GE

GE’s Diversification Strategy

October 13, 2008 by Raj Sheelvant

The Bluest of the blue chip companies, General Electrics’ stock has been falling precipitously

due to global credit crunch.  General Electric (GE) had used the Lateral Diversification Strategy

or Conglomerate Diversification Strategy as its growth strategy.  By consistently increasing in

performance objectives beyond past levels of performance, GE has been able to raise its

dividends consistently for the past 32 years and has displayed its focus on growth.

GE has taken advantage of Globalization trends and has penetrated into the emerging market

aggressive.  It has successfully continued to improve the bottom line.  It has been the only

original member of Dow component, but lately GE has been struggling with managing a

number of its business unit’s profitability.  Has GE’s growth engine run out of steam now? Let’s

look at its diversification strategy.  Management thinkers have developed a framework to

address complexity due to lateral diversification.  According to Wikipedia “Lateral or

Conglomerate Strategy is when the company markets new products or services that have no

technological or commercial synergies with current products, but which may appeal to new

groups of customers. The conglomerate diversification has very little relationship with the

firm’s current business.”   So the underlying factor is that in lateral diversification the company

enters new market even if they don’t have any ‘synergy’ with the existing business. 

Companies like GE try to leverage economy of scope, their branding strength and sometimes

their size (market capitalization) to penetrate new markets globally, manufacture and service

new products.

Success in Lateral Diversification Strategy depends on capital allocation.  The process that

allocates capital so as to maximize the return on that capital is an indicator that the company

is successfully implementing the Lateral Diversification Strategy.

The GE- McKinseys’ nine-box matrix offers a systematic approach for the decentralized

corporation to determine where best to invest its cash. Rather than rely on each business

unit’s projections of its future prospects, the company can judge a unit by two factors that will

determine whether it’s going to do well in the future: the attractiveness of the relevant

industry and the unit’s competitive strength within that industry.  The matrix is shown below

According to McKinsey article on Enduring Ideas, placement of business units within the matrix

provides an analytic map for managing them. With units above the diagonal, a company may

pursue strategies of investment and growth; those along the diagonal may be candidates for

selective investment; those below the diagonal might be best sold, liquidated, or run purely for

cash. Sorting units into these three categories is an essential starting point for the analysis,

but judgment is required to weigh the trade-offs involved. For example, a strong unit in a weak

industry is in a very different situation than a weak unit in a highly attractive industry.

Using this matrix, GE has been successful in allocating its resource in an attractive industry

where it can leverage its business unit’s competitive strength.  It has divested and continues to

divest from industries that are less attractive and where it does not have any competitive

advantages (Example:  GE has divested from manufacturing TVs and currently looking to get

out of consumer lending business).

Although this matrix enables the company to correctly allocate capital it does not prevent GE

or any other company is from failing to understand the ‘real’ attractiveness of the industry. 

Past few years, GE has been wrong (along with all banking and finance companies) in

categorizing finance as an attractive industry and GE capital has been responsible for more

than 50% of revenue and income growth.  The nine-box matrix does not prevent a company

from differentiating a bubble from a real growth story.  That has been the problem with GE

share price decline lately.  Although GE is in the middle of this new global turmoil, I think they

will emerge out successfully in the long run.  They can continue to successfully use nine-box

matrix to allocate resource, but personally I believe that they will also need to invest in a new

process (or processes) to identify the real ‘attractiveness’ of a sector and not get carried away

by hype like in the past

The Nature Of Strategy Implementation

The implementation of organization strategy involves the application of the management process to obtain the desired results. Particularly, strategy implementation includes designing the organization's structure, allocating resources, developing information and decision process, and managing human resources, including such areas as the reward system, approacches to leadership, and staffing.

Each of these management functions has been the subject of extensive writing and research by scholars and practitioners and has covered in management books.

Since full coverage of each management function is beyond the scope of this thesis, I shall focus only on the factors that are most critical to effective implementation strategy.

Concept Of Strategy Implementation

Strategy implementation is "the process of allocating resources to support the chosen strategies". This process includes the various management activities that are necessary to put strategy in motion, institute strategic controls that monitor progress, and ultimately achieve organizational goals.

For example, according to Steiner, "the implementation process covers the entire managerial activities including such matters as motivation, compensation, management appraisal, and control processes".

As Higgins has pointed out, "almost all the management functions -planning, controlling, organizing, motivating, leading, directing, integrating, communicating, and innovation -are in some degree applied in the implementation process".

Pierce and Robinson say that "to effectively direct and control the use of the firm's resources, mechanisms such as organizational structure, information systems, leadership styles, assignment of key managers, budgeting, rewards, and control systems are essential strategy implementation ingredients".

The implementation activities are in fact related closely to one another, and decisions about each are usually made simultaneously. I have split these activities in the next chapters.

Strategy Implementation And The Strategic Management Process

The strategy implementation and strategy formulation processes are closely interrelated. Figure 1-1 illustrates this relationship. The desired results of an organization are established during the strategy formulation process.

Implementation consists of the issues involved in putting the formulated strategy to work. It is necessary to spell out more precisely how the strategic choice will come to be. No strategy, no matter how brilliantly formulated, will succeed if it cannot be implemented.

Mintzberg's Model

Traditionally, the relationship between strategy formulation, strategy implementation, and organizational performance has been depicted as shown in Figure 1-2. In this model, organizations begin strategy formulation by carefully specifying their mission, goals, and objectives, and then they engage in SWOT analysis to choose appropriate strategies.

Henry Mintzberg suggests that the traditional way of thinking about strategy implementation focuses only on deliberate strategies. Minztberg claims that some organizations begin implementing strategies before they clearly articulate mission, goals,

or objectives. In this case strategy implementation actually precedes strategy formulation.

Minztberg calls strategies that unfold in this way emergent strategies. Implementation of emergent strategies involves the allocation of resources even though an organization has not explicitly chosen its strategies.

Most organizations make use of both deliberate and emergent strategies. Whether deliberate or emergent, however, a strategy has little effect on an organization's performance until it is implemented.

Mintzberg's Model

Traditionally, the relationship between strategy formulation, strategy implementation, and organizational performance has been depicted as shown in Figure 1-2. In this model, organizations begin strategy formulation by carefully specifying their mission, goals, and objectives, and then they engage in SWOT analysis to choose appropriate strategies.

Henry Mintzberg suggests that the traditional way of thinking about strategy implementation focuses only on deliberate strategies. Minztberg claims that some organizations begin implementing strategies before they clearly articulate mission, goals, or objectives. In this case strategy implementation actually precedes strategy formulation.

Minztberg calls strategies that unfold in this way emergent strategies. Implementation of emergent strategies involves the allocation of resources even though an organization has not explicitly chosen its strategies.

Most organizations make use of both deliberate and emergent strategies. Whether deliberate or emergent, however, a strategy has little effect on an organization's performance until it is implemented.

The Relation Between Strategy Formulation And Strategy Implemenation

In order to achieve its objectives, an organization must not only formulate but also implement its strategies effectively. The Figure represents the importance of both tasks in matrix form and suggests the probable outcomes of the four possible combinations of these variables:

- Success is the most likely outcome when strategy is appropriate and implementation good. - Roulette involves situation wherein a poor strategy is implemented well. - Trouble is characterized by situations wherein an appropriate strategy is poorly implemented. - Failure involves situations wherein a poor strategy is poorly implemented.

Diagnosing why a strategy failed in the roulette, trouble, and failure cells in order to find a remedy requires the analysis of both formulation and implementation.

S.Certo and J. Peter proposed a five-stage model of the strategy implementation process: 1. determining how much the organization will have to change in order to implement

the strategy under consideration, under consideration; 2. analyzing the formal and informal structures of the organization; 3. analyzing the "culture" of the organization; 4. selecting an appropriate approach to implementing the strategy; 5. implementing the strategy and evaluating the results.

Implementation is successfully initiated in three interrelated stages: 1. Identification of measurable, mutually determined annual objectives.

2. Development of specific functional strategies. 3. Development and communication of concise policies to guide decisions.

The Relation Between Strategy Formulation And Strategy Implemenation

In order to achieve its objectives, an organization must not only formulate but also implement its strategies effectively. The Figure represents the importance of both tasks in matrix form and suggests the probable outcomes of the four possible combinations of these variables:

- Success is the most likely outcome when strategy is appropriate and implementation good. - Roulette involves situation wherein a poor strategy is implemented well. - Trouble is characterized by situations wherein an appropriate strategy is poorly implemented. - Failure involves situations wherein a poor strategy is poorly implemented.

Diagnosing why a strategy failed in the roulette, trouble, and failure cells in order to find a remedy requires the analysis of both formulation and implementation.

