Senior Managers Program

Strategy Formation &

Strategy Execution
Hamish Scott
Day 1 Key slides

Triple Accredited – Benchmarks of the Quality and

Standards in Education we provide
Agenda
Your needs, your starting point
The imperatives:
1. Address the three components of strategy
2. Run a strategy development process, with purpose & posture
3. Plan for the level of uncertainty
4. Define the basic question
Rumelt’s Three Elements of a Strategy
Diagnosis
What’s going on that we
need to address?

Guiding
Policy
What’s the big idea for
how we address it?

Coherent set of actions

What’s the plan for how we are
going to implement the big idea?

3
Rumelt’s Three Elements of a Strategy
Diagnosis
We are losing share to DSS
because they’ve got big online
retail accounts they won on low
margin

Guiding
Policy
We use an eco proposition
that wins it at better margin

Coherent set of actions

We acquire firms with eco technical solutions
We invest to reduce carbon footprint in plants

4
Be good at identifying and working with the three components Diagnosis
Guiding Policy
So, lets practice: and mark up the 7 statements. Actions

1. “We have to build a more flexible newsroom.”

2. “D&I policy means we’ve got to change the way we recruit. The way we do it biases the
middle class kids who get trained in interview technique .”
3. “Reporters using iphones, why not? It’s the future (using iphones).”
4. “We will launch the roadshow in order to get a better profile in the regions .”
5. “Changing the contracts is just annoying the talent. We need continuity to retain people,
they are flight risks, right now. Review the contract terms after the summer .”
6. “We are sending the best camera guys to do vox pops; it’s not using their talents .”
7. “Building project management disciplines is important in order to improve execution.”

5
Agenda
Your needs, your starting point
The imperatives:
1. Address the three components of strategy
2. Run a strategy development process, with purpose & posture
3. Plan for the level of uncertainty
4. Define the basic question
 1. Collect Data
2. Do Analysis
Diagnosis 3. Create Insights about the future and
the challenges
4.Make Choices about the Challenge
to address The 9 steps to
Guiding 5. Generate Options about Strategic address the three
Posture and Direction
policy
6.Decide Strategic Direction
elements of
strategy
7. Generate options for HOW to
translate the Direction to action
Coherent set of 8. Evaluate and decide goals
actions 9.Do catchball with goals & proposed
action to finalise plan
Agree the most appropriate of McKinsey’s
Strategic Postures
Shape
Try to change how your industry does things
e.g create standards, innovate business models

Adapt
Focus on smarter, agile adaptation to developments led by others
e.g. imitate and implement

Reserve the right to play

Hold back from acting now
Agenda
Your needs, your starting point
The imperatives:
1. Address the three components of strategy
2. Run a strategy development process, with purpose & posture
3. Plan for the level of uncertainty
4. Define the basic question
Four levels of residual uncertainty in planning
for the future

1
2 ?
3

Clear Future Alternative Futures Range of Futures True Ambiguity

Question:
A. The tariffs on US C. The sales of online
For each of these
cars imported into coaching in USA in
UK in 2024 2023 expectations (A-D),
name the type of
B The footfall in D. The price of gas in uncertainty (level 1-4)
McDonalds Europe in winter
tomorrow 2023/2024
 Four levels of residual uncertainty
1
2 ?
3

Clear Future Alternative Futures Range of Futures True Ambiguity

Develop a Define the Identify the key Prepare for the

forecast possible variables and unknown
scenarios and create probable
prepare for each scenarios

Tools: Tools:
Scenario building Real option management
Contingent road maps
How to do Scenario Planning
1. Define the drivers which could affect the future
of your area

2. Decide the most important (the ones likely

to have most impact)

3. Cluster the different outlook for the prioritized

drivers into discrete scenarios

4. Create strategies for most important scenarios

(optimistic, pessimistic, likely)
 Example: McKinsey study of
McDonald’s
Demand
• Demand for local and regional variation
• Large and richer younger population in emerging markets
• Customers focusing on health

Competition/ industry structure Impact on performance Regulation

• Global “land grab” beginning • Significant market opportunities in new • Increasing focus on access for customers and
• Greater access to developing markets employees with disabilities
regions and markets
• Increasing influence of trends, • Laws certain to apply to new construction;
• Increasing costs and risks from regulation unclear how laws will affect existing structures
resulting in faster pace of change
and changing perceptions of businesses’
responsibilities

