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2. External factors and the profit opportunity
7 Lessons-
StartSlides and worksheets: class 2
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Preview2.1 Industry forces and profitability
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Start2.2 How to be more profitable - choosing a segment
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Start2.3 Managing the industry forces
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Start2.4 Limitations of the industry forces view
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Start2.5 Wider factors affecting an industry: "PESTEL" and scenarios
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StartWorksheets 2a to 2c
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Part II Introduction and principles
1 Lesson-
StartReminder: The course structure and Part-II lessons
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Standard Strategy Methods
In-depth guide to building and implementing your business strategy with standard tools
Strategy ... or Judgement?
Many CEOs get to their position with no training or experience in strategy, or "strategic management" as it is more formally known.
You have a distinguished career in your long-term profession - marketing, finance, operations, or other. Then you get the call "Congratulations, we want you to be CEO!"
"By the way, we need to up-rate our business performance, so we will want to see a new strategy - pretty soon"
"What!" you cry. Well, maybe you did some strategy courses in an MBA course many years ago, but can't remember much about that. Or maybe you never learned about strategy at all? Never fear. "Strategy" is not the esoteric, complicated idea that some may have you believe - notably those expensive consultants and academics with a vested interest in keeping it mysterious!
Some leaders take the view that experience and judgement alone is all they need to figure out and manage their organisation's strategy. More thoughtful leaders, though, know that they need to figure things out. And they know there must be methods out there to help them do that figuring-out as well as possible.
"I guess he knows what he's doing?"
Where could we get to - and how to get there?
You want to improve and sustain your business performance. That "performance" depends on what your organisation does, and what its owners or stakeholders want.
(We explain why, for investor-owned businesses, the performance they should want is growth of "free cash flow". Owner-operated businesses, public services and non-profit organisations may have other objectives, though they too must remain financially viable. You may have more than one kind of objective - like customer satisfaction, sales and profits - but those should of course be mutually consistent)
Introducing the Standard Strategy Methods course
We explain the few most important frameworks and methods you need in order to develop a strategy for your organisation from scratch. And how to translate that strategy into a time-phased action plan - what to do, over time, across all parts of the business. Recognising, of course, that things change, both in the business environment and in the business itself, so you may need to review the strategy.
The headlines ...
The opportunity: What performance outcome is possible, given the external environment you face - customer demand, competition, economic conditions and so on?
The business system: What resources are needed to take that opportunity, and what business model* connects those resources into a working system that could exploit the identified opportunity?
The action-plan: What time-phased action-plan is needed to build that system and take the opportunity?
* Standard business model concepts lack the power of our dynamic business models, but are nevertheless helpful and widely used.
An outline of everything you’ll learn in the course
We offer two enrolment options:
The Essentials of Strategy
Key lessons, highlighted below
Fully refundable on upgrade to the full course
Standard Strategy Methods:
the full course
All lessons
plus slides and worksheets
PART I : Developing the Strategy
Class 1: What is strategy?
Where to get to, by when, and how PREVIEW HERE
Levels of strategy - function, business unit, corporate
Is the outcome possible?
The main case example: Beyond Meat Inc.
Class 2: External factors and the profit opportunity
How industry forces affect profitability
How to be more profitable than others
Limitations of the industry forces / profitability view
Wider impacts on the business environment
Class 3: The financial value of strategy
Cash flow and business value
Net present value of future cash flows
Class 4: Where to compete?
Who to serve, with what, and how?
The Value Curve of customer needs
Class 5: Design the system - the business model
The Business Model Canvas
Tell the story of how the business works
Standard business model concepts lack the power of our dynamic business models, but are nevertheless helpful and widely used.
PART II : The Time-Phased Action Plan
Class 6: Developing the time-phased action plan
The logic of the action plan
The Strategic Architecture* of the business
Getting to the time-phased action plan
* The Strategic Architecture forms the core of our Strategy Dynamics method (see courses here), but is also a rock-solid foundation for the time-phased action plan.
Class 7: Customers, sales and revenue
How customers drive sales and revenue
Cases with cost-of-goods and gross profit
Adding intermediaries (retailers, dealers ...)
Durable products and one-time services
Class 8: What drives customer growth?
Driving customer growth – products, marketing, sales effort
Competition - to win and retain customers and sales
Class 9: The capacity and staffing plan
Sizing the capacity growth plan
The staffing and hiring to support business development
Class 10: Completing the plan
Completing the plan's revenues, costs and profit projections
What if projected profit is not enough?
