Keynote on Strategy By Michael Porter, Professor, Harvard Business School

In fact, now we move on to the most important part of the day for the reason that he is a person why we are all gathered here today, but I would like one of my good friends, three Watsa, to come and introduce Professor Porter . He has been his student. He's been known for about 20 years, a little over 20 years, and that's where the silhouette is. world his influence extends across

business

es, non-profit organizations and governments. There are very few presidents and leaders in the corporate world who have not benefited from his immense intellectual leadership. I had the great privilege of learning and studying from him and an interesting anecdote is To get into his course first, you could get into Harvard Business School.

What would you do? Just pass the GMAT, which is very difficult. Getting into his course is another test and he is the only hardwood course where you have to take another test to get into his course. and people from all the

school

s at Harvard University write that exam to get into your course and it is perhaps the most requested course at Harvard, so that is something very unusual and, as the joke goes, at Harvard there are

professor

s who come and go to that course and learn to teach the case method, learn to teach like Michael Porter, 23 honorary doctorates, there are twenty-four university

professor

s at Harvard, all at Harvard, and he is one of them, one of the highest, perhaps the highest honor.

Harvard University awards to all. He was an American golfer at Princeton and led a rock band when he was doing his PhD at Harvard. He is the proud father of two daughters, one of whom works at the World Bank and is already making waves there. I can only finish by saying two things, one for me as a student, he has been a guru,

strategy

is Porter and Porter is

strategy

and last but not least, ladies and gentlemen, yesterday Michael Porter turned 70, so We should all sing happy birthday to him and wish him the best. The best in life, Michael, all to you, thank you, my goodness, first of all, I want to thank you all for coming today and being a part of this event.

Of course, I've been very, very close to this Porter Award for the last five. years and it's really exciting for me to finally be able to be a part of this. Amit for his entrepreneurial enthusiasm in making this happen. It is an incredible effort. I want to thank Surratt, so my dear HBS student, who is he. I have been my lifeline for India for many years, but I also want to thank all of you for participating and using this award on this occasion to learn, first of all, to increase learning in the organization, but also to use it as a vehicle.

I hope your company moves forward and all of this is just amazing to me that it happened and I am very proud that it happened here in India and I am very honored that so many of you have been involved over the years. today, since I'm here, just let me have a little time so I can talk all day, no problem, in fact, I would enjoy it, but today I'm going to have the opportunity to talk to you about three different aspects. of my work, so starting this morning with the core of the very original work that still continues with the strategy, so we will start with the strategy and then a little later in the day or at noon, we will talk about the relationship between strategy and society. and how we are beginning to understand how

business

es can play a much more powerful role in shaping the society around us.

Something has been left in the hands of the government in the NGOs. I think that we, entrepreneurs, have to commit because without us, without companies, I think it is very difficult. for the other institutions to really move a whole society like India and this is the country that I think is ready for the business community to play a more fundamental and forceful positive role to really move society forward so we'll talk about that and then A little later in the day, related to societal issues, one of the most recent pieces of work I've been involved in is called the Social Progress Index and it's an effort to bring the same rigor to measurement and reflection on the society. improvement as we have focused on economic improvement, as many of you know, I have been deeply involved in economic development for many years.

I have worked with many countries. I am very honored to have the opportunity tomorrow in Delhi to interact with your leaders about the strategy of this country, but I think what we have learned is that economic progress also requires social progress, but we have not had the same measure and rigor to Think about the social progress we have had in the economic sphere. Three or four years ago I started an effort with Michael Greene, who is here, a global effort to really build a platform for benchmarking and measuring how societies are improving or not improving and we'll talk about that later today, hopefully, some of these issues will be clarified.

This will give us a very broad view of some of the biggest questions we all need to address as businesses, but it will also give you the opportunity to learn about some of my most recent work. I currently work in many fields beyond strategy. in healthcare, so I have helped those involved in the healthcare system and the reforms happening around the world. I'd love to talk about it today, but we don't have time next time. I have worked a lot. about the new digital technologies that we talked about earlier that are changing competition, the Internet of Things, Marc connected products, how products and competition are changing as a result of technology and that is a topic that we may want Discuss in the QA that I have written. three or four articles on that, so my work expands since the last time I was here in India.

It's been too long since I've been here and I'm so excited to have the opportunity to experience this amazing country again, so with that let's start and talk about the topic that I think is my main topic and I think the topic that remains is really a One of the areas that ultimately has the biggest impact on the success of a business is having a clear strategy and I think we would all agree with that, but what I have discovered and continue to work with many companies around the world, You know, that's what I keep seeing even though we all know that we need a strategy even though we all understand, you know that word and how important it is.

