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MGMT 490 Strategic Management. Prof. Stephen Standifird Welcome!!!. Basic Content My contact info. Course objectives Text: Hitt et. al. (6th Edition). Grading Groups (50%) 2 subject pres./memos 1 final pres./memo Individual (50%) 2 exams (no final) Group Participation.

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mgmt 490 strategic management
MGMT 490Strategic Management

Prof. Stephen Standifird

Welcome!!!

syllabus highlights
Basic Content

My contact info.

Course objectives

Text: Hitt et. al. (6th Edition)

Grading

Groups (50%)

2 subject pres./memos

1 final pres./memo

Individual (50%)

2 exams (no final)

Group Participation

Syllabus Highlights
course philosophy
Course Philosophy
  • Application, application, application
  • Strategy - an active topic
  • Participation is a MUST!
  • News you can use
  • Informal but Serious
  • Informative and Enjoyable
  • Questions? Always Encouraged
how to get an a
How to Get an A

Individual:

  • Read the Book
  • Attend the Class
  • Pay Attention!!!
  • Participate

Group:

  • Plan Ahead (way ahead!!)
  • Data, Data, Data
  • Be Professional
  • Have Fun
in sba to learn more about
In SBA to learn more about:

A. Architectural Design?

B. 18th Century European Art?

C. Biochemical Engineering?

Business!!!

what is strategy7
What is Strategy?

The study of how a company can make more money!!!

slide8

What is Strategy?

  • Strategic Competitiveness:
    • Achieved when a firm successfully formulates and implements a value-creating strategy.
  • Above-average Returns:
    • In excess of what investors expect to earn from other investments with a similar amount of risk.
  • Strategic Management Process:
    • The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and above-average returns.
what is strategy9
What is Strategy?
  • The commitments, decisions, and actions that allow the firm to make more money!

How is this done?

  • Two competing models

1. Industrial Organizational Model

2. Resource-Based Model

model one industrial organization porter s five forces

Model One:Industrial Organization (Porter’s Five Forces)

The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.

model two resource based core competency
Model Two:Resource Based (Core Competency)

The resources and capabilities of the firm should drive strategy. Build your strategy around existing resources.

model three life in the real world the focus of this class

Model Three:Life in the Real World!(the focus of this class)

The external environment and the resources and capabilities of the firm drive strategy. Firms should seek to maximize profitability by locating and competing in an industry where the firm can most effectively leverage existing and potential resources.

slide13

Internal Environment

Begin Here (the SW of SWOT)

Strenghts

Weakness

Opportunities

Threats

External Environment

Begin Here (the OT of SWOT)

complicating factors
Complicating Factors
  • Globalization
    • Tough to find a truly domestic product/market
    • Must be an international strategist
  • Technological Changes
    • Buy-it-here.com
    • Not just for high tech firms any more
  • Multiple Stakeholders
    • Capital Markets, Product Markets, Organizational
    • Government, Competitors, etc. (you get the point)
model one industrial organization porter s five forces15

Model One:Industrial Organization (Porter’s Five Forces)

The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.

the external environment
The External Environment

The General Environment

1. The General Environment

  • Environmental Analysis
  • Segments of the Environment

2. The Industrial Environment

  • Industry Analysis (five forces)
  • Strategic Groups/Competitor Analysis
the external environment model of superior returns
The External EnvironmentModel of Superior Returns

1. Study the external environment.

2. Locate an industry with high potential for above-average returns.

3. Identify strategy called for by the industry to earn above-average returns.

the external environment model of superior returns18
The External EnvironmentModel of Superior Returns

4. Develop or acquire assets and skills needed to implement the strategy.

5. Use the firm’s strengths (its assets or skills) to implement the strategy.

6. Maintain selected strategy in order to outperform industry rivals.

the external environment model of superior returns19
The External EnvironmentModel of Superior Returns

1. Study the external environment.

2. Locate an industry with high potential for above-average returns.

3. Identify strategy called for by the industry to earn above-average returns.

the external environment part i the general environment
Demographic Segment

Population, Age, Income, Ethnicity

Economic Segment

Inflation, Exchange rates, Savings rates, Interest

Political/legal Segment

Antitrust, (De)regulation, Taxation, Labor laws

Sociocultural Segment

Diversity, Social concerns, quality of life

Technological Segment

Product and process changes, Communications

Global Segment

Political events, global and regional crisis, Exchange rates

The External Environment Part I: The General Environment
the general environment important issues to remember
The General Environment:Important Issues to Remember
  • The same environmental trend will effect different industries differently (or not at all)
    • Internet: Auto Repair versus Book Store
  • The impact of a particular trend will effect different companies in an industry differently
    • Busier Schedules: Indigo Grill vs McDonald’s

So. . . Scan for general trends and identify

specific factors that influence your company

the external environment part i the general environment22
Demographic Segment

Population, Age, Income, Ethnicity

Economic Segment

Inflation, Exchange rates, Savings rates, Interest

Political/legal Segment

Antitrust, (De)regulation, Taxation, Labor laws

Sociocultural Segment

Diversity, Social concerns, quality of life

Technological Segment

Product and process changes, Communications

Global Segment

Political events, global and regional crisis, Exchange rates

The External Environment Part I: The General Environment
the external environment part i the general environment23
The External Environment Part I: The General Environment
  • Scanning
    • A general look around
  • Monitoring
    • Keeping track of what looks potentially important
  • Forecasting
    • Trying to predict where things will be going
  • Assessing
    • Trying to understand how the changes effect you
the general environment albertson s grocery stores
Scanning - Tech Sector

The internet !!!

Monitoring

Rapidly changing

Forecasting

Will continue rapid change

Assessing

Short term? Not an issue

Long term impact unclear

Continue to monitor

Scanning - Demo Sector

Dual income families

Monitoring

Slow but steady change

Forecasting

Most couples working

Assessing

Short term? Eating out more, not buying groceries

Must respond now

“Quick Fix” meals

The General Environment:Albertson’s Grocery Stores
group formation
Group Formation
  • You Pick’um, I referee
  • Five Persons Per Group (must be this way)
  • Once you have a group, let me know
  • If you need a person (or 2 or 3), let me know
  • Exchange information (e-mail, phone #, etc)
  • Identify potential companies
  • Give me back the group list and company name
the external environment part i the general environment26
Demographic Segment

Population, Age, Income, Ethnicity

Economic Segment

Inflation, Exchange rates, Savings rates, Interest

Political/legal Segment

Antitrust, (De)regulation, Taxation, Labor laws

Sociocultural Segment

Diversity, Social concerns, quality of life

Technological Segment

Product and process changes, Communications

Global Segment

Political events, global and regional crisis, Exchange rates

The External Environment Part I: The General Environment
the external environment part i the general environment27
The External Environment Part I: The General Environment
  • Scanning
    • A general look around
  • Monitoring
    • Keeping track of what looks potentially important
  • Forecasting
    • Trying to predict where things will be going
  • Assessing
    • Trying to understand how the changes effect you
the external environment part i the general environment28
Demographic Segment

