STRATEGIC MANAGEMENT AND BUSINESS POLICY
FIRST TERM EXAM, 2008/09 ACADEMIC YEAR
1.-Corresponding to topic 6.
There is growing awareness that companies had moved far from Victorian times,
when they were (as Charles Handy put it) “properties with tangible assets worked
by hands whose time owners bought”. They had become properties whose most
valuable asset was intangible—the knowledge which exists in the heads and hearts
of employees or in formal databases, patents, copyrights and so on. Taking this
idea, explain briefly the different sources of knowledge and the different
elements of the firm’s intellectual capital.
2.-Corresponding to topic 1.
In a study of British managers, Henry Mintzberg found that they worked without
interruption for more than half an hour “about once every two days”. He also found
that senior managers spent more than three-quarters of their time in oral
communication. “In other words,” he concluded, “the job of managing is
fundamentally one of processing information, notably by talking and especially by
listening.” To be a good manager you have to be a good listener. Following this,
indicate the main aptitudes demanded to executives nowadays.
3.-Corresponding to topic 2.
In 1982 Richard Rumelt demonstrated that there was a statistical link between
corporate strategy and profitability, showing that somewhat diversified companies
performed better than highly diversified ones. Could you explain, in brief, the
content of the corporate level of a firm competitive strategy? Use the
different elements of a competitive strategy.
4.-Corresponding to topic 3.
“Net Geners” (Net Generation or Generation Y) are, roughly, people born in the
1980s and 1990s.
A survey of 4,200 young graduates from 44 countries published in December 2008
by PricewaterhouseCoopers, found that they want many of the same things from
work as previous generations, including long tenure with a small number of
employers. And they are willing to put in the hours to get them, if they are treated
well.
Indeed, “Net Geners” may be just the kind of employees that companies need to
help them deal with the recession’s hazards. For one thing, they are accomplished
at juggling many tasks at once. For another, they are often eager to move to new
roles or countries at the drop of a hat—which older workers with families and other
commitments may find harder to do. Such flexibility can be a boon in difficult times.
“In the economic downturn what we are really looking for is hungry 25 to 35 years
old who are willing to travel,” says Frank Meehan, the boss of a fast-growing
mobile-phone applications business that is part of Hutchison Whampoa, a
conglomerate based in Hong Kong.
Looking for new trends and challenges in current society and in business
environment, in which dimension or dimensions of a PEST analysis would you
include what has been described about “Net Geners”? Why?
5.-Corresponding to topic 5.
Warburton Ltd. is a hundred-year-old family company, one of the largest
independent bakeries in Great Britain; it produces more than three million loaves of
bread per week. Warburton's bread is known for its high quality and is often sold at
double the price of a normal loaf.
To guarantee its quality, Warburton has always used red spring wheat from western
Canada (CWRS). At the end of the 1980's, however, it began to get warnings of a
drop in quality that threatened its capacity to charge such high prices for its bread.
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Research carried out revealed which varieties of wheat - specifically Teal, Pasqua
and Columbus - were best suited to its production system, leading to the bread that
best satisfied the taste of Warburton's customers. To ensure that the company
obtained only those varieties, Warburton began conversations with the Canadian
Wheat Board (CWB) to sign "contracts that would preserve our identity", for specific
varieties of wheat.
The contracts agreed were supervised by Agricore and Paterson Co. Warburton
specified the quantity of wheat required - more than 100,000 tons annually - and
the grain storage companies took responsibility for obtaining it from farmers by
means of production contracts. Warburton's contracts are awarded annually to
farmers who have a reputation for producing good harvests of high quality CWRS
wheat.
In these contracts, the farmers undertake to produce wheat of the specified variety.
The crops must be grown from certified seed, and the farmer must employ the
cultivation, harvesting and crop protection techniques specified. The producer must
also present a report on the weather conditions, the materials used and the yield of
the harvest, together with a sample of the wheat. If the storage company is
satisfied, it will purchase the entire harvest.
