Business Strategy by DnEJ7Z3

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									 Business Strategy

 Tutorial for MSFA students in
 Alliances & Acquisitions
                         Dave Garten
            daveoutside@alum.mit.edu


7/30/2012                              1
What is a Strategy?
“plan of action designed to achieve a
  particular goal” – Wikipedia
  Strategy statement – 2 parts
       The objective + the “how”
  Fictional examples for Nissan
       Market: Achieve #1 market share in electric vehicles
        by 2012 by introducing the “Leaf” and selling 500,000
        units.
       Financial: Achieve positive operating margin on the
        Leaf by 2012 by driving down battery cost to
        $200/watt.
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Strategy Development
              “Basis of Competition”
                External Analysis



                                                   Supply   Sales
    Mission          Strategy               R&D
                                                    Mftg    Mktg



                                               Coordinated action (tactics)
                 Internal Analysis             “Translation of Strategies”
                 “What we have”

                              Frequency




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External - Industry Structure
           High               Monopoly
      Strategy Flexibility


                                          Oligolpoly




                                                                                                  Profitability
                                                             Monopolistic
                                                             Competition


                                                                Pure
          Low                                                Competition
                             Low                                                 High
                                   Degree of Competition
                                             Source: Derived from Barney, Gaining & Sustaining Competitive Advantage

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   External - Industry Structure
                              Mature
                               • Quality & reliability

                                                               Declining
                Growth                                          • Price
                • service
  Emerging
  • Features


                 Early       Early               Late                     Laggards
Innovators
                Adopters    Majority            Majority


     Product innovation                                       Process innovation

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External–Trends/Environment - “PESTAL”
   Political
        Telecom, deregulation, govt ownership, trade barriers,
         subsidies, free speech, etc.
   Economic
        Income, spending, interest rates, GDP, stock mkts, etc.
   Sociocultural
        Demographic, psychographic, education, etc.
   Technological
        New standards, new processes, new features, etc.
   Environmental
        International pressure groups, env. laws, waste regulations
   Legal
        Intellectual property, antitrust, etc.


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External - Structural Opportunities
    Fragmented -> consolidation
    Emerging -> TTM, locking up resources,
    tech switching cost
           “Network” -> standards, n**2
    Mature ->incremental innovations,
    service
    Declining ->shakeout leadership, niche,
    divest

                                Source: Derived from Barney, Gaining & Sustaining Competitive Advantage

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External - Industry Structure
Threats - Applying Porter’s 5 Forces
1.Threat of Entry
    Economies of scale (production, distribution), Product
     differentiation (brand, switching costs), other cost




                                                                                           Horizontal
     advantage (know-how, patent, access to raw materials,
     location), contrived deterrence, govt
2.Threat of Rivalry
    # of competitors, size/influence of competitors, industry
     growth rate, level of differentiation (vs. price), step function
     of capacity
3.Threat of substitutes
    Deliver the product/service in a different way?
4.Suppliers
    Bargaining power, # of companies, level of differentiation,




                                                                                             Vertical
     threat of vertical integration, threat of substitutes
5.Customers
    Mirror image of suppliers
                                              Source: Derived from Barney, Gaining &
                                              Sustaining Competitive Advantage
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Internal – Strength/Weakness
  Value chain analysis – varies by firm…
                 Customer

                    Service
                 Distribution
              Sales & Marketing
                Manufacturing
                Development
                   Research


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Internal - Core Competence
  Defined: collective learning that coalesce around
  individuals who coordinate a comprehensive set
  of diverse skills & integrate multiple streams of
  know-how
  What can a company do w/its core competence?
    Delivery of new products, services, alliances

    Expand into related products and businesses

    Shape future markets

  Examples: Canon, HDTV, 3M, Honda

                                 Source: derived from The Core Competence of the
                                 Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c


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Core Competency and Success

            Diversification (<1%)

               Step 3 (7%)


               Step 2 (26%)

                    Step 1
                    (38%)

                      Core
                                                Source: Bain, October 2003

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Core Strategies - Differentiation
“increase in perceived value relative to the
  perceived value of other firms” - Barney

“If you can’t differentiate yourself in this
world, you get commoditized
instantaneously. So we are constantly
driving for more innovation, more
differentiation and more technology.”
- Jeffrey R. Immelt, Chairman and CEO, GE

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Core Strategies - Differentiation
    Why differentiate?
           Better chance to be profitable
           Preference -> loyalty -> stickiness ->
            profitability (basis for monopolistic
            competition)
    Ways to differentiate
           Brand, features, services, bundled solutions,
            timing, location, distribution, customization,
            technology

    Organizing for differentiation
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Core Strategies - Cost Leadership
     Manufacturing businesses
            Conventional: High MSS -> High accumulated
             volume  low unit cost -> high profitability
            Experience curve (learning), know-how, IP,
             specialization, improvements
     Service businesses
            Know-how; experience curve applies
     Cost structure
            Labor, capital, land, raw materials, geography, use
             of technology, government policy
     Organizing for cost leadership
                                    Source: Derived from Barney, Gaining & Sustaining Competitive Advantage

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Core Strategies - Vertical Integration
    Degree of control over value chain
         Forward integration  toward customer
         Backward integration  toward R&D
   Market                 Alliances                           Vertical
 Governance                                                 Integration


         Flexibility                                      Control
         Market efficiency                                Supply certainty
         Focus on CC                                      Dilution of CC
                                                           Antitrust
                                                           Secrecy
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Strategy Evaluation Tool
               SWOT & Strategy Development
                      Strengths (S)                  Weaknesses (W)
                       1.                               1.
                       2.                               2.
                       .                                .
                       .                                .

Opportunities (O) SO Strategies                        WO Strategies
                                                            Overcome
 1.                    Use strengths to
 2.                                                      weaknesses by
                      take advantage of
 .                                                      taking advantage
 .                      opportunities
                                                         of opportunities
      Threats (T)      ST Strategies                   WT Strategies
 1.
 2.                    Use strengths to                     Minimize
 .
                        avoid threats                    weaknesses and
 .                                                        avoid threats

                                             Source: Strategic management by Fred R. David

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What is Good Strategy?
    How do you know a good strategy when
    you see it?
           Will have many of these qualities:




X

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