I think there's still a lot of learning that needs to be done in most organizations, so I hope this session is an opportunity to give you my latest perspective on how to think about strategy. We're going to see a lot of things that are familiar to us because I think some of the fundamental principles that we introduced a few years ago are stronger than ever, but we're also going to have the opportunity to talk to about some of the learnings that come from all of this work in the field. for so many years. It's a little shocking to have a birthday like this, but I'm going to forget about it and focus on everything awesome.

There's a lot of work to do and not get too comfortable with the past, so let's talk strategy. I want everyone in this room to think about your business and as we speak, this is not a theory, this is about how to think about your own business and how you're building it how you're thinking about it the decisions you're making what decisions you're making so let's use this as a breakout session and then throughout the day we're going to hear from other companies that are doing really interesting work and hopefully we'll accumulate Lee as a result of all of this.

I believe we will all enrich our understanding of this very fundamental thematic strategy. What do we do now? Did we somehow learn how to think about strategy? I think what we learned is that the instinct that most leaders have about success and most people actually have about success is dangerous and potentially distracting. What I find is that when you ask a company what success looks like. the answer you get I get a lot is good I want to be the best company in my industry I want to be the best bank I want to be the best automotive company I want to be the best consumer packaged goods company in this category I want to be the best, that is success if I can be the best company in my industry, I will be successful and that is a very natural human way of thinking, we all hope to be the best at what we do, but in business competition. and what we've come to understand is that that's actually not the way to think about success.

The reason is that there is no best company, so it is quite dangerous to try to do something that is impossible. There is no best car. There is no best insurance company. everything depends everything depends there is nothing better there is no single way to compete the biggest mistake in strategy is to think that there is only one way to compete in each industry there are different ways to compete depending on the client and the client's needs actually trying to meet so when you ask what is the best car or the best car company you can't answer that because being the best depends on who you are trying to serve if you are trying to serve young families being the best is different and if you are trying to serving people like me, serving people who want you to know luxury and performance to be the best, that's very different than providing a very, very low cost and efficient, you know, electric vehicle, there is no best way to compete.

There are many good ways to compete depending on who you are trying to serve, so the number one primary strategy is to not think this way. What you need to think about is how I can be unique in my company. How can I create? Unique value to the set of customers I choose to serve Strategy is fundamentally about choice, it is making a set of decisions and the most fundamental choice is who am I trying to serve? and one of the worst mistakes in strategy is trying to serve everyone you can. You don't meet the needs of every customer, you simply can't do it, it's impossible.

I've seen hundreds of companies try it. It is impossible, you cannot fundamentally need all the needs of each client, if you have a strategy, you have it aside. What needs of what clients are you really going to serve? What could you serve if you are clear about where you are going? Another tremendous strategy mistake is to enter into competition with your competitors on the same topic. If your competitor tries to offer the lowest cost, it is quite unusual to win. If you then try to pursue it and offer a low cost, the essence of the strategy is to find a unique position in your business that provides unique value to the customers you decide to serve.

It sounds simple, but most companies don't do it. Such companies are confused, lack clarity on what the leash is and in many companies, there is a fundamental inability to make decisions which ultimately leads to lack of success now again in a country like India. where growth has been relatively rapid, you can rot, you can ride the rising tide and do well, but today I'm talking about the companies that are going to be truly successful, not the ones that are just moving with the market to be truly successful. We really need a strategy and that strategy is not just about being the best.

Now you know the word strategy gets thrown around a lot and I've always tried to help the companies I work with and the people I work with have a clear understanding of what we mean. By strategy, here it's about strategies, a set of decisions that we make over the long term to distinguish ourselves from competitors, that's what it's about, it defines how we're going to compete differently and also really articulates the competitive advantages that we'll look to create. and using it to win, okay, so at a very high level that's how I would define strategy again.

Keep in mind that the word long term strategy refers to long term, it is not about tomorrow and the next day, it is about long term because strategy takes a long time. implement and implement strategies to distinguish yourself by being different if you are doing the same thing as your competitor you don't have a strategy you are just trying to do the same thing better that is what we call operational excellence we will do it let's talk about that in a minute strategy is about options, what decisions you make versus the decisions your competitors are making, strategy is different than we just want to be number 102, that's not a strategy, wanting to grow faster, it's not like you, those are objectives, those are aspirations the strategy It is the unique position that allows you to reach any objective you set for yourself.

We cannot confuse the strategy and the objective. We cannot mix them. We have to separate the objective we are trying to achieve and then the strategy is how we are going to get there. The strategy is not. just one thing, one step the strategy is not going international, that is not a strategy, you know, raising the knee is not a strategy, the strategy is holistic, it is the complete set of decisions that are made collectively. To position the company for success over time in the market, it is not just one step, it is a set of steps.

