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Nike Case Due Next Tuesday Guest Speaker Thursday Randy Conrads of Classmates and Red Week. Cancelling Group Presentation Requirement (was to be worth 15%) Exam 1 20 23.5 Exam 2 20 23.5 Paper 20 23.5 Strategic Issue 10 11.76 Cases 10 11.76 Group Case 5 5.88.

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slide1
Nike Case Due Next Tuesday
  • Guest Speaker Thursday
    • Randy Conrads of Classmates and Red Week
slide2
Cancelling Group Presentation Requirement (was to be worth 15%)
  • Exam 1 20 23.5
  • Exam 2 20 23.5
  • Paper 20 23.5
  • Strategic Issue 10 11.76
  • Cases 10 11.76
  • Group Case 5 5.88
entrepreneurship
Entrepreneurship
  • The process of uncovering and developing an opportunity to create value through innovation and seizing that opportunity without regard to either resources (human and capital) or the location of the entrepreneur—in a new or existing company (Churchill, 1992: 586).
entrepreneurship characteristics
Entrepreneurship Characteristics
  • Commercial leanings
  • Lack of structure/self-control
  • Visionary tendencies
  • Risk-taking/appetite for uncertainty
  • Persistence
  • Doer/high initiative
  • Charisma and extroversion
entrepreneurship characteristics6
Entrepreneurship Characteristics
  • High-energy level
  • Strong self-image
  • Team building skills/uses contacts and connections
  • Views failure as learning
  • Commitment and fun
intrapreneurship characteristics
Intrapreneurship Characteristics
  • Understands the environment
  • Visionary and flexible
  • Creates management options
  • Encourages teamwork
  • Encourages open discussion
  • Builds a coalition of supporters
  • Persists
intrapreneurship environment
Intrapreneurship Environment
  • New ideas encouraged
  • Trial and error encouraged. Failure ok!
  • Resources available and accessible
  • Long time horizon
  • Appropriate reward system
  • Sponsors and champions available
  • Support of top management
slide10
“It is the customer who, in the end,

determines how many people are employed and what sort of wages companies can afford.” Lord Robens

high technology industries
High Technology Industries
  • Rapidly changing scientific knowledge underlying attribute for competition
  • R&D/Sales
  • Battle over technical standard, format, and dominant design
    • Set by decree, cooperation, public domain, but mostly through consumer choices
benefits for standards
Benefits for Standards
  • Compatibility
  • Reduce consumer uncertainty
  • Reduce production costs
  • Increase in complementary products – Network effects – which greatly enhances sustainability
    • Lock outs and switching costs
wining format wars
Wining Format Wars
  • Ensure complementary products
  • Killer applications
  • Razor and blade strategy
    • Cell phones, printers, satellite TV/radio, video games
  • Cooperative competition
  • Licensing
technological change
Technological Change
  • If the automobile had developed at the same rate as the microchip, a Roll Royce would:
  • Cost $2.75
  • Go 3 Million miles on a gallon of gas
slide17

Color TV

Black & White TV

slide18

Color TV

Black & White TV

slide19

Big Screen TV

Color TV

Black & White TV

slide20

Big Screen TV

Color TV

Black & White TV

slide21

HDTV

Big Screen TV

Color TV

Black & White TV

slide22

HDTV

Incremental evolution included remote controls,cable ready tuners, stereo sound systems, screen-in-a-screen, etc

Big Screen TV

Color TV

Black & White TV

competitive dynamics
Competitive Dynamics
  • Competitive action within an industry.
  • Strategic and tactical action does not occur within a vacuum
  • What industries have high competitive dynamics?
  • What sort of actions/tactics are taken?
drivers of competitive dynamics
Drivers of Competitive Dynamics
  • numerous/equally balanced competitors
  • slow growth
  • high fixed/storage costs
  • lack of differentiation/switching costs
  • high exit barriers
  • Etc…

Competitive

Dynamics

Rivalry

competition in the pharmaceutical industry
Competition in the Pharmaceutical Industry
  • Reps tripled to 90K last 10 years
  • 12B on sales force, 2.76B on ads
  • Managed care bet – Pfizer from 14th to 1st
  • 529 visits yearly, average length – 2.5 min
    • 8% remember
  • Glaxo can reach 80% of the Drs in a week
  • “Is this necessary. No, but if my competitors do it and I can’t, then I’m at a disadvantage. This has been an arms race in the worst possible manner.”
types of competitive responses
Types of Competitive Responses
  • First Movers - initial competitive action
    • advantages and disadvantages
  • Fast Followers or Capable Competitors- respond quickly to first movers
  • Late Entrants - day late and a dollar short
chapter 9 10

