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Strategy fundamentals

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1 Strategy fundamentals
IS 7010 William A. Sodeman, Ph.D. I revised this slideshow in January It used to have a red background and fewer examples. The notes are based on pp 3-21 in Burgelman and Grove’s Strategic Dynamics (2006), plus some other references. I use speakers notes a lot in PowerPoint. The notes can be printed with the slides - just select the Notes view in the Print dialog.

2 Apologies to those who don’t like Dilbert
Apologies to those who don’t like Dilbert. The pointy-haired boss is a great example of PEBKAC (problem exists between keyboard and chair) and the Peter Principle (“In a hierarchy, every employee tends to rise to his level of incompetence”). Two for the price of one!

3 What is strategy? Developing unique core activities that fit with other activities in the SBU or firm Create sustainable growth in the firm Rivals will imitate these activities as costs decrease, and if they have time Competitive advantages for a single company become key success factors (KSFs) for the entire industry

4 What isn’t strategy? Effectiveness is not strategy
Doing the right thing doesn’t guarantee success, but it does help improve your chances Imitating your rivals leads to stagnation Competitive convergence Acquisition of rivals when you’re out of ideas Failing to choose a strategy is a choice The desire to grow is a trap Porter, What is strategy? ( )

5 Inference An intellectual process in which conclusions are derived from observed facts or from other ideas “Just the facts, ma’am. (We’ll draw our own inferences.)” The quote was the catchphrase of Joe Friday, played by Jack Webb on the Dragnet TV series in the 60s and 70s. Harry Morgan (left) played his partner, Bill Gannon.

6 Induction-deduction “Elementary, my Dear Watson! Observation of data
Induction or inference regarding unobservable data Prediction through deduction Regular people use induction-deduction every day. You don’t need to be a police scientist or wear a hat to do it. That’s Jeremy Brett, who played Sherlock Holmes in a popular 1980s British TV series that was also shown on PBS.

7 The X-Files Dana Sculley and Fox Mulder use deduction and induction
Sculley relies more on scientific evidence Direct observations like autopsy and physical evidence Mulder is more likely to suspend disbelief Events that cannot easily be described or measured Yes, it’s a still photo from the 1999 X-Files movie.

8 Why study cases? Provides a single set of materials for analysis and discussion A text-based snapshot of a managerial situation Primary, archival and secondary data are provided Multiple solutions are possible… but some solutions are better than others While observation of a current situation might seem more exciting, it’s risky. What if the situation isn’t resolved quickly, or there’s an unexpected twist? Case analysis isn’t perfect, but it is convenient and well-refined as a teaching method. Objective tests are fine for basic courses, but a capstone course requires students to demonstrate they have mastered the basics and can tackle more complex issues.

9 Planning and implementation
STRATEGY CLEAR UNCLEAR Imple-ment-ation Effective SUCCESS MAYBE Ineffective FAILURE This is a classic 2-by-2 or 4-cell matrix in strategic management literature. This particular version is from Tregoe & Zimmerman’s 1980 book, Top Management Strategy. We’ll see these consultants again when we discuss driving forces.

10 P (company) vs. E (external environment
P’S STRATEGIC ACTIONS RULE-ABIDING RULE-BREAKING E and e Rule-abiding Limited change P-controlled change Rule-breaking P-independent change Runaway change P vs. E is Grovespeak for the company and its external environment. We’ll address the external environment in our SWOT exercise. The terms P and E are used throughout pp 7-21 and in our case. As Grove explains on pp 8-9, the lowercase e represents other market segments and industries that either exist or are emerging. E with a capital letter indicates the company’s primary external environment. The table is adapted from p 9.

11 Limited change Linear Stable Mutual adaptation
“Running hard to stay in place” Over time, strategic inertia sets in and reinforces the constraints See p 9.

