Media Management 2011-Strategy Module - Jan 21_1

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Slides from my first lecture in the Strategy module in the 2011 Media Management Course at Stockholm School of Economics and the Royal Institute of Technology. here is more information on the course: …

Slides from my first lecture in the Strategy module in the 2011 Media Management Course at Stockholm School of Economics and the Royal Institute of Technology. here is more information on the course: http://nordicworlds.net/2011/01/21/strategy-course-focuses-on-virtual-worlds-and-gaming-industries/

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  • 1. Strategy January 21 - Morning Media Management – Module 1 Robin Teigland [email_address] www.knowledgenetworking.org January 2011
  • 2. Objectives of this course
    • To introduce you to some strategy fundamentals
      • To introduce you to the basics of strategy and some core concepts and analytical tools of strategic management
      • To develop an understanding of the complexity and dynamics of strategic management in organizations
      • To take a look into the future of competitive advantage
    • To provide you with the opportunity to apply concepts in a live case project
    • To provide you with an interactive and reflective experience in which we learn together
  • 3. Course description
    • Multi-method
      • Lectures, Presentations, and External Guests
      • Individual Assignments
        • Readings for each class
        • Install Second Life on your computer and create an avatar – Jan 25
        • Questions for external guests – Jan 25, Jan 31, Feb 2
      • Group Assignments
        • Cola Wars Continue (HBSP) – Jan 21
        • Wumart Stores (HBSP) – Jan 24
        • Article Summaries – Jan 26
        • Gaming Industry STEEP (Speaker) – Feb 2
        • Live Case Day (Live) – Feb 7
      • Exam and Reflection
    • Active learning and shared responsibility
      • Open dialogue and discussion
      • Information sharing and appropriate use of internet
        • elearning platform, twitter, fb, etc
        • www.plagiarism.org
      • Active groupwork – pull your weight
  • 4. Module Overview – 1/3
    • Jan 21 – What is Strategy?
      • Individual Assignment: Readings
      • Group Assignment: Choose your Live Case Strategic Issue
    • Jan 21 – External Analysis: Industry Structure and Competition
      • Individual Assignment: Readings
      • Group Assignment: Cola Wars Continue
    • Jan 24 –Internal Analysis: Analyzing Resources and Capabilities
      • Individual Assignment: Readings
      • Group Assignment: Wumart Stores
    • Jan 25 –An Entrepreneur’s View of Strategy in 3D
      • Individual Assignment: Readings & Questions
      • Guest: Steve Mahaley, PeaceTrain
  • 5. Module Overview – 2/3
    • Jan 26 – Recent Developments in Strategy
      • Group Assignment: Article summary ppt for slideshare
    • Jan 31 – Executing Strategy
      • Individual Assignment – Readings & Questions
      • Guest: Christian Björkman, MindArk
      • Guest: Fredrik Nilsson, IC You
    • Jan 31 – Exploring Business Models and role of IT
      • Individual Assignment – Readings & Questions
      • Guest: Paul DiGangi, Western Carolina University
    • Feb 2 - External Drivers of Change: Exploring the Future of the Gaming Industry
      • Individual Assignment: Readings
      • Group Assignment: STEEP
      • Guest: Stefan Lampinen, Speltjänst
  • 6. Module Overview – 3/3
    • Feb 2 – Creating Value Networks
      • Individual Assignment: Readings & Questions
      • Guest: Malin Ströman, Independent Consultant
    • Feb 7 - Live Case Day: Integrating Theory with Practice
      • Group Assignment: Virtual Worlds and Gaming
    • Feb 9 – Module 1 “Exam”
  • 7. Live Case Teams – 16 Teams total
  • 8. Independent research – Get started now
    • Contact sponsors
      • Arrange time to talk now with sponsors to discuss issue
      • Ask what information and contacts they can provide
      • Send them any questions you have in advance of your discussion
    • Follow related topics on twitter: opensim, virtual world, second life, charity, gaming, etc.
    • Check out library’s databases and library staff
    • Blog, tweet, post, etc. about what you find (#NVWN)
    • Share with one another!
  • 9. Live Case Day (February 7)
    • Project presentations
      • Maximum 15 minute presentation by each Team
      • 5-10 minutes for discussion by peer team and other MM 2011 participants and faculty
    • Presentations will be livestreamed on internet and in Second Life on SSE’s island
    • Presentations will be filmed and put on NVWN’s blog
    • Feedback survey -> 5 points to winning team on final exam
  • 10. Exercise
    • 8 volunteers are needed
  • 11. What is a strategy course about?
