MFSA

Focus -1 : Strategy Connection Learning and Innovation

Focus -2 : Strategy in Different Life stages of Industry
and Usage of Innovation for Change Management
 Types of Innovation
In business and economics, innovation is often divided into five
types:
1. Product innovation, which involves the introduction of a new
good or service that is substantially improved. This might include
improvements in functional characteristics, technical abilities,
ease of use, or any other dimension.
2. Process innovation involves the implementation of a new or
significantly improved production or delivery method.
3. Marketing innovation is the development of new marketing
methods with improvement in product design or packaging,
product promotion or pricing.
4. Organizational innovation involves the creation of new
organizations, business practices, ways of running organizations
or new organizational behavior.
5. Business Model innovation involves changing the way business is
done in terms of capturing value e.g. Compaq vs. Dell.
 What is Creativity?
According to social psychologist Teresa Amabile, there are three
basic ingredients to creativity:
• Domain skills - Domain skills are developed as one becomes an
expert in a field. To be a creative mechanical engineer, one must
first master the fundamentals of the discipline.
• Creative thinking skills - Creative thinking skills include seeking
novelty and diversity, being independent, being persistent, and
having high standards.
• Intrinsic motivation - Intrinsic motivation implies that the
reasons for doing things come from within - from passion and
pleasure, not as a result of external demands, pressures, or
rewards.
 What is Disruptive Innovation?
Christensen defines a disruptive innovation as a product or service
designed for a new set of customers -
"Generally, disruptive innovations were technologically straightforward,
consisting of off-the-shelf components put together in a product architecture
that was often simpler than prior approaches. They offered less of what
customers in established markets wanted and so could rarely be initially
employed there. They offered a different package of attributes valued only in
emerging markets remote from, and unimportant to, the mainstream.”

“Big companies tend to ignore the markets most susceptible to disruptive

innovations, because the markets have very tight profit margins and are too
small to provide a good growth rate to an established (sizable) firm. Thus,
disruptive technology provides an example of an instance when the common
business-world advice to focus on customer (or "stay close to the customer", or
"listen to the customer") can be strategically counterproductive”
What is Disruptive Innovation?
 Exploration & Exploitation modes of
Innovation
Exploration & Exploitation modes of Innovation (Deal
Differently)

• Exploitation: Focus on Short term and Incremental learning and

innovation. Resource Types, Insulation Types, Market-Learning
Types are of one Kind. Lower Risk. Corporate Preference.

• Exploration: Focus on Long term and Disruptive learning and

innovation. Resource Types, Insulation Types, Market-Learning
Types are of one Kind. Corporates do not easy adopt and adapt.
Process of Innovation Diffusion
 Diffusion of Innovation
Five characteristics of innovations are:
• Relative advantage: It is the degree to which an innovation is considered to be
better than the idea it overrides. It is positively related to the rate of adoption.
• Compatibility: It is the degree to which an innovation is perceived as constant
with respect to the existing values, past experiences and needs of potential
adopters. It is positively related to the rate of adoption.
• Complexity: It is the degree to which an innovation is perceived as relatively
tough to comprehend and use. It is negatively related to the rate of adoption.
• Trial ability: It is the degree to which an innovation may be evaluated on a
limited basis. It is positively related to the rate of adoption.
• Observability: It is the degree to which the outcomes of an innovation are
being seen by others. It is positively related to the rate of adoption.
Re-Invention is the degree to which an innovation is changed or modified by a user
in the process of its adoption and implementation.
Process of Innovation Diffusion
 Diffusion of Innovation

The main elements in the diffusion process (Urbic, 2011). are:

