Wednesday, February 20 Agenda

1
Wednesday, February 20 Agenda

• Harvard approach wrap building business-level
  strategies through value chain activities
  corporate-level strategies
• International strategies
• Natura case
• Team projects
• Exam 1 information

2
Generic strategies

• Business-level
• 1.
• 2.
• 3.
• 4.
• 5.

• Corporate-level
• 1.
• 2.
• 3.
• 4.
• 5.

3
Corporate-level strategy - for the firm overall
What businesses are we in?What are the
relationships across businesses?
Business-level strategy(ies) - for each
individual division How to we compete?
4
Building competence throughout the value chain
requires commitment (R4.3)of resources and time

• Cost leadership vs. Differentiation
• Flat infrastructure Elaborated top mgt
• Spare extra benefits Appealing benefits
• Process RD Product RD
• Mass production Flexible manuf
• Scale economies Small batch
• Basic mktg Extensive mktg
• Limited service Service advantages

5
Trying to be all things to all people . . .

• is NOT a strategy (Porter)
• generally results in getting stuck in the
  middle, with no clear strategic advantage

performance
Cost leadership
Differentiation
6
Advice Carefully choose and develop your
strategy!

• Considering your strategic position can be part
  of this.
• A strategic group map is a useful tool to
  illustrate various strategic positions and
  players in the industry.
• (See 3, term project topic listing)

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Term project Topic 3

• Strategic group mapping of an industry or
  industry segment What players are in the best
  strategic positions? Why do you think so? Which
  players are in the worst strategic positions?
  Why do you think so? What are your predictions?
  What is your advice?

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Strategic Group Map
two-dimensional graphical depiction of
competitors in an industry showing. . . -
clusters of firms following similar strategies -
various competitive positions in the industry.
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Designer boutique
Saks
Upper end
NM
Nordstrom

• High
• Price/
• Quality/
• Image
• Low Product Line Breadth High

Macys
Dept stores
Sears
JCP
Various specialty stores
Kohls
Target
Discounters
WM
KM
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Steps in the construction of strategic group maps
1. Identify two important competitive
characteristics that strategically differentiate
firms in an industry from one another. 2. Plot
the firms on the two-variable map. 3. Draw
circles around the firms that are clustered
together. 4. (Indicate potential movement of
firms with arrows.)
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Pitfalls to avoid with strategic group maps

• breaking one firm into product lines and placing
  it in several positions
• mapping only one firm
• using poorly chosen axes (unimportant dimensions
  output measures rather than strategic intent
  dimensions correlated axes)
• keeping your thinking constrained to quantitative
  descriptors only

12
Value of strategic group maps

• identification of major and indirect rivals
• picturing the competitive playing field
• identification of open niches
• identification of competitor moves
• improved understanding of differential effects of
  external trends
• identification of better/worse positions
• possibly useful for class term projects!

13
Limitations of strategic group maps

• more useful in fragmented industries
• often difficult to meaningfully use in
  consolidated industries
• only two-dimensional
• a macro view of competitive rivalry
• role of mobility barriers (which restrict
  movement between groups) is unclear

14
Corporate-level strategy - for the firm overall
What businesses are we in?What are the
relationships across businesses?
Business-level strategy(ies) - for each
individual division How to we compete?
15
General approaches to diversification
1.? Portfolio management 2. ?
Restructuring 3. ? Skill transfer 4. ? Activity
sharing (? Vertical integration)
16
Facts of life about diversification (or,
diworsification - Porter)

• competition occurs at the business level
• diversification inevitably adds costs and
  constraints to business units
• shareholders can readily diversity themselves

17
Portfolio Matrix Tools

• BCG Matrix industry
• attractiveness
• on vertical
• axis firm
• 2. GE-Matrix strength on
• horizontal
• axis
• Purpose tools for strategy formulation
• in diversified firms

?
star
cash cow
dog
18
OtterTail Corporation
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Strategic Implications from the BCG
Matrix(Portfolio management)

• Cash cows (bottom left) Use excess profits to
  subsidize ?s. Do not milk dry! Defend!
• ?s (top right) Cash hogs need timely
  investment to grow.
• Stars (top left) Relatively neutral cash flow
  position. Reinvest profits for growth. May need
  cash infusions.
• Dogs (bottom right) Divest, harvest, or
  liquidate.

