Michael Porter: Aligning Strategy & Project Management

uh so ladies and Gentlemen please join me in welcoming Michael Porter well Mark thank you that was embarrassing but uh but much appreciated

and um it's truly uh a great fun for me to be here I'm an engineer by training aerospace engineer and um I love

projects and uh what you guys do uh in this field is actually a core discipline of management it makes things happen it's particularly important to make

change uh to get things done in organizations that are non-routine uh that require new ideas and and advancements and innovation

but I think the uh the reason I'm here and I think Mark just said it well is that actually any project or any

program is just inevitably embedded in a strategy for the overall organization and ultimately uh if we

don't understand that strategy and if that strategy isn't well thought through then we can't decide whether we've got the right project or the right

program program uh if we don't have Clarity on the strategy we we we can't decide whether we've got the right goals and

specifications for our project or our program in terms of what we're trying to achieve and if we don't have a clear sense of the overall strategy then it's

pretty hard to connect a project or a program to what's going on elsewhere in the organization in in a way that would ultimately uh deliver value and

competitive Advantage uh or good service to the community if you're a government agency or whatever you do so fundamentally strategy and project

and portfolio and program management are kind of joined at the hip and the question is how do we ensure

a very clear and Powerful connection and Alignment between those things now one way of doing that is to rely on your Senior

Management they're the ones that have to worry about strategy and they tell you what the strategy is and therefore you make sure that the program or the

project is aligned but I will tell you that uh that's not what I think we need to rely

on uh I think ultimately to do your job well you have to have a really good idea and a really good sense of what the strategy is and what we find over and over again is often Senior Management

are not necessarily that good at communicating strategy and making it clear for reasons I'll talk about a little bit later so I think I think those of us sitting in this room we have to take

responsibility for this too we have to have the insights and the disciplines to understand a strategy and and how to connect it to what we do uh

really to supplement the kind of top- down transmission process so in this session what I'd like to do is is talk a little bit about what

are the Core Concepts of strategy this is not going to be a whole course but it's it's going to be an e effort to give you all the tools to

think about strategy and thinking about strategy is about thinking about the whole rather than thinking about the project

or the function strategy about is about thinking about the whole company how does the whole company fit together uh strategy is about thinking

not about a particular technology or a particular competitor strategies about thinking about the whole environment in which the company is

operating the the whole the whole circumstances uh outside that the company is having to respond to that's what strategic thinking is all about uh what I find still today despite the fact

that this is a wellestablished discipline and there's a lots of courses on it is still strategy is relatively misunderstood in a lot of organizations there's a lot of misuse of

the word strategy there's a lot of sort of uh mistaken Simplicity that people use when they talk about strategy so hopefully in this session today we don't

have a lot of time but I'm very confident that in one hour uh we can all get on the same page and really understand these these

fundamental principles and hopefully uh these will give each of you an opportunity to uh not just uh try to figure out what the top management wants done but actually be involved in that

discussion in a very proactive way many of you already are but my goal today is uh you're going to teach your bosses about strategy because you're going to know more about it than they do

that that's hopefully what we can achieve today now the the starting point for thinking about strategy is you know what is the

fundamental what are we really trying to do with strategy and what I find when I when I work with companies and I get a chance to work with a lot of them in virtually

every part of the economy uh what I find is that the very the instinctive gut reaction about what are we trying to accomplish in this company how do we win

is uh the idea of being the best you hear so many CEOs say we want to be the best company in our business we're going to be the best bank we're going to be the best auto company we're

going to be the best uh toothpaste manufacturer the best it vendor uh we're going to be the best that's our goal our our our our purpose is to be the best in

our industry and if we're the best we'll win we'll succeed we'll do well we'll get we'll earn a good return that's kind

of the very typical way of thinking about competition and also about strategy now what does that mean for for for strategy well if you if if you're

trying to be the best then you have to figure out what's the best product what's the best manufacturing process what's the best supply chain what's the best Salesforce structure

what's the best it platform and and the job of management uh and and those of you that are implementing is actually to figure that out and get there and the

assumption is that if you can do all those things and be the best you will win what we come to understand is that's kind of a disastrous way of thinking about

strategy why is it disastrous well the first thing and probably the most obvious thing about that way of looking at the world is uh

there is no best there is no best auto company the whole idea doesn't make any sense you know what's the best

car is there a best car no it it all depends it all depends on who the car is meant to

serve I mean if if the car is is is meant to serve a very high net worth person that very techsavvy and is full of themselves you know that's a different kind of car uh than a car utilitarian car for somebody who doesn't

have a lot of money who wants to have good gas mile there's lots of good cars there's lots of best cars it all depends on the need and the customer you're trying to

meet so the idea that there's one way to compete in any business is just simply not true there's often many ways to compete there's many different ways of