(1)innovation
(2)that can be communicated through certain channels (Most
people assess an innovation not on the basis of scientific research
by experts, but through subjective evaluations of their peers who
have adopted the innovation)
(3)which in turn must have adopters (Ability and motivation)
(4)over time
(5)among the members of a social system (Opinion leadership is
the intensity with which a person is able to informally influence
the attitudes of others in a desired way, with relative frequency. A
change agent is an individual who tries to influence a client’s
innovation-decisions in a direction that is considered
desirable by the change agency)
Diffusion of Innovation
 Evolutionary Processes
• Long Run changes in Growth (Demographics, Trends in needs,
Substitutes growth, Product Change etc.)
• Changes in Buyer Segment Served
• Buyer’s Learning (Differentiation lost over time)
• Reduction of Uncertainty (New Entrants)
• Diffusion of Proprietary Knowledge
• Experience Accumulation
• Expansion (or Contraction) in Scale
• Changes in Input/ Currency Costs
• Innovation –Product, Marketing, Process
• Government Policy Changes
• Entry and Exit
Technology Paradigms and Trajectory
S-curve, Inflexion Point & Product Life Cycle
Strategic Inflection Point
Strategic Inflection Point
 Strategy in Emerging Industries
What is Central in the Industry? – No Rules of the Game Yet
The Structural Environment consists of
1. Technological Uncertainty
2. Strategic Uncertainty
3. High Initial Costs but Steep Cost Reduction
4. Spin-offs and Small Cos
5. First Time Buyers
6. Short Time Horizon
7. Subsidy
Problems Constraining Industry Development
Uncertainties and Dynamicity around Raw materials,
infrastructure, Customer confusion, product quality and financing
credibility, regulatory approval, Response of Threatened Entities
 Strategy in Emerging Industries (Contd..)
Early or Late Movers? – Which advantage you have?
Proprietary technology, Access to Raw materials/Distribution
Channels, Experience or Knowledge curve

Performance Advantage & Cost Advantage

1. Buyer Need Identification (how pressing, large, sensitive,
predictable?)
2. Does it improve whole pie?
3. How Competition with threatened entities will play out?
4. How large, lasting and predictable is the cost advantage?

What Strategic Choices do you have?

