Presentation on theme: " Instructor: Michael Cooke Address: Office:IC room 817 Class hours:Tuesday 09:00-12:00 Class Location:IC."— Presentation transcript:
Instructor: Michael Cooke Address: Office:IC room 817 Class hours:Tuesday 09:00-12:00 Class Location:IC room 822
The number of chicken restaurants in Korea has tripled to 36,000 in ten years ◦ Many of these are family owned ◦ Families use homes as collateral ◦ Interest rates are low South Korean household debt is rising ◦ Increased by 35% as percentage of income since 2003 ◦ Similar story through much of Asia as growth slows Singapore and Hong Kong have property booms These come with rising consumer debt Koreans borrow because of retirement ◦ The population is aging ◦ Many companies force employees to retire in their 50s ◦ Pensions are too small so families start businesses ◦ Among working Koreans in their 50s, 32% are self employed Most of the restaurant businesses fail ◦ 7,400 fried chicken restaurants open every year ◦ 5,000 go bankrupt ◦ 80% fail within 10 years, half within 3 years ◦ Aging Koreans use property as collateral to open these businesses Government now limits franchises from opening too many outlets in the same area Wall Street Journal
In 13 years running a fried chicken business a 65 year old owner has had no holiday and works 15 hours per day* ◦ This owner still falls behind in debt payments ◦ Twice fried Korean fried chicken became a popular food in 2002, during the World Cup ◦ Where an area had 3 chicken joints in 2000, it now has 11 What does KFC have to do with business strategy in Thailand (or elsewhere)? We will cover demographics, the competitive landscape, the role of government, and business resources (financial and human) *Wall Street Journal
No.Criteria% 1Midterm Examination20 2Final Examination30 3Presentations20 4Quizzes and participation30 Total100 -Students must be punctual to take a quiz. Early exit is scored as no participation. -Disrupting the class may be marked as absent. Absence scores zero participation. -The university enforces an 80% attendance policy (maximum 3 absences allowed).
Plan for the Semester WeekStartingTopicReading for the Week 1 15 OctoberIntroduction to the course – Korean Fried Chicken David pp OctoberBusiness Mission, Agency Problems David pp 74-89, Kodak 3 29 OctoberExternal Assessments & Porter David pp NovemberGlobal Business Environments/Entry Zhang pp 1-17 & NovemberInternal Assessment David pp NovemberTypes of Strategies David pp NovemberStrategy Analysis SWOT, BCG David pp DecemberStrategy Implementation - 1 David pp DecemberMidterms DecemberImplementing Strategies -2 David pp DecemberStrategy Review and Control David pp JanuaryBusiness Ethics and Review David pp JanuaryPresentations 14 4 FebruaryPresentations FebruarySpecial topics – limits of the firm Feb-6 MarFinal Examinations David, Fred R. (2011) “Strategic Management” Pearson, Upper Saddle River NJ, USA Zhang, Z. John, and Zhou, Dongshen (2007) “The Art of Pricewar” Wharton-University of Pennsylvania
A Painting of 17th-century Venice, with a view of the Doge’s Palace, by Leandro Bassano
The Law of Large Numbers numbers/?tag=nl.e703&s_cid=e703&ttag=e703 A passage from a recent Cnet article about a technology company: “transition from being considered a "high-growth tech stock, valued on its monster potential" to just another "cash cow, valued on its ability to pump hundreds of billions of dollars into its shareholders' pockets.“ Who is this article about? The title of the article is ‘The Law of Large Numbers’. Any guesses what this means in the context of business strategy? How are growth companies and cash cows different?