  • 12. Performance varies across industries Reproduced from Ghemawat (2000), Strategy and the Business Landscape Above-average returns (15%) (10%) (5%) 0% 5% 10% 15% 20% Toiletries/Cosmetics Steel Pharmaceuticals Soft Drink Tobacco Foo d Processing Household Products Electrical Equipment Financial Services Specialty Chemicals Newspaper Bank Integrated Petroleum Telecom Retail Store Tire & Rubber Electric Utility - Central Electric Utility - East Medical Services Machinery Auto & Truck Computer & Peripheral Paper & Forest Air Transport
  • 13. Performance varies within industries
  • 14. Where does superior profitability come from? RATE OF RETURN ABOVE THE COST OF CAPITAL How do we make money? INDUSTRY ATTRACTIVENESS Where should we compete? COMPETITIVE ADVANTAGE How should we compete? CORPORATE STRATEGY BUSINESS STRATEGY Grant 2008
  • 15. What is the role of strategy in an organization? Strategy as Decision Support Strategy as Coordination and Communication Strategy as Target Improves the quality of decision making Creates consistency and unity Improves performance by setting high aspirations Grant 2008
  • 16. Strategy must be dynamic, flexible, and innovative
    • Then what is the role of analysis in strategy?
    • Helps us to identify and understand main issues
    • Helps us to manage complexity
    • Improves decision processes (but doesn’t give answers!!)
    • Enhances flexibility and innovation by supporting learning
    Grant 2008
  • 17. Why do we use analytical models in strategy? Reducing complexity to something manageable Identifying what needs the most attention Highlighting relationships Creating a common language and shared understanding My view…. Making views explicit Strategy Culture Structure Systems Vision
  • 18. Focus first on two models in this course
    • Industrial Organization (I/O)
      • Focuses on the environment outside the firm
      • Opportunities and threats
      • By studying the external environment, firms identify what they might choose to do .
    • Resource-based View (RBV)
      • Focuses on the inside of the firm
      • Unique resources, capabilities, and competencies ( required for sustainable competitive advantage )
      • By studying the internal environment, firms identify what they can do.
    Successful strategy formulation and implementation actions result only when the firm properly uses both models.
  • 19. Strategic analysis Environment Organization Industry Internal analysis RBV Model Inside->Out External analysis I/O Model Outside->In
  • 20. What is strategy?
    • Greek: ”strategos”, the art of the general
    • von Clausewitz
      • Strategy: the art of using battles to win a war
      • Tactics: the art of using troops on the battlefield to win a battle
    • Drucker
      • Strategy: doing the right thing (to allocate resources)
      • Tactics: doing things right (to use resources)
  • 21. All the things right, but not the right thing!
  • 22. What is strategy?
    • No one definition
      • Strategy has many definitions
      • Some include goals and objectives in strategy
      • Some distinguish between goals/objectives and strategy
    • Scholars have different definitions
      • Grant: A unifying theme that gives coherence and direction to actions and decisions of organization or individual
      • Porter: Delivering a unique mix of value based on choosing a different set of activities
      • Normann & Ramírez : Art of creating value – bringing value to customers and delivering value at profit
  • 23.
    • Long-term goals
    • Scope of the firm
    • Competitive advantage
    Components of strategy Hitt, Ireland, and Hoskisson 2009
  • 24. What is strategy?
    • Strategy
      • An integrated and coordinated set of commitments and actions designed to gain a competitive advantage
    • Competitive advantage
      • When two or more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit
    Hitt, Ireland, and Hoskisson 2009
  • 25. What does Professor Richard Rumelt say about strategy?
    • Professor Rumelt:
      • UCLA – Anderson School of Management
      • Respected scholar in strategy
      • D.B.A., 1972, Harvard University
      • M.S. (Electrical Engineering), 1965
      • B.S. (Electrical Engineering), 1963, UC Berkeley
      • http://www.youtube.com/watch?v=43kZDnyDXOc
    • Apple’s strategy
      • http://www.youtube.com/watch?v=Yu0qeb_rJYU&feature=related
  • 26. The basic framework INDUSTRY ENVIRONMENT • Competitors • Customers • Suppliers STRATEGY STRATEGY FIRM • Goals & Values • Resources & Capabilities • Structure & Systems Grant 2008 The LINK between the FIRM & its ENVIRONMENT
  • 27. Generic strategies: Strategy is about making choices… Scope (Customer/ variety) Type of competitive advantage Broad Narrow Differentiation Low cost Differentiation Cost leadership Differentiation- based focus Cost-based focus Porter
  • 28. Features of cost leadership and differentiation strategies Generic strategy Key strategy elements Resource & organizational requirements COST Scale-efficient plants. Access to capital. Process LEADERSHIP Design for manufacture. engineering skills. Frequent Control of overheads & reports. Tight cost control. R&D. Avoidance of Specialization of jobs and marginal customer functions. Incentives for accounts. quantitative targets. DIFFERENTIATION Emphasis on branding Marketing. Product and brand advertising, engineering. Creativity. design, service, and Product R&D. quality. Qualitative measurement and incentives. Strong cross- functional coordination Grant 2008
  • 29. Generic strategies in the auto industry Scope (Customer/ variety) Type of competitive advantage Broad Narrow Differentiation Low cost ??? (Differentiation) ??? (Cost leadership) ??? (Differentiation- based focus) ??? (Cost-based Focus) Porter Can you give an example for each box?
