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NEW YORK UNIVERSITY Leonard N. Stern School of Business ...

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    NEW YORK UNIVERSITY Leonard N. Stern School of Business ... NEW YORK UNIVERSITY Leonard N. Stern School of Business ... Document Transcript

    • NEW YORK UNIVERSITY Leonard N. Stern School of Business Business Strategy B01.2301.21 Spring 2004 Prof. Robert Lamb B01.2301 Room 7-53 KMEC Tuesday/Thursday Office Hours: Tu/Th 4-5:30 p.m. 3:00-4:20 Tel: 998-0231 Room 2-65 KMEC Fax: 995-4235 Email: rlamb@stern.nyu.edu Blackboard URL: http://sternclasses.nyu.edu Teaching Fellow: Kevin Jordan-Deen Email: kjd224@stern.nyu.edu USEFUL RESEARCH SOURCES Course Description Business Strategy’s goal is to gain sustainable competitive advantages a firm needs to create superior value for chosen customers and capture a sufficient share of that value (versus suppliers, competitors and customers) to earn financial profit for the firm. For example, the business-level strategy of the ABC television network (owned by Disney), is focused on distinct ways to significantly grow its base of viewers, advertisers & profits, in the face of major competition for all three from CBS, NBC, FOX, and from the many cable networks. Corporate Strategy focuses on distinct ways a multi-business firm creates sustainable corporate wide competitive advantages, by key choices it makes & actions it takes to put together and manage its portfolio of businesses. The corporate strategy of Walt Disney, evaluates: 1) should it build or own more theme parks, TV networks, sports teams, and movie production firms, or not, and 2) how Disney can add significant value to each of its businesses to make them worth more together, than just the sum of the parts, via Disney control, creativity or management acts? The course is built around 7 beliefs: 1. Our first belief is based on the understanding of competitive strategy in battle and high stakes games in which the outcome is highly valued. Our main belief is that one does not play such a game 1) unless one has a competitive advantage which creates a positive probability of winning and; 2) that gains from winning must outweigh the possible losses. 2. Our second belief is that in the marketplace, exchange creates value. In this context, your objective in business strategy must be to create and capture value through exchange which is sufficient to earn an economic return on invested capital—the amount your firm bet on the game. 1
    • 3. Our third belief is: in competitive markets, firms compete to create superior value for customers, as that value is defined and perceived by your customers and by your suppliers. 4. Our fourth belief is that competitive markets are efficient in the long run and that to create any significant economic profit, your firm must have some economic advantage versus competitors in creating that value. Competitive advantage, whatever its source in your firm’s value chain, must have its effect at the product/market level. 5. Our fifth belief is that your firm’s strategy must be based on your choices about 1) the exact value propositions you offer, 2) the market segments and customer groupings your firm chooses to serve, 3) the position your firm chooses to occupy in an industry value chain, 4) the way your firm configures its value chain, and 5) the ways in which you organize its activities. 6. Today’s business environment is becoming increasingly turbulent, in which the outcomes are inter-dependent on the choices made by others. In such dynamic/interdependent markets, it is not possible to “go it alone”. Most firms must collaborate with others to compete in the market. 7. Our course prepares you with sets of tools to analyze strategic situations and to enable you to create new strategies. This course also shows you how to quantify competitive advantages of one firm vs. its competitor. We evaluate competitive strategy alternatives by measuring them. Useful business strategy must be able to be implemented for its execution is a test of its viability. TEXTS AND CLASS MATERIALS Corporate Strategy: A Resource Based Approach by David Collis and Cynthia Montgomery, Irwin McGraw-Hill – Stern Custom Edition (C&M) Strategy B01.2301, Pearson Publishing Solutions Custom Edition, 2004. (Strategy) COURSE WEBSITE www.stern.nyu.edu/marketing/mbacore/strategy.html Attendance Everyone is expected to attend all classes and to participate actively in class. The classes will be interactive lectures & discussions, & so we will depend on