ENGR 193 A/293 A: INDUSTRY ANALYSIS IN THE TELECOM/IT SPACE

1. ENGR 193 A/293 A: INDUSTRY ANALYSIS IN THE TELECOM/IT SPACE Week 1: September 28, 2010

2. Welcome and Background • Familiarity/experience with TMP? • How many TMP classes taken? • Attended any classes with case studies? • Student status: graduate, undergraduate/year • Academic focus: engineer vs. non-engineer • Telecom experience/familiarity? • IT experience/familiarity? • TMP information • My background

3. Jill Feldman • Education: • BSE in Industrial and Operations Engineering, University of Michigan, Ann Arbor • MBA, University of Chicago Booth School of Business • Work Experience: • McKinsey & Company - business analyst • Merrill Lynch Capital Markets - M&A, LBO groups • Wireless industry: • Verizon – strategic planning, headquarters and LA market • AT&T Wireless Services – marketing director, Dallas/Fort Worth market • Founded Strategic Development Associates in 1997. SDA is a strategic consulting and marketing research firm focused on the tech industry • Clients include AT&T Wireless Services, Nortel Networks, Nokia Mobile Phones, RSA Security, TiVo and United Online

4. Technology Management Program • An academic program of excellence designed to meet the entrepreneurial and leadership needs of technology-based businesses • The Technology Management Program's educational programs include classes in management, entrepreneurship, new product development, marketing, and much more • Two scholarships available: Harold Frank and Young Innovators • Meeting for graduate and PhD students on GPMP program – October 14

5. Course Objective • My primary objective is to have you learn a skill (conducting an industry analysis) that can be applied to many situations and may be used throughout your academic and work careers • My secondary objectives are to have you: • Work with a team to be successful • Increase your awareness and knowledge of business tools • Increase your awareness of potential careers

6. Class Requirements: How to be Successful in this Course • Attend class • Participate and ask questions • Complete two kinds of readings: • Case studies (3 in total for quarter) • Specific skill-building readings (Porter 5 Forces, SWOT analysis, etc.) • Prepare case studies • Work with your team to complete team project I will send emails and post notes on our class sites: http://www.tmp.ucsb.edu/classpages/ENGR193A/index.html and http://www.tmp.ucsb.edu/classpages/ENGR293A/index.html

7. Course Structure • Introduction – Week 1 • Industry Analysis Partner Presentation – Week 2 • Skill Building – Weeks 1 – 8 • Library Visit – Week 3 • Guest Speakers – Weeks 2, 4, 5, 6 and 7 • Team Project Presentations – Week 9 • Recent TMP Graduate Presentation, Career Objectives and Wrap-Up – Week 10

8. Harvard Case Packet • “Industry Analysis in the Telecom/IT Space Fall 2010” case pack of Harvard Business School cases, notes and readings. Also includes a background case for our Industry Analysis Group Project • Link to order the course materials: http://cb.hbsp.harvard.edu/cb/access/6846669 • More detailed instructions can be found on ENGR 193A/293A websites

9. Optional Readings • Handbook designed to help you analyze, discuss and write-up cases for our course: • The Case Study Handbook: How to Read, Discuss and Write Persuasively About Cases, William Ellet, Harvard Business School Press, 2007 • Classic business school strategy text book: • Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael E. Porter, The Free Press, 1980 • Appendix B: How to Conduct an Industry Analysis

10. Grading

11. Industry Analysis Project • Team structure: • Small teams of students – work throughout quarter to complete • Topic: Cloud computing • UCSB Faculty Project Partner • Dr. Ben Zhao: Dept. of Computer Science • Industry Partner • Betsy Zikakis – VP Marketing, RightScale • Final presentation – Week 9

12. Presentation Details • PowerPoint Format • 15 – 20 minutes • Approximately 15 slides • Oral presentation, and hand in your slides • Panel will provide comments and feedback

13. What to Include in Your Report: For Your Industry • Clearly define your industry/segment. Provide a detailed description • Porter 5 Forces analysis of the industry/segment • Discussion of technical standards: Is there a current standard? How is this likely to evolve? • Highlight what you think are the key issues/challenges for the industry/segment • Top competitors • Key ratios, financials in this industry/segment (and why you think these are relevant). If possible, by competitor • Market share information, if available • Any other relevant information

14. What to Include in Your Report: For Your Company • SWOT analysis of your company • An assessment of how your company compares to the competition: • Use ratios, market share, qualitative information and any other information you’ve discovered from your research that will give a sense of your company versus its competition

15. What to Include in Your Report: Key Questions to Answer • What will this industry/segment look like in 5 years? • What should your company do to be the dominant player in the next 5 to 10 years in this industry/ segment? • What key strategic advice would you give to this company? • Partner with another player? Who? • Exit this industry/segment? Why? • Acquire a new technology? Which one? Why? • Sell to a larger company? Why? • Why would you give this advice?