Population, Age, Income, Ethnicity

Economic Segment

Inflation, Exchange rates, Savings rates, Interest

Political/legal Segment

Antitrust, (De)regulation, Taxation, Labor laws

Sociocultural Segment

Diversity, Social concerns, quality of life

Technological Segment

Product and process changes, Communications

Global Segment

Political events, global and regional crisis, Exchange rates

The External Environment Part I: The General Environment
the external environment part i the general environment29
The External Environment Part I: The General Environment
  • Scanning
    • A general look around
  • Monitoring
    • Keeping track of what looks potentially important
  • Forecasting
    • Trying to predict where things will be going
  • Assessing
    • Trying to understand how the changes effect you
exercise general environment and wal mart
Exercise: General Environment and Wal-Mart
  • Break in groups of 3 or 4 persons
  • Try to identify at least one general trend for each segment of the environment
  • Determine how this trend impacts Wal-Mart a.k.a. the worlds largest retailer (positive, negative or neutral)
  • How would you respond - time permitting
the general environment and wal mart
Demographic Segment

Population, Age, Income, Ethnicity

Economic Segment

Inflation, Exchange rates, Savings rates, Interest

Political/legal Segment

Antitrust, (De)regulation, Taxation, Labor laws

Sociocultural Segment

Diversity, Social concerns, quality of life

Technological Segment

Product and process changes, Communications

Global Segment

Political events, global and regional crisis, Exchange rates

The General Environment and Wal-Mart
the external environment model of superior returns32
The External EnvironmentModel of Superior Returns

1. Study the external environment.

2. Locate an industry with high potential for above-average returns.

3. Identify strategy called for by the industry to earn above-average returns.

external environment part ii industry analysis
External Environment: Part IIIndustry Analysis

External Environment Model of Superior Returns

  • Locate an industry with high potential for above-average returns.

An Industry is a group of firms producing

products that are basically the same.

slide34

Porter’s Five Forces Model of Competition

Threat of New Entrants

Rivalry Among Competing Firms in Industry

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

slide35

Threat of New Entrants

Economies of Scale

*

Product Differentiation

*

Barriers to Entry

Capital Requirements

*

Switching Costs

*

Access to Distribution Channels

*

Cost Disadvantages Independent of Scale

*

Government Policy

*

slide36

Threat of Substitute Products

Keys to evaluate substitute products:

Products with improving price/performance tradeoffs relative to present industry products

*

Products with similar function limit the prices firms can charge

For Example:

Fax machines in place of overnight mail delivery

E-mail in place of fax machines

slide37

Suppliers are likely to be powerful if:

Supplier industry is dominated by a few firms

*

Suppliers exert power in the industry by:

Suppliers’ products have few substitutes

*

* Threatening to raise

Suppliers’ products have high switching costs

*

prices or to reduce quality

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Supplier poses credible threat of forward integration

*

*

Suppliers’ products are differentiated

Bargaining Power of Suppliers

slide38

Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases are large relative to industry sales

*

Buyers compete with the supplying industry by:

Buyer presents a credible threat of backward integration

*

Products are undifferentiated

*

* Bargaining down prices

Buyers face few switching costs

*

* Forcing higher quality

Buyers’ industry earns low profits

*

* Playing firms off of

each other

Buyer has full information

*

Bargaining Power of Buyers

slide39

Intensity of Rivalry Among Existing Competitors

Cutthroatcompetition is more likely to occur when:

Numerous or equally balanced competitors

*

Slow growth industry

*

High fixed costs

*

High storage costs

*

Lack of differentiation or switching costs

*

Diverse competitors

*

High strategic stakes

*

High exit barriers

*

slide40

Porter’s Five Forces Model of Competition

Threat of New Entrants

Rivalry Among Competing Firms in Industry

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

five forces and the oil industry
Threat New Entry

Billions of $ to enter

No new since mid 1970s

VERY LOW

Supplier Power

Landowners, countries smaller than companies

LOW

Buyer Power

You and I as individuals

Very LOW

Substitutes

Methanol? Not driving?

VERY LOW

Rivalry

Joint drilling operations

Mergers and acquisitions

“Regional focus”

VERY LOW

Profits???

Huge, enormous, monstrously large!!!

Five Forces and the Oil Industry
five forces and restaurants
Threat New Entry

Small capital ($50,000)

Can be run by a family

VERY HIGH

Supplier Power

Real Estate controls all

VERY HIGH

Buyer Power

Do you always go to the exact same restaurant?

VERY HIGH

Substitutes

How often does the average family eat out?

VERY HIGH

Rivalry

Why work together?

Fierce competition

VERY HIGH

Profits???

Ouch! Not so good,

Many don’t survive

Five Forces and Restaurants
pres memo one expectations
Pres./Memo One - Expectations
  • Provide a Brief company overview (none is fine)
  • Highlight results of the general environment analysis
    • Scanning, monitoring, forecasting, assessing
  • Conduct a detailed Five Force analysis
    • Provide a rough determination of the impact of each force force (support your position)
    • Summarize the overall model results
    • Explain where your company fits in the industry
  • Briefly mention the type of generic business-level strategy pursued by the company
  • The memo should replicate the presentation
the project questions your conclusion should address these questions

THE Project Questions(Your conclusion should address these questions)

What did we learn form the analysis that can be useful to someone within the company?

Application, application and more application

project expectations
Project Expectations
  • Keys to Success
    • Report the RESULTS of your analysis, not the process of analysis. However,
    • Be thoughtful (what’s really going on)
    • Make sure you SUPPORT YOUR ARGUMENT!!!

Data, data and more data - support your position!

