accounting for the extensive influence on other needs of stakeholders – clients, stakeholdes. shareholders, employees, population, etc. Six sigma Tool for quality mangement to Best in industrial production, some reduce defects to a critically low. believe in very wide application of the method. Enterprises and institutions with mass production, quality problems. Blue ocean Tool for determining competitive Start-ups and existing enterprises in strategy landscape and designing products new product development. with least existing competition. Enterprises with mature product portfolio and competition.
- 9. Core features and application of tools Tool Core features Most effective application BCG matrix Classification of products in Large enterprises with diversified product protfolio according to product portfolio. their market share and growth. SWOT Description of stregths, Wide application in all enterprises weaknesses, opportunitites and and institutions, as well as in threats. other situations. Useful in situations of unceratinty. Bowman’s Determinantion of the price and In start-ups and new product strategy added value strategy. development in existing clock enterprises, pricing.
- 11. Six sigma
- 13. BCG matrix
- 14. SWOT
- 16. Algorithm for method choice
- 17. In short about the methods • SWOT is a strategy tool that can be used in almost all cases – large and small enterprises, institutions, etc. • Balanced Scorecard is working very well with institutions. • Other tools are best used for enterprises, not institutions.
- 18. Use Deming cycle
- 19. What is blue ocean strategy? • A popular business strategy development tool. • Developed by W. Chan Kim & Renee Mauborgne from INSEAD. • The idea is of avoiding direct competition with others by positioning the product differently.
- 20. Red Ocean Versus Blue Ocean Strategy In the red ocean, differentiation costs because firms compete with the same best-practice principle. Here, the strategic choices for firms are to pursue either differentiation or low cost. In the reconstructionist world, however, the strategic aim is to create new best-practice rules by breaking the existing value-cost trade-off and thereby creating blue ocean. Red Ocean Strategy Blue Ocean Strategy Compete in existing market space. Create uncontested market space. Beat the competition. Make the competition irrelevant. Exploit existing demand. Create and capture new demand. Make the value-cost trade-off. Break the value-cost trade-off. Align the whole system of a firm’s Align the whole system of a firm’s activities with its strategic choice of activities in pursuit of differentiation and differentiation or low cost. low cost.
- 21. The Six Principles of Blue Ocean Strategy Formulation Principles Risk factor each principle attenuates Reconstruct market boundaries Search risk Focus on the big picture, not the Planning risk numbers Scale risk Reach beyond existing demand Business model risk Get the strategic sequence right Evaluation principles Risk factor each principle attenuates Overcome key organizational hurdles Organizational risk Build execution into strategy Management risk
- 22. Strategy Canvas High Price Use of enological Aging Wine Easy to drink Low terminology quality complexity Above-the-line Vineyard prestige marketing and legacy Wine range
- 23. Decision steps
- 24. The question remains – how can this best be used in practice?
- 25. Game theory and BOS • Quite natural to this strategy seems a game theoretic approach. • The game would be within the domain of games of strategy from the three game types (also including games of skill and games of chance), of multi-person cooperative or non-cooperative type. • However, the tough question is how to measure the dimensions and reactions.
- 26. Most well known game theory problem – prisoner’s dilemma
- 27. Game theory and BOS • Unfortunately reliable information of the nature of events in the next game period is very limited, and the events can be very different in different situations. • Human behaviour is hard to predict. • Therefore, using a single period multiplayer game is the most fesasible option, if it can be used at all.
- 28. Practical application • Of course, the tough question is of practical application. • There are many nice theories in economics, for example, with supply and demand curves, which, however, are extremely hard to measure in practice. • How could we go ahead with BOS?
- 29. Practical application • Unfortunately, usually the majority of dimensions are purely qualitative and require experts assigning grades. • The following feasible options exist: – A single expert assigns grades on his/her knowledge, – Formalised expert survey, – Formalised cosumer survey.
- 30. Price estimation • Nowadays markets for homogenous goods are rare, each has its own brand, and therefore has its own demand. • For obtaining an estimate of the demand curve, surveys can be used on prices and quantities, however, we understand that very many answers will be misleading.
- 31. Price estimation • Another option – changing prices to estimate changes in the amount of goods bought, which is also very costly and can scare off clients. In addition it can be hard to separate different factors influencing the amount of goods sold. • The demand curves, difficult to estimate in practice, also usually remain an academic and theoretical construct.
- 32. Price estimation • Usually, especially for small enterprises, there are no resources for complex calculations, and prices are determined intutively – costs plus or competitor prices minus (or plus), and these methods are combined. • To be more effective, we can supplement this method with BOS
- 33. How BOS improves situation • Speaking in the traditional supply and demand curve terms used by economists, BOS is the creation of a new supply curve, which also creates a new demand curve. • Therefore we move more in the direction from perfect competition closer to monopoly situation, can charge a higher price and reap higher profits.
- 34. BOS demand and supply
- 35. Failures with traditional mapping – my suggestions • The traditional strategy canvas mapping involves mapping competitors with the same size of bullets and assigning them the same significance. • However, competitors can be very different. Some large, some very small. • Therefore, my suggestion is to assign the mapped competitors a different bullet size and mathematical weight.
- 36. Depiction
- 37. Finding the least populated segment mathematically • After depicting the current situation in the market we should find the best strategic placement - less populated area. • We construct a population index. For each rounded integer scale value we should calculate the value of the competitors in the current node, taking into account their weight, plus 0.5 of the competitors in the two nearest nodes (+/-1), plus 0.2 of the ones in the next nearest nodes (+/-2), and 0.1 of the ones in the following nodes(+/-3). • Then we choose the node with the lowest possible competitor concentration index.
- 38. My formula • Formula for determining the population of the sector: Ax = ∑KX+0.5*∑KX+/- 1+0.2*∑KX+/- 2+0.1*∑KX+/- 3 where X – field number 1 to 10, AX – field X population, KX – market share for competitor in segment X. • After finding mathematically the less populated interval we can apply business logic and maybe choose other interval than the one mathematically less populated.
- 39. Decision sequence Calculate population of Determine the each interval, choose the Implement decision , competitors, fators, less populated, correcting observe results, analyse, construct existing strategy mathematical results with return to beginning. canvas. business logic.
- 40. Use Deming cycle
- 41. Class action • Explain students the methods I have developed. • Giving them an exercise in application can greatly strengthen the knowledge. • A hypothetical example can be used or, best of all, apply it to student’s JAL enterprise in the guidance of the teacher.
- 42. Questions and discussion is welcome! Please do not hesitate to contact me on gints@aci.lv GSM: +371 29409509