Course wrap-up
Extending the strategy
Summary and Tips
What's inside?
Text lessons
... explain key principles
... link to matching videos and slide-PDFs
... offer Discussions for Q&A
... give practical examples
Explanatory videos
... more details about the key principles
... discuss how to use the frameworks
... explain analysis you can do for your own case
PDF slides
... match the videos
... provide a useful quick-reference for later use
Worksheets
... match the frameworks and examples
... help apply the frameworks and analysis to your case
FAQs
What is the format of the course?
The course is made up of short text lessons, explanatory videos, and frameworks for you to use. Work through the lessons at your own pace. The text is precise, and the videos are shot with me, Kim Warren, talking you through every detail of the frameworks. PREVIEW HERE
Why is this course priced so low?
We know that many executives rise to leadership positions with little knowledge of just how to do "strategic management" of their business. We want as many people as possible to gain these skills, and improve - sustainably - their organisations' performance.
When will I get access to this course?
You will get complete access as soon as you purchase the course by making the payment.
How long will I have access to this course?
Once you make the payment, you will have full lifetime access to this course.
What support do I get ?
This is a self-study course. You learn by yourself, at your own pace. However, the course includes Discussion threads where you can ask questions that we will answer.
If this course is the minimum I need to know, what does it NOT cover?
Strategic Management is indeed a wide topic, and there are many more concepts, frameworks and methods than we can cover in this course.
But BEWARE! Because "strategy" is such a hot topic, many consultants, academics and writers have sought fame and fortune from inventing sexy-sounding concepts that have little underlying validity, or are just plain wrong.
See more below ...
How can I learn more about planning and managing our strategy?
This course explains the minimum you need to know to plan and manage your organisation's strategy. You will see that your time-phased action plans must adapt to how your business and its environment change over time.
The action plan frameworks in part II of the course rigorously capture the core "system" that is your business. Our Strategy Dynamics for Leaders course builds on that insight to give you much more mastery over your strategy.
Is there a money-back guarantee?
We recommend that you never buy a course that does not offer a 100% guarantee. With our Strategy course, you get our “Value Guarantee”. So if you believe what you learn in this course is useless, we’ll be happy to give all your money back. No questions asked. Just send us an email within 15 days for a full refund. And I’ll make sure you get your refund with a smile.
Strategy - a brief history
Before "strategy".
Until the 1970s, business schools taught the subject as "business policy", and treated it as largely a craft subject, based on figuring out what successful case examples had done.
The Porter revolution.
In the 1970s, Prof. Michael Porter at Harvard Business School set about giving "strategic management" some underlying academic discipline. He took the principles of competition policy - ensure that consumers get the best value by removing barriers to competition - and reversed them. How can a business build and protect its profitability by resisting competitive forces. (Porter M, 1980, "Competitive Strategy", Free Press)
These principles became the core of strategy teaching in most business schools through the 1980s. They are valid, and feature at the start of our course.
The resource-based view (RBV).
In 1991, Prof. Richard Rumelt, showed that factors to do with businesses themselves were more significant in determining their profitability than Porter's industry forces. Basically, you can be successful in competitively tough industries - and you can fail in "easy" industries.
So academics looked for what those firm-specific factors might be, and came up with the "resource-based view" of strategy. To be successful, you need resources that are valuable, rare, hard to imitate, and well embedded in the organisation's system - the VRIO criteria.
"I guess we should have hired earlier?"
We do include Porter's industry analysis in our course, because the profitability-indicator on which its alleged limitations were based is not in fact the correct success measure. Investors value growth in "free cash flow" - the cash flow remaining after making all necessary spending to ensure that growth continues. And those external forces do indeed constrain your ability to build a successful business on that measure.
Two big mistakes
Unfortunately, all this academic endeavour made two big mistakes:
Investors value growth in cash-flow, not profitability ratios. (This has been axiomatic for the Finance field since before the 1970s). Would you prefer to make $20m profit on sales of $100m per year, every year - or make $10m per year on the same sales, but growing by 50% per year. Any fool can make more profit now - just cut all hiring, training, product development, marketing ...
RBV dismissed tangible assets as irrelevant. Numbers of staff, physical and IT capacity, customers are ignored. So if I am competing against Starbucks, it "doesn't matter" that they have thousands of stores and millions of customers, while I only have a few of each.