(not a suggestion, a requirement)

the external environment model of superior returns46
The External EnvironmentModel of Superior Returns

1. Study the external environment.

2. Locate an industry with high potential for above-average returns.

3. Identify strategy called for by the industry to earn above-average returns.

slide47

Porter’s Five Forces Model of Competition

Threat of New Entrants

Rivalry Among Competing Firms in Industry

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

the external environment model of superior returns48
The External EnvironmentModel of Superior Returns

1. Study the external environment.

2. Locate an industry with high potential for above-average returns.

3. Identify strategy called for by the industry to earn above-average returns.

business level strategy
Business-Level Strategy
  • A Strategy is an integrated and coordinated set of commitments and actions designed to gain a competitive advantage.
  • A Business-level strategy is a (strategy) targeted to specific, individual product markets.
slide50

Generic Business Level Strategies

Source of Competitive Advantage

Cost

Uniqueness

Cost

Leadership

Differen-

tiation

Broad

Target

Market

Breadth of Competitive Scope

Focused Differen-

tiation

Focused Low Cost

Narrow

Target

Market

slide51

Cost LeadershipBusiness Level Strategy

Requirements

Relatively standardized products

Constant effort to reduce costs through:

Features acceptable to many customers

Lowest competitive price

Building efficient scale facilities

*

Monitoring costs of activities provided by outsiders

Tight control of production costs and overhead

*

*

Minimizing costs of sales, R&D and service

*

*

Simplification of processes

“State of the Art” manufacturing facilities

*

cost leadership competitive risks

Focus on VOLUME

Cost LeadershipCompetitive Risks
  • Loss of cost advantage due to technology
  • Loss of cost advantage due to imitation
  • Customer interest in a differentiated product
slide53

Differentiation Business Level Strategy

Requirements

Value provided by unique features and value characteristics

Constant effort to differ-entiate products through:

Developing new systems and processes

*

Command premium price

High customer service

*

Shaping perceptions through advertising

Superior quality

*

Quality focus

Prestige or exclusivity

Capability in R&D

*

Maximize Human Resource contributions through low turnover and high motivation

*

Rapid innovation

differentiation competitive risks
DifferentiationCompetitive Risks

Focus on MARGINS

  • Price does not justify the features
  • Unique features no longer valued
  • Loss of differentiation due to imitation
slide55

FocusedBusiness Level Strategies

FocusedBusiness Level Strategies involve the same basic approach as Broad Market Strategies

However.....

Opportunities may exist because:

Large firms may overlook small niches

*

*

Firm may lack resources to compete industrywide

*

May be able to serve a narrow market segment more effectively than industrywide competitors

focused competitive risks
FocusedCompetitive Risks
  • Firm may be “outfocused” by competitors
  • Large competitor may set its sights on your niche market
integrated low cost differentiation
What is it?

The best of both worlds. Both low-cost and differentiated.

Potential problems?

Unachievable! Can easily get stuck in the middle.

Integrated Low-Cost/Differentiation
pres memo one expectations58
Pres./Memo One - Expectations
  • Provide a Brief company overview (none is fine)
  • Highlight results of the general environment analysis
    • Scanning, monitoring, forecasting, assessing
  • Conduct a detailed Five Force analysis
    • Provide a rough determination of the impact of each force force (support your position)
    • Summarize the overall model results
    • Explain where your company fits in the industry
  • Briefly mention the type of generic business-level strategy pursued by the company
  • The memo should replicate the presentation
the project questions your conclusion should address these questions59

THE Project Questions(Your conclusion should address these questions)

What did we learn form the analysis that can be useful to someone within the company?

Application, application and more application

project expectations60
Project Expectations
  • Keys to Success
    • Report the RESULTS of your analysis, not the process of analysis. However,
    • Be thoughtful (what’s really going on)
    • Make sure you SUPPORT YOUR ARGUMENT!!!

Data, data and more data - support your position!

(not a suggestion, a requirement)

slide61

A Diversified Company has 2 levels of strategy

Business-Level Strategy (Competitive Strategy)

How to create competitive advantage in each business in which the company competes

Corporate-Level Strategy (Companywide Strategy)

How to create value for the corporation as a whole

slide62

Firms Vary by Degree of Diversification

Low Levels of Diversification

More than 95% of revenues from a single business unit

Single-business

Between 70% and 95% of revenues from a single business unit

Dominant-business

Moderate to High Levels of Diversification

Less than 70% of revenues from a single business unit

Related-Diversified

Businesses share product, techno-logical or distribution linkages

High Levels of Diversification

Unrelated-Diversified

Business units not closely related

slide63

Alternative Diversification Strategies

Related Diversification Strategies

Sharing Activities

1

Transferring Core Competencies

2

Unrelated Diversification Strategies

3

Efficient Internal Capital Market Allocation

Restructuring

4

slide64

Sharing Activities

Key Characteristics

Sharing of basic activities often lowering costs or raising differentiation

Assumptions

1

Strong sense of corporate identity

Clear corporate mission that emphasizes the importance of integrating business units

2

Incentive system that rewards more than just business unit performance

3

slide65

Transferring Core Competencies

Key Characteristic

The sharing of highly specialized skills and expertise

Assumptions

Activities involved in the businesses are similar

enough that sharing expertise is meaningful

1

Transfer of skills involves activities which are

important to competitive advantage

2

The skills transferred represent significant sources of competitive advantage for the receiving unit

3

slide66

Efficient Internal Capital Market Allocation

Key Characteristic

Acquire sound, attractive companies, transfer resources

from units that generate cash to those with high growth

potential and substantial cash needs

Major Assumption

Managers have more detailed knowledge of the acquired firm relative to outside investors (not likely)

slide67

Restructuring

Key Characteristic

Seek out undeveloped, sick or threatened organizations, make a variety of harsh changes within the firm and (often) sell unit after making one-time changes since parent no longer adds value to ongoing operations

Major Assumption

Management of the acquiring firm has insight in selecting firms with depressed values or unforeseen potential (yea right!)

slide68

Firms Vary by Degree of Diversification

Low Levels of Diversification

More than 95% of revenues from a single business unit

Single-business

Between 70% and 95% of revenues from a single business unit

Dominant-business

Moderate to High Levels of Diversification

Less than 70% of revenues from a single business unit

Related-Diversified

Businesses share product, techno-logical or distribution linkages

High Levels of Diversification

Unrelated-Diversified

Business units not closely related

slide69

Diversification and Firm Performance

Performance

Dominant

Related

Unrelated

Level of Diversification

why all the unrelated diversification
Why all the Unrelated Diversification?
  • Managerial Motives to Diversify
    • To diversify employment risk, effective as long as profitability does not suffer excessively.
    • To increase compensation. As firm size goes up, so does executives compensation.
    • It’s the trendy thing to do (more so in the 1980s)
bcg growth share matrix73
BCG Growth-Share Matrix
  • Major Assumption:
    • If you have a low market share and/or it’s a slow growth market, the long term profitability potential of an investment is low.
  • Problem with Assumption:
    • Does not allow for a sharing of activities or core competencies (skills and abilities) that makes an otherwise poor investment (for some) more attractive for your firm.
    • Assumes that if it’s a high growth market where you can have a large presence, then it’s a good investment.
ge mckinsey matrix
GE/McKinsey Matrix

Business Unit Strength

Industry Attractiveness

Fatal Assumption: No Interaction Between Business Units

corporate governance
Corporate Governance
  • Corporate Governance is a relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations
  • Concerned with identifying ways to ensure that strategic decisions are made effectively
  • Used in corporations to establish order between the firm’s owners and its top-level managers
separation of ownership and managerial control
Separation of Ownership and Managerial Control
  • The nature of modern corporations based on capital markets
  • Shareholders purchase stock, becoming Residual Claimants
  • Shareholders reduce risk by holding diversified portfolios
  • Professional managers contract to provide decision-making
  • Modern public corporation form leads to efficient specialization of tasks
    • Risk bearing by shareholders
    • Strategy development & decision-making by managers
slide77

Agency Theory

An agency relationship exists when:

Agency Relationship

Shareholders

(Principals)

Risk Bearing Specialist

(Principal)

Hire

Managerial Decision-Making Specialist

(Agent)

Firm Owners

Managers

(Agents)

which creates

Decision

Makers

agency theory
Agency Theory

The Agency Problem occurs when:

The desires or goals of the principal and agent conflict and it is difficult or expensive for the principal to verify that the agent has behaved appropriately

Managerial Opportunism occurs when:

The manager acts in her or his self-interests with guile. Problematic because it is impossible to know in advance who will be opportunistic.

