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Lecture 10 – “The Big Finish” . Steve Montgomery. Introduction To The Business Environment. What to do when someone’s not telling you what to do Topics covered: Course introduction and Overview of corporate structure (1 session) Fundamentals of business strategy (2 sessions)

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introduction to the business environment
Introduction To The Business Environment
  • What to do when someone’s not telling you what to do
  • Topics covered:
    • Course introduction and Overview of corporate structure (1 session)
    • Fundamentals of business strategy (2 sessions)
    • Introduction to Marketing (2 sessions)
    • Overview of Accounting and Finance (2 sessions)
    • Project Valuation and ROI (2 sessions)
    • Putting it all together (1 session)
lecture 10
Lecture 10
  • Guest Speaker: Kristena Louie, Microsoft Corp.
  • Course wrap-up and summary
homework cont
Homework, cont.
  • What is Cummins’ tax rate?
  • What is Cummins’ WACC?
  • What is the minimum initial price you need to charge to make this a positive NPV?
    • How does this change if your ASP did NOT decline year on year?
      • What steps could Cummins take to preserve the ASP? (Put your strategy hat back on)
  • Assume the minimum IRR for Cummins is 12%. What does the initial price need to be to meet this goal?
    • What is the NPV for this price level?
  • Headcount = $125,000/year
  • Interest rate on debt = 6%
  • Final year growth rate = 2%
  • Risk free i = 5.3%, Stock premium = 6.4%
  • $50/hour labor rate
cummins info
Cummins Info:
  • Source: Yahoo Finance
  • One mistake: Free cash flow
    • Remember the formula!
    • Take out Capex, and NWC from net income and add back in depreciation
point of this course
Point of this course?
  • As future technical leaders, you will need:
    • An ability to evangelize your ideas and rally support/resources
    • An understanding/grasp of business topics and strategy
    • An ability to communicate your ideas to senior management
    • The ability to pick projects that maximize your business, promote your career, and promote the careers of those on your team
  • All the tools here are applicable on a number of levels:
    • Your firm
    • Your business group
    • Your own career
goal of any business
Goal of Any Business –
  • Identify external threats and undue influences
  • Maximize own influence
  • Minimize negative influences
  • Create differentiation
  • By maximizing/minimizing influence, and creating differentiation you get pricing power (assuming there is a market)
  • If there isn’t an existing market, and it makes sense to do so, create one!
strategic thinking
Strategic Thinking
  • As future leaders, you need to keep the following ideas in mind:
    • What incentives do the programs that I observe create?
    • What behaviors do these incentives drive?
    • Are these behaviors good or bad? Why?
  • What metrics best reflect value creation?
    • And how do you use them to your benefit?
  • Everybody else plays checkers. You should play chess.
incentives
Incentives
  • Simple rule of human behavior:
    • Rational human beings respond to incentives
  • Knowing what incentives are out there allows you to predict a lot of behavioral patterns:
    • Incentives can be positive or negative
    • Incentives can be emotional or factual in nature
    • Incentives can result from corp. structure, metrics of measurement, or strategic directives
      • Also intangibles like paranoia, but that’s another class
corporate goals
Corporate Goals
  • Any corporation in business today (for profit, obviously) has the following goals:
    • Survival
    • Profitability
  • Survival can mean many things:
    • Staying in business
    • Returning value to shareholders
    • Pushing the state of the art
    • Pursuing a mission and a set of values
survival
Survival
  • To survive, companies seek to minimize inefficiencies and streamline processes
  • Organizations are grouped to streamline tasks, allocate resources, and unify functions
  • Analyzing an org chart can tell you a lot about what a company values
    • …and is a gateway to understanding the overall strategy and business model
what is differentiation
What Is Differentiation?
  • Differentiation is achieving the ability to deliver a product or service that customers perceive to be unique or distinct in some important way
  • Differentiation doesn’t need to be tangible - Examples:
    • Nordstrom’s – known for customer service above all else, even on similar merchandise to rivals
    • Mercedes, BMW – Perceived status of owning a Bimmer or a Benz vs. an equivalent car
  • Brand image plays a huge role in determining perceived value
  • Can be based on cost as well
differentiation cont

