Strategy: A View from the Top Chapter 3

1. Strategy: A View from the TopChapter 3 Team 2 Heather McMahon Jacob Western Brittany Thomason Scott Devore Ryan White Cory Gregory Mitchell Stack

2. Globalization • Losing the way of life • In everything you do, personal and business

3. Understanding Globalization • Political Globalization • Collapse of communism 1989 • Democracy • Economic Globalization • NAFTA, WTO, and many over • Technological Globalization • computers, travel, etc.

4. RegionalismA Stepping Stone on the Path Toward a Global Economy? • Regional Trading blocks account for 60% of world trade • Some view it as a stepping stone • Some view it as solutions to problems and pressure and that they may become rigid.

5. New Powerhouses: India & China • India and China are vastly becoming economic powers • Over the past 5 years India’s economy has grown 5% annually • By some measure China’s economy is already larger than Germany’s

6. Powerhouses Cont’d • India is becoming the new silicon valley • It has become the location of choice for software development and many other technical services • This leads to: • growing investment • foreign capital and technology are coming in • western style competition is predominant • state intervention is diminishing

7. Powerhouse Cont’d • China has become the preferred location in manufacturing • Because of an abundance of cheap labor • Created a global competitive advantage by combining cheap labor with new technology • Opened doors and encouraged incentives for technology transfer • Biggest trading partner for Japan, Korea, and many other key Asian economies

8. China’s Economic Progress • China’s economic progress is still uneven • Some places are still having Coca Cola delivered by mule • Majority of deliveries are still made by bicycle or motor scooter • Western countries recognize vast potential in China’s growth • Number of U.S. companies such as Wal-Mart, KFC, and Nike have begun doing business in China

9. Key Challenge for Western Companies • China is still a tough market to enter because the government still controls much of the business environment. • Competing with domestic Chinese firms for control of Chinese market is not a easy path to follow • Companies have to include Chinese in the production of the products in order to sell them in China

10. Global Tectonics • 20 years ago only a few companies could be considered global, now almost all businesses are affected by globalization • Companies expand beyond their comfort zones into unfamiliar cultures • This provides more risk to companies in more undeveloped economies

11. Global Tectonics Cont’d • Global Tectonics- the process by which developing trends in technology, nature, and society slowly revolutionize the business environment • 3 different categories • Environmental- arise from the interactions between people & their environment • Technological- advances in biotechnology, nanotechnology, and information systems power economic growth and development, global integration and speed for a knowledge economy • Societal- shifts in international governance and political and cultural values, such as current wave of democratization, deregulation, and governance reform

12. 12 Global Trends • The Penn State Center for Global Business Studies conducted a study of the global trends that are likely to present the most significant challenges to business leaders in the next 30 years. • The project identified 12 global trends • Developments in areas such as demography, infectious diseases, resource degradation, economic integration, nanotechnology, international conflict, and governance all have major consequences for corporate strategy. • Companies that are attuned to these challenges, prepare for them, and respond appropriately will likely thrive; those that ignore them do so at their own peril.

13. Global Trend 1 • Population • Across the planet, demographic trends are transforming societies, changing patterns of economic activity, creating new economic social dependencies, and altering the geopolitical landscape. • Why? • The world population is rising – fast! From 6.4 billion today to an expected 7.8 billion by 2025 and about 9 billion by 2050!

14. Population cont. • What can we expect? • As markets in developed nations mature, the economies of developing nations will take off, thereby shifting economic growth, the flow of capital, the tastes and preferences of consumers, as well as the use of the world’s natural and “strategic” resources, including food, water, and energy.

15. Global Trend 2 • Urbanization • Migration from rural to urban areas is rapidly becoming a major challenge. • Today, less than half of the world’s population lives in cities. However, by 2030 this number is expected to increase to nearly 60 percent. • Local & federal governments will be hard pressed to provide the necessary infrastructure and social services. • These trends offer large opportunities for business, but “mega cities” (10m people or more) requires large amounts of innovation, investment, and economic growth.

16. Global Trend 3 • Spread of Infectious Diseases • As levels of migration and cross-border flow of labor and goods increase, so will the likelihood of epidemics and the spread of infectious diseases. • Ex: HIV/AIDS has impaired the labor force and all but overwhelmed social systems such as education and health care. • Statistic: According to a 2007 World Report, AIDS has now reached “pandemic” level. Stating that and estimated 33.2 million people are living with the disease worldwide and 2.1 million people died and of those 330,000 were children.