Example:Overdiversification because increased diversification generally leads to greater compensation. Flat out fraud that benefits individuals at the expense of the firm (Enron)

agency theory79
Agency Theory
  • Principals may engage in monitoring behavior to assess the activities and decisions of managers
  • However, dispersed shareholding makes it difficult and inefficient to monitor management’s behavior
  • What to do?
    • Implement some type of Corporate Governance
governance mechanisms
Governance Mechanisms

Internal Governance Mechanisms

  • Ownership Concentration
  • Boards of Directors
  • Executive Compensation
  • Multidivisional Organizational Structure

External Governance Mechanisms

  • Market for Corporate Control
agency costs
Agency Costs

The sum of

Corporate Governance Costs

  • incentive, monitoring and enforcement costs

Opportunistic Behavior Costs

  • individual financial losses incurred by principles, because of misdeeds by the agent

A Balancing Act:

Auditing is NOT a free service

Dangerous if left unchecked

ownership concentration
Ownership Concentration
  • Large block shareholders have incentive to monitor management closely
  • Their large stakes make it worth their while to spend time, effort and expense to monitor
  • They may also obtain Board seats which enhances their ability to monitor effectively
  • Limitation: Tough to get large enough to be influential is a Fortune 500 firm
boards of directors
Boards of Directors
  • Review and ratify important decisions
  • Determine CEO compensation/employment
  • Limitation: Lack day to day interaction and/or may be an insider or a related insider
    • Increase diversity of board members backgrounds
    • Internal mgmt/accounting control systems
    • Establish formal processes for evaluation of the board’s performance
executive compensation
Executive Compensation
  • Salary, Bonuses, Long term incentives
  • Limitations:
    • Executive decisions are complex and non-routine, Many factors making it difficult to establish how decisions are directly responsible for outcomes
    • Stock ownership (long-term incentive) makes managers more susceptible to market changes which are partially beyond their control
    • Incentive systems do not guarantee that managers make the “right” decisions
multidivisional organizational structure e g gm
Multidivisional Organizational Structure (e.g., GM)
  • Corporate office and Board monitor managers’ strategic decisions
  • Increased managerial interest in wealth maximization at the corporate level
  • Limitation:
    • Does not necessarily limit corporate- level managers’ self-serving actions
    • May lead to greater rather than less diversification
    • Tough to link individual to senior managers
market for corporate control
Market for Corporate Control
  • When firms face the risk of takeover because they operate inefficiently (lower stock price)
  • Firms operate more efficiently as a result of the “threat” of takeover, even though the actual incidence of hostile takeovers was relatively small
  • Limitation:
    • Development of defensive measures
    • Problems with hostile takeovers (TBA)
exam one review
Exam One: Review
  • Topics Covered
    • If it was assigned reading or we talked about it in class, it’s included (does not text include examples).
  • Exam Format
    • 18 multiple choice (1 pt), 11 short answer (2 pts).
    • Should be able to finish in 55 min.
  • Focus of the Exam
    • A combination of knowing basic concepts and applying these concepts to “real” situations.
exam one review88
Chapter One (not in test)

Chapter Two

What is the general environment and how do we include it (SMFA)?

NOT the segments.

Five Forces in detail.

Chapter Four

What are the business-level strategies, the advantages & assumptions associated with each?

Chapter Six

What are the levels of diversification and associated corporate-level strategies?

When is a particular corporate-level strategy appropriate?

Chapter Ten

What is opportunistic behavior and why is it a problem?

What are the corporate governance mechanisms and the limitation of each?

Exam One: Review
that s all folks it s not that tough if you know your stuff

That’s all folks!!!(It’s not that tough - if you know your stuff)

Concerns?

Questions?

Anxieties?

Comments?

car shuttle business
Rides from USD to

Old Town Transit Center using my 2005 Honda CRV

Leaves every 30 min from campus Monday – Friday from 7:15-9:45 AM and from 3:00-6:30 PM.

No other such service in San Diego at this time

How many willing to

pay $10.00 or more for

this service???

Car Shuttle Business
model one industrial organization porter s five forces92

Model One:Industrial Organization (Porter’s Five Forces)

The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.

model two resource based core competency93
Model Two:Resource Based (Core Competency)

The resources and capabilities of the firm should drive strategy. Build your strategy around existing resources.

slide94

Resource-Based Model of Superior Returns

The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

slide95

Results In

Combined With

*

Tangible

Components of Internal Analysis

*

Intangible

Which

Leads To

Capabilities

Teams of

Resources

Core

Competencies

Resources

Sources of

Sustained

Competitive Advantage

Strategic

Competitiveness

Above-Average

Returns

slide96

Resource-Based Model of Superior Returns

The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

slide97

What a firm Has...

Resources

Resources

Tangible Resources

What a firm has to work with:

Financial

*

its assets, including its people and the value of its brand name

Physical

*

Human Resources

*

Organizational

*

Resources represent inputs into a firm’s production process...

Intangible Resources

such as capital equipment, skills of employees, brand names, finances and talented managers

Technological

*

Innovation

*

Reputation

*

slide98

Capabilities

What a firm Does...

Capabilities represent:

the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.

Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources.

The combination of specific firm capabilities with specific firm resources results in the core competency of the firm.

core competency

Core Competency

What a firm does with what a firm has...

But is it Strategically Valuable?

Question:

How do we determine if what a firm does with what

a firm has is strategically valuable?