everyone’s active involvement. Your comments and questions are equally good ways of participating. Emergencies can happen & job interviews may suddenly be necessary. If you need to miss a class, please send me an email. Course Introduction: We begin by looking at different strategic maps, each of which highlights different aspects of the business landscape. Each map views key players in business competition from different angles or perspectives, for there’s no one single complete strategic map. Adam Brandenburger has said, there is a danger of viewing things only one way, or working with only one framework, for you often are blind sided by changes. That’s important, since new maps provide alternative 2
    • snap shots of the players: suppliers of a business, its customers, competitors, partners and others, who together create a “value pie”. All players compete to capture a major share of that pie. As we investigate different business strategies it is important to ask yourselves or each other, what does each strategy framework leave out. Michael Porter stresses that good strategy is as much about what not to do, as about what to do. Likewise, it is commonly thought that business strategy is entirely focused on competition. But it is also focused on cooperation. In fact, many of the most successful business managers must frequently re-evaluate how they can compete and cooperate with rival businesses, at the same time. This Course Is Built On Five Strategy Modules: Strategy Maps, Added Value, Capture Value Corp. Growth Defending & Creative Against Destruction Imitation Coordinating Across Attacking Businesses Incumbents This Diagram & Questions are Adapted From Adam Brandenburger’s “Circle of Strategy”: January, 2004 The questions addressed in each of the Five Strategy Modules are as follows: 1. Business Strategy Maps: Which players do you face in business who create value & why? Create Value, Add Value, Value Capture: What determines how much value you capture? 2. Defending Against Imitation: How can you outrun rivals? 3
    • 3. Attacking Incumbents: How can you win as a challenger? 4. Coordination Across Businesses: How do your optimize the whole firm, not just the parts? 5. Corporate Creative Destruction: Many firms destroy value or fail. To Recharge Corporate Growth requires new business plans, new tech, new energy, new teams to compete for the future. Session/Date Topic Readings Module 1. Strategy Maps of Business: Create & Add Value & Capture Value Strategy Course Introduction: 1. 1/27 Judo Strategy A Theory of Competitive Advantage Competitive Marketing Strategy (CMS) Create & Add Value: Capture Value Reading 1. p.147-164 in Strategy 2. 1/29 Maps of the Business Landscape Ghemawat, Ch. 2. p.19-48 in Strategy The Five Forces: The Value Net Brandenburger-Nalebuff, “Cooptition” p. 249-274 in Strategy Maps of the Business Landscape: Ghemawat, Ch. 3. & CMS Reading 2,3 both Strategic Positioning Generic Strategies in Strategy p.49-74 & p. 65-174. p.175-180 3. 2/3 SWOT & Formulate Business Strategy Brandenburger: “Maps of the Business The Value Map Landscape” Course Site. 7 Sources of Competitive Advantage: Ghemawat, Ch 3. & CMS Reading 3. both Value Map & Opportunity Cube in in Strategy p.49-74, 175-180 4. 2/5 Financial Services: Added Value: Brandenburger “Added Value” Course Site Profitability Models Groups Submit Industry Choice 1 page Module 2. Defending Against Imitation Case: Cola Wars Continue (Discuss) 5. 2/10 100 Year Cola Wars: Case Analysis: Industry Dynamics & Comments on Industry Choices Returned Competitive Evolution CMS Reading 5 “Creative Destruction” Competing on Technology: Innovation: The Curse of Incumbency 6. 2/12 Increasing Returns. Network Browser: Beta Tests, Standard Setting, Economics. Virtuous Cycle Linkages; Alliances, Modularization Competing on Cost: Economies of Scale and Scope; Experience, Ghemawat, Ch.3 7. 2/17 Superior Value through Operations & Cost Structure CMS Reading 4 Intel vs. AMD Case: Intel Corp: 1968-1997 +“Inside Intel” 8. 2/19 (Discussed/ Submitted) Blackboard: Readings on Intel & AMD Defining the Competitive Situation Group Case: Intel/AMD (Submitted) 4
