Strategic Management/ Business Policy

1. Strategic Management/Business Policy Joe Mahoney

2. Background of Joe Mahoney • Grew up in Philadelphia, PA. • One younger sister (BA University of Pennsylvania; MBA accounting). • One younger brother (Ph.D. Finance, Wharton). • BA in Economics in 1980 University of Pennsylvania. • MA in business economics 1984 from Wharton School of Business of University of Pennsylvania. • Ph.D. in business economics in 1989 from Wharton School of University of Pennsylvania.

3. Background of Joe Mahoney • Tenure-track faculty member in business administration department at the university of Illinois since the Fall term of 1989. • Assistant professor 1989-1995. • Associate professor 1995-2002. • Full professor of strategy 2003- • Research: vertical integration, contracts, alliances, and corporate governance.

4. Background of Joe Mahoney • Teaching. • BA 389 undergraduate course -- 15 years experience. • BA 401 MBA course -- 9 years experience. • BA 444 executive MBA course -- 9 years experience. • BA 444 international executive MBA course – 5 years experience. • BA 490 ph.D. Course -- 13 years experience.

5. Background of Joe Mahoney • Work experience. • Manager at a fast-food restaurant. • Manager at a bookstore. • Worked for project link at university of Pennsylvania. • Worked three years for the Reginald Jones center of corporate strategy at Wharton on scenario planning and the hazardous waste industry. • Consulting experience for government contacting, and for fortune 500 company on vertical coordination.

6. Joe’s Insights From 15 Years Teaching: • Ninety percent of students think that they are above average. • Best advice I ever got on teaching: • “Trust the class.” • “We have a cup of knowledge floating in a sea of emotion.” -- John Dewey

7. The Wisdom of Choice: • “To try and fail is at least to learn; to fail to try is to suffer the inestimable loss of what might have been.” • Chester Barnard, The Functions of the Executive

9. Executive MBA Words of Wisdom from Experience • Executive #1: “My basic business philosophy is to do what is right [leading to] professional growth without expending others in the process. Integrity and experiences are about the only things that one takes to the grave. My life’s goal is to maximize integrity and good things will most likely follow.” • Executive #2: “What I feel is most important for the [management] profession is … providing future challenges and professional growth for personnel in the organization.”

10. Executive MBA Words of Wisdom from Experience • Executive #3: “Catch people doing things right [and] reward [them]. Remember that all workers are “boss watchers”; thus, lead (don’t manage).” • Executive #4: “The significant problems we face cannot be solved by the same level of thinking we were at when we created them.” • Executive #5: “Trust your instincts, sometimes it’s worth more than your training.”

11. Executive MBA Words of Wisdom from Experience • Executive #6: “Anyone who claims to have the [complete] answer is probably wrong.” • Executive #7: “Who you are as a person is largely defined by who you perceive yourself to be, not by what you do or what others think of you. It is hazardous to your physical and mental health to hold grudges and bitterness against others. Treat people as if they were priceless, because every person is. Learn to like the work you are given to do. Try to maintain balance in your life. Maintain and nurture a network of friends.”

12. Executive MBA Words of Wisdom from Experience • Executive #8: “[I]n order to receive the kind of support I need [within the organization], negotiation is the key. I can’t readily impose my goals on others. … That means communicating with … those I rely upon for support via their preferred medium (face to face, over the phone, e-mail, meetings, etc.)”

13. What Is Strategic Management About? • Understanding how firms create, capture, and sustain competitive advantage. • Analyzing strategic business situations and formulating strategic plans. • Implementing strategy and organizing the firm for strategic success.

16. What Is Strategic Management About? • Sustainable competitive advantage occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate.

17. What Is Strategic Management About? • An important basis for sustainable competitive advantage is the development of resources and capabilities. • Core competencies are resources and capabilities (often related to functional-level skills) that serve as a source of competitive advantage for a firm over its rivals.

20. Competitive Environment Industry Environment Technology Finance Strategy Mktg. Oper. National/Int’l Economies GovernmentRegulation Acctg. H.R. Related Industries Other Competitors Strategy Relates A Business To Itself and Its Competitive Environment

22. Task Environment • Customers and Markets: • Distributors • End users • Competitors: • Competitors for Markets • Competitors for Resources

24. Task Environment • Suppliers • Suppliers of physical resources • Suppliers of human resources • Suppliers of financial resources • Regulatory Groups • Government • Union • Special Interest Groups

25. Task Environment • Technology • Rate of Development • Substitutes • Stage of Product or Industry

27. Position Resources & Capabilities Organization The Role of Strategy In Business is to Generate and Sustain Value via the Linkages Between Position, Resources, and Organization