Answer:

Does it give the firm a Sustained Competitive Advantage?

slide100

Sustain Competitive Advantage

Valuable

Competency that helps a firm to exploit opportunities to create value for customers

Rare

Competency that are possessed by few, if any, current or potential competitors

Costly to Imitate

Competency that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Nonsubstitutable

Competency that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships

slide101

Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

Costly to Imitate

Nonsub-stitutable

Competitive Consequences

Performance Implications

Valuable

Rare

Below Average

Returns

Competitive

Disadvantage

YES/NO

YES/NO

YES/NO

NO

Competitive

Parity

Average

Returns

YES/NO

YES/NO

YES

NO

Temporary

Competitive

Advantage

Temporary

Above Ave

Returns

YES

YES

NO

YES/NO

Sustainable

Competitive

Advantage

Above

Average

Returns

YES

YES

YES

YES

slide102

Results In

Combined With

*

Tangible

Components of Internal Analysis

*

Intangible

Which

Leads To

Capabilities

Teams of

Resources

Core

Competencies

Resources

Sources of

Sustained

Competitive Advantage

Strategic

Competitiveness

Above-Average

Returns

slide103

*

Tangible

Components of Internal Analysis

*

Intangible

Capabilities

Result In

CombinedWith

Teams of

Resources

Distinctive

Resources

Competencies

Which

May Be

Strategically

Sustainable

Valuable

Competitive

Advantage

Valuable, Rare,

not easily imitated

or substituted

Above-Average

Returns

Result In

warning warning warning

Warning, Warning, Warning!!!

Products or services that customers like

are NOT core competencies.

Core competencies are the combination

of resources and capabilities that ALLOW the firm to produce the products and services that customers like.

identifying core competencies
Step

1. Prepare a current product/market profile

2. Identify sources of advantage in primary product/markets

3. Determine organizational competencies

4. Determine if competencies give you a sustained competitive advantage

Question

1. What are we selling, to whom and how are we doing?

2. Why do our customers choose our products over others?

3. What about our org. gives us advantage with customers?

4. Is the competency rare, valuable, difficult to imitate or substitute?

Identifying Core Competencies
canon s core competencies
Step

1. High end cameras (prior to expansion of the business)

2. Because of the superior optics associated with our lenses

3. The ability to produce superior optical devices

4. Yes, especially as related to cameras BUT also as related to copiers!

Question

1. What are we selling, to whom and how are we doing?

2. Why do our customers choose our products over others?

3. What about our org. gives us advantage with customers?

4. Is the competency rare, valuable, difficult to imitate or substitute?

Canon’s Core Competencies

Canon’s expertise is with optics, not photography. Thus, moving into copies makes sense. Moving into film does not. This is why we focus on resources and capabilities, NOT products.

warning warning warning107

Warning, Warning, Warning!!!

Products or services that customers like

are NOT core competencies.

Core competencies are the combination

of resources and capabilities that ALLOW the firm to produce the products and services that customers like.

project expectations108
Project Expectations

Necessary Items for all presentations/memos

  • Use the four questions framework to identify the firm’s core competency.
  • Discuss in detail the resources and capabilities that make up the distinctive competency.
  • Determine if the distinctive competency is strategically valuable (valuable, rare, subs, imit).
  • Determine the firm’s competitive position AND the financial implications of this position.
  • Discuss the implications of your analysis.
project expectations109
Project Expectations
  • Must work together as a group
  • Not appropriate for one person to dominate
  • ALL must participate
  • Any ‘bonus’ depends on equal participation
  • I reserve the right to adjust scores for those who do not contribute to the projects based on feedback received from the rest of the group.
slide110

Value Chain Analysis

helps to identify which resources and capabilities can add value

Firm Infrastructure

MARGIN

Human Resource Management

Support

Activities

Technological Development

Procurement

Service

Inbound

Logistics

Marketing

& Sales

Outbound

Logistics

Operations

MARGIN

Primary Activities

value chain analysis the short version
Value Chain Analysis(the short version)
  • Primary Activities - are those involved with the product or service’s creation, its sale and distribution to buyers, and its service after the sale.
  • Support Activities - provide the support necessary for the primary activities to take place.

To be a source of competitive advantage, a resource

or capability must some how contributed to the overall

core competency of the firm.

outsourcing
Outsourcing?

What is it?

Strategic choice to purchase some activities from outside suppliers

Why do it?

Improve Business Focus - Lets company focus on broader business issues by having outside experts handle various operational details

Provide Access to World-Class Capabilities - The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications

Free Resources - Permits firm to redirect efforts from non-core activities toward those that serve customers more effectively

what to outsource

The Short Version: Allows you to focus on doing what you

do best while hiring others to do what they do best.

What to Outsource?
  • Potentially anything that does not directly related to your core competency
  • Be careful not to accidentally erode your competitive position

For example:

    • If you’re an oil company, why not outsource your payroll functions
    • If you’re a bank, you should probably not outsource your accounting function
mergers and acquisitions
Mergers and Acquisitions
  • Merger
    • A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage
  • Acquisition
    • A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses
hostile takeovers and leveraged buyouts
Hostile Takeovers and Leveraged Buyouts
  • Takeover (Hostile)
    • An acquisition where the target firm did not solicit the bid of the acquiring firm. Often results in the replacing of management
  • Leveraged Buyout
    • A restructuring where the management of the firm and/or outside investors buys all of the assets of the business largely financed with debt and takes the firm private. High debt load commits future cash flows to repay debt, creating increased risk
reasons for mergers and acquisitions
Reasons for Mergers and Acquisitions
  • Increase Market Power
    • Acquisition intended to reduce the competitive balance of the industry. (BP Amoco Arco)
  • Overcoming Barriers to Entry
    • Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractive (Whirlpool and Phillips Appliance Division)
  • New Product Acquisition (lower cost & risk)
    • Buying established businesses reduces risk of start-up ventures (Ford’s acquiring of Jaguar)
reasons for mergers and acquisitions117
Reasons for Mergers and Acquisitions
  • Increase Speed to Market
    • Allows entry in a more timely fashion (CBS and iwon)
  • Diversification
    • For all the reasons previously outlined (Philip Morris and Miller Brewing)
  • Avoiding Excessive Competition
    • Trying to move where competitive pressures are less intense (GE and NBC)
  • Bigger is Better/Got to Be There Assumption
    • Based on peer pressure (Exxon & Mobil)
slide118

Problems with Acquisitions

Integration Difficulties

Differing cultures can make integration of firms difficult

Inadequate evaluation of Target

“Winners Curse” bid causes acquirer to overpay for firm

Large or Extraordinary Debt

Costly debt can create onerous burden on cash outflows

slide119

Problems with Acquisitions

Inability to Achieve Synergy

Justifying acquisitions can increase estimate of expected benefits

Overly Diversified

Acquirer doesn’t have expertise required to manage unrelated businesses

Managers Overly Focused on Acquisitions

Managers lose track of core business by spending so much effort on acquisitions

Too Large

Large bureaucracy reduced innovation and flexibility

slide120

Characteristics of Effective Acquisitions

Complementary Assets or Resources

Buying firms with assets that meet current needs to build competitiveness

Friendly Acquisitions

Friendly deals make integration go more smoothly

Careful Selection Process

Deliberate evaluation and negotiations is more likely to lead to easy integration and building synergies