12 P-independent change Nonlinear Disruptive
Rule breaking by others leads to 10x (major) changes in E and P Sometimes these changes emerge from e e may become a complementor See pp 9-10

13 P-controlled change Nonlinear Complex
Rule breaking by P leads to 10x (major) changes in E Planned changes are easier to control, but difficult to arrange Unplanned changes might work if E waits to act See pp 10-11

14 Runaway change Nonlinear Chaotic
Rule breaking by P and E leads to 10x (major) changes in industry structure e may also be involved and changed “The perfect storm” The only sure prediction is destruction See pp 11-12

15 Porter’s five forces Competitive rivalry among the firms in the industry Threat of new entrants Threat of substitutes Power of buyers Power of suppliers The five forces model describes the relationships among several factors that affect competition within a specific industry. The first force, competitive rivalry, is usually our main concern within an industry. However, in some industries there are few competitors. Depending upon the situation some or all five of the forces might come into play. We might each force on a 1 to 5 scale, with 1 being most important, and 5 being the least important.

16 In some textbooks, the five forces model is displayed in this manner
In some textbooks, the five forces model is displayed in this manner. Michael Porter himself included a similar diagram in his 1980 book Competitive Strategy. I don’t recommend that students use this graphical format for listing the results of a five forces analysis. There’s very little room for text. Image from

17 Image from
The arrow in the center represents competitive rivalry among companies in an industry.

18 Another example, for buying a farm.
It’s worthwhile noting that we should identify and try to rate the threat of a substitute or new product/service.

19 One final example from
This has a good list of items that should be assessed for each of the five forces.

20 Grove’s NINE forces model
Competitive rivalry among the firms in the industry Threat of new entrants Threat of substitutes Power of customers Power of suppliers POWER OF CHANNELS POWER OF COMPLEMENTORS REGULATORY CHANGE TECHNOLOGICAL CHANGE Grove uses a NINE forces model as described on pp We will use this model in IS 7010, too. Channels tie into the company’s value chain, as distributors. In some cases, distributors hook into the right side of the chain. Complementors might also be existing or potential competitors, potential new entrants, or even customers. Complementors help enhance the value of the company’s products and services. The top seven forces are market-based. The last two are outside the market or non market forces.

21 Value chain The diagram is from the O’Brien/Marakas textbook, 8th edition, Chapter 2, slide 21. Read the value chain from left-to-right. The 4 support activities are listed across the value chain

22 These examples are from an HBR article that Porter wrote.
Exhibit I is a less cluttered representation of the value chain model. Exhibit II shows what happens when we line up value chains for suppliers, the company, the channel and buyers. We create a value system. ERP software and industry portals should help add value to these value systems. Porter & Millar (1985, p. 4)

23 Reading the case Read the case at least twice
Most of the information you need for analysis is already in the case and assigned readings Don’t do extra research on the company or industry No need to check what the company actually did – it was usually the wrong decision anyway Cases tend to be descriptive or prescriptive. There are good reasons why ther case authors included specific information, and restricted the case to a specific casetime. Many cases illustrate the a crucial point when management could have made a better decision. That’s a big reason why outside research is not very helpful in case analysis.

24 Reading the cases If two or more cases are assigned together, those cases are probably related Situation and follow-up Competitors Complementors Other similarities Sometimes I assign two or more cases together. There’s usually a good reason for that! Case notes become very helpful, because it’s hard for people to compare two long pieces of text directly in a case analysis.

25 Writing the case notes Always write a separate sheet or document of notes while reading a case Highlighting the book is only a start Use the notes to start lists of analysis inputs Novices often approach a case assignment as a reading exercise. Cases require more activity than reading. Most students need to prepare a separate set of notes about each case. It’s much easier to compare and analyze cases from notes. Of course, it’s a bad idea to borrow or give your case notes to other students. The process of writing the case notes is more important than the actual result, especially for novices.

26 What are your assumptions?
Make clear notes to yourself about your assumptions regarding the case There is always information that is missing from the case As you assemble your SWOT, value chain and competitive forces analysis, indicate your assumptions by using a different color or font.

27 Case analysis Restrict your analysis to the actual time of the case (casetime) Don’t propose solutions that are unavailable or illogical E-commerce in the early 1990s Expensive plans when the company is facing bankruptcy Entering a completely new area of business

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