Strategy as Transformation

1/30/2015 1
Successful
Transforming Strategy
“Strategy is the means for making
changes that result in sustainable
competitive advantage resulting in
superior value added for customers
and superior returns to
shareholders.”

Discussion Outline
 What we are transforming (a 7-C model)
 Transformation of ends and means
 Transformation of gaps and risks
 Targets for strategic transformation
 Financial performance
 Structure
 Interaction
 Industry
 Generic strategies
 Resources and competencies
1/30/2015 3

Discussion Outline
 Targets for strategic transformation
 Competitors
 Diversification
 Management
 Business model
 Creative tensions
 46 realities of strategic transformation
 Essential outcomes
 Structural realities
 External forces
 Internal forces
1/30/2015 4

What we are Transforming – a 7C
Model
 The Seven
Dimensions of
Every
Organization:
1) Core
2) Culture
3) Context
4) Capability
5) Capacity
6) Competency
7) Customer
1/30/2015 5

Model
 CORE: the central
reason-for-being
of the
organization:
 Its PURPOSE – why the
company exists in terms of
excellence, discovery, and/or
service
 Its IDENTITY – how the
organization wants to be
thought of by other
stakeholders – its brand
 Its INTENTIONS – what
values drive the long run
sustainability of the
organization and the legacy
it will leave1/30/2015

Model
 CONTEXT: the
fundamental
operational framework
for the organization
 Strategy – the comprehensive
vision that defines the desired
direction and impact of the
organization’s operations
 Goals – desired/expected
organizational end results
 Measures – metrics by which
successful goal achievement is to
be judged in-process and end-of-
process
 Systems – mechanisms by which
decisions are made and actions
are carried out
 Structure – position descriptions
and assignments and interactions
between positions
 Technology – facilitation of
decisions and actions through
decision, production, and delivery
tools or mechanisms
1/30/2015

Model
 CAPABILITY: underlying
strengths and limitations
of the organization
 Portfolio management –
the range and diversity of
products and services to
be offered
 Process management –
the ability to produce
desired products and
services
 Program management –
the ability to develop and
deliver strategic initiatives
 Project management –
the ability to develop and
deliver tactical initiatives
1/30/2015

Model
 COMPETENCY:
competitively superior
expertise in the
organization
 Distribution of
competency: individual,
interpersonal and
institutional
 Drivers of competency:
observation,
understanding, decision,
action
 Disciplines of
competency –
marketing,
management, finance,
information systems
1/30/2015

Model
 CAPACITY: the
scalability of the
organization or its
ability to grow w/o
damaging the other
“C” factors
 Value-chain growth
capabilities
 Strategic arena
growth capabilities
1/30/2015

Model
 CULTURE: the way
people work
together:
 Their ASPIRATIONS – what
people want for and from
themselves
 Their EXPECTATIONS – what
people want from and for others
 The ANATOMY of the culture –
structural characteristics
including reporting and
accountability paths, power and
control sources and distribution
[may be formal AND informal)
 The PHYSIOLOGY of the
culture – relational
characteristics including
communication flows, decision
flows, influence flows1/30/2015

Model
 CUSTOMER: the
nature and nurturing-
desires of those who
purchase and/or use
our products and
services
 Product, place, price
and promotion
preferences
 Resource capacities
(money, time
information)
 Alternative or substitute
sources of satisfaction
 Demographic trends
1/30/2015

Model
 Observation 1:
Much of what we
“know” about an
organization reflects
informed judgments
based on incomplete
information.
Transformation,
therefore, is both:
 Art and science
 Fact and judgment
 Analytical and intuitive
 Proactive and reactive
 Trial and error

Model
 Observation 2: All
organizations are
undergoing both
planned and
unplanned
transformation
continuously in one or
more parts of the
organization. The
decision to be made is
whether that
transformation will be
systematically
observed, understood,
decisioned and acted
upon purposefully and
progressively.

Model
 Observation 3:
Managers of the
transformation process
are neither
 Omniscient – they know
things incompletely
 Omnipotent – they
influence things
incompletely
 So, effective
transformational
management requires
imagination, risk taking,
humility, dependence on
others, learning the right
lessons from failure and
success, persistence
and resilience.

Model
 Observation 4:
While change may
BEGIN in any of the
7C arenas, it
ultimately must work
its way through all
the arenas in order
for the organization
to act in a
coordinated way that
is sustainable. All
arenas exist in a
mutually
interdependent
relationship.

Strategic Transformation of
Ends and Means
 By its very nature, effective
strategy is about deep and
wide change – change that
seeks to transform an entire
organization.
 These transformations can be
in what, where, how, for
whom, and/or when an
organization acts.

