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-1- ARENA Copyright 2002 Alex Coman It is not enough to succeed; others must fail. Gore Vidal.

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Presentation on theme: "-1- ARENA Copyright 2002 Alex Coman It is not enough to succeed; others must fail. Gore Vidal."— Presentation transcript:

1 ARENA Copyright 2002 Alex Coman It is not enough to succeed; others must fail. Gore Vidal

2 ARENA Copyright 2002 Alex Coman The ARENA Genome: Harmonic Strategic Planning Arena Layers: Corporate, Business Function- Define Hierarchy Refinement Stages: Arena, Focus, Action Create Strategy ARENAARENA FOCUSFOCUS ACTIONACTION Arena actors: Partners, Threats; Current, Future Tailored Patterns. Corporate Layer: Portfolio Businesses Maximize Value Function Layer: Process, Project and Product Agile value drive Business Layer: Positioning Products by Market Strategy Target Criteria Prioritize attention Manage Control span Dynamic Vectors: Vision, Resource, Deliver Guru 2 Gorilla

3 ARENA Copyright 2002 Alex Coman Shareholder value Warren Buffett, The Focus Investors Golden Rules: «Im 15% Phil Fisher and 85% Benjamin Graham» Benjamin Graham, quantitative: Fixed assets, current earnings, dividends. Corporate filings and annual reports: cheap stocks. Phil Fisher, qualitative: future prospects, management capability. Customers, competitors, managers: intrinsic value, long term. Invest: Know nothing: Index funds. Know something: 5-10 companies. Diversification overrated. It increases the chances of buying something you dont know enough about. Volatility happens: thing long term 5 to 10 years. Dow Jones Euro Stoxx 50 Average European fund 1 Year Dow Jones Euro Stoxx 50 Average European fund Dow Jones Euro Stoxx 50 Average European fund % Increase 0 50% 100% 150% 200% 3 Year5 Year

4 ARENA Copyright 2002 Alex Coman Annual Report Stratus:…manufacturer of fault-tolerant computer systems…$267M Revenues…were estimated to be $84M in 1999 and $345M in 2000…expected to peak in fiscal year 2002 and decline thereafter through the end of the products life (2009) as new product technologies were expected to be introduced by us. A risk-adjusted discount rate of 35% was used to discount projected cash flows. The actual results to date have been consistent, in all material respects, with our assumptions at the time of the acquisition, except as noted below…Product development relating to the…projects was discontinued due to our reprioritization of product direction…Consequently, we did not realize the forecasted revenues from these projects. During fiscal year 2001, substantially all of the goodwill and acquired intangibles related to the purchase of Stratus were written off as part of our restructuring program… Chromatis Networks: Next generation optical transport solutions that provide telecommunications carriers with improvements in the cost, efficiency, scale and management of multi-service metropolitan networks…integrate data, voice and video services…and combine this traffic onto a wave division multiplexing system.…$428M represented its estimated fair value using the methodology described above…Revenues were estimated to be $375M in fiscal year 2001 and $1 billion in fiscal year Revenue was expected to peak in fiscal year 2005 and decline thereafter…A risk-adjusted discount rate of 25% was used…As part of our restructuring program in fiscal year 2001, the Chromatis product portfolio was discontinued and all of the remaining assets…were written off. Spring Tide Networks: Carrier-class network equipment..that enables service providers to offer new Value-added IP services and VPNs with low cost and complexity…IP service switch carrier class platforms that combine the connectivity of a remote access server, the network intelligence of a remote access server, and the switching capacity and quality of service capabilities of an ATM switch in one integrated switch. In-Process Research and Development « IPRD » In connection with the acquisitions in fiscal years 2000 and 1999 of Chromatis, Spring Tide and Stratus, we allocated non-tax impacting charges of $428 million, $131 million and $267 million, respectively of the total purchase price to IPRD. As part of the process of analyzing each of these acquisitions, we made a decision to buy technology that had not yet been commercialized rather than develop the technology internally. We based this decision on a number of factors including the amount of time it would take to bring the technology to market. We also considered Bell Labs resource allocation and its progress on comparable technology, if any. We expect to use the same decision process in the future. We estimated the fair value of IPRD for each of the above acquisitions using an income approach. This involved estimating the fair value of the IPRD using the present value of the estimated after-tax cash flows expected to be generated by the IPRD, using risk- adjusted discount rates and revenue forecasts as appropriate. The selection of the discount rate was based on consideration of our weighted average cost of capital, as well as other factors, including the useful life of each technology, profitability levels of each technology, the uncertainty of technology advances that were known at the time, and the stage of completion of each technology. We believe that the estimated IPRD amounts so determined represented fair value and did not exceed the amount a third party would pay for the projects. Financial highlights: Shareholders equity: 2000:$ :$5.73, (81.2%). Annual Meeting to be held on 02/20/02 at 09:00 A.M. Proposals: Evelyn Y. Davis: Repeal Classified Board. (Reelection of directors annually vs. recent stagger system). After thoughtful consideration…directors recommend a vote against proposal 2.