Maintain Financial Slack

Provide enough additional financial resources so that profitable projects would not be foregone

slide121

Characteristics of Effective Acquisitions

Low-to-Moderate Debt

Merged firm maintains financial flexibility

Flexibility

Has experience at managing change and is flexible and adaptable

Do it For the Right Reasons

Avoid the bigger is better/Got to be there trap

Make sure you have the core competencies to

effectively utilize the acquired resources!!!!

slide122

Alternative Diversification Strategies

Related Diversification Strategies

Sharing Activities

1

Transferring Core Competencies

2

slide123

Transferring Core Competencies

Key Characteristic

The sharing of highly specialized skills and expertise

Assumptions

Activities involved in the businesses are similar

enough that sharing expertise is meaningful

1

Transfer of skills involves activities which are

important to competitive advantage

2

The skills transferred represent significant sources of competitive advantage for the receiving unit

3

group discussion questions
Group Discussion Questions
  • Image you are the CEO of Ocean Kayaks
  • You have decided it is time to diversify
  • What are your core competencies?
  • What would be an appropriate area of expansion to build on your core competencies?
  • If you were to expand via acquisition, who would be an appropriate acquisition target?
international strategy
International Strategy

“The selling and/or production

of products in markets outside the firm’s domestic market”

good strategic reasons for going global
Good ‘Strategic’ Reasons forGoing Global
  • Increased Market Share (Sales)
    • Increased sales, increased profits
    • Must adapt to local tastes and preferences
  • Location Specific Advantages (Production)
    • Lower costs OR other reasons
    • Must factor in transportation costs, trade barriers, political risk
four basic strategies
Four Basic Strategies
  • International Strategy
  • Multi-domestic Strategy
  • Global Strategy
  • Transnational Strategy
slide128

High

Transnational

Strategy

Global

Strategy

Cost

Pressures

(need to keep

costs down)

Multidomestic

Strategy

International

Strategy

Low

High

Low

Pressures for Local Responsiveness

(need to locally adapt)

local responsiveness
Local Responsiveness
  • Consumer tastes and preferences
  • Infrastructure and traditional practices
  • Distribution channels
  • Host government demands
international strategy130
International Strategy
  • Transfer valuable skills and products (and production capabilities) to a foreign market
  • Minimal adaptation for the local environment

You have what they want and you are willing to sell it to the (e.g., McDonald’s)

multidomestic strategy
Multidomestic Strategy
  • Customize both product offerings and marketing strategy
  • Maximum local adaptations

Basically setting up a completely new business in the target market

(e.g., French Grocery Chain in Poland)

global strategy
Global Strategy
  • Offer standardize product built using a global network
  • Global production (to reduce costs) and standardized in marketing

Offering a generic product at a low price

(e.g., Marlboro Cigarettes)

transnational strategy
Transnational Strategy
  • Low cost and local responsiveness
  • Trying to do both at the same time

Hum? I’m not convinced it’s possible

what s the best strategy

What’s the Best Strategy?

It Depends!!!

Fast Food in Every Country (Int’l)

Soft Drinks World Wide (Global)

Grocery Stores in Poland (M-D)

entering foreign markets
Entering Foreign Markets

The FOUR entry modes

1. Exporting

2. Licensing

3. Strategic Alliance

4. Wholly-Owned subsidiary (including Acquisitions)

A trade off of risk and control

exporting
Exporting

Establish distribution channels through contractual relationships

  • Common way to enter a new int’l market
  • May have high transportation costs
  • May encounter high import tariffs
  • May be impossible to do depending on product characteristics
exporting138
Exporting

Primary Advantage:

  • No need to establish operations in target country (low risk)

Primary Disadvantage:

  • Less control over marketing and distribution (low control)
licensing
Licensing

Firm authorizes another firm to manufacture and sell its products

  • Licensing firm is paid a royalty on each unit produced and sold
  • Can also include Franchising where the franchisee is required to follow strict rules of operation
  • May be impossible to do depending on product characteristics
licensing140
Licensing

Primary Advantage:

  • Licensee takes the risk associated with manufacturing investment (low risk)

Primary Disadvantage:

  • Licensing firm loses control over product quality and distribution (low control)
  • Licensor learns the licensing firm’s technological know how (low control)
strategic alliance
Strategic Alliance

A business entity/activity that is jointly owned by two or more otherwise independent firms

  • Usually involves a foreign company with a new product or technology and a host company with access to distribution or local knowledge
  • May experience difficulty in merging cultures
  • May incorrectly assess the intent of the partner
strategic alliance142
Strategic Alliance

Primary Advantage:

  • Enables a firm to share the risks and resources when expanding into a new environment (moderate risk)

Primary Disadvantage:

  • Must share in the decision making with the strategic partner (moderate control)
wholly owned subsidiary
Wholly-Owned Subsidiary

A 100% owned subsidiary of a company based in another country

  • The parent firm develops an entirely new firm in the target market
  • The parent firm acquires an established firm and uses that firm to promotes its products in the target market
wholly owned subsidiary144
Wholly-Owned Subsidiary

Primary Advantage:

  • The parent firm has complete managerial control over the subsidiary (high control)

Primary Disadvantage:

  • The parent firm incurs the entire cost of expansion into the target market (high risk)
what s the best strategy145

What’s the Best Strategy?

It Depends!!!

Level of acceptable risk

Level of pre-existing knowledge

Nature of product or service

cooperative strategy
Cooperative Strategy

A strategy in which firms work together to achieve a shared objective

Strategic Alliance:

Firms combine some of their resources and capabilities to create new competitive advantages.

Collusive Strategy:

Two or more firms cooperating to raise prices above fully competitive market prices.

types of collusion
Types of Collusion

Explicit Conspiracy:

Getting together to fix prices

- Illegal in US but practices elsewhere (e.g. Org of the Petroleum Exporting Countries, De Beers)

Tacit Coordination:

Spontaneous cooperation in concentrated industry

- NOT illegal and practiced in US (e.g. with Oil)

Facilitating Practices:

Announcing of prices/matching guarantees

- NOT illegal and practiced in US (e.g. with drugs)

types of strategic alliances
Types of Strategic Alliances

Joint Venture:

Independent firm is created by the joining assets from two other firms where each contributes 50% of the total

Equity Strategic Alliance:

Partnership where the two partners do not own equal shares

Non-equity Strategic Alliance:

Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing)

types of strategic alliances149
Types of Strategic Alliances

Slow Cycle: (imitation is difficult)

Reason: To gain access to restricted markets

Fast Cycle: (imitation is ongoing)

Reason: Speed/reduce risk of new innovations

In either case, focus is on enhancing KEY resources/capabilities (key resource being access to markets or introduction of new innovations)

business level cooperative strategies
Business Level Cooperative Strategies

Complementary Alliances

Sharing of resources and capabilities in complementary ways to gain advantage

Vertical: Up and down the value chain (someone to assist with procurement or sales)

Horizontal: Same stage of the value chain (to build a better product)

Bottom line: Convince people to buy your product or service over others for whatever reason

other cooperative strategies
Other Cooperative Strategies

Corporate Level Alliance

Used to diversify into new products or markets. As previously discussed and based on complimentary resources and capabilities

International Cooperative Strategy

As a mechanism for entering new markets. Again, as previously discussion with a focus on complimentary resources and capabilities

Network Cooperative Strategy

Used to advance the interests of a group of firms (e.g., industry). Begins to look like collusion

cooperative strategies risks
Cooperative Strategies Risks
  • Unclear expectations for each party involved
  • Exploitation by one party due to inadequate contractual safeguards
  • Failure to achieve synergies due to misrepresentation of resources and capabilities
  • Failure to achieve synergies due to inability to integrate resources and capabilities due to cultural clashes between the parties involved
managing cooperative strategies
Managing Cooperative Strategies

Cost Minimization:

Minimize risks by having good contractual safeguards in place. Monitor activities of jointly operated activities.