In reality, more than the detailed tests of each sample, the trustworthiness and
reputation of the producer are critic al; the contracts tend to be awarded to longstanding members and customers. In return for meeting these standards, the
farmers contracted receive a premium of $20/ton over the official CWB price for an
identical grain. This premium is paid in cash, directly by Warburton, together with
the regular CWB payment.
For its part, Warburton accepts all the wheat contracted that meets the standards
agreed, which it purchases directly from the CWB, and pays an agreed additional
sum to cover the administrative and logistic costs, particularly the handling of the
merchandise. The shipments of Canadian wheat are exported to Warburton every
six or eight weeks, and the storage companies have to give an assurance that the
wheat is "of preserved identity" - e.g. that it maintains the correct characteristics
and has remained separated from other varieties - throughout the entire process of
handling the wheat. Warburton pays a rate to these companies for supervising the
contracts and preserving the identity of the wheat.
Warburton has set up a research laboratory and a pilot bakery (the Warburton
Technical Centre in Brandon, Manitoba), where it carries out its own quality tests,
refines its baking technology, and experiments with new varieties of wheat and new
combinations. The Technical Centre is also in continuous contact with the storage
companies and the producers; it gives its approval to the shipments on the basis of
its analysis of the samples from the harvests, and based on the reports that the
producers are obliged to provide.
You are asked to: Analyse Warburton's creation of value from the point of view of
its chain and system of value.
6.-Corresponding to topic 4.
Schneider beer is produced by the company CCU. CCU entered the competitive and
concentrated Argentinean market in 1995. It had an expansion plan that called,
first, for the acquisition of regional breweries to provide a firm business base, and
then for the formation of an alliance with a strategic partner of world class, which
would allow CCU to introduce a major international brand. Schneider is positioned
as a beer with a fair and accessible price, preferred by consumers who know about
beer. To achieve this market positioning, the company devotes about 6% of the
sales revenue to marketing effort.
Analysis of the sector
Degree of concentration of the brewery sector:
The brewery sector in Argentina can be considered as concentrated, since there are
a few companies that have large market shares, and the rest of the market is
shared among a large number of small competitors.
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Market shares:
• Quilmes: 66%
• Brahma: 16%
• CCU: 11%
• Isenbeck: 7%
Existing competitors:
This sector is very competitive, because there are very few companies that control
the market. However Quilmes has a powerful presence, and since it has the biggest
market share, it can generally impose its leadership by means of various strategies.
Principally, the strategies of the different companies are based on combinations of
the following variables:
• Price.
• Product differentiation.
• Marketing effort.
• Market share.
• Target segment or segments.
Competition
1. Quilmes
The Quilmes brand belongs to the company Cervecería y Maltería Quilmes. Quilmes
was born in 1888 by the work of its founder, Otto Bemberg, but several decades
had to pass, with various successful publicity campaigns and some serious
blunders, for Quilmes beer to become the favourite brand of Argentinean drinkers.
Currently, the data indicate that Quilmes has a share of between 60% and 65% of
the Argentinean market.
The image of Quilmes
The image of Quilmes beer comprises: the label with two blue bands and one white
band in the middle, the logo of Quilmes in black letters, then underneath the word
"Crystal" and, lastly, a container of dark glass that reinforces the yellow colour of
the beer. The brand began by being associated with one of the most traditional
values in Argentina: football. The strategy of Quilmes and its alliance with the
football clubs (and with the national team) include sponsorship of sports events,
promotions linked to clubs, and publicity on the players' shirts. But the relationship
with sport is not limited to football: Quilmes also has alliances with rugby and horse
riding/show jumping. In total, the company spends 15% of the sales revenue on
marketing, the result of which is to position the brand as a Premium beer.
2. Brahma
The Brahma brand belongs to "Compañía Cervecera Brahma". It is Brasilian in
origin, and entered the Argentinean market at the beginning of the 1980's as an
imported beer. However, a decade later, the Company decided to manufacture the
product locally. Currently, the Brahma brand occupies second place in the beer
market of Argentina, with a market share of 16%.
