Business Level Strategy of Pepsi

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                       MBA Core –BA 500 Strategic Management, 2008

                                     Professor Charles Hill
                                     Office: Mackenzie 313
                                          Tel: 543 4867

Course Objectives

This course reviews key concepts of strategic management. The focus in on the strategic factors
that increase the probability of a firm’s competitive success or competitive failure. Specific
topics addressed include the role of the following in determining competitive advantage:
strategic planning and leadership, competitive strategy, functional strategy, diversification and
organization structure. The goal is to enhance your ability to think strategically.

Teaching Method

The course is case based, with supporting lectures and readings. Because of the importance of
cases, it is very important that you come to class well prepared to discuss whichever case is
scheduled for that day.

Course Grading

Course grades will be based on two pieces of individual work (50% of grade) and one group
project (50% of grade). In addition, your final grade will be adjusted to refelect the value of your
participation in case based classroom discussions. The average grade in this class will be in the
3.4-3.5 range. Grades higher than 3.8 will be rare!

Individual Work: For your indivudal work, you will be required to write brief reports on two
cases of your choice prior to those cases being discussed in class. The report must give your
view of the three main strategic lessons in the case. You must explain what these lessons are.
The report cannot be more than two pages long, double spaced.

Group Project: The group project requires you to analyse the competiive structure of a market
and derive implication for the strategy of a company of your choice. Details of the group project
are given at the end of this syllabus. The project must be handed in on the last day of class.

Materials (at UW Book Store)

1. Hill, C.W.L. and Jones, G.R. Strategic Management Theory, eight edition, Houghton-Mifflin,

2. Course Packet at university Book Store

                                         Class Schedule

Session 1
Case: Nucor at a Cross Roads

Assignment: Please come to class prepared to discuss the following questions:

1. What is the nature of competition in the U.S. Steel Industry? How difficult is it for a
   company in this industry to earn a return that exceeds its cost of capital?
2. Why have large U.S. producers lost market share over the last four decades?
3. Why has Nucor performed so well in the past?
4. How attractive does the thin slab casting business look?
5. How sustainable an advantage might Nucor derive from thin slab casting?

Lecture: The Concept of Competitive Advantage

Reading: Hill & Jones, Chapters 1-3

Session 2
Lecture: The Concept of Competitvie Advantage
Lecture: Making Strategy

Reading: Hill & Jones Chapters 1-3

Session 3
Cases: Evolution of the Small Package Express Delivery Industry, 1973-2006. Airborne
Express: The Underdog

Assignment: Please come to class prepared to discuss the following questions.

1. Despite rapid growth, the air express industry was characterized by low profitability during
   the 1980s. Why?
2. Why did performance of the industry beging to improve in the 1990s?
3. What was the business level strategy of Airborne Express during the 1980s and 1990s? Did
   this strategy make sense given industry conditions?
4. If you were the CEO of Airborne in the early 2000s, what would your strategy have been?

Session 4
Lecture: Analyzing Industry Structure

Reading: Hill & Jones Chapters 2 & 7

Session 5
Case: Toyota

Assignment: Please come to class prepared to discuss the following questions.

1. Compare and contrast Toyota’s manufacturing system with a conventional mass production
   system. What are the advantages of Toyota’s system? What are the strategic implications?
2. Describe the difference between the way supplier relations have historically been managed at
   Toyota and at U.S. auto companies? What are the consequences of these differences? What
   are the strategic implications?
3. What drove the evolution of Toyota’s production system?
4. Can Toyota replicate its production system in overseas operations?
5. What is the basis of Toyota’s competitive advantage? Can it be imitated?

Lecture: Business Level and Functional Startegy

Reading: Hill & Jones Chapters 5 and 6

Session 6
Lecture: Business Level and Functional Startegy

Reading: Hill & Jones Chapters 5 and 6

Session 7
Case: Coca-Cola versus Pepsi Cola

Assignment: Please come to class prepared to discuss the following questions.

