Session 59 L, Strategy - A Historical Overview Moderator/Presenter: Matthew P. Collins, MAAA, FCAS Presenters: Thomas Maki Carlos A. Sanchez-Fuentes, FSA, MAAA, FCA, MBA
Strategy A Historical Overview Carlos Fuentes, FSA, FCA, MAAA, MBA, MS Security Health Plan of Wisconsin Society of Actuaries 2015 Spring Meeting, Atlanta GA Session 59 June 16, 2015 Session 59 SOA, June 16 2015 1
STRATEGY A HISTORICAL OVERVIEW What da-ya think? 2 I. Are you familiar with at least a couple of the following frameworks: SWOT Analysis, Porter s Five Forces, Blue Ocean, Game Theory? 1. Yes 2. No 70% 30% 1 2 On Leadership and Strategy--SOA, 2008
STRATEGY A HISTORICAL OVERVIEW What da-ya think? 3 1. Do you think actuaries should be versed and involved in strategic work [Yes] 2. or their role should continue to be that of tactical experts in their fields? [No] 90% 10% 1 2 On Leadership and Strategy--SOA, 2008
STRATEGY A HISTORICAL OVERVIEW What da-ya think? 4 I. How do rate your company s current overall strategic planning process, particularly as it relates to ACA? 1. Excellent 2. Good 3. Fair 4. Poor 5. Not Sure 15% 30% 30% 13% 13% 1 2 3 4 5 On Leadership and Strategy--SOA, 2008
STRATEGY A HISTORICAL OVERVIEW What da-ya think? 5 IV. Do you participate in your company s strategic planning? 1. Very involved 2. Involved 3. Somewhat involved 4. Not Involved 5. Not sure 19% 16% 35% 28% 2% 1 2 3 4 5 On Leadership and Strategy--SOA, 2008
STRATEGY A HISTORICAL OVERVIEW What da-ya think? 6 V. In your opinion, your company s planning and strategic initiatives, as linked to budget and forecast, are: 1. Excellent 2. Good 3. Fair 4. Poor 5. Not Sure 7% 40% 40% 5% 7% 1 2 3 4 5 On Leadership and Strategy--SOA, 2008
STRATEGY A HISTORICAL OVERVIEW Now then, I have studied, in my time, the plans and minds of great ones by the scores King Menelaus in Homer s Odyssey 7 What is strategy? The military context What do future officers learn in Military Academies and Security Studies Programs? What is probably expected: diplomacy, airpower, nuclear strategy What is probably unexpected: Thucydides, Sun Tzu, Clausewitz Session 59 SOA, June 16 2015
STRATEGY A HISTORICAL OVERVIEW In preparing for battle I have always found that plans are useless but planning is indispensable Dwight Eisenhower 8 World War II Emphasis on solving practical problems Examples: OR, the Learning Curve, Distinctive Competencies Modern Origins of Business Strategy Corporate strategy Scholars Consultants Session 59 SOA, June 16 2015
STRATEGY A HISTORICAL OVERVIEW 9 Never interrupt an enemy when he is making a mistake Napoleon Bonaparte Sample of Strategic Business Tools Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis Porter s Five Forces The Value Net Scenario Analysis Game Theory Systems Dynamics Session 59 SOA, June 16 2015
STRATEGY A HISTORICAL OVERVIEW 10 There is nothing so useless as doing efficiently that which should not be done at all Peter Druker The desire for cook books and French accent Pop Strategy From Good to Great Blue Ocean Strategy Where are we? In a sorrow state some believe Session 59 SOA, June 16 2015
STRATEGY A HISTORICAL OVERVIEW If your enemy offers you two targets, strike at a third Robert Jordan The historical context is a good guide to determine what constitutes strategy Lessons from war: War is unpredictable War is dynamic Strategy involves general principles, not recipes Strategy deals with large goals, not tactical objectives Strategic thinking requires education, effort, reflection and the willingness to take risk 11 Session 59 SOA, June 16 2015
STRATEGY A HISTORICAL OVERVIEW If we encounter a person of rare intellect, we should ask her what books she reads Ralph Waldo Emerson 12 I. Thucydides, History of the Peloponnesian War II. On Justice, Power, and Human Nature, Paul Woodruff III. The Art of War, Sun Tzu IV. On War, Carl von Clausewitz V. The Edge of the Sword, Charles de Gaulle VI. Memoirs, Richard Nixon Session 59 SOA, June 16 2015
STRATEGY A HISTORICAL OVERVIEW If you want to go fast, go alone. If you want to go far, go with others African Proverb 13 Contact Information: Carlos Fuentes carlos_fuentes@aya.yale.edu (860) 550-0740 Session 59 SOA, June 16 2015
Session: Strategy An Historical Overview Part II: Selected Strategic Techniques Presenter: Tom Maki
Part II Selected Strategic Techniques Present 3 Strategic Techniques Describe each technique How the technique is designed to be applied Comment on technique s usefulness Present a case study Summary and wrap-up 15
