Hitt, Ireland and Hoskisson, 2007 7e Edition Daniel Degravel

1. 1 Strategic Management Hitt, Ireland and Hoskisson, 2007 7e Edition Daniel Degravel

2. 2 Ch.1 Strategic Management and Competitiveness Definitions … Strategy Strategic Competitiveness Competitive Advantage Average Return AR Above Average Return AAR Risk Strategic Management Process Strategic Flexibility Organizational Slack Strategic Intent Strategic Mission Stakholders (three groups) Corporate Culture Strategic Leaders (Who are they, What’s their work, Prediction of outcomes) Challenges of Strategic Management Hyper Competition Necessity of Strategy? • Technology • Rate of Change • Information • Knowledge Intensity Globalization Two basic Strategic Approaches I/O Model RB Model

3. 3 Ch.2 External Environment: O,T Competition and Competitor Analysis Definitions Box General Environment Industry Environment Competitor Analysis Opportunity Threat Industry Market micro structure P5F Model New Entrants Products Substitution Barriers to Entry BTE Economies of Scale EoSca Switching Costs Strategic Group Competitor Analysis Competitor Intelligence General Environment PEST Model Technology Political Industry Environment P5F Model Strategic Mapping (Strategic Groups) Competitor Analysis Economic Socio-Cultural Demographic Global Segment

4. 4 Ch.2 External Environment: O,T Competition and Competitor Analysis (Ctd.) General Environment NE Industry Environment P5F Model S BPC BPS R PS Strategic Mapping (Strategic Groups) + Competitor Analysis Firms - - +

5. 5 Ch.3 Internal Environment: Resources and Competences Definition Box… Resources Environments: MIGHT DO vs. CAN DO Firm = Bunch of resources Value Competitive Advantage Strategic Competitiveness Resource Competence or Capability Value Chain Outsourcing Intangible HR Organization Reputation Patents Network Tangible Finance Physical assets Technology • Decisions concerning R&C: • Uncertainty • Complexity • Intra-Org. Conflict Concept of Value-Chain Primary Competence C = R+A+R Characteristics Valuable Rare Costly-to-imitate Non Substituable Support Core Rigidities Strategic Competitiveness Resource Competences (Core) … Competitive Advantage Value Creation LIMITED LIFE Choice of Business Strategy Outsourcing Core Competence + Position in PxM = Competitive Advantage Disadvantages Advantages

6. 6 Ch.4 Business-level Strategies BL Strategy = integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific businesses p.105 Deliberate choie about how firm will perform the value chain activities in ways that create unique value p.111 Market segmentation p.108 FMS p.127 Information networks (CRM, ERP) p.129 TQM p.130 Customer = key 3 Attributes Reach Richness Affiliation 3 dimensions Who? What? How? Clients are the foundation Returns earned from relationships with customers is lifeblood of organizations Five generic BL strategies M. Porter Analysis of the five generic strategies for each of the five forces of P5F model BPS, BPC, NE, PS and R Analysis of COST and DIFF with the value-chain COST DIFF Integrated C-D CL Strategy: Which businesses in portfolio? BL Strategy: How do you compete in each business? Creation of value for stakeholders Purposeful Linked with Mission and Intent Alignment R&C with environment Focused COST Focused DIFF Perform different or differently Superior fit among activities of the value-chain

7. 7 Ch.5 Competitive Dynamics and Rivalry Definition Box… Strategic behavior Success • Competitive • - Rivalry • - Behavior • - Dynamics • Multimarket Competition • Market Commonality • Resource Similarity • Dependence on the market • First Mover • Second Mover • Late Mover • Competitive • - Action • Response • Strategic • Tactical • Reputation • Slow-Fast markets Anticipation Action Competitive Dynamism (All firms) Slow-cycle market Standard-cycle market Fast-cycle market Model of competitive Rivalry (Competitors) Movers -Quality -Size Rivalry Likelihood of attack Likelihood of response Drivers A, M, A, D Perceived Gain/Loss Type of competitive action Reputation Dependence MC MS

8. 8 Ch.6 Corporate-level Strategies Corporate-level strategy = actions taken to gain a competitive advantage by selecting and managing a group of different businesses competing in different industries, the portfolio of businesses Objective: Earn AAR Degree to which the businesses are worth more under the management of the firm than they would be under any other (separate) ownership(s) DIV has best effect if interaction of resources, motives and incentives DIV appropriate for the R&C and O&T Model of Related Diversification and performance p193 Diversification DIV Fundamental Option:Increase or Decrease Portfolio by engaging in new businesses or exiting businesses you are presently running Concentration CON

9. 9 Ch.6 Corporate-level Strategies Reasons for Diversification Operational relatedness (sharing activities) Corporate relatedness (transferring competences) Reduction of top management employment risk Size and complexity increase compensation Economies of Scope RDIV III Value-Reducing Diversification Multipoint Competition (blocking competitors) Vertical Integration Market Power RDIV I Value-creating Diversification II Value-Neutral Diversification Anti trust regulation Tax law Low performance Uncertain future cash flow Risk reduction for firms Tangible resources Intangible resources Efficient internal capital allocation (asymmetry of access to information) Business Restructuring Financial Economies