Differentiators:

Nordstrom’s

Rolex

Porsche

Prada

Broad differentiators:

Intel

Samsung

Sony

Ford

Toyota

GE

Differentiation (Higher costs, higher prices)

Cost leaders:

Wal-Mart

Generic drug man’f

Southwest Airlines

Costco

Cost leadership (Low costs, low prices)

Differentiation, cont.
differentiation summary
Differentiation Summary:
  • Firms make choices on which factors to promote or ignore (we’ll explore this more in Lecture 3)
  • When you achieve differentiation, either hard (features you have the competition doesn’t) or soft (brand perception), you can charge a higher price
    • Key is delivering perceived value to customers
  • Intangibles can be harder to imitate:
    • Me-too products can be reverse engineered
    • Intangibles often reflect execution, which is harder to match
      • BUT, intangibles often are a function of consumer trust. If that’s ever lost, may be difficult to get back (GM?)
swot summary
SWOT Summary
  • Is a good technique to get the strategy discussion going – puts a lot of high-level information in context
  • Use it to assess situations and think more deeply about tactical moves
  • If the SWOT picture looks really misaligned with the market/your firm, can tell you that your overall strategy should be reassessed
  • Is only as good as the thinking that went into it
porter s five forces model
Porter’s Five Forces Model
  • Five Forces Model: A framework for shaping competitive strategy
  • Like SWOT, gives a repeatable set of criteria to judge a situation by
five forces summary
Five Forces Summary
  • Is a good generic framework; is as detailed as you make it
  • Curious treatment of the government – should there be a 6th force?
  • Complementary products can make or break an offering –
    • iPod example
    • Cars are pretty useless without roads or gas stations
    • Airlines irrelevant without airports
  • Does not tell you how to exploit a market, just helps ID the forces driving it
    • There are other strategies for that
  • Industry structure changes: Another item to watch for
    • Example: Newspapers. News is available 24/7 on the web. Is print dead?
    • Does it make sense for big city newspapers to have foreign bureaus?
  • Like other tools, is applicable up and down the chain
how these tools relate to you
How These Tools Relate To You
  • Using SWOT and Five Forces in tandem allows you to:
    • Identify the strategic environment
    • Make an assessment of your strength relative to other players
    • If you’re thorough in gathering information and disciplined in its presentation, the right answer can leap off the page
  • Apply these tools to:
    • Your company
    • Your business unit
    • Your organization
    • Your team
    • You
  • Strategy is a mindset!
the idea
The Idea

Career Highlights

  • “Hit ‘em where they ain’t”
  • The business variant of this is Blue Ocean Strategy

Baseball’s #2 dead-ball era hitter

  • Some strategies are universal:
    • Baseball or armored warfare

3rd Army rampaged across Europe

four actions strategy in general

Reduce:

What current items aren’t generating value in proportion to the effort?

New Value Creation

Eliminate:

Which current items are considered frivolous or unnecessary?

Create:

New features? New combinations? New segments?

Raise:

Which items are substandard?

Four Actions Strategy: In General

Divert Resources

Divert Resources

steps in bos strategy canvas
Steps in BOS: Strategy Canvas
  • First: Analyze your industry
  • Chart common factors that outline areas of value:
    • For example, Wine
      • Common to all competitors will be taste, cost, image, selection of types, etc.
    • Gyms:
      • Common to all will be price, class offerings, instructors, workout equipment, features, location, etc.
  • Plot each of these values on a graph showing “high” offering levels and “low” offering levels
    • Note that “high” in one category can be good while “low” in another is also desired, e.g. cost
the strategy canvas
Construct a graph – product attributes on x, “offering level” on y

Goodness /= high. High price, for example, is bad

Badness /= low. Low price, for example, is good.

Chart the target firm and its competition in these terms. Where do they line up? Where are there gaps?

