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Business Strategy
Tutorial for MSFA students in Alliances & Acquisitions
Dave [email protected]
What is a Strategy?“plan of action designed to achieve a
particular goal” – WikipediaStrategy statement – 2 parts The objective + the “how”
Fictional examples for Nissan Market: Achieve #1 market share in electric
vehicles by 2012 by introducing the “Leaf” and selling 500,000 units.
Financial: Achieve positive operating margin on the Leaf by 2012 by driving down battery cost to $200/watt.
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Strategy Development
External Analysis“Basis of Competition”
Internal Analysis“What we have”
Mission Strategy R & D SupplyMftg
SalesMktg
Coordinated action (tactics) “Translation of Strategies”
Frequency
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External - Industry Structure
Source: Derived from Barney, Gaining & Sustaining Competitive Advantage
Str
ateg
y F
lexi
bili
tyHigh
LowDegree of Competition
Low
High
Pro
fita
bili
ty
Monopoly
Oligolpoly
MonopolisticCompetition
PureCompetition
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External - Industry Structure
Innovators EarlyAdopters
EarlyMajority
LateMajority
Laggards
Emerging• Features
Mature• Quality & reliability
Declining• Price
Product innovation Process innovation
Growth• service
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External–Trends/Environment - “PESTAL”
Political Telecom, deregulation, govt ownership, trade barriers,
subsidies, free speech, etc.
Economic Income, spending, interest rates, GDP, stock mkts, etc.
Sociocultural Demographic, psychographic, education, etc.
Technological New standards, new processes, new features, etc.
Environmental International pressure groups, env. laws, waste
regulations
Legal Intellectual property, antitrust, etc.
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External - Structural Opportunities
Fragmented -> consolidationEmerging -> TTM, locking up resources, tech switching cost “Network” -> standards, n**2
Mature ->incremental innovations, serviceDeclining ->shakeout leadership, niche, divest
Source: Derived from Barney, Gaining & Sustaining Competitive Advantage
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External - Industry Structure Threats - Applying Porter’s 5 Forces
1.Threat of Entry Economies of scale (production, distribution), Product
differentiation (brand, switching costs), other cost advantage (know-how, patent, access to raw materials, location), contrived deterrence, govt
2.Threat of Rivalry # of competitors, size/influence of competitors, industry
growth rate, level of differentiation (vs. price), step function of capacity
3.Threat of substitutes Deliver the product/service in a different way?4.Suppliers
Bargaining power, # of companies, level of differentiation, threat of vertical integration, threat of substitutes
5.Customers Mirror image of suppliers Vert
ical
Hori
zon
tal
Source: Derived from Barney, Gaining & Sustaining Competitive Advantage
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Internal – Strength/Weakness
Value chain analysis – varies by firm…
Customer
Service
Distribution
Sales & MarketingManufacturi
ngDevelopmentResearch
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Internal - Core CompetenceDefined:
What can a company do w/its core competence? Delivery of new products, services, alliances Expand into related products and businesses Shape future markets
Examples: Canon, HDTV, 3M, Honda
Source: derived from The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c
collective learning that coalesce around individuals who coordinate a comprehensive set of diverse skills & integrate multiple streams of know-how
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Core Competency and Success
Core
Step 1 (38%)
Step 2 (26%)
Step 3 (7%)
Diversification (<1%)
Source: Bain, October 2003
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Core Strategies - Differentiation
“increase in perceived value relative to the perceived value of other firms” - Barney
“If you can’t differentiate yourself in this world, you get commoditized instantaneously. So we are constantly driving for more innovation, more differentiation and more technology.”- Jeffrey R. Immelt, Chairman and CEO, GE
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Core Strategies - Differentiation
Why differentiate?
Ways to differentiate
Organizing for differentiation
Better chance to be profitable Preference -> loyalty -> stickiness ->
profitability (basis for monopolistic competition)
Brand, features, services, bundled solutions, timing, location, distribution, customization, technology
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Core Strategies - Cost Leadership
Manufacturing businesses Conventional: High MSS -> High accumulated
volume low unit cost -> high profitability Experience curve (learning), know-how, IP,
specialization, improvements
Service businesses Know-how; experience curve applies
Cost structure Labor, capital, land, raw materials, geography,
use of technology, government policy
Organizing for cost leadershipSource: Derived from Barney, Gaining & Sustaining Competitive Advantage
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Core Strategies - Vertical Integration
Degree of control over value chain Forward integration toward customer Backward integration toward R&D
Flexibility Market efficiency Focus on CC
MarketGovernance
VerticalIntegration
Alliances
Control Supply
certainty Dilution of CC Antitrust Secrecy
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Strategy Evaluation ToolSWOT & Strategy Development
Opportunities (O)
Threats (T)
Strengths (S) Weaknesses (W)
SO Strategies
ST Strategies
WO Strategies
WT Strategies
Use strengths to take advantage of opportunities
Use strengths to avoid threats
Overcome weaknesses by
taking advantage of opportunities
Minimize weaknesses and
avoid threats
1.2...
1.2...
1.2...
1.2...
Source: Strategic management by Fred R. David
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What is Good Strategy?How do you know a good strategy when you see it? Will have many of these qualities:
X
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