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“It is not enough to succeed; others must fail”. Gore Vidal

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Presentation on theme: "“It is not enough to succeed; others must fail”. Gore Vidal"— Presentation transcript:

1 “It is not enough to succeed; others must fail”. Gore Vidal

2 The ARENA Genome: Harmonic Strategic Planning
Refinement Stages: Arena, Focus, Action Create Strategy Arena Layers: Corporate, Business Function- Define Hierarchy Corporate Layer: Portfolio Businesses Maximize Value A R E N F O C U S A C T I O N Business Layer: Positioning Products by Market Strategy Function Layer: Process, Project and Product Agile value drive Arena actors: Partners, Threats; Current, Future Tailored Patterns. Target Criteria Prioritize attention Manage Control span AMEV vs. Drucker, Roadshow cloud vs. Robner (analysts) Warren Buffet (Berkshire Hathaway): Financial vs. Business understanding Management-by-exceptions, by-walking-around. Jack Weltch, Stock market fluctuations, share splits. Hierarchy: accounting -> Hypertext: zoom in/out: resolution management. Professional, geographic concentration. Arena: Focus Action Dynamic Vectors: Vision, Resource, Deliver Guru 2 Gorilla

3 Shareholder value Warren Buffett, The Focus Investor’s Golden Rules:
«I’m 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 don’t know enough about. Volatility happens: thing long term 5 to 10 years. Dow Jones Euro Stoxx 50 Average European fund 1 Year % Increase 50% 100% 150% 200% 3 Year 5 Year AMEV vs. Drucker, Roadshow cloud vs. Robner (analysts) Warren Buffet (Berkshire Hathaway): Financial vs. Business understanding Management-by-exceptions, by-walking-around. Jack Weltch, Stock market fluctuations, share splits. Hierarchy: accounting -> Hypertext: zoom in/out: resolution management. Professional, geographic concentration. Arena: Focus Action

4 In-Process Research and Development « IPRD »
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 product’s 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. Purchase Peak Termination Stratus: : Price: $267M, Revenues estimated: Revenue negative for the remainder of the projection period Costs to complete R&D estimated Discount rate:35% Chromatis: Revenues attributed to the metro optical product: Revenue growth and negative later. Spring tide Revenues attributable to the IP Service switch products: Revenue growth: negative later.

5 Schumpeter: Creative destruction Disney corporate portfolio
Movie Entertainment Live Entertainment Merchandising, Music, Publishing Broadcasting Amusement Parks Cruises Communities Holidays, Resorts, Real estate development Holidays, Resorts, Real estate development Disney Institute Animal Kingdom Disney America Amusement Parks Resorts Hotels Euro Disney Disney Studios MGM Disneyland Tokyo Live Entertainment EPCOT Theater Hokey Baseball Disneyworld Disney Channel Kotler’s book: from Rajar Gupta’s lecture (McKinsey)”Starting Kick and growth maintenance?!”, August 4th 1997, Kellogg school of management KCAL TV ABC Broadcasting Disneyland Animated Features TV Programming Touchstone Home videos Hollywood Pictures Miramax Acquisition Movie Entertainment Films Music Publishing Merchandising, Music, Publishing Book Publishing Disney Stores Direct Mail Hollywood Records Software Visual effects Merchandising Animation ‘30 ‘20 ‘50 ‘60 ‘80 ‘90 2000 ‘40 ‘70

6 Active Portfolio Management
-10% -5% 0% 10% 15% A business’s average total return to shareholders relative to its industry 5% 1 5 10 15 20 25 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 1995 25% improved / 33% eliminated / 42% new Source: Anderson Consulting (1997) “Exploiting Uncertainty: Hi-Techs High Performers Change the Dynamics of Competition Commtouch ’91:Mainframe mail,’99 MS vs. Netscape damage - Outsourcing web mail 2Q M mailboxes. Last chance Lee Dranikoff, Tim Koller and Antoon Schneider, “Divestiture: Strategy’s Missing Link” HBR, May 2002, pp Richard Foster and Sarah Kaplan, “Creative Destruction”, Doubleday, 2001: age, return.