20
Cass County Electric CooperativeCEO Scott Handy

• Relatively successful
• Electric fireplace business
• IdeaOne Telecom
• (Joint Venture)

• Less than successful
• Rural cable television
• Cell phone service
• Home security
• Industrial land development

21
Porters 3 Tests for successful diversification

• 1. Attractiveness test -
• Is the industry attractive?
• 2. Cost-of-entry test -
• Is the cost of the entering reasonable, given
  the realistically predicted returns?
• 3. Better-off test -
• Are strategically meaningful synergies (via
  skill transfer and/or activity sharing) likely to
  be captured?

22
More advice for diversification

• First, fully develop the core business.
• Consider international opportunities.
• Use pre-acquisition criteria (consider compatible
  corporate cultures, various performance metrics,
  and Porters 3 tests).
• Use constrained diversification (competence is
  important!) with synergies leading to
  hard-to-imitate competitive advantages avoid
  high acquisition debt.
• Practice timely outplacement of
  under-performing divisions.

23
Northwestern Corporation

• Core business utilities (70 years in SD) -
• electric and natural gas
• Mid-1990s, stock price 30-40/share
• Then high flying diversification strategy
• Entertainment, propane, telecommunications, data
  services, heating, plumbing, A/C, . . .
• 2002-2003
• Internal consolidation, dividend suspension,
  divestitures, deferred interest and tax payments,
  2.2 billion in debt, stock price .82/share,
  bankruptcy filing with 9418 creditors!

24
Yip (R11.2) Global Strategy . . In a World of
Nations

• Evolution of global strategy
• 1. Develop the core business.
• 2. Internationalize, with
• multi-domestic strategy.
• 3. Integrate efforts for a truly
• global strategy.

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(see Table 1, pg. 282)

• GLOBAL
• STRATEGY

• MULTI-DOMESTIC
• STRATEGY ?

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Rationale for global strategies

• MARKET DRIVERS
• increasingly homogeneous customer needs and
  preferences
• increasingly global customers and channels

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Rationale for global strategies

• COST DRIVERS
• economies of scale/scope
• learning and experience economies
• product development costs
• sourcing efficiencies
• factor of production advantages
• favorable logistics

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Rationale for global strategies

• GOVERNMENTAL DRIVERS
• favorable trade policies
• compatible technical standards
• common marketing regulations

29
Rationale for global strategies

• COMPETITIVE DRIVERS
• country interdependence
• globalized competitors
• saturated home markets

30
R11.1 New Organizational Responses for Managing
Across Borders

• Useful insights/prescription/advice?
• Beware of oversimplification!
• Avoid standardized management approach to
  business activities across borders!

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• Examine specific tasks/sub-tasks vary managerial
  approach across borders as needed.
• Foster interdependence/mutual learning
  facilitate multi-way flow of ideas - not just
  from HQ outwards.
• Beware of over-managing unify efforts via vision
  and values, selection/socialization of key
  individuals, then foster entrepreneurial climate
  to enhance the firm.
• The balance between standardization and variation
  across borders is dynamic.

32
R11.1 7 Myths of Global Strategy

• 1. Any company with money can go global.
• 2. Internationalization of services is different.
• 3. Distance and borders no longer matter.
• 4. Developing countries are best.
• 5. Manufacture where labor is cheapest.
• 6. Globalization is here to stay.
• 7. Governments dont matter anymore.

