(1. Ppt 1 is this one, this list…)2. Stakeholders and the enterprise 3. Value-chain 4. Green-Red value chain5. CS/CA and SEEPT6 Co-opetition7. Strategic-group concept 8. Punctuated equilibrium9. The CS/CA becomes the CMHC (dark blue dis-equil.)10. The 4 arenas in CMHC11 . CQ arena in CS/CA & CMHC, 12. Planned, ‘Realized’ and Emergent strategies.13. How does NPV/DCF fit in with ‘emergent’ strat ?14. The concept of an optimal capital-structure 15. The KLMBS set16. Table of red and blue themes* 17. Exploit, refrain, compensate for the KLMBS*18. Economies(& dis-econ) of scale, experience19. Forms & methods of diversification20. Corp Portfolio ‘Growth-Share matrix’21. Strategy in declining industries 22 Product-Segment matrix ,23 Global strategies (localization, cost)24 National CA (Diamond) 25 Global SEEPT: economic inequality 26. The global shareholder/ CMHC model27 .The global stakeholder (GSM) “common good” model28. The partitioned ethics set

ExternalStakeholders

CustomersSuppliersCreditorsgovernmentsunionscommunitiesPublic (p.funds)

InternalStakeholders

Shareholders(stockholders)ManagersEmployeesBoard members

The Company(productive

strategic entity)

“Inducements& contributions”

“Inducements& contributions”

(i) Categories often overlap, e.g. shareholder & board member, government & customer, etc. (ii) “shareholders” are also “external”(iii) Colored categories have special status and role in the system

Value-chain “activities”(Internal processes that create wealth for shareholders)

Culture & leadership

Informationsystems

Logistics &Materials-

Mgmt.

HR

Support activities

Primary activities

R&D Co-Production Sales &Marketing

CustomerService

Strategy: seek ways of reducing costs and improving quality, or perceived-quality at each link of the chain [i.e. the C&Q/D-arena]

= $$

“Green & Red Values-chain”(Internal processes that are intended to benefit other stakeholders & the general public)

Culture & leadership

Informationsystems

Logistics &Materials-

Mgmt.

HR

Support activities

Primary activities

R&D Co-Production Sales &Marketing

CustomerService

Strategy: seek ways of overcoming some of the KLMBS (e.g. environmental-restoration, customer-wellbeing) at each link of the chain [although the main focus of public-good strategy is often external & political, e.g. Andrew Carnegie advocating 100% estate tax]

=

The standard CS/CA+ model: competitive + macro-environmental (SEEPT) “factors” & “forces” The model depicts some aspects of the situation that you should consider, when formulating strategy

Potential entrants

Suppliers Buyer’s

Substituteproducts

Incumbents’& rivalry

Under the standard CS model, the intensity of competition experienced by a business is thought to be determined by the market power of the buyers and suppliers, the level of incumbent rivalry and the risk posed by substitute products and potential entrants. The CS model (not CMHC) prescribes ‘moves’ aimed at reducing the intensity in order to increase profitThe SEEPT categories are traditional, but they are all extremely inter-related (e.g eco & bio-tech)

Social

Economic

Ecological

Techno-logical

Political

The Co-opetition model or strategy: you focus upon seeking out areas to co-operate or share specific resources with other entities. In other words you view other entities as potential complements or “complement-ers”. This is similar to achieving economies-of-scope within a related-diversified corporate portfolio. Indeed, the “complement-ers” might then (later) invest in cross-shareholdings, which builds trust in the co-operative part of the strategy (and makes it more like economies-of-scope). A JV (operating or equity JV) is another quite similar mode of partial co-operation. As in CS/CA (5-forces) the motive is to reduce the intensity of competition in the expectation that this will increase profits, thereby creating wealth for the existing shareholders of the strategic-entity(s).

Potential entrants

Suppliers Buyer’s

Substituteproducts

Incumbents’& rivalry

Social

Economic

Ecological

Techno-logical

Political

“Strategic-groups”In the Pharmaceutical Industry

You have to look hard at the whole industry to figure out which “dimensions” might be useful The most-direct (obvious) competitors are the ones in your SG. The pattern of the 5-forces is often similar within each group, but differs between groups Changing your “strategy” can sometimes be thought of as moving from one group to another. Any aspects that make that move difficult are then then called “mobility barriers” I (Alan) am not convinced about conceptualizing the strategic situation this way. It can be a distraction (e.g. from the political situation in the industry).

