Media Management 2011-Strategy Module - Jan 21_2

Strategy

January 21 - Afternoon

Media Management – Module 1Robin Teigland

[email protected]

January 2011

2

Module Overview – 1/3 Jan 21 – What is Strategy?

Individual Assignment: Readings Group Assignment: Choose your Live Case Strategic

Issue Jan 21 – External Analysis: Industry Structure

and Competition Individual Assignment: Readings Group Assignment: Cola Wars Continue

Jan 24 –Internal Analysis: Analyzing Resources and Capabilities Individual Assignment: Readings Group Assignment: Wumart Stores

Jan 25 –An Entrepreneur’s View of Strategy in 3D Individual Assignment: Readings & Questions Guest: Steve Mahaley, PeaceTrain

3

Module Overview – 2/3 Jan 26 – Recent Developments in Strategy

Group Assignment: Article summary ppt for slideshare Jan 31 – Executing Strategy

Individual Assignment – Readings & Questions Guest: Christian Björkman, MindArk Guest: Fredrik Nilsson, IC You

Jan 31 – Exploring Business Models and role of IT Individual Assignment – Readings & Questions Guest: Paul DiGangi, Western Carolina University

Feb 2 - External Drivers of Change: Exploring the Future of the Gaming Industry Individual Assignment: Readings Group Assignment: STEEP Guest: Stefan Lampinen, Speltjänst

4

Module Overview – 3/3 Feb 2 – Creating Value Networks

Individual Assignment: Readings & Questions Guest: Malin Ströman, Independent Consultant

Feb 7 - Live Case Day: Integrating Theory with Practice Group Assignment: Virtual Worlds and Gaming

Feb 9 – Module 1 “Exam”

What is strategy?

Strategy An integrated and coordinated set of

commitments and actions designed to gain a competitive advantage

Competitive advantage When two or more firms compete

within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit

5Hitt, Ireland & Hoskisson 2006

1. Long-term goal (objective)

2. Scope of the firm

3. Competitive advantage

Components of strategy

Collis & Rukstad 2008 6

Assignment for today

What is strategy? (1 -2 slides) Based on the course readings, your previous experience,

and potentially other sources, develop your own definition of strategy.

What are the relationships between the concepts of vision, mission, strategy, and business model?

What is your organization’s strategy? (2-3 slides)

Pick an organization in the Virtual World or Gaming industries and answer the following questions based on information you find on the internet:

What is your organization’s mission? What is your organization’s business model? What is your organization’s strategy? Can you summarize the organization’s strategy in a “strategy

statement” (see Collis & Rukstad article)? 8

9

The basic framework

INDUSTRY ENVIRONMENT

• Competitors

• Customers

• Suppliers

INDUSTRY ENVIRONMENT

• Competitors

• Customers

• Suppliers

STRATEGYSTRATEGYSTRATEGY

FIRM • Goals & Values

• Resources & Capabilities

• Structure & Systems

FIRM • Goals & Values

• Resources & Capabilities

• Structure & Systems

Adapted from Grant 2008

The The LINKLINK between the between the FIRMFIRM & its & its ENVIRONMENTENVIRONMENT

10

Where does superior profitability come from?

RATE OF RETURN ABOVE THE

COST OF CAPITAL

How do we make

money?

INDUSTRY

ATTRACTIVENESS

Where should we compete?

COMPETITIVE ADVANTAGE

How should we compete?

CORPORATE STRATEGY

BUSINESS STRATEGY

Grant 2008

Focus on two models in this course

Industrial Organization (I/O)

Focuses on the environment outside the firm

Opportunities and threatsOpportunities and threats By studying the external

environment, firms identify what they might choose to do.

Resource-based View (RBV) Focuses on the inside of the

firm Unique resources, capabilities, Unique resources, capabilities,

and competenciesand competencies((required forrequired for sustainable sustainable competitive advantagecompetitive advantage))

By studying the internal environment, firms identify what they can do.

Successful strategy formulation and Successful strategy formulation and implementation actions result only implementation actions result only when the firm properly uses both when the firm properly uses both

models.models.11

Objectives of Industry Analysis (I/O)

To understand how industry structure drives competition, which determines the level of industry profitability

To assess industry attractiveness

To use evidence of changes in industry structure to forecast future profitability

To formulate strategies to change industry structure to improve industry profitability

To identify “Key Success Factors” (KSFs) for the industry

Grant 2008 12

13

How big is the profit and who is after it?

vsProfit Profit

The spectrum of industry structures

Concentration

Entry and ExitBarriers

ProductDifferentiation

Information

Perfect Competition

Oligopoly Duopoly Monopoly

Many firms A few firms Two firms One firm

No barriers Significant barriers High barriers

Homogeneousproduct Potential for product differentiation

Perfectinformation flow Imperfect availability of information

Grant 2008 14

15

Why does industry profitability differ?

