Igor Ansoff

Corporate Strategy
Robert Thavenius
Three important books
! Chandler, A.D. (1962) Strategy and Structure: Chapters in
the history of the American Industrial Enterprise.

! Igor Ansoff (1965) Corporate Strategy. Business policy
for growth and expansion.

! Learned, E.P., Christensen, C.R., Andrews, K.R. & Guth, W.D.,
(1965) Business Policy. Text and cases. Harvard University
Igor Ansoff
! Igor Ansoff (1918-2002) was born in Vladivostok, Russia and emigrated
with his parents to the United States at the age of 17.
! Despite limited knowledge of English, he graduated at the top of his
class at New York's elite Stuyvesant High School in 1937. He earned a
Master's degree in Math, Physics and Engineering at Stevens Institute
of Technology in New Jersey.
! In 1948 he received a doctorate in Applied Mathematics at Brown
University. He also was awarded five honorary doctorates over the
years.
! After moving to California he joined the Senior Executive Program
at UCLA and in 1956 started to work at Lockheed Aircraft Corporation
as Vice President of Planning and Director of Diversification.
! In 1963 he started his academic career at The Carnegie Institute of
Technology in Pittsburgh where he completed the first of five books,
the ground-breaking "Corporate Strategy.
More Ansoff
! Consulted with many multinationals including Philips, General
Electric, Gulf, IBM, Sterling Europa, Westinghouse, and KBB
(Koninklijke Bijenkorf Beheer) in the Netherlands.

! His written works include:
Corporate Strategy 1965
Business Strategy 1969
Strategic Management 1984
The Firm: Meeting the Legacy Challenge 1986
The New Corporate Strategy 1989

more than 120 published papers and articles translated into
eight languages.

Chandlers perspective on
American Business Administration
! Before 1900 - the founder of the company led the daily work of
the organisation, a minimum of administration, one product line
and ad hoc strategy decisions.
! By the 1920s most large industrial companies were administered
through a centralized and functionally departmentalized structure.
The Chief Executive Officer (CEO) was involved in all major
short- and long term decisions.
! Focus was on technical issues, cost of production, assembly line
and conveyor belt. The black T-Ford.
! When this way of production became norm, the focus shifted
towards marketing - General Motors started to compete with Ford
! Later for example: Philip Kotler Strategic Marketing Management
How to move forward after 1945
! The production capacity in US and Sweden was not harmed
by the war and its industries were therefore able to meet the enormous
need articulated on the post-war markets.
! Ansoff, for one, showed that after the war companies concentrated on
their internal strengths and their development and strategic plans were
focused on expansion only.
! When production capacity in US and Europe grew faster than the existing
market growth, signs of saturation and profit squeeze appeared.
! Therefore large companies in US and Sweden began choosing either to
expand within existing markets or to diversify.
! The need to analyse factors outside the company grow: trends of all sort,
growth rates, political development, competitors, new markets etc
Forced-growth strategies
! Horizontal - Acquisition of competitors
Larger market share.
! Vertical integration
Backwards or forwards in the chain of production.
! Geographical expansion
Establishing production- or sales organisations in new countries.
! Diversification
Diversify into new products and/or branches.

Kenneth Andrews 1987
Diversification through
Mergers and Acquisitions
By the late 1960s growth through the acquisition of enterprises
in distant or unrelated businesses had become almost a mania.
Where in 1965 there were just over 2 000 mergers, by 1969 there
were over 6 000. The number dropped back to 2 861 by 1973.
During the period 1963-1972 close to three-fourths of the assets
acquired through merger and acquisition were for product
diversification, and one-half of these were unrelated products.
For the period 1973-1977 one-half of all assets acquired through
merger and acquisition were in unrelated industries.

Chandler 1962
From divisions to conglomerate
in Sweden 1960 1990
! Volvo (Trucks, Cars, Busses, Penta, IT etc etc)
! Per G. Gyllenhammar (19711993)
! Procordia and Pharmacia
! Statoil, SAAB and Renault

! New global stragegy focus on your key competences
! 1995 Procordia Food AB sold to Norwegian company Orkla
! 1999 Volvo Cars sold to Ford
! 2000 Volvo Trucks buys Mac Trucks and Renault Trucks
The managerial revolution
in American business
By the 1950s the managerial firm had become
the standard form of modern business enterprise
in major sectors of the American economy.

In 1963, 169 or 84.5% of the 200 largest nonfinancial
companies were management controlled.

Chandler 1977

Structural problems within the
functionally departmentalised hierarchies
Top managers, company directors and their staff, monitored the activities
and performance of the middle managers who were responsible for the
day-to-day operations of the functional departments.

The top managers supervised and were responsible for all major decisions
relating to optimising the flow of goods to, through and from the enterprise.

However, the more the companies grew the more complicated and complex
it became to monitor and lead these processes within existing hierarchical
structure. Top managers were drowning in a flood of information and
decision-making.

It became necessary to construct a new administrative structure.
Structural changes
! Publicly owned companies
Shares traded on a national and
international stock exchange
! Managerial revolution
Full-time salaried top managers
Steering the divisions by general roles
Strategy decisions
! Multidivisional structure
Delegated responsibility
Each division steered as a company
Profit and loss centre
! Conglomerate
The dynamic change in world market structure
The post-World War II deluge of technology, the dynamism of
the world-wide changes in market structure, and the saturation
of demand in many major United States industries all have
contributed to a drastic shortening of the strategy-operations-
strategy cycle which management used to follow according to
Chandler!

Strategic change is so rapid that firms must continually survey
the product-market environment in search for diversification
opportunities.