R&D spending p.a. High

PricesCharged

Low

Low

High

Generic-Pharma GroupForest, Mylan, Watson, etc.

Proprietary-Pharma Group

Merck, Pfizer, Eli-Lilly. Bristol-,

etc.

mobility barriers??

“Punctuated Equilibrium”: A period of rapid change in industry-structureInnovations often lead to fragmentation of an Industry, then a re-consolidation

The CMHC depicts continual change & dis-equilibrium & disruptionThe Chaos & Complexity theory also depicts continual “far-from-equilibrium” conditions

Time

Level of Consolidation

High(oligopoly)

Low(fragmented)

Period of disequilibrium

CS/CA relevant

CS/CA relevant

CMHC relevant

Co-opetition always relevant

Effects of (Prescribed) Moves

Weak Competitive FORCE

Strong Competitive FORCE

FORCE OPPOSED or WEAKENED

X

X

CQ

X

SIMULTANEOUS& SEQUENTIAL

STRATEGIC THRUSTS

4 ARENAS

Change,Transition etc.

CS/CAREDUCE

INCUMBENTRIVALRY

CMHCINCREASE

INCUMBENTRIVALRY

The four arenas in CMHC are:Cost-quality (including perceived-CQ: positioning, differentiation) Invade-protect product-markets e.g. acquisitions, internal-expansionsKnowledge & InnovationDeep pockets (access to financial forms of capital)

The basic point is to make all the other ‘players’ exhausted and confused, so you conquer the whole world, maximizing market (and political) power on behalf of shareholders. The model thus prescribes lobbying against anti-trust laws, in order to maximize the exploitation of ‘monopolistic tendencies’ (a KLMBS)The idea of serving all the stakeholders is not represented in the CMHC. …but let’s face it, it’s fun for the boys, like a video war game.

The CQ arena and the “focus” on mkt segments, for each mkt ‘offering’.

Narrow Focus (one segment)

Wide focus(many

segments)

Cost-leadership Focused CL CL

Differentiation(‘Quality’)

Focused-Diffn Diffn

The idea here is that for each offering you should think particularly about these two dimensions (amongst many other things, of course).

Originally (1980) the prescription/suggestion/advice was to chose one cell for each offering; but by 1990 everyone ‘realized’ that its best to compete on cost and D-Q , and usually in several segments (e.g. geographic diversification, global-standardized or other global strategies cf. model 24 ). New hi-tech production “overcame the C-Q tradeoff.”

This ‘matrix’ is probably the best-known of all of the standard CS or Mkt-Strat models

Planned, ‘Realized’* and Emergent StrategiesAka: the problem of freewill vs determinism (fate) in human life

PlannedStrategy

“un-realized”Strategy*

EmergentStrategy

“Realized”Strategy

Deliberate,intentional

“It’s all gone down the toilet” (UK)“It’s all turned to custard” (NZ)

* In U.K. (The Queen’s) English, ‘realised’ means that something just occurred to you. e.g. “I just realised I’m getting too old for this” . In US “English” “realized” seems to mean “making it real”

Unforeseenchanges

Circumstances that strategist does not control but perhaps co-creates

“Things just evolve in unpredictable ways”“The business system is an ecology”

START HERE: Cashflow

“Fake-casting”*

richerconceptualmodel

Pragmatic Ethical-financial

decision

Ethical, Financial & Strategic issues- Macro-environment- Competitor reactions-Stakeholder interests

etc.

Attention drawn to context-

specific issues

* i.e. forecasting net-cash-flows (NCF) over several years for notional NPV (DCF) calculations,Whilst knowing very well that the forecasts will be highly inaccurate. The concept of NPV (DCF) is derived from an equilibrium model, but the system is chaotic (dynamic) and almost always far from equilibrium.

?

NPV/DCF calculations can be applied properly to contracted cashflows like a defined benefits pension, or in some cases of engineering-like problems where probabilities are used (E-NPV)

The conceptual model of an optimal capital structure (the debt-equity or bonds-shares balance) for a LLC. Many students have seen this…but few have understood! Can you?

After-tax cost (%pa )of that formof fin-capital

Existinglevel of debt-fundingof the entity

cost of next tranche of debt

New and existing equityIs ‘becominghigher cost* due to the heightened risk of dropped dividend & bankruptcy

* High cost (to existing shareholders) in the sense of high expected returns (dividends or capital growth)being required by existing and new investors (the market) in order to maintain the share price

Zero

new debt now becomes subordinatedand has highercost p.a. so Av. Cost-of-debt is also higher

W.A.C.C.