Avg 24.2%

Avg 10.4%

Ave

rage

RO

E 1

982-

1993

Porter

16

Porter’s five forces of competition

ENTRANTS

SUPPLIERS BUYERS

SUBSTITUTES

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

Threat of new entrants

Threat of substitutes

Bargaining

power of suppliers

Bargaining

power of buyers

http://www.youtube.com/watch?v=mYF2_FBCvXw&feature=channel

17

Industry definition

Technology (GSM)

Buyer (Needs driven)

Geography (US, Sweden)

““A group of firms producing products A group of firms producing products that are close substitutes for each that are close substitutes for each

other”other”

Porter

How to draw the industry boundaries?

•What industry is BMW in?– World auto industry– European auto industry– World luxury car industry?

•Key criterion is SUBSTITUTABILITY– On the demand side: Are buyers willing to substitute

between types of cars and across countries?– On the supply side: Are manufacturers able to switch

production between types of cars and across countries?

•The industry may need to be analyzed at different levels of aggregation for different types of decisions

Grant 2008 18

• Unit of analysis within industry is business unit, not the company (although the two may coincide)

• Industry competitors are actors (BUs) that have core business within the industry

• Define ‘the middle’, industry competitors, as narrowly as possible

• It may be practical to subdivide the industry competitors into strategic groups

Theory-in-practice/rules of thumb

19

20

Threat of new entrants High capital requirements High economies of scale Strong customer loyalties High switching costs High product differentiation Limited access to

distribution channels High legal/regulatory

barriers Large cost disadvantages

independent of scale Ex. Proprietary technology, raw

materials, location, learning curve, government subsidies

Strong retaliation by industry participants

What keeps new competitors out - barriers to entry?

Porter

21

Rivalry between established competitors

Numerous or equally balanced competitors

Slow industry growth High fixed costs Lack of differentiation or

switching costs Capacity augmented in large

increments High strategic stakes High exit barriers

What makes competitors

“fight” harder?

Porter

The Industry Life Cycle

Introduction Growth Maturity Decline

Industry Sales

Time

Grant 2008 22

25

Bargaining power of buyers

Buyer’s price sensitivity Relative bargaining power

• What is cost of product as % of buyer’s total costs?• How differentiated is the purchased item? • How intense is competition between buyers? • How important is the item to the quality of the buyer’s own output?

•What is the size and concentration of buyers relative to sellers?•What are buyer’s switching costs?•What is buyer’s information?•What is buyer’s ability to backward integrate?

Porter

Who decides the price?

26

Bargaining power of suppliers

Supplier’s price sensitivity Relative bargaining power

•What is cost of supplies as % of supplier’s total sales?•How differentiated is the supplied item?•How intense is competition between suppliers?

•What is size and concentration of sellers relative to buyers?•What is supplier’s information?•What is supplier’s ability to forward integrate?

Porter

Who decides the price?

27

Threat of substitutes

Existence of substitutes puts ceiling on prices that can be charged

•Same function•Train/plane/car/ICT

•Better price-performance•Books/videos•Record-players/CD-players•Security guards / electronic alarm systems

Point A ?

Porter

How “easy” is it to switch?

Point B

Threat of

Potential

Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitute

s

Rivalry Between

Competitors• Identify Competitors and

intensity of Rivalry amongst competitors.

• Briefly explain.

•Identify Buyers and Bargaining Power of each. •Briefly explain.

What business segment or industry is being considered:

___________________________________________

•Identify Suppliers and Bargaining Power of each. •Briefly explain.

•Identify Substitutes and the threat level of each. •Briefly explain

•Identify Potential Entrants and the threat level of each. •Briefly explain.

Is this an attractive industry? Briefly explain, why or why not?

___________________________________________

Process steps:1. Identify industry or segment boundaries.2. Identify players in each Force using case facts.3. Assess level of threat, power, intensity of each

Force using case facts and course concepts.4. Make final assessment of whether it is an

attractive industry in which to compete using results of 5 Forces analysis to support your view.

Industry Level Analysis: Porter’s Five Forces

28

29

How does the environment (PESTEL)affect the five forces (now and in future)?

Johnson & Scholes 1997

Politics and government

Environment Technology

Legal structure

Social and Demographic

structure

International/nationaleconomy

Industry(Five Forces)

30

1. What factors are affecting the industry?2. Which of these are the most important at the present time?3. Which of these are the most important in the next few years?

