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Florence, Alabama July 13, 2002

Florence, Alabama July 13, 2002. EMBA @UNA Business Policy. Globalization. Intense Competition. Technology. Demographics. Geo Politics. Competitors. Deregulation. Customers. Innovation. Forbes100 from 1917 to 1987. 39 members of the Class of ’17 were alive in ’87 18 in ’87 F100

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Florence, Alabama July 13, 2002

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  1. Florence, AlabamaJuly 13, 2002 EMBA @UNA Business Policy

  2. Globalization Intense Competition Technology Demographics Geo Politics Competitors Deregulation Customers Innovation

  3. Forbes100 from 1917 to 1987 39 members of the Class of ’17 were alive in ’87 18 in ’87 F100 18 F100 “survivors” under-performed the market by 20% just 2 (2%), GE & Kodak, outperformed the market

  4. Layoff Scenario March 54,321 2002 255,260

  5. Number of Public and Private Chapter 11 Bankruptcies 11 (in thousands) 10.2 9.2 Estimated ‘00 ‘02 ‘01 Source: Fortune, April 15, 2002

  6. Fortune 500 Results(April 15, 2002) Deepest Dive In 47 years of Fortune 500 In 2001, 97 FORTUNE 500 companies reported losses, for a total of $148.5 billion In 2000, 53 FORTUNE 500 companies reported losses, for a total of $18.1 billion

  7. Undermining Established Strategic Positions Traditional Competitor Dominant Competitor Strategic Innovator Industry Airline Delta, United, Northwest American Southwest Avis, National Enterprise Hertz Car Rental Starbucks Coffee Maxwell House Folgers, Nescafe CNN TV CBS, ABC NBC Bethlehem, National Nucor Steel US Steel Photocopier Xerox IBM, Kodak, Ricoh Canon Source: Markides, 2001

  8. GE Power’s Dramatic Change • 1/2 Worlds Market In Power Generation Equipment • Acquired Nuovo Pignone • Surround the Customer

  9. Moved into Supplying ServicesMoved into supplying equipmentEnlarged pond to $48 billion Moved into Supplying ServicesMoved into supplying equipmentEnlarged pond to $48 billion $5-10 Billion $18 billion New C D Needs $20 Billion B A Existing Existing New Customers

  10. GE Power Systems 1998 pond is $700 billion37 times as big as the Market defined and served three years previously New D $700 Billion Needs B A Existing Existing New Customers

  11. The Creosote Bush • Drips poisonous oil, kills everything around it • Dominant microprocessor strategy was Intel’s creosote bush • No other businesses could sprout around it

  12. Microprocessors Intel at Crossroads, Again?? Business Goes To New Heights Inflection Point Valley of Death Memory Chip Business Business Declines 1985

  13. Internet appliances Intel at Crossroads, Again?? Business Goes To New Heights Inflection Point Valley of Death Microprocessors Business Declines 1999

  14. PC Components • 84% market in PC processors • 100% of profits • 90% of revenues • Growth in Processor market slowing Down

  15. New Business Group • New rules for funding new projects • No more tight budgets • No more rigorous reviews of • internal startups • Similar to venture-capital financing • Launched about 25 seed projects • Spent more than $50 million on these projects

  16. Information Appliances “Move Intel into the home, somehow” Screen phones E-mail terminals TV set-top boxes

  17. Communication Products • Home Networking • Broadband Modems • PC-based Telephony • Server Appliances • Ethernet Hubs • Small Networking Switches • Specialized Servers for Web Traffic • and speeding up e-commerce

  18. Networking Chips • Fastest growing category among chips • Used in modems, network • interface cards, switches, • and routers • Acquired a lot of companies • Level One Communications • ($2.2 billion) • NetBoost ($215 million) • Softcom Microsystems ($149 million)

  19. New Business Group • Web-hosting for clients (Citigroup) • Vivonic: digital handheld health planner • PassEdge: technology for protecting digital content • Installing 3,000 information terminals on the back of seats of Madison Square Garden • Equip doctors with secure Ids to encourage • online medicine