The hunt for the strategy elixir
So academics went hunting for the "intangible resources" that were the elusive elixir for leaders wanting to know how to make their business successful. Unfortunately, the errors above opened the door for journalistic charlatans to publish articles and books claiming to have found that elixir.
Along with aggressive strategy consulting firms, these actors also promoted sexy-sounding ideas that were ill-advised or even downright dangerous - creative destruction, corporate transformation, and so on.
(Our About page explains that I was personally involved in a very rare example of a successful strategy transformation - but that case was highly exceptional, and not a general recommendation for other firms to do the same).
"That went well!"
The murder of "strategic management"
By the 2000s, then, Strategy had got a bad reputation, and became a target for sceptics. There was also frustration that "corporate planning" seemed to keep failing, because the changing business environment seemed to make intentional plans obsolete as soon as they were produced.
These frustrations crystallised around the views of Prof. Henry Mintzberg, who argued that doing anything at all to work out strategy was pointless. Far better to have an "emergent" strategy - make it up as you go along. (Minzberg, Ahlstrand and Lampel, 2001, "Strategy Safari", Free Press).
No-one seemed to notice that Mintzberg and his acolytes set up a total caricature of the strategic planning that successful businesses actually do, in order to ridicule those efforts. Nor did anyone point out that successful businesses do not "make it up" as they go along.
Nor did anyone challenge the slogans they liked to chant, like Drucker's "Culture eats Strategy for breakfast". I have yet to see a case of a business with a great culture but bad strategy that nevertheless triumphed - but can list hundreds of strategy cases that succeeded in spite of grossly unpleasant cultures.
"Don't think of it as a cock-up - more an emergent strategy"
Sure, successful firms have to - and do - adjust their strategy and plans as events unfold, but that does not mean they have no strategy and do no planning. Winners do not keep changing their minds about what they do.
Successful businesses DO plan
Today, the business-school field of "strategic management" has essentially fallen apart. Other than Porter's industry-forces theory, it has nothing rigorous to offer.
With no practical, reliable methods from the business school strategy academics, business leaders who knew they needed to work things out have been left to do the best they can with some methods that seemed helpful.
The Balanced Scorecard offered at least some logical structure for planning and managing strategy with quantified measurements (Kaplan and Norton, 1996, "The Balanced Scorecard", Harvard Business School Press). And the Business Model Canvas offered a qualitative way of laying out how a business model might work. (Osterwalder and Pigneur, 2013, "Business Model Generation", Wiley).
We do not include the Balanced Scorecard in this course, because our Strategic Architecture framework is more comprehensive and rigorous. We do include the Business Model Canvas, but add time-based quantification to make it useful.
The unanswered question - how performance changes over time
So ... the strategy field never even tried to answer the question that investors care about, and managers should strive to deliver:
"How do we deliver long-term sustainable growth in cash flow?"
This is inherently a dynamic (time-based) question. It is utterly impossible to explain today's profitability - or any other indicator - without understanding the history of how the business and its competitive environment developed over time.
... so it is impossible to answer that question for the future without working out how the business and its environment could develop into that future.
Get "Standard Strategy Methods" now
Resources for Teachers and trainers
Our courses are available for academic faculty and for corporate trainers.
And we can create bespoke courses for you.
PS: Create your own future
In my 40+ years of building business strategies and teaching, I have found a common misconception about strategy - that the future is going to turn out some way, so strategy is about gabbing whatever piece of that future that you can.
That is not how successful businesses think. Just look around you. The commercial world is the way it is because strong leaders made it like this. From Henry Ford, to Jeff Bezos at Amazon and Bill Gates; from the Victorian Lever Brothers soap revolution to Ingvar Kamprad's IKEA; from Andrew Carnegie's steel empire to Elon Musk's Tesla.
But these are just the big names we all recognise. Tens of thousands of less known businesses also created their own future. That is what we did in the Whitbread team I was part of (see our about page) - envisaged a future in which the scale and variety of eating-out demand would be many times larger, then set about creating that future that we then exploited. (This is not a new idea - see Gary Hamel and CK Parahald, 1994, "Competing for the Future", Harvard Business School Press).
Sure, there may be constraints, or competition may limit your ambitions. But you are not victims of a hostile world. So take this course, and create your own future.