delivering value for the customers you choose to serve and the job of the strategist is

to figure out how you're going to do that better and uniquely well the essence of strategy is not about being

the best it's about how do we how are we unique how can we deliver some unique value and we'll talk about value a little bit later to the customers that

we in our organization are trying to serve and one of the truisms of competition and strategy is you can't meet the needs of every customer you can't do that it's

impossible if you try to meet everybody's needs the chances are you'll not be very good at meeting anybody's needs and that's a very powerful idea and strategy strategy is essentially

about competing to be unique and if you find yourself in a situation where you're competing with with your competitors on the same stuff

you're in trouble because if you're trying to produce the lowest price and they're trying to produce the lowest price uh and you're in a race to produce the

lowest price what's going to happen uh that's that's what we call a zero sum competition you're just going to have a race to the bottom and see whose returns are the

lowest whereas if you think about how to be unique you can we find that there's uh that's more of a positive sum competition where if you find the ways you can distinguish yourself and create

Advantage uh and really double down on those ultimately you'll be able to succeed uh and your competitor might even be able to succeed as well because they're doing something

else so these are some of the kind of animating fundamental ideas in thinking about strategy that we need to start with as we enter this

discussion and these are questions that each of you you needs to you know be asking as you think about the work that you're asked to do you know and where where are we going

with this you know where do we end ultimately want to end up you know relative to our competitors in terms of meeting the needs uh that our business is is trying

to meet now in addition to kind of the way we think about competition another very important starting point for thinking about strategy is to understand what we

mean by a strategy stry you think this would be pretty clear at this point but it's not people use strategy to mean a lot of different

things and what we found is we've got to get on the same page we've got to understand strategy in the same way if we're going to have a productive discussion and that's whether it's your project team or whether it's your

company there there three common mistakes in thinking about strategy that I see over and over again one is to conf use the strategy with the

goal how many times have I heard my strategy is to be number one or number two in the business is that a strategy no that's actually a goal

that's an aspiration that's where you'd like to get the strategy is how what set of choices you make which will produce the competitive

advantage that will enable you to be in whatever ultimate you know Market position or growth rate uh you you hope to achieve so we got to make sure that when we we separate the strategy from

the goal when we think about strategy we also have to recognize that strategy is ultimately holistic it's not about any single

action that you might want to take so I hear people say all the time my strategy is to uh internationalize or my strategy is to uh

uh be the technological leader and those things may be terrific things to do but those aren't strategies those are actions that flow out of a strategy the strategy is kind of the holistic

understanding of how the company is going to position itself in the business in order to get a sustainable hopefully competitive advantage and that involves all the functions and that's going to involve

many action steps and many of you are going to be asked to lead efforts around those action steps to actually make things happen that are critical to make the strategy

real but the action steps aren't the strategy the action steps are embedded in a strategy which hopefully is a coherent

way of thinking about the company uh as a whole in order to uh distinguish itself in the marketplace and and create uh that advantage that's going to lead

to uh Superior performance in whatever business you compete in uh we also have to be clear clear that strategy is a lot more than just a

mission statement or a vision statement or uh you know a strategic intent a strategy

is very specific it's very concrete it's about a set of choices that the organization is making

about how to compete and those set of choices have to distinguish that company and separate that company from from other

players uh that's ultimately what strategy is all about it's about the whole it's not about the parts it's about the position not about

the action steps and ultimately it's successful uh if it's successful it's about superiority and uniqueness uh which ultimately is what most of us would like to be part of an

organization that really distinguishes itself and delivers something really really unique in the

marketplace okay now um with that background let's again first uh recognize that when we think about strategy when you think about strategy you've got to always understand that

that strategy exists on multiple levels in uh uh unless the company's only in one business the core level of strategy is

what we call business strategy that's how do we compete in a distinct business a single distinct business how do we dis

how do we compete in um you know uh uh uh you know Lu uh Automotive lubricants if you're in chemical company that's business

strategy but then if you're in a diversified company you might be in more than one business uh you might make not only

lubricants for automobiles and passenger cars you also might make lub lubricants for trucks and you also might make lubricants that are used in industrial

processes well those actually turn out to be different businesses and what we know is that you need a a strategy for each different

business in the company and that's ultimately business strategy but if the company's Diversified you also need another level

of strategy which is okay how do we bring all these businesses together in a way that adds value you know what portfolio of

businesses do we want to be in ideally that can leverage each other and amplify the advantages that they could create on their

own and that's what we call corporate strategy um and uh you know I I find that in many companies we get these things confused and we're not clear

about what we're really talking about and and that that creates problems problems in terms of the choices but also problems in terms of the discussion and the vocabulary and

the clarity uh of the choices that uh we make uh I'm going to talk mostly today about uh business strategy because I think that's where most projects emanate

and programs they emanate out of a business strategy uh uh corporate strategy is a topic though that is important if you're in a diversified firm and and there's references here uh that you can look at

if you're interested I can't give that course today too I'm going to focus on the business strategy course okay because again I think that's where most of us are

tethered you know in terms of what we do the people in this room all right so so how do we think about business strategy well um in business strategy we've got to recognize

that there's really two pieces of the understanding and and Analysis and thinking in business strategy one piece

has to do with the business itself and that's what we call industry structure know if you compete in passenger cars you're in the passenger

car industry and one important unit of analysis is what's the nature of that industry how's it changing is it getting better or worse how do we understand the