* Easier to do in the short term

Opportunity Maximization:

Maximize benefits by building trusting relationships and by mutually addressing issues that arise as a result of the relationship.

* More cost effective in the long term

slide155

Crocodile Rock - Elton John Nixon is President (not for long) Microsoft does not exist (neither do you) IBM offers a PC 9 years laterFirst Personal Computer is born (the Alto)Same company invents the mouse, graphical interfacing and word processingWhat company are we talking about???

1973

entrepreneurship and innovation156
Entrepreneurship and Innovation
  • Invention
    • The act of creating or developing a new product or process
  • Innovation
    • The process of creating a commercial product from an invention
  • Entrepreneur
    • An individual who creates a new venture or develops an innovation and takes risks entering them into the marketplace
  • Corporate Entreprenuership
    • The process whereby an individual or group in an existing organization creates a new venture or develops a process innovation
internal corporate venturing
Internal Corporate Venturing

1 Autonomous strategic behavior is a bottom-up process through which Product Champions pursue new product ideas to commercialization

Product Champions are individuals who have an

entrepreneurial vision for a new product and seek

support for its commercialization

2 Induced strategic behavior is a top-down process in which the current strategy and structure foster product innovations that are closely associated with the current strategy

A Decision on which corporate resources to

deploy for new technology development and which

innovative ideas to bring to market

implementing internal corporate ventures
Implementing Internal Corporate Ventures
  • Barriers to Integration

1. Independent Frames of Reference (different ways of seeing the world)

2. Organizational Politics

  • Facilitating Integration

1. Shared Values Associated with Innovation

2. Leadership Stressing Innovation

3. “Innovation Friendly” Goals and Budgets

4. An Effective Innovation System

external sources of innovation
External Sources of Innovation
  • Strategic Alliances: A partnership between firms whereby resources, capabilities and core competencies are combined to pursue common interests and goals
    • Benefit: Sharing Expertise and Costs (R&D)
    • Main Risk: The Theft of a Firm’s Innovations
  • Acquisitions and Venture Capital: The purchasing of innovation through acquisition or the allocation of resources to entrepreneurs who are involved in a project with high growth potential
    • Benefit: Faster and cheaper than in house innovation
    • Main Risk: Loss of the ability to innovate internally
entrepreneurship and innovation not just for the fortune 500
Entrepreneurship and Innovation:Not Just for the Fortune 500
  • 80% of the world’s R&D from firms of 10,000 or more employees
  • More than half of the world’s “Inventions” come from smaller firms (but not the innovations)
  • Smaller firms (500 or less employees) account for 53% of the workforce, 47% of sales and 51% of private sector GDP.
strategic leadership
Strategic Leadership
  • The ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary
  • Involves managing through others, managing an entire enterprise rather than a functional subunit, and coping with change that seems to be increasing exponentially.

Tough job to be the companies strategic leader

why are strategic leaders so important
Why are Strategic Leaders so Important?
  • Because they . . .
    • determine a firm’s strategic direction by developing the firm’s long-term vision,
    • ensure that the firm’s core competencies are emphasized in strategic implementation efforts,
    • have a large influence on a firm’s ability to attract and retain high quality employees,
    • shaping and reinforcing the firm’s culture,
    • set the ethical tone of a company and,
    • determine the appropriate level of organizational control.
strategic leadership and you
Strategic Leadership and You
  • You are not going to be the CEO right away (probably). However, you might be making strategic recommendations to the CEO right away. Therefore, you need to understand strategic leadership.
  • The actions of the strategic leadership have a HUGE effect on the firm (will determine what kind of place it is to work)
slide164
Top Management Team
    • The key managers who are responsible for formulating and implementing the strategy.
  • Heterogeneous Top Management Team
    • A top management team composed of individuals with different functional backgrounds, experiences, and education.
  • More heterogeneous top management teams . . .
    • are better at strategic formulation
    • struggle with strategic implementation
managerial labor market
Managerial Labor Market
  • Internal Labor Market
    • The selection of new management from within the org
    • Familiarity with firm and industry
    • Maintaining firm specific knowledge
    • Often more accepted within the company
  • External Labor Market
    • The selection new management from outside the org
    • Brings in fresh ideas
    • More likely to institute organizational changes
slide166

Effects of CEO Succession and Top Management Team Composition

Managerial Labor Market:

CEO Succession

Internal

CEO Succession

External

CEO Succession

Ambiguous:

Possible change in Top Management Team and Strategy

Stable Strategy

Homogeneous

Top Management Team

Stable Strategy with Innovation

Strategic

Change

Heterogeneous

what is best it depends
What is best? It Depends!
  • Good, stable industry with a sound core competency
    • Stability sounds good! (Internal CEO and homogeneous top management team)
  • Good Company in a rapidly changing industry
    • Need to keep innovating (Keep the CEO but make sure top team is heterogeneous)
  • Rapidly changing industry without any core competencies
    • Serious change is needed! (Change CEO and develop a heterogeneous top management team)
  • Homogeneous top team with a company going no where?
    • Perhaps an outside CEO can shake things up a bit
the balanced scorecard
The Balanced Scorecard

A framework that firms can use to verify that they have established the appropriate controls to assess their performance (not just financial).

A mechanism for monitoring performance on a variety of dimensions including financial, customer, internal business processes, and learning and growth

the balanced scorecard169
The Balanced Scorecard

Financial

  • Cash flow, return on equity, return of assets, etc.

Customer

  • Anticipating customers needs, customer service practices, % repeat customers, Communication with customers, etc.

Internal Business Processes

  • Asset utilization improvements, employee morale, turnover rates, etc.

Learning and Growth

  • Innov. abilities, new product intros, employee skills, etc.