Chapter 9-10

Corporate Level Strategy

slide30

Beverages

Foods

Snack Foods

Frito-Lay North America

Frito-Lay International

Quaker North America

Pepsi-Cola North America

Gatorade/Tropicana North America

PepsiCo Beverages International

slide31

Snack Foods

Frito-Lay North America

Funyuns

Sunchips

Cracker Jack

Chester’s popcorn

Grandma’s cookies

Munchos

Smartfood

Baken-ets fried pork skins

Oberto meat snacks

Lay’s

Ruffles

Doritos

Santitas

Fritos

Cheetos

Rold Gold

slide32

Snack Foods

Frito-Lay International

Bocabits wheat snacks

Crujitos corn snacks

Fandangos corn snacks

Hamkas snacks

Niknaks cheese sticks

Quavers potato snacks

Sabritas potato chips

Twisties cheese snacks

Walkers potato crisps

Walkers Square potato snacks

Walkers Monster Munch Corn snacks

Miss Vickie’s potato chips

Gamesa cookies

Dippas

Sonric’s sweet snacks

slide33

Snack Foods

Frito-Lay International

Bocabits wheat snacks

Crujitos corn snacks

Fandangos corn snacks

Hamkas snacks

Niknaks cheese sticks

Quavers potato snacks

Sabritas potato chips

Twisties cheese snacks

Walkers potato crisps

Walkers Square potato snacks

Walkers Monster Munch Corn snacks

Miss Vickie’s potato chips

Gamesa cookies

Dippas

Sonric’s sweet snacks

slide34

Beverages

Pepsi-Cola North America

Pepsi-Cola

Mountain Dew

Slice

Mug

Sierra Mist

FruitWorks

Lipton

Dole

Aquafina

Frappuccino

SoBe

AMP

slide35

Beverages

Gatorade/Tropicana North America

Gatorade

Propel

Tropicana

Dole juices

slide36

Beverages

PepsiCo Beverages International

Loóza juices and nectars

Copella juices

Frui’Vita juices

Tropicana 100 juices

slide37

Foods

Quaker North America

Quaker rice cakes and granola bars

Rice-A-Roni side dishes

Near East couscous/pilafs

Aunt Jemima mixes & syrups

Quaker grits

Quaker Oats

Cap’n Crunch cereal

Life cereal

Quisp cereal

King Vitaman cereal

Mother’s cereal

slide38

How are we going to compete and

gain a competitive advantage in

each of our businesses?

Foods

Business Level

Strategies

Quaker North America

Quaker rice cakes and granola bars

Rice-A-Roni side dishes

Near East couscous/pilafs

Aunt Jemima mixes & syrups

Quaker grits

Quaker Oats

Cap’n Crunch cereal

Life cereal

Quisp cereal

King Vitaman cereal

Mother’s cereal

slide39

Snack Foods

Beverages

Foods

Corporate Level Strategy

1) What businesses do we want to compete in?

2) How do manage effectively across businesses

goals of corporate strategy
Goals of Corporate Strategy

Moves to enter new businesses

Boosting combined performance of the businesses

Capturing synergies and turning them into competitive advantages

Establishing investment priorities and steering resources into business units

4 corporate level strategies
4 Corporate Level Strategies
  • 1) Vertical Integration
  • 2) Strategic Outsourcing
  • 3) Horizontal Integration
  • 4) Diversification – two or more different businesses with distinct operations
1 vertical integration
1) Vertical Integration
  • Forward or backwards
    • Full integration
    • Taper integration
  • Benefits
    • Build barriers to entry
    • Facilitates investment in specialized assets
    • Protecting product quality
    • Improved scheduling
  • Risks
    • Costs
    • Rapid technological changes
    • Demand predictability
alternatives to vertical integration
Alternatives to Vertical Integration
  • Competitive bidding
  • Long term contracts or strategic alliances

Form of Relationship

Markets &

Competitive Bidding

Hybrid &

Contracts/Alliances

Vertical

Integration

2 outsourcing
2) Outsourcing
  • Cost reduction and differentiation
  • Hold-ups, scheduling and hallowing out
3 horizontal integration
3) Horizontal Integration
  • Acquiring or merging with industry competitors
    • Reduce cost and economies of scale
    • Increasing value through wider product line or product bundling
    • Manage industry rivalry
    • Increase buyer and supplier power
4 how to diversify
4) How to Diversify?