  • 30. Avoid being stuck in the middle Market share Return on investment High High Low Low Differentiation Cost leadership Porter
  • 31. Making choices
    • Strategy is about choosing what NOT to do:
      • Which customers not to serve
      • What products or services not to offer
      • Which activities not to perform
    Strategy is about NOT being all things to all people Porter
  • 32. What is the goal of strategy?
  • 33. Making profits?
    • Profit = P*Q - FC-Q*VC
    The purpose of strategy is to increase the long-term profitability of the corporation. Grant 2008
  • 34.
    • The stakeholder approach : The firm is a coalition of interest groups— it seeks to balance their different objectives
    • The shareholder approach : The firm exists to maximize the wealth of
    • its owners (= max. present value of profits over the life of the firm)
    • For the purposes of strategy analysis, we assume that the firm’s primary goal is profit maximization. Why?
      • Boards of directors legally obliged to pursue shareholder interest
      • To replace assets, firm must earn return on capital > cost of capital (difficult when competition strong)
      • Firms that do not maximize stock market value will be acquired
    Strategy as a quest for profit? Hence: Strategy analysis is concerned with identifying and accessing the sources of profit available to the firm Grant 2008
  • 35. The world’s most valuable companies (2006): Performance under different profitability measures Grant 2008 #1 #2 COMPANY MARKET CAP. ($BN.) NET INCOME ($BN) RETURN ON SALES (%) RETURN ON EQUITY (%) RETURN ON ASSETS (%) RETURN TO SHARE-HOLDERS (%) Exxon Mobil 372 36.1 19.9 34.9 17.8 11.7 General Electric 363 16.4 10.7 22.2 14.7 (1.5) Microsoft 281 12.3 40.3 30.0 18.8 (0.9) Citigroup 239 24.6 22.0 21.9 1.5 4.6 BP 233 22.3 9.9 27.9 10.7 10.2 Bank of America 212 16.5 27.0 14.1 1.2 2.4 Royal Dutch Shell 211 25.3 14.7 26.7 11.6 11.8 Wal-Mart 197 11.2 5.5 21.4 8.1 (10.3) Toyota Motor 197 12.1 10.7 13.0 4.8 (22.1) Gazprom 196 7.3 28.1 9.8 7.1 n.a. HSBC 190 15.9 23.0 16.3 1.0 (11.8) Procter & Gamble 190 8.7 17.3 13.7 6.4 7.2
  • 36. Is anything else necessary?
    • 3M
    • Sony
    • Hewlett-Packard
    • Johnson & Johnson
    • Procter & Gamble Motorola
    Outperformed the stock market by a factor of 12 since 1925 - 1996. Collins & Porras, 1996
  • 37. What is the goal of successful companies?
    • Companies most successful in creating long-term
    • shareholder value are typically those that:
      • Have a vision and mission—They give precedence to purpose
      • and goals other than profitability and shareholder return
      • Have strong, consistent, ethical values
    • Examples:
    • “ Visionary” , e.g., Disney, HP, IBM, Merck, P&G, Shell, Wal-Mart
    • Boeing
      • Focus pre-1996: “to build great planes,”
        • Weak financial controls—yet high profitability
      • Focus 1997-2003 : “creating shareholder value”
        • Outcome: loss of market leadership, declining profitability
    Grant 2008
  • 38. How has Microsoft achieved success? Which concepts are discussed (either explicitly or implicitly)? Successful strategy Long-term, simple, and agreed objectives Deep understanding of competitive environment Objective appraisal of resources EFFECTIVE IMPLEMENTATION Grant 2007
  • 39. Microsoft
    • http://www.washingtonpost.com/wp-dyn/content/video/2008/06/05/VI2008060500273.html
    • http://www.microsoft.com/about/default.mspx
  • 40. What is a firm? Why does it exist? What is a business model? What is strategy? What is vision/mission? Grant 2008
  • 41. Assignment for today
      • What is strategy? (1 -2 slides)
        • Based on the course readings, your previous experience, and potentially other sources, develop your own definition of strategy.