Dynamics of the industry and we find that Industries are different in terms of their inherent attractiveness and profitability at any given moment in time so that's kind of

One Piece that's that's how do we look at the external environment in a kind of holistic way the second piece of business strategy of course is what we call

positioning positioning has to do with how we decide to compete within the industry versus the other folks in that

industry and positioning is really fundamentally about how we can get a competitive Advantage uh if we think about any company's

profitability you can actually decompose that profitability into two parts one part of the profitability say you have a profitability in Roi of 12% you know one

part of that profitability is the profitability of the industry the average profitability of the industry so say you're in a really lousy industry say the average profitability

is 8% but the other uh part of profitability is the the difference between your profitability and the industry

average and if you have a 12% Roi and the industry average profitability is 8% Roi then you're 4% better and that's a sign that you have a competitive

Advantage you have a Superior position you're outperforming your Rivals now if you have a 6% Roi in an 8%

industry then you're doing something wrong there's some weaknesses there you're underperforming so you can see that part of your performance has to do with are you in a good or bad industry but part

of the performance has to do with are you better or worse are you Superior or or behind in that industry and when we look at

performance we have to look at it that way uh again I find a lot of companies get confused about whether the problem is a bad industry or a bad position and the the remedies to those

things are very different if you got an industry problem that's a whole different animal in terms of what to do than if you've got a positioning problem but both are are

very very critical and uh what I what I find over and over again is there's not enough attention to the industry people gravitate right to their own position do we have an advantage do

we have a disadvantage rather than is our business healthy is our business moving in the right direction because if the business is healthy you know we'll be

healthy now maybe we can be a little healthier than our Rivals But ultimately what it matters is our return on Capital our our overall

performance so now let's burrow down a little bit into these two pieces and again some of these ideas many of you are are familiar with but I'm confident that that that kind of talking about

this uh in this way is is hopefully going to help you see it in a much more powerful light than whatever you remember if you if you if you read or or studied something about

this now on the industry side of course the a long time ago I introduced this concept of uh industry structure and the five forces

and um there's been an analyst debate about whether there's a six force and uh if somebody invents one you know I'll be very happy to give them a

gigantic Prize or reward so far we think there's five forces whenever you're looking at a business holistically the way to organize the

nature of competition is to recognize that it's taking place through these forces the most obvious one is the Rival that you're having with the people in the

industry you know General Motors versus Ford you know Google versus Yahoo in search engines that's that's rivalry that's obvious that's kind of intuitive we all

know about that kind of competition what we are less often aware of is actually that our real profitability may not be driven so much by that but by these other forces of competition the clout

that our customers have to force down the price to ask for more that we can't recover the cost of so that's that's so that's the bargaining power to buy that the

suppliers that we deal with may have the clout to push up the price of what they sell us and pull the profitability out of the industry uh then there's a question of

do new companies come in and kind of take market share and kind of drive down uh the return in the business and that relates to the concept of barriers to entry I think hopefully a concept that

all of you are familiar with the bearish entry are high you can support a very high-profit industry if the bearish entry are low you can't and so this becomes a critical

element of thinking about the industry structure in which you're competing and then there's the substitutes the other ways of doing what you

do so if you if you make Plastics then you know you may The Substitute may be metal or some other material so even though it's not like

you even though it's not a direct rival it also competes with you if the substitute has a favorable price performance uh situation versus your

product even if it looks totally different that's going to limit your profitability industry structure then is is about seeing what's happening in the

broader competitive environment around you the directions that is taking and then playing that into your thinking about the question of where you want to

compete uh and and Industry analysis then becomes a core discipline of strategy and every good strategist has to know what's going on in their

industry they have to see it in this holistic way um and uh and and ideally have to build it into choices that are made that ultimately are going to affect

you in terms of priorities and programs that you're going to be asked to deliver on um now let's let's let's just take take a little bit of an example here

just to give us all a chance to kind of see how this thinking can play itself out so uh I just thought I'd take a very simple

industry industrial gases this is products companies like air Air Products pra a you've heard of hopefully some of you have heard of these

companies um you know they Supply you know oxygen you know nitrogen the uh just gases that are used

