MGMT 490
Strategic Management
Prof. Stephen Standifird
Welcome!!!
Syllabus Highlights
Basic Content
Grading
• My contact info.
• Course objectives
• Text: Hitt et. al.
(6th Edition)
• 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
Final
Grade
Group:
–
–
–
–
Plan Ahead (way ahead!!)
Data, Data, Data
Be Professional
Have Fun
A
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.
Internal Environment
Begin Here (the SW of SWOT)
Strenghts
Weakness
Opportunities
Threats
External Environment
Begin Here (the OT 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.
Porter’s Five Forces Model of Competition
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms
in Industry
Threat of
Substitute
Products
Bargaining
Power of
Buyers
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
Keys to evaluate substitute products:
Products
with similar
function
limit the
prices firms
can charge
* Products with improving
price/performance tradeoffs relative
to present industry products
For Example:
Fax machines in place of overnight
mail delivery
E-mail in place of fax machines
Bargaining Power of Suppliers
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
Suppliers are likely to be powerful if:
* 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
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
Intensity of Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
*
Numerous or equally balanced competitors
*
Slow growth industry
*
High fixed costs
*
High storage costs
*
Lack of differentiation or switching costs
*
Diverse competitors
*
High strategic stakes
*
High exit barriers
Porter’s Five Forces Model of Competition
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms
in Industry
Threat of
Substitute
Products
Bargaining
Power of
Buyers
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
Project Expectations
• 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!!!
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.
Porter’s Five Forces Model of Competition
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms
in Industry
Threat of
Substitute
Products
Bargaining
Power of
Buyers
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.
Generic Business Level Strategies
Source of Competitive Advantage
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Cost
Uniqueness
Cost
Leadership
Differentiation
Focused
Low Cost
Focused
Differentiation
Cost Leadership Business Level Strategy
Relatively standardized
products
*
Requirements
Features acceptable to
many customers
Constant effort to reduce
costs through:
Lowest competitive
price
*
Building efficient scale
facilities
*
Tight control of production
costs and overhead
*
Minimizing costs of sales,
R&D and service
*
“State of the Art”
manufacturing facilities
Monitoring costs of
activities provided by
outsiders
* Simplification of
processes
Focus on VOLUME
Cost Leadership
Competitive Risks
• Loss of cost advantage due to technology
• Loss of cost advantage due to imitation
• Customer interest in a differentiated product
Differentiation Business Level Strategy
Requirements
Value provided by
unique features and
value characteristics
Command premium price
High customer service
*
*
Superior quality
Prestige or exclusivity
Rapid innovation
*
*
*
Constant effort to differentiate products through:
Developing new systems
and processes
Shaping perceptions through
advertising
Quality focus
Capability in R&D
Maximize Human Resource
contributions through low
turnover and high motivation
Focus on MARGINS
Differentiation
Competitive Risks
• Price does not justify the features
• Unique features no longer valued
• Loss of differentiation due to imitation
Focused Business Level Strategies
Focused
Business Level
Strategies
involve the
same basic
approach as
Broad Market
Strategies
*
However.....
Opportunities may exist because:
*
Large firms may
overlook small niches
*
Firm may lack resources
to compete industrywide
May be able to serve a narrow market segment more
effectively than industrywide competitors
Focused
Competitive Risks
• Firm may be “outfocused” by competitors
• Large competitor may set its sights on your
niche market
Integrated LowCost/Differentiation
What is it?
Potential problems?
• The best of both
worlds. Both low-cost
and differentiated.
• 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
Project Expectations
• 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!!!
Data, data and more data - support your position!
