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MGMT 490 Strategic Management Prof. Stephen Standifird
 

MGMT 490 Strategic Management Prof. Stephen Standifird

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  • Increased market share - 1.2 billion Chinese but are they buying watches Adapting to local tastes and preferences - part of culture - very country specific - research, research and research Location Specific Advantages - labor is cheaper in Mexico than in Detroit - Fashion is better in Italy (than Indiana) - Tech revolution is happening in California Factoring in trade and political - from our previous chapters - be aware Do your research ahead of time - Anyone who got burned doing business in Iraq should have seen it coming.
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MGMT 490 Strategic Management Prof. Stephen Standifird MGMT 490 Strategic Management Prof. Stephen Standifird Presentation Transcript

  • MGMT 490 Strategic Management
    • Prof. Stephen Standifird
    • Welcome!!!
  • Syllabus Highlights
    • Basic Content
    • My contact info.
    • Course objectives
    • Text: Hitt et. al. (6th Edition)
    • Grading
    • Groups (50%)
      • 2 subject pres./memos
      • 1 final pres./memo
    • Individual (50%)
      • 2 exams (no final)
      • Group Participation
  • Course Philosophy
    • Application, application, application
    • Strategy - an active topic
    • Participation is a MUST!
    • News you can use
    • Informal but Serious
    • Informative and Enjoyable
    • Questions? Always Encouraged
  • How to Get an A
    • Individual:
      • Read the Book
      • Attend the Class
      • Pay Attention!!!
      • Participate
    • Group:
      • Plan Ahead ( way ahead!!)
      • Data, Data, Data
      • Be Professional
      • Have Fun
  • What is Strategy ?
  • In SBA to learn more about:
    • A. Architectural Design?
    • B. 18th Century European Art?
    • C. Biochemical Engineering?
    • Business!!!
  • What is Strategy ?
    • The study of how a company can make more money !!!
  • What is Strategy?
    • Strategic Competitiveness:
      • Achieved when a firm successfully formulates and implements a value-creating strategy.
    • Above-average Returns:
      • In excess of what investors expect to earn from other investments with a similar amount of risk.
    • Strategic Management Process:
      • The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and above-average returns.
  • What is Strategy?
    • The commitments, decisions, and actions that allow the firm to make more money!
    • How is this done?
    • Two competing models
      • 1. Industrial Organizational Model
      • 2. Resource-Based Model
  • Model One: Industrial Organization (Porter’s Five Forces) The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.
  • Model Two: Resource Based (Core Competency)
    • The resources and capabilities of the firm should drive strategy. Build your strategy around existing resources.
  • Model Three: Life in the Real World! (the focus of this class) The external environment and the resources and capabilities of the firm drive strategy. Firms should seek to maximize profitability by locating and competing in an industry where the firm can most effectively leverage existing and potential resources.
    • S trenghts
    • W eakness
    • O pportunities
    • T hreats
    External Environment Begin Here (the OT of SWOT) Internal Environment Begin Here (the SW of SWOT)
  • Complicating Factors
    • Globalization
      • Tough to find a truly domestic product/market
      • Must be an international strategist
    • Technological Changes
      • Buy-it-here.com
      • Not just for high tech firms any more
    • Multiple Stakeholders
      • Capital Markets, Product Markets, Organizational
      • Government, Competitors, etc. (you get the point)
  • Model One: Industrial Organization (Porter’s Five Forces) The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.
  • The External Environment
    • The General Environment
      • 1. The General Environment
        • Environmental Analysis
        • Segments of the Environment
      • 2. The Industrial Environment
        • Industry Analysis (five forces)
        • Strategic Groups/Competitor Analysis
  • The External Environment Model of Superior Returns
    • 1. Study the external environment.
    • 2. Locate an industry with high potential for above-average returns.
    • 3. Identify strategy called for by the industry to earn above-average returns.
  • The External Environment Model of Superior Returns
    • 4. Develop or acquire assets and skills needed to implement the strategy.
    • 5. Use the firm’s strengths (its assets or skills) to implement the strategy.
    • 6. Maintain selected strategy in order to outperform industry rivals.
  • The External Environment Model of Superior Returns
    • 1. Study the external environment.
    • 2. Locate an industry with high potential for above-average returns.
    • 3. Identify strategy called for by the industry to earn above-average returns.
  • The External Environment Part I: The General Environment
    • Demographic Segment
      • Population, Age, Income, Ethnicity
    • Economic Segment
      • Inflation, Exchange rates, Savings rates, Interest
    • Political/legal Segment
      • Antitrust, (De)regulation, Taxation, Labor laws
    • Sociocultural Segment
      • Diversity, Social concerns, quality of life
    • Technological Segment
      • Product and process changes, Communications
    • Global Segment
      • Political events, global and regional crisis, Exchange rates
  • The General Environment: Important Issues to Remember
    • The same environmental trend will effect different industries differently (or not at all)
      • Internet: Auto Repair versus Book Store
    • The impact of a particular trend will effect different companies in an industry differently
      • Busier Schedules: Indigo Grill vs McDonald’s
    So. . . Scan for general trends and identify specific factors that influence your company
  • The External Environment Part I: The General Environment
    • Demographic Segment
      • Population, Age, Income, Ethnicity
    • Economic Segment
      • Inflation, Exchange rates, Savings rates, Interest
    • Political/legal Segment
      • Antitrust, (De)regulation, Taxation, Labor laws
    • Sociocultural Segment
      • Diversity, Social concerns, quality of life
    • Technological Segment
      • Product and process changes, Communications
    • Global Segment
      • Political events, global and regional crisis, Exchange rates
  • The External Environment Part I: The General Environment
    • Scanning
      • A general look around
    • Monitoring
      • Keeping track of what looks potentially important
    • Forecasting
      • Trying to predict where things will be going
    • Assessing
      • Trying to understand how the changes effect you
  • The General Environment: Albertson’s Grocery Stores
    • Scanning - Tech Sector
      • The internet !!!
