Foundations of Strategy Chapter 5:

1. Foundations of Strategy Chapter 5: Team 3: Taylor Carroll, Jessica Sharpless, Andrea Lapotaire, Andrew Stack, Andrew West

2. Opening Case: The Evolution of Personal Computers Came about in early 70s First used mainly by hobbyist who assembled their own Apple, Tandy, Commodore first to market pre-assembled product 1981 market estimated worth $3Billionwith 150 companies world wide Apple 20%, Tandy 15%, Commodore 7% Early 1980’s IMB focuses on mainframe computers, exploded in popularity

3. Opening Case: The Evolution of Personal Computers cont. IBM became standard PC Apple lostlead in market share to IBM Standard PC lead to growing software market Apple’s iPod, iPhone, iPadnewhits to old idea http://www.youtube.com/watch?v=Y-rXWWVmchY&list=PL86671A86833356A8&index=9

4. The Industry Life Cycle • Product Life Cycle-products are born, their sales grow, they reach maturity, they go into decline and they ultimately die • Industry Life Cycle- the supply-side equivalent of the product life cycle

5. The Industry Life Cycle • The Life Cycle comprises four phases: • Introduction • Growth • Maturity • Decline • Two factors are fundamental: demand growth and the production and diffusion of knowledge

6. Demand Growth Introduction stage- sales are small and the rate of market penetration is low because the industry’s products are little known and customers are few Growth stage- accelerating market penetration as technical improvements and increased efficiency open up the mass market Maturity stage- caused by increasing market saturation. Once saturation is reached, demand is wholly for replacement Decline stage- happens when the industry becomes challenged by new industries that produce technologically superior substitute products

7. The Production and Diffusion of Knowledge • Knowledge creation and knowledge diffusion exert a major influence on industry evolution • Over the course of the life cycle, customers become increasingly informed about the product and the market expands • But as customers become more knowledgeable about the performance attributes of manufacturers’ products, so they are better able to judge value for money and become more price sensitive

8. Dominant Designs and Technical Standards • Dominant design refers to the overall configuration of a product or system • Example: the Underwood Model 5 • Technical Standard is a technology or specification that is important for compatibility • Emerge when there are network effects- the need for users to connect in some way with one another

9. How general is the life-cycle pattern? • Duration of the lifecycle varies from industry to industry • Industries supplying basic necessities may never enter decline phase • Residential construction • Food processing • Clothing • An industry is likely to be at different stages of its life cycle in different countries

10. Strategy at Different Stages of the Life Cycle Changes in demand growth and technology over the cycle have implications for industry structure, competition and the sources of competitive advantage (key success factors).

11. The Introduction Phase • The number of firms in an industry increases rapidly during the early stages of an industry’s life cycle. • ‘de novo’ entrants- Start up companies • Born global companies • ‘de alio’ entrants- Established firms diversifying • PC industry

12. The Growth Phase • As demand grows both in the domestic market and other countries a dominant design usually emerges. • Key success factors: • Manufacturing capabilities • Access to distribution • Financial resources

13. The Maturity Phase • Competitive advantage is increasingly a quest for efficiency; particularly in industries that tend toward commoditisation. • Key success factors: • Cost efficiency through scale economies • Low wages • Low overhead

14. The Decline Phase • Shrinking market demand gives rise to acute strategic issues. • Key features of declining industries: • Excess capacity • Lack of technical change • Declining number of competitors • High average age of capital • Aggressive price competition

15. Strategy in Public-sector and Not-for-profit Contexts • Public-sector: • Public goods • Market failure • Not-for-profit: • Fund disbursement • Tax, legal, and regulatory differences • Social enterprise

16. Key Differences that Impact Strategy (Public & Private Sectors) Multiple, potentially conflicting goals Distinctive constraints and different levers An absence of market forces Monopoly power Less autonomy and flexibility Increased accountability Less predictability

17. Key Differences that Impact Strategy (Not-for-profit & Private Sectors) The employment of volunteers Fundraising

18. Stakeholder Analysis • Needs and Goals of stakeholders can conflict • Stakeholder analysis- process of identifying, understanding and prioritizing the needs of key stakeholders • Participation in strategy formulation • Relationships with stakeholders

19. Stakeholder Analysis Cont. Bryson’s Key Steps: Identification of the list of potential stakeholders Ranking stakeholders according to their importance and influence on the organization Identifying the criteria that each stakeholder is likely to use to judge the organization's performance Deciding how well the organization is doing from its stakeholders’ perspective Identifying what can be done to satisfy each stakeholder Identifying and recording longer term issues with individual stakeholders and stakeholders as a group

20. Stakeholder Analysis Cont. Responses to stakeholders’ Power/Interest Grid Stakeholder Power/Interest Grid Level of Interest Level of Interest Power Power

21. Scenario Planning -a systematic way of thinking about how the future might unfold that builds on what we know about current trends and signals Pioneered by the oil company Royal Dutch Shell, who’s investment projects far exceeded the time horizon for forecasting Approach is to conduct several distinct, internally consistent narratives of how the future may look 5 to 25 years ahead. Quantitative scenario analysis models events and runs simulations to identify likely outcomes. Qualitative scenarios typically take the form of narratives and are particularly useful in engaging the insight and imagination of decision-makers.

22. Scenario Planning Key Steps Defining the purpose of the analysis Deciding on the time horizon Identifying key trends Identifying key uncertainties Creating the scenarios and checking that they are internally consistent Identifying indicators that might signal which scenario is unfolding Assessing the strategic implications of each scenario

23. Walmart’s SWOT Analysis • Strengths: • large selection of goods with very competitive prices • Size of company allows for huge discounts from suppliers that allow Walmart to keep prices low • Have their own brand of goods supplied along with local supplier’s products and major brands • Size and buying power • Frugal management

24. Frugal Video • http://www.youtube.com/watch?v=479Ruc4Q-I0 • Startat 1:50

25. Walmart’s SWOT Analysis Cont. • Weaknesses: • Huge responsibility • Suppliers under pressure • Questionable quality from customers • Opportunities: • Expansion • Partnerships • Home deliveries • Creation of a convenience store

26. Walmart’s SWOT Analysis Cont. • Threats: • Competing vendors • Local convenience stores • Similar companies in other countries • Ethical attacks due to success Source: http://www.rapid-business-intelligence-success.com/swot-analysis-of-wal-mart.html

27. Competitors Target Area groceries Clothing stores Automotive stores Hardware stores Etc.

28. Competitive Advantages and Strategy • Advantages: • Low price • Convenience • Strategy: • Cost leadership strategy • Walmart also has been successful in creating an integrated low cost-differentiation strategy

29. The World Wide Foundation for Nature (WWF) Established in 1961 by Sir Julian Huxley after seeing thriving areas barren in Africa Worked with several governments to pass laws protecting certain species that were in danger of extinction (tigers,whales, dolphins, turtles, etc.) 1990s lack of interest in organization led to restructuring New structure made specific priorities and broke those down into smaller, achievable goals Lead to more involvement and goal achievement

30. The World Wide Foundation for Nature (WWF) cont. “The world’s leading conservation organization, WWF works in 100 countries and is supported by 1.2 million members in the United States and close to 5 million globally. WWF’s unique way of working combines global reach with a foundation in science, involves action at every level from local to global, and ensures the delivery of innovative solutions that meet the needs of both people and nature.” http://www.youtube.com/watch?v=nDTmjR_GG1w