  20. Sony In Troubled Waters 3 of the Biggest Opportunities Personal Computers Cell Phones Where IS SONY? Video Games DIGITAL ERA

  21. The Playstation Dream Begins • bought a Nintendo game for his daughter • sound was awful • games were stored on magnetic cartridges

  22. KUTARAGI’S BRIGHT IDEA • Confident that the system could be vastly improved • Use storage system he developed for the Mavica • Improve processor speed

  23. WHAT ABOUT SONY? • No one at Sony shared Kutaragi’s enthusiasm for the videogame business • Kutaragi met with Nintendo instead • Nintendo liked Kutaragi’s suggestions • Nintendo products a “toy” • Threw a fit when news leaked out • Failure to realize potential of the product • Sony’s President protected the project

  24. Project Update Kutaragi seen as a “traitor” Kutaragi isolated within the company Project moved to a different location Nintendo backs out

  25. What would Sony Do? • Sony had to convert to digital, information-based company • Transition bland business computers to a fun product • Kutaragi threatened to leave Sony • Kutaragi promised to create a platform for Sony’s future growth • Two years later Playstation released • Tremendous success • Kutaragi became Head of Engineering

  26. Is PS2 a platform for Sony’s future growth? • Kutaragi becomes CEO of Sony Computer Entertainment • Sony releases PS2 • Most profitable division within Sony • Possibility of the marriage between • TV, Film, Computers, Music, and the Internet

  27. 1982: Provided online quote Provided trading servicesVision: Someday, everyone would own computers and invest through them with unprecedented efficiency and control. 1992:Offered services through AOL & Compuserve 1996:ww.etrade.com Meet complex investing, banking, lending, & planning needs of households across their entire financial cycle

  28. Lending Mortgage Home Equity Loans Auto Loans Credit Cards Investing Stocks, Bonds, Options Mutual Funds Research Plan & Advice Retirement College Savings Asset Allocation Estate Planning Insurance Banking Checking Savings CD Money Market

  29. Serves 45 million per day • 29,000 McDonalds • 121 countries • $40 Billion in 2000 • Best known brands • Undisputed fast food leader • Stock price is low • Slow same store sales growth • Europe’s mad-cow scare • Weak currencies • New items disastrous • Health-conscious customers

  30. Chi-chi coffees and desserts Cold Sandwiches FRESH ingredients Reinvention! It is about Survival! Diner Inside McTreat

  31. Virgin’s Business Definition Challenge existing rules Give customers a better break Be more entertaining Beat complacent incumbents Culture is one of WHY NOT rather than WHY

  32. World’s largest aircraft manufacturer • Live internet connections on passenger jets • Air Traffic Control Systems using satellite technology • Aircraft Service Business • Financing

  33. SET UNREASONABLE EXPECTATIONS

  34. Chrysler’s Minivan • Baby Boomers Getting Older (With Growing Families) • Lifestyle changes (Soccer Moms) • Space Problems • Vans Were Too Large (Commercial) • Station Wagon Sales Were Falling • Morphed Pickup, Station Wagon, Passenger Car • The Minivan was Born!!!

  35. CNN 24 Hour News  Changes in lifestyle longer and unpredictable work hours  Changes in Technology handicams and suitcase size satellite linkups  Changes in Regulatory Environment growth of cable TV industry  Changes in geopolitics interconnectedness of economies

  36. STRETCH YOUR BUSINESS DEFINITION You have to be either #1 or #2 to survive From the wellhead to the consumer What is our share of the stomach? From cradle to grave

  37. Segmenting the Market Continuously strive to break up a market into smaller pieces VW with its Beetle Xerox and Ricoh Apple and iMac Daimler-Benz and the Automobile Industry Saturn and the Automobile Industry

  38. Leaders vs. Managers • THE LEADER • innovates • is an original • develops • focuses on people • inspires trust • has a long-range perspective • asks what and why • has their eyes on the horizon • originates • challenges the status quo • is their own person • does the right thing • THE MANAGER • administers • is a copy • maintains • focuses on systems and structure • relies on control • has a short-range view • asks how and when • has their eyes always on the bottom line • imitates • accepts the status quo • is the classic good soldier • does things right

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