University of Cagliari, Faculty of Economics, a.a. 2012-13

Business Strategy and Policy A course within the II level degree on Managerial Economics year II, semester I, 6 credits Lecturer: Dr Alberto Asquer aasquer@unica.it Phone: 070 6753399 University of Cagliari, Faculty of Economics, a.a. 2012-13

Lecture 1 Strategy and strategic management Business Strategy and Policy

0. Course outline - - - - - - - - - - - - - - - - - - - - 1. What is strategy? And why does it matter? 2. The process of strategic management 3. How does a good strategy look like? - - - - - - - - - - - - - 4. Summary Plan of this lecture

Objectives (What shall we achieve out of this course?) We will be able to analyze and solve complex problems of strategic management. We will learn the main schools of thought on business strategy. We will learn to identify and decompose business strategy issues, and to search, assess, and select business strategies and policies. Prerequisites (What do we need to know for attending this course?) A good understanding of business administration, planning and control, and managerial economics. A good knowledge of microeconomics and industrial economics would be an advantage. 0. Course outline

Teaching Method (How shall we learn?) Lectures (8) and case studies (10). Time and place of lessons (When and where?) Lessons are scheduled: Wednesday from 15:00 to 17:00, Classroom 7 Thursdays from 15:00 to 17:00, Classroom 7 Office hours (Where can we meet you?) Office hours are scheduled Wednesdays and Thursdays, 17-18:00, in office No. 3, Viale Fra Ignazio, 84 (Economics Library) Or by appointment by email (aasquer@unica.it). 0. Course outline

Contents (What is the course about?) What is strategy How do firms position themselves strategically within industries How do firms develop resources, competences, capabilities How do firms strategically interact with each other What is strategic entrepreneurship Why do firms diversify, and how do they do it How do firms compete in international markets Why do firms make partnerships, strategic alliances, mergers and acquisitions. 0. Course outline

Contents (What is the course about?) What is strategy How do firms position themselves strategically within industries How do firms develop resources, competences, capabilities How do firms strategically interact with each other What is strategic entrepreneurship Why do firms diversify, and how do they do it How do firms compete in international markets Why do firms make partnerships, strategic alliances, mergers and acquisitions. 0. Course outline + 10 case studies!

Readings (Where shall we study?) A. Thompson A., A. J. Strickland, and J. E. Gamble (2010), Crafting and Executing Strategy: The Quest for Competitive Advantage. McGraw-Hill (International Edition). Or, in the Italian version: A. Thompson A., A. J. Strickland, and J. E. Gamble (2009), Strategia Aziendale: Formulazione ed Esecuzione. McGraw-Hill. Handouts and other materials. Check the web site of the course! http://www.econoca.it/did_docenti_materia_dett.asp?mat=49&id=1 0. Course outline

Course evaluation (How is the exam conducted?) Assessment is made on the basis of a written exam on any topic covered in the course, including case studies. For students who attend the course, part of the evaluation is based on participation to lectures – in particular, by presenting a case study on business strategy. The presentation of the case study is assigned on a voluntary basis, within the first two weeks of the course. The presentation of the case study will account for 30% of the final marks. Therefore, if the student attends the course and presents the case study, the written exam will account for 70% of the final marks. 0. Course outline

General advice (How shall we study in this course?) First, pay attention to the theories and methods of analysis. Key concepts should be clearly understood Argumentation should follow a clear logic and be coherent Second, pay attention to the case studies. Case studies are representations of business episodes They may look unstructured and complex – indeed, they call for efforts to develop the capacity to look into complexity, frame problems, and identify solutions 0. Course outline

Examples of exam questions (May we have any?) Examples of exam questions are posted on the course web site soon. Exam timetable (When are the exams?) Exam dates will be posted on the course web site soon. 0. Course outline

Business strategy and policy 1. What is strategy? And why does it matter? 2. The process of strategic management 3. How does a good strategy look like? - - - - - - - - - - - - - 4. Summary

1. What is strategy? And does it matter? Strategy Broadly stated, it is an action plan that managers follow for running the business and conducting operations. As a coherent set of actions, strategy is oriented to achieving objectives such as: growing the business, attracting and pleasing customers, competing successfully, conducting operations, and improving the company's financial and market performance. Strategy is followed in order to attain “long-term super-normal profit”.