7 Distribution of US federal Income-tax revenue by income group
Pareto Distribution of US federal Income-tax revenue by income group 100% Cum Percent 20% 40% 60% 80% 100% Share of total revenue Income Group 4 15% 25% 50% 5 80% 60% 40% “Getting personal”, Survey Globalisation and tax, Economist, Jan 29, 00, p.16 1 20% 4 15% 25% 5 50%

8 Paradigmatic Isomorphism: Deep Structure
Porter’s 5 forces: Sustainable competitive advantage; Entry Barriers Brandenburger and Nalebuff ‘95 Company Customers Suppliers Substitutes Complementors Competitors New entrants substitutes Suppliers Buyers A. Grove, ’96: Six forces Diagram x10 force Marketing:7Cs: Company, competition, channel, customer, The Business Complementors Suppliers Existing Competitors A different way Customers Potential Mintzberg ’88: Generic Strategies Primary Industries Extraction Processing Fabrication Assembly Wholesale Retail Secondary Tertiary Upstream Midstream Downstream Strategic Apex Operating Core Support Staff Techno structure Middle Line Ideology Hamel and Prahalad, ’94: Competing for the Future, Harvard business school press, 1994 Andy Grove, “Only the Paranoid Survive” Hamel and Prahalad, ’94 Brand & Distribution Creating coalitions Standards & Regulation Core competencies Market Learning & Experimentation

9 Spatial Paradigm: Vertical Flow
Upstream Regulators Value/ Food Chain Supply Chain/ Channels Backward Integration Vertical Integration (Jumping the Connection) Complementors Clusters Market segments: Externalities Competitors Back Office Substitutes Firm Value System Horizontal Integration Front Office Distribution Chain/ Channels Forward Integration 900 Turn Battlefield, Ecology, habitat Downstream

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

11 Horizontal Integration
Digital Alpha Processor Compaq ‘83 “Portable PC” Deskpro ‘86 PC Armada‘88 Laptop Proliant‘89 Servers 6000/8000’96 Workstation Palmtop’97 PDA Tandem Mainframes Digital Solutions & Services MS Joystick Diversification Spinoff IBM Rolm Aptiva 900 Turn Horizontal Integration Operating Systems MS WinNT WinXP WinCE Linux Unix Vertical Integration Forward Work Stations Compilers MS Visual Sun Java Vertical Integration Backward Iconography, Syntax, Structure, Process, Patterns Application Programs Word Excel Access Outlook Explorer Navigator

12 Health-Care Corporate Arena
FDA Ministry of Health GMP Drug Manufacturers Ethical Generic Vitamed GSK Teva Teva NovoPharm IMS Distributors American Hospital Supplies CTS Pharma Lemon Glaxo IL Novolog Product Specialists EDI Disease Management Health Management Org. Advertising Clalit Shahal Macabi Admin Tele medicine Boosh: Average Innovative prescription $72 vs. Generic $17 Copaxon: 1/day vs. Biogen’s Avanx 1/Week. April 2002 launched (British) Owen Mmford’s Pre-Filled syringe+autoject (hides needle, no need to fill with water, stored 7 days at room temperature(good for travel), can be used by deteriorating patient, can move freely, improves accuracy and consistency of injection: depth adaptor) + more discipline: Patients loose motivation to inject between seizures. Complaints: dull,thicker harder needle, partial injection – left in syringe. Yoram Gabizon, “Given Imaging’s customer base grew to 26 million insured in the US”, Haaretz, July12,2002, p.10ג Intercontinental Medical Statistics: IMS health: $8K average pharma firm spends $20M/year. PDS bought Yoram Gabizon, “Shahal”, Haaretz, p.C10, monitor=ניטור Shahal: FDA approval for 12/12:patient performs and transmits EKG including electro-cardio activity from 12 angles. Cardio US Response time for short cardiac arrest 215 minutes shorter for Shahal patients (=mental suppression to call or not)->reduced damage to heart muscle and reduced daqnage to quality-of-life. Reduced redundant hospitalization days of 80% of 3.3Million patients complaining of chest pains, hospitalized with no attack. Telemedicine cost per diem=$30 vs. hospital=$1,200. Telemedicine 2000=20% to $2.8B. Yoram Gabizon, “CardGuard”, Haaretz, p.C10, : Heart and lung monitoring system M&A:1/2001 purchased Life Watch emergency services 70K subscribers, 8/2001: Instrumedics (San Diego) good brand competitor. Q12001: Quality diagnostic Services: 50K subscribers- cardio telemedicine. List Pharmacies SuperPharm ShorTab Macabi Physicians Web eMed Prescription Public Prescription Drugs Over the Counter

