Opinions

• Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means performing different activities from rivals or performing similar activities in different ways.
• Principles: (1) Strategy is the creation of a unique and valuable position, involving a different set of activities. (2) Strategy requires you to make trade offs in competing – to choose what not to do. (3) Strategy involves creating “fit” among a company’s activities.
• Competitive strategy is about being different.
• While operational effectiveness is about achieving excellence in individual activities, or functions, strategy is about combining activities.
• Fit locks out imitators by creating a chain that is as strong as its strongest link.
• Strategy renders choices about what not to do that are as important as choices about what to do.
• Caught up in the race for operational effectiveness, many managers do not understand the need for strategy.
• Companies imitate one another in a type of herd behavior, each assuming rivals know something they do not.
• Compromises and inconsistencies in the pursuit of growth will erode the competitive advantage a company had with its original varieties or target customers.
• Where does the company stand versus buyers, suppliers, entrants, rivals and substitutes?
• Strategy can be viewed as building defenses against the competitive forces or finding a position where the forces are weakest.

Sources: Porter, “What is Strategy”; Porter, “Five Competitive Forces that Shape Strategy”

• Truly great companies understand the difference between what should never change and what should be open for change, between what is genuinely sacred and what is not.
• Vision provides guidance about what is core to preserve and what future to stimulate progress forward.
• A well-conceived vision consists of two major components: core ideology and envisioned future.
• Core ideology defines that we stand for and why we exist.
• The envisioned future is what we aspire to become, to achieve, to create – something that will require significant change and progress to attain.
• Leaders die, products become obsolete, markets change, new technologies emerge, management fads come and go, but core ideology in a great company endures as a source of guidance and inspiration.
• Building a visionary company requires 1% vision and 99% alignment.

Source: Collins &Porras, “Building Your Company’s Vision”

• Most companies’ operational and management control systems are built around financial measures and targets that bear little relation to a company’s progress in achieving long-term strategic objectives. Thus the emphasis that most companies place on short-term financial measures leaves a gap between the development of strategy and its implementation.
• Most companies have separate procedures (and sometimes units) for strategic planning and budgeting. Little wonder, then, that typical long term planning is, in the words of one executive, “where the rubber meets the sky”. The discipline of creating a balanced score card forces companies to integrate the two functions, thereby ensuring that financial budgets do indeed support strategic goals.
• Implementing strategy begins with educating these who have to execute it.
• Communicating the balanced score card promotes commitment and accountability to the business’ long-term strategy.

Source: Collins & Kaplan & Norton, “Using the Balanced Scorecard as a Strategic Management System”

• A successful company is one that has found a way to create value for customers – that is, a way to help customers get an important job done.
• The most important attribute of a customer value proposition is its precision: how perfectly it nails the customer job to be done and nothing else. But such precision is often the most difficult thing to achieve. Companies turning to create the new often neglect to focus on one job; they dilute their efforts by attempting to do lots of things. In doing lots of things, they do nothing really well.
• Companies will almost always need to integrate their key resources and processes in a unique way to get a job done perfectly for a set of customers. When they do, they almost always create enduring competitive advantage.
• Established companies should not undertake business-model innovation lightly.
• Can you create a new business development process unfettered by the often-negative influences of your core business?
• In effect, companies have to focus on learning and adjusting as much as on executing.
• Never use competition as the benchmark. Instead, make the completion irrelevant by creating a leap in value for both yourself and your customer.

Sources: Johnson, Christensen, Kagermann, “Reinventing Your Business Model”; Kim & Manborgne, “Blue Ocean Strategy”

• A brilliant strategy, blockbuster product, or breakthrough technology can put you on the competitive map, but only sound execution will keep you there.
• Employees at three out of every five companies rated their organization weak at execution.
• When a company fails to execute its strategy, the first thing that managers often think to do is restructure. But our research shows that the fundamentals of good execution start with clarifying decision rights and making information flow where it needs to go. If you get this right, the correct structure and motivators often become obvious.
• Execution is a notorious and perennial challenge. Even at the companies that are best at it – just two-thirds of employees agree that important strategic and operational decisions are quickly translated into action. As long as companies continue to attack their execution problems primarily or solely with structural or motivational initiatives, they will continue to fail. As we have seen, they may enjoy short-term results, but they will inevitably step back into old habits because they will not have addressed the root causes of failure. Such failures can almost always be fixed by ensuring that people truly understand what they are responsible for and who makes which decisions – and then giving them the information they need to fulfill their responsibilities.
• Within a single company it’s tricky to achieve both decentralized decision-making and coherent strategic action.
• The distillation of a company’s strategy into a pithy, memorable, and prescriptive phase is important because a brilliant business strategy, like an insightful approach to warfare, is of little use unless people understand it well enough and apply it – both to anticipated and unforeseen opportunities.
• The beauty of having a corporate strategic principle – a company can have only one – is that everyone in the organization, the executives in the front office as well as people in the operating units, can knowingly work toward the same strategic objective without being rigid about how they do so.
• When a strategic principle is well crafted and effectively communicated, managers at all levels can be trusted to make decisions that advance rather than undermine strategy.
• A strategic principle, as the distillation of a company’s strategy, should guide a company’s allocation of scarce resources – capital, time, management’s attention, labor and brand – in order to build a sustainable competitive advantage.
• Our research suggests that companies on deliver only 63% of the financial performance their strategies promise. Leaders then pull the wrong levers in their attempts to turnaround performance – pressing for better execution when they really need a better strategy, or opting to change direction when they should really focus the organization on execution.
• In our experience, less than 15% of companies make it a regular practice to go back and compare the business results with the performance forecast for each unit in its prior years’ strategic plans.
• To start off the planning and execution process on the right track, high performing companies avoid long, drawn-out descriptions of lofty goals and instead stick with clear language describing their course of action.
  The most important step in unclogging decision-making bottlenecks is assigning clear roles and responsibilities.
• Good decision-making doesn’t end with a decision; it ends with implementation.
• The best decision-makers create an environment where people can come together quickly and efficiently to make the most important decisions.
• If an organization does not reinforce the right approach to decision making through its measures and incentives, information flows, and culture, the behavior won’t become routine.