TheStrategy involves all functions including marketing, production, finance, all together to create that unique positioning, that is what strategy is all about. Strategy is not vague, it's not a mission, it's very specific as we'll see, so this is where we start with kind of we all have to have a clear idea of ​​what we really mean by strategy and once we start over there. then we can start doing the analysis and making the decisions necessary to get there. Now many of you are public companies and here we have an additional problem that many companies get confused with and that is that if you are a public company, we have a stock price and we know that everyone looks at the stock price and that we also have to understand if we are going to establish a good strategy it is actually the share price is not the objective the share price is a result the objective is superior economic performance the strategy is to create superior economic performance in terms of return on capital and in terms of growth, not one year but on a sustained basis Okay, and what we know is that it is economic performance that really creates value.

The ice can rise or fall depending on what is happening in the world. That doesn't mean the value has changed. Value is actually created by economic performance. The ability to be profitable. earn a good return on capital and grow that business well, we have to remember that when we set the strategy we have to focus on the economic performance part, we cannot try to please the stock market, we cannot try to find out what Today in The day investors want that will confuse us and take us away from where we want to go, so I think it's fundamental to a strategy, especially in public companies, the idea that performance actually determines shareholder value and not the other way around.

Surprise yourself, this sounds tremendously simple, it is not. I work with hundreds of CEOs of public companies and they get confused about who, what the scorecard is here and the stock market is kind of a long term one that works pretty well as a scorecard if you do well financially eventually the their stock price goes up, but in the short term the stock price is a terrible way to judge success the markets can be very far away, that's what we find in studies on this question, so this is all about long term. sustained long-term economic performance and we have the courage to let the stock price take care of itself and not try to drive ourselves crazy trying to please the analyst or deal with whatever criticism we are getting in the stock market now as we think about strategy .

Again, another key principle and then we'll go a little deeper: strategy happens at multiple levels in any company, in many companies, not all companies, the core level strategy is what we call business strategy, that is, how to compete in each one or in the different business that you operate in, so here, if you are in passenger cars, you would have a strategy for passenger cars, that is business strategy, but in many companies there is another level of strategy which is what What we call corporate strategy and that has to do with the general strategy of the diversified or multi-business company.

We have many conglomerates. I don't like the word conglomerate, conglomerate is not a strategy, we have many companies, although they are more than one business, we must have a strategy for each of the companies because they are in a different market competing in a different way to serve different customers, but we also have to think about the overall strategy of the diversified group and that's a very different animal and there's a new, this new set of principles or a different set of principles to think about that again, I find a lot of confusion, a lot of companies mix them up, corporations and businesses are mixed, that is a mistake, we have to keep these levels separate and we will do it.

We'll talk about this briefly, since we have time now, let's talk about the business unit strategy and I'll do it pretty quickly because, again, I hope most of you are pretty well grounded in the key ideas here, so what We understand it is there. a business a particular business the drivers of success and the key elements of strategy have to do with the industry itself the business itself and the position we choose to occupy in that business strategy are both together well what we understand is that industries are different in terms of the nature of the competition and we have to understand our industry, we have to understand how your competition is evolving, where it is going, what direction and what kind of competitive dynamics we are going to have to deal with, we have to understand that business by business and then of course we have to make decisions about where we are going to compete, but one of the things that I find time and time again is that often the health of your industry is as important as how well positioned you are. if you're in an industry that's in trouble, that's family, you may have a great position, but that's not very valuable, so we have to learn to care about our industry too, we have to help our industry prosper, not just focus on just our own position again, these are things that we have learned from many, many examples in terms of Industry Analysis.

Hopefully everyone is familiar with it. After 20 or 25 years of work, we have overwhelming evidence that really industry competition is driven by These competitive forces that we introduced many years ago now those competitive forces collectively drive the fundamental attractiveness of the industry, the average profitability of the industry and yes, here is a simple example in the heavy truck industry and in our country, a very difficult industry if you look at this. In the industry you see a lot of competitive forces that are challenging, we have a lot of fierce price competition among truck manufacturers, we have some high regulatory standards that are raising their costs to meet those standards, but it's very difficult to pass on those costs. to the customer because the customer is consolidating into large or larger fleets and leasing companies that have a lot of bargaining power to lower the price, so the combination of increasing regulatory costs and a powerful customer is squeezing the truck manufacturers.