Ansoff 1965 Deluge=Strtflod
Corporate Strategy
Business policy for growth and expansion
This interest (for strategy) grew out of a realization that a firm
needs a well-defined scope and growth direction, that objectives
alone do not meet this need, and that additional decision rules
are required if the firm is to have orderly and profitable growth.
Such decision rules and guidelines have been broadly defined
as strategy or, sometimes, as the concept of the firms business.
Ansoff 1965


Ansoffs book from 1965 is full of detailed advice about how to
create and implement a strategy.

Time
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Sales
Product life cycle

Time
Prot
Product Market matrix
Ansoff-matrix
The portfolio of products and services#
Market growth and market share#
The Boston Box
Relative Market Share
M
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G
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Low
High
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1.0
0.1
Wild Cats
Cash Cows Dogs
?
Stars
Market growth and market share

! All wildcats a business with a promising future, if only it had#
income to invest today.

! All stars requires huge investment to keep pace with market

growth. For how long will they be stars?#

! All cash cows a business with plenty of cash, but what about
the future?#

! All dogs a business that will soon be out of business.

From divisions to conglomerate
in Sweden 1960 1990
! Volvo (Trucks, Cars, Busses, Penta, IT etc etc)
! Per G. Gyllenhammar (19711993)
! Procordia and Pharmacia
! Statoil, SAAB and Renault
! 1995 Procordia Food AB sold to Norwegian company Orkla
! 1999 Volvo Cars sold to Ford
! 2000 Volvo Trucks buys Mac Trucks and Renault Trucks
New global strategy
Focus on your key competences/key success factors
Key Success Factors or
Critical Success Factors
In the process building a new strategy you need
to identify a number of critical factors for your
organisation's success in the time period you
have selected.

Identify the key success factors that your
organisation must get right in order to secure
its vital goal(s).

Although many of these factors are not easily
separated from their dependency on external
conditions, we shall call them "internal" in the
sense that they can be affected by management
decisions.
SWOT

Strengths

Weaknesses

Opportunities

Threats
Internal
factors
External
factors
Andrews SWOT
Internal
appraisal
Strengths and weaknesses
of organization
Distinctive
competences
External
appraisal
Threats and opportunities
in environment
Key success
factors
Creation
of strategy
Social
responsibility
Managerial
values
Education
and choice
of strategy
Implementation
of strategy
Andrews 1965
To develop a strategic plan
Objectives (1)
Internal
appraisal (2)
External
appraisal (3)
Synergy
structure (4)
Strategic
budget
Finance
strategy (8)
Administrative
strategy (7)
Objectives
Diversification
strategy (5)
Expansion
strategy (6)
Outside
trigger
Review trigger
Strategic plan
Source: Ansoff 1965, s. 209.
Develop your new strategy
Develop new
scenarios
External analysis

Opportunities

Threats
Internal analysis

Strengths

Weaknesses
Compare current
strategy, key
success factors
and goals with
new scenarios
Strategic
gap
Monitor past
performance
Key success
factors + Goals
Develop
options
Strategic
choice
Implement new
strategy
Structure follows strategy
Alfred Chandler
! True?
! Yes or No?
! Yes and No?
Interdependence of
formulation and implementation
It is convenient from the point of view of orderly study to divide
a consideration of corporate strategy, as we have divided it,
into aspects of formulation and implementation and to note,
for example, the requirement of the former for analytical and
conceptual ability and of the latter for administrative skill.

But in real life the processes of formulation and implementation
are intertwined.

Feedback from operations gives notice of changing
environmental factors to which strategy should be adjusted.

The formulation of strategy is not finished when implementation
begins.

Learned et al 1965
Forecasting
In the early days of strategic planning, it was discovered
that the extrapolative accounting-based information
system, typically found in firms, was inadequate and
misleading for forecasting performance in turbulent
environments. As a result numerous forecasting and
environmental analysis techniques were developed,
designed to capture nonlinearities, complexity, and
unpredictability of future environments.


Ansoff 1990, Implanting Strategic Management
Forecasting OR Scenarios
You can try predictions or forecasts - in fact you must use them for
one-year operating plans and budgets. But apart from the fact that
many of these (on interest rates for example) can be wrong even
short term, for longer term business strategy if you use forecasts you
will find that almost all of them are wrong. At the time forecasts are
announced they carry an air of definitiveness and clarity: but that
usually turns out to be an illusion.
Scenarios, especially when projected long term, say 5-10 years,
are not predictions - they are possible pictures of tomorrow. But they
attempt to capture alternative futures, which serves to expand our
state of mental readiness and flexibility.

Bill Weinstein 2008
Scenarios External conditions
We need to create pictures, scenarios of the future
to be able to make our choices today, in terms of
investments, risk management, when to buy or sell !

The scenarios help us to pinpoint external changes
that will have a vital influence on our business or part
of it.

In other words, changes that will have an important
impact on our key success factors during a certain
time span, and that is out of our reach to control or
influence.
Scenario planning
! Schwartz, P. (2007) The art of the long view. Planning for the future
in an uncertain world. Norfolk:John Wiley & Sons.
! Wack, P. (1985a) Scenarios: Uncharted Waters Ahead.
Harvard Business Review, No. 5. www.harvardbusinessreview.com

! Wack, P. (1985b) Scenarios: Shooting the Rapids. Harvard
Business Review, No. 6. www.harvardbusinessreview.com
Seminar assignment
Theme: How to formulate a winning strategy for 2013-201X
Questions to answer:
1. Find and analyse the core strategic value of Volvo Trucks and SKF
as presented on the companies websites.
2. On the basis of the formulated strategy, give me three good reasons
why I should invest MSEK100 in one of them.

You choose!

Assignment material:
Material from todays lecture
Volvo Trucks & SKF websites
National and international media, e.g. newspapers
Other sources, e.g. investor relations information


2013-10-11