S.Certo and J. Peter proposed a five-stage model of the strategy implementation process: 1. determining how much the organization will have to change in order to implement

the strategy under consideration, under consideration; 2. analyzing the formal and informal structures of the organization; 3. analyzing the "culture" of the organization; 4. selecting an appropriate approach to implementing the strategy; 5. implementing the strategy and evaluating the results.

Implementation is successfully initiated in three interrelated stages: 1. Identification of measurable, mutually determined annual objectives. 2. Development of specific functional strategies. 3. Development and communication of concise policies to guide decisions.

A General Framework For Strategy Implementation

The first step in implementation is identifying the activities, decisions, and relationships critical to accomplishing the activities.

There are six principal administrative tasks that shape a manager's action agenda for implementing strategy. In general, every unit of an organization has to ask, "What is required for us to implement our part of the overall strategic plan and how can we bets get it done?".

The specific components of each of the six strategy-implementation tasks: 1. Building an organization capable of executing the strategy. The

organization must have the structure necessary to turn the strategy into reality. Furthermore, the firm's personnel must possess the skill needed to execute the strategy successfully. Related to this is the need to assign the responsibility for accomplish key implementation tasks to the right individuals or groups.

2. Establishing a strategy-supportive budget. If the firm is to accomplish strategic objectives, top management must provide the people, equipment, facilities, and other resources to carry out its part of the strategic plan. Further, once the strategy has been decided on, the key tasks to performed and kinds of decision required must be identified, formal plans must also be developed. The tasks should be arranged in a sequence comprising a plan of action within targets to be achieved at specific dates.

3. Installing internal administrative support systems. Internal systems are policies and procedures to establish desired types of behavior, information systems to provide strategy-critical information on a timely basis, and whatever inventory, materials management, customer service, cost accounting, and other administrative systems are needed to give the organization important strategy-executing capability. These internal systems must support the management process, the way the managers in an organization work together, as well as monitor strategic progress.

4. Devising rewards and incentives that are tightly linked to objectives and strategy. People and departments of the firm must be influenced, through incentives, constraints, control, standards, and rewards, to accomplish the strategy.

5. Shaping the corporate culture to fit the strategy. A strategy-supportive corporate culture causes the organization to work hard (and intelligently) toward the accomplishment of the strategy.

6. Exercising strategic leadership. Strategic leadership consists of obtaining commitment to the strategy and its accomplishment. It also involves the constructive use of power and politics, and politics in building a consensus to support the strategy.

The Concept Fit

This approach assumes that each organizational dimension, such as structure, reward systems, and resources allocation process, must constitute an internally consistent organizational form.

Moreover, organization strategy cannot be effectively implemented unless there is consistency between the strategy and each organizational dimension. Harold J. Leavitt was one of the first to discuss the degree to which task, structure, people, and processes from an integrated whole. The major developer and empirical investigator of the fit concept has been Jay Lorsch. He is the primary investigator to examine the fit concept.

According to his findings, those organizations that were not high performers were experiencing a situation in which either structure or process dit not fit with the degree of task uncertainty.

Other research also supports the concept of fit (for example: Scott 1971; Child 1977, Galbraith 1977, Dundas and Richardson). Miles and Snow (1984) see fit as "a process as well as a state -a dynamic search that seeks to align the organization with its environment and to arrange resources internally in support of that alignment. In practical terms, the basic alignment mechanism is strategy, and the internal arrangements are organizational structure and management processes".

Galbraith suggests that several major internal aspects of the organization may need to be synchronized to put a chosen strategy into action. Major factors are technology, human resources, reward systems, decision process and structure. This factors tend to be interconnected, so a change in one may necessitate change in one or more others.

Hambrick and Cannella described five steps for effective strategy implementation: 1. Input from a wide range of sources is required in the strategy formulation stage

(i.e., the mission, environment, resources, and strategic options component). 2. The obstacles to implementation, both those internal and external to the

organization, should be carefully assessed. 3. Strategists should be use implementation levers or management tasks to initiate

this component of the strategic management process. Such levers may come from the way resources are committed, the approach used to structure the organization, the selection of managers, and the method of rewarding employees.

4. The next step is to sell the implementation. Selling upward entails convincing boards of directors and seniors management of the merits and viability of the

strategy. Selling downward involves convincing lower level management and employees of the appropriateness of the strategy. Selling across involves coordinating implementation across the various units of an organization, while selling outward entails communicating the strategy to external stakeholders.

5. The process is on-going and a continuous fine tuning, adjusting, and responding is needed as circumstance change.

While Hambrick and Cannella stress the importance of coordinating managerial tasks of functions in an organization's activities in the implementation of a strategy, the McKinsey 7-S Framework highlights the integration of implementation with other strategic management components.

The 7-s's Framework

McKinsey and Company have developed a model know as, "the seven elements of strategic fit," or the "7-S's."

7-S's include: 1. strategy (the coherent set of actions selected as a course of action); 2. structure (the division of tasks as shown on the organization chart); 3. systems (the processes and flows that show how an organization gets things

done); 4. style (how management behaves); 5. staff (the people in the organization); 6. shared-values (values shared by all in the organization); and 7. skills (capabilities possessed by the organization).

The underlying concept of the model is that all seven of these variables must "fit" with one another in order for strategy to be successfully implemented.

However, shared values are the central core of the framework because they are the heart-and soul themes around which an organization rallies.

Relationship Of Implementation To Life Cycle

The stages in a product's life cycle are often expresses as embryonic, growth, maturity, and decline (or precommercialization, introduction, growth, maturity, and decline).

Organizations have a cycle identified as entrepreneurial, growth, maturity, and decline. Industries also have a life cycle, consisting of fledgling, growth, maturity, and decline.

Strategists must be sensitive to these changes and use implementation processes to match the strategies to each stage.

Harold Fox has shown how implementation will vary depending on where the firm's main product or service is in the product-service life cycle (see Exhibit 1-3).

A multiple-SBU firm may have a number of products, each of which is in different stage of development. The Exhibit 1-3 does illustrate how policies can be meshed with different demands imposed by a strategy change.

Relationship Of Implementation To Life Cycle

The stages in a product's life cycle are often expresses as embryonic, growth, maturity, and decline (or precommercialization, introduction, growth, maturity, and decline).

Organizations have a cycle identified as entrepreneurial, growth, maturity, and decline. Industries also have a life cycle, consisting of fledgling, growth, maturity, and decline.

Strategists must be sensitive to these changes and use implementation processes to match the strategies to each stage.

Harold Fox has shown how implementation will vary depending on where the firm's main product or service is in the product-service life cycle (see Exhibit 1-3).

A multiple-SBU firm may have a number of products, each of which is in different stage of development. The Exhibit 1-3 does illustrate how policies can be meshed with different demands imposed by a strategy change.

Selecting An Implementation Approach

On the basis of their research on management practices at a number of companies, David Brodwin and L. J. Bourgeois III have identified five distinct basic approaches to strategy implementation and strategic

Selecting An Implementation Approach

On the basis of their research on management practices at a number of companies, David Brodwin and L. J. Bourgeois III have identified five distinct basic approaches to strategy implementation and strategic change.

1. The Commander Approach

The strategic leader concentrates on formulating the strategy, applying rigorous logic and analysis. The leader either develops the strategy himself or supervises a team of planners charged with determining the optimal course of action for the organization. He typically employs such tools as experience curves, growth/share matrices and industry and competitive analysis.

This approach addresses the traditional strategic management question of "How can I, as a general manager, develop a strategy for my business which will guide day-today decisions in support of my longer-term objectives?" Once the"best" strategy is determined, the leader passes it along to subordinates who are instructed to executive the strategy.

The leader does not take an active role in implementing the strategy. The strategic leader is primarily a thinker/planner rather than a doer. The Commander Approach helps the executive make difficult day-to-day decision from a strategic perspective.

However, three conditions must exist for the approach to succeed: The leader must wield enough power to command implementation; or, the

strategy must pose little threat to the current management, otherwise implementation will be resisted.

Accurate and timely information must be available and the environment must be reasonably stable to allow it to be assimilated.

The strategist (if he is not the leader) should be insulated from personal biases and political influences that might affect the content of the plan.

A drawback of this approach is that it can reduce employee motivation. If the leader creates the belief that the only acceptable strategies are those developed at the top, he may find himself an extremely unmotivated, un-innovative group of employees.

However, several factors account for the Commander popularity. First, it offers a valuable perspective to the chief executive. Second, by dividing the strategic management task into two stages -"thinking" and "doing" -the leader reduces the number of factors that have to be considered simultaneously. Third, young managers in particular seem to prefer this approach because it allows them to focus on the quantitative, objective elements of a situation, rather than with more subjective and behavioral considerations.

