1. Fortune’s Top 10 US Firms This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Rank2010 1Wal-Mart 2Exxon-Mobil 3Chevron 4General Electric 5Bank of America 6Conoco-Phillips 7AT&T 8Ford Motor 9JP Morgan Chase 10Hewlett-Packard

2. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Fortune’s Top 10 US Firms Rank2012 1Exxon-Mobil 2Wal-Mart 3Chevron 4Conoco-Phillips 5General Motors 6General Electric 7Berkshire Hathaway 8Fannie Mae 9Ford Motor Company 10Hewlett-Packard

3. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Persistently Superior Profitability  What accounts for success?  Do all well-managed firms earn superior profit?  What can managers do to get superior profit?  Can managers enhance profitability by diversification?  Do all firms eventually drop back to the pack?

4. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  Wall Mart Most profitable retailer in the world  1962: First store opens  1993 q2 – 1997: stock value dropped  1999: $165 billion in sales Responses to problems in mid 1990’s  New international super-centers  E-commerce sites  Experimented with traditional sized grocery stores in Arkansas  By 1998 the stock was performing well again The Economics of Strategy: Creating & Capturing Value

5. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Strategy  Strategy: Management definition Economics definition  Profitability Create Value Capture Value

6. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Creating Value: Transactions Costs Quantity Price in $ Q*Q* P*P* Demand Supply

7. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Creating Value Quantity Price In $ Q*Q* P*P* Consumer Surplus Producer Surplus Producer-borne transaction costs Consumer-borne transaction costs

8. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Transaction Cost & Creating Value  Consumer Transaction Costs Costs of search Costs of learning about product quality Costs of Negotiation  Producer Transaction Costs Costs of negotiation Attorney fees to draft sales agreements  Examples Dell eliminates the middle man in direct web-site PC sales and splits the gain between themselves and the buyer Early Wall Marts were in rural areas reducing transportation costs by opening stores closer to customers. Kraft Lunchables Terrorist Attacks and the Airline Industry

9. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Other Ways to Create Value  Product Quality  Pricing Complements  Pricing Substitutes

10. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Capturing Value  Long Run Profitability in Competitive Markets Economic Profit Accounting Profit  Firms with Market power With barriers to entry Without barriers to entry

11. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Capturing Value  Barriers to entry  Degree of rivalry  Threat of substitutes  Buyer and Supplier Power

12. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Capturing Value: What works?  Superior Factors of Production  Some advantages are hard to copy

13. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. All good things come to an end Rank1970199020082012 1IBMGeneral MotorsWal-MartExxon-Mobil 2AT&TExxonExxon-MobilWal-Mart 3General MotorsFord MotorChevron 4Standard Oil of NJIBMGeneral MotorsConoco-Phillips 5Eastman KodakGeneral ElectricConoco-PhillipsGeneral Motors 6Sears RoebuckMobilGeneral Electric 7TexacoAltria GroupFord Motor Berkshire Hathaway 8General ElectricChryslerCitigroupFannie Mae 9XeroxDuPontBank of AmericaFord Motor 10Gulf OilTexacoAT&THewlett-Packard

14. Diversification This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  What is it?  Costs of Diversification  Benefits of Diversification  Stuff that won’t maximize profits

15. Discussion Question This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  8-4: The Watts Brewing Company owns a valuable water rights that allow it to produce better beer than competitors. The company sells its beer at a premium and reports a large profit each year. Is this firm necessarily making economic profit?

16. Discussion Question This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  8-5: Sun Resorts has a hotel on a Caribbean Island. It recently spent money to lobby the government to build a better airport and expand air service. Why did they do this? Do you think Sun Resorts cares about how many airlines serve the island?

17. Discussion Question This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  8-6: Evaluate the following statement: “Business is war, never consort with the enemy.”

18. Discussion Question This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  8-8: One CEO justified the merger of his soft-drink company with a machine tool company in the following manner: “This is a great merger. First the products are unrelated. Thus our company’s earnings volatility is likely to decrease. Second, our management team has proven that we are better managers than the former management of the tool company.” Evaluate this rationale.

19. Discussion Question This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  8-9: Pepsi produces Fritos and Lays potato chips in addition to it basic soft-drink products. Discuss potential ways this business combination might increase value.

20. Discussion Question  Sun Resorts has a hotel on a Caribbean Island. It recently spent money to lobby the government to build a better airport and expand air service. Why did they do this? Do you think that Sun Resorts cares about how many airlines serve the island? This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.