What’s most important? The key resources and capabilities that lead to you firm’s competitive advantage!

final project
Final Project

From the smaller presentations:

  • We know what the industry looks like(including external opportunities and threats)
  • We know what our firm looks like(including internal strengths and weaknesses)

Now, what do we do about it?

final project171
Final Project

Make specific RECOMMENDATIONS!

What you’re being paid to do as a consultant.

A POTENTIAL framework (not necessary!)

Outline the Strengths, Weaknesses, Opportunities and Threats for your company pulling from the previous.

final project172
Final Project
  • Most Important: Make specific recommendations
    • Designed to minimize weakness, deal with threats, capitalize on opportunities while building on strengths.
  • Make sure your recommendations tie specifically to material previously presented in class.
    • For example, can you use your core competency to expand into an area you identified as a threat of substitutes during the Porter’s Five Forces analysis? - a rough example only!
  • Be specific with your recommendations.
    • make assumptions if necessary but clearly state your assumptions during the presentation.
final project173
Final Project
  • Support your recommendations.
    • The support of your recommendations comes from the previous presentations - all of them, not just the last.
  • Do not include any recommendations that are not justified based on your previous strategic analyses
    • Only include recs that are supported by previous analyses.
  • Number of recommendations?
    • One REALLY good (i.e., supported) rec could be enough.
    • Most groups will probably have 3 or 4 (more is too many)
  • Make it Professional with an intro and conclusion.
    • Whatever format communicates your message professionally
the social responsibility of firms
The Social Responsibility of Firms

Suggests that a corporation has responsibilities to society that extend beyond making a profit

Milton Friedman:

There is one and only social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

carroll s four responsibilities
Carroll’s Four Responsibilities
  • Economic

To produce goods and services of value to society so that the firm can repay its creditors and shareholders

  • Legal

Defined by governments in laws that management is expected to obey

  • Ethical

To follow the generally held beliefs about behavior in a particular society

  • Discretionary

Purely voluntary obligations assumed by the firm

carroll s four responsibilities176
Carroll’s Four Responsibilities

Discretion

(Might)

Legal

(Have To)

Ethical

(Should)

Economic

(Must)

Done by socially

responsible firms

Stuff that has

to be done

Listed in order of priority according to Carroll

the social responsibility of firms177
The Social Responsibility of Firms

Key Question:

“Responsible to whom?

Multiple Stakeholders:

Investors, customers, local community, government regulators, employees, etc.

Carroll’s Assumption:

Investors come first (an assumption)

treating stakeholders ethically
Treating Stakeholders Ethically

Ethics:

Consensually accepted standards of behavior for a particular environment, occupation or profession.

Three basic approaches to ethical behavior

  • Utilitarian
  • Individual Rights
  • Justice
treating stakeholders ethically179
Treating Stakeholders Ethically

Utilitarian Approach

Actions and plans should be judged by their consequences. Behave ways that produce the greatest benefit to society.

Individual Rights Approach

Fundamental rights should be respected in all decisions. A behavior should be avoided if it interferes with the rights of others.

Justice Approach

Decision makers should be equitable, fair and impartial in the distribution of costs and benefits to individuals and groups. A behavior should be avoided if it gives preferential treatment to one group or individual at the expense of others.

treating stakeholders ethically180
Treating Stakeholders Ethically
  • Utility

Does an action/strategy optimize the satisfaction of all stakeholders involved?

  • Rights

Does an action/strategy respect the rights of the individuals involved?

  • Justice

Is the action/strategy consistent with the concept of justice for all?

operating ethically
Operating Ethically
  • Ethics Committees
    • Internal Monitoring
  • Codes of Conduct
    • Statements of appropriate behavior
  • Corporate Vision
    • The guiding principles of the firm
exam two overview
Exam Two Overview
  • Chapter 3 – Internal Analysis
    • Know core comp in detail, including 4 questions
  • Chapter 7 – Acquis. & Restructuring Strategies
    • Know different types and difficulties
  • Chapter 8 – International Strategies
    • Two key models, know them both
  • Chapter 9 – Cooperative Strategies
    • Know types and reasons for using each
  • Chapter 12 – Strategic Entrepreneurship
    • Know types and difficulties
  • Ethics of Strategy/Natural Environment
    • Carroll’s responsibilities/stakeholder approaches
what is strategy183
What is Strategy?
  • The commitments, decisions, and actions that allow the firm to make more money!

How is this done?

  • Two competing models

1. Industrial Organizational Model

2. Resource-Based Model

model one industrial organization porter s five forces184

Model One:Industrial Organization (Porter’s Five Forces)

The external environment should drive strategy. Locate and compete in an attractive (profitable) industry.

slide185

Porter’s Five Forces Model of Competition

Threat of New Entrants

Rivalry Among Competing Firms in Industry

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

model two resource based core competency186
Model Two:Resource Based (Core Competency)

The resources and capabilities of the firm should drive strategy. Build your strategy around existing resources.

slide187

*

Tangible

Components of Internal Analysis

*

Intangible

Capabilities

Result In

CombinedWith

Teams of

Resources

Core

Competencies

Resources

Which

May Be

Strategically

Sustainable

Valuable

Competitive

Advantage

Valuable, Rare,

not easily imitated

or substituted

Above-Average

Returns

Result In

which model was most important

Which model was most important?

It Depends!

(i.e., neither or both)

model three life in the real world the focus of this class189

Model Three:Life in the Real World!(the focus of this class)

The external environment and the resources and capabilities of the firm drive strategy. Firms should seek to maximize profitability by locate and compete in particularly attractive environments (industries) where the firm can most effectively leverage existing and potential resources (core competencies).

slide190

Entry

Rivalry

Core Comp.

that leads to

SCA? Where else

might this

Core Comp.

Apply?

Industry B

Supplier

Buyer

Subs.

Industry A

Industry C

final project191
Final Project

From the smaller presentations:

  • We know what the industry looks like(including external opportunities and threats)
  • We know what our firm looks like(including internal strengths and weaknesses)

Now, what do we do about it?

final project192
Final Project
  • Most Important: Make specific recommendations
    • Designed to minimize weakness, deal with threats, capitalize on opportunities while building on strengths.
  • Make sure your recommendations tie specifically to material previously presented in class.
    • For example, can you use your core competency to expand into an area you identified as a threat of substitutes during the Porter’s Five Forces analysis? - a rough example only!
  • Be specific with your recommendations.
    • make assumptions if necessary but clearly state your assumptions during the presentation.
final project193
Final Project
  • Support your recommendations.
    • The support of your recommendations comes from the previous presentations - all of them, not just the last.
  • Do not include any recommendations that are not justified based on your previous strategic analyses
    • Only include recs that are supported by previous analyses.
  • Number of recommendations?
    • One REALLY good (i.e., supported) rec could be enough.
    • Most groups will probably have 3 or 4 (more is too many)
  • Make it Professional with an intro and conclusion.
    • Whatever format communicates your message professionally