Strategic Management: Creating Competitive Advantages Chapter 1 through 6 Prepared by Shawna Chen McGraw-Hill/Irwin All rights reserved.

A Hierarchy of Goals Exhibit 1.6

Question What are the criteria for meaningful strategic objectives? Hint: Page 31 Answers: Measurable Specific Realistic Timely

Application How should you proceed with final project? Hint: Caitlin’s house had a plumbing problem Solutions: 8 common types of challenges Internal/external environment analyses McKinsey’s 3 horizons or Deloitte’s growth framework

Application 8 common types of challenge Falling profits New product introduction Entering a new product/service market Entering a new geographic market Mergers & acquisitions Competitive response Government/regulatory environment response

Application McKinsey’s 3 horizons

Application Deloitte’s growth framework

Strategic Management Process 8

Business-Level Strategy: Creating and Sustaining Competitive Advantages Chapter Five McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Business-level strategy vs. Corporate-level strategy Question Business-level strategy vs. Corporate-level strategy

Question What are 3 generic strategies?

Application: Combination Strategies Exhibit 5.2

Application: Stages of the Industry Life Cycle Exhibit 5.12

Question Overall cost leadership Differentiation Focus Pros? (Hint: Porter’s 5 forces) Cons? Differentiation Pros? Focus

Overall Cost Leadership Pros (5): Protects a firm against rivalry from competitors Protects a firm against powerful buyers Provides more flexibility to cope with demands from powerful suppliers for input cost increases Provides substantial entry barriers from economies of scale and cost advantages Puts the firm in a favorable position with respect to substitute products

Overall Cost Leadership Cons (5): Too much focus on one or a few value-chain activities All rivals share a common input or raw material The strategy is imitated too easily A lack of parity on differentiation Erosion of cost advantages when the pricing information available to customers increases

Differentiation Pros (3): Creates higher entry barriers due to customer loyalty Provides higher margins that enable the firm to deal with supplier power Establishes customer loyalty and hence less threat from substitutes

Differentiation Cons (6): Uniqueness that is not valuable Too much differentiation Too high a price premium Differentiation that is easily imitated Diffusion of brand identification through product-line extensions Perceptions of differentiation may vary between buyers and sellers

Focus Pros (2): Creates barriers of either cost leadership or differentiation, or both Used to select niches that are least vulnerable to substitutes or where competitors are weakest

Focus Cons (3): Erosion of cost advantages within the narrow segment Focused products and services still subject to competition from new entrants and from imitation Focusers can become too focused to satisfy buyer needs

Application: Internet-Enabled Which generic strategy? Answer: Focus Virtual organizing and online “officing” are being used to minimize firm infrastructure requirements. Procurement technologies that use Internet software to match buyers and sellers are highlighting specialized buyers and drawing attention to smaller suppliers.

Application: Internet-Enabled Which generic strategy? Answer: Overall cost leadership Direct access to progress reports and the ability for customers to periodically check work in progress is minimizing rework. Collaborative design efforts using Internet technologies that link designers, materials suppliers, and manufacturers are reducing the costs and speeding the process of new product development.

Application: Internet-Enabled Which generic strategy? Answer: Differentiation Personalized online access provides customers with their own “site within a site” in which their prior orders, status of current orders, and requests for future orders are processed directly on the supplier’s website. Online access to real-time sales and service information is being used to empower the sales force and continually update R&D and technology development efforts.

Application: Team Exercise Present your final project company’s “business-level” strategy Critique If it fits vision If it’s a good combination If it suits product life cycle If it responses to the Internet era Can competitive advantage be sustained?

Corporate-Level Strategy: Creating Value through Diversification Chapter Six McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Related diversification Vs. Unrelated diversification Question Related diversification Vs. Unrelated diversification

Related Diversification Economic of scope Leveraging core competencies Sharing activities Market power Pooled negotiating power Vertical integration

Question Which related diversification strategy Carpet Tech uses? Example of related diversification using economic of scope Procter & Gamble 3M Example of related diversification using market power Automotive industry

Example U.S. Automobile Industry’s Profit Pool Exhibit 5.8

Unrelated Diversification Restructuring Definition? Example? Parenting Portfolio management

Example Church & Dwight has a well balanced portfolio of products, which includes Arm & Hammer Trojan condoms Oxi Clean AIM toothpastes First Response Nair Xtra laundry detergent Brillo Source: www.churchdwight.com

Application What are the differences among: Holding company Investment company Conglomerate Keiretsu

Means to Achieve Diversification Mergers and acquisitions (M&A) Pooling resources of other companies with a firm’s own resource base Joint venture Strategic alliance Internal development Corporate entrepreneurship

Question What are the differences between merger and acquisition? M&A Pros? Cons?

Mergers and Acquisitions Pros Can be a means of obtaining valuable resources that can help an organization expand its product offerings and services Can lead to consolidation within an industry and can force other players to merge Corporations can also enter new market segments by way of acquisitions Can be a means of obtaining valuable resources that can help an organization expand its product offerings and services Can provide the opportunity for firms to attain the three bases of synergy—leveraging core competencies, sharing activities, and building market power Can lead to consolidation within an industry and can force other players to merge Corporations can also enter new market segments by way of acquisitions

Mergers and Acquisitions Cons Competing firms often can imitate any advantages realized or copy synergies that result from the M&A. There can be many cultural issues that may doom the intended benefits from M&A endeavors. The takeover premium that is paid for an acquisition typically is very high Competing firms often can imitate any advantages realized or copy synergies that result from the M&A. Managers’ credibility and ego can sometimes get in the way of sound business decisions. There can be many cultural issues that may doom the intended benefits from M&A endeavors.

Question What are the differences between joint venture and strategic alliance? Joint venture & strategic alliance Pros? Cons?

Strategic Alliances and Joint Ventures Pros Introduce successful product or service into a new market Lacks requisite marketing expertise Join other firms to reduce manufacturing (or other) costs in the value chain Pool capital, value-creating activities, facilities Develop or diffuse new technologies Use expertise of two or more companies Develop products technologically beyond the capability of the companies acting independently

Strategic Alliances and Joint Ventures Cons Improper partner Each partner must bring desired complementary strengths to partnership Strengths contributed by each should be unique Partners must be compatible Partners must trust one another

Antitakeover Tactics Greenmail Golden parachute Poison pills payment by a firm to a hostile party for the firm’s stock at a premium, made when the firm’s management feels that the hostile party is about to make a tender offer Golden parachute a prearranged contract with managers specifying that, in the event of a hostile takeover, the target firms managers will be paid a significant severance package Poison pills Used by a company to give shareholders certain rights in the event of takeover by a another firm

Application: Team Exercise Find tv/movie moments as examples of Greenmail Golden parachute Poison pills 41