Strategic Management

Strategic Management Prof Steve Courter

General Counsel Hall of Fame Don Parker Sprint 6 Dir Roland Dubois Global One 4 VP Natalie HolwijnEnertel 4 CEO Jan de Boer Energis 3 CEO Chris Dalton Neon 3 CEO Kim Larsen Broadwing 0 CEO “Scott Slater” XXX ? COB

The Classics Strategy Planning Process • Modern firms engage in Strategic Planning to remain competitive • Define objectives • Assess environment • Internal • External • Formulate Strategy • Implement Strategy • Evaluate progress • Adjust

How Strategy has evolved • Macro level shifts in the Global and US economies • Agriculture –to- • Manufacturing –to- • Technologies and Services • Short life-cycles • Short development cycles • Minimal capital investments • Lower barriers to entry • Resulting in more dynamic and intricate transactions

Creating a unique and valuable position That the core of a Strategy is never imitating anyone Strategic positioning comes from three distinct sources Serving the few needs of many customers (Jiffy Lube) Serving the broad needs of a few customers (J.P. Morgan’s Private Bank) Serving the broad needs of many customers in a narrow market (Ikea) Michael Porter’s Definition of Strategy

Strategy is… • You must make trade-offs in competing and chose what not to do • You cannot be all things to all customers and create a unique, sustainable, competitive position • You must create a fit among all of your firm’s activities • Being disciplined and making clear choices • Being different versus being efficient

Strategy is not… • Operational efficiency • An aspiration • To be #1 or #2 a la Jack Welch of GE • This is a goal. • How you accomplish that goal is a strategy • A vision • To reach $60 billion in revenue in 2014 is a goal • Whose market share you take to get there is a strategy

Strategy is not … • Innovation • The Internet • Any form of technology • Experimentation • Flexibility • Nimbleness • Agility • Change • Re-engineering • Execution

Who uses Strategic Management? • Board • Investors • Analysts • Employees • Consultants • Legal Support • Competition • Governments • Vendors/Suppliers • Auditors!!

International Expansion Motivation Pre-1970 • Market and Resource Seeking • Secure raw materials • Exploit factor cost differences • Protect exports • Provide growth 70s/80s • Competitive Positioning • Match competitors • Capture global scale • Preempt markets • Play “Global Chess” 90s/00s • Global Scanning/ Learning • Global intelligence scan • Access scarce knowledge • Recruit skills, expertise

Strategic Management Tools • SWOT Financial Ratios (limited) • Value Chain Waterfall Charts • Porters Five Forces Competitive Advantages • BCG Portfolio Matrix General Electric Business Screen • Core Competencies Environmental Scanning • Goal Matrix Product Life Cycle • Stakeholder Analysis Global Competitive Diamond • RBV Globalization Drivers • Restructuring (Chap 11) Contemporary Control Measures • Christensen Dilemma PEST Analysis

SWOT Analysis • SWOT analysis • A framework for analyzing a company’s internal and external environment and that stands for strengths, weaknesses, opportunities, and threats.

Example: Harley-Davidson • Strengths • Strong & adaptable brand image • Weaknesses • Limited ability to develop new non-traditional products • Opportunities • Growing leisure interest in motorcycles worldwide • Response?? • Threats • Differing foreign policies governing motorcycles

Factors external to an industry, usually beyond a firm’s control The General Environment • Demographic • Sociocultural • Legal/Political • Technological • Economic • Global

Porter’s Five Forces Model of Industry Competition Exhibit 2.7

The Bargaining Power of Buyers • A buyer group is powerful when • It is concentrated or purchases large volumes relative to seller sales • The products it purchases from the industry are standard or undifferentiated • The buyer faces few switching costs • It earns low profits • The buyers pose a credible threat of backward integration • The industry’s product is unimportant to the quality of the buyer’s products or services

The Bargaining Power of Suppliers • A supplier group will be powerful when • The supplier group is dominated by a few companies and is more concentrated than the industry it sells to • The supplier group is not obliged to contend with substitute products for sale to the industry • The industry is not an important customer of the supplier group

The Bargaining Power of Suppliers • A supplier group will be powerful when • The supplier’s product is an important input to the buyer’s business • The supplier group’s products are differentiated or it has built up switching costs for the buyer • The supplier group poses a credible threat of forward integration