    • Monitoring
      • Rapidly changing
    • Forecasting
      • Will continue rapid change
    • Assessing
      • Short term? Not an issue
      • Long term impact unclear
      • Continue to monitor
    • Scanning - Demo Sector
      • Dual income families
    • Monitoring
      • Slow but steady change
    • Forecasting
      • Most couples working
    • Assessing
      • Short term? Eating out more, not buying groceries
      • Must respond now
      • “ Quick Fix” meals
  • Group Formation
    • You Pick’um, I referee
    • Five Persons Per Group (must be this way)
    • Once you have a group, let me know
    • If you need a person (or 2 or 3), let me know
    • Exchange information (e-mail, phone #, etc)
    • Identify potential companies
    • Give me back the group list and company name
  • The External Environment Part I: The General Environment
    • Demographic Segment
      • Population, Age, Income, Ethnicity
    • Economic Segment
      • Inflation, Exchange rates, Savings rates, Interest
    • Political/legal Segment
      • Antitrust, (De)regulation, Taxation, Labor laws
    • Sociocultural Segment
      • Diversity, Social concerns, quality of life
    • Technological Segment
      • Product and process changes, Communications
    • Global Segment
      • Political events, global and regional crisis, Exchange rates
  • The External Environment Part I: The General Environment
    • Scanning
      • A general look around
    • Monitoring
      • Keeping track of what looks potentially important
    • Forecasting
      • Trying to predict where things will be going
    • Assessing
      • Trying to understand how the changes effect you
  • The External Environment Part I: The General Environment
    • Demographic Segment
      • Population, Age, Income, Ethnicity
    • Economic Segment
      • Inflation, Exchange rates, Savings rates, Interest
    • Political/legal Segment
      • Antitrust, (De)regulation, Taxation, Labor laws
    • Sociocultural Segment
      • Diversity, Social concerns, quality of life
    • Technological Segment
      • Product and process changes, Communications
    • Global Segment
      • Political events, global and regional crisis, Exchange rates
  • The External Environment Part I: The General Environment
    • Scanning
      • A general look around
    • Monitoring
      • Keeping track of what looks potentially important
    • Forecasting
      • Trying to predict where things will be going
    • Assessing
      • Trying to understand how the changes effect you
  • Exercise: General Environment and Wal-Mart
    • Break in groups of 3 or 4 persons
    • Try to identify at least one general trend for each segment of the environment
    • Determine how this trend impacts Wal-Mart a.k.a. the worlds largest retailer (positive, negative or neutral)
    • How would you respond - time permitting
  • The General Environment and Wal-Mart
    • Demographic Segment
      • Population, Age, Income, Ethnicity
    • Economic Segment
      • Inflation, Exchange rates, Savings rates, Interest
    • Political/legal Segment
      • Antitrust, (De)regulation, Taxation, Labor laws
    • Sociocultural Segment
      • Diversity, Social concerns, quality of life
    • Technological Segment
      • Product and process changes, Communications
    • Global Segment
      • Political events, global and regional crisis, Exchange rates
  • The External Environment Model of Superior Returns
    • 1. Study the external environment.
    • 2. Locate an industry with high potential for above-average returns.
    • 3. Identify strategy called for by the industry to earn above-average returns.
  • External Environment: Part II Industry Analysis
    • External Environment Model of Superior Returns
      • Locate an industry with high potential for above-average returns.
    • An Industry is a group of firms producing
    • products that are basically the same.
  • Threat of Substitute Products Threat of New Entrants Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers
  • Threat of New Entrants Barriers to Entry Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale * * * * * * Government Policy *
  • Threat of Substitute Products * Products with improving price/performance tradeoffs relative to present industry products Products with similar function limit the prices firms can charge For Example: Keys to evaluate substitute products: Fax machines in place of overnight mail delivery E-mail in place of fax machines
  • Bargaining Power of Suppliers * Supplier industry is dominated by a few firms * Suppliers’ products have few substitutes * Suppliers’ products have high switching costs * Supplier poses credible threat of forward integration * Suppliers’ products are differentiated Suppliers are likely to be powerful if: Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
  • Bargaining Power of Buyers Buyer groups are likely to be powerful if: * Buyers are concentrated or purchases are large relative to industry sales * Buyer presents a credible threat of backward integration * Products are undifferentiated * Buyers face few switching costs * Buyers’ industry earns low profits * Buyer has full information Buyers compete with the supplying industry by: * Bargaining down prices * Forcing higher quality * Playing firms off of each other
  • Cutthroat competition is more likely to occur when: * Numerous or equally balanced competitors * Slow growth industry * High fixed costs * Lack of differentiation or switching costs * High storage costs * Diverse competitors * High exit barriers * High strategic stakes Intensity of Rivalry Among Existing Competitors
  • Threat of Substitute Products Threat of New Entrants Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers
  • Five Forces and the Oil Industry
    • Threat New Entry
      • Billions of $ to enter
      • No new since mid 1970s
      • VERY LOW
    • Supplier Power
      • Landowners, countries smaller than companies
      • LOW
    • Buyer Power
      • You and I as individuals
      • Very LOW
    • Substitutes
      • Methanol? Not driving?
      • VERY LOW
    • Rivalry
      • Joint drilling operations
      • Mergers and acquisitions
      • “ Regional focus”
      • VERY LOW
    • Profits???
      • Huge, enormous, monstrously large!!!
  • Five Forces and Restaurants
    • Threat New Entry
      • Small capital ($50,000)
      • Can be run by a family
      • VERY HIGH
    • Supplier Power
      • Real Estate controls all
      • VERY HIGH
    • Buyer Power
      • Do you always go to the exact same restaurant?
      • VERY HIGH
    • Substitutes
      • How often does the average family eat out?
      • VERY HIGH
    • Rivalry
      • Why work together?
      • Fierce competition
      • VERY HIGH
    • Profits???
      • Ouch! Not so good,
      • Many don’t survive
  • Pres./Memo One - Expectations
    • Provide a Brief company overview (none is fine)
    • Highlight results of the general environment analysis
      • Scanning, monitoring, forecasting, assessing
    • Conduct a detailed Five Force analysis
      • Provide a rough determination of the impact of each force force (support your position)
      • Summarize the overall model results
      • Explain where your company fits in the industry
    • Briefly mention the type of generic business-level strategy pursued by the company
    • The memo should replicate the presentation
  • THE Project Questions (Your conclusion should address these questions) What did we learn form the analysis that can be useful to someone within the company? Application, application and more application
    • Keys to Success
      • Report the RESULTS of your analysis, not the process of analysis. However,
      • Be thoughtful (what’s really going on)
      • Make sure you SUPPORT YOUR ARGUMENT !!!
    Project Expectations Data, data and more data - support your position! (not a suggestion, a requirement)
  • The External Environment Model of Superior Returns
    • 1. Study the external environment.
    • 2. Locate an industry with high potential for above-average returns.
    • 3. Identify strategy called for by the industry to earn above-average returns.
  • Threat of Substitute Products Threat of New Entrants Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers
  • The External Environment Model of Superior Returns
    • 1. Study the external environment.
    • 2. Locate an industry with high potential for above-average returns.
    • 3. Identify strategy called for by the industry to earn above-average returns.