Strategies: the great launching of Brahma
The Brahma brand was already well-known by the Argentinean consumers,
particularly by all those who spent their summer holidays on the beaches of Brazil,
where the brand featured in beach promotions with T-shirts and caps, and from the
various kinds of publicity that reached Argentina from Brazil. Brahma had one big
point in its favour: the Argentinean consumers already knew the brand. The
principal strategy was to reach the consumer with low prices. The advertising
campaigns were, therefore, accompanied by promotions and discounts. The
Company allocated 14.5% of sales revenue to merchandising efforts.
3. Isenbeck
Isenbeck beer is made by Cervecería Argentina SA. Isenbeck came on to the local
market in 1994 but, in origin, this beer dates back to 1769, when the wife of
Konrad Cramer began making it in the locality of Hamm, in the German region of
Westfalia. It was taken over by the Warsteiner Group of Germany. Isenbeck is a
Premium beer made with natural ingredients and without chemical additives.
3
According to estimates, Isenbeck has around 7% of the beer market in Argentina.
At first, the publicity strategies were focused on the launching of Isenbeck in
Argentina, with the 'Premium' attribute of the beer being promoted strongly. Once
the image of the brand was established in the local market and consumers began to
recognise it, Isenbeck started testing new strategies for getting consumers to relate
to the brand. It was aimed mainly at the consumers of national beers, and was
positioned for its excellent price-quality relationship. The percentage of sales
revenue allocated to marketing is around 5%.
Market
It is difficult to identify the beer consumer with any particular social class, given
that beer consumption is generalised throughout society. But the segments can be
differentiated by the brands consumed. The segment S1 is characterised by
consuming premium and imported brands. The segment S2, the biggest consumer,
chooses national brands; the trade-off between price and perceived benefit
determines product choice, since a "quality" product can be acquired for a modest
price. The lowest segment (S3) bases its choices solely on the price factor.
You are asked: Taking into account that the principal brands of beer that exist in
the country are Quilmes, Brahma, Isenbeck and CCU., analyse the strategic groups
operating in the brewery sector in Argentina, considering the strategic variables
mentioned and representing the map of strategic groups with the dimensions:
Market share-Marketing effort.
7.-Corresponding to topic 7.
ALPHABET, a corporation comprising five different Strategic Business Units,
presents the following data:
SBU
NA(0)
SI(-1)
SI(-2)
SMC(0)
NPAT(0)
SB(0)
%ROI
(average
of the
sector)
A
1,500
1,200
400
150
2,675
100
10
B
1,600
320
160
100
1,000
160
20
C
1,400
3,500
3,200
2,000
100
1,400
30
D
1,130
3,200
3,000
1,500
400
1,130
15
E
1,430
1,600
1,500
400
900
750
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NA: Net Assets (book value). S I: Sales of the Industry. SMC: Sales of the Main
Competitor. NPAT: Net Profit after Tax. SB: Sales of the SBU. ROI: Return on Net
Assets (or Return on Investments).
It is considered that a strong market growth rate (MGR) should be above 15%, and
that the industry growth rate will keep stable in the period under analysis.
Additional information to be taken into account is that a ROI below 10% is
considered low and above 20% high.
At this moment, this corporation has the priority of maintaining all its businesses,
for which it could support a global negative Net Cash Flow, but never over 1% of its
global net assets, in absolute value, without particular limits for each SBU.
You are requested to: Propose the strategy to be followed by this corporation
using the following boxes: BCG, GE-Mackinsey, and Profit-Investment.
NOTES:
ITEM
1
2
3
4
5
6
7
POINTS
0.75
0.75
0.75
0.75
1
1.5
1.5
-Time available for the exam: 2 hours and 15 minutes.
-Any comment you consider necessary to clarify your answer, please reason it in
your exam sheet.
4
SOLUTION
1.-Corresponding to topic 6.
LEVELS
Individual
Team
Organizational
Inter-organizational
SOURCES OF
KNOWLEDGE
People
Technology (databases,
patents, copyrights, etc.)
Organization
(processes, etc.)