in various ways in the business operations of many many Industries sometimes in the production process sometimes in other ways

okay now um by definition these products are literally Commodities oxygen is oxygen nitrogen is

nitrogen and you know these the feed stocks for these industrial gases are hug huge commodity markets so the companies in this industry have no control over the raw material

price and they're just kind of at the whim of what's ever going on in the raw material market in terms of affecting the price and industrial gas companies sell

to many of the biggest companies in the world so so you so your first instinct is well you know here's an industry it's commodity

industry with no power over your key raw material cost and you're selling to a lot of big powerful companies sounds pretty lousy that's the kind of thinking that

comes out if you don't think rigorously and systematically about about your business if you do what you realize is this actually is a very attractive

industry why because yes they're dependent on feed stock prices but the way this industry has figured out to contract the raw material price swings are built

into the Contracting so that just gets passed through they're not vulnerable to that it turns out that although these are commodity

products actually in many cases the uh the G the gas supply is on site there's a little tiny little plant that's generating oxygen or generating some gas

that you need in your production process and basically it's there on your Factory site and in order to kick out one of the competitors you've got to

kick out their whole little mini plant in your production process and it's often Contra contractually impossible to do that you have a two threeyear contract before

they would put that thing you know put that asset onto your facility uh and it turns out that the that to the extent that you're delivering gases it's very expensive to

deliver gases so the density of your customer is very very important how far the truck has to drive between dropping off the

next tank of gas and so if you have tight density of customers and you can build that up it's almost impossible for a new company to come

in because it's just horrendously expensive for them to just serve One customer in a given region so to make a long story short here's an industry that if you really understand your industry

environment and think about it in this more rigorous way you all of a sudden understand first of all it's pretty attractive but you also understand the

ways in which your uh company and your projects and your programs might actually extend that advantage and deepen that Advantage

because the advantage really comes from delivery efficiency and embedded onsite facilities and things like that that that that you may be able to invent you know better and important improvements

and how to do that so industry analysis becomes a critical Dimension and I think every good project manager has to understand kind of the industry context that's

given rise to the requirements uh that has then popped up you know in in in this project that you've been asked to

lead and the results you've been asked to uh deliver and and if you don't feel like that understanding is there you got to raise your

hand wait a minute boss you know this is the way the industry is going this seems to be what's happening with the customer why are we doing

this this is just going to make us a commodity and take away our opportunity to differentiate ourselves you know what why don't we why don't we think about

this see that's that's that ability to have a dialogue between the kind of strategy level uh and the program and project level rather than have two different worlds where there's some kind

of a handoff at some point and then you know it it goes off on its own without the ability to understand without the ability to get feedback loops without the ability to refine what

we're really trying to accomplish here in a dialogue and I think as a project leader or project manager you're not going to be very good at that dialogue unless you understand these some of

these broader Concepts of strategy and the nature of competition uh in your

business uh let me go the right way here now let's turn to positioning how do we position ourselves within the industry what are the key ideas there

how well the the first idea is that the fundamental purpose of positioning is to get Superior performance we're not positioning for its own sake

we're positioning because we want to do better economically or in delivering value for the customer if we're not in a business than our

Rivals okay and in order to do better in order to be more profitable in order to deliver higher economic value we we only really have two ways of doing that one is we've got

to be able to command a higher price if we can command a premium price for our product or our service and we can keep our cost in

control we will be more profitable that's one route to Superior profitability which again ultimately is what strategy is all

about the other way we can be more profitable is we can have lower cost because we're inherently more efficient at doing the things that are

necessary in in the business and if we can have an acceptable product and we can oper deliver that acceptable product at a lower cost again

we will be more profitable these are the two paths to Superior profitability a higher price or a lower relative cost once in a while we can do both but it turns out to be

really hard because the things that are that it requires to get Superior value and a premium price are often somewhat inconsistent with the

things that you want to do to actually minimize in the cost so usually we have to make a choice we have to decide what are we trying to

be are we trying to be what I call a differentiator unique value unique performance unique features unique Services higher price or

are we trying to be a uh kind of a cost leader good product good enough quality good enough

features really efficient really cost-effective price maybe even a discount but we're so efficient that we can make money even if we give a

discount so this is where we start with positioning how are we gonna how are we going to translate this into

superiority higher price uh lower cost now in order to understand that and actually make that real for the company as a whole we need

the next kind of key tool here which is the idea of the value chain now again hopefully everybody here has heard of the value chain basically the value chain is sort

of a systems view of a business it says that what a business is whether it's making cars or uh doing

accounting services a business is a set of activities it's stuff that we're doing and this this framework called the value chain it's just a simple way of

kind of articulating and understanding and breaking out the essential activities in the business and this this particular picture is sort of a generic starting point but of course every

business is going to be different it's going to have different activities it's going to have a different um names for those activities in manufacturing there's going to be a manufacturing part

in Service delivery there's going to be a service delivery part uh uh you this gets tailored to the particular business but ultimately the concept is the same

in every business we have a value chain and everybody working in the company is somewhere in that value chain doing

something uh and there's there's some categories of different kinds of things that that people do they do it and they do HR and they develop new products in the TD technology development or they do