  • Business-Level Strategy
    • A Strategy is an integrated and coordinated set of commitments and actions designed to gain a competitive advantage.
    • A Business-level strategy is a (strategy) targeted to specific, individual product markets.
  • Breadth of Competitive Scope Source of Competitive Advantage Broad Target Market Narrow Target Market Cost Focused Differen- tiation Cost Leadership Differen- tiation Focused Low Cost Generic Business Level Strategies Uniqueness
  • Relatively standardized products Features acceptable to many customers Lowest competitive price Requirements Constant effort to reduce costs through: * Building efficient scale facilities * * “ State of the Art” manufacturing facilities * Simplification of processes * Minimizing costs of sales, R&D and service * Monitoring costs of activities provided by outsiders Tight control of production costs and overhead Cost Leadership Business Level Strategy
  • Cost Leadership Competitive Risks
    • Loss of cost advantage due to technology
    • Loss of cost advantage due to imitation
    • Customer interest in a differentiated product
    Focus on VOLUME
  • Differentiation Business Level Strategy Value provided by unique features and value characteristics Command premium price Superior quality Rapid innovation Prestige or exclusivity High customer service Requirements Constant effort to differ-entiate products through: * Developing new systems and processes * Quality focus * * Maximize Human Resource contributions through low turnover and high motivation Capability in R&D * Shaping perceptions through advertising
  • Differentiation Competitive Risks
    • Price does not justify the features
    • Unique features no longer valued
    • Loss of differentiation due to imitation
    Focus on MARGINS
  • May be able to serve a narrow market segment more effectively than industrywide competitors Firm may lack resources to compete industrywide Large firms may overlook small niches However..... Opportunities may exist because: * * * Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
  • Focused Competitive Risks
    • Firm may be “outfocused” by competitors
    • Large competitor may set its sights on your niche market
  • Integrated Low-Cost/Differentiation
    • What is it?
    • The best of both worlds. Both low-cost and differentiated.
    • Potential problems?
    • Unachievable! Can easily get stuck in the middle.
  • Pres./Memo One - Expectations
    • Provide a Brief company overview (none is fine)
    • Highlight results of the general environment analysis
      • Scanning, monitoring, forecasting, assessing
    • Conduct a detailed Five Force analysis
      • Provide a rough determination of the impact of each force force (support your position)
      • Summarize the overall model results
      • Explain where your company fits in the industry
    • Briefly mention the type of generic business-level strategy pursued by the company
    • The memo should replicate the presentation
  • THE Project Questions (Your conclusion should address these questions) What did we learn form the analysis that can be useful to someone within the company? Application, application and more application
    • Keys to Success
      • Report the RESULTS of your analysis, not the process of analysis. However,
      • Be thoughtful (what’s really going on)
      • Make sure you SUPPORT YOUR ARGUMENT !!!
    Project Expectations Data, data and more data - support your position! (not a suggestion, a requirement)
  • How to create value for the corporation as a whole A Diversified Company has 2 levels of strategy How to create competitive advantage in each business in which the company competes Corporate-Level Strategy (Companywide Strategy) Business-Level Strategy (Competitive Strategy)
  • Firms Vary by Degree of Diversification Single-business More than 95% of revenues from a single business unit Low Levels of Diversification Dominant-business Between 70% and 95% of revenues from a single business unit Related-Diversified Less than 70% of revenues from a single business unit Moderate to High Levels of Diversification Businesses share product, techno-logical or distribution linkages Unrelated-Diversified Business units not closely related High Levels of Diversification
  • Transferring Core Competencies Sharing Activities Alternative Diversification Strategies Efficient Internal Capital Market Allocation Restructuring Related Diversification Strategies Unrelated Diversification Strategies 1 2 3 4
  • Sharing Activities Clear corporate mission that emphasizes the importance of integrating business units Incentive system that rewards more than just business unit performance Strong sense of corporate identity Assumptions Key Characteristics 1 2 3 Sharing of basic activities often lowering costs or raising differentiation
  • Transferring Core Competencies Key Characteristic Assumptions Activities involved in the businesses are similar enough that sharing expertise is meaningful The skills transferred represent significant sources of competitive advantage for the receiving unit 1 2 3 Transfer of skills involves activities which are important to competitive advantage The sharing of highly specialized skills and expertise
  • Key Characteristic Acquire sound, attractive companies, transfer resources from units that generate cash to those with high growth potential and substantial cash needs Efficient Internal Capital Market Allocation Managers have more detailed knowledge of the acquired firm relative to outside investors (not likely) Major Assumption
  • Key Characteristic Seek out undeveloped, sick or threatened organizations, make a variety of harsh changes within the firm and (often) sell unit after making one-time changes since parent no longer adds value to ongoing operations Restructuring Major Assumption Management of the acquiring firm has insight in selecting firms with depressed values or unforeseen potential (yea right!)
  • Firms Vary by Degree of Diversification Single-business More than 95% of revenues from a single business unit Low Levels of Diversification Dominant-business Between 70% and 95% of revenues from a single business unit Related-Diversified Less than 70% of revenues from a single business unit Moderate to High Levels of Diversification Businesses share product, techno-logical or distribution linkages Unrelated-Diversified Business units not closely related High Levels of Diversification
  • Performance Level of Diversification Diversification and Firm Performance Dominant Unrelated Related
  • Why all the Unrelated Diversification?
    • Managerial Motives to Diversify
      • To diversify employment risk, effective as long as profitability does not suffer excessively.
      • To increase compensation. As firm size goes up, so does executives compensation.
      • It’s the trendy thing to do (more so in the 1980s)
  • BCG Growth-Share Matrix
  • BCG Growth-Share Matrix No Future Divest Invest or Divest Defend and Maintain Promote and Expand Low Grow Low Share High Grow Low Share Low Grow High Share High Grow High Share Dogs Question ? Cash Cows Stars
    • Major Assumption:
      • If you have a low market share and/or it’s a slow growth market, the long term profitability potential of an investment is low.
    • Problem with Assumption:
      • Does not allow for a sharing of activities or core competencies (skills and abilities) that makes an otherwise poor investment (for some) more attractive for your firm.
      • Assumes that if it’s a high growth market where you can have a large presence, then it’s a good investment.