    • INDUSTRY ANALYSIS 9. 2/24 All Groups Submit Their Industry Analysis PRESENTATIONS 6 Power Point Slides Module 3. Attacking Incumbents Case: WAL-MART (Discuss) 10. 2/26 Wal*Mart: How to Sustain Competitive Advantage by Compete on Product Cost in Operations ReCreating & ReCapturing Superior Value EasyJet: 11. 3/2 Case: EasyJet (Discuss) Competing on Service Costs 12. 3/4 Strategy in a Dynamic Setting Ghemawat, Ch. 4 & CMS Reading 6 Both in Strategy p.75-110 p. 403-422 Dell vs. HP 13. 3/9 Case: Dell - New Horizons (Discuss) 7 Sources of Competitive Advantage Blackboard Dell HP Dell Virtual Integration Module 4. Coordinate Across Businesses C&M Ch 1. 4 Corp. Strategy Perspectives 14. 3/11 1. Resources, 2. Transaction Costs Econ. Overview of Corporate Strategy: 3. Market Power, 4. Digital Convergence Its Evolution and Industry Dynamics SPRING BREAK 15. 3/23 Resources, Scale and Scope C&M Ch. 2. 3. 16. 3/25 Walt Disney Case Walt Disney Case (Discuss) Corp. Strategy The Multi-Business Corporation BUSINESS STRATEGY Groups Submit Business Strategy Analysis 17. 3/30 PRESENTATIONS 6 Power Point Slides. 18. 4/1 Newell Rubbermaid Case: Newel Corporation (Discuss) General Electric Case: GE: Two Decade Transformation 19. 4/6 Analysis of Corporate Strategy & (Discuss) Financial Strategy: Inter-relationship Case: 3M Corp. (Discuss) 20. 4/8 3M Corporation Case Profile of an Innovating Company KFC In Japan Case: KFC in Japan (Discuss) 21. 4/13 Hybrid Corp. Structures. Global Franchising 5
    • Global Joint Venture: HQ vs. Foreign Sub Module 5. Corp. Growth & Creative Destruction The Synergy Trap 22. 4/15 Capitalize on Merger Chaos Mergers & Acquisitions Blackboard: M&A Readings C&M Ch. 3 Synergy and Its Limits Daimler-Chrysler Negotiation (Discuss) 23. 4/20 Daimler Chrysler Negotiation Analyze Merger Negotiation & Valuation AOL Time Warner: Convergence of 24. 4/22 AOL Time Warner vs. Microsoft Case Industries Cause Conflict w. Microsoft. (Discuss) CORPORATE STRATEGY Groups Present Corp. Strategy Analysis 25. 4/27 PRESENTATIONS 6 Power Point Slides Course Wind-Up 26. 4/29 Review of Strategy Concepts/ Cases Preparation for Take Home Final Exam GRADING Intel/AMD Group Case 20% Term-Long Project (Group) 40% Individual Take Home Final 25% Class Participation 15% Course Project For your course-long project, each team should select a corporation that is of real interest to all team members. Your corporation can be US, foreign or multinational. It can be a service company, a product company, or a firm that produces a combination of products & services. Most Important, take your time to select a corporation that is substantial enough to support your course-long effort. Project Description: The goal of the project is a strategic analysis of your chosen corporation. The Analysis should have five parts: 1. Description of the business strategy maps of the landscape in which the corporation operates and assessment of the organization’s competitive position in that landscape. 2. Defensive strategies of the corporation 3. Offensive strategies of the corporation 4. Multi-business strategies for the corporation and overall summary. 5. Corporate Growth & Creative Destruction 6
    • These five parts correspond roughly to the five modules of the course. Specifically: 1. For part 1 you will want to use ideas from the module Business Strategy Maps & Value Capture: a. Who are the business players? How do they create value? Add Value? How they connect? b. How business players Capture Value: Five Forces. SWOT. The Value Net of Complements Industry Value Chain, the Company’s Value Chain. The Value Map. 2. For part 2. you will want to use ideas from the module on Defending Against Imitation. Experience Curve, Scale, Scope, Increasing Returns, Internet, Intangibles, Global Geography 3. For part 3 you will want to use ideas from the module: Attacking Incumbents: Judo Strategy, technological innovation versus incumbents, Creative Destruction, Strategic Leverage, Stretch, and Irrationally. 4. For part 4 you will want to use ideas from the module, Coordinating Across Businesses; Portfolios of Businesses, Sharing of Resources, Transferring Skills, Business Turnarounds, Restructuring, Outsourcing, Joint Ventures, Strategic Alliances, Networks, Value Migration Touch Points, Switchboard Profits. 5. For part 5 you’ll want to use ideas from the module: Corporate Growth & Creative Destruction. Corporate Rigidity, value erosion, failed mergers, stranded investment, are common. Creative Destruction can end old firms, or instead, Recharge corporate growth. Large firms often require a new focus of direction, new business models, new technologies, new teams & new energy. Competition For the Future is led by start-ups & established firms using new strategic leverage. This course-long group assignment is to help develop your professional skills needed to: 1. Analyze an industry’s competitive landscape and potential for profit for the firms in it. 2. Compare competitive strategies of firms in the industry and how they impact your firm. 3. Evaluate a multi-business corporation and how it benefits the different businesses it owns. 4. Devise a new strategy to enable your firm to create & capture significant value in the future. 