10. 10 Ch.6 Corporate-level Strategies The big Picture Corporate Strategy Directional Strategy No Change STOP GO Stability Retrenchment Development Portfolio Strategy Concentration CON Diversification DIV Product New Old No strategic change Improvement of operational efficiency Sell out/Divestment Bankruptcy Turnaround (contraction/expansion) Old Diversification Marketing Product DIVMP Expansion Market Diversification Marketing Market DIVMM Strategic Diversification DIV New Internal growth External growth Partnerships … Vertical Integration Horizontal Integration Internationalization … Deployment Strategy

11. 11 Ch.7 Acquisition and Restructuration Strategies Popular means of development Several waves of Acquisition and Mergers Merger = Integration of operations on a relatively co-equal basis Acquisition = a firm controls 100% interests in another firm Take over = special type of acquisition in herein the target firm does not solicit the acquiring firm’s bid. Many are referred as hostile Reasons for Acquisition Problems Acquisition Ways of dealing with problems Restructuring

12. 12 Ch.7 Acquisition and Restructuration Strategies (Ctd.) REASONS FOR ACQUISITION 1- Market power Horizontal, Vertical and related Acquisition 2- Overcoming BTE 3- Cost of Product development and speed to market 4- Increased diversification 5- Reshaping firm competitive scope 6- Learning and developing capacities Reasons for Acquisition Restructuring Restructuring = 1- Downsizing 2- Downscoping 3- Leveraged Buyouts

13. 13 Ch.7 Acquisition and Restructuration Strategies (Ctd.) Ways of dealing with problems Problems POTENTIAL PROBLEMS… Lots of failures or very incomplete achievements 1- Integration phase 2- Inadequate evolution of target 3- Debt 4- Instability to achieve synergy Synergy Transaction cost 5- Over-diversification 6- Over-focus of managers on acquisition 7- Too large acquisition TO ENHANCE SUCCESS… 1- Complementary assets 2- Groomed before (test) 3- Friendly acquisition 4- Effective dire diligence process 5- Financial slack 6- Innovation 7- Flexibility 8- Adaptability 9- experience of managers 10- Effective integration

14. 14 Ch.8 Internationalization Strategies Contents of chapter 8 1- Why do you Internationalize? Opportunities 6- How hard is it? Complexity of managing multinational firms 5- What are consequences for you in terms of competitiveness? Strategic competitiveness outcomes 2- What type of International strategy do you choose? International strategies 4- How do you make it practically? Choice of international entry mode 3- What does the environment “tell” you? Environmental trends

15. 15 Ch.8 Internationalization Strategies (Ctd.) CLASSIC RATIONALE FOR INTERNATIONAL DIVERSIFICATION 1- Product life-cycle 2- Secure needed resources 3- More universal product demand and globalization 4- EoSca 5- Pressure for cost reduction 6- Size of potential market 7- Currency fluctuations, decreasing risk of devaluation 8- Need for local operations 9- Laws and regulations 1- Why do you Internationalize? FOUR BASIC BENEFITS 1- Increased market size 2- Return On Investment Recoup more rapidly R&D and development expenses 3- EoSca, EoSco and learning 4- Location advantages

16. 16 Ch.8 Internationalization Strategies (Ctd.) 5- What are consequences for you in terms of competitiveness? BASIC OUTCOMES 1- INT DIV increases Returns 2- INT DIV increases Innovation 2- What type of International strategy do you choose? International strategies • INTERNATIONAL STRATEGIES • 1- Business level strategies • Porter’s Diamond of competitiveness (factors of production) • 2- Corporate level strategies • -Multi-domestic (several independent countries) • Transnational (global integration) • Global (Both multi-domestic and Transnational)

17. RISKS and LIMITS Political Risk Economic Risk Organizational limit Economic limit 17 Ch.8 Internationalization Strategies (Ctd.) 3- What does the environment “tell” you? Environmental trends 6- How hard is it? Complexity of managing multinational firms ENVIRONMENTAL TRENDS Liability of foreigners Regionalization Triad

18. 18 Ch.8 Internationalization Strategies (Ctd.) Degree of Involvement New wholly owned subsidiary Entry Modes + 4- How do you make it practically? Choice of international entry mode Acquisitions Strategic Alliances - Dynamics of mode of entry - Mode best suited to situation - Sequentially or back-and-forth or skip entry modes Licensing Exporting 0 Time 0 +

19. 19 Ch.8 Internationalization Strategies (Ctd.) Another typology of international mode of entry Direct and indirect exportation Commercial, administrative, production or research subsidiaries License sale or leasing Franchise Sale of technology “Turn-key” contracts and engineering and international consultancy 1- Exportation 2- Foreign Direct Investment FDI 3- Contractual arrangements