(not a suggestion, a requirement)
A Diversified Company has 2 levels of strategy
Business-Level Strategy
(Competitive Strategy)
How to create competitive advantage in each business in
which the company competes
Corporate-Level Strategy
(Companywide Strategy)
How to create value for the corporation as a whole
Firms Vary by Degree of Diversification
Low Levels of Diversification
Single-business
More than 95% of revenues
from a single business unit
Dominant-business
Between 70% and 95% of revenues
from a single business unit
Moderate to High Levels of Diversification
Related-Diversified
Less than 70% of revenues from
a single business unit
Businesses share product, technological or distribution linkages
High Levels of Diversification
Unrelated-Diversified
Business units not closely related
Alternative Diversification Strategies
Related Diversification Strategies
1
Sharing Activities
2
Transferring Core Competencies
Unrelated Diversification Strategies
3
Efficient Internal Capital Market Allocation
4
Restructuring
Sharing Activities
Key Characteristics
Sharing of basic activities often lowering costs or raising
differentiation
Assumptions
1
Strong sense of corporate identity
2
Clear corporate mission that emphasizes the
importance of integrating business units
3
Incentive system that rewards more than just
business unit performance
Transferring Core Competencies
Key Characteristic
The sharing of highly specialized skills and expertise
Assumptions
1
Activities involved in the businesses are similar
enough that sharing expertise is meaningful
2
Transfer of skills involves activities which are
important to competitive advantage
3
The skills transferred represent significant sources
of competitive advantage for the receiving unit
Efficient Internal Capital Market Allocation
Key Characteristic
Acquire sound, attractive companies, transfer resources
from units that generate cash to those with high growth
potential and substantial cash needs
Major Assumption
Managers have more detailed knowledge of the acquired
firm relative to outside investors (not likely)
Restructuring
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
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
Low Levels of Diversification
Single-business
More than 95% of revenues
from a single business unit
Dominant-business
Between 70% and 95% of revenues
from a single business unit
Moderate to High Levels of Diversification
Related-Diversified
Less than 70% of revenues from
a single business unit
Businesses share product, technological or distribution linkages
High Levels of Diversification
Unrelated-Diversified
Business units not closely related
Performance
Diversification and Firm Performance
Dominant
Related
Level of Diversification
Unrelated
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
Stars
Cash Cows Question ? Dogs
High Grow Low Grow High Grow Low Grow
High Share High Share Low Share Low Share
Promote
Defend and Invest or
and Expand Maintain
Divest
No Future
Divest
BCG Growth-Share Matrix
• 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.
GE/McKinsey Matrix
Industry Attractiveness
Business Unit Strength
High
Medium Low
Grow
Grow
Hold
Medium Grow
Hold
Harvest
Low
Harvest
Harvest
High
Hold
Fatal Assumption: No Interaction Between Business Units
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
Agency Theory
An agency relationship exists when:
Agency Relationship
Shareholders
(Principals)
Firm Owners
Risk Bearing Specialist
(Principal)
Hire
Managers
(Agents)
Decision
Makers
Managerial DecisionMaking Specialist
(Agent)
which creates
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 Six
– What are the levels of
• 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 businesslevel strategies, the
advantages & assumptions
associated with each?
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)
Concerns?
Questions?
Anxieties?
Comments?
Internal Model of Superior Returns
Rides from USD to
Old Town Transit Center
using my 2005 Honda CRV
Car Shuttle
Business
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.
Resource-Based Model of Superior Returns
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.
Combined
With
Capabilities
Teams of
Resources
Core
Competencies
Resources
* Tangible
* Intangible
Results In
Components of
Internal Analysis
Strategic
Competitiveness
Above-Average
Returns
Sources of
Sustained
Competitive
Advantage
Which
Leads To
Resource-Based Model of Superior Returns
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.
Resources
Resources
Tangible Resources
*
*
*
*
Financial
Physical
Human Resources
Organizational
Intangible Resources
* Technological
* Innovation
* Reputation
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
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
Competency that helps a firm to exploit opportunities to create
value for customers
Rare
Competency that are possessed by few, if any, current or potential
competitors
Costly to Imitate
Competency that other firms cannot develop easily, usually due to
unique historical conditions, causal ambiguity or social complexity
Nonsubstitutable
Competency that do not have strategic equivalents, such as firmspecific knowledge or trust-based relationships
Outcomes from Combinations of the Criteria
for Sustainable Competitive Advantage
Valuable
Rare
Costly to
Imitate
Nonsubstitutable
Competitive Performance
Consequences Implications
Below
Average
Returns
NO
YES/NO
YES/NO YES/NO
Competitive
Disadvantage
YES
NO
YES/NO YES/NO
Competitive
Parity
Average
Returns
Temporary
Competitive
Advantage
Temporary
Above Ave
Returns
Sustainable
Competitive
Advantage
Above
Average
Returns
YES
YE
S
YES
YE
S
NO
YE
S
YES/NO
YE
S
Combined
With
Capabilities
Teams of
Resources
Core
Competencies
Resources
* Tangible
* Intangible
Results In
Components of
Internal Analysis
Strategic
Competitiveness
Above-Average
Returns
Sources of
Sustained
Competitive
Advantage
Which
Leads To
Combined
With
Capabilities
Result In
Teams of
Resources
Resources
* Tangible
* Intangible
Components of
Internal Analysis
Strategically
Valuable
Sustainable
Competitive
Advantage
Above-Average
Returns
Result In
Valuable, Rare,
not easily imitated
or substituted
Distinctive
Competencies
Which
May Be
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
Question
1. What are we selling, to whom
and how are we doing?