13 Electronic Markets and Electronic Hierarchies Malone et. Al
Electronic Markets and Electronic Hierarchies Malone et. Al., Modeling Coordination in Organizations and Markets Decentralized Market Supplier1 Supplier2 Supplier3 Customer1 Customer2 Customer3 Centralized Market Supplier1 Supplier2 Supplier3 Broker Intermediary InfoMediary Customer1 Customer2 Customer3

14 Rebuilding the value chain: Benchmark Capital
Microsoft’s Nathan Meirvold: “Anyone standing between suppliers and customers will become road-kill on the information highway.” Manufacturer/ publisher Wholesaler/ distributor E-retailer Reintermediation Portal/ aggregator Disintermediation Consumer The e-commerce matrix Business Consumer B2B GM/Ford EDI networks B2C Amazon Dell C2B Priceline Accompany P2P Ebay Napster Rebuilding the value chain: Source: Benchmark Capital; The Economist

15 E-Hubs: The new B2B Marketplaces. Steve Kaplan.
The Forward Aggregator Model The Reverse Aggregator Model IBM Compaq Cisco Microsoft Large Suppliers Dow Dupont Ashland 3M Large Suppliers Direction Of Aggregation Direction Of Aggregation E-hub: Fulfillment, call center, Distributor financing, configurators Ingram Micro Distributors Small resellers E-hub: Fulfillment, Inspection, Receivables, Financing Integrator Buyers Small Buyers Forward: integrators, Backward: bundling. Steven Kaplan and Mohanbir Sawhney, Harvard Business Review, May-June 2000 What Businesses Buy Operating Inputs Manufacturing How Businesses Buy Systematic Sourcing MRO Hubs Ariba, W.W.Grainger,, Catalog Hubs Chamdex,, Spot Yield Managers Employease,, Excanges E-steel,, Altra Energy, IMX Exchange

16 Equipment Providers/Integrators
Telecom Market Component Providers Orkit Vocaltec ECI Commatch Aptonics Amdox Radcom Nice Gilat ADC Seabridge Motorola Comverse Comtouch Equipment Providers/Integrators Nortel Lucent Alcatel Cisco Siemens Service Provider Small Telco BLEC ILEC CLEC Large Telco DLEC Access Technologies Fiber Copper Satellite Cable Cellular Arena streaming: Audiocodes: Supplier, distributor, potential purchaser. Siemens: Supplier, competitor. Seamfree New Yorker, September 18, 2000, J. Sorowiecki, “The Most Devastating Retailer in the World”.P.74 D. Bovet and J. Martha, “Value Nets” Galicia, Spain, Tradition Customers MTU SoHo Campus Rural Suburban Business

17 Garment Manufacturers
Time-To-Market: TTM Standard Zara Focus Cost Speed Manufacture O/S Vertical Info. Tech. Cash Registers Hand Held devices Models/Yr >11K TTM 6 Months Design+ 3M Manf.. 4-5W design+1M 10-15Days Delivery 1/Season 2/Week Bad products ? Off in Weeks Inventory turnover 3*Gap Adv. Camp. None Profits +30%/year NW H&M GAP Zara Mfg. Eur.vs. Asia 50% 17% 80% Design to Delivery 6-8Months 6Months 2-5 Weeks Inventory Unsold 25% 20-30% 15-20% Profit margin 12.4% 10.6% 14.9% Sales $Bill $3B $13.7B $2.6B Fabric Inditex’79 23 Robot cut & Die #3 >40% Tefron HiTex Far East Delta Garment Manufacturers 400 Small Shops >50% Far East Benetton Solog Inner Secret Labels St.Michael M&S Victoria’s Secret Benetton CK Zara ‘75 H&M 900 suppliers GAP Stryker McGuire, “Fast Fashion”, Newsweek, September17, 2001, pp Carla Vtzthum, Wall street Journal, “Just in time Fashion”, pp. B1,B4 Seamfree Santori? Hennes & Mauritz AB New Yorker, September 18, 2000, J. Sorowiecki, “The Most Devastating Retailer in the World”.P.74 D. Bovet and J. Martha, “Value Nets” Galicia, Spain, Tradition Retailers Benetton Zara 467Stores Walmart 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 Macy’s Customers

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