ADM 5262 Strategy Implementation

1
ADM 5262 Strategy Implementation

• MBA Program
• Faculty of Administration
• University of Ottawa
• October 31st, 2001

2
This Evening

• Course Outline
• Lecture and Discussion
• Diversification
• Airline Industry
• Group Projects
• Break
• Video The Opportunity and Threat of Disruptive
  Technologies

3
(No Transcript)
4
(No Transcript)
5
Why Focus on One Industry?

• Joint development of common knowledge based
  permits in-depth discussions of strategy which
  are
• Sensitive to context
• Based on current data
• Class discussions inform group work and
  vice-versa
• Participants learn how to build knowledge of an
  industry

6
Firms Vary by Degree of Diversification
Low Levels of Diversification
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

Related-Diversified
Businesses share product, techno-logical or
distribution linkages
High Levels of Diversification
Unrelated-Diversified
Business units not closely related
7
Reasons for Diversification
Motives to Enhance Strategic Competitiveness
Resources
Economies of Scope
Market Power
Financial Economies
Incentives
Managerial Motives
8
Reasons for Diversification
Incentives and Resources with Neutral Effects of
Strategic Competitiveness
Resources
Anti-Trust Regulation
Incentives
Tax Laws
Low Performance
Uncertain Future Cash Flows
Managerial Motives
Firm Risk Reduction
Tangible Resources
Intangible Resources
9
Reasons for Diversification
Resources
Incentives
Managerial Motives Causing Value Reduction
Managerial Motives
Diversifying Managerial Employment Risk
Increasing Managerial Compensation
10
Adding Value by Diversification
Diversification most effectively adds value by
either of two mechanisms
By developing economies of scope between business
units in the firms which leads to synergistic
benefits
By developing market power which lead to greater
returns
11
Issues to Consider Prior to Diversification
What Resources, Capabilities and Core
Competencies do we possess that would allow us to
outperform competitors?
What Core Competencies must we possess to succeed
in a new product or geographic market?
Is it possible to leapfrog competitors?
Will diversification break up capabilities and
competencies that should be kept together?
Will we only be a player in the new product or
geographic market or will we emerge as a winner?
What can the firm learn through its
diversification? Is it organized properly to
acquire such knowledge?
12
Increased Diversification1950 - 1970

• Rumelt (1974)
• Increase in unrelated diversification in US
  between 1950 and 1970 (from 3 to 19)
• Decrease in single product firms in US in same
  period (from 34 to 6)
• Other researchers show
• UK, France, and Germany experience same trends
  but less strong
• Italy experiences decrease in single product
  firms but no increase in diversified firms

13
Does Diversification Reduce Risk?
14
Airline Industry Warm-Up

• WestJet Looks East
• The way we fly now (The Economist, July 19th,
  2001)
• Uncharted airspace (The Economist, September
  20th, 2001)
• Richard Branson's Go-for-Growth Strategy
  (Business Week, October 15th, 2001)
• Air Canada could easily undo Tango (Globe and
  Mail, October 20th, 2001)

15
Group Project

• Strategy formulation and implementation for a
  major airline company
• Aerospace manufacturer possible alternative
• May analyze past strategy or propose future
  strategy
• Assignment 1 will present strategy
• Assignment 2 will present implementation plan

16
Example Strategies

• Growth through diversification
• WestJet and Central Eastern Canada
• Roots and Skyservice
• Air Canada and Tango
• Valuation of a diversified company
• CAE Electronics
• Virgin
• Acquisitions
• Canada 3000 and CanJet and Royal
• United and US Airways (didnt happen)

17
Assignment 1 Strategy Formulation

• Describe company history, structure,
  competencies, competitors
• Present strategy, motivation, and precedents
• How it responds to environmental
  opportunities/threats
• How it creates or leverages competencies
• Outcomes of similar strategies used in past by
  other companies
• Discuss expected impact on
• Environmental opportunity/threat company
  competencies
• Stakeholders
• Competitors
• Company finances

18
Major US Airlines
19
Major US Airlines
20
Major Canadian Airlines
21
Major Canadian Airlines
22
Major Canadian Airlines
23
Aerospace Manufacturers

• Bombardier
• CAE Electronics
• Pratt and Whitney
• Rolls Royce
• Eclipse

24
Preliminary AssignmentDue November 7th

• Choose a company
• Describe company
• Present strategic issue to be addressed
• Expected length 2 pages