Finally, such an approach may make some managers feel as an all-powerful hero, shaping the destiny of thousands with his decisions.

2. The Organizational Change Approach

This approach starts where the Commander Approach ends: with implementation. The organizational Change Approach addresses the question "I Have a strategy -now how do I get my organization to implement it?" The strategic leader again decides major changes of strategy and the considers the appropriate changes in structure, personnel, and information and reward systems if the strategy is to be implemented effectively.

The most obvious tool for strategy implementation is to reorganize or to shift personnel in order to lead the firm in the desired direction. The role of the strategic leader is that of an architect, designing administrative systems for effective strategy implementation.

The Change Approach is often more effective than the Commander Approach and can be used to implement more difficult strategies because of used the several behavioral science techniques. This techniques for introducing change in an organization include such fundamentals as: using demonstrations rather than words to communicate the desired new activities; focusing early efforts on the needs that are already recognized as important by most of the organization; and having solutions presented by persons who have high credibility in the organization.

However, the Change Approach doesn't help managers stay abreast of rapid changes in the environment. It can backfire in uncertain or rapidly changing conditions. Finally, this approach calls for imposing the strategy in "topdown" fashion, it is subject to the same motivational problems as the Commander Approach.

. The Collaborative Approach

This approach extends strategic decision-making to the organization's top management team in answer to the question "How can I get my top management team to help develop and commit to a good set of golas and strategies?"

The strategic leader and his senior manager (divisional heads, business unit general managers or senior functional managers) meet for lengthy discussion with a view to formulating proposed strategic changes.

In this approach, the leader employs group dynamics and "brainstorming" techniques to get managers with differing points of view to contribute to the strategic planning process.

The Collaborative Approach overcomes two key limitations inherent in the previous two. By capturing information contributed by managers closer to operations, and by offering a forum for the expression of managers closer to operations, and by offering a forum for the expression of many viewpoints, it can increase the quality and timeliness of the information incorporated in the strategy. And to the degree than participation enhances commitment to the strategy, it improves the chances of efficient implementation.

However, the Collaborative Approach may gain more commitment that the foregoing approaches, it may also result in a poorer strategy.

The negotiated aspect of the process brings with several risks -that the strategy will be more conservative and less visionary than one developed by a single person or staff team. And the negotiation process can take so much time that an organization misses opportunities and fails to react enough to changing environments.

A more fundamental criticism of the Collaborative Approach is that it is not really collective decisions making from an organizational viewpoint because upper-level managers often retain centralized control. In effect, this approach preserves the artificial distinction between thinkers and doers and fails to draw on the full human potential throughout the organization.

4. The Cultural Approach

This approach extends the Collaborative Approach to lower levels in the organization as an answer to the strategic management question "How can I get my whole organization commited to our golas and strategies?"

The strategic leader concentrates on establishing and communicating a clear mission and purpose for the organization and the allowing employees to design their own work activities with this mission. He plays the role of coach in giving general direction, but encourages individual decision-making to determine the operating details of executive the plan.

The implementation tools used in building a strong corporate culture range from such simple notions as publishing a company creed and singing a company song to much complex techniques.

These techniques involve implementing strategy by employing the concept of "third-order control." First-order control is direct supervision; second - order control involves using rules, procedures, and organizational structure to guide behavior. Third - order control is more subtle - and potentially more powerful. It consists of influencing behavior through shaping the norms, values, symbols, and beliefs that managers and employees use in making day-to-day decisions.

This approach begins to break down the barriers between "thinkers" and "doers."

The Cultural Approach has a number of advantages which establish an organization-wide unity of purpose. It appears that the cultural approach works best where the organization has sufficient resources to absorb the cost of building and maintaining the value system.

However, this approach also has several limitations. First, it only works with informed and intelligent people. Second, it consumes enormous amounts of time to install. Third, it can foster such a strong sense of organizational identity among employees that it becomes a handicap; for example, bringing outsider in a top management levels can be difficult because they aren't accepted by other executives.

The strongest criticism of this approach is that it has such an overwhelming doctrinal air about it, and foster homogeneity and inbreeding.

. The Crescive Approach

This approach addresses the question "How can I encourage my managers to develop, champion, and implement sound strategies?" (Crescive means "increasing" or "growing"). The strategic leader is not interested in strategizing alone, or even in leading others through a protracted planning process. He encourage subordinates to develop, champion, and implement sound strategies on their own.

The crescive approach differs from the others in several ways. First, instead of strategy being delivered downward by top management or a planning department, it moves upward from the "doers" (salespeople, engineers, production workers) and lower middle-level managers. Second, "strategy" becomes the sum of all the individual proposals that surface throughout the year. Third, the top management team shapes the employees' premises -that is, their notions of what would constitute supportable strategic projects. Fourth, the chief executive functions more as a judge, evaluating the proposals that reach his desk, than as a master strategist.

Brodwin and Bourgeois suggest use of the Crescive Approach primarily for managers of large, complex, diversified organizations. In these organizations the strategic leader cannot know and understand all the strategic and operating situations, facing each division.

If strategies are to be formulated and implemented effectively, the leader must give up some control to spur opportunism and achievement. Therefore, the Crescive Approach for strategic management suggests some generalizations concerning how the chief executive

of the large divisionalized firm should help the organization generate and implement sound strategies.

The recommendation consists of the following four elements: Maintain the openness of the organization to new and discrepant information. Articulate a general strategy to guide the firm's growth. Manipulate systems and structures to encourage bottom-up strategy formulation. Use the "the logical incrementalist" manner described by James Brian Quinn, to

select from among the strategies which emerge.

The Crescive approach has several advantages. For example, it encourage middle-level managers to formulate effective strategies and gives them opportunity carry out the implementation of their own plans.

Moreover, strategies developed, as these are, by employees and managers closer to the strategic opportunity are likely to be operationally sound and readily implemented. However, this approach requires that funds be available for individuals to develop good ideas unencumbered by bureaucratic approval cycles and that tolerance be extended in the inevitable cases where failure occurs despite a worthy effort having been made.

One of the most important and potentially elusive of these methods is the process of shaping managers' decision-making premises. The strategic leader can emphasize a particular theme or strategic thrust to direct strategic thinking.

Second, the planning methodology endorsed by the leader can be communicated to affect the way managers view the business. Third, the organizational structure can indicate the dimensions on which strategies should focus.

The choice of approach should depend on the size of the company, the degree of diversification, the degree of geographical dispersion, the stability of the business environment, and, finally,the managerial style currently embodied in the company's culture.

Brodwin and Bourgeois's research suggests that the Commander, Change, and Collaborative Approaches can be effective for smaller companies and firms in stable industries. The Cultural and Crescive alternatives are used by more complex corporations.

Quinn's Incremental Model

Quinn's approach is based on the assumption the incremental processes are, and should be, the prime mode used for strategy setting. Such a philosophy is also represented by Mintzberg.

James Brien Quinn describes how 10 large companies actually arrived at their most important strategic changes. He argues that the formal "rational" planning often becomes a substitute for control instead of a process for stimulating innovation and entrepreneurship.

Quinn suggests that the most effective strategies of major enterprises tend to emerge step by step from an iterative process in which the organization probes the future, experiments, and learns from a series of partial (incremental) commitments rather than through global formulations of total strategies.

This process is both logical and incremental. He recommends that incremental processes should be consciously used to integrate the psychological, political, and informational needs of organizations in setting strategy.

According to Quinn, the total strategy is largely defined by the development and interaction of certain major subsystem strategies. Each of these subsystems to a large extent has its own peculiar timing, sequencing, informational, and power necessities. Different subsets of people are involved in each subsystem strategy.

Moreover, each subsystem's strategy is best formulated by following a logic dictated by its own unique needs. Because so many uncertainties are involved, no managers can predict the precise way in which any major subsystem will ultimately evolve, much less the way all will interact to create the enterprises's overall strategic posture. Consequently, executives manage each subsystem incrementally in keeping with its own imperatives.

Effective strategic managers in large organizations recognize these realities and try to proactively shape the development of both subsystem and total-enterprise strategies in a logical incremental fashion. They do not deal with information-analysis, power-political, and organizational-psychological processes in separate compartments. Instead they consciously and simultaneously integrate all three of these processes into their actions at various crucial states of strategy development.

Quinn argues that incrementalism is the most appropriate model for most strategies changes, because it helps the strategic leader to:

1. Improve the quality of information utilized in corporate strategic decisions. 2. Cope with the varying lead times, pacing parameters, and sequencing needs of

the subsystems through which such decisions tend to be made. 3. Deals with the personal resistance and political pressures any important strategic

change encounters. 4. Build the organizational awareness, understanding, and psychological

commitment necessary for effective implementation. 5. Decrease the uncertainty surrounding such decisions by allowing for interactive

learning between the enterprise and its various impinging environments. 6. Improve the quality of the strategic analysis and choices by involving those people

closest to the situation and by avoiding premature closure on the basic of potentially incorrect decisions.