The Strategy Canvas

Level of Offering: Low to High

Product or Industry Attribute

steps in bos cont
Steps in BOS, cont.
  • Next: Change the rules
  • “6 Paths” Framework:
    • Look across alternative industries
      • Check for products/services that have similar functions but different purpose
      • Example: NetJets and fractional plane ownership, Worldmark and flexible time shares
    • Look across strategic groups within industries
      • Why do people trade up or down between products?
      • What makes someone choose one thing over another?
      • Figure out a way to have cake and eat it, too
      • Example: Lexus: Mercedes, BMW quality at Cadillac prices
    • Look across the chain of buyers
      • Buyers may not be the end users
        • Example – pharma. Doctors buy, but patients use. Big Pharma now markets directly to patients
        • Intel Inside is the most famous example of this
      • What is the buying chain in your industry? If you shift this group, can you unlock more demand?
steps in bos cont26
Steps in BOS, cont.
  • Look across complementary offerings
    • Are there complimentary products that make it easier to sell yours?
    • What’s the total solution that buyers are looking for?
      • What are people ‘hiring’ your product to do?
      • Example: Bookstores have added lounges, coffee shops, couches
  • Differentiate between functional and emotional appeal – switch your product
    • If you compete on emotional appeal, how can you make it appeal to functionality?
    • If you compete on functionality, how can you make it appeal to emotion?
      • Example: Swatch watches. People bought them for the fashion statement, not to tell time (Transformed a functional product into an emotional one)
      • Example: Starbucks: Changed getting a cup of coffee into a social experience
steps in bos cont27
Steps in BOS, cont.

6. Look across time

  • What trends are developing that affect your products?
  • Can you affect these trends?
  • Example: Apple’s iTunes (capitalized on electronic file sharing), CNN’s 24/7 news (capitalized on growing need for 24/7 information and spread of cable TV), Kraft Mac & Cheese (families eating healthier)
summary of bos
Summary of BOS
  • Provides a framework, out of which you can visualize your market position
    • Attack the market with the strategy that presents itself
  • “Value Innovation”
    • Sometimes, by looking at the data objectively, you can innovate and deliver unique value in a crowded marketspace
  • Remember to try and break the rules by looking for opportunities:
    • Are you even thinking of yourself in the right way? Look across industries
    • Look across strategic groups within industries. Look for underserved groups.
    • Look across buyers. Where are the eyeballs? Where are the real users?
    • Look at trends and exploit them
    • Look at complementary products. Is there a side product you can offer that enhances your main offering?
    • Try and differentiate between emotional and functional appear
  • Your competition gets a vote
    • Anything you do, most of the time, they can do it, too
      • JetBlue vs. SWA. Honda et al. vs. Toyota
summary of bos cont
Summary of BOS, cont.
  • Also applies to you as a leader
    • What skills can you give yourself to create your own personal blue ocean at work?
    • How can you “value innovate” your career?
    • Same frameworks and toolsets apply
  • In any case: Hit ‘em where they ain’t
    • The best ways to win fights are:
      • Attack with your strengths against their weaknesses
      • Attack where they aren’t
      • Continually improve and differentiate: always add new wrinkles
limitations of bos
Limitations of BOS
  • BOS doesn’t guarantee a timeframe
    • Here today, gone tomorrow
  • You have to watch out for fads
    • Example: Swatch. Are they getting the press they used to in the 80’s? Sketchers?
  • Strategy frameworks are good, but garbage in/garbage out applies
    • Measure the right things or you’ll misread your market
  • You can have great strategy, but if your execution is off…
    • Be mindful of introducing radical change in your organization, unless you can manage it
what is marketing
What Is Marketing?
  • Marketing is a design process:
    • Subject to assumptions, boundary conditions, safety factors, costs and specifications
  • Just like every other design problem, the above factors must be balanced and aligned with the overall program goals
  • Good marketing mixes math, customer focus, and human psychology in equal parts
what is being designed
What Is Being Designed?
  • What is being designed?
    • A message, with the aim of imparting positive imagery in a target buyer’s consciousness
  • Why design a message?
    • Because, as we’ve seen:
      • The best technical design doesn’t always win
      • Customers make buying decisions based on perceived value
  • What does the design target?
    • The sensory and retention systems of one of the most complex machines on the planet, the human brain