Ends and Means
SAME
ENDS
(Markets)
NEW
ENDS
(Markets)
SAME
MEANS
(Methods)
Tuning
the
organization
Turning
the
organization
NEW MEANS
(Methods)
Tempering
the
organization
Transforming
the
organization
• Tuning = incremental improvements in current markets
and methods
• Turning = seeking significant changes in what we
market and who we market to
• Tempering = seeking significant changes in how we
operate, manage, market, finance, ...
• Transforming = seeking significant changes in both
markets and methods at the same time

Gaps and Risks
 Strategy manages the risks that
occur because of the gaps.
 We cannot (and would not choose to)
eliminate the risks
 There is a clear and positive
relationship between risks and return
 There is a real difference, however,
between taking a risk, and taking a
chance.
 Risks can, and strategically should
be, managed.

Gaps and Risks
Possible gaps The risk involves
…
Strategy can help
manage the gap by …
Intention
vs
Execution
… the potential gap
between what we
intend to do and
what we actually do
• Identifying crucial
execution points
• Providing standards to
judge the quality of
execution
Information
vs
Reality
between perceptions
and truth
• Encouraging a wider
scope of investigation
• Encourages honest
questioning
Corporation
vs
Customer
between corporate
and customer
interests
• Focuses attention on
customer issues
• Asks the organization to
focus on value added for
the customer

Gaps and Risks
Possible gaps The risk involves
…
Strategy can help
manage the gap by …
Investment
vs
Return
between time and
resources spent and
rewards received
• Identifies high priority
resources and key
timing issues
• Establishes targets for
return on investment
Corporation
vs
Competition
between perception
vs realities of
competitor and the
competitive
environment
• Encourages a high
respect for competitor
capabilities
• Anticipates multiple
sources of competitive
pressure
Objectives
vs
Outcomes
between goals and
achievements
• Encourages thoughtful
goal establishment
• Continuous comparison
of goals vs
accomplishments

Targets for Strategic
Transformation - Financial
 Transforming strategy
generates superior financial
performance
 It allows an organization to obtain
financial returns greater than its cost
of capital
 It allows financial returns ( and
reinvestment potential) greater than
those of competitors
 It allows a company to achieve
superior financial returns that are
sustainable in the long run

Transformation - Structure
 Transforming strategy fosters
a Six-F Firm
 FAST: designed and operated to reduce
process times and optimize reaction and pro-
action speeds
 FOCUSED: built round core activities to which
all other business units are truly related
 FLEXIBLE: willing and able to change
whenever change is called for, and whatever
needs changing
 FLAT: less hierarchic structure, with a broad
span of control, and with authority given to
expertise
 FRIENDLY: collaborative, trusting and relaxed
both inside and outside the organization
 FUTURED: because it is well equipped for the
best method of prediction: making the future
happen the way you want.

Transformation - Interaction
 Transforming strategy fosters an
organization-wide strategic planning
interaction and communication
 The process encourages thinking about
tomorrow in proactive and creative ways
throughout the organization
 The process encourages establishing
objectives throughout the organization
 The process encourages participation and
collaboration throughout the organization
 The process encourages questioning and
reflection throughout the organization
 The process encourages complexity and
flexibility in thinking throughout the
organization

Transformation - Industry
focuses on choosing an
attractive industry
 Competition comes primarily from
rival firms in the same industry
 Industries exhibit life-style stages
(that can be challenged, but with
difficulty)
 Every industry has attractive and
unattractive segments, niches
that can be reached through an
effective business model

Targets for Strategic Transformation
– Generic Strategies
 Transforming strategy examines
generic strategies thoughtfully
 Cost control is essential for any
strategy – but a simple lower price
strategy is unsustainable over time
 Differentiation works when the
difference is visible and valuable to
buyers, financially attractive for both
the company and the customer, and
sustainable against competitors
 It is possible to balance value and
costs in a unique business model
– but this requires expertise in both
conceiving and executing strategy.

– Resources and Competencies
 Transforming strategy recognizes
the importance of resources and
competencies
 Resource uniqueness, durability and
competency in deployment are a crucial
part of every strategy
 Competencies …
 … especially are embedded in the talents
and attitudes of personnel
 … can also be embedded in organizational
systems
 … can become liabilities if they lead to core
rigidities leading to strategic momentum
and/or inertia

Transformation - Competitors
 Transforming strategy seeks
to outsmart, out perform and/or
out maneuver competitors
 Competitive advantage is always
temporary – so we must be
prepared to adopt, act on and
abandon strategies rapidly
 The advantage is found in fast
thinking an innovative, agile action
 The key capabilities become
speed, creativity and action-
implementation