    BCG Growth-Share Matrix
  • GE/McKinsey Matrix Business Unit Strength Industry Attractiveness Fatal Assumption: No Interaction Between Business Units Harvest Harvest Hold Low Harvest Hold Grow Medium Hold Grow Grow High Low Medium High
  • Corporate Governance
    • Corporate Governance is a relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations
    • Concerned with identifying ways to ensure that strategic decisions are made effectively
    • Used in corporations to establish order between the firm’s owners and its top-level managers
  • Separation of Ownership and Managerial Control
    • The nature of modern corporations based on capital markets
    • Shareholders purchase stock, becoming Residual Claimants
    • Shareholders reduce risk by holding diversified portfolios
    • Professional managers contract to provide decision-making
    • Modern public corporation form leads to efficient specialization of tasks
      • Risk bearing by shareholders
      • Strategy development & decision-making by managers
  • An agency relationship exists when: Shareholders (Principals) Firm Owners Agency Relationship Risk Bearing Specialist (Principal) Managers (Agents) Decision Makers which creates Managerial Decision-Making Specialist (Agent) Hire Agency Theory
  • Agency Theory
    • The Agency Problem occurs when:
    • The desires or goals of the principal and agent conflict and it is difficult or expensive for the principal to verify that the agent has behaved appropriately
    • Managerial Opportunism occurs when:
    • The manager acts in her or his self-interests with guile. Problematic because it is impossible to know in advance who will be opportunistic.
    • Example: Overdiversification because increased diversification generally leads to greater compensation. Flat out fraud that benefits individuals at the expense of the firm (Enron)
  • Agency Theory
    • Principals may engage in monitoring behavior to assess the activities and decisions of managers
    • However, dispersed shareholding makes it difficult and inefficient to monitor management’s behavior
    • What to do?
      • Implement some type of Corporate Governance
  • Governance Mechanisms
    • Internal Governance Mechanisms
    • Ownership Concentration
    • Boards of Directors
    • Executive Compensation
    • Multidivisional Organizational Structure
    • External Governance Mechanisms
    • Market for Corporate Control
  • Agency Costs
    • The sum of
    • Corporate Governance Costs
    • incentive, monitoring and enforcement costs
    • Opportunistic Behavior Costs
    • individual financial losses incurred by principles, because of misdeeds by the agent
    • A Balancing Act:
    • Auditing is NOT a free service
    • Dangerous if left unchecked
  • Ownership Concentration
    • Large block shareholders have incentive to monitor management closely
    • Their large stakes make it worth their while to spend time, effort and expense to monitor
    • They may also obtain Board seats which enhances their ability to monitor effectively
    • Limitation: Tough to get large enough to be influential is a Fortune 500 firm
  • Boards of Directors
    • Review and ratify important decisions
    • Determine CEO compensation/employment
    • Limitation: Lack day to day interaction and/or may be an insider or a related insider
      • Increase diversity of board members backgrounds
      • Internal mgmt/accounting control systems
      • Establish formal processes for evaluation of the board’s performance
  • Executive Compensation
    • Salary, Bonuses, Long term incentives
    • Limitations:
      • Executive decisions are complex and non-routine, Many factors making it difficult to establish how decisions are directly responsible for outcomes
      • Stock ownership (long-term incentive) makes managers more susceptible to market changes which are partially beyond their control
      • Incentive systems do not guarantee that managers make the “right” decisions
  • Multidivisional Organizational Structure (e.g., GM)
    • Corporate office and Board monitor managers’ strategic decisions
    • Increased managerial interest in wealth maximization at the corporate level
    • Limitation:
      • Does not necessarily limit corporate- level managers’ self-serving actions
      • May lead to greater rather than less diversification
      • Tough to link individual to senior managers
  • Market for Corporate Control
    • When firms face the risk of takeover because they operate inefficiently (lower stock price)
    • Firms operate more efficiently as a result of the “threat” of takeover, even though the actual incidence of hostile takeovers was relatively small
    • Limitation:
      • Development of defensive measures
      • Problems with hostile takeovers (TBA)
  • Exam One: Review
    • Topics Covered
      • If it was assigned reading or we talked about it in class, it’s included (does not text include examples).
    • Exam Format
      • 18 multiple choice (1 pt), 11 short answer (2 pts).
      • Should be able to finish in 55 min.
    • Focus of the Exam
      • A combination of knowing basic concepts and applying these concepts to “real” situations.
  • Exam One: Review
    • Chapter One (not in test)
    • Chapter Two
      • What is the general environment and how do we include it (SMFA)?
      • NOT the segments.
      • Five Forces in detail.
    • Chapter Four
      • What are the business-level strategies, the advantages & assumptions associated with each?
    • Chapter Six
      • What are the levels of diversification and associated corporate-level strategies?
      • When is a particular corporate-level strategy appropriate?
    • Chapter Ten
      • What is opportunistic behavior and why is it a problem?
      • What are the corporate governance mechanisms and the limitation of each?
  • That’s all folks!!! (It’s not that tough - if you know your stuff) Questions? Comments? Concerns? Anxieties?
  • Internal Model of Superior Returns
  • Car Shuttle Business
    • Rides from USD to
    • Old Town Transit Center using my 2005 Honda CRV
    • Leaves every 30 min from campus Monday – Friday from 7:15-9:45 AM and from 3:00-6:30 PM.
    • No other such service in San Diego at this time
    • How many willing to
    • pay $10.00 or more for
    • this service???
  • Model One: Industrial Organization (Porter’s Five Forces) The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.
  • Model Two: Resource Based (Core Competency)
    • The resources and capabilities of the firm should drive strategy. Build your strategy around existing resources.
  • The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm . The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate. Resource-Based Model of Superior Returns
  • Resources Capabilities Teams of Resources Sources of Sustained Competitive Advantage Core Competencies Above-Average Returns Strategic Competitiveness Which Leads To Combined With Results In * Tangible * Intangible Components of Internal Analysis
  • The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm . The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate. Resource-Based Model of Superior Returns
  • Tangible Resources Financial * Physical * Human Resources * Organizational * Resources What a firm Has... What a firm has to work with: its assets, including its people and the value of its brand name Resources represent inputs into a firm’s production process... such as capital equipment, skills of employees, brand names, finances and talented managers Resources Intangible Resources Technological * Innovation * Reputation *
  • Capabilities What a firm Does ... Capabilities represent : the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective. Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources. The combination of specific firm capabilities with specific firm resources results in the core competency of the firm.
  • Core Competency What a firm does with what a firm has... But is it Strategically Valuable? Question: How do we determine if what a firm does with what a firm has is strategically valuable? Answer: Does it give the firm a Sustained Competitive Advantage ?