To make heavy trucks, some of the parts are made in-house, some companies make more, some make less, but you also have to source things like engines and drivetrain components, axles and things like that, and a lot of the suppliers of those components that you need. Buybacks have very strong brands and in fact the trucking company specifies the brand of parts they want on the truck. Now they want a Cummins engine, for example, so you're buying for a few suppliers who have a lot of influence. Because they have their own relationship with the end customer, which squeezes the trucking companies and truck manufacturers in the middle, this occurs mainly in North America, but the same basic structure exists in many other parts of the world, it's actually not that hard to get into the industry enter the threat of entry and barriers to entry are a key part of industry analysis and you know it's actually harder to get the dealer network than it is to get the parts and assemble the truck and then of course trucks are always competing with substitute substitutes, but hopefully we all understand what the substitute is. a substitute is a different way of satisfying the need that is not the same as your product that satisfies the same need as your product if it is a truck if it is a truck manufacturer, you know that the customer does not need a truck if they are going to use the railroad or if you're going to use water transportation, especially you know railroad reverends have been a really tough competitor for trucks over the years, okay?

This is a classic example of industry analysis, it's something timeless, always whenever you think about strategy, you have to have a systematic and rigorous understanding of your industry and what the competitive drivers are and how they are changing, are they getting worse rather than improve. Where does the new competitive force come from that you will have to deal with if you are going to win in that particular industry? You know, here's another example of an industrial gases industry. This industry produces oxygen, hydrogen. argon, all these industrial gases that are increasingly used in production processes in all kinds of others in history and what your first look at this industry says, oh my goodness, this is really a pretty difficult industry because I'm selling industrial gases that are commodities?

Hydrogen is hydrogen, how can I make money just selling a basic gas, especially when I sell it to many customers who often have bargaining power? Their large manufacturing companies, industrial gases are made from raw materials like petrochemicals, which I have no control over. the price of the raw material, so if the price of the raw material goes up, I'm in trouble if I go back to selling a basic gas, a not so good element of the industry, you know, it's not that difficult to get into, I mean, a lot people set up I use the method to figure out how to produce helium or hydrogen and I have a small factory setup and a lot of the customers decide that this is not something I want to buy.

I want to make my own industrial gases in-house and make them right in my factory, right on the production line, okay, again, here's an industry that your first glance says is not that good. I don't want to play here, that's your first instinct, but again what we learn about industry analysis is that we have to be sophisticated, we can't just take a superficial look at the industry, we have to dig a little deeper and if we dig deeper In this industry, what we have learned is that it is actually quite exciting and interesting industries, in fact, companies in this industry have done very well and the reason is that if a superficial look doesn't really get to the real structure of the industry, so just an example is that probably the most interesting thing about the industry is that the transportation cost is very high to move gas from your plant to your customer you need a large truck, it is very expensive to ship it, it must be shipped low pressure and you have to have a big tanker truck and it has to go to the customer site, you have to unload the gas by pumping it into the tank there and the transportation cost means that to be efficient in this industry you have to have customer density, so if you have , you only have one client and then you buy and you have to drive to Mumbai for a client and spend all that money to drive that truck full of helium here and you can unload some for a client, your costs will be very high, but if you come to Mumbai and you have 17 customers and your trucks go from one to another and they are all nearby, so that makes your business super efficient compared to the guy who is only going to deliver to one or two customers, the transportation costs are very industry superficially terrible and turn it into a very attractive industry because, suddenly, if you have a dense group of customers in a certain market, it is almost impossible for your competitor to attack you, it is too expensive, they never will, they never will be. being able to afford to gain those customers and that creates a lot of them because you have to build a customer base over a long period of time and this is a very critical product to the manufacturing process so you don't want to try something new.

I can't be sure they will appear if they don't appear with your helium. You are in trouble and you are on your floor. Okay, so again I won't go over the details, but what I'm trying to understand. here is that we all have to be very sophisticated in analyzing the industry in our businesses, we take a look beneath the surface, we can't, we can't just say oh, this is the commodity, it's a lousy industry, uh-uh , it's a commodity, it's quite an attractive industry that is understanding the true barriers to entry, understanding the true bargaining power of the customer and the supplier, and the people who were able to see this, have built tremendous businesses in the industry in which No one else wanted in and they were out of the stock market.

This was a shoddy industry for a long time. Were they wrong? Investors could understand how attractive this business was. Did they do well again? What we find in the competition is that actually the concepts themselves are not that complicated, but actually applying them well is really difficult and that applies to both companies and investors who are trying to determine if a company is successful, will be successful, how can we achieve superior profitability in the industry, whatever the attractiveness of the industry? It has to do with the two fundamental types of competitive damage and this never changes and will never change, there are only two ways to gain an advantage, one is to differentiate yourself, do something better, the client will pay you more for it because you are delivering something. the client thinks it isbetter, it could be designed, it could be an image, it could be a functionality, it could be a service, it could be almost anything, but you know the number one competitive advantage is to differentiate and get a higher price, and if you are differentiating, You better get a higher price because if you don't get a higher price, then yeah, are we really different?