Logistics or they process orders that's what companies do all competitive Advantage comes from the value

chain you have a competitive Advantage because you you can do things here cheaper because you've learned how to do them more efficiently say say you've

learned how to provide after sales service really really efficiently with less people with fewer repeat visits with a greater ability to fix fix the

product on the first visit uh you know your competitive Advantage might come from your ability to do after salale service better your competitive Advantage might come from your product development which creates distinctive

features that nobody else has or feature or or or product performance that's better than anybody else has so your competitive Advantage might come from the technology development product development part of your value

chain in general it can come from any part of the value chain and actually what we find is that companies that can multiply places in the value chain where they actually draw

their advantage those kind of companies often do really really well because it's harder to copy it's harder to imitate if you're drawing Advantage from

multiple things that you've learned how to do well and as we'll see later it's even more powerful if you've got multiple things that you can do well and they're actually reinforcing each other they're

connected that's called fit and we'll come back to that in a minute all competitive Advantage comes from the value chain if somebody's willing to pay you a premium price it's

because something you've done to justify it ontime delivery better design um higher quality uh sales people

that provide more value added and and customer support in the sales process you can always Trace every advantage to the value chain and of course many of your projects and

programs are connected to some part of the value chain now how do we get competitive

advantage in either price or cost well uh there basically there's two ways of thinking about that and and this is a

very very important distinction that every one of us has to understand all the time part of our ability to be high quality and or low

cost comes from what I like to call operational effectiveness and operational effectiveness is basically just doing things

well another way of saying it is operating at best practice

okay so um you know if you um let let's take um the computer infrastructure it infrastructure in the

company um you know the traditional way of doing it was you had servers in your uh you know

it the place where you had all your it stuff I don't know what you're calling uh I I was going to call it a computer center but I think that's kind of an archaic

idea okay now today what we know is if you're still just doing servers you're not at best

practice now you need to be on a cloud okay that's a best practice operational effectiveness is figuring out that the server

isn't where we need to be anymore we need to be on the cloud and there's hundreds of things like that going on every single day all across the business there are new ways

of doing things there there new technology new machines you know new it configurations uh new human resource

Concepts new Salesforce incentive models people are inventing best practices every day and you know job number one for managers is we got to validate them

and then we got to do them if we're not operationally effective if we haven't gone on to the

cloud Etc actually strategy doesn't matter if we're giving up cost and

quality by just not keeping up with ideas and Concepts that are validated as better ways of doing

things uh we're going to lose okay but what's interesting is that just being operationally effective just

assimilating best practices just kind of rapidly adopting the latest good ideas uh usually doesn't allow you to get a

competitive Advantage maybe for a instant but if it's a best practice what's going to

happen everybody else is going to do it and of course the vendor are going to be frothing at the mouth to spread this best practice to every single customer

including your competitors so yes we've got to work really hard at driving best practice and driving operational Improvement and some of your projects and some of your

programs are just about this we know we got to make the migration to the cloud let's do that we got a project team we're going to get that

done and in that case you're kind of of your path is is pretty clear and in a sense what you've got to understand is you have a pretty fixed

Target and you've got to think of it externally in terms of what best practice is of companies like yours but best practice Improvement is

not strategy strategy is something different than that strategy is not about doing the same things better or getting you know more fast

adoption to best practice strategy is actually about choosing to do things differently strategies about the things

that aren't best practice strategies about the things over which you must choose and what you want to choose is how you're going to distinguish

yourself and where your advantage is going to come from it's not going to come from best practice Improvement because people are going to follow you uh if you happen to get in the lead

it's going to come from choices you make about how to be unique about what position you want to occupy in your business relative to your

competitors and that's where ultimately sustainable Advantage comes from okay many of your projects people

sitting in this room are about this they're about something that's going to contribute to your uniqueness and to your distinctive position and therefore it's probably

going to not have such a clear end point not have such a clear reference point in terms of what ultimately got to get done but it's going to be profoundly important to the you know really future

prosperity of the organization okay so learning how to think about these two things as different animals both critical but different animals I think it's very

important to do what you do well okay now let's focus on the unique positioning what do we need to do to create

a successful strategy well again uh uh this is very complicated but ultimately there's a set

of underlying Concepts here about what a Strate a successful strategy looks like which I think are very powerful in allowing you to actually think about the

process of the question of whether you're on a good path whether you're moving in a Direction that's likely to be robust and