  • Sustain Competitive Advantage Valuable Rare Nonsubstitutable Competency that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships Competency that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity Competency that are possessed by few, if any, current or potential competitors Competency that helps a firm to exploit opportunities to create value for customers Costly to Imitate
  • Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage Valuable Rare Costly to Imitate Nonsub-stitutable Competitive Consequences Performance Implications Above Average Returns NO YES/NO YES/NO YES/NO YES NO YES/NO YES/NO YES NO YES/NO YES YES YES YES YES Competitive Disadvantage Below Average Returns Competitive Parity Average Returns Temporary Competitive Advantage Temporary Above Ave Returns Sustainable Competitive Advantage
  • Resources Capabilities Teams of Resources Sources of Sustained Competitive Advantage Core Competencies Above-Average Returns Strategic Competitiveness Which Leads To Combined With Results In * Tangible * Intangible Components of Internal Analysis
  • Resources Capabilities Teams of Resources Distinctive Competencies Above-Average Returns Sustainable Competitive Strategically Valuable Valuable, Rare, not easily imitated or substituted Combined With Result In Which May Be Result In Advantage * Tangible * Intangible Components of Internal Analysis
  • Warning, Warning, Warning!!! Products or services that customers like are NOT core competencies. Core competencies are the combination of resources and capabilities that ALLOW the firm to produce the products and services that customers like.
  • Identifying Core Competencies
    • Step
    • 1. Prepare a current product/market profile
    • 2. Identify sources of advantage in primary product/markets
    • 3. Determine organizational competencies
    • 4. Determine if competencies give you a sustained competitive advantage
    • Question
    • 1. What are we selling, to whom and how are we doing?
    • 2. Why do our customers choose our products over others?
    • 3. What about our org. gives us advantage with customers?
    • 4. Is the competency rare, valuable, difficult to imitate or substitute?
  • Canon’s Core Competencies
    • Step
    • 1. High end cameras (prior to expansion of the business)
    • 2. Because of the superior optics associated with our lenses
    • 3. The ability to produce superior optical devices
    • 4. Yes, especially as related to cameras BUT also as related to copiers!
    • Question
    • 1. What are we selling, to whom and how are we doing?
    • 2. Why do our customers choose our products over others?
    • 3. What about our org. gives us advantage with customers?
    • 4. Is the competency rare, valuable, difficult to imitate or substitute?
    Canon’s expertise is with optics, not photography. Thus, moving into copies makes sense. Moving into film does not. This is why we focus on resources and capabilities, NOT products.
  • Warning, Warning, Warning!!! Products or services that customers like are NOT core competencies. Core competencies are the combination of resources and capabilities that ALLOW the firm to produce the products and services that customers like.
  • Project Expectations
    • Necessary Items for all presentations/memos
    • Use the four questions framework to identify the firm’s core competency.
    • Discuss in detail the resources and capabilities that make up the distinctive competency.
    • Determine if the distinctive competency is strategically valuable (valuable, rare, subs, imit).
    • Determine the firm’s competitive position AND the financial implications of this position.
    • Discuss the implications of your analysis.
  • Project Expectations
    • Must work together as a group
    • Not appropriate for one person to dominate
    • ALL must participate
    • Any ‘bonus’ depends on equal participation
    • I reserve the right to adjust scores for those who do not contribute to the projects based on feedback received from the rest of the group.
  • Support Activities Primary Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Value Chain Analysis helps to identify which resources and capabilities can add value
  • Value Chain Analysis (the short version)
    • Primary Activities - are those involved with the product or service’s creation, its sale and distribution to buyers, and its service after the sale.
    • Support Activities - provide the support necessary for the primary activities to take place.
    To be a source of competitive advantage, a resource or capability must some how contributed to the overall core competency of the firm.
  • Outsourcing?
    • What is it?
    • Strategic choice to purchase some activities from outside suppliers
    • Why do it?
    • Improve Business Focus - Lets company focus on broader business issues by having outside experts handle various operational details
    • Provide Access to World-Class Capabilities - The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
    • Free Resources - Permits firm to redirect efforts from non-core activities toward those that serve customers more effectively
  • What to Outsource?
    • Potentially anything that does not directly related to your core competency
    • Be careful not to accidentally erode your competitive position
    • For example :
      • If you’re an oil company, why not outsource your payroll functions
      • If you’re a bank, you should probably not outsource your accounting function
    The Short Version: Allows you to focus on doing what you do best while hiring others to do what they do best.
    • Merger
      • A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage
    • Acquisition
      • A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses
    Mergers and Acquisitions
  • Hostile Takeovers and Leveraged Buyouts
    • Takeover (Hostile)
      • An acquisition where the target firm did not solicit the bid of the acquiring firm. Often results in the replacing of management
    • Leveraged Buyout
      • A restructuring where the management of the firm and/or outside investors buys all of the assets of the business largely financed with debt and takes the firm private. High debt load commits future cash flows to repay debt, creating increased risk
  • Reasons for Mergers and Acquisitions
    • Increase Market Power
      • Acquisition intended to reduce the competitive balance of the industry. (BP Amoco Arco)
    • Overcoming Barriers to Entry
      • Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive (Whirlpool and Phillips Appliance Division)
    • New Product Acquisition (lower cost & risk)
      • Buying established businesses reduces risk of start-up ventures (Ford’s acquiring of Jaguar)
  • Reasons for Mergers and Acquisitions
    • Increase Speed to Market
      • Allows entry in a more timely fashion (CBS and iwon)
    • Diversification
      • For all the reasons previously outlined (Philip Morris and Miller Brewing)
    • Avoiding Excessive Competition
      • Trying to move where competitive pressures are less intense (GE and NBC)
    • Bigger is Better/Got to Be There Assumption
      • Based on peer pressure (Exxon & Mobil)
  • Problems with Acquisitions Integration Difficulties Differing cultures can make integration of firms difficult Inadequate evaluation of Target “ Winners Curse” bid causes acquirer to overpay for firm Large or Extraordinary Debt Costly debt can create onerous burden on cash outflows
  • Inability to Achieve Synergy Justifying acquisitions can increase estimate of expected benefits Overly Diversified Acquirer doesn’t have expertise required to manage unrelated businesses Managers Overly Focused on Acquisitions Managers lose track of core business by spending so much effort on acquisitions Too Large Large bureaucracy reduced innovation and flexibility Problems with Acquisitions
  • Complementary Assets or Resources Buying firms with assets that meet current needs to build competitiveness Friendly Acquisitions Friendly deals make integration go more smoothly Characteristics of Effective Acquisitions Careful Selection Process Deliberate evaluation and negotiations is more likely to lead to easy integration and building synergies Maintain Financial Slack Provide enough additional financial resources so that profitable projects would not be foregone
  • Flexibility Has experience at managing change and is flexible and adaptable Characteristics of Effective Acquisitions Low-to-Moderate Debt Merged firm maintains financial flexibility Do it For the Right Reasons Avoid the bigger is better/Got to be there trap Make sure you have the core competencies to effectively utilize the acquired resources!!!!