Environment
ELEMENTS OF
INTELLECTUAL CAPITAL
Human capital
Technological capital
Organizational capital
Relational (or social) capital
2.-Corresponding to topic 1.
As a leader, expertise in business matters and skills in managing people
(communication skills).
As a strategist, organizational capabilities; capacity for negotiating and solving
conflicts.
A strong market-customer orientation; flexibility and ability for managing change.
3.-Corresponding to topic 2.
Corporate strategy sets out to delineate the scope of activity of the company and to
assign the capacities and resources among the various businesses operated by the
corporate entity. The benefits of synergy are sought by taking advantage of the
complementary aspects of these distinctive businesses.
4.-Corresponding to topic 3.
This is a socio-cultural change in current society, with clear implications in the
economy system.
5.-Corresponding to topic 5.
The most relevant activities in its value chain are: Technology Development
(research) and Procurement. Nevertheless, it is essential to highlight that value
creation in this case is mainly due to the contract scheme agreed with suppliers
(vertical linkage).
6.-Corresponding to topic 4.
DIMENSIONS
PRICE
DIFFERENCIATION
MARKETING
MARKET
SEGMENT
EFFORT
SHARE
TARGETED
QUILMES
High
High
High
High
S1
BRAHMA
Low
Low
High
Low
S3
CCU
Intermediate
Intermediate
Low
Low
S2
ISENBECK
Intermediate
Intermediate
Low
Low
S2
Watch out:
-Direct correlation between price and differentiation dimensions
5
-Stable and lucrative industry structure: a clear leadership, with few differentiated
brands targeting different segments of the market (although following different
strategies).
Map of Strategic Groups:
G1 = Quilmes.
G2 = Brahma.
G3 = Isenbeck and CCU.
100
G1
Market Share (%)
G3
G2
0
0
Marketing Effort (%)
15
7.-Corresponding to topic 7.
Total Net Assets = 1,500 + 1,600 + 1,400 + 1,130 + 1,430 = 7,060
Limit for a negative Net Cash Flow = 7,060 x 0.01 = 70,60
BCG Matrix
MGR = [SI(-1) / (SI(-2)] – 1
RMS(0) = SB(0) / SMC(0)
NCF(0) = NPAT(0) – INVESTMENT(0) = NPAT(0) - MGR x NA(0)
SBU
A
B
C
D
E
TOTAL
MGR (%)
200
100
9.38
6.67
6.67
RMS
0.67
1.6
0.7
0.75
1.875
INVESTMENT
3,000
1,600
131. 25
75.33
95.33
NCF
-325
-600
-31.25
324. 67
804. 67
173. 08
TIPO
Question Mark
Star
Dog
Dog
Cash Cow
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BOSTON CONSULTING GROUP BOX
MGR
A
200 %
100 %
B
15 %
C
9,38 %
6,67 %
E
1,875
D
1,6
1
0,75
0,7
0.67
RMS
Profit/Investment Matrix
SBU
A
B
C
D
E
TOTAL
NA(0)
1,500
1,600
1,400
1,130
1,430
7,060
NPAT(0) %NA %NPAT
2,675
21.25
52.71
1,000
22.66
19.70
100
19.83
1.97
400
16.01
7.88
900
20.25
17.73
5,075
100. 00 100. 00
7
100
N
E
90
T
80
P
R
70
60
O
F
A
50
I
T
40
S
30
A.
20
T.
10
B
E
D
C
(%)
10
20
30
40
50
60
70
80
90
100
NET ASSETS (%)
General Electric-McKinsey Matrix
SBU
A
B
C
D
E
TOTAL
NA(0)
1,500
1,600
1,400
1,130
1,430
7,060
NPAT
2,675
1,000
100
400
900
5,075
Industry’s Company’s
ROI (%)
ROI (%)
10
178. 33
20
62.50
30
7.14
15
35.40
6
62.94
8
MARKET ATTRACTIVENESS
(industry’s ROI)
GENERAL ELECTRIC-MACKINSEY BOX
C
B
20 %
D
10 %
A
E
20
10
COMPETITIVE STRENGTH (company’s ROI)
9