And so there is an optimum and it includes some debt!!

Low, because of Tax benefits andLow risk to holders

• Monopolistic tendencies (use of market power to get above-normal profits, WTMM, etc)

• Lack of ability to pay (initial endowment; defective consumer; how $ obtained?)

• Information (about the things being exchanged, purchased)

• ***Preference vs. well-being (also, creation of desire)

• Ignores distributive-justice (associates with envy) • Alienation (for production worker, ‘value’ of product

become its price)• Unpriced Externalities (un-priced, pollution)• Ignores ‘public-goods’ (requires a govt.)

The K.L.M.B.S.

Blue side tried to exploit these (with reasons), Red tries to compensate for them(mention BEQ article by Heath)

COMPONENT LEFT-POLE RIGHT-POLE

Mkt. Limits compensate exploit

Values justice efficiency

Ethics U+J, care, deo, + U-J, egoism, contract, +

Systems1 stakeholder shareholder

Capitals multi-forms financial forms

Politics econ-left econ-right Timing ethics now ethics later

Co-opetition co-operation C competition2 D

Language values-based value-based

Agency (resp) corporate individual

Agency (rights) individual corporate

Passions3 isothymic megalothymic

Leader-style transformational transactional

Focus We4/the other I/the self

Yin/Yang (Gender) yin yang5

Scientific reference Ecology6 Engineering

Rate of innovation Gradual, evolving Rapid. driven

1. Similar to Labor vs. capital

2. CS/CA, CMHC, “defect” in PDG3. Character (Plato) 4. We/I in Etzioni’s

communitarianism5. Yang-sun-”daylight”6. Non-linearity, ecology,

living systems vs. linearity, engineering, “death”

(paradoxes involving light &dark, equil & dis-equil, speed & conservatism)

Nb. Color-coding is international, which is a reversal of the US political colors

Exploit Refrain Compensate

Influence GovernmentsPartner with NGO’sExplicate the strategyProvide moral leadershipEg MNC’s duty-to-aid

Increasing Level of Service to Society & Common Good

KLMBSWeakness of lawWeakness of enforcement

Output Volume in units p.a

Costper unit

This simply represents the ‘allocation’ of the fixed costs p.a. (of an entity) across more

units, as volume p.a. increases.

Other factors like ‘control loss’ can oppose this effect

Economies of scope refers to sharing support activities (like R&D)

across product-markets

The idea of economies of scale

The idea of a learning or ‘experience’ effect

Cumulative 0utput or Volume

Since we started

Costper unit

This simply represents thetypical improvement in performance

from learning and experience over time.

Help : do these ideas apply to (i) a “zero-to-global” virtual co. (ii) a

3D printing co.?

Forms & methods of corporate-portfolio-diversification CPD (as contrasted with diversification of a financial-investment portfolio

Unrelated product-markets: Q: is the corporate-level management adding shareholder value or just buying corporate yachts ? In other words, would it create more total value for shareholders if those shareholders invested in the “target” independent businesses, one or more in each of the product markets? [Challenge: you draw diagrams of those 2 situations, showing shareholders, equity-certificates, corporate entity with divisions, separate businesses. See if you can add in ‘the stakeholders” e.g. the employees]

Related product-markets: Q: are there economies of scope (shared support activities),

Vertical-integration (backward, upstream-suppliers, or forward, downstream-buyers) Q: where along the value-chain is the value being added & ‘captured’ by that entity’s shareholders? Are there potential economies of scope?

For all forms : (i) what are the costs and benefits to the other stakeholders? (that is, if the strategist cares about this and the MOMA)(ii) Is this CPD going to be achieved by acquisition, merger, Joint venture (operational JV, or equity JV) or perhaps just take a minority equity position in some other entities?

The “growth-share matrix” is a rough guide to internal funds-transfers within a diversified CP. It is controversial (see note below).

During 1980-2000 just about every strategy text had this “matrix”; but it then became a focus of a general criticism of standard strategy models (it’s not in HJ!!) . They are (obviously?) best used to stimulate further structured inquiry into the details of the particular strategic situation, not as prescriptive guides. For example, this one ignores, inter-alia, KLMBS-externality and capital-structure issues (see the Octel case and the ‘optimal poisoning problem’). The models have been ‘sold’ by consultants, much like books are sold even when they are fictional. The models are thought-provoking, but they are not ‘quick fixes’.