1) Internal Development - corporate entrepreneurship or internal venturing

  • able to appropriate a larger portion of wealth
  • avoids complexities of multiple partners
  • time consuming and requires diversity of organizational capabilities
4 how to diversify48
4) How to Diversify?

2) Strategic Alliances and Joint Ventures

  • entering a new market via the combination of complementary resources - do more together
  • cost reduction & sharing
  • development/diffusion of technology

Problems

  • appropriate partners - skills and compatibility
  • trust and commitment
  • communication
who makes a geo
Who Makes a Geo?

Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse.

Geo Prizm = Toyota Corolla

Geo Tracker = Suzuki Sidekick

Geo Metro = Suzuki Esteem or Swift w/hatchback

No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.

4 how to diversify52
4) How to Diversify?

3) Mergers & Acquisition

slide53

Mergers & Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

slide54

Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

Problems with Acquisitions

Integration of two firms

Overpayment/Debt

Overestimation of Synergy

Overdiversification

Managerial energy absorption

Become too large

Substitute for innovation

slide55

Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

Problems with Acquisitions

Integration of two firms

Overpayment/Debt

Overestimation of Synergy

Overdiversification

Managerial energy absorption

Become too large

Substitute for innovation

Results

Poor

Performance

Who Wins?

Acquired Firm

Shareholders

monday october 27 th wsj
Monday October 27th WSJ
  • Bank of American – Boston Fleet Financial
    • BoA down $8.29, or 10%, BFF rose 23%
  • Anthem – WellPoint Health Networks
    • Anthem down 8.2%, WellPoint up 8.8%
  • United Health – MidAtlantic Med Services
    • UH down 4.9%, MAMS up 9.7%
failures of acquisitions
Failures of Acquisitions

30 - 40% average acquisition premium

Acquiring firm’s value drops 4% in the 3 months following acquisitions

30 - 50% of acquisitions are later divested

Acquirers underperform S&P by 14%, peers by 4%

3 month performance before and after

  • 30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns
why then do executives acquire
Why, then, do executives acquire?

Often, for personal reasons

Firm size and executive compensation are related

When do executives loss their jobs?

  • 1) Acquired - larger firms harder to acquire
  • 2) Performing poorly - employment risk is reduced as returns are less volatile
related diversification at disney
Related Diversification at Disney

Entertainment/Production

Theme Parks

Resorts

Entertainment/Broadcasting

Retailing

Cruise Lines

slide62

Levels of Diversification

Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizontal relationships across businesses - synergies

Advantages of related diversification include:

  • Leveraging Core Competencies
  • Sharing Activities
  • Market Power
slide64

Tyco Electronics

Tyco Telecommunications

Tyco Fire and Security

Tyco Safety Products

Tyco Healthcare

Tyco Plastics

Tyco Adhesives

Tyco Flow Control

Tyco Electrical and Metal Products

Tyco Fire and Building Products

Tyco Infrastructure Services

slide65

Levels of Diversification (cont.)

Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses

Conglomerate Diversification - no relatedness between businesses

when why to diversify
When/Why to Diversify?

To create shareholder value

Porter’s Three Point Test

1) Attractiveness Test

2) Cost of Entry Test

3) Better off Test

Should pass all 3

portfolio analysis
Portfolio analysis
  • BCG Growth-Share Matrix
    • question marks, dogs, cash cows, stars
  • GE- Nine Cell Matrix
slide68

Boston Consulting Group Matrix

Relative Market Share

Question

Marks

Stars

Growth

Rate

Cash

Cows

Dogs

slide69

BCG Matrix for PepsiCo - Early 1990s

Relative Market Share

High

Taco

Bell

Growth

Rate

Pizza

Hut

10%

Frito

Lay

Low

Soft

Drinks

KFC

Low

High

1.0

slide70

BCG Matrix for PepsiCo - Early 1990s

Relative Market Share

Pizza

Hut

Taco

Bell

High

Growth

Rate

Frito

Lay

5%

KFC

Soft

Drinks

Low

Low

High

.75

slide71

GE 9 Cell Matrix

Competitive Strengths

High

Low

High

Invest

Grow

Hold

Attractiveness

Harvest

Divest

Low

slide72

GE 9 Cell Matrix for Pepsico

Competitive Strengths

High

Low

High

Snack Foods

Attractiveness

Soft Drinks

Low