17. Global Trend 4 • Resource Management • The strategies of many companies around the world depend on the availability of such critical resources as water, food, and energy. • Forecasts suggest that future conflict over water resources is increasingly likely. • The availability of food affects population growth, technology, and governance. • Increasing crop yields, enhancing foods with vitamins, and improving distribution systems will be critical. • Energy availability is also an ongoing concern in many industries.

18. Global Trends cont. Environmental Degradation Global Warming – Effects of decades of pollution on long-term weather patterns. • Rising sea levels • Increased frequency of severe storms • Retreat of glaciers and icecaps • Average temperatures increase The most devastating effects and also the hardest to predict, will be the effects on the world’s living ecosystems.

19. Global Trends cont. Environmental Degradation cont. Other Environmental Concerns 1)Water Pollution 2)Deforestation 3)Desertification 4)Erosion Solutions to these problems will require a partnership between the private sector and regulatory authorities on a global scale. The Kyoto Treaty was written to reduce carbon dioxide and other greenhouse gas emissions worldwide. Thirty-five industrialized nations have committed to reducing their output of these gases to varying degrees.

20. Global Trends cont. Economic Integration Higher levels of cross-border economic activity have increased interdependence among the world’s economies and created a fully integrated economic system on a global scale. Example – Airbus Wings – Britain Fuselage & Tail - Germany Doors & Cockpit – Spain Final Assembly – France In all, more than 2,000 companies, located in more that 30 different countries, supply components, spare parts, ore provide services.

21. Global Trends cont. Knowledge Dissemination The emergence of a global economy based on knowledge and ideas has changed the very nature of strategic opportunity and risk. In a knowledge-based Internet economy, ideas spread all across the world almost overnight at an extremely low cost, making it easier for small companies, new ones and those from developing countries to compete. Smart Products– interactive products that become smarter the more they are used and can be customized. Tire – Informs driver of pressure Garment – Heats and cools in response to climate changes

22. Global Trends cont. Information Technology Information technology is changing the quality of peoples’ lives everyday. • Flexible work hours • Emergence of fully equipped home office • New forms of communication (blackberry) • Blending work with family

23. Global Trends cont. Biotechnology Rapid advances in humankind’s ability to understand and manipulate the basic elements of life are likely problems that could not be solved before. Biotech has greatest potential in three areas • Medicine – new drugs will help eradicate diseases • Environment – Advancements in pollution cleanup • Agriculture – Grow plants that make plastic Motorola has already begun to investigate the potential of genetic engineering in computing – the first step toward a DNA –based computer

24. Nanotechnology • The ability to create new materials one atom at a time • Reshaping our vision of the future • Stronger and lighter materials will: • Reduce the cost of transportation • Reduce the amount of pollution

25. Molecular Manufacturing • “Nanomedicines” • Able to: • Monitor • Repair • Control human biological systems

26. Conflict and Solution • Threats to business • Terrorism • Civil society • Cyber attacks • Solution • Companies must protect their information systems • Develop security standards • Create redundancies in supply chains

27. Governance • Laws that relate society and corporations • Law defined by local and national legislatures • Multilateral agreements • Emerging body of international law

28. Corporate governance practices • Management structures and practices • Business Culture evolving • Cross-border investments • Seek Revenues from abroad • Marketing

29. Global Knowledge • There are many characteristics of GK, they are: • No longer law of scarcity, but law of abundance “knowledge shared” • Location is irrelevant, virtual marketplaces & virtual organizations “around the clock operations” • National laws, barriers and taxes – knowledge and information “leak”

30. Global Knowledge cont. • Knowledge-enhanced products or services set price premiums “different value” • Knowledge, when locked into systems or processes, “walk out of the door” • Human Capital – acquired skills and competencies “key component”

31. Reduced appeal of mass marketing • Procter & Gamble, pioneer in mass marketing • Shift from selling to a vast, anonymous crowd to millions of particular customers • Other consumer giants such as: • Coca Cola • McDonald’s • General Motors • Unilever Group • American Express

32. Reduced appeal of mass marketing cont. • McDonald’s devotes less than 1/3 of U.S. marketing budget to network television • 5 years ago it was 2/3 • The remainder is spent on media such as: • Closed circuit sports programming • Customer-published magazines • In-store video

33. Risk & Uncertainty • “To capture the lack of predictability, decision making situations often are described along a continuum of states ranging from certainty to risk to uncertainty.” • In other words… Decision making situations are often put in classes based on certainty, risk, and uncertainty in order to determine their predictability.