Ideally: Product and message are co-designed so as to optimize *both*

marketing more than advertising
Marketing = More Than Advertising
  • One perception is that marketing is just the process of designing ads
  • NO! Marketing:
    • …helps identify the needs/wants of customers
    • …used properly, influences the design process of the product
    • …creates additional value by establishing the vital perceived value of products
    • …determines the value a customer assigns to a product, and thus sets the price
    • …and many more
  • In short, marketing is a core component of your overall strategic plan. It’s the voice you use to communicate with the outside world (i.e., your customers)
end purpose of marketing
End Purpose of Marketing?
  • Just to repeat:
    • “Create, communicate and deliver unique value to customers so that the organization can capture a portion back in the exchange” – D.J. Turner, UW Assoc. Dean
  • Also:
    • “Customers have money. Organizations want it. And marketing—at its essence—is the approach to getting it.” – D.J. Turner
  • And:
    • Marketing is “Achieving organizational goals by discovering and influencing the needs and wants of consumers and delivering the desired benefits more effectively than competitors.” – E. Stearns, UW Foster Business School.
how does this relate to you
How Does This Relate To You?
  • Your companies have to sell the technology you develop
    • If you’re not working on things you’re company can’t/won’t make money on…
  • As current or future program/project leaders, your job is simple:
    • Marshal resources and secure funding & support for your programs and ideas
  • One of your primary roles is the program’s evangelist
    • If your programs are misaligned with your company’s strategy –or– you can’t communicate their intent to management, you will fail
the 5 c s of marketing
The 5 C’s of Marketing

Context

Customers

Competitors

Company & Collaborators

zooming in
Zooming In…

Customers

Get paid here

Money Lost Here

Competition intense here

Company & Collaborators

Competitors

ideally
Align your offering with exactly what your customers want – maximizing the exchange for you

Create a local monopoly (by offering much more than anyone else)

Your offering delivers real and perceived value

Essence of Blue Ocean Strategy = differentiation

Ideally…

Context

Customers, Company & Collaborators

Competitors

the 5 c s summarized
The 5 C’s: Summarized
  • The 5 C’s represent your collective intelligence on:
    • What you’re building
    • Why you’re selling it
    • Who you’re selling it to
    • What environment you’re selling it into
    • Where you’d sell your product
  • And also provides insight into:
    • Engineering decisions you’ll make
    • How you’ll approach the market with your offering
the 4 p s
The 4 P’s
  • The 4P’s are:
    • Product
    • Price
    • Place
    • Promotion
  • The 4P’s represent the ‘Marketing Mix’
  • Or, in other words, once you’ve identified context, customer, company & collaborators, and competitors, how do you actually take the product to market?
  • What is your market implementation strategy?
summary cont
Summary, cont.
  • Why should you care about Marketing?
    • Marketing, used properly, becomes another set of inputs and boundary conditions for your product design team
    • Products that aren’t designed correctly, placed to draw the most eyeballs, priced out of reach of potential customers (or too low), and inadequately promoted either fail or leave $$$ on the table
  • The right marketing strategy promotes and enforces your company’s overall strategy
  • Use strategic marketing to feed data into the your strategic toolsets (i.e. BOS, SWOT, etc.) to help create localized monopolies, i.e. Blue Oceans
summary cont43
Summary, cont.
  • Why should you care about Marketing?
    • You’re in charge of a product or a technology. You have two responsibilities:
      • First, management needs to understand it and give your resources to execute it (short term)
      • Secondly, somebody needs to consume your product/technology and you need to understand how to incorporate anything that will affect your design earlier rather than later (long term)
  • The principles of marketing are the same no matter whom it is you’re facing. Only the audience and the relative parameters (context, collaborators, etc.) change.
  • If you understand how your company markets its existing products, you can gauge how well received your technology will be
simple the pomelo cont
Simple: The Pomelo, cont.
  • Now consider this description:
    • “A pomelo is basically a supersized grapefruit with a very thick and soft rind.”
  • Notice the brevity!
  • This message takes advantage of an existing association
  • The mental imagery was already there; this description merely linked to it
  • Concept is similar to “A picture is worth a thousand words” (that you don’t have to say)
  • Corollary here: “An existing mental association is a thousand descriptions you don’t have to make”

