Foundations of Strategy PSU MGMT #511

1. Foundations of Strategy PSU MGMT #511 Dave Garten daveoutside@alum.mit.edu Week # 1

2. What is Strategy? Dave Garten – Business Strategy

3. Dave Garten – Background Highlights • Current • Faculty, PSU/OEMBA – Strategy, M&A, Negotiation, Biz Projects • Consulting: management, strategy, alliances, M&A • Board(s): Organically Grown Company, SeQuential Biofuels, Bridlemile Soccer, Forest Park Conservancy • CEO, SeQuential Biofuels, Inc. • Intel – 15 year career • General Manager • Director of Business Development. >200+ alliances • Marketing and product management • Engineer early-on – designed fuel injection • Education: MBA M.I.T. 1987; BS/MS Engineering Dave Garten – Business Strategy

4. Strategy Evolution • Ancient Greece – “Startegos” –military commander • Industrial Revolution  railroads & mass markets  capital , credit, large scale investment to enable economies of scale/scope  high level thinking • Sloan (GM) – devised a successful strategy based on S & W of Ford  segmentation and differentiation • Learning curve. Labor costs reduced at a constant rate as cumulative production doubled • B-school focused on matching S/W with O/T  SWOT. • Rise of strategy consultants in the 60s and 70s. • BCG  BCG Growth Share matrix • McKinsey  SBUs Source: Derived from Pankai Ghemawat, Strategy and the Business Landscape Dave Garten – Business Strategy

5. Terminology • Business Model • Vision • Mission • Strategy • Objectives • Tactics • Emergent Strategy Dave Garten – Business Strategy

6. What is a business model? A business model describes the rationale of how an organization creates, delivers, and captures value. The process of business model design is part of business strategy. Customer Value Proposition Wealth, access, skills or time. Revenue model Cost structure Margin model Resource velocity Profit Formula Resources Key Processes Source: Derived from Johnson, Christensen, Kagermann, Reinventing Your Business Model Dave Garten – Business Strategy

7. Vision & Mission & Strategy “Every business, if it is to succeed, must have a sense of direction and mission, so no matter who you are and what you are doing, you know how you fit in and that what you are doing is important.” -- Lou Gerstner, 2002 Dave Garten – Business Strategy

8. Vision & Mission & Strategy • Vision: • Mission: • Strategy: “what do we want to become?” “what is our business?” “means to accomplishes objectives” X Derived from Strategic Mgt by Arnoldo Hax, Strategic Mgt by Fred R. David. Dave Garten – Business Strategy

9. Strategy Development Strategy = an objective + “the how” Dave Garten – Business Strategy

10. Strategy Development Tangible objectives (targets) Financial Objective examples: Achieve ROIC of 15%, AAA bond rating Strategic Objective examples: Achieve market share of 20%, lowest unit cost 11/21/2014 Dave Garten – Business Strategy 10

11. Strategy Development How to achieve objectives  choice Using/developing a competency Hopefully -> exploiting competitive advantage Responding to changing environment Good Strategy 50% experience 50% data Strategy is ½ planned -- ½ Unplanned 11/21/2014 Dave Garten – Business Strategy 11

12. What is Strategy? • Productivity Frontier • Unique and valuable position • Tradeoffs and decisions • Glue that puts pieces together • Greatest threat from within… Dave Garten- Business Strategy

13. Dave Garten – Business Strategy

14. Levels of Strategy • Corporate Strategy • Overall vision, mission • Kinds of business, portfolio management • Business Strategy • Business vision, mission • What product and/or service to offer • How to manufacture, how to get to market, etc. • Functional Strategy • Functional vision & mission • Focused domain Dave Garten – Business Strategy

15. What is Good Strategy? • How do you know a good strategy when you see it? • Will have many of these qualities: X Dave Garten – Business Strategy

16. Emergent Strategy Dave Garten – Business Strategy

17. “Basis of Competition” External Analysis Internal Analysis “What we have” Strategy Development R & D Supply Mftg Sales Mktg Strategy Mission Coordinated action (tactics) “Translation of Strategies” Frequency • Strategic Management: • Exploit & create new and different opportunities for tomorrow • Setting up l/t success to support mission, strategies & tactics Dave Garten – Business Strategy

18. Case Discussion • What is Netflix’s “Customer Value Proposition?” • What is Netflix’s “Profit Formula?” • What are Netflix’s Key Resources & processes? • What is Netflix’s competitive advantage versus Blockbuster? How are these related to Netflix’s unique activities? What might Porter or Barney say about Netflix’s competitive advantage? Dave Garten – Business Strategy

19. Re-occurring Themes in Strategy • Change is a constant • Art – not a science • Gray - not white & black • Combinations of strategies– rarely a pure single strategy determines winners • Successful strategies (businesses) learn, adapt and take advantage of change Dave Garten – Business Strategy

20. Critical Thinking Model

21. Strategic Thinking & Leadership What is the relationship between strategic thinking & leadership? X Dave Garten – Business Strategy

22. Strategic Leadership (BA521) Strategic Thinking and Visioning:Effective managers act with the future in mind. They plan for and make decisions within the framework of the enterprise’s strategic intent. They know and understand the factors influencing strategy (e.g., core competence, customers, competition, and the organization’s current strengths and limitations). They consider future impact when weighing decisions. Effective managers are imaginative. They are able to create a vision of a preferred future for their team. They communicate it clearly and enthusiastically in such a way that others are attracted to it. They are able to bring a vision to life for team members. Risk-Taking: Effective managers have a history of, and propensity for, taking calculated chances to achieve goals. They find a balance between analysis and action. When they fail, they accept it, learn from it, and move on to the next challenge. Dave Garten – Business Strategy

23. Strategy – reality check • What are Gerstner’s major points re: strategy? X Dave Garten – Business Strategy