Presentation with speakers note on a Decision Makign Framework for the use of Strategic Alliances in Outsourcing.

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation
White Paper on Strategic Evaluation
The following material is a Powerpoint
Presentation printed into PDF using “Speakers
Notes”. All material is protected by copyright and
is for published as a service to potential clients of
Phoenix Strategies Syndicate. LLC

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation Page 2
Generic Strategic Planning Process
Evaluate
External
Environment
Internal
Capabilities
Assessment
Create
Strategic
Direction
Define &
Select Base
Strategy and
Contingency
Plans
Implement
Policy or
Strategic
Program
Evaluate
Performance
What is “Strategy”? Tactics is finding yourself in an alley and
fighting your way out. Strategy is not ever putting yourself in
a dead-end alley in the first place. The above represents a
simplified version of the Strategic Planning Process. You
might use this to decide whether it’s a better strategy to take
your significant other out to dinner or to cook in or to order in.
Can you cook? Is is raining outside? How did your plan go?
Want to change it for next time?

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Elements of Strategic Management
Environmental
Scanning
External
Societal
Environment
Task
Environment
Internal
Structure
Culture
Resources
Strategy
Formulation
Mission
Objectives
Strategies
Policies
Strategy
Implementation
Programs
Budgets
Procedures
Evaluation
and Control
Performance
Reason for
existence
What
results to
accomplish
by when
Plan to
achieve the
mission &
objectives Broad
guidelines
for decision
making
Activities
needed to
accomplish
a plan
Cost of the
programs
Sequence
of steps
needed to
do the job Actual results
Feedback / Learning / Refinement
There are two types of people in the world. Lumpers and
Splitters. If you disagree you’re a splitter. I’m a lumper,
meaning I try to keep designations simple and streamlined and
not “split” into too many categories or distinctions. When it
comes to strategy my first lump is do you have one or not?
Second is are your tactics consistent and congruent with your
strategy? A project or program to me “is” a Strategic
Implementation. The above view on Strategy is helpful
because it relates “normal” business steps and language to the
process of Strategy Formulation and Evaluation. An
Outsourcing initiative is a Strategic Implementation. One
which has serious long-term impacts and second order
consequences for your company. Phoenix Strategies provides
expert Strategic Evaluation and formulation of Strategic
Implementations.

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation Page 4
Why Strategic?
• Rare
– Unusual and with little or no precedent to follow
• Consequential
– Commits substantial resources and demands
commitment from people at all levels – and usually
changes way work is done
• Directive
– Sets precedent for lesser decisions and future actions
throughout an organization
Something can be Strategic for one or more of the above
reasons. Outsourcing, especially initially, usually hits all three
categories. This makes a careful evaluation of your approach
critical. Just how does one go about reviewing Strategy? The
art involves understanding External Factors, Internal Factors,
your unique Core Competencies, and the Sustainability of any
value proposition you may now own or seek to create. We now
turn to a review of External Factors.

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Societal Scanning Variables
Social institutionsLegal systemRegs on tech transTrading blocks
Human rightsTerrorist activityNatural resourcesEcon development
Lifestyle
changes
Attitudes to
foreign Co.
TeleComm
Infrastructure
Bank health
Consumer activismForeign invest lawsUniv supportUnemployment
Career expectationsHire/fire lawsGovt. supportDisposable income
Family formationEnvironmentalProductivity imprEnergy avail/cost
Regional shiftsForeign trade regsRate new devel(re)devaluation
Life expectancyStability of govt.New productsWage/price cntrl
Birth ratesSpecial incentivePatent protectionCurrency exchng
Pop growth ratesTax lawsFocus of techInterest rates
Language(s)Anti-trustIndustry spendGDP trends
SocioculturalPolitical-legalTechnologicalEconomic
As Strategy is holistic you can start anywhere to get Feedback
and Perspective. The above chart is a very helpful reminder
and framework for Evaluating a portion of the External
Environment. Depending upon your needs, strategy, and core
competencies any number of the above variables can come into
play. The Art is in selecting the most critical variables and
understanding their application to your project.

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Task Environment Variables
ShareholdersAbility to
forward
Integrate
Ability to
backward
Integrate
Diversity of
rivals
Cost disadv.
independent
of size
UnionsAvailability
of
substitutes
Impact on
finished
product
Exit barriersAccess to
dist.
Channels
Trade
associations
Percentage
of total sell
Percentage
of total buy
Consumer’s
readiness
Amount of
fixed cost
Capital
Requirements
CreditorsSwitching
costs
Switching
costs
Elasticity of
demands
Number of
competitors
Product
differentiation
Governments# of
competitors
Alternative
suppliers
Switching
costs
Growth rate
of Industry
Economies
of scale
Relative
power of
Stakeholders
Bargaining
power of
suppliers
Bargaining
power of
buyers
Threat of
substitutes
Rivalry of
existing
firms
Threat of
New
Entrants
Another important component of the External Environment is
your “Task” Environment. This is more complex than just
competition. Focusing too narrowly on competition is always a
mistake. Especially in Outsourcing where Global politics and
infrastructure and law can have a huge influence on your
outcome. Something very important to understand; in some
places in the world, when you Outsource you are putting your
future competition into business and equipping them. The
Nautica® brand is a great example of this point. Nautica® is
owned by a very savvy Taiwanese business man who originally
supplied apparel to American Brand Houses & Retail. Pick
them well and keep your potential enemies close to you. There
are ways to think through the situation to minimize future
potential damage and erosions to your market. We deeply
evaluate these issue when we look at Core Competencies and
the Sustainability of Resource Advantages.