1. What is strategy? And does it matter? Example: Starbucks The management of Starbucks followed a plan: They expanded the number of stores domestically by targeting metropolitan areas first, then the city perimeter They made it a global brand by opening stores abroad They conceived the store and store ambience as an advertising device They gradually broadened in-store product offerings

1. What is strategy? And does it matter? In part, strategy matters because it relates to designing a successful business model A business model is the rationale for why the company's approach to business and strategy will be a moneymaker. A business model is a set of assumed circumstances of the environment and behaviour of clients, suppliers, competitors, and regulators, that accounts for the growth of revenues and the profitability of a business initiative.

1. What is strategy? And does it matter? Example: the business model of Gillette Assumption about the environment: many people will likely keep appreciating shaved men; Assumption about behaviour of clients: many clients will likely keep taking care of others' consideration and self-image and keep spending part of their income on routinely shaving; The business model is: sell the razor at an attractively low price, and then make money on repeat purchase of razor blades.

1. What is strategy? And does it matter? Note that many competitors may follow the same business model Gillette launches the 3-blades razor in 1998 Wilkinson Sword launches the 4-blades razor in 2003 Gillette launches the 5-blades razor in 2006

1. What is strategy? And does it matter? Strategy matters especially because it relates to outperforming competitors Firms aim to achieve a sustainable competitive advantage, i.e., an enduring capacity to attract buyers with respect to competitors How do firms do it? By providing goods or services at lower price than competitors By providing better goods or services – more quality, better technology, more additional services, more stylish design, faster delivery, etc. By focusing on serving the special needs and tastes of buyers in a market niche By developing expertise and resources that provide capabilities that rivals cannot easily match, copy, or surpass.

1. What is strategy? And does it matter? Example: Wal-Mart in the US 1996 1985 The diffusion of Wal-Mart stores in the US (1975-1996) 1975

1. What is strategy? And does it matter? Example: Wal-Mart in the US Compare the network of 'large stores' of Wal-Mart vs. Kmart in the US, in 1996

2. The process of strategic management Strategic management is a process Implement and execute the strategy Set the objectives Craft the strategy Develop a strategic vision Monitor, evaluate, and make corrective adjustments Strategy review

2. The process of strategic management Strategic management is a process Strategy formulation Strategy implementation Implement and execute the strategy Set the objectives Craft the strategy Develop a strategic vision Monitor, evaluate, and make corrective adjustments Strategy review

2. The process of strategic management Strategic management is a process Often tacit Generally explicit Implement and execute the strategy Set the objectives Craft the strategy Develop a strategic vision Monitor, evaluate, and make corrective adjustments Strategy review

2. The process of strategic management Strategic management is a process Driven by creativity Implement and execute the strategy Set the objectives Craft the strategy Develop a strategic vision Monitor, evaluate, and make corrective adjustments Driven by review and analysis Strategy review

The kernel (essence) of a successful strategy It should contain: (1) a diagnosis that defines or explains the nature of the challenge, (2) a guiding-policy for dealing with the challenge, and (3) a set of coherent actions that are designed to carry out the guiding policy. 3. How does a good strategy look like?

4. Summary Strategy is management's action plan for running the business and conducting operations (but note that there are many definitions of what “strategy” is). Strategy is important because it relates to the design of the business model and to outperforming competitors, i.e., attaining a sustained competitive advantage. Strategic management is a process made of different stages. A good strategy contains a diagnosis of the challenge, a guiding policy, and a set of coherent actions.

University of Cagliari, Faculty of Economics, a.a. 2012-13