If no one is willing to pay us more, are we really better? And that is an honest and difficult question we have to ask ourselves. The other type of credit advantage is smaller. cost if we can actually make something cheaper and more efficient and that's not just luck, it's not just oh, we bought lower cost parts this week, but if we can find a way to be structurally lower cost because we've redesigned the shape. We make things, that's the other type of competitive advantage and really the broader thinking about strategy starts with Ok, what path are we on?

Are we on the path to differentiation? Are we on track to have the lowest cost? Both are good. depending on the circumstances, but generally we have to decide which way we are going to go because we will really differentiate ourselves and have better quality and better service and you know that a better educated sales force will be difficult at the same time have lower costs, that is what we have learned, so we have to figure out what path we are taking and then we have to turn it into a strategy using the value chain and again I hope everyone here is familiar with that concept, it is quite ingrained now in management thinking, the value chain Valor says that, for any business, there is a complete set of things that we have to do to carry out the logistical operations of that business. things that could be manufacturing marketing sales service supply chain technology development you see this and this this idea called value chain is a way of mapping what operation looks like in this industry and this slide is just an example in TEL and telecommunications in the mobile communications business, so a sprint or AT&T in our country here is the value chain in that business so you can see if it comes back.

This is kind of a general set of titles, but this says okay, now on mobile phones no I'm not saying that we have to talk about device coverage, what set of types of mobile phones we support on our network and then we have to to have a network, we have to operate the network and make that network efficient so that you get the bars. and you don't lose your service and you know you can listen and so on and then we have to figure out how to price. Pricing is very complicated in mobile phones, all kinds of prepaid and postpaid special offers, so there are many options active in invoice processing, there is a lot of marketing promotion, PR, after-sales support, etc., so that each business has a value chain, each of its businesses has the value chain and if you are going to be disciplined and rigorous with the strategy that you have, you have to really establish what changes that value because the strategy is fundamentally the set of choices that you do along the value chain.

So what kind of network am I going to operate? What is my pricing approach? How am I going to distinguish myself from a competitor, do you know what tools I am going to use for marketing? Am I going to have a lot of physical locations and stores or am I going to use mostly advertising? What am I going to do to market my services? The other, etc. and so on, strategy is not an Infotech thing if it is simply a set of options about how we are going to operate the business, including options about the technology we are going to sell, you know the function of our product, the features of our product, the technology of our product and a good strategy is one where there is clarity that all the decisions were actually made and there are enough things that we are doing differently so that we can gain a competitive advantage, so let's talk a little more about that's the first time.

One kind of key idea here to move from kind of a value chain to a strategy is the notion of operational versus strategic medical effectiveness. This is an idea I didn't have when I published my first workbooks in this field. I was mainly thinking. about strategy, but I didn't really make the distinction that there are a lot of things a company does that aren't strategy, there are a lot of best practices, if we're going to be in the automotive industry, there's a lot of things we have to do just to be a good company. automotive, you know, we have to buy the right type of machines for our factory, we have to make you know a decent dealer network, we have to know how to execute good advertising, there are many best practices. in every industry and what we learned is that if you don't use best practices you're going to lose, no matter what your strategy is, if you don't buy the latest manufacturing equipment your competitors are going to win, you're good at it.

You're going to give up too much cost and quality through that, so what we have to understand is that in any company we have two jobs, one is that we have to implement all the best practices that we can find if we see someone. make better customer focus, you know, customer service, you know we better take a hard look at that and make sure we're at least at some threshold level of best practices, that's operational effectiveness, but operational effectiveness is not a strategy, operational effectiveness is doing the same as your competitor, better and better. It's raising the bar in the same things that all your competitors do.

Your competitors have a factory. They have machines. If you buy the newest machines first, you will have an advantage. Operationally better than them until they buy the machine, but that is not strategy. Strategy is in addition to operational goodness. You have to run the business well, but on top of that, you have to have a strategy, and that strategy is based on the best. practices, but then include the options that will define your uniqueness in the business. Both of these things are important if we are simply careless and do not improve the operational effectiveness of our operation, we are going to lose no matter what strategy we have, but simply being operationally effective is not going to lead us to superior performance because all of our competitors are going to implement the same better practices than us, so if we really want to win, we have to do both and we have to make sure that we are clear about what we are doing and this is a very, very important distinction, you know, the question I used to get all the time , you know, 15 years ago, ten years ago, can you be both low-cost and differentiated at the same time? the answer is usually you can't, but the cases where it looks like you're doing it are cases where the competitor has terrible operational effectiveness, so you can be both low cost and differentiated, but if you have a competitor with good operational effectiveness, then differentiate yourself or have a lower cost, you're going to have to make real decisions, okay, and you're not going to be able to do both at the same time, you're probably going to have to decide which path you're on, right? on the path of differentiating myself on the path of being the lowest cost producer to have a successful strategy we have come to understand that the process implies that you know these basic conditions number two to have a truly successful strategy we have to define a unique value proposition No we can simply try to do the same thing our competitors are trying to do.