The strategic leader is critical in the incrementatlism process because he is either personally or ultimately responsible for the proposed changes in strategy, and for establishing the structure and processes within the organization.

Although each strategic issue will have its own peculiarities, a somewhat common series of management processes seems required for most major strategic changes.

Most important among these are: sensing needs, amplifying understanding, building awareness, creating credibility, legitimizing viewpoints, generating partial solutions, broadening support, identifying zones of opposition and indifference, changing perceived risks, structuring needed flexibilities, putting forward trail concepts, creating pockets of commitment, eliminating undesired options, crystallizing focus and consensus, managing coalitions, and finally formalizing agreed-upon commitments.

Figure 1-7 lists some of these tactics in the sequence of their potential use in the change process. Quinn's approach incorporates an appreciation of the likely impact upon people and the culture, and pragmatically searches for a better way of doing things once the decision to change has been made.

Strategy Implementation And Stakeholders

The role of the management (and the board of the directors) sometimes has been narrowly interpreted to mean maximization of financial returns to the stockolder in the form of dividends and capital gains.

Moreover, the articles of incorporation of most corporations place a legal responsibility on the board of directors to represent the interests of the stockholders, whose capital made it possible for the organization in the first place.

Many organizational theorists, however, take a broader view of the role of the board (and management). This role includes many dimensions of corporate social responsibility such as responsibility to employees, the community, and the environment.

R. Edward Freeman, author of a book on stakeholder management, shows how the process of managing relations with groups not traditionally considered within strategic planning frameworks should be part of strategic management.

These groups (stakeholders) include a firm's owners (stockholders), members of the board of directors, managers and operating employees, suppliers, creditors, customers, and other interest groups. At the broadest level, stakeholders include the general public. Stakeholders have expectations about how the firm should behave and what the firm should provide in terms of economic, social, and psychological benefits.

Thus, stakeholder analysis is a consistent way of identifying, analyzing, and responding to these critical interdependencies. It represents an active, integrated approach to achieving corporate purpose.

Each group or individual who either affects or is affected by the achievement of the firm's mission has a "stake" in corporate decisions and actions.

Therefore, managers are increasingly expected to consider a growing number of stakeholders when formulating and implementing strategy. An important outcome from this analysis is determination of the timing and degree of participation of stakeholders in decision making in the firm.

Illustrative preferences / values of these stakeholders and how they encourage managers to meet them are presented in Exhibit 1-4.

However, stakeholders' expectations of business present opportunities and constraints. In a more limited sense, stakeholder groups may hold conflicting expectations of business performance. Factors influencing the potential power of stakeholders are outlined in Exhibit 1-5.

The following questions are relevant when determining the influence of stakeholder interests:

1. Which stakeholder' interests are most important? 2. To which stakeholder should management give its loyalty? 3. Will any stakeholder be injured by the proposed decisions? 4. Should strategy be changed to meet stakeholder expectations? 5. It is possible to negotiate a compromise? 6. Should certain stakeholder be replaced?

On the other hand, stakeholder are affected by the activities of the companies. Chapter 5 will elaborate further on this topic.

Implementing Business-level Strategies

Strategy implementation at the business level takes place in the areas of manufacturing, accounting and finance, marketing sales, and organizational culture.

This section examines how these organizational functions are integrated to implement Porter's generic strategies and Miles and Snow's strategies.

Implementing Porter's Generic Strategies

Michael Porter described three strategic options available to firms at the business level: overall cost leadership, differentiation, and focus strategies.

Pure cost leadership strategies focus on those variables that will allow the firm to achieve and maintain a low cost position. An organization implements an overall cost leadership strategy when it attempts to gain a competitive advantage by reducing its costs below the costs of competing firms.

The tasks associated with the cost strategy variables focus mostly upon the internal operations of the business, emphasizing the productive employment of capital and human resources. A cost strategy requires attention to operational details.

For example, it focuses on simple products attributes and how these product meet customers needs in a low-cost and effective manner. In general, an organization that chosen a cost leadership strategy sells a mass-produced product to large members of customers and provide strong incentives to its salespeople to increase the volume of sales.

Conversely, a business with a pure differentiation strategy attempts to enhance the price component of the profit quation by offering customer something they perceive as unique and for which they are willing to pay a higher price. An organization implements a differentiation strategy when it seeks to distinguish itself from competitors through the high quality of its products or services.

This strategy incorporates variables dealing principally with the business' environment. The products and services must be designed to meet unique customer needs. Quality, product performance, perceived quality, and new technical features added are more important components of the marketing effort that is a concern for low price.

An organization implements a focus strategy when it uses either a differentiation strategy or an overall cost leadership focus strategy in a particular market segment or geographic area. The organization functions that support a differentiation focus strategy or a cost leadership focus strategy are the same as those summarized in Table 1-2

Implementing Porter's Generic Strategies

Michael Porter described three strategic options available to firms at the business level: overall cost leadership, differentiation, and focus strategies.

Pure cost leadership strategies focus on those variables that will allow the firm to achieve and maintain a low cost position. An organization implements an overall cost leadership strategy when it attempts to gain a competitive advantage by reducing its costs below the costs of competing firms.

The tasks associated with the cost strategy variables focus mostly upon the internal operations of the business, emphasizing the productive employment of capital and human resources. A cost strategy requires attention to operational details.

For example, it focuses on simple products attributes and how these product meet customers needs in a low-cost and effective manner. In general, an organization that chosen a cost leadership strategy sells a mass-produced product to large members of customers and provide strong incentives to its salespeople to increase the volume of sales.

Conversely, a business with a pure differentiation strategy attempts to enhance the price component of the profit quation by offering customer something they perceive as unique and for which they are willing to pay a higher price. An organization implements a differentiation strategy when it seeks to distinguish itself from competitors through the high quality of its products or services.

This strategy incorporates variables dealing principally with the business' environment. The products and services must be designed to meet unique customer needs. Quality, product performance, perceived quality, and new technical features added are more important components of the marketing effort that is a concern for low price.

An organization implements a focus strategy when it uses either a differentiation strategy or an overall cost leadership focus strategy in a particular market segment or geographic area. The organization functions that support a differentiation focus strategy or a cost leadership focus strategy are the same as those summarized in Table 1-2.

Differentiation Versus Low-cost Strategies

William K. Hall conducted an in-depth study of 64 companies from eight major domestic industries. These industries were mature, faced relatively hostile environments, had below-average profitability and growth. Yet within each of these industries were several very profitable firms.

Hall concluded that the two (nondiversified) top performing companies in each of the eight industries had pursued either a differentiation strategy involving a high product/service/quality position or a low-cost strategy or both.

Although Hall identified two strategic thrusts, there are obviously a wide variety of ways to pursue each of them. In particular, whereas General Motors and Goodyear achieved their low-cost position with high market share and considerable vertical integration, Inland Steel, Whirlpool. Miller, and Philip Morris all relied upon modern, automated process technologies and efficient distribution systems.

Similarly, the "meaningful differentiation" strategies were based upon a variety of approaches. Promiment were such positioning elements as brand prestige, product quality, product reliability, service, and distribution.

Implementing Miles And Snow's Strategies

Miles and Snow identified four business-level strategies: defender, prospector, analyzer, and reactor.

Defender Strategy. Organizations implementing a defender strategy attempt to protect their market from new competitors. As result of this narrow focus, these organizations seldom need to make major adjustments in their technology, structure, or methods of operation. Instead, they devote primary attention to improving the efficiency of their existing operations. Defenders can be successful especially when they exist in a declining industry or a stable environment.

Prospector Strategy. Organizations implementing a prospector strategy are innovative, seek out new opportunities, take risks and grow. To implement this strategy, organizations need to encourage creativity and flexibility. They regularly experiment with potential responses to emerging environmental trends. Thus, these organizations often are the creators of change and uncertainty to which their competitors must respond. In such an environment, creativity is more important then efficiency.

Analyzer Strategy. Organizations implementing analyzer strategies attempt to maintain their current businesses and to be somewhat innovative in new businesses. Some products are targeted toward stable environments, in which an efficiency strategy designed to retain current customers is employed. Others are targeted toward new, more dynamic environments.

They attempt to balance efficient production for current lines along with the creative development of new product lines. Analyzers have tight accounting and financial controls and high flexibility, efficient production and customized products, creativity and low costs. However, it is difficult for organizations to maintain these multiple and contradictory processes. new product lines.

