Welcome to BA495 Business Strategy and Policy

1. Welcome to BA495Business Strategy and Policy John A. Hengeveld Mary Kay Chess

2. Agenda for Today – long day… • Introduction and Logistics • Simulation Overview • Team Assignment and Introductions • Strategy and its impact on Business • TOWS Analysis • Porter Value Chain • Strategic Development Model

3. Introduction and Logistics • Class Syllabus & Schedule Review • Case Writeup and Presentation Criteria • Teams

4. Written Grading standard: • Organization of report 15% • Writing “correctness” 10% • Goes Beyond the Obvious 10% “depth” • Recommendation: • Aptness: 20% • Persuasion: 15% • Analysis: • Business Situation Analysis: 10% • Identification/Justification Criteria for decision 10% • Analysis of Alternatives and Rationale for recommendation: 10%

5. A firm and competition • We need to gain some alignment on some key concepts…. • What is a firm and why does it exist? • What is a firm competing for? • Why does it compete?

6. What is Profit?

7. What is strategy??

8. Common Elements of Successful Strategy Successful Strategy Effective Implementation SimpleConsistent &Long Term Objectives ProfoundUnderstandingof the CompetitiveEnvironment ObjectiveAppraisal of Resources Grant: Figure 1.1

9. Grants Definition The task of business strategy is to determine HOW the firm will deploy its resources within its environment to satisfy its long term goals and HOW to organize itself to implement that strategy.

10. Graphically Industry Environment The Firm CompetitorsCustomersSuppliers Goals andValuesResourcesCapabilitiesStructure & Systems Strategy Grant: Figure 1.2

11. Analyze Strategic Framework CRITERIA ExternalAnalysis KSF Competitive Mapping Customer Value Drivers Sustaining Profitability Global Framework InternalAnalysis R/C Competency Rent Earning Potential Resource/Capability Map Strategic Process MAP Strategic Implementation Organizational Structure Process Change Management Implementation Plan Risk Mitigation Implementation Strategic Due Diligence Draft Implementation Congruence R/C Review Competitive Response RiskIdentification And Reduction Generate Strategic Alternatives Select Short List v Criteria Select Strategic Direction TOWS Classic Strategic Approaches

12. Phases of Strategic Development • Strategic Analysis – • Strategic Formulation • Strategic Implementation

13. Strategic Analysis • The formulation of strategy begins with • Analysis of the industry and its operating environment and dynamics • Analysis of the firm and is capabilities to deploy against the key success factors of an industry

14. Firm Infrastructure SupportActivities Human Resource Management Technology Development Procurement InboundLogistics Operations OutboundLogistics Marketing& Sales Service Primary Activities The Porter Value Chain

15. Topics • Why CASH is still king? • What is a “reasonable balance sheet”? • The essence of global competitive advantage • Strategic Options • Repatriation of Profits

16. Why CASH is king?

17. Reasonable Balance Sheets • Fixed Charge Cover Ratio: Operating Profits before interest – Depreciation -------------------------------------------------- Principal and Interest Payments on Debt • Target value of 1.2 (any less and the OCC gets nervous)

18. Reasonable Balance Sheets • High amounts of debt have to pay large coupon rates. • High amounts of equity dilutes EPS, • but does that matter? • What a reasonable amount of debt ?? • Get FCCR to be 1.2 or better, make the rest equity. • Remember, it is possible to grow yourself to death.

19. Essential Point in Management Strategy Product, Process and ResourceRoadmap Projects People

20. Key notion • Link Corporate strategy globally to tactics in each function and in each region. • Failing to do this will drain your firm of badly needed resources.