Strategy Defined Many definitions of business strategy Johnson and Scholes: "Strategy is the direction and scope of an organization over the long- term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations". Alfred Chandler's definition: "determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals." Business dictionary: 1. A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem. 2. The art and science of planning and marshalling resources for their most efficient and effective use. The term is derived from the Greek word for leading an army. Harvard Business School: You can't develop a strategy for your business without first thinking through mission and goals. Likewise, you can't develop a coherent strategy in isolation from decisions concerning the network of partners with whom the business will co-create and capture value. By focusing on all four elements, and sequencing them in the right way, the process of crafting strategy can be demystified Most definitions have these elements in common: Goals Resources Plans
Strategy or Strategic Planning Strategic Planning or Strategic Management seeks to exploit and create new opportunities Long Range Planning generally optimizes today’s trends Organizations should continually monitor internal and external events and trends to adapt to changes Strategic Management at most universities integrates material from all business courses (a capstone course) Since many of you have not yet taken accounting, economics, and so on, we will be somewhat limited in our objectives My bias is a finance and marketing perspective
From “Only the Paranoid Survive” Andy Grove We live in an age in which the pace of technological change is pulsating ever faster, causing waves that spread outward toward all industries. This increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing things, from corners that you don't expect. If you run a business, you must recognize that no amount of formal planning can anticipate such changes (strategic inflection points). Does that mean you shouldn't plan? Not at all. You need to plan the way a fire department plans: It cannot anticipate where the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event.
Strategic Inflection Points Excerpts from “Only the Paranoid Survive” Strategic inflection points can be caused by technological change but they are more than technological change. They can be caused by competitors but they are more than just competition. They are scale changes in the way business is conducted, so that simply adopting new technology or fighting the competition as you used to may be insufficient. They build up force so insidiously that you may have a hard time defining what has changed. Strategic inflection points are often first identified by sales managers. Strategic inflection points do not always lead to disaster. When the way business is being conducted changes, it creates opportunities for players who are adept at operating in the new way. This can apply to newcomers or to incumbents, for whom a strategic inflection point may mean an opportunity for a new period of growth. You can be the subject of a strategic inflection point but you can also be the cause of one. Intel has been both. In the mid-eighties, the Japanese memory producers brought an inflection point so overwhelming that it forced Intel out of memory chips and into the relatively new field of microprocessors. The microprocessor business that we have dedicated ourselves to has since gone on to cause inflection points for other companies. The increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing things, from corners that you don't expect.
How to recognize inflection points (Grove) So how do we know whether a change signals a strategic inflection point? First, we must figure out who our key competitor is. When the answer to this question is not as clear as it used to be, it’s time to sit up and pay special attention. Does the company that in past years mattered the most to us and our business seem less important today? Does it look like another company is about to eclipse them? If so, it may be a sign of shifting industrydynamics. The Cassandras (they make accurate predictions, but are not believed) in the organization are a consistently helpful element in recognizing strategic inflection points. Although they can come from anywhere in the company, Cassandras are usually in middle management. Often they work in the sales organization. They usually know more about upcoming change than the senior management because they spend so much time “outdoors” where the winds of the real world below in their faces.
There is no substitute for knowing the business Maurice Greenberg CEO, AIG, Inc., AIG’s legendary risk management was mostly in the head of one man: Hank Greenberg He would get raw data. He made assessments. Extremely complex organization with hundreds of subsidiaries What happened when Maurice Greenberg left AIG? The new CEO did not understand risks taken by distant units. The culture did not support succession. AIG Collapse (word document) AIG Collapse
Adapting to Change What new competitors are entering our industry? How are our customers changing? Are new technologies being developed or deployed which present new opportunities or threats? Are we in the right businesses? How can a company identify change?