Reactor Strategy. Organizations that follow a reactor strategy have no a consistent strategy-structure relationship. Rather than defining a strategy to suit a specific environment, reactors respond to environmental threats and opportunities in ad hoc fashion.

Sometimes these organizations are innovative, sometimes they attempt to reduce costs, and sometimes they do both. Reactors are organizations in which top management frequently perceive change and uncertainty occurring in their organizational

environments but are unable to respond effectively. Therefore, failed organizations often are the result of reactor strategies.

Miles And Snow's Strategies

Miles and Snow identified four business-level strategies: defender, prospector, analyzer, and reactor.

Defender Strategy. Organizations implementing a defender strategy attempt to protect their market from new competitors. As result of this narrow focus, these organizations seldom need to make major adjustments in their technology, structure, or methods of operation. Instead, they devote primary attention to improving the efficiency of their existing operations. Defenders can be successful especially when they exist in a declining industry or a stable environment.

Prospector Strategy. Organizations implementing a prospector strategy are innovative, seek out new opportunities, take risks and grow. To implement this strategy, organizations need to encourage creativity and flexibility. They regularly experiment with potential responses to emerging environmental trends. Thus, these organizations often are the creators of change and uncertainty to which their competitors must respond. In such an environment, creativity is more important then efficiency.

Analyzer Strategy. Organizations implementing analyzer strategies attempt to maintain their current businesses and to be somewhat innovative in new businesses. Some products are targeted toward stable environments, in which an efficiency strategy designed to retain current customers is employed. Others are targeted toward new, more dynamic environments.

They attempt to balance efficient production for current lines along with the creative development of new product lines. Analyzers have tight accounting and financial controls and high flexibility, efficient production and customized products, creativity and low costs. However, it is difficult for organizations to maintain these multiple and contradictory processes. new product lines.

Reactor Strategy. Organizations that follow a reactor strategy have no a consistent strategy-structure relationship. Rather than defining a strategy to suit a specific environment, reactors respond to environmental threats and opportunities in ad hoc fashion.

Sometimes these organizations are innovative, sometimes they attempt to reduce costs, and sometimes they do both. Reactors are organizations in which top management frequently perceive change and uncertainty occurring in their organizational environments but are unable to respond effectively. Therefore, failed organizations often are the result of reactor strategies.

Implementing Corporate-level Strategies

Corporate-level strategy focuses on how organizations manage their operations across multiple business and markets. The most important corporate strategy decisions that organizations need to make concerns the type and degree of corporate diversification.

Implementing Diversification Strategies

A central concept to understanding and proposing diversification strategies is relatedness. A range of diversification strategies-from highly related to highly unrelated -can be observed.

Pitts and Hopkins (1982) have conducted an extensive literature review and summary on this topic. As they suggested, "the first tasks facing a researcher wishing to measure a firm's diversity therefore, is to identify its individual businesses".

In this review of strategic diversity, Pitts and Hopkins cite three primary approaches:

* The first, resource independence, sees a business as discrete from others of the corporation if the "resources involved are separate from those supporting the firm's other activities."

* The least-employed approach, due to data collection difficulties, defines businesses in terms of market discreteness.

* Finally, businesses can be defined in terms of product differences, viewing each product offering as a separate business.

Pitts and Hopkins here note two primary approaches to the measurement of diversity: (1) the first is based upon the number of businesses in which the firm is positioned; (2) the second approach is termed strategic and assesses diversity by either the relatedness of various businesses or the firm's historical growth pattern.

Rumelt developed, as a variation of Wrigley's (1970) scheme, a typology -single business, dominant business, related business, and unrelated business -according to the degree of strategic interdependence across businesses as well as "the proportion of a firm's revenues that can be attributed to its largest single business in a given year". Nathanson (1980) has developed a system that captures both product and market diversity.

Implementing Diversification Strategies

A central concept to understanding and proposing diversification strategies is relatedness. A range of diversification strategies-from highly related to highly unrelated -can be observed.

Pitts and Hopkins (1982) have conducted an extensive literature review and summary on this topic. As they suggested, "the first tasks facing a researcher wishing to measure a firm's diversity therefore, is to identify its individual businesses".

In this review of strategic diversity, Pitts and Hopkins cite three primary approaches:

* The first, resource independence, sees a business as discrete from others of the corporation if the "resources involved are separate from those supporting the firm's other activities."

* The least-employed approach, due to data collection difficulties, defines businesses in terms of market discreteness.

* Finally, businesses can be defined in terms of product differences, viewing each product offering as a separate business.

Pitts and Hopkins here note two primary approaches to the measurement of diversity: (1) the first is based upon the number of businesses in which the firm is positioned; (2) the second approach is termed strategic and assesses diversity by either the relatedness of various businesses or the firm's historical growth pattern.

Rumelt developed, as a variation of Wrigley's (1970) scheme, a typology -single business, dominant business, related business, and unrelated business -according to the degree of strategic interdependence across businesses as well as "the proportion of a firm's revenues that can be attributed to its largest single business in a given year". Nathanson (1980) has developed a system that captures both product and market diversity.

Strategies Changes

Most organizations do not start out completely diversified. Therefore, in implementing a diversification strategy organizations face two important questions:

1. How will the organizations more from a single product strategy to some form of diversification?

2. How will it manage diversification effectively?

The concept of center of gravity opens a broader range of strategic options to the firm. These include vertical integration; by-product, related, intermediate, and unrelated diversification and finally, a shift in center of gravity.

Vertical Integration

The first strategic change that an organization sometimes makes is to vertically integrate within its industry. The organization can move backward to prior stages to guarantee sources of supply and secure bargaining leverage on vendors; or it can move forward to guarantee markets and volume for capital investments, and became its own customer to feed back data for new products. Each company can have its center of gravity at a different stage.

However, this initial strategic move does not change the center of gravity, because the prior and subsequent stages are usually operated for the benefit of the center of gravity stage. Research findings indicate that the poorest performer of the strategic categories is the vertically integrated by-product seller (Rumelt 1974). These companies are all upstream, row material, and primary manufacturers. Their resource allocation was within a single business, not across multiple products. Significant here is their inability to change, because the management skills-partly technological know-how does not transfer across industries at the primary manufacturing center of gravity

Diversification

The next strategic change that a company usually takes is diversification. There are different types of diversification.

By-Product Diversification. One of the first diversification moves that are vertically integrated company makes is to sell by-products from points along the industry chain. But the company has changed neither its industry nor its center of gravity. A key dimension that distinguishes among companies pursuing this strategy is the number of industries into which by-products are sold.

Related Diversification. Related Diversification is a strategic change in which the company moves its core industry into other industries that are related to the core industry. The position taken here is that relatedness has two dimensions: 1. one is the degree to which the new industry is related to the core industry; 2. the other - more important - is the degree to which the company operates at the same center of gravity in the new industry.

Related diversification is a strategic change in which the company diversifies be entering new industry but always enters business in that industry at the same center of gravity. An appreciation for the degree of relatedness is needed to estimate the amount of strategic change that is being attempted. A scale of relatedness could be constructed by listing the functional aspects of any business, such as process technology, product technology, product development, purchasing, assembly, packing, shipping, inventory management, quality, labor relations, distribution, selling, promotion, advertising, consumer / customer, buying habits, working capital, and credit.

The magnitude of strategy implementation problem is directly proportional to the amount of relatedness in the diversification move. The less related the diversification, the greater the difficulty of strategy implementation, and the greater the likelihood of acquisition versus internal growth.

Intermediate diversification. Between related and unrelated diversifiers are a large number of firms whose businesses are somewhat related but operate at a number of centers of gravity. The strategic change hypothesized is to be more difficult because it

involves managing businesses with different centers of gravity. The company must learn not only new businesses but also new ways of doing business.

Unrelated Diversification. The unrelated company has several centers of gravity, operate in many industries, and actually seek to avoid relatedness (e.g., electronic, energy). However, the intermediate and unrelated diversification does not change the centers of gravity of their core business.

Implementing Strategies Through Mergers, Acquisitions, And Joint Ventures

Corporations seeking to implement growth strategies have a number of tactical options from which to choose. Mergers or acquisitions, joint ventures, and internal product or business development are ways of implementing growth strategies.

Implementing Strategies Through Mergers, Acquisitions

Mergers and acquisitions are two frequently used methods for implementing diversifications strategies. A merger takes place when two companies combine their operations, creating in effect, a third company. An acquisition is a situation in which one company buys, and controls another company.

Horizontal mergers or acquisitions are the combining of two or more organizations that are direct competitors.

Concentric merges or acquisitions are the combining of two or more organizations that have similar products or services in terms of technology, product line, distribution channels, or customer base.