Political Global, regional, and national

political development (administration, political parties)

Taxation policy Foreign trade regulations Labour market politics Government stability

Socio-cultural Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Attitudes to consumerism Levels of education Changes in values/attitudes Education conditions Work environment conditions Health conditions

Environmental Ecology Pollution conditions ”Green” energy Energy conservation Waste handling

Economic Business cycles GNP trends Interest rates & Exchange rates Money supply Inflation Unemployment Wage level Private consumption and

disposable income Public finances Energy availability and cost

Technological Government spending on research Government and industry focus of

technological effort New discoveries/development Speed of technology transfer Rates of obsolescence New patents and products

Legal Development in price and

competitive legislation Labour market legislation Product safety and approvals

Applying five-forces and PESTEL analyses

1) Forecasting industry profitability

• Past profitability is a poor indicator of future profitability.

• If we can forecast changes in industry structure, we can predict the likely impact on competition and profitability.

• What are trends that are changing industry structure?

• How will these effect industry profitability?2) Developing strategies to improve industry

profitability

• What forces are depressing profitability?

• Which of these forces can be changed by individual or collective strategies?

Grant 2008 31

Improving profitability

Building defenses Increase expected retaliation (signaling) Lower inducement for attack (making industry not so

profitable to enter) Influencing the balance - Offensive

Innovations in marketing to raise brand identification or otherwise differentiate the product

Capital investments in large-scale facilities or vertical integration to affect entry barriers

Exploiting industry change What trends/industry changes affect the sources of

competition? What is the long-run profitability of the industry?

Porter 32

33

How can we improve industry profitability?

THREAT OF ENTRY•Capital requirements•Economies of scale•Customer loyalties

•Switching costs•Product differentiation•Access to distribution

channels•Legal/ regulatory barriers

•Cost disadvantages independent of scale

•Retaliation

SUBSTITUTECOMPETITION

• Buyers’ propensity to substitute

• Relative prices & performance of

substitutes

BUYER POWER• Buyers’ price sensitivity

• Relative bargaining power

INDUSTRY RIVALRY•Concentration

•Diversity of competitors

•Product differentiation•Excess capacity &

exit barriers•Cost conditions

SUPPLIER POWER• Suppliers’ price sensitivity • Relative bargaining power

Porter

Threat of

Potential

Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitute

s

Rivalry Between

Competitors• Identify Competitors and

intensity of Rivalry amongst competitors.

• Briefly explain.

•Identify Buyers and Bargaining Power of each. •Briefly explain.

What business segment or industry is being considered:

___________________________________________

•Identify Suppliers and Bargaining Power of each. •Briefly explain.

•Identify Substitutes and the threat level of each. •Briefly explain

•Identify Potential Entrants and the threat level of each. •Briefly explain.

Is this an attractive industry? Briefly explain, why or why not?

___________________________________________

Process steps:1. Identify industry or segment boundaries.2. Identify players in each Force using case facts.3. Assess level of threat, power, intensity of each

Force using case facts and course concepts.4. Make final assessment of whether it is an

attractive industry in which to compete using results of 5 Forces analysis to support your view.

Industry Level Analysis: Porter’s Five Forces

34

Coca-Cola vs Pepsi Case (max 15 min) Q1. Is the concentrate industry profitable? Use Porter’s five-

forces analysis to analyze the concentrate business. Put the concentrate producers in the center of the model as the industry incumbent/rivals. What are the five forces and key underlying structural determinants of each of the five forces? What are the implications for the relative power of each force? Based on this analysis, how attractive is this industry? In other words, how high is the profit potential of the industry competitors? What are the elements of your analysis that lead you to this conclusion?

Q2. Why is profitability so different between the concentrate business and the bottling business? Repeat the above five-force analysis for the bottlers. How do the economics of the concentrate business compare to the bottling business? Which industry is more attractive?

Q3. What challenges face these companies today? How has competition between Coke and Pepsi affected industry profits? What factors are affecting industry profitability? How can the five-forces analysis help you to answer these questions? 35

Upload to www.slideshare.net and elearning platform by 15:00.

Videos

Bottling company http://se.youtube.com/watch?

v=s5LFBW8zxqw&feature=PlayList&p=4C07105BE049A539&playnext=1&index=4

Coke vs Pepsi http://www.youtube.com/watch?

v=EMo6o0BtFG8&feature=related

36

The world’s most valuable brands, 2006

Rank Company Brand Rank Company Brand value value ($bn.) ($bn.)