33
Suggestions for global strategies

• examine foreign markets (O? T?)
• anchor strategy with solid competence
• understand/respect national culture and the
  strong role of governments
• location based on cheap labor cost is flawed
• (?) the greatest opportunity remains in the
  industrialized nations of the world
• capitalistic convergence is not a foregone
  conclusion

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BUSN 789 Teams - Spring 2008

• 1.Bremer Bank
• Strategy-Structure Fit
• Don Beutler
• Matt Linneman
• Shawn Rehm
• Randy Christianson
• 2.Pizza Industry
• Analysis
• Brian Dahl
• Everette Boehm
• Greg Wilson
• Rob Boser

• 3. Coffee Shop
• Industry Analysis
• William Bienek
• Mary Ulmer
• Nicole Haugen
• 4. The Winery
• Core Compentency
• Development
• Mariya Rzaszutak
• Brian Kugel
• Denise Leinen

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• 5. PRACS Strategy
• Development
• Zachary Lee
• Brandon Sis
• Corey Wahlund
• Warren Sundet
• 6. Strategy Evolution in
• a Training Firm
• Allen Lee
• Chris Barta
• Brandon Neeb
• Erin Jarolimek

• 7. _______________
• Shagufta Haider
• Kusha Khanna
• Brianne Berge
• 8. Eagle Creek SW
• Domestic Strategy vs.
• Outsourcing Strategy
• Tarun Garg
• Deepak Goel
• Brendan Nolan
• Travis Scheving

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• 9. _____________ Derek Miller
• Roman Assilbekov
• Russell Islam
• Tabish Javed

• 10. GEM Industry analysis strategy
• Sarah Dixon
• Robert Arends
• Tamara Johnson

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MIDTERM EXAM -Wednesday, February 27, 2008

• Mix of close ended (multiple choice 40) and
  open ended (discussion 60) questions
• Closed-ended questions for more straight-forward
  definitional/concept identification and use
• Open-ended questions for questions involving more
  application, explanation, interpretation,
  integration, or creativity

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Sample Closed-Ended Questions

• Which of the following mission
• Statements most appropriately includes
• the essential components?
• A). . . D). . .
• B) . . . E). . .
• C). . .
• Which of the following accurately defines
• the single business strategy?
• A) B) C) D) E)

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More Closed-Ended Questions . .

• A corporate-level strategy that has a
• Generally poor track record is
• A)., B)., C)., D)., E). . .
• Which of the following is NOT one of the
• ideal attributes of core competencies that
• facilitate achieving sustainable
• competitive advantage?
• A)., B)., C)., D)., E). . .

40
Open-Ended Questions

• Application orientedREQUIRED
• Basically applying the strategic management
• tools to a case scenario as we have done
• in our case assignments.
• Discussion orientedOPTIONS FROM A SET
• Similar to our quiz questions.

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Sample Application-Oriented Open-Ended Questions

• Write a useful mission statement . . .
• Provide an abbreviated SWOT analysis . . .
• Identify the business-level strategy . . .
• Should the firm punctuate its equilibrium?
• Explain your rationale . . .

42
Sample Discussion-Oriented Open-Ended Questions

• Explain punctuated equilibrium what
• useful insights (if any) do we gain from this?
• How does the SWOT analysis help us achieve
• external strategic fit?
• Compare and contrast multi-domestic strategy and
• global strategy. Which is best? Explain.
• Why does Henderson believe we should get so much
• information about our rivals, and then be
  irrational?

43
Misc. exam info/suggestions

• An accurate understanding of major concepts/tools
  and their application/implications is necessary
• Questions are based on readings, class, and notes
  - NOT on specific cases
• Clearly articulate your responses, revealing
  depth of understanding and insight, while staying
  focused on the issues relevant to the question

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Finally . . .

• Read questions carefully answer the questions
  ASKED
• Focus on technically sound responses, avoid
  aimless rambling
• Balance the depth of your response with the
  amount of time available
• RELAX