We have to do something unique and that means serving a different set of customers. We are going after the big industries. Our competitors go after the medians. Smaller companies, that's part of the value proposition. What clients are we? We are actually trying to serve again. Many companies. The clients they have were obtained by luck, but the most important ideas and strategies you have to choose are your clients. Choosing who you want your customers to be, and if you choose, I want all customers, I want to serve each and every customer, is usually not a good choice because customers have very different needs, especially in a complex economy. like this, you know another question.

You have to ask the clients I choose to serve which of the needs they have I want to uniquely satisfy. Many companies simply fall into the idea that whatever the customer wants, I'm going to try to do it. provide, but actually you know most great strategies don't do that or at least get very specific about what group of customers and then say, "Okay, I'm going to go after this group of customers and then I'll actually meet." all your needs, but the idea that we just try to fulfill all the needs that someone comes and asks us to fulfill, is generally not a good strategy and then we are going to have to make that decision about the price, do we go with a premium? price or we simply try to match the other or we are going to offer discounts because we believe that we are going to be more efficient and able to maintain that discount and continue making good profits.

You know, this is a company that is on its way to India. I don't think it's actually opened yet, it's been struggling to get into India, as historically several companies have had to do. This is one of the most extraordinary companies in the world in the furniture area. EKF, some people call it I. careful, it depends if you speak more Scandinavian, you're speaking more American and this is a company that sells home furnishings and it's kind of a grand strategy. The example strategy starts with a unique value proposition and what you see here is kind of It's kind of a simple description of what their value proposition is, who the customers are that they're really looking to serve and what they offer to those. customers in terms of products to meet those needs and where the prices are right, so I won't. this, but take a quick look at it and you'll know that what's interesting about this value proposition is that no one had ever seen this before from this company, no one had ever segmented customers this way, no one had ever thought about customers with relatively small living spaces before. from this.

It was an innovation in thinking about segmentation and a lot of great strategies involve this new way of looking at customers and segmenting customers like these guys did. Furthermore, this strategy was a real breakthrough in the type of operations for a furniture company and we will talk about it. About that in a minute, here's another great example of strategy. Remember I talked earlier about heavy duty trucks and how difficult it was in the industry that the average profitability was not that good. Well, here is the company in the industry which is the top premium high profitability company.

It's called Pack R. It's quite a global company and you can see what their value proposition was, so vision care was about really low prices. This company has a premium. We are going to get a 10% premium for our trucks because our trucks are not going to look like our competitors' trucks, our trucks are going to have a strategy on the cost of customization operation that will allow us to really differentiate ourselves, but not because of this It's a wonderful strategy because this company discovered that the big customers in the industry were not the customers that were good customers for them, they actually realized that the small customers, the people who owned a truck and drove that truck to earn life, they were the really interesting clients in this industry. built an entire strategy around this small group of customers, about 25 to 30 percent of all customers who buy trucks buy one or two trucks and everyone drives their own truck.

Well, second testicle, great strategy, think again about your own company. There is a distinctive value chain here. If you don't operate the business differently your value chain won't be real, you need to have a different operating model that aligns with your positioning, okay if we take a KO and I won't make it. This, if you look at how they operate their company compared to all the other companies in their industry, they do it differently, they have a different value chain, their stores look different, their customer service looks different, their logistics It looks different and everything is aligned with that value.

The proposition that their innovative idea was that they would not sell fully assembled furniture. They send both pieces. They sell pieces in a box. So, when you go to Ikea and shop, you come out with a box in which the pieces are. of the furniture you just bought and have the opportunity to take it home yourself, you don't get someone with a van you know to deliver and drop off the finished furniture at your house. IKEA understood that this was good for most customers. they liked it, but the customers they liked wanted to serve, who were very price sensitive, were willing to deliver themselves, they would deliver their own furniture, and by doing it that way and also having inbound logistics not in whole sofas, but in the parts for a sofa in a box, they save enormous amounts of logistics costs and took thosesavings and passed them on to the customer in terms of a much lower price, but the customer then had to assemble the furniture himself.