Can you shape Industry Structure? Externalities of Industry
Development? Can you move Mobility Barriers? How will
suppliers and buyers change?
 Strategy in Fragmented Industries
Why is Industry Fragmented?
• Low Entry Barriers
• Absence of Experience Curve/ Scale economies
• High Transportation Costs
• High Inventory Costs or Sales Fluctuations
• No advantage of Market Power
• Diseconomies of Scale
• Diverse Market Needs
• Exit Barriers
• Government Policy
• Newness
What to Do?
Create Barriers, Try to standardize, Bring in Scale economies and
decrease diseconomies, Critical Mass; Increase Value Add or
Differentiation by Product type, Customer type, Geography type
 Strategy in Mature and Declining Industries
What are the changes during Industry Maturity?
• Slow Growth – Redder Ocean
• Experienced buyers
• Emphasis on Costs and Service
• Internal Operations under change/pressure for more and
more efficiency/ frequent operational failures – Mfg, Mktg,
distbn, selling
• New Product/ Market are harder to come by
• International Competition Increases
• Profits, margins fall for all affiliates and the firms
What to Do? Correct Pricing (Value based, Need based etc.);
Rationalizing Product Mix; Process Innovation; Increase scope for
purchases; Buy cheap assets; Select Good Buyers; Find new Cost
Curves; Focus on the Endgame
Strategy in Mature and Declining (Contd..)
What are the Strategic Pitfalls during Industry Maturity?
• Self Perception and Perception of Industry
• Caught in the middle
• Firms become Cash Traps
• Giving up market share too soon in chasing short-run profit
• Irrational Reactions due to Market Pressures/ Industry Practices
• Overemphasis on “Creating new Products” than on “Improving on the
Current ones”
• Clinging to higher quality as an excuse for not meeting aggressive
pricing or competition
What should the management Do?
Very difficult and demotivating situations exist within the
organization
Scale down expectations of performance or advancement, more discipline,
More attention to human dimension…(Interesting, isn’t it??)
Kearney - Merger Endgame tool
 Assumptions of Endgame Tool
Five maxims of endgames
• All industries consolidate and follow a similar course
• Merger actions and consolidation trends are predictable
• The Endgames curve is a tool to strengthen consolidation
strategies and facilitate merger integration
• Every major strategic and operational move should be
evaluated with regard to its Endgames impact
• Endgames position offers a guide for portfolio optimization
 Opening Stage: Emerging Industry
• Competition is believed to persist in either of the two ways,
– the more efficient operators drive the less efficient rivals
out of the market, or
– take over their competitors
• In this stage, there is excitement, plenty of venture capital and
a buzz around opportunities.
• Industries stay in the opening stage until large industry
consolidators emerge and begin to change the rules of the
game by using their scale to dominate others. Heavy
consolidation through mergers and acquisitions begins,
poising the industry for the next stage
 Opening Stage: Emerging Industry
Lessons in Strategy:
• Build entry barriers and defend territory at all costs. Protect first-mover
advantage.
• Focus on growing revenue and market share instead of profit.
• Monitor the external political environment to profit quickly from legal
changes and capture mind share by being the first to adapt to the changing
environment.
• If you cannot dominate the entire industry, focus on the industry
segment where your company has the ability to dominate.
• Master, and then accelerate, the acquisition process to capture volume and
increase chances for market leadership.
• Form an open, integrated culture to become the backbone for future growth
• In a deregulating industry, look outside your borders for best practices and
clues to be prepared for anything
 Scale Stage: Growing Industry
Characteristics of Industry:
• Having laid claim to as much territory as possible, it is time
for companies to build scale.
• They must devise new strategies to grow, capture market
share, and protect their turf so they can continue their climb
up the Endgames curve.
• The industry leaders change frequently as the race for
position and market share heats up.
• Increases in scale improve production, spread fixed costs, and
earn profits though the profits remain slim due to competitive
pricing.
 Scale Stage: Growing Industry
Lessons in Strategy:
• Reinforce core strengths, such as culture and employees, as
new acquisitions are brought into the fold.
• Build momentum by growing with maximum speed to
consolidate the industry through acquisitions, not organic
growth.
• Become a consolidation leader by building a merger
integration model that clearly documents a proven
methodology
 Focus Stage: Growing Industry
Characteristics:
In the Focus Stage the strategic emphasis changes from speed to
finesse.
This stage is characterized by megadeals and large-scale
consolidation plays with the goal of emerging as one of the small
number of global industry powerhouses.
Now future Endgames winners acquire competitors with an eye
toward economic return rather than market share.
After integrating mega-mergers made in last stages, companies
turn their attention to maximizing shareholder value and
satisfying equity markets.
 Focus Stage: Growing Industry
Lessons in Strategy:
• Retool your competitive strategy to define true strengths
and either agree to ceasefire or avoid full frontal assaults
with other major players.
• Focus on financial affairs by ridding your portfolio of low-
growth or marginally profitable segments and keeping
resources lean and fit, in part by employing fewer and better
people.
• Sharpen the marketing message by unifying the brand
identity that may be diffused in the eyes of customers after so
many mergers.
 The Balance and Alliance Stage: Mature
Industry
Characteristics:
• The heavy-hitters are at the top of the Endgames Curve in
the Balance and Alliance Stage. These are the few companies
that are the winners, the unquestioned leaders in their field.
• Depending on how they protect their positions, they can be
successful in this stage for a long time.
• Big mergers are no longer an option, so companies spend
time maximizing cash flow, protecting market position,
and reacting and adapting to changes in the industry, including
market penetration and governmental scrutiny.
 The Balance and Alliance Stage: Mature Industry
Lessons in Strategy:
• Address potential regulation - Be alert to governments, consumers, or
competitors perceiving industry leaders as oligarchic or monopolistic and
address these potential areas of concern or action.
• Manage growth - Find new ways to grow the core business internally, but
also redefine your market externally. Expand your market scope by looking
at next-door markets. Zoom out until current market share is under 25% and
opportunities for growth will materialize.
• Spin off businesses - Identify pockets of opportunity or niches to add value to
the business.
• Fight complacency - The biggest threat to this Stage companies is
complacency, causing them to be blindsided by competitors or to wither
away. The right reward and compensation systems, promotion and
succession planning process, recruiting systems, and people development
will encourage innovation and risk-taking, even in this stage
• Set a good example – These companies are always in the spotlight, so they
must hold themselves to higher standards. Trust in these companies is long
and slow to build, but easy to lose.
 Group Exercise Stage 2
Identify your Competitors after Strategic Group Exercise
A. Draw Competitor Response Profile Based on
1. Competitor Intelligence Frameworks
2. Markets Signals and Competitor Moves
3. Identify Trends and Triggers of Gap Analysis
B. Identify the Stage of Industry Evolution that your company is in –
1. What are the Characteristics of that stage in that Industry?
2. What Strategy is Ideal to follow in that stage? (Strategy in Emerging
Industries/ Mature Industries/Fragmented Industries)
C. Is there an Inflection Point or an S Curve for company/strategic
group/industry? Is there any fundamental Change Required in Strategy,
Structure or Overall Direction? Why or Why not? (Scenario
Planning/Known and Potential Gaps of Gap Analysis)
D. Can you design a Blue Ocean Strategy to move out of the Red
Ocean? Draw Strategy Canvas for Value Innovation of your Focal Firm
E. 10 Slides at a maximum (References Extra)
Mckinsey’s Three Horizons Of Growth
 Each horizon needs different thinking
• Need for change (Horizon 1): Identify the prevalent system and the
challenges to its sustenance in the future. Innovation will tend to lose
the ‘fit’ aspects over time following any change in the external
environment.
• Space of transition (Horizon 2): Draw the line between tension and
difference between vision and reality, and the demarcation between
innovations that tend to prolong the status quo and those that serve
to bring a radical change. Also called the intermediate space where
views can conflict and diverge.
• Transformational change (Horizon3): Assess the current scenario,
take note of the ideal system you desire and evaluate the available
options.
• A feasible sequence: H1 – H3 – H2.
 MFSA