1. The soft drink industry evolved with a franchised bottler system. For most of the industry’s
   history the concentrate producers nurtured and preserved this system, Why?
2. During the 1980s the both Coke and Pepsi began to acquire bottlers. Why?
3. Why did Coca Cola dominate the soft drink industry by the end of the Second World War?
4. How was Pepsi able to come back from near bankruptcy and gain share at the expense of
   Coke from the 1950s through to 1975?

5. During the 1950s-1970s, being a concentrate producer yielded very high returns. Why was
   this the case?
6. How did the 1977 national launch of the Pepsi challenge change the nature of competition in
   the industry?
7. During the 1990s Coca Cola was gained market share back from Pepsi, and was significantly
   more profitable. Why?
8. Why do you think Coke holds such a dominant position over Pepsi in the international
   market place?

Lecture: Competitive Dynamics

Reading: Hill & Jones Chapter 6

Session 8
Case: Home Video Game Industry: From Pong to Xbox 360

Assignment: Please come to class prepared to discuss the following questions.

1. Why was Atari so successful? What was the root cause of the Atari-era boom and bust?
2. How did Nintendo successfully recreate the home video game business following the Atari-
   era boom and bust?
3. How was Sega able gain market share from Nintendo?
4. Evaluate the competitive strategy of 3DO? What were the strengths of this strategy? What
   were the weaknesses?
5. How was Sony able to successfully capture share in the video game market with its CD-
   ROM based technology?
6. Why did Microsoft enter the industry with its X-Box offering?

Lecture: Competitive Dynamics and Technology

Reading: Hill & Jones Chapter 7

Session 9
Case: Wal-Mart

Assignment: Please come to class prepared to discuss the following questions.

1. What are the sources of Wal-Mart’s competitive advantage? Pay particular attention to
   location, operations and organization factors?
2. What role did Sam Walton play in building Wal-Mart’s competitive advantage?
3. Can Wal-Mart’s competitive advantage be imitated?
4. Can Wal-Mart continue to grow its revenues and profits at historic rates? What strategies
   does it after pursue to make this happen?

5. Do you think that Wal-Mart will be able to replicate its domestic success in foreign
   countries? What might stand in the way of success overseas?

Lecture: Diversification

Reading: Hill & Jones Chapters 9 & 10

Session 10
Case: 3M in the new Millenium

Assignment: Please come to class prepared to discuss the following questions:

1. What are the roots of 3M’s culture of entrepreneurship and innovation? What were the key
   tenets of this culture as they emerged in the 1920s and 30s?
2. How was the culture of entrepreneurship and innovation nurtured during the long tenure of
   William McKnight? How was enterpreneurship institutionalized within the company?
3. What were the strengths of the organization and culture of the enterprise that McKnight
   built? What were the potential weaknesses?
4. The expansion of 3M into international markets was highly successful. What explains this?
5. By the 1990s 3M was starting to develop some problems. What were the causes of these
6. Why did 3M’s board hire an outsider, McNeary, to run 3M after DeSimone. What is
   McNeary trying to do at 3M? What are the pros and cons of his approach?

Lecture: Diversification

Reading: Hill & Jones, Chapters 9 and 10.

                              Group Project, MBA Core, 2008

                     Topic: The United States Personal Computer Market


   1. Analyze the competitive structure of the market for personal computers in the United
      States as of 2008?
   2. What are the implications of this structure for the ability of personal computer companies
      to recover their cost of capital and make an economic profit?
   3. Based on your understanding of technological, competitive and market trends, how do
      you see the competitive structure of the market evolving over the next five years? What
      are the implications of this for profitability of PC providers providers in the United
   4. Pick one of the major firms in this market. For this firm:
          a. Describe its current strategy?
          b. Critique this strategy is light of your answers to questions 1 and 3?
          c. Recommend what the firm’s strategy should be going forward.


   1. No more than 6,000 words.
   2. Place charts etc in an Appendix. These do not count as part of the word total.
   3. Hand in on last class day.

Research Tools

   1. The UW online research tools are excellent.
   2. Standard & Poor’s Industry Surveys (in B School library) can be very good.
   3. If you can get access to reports of market research firms (e.g. Jupiter Communications,
      IDC, Gartner) so much the better.
   4. Don’t be shy about interviewing people in the industry.

Description: Business Level Strategy of Pepsi document sample