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation Page 7
Internal Strategic Factors
Basically analysis of Corporate Resources
• Value
– Do resources provide competitive advantage?
• Rareness
– Do other competitors posses it?
• Imitate-ability
– Is it costly for others to imitate?
• Organization
– Is the business unit organized to exploit the
resource(s)?
Transitioning from the External Environment to your Internal
Capabilities; the four above points are laser focused ways to
comprehend the Outsourcing value proposition. Looking at
your organization through these lenses leads directly to a very
important set of decisions about what uniquely makes up your
Core Competencies. We address Core Competencies as part of
the basic Strategic Evaluation. Information on Core
Competencies may be found in the “Outsourcing” White Paper.

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation Page 8
Sustainability of Resource Advantages
• Durability: rate at which resources depreciate or
become obsolete
• Imitate-ability: rate at which resources or
competencies can be duplicated by others
– Transparency is speed at which other can understand
systems making up core competency
– Transferability is ability of competitors to replicate key
resources and capabilities
– Replicability is ability of competition to use duplicated
resources to imitate success process/product
Okay, you have “some” Resource Advantage but are you able
to protect it, renew it, leap frog it? In other words, all
resources, including Intellectual Property, Trade Secrets,
Business Methods, Service Offerings, Tacit knowledge of your
people, and actual products & processes depreciate in value
over time and ultimately become obsolete. Think buggy
whips. There is still a market out there but do you want it?
Depends doesn’t it? But probably not. One of the biggest
considerations in Outsourcing is that the closer the business
process is to your core competencies the more you will have to
teach your outsourcing partner. By definition if you are
teaching, improving, or even just exposing them to your
“Advantage” then you are accelerating the rate of decay or
Imitate-ability. There are ways to protect against this we will
help you do just that!

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation Page 9
Elements of Strategic Decisions
• Scope/Where (geography, product/service, markets,
value chain, etc) are we to operate?
• Matching/Fit between organizations activities and
its environment.
• Matching of activities to resources.
• Implications of organizational change.
• Resource (re)allocation and optimization.
• Decision maker values, expectations, goals.
• Direction Organization is to move in long-run.
Earlier we discussed why something was Strategic and this
chart goes deeper into understanding some of the elements that
go into making a Strategic Decision. The last two points might
be the most important. Understanding the potentially
conflicting values, expectations, and goals of the Decision
Makers is critical to success. Seeing and then directing all the
long-term implications is also critical because many of these
things take a long time to implement. For example, say that
you R&D, Make, Market, & Sell today; but your business
model is about to shift to “Some R&D”, Outsourced Make with
“some r&d”, Market, & Sell. How do you integrate product
feedback in a US marketplace to a Thailand ‘make’? How do
you integrate US R&D with r&d in Thailand? Did you pick
the right partner? Can they accommodate your pipeline
technologies or will you have to expand supplier or switch
suppliers? How many relationships can you maintain? How
do you plan, long-term, to overcome language barriers? And
the list goes on because once you tumble the first domino they
do not stop tumbling. By Front End Loading your effort you
can avoid very costly future switching costs including loss of
i h l d i i d

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Strategic Alliance Success Factors
• Have clear strategic purpose integrated with each partners
strategy and ensuring mutual value.
• Identify partner that fits w/compatible goals and
complementary capabilities
• Identify likely partnering risks and deal with upfront.
• Allocate tasks & responsibilities
• Minimize conflict with clear objectives and avoidance of
direct marketplace competition
• Operate with long-term time horizons.
• Develop multiple joint projects so that any failures are
counterbalanced by success
• Agree upon a governance & monitoring process
• Agree on an exit strategy for when objectives are achieved
or alliance is judged a failure.
Wait a minute! You just switched from Outsourcing to
Strategic Alliance!?!? Yes. Outsourcing is a poorly defined
and over-used concept. In the Outsourcing White Paper we
will attempt to address the problem with “lumping” all the
potential business models under the banner of Outsourcing.
For right now flow with the provocation that if you are making
a Strategic Decision (operating with long-term objectives and
time horizon) then it will be more helpful to start out thinking
you are going to create a Strategic Alliance than it is to think
your going to “buy” something or “contract” it out.

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation Page 11
Basic Outsourcing Policy
Purchase from the outside only those activities that
are not key to a business units’ distinctive
competencies
The ‘closer’ an activity is to core competency and/or
value-add the longer-term the arrangement needs to
be and the more strategic the decision, hence an
Alliance model vs. “buy”
Decisions need to take advantage of environmental
opportunities and corporate strengths /competencies
and lead away from threats / weaknesses.
We will chart these dimensions in the Outsourcing White
Paper. There are sharp differences between a “Buy”, “Contract
Manufacturing”, “Toll Manufacturing”, “Build to Print”,
“Strategic Alliance”, a “Joint Venture”, and a “Merger /
Acquisition”. The gray areas here do matter and successful
Outsourcing is a functional blend of Sourcing, Operations,
M&A, & Technology combined – you cannot give it any one
of these functions. Much better that you create a ‘new’
function responsible for the integration of viewpoints and
implementation of the business model.

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4/12/2005 © 2005 Phoenix Strategies Syndicate, LLC
White Paper on Strategic Evaluation Page 12
Next Steps
• For more information please contact us
info@phxstrat.com
• The next White Paper “Outsourcing”
describes what Outsourcing is and is not
and discussing the evaluation of Core
Competencies. To order please visit our
site or contact us. www.phxstrat.com