5. Make a professional power point presentation to a board of directors to win its approval. Assignment Specifics Each of the three components of the assignment will be due as a set of power point slides capable of being delivered (if uninterrupted) in 15 minutes – this means a maximum of approximately 6 slides. Each slide should have a descriptive title and a “tombstone” at the bottom stating the “take-away” message of what the slide shows. Approximately four teams will deliver their presentation in each of the three class sessions devoted to the assignment. Each presenting team will have 15 minutes to deliver its presentation. Each team will have 5 minutes to answer questions put to them. For each part of the project you should use the course concepts as precisely as you can. But 7
    • Please don’t use them mechanically. Make the concepts serve your analysis, not vice versa. Also, you don’t have to use every idea from every part of the course. Indeed, this is not likely to make for a successful project. Use your group judgment as to which concepts are relevant to your specific question, and which are not. Project Deliverables: All deliverables must be in power point. (You may use the notes function To expand on some of your slides – but at most one short paragraph per slide. The deliverables for the project for all groups in the class are as follows: One slide describing the corporation to be studied by the team, and also the issues the team expects its strategic analysis will illuminate – to be emailed by class on 2/5 Six slides covering parts 1 of the project - to be emailed by class on 2/24 Six slides covering parts 2 and 3 of the project - to be emailed by 3/30 Six slides covering parts 4 and 5 of the project – to be emailed by class on 4/22 Project Presentations: There are three class sessions devoted to project presentations. On 2/24 approximately four teams will present their slides on part 1. On 3/30 approximately four teams will present their slides on part 2 and 3. On 4/22 approximately four teams will present their slides on part 4 and 5. I will notify teams shortly before the date they are to present. A Suggestion for your analysis and presentation. It may help the clarity of your slides and your group’s presentation if you First Start by stating your group’s conclusions and then present the analysis that led you to them. For example: In your industry analysis you might begin with a focus on the conclusions you reached with respect to the attractiveness of this industry as a place to compete for profits. Then, the rest of your slide is your back up analysis and examples that drove you to this ultimate conclusion. 8
    • Intel vs. AMD: Assignment Assignment You work for the Strategy Group of AMD. The company’s senior policy committee has been evaluating the competitive landscape with particular concern about the activities of Intel. Lee Walters, the Executive Vice President of the Strategy Group, is new to AMD and the industry. Walters asks your team for a report that will analyze Intel’s strategies and actions, AMD’s strategies and actions, an objective analysis of AMD’s SWOT. Then he wants your team’s best assessment of the current strategic situation AMD faces, plus your strategy recommendation for AMD, and one for its major competitor, Intel, to indicate what AMD could reasonably expect. . Specifically, Walters wants to know: • The generic strategies pursued by each competitor, Intel and AMD, together with the reasoning you used to determine that conclusion. • A SWOT analysis for AMD • Your team’s “picture” of the strategic situation in which AMD finds itself • Briefly recommend a strategy for AMD and for Intel. He has asked your team to prepare a report of no more than 4 pages double spaced, with 12 point type with one-inch margins. (If necessary, you may have a 1 page appendix for charts or tables.) Instructions The case you have received in the case packet, Intel Corp., 1968-97 tells primarily the Intel side of the story. To complete the case, you will need to research, in the popular business press, 1) the Advanced Micro Devices side and, 2) the actions that Intel has taken since 1997. To keep this assignment do-able, our Blackboard course web site has a list of required & optional links on AMD & Intel. A must read is Jerry Sander's 1998 talk "Competing with an 800-Pound Gorilla." [From NYU Computers, you may obtain recent securities analyst reports on AMD and Intel (or any corporation you want interview at) by going to my USEFUL RESEARCH SOURCES on my Blackboard course web site. Click it and then click BOBST LIBRARY DATABASES; go down alphabetically to INVESTEX. Click it and then click that you do have permission from NYU to use Investex. Then type in AMD and then Intel for recent research reports.] 9