5 ARENA Copyright 2002 Alex Coman Merchandising, Music, Publishing Schumpeter: Creative destruction Disney corporate portfolio Disney corporate portfolio Animation Merchandising Animated Features Music Publishing TV Programming Disneyland Book Publishing Disney Stores Direct Mail Hollywood Records Software Visual effects Disneyworld Films Touchstone Home videos Hollywood Pictures Miramax Acquisition Movie Entertainment Live Entertainment KCAL TV ABC EPCOT Disney Studios MGM Euro Disney Disneyland Tokyo Hotels Resorts Holidays, Resorts, Real estate development Disney Channel Theater Broadcasting HokeyBaseball Amusement Parks Animal Kingdom Disney America Disney Institute Cruises Communities Movie Entertainment Broadcasting Live Entertainment Amusement Parks Merchandising, Music, Publishing Holidays, Resorts, Real estate development

6 ARENA Copyright 2002 Alex Coman Active Portfolio Management -10% -5% 0% 10% 15% A businesss average total return to shareholders relative to its industry 5% Business age in years Comparing 1985 to 1995, the top 150 electronic-systems- companies worldwide ranked by revenue: 75% of the firms in 1985 either slipped or disappeared by % improved / 33% eliminated / 42% new Source: Anderson Consulting (1997) Exploiting Uncertainty: Hi-Techs High Performers Change the Dynamics of Competition

7 ARENA Copyright 2002 Alex Coman Pareto Cum Percent 0 20% 40% 60% 80% 100% % 25% 50% 4 15% 25% 50% 5 Share of total revenue Income Group 20% 40% 60% 80% 100% Distribution of US federal Income-tax revenue by income group

8 ARENA Copyright 2002 Alex Coman Brandenburger and Nalebuff 95 Paradigmatic Isomorphism: Deep Structure Company Customers Suppliers Substitutes Complementors Porters 5 forces: Sustainable competitive advantage; Entry Barriers Competitors New entrants substitutes Suppliers Buyers A. Grove, 96: Six forces Diagram x10 force The Business Complementors Suppliers Existing Competitors A different way Customers Potential Competitors Mintzberg 88: Generic Strategies Primary Industries ExtractionProcessingFabricationAssemblyWholesaleRetail Secondary Industries Tertiary Industries Upstream Industries Midstream Industries Downstream Industries Hamel and Prahalad, 94 Brand & Distribution Creating coalitions Standards & Regulation Core competencies Market Learning & Experimentation Strategic Apex Operating Core Support Staff Techno structure Middle Line Ideology Marketing:7Cs: Company, competition, channel, customer,

9 ARENA Copyright 2002 Alex Coman Market segments: Externalities Competitors Spatial Paradigm: Vertical Flow Upstream Downstream Firm Value System Back Office Front Office Value/ Food Chain Distribution Chain/ Channels Supply Chain/ Channels Substitutes Complementors Clusters Regulators Forward Integration Backward Integration Vertical Integration (Jumping the Connection) Horizontal Integration 90 0 Turn

10 ARENA Copyright 2002 Alex Coman Horizontal Value Chain: Integration: Vertical Control Information Relationships: Business Monopoly/ Regulatory Agency Entities: Market Firm/Coalition Drugs Teva Farmer Dairy Distributor Retailer Consumer Low High FDA Syntax Vocabulary Structure Concise: Link Markets rather than instances. Business implies information flow. Titles on significant arrows. Pertinent entities only. Web ARENA Canonical Form

