Lecture Outline

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Lecture Outline
MAN 6721 Strategic Management
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Class 9
Applying Strategic Management Practices (Part
1) Friday, March 3, 2006
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Creating Unfair Advantage(1 of 3)
Valuable
Rare
Creating forms of competitive advantage that are
Imperfectly Imitable
Organization
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Creating Unfair Advantage(2 of 3)

• The Question of Value
• Do resources or capabilities enable a firm to
  exploit an external opportunity or neutralize an
  external threat?
• The Question of Rarity
• If a particular resource or capability is
  controlled by numerous competing firms, then that
  resource is unlikely to be a source of
  competitive advantage for any one of them.
• The Question of Imitability
• Is a particular resource or capability difficult
  to copy? If it isnt, than it will only create a
  temporary advantage.

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Creating Unfair Advantage(3 of 3)

• The Question of Organization
• Is a firm organized to exploit the full
  competitive potential of its resources and
  capabilities?
• This capability isnt an automatic given. For
  example, many large organizations arent equip to
  quickly innovate when a new technology becomes
  available.

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Special Topics in Strategic Management and Firm
Competitiveness
Surfing Disruptive Technology Waves
Going World Class
Spotting Weaknesses And Adding Strengths
Special topics in Firm competitiveness
Why Giants Fail to Crush New Enterprises
How Countries Apply Unfair Advantage
Giant Corporations Apply Unfair Advantage
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Topic 1 Surfing Disruptive Technology Waves
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Sequential Phases of a Disruptive Technology
Wave(1 of 2)

• Displacement
• Something arrives to upset business as usual.
• Euphoria
• The first excited investors begin to put money
  into related new enterprises.
• Overtrading
• A rush starts to get in on the ground floor, and
  money flows into many new companies.

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Sequential Phases of a Disruptive Technology
Wave(2 of 2)

• Mania
• A wild rush to get in before it is too late sends
  a river of money flowing into anything related.
• Financial Stress
• Reality arrives as new enterprises begin to
  failbut some succeed.
• Partial Departure, Partial Success
• Some investors depart, many with nothing.
• Some investors and companies survive, and create
  a new order of things.

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Phases of a Disruptive Technology Wave Through
Investors Eyes(1 of 3)

• Phase 1
• New technology arrives, but the opportunities are
  unclear, foggy.
• Technology gurus get the attention of seed-round
  investors, preferably ones experienced from the
  last great wave. Technology is king.
• Phase 2
• Some think they see a large potential market has
  been discovered.
• Core teams with plans for a new business rise to
  the top of the charts of investors with deep
  pockets. Market insight is king.

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Phases of a Disruptive Technology Wave Through
Investors Eyes(2 of 3)

• Phase 3
• Infinite-sized dreams billow upward
• Incomplete core teams with better ideas get
  funded by a growing herd of very excited
  investors. Business models are king.
• Phase 4
• Mania
• Anyone with an idea using the new technology
  qualifies as management, and investors of all
  kinds stand in line begging to invest. Anything
  is king.

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Phases of a Disruptive Technology Wave Through
Investors Eyes(3 of 3)

• Phase 5
• Reality is conceded.
• Only experience, complete core teams who can
  seemingly walk on water get funded, but few try.
  Tough management is king.
• Phase 6
• Gorillas emerge.
• No one get funded. The wave is over. Investors
  count their losses, celebrate a few winners, and
  begin to look for the new wave.

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Things To Think About When Deciding to Jump on a
Disruptive Technology Wave(1 of 3)

• First Consideration
• Is it compatible with a firms core competencies?
• Does the firm have the ability to create an
  unfair advantage?
• Its not always the right thing to do to
  participate.
• Second Consideration
• Timing of entry
• First mover advantage
• Second mover (or fast follower) advantage
• Late entrant

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Things To Think About When Deciding to Jump on a
Disruptive Technology Wave (2 of 3)

• Third Consideration
• During the earliest phase, your visionary and
  proof-of-concept skills are priceless.
• During this phase, the CEO (or other champions of
  the disruptive technology) raises money (or is
  allocated money) based on a conceptual story. It
  is not easy because not much seems real or
  concrete yet.
• Apple Computer Example
• Core team members must be skilled at talking to
  and analyzing potential customers and enticing
  powerful strategic partners.