Sixth and Seventh Class

Focus: Strategy Connection with Goal Setting and Change
Management
Game and Exercises
McKinsey 7S Framework
McKinsey 7S Framework
S-curve, Inflexion Point & Product Life Cycle
Strategic Inflection Point
 Change Management

Kurt Lewin’s Model – Force Field Analysis

Resistance to Change – Vince & Broussine (1996)

 Temporary Equilibrium: Change
Unfreezing- reducing the strength of the forces that maintain the
current equilibrium,
Moving- developing new organizational values, attitudes and
behaviours to help the organization to proceed,
Refreezing- stabilizing them after the changes have been made
so that there is a new equilibrium.
 Change Management
Kurt Lewin’s Model – Force Field Analysis
Force Field Analysis is done for diagnosing a situation by looking at
both the driving and restraining forces that influence change
 Steps: Force Field Analysis
• Defining the specific change. – One must write down the goal(s) or objective(s), so as
to have a clear idea of what needs to be changed and what retained, in order to achieve
the future desired state, after having analyzed the status quo conditions.
• Brainstorming the driving and restraining forces – Mind map all those forces that
are favourable to change and those that are unfavourable to or oppose the desired
change. Note them down on the master force field diagram.
• Evaluating both kind of forces- This can be done simply by rating each force (for
example say on a scale of 1 to 5, 1 being weakest and 5 being strongest) and taking the
sum for both sides. Another method is by, measuring the impact on the whole without
assigning any type of rankings or score.
• Reviewing the forces to strategize- Analyze which of these forces can be influenced
or have flexibility for change. Create a strategy to strengthen the driving forces or
weaken the restraining forces, or both. If rating/scoring method is used, then a simple
attempt to raise or lower the scores of driving and restraining forces should be made
respectively.
• Critical analysis- A final attempt is made to identify all the actions that are likely to
have the greatest overall impact. One must identify the available resources as well.
 Advantages
• Force field analysis provides a summary of all the possible forces
for and against a change. These can be presented in a visual form
on a single diagram.
• Force field analysis helps to identify the obstacles so that we can
strengthen the forces that support the change and reduce the
forces that go against it.
• A Force field analysis diagram is a visual aid, which simplifies
communication among the staff and helps to break down barriers.
• A Force field analysis diagram can assist in developing a common
understanding of the subject by the group.
 Disadvantages

• Force field analysis requires every group member to participate so

that they can have all the information needed for a better analysis,
which can be difficult to achieve.
• Unlike other methods, when full participation isn't possible, it would
be difficult to provide a complete picture of the driving forces and
restraining forces.
• Force field analysis may have a bad influence on team work because
the method may lead to a division in the group between those who
support the change and those who are against it.