I have a daughter, one of Turns out, my daughters love this company and I had the privilege of helping her, you know, renting a car when I visited her at college so we could bring the box home for my cat. I went to visit. I came at any time and then you have to take the box home and then you have a you know, then you can put it together it's like someone's birthday you have to put together the birthday gift in our or Christmas it's like putting the toys together and you know that could be fun, frankly I found it very tedious, I have a lot of fun doing it, but my daughter really liked this company, the value proposition worked for her, it didn't really work for me, in fact I hated every minute I was in that store . like the service, there is no service, I organized the store so that you get lost and you can't leave when you are paying, you have to go to these huge shelves and you have to take down the box of what you are buying, you sleep the box, you know, in the check-in counter and you pay your bill and then you have to take the box out and load it into your car and then you have to drag the box to your daughter's apartment. in my case, and then you spend 30 or 40 minutes trying to figure out how to put it all together, not a good idea for me, my daughter loved it, it met her needs at a reasonable price, they have very well designed products and style. very Scandinavian products but they have a very low cost, they are of very high quality, they have a very low cost of work for her and this tells you something very important about the strategy and that is that one of the things that makes a great strategy is not Please. each customer if you are trying to please all customers you don't have a strategy a good strategy makes some customers unhappy if all customers are happy you are in trouble if all the potential customers in the industry like what you are doing then do it the most likely thing is that you will never really succeed the strategy is financing, it's about choosing exactly who you are trying to please and then designing a value chain to meet that, here is PACCAR, you know, another fundamental part of a successful tragedy It is the concept of compensation.

A compensation is when to obtain a benefit you give up another benefit and that is what I can do. Did you know that to get that really low price for beautifully styled furniture and to achieve it you had to go through an uncomfortable situation? In the in-store experience, you had to take the product home and assemble it yourself, and that was a compromise that they were willing to make because they understood that that was what their customers were really doing, that was the trade-off that they wanted to make. Strategize about choosing what you want to do, but one of the phrases that I said at some point and found to be very powerful is that the essence of strategy is what you choose not to do, it is the service that you do not offer. the features you don't provide are the benefits you don't offer, that's the essence of the strategy, if you can be clear about it, it's a good sign that you can be clear about your overall strategy, okay, then the time is very short, but in In terms of a successful strategy we have to connect the dots along the value chain you have to make sure the service connects with the way we brand it connects with our type of product value proposition the pieces fit together along the value chain and there is continuity that you can.

Don't change strategies all the time, it takes like two or three years to implement a strategy because you have to align all those pieces around what your final position is and continuity is becomes crucial. Well, again, you can look at some of these examples and let's talk about it even more when we think about strategy. One of the things that I think is really helpful for me to think about and might be helpful to you is what kind of competition are we creating in our industry and the wrong answer is "we." We are creating zero-sum competition, we are all doing the same thing, out-pricing each other.

That is not the competition we want, but we want to create, it is really more positive, a competition in which we all have a different strategy. We're all trying to do something a little bit different, we're serving different customers, we're trying to meet different needs, that's the kind of competition we want, that's the competition we are, actually the whole industry can be more attractive and the competitors can do it. well, in terms of corporate strategy again, I've already covered the idea that there are multiple levels, if you are in a very large group, there may be a third level, there may be groups of businesses grouped together because the old company the whole company has many companies that can manage it, you have to group them so that there can be a level of group strategy.

You already know what the key questions of strategy are at the corporate level. Firstly, understanding what different businesses you are in becomes really critical because you need a strategy for each different business and sometimes businesses get confused; In fact, what I find is that you usually think about your business too broadly and you will realize that actually the trucking industry is not one industry, there are heavy trucks and light trucks, and those are totally different businesses for that you know that the key question for corporate strategy is to classify what are the different businesses, do we have the right portfolio, each business is attractive in itself and then the businesses are we the best owner for the business, do the businesses reinforce each other ?

Do we have synergy? Is there a logic to how businesses fit together? etc. Well, these are the key questions of strategy at the corporate level. It's a different animal, it's based on business strategy, but it's completely different on corporate strategy. We are trying to create synergies between businesses, if there are no synergies, it is probably better to sell it because we will not be able to add any value and this only speaks to the type of synergies that we might be looking for and we have to make sure that they are real, we have to make sure that they are really significant, they're not just a small benefit, they're a big problem, you know, here's the ultimate synergy company, Disney, which has many, many different businesses. but they're all united in a core value proposition of common positioning, they share a lot of resources like characters, and, and, you know, video properties, etc., leveraging all of these businesses and this company has been remarkably strong in a very unstable environment . industry where some years you make a good movie and then you make a terrible movie, people rise and fall, but he has a really solid corporate strategy that has given them a lot of resilience over time and then I guess let me end this session speaking Well, what is our job as leaders in strategy and what I discovered is that the head of a business unit, you know, and the CEO of the entire corporation, ultimately, you have to be the chief strategist.

The reason is that no one else has the right perspective for strategy except the ultimate leader, everyone in the organization is thinking about their part of the company, their business, their function, the marketing department, the production department, R&D. , the only person who really has the true strategic perspective is the person who actually runs the overall business. You have to use your people to get information. You have to make it a team process, but you also have to decide. Strategy cannot be a popularity contest where everyone gets a vote because the essence of strategy is elections and us.