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Things To Think About When Deciding to Jump on a
Disruptive Technology Wave (3 of 3)

• Fourth Consideration
• Always remember that the existing (old
  fashioned) way of doing things is the
  competition and market leader.
• Again, its not always the right thing to do to
  participate.
• Product marketing skills rise in importance
  during the euphoric or second phase.
• Great people are your ace card during the mania
  phase.

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Topic 2 Going World Class
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Thinking World Class

• Developing a world class mindset
• If you dont think world class, you will quickly
  find yourself overrun by world-class thinking
  companies.
• Goodbye to youworld class to them.
• Never say you are a Brazilian or Chinese or
  American company

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The Importance of Cultural Barriers

• Cultural Barriers Are Not Strong Enough To Hide
  Behind
• Competitors Will Figure Out How to Get Around
  Barriers
• The important new markets are world markets to
  begin with.

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Thinking World Class

• Developing a world class mindset
• If you dont think world class, you will quickly
  find yourself overrun by world-class thinking
  companies.
• Goodbye to youworld class to them.
• Never say you are a Brazilian or Chinese or
  American company
• Beijing Li-Ning Sports Goods Co. Example

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Topic 3 Why Giants Fail to Crush New Enterprises
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Giants vs. Upstarts

• History reveals that giant organizations lose to
  new enterprises most of the time.
• Giants have poor track records of competing in
  new markets that are brought to life by
  disruptive technologies and exploited by new
  enterprises.
• Why do the thriving, large public
  corporationswith much more cash, people, and
  resources---not crush every tiny new enterprise
  that springs up?

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Different Expertise

• Different Expertise
• The leaders of new enterprises are experts in
  starting something from nothing.
• The leaders of new enterprises are skilled at
  quickly creating an unfair advantage that puts a
  giant at a significant disadvantage.

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Leave Us Alone

• Leave us alone! is the cry of the start-up team
  that has to struggle inside a giant corporate
  structure.
• Large companies fund internal teams assigned to
  respond to disruptive technologies.
• If the parent leaves the child alone, the child
  has a chance to grow up healthy and emerge as a
  respected new enterprise in the form of a new
  product family, new division, or new subsidiary.
• If the father panics and intervenes, that usually
  results in the end of the new enterprise.

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Jealousy Enemy Number One

• Seeds of Jealousy Within an Organization
• Jealousy arises when the CEO forms fresh teams
  and commissions them to do the next cool thing
  for their giant company.
• Unfortunately, jealousy is a negative emotion
  that all too often provokes a hostile reaction.
• Long-time employees complain that the new
  enterprise team is getting all the attention
  and/or resources, and subconsciously or
  consciously undermines the success of the new
  team.

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Fixation

• Fixation
• Fixation on serving existing customers well made
  the giant corporation famous.

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Flat Organizations And Response Time

• The lack of many layers of management enables new
  enterprise managers to make quick decisions.
• Giants typically have complex matrix
  organizations that conduct meeting after meeting,
  slowing decision making and forcing simple
  choices into weeks and months of response time.

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Processes

• Rigid processes are typically established and
  followed by employees in the giants.
• Managers move decisions through people and time
  using the methods and practices that have been
  documented in large manuals.
• In contrast, start-ups use processes found to be
  helpful and discard those that are not.
• Startups are better able to adapt and change
  according to what gets the job done the best and
  the quickest.

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Speed

• The speed rate for decision making by giants is
  slowin many cases it seems to take for ever.
• Startups are able to be much quicker in decision
  making and in formulating and implementing
  strategies.

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Diversification

• Most giants are diversified.
• While diversification spreads risks, it diffuses
  the attention of top management and it inhibits a
  firms ability to become world class at a
  specific discipline.
• Startups are typically not diversified.
• As a result, startups can become world class at
  a specific discipline.