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How do you define business “Strategy”? Post your idea!

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In my initial CIRA post http://robincheung.info/mbalog/2010/08/30/how-i-cira-i/ I tried to convey the clarity of some major threats to CIRA’s brand and strategy.

Because I recognize that many professionals have not refined a discplined, systematic approach to strategic analysis, my post was lengthy to explain why the threats were credible, to those who know strategy is important, but are accustomed to analyzing strategy by textbook and not with conceptual reasoning.  Even amongst MBA graduates of various degrees of experience, you will find as many different definitions for “Strategy” as people you ask.

How do you define Strategy? Try to answer that conceptually as a comment, covering all the important aspects, without relying on any specific

examples.  Although there are myriad books and references on Strategy now, they’re not all equally-good, and they’re not all equally-applicable.  Although it’s undergone several revisions and changes since I used it as a text in my P601 Introductory and and P710 Advanced Strategy during my MBA studies at McMaster University in 2000-2003, perhaps you could start with Thompson & Strickland’s Crafting and Executing Strategy;  it’s an easy read that everyone could benefit from (including scheduling a re-reward, for myself).  And I stress again, reading critically, using the words as a conceptual guide, still testing everything you read and not internalizing concepts until you’ve understood it as if you derived it yourself.

But as clear and unmitigated as threats appear, the majority of CIRA members neither seemed to internalize the gravity of the threats nor demonstrated how CIRA has already mitigated them in ways not evident from their informational material.

This represents a great opportunity to improve understanding business policy and strategy, in a not-for-profit marketing setting.

I understand that Strategy can seem vague and complex to results-oriented people who emphasize action over planning; however, action that is arbitrary and uninformed by overarching strategy (including actions retroactively associated to an intended strategy) can be easily identified as very clear weaknesses (attack surfaces, in IT-speak) by astute strategists.

For example, attended by over 8,000 professionals and scholars from over 80 countries participated the Academy of Management 2010 annual conference in Montréal; I actively participated with Business Policy and Strategy Division in peer reviewing academic papers before presentation, specifically addressing competitive signalling using price, in cases of information asymmetry.  My previous mBaLOG post reports on this experience and how it demonstrated that Walden’s newly-designed research theory and design course sequence, required of all doctoral candidates, results in much better-designed research and indeed much more apt research questions to design research for than the traditional universities’ of expecting budding researchers to learn by osmosis, which results in differentially learning research designs depending on your mentor’s own needs at the time, and definitely endorses arbitrarily choosing something that works, then rationalizing it, rather than selecting the optimal design that flows naturally as a consequence of thoroughly-understanding research theory and your own research topic.

In English, this essentially refers to understanding of how capital and cost structures are components of pricing under various strategy types and competitive markets, and then engineering your price not only to maximize profits directly, but strategically to mislead potential new entrants about their own cost structures or nature of the market, serving the same profit-maximization objective in a more strategic way.

Although my specialization focuses on capital structure and modeling, I’ve long maintained a strong connection to marketing, particularly quantitative marketing, as both a way to remain cognizant of a humanizing, holistic focus on any business problem; but also to remember that, aside from Financial Services companies, marketing is often the most direct way to align company strategy with what people want.

As such, I remain an active member of the American Marketing Association (and had retained my Canadian context as a member of the Marketing Research and Intelligence Association). Keeping current with upcoming AMA events that might definitely inform CIRA marketing and emergent strategy, this upcoming conference in Chicago specifically addresses the needs and strategies relevant to not-for-profit and non-profits.

The reason why even a cursory examination of CIRA’s intended and emergent strategies identified so many exposures was because they do not align, either between intended and emergent strategy, but even more so, initiatives and how they are operationalized do not seem to flow from a clear, cogent strategy, but rather conceived arbitrarily-naive of strategy and tried to find a way to justify it, reconcile it, to strategy after the fact.

To stress one more time, in no way are my suggestions to be interpreted as competitive or even adversarial; as confident as I am in my critical reasoning, if the smartest person in Canada can identify a threat (not implying it to be me), you can be assured that there are at least 70 others on the Internet who will do more than identify it.

How do you define Strategy? Try to answer that conceptually as a comment, covering all the important aspects, without relying on any specific examples.

The following MBA case studies were prepared for an accounting course, but fully cognizant that any solution must flow from strategy, aligned with all functional groups.  Marketing cannot propose an aggressive product launch that operations cannot support and finance cannot convince anyone to fund.

 

Starbucks Strategy

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Cluster analysis to identify segments of customers that share buying behaviours and preferences

Cluster analysis to identify segments of customers that share buying behaviours and preferences

The following answer was my response to a question posed in LinkedIn Answers by Pratik Raghav: “I would like to know how strategy has been defined by high-end outlets like Starbucks.”  My response was as follows.  The original question, with answers from other members, can be found at http://www.linkedin.com/answers/product-management/positioning/PRM_PST/700921-78050926

Since Pratik specified “high-end,” I suspect he may be asking which of “low-cost provider,” “best-cost provider,” “niche,” etc. strategies.