Transformation - Diversification
considers judicious
diversification
 Competencies can be transferable
 There are limits to the
expandability of a core business
model
 Diversification leads to strategic
complexity – different firms have
different abilities to manage such
complexity

Transformation - Management
encourages us to see strategic
management is a dynamic
process
Entrepreneurial
Initiatives
Engineering
Initiatives
Enterprise
Initiatives

Transformation – Business Model
 Transforming strategy seeks to
change the current business model
 A business model is comprised of:
 Financial returns to the business
 Value propositions to customers
 Character of inputs
 How inputs are transformed (including
technology)
 Character of outputs
 Scope
 Vertical scope
 Horizontal scope
 Geographic scope
 Nature of customers
 How to organize

– Creative Tensions
balance a variety of creative
tensions inherent in successful
organizations:
 Aiming vs Adapting
 Competition vs Cooperation
 Dreaming vs Doing
 Effectiveness vs Efficiency
 Fixed vs Flexible
 Incremental vs Innovative Change
 Individuality vs Integration
 Intuition vs Investigation
 Kapturing vs Keeping vs Killing

organizations:
 Managing vs Marketing
 Navigating vs Negotiating
 Owning vs Outsourcing
 Opportunity vs Obstacle
 Performance vs Promise
 Past vs Present vs Possibilities
 Retrenchment vs Refinement vs
Refocus vs Regeneration
 Systematic vs Serendipitous

organizations:
 Today vs Tomorrow
 Usual vs Unusual
 Value Invested vs Value Added vs
Value Returned
 Work vs Working vs Workers

46 Realities of Strategic
Transformation
Essential
Outcomes
• Effectiveness
• Efficiency
• Efficacy
• Elasticity
• Energy
• Emergence
Structural
Realities
• Purposefulness
• Wholeness
• Openness
• Transformation
• Interrelatedness
• Control
External
Forces
• Transience
• Novelty
• Diversity
• Uncertainty
• Complexity
• Dependency
Internal
Forces
• Conflict
• Conformity
• Momentum
• Inertia
• Gravity
• Entropy

1/30/2015 38
Transformation
Essential
Outcomes
• Effectiveness
• Efficiency
• Efficacy
• Elasticity
• Energy
• Emergence
Effectiveness Operational and strategic achievement
Efficiency Operational and strategic economy
Efficacy Operational and strategic impact
Elasticity Operational and strategic flexibility
Energy Operational and strategic momentum
Emergence Operational and strategic learning

1/30/2015 39
Transformation
Structural
Realties
• Purposefulness
• Wholeness
• Openness
• Transformation
• Control
Purposefulness Systems are dominated by intentions
Wholeness Systems achieve aggregate results
Openness Systems have permeable boundaries
Transformation Systems process resources
Interrelatedness Systems have connected parts
Control Systems seek to be regulated

1/30/2015 40
Transformation
Transience Impermanence is found in relationships
Novelty History provides little guidance
Diversity Consensus is challenging
Uncertainty Causes-effects are less predictable
Complexity Interrelationships are hard to map
Dependency Problems-symptoms are interconnected
External
Forces
• Transience
• Novelty
• Diversity
• Uncertainty
• Complexity
• Dependency

1/30/2015 41
Transformation
Internal
Forces
• Conflict
• Conformity
• Momentum
• Inertia
• Gravity
• Entropy
Conflict Tendency to focus on differences
Conformity Tendency to focus on similarities
Momentum Tendency to continue the past
Inertia Tendency to resist change
Gravity Tendency to lower performance standards
Entropy Tendency to loose direction and energy

1/30/2015 42
Transformation
 Transforming strategy honestly confronts 46 realities:
Essential
Outcomes
• Effectiveness
• Efficiency
• Efficacy
• Elasticity
• Energy
• Emergence
Structural
Realities
• Purposefulness
• Wholeness
• Openness
• Transformation
• Control
External
Forces
• Transience
• Novelty
• Diversity
• Uncertainty
• Complexity
• Dependency
Internal
Forces
• Conflict
• Conformity
• Momentum
• Inertia
• Gravity
• Entropy

Organizational change
interventions – creating meaning
 Strategy ALWAYS seeks to change things – those
changes may be of different degrees:
 Change advocacy requires the leader to deal in
meaning: what does the change mean, and how do
we make it meaningful to each person?
Same ends New ends
Same means Restoring Retargeting
New means Revising Revisioning
1/30/2015 43

interventions – transformation
targets
1/30/2015 44
HEAD
HEART
WILL
HANDS
THINKING: Costs vs Benefits
DOING: Familiar vs ForeignFEELING: Pleasure vs Pain
WILLING: Commitment
vs Resistance

interventions – transformation
approaches
 Each approach
carries its own unique
 Change perspectives
 Change problems
 Change points
 Change promoters
 Change perils
 Change promises
1/30/2015 45