    • Case Discussion Questions Cola Wars Continue: The purpose of this assignment is to: 1. See the relationship between the different stages of the industry value chain and the incentives for vertical integration 2. The relationship between competitive interaction and profits 3. How globalization can affect industry structure Assignment: Please prepare the following questions for class: • Why is the soft drink industry so profitable? • Contrast the economics of the concentrate business to the bottling business. Why is it different? • How has the Coke/Pepsi competition affected the industry’s profits? • In the Cola Wars since the Pepsi Challenge, who have been the winners and who have been the losers? • In the U.S. Pepsi was able historically to make large inroads against Coke. Why is this Proving harder for Pepsi in international markets? Wal*Mart Stores Inc. Purpose: To look at how the early history of a company shaped its subsequent strategy, in the case of the leading discount retailer, and to talk about the rise and future of that industry: Assignment: Please prepare the following questions for class: • A number of discounters emerged in the 1950s. What was different about Walton’s idea? • What stopped others from imitating his idea? • How did Wal*Mart compete in rural, suburban and urban markets? • Why did Wal*Mart develop such expertise in logistics? • Is Wal*Mart’s relationship with its suppliers competitive or cooperative? • Does Wal*Mart today face limits to its growth? EasyJet: The Web’s Favorite Airline Purpose: To see how an upstart could seize a strategic inflection point to enter an industry, To compare power of economic advantage vs. power of unconventional brand Assignment Discussion Questions: • Is the budget airline segment an attractive place to compete? • How can easyJet deliver such low prices? • How does it create value for its customers? 10
    • • Is easyJet playing Judo Strategy against flag carriers like British Airways? • What do the value spreads for easyJet and BA look like? Who has added value? • What, if anything stops BA from imitating easy Jet? • What are the common features of other businesses – internet access, car rentals, online financial services, movies that Stelios is entering? Dell - New Horizons: Purpose of this assignment is: 1. To help you gain historical perspective on evolution in an industry and forecast its future 2. To identify and quantify the sources of competitive advantage 3. To integrate the learnings to this point in the course Assignment: Please Prepare the Following Questions for Class: • What does a Five Forces analysis of the PC industry in the mid-80s say about the prospects of a new player such as Dell? • What are the ingredients of Dell’s strategy that enabled it to be so successful? Organize you answer by evaluating Dell vs. HP on each of the 7 sources of competitive advantage: superior inputs, superior technology, superior operations, superior offering, superior access, superior segments, superior customers. • Why couldn’t Dell’s rivals Compaq, HP, IBM just imitate its strategy? • What threats and/opportunities does the Present PC landscape present to Dell? Newell – Rubbermaid Corporation Purpose To begin applying our corporate-strategy concepts, to look at a company that historically has had a very clear and conscious strategy, and to understand a case that appears to defy conventional wisdom about acquisitions. The Newel Corporation Case tells the story up to just before the Rubbermaid Acquisition. Assignment: Please prepare the following questions for class: • How does Newell make money selling staple products to the powerful Wal*Mart? • How has it managed to be a successful acquirer( when many companies aren’t)? • What threats does Newell face at the time of the case • How did the Calphon and Rubermaid acquisitions fit with, or amend, Newell’s historical strategy? 11