2. Identify sources of advantage
in primary product/markets
2. Why do our customers choose
our products over others?
3. Determine organizational
competencies
3. What about our org. gives us
advantage with customers?
4. Determine if competencies
give you a sustained
competitive advantage
4. Is the competency rare,
valuable, difficult to imitate
or substitute?
Canon’s Core Competencies
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?
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!
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.
Value Chain Analysis
helps to identify which resources and capabilities can add value
Firm Infrastructure
Human Resource Management
Technological Development
Primary Activities
Service
Marketing
& Sales
Outbound
Logistics
Operations
Procurement
Inbound
Logistics
Support
Activities
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
The Short Version: Allows you to focus on doing what you
do best while hiring others to do what they do best.
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
Mergers and Acquisitions
• 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
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
Problems with Acquisitions
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
Characteristics of Effective 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
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
Characteristics of Effective Acquisitions
Low-to-Moderate Debt
Merged firm maintains financial flexibility
Flexibility
Has experience at managing change and is flexible and
adaptable
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!!!!
Alternative Diversification Strategies
Related Diversification Strategies
1
Sharing Activities
2
Transferring Core Competencies
Transferring Core Competencies
Key Characteristic
The sharing of highly specialized skills and expertise
Assumptions
1
Activities involved in the businesses are similar
enough that sharing expertise is meaningful
2
Transfer of skills involves activities which are
important to competitive advantage
3
The skills transferred represent significant sources
of competitive advantage for the receiving unit
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
High
Global
Strategy
Transnational
Strategy
Cost
Pressures
(need to keep
costs down)
International
Strategy
Multidomestic
Strategy
Low
High
Low
Pressures for Local Responsiveness
(need to locally adapt)
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
Strategy
International
Global
Multidomestic
Transnational
Advantage
Disadvantage
Easy to do and can
focus on your
distinctive traits
Cost savings by
exploiting location
specific advantages
Maximizes in the
area of local
responsiveness
Locally responsive
and cost effective at
the same time
Lacks responsiveness
and not necessarily
cost effective
Lacks in the area of
local responsiveness
Can be very costly
to implement
Difficult (impossible)
to implement
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.
2.
3.
4.
Exporting
Licensing
Strategic Alliance
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???
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
Managerial Labor Market:
CEO Succession
Homogeneous
Top
Management
Team
Heterogeneous
Internal
CEO Succession
External
CEO Succession
Stable
Strategy
Ambiguous:
Possible change in
Top Management
Team and Strategy
Stable
Strategy with
Innovation
Strategic
Change
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 Strengths, Weaknesses,
Opportunities and Threats 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
1. Economic
To produce goods and services of value to society so
that the firm can repay its creditors and shareholders
2. Legal
Defined by governments in laws that management is
expected to obey
3. Ethical
To follow the generally held beliefs about behavior in
a particular society
4. Discretionary
Purely voluntary obligations assumed by the firm
Carroll’s Four Responsibilities
Economic
(Must)
Legal
(Have To)
Stuff that has
to be done
Ethical
(Should)
Discretion
(Might)
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
1. Utilitarian
2. Individual Rights
3. 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
1. Utility
Does an action/strategy optimize the satisfaction
of all stakeholders involved?
2. Rights
Does an action/strategy respect the rights of the
individuals involved?
3. Justice
Is the action/strategy consistent with the concept
of justice for all?
Operating Ethically
•
Ethics Committees
–
•
Codes of Conduct
–
•
Internal Monitoring
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.
Porter’s Five Forces Model of Competition
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms
in Industry
Threat of
Substitute
Products
Bargaining
Power of
Buyers
Model Two:
Resource Based
(Core Competency)
The resources and capabilities of the firm
should drive strategy. Build your strategy
around existing resources.
Combined
With
Capabilities
Result In
Teams of
Resources
Core
Competencies
Resources
* Tangible
* Intangible
Components of
Internal Analysis
Strategically
Valuable
Sustainable
Competitive
Advantage
Above-Average
Returns
Result In
Valuable, Rare,
not easily imitated
or substituted
Which
May Be
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
Buyer
Rivalry
Core Comp.
that leads to
SCA? Where else
might this
Core Comp.
Apply?
Industry B
Supplier
Subs.
Industry A
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