The Value Net Exhibit 2.10

The Value Chain Exhibit 3.1

Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Value Chain Examples NFL recruits top talent after generating hype Vivid uses exclusivity contract to secure “beautiful star” SAS low turnover rate through great benefits UPS using technology for cost-cutting efficiency Dyson’s cyclone, digital motor, and ball pivot Starbucks acquiring inputs from ethical sources Costco ‘s dual inventory warehouse/retail store Zara Distribution C.F. Martin leverages flexible construction methods Toyota Production System Limmer handcrafted boots IKEA’s flat pack furniture allows customers to transport in car Ozarka water home delivery Encore Wire central warehouse HiltonToHome.com increases brand aweareness MyMacys program helps stores adapt to local tastes De Beers trying to drive demand “Ace, the helpful place” Delta Airlines additional tier on loyalty program eBay’s innovations on the website for search and evaluation of sellers 22

Three Generic Strategies Exhibit 5.1

Competitive Advantage and Business Performance Exhibit 5.2

Potential Pitfalls of Differentiation Strategies Uniqueness that is not valuable Too much differentiation Too high a price premium Differentiation that is easily imitated Diffusion of brand identification through product-line extensions Perceptions of differentiation may vary between buyers and sellers

International Growth Tactics` • Exporting • Licensing • Franchising • Joint Venture • Greenfield Venture

Vertical Integration Exhibit 6.3

Vertical Integration Benefits A secure source of raw materials or distribution channels. Protection of and control over valuable assets. Access to new business opportunities. Simplified procurement and administrative procedures. Learn Supplier business

GE Business Screen IndustryAttractiveness

Mergers and Acquisitions Most research indicates that mergers and acquisitions perform poorly: High premiums Increased interest costs High advisory fees Poison pills High turnover Managerial distraction Less innovation Lack of fit Increased risk

MMergersand Acquisitions that WorkerWorM • Strong relatedness • Friendly negotiations • Low-to-moderate debt • Continued focus on core strengths of firm • Careful selection of and negotiations with target firm • Strong cash or debt position • Similar firm cultures and management styles • Sharing resources across companies • Beating the odds

Strategic Alliances and Joint Ventures • Introduce successful product or service into a new market • Lacks requisite marketing expertise • Join other firms to reduce manufacturing (or other) costs in the value chain • Pool capital, value-creating activities, facilities • Develop or diffuse new technologies • Use expertise of two or more companies • Develop products technologically beyond the capability of the companies acting independently

Unmet Expectations: Strategic Alliances and Joint Ventures • Improper partner • Each partner must bring desired complementary strengths to partnership • Strengths contributed by each should be unique • Partners must be compatible • Partners must trust one another • Sound Familiar??

Goal Matrix Co-Operation Conflict Strategic Operational

Goal Matrix BA-Iberia Conflict Co-Operation • Facilitates Global Expansion • Strong competition against Lufthansa KLM/ Air France • Companies have worked together • Immediate Market Share Improvement • Perceived BA Dominance • Current Alliances may be an issue • Diverse expansion goals • Iberia Shareholder concerns Strategic • Expansion of Plant routes/runways/planes • Improved Pricing Power • Economies of Scale/cost synergies • Develop Madrid as a gateway • Service offering differences, business class • (BA) versus low cost (IB) • Iberia’s financial performance • Individual branding maintained • Employee issues..unions/culture Operational

Goal Matrix Anheuser Busch In Bev Conflict Co-Operation • Improved Competitive Position • Global Expansion for brands • Strong business focus • Shareholders benefit • Possible cannibalization of brands • Globalization will curtail AB product • introductions outside US • InBev’s Cuban presence • Strategic conflicts with current • Partners/distributors-Modelo Strategic • Cost reductions using Busch’s cost cutting plans as outline • Improved wholesale distributor • Bud goes Global • Anheuser already the exclusive U.S. importer of InBev products -Shared Technology • Union issues and contract expiration • Trademark Dispute will grow • Management styles/Cultural Issues • Production priorities and facilities • be an issue • Marketing philosophy may be an • issue Operational

Godfather Advice Previous 60% more appropriate Listen to your lawyer! How much is Tattaglia really getting? Money better spent in casinos Narcotics not “victimless” No brainer..diversification=stability Sabotage Solozzo after learning biz! Morally bankrupt business Is it cheaper to do it in US vs Sicily Share profits with rehab centers Too good to pass up Go through ST process Is Solozzo reliable? Find a new supplier in Columbia Good short term….bad long term Kill him after establishing market Get 50% Kill Turk in an accident Do a pro forma impact Communicate new vision to team Warn Solozzo to stay out of biz! Band with other 5 families Do it..but later Sounds good! High margins! 30% not enough Demand double the return Take over in 2 years Wait Strategy Solozzo is like you s ok Look at unintended consequences Set up your own shop Yes ..and No Too dangerous..do a bridge loan Never accept first offer..get more

Strategic Management