Market share

high low

MarketGrowth

high Stars ?

low Cows Dogs

?Other sources & applnsof funds??

$$

Strategy in declining industries:some options and aspects to consider.

Entity’s Competitive Strengths*

Few (weak) Many (strong)

Intensity of competition in the decliningindustry**

High DIVEST NICHE

Low HARVEST or DIVEST

LEAD orNICHE

*i.e. Its distinctive capabilities (“competencies”) that will enable it to compete effectively within the remaining areas or ‘pockets’ of demand

** i.e. the strength of the ‘5 forces’. If high then the CS/CA model implies it’s a bad place to be.

The ‘strategic options’ in italics are gently recommended under the circumstances described, but there will always be many other detailed aspects (and options) to consider (employees, for example). Strategy formulation and implementation is a dynamic process where circumstances often change.

PRODUCT-MARKET MATRIX HJ calls these “non-price CS” because the profit is expected to come from new products (innovation) or new markets, not simply from higher price or lower cost of the entity’s existing “offerings”. This “matrix” is the 2nd “arena” in the CMHC.

PRODUCTS

existing new

MARKETSor

Segments

existing Market Penetration

Product Development

new MarketDevelopment

ProductProliferation*

* this can be international, where you have tailored products for each region (like McDonalds in Asia, NZ), sometimes called a multi-local or localization strategy, as distinct from trans-national, international, or global-standardized (the same product everywhere).

MKT OFFERINGS

Local features Same everywhere

PRODUCTIONLocal or national

localized international

Global VC Trans-national

Global standardized

(often also called trans-national)

Global strategies (4 categories)

Globalstandardized

Trans-National

International Localized

Pressure on

costs

Pressure for ‘local responsiveness’

LOW

LOW

HIGH

HIGH

Tailored products but with global co-ordination of VC, so complicated; like low cost and high Q or Diffn

Same BM works,everywhere you go

Build in the features you need, to increase local demand

Same product but have to find cost-redns, econ of scale & geo-scope

intensity of rivalry in the national*

industry

Factorcondition in Nation

Demandconditions

In Nation

Competitiveness of related & supporting industries

in Nation

NATIONALCA

The Competitive Advantage of a Nation (i.e. most of its businesses, hence tax revenues)

“The Diamond Model”

Infrastructure**& human capital

**This part was not in the 1985 model, due to the blue-only standard CS/CA prescriptions 1980-2000 approx.

* sometimes called “local”

210020452015

Trans-humancivilization

Momentum - Trends

Trans-humanist

divide

4th world2bn+ in squalor

Mid-centuryCanyon

Lifted 4th & 3rd worlds

Mega -cats?1st & 2nd

worlds

LeverageFactors

wealth

USA average

James Martin’s “Levers”

1. Teach women in 4th world to read2. All women to have access to birth control3. Deploy hi-tech sensors everywhere to report state of planet eg aquifers4. End perverse subsidies.

In 2001 Myers & Kent reported over $2trillion p.a. of perverse subsidies in the US alone that exist only because “there is government commitment to, and aggressive lobbying for, the wrong solutions” (Martin 2006 p129). Instead we need full transparency in government and lobbying for the public-good, because “if a list of subsidies and the net harms they caused were thoroughly publicized, taxpayers would revolt”.

Corporation

Government(1)I-NGO’s

global quasi-feudal

corporate society

Government (2)

Government (n)

TGI’S &Networks

e.g. UN, OECDBuild trustfacilitatestability, Huricoordination &harmonization

Lobbying for selected HG’s orpolicies

Selectively endorse & support

CSR Compensate for selected KLMBS,to achieve valued reputation effects

Ignore, partner for reputation & ideology, or monitor & disrupt Political or

ideological advertising

Narrow lobbying to enable increased exploitation of KLMBS sub-set of HG’s

stability, contracts, negative-freedom,

minimize tax globally

Hyper-competitivestrategy

Corporation

Government(1)

Lobbying & constructive engagement for common good, anti-corruption, etc.Informative

advertising to explain KLMBS & HG-government

CSR Compensate for all KLMBS, In pursuit of dual mission & vision

HG-government cultivate & implant justice, efficiency, health, positive -freedom, happiness, etc.

I-NGO’s

Partner & engage for shared mission

GlobalCommon

Good

Government (2)

Government (n)

TGI’S &Networks

e.g. UN, OECDBuild trustfacilitatestability, Huricoordination &harmonization

Lobby for selected HG’s & global good

Endorse & support

Co-opetition &Self-governancee.g. Global Compact

optimize tax globally