Even though I am not a coffee-drinker at all, and I even less spend time at Starbucks, I am at least familiar with their business model: charge lots of money for coffee. Traditionally, the strategy that best allows companies to charge a premium for their product is a niche strategy, differentiating their product as one perceived to be unique in flavour and quality; thus, it can avoid lowering its prices to meet other coffee-shops with a low- or best-cost provider strategy since it is perceived to be a premium product and not a direct competitor low- or best-cost provider coffee.

In contrast, a Low-Cost Provider strategy competes solely on the basis of price. A low-cost provider relies on maintaining a low cost-structure as a competitive advantage. In some cases, this is through economies of scale, such as manufacturers of bulk products. In other cases, this is achieved through differential bargaining power. Strategic analyses, such as the Porter’s Five Forces analysis, are able to assess the relative strategic and bargaining positions of a company (as an example, I employ the Porter’s Five Forces model in the Appendix of the Baldwin Bicycle Case:http://robincheung.info/samples/bbc.pdf).  Another case cognizant of strategy is Fence Companyseg .

Porter's Five Forces model determines relative strategic power in a business relationship

Developed in 1979 by Michael Porter of Harvard Business School, Porter’s Five Forces analysis provides a structured framework to evaluate a company’s strategic and bargaining position relative to its customers, suppliers, competitors, potential new entrants (potential new competitors attracted by excess profits), and substitute products. Wal-Mart, for example, is able to dictate prices to its suppliers, rather than accept suppliers’ terms because it is less dependent on any given supplier than that supplier is on Wal-Mart; that is, the Porter’s Five Forces analysis would reveal that Wal-Mart purchases inventory from a large number of suppliers, each supplier comprising only a fraction of total inventory and therefore only a fraction of total revenues. In contrast, Wal-Mart’s huge size often means that it purchases so much from a given supplier that Wal-Mart’s purchases constitute a significant fraction–or majority–of the supplier’s revenues. In situations where the supplier is dependent on a single customer or strategic partner for its revenues, but that customer has a product line extensive enough to forego that supplier’s products, it can even exert pressure to integrate enterprise resource planning systems with the supplier. This would allow the customer not only to place orders as inventory levels call for a re-order, but it would allow the customer to schedule its suppliers’ raw materials orders in order to reduce the lead-time when it actually places the order (and optimally for the customer, would assign the risk that the money spent on these raw materials could be wasted if the order is ultimately not needed or lost due to damage or shrinkage to the supplier; thus, a customer with a strong bargaining advantage over its suppliers can not only benefit from increased efficiency as if it owned the supplier, but it can do so without actually purchasing it and taking on risk.

In order to pursue a Niche strategy to support a premium price point, Starbucks must therefore offer a premium product–or one that is perceived as premium–to a receptive market segment. Whilst early market segmentation studies relied solely on pre-determined characteristics, such as demographics or psychographics, modern application of more advanced partitioning methods such as Ward’s Cluster Analysis or k-means partitioning allow marketers to partition a market into segments that transcend predefined labels. A brief explanation of Cluster analysis is also presented in an appendix to the Baldwin Bicycle Case.

Baldwin Bicycle Case

[pdf http://robincheung.info/samples/bbc.pdf 500 500]

Baldwin Case Assignment

[pdf http://robincheung.info/samples/bbc_case.pdf 500 500]

Fence Case

[pdf http://robincheung.info/samples/fence.pdf 500 500]

Links:

Walden DFW Residency Day 3 013 (800x600) Day 3 Lunch, Validity, Junk English 013 (800x600) North Park and Residency Checkin 7Jan2010 032 (800x600) Walden DFW Residency Day 3 033 (800x600) Walden DFW Residency Day 3 036 (800x600) Day 3 Lunch, Validity, Junk English 003 (800x600) Day 3 Lunch, Validity, Junk English 032 (800x600) Walden DFW Residency Day 3 020 (800x600) Walden DFW Residency Day 3 029 (800x600)

Is an MBA worth the cost and workload to get it?

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The following is a question posed by Michael Amers on LinkedIn Answers http://www.linkedin.com/answers/professional-development/career-management/PRO_CMA/703656-33184901, a forum for members to ask questions, similarly to Yahoo! Answers, except since LinkedIn targets–and comprises primarily–the professional and technical segment, you can expect more reliable answers.  Michael asked the following:

Is an M.B.A. worth the price of tuition and workload to gain it?