  • Transferring Core Competencies Sharing Activities Alternative Diversification Strategies Related Diversification Strategies 1 2
  • Transferring Core Competencies Key Characteristic Assumptions Activities involved in the businesses are similar enough that sharing expertise is meaningful The skills transferred represent significant sources of competitive advantage for the receiving unit 1 2 3 Transfer of skills involves activities which are important to competitive advantage The sharing of highly specialized skills and expertise
  • Group Discussion Questions
    • Image you are the CEO of Ocean Kayaks
    • You have decided it is time to diversify
    • What are your core competencies?
    • What would be an appropriate area of expansion to build on your core competencies?
    • If you were to expand via acquisition, who would be an appropriate acquisition target?
  • International Strategy “ The selling and/or production of products in markets outside the firm’s domestic market”
  • Good ‘Strategic’ Reasons for Going Global
    • Increased Market Share (Sales)
      • Increased sales, increased profits
      • Must adapt to local tastes and preferences
    • Location Specific Advantages (Production)
      • Lower costs OR other reasons
      • Must factor in transportation costs, trade barriers, political risk
  • Four Basic Strategies
    • International Strategy
    • Multi-domestic Strategy
    • Global Strategy
    • Transnational Strategy
  • Transnational Strategy Global Strategy International Strategy Multidomestic Strategy Pressures for Local Responsiveness (need to locally adapt) Cost Pressures (need to keep costs down) Low High Low High
  • Local Responsiveness
    • Consumer tastes and preferences
    • Infrastructure and traditional practices
    • Distribution channels
    • Host government demands
  • International Strategy
    • Transfer valuable skills and products (and production capabilities) to a foreign market
    • Minimal adaptation for the local environment
    • You have what they want and you are willing to sell it to the (e.g., McDonald’s)
  • Multidomestic Strategy
    • Customize both product offerings and marketing strategy
    • Maximum local adaptations
    • Basically setting up a completely new business in the target market
    • (e.g., French Grocery Chain in Poland)
  • Global Strategy
    • Offer standardize product built using a global network
    • Global production (to reduce costs) and standardized in marketing
    • Offering a generic product at a low price
    • (e.g., Marlboro Cigarettes)
  • Transnational Strategy
    • Low cost and local responsiveness
    • Trying to do both at the same time
    • Hum? I’m not convinced it’s possible
  • The Four Strategies Compared
  • What’s the Best Strategy? It Depends!!! Fast Food in Every Country (Int’l) Soft Drinks World Wide (Global) Grocery Stores in Poland (M-D)
  • Entering Foreign Markets
    • The FOUR entry modes
      • 1. Exporting
      • 2. Licensing
      • 3. Strategic Alliance
      • 4. Wholly-Owned subsidiary (including Acquisitions)
    A trade off of risk and control
  • Exporting
    • Establish distribution channels through contractual relationships
      • Common way to enter a new int’l market
      • May have high transportation costs
      • May encounter high import tariffs
      • May be impossible to do depending on product characteristics
  • Exporting
    • Primary Advantage:
      • No need to establish operations in target country ( low risk )
    • Primary Disadvantage:
      • Less control over marketing and distribution ( low control )
  • Licensing
    • Firm authorizes another firm to manufacture and sell its products
      • Licensing firm is paid a royalty on each unit produced and sold
      • Can also include Franchising where the franchisee is required to follow strict rules of operation
      • May be impossible to do depending on product characteristics
  • Licensing
    • Primary Advantage:
      • Licensee takes the risk associated with manufacturing investment ( low risk )
    • Primary Disadvantage:
      • Licensing firm loses control over product quality and distribution ( low control )
      • Licensor learns the licensing firm’s technological know how ( low control )
  • Strategic Alliance
    • A business entity/activity that is jointly owned by two or more otherwise independent firms
      • Usually involves a foreign company with a new product or technology and a host company with access to distribution or local knowledge
      • May experience difficulty in merging cultures
      • May incorrectly assess the intent of the partner
  • Strategic Alliance
    • Primary Advantage:
      • Enables a firm to share the risks and resources when expanding into a new environment ( moderate risk )
    • Primary Disadvantage:
      • Must share in the decision making with the strategic partner ( moderate control )
  • Wholly-Owned Subsidiary
    • A 100% owned subsidiary of a company based in another country
      • The parent firm develops an entirely new firm in the target market
      • The parent firm acquires an established firm and uses that firm to promotes its products in the target market
  • Wholly-Owned Subsidiary
    • Primary Advantage:
      • The parent firm has complete managerial control over the subsidiary ( high control )
    • Primary Disadvantage:
      • The parent firm incurs the entire cost of expansion into the target market ( high risk )
  • What’s the Best Strategy? It Depends!!! Level of acceptable risk Level of pre-existing knowledge Nature of product or service
  • Cooperative Strategy
    • A strategy in which firms work together to achieve a shared objective
    • Strategic Alliance :
    • Firms combine some of their resources and capabilities to create new competitive advantages.
    • Collusive Strategy :
    • Two or more firms cooperating to raise prices above fully competitive market prices.
  • Types of Collusion
    • Explicit Conspiracy:  
    • Getting together to fix prices
    • - Illegal in US but practices elsewhere (e.g. Org of the Petroleum Exporting Countries, De Beers)
    • Tacit Coordination:
    • Spontaneous cooperation in concentrated industry
    • - NOT illegal and practiced in US (e.g. with Oil)
    • Facilitating Practices:
    • Announcing of prices/matching guarantees
    • - NOT illegal and practiced in US (e.g. with drugs)
  • Types of Strategic Alliances
    • Joint Venture :
    • Independent firm is created by the joining assets from two other firms where each contributes 50% of the total
    • Equity Strategic Alliance :
    • Partnership where the two partners do not own equal shares
    • Non-equity Strategic Alliance :
    • Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing)
  • Types of Strategic Alliances
    • Slow Cycle : (imitation is difficult)
    • Reason: To gain access to restricted markets
    • Fast Cycle : (imitation is ongoing)
    • Reason: Speed/reduce risk of new innovations
    • In either case, focus is on enhancing KEY resources/capabilities (key resource being access to markets or introduction of new innovations)
  • Business Level Cooperative Strategies
    • Complementary Alliances
    • Sharing of resources and capabilities in complementary ways to gain advantage
    • Vertical : Up and down the value chain (someone to assist with procurement or sales)
    • Horizontal : Same stage of the value chain (to build a better product)
    • Bottom line: Convince people to buy your product or service over others for whatever reason
  • Other Cooperative Strategies
    • Corporate Level Alliance
    • Used to diversify into new products or markets. As previously discussed and based on complimentary resources and capabilities
    • International Cooperative Strategy
    • As a mechanism for entering new markets. Again, as previously discussion with a focus on complimentary resources and capabilities
    • Network Cooperative Strategy
    • Used to advance the interests of a group of firms (e.g., industry). Begins to look like collusion
  • Cooperative Strategies Risks
    • Unclear expectations for each party involved
    • Exploitation by one party due to inadequate contractual safeguards
    • Failure to achieve synergies due to misrepresentation of resources and capabilities
    • Failure to achieve synergies due to inability to integrate resources and capabilities due to cultural clashes between the parties involved
  • Managing Cooperative Strategies
    • Cost Minimization :
    • Minimize risks by having good contractual safeguards in place. Monitor activities of jointly operated activities.