Sole Proprietorships Need to Plan Example sidewalk vendor in Bangkok Rents space in front of a business Buys food for cooking and resale Has a helper, or two Owns some basic equipment, purchased with family funds Skilled cook, good location, good price = many customers But: Business and family funds are comingled Revenue from business goes to family consumption Expenses are ‘lumpy’ (due only at certain times) Problem arises when bills for rent or supplies are due, when equipment needs maintenance or replacement, or at payday The business environment changes Need to understand resources of the business and marketing If co-existence is the aim, still have “5 Forces” long term issues
Ch External Opportunities and Threats Analysis of Trends Social, Economic, Demographic Cultural Political, Legal, Governmental Technological Competitors Legal and Regulatory changes affect how business can operate and where they can find profit Lobbying seeks to influence government to steer the direction of change (or to build moats) Larger companies may have people designated to monitor external threats and opportunities
Ch Controllable activities performed especially well or poorly Determined relative to competitors Typically located in functional areas of the firm Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems Internal Strengths and Weaknesses
Competitive Advantage Cash can be a competitive advantage Fewer fixed assets may be a competitive advantage Less debt More flexibility Anything that a firm can do especially well (or is perceived to do very well) compared to competitors No competitive advantage lasts forever – continuous innovation Sustained competitive advantage Continually identifying and adapting to change Product innovation is often purchased Success is often a trap – complacency and entrenched interests
Long Term Objectives and Milestones Ch Long-term objectives are specific results required to achieve the company mission – strategies are the means by which objectives are reached Strategy implementation requires resource allocation decisions and annual objectives Annual objectives are milestones required to reach longer term objectives These are quantifiable and prioritized Annual objectives form the basis for resource allocation decisions Strategy implementation requires enlisting the support of diverse individuals All areas of an organization participate in annual objectives Policies guide recurring situations – these state expectations of employees and managers
Commonly Used Business Idioms From “Market Leader ” Goldman’s executives are on the warpath about a book. (very angry) Adversaries will do battle in court. (fight) If Apple loses the court case, that’s half the battle. (the rest is easy) That company has had a running battle with the patent office. (series of arguments) Samsung has stuck to their guns about patent invalidity. (maintained their point of view) They are up in arms about vague patents. (angry and ready to fight) Management moved the goalposts for our bonus pool. (changed their decisions or aims) Samsung hedges its bets by creating alternate designs. (reduces chances of failure) The odds are stacked against us in this dispute. (there are many difficulties)
1) The Humble Beginning of a Legend In early 1781, Revolutionary War militia leader Francis Marion and his men were camping on Snow's Island, South Carolina, when a British officer arrived to discuss a prisoner exchange According to a legend that grew out of the meeting, the British officer was so inspired by the rebels’ resourcefulness and dedication to the cause—despite their lack of adequate provisions, supplies or proper uniforms—that he promptly switched sides and supported American independence. Francis Marion had experience in the French and Indian War during the 1750s. The Cherokee Indians he fought used the landscape to their advantage. They concealed themselves in the Carolina backwoods and mounted devastating ambushes. Two decades later, Marion would apply these tactics against the British. After the Battles of Lexington and Concord on April 19, 1775, the Provincial Congress voted to raise three regiments, commissioning Francis Marion a captain in the second. When he saw combat during the Battle of Fort Sullivan in June 1776, Marion acted valiantly. For much of the next three years, he remained at his fort, occupying time by trying to discipline his troops, whom he found to be a disorderly, drunken bunch insistent on showing up to roll call barefoot. In 1779, they joined the Siege of Savannah, which the Americans lost.
Francis Marion With the American army in retreat, things looked bad in South Carolina. Francis Marion took command of a militia and had his first military success that August (1780), when he led 50 men in a raid against the British. Hiding in dense foliage, the unit attacked an enemy encampment from behind and rescued 150 American prisoners
“The Swamp Fox” Though often outnumbered, Francis Marion's militia would continue to use guerilla tactics to surprise enemy regiments, with great success. Because the British never knew where Marion was or where he might strike, they had to divide their forces, weakening them. By needling the enemy and inspiring patriotism among the locals, Marion "helped make South Carolina an inhospitable place for the British. Marion and his followers played the role of David to the British Goliath.“ In November of 1780, Marion earned the nickname he's remembered by today. British Lieutenant Colonel BanastreTarleton, informed of Marion's whereabouts by an escaped prisoner, chased the American militia for seven hours, covering some 26 miles. Marion escaped into a swamp, and Tarleton gave up, cursing, "As for this damned old fox, the Devil himself could not catch him." The story got around, and soon the locals—who loathed the British occupation—were cheering the Swamp Fox. Read more:
2) Apple has quietly created the world’s largest hedge fund worth $117 billion By Brad Reed | BGR News Apple has quietly created the world’s largest hedge fund worth $117 billion Apple (AAPL) is not only the most profitable company in the world, but it also now owns the world’s largest hedge fund as well. Zero Hedge reports that Braeburn Capital, a Nevada-based asset management corporation that Apple founded specifically to manage its cash, now has more than $117 billion in assets under management, making it even larger than hedge fund giant Bridgewater that currently has around $100 billion in assets under management. As Zero Hedge notes, Apple has been very secretive about Braeburn’s investments and activities and has kept the company’s profile decidedly low since “Apple for now uses Braeburn primarily in its capacity to find legal tax loopholes all around the world and avoid paying taxes.” What’s more, Zero Hedge says that Braeburn exists in a sort of legal black hole where it has no reporting requirements and thus isn’t obligated to disclose to anyone what it owns. Sun Tzu “The Art of War”: “Warfare is based on deception. Attack the enemy where he is unprepared, and appear where you are unexpected.” News story : Copyright BGR News 2012.