Bottom line on Simple: Pack as much information as possible into as little space as possible!

unexpected summarized
Unexpected, summarized
  • The gap theory hinges on being able to teach people what they don’t know
    • You’ve caught they’re attention. Now create a new mental association (schema) for recall later
  • One way to look at it is moving from “What info do I need to convey?” to “What questions do I want my audience to ask?”
    • Once you’ve reached this point, your audience is much more engaged
  • Set the context and give enough details to almost fill a knowledge gap – then let curiosity take over: The idea of the Unexpected Idea
    • Roone Arledge at ABC Sports

Unexpected: Deliver a calculated surprise to hold the viewers attention, then insert a new schema with the association you want

concrete summarized
Concrete, Summarized
  • People remember concepts that are firmly defined:
    • Firm, fixed numbers and concepts
    • Or nouns that conjure mental images
  • Concrete helps focus the brain into relevant subsets of the world – more resources are activated
  • Remember the Curse of Knowledge – it’s easy to forget that people don’t know what we know

Concrete ideas create a “shared ‘turf’ on which people can collaborate”

credibility summarized
Credibility, Summarized
  • Summary:
    • Credibility can be created through a number of pathways: Statistics, personal experience (antiauthorities), authority figures, testimonials of trusted people
    • The key idea is to pass the believability test. Is the authority trustworthy?
    • Vivid details can really help
    • Draw on multiple sources for credibility

Credibility comes from tangibility, and relating this to your target. Think of credibility as “try before you buy”

emotion summary
Emotion - Summary
  • Emotional appeals won’t work when people are thinking analytically –
    • Studies show that when people are confronted with statistics and numbers, their thinking is driven by analytics rather than emotions
  • Make your target care:
    • If they don’t care, they won’t act
  • Appeal to self-interest, but also to identities
  • Create empathy for individuals and/or associations that people already care about/have a connection to

Emotional appeals need to make people care – appeal to more than Maslow’s Basement (Because everyone else always goes there first)

stories summarized
Stories, summarized
  • Stories are mental simulation – the target brain will activate more sections that they story itself would suggest
  • Use this simulation time to evoke emotion – give the story plenty of velcro in the form of vivid details
  • Stories tend to contain a lot of SUCCES all on their own, and given enough detail, can really touch on unexpected and concrete
  • Make sure the story you’re telling is reflective of your agenda – in other words, get to the point!

Stories are like mental flight simulators. Your audience gets to fly along with you.

made to stick summarized
Made To Stick, Summarized
  • Remember SUCCES
    • Simple, Unexpected, Concrete, Credible, Emotional, Stories
  • In engineering, can we always tell an emotional story?
    • No, but we can ‘talk shop’ and create new schemas that didn’t exist before – like Ingersoll Rand
overall what sticks
Overall, What Sticks?
  • Remember that the audience gets a vote:
    • Sometimes the core of your idea may change due to how the target interprets the data
    • Be mindful of “idea pride”
      • People marry their ideas…and never want to change them
    • After the message morphs, is the core of the idea still there?
  • Spotting great stories is just as good as writing them yourself
    • The world tends to produce a lot of great stuff on its own
  • There’s no correlation between being a tremendous public speaker and Making It Stick
    • Stress 1 point rather than ten. Tell a story. Tap into emotion. But keep it simple, concrete and credible.
what sticks cont
What Sticks, cont.
  • Getting action from your target requires that they:
    • Pay attention: UNEXPECTED
    • Understand and remember it: SIMPLE/CONCRETE
    • Agree/believe it: CREDIBILITY
    • Care: EMOTIONAL
    • Be able to act on it: SIMPLE/STORY
balance sheet math
Balance Sheet Math

