Strategic Management - Day 2

© The University of Texas at Austin 2013

Strategic Management

Prof Steve Courter

1

© The University of Texas at Austin 2013 2

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

Environmental

Scanning

StrategyFormulation

StrategyImplementation

Evaluationand Control

Mission & Objectives


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

Market and Resource Seeking Secure raw materials Exploit factor cost differences Protect exports Provide growth

Competitive Positioning Match competitors Capture global scale Preempt markets Play “Global Chess”

Global Scanning/ Learning Global intelligence scan Access scarce knowledge Recruit skills, expertise

Pre-1970

70s/80s

90s/00s


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


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.

2-12


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

2-13


The General Environment

Demographic Sociocultural Legal/Political

Technological Economic Global

2-14

Factors external to an industry, usually beyond a firm’s control


Porter’s Five Forces Model of Industry Competition

2-15Exhibit 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

2-16


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

2-17


2-18

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

2-19Exhibit 2.10


The Value Chain

3-20Exhibit 3.1


21 21

Firm infrastructure

Human resource management

Technology development

Procurement

Inbound logistics

Operations Outbound logistics

Marketing and sales

Service

NFL recruits top talent after generating hypeVivid uses exclusivity contract to secure “beautiful star”SAS low turnover rate through great benefits

C.F. Martin leverages flexible construction methodsToyota Production SystemLimmer handcrafted boots

“Ace, the helpful place”Delta Airlines additional tier on loyalty programeBay’s innovations on the website for search and evaluation of sellers

IKEA’s flat pack furniture allows customers to transport in carOzarka water home deliveryEncore Wire central warehouse

HiltonToHome.com increases brand awearenessMyMacys program helps stores adapt to local tastesDe Beers trying to drive demand

UPS using technology for cost-cutting efficiencyDyson’s cyclone, digital motor, and ball pivot

Costco ‘s dual inventory warehouse/retail storeZara Distribution

Starbucks acquiring inputs from ethical sources

Value Chain Examples


Three Generic Strategies

5-22

Exhibit 5.1


Competitive Advantage and Business Performance

5-23

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

5-24


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International Growth Tactics`

Exporting

Licensing

Franchising

Joint Venture

Greenfield Venture


Vertical Integration

6-26

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

6-27


GE Business Screen

High D

A: Home Office

B: Entertainment Software

E C: Appliances D: Services A E: Consumer Electronics

B

C

Low

Strong WeakCompetitive Position

Indu

stry

A

ttrac

tiven

ess


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Mergers and Acquisitions

Most research indicates that mergers and acquisitions perform poorly:

High premiumsIncreased interest costsHigh advisory feesPoison pills

High turnoverManagerial distractionLess innovationLack of fitIncreased 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

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

6-31


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??

6-32


Co-Operation ConflictSt

rate

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Goal Matrix


•Facilitates Global Expansion•Strong competition against Lufthansa KLM/Air France•Companies have worked together•Immediate Market Share Improvement

•Service offering differences, business class (BA) versus low cost (IB)•Iberia’s financial performance•Individual branding maintained•Employee issues..unions/culture

•Expansion of Plant routes/runways/planes•Improved Pricing Power•Economies of Scale/cost synergies•Develop Madrid as a gateway

•Perceived BA Dominance•Current Alliances may be an issue•Diverse expansion goals•Iberia Shareholder concerns


rate

gic

Ope

ratio

nal

Goal Matrix BA-Iberia


•Improved Competitive Position•Global Expansion for brands•Strong business focus•Shareholders benefit

•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

•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

•Possible cannibalization of brands•Globalization will curtail AB productintroductions outside US•InBev’s Cuban presence•Strategic conflicts with currentPartners/distributors-Modelo


rate

gic

Ope

ratio

nal

Goal Matrix Anheuser Busch In Bev


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

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Strategic Management - Day 2

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