1 Coca-Cola 67.5 11 Mercedes Benz 20.0 2 Microsoft 59.9 12 Citi 20.0 3 IBM 53.4 13 Hewlett-Packard 18.9

4 GE 47.0 14 American Express 18.6 5 Intel 35.6 15 Gillette 17.5 6 Nokia 26.5 16 BMW 17.1 7 Disney 26.4 17 Cisco 16.6 8 McDonald’s 26.0 18 Louis Vuitton 16.1 9 Toyota 24.8 19 Honda 15.810 Marlboro 21.2 20 Samsung 15.0

Interbrand37

http://money.cnn.com/2006/02/01/news/companies/pepsi_fortune/

http://www.youtube.com/watch?v=4_EfniTmakQ

38

Threat of

Potential

Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitute

s

Rivalry Between

Competitors• Identify Competitors and

intensity of Rivalry amongst competitors.

• Briefly explain.

•Identify Buyers and Bargaining Power of each. •Briefly explain.

What business segment or industry is being considered:

___________________________________________

•Identify Suppliers and Bargaining Power of each. •Briefly explain.

•Identify Substitutes and the threat level of each. •Briefly explain

•Identify Potential Entrants and the threat level of each. •Briefly explain.

Is this an attractive industry? Briefly explain, why or why not?

___________________________________________

Process steps:1. Identify industry or segment boundaries.2. Identify players in each Force using case facts.3. Assess level of threat, power, intensity of each

Force using case facts and course concepts.4. Make final assessment of whether it is an

attractive industry in which to compete using results of 5 Forces analysis to support your view.

Industry Level Analysis: Porter’s Five Forces

39

Lessons … managers must: Understand the structure of the industries in

which they compete (& why the structure is what it is).

Direct attention to the most significant force. Be aware of how their industry might change. Develop the power to shape the structure of the

industry. Make sure that strategic moves do not undermine

the attractiveness of the industry.

Industry Level Analysis: Porter’s Five Forces

40Hitt, Ireland & Hoskisson 2006

Improving profitability

Building defenses Increase expected retaliation (signaling) Lower inducement for attack (making industry not so

profitable to enter) Influencing the balance - Offensive

Innovations in marketing to raise brand identification or otherwise differentiate the product

Capital investments in large-scale facilities or vertical integration to affect entry barriers

Exploiting industry change What trends/industry changes affect the sources of

competition? What is the long-run profitability of the industry?

Porter 41

42

KEY SUCCESS FACTORS

What are the Key Success Factors (KSFs) in the industry?

Analysis of demand

• Who are our customers?

• What do they want?

Analysis of competition

• What drives competition?

• What are the main dimensions of competition?

•How intense is competition?

•How can we obtain a superior competitive

position?

What do customers want?

How does the firm survive competition?

Pre-requisites for success

Grant 2008

43

Steel industry – Key Success Factors What do customers want?

Customers include auto, engineering, and container industries

Customers acutely price sensitive and require product consistency and reliability of supply

Specific technical specs required for specialty steels How does a firm survive competition?

Compete primarily on price Intense due to high fixed costs, low cost imports, high exit

barriers, and entrance of minimills due to new technology Logistics due to high transport costs and scale economies

important What are the Key Success Factors?

Cost efficiency through scale-efficient plants, low cost location, rapid adjustment of capacity of output, efficient use of labor

Possibility for differentiation through quality, service, and technical factors

Grant 2008

ROCE

Return on Sales

Sales/Capital Employed

Sales mix of products

Avoiding markdowns throughtight inventory control

Max. buying power to minimizecost of goods purchased

Max. sales/sq. foot through:*location *product mix*customer service *quality control

Max. inventory turnover through electronic data interchange, closevendor relationships, fast delivery

Minimize capital deploymentthrough outsourcing & leasing

Identifying KSFs by analyzing profit drivers

Retailing

44Grant 2008

Strategic groups

Strategic group: A group of firms in an industry that follow the same or similar strategies

Identifying strategic groups:

• Identify principal strategic variables which distinguish firms

• Position each firm in relation to these variables

• Identify clusters

Grant 2008 45

Industry competition: Strategic groupsS

trate

gic

Dim

en

sion

Strategic dimension

Low

High Low

High Some dimensions• specialization• quality• vertical integration• service• tech. leadership• distribution channels• geography

Porter 46

Strategic groups in the world auto industry

Broad

PRODUCTRANGE

Narrow

National GEOGRAPHICAL SCOPE Global

NATIONALLY- FOCUSED, SMALL, SPECIALIST

PRODUCERS e.g., Bristol (U.K.), Classic Roadsters

(U.S.), Morgan (U.K.)