34. Risk & Uncertainty Continued…. • Certainty = accurate, measurable information is available about the outcome of each alternative considered. • Risk = Can’t predict its outcome with certainty, but we have enough info to assess its probability. • Uncertainty = Little is known about the alternatives and their outcomes.

35. Risk & Uncertainty Continued…. • “To make a proper analysis of the strategic environment, we must be able to assess: • the degree of uncertainty associated with relevant events, • the speed with which changes are likely to occur, • and the possible outcomes they foreshadow.”

36. Risk & Uncertainty Continued…. • Changes to look for… • Gradual & Knowable (Predictable / Understood) • Example: Social Trends • New Regulations (Immediate Uncertainty) • Example: Structure will either be adopted or not • Collapse of boundaries (Identifiable /Not Predictable) • Sudden Collapse of foreign governments, outbreaks in war, and major technological discoveries (Random/Not Predictable)

37. Scenario Analysis • Originally developed in London • It’s one of the most widely used techniques for constructing alternative possible futures of a business external environment. • Purpose: • to analyze the effects of various uncontrollable forces • to test the resiliency of specific strategy alternatives. • Used most by businesses that are highly sensitive to external forces. • Example: Energy Companies

38. Scenario Analysis Continued…. • Divides information into 2 categories: • Things we believe we know something about • Example: Demographic shifts • Elements we consider uncertain or unknowable. • Example: Future Interest Rates, or results or results of presidential elections

39. Scenario Analysis Continued… • Scenarios depict possible futures, not specific strategies to deal with them. • So…Outsiders (such as customers, suppliers, and consultants) are invited in: • To see the future broadly in terms of fundamental trends. • To build a shared framework for strategic thinking that encourages diversity and sharper perceptions about external changes and opportunities.

40. Scenario Analysis Continued… • The Scenario Building Process  4 Steps • 1. Decide what future events to probe, which trends to include, and what time horizon to consider. • 2. Identify which forces or developments are likely to have the greatest ability to shape the future. • 3. Construct a comprehensive set of future scenarios based on different combinations of possible outcomes. (Few scenarios will become the focus of a more detailed analysis) • 4. Generate scenario-specific forecasts that allow an assessment for strategic choices.

41. Scenario Analysis Example… • http://www.energy.ca.gov/ab1007/documents/2007-05-31_joint_workshop/2007-05-31_RENEWABLE_DIESEL.PDF • California Energy Commission prepared a scenario analysis that focused on renewable diesel fuel blends that could replace the normal diesel fuel in California for the year 2050. • By doing this analysis, the staff concluded that the renewable fuels can replace petroleum demands and are worth implementing.

42. Global Scenario GroupStockholm Environment Institute, 1995 • Created 3 possible scenarios that could develop in the 21st Century based on wildly different social visions: • Conventional Worlds • Barbarization • Great Transition

43. Conventional WorldsGlobal Scenario Group • 21st Century has no major surprises or major transformations for human civilization • Dominant values and institutions shape the world future • World economy develops rapidly and developing countries mirror those of industrial countries

44. Conventional Wisdom • Scenario 1: Market Forces • Gradual changes for both technology and population • Problems are solved with logic and competition • Scenario 2: Policy Reform • Strong government action to achieve social equity and environmental protection • Use of environmentally friendly technology to proactively sustain the ecosystem

45. BarbarizationGlobal Scenario Group • Collapse and Failure of Underpinnings of: • Society • Economics • Morals

46. Barbarization • Scenario 3: Breakdown • Crises combine and spin out of control • Unbridled Conflict, Institutional Disintegration, Economic Collapse • Scenario 4: Fortress World (authoritarian response) • Governments protect the privilege by controlling the impoverished majority • Manage critical resources • Chaos outside the ‘Fortress World’

47. Great TransitionGlobal Scenario Group • Exploration of visionary solutions to sustain the ecosystem • Society preserves the natural systems, provides high levels of welfare, and equal distribution of goods • Population levels stabilize • Lower consumerism and massive use of green technologies

48. Great Transition • Scenario 5: Eco-Communalism • Bioregionalism and localism • Face-to-face democracy and small technology • Scenario 6: New Sustainability Paradigm • Seek to change the character of the urban and industrial situation instead of replacing it. • Building of a more humane and equitable global civilization rather than retreat into localism