A – L = SE

  • In short, whatever is left over after paying the bills belongs to the firm’s owners (shareholders)
  • Always adds up
ratio analysis
Ratio Analysis
  • Much like in engineering, you can perform some calculate some basic ratios to understand performance:
    • Return on equity
    • Profit margins
    • Return on assets
    • Return on invested capital (recall from Lecture 1)
    • Debt to equity
    • Current Ratio
    • …and many others
accounting things to keep in mind
Accounting Things To Keep In Mind…
  • Good profitability comes from both top line growth (more people buying your stuff) and bottom line discipline (keeping costs under control)
  • Oftentimes, new and highly profitable companies go through a “more money than brains” phase:
    • We’ve got lots ‘o dough, let’s spend it!
    • Problem: One day the thrill ride is over and you have to cut things that folks might take for granted
  • Sometimes cutting seemingly innocuous things can have a big negative effect:
    • You used to give your employees free soda, and as a result they stayed at work through their sugar highs).
    • When you took it away, people stopped staying late being fueled by Coke and Pepsi.
  • Be wary of short-term fixes. One of the pratfalls of accounting is that you can sometimes game the system to make the numbers look good (big subject of revenue recognition, loss recognition, and repricing of assets)
tensions to manage

Better

Faster

Cheaper

Growth

Profit

Control

Tensions To Manage
  • As engineers, there is a natural tension in design and analysis:
    • I can’t have everything, so what must I trade?
  • Similarly for decision-making: What do we have to compromise on?
end result of managerial accounting and takeaways
End Result of Managerial Accounting, and Takeaways
  • Managerial Accounting (we only scratched the surface) is a study in decision making and incentive creation
    • The right decision making metrics can help you make the right decisions –
      • Discontinue another product?
      • Change allocations?
      • Bundle it with something else?
  • When budgeting your project, measure the right things
    • Sometimes costs can mysteriously appear on your programs, making them look worse
  • People respond to incentives: If you create an incentive that rewards a particular behavior, that’s what you’ll get
future value cont
Future Value, cont.
  • CFj = Cash flow value at some jth compounding period
  • j = The jth compounding period
  • F0 = The initial investment
  • i = The interest rate (Also called the discount rate)
  • Note that this is the value of some single investment at some future date
  • The factor (1+i)j is called the “Future Value interest factor”
    • Sometimes tabulated
    • Handy to use in spreadsheets when doing discounted cash flow analysis
present future value problem summary
Present/Future Value Problem Summary:
  • PV/FV techniques are useful for a variety of different calculations –
    • Investment decisions
    • Retirement savings
    • Bond buying
    • …and much more
  • They’re also useful for evaluating projects. The only thing we do differently is change the discount rate and the cash flows
discounted cash flows
Discounted Cash Flows
  • Discounted cash flow analysis is the extension of PV calculations:
    • Just let the CF’s change year on year
    • Is used in project valuations
  • Why would CF’s change?
    • Market growth/shrinkage
    • Average selling price (ASP) changes
    • Changes in COGS, SG&A, taxes, etc.
    • Changes in other realities:
      • Stopping an underperforming project
      • Headcount cut or add
      • Other managerial accounting realities
      • Doubling down on a successful project
  • Use a spreadsheet to track it all (subject of next lecture)
    • Multiple things compounding at once
visualizing npv

CF1

CF2

CF3

CF4

CF5

CFn

Period 0 (Today)

Period 1

Period 2

Period 3

Period 4

Period 5

Period n

Initial Investment

Visualizing NPV
  • New wrinkle added: We had to spend money to make money
  • Money we spent is in today’s dollars. Money we will earn is in tomorrow’s dollars. Need to discount the future cash flows back to today to see if this is a good use of our $$$$.