Vertical merges or acquisitions are the combining of two or more organizations to extend an organization into either supplying products or services required in producing its present products or services or into distributing or selling its own product and services.

Conglomerate mergers or acquisitions involve the combining of two or more organizations that are producing products or services that are significantly different from each other.

Organizations seek mergers and acquisitions for many reasons. The primary reason for large mergers and acquisitions is the potential benefit that can accrue to the stockholders of both companies. Synergy is often cited as a rationale for mergers.

Synergy occurs as the result of a merger, when two operating units can be run more efficiently (i.e.: with lower costs) and / or more effectively (i.e.: with appropriate allocation of scarce resources given environmental constrains) together than apart.

Other reason for merging with or acquiring another company include improving or maintaining competitive position in a particular business in order to enter new markets or acquire new products rapidly, to improve financial position, or to avoid a takeover.

Mergers and acquisitions can be carried out in either a friendly or a hostile environment.

Friendly mergers and acquisitions are accomplished when the stockholders and management of both organizations agree that the combination will benefits both firms and the work together to ensure its success.

Hostile (or, as they are frequently called, takeover) mergers and acquisitions result when the organizations to be acquired (also sometimes called the target company) resist the attempt. Several methods are available for carrying out mergers and acquisitions:

One is, the tender offer, is well - publicized bid made by a corporation to all or a prescribed amount of the stock of another organizations.

Another option for one company is to purchase stock of the target organization in the open market.

The acquiring company can also purchase the assets of the target company. Finally, the two firms may agree to an exchange of stock.

Because so many terms are used in described activities involved in mergers and acquisitions, there is summary of the definitions of many of these terms.

Several factors need to be avoided to ensure a successful merger or acquisition. These factors include:

1. Paying to much 2. Straying too far a field 3. Marrying disparate corporate cultures 4. Counting on key managers staying 5. Assuming that a boom market will not crash 6. Leaping before looking 7. Swallowing too large company

Numerous organizations have been able to integrate sufficiently so that the merger or acquisition becomes a successful strategy of diversification.

Implementing Strategies Through Joint Venture

Another method used in carrying out diversification is the join venture. Joint venture can take place between organizations within national boundaries or between private enterprises and government or non-for profit organizations. Another frequent form of joint venture takes place between organizations in different countries.

Three basic strategies have been proposed for use in joint ventures: the spiderls web, go together-split and successive integration.

The spiderls web strategy is employed in an industry with few large organizations and several smaller ones. One strategy for smaller organizations would be to enter a joint venture with one large organization and then, in order to avoid being absorbed, enter a new joint venture as quickly as possible with one or more of the remaining organizations.

Go together-split is a strategy in which two or more organizations cooperate for an extended time and then separate. It is particularly appropriate projects that have ad definite life span, such as construction projects.

Successive integration starts with a weak joint venture relationship between organizations, becomes stronger, and ultimately may result in a merger - either friendly or hostile.

Three major considerations seem to be particularly important in forming a joint venture: The first is choosing partner. A second consideration is the question of control over the joint venture. final consideration involves the management of the joint venture.

Problems Of Successful Implementation

Problems of successful implementation centre around how well or badly the existing organization responds and how adequate its reporting proves to be.

According to Arthur A. Owen, in practice there are four problem areas associated with the successful implementation of strategies:

The first problem is that, although strategies need to be developed around the business units (SBUs), of the corporation, these units often do not correspond to parts of the organizations structure. Business units have an external market-place for goods and services, and their management can plan and execute strategies independent of other pieces of the company. Moreover, the organization structure - and how that functions - derives from its history of take-over, tax considerations, shareholders considerations, economies of scale, personnel strengths and weaknesses, national legal requirements, and so on. Therefore, at any time strategy and structure need to be matched and supportive of each other.

Strategic planners must attempt to cut through the culture of diversified corporation and to plan in relation to the various competitive environments by identifying the strategies for them.

Moreover, these strategies still have to be implemented by the organization as a whole.

A second problem area is that traditional management reports are not sensitive enough to monitor the implementation strategies, thus the strategic manager not fully aware of what is happening. Hence the performance of existing structure is not monitored properly, and as a result control mechanisms may be ineffective.

Third, implementing strategy involves change, which in turn involves uncertainty and risk. Therefore, motivating managers to make changes is a key determinant.

Finally, management systems (such as compensation schemes, management development, communications systems and so on) are often in place as a result of past strategies; they are rarely tuned or revised to meet the needs of new ones.

Alexander adds additional factors that are also significant: the failure to predict the time and problems which implementation will involve; other activities and commitments that distract attention and possibly cause

resources to be diverted; that the bases upon which the strategies were formulated change, or were

forecast poorly and insufficient flexibility has been built in.

To counter these problems Owen suggests the following: allocating clear responsibility and accountability for the success of the overall

strategy project; limiting the number of strategies pursued at any one time; identifying actions to be taken to achieve the strategic objective, allocating

detailed responsibilities for actions - and getting agreement for them; identifying a lists of emilestonesl, or major intermediate progress points; identifying key performance measures to be monitored throughout the life of the

strategy project, and creating an information system to record progress.

The New Marketing and Sales Strategies and Tactics: The New Marketing and Sales Strategies and Tactics Philip Kotler, Ph.D Kellogg School of Management Northwestern University Kiev, Ukraine May 19, 2006

My Message: My Message Marketing’s performance has been disappointing. You must replace your Old Marketing with New Marketing that is: holistic strategic technology-enabled financially-oriented

The New Marketplace: The New Marketplace Commoditization. Competition of cheaper brands from China. Rising selling and promotion costs. Proliferation of distribution and media channels. Power shifting to giant retailers. Power shifting to increasingly informed customers. Shrinking margins. Mergers, bankruptcies.

Marketing’s Results Are Embarrassing : Marketing’s Results Are Embarrassing TV advertising has lost much of its former efficiency. Sales promotions are mostly wasted. Direct marketing mailings have poor response. Too many sales calls done by the numbers. High rate of new product failure. Marketing focuses too much on the short run. Marketing has become a one P function.

How Do CEOs See Marketing?: How Do CEOs See Marketing? Marketing is Advertising and Selling. Marketing is 4Ps. Marketing is STP and 4Ps.

Overview: Overview Part 1. Improving the Relationship Between Marketing, Sales and Service Part 2. Applying Holistic Marketing Part 3. Developing A Winning Strategy Part 4. Developing New Product Ideas Part 5. Improving Communications Part 6. Moving to High-Tech Marketing

Sales Precedes Marketing: Sales Precedes Marketing In the beginning there was sales. Marketing appeared later to help sales people: By using marketing research to size and segment the market By using communications to build the brand and develop collateral materials By finding leads through direct marketing and trade shows Marketing was originally located in the sales department. Then marketing grew as a separate department responsible for the marketing plan (4Ps) and brand-building.

Differences in Mindset and Style: Differences in Mindset and Style Marketing Profit oriented Data oriented Analytical Likes planning Team-oriented MBA educated Focused on whole market and market segments Sales Volume oriented Action oriented Intuitive Prefers doing Individualistic Undergraduate and “street smart” Focused on each customer

Identify the Existing Level of Relationship: Hypothesis: The integration of sales and marketing tends to progress through four distinct stages or levels of complexity. Caution! The most appropriate stage for a company will depend on many factors. More integrated will not always mean more effective. Identify the Existing Level of Relationship Undefined Defined Aligned Integrated

Buying Funnel: Buying Funnel Purchase Intention Customer Awareness Brand Awareness Brand Consider- ation Brand Preference Purchase Loyalty Customer Advocacy Marketing Sales Handoff

Integrating Marketing Into the Sales Funnel: Integrating Marketing Into the Sales Funnel Prospecting Qualifying Defining Needs Contract Negotiation Developing Solutions Proposal Preparation/ Presentation Revision & Issue Resolution Implemen-tation Purchase Intention Purchase Loyalty Customer Advocacy

Marketing Can Help in the Sales Process: Marketing Can Help in the Sales Process Prospecting and qualifying Marketing develops high quality leads for the sales force. Defining needs Marketing works with sales to develop value propositions for customer segments, sub-segments and even individual accounts. Developing solutions Marketing provides “solution collateral” – organized templates and customizing guides so that salespeople can develop solutions at lower cost without constantly reinventing the wheel. Proposal preparation Marketing organizes proposal collateral and libraries to help salespeople produce faster, more responsive and more persuasive proposals. Issue resolution Marketing prepares case study material, success stories and site visits to help resolve customer concerns about moving ahead with the purchase. Contract negotiation Marketing acts as an advisor to sales teams in negotiation planning and pricing.

