Strategic Thinking: Implications for Turkish Companies

Strategic Thinking: Implications for Turkish CompaniesProfessor Michael E. PorterHarvard Business SchoolIstanbul, TurkeyOctober 17, 2009This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive Advantage (The Free Press, 1985); ―What is Strategy?‖(Harvard Business Review, Nov/Dec 1996); ―Strategy and the Internet‖ (Harvard Business Review, March 2001) and On Competition (Harvard Business Review, 2008). No part of this publication may bereproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additionalinformation may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: Oct 14, 200920091017 – Turkcell (Strategy).ppt1Copyright 2009 © Professor Michael E. PorterStrategic ThinkingCOMPETING TO BE THE BESTCOMPETING TO BE UNIQUE• The worst error in strategy is to compete with rivals on the same dimensions20091017 – Turkcell (Strategy).ppt2Copyright 2009 © Professor Michael E. PorterFlawed Concepts of Strategy• Strategy as action– “Our strategy is to merge…”– “… internationalize…”– “… consolidate the industry…”– “…double our R&D budget…”• Strategy as aspiration– “Our strategy is to be #1 or #2…”– “Our strategy is to grow at…”– “Our strategy is to provide superior returns to our shareholders…”• Strategy as vision– “Our strategy is to best understand and satisfy our customers’ needs…”– “…to advance technology for mankind…”• Strategy defines the company’s distinctive approach to competing and the competitive advantages on which it will be based20091017 – Turkcell (Strategy).ppt3Copyright 2009 © Professor Michael E. PorterSetting the Right Goals• Strategic thinking starts with setting proper financial goals for the company• The fundamental goal of a company is superior long-term return on investment• Growth is good only if superiority in ROIC is achieved and sustained– ROIC threshold• Setting unrealistic profitability or growth targets can undermine strategy20091017 – Turkcell (Strategy).ppt4Copyright 2009 © Professor Michael E. PorterShareholder Value Is Not The GoalSuperior Economic Shareholder ValuePerformance• Sustained ROIC and Growth• Stock Price• Shareholder value is the result of creating real economic value• Pleasing today’s shareholders is not the goal20091017 – Turkcell (Strategy).ppt5Copyright 2009 © Professor Michael E. PorterLevels of Strategy Competitive or Business Strategy• How to compete in each distinct business or industryCorporate or Portfolio Strategy• The company’s overall mix of businesses and the integration of business unit strategies20091017 – Turkcell (Strategy).ppt6Copyright 2009 © Professor Michael E. PorterEconomic Fundamentals of Competition• The unit of strategic analysis is the industry− Defining the relevant industry is essential to sound strategy• Company economic performance results from two distinct causesRelative Position IndustryWithin the StructureIndustry- Overall Rules of Competition- Sources of Competitive Advantage• Strategic thinking must encompass both20091017 – Turkcell (Strategy).ppt7Copyright 2009 © Professor Michael E. PorterDisaggregating Economic Performance: Industry vs. Position 35%31.6%30%27.8%Return on 25%ROIC = Earnings before interest Invested Capitaland taxes divided by invested 1993-2007capital less excess cash20%15%13.6%10.5%10%5%0%RevlonPaccarIndustry AverageNote: Excess cash is calculated by subtracting cash in excess of 10% of annual revenue.Source: Compustat (2008), author’s analysis20091017 – Turkcell (Strategy).ppt8Copyright 2009 © Professor Michael E. PorterUnderstanding Industry StructureThreat of SubstituteProducts or ServicesBargaining PowerRivalry AmongBargaining Powerof SuppliersExisting Competitorsof BuyersThreat of New Entrants20091017 – Turkcell (Strategy).ppt9Copyright 2009 © Professor Michael E. PorterRedefining Industry CompetitionZero Sum CompetitionPositive Sum Competition• Compete head to head• Compete on strategy• One company’s gain requires other • More than one company can be companies losssuccessful• Competition undermines industry • Competition expands the value valuepool20091017 – Turkcell (Strategy).ppt10Copyright 2009 © Professor Michael E. Porter