Decision-focused change
interventions
Perspectives
• Empirical
• Rational
Problems
• Ill-made decisions
• Ill-informed decisions
Points
• Logic
• Information
Promotion
• Robust information flows
• Reasoned decisions
Promises
• Clear perceptions
• Rational priorities and
plans
Perils
• Underestimating the
people factor
• Managing by the
numbers
1/30/2015 46

Socially-focused change
interventions
Perspectives
• Psychological
• Sociological
Problems
• Individual insecurity
• Relational instability
Points
• Emotions
• Relations
Promotions
• Psychological affirmation
• Social support
Promises
• Emotional honesty and
openness
• Individual support
• Interpersonal sensitivity
Perils
• Satisfaction>productivity
• Managers ill-fitted to be
counselors
1/30/2015 47

Learning-focused change
interventions
Perspectives
• Developmental
• Instructional
Problems
• Undeveloped capacities
• Weak self concept
Points
• Skills
• Self concept
Promotions
• Equipping
• Encouragement
Promises
• Enhanced abilities
• Energized and expanded
self confidence
Perils
• Unlearning/learning
resistance
• Individual learning
ceilings
1/30/2015 48

Economics-focused change
interventions
Perspectives
• Developmental
• Instructional
Problems
• Inadequate resources
• Unavailable resources
Point
• Resources
• Distribution systems
Promotion
• Resource development
• Resource distribution
Promise
• Strategic resource
acquisition
• Strategic resource
allocation
Perils
• Things >People
• Measuring short/long
term costs/benefits
1/30/2015 49

Politically-focused change
interventions
Perspectives
• Political
• Alliances
Problems
• Low power
• Poor negotiation skills
Points
• Power
• Networking
Promotions
• Power development
• Political maneuvering
Promises
• Power is acquired
• Power is appreciated
• Power is applied with
principle
Perils
• Unprincipled manipulation
• People treated as means
rather than ends
1/30/2015 50

Entrepreneurially-focused change
interventions
Perspectives
• Innovation
• Alliances
Problems
• Organizational timidity (risk
aversion)
• Organization bureaucracy
Points
• Opportunity recognition
• Opportunity analysis
• Risk management
Promotions
• Courage and creativity
• Removing organizational structural and procedural impediments
Promises
• Quick on the OUDA Loop
• Aggressive opportunism
• Lean organizations
• Appetite for risk taking
Perils
• Inadequate discussion and
debate about options
• Action prized over thinking
1/30/2015 51

Bureaucratically-focused change
interventions
Perspectives
• Incremental
• Experimental
Problems
• Lack of experience with
change
• All-or-nothing mentality
• Rush to judgment
Points
• Phased, limited change
• Feedback
Promotion
• A variety of small adaptations
• Growing accumulation of small successes
Promises
• Identifying small, high-
success probability targets
of opportunity
• Achievable change
expectations
• Slow, steady progress up
the learning curve
Perils
• Too little change, too late
• Assumes evolution will
triumph over revolution
1/30/2015 52

Value-focused change
interventions
Perspectives
• Inspirational
• Emotional
Problems
• Lack of passion for change
• Lack of sustained
commitment for change
Points
• Ideals and values
• Motivation
Promotion
• Charismatic leadership rooted in passionate vision
• Compelling devotion to change
Promises
• Articulation of deeply held
values
• Alignment of personal
values with group causes
Perils
• Mere cheerleading
• Triumph of emotion over
substantive development
1/30/2015 53

Environmentally-focused change
interventions
Perspectives
• Environmental
• Catalytic
Problems
• Ignorance of
environmental realities
• Intransigence in the face of
environmental pressures
Points
• Environmental sensitivity
• Environmental
adaptability
Promotion
• Environmental awareness and analysis
• Early and sustained adaptability
Promises
• Environmental opportunity
perspective
• Alignment of personal
values with group causes
Perils
• Inaction because of the
desire for more certainty
• Reactive rather than
proactive responses
1/30/2015 54

interventions: some observations
 Change is occurring
somewhere,
somehow, in every
organization.
 Changes occur in
different degrees and
stages in various
places throughout the
organization
1/30/2015 55

 However, change is also
resisted – there are
individual, interpersonal
and institutional
reasons for this
resistance
 Not all resistance is bad
– organizations are
designed to bring
stability and
predictability
1/30/2015 56

 Effective change
management requires
managing the meaning of
the change
 What the existing state is
and what the desired state
is
 What elements need to be
changed to reach the desired
state
 How and when the
changes needed can best
be achieved
1/30/2015 57

Strategy as Transformation

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