11 ARENA Copyright 2002 Alex Coman Application Programs Integration Operating Systems UnixLinux MS WinNT MS WinXP MS WinCE WordExcelAccessOutlookExplorer Navigator Vertical Integration Forward Horizontal Integration Work Stations Compilers MS Visual Sun Java Sun Vertical Integration Backward MS Joystick DiversificationSpinoff IBM Rolm IBM Aptiva 90 0 Turn Compaq 83 Portable PC Deskpro 86 PC Armada88 Laptop Proliant89 Servers 6000/ Workstation Palmtop97 PDA Tandem Mainframes Digital Solutions & Services Digital Alpha Processor

12 ARENA Copyright 2002 Alex Coman Distributors Health-Care Corporate Arena Drug Manufacturers Ethical Generic GSKTeva FDAMinistry of HealthGMP CTS Lemon Health Management Org. Clalit Vitamed Macabi Physicians Public Prescription List Pharmacies Macabi Prescription Drugs Over the Counter ShorTab Advertising IMS SuperPharm Web Product Specialists Glaxo IL TevaNovoPharm Disease Management American Hospital Supplies Tele medicine eMed EDI Admin Shahal Pharma Novolog

13 ARENA Copyright 2002 Alex Coman Electronic Markets and Electronic Hierarchies Malone et. Al., Modeling Coordination in Organizations and Markets Supplier2 Decentralized Market Customer1 Centralized Market Supplier1Supplier3 Customer2Customer3 Supplier2 Customer1 Supplier1Supplier3 Customer2Customer3 IntermediaryBrokerInfoMediary

14 ARENA Copyright 2002 Alex Coman Rebuilding the value chain: Benchmark Capital Manufacturer/ publisher Wholesaler/ distributor E-retailer Portal/ aggregator Consumer Reintermediation Disintermediation The e-commerce matrix BusinessConsumer Business B2B GM/Ford EDI networks B2C Amazon Dell Consumer C2B Priceline Accompany P2P Ebay Napster Microsofts Nathan Meirvold: Anyone standing between suppliers and customers will become road-kill on the information highway.

15 ARENA Copyright 2002 Alex Coman E-Hubs: The new B2B Marketplaces. Steve Kaplan. The Forward Aggregator Model Buyers Small resellers IBMCompaqCisco Microsoft Large Suppliers Small Buyers E-hub: Fulfillment, Inspection, Receivables, Financing Integrator Distributors Dow Dupont Ashland 3M Large Suppliers E-hub: Fulfillment, call center, Distributor financing, configurators Ingram Micro The Reverse Aggregator Model Direction Of Aggregation Direction Of Aggregation What Businesses Buy Operating Inputs Manufacturing Inputs How Businesses Buy Systematic Sourcing MRO Hubs Ariba, W.W.Grainger,, Catalog Hubs Chamdex,, Spot Sourcing Yield Managers Employease,, Excanges E-steel,, Altra Energy, IMX Exchange

16 ARENA Copyright 2002 Alex Coman Telecom Market Equipment Providers/Integrators Service Provider Customers Access Technologies Component Providers MTUSoHoCampusRural Suburban Business Small Telco BLEC ILECCLEC Large Telco DLEC NortelLucentAlcatelCiscoSiemens FiberCopperSatelliteCableCellular OrkitVocaltecECICommatchAptonicsAmdoxRadcomNiceGilatADC SeabridgeMotorolaComverseComtouch

17 ARENA Copyright 2002 Alex Coman Time-To-Market: TTM Garment Manufacturers Far East Labels Victorias Secret Customers Retailers Fabric Far East StandardZara FocusCostSpeed ManufactureO/SVertical Info. Tech. Cash Registers Hand Held devices Models/Yr >11K TTM6 Months Design+ 3M Manf.. 4-5W design+1M 10-15Days Delivery1/Season2/Week Bad products ? Off in Weeks Inventory turnover3*Gap Adv. Camp.None Profits+30%/year Macys Benetton Walmart Inditex79 23 Robot cut & Die #3 >40% Zara 467Stores Zara Small Shops >50% Delta H&M 900 suppliers H&M Inner Secret NWH&MGAPZara Mfg. Eur.vs. Asia50%17%80% Design to Delivery6-8Months6Months2-5 Weeks Inventory Unsold 25%20-30%15-20% Profit margin 12.4%10.6%14.9% Sales $Bill $3B$13.7B$2.6B GAP 25-35years Anti Gap Older& Wealthier College Crowd Trendy Urban Late Teens Cost Conscious Girls 12+Up Cheap cool Zara 467Stores Massimo Duti 207 Pull&Bear 238 Stradivarius 114 Bershka 127 St.Michael M&S Solog Tefron HiTex CK

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