1. Course Summary Key Issues in Strategy

2. Outline Course evaluations A final experiment What we covered What we didn’t cover

3. What is Strategy? Where do we want to be? Where are we now? How do we get there? Industry & Organizational Analysis Mission, Vision, & Target Setting Competitive & Organizational Actions

4. The Strategic Process Align Business Systems Anticipate Obstacles Leadership Strategic Plan Feasibility Strategic Options EXECUTION Where Are We Now? Where Do We Want to Be? Vision / Mission

5. Formulating a Strategic Plan Where are we now? Porter’s forces VRIO

6. Porter’s Forces Model Industry – what is the nature of competition? Suppliers – what is their ability to capture surplus/value? Buyers – what is their ability to capture surplus/value? Entrants – what is the potential for entry? Substitutes – what is the impact from substitute goods? Complements/networks – what is the impact of complement markets? Are there network externalities? Government – what is the effect of current government policy? What is the potential for non-market strategy?

7. Example: African Communications Group Industry – limited competition against weak rivals Suppliers – big threat of expropriation from TTCL; some risk from landlords Buyers – retail, so no real mkt. power Entrants – many licenses, but hard to assess what may actually transpire Substitutes – many, but impact likely limited in short to medium term Complements/networks – very important; dependence on TTCL to maintain network Government – privatization of TTCL a big if; mixed record on private foreign investment; potential need to rely on World Bank

8. VRIO Value Is a product/idea/capability valuable? Rarity Is the p/i/c rare? Imitability Is the p/i/c readily imitated? Organization Is the firm able to exploit the p/i/c?

9. Example: Cramer Kit Value Limited value – some customer goodwill, but unlikely to lock in customers long term nor likely to be big seller in itself Rare Yes Imitability Readily copied, no proprietary protection Organization Cramer doesn’t have personnel to promote fully or exploit

10. The Bertrand Trap Know the Warning Signs Homogenous product – price is paramount Consumers know prices – search costs low Consumers able to switch – switching costs low Overcapacity in the industry No ability to exploit repeated play Lack of cost advantages

11. Escaping the Trap Lower costs/innovate Reduce capacity Raise search costs Raise switching costs Differentiate products Exploit repeated interaction (i.e., tacitly collude)

12. Exploiting Repeated Interaction Minimize temptation Example: “sales” during peak demand Maximize carrots and sticks Example: Use of MFN clauses Create transparency Example: price transparency – GE vs. Westinghouse

13. Deterring Entry Don’t wait for entrant to show up – think of NutraSweet Devices Locking up customers  Contracts  Raise switching costs  Brand loyalty Locking up suppliers Make fighting credible  Strategic overcapacity Signaling commitment – beer drinking Develop a reputation for toughness  NutraSweet vs. Holland Sweetener

14. Vertical Relations Double marginalization Vertical foreclosure Hold-up issues Downstream free-riding

15. Vertical Mergers Vertical mergers can solve the aforementioned problems, but … … they are not without their own problems: Need to align incentives appropriately Markets are good incentive devices Management conflicts (e.g., culture clash) Detract from core competencies

16. Incentives Almost all incentive/monitoring schemes involve tradeoffs Hidden action Want to use the most informative performance measure Response to low informativeness is high power Incentives vs. insurance tradeoff Hidden information Tradeoff between performance and reducing information rent Use all the levers Pay attention to psychology Reciprocity Fairness

17. What Didn’t We Cover? Innovation Managing the product life-cycle Durable goods Strategic pricing Leveraging position Organizational strategy Non-market strategies

18. Innovation R&D races Protecting intellectual property Patents Copyrights Trade secrets Fighting piracy Standards setting and network development Life in a Schumpeterian world

19. Managing the Product Life-Cycle The pluses and minuses of being an innovator “Second mover” advantage When to introduce the next new thing and retire the old new thing Building and milking reputation

20. Durable Goods Durable goods Cars Textbooks The problem of “competing” against your former self Planned obsolescence Versioning Leasing vs. selling

21. Strategic Pricing Use of two-part tariffs to lock-in customers Use of bundling to gain advantage and block entry The “suites war” Pricing in network markets Interconnection fees Visa and MasterCard

22. Leveraging Position Extending market power Microsoft going from OS to apps. Use of essential facilities Wires to control content/services Antitrust treatment (essential facilities doctrine) Exploiting synergies

23. Organizational Strategy Hierarchies Depth Span of control Incentive systems and corporate governance Mergers, acquisitions, and divestitures Diversification strategies

24. Non-market Strategies Use of government to advance strategic ends Influencing environmental legislation Influencing trade policy Influencing antitrust policy Influencing intellectual property policy Dealing with the government as a customer

25. Other Topics Corporate finance and strategy Competition in network markets Strategies in regulated industries

26. What next? COURSE NUMBER: MBA299E.1 COURSE TITLE: Competitive and Corporate Strategy http://web.haas.berkeley.edu/registrar/info/descriptions/MBA299E-1_Fall03.htm COURSE NUMBER: MBA299M.1 COURSE TITLE: Marketing Strategy http://web.haas.berkeley.edu/registrar/info/descriptions/MBA299M-1_Fall03.htm

27. What next? Books: Pankaj Ghemawat: Games Businesses Play: Cases and Models (MIT Press). Saloner, Shepard, & Podolny: Strategic Management (Wiley).

28. What next? Think Think strategically Use frameworks to assess where you are Use game theory to forecast & anticipate actions of rivals Remember the role of strategy is to help you identify, recognize, and develop value and implement the means of capturing for yourself the value you create or with which you are endowed

29. Remember … Quality of Outcome = Quality of Thought X Quality of Execution