Three Selected Strategic Techniques Fundamental : SWOT Analysis Essence/Core : Porter s Five Forces Pop Strategy : Blue Ocean Strategy Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win. Sun Tzu 16
Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis SWOT Framework Internal Origin (Company) External Origin (Industry, Regulatory Environment, etc.) Helpful to Achieve Objectives Strengths Opportunities 17 Harmful to Achieve Objectives Weaknesses Threats
SWOT Usefulness Usefulness - Understand the business' strengths and weaknesses within its industry because industry determines to a great extent opportunities and threats. Weaknesses - SWOT results can be general and difficult to translate into effective plans of actions. For this reason, SWOT is better used as one of several tools in strategic analysis. 18
Porter s Five Forces Threat of Substitution Bargaining Power of Buyers Industry Rivalry Bargaining Power of Suppliers Threat of New Entrants 19
Porter s Five Forces Three "forces" are related to horizontal competition: (1)The threat of substitute products or services; (2)The threat of new entrants. (3) Rivalry among established competitors. Two "forces" are related to vertical competition: (1) Bargaining power of suppliers. (2) Bargaining power of customers. 20
Porter s Five Forces Usefulness Usefulness - Identifying risks and opportunities. - Used as a starting point in strategic planning. Weaknesses - Not useful in rapidly evolving industries due to its broad conclusions. - Several of its main assumptions have been challenged by academics and strategists. 21
SWOT Analysis Case Study Mainly Internal Positive Factors Strengths 1. Robust balance sheet 2. Brand loyalty 3. Integrated financial and delivery system 4. Strong Market presence in key markets Negative Factors Weaknesses 1. Relatively small operation 2. Delivery of care is expensive and rates are high 3. Technology infrastructure 4. Limited operational analytic resources/focus Mainly External Opportunities 1. Small market 2. New products and services 3. Mergers, acquisitions, partnerships, vertical integration 4. Statewide expansion opportunity Threats 1. Entry barriers are fading 2. More economical and efficient competitors 3. Technological innovation 4. Regulatory environment 22
Porter s Five Forces Case Study Threat of Substitution (1) Close substitute products (2) Depends on product (e.g. Individual, Group Employer) Bargaining Power of Buyers (1) Affected by geography and product (2) Price sensitivity tempered by care preferences Industry Rivalry (1) Industry consolidation (2) Provide more than just insurance (3) Affordable Care Act (4) Product differentiation Bargaining Power of Suppliers (1) Supply of Providers plays a role (2) Geography plays a role Threat of New Entrants (1) Some limitations due to State and Federal regulations (2) Expensive to enter (3) Geographic expansion of existing competition 23
Blue Ocean Strategy Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create uncontested market space Beat the competition Exploit existing demand Make the value-cost trade-off Align company activities with strategic choice of differentiation or low cost Make competition irrelevant Create and capture new demand Break the value-cost trade-off Align company activities in pursuit of differentiation and low cost 24
Blue Ocean Strategy 4 Actions Framework Reduce What factors should be reduced well below the industry's standard? Eliminate Which of the factors that the industry takes for granted should be eliminated? A New Value Curve Create Which factors should be created that the industry has never offered? Raise Which factors should be raised well above the industry's standard? 25
Blue Ocean Usefulness Usefulness - A sticky idea which can stimulate strategic planning that otherwise may not have taken place. - Focus on the strategic move and not the company or industry can be useful in certain situations. Weaknesses Despite the great success of the book criticisms abound: - It is an extremely successful attempt to brand a set of already existing concepts and frameworks with a highly sticky idea. -The concepts behind the Blue Ocean Strategy (e.g. competing factors, the consumer cycle, non-customers) are not new. - Very few if any documented cases of companies that have had success using this strategy. - The book is descriptive rather than prescriptive. 26
Strategy Example/Template 1 27
Strategy Example/Template 2 Here There 28
Summary Strategy Where have we been? Where are we now? Where are we headed? "What's the use of running if you are not on the right road." German proverb 29
Questions? 30