Transcript Strategy is…

Strategic Management
Prof Steve Courter
© The University of Texas at Austin 2013
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General Counsel Hall of Fame
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Don Parker
Roland Dubois
Natalie Holwijn
Jan de Boer
Chris Dalton
Kim Larsen
“Scott Slater”
© The University of Texas at Austin 2013
Sprint
Global One
Enertel
Energis
Neon
Broadwing
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CEO
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The Classics Strategy Planning
Process
 Modern firms engage
in Strategic Planning
to remain
competitive
 Define objectives
 Assess environment
 Internal
 External
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Formulate Strategy
Implement Strategy
Evaluate progress
Adjust
© The University of Texas at Austin 2013
Mission &
Objectives
Environmental
Scanning
Evaluation
and Control
Strategy
Formulation
Strategy
Implementation
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
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Michael Porter’s Definition of Strategy
 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)
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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
© The University of Texas at Austin 2013
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
© The University of Texas at Austin 2013
Strategy is not …
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Innovation
The Internet
Any form of technology
Experimentation
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Flexibility
Nimbleness
Agility
Change
Re-engineering
Execution
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Who uses Strategic Management?
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Board
Investors
Analysts
Employees
Consultants
Legal Support
Competition
Governments
Vendors/Suppliers
Auditors!!
© The University of Texas at Austin 2013
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
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Global intelligence scan
Access scarce knowledge
Recruit skills, expertise
Strategic Management Tools
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SWOT
Value Chain
Porters Five Forces
BCG Portfolio Matrix
Core Competencies
Goal Matrix
Stakeholder Analysis
RBV
Restructuring (Chap 11)
Christensen Dilemma
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Financial Ratios (limited)
Waterfall Charts
Competitive Advantages
General Electric Business Screen
Environmental Scanning
Product Life Cycle
Global Competitive Diamond
Globalization Drivers
Contemporary Control Measures
PEST Analysis
Strategic Management Tools
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SWOT
Value Chain
Porters Five Forces
BCG Portfolio Matrix
Core Competencies
Goal Matrix
Stakeholder Analysis
RBV
Restructuring (Chap 11)
Christensen Dilemma
© The University of Texas at Austin 2013
Financial Ratios (limited)
Waterfall Charts
Competitive Advantages
General Electric Business Screen
Environmental Scanning
Product Life Cycle
Global Competitive Diamond
Globalization Drivers
Contemporary Control Measures
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.
© The University of Texas at Austin 2013
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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
© The University of Texas at Austin 2013
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The General Environment
Factors external to an industry, usually
beyond a firm’s control
 Demographic
 Sociocultural
 Legal/Political
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 Technological
 Economic
 Global
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Porter’s Five Forces Model
of Industry Competition
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Exhibit
2.7
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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 University of Texas at Austin 2013
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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 University of Texas at Austin 2013
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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
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The Value Net
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Exhibit 2.10
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The Value Chain
Exhibit 3.1
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Value Chain Examples
Firm
infrastructure
Human resource
management
Technology
development
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
Procurement
Costco ‘s
C.F. Martin
dual
leverages
inventory
flexible
warehouse/reconstruction
tail store
methods
Zara
Toyota
Distribution Production
System
Limmer
handcrafted
boots
Inbound Operations
logistics
IKEA’s flat
pack
furniture
allows
customers
to transport
in car
Ozarka
water home
delivery
Encore
Wire central
warehouse
Outbound
logistics
© The University of Texas at Austin 2013
HiltonToHom
e.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
Marketing Service
and sales
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Three Generic Strategies
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Exhibit 5.1
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Competitive Advantage and
Business Performance
Exhibit 5.2
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Potential Pitfalls of
Differentiation Strategies
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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
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International Growth Tactics`
 Exporting
 Licensing
 Franchising
 Joint Venture
 Greenfield Venture
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Vertical Integration
Exhibit 6.3
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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
© The University of Texas at Austin 2013
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High
85%
15%
D
A: Home Office
B: Entertainment Software
C: Appliances
D: Services
E: Consumer Electronics
82%
15%
A
95%
C
5%
85%
B
18%
78%
22%
Industry
Attractiveness
E
Low
Strong
Weak
Competitive Position
GE Business Screen
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Mergers and Acquisitions
Most research indicates that mergers and
acquisitions perform poorly:
High premiums
Increased interest costs
High advisory fees
Poison pills
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High turnover
Managerial distraction
Less innovation
Lack of fit
Increased risk
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MMergers and 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
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Beating the odds
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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
© The University of Texas at Austin 2013
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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??
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Goal Matrix
Operational
Strategic
Co-Operation
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Conflict
Goal Matrix BA-Iberia
Operational
Strategic
Co-Operation
•Facilitates Global Expansion
•Strong competition against Lufthansa KLM/
Air France
•Companies have worked together
•Immediate Market Share Improvement
•Expansion of Plant routes/runways/planes
•Improved Pricing Power
•Economies of Scale/cost synergies
•Develop Madrid as a gateway
© The University of Texas at Austin 2013
Conflict
•Perceived BA Dominance
•Current Alliances may be an issue
•Diverse expansion goals
•Iberia Shareholder concerns
•Service offering differences, business class
(BA) versus low cost (IB)
•Iberia’s financial performance
•Individual branding maintained
•Employee issues..unions/culture
Goal Matrix Anheuser Busch In
Bev
Operational
Strategic
Co-Operation
•Improved Competitive Position
•Global Expansion for brands
•Strong business focus
•Shareholders benefit
•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
© The University of Texas at Austin 2013
Conflict
•Possible cannibalization of brands
•Globalization will curtail AB product
introductions outside US
•InBev’s Cuban presence
•Strategic conflicts with current
Partners/distributors-Modelo
•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
Godfather Advice Previous
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60% more appropriate
How much is Tattaglia really getting?
Narcotics not “victimless”
Sabotage Solozzo after learning biz!
Is it cheaper to do it in US vs Sicily
Too good to pass up
Is Solozzo reliable?
Good short term….bad long term
Get 50% Kill Turk in an accident
Communicate new vision to team
Band with other 5 families
Sounds good!
30% not enough
Take over in 2 years
Solozzo is like you s ok
Set up your own shop
Too dangerous..do a bridge loan
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Listen to your lawyer!
Money better spent in casinos
No brainer..diversification=stability
Morally bankrupt business
Share profits with rehab centers
Go through ST process
Find a new supplier in Columbia
Kill him after establishing market
Do a pro forma impact
Warn Solozzo to stay out of biz!
Do it..but later
High margins!
Demand double the return
Wait Strategy
Look at unintended consequences
Yes ..and No
Never accept first1-37
offer..get more