NATIONALLY FOCUSED, INTERMEDIATE LINE

PRODUCERS

e.g. Tofas, Proton, Maruti

First Auto Works (China)

REGIONALLY-FOCUSED BROAD-LINE PRODUCERS

e.g. Fiat, PSA, Renault, Kia,

PERFORMANCE CAR PRODUCERS

e.g., Porsche, Ferrari (owned by

Fiat) Maserati, Lotus

LUXURY CAR MANUFACTURERS

e.g., Aston Martin, BMW, Rolls Royce (owned by VW)

GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Subaru, Isuzu, Suzuki,

Saab, Hyundai, Daihatsu

GLOBAL, BROAD-LINEPRODUCERS

e.g., GM, Ford, Toyota, Nissan, Honda, VW,

DaimlerChrysler

Grant 2008 47

48

Objectives of Industry Analysis (in summary) To assess industry attractiveness

To understand how industry structure drives competition, which determines the level of industry profitability

To forecast industry profitability Past profitability is a poor indicator of future profitability But if we can forecast changes in industry structure, we can

predict likely impact on competition and profitability To devise strategies to change industry structure to

improve industry profitability Which forces are depressing profitability? Which of these can be changed by individual or collective

strategies? To determine key success factors

What are the starting points for the analysis of competitive advantage?

Grant 2008

49

Module Overview – 1/3 Jan 21 – What is Strategy?

Individual Assignment: Readings Group Assignment: Choose your Live Case Strategic

Issue Jan 21 – External Analysis: Industry Structure

and Competition Individual Assignment: Readings Group Assignment: Cola Wars Continue

Jan 24 –Internal Analysis: Analyzing Resources and Capabilities Individual Assignment: Readings Group Assignment: Wumart Stores

Jan 25 –An Entrepreneur’s View of Strategy in 3D Individual Assignment: Readings & Questions Guest: Steve Mahaley, PeaceTrain

Wu Mart1. What are the sources of Wu Mart’s competitive advantage?

Identify the principal resources and capabilities that form the basis of Wu Mart’s competitive advantage.

Are Wu Mart’s resources “competitively superior” to other competitors at the time of the case?

2. How sustainable is Wu Mart’s competitive advantage domestically?

Is its position sustainable when challenged by international entrants? To what extent is Wu Mart’s competitive advantage sustainable?

3. Will Wu Mart be able to transfer its competitive advantage it has in China to other countries?

Will it be able to leverage the same resources and capabilities that it has in China in other markets?

Are Wu Mart’s resources and capabilities specific to China or emerging markets?

4. Looking into the future, what should Wu Mart do to sustain its performance?

What challenges does it face? How can it defend against competitive (and other) threats?

50

Wu Mart Case Assignment

Questions 1& 2 You are a consulting company asked by Wal-

Mart’s top management to conduct a competitor analysis of Wu Mart. Prepare a presentation for Wal-Mart’s top management.

Questions 3 & 4 You are Wu Mart internal consultants asked by top

management to look into an international expansion strategy. Prepare a presentation for Wu Mart’s top management.

51http://www.flickr.com/search/?q=wumart

52

Sources Collins, JC & Porras, JL, Built to Last, Harper-Business, 1998. Collis, DJ & Rukstad, MG, Can You Say What Your Strategy Is?, HBR, April 2008 Grant, R. Contemporary Strategy Analysis, Blackwell, 2008. Harreld, JB, O’Reilly, CA, & Tushman, M., Dynamic Capabilities at IBM: Driving

Strategy into Action, California Management Review, 2007. Hay, D., Scheving, H., Berlin, U., Ekelöf, P., Kristenson, J., Ohrling, M., Live Case –eZ

Sweden, 2009. Holde, S. Strategic Innovation and Business Creation, Århus School of Business,

2002. Magretta, J, Why Business Models Matter, HBR, 2002. Mannerheim, F., Postoaca, A, Åresund, L., Live Case – eZ Poland, 2008. McGee, J., Thomas, H. & Wilson, D. Strategy: Analysis and Practice, McGraw-Hill,

2005. Norman, R. & Ramírez, R. From Value Chain to Value Constellation: Designing

Interactive Strategy, HBR, 71,4, 1993. Organizational Strategy, Thomson Learning, 2005. Pfeffer, J. Managing with Power, HBS, 1992. Porter, ME. Competitive Strategy, Free Press, 1980. Porter, ME. What is Strategy? HBR, Nov-Dec, 1996. Woodruff, RB. Customer Value: The Next Source of Competition, Academy of

Marketing Science, 1997.