16. What to Include in Your Report: Project Assessment • What sources did you use to complete this project? • Which sources were most valuable? Why? • What other information do you wish you had available in order to complete this analysis? • What was the most challenging part of this project? • What would you do differently next time?

17. Skill Building Introduction • Porter’s 5 Forces Model • SWOT Analysis • Ratios, financial ratios • Market research

18. Porter’s Five Forces Model Developed by Michael Porter in 1979/1980 Considered a classic industry analysis tool Provides a framework for perspective on multiple competitive factors affecting your company and industry Five basic competitive forces whose “collective strength” determines the long-run profit potential of an industry

19. The Five Forces Threat of New Entrants/ Barriers to Entry Rivalry Among Existing Competitors Bargaining Power of Suppliers Bargaining Power of Customers Threat of Substitutes Sources for this section: Michael E. Porter, Understanding Industry Structure, Revised 2007 and How Competitive Forces Shape Strategy, Harvard Business Review, 1979

20. Threat of New Entrants/ Barriers to Entry Threat of potential entrants determined by: Attractiveness of industry Height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.) Customer switching costs (high fixed costs involved in switching to another supplier) Capital requirements (e.g., very high in gas exploration) Incumbency advantages independent of size (e.g., proprietary technology, patents) Unequal access to distribution channels (how much have existing competitors tied up distribution channels) Restrictive government policy

21. Bargaining Power of Suppliers Strength of suppliers determined by: Number of suppliers and their degree of differentiation Portion of a firm’s inputs obtained from a particular supplier Portion of a supplier’s sales sold to a particular firm Switching costs Potential for vertical integration

22. Bargaining Power of Suppliers A supplier group is powerful if: It is more concentrated than the industry it sells to (e.g., Microsoft: near-monopoly in operating systems, with fragmentation among PC-making customers) Industry participants face high switching costs when changing suppliers Differentiated products offered by suppliers No substitutes for what the supplier group offers Supplier group does not depend heavily on a particular industry

23. Power of Customers Power of customers determined by: Number of buyers Firm’s degree of differentiation Portion of a firm’s inputs sold to a particular buyer Portion of a buyer’s purchases bought from a particular firm Switching costs Potential for vertical integration

24. Threat of Substitutes A substitute performs the same function as an industry’s product or service, but by a different means Determined by the number of potential substitutes, their closeness in function and relative price Not just another product: sometimes the substitute is to “do without” the product or to do it themselves Long distance phone service providers vs. VoIP providers (Skype and Vonage) Mobile phone as primary phone vs. landline

25. Rivalry Among Existing Competitors Rivalry determined by number of firms, relative size, degree of differentiation between firms, demand conditions and barriers to exit Competition among rivals is greatest when: There are many competitors, nearly equal in size or power Slow industry growth High barriers to exit

26. Rivalry Among Existing Competitors Industry competition is based on price when: There is low differentiation and/or low switching costs between competitors Fixed costs are high, but marginal costs are low Capacity must be expanded in large increments, disrupting the supply and demand balance The product is perishable (groceries, airline seats, information)

27. Five Forces Analysis Next Week • We’ll apply this framework next week to an industry • Class to choose a telecom or IT area for this analysis (VoIP, etc.) • I’ll bring in some articles next week for background on our industry so that we can do the analysis together in class • We’ll also do a SWOT analysis: other industry ideas?

28. Telecom/IT Area for Next Week • Mobile financial transactions-2 • Online banking-0 • Internet service providers-7 • Mobile carriers-4 • Smart phones/cell phones (device)-10** • Operating systems – mobile devices-5 • Search engines-1 • Browsing -1

29. Group Exercise • Divide into teams • Strategic planning and competitive analysis require accurate trend analysis – of consumers, industries technologies, regulations, etc. • Top 3 trends that have changed the way we live over the last 5 years • Top 3 trends that will change our lives over the next 5 years

30. Top Trends – Last 5 Years • Social networking • Smart phones • Internet/Expansion of broadband and users • Loss of privacy • Green movement • Apple • Music distribution • Touch screen • High resolution

31. On demand TV Smart power grid Silicon photonics Online shopping Mobile advertising Integrated devices 4G Mobile lifestyle Cloud computing Smart phones Improved picture resolution Downloading – torrenting 3D video Green Video communications Content generation Human computer interaction Top Trends – Next 5 Years

32. For Next Week’s Class • Read “Amazon Web Services”, Huckman, Pisano, Kind (609048-PDF-ENG) in preparation for next week’s speaker • Read “Understanding Industry Structure”, Porter (707493-PDF-ENG) • Read “Five Competitive Forces that Shape Strategy”, Porter (R0801E-PDF-ENG) • Optional: Read chapters 1, 2 and 3: The Case Study Handbook: How to Read, Discuss and Write Persuasively About Cases, William Ellet, Harvard Business School Press, 2007 • Complete your background sheet with picture (handout and posted on site)