        • What are the relationships between the concepts of vision, mission, strategy, and business model?
      • What is your organization’s strategy? (2-3 slides)
        • Pick an organization in the Virtual World or Gaming industries and answer the following questions based on information you find on the internet:
          • What is your organization’s mission?
          • What is your organization’s business model?
          • What is your organization’s strategy?
          • Can you summarize the organization’s strategy in a “strategy statement” (see Collis & Rukstad article)?
  • 42.
    • Long-term goals
    • Scope of the firm
    • Competitive advantage
    Components of strategy Hitt, Ireland, and Hoskisson 2009
  • 43. What makes a successful strategy? Grant 2008 Successful Strategy Long-term, simple, and agreed objectives Deep understanding of competitive environment Objective appraisal of resources EFFECTIVE IMPLEMENTATION
  • 44. The basic framework INDUSTRY ENVIRONMENT • Competitors • Customers • Suppliers STRATEGY STRATEGY FIRM • Goals & Values • Resources & Capabilities • Structure & Systems Grant 2008 The LINK between the FIRM & its ENVIRONMENT
  • 45. Where does superior profitability come from? RATE OF RETURN ABOVE THE COST OF CAPITAL How do we make money? INDUSTRY ATTRACTIVENESS Which industries should we be in? COMPETITIVE ADVANTAGE How should we compete? CORPORATE STRATEGY BUSINESS STRATEGY Grant 2008
  • 46. Module Overview – 1/3
    • Jan 21 – What is Strategy?
      • Individual Assignment: Readings
      • Group Assignment: Choose your Live Case Strategic Issue
    • Jan 21 – External Analysis: Industry Structure and Competition
      • Individual Assignment: Readings
      • Group Assignment: Cola Wars Continue
    • Jan 24 –Internal Analysis: Analyzing Resources and Capabilities
      • Individual Assignment: Readings
      • Group Assignment: Wumart Stores
    • Jan 25 –An Entrepreneur’s View of Strategy in 3D
      • Individual Assignment: Readings & Questions
      • Guest: Steve Mahaley, PeaceTrain
  • 47. Coca-Cola vs Pepsi Case (max 15 min)
    • Q1. Is the concentrate industry profitable? Use Porter’s five-forces analysis to analyze the concentrate business. Put the concentrate producers in the center of the model as the industry incumbent/rivals. What are the five forces and key underlying structural determinants of each of the five forces? What are the implications for the relative power of each force? Based on this analysis, how attractive is this industry? In other words, how high is the profit potential of the industry competitors? What are the elements of your analysis that lead you to this conclusion?
    • Q2. Why is profitability so different between the concentrate business and the bottling business? Repeat the above five-force analysis for the bottlers. How do the economics of the concentrate business compare to the bottling business? Which industry is more attractive?
    • Q3. What challenges face these companies today? How has competition between Coke and Pepsi affected industry profits? What factors are affecting industry profitability? How can the five-forces analysis help you to answer these questions?
    Upload to www.slideshare.net and elearning platform by 15:00.
  • 48. Sources
    • Collins, JC & Porras, JL, Built to Last , Harper-Business, 1998.
    • Collis, DJ & Rukstad, MG, Can You Say What Your Strategy Is? , HBR, April 2008
    • Grant, R. Contemporary Strategy Analysis , Blackwell, 2002.
    • Holde, S. Strategic innovation and business creation , Århus School of Business, 2002.
    • Magretta, J, Why Business Models Matter , HBR , 2002.
    • McGee, J., Thomas, H. & Wilson, D. Strategy: Analysis and Practice , McGraw-Hill, 2005.
    • Mohr, J., & Spekman, R. Characteristics of Partnership Success: Partnership Attributes, Communication Behavior, and Conflict Resolution Techniques , Strategic Management Journal, 15, 1994.
    • Norman, R. & Ramírez, R. From Value Chain to Value Constellation: Designing Interactive Strategy, HBR, 71,4, 1993.
    • Organizational Strategy , Thomson Learning, 2005.
    • Pfeffer, J. Managing with Power , HBS, 1992.
    • Porter, ME. Competitive Strategy , Free Press, 1980.
    • Porter, ME. What is Strategy? HBR, Nov-Dec, 1996.
    • Woodruff, RB. Customer Value: The Next Source of Competition , Academy of Marketing Science, 1997.