Store formats as key value driver

• Dramatic rise in importance of layout and lighting
• Look and feel more important than familiarity
• Increased demand for convenience leads to self-service kiosks
• Customers less willing to pay for quality
 Example: McKinsey study of
McDonald’s
Uncer- Possible
Clusters of drivers/drivers tainty Impact states

Demand • Growing demand for healthy food High, medium, low

• Increased demand for local and High, medium, low
regional menus
• Drivers of demand shift away from Medium, low
food and toward ambiance

Competition/ • Entrenched competitors Medium, low

industry • New entrants (e.g., coffee shops, High, medium, low
structure ethnic takeout, traditional rivals

Store formats • Cost of upgrades High, medium, low

• Level of near term investment Medium, low
• Franchisees’ role in payments Medium, low
• Consumers willingness pay Medium, low
• Increased fuel costs High, medium

Regulation • Enforcement process Medium, low

• Access regulations In force/not in force
High
• Timeline and history Medium, low Medium
Low
 Example: McKinsey study of
McDonald’s
High
Increased Access
fuel costs regulation

Customers’ Franchisees’
willingness to pay role

New entrants Healthy food

Uncertainty focus

Focus on
ambiance
Desire for
local adaptation
Entrenched
competitors
Cost of
upgrades
Low
Low High

Impact
 Example: McKinsey study of
McDonald’s
Key drivers
Regulation Demand Industry structure
Access WTP/format Healthy Franchisees Competitors
food
Most
unfavorable Stringent Low – Beef Required by Aa
supermar-
customers consump- Alaw to share
rules in 2 tion drops by A enter
kets
focus on 50% of costs
years for all 50% fast food
stores value business
Different states 20 50 10 10 40
25
Phased in for Moderate Required by
Moderate – Major
new increase in law to share
up to 20% for competitor
construction salad 25% of costs
better goes out of
only over 10 consumption
formats business
years
80 50 90 30 75
Not required
to share any
costs

favorable 60
State
Probability
 Example: McKinsey study of
McDonald’s

Scenarios Clusters of drivers Probability

• Regulations phased in slowly
Hamburger 20%
heaven • Customers embrace new formats

(optimistic) • Meat vs. salad consumption remains steady

• New laws require franchisees to cover 50% of costs
• Major competitor goes out of business

Slow growth • Regulations phased in slowly

• Customers focus on value, not formats
55%
(most likely)
• Meat vs. salad consumption remains steady
• New laws require franchisees to cover 25% of costs
• Most supermarkets enter fast food business

• Stringent access laws for all stores in 2 years

Nuclear war 25%
• Customers focus on value, not format
(pessimistic)
• Beef consumption drops by 50%
• Franchisees not required to share any costs
• Most supermarkets enter fast food business
 Example: McKinsey study of
McDonald’s
Most probable Core strategy
scenario

Slow growth
• Prepare to accommodate
modest regulatory change
• Make only incremental
investments in format
• Change menus slowly
• Modify franchisee agreements
to share costs of future
legislative change
• Accentuate distinctive features
of company to defend against
new competitors
 Do a simple scenario creation for a chosen area

Optimistic Describe it here

Security
concerns
high

Pessimistic Describe it here

Plot each
driver
Acceptance by
Execom of
home working

Most likely Describe it here

low

low high
Agenda
Your needs, your starting point
The imperatives:
1. Address the three components of strategy
2. Run a strategy development process, with purpose & posture
3. Plan for the level of uncertainty
4. Define the basic question
Applying Situation - Complication - Question
Define the major question with SCQ
SCQ analysis helps you frame the question that you should be answering.

SITUATION What has existed that has just been complicated?

What has changed to make you think you have a ‘problem?’

COMPLICATION

QUESTION What question, when answered, makes the ‘problem’ go away? (It will be a ‘what’ or
‘how’ question, not ‘why’. Pay attention to whose problem.)
 SCQ:Situation
Applying example- Complication - Question

Initial brief: Set up a Group Procurement department

SITUATION What has existed that has just been complicated?

Each BU has contracted its own hotel rooms, negotiated good rates for
the specification it needs, and developed good relationships with
hoteliers that have contributed to good service for holidaymakers.

What has changed to make you think you have a ‘problem?’

COMPLICATION
It has emerged that some major competitors seem to have better rates.
These competitors have group procurement departments.

What question, when answered, makes the ‘problem’ go away?

QUESTION How can we get better rates whilst maintaining the close relationships
with hoteliers and ensuring each country has the precise specification it
needs?