What Do We Know About Apples Strengths and Weaknesses? Some widely known strengths Enormous financial resources Brand recognition High gross margin Why is high gross margin a strength? Weaknesses? Highly dependent on one product High stock market valuation How would a competitor exploit Apple’s market valuation?
Business Strategy is Quantitative Paul Kennedy did a history of economic change and military conflict Battles can be won or lost with brilliant maneuvers German generals especially effective because they were trained and allowed to adapt to field conditions Wars are ultimately a matter of resources Businesses win or lose according to resources they are able to employ We will look at balance sheets and income statements What are our competitors’ resources? What are our own resources? Potential resources? A strategic plan should allow flexibility to adapt to changing conditions
The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty (Fred David) Strategy can be a formal planning process or informal Intuition is based on: – Past experiences – Judgment – Feelings (often the ego leads to poor judgment) Intuition is useful for decision making in conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives Intuition and analysis complement each other Integrating Intuition & Analysis
Excerpts from Reuters, (Reuters) - Renault and Nissan plan to step up cooperation and double annual savings from their car making alliance to 4 billion euros ($5.2 billion) in 2016, sources with knowledge of the plans said. Renault shares rose as much as 9.8 percent to euros on the news. Carlos Ghosn, head of both carmakers, outlined the new goal at an internal presentation to Renault and Nissan managers, people who attended the Sept meeting said. "Ghosn said we need to seek further synergies to get to double where we are today," an alliance executive said. In parallel with their operational savings push, Renault and Nissan are reviewing the cross shareholdings underpinning their 13-year-old alliance, people with knowledge of the matter said. Renault currently holds a 43.4 percent stake in its larger Japanese affiliate, which in turn owns 15 percent of Renault. The companies would not comment on savings goals or the "shifting pendulum of speculation about the alliance's corporate structure", a Renault-Nissan spokeswoman said. "We seek more and more synergies every year," she added. To meet the new goal, the allied carmakers would centralize more activities under their joint holding company, Renault-Nissan BV, sources said. The Dutch-registered venture, which already runs some purchasing and logistics operations for both companies, will extend into new markets such as Russia and broaden its remit in back-office functions such as information services, they added.Russia
Companies adapt and strategies evolve Some companies frequently commission strategic plans Large bureaucratic organizations tend to put plans on a shelf Plans and strategies change, but the organization fails to execute Others seize opportunities or create them Executives (strategists) know their business – they keep a model of the business in their head – and monitor the environment They assess the environment for opportunities, then execute (new resources, regulations, markets, changing competitive landscape)
How Wells Fargo became the Most Successful Bank Outside China Highly analytical Refused opportunities that seemed too risky Retrenched when necessary (as part of strategy) Identified sound business opportunities Adapted to banking’s strategic inflection points Executed flawlessly Opportunities arose in 2008 crisis Did not rush into deals Won the bidding for a huge distressed bank Deal gave the bank nationwide presence
Struggling with change What do you do if a gorilla moves in? What would a small coffee chain do after Starbucks moves in? (NY Times article “Struggling Against a Venti Starbucks Tide” ) Go out of business? Ignore the change? Assess the situation? Most cases look at competition from the Starbucks perspective Try looking at how to survive or thrive among the gorillas Starbucks, Apple, Intel all have vulnerabilities Legal challenges, regulatory challenges, technological challenges Segments ignored or changing consumer preferences Their own high margins Andy Grove famously said “Success breeds complacency. Complacency breeds failure.” and worried about threats from below Apple’s competitors grow in markets Apple will not serve (such as India) Niche strategies ‘fly under the radar’ of big companies
For October 22nd Get a copy of the class material Scan David pages 74-89