28. Positioning • Scope of the Firm: • Geographic Scope • Choice of businesses (corporate portfolio analysis) • Product Market Positioning within a business • Vertical integration decisions

29. Resources • Tangible Resources • e.g., physical capital • Intangible Resources • e.g., trademarks, “know-how” • Organizational Capabilities • e.g., routines and standard operating procedures

30. Organization • Structure • Formal Definition of authority • Conflict Resolution • Systems • Rules, Routines, Evaluation and rewards • Processes • Informal communication, networks, recruitment

31. A Definition of Strategy • Strategy (Quinn, 1980): • “The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment , and contingent moves by intelligent opponents.”

32. Definitions of Strategy • “The term “strategy” is intended to focus on the inter-dependence of the adversaries’ decisions and on their expectations about each other’s behavior.” • Thomas Schelling The Strategy of Conflict • “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals.” • Alfred D. Chandler Strategy and Structure

34. Defining the Business: The Starting Point of Strategy • Example: Fall of the Railroads • “They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad oriented instead of transport oriented; they were product oriented instead of customer oriented.” • Theodore Levitt “Market Myopia”

35. Mission Statement and Goals • It is the function of the top management team to provide the firm’s purpose or “strategic intent.” • Chester Barnard The Functions of the Executive • Alfred Sloan My Years with General Motors • Kenneth Andrews The Concept of Corporate Strategy • e.g., Komatsu ---> “Encircle Caterpillar” • Canon ---> “Beat Xerox” • Kodak ---> “Be the leader in the imaging sector” • Coca Cola ---> “To put a Coke within ‘arms reach’ of every consumer in the world.”

36. Mission Statement and Goals: • Strategic intent is the leveraging of a firm’s internal resources, capabilities, and core competencies to accomplish the firm’s goals in the competitive environment. • Strategic intent implies a significant stretch of an organization’s resources, capabilities, and core competencies.

37. Achieving goals through “operational objectives” • Kodak: “Be the leader in the imaging sector” • Customer Focus • More Rapid new product development • Raise manufacturing quality • Reduce costs • Gain access to critical knowledge through strategic alliances • Benchmarking • Maintain proprietary technology (e.g., silver halide materials technology)

38. Fundamental question of the choice of Goals: Planning for what purpose(s)? • Profitability (net profits) • Efficiency (low costs) • Growth (e.g., increase in total assets, sales, etc) • Shareholder Wealth (dividends plus stock price appreciation) • Utilization of Resources (e.g., ROE, ROI) • Reputation • Contribution to Stakeholders (e.g., employees, society) • Market Share • Survival (avoid bankruptcy)

39. The Manager’s role in balancing expectations • Business Roundtable: • “Balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management.” • Understanding corporate strategy means understanding the competing value claims of multiple stakeholders.

40. The Manager’s role in balancing expectations • Stakeholders are the individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance.

42. The Manager’s role in balancing expectations • Organizational culture refers to the complex set of ideologies, symbols, and core values shared throughout the firm and that influences the way it conducts business. It is the social energy that drives --- or fails to drive --- the organization.

43. The Manager’s role in balancing expectations • There are inherent conflicts of goals within the firm. In The Reckoning, David Halberstam documents the hard fought goal disparities between MBAs on Ford Motor Company’s finance staff, who stressed strategies with clear, quantifiable, profit-maximizing prospects, and the engineering-oriented “product” people, who urged an accelerated pace of design improvement and were more inclined to accept added cost to improve product quality.

44. A Key Performance Measure:Sustainable Competitive Advantage • For a company, the definition of success is superior economic performance. • To achieve superior economic performance, a firm has to create a sustainable competitive advantage (SCA). • SCA is achieved by a value-creating strategy that cannot be (easily) duplicated.

45. Key Drivers of Value Creation and Sustainable Competitive Advantage: • Generating value can be accomplished through: • REVENUE drivers • COST drivers • RISK drivers

47. The Levels of Strategy Corporate - General Electric Business - Home Appliances Functional - e.g., Production

48. Corporate Strategy • At the corporate level, value creation can occur if the individual parts of a firm are integrated into a coherent whole. • Corporate strategy is the way a company creates value through the configuration and coordination of its multi-market activities.

49. Eclectic Definitions of Strategy and Strategic Management • Mintzberg’s 5 P’s of Strategy: • Planning • Ploys (non-credible strategies) • Pattern (“emerging strategy”) • Position (firm “dynamic fit” with environment) • Perspective (Ideology and culture)