    • * Easier to do in the short term
    • Opportunity Maximization :
    • Maximize benefits by building trusting relationships and by mutually addressing issues that arise as a result of the relationship.
    • * More cost effective in the long term
  • Entrepreneurship and Innovation
  • Crocodile Rock - Elton John Nixon is President (not for long) Microsoft does not exist (neither do you) IBM offers a PC 9 years later First Personal Computer is born (the Alto) Same company invents the mouse, graphical interfacing and word processing What company are we talking about??? 1973
  • Entrepreneurship and Innovation
    • Invention
      • The act of creating or developing a new product or process
    • Innovation
      • The process of creating a commercial product from an invention
    • Entrepreneur
      • An individual who creates a new venture or develops an innovation and takes risks entering them into the marketplace
    • Corporate Entreprenuership
      • The process whereby an individual or group in an existing organization creates a new venture or develops a process innovation
  • Internal Corporate Venturing
    • 1 Autonomous strategic behavior is a bottom-up process through which Product Champions pursue new product ideas to commercialization
    • Product Champions are individuals who have an
    • entrepreneurial vision for a new product and seek
    • support for its commercialization
    • 2 Induced strategic behavior is a top-down process in which the current strategy and structure foster product innovations that are closely associated with the current strategy
    • A Decision on which corporate resources to
    • deploy for new technology development and which
    • innovative ideas to bring to market
  • Implementing Internal Corporate Ventures
    • Barriers to Integration
      • 1. Independent Frames of Reference (different ways of seeing the world)
      • 2. Organizational Politics
    • Facilitating Integration
      • 1. Shared Values Associated with Innovation
      • 2. Leadership Stressing Innovation
      • 3. “Innovation Friendly” Goals and Budgets
      • 4. An Effective Innovation System
  • External Sources of Innovation
    • Strategic Alliances : A partnership between firms whereby resources, capabilities and core competencies are combined to pursue common interests and goals
      • Benefit: Sharing Expertise and Costs (R&D)
      • Main Risk: The Theft of a Firm’s Innovations
    • Acquisitions and Venture Capital: The purchasing of innovation through acquisition or the allocation of resources to entrepreneurs who are involved in a project with high growth potential
      • Benefit: Faster and cheaper than in house innovation
      • Main Risk: Loss of the ability to innovate internally
  • Entrepreneurship and Innovation: Not Just for the Fortune 500
    • 80% of the world’s R&D from firms of 10,000 or more employees
    • More than half of the world’s “Inventions” come from smaller firms (but not the innovations)
    • Smaller firms (500 or less employees) account for 53% of the workforce, 47% of sales and 51% of private sector GDP.
  • Strategic Leadership
    • The ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary
    • Involves managing through others, managing an entire enterprise rather than a functional subunit, and coping with change that seems to be increasing exponentially.
    • Tough job to be the companies strategic leader
  • Why are Strategic Leaders so Important?
    • Because they . . .
      • determine a firm’s strategic direction by developing the firm’s long-term vision,
      • ensure that the firm’s core competencies are emphasized in strategic implementation efforts,
      • have a large influence on a firm’s ability to attract and retain high quality employees,
      • shaping and reinforcing the firm’s culture,
      • set the ethical tone of a company and,
      • determine the appropriate level of organizational control.
  • Strategic Leadership and You
    • You are not going to be the CEO right away (probably). However, you might be making strategic recommendations to the CEO right away. Therefore, you need to understand strategic leadership.
    • The actions of the strategic leadership have a HUGE effect on the firm (will determine what kind of place it is to work)
    • Top Management Team
      • The key managers who are responsible for formulating and implementing the strategy.
    • Heterogeneous Top Management Team
      • A top management team composed of individuals with different functional backgrounds, experiences, and education.
    • More heterogeneous top management teams . . .
      • are better at strategic formulation
      • struggle with strategic implementation
  • Managerial Labor Market
    • Internal Labor Market
      • The selection of new management from within the org
      • Familiarity with firm and industry
      • Maintaining firm specific knowledge
      • Often more accepted within the company
    • External Labor Market
      • The selection new management from outside the org
      • Brings in fresh ideas
      • More likely to institute organizational changes
  • Effects of CEO Succession and Top Management Team Composition Strategic Change Top Management Team Managerial Labor Market: CEO Succession Heterogeneous Homogeneous Internal CEO Succession Stable Strategy Stable Strategy with Innovation Ambiguous: Possible change in Top Management Team and Strategy External CEO Succession
  • What is best? It Depends!
    • Good, stable industry with a sound core competency
      • Stability sounds good! (Internal CEO and homogeneous top management team)
    • Good Company in a rapidly changing industry
      • Need to keep innovating (Keep the CEO but make sure top team is heterogeneous)
    • Rapidly changing industry without any core competencies
      • Serious change is needed! (Change CEO and develop a heterogeneous top management team)
    • Homogeneous top team with a company going no where?
      • Perhaps an outside CEO can shake things up a bit
  • The Balanced Scorecard
    • A framework that firms can use to verify that they have established the appropriate controls to assess their performance (not just financial).
    • A mechanism for monitoring performance on a variety of dimensions including financial, customer, internal business processes, and learning and growth
  • The Balanced Scorecard
    • Financial
      • Cash flow, return on equity, return of assets, etc.
    • Customer
      • Anticipating customers needs, customer service practices, % repeat customers, Communication with customers, etc.
    • Internal Business Processes
      • Asset utilization improvements, employee morale, turnover rates, etc.
    • Learning and Growth
      • Innov. abilities, new product intros, employee skills, etc.