NPV = PV(Cash flows) – Initial Investment

wacc formulation
WACC Formulation
  • Multiply KE by the amount of equity
  • Multiply KD by the amount of debt
  • Divide by the total to get WACC
  • WACC is your firm’s rate of return for its activities
  • This is the rate of return to use in NPV calculations and project decision-making

KE = Cost of equity

iG = Avg. return of govt. bonds (~5.3%)

SE = Risk premium of stocks (~6.4%)

 = Stock Beta (firm performance multiplier)

fcf definition
FCF Definition
  • Why is depreciation added back in?
    • We used it to take a tax deduction – we artificially took it out of our net income
      • Remember, it’s not a real cash expense
  • Capital expenditures?
    • This is part of the definition of FCF – the firm needs to make investments in itself (i.e. replace old equipment or buy new things) to grow
  • Working capital?
terminal value constant growth
Terminal Value: Constant Growth
  • This is a constant growth model
  • Model obviously breaks if g (growth rate > WACC)
    • If g>WACC, then you should still be forecasting year by year or rethinking your WACC
    • Terminal values are supposed to be calculated when the business has matured, i.e. beyond any explosive growth phase
finance summary
Finance Summary:
  • Valuing a business is a present value problem:
    • Your company will have a preferred WACC that it uses to value opportunities
    • There may also be an IRR target to hit
  • Finance sheets become assets when complete –
    • Lots of data to mine, lots of scenarios to envision
  • Typically, present to your management a “Low, Typical, High” suite of options
    • Each option is based on different variables –
      • Low = Worst case scenario (lowest price charge, highest costs, etc.)
      • Typical = Average for everything
      • High = Best case scenario
disruptive innovation
Disruptive Innovation
  • “There’s plenty of room at the bottom”
  • It’s tough to displace an entrenched player in their home space
    • Throwing your strength against theirs = hard
  • One strategy is diffusion
    • Enable the product to be used by more consumers, expanding the universe of potential users
      • Essence of Blue Ocean Strategy
examples of disruptive innovation
Charles Schwab disrupted traditional brokerage firms

TD Ameritrade/E*Trade disrupted Charles Schwab

Fidelity disrupted traditional stock brokers with Mutual Funds

ETFs are disrupting Fidelity

Southwest/JetBlue disrupted hub-based airline

Honda/Toyota disrupted GM/Ford

Kia/Hyundai are disrupting Honda/Toyota

The desktop PC disrupted mainframes

Laptops disrupted desktop PCs

Netbooks are disrupting Laptops

Examples of Disruptive Innovation
disruptive innovation and project selection
Disruptive Innovation and Project Selection
  • Many of those products had something in common:
    • “That will never work”
  • BOS boils down to the following:
    • Only fight when you can win
    • Hit ‘em where they ain’t
  • The other tools help ID things “That will never work”
the most important notion about strategy
The Most Important Notion About Strategy
  • There is one constant about strategy, in all forms:
    • It always changes.
    • The lesson of MSFT/Yahoo! is – “Make lemons out of lemonade”
  • Remember that “Men plan. God laughs.”*
    • Any strategy that you set in motion *must* be flexible (insert cliché here)
    • If you can’t change it on the fly, it’s not a good strategy
end goal
End Goal:
  • End goal:
    • Understanding your business, how you reach customers, your firm’s business condition and the potential impact your of your work allow you to pick smart projects and sell them to management
important notion cont
Important Notion, cont.
  • You will work with (and for) others who will not share your appreciation for thinking ahead
    • Treat them as another variable
    • Sometimes, you need to work around them
    • Factor them into what you want to do
    • Tools for this are found in the next class, “Technical Leadership”
segue to next quarter
Segue To Next Quarter
  • The tools learned here are universal, applying to:
    • Your career
    • The team you’re in
    • The division you report to
    • The company you work for
    • The market you compete in

Life is about strategy!