Sources: Neilson, Martin, Powers, “The Secrets of Successful Strategy Execution”; Gadiesh & Gilbert, “Transforming Corner Office Strategy into Frontline Action”; Mankins & Steele, “Turning Great Strategy into Great Performance”; Rogers & Blenko, “Who Has the D?”.

• Mergers and acquisitions are about to undergo a renaissance.
• Companies that were active in M&A, the data shows consistently outperformed those that stayed away from deals. Companies that did the most deals, and whose cumulative deal making accounted for a larger fraction of their market capitalization, turned in the best performance of all.
• As a group, companies that engaged in any M&A activity averaged 4.8% annual TSR, compared with 3.3% for those that were inactive.
• Companies that did a lot of deals outperformed the average most often when the cumulative value of their acquisitions over the 11-year period amounted to a large percentage of their market capitalization.
• Companies that built their growth on M&A—those that acquired frequently and at a material level—recorded TSR nearly two percentage points higher than the average.
• The difference between frequent acquirers and occasional ones is hardly a mystery. Experience counts. A company that does more acquisitions is likely to identify the right targets more often. It is likely to be sharper in conducting the due diligence required to vet the deals. It is also likely to be more effective at integrating the acquired company and realizing potential synergies.
• The more of a company’s market cap that comes from its acquisitions, the better its performance is likely to be. In fact, companies making acquisitions totaling more than 75% of their market cap outperformed the inactives by 2.3 percentage points a year, and they outperformed the more modest acquirers by one percentage point a year.
• Most successful companies develop a repeatable model—a unique, focused set of skills and capabilities that they can apply to new products and new markets over and over.
• The pressure to grow is only going to increase with time. Looking back at the first decade of this century, it is clear that many companies succeeded in delivering superior shareholder returns using M&A as a weapon for competitive advantage.
• A strategy focused on organic growth alone is unlikely to deliver the expanded capabilities or market penetration they need. Most companies will have to rely on a balanced strategy, pursuing M&A as well. In many cases it is faster and safer to buy an asset than to invest in building your own.
• Academic research has repeatedly confirmed that about two-thirds of all mergers and acquisitions among public companies destroy value for the acquirer, at least in the short term. Even when acquirers justify deals by pointing out the ample synergy opportunities that they offer, capital markets remain skeptical. Yet a significant minority of acquisitions do manage to create value for the owners of both the acquirer and the target, demonstrating that despite the doubters in the capital markets, the overriding M&A rationale—value creation—remains valid.
• Most acquirers seek to create value by capturing cost synergies. But there is more to value creation than simply identifying synergies and executing strategies to realize those synergies. The Boston Consulting Group teamed up with the TechnischeUniversitätMünchen (TUM) to compile new research demonstrating that in successful deals, buyers and sellers share the synergies. Acquirers cannot expect to capture 100 percent of those synergies for themselves; sellers will anticipate the buyers’ synergies and demand takeover premiums, reasoning that the target is worth more in the hands of the acquirers than in their own. Our research suggests that sellers collect, on average, 31 percent of the average capitalized value of expected synergies. However, in practice, the seller’s share varies widely.
• By sharing the value of synergies with the seller, the acquirer can pay a price that induces the seller to conduct the transaction while still enabling both acquirer and seller to create value for their shareholders. Further, by disclosing the value of potential synergies at the time of an acquisition, the acquirer can shore up its market valuation during the period following the merger announcement, offsetting the erosion in market value that frequently occurs as investors react to the uncertainty engendered by such announcements.
• PMI (Post Merger Integration) actually begins the moment the deal is announced, when management communicates the rationale for the transaction and quantifies the synergies that shareholders can expect. Recent M&A history conclusively demonstrates that shareholders welcome details about the logic underlying a transaction and reward communicative acquirers with higher-than-expected valuations during the period after merger announcements. The valuations of acquirers that quantify synergies as part of merger announcements are roughly 5 percent higher, on average, than those of acquirers that make no such disclosure, while the valuation of the combined companies is approximately 6 percent higher than it is for comparable companies that don’t disclose synergies.
• All the communication in the world, however, cannot preserve the value of a combined company that fails to deliver against the synergy expectations it creates.
• In our experience, companies are more successful at M&A when they apply the same focus, consistency, and professionalism to do it as they do other critical disciplines. This requires building four often-neglected institutional capabilities: engaging in M&A thematically, managing your reputation as an acquirer, confirming the strategic vision, and managing synergy targets across the M&A lifecycle. This ability to approach M&A in this way elevates it from a tactical necessity focused on risk management to a strategic capability delivering a competitive advantage that others will struggle to replicate.

Source: Bain & Company Publications, Insights: “The Renaissance in Mergers and Acquisitions: The Surprising Lessons of the 2000s”, January 16, 2013; “The Renaissance in Mergers and Acquisitions: What to do With All That Cash”, March 13, 2013; 2BCG Perspectives: “How Successful M&A Deals Split the Synergies: Divide and Conquer”, March 27, 2013, Ferrer, Uhlaner, West, “M&A as Competitive Advantage”, McKinsey Quarterly, August 2013.