      • What’s most important? The key resources and capabilities that lead to you firm’s competitive advantage!
  • Final Project
    • From the smaller presentations:
    • We know what the industry looks like (including external opportunities and threats)
    • We know what our firm looks like (including internal strengths and weaknesses)
    • Now, what do we do about it?
  • Final Project
    • Make specific RECOMMENDATIONS !
    • What you’re being paid to do as a consultant.
    • A POTENTIAL framework (not necessary!)
    • Outline the S trengths, W eaknesses, O pportunities and T hreats for your company pulling from the previous .
  • Final Project
    • Most Important : Make specific recommendations
      • Designed to minimize weakness, deal with threats, capitalize on opportunities while building on strengths.
    • Make sure your recommendations tie specifically to material previously presented in class.
      • For example, can you use your core competency to expand into an area you identified as a threat of substitutes during the Porter’s Five Forces analysis? - a rough example only!
    • Be specific with your recommendations .
      • make assumptions if necessary but clearly state your assumptions during the presentation.
  • Final Project
    • Support your recommendations.
      • The support of your recommendations comes from the previous presentations - all of them, not just the last.
    • Do not include any recommendations that are not justified based on your previous strategic analyses
      • Only include recs that are supported by previous analyses.
    • Number of recommendations?
      • One REALLY good (i.e., supported) rec could be enough.
      • Most groups will probably have 3 or 4 (more is too many)
    • Make it Professional with an intro and conclusion.
      • Whatever format communicates your message professionally
  • The Social Responsibility of Firms
    • Suggests that a corporation has responsibilities to society that extend beyond making a profit
    • Milton Friedman :
    • There is one and only social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.
  • Carroll’s Four Responsibilities
    • Economic
      • To produce goods and services of value to society so that the firm can repay its creditors and shareholders
    • Legal
      • Defined by governments in laws that management is expected to obey
    • Ethical
      • To follow the generally held beliefs about behavior in a particular society
    • Discretionary
      • Purely voluntary obligations assumed by the firm
  • Carroll’s Four Responsibilities Economic (Must) Legal (Have To) Ethical (Should) Discretion (Might) Stuff that has to be done Done by socially responsible firms Listed in order of priority according to Carroll
  • The Social Responsibility of Firms
    • Key Question:
    • “Responsible to whom?
    • Multiple Stakeholders :
    • Investors, customers, local community, government regulators, employees, etc.
    • Carroll’s Assumption:
    • Investors come first (an assumption)
  • Treating Stakeholders Ethically
    • Ethics:
      • Consensually accepted standards of behavior for a particular environment, occupation or profession.
    • Three basic approaches to ethical behavior
        • Utilitarian
        • Individual Rights
        • Justice
  • Treating Stakeholders Ethically
    • Utilitarian Approach
    • Actions and plans should be judged by their consequences. Behave ways that produce the greatest benefit to society.
    • Individual Rights Approach
    • Fundamental rights should be respected in all decisions. A behavior should be avoided if it interferes with the rights of others.
    • Justice Approach
    • Decision makers should be equitable, fair and impartial in the distribution of costs and benefits to individuals and groups. A behavior should be avoided if it gives preferential treatment to one group or individual at the expense of others.
  • Treating Stakeholders Ethically
    • Utility
      • Does an action/strategy optimize the satisfaction of all stakeholders involved?
    • Rights
      • Does an action/strategy respect the rights of the individuals involved?
    • Justice
      • Is the action/strategy consistent with the concept of justice for all?
  • Operating Ethically
    • Ethics Committees
      • Internal Monitoring
    • Codes of Conduct
      • Statements of appropriate behavior
    • Corporate Vision
      • The guiding principles of the firm
  • Exam Two Overview
    • Chapter 3 – Internal Analysis
      • Know core comp in detail, including 4 questions
    • Chapter 7 – Acquis. & Restructuring Strategies
      • Know different types and difficulties
    • Chapter 8 – International Strategies
      • Two key models, know them both
    • Chapter 9 – Cooperative Strategies
      • Know types and reasons for using each
    • Chapter 12 – Strategic Entrepreneurship
      • Know types and difficulties
    • Ethics of Strategy/Natural Environment
      • Carroll’s responsibilities/stakeholder approaches
  • What is Strategy?
    • The commitments, decisions, and actions that allow the firm to make more money!
    • How is this done?
    • Two competing models
      • 1. Industrial Organizational Model
      • 2. Resource-Based Model
  • Model One: Industrial Organization (Porter’s Five Forces) The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.
  • Threat of Substitute Products Threat of New Entrants Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers
  • Model Two: Resource Based (Core Competency)
    • The resources and capabilities of the firm should drive strategy. Build your strategy around existing resources.
  • Resources Capabilities Teams of Resources Core Competencies Above-Average Returns Sustainable Competitive Strategically Valuable Valuable, Rare, not easily imitated or substituted Combined With Result In Which May Be Result In Advantage * Tangible * Intangible Components of Internal Analysis
  • Which model was most important? It Depends! (i.e., neither or both)
  • Model Three: Life in the Real World! (the focus of this class) The external environment and the resources and capabilities of the firm drive strategy. Firms should seek to maximize profitability by locate and compete in particularly attractive environments (industries) where the firm can most effectively leverage existing and potential resources (core competencies).
  • Entry Supplier Buyer Subs. Rivalry Core Comp. that leads to SCA? Where else might this Core Comp. Apply? Industry A Industry B Industry C
  • Final Project
    • From the smaller presentations:
    • We know what the industry looks like (including external opportunities and threats)
    • We know what our firm looks like (including internal strengths and weaknesses)
    • Now, what do we do about it?
  • Final Project
    • Most Important : Make specific recommendations
      • Designed to minimize weakness, deal with threats, capitalize on opportunities while building on strengths.
    • Make sure your recommendations tie specifically to material previously presented in class.
      • For example, can you use your core competency to expand into an area you identified as a threat of substitutes during the Porter’s Five Forces analysis? - a rough example only!
    • Be specific with your recommendations .
      • make assumptions if necessary but clearly state your assumptions during the presentation.
  • Final Project
    • Support your recommendations.
      • The support of your recommendations comes from the previous presentations - all of them, not just the last.
    • Do not include any recommendations that are not justified based on your previous strategic analyses
      • Only include recs that are supported by previous analyses.
    • Number of recommendations?
      • One REALLY good (i.e., supported) rec could be enough.
      • Most groups will probably have 3 or 4 (more is too many)
    • Make it Professional with an intro and conclusion.
      • Whatever format communicates your message professionally