Involve the Sales Force in Marketing Planning: Involve the Sales Force in Marketing Planning SF is a key member of the cross-functional team. SF contributes to voice-of-customer research. SF contributes to offer development. SF reviews creative. SF contributes to database development. SF defines lead criteria and helps designs lead management systems. SF contributes to metrics.

Eight Ways to Improve Marketing/Sales Alignment : Eight Ways to Improve Marketing/Sales Alignment Hold regularly scheduled meetings between marketing and sales. Make it easier for marketing and sales people to communicate with each other. Arrange for more

joint work assignments and job rotation between marketing and sales people. Appoint a liason person from marketing to live with the sales force and help marketers understand sales problems better. Locate the marketing and sales people in the same building or location to maximize their encounters. Set shared revenue objectives and reward systems. Define more carefully the steps in the marketing/sales funnel. Improve sales force feedback.

USE APPROPRIATE CHANNELS FOR DIFFERENT CUSTOMER SEGMENTS AND TASKS: USE APPROPRIATE CHANNELS FOR DIFFERENT CUSTOMER SEGMENTS AND TASKS MARKETING CHANNEL CUSTOMER National Acct. Management Direct Sales Tele- marketing Direct mail Retail Stores Distributors Dealers and Value-added Resellers Advertising Lead Qualifying Presales Close of Postsales Account Generation Sales Sales Service Manage- ment All Customers Source: R.T. Moriarty and Ursula Moran. “Managing Hybrid Marketing Systems”,Harvard Business Review, Nov-Dec 1990, pp. 146-147

Slide16: CUSTOMER ACTIVITY CYCLE : IBM BANK CUSTOMER (SIMPLIFIED) Update Take Strategic Decision Pre Review Maintain Repair Train Install + Set Up Post During Understand IT Options Develop Systems Integration Purchase deciding what to do keeping it going doing it Customer Activity Cycle (CAC) Source : Sandra Vandermerwe, From Tin Soldiers to Russian Dolls : Creating Added Value thorugh Services

Slide17: CUSTOMER ACTIVITY CYCLE : IBM BANK CUSTOMER (SIMPLIFIED) Planned Maintenance Preventative maintenance Expand Renew Review plan needs + system Repair Replace Renovate Training getting people online globally Pilot Install Remove old Machine Feasibility + IT advice + expertise Sourcing Buying Distributing Consulting Update Take Strategic Decision Pre Review Maintain Repair Train Install + Set Up Post During Understand IT Options Develop Systems Integration Purchase deciding what to do keeping it going doing it Customer Activity Cycle (CAC) System +software integration

Three Types of Customers: Three Types of Customers Price-oriented customers (transactional selling) They want value through lowering cost. They know the product and care only about the price. They don’t want to see a salesperson. Solution-oriented customers (consultative selling) They want value through more benefits and advice. Strategic-value customers (enterprise selling) They want value through higher benefits and lower costs. They want the supplier to co-invest and participate in the customer’s business Source: Neil Rackham

Part 2. Applying Holistic Marketing: Part 2. Applying Holistic Marketing Marketing must become strategic and drive business strategy. A company needs to take a more holistic view of: the target customers’ activities, lifestyle, and social space. the company’s channels and supply chain. the company’s communications. the company’s stakeholders’ interests. Source: Philip Kotler, Dipak Jain, and Suvit Maesincee, Marketing Moves: A New Approach to Profits, Growth, and Renewal (Harvard Business School Press, 2002)

Holistic Marketing: Holistic Marketing

HOLISTIC RELATIONSHIP MARKETING FRAMEWORK: HOLISTIC RELATIONSHIP MARKETING FRAMEWORK MARKET SPACE POTENTIAL OPPORTUNITIES BUSINESS INVESTMENT CUSTOMERS CORPORATION COLLABORATORS CUSTOMER FOCUS CORE COMPETENCIES COLLABORATIVE NETWORK 2) How can we define relevant market space? 3) What are the potential opportunities emerging from the market space? 4) What business capabilities and infrastructure required? 1) Who is involved?

4 COMPETITIVE PLATFORMS: 4 COMPETITIVE PLATFORMS Market Offerings Business Architecture Marketing Activities Operational System Creating Value Delivering Value Customer Focus Core Competencies Collaborative Network

Part 3. Developing An Overall Strategy: Marketing Strategies Are Showing Diminishing Returns: Part 3. Developing An Overall Strategy: Marketing Strategies Are Showing Diminishing Returns Product differentiation is harder to achieve. Acquisitions and mergers have as many failures as successes. Internationalization is offering less opportunities because either the good markets are overcrowded or the poor markets have no money. New products unfortunately fail more times than they succeed. Price cutting doesn’t work because competitors will match. Pricing raising doesn’t work since there isn’t enough

differentiation to support it. Cost cutting has eliminated much of the fat but is now risking cutting the muscles.

Strategies for Firms in Different Market Positions: Strategies for Firms in Different Market Positions Jagdish Sheth, Singapore Marketer, 2002

Seven Winning Strategies: Seven Winning Strategies Cost reduction (IKEA, Southwest Airlines, Wal-Mart, Enterprise Rent-a-Car). Improved customer experience (Starbucks, Harley Davidson) Highest product quality (P&G, Toyota). Niching (Progressive Insurance, Tetra) Innovative business model (Barnes & Noble, Charles Schwab, FedEx) Product Innovation (IPOD, Swatch watch) Design (Bang & Olufsen)

Market Visionaries: Market Visionaries Anita Roddick Body Shop Fred Smith Federal Express Steve Jobs Apple Bill Gates Microsoft Michael Dell Dell Computer Ray Kroc McDonald’s Walt Disney Disneyworld Sam Walton Wal-Mart Moynihan Domino’s Pizza Akio Morita Sony Thomke/Sprecher Swatch Watch Company Gilbert Trigano Club Mediterranee Ted Turner CNN Frank Purdue Purdue Chicken Richard Branson Virgin Honda Honda Simon Marks Marks & Spencer Luciano Bennetton Benetton Charles Lazarus Toys R Us Les Wexner The Limited Colonel Saunder Kentucky Fried Chicken Ingvard Kampard IKEA Howard Schultz Starbucks Charles Schwab Charles Schwab

Disruptive Technologies: Disruptive Technologies OLD Photographic film Wired telephones Store retailing Classroom education Offset printing General hospitals Open surgery Cardiac bypass surgery Manned fighters Full service stock brokerage NEW Digital photography Mobile telephones On-line retailing Distance education Digital printing Outpatient clinics Endoscopic surgery Angioplasty Unmanned aircraft On-line stock brokerage Source: Clayton M. Christensen, The Innovator’s Dilemma, p. xxix.

Why Leaders Ignore Disruptive Innovations: Why Leaders Ignore Disruptive Innovations Leading companies prefer to keep producing sustaining innovations that will allow them to charge higher prices. They are responsive to their existing customers wishes but they ignore potential customers who want lower cost solutions. They miss the weak signals that a potential challenger is emerging. Even if some employees see the signal, it doesn’t reach top management and if it does, top management chooses to ignore it or responds half-heartedly.

Strategies for National Brands Facing Store Brands: Strategies for National Brands Facing Store Brands Reduce your prices. Keep improving your quality. Innovate new features. Strengthen your brand image. Develop better designed and aesthetic packaging. Show the retailer that he makes more money with your brand than his store brand. Produce the store brand for the retailer. Buy the retailer. Sell your brand.

Strategies for Meeting Chinese Competition: Strategies for Meeting Chinese Competition Reduce your costs to a minimum. Reduce your prices. Shift your production to China. Add new features and improved quality. Strengthen the brand image.

Part 4. Developing New Product Ideas: Part 4. Developing New Product Ideas

Slide32: In mature markets, the growing number of competitors leads companies to target niches of low profitability. Market Size Number of competitors Average profitability of all competitors Y O G U R T S M A R K E T Time

Slide33: The case of Cereal Bars

Slide34: Baby dolls market Doll varieties New category To feel as... = Teenager The case of Barbie

Other Examples of Lateral Marketing: Other Examples of Lateral Marketing Kinder Surprise = candy + toy. Seven Eleven = food + depot. Gas station stores = gas station + food. Cyber cafes = cafeteria + Internet. “Be the godfather of a kid” = Donation + adoption. Walkman = audio + portable MBA = train + classroom Source: Philip Kotler and Fernando Trias

de Bes, Lateral Marketing: A New Approach to Finding Product, Market and Marketing Mix Ideas (Wiley, 2004)

Part 5. Improving Communication: Part 5. Improving Communication Advertising Sponsorships Mentions on talk shows Product placement Street-level promotion Festivals Celebrity endorsements Mobile billboards

Ad Agencies Search for New Media: Ad Agencies Search for New Media Blimps (MetLife). Sports teams (FedEx pays to name Memphis Express). Racing cars carry as much as 20 logotypes of its sponsors. Vehicle wrapping of a colorful vinyl advertisement around an ordinary car. In-flight advertising and in-movie advertising. Video ads in elevators and at gas pumps. Print ads in bathrooms. Books: Bulgari commissioned Fay Weldon to write a novel called “The Bulgari Connection” with an extravagant Bulgari necklace on cover. Mobile marketing

THE Y&R MODEL OF BRAND STRENGTH: THE Y&R MODEL OF BRAND STRENGTH A successful brand has brand vitality and brand stature. Brand vitality consists of: 1. Differentiation, the brand is distinct 2. Relevance, the brand is meaningful and personally appropriate. Brand stature consists of: 1. Esteem, the brand is seen to have quality and momentum. 2. Familiarity, the brand is known and understood by many people. Some conclusions: 1. A brand that has high familiarity but low likeability is a troubled brand. 2. A brand that has high likeability but low familiarity has high advertising potential. 3. A brand with high vitality but low stature has excellent potential. 4. When a brand’s differentiation and relevance start slipping, esteem will slip next, and then familiarity will decline.

