Welcome to BA530 Pioneering Innovation

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Welcome to BA530Pioneering Innovation

• John A. Hengeveld
• Karyn Lazarus

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Agenda for Today

• Introduction and Logistics
• What is Innovation?
• A Firm in Competition
• Porter Value Chain
• Set up the HE Butt Case

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Introduction and Logistics

• Class Syllabus Schedule Review
• Case Writeup and Presentation Criteria
• Teams
• Any questions??

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Written Grading standard

• Organization of report 15
• Writing correctness 10
• Goes Beyond the Obvious 10 depth
• Recommendation
• Aptness 20
• Persuasion 15
• Analysis
• Business Situation Analysis 10
• Identification/Justification Criteria for
  decision 10
• Analysis of Alternatives and Rationale for
  recommendation 10

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Case Presentation Criteria

• Clearly demonstrate an understanding of the
  issues of the case and the business situation
  facing the key figures 30
• Make a clear prescription or recommendation which
  addresses the real problems. 30
• Defend your position against questions 30
• Style (professional quality, well presented,
  keeps the class awake) 10

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Case Analysis Method

• A note on Case Learning

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Pioneering Innovation
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What is Innovation?

• How does Innovation Relate to Business?
• How is it nurtured and developed (Drucker)?
• How do different firms use innovation to compete?

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A firm and competition

• We need to gain some alignment on some key
  concepts.
• What is a firm and why does it exist?
• What is a firm competing for?
• Why does it compete?

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What is Profit?
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What is strategy??
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Common Elements of Successful Strategy
Successful Strategy
Effective Implementation
SimpleConsistent Long Term Objectives
ProfoundUnderstandingof the CompetitiveEnvironm
ent
ObjectiveAppraisal of Resources
Grant Figure 1.1
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Grants Definition

• The task of business strategy is to determine
• HOW the firm will deploy its resources within its
  environment to satisfy its long term goals and
• HOW to organize itself to implement that strategy.

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Graphically
Industry Environment
The Firm
CompetitorsCustomersSuppliers
Goals andValuesResourcesCapabilitiesStructur
e Systems
Strategy
Grant Figure 1.2
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Phases of Strategic Development

• Strategic Analysis
• Strategic Formulation
• Strategic Implementation

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Strategic Analysis

• The formulation of strategy begins with
• Analysis of the industry and its operating
  environment and dynamics
• Analysis of the firm and is capabilities to
  deploy against the key success factors of an
  industry

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The Porter Value Chain
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Industry Analysis

• Analysis of Industry Structure
• Forecasting Industry Profitability

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Industry Structure
PerfectCompetition
Oligopoly
Duopoly
Monopoly
Many Firms
Few
2 Firms
One Firm
NoBarriers
SignificantBarriers
HighBarriers
HomogeneousProduct
Potential for Product Differentiation
PerfectInformation Flow
Imperfect Availability of Information
Grant Figure 3.2
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Porters 5-forces analysisDeterminants of
industry attractiveness
Threat ofNew Entrants
Rivalry among Existing Competitors
BargainingPower of Suppliers
CustomerBuying Power
Threat ofSubstitutes
2 examples
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Applying Five - Forces Analysis

• Forecasting Industry Profitability
• Past profitability a poor indicator of future
  profitability.
• If we can forecast changes in industry structure
  we can predict likely impact on competition and
  profitability.

• Strategies to Improve Industry Profitability
• What structural variables are depressing
  profitability
• Which can be changed by individual or collective
  strategies?