We have to make a clear set of decisions that we can't, we can't have, oh well, we'll do this and we'll do this and we'll do this and we'll do this, oh yeah, marketing, I know. If you want to do this, we'll do a little bit of that to finish. You're not going to do it right. You're not going to have a strategy. You, as a CEO, must ensure you have a great strategic process. You have to make sure that person has all the right business units organized and that he has a yacht. You have a large team working on a strategy for each of those business units.

You got it. You have to make sure he is answering the questions. Correct questions You should not ask how much the industry is going to grow over the next ten years and think that that is the key question, that is one of the other key questions that every strategy has to address the industry, where are we today? How we do it? compare our performance across the value chain who is a competitor our key competitors how they are doing where they stand what their value chains are it seems like there are a lot of key questions in a good strategy and we know that the only person will make sure that you have the right question is you because you are the person who is really in charge of putting everything together and making the decisions at the end of the day you know you have to make sure that the right people are involved in the strategy process you know that is your job as a leader and what we know is that the strategy must be done collectively by the cross-functional team with their strategy for each functional department and let them do the production strategy and the marketing strategy and the service strategy that never works, we have to get them. people together doing the strategy together because all those pieces have to fit, you know, there is no smell, but marketing, there is only good marketing for a particular strategy, so we can't let the marketing guys get away and do the good marketing that we have. put their role in the context of the overall positioning we are trying to achieve in the market, that is what great strategy is all about and guess whose job it is to make sure that happens, you, the person who has the overall holistic perspective of the business, ah, you know your board, we found that you need to let your board see the strategy before they have to approve it.

The board wants to be involved in the process now, it's not their job to develop a strategy, but they are generally smart people and it's very helpful to get their opinions and then you can come back to them with what you want them to approve and as long as have been part of the process and have felt that they have some ownership in the process. "It's going to be very comfortable, but if you show up one day and say: this is my strategy, everyone votes yes, then you will erode your equity with the board and you will need the board to support you because every company has ups and downs and you need the board to be there and understand what you are doing and how you are doing it, so that when things go wrong you don't panic and if the stock price goes down, don't panic, a great strategy needs the commitment of the board, the awareness of the board, the board's understanding and therefore how to bring them into the process without them thinking that they're doing it.

You know that's your job as a leader and it depends on your company and the severity of your problems, you have to calibrate how much you want. being directly involved in the process versus kind of overseeing the process and that really depends on the situation, you know if you got real change you're going to have to lead the whole process if you're in a really bad situation you just have to lead the whole thing, no. You delegate it to strategic planning, but you know that here is a prestable company. If you have a good team, then your job is to really set up the right process and then check in and see how they're doing one of the things that we've learned.

I have done a lot. I've trained now, you probably already know. 350 of the best jobs in the world, they come to Harvard for a boot camp, we call it the new CEO workshop and when a CEO is appointed, we invite him and we have about a dozen, you know, two or three times a year We get together as a group and go over, you know, okay, what do you have to do to be a successful CEO? We know a lot about that and we go through that process and one of the things we do in that workshop is we talk a lot about why a great leader doesn't want to have to turn down his or her team's work and the worst thing is that you wants to have to reject is the strategic plan.

People do a lot of work, they think a lot to get excited, and they come together. with a great plan and they present it to you the worst thing you have to do is say no because if you reject that plan first of all it is a reflection that you created a terrible process the wrong people the wrong questions it is also a sign that you did not verify if they were moving in the right direction you want to make sure they're thinking the right way they're on the right path encourage them you know don't do it for them but but check what you want to do in a strategic process: you want to be really happy and say it's a great job, which is a great job and then it will motivate your team to be really accountable and really move the business forward, but if you reject their strategy because you didn't really pay much attention to what they were doing and you're just having the meeting at the end If everyone on your team will always want you to approve something before working too hard on it, they will create dependence on you asleader, so as a leader, one of your most critical jobs is to essentially create the right processes to allow your team to be successful and verify that if people go down the wrong path that you're not comfortable with, you don't have to reject their work at the end, what you want to do is have the CEO be If you're going to celebrate your team's work, you want to celebrate the strategy that they came up with and that you're comfortable with because you were there and you orchestrated the process, you signed up. and you gave feedback. and and and the group learned and here we are with something great, that's what strategic leadership at your level is all about, most of the people in this room are at that level, so that's what I think for me anyway, at do this, many, many.

Still, many times every year these are fundamental ideas that I think we all have to really understand and then turn them into reality if we want to have a great strategy, so Amit, I guess we have some time for some questions and answers, so Let's open the session. above, but these slides will be published, you know they will be available to you, you can go into detail there, there are many more that you can access through websites and other materials, but at the end of the day there is nothing more important. on building a truly world-class company than on doing this right, so thanks, you better go haha