21. The Extent of theCompetitiveAdvantageEstablished Scarcity Relevance Durability Sustainability ofCompetitiveAdvantage Mobility Replicability Property Rights Appropriability Embeddedness Relative Bargaining Power Profit Potential of Resources The ProfitEarning Potentialof a Resourceor Capability From Grant: Contemporary Strategy Analysis, Blackwell, 1998

22. Competitive Advantage in Technology Markets • Positioning and Differentiation • Timing – (First mover, sole provider) • Proprietary Technology • Options to make future moves

23. Competitive Advantage Sought Generic Strategies Low Cost Position Uniqueness Narrow Broad Overall Cost Leadership CompetitiveScope Differentiation Differentiation Focus Cost Focus

24. Porter’s Competitive Advantage Strategies • Cost leadership: be the cheapest • Differentiation: focus on making your product stand out for non-cost reasons • Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.

25. Variants on Differentiation Strategy • Shareholder value model: create advantage through the use of knowledge and timing (Fruhan) • Barriers to entry model: firms create barriers to entry to keep competitors out of their markets • Unlimited resources model: companies with a large resource can sustain losses more easily than ones with fewer resources

26. Some stuff from Porter

27. Figure 4.3 Value Chain of the Firm Support Activities Firm Infrastructure Human Resource Management Technology Development Procurement Outbound Logistics Marketing & Sales Inbound Logistics Operations Service Product Pricing Promotion Place Customer service Repair Materials handling delivery Mfg. & assembly Order processing Shipping Primary Activities

28. Figure 4.4 The value system: interconnecting Relationships between organizations Firm’s value chain Supplier’s value chain Channel’s value chains Buyer’s value chains

29. The Value System and Strategic Alliances • Many industries are experiencing the growth of strategic alliances that are directly linked to sharing information resources across existing value systems. • An alliance between American Airlines, Marriott and Budget Rent-A-Car called AMRIS provides travelers with a single point of contact. • Thus, electronically pooling information services of several companies can create competitive advantage by saving customers time.

30. Repatriation of Profits • Why is it hard to move money around? • Some principles of global trade…..

31. Some Classic Strategies • Microsoft • Railroad Industry • Oil Company • Walmart • Dell • FedEx • Drug Companies • Circuit Board Manufacturer

32. TOWS: Strategic AlternativeDevelopment • Okay, so you have strengths, weaknesses, opportunities and threats… SO WHAT?? • Translate these abstract ideas into strategic options and agenda for action. • Start by listing the SWOT items • Look for options in the following chart

33. FIND the strategic option • Generate alternative strategic alternatives after considering the intersection of internal and external analysis. • Follow up by narrowing this list to the ones that make sense.

34. Process • Consider SWOT as normal, don’t sweat the boundary cases between S/W and O/T • Do a 2x2 intersection of your elements and find strategic options triggered by considering that intersection. • SO intersections are investmentsWO intersections are acquisitionsST intersections are defensive strategiesWT intersections are divestitures.

35. List of SWOT elements • Strengths: • S1: Raw mindpower • S2: Good Looks • S3: Access to airplane tickets • Weaknesses: • W1: Poor social skills • W2: Bad breath • Opportunities: • O1: Growth in market for dentistry • O2: Growth in the market for male models • O3: The redhead down the street • Threats: • T1: The body builder who lives with redhead down the street • T2: Eroding stock market

36. SWOT for strategic option development Strengths Weaknesses S1,O1: Enter career in dentistry S1,O2: Become agent S1-2,O3: Forget career - love S2,O1: Become tooth model S2:O2: Start Victors Rumor S3, O1: Traveling dentist W1-2,O1: Dental SW W1,O2: Become talent lawyer W1,O3: Cirano? W2:O2: Become model W2: O3: Invest in breath mints <Acquire or partner> Threat Opportunity ST Strategies: Usually premptive strategies of some sort WT Strategies: Usually divest strategies

37. SWOT for strategic option development Strengths Weaknesses Leverage Quadrant: Leverage your Strengths to Profitfrom the Opportunity Close Weaknesses Quadrant Find techniques to close Weaknesses usually by Acquiringor Partnering with others. Threat Opportunity Use your Strength to Preempt The Threat: Prevent or redirect the threat toa safe place Divest and Change: Change your position so the threatno longer can capitalize on yourweakness