MGMT 507: Global Business Simulation

1. MGMT 507: Global Business Simulation John Hengeveld Matt Guilfoyle

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

3. Why CASH is king?

4. 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)

5. 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.

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

7. 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.

8. Stuff from Grant

9. 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

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

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

12. 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.

13. 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

14. Hypercompetition and the New 7-S’s framework (D’Aveni) • Sustained competitive advantage is not possible • Only temporary advantages exist, created by a company’s speed and aggressiveness. • Assumes: • Every advantage becomes eroded • Sustaining an advantage uses too much time and resources. • Instead, companies must seek to stay ahead of its competitors by creating temporary advantages • These are done in small steps over short competitive cycles. Focus on creating the next temp. advantage.

15. Some stuff from Pearlson

16. 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

17. The Value System (Fig 4.4) • The model can be extended by linking many value chains into a value system. • Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system. • This can lead to the formation of entire new businesses designed to change the information component of value-added activities.

18. 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

19. 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.

20. What is the strategic target? Supplier Customer Competitor What is the strategic market? Cost Innovation Growth Alliance What is the mode? Offensive Defensive What is the direction? Use Provide Figure 4.6 Strategic option generator Differentiation

21. Figure 4.5 Example of strategic targets

22. What is the strategic target? Supplier Customer Competitor What is the strategic market? Cost Innovation Growth Alliance What is the mode? Offensive Defensive What is the direction? Use Provide Figure 4.6 Strategic option generator Differentiation

23. Types of Strategic Thrusts • Differentiation Thrusts: focus resources on unfilled product or service gaps. • Cost Thrusts: focus is on reducing costs or increasing competitor’s costs • Innovation Thrusts: focus on creating new products or new ways to sell, create, produce or deliver products. • Growth Thrusts: focus on increasing size of the market size or adding more value adding activities in the value chain • Alliance Thrusts: combine with other groups to create a more competitive position.

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

25. So what happened this week? • What should have happened: • Teams should formulate strategy for markets to serve and how to serve them. • Teams should formulate financing strategy • Teams should select a competitive posture.