sustainable and question number one is that every good strategy has a unique value proposition for the

customer the customer that you're seeking to serve that's kind of Step number one what's a value proposition well for

strategy purposes it has three elements one is what customers are you actually serving of all the customers in your

space which ones are you really going after now you could say all of them you might succeed that way or you might say really I'm going after the

customers that want IND industrial strength quality I'm going after the customers who just want a good basic product at the lowest possible

price and costs that we have to achieve uh the first question in value proposition is who are we really going after of all the people in the industry and we can think about the end user we can think about the channels we can

think about them both together in in in in asking that question second question in value proposition is what specific needs of those customers are we actually trying to meet

are we trying to meet all their needs in our product category uh are we trying to really meet a a particular subset of those needs what exact needs are we trying to meet to make ourselves

distinctive to make ourselves uh unique uh you know we're going to be just as good on these areas but we really need to identify these three areas and we're

going to be better so that's a second question and then the third question has has to do with you know how does that how how does that then translate into what price we

ask relative to our competitors are we going for a premium price are we sort of parody uh are we going to offer a

discount and when we put these three questions together we end up with the value proposition and strategy Theory says we got to answer these questions

differently then our competitors are answering them because if we're trying to meet the same needs of the same customer at the same

price we don't have a strategy we're competing on operational effectiveness who can do the same thing better okay and

operational effectiveness is important but it's not easy to win that competition okay so that's that's hopefully a we all

understand that's a bad place to be operational effectiveness is table Stakes we build strategy on top of that

and hopefully you make a Clear Choice uh uh uh Clear Choices accordingly now all of this works best when you kind of illustrate with an example let let me use an example that I

think everybody here probably knows pretty well and that's uh EA or Ikea depending on whether you're European or

American I'll let you all guess which is which uh this is a Furniture uh Furniture retailer um very very famous company uh

really burst onto the scene maybe 30 years ago plus and is now a global Powerhouse you why have they been so

successful well because they strategy they're not just doing the same thing as you know all the other furniture stores they're not just trying to do the

same thing better they made a set of choices about how they were going to have and deliver unique

value and it really started with a view of who the customer is and most good strategies that are really powerful strategies um embody an

insight into how to think about customers that's different than people had thought of in the past and ik is no exception here you know you know typical customer

segmentation Rich customers poor customers Urban customers rural customers uh large families small families big houses small you know there's lots of different segmentation

schemes in most every business that sort of exist but I AA figured out that there was a very interesting segment that nobody had

identified that turned out to be really big which is people in general that lived in smaller spaces

Apartments dorm rooms um people that were educated and sophisticated enough to want nice design

and style for their Furnishings in their home but people that had really really limited budgets so the traditional way of

meeting this segment's needs well first of all nobody could meet it but if you wanted really cheap furniture what' you do you bought used furniture you went to

the Army Navy Store you know but Ikea figured out that there was a big Market here and uh and and and there was a big Market particularly if you could you

could have high style products that were welld designed that had good materials that were coordinated into collections which allowed people to have

sort of a a a sort of a a nice environment in their home and and things that work together and fit together uh if they could figure out how to do that and meet that really low price point

they would potentially have something big on their hands and again traditionally there was this trade-off between High style in

design and price if you wanted good design and good style you had to pay a lot and I said well what if we could figure out a way to to deal with that with the additional

sophistication of understanding that there's a there's these customers with relatively small living spaces and uh people that have money but also actually care about the style that

that we we can we can Target that's a value proposition and it turned out to be very very novel

but the value proposition alone doesn't get you to the goal line you got to find a way to configure

the value chain in order to realize the value proposition in a way that competitors

cannot you know the value proposition is sort of a of a concept but the configuring the value chain makes it real

and in the case of Ikea that actually involves some powerful Innovations and you know I I don't know the company well enough to know whether they had a project

team but you know the the the the critical Innovation they had was um modular they realized that the economics

of of of furniture are it's bulky and it's it's very expensive to ship relative to its value and what they figured out is if we

can actually not ship Furniture we can get a giant amount of money uh and we can reinvest that money

in things like style design fabrics and so what they ended up doing was they ended up designing furniture

that was easy to assemble and disassemble so when you go to IKEA as you all know you don't buy furniture actually you buy a box in which are

contained pieces of furniture and and of course the shipping from the factory they're not shipping furniture from the factory to the store they're shipping boxes and those boxes are going into

this giant Warehouse in the store so when you go into the store you don't see what you're going to buy you see stuff they've put together you know in the store but then when you go to take it away you don't actually get a piece of

furniture you get a box which you schlep to the parking lot and put it in your car and then you take it home and then

you have a christmas-like experience of taking it home right and and assembling it you know on site but it turns out that we get through it it's not that hard because they've designed designed