    • 3M : Profile of an Innovating Company Purpose: To look at diversification via internal development vs. acquisition, to understand a company that is considered a highly successful innovator, and to look at the tension between centralization and decentralization in an organization. Assignment Please prepare the following questions for class: • How does 3M try to ensure that knowledge is shared among its different businesses? • How does 3M encourage the creation of new Knowledge? • What are the practices and structures at 3M that generate economies of scale and scope? • What resources are shared, transferred and replicated? • What is the significance of 3M’s concept "the technology belongs to the company and products to the divisions"? Centralization vs. Decentralization? • What are the benefits of 3M's organic growth? What are the drawbacks? • What is McNearny trying to accomplish with 3M? How? Kentucky Fried Chicken in Japan Purpose: To understand the management of a global Franchise Corporation And of multinational Joint Venture Assignment: Please prepare the following questions for class: • Why did KFC franchise? What did KFC franchise? • What changes should Dick Mayer make? What should he do about Loy Weston? • Should anything be changed at KFC headquarters? • What should KFC do about expansion into Korea, Taiwan, Thailand and Hong Kong? • How would you characterize KFC’s parent’s corporate strategy? Daimler Chrysler Merger Negotiation Purpose: To understand the actual process of merger negotiations. Seeing the preconceptions and misconceptions on both sides. To give our class practice and understanding of how to quantify your opening merger bid, and how to quantify your “final walk away bid price’, and key reasons for selecting and fixing both, in advance. The Daimler Chrysler merger case starts with the CEO Jurgen Schremp’s original global merger strategy, but ends with a tortuous execution & lawsuits. Assignment: Discussion Questions: • What were pros and cons of Daimler Chrysler’s merger vs. alliances, JVs, or outsourcing. • How did Daimler prepare its Chrysler merger process in advance? • What happened in the execution of the Daimler Chrysler merger? • What can we learn about the realization of "synergy" from mergers? • What does the future hold for DaimlerChrysler? 12
    • The Walt Disney Company Purpose: To trace the history of the firm from 1923 to 2001 and its decline after Walt’s death and its resurgence under Eisner. To understand corporations’ unrelated diversifications & growth. To evaluate the strategic issues facing Disney today: managing synergy, the brand, & new creativity. Assignment: Please prepare the following questions for class: • What were the keys to Disney’s mid-1980s turnaround? • What do you think are the proper boundaries of the firm? • What should its strategy be going forward? GE: Two Decade Transformation by Jack Welch Purpose: To help us understand how the Four Perspectives on Corporate Strategy Interact with each other in certain large, dynamic, complex corporations. To show Strategic Resources when shared across multiple businesses can create certain synergies and Market Power. To see digital technology cause a convergence between specific industries. To help us understand how Corporate Strategy and Financial Strategy together can manage growth over more than a decade. Assignment: Please prepare the following questions for class: • How did GE make a conglomerate strategy succeed when most others failed? • What drives GE’s growth today? What will drive it in the future? • Should GE be broken up into separate businesses to grow faster? Or Not? • How did GE’s strategic Resources when shared across multiple business create not only synergy but market power? AOL Time Warner: Convergence of Industries Cause Conflicts w. Microsoft Purpose: To help us understand how the Digital Technological Convergence of Industries both Threatens Major Entertainment, Media, and Internet Companies & yet provides opportunities. Assignment: Please prepare the following questions for class. What were the strategic resources of Time Warner before the Merger? Why were they strategic? What were the strategic resources of AOL before the Merger? Why were they strategic? What are the strategic resources of Microsoft? Why are they Strategic? What were the major justifications of the Merger between Time Warner and AOL? How was it implemented? What problems could have been foreseen well in advance? What is your group’s conclusion about what were the reasons for the Microsoft & Time Warner Settlement Agreement? Who benefited most from this settlement? What Strategy recommendations would you propose to Time Warner Today for its growth and maximization of Shareholder Wealth? 13