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Drawing Industry Boundaries Identifying the
Relevant Market

• What industry is BMW in
• World Auto industry
• European Auto industry
• World luxury car industry?
• Key criterion SUBSTITUTABILITY
• On the demand side are buyers willing to
  substitute between types of cars and across
  countries
• On the supply side are manufacturers able to
  switch production between types of cars and
  across countries
• May need to analyze industry at different levels
  for different types of decision

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The Value Net
CUSTOMERS
COMPANY
COMPLEMENTORS
COMPETITORS
SUPPLIERS
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Five Forces or Six? Introducing Complements
The suppliers of complements create value for
the industry and can exercise bargaining power
SUPPLIERS
Bargaining power of suppliers
INDUSTRY COMPETITORS
COMPLEMENTS
Threat of new entrants
POTENTIAL ENTRANTS
Threat of substitutes
SUBSTITUTES
Rivalry among existing firms
Bargaining power of buyers
BUYERS
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Dynamic Competition

• Porter framework assumes
• industry structure drives competitive behavior
• Industry structure is stable.
• But---competition also changes industry structure
• Schumpeterian Competition A perennial
• gale of creative destruction where innovation
  overthrows established market leaders
• Hypercompetition intense and rapid
  competitive moves.creating disequilibrium
  through continuously creating new competitive
  advantages and destroying, obsoleting or
  neutralizing opponents competitive advantages

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Identifying Key Success Factors

• Pre-requisites for
  success

Pre-requisites for success
What do customers want?
How does the firm survive competition

• Analysis of competition
• What drives competition?
• What are the main dimensions of
  competition?
• How intense is competition?
• How can we obtain a superior competitive position?

• Analysis of demand
• Who are our
• customers?
• What do they want?

• What drives competition?
• What are the main
• dimensions of competition?
• How intense is competition?
• How can we obtain a
• superior competitive position?

KEY SUCCESS FACTORS
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Identifying Key Success Factors Through Modeling
Profitability The Airline Industry
Profitability Yield x Load
factor - Unit Cost Income
Revenue RPMs
Expenses ASMs RPMs
ASMs ASMs


x
-

• Strength of competition on
  routes.
• Responsiveness to cha- anging market
  conditions
• business travelers.
• Achieving differentia- tion advantage

• Price
• competitiveness.
• Efficiency of route
• planning.
• Flexibility and
• responsiveness.
• Customer loyalty.
• Meeting customer
• requirements.

• Wage rates.
• Fuel
• efficiency of
• planes.
• Employee
• productivity.
• Load factors.
• Administrative
• overhead.

ASM Available Seat Miles RPM Revenue
Passenger Miles
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Identifying Key Success Factors by Analyzing
Profit Drivers Retailing
Sales mix of products
Return on Sales
Avoiding markdowns through tight inventory control
Max. buying power to minimize cost of goods
purchased
ROCE
Max. sales/sq. foot through location
product mix customer service quality control
Sales/Capital Employed
Max. inventory turnover through electronic data
interchange, close vendor relationships, fast
delivery
Minimize capital deployment through outsourcing
leasing
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Profit Potential of Resources
The ProfitEarning Potentialof a Resourceor
Capability
From Grant Contemporary Strategy Analysis,
Blackwell, 1998
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What is this course about?

• Exploration of the role of innovation in many
  different functions of a firm
• Exploration of strategy and firms in competition
• Developing case analysis and communication skills

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Setup of the HE Butt case

• HE Butt was 3rd largest grocery retailer in the
  US in 1992 (3.2B)
• Mass merchandisers entered the market and
  represented a serious threat.. Why?
• Implement ECR system which moved buying logistics
  to suppliers!
• Radically increased inventory turns
• Eliminated death by price promotion
• Levered improvements in scanner technology to
  automate inventory management

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Simplified Grocery Value Chain
Manufacturers
Distributors
Stores
Warehouse
Goods
Goods
Factory
Storage
RawMaterials
Customers
Shelves
Info
Info
Warehouse


HE Butt Grocery A Leader in ECR Impl (Abridged)
HBSP
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HE Butt Discussion Questions

• (note.. These things need to be in your writeup,
  but they are only part of what you need to do..)
• What is going on in the industry and what are the
  dynamics of competition? (ie provide an industry
  and competitive analysis)
• What is HE Butts generic strategy?
• What do you think of the plan in Exhibit 1?