• (Application in HCL Case)

Mintzberg’s Emergent Strategy
 Deliberate and Emergent Strategy
A perfectly deliberate strategy usually encompasses the following three conditions-
• The desires and intentions of the organization must be clearly identified and
laid out before the particular action(s) are taken.
• These strategies are usually designed taking into consideration the opinions of
all the stakeholders such that, they are executed in the form of ‘collective actions’.
• These collective intentions must have been realized exactly as intended without
any interference from external forces such as, market, technological, political et al.
In other words, the external environment, being perfectly predictable must have
been under full control of the organization
Emergent strategies takes into consideration the possibility of an unpredictable future.
• This type of strategy emerges over time as intentions collide with and
accommodate a changing reality and it arises in response to unexpected
opportunities and challenges.
• They are a set of actions, or behaviour, consistent over time; a realized pattern
that was not expressly intended in the original planning of strategy.
• In this case, a pattern or consistent stream of actions is allowed to emerge through
influences such as, the environment, positive feedback or consistent success after
adoption of a particular course of action.
• There is no clearly spelt out intention from a central leadership
 Change Management: Logical Incrementalism
1. Logical incrementalism may be defined as a normative approach to
strategic planning in organizations that combine elements of the
classic, formal strategic planning process with the power and
behavioral perspectives
2. It also embeds the emergent processes of strategy formation that have
been observed in organizations. (Mintzberg)
3. It envisages organizational subsystems, taking discrete and
independent steps in response to internal and external developments
(successive limited comparisons ), and is informed to some degree by a
grand vision of the organization’s goals - (Lindblom)
4. There exists a logic in incremental strategy development by
incorporating process of learning through doing in decision-making,
followed by implementation within an organizational context of
complexity and uncertainty (Quinn)
Quinn opined that many a time, the formal rational planning process
often became a substitute for control instead of encouraging
innovation and entrepreneurship. How to introduce innovation?
 Characteristics of Logical Incrementalism
• Environmental uncertainty: The managers don’t have control on the
environment so they focus more on encouraging constant environmental
scanning throughout the organization. The organization’s environment is
highly unpredictable.
• Generalized views of strategy: Managers have a more general view instead
of a specific view of where they want the company to be in future. The
objectives are not specified prior so as to sustain creativity. Hence
improvisation stands at its peak.
• Experimentation: Managers tend to develop a strong, secure yet flexible
core business. They build on the experiences gained on that business to
assure decisions both ways relating to development and experimentation
with side ventures.
• Coordinating emergent strategies: This is done using both formal and
informal process so as to derive a pattern of strategies and subsystems.
 Advantages of Logical Incrementalism
Logical incrementalism helps in the decision-making process in the following
ways:
• It helps to cope with the varying lead times, pacing parameters, and
sequencing needs of the subsystems through which decisions tend to be
made.
• It also helps to deal with the personal resistance and political pressures to
any important strategic alter encounters.
• Building the organizational awareness, understanding, and psychological
commitment that is necessary for effective implementation and sustenance.
• Decreasing the uncertainty surrounding such decisions by allowing for
interactive learning between the enterprise and its various impinging
environments.
• Improving the quality of the strategic analysis and choices by involving
those people associated or closest to the situation and by avoiding
premature closure on the basic of potentially incorrect decisions.
Stages of Logical Incrementalism
 Organization Structure, Systems, Processes
Can be Changed at Will of the Leader???
• Institutional Logics:
“the socially constructed, historical patterns of material practices,
assumptions, values, beliefs, and rules by which individuals
produce and reproduce their material subsistence, organize time
and space, and provide meaning to their social reality” (Thornton
& Ocasio, 2008)
▪ Values, Beliefs and Norms: Core for Organizational Purpose –
Vision, Mission & Strategy

▪ Change Management: How to lay the bricks?

 Change Management in Organizations
• Purpose/ Institutional Logic: It is “genes” of an organization
• First Identify “genetic framework”
• Stakeholders like founders and employees, who have very strong identity with
the purpose are very difficult to deal with
• Check for changes in internal environment, if possible. If not required, don’t
alter. (Think! How will you effect those changes?)
• You will need to get individuals to adapt to changes
• Stakeholders like customers, competitors, suppliers, distributers constitute the
external environment. Also PEST conditions.
• Then look for fit between external and internal environment
• Strategy is how you’ll maintain the fit and attain a goal in line with the
Organizational Purpose
• Then take the bricks of administrative and operational decisions and lay the
wall over the foundations