Furthermore, does the school brand-name and location specific to future employment matter more than the concentration and curriculum? What is the difference between NYU, Northwestern, and UW-Madison versus St.John’s, Robert Morris, and Edgewood? How does it relate to future earnings potential and career growth? I want to hear from M.B.A. holders and non-holders alike. Thank you for your comments.

He received six answers as of the date I originally posted this; should there be further answers before the question closes in three days, you can view them at the above link.  My answer was as follows:

I think it’s great that you ask this question–I know many others want to know what attitudes are currently–and I certainly would like to keep my finger on the pulse of this issue.

Around the time that I finished my MBA at the end of 2002, I noticed the enrollment at my school, McMaster University in Canada (although its MBA was not AACSB-accredited at the time, it has subsequently pursued and maintained AACSB accreditation), had just begun to increase rapidly. Since then, the number of MBA programmes being offered, itself has rapidly increased. For certain positions, whether or not the NPV analysis is favourable is irrelevant; if you want certain career paths, it is a requirement. For example, in banking, it is common that certain career paths are only accessible through positions that are part of a formal development programme at that firm, often requiring an MBA to qualify.

Because the number of spots in MBA programmes available increased dramatically in the past decade, there are effectively three tiers of MBA graduates that I perceive: the top tier comprises graduates of the schools most of us don’t even consider applying to (Harvard, Wharton, etc.; this is neither endorsement of the perceived stature of these programmes nor my own belief).

Barring graduation from those schools, I would prefer an MBA programme that maintains accreditation with one of the respected business school accreditations (AACSB, EQUIS, et al.). You will hear claims that only the “top 10%” of MBA programmes are accredited by AACSB; I would prefer to think of it as “these 10% of programmes are assured to meet the following quality standards.”

The remainder of the MBAs come from regionally-accredited or lesser-known foreign schools.

With regards to your question about the relationship between “earnings potential,” (I am always reticent to discuss career in terms of “earnings” rather than the combination of fullest realization of an individual’s strengths applied to roles that an individual finds fulfilling, as a matter of integrity; more on this later) and Flyn’s opinion about Wall Street, what I have seen first-hand is the following:

When I was a financial analyst at one of the “Big Five” banks in Canada, because I reported directly to a finance Vice President that herself reported directly to the CFO (a Senior Executive Vice President–in terms of bank hierarchy where I commonly saw Directors with no direct reports, it was the top level, below which were still EVP and SVP layers before her), I had direct access to the him. Like many finance professionals, his actual background was engineering (the quantitative strenghts in applied contexts makes them stronger than most business-school graduates by far in mathematical contexts, and probably makes the transition easy for them). He completed a traditional two-year MBA at Harvard, after which his career progression at the bank seemed almost a direct line to the top. Of course, I acknowledge that he likely was a particularly bright individual who had developed many natural strengths. Other individuals with Harvard MBAs often have similar fast-track career progressions, whilst often many bright individuals from lesser-known schools languish in middle management, or having successfully gained access above “the glass ceiling,” they find themselves at another one. How much off this can be attributed to the reputation of the school versus the individual’s own ambition probably varies by case; but still, the “chicken or the egg” argument applies: does Harvard produce more “successful” MBAs because it is a good programme? Or is it a comparable programme that attracts more people who have characteristics of “successful” MBAs after completion?

Clarification added 3 days ago:

With reference to your question regarding Wall Street, in a previous life I do not regret trading for literal poverty but more integrity and pursuit of a dream, I did participate in the recruitment process for Barclays Capital as an Investment Banker. It began with traditional on-campus recruitment (many banks now provide application to their MBA intake programmes on their web sites; however, a few still prefer to pursue on-campus recruitment for these programmes). Before interviews, I then participated in an examination for all candidates–as I recall, it offered a $5,000 prize for the top-performers on the examination. But at least, the use of a standard examination for the candidates somewhat levels the playing field.

That said, I recall reading an article (if I can find the precise citation, I will add it later) in one of the Academy of Management peer-reviewed journals (possibly Academy of Management Learning and Education) that found through a longitudinal study that individuals from MBA programmes with reputations such as Harvard do indeed benefit from this reputation making it more likely to be selected for favourable positions; however, they also found that the reputation would not mitigate poor performance on the job, and they were no more likely to retain that position or progress further if their performance was not exemplary.

They also found that whilst graduates from lesser-known programmes were disadvantaged in gaining more prestigious positions initially, and were initially more likely to end up in less exciting positions, by proving themselves over time, they could still reach the same senior positions that the Harvard-type graduates.

In order to interpret that study properly, however, certain details (such as which programmes were studied, when the study was completed–relating to the competition between MBAs and the proportions of programmes at the time) must be compared to the present environment. If anyone is interested, I will certainly try to find a citation.

Robin Cheung, MBA, F.CIM, PhD Candidate

AMDS (Finance) PhD Student at Walden University

see all my answers

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