it that way and that was a strategic Innovation but it all started with who is our Target customer and what's our value

proposition going to be and from there they have they developed a whole value chain so just about everything Ikea does is is fairly

different than most other furniture stores for example what I always found amusing is you'd go into Ikea and you get

lost I mean there's not a linear thing in there in terms of getting in getting out finding where you're going uh the next thing I noticed about Ikea was if

you need help God help you you know there there there is no help there is no help if somebody has Ikea shirt on and you look

their way they scree away you know it's the opposite of Whole Foods you know in Whole Foods you go in there and you even show mild

interest and somebody grabs you and says oh isn't this wonderful what would you like to know what could I do for it ik is completely

different by Design why because they need to take any cost out that doesn't actually contribute directly to that unique value

proposition which is the furniture itself and it's in inherent quality it's not the shopping environment it's not all that stuff it's they put all the

money into the actual quality of the design the materials that's where they put all their money so the sales help so they have great online and they have uh great

you know little displays and videos in the store and lots of self-service type stuff but pretty much everything they have is there in the store you can look at it and you know what is there to say

about a table oh here it is and it's looks like oh is it big or small well here look you know what are the measurements uh oh well here they are they're written down so just write them

down there a little card that tells you the measurements don't need sales help and we could go through the whole value chain Logistics the parking lot the

store location the child care on site the the whole nine yards everything about that value chain has been a designed to deliver this value

proposition so that is really the number number two key success factor for a strategy have you engineered a distinctive way of competing a distinctive value chain in

order to deliver what you're going to be different at in a unique way and succeed at that third key Concept in strategy is the concept of

tradeoffs a tradeoff is something that most Engineers you know we like to break trade offs But ultimately uh in strategy uh a lot of the power of strategy comes

from actually recognizing that there actually are some tradeoffs and that we should actually be willing to make them so let's take a tradeoff like aam

made so uh you know a lot of people would like to have well I I want this size of this particular sofa or I'd like to change the fabric or

maybe uh you know i' I'd like to have a different color and AA says those are all perfectly valid

needs fine it's just that we don't do that and the concept of trade-offs is that in order to be uniquely good at

delivering some kinds of value you have to be deliberately willing to choose not to offer other kinds of value and all great strategies involve

these trade-offs and the companies that fail are the ones that aren't willing to make them you know if there's any any living and breathing human being that has a

need they'll try to meet it rather than say no no no these are our Target customers these are the needs we really care about meeting Let's do

let's optimize on those not on doing the other things one of the the most important principles of strategy

um in virtually every industry I've worked in is the following and it's going to sound maybe a little weird when I say

it a great strategy involves making customers unhappy okay now that's a little bit of a trick

the essence of trategy is knowing which customers you want to make really happy by meeting their needs and then not worrying that you can't please

everybody you know if somebody comes into Ika and wants sales help that's a perfectly valid thing it's okay to want sales

help so so suppose they don't see any sales help and they get really mad and they go to the they go get a comment card you know and they write down well I hate you I hate you you have no no sales

help should Ika care about that comment of course not that's not what they do but yet so much of activity in so many companies is tied up kind of trying

to do customers sad and pleasing everybody and analyzing the comment cards and not realizing that actually half of the comment cards are the bizarre people that really shouldn't be

there you know it's like somebody who complains to Southwest Airlines you know that they don't have first class uh so again strategy is fundamentally about

Choice it's it's it's fig choosing who you're trying to deliver value for it's choosing how to configure your

activities in the business in order to actually achieve that and it's choosing what not to do now let me ask a a question here and everybody should get a we should get a

hundred on this everybody should get this is Ika the best furniture company no way you know you know why I know so much about Ikea my daughter uh

Lana my oldest daughter went to the University of Pennsylvania and every single time I went to visit her oh no one out of two times she would say

Dad could you rent an SUV to get in from the airport and I said you know Lana you

know for you anything okay and it and it turned out and it turned out it turned out that the reason she wanted me to rent an SUV school she wanted to go to

Ika okay so you know five six times over the course of of an academic year we would go to IKEA you know driving in our SUV and she would go in and shop and she'd order have gone online she knew

what she wanted she'd go to the she'd somehow figure out where to go in the store to find it uh we would pick up our tag we would go to the wehouse we would pick up the box we would sleap it into

the SUV and and this was a ritual okay she loved that company that company spoke to her I hated

it I really did I mean I I can't imagine ever buying anything at that place I don't like almost anything about it I don't want a box I want

help I I I I want the color I want you know see so there is no

best there is no best way to compete and yet so many companies get so tangled up thinking that way so hopefully uh all of us as we

think about what we're trying to do in our projects in our programs will kind of have this insight into how to understand the strategy in which what