Slide39: Building Strong Associations Utilize all levels of brand meaning - McDonalds: Attributes: clean restaurant; consistent food Benefits: quick service; value price Values: children’s charity; fun (playground, toys); I’m Lovin’ It Culture: service culture; where young people enter the workforce Personality: Ronald McDonald; Golden Arches; McEverything User: families; young people

Part 6. Moving to Technology-Enabled Marketing: Part 6. Moving to Technology-Enabled Marketing Direct marketing and predictive analytics Marketing metrics Marketing models Sales automation and marketing automation systems Marketing dashboards

Needed: Metrics for Measuring Different Marketing Expenditure Categories: Needed: Metrics for Measuring Different Marketing Expenditure Categories Mail campaigns Telemarketing campaigns Sales promotions Managed events Trade shows Sponsorships TV ad campaigns Corporate image campaigns Subscription campaigns Customer win-back campaigns New product launch campaigns

Major Metrics: Major Metrics Sales Metrics Sales growth Market share Sales from new products Customer Readiness to Buy Metrics Awareness Preference Purchase intention Trial rate Repurchase rate Customer Metrics Customer complaints Customer satisfaction Customer sacrifice Number of promoters to detractors Customer acquisition costs New customer gains Customer loses Customer churn Retention rate Customer lifetime value Customer equity Customer profitability Return on customer Brand Metrics Brand strength (perceived relative brand value) Brand equity *Compiled by Philip Kotler from various sources Distribution Metrics Number of outlets Share in shops handling Weighted distribution Distribution gains Average stocks volume (value) Stocks cover in days Out of stock frequency Share of shelf Average sales per point of sale Communication Metrics Spontaneous (unaided) brand awareness Top of mind brand awareness Prompted (aided) brand awareness Spontaneous (unaided) advertising awareness Prompted (aided) advertising awareness Effective reach Effective frequency Gross rating points (GRP) Response rate Sales force metrics Quality of lead stream Average lead to proposal Average close ratio Cost per inquiry Cost per lead Cost per sale Cost per sales dollar Price and Profitability Metrics Price sensitivity Average price change Contribution margin ROI DCF

Comments on Some Metrics: Comments on Some Metrics Market share Customer satisfaction Customer sacrifice Number of promoters to detractors Retention rate Customer lifetime value Customer equity Return on customer Brand strength (perceived relative brand value) Brand equity ROI DCF

Slide44: Brand familiarity Purchase consideration Purchase intention Media effectiveness Marcom Adjacent category awareness Purchase Brand beliefs and perception PR Message effectiveness In-store activity Pricing Promotion Revenue Margin Use and satisfaction Reviews Brand familiarity Purchase consideration Purchase intention Purchase Build Models of How Your Market Works and Use New Tools

Marketing Decision Models and Marketing Mix Response Models : Marketing Decision Models and Marketing Mix Response Models BRANDAID CALLPLAN DETAILER MEDIAC PROMOTER ADCAD See Gary Lillien and Philip Kotler, Marketing Models (Prentice-Hall).

SALES AUTOMATION: SALES AUTOMATION The objective is to empower the salesperson to be an informed salesperson who virtually has the whole company’s knowledge at his command and can provide total sales quality.

Marketing Automation: Marketing Automation Selecting names for a direct mail campaign Deciding who should receive loans or credit extensions Allocating product lines to shelf space Selecting media Customizing letters to individual customers Targeting coupons and samples Pricing airline seats and hotel reservations

Marketing Dashboards: Marketing Dashboards Tools dashboard Processes dashboard Performance dashboard

Exploit the Internet!: Exploit the Internet! Create a web site that brilliantly communicates about your history, products, brands, beliefs and values (BMW). Create a site that consults on a category (Colgate on dental problems). Create a site that consults on the individual customer’s profile (Elizabeth Arden) and sells customized products (Acumin vitamins). Run focus groups with prospects, customers and dealers or send questionnaires. Send ads or information to prospects who show an interest. Send free samples of new products (freesample.com). Send coupons of new products (coolsavings.com). Invite customers to send e-mails about problems, ideas, etc. Use the Internet to research your competitors. Facilitate internal communications among employees on a private intranet. Use the Internet to improve purchasing, recruiting, and training. Use the Internet to compare sellers’ prices and to purchase materials by posting the company’s terms.

Technology-Enabled Marketing: Examples : Technology-Enabled Marketing: Examples Royal Bank of Canada Decision to purchase CRM Halifax Bank Teller suggests financial products Capital One A credit card for everyone, but with different interest rates, credit lines, and cash advances. Tesco supermarkets Tesco has identified 5,000 customer “needs” segments. It sends out some 300,000 variations of any given offer with redemption rates of 90%. It has formed clubs such as Baby Club, A World of Wine Club, My Time Club Kraft Kraft has the names of 110 million customers and 20 thousand facts for each household. Kraft launched print magazine, Food & Family, that is delivered to the homes of 2.1 million Kraft customers in 32 versions tailored to 32 segments.

Conclusions: Conclusions Marketing is not filling its potential. Marketing must show more ROI accountability. Marketing must become the driver of business strategy. Marketing and sales must be more tightly integrated. Companies need to adopt a more holistic view of the marketing challenge. Companies need lateral marketing thinking to conceive of new product and service ideas. Companies need to find new ways to reach customers; the old ways are failing. Companies need to move to technology-enabled marketing to achieve precision marketing.

Slide52: “This time like all times is a good one, if we but know what to do with it.” Ralph Waldo Emerson THANK YOU

SKF

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Strategy Implementation

New times mean new challenges for Swedish industry. When the world-leading bearing supplier, SKF, faced competition from low price suppliers in Asia, the choice stood between modernizing its business concept or struggling against the new global conditions. SKF switched course, turned to QuickSearch, and climbed the value chain.In order to meet the new market conditions, SKF decided to go from selling bearings to service-based solutions. On paper, the new strategy seemed fantastic. However, the question was how to implement it in practice and what obstacles stood in the way of reaching the goal. With the help of QuickSearch, an innovative solution for the realization of the idea was developed and the cooperation became profitable.“QuickSearch has helped us to implement our strategy with our customers and has contributed to our having increased our results substantially,” says Claes Rehmberg, Quality Manager at SKF.

Placed the seller in focusThe method developed places the seller in focus. QuickSearch customized a solution in which a continuous web dialog between sellers and management played the central roll. Tom Johnstone, President of SKF, went out to the sellers via a video and emphasized their important role in the work to put the new strategy into effect.

“You are closest to our customers. Give us your opinion how this new idea is being perceived!”

Thereafter, each seller got to communicate valuable information from his or her direct contacts with the market. Through Strategy Tracking and the effective communication channel between the parties, the strategy’s strong points could quickly be used and its weaknesses quickly attacked.

The new strategy bore fruit immediatelySKF could make sure that the strategy had good potential at the same time as they, at the preliminary stage, obtained knowledge about which efforts were required. Using the method, they could quickly identify opportunities and launch concrete measures such as, for example, better case descriptions and directed regional efforts. Already in the second year, it was obvious that Strategy Tracking was successful.“Strategy Tracking is responsible for approximately 10 percent of our result improvement in 2005/06,” says Claes Rehmberg.

A straightforward and effective dialog without noiseStrategy Tracking is an innovative survey method that analyzes customer interest and intention for your strategy as well as which business opportunities exist. By combining the questionnaire with communication, an effective dialog is established, beyond regional managers and local sales managers, between management and sellers. Strategy Tracking assists you in effectively following up and implementing your strategy.For more information about what Strategy Tracking can mean for your business, please contact the responsible project manager.