20. 18 Ch.9 Cooperative Strategies Cooperative strategy = organizations working together to achieve a shared objective Collusive strategy = organizations cooperating to raise prices above the fully competitive level Strategic alliance = cooperative strategy in which organizations combine some of their resources and capabilities to create a competitive advantage Strategic Alliances • Why? • Because you create value together that you could not create alone • Slow-cycle market • Standard-cycle market • Fast-cycle market Joint Venture Non-Equity strategic alliance Equity strategic alliance

21. 19 Ch.9 Cooperative Strategies (Ctd.) B-L Cooperative Strategies Complementary Strategic alliance Reducing Competition Strategy Competitive Strategy Reducing uncertainty Strategy • Share R&C • Vertical • Horizontal • Strategic response • Response to attack -Explicit collusion -Tacit collusion -Mutual forbearance Hedge against risk and uncertainty

22. 20 Ch.9 Cooperative Strategies (Ctd.) C-L Cooperative Strategies To grow through means different than M&A Fewer resources needed Greater flexibility Testing process for future potential M&A Diversifying Strategic alliance Network Cooperative strategy Franchising Synergetic Strategic alliance • DIV or CON on core businesses International Corporate strategy • Multiple partnerships • Stable alliance network • Dynamic alliance network EoSca Cross-border Strategic alliance

23. 21 Ch.9 Cooperative Strategies (Ctd.) Risks Managing Cooperative strategies 1- Partner acts opportunistically 2- Organization has misrepresented R&C it can bring 3- Organization will not make it available for its partners 4- Organization makes a specific investment to the alliance and the partner does not Cost minimization management Opportunity maximization management Importance of Trust Effectively managed, cooperative strategy can be rich and effective

24. 22 Ch.10 Corporate Governance Corporate Governance = relationhip between stakeholders used to dsetermine and control the strategic direction and performance of the Organization Four roles of Corporate Governance Ensure that strategic decisions are made effectively Establish order between parties Reflects and reinforce Values Oversight when stakeholders may have a conflict of interest Corporate Governance sometimes fails but well-functioning CG can create a competitive advantage

25. 23 Ch.10 Corporate Governance (Ctd.) Four CG mechanisms (3 internal, 1 external) Ownership Concentration Board of Directors Executive Compensation Market for Corporate Control Corporate Governance in International contexts Examples of Germany and Japan Corporate Governance and Ethics At least the minimal interests of Stakeholders should be met Organization is very much vulnerable to its agents’ unethical behavior

26. 24 Ch.10 Corporate Governance (Ctd.) Ownership Concentration Board of Directors Separation Ownership and management Agency relationship Diversification as a problem Agency costs Managerial opportunism Ownership concentration Institutional owners SHo activism Board of Directors Insider Outsider Related Outsider Enhancing effectiveness of Board: 1- Diversity 2- Internal management and accounting control systems 3- Formal process to evaluate Board’s performance 4- “Lead” Director 5- Compensation of Directors (Decrease stock options) Three characteristics for Directors

27. 25 Ch.10 Corporate Governance (Ctd.) Executive Compensation Market for Corporate Control Executive Compensation Align Organization and top managers’ interests Complicated CG mechanism because difficult to link managers’ Action and Performance Variations in compensation (direct vs. indirect, short term vs long term) Market for corporate control Loss of job? Managerial defense tactics MfCC may not be totally efficient

28. 26 Ch.11 Organizational Structure and Controls Structure = formal reporting relationships, procedures, controls and authority and decision-making processes: « how to do the job ». Structure is the Framework within which strategies are designed and implemented Necessary Fit « Strategy-Structure » Structure Strategy CONTROL Actual – Expected ACtual – Reference Point (Industry) Strategic Control Financial Control STABILITY vs FLEXIBILITY Change of Strategy implies often Change of Structure But Organizational Inertia

29. 27 Ch.11 Organizational Structure and Controls (Ctd.) So in response: Simple Functional Divisional • Structure and Strategy evolve: • Volume • Geography • Vertical Integration • Diversification Three main Dimensions: Structure Formalization Centralization Departmentalization

30. 28 Ch.11 Organizational Structure and Controls (Ctd.) Structure Strategies

31. 29 Ch.11 Organizational Structure and Controls (Ctd.) CORPORATE LEVEL D Cooperative D SBU Form D Competitive BUSINESS LEVEL F COST DIFF INTEG DIV Related Constrained DIV Related Linked DIV Unrelated INTERNATIONAL INT Geographic Area INT Product Divisional INT Combination COOPERATIVE N N Alliance N Franchise N International Cooperative Alliance (Vertical Horizontal) Franchise Strategic Network INT Multidomestic INT Global INT Transnational

32. 30 Ch.12 Strategic Leadership Models … Key Strategic Leadership Actions Model #1 SIY p.375 Leadership and the SMP Role of Leaders in the process Model #2 EOM p.377 Determinants of Managerial Discretion Which variables influence managers’ decisions / actions? Directions Ethics and CSR Culture Magt Resources Portfolio Magt Control of the Organization Issue: Managers as a key organizational Resource Issue: Top Management teams and role of stakeholders (Corporate Governance)