we're doing is embedded and we'll help enhance the dialogue with our Senior Management that to make sure we have Clarity on what that is you're going to find a lot of senior Executives that

don't think this way they're not at this level of clarity and and and sisc in their strategic thinking and you're going to need to help the company's is going to have a good outcome uh a couple

other uh key tests uh integrating the choices across the value chain this is something really critical that many good projects and programs do they they they

gather people across functions and connect the dots and Ikea is a great example of that the kind of various pieces of the strategy actually

are designed to be reinforcing to feed off each other to leverage each other and then the final kind of key test of a

strategy is continuity what we what we understand is about strategy is if if if if you're if you're zigging and zagging and shifting your positioning all the time you'll never

win you got you got to make in a sense of bet you've got to have some continuity of what's my positioning what's my value proposition who am I trying to serve and how am I engineering

what I do to best do that because if you don't have that continuity if you're not teaching your colleagues if you're not teaching your employees if you're not educating the customer if you're not working collaboratively with the

supplier and everybody doesn't understand who you are what you're trying to be it's very hard to win and a lot of people have kind of strategy dour you know oh let's do

service this year uh or or whatever based on whatever Trends there are in the external environment one kind of broad way of

thinking about all of the stuff that I've been talking about is you know what kind of competition are you in and and so many companies get themselves into what you might call a

zero sum competition where pretty much they're doing the same thing products are similar the features are similar if one guy does something

the other guy kind of imitates it and the zero some competition is where you're doing pretty much the same thing and when that happens what happens the price goes down very hard to

win uh and profitability goes away in the business and and ultimately uh even if you have a higher market share you might not even make much money what we want to be is we want to ideally create

a positive sum competition that doesn't mean little competition that just means a different kind of competition in which you're

carving out the space that you want to Dominate and win in and it and you're making choices which if you're consistent about

them and robust about them and creative about them will allow you to separate yourself from Rivals and and I know all of you can think of dozens of companies examples that both show the Bad and the

good and the Ugly of strategy because we all live it you know in our in in our own experience couple final points and then

we'll open it up for questions um if I if the benefits of strategy are going to be

realized in any organization the strategy can't be a secret now you know in the in the old days uh and I'm old enough to know the

old days at this point uh in the old days strategy used to be something where you had confidence IAL copies of the strategy documents and only a few people

were allowed to know and that's partly because they had the wrong idea of strategy it was about you know are we introducing this new feature you know that that's the way and that that we

want to keep that secret and there there's a need for security and confidentiality in technology and and I I accept that but ultimately at the strategy level what's

our value proposition what are the core customers we're trying to serve what are the fundamental needs we are going to be uniquely better at meeting uh those kind of things need to

be well understood deeply in the organization and you know I I have a course that I I do at Harvard a little intensive kind of CEO boot camp for CEOs

of very large companies and one of the things we talk a lot about is the that that that one of the fundamental jobs of a leader is to be the strategy teacher the strategy

Professor that's communicating over and over again okay who are we who we trying to how we trying to succeed who's our Target customer what's our value proposition is repeating that over and

over again because that's got to permeate the brains of lots of different people that are doing product development that are out there selling the product every day that are that are

doing customer support and uh so communicating strategy is really really important and I think that you

all involved in actually making strategies real I think have to amplify and and and improve that communication that that's a key part of your job and this slide gives you a few other

thoughts about that process of strategy communication but ultimately uh you know at the end of the day uh strategy is the responsibility of

leadership uh up and down the organization um we've got as leaders and and you are leaders we have to distinguish operational Improvement and

strategy we got to keep those things straight we've got to understand that kind of these key principles if you're running a business then you are the one that has to make at

the end of the day some of these choices uh communicate consistently and relentlessly what what your strategy is um maintain

discipline you know one of the things that happens in organizations day after day as ideas Bubble Up people have thoughts investment bankers come to you

with deals vendors come to you with new stuff and uh if you're not careful uh there will be no strategy because you'll end up doing all kinds of different

things and they'll all ultimately not be aligned so I like to say strategy is tested every day what whether you're clear whether you're understand your tradeoffs under

understand the choices you made and and stick to them in last something cataclysmic happens and you have to change your strategy but in most organizations that

doesn't happen very often if you've been uh thoughtful and careful and rigorous about uh your business okay well let's open up for questions again what project and program

managers do is embedded in strategy uh the degree to which you can

both improve the connection and understand the connection is going to have a big impact on the ultimate power of whatever it is that

you're running um but I also want to just emphasize one more time that your job is not just to be a passive recipient of

top- down guidance about these ideas is uh your job is to help make it a two-way process of of of

deepening and understanding uh so that uh uh the organization gets uh greater power and greater Clarity and ultimately greater performance okay so let's get Mark uh

back up here and we'll have some questions thank you great job thank you